    [Senate Hearing 114-104]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 114-104

        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

                                 FIRST SESSION

                                       ON

    EXAMINING THE CONSUMER FINANCIAL PROTECTION BUREAU'S SEMIANNUAL REPORT
     TO CONGRESS, REVIEWING THE BUREAU'S OPERATIONS AND ACTIONS SINCE THE
                      LAST SEMIANNUAL REPORT WAS PUBLISHED

                                   __________

                                 JULY 15, 2015

                                   __________

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

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

                                  _________

                    U.S. GOVERNMENT PUBLISHING OFFICE

     97-399 PDF                 WASHINGTON : 2016
    ____________________________________________________________________
     For sale by the Superintendent of Documents, U.S. Government Publishing Office,
    Internet:bookstore.gpo.gov. Phone:toll free (866)512-1800;DC area (202)512-1800
      Fax:(202) 512-2104 Mail:Stop IDCC,Washington,DC 20402-001

                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

                           Beth Zorc, Senior Counsel

        John V. O'Hara, Senior Counsel for Illicit Finance and National
                                Security Policy

           Christopher Ford, Senior Counsel, National Security Policy

                Laura Swanson, Democratic Deputy Staff Director

                    Graham Steele, Democratic Chief Counsel

                   Colin McGinnis, Democratic Policy Director

                           Dawn Ratliff, Chief Clerk

                          Troy Cornell, Hearing Clerk

                          Shelvin Simmons, IT Director

                              Jim Crowell, Editor

                                      (ii)

                                C O N T E N T S

                                  ----------

                            WEDNESDAY, JULY 15, 2015

                                                                       Page

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

    Opening statements, comments, or prepared statements of:
        Senator Brown................................................     3

                                    WITNESS

    Richard Cordray, Director, Consumer Financial Protection Bureau..     4
        Prepared statement...........................................    45
        Responses to written questions of:
            Chairman Shelby..........................................    47
            Senator Brown............................................    52
            Senator Crapo............................................    58
            Senator Vitter...........................................    60
            Senator Sasse............................................    62
            Senator Rounds...........................................    64
            Senator Moran............................................    66
            Senator Menendez.........................................    67

                  Additional Material Supplied for the Record

    Semi-Annual Report of the Consumer Financial Protection Bureau,
      October 1, 2014-March 31, 2015.................................    75

                                     (iii)

        THE CONSUMER FINANCIAL PROTECTION BUREAU'S SEMIANNUAL REPORT TO
                                    CONGRESS

                                  ----------

                            WEDNESDAY, JULY 15, 2015

                                           U.S. Senate,
              Committee on Banking, Housing, and Urban Affairs,
                                                        Washington, DC.
        The Committee met at 10:02 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. The Committee will come to order.
        Today the Committee will hear from Richard Cordray, the
    Director of the Bureau of Consumer Financial Protection. The
    Bureau has grown to over 1,450 employees and has been very
    active since Director Cordray's last testimony before this
    Committee.
        Among other things, it has recently expanded enforcement
    actions to cover telecom companies and broadened its authority
    over the auto finance industry. These actions, like others
    undertaken by the Bureau since its formation, have not been
    without controversy. Many would say that some of them go beyond
    what Congress envisioned in Dodd-Frank.
        For instance, the Bureau's regulation of auto lending now
    involves over 30 nonbank lenders not previously subject to its
    supervision. This move has been called into question given the
    specific exemption for auto dealers in Dodd-Frank.
        In addition to concerns with recent regulatory actions,
    issues remain with the Bureau's lack of accountability. This
    has been demonstrated by concerns with the Bureau's budgeting
    process, including the rising costs of renovation for the
    CFPB's new headquarters.
        According to the Federal Reserve Inspector General, the
    estimated cost of actual renovation increased from $40 million
    in February of 2012 to $145 million in December of 2013. This
    is over 3 \1/2\ times the initial estimate. The Inspector
    General also estimated that the total cost is now closer to
    $216 million. The Administration has yet to explain who
    approved the renovation and what happened to the documentation
    involved.
        Unfortunately, Congress does not have control over how the
    Bureau spends its funds because the CFPB operates outside of
    the appropriations process. Even the Federal Reserve, which
    funds the CFPB from its earnings, does not control the Bureau's
    budget.
        Because Congress cannot tighten the financial reins when
    budgeting issues arise, the Bureau's current structure makes
    meaningful congressional oversight very difficult.
        So-called independence is one reason cited by the authors
    of Dodd-Frank for the Bureau's structure. But other independent
    agencies, such as the Securities and Exchange Commission, the
    CFTC, the FTC, and the CPSC, are all subject to the
    appropriations process. Additionally, the Bureau does not even
    have its own Office of Inspector General, relying instead on
    the Inspector General of the Federal Reserve.
        Some of us have urged the adoption of specific reforms to
    make the Bureau more accountable and more transparent. By
    putting the Bureau through the appropriations process and
    establishing a board of directors, I believe it would resemble
    other independent agencies and provide Congress with the
    ability to conduct meaningful oversight.
        Unfortunately, calls for reform have been rejected in past
    Congresses. Therefore, the only remaining oversight tool
    available to Congress is to hold hearings and hope that any
    concerns expressed perhaps would be addressed.
        Director Cordray, it would be like giving you the authority
    to implement Federal consumer financial laws but withholding
    the authority to enforce them. I think you would agree that
    would make you highly ineffective as an agency charged with
    implementing our consumer financial laws.
        Congressional oversight of the Bureau is critical now more
    than ever because of the CFPB's growing reach over the
    practices of individuals and companies in the financial sector.
        For the time being here, we will conduct hearings and
    submit respectful requests that may or may not be addressed. I
    am confident that the time will come when we will reassert our
    constitutional prerogative that the supporters of Dodd-Frank
    sacrificed 5 years ago in the name of bureaucratic
    independence. Only then, I believe, will the Bureau be truly
    accountable to the people's representatives.
        Senator Brown.

                   STATEMENT OF SENATOR SHERROD BROWN

        Senator Brown. Thank you, Mr. Chairman.
        Director Cordray, welcome back to the Senate Banking
    Committee. Next week marks, as we know, the 5-year anniversary
    of the Wall Street Reform Act which created the Consumer
    Financial Protection Bureau. The financial crisis, we should
    never forget--the worst this country has seen since the Great
    Depression--exposed many weaknesses in our financial regulatory
    system.
        One of the most troubling before the crisis was that no one
    was looking out for consumers. Consumers were steered into
    mortgages they could not afford, often with terms that were not
    disclosed: high fees, abusive payment structures, and sudden
    interest rates increases. Five million Americans lost their
    homes in foreclosure. In the home State of the Director and my
    State alone, half a million homes were foreclosed upon between
    2006 and 2011--one-half a million homes.
        At the height of the crisis in 2009, one in three Ohioans
    with mortgages were underwater; one in every six mortgage
    holders was at least 30 days delinquent or in foreclosure.
        Though the banking regulators were supposed to be enforcing
    consumer financial laws, too often they looked elsewhere. A
    number of industries developed in the shadows with no clear
    Federal oversight. More importantly, no Federal regulator was
    expressly tasked with ensuring that consumers were treated
    fairly in their financial transactions.
        We created the CFPB to fill this void to make sure that
    never again would consumers be an afterthought in our Nation's
    financial system. The CFPB opened its doors just shy of 4 years
    ago. In these 4 years, the CFPB has proved over and over that
    its creation was one of the big success stories of Wall Street
    reform.
        As the Chairman speaks of the CFPB's budget, I think it is
    important to note that the CFPB has returned $10 billion to the
    pockets of 17 million consumers. It has fined countless
    companies for egregious consumer abuses, including credit card
    companies secretly adding on unwanted products, phone companies
    cramming fees onto consumers' bills, or mortgage servicers and
    lenders illegally foreclosing on homeowners and servicemembers.
        The agency has served as an important place where consumers
    can turn. Over 650,000 complaints have been filed with the
    Bureau. The CFPB is to be commended for these successes. The
    ongoing enforcement actions, though, show us that work is not
    done. Just last week, the CFPB, 47 States, and the District of
    Columbia took action against a bank for illegally robo-signing
    court documents in selling zombie credit card debt, or debt
    that had already been cleared. Today I will introduce a bill
    that will address zombie debt, along with several of my
    colleagues in the introduction, and I hope that CFPB will
    continue to address this issue.
        Last week, the Fed published numbers showing that consumer
    borrowing is at a record high, $3.4 trillion dollars, led by
    steady increases in student loans, auto loans, and credit card
    loans. As consumers take on more debt, the opportunity for
    risky behavior increases.
        I look forward to hearing from Director Cordray on what the
    CFPB views as areas to watch in the consumer market and what
    this agency will do moving forward. I look forward to hearing
    when Director Cordray expects to finalize rules on payday and
    installment loans, on auto title loans, and prepaid cards, on
    overdraft and debt collection. We have seen in State after
    State that predatory lenders are nimble. As soon as a State
    passes legislation to rein them in, the lenders morph into
    something else. We saw that in Ohio after a ballot issue
    passed. Six years ago, Ohio enacted a short-term lender law
    with strong bipartisan support. It was short-lived as payday
    lenders evaded this law by registering as mortgage lenders or
    by adding fees. This creativity at the State level necessitates
    continued vigilance by the Consumer Bureau, and I hope that the
    CFPB's rules governing short-term loans close these loopholes.
        Much of the CFPB's most important work is centered on
    mortgage regulation. The agency's ability to repay rules ensure
    that consumers are not trapped in mortgages they cannot afford.
    The CFPB's rule to streamline forms will help consumers
    understand what is happening at the table during closing.
        All these actions speak for themselves as to why this
    agency is so, so important to millions of Americans. Yet
    opponents continue to work to undermine the agency by weakening
    its independence, by changing its structure. Lately, there have
    been attempts to chip away at actions the agency has taken on
    arbitration and small-dollar loans. They have argued the agency
    should not be able to collect data about markets that were
    formally nontransparent and unregulated.
        I will continue to fight, as so many Members of this
    Committee will, all these attempts to destabilize the CFPB. Our
    consumers deserve a strong watchdog that can do its job
    independently, and it is our job to make sure that happens.
        Thank you, Mr. Chairman.
        Chairman Shelby. Thank you, Senator Brown.
        Without objection, at this time I would like to enter into
    the record statements from the Credit Union National
    Association and the National Association of Federal Credit
    Unions.
        Chairman Shelby. Director Cordray, welcome to the Committee
    again. Your written testimony will be made part of the 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. Thank you all for the opportunity to
    testify today about our latest semiannual report to Congress.
    We appreciate your continued oversight and leadership 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. And I would
    reiterate, Mr. Chairman, that we take very seriously the
    oversight that we get from Congress. These hearings in front of
    the Senate Banking Committee, which are required by law, are
    important oversight for us. We listen carefully to what is
    said, and we take it to heart as we go about our work.
        Next week marks 5 years since the passage of the Dodd-Frank
    Wall Street Reform and Consumer Protection Act, as has been
    noted, and it is 4 years since the Consumer Bureau actually
    opened its doors. As you know, Congress created this agency in
    response to the financial crisis with the purpose and sole
    focus of protecting consumers in the financial marketplace. We
    understand our responsibility to stand on the side of consumers
    and ensure that they are treated fairly. Through fair rules,
    consistent oversight, appropriate enforcement of the law, and
    broad-based consumer engagement, the Consumer Bureau is working
    to restore people's trust and confidence in the markets they
    use for everyday financial products and services.
        To date, the Bureau's enforcement activity has resulted in
    more than $10.1 billion in relief for over 17 million
    consumers. Our supervisory actions have resulted in financial
    institutions, correcting many sub-par and illegal practices,
    and providing almost $200 million in redress to over 1.6
    million consumers. And we have now handled, as was mentioned,
    more than 650,000 complaints--a matter that is particularly
    important to us--from consumers that address all manner of
    financial products and services. These consumers are your
    constituents in each of your States. For example, one excerpt
    of a complaint narrative from a servicemember in Alabama reads:

            We opened an account . . . We paid as agreed until we became
            unable to pay the full amount . . . We made an agreement to pay
            a lesser amount per month and kept paying via allotment. [The
            company] got a judgment against us while I was training. I was
            not served with a judgment prior to court or after . . . I was
            informed of it when my wages began to be garnished . . . We
            have asked repeatedly to have this issue fixed . . . We have in
            total paid this company nearly $25,000 over the past 11 years
            for a couch and loveseat, computer hutch, table and chairs. The
            furniture has not lasted, however the payments and ruin
            continue . . . We need assistance as we have tried every other
            step possible to fix this without aid.

        Another excerpt, from a consumer in my home State of Ohio,
    and the Ranking Member's home State, reads:

            [I] elected and agreed to a Reduced Rate Payment Plan with [a
            student loan servicer]. In addition to being charged incorrect
            interest rates, my monthly payment was incorrectly allocated
            which is resulting in late fees and a delinquency notice. After
            speaking with . . . customer service representatives and a call
            time of . . . hours, no resolution had been reached.

        These are the stories that motivate us in our work.
        In this, our most recent semiannual report to Congress and
    the President, we describe the Bureau's efforts to achieve our
    vital mission on behalf of consumers, including those in your
    home States and mine. During the timeframe covered by the
    report, we have helped secure orders through enforcement
    actions for millions of dollars in relief to consumers who fell
    victim to various violations of consumer financial protection
    laws, along with over $32 million in civil money penalties. For
    example, we took action against a company for illegal debt
    collections practices that resulted in $2.5 million in relief
    for servicemembers. We also stopped an illegal kickback scheme
    for marketing services, which resulted in $11.1 million in
    redress for wronged consumers. We worked with the Department of
    Education to obtain $480 million in debt relief to student loan
    borrowers who were wronged by Corinthian Colleges, a for-profit
    chain of colleges that violated the law and has since declared
    bankruptcy.
        During the reporting period, the Bureau also issued a
    number of proposed and final rules. In October 2014, we issued
    a final rule to reduce burdens on industry by promoting more
    effective privacy disclosures from financial institutions to
    their customers. In November 2014, the Bureau issued a Notice
    of Proposed Rulemaking to provide strong new Federal consumer
    protections for the first time for prepaid cards and accounts
    that had no such protections. In December 2014, the Bureau
    issued a proposal to clarify various provisions of its mortgage
    servicing rules. In January 2015, the Bureau proposed further
    changes to some of our mortgage rules to facilitate mortgage
    lending by small creditors, particularly those in rural or
    underserved areas, community banks, and credit unions. This
    would increase the number of financial institutions able to
    offer certain types of mortgages in rural or underserved areas
    and help small creditors adjust their business practices to
    comply with the new rules.
        As a data-driven institution, the Consumer Bureau published
    several reports during this reporting period that highlight
    important topics in consumer finance such as medical debt,
    arbitration agreements, reverse mortgages, and consumer
    perspectives on credit scores and credit reports. We also
    released a new ``Know Before You Owe'' mortgage toolkit that
    will help encourage consumers to shop for mortgages and better
    understand how to go about the important task of buying a home.
        In the years to come, we look forward to continuing to
    fulfill Congress' vision of an agency that is dedicated to
    cultivating a consumer financial marketplace based on
    transparency, responsible practices, sound innovation, and
    excellent customer service.
        Thank you for the opportunity to testify today, Mr.
    Chairman. I look forward to your questions.
        Chairman Shelby. Thank you.
        Director Cordray, you have said many times that you are
    accountable to Congress. However, you get to determine your
    budget and how to spend it. Neither Congress nor the Fed can
    tell you how to allocate taxpayers' money. Many Members of
    Congress have expressed strong disapproval of the Bureau's
    costly building renovations, which include a waterfall and a
    four-story glass staircase, and now stands at more than 3 1/2
    times, it is my understanding, the original estimate.
        Has this disapproval by people caused you to change your
    renovation plans in any way? And if so, tell us what changes
    you have made, if any?
        Mr. Cordray. So two answers to that question.
        First, on the overall issue of accountability and
    oversight, we are accountable to this Congress in numerous ways
    that are in our statute. The GAO does a regular audit of our
    financial statements and internal controls each year, which is
    not common to Federal agencies. We are subject to an
    independent audit also by our statute. We are subject to
    reviews by our Inspector General, which have been vigorous. I
    am required by law to testify in front of this Committee--that
    is where the Congress put the jurisdiction, which is
    appropriate, and you are vigorous in your oversight--twice a
    year and the House Financial Services Committee twice a year.
        We have numerous other accountability mechanisms as well,
    and like the other banking agencies, we are not subject to the
    appropriation process. But that is not unique. It would be odd
    if we as a banking regulatory agency were different from the
    others in that respect.
        As to the building project, that has been overhyped and
    misrepresented. The construction costs have remained
    essentially static from before we took on this building and the
    Office of Thrift Supervision had performed an audit that found
    that the building was in disrepair and needed an overhaul if it
    was going to remain a productive Government asset. The
    construction costs have been pretty steady at between $95 and
    $120 million, approximately. We recently awarded the contracts
    through competitive bidding, and they came in thus far under
    budget. And the GSA is managing the program, which feels
    appropriate to me. They know more about it than I do. And they
    have felt and have stated that this is an appropriate
    Government renovation project well within the cost estimates
    for similar projects. That is my understanding of that issue.
        Chairman Shelby. Thank you.
        Yesterday, the Bureau announced the settlement of an
    enforcement action against American Honda Finance Corporation,
    one of the Nation's largest auto lenders. As part of this
    settlement, Honda, it is my understanding, must substantially
    reduce or eliminate entirely the ability of auto dealers to
    raise or lower the finance rate offered to consumers. A recent
    American Banker article quoted from a leaked CFPB memo, stating
    that the Bureau is seeking to accomplish ``the significant
    limitation of dealer discretion.''
        Considering that auto dealers were explicitly exempted from
    the CFPB's jurisdiction in Dodd-Frank, can this be seen as
    anything other than a back-door effort to regulate the auto
    dealers, which were basically exempt from Dodd-Frank?
        Mr. Cordray. So three things on that.
        The first is we and the Justice Department--we are not
    alone in enforcing the Equal Credit Opportunity Act. We work
    together on that. We did resolve a matter with Honda yesterday,
    and it is to Honda's credit--I would commend them. They have
    taken far-reaching steps to constrain the discretionary markup
    which we think has led to discrimination for consumers and the
    Justice Department thinks has led to discrimination for
    consumers. But it was industry leadership that Honda
    demonstrated yesterday, and I commend them for that.
        Second, in terms of our responsibility here, we have been
    very careful to observe a line that was not necessarily an
    obvious or logical line that Congress drew, which was to say
    that the Consumer Bureau has jurisdiction over auto lenders,
    but does not have jurisdiction over auto dealers. That
    jurisdiction, as I understand, is given to the Federal Trade
    Commission. We feel that means that the law has spoken clearly,
    that we have a responsibility to address any sort of issues of
    discrimination or other violations of the law by lenders, but
    not by dealers. You know, that may be illogical, but that is
    the line we have, and we have taken our responsibility
    seriously there. And as I say, we have a partner in this work,
    which is the Department of Justice, and we work together to
    address these issues.
        I think that has been appropriate, but I am always willing
    to hear more from Members of this Committee and Members of
    Congress. We are simply looking to enforce the law and do it
    accurately and appropriately.
        Chairman Shelby. On March 26th, the Bureau released an
    outline of its proposed plans to end payday debt traps. Every
    State, it is my understanding, either regulates or outright
    prohibits payday lending. What analysis did the Bureau conduct
    of State laws and regulations prior to deciding it should
    preempt their regulations? And if you have it, could you
    provide that analysis to the company? Do you want to comment on
    it first?
        Mr. Cordray. Sure. In our statute, there were four issues
    that were very explicitly given full jurisdiction to the
    Consumer Bureau: mortgage origination, mortgage servicing,
    payday lending, and
    private student lending. Those were specifically and explicitly
    called out in our statute.
        We have been working on the issue of small-dollar lending
    for several years since we became an agency. We have published
    two extensive white papers that really detail our analysis of
    this market. They involved scrutiny of upwards of 15 million
    loans. It was the most comprehensive work that has ever been
    done on this industry. And what we concluded from that was that
    the problem of debt traps, rollovers of loans, was a very
    significant problem for consumers who are in the small-dollar
    loan market.
        There is a representation that this is a product that
    people get a loan and repay it and they get in and get out and
    do not end up in a trap. And what we found was that well over
    half the loans are repeat loans in sequences of 6, 8, 10, 12
    loans where people are living their lives off of 400 or 500
    percent interest. That is the issue that we are looking at and
    working to address. It is a very complex issue, I will say. We
    want to preserve access to credit for people who need that
    credit, and we recognize there is a demand for that credit. At
    the same time, we do not want consumers to end up harmed by
    being stuck in a debt trap they cannot get out of and harming
    their finances further. That is the dilemma that we are trying
    to confront there.
        Chairman Shelby. Thank you.
        Senator Brown.
        Senator Brown. Thank you, Mr. Chairman. Before I begin
    questions, I would like to comment on recent attempts to
    undermine the Consumer Bureau.
        Last month, the House Appropriations Committee passed a
    bill that kills the CFPB's independence. Similar attempts have
    been made in the Senate, including the idea that CFPB's
    governance should be changed to a commission. The argument that
    CFPB would be better led by a commission is clearly designed to
    cripple the Bureau and set up one nomination fight after
    another.
        We are, I believe, the only Committee in the Senate that
    has yet to hold a hearing on any of our nominees, most of whom
    were sent to the Committee in January. By contrast, in 2007,
    when Senator Tester and I joined this Committee, when we were
    in the seventh year of the Bush administration and the
    Democrats were in the majority in the Senate, this Committee
    had three nomination hearings and reported out a dozen or so
    nominees before the August recess.
        We have important jobs open waiting for us to act from a
    Fed nominee to the Treasury Under Secretary for Terrorism and
    Financial Crimes. Changing the CFPB's governance would stop the
    agency in its tracks and again leave consumers without a
    Federal watchdog. And I would again point out with the
    criticism that we hear so frequently of the CFPB on budgets, on
    buildings, all that, that the CFPB has returned over $10
    billion to 17 million Americans.
        Now, my questions. I was encouraged, Director, to see the
    CFPB's release of its study on forced arbitration as we
    required in Wall Street reform. I am concerned, but not
    surprised, that the Bureau found no evidence that forced
    arbitration leads to lower prices for consumers and that three
    out of four consumers did not even know they were subject to an
    arbitration clause. A couple of months ago, a number of Members
    of this Committee sent a letter to the Bureau urging swift
    rulemaking to ban forced arbitration in consumer contracts.
        What is the Bureau's thinking on this issue? When can we
    expect to see action?
        Mr. Cordray. Thank you, Ranking Member Brown.
        First of all, as to nominees, all I can say is I was very
    pleased to have the opportunity to be confirmed by the Senate
    in July 2013. It took awhile but ultimately was a strong vote,
    and I really appreciated the care with which the Senate
    considered that nomination. I cannot speak to the others you
    are talking about.
        On the arbitration report, we did issue an arbitration
    report. The Congress required us to do that as part of the
    Dodd-Frank Act. What they said was--actually, Congress did a
    couple things that were interesting on arbitration in that law.
    They first said that they were going to ban outright any sort
    of arbitration clauses, pre-dispute arbitration clauses, in any
    mortgage contracts. This was a significant shift away from the
    permissive attitude to the Federal Arbitration Act that had
    developed over decades.
        They also said--and this is what we are getting to here--
    that as to the rest of consumer financial products and
    services, they required the Bureau, mandated that the Bureau
    perform a study and a report to Congress on the potential
    effects of arbitration agreements of that kind. We did that
    very carefully and deliberately. It took us a couple years of
    work, lots of research, and ultimately a significant report
    that looked into areas that had not been looked into before,
    comparing arbitration in the consumer context with judicial
    resolutions.
        We did issue that report to Congress earlier this year.
    What the statute then says is, having done that, having
    performed that task, it was then for the Bureau to consider
    what might be done, consistent with the public interest and
    consistent with the results of that study, to either modify or
    address pre-dispute arbitration agreements for other consumer
    financial products and services.
        We have determined at this point, having digested our own
    study and gotten a great deal of feedback from industry and
    others on it, that we will be moving ahead with rulemaking in
    this area, and we will be in due course here convening a small
    business review panel as the first step in considering what
    actions to take. So that is where it stands as of this morning.
        Senator Brown. Thank you. We hear from banks about issues
    related to coordination of exams with prudential regulators. I
    know the Inspector General recently reported that it has not
    found duplication of regulators' oversight responsibilities. I
    would like you to talk for a moment about your examinations.
    What is the value of your examination and supervision
    authority? What are you doing to improve coordination with
    other agencies of your exams, particularly of smaller
    institutions, so that--because obviously the exams can be
    costly to them, and we want to make sure there is not
    duplication.
        Mr. Cordray. This is an area of real focus for us and one
    where we have made a tremendous amount of progress over the
    last several years. If you had asked me that question back in
    2012, when we were just undertaking our examination program, we
    were only minimally staffed up. We were probably at about a
    third of what we needed in terms of manpower. The coordination
    was not as good as we would have liked it to be.
        At this point I think the coordination has become quite
    good--not perfect but quite good. I would say in particular, on
    the nonbank side, we coordinate with the Conference of State
    Bank Supervisors who had primary responsibility in that area
    prior to the Consumer Bureau entering the scene, and we have
    done numerous coordinated exams with them, and we share
    information with them back and forth consistently.
        With the other Federal banking agencies, which is also
    quite important because they have prudential safety and
    soundness authority, which is very significant, over these
    institutions and somewhat distinct from our consumer protection
    authority, the law mandates that we collaborate. The law
    mandates that we share drafts of examination reports, which we
    do back and forth. The law mandates that as we go about
    proposing rules that they have a lot of insight and input into
    those rules, which they have had. And I think that has improved
    enormously. Not to say that I do not still hear isolated
    instances now and then where it feels to me the coordination
    could be somewhat better, but I think certainly the leadership
    at those agencies--at the Federal Reserve, at the FDIC and the
    OCC--have been very committed to collaborating with the CFPB in
    understanding that we have distinct but related roles that need
    to be integrated so that institutions do not have to face what
    I would regard as a very unfair situation where they are
    hearing different things from different regulators; then they
    would not know how to proceed. I do not think we are hearing
    that. I tell institutions all the time, let us know about your
    complaints in this regard so we can fix them. And, again, I
    think there has been tremendous progress over the last 3 years.
        Senator Brown. Thank you.
        Thank you, Mr. Chairman.
        Chairman Shelby. Senator Crapo.
        Senator Crapo. Thank you, Mr. Chairman.
        Director Cordray, as you know, recently in Congress we have
    been debating the question of whether the NSA should be allowed
    to access telephone records of Americans, and I have been very
    concerned about the massive data collection that the CFPB has
    been engaged in.
        Last Congress, again, as you know, I asked that the CFPB's
    data collection program be reviewed by the Government
    Accountability Office, and that GAO report established--and I
    would just like to confirm the facts with you, but that GAO
    report established, as I understand it, that the CFPB has an
    ongoing collection of up to 600 million credit cards that are
    being evaluated, the data is being collected on 11 million
    credit reports, 700,000 auto sales, 29 million mortgages, and 5
    \1/2\ million private student loans. I actually think the
    numbers are higher than that. But is that in the ballpark of
    the amount of data collection that the agency is engaging in?
        Mr. Cordray. I certainly would agree with the figures that
    are set forth in the GAO report. They did a very careful
    evaluation of us over the better part of a year. We worked
    closely with them, and I have nothing to dispute in that
    report.
        Senator Crapo. And as you know, in several places the Dodd-
    Frank legislation prohibits the CFPB from collecting personally
    identifiable information. The CFPB claims it is not doing so
    because it is not collecting certain things, like the name,
    Social Security number, and address of the person whose credit
    card data, for example, they are collecting.
        Could you tell me what data points the CFPB is not
    collecting on those credit card transactions?
        Mr. Cordray. So you mentioned the fact that we have
    developed a credit card database. We are working on a national
    mortgage database, consumer credit panel. In all of those
    areas, this information, it is really significant to get this
    because it is often misunderstood. This is de-identified,
    anonymized information. As you noted, the personally
    identifiable information--name, address, Social Security
    number, account number--is not typically included in any of
    that material.
        So it is actually pretty uninteresting data from the
    standpoint of, say, you or I being concerned about our privacy.
    Instead, what it does is it gives us a sense of patterns of
    consumer protection, consumer abuse, consumer service in the
    industry. That is what we are looking for. It is like a GDP or
    an unemployment rate analysis. It is not about what you or I do
    in our daily lives. I am not interested in that. I do not have
    any interest in that.
        Senator Crapo. And you and I have had this conversation
    before.
        Mr. Cordray. Yes.
        Senator Crapo. One of the concerns that I have is that it
    is easy to say that data has been anonymized.
        Mr. Cordray. Yes.
        Senator Crapo. It is also relatively easy to de-anonymize
    it. A recent study by the Massachusetts Institute of Technology
    found that just the dates and locations of four purchases are
    enough to identify about 90 percent of the people in a credit
    card data set.
        So are you telling me that the information the CFPB
    collects cannot be de-anonymized?
        Mr. Cordray. So it is not easy to do that. It would take a
    lot of time and effort to do that. I do not see that it would
    be worth anybody's while to try to do that. Certainly I have no
    interest in that. I do not think anybody at the Bureau does.
        Personally identifiable information within the Federal
    Government agency is only a problem to us doing our work. It
    creates all kinds of issues, and we try to avoid it as much as
    possible so to avoid making extra work for ourselves on those
    issues.
        Senator Crapo. With regard to scope, just to get clear on
    the scope, my understanding is that you are collecting data on
    somewhere above 80, maybe even up to 90 percent of all credit
    cards. Is that correct?
        Mr. Cordray. In that one--all the other areas, we do
    sampling. In that one we do not simply because industry has
    told us it is more efficient and less costly for them to simply
    do a data dump than to have to organize a representative
    sample. And this is consistent with other agencies' treatment
    of the same issues.
        Senator Crapo. Well, because of time, I am going to move
    on. I want to continue this conversation with you----
        Mr. Cordray. That is fine, yes.
        Senator Crapo.----because I do believe that the protection
    for Americans is not adequate.
        Mr. Cordray. I am happy to speak to you personally further,
    and your staff, in your office, wherever you would like, about
    this.
        Senator Crapo. The last question I want to get into with
    you is the Paperwork Reduction Act was designed, among other
    things, to ensure the greatest possible public benefit from and
    maximize the utility of information created, collected,
    maintained, used, shared, and disseminated by the Federal
    Government, and to improve the quality and use of Federal
    information, decisionmaking, and so forth.
        It is my understanding that each of the 1022 orders issued
    to date by the CFPB, which is its orders to collect this data,
    has been sent to fewer than nine companies to avoid the review
    of the request by the Office of Management and Budget. Could
    you tell me, how many times has the CFPB utilized the exception
    for reviewing data requests by sending 1022 requests to fewer
    than ten companies?
        Mr. Cordray. We have utilized it several times, and we have
    also gone through the full process several times. That is one
    way of characterizing what we have done. Another way of
    characterizing it is, as we are seeking data, if we can limit
    the number of institutions so that we do not have to burden
    other institutions, I assume that is what you would like us to
    do. It is another version of sampling, right? So rather than
    seeking the data from hundreds of institutions, if we can get a
    representative sample and it is fewer than nine, that is easier
    for us. But, also, it is easier for institutions, and----
        Senator Crapo. Well, could you clarify for me--and since my
    time is up, maybe you could do it in a written response. I
    would like to know the exact data rather than several times
    this way and several times that way.
        Mr. Cordray. Sure.
        Senator Crapo. I would like to know, out of all of the data
    requests you have made, how many have avoided the OMB review?
        Mr. Cordray. Fair enough. We will get you that, yes.
        Senator Crapo. All right. Thank you.
        Chairman Shelby. Senator Reed.
        Senator Reed. Well, thank you very much, Mr. Chairman, and
    thank you, Director Cordray. I am told today is Military
    Consumer Protection Day, so it is fitting that you should be
    here. And I think one of the--I will speak personally. One of
    the prouder achievements in the Dodd-Frank Act was the Office
    of Servicemember Affairs, which is in your organization, led by
    Holly Petraeus. So thank you for all you are doing to help
    protect our servicemen and -women.
        The basic legal protection for these young Americans is the
    Servicemembers Civil Relief Act that goes back to the Civil
    War. Enforcement is scattered about. The Department of Justice
    has civil authority, civil actions. Banking regulators can go
    in and correct, but the enforcement is really lax. And I think
    you pointed out last week, when you did a report which
    indicated that servicemembers continue to report difficulty
    obtaining their Servicemembers Civil Relief Act protection of 6
    percent on loans, the law going back a long time ago is that if
    you have prior existing debt and you entered the Armed
    Services, it is capped at 6 percent, and they are not getting
    that, particularly student loans. That was the focus of your
    report.
        Mr. Cordray. Yes.
        Senator Reed. And I have put legislation in to give
    authority for enforcement to the CFPB, just as background.
        Now, if Congress were to enact this legislation, how would
    the CFPB be equipped to better protect servicemembers from
    financial harm?
        Mr. Cordray. I just think it stands to reason, Senator, if
    there are more cops on the beat to protect our troops in terms
    of potential abuses or problems in financial products and
    services, which for them are just a distraction from their
    ability to focus on their job, which is defending and
    protecting all of us, that would be a helpful thing.
        I note that the Congress a couple years ago--and I think it
    was under your urging--did provide enforcement authority to the
    Consumer Bureau under the Military Lending Act. I thought that
    was a positive step forward.
        What we do is we work with partners, particularly the
    Department of Justice, who has been active in this area. But,
    again, they only have so many resources. We only have so many
    resources. If there is ever an area where we should be training
    and focusing our resources on the problem, it is making sure
    that our servicemembers are treated appropriately and fairly in
    the financial marketplace so they do not have to worry about
    those problems.
        Senator Reed. Thank you very much. And you made reference
    to the Military Lending Act. That was passed in the fiscal year
    2007 National Defense Act, and it gives you authority, but it
    puts the burden on the Department of Defense to create the
    framework, the rules and regulations. And they are trying to do
    that again. They had a series of regulations that were well
    intentioned but did not really fully address some of the
    problems that face servicemen and -women.
        Can you briefly explain how these members remain vulnerable
    today in anticipation, we hope, of rules that will be
    forthcoming?
        Mr. Cordray. Yes, and I particularly appreciate that you
    have had a very constant and sharp focus on these issues and
    have seen to it that progress moves along in this area. And I
    think we are very close to having a new set of Military Lending
    Act rules, and I commend the Department of Defense for the
    speed with which they have recognized the importance of working
    on this problem.
        The difficulty is that the Military Lending Act, as you
    say, passed in 2007, there was originally a set of rules meant
    to implement it, but they were too narrow, and they were too
    easily circumvented. It is very much the problem that Senator
    Brown pointed out earlier of people being able to swim around
    some of the otherwise well-intentioned rules, and you still can
    see Web site after Web site of online lenders offering loans to
    servicemembers at
    triple-digit percentages and some of them 400, 500, 600
    percent. And they are, gallingly, perfectly legal under the
    current set of rules, which is why Congress, as I understand
    it, has directed that this be redone.
        The Department of Defense has taken that very seriously
    and, again, acted with great speed in addressing it, and I
    believe that very shortly we are going to have a new set of
    rules, and servicemembers will have new, important protections
    that they probably should have had several years ago.
        Senator Reed. Well, thank you very much. Again, you know,
    we are all, rightfully, appreciative of the service that these
    men and women render to the country, and we say that
    repeatedly. But if their rights cannot be adequately protected,
    then the rhetoric is nice, but it is better to have the access
    to the rules and protections. So I thank you for that.
        Mr. Cordray. And I saw in preparing for the testimony today
    that a number of Members of this Committee can speak to this
    personally from their own experience of service. So I think it
    is quite important.
        Senator Reed. Thank you very much.
        Chairman Shelby. Senator Vitter.
        Senator Vitter. Thank you, Mr. Chairman, and thank you, Mr.
    Cordray.
        Like a lot of Members and a lot of citizens, I am really
    concerned about the vast amounts of data that CFPB collects on
    all citizens related to financial transactions. I have a
    proposal to allow any citizen to see what personally
    identifiable data the CFPB has collected on them at least once
    a year. Would you support that concept?
        Mr. Cordray. So, in general, our approach to this issue is
    we are not interested in personally identifiable data where we
    can at all avoid it because it only causes problems for us as
    an agency in our work. The data that we are collecting to be
    able to monitor the credit card market, the mortgage market,
    issues where you all will ask us from time to time whether laws
    have gone too far, whether they have gone far enough, how can
    we possibly answer those questions if we do not have data on
    the marketplace?
        Now, that is very different from me wanting data on what
    Senator Vitter does in individual transactions or what Richard
    Cordray----
        Senator Vitter. You do collect personally identifiable
    data, do you not?
        Mr. Cordray. We have some personally identifiable data in
    two respects in particular: consumer response where consumers
    actually give us their data so that we can work on their
    complaint, the same way constituents go to your office and give
    you personal data----
        Senator Vitter. Apart from complaints where you collect
    significant personally identifiable data?
        Mr. Cordray. And then the second----
        Senator Vitter. You do not?
        Mr. Cordray. Except in a limited number of cases, we do
    not.
        Senator Vitter. You do not collect any of that?
        Mr. Cordray. We have no reason to do that, and the credit--
    --
        Senator Vitter. So you do not collect any of that?
        Mr. Cordray. For example, our credit card data, we take--we
    do not have name, we do not have address, we do not have Social
    Security number, we do not have account number. We are not
    interested in that. We are interested in the pattern of what
    goes on in the market.
        Senator Vitter. Do you collect it before you scrub it?
        Mr. Cordray. We ask for the data to be scrubbed before it
    comes to us wherever possible.
        Senator Vitter. Who gets it and who scrubs it?
        Mr. Cordray. It depends on which database we are talking
    about. I would be happy to have a full briefing for you on
    this.
        Senator Vitter. So somebody involved in the process has
    that.
        Mr. Cordray. Well, typically it is scrubbed before it comes
    to the agency. So private companies have all this data. They
    care very much what you and I do in our personal transactions,
    and they are always marketing to us on that. I mean, that is
    where the focus should be. We typically do not have that data.
    We are trying to monitor markets as a whole. It is a big
    difference and a big distinction, and it is often misunderstood
    and misstated by people. So that is what I would say to that.
        Senator Vitter. So what about these databases, the one-time
    collection of 100,000 to 500,000 deposit advance accounts that
    contain deposit account and transaction-level data? Did you all
    never collect that?
        Mr. Cordray. So we have had particular collections from
    industry in order to work on particular reports. Again, we are
    typically not interested in transaction-level data or
    individual transactions.
        Senator Vitter. So what I just referenced did include
    transaction-level data?
        Mr. Cordray. Again, a number of different collections over
    different times. If you would like us to have people come to
    your office and speak very specifically about anything in
    particular you want to know more about, happy to do it.
        Senator Vitter. OK.
        Mr. Cordray. I do not think you will find it problematic,
    but I want you to be able to work it through. If you do see
    something problematic, I want to know about it because if it is
    a problem in your mind, it is a problem in my mind.
        Senator Vitter. Well, there are big problems in my mind,
    and I have seen personally identifiable, transaction-related
    data that have been collected. However----
        Mr. Cordray. You say you have seen that? How have you seen
    that?
        Senator Vitter. I have read about at least three specific
    databases that you all have collected that contain that, number
    one. Number two----
        Mr. Cordray. Give us a chance to come and brief you, and we
    can speak to the----
        Senator Vitter. OK. Number two, there is all sorts of data
    you collect that involve that information at least before it
    gets to you. So, in any case, however large or small, in your
    opinion, this universe is, would you support citizens being
    able to see what data is being collected by or because of
    regulations of CFPB?
        Mr. Cordray. So that sounds good in the abstract, but
    typically the data that we are collecting, we would not even be
    able to identify individuals, because you and I do not want us
    to know that, and we do not know it. And, therefore, in most
    instances we could not even answer that question.
        Senator Vitter. Well, then what I am describing would not
    apply. It would only apply to what I am describing. Would you
    support citizens having access to that to understand what is
    being collected?
        Mr. Cordray. Again, I would be glad to talk to you further
    about that. If it is consumer response information, they gave
    us the data so we could work their problem, the same way they
    do to your constituent services arms of your offices. If it is
    an enforcement or a supervisory action to get relief to people,
    we need to know who should get the relief and work with the
    institutions to accomplish that.
        In terms of our general data gathering, we typically do not
    know it, and, therefore, we could not tell an individual
    anything about their data because we do not even know whose
    data it is. And that is the way you should want it, and that is
    the way I want it.
        Senator Vitter. Thank you, Mr. Chairman.
        Chairman Shelby. Senator Menendez.
        Senator Menendez. Well, thank you, Mr. Chairman.
        With the fifth anniversary of the Wall Street Reform Act
    this month, there has been a lot of discussion about what the
    law did well, where there might be room for improvement, and
    what challenges still remain on the financial landscape. And as
    we look back, I think without question that establishing the
    Consumer Financial Protection Bureau has been one of the
    cornerstone achievements of the law. Families now have an
    independent cop on the beat on their side to identify and stop
    predatory and deceptive practices. And the CFPB provides both
    consumers and policymakers with better information and research
    about financial products, risks, and trends of the market.
        Now, I fought hard for the CFPB's creation as a Member of
    the Committee, as well as many of the protections it is charged
    with enforcing, such as strong mortgage servicing rules to stop
    foreclosure abuses and protections to end abusive and deceptive
    credit card practices. And I also fought hard for many of the
    Wall Street Reform Act's financial stability and corporate
    governance improvements. And while the law is not perfect and
    some important challenges remain, the last 5 years have shown
    that, overall, there is a lot it got right.
        Director Cordray, the CFPB has been at the forefront of
    many of these gains, which is a testament to the work that you,
    Senator Warren, and the CFPB staff have put in to stand up the
    agency from scratch and continue its positive development. So I
    want to commend you for being a force for good.
        There are two areas that I would like to get into in my
    questions. One is about mortgage servicers' evasion of the
    dual-tracking protections and some of the credit card reforms
    that I fought for in the 2009 Credit CARD Act, and I want to
    talk to you about those.
        I am pleased that the Bureau has made these a priority.
    While our economy and housing market continue to recover from
    the
    crisis, there are still many parts of the country struggling
    with mortgage debt and foreclosure, including my home State of
    New Jersey, which has the highest rate in the country of homes
    currently in foreclosure.
        Now, despite the CFPB's new rules, many homeowners behind
    on their mortgages continue to face obstacles to obtain
    modifications that can help. For example, until mortgage
    servicers mark applications as ``Complete,'' homeowners are not
    eligible for dual-tracking protections, which prohibit a
    servicer from moving forward with a foreclosure while the
    homeowner is pursuing loss mitigation. While homeowners
    scramble to pull together document after document, they
    accumulate additional fees and burdens that make them even more
    likely to default. Some servicers request documents on a
    piecemeal basis and repeatedly request the same documents,
    making prompt and effective loss mitigation a pipe dream for
    distressed homeowners.
        Do you have concerns that servicers are intentionally
    obstructing the loss mitigation process to favor foreclosure?
    And if so, what more can be done to correct misaligned
    incentives and protect consumers?
        Mr. Cordray. We do and I do have concerns about that, and
    for me they go back to when I was a State treasurer and county
    treasurer at the local level in Ohio and saw the difficulties
    that mortgage servicing problems were creating for individual
    homeowners who really did not deserve to have that heaped on
    top of financial distress.
        When we created our new mortgage servicing rules, which
    went into effect in January of 2014, we looked closely at those
    issues which we knew were pain points for consumers--we hear
    about it on our consumer complaint line frequently--and worked
    to address them. We have had further work that we are doing
    both in enforcement actions--we have had several enforcement
    actions against mortgage servicers where this has been part of
    the problem and part of the answers in orders that we had to
    impose, and also in supervisory work that we are doing with
    institutions that we highlighted in our supervisory highlights
    last edition so that all of industry could know again that this
    is a focus for us. It is a problem that has been persisting for
    years, and it is one that they need to clean up.
        It is a complex problem, and as you noted, different States
    have different situations that they are in with underwater
    homeowners or with foreclosure processes that differ
    dramatically from judicial to nonjudicial foreclosure States.
    But this has been pretty much a constant across the country.
        Senator Menendez. Well, I would like to follow up with
    you----
        Mr. Cordray. That is fine.
        Senator Menendez.----because there are many cases of this.
        Mr. Cordray. That is fine.
        Senator Menendez. Finally, with the 2009 Credit CARD Act,
    we are pleased to see that an independent evaluation 4 years
    later shows that the Act's reforms are saving American
    consumers almost $21 billion per year. In 2013, the Bureau
    released its own report on the CARD Act that found similar
    successes, but also
    identified market practices that are a concern for consumers.
    Can you give us an update in that regard?
        Mr. Cordray. I can. I will tell you that--and I go back to
    the State level where we saw the kinds of complaints people
    were making about credit cards. This is 2005-06, before the
    CARD Act, before the financial crisis. That market is
    considerably better today than it was 10 years ago, and I would
    say there are three reasons for that, and I want to give credit
    where it is due. I think the CARD Act and the Federal Reserve
    rules have made an enormous difference in correcting problems
    in late fees, universal default, other issues. Some of the real
    problems have been cleaned up.
        Second, credit card companies themselves have done a better
    job on customer service. You can see it in the J.D. Power
    surveys. The net promotion score index, which they have used in
    handling credit card calls from customers, has been an enormous
    shift, putting financial incentives behind the way people
    handle those calls so that they are more consistent with what
    the customer is looking for rather than just trying to get them
    off the phone. I want to give the companies credit for that. I
    would ask them to think about using net promotion score index
    principles across their customer service in all of their
    financial products. That would be a good thing. They know how
    to do it. They should do it.
        The third thing is consumers themselves. Coming out of the
    financial crisis, consumers have been more responsible about
    thinking about how to approach their credit card debt, whether
    to maintain long-term revolving credit card debt, what the
    interest rates are on that. People have been paying down debt.
    And I think when you are a consumer who is having a better
    experience in managing your own debt, you are going to have a
    better experience with your company, and you are going to have
    a better experience with the marketplace. That to me has been
    one of the success stories.
        There are still issues that we are concerned about and we
    are looking at. Deferred interest is an issue of some concern
    for us. How the rewards programs are advertised, we just want
    to be careful about that. And the credit card add-ons obviously
    have been a point of particular focus for us through
    enforcement actions, and I think much of that has been cleaned
    up. But I would say the credit card industry is a hopeful sign
    for me that the financial institutions, when they come under
    pressure from Congress and others, and also when they
    understand the importance of doing it themselves, have the
    ability to clean up their act. And I would urge them to
    consider what they have done there and how they could do it
    elsewhere.
        Senator Menendez. Thank you, Mr. Chairman.
        Chairman Shelby. Senator Scott.
        Senator Scott. Thank you, Mr. Chairman. Good morning.
        Mr. Cordray. Good morning.
        Senator Scott. As I am sure you are probably aware, South
    Carolina has become an automotive giant in the sector of
    transportation. I am very proud of my State's progress. Whether
    it is BMW, Volvo, Mercedes, Continental Tires, Bridgestone,
    Michelin, Sage Automotive, we certainly have seen a lot of jobs
    created by these manufacturers that depend on dealers in South
    Carolina and around the country being able to sell cars.
        That is why I am particularly concerned by the CFPB's 2013
    bulletin on indirect auto lending, which imposes one-size-fits-
    all, cookie-cutter regulations on lenders and dealers. As
    Chairman Shelby has already stated, CFPB has no jurisdiction
    over auto dealers, but it seems that your Bureau is regulating
    heavily the relationship between lenders and dealers.
        My concern, however, I am not as concerned about the
    dealers or the lenders. I am really concerned about the
    consumers in South Carolina, and whether it is Greenville or
    Charleston, who will now perhaps pay a higher price for their
    vehicles because of the Government's involvement in trying to
    make things better.
        Director Cordray, eliminating the ability for lenders and
    dealers to compete for a customer's business will mean that the
    customer, simply the customer, ultimately pays a higher
    interest rate. How do we explain back at home that CFPB's
    involvement effectively forces some South Carolinians shopping
    for vehicles to pay a higher interest rate on a car note? And
    how does that provide greater consumer protection?
        Mr. Cordray. So a couple things, Senator, and thank you for
    that question.
        First of all, just understand my background, too, is I come
    from a strong automotive State. Talk to Senator Portman, talk
    to Senator Brown. You know, GM, Ford, Chrysler, Honda have been
    very significant presences in that State. When I was the Ohio
    Attorney General, we had to deal with significant challenges in
    the automotive industry resulting from the financial crisis,
    first with Chrysler and then the General Motors bankruptcies,
    which were tremendously burdensome for everybody involved, but
    ultimately came to a good result--the result being that we
    understand the importance of employment in that industry,
    pensions and health care for people who work in that field, and
    its importance to our economy.
        I am the Director of the Consumer Financial Protection
    Bureau. The last thing I want is to do things that hamstring
    important markets like auto lending, mortgage lending, and the
    like. And if I do that, it will be to the detriment of my
    agency and to the American public. And so I am very concerned
    about this.
        In the last several years, we have had the hottest auto
    market. I believe in the history of this country. And that is
    at the same time that the Consumer Bureau was gathering its
    wings and coming into existence. I am pleased about that
    because I think consumers benefit when they have access to
    automotive transportation. Probably in your area as in mine, if
    you do not have the ability to get around through a car or
    truck, you are really in a lot of trouble in your life. So that
    is important.
        Having said that, we also believe strongly that people
    should not be subject to higher prices or onerous terms based
    on their ethnic, racial, or gender background. And the Justice
    Department feels strongly about that as well, and they are our
    partner in this work.
        The bulletin that you described was actually a bulletin
    that was a pretty straightforward restatement of the law--it
    was not a change in the law--several years ago which simply
    stated that if you are a lender and you have an automotive
    lending program, you are subject to the Equal Credit
    Opportunity Act--that is a
    undeniable proposition--and you need to think carefully about
    what your program is.
        Senator Scott. Director Cordray, thank you. I hate to
    interrupt you.
        Mr. Cordray. That is fine.
        Senator Scott. However, I need to go to another question.
    But I will say that there is legislation being promulgated or
    working its way through the House with a large number of the
    CPC members on this specific topic. So I would suggest that
    perhaps the members of the CPC and myself and others as well
    are very concerned about discrimination, and perhaps your
    approach to the indirect lending market is inconsistent with
    the outcome that I think you sincerely desire to achieve.
        My other question in some of the time that I have remaining
    is on our conversation before we started the panel as it
    relates to the TILA and the RESPA and heading toward TREA. I
    think Senator Donnelly and myself both submitted a letter back
    in May asking for a grace period or some time so that those
    good actors in the mortgage business who are trying to
    transition to the new forms would have more time than October
    to have less liability exposure as they move to the new forms.
    I would love to hear your response as we talked about earlier.
        Mr. Cordray. Thank you for that. We have heard a tremendous
    amount from Members of Congress on both sides of Capitol Hill
    about TILA-RESPA, what we call our ``Know Before You Owe''
    mortgage rule, which is something Congress required us to do.
    Just as a reminder, it is in the law. I am required to do this.
    And it is a good thing. It takes a regime that has grown up
    historically that did not make a lot of sense where the
    consumer had to get two different forms at the application
    stage from two different Government agencies--HUD and the
    Federal Reserve--and then two different forms at the closing
    stage. Very confusing to consumers: ``Why am I getting two
    forms? How do they differ? What am I supposed to take from
    that?'' It was impenetrable.
        We were supposed to reduce that to one form at each stage,
    which we have done in this rule, and that is a good thing. And
    everybody recognizes that is a good thing. There is still pain
    always in any kind of transition.
        So that requirement was in the law 5 years ago when it was
    passed. We worked on this very carefully over time, did a lot
    of consumer testing, very transparent about it. We finalized
    the rule in November of 2013. We gave a 21-month implementation
    date, a long implementation date, in response to what we heard
    from industry.
        Nonetheless, as we get toward the end of it, some people
    are not ready. We heard from you and others back in the spring,
    and it is an example of the oversight, Mr. Chairman, you talked
    about. When we get congressional oversight, I take it
    seriously. I do not regard myself as able to blow off concerns
    that people raise to me. If you are raising a concern on behalf
    of your constituents, they are the people I am trying to serve
    as well.
        So we did in the end--and it was due to an error on our
    part, in part, but we did back up the implementation date
    further out of the summer sales season, which was important to
    a number of people. It is now under consideration to put that
    in October. A lot of people do not like a date of something
    like January because when we did our first round of mortgage
    rules and we were under a requirement of timeframes from
    Congress, it was January, and there are so many systems changes
    that they do or systems freezes that they do at the end of the
    year that that is actually inconvenient for people.
        The other thing we said, in specific response to your
    question, was that we went out and worked with the other
    agencies to get an agreement, which we have, that the early
    examination of this will be diagnostic and corrective. We do
    not think people are out there trying to exploit consumers on
    something like this. They are just going to be trying to get it
    right. And so for the first period, which may last many months,
    as we and other agencies look at this, if we see errors, we
    will point out what they are and how they should be corrected.
    We will not be looking to be punitive toward people. We have
    said that explicitly. I will say it again on the record here
    today to you. That is how it will be.
        I can tell you that is what we said about the mortgage
    rules 2 years ago, and that is how it has been, and nobody has
    said otherwise or complained. And we have taken that to heart
    here as well.
        So happy to talk further about it, but I think we have been
    trying to give a fair amount of leeway here while at the same
    time moving forward with an important change that is good for
    consumers and will help them be able to understand this
    transaction better.
        Senator Scott. Thank you.
        Chairman Shelby. Senator Tester.
        Senator Tester. Thank you, Mr. Chairman. Thank you and
    Ranking Member Brown for having this hearing, and thank you for
    being here today, Richard. I appreciate what you are doing. And
    I also want to say, as Senator Scott did, we appreciate the
    extension you gave the TILA-RESPA. You did respond to a letter
    that I and many on this Committee have signed, with Senator
    Donnelly.
        I want to talk a little bit about Native Americans. It is a
    little different ball game there than in other parts of the
    country because of the issues of sovereignty and the issues of
    consultation. You know well, because we have talked about it
    before, I have had some Montana tribes that have been very
    unhappy with the consultation process.
        To be fair, I have also heard from an Oklahoma bank that
    thought that you are doing good things.
        So the question comes up: Is the consultation process--is
    there a policy on what you do and how you do it that applies to
    every tribe across the country? And if that is true, can you
    give me an idea what it is?
        Mr. Cordray. Yes. We--in fact, in response to the back-and-
    forth that you and I had had on this subject, and others from
    that area of the country in particular--but other parts of the
    country may have a tribe or two as well--we did put together a
    policy on consultation, and we formalized that and shared it
    and got input on it from the leading tribal organization. We
    have since then been asked to put together an MOU that would be
    more specific about some of the aspects of how this works, so
    we are working with the tribes on developing an MOU.
        I do not want to have to get into having individual
    consultations to individual tribes because my understanding is
    there are more than 500 of them across the country.
        Senator Tester. There are.
        Mr. Cordray. But we are trying to deal with them as a
    group.
        They are very concerned about the small-dollar lending,
    potential regulations there. We have had two distinct
    consultations with them on that subject at their request at
    this point and had a considerable amount of input from them.
    And, of course, we are open--I want to emphasize this. We try
    to be as an agency very accessible to people at all times to be
    able to come and see us and tell us what they are concerned
    about and what they think. I always feel like that improves our
    work if we know it, and it does not help me not to know it.
        Senator Tester. I agree.
        Mr. Cordray. So I would say that, too.
        But I think we have been trying to be very fulsome in our
    approach to this, and I know you have emphasized that to me
    again and again. Happy to hear further from you as we go.
        Senator Tester. Yeah, and we will try to help where we can
    help. I appreciate that.
        Earlier this year, the Bureau proposed several changes to
    facilitate mortgage lending in rural America. And while I still
    think there are a few things that we can keep working on, I am
    certainly appreciative of what the Bureau did and made some
    positive changes, one of which was expanding the definition of
    rural States; and now under those proposed changes, almost the
    entire State of Montana is considered rural--which is correct,
    by the way.
        So my question is: Outside of Montana, are you still
    hearing from folks who think they are in rural areas that the
    CFPB has not defined very well?
        Mr. Cordray. By the way, I still recall meeting in your
    office in which you impressed upon me that I thought--I said
    that I understand something about rural from parts of Ohio
    which are quite rural. And you said, ``I do not think you
    really know what rural means in Montana.'' And you gave me a
    little schooling on that, and that led in part to our thinking
    about how to expand this definition.
        To go back, the Federal Reserve first proposed a definition
    of rural under this rule before we came into being as an
    agency, and their definition would have covered about 2.2
    percent of the American population, which was plausible but
    somewhat narrow. We looked at it, and we decided that it was
    too narrow. I looked at some maps of Ohio at the time. We came
    out with a different definition that was more like 9.9 percent
    of the population, so about quintupled it. And even after that,
    then people showed me maps of Ohio county by county, and
    Senator Brown and I could do this in our sleep. There were a
    whole bunch of counties that were clearly rural in my mind from
    what I know about them but were not covered under our
    definition. So we felt the need to go back in and do it again.
        One of the things about the Bureau that I appreciate among
    the strong team there is we want to get it right, and if we did
    not get it right, we are typically not going to pretend like we
    did and just say we cannot change it. We are going to try to
    fix it. So we now have a definition of rural that is much
    broader, as you say, includes almost your entire State, covers
    about 22 percent of the American population. Whether it is too
    broad or not, I do not know, but it feels appropriate to me. We
    have had disagreements within the agency over it, but we are
    working to finalize rules on that, which we should do by the
    end of summer. And I think that for the most part they have
    been fairly well received, although once we hear from people,
    as they see how they work, we will think some more about it.
        Senator Tester. OK. One last point, and you do not have to
    answer this. I just want to make the point. I was very
    concerned before this hearing about the information you are
    collecting. And because of the data breach at OPM, the concern
    with it, maybe this database will be breachable, too. I would
    say I was very encouraged by the fact you are not collecting
    Social Security numbers, names, addresses, account numbers.
        Mr. Cordray. Right.
        Senator Tester. I think we have to be careful as
    policymakers, if we were to pass a bill that tells you to
    release any personally identifiable data, that you would have
    to go back and put names and addresses and Social Security
    numbers to that data, which would take a ton of time and would
    make me very concerned about what is going on here.
        Mr. Cordray. I really would not like to have to do that.
        Senator Tester. Yes. Thank you very much. Thank you,
    Richard, and thank you, Mr. Chairman.
        Chairman Shelby. Senator Kirk.
        Senator Kirk. Director, I want to raise the issue, which
    several people have raised on a bipartisan level, of the cost
    of your building. From what I understand from your Inspector
    General, the total cost of this building, which used to be used
    by the Office of Thrift Supervision, is $216 million all in.
    This is a leased facility which you have gutted, and you are
    putting in a two-story waterfall and a glass staircase.
        If you look at the number of employees in your Bureau, it
    is 1,459. That would lead to a per employee cost of
    headquartering them in Washington, DC, of $148,046 per
    employee. I would say that is a little--since this building was
    way OK with the Office of Thrift Supervision, how come you need
    $216 million in upgrades of what they already had?
        Mr. Cordray. So several things. Number one----
        Senator Kirk. Let me just follow up. How does a two-story
    waterfall help you do your job?
        Mr. Cordray. Well, on that one in particular, I would say I
    do not begin to see how it helps us do our job, and probably we
    will not end up with a waterfall in this building, although any
    two-bit shopping mall in America you can probably find a
    waterfall in it somewhere, and I think that has been very
    overstated by people.
        But, in any event, the Office of Thrift Supervision, which
    had this building before it went defunct in the Dodd-Frank Act,
    had
    already recognized and--had done an audit and recognized that
    the building was in deep need of fundamental repairs. We are
    talking about useful----
        Senator Kirk. Let me just interrupt a little bit and follow
    on the line of Senator Tester by saying, as Ohio Attorney
    General, you certainly would be able to pick up the issue of
    the bulk collection that you are doing against the American
    people. As someone who was a reservist in the intelligence
    community for over 20 years, have you taken the specific
    action--I would ask you again: Have you taken the specific
    action to take members of Congress out of your data collection
    and members of the Supreme Court out of your data collection?
    Do you see the issue on separation of powers?
        Mr. Cordray. So you have now kind of piled up two questions
    on me that I have not yet had a chance to answer. I would like
    to go back to the building first, if I may.
        The Office of Thrift Supervision recognized that systems
    were reaching the end of their useful life----
        Senator Kirk. If you would get back to my secondary
    question, have you made sure that you have not collected the
    credit card data of Supreme Court Justices? I will take----
        Mr. Cordray. We have not collected credit card data on any
    Member of Congress or any Supreme Court Justice. I would note
    there would be no purpose for me to do so. But I do not
    consider that issue as more important than the privacy of
    individual consumers across the country where we are typically
    not collecting their data either.
        Senator Kirk. Have you made sure that you have not
    collected Supreme Court Justice information?
        Mr. Cordray. Why on Earth would I do that?
        Senator Kirk. Because of the separation of powers.
        Mr. Cordray. But why would I be collecting Supreme Court
    Justice data? Why would I----
        Senator Kirk. I would assume that this scandal is a bit
    like the NSA scandal, that you have vacuumed up too much, that
    it gives you too much power.
        Mr. Cordray. I cannot really even follow the question here.
        Senator Kirk. I think any first-year law student would pick
    this up, a separation-of-powers argument. It gives you the
    ability to abuse this power and intimidate the Court.
        Mr. Cordray. So--intimidate the Court. I do not really
    follow that at all. We are not doing anything--you are
    hypothesizing--nor would I want to do that, nor would it make
    any sense for me to do that. All it would do is discredit my
    agency.
        Senator Kirk. I think Senator Tester also picked up on the
    issue. If you are collecting all this data, the only purpose of
    collecting data is to be able to access it. And the problem is,
    as you collect this----
        Mr. Cordray. Not so. For private sector, the purpose of
    collecting this information----
        Senator Kirk. My question----
        Mr. Cordray.----is to access it. For us it is to monitor
    markets.
        Senator Kirk. Does the Chinese intelligence service have it
    before you do, now that we have seen on the order of 10 or 200
    million people compromised by OPM? The problem is we do not
    even trust you to keep this secure.
        Mr. Cordray. I can see that you do not trust me. I think
    you are setting out a set of hypotheticals that have nothing to
    do with anything we are doing. I would be happy to have our
    staff brief you more to give you comfort on that score.
        Do you want me to go back to the building, or are we just
    never going to answer that question?
        Senator Kirk. Well, I would ask, why is $148,000 per
    employee absolutely necessary to your mission?
        Mr. Cordray. OK. Those numbers are off.
        Senator Kirk. They are actually the numbers of your
    Inspector General.
        Mr. Cordray. Look, they are talking about things like other
    rents; they are talking about other services. The construction
    costs have remained actually fairly consistently constant. We
    have now let those contracts, and they are coming in under
    budget. And they are fairly consistent with what the OTS first
    opined was necessary 6 or 7 years ago before the CFPB even
    existed. So I think this is, again, vastly overdone. That is my
    view. But I am happy to talk further with you about it.
        Senator Kirk. I would gently suggest that you probably
    ought to scrub the picture you are not collecting intel on
    members of the Supreme Court or the Congress.
        Mr. Cordray. I will tell you what. I will be glad to take a
    look at that. I cannot imagine we are doing that. And if we
    were doing that----
        Senator Kirk. I think that would reassure us all----
        Mr. Cordray. OK.
        Senator Kirk.----make sure that the Chinese do not have it
    before you do.
        Mr. Cordray. OK. We will look to give you reassurance on
    that point.
        Senator Kirk. Thank you.
        Chairman Shelby. Senator Warren.
        Senator Warren. Thank you, Mr. Chairman.
        So since it has opened its doors 4 years ago, the CFPB has
    had a consumer complaint hotline where consumers can call in,
    they can go online, they can lodge a complaint about a
    financial product or service. And that is what consumers have
    been doing. They come in and they complain about sketchy fees
    on a checking account, errors on a credit report, harassment by
    a debt collector.
        The agency then sends those complaints on to the company,
    who then has some time to respond to both the consumer and the
    CFPB, and to try to resolve the issue.
        Now, the agency has received more than 650,000 complaints
    through the hotline. Could you give us a sense, Director
    Cordray--just a ballpark figure is fine--about how many of
    those complaints were resolved to the consumer's satisfaction
    and how much consumers have recovered financially through this
    process?
        Mr. Cordray. Yeah, and I will say the arc of consumer
    complaints continues to increase in terms of volume, and I
    believe that is simply a function of there is still a lot of
    lack of visibility. People do not necessarily know what the
    CFPB is, and they will know more over time, I hope. And I hope
    they will see that we are providing value to them. That is what
    we aim to do.
        I think we had something like 700-some credit card
    complaints in our first month, and we are now up to about
    25,000 complaints per month across the entire range of
    financial services.
        What happens then is we give the consumer a chance to tell
    us whether they were satisfied with the resolution of their
    complaint or, if not, what they continue to be concerned about,
    and we then prioritize issues for further investigation or
    perhaps enforcement action or supervisory activity. And the
    institutions know that, and I think that pushes them to be more
    thoughtful about how they try to resolve those complaints in
    the first instance. And I do not know the exact numbers on
    this, but it may be 20 percent of consumers continue to feel
    they have a dispute once we have worked through our process,
    and then we have, as I say, further steps that we can take.
        In terms of how much resolution there has been for
    consumers, it has been many millions of dollars. It is hard to
    know exactly for sure. They do not always tell us how the
    matter was resolved, although many of them come back to our
    ``Tell Your Story'' line and tell us, you know, often with real
    gratitude, that they did get a resolution, and they could not
    get a resolution for months and months and months, but after
    speaking to us and us working it, they got one promptly. And
    that really thrills us when we hear that.
        But the other thing is there is a lot of nonmonetary relief
    people get from those complaints. Getting something fixed on
    their credit report can loom very large for them and is hard to
    quantify.
        Senator Warren. Yes, although I take it it certainly does
    have financial ramifications to get your credit report fixed.
        Mr. Cordray. Absolutely. And maybe they can get a mortgage
    then that they could not always get.
        Senator Warren. Yes.
        Mr. Cordray. That may be worth thousands of dollars to
    them. It is hard to quantify. Debt collection issues are a
    constant source of irritation for consumers--the wrong debt or
    they are not the right person or whatever, and they cannot get
    people to stop calling their home. I do not know how to put a
    price on that, but getting 12 calls a day or calls in the
    workplace and it is not the right person or whatever it is, us
    being able to stop that looms large for people.
        And another point you have made to me is it is sometimes
    easier to quantify--it is always easier to quantify the amount
    of relief we give back to people for things that happened to
    them before today, and we cannot easily quantify the benefit to
    them of things that will not happen to them tomorrow because of
    changes made today. You know, those go on into the future and
    accumulate extensively over time. We do not have any way of
    putting a price tag on that, but I have got to think it is very
    significant.
        Senator Warren. Great. So you have created this Web site.
    We are getting roughly about 25,000 people a month who come on
    the Web site----
        Mr. Cordray. And rising.
        Senator Warren. And rising.
        Mr. Cordray. Web site or phone.
        Senator Warren. Or phone, and gets some resolution. We say
    it looks like roughly about 80 percent get some kind of
    resolution here. So the agency also just recently went live
    with this consumer complaint database, and here you have a
    collection of thousands of narratives from real consumers about
    problems they are having with financial products or with
    companies, and it is all sortable now online. So it is possible
    to go online and see it by product, by date, by where the
    consumer lives. For example, just this morning I went to the
    database and looked for all the complaints from Massachusetts
    about mortgages. So it is a powerful way to see what kinds of
    issues are cropping up in the communities that all of us
    represent.
        Now, I know it has only been online for just a few weeks,
    but I wondered if you could describe how you think this will
    help improve the market for financial products.
        Mr. Cordray. So the database has actually been online
    longer, although it was really broken into very generic
    categories which I think were less insightful for people than
    hearing in the consumer's own words what the problem was as
    they saw it. I think that is incredibly important. We have
    described the narrative as really the heart and soul of the
    complaint.
        I mean, for me to make a complaint and then have it be
    categorized as somehow ``debt collection,'' ``wrong amount,''
    one of a number of complaints, and that is all you know about
    it, it is just not nearly as insightful as to be able to hear
    exactly ``what happened to me,'' ``the calls I got at home,''
    ``the effect on my life.'' It is just tangible. It is real. It
    is the difference between statistics and actual stories, and to
    me that is very significant.
        The database, I think, is really causing institutions to
    have to compete on customer service, which is a good thing. And
    the good ones are competing very well on customer service, and
    others are having to improve, and that is a kind of pressure
    that I think is a positive pressure.
        I will also mention that there are many Members of
    Congress, many Members of this Committee, who are now referring
    complaints over to us when they come to their office, and we
    encourage you to do that. We are supposedly the experts, and we
    are happy to work those complaints, and then you can see and
    keep track of how they go. We want every American who has a
    problem to potentially know to come to us and see if we can get
    it resolved for them. We cannot always, but we are always going
    to try.
        Senator Warren. Well, I really appreciate that, and I see
    this as a prime example of how Government can take small steps
    that will have a very positive impact on the market. There is
    now a bit more accountability for companies that mistreat or
    just plain cheat their customers. On the other hand, there is
    some public acknowledgment for the companies who treat their
    customers well and resolve their complaints quickly.
        Mr. Chairman, if I can, I just want to slip in one little
    follow-up to the point that Senator Brown made earlier.
        Chairman Shelby. Go ahead.
        Senator Warren. And that is about forced
    arbitration clauses. As Senator Brown highlighted, the report
    that the CFPB recently released contains some damning findings
    about how forced arbitration clauses fundamentally tilt the
    process against consumers and keep them from effectively
    fighting back even when they have been cheated.
        Now, it is clear that the biggest banks and some of their
    Republican friends in the House of Representatives see the
    writing on the wall here, and that is that a rule is coming. So
    they are pushing legislation that would force the CFPB to redo
    the report before you issue any new rules. I think this is a
    stall tactic, plain and simple. The report took 3 years and 728
    pages to complete. It carefully documents a wide range of
    problems. It is thorough and extensive.
        I just want to ask you very briefly, because the Chairman
    is indulging and I am over time here, but can we get on the
    record the steps the agency took to ensure that this study was
    complete and accurate, including soliciting and considering
    comments from the financial services industry?
        Mr. Cordray. Sure. First of all, we did a request for
    information at the very outset to ask people how we should go
    about doing the study, so we really broadly solicited people's
    thoughts and heard a lot from both industry and different kinds
    of markets, and also from consumer groups and others, and we
    erred toward the side of being very comprehensive about what
    they told us we should do in the study and trying to do as much
    of it as we possibly could.
        We found that in many areas this was breaking brand-new
    ground. There was not necessarily data easily accumulated on
    that. We did go to the American Arbitration Association and
    were able to get significant data about the arbitration
    process, which really shed light on that and people had not had
    that before.
        We looked at a number of different ways of trying to get
    judicial resolutions of similar matters. We were helped in part
    because there was some class actions involving certain
    institutions who at one point had stopped doing their
    arbitration agreements, so you could actually see what the
    before and after was. Did it actually save consumers money for
    them to have this forced arbitration process? And we were able
    to map that and discern that. We looked at enforcement actions
    as another means of affecting the marketplace, and people
    talked more about our consumer complaint process as a new
    element here.
        It was a very comprehensive report. I honestly do not think
    we could think of a single thing we could have done that we did
    not do. We are always happy to hear more. And we have had
    tremendous input all along, and now since we have given
    roundtables and other opportunities to digest the report, talk
    to us about it, and that is an ongoing process. And as we now
    embark on a rulemaking process, there will be small business
    review panels. We have found that useful. And there will be
    notice-and-comment process on that. Everybody will have their
    say. We will listen to it all, digest it as best we can, and do
    what we are supposed to do as Congress told us to do: act in
    the public interest consistent with the results of that report
    to determine what to do about this.
        Senator Warren. Thank you, and thank you, Mr. Chairman, for
    your indulgence on this. I really appreciate it. It is an
    important issue.
        Chairman Shelby. Thank you, Senator.
        Senator Rounds.
        Senator Rounds. Thank you, Mr. Chairman.
        Director Cordray, earlier several of the other Members of
    the panel requested information concerning the collection of
    data. Probably the reason why it is really an item of real
    interest is because of OPM and the loss of the data there. A
    lot of our employees have come in, and they have been very
    concerned about the loss of their personal data. So I think
    when we talk about the collection process that you use and that
    you utilized to collect the data that you want to do the market
    analysis with, I think the question comes to really are the
    organizations that are required to submit data to you, are they
    submitting from them through perhaps a third party that scrubs
    it? Or are they providing data to you that has been scrubbed by
    the organization itself? Are you aware of how that works in
    terms of how you actually scrub the data or how it gets
    scrubbed to begin with?
        Mr. Cordray. I am generally aware of it, and we have people
    who are very carefully focused on that, and it depends on the
    data collection. Some of it is negotiating with industry
    because that is who we are getting the data from--they have all
    this data, by the way. They know everything you are doing. They
    know everything I am doing. They use it to market to us. I do
    not myself object to that. Some privacy folks do. It can be
    positive, it can be negative. But, you know, there are
    repositories of data that are much more troublesome than
    anything we have.
        Where we can get the data on a sampling basis and ask
    specifically for certain fields and not for other fields, then
    it comes to us in that form. The credit card database I believe
    is vetted through Experian, which is a credit reporting--one of
    the leading credit reporting companies that scrubs the data
    before it comes to us and removes certain fields.
        We are trying very hard to make sure our employees do not
    have access to personally identifiable information. That only
    causes me trouble in our work. And let me just say the OPM
    breaches, they affect my employees as well as your employees,
    and we are very sensitive to that. And it is something that we
    are now dealing with to make sure employees know what their
    rights are, what is available to them, and I am sure you are,
    too. The notion we would contribute to that ourselves is not
    something we ever want to happen.
        Senator Rounds. What it did, though, was it brought to
    light the fact that when we collect data, we have an additional
    obligation to protect that data.
        Mr. Cordray. I think that is right.
        Senator Rounds. What I was curious about is whether you
    actually received the data and then scrubbed it or if it was
    delivered to you by a third party who would then have that
    responsibility. It sounds like what you have indicated is that
    in the case of some of the larger bulk data amounts, it is
    being scrubbed by a third party before it gets to you.
        Mr. Cordray. A credit reporting agency that has access to
    all this kind of data, anyway, typically. But I would be happy
    to have our folks come and present to you on each individual
    thing just to--I want you to have comfort on this. I think we
    are trying to be very careful about it. I want you to know that
    we are trying to be very careful about it. I read and see the
    stories about the NSA. I am an American citizen. I have the
    same concerns that I think you do about that. I think that is
    very distinct from what we are talking about here. But I am
    happy to have our folks come and spend some time giving----
        Senator Rounds. Thank you.
        Mr. Cordray.----And if you remain concerned, to know your
    concerns.
        Senator Rounds. I think that is a good way to leave it, and
    we will request that.
        Mr. Cordray. All right.
        Senator Rounds. Let me just move on to rural appraisals. I
    am from South Dakota. We have had challenges. I am not sure how
    deep into this you have gotten personally, but rural appraisals
    have been really tough to get. I am not sure how they are in a
    lot of the more urban areas, but in rural South Dakota, trying
    to get an appraisal has been very difficult. Two things.
        Number one, I know that you tried to set it up so that we
    could identify rural locations, and I am asking, is there
    another way in which we can get a third or a fourth look at it?
    Because we have got some communities in western South Dakota
    that are clearly rural in nature, but they are not identified
    that way. Is there a process in place today where we can get
    the challenge set up to get them placed in the appropriate
    category?
        Mr. Cordray. When we first opened our doors, we had a
    number of mortgage rules we were required to do by law, and one
    of them had to do with appraisals, and another one was an
    interagency rule with the Federal Reserve on appraisals. And I
    have always been somewhat concerned as to whether we got that
    right. One of the big issues, as you are describing--and I am
    familiar with it--is in rural areas there are just fewer
    comparables.
        Senator Rounds. Correct.
        Mr. Cordray. It is more difficult. Appraisers might have to
    come from a greater distance, so they are not as accessible. So
    just barriers to being able to make rural transactions.
        I think we have been working at trying to alleviate that,
    but I would encourage you to continue to press on that. You are
    pressing on it with me here, so I will be taking it back. We
    will talk to the Federal Reserve about it, if there is more
    relief we can give on that, because it is a peculiar
    circumstance of the few and far between areas, and we want
    people to be able to get mortgages there just as they can in
    the dense areas of the country.
        Senator Rounds. I think it is two different things. Number
    one, it is the appraisals themselves and what is expected of
    them, and comps with regard to rural areas, which in many cases
    do not exist. And along with that, I think you are seeing
    legislation proposed right now that would actually create the
    ability for some of the banks who are literally holding those
    mortgages because they cannot qualify on the secondary market.
    They are holding them inside. And yet we want to make sure that
    those are still considered an appropriate asset for those banks
    that end up doing that.
        If I could, Mr. Chairman, I have just got one more
    question. I know when you work through the qualified--or the
    consolidated statements, and the goal was to perhaps simplify
    some of it. Last year, as I was moving around South Dakota, one
    of my community bankers said, look, I just got a copy of the
    most recent release or the qualification statement. And he said
    the new disclosure statement as proposed is 164 pages. That was
    the PDF.
        Now, the only reason why I bring this up is if that is
    actually the case and if he is accurate in his definition and
    his explanation----
        Mr. Cordray. He is not, but----
        Senator Rounds. OK.
        Mr. Cordray. Yeah.
        Senator Rounds. Look, we have got to have disclosures that
    people will actually read.
        Mr. Cordray. So, look, that is not correct. What he was
    talking about is the regulation, the rule that actually
    implemented these forms is lengthy. I wish it were not, but it
    is lengthy. But the actual forms themselves, they are not 164
    pages. I mean, that would be ridiculous. They are shorter than
    they were before when you had the two forms. They are not as
    short as my friend over here, Senator Warren, really wanted it
    to be--one page at the application stage, one page at the
    closing stage. We were not able to achieve that. But I think it
    is five pages and three pages.
        Senator Rounds. We might find something that we agree on.
        Mr. Cordray. Yeah, well, so, look, if Congress legislates,
    Congress legislates. But we are at five and three pages. It is
    the key information. To me it is the executive summary of the
    whole transaction, and we are looking to try to do electronic
    closings and push the industry in that direction, which is
    where they want to go anyway, so that a lot of the paper gets
    taken off and you can really focus on the key form here.
        We have tested those forms with consumers, and they have
    found them to be much easier and more accessible and more
    understandable. That is the key thing for us. Whether it is two
    pages or three pages, you know, might matter in some sense in
    the abstract, but these are not lengthy forms. They are meant
    to be key summarized forms, and that is what we are doing.
        Again, on the rural and underserved, I would be glad to
    hear more from you. I heard a lot from Senator Johnson when he
    was Chair of this Committee about South Dakota, and I hear from
    Senator Tester and others about Western States that are--the
    population is more spread out. We have been working to give
    more latitude toward community banks and credit unions to
    portfolio mortgages in their own portfolio and have them be
    given all the protections of the rule. I think we are getting
    to a good place on that, but we will hear more from them as we
    go. And what I would say there is----
        Senator Rounds. My time is up, and the Chairman has been
    very kind----
        Mr. Cordray. Community banks are increasing their market
    share in the mortgage market, which I am glad of, and it is a
    good thing.
        Senator Rounds. Thank you, sir.
        Thank you, Mr. Chairman.
        Chairman Shelby. Senator Warner.
        Senator Warner. Thank you, Mr. Chairman. Director Cordray,
    great to see you again. I have got two or three areas I want to
    touch on. I will try to be brief.
        One, when we started to see all the hacking, obviously I
    have huge concerns about OPM as well, and I am hopeful that
    Acting Director Cobert, who I have had a couple conversations,
    is going to move aggressively. But one of the areas that when
    we started seeing this on the private sector side early on in
    terms of credit card and debit card hacking was generally an
    area that I was not even that familiar with of the differential
    consumer protections between credit cards and debit cards.
        Mr. Cordray. Yes.
        Senator Warner. And, you know, I know as--and I think
    particularly about so many young people using debit cards
    rather than credit cards. I know they have different business
    models, but how do we kind of lean in this a little bit to make
    sure at least consumers--one, Senator Kirk and I have got some
    legislation that would try to harmonize the protections for
    consumers. But would you speak to that for a moment, how we
    kind of better inform particularly our--as a parent of
    daughters that use debit cards rather than credit cards all the
    time, how we equalize these protections?
        Mr. Cordray. I will, and actually this is interesting
    because some of the regulation grows up through sort of
    historical circumstances that do not necessarily make logical
    sense. So credit card protections were developed at a different
    time and for different purposes than debit card protections.
    And, by the way, another example of this is prepaid cards,
    which is yet another card people have in their wallet, that
    currently have no consumer protections. Most people are unaware
    of that, and that is why we have been working to get that rule
    finalized so that we cover that gap.
        But what you are saying is credit cards and debit cards, I
    think they started out as being seen as very distinct. You
    know, credit cards were about credit and a way to get away from
    just store cards and give you credit generally. But debit cards
    were seen as having to do with ATMs and other things. They have
    kind of merged more together as just payment mechanisms, and I
    think people often now may pull out one card or the other and
    not think that carefully about them, although some people are
    quite careful. But there are differential protections. I
    believe that the fraud protection on a credit card is $50 limit
    of exposure, and on debit cards I believe it is $500.
        Senator Warner. Right, it is much----
        Mr. Cordray. That may have made more sense when debit cards
    were really only about the ATM and you might be taking out a
    fair amount of cash. I do not know if it makes sense today. It
    is something that I would invite Congress to think about, and
    you may have guidance for us on that. Whether we could fix it
    ourselves or we would have to have a statutory fix, I am not
    clear on that.
        Senator Warner. And, Mr. Chairman, I would just say that
    this is an area where I have found even within the industry I
    think there is some interest in harmonization, and at least
    folks ought to know that there are very different protections.
        Let me move to another subject. One of the areas that I
    have spent some time on in the last 8 or 9 months is looking at
    this
    dramatic growth in the gig economy or the sharing economy or
    the on-demand economy, particularly amongst Millennials. There
    are good sides and bad sides to that. Obviously, there is a lot
    of freedom that comes with these kind of new work environments.
    For some folks it is quite lucrative to cobble together these
    different revenue sources. There are a whole host of questions
    around the fact that there is a lack of a social safety net in
    terms of unemployment, workmen's comp, and disability, areas
    not necessarily from your purview but something I think we will
    have to work through, maybe not with a top-down solution but
    with public, private, opt-in, and opt-out models. But one area
    that, Richard, would really fall in your area is we have been
    starting to hear, as more and more--there are some estimates
    that as much as a third of the workforce falls at least
    somewhere along this continuum of contingent workers. But as we
    think about qualifying for mortgages within QM, we have got
    some concerns--or we have heard some concerns that this
    emerging new kind of 1099 or contingent workforce, you know,
    the traditional banking system does not record their income in
    an appropriate way so their ability to qualify for QMs are
    somewhat undermined. My understanding is that Appendix Q is the
    section within QM that includes guidance for verifying and
    documenting borrower income.
        Is this an area that you have taken a look at? If not, I
    understand because there is not a lot of policymakers taking a
    look at it. But it far and away is the fastest growing sector
    of our economy, and we ought to get ahead of it a little bit.
        Mr. Cordray. Anytime anybody asks a question that includes
    the phrase ``Appendix Q,'' I know they are commendably in the
    weeds.
        Senator Warner. Well, let me acknowledge on the front end
    that I did not know about Appendix Q until my staff----
        Mr. Cordray. All right. But, in any event, the point you
    raise is a very interesting one and a good one, and it is
    something that I have become increasingly aware of and
    concerned about. So there are different aspects of this--I
    would say several aspects.
        We are moving to an economy in which we have fewer full-
    time, full-salary employees in the old model, just as we have
    moved over time away from defined benefit pension systems to
    defined contribution pension systems. This is happening.
    Interestingly, I read that the health care law is actually pro-
    liberty as a piece of legislation in the sense that it does not
    cause people to have to be stuck in a job to get their health
    care. They can actually consider being an independent
    contractor or other things and still now get health care.
        But I would say several things. It does create more
    complications for people qualifying for a mortgage because it
    is harder to document their income. Their income may be more
    fluctuating. But, I mean, you start adding up who are
    intermittent employees, who are contract employees, who are
    temporary employees, who are seasonal employees, you know, it
    is a huge portion of the American population. So I think we
    need to look again at our mortgage rules in light of that. It
    is not an easy thing to figure out how to handle, but it is
    something we need to go back and think more about.
        I would also say that from a standpoint of wealth and
    retirement accumulation for Americans, this is going to be
    increasingly a big problem because pension plans and even
    401(k) contributions tend to be limited, even in companies that
    have multiple types of workforces, to the full-time, full-
    salary people. And everybody else does not have access to the
    ability to put away savings for retirement or get a match by an
    employer, and we are going to have to think hard about what we
    do about that. Treasury is developing a myRA account that may
    be an example in this area. I think Illinois just did something
    legislatively. It is something we need to think about because,
    otherwise, people are going to be possibly falling behind in
    income disparity, but also very much falling behind in wealth
    and retirement disparity.
        Senator Warner. Thank you, Mr. Chairman. I would love to
    work with you on that.
        Mr. Cordray. Yes.
        Chairman Shelby. Thank you.
        Senator Corker.
        Senator Corker. Thank you, Mr. Chairman. Mr. Cordray,
    thanks for being here.
        In our office, we talked a little bit about QM, and I know
    we were all working on this issue way back when in the bad old
    days when so much was happening. We were all concerned about a
    5-percent risk sharing, if you remember. That was where
    everybody's focus was and trying to figure out a way to get
    that right.
        One of the things that we have looked at in legislation is
    dealing with qualified mortgages, and there seems to be this
    focus to only deal with it at community banks, only smaller
    institutions. And I guess if you look at a qualified mortgage
    that is held on portfolio, that means the institution is
    keeping 100 percent of the risk. And I guess I have wondered
    why we have tried to differentiate, if you will, between
    smaller institutions holding qualified mortgages but larger
    institutions being unable to do so. And I know we have talked a
    little bit about it, but I just wondered if you might address
    that. And I have one other question.
        Mr. Cordray. That is fine, and, obviously, we do not have
    as much time to talk about it today as we did, and I am happy
    to talk about it more with you.
        We generally are trying to find ways to continue to
    encourage community banks and credit unions to do mortgage
    lending because if you look at the data going through the
    crisis, they had lower defaults than anyone else. They are the
    most responsible lenders we have, and the more lending they do
    in accordance with their traditional underwriting models, the
    better it is for consumers, the better it is for our economy.
    So that is why we have focused portfolio provisions to benefit
    them.
        I am concerned about it at upper levels because I do not--
    the logic of it, you know, may or may not attain at larger
    levels. But we had--just experientially I am aware we had a
    number of institutions that did a lot of portfolio lending and
    that blew up, did not get it right: Washington Mutual,
    Countrywide, AmeriQuest, some of these companies that really
    threatened the economy because they made such a mess of things,
    and they were doing portfolio lending. So portfolio lending is
    not always a cure-all in terms of I am bearing the risk so I am
    responsible about it, although it feels to me that community
    banks and credit unions who have borne the risk have been
    highly responsible about it, and we are looking to encourage
    them. And as I say, I am pleased to see that the community
    banks' share of mortgage lending seems to be on the increase.
    That is good for America, I think.
        Senator Corker. So it just seems to me that--and I agree
    with much of what you just said. But it seems to me, on the
    portfolio lending component, there is something different than
    just stopping it at $2 billion or whatever, and then people
    just going whole slog into it at certain levels. There ought to
    be some----
        Mr. Cordray. Maybe.
        Senator Corker. There ought to be something that is
    different than just that stark line, and I think we ought to
    try to explore that together.
        On manufactured housing, look, I live in a State here we
    have a lot of people that have difficulty affording housing.
    Senator Brown lives in a State where there are a lot of people
    that have difficulty affording housing. Many of us are in the
    same--I know Senator Cotton does. No offense. But the fact is
    that, you know, for some of the lower-income citizens that we
    represent, manufactured housing is an outlet. I know Senator
    Brown and I sponsored legislation back in 2012 that actually
    was more expansive than what was in the Shelby bill this time.
    And yet we have these rules that are in place that really make
    it difficult. I mean, you and I talked about the fact that on a
    smaller loan, a $20,000 loan or a $30,000 or $40,000 loan, the
    costs that are associated with doing that up front end up
    bumping up against some of the regulations we have. And I just
    wondered if you might address that, and at least address the
    fact that you understand that is a problem, and I am wondering
    if we might collectively generate a solution for that.
        Mr. Cordray. So, to me, the problem I am concerned about--
    and it is a very real problem, and it is not limited to
    manufactured housing. It is that as you go to the lower end of
    the spectrum in terms of the size of loans, the smaller the
    loan, there is still a certain amount of costs that have to be
    incurred in order to make that loan. And so, you know, at a
    loan that is $200,000, $300,000, $400,000, I guess in
    California maybe $800,000, the costs are spread over a big
    base. At $25,000 or $50,000--a lot of houses in my States are
    of that kind, and manufactured homes, very much of that kind--
    the costs start to get larger.
        The law as it now currently exists and that we implemented
    does provide for that, and it says under $100,000, the 3-
    percent points and fees cap can rise to 4 and then to 5, and at
    lower levels to be a hard dollar amount. Whether those numbers
    are set exactly at the right spot is a point worthy of
    attention. Again, that is not specific to manufactured housing,
    but manufactured housing falls very much at that end of the
    spectrum. And I want to know that people at the lower end of
    the cost spectrum can get access to mortgages and are not
    blocked from that by something in the Administration or just
    costs of this. Just as automobile lending actually is going
    farther down the spectrum, people need their cars, and to me
    that is a good thing.
        So I am happy to talk further about it. We have been trying
    to look at the data on manufactured housing to understand.
    People have been raising this problem. Is it really a problem
    or is not really a problem? What we do see is that every month
    of last year from the Census Bureau survey data, manufactured
    housing lending was up from the month the year before. And some
    of the leading manufactured housing manufacturers are quite
    profitable. So I do not know what to make of some of the
    concerns people are raising to me, but I will say that this
    issue of costs on a smaller loan I think is a universal issue
    and problem and one that maybe we should be thinking further
    about whether the thresholds are exactly right.
        Senator Corker. Mr. Chairman, thank you for the time, and I
    would just close by saying I appreciate you looking at that
    data. And I understand that in a growing economy you are likely
    to see more people doing these types of things. We have seen
    some data that shows that numbers of these people are unable to
    be served, and they are ending up paying more for rental
    housing than they could be paying for actually purchasing,
    again, a lower-cost home of either type, whether it is
    conventional or manufactured. So I hope we will continue----
        Mr. Cordray. That does not sound optimal from anybody's
    standpoint.
        Senator Corker. I agree. Thank you.
        Thank you, Mr. Chairman.
        Chairman Shelby. Senator Heitkamp.
        Senator Heitkamp. Thank you, Mr. Chairman.
        At the risk of going down this rabbit hole one more time, I
    just want to kind of begin with where we are with data
    collection, because I have listened and I think in some ways I
    feel like we are ships passing through the night here and not
    really hearing.
        You do not require the transfer of personally identified
    information other than to do consumer services based on a
    complaint. Is that what I am hearing?
        Mr. Cordray. That is generally correct, although in
    enforcement and supervision matters where we are going to be
    getting money back to consumers, we ultimately will need to
    have information to get the money back to consumers.
        Senator Heitkamp. These would not be individual complaints.
    This would be kind of a broad, sweeping kind of investigation
    where you then would require individual information?
        Mr. Cordray. So, for example--and I could name names of
    institutions, but they are public, where we had credit card
    add-on matters, ultimately we have to get money back to
    consumers.
        Senator Heitkamp. Right.
        Mr. Cordray. Now, either we can work with the institution
    to do that, or we may have to pull the data ourselves.
        Senator Heitkamp. I think my point is, in terms of your
    data collection, the only way you would have personally
    identified data would be if it were necessary to serve the
    consumer either in a broad complaint or an individual
    complaint.
        Mr. Cordray. I believe that is generally correct. And there
    is typically no purpose for me having it otherwise. It just
    gets in my way and my team's way in terms of doing our work.
        Senator Heitkamp. OK. And do institutions send you a bulk
    amount of data that actually has that information with it
    requiring you to scrub it, or do you always get information
    that has been scrubbed and where Social Security numbers and
    personally identified information has been removed?
        Mr. Cordray. So on that, what I would like to do is have
    our staff come and brief your staff on all of our data
    collections----
        Senator Heitkamp. I think there is enough interest here
    that maybe just a report back to the Committee would be very
    helpful.
        Mr. Cordray. That is fine. OK. We can do that. That is
    typically our aim, and I believe it is true in all
    circumstances. But I am always hesitant to say ``all'' without
    making sure my staff tells me that that is correct.
        Senator Heitkamp. And I want to make one final point on
    this, which is interesting to me, and that is, where we are
    deeply concerned about what you have, we should be equally
    deeply concerned about the cybersecurity of the information
    where it resides, which is with the companies that you access
    every day. And so they are going to have--any breach of their
    data is much more damaging than access to your data that is
    being used for market analysis.
        Mr. Cordray. Sure. Target, Home Depot, I mean, that is
    account information, Social Security numbers, those kinds of
    things, very problematic.
        Senator Heitkamp. I think another thing that would be
    helpful--and, obviously, we have found great response from your
    agency on what is rural and what is not. We think that you
    probably have made the right decisions in North Dakota. But I
    am curious as to the percentage of land mass in this country
    that you have determined is, in fact, rural. So if you could
    get that to me, that would be great.
        Also, I would reiterate Senator Tester's concern about
    consultation and would be interested in follow-up on
    consultation with tribes as well.
        Mr. Cordray. OK.
        Senator Heitkamp. That is part of the overall scheme in a
    government-to-government relationship. We need all agencies to
    appreciate what that means.
        Mr. Cordray. And I know you have got me promising to come
    visit you, so we will make sure that we do that.
        Senator Heitkamp. I know. I was going to mention that.
        Mr. Cordray. OK.
        Senator Heitkamp. And I do have to say that where we can
    disagree, I think your personal integrity is unimpeachable.
        Mr. Cordray. Thank you.
        Senator Heitkamp. And I think you are doing a very
    difficult job, Director.
        Mr. Cordray. I hope that is the case.
        Senator Heitkamp. And I want to thank you for your service.
    Someone with your credentials having, I believe, clerked for
    the Supreme Court at one point, with your great academic
    background, is someone who is extraordinarily valuable, and I,
    of course, am partial to past AGs, so we are all good.
        Mr. Cordray. That is very kind of you. Thank you.
        Senator Heitkamp. I want to reiterate some of the points
    that you have been hearing about where we are at with the
    people we are trying to protect. And I think what we are all
    trying to get at is how do you balance protecting the consumer
    against access to necessary credit, whether it is small-dollar
    lending, whether it is in manufactured housing, whether it is
    just access to rural communities or Native American communities
    to the market. I think there is a balance there, and I know I
    have told you frequently my story. I was probably one of the
    first people who got beat up by trying to shut down payday
    lending and predatory lending, and I learned something in that
    process, which is, you know, sometimes people need diapers and
    sometimes they need gas and they have a flat tire and they
    cannot fix it. And these are folks that are living on the
    margin. So I understand the need to protect people, but I also
    understand the need to have some form of small-dollar, short-
    term lending.
        What do you think those products--and this will be my last
    question. What do you think those products should look like?
    And how do we achieve that balance? And how do you as the
    Director, you know, address the concerns that we have--which is
    let us give people access to credit, it helps build their
    credit, it helps build America, but let us also protect them.
    And that is a tough balance with this population.
        Mr. Cordray. It really is. And, by the way, we first saw
    this issue with our mortgage rules where we--in the Dodd-Frank
    Act they passed certain things that we were required to do on
    mortgages at a time when the mortgage market was all overheated
    and quite irresponsible and the underwriting had deteriorated.
    And by the time we came to actually write the rules, things had
    crashed, the mortgage market was now frigid, credit was very
    tight. It was a hugely different situation.
        And so as we wrote those rules, we really became very
    keenly aware, face to face with this problem of how do you
    balance protections, which we want, with access to credit,
    which we do not want to choke off. And that is something we
    tried to balance in the mortgage rules, and I think we did
    pretty well with it, but it is something we are constantly
    monitoring and trying to think about.
        The same thing now in these small-dollar rules. We know
    people have a demand for small-dollar credit. They have had it
    for over 100 years, and they get that demand served in various
    ways, and some products are more responsible and some are less
    responsible, but people have a demand. And we cannot choke off
    a supply to them, but at the same time, we are concerned about
    this issue of the debt trap, people ending up thinking they are
    getting in and getting out, but many of them end up rolling
    over and getting stuck at a very high cost over a long period
    of time. And that is the issue we are trying to address.
        Now, whether the industry business model relies on that to
    subsidize the single-demand loans, I am not entirely clear on
    that. They say they do not, but maybe they do. It is something
    we are trying to figure out as we are working on these rules.
        But I have the same objective in mind that you describe.
    People need to have access to money, and not everybody has an
    uncle or a sister or mother-in-law that they can go to for $300
    or $500, and if they have done it once or twice, they may not
    be able to go to it a third time. And so we get that. At the
    same time, we do not want people to end up in products that
    harm them further.
        I do not know that I am the right person to say what all
    the right products are. What we are trying to identify is that
    there are certain wrong products that we want to try to rein in
    a bit while still leaving access to credit. That is the right
    answer in that marketplace. How to get there, though, is a
    complex, as you say, difficult issue, and I am hopeful, and we
    are working hard to try to understand enough to get it right.
        Senator Heitkamp. Thank you, Mr. Chairman.
        Chairman Shelby. I think Senator Heitkamp raised a real
    important issue, and we have talked about this before, Mr.
    Cordray. We do not want to drive the small, marginal consumer
    underground where there is no regulation, because that is what
    we have had before. And I believe that goes right to the thrust
    of her question. You know, how do we do this without
    overregulating this? And how do we have access to some type of
    credit for--because there will be credit. It is a question of
    is it going to be legal or illegal.
        Now we have Senator Cotton coming up. We can have that Ivy
    League debate with Mr. Cordray that you referred to. Senator
    Cotton?
        Senator Cotton. Thank you, Mr. Chairman. Thank you,
    Director, for appearing before us.
        I want to return to a topic that Senator Corker touched
    upon: affordable housing. Census and HUD indicates that there
    may not be a single county in this country that currently has
    enough affordable housing. This is particularly acute in the
    kind of rural State that I represent or rural county where I
    live. There are not a lot of new single-family homes being
    built. There is not a large stock of multi-family rental units,
    which is why many families find manufactured housing to be the
    most affordable option they have, as Senator Corker described.
    They end up paying less on a mortgage for a manufactured home
    than they would pay for a very limited supply of rental stock.
        As you describe, there is a basic math problem. It takes a
    certain amount of time and resources to process any loan,
    whether the loan is $40,000 or $400,000 or $4 million. And over
    a bigger loan, that cost is spread out across a bigger base
    and, therefore, the percentage costs do not appear to be as
    high. Over a smaller loan, like you have for manufactured
    housing, it is a much smaller base to spread out, so it appears
    to be much higher, even though that is the preference of the
    consumer, and you have many financial institutions who are
    willing to make those loans.
        You have regulatory flexibility under the Dodd-Frank Act,
    under Section 1431, to address this, to raise those percentage
    rates, yet you have not used that yet. Could you explain why
    you have not used that and maybe if you are looking ahead to
    using it to grant some relief for these families and lenders?
        Mr. Cordray. Yes, we did consider this, and pretty
    carefully, with a lot of input at the time we adopted our
    mortgage rules, our big set of mortgage rules, in 2013. And
    this issue was raised, and the 3 percent was not seen as
    appropriate for loans under $100,000. And it went to 4 at
    certain levels; it went to 5 at lower levels; and it went to a
    dollar figure at the lowest levels.
        Now, that was an effort to try to address the issue that
    you are raising that I see as a very legitimate issue. Whether
    we have got those numbers right, whether we should reconsider
    them and think further about them, just as we have reconsidered
    and thought further about the rural and underserved issue, is a
    fair point, and it is one that I will take back from this
    hearing.
        I do remain concerned that credit at the lower dollar end
    of the spectrum is tight. It is tight. It is tight for people
    who also often have lower credit scores and more difficult to
    access the credit. I do not want to try to pretend to redo
    underwriting that is being done by these institutions on that.
    But whether those numbers are set at the right level, whether
    $100,000 is the right level are things that I am not entirely
    clear on. I think we should be looking at it some more. You
    should be looking at it some more. We should have a fruitful
    discourse on whether there maybe should be changes there.
        Senator Cotton. Well, thank you for that, and you
    referenced in your answers to Senator Corker that you have seen
    some encouraging data, which I have seen as well. I do think
    that is, though, limited to the sale of new manufactured
    housing. I believe that----
        Mr. Cordray. I see, as opposed to used----
        Senator Cotton. So, yes, there is still a robust market
    also for refinancing and for secondary sales. Manufactured
    housing obviously does not have the same lifetime that single-
    family housing does, but oftentimes families need manufactured
    housing at a time in their life when they are going through a
    lot of change, when they are newly married, when they have new
    children. They are also going through economic change,
    hopefully getting higher wages, moving up the economic ladder,
    and ready to move into a different kind of home when there is
    another family who would be willing to buy their manufactured
    home.
        Director, I would like to turn to another question now.
    Last year, you brought an enforcement action against a mortgage
    lender, PHH. You did not file a lawsuit. You went in front of
    an administrative law judge, and that judge ruled for the CFPB
    and issued a judgment of $6.4 million. You overturned that
    judgment and imposed a fine of $109 million. Could you explain
    your thinking, both why you pursued an administrative law judge
    as opposed to an Article III court? And then what evidence and
    thinking went into your decision to overturn your own ALJ and
    impose a fine 17 times his initial judgment?
        Mr. Cordray. Yes. So the use of an administrative law judge
    as opposed to a court under the statute is a discretionary
    decision. We have used administrative law judges fairly
    sparingly, except for consent orders. We have been in court,
    and we are in court in many, many matters. One difference is
    that the ALJ route can be faster and can be more streamlined.
    You know, whether that is a good or bad thing is often in the
    eye of the beholder. That happened to be the approach that was
    used in this particular matter.
        As for the decision, that decision is published, and the
    reasons for it are set out on their face. I think it was like
    maybe a 36-page decision, so it is lengthy. The particular
    point that you are getting at had to do with whether under the
    law--and this is not an obvious point, and the administrative
    law judge saw it one way; I saw it another way. Maybe a court
    will see it a different way. We will see. Under the law,
    whether if you violate the RESPA statute, is the right relief
    only contracts that violated the RESPA statute after a certain
    date? Or is it payments made after a certain date on contracts
    that violated the RESPA statute before that date? It has to do
    with the limitations period here.
        Not an obvious point, but it is a point that, once you
    decide it one way or the other, makes this huge difference in
    this matter in terms of the amount of relief. That is the sole
    reason for it. I thought the law pretty clearly was one way.
    Others may see it differently. But we tried to come to the
    right result as we understood the law.
        Senator Cotton. Thank you for that explanation, Director.
    You are right that the implication of my question and the
    concern I am driving at is not necessarily even about that
    specific decision, but just about the structure of
    decisionmaking, not only within your own Bureau but within
    independent agencies as a whole. Your own Bureau has certain
    features that exacerbate the problem, the fact that your budget
    is not subject to annual appropriations and that you are single
    Director as opposed to a five-member commission. This is not a
    reflection on you or any future Director. These are concerns I
    have about the nature of this Bureau. Madison said in
    Federalist No. 47 that, ``The accumulation of all powers,
    legislative, executive, and judiciary, in the same hands . . .
    may justly be pronounced the definition of tyranny.''
        So independent of your judgment in this single case or in
    any other cases, or future Directors' judgments, I am going to
    continue to have these concerns about----
        Mr. Cordray. That is fine, and having said that, I am here
    in front of you consistently and happy to be speaking to you
    anytime. I regard that legislative oversight as very meaningful
    and very vigorous. That decision is subject to appeal. It is
    being appealed to a court. I hope that they will see the case
    the same way I did and think that I did things right. If they
    disagree, they will tell us so, and we will comply and abide by
    that ruling. So we are subject to judicial review in that
    respect as well.
        Senator Cotton. And we are glad to have you here, and we
    are glad to have judicial review, but original fact finders
    without life tenure and salary protections are different from
    fact finders at agencies and bureaus, not just yours.
        Mr. Cordray. True, although State court judges are not
    subject to life tenure as well.
        Senator Cotton. Or regulators issuing rules that provide
    standards of conduct under which the force of law can impose
    penalties who are not elected are different from people up here
    making those, and we have to answer to people that we serve
    back home for the wisdom of those rules.
        Mr. Cordray. Fair enough.
        Senator Cotton. Not a specific commentary on a particular
    case or any particular thing you have done, but I have real
    reservations about the structure of this Bureau.
        Chairman Shelby. Senator Merkley.
        Senator Merkley. Thank you very much, Mr. Chairman, and
    thank you, Director Cordray, for your testimony. But I want to
    thank you in particular for your leadership of finally having a
    watchdog fighting for consumers and fairness in financial
    transactions.
        In your testimony, you note that the Bureau enforcement
    activities resulted in more than $10.1 billion in relief for 17
    million consumers. Is it my understanding this is specific
    funds that come from addressing predatory practices that has
    been returned to 17 million families across America?
        Mr. Cordray. Yeah, and it takes different forms. Some of it
    is direct restitution. Some of it is uncompensated victims that
    get compensated out of a civil penalty fund. Some of it is,
    say, mortgage relief. Some of it is debt that they otherwise
    would be required to pay and might be subject to further costs
    and court proceedings that is forgiven and wiped from the
    books. But, yes, it is meaningful relief for American
    consumers.
        And the other point that Senator Warren has made to me that
    is worth making, which is every time we then correct practices,
    the same things do not happen going forward, and you can expect
    that the same money is being saved each year in the future, but
    it is very hard to quantify that.
        Senator Merkley. It is hard to quantify, but every time a
    consumer gets a fair mortgage loan rather than a predatory one,
    a great deal of help has been created in terms of a wealth-
    building enterprise versus a wealth-stripping one, and your
    agency is critical to that.
        I wanted to turn to the subject of payday loans. You are
    now engaged specifically in laying out a policy framework, not
    yet a draft regulation, and taking feedback on it. In Oregon,
    we proceeded to establish a pretty rigorous framework,
    reestablishing a usury cap on the full range of loans--consumer
    loans, title loans, payday loans--because we had seen the
    migration from one area to another where States had tried to
    tackle the 500 percent interest rate in payday loans.
        But we see aggressive outreach by payday loan companies to
    solicit people online and to do so outside the framework of
    State law. And in that regard, about once a week I get a text
    message like this one that came the other day: ``Dylan''--I do
    not know who Dylan is, but whoever Dylan is, he is one click
    away from a predatory payday loan. ``Dylan, do you need some
    extra dollars? Bad credit is OK. Approved in 4 minutes. Click
    here.''
        Now, I am absolutely convinced this is not a payday lender
    operating under State law. It is probably offshore, as most
    online payday lenders are. And the challenge is that with the
    ability to reach out to folks through text messages in this
    case--I also receive phone calls for Dylan. If Dylan is out
    there anywhere and wants his phone messages, well, please
    contact me. So folks then respond to this and say, ``OK, great.
    This is convenient. I do not have to go down to the brick and
    mortar payday loan store.'' And, by the way, we still have
    those stores in Oregon, even though they now operate at 36
    percent interest rate. They are still providing credit as they
    have in every State that has cracked down on the 500 percent
    interest rate. So citizens still have access to credit when
    they need it at a fair rate, but they are getting ensnared by
    these online solicitations.
        The reason this works is because these companies are able
    to use electronic fund transfers or remotely generated checks
    to essentially access accounts, and once they have the number
    of the account of the individual, they simply reach in and grab
    the money, even though their loan is in violation of the law.
    How are we going to stop this?
        Mr. Cordray. First of all, you may need a better spam
    filter on your phone, although maybe you are picking up some
    good intel this way.
        Second, the online lending is a particularly acute problem
    for any enforcement regime. I saw it as Attorney General in
    Ohio. I hear about it from our colleagues at the Justice
    Department who battle with it and help us especially when we
    are trying to deal with something that is international in
    scope. Like a scam we dealt with earlier this year, some of the
    folks were based in Kansas City, but they were incorporated in
    Turks and Caicos. I do not even know where that is, someplace
    in the Pacific maybe. Maybe it is in the Caribbean. I do not
    know.
        Chairman Shelby. The Caribbean.
        Mr. Cordray. The Caribbean? All right. In any event, the
    enforcement of that is quite difficult but important.
        Also, one might have thought that online lending would end
    up being more efficient because you would not have to have the
    brick and mortar. But the default rates are so high, they are
    paying lead generators $300 to $400 to acquire customers. What
    does that tell you about a customer they are acquiring if they
    think it is worth paying $300 to $400 to get that fish on the
    line for then the lending they are going to do to them,
    particularly in small-dollar loans? It is going to be
    astronomic interest rates, and they are--540 percent, 720
    percent, even more. And that is a major concern.
        In terms of the small-dollar lending rules that we are
    working on now, that is a big piece of it. The account access
    where they can just take the money directly from your account
    creates all kinds of risks. That was the case with that Kansas
    City outfit. They were called the Hydra Group that we shut down
    earlier last year. These are things we are wrestling with
    because the account access particularly creates vulnerability
    for consumers and can cause them to be trapped in these loans,
    and they may or may not appreciate what is happening when it is
    in the fine print.
        So it is something we are trying to think very carefully
    about, but we are aware of and very sensitive and concerned
    about the same problem that I think you just described as we
    are trying to work through these issues.
        Senator Merkley. Well, thank you for your efforts to
    wrestle with this issue. It matters a lot to a family whether
    or not they acquire a payday loan in Oregon under a 36 percent
    interest rate cap or whether they respond to the text message
    or the phone call and end up with a 500 percent interest loan
    from a group that is operating with no accountability and
    reaches in and takes money without authorization. There has to
    be a solution to this. I have suggested several in my Stopping
    Abuse and Fraud Electronic Lending Act, the SAFE Act, in 2013.
    I continue to look for a way for fair lending to happen to help
    families succeed and to stop these predatory practices. And I
    know that is the business you are in, and you are doing an
    excellent job of it, and thank you for the work you do.
        Mr. Cordray. Thank you.
        Chairman Shelby. Thank you, Senator Merkley.
        Director Cordray, thank you for appearing again before the
    Banking Committee, and we appreciate your testimony and your
    frankness.
        Mr. Cordray. Thank you, Mr. Chairman.
        Chairman Shelby. The Committee is adjourned.
        [Whereupon, at 12:10 p.m., the hearing was adjourned.]
        [Prepared statement, responses to written questions, and
    additional material supplied for the record follow:]
                     PREPARED STATEMENT OF RICHARD CORDRAY
                 Director, Consumer Financial Protection Bureau
                                 July 15, 2015
        Chairman Shelby, Ranking Member Brown, and Members of the
    Committee--thank you for the opportunity to testify today about our
    latest Semi-Annual Report to Congress. We appreciate your continued
    oversight and leadership 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.
        Next week marks 5 years since the passage of the Dodd-Frank Wall
    Street Reform and Consumer Protection Act and 4 years since the
    Consumer Bureau opened its doors. As you know, Congress created this
    agency in response to the financial crisis with the purpose and sole
    focus of protecting consumers in the financial marketplace. We
    understand our responsibility to stand on the side of consumers and
    ensure they are treated fairly. Through fair rules, consistent
    oversight, appropriate enforcement of the law, and broad-based consumer
    engagement, the Consumer Bureau is working to restore people's trust
    and confidence in the markets they use for everyday financial products
    and services.
        To date, the Bureau's enforcement activity has resulted in more
    than $10.1 billion in relief for over 17 million consumers. Our
    supervisory actions have resulted in financial institutions providing
    more than $178 million in redress to over 1.6 million consumers. And we
    have now handled more than 650,000 complaints from consumers addressing
    all manner of financial products and services. These consumers are your
    constituents in each of your States. For example, one excerpt of a
    complaint narrative from a servicemember in Alabama reads:

            We opened an account . . . We paid as agreed until we became
            unable to pay the full amount . . . We made an agreement to pay
            a lesser amount per month and kept paying via allotment. [The
            company] got a judgment against us while I was training. I was
            not served with a judgment prior to court or after . . . I was
            informed of it when my wages began to be garnished . . . We
            have asked repeatedly to have this issue fixed . . . We have in
            total paid this company nearly $25,000 over the past 11 years
            for a couch and loveseat, computer hutch, table and chairs. The
            furniture has not lasted, however the payments and ruin
            continue . . . We need assistance as we have tried every other
            step possible to fix this without aid.

    Another excerpt, from a consumer in my home State of Ohio, reads:

            [I] elected and agreed to a Reduced Rate Payment Plan with [a
            student loan servicer]. In addition to being charged incorrect
            interest rates, my monthly payment was incorrectly allocated
            which is resulting in late fees and a delinquency notice. After
            speaking with . . . customer service representatives and a call
            time of . . . hours, no resolution had been reached.

        In this, our most recent Semi-Annual Report to Congress and the
    President, we describe the Bureau's efforts to achieve our vital
    mission on behalf of consumers, including those in your home States and
    mine. During the timeframe covered by the report, we have helped secure
    orders through enforcement actions for more than $19 million in relief
    to consumers who fell victim to various violations of consumer
    financial protection laws, along with over $32 million in civil money
    penalties. For example, we took action against a company for illegal
    debt collections practices resulting in $2.5 million in relief for
    servicemembers. We also stopped an illegal kickback scheme for
    marketing services, which resulted in $11.1 million in redress for
    wronged consumers. We also worked with the Department of Education to
    obtain $480 million in debt relief to student loan borrowers who were
    wronged by Corinthian Colleges, a for-profit chain of colleges that
    violated the law and has since declared bankruptcy.
        During the reporting period, the Bureau also issued a number of
    proposed and final rules. In October 2014, we issued a final rule to
    reduce burdens on industry by promoting more effective privacy
    disclosures from financial institutions to their customers. In November
    2014, the Bureau issued a Notice of Proposed Rulemaking to provide
    strong new Federal consumer protections for prepaid cards and accounts.
    In December 2014, the Bureau issued a proposal to clarify various
    provisions of its mortgage servicing rules. In January 2015, the Bureau
    proposed further changes to some of our mortgage rules to facilitate
    mortgage lending by small creditors, particularly in rural or
    underserved areas. This would increase the number of financial
    institutions able to offer certain types of mortgages in rural or
    underserved areas, and help small creditors adjust their business
    practices to comply with the new rules.
        As a data-driven institution, the Consumer Bureau published several
    reports during this reporting period that highlight important topics in
    consumer finance such as medical debt, arbitration agreements, reverse
    mortgages, and consumer perspectives on credit scores and credit
    reports. We also released a new ``Know Before You Owe'' mortgage
    toolkit that will help encourage consumers to shop for mortgages and
    better understand how to go about buying a home.
        In the years to come, we look forward to continuing to fulfill
    Congress's vision of an agency that is dedicated to cultivating a
    consumer financial marketplace based on transparency, responsible
    practices, sound innovation, and excellent customer service.
        Thank you for the opportunity to testify today. I look forward to
    your questions.

     RESPONSE TO WRITTEN QUESTIONS OF CHAIRMAN SHELBY FROM RICHARD
                                CORDRAY

    Q.1. During the hearing, I expressed concerns with the Bureau's
    costly headquarters renovations. These concerns are not new.
    For example, during the June 2014 semiannual hearing, Senator
    Coburn asked you whether the renovations could ``be done for
    less,'' and you replied ``that is fair, and I am responsible to
    you for that, and this is meaningful oversight.'' However, when
    I asked whether congressional disapproval led you to change
    your renovations plans in any way, you defended the project but
    did not answer the question.

      a. LHas congressional disapproval led you to change your
            renovation plans in any way since your last semiannual
            testimony before this Committee?

      b. LIf so, please provide a detailed explanation on each
            change, including estimated cost savings resulting from
            such changes.

      c. LIf no changes have been made, please explain why.

    A.1. As a result of congressional oversight, the Office of the
    Inspector General of the Consumer Financial Protection Bureau
    reviewed and evaluated the Bureau's headquarters renovation
    project, including an audit of renovation expenses. The
    Inspector General released the audit report in August 2015
    stating, ``We determined that construction costs appear
    reasonable based on comparisons to an independent cost estimate
    and the costs of two comparable building renovations identified
    by the U.S. General Services Administration (GSA). We also
    determined that potential renovation costs are below the amount
    previously budgeted and obligated for the renovation.''\1\
    ---------------------------------------------------------------------------
        \1\ Office of Inspector General, Board of Governors of the Federal
    Reserve System, Consumer Financial Protection Bureau, CFPB Report:
    2015-FMIC-C-012, ``CFPB Headquarters Construction Costs Appear
    Reasonable and Controls Are Designed Appropriately,' July 21, 2015
    available at: http://oig.federalreserve.gov/reports/cfpb-headquarters-
    construction-costs-jul2015.htm.
    ---------------------------------------------------------------------------
        As with all expenditures and major investments, the Bureau
    is committed to cost-effective management of our resources. The
    Bureau is working with the GSA to ensure the headquarters
    renovation is completed in a manner that minimizes cost while
    maximizing the value of the investment. For example, the
    Bureau's renovation process will include a value engineering
    process.
        Value engineering is an approach used to analyze the
    functions of building systems, equipment, facilities, and
    services for the purpose of designing and building systems that
    functionally perform as needed--meeting all reliability,
    quality, and safety requirements--while minimizing the life
    cycle costs (i.e., costs incurred over the next 10-50 years for
    installation, maintenance and replacement) imposed on the
    building's owner and operator. The approach takes into account
    short-term and long-term expenses and performance to ensure the
    building will last, while identifying opportunities to do so as
    cost effectively as possible.
        For this project, the GSA brought in a third-party value
    engineering consultant who will hire experts from various
    trades (mechanical, electrical, etc.,) to analyze the current
    design and provide recommendations to the team for system,
    equipment, and other material substitutions that are
    representative of the above criteria to maximize value while
    minimizing lifecycle costs. We held a workshop in September,
    and the Bureau hopes to have value engineering changes and the
    associated cost savings estimates completed this spring.

    Q.2. During the hearing, I asked what analysis the Bureau has
    conducted of State laws and regulations prior to publishing its
    proposal to regulate payday lending. While you provided a broad
    overview of the Bureau's work on payday lending, you did not
    answer this question.

       LWhat analysis has the Bureau conducted of State
            laws and regulations prior to publishing the proposal?

       LPlease provide a copy of the analysis conducted of
            State laws and regulations that relate to payday
            lending, including explanations and any related
            assessments as to why such State laws and regulations
            are insufficient.

    A.2. The Bureau continues to carefully consider existing State
    laws and regulations, as we have throughout our research and
    development of options to address potential consumer harm. In
    April 2013 the Bureau released a report entitled, Payday Loans
    and Deposit Advance Products: A White Paper of Initial Data
    Findings,\2\ which references how variations in State laws may
    impact how products are structured. In March 2014 the Bureau
    released, Data Point: Payday Lending,\3\ which presents
    findings on the impact of State laws and regulations on loan
    rollover rates. In addition, in March 2015, the Bureau
    published the Outline of Proposals Under Consideration and
    Alternatives Considered.\4\ as part of the Small Business
    Review Panel process, which also includes analysis relative to
    State laws and regulations. Moreover, the Bureau has met with
    representatives of State and local governments from around the
    country to hear directly about their experiences related to
    payday lending regulations and impact.
    ---------------------------------------------------------------------------
        \2\ Available at http://files.consumerfinance.gov/f/
    201304_cfpb_payday-dap-whitepaper.pdf.
        \3\ Available at http://files.consumerfinance.gov/f/
    201403_cfpb_report_payday-lending.pdf.
        \4\ Available at http://files.consumerfinance.gov/f/
    201503_cfpb_outline-of-the-proposals-from-small-business-review-
    panel.pdf.

    Q.3.a. In a 2013 bulletin posted on its Web site, the Bureau
    stated that the compensation policies of some auto lenders lead
    to the ``significant risk'' of illegal pricing disparities on
    the basis of race. In September of 2014, the CFPB published a
    report explaining its methodology for measuring racial
    disparities in the auto lending market. The Bureau uses a proxy
    method called Bayesian Improved Surname Geocoding to estimate
    the race of different borrowers based on last names and zip
    codes. In November 2014, Charles Rivers Associates published a
    study demonstrating that the CFPB's methodology was
    substantially flawed. For example, the study found that only 24
    percent of African Americans were correctly identified by the
    methodology employed by the CFPB.
        Is the Bureau still using this methodology?

    A.3.a. Yes. On September 17, 2014, the Bureau published a white
    paper, entitled Using Publicly Available Information to Proxy
    for Unidentified Race and Ethnicity,\5\ that details the
    methodology the Bureau uses to calculate the probability that
    an individual is of a specific race and ethnicity based on his
    or her last name and place of residence. The Bureau's analysis
    demonstrates that its proxy is more accurate at approximating
    the overall reported distribution of race and ethnicity than
    other available methods using publicly available data. The
    Bureau's proxy assigns an individual probability of inclusion
    in a prohibited basis group based on both geography and
    surname, whereas other proxies use geography or surname alone
    in predicting individual applicants' reported race and
    ethnicity.
    ---------------------------------------------------------------------------
        \5\ Available at http://files.consumerfinance.gov/f/
    201409_cfpb_report_proxy-methodology.pdf.
    ---------------------------------------------------------------------------
        The Bureau and the paper you cite both agree that there are
    racial and ethnic disparities in pricing resulting from
    discretionary dealer markup and compensation policies, and that
    a proxy can be used to estimate both pricing disparities and
    the number of consumers potentially harmed. The disagreement is
    regarding how many borrowers were harmed and by how much.
        The Bureau's approach is designed to arrive at the best
    estimate of the total number of harmed borrowers and to
    accurately identify the full scope of harm. The Bureau makes
    final determinations regarding discriminatory outcomes and
    their scope in consultation with individual lenders, and
    carefully considers every argument lenders make about
    alternative ways to identify the number of banned borrowers and
    the amount of harm. In some instances, the Bureau has adopted
    changes and reduced our estimates in response to specific
    alternatives offered by individual lenders with regard to their
    specific loan portfolios.
        As we stated in our white paper, the Bureau is committed to
    continuing our dialogue with other Federal agencies, lenders,
    advocates, and researchers regarding the Bureau's methodology,
    the importance of fair lending compliance, and the use of
    proxies when self-reported race and ethnicity is unavailable.
    We expect the methodology will continue to evolve as
    enhancements are identified that further increase accuracy and
    performance.

    Q.3.b. What, if anything, has the Bureau done to address the
    issues raised by the Charles Rivers Associates study?

    A.3.b. The paper you reference does not undermine either the
    importance of the Bureau's anti-discrimination work in indirect
    auto lending or the Bureau's confidence in its use of the
    Bayesian Improved Surname Geocoding (BISG) methodology. That
    paper does not provide reassurance that the fair lending risk
    presented by discretionary dealer markup is less significant
    than the Bureau--and other regulators and consumer advocates--
    believe. Rather, the paper takes issue with the manner in which
    its authors think the Bureau is assessing that risk, using the
    BISG methodology, in order to determine whether violations have
    occurred. The authors do not reject the use of a BISG
    methodology itself, they simply offer a variety of
    recommendations based on their beliefs regarding the Bureau's
    use of the BISG proxy. These beliefs reflect a potential
    misunderstanding of how the Bureau conducts its analysis, which
    is based on the specific business practices of individual
    lenders.
        The paper you cite presumes the Bureau applies the same
    analysis to all lenders, in all contexts, including
    recommending statistical controls the Bureau should use in
    every case, regardless of whether those controls apply to an
    individual lender's business model. At the Bureau, each
    supervisory examination or enforcement investigation is based
    on the particular facts presented. In analyzing lending data
    for statistical disparities on a prohibited basis, examination
    teams typically construct regression models based on the
    particular institution's specific policies and practices, which
    vary from institution to institution and may also vary by
    product and channel. For this reason, for each institution
    subject to review, examination teams may construct multiple
    regression models by including controls that reflect the
    institution's various policies, practices, products, and
    channels, as well as any additional factors identified by the
    examination team or the institution.
        The Bureau engages with individual lenders to better
    understand their policies and products. As such, the Bureau has
    considered, on a case-by-case basis, many of the controls and
    recommendations listed in the paper you cite. Many of the
    controls and recommendations are already incorporated into our
    analysis, both to test the robustness of the results and to
    anticipate (and respond to) lender concerns. This process is an
    ongoing dialogue between specific institutions and the Bureau.
        Once the Bureau has found disparities in outcomes by race,
    ethnicity, or another prohibited basis under the Equal Credit
    Opportunity Act for a particular lender, the Bureau will
    consider whether these disparities result from legitimate
    business needs that are actually incorporated in the lender's
    pricing policies and practices. Where lenders have demonstrated
    this, the Bureau has incorporated controls into our analysis,
    and as a result the disparities may be reduced or eliminated
    altogether. However, where lenders simply offer up controls
    without justification or proof that these factors in fact
    reflect legitimate business needs and are actually incorporated
    into decisions about discretionary markup, it is not
    appropriate for the Bureau to include these factors in our
    analysis. That determination is one that the Bureau will make
    on a case-by-case basis and based on actual evidence.

    Q.4. At the hearing, when asked about the Bureau's March 2015
    report on arbitration, you stated, ``It was a very
    comprehensive report. I honestly do not think we could think of
    a single thing we could have done that we did not do.'' The
    arbitration report submitted to Congress by the Bureau states,
    ``Although a relatively large number of empirical studies have
    examined employment and securities arbitration, relatively few
    such studies have examined consumer arbitration in detail.''

      a. LDid the Bureau study arbitration in areas outside of
            consumer products in which the use of arbitration is
            more developed, such as the FINRA arbitration system?

      b. LIf not, please explain why not and provide a list of
            other arbitration systems that the Bureau believes
            would be useful in understanding the costs and benefits
            of arbitration relative to other forms of dispute
            resolution.

      c. LIf so, what conclusions were drawn, and how did such
            analysis inform the Bureau's study of arbitration in
            consumer financial disputes? Also, please provide a
            list of other arbitration systems that the Bureau
            evaluated during the course of its study.

    A.4. In conducting the study, the Bureau reviewed scholarship
    and associated data relating to arbitration in areas outside of
    consumer products, such as the arbitration of employment claims
    and the Financial Industry Regulatory Authority (FINRA)
    arbitration system. (See for example  3.2, 4.9, 5.3, 5.6.12,
    and 10 of the Arbitration Study,\6\ as well as 4.7 of the
    preliminary results released in December 2013).\7\
    ---------------------------------------------------------------------------
        \6\ Available at http://files.consumerfinance.gov/f/
    201503_cfpb_arbitration-study-report-to-congress-2015.pdf.
        \7\ Available at http://files.consumerfinance.gov/f/
    201312_cfpb_arbitration-study-preliminary-results.pdf.
    ---------------------------------------------------------------------------
        The Bureau ultimately did not include an empirical
    comparison of these systems in the Bureau's March 2015 report
    on arbitration for several reasons. Congress's direction to the
    Bureau, set forth in Section 1028(a) of the Dodd-Frank Wall
    Street Reform and Consumer Protection Act, was that the study
    address pre-dispute arbitration, ``in connection with the
    offering or providing of consumer financial products or
    services.'' In addition to the statutory instruction, the
    Bureau determined that employment and FINRA arbitration
    disputes are qualitatively different than arbitration disputes
    concerning consumer financial products and services. As the
    Bureau found in the March report, most pre-dispute arbitration
    agreements relating to consumer financial products and services
    prohibit consumers from seeking relief in class action
    litigation. This is not the case with FINRA disputes, where
    FINRA rules prohibit the arbitration of class action claims.\8\
    Similarly, claims in employment and FINRA arbitration disputes
    can involve claims worth tens or even hundreds of thousands of
    dollars. Consumer financial claims, by contrast, are typically
    significantly smaller. However, the Bureau did include several
    empirical analyses regarding other forms of dispute resolution
    involving claims relating to consumer financial products and
    services, such as class action litigation in Federal and State
    court, as well as small claims courts.
    ---------------------------------------------------------------------------
        \8\ See, e.g., Financial Industry Regulatory Authority Press
    Release, Board Decision Finds Charles Schwab & Co. Violated FINRA Rules
    by Adding Waiver Provisions in Customer Agreements Prohibiting
    Customers From Participating in Class Actions; Reverses FINRA Hearing
    Panel Decision (April 24, 2014), https://www.finra.org/newsroom/2014/
    board-decision-finds-charles-schwab-co-violated-finra-rules-adding-
    waiver-provisions.
    ---------------------------------------------------------------------------
                                    ------

      RESPONSE TO WRITTEN QUESTIONS OF SENATOR BROWN FROM RICHARD
                                CORDRAY

    Housing/OM
    Q.1. Director Cordray, the Semiannual Report showed that 20
    percent of consumer complaints received by the Bureau were
    about mortgages. With the largest percentage of first-time home
    buyers since 2009 entering the market this year, how do the
    Bureau's ``know before you owe'' initiatives and ability-to-
    repay rule inform and protect those borrowers?

    A.1. Home buyers now benefit from important protections that
    did not exist in Federal law before the Dodd-Frank Wall Street
    Reform and Consumer Protection Act (Dodd-Frank Act). Two
    essential new protections, mandated by the Dodd-Frank Act and
    implemented by the Consumer Financial Protection Bureau,
    include the Ability-to-Repay rule and the ``Know Before You
    Owe'' mortgage disclosures.
    Ability-to-Repay
        The Ability-to-Repay rule informs and protects consumers by
    requiring that creditors make reasonable and good faith
    determinations that borrowers have the financial ability to
    repay the loan. Prior to the rule, consumers throughout the
    United States experienced unprecedented foreclosure rates. At
    least some of those foreclosures likely were the result of
    inadequate underwriting of loan applicants. The ability-to-
    repay requirement is an important bulwark to prevent a
    recurrence of problematic lending practices that gave rise to
    the crisis.
        The Ability-to-Repay rule also helps maintain borrowers'
    access to responsible, affordable mortgages by creating a
    presumption of compliance with the rule when creditors make
    ``qualified mortgages'' that meet certain reasonable,
    prescribed underwriting standards and do not contain certain
    risky features. Despite arguments that these straightforward
    and commonsense requirements would have deleterious effects on
    the mortgage market, we have seen no evidence that the
    availability of responsible, affordable mortgage credit has
    been reduced as a result of these requirements.
    Know-Before-You-Owe Mortgage Disclosures
        The new mortgage disclosures provide information that the
    consumer needs to understand the costs and terms of the
    mortgage, and these disclosures do so in a simpler and more
    easily understood manner than the previous disclosures. In
    developing the new mortgage disclosures, the Bureau conducted
    extensive qualitative and quantitative testing, including over
    10 rounds of qualitative testing to test prototypes and a large
    scale quantitative study to validate the effectiveness of the
    Bureau's new disclosures and evaluating their performance
    compared to the previous disclosures. The study showed that the
    ``Know Before You Owe'' disclosures had on average
    statistically significant better performance than the previous
    disclosures. This advantage was consistent, regardless of the
    level of consumer sophistication, the complexity of the loan
    product, or whether the loan had a fixed rate or an adjustable
    rate.
        The validation study also showed that new mortgage
    disclosures also outperformed the previous disclosures in ways
    that are essential to a consumer's ability to shop for and
    understand a mortgage loan. For example, when consumers used
    the disclosures to compare two competing loan offers, the new
    mortgage disclosures outperformed the previous disclosures by
    about 24 percentage points. For understanding a single loan's
    projected costs and terms, the difference was about 10
    percentage points for the initial disclosures received upon an
    application; about 17 percentage points when consumers compared
    those early disclosures to the later disclosures they receive
    before closing; and about 29 percentage-points in understanding
    the final loan terms and costs using only the closing
    disclosures.
        Participants in the study were also asked to select between
    two loans using the application disclosures, and then asked in
    an open-ended question to provide reasons for their selection.
    In response to the open-ended question, participants using the
    ``Know Before You Owe'' integrated disclosures on average
    provided a greater total number of reasons for their selection
    of a particular loan, and this difference was statistically
    significant and consistent across the variables of the study.
    This result suggests that participants using the new
    disclosures could better articulate and explain the reasoning
    behind their choice.
        In addition to the ability-to-repay and ``Know Before You
    Owe'' mortgage disclosure rules, the Bureau has accomplished
    other important work to inform and protect consumers looking to
    buy a home or refinance their mortgage. For example, after
    conducting a study, the Bureau recently completed a pilot
    program concerning eClosings, which the Bureau believes may
    help consumers understand their mortgages even better in the
    future. The Bureau also has developed a suite of materials to
    help educate consumers about mortgages and the process of
    obtaining one. The materials, called ``Owning a Home,'' are
    publicly available on the Bureau's Web site.\1\ The Bureau also
    has posted a series of questions on its ``AskCFPB'' Web site,
    where home buyers can get answers to common questions about
    buying a home and getting a mortgage. The Bureau has issued a
    revised settlement cost or special information booklet, ``Your
    Home Loan Toolkit,''\2\ to be used in conjunction with the new
    mortgage disclosures. The Toolkit is available in both English
    and Spanish. The Toolkit was developed through several rounds
    of consumer feedback. The Bureau believes it will provide
    significant benefits to first-time home buyers and other
    consumers purchasing a home.
    ---------------------------------------------------------------------------
        \1\ Available at http:/lwww.consumerfinance.gov/owning-a-home/.
        \2\ Available at http://files.consumerfinance.gov/f/
    201503_cfpb_your-home-loan-toolkit-web.pdf.
    ---------------------------------------------------------------------------
        The Bureau understands that, for many consumers, purchasing
    a home represents the largest financial transaction of their
    lives. The Bureau will continue to actively seek out ways to
    help consumers obtain the information they need to shop for and
    succeed at obtaining the best mortgage that fits their needs.
    Notably, home purchase mortgage applications were up 22 percent
    year-over-year in October after our rule had taken effect.
    Small Lender
    Q.2. Director Cordray, in January the Bureau proposed several
    changes to the Qualified Mortgage rule's ``small lender''
    definition. We've heard a lot about the need for relief for
    small lenders.
        Can you discuss how these changes will benefit small
    lenders? More generally, what has the Bureau done to streamline
    regulations, particularly as they relate to small lenders?

    A.2. The proposal finalized in September would expand the
    definitions of ``small creditor'' and ``rural area'' and
    thereby increase the number of small creditors that are
    eligible for regulatory exemptions and that are able to offer
    certain types of mortgages. These changes will also help
    creditors adjust their business practices in the event they
    grow to exceed the small creditor thresholds. Instead of having
    an abrupt end to small creditor status on January 1 of the year
    after first exceeding the small creditor criteria, creditors
    could continue to operate as small creditors for mortgage
    applications they receive through the first quarter of that
    year, providing additional time to adjust systems and train
    staff.
        There are a variety of special provisions and exemptions in
    the Bureau's rules that affect small creditors, including small
    creditors that operate predominantly in rural or underserved
    areas (notwithstanding changes made by the Fixing America's
    Surface Transportation Act (P.L. 114-94)).

       LA provision in the Ability-to-Repay rule extends
            Qualified Mortgage status to loans that small creditors
            hold in their own portfolios, even if a consumer's
            debt-to-income ratio exceeds 43 percent and without
            requiring the use of Appendix Q.

       LA Qualified Mortgage made by a small creditor also
            provides a higher annual percentage rate (APR)
            threshold for a safe harbor from ability-to-repay
            claims. A small creditor has a safe harbor if the
            mortgage's APR does not exceed the applicable Average
            Prime Offer Rate (APOR) by 3.5 or more percentage
            points. In contrast, general Qualified Mortgage loans
            provide safe harbors if their APRs do not exceed the
            applicable APOR by 1.5 or more percentage points.

       LSmall creditors operating predominantly in rural or
            underserved areas can originate Qualified Mortgages and
            high-cost mortgages with balloon payments even though
            balloon payments are otherwise not allowed on such
            mortgages.

       LSmall creditors operating predominantly in rural or
            underserved areas are not required to establish escrow
            accounts for higher-priced mortgage loans.

        The Bureau continues to believe that responsible lending by
    community banks and credit unions did not cause the financial
    crisis, and our mortgage rules reflect the fact that small
    institutions play a vital role in many communities and
    anecdotal evidence suggests that smaller lenders' loans
    performed better than larger lenders loans through the crisis.
    Credit Reporting/Zombie Debt
    Q.3. Earlier I mentioned the CFPB's action last week on debt
    collection. I have heard that millions of Americans are faced
    with ``zombie debt,'' or debt that continues to negatively
    impact their credit reports after it has been paid off or
    discharged in bankruptcy.
        Can you discuss how this happens? Aren't financial
    institutions required under the Fair Credit Reporting Act to
    ensure that debt is reported to CRAs accurately?

    A.3. ``Zombie debt'' occurs when credit reports are not
    properly updated to reflect that a debt has been paid off or
    discharged in bankruptcy. Negative information remains on a
    consumer report for a period of time because creditors consider
    a consumer's past payment behavior to be predictive of a
    consumer's future payment behavior. While debts that have been
    paid off or discharged in bankruptcy can continue to appear on
    credit reports, the reports should also indicate that they have
    been discharged in bankruptcy or paid off.
        The Bureau is aware of allegations that some financial
    institutions have failed to report accurately the status of
    certain accounts that have been discharged in bankruptcy, in
    violation of Federal bankruptcy law. For example, several large
    banks currently face lawsuits accusing them of deliberately
    failing to update accounts to reflect that they have been
    discharged.
        Under the Fair Credit Reporting Act (FCRA), consumer
    reporting agencies are required to follow reasonable procedures
    to assure maximum possible accuracy of the information they
    report. A financial institution that regularly furnishes
    information to a consumer reporting agency has a variety of
    obligations under the FCRA and Regulation V, including the
    obligation to correct and update information that it has
    determined is incomplete or inaccurate. As part of its
    supervision program, the Bureau conducts examinations of the
    furnishing practices of many of the largest creditor and debt
    collector furnishers. Although the Bureau cannot comment on
    whether specific practices violate the law, the Bureau will
    take appropriate action, including enforcement action, in cases
    where it concludes that there is a statutory or regulatory
    violation.
    Credit Reporting/Specialty CRAs
    Q.4. We have heard repeatedly that credit reporting is a major
    issue for many consumers, with 1 in 5 Americans facing an error
    on his or her credit reports. This is particularly concerning
    due to the importance of credit scores on consumers' ability to
    access credit and, increasingly, employment or housing. Nearly
    50 million people saw their scores fall by more than 20 points
    during the crisis.
        Many of us are aware of the big 3 credit reporting bureaus,
    and I understand the Bureau has begun examining those 3 and 27
    other companies in this market. However, the Bureau has also
    noted that there are approximately 400 consumer reporting
    agencies in the country, some of which are known as ``specialty
    consumer reporting agencies.''
        What do these specialty CRAs do? Does the CFPB have
    authority to supervise these companies?

    A.4. There are numerous specialty consumer reporting agencies,
    some of which may also qualify as a ``nationwide specialty
    consumer reporting agency,'' as defined in Section 1681a(x) of
    the FCRA. In general, specialty consumer reporting agencies
    collect and share information about a consumer's history using
    a specific product or service and other transactions with
    certain types of businesses. The information specialty consumer
    reporting agencies collect, which may also include public
    records on bankruptcies, liens, arrests and convictions,
    depends on the agency and its specialty industry. Specialty
    consumer reporting agencies may collect information and produce
    reports on your history of:

       LOpening or using bank accounts (including account
            abuse or fraud);\3\
    ---------------------------------------------------------------------------
        \3\ For more information, see http://www.consumerfinance.gov/
    askcfpb/1819/do-bounced-checks-and-overdrafts-go-my-credit-report.html.

       LApartment rental payments;\4\
    ---------------------------------------------------------------------------
        \4\ For more information, see http://www.consumerfinance.gov/
    askcfpb/1815/could-late-rent-payments-or-problems-landlord-be-my-
    credit-report.html.

       LCar insurance claims;\5\
    ---------------------------------------------------------------------------
        \5\ For more information, see http://www.consumerfinance.gov/
    askcfpb/1821/do-auto-and-homeowners-insurance-companies-share-my-
    information-about-claims-and-policies.html.

    ---------------------------------------------------------------------------
       LHomeowners and renters insurance claims;

       LPayday lending;

       LUtility payments;\6\
    ---------------------------------------------------------------------------
        \6\ For more information, see http://www.consumerfinance.gov/
    askcfpb/1817/does-my-history-paying-utility-bills-telephone-cable-
    electricity-or-water-go-my-credit-report.html.

    ---------------------------------------------------------------------------
       LPhone bill payments;

       LEmployment;\7\ and
    ---------------------------------------------------------------------------
        \7\ For more information, see http://www.consumerfinance.gov/
    askcfpb/1823/ive-been-looking-iob-what-do-employers-see-when-they-do-
    credit-checks-and-background-checks.html.

       LMedical records or payments.\8\
    ---------------------------------------------------------------------------
        \8\ For more information, see http://www.consumerfinance.gov/
    askcfpb/1837/how-can-i-find-out-whats-my-medical-payment-history.html.

        Under the Bureau's larger participant rule for consumer
    reporting agencies, the Bureau has supervision authority over
    entities engaging in or offering consumer financial products or
    services only if they (or their parent company) have more than
    $7 million in annual receipts from consumer reporting
    activities. The Bureau also has other tools it can use to help
    consumers with specialty consumer reporting agencies that don't
    fall within the Bureau's supervision authority. If appropriate,
    the Bureau can take enforcement actions. The Bureau can also
    engage in consumer education about specialty consumer reporting
    agencies, which it has done numerous times.
    Credit Reporting/Credit Invisibility
    Q.5. In May, the consumer agency published a report that 26
    million Americans are ``credit invisible,'' and that 1 in 10
    adults do not have any credit history with a nationwide
    consumer reporting agency.
        Can you discuss the impact of not having a credit score on
    access to credit?

    A.5. As reported in the Bureau's recent release Data Point:
    Credit Invisibles,\9\ 26 million adults in the United States do
    not have a credit record maintained by one of the Nationwide
    Credit Reporting Agencies (NCRAs) and an additional 19 million
    adults have NCRA credit records that could not be scored by a
    widely used commercially available credit scoring model.
    Because credit scores are widely used in underwriting and
    pricing credit to assess the creditworthiness of applicants,
    these consumers may face substantially reduced access to
    credit. Without the information about creditworthiness that
    credit scores provide, lenders may deny loan applicants
    outright, require more collateral or co-signers, or charge
    higher interest rates. As a result, many of these consumers may
    have to rely more heavily on ``nontraditional'' sources of
    credit, such as payday lenders or pawnshops, which either do
    not require credit checks or use credit history information
    from non-NCRA sources to assess creditworthiness. Since these
    nontraditional sources of credit generally do not report
    information to the NCRAs, borrowing from these sources does not
    help establish a credit history at the NCRAs and thus may
    prolong the problems associated with having an unscored credit
    record.
    ---------------------------------------------------------------------------
        \9\ Available at http://files.consumerfinance.gov/f/
    201505_cfpb_data-point-credit-invisi
    bles.pdf.
    ---------------------------------------------------------------------------
    Student Loans
    Q.6. The student loan market stands at $1.3 trillion, with many
    predicting a long drag on our economy due to this debt.
        What are the top complaints that you hear from consumers
    about student loans?

    A.6. As noted in the 2014 Annual Report of the CFPB Student
    Loan Ombudsman,\10\ the single most common issue reported by
    private student loan borrowers is the inability to negotiate
    alternative repayment options with lenders and servicers when
    facing distress. A substantial share of private student loan
    borrowers graduated in a time of extremely challenging labor
    market conditions and found the economic landscape meaningfully
    different than when they first made the decision to borrow.
    Although the labor market has recovered since the recession,
    job prospects for many young graduates remain limited. One
    recent analysis estimated that more than one in four recent
    college graduates was either unemployed or underemployed. While
    market participants have addressed some of the root causes of
    consumer complaints, the lack of availability of transparent
    loan modification options and complicated enrollment procedures
    persist as pain points in the market.
    ---------------------------------------------------------------------------
        \10\ Available at http://files.consumerfinance.gov/f/
    201410_cfpb_report_annual-report-of-the-student-loan-ombudsman.pdf.
    ---------------------------------------------------------------------------
        As noted in the 2014 Report, the most common broad category
    of complaints the Bureau receives from borrowers with private
    student loans generally relates to the student loan repayment
    process, identified in our intake form as ``dealing with [a]
    lender or servicer,'' and broadly defined by consumers as
    problems related to ``making payments, getting information
    about [a] loan, managing [an] account.'' Consumers submitting
    complaints about these issues comprised 57 percent of all
    private student loan complaints received by the Bureau between
    October 1, 2013 and September 30, 2014.
        In May 2015, the Bureau, in coordination with leaders from
    the Department of the Treasury, launched a public inquiry into
    student loan servicing practices. In support of this
    initiative, the Bureau published a notice in the Federal
    Register soliciting input on potential solutions to improve the
    delivery of service to student loan borrowers in repayment.
                                    ------

      RESPONSE TO WRITTEN QUESTIONS OF SENATOR CRAPO FROM RICHARD
                                CORDRAY

    Q.1. Last month, the CFPB sent a data collection request under
    its section 1022 market monitoring authority to a number of
    financial institutions seeking input on consumer use of deposit
    advance products. I have been told that the request sought
    information about specific transfers from consumer accounts and
    requires these institutions to scan customer accounts line by
    line for their financial behavior dating back years. According
    to market participants, this could involve hundreds of
    thousands, if not millions, of customer's transaction level
    data to the CFPB.
        How many 1022(c)(4) orders under the CFPB's market
    monitoring authority have been issued to date and what is the
    process for a recipient of an order to challenge or limit the
    breadth of the order?

    A.1. As of October 31, 2015, the Consumer Financial Protection
    Bureau has issued eight mandatory orders under the Bureau's
    1022(c)(4) market monitoring authority. The Bureau's practice
    is to consult with financial institutions in advance of issuing
    1022(c)(4) orders to minimize compliance burden. Although there
    is no formal process to challenge an order, the Bureau welcomes
    input from recipients, even after they receive the orders. When
    appropriate, the Bureau also sends voluntary requests for
    information to financial institutions.

    Q.2.a. The Paperwork Reduction Act was designed, among other
    things, to ``ensure the greatest possible public benefit from
    and maximize the utility of information created, collected,
    maintained, used, shared and disseminated by or for the Federal
    Government'' and to ``improve the quality and use of Federal
    information to strengthen decisionmaking, accountability, and
    openness in Government and society.'' It is my understanding
    that each of the 1022 orders issued to date was sent to fewer
    than 9 companies, which 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.
        How many times has CFPB utilized the exception for
    reviewing data requests by sending 1022 request to fewer than
    10 companies?

    A.2.a. To date, all of our mandatory 1022 orders have been for
    one-time collections to help understand a particular financial
    product, market, or business practice. When researching
    financial markets to protect consumers, the Bureau consistently
    works to reduce burden on industry by working with existing
    available data where possible. Bureau staff supplements
    existing data by requesting new data when necessary, and then
    works in those cases to minimize how many firms we request data
    from. As of October 31, 2015, the Bureau has issued six
    mandatory 1022 orders to fewer than 10 companies. Most of these
    orders involved 3 to 5 companies.

    Q.2.b. Given the CFPB's use of the exemption by only sending
    the request to fewer than 10 companies, how is the public
    informed about their transaction level data being sent to the
    CFPB and what privacy protections do they have?

    A.2.b. The Bureau is interested in how consumer financial
    markets behave rather than individual consumers' transactions.
    In general, the Bureau studies market behavior by observing
    aggregated information or anonymized account level statistics.
    In compliance with section 1022(c)(4)(C) of the Dodd-Frank Wall
    Street Reform and Consumer Protection Act, the Bureau does not
    use its market monitoring authority to obtain data from covered
    persons or service providers for purposes of gathering or
    analyzing consumers' personally identifiable financial
    information.
        In April 2013, the Bureau released a study, Payday Loans
    and Deposit Advance Products: A White Paper of Initial Data
    Findings.\1\ The Bureau believes deposit advance products as
    currently structured raise serious consumer protection concerns
    related to the sustained use of a high-cost product. This
    concern has been echoed by the other banking regulators. To
    further study this market, the Bureau recently issued a one-
    time 1022(c)(4) order for additional aggregate data from five
    financial institutions.
    ---------------------------------------------------------------------------
        \1\  Available at http://files.consumerfinance.gov/f/
    201_304_cfpb_payday-dap-white
    paper.pdf.
    ---------------------------------------------------------------------------
        Your first question refers to this recent 1022 order for
    aggregate data. The Bureau will receive no individual account
    or transaction history as a result of this request. For this
    request, the Bureau will only receive aggregate statistics
    about groups of accounts.
        In the limited cases where the Bureau does receive
    personally identifiable information, the Bureau reduces the
    privacy risk of information it maintains by redacting and
    restricting access to personally identifiable information,
    providing training to personnel on the appropriate use and
    disclosure of that information, and maintaining the information
    in secure environments in accordance with applicable law. To
    inform the public about situations in which the Bureau does
    collect individual-level data, the Bureau complies with the
    Privacy Act requirements and publishes System of Record Notices
    (SORNs) in the Federal Register and on our public Web site. The
    Bureau publishes privacy impact assessments on our public Web
    site as well.

    Q.3. Data security is a growing concern and the breaches at the
    Office of Personal Management highlights the importance of
    privacy concerns and the sensitive data that is collected. In
    the case of OPM we are now being told that more than 21 million
    Social Security numbers, 1.1 million fingerprint records, and
    19.7 million forms with data like someone's mental-health
    history were stolen as part of the breach.
        Has CFPB detected any attempts to breach its systems and,
    if so, what is the frequency/number of attempts to gain
    unauthorized access to CFPB systems?

    A.3. The Bureau has designed and implemented layers of proven
    defense mechanisms and safeguards for its systems and data.
    This work is continuously refined to keep pace with emerging
    threats, tactics, and techniques. The Bureau coordinates with
    other agencies and cross-sector groups to maintain awareness of
    and improve defenses against individuals and organizations that
    might attempt an attack. The Bureau's adherence to security
    practices such as monitoring, patching, building security into
    new services, and requiring end-user training reduces the
    likelihood that any attempt to gain unauthorized access would
    succeed.
        As of December 11, 2015, the Bureau has confirmed 34
    attempts to gain unauthorized access. Incident analysis of
    these attempts did not identify any leakage or breach of
    sensitive data. The Bureau continuously monitors its network
    and investigates any anomalies or issues.
                                    ------

     RESPONSE TO WRITTEN QUESTIONS OF SENATOR VITTER FROM RICHARD
                                CORDRAY

    Q.1. Mr. Cordray, as you know, the Dodd-Frank law requires your
    Bureau to reach out to small businesses and solicit their input
    prior to drafting regulations. The purpose of that requirement
    is for the Bureau to benefit from the experience of small
    business owners prior to writing a Federal regulation. This
    exercise is designed to prevent unintended negative
    consequences on the small business community. As you know your
    agency recently conducted a Small Business Advocacy Review for
    an upcoming rule on the small dollar lending industry. The
    panel offered an essential opportunity for small businesses
    impacted by a proposed rule to voice their concerns about it,
    which your agency must fully consider and incorporate into the
    final rule.
        Can you explain what changes you made to this rule based on
    the feedback from small businesses? How do you expect these
    changes to benefit the numerous small businesses that might be
    affected by your upcoming rule? Why are you keeping that report
    secret and not making it public? Isn't this another example of
    how the CFPB does not operate in an open and transparent
    fashion, unlike the standard you impose on regulated entities?

    A.1. Under the Regulatory Flexibility Act (RFA), the Consumer
    Financial Protection Bureau (Bureau) is required to convene a
    Small Business Review Panel when it is considering a proposed
    rule that could have a significant economic impact on a
    substantial number of small entities. In April, the Bureau
    convened such a panel with the Small Business Administration
    Office of Advocacy and Office of Information and Regulatory
    Affairs in the Office of Management and Budget to obtain
    feedback from small businesses about the proposals under
    consideration for payday, vehicle title, and similar loans.
    Through the Small Business Review Panel process, the Bureau
    received important feedback from small businesses about the
    potential economic impact of the proposals. The Bureau is
    carefully considering this feedback as we refine the proposals
    to develop a proposed rule. The Bureau will make public the
    Panel's report in its entirety when we publish a Notice of
    Proposed Rulemaking.

    Q.2. It is my understanding that those small business owners
    who volunteered their time to help the CFPB come up with
    workable consumer protections were frustrated that the CFPB
    could not answer how the Bureau's approach would work with
    State consumer protection laws.
        Will you re-start the required Dodd-Frank small business
    process once you are able to tell the small business owners how
    your regulatory approach will work with State laws?

    A.2. The Bureau's proposals under consideration for payday,
    vehicle title, and similar loans, if implemented, would
    establish a Federal baseline for regulation of these markets.
    The Federal rules would coexist with stricter consumer
    protection laws and regulations at the State and local level
    and States would continue to regulate aspects of the market
    that are not impacted by the Bureau's rule. The Bureau
    continues to carefully analyze the ways in which State
    regulation of this market would be affected by the Bureau's
    proposals. We continue to receive and consider feedback from
    small businesses, other industry participants, consumers, State
    government officials, and other interested parties on this and
    all parts of the proposals under consideration and will do so
    throughout the rulemaking process.

    Q.3. It has been estimated that the proposed rules to the
    payday lending industry will result in 70 percent of small
    dollar lending operators out of business. I do not see how any
    small business can survive the overwhelming loss of revenue
    that even you predict. I am sure you recognize that hard
    working Americans have their life savings invested in these
    business, which are completely lawful in the States in which
    they exist.

       LDo you believe the regulations you have proposed
            will have a disproportionate impact on small
            businesses?

       LWill you take into account the cost of compliance
            when creating your rule?

       LWhat alternatives have you considered to these Rule
            Proposals that might avoid this destruction of small
            businesses and loss of millions of dollars of capital
            investment and hundreds of thousands of jobs?

       LWill you be comfortable with only large payday
            lenders dominating the market?

    A.3. The Bureau expects that the proposals under consideration
    for payday, vehicle title, and certain other similar loans
    would have a significant economic impact on a substantial
    number of small entities. Therefore, in accordance with the
    RFA, the Bureau convened a Small Business Review Panel to
    obtain feedback from small entities and consider these impacts.
    Under the Dodd-Frank Wall Street Reform and Consumer Protection
    Act, the Bureau is also required to consider the potential
    benefits and costs of a potential rule to consumers and covered
    persons of a potential rule. As part of this assessment, we
    consider the cost of compliance with the potential regulation.
    As not in the Outline of Proposals Under Consideration and
    Alternatives Considered released in March 2015, the Bureau is
    considering numerous alternatives to components of the
    regulatory framework. Some of these alternatives may have a
    greater or lesser impact on small businesses.
        Throughout the rulemaking process, the Bureau seeks
    feedback from small businesses and other industry participants.
    In developing the proposed rule on payday, vehicle title, and
    certain other similar loans, the Bureau is carefully
    considering the feedback provided by small businesses and the
    findings of the Small Business Review Panel. Following
    publication of a Notice of Proposed Rulemaking, we hope to
    receive robust public comment, including from small businesses,
    about the potential impacts and costs associated with the
    proposal and any alternatives. The Bureau will then carefully
    consider such comments and consider ways to reduce the burden
    associated with compliance, while still fulfilling the purpose
    of the rulemaking.
                                    ------

      RESPONSE TO WRITTEN QUESTIONS OF SENATOR SASSE FROM RICHARD
                                CORDRAY

    Q.1. The CFPB has proposed a rule on prepaid debit cards that
    also applies to digital wallets, despite the fact that these
    products have a different function and a different structure.
    For prepaid debit cards, a customer loads money onto a prepaid
    card and is charged a fee if they exceed the balance. A digital
    wallet helps consumers make purchases online, by helping them
    access other payment options. Fees are generally not charged on
    digital wallets. Why is the CFPB treating these dissimilar
    products the same way?

    A.1. The Consumer Financial Protection Bureau (Bureau) believes
    it is appropriate to cast a wide net in including products
    within the proposed definition of prepaid account in its
    prepaid rulemaking. The Bureau crafted the definition of
    prepaid account after reviewing the comments received on its
    May 2012 Advance Notice of Proposed Rulemaking \1\ (ANPR) on
    general purpose reloadable cards and conducting significant
    outreach to aid its understanding of the scope and diversity of
    the prepaid product marketplace, including digital wallets. The
    Bureau received a wide range of comments on the ANPR as to what
    types of products its proposed rule should cover. Industry
    commenters disagreed, for example, over whether the Bureau
    should limit its proposed rule to products represented by
    physical cards or whether it should also include other types of
    prepaid products such as those that are entirely online (and
    might use a barcode or QR code displayed on a mobile device
    such as a smart phone or other online means to interact with a
    payment network).
    ---------------------------------------------------------------------------
        \1\ Among other things, the Bureau asked: ``How should the CFPB
    define GPR cards in the context of Regulation E? Should certain prepaid
    products not be included in this definition, such as cards that may
    serve a limited purpose (e.g., university cards or health spending
    cards)? Why or why not?'' 77 FR 30923 (May 24, 2012).
    ---------------------------------------------------------------------------
        Some commenters specifically urged the Bureau to
    distinguish between digital wallets that simply store payment
    credentials for other accounts and both cards and noncard
    products that store funds themselves.
        The Bureau's proposed definition of ``prepaid accounts''
    would encompass only those digital wallets that are capable of
    storing funds. With such digital wallets, a consumer can
    maintain a balance in the wallet account through transfers from
    sources such as the consumer's own bank account or a transfer
    received from another user of the digital wallet system--in
    other words, the consumer loads money into the digital wallet
    account in the same way that a consumer might load funds onto a
    prepaid card. To the extent that a digital wallet merely stores
    payment credentials (e.g., a consumer's bank account or payment
    card information), rather than storing the funds themselves,
    the digital wallet would not be considered a prepaid account
    under the proposed rule.
        The Bureau received extensive feedback from commenters on
    the scope of the proposed definition of prepaid accounts and is
    continuing to evaluate the appropriate scope for a final rule.

    Q.2. Customers must link their bank account or a credit card to
    use their digital wallet, because the wallet is merely an
    ``agent'' to facilitate a payment. But, the CFPB's Prepaid Rule
    prohibits linking credit products to prepaid accounts. Given
    that the digital wallet's purpose is to merely facilitate
    payments, should the prohibition of ``linking'' apply to
    digital wallets? If so, how does the CFPB expect that digital
    wallets will work under the rule?

    A.2. The Bureau's prepaid accounts proposal covers virtual
    wallet products that, among other things, are capable of
    storing funds. The Bureau understands that consumers can fund
    digital wallets in a variety of ways, including, in some cases,
    by linking the wallet to a consumer's existing credit card. The
    Bureau is also aware that digital wallet issuers may provide
    consumers with the option to link their digital wallet to a
    line of credit provided by the issuer or its financial
    institution partner. The credit portions of the Bureau's
    proposal do not prohibit these methods of linking credit
    products to digital wallets. Under the proposal, overdraft
    services and credit features offered on prepaid accounts would
    be subject to provisions within the Truth in Lending Act and
    Regulation Z that govern open-end credit and credit cards, as
    well as provisions in Regulation E. This proposal would ensure
    greater consistency of treatment even where the linked type of
    credit would otherwise be subject to different regulations.
        As the Bureau reviews the many comments received on the
    prepaid proposal, the Bureau is continuing to examine whether
    revisions to its proposed approach to overdraft and credit
    features on prepaid accounts would be appropriate.

    Q.3. Last week, the CFPB released its ``Guiding Principles for
    Faster Payment Networks.'' At the same time, the Federal
    Reserve has established a ``Faster Payments Task Force'' and a
    ``Safer Payments Task Force.'' These task forces are working on
    issues that affect the broader payments industry. How does the
    CFPB plan on working with the Federal Reserve to ensure that
    efforts to protect consumers do not harm innovation?

    A.3. The Bureau published Consumer Protection Principles:
    CFPB's Vision of Consumer Protection in New Faster Payment
    Systems \2\ to inform and spur, rather than harm, innovation.
    The Bureau recognizes, based in part on discussions with
    industry stakeholders, that system developers can best and most
    efficiently ensure consumer protection in new payment systems
    during system conceptualization and design. Thus, the
    principles are intended to ensure consumer interests remain top
    of mind throughout system development and to facilitate the
    integration of consumer interests into these developing
    systems.
    ---------------------------------------------------------------------------
        \2\ http://files.consumerfinance.gov/f/201507_cfpb_consumer-
    protection-principles.pdf.
    ---------------------------------------------------------------------------
        Bureau staff works closely with Federal Reserve
    counterparts in this vein. Bureau staff participates in the
    Federal Reserve's Secure Payments Task Force and on the
    Steering Committee of the Federal Reserve's Faster Payments
    Task Force. In this capacity, the Bureau has assisted the
    Federal Reserve and its task forces in the ongoing development
    of a broader set of new payment system objectives that will
    further inform and hopefully accelerate industry innovation.
    More generally, as a member of the Steering Committee for the
    Faster Payments Task Force, Bureau staff helps to cultivate
    input from a broad set of industry stakeholders and develop a
    shared understanding of consumer needs and vulnerabilities,
    technological and other concerns, and market opportunities.
    Bureau staff also meets frequently outside of the task force
    with Federal Reserve staff and representatives of various
    industry stakeholders.
                                    ------

     RESPONSE TO WRITTEN QUESTIONS OF SENATOR ROUNDS FROM RICHARD
                                CORDRAY

    Q.1. According to the U.S. Treasury, it costs $1.03 to issue a
    paper check and only 10.5 cents to issue an electronic payment.
        Currently, however the CFPB is proposing that agencies that
    provide government benefit cards include a statement at the top
    of a required disclosure that reads ``You do not have to get
    your payments on this prepaid card. Ask about other ways to get
    your payments.''
        This statement appears designed to drive people away from
    government benefit cards and a payment system that will cost
    taxpayers 10 times as much as a prepaid card.

       LBefore the CFPB proposed this language, did the
            Bureau calculate how much these proposed disclosures
            would cost taxpayers?

       LIf so, how much? If not, why not?

    A.1. The proposed disclosure statement and underlying
    regulatory provisions in the Consumer Financial Protection
    Bureau's rulemaking on prepaid accounts \1\ were not intended
    to discourage use of government benefit cards or to mandate
    disbursement of government benefits via paper check.
    Accordingly, the Bureau did not conduct the type of analysis
    you describe. Rather, as explained in the proposal, the
    statement was designed to inform consumers of their rights
    under the Electronic Fund Transfer Act, given that Congress
    expressly prohibited any person from requiring a consumer to
    establish an account for receipt of electronic fund transfers
    with a particular financial institution as a condition of
    employment or receipt of a government benefit.\2\ For instance,
    where a government institution chooses to deliver benefits by
    direct deposit, recipient have a right to decide which
    financial institution will receive the direct deposits on their
    behalf.
    ---------------------------------------------------------------------------
        \1\ 79 FR 77102 (Dec. 23, 2013).
        \2\ EFTA section 913, 15 U.S.C. 1693k(2); see also 12 CFR
    1005.10(e)(2) (implementing this provision in Regulation E).
    ---------------------------------------------------------------------------
        The Bureau believes that informing consumers that they have
    a statutory right to choose something other than a government-
    selected payment product will ensure that consumers can benefit
    from market competition for their business, including
    potentially a prepaid card from another financial provider. The
    Bureau is considering all feedback on the proposed language and
    conducting additional consumer testing on the best way to
    convey this information.

    Q.2. The CFPB has been collecting detailed information on over
    millions of credit card accounts including the credit card
    users balances, the account holder's other relationships with
    the issuing bank, and the account holder's income, FICO score,
    and payment history.
        The CFPB has claimed that this data is anonymous, but when
    asked if it could be reverse-engineered to reveal individual
    identities, you said the answer was ``complicated.''

       LShould the CFPB's credit card database be hacked,
            will the Bureau notify any individual consumers or
            Congress of that breach?

    A.2. The Bureau is conscious of the many, and variety of,
    threats to information security and the associated privacy
    risks. As threats become more sophisticated, it is not possible
    to suggest that any system or particular dataset is unhackable
    or could never be reverse-engineered, though we take all
    precautions to prevent the type of hack you reference. Due to
    the Bureau's awareness of the complicated nature of security
    threats and privacy concerns, the credit card information you
    reference consists solely of de-identified records and does not
    include information that directly identifies individuals, such
    as name, address, or account number. The information also does
    not contain purchase level information. The Bureau cannot
    identify and thus cannot contact individuals associated with
    the data. Therefore, unauthorized access of the information you
    reference would grant visibility only to de-identified
    information.
        The Bureau's information security and privacy programs
    continue to evolve to keep pace with emerging threats. The
    Bureau strives to refine and automate risk management,
    continuous monitoring, analysis, and response capabilities. Our
    efforts include ongoing refinements to the Bureau's internal
    processes and risk assessment methodology, performing proactive
    or `red-team' assessments of systems, and implementing dynamic
    technologies and services to better detect vulnerabilities and
    respond to threats. The Bureau is committed to reducing the
    information security and privacy risks of any information it
    maintains by restricting access as necessary, providing
    training to personnel on the appropriate use and disclosure of
    information, and maintaining information in secure environments
    in accordance with applicable law.

    Q.3. I have heard repeatedly from small community bankers in
    South Dakota that the CFPB's new rules and red tape are making
    it harder and harder for them to make loans to their customers.
        These banks aren't predatory lenders and they certainly
    didn't cause the financial crisis.

       LTo give these small banks some relief, can you list
            three regulations small banks have to comply with that
            you think are duplicative and that the CFPB can cut to
            reduce their compliance burden?

    A.3. Congress, in mandating rules to address the abuses that
    lead up to the financial crisis, recognized the important role
    that small banks play in providing access to credit in their
    communities. The Bureau has adjusted its rules in several
    places to reduce burden on small banks. For example, the
    Bureau's 2013 mortgage rules provide small creditors with a
    broader safe harbor from ability-to-repay liability. The 2013
    rules also provide a safe harbor for small lenders operating in
    predominantly rural or underserved areas, which allow these
    lenders to continue to offer balloon loans to
    consumers. \3\ In response to feedback about the 2013 rules
    from small lenders, the Bureau finalized a change to the
    criteria for what constitutes a small creditor, so that more
    small lenders can get the broader safe harbor from ability-to-
    repay liability. The Bureau will also allow more lenders to
    qualify as serving rural or underserved areas, which would
    allow more small lenders to continue offering balloon loans
    that they have traditionally offered without adversely
    impacting consumers. Similarly, the Bureau has exempted small
    mortgage servicers from several provisions of the Bureau's 2013
    mortgage servicing rules. We also modified the provisions on
    annual privacy notices to reduce the burdens on smaller
    institutions.\4\
    ---------------------------------------------------------------------------
        \3\ These actions were taken prior to the enactment of the Fixing
    America's Surface Transportation Act (P.L. 114-94).
        \4\ These actions were taken prior to the enactment of the Fixing
    America's Surface Transportation Act (P.L. 114-94).
    ---------------------------------------------------------------------------
                                    ------

      RESPONSE TO WRITTEN QUESTIONS OF SENATOR MORAN FROM RICHARD
                                CORDRAY

    Q.1. Director Cordray, the first goal identified in the CFPB's
    strategic plan is to prevent financial harm to consumers while
    promoting good practices that benefit them. I have heard
    anecdotes from financial market participants and industry
    groups that CFPB's enforcement actions often attempt to remedy
    so-called consumer harm that is only theoretical, when no
    actual financial harm to consumers took place. Should not the
    CFPB's enforcement actions be focused on cases where real
    financial harm occurred rather than merely supposed harm?

    A.1. The Consumer Financial Protection Bureau's enforcement
    work is indeed focused on remedying real consumer harm. We also
    seek to level the playing field and ensure that those
    institutions operating legally are able to enjoy a market that
    is fair. The Bureau's Office of Enforcement has obtained $11
    billion in relief for over 25 million consumers.\1\
    ---------------------------------------------------------------------------
        \1\ http://team.cfpb.local/wiki/images/f/f3/2015-07-
    21_CFPB_Supervision_and_Enforce-
    ment_Factsheet.pdf, October 2015.
    ---------------------------------------------------------------------------
        For example, we have taken action against a company for
    illegal debt collection practices resulting in $2.5 million in
    relief for servicemembers. We have stopped an illegal kickback
    scheme for marketing services, which resulted in $11.1 million
    in redress for wronged consumers. The Bureau worked with the
    Department of Education to obtain $480 million in debt relief
    to student loan borrowers who were wronged by a for-profit
    chain of colleges that violated the law and has since declared
    bankruptcy. The Bureau has also worked with the Department of
    Justice to settle a historic redlining case against a company
    engaging in discriminatory practices. Remedying real consumer
    harm to servicemembers, students, older Americans, targeted and
    vulnerable populations, and any consumers throughout the
    country is central to our mission.

    Q.2. The CFPB's enforcement actions seem focused on the largest
    participants in financial markets, even though those are the
    companies likely to devote the most resources to training,
    quality control and compliance. In fact, the Bureau's press
    releases often boast of having taken action against ``one of
    the largest'' in a particular market. Doesn't the Bureau's
    focus on a company's market share risk that those who actually
    engage in the most egregious practices go overlooked if they
    are not large enough to generate a headline?

    A.2. As noted above, the Bureau takes a number of factors into
    consideration in our enforcement work. Since its creation, the
    Bureau has taken numerous actions against entities and
    individuals within its jurisdiction that have harmed consumers
    through illegal actions in the financial marketplace. Our
    actions have addressed the conduct of some of the largest
    players in given markets, as well as smaller companies and
    individuals engaged in violations of the law. Through our
    enforcement work, we seek to level the playing field and ensure
    that those institutions operating legally are able to enjoy a
    market that is fair.
                                    ------

    RESPONSE TO WRITTEN QUESTIONS OF SENATOR MENENDEZ FROM RICHARD
                                CORDRAY

    Q.1. As we discussed, I'm concerned with reports that mortgage
    servicers may be taking steps to evade the CFPB's protections
    against ``dual tracking'' by unfairly subjecting distressed
    homeowners to prolonged documentation collection processes. By
    keeping a homeowner's application from being marked
    ``complete,'' a servicer may prevent the homeowner from
    becoming eligible for the protections, which prohibit the
    servicer from moving forward with a foreclosure while the
    homeowner is pursuing loss mitigation.

       LDo you have concerns that servicers are
            intentionally obstructing the loss mitigation process
            to favor foreclosure? And if so, what must be done to
            correct misaligned incentives and protect consumers?

       LWhy aren't servicers able to identify, shortly
            after receiving an application for loss mitigation, any
            additional required documents and provide a clear list
            to borrowers? It seems like it should be fairly
            straightforward. Either the homeowners have provided
            the necessary paperwork or they haven't. And if not,
            the servicer should be able to provide a final and
            comprehensive list of what's missing in a timely
            fashion.

       LWhat else can be done to streamline the process for
            loss mitigation?

    A.1. The Consumer Financial Protection Bureau (Bureau) shares
    your concerns about the difficulties that consumers face when
    submitting an application for loss mitigation assistance. The
    Bureau continues to receive a high volume of complaints about
    problems with loss mitigation and dual tracking through
    consumer complaints and from our engagement with external
    stakeholders. These complaints help inform our risk-based
    identification of mortgage servicers for supervisory exams and,
    in some cases, enforcement investigations.
        The Bureau is actively engaged with this issue, and several
    offices across the agency are involved. Ensuring servicer
    compliance with the loss mitigation rules that became effective
    in January of 2014 remains a high priority for the Bureau's
    Offices of Supervision and Enforcement, while monitoring the
    effectiveness of those rules and considering clarifications and
    corrections to improve the consumer experience is a high
    priority for the Offices of Research, Markets, and Regulations.
        During supervisory examinations of mortgage servicers, the
    Bureau has prioritized the evaluation of servicer loss
    mitigation operations. When the Bureau identifies violations,
    we require corrective actions and, in some cases, consumer
    redress. While the results of individual exams are
    confidential, the Bureau routinely publishes highlights of exam
    findings that describe findings and outcomes in our Supervisory
    Highlights reports.
        In the Summer 2015 edition of Supervisory Highlights,\1\
    the Office of Supervision described instances where at least
    one servicer sent borrowers loss mitigation acknowledgment
    notices requesting documents, sometimes dozens in number, that
    were inapplicable to the borrowers' circumstances and which the
    servicer did not actually need to evaluate the borrower for
    loss mitigation. Additionally, examiners found that at least
    one servicer requested documents already submitted by the
    borrower. Those servicers were cited for violating Regulation X
    and ordered to revise their acknowledgment notices to State the
    specific additional documents actually required to complete a
    loss mitigation application. The Bureau examiners also found
    that one or more servicers failed to send any loss mitigation
    acknowledgment notices because of a sustained processing
    platform failure. This finding was cited both as a violation of
    Regulation X and also as an unfair practice. The Bureau
    directed one or more servicers to fix the servicing platform
    problems and to compensate consumers for interest and fees
    incurred and for any additional harm.
    ---------------------------------------------------------------------------
        \1\ Available at http://files.consumerfinance.gov/f/
    201506_cfpb_supervisory-highlights.pdf.
    ---------------------------------------------------------------------------
        Other editions of Supervisory Highlights, available on the
    Bureau's Web site,\2\ detail additional supervisory findings
    and actions related to mortgage servicing examinations,
    including compliance with mortgage loss mitigation rules.
    ---------------------------------------------------------------------------
        \2\ Available at http://www.consumerfinance.gov/guidance/
    supervision/manual/#suphigh
    lights.
    ---------------------------------------------------------------------------
        In addition to our supervisory activity, in some cases, the
    Bureau's Office of Enforcement may bring a public enforcement
    action depending on several factors. In one recent case, a
    financial institution was ordered to pay $1.5 million in
    restitution to consumers for, among other violations, failing
    to honor trial modifications on loans transferred from other
    servicers and requiring those customers to essentially reapply.
    The financial institution was also ordered to pay a $100,000
    civil money penalty and to implement corrective actions to
    prevent future violations.
        The Bureau's Office of Regulations works closely with the
    Offices of Supervision and Enforcement as well as external
    stakeholders to monitor the effectiveness of existing mortgage
    servicing rules and as necessary, propose changes or
    clarifications. In November 2014, the Bureau issued a proposed
    mortgage servicing rule \3\ that includes key changes to the
    loss mitigation application process. Among other things, the
    proposed changes would:
    ---------------------------------------------------------------------------
        \3\ Available at https://www.federalregister.gov/articles/2014/12/
    15/2014-28167/amendments-to-the-2013-mortgage-rules-under-the-real-
    estate-settlement-procedures-act-regulation-x.

       LRequire servicers to comply with the loss
            mitigation requirements more than once in the life of a
            loan for borrowers who brought their loans current
    ---------------------------------------------------------------------------
            since the last application;

       LRequire servicers to promptly provide a written
            notice once a complete loss mitigation application is
            received;

       LProhibit servicers from denying loss mitigation
            assistance solely because they are waiting to receive
            information that is not within the borrower's control,
            such as an appraisal or investor approval; and

       LAllow servicers to offer a short-term repayment
            plan without requiring borrowers to submit a11 of the
            information required for a complete application.

        The Bureau is currently reviewing the comments that it
    received in response to the proposed rule and plans to issue a
    final rule in 2016. The Bureau will continue to pursue this
    work with the goal of further minimizing consumer harm and, as
    you suggest, better aligning servicer incentives.

    Q.2. The last time you were before this Committee, you and I
    discussed several issues regarding student loan co-signers. As
    the CFPB has reported, more than 90 percent of private student
    loans today have a co-signer, often a parent or grandparent,
    who can help the student qualify for the loan or obtain better
    terms.
        The CFPB has described a whole host of problems facing
    consumers in this area--including a lack of clear information
    about co-signer obligations; unfair obstacles to obtaining co-
    signer releases from lenders who offer them; and automatic
    defaults if a co-signers dies or becomes disabled, even if the
    student continues to make all payments on the loan.
        These practices are inexcusable, and can take advantage of
    families during times of tragedy and hardship. Students and
    their families deserve clear rules of the road and lenders who
    hold up their side of the bargain.

       LI believe legislative action is needed--and I thank
            your staff for the technical assistance they have
            provided on a bill that I intend to introduce in the
            near future. In the meantime, what steps can the CFPB
            take using its existing authorities?

       LAnd are we seeing any voluntary responses from
            lenders to improve their practices?

    A.2. As you note, in June 2015, the Bureau Student Loan
    Ombudsman published a report identifying a range of problems
    specific to co-signed private student loans, including
    potential barriers to obtaining the ``co-signer release''
    benefit advertised by many private student lenders.\4\ These
    issues continue to be of significant concern to the Bureau.
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        \4\ Available at http://files.consumerfinance.gov/f/
    201506_cfpb_mid-year-update-on-student-loan-complaints.pdf.
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        In addition to accepting complaints from individual
    borrowers with student loans, the Bureau maintains a student
    loan servicing supervision program, publishes consumer
    education materials for student loan borrowers, including
    offerings specific to borrowers with co-signed loans, and
    monitors the market for new and emerging risks.
        The Bureau Student Loan Ombudsman's report raised concerns
    that student lenders and servicers may not be making even the
    most modest investments to improve their processes to ensure
    appropriate levels of customer service. The Bureau intends to
    continue to monitor this marketplace closely using all
    appropriate tools to ensure that borrowers are treated fairly.

    Q.3.a. As the CFPB has reported, we're seeing a growing number
    of colleges and universities in our country partnering with
    financial companies to market and provide school-sponsored
    debit and prepaid accounts to students. These cards are often
    co-branded with the school's logo, tied to a student's
    identification card, and used to deliver financial aid
    balances, all of which have a strong effects of steering a
    student toward the product.
        Students and their parents place their trust in a school to
    choose cost-effective options. But in reality, many of these
    agreements are negotiated not with students' best interests in
    mind, but with the goal of increasing the bank's bottom line
    and providing kickbacks and deal-sweeteners to revenue-strapped
    schools.
        The Department of Education recently proposed rules to
    address some of these issues, which I was pleased to see--
    particularly with respect to predatory and abusive fees and
    stronger disclosures to students and their families.

       LI know the CFPB has also been focused on this area.
            To what extent is the CFPB coordinating with the
            Department of Education on the rule proposal and other
            actions in this area?

    A.3.a. The Bureau helps to make consumer finance markets work
    by making rules more effective, by consistently and fairly
    enforcing those rules, and by empowering consumers to take more
    control over their economic lives. The Department of Education
    is empowered by Congress through the Higher Education Act to
    protect the integrity of the Federal student aid programs. This
    authority includes, but is not limited to, ensuring aid dollars
    are delivered to students to pay for educational expenses with
    minimal fees.
        The Bureau presented to the Department of Education's
    negotiated rulemaking panel, which was established to create
    new rules on cash management. The Bureau's presentation
    addressed initial findings of the Bureau's inquiry into student
    banking, including potential conflicts of interest that exist
    when financial institutions partner with schools to market
    financial products.\5\
    ---------------------------------------------------------------------------
        \5\ Available at http://www2.ed.gov/policy/highered/reg/
    hearulemaking/2014/pii2-cfpb-presentation.pdf.
    ---------------------------------------------------------------------------
        Additionally, the Bureau has provided feedback to the
    extent the Department of Education has sought technical
    assistance.

    Q.3.b. Beyond the Department of Education's proposal, is the
    CFPB planning any further actions of its own to improve
    consumer protections for campus financial products?

    A.3.b. As part of the Bureau's ongoing inquiry into student
    banking on campus, in early 2015, the Bureau launched an
    initiative on Safe Student Banking, requesting feedback from
    the public on a Safe Student Account Scorecard designed to help
    colleges better avoid promoting campus financial products with
    tricks and traps. Due to the influence schools may have on the
    financial products students choose, the Bureau is working to
    empower students with the information they need to negotiate
    safe and affordable products that are in students' best
    interests.

    Q.4. My State of New Jersey holds the unfortunate title of
    having the highest rate in the Nation of so-called ``zombie''
    foreclosures. As you know, zombie foreclosures occur when banks
    start a foreclosure action--typically sending the homeowners
    multiple foreclosure notices--but then, because of the low
    value of the home, choose to abandon the foreclosure without
    providing any notice to the homeowner that they are still on
    the hook for repaying the mortgage debt, taxes, and other
    expenses.
        By this point, the homeowner has usually left the house,
    hoping to cut their losses. But the property exists in limbo
    because neither the borrower nor the servicer has clear
    control. And more importantly, neither has a strong incentive
    to keep the property in good shape, which hurts both the
    homeowner and the surrounding community.

       LLast year, CFPB officials announced they were
            looking into this issue of ``zombie'' foreclosures.
            What updates can you provide at this time?

       LAre there changes that can be made to disclosure or
            other requirements to give homeowners better awareness
            of when mortgage servicers abandon a property?

    A.4. The Bureau recognizes that concentrations of abandoned
    properties have a negative impact on communities and consumers,
    who may be left in legal limbo. ``Zombie'' foreclosures which
    occur when a servicer abandons an already initiated
    foreclosure, can contribute to those concentrations of
    abandoned properties. Uncertainty about legal title may
    complicate efforts to enforce compliance with local ordinances
    that require basic maintenance of the property and may cloud
    responsibility for payment of sewer, water, and other local
    taxes and assessments. Consumers, believing a foreclosure
    inevitable and imminent, may move out of the property, leaving
    behind an empty house. The resulting concentration of empty
    homes in economically distressed communities can further tax
    local government resources and strain neighborhood stability.
        As you know, ascertaining the cause of vacancy or
    abandonment is not simple nor is the solution. According to a
    2010 Government Accountability Office (GAO) report, ``zombie''
    foreclosures represent approximately 1 percent of vacant homes.
    In many cases, vacant or abandoned houses may be owned by local
    taxing entities or third parties who acquired title as a result
    of a tax sale or foreclosure of a tax lien. In many cases,
    these owners may lack sufficient resources to rehabilitate or
    demolish the structures so that they can be conveyed to
    occupants or converted to other uses.
        State law generally governs the foreclosure process in
    concert with the rights and remedies specified in the mortgage
    contract. Neither State nor Federal law generally requires
    servicers or investors to exercise their right to foreclose and
    take possession of the property securing a note upon default.
    In extreme cases, servicers may abandon foreclosures in the
    belief that doing so minimizes losses to their investors, whose
    financial interests they have a fiduciary duty to protect.
    However, the discretion afforded by the mortgage contract,
    State and Federal law, together with the exercise of the
    servicer's fiduciary duty to investors, has led to significant
    loss mitigation work by servicers. This has helped stabilize
    communities and preserve home ownership, while reducing
    investor losses.
        The Bureau's servicing rules do require mortgage servicers
    to have policies and procedures in place reasonably designed to
    provide consumers accurate and timely information about their
    accounts, including the availability of loss mitigation. In
    addition, the Bureau has proposed that some further information
    be provided to consumers when a decision is made to charge off
    their loan. These basic informational requirements may be
    helpful to consumers facing foreclosure and could help
    consumers make informed decisions about whether they should
    remain in the property or not.
        Although the foreclosure process is addressed differently
    in each State, some States and local governments have created
    foreclosure laws and court rules, which include: expedited
    foreclosure procedures for abandoned properties; enhanced
    property condition code enforcement; or mandatory property
    registration or preservation requirements. For example,
    following passage of the Vacant Property Registration Act by
    the New Jersey legislature in 2011, many municipalities across
    the State enacted ordinances requiring creditors to register
    and maintain abandoned properties as a condition of conducting
    a foreclosure. Dealing with the issue of abandoned properties
    at a local level in the communities most affected by the
    problem may allow communities to tailor their response to local
    conditions.
        The Bureau continues to monitor this important issue and to
    meet with other government agencies, consumer advocates, and
    industry stakeholders to identify solutions to reduce the
    number of uncompleted or ``zombie'' foreclosures.

    Q.5. The financial services sector, like much of our economy,
    continues to experience changes driven by the rise of mobile
    devices and related technology. This is especially true in the
    consumer financial services space, including with respect to
    nontraditional loans. And some in the industry believe that
    mobile devices may offer a promising opportunity to improve
    access among underbanked consumers--according to the Federal
    Reserve, among underbanked consumers, more than a third use
    mobile banking.

       LHow does the CFPB's proposed rule on small-dollar
            lending take into account the technology and systems
            used by financial service providers who focus on mobile
            device access?

       LSome market participants who focus on mobile access
            have expressed concerns that requirements under the
            rule for consumers to provide paper documentation in
            some circumstances could reduce access or create data
            security concerns. Does the CFPB agree with these
            views? What steps is the CFPB taking to account for
            these considerations in the rule?

    A.5. The proposals under consideration for payday, vehicle
    title, and certain other similar loans would apply to all
    covered loans, regardless of the channel--including mobile
    device--through which a consumer obtains the loan. The Bureau's
    goal is to ensure that consumers are offered the benefits and
    protections of Federal law regardless of how the consumer
    applies for, receives, and makes payments on a loan. The Bureau
    recognizes that evolving technology can provide important gains
    in efficiency and convenience and will seek to provide
    appropriate flexibility in our rulemaking to allow lenders and
    consumers both to take advantage of such developments.

    Q.6. As you know, the CFPB recently began the process of
    proposing new rules for small-dollar consumer credit, such as
    payday and auto title loans. I support the CFPB's efforts to
    address abuses in these markets. I appreciate the general
    principles outlined in the proposal and am hopeful that the
    final rule will leave consumers better protected.
        As you and I have discussed in the past, I believe it is
    important for the final rule to strike the right balance
    between strong protections and continued access to credit for
    underserved consumers. According to the FDIC, nearly 68 million
    adults are unbanked or underbanked, and 63 percent of these
    consumers use alternative financial services outside the
    traditional banking system--including payday and title loans
    that would be regulated under the new proposal.
        Many of these consumers likely also fall in the category of
    what the CFPB has termed ``credit invisibles''--individuals who
    have no credit record, no credit score, and as a consequence,
    very restricted access to credit.
        With almost half of American households reporting in a
    recent Federal Reserve survey that they would not have access
    to as little as $400 to cover emergency expenses, the
    combination of all three can be devastating: lacking access to
    the banking system, unable to obtain credit through traditional
    providers, and lacking the resources to cover emergency
    expenses.
        While the CFPB has identified abuses in the small-dollar
    consumer lending market, its 2014 report on payday lending also
    found that at least some share of borrowers have two or fewer
    loans, pay on time, and then borrow no more.

       LWhat steps is the CFPB taking to ensure that its
            small-dollar lending rule maintains access to credit
            for one-time borrowers who truly face no other option
            for emergency financial needs?

       LHas the CFPB received feedback as to whether its
            proposed framework for determining a borrower's ability
            to repay allows sufficient flexibility for borrowers
            whose credit is more difficult to evaluate through
            traditional means? If so, how is the CFPB taking this
            feedback into account?

    A.6. Under the Dodd-Frank Wall Street Reform and Consumer
    Protection Act, the Bureau is required to consider as part of
    the rulemaking process the potential reduction in access to
    consumer financial products or services for consumers. For
    payday, vehicle title, and certain other similar loans, the
    Bureau is considering several alternative requirements that
    would permit lenders to extend certain covered loans without
    determining whether a consumer has the ability to repay the
    loan. These proposals are crafted to facilitate ongoing access
    to such forms of credit while retaining some
    important protections that prevent consumers from harm
    associated with a debt trap. The Bureau sought feedback on
    these proposals under consideration as part of the Small
    Business Regulatory Enforcement Fairness Act (SBREFA) process
    and continues to obtain feedback from lenders, consumers, other
    governments, and other interested parties as we develop a
    proposed rule.
        The Bureau also sought feedback on the ability-to-repay
    requirements under consideration. During the SBREFA process,
    the Bureau received robust response from small business. The
    Bureau is carefully considering comments from the small
    entities and the findings of the Small Business Review Panel as
    we develop a proposed rule. Following public release of the
    proposals under consideration for payday, vehicle title, and
    certain other similar loans, the Bureau has also sought and
    received considerable feedback from other industry
    participants, consumer advocates, other governments, and
    consumers about the potential ability to repay framework. The
    Bureau continues to use all of this information to develop a
    proposed rule that permits lenders flexibility in
    conducting the ability to repay determination while achieving
    the stated consumer protection purposes of the rulemaking.

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