[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\
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     \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.
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    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:
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     \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\
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     \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.
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    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.
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    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\
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     \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.
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    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\
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     \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.
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    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
                         
                         
                         
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            STATEMENTS AND LETTERS SUBMITTED FOR THE RECORD
            
            
            
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