[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]

                       THE SEMI-ANNUAL REPORT OF
                         THE BUREAU OF CONSUMER
                          FINANCIAL PROTECTION



                               BEFORE THE


                     U.S. HOUSE OF REPRESENTATIVES


                             FIRST SESSION


                           SEPTEMBER 29, 2015


       Printed for the use of the Committee on Financial Services

                           Serial No. 114-52



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                    JEB HENSARLING, Texas, Chairman

PATRICK T. McHENRY, North Carolina,  MAXINE WATERS, California, Ranking 
    Vice Chairman                        Member
PETER T. KING, New York              CAROLYN B. MALONEY, New York
EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma             BRAD SHERMAN, California
SCOTT GARRETT, New Jersey            GREGORY W. MEEKS, New York
RANDY NEUGEBAUER, Texas              MICHAEL E. CAPUANO, Massachusetts
STEVAN PEARCE, New Mexico            RUBEN HINOJOSA, Texas
BILL POSEY, Florida                  WM. LACY CLAY, Missouri
MICHAEL G. FITZPATRICK,              STEPHEN F. LYNCH, Massachusetts
    Pennsylvania                     DAVID SCOTT, Georgia
LYNN A. WESTMORELAND, Georgia        AL GREEN, Texas
BILL HUIZENGA, Michigan              GWEN MOORE, Wisconsin
SEAN P. DUFFY, Wisconsin             KEITH ELLISON, Minnesota
ROBERT HURT, Virginia                ED PERLMUTTER, Colorado
STEVE STIVERS, Ohio                  JAMES A. HIMES, Connecticut
STEPHEN LEE FINCHER, Tennessee       JOHN C. CARNEY, Jr., Delaware
MARLIN A. STUTZMAN, Indiana          TERRI A. SEWELL, Alabama
MICK MULVANEY, South Carolina        BILL FOSTER, Illinois
RANDY HULTGREN, Illinois             DANIEL T. KILDEE, Michigan
DENNIS A. ROSS, Florida              PATRICK MURPHY, Florida
ROBERT PITTENGER, North Carolina     JOHN K. DELANEY, Maryland
ANN WAGNER, Missouri                 KYRSTEN SINEMA, Arizona
ANDY BARR, Kentucky                  JOYCE BEATTY, Ohio
KEITH J. ROTHFUS, Pennsylvania       DENNY HECK, Washington
LUKE MESSER, Indiana                 JUAN VARGAS, California
FRANK GUINTA, New Hampshire
TOM EMMER, Minnesota

                     Shannon McGahn, Staff Director
                    James H. Clinger, Chief Counsel
                            C O N T E N T S

Hearing held on:
    September 29, 2015...........................................     1
    September 29, 2015...........................................    73

                      Tuesday, September 29, 2015

Cordray, Hon. Richard, Director, Consumer Financial Protection 
  Bureau (CFPB)..................................................     5


Prepared statements:
    Cordray, Hon. Richard........................................    74

              Additional Material Submitted for the Record

Ellison, Hon. Keith:
    Chart entitled, ``State Payday Loan Regulation and Usage 
      Rates''....................................................    77
Hurt, Hon. Robert:
    Letter from Payne's Check Cashing, with attachments, dated 
      September 28, 2015.........................................    78
Cordray, Hon. Richard:
    Written responses to questions for the record submitted by 
      Representatives Garrett, Hinojosa, Stivers, Murphy, and 
      Williams...................................................    87

                       THE SEMI-ANNUAL REPORT OF
                         THE BUREAU OF CONSUMER
                          FINANCIAL PROTECTION


                      Tuesday, September 29, 2015

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 10:07 a.m., in 
room 2128, Rayburn House Office Building, Hon. Jeb Hensarling 
[chairman of the committee] presiding.
    Members present: Representatives Hensarling, Royce, Lucas, 
Garrett, Neugebauer, Pearce, Posey, Fitzpatrick, Luetkemeyer, 
Huizenga, Duffy, Hurt, Fincher, Stutzman, Mulvaney, Hultgren, 
Ross, Pittenger, Wagner, Barr, Rothfus, Messer, Schweikert, 
Guinta, Tipton, Williams, Poliquin, Love, Hill, Emmer; Waters, 
Maloney, Velazquez, Sherman, Meeks, Capuano, Hinojosa, Clay, 
Scott, Green, Cleaver, Ellison, Perlmutter, Himes, Carney, 
Sewell, Foster, Kildee, Delaney, Sinema, Beatty, Heck, and 
    Chairman Hensarling. The Committee on Financial Services 
will come to order.
    Without objection, the Chair is authorized to declare a 
recess of the committee at any time.
    Today's hearing is entitled, ``The Semi-Annual Report of 
the Bureau of Consumer Financial Protection.''
    I now recognize myself for 3 minutes to give an opening 
    Today, the committee holds a hearing again on the semi-
annual report of the Consumer Financial Protection Bureau 
(CFPB), a creation of the Dodd-Frank Act. The committee 
recently concluded a series of hearings to examine the impact 
of the Dodd-Frank Act in the 5 years since it became law. The 
hearings clearly reveal how the law in numerous ways has indeed 
harmed consumers and low-income Americans.
    Dodd-Frank and the CFPB are the prime reason that the big 
banks are now bigger and the small banks are now fewer. This 
has eliminated competition, stifled innovation, and given 
consumers fewer choices.
    Dodd-Frank and the CFPB help raise prices; eliminate free 
checking for millions; and are cutting off access to mortgages, 
bank accounts, and credit cards. This tragically makes it 
harder for low-income Americans living paycheck to paycheck to 
improve their lives and achieve financial independence.
    Regrettably, still more harmful consequences appear just 
over the horizon. Soon Director Cordray, one man neither 
elected nor accountable to either the President or Congress, 
will presume to decide for all low-income Americans whether he 
will allow them to take out short-term small-dollar loans. 
These are the very loans many need to keep their utilities from 
being cut off suddenly or to keep their car on the road so they 
can in turn keep their jobs. One man will decide whether he 
will permit Americans to resolve contract disputes more 
efficiently outside the courts or allow the regulatory capture 
of his Bureau by wealthy and litigious trial attorneys. And the 
Director, one man, violating the express provisions of the 
Dodd-Frank Act and using junk science, will continue forcing 
many consumers to pay more when they finance the purchase of an 
    Why have so many zealous defenders of the Dodd-Frank Act 
suddenly turned silent?
    Now, my problem is not with this one man, but with the 
insidious belief among Washington elites that low-income 
Americans cannot be trusted with freedom, cannot be trusted to 
make good decisions for themselves, so Washington must do it 
for them. It is insulting. It is degrading and an affront to 
social justice. Every American, regardless of which side of the 
tracks they grew up on, regardless of who their parents are, 
regardless of how humble their circumstances may be, has the 
right to shape their own financial destiny. But today they find 
themselves at the mercy of an arrogant, overgrown, distant, and 
unaccountable Washington bureaucracy. Instead of the equal 
protection offered by the impartial rule of law, they are today 
dictated to by the arbitrary rule of regulators. And exhibit 
No. 1 is the CFPB Director.
    I was struck at our last hearing by the Democrat witness' 
description of the CFPB as the Dodd-Frank Act's crown jewel. 
Herein lies the problem: In America, we don't want crowns, 
because we don't want kings, including a king of consumer 
financial products. Freedom, opportunity, and choice allow 
consumers to pursue their dreams and achieve financial 
independence. If Congress is to protect the fundamental rights 
and opportunities of all Americans, including low-income 
Americans, then one essential step we must take is to reform 
the CFPB.
    I now yield 4 minutes to the ranking member for an opening 
    Ms. Waters. Thank you, Mr. Chairman.
    And I am pleased to welcome you back to the committee, 
Director Cordray. We gather to discuss the Consumer Financial 
Protection Bureau's semi-annual report, which reflects your 
diligent work to protect American consumers and establish clear 
rules of the road to improve our financial marketplace.
    Director Cordray, first and foremost, I want to take the 
time to commend your efforts to return hard-earned money to the 
families who rightly earned it, specifically with the $11 
billion of ill-gotten gains you have returned to 25 million 
Americans. This is no small feat, and I applaud you for it. 
Likewise, I want to commend your agency's work to end the sorts 
of unfair, deceptive, and abusive practices that nearly brought 
our economy to its knees 7 years ago and that continue to strip 
wealth from American families. This includes your work to 
implement payday rules free of debt traps; to establish debt-
collection guidelines that promote honest settlements and block 
bad actors; and to ensure that borrowers have access to fair, 
responsible, and sustainable mortgage credit.
    I also want to commend you on your recent enforcement 
action against a bank for redlining. I know many people think 
these types of ugly policies are a thing of the past. But this 
recent enforcement action demonstrates how badly your agency is 
    As you state in your report, the CFPB has also taken steps 
to empower the American public, launching consumer resources 
specifically tailored for college students, older Americans, 
and people preparing for home ownership, not to mention the 
nearly half a million consumer complaints you have processed 
through your own online portal.
    It is unfortunate, however, that rather than working to 
encourage good behavior in our markets and support American 
consumers, opponents on this committee continue to promote 
measures to eliminate or weaken the Bureau. They have 
perpetuated false narratives of an agency that is unaccountable 
and lacks transparency, despite the record number of times you 
yourself have made yourself available to Congress, and the many 
checks and balances on the Bureau contained in Dodd-Frank. And 
they continue to support and amplify industry challenges to the 
CFPB's constitutionality in court with little or no success.
    So what we are seeing now that the CFPB has celebrated its 
fourth birthday is that the dire predictions of the Republicans 
on this committee have not come true. For example, we have 
actually seen an increase in the share of mortgages made to 
African-American and Hispanic borrowers since your qualified 
mortgage rule was put in place in 2014.
    After several years of decline, data shows that access to 
consumer credit cards is expanding even for low FICO score 
borrowers. At the same time, the defaults on credit are 
declining. And one analyst has noted that for all the talk 
about the death of free checking, nothing could be further from 
the truth. These are all important facts that bear repeating.
    Finally, just last week we had the Holy Father Pope Francis 
come to a joint session of Congress and deliver an historic 
address. In his remarks, he encouraged us lawmakers to ``keep 
in mind all of those people who are trapped in a cycle of 
    Director Cordray, I believe your work and the work of the 
Bureau lives up to the promise of a better economy, one that 
serves working people and fulfills the American promise of 
opportunity. I look forward to hearing your testimony today.
    And I will yield back the balance of my time.
    Chairman Hensarling. The gentlelady yields back.
    The Chair now recognizes the gentleman from Texas, Mr. 
Neugebauer, chairman of our Financial Institutions 
Subcommittee, for 2 minutes.
    Mr. Neugebauer. Thank you, Mr. Chairman. Since its creation 
5 years ago, the CFPB has aggressively pursued a rulemaking and 
enforcement agenda which has really dramatically changed the 
consumer marketplace. While prudential banking regulators were 
widely criticized for falling down on the job in the runup of 
the financial crisis, the CFPB has not only consolidated 
consumer protection laws into one agency but has dramatically 
expanded their scope. As a result, it is not only necessary but 
healthy to have serious policy discussions about the proper 
balance and calibration of these new and pending regulations.
    Today, I look forward to hearing from Director Cordray 
about two forthcoming rulemakings. First, the CFPB has 
announced plans to move forward with rulemaking that will 
completely alter an offering of short-term small-dollar 
products. The rule will entirely disrupt the robust State-based 
regulatory framework of this marketplace. In doing so, the 
Bureau has paid little attention to the existing authority and 
past legislative actions by States across the country. 
Additionally, the Bureau has failed to identify alternative 
products for the segment of customers or consumers who will 
lose access to credit. This is particularly disappointing given 
the demonstrated high demand and usage for these products.
    Second, it is widely expected that the Bureau will move 
forward to prohibit predispute mandatory arbitration clauses. 
These clauses are a form of alternative dispute resolution that 
produce a faster and more cost-effective legal avenue as 
compared to class action suits for many consumers. I am 
concerned that the Bureau will fail to give weight to the pro-
consumer features of arbitration agreements which were outlined 
in the Bureau's own study. For example, the study demonstrates 
consumer recovery under arbitration is 166 times greater than 
under class actions. I look forward to learning more about how 
the Bureau plans to balance the identifiable benefits of these 
clauses with the theoretical costs associated with their use.
    While I know my colleagues and I disagree on certain policy 
positions and actions of the Bureau, I hope that today we can 
foster a forward-looking dialogue that truly examines how this 
agency balances consumer protection and access and cost.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Connecticut, 
Mr. Himes, for 1 minute.
    Mr. Himes. Thank you, Mr. Chairman.
    And I thank you, Director, for joining us today.
    I find myself on either side of the regulatory debate from 
time to time because I believe that regulation should be there 
but that it should be finely and carefully balanced. I find 
myself puzzled by the incessant attacks on you and on your 
agency. Look, derivatives, securitization, margin rules, these 
things are complicated and difficult to fully understand. But 
the kinds of predatory and inappropriate behavior that the CFPB 
has countered over the years are not difficult to understand 
and not difficult to see. I thank you for the fact that the 
CFPB has returned $11 billion to 25 million consumers.
    Director, I thank you for making the obvious point, if you 
have studied any economics, that there is no such thing as free 
checking, that there are products that look free but that get 
paid for through less transparent and less visible mechanisms. 
And I thank you, frankly, for the work that your agency is 
doing in my district. In leafy Fairfield County, a bank of $35 
billion in assets stands accused of redlining, something that I 
would have hoped we would have seen the end of long, long ago. 
So know that you have supporters and friends here in the 
Congress, and I hope that your mission continues in keeping the 
American people safe.
    I yield back the balance of my time.
    Chairman Hensarling. The time of the gentleman has expired.
    Today, we welcome the testimony of the Honorable Richard 
Cordray, Director of the CFPB. Director Cordray has previously 
testified before this committee, so I believe he needs no 
further introduction.
    Director Cordray, without objection, your full written 
statement will be made a part of the record. You are now 
recognized for 5 minutes to give an oral presentation of your 
testimony. Thank you.
    Chairman Hensarling. Your microphone--
    Mr. Cordray. Yes. It has been a little while since I have 
been in this room, but I should have remembered that.
    Chairman Hensarling. We can arrange more appearances.


    Mr. Cordray. Thank you, Chairman Hensarling, Ranking Member 
Waters, and members of the committee. Thank you for the 
opportunity to testify today about the Consumer Financial 
Protection Bureau's latest semi-annual report to Congress. To 
frame it as you did, Mr. Chairman, I am one person who will not 
be silent about the work and importance of what I believe the 
Consumer Bureau to be doing on behalf of the American public in 
promoting and improving the choices in life for American 
    This July marks 5 years since the passage of the financial 
reform law. As you know, Congress created the Bureau in 
response to the financial crisis with the purpose and sole 
focus of protecting consumers in the financial marketplace. 
Through fair rules, consistent oversight, appropriate 
enforcement of the law, and broad-based consumer engagement, 
the Consumer Bureau is working to restore people's trust and 
confidence in the markets they use for everyday financial 
products and services.
    As we continue our work, consumer financial markets are 
showing increasing signs of health. This is very important 
because, Mr. Chairman, you in your introduction and other 
speeches, and others have said that the Bureau is cutting off 
access to credit for the American public. The facts do not bear 
that out. For example, the latest HMDA data released by Federal 
agencies last week showed increasing numbers of consumers are 
taking out home purchase mortgages. In 2014, the first year of 
our new mortgage rules, mortgage originations for owner-
occupied home purchases increased between 4 and 5 percent. The 
upward trend appears to have accelerated over the first half of 
this year. After adjusting for merger activity, the number of 
lenders that reported having originated mortgages showed an 
increase in 2014, including for community banks and credit 
unions. Those are the facts.
    Other consumer credit markets also show encouraging signs 
of expanding access to credit. In the first half of this year, 
over 14 million consumers obtained new auto loans, up 8 percent 
over the prior year. For auto loans, this marks a 45-percent 
increase since 2011, and a 9-year high since the Dodd-Frank Act 
took effect. Similarly, 54 million new consumer credit card 
accounts were opened in the first half of 2015, which is 12 
percent more than in the same period last year and 48 percent 
higher than the same period of 2011, just after Dodd-Frank took 
    At the same time, the percent of loan balances that are 
seriously delinquent dropped below 4 percent last quarter for 
the first time since 2007 and down from 7 percent 4 years ago, 
just after Dodd-Frank took effect.
    Equally heartening is the strength being exhibited by 
community banks and credit unions. Last quarter, lending by 
community banks grew by 8.8 percent compared to the prior year, 
growing at almost twice the rate of noncommunity larger banks.
    Credit union lending grew at an even faster pace, and 
credit union membership over the past year grew at the fastest 
rate in over 20 years.
    These are all positive trends for the consumer financial 
marketplace, which are very much aligned with the Bureau's 
mission. I hope, based on the facts, we can decide it is time 
that we could all be friends in this particular space.
    The Bureau helps consumer financial markets work by making 
rules more effective, by consistently enforcing those rules, 
and by empowering consumers to take more control over their 
economic lives.
    To date, our enforcement activity has resulted in more than 
$11 billion in relief for over 25 million consumers who have 
been wronged by violations of the law.
    We have handled over 700,000 complaints from consumers 
addressing all manner of financial products and services. Many 
of these consumers are constituents from each of your States.
    As with the letters you receive from your constituents, the 
customer complaints submitted to the Bureau raise issues of 
serious concern. Along with our enforcement, supervisory 
rulemaking, and market monitoring activity, these complaints 
and the voices of consumers are important to the Bureau. Our 
work is focused on ensuring that the markets for all consumer 
financial products and services are marked by responsible 
practices that help rather than harm consumers.
    In the most recent semi-annual report, we describe our 
efforts to achieve our vital mission. We describe various 
enforcement actions taken by the Bureau. We worked with the 
Department of Education to obtain $480 million in debt relief 
to student loan borrowers who were wronged by Corinthian 
Colleges. We also issued a final rule to reduce burdens on 
industry by promoting more effective privacy disclosures from 
financial institutions to their customers. We issued a Notice 
of Proposed Rulemaking to provide strong new Federal consumer 
protections for prepaid accounts, which currently have none, 
and a proposal to clarify various provisions of our mortgage 
servicing rules.
    We are in the process of developing new rules governing 
payday, vehicle title, and certain installment loans, and we 
recently finalized changes to some of our mortgage rules to 
facilities even broader mortgage lending by small creditors, 
including community banks and credit unions, particularly in 
rural or underserved areas.
    As a data-driven institution, we published several reports 
through the reporting period that highlight important topics in 
consumer finance such as medical debt, arbitration agreements, 
reverse mortgages, and consumer perspectives on credit scores 
and credit reports.
    In the year to come, we look forward to continuing to 
fulfill Congress' vision of an agency that is dedicated to 
cultivating a consumer financial marketplace based on 
transparency, responsible practice, sound innovation, and 
excellent customer service, where consumers can be both more 
prosperous and more free to make choices that improve life for 
themselves and their families.
    Thank you for the opportunity to testify today. I look 
forward to your questions.
    [The prepared statement of Director Cordray can be found on 
page 74 of the appendix.]
    Chairman Hensarling. The Chair now recognizes himself for 5 
minutes for questioning.
    Director Cordray, recently there has been an expose by the 
American Banker, 3 articles dealing with indirect auto lending 
over the last 2 weeks. Are you familiar with these articles, 
and have you reviewed them?
    Mr. Cordray. I am, yes. I have had a chance to read them at 
    Chairman Hensarling. The American Banker claims it has 
multiple internal CFPB documents showing that your disparate 
impact analysis overstates disparities, and in fact the title 
of their first article is, ``CFPB Overestimates Potential 
Discrimination, Documents Show.'' Do such internal documents 
exist, which indicate that the CFPB may be overestimating such 
racial disparities?
    Mr. Cordray. I don't believe that is an accurate account of 
what the discussion and careful analysis of this issue has 
    Chairman Hensarling. Specifically, is there a document from 
Patrice Ficklin, Assistant Director of the Office of Fair 
Lending, dated April 2013, where she says, ``There may be some 
risk of overestimating disparities?'' Are you familiar with 
such a memo?
    Mr. Cordray. I will try to be persistent in answering your 
questions. I started to answer the last one and you cut me off, 
so I didn't get a chance to finish. Shall I finish?
    Chairman Hensarling. I don't think you were actually--you 
answered the question. You do not agree with that assessment. 
So now I have moved on to a different question. Are you--
    Mr. Cordray. No, no, that is not what I said, and that is 
not my answer. So I will try to answer your questions, but if 
you are going to cut me off in the middle, it is difficult. 
What I will say is, there have been robust discussions within 
the Bureau as to how to approach these methodologies. There 
have also been robust discussions from outside the Bureau, 
including from this committee, in terms of checking--
    Chairman Hensarling. Director Cordray, I have a limited 
amount of time here, so I am asking a different question now. 
Are you familiar with the memo that I just referenced from 
Patrice Ficklin?
    Mr. Cordray. I believe that I am roughly familiar with 
various memos that I have seen. Yes.
    Chairman Hensarling. Okay. Are there any memos that you are 
aware of at the CFPB which indicate that you are overestimating 
such racial disparities?
    Mr. Cordray. What I will say again is there have been 
various efforts and discussions to try to make sure that the 
estimation is as correct and accurate as possible.
    Chairman Hensarling. Let's be--
    Mr. Cordray. There are various methodologies that might 
cause it to be overestimated, and some that might cause it to 
be underestimated.
    Chairman Hensarling. Director Cordray, I get to control the 
time here.
    So you employ a proxy known as BISG, correct?
    Mr. Cordray. I believe that is correct, sir.
    Chairman Hensarling. Are you aware of any other proxy 
methods for estimating racial disparities that are more 
accurate than BISG?
    Mr. Cordray. I don't believe that we are trying to find 
anything other than the most accurate method we can. There have 
been different approaches to this over the years--
    Chairman Hensarling. So you are unaware of other more 
accurate proxies?
    Mr. Cordray. ``Accurate'' is in the eye of the beholder. We 
are trying to get it right. We are trying to understand what 
``accurate'' means. But if some people--
    Chairman Hensarling. Okay. So in your opinion--
    Mr. Cordray. They would say it is more--
    Chairman Hensarling. --the CFPB is using the most accurate 
proxy method available?
    Mr. Cordray. We are certainly trying hard to do that, and I 
believe we are trying to do that, yes.
    Chairman Hensarling. Has the Bureau ever evaluated how your 
proxy method estimates race by comparing it to data where race 
is actually known? For example, HMDA data, have you ever 
performed such an analysis? Are you aware of any such analysis?
    Mr. Cordray. That is something that has been a bone of 
contention from the beginning, both in our discussions and with 
external parties. There is a desire to compare auto lending to 
mortgage lending and say they are the same thing, but the pool 
of borrowers is quite different--
    Chairman Hensarling. I understand that, but are you aware 
of any such analysis that has actual racial characteristics as 
opposed to purported?
    Mr. Cordray. Again, HMDA data can pinpoint all of these 
characteristics too.
    Chairman Hensarling. I am just asking, Mr. Director, are 
you aware of such an analysis, yes or no?
    Mr. Cordray. I believe there have been multiple analyses by 
many different people of that comparison.
    Chairman Hensarling. You consider it an invalid analysis, 
but isn't it true that the CFPB has an analysis showing that 
its own proxy method has overestimated African Americans by 
almost 100 percent?
    Mr. Cordray. You are mixing apples and oranges. Mortgage 
borrowers are one set of the population. Auto borrowers are a 
very different set of--
    Chairman Hensarling. They are either a member of a racial 
minority or they are not a member. We are comparing actual data 
to your purported data.
    Mr. Cordray. You are also comparing two distinct markets 
with different universes.
    Chairman Hensarling. I know, but Mr. Director, you did the 
same thing when you compared auto lending to the general 
population, did you not?
    Mr. Cordray. That is correct. Both of us try to make that 
comparison and try to get it right. We may disagree about 
whether we are getting it right, but we are trying hard to do 
    Chairman Hensarling. Has the Bureau at least--
    Mr. Cordray. You hit the nub of the issue, though--
    Chairman Hensarling. Has the Bureau at least controlled for 
other factors like creditworthiness? Do you control for credit 
    Mr. Cordray. We attempt to control for all of the variables 
that have nothing to do with prohibited characteristics, such 
as race--
    Chairman Hensarling. Including credit scores.
    Mr. Cordray. Again, it depends on the analysis, and there 
are different approaches to this, and some people would say 
certain ones are more accurate than others. We have done our 
best to try to understand--
    Chairman Hensarling. Isn't it true that credit scores could 
account for some, if not all, of the disparities that you have 
observed under current law as deigned by the Supreme Court? 
Don't we have to look at causation?
    Mr. Cordray. I don't think that it is fair to say--again, I 
am not the biggest expert on this at the Bureau or in the 
social science field--I don't think it is fair to say that 
credit scores can explain the disparities.
    However, that is a relevant point. Creditworthiness in 
other measures is a relevant point. But, again, the nub of the 
issue, which you have hit upon, Mr. Chairman, is whether it is 
fair to simply compare mortgage borrowers to auto borrowers and 
say that they are comparable. We think they are not. That has 
been a basic difference between us and the Charles River 
report, for example.
    Chairman Hensarling. My time has expired.
    The Chair now recognizes the ranking member of the 
    Ms. Waters. Thank you very much. Mr. Cordray, I want to 
thank you and commend you for the settlement that was announced 
with Hudson City Bank for structuring its businesses so as to 
avoid majority Black and Hispanic neighborhoods. This is a 
well-known practice to those of us who pay attention to 
minority access to credit.
    And I was very surprised, as Mr. Himes said, at the attempt 
to go back to redlining. This was a very important settlement 
that you were able to enforce. And, unfortunately, it appears 
that Hudson City didn't consider any of these majority minority 
neighborhoods to be a part of their CRA assessment area. And I 
suppose we are going to have to be on the lookout for other 
institutions that are going to attempt to do this.
    But really today should be a time of celebration. You have 
done some extraordinary things with this Bureau. And as I look 
at just a few of them--and you mentioned that you stopped an 
illegal kickback scheme for marketing services which resulted 
in $11.1 million in redress for wronged consumers. You also 
worked with the Department of Education to obtain $480 million 
in debt relief to student loan borrowers who were wronged by 
Corinthian Colleges, a for-profit chain of colleges that 
violated the law and has since declared bankruptcy. I want to 
give you an opportunity to just discuss some of this. Prior to 
the creation of the Consumer Financial Protection Bureau, 
consumers literally had little or no protection in this 
government. And you have moved in ways that have benefited our 
consumers in such a grand way. Tell us about this 11.1 or 
Corinthian or what you have done with student loans. Expand on 
that for us.
    Mr. Cordray. Okay. Thank you, Ranking Member Waters.
    On the Corinthian matter, I will say that I was impressed, 
surprised, and pleased at the work done by our team, which was 
some of the most diligent and creative work I have seen during 
my time at the Consumer Bureau, where they were pressing to get 
debt relief for students. We had sued Corinthian, and we were 
in court with them. They had sold a lot of debt out from under 
the lawsuit so it couldn't necessarily be reached by the 
lawsuit itself, and it was a tremendous amount of work by our 
folks, who were ultimately able to secure $480 million in 
relief for current and former students. That was one of the 
most impressive things I have seen during my time at the 
    On the marketing service agreements that you mentioned, 
that matter, which was the $11 million matter, we have found 
over our experience over the last several years that marketing 
service agreements carry a great deal of legal risk for the 
participants that may not have been fully recognized by people 
in the industry. It is very difficult to have such agreements 
and have them be effectuated and monitor them carefully so that 
they are compliant with the law. That has been a source of 
concern for us. That was an enforcement action, a major 
enforcement action. We continue to look carefully at that 
problem, and it is something that really needs to be cleaned 
up. It is something we will continue to attend to.
    On the redlining matter that you just mentioned, I was 
surprised as well. There is such good and detailed Home 
Mortgage Disclosure Act (HMDA) data out there now that every 
bank and every lender should know that if they are redlining, 
it is going to be apparent from the data. And I would have 
thought that we would have stamped that out a long time ago. We 
apparently haven't. The Justice Department, which works with us 
on these matters, has indicated that they have more matters 
open on the issue. So we will see where that goes. Obviously, 
nobody here, nobody on either side of the aisle, nobody in this 
room believes that people should be deprived of access to 
mortgages and other credit simply because they live in areas 
that have a high concentration of minority residents. That is 
un-American. It is not right. And we will continue, wherever we 
see that, to work that problem very hard. I know everybody in 
this room agrees on that.
    Ms. Waters. I want to thank you so much for that. I was in 
the State legislature when redlining was absolutely something 
that was being done all over this country. And I thought we had 
worked in ways that would wipe that out, but to see it coming 
back means that not only are we going to have to catch those 
who are doing it, what can we do to try and prevent it from 
happening? What can we do as public policymakers?
    Mr. Cordray. I think the deterrent effect of an action like 
this is very important. I like to think and hope it will prove 
to be an aberration, but the data is very good on this issue. 
And it is something we can monitor carefully, and we are very 
attentive to the problem, maybe more so than might have been 
true in the past, for all I know.
    Ms. Waters. I want to thank you.
    And on Corinthian, we have been working to try and get rid 
of Corinthian for years. They have been ripping off our 
students, who were looking for just an opportunity to learn and 
to get a job. And we finally got them, and there are a lot more 
out there like them. And I thank you for your work.
    Chairman Hensarling. The time of the gentlelady has 
    The Chair now recognizes the gentleman from Texas, Mr. 
Neugebauer, chairman of our Financial Institutions 
    Mr. Neugebauer. Thank you, Mr. Chairman.
    Director Cordray, Section 1028 of Dodd-Frank grants the 
CFPB authority to conduct a study of predispute arbitration. 
Depending on your findings of the study, the Bureau may 
prohibit or limit the use of arbitration's rulemaking, or it 
may choose not to act. I think, in March, the Bureau finalized 
its study, and in testimony before the Senate Banking Committee 
in July, I think you stated the Bureau would move forward with 
the rulemaking process. I would like to get into kind of the 
nitty-gritty of this issue with you a little bit.
    The statute says that the findings of the report must lead 
to a conclusion that it would be in the public interest or 
protect consumers to move forward with a rule. But your report 
found that customers who prevailed in arbitration recovered an 
average of $5,300 compared to $32.35 obtained by the average 
class action member in class action settlements. Can you walk 
me through how prohibiting arbitration is better when you look 
at those kinds of numbers?
    Mr. Cordray. Yes. And I like to try to make eye contact 
when we are talking back and forth.
    On the arbitration issue, it is, as you said it, in our 
statute. What is notable is, first of all, in the Military 
Lending Act of 2007, Congress enacted a statute to protect 
servicemembers, which said that there should be no enforced 
predispute arbitration in any financial service contracts to 
military servicemembers, Active Duty. That was the first sort 
of walk-back in this area.
    In the Dodd-Frank Act itself, Congress outlawed predispute 
enforced arbitration agreements in mortgages. They further 
mandated, as you correctly and accurately framed it, that on 
all other consumer financial products and services, the Bureau 
would conduct a study, which we tried to do in a very careful, 
thorough way. It took us several years to gather the data, put 
it together, and its analysis that even its critics have said 
it is the most comprehensive treatment of this issue they have 
ever seen and very complimentary about the approach to it, even 
though they may disagree with some of the conclusions. And I 
take it perhaps you do as well. Once we had finished the study, 
we were to report that to Congress, which we did earlier this 
year, and then we were to try to make judgments from that 
report about whether we should adopt regulations affecting 
those clauses in any way. That is something we are now moving 
forward with.
    Mr. Neugebauer. But in Section 1028, there was not a 
mandate that you do that. It was Congress who gave you the 
authority to study and to come up with your own determination.
    Mr. Cordray. It was a mandate for us to diagnosis the 
problem and an authorization for us to act on that diagnosis. 
That is fair.
    Mr. Neugebauer. Now, your study looked at 562 class action 
cases. In 92 percent of those class actions, arbitration was 
not even a factor, and this presented no barrier to moving into 
a class action suit. So can you explain how your study supports 
the position that arbitration is a barrier to class action 
    Mr. Cordray. I hate to try to boil down the conclusions of 
a pretty exhaustive study into just a couple of sentences. 
Essentially what we found was that the arbitrations were rarely 
pursued by individual consumers because the nature of consumer 
financial issues and concerns is that there is often very 
little money at stake for the individual, although in the 
aggregate for the financial institution there may be a great 
deal of profit to be had from a particular practice. We did a 
close comparison of class action suits such as exist in the 
area--many of which have been cut off because of these 
arbitration agreements, but some of them still exist--and 
arbitrations. And we found that in terms of preventing and 
cleaning up violations of law and getting redress to consumers, 
you could compare for yourself the numbers. You could draw your 
own conclusions. We are now trying to move forward and figure 
out what is the appropriate rulemaking answer to that. That is 
a process which will unfold.
    Mr. Neugebauer. One of the things that the Bureau has 
committed to is a pretty aggressive educational process of 
educating consumers on the choices that they have. What kind of 
resources has the Bureau dedicated to educating consumers about 
arbitration and the pros and cons of arbitration? Have you done 
any education in that direction?
    Mr. Cordray. I would actually say that the first question 
is, what kind of education has industry done who have enforced 
these clauses over the years to encourage people to pursue 
individual arbitrations? I don't know that there has been any 
educational effort by industry over decades. As to what we have 
done over the last several years, first of all, we wouldn't 
have engaged in some aggressive education program during a 
period in which we were studying the problem and trying to 
diagnosis it. We obviously needed to try to understand it 
first. And, again, we took several years to gather data, put it 
together. Even the critics of the study have recognized this is 
the most comprehensive, fullest treatment they have seen, and 
it breaks new ground.
    Now having accomplished that, we will go through a 
rulemaking process where it will be open, notice and comment, 
lots of people will have points of view. I am clear on that. We 
will have a chance to process all of that. That is how we will 
try to proceed.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentlelady from New York, Ms. 
    Ms. Velazquez. Thank you, Mr. Chairman.
    Director Cordray, I would like to thank you for your 
response to our letter regarding implementation of Section 1071 
of the Dodd-Frank Act. As you know, 1071 requires banks and 
lenders to collect and report credit application data on small 
businesses as well as minority- and women-owned businesses. Can 
you please elaborate on some of the groundwork you have done to 
prepare for the rulemaking on Section 1071?
    Mr. Cordray. Yes, I can. And I have appreciated--I have 
gotten quite a bit of input on this issue in particular over 
the last number of months from Members of Congress and also 
from community groups around the country.
    What we have always said here is this is an undertaking 
that under the Dodd-Frank Act was placed with the Consumer 
Bureau. It is a somewhat unusual undertaking because it 
involves small-business lending, not consumer lending. And we 
don't--we otherwise have very little authority over small-
business lending. We do have an amount of--a little window of 
authority under the Equal Credit Opportunity Act, and we have 
indicated we are going to begin some examinations of 
institutions on their small-business lending within the next 
    We also said we had another job that Congress gave us to 
do, a mandatory job, which is to first, overhaul the Home 
Mortgage Disclosure Act rules, and second, to take on another 
job of bringing over from the Federal Reserve the operational, 
technological aspects of gathering that data, collecting it, 
and being able to make it accessible to people, which will 
allow us to update the technology and make that information 
better, cleaner, and easier for everyone to use so that when 
the ranking member asked me about the redlining case, everyone 
will be able to see the data and diagnosis it for themselves. 
That is good transparency that will help make sure that we can 
enforce and monitor these types of things. As we are completing 
that rulemaking, which I expect to be completed before the end 
of the calendar year, we have then always said that we can move 
forward with 1071--that is a section of the Dodd-Frank Act--
small-business lending project, which is intended--it requires 
us now--to adopt a rule and then figure out all the technical 
and operational details of gathering data on small-business 
lending akin to how we have done it for mortgage lending.
    Having done as much work as we have done on the HMDA 
project, both operationally and then rulemaking, we can now 
turn to the small-business lending and work on the rule. I 
think it will take some time. We have to--we are going to be 
reaching out to the Small Business Administration, people at 
the State level, any of you who are interested in trying to 
understand how we would do a new data collection for small-
business lending, how to try to minimize the burdens of that 
and how to accomplish the benefits of it.
    Ms. Velazquez. Thank you. As a follow up to my last 
question, we have heard critics of Section 1071 saying that the 
costs will outweigh any benefit the data collected will 
provide. In light of the recent enforcement action against 
Hudson City Bank for discriminatory redlining practices against 
Black and Hispanic neighborhoods, I would agree the benefits of 
Section 1071 to minority small-business borrowers will justify 
any monetary cost to a financial sector. Would you agree with 
    Mr. Cordray. It is obviously something very hard to judge 
at the outside of a project, but I will say that I have heard 
from a number of groups who have spoken powerfully and 
eloquently to this issue. What they have said to me is for the 
average middle class and working class family--people trying to 
rise, and it is true of many communities of color--their wealth 
building happens to occur through home ownership, which was 
devastated by the financial crisis and through small-business 
creation. That is often a big engine of growth and economic 
development for new families in this country and for 
communities of color, who are otherwise maybe shut out of other 
traditional networks. For those reasons, the small business 
lending seems to me to go hand in hand with the mortgage 
lending data collection. And it seems to me to be a very 
powerful way for us to try to understand how we can create more 
economic opportunity in communities of color and for minorities 
around this country. That makes a great deal of sense to me.
    Ms. Velazquez. Thank you. And last I would like to mention 
to you or, yes, to make a comment regarding the fact that 
American citizens of Puerto Rico who invest in mutual funds are 
not covered by the Investment Company Act of 1940. This leaves 
them without the safeguards that those on the mainland have. Do 
you think this is fair?
    Mr. Cordray. I don't know that I know enough to answer that 
question. I'm sorry. I would be glad to go back and have our 
folks look at it--
    Ms. Velazquez. I introduced legislation to close this 
loophole, H.R. 3670, and I would like for you to take a look 
into this issue that is really disrupting the lives of Puerto 
Ricans, American citizens. Thank you.
    Mr. Cordray. Okay.
    Chairman Hensarling. The time of the gentlelady has 
    The Chair now recognizes the gentleman from New Jersey, Mr. 
Garrett, chairman of our Capital Markets Subcommittee.
    Mr. Garrett. I thank the chairman. And I thank the Director 
for being here.
    I might just take a little different tack on this. You talk 
about the mandate you had on the mortgages in that area. Okay. 
Good. You know, my dad always said to give credit where credit 
is due. You have talked a lot already here about what you are 
doing in the auto industry in the lending area. Those are the 
initial questions and some of your focus--and you are nodding 
your head. Some of the focus of what you are doing in some of 
the cases that are out there as far as what you have been able 
to recover for the claimed discrimination and that sort of 
thing that went on there.
    Why that is puzzling, though, to me is I was on the Dodd-
Frank conference committee, and I was one who carried the 
amendment that said that there would be an exclusion for 
activity within the jurisdiction of the CFPB dealing with the 
auto industry. And this is one that Chairman Frank accepted, 
and it was passed in a bipartisan manner, and it passed out of 
the House and the Senate and was signed into law to exclude 
that area of authority for you to do. Yet, you are nodding your 
head that you are proud of all the work you have done in that 
area. And that puzzles me. So, one of my questions is, it has 
been reported in that same article that the CFPB has been 
considering how to eliminate dealer reserves. So the first 
question along that line, is that something that you are doing, 
despite the fact that we have carved that exception there? Is 
that something you are doing? Yes or no?
    Mr. Cordray. I don't really speak in terms of having pride 
in this or that.
    Mr. Garrett. Okay. But I only have 3\1/2\ minutes. Is that 
something you have done? Is that something you are doing, 
trying to eliminate dealer reserves?
    Mr. Cordray. I would start with what you said that the 
    Mr. Garrett. Is that something that you are doing? Here 
    Mr. Cordray. That is not the way it is worded.
    Mr. Garrett. Director, I only have 3 minutes left. Let's 
run down the questions. The question is: Are you working to 
eliminate dealer reserves? Yes or no?
    Mr. Cordray. We have been working to try to address a 
practice that we believe is discriminatory--
    Mr. Garrett. So that is a yes. Is that a yes, please? Just 
answer the questions yes or no.
    Mr. Cordray. Not necessarily eliminate. We had an 
enforcement action yesterday in which it would limit dealer 
reserve but not eliminate it, and we think that may be a fair 
way to try to address the--
    Mr. Garrett. So the answer is yes, you are doing that. And 
there was a memo back in May of 2013 which said the purpose of 
a meeting you had is to continue our discussion about a market-
tipping settlement that would resolve discriminatory 
disparities caused by auto dealers by markup by eliminating 
markup at major auto lenders. Is that something you are working 
on as well?
    Mr. Cordray. What we found is that it is a somewhat more 
complex problem than maybe we thought at first. It is, live and 
    Mr. Garrett. So the answer to that question is ``yes?''
    Mr. Cordray. No. The answer is, we started out thinking 
that the right answer to that concern--
    Mr. Garrett. Is that in a general area that you are looking 
into? Is that a general area that you are looking into? That 
answer seems to be yes.
    Mr. Cordray. Yes. And I was trying to be more specific.
    Mr. Garrett. I don't have time for more specific. I am 
just--are you looking into it?
    Mr. Cordray. Yes. We are.
    Mr. Garrett. What is the authority for you to do so?
    Mr. Cordray. We have authority in the statute. It doesn't 
exempt the auto industry. It exempts auto dealers. It does not 
exempt auto lenders. We have a responsibility to address auto 
    Mr. Garrett. Whoa, whoa, whoa. What did you just say? It 
exempts the auto industry?
    Mr. Cordray. It does not. That is what you said in your 
    Mr. Garrett. So it exempts the auto dealers?
    Mr. Cordray. It exempts auto dealers, but it gives us--
    Mr. Garrett. So who are the ones--
    Mr. Cordray. --responsibility over auto lenders.
    Mr. Garrett. --who are on the front line, who are actually 
making these loans? Isn't it the auto dealers?
    Mr. Cordray. Look, Congress drew the statute. I didn't draw 
it. I have to live with it. It exempts auto dealers but gives 
us responsibility over auto lenders. I am not sure that makes a 
lot of sense, but we are trying our best to observe the lines 
that Congress drew.
    Mr. Garrett. But when you make these decisions, you are 
directly affecting the auto dealers. It is the auto dealer that 
I just went to in order to buy a car or not buy a car, right? 
And it is the auto dealer that people will be paying the 
interest rates that are affected by your actions, right?
    Mr. Cordray. The loan is made by an auto lender, and an 
auto lender controls their auto lending program. They decide 
whether they are going to deal through dealers or on their own 
or whatever they do. We have a responsibility over auto 
lenders. It is a funny provision in the statute. I am not sure 
it is very logical, but it is what we--
    Mr. Garrett. Let's see what the practical consequence are. 
And the studies have shown this to be true. By your actions, 
the interest rates that somebody who goes to an auto dealer, 
because that is where I go to buy a car, is an auto dealer, are 
actually going up because of the actions you are taking. Isn't 
that correct? Isn't that what some of the reports have shown?
    Mr. Cordray. Let's make an analogy to the mortgage 
    Mr. Garrett. No, no, no. We are on auto here. We are not 
talking about mortgage. The results of your actions are raising 
the cost of buying cars. It is making the interest rates go up. 
That is what the studies have shown. Correct?
    Mr. Cordray. What I would say is this, as we do our work, 
and we have a responsibility--
    Mr. Garrett. I understand that. But is the result--
    Mr. Cordray. --to auto lenders. It does affect auto 
dealers. I would agree with you on that. That is why the 
logical provision is not--
    Mr. Garrett. Sir, is the result of your action that it is 
costing more for people to buy cars now? Is that what the 
CFPB's bottom line is? Because the results of one study--
    Mr. Cordray. There is disagreement about that. But if you 
are engaged in potential discrimination in a market and you 
cure that discrimination, and that discrimination has been 
cross-subsidized by the--
    Mr. Garrett. At the end of the day, are the people who are 
most hurt by this the very same people that you claim to help, 
the people of that--the poor, and the middle class are the 
people who are actually paying the higher rate. Isn't that 
true, sir?
    Mr. Cordray. No. That is not true.
    Mr. Garrett. That is what the studies seem to show. But I 
yield back.
    Mr. Cordray. No, that is not what it seems to show.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from California, Mr. 
    Mr. Sherman. Mr. Cordray, there is a lot of discussion as 
to whether your successor should be an individual or a 
commission. And, obviously, an individual is more efficient, 
makes decisions quicker, but when we have that efficiency, that 
means that your successor will be appointed by whomever the 
next President is, and then the next successor will be 
whomever, and we could swing very efficiently and extremely 
from the forces of light to the forces of darkness, and then 
back to the forces of light, which of course will make it 
pretty complex to transact business.
    Let's imagine, God forbid, that your successor is your evil 
twin, just as capable as you but determined to undo every good 
thing that you have done or are about to do. How efficiently 
could that person, one person running your agency, replace all 
of the regulations that you will have in force by January of 
2017 with new regulations that would be touted as good consumer 
protection but would in fact eliminate the lion's share of the 
good that you plan to do in this your first term? How efficient 
could your evil twin be in undoing everything you have done or 
will do between now and January 2017?
    Mr. Cordray. It is theoretically possible, but it is not so 
easy to do. Once you have passed rules and regulations through 
a notice and comment process and they are protective of 
consumers and those start to become the lay of the land and 
institutions adjust to them, even though you might decide, I am 
going to undo all of those, it is a whole process to go 
through. You have to fight the opposition on that. You have to 
fight whatever evidence there is--
    Mr. Sherman. I would point out the opposition that you face 
is the industry. In this case the industry would be on the--
that somebody moving the other direction would face less 
opposition than you have faced.
    Mr. Cordray. No, they might well face considerable 
opposition from the American public--
    Mr. Sherman. They might if the American public understood 
the details. As I said, I am positing that these replacement 
regulations would be billed as a major increase in consumer 
protection. But, obviously, it would be more efficient for your 
evil twin to do this if it was one person rather than a 
commission made up of both Democrats and Republicans, some of 
whom agreed with you, some of whom who didn't.
    I want to move on to another--
    Mr. Cordray. Could I respond briefly to that?
    Mr. Sherman. No. Because I have to move on to the next 
    Mr. Cordray. Okay. Fine.
    Mr. Sherman. You can respond for the record.
    TILA-RESPA, TRID, if you are building a new ship, you want 
some extra time to get the ship done, but no matter how long 
you spend at the dock, you are really not done until you take 
it on a shakedown cruise. October 3rd begins the shakedown 
cruise, the chance to actually try out these regulations and 
see how they work. And it is going to be difficult. Now, you 
have given additional time for the ship to be built, but it 
still hasn't been on a shakedown cruise, and in fact you have 
to--you can't use the new regulations for September 
transactions, but we are closing in on October 3rd. Are you 
willing to announce a formal temporary 3-month hold harmless 
period for those who are making a good faith effort to comply 
with the 1,800 pages of regulations and are acting in good 
faith knowing that they have never used them before, although 
they have had enough time--they have had plenty of time at the 
dry dock?
    Mr. Cordray. Actually, all of this area was changed and 
overhauled in 2010 by the Department of Housing and Urban 
Development (HUD). Congress then legislated it be changed again 
by us. I am not sure that is the way you would have drawn it up 
if you had started from scratch, but they got through it in 
2010. There is obviously lots of angst around it, and people 
are trying hard to make their systems work. We did give them 
more time, as you have said. You and I have had a chance to 
have back and forth on this a number of times. I have never 
quite fully understood your phrase ``shakedown cruise,'' but I 
think I have--
    Mr. Sherman. Well, a shakedown cruise is when you go out 
and you try to sail the ship the best you can, but you don't 
get sued if the facilities don't work.
    Mr. Cordray. So the nub of this, which I think is your 
biggest concern is, we have said and we are working now to 
provide written guidance on this, and we are working with the 
other agencies so that we all provide the same written guidance 
on this, that for a period--for some period of months, we are 
not going to be very specific about it. It might be longer. 
Right? There will be a diagnostic approach to this that is 
not--nobody believes that the market participants here are 
going to be trying to abuse consumers here. They are just going 
to be trying to change their systems and get it right. So it 
would be diagnostic and corrective, not punitive, and there 
will be time for them to work to get it right and not have to 
be perfect on the first day.
    Mr. Sherman. Will you be announcing something by October 
    Mr. Cordray. I am pushing hard the see to it that it is out 
before October 3rd. I was hoping it was going to be out before 
today, but it is going to happen, and it is going to be along 
the lines of what you have asked for. I think it will be 
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Missouri, Mr. 
Luetkemeyer, chairman of our Housing and Insurance 
    Mr. Luetkemeyer. Thank you, Mr. Chairman. And I want to 
just follow up on the gentleman from California's remarks 
    Mr. Cordray, you and I have had some discussions with 
regards to TRID and my concerns about it. And I committed to 
you that I was going to send a letter to all the associations 
representing people or industry folks who made mortgages and to 
let us know whenever there were some sort of punitive actions 
that were out of line that was taken by your agency. And I want 
to let you know that letter goes out Thursday. So just to put 
you on notice that we are going to be watching.
    Mr. Cordray. That is great. I am actually glad to have you 
monitor this because it is my intention--this is how we handled 
the first set of mortgage rules, and I haven't heard of any 
problems, and we are now 21 months in, but I am glad to have 
you monitor it because I want what you want, to make sure this 
is what actually happens. So I appreciate that.
    Mr. Luetkemeyer. If you live up to your end of the bargain, 
this will all go away and we will all live happily ever after.
    Mr. Cordray. Okay. Fair enough.
    Mr. Luetkemeyer. Thank you.
    With regards to--I want to follow up just for a second with 
regards to the gentleman from New Jersey's remarks with regards 
to the relationship between the auto dealer and the lender. I 
think you just mentioned a minute ago that you came out these 
last few days with a recommendation to have a 1.5-percent 
spread between what the lender and the dealer have in their 
relationship. Is that correct?
    Mr. Cordray. There is a consent order that was entered 
yesterday that would have a one and a quarter differential for 
certain loans, and 1 percent differential for other loans 
depending on timeframe.
    Mr. Luetkemeyer. It is very concerning to me. Number one, 
where is the authority to do that? And number two, why are you 
getting in the middle of the general competitiveness of the 
    Mr. Cordray. Why am I getting in the middle of what?
    Mr. Luetkemeyer. It looks like you are price fixing to me. 
Why are you getting in the middle of a discussion between two 
entities that determine the risk of the loan between the two? 
Interest rates should be reflective of risk. They always have 
been. I am old enough to remember when we had usury rates. And 
a few years ago, we took them off. And now with this action it 
looks like we are putting them back in place because you are 
limiting the amount that people can make based--and you are 
taking all the other risk factors out, which that is the 
definition of interest.
    Mr. Cordray. This is not just a general philosophical thing 
that we are deciding to do because we have some ideology on 
this. This is a result of an enforcement action, an 
investigation by us and the Justice Department. We are not solo 
on this. We are working with the Justice Department. They have 
much more lengthy experience in these matters than us on 
investigation of potential discrimination. There was a back and 
forth with that entity and various other entities--there has 
been a number of them--in which it was determined that this was 
a reasonable result to address the problem and yet to allow the 
entity to move forward and continue to lend aggressively to 
    And as I said in my outset, auto lending is at some of its 
highest levels ever right now. This is not interfering with 
    Mr. Luetkemeyer. Director, that is because the economy has 
come back and people can finally afford to have an automobile 
in their garage.
    Let me move on. It seems to me along that same line here, a 
while ago you said that you are a data-driven institution.
    Mr. Cordray. We try to do that, yes.
    Mr. Luetkemeyer. I know in talking with one of my bankers 
last night, I called him and said: Listen, tell me what is 
going on with you and this disparate impact situation. And he 
is very concerned because whenever he was examined, basically 
the examiners looked at three things: loan to value; debt to 
income; and FICO score. And he was cited by the examiner for 
inappropriate loans. He had an outside accounting firm come in, 
and they came up with two reasons that he had this problem: 
Number one, he loaned to people outside the State; and number 
two, he loaned to very small auto dealers. If you take those 
two things out, he would have been in perfect compliance.
    Yet if that happens, now we are going to restrict the 
amount of dollars that are available, and you are going to 
lessen the competition. And in talking with him--you made the 
comment a while ago that there is plenty of access to credit 
out there. I can tell you that there are a number of banks that 
have already quit doing this and are looking to quit doing 
this. And when that happens, there will be less bidding going 
on for those dealer loans. And that means the rates will go up.
    Mr. Cordray. Could you help me a little bit? Is that a big 
bank or a small bank?
    Mr. Luetkemeyer. It is a mid-sized bank.
    Mr. Cordray. Over $10 billion in assets?
    Mr. Luetkemeyer. Yes.
    Mr. Cordray. I would love to hear more. I would like to 
know more.
    Mr. Luetkemeyer. I would be glad to fill you in. I have 46 
seconds. It is concerning to me, and I think that you need to 
be willing to look at other factors when you are modeling this 
and take those into account because I don't think that is 
happening, and I think that is where a lot of problems begin.
    Just one more quick comment. I also had an entity who was a 
debt buyer come into my office recently, and they were fined 
for a word in their settlement agreement that you are proposing 
a rule in the future for. That made no sense to me.
    Mr. Cordray. I have heard that, and it doesn't make sense 
to me either. I don't really understand how we fine somebody 
for a word. I would love to hear more and understand that 
problem. When we investigate it--again, I am not sure which one 
it is. We have taken several actions against debt buyers who 
have engaged in some pretty predatory practices. And when we 
get into the details of it, you wouldn't find them very 
appetizing either.
    Mr. Luetkemeyer. They were fined for a word that was going 
to be noncompliant in the future with one of your rulings, and 
as a result--
    Mr. Cordray. Give us a chance to talk with your staff and 
understand that problem and see if we can clear that up. I 
would love to do that.
    Mr. Luetkemeyer. I yield back.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from New York, Mr. 
    Mr. Meeks. First, I want to thank you, Mr. Cordray, for 
your leadership at the CFPB because, clearly, over the last 4 
years, recovering approximately $11 billion in relief for over 
25 million American consumers, that is tremendous, and the CFPB 
clearly is changing some of the most egregious behaviors from 
bad actors in our financial markets and helping consumers every 
day. And your leadership has been to that very same effort.
    And I think that you have a difficult job. The job is 
difficult because at the same time you are helping consumers, 
you are trying to figure out that balance to make sure people 
still have access to credit and they are not left out.
    And so there has been this conversation that we have had 
going on for a long time, and I come from my experience, 
especially when you deal with the short-term loans or payday 
loans or whatever, how do you balance that? How do you make 
sure that people have access to credit but are not being ripped 
off? For example, I think you came out with a report that said 
we have to get rid of these rollovers for folks who can't 
afford them. But at the same time, from my background, knowing 
what I have seen, I want to put the loan sharks out of 
business. In the neighborhood that I grew up in, when banks 
turned folks down, there was harm done to folks because they 
didn't have any other choice but to go to some of these loan 
    So the question of harm and how do you--because I don't 
think that--to get rid of the bad individuals--I don't want to 
throw the baby out with the bath water--but I want to make sure 
that we can keep--because I have found some to be good business 
folks but others to be bad. You indicated that you were going 
to be looking at some of the State regulations and how they 
handled it to get rid of the good and the bad, et cetera. I was 
wondering if you could give us the benefit of your knowledge 
and whether or not you think you have gotten enough information 
from looking at some of the States as to how to properly maybe 
we can regulate this, because I am for regulating this 
industry, not necessarily getting rid of it but having some 
firm regulation because folks are going to try to find a way to 
get some money.
    Mr. Cordray. I appreciate that what you have just done is 
to put yourself in our shoes and recognized in a very eloquent 
way, better than I would have done, what the two sides of the 
problem are. You want to have access to responsible credit for 
people that doesn't get them into more trouble and sink them in 
these debt traps, but you also don't want people to be in 
credit that is going to destroy their lives. And there are some 
really ugly kinds of credit out there that we have seen that 
are quite predatory. How you balance that is not easy.
    Now, you are from the State of New York. The State of New 
York bans payday lending because the usury cap is on in New 
York, and it doesn't really exist. And yet, I take it your 
constituents are managing somehow or other, and that is true of 
13 States across the country.
    States handle this issue in very different ways. We have 
been very carefully going to school on what the States do and 
the different approaches and what seems to be working in some 
respects or not working in other respects, and we want to be 
respectful of that. At the same time, we have done two pretty 
comprehensive White Papers showing that in this industry, a 
significant number of consumers end up in a debt trap where 
they get a loan at a very high cost and they can't repay it and 
they have to roll it and roll it and roll it. A large number of 
consumers end up in cycles of 8, 10, 12 loans. That is very 
destructive to their economic well-being. Now, can we find some 
reasonable restrictions here that would allow access to credit 
and maybe a number of repeat loans but without people getting 
so far into it--I have an example from a court opinion in 
Missouri. The person took out a $100 loan. By the end of the 
whole thing, they had repaid several thousand dollars and they 
owed several thousand more. It was all being garnished from 
their paycheck. That is not helping their economic situation at 
all, for a $100 loan.
    These are some of the things that we are grappling with and 
trying to understand, but it is not an easy problem. The way 
you framed it is exactly right. We are trying to balance two 
things here, and it is not easy to strike the balance. We are 
working hard at it, and we are trying to get there. Not 
everybody will agree, I am sure.
    Mr. Meeks. Thank you. And I would love to continue to work 
it as you look at some of the States, et cetera. For example, 
what happened in New York and I am finding some, there is a 
black market.
    Mr. Cordray. And the Internet too.
    Mr. Meeks. They are getting money in that regard, and I 
would rather have something that was strongly regulated that 
they could go to. Then I would have more confidence that no one 
ends up with the broken arms or the black eyes that I see some 
folks ended up with. So I would appreciate your continuing to 
work on that. I thought I had more time. I didn't realize, but 
I am going to give you the chance to be more specific about the 
auto loans that you didn't have the opportunity to earlier.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Michigan, Mr. 
Huizenga, chairman of our Monetary Policy and Trade 
    Mr. Huizenga. Thank you, Mr. Chairman. I am going to try to 
be quick. The dealer reserves, I just want to revisit that a 
little bit and make sure to give you an opportunity to clarify 
briefly on this. So my colleague from New Jersey brought up his 
amendment, and it is my understanding that neither one of us 
were here when Dodd-Frank was created, but we are living with 
the echo effect of it here.
    Mr. Cordray. We are both blameless.
    Mr. Huizenga. The intent of the exemption was the entire 
transaction, is my understanding. Is that your understanding as 
    Mr. Cordray. I don't have that understanding. I don't know 
one way or the other about that. What I know is, as I read the 
statute, we have jurisdiction over auto lenders. We have a 
responsibility there. We don't have jurisdiction over auto 
    Mr. Huizenga. Got it. Will you support then expanding or 
clarifying the exemption to both dealers and lenders?
    Mr. Cordray. If you ask me what direction it would go--I 
try to be very careful of not stepping into the shoes of 
legislators. You have to make those judgments. I don't have 
that authority.
    Mr. Huizenga. You suggest a lot of other things.
    Mr. Cordray. It has been suggested that you go in that 
direction. It has been suggested that you go the opposite 
direction. And there is a suggestion to leave it alone.
    Mr. Huizenga. Have you issued guidance on appropriate 
levels then of what a dealer reserve should be?
    Mr. Cordray. Guidance?
    Mr. Huizenga. Have you told people, here is what we think 
is the acceptable level?
    Mr. Cordray. We have had several enforcement actions.
    Mr. Huizenga. That is different than outlining. I know, I 
saw what happened with Ally. You have $80 million that you 
haven't been able to distribute so far. Right?
    Mr. Cordray. That is one action, but we have had several 
enforcement actions involving other auto lenders as well where 
this has come into better focus, and it is gravitating toward 
what I said about yesterday's action limiting caps.
    Mr. Huizenga. Why not get specific then on what that level 
    Mr. Cordray. I think our enforcement--our consent orders 
now are quite specific, and they have signalled to the industry 
a possible way for us to resolve this on a global basis, and I 
think that would be a good thing.
    Mr. Huizenga. I want to quickly move on to another thing, 
marketing services agreements (MSAs). You and I had this 
conversation the last time you were here, and I will ask the 
same question: Have you issued specific guidance on MSAs?
    Mr. Cordray. We have gotten increasing input asking us to 
do that.
    Mr. Huizenga. Why have you not done it?
    Mr. Cordray. We are working on it.
    Mr. Huizenga. Why not just ban them or outlaw them?
    Mr. Cordray. What I have said is that what we have seen--
and we have had several enforcement actions--there is huge risk 
involved in those agreements, and people don't seem to have 
realized it. We are going to try to signal based on our 
experience what we have seen. And I think people will get the 
    Mr. Huizenga. Let me ask a question just quickly going back 
on this Ally situation. You have $80 million. You have asked 
people to self-identify as to whether they are a minority and 
may even qualify. Will you give Ally a refund of the money that 
is not claimed? Because there are a lot of people who believe 
that you overextended. You are getting $18 million already in 
general, and this $80 million is supposed to be distributed. 
What happens to that money if it is not distributed?
    Mr. Cordray. I understand. We are in the process in this, 
but we are quite confident from what we have seen so far from 
the response rate that all of the money will be distributed. If 
it isn't, it will not go back to Ally. That would reward them 
for not getting money out. It would be disgorged to the 
    Mr. Huizenga. It is actually you not proving that there was 
discrimination or DOJ not proving that.
    Mr. Cordray. Not necessarily.
    Mr. Huizenga. On both--on dealer reserves and the MSAs and 
a number of other things, it seems to me that you are not 
willing to issue that guidance because you quite possibly don't 
have the authority to do that.
    Mr. Cordray. No, no. We are working on it. I believe we 
will issue guidance shortly. People have asked us very much for 
    Mr. Huizenga. The American Banker, in this story on 
September 24th--well, I am going to read this opening 
paragraph: The consumer, the CFPB, the Bureau, has struggled 
internally on how to end potential discrimination auto 
lending--I would add MSAs and other things--including debating 
whether it should cite a large lender in the hope of 
effectively ending the ability of partnering dealers to mark up 
loans to all lenders.
    And what I am afraid of, Director, is--and the last time 
you were here, March 3rd, we were talking about the press 
release situation. And you had said that the ombudsman for the 
Bureau is looking into whether there have been differences in 
the language on the consent orders and the press releases on 
the actions given. And it seems to me that is still the case, 
and I am afraid that it seems your goal is to intimidate 
businesses big and small into actions or inaction that you 
think it needs to have because you don't have the legal 
authority to execute those.
    Mr. Cordray. I understand you may think that. I don't think 
that is true. That is certainly not how I intend to operate. 
The ombudsman did look at the issue of the press releases and 
consent decrees and found that there really weren't any 
significant problems there, and on the MSA--
    Mr. Huizenga. Could you share that report with us? Could 
you share that report with me specifically because I would like 
to see that?
    Mr. Cordray. I am sure we can. It may even be posted on our 
website for all I know. The ombudsman has a fair amount of 
independence from me but did look at that.
    On both auto and MSAs, we have consent decrees in place 
that do give very specific guidance based on specific facts and 
situations. On MSAs, you and others have really pushed us to 
give more guidance on that. We are going to be doing that. We 
are working on it.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Massachusetts, 
Mr. Capuano.
    Mr. Capuano. Thank you, Mr. Chairman.
    Thank you, Mr. Cordray. I have been reading through your 
report. I don't know. It doesn't seem like you have been too 
busy to me. It strikes me as though you are not doing much. 
From what I see, you have done one proposed policy statement; 
one final policy statement; 4 requests for information; 13 
proposed rules; 11 final rules; 5 bulletins; 2 guidances; 20 
orders; 5 assessments of State attorney general actions, which 
of course is not yours, you are just looking over what the 
State attorney general does. You have appeared before Congress 
5 times yourself; your staff 2 more times. I know that is very 
easy. It takes no preparation, no time. I get that. You have 
done 37 public speeches in front of different groups that are 
interested in everything you do. Your staff has done four more 
speeches. You have had 14 executive actions taken against 
different companies, and you have issued 63 reports and 
financial reports during the last calendar year. It doesn't 
strike me as though you have been too busy. It strikes me as 
you are probably just sitting around not protecting consumers 
and everything else. At least that is what it sounds like 
today. But then again this is the bulk of what you do is only 
part of it. Apparently, as I read this, you are allowed to 
spend up to $619 million, but you only spent $302 million. You 
only spent 48 percent of what you are allowed to spend. I don't 
think there will be another agency in the entire Federal 
Government or any State government or any city government for 
that matter that would do that and have the results that you 
have had. And on top of that, you have collected $47 million in 
fines against companies that have bilked consumers, and you 
distributed $113 million to different victims across this 
country. Sounds to me like maybe you are actually doing 
something to fulfill the title of the agency, Consumer 
Financial Protection.
    Mr. Cordray, I am here to say thank you. I am here to 
congratulate you and your team for doing a great job. It 
doesn't mean I don't want to nitpick certain things. Of course, 
we do. I know you do that internally. And to be perfectly 
honest, I think you have been pretty receptive to our comments 
and to our suggestions along the way on different rules and 
regulations. You have worked with us. It doesn't mean I agree 
with everything you have done. It just means I think this 
country is a lot better off with the CFPB than without you, and 
I wanted to say thank you for that.
    I do want to ask you, do you think you have any ability or 
any regulatory authority to maybe take a look at the effect on 
consumers of different Federal agencies, most notably the FHA 
and maybe Fannie Mae and Freddie Mac? Do you think that might 
be within your purview or outside of your purview?
    Mr. Cordray. I don't think it is within our purview to, for 
example, try to enforce the law against other agencies. I do 
think it is within our purview--and really would be 
irresponsible if we didn't, to collaborate and coordinate and 
cooperate with the other agencies and try to work toward common 
policies, which we do try to do with each of the ones you 
mentioned and many more, so that is something that takes a fair 
amount of time and effort; and these agencies are pretty 
receptive. We try to be pretty receptive because the worst 
thing that could happen to an institution is to have different 
agencies coming at them with contradictory positions because 
then the institution, how do you treat that institution fairly?
    Mr. Capuano. Let me encourage you to work as cooperatively 
and forcefully as you can with both of them because both of 
them, in my opinion, are participating in what I consider to be 
the slow and steady destruction of various neighborhoods around 
this country by selling these bulk mortgages to companies that 
then make a profit--not just a profit, a massive profit. The 
largest one is the Lone Star Funds run by a gentleman who 
voluntarily gave up his United States citizenship. I will 
repeat that. We have made a billionaire out of a person who 
voluntarily gave up his United States citizenship. This 
Congress spends an awful lot of time debating how we can allow 
more people to come to this country. I don't know anybody who 
wants to leave, except for the person who is currently in 
charge of the largest fund slowly destroying various 
neighborhoods across this country because Fannie and Freddie 
and the FHA refuse to allow local communities to have a say on 
what to do with houses that have been lost because people 
couldn't afford to keep them. And I would dare say--talk about 
consumer protection--what they have done, not directly but 
indirectly, by allowing these companies to do this, I think 
certainly should fall into your purview, and if not directly in 
your purview based on the job you have done to protect 
consumers, I would strongly suggest you get on the phone and 
talk to them, educate them, enlighten them as to how we help 
individuals, as opposed to the people who are not even United 
States citizens out of their own volition.
    With that, I yield back the rest of my time, because I 
don't really have any questions; I just wanted to say thank you 
    Chairman Hensarling. The gentleman yields back.
    The Chair now recognizes the gentleman from New Mexico, Mr. 
    Mr. Pearce. Thank you, Mr. Chairman.
    Thanks for being here, Mr. Cordray. The question that came 
from Mr. Huizenga about the money going back, and I understand 
not a penny has been given back to the people who are 
discriminated against?
    Mr. Cordray. Are we talking about the Ally matter 
specifically because we have had many discrimination matters, 
and there is a lot of money--
    Mr. Pearce. The Ally. The money has not gone back or has 
gone back? It is a simple question.
    Mr. Cordray. There have been many matters where consumers 
have received money back. The Ally is a somewhat complicated 
process, but it is being worked through.
    Mr. Pearce. But nobody has received money?
    Mr. Cordray. That is correct at the moment, but they will. 
They will receive all of it, I believe.
    Mr. Pearce. Patrice Ficklin wrote on your website that--in 
December of 2013--we are starting to pay back some of those 
things already, and it just doesn't seem very believable. And 
by the way, if you are not giving the money back, is that 
racist on your part that these consumers have been defrauded 
and you have the money and you have had it in your hand? Is 
your action not racist?
    Mr. Cordray. We are giving the money back. It is somewhat 
complicated, but it will get there.
    Mr. Pearce. It is very complicated. It is not complicated 
to cheat them upfront, but it is complicated for you.
    Mr. Cordray. I could just throw money out there, but nobody 
would be happy about that. We are going through a careful 
process, and it will get there.
    Mr. Pearce. And just to put this in perspective, the 
assertion in The Wall Street Journal is that consumers are 
being defrauded of about $200 to $300 over the life of the 
loan. Is that more or less correct?
    Mr. Cordray. I'm sorry. What are we talking about?
    Mr. Pearce. The Wall Street Journal says that the 
differences in interest could amount to $200 or $300 over the 
life of the loan.
    Mr. Cordray. Is it the Ally matter or generally or--
    Mr. Pearce. Generally, in auto finance, you might have 
    Mr. Cordray. That, depending on the facts, could be about 
    Mr. Pearce. Which ends up at 60 months, which Mr. Williams 
told me that is what the general financing is for is $5 a 
month, 16 cents a day at the high end; at the low end is $3 a 
month. Now consider that compared to--and in my 11 years, I 
have never had one person come up and say: We are being 
cheated, discriminated against in auto loans. But I have had 
multitudes of people come up and say: In our student loans, 
they are charging us exorbitant interest rates--8.7 percent is 
the one that came up to our office most recently; $60,000, 8.5, 
8.7 percent interest, which is a huge amount more, but you all, 
according to the memos, the internal memos, are redirecting 
your enforcement away from these high-priced educational 
problems into the auto industry. That was an internal memo that 
is circulated.
    Another memo says that we are not sure that we have the 
legal authority for doing what we are doing at all and that the 
rule could be perceived as an attempt to circumvent the law and 
our lack of authority. Now, you had told Mr. Garrett that you 
didn't really agree with the law. Is that something that I 
heard or maybe I didn't hear?
    Mr. Cordray. I didn't agree with the law?
    Mr. Pearce. The law that said you can't go after the auto 
dealers, but you can go after the financial part of it. So you 
do agree with the law?
    Mr. Cordray. My job is to enforce the law, whether I agree 
or disagree with it. What I disagreed with was the 
characterization that the auto industry had been exempted from 
Dodd-Frank. That is not what the statute says, and that is not 
my understanding of the authority we are supposed to exercise.
    Mr. Pearce. So auto dealers are not exempt or the auto 
industry, which?
    Mr. Cordray. Auto dealers are exempt under the statute. The 
auto industry is not exempt, and auto lenders in particular are 
within our responsibility, and we have a responsibility to 
    Mr. Pearce. So you are attempting to go after the dealer 
markup. Is that right? You are trying to assess that. That is 
the whole 1 percent, 1 and a quarter percent; you are trying to 
determine that.
    Mr. Cordray. What I would say is we are assessing lender 
programs where they authorize discretionary dealer markup with 
financial incentives to mark up the rate, none of which is 
known to the consumer, which is part of the reason they don't 
complain about it. Consumers don't realize that the buy rate 
was 4 percent and they are being offered 5.5 percent.
    Mr. Pearce. Consumers who do realize they have a problem in 
the student loan industry who complain a lot, they are okay.
    Mr. Cordray. We are working hard on student loans. The 
whole Corinthian matter--
    Mr. Pearce. You are saying the memo is incorrect, that you 
are not redirecting resources?
    Mr. Cordray. We are allocate resources all the time, but 
the notion that we are not addressing student loan harms--
    Mr. Pearce. Seems like a complicated concept of billiards 
to avoid the law. We are going to hit this ball over here, and 
it is going to hit that bank, and it is going to come over 
here, and it is going to tap the auto dealers. And that is who 
we are really after.
    Mr. Cordray. We have been very careful to observe that 
line. As I said, it is not a particularly logical line, but we 
have been very careful. We didn't even talk to dealers for 2 
years until they started to want to talk to us.
    Mr. Pearce. Maybe that is the reason some on our side have 
    I yield back.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Texas, Mr. 
    Mr. Hinojosa. Thank you, Chairman Hensarling and Ranking 
Member Waters, for holding this important hearing; and thank 
you, Director Cordray, for your appearance here today and for 
your steadfast leadership at the Consumer Financial Protection 
    I am going to go directly to questions and skip the other 
points that I wanted to make. Our Nation faces a severe student 
loan crisis. Student loan debt now stands at $1.2 trillion and 
tops out credit card debt, auto loan debt, and home equity 
debt. Moreover, default rates on student loans keep rising 
every year. Can you tell us more about efforts at the CFPB to 
provide student loan relief?
    Mr. Cordray. Yes. And there have been a lot of different 
efforts. This is an area where we don't really act alone. We 
try to work with others, including States, State attorneys 
general and others, the U.S. Department of Education. We have 
worked with the U.S. Department of the Treasury on these 
issues. There is a whole variety of things that we have tried 
to do.
    First, we have tried to make it clearer and easier for 
consumers themselves to make their own judgments about what is 
the right answer for them in a particular set of circumstances. 
That is our paying for college tool. This is one of the ways in 
which, as the chairman would put it, we are trying to help 
consumers become more free. If they can make more informed 
choices, they can make choices that are the best ones in their 
view for themselves and not have regrets later. We hear plenty 
of regrets from people who didn't have that kind of 
transparency around student loans in the past.
    Second, student loan servicers, the people who are actually 
handling the debt that is already owed, and there is $1.2 
trillion owed in this country, so it is a very significant 
concern for many Americans, millions of Americans. We feel that 
there are various practices in that industry that are subpar, 
very much like mortgage servicing practices have been very 
subpar for a long time. We are looking at figuring out how we 
can work to sort of clean that up and bring that up to a 
standard so that people who already owe a fair amount of money 
to get an education--that is burden enough--aren't further 
burdened with misappropriation of payments or payments that go 
to the lower interest and keep the higher interest and various 
ways in which this industry is not serving their interests 
    Third, we have worked with the Department of Education, and 
the Department of the Treasury, to press for more refinancing 
options, particularly for people with private student loans, 
which have largely been unavailable to them in the past. There 
is a lot of movement on that, and there is progress on that.
    Fourth, one of the things we are trying to call attention 
to is a lot of this is a matter of public policy, and it is at 
either the Federal or State level or both, is that the amount 
of student loan debt in this country is itself becoming a 
negative drag on our economy. Younger people are forming 
households later. They are forming small businesses at lesser 
rates than in the past. They are making different choices 
because of the amount of debt that they have. Student loan debt 
is affecting the broader economy. We need to rethink public 
policy in this country. It goes well beyond my limited mandate, 
but it is something that we think needs to be aired and needs 
to be discussed and policymakers need to think more about it, 
so we are trying to be active on all fronts.
    Another issue is a lot of these student loan issues affect 
servicemembers who are trying to figure out what to do with 
their GI benefits and/or other student loans that are available 
to them and make sure that they don't go to waste and that they 
benefit by them. And with Holly Petraeus, who heads the 
Servicemember Affairs Office, we have been working with the 
Department of Education and also the Departments of Defense and 
Veterans Affairs to make sure that servicemembers can really 
maximize their benefits in ways that will improve their lives 
as they come back into the civilian population. There are a lot 
of different fronts for us, very big problem, very big concern. 
It should be a big concern for anybody making policy in this 
    Mr. Hinojosa. I want to thank you for all those things that 
you are doing. I want to jump to another point that I want the 
record to show. A year ago, the Bureau announced an action 
against a former for-profit college chain, Corinthian Colleges, 
Inc., in response to a scheme that lured thousands of students 
into expensive loans and conducted abusive collection tactics 
that preyed on students. Moving forward, do you expect that the 
Corinthian experience will inform the Bureau's work with 
respect to institutional student loan programs at those for-
profit colleges?
    Mr. Cordray. Yes, and thank you. I meant to wind up with 
that work, which has been very aggressive on our part. We have 
been working with State attorneys general and other partners, 
Department of Education, Department of Justice, and others. We 
did bring the action against Corinthian. We thought that they 
had misled students in significant ways and engaged in various 
predatory practices. Obviously, others have felt the same, and 
they are now in a bankruptcy proceeding. We have sued ITT, 
which we think have engaged in many of the same practices. We 
continue to monitor that market. It has been a source of a lot 
of harm to people, and it needs to be thought about more 
    Mr. Hinojosa. Thank you for your good hard work on this 
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Florida, Mr. 
    Mr. Posey. Thank you very much, Mr. Chairman.
    It's good to see you again, Mr. Cordray.
    Mr. Cordray. Thank you.
    Mr. Posey. I want to go back to something that one of my 
colleagues across the aisle, Mr. Meeks, mentioned just a little 
while ago. And that is a concern my colleagues in Florida have 
about our earlier experience in Florida with short-term 
lending. The legislature in Florida worked hard to balance the 
needs of the citizens of Florida for short-term credit with 
consumer protections. The Florida experience has been a 
positive for Floridians and shows the value of State 
legislatures who desire to meet the needs of their local 
communities. As the CFPB considers regulations of short-term 
lending, you have said that your rule will be just a ``floor'' 
over which the States can regulate. However, I have been told 
the proposal that the CFPB has released is, in fact, a floor 
that no existing State law meets, period. So it is effectively 
a preemption. And that is why I think you have seen so much 
concern within the Florida delegation and others, New York now. 
Do you intend to follow through with your rule that effectively 
throws out the hard work of the Florida legislature, and that 
of 31 other States for that matter, that have acted to regulate 
a responsible payday and other short-term lending?
    Mr. Cordray. One of the things I have found is there is a 
lot of people saying to us on payday lending, vehicle title, 
certain installment loans, they are saying to us, oh, you 
really shouldn't do anything. You should just leave alone what 
the States are doing, and it is all fine. We did two extensive 
White Papers, the largest research that has ever been done on 
this issue, which showed that a large number of consumers under 
these existing regimes end up trapped in debt, getting 8, 10, 
12 loans in a cycle, paying more in fees than they ever 
borrowed in the first place. Some of the stories are quite 
gross, and I can't in good conscience just leave that alone. If 
we can make reasonable interventions to improve this market so 
that consumers are not victims of predatory lending, I think we 
have an obligation to do that. As to Florida in particular, you 
and I and your colleagues have had a number of discussions 
about it. One view of Florida is it is really fine. It is a 
model for the Nation. Another view that consumer groups in 
Florida have put forward--Consumers for Responsible Lending did 
a report, and other groups have written to the delegation more 
recently--they said it is actually still problematic in various 
ways. A lot of people end up rolling into these long sequences, 
and the percentage of people who re-borrow is just as high 
really in Florida as in the rest of the country. That is what 
our analysis has shown as well. Again, I was referring earlier 
to an example from Missouri. This is a judicial opinion. The 
judge was so offended they went to the evidence record there 
and indicated, for example, class member DW took out a $100 
loan from this company--this is in the record. A judgment was 
entered against them for $705.18. There was a garnishment of 
his wages. So far, $3,174.81 has been collected on a $100 loan, 
and a balance of $4,105.77 remains. That is the kind of thing 
we are seeing around this country. We can all talk about access 
to credit and all credit should be allowed, but some of this is 
quite predatory. It is quite problematic, and this is something 
that we need to address. And I feel strongly about it, and I 
don't feel in good conscience I can just give it a pass and 
move on to other things.
    Mr. Posey. I don't know what they do in Missouri. I heard 
somebody from our Financial Services Office, in a meeting--you 
were in the meeting.
    Mr. Cordray. Yes.
    Mr. Posey. I think you heard him say he had two complaints 
out of how many hundreds of thousands. That kind of shocked me, 
which indicated to me that Florida maybe and some States got 
some things right. But it seems if you come out with your 
floor, a standard that no State can meet, your effort to 
protect some people is going to have the unintended consequence 
of hurting people.
    I don't think anybody chooses to go to a payday lender. I 
heard somebody from your agency say we would like to get these 
people more involved in going to credit unions and conventional 
banks. Yes, except they will not make the loans a payday lender 
makes. When somebody goes to a payday lender, they are usually 
pretty doggone desperate. And the next step is--I don't even 
want to mention it. There are three ways people get through 
life if they are not independently wealthy: they work; they 
steal; or they are on welfare. So if you don't have jobs for 
people, you really can't complain when you have the bad two 
scenarios. It is a similar thought with payday lending. When 
you don't have some conduit for these people to survive, you 
are asking for trouble.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Missouri, Mr. 
Clay, the ranking member of our Financial Institutions 
    Mr. Clay. Thank you, Mr. Chairman.
    And thank you, Director Cordray, for being here today. We 
have heard a lot this morning about auto loans and credit 
related to auto loans. A February 2015 settlement announcement 
from the Department of Justice against two North Carolina-based 
buy-here-pay-here auto dealers for violations of the Equal 
Credit Opportunity Act alleged reverse redlining, finding that 
the dealerships intentionally targeted African-American 
customers in extending high-cost auto loans when the borrowers 
otherwise qualified for more reasonable interest rates.
    Mr. Cordray, how concerned are you that the recent growth 
in subprime auto lending may also include the kind of reverse 
redlining that the Department of Justice uncovered just in 
February 2015?
    Mr. Cordray. By the way, buy-here-pay-here auto dealers are 
a different part of the market. Again, when you say the CFPB 
isn't sure of its legal authority--one of the things we try to 
do is be very careful about our legal authority. We discuss it 
a lot. We try to analyze it carefully. We try very hard to be 
on the right side of that rather than the wrong side. If we are 
on the wrong side, courts will smack us down, and they may do 
that from time to time. We are trying to be careful about it.
    We have investigated buy-here-pay-here auto dealers because 
they pose a somewhat different and special risk, I think. What 
was your question?
    Mr. Clay. How are you addressing it, the reverse redlining, 
elaborate on the buy-here-pay-here business model? And are 
there unique risks associated with the buy-here-pay-here 
business model?
    Mr. Cordray. Reverse redlining is not unique to auto. It is 
also in mortgage. We took an action against National City that 
got back to consumers $25 million in compensation because of 
reverse redlining in the mortgage market.
    In the auto market, the same types of concerns. Although I 
will say, I don't think the right answer is to cut off auto 
lending to people who have less than perfect credit. People 
need to have transportation in most parts of the country, 
certainly my part of the country, in order to get to work and 
make something better for themselves. So I don't think it is 
just because it is subprime that it is wrong or bad.
    It is the case that when you go into the subprime market, 
prices tend to be somewhat higher. Some of that is inevitable. 
It also creates risks because maybe you will try to exploit 
those consumers in ways that are not appropriate. That is 
something for us all to monitor very carefully.
    The Justice Department has indicated it is monitoring that 
carefully. We are trying to monitor it carefully. I don't think 
the right answer is that people whose credit is under, say, a 
FICO score of 680 should not be able to get auto loans. They 
need them. It is actually helpful to their situations. But if 
people are using that market as a means of engaging in 
predatory conduct--and we saw it in the mortgage market, so it 
is certainly a risk--that is something we should be very 
careful about.
    Mr. Clay. So, in other words, my colleagues should not be 
naive about the fact that some in this industry are steering 
people for no other reason than because of the color of their 
skin into high-cost loans?
    Mr. Cordray. If somebody qualifies for a prime loan and 
they are being steered into subprime, that is the kind of abuse 
that we would want to take action against. If someone just has 
less good credit and, therefore, they are a subprime customer, 
the notion they shouldn't get a loan for that reason is not a 
right answer, I don't think, either.
    Mr. Clay. Thank you for that response.
    Let's shift over to diversity and inclusion. What role has 
the Office of Minority and Women Inclusion played in helping 
the CFPB recruit a diverse and qualified workforce?
    Mr. Cordray. They have been very instrumental for us. I 
have had a number of discussions with some of you and 
particularly with the ranking member on the importance of the 
Office of Minority and Women Inclusion, which was of course 
created in Dodd-Frank and applies to all of the financial 
agencies. I, in response to work that we have done and some 
issues that we have worked to address, elevated that role 
within the Bureau. The Office of Minority and Women Inclusion 
is at the highest levels. That office has been incredibly 
helpful to us both in understanding our own workforce, 
understanding our recruiting and hiring, understanding our 
retention, and also thinking about our contracting and trying 
to work as aggressively as we can with the other regulators in 
the industry to see the practices changed there as well. I 
would say it is one of the successes of the Dodd-Frank 
    Mr. Clay. Thank you, Mr. Director.
    Mr. Chairman, I yield back.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Virginia, Mr. 
    Mr. Hurt. Director Cordray, thank you for appearing before 
our committee. I represent a rural district in southside, 
central Virginia. During August, we had the opportunity to 
travel across the district and met with a lot of folks who live 
on Main Street and are served by our local Main Street 
financial institutions. We heard a lot of concerns as we 
travelled across the district about the CFPB and the impact 
that it is having on these institutions' ability to deliver 
access to capital. But the question that I wanted to focus on 
today relates to the truth in lending RESPA, integrated 
disclosure rules that are going into effect.
    I will recount for you one conversation that we had with 
one of those representatives from the compliance office with 
one of those institutions, and they said they were glad that 
there was an announced effort to try to streamline those 
complicated and complex rules that have to be undertaken when 
closing real estate transactions, but they were also concerned 
about the end product, and concerned about the process. So I 
guess I was wondering if you could talk a little bit about your 
analysis in terms of the actual costs to consumers. What will 
the costs be ultimately? Will this result in higher costs? And 
how much extra time will be required or if you could just talk 
about that briefly?
    Mr. Cordray. Sure. Again, it was Congress' decision that 
these forms really needed to be streamlined. They have been out 
there for 40 years, 2 different statutes, 2 different--
    Mr. Hurt. You all looked at the cost directly?
    Mr. Cordray. Yes, although it was a mandatory rule. We 
didn't have discretion to say, we are not going to do this. We 
did our best to try to mitigate costs and make it feasible for 
industry. We spent a fair amount of time on it. The statute was 
enacted in 2010, and this rule isn't taking effect until now, 
almost 5 years later. At the same time, we have been working 
with the industry extensively to try to help them comply, 
trying to provide a lot of guidance, trying to provide 
    Mr. Hurt. Are you able to talk specifically about the cost 
and the analysis that you all have done, about the specific 
costs that will be passed on to consumers or the time?
    Mr. Cordray. I am not convinced that there are going to be 
any significant costs passed on to consumers. It really is a 
change of forms. There is a lot of angst around the transition 
because they made a transition 5 years ago when HUD changed the 
form. It probably happened too fast in light of that, but 
Congress mandated it all. Industry did it 5 years ago. They 
will do it now. It will be a better, cleaner process. Consumers 
will understand these forms better. That is what our testing 
has shown. The industry will benefit because consumers will be 
both clearer and happier about what they are doing, with less 
angst around the closing, and less surprises; unhappy surprises 
at the closing table are a big source of dissatisfaction. I 
think it will be better, but it is a matter of getting through 
    Mr. Hurt. And as you point out, the timeline has proven to 
be a burden to a lot of these institutions, especially smaller 
ones that have a hard time. There are lot of partners in these 
transactions, and trying to make sure everybody is on the same 
page is very important. So I guess my question to you is, I 
understand that the CFPB has rejected the request by industry 
to grant a grace period for the implementation of this for the 
next 6 months, let's say, until February. It is my 
understanding that has been rejected.
    Mr. Cordray. That is not right.
    Mr. Hurt. My question to you is, will the CFPB pledge not 
to bring enforcement actions against those institutions that 
are acting in good faith? Obviously, we don't want people 
abusing that grace period, but will you pledge that you will do 
    Mr. Cordray. It is wrong that we have rejected that. In 
fact, I saw just the other day an article that may not be 
    Mr. Hurt. So my question--
    Mr. Cordray. But CFPB has granted most of what industry 
wanted. We have done that.
    Mr. Hurt. But you haven't offered a blanket grace period 
for those who are acting in good faith in terms of not bringing 
an enforcement action. I would like to get you on the record as 
saying if that is your position.
    Mr. Cordray. What we have done is actually better for the 
industry. We have worked with the other agencies. And as I 
said, this is going to be in writing. I have said it verbally. 
I have made my commitment, but it is going to be in writing by 
all the agencies, that during the early period, and this may be 
less or more than 6 months, we will be diagnostic and 
corrective, not punitive. That means we are not going to hammer 
people if they happen to get the forms somewhat wrong. We know 
industry is trying to get it right. We know there is no 
advantage to them in undermining consumers by changing the 
forms in some way. They are just trying to get it right, and I 
believe that. And so that is the way we are going to handle it, 
and that is the way I have talked to the other agencies about 
it. They agree. You are a former prosecutor. I know you know 
law enforcement and you have to sometimes be a little nuanced 
about it. We are trying to do that.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Georgia, Mr. 
    Mr. Scott. Thank you, Mr. Chairman.
    Over here, Mr. Cordray, in the corner. I served in the 
Georgia legislature. I was the chairman of the Senate Rules 
Committee, and there we passed and enacted into law a fairly 
restrictive State short-term lending law. But even so, online 
companies like Elevate offer a 59-percent rate product in 
Georgia that complies with our State law, and certainly gives 
our constituents there more access to good short-term credit. 
But under the proposed small-dollar lending rule, Elevate 
wouldn't be able to offer this 59 percent product in our State 
of Georgia.
    So my question to you is, how will my constituents who use 
the credit as intended and needed be better served by a rule 
that is overly prescriptive and does not complement our 
existing State law and that our State legislatures have 
concluded is in the best interests of our constituents in 
    Mr. Cordray. I will say this is something we are trying to 
listen very carefully to you and others who are bringing these 
different scenarios to us. I am very sympathetic and the point 
has been made on both sides of the aisle today that alternative 
means of satisfying small-dollar credit for people are very 
important, whether it is credit unions or maybe community 
banks, or as you say, companies that are now innovating around 
trying to find more consumer-friendly methods of supplying that 
credit that people need. I am sympathetic to that. We are 
trying to work with the rules we are trying to develop such 
that there will be room for that. If we are not getting that 
right, we will be interested in hearing from people about how 
they think we might adjust the proposals somewhat here or 
there, and the product you described seems to me much more 
user-friendly than some of the products I have seen out there.
    Mr. Scott. It is. It helps my constituency. I am going to 
be working on that, and I am glad to hear you say you will work 
with us so that my folks in Georgia will be happy.
    Now to another matter, Mr. Cordray. This business with the 
auto dealers. First of all, let me say that the CFPB have done 
some good things, but this business with the auto dealers is a 
bad thing. It is a bad deal. Now let me tell you why. There is 
racism everywhere. We know that. But in the ruling and the 
guidance that you put out, it was done unfairly. You offered a 
rule. You charged the dealers with the basis of it that they 
were racially discriminating. You based that on a report that 
was shamefully flawed. It was inaccurate. And to tell you the 
truth, it was downright insulting to African Americans because 
you just assumed their last name was Johnson or Williams or 
Robinson or maybe even Scott. But let me tell you, there are a 
lot of white people with the same names. How can you be 
    And even you yourself, you as the CFPB, said that even this 
is about 25 percent inaccurate. But yet still you directed an 
extraordinary and deceitful approach that harmed some of the 
very people that you are trying to help. You have hundreds of 
auto dealers who are African Americans, but when you put this 
blanket indictment, you hurt them. And then, you went to the 
lenders. You pressured them to cut out their ability to 
discount their loans, the one little measure they have in there 
with which they can make a profit. Now, you did this without 
congressional approval. We said right here in Dodd-Frank and 
wrote--there has been some discussion about the law. Here is 
what we wrote. We said--and I wrote this with Barney Frank and 
many members on this committee. Section 1029, says these words: 
``The Consumer Financial Protection Bureau may not exercise any 
rulemaking, supervisory, enforcement, or any other authority 
including any authority to order assessments over a motor 
vehicle dealer that is predominantly engaged in the sale, the 
servicing of motor vehicles, the leasing and servicing of motor 
vehicles and both.
    Mr. Cordray. I strongly disagree with much of what you just 
said, but I--
    Mr. Scott. You can disagree. I read it from the law.
    Mr. Cordray. No, no. I don't disagree with the reading of 
the law. Auto dealers are one thing. Auto lenders are another. 
I disagree with quite a bit of what you said about 
characterizing our efforts here--
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Illinois, Mr. 
    Mr. Hultgren. Thank you, Mr. Chairman.
    Director Cordray, thank you for being here today. Your 
testimony is an important opportunity certainly for us to hear 
about the Bureau's policymaking, formal and informal, and for 
Congress to use the limited oversight provided to us by the 
Dodd-Frank Act.
    First of all, I was drawn to the part of your testimony 
that I think awkwardly tries to make the case that community 
banks and credit unions are faring well in the current 
regulatory and economic environment. I assume you read the 
American Banker, but just in case you don't, I wanted to flag 
some stats from a story that was published on Friday. It said: 
``Today, there are 1,524 fewer banks with assets under $1 
billion than there were when Dodd-Frank was signed into law.'' 
It also said: ``The number of banks with under $1 billion in 
assets fell by 5.6 percent in the second quarter.'' This is the 
second largest percentage reduction since 1984. The annual 
shrinkage rate in the number of banks under $1 billion has 
accelerated every quarter but one since the third quarter of 
2012. As I have observed the Bureau over the last few years, I 
have become increasingly concerned it is more interested in 
expanding its influence than in protecting consumers' access to 
financial products and services. The revised QM rules for small 
creditors and those operating in a rural or underserved area 
was released by the Bureau last week.
    I appreciate many of the considerations you made for these 
lenders. However, the entire Illinois delegation--House, 
Senate, Republicans, Democrats--made a recommendation to the 
CFPB that economically challenged areas be included in the 
definition of underserved areas. Why did the CFPB avoid an 
opportunity to make this commonsense change that would have 
eased compliance for community lenders and improved access to 
    Mr. Cordray. There are two parts to your question. The 
first part is on community banks. I think you are just wrong on 
the facts.
    Mr. Hultgren. My question was specific to this. You can 
comment on my statement, but my question is economically 
challenged--again this was Republicans, Democrats, House, 
Senate, all said: ``This is important; please do this.'' You 
just ignored it, and I wonder why you did and why you wouldn't 
put the commonsense change in there, first question.
    Mr. Cordray. We have done two or three rounds of rulemaking 
now on the meaning of ``rural'' and ``underserved.'' We have 
heard a lot of comments on those, and we have done our best to 
digest those comments and reach conclusions. We have in all 
these cases expanded the coverage of that and so as to benefit 
community banks and credit unions and have considerably done 
    Mr. Hultgren. We are not feeling it, and the American 
Banker article clearly says so. I want to get to my second 
question quickly. Again, this is bipartisan, Republicans, 
Democrats, House, Senate, asking: Please, commonsense. This 
makes sense. Please do it. Please take another look.
    Second question, I want to talk a little bit about how your 
agency chooses to engage the media and the public. I have 
noticed your press office is much more aggressive and 
inflammatory than any other financial regulators. First of all, 
your agency is well-known for its use of midnight embargoes to 
create one-sided stories. Additionally, these press releases 
frequently use language that misrepresent the facts. In the 
Bureau's semi-annual report, you cite 45 public enforcement 
actions in the preceding calendar year ending March 31, 2015, 
and many of these standalone enforcement actions most commonly 
resulting in consent orders, the report and press releases 
describe the Bureau as finding or ordering companies to conform 
to a judgment determined by the Bureau. Do any of those 
standalone consent orders admit any facts or guilt?
    Mr. Cordray. Ordering is certainly accurate. When we say 
finding--we tend to be careful about this language--but usually 
this is the result of a prolonged investigation by us, 
sometimes in conjunction with other agencies, including the 
Justice Department at times or other financial agencies or 
States, who are all joining the investigation and reaching the 
same conclusion. So the notion that we are somehow off on our 
own doing crazy things when we are typically working with 
partners who are themselves law enforcement partners and 
reaching the same conclusions, I think speaks for itself.
    Mr. Hultgren. But even with your statement, since liability 
has not been proven in a court of law, why does the Bureau 
issue over-the-top press releases that state facts that are not 
proven? Why does the Bureau try to insist a company has 
violated the law if it has not proven it did so?
    Mr. Cordray. I don't think that is a fair characterization.
    Mr. Hultgren. They did. If you look at the press releases--
    Mr. Cordray. I don't think they are over-the-top press 
releases. We are calling attention to practices that usually 
are the result of a prolonged investigation. The facts are 
usually clear enough that the institution wants to resolve 
without further proceeding because they recognize the problems, 
and they are going to clean up the problems.
    Mr. Hultgren. We can hear it. We have several regulatory 
agencies that come and report to us. We see the difference. It 
is such a glaring difference to us what the CFPB is doing. I am 
just asking you: Look at what the other Departments are doing. 
Your press releases are so far over the top. Who writes the 
press releases--
    Mr. Cordray. Often, we issue press releases in matters 
where State Attorneys General issue press releases as well. I 
don't think there--
    Mr. Hultgren. Who writes the press releases?
    Mr. Cordray. I don't think the Justice Department--
    Mr. Hultgren. My time is almost up. Who writes your press 
    Mr. Cordray. Many people at the Bureau are involved in 
writing accurate, fair accounts of our matters.
    Mr. Hultgren. It doesn't look that way. My time has 
expired. I yield back.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentlelady from New York, Mrs. 
Maloney, ranking member of our Capital Markets Subcommittee.
    Mrs. Maloney. Thank you, Mr. Chairman.
    I want to thank you for calling this hearing, as well as 
Ranking Member Waters, and I welcome you, Director Cordray. As 
you know, I am a big supporter of CFPB, under your leadership I 
might add, and I think you have done a fantastic job. I believe 
this report is absolutely excellent that you are issuing, and 
your statements, your press releases, and your actions have all 
been data-driven and factual, and I want to congratulate you. 
And the numbers speak for themselves. The Bureau has returned 
over $11 billion--$11 billion--to 25 million consumers who have 
been harmed by illegal consumer practices. The Bureau has also 
gone out of its way to help our men and women in the military 
through the Office of Servicemember Affairs, led by Holly 
Petraeus. And you have shown great flexibility and reacted to 
letters and inquiries from members of this panel and the public 
as well.
    And I want to give one example. The Bureau helped stay-at-
home spouses by clarifying that the credit card bill of rights, 
the CARD Act, did not prevent stay-at-home spouses from taking 
out credit in their own names. And this was a bipartisan 
request for clarification, and we want to thank you for that.
    Now, I would like to ask you about co-ops. As you know, co-
ops are a big part of New York City, and many thousands of our 
residents, hundreds of thousands of our residents, literally 
live vertically not horizontally. And, unfortunately, there is 
a great deal of uncertainty about whether co-ops are included 
or excluded in the Bureau's new integrated disclosure rule for 
mortgages. Co-ops have always been treated as real estate under 
both TILA and RESPA, and so lenders to co-ops have always 
provided the same disclosures as everyone. They have always had 
the same.
    But under the Bureau's new integrated disclosure rule, the 
Bureau did not specify whether co-ops were still included, as 
they always have been under Federal law. Different lenders have 
come to different conclusions about whether co-ops are included 
in the rule. Some say they are included; some say they are 
excluded. Now this is a big problem because if you are not 
allowed to voluntarily comply, you are not allowed to 
voluntarily comply with the integrated disclosure rule, without 
violating the law. And this is a rare situation where the co-op 
industry thinks that you and your Bureau has done such a good 
job on the integrated disclosure rule that they actually want 
to be included in the rule. So I would like to ask you for the 
record, can you take this opportunity to clarify that co-ops 
are, in fact, intended to be covered by the new integrated 
disclosure rule?
    Mr. Cordray. Thank you for the question. I don't know that 
I can today on the spot at this moment. I know that our staff 
has been talking back and forth to your staff, as you brought 
this issue to our attention, and as we have been looking at it 
and trying to understand it, it feels that the issue can vary 
in different parts of the country depending on State law. Now, 
whether that is the right answer or whether that is just a 
current answer, whether we should be more specific somehow here 
is something I believe we have taken under consideration, and 
we are considering and will continue to talk back and forth 
both with your staff and any other Members who are interested 
in this issue. Maybe others from your State would be interested 
in it as well.
    I would like to get it right. I would like it to be 
satisfactory. As you say, I would like to--if people like our 
forms and want to be covered by them, I would like that to be 
the answer, but I can't tell you today exactly how the legal 
issue comes out here as we are trying to work on it as we 
speak, I believe.
    Mrs. Maloney. Okay. I would also like to ask you about 
overdraft fees. As you know, I have been focused on overdraft 
fees, which can be outrageously high and can eat into 
consumers' hard-earned savings. In fact, I will be 
reintroducing Mr. Ellison's and my Overdraft Protection Act 
next week, and my bill would ensure that overdraft fees are 
reasonable and proportional to the amount of the overdraft, 
which would end the $35 cup of coffee. But I want to know, are 
you still working on this? When are you going to come out with 
it? And are you going to be looking at mainly disclosure on 
overdrafts, or are you considering some more substantive 
limitations on oversight fees?
    Mr. Cordray. Yes. We are well aware of your interest in 
this, and you have been proposing legislation on it. We are 
working on it right now. I think there may be some 
misunderstanding because we recently put out to start some 
customer testing around disclosure, but that does not signal 
that that is the only thing we are thinking about in this 
regard. I agree with you that there is a broad set of issues 
here--some substantive, some maybe handled by disclosure--for 
us to try to figure out. It is not a suggestion that we are 
narrowing our scope of our inquiry here.
    Chairman Hensarling. The time of the gentlelady has 
    The Chair now recognizes the gentleman from Florida, Mr. 
    Mr. Ross. Thank you, Mr. Chairman.
    Director Cordray, it is a pleasure to see you again. You 
and I have had multiple conversations with regard to the payday 
lending industry. I have explained in the past that I was 
active in the Florida legislature in initiating legislation 
that corrected a very bad market, a very terrible market for 
consumers in the payday lending industry. As a result, I think 
we have probably the best State-run payday lending institution 
anywhere. We protect our consumers. We limit what they can do, 
but we also make sure that the bad players are not in there.
    Now, the fact that we are here talking about payday lending 
doesn't mean that I am here talking on behalf of payday 
lenders. No, I am here on behalf of payday consumers. The fact 
that they have a paycheck means that they have a job which 
means they are working hard to meet the needs of their family 
to better their life. And yet when they have a need for 
capital, when they need a short-term loan, according to 
Commissioner Breakspear in Florida, your proposed regulations 
will absolutely eliminate this source. It will absolutely 
delete any opportunity for these hard-working taxpayers to have 
access to capital in a market where nobody else will fill that 
void. Have you had a chance to talk to any of these payday 
    Mr. Cordray. Yes, I have. And I have also had a chance to 
talk, as you know, to talk extensively with Commissioner 
Breakspear and with folks about the Florida structure, both 
Members of Congress who are very interested in it I have seen, 
and people from Florida, providers and consumer groups. There 
are different points of view on that regime. Not everybody 
thinks it is the greatest thing since--
    Mr. Ross. Eliminating the supply will not eliminate the 
demand, and these poor consumers who are trying to make ends 
meet will now be subjected to usurious lenders, mostly 
offshore. Maybe Cousin Guido or somebody who has interest rates 
that they can't afford. We are not doing any benefit for the 
consumer, and yet that is your mission.
    Now, when you promulgate your regulations, I would assume 
it is done based on objective evidence. You would look at data 
that you may collect, and I would assume that you would look at 
how bad the industry is in terms of how many complaints have 
been registered in the payday lending industry. And according 
to the CFPB's complaint database, since its inception by 
product only 3,030 complaints have been filed against payday 
loan companies. That is less than one-tenth of 1 percent. At 
what point do we say that is egregious?
    Mr. Cordray. First of all, we staged products over time. 
Payday was one of the later products to come online. That is 
one piece. Another piece, what we find is that consumers may be 
characterizing a complaint in one way where it is actually 
another. A lot of our debt collection complaints actually turn 
out to be joint debt collection payday complaints--
    Mr. Ross. Still. Only 3,000. Less than--
    Mr. Cordray. No, no, no. That is--which suggests that is 
not the right number. But it is a fair point. Again, for us, 
one of the things we are trying to figure out is we want there 
to be access to credit. We understand the needs people have, 
and we have heard a lot about it in the individual situations. 
But if it is credit that is going to roll them into sequences 
of 8, 10, 12 loans--
    Mr. Ross. I agree with you, and that is what we have to--
    Mr. Cordray. And it still happens under Florida law.
    Mr. Ross. But if I might point out under the Florida law, 
over the last year, there were nearly 8 million, 8 million, 
payday transactions. And according to the Florida Office of 
Financial Regulations, there were only 117 complaints. It 
sounds like something is working. And I think we need to take a 
look at that. I think if we are going to look at--
    Mr. Cordray. It is a relevant datum.
    Mr. Ross. Relevant? It is compelling because where--
    Mr. Cordray. I don't know that it is.
    Mr. Ross. --are these people going to go? Where are these 
people going to go when they can't make ends meet, when it is 
11 o'clock at night and they need to be able to get lunch money 
for their children, when they need to be able to pay the rent. 
Are they going to go to a bank that is not open? Are they going 
to go a non-bank lending institution that doesn't want to touch 
these long-term loans?
    Mr. Cordray. This is why we are looking at the different 
regimes in all 50 States. There are 13 States where no payday 
lending is allowed. That doesn't mean that is the answer we are 
going to come to. But in 13 States, it is not allowed. What do 
the people do in those States? They do something.
    Mr. Ross. And I am here to tell you that there is a good 
guidance to follow, and that is the State of Florida.
    Now, I know that in a conversation you had some time ago, 
you indicated that Florida has--that consumers are charged up 
to almost 300 percent per year. I take issue with that, and I 
just wanted to know where you might have gotten that--
    Mr. Cordray. I'm sorry. What is this?
    Mr. Ross. That they pay up to 300 percent per year APR on 
their payday loans.
    Mr. Cordray. In Florida?
    Mr. Ross. Yes.
    Mr. Cordray. That is my understanding. And--
    Mr. Ross. And I take issue with that--
    Mr. Cordray. And consumer groups--again, consumer groups 
don't agree with you on that.
    Mr. Ross. The one thing I would just please ask you to do: 
These are hard-working taxpayer dollars. They have a job, as 
evidenced by the fact that they have a paycheck. My concern is 
not for the payday lenders. My concern is for the payday 
consumers, and I ask and I plead with you to make sure that we 
keep this industry alive, and protect our consumers.
    And I yield back.
    Mr. Cordray. Okay. Thank you.
    Chairman Hensarling. The gentleman yields back.
    The Chair now recognizes the gentleman from Texas, Mr. 
Green, ranking member of our Oversight and Investigations 
    Mr. Green. Thank you, Mr. Chairman.
    And I thank the ranking member as well. I thank the 
President of the United States of America, the Honorable Barack 
Obama, for appointing you, Mr. Cordray, to this position as the 
Director of the CFPB. And I thank him for doing so because he 
appointed someone with courage, someone with intestinal 
fortitude, someone who is willing to stand up for consumers. It 
is just not easy to do. You have been through the fire and the 
storms. Just getting positioned required an inordinate amount 
of effort, and I am grateful that you are in the position that 
you are in.
    Now, let me just say one more thing. This is not really a 
part of what I am called upon to talk about today. But I am 
proud to serve under the leadership of the Honorable Barack 
Obama. I am saying it because too often so much is said about 
him on the negative side, such that people assume that 
everybody in the room thinks negatively of the President. I do 
not. He has been elected twice. It was no fluke. And I just 
don't want the record to show that there were some of us who 
acquiesced when statements were made that we should have 
objected to. I am proud.
    Now, Mr. Cordray, you are not saying that all auto dealers 
engage in invidious discrimination, are you? I assume your 
answer is no, you are not. Is that correct?
    Mr. Cordray. That is correct.
    Mr. Green. And you are not saying that all--by the way, 
this is not under the purview of your bailiwick, but all 
investment advisers are engaging in invidious discrimination or 
all mortgage lenders, but--
    Mr. Cordray. I don't think all anybody in any industry.
    Mr. Green. Absolutely, but those that do are the ones that 
we have to stop.
    Mr. Cordray. Yes.
    Mr. Green. Do you agree?
    Mr. Cordray. I very much agree. It is a law enforcement 
obligation and duty that we have.
    Mr. Green. I saw you anxiously desiring to respond to some 
commentary that was made earlier, and you did not get the 
opportunity because time was limited, but as it relates to the 
auto lenders. So would you take a moment please and give your 
response before I continue with my concerns?
    Mr. Cordray. We are not trying to make up problems to 
address, but when we see problems and they are brought to our 
attention, and again, in the auto lending, it is not unique to 
us. The Justice Department feels just as strongly and feels the 
same way as we do about the concerns here. And they have been 
at this a lot longer than we have. We feel that when people go 
to get an auto loan and lending programs have been established 
by lenders, even though they may be executed by dealers, that 
allow or--and that bless high risks of discrimination, based on 
race or national origin or other prohibited characteristics, 
that is an issue we need to investigate and we need to try to 
address. If we can find a way to address it that mitigates and 
roots out the risks of that but at the same time allows the 
industry to do what it does best, which is sell cars to people 
and give them the opportunity to have transportation to get to 
work, which is so important for people's economic well-being, 
that is what we are trying to accomplish. And it is a balance, 
and it is--people can look at it and say we are getting the 
balance wrong, or they can say I disagree with this or I 
disagree with that, or the methodology here seems complicated 
and I think you don't have it right. We always try to listen to 
that. And if we can adjust and take account of their concerns, 
we try to do it. The fact that we do have those discussions 
    Mr. Green. With less than 50 seconds left, Mr. Cordray, let 
me go to something quickly. Let me do this quickly. People--
there has been much said about how powerful you are. But isn't 
it true that the Financial Stability Oversight Council (FSOC) 
has within its purview the authority to override decisions that 
you make in terms of rulemaking?
    Mr. Cordray. They do.
    Mr. Green. And--
    Mr. Cordray. No other agency is subject to that.
    Mr. Green. Only agency subject to this. And isn't it also 
true that your rules are subject to judicial review?
    Mr. Cordray. Absolutely.
    Mr. Green. And isn't it true that while you are confirmed 
by the Senate, you have to be--that you can be removed by the 
President should the President find that you have not behaved 
properly while in office?
    Mr. Cordray. For cause, that is my understanding.
    Mr. Green. And isn't it true that you are also subject to 
audits by the GAO?
    Mr. Cordray. Yes. Every year, in fact, more so than I think 
many agencies are.
    Mr. Green. So while you do have some authority to help 
consumers, you are still regulated yourself. Is this not true?
    Mr. Cordray. I think extensively, including coming here at 
least twice a year and to the Senate at least twice a year and 
hearing your oversight, which I take very seriously. I don't 
feel that I can sit here, listen to concerns you raise, and 
then not pay attention to them.
    Mr. Green. Our time is up. But I want to close with, Mr. 
Chairman, there was some mention about African-American auto 
dealers. If an African-American auto dealer engages in 
invidious discrimination, that person ought to be stopped too. 
Doesn't matter about your color. You ought not discriminate 
against people regardless of who they are.
    Mr. Huizenga [presiding]. The gentlemen's time has expired.
    With that, the gentleman from North Carolina is recognized 
for 5 minutes.
    Mr. Pittenger. Thank you, Mr. Chairman.
    Mr. Cordray, I have in my hand the annual employee survey, 
dated December of 2014, of your employees. And question 57 
says: ``How satisfied are you with the policies and practices 
of your senior leadership?''
    Mr. Cordray, less than half of the people questioned were 
satisfied with the policies of your leadership. This must be 
very disturbing to you as you consider that these individuals 
have worked with you for the last 4 years and followed these 
policies. How do you account for this? What is happening within 
your Bureau, and why do you believe that you have been given 
such a vote of no confidence by your own employees?
    Mr. Cordray. First of all, I think I would agree with some 
of the employees at that point in time. I thought that there 
were reasons that I wasn't satisfied--
    Mr. Pittenger. Excuse me, sir. This is December 2014.
    Mr. Cordray. I understand. And what I am saying is--
    Mr. Pittenger. This is just a few months ago.
    Mr. Cordray. What I am saying is, I wasn't satisfied with 
our senior leadership, including myself, at that time either. 
We had had significant problems with our performance management 
system. That needed to be changed and fixed. We were in the 
process of doing that and that was a source of a lot of 
dissatisfaction for our employees, and--
    Mr. Pittenger. You had tremendous autonomy and authority to 
write rules and regulations. They apparently don't like your 
    Mr. Cordray. No, no. No, no. Different things here.
    Mr. Pittenger. Well, no, that is a real thing.
    Mr. Cordray. These are operational issues, but I will say 
we have just had the new Annual Employee Survey this year. 
There is a significant positive increase, which I have been 
pleased to see--
    Mr. Pittenger. Let's go on to my next question because 
this--I am sure you were disturbed by that. Let's look at this. 
Your employees have come forward and said that they have been 
subjected to discrimination, retaliation, and other kinds of 
maltreatment. How do you account for the fact that not one 
single manager has been held accountable for what has been 
    Mr. Cordray. Again, a lot of this stemmed from the 
performance management system, which was unsatisfactory. We 
have scrapped that system, and we are working with our union to 
overhaul it. But I just want to say, since you are raising the 
AES, the annual employee survey, the most recent numbers 
indicate that the diversity inclusion index from our own 
employee base is higher than it was last year, and higher than 
it is government-wide.
    Mr. Pittenger. That is not necessarily a good correlation--
    Mr. Cordray. And I take each one seriously. The overall 
tenor at this CFPB is very positive.
    Mr. Pittenger. Given what we have seen in the various 
departments and agencies of government, I don't believe I would 
use that as a reference.
    Now, according to the Bureau, only 3.8 percent of all 
consumer complaints in the last 12 months have received any 
actual monetary relief. Does this mean that most of these 
complaints are without merit, or does it mean that you are 
remarkably deficient in obtaining financial relief for these 
    Mr. Cordray. First of all, I would say that the consumer 
complaint system that we have set up is revolutionary among 
Federal agencies in the Federal Government. We are getting more 
relief for people--
    Mr. Pittenger. Excuse me, sir. Excuse me, sir, 3.8 percent 
of all consumer complaints, only that number received in the 
last 12 months any monetary relief.
    Mr. Cordray. A lot of them are--on a debt collection 
complaint, the issue may be stopping the harassing phone calls. 
On a credit reporting complaint, the issue might be cleaning 
    Mr. Pittenger. Answer the question. Does it mean that most 
of these complaints are without merit?
    Mr. Cordray. No. As I am saying, just listen for a moment. 
On a debt collection complaint, different kinds of relief that 
are not monetary are very important to people, and the same 
with credit reporting. There are a whole bunch of complaints 
where monetary relief is not the immediate issue, although it 
has monetary consequences. If I get my credit report cleaned 
up, now I can get a loan. That has a lot of consequences, but 
it wasn't that money came to my pocket immediately.
    Mr. Pittenger. Let me ask you this, sir. The CFPB has 
promulgated rules that have impacted credit unions and 
community banks, enforced by the FDIC, the Fed, the OCC--
    Mr. Cordray. NCUA. Yes.
    Mr. Pittenger. Do you see any relief that you have given to 
reduce the regulatory burden for these entities? I work with 
these entities on a constant basis. I was on a community bank 
board for a decade.
    Mr. Cordray. I know you were.
    Mr. Pittenger. And yet I see here time and again how they 
are faced with such a burden in compliance that they are hiring 
more compliance officers than loan officers and development 
officers. How do you account for that?
    Mr. Cordray. Take our mortgage rules, for example. We had 
special provisions that we created in the rules to create 
special coverage for community banks and credit unions; 98.5 
percent of the credit unions are covered by those special 
provisions. The credit unions' share of the mortgage market is 
up since our rules. How do you explain that? This is positive 
in many respects for some of these smaller entities.
    Mr. Pittenger. The housing market has come back. I wouldn't 
credit that with--
    Mr. Huizenga. The gentleman's time has expired.
    Mr. Pittenger. And community banks have come out of--have 
left that business as well.
    Mr. Huizenga. The gentleman's time has expired.
    Mr. Cordray. That is a myth that is not necessarily being 
borne out--
    Mr. Huizenga. The gentleman's time has expired.
    With that, the Chair recognizes the gentleman from 
Missouri, Mr. Cleaver, for 5 minutes.
    Mr. Cleaver. Thank you, Mr. Chairman.
    Thank you for being here, Mr. Cordray.
    Mr. Cordray, my first question--first, let me associate 
myself with the comments of my colleague, Mr. Green from Texas. 
I thought he spoke quite eloquently for many people in this 
    My first question is, Director Cordray, can you tell me 
what the approval rating of Congress is?
    Mr. Cordray. I don't know.
    Mr. Cleaver. I do. It is 14 percent.
    Mr. Cordray. Fourteen percent?
    Mr. Cleaver. Fourteen percent.
    Mr. Cordray. Okay.
    Mr. Cleaver. Fourteen percent. It is up from 9 percent.
    Mr. Cordray. That is a 50 percent increase.
    Mr. Cleaver. My point is, 50 percent of your employees say 
that they are dissatisfied, and 90 percent of the people say 
they are dissatisfied with us.
    Mr. Cordray. And my point about that is if 50 percent are 
satisfied and 50 percent want us to do better, I want us to do 
better too, and we are working to do better. That is the only 
appropriate way for us to address these issues, and that is 
exactly what we are trying to do.
    Mr. Cleaver. I agree and I appreciate what the agency is 
doing, and also your flexibility. I said many times, I was in 
here, as were a few of us, when Treasury Secretary Hank Paulson 
came in, he was sent over from the White House, and Fed Chair 
Ben Bernanke and others came in this very room, and told us 
what was happening and that we only had a short time to 
respond, and we did what we thought was in the best interest of 
the country.
    I listened to Ben Bernanke this past Sunday on one of the 
shows, and he said he thought that the Great Recession was 
worse than the Depression because of the whiplash that is still 
being felt. And one of the things we did--we did a lot of 
things trying to bring the country out. Obviously, some of 
those things worked because we are a much healthier Nation 
economically now. We tried and failed, I will admit, to reduce 
the big banks. Too-big-to-fail was something we all were 
interested in but what happened was the red tape has become so 
costly that we have unintentionally pushed more and more 
consolidations and concentrations of the financial services 
world. We didn't intend to do it. Now, that is not your fault. 
It is not the agency's fault.
    I went into one of my banks in Marshall, Missouri. Well, 
there is only one bank there. And they put the regulations on a 
desk so I could see how high they were, and it was quite 
impressive. That is--the agency didn't do that. Congress did 
that. We did that, albeit unintentionally. I looked at--one of 
my favorite Chairs of this committee was Mr. Oxley, a 
Republican on the other side. He was a fair and good and decent 
guy. I speak at one of his forums once a year. I think he is 
just--he is great. The Sarbanes-Oxley Act--I think it was in 
the early 2000s; I can't remember today--but they had I think 
16 rulemakings. And I guess your agency had hundreds and 
hundreds of rulemakings to do.
    Mr. Cordray. My agency?
    Mr. Cleaver. Yes.
    Mr. Cordray. I don't think it has been hundreds, no.
    Mr. Cleaver. But you had more than 16.
    Mr. Cordray. Probably, including a lot of little ones, yes. 
    Mr. Cleaver. So what has happened is that community banks, 
which no one intended to hurt--not Republicans, not Democrats, 
not anybody. I don't think there is anybody in this room who 
intended for community banks to be in the condition that they 
are in, in terms of many of them struggling just to maintain 
their assets. And what I am hoping to finish my sentence, if 
everybody disagrees, it would seem to me that it is logical if 
we had men and women of good will sit down here and figure out 
a way to bring some legislation forth to provide relief to the 
community banks.
    Mr. Huizenga. The gentleman's time has expired.
    With that, the Chair recognizes Mr. Rothfus of Pennsylvania 
for 5 minutes.
    Mr. Rothfus. Thank you, Mr. Chairman.
    Director Cordray, welcome.
    In September 2014, the GAO published a report requested 
after industry participants and Members of Congress raised 
questions about the nature and scope of the Bureau's data 
collection activities. The report found that the Bureau has 
undertaken 14 data collection projects, including the monthly 
collection of data concerning up to 600 million credit card 
accounts and 127 million mortgages, as well as consumer credit 
reports. This can only be characterized as an unprecedented Big 
Government grab of individual financial records. In fact, 
George Mason University economist Thomas Stratmann has 
estimated that the number of credit card accounts for which the 
Bureau wants to collect consumer information is some 70,000 
times greater than is necessary for the agency to execute its 
regulatory mission.
    Leaving aside the fact that Americans have a fundamental 
interest in not having their purchases tracked by the Federal 
Government, there is also the risk of data security breaches 
and the compromising of personal information. When testifying 
before the committee before, even you admitted that the 
Bureau's data collection is not secure and could be hacked.
    Since then, of course, we have witnessed the Office of 
Personnel Management (OPM), another Federal Government agency, 
admit that it allowed more than 22 million Americans to have 
their personal information stolen. So why should Americans 
trust the Bureau with their personal information anymore than 
    Mr. Cordray. First of all, I am always eager to hear from 
you on this issue because I know you have background and 
expertise in information management. What I would say is, first 
of all, we try hard and virtually all of our data collections 
are done on a sampling basis because we have heard and agree 
with the concern raised about why get more information than you 
really need to monitor the market, which is all we are trying 
to do.
    Second, I would be the last to say that any database is 
immune from being hacked: OPM, Target, Home Depot, big banks. 
Everybody is under fire these days. But I do think that we have 
are making sure that we comply with every reasonable standard 
that is in place across the Federal Government, which, again, 
is not the be-all-and-end-all because OPM got hacked. But our 
data is less interesting to the hackers because it is 
anonymized. They can't get credit card numbers. They can't get 
names. They can't get personal information.
    Mr. Rothfus. Are you familiar with the recent article in 
Science Magazine where they used only 3 months of anonymous 
credit card data and they were able to re-identify 90 percent 
of the individuals with some reverse engineering?
    Mr. Cordray. This was from what database?
    Mr. Rothfus. A recent Science article--
    Mr. Cordray. But what database were they talking about?
    Mr. Rothfus. I don't have that--
    Mr. Cordray. They weren't talking about the CFPB's 
database, I don't think.
    Mr. Rothfus. Going back to the CFPB database, you just 
mentioned data sampling. Collecting 600 million credit card 
accounts, that is data sampling?
    Mr. Cordray. No. The only place we haven't done sampling is 
on the credit card data because we are simply getting the same 
data that other agencies have already gotten. The industry has 
told us it is more efficient for them to just give it rather 
than them having to create a representative sample. It is a 
cost issue for them. Now, if you are telling me that regardless 
of the cost, we should do something different, but we are doing 
exactly what other agencies have done. It is the very same 
data. It is swimming around out there in the private sector all 
over the place, that is for sure, but in our case, it is 
anonymized. And, therefore, it is really not of that much 
interest to hackers I would think because--
    Mr. Rothfus. Except to the extent it can be reverse-
engineered, but Director Cordray--I only have a minute-and-a-
half left.
    The Bureau's consumer complaint database has come under 
heavy criticism since its July 2015 rollout for publishing 
complaints and allegations of wrongdoing without the Bureau 
actually verifying that all of the underlying information is 
both accurate and complete. There have also been reports that 
the Bureau has failed to scrub personally identifying 
information from some of the CCD complaints that have been 
already been published, thereby putting individuals' financial 
information at risk. And recent reports from the Office of the 
Inspector General have identified noticeable inaccuracies and 
other shortcomings related to the management and maintenance of 
the database. What does it say about the Bureau and the 
database that there have been so many problems associated with 
this database?
    Mr. Cordray. I think our data collection has been scrubbed 
pretty hard by the GAO, which did a yearlong review of this at 
the suggestion of Senator Crapo and others. GAO made a number 
of recommendations which we have implemented, and with which we 
agree. The Inspector General has looked at it and had further 
    Mr. Rothfus. What kind of processes have you put in place 
to identify complaints that are materially inaccurate or 
identifying complaints that were not submitted in good faith?
    Mr. Cordray. In terms of consumer complaints in particular, 
the process is that the complaints are submitted to the 
company. The company has an ability to decide whether that is 
actually a customer relationship or not. There are various 
screens on this process. But I want to go back. You know 
probably better than anyone in this room, better than I do, 
that in the issue of data collection and data integrity, it is 
an ongoing process, and it is a constant evolution where you 
think you have met the standards and then something new arises 
and you are kind of chasing the goal all the time. We are 
trying to do that. We are trying do it very carefully. We are 
trying to keep up with all of the latest standards and we have 
been meeting them. But it is a challenge. I would agree with 
you, it is--
    Mr. Rothfus. Going back to an earlier question on--
    Mr. Huizenga. The gentleman's time has expired.
    Mr. Rothfus. --credit card accounts.
    Mr. Cordray. Yes, the credit card--
    Mr. Huizenga. The gentleman's time has expired.
    Mr. Cordray. --for cost reasons. I would be happy to talk 
further with your staff.
    Mr. Huizenga. You can do that on the other time. But thank 
you. The gentleman's time has expired.
    With that, the Chair recognizes Mr. Ellison for 5 minutes.
    Mr. Ellison. Allow me to thank the Chair and Ranking Member 
    Mr. Cordray, thank you for all the great work you do. I 
don't want to go into it. Other people have done it. It is 
somewhat surprising to me that you have to put up with all of 
this when you have done so much good for American consumers, 
but the reality is that American consumers are at work. They 
don't have lobbyists. They don't have people to pressure them 
to pressure you.
    So, anyway, I want to applaud your work on considering a 
rule to end payday lending traps. I hear from constituents, 
both borrowers and pastors and other leaders in the community, 
about the damage these short-term high-cost loans do. In fact, 
I had a meeting with a group called Isaiah on these--on payday 
lending and the work you are doing. And on the screen is a map 
of payday loan laws, which shows great gaps in consumer 
protections. And I want to urge you to move forward with a 
proposed rule, and I have discussed the agency's March 
statement with my constituents at this meeting with a group 
called Isaiah in Minneapolis, and at this time, my constituents 
seem to be leaning toward option B, which is loans could 
require a borrower repay no more than 5 percent of the 
consumer's gross monthly income. Could you give me an update on 
your payday lending rulemaking, and what are you considering 
doing moving forward?
    Mr. Cordray. The payday rulemaking is an ongoing 
rulemaking. And it is a difficult rulemaking. It is a 
surprisingly complicated rulemaking that we are trying to work 
through carefully. What I will say is we have put out a 
framework that is out there that people have been shooting at--
and some people like it, and some people have suggestions about 
it--that we think it is very important to establish a principle 
that the lenders on these loans verify and assess the ability 
to repay of the borrower. If there are going to be exceptions 
to that principle, because maybe people think that is too 
onerous to do, although it is pretty normal in a lending-
borrower relationship, that maybe we allow certain kinds of 
alternatives where they don't even have to do that loan. But as 
long as lenders can't catch consumers in debt traps and roll 
them over and over and over again.
    One of the things I will say that has been notable to me 
over the past year is we have had a lot of faith groups come to 
see us on this issue. They have been Protestant. They have been 
Catholic. They have been Jewish. They have been Muslim. They 
have been fundamentalists. They have been progressive. And they 
feel very strongly about this issue. They feel very strongly 
that reasonable steps need to be taken to address some of the 
harms they see in their congregations, in their synagogues, in 
their mosques, and that has had a powerful effect on me. I 
think that this is an issue that people in the communities who 
care about others and who see the problems coming to them--
maybe they are not complaining to the financial banking 
regulator because they don't realize that is who it should be--
but they are complaining to their pastor or their minister or 
whomever it may be. We are seeing and hearing this, and it is a 
powerful dynamic, and I think that it matters in terms of 
thinking about how we try to address this problem.
    Mr. Ellison. I just want to say, I talked to one lady who 
had gotten in deep on some payday loans, and I asked her if she 
had made any complaints. She said no because she feels so 
stupid that she let herself get into this situation. But when I 
talked to her, she wasn't stupid at all. She was just trying to 
make a dollar out of 95 cents. It was just a tough situation. 
And she was being taken advantage of. And much of the money she 
had to re-borrow to pay back the money she borrowed in the 
first place was really high in terms of fees.
    I wonder if you would take my last minute to explain why it 
is that the alternative to good regulation in payday lending is 
not illegal loan sharking? You hear people say that all the 
    Mr. Cordray. Yes, I do.
    Mr. Ellison. Could you rebut that, if you please?
    Mr. Cordray. Yes. The notion that you are going to drive 
people to further illegal conduct, that is not where most 
families are going to go. There hasn't been some uptick in loan 
sharking in the 13 States that have effectively banned payday 
lending. It is an interesting experience to see what the real 
experience has been in those States over many years now. But I 
do think we are trying to make sure that there is room for 
responsible lending, room for community banks and credit unions 
in particular, but other installment lenders who are 
traditional and have responsible products. It is a tough 
balance. That is why it has been a difficult rulemaking. We 
have been at it quite some time, and we are still hard at it. 
But we are trying to--again, the voices in the room from the 
faith community have altered the dynamic in powerful ways. We 
encourage those voices. We want to hear more from them on this 
    Mr. Ellison. Well, be quick to do that.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Arizona, Mr. 
    Mr. Schweikert. Thank you, Mr. Chairman.
    Mr. Director, you had a bit of a discussion about data. 
What are the data sets? Because the news stories have been that 
they are pretty stunning in size and complication. Have you 
blinded them so you have removed the personal identifiers and 
made that data public so if I am a researcher, if I am a left-
wing researcher, a right-wing, or just some--an academic, 
someone doing their post-grad, I have access to this publicly 
financed collection of data to understand trend lines. What is 
available to the public?
    Mr. Cordray. We typically have worked to anonymize or de-
identify data before it comes to us because we don't need--I 
don't need to know that it is you or it is me.
    Mr. Schweikert. --directives from the White House how to do 
    Mr. Cordray. --marketing against us all the time, but that 
is now what we are doing. We are trying to monitor the market, 
not the individuals. So that is important.
    But the second point to your question was what again?
    Mr. Schweikert. My great interest is, as you are creating 
public policy, ultimately what you are doing, and we are having 
these sorts of discussions, it would be neat to have a fact-
based database discussion because you said something very early 
on--and I don't think you meant to--that sometimes the data is 
in the eye of the beholder. It is not. The data is the data is 
the data. It is--
    Mr. Cordray. Assessment of the data is what I mean. So, 
yes, good point.
    Mr. Schweikert. And I am sure that is not what you meant 
because you have gone out of your way to say you are a data-
centric agency. Then we all deserve to touch the data and model 
it and stress it and match it against other data sets to see if 
it is saying the same things that you are saying.
    Mr. Cordray. Good. So wherever we can, it is our principle 
that if we can make the data more publicly available to 
everybody so they can see for themselves and judge for 
themselves and maybe they see things that we didn't think of 
and maybe they see things that refute things that we thought we 
thought of--
    Mr. Schweikert. Or other paths for better policy. 
Sometimes, it is not a ``gotcha.'' Sometimes, it is: Hey, when 
we matched it against this, did you see this, this noise?
    Mr. Cordray. Yes, first of all, that reinforces, as you 
make the point, the importance of the data. And where we can 
make it public, for example, the Home Mortgage Disclosure Act 
(HMDA) data is public. We worked on better tools to make that 
more accessible.
    Mr. Schweikert. But you have some massive trendline data 
and regional data, and even some, my understanding, it is 
broken out demographically with ethnic tags. Please make that 
    Mr. Cordray. Where we can. Some of it is proprietary data 
that we purchased. We don't have the authority to make it 
public. Some of it is supervisory or enforcement data that is 
confidential. But wherever we can, our principle is to try to 
make it public so that everybody can make their own judgments 
about it.
    Mr. Schweikert. Just as one policymaker, I have great 
concerns about proprietary data making public policy because 
when the rest of us cannot sort of stress it and see it and 
match it and test it, there is something almost unseemly of: 
Well, we bought this data but we have a nondisclosure on it, 
but we are going to make rules that affect your lives. Just 
understand I think that is a bad direction.
    And this may be a future conversation. Your faith groups. 
Quick anecdote. It was 20-some years ago. We had a check-
cashing issue--and I have already pitched you on this once 
before--where the fees were outrageous in my community. And 
guess what happened? A couple of my faith-based groups actually 
set up little windows at their church and this, and they were 
cashing checks for a minimal fee. And then some of our local 
regulators said: Hey, why don't we give check-cashing charters 
to anyone that wants it, the Circle K, the 7-Eleven, the 
church? And the fees crashed. If your faith-based groups care 
about this issue, how do you promote them to also step up and 
participate in those low-dollar short-term loans?
    And that is the next step back to the data sets. Do you 
have data sets that say, hey, here is an incredibly competitive 
market where lots and lots of players of different groups are 
participating in these low-dollar, short-term loans? Look at 
their cost structure compared to areas where we have set up so 
many regulatory barriers that only a handful get to 
    Mr. Cordray. Yes. I have a lot of the same instincts you 
do. Maybe it comes from having both been in public office as 
treasurers at the local level. I have always been puzzled as to 
why other lenders don't compete down the high costs of these 
payday loans, the 390-percent interest rates and the like. It 
doesn't seem to happen, and that is a puzzle to me because it 
feels like that is at odds with the natural workings of the 
    Mr. Schweikert. Because we heard our member from New York 
allude to saying, hey--and you actually said the online, some 
of the dodgier access to these short-term, isn't the ultimate 
solution here actually the market itself allowing many, many 
actors and players to participate in that line of business?
    Mr. Cordray. I might have thought so, but it has been 20 
years, and it hasn't been happening.
    Mr. Schweikert. Well, maybe it is time that you come up and 
promote a simplified charter.
    Mr. Cordray. I would be glad to.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentlelady from Ohio, Mrs. 
    Mrs. Beatty. Thank you, Mr. Chairman.
    And thank you, Director Cordray, for being here today.
    Let me first say that I am proud to associate myself and my 
comments along with what Congressman Al Green stated about 
President Obama and his appointment of you. Today, I join my 
colleagues in congratulating you on many of the successes. As 
we talk about students and those entering college, I thank you 
for the actions against the Corinthian College chain. Also, I 
think it is worth repeating that $11 billion was recovered for 
some 20 million American consumers and, more recently, the 
actions that your office took against an Ohio bank for 
discriminating against African Americans with credit cards.
    But let me say this. I have asked every Director who sat in 
that chair a question about Section 342 of the Dodd-Frank Act, 
OMWI, the Office of Minority and Women Inclusion, and I do that 
for several reasons. For more than 2 decades, I traveled across 
the United States as a diversity consultant with private 
corporations and with government. But also, I think it is 
important for people who look like me to have someone who is 
standing there advocating for them. And my role is to protect 
the institutional consumer and the individual consumer, just as 
your role is.
    So the question that I have asked everybody is to address 
what attention and actions that they have taken as it relates 
to OMWI, and I think that is very important with you because we 
have heard about the data, the surveys. We have all read the 
American Bankers Report of 2014 and 2015. And you kind of have 
a mark against the culture of your operation as it relates to 
fairness in pay for women and African Americans. And then so I 
want you to answer what you have done. I noticed most recently 
you have appointed a Director to report directly to you.
    Mr. Cordray. Yes.
    Mrs. Beatty. That is good news from where I sit, and I am 
going to thank you in advance for that.
    And the second thing I want you to answer is most recently, 
in the joint ruling where you can report your diversity either 
on a voluntary basis or it could be mandatory, talk to me about 
the differences and if you think that people will fairly report 
and accurately report and what you think about it being 
available to the public? Because, clearly, we are gathered here 
in this hearing because we all have a concern. Those concerns 
might be a little different depending on what side of the aisle 
you sit on. But if you could address that for me?
    Mr. Cordray. Yes. And I have always valued, as you know, 
Representative, your insight into this because you have spent 
years as an expert in the field dealing with lots of different 
workplace settings and having a sense of how they--I remember 
when we worked together in financial education at the State 
level, you brought a perspective of how that affects different 
communities in a way that was very valuable for us. For us, in 
terms of the issues within the Bureau itself that have been 
very real for me and of great concern, there is both procedure, 
and there is substance. The procedure, in terms of things like 
elevating our OMWI, et cetera, and showing our concern, that is 
one thing. We have been doing that. And that is important.
    The other thing is substance. The performance management 
system was the root of a lot of this. We have thrown it out. We 
are working with the union to overhaul that in a way--and the 
number of complaints people have had have diminished 
significantly accordingly because they are not having that 
problem that many of them were reacting to.
    In terms of pay, there have been pay equity issues at the 
new Bureau, partly because we were in a hurry to start up and 
things didn't always--you couldn't always put them on a grid, 
and we found later that some of it maybe was not as it should 
have been. We have adjusted a lot of pay equity grievances and 
complaints as well. I don't know that they correlated by race 
or gender. I don't believe they did. But we have been working 
to correct those wherever they lie. And in terms of the OMWI in 
terms of the standards in the other agencies, we are trying to 
work hard with the agencies to bring the spirit of OMWI, which 
Ranking Member Waters has really impressed upon me, into our 
agency and to the other agencies. Also, to push on, and this is 
where, again, you have perspective, how can we push on the 
financial services industry to itself become more diverse and 
to recognize there is a huge opportunity here with their broad 
consumer base, which itself is becoming more diverse? If you 
don't keep up with it, you are going to fall behind the times 
in terms of your business success.
    Mrs. Beatty. I am going to stop you because my time is up, 
and I want to end with saying, thank you. One, we have hit you 
with some hard questions.
    Mr. Cordray. It is always fair.
    Mrs. Beatty. But I want to say to you that I like your 
words that you said, ``I want to do better.'' And so, we will 
help you do better.
    Mr. Cordray. Thank you.
    Mrs. Beatty. Thank you.
    Chairman Hensarling. The time of the gentlelady has 
    The Chair now recognizes the gentleman from Wisconsin, Mr. 
Duffy, chairman of our Oversight and Investigations 
    Mr. Duffy. Thank you, Mr. Chairman.
    And welcome, Director Cordray. Obviously, you are a very 
smart man, and you are working, I think diligently, on what you 
would argue is the protection of consumers. We might disagree 
on how far you have gone or what you have done, but I do think 
you are trying to do the best that you can.
    I have a couple of questions for you, and I know we are 
getting late in the day, and I would just ask you for--I think 
they are pretty simple questions, and they are yes-or-no 
questions. Or if you don't know, you can tell me that too.
    Mr. Cordray. We will try it. It doesn't always lend itself 
to that, but I will try.
    Mr. Duffy. But I think this will. And hopefully, with our 
limited amount of time, you will just give me yes or noes. So, 
with that, have you ever been advised by senior CFPB staff or 
attorneys that eliminating dealer reserve either is or should 
be a goal of the CFPB?
    Mr. Cordray. I think that early on we thought that might be 
one of the solutions to the problem. We never said the only 
solution. I think we have moved in the direction of thinking 
    Mr. Duffy. My question really is--
    Mr. Cordray. --limiting the reserve might be a satisfactory 
    Mr. Duffy. So you were advised by senior staff that you 
should look at eliminating dealer reserve? The answer to that 
is yes?
    Mr. Cordray. What I would say is, on an issue like that, we 
debate lots of different alternatives.
    Mr. Duffy. So the answer is yes.
    Mr. Cordray. So I would say yes, at some point in that 
discussion, some people advocated that. Others advocated--
    Mr. Duffy. So right.
    Mr. Cordray. --the policy of the Bureau.
    Mr. Duffy. That wasn't my question if there was a policy. 
You were advised in discussions about eliminating dealer 
reserve. So the answer is yes, you were.
    Mr. Cordray. Some people thought that was the right answer; 
others didn't--
    Mr. Duffy. Let's not do this. I am not asking you whether 
some people thought it was good or bad--
    Mr. Cordray. I think I have answered your question.
    Mr. Duffy. Okay. I think you have too.
    Have you ever met with senior CFPB staff or attorneys to 
discuss eliminating auto dealer reserve? The answer to that is 
yes, right?
    Mr. Cordray. That was one of the possible solutions to the 
problem, not the only solution.
    Mr. Duffy. So the answer is yes.
    Mr. Cordray. Yes, there were discussions of that.
    Mr. Duffy. Okay. Great. Have you ever discussed with senior 
CFPB staff or attorneys any strategy for eliminating dealer 
reserve? Have you talked about the strategy on how you would do 
    Mr. Cordray. I think that follows from your earlier 
questions. I believe that is so.
    Mr. Duffy. You talked about the strategy. Okay.
    Have you ever discussed with senior CFPB staff or attorneys 
ways to encourage indirect auto lenders to eliminate dealer 
    Mr. Cordray. Auto lenders, yes. I would say yes.
    Mr. Duffy. Have CFPB staff or attorneys ever advised you 
that they were considering rulemaking as a way of potentially 
banning dealer reserve?
    Mr. Cordray. That was one of the alternatives, yes.
    Mr. Duffy. Okay. And, obviously, you did not go for that 
alternative, correct?
    Mr. Cordray. I beg your pardon?
    Mr. Duffy. You didn't go with the rulemaking; you went for 
enforcement, right?
    Mr. Cordray. I would say we haven't ruled it out, but we 
haven't done that yet, obviously.
    Mr. Duffy. Okay.
    Have you ever have met with senior CFPB staff or attorneys 
to discuss the impact that a market tipping settlement or 
settlements would have on auto lenders?
    Mr. Cordray. I think we have considered that from time to 
time, yes.
    Mr. Duffy. Have you ever met with senior CFPB--
    Mr. Cordray. --say we still think about that, yes. Quite a 
    Mr. Duffy. Yes. Have you ever met with senior CFPB staff or 
attorneys to discuss the risks and benefits of publicizing the 
proxy methodology that the CFPB is using?
    Mr. Cordray. I have always been in favor of being as public 
as we can about our approaches to these issues. Again, our 
approaches are similar to those of other agencies and the 
Justice Department--
    Mr. Duffy. Now, let's try my question. Did you guys, you 
and the senior CFPB staff or attorneys, discuss the risks and 
benefits of publicizing the proxy methodology?
    Mr. Cordray. We did publicize the methodology, and 
therefore we would have assessed the risks before doing so.
    Mr. Duffy. Okay. You approved the CFPB's settlement with 
Ally Financial, correct?
    Mr. Cordray. I did.
    Mr. Duffy. And isn't it true that in the Ally matter, the 
statistical model used by the CFPB to determine whether there 
was appropriate--there was--I'm sorry about that. In the 
statistical model that you used to determine whether there was 
a disparate impact, you excluded creditworthiness as a 
variable. Correct?
    Mr. Cordray. I don't recall exactly what the components of 
that were. That may be correct; that may not be correct. As I 
sit here, I don't have a specific--
    Mr. Duffy. So is it your testimony that it is possible that 
in the Ally settlement that you reviewed, that you did consider 
    Mr. Cordray. I think we have always tried to include the 
components that relate to creditworthiness in the--
    Mr. Duffy. Director Cordray, so I am talking about--it is 
my time. In regard to the Ally settlement, did you consider 
    Mr. Cordray. We typically have regarded that. What we tried 
to weed out is the prohibited characteristics and factors that 
would be--
    Mr. Duffy. Mr. Cordray, we didn't talk about what you do 
typically. I am asking you specifically with regard to the Ally 
settlement which you approved, did you consider 
creditworthiness as a variable?
    Mr. Cordray. I believe that our methodology attempts to 
take account of creditworthiness and other nondiscriminatory 
factors in order to then weed out the discriminatory factors.
    Mr. Duffy. Mr. Chairman, I would note my time has expired, 
but I would ask to be recognized for an extended question 
period as permitted by the committee rules.
    Chairman Hensarling. Pursuant to clause (d)(4) of Committee 
Rule III, the Chair recognizes the gentleman from Wisconsin for 
an additional 5 minutes.
    Mr. Duffy. Thank you.
    I want to be clear. You did consider creditworthiness in 
the Ally settlement?
    Mr. Cordray. I don't recall now a couple of years ago 
exactly what we were doing at the very moment at which we would 
have reached the resolution there, but our models typically are 
trying to take account of creditworthy types of issues for the 
customers and weed out--
    Mr. Duffy. Is it your testimony that you don't recall 
whether you--when you--
    Mr. Cordray. I would be happy to work with your staff to 
give you very--
    Mr. Duffy. So you have no independent recollection right 
now whether that was taken--
    Mr. Cordray. I don't have any specific recollection of--I 
am not sure when you say ``creditworthiness'' whether you mean 
there is something specific or whether there are a number of 
factors that bear on that, which is how I would regard it.
    Mr. Duffy. Specific or broadly. We can go either way.
    Mr. Cordray. Yes. I am happy to follow up with you on that.
    Mr. Duffy. Did you ever discuss with or receive inquiry 
from the CFPB staff or attorneys regarding the possibility of 
accepting any controls proposed by Ally, such as 
creditworthiness of borrowers, in your disparate impact 
analysis in an effort to settle the case?
    Mr. Cordray. I am sure that there were discussions of that 
back and forth. I don't tend to myself be involved in the 
details of the settlement discussions. I leave it to the team 
that is negotiating that. But I am sure that would have been 
raised on both sides, and there would have been discussion of 
    Mr. Duffy. But in your internal discussions about the Ally 
case, isn't it true that the CFPB staff advised you that there 
was a correlation between an applicant's trustworthiness and 
his or her dealer reserve? You were advised of that. Weren't 
    Mr. Cordray. Say that again.
    Mr. Duffy. You were advised by the CFPB staff that there 
was a correlation between an applicant's creditworthiness and 
his or her dealer reserve.
    Mr. Cordray. A moment ago you asked the question, you said 
``trustworthiness.'' I wasn't sure what that--
    Mr. Duffy. I'm sorry. Creditworthiness.
    Mr. Cordray. Creditworthiness and dealer reserve. There 
probably were a lot of discussions, and that may have been 
something that was raised. I can't remember a specific 
conversation, but--
    Mr. Duffy. Okay. So you are not aware of whether you were 
advised about the correlation between creditworthiness and 
dealer reserve.
    Mr. Cordray. Again, when this gets into negotiating some of 
the details of a resolution, the team will work with the 
institution on that and with the Justice Department who is a 
three-cornered party in those discussions.
    Mr. Duffy. This goes to Mr. Scott's point, though, doesn't 
it? That you have a factor like creditworthiness which factors 
into disparate impact and the dealer reserve, and you are not 
considering it?
    Mr. Cordray. No, no. That is not what I have said.
    Mr. Duffy. So I want to be clear on this point.
    Mr. Cordray. What I said is, when you say 
``creditworthiness,'' you may think that that is like--that is 
like my size, which is 6, 2, and it is a firm clear fact. I 
think it is a set of characteristics and a set of criteria that 
may vary depending on--Ally might have had a view of what goes 
into creditworthiness. We might have had a view--
    Mr. Duffy. So for the CFPB's analysis, did you look at 
creditworthiness? Do you have your own, not mine, no one 
else's, but Director Cordray has a view of what 
creditworthiness is and you applied that to the Ally 
    Mr. Cordray. Look, I think, generally, creditworthiness is 
a fair consideration when people are making a loan. I believe 
that we try to find ways to take appropriate account of that in 
our approach to these issues.
    Mr. Duffy. And it can account for the differential in the 
dealer reserve, which your staff told you. Right?
    Mr. Cordray. That would be one of the points of contention 
that people would have.
    Mr. Duffy. Did your staff not advise you of that?
    Mr. Cordray. No, no. Again, it wouldn't be whether 
creditworthiness itself is on or off the table so much as what 
kind of factors bear on that and which ones are relevant and 
which ones are not. And, again, somebody like Ally and us and 
DOJ may have different views of that, and we try to work them 
through and talk them through. It is just not quite as easy as 
a simple on/off switch on creditworthiness. I don't know how 
to--I would love to just do yes or no with you on this, but it 
is fairly complicated.
    Mr. Duffy. I would love that too, but--and just my last 50 
seconds. I think that it is important when your government 
makes rules, whether it is in this institution or in the CFPB, 
they are very clear. And so when you are advised that you can 
actually do a rulemaking in regard to this issue and you choose 
not to, but you try to make rules by way of enforcement, people 
don't know what the rules are. So the heavy hand of the CFPB 
comes bearing down on an institution making claims of racism, 
and if you think this is so important, why wouldn't you do a 
rule? Why wouldn't you let people offer comments? Why wouldn't 
you give guidance?
    Mr. Cordray. It is a fair question. The tool-making choice 
for us is a difficult choice. Where we think a matter is going 
to involve more in terms of specific facts and circumstances, 
it is harder for us to--
    Mr. Duffy. My time is up.
    Mr. Cordray. --write a rule at the outset. We want to get 
more experience with that. That is what we have done here. You 
may think, in retrospect, it wasn't the right answer. Maybe 
years from now, I will look back and think it wasn't the right 
answer, but that is how we have tried to proceed.
    Chairman Hensarling. The time of the gentleman has expired.
    I ask unanimous consent that the gentleman from Texas, Mr. 
Green, be recognized for 5 minutes.
    Without objection, the gentleman is recognized.
    Mr. Green. Thank you, Mr. Chairman.
    Mr. Cordray, are you a lawyer?
    Mr. Cordray. Am I a lawyer?
    Mr. Green. Yes.
    Mr. Cordray. I am. I haven't really been active in practice 
for a while.
    Mr. Green. And so, as a lawyer, do you understand that a 
settlement is an agreement?
    Mr. Cordray. Yes, it is.
    Mr. Green. And an agreement by definition means that 
parties have reached a conclusion that they find themselves 
amenable to; they can go forward with that conclusion. Is that 
a fair statement?
    Mr. Cordray. I think that is fair. It doesn't mean they all 
agree with each other on all the subparts, but, yes, I think 
that is fair.
    Mr. Green. And is it true that in the Ally case, there was 
an agreement, a settlement, which means that the offending 
party--this is my terminology--agreed to certain penalties and 
certain payments such that this could be resolved and such that 
persons who had been harmed could be justly compensated?
    Mr. Cordray. And notably also certain changes in their 
practices going forward, which may be more valuable in the long 
run than the payments made.
    Mr. Green. But the gravamen of my contention and the 
gravamen of this discussion is agreement. This is not something 
that the party, who has now found itself in a position to make 
these payments, it is not something that the party refused to 
do, refused to sign, said: I won't deal with you. Take me to 
court. I don't want to cooperate with you.
    There was a certain amount of cooperation in this. Is this 
    Mr. Cordray. They could have done that, but they didn't.
    Mr. Green. They did not. And here is what I find from my 
review of some intelligence, the CFPB and the DOJ determined 
that more than 235,000 minority borrowers paid higher interest 
rates for their auto loans between a certain period of time, 
April 2011 and December 2013, because of Ally's discriminatory 
pricing system. Now, this is not something that Ally had to 
acquiesce to. This is something Ally chose to do for whatever 
reasons it chose to do this. And by the way, Ally is not 
without a battery of lawyers. Is that a fair statement?
    Mr. Cordray. That is a fair statement.
    Mr. Green. And their lawyers, I assume, are capable, 
competent, and qualified persons who could easily decide that 
this is better suited for litigation than for some sort of 
settlement resolution. Fair statement?
    Mr. Cordray. I think so.
    Mr. Green. So I see in this, the largest ever settlement in 
an auto loan discrimination case, an opportunity for us to send 
a message to others that if you discriminate, we are going to 
come after you. This is lawful. It is ethical. It is righteous. 
People who discriminate ought not be allowed to do so with 
impunity, and others ought to get the message that you if you 
do it, you too will have to pay a price. I find very little to 
complain about with this decision because the party paying 
agreed to make the payments, agreed to the settlement, which by 
the way is large. But when you do a great amount of harm, you 
should pay a great amount in penalties. I am showing here that 
$18 million in civil penalties were agreed to.
    So, Mr. Cordray, if you have a conversation about your 
options, is that in some way unethical if you talk about 
options in rulemaking? My assumption is that you will look at 
the entire range of options when discussing rulemaking. Is this 
    Mr. Cordray. I don't think we could act responsibly if we 
didn't discuss all the options and then try to make our best 
decisions, which may or may not be the right decision. Somebody 
else might disagree, but, yes, we talked through the options. I 
don't think there is anything wrong with that, and I think it 
is the right way to proceed.
    Mr. Green. And in talking through options, do you sometimes 
talk about options that the industry might not find favorable?
    Mr. Cordray. Sure.
    Mr. Green. Do you also sometimes discuss options that 
consumers might not find favorable?
    Mr. Cordray. I am sure that is the case.
    Mr. Green. But that is your duty.
    I yield back the balance of my time.
    Chairman Hensarling. The Chair now recognizes the gentleman 
from South Carolina, Mr. Mulvaney.
    Mr. Mulvaney. Very quickly just to follow up, Mr. Cordray, 
you all had a little bit of leverage over Ally, though, didn't 
you? It wasn't exactly a typical negotiation. They needed 
Federal Reserve approval, didn't they? They needed approval 
from the Fed that your deal would settle with them? That was 
leverage you had over them you wouldn't have over other folks?
    Mr. Cordray. I don't put it that way. What I would say is 
this. We pursued an auto discrimination matter--
    Mr. Mulvaney. That is not my line of questioning. I just 
want to follow up. They needed to have a deal with you in order 
to get Federal approval. In fact, they got their Fed approval 4 
days after their deal with you. Right? Do you think that 
factored at all into the negotiations?
    Mr. Cordray. Here is what I would say. That is what they 
wanted. We had an open discrimination matter against them that 
they were resistant to resolving, and then suddenly they 
decided they wanted to resolve it. That is their choice. That 
is not me. I didn't create the leverage. I didn't set that up.
    Mr. Mulvaney. You mentioned something before with Mr. Duffy 
about creditworthiness, that you have your measure and that DOJ 
has theirs, and Ally might even have theirs.
    Mr. Cordray. Yes.
    Mr. Mulvaney. I buy that. You all didn't use anybody's 
creditworthiness in your statistical model on Ally, did you?
    Mr. Cordray. I don't believe that is the case. Again, it is 
not so easy to say creditworthiness like it is a specific 
packaged fact.
    Mr. Mulvaney. You all have a measure of creditworthiness. 
Right. Let's use credit scores. Did you use credit scores in 
your statistical analysis of the Ally case?
    Mr. Cordray. I don't believe we did.
    Mr. Mulvaney. Why not?
    Mr. Cordray. There are a lot of things we could do.
    Mr. Mulvaney. I recognize the fact that creditworthiness 
may have a lot of different pieces and parts to it, but it 
would strike me that everybody would agree that credit scores 
would be part of creditworthiness. Right?
    Mr. Cordray. There are a lot of financial institutions we 
have seen that don't use credit scores as the bright indicator 
of creditworthiness.
    Mr. Mulvaney. Do you use it in your analysis?
    Mr. Cordray. No, I am saying, for example, the FICO score 
is the most well-known credit score. A lot of banks have moved 
away from that. They think it is too crude, and they have more 
nuanced approaches to creditworthiness that they think are more 
refined and better from their standpoint. So again, 
creditworthiness is a more elusive concept, and just to say 
credit scores equals it is not--
    Mr. Mulvaney. Using whatever definition of creditworthiness 
that you want to use, did you use a creditworthiness analysis 
as part of your statistical model in the Ally case?
    Mr. Cordray. I think we try to use criteria that we think 
    Mr. Mulvaney. I didn't ask you about that. I am asking what 
you actually did.
    Mr. Cordray. I am saying that is what we tried to do.
    Mr. Mulvaney. Mr. Cordray, listen, we can do this all day 
because I will get 5 minutes. I am not asking what you tried to 
do. I am simply asking you a straight question. Did you use 
creditworthiness, however you want to define that, in your 
statistical analysis of the Ally case?
    Mr. Cordray. I think we used factors that tried to reflect 
that aspect of the transaction, yes. Ally might disagree. You 
might disagree.
    Mr. Mulvaney. Listen, I am sure there are a lot of things 
we disagree on, but I am actually trying to find what we agree 
on. Did senior staff or your attorneys ever tell you that your 
disparate impact methodology will at times overstate disparate 
    Mr. Cordray. I think there is always a risk that any 
methodology might either overstate or understate.
    Mr. Mulvaney. I didn't ask you that question. I asked you 
if your people told you that.
    Mr. Cordray. One of the things you are trying to do is to 
get it as right as possible, and depending if you compare it to 
the mortgage universe, it might seem to overstate.
    Mr. Mulvaney. Wonderful. Does your methodology at times 
overestimate disparities?
    Mr. Cordray. We don't intentionally overestimate anything. 
We try to get it right.
    Mr. Mulvaney. Okay. You try to get it right. Do you ever 
get it wrong?
    Mr. Cordray. I think we may. Sometimes over, sometimes 
under; I am not sure that it is systematic either way.
    Mr. Mulvaney. Did the senior staff or your attorneys ever 
advise you that the Bureau had evaluated an alternative 
methodology for estimating racial disparities, the disparate 
impact analysis, and that this alternative methodology reduced 
the disparities for several racial groups, including African 
Americans and Hispanics?
    Mr. Cordray. I think we have seen different methodologies 
that can lead to different results.
    Mr. Mulvaney. I will take that one as a yes.
    Mr. Cordray. So I will just say, some of them we think are 
illegitimate. Some of them we have decided there may be 
different reasonable approaches to this that may differ from 
one another.
    Mr. Mulvaney. Did your attorneys or staff ever tell you 
they thought you had serious litigation risk in the Ally case?
    Mr. Cordray. Say that again?
    Mr. Mulvaney. Did your senior staff or attorneys ever tell 
you they thought you had serious litigation risk in the Ally 
case and that they wanted you to seek prelitigation settlement?
    Mr. Cordray. I think we have litigation risks every time we 
pursue a matter.
    Mr. Mulvaney. Got you. I didn't ask you that question 
    Mr. Cordray. I would say we had that risk in Ally. We have 
it in every matter, and it is something that we have to take 
account of and think about. So does the institution, by the 
    Mr. Mulvaney. In my last 30 seconds, I want to follow up 
with something Mr. Ellison said. Your own database, your 
complaint database, shows that payday loans are one of the 
least complained-about financial products. It is the only 
product, I understand, which has an actual year-over-year 
decrease in the number of complaints from 2014 to 2015. So if 
people aren't complaining, and you haven't brought to us any 
peer-reviewed studies saying that it is actually a problem, why 
are you considering rules that will dramatically reduce short-
term small-dollar credit to people who need it?
    Mr. Cordray. What I will tell you is in the last year, the 
voices of the faith community, who hear these complaints from 
their congregation members, have gotten louder, and I would 
love to have them come and visit you and tell you what they see 
and hear among their congregations and their parishes and in 
their synagogues and in their mosques because they are very 
concerned about this problem, and I have found their voices to 
be powerful. I would like you to hear those voices as you are 
    Mr. Mulvaney. I will do that just as soon as the lady down 
the street, down the hallway today on Planned Parenthood will 
listen to the faith community about funding Planned Parenthood 
and abortion. How about that? Is that a deal?
    Mr. Cordray. I don't have anything to do with Planned 
    Mr. Mulvaney. I can't believe you just told us you are 
making decisions based upon meetings with a faith-based 
community on a selective basis, but we will leave that for 
another day.
    Mr. Cordray. Wait a minute.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Kentucky, Mr. 
    Mr. Barr. Thank you, Mr. Chairman.
    Director Cordray, welcome back to the committee. And I 
would first just like to take a little issue with your 
testimony about the relative health of the mortgage market and 
the recovery that you cited, and you cited Federal agency data 
and in particular Home Mortgage Disclosure Act data.
    Mr. Cordray. Yes, everybody agrees that is the best data 
    Mr. Barr. I understand, but the data is at least mixed 
because the National Association of REALTORS reported that in 
the first quarter of 2015, which appears to be a pretty recent 
data, only 1.2 percent of originated mortgages did not fit the 
definition of qualified mortgages, so there is at least a fear 
of liability in terms of originating non-QM mortgages which I 
hope the Bureau would recognize--
    Mr. Cordray. Can I make a point on that?
    Mr. Barr. I will let you. I want to just finish my point 
quickly, and I will be happy to let you respond. The other part 
of that data is that a third of the National Association of 
REALTORS survey respondents reported being unable to close 
mortgages due to a requirement of the Qualified Mortgage rule, 
and what I would specifically like for you to respond to is 
maybe the explanation for the health in the data that you are 
citing is because of the GSE exemption.
    The problem with the financial crisis was the originate-to-
distribute model. As you know, I am promoting a portfolio 
lending model which would encourage risk retention, which was a 
core policy of the Dodd-Frank Act. The GSE exemption, which is 
the reason for the relative health in the data that you are 
citing, is exactly why we got into the mortgage financial 
crisis to begin with, originate to distribute to Fannie and 
Freddie. That is why your data conflicts with the National 
Association of REALTORS' data. You can respond.
    Mr. Cordray. I don't think it conflicts at all. What in 
fact, you are seeing is that mortgage lending is up for home 
purchase mortgages. What varies in the market, of course, are 
refinancings. Those go up and down with the interest rate, so 
you can't really say much from that. In terms of the legal risk 
being so prominent from the Qualified Mortgage rule, I met with 
the Mortgage Bankers Association recently, the top CEOs of 
mortgage units, top 40 companies, and I asked them 
specifically: ``Have any of you had a single lawsuit on the 
Qualified Mortgage rule?'' It has been 21 months now--21 
months--and not a single lawsuit. Not one. All this foaming at 
the mouth about legal liability really did not pan out. It was 
an overreaction.
    Mr. Barr. I understand if you are in safe harbor, you are 
not at risk. The point is that access to mortgage credit is not 
available if you are going to portfolio a loan right now, but 
there is a safe harbor if you sell it to Fannie and Freddie, 
which is how we got into the problem in the first place. So the 
policy is counterproductive in my opinion, not only in terms of 
constraining access to responsible mortgage credit that is 
retained by the institution, but you are actually incenting 
with the GSE exemption, the kind of risky practices that caused 
the financial crisis. I do want to--
    Mr. Cordray. I see the point, but two things. First, while 
they are in conservatorship, which is a constraint, very 
significant. Second, we have just expanded the ability of 
smaller institutions, community banks and credit unions, to do 
more portfolio lending, which I agree with you; I think it is 
very positive, and I think they think it is very positive.
    Mr. Barr. But it doesn't do what my bill would do, which 
would be to allow a petition process. Let me get to TRID 
quickly. As you may recall, Congresswoman Maloney and I and 252 
of our colleagues sent you a letter on May 22nd requesting a 
grace period. We met. We asked if closing attorneys and 
REALTORS and title insurers could count on a grace period. You 
said they would be happy, but what happened the next day was 
that you would engage in a policy of sensitive enforcement, 
which gave unfortunately no clarity or--and I am just telling 
you what my constituents were telling me. I am not opining. I 
am telling you--
    Mr. Cordray. I would like to clarify it today then.
    Mr. Barr. I am telling you what the closing attorneys are 
telling me back home in Kentucky. They are saying we are going 
to have to do two closings--one with a HUD settlement 
statement; and one that is TRID-compliant--which doesn't 
decrease the amount of disclosures that are going to be 
required for the homeowners and home buyers to actually review. 
It is not a simplification. We are still trying to get this 
right. All we want from the Bureau is not just a promise of 
sensitive enforcement but a grace period, a transition period. 
And the question for you is, are the closing attorneys, the 
REALTORS, the title carriers, can they count on you to not 
bring an enforcement action for a period of, say, 6 months 
while they are trying to sort through the complexity and trying 
to get up to speed?
    Mr. Cordray. Look, I don't think it is appropriate for me 
to say I won't enforce the law when my job is to enforce the 
law, but I think what I have said says to them that we are 
going to be diagnostic and corrective, not punitive, in that 
early period. I think if they read between the lines, they will 
understand that we are trying to allow them to have the 
latitude that they have asked for. And I think people should be 
able to take ``yes'' for an answer.
    Mr. Barr. With my remaining time, on short-dollar loans, 
one of my constituents testified, a small-business owner, that 
she was going out of business as a result of your proposed 
rulemaking here.
    Mr. Cordray. What kind of person?
    Mr. Barr. A small-dollar lender, a payday lender. The 
attorney general of Kentucky, the Democratic attorney general, 
the Democratic Governor, his financial institutions department 
and the Democratic General Assembly in Kentucky all reformed 
our payday lending and usury laws. Why don't you trust the 
Kentucky Democrats who have put these rules into place? What do 
you know that they don't know?
    Mr. Cordray. To me, this isn't a Democrat or Republican 
issue. That is not the way I look at things.
    Mr. Barr. I understand.
    Mr. Cordray. There are different States that have different 
approaches, but if you look at it on a national basis, there 
are a ton of rollovers. There are a lot of consumers in a lot 
of trouble. By the way, the last time I was here, you asked me 
about Bath County in Kentucky.
    Mr. Barr. Thank you.
    Mr. Cordray. Under our new provision, it is all rural.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Colorado, Mr. 
    Mr. Tipton. Thank you, Mr. Chairman. Director Cordray, 
according to Treasury's website, over 5 million recipients have 
enrolled in the Direct Express Program, which is used by 
Federal and State Governments to disburse supplemental security 
income and Social Security benefits to those enrolled. 
According to the U.S. Treasury, it costs $1.03 to issue a paper 
check, and only 10.5 cents to be able to use electronic 
payments like Direct Express. Yet, the CFPB has proposed a 
prepaid account rule that would fundamentally change how 
government cards, including a statement at the top to require 
disclosure to all recipients that the recipient does not have 
to accept a government benefit card. I guess my question is, 
this has been popular. It seems to have worked. Is this new 
policy going to create some disharmony and actually 
disincentivize people from being in the program?
    Mr. Cordray. I have the same reaction you do. I think the 
fact that government programs at the Federal, State, and local 
level, county, city, have moved towards benefits on cards as 
opposed to issuing paper checks is beneficial to consumers in 
many ways. I don't think our prepaid card rule is affecting 
those government programs, but if it is, I would be glad to 
have our folks follow up with your staff and make sure that we 
can give you assurances in that regard. If it is a problem, 
then we still have that rulemaking pending, and we could take 
account of that as we finalize it. I would be happy to have 
that discussion.
    Mr. Tipton. Good. I would appreciate that. I think there is 
a 95-percent approval rating with those government cards that 
is going out.
    Mr. Cordray. It is more secure, better for the consumers. 
They don't have to deal with cash or check cashing and other 
things. I agree with that.
    Mr. Tipton. Yes. And, Director, the proposed rule for 
prepaid accounts has raised some serious concerns over the 
treatment of credit futures for prepaid products. Consumers are 
using these products obviously to be able to meet their 
everyday needs. In my own district in Colorado, we have Delores 
from Pueblo who wrote that the prepaid card will help her to 
put food on the table for her family or to be able to pay a 
utility bill. I am concerned that the lack of understanding of 
how this product is used by folks back home will lead to its 
elimination. What is the CFPB's plan to be able to make sure 
that consumers, like Doris in Pueblo, continue to have access 
to overdraft protection?
    Mr. Cordray. So in terms of prepaid cards, the rulemaking 
that we have under way--and it is still pending, so it is not 
final--is intended to create consumer protections for those 
cards that have never existed. I think people reach into their 
wallet, and they get out a debit card or prepaid card or credit 
card, and they assume they have the same protections. They 
don't. Prepaid cards have nothing. If you have errors, you 
can't get them corrected. If you have disputes, you can't get 
them resolved. You have no rights in that regard. So that has 
been the focus of our rulemaking.
    In terms of overdraft on the prepaid cards, what we 
proposed in our initial proposal that we are still working 
through and thinking about, was that those cards should be 
treated similar to credit cards in terms of whether they are 
credit or not if they involve overdraft. That was the proposal. 
We have gotten a lot of comment on that both ways, and we are 
working through that.
    Mr. Tipton. And just making sure that is available, and I 
hope that you are taking into consideration the concern this 
creates in terms of the industry almost unanimously noted that 
they will stop offering overdraft features with some of the--
    Mr. Cordray. By the way, very few in the industry offer 
overdraft now. Almost unanimously they do not offer overdraft, 
so it is a very small portion of the industry that this would 
affect. But the proposal at least was to offer such people 
credit-card-like protections like in the CARD Act. We have seen 
both criticism and endorsement of that, and we will have to 
size that up.
    Mr. Tipton. Director, I would like to go back a little bit 
to the conversation you were having with Mr. Rothfus and Mr. 
Schweikert in regards to some of the data that is coming out. 
The government has suffered obviously some very embarrassing 
security and privacy breaches recently and lost sensitive data 
for millions of Federal employees. And CFPB is about to issue a 
new Home Mortgage Disclosure Act rule, which will require 
lenders to be able to submit detailed private information on 
their customers. With that in mind, can you specify what steps 
that the Bureau is taking to be able to protect homeowners from 
data breaches?
    Mr. Cordray. Yes, that information for our National 
Mortgage Database, if that is what you are referring to, will 
be de-identified and anonymized before it comes to the Bureau. 
And that is exactly how we are trying to handle it. Therefore, 
I think it is of little interest to hackers because they would 
have to, as the Congressman was mentioning earlier, go through 
an arduous re-identification process, if they even could do it, 
as opposed to other databases that companies have where if they 
can hack into those, they can get right into personal 
information and the like.
    That is how we are trying to handle that. It has been 
looked at by the GAO and the Inspector General. I think it is a 
responsible approach. If people have further suggestions on it, 
I am glad to hear them.
    Mr. Tipton. Yes. The U.S. Chamber of Commerce put out a 
statement that the Bureau is putting consumer personal 
information at risk by collecting enormous volumes of 
identifiable information yet failing to be transparent or 
instill confidence that it has recognized and addressed 
cybersecurity risks posed by such a vast amount of data.
    Mr. Cordray. Yes. I don't think that is really accurate to 
the details of what we are doing. I understand the statement 
for rhetorical purposes. I would be happy to talk to the 
Chamber about it.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Texas, Mr. 
    Mr. Williams. Thank you, Mr. Chairman.
    And thank you, Director Cordray. I am a small business 
owner, have been for 44 years, and I am a car dealer. And like 
my colleague, Congressman Green, I stand up for customers every 
single day. You are not the only one who stands up for 
customers. I want to go back to Section 1029. We talked about 
it a little bit today, but let me read what it says: The Bureau 
may not exercise any rulemaking, supervisory enforcement or any 
authority, including any authority to order assessment over a 
motor vehicle dealer--that is me--and this predominantly 
engages in the sale and servicing of motor vehicles, the 
leasing and servicing of motor vehicles or both. I am kind of 
new to this committee, but I am not new to the automobile 
industry. My family has been selling cars for over 70 years, 
and we have done a great job, and we have taken care of a lot 
of people.
    But I think you and just about everyone here knows that. 
Now, I know we talked about this issue a lot, so there is 
certainly a lot to talk about when it comes to this topic. We 
can talk about the flawed data we have talked about today used 
to claim disparate impact or the fact that we have established 
the auto dealers are exempt, they are exempt from the CFPB 
supervision, or the way in which you released your auto finance 
guidance in 2013, or even how your agency has paid out claims 
to discriminated customers with little oversight.
    But I wanted to take this time today instead to educate you 
a little bit on what it means to be in the retail industry, 
what it means to be a small-business owner in America today, 
what it means to be an auto dealer, and, quite frankly, what it 
means to be a small-business owner on Main Street in America. 
My family business employs about 150 people. Just like any 
retail business in America, the cost of owning a business is 
not cheap. We have to worry about paying our employees, our 
utility bills, our credit, our debt, and making sure we have 
plenty of inventory for our customers to choose from.
    Now if I sold every car at your price, at the wholesale 
price, which is what I think the Bureau would like me to sell 
it at, I would be out of business in no time.
    Mr. Cordray. I wouldn't like that, by the way.
    Mr. Williams. You are not giving that opinion. But you know 
what, I have to make a living. Frankly, I have to be 
profitable. I have to provide for my family. I have to take 
care of my employees. No business in America should be told by 
the Federal Government to sell their product at a given price. 
I think you know this. I think you really believe this.
    But the financing part of buying a car is just one piece of 
the equation. Other factors include what the borrower pays for 
the vehicle or what trade-in value they receive. Every deal is 
different. No two are the same. But because of the jurisdiction 
of the CFPB, you have focused this on the financing aspect of 
purchasing a car, and I think it is obvious why. I think what 
your agency is trying to get at is forcing auto lenders to 
offer a flat fee to dealers. Is that what you are trying to do?
    Mr. Cordray. We have said that is one alternative, but it 
is not the only one.
    Mr. Williams. Essentially, when you do that, you eliminate 
the dealer reserve.
    Mr. Cordray. No, I understand that. We are not saying that 
is the only alternative.
    Mr. Williams. If you do that, you eliminate the dealer 
reserve and ultimately telling me what I can sell my product 
for. So what we have seen with Ally Financial, Honda Financial, 
and just yesterday, Fifth Third Bank, is to force them to 
change their pricing and compensation models and in turn avoid 
stricter fines, but ultimately you will put these dealers at a 
competitive disadvantage by capping the rates and putting them 
out of business. In fact, some lenders have even told me 
personally that they are discontinuing indirect auto lending 
because of the CFPB's campaign and increased compliance risk. 
They are scared to death. In other scenarios, some lenders, as 
is the case of Honda Financial, have responded by overhauling 
their loan pricing in ways that will likely mean higher costs 
for some borrowers.
    So, Director Cordray, who does this hurt? You think about 
it. It hurts the consumer. The very people you are trying to 
protect, you are turning back and hurting them. Really quickly, 
yes or no, we have covered a lot of questions--are you really 
trying to eliminate dealer reserve?
    Mr. Cordray. When we first came to this problem, when we 
said this, that is one alternative, but it is not the only one, 
as we have come to understand the problem better. So to say 
that we are simply trying to eliminate dealer reserve, that 
would be--no, that would not be accurate. That is one 
alternative, but limiting it would be an alternative.
    Mr. Williams. Do you have an idea what to replace it with, 
with the dealers?
    Mr. Cordray. What I would say is this, if you set up a 
lending program where you are going to allow people to mark up 
rates and be financially incentivized to do so, and the 
consumer is none the wiser, we believe it creates great risk of 
discrimination. All right? We want to try to minimize that and 
limit as much as possible.
    Having said that, if the preexisting regime allowed for a 
certain amount of discrimination, where some borrowers are 
charged more than others, and you eliminate that, some of the 
others may now be charged a little bit more--
    Mr. Williams. Do you talk to dealers like me on how to have 
a better idea? Nobody has talked to me.
    Mr. Cordray. We were very careful about not going out and 
doing a lot of talking to dealers because we want to respect 
the line that Congress drew. Again, it is not a very logical 
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair wishes to advise all Members that there are votes 
pending on the Floor. Regrettably, we anticipate clearing only 
two more Members before adjourning: Mr. Poliquin and Mrs. Love.
    Mr. Poliquin is now recognized for 5 minutes.
    Mr. Poliquin. Thank you, Mr. Chairman.
    Mr. Cordray, thank you very much for being here. I 
appreciate it. Your organization was created about 5 years ago 
by Dodd-Frank. You have about 1,400 employees, and in that 
short period of time, sir, you are one of the most powerful 
regulators in America. You regulate companies that provide 
automobile loans and home mortgages, credit cards, student 
loans, and you reach into almost every family in America. Now, 
we all know that these departments and agencies throughout 
Washington have their inspectors general. Now these are 
important functions to make sure at every organization there is 
no fraud or abuse or wasting of taxpayer dollars.
    I have a list right here, Mr. Cordray, of 76 departments 
and agencies in the Federal Government. Each one of them has 
their own inspector general, except the CFPB. You don't. You 
share one with the Federal Reserve. The Federal Reserve, as we 
all know, is involved with monetary policy and regulating banks 
as institutions. Your agency, on the other hand, is involved in 
regulating financial products that are sold to consumers. So 
can't we agree right now that your functions are so different 
that you deserve your own inspector general, sir?
    Mr. Cordray. So if I heard you right, you said 76 
departments and agencies have their own inspector general, and 
we are the only one that doesn't?
    Mr. Poliquin. That is correct.
    Mr. Cordray. I don't believe that is correct.
    Mr. Poliquin. Here is the list right here, Mr. Cordray.
    Mr. Cordray. I don't think that is correct. Many, many 
agencies share an inspector general--
    Mr. Poliquin. --that is your testimony. Okay. Well, fine. I 
will let you look it up just the way I did, and you will find 
you are the only one. My question to you is the following.
    Mr. Cordray. We will get back to you on that. I don't think 
that is correct.
    Mr. Poliquin. Don't you think it makes sense for you to 
have your own inspector general to look over your shoulder? So 
that the taxpayers know they are being fairly treated and that 
you are held accountable?
    Mr. Cordray. I haven't dealt with inspectors general until 
I came to the Federal Government. In the State government, as 
you and I were, we had the State auditor who would look at us 
every year, and that was appropriate and helpful.
    Mr. Poliquin. It is my time not yours, sir. Amtrak, the 
Postal Service, the EPA, even the Peace Corps has their own 
Inspector General. You don't.
    Mr. Cordray. That may be. That is up to Congress. Congress 
decides that.
    Mr. Poliquin. Let's talk about transparency. Let's talk 
about transparency, sir. In your own semi-annual report on page 
132, you make it very clear that it is important to be 
transparent in your operations, and I happen to agree with 
that. You told us 6 months ago when you came here that you were 
going to make sure you posted on your website all your vendor 
contracts. We went to your website, and guess what? We didn't 
find contracts. If I am not mistaken, you have contracted about 
$60 million for the next 3 years on management consulting 
contracts with a number of different firms. Where are those 
    Mr. Cordray. I believe that all of our contracts are posted 
on USA.gov, which is I believe what Federal law requires, 
except for contracts with other parts of the Federal 
Government. And in the start-up phase with Treasury, we had a 
lot of contracts with Treasury itself.
    Mr. Poliquin. Here is what I would like to do. We are going 
to get in touch with your office. I would like to see those 
    Mr. Cordray. If there are any contracts that you think are 
not posted as they should be, I will be glad to try to take 
account of that--
    Mr. Poliquin. Let's shift gears here. You sit on an 
organization, on a board called the Financial Stability 
Oversight Council (FSOC). You sit on there with Treasury 
Secretary Lew, the Chair of the Federal Reserve, and also the 
Chair of the SEC, along with other organizations.
    Mr. Cordray. That is what the law requires.
    Mr. Poliquin. Now, FSOC is responsible for determining 
which non-bank financial institutions are too-big-to-fail, 
meaning if they get in trouble, then the taxpayers are on the 
hook to bail them out. We have about $24 trillion in this 
country that is managed by pension fund managers and mutual 
fund companies, and asset managers. And you know if one of 
those mutual fund companies isn't performing well, an investor 
can call up on an 800 number, replace that account with another 
asset manager, so there is no risk to the market if one of 
those asset managers gets in trouble. Now, here is what I worry 
about. I am sure you know a fellow by the name of Douglas 
Holtz-Eakin. He is the former Director of the CBO, which is a 
nonpartisan organization. And you have seen the study I am 
sure, from 2014, which says if asset managers that handle the 
retirement savings, $24 trillion of retirement savings in this 
country, if those asset managers, that pose no risk to the 
economy if they get in trouble, if they come under the guise of 
the Dodd-Frank regulations because you folks designate them as 
SIFIs, then the rate of return long term of those retirement 
savings will go down about 25 percent.
    Now, where is the compassion? We are supposed to help small 
investors. You know what I worry about, Mr. Cordray? I worry 
about a nurse in Gardiner, Maine, or I worry about an auto 
mechanic in Ellsworth, Maine. They are putting aside $100 a 
month to try to save for their retirement, and all of a sudden, 
you folks have an opportunity to ding them by 25 percent of 
their long-term rate of return in their nest egg. So I want to 
see if you and I can agree on something today, sir. Can we 
agree that it is a bad idea for FSOC to designate pension fund 
managers, mutual funds, and other asset manage as SIFIs?
    Mr. Cordray. First of all, FSOC acts as a body. I think 
they have indicated that they are--
    Mr. Poliquin. Do you think it is a good idea or a bad idea 
to so designate them?
    Mr. Cordray. I don't know enough to jump the gun on any 
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentlelady from Utah, Mrs. 
    Mrs. Love. Thank you, Mr. Cordray. Thank you for being 
    Mr. Cordray. My pleasure.
    Mrs. Love. I just have a quick couple of questions that are 
concerning to me and to constituents in my district. In the 
CFPB's most recent annual report, it stated, on page 131, that 
a critical part of making financial markets work is ensuring 
transparency in those markets. The CFPB believes that it should 
hold itself to that same standard and strive to be a leader by 
being transparent with respect to its own activities. So my 
question for you is, what has the Bureau done to make sure that 
the consumers know that you are tracking their credit card 
    Mr. Cordray. We are trying hard to meet that aspiration of 
being a very transparent institution.
    Mrs. Love. So what have you done to make sure that the 
customers know that you are extracting credit card data?
    Mr. Cordray. First of all, I am not tracking your data or 
my data or anyone's data. What we are doing is we are getting 
data that is anonymized and de-identified so that we can 
evaluate the market. How can I possibly fulfill my 
responsibility to Congress to give you a report on how--
    Mrs. Love. Wait a minute. We are going to get there. Do you 
think most Americans know that you are actually doing this, 
collecting data?
    Mr. Cordray. Doing what?
    Mrs. Love. Collecting credit card information. So when they 
are going and they are actually making those credit card--you 
are actually collecting data from their credit cards.
    Mr. Cordray. I am not collecting it the way a bank would be 
collecting it, where they are actually trying to assess what 
Congresswoman Love ate for dinner last night and where you are 
shopping and trying to market to you. I am just looking at the 
overall patterns in the market that have nothing to do with you 
or me or anyone else in particular.
    Mrs. Love. You are saying you actually do not collect data 
from individuals who are using their credit cards? You are not 
collecting that information? Is that what you are saying?
    Mr. Cordray. It is all de-identified. That is really 
    Mrs. Love. Do you believe that consumers have the right to 
know you are actually collecting the data? It is really simple. 
I am not trying to have a fight with you here. I just want to 
know what is happening.
    Mr. Cordray. I don't know if this is the answer to your 
question, but it wouldn't have your name on it. It wouldn't 
have your credit card number.
    Mrs. Love. It doesn't matter. Don't you think that my 
information belongs to me? Don't you think that consumers have 
a right to opt out at least?
    Mr. Cordray. Many other Federal agencies have had this for 
years. What is special about us? Why do you come after us?
    Mrs. Love. Okay. Do you think it gives the American people 
comfort to know that just because other agencies are collecting 
data, that it is okay for you to additionally collect data? I 
think it is actually quite absurd to hear that other agencies 
are collecting as much data also.
    Mr. Cordray. Answer me this. We are supposed to do a report 
to Congress every year on the credit card market and how it is 
faring. How would we do that if we didn't have data?
    Mrs. Love. Let me ask you a question. Let me ask these 
questions. I am glad that you led us down this path. Can the 
Bureau receive complaints about credit card companies?
    Mr. Cordray. I beg your pardon?
    Mrs. Love. If there is a company that is out there that is 
a terrible actor in the market, can you receive complaints 
about credit card companies if they are taking advantage of 
    Mr. Cordray. Can we the CFPB receive complaints about 
credit card companies?
    Mrs. Love. Yes.
    Mr. Cordray. We do. We do every day.
    Mrs. Love. Does the Bureau have the power to conduct direct 
examination of financial institutions?
    Mr. Cordray. We do.
    Mrs. Love. Does the Bureau have a whistleblower program for 
employees to blow whistles on misconduct of their companies?
    Mr. Cordray. We have a hotline where whistleblowers can 
give us information if they see fit.
    Mrs. Love. So you are still telling me that the powers that 
you have aren't sufficient for you to uncover and investigate 
actual problems in the marketplace? Even with all of those 
tools, you still have to go in and not allow people to know you 
are collecting their data in order to make these assessments?
    Mr. Cordray. You are saying we could collect it through 
examinations and supervision. Instead, we have collected it in 
the same way other agencies have. How is that different?
    Mrs. Love. What I am saying is one way is somebody 
complaining to you that something is happening, and the other 
way is you actually extracting data without the consumer 
knowing that you are extracting data. What I asked at the 
beginning is what provisions that you have put in place to let 
Americans know when their data is actually being extracted, 
when it is being mined?
    Mr. Cordray. We are having a public hearing here that is 
wide open to the entire American people--
    Mrs. Love. Thank goodness for Congress that is looking out 
for the American people, not the CFPB.
    First of all, I want you to know that the CFPB--I have been 
very, very fair in looking at what you actually do. Let me say 
you are always under the guise that you are protecting those 
who can't protect themselves. You are always under the guise--
you are trying to let people know that you are the 
compassionate institution. Let me just say that you can't be a 
compassionate institution because everything you do is through 
force. And that is through jail time and fines. If people do 
not comply with you, it is through jail time and fines. And I 
want you to know that these businesses that you go after are 
the ones that gave my father a job when he came to this country 
with just $10 in his pocket.
    Mr. Cordray. How does that make us different from the Utah 
attorney general? How does that makes us different from the 
U.S. Attorney General?
    Mrs. Love. You are saying because everybody else does it, 
that we are going to do it also?
    Mr. Cordray. No, no. It is law enforcement. Do you not want 
the law to be enforced? Of course, you want the law to be 
    Mrs. Love. This is why Washington is a problem. This is why 
you are the problem, sir.
    Mr. Cordray. Do you want people to not abide by the law?
    Chairman Hensarling. The time of the gentlelady has 
    I would like to thank the witness for his testimony today.
    The Chair notes that some Members may have additional 
questions for this witness, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to this witness and to place his responses in the record. Also, 
without objection, Members will have 5 legislative days to 
submit extraneous materials to the Chair for inclusion in the 
    This hearing stands adjourned.
    [Whereupon, at 1:38 p.m., the hearing was adjourned.]

                            A P P E N D I X

                           September 29, 2015