[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
                                


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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                  RICHARD C. SHELBY, Alabama, Chairman

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

           William D. Duhnke III, Staff Director and Counsel

                 Mark Powden, Democratic Staff Director

                    Dana Wade, Deputy Staff Director

                    Jelena McWilliams, Chief Counsel

                       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.
---------------------------------------------------------------------------
    \4\ Available at http://files.consumerfinance.gov/f/
201506_cfpb_mid-year-update-on-student-loan-complaints.pdf.
---------------------------------------------------------------------------
    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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