    [Senate Hearing 114-520]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 114-520

        THE CONSUMER FINANCIAL PROTECTION BUREAU'S SEMIANNUAL REPORT TO
                                    CONGRESS

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

                                    HEARING

                                   before the

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

                        ONE HUNDRED FOURTEENTH CONGRESS

                                 SECOND SESSION

                                       ON

       A REVIEW OF THE CONSUMER FINANCIAL PROTECTION BUREAU'S SEMIANNUAL
                               REPORT TO CONGRESS

                                   __________

                                 APRIL 7, 2016

                                   __________

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

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                COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                      RICHARD C. SHELBY, Alabama, Chairman

    MIKE CRAPO, Idaho                    SHERROD BROWN, Ohio
    BOB CORKER, Tennessee                JACK REED, Rhode Island
    DAVID VITTER, Louisiana              CHARLES E. SCHUMER, New York
    PATRICK J. TOOMEY, Pennsylvania      ROBERT MENENDEZ, New Jersey
    MARK KIRK, Illinois                  JON TESTER, Montana
    DEAN HELLER, Nevada                  MARK R. WARNER, Virginia
    TIM SCOTT, South Carolina            JEFF MERKLEY, Oregon
    BEN SASSE, Nebraska                  ELIZABETH WARREN, Massachusetts
    TOM COTTON, Arkansas                 HEIDI HEITKAMP, North Dakota
    MIKE ROUNDS, South Dakota            JOE DONNELLY, Indiana
    JERRY MORAN, Kansas

               William D. Duhnke III, Staff Director and Counsel
                     Mark Powden, Democratic Staff Director
                        Dana Wade, Deputy Staff Director
                        Jelena McWilliams, Chief Counsel
                    Shelby Begany, Professional Staff Member
                Laura Swanson, Democratic Deputy Staff Director
                    Graham Steele, Democratic Chief Counsel
                  Phil Rudd, Democratic Legislative Assistant
                           Dawn Ratliff, Chief Clerk
                          Troy Cornell, Hearing Clerk
                          Shelvin Simmons, IT Director
                              Jim Crowell, Editor

                                      (ii)

                                C O N T E N T S

                                  ----------

                            THURSDAY, APRIL 7, 2016

                                                                       Page

    Opening statement of Chairman Shelby.............................     1

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

                                    WITNESS

    Richard Cordray, Director, Consumer Financial Protection Bureau..     4
        Prepared statement...........................................    45
        Responses to written questions of:
            Chairman Shelby..........................................    49
            Senator Brown............................................    56
            Senator Toomey...........................................    68
            Senator Heller...........................................    73
            Senator Sasse............................................    82
            Senator Moran............................................    95
            Senator Reed.............................................    98
            Senator Merkley..........................................    98

                  Additional Material Supplied for the Record

    Semiannual Report of the Consumer Financial Protection Bureau,
      October 1, 2015-March 31, 2016.................................   102
    Letters and statements submitted for the record..................   291

                                     (iii)

        THE CONSUMER FINANCIAL PROTECTION BUREAU'S SEMIANNUAL REPORT TO
                                    CONGRESS

                                  ----------

                            THURSDAY, APRIL 7, 2016

                                           U.S. Senate,
              Committee on Banking, Housing, and Urban Affairs,
                                                        Washington, DC.
        The Committee met at 10:17 a.m., in room SD-538, Dirksen
    Senate Office Building, Hon. Richard Shelby, Chairman of the
    Committee, presiding.

            OPENING STATEMENT OF CHAIRMAN RICHARD C. SHELBY

        Chairman Shelby. Mr. Cordray, welcome again to the
    Committee. You have seen this before here. We welcome you, and
    I will proceed with an opening statement.
        On Tuesday, the Committee heard testimony from private
    sector experts on consumer finance regulations. We heard a
    number of concerns regarding the Bureau's actions in areas such
    as indirect auto lending, arbitration, the consumer complaint
    database, and small dollar short-term lending. We also heard
    broader critiques of the Bureau's approach to regulating,
    including its use of enforcement actions to set market
    standards rather than the rulemaking process. There was also
    concern expressed regarding the Bureau's current structure and
    the lack of accountability inherent in it.
        I have said many times that regulatory independence should
    never mean independence from accountability or vigorous
    Congressional oversight. The drafters of Dodd-Frank immunized,
    I believe, the Bureau from any meaningful Congressional
    influence, leaving it free to engage in questionable practices
    and unreasonable expansions of its jurisdiction. The only
    effective restraint available now resides in the courts.
        Fortunately, this week, a Federal Court of Appeals has
    directed the CFPB to defend the constitutionality of its basic
    structure. This particular case follows what is now becoming a
    string of court decisions criticizing or striking down this
    administration's implementation of Dodd-Frank provisions,
    including the FSOC's so-called systematically important
    designation of MetLife, the SEC's cost-benefit analysis, and
    the SEC's conflict of minerals rule.
        I believe that future legal challenges will lead to the
    invalidation of many parts of Dodd-Frank. That is what happens
    when a 2,300-page bill is forced through Congress without
    sufficient process and before the lessons of the financial
    crisis were fully understood. Congress did not even wait for
    the Financial Crisis Inquiry Commission's work to be completed
    or its report to be released before it passed Dodd-Frank and
    created the CFPB.
        And while the Committee held a number of hearings in the
    lead-up to the passage of Dodd-Frank, I can assure you that the
    thousands of pages of text were being drafted, or were already
    drafted well before we ever had a single hearing. We often hear
    about the importance of data and data-driven decision making at
    our hearings. I would like to highlight once again my concerns
    about the striking lack of data and data-driven decision making
    that produced the law we now know as Dodd-Frank.
        It still strikes me as stunning that this Committee
    approved this massive piece of legislation without deposing a
    single market participant. The Committee did not subpoena a
    single document from a single person or financial institution.
    And now, we are starting to see the results of this partisan,
    uninformed effort.
        There is now growing concern that despite the Bureau's
    mission, its rules and regulations actually restrict access to
    credit, increase costs, and deny financial products to the
    consumers who need them. Last year's survey by the Federal
    Reserve found that 47 percent of U.S. households are unable to
    come up with $400 in emergency funds without selling something,
    going into credit card debt, or using a short-term loan. By
    targeting some of these products in its rulemakings, the Bureau
    may be blocking access to the very financial services many
    Americans may need in a crisis. Consumer protection should not
    mean limiting a consumer's options by substituting the Bureau's
    judgment for the consumer's.
        Today, again, we will hear from CFPB Director Richard
    Cordray so that we can have what we hope will be a productive
    discussion on these important topics and concerns.
        Senator Brown.

                   STATEMENT OF SENATOR SHERROD BROWN

        Senator Brown. Thank you, Chairman Shelby, for holding this
    important hearing.
        Today's hearing is one example of how the CFPB is
    accountable to Congress. You almost cannot turn on C-SPAN and
    not see Director Cordray speaking to the House Finances
    Services Committee or the Senate Banking Committee, it seems.
    So, the issue of accountability bewilders me that anybody would
    say you are anything but that.
        The law requires the Director to be available twice a year
    to testify before this Committee. Director Cordray has been
    available every time this Committee has wanted, and I assume, I
    am almost certain, for any of you individually that want to
    talk to him or try to persuade him of something.
        CFPB is subject to three separate annual audits. The
    banking agencies have unprecedented authority to veto CFPB
    rules that threaten the safety and soundness or financial
    stability of our system. Yet, the CFPB's existence continued to
    be attacked, now 5, 6 years later, with false arguments that it
    lacks accountability.
        The industry--and it is the industry--continues to fight
    CFPB's existence, and those in Congress who are advocating for
    the industry join them to fight their existence, fight their
    actions, most recently by trying--unsuccessfully, and I am glad
    of that--to attach riders to end-of-year funding legislation.
    One of these riders would require a commission of Senate-
    confirmed members. Just imagine that. This Committee has gone
    now 15 months and we have not seen one person coming out of
    this Committee who has been confirmed on the Senate floor, yet
    some of my colleagues on the other side of the aisle want a
    commission of Senate-confirmed measures.
        In a dysfunctional Senate Banking Committee and a
    dysfunctional Senate, it is strange credibility to think that
    would be good Government. Maybe that is how they want it to be,
    the opponents to the Bureau want it to be, that they cannot
    simply act because they would not have enough Senate-confirmed
    members, since the purpose of the rider is obviously to turn
    the CFPB into ideological road kill.
        Today's hearing on consumer finance rules, we heard from--
    excuse me, at Tuesday's hearing, we heard from three witnesses
    representing the financial industry--three--and one witness
    representing everyday Americans. The business witnesses claimed
    CFPB is hurting people it is supposed to help. But bipartisan
    polling shows that three in four voters support this agency.
    Just this morning, the Committee received petitions from
    literally hundreds of thousands of Americans supporting the
    Consumer Bureau. Many of you are in the room today. I thank you
    for showing your support for the CFPB.
        CFPB has been a strong watchdog for consumers since it
    started just 5 years ago. The agency has obtained $11 billion
    in relief for 25 million people in our country. Nearly one
    million people, including 25,000 in Ohio, submitted complaints
    to the agency about their problems with mortgages, student
    loans, credit reports, debt collection, or bank accounts. What
    amazed me about the Tuesday hearing was that at least one,
    maybe two of those three corporate representatives on the panel
    complained about these one million people that were sending in
    complaints, amazingly enough, because they were not--I guess
    because they were not industry lobbyists that sent in their
    complaints.
        We saw in the crisis that regulators ignored their consumer
    protection duties and did not have the authority to act. They
    focused on the financial industry's soundness and ignored the
    plight of consumers. In my view, these are complementary, not
    competing, responsibilities. If people are treated fairly, the
    financial system is far less likely to run off the rails.
        A former Fed official claimed on Tuesday it did not have
    evidence to act against predatory lending. Imagine that. It is
    a fact that foreclosures in my home of Cuyahoga County doubled
    from 1995 to 2000. They doubled again by 2006. And according to
    that former Fed consumer protection official, who was one of
    our witnesses Thursday on the corporate side, there was no data
    that showed any kinds of problems.
        Local officials begged the Fed to act in 2001. The same
    story played out across the country. Prior to the CFPB, there
    was no centralized place for individuals to file complaints
    about consumer financial products. There was no centralized
    place for Congress to determine what consumers were
    experiencing in the marketplace. There was no centralized place
    for regulators to determine when a financial product had become
    so abusive that Americans all across the country, a million of
    them, as I said, would file complaints about it.
        Today, we all have that place. CFPB has exposed bad
    behavior by financial companies that had no Federal regulator,
    such as credit reporting, student loan servicing, auto finance.
    We finally have strong mortgage rules and disclosure designed
    for people who have to pay the mortgage.
        More is needed. The Bureau is working on rules to regulate
    prepaid cards, debt collection, arbitration, and payday loans.
    The payday loan market is a prime example. States have fought
    predatory lending with mixed results. More than a dozen States
    in our country do not allow payday lending. My State did not
    until a Republican majority came in the 1994 elections in Ohio
    and payday lending, in essence, in my State was created. But
    even that legislature, because of abuses, a decade later
    enacted a 28 percent rate cap.
        The industry attempted to repeal the cap through a ballot
    initiative. Ohioans by almost a 2-to-1 vote defeated that
    ballot initiative, even though payday lenders were outspending
    in that campaign 40-to-one. Since then, unfortunately, the
    legislature has caved to those interests, and unfortunately, it
    means that payday lending is alive and well in Ohio again.
        I hope the CFPB will finish these rules soon on payday
    lending. The costs of delay demand it.
        I look forward to hearing from Director Cordray about their
    priorities. I understand, Director, this is the 61st time that
    you have testified before Congress. I hope we can focus on
    substantive issues before allowing you to, as we say around
    here, do your job.
        So, thank you.
        Chairman Shelby. Mr. Cordray, your written testimony will
    be made part of the hearing record. You proceed as you wish.

      STATEMENT OF RICHARD CORDRAY, DIRECTOR, CONSUMER FINANCIAL
                           PROTECTION BUREAU

        Mr. Cordray. Thank you, Mr. Chairman, Ranking Member Brown,
    Members of the Committee, for the opportunity to testify today
    about the Consumer Financial Protection Bureau's Semiannual
    Report to Congress.
        I appreciate our continued dialogue as we work together to
    strengthen our financial system and ensure that it serves
    consumers, responsible businesses, and the long-term
    foundations of the American economy.
        As we continue to build this new agency, we have made
    considerable progress on our core responsibilities to exert
    supervisory oversight over the Nation's largest banks and
    nonbank financial companies and to enforce the consumer
    financial laws enacted by the Congress. Our analytical approach
    to risk-based supervision is leading to more systematic
    consumer-friendly changes at these financial institutions, and
    we are making progress on leveling the playing field for all
    market participants.
        During this reporting period, our supervisory actions
    resulted in financial institutions providing more than $95
    million in redress to over 177,000 consumers. Our enforcement
    actions are based on careful and thorough investigations and
    most have identified deceptive practices by the parties
    involved. During this reporting period, the orders entered on
    enforcement actions led to approximately $5.8 billion in total
    relief for consumers victimized by violations of the law. These
    consumers are located in every one of your States across the
    country.
        We are also working to provide tools and information to
    develop practical skills and help people understand the choices
    they will be making to manage the ways and means of their
    lives. Our ``Ask CFPB'' resource provides guidance and response
    to inquiries across the entire spectrum of consumer finance.
    Our major moment in time-decisional tools now include paying
    for college, owning a home, and planning for retirement. We
    have developed a new partnership with the Financial Services
    Roundtable to work together on financial education in the
    schools, in the workplace, and on behalf of older Americans,
    which is proving to be productive.
        Listening and responding to consumers is central to our
    mission. We continue to refine the capabilities of our Office
    of Consumer Response to receive, process, and facilitate
    responses to consumer complaints. We also continue to expand
    our public Consumer Complaint Database, which updates nightly,
    and is now populated by over half-a-million complaints from
    consumers about a broad range of consumer financial products
    and services.
        We marked a milestone for consumer empowerment when we
    began to publish Consumer Complaint Narratives, which allows
    people to share in their own words their experiences in the
    consumer financial marketplace.
        Reasonable regulations are essential to protect consumers
    from harmful practices and ensure that consumer financial
    markets operate in a fair, transparent, and competitive manner.
    We focused our efforts on promoting functioning markets, such
    as the all-important mortgage market, in particular, where
    consumers can shop effectively for financial products and
    services and are not subject to unfair, deceptive, or abusive
    acts or practices.
        During this reporting period, we issued several proposed
    rules, final rules, or requests for information. To support
    industry compliance with our rules, we publish plain language
    compliance guides and other resources to aid in their
    implementation. We are also seeking to streamline, modernize,
    and harmonize financial regulations that we have inherited from
    other agencies.
        Over this reporting period, the Bureau has continued to
    expand its efforts to support and protect consumers in the
    financial marketplace. Recent data indicates that sound
    consumer protections in our major markets are strengthening
    them for consumers and providers alike.
        The mortgage market has been expanding briskly for 2 years
    now since our major rules have taken effect. The credit card
    market has greatly improved, with strong consumer protections,
    better industry performance, and increasing customer
    satisfaction. The auto lending market is supporting record
    sales of cars and trucks to meet consumer demand.
        The growing sense of consumers that these markets can
    actually work for them, without fear of tricks and traps and
    other predatory conduct, and is stoking their confidence and
    restoring their trust. These developments reflect well on the
    work being done by the Consumer Bureau, and taken as a whole,
    they are making substantial contributions to the continued
    recovery of the American economy.
        Mr. Chairman, Ranking Member Brown, Members of the
    Committee, thank you again for the opportunity to be here today
    and to discuss the work we are doing on behalf of consumers. We
    will continue to listen closely to our stakeholders and attend
    carefully to your oversight in order to ensure that all
    Americans can be assured of fair treatment in the consumer
    financial marketplace.
        I look forward to your questions.
        Chairman Shelby. Thank you, Director Cordray.
        I would like to summarize my understanding here today of
    your enforcement actions regarding the indirect auto lending
    and then get some of your impressions, if I could. As I
    understand it, Mr. Director, you do not have any statutory
    authority to regulate auto dealers. In fact, Dodd-Frank
    specifically proscribes that.
        Mr. Cordray. That is correct. We have never brought any
    action----
        Chairman Shelby. I know.
        Mr. Cordray. ----against a single auto dealer. Correct.
        Chairman Shelby. You do, however, have the authority to
    regulate indirect auto lenders.
        Mr. Cordray. Not only the authority, but we feel a
    responsibility. Congress gave us that task, yes.
        Chairman Shelby. The CFPB, in other words, you, recently
    approved an enforcement action against certain lenders using
    the theory of disparate impact. In these cases, you argued that
    the lenders' policies created a significant risk--these are
    your words--that they will result in pricing disparities on the
    basis of race, national origin, and potentially other
    prohibited bases.
        I presume that you pursued the disparate impact theory
    because the lender actually has no idea whether the borrower
    belongs to a protected class. Unlike mortgage lending that is
    subject to HMDA data collection, auto lending is not. In other
    words, it is my understanding that the lender cannot
    intentionally discriminate on the basis of race because the
    borrower's race is unknown to them.
        Nevertheless, it is my understanding that you did
    determine--you, the agency--you did determine that certain
    racial groups were being charged the higher rate for their
    loans and, hence, the disparate impact. The bad act, for lack
    of a better term here, was the lender's policy, not the fact
    that they intentionally discriminated against anyone because
    they actually could not, even if they wanted to. They did not
    know who they were. If anyone was in a position to actually
    discriminate, it was the person selling the car. But, the law
    does not allow you to regulate the dealer, only the lender, as
    you acknowledged. As a result, the indirect lenders were
    penalized to the tune of $162 million for what may or may not
    have been the action of someone else.
        Assuming here that your conclusion of disparate impact was
    valid, it would seem to me that this would be a poster child
    for a rulemaking as opposed to an enforcement action. There is
    a big difference. The lenders did nothing to intentionally
    discriminate against anyone, and yet it would appear that you
    treated them as such because you do not have the authority to
    go after your real target here. Your own press release is
    entitled, and I will quote, ``CFPB To Hold Auto Lenders
    Accountable for Illegal Discriminatory Markup.'' That is your
    press release.
        I understand that you make these decisions on a case-by-
    case basis, but here today in this Committee, tell us in detail
    why you chose to go after these lenders as if they were
    knowingly discriminating against certain individuals as opposed
    to pursuing a rulemaking that would give the lenders some
    clarity and some certainty in the area.
        Mr. Cordray. So, I would say a couple of things, and I
    would put the matter, I think, somewhat differently than how
    you just stated it, but, first of all, auto lenders set up
    their lending programs. They can lend directly or they can lend
    indirectly. They set up those programs. The results of those
    programs are their responsibility. If, in fact, there is a
    systematic pattern or practice, in their programs of people
    being given higher rates based on race or ethnic origin, that
    is against the law.
        As to disparate impact, there are two things I would say.
    First of all, we enforce the Equal Credit Opportunity Act in
    the same way and with overlapping jurisdiction of as the
    Justice Department. The Justice Department only has enforcement
    authority. All of these matters have been taken jointly with
    the Justice Department and they have led to findings of
    disparate impact discrimination.
        As to whether this is the law, my job is to enforce the
    law, whatever it is, whether somebody disagrees with it or not.
        Chairman Shelby. Your job is also to follow the law, is it
    not?
        Mr. Cordray. Yeah. This law----
        Chairman Shelby. Is it not----
        Mr. Cordray. ----was reaffirmed by the U.S. Supreme Court
    last June.
        Chairman Shelby. Excuse me.
        Mr. Cordray. I am sorry.
        Chairman Shelby. Your job is also to follow the law.
        Mr. Cordray. Absolutely, and the U.S. Supreme Court----
        Chairman Shelby. Respect the law.
        Mr. Cordray. ----last June reaffirmed that disparate impact
    discrimination is the law of the land.
        Chairman Shelby. OK.
        Mr. Cordray. That is the law we are required to enforce. We
    will enforce it vigorously, and we believe to root out
    discrimination, which nobody supports, in any of these markets.
        Chairman Shelby. There has been a lot of talk here before
    the Committee and in the discussion a couple of days ago about
    your agency using enforcement as a tool rather than rulemaking,
    that some people believe that what you all are after, money
    rather than justice. What do you say to that?
        Mr. Cordray. I think if you are enforcing the law, there
    are people who are not going to like it because they would
    rather get away with violating the law, cutting corners, and
    saving money. But, if people are violating the law, they should
    be made to pay. They should be made to reimburse consumers who
    are harmed. That is a basic premise of any law enforcement
    agency. I know you were a prosecutor early in your career. I am
    sure you took seriously your obligation to make people follow
    the law. That is all we are doing. It is what we should be
    doing, and if it has not been done previously and people are
    used to it not being done, then that is not correct. That is
    not the way things should be.
        Chairman Shelby. But everybody should have respect for the
    law and the rules, and that includes you and your agency, is
    that correct?
        Mr. Cordray. Absolutely, yes.
        Chairman Shelby. OK. Senator Brown.
        Senator Brown. Thank you, Mr. Chairman.
        Director Cordray, again, thank you. We heard a lot 2 days
    ago about the Bureau's arbitration study. I would like to give
    you a chance to talk about the study, specifically, its
    methodology and its findings. What did you find? What does the
    Bureau plan to do to allow consumers to seek justice in court?
        Mr. Cordray. OK. And, it is very important to understand
    the authority here. Congress spoke in the Dodd-Frank Act and
    they spoke loudly on this issue of arbitration agreements in
    consumer finance contracts. And what they said, what Congress
    said--this is the law of the land now--is that those
    arbitration agreements were harmful in most mortgage contracts
    and would be banned flat out in most residential mortgage
    contracts.
        Congress also said in the statute that as to the rest of
    consumer finance, we are going to task this new agency, our
    agency, with the job of studying this problem carefully and
    reporting to Congress about it, and then based on the results
    of that study, to consider whether policy interventions are
    warranted, consistent with the study, and--they gave broad
    latitude here--consistent with the public interest to protect
    consumers.
        So, our first job, a mandatory job, was to conduct a study
    of arbitration clauses in consumer finance contracts. We took
    that very seriously. It took us a couple of years to do that
    study. We assembled and brought in data that no one had ever
    had a chance to look at before about arbitration matters, about
    court cases, about every manner in which different disputes may
    be resolved in the consumer finance arena. Those who have
    criticized the study acknowledge that it was the single most
    comprehensive, really groundbreaking study that had ever been
    done and that continues to have ever been done in the history
    of arbitration agreements, which go back under Federal law to
    the 1920s.
        And, the study found that in consumer finance issues in
    particular, very often, what you have is a small amount of harm
    to individual consumers on a broad basis. Maybe millions of
    consumers are harmed to the tune of $50 or $100. That is
    enormously profitable for financial institutions, but it is not
    worth it to individual consumers, in most cases, to pursue
    either an arbitration or a court case. And, in fact, what we
    found is arbitration agreements in these contracts tends to
    cutoff people's remedies pretty much altogether, in particular
    because it bans their ability to group together and bring group
    claims so that financial institutions who harm on a broad basis
    cannot be held accountable.
        That is essentially what our study found. There is a lot of
    detail in there, and it is not easily subject to a 30- or 60-
    second discussion because it runs to hundreds and hundreds of
    pages. But, it continues to be discussed and debated and we
    continue to discuss and debate it and consider all of the input
    we have gotten.
        We offered to speak to the authors of one critical study.
    One of them was willing to speak to us about it, the other was
    not. And, we will take input from all sides on this.
        But, we are moving forward. We have indicated that we are
    contemplating a proposed rulemaking to build on the results of
    that study and to address this issue and I expect that to be in
    a proposal stage at some point this spring.
        Senator Brown. Thank you, Director.
        Our panel Tuesday claimed that regulations are reducing
    access to products like free checking and, therefore, they say,
    pushing consumers into payday loans. However, Americans have a
    record $3.5 trillion in consumer debt, a full trillion dollars
    more than just 6 years ago. Talk, if you would, about the
    availability of credit and the research that the Bureau has
    done on this topic.
        Mr. Cordray. Sure. I had a chance to review the transcript
    from Tuesday and there were comments made about free checking
    that I think are dubious. I saw some of it was being pinned on
    the Durbin Amendment and I thought you were right to be
    skeptical of that claim, which has not been established as a
    cause or effect.
        In fact, access to credit is expanding, by the way, there
    was also a lot of looseness around dates in some of that
    testimony. Some of the testimony talked about things that have
    happened since 2008, like credit being restricted. Credit was
    restricted immediately in the wake of the financial crisis
    because households lost $12 trillion in household wealth.
    Mortgages became tight.
        Credit cards became tight. But, what has been happening
    since the Dodd-Frank Act was passed in 2010 and the CARD Act in
    2009, and also the Consumer Bureau, which did not open its
    doors until July of 2011, is that we now see credit begin to
    expand again, in the mortgage market and in the credit card
    market. The Federal Reserve studies have shown that credit is
    expanding. And, I would say, in the credit card market, in
    particular, there is broadly increasing consumer satisfaction
    with these products.
        We think that is a good thing. We are not just pro-consumer
    protection at the CFPB, we are pro-consumer, and if consumers
    have access to responsible credit, that is a very good thing,
    and we do see that expanding across markets.
        Senator Brown. Could I do one more question?
        Chairman Shelby. Go ahead.
        Senator Brown. Thank you, Mr. Chairman.
        Last year, the Bureau announced it was considering
    proposing rules, and we have talked about this in the past,
    that would cover payday lending, vehicle title loans, other
    high-cost loans. Our home State of Ohio, as you know, attempted
    to block payday lending. Its law has been ineffective. Talk
    about how these companies have skirted State laws. Talk about
    the importance of the rule. And, you have also commented in the
    past that there are a dozen States that do not allow payday
    lending, and in those States, how have they done with small
    dollar credit in those States without the access to payday
    lenders, if you will.
        Mr. Cordray. Yeah. There has been no research, and it
    ranges, depending on people's definitions here, from 12 to
    possibly 18 States that restrict payday lending because they
    have usury caps in place to indicate that consumer welfare is
    harmed in those States. And, in fact, there are studies
    indicating that both credit scores may be higher and
    bankruptcies may be lower. So, that is a question.
        I think as to circumvention, the best example is one that
    this Committee can understand very readily because you have
    been involved in the Military Lending Act. The Military Lending
    Act was passed in 2006 with the promise Congress made to cut
    off some of the predatory credit that was being offered to
    servicemembers, active duty servicemembers. The rules that were
    then implemented by the Federal agencies at that time were
    pathetic. They were narrow. They were easily circumvented. And
    you can still see to this day predatory products being offered
    outside military bases and online at 500-, 700-, 900-percent
    rates of interest.
        Congress reopened that a couple years ago. The Consumer
    Bureau was part of the discussions about creating new rules,
    and we now have strong rules in place--some took effect last
    October, and the rest of the rules will take effect this
    October--that will bring the meaning of the Military Lending
    Act to fruition for servicemembers and their families across
    the country.
        But, if loopholes are allowed and if rules are flimsy, then
    the industry will circumvent those rules, and, in fact, they
    have shown their ability to do so.
        Senator Brown. Thank you. Thank you, Mr. Chairman.
        Chairman Shelby. Senator Crapo.
        Senator Crapo. Thank you, Mr. Chairman.
        Director Cordray, as you know, I have privacy concerns
    about the CFPB's big data collection efforts and the ability to
    reverse engineer this information.
        Mr. Cordray. Yeah.
        Senator Crapo. Last Congress, I requested an official
    review of the CFPB's data collection by the Government
    Accountability Office. The report acknowledged CFPB's ongoing
    collection of up to 600 million credit cards, 11 million credit
    reports, 700,000 auto sales, 10.7 million consumers, cosignors,
    and borrowers, 29 million active mortgages, and 5.5 million
    private student loans.
        I do not want to get into it now, but I would like you to
    verify that data with me. I want to know if the data that I
    just put out is accurate or whether the numbers are higher or
    lower.
        Mr. Cordray. So, as you know, when we discussed it, we were
    glad to have you commission the GAO study. They issued their
    report. They made a number of recommendations to us. They have
    now indicated to us that we have successfully implemented all
    of those recommendations and they will be moving to close those
    out, so that is good news, and I think the result has been it
    improves our process as an agency.
        As we have discussed before, the last thing I want is for
    our agency to mishandle data and to be criticized for that. You
    have been apprehensive on this issue, I think with legitimate
    reason, from the beginning, but we have handled this data
    responsibly and carefully and we are looking, in response to
    some of the dialogue and oversight we have had from you and
    Members of this Committee and House committee, we are looking
    to do sampling of data wherever possible. We are now looking at
    how we can do that with credit cards.
        Senator Crapo. I appreciate your efforts on that. And, what
    I was saying, though, is I want to verify with you the data
    that I just put out. For example, are you actually only looking
    at 600 million credit cards? Are you looking at more or less or
    what have you? So, the data I put out, I would like--I do not
    want to get it and use my time----
        Mr. Cordray. So, I mean, the reality is, that is actually
    in a state of flux right now and we are looking to find ways,
    and I believe that we will be able to report successfully to
    you over time that we will be doing----
        Senator Crapo. That you are reducing----
        Mr. Cordray. ----a sampling of that data----
        Senator Crapo. I appreciate that.
        Mr. Cordray. ----rather than comprehensive----
        Senator Crapo. As of October 31, 2015, the CFPB has issued
    eight mandatory data collection requests under its Section 1022
    market monitoring authority, and six of those mandatory data
    collection requests were sent to fewer than nine companies, the
    significance of which is that that effectively avoids the
    review of the request by the Office of Management and Budget
    and circumvents the opportunity for public comment on the
    information request.
        The feedback I received from the CFPB's mandatory data
    collection request on deposit advance products was that it was
    voluminous and sought a number of data fields, including the
    use of deposit advance products, overdraft protection, and
    nonsufficient fund fees. While it did include a caveat that the
    financial institution should not produce any personally
    identifiable information that directly identifies the consumer
    or the account, I understand that the data collection request
    effectively required these institutions to scan customer
    accounts line by line for their financial behavior going back
    years. It would seem to me that this is a large-scale data
    collection into the individual consumer's use of financial
    products on a transaction by transaction basis.
        Can you confirm to me how many data fields were collected
    through this request and how many customer accounts were
    scanned to get this data?
        Mr. Cordray. So, there were different requests with
    different data fields, but what I want to say is I think the
    story you tell, which I agree with, actually vindicates and
    shows careful concern by us to comply with the Paperwork
    Reduction Act and Congress' purpose in that Act. The fact that
    we would limit ourselves to a small number of institutions in
    order to get data is sampling of a kind, and we are doing that,
    in part, because the Paperwork Reduction Act provides the
    incentive to do sampling. Rather than going out to 400
    institutions, we may go to nine. If we are going to try to go
    to 400 institutions, if that becomes essential, there are
    heavier burdens to bear, and we have done that at times and
    gone through the OMB process.
        Senator Crapo. Well, I understand that, but if you look at
    credit cards, for example, my understanding is, and this is
    obviously a rough number, that there are somewhere over a
    trillion credit cards in the United States--credit card
    accounts in the United States. If you are looking at 600
    million of them, that is half, at least. And, I understand that
    you may be far above the 600 million level, which is why I
    asked for that number earlier.
        Mr. Cordray. Yeah, sure, but the credit card database is
    different from the 1022s. The 1022s----
        Senator Crapo. Understood.
        Mr. Cordray. ----where you think it is circumventing the
    PRA, it is actually compliance with the PRA and it leads to
    sampling, which is a good thing.
        On the credit card issue, as I said, we are working to go
    to a sampling process for that. I believe we will be able to do
    that over time and we will continue to report to you on that,
    and that is in response to your oversight and your concern,
    which I share.
        Senator Crapo. Well, thank you. And, again, my question
    specifically was how many data fields were collected and how
    many customer accounts were scanned to get this data, so I
    would like to----
        Mr. Cordray. OK. I am happy to follow up with you, again,
    depending on which 1022 you are talking about or which database
    you are talking about, and we will be glad to brief your staff
    and make sure that you are satisfied.
        Senator Crapo. All right. Thank you very much.
        Chairman Shelby. Senator Reed.
        Senator Reed. Well, thank you very much, Mr. Chairman, and
    thank you, Mr. Cordray, for your great work.
        I worked very hard with my colleagues on the Committee to
    ensure that the Office of Servicemember Affairs was included in
    the Consumer Financial Protection Bureau, and I must say, under
    your leadership and the leadership of Holly Petraeus, it is
    doing a remarkable job. Just last year--in 2015, you returned
    over $5 million to service men and women and their families.
    And, one of the reasons this is so critical to me is that when
    I was a younger person, I was an XO of a paratrooper company
    and most of my time was consumed fending off creditors coming
    after my troops based on very suspicious credit arrangements
    that they had worked out.
        So, I really appreciate what you are doing, and I do not
    think there is anyone in this Congress that would object to
    protecting the financial well-being of men and women who are
    wearing the uniform of the United States. And, I would go
    further, saying that I do not think there should be a
    difference for their brothers and sisters who may not be
    wearing the uniform of the United States but are being
    exploited by other people.
        Mr. Cordray. Amen to that.
        Senator Reed. Thank you. One of the things, though, that
    your inquiries have uncovered is a practice that seems to be,
    if not growing, very disturbing, and that is creditors
    contacting commanders and threatening the security clearance of
    an individual member of the Armed Forces based on a debt, and
    this has huge ramifications. It can prevent promotion. In fact,
    in some cases, because of their job, they might be separated if
    this comes about. Can you comment on that and what you are
    doing?
        Mr. Cordray. Sure. It is flatly against the law for a debt
    collector to threaten anyone, let alone a servicemember, with
    consequences that a debt collector has no ability to carry out.
    So, for example, it is common for debt collectors, those who
    push the envelope, those who do not care about compliance, to
    threaten arrest or imprisonment, which they have no ability to
    effectuate.
        In the servicemember context, the ominous activity that
    many debt collectors engage in is to threaten to go to the
    commanding officer of the servicemember and threaten their
    security clearance, which would threaten their ability to
    remain on active duty in the military and perhaps lead to a
    dishonorable discharge. That is an execrable practice. It is
    against the law. We have taken strong enforcement actions
    against it.
        And, by the way, when people talk about regulation by
    enforcement, when we take an enforcement action against a debt
    collector for doing that, threatening the security clearance of
    a servicemember, I hope that people do take that as regulation
    by enforcement, and every other debt collector out there
    understands they are at risk, they are violating the law, and
    we will come down hard on them if we become aware of the fact
    that they continue to do that. Everybody should be on notice in
    this marketplace, no one should be doing that.
        Senator Reed. Well, I really appreciate that, because I saw
    it from the perspective of an executive officer in an infantry
    company where I was getting barraged. The commander would
    hand--that was my job. I did that stuff for the commander. And,
    letters every day of young men--at that point, all young men--
    who had been really goaded into buying vehicles they could
    never afford at extraordinary interest rates and then being
    hounded and beaten up, finally going to the commander and
    threatening that their status in the military would be
    impaired. So, what you are doing there is absolutely critical.
    As the Ranking Member on the Armed Services Committee, it is
    critical to our readiness and the ability of our troops to
    concentrate on their jobs, so thank you.
        There is one other thing, too, that I must commend you on.
    Through your work, we have made improvements in the Military
    Lending Act. We had an Act that capped interest rates for
    active duty personnel at 36 percent, but people went in--the
    Consumer Federation of America, and found that because of the
    loopholes in the previous regulation, in fact, some lenders
    were charging 400 percent for a title insurance loan, 584
    percent for an open end line of credit, 360 percent for an
    online installment loan--these are to men and women in the
    military.
        And, thank you for your efforts, because I think now we
    have got a better hold on keeping the level at 36 percent. And,
    by the way, 36 percent interest in today's interest economy is
    still pretty plush for the lenders, but that is the law. Thank
    you.
        Mr. Cordray. I think that, actually, the regulations that
    were first adopted in the wake of the MLA were disrespectful of
    the Congress. Congress clearly indicated its purpose, to
    protect servicemembers in this area, and the rules did not get
    that job done. And, I am grateful to the Congress for reopening
    this issue several years ago so that we could do it right this
    time, and I am proud of our team that worked with other
    agencies and with the Department of Defense, and I am proud of
    the Department of Defense for their determination to make this
    work for their servicemembers.
        Senator Reed. For the record, it was title installment
    loan, not title insurance loan. Thank you.
        Chairman Shelby. Senator Corker.
        Senator Corker. Well, thank you, Mr. Chairman, and Mr.
    Cordray, it is good to see you again.
        Mr. Cordray. Thank you.
        Senator Corker. I had written you a letter about TILA
    RESPA, and I know we--and I appreciate your efforts to try to
    make that more simplified for folks. Because of the line of
    work I have been involved in in the past, I closed a lot of
    loans in the past, and, candidly most of the times, I did not
    see the sheet until I was actually at the closing table----
        Mr. Cordray. Yeah.
        Senator Corker. ----and I was OK with that, because it sped
    up the closing process. At the same time, I know that the
    attempt here is to make sure that people know what they are
    doing in advance and have the opportunity to see it. And, yet
    still, things are pretty fluid with most loans, and there are
    some calculations that take place at the last minute for lots
    of reasons.
        And, what we found, and I know that you know this, we found
    that what is happening is you have got responsibility or legal
    obligations shifting to the settlement agent, which really is
    just collecting the information and putting it in a closing
    statement. And, I am just wondering, I know that they can
    correct this within 60 days or a period of time, but there is
    some confusion over what is something that is just a little
    clerical error and something that matters. I know that right
    now, attorneys are litigating over this and we are finding that
    sometimes people are having difficulty selling these loans in
    the secondary market.
        Mr. Cordray. Mm-hmm.
        Senator Corker. I am just wondering if you are considering
    making a ruling of some kind to alleviate the problems that I
    know you are aware of that are existing out there.
        Mr. Cordray. Yeah. So, several things. First of all, it is
    a great example of Congressional oversight and how these
    hearings matter. We received that letter from you. Because I am
    testifying today, we did respond to that letter, it may have
    been late last night, it may have been early this morning that
    your office received it. You probably have not seen it yet, and
    I apologize for that.
        Senator Corker. No, I read it. I read it.
        Mr. Cordray. OK. And, that is because we knew that you
    would want to raise this issue again with me, or likely would.
        In terms of the Know Before You Owe rule, the purpose of
    that rule, and this is something Congress mandated, it was not
    something we just dreamed up on our own--and there was a good
    purpose, and everybody acknowledged it was a good purpose--
    there used to be two different application forms, one issued by
    the Federal Reserve, one issued by HUD, that occurred at the
    application stage, and two different closing forms, again, by
    each of those agencies under different statutes, and it was
    inherently confusing for consumers.
        Senator Corker. Right.
        Mr. Cordray. Why am I getting two forms? What is the
    difference between them?
        Senator Corker. No, I got that. I understand that.
        Mr. Cordray. You know all that.
        Senator Corker. I understand the reasoning and I applaud--
    --
        Mr. Cordray. And the purpose here was to streamline those
    forms. You all had a hand in making sure this happened. But,
    our agency was given the job and we have completed that job.
        Now, having said that, that is a big transition for
    mortgage lenders, who have to work with lots of others in the
    industry and all of their IT systems have to work together. We
    have recognized that. We have said that we are going to be
    understanding and diagnostic about the oversight of this in the
    early period. The early period now has stretched past 6 months.
    We still feel the same way, and I will reemphasize that today.
        There are some concerns that we want to be very mindful of.
    We convened recently the leading trade associations, the
    Mortgage Bankers, American Bankers Association, others, to hear
    from them about specific concerns they have that we can
    address. We have held webinars. We have another one coming up
    next week on these issues. We have compliance guides out. We do
    want to make sure that although this is better for consumers,
    and they tell us that it is, that it works for industry, as
    well.
        Senator Corker. Right.
        Mr. Cordray. I was pleased to see mortgage lending was up
    12 percent year over year in January from a year before. That
    is a good thing. As I say, it is something we like to see,
    because this is good, responsible lending. And, the closing
    times initially ticked up on this, but they ticked back down,
    and in February, the Ellie Mae folks said that this is, you
    know, kind of status quo as far as that is concerned. It is not
    necessarily for every institution, though. I get that, and we
    hear that.
        Senator Corker. But, I want to ask you another question, if
    I could.
        Mr. Cordray. All right.
        Senator Corker. I think when you get to a point, and
    hopefully very soon, you will be able to issue some clarifying
    language----
        Mr. Cordray. Yes.
        Senator Corker. ----so that people know, you know, whether
    something is a minor error or something that, you know, is
    something that is major and actually taints the loan, if you
    will. I just think that would be helpful to industry and I
    appreciate your concern in responding to my----
        Mr. Cordray. We have been doing that. We will continue to
    do that. And, if you are hearing things that we are not
    addressing, we are glad to have you continue to bring them to
    our attention. We are probably hearing them directly, but we
    are glad to hear them from you----
        Senator Corker. I want----
        Mr. Cordray. ----because we sit up and take notice of that.
        Senator Corker. I am trying to adhere to the time here.
        Mr. Cordray. Yeah.
        Senator Corker. Payday lending--I know in our State, if you
    continued a loan, ad infinitum, for an entire year, the
    interest rate would be 459 percent. And, obviously, we want to
    make sure that people have access to loans at affordable rates.
    We have had our Commissioner of Banking was in yesterday
    talking about this. It is just an observation.
        Mr. Cordray. Mm-hmm.
        Senator Corker. What is it that you see that are potential
    outlets down the road for people whose credit has been
    tarnished and has issues? Is it through FinTech? I mean, what
    are you seeing out there? I would love to hear what your
    thoughts are relative to people having access to loans that are
    a little different from that if they are in the capacity, if
    you will, to be able to execute on them.
        Mr. Cordray. Sure. A number of things. And, some of these,
    we are trying to sort out and understand.
        First, there is the payday lending industry itself, which
    could reform in light of potential regulations at the Federal
    level, just as they have often changed their practices at the
    State level in response to changes. And, frankly, nobody wants
    to cut off people's ability to get one or two loans when they
    need them. It is the debt trap, when people get stuck in the
    loans for 8, 10, 12----
        Senator Corker. I understand the problem----
        Mr. Cordray. Yes.
        Senator Corker. ----and I really do. I am understanding--
    what I would like to understand is what the solution is----
        Mr. Cordray. Yeah.
        Senator Corker. ----so you do not cut people off from----
        Mr. Cordray. Let me be real specific. I think there are
    possibly three different solutions here. One is reform of the
    payday industry itself.
        A second is community banks and credit unions. Credit
    unions do offer a small dollar product called a PAL product. It
    is blessed in law. We think it is a good product and we want to
    make sure that there is room for that under any regulations we
    would adopt. And community banks could do that. We want to
    allow room for that--responsible products, not payday-type
    products.
        The third piece is FinTech, and there are real
    opportunities here, although small dollar lending is tricky. It
    is difficulty. And we will see if that develops over time. But,
    whatever FinTech innovations occur, we want them to be consumer
    friendly and we will be mindful of that and watchful for that,
    and I think those in the industry know that. Many of them have
    met with us and they are mindful of the CFPB's role here.
        Senator Corker. Thank you.
        Chairman Shelby. Senator Menendez.
        Senator Menendez. Thank you, Mr. Chairman.
        Director, let me say, I came today in part, unlike others,
    maybe, to praise the Consumer Financial Protection Bureau, not
    to bury it, and let me say that I think an example of what you
    and your colleagues at the Bureau are doing is embodied in
    something I fought very hard as a Member of this Committee,
    which is the Credit Card Act. The Bureau noted in its most
    recent evaluation that since enactment, consumers have saved
    more than $9 billion in over-limit fees, $7 billion in late
    fees, and the total cost of credit has dropped almost 2
    percentage points, and all the while, the availability of
    credit card credit has increased. And that, in my mind, is just
    one example of why consumer financial protection laws and
    regulations create a fairer marketplace.
        In that regard, as I think you know, I have been very
    engaged in the question of prepaid cards, which has exploded
    over the last few years, especially among households who lack
    access to traditional banking services. And, I have introduced
    legislation which would require clear disclosure of fees and
    prohibit the most abusive kinds of charges. It would also
    require prepaid cards to have FDIC insurance, like a
    traditional bank account, and comparable protections to a bank
    account if a card is lost or stolen.
        Many card providers have already voluntarily provided such
    measures and standards, which shows it can be done, but it also
    highlights the need for strong, consistent protections across
    the full market.
        So, could you give us an update on the status of the
    Bureau's work on prepaid cards, and particularly, since I see
    that the rule did not include, or the proposed rule did not
    include the issue of FDIC, how will we create the type of
    protection necessary in that regard.
        Mr. Cordray. Sure, and we have had some discussions around
    this previously. We have been very attentive to the legislation
    that you introduced and to the thought and care and research
    that went into thinking about those issues, which we have
    attempted to incorporate into our own approach to these issues.
    That rulemaking is pending. It was out for notice and comment.
    We have digested those comments and we expect to finalize that,
    or we will finalize that rule sometime this spring.
        On the issue of FDIC insurance, in particular, that is one
    of the issues that is under submission there. I do not want to
    overstep proper bounds here, but we have had discussions with
    the FDIC about it and we understand the concern there.
        Many of these general purpose reloadable prepaid cards now
    effectively serve as substitute bank accounts for people who
    are unbanked, and they can be pretty effective bank accounts if
    they have consumer protections. Right now, as you know, we have
    no consumer protections. This rule will provide consumer
    protections for the first time, very similar to those for bank
    accounts, the Reg E protection.
        The other thing I would say on this issue that is new since
    we last talked in committee about it is we did have the
    RushCard fiasco, and the Consumer Bureau was very engaged in
    addressing--these people had prepaid money loaded onto cards
    and then thousands of them found that they could not get their
    money off the cards because of an operational glitch by the
    company, some sort of problem that we continue to sort through
    from a standpoint of an investigation and making sure consumers
    are made whole.
        And, you know, that is outrageous. People prepay money onto
    a card in order to be able to use it when they need it, and if
    they cannot use it when they need it, then they have been
    cheated of their service. So, that, if anything, shows all the
    more to me the need for strong protections in this area.
        Senator Menendez. Well, I appreciate that. I know that
    Senator Brown and I wrote to you about that and I am glad to
    see that the Bureau is pursuing it.
        Mr. Cordray. Yeah.
        Senator Menendez. Two last issues. One is zombie mortgages,
    zombie foreclosures, I should say. Unfortunately, my State of
    New Jersey has the highest rate of zombie foreclosures, which
    is basically a bank begins a foreclosure action, but then,
    because of the low value of the house, chooses to abandon the
    foreclosure without providing any notice to the homeowner that
    they are still on the hook for repaying mortgage debt, taxes,
    and other expenses. So, can you talk to me about what steps, if
    any, the Bureau has taken or is looking to take to address this
    issue? At least can homeowners receive notice when the bank has
    decided not to pursue it?
        And, last, the National Council La Raza reported that 48
    percent of counselors reported that mortgage servicers rarely
    or ever provide written communications in the preferred
    language of a borrower with limited English proficiency. I know
    the Bureau has identified the provision of language services as
    an issue in its mortgage servicing examination procedures, but
    particularly for homeowners who encounter trouble on their
    mortgage, it seems to me that more is needed to ensure they
    receive the type of comprehensive loss mitigation assistance
    that is necessary.
        Can you address those two issues.
        Mr. Cordray. Sure. I will take the second one first, in
    terms of preferred language. There was a very helpful provision
    in the statute that Congress passed on remittances that said
    that if you are basically selling a product and marking in a
    preferred language, then you ought to follow up in all respects
    through the product in that language. That is probably a good
    principle across the board, but it was specified there and so
    we were able to implement it.
        In terms of preferred language, that is something we are
    working on with FHFA and others, and we recognize the issues
    there and the importance and the vital elements of that for
    communities that are affected. And, of course, it is not only
    Spanish-speaking, but it is a wide variety of languages in
    different parts of the country, we have come to understand.
        In terms of zombie foreclosures, it is a difficult issue.
    It is often an issue for investor properties, but--sometimes
    there are properties taken over by banks. And what you are
    talking about is starting a foreclosure, then stopping the
    foreclosure at some point. The consumer does not necessarily
    have any notice. They do not realize they are still going to be
    on the hook legally, since the property was never foreclosed on
    and sold, for taxes and insurance and other payments. They may
    well have left the home in the meantime, because if you are
    being foreclosed--if you think you are being foreclosed on,
    often, you start examining your options and you take one when
    you can find it.
        So, it is a difficult problem. I do think you are right,
    that notice is a basic problem there. It often will not be
    effective for consumers, entirely effective, because they may
    have already left the home. And, it is worse, frankly, in the
    States with the longest foreclosure processes because there is
    more chance of a bank starting and then stopping maybe 200,
    300, 400, 500 days in, at which point the consumer may have
    left the home.
        So, we understand there is consumer harm here. There are
    complexities around it, but it is something that we are looking
    to see what we can do and maybe what others can do, as well,
    and how we can work together on that, including with State
    courts.
        Senator Menendez. Thank you. I look forward to working with
    you. Thank you.
        Chairman Shelby. Senator Scott.
        Senator Scott. Thank you, Mr. Chairman.
        Thank you, Mr. Cordray, for being here this morning. You
    made a speech to the credit unions and talked about how the
    mortgage market was good news for all around, that more
    opportunity for more consumers and a wider path to the American
    dream in a mortgage market made stronger by the changes we have
    made. But, the evidence for first-time homeowners over the last
    3 years is that the first-time homeowners have been in decline,
    and that disproportionately impacts minority would-be
    homeowners, since the fact of the matter is that about 74, 75
    percent of the majority population owns homes. About 45 percent
    of African Americans own homes. About 55 percent of Hispanics
    own homes.
        So, my question really is, when you look at the rules and
    Dodd-Frank being put in place, how do we reconcile the mortgage
    market specifically is good news for all around, when, in fact,
    for first-time homebuyers, who are disproportionate minority,
    the news is not nearly as good? But, what we have seen
    throughout the country, and specifically at home in South
    Carolina, is that the rental market is far more expensive and
    the growth, really, an explosion, in apartments is nearing an
    all-time high in the last decade or so.
        Mr. Cordray. Yeah. So, this is--and I know you raised that
    issue on Tuesday and I had a chance to review the transcript of
    the hearing, and it is an important and interesting--it is
    actually a very interesting issue, a lot of pieces to it.
        So, first of all, I would say, in terms of first-time
    homebuyers, I think if you look at the statistics on the
    mortgage market, what you will find is that of owner-occupied
    real estate, first-time homebuyers are still maintaining about
    the same share that they have. The difference that is affecting
    the market is that there are many more investor-owned and
    investor-purchased properties than there had been before the
    crisis. It appears that investors have seen their opportunity
    as prices plummeted and they have bought up a lot of
    properties, and this is going to be a problem in a number of
    communities, because although it helped find a bottom in
    certain markets and maybe create equilibrium, it has pulled
    inventory off the market and made it unavailable to, say, you
    and me, if we were going to go try to buy a house tomorrow.
        There are also inventory problems in local markets around
    the country. Sometimes, many houses are tied up in the
    foreclosure process, depending on the State. Sometimes, many
    houses remain underwater, depending on local valuations, so it
    is difficult for someone to sell if they are underwater on
    their mortgage. And, homebuilders have been kind of reluctant
    to come back in with a rush to the market and build new
    inventory, although that is starting to happen.
        So, by the way, I do not want to be viewed as some sort of
    happy talker who sees a glass half full if there are just a few
    drops in it. But, what I do see in the mortgage market is that
    the share of the mortgage market that is taken right now by
    credit unions and community banks together has risen since
    Dodd-Frank, has risen since our rules took effect, and is at
    levels that are the highest they have been in 20 years. That is
    a good thing. Those institutions did do the best lending right
    through the crisis. When everybody else was deteriorating, they
    stayed firm. They had low default rates. And we have tailored
    our rules to give them advantages and recognize their model in
    the mortgage market, and I think that is a good thing.
        Senator Scott. It certainly appears to me that the
    consolidation within the banking space has led to more access
    and opportunities for smaller credit unions to continue to
    grow----
        Mr. Cordray. I think so.
        Senator Scott. ----and, frankly, in Section 1022 of Dodd-
    Frank, it states plainly that the Bureau, by rule, may
    conditionally or unconditionally exempt any class or covered
    persons, service providers, or consumer financial products or
    services from any provision of this title or from any rule
    issued under this title. Do you think if the credit unions or
    community banks were being detrimentally impacted--we have
    talked about the mortgage market specifically, but generically
    speaking--by the rules of your agency, this section would allow
    there to be more tailoring of regulations? Do you see that as a
    possibility that you are going to take hold of, or do you see
    the need of it or not?
        Mr. Cordray. We have been doing that since the beginning,
    and we tailored our mortgage rules, in particular, which, of
    course, is the most significant finance market for all players,
    at around $10 trillion, we tailored our rules in notable ways
    for smaller providers, and we continue to do that. We have just
    implemented Congress', I thought, helpful legislation on
    definition of ``rural'' in a way that was very broad for
    smaller institutions.
        What I will say about the exemption authority is we tend to
    be fairly careful about it. We do not regard Congress as having
    said to us, you have broad exemption authority. You can do
    whatever you want despite what Congress said. That would be too
    much. But, where we have evidence that we think we can build
    on, in particular, rulemaking, such as the mortgage origination
    rules, the mortgage servicing rules, the remittance rules, we
    will tailor for smaller institutions because, very often, that
    is the right answer. They are responsible. They are close to
    their customers. They provide good service.
        But, the notion that we would simply countermand--I mean,
    Congress set its own limits here in terms of we have authority
    over banks over $10 billion but not under, in terms of
    supervising them, and the like, and Congress did not just
    exempt credit unions from all laws and regulations, and,
    therefore, I do not feel that I can just come in as a matter of
    opinion or ideology and overrule that.
        But, where I can see that, say, in mortgage rules and the
    mortgage market, they have done well and we should try to
    tailor our rules accordingly, we have done that and we will
    continue to do that. And, I would be glad to take your and your
    colleagues' input on how you think we should be doing that.
    And, we get that input directly from ICBA, from NAFCU, from
    CUNA all the time.
        Senator Scott. I would be happy to have that conversation
    with you offline, if you are open to it.
        Mr. Cordray. Sure.
        Senator Scott. My main concern, as I wrap up, Mr.
    Chairman----
        Chairman Shelby. Thank you.
        Senator Scott. Yes, sir--is that when you look at the
    number of households that are unbanked or underbanked, I know
    that we talked on Tuesday, about a million households----
        Mr. Cordray. Yes.
        Senator Scott. ----the fact of the matter is that with
    better information provided by staff, the number is around four
    million under- and unbanked households, because the more--the
    regulatory burden impacts the institutions. The higher the
    cost, the higher the cost, the lower the access. And, for the
    unintended consequences--I assume unintended--is the fact of
    the matter is that 4.4 million households are now either
    unbanked or underbanked than was at the beginning of Dodd-
    Frank.
        Mr. Cordray. Yeah. Well, actually, I would be interested in
    knowing exactly what the numbers and the dates are, because
    since the crisis, certainly that number has gone up, because
    the crisis blew up the economy for people. Whether it can
    actually be pinned on Dodd-Frank when we did not even open our
    doors until July of 2011--that is where I get off the train on
    some of the commentary I have seen on this.
        Senator Scott. Happy----
        Mr. Cordray. Yeah.
        Senator Scott. One of the things that we did was make sure
    that the numbers that we used did not start in 2008 and
    immediately after the crisis.
        Mr. Cordray. Yeah. That is 3 years before we came along.
        Senator Scott. Exactly. That is why we did not use the 2008
    numbers.
        Mr. Cordray. By the way, I think we certainly----
        Senator Scott. I am happy to----
        Mr. Cordray. I know we would agree that the fact that
    credit unions reached an all-time high in membership nationally
    last year is a good thing. I am very supportive of that. I am
    sure you are, too. But, again, it is notable that if our rules
    are supposedly killing the credit unions, how is their
    membership now at an all time high? It does not really make
    sense.
        Senator Scott. There is no doubt that the number of members
    at credit unions are higher. The number of credit unions
    themselves are lower, so the fact that----
        Mr. Cordray. Yeah, although that has been a decline that
    has been steady for 30 years.
        Senator Scott. The contraction of credit unions and banks,
    obviously, are happening, and there is a consequence that comes
    with the regulations that may be contributing to that fact, as
    well.
        Mr. Cordray. Maybe, although that has been a consistent
    trend for 30 years, and the evidence I have seen is that it has
    not accelerated since Dodd-Frank, although there was a Lux-
    Greene study that I think is, in my view, discredited, that
    seems to suggest that. I do not think it bears out when you do
    the analysis more carefully.
        Senator Scott. Happy to continue to the debate.
        Mr. Cordray. All right, sure.
        Senator Scott. Thank you.
        Mr. Cordray. Thank you.
        Chairman Shelby. Senator Warner, thank you for your
    patience.
        Senator Warner. Appreciate that, Mr. Chairman.
        Director Cordray, great to see you again, and I also want
    to commend you for your service. I would point out that if you
    look behind you, you will see a lot of folks who are supporters
    of the Bureau, many of them actually from the Commonwealth of
    Virginia brought in by Virginia Organizing who will, I think--
    it is a shorter commute for them than some of the people from
    around the country.
        Mr. Cordray. Amen.
        Senator Warner. Although, still, something needs to be done
    about that traffic in this region. I wish I knew somebody who
    was still Governor.
        [Laughter.]
        Senator Warner. I want to pick up on where Senator Corker
    was. I think there would be actually bipartisan sense that some
    of the more egregious actions on payday lenders needs to be
    stopped, and people are taken advantage of, and we look forward
    to your guidance and rulemaking.
        But, an area, as we have discussed before, I have spent
    some time looking into is FinTech, and there remains
    opportunities in this new area, as we think about more and more
    of our banking is going to be put, frankly, with the
    supercomputing power you have got on your phone, I have looked
    at a number of firms who are looking at tools around income
    smoothing, around differential ways of paying folks. Many low-
    and moderate-income people, because of managing their finances
    on a regular basis, fall off that cliff at the end of a pay
    period and end up then having to resort to a payday lender or
    others that will put them in that debt spiral.
        Mr. Cordray. Yeah.
        Senator Warner. The challenge, though, is when you have got
    these new technology tools, how do you balance the innovation,
    but at the same time, as we have seen entities like Dwolla, who
    did not do a very good job of protecting consumer information,
    get this right, and what standard are we going to hold them to.
    They are not full financial-banking institutions, but I think
    there is going to be the same kind of disruption from FinTech
    that we have seen perhaps with Uber with taxis, or Airbnb with
    hotels. I think it is one of the next areas to be disrupted.
    Good, but there are also possibilities for abuse.
        Mr. Cordray. True. That is true. The nature of innovation
    is that it is neutral, but hopeful and encouraging, and some
    innovations have been very bad for consumers. The exotic
    mortgages that were developed in the lead-up to the crisis were
    innovative, no doubt about that. They were also terrible for
    consumers, as it turned out.
        As we look at FinTech, and I am very interested in these
    issues, as I know you are, and we have a team that we call
    Project Catalyst at the Bureau that is very engaged with the
    financial innovation community, not just in Silicon Valley, but
    across the country, and also innovations that are occurring
    within larger institutions that are constantly researching how
    to improve their products.
        What I would say is we believe it would not be appropriate
    for new FinTech startups to be getting an advantage in the
    marketplace because they are arbitraging the regulatory system.
    They are not complying, they are not taking seriously, or as
    seriously what the banks and regulated institutions have to do.
        Our enforcement action against Dwolla has been much
    remarked upon, but it was actually a rather modest action. It
    simply said that if you are telling your prospective customers
    and consumers that you are going to handle data security in a
    certain way that gives them confidence and then they want to
    deal with you, and, in fact, you are not, then you are
    deceiving your customers and you are getting an unfair
    advantage by doing so and that should stop. And, that should be
    a signal to the whole market that, at a minimum, deliver on
    your promises to your customers.
        But, I do think it is going to be interesting to see how
    this develops. There is a lot of promise in FinTech. It could
    lower costs in some areas. It could promote convenience, may
    well do that, which is great for people. That is a different
    kind of cost for them. It may be that the banking system and
    the FinTech companies will converge in some ways so that there
    is better compliance, but also we get the benefit of the
    innovation. We will see. But, we are trying to stay on top of
    it, because if we fall behind it, this could dramatically
    affect markets over time and we could end up thinking that we
    are dealing with a market that is very different from the one
    that is actually happening.
        Senator Warner. And, I guess I think there will be somewhat
    of a distinction. There is a lot of research out now about the
    amount of income volatility that is affecting----
        Mr. Cordray. Yes.
        Senator Warner. ----close to half of Americans, and some of
    these tools that could even and level some of that income
    volatility--and, I guess, I would simply point out that I hope
    Catalyst is also working with the regulators around the rest of
    the world. This is a worldwide phenomena.
        Let me get one last question and----
        Mr. Cordray. I think our team has actually been leading
    regulators around the world. Operation--Project Sandbox in
    Britain is modeled after our program.
        Senator Warner. I actually want to stay close to my
    timeline, though, because I want to get in my last question.
    Something we raised a year or so ago here, and you had a
    response, I would like to reraise it again, the different level
    of credit protections between debit cards and credit cards, and
    particularly debit cards being with younger persons. I did not
    realize until we got into the data breach issues, and we have
    got legislation to try to equalize those credit protections.
    Would you like to speak to that? I know I had to go back and
    try to change out my daughter's cards from debit cards to
    credit cards because it is----
        Mr. Cordray. These are always the best stories, when we are
    talking about some specific issue we dealt with within our own
    lives and we find it to be vastly more complicated than we
    might have hoped.
        But, look, this is exactly what we are doing with prepaid
    cards, as well. We are trying to bring them from a standard of
    no protection to comparable to debit cards and not exactly
    credit cards. There are some specialized provisions for credit
    cards. But, there should be--you reach into your wallet, you
    pull out a card. You may not distinguish that well between what
    kind of card it is. You should be protected in all three areas
        And if there are some special protections for credit cards,
    those are sometimes--those are applicable. They may be
    applicable in some cases to prepaid cards. That is something we
    have under consideration, debit cards--again, I am not sure
    that all the same provisions should apply to all cards, but
    they all should be subject to protection. Certain provisions
    should apply to all cards, and that is a subject we can
    continue to discuss. And, I appreciate your interest in it,
    because it is a hard issue, but it is an important one.
        Chairman Shelby. Senator Cotton.
        Senator Cotton. Thank you.
        Mr. Cordray, I want to discuss the CFPB's actions on
    indirect auto lending and specifically the Ally case.
        Mr. Cordray. OK.
        Senator Cotton. So, in this matter, since auto lenders are
    not permitted by law to collect race, you did not have the
    actual race of potential claimants available, is that correct?
        Mr. Cordray. We did not have it through Ally's own records,
    that is correct.
        Senator Cotton. OK. So, in administering the settlement
    funds from the CFPB's enforcement action, you used a two-tiered
    approach to notify potential victims of discrimination based on
    a statistical determination of race using the customer's last
    name and address, is that correct?
        Mr. Cordray. So, and this is consistent with how redress
    has been handled in these types of cases in every instance
    where you do not have, say, the granular mortgage data, which
    is true only for the mortgage market.
        Senator Cotton. Yes. So, yes. And, as I understand it, if
    someone had a 95 percent chance of being nonwhite by the
    Bureau's model, he or she would have received mailing
    information informing them of eligibility for and forthcoming
    receipt of a remuneration check unless they returned an opt-out
    notice?
        Mr. Cordray. And discussing what the criteria were for
    eligibility and making it plain that they should satisfy those
    criteria, yes.
        Senator Cotton. And then there was a second tier threshold
    of a 50 to 95 percent likelihood of being nonwhite and that
    mailing required them to return a form opting into the
    settlement, is that----
        Mr. Cordray. That is correct. I think you are accurately
    stating all pieces of this thus far, yes.
        Senator Cotton. In neither group, though, were individuals
    required to affirmatively identify the protected minority race
    or ethnicity to which they belonged?
        Mr. Cordray. So, then, there is always a question, how much
    specificity do you want them to actually provide. I mean, there
    are various things you could make them do, and you could also
    require them to swear under oath and other things. Everything
    that makes the whole transaction more complex, you know, there
    is a dropoff rate of people who do not bother.
        Senator Cotton. Well, since you raised that, were they
    required to make any kind of statement or affirmation under
    penalty of perjury that they did, in fact, belong to a
    protected class under the settlement?
        Mr. Cordray. So, they were required to make an opt-in,
    which essentially was a statement that they belonged to the
    protected class.
        Senator Cotton. Did they have to make that statement under
    penalty of perjury or----
        Mr. Cordray. I do not believe that was the case, but I
    could clarify with my staff for you if I have that wrong.
        Senator Cotton. I recently discovered a very handy program
    on the Wall Street Journal that is similar to the methods that
    you use to evaluate the race of buyers of cars in pursuit of
    this enforcement action. You just plug in the name and the zip
    code and out pops a statistical likelihood of race. Now, the
    website on the Journal does caveat that they do not have the
    exact method you do, and, of course, the address is more
    reliable than the zip code.
        But, coincidentally, at a hearing on Tuesday, Senator Brown
    revealed his zip code in Ohio to be 44105. Shockingly, the
    program says that Senator Brown has an 89 percent likelihood of
    being black----
        Mr. Cordray. Mm-hmm.
        Senator Cotton. ----based on that name and zip code.
        Mr. Cordray. Mm-hmm.
        Senator Cotton. Senator Shelby turns out to have a 70
    percent probability of being black. Tom Cotton, in the zip code
    where we sit, has an 88 percent probability of being black.
        So, using this example, Senator Brown financed his vehicle
    through Ally. He fell within the racially guessed threshold you
    just confirmed, and he had no legitimate business reason that
    existed to discount the APR he was offered. Would the CFPB have
    sent him a remuneration check?
        Mr. Cordray. OK. So, let us take those specific examples
    and let us also take this back to what we are talking about. In
    each of those three examples, they would have to affirmatively
    opt in to receive a check.
        Senator Cotton. They would have----
        Mr. Cordray. They would have to state----
        Senator Cotton. They would have been in the second tier.
        Mr. Cordray. They would have to respond and state that they
    were a minority borrower. I assume that each of you would not
    do that, or otherwise, you are committing fraud.
        But, let us go back here. What we have is we have a
    discrimination matter against Ally Financial. Three-hundred-
    and-twenty-five thousand or so consumers were affected. They
    were charged higher rates based on a pattern or practice that
    systematically showed that minorities in certain categories
    paid higher rates. And then the question becomes----
        Senator Cotton. No, I am not----
        Mr. Cordray. I am just----
        Senator Cotton. I am not disputing the underlying facts.
        Mr. Cordray. I just want to----
        Senator Cotton. No, no. I am not disputing any of the
    underlying facts.
        Mr. Cordray. But--but the----
        Senator Cotton. I am talking about the redress----
        Mr. Cordray. Sure----
        Senator Cotton. ----the redress that potential claimants
    receive.
        Mr. Cordray. But, then, what do you do for those 325,000
    people?
        Senator Cotton. So, Senator----
        Mr. Cordray. Do you set up a system that is difficult for
    them to comply and get their money, or do you set up a system
    that is reasonable for them to comply and get their money? Now,
    if there turns out to be some systematic large number of people
    who fraudulently got checks under this settlement, that is
    something we will take very close account of----
        Senator Cotton. But----
        Mr. Cordray. ----and consider responding to. But, 325,000
    people did qualify for appropriate redress here, and, you know,
    I have not seen the large number of fraud cases. It is just all
    this hypothetical--people have an apprehension--people think it
    could have occurred----
        Senator Cotton. Well, it is hypothetical like your model is
    hypothetical, that says Senator Brown has an 89 percent chance
    of being black----
        Mr. Cordray. Yeah, but there is nothing hypothetical about
    325,000 consumers who were systematically discriminated
    against----
        Senator Cotton. But, Senator Brown would have been in the
    second tier. He would have had to opt in.
        Mr. Cordray. And you would have had to opt in, and Senator
    Shelby would have had to opt in. I assume you would not have
    done so----
        Senator Cotton. But he would not have had to make a
    statement----
        Mr. Cordray. ----you would have been committing fraud.
        Senator Cotton. He would not have had to make any statement
    under penalty of perjury or other kind of punishment for making
    a false statement.
        Mr. Cordray. So, you tell me, would you have committed
    fraud simply because it did not say you had to do it under
    penalty of perjury?
        Senator Cotton. Did the Department of Justice recommend
    that you require some kind of oath or affirmation under penalty
    of perjury?
        Mr. Cordray. We worked with the Justice Department on these
    remedies, so----
        Senator Cotton. I did not ask if you worked with them. I
    asked if they recommended it.
        Mr. Cordray. I do not recall----
        Senator Cotton. The Department of Justice----
        Mr. Cordray. ----and I do not----
        Senator Cotton. The Obama Department of Justice suggested
    that you require what is--you routinely require it on Federal
    forms.
        Mr. Cordray. So, I would not speak to any internal
    deliberations here. In the end----
        Senator Cotton. We do not have to speak to them.
        Mr. Cordray. ----we agree.
        Senator Cotton. The House Financial Services Committee has
    released the documents.
        Mr. Cordray. We are not doing something differently than
    the Department of Justice in this case. We are acting together.
    We are on the same page. But, again, I do not think you would
    have committed fraud.
        Senator Cotton. Did you personally decline the Department
    of Justice recommendation that a penalty of perjury attach to
    such----
        Mr. Cordray. I do not believe I did. I would be happy to
    have my staff follow up with you. But, again, I do not want to
    characterize internal discussions with them, but I do not
    believe I did. I have no recollection of having done that, and
    I do not believe that was the case.
        Senator Cotton. I would like to----
        Mr. Cordray. And I do think that--let me just say, I stand
    by and believe this was a reasonable approach to how to get
    relief to hundreds of thousands of consumers who were
    discriminated against under the disparate impact theory that I
    know some people disagree with, but the Supreme Court has
    reaffirmed is the law of the land.
        Senator Cotton. Well, 330 members of the House of
    Representatives, to include many Members of the Congressional
    Black Caucus, disagree. My time has expired.
        Chairman Shelby. Thank you, Senator Cotton.
        Senator Merkley.
        Senator Merkley. Thank you very much, Mr. Chair, and thank
    you, Mr. Cordray, for your testimony.
        I wanted to make sure I have the numbers right. It seems
    like every time you come here, I am underestimating the amount
    of money you have returned to consumers, either in the form of
    direct restitution after--because of predatory practices or
    principal reductions or canceled debts. I believe that number
    is now over $11 billion.
        Mr. Cordray. I believe it is also true that every time I
    come here, my age gets a little older, but now it is--I believe
    it is over $11.2 billion in relief made available to consumers.
        Senator Merkley. It is a pretty phenomenal thing, that
    support for fairness in financial transactions have returned so
    much to hard working American families who were victims of
    predatory financial practices.
        I also was reading recently an estimate of the savings, and
    these are the savings that occur because of practices were
    discontinued on credit cards, an estimate of about $16 billion
    in saved fees, and I believe that is independent from the $11
    billion, is that correct?
        Mr. Cordray. Yes, and, in fact, that was the CARD Act that
    put, or kept $16 billion in consumers' pockets over a period of
    time. But, there is another point that I have heard Senator
    Warren make many times that is very powerful, which is when we
    talk about looking backward, $11 billion was made available to
    consumers in relief, or $16 billion was saved to consumers over
    a backward-looking period of time.
        It is also the case that those changes, as lasting changes,
    mean that every month, every year going forward, people are
    saving the same amount of money, which over time results in
    tens--eventually hundreds of billions of dollars for consumers.
    That is really meaningful. It is hard to add that up because it
    is prospective----
        Senator Merkley. Yes.
        Mr. Cordray. ----but it is very meaningful.
        Senator Merkley. Which leads right into the question I was
    going to ask you, was in terms of the mortgage reforms that
    have been undertaken, do we have an estimate of what have been
    saved because people got fair, square, fair deal mortgages
    rather than predatory mortgages?
        Mr. Cordray. I actually do not begin to know how to count
    that, but I will ask our Office of Research, who are a lot
    smarter than I am about such things, about how they might be
    able to go about doing that. Clearly, the mortgage market, when
    you compare markets, the mortgage market is about $10 trillion,
    the largest single consumer finance market in the world. Credit
    cards are under a trillion. Student loans are a little over a
    trillion. And auto loans are somewhat around a trillion. So, if
    there are savings from our rules, and I am sure there are, but
    it may be heard to document them, they are going to be at a
    much higher scale for people.
        Senator Merkley. Well, it sure is a wonderful thing to have
    so much good done for hard working American families by having
    fair practices in the financial markets, and sometimes that
    just seems to get lost in the conversation in this Committee,
    so I wanted to emphasize that point.
        I wanted to turn----
        Mr. Cordray. Could I say, just briefly, one other thing?
    You know, people often talk about, and it's true in this
    hearing at times, the Bureau, you, meaning me personally. We
    have about 1,500 people who do this work and achieve these
    results that people can be very proud of and that benefit every
    one of your constituents. They benefit constituents in every
    one of your States. And, I am very proud of them, and when you
    say nice things about the Bureau, it is them you are talking
    about, not so much me.
        Senator Merkley. Thank you. Now, I have two more questions
    and only a minute and a half, so I will try to be very quick
    here.
        Mr. Cordray. OK.
        Senator Merkley. But, one is you did a study of arbitration
    clauses, a very thorough study, the Ross v. Bank of America
    settlement that affects Bank of America, Capital One, Chase,
    and HSBC. I read through that, and it sounded like the
    conclusion was that, contrary to what is often asserted, there
    were no particular costs, if you will, raised in terms of the
    products when the use of arbitration clauses was discontinued.
    Is that a fair summary of--statistically significant, that
    could be identified within your study?
        Mr. Cordray. It is a fair summary, and it was notable that
    there were institutions we could isolate, some of whom had
    arbitration clauses all along, some of whom did not have them
    at all, some of whom had them for a while and then stopped,
    particularly in response to the class action litigation.
        Senator Merkley. Let me just make the point here that,
    right now, across the country, citizens are so frustrated by
    this system that is rigged against them, from Citizens United
    on to the actions of the House and the Senate under current
    leadership. It is--but this is a real example, an arbitration
    clause in a contract where, essentially, the judge of asserting
    your rights when there is a predatory action goes before
    someone who is hired by the person on the other side of the
    issue and only keeps getting hired if they find in favor of the
    folks who are hiring them. That is the system that is rigged.
    So, I applaud your work on arbitration.
        I have a few seconds. Let me turn to payday loans. In State
    after State after State, the States have gone to work to say,
    these are unfair practices--and, by the way, just yesterday in
    our Chairman's State, 28 to one, the State weighed in, the
    State legislators weighed in and said, we absolutely want to
    curtail the abuses of the payday loan industry. And, often, the
    payday loan industry says this reduces access to credit and
    they cite a reduced number of loans being made after these
    State actions. But, what that does not take into account is a
    family that gets a fair loan gets one loan instead of getting
    ten in the course of a year, and so on and so forth.
        I found in Oregon, after we cracked down on payday lending
    and put an interest rate cap on and a rollover cap, that we
    still have payday loan companies operating, but citizens do not
    have to get continuously rolled over and they get a much fairer
    deal, and they still have access to credit, but they have
    access to credit at a much lower interest rate. So, it is a
    complete win. And the pastor who testified this week noticed
    that and certainly many of the pastors in my State, working
    directly with poor families, see that.
        Is that your impression, as well, that the consumer gets a
    much better deal when they get a low interest rate than when
    they get a high interest rate that can be 500 percent or more?
        Mr. Cordray. I think some of that is probably simple
    mathematics. But, what I would say is that I think a point you
    made that is quite powerful is there is often this comment
    made, well, there are not a lot of complaints about payday
    loans, I mean, people going in and being treated well by being
    rolled over, rolled over, and rolled over. Ultimately, it can
    damage their finances beyond repair.
        But, I would say that talk to the faith community. Talk
    to--I would like each of you to talk to ministers and leaders
    in your States. They can tell you the stories they hear, where
    people come to them not because they are financial experts, but
    because they know they care about them, and we hear horrendous
    stories of the effects of this on people's lives and they are
    repeated in massive volume across the country. That is a good
    place to start in trying to understand this issue.
        Senator Merkley. Amen to that, and thank you, Mr. Chairman.
        Chairman Shelby. Senator Toomey.
        Senator Toomey. Thank you, Mr. Chairman.
        Mr. Cordray, welcome back.
        Mr. Cordray. Thank you.
        Senator Toomey. Thanks for being here.
        As you know, Section 1071 of the Dodd-Frank Act instructs
    the Bureau to collect data on small business lending, and I
    noticed recently that the CFPB has posted a job listing with
    reference to Section 1071. It described the job as, and I
    quote, ``once in a career opportunity to make the market for
    small business finance fairer and more transparent,'' end
    quote. So, is it your intent that the market will become fairer
    and more transparent by virtue of the disclosure of data? Is
    that----
        Mr. Cordray. I think that is clearly what Congress said to
    us by mandating this test in the statute----
        Senator Toomey. Well, but it is your words in the job
    description, so that is why I want to understand your intent.
        Mr. Cordray. I think it is a great opportunity----
        Senator Toomey. OK.
        Mr. Cordray. ----and I hope you will recommend candidates
    to us.
        Senator Toomey. So, my question is, is it your intention
    that the Bureau will limit its work in the small business
    lending space to the compilation of data?
        Mr. Cordray. So, what I would say is, first of all, we do
    not have much authority in the small business lending area, and
    so that is what our focus under our statute is, individual
    consumers----
        Senator Toomey. Right.
        Mr. Cordray. ----products for household purposes. But,
    there are a couple of places in our statute--you know, again,
    Congress said it, not me.
        Senator Toomey. Right.
        Mr. Cordray. We have jurisdiction over small business
    lending under the Equal Credit Opportunity Act and we have this
    1071 that you identified here, which is a mandatory job
    Congress gave us----
        Senator Toomey. Yes.
        Mr. Cordray. ----to set up a reporting, data collection,
    and data publishing regime for small business lending
    comparable to what HMDA has created for the mortgage market,
    yes.
        Senator Toomey. Yeah. So, my understanding is that what
    Dodd-Frank does in Section 1071 is exclusively about data
    collection. That is the only authority that I read for the CFPB
    with respect to small businesses in Section 1071. Is that
    your----
        Mr. Cordray. Yeah. Ten-seventy-one speaks for itself. We
    are doing our best to implement it faithfully. It is going to
    be a big job for us, but it is a task Congress instructed us to
    do and so we follow the law.
        Senator Toomey. Yeah. Getting back to this issue of your
    approach to enforcement, you gave a speech before the Consumer
    Bankers Association in which you were essentially defending
    your enforcement approach, and one of the things you said in
    the speech, and I will quote, it says, ``Any agency is bound to
    recognize that they should develop a thoughtful strategy for
    how to deploy their limited resources. That means working
    toward a pattern of actions,'' by which I think is meant
    enforcement actions----
        Mr. Cordray. Correct.
        Senator Toomey. ----``that conveys an intelligible
    direction to the marketplace so as to create deterrence that
    can be readily understood and implemented.''
        That reads to me--that sounds to me like we are talking
    about enforcement as a substitute for rulemaking, at least in
    some cases, and one of the things that concerns me about that
    is that the rulemaking is an entire process that requires a
    level of transparency and gets input and there is a cost-
    benefit analysis, and my worry is that if we are using
    enforcement instead of rulemaking, that we are going to miss
    those pieces. What is your response to that?
        Mr. Cordray. So, if I may, I would be glad to speak to
    this, and I saw a lot of testimony on Tuesday about this, where
    people make sort of perfunctory nods to, of course, we have to
    root out fraud, but, you know, should not do much more than
    that. Ninety percent of the $11 billion in relief made
    available through our enforcement actions has been in cases
    where one or more of the claims involved deception, lying to
    customers or prospective customers. That is good solid law
    enforcement, as far as I am concerned.
        Now, as to the pattern of orders, I think everybody would
    agree that basic fairness in law enforcement is that if person
    A or institution, bank A, say, is doing these things and they
    are found to violate the law, an action has to be taken in
    consequence, that everybody else in the market that is doing
    these things----
        Senator Toomey. Yeah.
        Mr. Cordray. ----is also violating the law and should stop
    doing what they are doing.
        Senator Toomey. I get that. Let me----
        Mr. Cordray. So, signaling the marketplace very clearly
    around each enforcement action is an important thing, but it is
    basic.
        Senator Toomey. Yeah. I am going to run out of time here,
    but in the case in which you guys discovered discrimination on
    the basis of protected class being committed by people who were
    not aware of the protected class status of the people they were
    supposedly discriminating against, you are applying a, what
    seems to me, a novel new approach to interpreting the ECOA,
    which has been a law since 1974. The Justice Department never
    took your approach, that I am aware of----
        Mr. Cordray. That is not true----
        Senator Toomey. The Justice Department has your model and
    it uses your methodology----
        Mr. Cordray. In 1994----
        Senator Toomey. ----to determine discrimination?
        Mr. Cordray. In 1994, joint guidance was put out by the
    banking agencies and the Justice Department--we were not around
    then--that said, this is the law of the land, that wewould
    enforce.
        Senator Toomey. That your model would be the law of the
    land. So, you are using that model?
        Mr. Cordray. Yeah. Disparate impact is the law of the land.
        Senator Toomey. And the methodology that you use in
    developing that----
        Mr. Cordray. The methodology----
        Senator Toomey. ----and determining the probability of
    people's race, that is all from 1994, is it?
        Mr. Cordray. It actually goes back to the 1970s and
    employment discrimination law and the like. But, the other
    agencies all said that--and the guidance that we issued early
    on simply said, we are a new agency, so people might not know
    what our position is. We join our fellow agencies and the
    Justice Department in believing disparate impact is the law of
    the land. That was then challenged up to the Supreme Court, and
    the Supreme Court reaffirmed that it is the law of the land,
    and to me, that is pretty conclusive on the subject.
        Senator Toomey. So--OK. So, I am now learning something
    new, which is that the methodology that you have learned for
    identifying race and identifying people's status in these
    protected classes is decades old, and there is nothing new
    there. You did not come up with a new approach, no new models,
    no new methodology----
        Mr. Cordray. No, that is not--that is not what I said.
        Senator Toomey. So, it is new, then.
        Mr. Cordray. No, no. Let me just--if I may--disparate
    impact is the law of the land. It has been recognized since at
    least----
        Senator Toomey. That is not what I am talking about.
        Mr. Cordray. ----since well before 1994, explicitly
    recognized by agencies in 1994. It continues to evolve. There
    have been cases since then and there have been modifications in
    this or that approach, this or that methodology. But, the law
    is clear, and people who want us not to enforce that----
        Senator Toomey. No, you are changing the subject. The point
    is, you developed a new methodology. You have described it as
    an evolution. However you choose to describe it is fine. But,
    it is a new methodology that was not being used before and it
    was not subject to the transparency of a rulemaking process.
        Mr. Cordray. I do not think that is true. If you looked at
    yourself 10 years ago, you are the same person then as you are
    now. But have you changed in certain ways between then and now?
    Very likely. I mean, you may look a little different. You may
    think a little different. But, you are the same person.
        Disparate impact has been the law of the land for decades.
    It has been reaffirmed by the Supreme Court. Methodological
    approaches have evolved over time. There has been case law on
    this. People have adjusted to the case law. There have been--
    people have actually taken input from Congressional leaders and
    others and thought, maybe that is a better approach, and
    thought to refine that. We should certainly continue to do
    that, I would think. You are trying to do that with me today.
        Senator Toomey. And all I am suggesting is if you are going
    to do that and you are going to develop a new methodology for
    identifying people's status in a protected class, it ought to
    be in a transparent process, and that is part of the way the
    rulemaking process is designed and what it is meant to achieve,
    and you chose not to use it.
        Mr. Cordray. No, it is certainly fair game as to whether
    you think, or others think, and whether we agree, that we have
    or should be as transparent as we should be. And, that is
    always a legitimate grounds for discussion. I would be happy to
    have our staff talk with you further about what we have tried
    to do around transparency.
        But, to say that this is a brand new methodology, that it
    is somehow radically different from anything done before, it is
    modifications and developments on law that has been around for
    decades, law that was resoundingly reaffirmed by the Supreme
    Court just last June, and is law that I believe we are required
    to enforce. And why are we required to enforce it? Because it
    is supposed to root out discrimination against individuals
    based on their racial or ethnic origin or gender and that is
    very un-American. And, this is the way in which Congress
    developed this law and the Supreme Court has interpreted and we
    believe that it is our job to enforce it.
        Senator Toomey. Thank you, Mr. Chairman.
        Chairman Shelby. Senator Warren.
        Senator Warren. Thank you, Mr. Chairman.
        Thank you for being here today, Director Cordray. Welcome
    to your 61st hearing.
        As you know, the payday lending industry is now doing $7
    billion a year in loans. There are now more payday loan
    storefronts in America than there are Starbucks, plus all of
    the online payday lenders, often charging 200, 300, even 400
    percent interest. Now, when emergencies arise, people need
    access to credit, but payday lenders that build business models
    around trapping people in the never ending cycle of debt are
    throwing bricks to a drowning man.
        Director Cordray, I know the CFPB is close to issuing its
    payday lending rules, so I want to ask you three questions
    about this process.
        Mr. Cordray. OK.
        Senator Warren. First, can you describe the research and
    data gathering that the CFPB has done to try to figure out
    where to draw the line between preserving access to credit and
    trapping people in never ending cycles of payday loans?
        Mr. Cordray. Yes. So, here, as with arbitration, we have
    engaged in the most comprehensive research ever done by anyone
    on this marketplace. We have done two significant white papers,
    analyzed millions--millions--of payday loans across all types
    of lenders, and what we found is that the model here is to, in
    particular on payday balloon loans, is to get someone into a
    payday balloon loan, and if they had to borrow $300 today, the
    notion they are going to be able to repay $345 two weeks from
    now is not very likely, although some do and great for them,
    and maybe it works for them. But, many others end up rolling it
    over and rolling it over, because they can pay the $45 at the
    end of the 2 weeks, but they cannot pay the $345, and they can
    never pay the $345.
        And, by the way. you described these products as 200, 300,
    400 percent interest rates. In Missouri, we have seen products,
    loan products, that go as high as 1,950 percent rate of
    interest. You can actually lend where the fees amount to 75
    percent of the face value of the loan. That is a $1,000 loan
    that becomes $18,000 or $20,000 by the end of the first year
    and goes on from there, and this is from a class action
    decision by a Missouri appellate court in which they read out
    of the record some of the actual instances of people who
    borrowed $100 and ended up paying back thousands of dollars and
    still owing thousands of dollars. That is not a recipe for
    financial success for people.
        Senator Warren. Thank you very much.
        Let me ask a second question around this. States currently
    have different standards for regulating small dollar lending,
    but the CFPB would create a single national floor. So, States
    could still issue stronger payday lending restrictions if they
    wanted to, but they could not drop below the CFPB standard. Can
    you explain the benefits of having a single baseline rather
    than just a lot of different local rules?
        Mr. Cordray. Yeah, sure. In fact, this is the same approach
    we took in our mortgage servicing rules, where we established a
    baseline of requirements on mortgage servicers--not on States,
    by the way, but on mortgage servicers--and said that States
    were free to add further requirements on mortgage servicers if
    they deemed it appropriate to do so.
        And, by the way, this is an approach that has been common
    in American law in our system of federalism. It is true of
    securities law. It is true of environmental law. It is true of
    antitrust law. It is true in many different areas of law, where
    the Federal Government may intervene to a certain degree and
    set certain requirements on individual citizens and companies.
    The States are free to have their own regimes, and they do, and
    they set requirements on individuals and companies and the two
    systems coexist. There is nothing unusual about this. It has
    been described as cooperative federalism and it works
    reasonably well. It can be a little complicated at times, I
    suppose, but a Federal system is bound to be a little
    complicated at times.
        Senator Warren. All right. Good. Thank you.
        And, let me ask my third question here. The CFPB has been
    working in this area now for 3 years. You have been gathering
    data as you have described. You have drafted different
    approaches, talked about it with industry. Now certain Members
    of Congress has proposed imposing an additional 2-year delay on
    your efforts. Can you give us some idea about the impact of
    that delay and estimate how many more families will get stuck
    in a debt trap during that time?
        Mr. Cordray. So, I feel keenly already the amount of time
    that it takes to embark on a Federal rulemaking in an area that
    has a baseline of no research previously. It has taken us
    several years to do the kind of detailed research that you
    asked me about and I described. It is taking us time to go
    through the processes in our statute, including a small
    business review panel and report and so forth, and we are now
    on the verge of actually proposing the rule. And it will take
    time to work through it and finalize it.
        I feel keenly that every day that passes--if you think a
    rule is going to improve life, and it may or may not, but if
    you think it is going to improve life, you would like that to
    happen as soon as possible.
        Senator Warren. Mm-hmm.
        Mr. Cordray. And, delay for delay's sake simply means that
    if there are harms here, and our research has identified harms
    to consumers, then they will go on, and that anybody should
    feel like that is no big deal means that they simply disagree
    with the findings around the country of what this does for
    people and for families, and----
        Senator Warren. So----
        Mr. Cordray. ----and I cannot agree with that.
        Senator Warren. We are talking about perpetuating a lot of
    misery here.
        Mr. Cordray. Yes. That is right.
        Senator Warren. Well, I want to thank you. I want to thank
    all of the people who work at the CFPB for their terrific
    efforts in this area.
        You know, I know that the payday lending industry hires a
    lot of lobbyists and they make a lot of political contributions
    to try to protect their multibillion dollar business. I also
    know that families that get cheated by payday lenders do not
    have lobbyists and they do not have Political Action
    Committees, which is why the independence of the CFPB is so
    important.
        You know, I hope you will move quickly to complete your
    rulemaking on payday loans. You are the best hope for millions
    of American families to avoid these debt traps in the future.
    Thank you for your work.
        Chairman Shelby. Senator Rounds.
        Senator Rounds. Thank you, Mr. Chairman.
        Good morning, Director Cordray.
        Mr. Cordray. Good morning.
        Senator Rounds. It is not too much longer and it will be
    good afternoon.
        Mr. Cordray. I was wondering myself. I did not know.
        Senator Rounds. Director Cordray, in a recent speech before
    the Consumer Bankers Association, one which Senator Toomey
    alluded to a little earlier----
        Mr. Cordray. Mm-hmm.
        Senator Rounds. ----you discussed your philosophy on
    consent orders. You had said that, and I will briefly lay this
    out, our public enforcement actions have been marked by orders
    which specify the facts and the resulting legal conclusions.
    These orders provide detailed guidance for compliance officers
    across the marketplace about how they should regard similar
    practices at their own institutions.
        What I want to talk about a little bit, my concern is that
    the consent orders without a finding or even an admission of
    guilt--the Ally settlement is an example of that--could mean
    little more than a company's business decision to settle a
    lawsuit with minimal expense.
        My question is, do you agree that for compliance officers
    to consider following a decree from another company, that
    decree should be a part of either a court finding or contain an
    admission of guilt, or if not, come from, as Senator Toomey was
    alluding to, perhaps a rulemaking process laid out clearly,
    definitively, and I am--just your thoughts on it.
        Mr. Cordray. Sure. Well, first of all, Ally is a great
    example because we worked there in partnership with the Justice
    Department and they, as part of their process, were obliged to
    file an order in court that the judge had to sign off on. So,
    if that is your issue, then Ally is not a good example of it.
        But, let me say this. If you are trying to address harm to
    consumers out there in society, there are a number of ways you
    can go about it. You can do your own research and try to think
    about what you think is best and then go through a process to
    adopt a rule. But another way, and one tool that Congress gave
    us very specifically and emphatically, is to investigate facts
    of individual circumstances, and if you find an actual
    violation of law, clean it up, and that is what we do all the
    time in enforcement.
        And, what I say about sort of rulemaking by enforcement,
    which is kind of a nice slogan people like and somehow that is
    a bad thing, if we find through a thorough investigation, and
    the institution typically does not dispute the facts that we
    find, that there is a violation of law, then everybody in the
    country should be able to see transparently that if they have
    similar facts and similar practices and similar situations,
    they are violating the law and they ought to stop it right now.
        And what I said in that speech, and I stand by it, is it
    would be--it is compliance malpractice for other institutions
    not to look carefully at our orders in these cases, whether
    they are entered in administrative order or court order, and
    not to think about, am I doing the same thing, and am I
    violating the law, and, therefore, should I clean that up? That
    is a basic of consistent uniform law enforcement. And people
    can call it regulation by enforcement. I call it good, solid
    law enforcement.
        Senator Rounds. Even though there was no admission of guilt
    in this particular case----
        Mr. Cordray. That does not have to be an admission of
    guilt. We did a thorough investigation. We found the facts. Our
    decree will state the facts as we know them to be. Whether the
    institution agrees with that or not does not matter to me. In
    the end, the facts are the facts, and if other people find the
    same facts in their organization, they are on notice to clean
    it up. And when we come to supervise them, we will be looking
    to see if they have similar practices and they will be treated
    similarly.
        The key principle here is a basic principle of justice,
    which is similar situations should be treated in the same way,
    and it should not just be that one institution gets whacked and
    other institutions go blithely on doing the same things that
    violate the law. Everybody should be treated the same.
        And we try to be very transparent to the marketplace as
    quickly as we can through detailed enforcement orders, and when
    we act through supervision, which is a confidential process,
    without violating the confidentiality for individual
    institutions, periodically, we put out our supervisory
    highlights that tells you what we found in general at banks and
    other institutions, what we thought violated the law, what we
    did about it----
        Senator Rounds. Well----
        Mr. Cordray. ----and people should take account of that, as
    well.
        Senator Rounds. OK, then let me just slide this in a little
    bit----
        Mr. Cordray. OK.
        Senator Rounds. ----on a little bit different approach, and
    that is with regard to the way that you have looked at offering
    no action letters.
        Mr. Cordray. OK.
        Senator Rounds. I know that you finalized your rules on the
    no action letters, but it seems like what we are really
    challenged with here is do you start out by saying, look, heads
    up on your enforcement actions and that is the way that we are
    going to be basically laying out the guidance of how we are
    going to be interpreting and enforcing the issues, and yet when
    you have companies that step back in and ask for guidance--and
    by that, I mean in the Bureau's rulemaking it is estimated that
    it would issue no action letters only in extraordinary
    circumstances and anticipated issuing about one to three
    letters per year. By contrast, the SEC is issuing--has issued
    104 no action letters in 2015. It looks to me that if companies
    are asking for guidance on this, would it not be fair to say,
    rather than going through the process of trying to adjudicate
    it--I mean, would you consider thinking twice about really not
    issuing no action letters as a----
        Mr. Cordray. Yeah. I actually think this is a very
    legitimate line of questioning and I am not sure that I am
    satisfied with where we appear to have landed on this, although
    we did issue that to get something going in the area.
        There are different agencies--we looked at a lot of
    agencies. Some of them do a lot of this, like the IRS does
    private letter rulings. They do them by the hundreds. Others do
    very, very few. The banking agencies tend to do very, very few.
        I do not know what the right answer is for us, but I feel
    keenly, and I have had this discussion on the other side with
    Representative Heck, who has been very persuasive on the
    subject, that a process like this that ends up not really
    amounting to anything is not really worth anybody's while. I
    tend to agree with that and I want us to think more about that
    as we go. We are leery of how much volume we can handle, but we
    have begun to get inquiries and we are setting up a process for
    how to try to figure out what to do with those inquiries and
    see where we----
        Senator Rounds. I think if there are questions out there
    and they are asking for guidance on it, it seems like it would
    be reasonable to find a way to try to work with them rather
    than end up in an adjudication process in front of a court.
        Mr. Cordray. Yeah. By the way, another thing I would say
    is, on the enforcement and regulation differential, regulation
    is something more where we feel the law needs to be changed in
    certain ways, and we have authority to do that, subject to
    Congressional authorization and oversight. Enforcement is more
    the law is what it is and it is applying it to specific facts
    and finding specific facts. And the facts are powerful. You
    know, when the facts show that in the----
        Senator Rounds. Mr. Cordray, I hate to cut you off----
        Mr. Cordray. I am sorry.
        Senator Rounds. ----but I know the Chairman's time is
    valuable, as well, and I appreciate your temperance with me,
    sir. Thank you.
        Chairman Shelby. Thank you.
        Senator Rounds. Thank you, Mr. Cordray.
        Chairman Shelby. Senator Donnelly.
        Senator Donnelly. Thank you, Mr. Chairman, and we can now
    officially say good afternoon, Mr. Cordray.
        Mr. Cordray. Thank you.
        Senator Donnelly. Director, one of your recent undertakings
    has been related to auto finance companies. The CFPB finalized
    a rule last year to supervise large nonbank auto finance
    companies and also reached separate agreements with several
    auto finance companies to limit loan pricing and compensation.
        I have been hearing from a number of auto dealers in my
    State with their concerns on this issue and I just want to ask
    to make sure that you work with all the stakeholders involved
    in this issue, including auto dealers, to make sure we get this
    right, to make sure there is continued access and that
    everybody be treated fairly in this process.
        Mr. Cordray. OK. And, by the way, I would say that in the
    early going, we were kind of leery about talking to auto
    dealers because we did not want anybody to think that we were
    crossing that line and trying to enforce the law against auto
    dealers, which we do not have authority to do. But, we have
    always understood ourselves to have authority and, therefore,
    responsibility to address auto lenders. I mean, I would not
    necessarily have drawn the statute up the way it was drawn up,
    where there was a distinction made between the two, because
    they tend to work together in the marketplace. But, I do not
    see how we can address practices of auto lenders without having
    some effect on auto dealers. So, we are quite willing to engage
    with taking input from dealers now, as long as they are very
    clear that we respect that line.
        Senator Donnelly. Understood, but like you said, these are
    some of our small businesses that employ the most people in our
    towns.
        Mr. Cordray. Yeah.
        Senator Donnelly. They are our friends and our neighbors.
        Mr. Cordray. Yeah.
        Senator Donnelly. And they want to get it right for their
    customers, as well.
        Mr. Cordray. And, by the way, I worked closely with them in
    Ohio. I was the Ohio Attorney General. We had a program where
    they had the opportunity to correct problems before we took
    action that worked fairly well. We had the General Motors and
    Chrysler bankruptcies that unfolded while I was Attorney
    General. We worked to save dealerships across the State who
    were being cutoff by the manufacturers and we created
    procedures for them to appeal and many of them were saved.
        I understand and very much agree with you on the importance
    of auto dealers in our local communities. At the same time, if
    we find problems in auto lender lending programs, we have to
    deal with them. That is part of our job. We are a law
    enforcement agency. But, I am quite willing to have that
    discussion and engage in it vigorously and I hope you will find
    that nobody says that they are unable to talk to the Consumer
    Bureau if they have a concern. That is not what I intend.
        Senator Donnelly. Another area I wanted to mention is an
    area important to my State, because we have so much
    manufacturing in this area, and that would be manufactured
    housing. We have previously discussed the impact of CFPB rules
    on manufactured housing lending, and I do have concerns that
    new rules would negatively impact the ability of consumers to
    buy, sell, or refinance these homes, as financing for smaller
    balance loans is becoming more difficult. And, there has been a
    seeming acknowledgment of some of these challenges by the CFPB.
        The 2014 HMDA mortgage data shows high-cost manufactured
    housing loans have basically evaporated at this point since the
    rules went into effect, and my question is, does that mean that
    lenders have reduced rates to get under the threshold, do you
    think, or is it that lenders have just stopped taking
    applications that they have previously accepted?
        Mr. Cordray. I actually do not think there was ever much
    high-cost lending in the manufactured housing market, so I do
    not think it would be fair to say that there was a lot and then
    it evaporated. I think there never was much and people have
    shied away from that. I do think there is a lot of pricing that
    does, as you said--exactly what you just said--comes in just
    under the threshold so that it does not qualify as high-cost
    loans, and that is the nature of this market, it seems.
        Having said that, you have raised this issue with me and
    some House colleagues have raised the issue with me and we went
    back and did a white paper to try to understand it better,
    because we realized we did not understand it as well as we
    would like, and I would acknowledge, in Ohio, my background, I
    have seen, and I am sure it is true in Indiana, as well, and in
    many States, there are areas of the State where this is going
    to be the practical means of finding housing on difficult
    properties, rural properties, topography issues and the like.
        A white paper showed that there has been a long-term
    decline in manufactured housing. I do not know what all the
    causes are. I think our folks did not really feel that they
    understood that. But, it has been true for about 20 years. It
    has not been a new phenomenon.
        Senator Donnelly. I would suggest that a good portion of
    that, as you look at your white paper, is access to capital,
    capital challenges that are out there----
        Mr. Cordray. Mm-hmm.
        Senator Donnelly. ----because, as you said, it is not fair
    to the rest of the country to think the rest of the country is
    all Washington, DC, townhouses----
        Mr. Cordray. That is right.
        Senator Donnelly. ----that sell for a million dollars.
        Mr. Cordray. Agreed.
        Senator Donnelly. And, that family back in Indiana, that
    family in Ohio, they very much, just as much as a family here--
    --
        Mr. Cordray. Absolutely.
        Senator Donnelly. ----wants to have a place to call home--
    --
        Mr. Cordray. Yes.
        Senator Donnelly. ----and to raise their family.
        Mr. Cordray. And, by the way, wants to have a place they
    can call home and not be gouged on it. That is important, too.
        Senator Donnelly. Yeah.
        Mr. Cordray. But, how to balance those things is an ongoing
    issue.
        Senator Donnelly. We agree on that, and in most every case,
    I do not assume my local community banker is out to gouge
    anybody.
        Mr. Cordray. I would agree with that, although there are
    some sharp practices in the manufactured housing market we have
    seen, yes.
        Senator Donnelly. Thank you, Mr. Chairman.
        Chairman Shelby. Senator Moran.
        Senator Moran. Mr. Chairman, I know we are out of time. I
    will be very brief. In fact, I will not ask Director Cordray
    any questions.
        Director Cordray and I have had a long-time exchange in
    these settings about this issue that seems to be getting a lot
    of attention, indirect auto financing, today in this hearing,
    and I would again indicate to the Director that rulemaking, not
    enforcement, would be a better path for the CFPB to pursue.
        And then I want to associate my remarks with you, Mr.
    Chairman, in what you had to say about indirect auto financing.
    None of us agree that discrimination has a place. We just--we
    want discrimination out of our economy. This agreement extends
    the need for vigorous enforcement of the Equal Credit
    Opportunity Act. However, I am concerned that the CFPB auto
    financing bulletin has resulted in more adversarial
    relationships between the Bureau and the industry.
        And, I wanted to highlight, finally, Mr. Chairman, that I
    have introduced S. 2663, Reforming the CFPB Indirect Auto
    Financing Guidance Act, and this is legislation identical to
    what passed the House in a bipartisan way, 332 to 96, and I
    would encourage my colleagues to join me in accomplishing that
    legislation. It is simply an opportunity not to eliminate
    CFPB's indirect auto financing guidance. It is a way to improve
    the process and include the industry and consumers, Members of
    Congress, in the process.
        Thank you, Mr. Chairman.
        Chairman Shelby. Thank you.
        Senator Vitter.
        Senator Vitter. Thank you, Mr. Chairman, and thank you, Mr.
    Cordray.
        I know our vote has been called on the floor, so I will be
    brief----
        Mr. Cordray. OK.
        Senator Vitter. ----summarizing two real areas of concern,
    and if, Mr. Cordray, if you could give a general response, and
    if you care to, follow up in more detail perhaps in writing,
    that would be great.
        Mr. Cordray. OK.
        Senator Vitter. The first area of concern is remittance
    transfers, international money transfers. I think CFPB has
    spent a lot of time and money and man hours on rulemaking for
    that, but has been criticized by GAO and others for not setting
    to bed abuses yet. And, so, I have a three-part question. What
    is the summary of resources that have been spent on that,
    number one. Number two, what is your response to criticism like
    GAO about not adequately handling problems in that remittance
    transfer area. And, number three, has your oversight quantified
    and looked at the widespread use of this by folks in the
    country and working in the country illegally and sending money
    overseas, which by all accounts is a very widespread practice.
        The second area of concern is conflicts of interest
    involving Corey Stone. As you know, he is Assistant Director,
    Office of Deposits, Cash Collections, and Reporting Markets at
    CFPB, and he is the lead staffer on the payday rule. Now, I am
    concerned about conflicts there because he was a senior
    executive before CFPB, was a senior executive for a company he
    started which sold out to a rival called MicroBilt, and they
    worked with folks within credit files seeking financing, the
    type payday lenders would perhaps have as customers.
        Corey Stone sold his stock in that company to his brother
    to avoid a conflict as he was coming to CFPB, for $18,000. That
    stock has been valued recently at between $250,000 and
    $500,000. It seems to have been way undervalued in order to
    allow him to get rid of it to come to CFPB. That is number one.
        Number two, he is in charge of this payday rule, and
    depending on how that rule is written, that could increase
    significantly the business, the market, the profitability of
    his former company, his brother's company. Have you looked at
    those serious conflict issues?
        Mr. Cordray. So, I will take that one first. I have never
    heard any charges against Mr. Stone. I think this is baseless.
    I think it is bogus to raise it. If you want our staff to talk
    to you about that situation, we will be glad to do so. He is
    one of the finest public servants I know. He has been commuting
    and gone extra lengths to make his work at the Bureau work. I
    do not believe there is anything to anything you have just said
    about him. He is a public official with great integrity, and if
    there is more that we need to talk about about this, I will be
    happy to talk about it with you offline.
        Senator Vitter. OK. Can I follow up on that?
        Mr. Cordray. Yeah.
        Senator Vitter. Are you aware of the stock issue?
        Mr. Cordray. Look, people who come to work at the Bureau,
    some number of them came from the private sector. Usually, you
    all think that that is a good thing. You do not want us to have
    everybody not coming from the private sector----
        Senator Vitter. But I am saying, are you----
        Mr. Cordray. ----and they divest----
        Senator Vitter. ----aware of the specific stock valuation--
    --
        Mr. Cordray. ----they divest assets when they come and they
    divest them for fair market value. Now, at the time he came to
    the Bureau, it would have been right in the wake of the crisis.
    It may be--you know, the entire stock market was down more than
    50 percent at that time. So, I do not know what the details
    are, but I can assure you, we will be glad to look into it if
    you want.
        Senator Vitter. OK.
        Mr. Cordray. Everything Corey does is with high integrity.
        Senator Vitter. What I am asking is, have you looked into
    that issue and come to a conclusion or not?
        Mr. Cordray. Our Ethics Department vets everybody's
    divestiture of assets before they are hired at the Bureau. It
    is a painstaking process. I do not believe there is anything to
    this, but we will be glad to follow up with you if you want to
    pursue it.
        Senator Vitter. Well, if you will follow up in writing,
    that would be great.
        Mr. Cordray. Yeah.
        Senator Vitter. And then the second issue, the first one I
    mentioned, is this remittance issue.
        Mr. Cordray. Yeah. On the remittance issue, this was the
    first rulemaking we did. We were required to do it by Congress,
    again, not a task that we set for ourselves but a task you all
    set for us. The rulemaking is in place. Whether it solved all
    the ongoing abuses, it may or may not have. We will take
    enforcement actions as needed against the industry if we find
    abuses.
        If you are aware of abuses or hearing about abuses that are
    specific that we should know about, we will follow up with you
    and be glad to hear what they are so that we can consider
    whether to investigate them. But, I do think it is quite
    possible our rulemaking has not solved every problem in the
    marketplace, and to the extent it has not, we want to continue
    to pursue problems in the marketplace.
        And, then I forgot the third part of your question, but----
        Senator Vitter. Well, related to that was does your
    rulemaking address and does your enforcement and tracking
    address what seems to be massive use of this money transfer
    opportunity for folks being in and working in the country
    illegally and sending money overseas.
        Mr. Cordray. Our rulemaking does not address that. Congress
    did not direct us to direct that, and those would be issues, I
    would assume, for other parts of the Federal Government, not
    for us.
        Senator Vitter. OK, and so you do not track any of that
    activity?
        Mr. Cordray. I do not believe we do, no.
        Senator Vitter. OK. Would the same apply if we were talking
    about organized crime or some illegal sector using the same
    remittance opportunity?
        Mr. Cordray. I do not think we track undocumenteds in any
    of the markets, credit cards, mortgages, et cetera. We are not
    trying to dig into Bank of America or Citibank and ask them
    what kind of documentation you asked for. If those are issues
    for someone in the Federal Government, it would be elsewhere.
    They are not issues for us.
        Senator Vitter. But, I am saying, for you, would the same
    response apply to illegal activity, say, organized crime?
        Mr. Cordray. Usually, I come here and people are
    criticizing us for trying to expand our jurisdiction. We are
    looking at mobile cramming on cell phone companies, et cetera.
    You are now telling us you would like us to look into organized
    crime and undocumenteds----
        Senator Vitter. I am asking if----
        Mr. Cordray. We do not. That is not typically----
        Senator Vitter. ----organized crime activity would be
    something you would care about or look at.
        Mr. Cordray. That is not part of our consumer finance--
    limited consumer finance jurisdiction.
        Senator Vitter. OK. Thank you. We will follow up on this,
    as well.
        Mr. Cordray. OK.
        Senator Vitter. Thank you.
        Mr. Cordray. Thank you.
        Senator Vitter. Thank you, Mr. Chairman.
        Chairman Shelby. Yes, sir. Thank you, Senator Vitter.
        I would like to take a moment to respond to comments made
    earlier here at the hearing by the Director to the Ranking
    Member. He is correct that aggregate credit availability has
    been increasing recently, as you said.
        Mr. Cordray. Mm-hmm.
        Chairman Shelby. But, that is what you would expect in a
    near zero interest rate environment. This does not mean that
    there are not specific issues, I would hope, in certain credit
    markets that may be exaggerated by some of the Bureau's
    actions.
        For example, more categories of credit may actually be in
    decline. Multiple studies have found that small business
    lending has declined, while the volume of loans to large
    businesses has risen.
        In addition, research from Harvard University finds that
    credit cards issued to certain lower-income consumers have
    fallen by 50 percent. These are economic trends that I hope the
    Bureau takes into serious consideration in your day-to-day work
    over there.
        Another thing I----
        Mr. Cordray. That would be----
        Chairman Shelby. Do you want to comment?
        Mr. Cordray. Could I? Yes, sure.
        Chairman Shelby. Go ahead.
        Mr. Cordray. So, small business lending, you know, we have
    not adopted any regulations that relate to small business
    lending. We have very limited capacity there, although we will
    be----
        Chairman Shelby. But you alluded to small business lending
    earlier.
        Mr. Cordray. Beg your--yeah, we have a job that Congress
    gave us that we have not yet fulfilled to develop the reporting
    and data collection for this. But, none of that small business
    change could be ascribed to the CFPB.
        And as for credit cards for low income, again, I want to
    take issue with this. In, I believe it was Mr. Zywicki's
    testimony, he said from 2008 to 2012----
        Chairman Shelby. Do you take an issue with the Harvard
    study that I alluded to?
        Mr. Cordray. If that is the Lux-Greene study, it is not a
    very credible study and I would be glad to give you a briefing
    on that.
        Chairman Shelby. Is it not a credible study because you
    disagree with it, or you just do not believe it is a credible
    study?
        Mr. Cordray. Because it is not very well done and it is not
    very credible on the supposed evidence. It is just a----
        Chairman Shelby. Would you furnish your concerns about the
    study to the Committee?
        Mr. Cordray. I would be glad to do that. But, I would say
    that on the credit cards for low income, which was something
    Mr. Zywicki alluded to, he was talking about 2008 through 2012.
    Most all of that crash is due to the fact that households lost
    $12 trillion in net worth in the wake of the crash, and he says
    at one point in a sort of muddled way, it is hard to separate
    that out from the effects of new rules. Well, you know, we did
    not even come into existence until July of 2011, so trying to
    pin all this on us is pretty flim-flam, if you ask me.
        Chairman Shelby. Just for the record, now, without
    objection, I would like to enter into the record statements
    from the following groups that wrote the Committee in
    conjunction with Tuesday's hearing on Assessing the Effects of
    Consumer Finance Regulations and today's hearing on this
    Consumer Financial Protection Bureau's Semiannual Report to
    Congress. The statements include statements from the
    Independent Community Bankers of America, the Consumer Bankers
    Association, the National Association of Federal Credit Unions,
    the Credit Union National Association, the American Financial
    Services Association, the Electronic Transactions Association,
    the Chamber of Commerce of the United States, the National
    Automobile Dealers Association, the Mortgage Bankers
    Association, an article by Leonard Chanin published in the
    American Banker, and, finally, an article from the New York
    Post regarding Ally's financial experiences with the Bureau.
    Without objection, it is so ordered.
        Mr. Cordray.
        Mr. Cordray. I would be glad to have access to those so we
    can consider them for improving our work.
        Chairman Shelby. Well, we have a public record. We will
    share with you. We want you to share with us, too.
        Mr. Cordray. Yeah. But, again, going back to that credit
    card so-called data, at the time a tsunami hit the beach, the
    financial crisis, that somebody's garden hose might have been
    pouring a little water on the beach at the same time is hardly
    very relevant, in my view.
        Chairman Shelby. Mr. Cordray, thank you for your appearance
    before the Committee.
        Mr. Cordray. Thank you.
        Chairman Shelby. The Committee is adjourned.
        [Whereupon, at 12:20 p.m., the hearing was adjourned.]
        [Prepared statements, responses to written questions, and
    additional material supplied for the record follow:]
                     PREPARED STATEMENT OF RICHARD CORDRAY
                 Director, Consumer Financial Protection Bureau
                                 April 7, 2016
        Chairman Shelby, Ranking Member Brown, and Members of the
    Committee, thank you for the opportunity to testify today about the
    Consumer Financial Protection Bureau's Semiannual Report to Congress. I
    appreciate our continued dialogue as we work together to strengthen our
    financial system and ensure that it serves consumers, responsible
    businesses, and the long-term foundations of the American economy.
        The Bureau presents this Semiannual Report to Congress and the
    American people in fulfillment of its statutory responsibility and
    commitment to accountability and transparency. This report provides an
    update on the Bureau's mission, activities, accomplishments, and
    publications since the last Semiannual Report, and provides additional
    information required by the Dodd-Frank Wall Street Reform and Consumer
    Protection Act (Dodd-Frank or Dodd-Frank Act). \1\
    ---------------------------------------------------------------------------
         \1\ Appendix B provides a guide to the Bureau's response to the
    reporting requirements of Section 1016(c) of the Dodd-Frank Act. The
    Bureau's most recent Semiannual Report, published in November 2015, and
    covered April-September 2015. The report may be viewed at: http://
    files.consumerfinance.gov/f/201511_cfpb_semi-annual-report-fall-
    2015.pdf.
    ---------------------------------------------------------------------------
        The Dodd-Frank Act created the Bureau as the Nation's first Federal
    agency with a mission of focusing solely on consumer financial
    protection and making consumer financial markets work for American
    consumers, responsible businesses, and the economy as a whole. In the
    wake of the financial crisis of 2008-2010, the President and Congress
    recognized the need to address widespread failures in consumer
    financial protection and the rapid growth in irresponsible lending
    practices that preceded the crisis. To remedy these failures, the Dodd-
    Frank Act consolidated most Federal consumer financial protection
    authority in the Bureau. \2\ The Dodd-Frank Act charged the Bureau
    with, among other things:
    ---------------------------------------------------------------------------
         \2\ Previously, seven different Federal agencies were responsible
    for rulemaking, supervision, and enforcement relating to consumer
    financial protection. The agencies which previously administered
    statutes for which authority transferred to the Bureau are the Federal
    Reserve Board (and the Federal Reserve Banks) (Board or FRB),
    Department of Housing and Urban Development (HUD), Federal Deposit
    Insurance Corporation (FDIC), Federal Trade Commission (FTC), National
    Credit Union Administration (NCUA), Office of the Comptroller of the
    Currency (OCC), and Office of Thrift Supervision (OTS).

        Ensuring that consumers have timely and understandable
            information to make responsible decisions about financial
    ---------------------------------------------------------------------------
            transactions;

        Protecting consumers from unfair, deceptive, or abusive
            acts and practices, and from discrimination;

        Monitoring compliance with Federal consumer financial law
            and taking appropriate enforcement action to address
            violations;

        Identifying and addressing outdated, unnecessary, or unduly
            burdensome regulations;

        Enforcing Federal consumer financial law consistently in
            order to promote fair competition;

        Ensuring that markets for consumer financial products and
            services operate transparently and efficiently to facilitate
            access and innovation; and

        Conducting financial education programs. \3\
    ---------------------------------------------------------------------------
         \3\ See Dodd-Frank Act, Pub. L. No. 111-203, Sec. 1021 (b) and
    (c).

        The Bureau has continued its efforts to listen and respond to
    consumers and industry, to be a resource for the American consumer, and
    to develop into a great institution worthy of the responsibilities
    conferred on it by Congress.
        Listening and responding to consumers is central to the Bureau's
    mission. The Bureau continues to provide consumers with numerous ways
    to make their voices heard. Consumers nationwide have engaged with the
    Bureau through public field hearings, listening events, roundtables and
    town halls, and through our website, consumerfinance.gov. Consumer
    engagement strengthens the Bureau's understanding of current issues in
    the ever-changing consumer financial marketplace and informs every
    aspect of the Bureau's work, including research, rule writing,
    supervision, and enforcement.
        The Bureau has continued to improve the capabilities of its Office
    of Consumer Response to receive, process, and facilitate responses to
    consumer complaints. Consumer Response has also continued to expand a
    robust public Consumer Complaint Database. The database updates nightly
    and as of September 30, 2015, was populated by over 465,000 complaints
    from consumers about financial products and services from all over the
    country.
        On June 25, 2015, the CFPB marked a milestone for consumer
    empowerment when the Bureau began to publish consumer complaint
    narratives in the Consumer Complaint Database. \4\ Consumers now have
    the choice to share in their own words their experiences with the
    consumer financial marketplace. Only those narratives for which opt-in
    consumer consent is obtained and to which a robust personal privacy
    scrubbing process is applied are eligible for disclosure. The CFPB
    gives companies the opportunity to respond publicly to the substance of
    the consumer complaints they receive from the CFPB by selecting from a
    set list of public-facing response categories. Companies are under no
    obligation to avail themselves of the opportunity. The Bureau also
    issued a Notice and Request for Information \5\ to seek input from the
    public on best practices for ``normalizing'' the complaint data it
    makes available via the database to make the complaint data easier for
    the public to use and understand.
    ---------------------------------------------------------------------------
         \4\ See ``Final Policy Statement on Consumer Narratives''; 80 FR
    15572, March 24, 2015.
         \5\ See ``Request for Information Regarding the Consumer Complaint
    Database: Data Normalization''; 80 FR 37237, June 30, 2015.
    ---------------------------------------------------------------------------
        On July 16, 2015, the Bureau launched the first in a new series of
    monthly reports to highlight key trends from consumer complaints
    submitted to the Bureau. The monthly report includes data on complaint
    volume, most-complained-about companies, State and local information,
    and product trends. Each month, the report highlights a particular
    product and geographic location and will provide insight for the public
    into the hundreds of thousands of consumer complaints on financial
    products and services expected to be handled by the CFPB. The report
    uses a 3-month rolling average, comparing the current average to the
    same period in the prior year where appropriate, to account for monthly
    and seasonal fluctuations. In some cases, month-to-month comparisons
    are used to highlight more immediate trends.
        The Bureau is also working to provide tools and information to
    develop practical skills and support sound financial decision making
    directly to consumers. These skills include being able to ask questions
    and to plan ahead. One way we are doing this is with our online tool,
    Ask CFPB. \6\ This tool provides answers to over 1,000 questions about
    financial products and services, including on topics such as mortgages,
    credit cards, and how to dispute errors in a credit report. We are also
    focusing on helping consumers build the skills to plan ahead. For
    example, our Paying for College \7\ set of tools helps students and
    their families compare what their college costs will be as they decide
    where to pursue a college education. Our Owning a Home \8\ set of tools
    helps consumers shop for a mortgage loan by helping them understand
    what mortgages are available to them, explore interest rates, compare
    loan offers, and by providing a closing checklist. The Money Smart for
    Older Adults \9\ curriculum, developed with the Federal Deposit
    Insurance Corporation (FDIC), includes resources to help people prevent
    elder financial exploitation and prepare financially for unexpected
    life events.
    ---------------------------------------------------------------------------
         \6\ Available at: http://www.consumerfinance.gov/askcfpb/.
         \7\ See http://www.consumerfinance.gov/paying-for-college/.
         \8\ See http://www.consumerfinance.gov/owning-a-home/.
         \9\ See https://www.fdic.gov/consumers/consumer/moneysmart/
    olderadult.html.
    ---------------------------------------------------------------------------
        The Bureau is working with other Government agencies, social
    service providers, and community service providers to develop channels
    to provide decision-making support in moments when consumers are most
    receptive to receiving information and developing financial decision-
    making skills. This support includes integrating financial capability
    into other programs and services where consumers may be seeking
    assistance. We are also tailoring our approaches to financial decision-
    making circumstances, challenges, and opportunities for specific
    populations, including servicemembers and veterans, students and young
    adults, older Americans, and lower-income and other economically
    vulnerable Americans.
        When Federal consumer financial protection law is violated, the
    Bureau's Supervision, Enforcement, and Fair Lending Division is
    committed to holding the responsible parties accountable. In the 6
    months covered by the most recent report, our supervisory actions
    resulted in financial institutions providing more than $95 million in
    redress to over 177,000 consumers.
        During that timeframe, the Bureau also announced orders through
    enforcement actions for approximately $5.8 billion in total relief for
    consumers who fell victim to various violations of consumer financial
    protection laws, along with over $153 million in civil money penalties.
    The Bureau brought numerous enforcement actions for various violations
    of the Dodd-Frank Act, including an action against a company for
    blocking consumers' attempts to save their homes from foreclosure, an
    action against a lender for the failure to furnish clear information
    regarding the student loan interest consumers paid, and actions against
    two companies for mobile cramming. In joint actions, we worked with the
    New York Department of Financial Services to take action against two
    companies for deceiving consumers about the costs and risks of their
    pension advance loans. We also worked with the Office of the
    Comptroller of the Currency and the FDIC to take action against a
    depository institution for failing to credit consumers for the full
    amounts of their deposits, and worked with the Department of Justice to
    resolve actions with an auto finance company and a depository
    institution that will put in place new measures to address
    discretionary auto loan pricing and compensation practices. The Bureau
    also took action against a company for engaging in unfair, deceptive,
    and abusive acts or practices to collect debt from servicemembers, in
    violation of the Consumer Financial Protection Act. In addition, the
    Bureau continues to develop and refine its nationwide supervisory
    program for depository and nondepository financial institutions,
    through which those institutions are examined for compliance with
    Federal consumer financial protection law.
        The Bureau also released one edition of Supervisory Highlights
    during this reporting period. The Supervisory Highlights series is
    intended to inform both industry and the public about the development
    of the Bureau's supervisory program and to discuss, in a manner
    consistent with the confidential nature of the supervisory process,
    broad trends in examination findings in key market or product areas.
    This edition reported examination findings in the areas of consumer
    reporting, debt collection, student loan servicing, mortgage
    origination, mortgage servicing, and fair lending. It also included
    information about recent public enforcement actions that were a result,
    at least in part, of CFPB's supervisory work.
        The Bureau has also published new guidance documents, in
    partnership with other regulators where appropriate, to help
    institutions know what to expect and how to become, or remain,
    compliant with the law, including bulletins on private mortgage
    insurance cancellation and termination, the Section 8 housing choice
    voucher home ownership program, and interstate land sales.
        Reasonable regulations are essential for protecting consumers from
    harmful practices and ensuring that consumer financial markets function
    in a fair, transparent, and competitive manner. The Research, Markets,
    and Regulations Division has focused its efforts on promoting markets
    in which consumers can shop effectively for financial products and
    services and are not subject to unfair, deceptive, or abusive acts or
    practices. During this reporting period, the Research and Markets teams
    released a data point on ``credit invisibles'' and technical reports
    regarding the National Survey of Mortgage Borrowers and the National
    Mortgage Database. The Regulations office issued regulations modifying
    and clarifying a number of rules implementing changes made by the Dodd-
    Frank Act to the laws governing various aspects of the mortgage market,
    including amendments relating to small creditors and rural or
    underserved areas under Regulation Z, which, among other things,
    increased the number of financial institutions able to offer certain
    types of mortgages in rural and underserved areas, a rule moving the
    effective date of the Know Before You Owe mortgage disclosure rule to
    October 3, 2015, and an interpretive rule on home ownership counseling
    organizations lists and high-cost mortgage counseling.
        During this reporting period, the Bureau issued several other
    proposed or final rules or requests for information under the Dodd-
    Frank Act, including a final rule defining larger participants of the
    automobile financing market and defining certain automobile leasing
    activity as a financial product or service, which extends the Bureau's
    supervision relating to consumer financial protection laws to any
    nonbank auto finance company that makes, acquires, or refinances 10,000
    or more loans or leases in a year, and a request for information
    regarding student loan servicing.
        To support the implementation of and industry compliance with its
    rules, the Bureau has published a number of plain-language compliance
    guides summarizing certain rules, and it has actively engaged in
    discussions with industry about ways to achieve compliance. \10\ The
    Bureau also continued its efforts to streamline, modernize, and
    harmonize financial regulations that it inherited from other agencies.
    ---------------------------------------------------------------------------
         \10\ See http://www.consumerfinance.gov/guidance/#compliance.
    ---------------------------------------------------------------------------
        In addition to implementing the Dodd-Frank Act, the Bureau
    continues to explore other areas where regulations may be needed to
    ensure that markets function properly and possibly harmful or
    inefficient practices are addressed. Over the next 6 months, the Bureau
    will continue implementing the Dodd-Frank Act and using its regulatory
    authority to ensure that consumers have access to consumer financial
    markets that are fair, transparent, and competitive.
        The Bureau continues to grow and evolve as an institution. As of
    September 30, 2015, the CFPB team consisted of 1,486 employees working
    to carry out the Bureau's mission. It has worked to build a human and
    physical infrastructure that promotes diversity, transparency,
    accountability, fairness, and service to the public.
        The Bureau recognizes that the best way to serve consumers is to
    ensure that its workforce reflects the ideas, backgrounds, and
    experiences of the American public. The Bureau's Office of Minority and
    Women Inclusion supports the Bureau's mission by working with the
    offices of Human Capital and Civil Rights to continue building a
    diverse and inclusive workforce that can foster broader and better
    thinking about how to approach markets. \11\
    ---------------------------------------------------------------------------
         \11\ During the previous reporting period, the Bureau's Office of
    Equal Employment and Opportunity transitioned to the Office of Civil
    Rights (OCR), and it and the OMWI office moved under the umbrella of
    the newly created Office of Equal Opportunity and Fairness (OEOF),
    housed in the CFPB Director's Office and reporting directly to the
    Director.
    ---------------------------------------------------------------------------
        Over the last year, the Bureau has continued to expand its efforts
    to support and protect consumers in the financial marketplace. The
    Bureau seeks to serve as a resource, by writing clear rules of the
    road, enforcing consumer financial protection laws in ways that improve
    the consumer financial marketplace and by helping individual consumers
    resolve their specific issues with financial products and services.
    While the various divisions of the Bureau play different roles in
    carrying out the Bureau's mission, they all work together to protect
    and educate consumers, help level the playing field for participants,
    and fulfill the Bureau's statutory obligations and mission under the
    Dodd-Frank Act. In all of its work, the Bureau strives to act in ways
    that are fair, reasonable, and transparent.
        Chairman Shelby, Ranking Member Brown, and Members of the
    Committee, thank you for the opportunity to provide the Bureau's
    Semiannual Report. The Bureau will continue working to ensure that the
    American people are treated fairly in the consumer financial
    marketplace. I look forward to your questions.
           RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN SHELBY
                          FROM RICHARD CORDRAY

    Q.1. In a recent speech before the American Constitution
    Society, you stated, ``[a]rbitration clauses, as they are used
    today both in the field of consumer finance and more generally,
    often have been deliberately designed to block Americans from
    effective means of vindicating their rights.'' The CFPB's
    outline of proposals under consideration favors requiring these
    clauses to allow class litigation. In a class action lawsuit,
    however, individual class members give up their right to sue, a
    large number of cases are settled out of court, the average
    reward is very small, and the individual class members
    generally play no role in the judicial process.
        How did you determine that a class action lawsuit is better
    than arbitration for consumers?

    A.1. On July 10, 2017, the Consumer Bureau issued a Final Rule
    regarding agreements for consumer financial products and
    services providing for mandatory pre-dispute arbitration. The
    Final Rule was based on and consistent with the Bureau's
    Arbitration Study and Report to Congress pursuant to Dodd-Frank
    Wall Street Reform and Consumer Protection Act 1028, submitted
    in March 2015.
        The Final Rule is not based on a determination that a class
    action lawsuit is necessarily a better option for a consumer
    than arbitration. Rather, the rule reflects the conclusion that
    consumers are better off when both individual and class
    remedies are available. Indeed, the Final Rule does not
    prohibit providers from using pre-dispute arbitration
    agreements with respect to claims filed by individual
    consumers. Instead, the Final Rule prohibits providers from
    using pre-dispute arbitration agreements to block consumer
    class actions in court.
        The Bureau adopted this provision of the Final Rule in part
    because it found that individual dispute resolution alone
    (which includes, among other things, individual arbitration and
    individual litigation filed in court) is insufficient in
    enforcing laws applicable to contracts for consumer financial
    products and services. This finding is supported by the
    Arbitration Study, which found that a very small number of
    consumers seek individual redress either through arbitration or
    the courts relative to the size of the market for consumer
    financial products and services. According to the Arbitration
    Study, the total number of individual consumer financial claims
    in the specified markets was approximately 2,400 per year. \1\
    Even multiplying those 2,400 claims by 10 or 100 to account for
    the markets and jurisdictions the Study did not analyze would
    amount to less than 250,000 individual claims. The result would
    still be a low number of individual claims in relation to the
    hundreds of millions of individual consumer financial products
    and services.
    ---------------------------------------------------------------------------
         \1\ The Bureau's arbitration study found in the jurisdictions
    studied 1,200 individual cases in Federal court, 800 in small claims
    court, and 400 in arbitration.
    ---------------------------------------------------------------------------
        By contrast, as set out in the Final Rule and consistent
    with the Arbitration Study, the Bureau found that a much larger
    number of consumers derive substantial benefits from class
    action settlements. Over a 5-year period, the Arbitration Study
    analyzed the results of 419 Federal consumer finance class
    actions that reached final class settlements. These settlements
    involved, conservatively, about 160 million consumers and about
    $2.7 billion in gross relief of which, after subtracting fees
    and costs, made $2.2 billion available to be paid to consumers
    in cash relief or in-kind relief. Further, as set out in the
    Study, nearly 24 million class members in 137 settlements
    received automatic distributions, meaning they received
    payments without having to file claims. In the five years of
    class settlements studied, at least 34 million consumers
    received $1.1 billion in cash payments.
        In addition to the monetary relief awarded by class action
    settlements, consumers also received nonmonetary relief from
    those settlements. Specifically, the Study showed that there
    were 53 settlements covering 106 million class members that
    mandated behavioral relief that required changes in the
    settling companies' business practices beyond simply to comply
    with the law.
        Perhaps most importantly, the threat of class action
    proceedings not only facilitates relief to consumers in
    specific cases, but also strengthens incentives for consumer
    financial service providers to engage in robust compliance on
    an ongoing basis. As discussed in the preamble to the Final
    Rule, the Bureau found that the rule will incentivize greater
    compliance with the law by covered providers. Absent the rule,
    providers may be more likely to engage in potentially unlawful
    business practices because they know that any potential costs
    from exposure to putative class action filings have been
    reduced if not effectively eliminated. Due to this reduction in
    legal exposure (and thus a reduction in risk), providers have
    less of an incentive to invest in compliance management in
    general, such as by investing in employee training with respect
    to compliance matters or by carefully monitoring changes in the
    law. Therefore, the Bureau believes that consumers are better
    protected and the market is fairer for those companies that
    comply with the law when consumers also are able to obtain
    relief by grouping their own disputes against providers of
    consumer financial products or services.

    Q.2. Why do you believe that arbitration clauses that ban class
    action lawsuits deny consumers the ability to vindicate their
    legal rights but other arbitration clauses do not?

    A.2. In the Final Rule, the Bureau did not find that the terms
    of arbitration agreements in today's consumer financial
    marketplace generally prevent consumers from seeking and
    obtaining individual relief. However, the Bureau found that the
    terms of arbitration agreements do prevent groups of consumers
    from seeking and obtaining relief on a class basis. As noted
    above, the Bureau believes that consumers get substantial
    relief and other benefits from having the ability to seek and
    obtain relief on class basis.

    Q.3. Please explain how class action lawsuits that are settled
    out of court and result in tiny rewards for class members give
    people a ``day in court.''

    A.3. As the Bureau explained in the preamble to the Final Rule,
    class actions generally aggregate claims for smaller damage
    amounts. As noted above, consumers generally do not pursue
    smaller harms that they suffer individually. That means that
    where an arbitration agreement is used to stop a class action,
    harmed consumers will often be left without remedy. The Bureau
    believes that the very substantial relief that consumers get
    through class actions (detailed above) is a better result for
    harmed consumers than no relief.

    Q.4. A year ago, the CFPB issued an outline of proposals to
    regulate small dollar loans. The outline contemplates
    regulating certain small dollar loans with a duration of more
    than 45 days and an annual interest rate above 36 percent.
        If the Bureau issues a rule that does not outright ban
    these products, but makes it unprofitable to make such loans
    above 36 percent, would that violate the Dodd-Frank Act's
    prohibition on the CFPB imposing a usury limit?
        If not, does the Bureau believe Section 1027(o) of the
    Dodd-Frank Act imposes any limits on the Bureau's ability to
    set restrictions on the offering of financial products above a
    certain interest rate? Why or why not?

    A.4. The Consumer Bureau is not prohibiting charging interest
    rates or annual percentage rates (APRs) above the demarcation
    for coverage of certain longer-term loans. Rather, the Consumer
    Bureau is proposing to require that lenders make a reasonable
    assessment of consumers' ability to repay certain longer-term
    loans above the 36 percent demarcation, in light of evidence of
    consumer harms in the market for loans with this
    characteristic. It is appropriate to focus regulatory attention
    on the segment of longer-term lending that the Consumer Bureau
    believes poses the greatest risk to consumers in the form of
    potential unfair and abusive practices and to recognize that
    price is an element in defining that segment.
        The Consumer Bureau believes that the term ``usury limit''
    in section 1027(o) of the Dodd-Frank Act is reasonably
    interpreted not to prohibit such differential regulation given
    that the Consumer Bureau is not proposing to prohibit lenders
    from charging interest rates above a specified limit.
        The Consumer Bureau's considerations concerning section
    1027(o) of the Dodd-Frank Act are described in the notice of
    proposed rulemaking in the section-by-section analysis of
    proposed 1041.3.

    Q.5. You have repeatedly stated that the Bureau would be
    sensitive to good faith efforts by companies to comply with the
    CFPB's TILA-RESPA mortgage disclosure rule. In December,
    however, the American Banker quoted a senior Bureau official
    telling mortgage lenders at a conference, ``I want to be
    perfectly clear. There is no grace period from the Bureau.''
        Why won't the Bureau provide a formal ``hold harmless''
    period to clarify mixed messages delivered by the Bureau's
    officials and more clearly delineate its expectations?

    A.5. The Consumer Bureau has continuously reaffirmed its
    commitment to support a smooth transition for the mortgage
    market, including its commitment to be sensitive to the efforts
    made by institutions to come into compliance. We recognize that
    the mortgage industry needed to make significant systems and
    operational changes to adjust to the new requirements and that
    implementation required extensive coordination with third
    parties. We appreciate that the mortgage industry dedicated
    substantial resources to understand the rules, adapt systems,
    and train personnel in a serious effort to get it right. As
    with any change of this scale, despite the best of efforts,
    there inevitably will be inadvertent errors in the early days.
    While complete and accurate use of the Regulation Z forms is
    the ultimate compliance goal, we recognize that a certain level
    of minor errors in the early days of implementation is to be
    expected.
        That is why the Consumer Bureau and the other regulators
    have made clear that our initial examinations for compliance
    with the rule will be sensitive to the progress industry has
    made. In particular, the Consumer Bureau has indicated our
    examiners will be squarely focused on whether companies have
    made good faith efforts to come into compliance with the rule.
    The Consumer Bureau has stated that early examinations will
    focus on an entity's implementation plan, including actions
    taken to update policies, procedures, and processes; the
    training of appropriate staff; and its handling of early
    technical problems or their implementation challenges. All of
    the regulators have indicated that their examinations for
    compliance in the initial period of implementing the new rule
    will be corrective and diagnostic, rather than punitive. This
    position is consistent with our approach to supervision and
    enforcement of the rules implementing title XIV of the Dodd-
    Frank Wall Street Reform and Consumer Protection Act, which has
    worked out well.
        While implementation has posed challenges to industry,
    industry reports indicate that implementation is now proceeding
    more smoothly. \2\ Data published by one leading provider of
    loan origination services as well as a research survey
    conducted by a major trade association, confirm these
    observations. \3\ Moreover, a recent homebuyer survey by
    another trade association suggests that the new disclosures
    are, indeed, helping consumers understand their loan terms. \4\
    The Consumer Bureau will continue to adjust its approach to the
    experience of implementation.
    ---------------------------------------------------------------------------
         \2\ See, e.g., Ben Lane, ``Mortgage Defects Fall for First Time in
    a Year as TRID Issues Subside'', Housingwire, Dec. 7, 2016, available
    at http://www.housingwire.com/articles/38696-mortgage-defects-fall-for-
    first-time-in-a-year-as-trid-issues-subside; Brena Swanson, ``Ellie Mae
    CEO: Initial Discomfort of TRID Now Over, Time To Close Finally
    Tumbles'', Housingwire, March 21, 2016, available at http://
    www.housingwire.com/articles/36563-ellie-mae-ceo-initial-discomfort-of-
    trid-now-over; Ken Frears, ``TRID: Back on Track in June'', National
    Association of Realtors', July 12, 2016, available at http:/
    /economistsoutlook.blogs.realtor.org/2016/07/12/trid-back-on-track-in-
    june/.
         \3\ See Ellie Mae, ``Origination Insight Report'' (May, 2016),
    available at http://www.elliemae.com/origination-insight-reports/
    Ellie_Mae_OIR_MA_Y2016.pdf; National Association of
    Realtors', Survey of Mortgage Originators, First Quarter
    2016: TRID After 6 Months and Changes to FHA's Cancellation Policy,
    available at http://www.realtor.org/reports/survey-of-mortgage-
    originators-first-quarter-2016.
         \4\ Press Release, American Land Title Association, ``American
    Land Title Association Survey Shows More Homebuyers Reviewing Mortgage
    Disclosures'', May 16, 2016, http://www.alta.org/press/
    release.cfm?r=260.

    Q.6. During the hearing, I asked you about research from
    Harvard University that finds that credit card accounts
    originated to certain lower-income consumers have fallen by 50
    percent. You replied, ``[i]f that is the Lux-Greene study, it
    is not a very credible study . . . [b]ecause it is not very
    well done and it is not very credible on the supposed
    evidence.''
        To the extent you are referring to the study published in
    April 2016, please elaborate on your views on the study and the
    underlying research, and explain what research and evidence the
    Bureau has relied upon to refute the findings of that study.

    A.6. According to an April 2016 paper prepared by Marshall Lux
    and Robert Greene, the post-2007 fall in credit balances and
    accounts held by consumers with lower credit scores should be
    attributed to regulatory constraints. \5\ The Lux-Greene list
    of such hypothesized supply-side constraints include the Credit
    CARD Act of 2009, the Consumer Bureau's credit card enforcement
    actions, the lack of a commission structure at the Consumer
    Bureau, and an alleged explosion in Bureau credit card
    regulation.
    ---------------------------------------------------------------------------
         \5\ The full title of the paper is ``Out of Reach: Regressive
    Trends in Credit Card Access''. The authors are Marshall Lux and Robert
    Greene.
    ---------------------------------------------------------------------------
        In the Bureau's assessment, the Lux-Greene paper
    underweights the impact of the Great Recession on the supply
    and demand for credit in the consumer credit card market. To
    control the massive credit losses associated with the downturn,
    credit card issuers reduced supply, closing or reducing lines
    and tightening their underwriting standards. That severely
    restricted the availability of credit, especially to consumers
    with lower credit scores. On the demand side, consumers reacted
    to the Great Recession and its aftermath by becoming more
    conservative in their use of credit cards. \6\
    ---------------------------------------------------------------------------
         \6\ The share of borrowers utilizing all available credit across
    their cards has actually fallen for credit card borrowers with subprime
    scores, from roughly 48 percent of active card users in early 2007 to
    roughly 44 percent in 2010 through 2013.
    ---------------------------------------------------------------------------
        As the economy picked up, the picture changed. \7\ The
    Consumer Bureau publishes a review of the consumer credit card
    market every 2 years. \8\ The Consumer Bureau's 2015 credit
    card study showed that account growth from 2012through 2015 was
    skewed towards consumers with lower credit scores. \9\ Major
    mainstream media have reported the same trends. \10\ Results
    recently published by the Consumer Bureau show that, for the
    most recent 12 months for which the Bureau has published data,
    year-over-year growth in total line originated to borrowers in
    both low-income neighborhoods and moderate-income neighborhoods
    has outpaced growth in total line originated to borrowers in
    high-income neighborhoods. \11\
    ---------------------------------------------------------------------------
         \7\ Figures 2 and 3 in the Appendix to the Bureau's December 2015
    Credit Card Market Report (the ``2015 Report'') show the close
    relationship through the recession between the unemployment rate and
    charged off or delinquent balances.
         \8\ The CARD Act formally requires the Bureau to carry out
    biennial reviews of the consumer credit card market. These reviews
    address a number of issues, including the question of credit
    availability to consumers with lower credit scores. We published
    associated reports to Congress at the end of 2013 and 2015. The reports
    are available on the Bureau's website, available at: (2015 Report)
    http://files.consumerfinance.gov/f/201512 cfpb_report-the-consumer-
    credit-card-market.pdf; and here (2013 Report): http://
    files.consumerfinance.gov/f/201309_cfpb_card-act-report.pdf. We also
    published key findings from a 2011 Bureau conference on the CARD Act,
    which also addressed this same issue of availability. The findings are
    available on the Bureau's website here: https://
    www.consumerfinance.gov/data-research/research-reports/card-act-
    conference-key-findings/.
         \9\ See 2015 Report at pages 90 through 94, especially figures 4
    and 8. The Bureau's analysis takes account of private label accounts,
    which Lux and Greene ignore despite the significance of such accounts
    to consumers with lower credit scores.
         \10\ See Wall Street Journal (May 20, 2016), ``Balance Due: Credit
    Card Debt Nears $1 Trillion as Banks Push Plastic'', available at
    https://www.wsj.com/articles/balance-due-credit-card-debt-nears-1-
    trillion-as-banks-push-plastic-1463736600.
         \11\ See http://www.consumerfinance.gov/data-research/consumer-
    credit-trends/credit-cards/lending-neighborhood-income-level/ (December
    2016).
    ---------------------------------------------------------------------------
        The Consumer Bureau recognizes that it is hard to
    disaggregate the different effects of the Great Recession on
    the supply and demand for consumer credit. However, there is
    substantial evidence that shows that the reduction in card
    balances held by consumers with lower scores is not
    attributable to credit card regulation. For example:

        Credit availability and price trends in the small
            business credit card market and the consumer credit
            card market have been broadly similar through the Great
            Recession and its aftermath. \12\ The small business
            credit card market, however, has not been subject to
            relevant portions of the CARD Act. Indeed, the vast
            majority of the Consumer Bureau's regulatory activity
            does not apply to business-purpose credit cards at all.
            If Lux and Greene were correct about the impact of
            consumer protection law on the consumer credit card
            market, the small business credit card, which was free
            of such ``constraints,'' should have performed
            differently. But on core performance metrics for price
            and credit availability, it did not.
    ---------------------------------------------------------------------------
         \12\ This point is detailed in the Bureau's 2015 Report at 80-82
    and 117-18, and in the 2013 Report at 35-36 and 54-60.

        Lux and Greene compare originations in the auto
            loan and credit card market. The auto loan market,
            however, is the only major consumer credit market that
            has recovered faster than the credit card market.
            Originations growth since 2009 in general purpose
            credit cards outstrips all other major consumer credit
            markets, and the recovery in private label credit card
            growth has been substantially stronger than for home-
            secured loan markets. In fact, when looking only at
            consumers with lower credit scores, the recovery in
            originations growth for general purpose credit cards
            has outstripped even the auto loan market. \13\
    ---------------------------------------------------------------------------
         \13\ See 2015 Report at 95-97.

        The share of subprime borrowers holding mortgages
            changed by approximately the same amount--20 percent
            relative to 2005-07 levels--as did the share of
    ---------------------------------------------------------------------------
            subprime consumers holding credit cards.

        In addition, Lux and Greene's characterization of the
    Consumer Bureau's actions in the credit card market is often
    imprecise or incomplete. In significant cases, the regulatory
    constraints that they identify do not, in fact, exist.

        Lux and Greene claim an apparent explosion in the
            Consumer Bureau's level of credit card regulation from
            2011; the red area in the paper's figure 9 purports to
            show a significant expansion in the Consumer Bureau's
            regulatory activity from that point through 2014. In
            fact, from its inception through the end of that
            period, the Consumer Bureau issued two new substantive
            credit card rules. One made it easier for stay-at-home
            spouses and partners to obtain credit cards, thereby
            expanding the availability of credit. \14\ The other
            substantive change, made in response to a legal
            challenge against one of the Board's rules, reduced fee
            restrictions on cards marketed to consumers with
            subprime credit scores. \15\ It is therefore not
            accurate to claim that the Consumer Bureau's regulatory
            activity has limited consumers' access to credit. \16\
    ---------------------------------------------------------------------------
         \14\ See http://www.consumerfinance.gov/about-us/newsroom/the-
    cfpb-amends-card-act-rule-to-make-it-easier-for-stay-at-home-spouses-
    and-partners-to-get-credit-cards/ (April 2013). This new regulation
    revised certain credit card ability-to-pay rules issued by the Board of
    Governors. Several parties--including credit card issuers--had sought
    this change.
         \15\ See http://www.consumerfinance.gov/about-us/newsroom/
    consumer-financial-protection-bureau-finalizes-credit-card-act-rule/
    (March 2013). The Bureau's action was taken in response to a legal
    challenge against one of the Board's rules on fee-harvester cards
    marketed to consumers with subprime credit scores. That change excluded
    certain fees that were charged to consumers before account opening from
    the requirements of the Board's rule. To the Bureau's knowledge no
    commenter has ever claimed that this change limited access to credit.
         \16\ Since its inception the Bureau has issued nonsubstantive
    revisions to the credit card rules, but these kinds of technical or
    ``housekeeping'' adjustments could not possibly create any supply-side
    constraint to the issuance of consumer credit card line. For example,
    these revisions effectuated the transition of regulatory authority from
    the Board of Governors to the Bureau, meaning that the rules were
    renumbered and references to the ``Board'' were replaced with
    references to the ``Bureau,'' or effectuated adjustments for inflation.

        Lux and Greene focus on the supposedly regressive
            effect of the Consumer Bureau's reliance on its
            ``abusiveness'' authority. The Dodd-Frank Wall Street
            Reform and Consumer Protection Act's creation of new
            authority in this respect, however, has played a
            minimal role in the Consumer Bureau's credit card work.
            Lux and Greene's main complaint in this area seems to
            be with the Bureau's enforcement actions against credit
            card add-on products. But those enforcement actions did
            not rely on abusiveness authority. They relied instead
            on the requirement that issuers not market add-on
            products deceptively or unfairly charge consumers for
            add-on products that they are not actually receiving.
            \17\
    ---------------------------------------------------------------------------
         \17\ Lux and Greene note only one instance in which the Bureau has
    in fact cited its abusiveness authority in connection with the credit
    card market. The Bureau's September 2014 bulletin on interest rate
    promotions points out that when an issuer markets such a promotion on
    the basis of the interest rate savings to the consumer from revolving a
    promotional balance at lower rates, the issuer risks engaging in a
    deceptive or abusive practice if it fails to disclose clearly that
    revolving such balances may also increase the consumer's interest rate
    charges on new purchases made during the promotion. Lux and Greene do
    not explain or offer any evidence for their claim that this commonsense
    observation has ``discouraged certain product features.'' Some issuers
    have made efforts to improve their disclosures on this point, but that
    development should be welcomed.

    Q.7. Finally, the Lux-Greene paper sometimes makes factual
    assertions contradicted by the available record. For example,
    they contend that Consumer Bureau enforcement actions are
    ``driving'' issuers to ``only offer `plain vanilla' '' credit
    cards. But Lux and Greene cite no such cards or any evidence
    that such cards are becoming the sole product offering in this
    space. In fact, as the Consumer Bureau's 2015 Report documents,
    the credit card market shows continued innovation, whether in
    rewards, security, or mobile functionality, giving consumers a
    wide range of benefits and functionalities to consider when
    card shopping.
        Does the Bureau have any plans to further clarify what
    actions are unfair, abusive, or deceptive to provide clarity to
    lenders in order to increase the availability of credit cards
    for lower-income consumers? If not, why not?

    A.7. The Consumer Bureau does not agree that the credit card
    market has been hampered since the Great Recession by a
    supposed lack of clarity around regulatory standards. To the
    contrary, the Consumer Bureau's rule writing in this market has
    been appropriate because the Board of Governors undertook a
    clear and comprehensive regulatory effort to implement the
    important consumer protections enacted by Congress in the CARD
    Act. \18\ As noted above, when necessary, the Consumer Bureau
    has acted to revise or build on those rules. In one case, a
    legal challenge to a Board rule caused the Consumer Bureau to
    issue a revised rule. On another, the Consumer Bureau revised a
    Board-issued rule that was having the unintended consequences
    of limiting access to credit by spouses and partners who did
    not work outside the home but who did have the ability to pay
    for a credit card account.
    ---------------------------------------------------------------------------
         \18\ Although Lux and Greene appear to oppose most or potentially
    all of that Board effort, many of the Board's CARD Act rules duplicated
    earlier rules proposed by the Board in 2008 under its ``UDAP''
    authority to regulate unfair and deceptive practices. (See http://
    www.federalreserve.gov/newsevents/press/bcreg/20080502a.htm) Their
    complaint that the Bureau has not issued rules to implement its own
    ``UDAAP'' authority, therefore, is hard to reconcile with their
    apparent opposition to earlier Board rules that effectively did just
    that.
    ---------------------------------------------------------------------------
        When the Consumer Bureau has brought credit card
    enforcement actions on the basis of its authority to regulate
    Unfair, Deceptive, and Abusive Acts and Practices (UDAAP), it
    has focused on well-established legal norms. Thus, as noted
    above, the credit card add-on cases attacked deceptive
    marketing and the unfair ``sale'' of products that were not in
    fact received.

    Q.8. Section 1022(b)(2)(A) of the Dodd-Frank Act requires the
    Bureau to perform a cost-benefit analysis when prescribing
    rules.
        Is it important for the CFPB to conduct high quality
    economic analysis as part of its rulemaking and cost-benefit
    analysis?

    A.8. Yes, the Consumer Bureau considers it to be good policy to
    conduct economic analysis as part of the rulemaking process.
    Section 1022(b)(2)(A) of the Dodd-Frank Wall Street Reform and
    Consumer Protection Act calls for the Bureau to consider the
    potential benefits, costs, and impacts of its consumer
    protection regulations. Specifically, the Consumer Bureau
    considers the potential benefits and costs of regulation to
    consumers and covered persons, including the potential
    reduction of access by consumers to consumer financial products
    and services, the impact of proposed rules on insured
    depository institutions and insured credit unions with $10
    billion or less in total assets as described in section 1026 of
    the Dodd-Frank Act, and the impact on consumers in rural areas.

    Q.9. Is the CFPB's economic analysis currently sufficiently
    robust and thorough? If the answer to (a) and (b) are both
    ``yes,'' will the Bureau commit to publishing guidance on
    economic analysis in CFPB rulemakings, similar to what the SEC
    \19\ has already done? If not, why not?
    ---------------------------------------------------------------------------
         \19\ https://www.sec.gov/divisions/riskfin/
    rsfi_guidance_econ_analy_secrulemaking.pdf

    A.9. Yes, these analyses are an important tool to help evaluate
    potential regulatory burdens, and our practice is to seek
    public comment on our analyses of potential benefits, costs,
    and impacts, and to seek comment on our additional sources of
    data. Like other Federal agencies, the Consumer Bureau is
    required to conduct a written analysis of the potential impacts
    and alternatives at both the proposal and final rule stage.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN
                          FROM RICHARD CORDRAY

    Q.1. We heard on Tuesday about regulation leading to bank
    consolidation. But the number of financial institutions in this
    country has been declining for decades, way before Dodd-Frank.
    That being said, it is important that small financial
    institutions are not disproportionately impacted by regulation.
    Would you describe what the Bureau has done to address the
    concerns of small financial institutions and reduce their
    regulatory burden?

    A.1. Section 1022(b)(1) of the Dodd-Frank Wall Street Reform
    and Consumer Protection Act (Dodd-Frank Act) authorizes the
    Consumer Bureau to prescribe rules and issue orders and
    guidance, as may be necessary or appropriate to administer and
    carry out the purposes and objectives of the Federal consumer
    financial laws, and to prevent evasions thereof. In doing so,
    Section 1022(b)(2) requires that the Consumer Bureau consider
    the potential benefits and costs to consumers and covered
    persons, including the potential reduction of access to
    consumer financial products and services to consumers. Section
    1022(b)(2) also requires the Consumer Bureau to consider the
    impact of a proposed rule on insured depository institutions
    and credit unions with total assets of $10 billion or less as
    well as the impact on consumers in rural areas. Moreover,
    Section 1022(3)(A) gives the Consumer Bureau the authority to
    create exemptions from the Consumer Financial Protection Act of
    2010 or rules issued under that Act for any class of covered
    persons, service providers, or consumer financial products or
    services if the Consumer Bureau determines an exemption is
    necessary or appropriate to carry out the purposes and
    objectives of the Consumer Financial Protection Act after
    taking into consideration a set of factors specified in the
    statute.
        To date, the Consumer Bureau has sought to carefully
    calibrate its efforts to ensure consistency with respect to
    consumer financial protections across the financial services
    marketplace, while accounting for the different business models
    and classes of financial institutions. For example, as part of
    the Consumer Bureau's commitment to achieving tailored and
    effective regulations, we have taken the following actions for
    different models and classes of institutions:

    Mortgage Origination Rules (Title XIV)

        Expanded safe harbor for small creditors. A small
            creditor has a broader safe harbor for its Qualified
            Mortgage (QM) loans than non-small creditors. The
            Consumer Bureau's rules provide a safe harbor for QMs
            with annual percentage rate (APR) spreads over Average
            Prime Offer Rate (APOR) up to 350 basis points, whereas
            non-small creditors have a safe harbor for spreads up
            to 150 basis points. The Consumer Bureau's rules also
            allow a small creditor to make QMs with debt-to-income
            ratios that exceed the otherwise applicable 43 percent
            cap. (Small creditors must hold these loans in
            portfolio for 3 years.)

        Exempted small creditors in rural and underserved
            areas. Small creditors that operate (or operated
            ``predominantly'' before implementation of the Helping
            Expand Lending Practices in Rural Communities Act in
            March 2016) in rural or underserved areas are exempt
            from requirements to establish escrow accounts for
            higher priced mortgage loans and from restrictions on
            offering QMs and Home Ownership and Equity Protection
            Act (HOEPA) loans (``high cost'' mortgages as defined
            in the HOEPA) that have balloon payment features. QMs
            and HOEPA loans generally cannot have balloon payments.

        Implemented a 2-year pause for small creditors. The
            Consumer Bureau established a 2-year transition period
            (until January 10, 2016) allowing small creditors to
            make balloon-payment QMs and balloon-payment HOEPA
            loans regardless of whether they operated predominantly
            in rural or underserved areas, while the Consumer
            Bureau revisited and reconsidered the definition of
            ``rural'' for this purpose.

        Expanded exemptions for creditors in rural and
            underserved areas. In connection with other changes to
            amend the definitions of ``small creditor'' and ``rural
            area,'' the Consumer Bureau published a final rule in
            October 2015 that extended this 2-year transition
            period from January 2016 until April 2016. The Bureau's
            final rule also provided a significant expansion of
            ``rural,'' as well as an expansion of which entities
            can qualify as ``small creditors.'' The Consumer
            Bureau's final rule took effect on January 1, 2016,
            before the 2-year transition period expired. In March
            2016, the Consumer Bureau issued an interim final rule
            that implements the Helping Expand Lending Practices in
            Rural Communities Act, and makes these provisions
            available to small creditors that extend at least one
            covered transaction secured by property located in a
            rural or underserved area in the previous calendar
            year. The Bureau estimated that about 6,000 additional
            small creditors would be eligible as a result of this
            change.

        Relaxed requirements for appraisals. Small
            creditors have relaxed rules regarding conflict of
            interest in ordering appraisals and other valuations.

    Mortgage Servicing Rules (Title XIV)

        Exempted small servicers from providing periodic
            statements. Small servicers are exempt from the Truth
            in Lending Act requirement to provide periodic
            statements.

        Exempted small servicers from loss mitigation
            requirements. Small servicers are exempt from all of
            the Real Estate Settlement Procedures Act provisions on
            policies and procedures; early intervention; continuity
            of contact; and loss mitigation, except that a small
            servicer may not file for foreclosure unless the
            borrower is more than 120 days delinquent on the
            mortgage. Small servicers may also not file for
            foreclosure (or move for a foreclosure judgment or
            order of sale, or conduct a foreclosure sale) if a
            borrower is performing under the terms of a loss
            mitigation agreement.

        Excluded certain seller-financed transactions and
            mortgage loans voluntarily serviced for a non-afflliate
            from being counted toward the small servicer loan
            limit. This allows servicers that would otherwise
            qualify for small servicer status to retain their
            exemption while servicing those transactions.

    Home Mortgage Disclosure Act Rule (Reg C)

        Exempted lower-volume depository institutions from
            Home Mortgage Disclosure Act reporting. In October of
            2015, the Consumer Bureau adopted a final rule revising
            Regulation C, which implements HMDA. HMDA and
            Regulation C, among other things, require covered
            mortgage lenders to report data concerning their
            mortgage lending activity. Changes to coverage in the
            final rule will reduce the number of banks, savings
            associations, and credit unions that are required to
            report HMDA data. The revisions will relieve about 22
            percent of currently reporting depository institutions
            from the burden of reporting HMDA data. Also, by final
            rule issued in late August of 2017, the Consumer Bureau
            expanded the volume-based exemption from reporting of
            open-end lines of credit under HMDA for institutions
            with fewer than 500, instead of 100, annual
            originations in each of the two preceding years of such
            lines of credit. This expanded exemption applies for
            calendar years 2018 and 2019, during which the Consumer
            Bureau will consider whether to reexamine the
            appropriate volume level at which to set the exemption
            permanently.

        Reduced HMDA error submission threshold for certain
            small entities. New Federal Financial Examination
            Institution Council guidelines, of which the Consumer
            Bureau is a member, provide a more lenient 10 percent
            HMDA field error resubmission threshold (to determine
            whether the lender must resubmit a particular HMDA data
            field) for financial institutions with lower lending
            volumes, including many small institutions, for data
            collected beginning in 2018. Previously, all
            institutions were subject to the same error thresholds.
            The new guidelines make other burden-reducing changes
            that apply to all lenders, which may be particularly
            beneficial to small institutions.

    Remittances Rule (Regulation E subpart B)

        Provided regulatory certainty for small entities
            under the Electronic Fund Transfer Act. In the Bureau's
            rules implementing the Dodd-Frank Act's amendments to
            the Electronic Fund Transfer Act, regarding remittance
            transfers, the Bureau recognized that certain entities
            do not provide remittances in the normal course of
            their business and determined that the remittance
            requirements do not apply to transfers sent by entities
            that provide 100 or fewer remittances each year.

        Small financial institutions play a vital role within many
    communities across the Nation, as well as within the economy.
    Their traditional model of relationship lending has been
    beneficial to many people in rural areas and small towns
    throughout the country. For these reasons, the Consumer Bureau
    attempts to ensure that rules and regulations are not
    burdensome to these smaller financial institutions.

    Q.2. A survey from the National Association of Realtors found
    that the most frequent errors in mortgage disclosure documents
    were missing concessions and incorrect names or addresses. What
    outreach did the Bureau done to ensure that industry was ready
    for these changes? What will the CFPB do going forward?

    A.2. Prior to issuance of the Know Before You Owe mortgage
    disclosure rule in November 2013, the Consumer Bureau conducted
    extensive outreach and testing of prototype forms with
    consumers and industry, provided the public with the
    opportunity to comment on the forms through the Consumer
    Bureau's website, and convened a panel to consider the impact
    of the forms and rules on small financial services providers.
    \1\
    ---------------------------------------------------------------------------
         \1\ For more information on the Bureau's Small Business Review
    Panel, see http://www.consumerfinance.gov/blog/sbrefa-small-providers-
    and-mortgage-disclosure/.
    ---------------------------------------------------------------------------
        Since the Know Before You Owe mortgage disclosure rule was
    issued in November 2013, the Consumer Bureau has taken many
    steps to support industry implementation and to help creditors,
    vendors, and others affected by the Know Before You Owe
    mortgage disclosure rule to better understand, operationalize,
    and prepare to comply with the Know Before You Owe mortgage
    disclosure rule's new streamlined disclosures. We have made it
    a point to engage directly and intensively with financial
    institutions and vendors through a formal regulatory
    implementation project.
        The Consumer Bureau's regulatory implementation efforts
    include the following:

        Interagency coordination. In-depth exam procedures
            were approved by the Federal Financial Institutions
            Examination Council (FFIEC) in February 2015 and
            published by the Bureau on April 1, 2015. The Consumer
            Bureau's own examination procedures incorporating the
            FFIEC exam procedures were initially published on May
            4, 2015.

        Publishing a ``readiness guide,'' plain-language
            guides, and other resources. The ``readiness guide''
            includes a wide-ranging questionnaire to help industry
            come into and maintain compliance with the rule. The
            Consumer Bureau has also published a compliance guide,
            a guide to the new integrated disclosure forms, an
            illustrative timeline, and annotated versions of the
            new integrated disclosure forms, providing references
            to the TILA statutory disclosures implemented on the
            Loan Estimate and Closing Disclosure. \2\
    ---------------------------------------------------------------------------
         \2\ These resources are available at http://
    www.consumerfinance.gov/policy-compliance/guidance/implementation-
    guidance/tila-respa-disclosure-rule/.

        Publishing materials targeted to real estate
            professionals. The Consumer Bureau published, on its
            website, a real estate professional's guide to the Know
            Before You Owe mortgage disclosure rule. \3\ These
            webpages provide links to materials real estate
            professionals and others can download for their own use
            or to share with consumers.
    ---------------------------------------------------------------------------
         \3\ http://www.consumerfinance.gov/know-before-you-owe/real-
    estate-professionals/

        Publishing materials targeted to settlement
            professionals. The Consumer Bureau published, on its
            website, a settlement professional's guide to the Know
            Before You Owe mortgage disclosure rule. \4\ These
            webpages provide links to materials settlement
            professionals and others can download for their own use
            or to share with consumers.
    ---------------------------------------------------------------------------
         \4\ http://www.consumerfinance.gov/policy-compliance/know-you-owe-
    mortgages/settlement-professionals-guide/

        Maintenance of an implementation website. The
            Consumer Bureau's regulatory implementation webpage,
            http://www.consumerfinance.gov/policy-compliance/
            _guidance/implementation-guidance/tila-respa-
            disclosure-rule/, is designed to be responsive to
            industry concerns and provides a central location for
    ---------------------------------------------------------------------------
            all the implementation support provided by the Bureau.

        Regular internal meetings. An implementation
            support team meets weekly to discuss industry feedback
            and identify appropriate responses.

        Publishing amendments and updates to the rule in
            response to industry requests. In January 2015, after
            extensive outreach to stakeholders, the Consumer Bureau
            adopted two minor modifications and technical
            amendments to the rule. \5\ In July 2015, we extended
            the rule's effective date by 2 months and made some
            minor clarifications to smooth industry implementation.
            \6\ In February 2016, we corrected a typographical
            error in the Supplementary Information to the Know
            Before You Owe mortgage disclosure final rule. \7\ In
            April 2016, we announced that we have begun the process
            of drafting a Notice of Proposed Rulemaking (NPRM) to
            incorporate some of the Bureau's informal guidance into
            the regulation text and commentary, as well as provide
            greater certainty and clarity in certain areas of the
            rule. That NPRM was issued on July 29, 2016. The
            comment period ended on October 18, 2016.
    ---------------------------------------------------------------------------
         \5\ 80 FR 8767 (Feb. 19, 2015).
         \6\ 80 FR 43911 (July 24, 2015).
         \7\ 81 FR 7032 (Feb. 10, 2016).

        Finalizing final rule to facilitate implementation
            of Know Before You Owe. On July 7, 2017, the Consumer
            Bureau finalized updates to the Know Before You Owe
            rule to provide greater clarity and certainly. The rule
            addressed issues including: the tolerances for the
            total of payments, housing assistance lending,
            cooperatives and privacy and sharing of information.
            \8\
    ---------------------------------------------------------------------------
         \8\ 82 FR 37656 (Aug. 11, 2017).

        Providing unofficial staff guidance. Bureau staff
            continues to provide guidance directly to creditors,
            vendors, their trade associations and legal
            representatives, and other stakeholders. These efforts
    ---------------------------------------------------------------------------
            have been ongoing since the rule was issued.

        Engaging with stakeholders. Bureau staff has
            provided remarks and addressed questions about the rule
            and related implementation matters at over 70 formal
            events and over 80 informal stakeholder meetings since
            the rule was issued. In addition, as part of its
            ongoing engagement with stakeholders, the Consumer
            Bureau has supported implementation of the rule in over
            300 more general meetings with stakeholders.

        Conducting webinars. The Consumer Bureau has
            conducted seven free, publicly available webinars,
            available for viewing through the Consumer Bureau's
            website, \9\ that provide guidance on how to interpret
            and apply specific provisions of the rule. All of these
            industry-facing webinars are indexed to assist users in
            quickly finding the relevant material. The Consumer
            Bureau has also conducted a free, publicly available
            webinar targeted to housing counselors.
    ---------------------------------------------------------------------------
         \9\ These webinars are available at http://
    www.consumerfinance.gov/policy-compliance/guidance/implementation-
    guidance/tila-respa-disclosure-rule/.

        While implementation has posed challenges to industry,
    industry reports indicate that implementation is now proceeding
    more smoothly. \10\ Data published by one leading provider of
    loan origination services as well as a research survey
    conducted by a major trade association confirm these
    observations. \11\ Moreover, a recent homebuyer survey by
    another trade association suggests that the new disclosures
    are, indeed, helping consumers understand their loan terms.
    \12\ The Loan Estimate and the Closing Disclosure have been
    praised by many as improvements to the existing forms. \13\ The
    Consumer Bureau will continue to adjust our efforts to the
    experience of implementation.
    ---------------------------------------------------------------------------
         \10\ See, e.g., Ben Lane, ``Mortgage Defects Fall for First Time
    in a Year as TRID Issues Subside'', Housingwire, Dec. 7, 2016,
    available at http://www.housingwire.com/articles/38696-mortgage-
    defects-fall-for-first-time-in-a-year-as-trid-issues-subside; Brena
    Swanson. ``Ellie Mae CEO: Initial Discomfort of TRID Now Over, Time To
    Close Finally Tumbles'', Housingwire, March 21, 2016, available at
    http://www.housingwire.com/articles/36563-ellie-mae-ceo-initial-
    discomfort-of-trid-now-over; Ken Frears, ``TRID: Back on Track in
    June'', National Association of Realtors', July 12, 2016,
    available at http://economistsoutlook.blogs.realtor.org/2016/07/12/
    trid-back-on-track-in-june/.
         \11\ See Ellie Mae, ``Origination Insight Report'' (May, 2016),
    available at http://www.elliemae.com/origination-insight-reports/
    Ellie_Mae_OIR_MAY2016.pdf; National Association of
    Realtors', ``Survey of Mortgage Originators, First Quarter
    2016: TRID After 6 Months and Changes to FHA's Cancellation Policy'',
    available at http://www.real_tor.org/reports/survey-of-mortgage-
    originators-first-quarter-2016.
         \12\ Press Release, American Land Title Association, ``American
    Land Title Association Survey Shows More Homebuyers Reviewing Mortgage
    Disclosures'', May 16, 2016, http://www.alta.org/press/
    release.cfm?r=260.
         \13\ Brian Honea, ``How Satisfied Are Borrowers With the
    Origination Process?'' The M Report (July 13, 2016), available at
    http://www.themreport.com/news/origination/07-l3-2016/how-satisfied-
    are-borrowers-with-the-origination-process; ``STRATMOR: TRID Is
    Boosting Customer Satisfaction'', March 29, 2016, available at http://
    www.mortgageorb.com/stratmor-trid-is-boosting-customer-satisfaction;
    ``New ClosingCorp Survey Gauges Early Consumer Reaction to New Real
    Estate/Mortgage Rules'', Businesswire (March 15, 2016), available at
    http://www.businesswire.com/news/home/20160315005228/en/ClosingCorp-
    Survey-Gauges-Early-Consumer-Reaction-Real; Trey Garrison, ``Here's How
    TRID Is Changing the Mortgage Industry'', Housingwire (October 12,
    2015), available at http://www.housingwire.com/articles/print/35319-
    heres-how-trid-is-changing-the-mortgage-industry.

    Q.3. Several members criticized your auto lending enforcement
    actions, including the use of disparate impact theory. Yet, as
    you noted in the hearing, disparate impact has been recognized
    for decades as a tool to ensure fair lending. For example, the
    Federal financial regulators detailed how financial
    institutions should monitor for disparate impact in a 1994
    interagency guidance. Can you describe why it is important for
    ---------------------------------------------------------------------------
    financial institutions to monitor for disparate impact?

    A.3. Disparate impact is the law and has been used by Federal
    agencies for decades and upheld by courts. The applicability of
    the disparate impact doctrine, also known as the ``effects
    test,'' to credit transactions is reflected in the legislative
    history of the ECOA. Regulation B, which the Federal Reserve
    Board originally drafted to implement the ECOA, provides that:

            The legislative history of the Act indicates that the
            Congress intended an ``effects test'' concept, as
            outlined in the employment field by the Supreme Court
            in the cases of Griggs v. Duke Power Co., 401 U.S. 424
            (1971), and Albemarle Paper Co. v. Moody, 422 U.S. 405
            (1975), to be applicable to a creditor's determination
            of creditworthiness.

        The Commentary explicating Regulation B further elaborates:

            The act and regulation may prohibit a creditor practice
            that is discriminatory in effect because it has a
            disproportionately negative impact on a prohibited
            basis, even though the creditor has no intent to
            discriminate and the practice appears neutral on its
            face, unless the creditor practice meets a legitimate
            business need that cannot reasonably be achieved as
            well by means that are less disparate in their impact.

        In accordance with the foregoing authorities, as the
    Consumer Bureau exercises our supervisory and enforcement
    authority, we consider evidence of disparate impact as one
    method of proving lending discrimination under the ECOA and
    Regulation B.
        In addition, since the Consumer Bureau did not exist when
    the Federal law enforcement and prudential regulatory agencies
    issued the policy statement in 1994, the Bureau, in 2012,
    publicly reaffirmed that the legal doctrine of disparate impact
    remains applicable as the Bureau exercises its supervision and
    enforcement authority to enforce compliance with the ECOA and
    Regulation B. The Consumer Bureau's ECOA Examination
    Procedures, Mortgage Origination Examination Procedures, and
    Mortgage Servicing Examination Procedures also adopt and
    reference the Interagency Fair Lending Examination Procedures,
    including those designed to identify evidence of disparate
    impact.

    Q.4. A series of class actions were filed against auto finance
    companies in the 1990s and 2000s, which alleged that dealer
    markup resulted in unfair pricing for minority borrowers. The
    CFPB has extensively studied arbitration clauses in consumer
    financial contracts. What did you learn, if anything, about
    arbitration clauses in auto finance contracts? How might this
    impact the ability of consumers to file class actions in the
    future?

    A.4. The Consumer Bureau's Arbitration Study reviewed
    arbitration filings in the years 2010, 2011, and 2012 relating
    to a number of consumer financial products and services before
    the American Arbitration Association. This analysis found 293
    individual filings before the American Arbitration Association
    regarding what the Arbitration Study describes as ``auto
    purchase loans.'' \14\ The Arbitration Study did not study the
    prevalence of arbitration provisions in automobile finance
    contracts. The Consumer Bureau's review of arbitration filings,
    however, found that that in addition to the 293 individual
    filings, a class arbitration dispute against an auto dealer and
    lender alleging various deceptive practices was one of the two
    class arbitration disputes across the six product markets
    studied. \15\ The claimants specified that they sought damages
    in excess of $1 million. Although the case was filed in 2010,
    the AAA case file did not contain any substantive records
    beyond the arbitration demand, the arbitration agreement, and
    the State court order on the respondent's successful motion to
    compel arbitration. \16\
    ---------------------------------------------------------------------------
         \14\ The Study's count of auto purchase loans does not include
    disputes relating to automobile title loans. It also excluded disputes
    against auto dealers unless: (1) it was clear that the auto dealer was
    also the issuer of the consumer's auto purchase loan (erring on the
    side of overstating the number of disputes that focused on the
    automobile loans, as opposed to the automobiles being purchased); or
    (2) the consumer brought a claim relating to an auto purchase loan and
    only named the auto dealer as a respondent (suggesting that either the
    auto dealer was the lender or that the consumer potentially named the
    auto dealer in error, believing that the auto dealer was the lender);
    or (3) the consumer also named the lender as a defendant. We did not
    include in our case count claims against car dealers relating to ``spot
    financing'' or similar disputes that do not involve an actual auto
    purchase loan, as opposed to a representation that such financing would
    be forthcoming. We also did not include disputes about motorcycles or
    motorhomes. We use this classification of ``auto purchase loans'' only
    for the limited purposes of this report. It is not related to any other
    Bureau initiative, current or future, which may address similar loans.
         \15\ See Arbitration Study, Section 5, p. 86.
         \16\ Arbitration Study, Section 5, p. 20.
    ---------------------------------------------------------------------------
        In a separate study of class action settlements in Federal
    and selected State courts from the years 2008 through 2012, the
    Consumer Bureau found 18 class action settlements relating to
    auto purchase loans. \17\ These 18 settlements led to over $202
    million of cash relief to class members. \18\ Although the
    Consumer Bureau did not explore the number of consumers who
    received payments in these 18 settlements, available
    information showed that the settlements included more than
    560,000 class members. \19\ Ten such settlements reported that
    they used automatic methods to distribute funds to consumers,
    rather than requiring ``claims made'' processes. Over 17,000
    consumers in those ten settlements received automatic
    distributions. \20\ Information about attorneys' fees was
    available in all 18 settlements, totaling approximately $9.5
    million, or 5 percent of the total gross relief. \21\ For the
    impact of arbitration provisions on consumers' ability to file
    class actions, some commenters have observed that arbitration
    clauses may be particularly targeted at class actions. \22\ In
    the Consumer Bureau's review of class action litigation filings
    in Federal court and selected State courts from 2010, 2011, and
    2012 companies moved to compel arbitration in 94 of 562 class
    action cases relating to the six consumer financial product
    markets reviewed. \23\ 21 of those 94 motions to compel
    involved auto purchase loans. \24\
    ---------------------------------------------------------------------------
         \17\ Arbitration Study, Section 8, p. 12 table 1.
         \18\ Arbitration Study, Section 8, p. 25 table 8.
         \19\ Arbitration Study, Section 8, p. 17 table 4
         \20\ Arbitration Study, Section 8, p. 22 table 6.
         \21\ Arbitration Study, Section 8, p. 33 table 10.
         \22\ See, e.g., Thomas B. Hudson, ``Arbitration: Use It or Lose
    It, Spot Delivery'' (July 2014); Arbitration Study, Section 6, p. 54
    n.91.
         \23\ Arbitration Study, Section 6, p. 57.
         \24\ See id.
    ---------------------------------------------------------------------------
        On July 10, 2017, the Consumer Bureau issued a final rule
    on arbitration agreements that will apply to agreements that
    are entered into on or after March 19, 2018. Companies subject
    to the final rule are prohibited from using a pre-dispute
    arbitration agreement to block consumer class actions in court
    and requires providers to insert language into their
    arbitration agreements reflecting this limitation. This final
    rule is based on the Bureau's findings--which are derived from
    the Study--that pre-dispute arbitration agreements are being
    widely used to prevent consumers from seeking relief from legal
    violations on a class basis, and that consumers rarely file
    individual lawsuits or arbitration cases to obtain such relief.
        In addition, the Bureau's Final Rule includes several
    provisions extending coverage to certain automobile finance
    companies. The final rule's Comment 2(c)-1.ii clarifies that an
    automobile dealer that provides consumer credit is a covered
    person under Dodd-Frank section 1002(6)--and such a person's
    contracts may contain pre-dispute arbitration agreements as
    that term is defined in 1040.2(c). Yet an automobile dealer
    that is excluded from the Bureau's rulemaking authority in
    circumstances described by Dodd-Frank section 1029 would not be
    required to comply with the requirements in 1040.4, because
    those requirements apply only to providers, and such automobile
    dealers, while they are covered persons, are excluded by
    1040.3(b)(6) and therefore are not providers under 1040.2(d).
    The requirements in 1040.4 would apply, however, to the use of
    the automobile dealer's pre-dispute arbitration agreement by a
    different person that meets the definition of provider, such as
    a servicer, or purchaser or acquirer of the automobile loan,
    where the agreement was entered into after the compliance date.
        Section 1040.3(a)(2) extends coverage to brokering or
    extending consumer automobile leases as defined in 12 CFR
    1090.108, which applies to leases of automobiles with an
    initial term of at least 90 days and either of the following
    two characteristics: (1) The lease is the ``functional
    equivalent'' of an automobile purchase finance arrangement and
    is on a ``non-operating basis'' within the meaning of Dodd-
    Frank section 1002(15)(A)(ii); or (2) the lease qualifies as a
    ``full-payout lease and a net lease'' within the meaning of the
    Bureau's Larger Participant rulemaking for the automobile
    finance market.[868] The Bureau believes that the final rule
    should reach brokering or extending consumer automobile leases,
    consistent with the definition of that activity in the Bureau's
    larger participant rulemaking for the automobile finance
    market. The Bureau had explained in that prior rulemaking that,
    from the perspective of the consumer, many automobile leases
    function similarly to financing for automobile purchase
    transactions (which generally would have been covered by
    proposed 1040.3(a)(1)) and have a similar impact on the
    consumer and his or her well-being.

    Q.5. The OCC recently came out with a white paper detailing its
    approach to FinTech and financial innovation with regard to the
    institutions it regulates. Can you describe the CFPB's approach
    to FinTech companies? How will the CFPB work with the other
    prudential regulators to coordinate supervision of FinTech
    activities?

    A.5. The Consumer Bureau recognizes that evolving technologies
    are driving constant change in today's financial marketplace.
    The developments in consumer financial products and services
    can present both significant benefits and potential risks to
    consumers. As part of the Consumer Bureau's mission to
    facilitate consumer access to innovative products and services,
    the Bureau launched its Project Catalyst initiative in 2012.
        Through Project Catalyst, the Consumer Bureau engages and
    collaborates with companies and other persons pursuing
    consumer-friendly financial innovations, including established
    financial institutions as well as newer FinTech companies. The
    Consumer Bureau was the only Federal agency explicitly
    mentioned in the Office of the Comptroller of the Currency's
    (OCC) white paper on the subject of regulatory collaboration.
    Bureau staff working on Project Catalyst have an open line of
    communication with OCC staff working on the OCC's Responsible
    Innovation initiative. We expect ongoing collaboration and
    coordination between the two teams in the future.
        The Consumer Bureau also coordinates closely with Federal
    prudential and State bank and nonbank regulators regarding a
    broad array of supervisory matters, including FinTech
    activities as appropriate. Representatives of the Consumer
    Bureau and the Federal prudential regulators meet regularly to
    coordinate supervisory and other activities, and supervisory
    staff at the Consumer Bureau and the Federal prudential
    regulators confer on a routine basis to discuss examinations
    and other supervisory matters regarding particular
    institutions. The Consumer Bureau also participates in the
    Federal Financial Institutions Examination Council (FFIEC) and
    coordinates further with the Federal prudential regulators
    through the FFIEC.

    Q.6. Nearly 1 in 4 Americans either does not have access to a
    checking account or has an account but may rely on alternative
    financial services. Some of those who cannot get a bank account
    cannot do so because they are reported to financial
    institutions by specialty consumer reporting agencies. What
    work have you done to ensure that these specialty consumer
    reporting agencies are reporting accurate information to
    financial institutions? More generally, can you detail what
    work the CFPB has done to increase individuals' access to the
    financial system, particularly checking and savings accounts,
    and what plans you have for the upcoming year on this topic?

    A.6. The Consumer Bureau is using its supervisory authority to
    review the accuracy of information furnished to and reported by
    Nationwide Specialty Consumer Reporting Agencies (NSCRAs) to
    financial institutions.
        As an example, our reviews have found that one or more
    NSCRAs had internal inconsistencies in linking certain
    identifying information (e.g., Social Security numbers and last
    names) to consumer records associated with negative involuntary
    account closures, such as checking account closures for fraud
    or account abuse. These inconsistencies in some cases resulted
    in incorrect information being placed in consumers' files.
    Based on the weaknesses identified, Supervision directed one or
    more NSCRAs to develop and implement internal processes to
    monitor, detect, and prevent the association of account
    closures to incorrect consumer profiles, and to notify affected
    consumers.
        Our reviews have also focused on NSCRAs' oversight of
    furnishing practices. Examiners have found that one or more
    NSCRAs had weaknesses in their systems and processes for
    credentialing of financial institutions before they were
    allowed to supply consumer information to the NSCRAs. Based on
    these findings, Supervision directed one or more NSCRA to
    strengthen its oversight and establish documented policies and
    procedures for the timely tracking of credentialing and re-
    credentialing of financial institutions.
        The Consumer Bureau has also conducted reviews at financial
    institutions to assess compliance with furnisher obligations
    under the Fair Credit Reporting Act (FCRA) and its implementing
    regulation, Regulation V. The reviews focused on entities
    furnishing information (furnishers) to NSCRAs that specialize
    in reporting in connection with deposit accounts. Based on
    supervisory findings, the CFPB issued a bulletin in February
    2016 that emphasized the obligation of furnishers under
    Regulation V to establish and implement reasonable written
    policies and procedures regarding the accuracy and integrity of
    information relating to consumers that they furnish to Consumer
    Reporting Agencies (CRAs). \25\
    ---------------------------------------------------------------------------
         \25\ See CFPB Compliance Bulletin 2016-01 at: http://
    files.consumerfinance.gov/f/201602_cfpb_supervisory-bulletin-fumisher-
    accuracy-obligations.pdf.
    ---------------------------------------------------------------------------
        Examinations have also found issues with how certain
    furnishers verify data through automated systems and with one
    or more institutions updating of deposit account information.
    For example, the Consumer Bureau found that one or more
    financial institution failed to correct and update the account
    information they had furnished to NSCRAs and/or did not
    institute reasonable policies and procedures regarding
    accuracy, including prompt updating of outdated information.
    The Consumer Bureau has also taken enforcement action against a
    furnisher for failures related to the lack of proper processes
    necessary to report accurate information to the NSCRAs
    concerning checking account application details. \26\
    ---------------------------------------------------------------------------
         \26\ See the Bureau's press release on the action against JPMorgan
    Chase for failures relating to check account screening information at:
    https://www.consumerfinance.gov/about-us/newsroom/cfpb-takes-action-
    against-jpmorgan-chase-failures-related-checking-account-screening-
    information/.
    ---------------------------------------------------------------------------
        In October of 2014, the Consumer Bureau held a public forum
    on Access to Checking Accounts to discuss how financial
    institutions screen applicants for consumer checking accounts
    and to generate recommendations for improving consumer access
    to lower-risk accounts, consumer financial safety, and
    institutional risk mitigation.
        In February 2016, the Consumer Bureau took a number of
    additional steps to improve checking account access.
    Specifically, the Bureau sent a letter to the Nation's top 25
    retail banking companies urging them to do more to create or
    promote deposit accounts designed to meet consumers' financial
    needs. \27\ The Consumer Bureau urges banks and credit unions
    to offer consumers accounts that help them manage their
    spending and maintain their accounts in good standing. In the
    letter, the Consumer Bureau encouraged banks and credit unions
    to offer products that are designed to prevent overdrafts and
    overdraft fees. The Consumer Bureau also urged banks and credit
    unions in the letter to feature such products prominently in
    their marketing efforts, their online and in-store checking
    account menus, and during sales consultations.
    ---------------------------------------------------------------------------
         \27\ Consumer Financial Protection Bureau, ``Consumer Financial
    Protection Bureau Takes Steps To Improve Checking Account Access''
    (February 3, 2016), available at http://www.consumerfinance.gov/about-
    us/newsroom/cfpb-takes-steps-to-improve-checking-account-access/.
    ---------------------------------------------------------------------------
        Supervision examinations also found that furnisher(s) of
    deposit account information had enterprise-wide FCRA policies,
    but the policies were inadequate to address furnishing activity
    for consumer deposit accounts. The furnishers failed to
    establish, implement, and maintain reasonable written policies
    and procedures consistent with Regulation V regarding the
    accuracy and integrity of consumer deposit account information
    furnished. Additionally, they had policies for furnishing
    consumer deposit account information that were overly broad and
    not supplemented with sufficiently-detailed operating
    procedures and guidance for consumer deposit-related
    furnishing. They had procedures that did not address the
    requirement to notify a consumer of the results of a dispute
    investigation; and had procedures that failed to address the
    requirement to update and correct inaccurate consumer deposit
    information. The Consumer Bureau directed the furnisher(s) to
    correct these deficiencies. \28\
    ---------------------------------------------------------------------------
         \28\ CFPB Supervisory Highlight: Spring 2017 available at: https:/
    /s3.amazonaws.com/files.consumerfinance.gov/f/documents/
    201703_cfpb_Supervisory-Highlights-Consumer-Reporting-Special-
    Edition.pdf.
    ---------------------------------------------------------------------------
        In February 2016, the Consumer Bureau also released
    resources to encourage consumers to shop for lower-risk
    checking and prepaid accounts that will not authorize them to
    exceed their account balances. Additionally, the Consumer
    Bureau released a consumer advisory and a series of guides to
    help people know what to do if they have been denied a deposit
    account or have an involuntary account closure. \29\ The
    advisory tells consumers how to obtain a copy of their checking
    account history, dispute items with the consumer reporting
    company, dispute items with a bank or credit union that
    reported inaccurate information, and shop around for lower-risk
    products.
    ---------------------------------------------------------------------------
         \29\ Consumer Financial Protection Bureau, ``Guides To Help You
    Open and Manage Your Checking Account'' (February 3, 2016), available
    at http://www.consumerfinance.gov/about-us/blog/_guides-to-help-you-
    open-and-manage-your-checking-account/.
    ---------------------------------------------------------------------------
        In addition, in February 2016, the Consumer Bureau held a
    field event in Louisville, KY, that featured remarks from
    Director Cordray and panels of industry and consumer interest
    organization representatives to discuss the consequences
    consumers face without a checking account or upon losing a
    checking account and several initiatives that have helped
    consumers enter or regain entry into the banking system.
        The Consumer Bureau's supervision of financial institutions
    and NSCRAs is ongoing. The Bureau will continue to monitor
    consumer access of the banking system, including the
    availability of lower-risk accounts in the marketplace and the
    challenges faced by consumers.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR TOOMEY
                          FROM RICHARD CORDRAY

    Q.1. The CFPB's Fiscal Year 2015 financial report notes that
    the Bureau spent $5 million to advertise via digital media.
        Was this the total advertising budget for the year? If not,
    how much did the CFPB spend on advertising?

    A.1. The $5 million reference in the Fiscal Year 2015 (FY15)
    financial report refers to funding for a contractor to provide
    informational messages via digital media related to the CFPB's
    free online financial education tools and resources. The
    Consumer Bureau obligated a total of $7 .9 million in FY 2015
    for the category of goods/services identified as Support-
    Management Advertising contracts.

    Q.2. What are the CFPB's strategy and goals for advertising?

    A.2. Dodd-Frank Wall Street Reform and Consumer Protection Act
    requires the Consumer Bureau to provide timely and
    understandable financial information to consumers. \1\ To
    fulfill our legislative mandate, the Consumer Bureau has
    focused on a strategy to make more consumers aware of the
    Bureau as a place to turn to for information and assistance in
    living their financial lives. Directing consumers to use our
    tools and resources fulfills our statutory educational mandates
    and strategic goals and creates real and measurable beneficial
    outcomes for American consumers.
    ---------------------------------------------------------------------------
         \1\ Dodd-Frank Act Section 1021(b)(1).

    Q.3. Does the CFPB advertise on specific websites, target
    specific consumers through tools such as AdWords, or pursue
    some other strategy? If advertising is targeted, specifically
    ---------------------------------------------------------------------------
    what consumer groups are being targeted?

    A.3. The Consumer Bureau focuses its marketing strategy on
    consumers who are currently seeking or are most likely to be
    seeking information regarding consumer financial decision
    making for which we have tools and resources available. These
    tools include: Paying for College, Owning a Home, and more than
    1,000 frequently asked financial questions available on the Ask
    CFPB site.

    Q.4. In 2013 the CFPB issued an Advance Notice of Proposed
    Rulemaking for debt collection practices, and the ``Fall 2015
    rulemaking agenda'' notes that the CFPB continues to conduct
    research on debt collection.
        What steps has the CFPB taken to assess how a debt
    collection rule could reduce access to credit? Has the CFPB
    solicited input from creditor groups, such as manufacturers and
    retailers, about their views on how a rule could affect the
    continued availability of credit?
        Does the CFPB expect to issue a proposed rule soon? When
    should we expect a finalized rule?

    A.4 The Consumer Bureau generally recognizes that regulations
    that impose costs on the credit system can have an adverse
    effect on consumer access to credit. Section 1022(b)(2) of the
    Dodd-Frank Wall Street Reform and Consumer Protection Act
    expressly requires the Bureau, in prescribing a rule under the
    Federal consumer financial laws (such as the Fair Debt
    Collection Practices Act), to consider, among other things,
    ``the potential benefits and costs to consumers and covered
    persons, including the potential reduction of access by
    consumers to consumer financial products or services resulting
    from such rule.'' Consistent with the Dodd-Frank Wall Street
    Reform and Consumer Protection Act, the Consumer Bureau
    routinely considers the effects of its regulations on access to
    credit during its rulemaking process.
        The Consumer Bureau has issued an Advanced Notice of
    Proposed Rulemaking to commence a debt collection rulemaking
    proceeding. The Consumer Bureau is developing the factual
    information necessary to assess the costs of possible debt
    collection regulations and their effect on consumer access to
    credit. The Consumer Bureau conducted a qualitative survey of
    debt collection firms. The study included a written
    questionnaire sent to 60 debt collection firms and then phone
    interviews with more than 30 of the original 60 debt collection
    firms and vendors to the collections industry. \2\ The
    objective of the study is to obtain a baseline understanding of
    the operational costs of debt collection firms, and the
    Consumer Bureau anticipates using the results of the study to
    better understand the likely impact on the debt collection
    industry of any potential regulations. This study is in
    addition to Consumer Bureau meetings with key industry
    stakeholders to discuss their current costs as well as their
    concerns about changes in costs that might be associated with
    our contemplated debt collection rulemaking, market changes,
    and/or changes attributed to other regulations. These meetings
    have included creditor groups to better understand how the
    regulation of third-party debt collectors could affect their
    ability to recover unpaid debts and to extend credit.
    ---------------------------------------------------------------------------
         \2\ From the Bureau's ``Study of Third-Party Debt Collection
    Operations'', at: https://s3.amazonaws.com/files.consumerfinance.gov/f/
    documents/20160727
    cfpb_Third_Party_Debt_Collection_Operations_Study.pdf.
    ---------------------------------------------------------------------------
        The next step in the debt collection rulemaking was the
    convening of a Small Business Regulatory Enforcement Fairness
    Act (SBREFA) panel in conjunction with the Office of Management
    and Budget and the Small Business Administration's Chief
    Counsel for Advocacy. The SBREFA process provides a mechanism
    for the Bureau to obtain input directly from small business
    representatives early in the rulemaking process. At a SBREFA
    panel meeting, the Bureau seeks information from small business
    representatives about the potential economic impacts of
    complying with possible regulatory options, as well as
    regulatory alternatives that would achieve the Bureau's
    objectives while minimizing the costs imposed on small
    entities. The Bureau released an Outline of Proposals under
    Consideration and Alternatives Considered in July 2016 in
    advance of convening a SBREFA panel. The panel met on August
    25, 2016, and focused on companies that are considered ``debt
    collectors'' under the Fair Debt Collection Practices Act.
        The review panel issues a report on the input received from
    small businesses during the panel process. If the Bureau
    proposes a rule, the panel's final report will be placed in the
    public rulemaking record. The Consumer Bureau discusses and
    considers the panel's report and the comments and advice
    provided by small businesses when it prepares a proposed rule.
        The Consumer Bureau's proposed debt collection rules will
    be put out for public comment, which will provide ample
    opportunity for stakeholders (including creditors) to provide
    the Consumer Bureau with information about their potential cost
    and its effect on consumer access to credit. This information
    will be very valuable to the Consumer Bureau in developing
    final debt collection rules that protect consumers without
    imposing unnecessary or undue costs on debt collectors or the
    credit system.

    Q.5. During the hearing, you stated that the CFPB has
    jurisdiction over small business lending under the Equal Credit
    Opportunity Act and Section 1071 of Dodd-Frank. In the Policy
    Priorities Over the Next Two Years document, the CFPB indicated
    that it is exploring the establishment of a complaint intake
    system for small business lending. Does the CFPB plan to
    publish these complaints as it does with the Consumer Complaint
    Database? Will the CFPB only accept small business lending
    complaints related to ECOA? If not, what other types of
    complaints does the CFPB intend to accept and potentially
    publish?

    A.5. The Equal Credit Opportunity Act (ECOA) and Regulation B,
    which protect applicants from discrimination in credit
    transactions, apply to both consumer and business-purpose
    credit. Collecting these complaints would assist the Consumer
    Bureau's ongoing supervision and enforcement work. Currently,
    the Consumer Bureau's Office of Consumer Response is exploring
    the feasibility of accepting small-business-lending
    discrimination complaints and will need to complete that work
    before assessing publication.

    Q.6. At the March 16 House hearing, you stated that ``[t]here
    are areas where the line between commercial and consumer
    lending is blurry,'' and indicated that you would like the CFPB
    to protect small businesses. Please provide a comprehensive
    list of small business lending issues that you believe fall
    within the CFPB's authority.

    A.6. While most of the lending laws Consumer Bureau enforces
    apply to consumer credit, the Consumer Bureau does have certain
    authority related to business-purpose credit transactions. The
    Equal Credit Opportunity Act (ECOA) and Regulation B, which
    protect applicants from discrimination in credit transactions,
    apply to both consumer and business-purpose credit. ECOA also
    has requirements related to, among other things, providing
    timely notice to applicants of actions taken in connection with
    their applications for credit, statements of reasons for
    adverse action concerning an application, and copies of
    appraisals and other valuations for applications related to
    certain dwelling-secured loans.
        Section 1071 of the Dodd-Frank Wall Street Reform and
    Consumer Protection Act amended ECOA to require financial
    institutions to report information concerning credit
    applications made by women-owned, minority-owned, and small
    businesses. The Bureau is in the early stages with respect to
    implementing Section 1071, and is currently focused on outreach
    and research to further develop its understanding of the small
    business lending market, including the institutions, credit
    products, data systems, underwriting approaches, distribution
    channels, and types of applicants in that market. The Bureau
    intends to work closely with industry leaders, community
    advocates, Government agencies, and other stakeholders in the
    rulemaking process. We issued a Request for Information (RFI)
    on May 10, 2017. We have asked for comments by September 14,
    2017. Information submitted as part of this RPI will be
    instrumental as we move forward in developing informed policy
    decisions.
        Our Office of Fair Lending has added small business lending
    to its priorities to address fair lending risks in that market.
    Small businesses are a backbone of our Nation's economy and
    access to credit is critical to their operation and growth.
    Unlike large businesses, many small businesses are sole
    proprietorships where the owner's personal credit--and
    potentially that of family and friends--may be on the line.
    With so much at stake, and in light of the heightened fair
    lending risk acknowledged by the enactment of Section 1071 of
    the Dodd-Frank Act, we will continue to focus on small business
    lending in our Fair Lending work going forward.
        Some business purpose dwelling-secured loans are also part
    of the reporting requirements under the Home Mortgage
    Disclosure Act (HMDA) and Regulation C, such as certain loans
    related to multifamily lending and investment properties.
    Multifamily and rental housing has always been an essential
    component of the Nation's housing stock. In the wake of the
    housing crisis, multifamily and rental housing has taken on an
    increasingly important role in communities, as families have
    turned to rental housing for a variety of reasons, and the HMDA
    data can provide important information about that market to
    Government, industry, and community stakeholders.
        In addition, provisions of other statutes that the Consumer
    Bureau enforces, such as certain provisions related to credit
    cards under the Truth in Lending Act and Regulation Z, are not
    limited to consumer lending and may be implicated in small
    business-purpose lending transactions. As some of our rules,
    including Regulation Z, make clear, there is ordinarily no
    precise test for what constitutes credit offered or extended
    for personal, family, or household purposes. However, many of
    the Consumer Bureau's rules provide illustrative examples and
    interpretations for making such determinations across a range
    of products, including in some cases noting factors that should
    be considered. Moreover, in some instances credit extended
    primarily for consumer purposes may occasionally be used for
    business purposes. Small business lending transactions may
    therefore implicate a range of the Consumer Bureau's
    authorities.

    Q.7. In a May 2013 memo, Patrice Ficklin acknowledged there was
    a ``serious risk'' that releasing the CFPB's proxy methodology
    would ``provid[e] fodder to defendants to show how our methods
    are inferior to other proprietary proxies'' and ``if we choose
    not to publish, we will be more likely to consult an outside
    expert for litigation purposes and our internal methodological
    deliberations will not be discoverable.'' In the same memo,
    Ficklin noted that ``out of 100 applicants that are identified
    by the proxy methodology as African Americans, only 54 of them
    actually are African Americans according to HMDA data.''
        Why did the CFPB pursue enforcement action based on a
    methodology that may be flawed? Wouldn't an opportunity for
    public notice and comment have improved the CFPB's methodology
    and reduced doubts about its potential flaws?

    A.7. The statistics you quote in the premise of your question
    are not representative of analysis conducted by the Bureau. The
    memo you reference is a pre-decisional draft document that did
    not represent the Consumer Bureau's final analysis.
        The Consumer Bureau has been transparent about the details
    of the proxy methodology used in its fair lending analysis,
    including the risks and limitations. On September 17, 2014, the
    Consumer Bureau published a white paper, Using Publicly
    Available Information to Proxy for Unidentified Race and
    Ethnicity, that details the Bayesian Improved Surname Geocoding
    (BISG) methodology the Bureau uses to calculate the probability
    that an individual is of a specific race or ethnicity using
    publicly available information regarding surname and geographic
    location. \3\
    ---------------------------------------------------------------------------
         \3\ Available at: http://files.consumerfinance.gov/f/
    201409_cfpb_report_proxy-methodology.pdf.
    ---------------------------------------------------------------------------
        In choosing its methodology, as part of a robust
    deliberative process, the Consumer Bureau did careful analysis
    of other available methods based on publicly available data,
    and determined that this proxy methodology was the method best
    suited to accurately estimate the full scope of consumer harm.
    \4\
    ---------------------------------------------------------------------------
         \4\ Available at: http://files.consumerfinance.gov/f/documents/
    201604_cfpb_Fair_Lending_
    Report_Final.pdf/.
    ---------------------------------------------------------------------------
        As stated in our white paper, the Consumer Bureau is
    committed to continuing our dialogue with other Federal
    agencies, lenders, advocates, and researchers regarding the
    Consumer Bureau's methodology, the importance of fair lending
    compliance, and the use of proxies when self-reported race and
    ethnicity is unavailable. The Consumer Bureau expects the
    methodology will continue to evolve as enhancements are
    identified that further increase accuracy and performance.

    Q.8. From 2013 to 2014, the Home Mortgage Disclosure Act (HMDA)
    data reveal a clear decline in manufactured home loans, raising
    concerns that the CFPB's Home Ownership and Equity Protection
    Act (HOEPA) rules may be constraining lending in this market.
    In comparison, overall mortgage loan data show a year-over-year
    increase during the same time period. Is the CFPB concerned
    that its rule may be constraining access to credit,
    particularly in rural and low-income communities? What actions
    will the CFPB take to ensure that access to financing for the
    purchase of manufactured housing remains readily available to
    consumers?

    A.8. The HMDA data show similar trends in originations for
    manufactured housing and site-built homes. Total originations
    fell between 2013 and 2014 overall as well as for manufactured
    homes specifically. The HMDA data show an increase in home
    purchase loans for manufactured housing from 2013 to 2014 from
    73,820 to 75,826 and a similar trend in home purchase loans for
    site-built homes. The decline in total originations reflects
    the high level of refinancing in 2013 for both manufactured
    homes and site-built homes. \5\ The Consumer Bureau does not
    believe the HMDA data on home purchase loans between 2013 and
    2014 necessarily indicate that manufactured housing lending is
    constrained compared with site-built home lending. As the
    Consumer Bureau stated in its 2014 white paper on manufactured
    housing, it continues to monitor the effect of its rules on the
    manufactured housing industry and on consumers who purchase or
    seek to purchase manufactured homes. \6\ As part of this
    ongoing monitoring, the Consumer Bureau will continue to engage
    with stakeholders and will encourage others to build greater
    knowledge of the manufactured housing market, the consumers in
    that market, and the differences between the site-built and
    manufactured housing markets.
    ---------------------------------------------------------------------------
         \5\ See Neil Bhutta, Jack Popper, and Daniel R. Ringo, Bd. of
    Governors of the Fed. Reserve Sys., 101 Fed. Reserve Bulletin 4, The
    2014 Home Mortgage Disclosure Data, at 2, 5 (Nov. 2015), available at
    http://www.federalreserve.gov/pubs/bulletin/2015/pdf/2014_HMDA.pdf.
         \6\ See CFPB, Manufactured-Housing Consumer Finance in the United
    States (Sept. 2014), available at http://files.consumerfinance.gov/f/
    201409_cfpb_report_manufactured-housing.pdf.
    ---------------------------------------------------------------------------
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR HELLER
                          FROM RICHARD CORDRAY

    Q.1. In February, during Federal Reserve Chair Yellen's
    testimony in the Senate Committee on Banking, Housing, and
    Urban Affairs, she told me she believes that there should be
    some effort to ensure that regulations meant for big banks are
    not burdening community lenders. Do you share that same
    viewpoint?

    A.1. Section 1022 of the Dodd-Frank Wall Street Reform and
    Consumer Protection Act (Dodd-Frank Act) authorizes the
    Consumer Bureau to engage in rulemaking and issue orders and
    guidance to administer and carry out the purposes and
    objectives of the Federal consumer financial laws, and to
    prevent evasions thereof. In doing so, Section 1022 requires
    that the Consumer Bureau consider the potential benefits and
    costs to consumers and covered persons, including the potential
    reduction of access to consumer financial products and services
    to consumers. Section 1022 also requires the Consumer Bureau to
    consider the impact of a proposed rule on insured depository
    institutions and credit unions with total assets of $10 billion
    or less as well as the impact on consumers in rural areas.
    Moreover, Section 1022 gives the Consumer Bureau the authority
    to create exemptions from the Consumer Financial Protection Act
    of 2010 or rules issued under that Act for any class of covered
    persons, service providers, or consumer financial products or
    services if the Consumer Bureau determines an exemption is
    necessary or appropriate to carry out the purposes and
    objectives of the Consumer Financial Protection Act after
    taking into consideration a set of factors specified in the
    statute.
        To date, the Consumer Bureau has sought to carefully
    calibrate its efforts to ensure consistency with respect to
    consumer financial protections across the financial services
    marketplace, while accounting for the different business models
    and classes of financial institutions. For example, as part of
    the Consumer Bureau's commitment to achieving tailored and
    effective regulations, the Bureau has taken the following
    actions for different models and classes of institutions:

    Mortgage Origination Rules (Title XIV)

        Expanded safe harbor for small creditors. A small
            creditor has a broader safe harbor for its Qualified
            Mortgage (QM) loans than non-small creditors. The
            Consumer Bureau's rules provide a safe harbor for QMs
            with annual percentage rate (APR) spreads over Average
            Prime Offer Rate (APOR) up to 350 basis points, whereas
            non-small creditors have a safe harbor for spreads up
            to 150 basis points. The Consumer Bureau's rules also
            allow a small creditor to make QMs with debt-to-income
            ratios that exceed the otherwise applicable 43 percent
            cap. (Small creditors must hold these loans in
            portfolio for three years.)

        Exempted small creditors in rural and underserved
            areas. Small creditors that operate (or operated
            ``predominantly'' before implementation of the Helping
            Expand Lending Practices in Rural Communities Act in
            March 2016) in rural or underserved areas are exempt
            from requirements to establish escrow accounts for
            higher priced mortgage loans and from restrictions on
            offering QMs and Home Ownership and Equity Protection
            Act (HOEPA) loans (``high cost'' mortgages as defined
            in the HOEPA) that have balloon payment features. QMs
            and HOEPA loans generally cannot have balloon payments.

        Implemented a 2-year pause for small creditors. The
            Consumer Bureau established a 2-year transition period
            (until January 10, 2016) allowing small creditors to
            make balloon-payment QMs and balloon-payment HOEPA
            loans regardless of whether they operated predominantly
            in rural or underserved areas, while the Consumer
            Bureau revisited and reconsidered the definition of
            ``rural'' for this purpose.

        Expanded exemptions for creditors in rural and
            underserved areas. In connection with other changes to
            amend the definitions of ``small creditor'' and ``rural
            area,'' the Consumer Bureau published a final rule in
            October 2015 that extended this 2-year transition
            period from January 2016 until April 2016. The Bureau's
            final rule also provided a significant expansion of
            ``rural,'' as well as an expansion of which entities
            can qualify as ``small creditors.'' The Consumer
            Bureau's final rule took effect on January 1, 2016,
            before the 2-year transition period expired. In March
            2016, the Consumer Bureau issued an interim final rule
            that implements the Helping Expand Lending Practices in
            Rural Communities Act, and makes these provisions
            available to small creditors that extend at least one
            covered transaction secured by property located in a
            rural or underserved area in the previous calendar
            year. The Bureau estimated that about 6,000 additional
            small creditors would be eligible as a result of this
            change.

        Relaxed requirements for appraisals. Small
            creditors have relaxed rules regarding conflict of
            interest in ordering appraisals and other valuations.

    Mortgage Servicing Rules (Title XIV)

        Exempted small servicers from providing periodic
            statements. Small servicers are exempt from the Truth
            in Lending Act requirement to provide periodic
            statements.

        Exempted small servicers from loss mitigation
            requirements. Small servicers are exempt from all of
            the Real Estate Settlement Procedures Act provisions on
            policies and procedures; early intervention; continuity
            of contact; and loss mitigation, except that a small
            servicer may not file for foreclosure unless the
            borrower is more than 120 days delinquent on the
            mortgage. Small servicers may also not file for
            foreclosure (or move for a foreclosure judgment or
            order of sale, or conduct a foreclosure sale) if a
            borrower is performing under the terms of a loss
            mitigation agreement.

        Excluded certain seller-financed transactions and
            mortgage loans voluntarily serviced for a non-affiliate
            from being counted toward the small servicer loan
            limit. This allows servicers that would otherwise
            qualify for small servicer status to retain their
            exemption while servicing those transactions.

    Home Mortgage Disclosure Act Rule (Reg C)

        Exempted lower-volume depository institutions from
            Home Mortgage Disclosure Act reporting. In October of
            2015, the Consumer Bureau adopted a final rule revising
            Regulation C, which implements HMDA. HMDA and
            Regulation C, among other things, require covered
            mortgage lenders to report data concerning their
            mortgage lending activity. Changes to coverage in the
            final rule will reduce the number of banks, savings
            associations, and credit unions that are required to
            report HMDA data. The revisions will relieve about 22
            percent of currently reporting depository institutions
            from the burden of reporting HMDA data. Also, by final
            rule issued in late August of 2017, the Consumer Bureau
            expanded the volume-based exemption from reporting of
            open-end lines of credit under HMDA for institutions
            with fewer than 500, instead of 100, annual
            originations in each of the two preceding years of such
            lines of credit. This expanded exemption applies for
            calendar years 2018 and 2019, during which the Consumer
            Bureau will consider whether to reexamine the
            appropriate volume level at which to set the exemption
            permanently.

        Reduced HMDA error submission threshold for certain
            small entities. New Federal Financial Examination
            Institution Council guidelines, of which the Consumer
            Bureau is a member, provide a more lenient 10 percent
            HMDA field error resubmission threshold (to determine
            whether the lender must resubmit a particular HMDA data
            field) for financial institutions with lower lending
            volumes, including many small institutions, for data
            collected beginning in 2018. Previously, all
            institutions were subject to the same error thresholds.
            The new guidelines make other burden-reducing changes
            that apply to all lenders, which may be particularly
            beneficial to small institutions.

    Remittances Rule (Regulation E Subpart B)

        Provided regulatory certainty for small entities
            under the Electronic Fund Transfer Act. In the Bureau's
            rules implementing the Dodd-Frank Act's amendments to
            the Electronic Fund Transfer Act, regarding remittance
            transfers, the Bureau recognized that certain entities
            do not provide remittances in the normal course of
            their business and determined that the remittance
            requirements do not apply to transfers sent by entities
            that provide 100 or fewer remittances each year.

        Small financial institutions play a vital role within many
    communities across the Nation, as well as within the economy.
    Their traditional model of relationship lending has been
    beneficial to many people in rural areas and small towns
    throughout the country. For these reasons, the Consumer Bureau
    attempts to ensure that rules and regulations are not
    burdensome to these smaller financial institutions.

    Q.2. Please provide a list of all the regulations that the
    Consumer Financial Protection Bureau has finalized that
    included a full cost-benefit analysis study prior to
    implementation.

    A.2. Section 1022 of the Dodd-Frank Wall Street Reform and
    Consumer Protection Act authorizes the Bureau to engage in
    rulemaking and issue orders and guidance to administer and
    carry out the purposes and objectives of the Federal consumer
    financial laws, and to prevent evasions thereof. In doing so,
    Section 1022 requires that, when prescribing a rule under the
    Federal consumer financial laws, the Consumer Bureau consider
    the potential benefits and costs to consumers and covered
    persons, including the potential reduction of access to
    consumer financial products and services to consumers. Section
    1022 also requires the Consumer Bureau to consider the impact
    of a proposed rule on insured depository institutions and
    credit unions with total assets of $10 billion or less as well
    as the impact on consumers in rural areas. Moreover, Section
    1022 gives the Consumer Bureau the authority to create
    exemptions from the Consumer Financial Protection Act of 2010
    or rules issued under that Act for any class of covered
    persons, service providers, or consumer financial products or
    services if the Consumer Bureau determines an exemption is
    necessary or appropriate to carry out the purposes and
    objectives of the Consumer Financial Protection Act after
    taking into consideration a set of factors specified in the
    statute.
        The Consumer Bureau's final rules that considered potential
    benefits, costs, and impacts under section 1022, as well as the
    dates these were rules published in the Federal Register are
    below:

      1.  Alternative Mortgage Transaction Parity (Regulation D),
            July 22, 2011

      2.  State Official Notification Rules, July 28, 2011

      3.  Rules of Practice for Adjudication Proceedings, July 28,
            2011

      4.  Rules Relating to Investigations, July 28, 2011

      5.  Disclosure of Records and Information, July 28, 2011

      6.  Disclosure Requirements for Depository Institutions
            Lacking Federal Deposit Insurance (Regulation I),
            December, 16, 2011

      7.  Fair Debt Collection Practices Act (Regulation F),
            December 16, 2011

      8.  Mortgage Acts and Practices-Advertising (Regulation N);
            Mortgage Assistance Relief Services (Regulation O),
            December 16, 2011

      9.  Home Mortgage Disclosure (Regulation C), December 19,
            2011

      10.  Consumer Leasing (Regulation M), December 19, 2011

      11.  S.A.F.E. Mortgage Licensing Act (Regulations G and H),
            December 19, 2011

      12.  Real Estate Settlement Procedures Act (Regulation X),
            December 20, 2011

      13.  Equal Credit Opportunity (Regulation B), December 21,
            2011

      14.  Fair Credit Reporting (Regulation V), December 21, 2011

      15.  Privacy of Consumer Financial Information (Regulation
            P), December 21, 2011

      16.  Interstate Land Sales Registration Program (Regulations
            J, K, and L), December 21, 2011

      17.  Truth in Savings (Regulation DD), December 21, 2011

      18.  Truth in Lending (Regulation Z), December 22, 2011

      19.  Electronic Fund Transfers (Regulation E), December 27,
            2011

      20.  Electronic Fund Transfers (Regulation E), February 7,
            2012

      21.  State Official Notification Rule, June 29, 2012

      22.  Rules Relating to Investigations, June 29, 2012

      23.  Rules of Practice for Adjudication Proceedings, June 29,
            2012

      24.  Confidential Treatment of Privileged Information, July
            5, 2012

      25.  Defining Larger Participants of the Consumer Reporting
            Market, July 20, 2012

      26.  Electronic Fund Transfers (Regulation E), August 20,
            2012

      27.  Defining Larger Participants of the Consumer Debt
            Collection Market, October 31, 2012

      28.  Delayed Implementation of Certain New Mortgage
            Disclosures, November 23, 2012

      29.  Procedure Relating to Rulemaking, December 28, 2012

      30.  Escrow Requirements Under the Truth in Lending Act
            (Regulation Z), January 22, 2013

      31.  Electronic Fund Transfers (Regulation E) Temporary Delay
            of Effective Date, January 29, 2013

      32.  Ability-to-Repay and Qualified Mortgage Standards Under
            the Truth in Lending Act (Regulation Z), January 30,
            2013

      33.  Disclosure and Delivery Requirements for Copies of
            Appraisals and Other Written Valuations Under the Equal
            Credit Opportunity Act (Regulation B), January 31, 2013

      34.  High-Cost Mortgage and Homeownership Counseling
            Amendments to the Truth in Lending Act (Regulation Z)
            and Homeownership Counseling Amendments to the Real
            Estate Settlement Procedures Act (Regulation X),
            January 31, 2013

      35.  Appraisals for Higher-Priced Mortgage Loans, February
            13, 2013

      36.  Mortgage Servicing Final Rules Mortgage Servicing Rules
            Under the Truth in Lending Act (Regulation Z), February
            14, 2013

      37.  Mortgage Servicing Rules Under the Real Estate
            Settlement Procedures Act (Regulation X), February 14,
            2013

      38.  Disclosure of Records and Information, February 15, 2013

      39.  Loan Originator Compensation Requirements Under the
            Truth in Lending Act (Regulation Z), February 15, 2013

      40.  Disclosures at Automated Teller Machines (Regulation E),
            March 26, 2013

      41.  Truth in Lending (Regulation Z); Amendment relating to
            credit limits, March 28, 2013

      42.  Truth in Lending Act (Regulation Z); Amendment relating
            to consumer ability to repay, May 3, 2013

      43.  Consumer Financial Civil Penalty Fund Rule, May 7, 2013

      44.  Electronic Fund Transfers (Regulation E), May 22, 2013

      45.  Amendments to the 2013 Escrows Final Rule Under the
            Truth in Lending Act (Regulation Z), May 23, 2013

      46.  Loan Originator Compensation Requirements Under the
            Truth in Lending Act (Regulation Z); Prohibition on
            Financing Credit Insurance Premiums; Delay of Effective
            Date, May 31, 2013

      47.  Ability-to-Repay and Qualified Mortgage Standards
            Exemptions Under the Truth in Lending Act (Regulation
            Z), June 12, 2013

      48.  Procedural Rule To Establish Supervisory Authority Over
            Certain Nonbank Covered Persons Based on Risk
            Determination, July 3, 2013

      49.  Amendments to the 2013 Mortgage Rules Under the Real
            Estate Settlement Procedures Act (Regulation X) and the
            Truth in Lending Act (Regulation Z), July 24, 2013

      50.  Rules of Practice for Issuance of Temporary Cease-and-
            Desist Orders, September 26, 2013

      51.  Amendments to the 2013 Mortgage Rules Under the Equal
            Credit Opportunity Act (Regulation B), Real Estate
            Settlement Procedures Act (Regulation X), and the Truth
            in Lending Act (Regulation Z), October 1, 2013

      52.  Amendments to the 2013 Mortgage Rules Under the Real
            Estate Settlement Procedures Act (Regulation X) and the
            Truth in Lending Act (Regulation Z), October 23, 2013

      53.  Defining Larger Participants of the Student Loan
            Servicing Market, December 6, 2013

      54.  Appraisals for Higher-Priced Mortgage Loans, December
            26, 2013

      55.  Rules of Practice for Issuance of Temporary Cease-and-
            Desist Orders, June 18, 2014

      56.  Electronic Fund Transfers (Regulation E); Amendments,
            September 18, 2014

      57.  Defining Larger Participants of the International Money
            Transfer Market, September 23, 2014

      58.  Amendment to the Annual Privacy Notice Requirement Under
            the Gramm-Leach-Bliley Act (Regulation P), October 28,
            2014

      59.  Amendments to the 2013 Mortgage Rules Under the Truth in
            Lending Act (Regulation Z); November 3, 2014

      60.  Amendments to the 2013 Integrated Mortgage Disclosures
            Rule Under the Real Estate Settlement Procedures Act
            (Regulation X) and the Truth In Lending Act (Regulation
            Z) and the 2013 Loan Originator Rule Under the Truth in
            Lending Act (Regulation Z), February 19, 2015

      61.  Submission of Credit Card Agreements Under the Truth in
            Lending Act (Regulation Z), April 17,2015

      62.  Defining Larger Participants of the Automobile Financing
            Market and Defining Certain Automobile Leasing Activity
            as a Financial Product or Service, June 30, 2015

      63.  2013 Integrated Mortgage Disclosures Rule Under the Real
            Estate Settlement Procedures Act (Regulation X) and the
            Truth in Lending Act (Regulation Z) and Amendments;
            Delay of Effective Date, July 24, 2015

      64.  Amendments Relating to Small Creditors and Rural or
            Underserved Areas Under the Truth in Lending Act
            (Regulation Z), October 2, 2015

      65.  Home Mortgage Disclosure Act (Regulation C), October 28,
            2015

      66.  2013 Integrated Mortgage Disclosure Rule Under the Real
            Estate Settlement Procedures Act (Regulation X) and the
            Truth in Lending Act (Regulation Z), February 10, 2016

      67.  Operations in Rural Areas Under the Truth in Lending Act
            (Regulation Z); Interim Final Rule, March 25, 2016

      68.  Finalization of Interim Final Rules (Subject to Any
            Intervening Amendments) Under Consumer Financial
            Protection Laws, April 28, 2016

      69.  Amendments to Filing Requirements Under the Interstate
            Land Sales Full Disclosure Act (Regulations J and L),
            May 11, 2016

      70.  Amendments to the 2013 Mortgage Rules Under the Real
            Estate Settlement Procedures Act (Regulation X) and the
            Truth in Lending Act (Regulation Z), October 19, 2016

      71.  Prepaid Accounts Under the Electronic Fund Transfer Act
            (Regulation E) and the Truth in Lending Act (Regulation
            Z), November 22, 2016

      72.  Appraisalsfor Higher-Priced Mortgage Loans Exemption
            Threshold, November 30, 2016

      73.  Truth in Lending (Regulation Z), November 30, 2016

      74.  Consumer Leasing (Regulation M), November 30, 2016

      75.  Prepaid Accounts Under the Electronic Fund Transfer Act
            (Regulation E) and the Truth in Lending Act (Regulation
            Z); Delay of Effective Date, April 25, 2017

      76.  Arbitration Agreements, July 19, 2017

      77.  Amendments to Federal Mortgage Disclosure Requirements
            Under the Truth in Lending Act (Regulation Z), August
            11, 2017

    Q.3. Director Cordray, do you believe Americans are better
    served by having fewer banking and financial options to choose
    from?

    A.3. No. Small financial institutions play a vital role within
    many communities across the Nation, as well as within the
    economy. Their traditional model of relationship lending has
    been beneficial to many people in rural areas and small towns
    throughout the country. For these reasons, the Consumer Bureau
    attempts to ensure that rules and regulations are not unduly
    burdensome to these smaller financial institutions.
        Since the passage of the Dodd-Frank Act the share of the
    mortgage market serviced by credit unions and community banks
    has risen. That increase in participation, represented by these
    two groups since the Consumer Bureau's rules took effect,
    represents levels that are the highest they have been in 20
    years. These institutions had low default rates during this
    time period and the Consumer Bureau tailored our rules to
    recognize the need to ensure balance and competition in the
    mortgage market.
        Further, to support the implementation of and industry
    compliance with its rules, the Consumer Bureau has published a
    number of plain-language compliance guides summarizing certain
    rules, and it has actively engaged in discussions with industry
    about ways to achieve compliance. \1\ The Consumer Bureau also
    continues its efforts to streamline, modernize, and harmonize
    financial regulations that it inherited from other agencies.
    ---------------------------------------------------------------------------
         \1\ See http://www.consumerfinance.gov/guidance/#compliance.

    Q.4. Director Cordray, do you believe that the Consumer
    Financial Protection Bureau's collection of Americans'
    personally identifiable information is necessary for the
    ---------------------------------------------------------------------------
    Bureau's statutory mission?

    A.4. The Consumer Bureau collects personally identifiable
    information when such information is necessary for the
    statutory mission. In general the information the Consumer
    Bureau collects for research purposes does not contain data
    that directly identifies individuals. We are interested in
    monitoring the behavior of the markets, not of particular
    individual consumers. The Consumer Bureau needs individual-
    level data to understand how consumer markets perform and
    proactively monitor consumer financial markets to make sure
    they are working for consumers. However, this data is generally
    de-identified so that any particular individual is not
    identified. A lesson from the 2008 financial crisis was that
    trends and problems can often be spotted in analyzing microdata
    (individual or institution level data) long before it can be
    seen in industry aggregates.
        In addition, there are other purposes where identifying
    information is necessary to carry out our statutory mission
    such as enforcement actions and consumer complaints.
    Individual-level data enable the Consumer Bureau to
    successfully bring enforcement actions and provide relief to
    consumers. These actions have resulted in approximately $11.6
    billion in redress to victims of illegal practices like
    mortgage servicing errors, discriminatory home and auto
    lending, and deceptive credit card practices. The handling of
    consumer complaints by the Consumer Bureau has helped
    individual consumers get responses and resolutions to their
    issues.

    Q.5. Director Cordray, do you believe that the data the Bureau
    has collected on U.S. consumers is 100 percent secure from
    being breached by hackers and cybercriminals?

    A.5. The Consumer Bureau works to ensure the best possible
    protection for the information in an environment where threats
    will continue to evolve. The Federal Information Security
    Modernization Act of 2014 states that agency heads are
    responsible for ``providing information security protections
    commensurate with the risk and magnitude of the harm resulting
    from unauthorized access, use, disclosure, disruption,
    modification, or destruction'' of information assets. Further,
    agency officials are charged with providing ``information
    security for the information and information systems that
    support the operations and assets under their control,
    including through . . . implementing policies and procedures to
    cost-effectively reduce risks to an acceptable level.''
        While no organization can ensure that the data they have is
    100 percent secure from being breached by hackers and
    cybercriminals, the Bureau continues to appropriately manage
    risk to consumer data and has performed its duties responsibly
    over its relatively brief history. The guidance provided under
    FISMA requires that Federal agencies manage their cybersecurity
    risks proactively, take appropriate action when a risk is
    unacceptable, and constantly exercise due diligence to increase
    their situational awareness of new cyber threats and
    vulnerabilities. The CFPB is executing on all of these
    activities on a continual basis to demonstrate due protection
    of consumer data.
        The Consumer Bureau's commitment to data protection is
    demonstrated through a risk-based approach to implementing
    security controls and countermeasures, through our active and
    voluntary participation in Federal cybersecurity initiatives
    such as the Department of Homeland Security (DHS) Cyber Hygiene
    and Continuous Diagnostics and Mitigation programs, and in the
    focus and dedication we place on addressing recommendations
    from the Office of the Inspector General and other auditors.
    Between August 2016 and August 2017, DHS reported zero critical
    or high vulnerabilities for the CFPB under the Cyber Hygiene
    program. The Consumer Bureau also successfully closed 27
    recommendations in FY 2016 and 25 in FY 2017 from independent
    audits of our technology management and information security
    programs. Our progress in establishing and executing on a risk-
    based information security program has been acknowledged by our
    Office of the Inspector General in the FY16 Annual FISMA Report
    to Congress, where the CFPB's maturity in each of the
    Cybersecurity Framework areas was rated as equal or higher than
    the Federal Government-wide median.
        Like other Federal information security programs, the
    policies, principles and security controls that form the
    Consumer Bureau information security program are based on
    guidance and standards provided by the National Institute of
    Standards and Technology (NIST). We are continuously improving
    the processes and capabilities to safeguard all Consumer Bureau
    data, adapting to the rapidly changing risk landscape, and
    working to ensure that we are protecting consumer information.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR SASSE
                          FROM RICHARD CORDRAY

    Q.1. I'd like to discuss the CFPB's upcoming proposed
    arbitration rule.
        (a.) My understanding is the CFPB is expected to issue a
    proposed rule that would ban pre-dispute arbitration clauses
    that waive a consumer's right to a class action lawsuit and to
    further regulate individual arbitration. Is that correct?
        (b.) At your April 7, 2016, Senate Banking Committee
    appearance, you said that the arbitration rule is expected to
    come out in the spring. Can you provide a more specific
    timeline?
        (c.) Why does it insufficiently protect consumers to allow
    them to ``opt-out'' of an arbitration agreement with a class
    action waiver? Are consumers incapable of making the right
    decision for themselves regarding whether they would prefer
    vindicating their rights through arbitration or a class action
    waiver?
        (d.) What percentage of companies do you expect will stop
    offering arbitration altogether under this new proposed regime?
    How does this conclusion impact the pending proposed rule?
        (e.) Has the CFPB conducted a cost-benefit analysis of the
    pending proposed regime? If so, can you share the results of
    this study?
        (f.) At your April 7, 2016, appearance before the Senate
    Banking Committee, you explain that the pending arbitration
    rule is important because arbitration agreements ``tend[] to
    cut off people's remedies pretty much all together . . .
    because it bans their ability to . . . bring group claims so
    that financial institutions who harm on a broad basis cannot be
    held accountable.'' In other contexts, you have spoken of the
    efficacy of the CFPB's enforcement actions to hold financial
    institutions accountable for their actions. Are the CFPB's
    enforcement actions insufficient in this context? If so, why?
        (g.) Has the CFPB studied the extent to which the threat of
    class action lawsuits changes firm behavior to better comply
    with consumer laws? If so, please share the results of that
    study.
        (h.) Does the CFPB believe there is a risk that encouraging
    class action lawsuits actually encourages ``frivolous''
    lawsuits that companies settle instead of challenge, given the
    costs associated with going to court in a class action lawsuit?
    How does this possibility impact the degree to which the CFPB
    believes that class action lawsuits encourage firms to comply
    with the rule of law, instead of merely imposing unnecessary
    costs on companies whose actions should not have been punished?
        (i.) If the CFPB found that the class action lawsuits do
    not change firm behavior in a meaningful way, how would that
    change the CFPB's pending arbitration rule?
        (j.) Please describe the extent to which the CFPB consulted
    with any advocacy groups describing themselves as representing
    plaintiff attorneys during the development of the pending
    proposed rule.

    A.1. (a.) On May 5, 2016, the Consumer Bureau released a Notice
    of Proposed Rulemaking regarding agreements for consumer
    financial products and services providing for mandatory pre-
    dispute arbitration.
        After a 90-day comment period that ended on August 22,
    2016, the Consumer Bureau reviewed and considered the 110,000
    comments it received in response to the Notice of Proposed
    Rulemaking in accordance with its obligations for notice-and-
    comment rulemaking.
        On July 19, 2017, the Consumer Bureau published in the
    Federal Register the Final Rule regarding agreements for
    consumer financial products and services providing for
    mandatory pre-dispute arbitration. In the Final Rule, the
    Consumer Bureau finalized the proposed rules in the Notice of
    Proposed Rulemaking, with adjustments made to respond to the
    concerns of stakeholders expressed in the comments they made
    during the notice-and-comment process.
        The Final Rule imposes two sets of restrictions on the use
    of pre-dispute arbitration agreements by providers offering or
    providing consumer financial products and services that are
    covered by the Final Rule (referred to herein as providers).
    First, it prohibits providers from using a pre-dispute
    arbitration agreement to block consumer class actions in court
    and it requires providers to insert language into their
    arbitration agreements reflecting this limitation. The Consumer
    Bureau bases its findings on the Arbitration Study as well as
    the Consumer Bureau's further analysis. These include findings
    in support of the final rule that pre-dispute arbitration
    agreements are being widely used to prevent consumers from
    seeking relief from legal violations on a class basis, and that
    consumers rarely file individual lawsuits or arbitration cases
    to obtain such relief.
        Second, the Final Rule does not prohibit providers from
    maintaining arbitration agreements with their customers, but it
    does require covered financial services providers that continue
    to use them to submit certain records with appropriate
    redactions, relating to arbitral proceedings to the Consumer
    Bureau. The Consumer Bureau's Final Rule also provides for the
    publication of this redacted information on its website, to
    provide greater transparency into the arbitration of consumer
    disputes. The Consumer Bureau also will use this information to
    continue monitoring arbitral proceedings to determine whether
    there are developments that raise consumer protection concerns
    that may warrant further Consumer Bureau action. The Final Rule
    applies to agreements entered into by providers after March 19,
    2018, the compliance date of the rule. \1\
    ---------------------------------------------------------------------------
         \1\ The Final Rule explains how the rule applies to various types
    of contractual relationships. See 80 FR 33325-58 (section by section
    analysis of 12 CFR 1040.3), 33428-29 (text of 12 CFR 1040.3), 33431-32
    (official commentary for 12 CFR 1040.3), The Bureau also adopted a
    temporary exception for pre-packaged general-purpose reloadable prepaid
    card agreements under 12 CFR 1040.5(b). 80 FR 33388-90 (section by
    section analysis of 12 CFR 1040.S(b)), 33430 (text of 12 CFR
    1040.S(b)), 33434 (official commentary to 12 CFR 1040.S(b)).
    ---------------------------------------------------------------------------
        (b.) On May 5, 2016, the Consumer Bureau released a Notice
    of Proposed Rulemaking regarding agreements for consumer
    financial products and services providing for mandatory pre-
    dispute arbitration. July 19, 2017, the Consumer Bureau
    published in the Federal Register a Final Rule regarding
    agreements for consumer financial products and services
    providing for mandatory pre-dispute arbitration.
        (c.) In the Arbitration Study, the Consumer Bureau learned
    that most consumers were unaware of whether their contracts
    contained arbitration agreements. The Arbitration Study found
    that more than 75 percent of credit card consumers surveyed did
    not know whether they were subject to an arbitration clause,
    and fewer than 7 percent of those covered by arbitration
    clauses realize that those clauses restrict their ability to
    sue in court. Even fewer were aware of whether the contracts
    permitted them to opt out of their arbitration agreements.
    While the Arbitration Study found provisions permitting
    consumers to opt out of arbitration were not uncommon, very few
    consumers in the telephonic survey conducted were aware of the
    opt-out provisions, far fewer than 1 percent of respondents
    believed that they had been given an opportunity to opt-out of
    the arbitration agreements.
        (d.) The Consumer Bureau received feedback from industry
    groups, before the issuance of the Notice of Proposed
    Rulemaking (for instance, during the SBREFA panel), that a rule
    that prohibited the use of class action waivers in arbitration
    agreements would likely cause some or many providers of
    consumer financial products and services to eliminate their
    arbitration agreements completely. The Consumer Bureau also
    received comments in response to its Notice of Proposed
    Rulemaking from some industry groups and providers indicating
    they intend to drop arbitration clauses altogether if the
    proposed rule is adopted. The Consumer Bureau took such
    feedback into account in promulgating its Final Rule. In its
    Final Rule, the Bureau acknowledged that providers may choose
    to drop arbitration agreements altogether.
        As set out in final rule, the Bureau believes that, even if
    providers do remove their arbitration agreements, harm to
    consumers would be negligible because so few consumers pursue
    arbitration today. The Study showed that very few individual
    consumers filed claims in arbitration about consumer financial
    products; as noted, there were just over 600 arbitration
    filings per year in the six product markets studied and just
    over 400 of those were filed by consumers. By contrast, more
    than 60 million consumers per year were eligible for either
    cash or in-kind relief from class actions in the 5-year period
    covered by the Study. Indeed, more than 34 million of these
    consumers obtained cash relief over 5 years studied, or more
    than six million per year. Thus, the number of consumers who
    sought relief in arbitration pales in comparison to the number
    who actually obtained relief through class actions. The number
    of consumers who sought relief in arbitration also pales in
    comparison to the benefits to consumers from the deterrent
    effect of class actions, discussed in Part VI.C.1 of the Final
    Rule.
        In any event, even if consumers do not have access to
    arbitration for individual claims those claims still can be
    filed in court, including small claims court. Consumers would
    not be left without a forum to prosecute their individual
    claims. Given the extremely low number of consumer-filed AAA
    and JAMS arbitrations, the Bureau believes that the magnitude
    of consumer benefit, if any, of individual arbitration over
    individual litigation would need to be implausibly large for
    the elimination of some, or even all, arbitration agreements to
    make a noticeable difference to consumers in the aggregate.
        Therefore, the Bureau believes that preserving consumers'
    right to participate in a class action is for the protection of
    consumers even if providers will no longer include arbitration
    agreements in their consumer contracts.
        (e.) The Bureau conducted a cost-benefit analysis, as set
    out in the Notice of Proposed Rulemaking and the Final Rule.
    Under this analysis, the Consumer Bureau's class action rule
    would benefit consumers in two main ways. First, consumers will
    benefit from increased legal compliance by providers. The
    Consumer Bureau believes that, because more providers will face
    class action liability for violations of law they commit, they
    will increase their compliance with the law to reduce the risk
    of facing a class action--resulting in less consumer harm. The
    Consumer Bureau is not aware of, and commenters did not
    provide, reliable methods to quantify these benefits. Second,
    consumers will benefit from the relief provided in the class
    action settlements that will now occur because providers will
    no longer be able to use an arbitration agreement to block
    class actions. This relief will include both monetary relief
    and changes in business practices. The Consumer Bureau
    estimates monetary relief to be $342 million per year for
    additional Federal class settlements; the Consumer Bureau lacks
    the information needed to quantify the relief in State court
    settlements and is not aware of reliable methods to quantify
    the benefits to consumers from changes in business practices.
        The cost to consumers will mostly result from financial
    institutions ``passing through'' at least some portion of the
    increased costs they may face to consumers. In the Consumer
    Bureau's view, the extent to which this will occur cannot be
    reliably predicted, especially because research is mostly
    unavailable for the markets covered.
        The Consumer Bureau believes that providers that will be
    exposed to class action liability as a result of the final rule
    will have an increased incentive to take steps to reduce their
    risk of facing a class action. The Consumer Bureau believes
    providers will generally respond to this incentive by
    increasing their attention to activities designed to reduce
    their class litigation exposure, such as reviewing policies and
    procedures, discontinuing risky products, and obtaining more
    comprehensive insurance coverage. The Consumer Bureau is
    unaware of, and commenters did not provide, reliable methods
    for quantifying these costs.
        Providers will incur costs related to additional class
    litigation that will occur because they can no longer use
    arbitration agreements to block class actions (and because the
    compliance investments described above will not eliminate
    additional class litigation completely). The Consumer Bureau
    estimates that the Final Rule will result in about 103
    additional class settlements per year in Federal court (no
    estimate is made for State court because of the above-mentioned
    lack of information). In those class settlements, the Consumer
    Bureau estimates that providers will pay an additional $342
    million to consumers; an additional $66 million to plaintiffs'
    attorneys; and an additional $39 million for their own
    attorneys' fees and internal staff and management time for only
    these Federal court cases. The Consumer Bureau believes
    providers will enter a similar number of settlements in State
    court, with lower amounts at stake, although there is
    insufficient data to quantify these costs. Providers may also
    incur costs due to changes in business practices resulting from
    class settlements, but the Consumer Bureau is unaware of
    reliable methods for quantifying these costs. Further, the
    Bureau also estimates that providers will spend an additional
    $76 million per year in defense costs related to Federal class
    cases that do not settle.
        Providers will incur costs related to changing their
    contracts to comply with the proposed rule. The Consumer Bureau
    believes that the average provider's expense to be about $400
    per provider. Given the Consumer Bureau's estimate of about
    48,000 providers that use arbitration agreements, the Final
    Rule's required contractual change will result in a one-time
    cost of $19 million. (The Consumer Bureau's estimate for the
    number of providers is different here than above because debt
    collectors would not incur costs related to changing
    agreements.)
        Providers will incur costs related to submitting
    arbitration records to the Consumer Bureau. However, because
    arbitrations are so infrequent, the total cost to all providers
    is unlikely to reach $1 million per year.
        (f.) The Consumer Bureau's enforcement actions are a
    powerful tool to address violations of the law and to make
    consumers whole. Since opening in July 2011, the Consumer
    Bureau has ordered that almost $12 billion be returned to 29
    million consumers and imposed about $600 million in civil
    penalties. The Consumer Bureau has also shut down illegal
    practices, protecting other consumers from suffering similar
    financial harm in future years.
        While the Consumer Bureau and other public enforcement
    agencies can act to remedy some consumer harms, public
    resources are limited. The various consumer finance markets
    consist of tens of thousands of companies interacting with
    hundreds of millions of consumers. The Consumer Bureau has
    limited resources and authority and cannot obtain relief for
    all violations of law that may occur. As the Arbitration Study
    has noted, there appears to be little overlap between
    enforcement actions by the Consumer Bureau, or other Federal or
    State regulators, and private class actions brought against
    companies. The Consumer Bureau therefore believes that
    consumers are better protected and markets are fairer when
    consumers can group their disputes together in private
    proceedings, typically through class proceedings in court.
        (g.) The cost-benefit analysis in the Consumer Bureau's
    Final Rule, mentioned above in response to Question 1(f), sets
    out some of the Bureau's analysis of the impact of the proposed
    rule on provider compliance with consumer financial laws.
    Further, in the Consumer Bureau's 2012 Request for Information
    regarding the appropriate scope of the Arbitration Study, the
    Bureau sought ``specific suggestions from the public to help
    identify the appropriate scope of the Study, as well as
    appropriate methods and sources of data for conducting the
    Study.'' \2\ Despite raising concerns about the costs to
    defendants of class action litigation, no commentators writing
    in response to the Consumer Bureau's query identified a data
    set that would facilitate such an analysis. Nor did the Bureau
    receive such data in comments received after the Notice of
    Proposed Rulemaking.
    ---------------------------------------------------------------------------
         \2\ RFI, supra note 4.
    ---------------------------------------------------------------------------
        In conducting the Arbitration Study, the Consumer Bureau
    decided not to compel the production of data reflecting firms'
    internal response to the risk of class actions because, among
    other concerns, the data may be considered privileged or
    sensitive information. A joint comment letter by several major
    trade associations stated that assessing the economic impacts
    of class actions on businesses might be difficult or impossible
    and suggested that the Consumer Bureau instead look at fees
    paid by firms to plaintiffs' lawyers as part of a class action
    settlement. In response, the Consumer Bureau obtained data from
    the public records on fee awards in all of the class action
    settlements that the Study analyzed and reported on these fees
    in the Arbitration Study.
        The Arbitration Study also sheds considerable light on the
    benefits of a class action system as compared to the benefits
    most consumers derive from individual resolution of their
    disputes. The Arbitration Study found, for example, that few
    consumers of financial products and services seek relief
    individually, either through the arbitration process or in
    court. In its review of all American Arbitration Association
    consumer disputes from 2010 to 2012 relating to credit card,
    checking/debit account, payday loan, prepaid card, auto
    purchase loan, and student loan products, the Consumer Bureau
    found an average of over 600 arbitration proceedings a year
    were filed for all six product markets combined, of which only
    over 400 were recorded as filed by consumers acting alone. Only
    25 disputes a year involved consumers bringing affirmative
    claims for $1,000 or less than that amount.
        In contrast, the Arbitration Study found that consumers
    derive substantial benefits from class action settlements. As
    noted, the Consumer Bureau identified a significant volume of
    consumer financial class settlements that were approved between
    2008 and 2012. \3\ In the more than 400 settlements that the
    Consumer Bureau analyzed, there were about 160 million total
    class members (excluding the TransUnion settlement noted
    above). \4\ These settlements included cash relief, in-kind
    relief, and relief relating to fees and other expenses that
    companies paid. The total amount of gross relief in these
    settlements that is, aggregate amounts promised to be made
    available to or for the benefit of damages classes as a whole,
    calculated before any fees or other costs were deducted--was
    about $2.7 billion. \5\ This estimate included cash relief of
    over $2 billion and in-kind relief of nearly $650 million. \6\
    About two-thirds of the settlements reporting some cash relief
    contained enough data for the Consumer Bureau to calculate the
    value of cash relief that, as of the last document in the case
    files, either had been or was scheduled to be paid to class
    members. Based on this subset of cases alone, the value of
    calculable cash payments to class members to that point was
    about $1.1 billion. \7\ This excludes payment of in-kind relief
    and any valuation of injunctive relief.
    ---------------------------------------------------------------------------
         \3\ Arbitration Study, supra note 7, section 8 at 3.
         \4\ Arbitration Study, supra note 7, section 1 at 16. This figure
    excludes one large settlement (In re: TransUnion Privacy Litigation)
    with 190 million class members.
         \5\ Arbitration Study, supra note 7, section 8 at 24. The
    Arbitration Study defined gross relief as the total amount the
    defendants offered to provide in cash relief (including debt
    forbearance) or in-kind relief and offered to pay in fees and other
    expenses.
         \6\ These figures represent a floor, as the Bureau did not include
    the value to consumers of making agreed changes to business practices.
         \7\ Arbitration Study, supra note 7, section 8 at 28.
    ---------------------------------------------------------------------------
        The Consumer Bureau explained in the Final Rule its belief
    that based on the data from the Arbitration Study set out
    above, the class rule, by reversing the status quo, creating
    incentives for greater compliance, and restoring a means of
    broad relief and accountability, will be for the protection of
    consumers for several reasons.
        The Consumer Bureau explained in the Final Rule its belief
    that the class rule is likely to induce greater compliance with
    the law by covered providers. When laws cannot be effectively
    enforced (in this instance because of the use of arbitration
    agreements), providers may be more likely to engage in
    potentially unlawful business practices, because they know that
    any potential costs from exposure to putative class action
    filings have been reduced if not effectively eliminated. Due to
    this reduction in legal exposure (and thus a reduction in
    risk), providers have less of an incentive to invest in
    compliance management in general, such as by investing in
    employee training with respect to compliance matters or by
    carefully monitoring changes in the law.
        Thus, the class rule is based on the Consumer Bureau's
    belief that the availability of class actions affects firms'
    compliance incentives. The standard economic model of
    deterrence holds that individuals who benefit from engaging in
    particular actions that violate the law will instead comply
    with the law when the expected cost from violation, i.e., the
    expected amount of the cost discounted by the probability of
    being subject to that cost, exceeds the expected benefit.
    Consistent with that model, Congress and the courts have long
    recognized that deterrence is one of the primary objectives of
    class actions.
        The Consumer Bureau believes that consumers are better
    protected from harm by consumer financial service and product
    providers when they are able to aggregate claims. Accordingly,
    the class rule is based on the Consumer Bureau's belief that
    ensuring that consumers can pursue class litigation related to
    covered consumer financial products or services without being
    curtailed by arbitration agreements protects consumers,
    furthers the public interest, and is consistent with the
    Arbitration Study.
        (h.) The judicial process--especially as expressed by the
    Federal Rules of Civil Procedure--has mechanisms to prevent or
    mitigate any harm businesses may face from baseless class
    actions. As the Bureau noted in its final rule, courts dismiss
    claims that fail to state a plausible claim for relief and can
    sanction attorneys that file frivolous claims without
    evidentiary support for the allegations. In addition, Congress,
    through amendments to the Federal Rules of Civil Procedure and
    enactment of CAFA, has and continues to consider further
    adjustments to class action procedures. The Supreme Court has
    also rendered a series of decisions making clear that Federal
    Rule 23 ``does not set forth a mere pleading standard'' and
    establishing a number of requirements to subject putative class
    claims to close scrutiny. Thus the law expects courts to act to
    limit frivolous litigation. Further, the Bureau understands
    that class action attorneys will typically earn nothing for the
    time invested in developing, filing, and litigating a class
    case that is dismissed on a dispositive motion. The Bureau
    believes this may serve as an incentive not to bring cases that
    would be dismissed for lacking merit.
        While trial verdicts in consumer financial class action
    cases are rare, they do occur. A bench trial in Gutierrez v.
    Wells Fargo Bank, N.A., led to a judgment on the merits in
    favor of the plaintiff class. 730 F. Supp. 2d 1080, 1082 (N.D.
    Cal. 2010). This case was not included in the Study's analysis
    of consumer financial litigation in court because it was filed
    in 2007 and the Study analyzed cases filed from 2010 through
    2012. Although that judgment was limited to a California class
    of the bank's consumers, the bank thereafter appears to have
    also changed its overdraft practices in other jurisdictions in
    the United States, presumably out of concern regarding other
    State's laws. \8\
    ---------------------------------------------------------------------------
         \8\ See Danielle Douglas-Gabriel, ``Big Banks Have Been Gaming
    Your Overdraft Fees To Charge You More Money'', Wash. Post Wonkblog
    (July 17, 2014), https://www.washingtonpost.com/news/wonk/wp/2014/07/
    17/_wells-fargo-to-make-changes-to-protect-customers-from-overdraft-
    fees/ (``Half of the country's big banks play this game, but one has
    decided to stop: Wells Fargo. Starting in August, the bank will process
    customers' checks in the order in which they are received, as it
    already does with debit card purchases and ATM withdrawals.'').
    ---------------------------------------------------------------------------
        (i.) As set out in the Consumer Bureau's responses to 1(d)
    and 1(g), the Bureau believes the data it has gathered shows
    that it is likely class action lawsuits change firm behavior in
    meaningful ways. The Consumer Bureau considered relevant
    evidence and data it received during the comment period.
        (j.) The Consumer Bureau has been open to feedback from all
    stakeholders in the course of working on the Arbitration Study
    and since the study was made available. In this process, the
    Consumer Bureau has received written and spoken comments from
    some stakeholders representing class action lawyers on the same
    terms as other stakeholders, including trade and industry
    representatives, public interest and consumer groups,
    academics, and State governments. Further, the Consumer Bureau
    specifically sought out feedback, in writing and in-person,
    from small businesses in the SBREFA Panel process. Finally, the
    Consumer Bureau met with stakeholders, including tribal
    governments, after the release of the Notice of Proposed
    Rulemaking and before the publication of the Final Rule.
    Summaries of these ex parte consultations with stakeholders
    will be published on the Consumer Bureau's website.

    Q.2. At your April 7, 2016, appearance before the Senate
    Banking Committee, you testified--regarding a letter that
    Senator Corker sent to you on TILA-RESPA--that ``[b]ecause I'm
    testifying today, we did respond to that letter . . . ''
    (emphasis added). Please review the Congressional letters sent
    to you during your tenure at the CFPB and the timing of your
    responses, along with the same for questions for the record, as
    of the date of this hearing.
        (a.) Does the CFPB have a practice of responding only to
    letters before it is scheduled to appear before a Congressional
    committee, of which the writer was a member?
        (b.) To how many letters have you not yet responded?
        (c.) Of these letters, how many of them are from members
    who do not sit on a Congressional committee with jurisdiction
    over the CFPB?
        (d.) Of these letters, what was your average response time?
        (e.) What was your average response time for Republican
    caucus members?
        (f.) What was your average response time for Democrat
    caucus members?
        (g.) What percentage of your responses were sent less than
    a week before a Congressional hearing, when the writer was a
    member of the Committee where the CFPB was appearing?
        (h.) What percentage of your responses were sent less than
    a week before a Congressional hearing, of which the recipient
    was a member, for Republican caucus members?
        (i.) What percentage of your responses were sent less than
    a week before a Congressional hearing, of which the recipient
    was a member, for Democrat caucus members?
        (j.) Please provide the average response time to questions
    for the record, for Republican caucus members.
        (k.) Please provide the average response time to questions
    for the record, for Democrat caucus members?

    A.2. The Consumer Bureau is an independent Federal agency
    created by Congress responsible for implementing, and where
    necessary, enforcing, Federal consumer financial law
    consistently and for the purpose of ensuring that consumer
    financial markets are fair, transparent, and competitive. As an
    independent Federal agency, the Consumer Bureau routinely
    handles correspondence, requests for information, and other
    inquiries from Members of Congress and Congressional Committees
    on a variety of topics that are related to the Consumer Bureau
    and the Bureau's work. The Consumer Bureau's Office of
    Legislative Affairs (OLA) is responsible for managing the
    responses to both Members of Congress and Committees, as well
    as collaborating with other divisions within the Bureau to
    answer questions that have been posed.
        The Consumer Bureau attempts to send a response to each
    request within a 30-day period following receipt of the
    incoming letter. This drafting period allows OLA to collaborate
    amongst different internal divisions prior to finalizing a
    response to ensure that the information provided is thorough
    and accurate. The actual time required for each response
    depends on the unique characteristics of the incoming letter,
    including the complexity of the subject matters and the depth
    and number of questions posed. Often, the process will require
    additional follow up with the Member's office to clarify any
    outstanding questions OLA may have prior to drafting a
    response. Additional questions or issues posed may create a
    delay in answering the question. The Consumer Bureau does not
    track average response times, response times by political party
    affiliation, percentage of responses in fewer than one week, or
    percentage of responses sent during time periods surrounding
    hearings by Congress.

    Q.3. I'd like to discuss the CFPB's pending rule regarding
    ``payday, auto title, and similar lending products'' (payday
    lending). \9\
    ---------------------------------------------------------------------------
         \9\ http://www.consumerfinance.gov/blog/fall-2015-rulemaking-
    agenda/.
    ---------------------------------------------------------------------------
        (a.) In March of 2015, the CFPB announced that it was
    considering ways to regulate payday loans. That notice said
    that the CFPB was considering prohibiting longer-term products
    with a monthly payment that exceeded 5 percent of a consumer's
    gross monthly income. Please provide the economic research that
    the CFPB produced and consulted to reach the conclusion that a
    monthly payment in excess of this amount is unaffordable.
        (b.) Many have argued that the alternative to payday
    lending is not accessing credit at a lower interest rate, but
    either using higher interest rate forms of ``credit'' (such as
    overdrawing from a checking account) or losing access to credit
    altogether. Please provide the economic research that the CFPB
    produced and consulted regarding alternative forms of credit
    beyond current payday lending practices.
        (c.) Please provide the economic research that the CFPB
    produced and consulted regarding the possibility that further
    regulating the payday lending industry will force some payday
    lenders to stop offering products altogether.
        (d.) Are consumers better off not having the option of
    accessing payday lending, even if it means they will lose
    access to credit overall?
        (e.) Does the CFPB trust consumers to evaluate the risks
    associated with payday lending?
        (f.) What research has the CFPB conducted or identified
    that indicates consumers are unable to evaluate the risks
    associated with payday lending?

    A.3. In its Outline of Proposals under Consideration and
    Alternatives Considered, which was released in March 2015 as
    part of the Small Business Review Process, the Consumer Bureau
    noted that it was considering whether to propose exempting from
    the ability-to-repay requirements under consideration longer-
    term loans with payments equal to or less than 5 percent of a
    consumer's gross monthly income. The proposed rule released in
    June 2016 did not propose to include this exemption. The March
    2015 Outline did not indicate that the Consumer Bureau was
    considering whether to prohibit longer-term loans with monthly
    payments that exceeded 5 percent of a consumer's gross monthly
    income. The proposed rule similarly would not prohibit longer-
    term loans with a monthly payment that exceeds 5 percent of a
    consumer's gross monthly income.
        In the lead up to the proposed rule on payday, vehicle
    title, and certain high-cost installment loans, the Consumer
    Bureau released several research publications. These reports
    looked at use patterns of payday loans and vehicle title loans,
    online lending, high-cost installment lending, and the impact
    of various State approaches to regulating payday lending. The
    Consumer Bureau's research and analysis is included in the
    notice of proposed rulemaking and supplemental report released
    alongside the proposed rule in June 2016. In considering the
    scope and content of the proposed rule, the Consumer Bureau
    studied the forms of liquidity loan products on the market
    today, including forms of credit beyond typical payday lending.
    The Consumer Bureau's findings in this regard are included in
    part II of the Notice of Proposed Rulemaking (81 FR 866 et
    seq.). The Consumer Bureau discusses research and analysis on
    the harms associated with payday loans in Market Concerns--
    Short-Term Loans (81 FR 47919 et seq.).
        Consistent with section 1022(b)(2) of the Dodd-Frank Wall
    Street Reform and Consumer Protection Act, the Consumer Bureau
    considered the potential benefit, costs, and impacts of the
    proposals. Additionally, consistent with section 603(a) of the
    Regulatory Flexibility Act, the Bureau prepared an initial
    regulatory flexibility analysis that describes the impact of
    the proposed rule on small entities. These estimates of the
    impact of the proposed rule on payday lenders and on access to
    credit are presented in parts VI (81 FR 48115 et seq.) and VII
    (81 FR 48150 et seq.) of the notice of proposed rulemaking.

    Q.4. I'd like to discuss the CFPB's efforts to tailor
    regulations for community banks and credit unions.
        Please describe the criteria and processes by which you
    decide when and how to exempt small financial institutions from
    certain regulatory requirements.
        At your April 7, 2016, appearance in front of the Senate
    Banking Committee, you testified, regarding tailoring
    regulations for small financial institutions, that ``we tend to
    be fairly careful about it. We don't regard Congress as having
    said to us you have broad exemption authority.'' However,
    Section 1022(b)(3) of Dodd-Frank authorized the CFPB to
    ``conditionally or unconditionally exempt any class of covered
    persons, service providers, or consumer financial products or
    services'' from the CFPB's rules and regulations, taking into
    account the entity's ``total assets,'' ``volume of
    transactions,'' and the extent to which existing laws already
    protect consumers. Please explain why the CFPB does not believe
    the statute confers at least a significant authority to tailor
    regulations.
        How much does the CFPB value ``relationship banking,''
    where a financial institution makes a lending decision based
    upon their personal knowledge of a customer, instead of mere
    statistical analysis?

    A.4. Section 1022 of the Dodd-Frank Wall Street Reform and
    Consumer Protection Act (Dodd-Frank Act) authorizes the
    Consumer Bureau to engage in rulemaking and issue orders and
    guidance to administer and carry out the purposes and
    objectives of the Federal consumer financial laws, and to
    prevent evasions thereof. In doing so, Section 1022 requires
    that the Consumer Bureau consider the potential benefits and
    costs to consumers and covered persons, including the potential
    reduction of access to consumer financial products and services
    to consumers. Section 1022 also requires the Consumer Bureau to
    consider the impact of a proposed rule on insured depository
    institutions and credit unions with total assets of $10 billion
    or less as well as the impact on consumers in rural areas.
    Moreover, Section 1022 gives the Consumer Bureau the authority
    to create exemptions from the Consumer Financial Protection Act
    of 2010 or rules issued under that Act for any class of covered
    persons, service providers, or consumer financial products or
    services if the Consumer Bureau determines an exemption is
    necessary or appropriate to carry out the purposes and
    objectives of the Consumer Financial Protection Act after
    taking into consideration a set of factors specified in the
    statute.
        To date, the Consumer Bureau has sought to carefully
    calibrate its efforts to ensure consistency with respect to
    consumer financial protections across the financial services
    marketplace, while accounting for the different business models
    and classes of financial institutions. For example, as part of
    the Consumer Bureau's commitment to achieving tailored and
    effective regulations, the Bureau has taken the following
    actions for different models and classes of institutions:

    Mortgage Origination Rules (Title XIV)

        Expanded safe harbor for small creditors. A small
            creditor has a broader safe harbor for its Qualified
            Mortgage (QM) loans than non-small creditors. The
            Consumer Bureau's rules provide a safe harbor for QMs
            with annual percentage rate (APR) spreads over Average
            Prime Offer Rate (APOR) up to 350 basis points, whereas
            non-small creditors have a safe harbor for spreads up
            to 150 basis points. The Consumer Bureau's rules also
            allow a small creditor to make QMs with debt-to-income
            ratios that exceed the otherwise applicable 43 percent
            cap. (Small creditors must hold these loans in
            portfolio for 3 years.)

        Exempted small creditors in rural and underserved
            areas. Small creditors that operate (or operated
            ``predominantly'' before implementation of the Helping
            Expand Lending Practices in Rural Communities Act in
            March 2016) in rural or underserved areas are exempt
            from requirements to establish escrow accounts for
            higher priced mortgage loans and from restrictions on
            offering QMs and Home Ownership and Equity Protection
            Act (HOEPA) loans (``high cost'' mortgages as defined
            in the HOEPA) that have balloon payment features. QMs
            and HOEPA loans generally cannot have balloon payments.

        Implemented a 2-year pause for small creditors. The
            Consumer Bureau established a 2-year transition period
            (until January 10, 2016) allowing small creditors to
            make balloon-payment QMs and balloon-payment HOEPA
            loans regardless of whether they operated predominantly
            in rural or underserved areas, while the Consumer
            Bureau revisited and reconsidered the definition of
            ``rural'' for this purpose.

        Expanded exemptions for creditors in rural and
            underserved areas. In connection with other changes to
            amend the definitions of ``small creditor'' and ``rural
            area,'' the Consumer Bureau published a final rule in
            October 2015 that extended this 2-year transition
            period from January 2016 until April 2016. The Bureau's
            final rule also provided a significant expansion of
            ``rural,'' as well as an expansion of which entities
            can qualify as ``small creditors.'' The Consumer
            Bureau's final rule took effect on January 1, 2016,
            before the 2-year transition period expired. In March
            2016, the Consumer Bureau issued an interim final rule
            that implements the Helping Expand Lending Practices in
            Rural Communities Act, and makes these provisions
            available to small creditors that extend at least one
            covered transaction secured by property located in a
            rural or underserved area in the previous calendar
            year. The Bureau estimated that about 6,000 additional
            small creditors would be eligible as a result of this
            change.

        Relaxed requirements for appraisals. Small
            creditors have relaxed rules regarding conflict of
            interest in ordering appraisals and other valuations.

    Mortgage Servicing Rules (Title XIV)

        Exempted small servicers from providing periodic
            statements. Small servicers are exempt from the Truth
            in Lending Act requirement to provide periodic
            statements.

        Exempted small servicers from loss mitigation
            requirements. Small servicers are exempt from all of
            the Real Estate Settlement Procedures Act provisions on
            policies and procedures; early intervention; continuity
            of contact; and loss mitigation, except that a small
            servicer may not file for foreclosure unless the
            borrower is more than 120 days delinquent on the
            mortgage. Small servicers may also not file for
            foreclosure (or move for a foreclosure judgment or
            order of sale, or conduct a foreclosure sale) if a
            borrower is performing under the terms of a loss
            mitigation agreement.

        Excluded certain seller-financed transactions and
            mortgage loans voluntarily serviced for a non-affiliate
            from being counted toward the small servicer loan
            limit. This allows servicers that would otherwise
            qualify for small servicer status to retain their
            exemption while servicing those transactions.

    Home Mortgage Disclosure Act Rule (Reg C)

        Exempted lower-volume depository institutions from
            Home Mortgage Disclosure Act reporting. In October of
            2015, the Consumer Bureau adopted a final rule revising
            Regulation C, which implements HMDA. HMDA and
            Regulation C, among other things, require covered
            mortgage lenders to report data concerning their
            mortgage lending activity. Changes to coverage in the
            final rule will reduce the number of banks, savings
            associations, and credit unions that are required to
            report HMDA data. The revisions will relieve about 22
            percent of currently reporting depository institutions
            from the burden of reporting HMDA data. Also, by final
            rule issued in late August of 2017, the Consumer Bureau
            expanded the volume-based exemption from reporting of
            open-end lines of credit under HMDA for institutions
            with fewer than 500, instead of 100, annual
            originations in each of the two preceding years of such
            lines of credit. This expanded exemption applies for
            calendar years 2018 and 2019, during which the Consumer
            Bureau will consider whether to reexamine the
            appropriate volume level at which to set the exemption
            permanently.

        Reduced HMDA error submission threshold for certain
            small entities. New Federal Financial Examination
            Institution Council guidelines, of which the Consumer
            Bureau is a member, provide a more lenient 10 percent
            HMDA field error resubmission threshold (to determine
            whether the lender must resubmit a particular HMDA data
            field) for financial institutions with lower lending
            volumes, including many small institutions, for data
            collected beginning in 2018. Previously, all
            institutions were subject to the same error thresholds.
            The new guidelines make other burden-reducing changes
            that apply to all lenders, which may be particularly
            beneficial to small institutions.

    Remittances Rule (Regulation E Subpart B)

        Provided regulatory certainty for small entities
            under the Electronic Fund Transfer Act. In the Bureau's
            rules implementing the Dodd-Frank Act's amendments to
            the Electronic Fund Transfer Act, regarding remittance
            transfers, the Bureau recognized that certain entities
            do not provide remittances in the normal course of
            their business and determined that the remittance
            requirements do not apply to transfers sent by entities
            that provide 100 or fewer remittances each year.

        Small financial institutions play a vital role within many
    communities across the Nation, as well as within the economy.
    Their traditional model of relationship lending has been
    beneficial to many people in rural areas and small towns
    throughout the country. For these reasons, the Consumer Bureau
    attempts to ensure that rules and regulations are not
    burdensome to these smaller financial institutions.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR MORAN
                          FROM RICHARD CORDRAY

    Q.1. I know that everyone agrees that discrimination has no
    place in our economy. That agreement extends to the need for
    vigorous enforcement of the Equal Credit Opportunity Act.
    However, I'm concerned that the CFPB's 2013 auto finance
    bulletin has resulted in a more adversarial relationship
    between the bureau and the auto industry rather than a
    relationship based on cooperation toward a shared goal of
    rooting out discrimination.
        That is part of my reasoning in introducing S.2663, the
    Reforming CFPB Indirect Auto Financing Guidance Act, the Senate
    companion legislation to H.R.1737 which passed the House by a
    vote of 332-96. The name of the legislation is not the
    ELIMINATION of the CFPB Indirect Auto Financing Guidance Act,
    thereby disqualifying the CFPB from further exploring the
    issue. Rather, the process can be improved by creating greater
    collaboration on the CFPB's pursuit of discrimination by adding
    Congress, industry stakeholders, and consumers to the fold as
    we all work together to achieve a fair marketplace.
        You and I have had exchanges on this topic since the spring
    of 2013. During that time, additional information has been
    brought forth.
        Auto loan volume numbers aside, has the Bureau studied the
    price effects that will impact all consumers due to the 2013
    guidance?

    A.1. The Consumer Bureau is working hard to ensure that lending
    practices are fair and equitable for all consumers and honest
    businesses. Our March 2013 Indirect Auto Lending and Compliance
    with the Equal Credit Opportunity Act Bulletin \1\ reminded
    indirect auto lenders of their existing responsibilities under
    the Equal Credit Opportunity Act, but did not mandate any
    particular method for mitigating fair lending risk.
    ---------------------------------------------------------------------------
         \1\ http://files.consumerfinance.gov/f/201303_cfpb_march_-Auto-
    Finance-Bulletin.pdf
    ---------------------------------------------------------------------------
        We have examined over a dozen of the Nation's largest auto
    lenders and achieved important market awareness and movement,
    and we believe that a wide range of supervisory compliance
    solutions tailored to each lender will work to secure and
    advance our progress in protecting consumers. The Consumer
    Bureau takes a data-driven approach to our work and we are
    always interested in reviewing analyses of the impact of this
    work.

    Q.2. Is it fair to say that the CFPB's view on this indirect
    auto finance leaves open the possibility that all consumers may
    find themselves paying higher costs for auto loans due to the
    lenders' management of fair credit risk?

    A.2. No. The Consumer Bureau is working to ensure that lending
    practices are fair and equitable and that credit markets
    function competitively and efficiently for all consumers and
    businesses. We take a data-driven approach to our work and
    would be interested in any analyses of the impact of greater
    lender adoption of nondiscretionary compensation programs,
    lower caps, or more stringent compliance management systems.
        The Consumer Bureau has seen no indication that our work in
    indirect auto lending has resulted in credit being restricted
    or made more costly for consumers. To the contrary, the number
    of new auto loans originated in the first half of 2015 was up 8
    percent over the prior year; for auto loans, this marks a 45
    percent increase since 2011 and a 9-year high. \2\
    ---------------------------------------------------------------------------
         \2\ See Financial Report of the Consumer Financial Protection
    Bureau for Fiscal year 2015, available at http://
    files.consumerfinance.gov/f/201511_cfpb_report_fiscal-year-2015.pdf.
    ---------------------------------------------------------------------------
        Further, a November 2015 press release from the National
    Automobile Dealers Association (NADA) predicts that sales of
    new cars and light trucks will continue their post-recession
    climb, reaching an all-time high of 17.71 million vehicles in
    2016. \3\ A July 2017 press release from NADA predict new
    vehicle sales will remain unchanged in 2017. \4\
    ---------------------------------------------------------------------------
         \3\ National Automobile Dealers Association. (2015). NADA
    forecasts 17.71 million new vehicle sales in 2016, citing, in part,
    because of low interest rates on auto loans [Press release]. Retrieved
    from: https://www.nada.org/Custom_Templates/DetailPressRelease.aspx?
    id=21474842879; see also National Automobile Dealers Association.
    (2016). NADA declares new vehicle sales for cars and light trucks are
    on pace to reach forecast of 17.7 million vehicles in 2016. [Press
    release]. Retrieved from: https://www.nada.org/2016Convention/
    EconomicForecast/;
         \4\ See also National Automobile Dealers Association. (2017). NADA
    declares new vehicle sales forecast remains unchanged at 17.1 million
    for 2017. [Press release]. Retrieved from: https://blog.nada.org/2017/
    07/06/nadas-new-vehicle-sales-forecast-remains-unchanged-at-17-1-
    million-for-2017/.

    Q.3. Does the CFPB's approach, at the very least, prevent
    reimbursements or restitution to borrowers who were not
    ---------------------------------------------------------------------------
    actually discriminated against in the financing of a vehicle?

    A.3. With regard to the distribution of settlement funds, the
    Consumer Bureau works hard to ensure that as many eligible
    consumers as possible receive appropriate remuneration, while
    at the same time putting in place important safeguards to
    ensure that eligible consumers are the recipients of relief.

    Q.4. Would you please list the considerations that go into the
    calculation the CFPB uses to determine whether an enforcement
    action or a rulemaking process is the right course of action?
    Please be specific.

    A.4. The Consumer Bureau's approach to regulation and
    enforcement is consistent with the Administrative Procedures
    Act and the practices of other Federal agencies. The Dodd-Frank
    Wall Street Reform and Consumer Protection Act gave the
    Consumer Bureau a number of tools--including rulemaking and
    enforcement--to address and prevent consumer harm. In each
    action the Consumer Bureau takes, we endeavor to choose the
    appropriate tool to protect consumers and honest businesses in
    the marketplace. The Consumer Bureau has taken enforcement
    actions where we believe violations of existing laws warranted
    that response.
        When it comes to specific enforcement actions, the Consumer
    Bureau considers a number of factors in each filed action and
    negotiated resolution. These include, but are not limited to:
    (a) the number of victims affected; (b) the amount of
    individual consumer harm; (c) the type of harm, including
    whether such harm is temporary, likely to or likely to affect
    the broader economy; (d) whether consumers have the ability to
    avoid the conduct or ``shop'' for the product or service; (e)
    whether the harmful conduct creates market distortion; and (f)
    whether the conduct targets or significantly affects a
    vulnerable population.
        On the other hand, where our research and analysis suggests
    the need for regulatory intervention, the Consumer Bureau seeks
    to develop regulations that will protect consumers without
    unintended consequences or unnecessary costs. As part of the
    rulemaking process, the Consumer Bureau carefully assesses the
    benefits and costs that the regulations we consider may have on
    consumers and financial institutions. Balanced regulations are
    essential for protecting consumers from harmful practices and
    ensuring that consumer financial markets function in a fair,
    transparent, and competitive manner.
                                    ------

             RESPONSES TO WRITTEN QUESTIONS OF SENATOR REED
                          FROM RICHARD CORDRAY

    Q.1. There is a need for student loan refinancing opportunities
    for both Federal student loans and private student loans.
        Is the private market providing sufficient access to high
    quality, safe student loan refinancing products for a broad
    range of borrowers who could benefit? What are the gaps in
    consumer protections for student loan refinancing?

    A.1. We have observed considerable growth in new student loan
    refinancing activity--both refinancing of private student loans
    and Federal student loans. This growth has been driven by the
    expansion of refinance programs at large financial
    institutions, specialty refinancing providers and State lending
    authorities.
        Although refinancing has expanded, the market is oriented
    to serve consumers with prime and super-prime credit profiles.
    In contrast, these products may be effectively unavailable for
    consumers with limited or negative credit histories. As a
    result, the interest rate savings offered to certain consumers
    through private refinancing may be unavailable to broad
    segments of the student loan market.
        An additional key concern is whether those borrowers who
    have access to private refinancing are aware of and understand
    the inherent trade-off when converting one or more Federal
    loans into a private student loan. These may include risks when
    converting a fixed-rate loan to a variable-rate loan and the
    loss of access to a wide array of Federal consumer protections,
    including: Income-driven repayment plans, death and disability
    discharge, loan forgiveness, deferment and forbearance, loss of
    benefits on pre-service obligations for active-duty
    servicemembers.
        The Consumer Bureau has advised borrowers with Federal
    student loans considering refinancing to be sure to understand
    what they are giving up before making this choice. In general,
    lenders may warn borrowers about the benefits they are giving
    up when refinancing out of a Federal student loan. For
    consumers who have a secure job, emergency savings, strong
    credit, and are unlikely to benefit from forgiveness options,
    refinancing may be a choice worth considering.
                                    ------

           RESPONSES TO WRITTEN QUESTIONS OF SENATOR MERKLEY
                          FROM RICHARD CORDRAY

    Q.1. Over the past several years, financial technology firms
    (or FinTech firms) have expanded their online lending presence
    to consumers and small businesses. FinTech has the potential to
    offer a new source of credit for borrowers and a potential
    investment opportunity for those with capital to lend.
        According to Morgan Stanley, FinTech firms funded an
    estimated $5 billion in small-business loans in 2014 and will
    grow 50 percent annually through 2020. \1\ And according to the
    Wall Street Journal, in recent years alternative lenders
    increased their market share to 26 percent from 10 percent. \2\
    ---------------------------------------------------------------------------
         \1\ ``Global Marketplace Lending: Disruptive Innovation in
    Finance'', Morgan Stanley Blue Paper, Morgan Stanley Research, May 19,
    2015, Accessed April 7, 2016. Available at: http://www.synthesis-
    sif.lu/wp-content/uploads/2015/07/GlobalMarketplaceLending.pdf.
         \2\ Ruth Simon, ``Big Banks Cut Back on Loans to Small Business'',
    The Wall Street Journal, November 26, 2015. Accessed April 7, 2016.
    Available at: http://www.wsj.com/articles/big-banks-cut-back-on-small-
    business-1448586637.
    ---------------------------------------------------------------------------
        The industry's growth did not go unnoticed by the Treasury
    Department which put out Request for Information (RFI) on
    FinTech companies last summer. Senators Brown and Shaheen
    joined me in writing to Treasury asking for more specifics of
    their findings. \3\ San Francisco Federal Reserve President
    Williams has also taken notice of the growing FinTech industry.
    In an interview with the American Banker, Fed President
    Williams noted that while there is promise in alternative
    lending products, there does exist the potential to leave low-
    and middle-income borrowers behind or make it easier to engage
    in predatory lending. \4\ And the OCC recently released a white
    paper on ``responsible innovation,'' taking a look into
    FinTech. \5\
    ---------------------------------------------------------------------------
         \3\ ``Merkley, Brown, Shaheen Press for Information on Financial
    Technology Market's Impact on Small Businesses and Consumers'', Press
    Release, The Office of Senator Jeff Merkley. Accessed April 7, 2016.
    Available at: https://www.merkley.senate.gov/news/press-releases/
    merkley-brown-shaheen-press-for-information-on-financial-technology-
    markets-impact-on-small-businesses-and-consumers.
         \4\ John Heitman, ``Ten Questions for San Francisco Fed President
    John Williams'', American Banker, March 28, 2016. Accessed April 7,
    2016. Available at: http://www.americanbanker.com/news/law-regulation/
    ten-guestions-for-san-francisco-fed-president-john-williams-1080114-
    1.html.
         \5\ United States, Department of Treasury, Office of the
    Comptroller of the Currency, ``Supporting Responsible Innovation in the
    Federal Reserve Banking System: An OCC Perspective'', March 2016,
    Accessed April 7, 2016. Available at: http://www.occ.treas.gov/news-
    issuances/news-releases/20l6/nr-occ-2016-39.html.
    ---------------------------------------------------------------------------
        What we do know is that FinTech firms operate in a largely
    undefined regulatory space. Given this industry's sudden
    emergence and exponential growth, there is concern that they
    are operating outside the boundaries of regulation and there is
    a potential for individuals and small businesses to become
    targets of predatory practices.
        In February, the CFPB finalized a new policy to issue no-
    action letters to FinTech firms. Companies must apply for a no-
    action letter and if they are granted, these letters offer
    assurances from the CFPB that it has no intention of taking
    enforcement action against the company for introducing a new
    financial service. However, no-action letters can be revoked at
    any time should the CFPB changes its mind.
        It is my understanding that the CFPB's policy is aimed at
    reducing regulatory uncertainty hanging over companies that
    develop untested financial products and services with the
    potential for ``significant consumer benefit.'' However, the
    CFPB estimated that it would receive an average of only two or
    three ``actionable'' applications per year and that approvals
    would be given only ``rarely.''
        Director Cordray, the CFPB recently finalized a new policy
    to issue no-action letters to firms with ``innovative financial
    products or services.'' Why did the CFPB decide to take this
    step?

    A.1. The Consumer Bureau decided to use No-Action letters as
    one possible means of reducing regulatory uncertainty,
    specifically in cases where doing so would facilitate consumer
    access to innovative financial products or services. The
    Consumer Bureau finalized the policy to establish a process for
    companies to apply for a No-Action letter in February 2016. The
    policy lays out the information a company should provide in an
    application, as well as the criteria the Consumer Bureau would
    use to assess applicants. \6\
    ---------------------------------------------------------------------------
         \6\ Consumer Financial Protection Bureau Policy on No-Action
    Letters; information collection, 81 FR 8686 (Feb. 22, 2016), also
    available at http://files.consumerfinance.gov/f/201602_cfpb_no-action-
    letter-policy.pdf.
    ---------------------------------------------------------------------------
        The Consumer Bureau views the No-Action Letter policy as a
    means of fulfilling its objectives under the Dodd-Frank Act,
    which include ``facilitating [consumer] access'' to and
    ``innovation'' in markets for consumer financial products. The
    No-Action Letter program is not designed solely for FinTech
    startups, but for any firm, including Consumer Bureau
    supervised entities the Consumer Bureau supervised entities,
    looking to offer an innovative financial product or service
    that holds the promise of consumer benefit, but facing
    regulatory uncertainties. We have estimated that only a limited
    number of no-action letters would be released, given the
    limited scope of the No-Action Letter policy and the limited
    resources available to devote to the consideration and issuance
    of No-Action Letters at this time. However, the Consumer Bureau
    is committed to devoting substantial resources to improve
    regulatory clarity more broadly through other means, such as
    extensive interpretive guidance, official interpretation,
    plain-language guides and other similar resources for industry.

    Q.2. Why did you decide to open up the CFPB's complaint
    database to FinTech?

    A.2. Millions of consumers take out personal loans online.
    Marketplace lending--often referred to as ``peer-to-peer'' or
    ``platform'' lending--is a relatively new kind of online
    lending. A marketplace lender uses an online interface to
    connect consumers or businesses seeking to borrow money with
    investors willing to buy or invest in the loan. Generally, the
    marketplace lending platform handles all underwriting and
    customer service interactions with the borrower. Once a loan is
    originated, the company generally makes arrangements to
    transfer ownership or the right to receive payments to the
    investors while it continues to service the loan. Some
    marketplace lenders enter into arrangements with depository
    institutions whereby the bank sets underwriting standards and
    originates the loans and the marketplace lending platform
    handles marketing, underwriting, and customer service. All
    lenders, from online startups to large banks, must follow
    consumer financial protection laws. By accepting these consumer
    complaints, the Consumer Bureau is giving consumers a greater
    voice in these markets and a place to turn to when they
    encounter problems.

    Q.3. The CFPB has created an office to examine FinTech called
    Project Catalyst. What are they specifically looking for?

    A.3. We believe that good, consumer-friendly innovation holds
    great potential for achieving our mission of making the
    consumer finance market work for consumers. Project Catalyst
    closely monitors the developments in the FinTech space and
    educates the Consumer Bureau at large so that the Consumer
    Bureau is always up to date with the latest innovations.
    Project Catalyst also looks for opportunities for the Consumer
    Bureau to engage and collaborate with innovators of consumer-
    friendly products. In particular, Project Catalyst searches for
    opportunities to collaborate with innovators by either engaging
    in research collaborations partnerships, considering trial
    disclosure waivers under the Bureau's authority under section
    1032(e) of the Dodd-Frank Act, or considering No-Action
    Letters.

    Q.4. Mr. Cordray, I want to thank you for continuing the effort
    to protect consumers from the many different predatory mortgage
    products which caused millions of Americans to lose their homes
    during the recent housing crisis. But I'm troubled by recent
    press reports in The Wall Street Journal \7\ and Washington
    Post \8\ that ``alt-doc'' or ``low-doc'' loans are making a
    minor resurgence thanks to a renewed appetite from industry
    looking for riskier assets with higher returns.
    ---------------------------------------------------------------------------
         \7\ Kirsten Grind, ``Remember `Liar Loans'? Wall Street Pushes a
    Twist on the Crisis-Era Mortgage'', The Wall Street Journal
    (subscription), February 1, 2016. Accessed April 7, 2016. Available at:
    http://www.wsj.com/articles/crisis-era-mortgage-attempts-a-comeback-
    1454372551.
         \8\ Editorial Board, ``Talk About Breaking Up Big Banks Ignores
    Reforms Made Since the Recession'', Op-Ed, Washington Post, February 3,
    2016, Accessed April 7, 2016. Available at: https://
    www.washingtonpost.com/opinions/talk-about-breaking-up-big-banks-
    ignores-reforms-made-since-the-recession/2016/02/03/e0043618-c9e9-11e5-
    a7b2-5a2f824b02c9_story.html.
    ---------------------------------------------------------------------------
        While this market's resurgence is still small, at an
    estimated $18 to $20 billion in 2015, compared to $767 billion
    for conventional mortgages, the one thing we learned from the
    mortgage crisis is that these tidal waves must be stopped while
    they're small or they can threaten the entire economy.
        Director Cordray, are these types of loans on the CFPB's
    radar?

    A.4. We routinely monitor consumer financial services markets,
    and the types of mortgage product being offered are one part of
    that monitoring. We conduct this monitoring through various
    means, including analysis of published and unpublished data
    that we have available as well as regular outreach and other
    informational meetings with industry participants, consumer
    advocates, and other stakeholders. In addition, we review our
    consumer complaints and information submitted to our
    whistleblower hotline for relevant information.
        As you know, the Truth in Lending Act, as amended by the
    Dodd-Frank Wall Street Reform and Consumer Protection Act,
    generally prohibits a creditor from making a residential
    mortgage loan unless the creditor makes a reasonable and good
    faith determination, based on verified and documented
    information, that the consumer has a reasonable ability to
    repay the loan according to its terms. These documentation and
    verification requirements effectively prohibit no documentation
    and limited documentation loans that were common in the later
    years of the housing bubble. For example, the Consumer Bureau's
    rules require a creditor to verify the information relied on in
    considering a consumer's debts relative to income or residual
    income after paying debts, using reasonably reliable third-
    party records, with special rules for verifying a consumer's
    income or assets. To the extent creditors evade or ignore these
    verification and documentation requirements, we are prepared to
    bring supervisory and enforcement attention to them.
                  Additional Material Supplied for the Record

    SEMIANNUAL REPORT OF THE CONSUMER FINANCIAL PROTECTION BUREAU, OCTOBER
                             1, 2015-MARCH 31, 2016

      [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                STATEMENTS AND LETTERS SUBMITTED FOR THE RECORD

      [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]