[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]






 
                    A LEGISLATIVE PROPOSAL TO CREATE


                  HOPE AND OPPORTUNITY FOR INVESTORS,


                   CONSUMERS, AND ENTREPRENEURS-DAY 2

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

                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED FIFTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 28, 2017

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 115-19
                           
                           
                           
                           
                           
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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    JEB HENSARLING, Texas, Chairman

PATRICK T. McHENRY, North Carolina,  MAXINE WATERS, California, Ranking 
    Vice Chairman                        Member
PETER T. KING, New York              CAROLYN B. MALONEY, New York
EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma             BRAD SHERMAN, California
STEVAN PEARCE, New Mexico            GREGORY W. MEEKS, New York
BILL POSEY, Florida                  MICHAEL E. CAPUANO, Massachusetts
BLAINE LUETKEMEYER, Missouri         WM. LACY CLAY, Missouri
BILL HUIZENGA, Michigan              STEPHEN F. LYNCH, Massachusetts
SEAN P. DUFFY, Wisconsin             DAVID SCOTT, Georgia
STEVE STIVERS, Ohio                  AL GREEN, Texas
RANDY HULTGREN, Illinois             EMANUEL CLEAVER, Missouri
DENNIS A. ROSS, Florida              GWEN MOORE, Wisconsin
ROBERT PITTENGER, North Carolina     KEITH ELLISON, Minnesota
ANN WAGNER, Missouri                 ED PERLMUTTER, Colorado
ANDY BARR, Kentucky                  JAMES A. HIMES, Connecticut
KEITH J. ROTHFUS, Pennsylvania       BILL FOSTER, Illinois
LUKE MESSER, Indiana                 DANIEL T. KILDEE, Michigan
SCOTT TIPTON, Colorado               JOHN K. DELANEY, Maryland
ROGER WILLIAMS, Texas                KYRSTEN SINEMA, Arizona
BRUCE POLIQUIN, Maine                JOYCE BEATTY, Ohio
MIA LOVE, Utah                       DENNY HECK, Washington
FRENCH HILL, Arkansas                JUAN VARGAS, California
TOM EMMER, Minnesota                 JOSH GOTTHEIMER, New Jersey
LEE M. ZELDIN, New York              VICENTE GONZALEZ, Texas
DAVID A. TROTT, Michigan             CHARLIE CRIST, Florida
BARRY LOUDERMILK, Georgia            RUBEN KIHUEN, Nevada
ALEXANDER X. MOONEY, West Virginia
THOMAS MacARTHUR, New Jersey
WARREN DAVIDSON, Ohio
TED BUDD, North Carolina
DAVID KUSTOFF, Tennessee
CLAUDIA TENNEY, New York
TREY HOLLINGSWORTH, Indiana

                  Kirsten Sutton Mork, Staff Director
                  
                  
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    April 28, 2017...............................................     1
Appendix:
    April 28, 2017...............................................    51

                               WITNESSES
                         Friday, April 28, 2017

Bertsch, Ken, Executive Director, Council of Institutional 
  Investors......................................................    17
Chopra, Rohit, Senior Fellow, Consumer Federation of America.....    19
Coffee, John C., Jr., Adolf A. Berle Professor of Law, Columbia 
  University Law SchooL..........................................     8
Edelman, Sarah, Director, Housing Policy, Center for American 
  Progress.......................................................    20
Gable, Reverend Willie, Jr., Pastor, Progressive Baptist Church, 
  New Orleans, LA; and Chair, Housing and Economic Development 
  Commission, National Baptist Convention USA, Inc...............     6
Jackson, Amanda, Organizing and Outreach Manager, Americans for 
  Financial Reform...............................................    15
Klemmer, Corey, Corporate Research Analyst, Office of Investment, 
  AFL-CIO........................................................     5
Liner, Emily, Senior Policy Advisor, Third Way...................    13
Lubin, Melanie Senter, Maryland Securities Commissioner, on 
  behalf of the North American Securities Administrators 
  Association, Inc...............................................    11
Randhava, Rob, Senior Counsel, Leadership Conference on Civil and 
  Human Rights...................................................    10
Warren, Hon. Elizabeth, a United States Senator from the State of 
  Massachusetts..................................................     3

                                APPENDIX

Prepared statements:
    Bertsch, Ken.................................................    52
    Coffee, John C., Jr..........................................    73
    Gable, Reverend Willie, Jr...................................    81
    Jackson, Amanda..............................................    89
    Liner, Emily.................................................    91
    Lubin, Melanie Senter........................................    93
    Randhava, Rob................................................   115

              Additional Material Submitted for the Record

Maloney, Hon. Carolyn:
    ``Irish-Americans Outraged by Congressional Proposal to Kill 
      Shareholders' Resolutions,'' dated April 18, 2017, Irish 
      National Caucus, Inc.......................................   117
    Statement of New York City Comptroller Scott M. Stringer on 
      the April 19th Discussion Draft of the Financial CHOICE Act 
      of 2017, dated April 25, 2017..............................   120
Waters, Hon. Maxine:
    Written statement of the National Whistleblower Center.......   123


                    A LEGISLATIVE PROPOSAL TO CREATE



                  HOPE AND OPPORTUNITY FOR INVESTORS,



                  CONSUMERS, AND ENTREPRENEURS--DAY 2

                              ----------                              


                         Friday, April 28, 2017

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 9:20 a.m., in 
room 2128, Rayburn House Office Building, Hon. Trey 
Hollingsworth presiding.
    Members present: Representatives Messer, Williams, Hill, 
Tenney, Hollingsworth; Waters, Maloney, Velazquez, Sherman, 
Meeks, Capuano, Green, Cleaver, Moore, Ellison, Perlmutter, 
Himes, Foster, Kildee, Delaney, Sinema, Beatty, Heck, Vargas, 
Gottheimer, Gonzalez, Crist, and Kihuen.
    Mr. Hollingsworth [presiding]. Good morning. The Committee 
on Financial Services will come to order. Without objection, 
the Chair is authorized to declare a recess of the committee at 
any time.
    This is a continuation of the hearing entitled, ``A 
Legislative Proposal to Create Hope and Opportunity for 
Investors, Consumers, and Entrepreneurs.''
    The Chair now recognizes the ranking member of the 
committee, the gentlelady from California, Ms. Waters, for 4 
minutes for an opening statement.
    Ms. Waters. Thank you, Mr. Chairman.
    And thank you to the witnesses for joining us today, 
especially Senator Elizabeth Warren, who created the idea of 
the Consumer Financial Protection Bureau (CFPB) and gave the 
force behind it to make it a reality. And later, she helped to 
organize the CFPB. We were all supportive of her becoming the 
Director, but thank God she is now the Senator from 
Massachusetts.
    Earlier this week the Majority held a hearing during which 
their witnesses shared so many alternative facts, that I was 
sure they must be living in an alternative reality.
    Today, Democrats are going to set the record straight. We 
have asked for this second hearing to hear from experts and 
well-informed witnesses who know, understand, and appreciate 
the importance of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act and who can point out the dangers of 
the ``wrong choice act.'' The chairman's wrong choice act 
destroys Wall Street reform, guts the Consumer Financial 
Protection Bureau, and returns us to the financial system that 
allowed risky and predatory Wall Street practices and products 
to crash our economy.
    We all remember the dark days of the financial crisis and 
the Great Recession, the 11 million Americans who lost their 
homes to foreclosure, the $13 trillion in household wealth that 
went up in thin air, the 10 percent unemployment rate, and the 
many retirements deferred.
    This bill would erase all of the progress we have made 
since then and put us on the road back to economic ruin. It is 
not just a bad bill, it is an expansively bad bill with 
repercussions for our whole country.
    Astonishingly, the chairman had only planned a single 
hearing on the wrong choice act. Democrats held 41 hearings in 
this committee to consider the House version of Dodd-Frank 
before its passage. It was a transparent, open process that 
carefully considered a variety of perspectives to ensure a 
sensible, well-considered set of reforms. The Republican 
approach stands in stark contrast.
    The fact that the Majority planned to hold just one hearing 
before rushing a nearly 600-page bill to markup sure makes it 
look as if they were trying to hide something. It must be that 
they realized that the optics of this Wall Street giveaway bill 
were pretty bad and hoped the American people were not paying 
attention.
    I am going to yield the balance of my time to Mr. Kildee.
    Mr. Kildee. Thank you to the ranking member for yielding 
and for arranging for this really important hearing. And I 
welcome our witnesses, all of them, particularly Senator 
Warren. I appreciate all the great work that you have done on 
this particular subject.
    This act, the Financial CHOICE Act, kills so many of the 
important Wall Street reforms that this Congress enacted as a 
result of the crisis and, in fact, takes us back to a time when 
policies allowed and, in fact, policy encouraged banking 
practices that wrecked the economy and caused millions of 
Americans to lose their homes. That was the focus of my work 
before I came to Congress, so I have seen this firsthand.
    Policy is what caused that crisis. It created an 
environment that allowed institutions to take advantage of 
families, take advantage of individuals, and cause them to lose 
everything they have worked for. And what I saw in the work 
that I did in my hometown of Flint, Michigan, and all around 
the country was the consequence of that policy. A single 
abandoned home as a result of a foreclosure is like a 
contagious disease. It infects an entire community, it reduces 
the value of every home, and it wrecks whole neighborhoods.
    What this Financial CHOICE Act does would be to reinstate 
the very policies that precipitated that crisis and all that 
pain, and we need to fight it in every way that we can. And I 
thank you for your willingness to join in that battle.
    With that, I yield back.
    Mr. Hollingsworth. The gentlelady's time has expired, and 
the gentleman yields back.
    Today, for our first panel, the committee will receive the 
testimony of Senator Elizabeth Warren. Senator Warren is a 
United States Senator representing the Commonwealth of 
Massachusetts. Before being elected to Congress, Senator Warren 
was the Leo Gottlieb Professor of Law at Harvard Law School. 
She is a graduate of the University of Houston and the Rutgers 
School of Law.
    Senator, you will be recognized for 5 minutes to give an 
oral presentation of your testimony.
    Senator Warren, you are now recognized.

 STATEMENT OF THE HONORABLE ELIZABETH WARREN, A UNITED STATES 
            SENATOR FROM THE STATE OF MASSACHUSETTS

    Senator Warren. Thank you, Mr. Chairman. And thank you, 
Ranking Member Waters, for holding this hearing and for giving 
me a chance to speak about the CHOICE Act.
    Let me be blunt. This is a 589-page insult to working 
families. It would immediately increase the cost of mortgages, 
student loans, and small businesses. This bill would let big 
banks and payday lenders and financial advisers go back to 
cheating people, with no accountability, and it would unleash 
the same behavior on Wall Street that led to the 2008 financial 
crisis.
    When I read this bill, I think why, why, just 8 years after 
the worst financial crisis in more than 70 years, are 
Republicans lining up to roll back the rules on Wall Street and 
make it easier for financial firms to cheat people? Why, just 6 
months after the American people elected a Republican 
President, who claimed he would take on Wall Street and drain 
the swamp, are Republicans in Congress moving in literally the 
opposite direction? What exactly is the problem that they think 
they are trying to solve?
    So here are the arguments I usually hear. Our new rules 
have made it too hard for banks to lend money. Really? Check 
the facts. Access to consumer credit and small business lending 
is at historically high levels, and loan growth at community 
banks is up even more than at big banks.
    Here is another one: We have made compliance so difficult 
that banks just can't operate. Nope. That one's not true 
either. Banks of all sizes posted record profits last quarter, 
with profits at community banks up even more than at the big 
banks.
    And here is the last argument I hear. We are making it hard 
for our bigger banks to compete internationally. Wrong again. 
Our big banks are blowing away their foreign competitors.
    This bill doesn't solve a single real problem with the 
economy or with our financial system, but it does make some big 
time lobbyists happy.
    I have heard the Democrats on this committee calling this 
bill the wrong choice act, and, boy, is that true. It is the 
wrong choice. Wrong choice? No. It is an immoral choice. It is 
about throwing working families under the bus so that Congress 
can do the bidding of Wall Street.
    Shortly after the financial crisis hit, I remember going to 
Clark County, Nevada, for a hearing to listen to just a few of 
the millions of people whose lives were being torn apart by the 
crisis. A man named Mr. Estrada showed up to tell his story. He 
and his wife both worked hard, and they had stretched their 
budget to buy a house that was right across the street from a 
really good school for his two little girls, but the Estradas 
had a mortgage with an ugly surprise buried in the fine print. 
When the payments jumped, they fell behind, and Mr. Estrada and 
his wife talked to the bank over and over, and they thought 
they had arranged a modification; then, poof, the house was 
sold at auction, and the bank gave his family 14 days to move 
out, to move those two little girls out of their home.
    Mr. Estrada told us that after they got the notice, his 6-
year-old came home with a sheet of paper with all her friends' 
names on it, and she told him that this was her list of the 
people who were going to miss her, because her family was going 
to have to move. He said he told his daughter, ``I don't care 
if we have to live in a van. You are going to be able to go to 
the school.''
    And as he told this story, Mr. Estrada, a big man, stood 
there in front of a room full of strangers and tried not to 
cry.
    Now, that is a story that was shared by Americans all 
across the country, people in each of the districts that you 
represent.
    We built the Consumer Financial Protection Bureau and the 
rest of Dodd-Frank so that Mr. Estrada and other families like 
his wouldn't get cheated and wouldn't face that kind of pain 
again.
    You know, some banks like to say, ``We didn't cause the 
crash,'' but let's be clear, Mr. Estrada didn't cause the crash 
either, but, boy, did he pay a price for it. We have an 
obligation, a moral obligation to make sure that kind of crisis 
never happens again in this country; that is why voters sent us 
to Washington, to work for them, not for a bunch of high-priced 
Wall Street lobbyists.
    I hope you will think hard about Mr. Estrada and about the 
millions of people like him when you consider this legislation.
    Thank you again for inviting me here to testify today.
    Mr. Hollingsworth. Senator Warren, thank you for your 
testimony. Pursuant to customary practice for Members of 
Congress, you are excused, and the second witness panel will be 
seated.
    Senator Warren. Thank you.
    [recess]
    Mr. Hollingsworth. The committee will come to order.
    We now turn to our second panel of witnesses, whom, in the 
interests of time, I will introduce briefly.
    Corey Klemmer, corporate research analyst, Office of 
Investment, AFL-CIO; Reverend Willie Gable, Pastor, National 
Baptist Convention, USA; John Coffee, Adolf A. Berle Professor 
of Law, Columbia University; Rob Randhava, senior counsel, 
Leadership Conference on Civil and Human Rights; Melanie Lubin, 
Maryland Securities Commissioner, on behalf of the North 
American Securities Administrators Association.
    Emily Liner, Senior Policy Advisor, Economic Program, Third 
Way; Amanda Jackson, outreach coordinator, Americans for 
Financial Reform; Ken Bertsch, executive director, Council of 
Institutional Investors; Sarah Edelman, director, housing 
policy, Center for American Progress; and Rohit Chopra, senior 
fellow, Consumer Federation of America.
    Each of you will be recognized for 5 minutes to give an 
oral presentation of your testimony. And without objection, any 
written statement that you may have will be made a part of the 
record.
    Ms. Klemmer, you are now recognized.

STATEMENT OF COREY KLEMMER, CORPORATE RESEARCH ANALYST, OFFICE 
                     OF INVESTMENT, AFL-CIO

    Ms. Klemmer. Good morning. As you said, my name is Corey 
Klemmer. I am here on behalf of the AFL-CIO and our over 12\1/
2\ million members. I thank you for the opportunity to address 
the committee, but I wish it were under different 
circumstances.
    This bill is nothing short of a complete attack on American 
workers. U.S. workers are the U.S. economy. We provide the 
labor that drives productivity, we are the consumers who 
provide demand, and as retirement savers, we are significant 
investors.
    The economy has not been great to us. Real wages have been 
stagnant for decades, while prices continue to rise. After 
wildly speculative and unregulated financial activity brought 
us the collapse of 2008, working Americans paid the price, 
losing millions of jobs, millions of homes, and trillions in 
retirement assets.
    Today, workers continue to recover slowly, while the 
country has made modest but vital progress in implementing 
commonsense reforms. The financial actors who got rich driving 
the economy to collapse have gotten tired of playing by the 
rules and would like to return to the casino of, ``heads, I 
win; tails, you lose,'' and this act aims to deliver just that.
    The level of Orwellian double speak is remarkable in this 
bill. The title stands for creating hope and opportunity for 
investors, consumers, and entrepreneurs, while the act 
simultaneously seeks to eviscerate the rights and protections 
and economic stability on which each of those groups depend.
    First, investors need information and faith in the markets. 
U.S. capital markets are attractive because they have both: a 
reliable system of disclosure, however limited; and a robust 
and mature legal framework that has been in place in some cases 
for nearly a century. Yet, this act undoes some of the most 
fundamental components of those structures. It also essentially 
undoes the fiduciary rule, which requires financial actors to 
act in the interests of their clients, and would save 
retirement savers an estimated $17 billion a year.
    It also, incredibly, removes the reporting requirements for 
private equity, which in the short time that they have been 
required have uncovered incredible and significant fraud and 
improper fees. All of this represents less accountability and 
less transparency in our markets.
    Second, the act would expose consumers to risky and 
complicated financial products without warning, blame consumers 
who are preyed upon by financial actors exploiting 
informational and power asymmetries, and stop the government 
from overseeing or regulating these transactions.
    I will leave it to the other panelists to get into the 
details, but suffice it to say, for all the talk of 
accountability, the act explicitly seeks to undermine the 
tangible successes in transparency and accountability brought 
about since 2008.
    Finally, the act attacks working Americans and 
entrepreneurs, for that matter, by threatening financial 
stability and effectively preventing government from exercising 
essential control or oversight of the industry that took our 
economy to the brink of complete failure. It enables Wall 
Street to do precisely the things that brought about the 
crisis: speculating with federally-insured deposits; rewarding 
risk-taking executives with lavish bonuses; facilitating the 
unregulated flow of products that caused contagion; and further 
enabling the consolidation of too-big-to-fail institutions, 
just to name a few things.
    It also decimates the role of financial regulatory bodies, 
introducing the dysfunction of Congress and the politics of the 
appropriation process into independent and executive agencies. 
For example, under the act, the Federal Reserve would lose one 
of its most important tools in fulfilling its duel mandate to 
promote full employment and stable prices: setting interest 
rates.
    By tying interest rates to a version of the Taylor Rule, 
the act would have rates set mechanically, limiting the ability 
of the Fed to respond dynamically to changing circumstances. 
According to estimates from the Minneapolis Fed, had this rule 
been in place during the crisis, it would have resulted in the 
loss of an additional 2.5 million jobs.
    If 2008 should have taught us anything, it is that a blind 
fidelity to an elegant theory or formula to the exclusion of 
evidence and common sense is not good for markets and it is not 
good for people. Financial markets are not linear or static, 
and they do not conform to formulas no matter how sophisticated 
or clever. Markets are complex and dynamic ecosystems that 
require high-level analysis and thoughtful governance. The 
total abdication of control to the markets, as advocated for in 
this bill, is its own decision. It is a failure of governance 
and it is a failure to all Americans.
    Thank you, and I will be happy to answer any questions 
later.
    Mr. Hollingsworth. Reverend Gable, you are now recognized.

 STATEMENT OF REVEREND WILLIE GABLE, JR., PASTOR, PROGRESSIVE 
    BAPTIST CHURCH, NEW ORLEANS, LA; AND CHAIR, HOUSING AND 
 ECONOMIC DEVELOPMENT COMMISSION, NATIONAL BAPTIST CONVENTION 
                           USA, INC.

    Rev. Gable. Thank you, Mr. Chairman, and Ranking Member 
Waters. Thank you for inviting me and the other panelists here.
    I am Reverend Willie Gable, Junior, and I serve as Pastor 
of the Progressive Baptist Church in New Orleans, Louisiana. My 
congregation is a member of the National Baptist Convention, 
USA, Inc., the Nation's largest predominantly African American 
religious denomination.
    I am also the Chair of the Housing and Economic Development 
Commission of the National Baptist Convention. This 
commission's mission is to provide affordable housing for low- 
and moderate-income persons, particularly senior citizens and 
the disabled, allowing them to live in a place they can call 
home. Over 20 years, the commission has developed over 1,000 
homes in 30 housing sites in 14 States. I also serve as the co-
Chair of the Faith and Credit Roundtable, and I am a member of 
the Faith for Just Lending Coalition.
    I am here today before you to discuss the utter devastation 
that predatory financial practices have wrought on my community 
and on communities across this Nation, and also to talk about 
the safer market we have now that newly implemented and 
reasonable CFPB rules are coming into place. I also want to 
talk about the desperate need for further regulatory actions to 
weed out the abhorrent financial abuses in other product areas 
that continue to this day.
    The CHOICE Act, unfortunately, would take us back, when we 
desperately need to continue to move forward. The CHOICE Act 
contains many dangerous provisions, I believe, that would take 
us back to the unchecked practices that caused the Great 
Recession of 2008, but today, I will specifically address a 
provision in the bill that would bar the Consumer Financial 
Protection Bureau (CFPB) from regulating payday lenders and car 
title lenders.
    These triple digit, unaffordable payday, car title, and 
high-cost installment loans dig borrowers into a deeper hole of 
debt than they were when they began. As these types of loans 
are specifically aimed at low-income communities and 
communities of color, it is imperative, I believe, that we 
support the CFPB's efforts to put an end to this predatory 
practice on poverty. To be true about it, it is no more than 
legalized loan sharking and it is a way of pimping the poor for 
a profit.
    In my home State of Louisiana, payday lending makes loans 
to 57,000 Louisianans each year. In my community, we often 
encounter elderly individuals who have taken out payday loans. 
The younger family members often don't learn about it until 
they are caught up in the deep trap. And it is not surprising, 
because payday loans are considered shameful, or kept in 
secret, and many individuals feel shame about it.
    Also in my State, and certainly in others, there are more 
than 4 times as many payday loan storefronts as McDonalds, and 
for some strange reason, they concentrate themselves in African 
American communities.
    Now, I do not believe that this is an indication that 
people need or desire payday loans in our communities. The most 
common reason people need a payday loan is because of a 
specific crisis that occurs. It is not to buy flat screen TVs, 
but because an emergency comes up. But what these loans do is 
pull them into a cycle, by design, to so-called demand that 
generates and feeds itself. It is an intentional exploitation 
of the desperate.
    Just in our congregation, I had a member who came to me and 
told me that her mother, who was in the precursor areas of 
Alzheimer's, had four payday loans. She is in the early stages 
of Alzheimer's, and yet they preyed on her, and we have to work 
with that daughter to get her mother out of those loans. She is 
just one example, and yet we have benevolence funds, but we are 
underwriting payday lenders, because members of our 
congregation are too ashamed to let us know that they have a 
payday loan, they bring us a copy of their utility bill. And so 
we are not saying that we don't want to help, but we are not 
certainly going to undergird them.
    In 2015, a diverse group of faith organizations formally 
came together to establish Faith for Just Lending, a national 
coalition that shares the belief that scripture speaks to the 
problem of predatory lending. Our coalition condemns usury and 
exploitation of the financially vulnerable. Fortunately, the 
Consumer Protection Bureau also works to prevent these 
deceptive traps of banks, payday lending, credit cards, and 
debt collection, and many other financial product services. We 
support the work that they are doing.
    And I look forward to answering any other questions that 
you may have.
    [The prepared statement of Reverend Gable can be found on 
page 81 of the appendix.]
    Mr. Hollingsworth. Professor Coffee, you are now 
recognized.

 STATEMENT OF JOHN C. COFFEE, JR., ADOLF A. BERLE PROFESSOR OF 
              LAW, COLUMBIA UNIVERSITY LAW SCHOOL

    Mr. Coffee. Thank you, Mr. Chairman, Ranking Member Waters, 
and members of the committee.
    Time is short, and everybody wants to talk, so I am going 
to use a style that all law professors know as the ``bikini'' 
style of law teaching. Under the bikini style, you cover the 
critical points, but only just barely.
    And with that preface, let me tell you that the CHOICE Act 
unnecessarily and recklessly exposes the American economy and 
the American people to a serious risk of a major financial 
crisis that could be as severe or greater than the 2008 crisis. 
It does so in at least seven distinct ways, in each case 
unraveling an elaborate provision that was adopted by Dodd-
Frank or used during the 2008 crisis.
    I am going to go through those very briefly and then make 
one comment about the overall impact of this legislation on SEC 
enforcement. This will devastate SEC enforcement, in my 
judgment, reducing by a third or more the cases that the SEC 
can bring in any period. Let's go through these seven ways very 
quickly.
    The first thing that the CHOICE Act does is eliminate the 
orderly liquidation authority, which was the new innovation of 
Dodd-Frank. I admit that procedure can be simplified and 
streamlined, but eliminating it is reckless. In its place is 
substituted a bankruptcy provision that is basically skeletal.
    This has three serious consequences. First, it takes the 
regulator out of the process in determining whether or not a 
failing bank should be terminated. The regulator has stress 
tests, living wills, all kinds of information, but it can't use 
it, because it can't make the decision to terminate. It is up 
to the bank to file bankruptcy. That is dangerous, and it will 
delay the moment at which a failing institution is shut down, 
because the bank will wait until the last possible moment.
    The next thing that this substitution does is eliminate any 
source of liquidity for a bank that may be facing a liquidity 
crisis. Most banks don't fail because of insolvency in the 
classic sense; they fail because of a liquidity crisis. Orderly 
liquidation authority could solve that liquidity crisis by 
turning to the Federal Deposit Insurance Company's basic 
stabilization funds. That is eliminated. And if you take 
liquidity out of the process, the failure will be worse, 
longer, and a total shutdown is likely.
    Next point. The CHOICE Act turns to a new idea, it is off-
ramp. This could be a good idea if it were applied to very 
small banks, but it doesn't just apply to small banks, it 
applies it to all banks, big or small, and it gives them a way 
to escape everything in Dodd-Frank if you can just satisfy one 
single metric.
    That metric is a leverage ratio, which is basically 
ambitious, but if you tell banks that they can escape all 
regulation just by satisfying that leverage test, you are going 
to set off the largest game of regulatory arbitrage that U.S. 
financial history has witnessed. You are telling banks that 
they can escape everything if they can just meet this 10 
percent leverage test. And that leverage test is simple 
leverage. Basel III and the rest of the world uses a risk-
weighted leverage test. This is not using a risk-weighted 
leverage test.
    The real impact of this provision is that it will encourage 
banks to shift to riskier assets. If the only standard is a 
leverage test, you simply meet that test and then move your 
assets from Treasury Securities to the junior tranche of some 
exotic securitization.
    Other points. The next major failure is the elimination of 
the Volcker Rule. You have basically heard of the Volcker Rule, 
but the idea is that banks are too big-to-fail. We have to 
regulate their risk taking so they don't fail. The Volcker Rule 
was a reasonable way of doing that, by getting banks out of the 
business of proprietary trading.
    The next thing this statute does is eliminate Treasury's 
exchange stabilization fund. That sounds very exotic, but the 
most dangerous moment in 2008 was the moment at which all of 
the holders of America's money market funds, retail investors, 
and millions of them, suddenly were getting nervous, suddenly 
were panicking, and were going to redeem their money market 
funds. That was staved off when the Treasury turned to the 
exchange stabilization fund and guaranteed those money market 
funds. That is not the ideal solution. That is the solution of 
last resort, but don't throw that last resort out. It saved us 
in 2008, and not that much has changed in the regulation of the 
money market funds.
    Next big problem: The CHOICE Act will greatly exacerbate 
the possibility, greatly increase the likelihood of a clearing 
house failure. Dodd-Frank established clearing houses for over-
the-counter securities, and they concentrate risk. Once you 
concentrate risk, you have to regulate these things. Instead, 
we are eliminating the financial municipal utility provisions.
    The other two provisions, I will leave alone. They are 
basically the risk retention rules, which limited 
securitizations. Now it will apply only to residential 
mortgages and nothing else, and anything that is securitized 
can be securitized through a originate-to-distribute model, 
which encourages recklessness and lets you package toxic 
securities.
    My time is running out, so I will just say I have covered 
all of those provisions. The last one I left out was that we 
will no longer allow the Financial Stability Oversight Council 
(FSOC) to ever classify a nonbank as systemically important. I 
can't see the future, but I do think there is a real chance 
that sometime in the future, there will be such an institution 
that needs to be classified as systemically important, just as 
AIG came out of the blue and suddenly revolutionized our 
financial system and precipitated a crisis. We can't see the 
future; we should leave that authority in the FSOC.
    In my final seconds--I guess my time is now up, so I will 
end.
    [The prepared statement of Mr. Coffee can be found on page 
73 of the appendix.]
    Mr. Hollingsworth. The Chair now recognizes Mr. Randhava.

     STATEMENT OF ROB RANDHAVA, SENIOR COUNSEL, LEADERSHIP 
              CONFERENCE ON CIVIL AND HUMAN RIGHTS

    Mr. Randhava. Thank you, Mr. Chairman, and Ranking Member 
Waters. I am Rob Randhava, the senior counsel at the Leadership 
Conference on Civil and Human Rights. We are a coalition of 
more than 200 national advocacy organizations, founded in 1950 
at the outset of the civil rights movement. And I am also on 
the steering committee of Americans for Financial Reform and a 
founding member of the Asset Building Policy Network.
    I have to admit that we were torn about being here today. 
For us, this bill is a nonstarter, and we are concerned about 
giving it an air of legitimacy that we don't believe it 
deserves.
    We have looked mostly at the parts affecting the CFPB and 
its policies. There are other witnesses here today, and others 
who have written in, who could do a much better job than, 
frankly, I can of getting into the weeds of those parts, as 
well as the rest of the bill, so I won't try to do that here, 
but I will say what we think in general about the CFPB and its 
policies.
    We are an organization that for years, before the financial 
crisis, begged Congress and Federal regulators to put a stop to 
the deceptive, anything-goes kind of lending that was running 
rampant in communities of color and everywhere else. Some 
Members, like former Congressmen Barney Frank and Brad Miller, 
heard our concerns and tried to push for better regulations, 
but to a great extent, we were ignored.
    And I can't tell you how many times I heard the phrase, 
``access to credit,'' being used to justify things like 228 or 
pick a payment mortgages. So we joined with consumer groups 
like the Center for Responsible Lending (CRL) when it predicted 
2 years before the crisis that there would be a wave of 
millions of foreclosures, only to hear CRL accused of betting 
against housing.
    So when the crisis did hit, and when some on this committee 
had the audacity to blame it all on people and groups who had 
been trying to prevent it, or on the Community Investment Act, 
you can bet that we were very involved in the effort to try to 
create a better system with Dodd-Frank. And ever since the CFPB 
opened its doors, it has worked tirelessly to advance the 
financial health of the communities we represent, not just 
carrying out the once radical concept of ability to repay, but 
trying to address racial discrimination in auto lending 
markups, sneaky credit card add-ons, and a whole lot of other 
deceptive and abusive practices.
    The CFPB and Director Cordray have done their best to apply 
the law to bad actors, give clear guardrails to the good ones, 
and put billions of dollars back in the pockets of consumers 
who have been ripped off. And at the same time, they have 
worked to promote consumer education and the growth of more 
inclusive financial technology.
    I am stunned that anyone can be troubled by a record like 
that, and even more stunned by the intensity of the emotions 
around this. When we hear the CFPB described as a dictatorship 
or as a tyranny by some members of this committee, it is that 
kind of rhetoric--I will just say this: Given our involvement 
in Dodd-Frank, I am happy to say that various parts of the 
industry have engaged the Leadership Conference on consumer 
finance issues.
    We in large banks want to get more people into mainstream 
banking. We have sided with trade organizations to support 
flexibility in downpayment requirements. We have teamed up with 
community banks and lenders on issues surrounding Fannie Mae 
and Freddie Mac. And we worked with our late friend Bill 
Bartmann of CFS2 on better debt collection rules. And we have 
engaged small dollar lenders that have said they can work with 
the rules being proposed by the CFPB.
    And, of course, we have disagreed on things too, but we 
have been glad to engage the industry, and we would like to do 
that even more in the future. The CFPB, of course, does the 
same, all the time. We want the system to work for providers 
and consumers. And if policies need to be fine-tuned for that 
to happen, we are all ears, but nobody has engaged us in two-
way conversations about a dictatorship or a tyranny at the 
CFPB.
    So when we hear the need for legislation described in those 
terms, I honestly don't know how to engage the legislation in a 
serious way. The Leadership Conference was proud of Ranking 
Member Waters last fall when she described the last year's 
version of this bill as a charade and declined to drag it out 
in the markup.
    However members handle next week's markup, I would suggest 
that the real fight over this bill should be in the court of 
public opinion. Rest assured, the public is not clamoring for 
this bill. In fact, multiple polls have shown strong bipartisan 
support for the CFPB's work. And over and over again, the bad 
apples in the industry keep on writing the talking points for 
us.
    One of the best examples of this was seen in last 
November's vote on a South Dakota ballot initiative regarding 
payday lending, to outlaw payday lending. That vote, which was 
down the ballot, mind you, had almost as much participation as 
the vote for President, and a whopping 75 percent called for 
putting an end to the kinds of debt traps that the Financial 
CHOICE Act would enable.
    In other States that voted on payday lending, the results 
have been the same, and voters haven't been clamoring to go 
back. So if the supporters of the Financial CHOICE Act want to 
pick this fight, the Leadership Conference won't hesitate to 
join in, to continue educating the public and give this bill 
the pushback it deserves. Thank you.
    [The prepared statement of Mr. Randhava can be found on 
page 115 of the appendix.]
    Mr. Hollingsworth. Votes have been called on the House 
Floor.
    The Chair will recognize Commissioner Lubin for her 
testimony, after which we will recess for votes and then 
return.
    Commissioner Lubin, you are now recognized.

    STATEMENT OF MELANIE SENTER LUBIN, MARYLAND SECURITIES 
   COMMISSIONER, ON BEHALF OF THE NORTH AMERICAN SECURITIES 
                ADMINISTRATORS ASSOCIATION, INC.

    Ms. Lubin. Thank you, Mr. Chairman. Good morning, Mr. 
Chairman, Ranking Member Waters, and members of the committee.
    My name is Melanie Lubin. For the past 30 years, I have 
worked in the Securities Division of the Maryland Attorney 
General's Office, serving as an Assistant Attorney General, and 
since 1998, as Maryland's Securities Commissioner.
    I also represent Maryland within the North American 
Securities Administrators Association, or NASAA, and currently 
serve as a member of its board of directors and Federal 
Legislation Committee.
    Since 2015, I have also served as NASAA's nonvoting member 
on the FSOC. NASAA was organized in 1919 and its U.S. 
membership consists of the securities regulators in the 50 
States, the District of Columbia, Puerto Rico, and the U.S. 
Virgin Islands.
    I am honored to testify before the committee today about 
NASAA's views on a legislative proposal introduced Wednesday 
entitled the Financial CHOICE Act of 2017. Congress enacted the 
Dodd-Frank Act in July 2010 in response to the 2008 financial 
crisis. The purpose of the Dodd-Frank Act was to strengthen our 
financial system and better protect the millions of hardworking 
Americans who rely on their investments for a secure 
retirement.
    State securities regulators are deeply concerned that if 
enacted in its current form, the Financial CHOICE Act would 
detrimentally change regulatory policies and expose investors 
in securities markets to significant unnecessary risks.
    NASAA's full written statement submitted for this hearing 
addresses 23 provisions in the Financial CHOICE Act. I am happy 
to discuss any of these provisions. However, I will use the 
balance of my oral testimony to highlight several elements of 
the legislation that NASAA considers particularly problematic.
    First, Section 391 of the bill includes a provision that 
attempts to mandate coordination among financial regulators, 
including the States. While the provisions may appear 
relatively benign on its face, State regulators are deeply 
concerned that if enacted, it will impose Washington's red tape 
and priorities on the States.
    Today, coordination between State and Federal regulators is 
a voluntary process. This process ensures that the 
jurisdictional reach of the regulators remains unhindered and 
that harmful conduct is addressed in an efficient manner, 
without the need to work through Federal bureaucrat obstacles.
    Because State securities regulators prioritize protection 
of retail investors, forcing States to take a back seat during 
investigations that involve more than one agency would put 
these mom- and-pop investors more directly in harm's way. We 
urge Congress to remove the reference to State securities 
authorities from Section 391.
    NASAA's second area of concern involves Section 827 of the 
bill, a baffling attempt to impose additional procedural 
hurdles, which would in turn hinder keeping bad actors out of 
the securities industry. The Dodd-Frank Act took an important 
step toward reducing risks for investors in private offerings 
by requiring the SEC to prohibit bad actors from using the Reg 
D, Rule 506 exemption. Enacting any legislation that would 
needlessly expose unknowing investors to bad actors would be a 
grave mistake.
    NASAA's next area of concern is Subtitle P, which would 
enact a wholesale revision of the JOBS Act's crowdfunding 
provisions less than a year after they took effect. If Congress 
is poised to enact policies intended to strengthen the economy, 
this provision will have precisely the opposite effect. Among 
other things, this provision would eliminate individual and 
advocate investment caps, allow an issuer to conduct Federal 
crowdfunding without a registered intermediary, remove many 
required disclosures to investors and ongoing reporting to the 
SEC, and repeal liability provisions that were carefully 
crafted to apply to the unique characteristics of a crowdfunded 
offering.
    NASAA is also very concerned about provision in Subtitles L 
and M. Subtitle L creates a new class of security, a venture 
security, that would be listed and traded on a new venture 
exchange. These securities would be exempt from a significant 
number of regulatory requirements, including State 
registration, and presumably would be subject to significantly 
diminished listing standards.
    Subtitle M would allow the SEC to recognize any exchange of 
any size or quality as a national securities exchange. All 
securities listed on these exchanges would be preempted from 
State registration laws. The benchmark for preemption 
established by Congress in existing law requires that an 
exchange have rigorous listing standards, substantially similar 
to those of the major national stock exchanges, like the New 
York Stock Exchange.
    Allowing an exchange to qualify as a national securities 
exchange regardless of the quality of the exchange or the 
quality of its listed securities removes vital investor 
protections.
    The final concern I will discuss is NASAA's opposition to 
Section 841. NASAA has long supported a heightened standard of 
care for broker-dealers. Clients expect broker-dealers to act 
in the client's best interest. This provision would, among 
other things, invalidate the rule recently adopted by the 
Department of Labor. It would also effectively prevent the 
Department of Labor from undertaking any future rulemaking 
regarding the conduct of broker-dealers in the management of 
retirement accounts until the SEC completes rulemaking.
    The provision would also impose on the SEC unduly onerous 
requirements for regulatory, analytical, and economic analysis 
prior to adopting a rule. Ultimately, Section 841 would delay 
and perhaps prevent any effort to establish a meaningful 
heightened standard of care for broker-dealers.
    Thank you again for the opportunity to testify before the 
committee. I would be pleased to answer any questions you may 
have.
    [The prepared statement of Commissioner Lubin can be found 
on page 93 of the appendix.]
    Mr. Hollingsworth. Votes have been called. The committee 
will reconvene immediately after Floor votes have concluded. 
Members are advised that this is a two-vote series.
    The committee stands in recess.
    [recess]
    Mr. Hollingsworth. The committee will come to order.
    Ms. Liner is now recognized for 5 minutes.

   STATEMENT OF EMILY LINER, SENIOR POLICY ADVISOR, THIRD WAY

    Ms. Liner. Good morning, Mr. Chairman, Ranking Member 
Waters, and members of the committee. Thank you for the 
opportunity to testify at today's hearing. My name is Emily 
Liner, and I am a senior policy adviser in the economic program 
at Third Way, a centrist think tank in Washington, D.C.
    There are many reasons to support the Dodd-Frank financial 
reform law. The perspective I am going to take is on Dodd-
Frank's positive effect on economic growth.
    My view and the view of Third Way from studying this law 
and speaking with dozens of experts in the realm of business 
and finance is that Dodd-Frank is pro-growth, pro-market, and 
pro-investor. That is why we at Third Way are concerned that 
the Financial CHOICE Act would undo the progress that Dodd-
Frank has made in making the financial system safer while still 
preserving its ability to innovate and allocate capital.
    Let me take you through why we feel this way.
    Let's start with risk-weighted capital. Risk-weighted 
capital is one of the airbags that protects our banking system 
from melting down. It requires banks to maintain a sufficient 
level of equity based on the riskiness of its assets.
    Because of Dodd-Frank, risk-weighted capital in the United 
States banking sector has increased 41 percent since the end of 
2009. That means banks are significantly safer. And thanks to 
the banking watchdogs at the Federal Reserve, the eight biggest 
U.S. banks are required to have risk-weighted capital above and 
beyond the industry standard. That keeps banks safe and sound, 
which is good for growth, for markets, and for investors.
    The CHOICE Act, however, repeals risk-weighted capital as 
well as the liquidity coverage ratio. This will make banks less 
safe and will at some point cost our economy, undermine growth, 
and hurt investors.
    What makes Dodd-Frank a pro-market law is its focus on risk 
that could be spread through interconnected financial 
institutions. Stress tests, for example, are an annual exam of 
the Nation's largest and most important financial institutions 
to determine if they could survive a bad recession. It is not 
an easy test, nor should it be.
    Eventually there will be another economic downturn, and we 
need to be certain that our largest financial institutions can 
weather the storm so that we can return to growth, return to 
strong markets, and prevent massive investor losses far more 
quickly. If we had had stress tests before the financial 
crisis, we could have been prepared to take action before the 
chain reaction of bank failures unfolded in 2008.
    The CHOICE Act weakens the stress-test exercise by making 
the penalty on paying out dividends optional for banks that 
meet its low standard for exemption from the rules. Make no 
mistake, this will come back to hurt our economy.
    Finally, Dodd-Frank is a pro-investor law. The Volcker Rule 
ensures that American families who participate in the markets 
as retail investors are protected from harm. Investment bankers 
can still take risks, but the Volcker Rule prevents that risk 
from spilling over and hurting innocent people.
    During the financial crisis, $2.8 trillion in retirement 
savings alone evaporated. We owe it to the hardworking 
Americans who lost the money they spent years scrimping and 
saving to never let this happen again. But the CHOICE Act 
repeals the Volcker Rule as well as other reforms that keep the 
financial system healthy.
    The few safety and soundness standards the CHOICE Act does 
include, like the 10-percent leverage ratio, are simply not 
enough to protect the world's largest economy. Under the CHOICE 
Act's regime, the leverage ratio is the only thing standing 
between some regulation and no regulation. No one should be 
comfortable with just one number determining whether banks can 
opt out of the entire framework for financial safety 
regulation.
    Dodd-Frank is a balanced law that makes banks safer. When 
banks are safer, we reduce the probability that a crisis will 
happen. That gives the economy more room to run and grow. 
According to a cost-benefit analysis of capital and liquidity 
requirements we performed at Third Way, we find that Dodd-Frank 
contributes $351 billion to U.S. GDP over 10 years. There is a 
tangible economic benefit to making the financial sector more 
stable.
    When the economy is humming along, we rarely acknowledge 
that regulations create a safe environment that allows the 
economy to expand. But when the economy blows a fuse, it is 
Dodd-Frank, not the Financial CHOICE Act, that will make sure 
recessions are short and manageable.
    For reasons of economic growth, healthy markets, and 
investor protection, Third Way opposes this legislation to 
repeal our strongest financial reforms and replace them with 
such a weak alternative.
    Thank you, and I am happy to answer any questions you may 
have.
    [The prepared statement of Ms. Liner can be found on page 
91 of the appendix.]
    Mr. Hollingsworth. Ms. Jackson, you are now recognized for 
5 minutes.

 STATEMENT OF AMANDA JACKSON, ORGANIZING AND OUTREACH MANAGER, 
                 AMERICANS FOR FINANCIAL REFORM

    Ms. Jackson. Members of the committee, thank you for the 
opportunity to testify today. My name is Amanda Jackson, and I 
am the organizing and outreach manager for Americans for 
Financial Reform. Americans for Financial Reform is a 
nonpartisan, nonprofit coalition working to lay the foundation 
for a better financial system.
    The hardest part in talking about this bill is figuring out 
where to start because it is such a comprehensive disaster. 
This legislation would be better dubbed the, ``Wall Street 
CHOICE Act'' because it would have a devastating effect on the 
capacity of regulators to protect the public interest and 
defend consumers from Wall Street wrongdoing and the economy 
from risk created by too-big-to-fail financial institutions.
    Not only does this bill eliminate numerous major elements 
of the Dodd-Frank protections passed in the wake of the 
financial crisis of 2008, it would also weaken regulatory 
powers that long predate Dodd-Frank. If this bill passed, it 
would make the financial regulation system significantly weaker 
than it was even in the years leading up to the 2008 crisis.
    The basic story that CHOICE Act proponents are telling 
about why this legislation is needed is a lie. Financial 
regulation is not hurting workers, consumers, or the economy. 
There is no evidence that the economy is being harmed by 
financial regulation. In fact, lending is growing at a healthy 
rate.
    Over the past 3 years, real commercial bank loan growth has 
averaged almost 6 percent annually, which is higher than the 
historical average of 4 percent. It is worth noting that loans 
at community banks are growing even faster, with community bank 
loan growth exceeding that of larger banks over the last 2 
years.
    This is not to say that everything is great for Americans. 
It is not. And, in fact, one of the reasons for that is the 
still-echoing effect of the 2008 financial crisis.
    The Center for Responsible Lending's 2015 ``State of 
Lending'' report showed two trends. First, families were 
already struggling to keep up before the financial crisis hit. 
The gap between stagnant family incomes and growing expenses 
was being met with rapidly increasing levels of debt. Second, 
the terms of the debt itself have acted as an economic weight 
and a trap, leaving families with less available income, 
pushing them further into debt traps, and causing a great deal 
of financial and psychological distress.
    Those impacted by the 2008 crisis--low- to middle-income 
individuals and families, and communities of color--are still 
rebounding. The impact of this crisis is closer to us than we 
realize. Just Wednesday, my Lyft driver shared with me that he 
had worked for, using his words, ``corporate America,'' and 
when the crisis hit, he lost his job. He took a couple of 
consulting contracts, a couple of part-time gigs, but, in his 
words, he has been in a free-fall since and things have been a 
mess.
    People live this and are still reeling with the aftermath. 
They think, quite sensibly, that big banks have too much power 
and influence, not too little.
    This legislation is crammed with deregulatory giveaways 
that would facilitate abuses by financial institutions, private 
equity and hedge funds who want to manipulate the rules to 
enrich their executives, mortgage lenders who want to undo the 
safeguards against the affordable loans that drove the 
financial crisis, payday/car title lenders pushing products 
that trap consumers in a cycle of ever-increasing debt, and far 
more.
    The ``Wall Street CHOICE Act'' would strip, as already 
mentioned, the powers of the Consumer Financial Protection 
Bureau to address abusive practices in consumer markets, 
returning us to the regulatory patchwork that failed before the 
crisis as well as the reason the consumer agency was created to 
solve.
    It would also eliminate critical elements of regulatory 
reform passed since the crisis, including restrictions on 
unaffordable mortgage lending; the Volcker Rule, as mentioned; 
the ban on banks engaging in hedge-fund-like speculation; and 
restrictions on excessive Wall Street bonuses and more.
    And, lastly, it would increase the ability of too-big-to-
fail financial institutions to hold up the public for a bailout 
by threatening economic disaster if they failed.
    It just seems that what all this means has escaped members 
of this committee. This legislation begs the question, do its 
drafters fully grasp the economic devastation unleashed by a 
failure to control Wall Street predation?
    It would be like a Peace Corps volunteer returned home 
after serving abroad for 2 years, only to find out at the 
airport that her childhood home had fallen into foreclosure. It 
is a pastor who had to put a two-time limit on helping 
parishioners who have fallen victim to the online payday debt 
trap lending scheme so that he can help the next person. It is 
the misuse of the criminal justice system by debt collectors 
threatening a mother of two with jail time. It is reflected in 
the soulless neighborhoods full of dilapidated properties with 
``foreclosed'' signs.
    It is profoundly foolish to eliminate safeguards against 
the catastrophic consequences of a financial crisis. It is also 
wrong to place such severe restrictions on the ability of 
regulators to protect the public from exploitation in their 
everyday transactions with the financial system. We urge you to 
reject this radical and destructive legislation.
    Thank you.
    [The prepared statement of Ms. Jackson can be found on page 
89 of the appendix.]
    Mr. Hollingsworth. Mr. Bertsch, you are recognized for 5 
minutes.

   STATEMENT OF KEN BERTSCH, EXECUTIVE DIRECTOR, COUNCIL OF 
                    INSTITUTIONAL INVESTORS

    Mr. Bertsch. Thank you. Thanks, members of the committee, 
for the opportunity to be here.
    My name is Ken Bertsch. I am the executive director of the 
Council of Institutional Investors, a nonpartisan, nonprofit 
association of employee benefit plans, foundations, and 
endowments, with combined assets exceeding $3 trillion. We also 
have associate members, including asset managers, with more 
than $20 trillion in assets under management.
    I appreciate the opportunity to appear before you today. I 
respectfully request that the text of my testimony, including 
the Council's April 24th letter to the chairman and ranking 
member, be entered into the public record.
    Members of the Council include funds responsible for 
safeguarding assets used to fund the retirement benefits of 
millions throughout the United States. They have a significant 
commitment to U.S. capital markets. They are long-term, patient 
investors, due in part to the heavy commitment to passive or 
indexed investment strategies. As a result, issues relating to 
the U.S. financial regulatory system, particularly involving 
corporate governance and shareholder rights, are of great 
interest to our members.
    In its current form, we believe that the Financial CHOICE 
Act, if enacted, would weaken critical shareholder rights that 
investors need to hold management and boards of public 
companies accountable and that foster trust in the integrity of 
the U.S. capital markets.
    Americans suffered enormously from Enron and other 
corporate scandals of 15 years ago and even more from the 
failures of oversight that contributed to the 2008 financial 
crisis. The bill would heavily damage shareholder rights and 
threaten prudent safeguards for oversight of companies and 
markets, including sensible reforms made after both the Enron 
crisis and the financial crisis.
    Let me highlight five areas of concern.
    First, the bill would set prohibitively costly hurdles on 
shareholder proposals. The bill would require ownership of at 
least 1 percent of stock for 3 years, compared with the current 
requirement of $2,000 for 1 year, in order to, as a 
shareholder, submit a proposal to the ballot for all 
shareholders to vote on. This is a dramatic change. So you go 
from $2,000 to $7.5 billion at Apple to be able to do this, 
$3.4 billion at Exxon, and $2.6 billion at Wells Fargo.
    Since the 1940s, and especially since present rules came 
into force in the 1970s, shareholder proposals have led to many 
important corporate reforms. One example: I used to work at 
TIAA, which is an asset manager for university and healthcare 
systems. We used resolutions to push for independent boards 
that would not be rubber stamps. Expectations for boards now 
are much higher than pre-Enron. And that is due in no small 
measure to shareholder proposals over many years.
    Now, TIAA, with about $850 billion in assets under 
management, essentially would not be able to submit shareholder 
proposals anymore under this rule. It is not large enough. It 
typically owns 0.7 percent of a company. TIAA would be out. 
CalPERS owns $300 billion in assets; they would also be out of 
luck. Indexers would generally be out of luck, except for 
BlackRock, Vanguard, and State Street, who have never submitted 
a shareholder proposal. Some corporations are comfortable with 
those three among the index providers submitting shareholder 
proposals because they don't do it.
    Second, the bill would roll back curbs on abusive pay 
practices. Shareholders would get an advisory vote on executive 
compensation only when there is an undefined material change in 
CEO pay. Most U.S. public companies, at the request of their 
shareholders, currently offer investors say-on-pay votes 
annually. It is not required in the Dodd-Frank Act, but there 
is a choice of how often, and investors have opted for 
annually. The say-on-pay votes have resulted in much greater 
shareholder engagement, much better communication between 
companies and shareholders, and progress on executive pay.
    Third, the bill would restrict rights of shareholders to 
vote for directors in contested elections for board seats. The 
provisions of the bill would bar universal proxy cards that 
give investors freedom of choice to vote for exactly who they 
want to when there is a proxy contest rather than being forced 
into a party-line vote only.
    Fourth, the bill would create an intrusive new regulatory 
scheme for proxy advisers that provide shareholders with 
independent research that they need in order to vote 
responsibly. The bill would drive up costs for investors, 
potentially compromise the independence of advisers, and 
impinge on their ability to provide honest advice to clients.
    The final thing I want to focus on is that there are 
various elements of this bill that would shackle the Securities 
and Exchange Commission, including requiring excessive and 
unworkable cost-benefit analysis, apparently intended to tie 
the SEC's hands. The provisions would severely undercut SEC 
authority to fulfill its mission to protect investors, police 
markets, and foster capital formation.
    So those are the areas I want to summarize. We are glad to 
work with committee members on improving U.S. capital markets. 
And thank you for the opportunity to speak.
    [The prepared statement of Mr. Bertsch can be found on page 
52 of the appendix.]
    Mr. Hollingsworth. Mr. Chopra, you are recognized for 5 
minutes.

 STATEMENT OF ROHIT CHOPRA, SENIOR FELLOW, CONSUMER FEDERATION 
                           OF AMERICA

    Mr. Chopra. Thank you, Mr. Chairman, and members of the 
committee, for holding this hearing today.
    My name is Rohit Chopra. I am a senior fellow at the 
Consumer Federation of America. I was previously Assistant 
Director of the Consumer Financial Protection Bureau, and I 
also was named by the Treasury Secretary as the consumer 
agency's first Student Loan Ombudsman, a new position 
established in the Dodd-Frank Act.
    Less than a decade ago, our economy was in free-fall, with 
no single accountable regulator to police the mortgage market 
against lies and deception, especially in the nonbank sector. 
Toxic lending whacked Main Street and Wall Street and our whole 
economy down.
    Now, the stories and statistics of families who lost their 
jobs, their savings, and even their homes are still so raw for 
so many, but I want to tell you about another piece. There was 
an aftershock of the financial crisis that we shouldn't forget 
about, a crisis that crushed both family budgets and State 
budgets.
    For the millions who went off to, or were already in 
college, their families had fewer financial resources to 
support their child's education, and State universities across 
America had to jack up tuition due to budget cuts. This double-
whammy helped lead to an explosion of student debt.
    Since the collapse of Lehman Brothers, outstanding student 
debt has more than doubled. Today, roughly 43 million Americans 
collectively owe $1.4 trillion in student debt. And that 
doesn't even count other debt for college like home equity 
loans and credit cards that so many families use.
    And as repeated research has shown, problems in the student 
loan market bear an uncanny resemblance to what we saw in the 
mortgage market: subprime-style lending fueled by 
securitization markets and slipshod servicing, leading to 
unnecessary defaults.
    But, fortunately, there is a lot more accountability for 
those who break the law today, and that is because of the CFPB. 
But the proposed legislation would essentially destroy the 
consumer agency's authorities, forbidding it from engaging in 
regular supervision of the student loan industry and stripping 
it of its powers to police the market for unfair, deceptive, 
and abusive acts and practices.
    Here are just a few of the enforcement actions that could 
not have occurred if the proposal were the law of the land.
    Now, I know all of you know about the Wells Fargo fake 
account scandal that came to light in September 2016. But just 
2 months earlier, the CFPB also fined Wells Fargo millions for 
illegal student loan practices, including allocating borrower 
payments strategically in order to maximize late fees. This 
would not be possible under the proposal today.
    In 2015, the CFPB announced that it had caught Discover, 
another big student lender, for illegal billing and debt 
collection practices. This would not be possible under the 
proposal today.
    In 2014, the CFPB sued Corinthian Colleges--this is a 
company that was very aggressive in many of the districts that 
you serve--for an illegal student loan scheme coupled with 
strong-arm debt-collection tactics to shake down their 
students. Ultimately, the CFPB secured $480 million in debt 
relief for borrowers, and Corinthian is no longer operating. 
This action would not be possible if the proposal were made the 
law of the land.
    And just this year, the CFPB sued student loan behemoth 
Navient, formerly known as Sallie Mae, for illegally cheating 
borrowers out of their repayment rights through shortcuts and 
deception at every stage of the repayment process so that it 
could pad its own profits. The allegations are so severe, 
impacting millions of borrowers. This action would simply not 
have been possible under the proposal since the agency would 
lack the authority to enforce all of the critical consumer 
protection laws.
    We all know that our student loan system is badly broken. 
It is not working for borrowers, for taxpayers, or for the 
honest student loan companies who are forced to compete with 
bad actors.
    The way I see it, Congress has a choice. It can choose to 
have amnesia and forget about the millions of Americans who 
lost their homes and jobs due to a financial system fraught 
with fraud and loaded up with risk; it can choose to turn its 
back on the millions of student loan borrowers who are just 
trying to pay their loans off. Or it can stand with honest 
businesses, it can stand with consumers, and it can stand with 
everybody who plays by the rules. And we will all be watching 
closely to make sure you don't make the wrong choice.
    Thank you.
    Mr. Hollingsworth. Ms. Edelman, you are recognized for 5 
minutes.

 STATEMENT OF SARAH EDELMAN, DIRECTOR, HOUSING POLICY, CENTER 
                     FOR AMERICAN PROGRESS

    Ms. Edelman. Thank you.
    Good morning, Mr. Chairman, Ranking Member Waters, and 
members of the committee. Thanks for holding the hearing today, 
and thank you for being here with us. My name is Sarah Edelman, 
and I direct the housing policy program at the Center for 
American Progress.
    The proposals laid out in the wrong choice act 2.0 threaten 
the stability of the Nation's housing market, economy, and 
financial system. The legislation would deregulate Wall Street 
and put the United States in the same perilous position it was 
right before the 2007-2008 crisis. Yet it is often described by 
its supporters as legislation designed to help small community 
banks. If the intention is to strengthen community banks, then 
we are talking about the wrong bill.
    Let's start with a review of the facts about community 
banks. First, as Senator Warren said earlier, by many measures, 
community banks and credit unions in the United States are the 
strongest they have been in decades. Community bank profits are 
up to where they were before the crisis. Consumer lending at 
small banks exceeds pre-crisis levels. Mortgage lending has 
increased by nearly 40 percent between 2012 and 2015, according 
to a recent analysis by the Center for Responsible Lending. 
Credit unions added 4.7 million new members last year, the 
largest annual increase in credit union history, according to 
their trade association.
    However, it is true that community banks face more 
financial and administrative hurdles than larger banks that can 
spread operation costs across many bank branches. And since the 
1980s, the number of community banks in the United States has 
declined every year.
    Most community banks are small businesses working to 
compete against larger ones in an ever-changing market. And 
that is why Congress and regulators have already developed a 
tiered regulatory system, where community banks are carved out 
from many of the requirements big banks need to meet. For 
instance, community banks are generally not subject to many of 
the Dodd-Frank provisions, including stress testing, the 
requirement to create a living will, or CFPB enforcement. 
Community banks are also given greater flexibility with their 
mortgage underwriting standards.
    The wrong choice act takes many of the carve-outs that are 
currently reserved for community banks and gives them to the 
big banks that crashed our economy a decade ago for a very 
small price. The bill also scraps many of the regulations 
Congress applied to nonbank financial institutions, often major 
competitors of community banks.
    So, while supporters of the bill talk about how it will 
help Main Street, it seems best designed to ease standards for 
Wall Street.
    The proposal would also rattle the foundation of the 
housing market. About a decade ago, some of the very 
organizations on this panel pleaded with you to stop the 
predatory lending that was stripping their communities of 
wealth. Nearly 10 million foreclosures later, it is 
disheartening that many of our organizations are back here 
again, this time trying to keep some Members of Congress from 
reopening the doors to practices that drained wealth from 
hardworking Americans.
    In the aftermath of the crisis, Congress put commonsense 
standards in place to protect consumers and the housing market 
from predatory mortgage loans. These standards included a 
commonsense rule that a lender must evaluate a borrower's 
ability to repay a loan before they originate it. It included 
more accountability for lenders who make bad loans and 
incentives for originating loans with affordable loans.
    Title 5 of the wrong choice act undermines many of these 
core mortgage protections and turns the clock back to a 
dangerous time in our housing market. Buyers of manufactured 
housing, in particular, who are already ripped off on a regular 
basis by mobile home companies, are made especially vulnerable 
by the proposal.
    The men and women in your district may not know what the 
qualified mortgage or ability-to-repay rules are, but they will 
notice if their neighbors and family members begin getting bad 
loans again or when there is another housing or financial 
crisis. And they know a giveaway to Wall Street when they see 
it. Please stand up for families and oppose this bill.
    Thank you.
    Mr. Hollingsworth. Votes have been called. The committee 
will return immediately after the vote. The committee stands in 
recess.
    [recess]
    Mr. Hollingsworth. The committee will come to order.
    The Chair now recognizes the gentleman from Minnesota, Mr. 
Ellison, for 5 minutes.
    Mr. Ellison. Mr. Chairman, thank you for recognizing me, 
and also thank you to the ranking member.
    Let me just ask the panel this question. I have consumer 
justice meetings in my district all the time. I also meet with 
the Financial Services Committee. I try to talk to everybody. 
But in my consumer advocates meeting, I said, well, there is 
this CHOICE Act coming up, and one of the things it does is it 
undermines the Consumer Complaint Database.
    And I want to ask you, how does the Consumer Complaint 
Database actually help consumers access even the private bar, 
to do some self-help, in terms of bringing forth real 
accountability for what might be abuses in the industry?
    Ms. Liner, it looks like you kind of feel my drift here. 
Would you like to respond?
    Ms. Liner. Thank you, Congressman. I am an active listener.
    Mr. Ellison. Great.
    Ms. Liner. So one thing I would like to point out is that a 
corollary to the CFPB is the Consumer Product Safety 
Commission. It has a similar mission but in a different sphere, 
and they also have a public database where consumers can submit 
concerns about products that are on the market, such as cribs 
and toys. So it seems appropriate that there is also a public 
database for concerns about financial products.
    Mr. Ellison. Right. So the CFPB does in fact have such a 
database, and people have used it.
    Do you guys have any information to share on the importance 
of that particular tool? Because the advocates in my district 
felt like it was pretty important. Anybody here want to weigh 
in on that?
    Mr. Chopra. Congressman, I think it was a complete game 
changer. When I was at the Bureau and the database came online, 
all of a sudden the rhythm with financial institutions and 
their consumers changed.
    Mr. Ellison. Right.
    Mr. Chopra. They knew that those complaints were going to 
be out in the public and they were going to be used.
    I will tell you one story. We collected a lot of complaints 
and did some deep analysis of it, and we found a trend of 
servicemembers and their families being overcharged on their 
student loans. We actually then referred those complaints to 
the Department of Justice. And guess what? It wasn't just a 
handful, it was 78,000 of them, who ended up getting $60 
million in refunds. And now companies are looking at their 
complaints and seeing that they have to treat customers fairly 
or they may face some real consequences.
    Mr. Ellison. Even if one of those consequences was just the 
light of day.
    So, Professor Coffee, I would like for you to weigh in on 
this issue. I have this theory, and I would like you to offer 
your candid comments on it, which is that good consumer 
protection actually helps business. Why? Because so much of 
business relies upon confidence. And so, if you have a 
situation where people are bilked and taken advantage of, it 
kind of creates this incentive, where ethical businesspeople 
are kind of dragged into that just to stay competitive.
    Do you have any comment on that you would like to share?
    Or, Ms. Edelman, maybe you have a viewpoint on that issue?
    Ms. Edelman. Sure. I think you are exactly right, 
Congressman. One of the issues we saw in the run-up to the 
housing crisis was even some of the more honest lenders having 
trouble competing with the folks who were doing really shady 
things, because these shadier practices produced more returns 
and higher profits in the short term.
    And so it drags even the good guys into it, which is why it 
is so important to make sure that there is a solid floor of 
regulations.
    Mr. Ellison. Mr. Coffee, do you want to comment on that?
    Mr. Coffee. I am going to leave that to the people who are 
really the experts on--
    Mr. Ellison. Okay. Mr. Chopra?
    Mr. Chopra. Yes. So, in addition to what I said before, I 
think it is pretty unfair for somebody who treats their 
customers fairly, plays by the rules, and then they get dinged 
by their investors for not hitting the same return on equity as 
their competitors.
    Mr. Ellison. Right.
    Mr. Chopra. And you know what? The ones who end up 
following the rules have much more sustainable profitability, 
which is probably better for our whole economy. There is 
increasing research to this point. And we should really be not 
just protecting consumers but protecting the companies that are 
playing by the rules in the first place.
    Mr. Ellison. Well, absolutely. And my friends on the other 
side of the aisle tend to make this case, ``We are for 
business.'' They are not for business; they are for short-term 
abusers of the process. And we are for long-term sustainability 
of the economy.
    I think I am pretty much out of time, so I yield back.
    Mr. Hollingsworth. The gentleman yields back.
    The Chair now recognizes the ranking member of our Capital 
Markets Subcommittee, the gentlelady from New York, Mrs. 
Maloney, for 5 minutes.
    Mrs. Maloney. Thank you. Thank you so much. I would like to 
thank the chairman and especially the ranking member and all my 
colleagues for calling for this important hearing. I can tell 
you, it makes a real difference to have a whole panel of 
Democratic witnesses on this important bill.
    My question is for Professor Coffee from the great 
University of Columbia, located in the City of New York.
    And I would like to ask you about the chairman's latest 
version of the immoral wrong choice act, which would make it 
much harder for shareholders to make their voices heard by 
making it harder for them to submit a proposal at a company's 
annual meeting.
    The Comptroller of the City of New York has been very 
active on this. I would like to place, with unanimous consent, 
his comments, his letter into the record.
    Mr. Hollingsworth. Without objection, it is so ordered.
    Mrs. Maloney. Thank you.
    Specifically, the bill would say that only shareholders who 
own at least 1 percent of the company's shares--could be 
hundreds of millions of dollars--for at least 3 years can offer 
proposals to be voted on at a company's annual meeting. And 
this is just plain wrong.
    This serious requirement ignores the value that shareholder 
proposals have had on companies. For example, shareholder 
proposals were the reason why independent directors constitute 
a majority on the board, which is now standard practice, and 
that the audit and compensation committees are independent.
    So, Professor Coffee, given these successes and the 
important role that shareholders play in corporate governance, 
my question is: Does it make sense to impede the ability of 
shareholders to make their voices heard through this proposal?
    And I would like to also add to the record the statement 
from the Irish National Caucus from Father McManus. And, in 
this statement, he brings it down to the reality of what it 
means. He says, with these proposed changes, to submit a 
shareholder proposal to Wells Fargo or anyone else, one would 
have to own $2.5 million in shares, where at present one only 
needs to own $2,000 worth of shares for 1 year. So this is a 
huge change.
    Mr. Hollingsworth. Without objection, it is so ordered.
    Mrs. Maloney. And I would just add, to the great Professor 
Coffee, aren't shareholders the ultimate owners of the 
companies that invest the funds necessary for companies to 
raise capital and to grow? And so wouldn't harming their rights 
actually harm the companies and actually harm the overall 
economy of the United States of America?
    Mr. Coffee. It is very easy to answer your question. Thank 
you for an easy question, because I think the answer is yes.
    As you point out, 1 percent of Apple is something like $7.5 
billion. Moreover, there is also real bite in the 3-year rule, 
because it disqualifies a whole class of investors, the hedge 
funds and other short-term holders. They hold nothing for 3 
years.
    If you look at the large pension funds, they are generally 
indexed, and very few indexed pension funds could own 1 percent 
of a giant company like Apple. So you get down to maybe no more 
than a dozen or so shareholders that would be in a position to 
have that 1 percent and that would have any interest in 
sponsoring a shareholder resolution because they represent 
either pension or mutual funds or other broad-based people. So 
it is a disenfranchisement of shareholders.
    Also, as you mentioned in the first part of your question, 
the SEC has moved toward the idea of a single ballot on which 
all the names of all the contestants for election to the board 
would be listed. That simplifies the voting process. But this 
bill would expressly reverse the single-ballot proposal. And, 
again, that would require you to deal with competing yellow and 
blue and green proxy cards, making the process somewhat more 
difficult.
    So I don't think this is the most important thing in this 
bill, but I think, in terms of corporate governance, it does 
restrict shareholder access.
    Mrs. Maloney. And, also, Professor Coffee, I would like to 
ask you about the leverage ratio. Under the chairman's bill, 
any bank that meets a 10-percent leverage ratio would be 
exempted from all other capital and liquidity requirements, 
including the risk-weighted capital requirement that has been 
at the center of U.S. banking regulation and international 
banking regulation for decades.
    So, essentially, the leverage ratio would become the 
primary capital requirement, and, as a result, many banking 
regulators have commented and contacted us and have argued that 
relying solely on the leverage ratio would give banks an 
incentive to get rid of their safest assets, like U.S. 
Treasuries, and load up with riskier assets.
    Do you agree?
    Mr. Coffee. I think you have now touched on the most 
important provision in this bill, which is the off ramp. And 
the off ramp works off a single metric, a leverage ratio of 10 
percent.
    Now, I could understand the off ramp if it was limited to 
smaller banks. We can argue about what smaller banks were--$1 
billion, $10 billion, $50 billion--but for smaller banks, there 
might be a case for this. This would apply to our largest 
banks, and you can escape everything in Dodd-Frank if you can 
get the requisite 10-percent leverage.
    We have seen what will happen. We saw this with Lehman back 
in 2008. They wanted to show an attractive leverage ratio, and 
they gamed the system.
    Mr. Hollingsworth. The gentlelady's time has expired.
    Mr. Coffee. One sentence: Every quarter, they engaged in 
one transaction that for one day only gave them the requisite 
leverage.
    Mr. Hollingsworth. The gentlelady's time has expired.
    Mrs. Maloney. Thank you, Professor, for your life's work. 
Thank you.
    Mr. Hollingsworth. The Chair now recognizes the gentleman 
from California, Mr. Sherman, for 5 minutes.
    Mr. Sherman. I will pick up on what the last witness was 
saying, and that is, credit default swaps would allow a giant 
bank to have, yes, 10-percent capital against their 
liabilities, but credit default swaps create perhaps a trillion 
dollars of contingent liabilities. They are not on the balance 
sheet. They don't affect your ratio. You are out of Dodd-Frank. 
A bank with a million dollars of assets and $100,000 of capital 
would be legally allowed to do a trillion dollars' worth of 
credit default swaps.
    I have been to over 1,000 hearings in this room organized 
by Republicans selecting the bulk of the witnesses, and so I 
thought I would rant a bit about the Republicans not being 
here, not listening, not gaining insight. And then I realized 
what is really happening. They are all back in their offices, 
glued to their television sets. They know they can learn more 
if they don't interrupt with their own questions.
    And knowing that my friend, Chairman Jeb, is watching, let 
me implore him: Please split up this bill. This bill includes a 
dozen individual bills that a majority of Democrats and a 
majority of Republicans voted for. Those bills could become 
law.
    This bill can never become law unless the Senate goes 
thermonuclear, and it is not going to do that. You need eight 
Democratic votes to pass anything. You are not going to get a 
single Democratic vote in this committee or on the Floor. How 
are you going to get eight Democrats in the Senate?
    So this is a messaging bill. And what is the message? The 
message is: Democrats are voting against every change that 
could possibly be made in Dodd-Frank. The Democrats are 
treating Dodd-Frank as if it is a canonized scripture.
    The fact is, I was a cosponsor of Dodd-Frank. It is not a 
perfect bill. I have never voted for a perfect bill. And when 
that bill was written, it was written here in 2128; it didn't 
come from Mount Sinai. We can improve it.
    Now, I had a prior visual up on the board showing the 
enormous trade deficit.
    And, Ms. Klemmer, we haven't had the great economic growth 
in the last few years that we would like to see. Is that 
because of Dodd-Frank, or is that because we have trade 
policies where we have a $600 billion trade deficit with the 
world every year, leading to well over $10 trillion of what we 
owe the rest of the world? Now it is up to $11 trillion, excuse 
me. It is going fast.
    Which is the cause of the slow economic growth, Dodd-Frank 
or trade policies that lead to the world's largest trade 
deficit?
    Ms. Klemmer. I think a lot of the other witnesses have 
provided statistics that Dodd-Frank has not slowed lending or 
had any negative impact on the economy. In fact--
    Mr. Sherman. What about our trade policies? Any negative 
impact?
    Ms. Klemmer. I am getting to the trade policies, certainly. 
The trade policies absolutely have caused tremendous problems 
for U.S. manufacturing and all of our industries, and it is 
been a series of corporate-authored bills that have undermined 
American workers across-the-board. And I--
    Mr. Sherman. Thank you.
    I want to go on to the next visual, because there is this 
argument that the Obama years have been bad years. The fact is 
that during his Presidency, which is somewhat coincident with 
the application of Dodd-Frank, we have seen the stock market go 
up by 180 percent, corporate profits by 112 percent, auto sales 
by 85 percent, consumer sentiments up 60 percent. The number of 
jobs in the country is up 8 percent, and you can see that 
insert showing how the unemployment rate dropped from the 
beginning of his Presidency to the end, down to 4.6 percent. 
The number of uninsured Americans dropped 39 percent. The 
Federal deficit dropped 58 percent.
    In contrast, during the first quarter of the Trump 
Administration, we have seen the most anemic economic growth 
that we have had for many years. And he just came up with a 
proposal to take that Federal deficit, which has gone down by 
58 percent over the Obama Administration, and have it explode 
into many trillions of dollars over what would I guess be his 
first 4 years in office.
    So this idea that Dodd-Frank and Obama are coincident with 
bad economic performance and that the last 3 months have been 
spectacular economic growth is very convincing unless you look 
at the numbers.
    Finally, I couldn't let this go without saying the cause of 
the problem was the bond rating agencies. They gave AAA to Alt-
A. Portfolio managers had to buy them in order to maintain a 
competitive rate of return on their investment. And as long as 
the umpire is selected by one of the teams, namely the issuer, 
we are just cruising for the next crisis.
    I yield back.
    Mr. Hollingsworth. The gentleman yields back.
    The Chair now recognizes the gentlelady from New York, Ms. 
Velazquez, for 5 minutes.
    Ms. Velazquez. Thank you, Mr. Chairman.
    Ms. Liner, during the crisis, when we were concerned that 
our banking system could collapse, many large banks paid out 
billions in dividends to enrich their shareholders. Dodd-Frank 
ended this practice by preventing banks from paying dividends 
if they fail their stress test. But in the wrong choice act, 
there is no penalty for failing stress tests if the banks 
qualify over the low bar that lets them get out of their safety 
regulations.
    Do you share my concern that the wrong choice act will 
reverse this important safeguard?
    Ms. Liner. Thank you very much for your question, 
Congresswoman. I do share your concern, and thank you for 
bringing up this point.
    One of the biggest scandals that occurred during the 
financial crisis is that banks were still paying dividends, 
billions in dividends, at the same time that they were begging 
the Fed for help to keep their doors open.
    In fact, in the fourth quarter of 2008, banks gave out over 
$6 billion in dividends to their shareholders. At the same time 
during the fourth quarter of 2008, nearly 5 million Americans 
lost their jobs because of the onset of the financial crisis.
    So thank you for bringing this up, because stress tests are 
a test, and tests have consequences.
    Ms. Velazquez. Thank you.
    Mr. Bertsch, clearinghouses play a critical role in 
managing risk and promoting stability in our financial markets. 
Because of this, some clearinghouses that have been deemed 
systemically important have been subjected to enhanced 
supervision pursuant to Title VIII of Dodd-Frank.
    Are you concerned that doing away with this enhanced 
supervision and some of the related tools given to the 
supervisors will introduce risks to the financial markets and 
the small businesses and consumers who rely on them?
    Mr. Bertsch. Yes, I am concerned, although that has not 
been the primary focus of our attention at this point on this 
week-old bill. But, yes, we are concerned--I am concerned about 
the oversight structures, not only the SEC but the 
clearinghouses and otherwise, that in various ways this bill 
undercuts.
    Ms. Velazquez. Thank you.
    Ms. Liner, under the wrong choice act, if a bank maintains 
a 10-percent quarterly leverage ratio, it can choose to opt out 
of Dodd-Frank's enhanced prudential standards, including risk-
based capital rules, liquidity requirements, risk management 
standards, resolution plans, stress testing, and other 
important safeguards.
    Can you explain why more than a simple leverage ratio is 
required to ensure a global megabank operates in a safe and 
sound manner?
    Ms. Liner. Yes. Thank you, Congresswoman. You just provided 
a really important list of the various tools that Dodd-Frank 
uses to ensure that our financial sector is safe, stable, and 
healthy.
    To explain what some of these are: Liquidity requirements. 
This is different from a leverage ratio and capital 
requirements because it makes sure that banks not just have 
enough assets but enough liquid assets. Because assets like 
loans and securities are not as liquid as cash. And the cause 
of some of the large bank failures during the crisis is that 
they did not have access to enough liquid assets; they couldn't 
liquidate many of their assets in time to be able to stay open.
    Risk management standards, another excellent example of a 
Dodd-Frank reform that keeps consumers and investors safer. It 
is incredible to think that a publicly traded bank holding 
company did not have to have a risk management committee or a 
risk management officer prior to Dodd-Frank.
    And, finally, I would just like to add the countercyclical 
buffer. So the leverage ratio is always 10 percent, whether we 
are in an economic expansion or an economic recession. And in 
Dodd-Frank, there is a countercyclical buffer that requires 
banks to take on more capital if economic conditions 
deteriorate.
    Ms. Velazquez. Thank you.
    Ms. Liner. Thank you.
    Ms. Velazquez. Mr. Coffee, would you like to comment? You 
have 25 seconds.
    Mr. Coffee. I agree with what she said. As long as you use 
a single leverage point, you are inviting banks to greatly 
increase the risk level of their assets. They will trade in 
those stodgy, old, dull treasuries and buy very risky credit 
default swaps. And that is dangerous, but they could do it 
under a single metric test.
    Ms. Velazquez. Thank you.
    Mr. Hollingsworth. The gentlelady yields back.
    The Chair now recognizes the ranking member, the gentlelady 
from California, Ms. Waters.
    Ms. Waters. Thank you very much.
    I would like to first thank all of our presenters here 
today. It is so important for you to be here to help educate 
the public about this wrong choice act and the devastation that 
it would cause should it pass.
    I would like to say to Reverend Willie Gable, Pastor at the 
National Baptist Convention USA, I want to thank you for what 
you are doing. You talked about these minority communities, 
African American communities being targeted.
    Rev. Gable. Yes.
    Ms. Waters. And we find that all of the schemes, all of the 
ripoffs that anybody can think of, they target them right into 
the most vulnerable communities. And I know it creates a lot of 
work for those of you who are trying to look out for the least 
of these.
    You talked about the woman who was taken advantage of with 
dementia. Could you just share with us the kind of harm that 
you have experienced from those who have been taken advantage 
of? Maybe they are similar to the woman with dementia or in 
other ways. Do they have to come to the church and then ask 
them for money once they are burdened with this debt and they 
can't pay it and they can't get any more money? What do you 
guys have to do to help them?
    Rev. Gable. Thank you, Congresswoman.
    First of all, let me say that there seems to be a 
philosophy that has occurred in this country that engenders 
this idea that the poor should pay more for everything--more 
for a car, more for a home, more for food, more for access to 
capital. I don't know where it came from. And these are working 
poor. We are not talking about people sitting on the street.
    What happens is that the faith institutions end up having 
to support this. Our Faith for Just Lending Coalition, which is 
a coalition of the Catholic bishops, the National Evangelical 
Association, Southern Baptists, National Baptists, PICO, 
working together, all of us, to a group, an institution, are 
finding the same thing, that we are supporting, that every day 
we have individuals, every week, coming in who are having 
massive problems because of predatory lending--particularly 
predatory lending.
    And it is a designed, it is a planned effort that these 
lobbyists have worked and they continue to work. Even while 
this bill, this Wrong Choice bill, is being discussed, they are 
planning on how they can come up with ways to get into this 
community.
    We have individuals every week who come to us and, through 
our benevolent fund, we have to give support to them because 
they can't get out of debt.
    Ms. Waters. Well, Reverend, I would like you to help us get 
the word out about this Wrong Choice bill. It would take away 
the authority of the Consumer Financial Protection Bureau to 
develop rules about how they operate. So when you go back to 
the convention and you talk with the other pastors and all 
those who you are aligned with, let them know we have to stop 
this Wrong Choice bill.
    Rev. Gable. We shall do that.
    Ms. Waters. Thank you.
    Let me just add one other thing. There was a lot of 
discussion, I think, from--who is that over there?--yes, about 
community banks. And people don't know, for the most part, that 
we have exempted them from some of the rules of the big banks. 
They come in here and the big banks hide behind the community 
banks and would have you think that--they are talking about 
regulations that--causing the little banks problems, but really 
it is the big banks.
    Would you expound on that just a little bit more?
    Ms. Edelman. Sure. I would be happy to.
    That is exactly right. We have been very concerned that 
Congress would roll back financial reform in the name of 
helping the little guy, when the wrong choice act is really 
about giveaways for the big banks.
    Small community banks have exemptions from a number of 
Dodd-Frank provisions. Only 2 of the roughly 6,000 community 
banks--or 4, I am sorry, 4 of the roughly 6,000 community banks 
do stress testing. They don't have to do living wills. They 
have more underwriting flexibility. The CFPB has worked with 
them time and time again to make sure that the regulations are 
properly tailored for them. Small businesses, including many 
community banks, get an opportunity to submit early comments. 
The CFPB and other regulators have all created new advisory 
councils, including with the community banks.
    So community banks are already carved out of many of the 
provisions that were designed for the bigger banks. And 
expanding these exemptions for the big banks isn't going to do 
much to help the little guy.
    Ms. Waters. Thank you so very much.
    And I yield back the balance.
    Mr. Hollingsworth. The gentlelady yields back the balance 
of her time.
    The Chair now recognizes the gentleman from New York, Mr. 
Meeks, for 5 minutes.
    Mr. Meeks. Thank you.
    And thank all of you for your testimony that you have been 
giving thus far, because it is very important. We have found 
that many of my colleagues on the Republican side of the aisle 
have amnesia about what took place before 2008 and the people 
that it has affected. And you clearly have in your testimonies 
reminded all of America, thereby helping us to let our 
constituents know how important it is that we stop the wrong 
choice bill because it is not helpful to them.
    With that, let me ask Ms. Liner, in 2007 and 2008 we saw 
banks were still paying dividends to their shareholders even 
though they were experiencing a lot of losses. An example of 
this was Lehman Brothers, which eventually received taxpayer 
money, continued to pay dividends until after their bankruptcy.
    Dodd-Frank allows regulators to prevent such dividends if 
banks do poorly on their stress test. Could you explain for my 
constituents so that they understand why stress testing is 
important and how the wrong choice act's proposals to prevent 
regulators from limiting dividends will water down stress 
testing?
    Ms. Liner. Of course. Thank you, Congressman.
    Stress testing is a critical, proactive tool that we can 
use to ensure that our banks are strong enough for a future 
recession.
    And one thing that we saw happen in the financial crisis is 
that banks that weren't strong enough to stay open without 
extraordinary help were still paying out dividends to their 
shareholders and making capital distributions.
    Under the wrong choice act, there would be no penalty if a 
bank repeatedly failed a stress test to prevent them from 
paying out dividends. We saw that this behavior is simply 
unacceptable during the financial crisis, and Dodd-Frank does 
the right thing by making stress tests matter.
    Thank you.
    Mr. Meeks. Thank you. Thank you very much.
    And then there is one other issue that has been important 
to me. Some of you may know that I also serve on the House 
Foreign Affairs Committee. And I know that we have been working 
very hard and negotiating, for example, with the EU to ensure 
that our financial regulatory systems can work in harmony. We 
are so interconnected.
    So, Ms. Liner, again, many of the institutions we regulate 
are also regulated abroad, right? And there are aspects of 
Dodd-Frank that would disrupt our cooperation with these 
agreements abroad.
    So, if you could answer this question, what kind of impact 
can the lack of financial cohesion between the United States 
and the EU have on the everyday American who we are focused on? 
A lot of times, people don't recognize what the global aspects 
of something are, how it affects us locally. Can you briefly 
explain what effects it would have on the local constituent?
    Ms. Liner. Sure.
    The United States is a leader in global financial 
regulation, and for a good reason: Because we are a leader in 
the financial sector. There are a variety of global agreements 
that the United States has led and is a party to that ensure 
that all banks globally are prepared for anything that may 
arise in the global economy.
    Some of the things that the United States is a part of, 
with global systemically important banks--we have eight banks 
that meet this criteria, and they are required to carry higher 
levels of capital. They are required to participate in the 
liquidity coverage ratio at a higher standard than other banks. 
And there are few other regulations by Basel III, the total 
loss-absorbing capital and net stable funding ratio rules, that 
it would be a concern if we no longer participated in them for 
our standing in the global economy.
    Mr. Meeks. Thank you very much.
    And in my last few seconds, let me just say that I know 
that before the crisis of 2007 there was no one anywhere who 
spoke for the consumers. And that is the reason why the 
Consumer Financial Protection Bureau was created.
    And I know, Reverend, that it is difficult for many of your 
parishioners who folks are trying to bring these products up 
to, and they are not individuals who are reading the fine 
print, nor do they have anyone to advise them of where to go.
    So, with the Consumer Financial Protection Bureau, I would 
hope that--and maybe you can tell me that you have been--that 
you can refer or give individuals a name or a number to call 
within the Consumer Financial Protection Bureau so that they 
can say, ``Check out this proposal,'' so that they could have 
confidence that they are doing the right thing and someone is 
not trying to pull a con game or trying to do something that is 
not good for them.
    That is good for you, isn't it?
    Rev. Gable. Absolutely. The CFPB has been just a yeoman's 
group for protecting the most vulnerable. And it is 
unfathomable to me that this Wrong Choice bill would try to 
eliminate some of the great things. It brought back $11 
billion, that's ``billion, with a B.'' They have returned that 
amount of money to consumers and to other agencies. Why would 
you try to eliminate something like that?
    The proposed rule for payday lending that is coming about 
and the work that we have been doing, it is something--and I 
hear the tick, tick, tick. But the problem is so immense and 
the passion we have--I understand, Mr. Chairman. But this is 
something we have to fight for.
    Mr. Hollingsworth. The gentleman's time has expired. The 
Chair now recognizes the gentleman from Massachusetts, Mr. 
Capuano, for 5 minutes.
    Mr. Capuano. Thank you, Mr. Chairman. And I want to thank 
the panelists.
    There are so many bad things in this bill that the truth is 
there is part of me that doesn't even think we should bother 
talking about it, because there is no way this bill can be 
fixed enough to make it worth discussing. But here we are, and 
we are going to have to vote on it, I think next week? Next 
week. So I want to be really clear, for those of you who have 
activist communities, you best get them going, because the time 
is now and they need to know about it.
    But I want to focus on a couple of things. First of all, I 
want to follow up on what the ranking member was talking about. 
I am a community bank guy. All my money that I have, my 
personal money, my campaign money, my wife's money, it is all 
in community banks, a couple of credit unions, in community 
banks, because I am the guy who likes to know the person behind 
the glass and they want to know me. So when I say that, I have 
nothing against big banks, I think we need big banks to have an 
effective economy. Big business does, but I don't.
    All that being said, every time a community bank has come 
in to see me, they know I am their friend, and I tell them all 
the same thing, basically what the ranking member was saying: 
You do realize they are using you, they are hiding behind you.
    And I guess, for the sake of discussion, I would like to 
ask the panel, does anybody here object if, for the sake of 
discussion, again, I know we would have to come up with an 
actual number, but if I said for the sake of discussion any 
bank below $25 billion is exempt from every Dodd-Frank 
provision, and as far as I am concerned, exempt from the QM 
provisions if they hold a mortgage on their own books, anybody 
here, will your head explode if you hear something like that? 
Am I completely off?
    Ms. Edelman. Twenty-five billion sounds pretty high. The 
FDIC defines community banks as below $10 billion. So if you 
move that to $2 billion or $10 billion, I would get more 
comfortable there.
    Mr. Capuano. But everybody has a different definition. They 
have a definition. That $10 billion definition has been around 
for a long time and not adjusted for inflation.
    I think that is what I would like to do. Again, I am not 
sure of the number. I am happy to discuss the number. But that 
way we get the people that we never wanted to get off, they can 
go home, continue doing their banking, servicing the 
communities, and we can talk about the people that, I don't 
think they are actively trying to ruin the economy, but they 
did it, and they might do it again.
    I also want to focus for a minute on items that I think the 
average person might have an understanding of. And, again, most 
people don't understand capital ratios and living wills and all 
that kind of stuff. But I think there is at least one thing 
they understand, there are a couple, but I think there is one 
in particular, and that is shareholder activism.
    We have a provision in Dodd-Frank that says if you own the 
lesser of $2,000 worth of shares or 1 percent, whatever the 
lower amount is, you have a right to offer a proposal to the 
corporation that they have to accept. You may not win, but you 
have that right.
    This provision says--they changed that to a minimum of 1 
percent of the corporation and you have to hold it for 3 years. 
That takes everybody I know out of this and many sizeable 
investors, not just my mother. It takes out a lot of sizeable 
investors. I don't know many people who can invest, oh, let's 
say a million bucks. There are some, God bless them, but I 
don't know them. And even at that investment, you would have a 
hard time making that 1 percent threshold.
    The average S&P 500, the market capitalization is about $45 
billion of those companies, which means you would have to have 
$453 million invested in that company for 3 years before you 
could have a voice. And I have always thought that shareholders 
were the people who actually owned corporations. Did I make 
that mistake? Are they owned by the CEO or are they owned by 
stockholders? Did the law change?
    Does anybody think that that provision is a good choice?
    Ms. Klemmer. If I could respond, there is an SEC study that 
actually showed a correlation between improved firm value and 
shareholder activism, and I think it was at least by 60 basis 
points, which resulted in billions of dollars of added 
shareholder value through their activism.
    And also, typically when shares come with less rights, 
people expect--investors expect a higher return. And so if you 
start taking away rights, you could actually drive up the cost 
of capital for a firm. And so I think everyone loses with this. 
I don't see an upside.
    Mr. Capuano. I just get shocked, because I was always under 
the impression that the Republican tenets were all about, it is 
mine, you can't use it if it is mine. And here is a situation 
where it is mine, I own the stock, or I own the stock on behalf 
of a thousand other people, and I don't have a voice in the 
company. Just stunning to me.
    And I see my time has expired. But thank you very much for 
being here and lifting your voices in the right directions.
    Mr. Hollingsworth. The Chair now recognizes the gentlelady 
from Wisconsin, Ms. Moore, who is also the ranking member of 
our Monetary Policy and Trade Subcommittee.
    Ms. Moore. Thank you, Mr. Chairman. And thank you, Ranking 
Member Waters, for this hearing. And I want to add my voice to 
those who have thanked this very distinguished panel for very 
important testimony.
    Let me dive right in. My time is limited. And I don't know 
who would best answer this question. Ms. Klemmer, Ms. Liner, 
Mr. Bertsch, anybody else who feels that they are better to 
answer it, please jump in. But I was stunned with this 
legislation to see that it included a provision to repeal the 
fiduciary rule, which has jurisdiction under the Labor 
Committee, and I have worked very diligently on this best 
standard.
    I am wondering if any of you could just weigh in for a 
brief moment--oh, you want to, okay--and tell us what we 
expect.
    Ms. Lubin. Thank you. For years, and you heard I have been 
a securities regulator for 30 years, we have been trying to 
hold the brokerage community to the standards that they 
advertise to their clients, that when they say they are 
investing their money, they are going to have money for their 
kids, for their college education, for their weddings, for 
their retirement, that those brokers act in the client's best 
interest.
    Now, ideally in every context they would have a fiduciary 
obligation to their clients. For now, what the Department of 
Labor has done is take a big step towards getting us there and 
saying when a broker-dealer and their stockbrokers deal with a 
client and handle their retirement funds, they have a fiduciary 
obligation, they need to act in the client's best interest, 
they need to put their interest ahead, they can't just have a--
this is a suitability standard.
    And what this bill would do is take away the ability for 
the Department of Labor to adopt that rule until the SEC moves. 
And, unfortunately, the SEC has had the opportunity to move in 
this space for a long time and hasn't had the ability to do so.
    So in the school of, half a loaf is better than none, I 
think we could get started and make significant progress by 
allowing the Department of Labor rule to go forward.
    Ms. Moore. Thank you so much for that.
    Now, my colleague, Mrs. Maloney, asked about the 10 percent 
simple leverage, no risk weighting, but I also would like the 
panel to respond to things that have been included. Like at 
first, the first draft of this bill had the CAMELS rating by 
the FDIC included, and they took that out.
    Also, I guess many of you are familiar with--also, I want 
to ask you about the off-balance-sheet vehicles that would be 
allowed--would be restored under this bill. What impact do you 
think that would have, briefly? Whomever it was who talked 
about--and this is a big panel--solvency versus liquidity. That 
is you, Ms. Liner?
    Mr. Coffee. I certainly have talked about liquidity, and I 
think that is not a complete answer simply to focus on a 
leverage test. But the point that I think I was making earlier 
today and I think maybe you are getting near is that the only 
way you are ever going to be able to reorganize a financial 
institution or a bank in any kind of liquidation or bankruptcy 
is by providing some access to short-term liquidity.
    We do that today under orderly liquidation authority by 
turning to the FDIC's fund, which the industry has to 
replenish. We would have nothing similar, nothing else that 
would work in the short term if we simply moved to a Bankruptcy 
Act provision.
    Ms. Moore. But I specifically wanted to talk about the 
absence of the CAMELS ratings that are supervised by the FDIC. 
No one wants to respond to that? That is fine.
    My time is limited. So I think Reverend Gable and some of 
the others of you, I know that this is an expert panel, but we 
did--we have had other expert panels appear before us on this 
topic.
    One in particular is a Mr. Wallison, who is a senior fellow 
with the American Enterprise Institute, and he says that this 
crisis was not caused by credit default swaps, not poor 
underwriting, not inflated appraisals, not credit rating 
agencies, but because of maybe CRA, Freddie and Fannie, and 
predatory borrowers.
    So, I guess, Reverend Gable, I would like to hear a little 
bit your view of these predatory borrowers that really caused 
this crisis. And I just want to remind you, he is an expert.
    Rev. Gable. I have had the privilege to speak before that 
group before, after Hurricane Katrina, so I could imagine 
something like that coming from them.
    There is no such thing as a predatory borrower. It does not 
exist. These are individuals who are paying 400, 500, 600 
percent for a loan. How can they be predatory? They are being 
preyed upon. And so for someone to even have the concept as an 
expert, I don't know what their expertise is in, but it is not 
in being in debt. And having to live in poverty and pay 400 
percent interest, or 700 percent interest is just ridiculous.
    Ms. Moore. My time has expired. Thank you, Mr. Chairman, 
for your indulgence.
    Mr. Hollingsworth. The Chair now recognizes the gentlelady 
from Ohio, Mrs. Beatty, for 5 minutes.
    Mrs. Beatty. Thank you, Mr. Chairman, and Ranking Member 
Waters.
    And thank you so much to this distinguished panel who is 
here today, and, of course, to our very own Senator Warren, who 
started the presentations with her testimony this morning.
    Certainly, as you know, this bill that is before us today, 
named the Financial Create Hope and Opportunity for Investors, 
Consumers, and Entrepreneurs, or the CHOICE Act, I believe is 
certainly a misnomer, because it is, in fact, the wrong choice 
for investors, for consumers, for entrepreneurs, and for the 
American economy. I know that firsthand because prior to coming 
to Congress, I fell into that category as an investor, as an 
entrepreneur.
    And certainly it lacks hope and opportunity for the 
American people. But it is the wrong choice because it brings 
us back to the days that led us to Financial CHOICE. It is the 
wrong choice because it takes us back to a time when we were 
less investor protected. It is the wrong choice because it 
takes us back to a time when consumers could be taken advantage 
of without representation. I believe it is the wrong choice 
because it takes us back to a time that led the United States 
economy to the brink of collapse.
    All of that is at stake today. And I ask you to look at the 
left of this chamber.
    And I am going to say this today, Mr. Chairman, because I 
know this is your first year and you probably drew the short 
straw to sit in that chair.
    Mr. Hollingsworth. I consider it an honor.
    Mrs. Beatty. But with that, I am going to say thank you to 
you for taking it, whether it was an honor or not. But, Mr. 
Chairman, let me just say to you, being on this committee since 
I was a freshman, I have heard repeatedly from the Chair who 
traditionally sits in that seat that he would hope that we 
would work in a bipartisan fashion, that he would hope 
Democrats would participate more and come up with ideas to 
share, and that he welcomed that we invite people in to express 
their ideas and positions.
    So, Mr. Chairman, I want you to know that our ranking 
member has spent tireless hours looking into this bill, 
inviting experts, and asking us to be here today to share with 
our colleagues.
    Again, I ask everyone to look to this side of the aisle, 
and they are absent. So I want you to know, in meetings to come 
later, you are going to see a photo of that, as they always put 
those charts up there because they believe that the visual 
tells the story of our economy. Well, I think what tells a 
better story than any numbers, any facts that you can put up 
there is that we have 30-some empty seats over here when we are 
dealing with one of the most critical things that we could do 
to take a look at how we could provide choice for those 
individuals in all of our communities and our districts.
    Now, with that said, I do have a question. I am from the 
seventh-largest State, the great State of Ohio. And I have 
heard from members of the Ohio pension system, a system that I 
also belong to.
    So I am going to look to you, Mr. Bertsch, because I 
believe that is your area of expertise. And since I have had 
several of the pension funds that invest in our retirement of 
thousands of Ohioans express their concerns, can you tell me, 
since you represent the interest of the pension funds, like 
OPERS and Ohio Police and Fire Pension Fund, the School 
Employees Retirement System in Ohio, and State teachers, can 
you explain how some of the provisions of this bill hurt the 
ability of pension funds to effectively invest and manage the 
retirement of thousands of Ohioans?
    Mr. Bertsch. What we have been focused on in particular is 
their rights as shareholders, since they invest the bulk of 
their money in publicly traded companies, are severely cut back 
by this bill, and that is what we are most concerned about. 
Those rights that they have used historically to push for 
sustainable long-term value creation would be badly damaged by 
provisions of this bill. That is really the core thing I would 
want to address.
    Mrs. Beatty. So the short answer is, if it were a yes or 
no, the answer is clearly, yes--
    Mr. Bertsch. Yes.
    Mrs. Beatty. --it hurts thousands of individuals?
    Mr. Bertsch. Right. There are many other provisions, but 
that is what I would focus on.
    Mrs. Beatty. Thank you. I yield back, Mr. Chairman.
    Mr. Hollingsworth. The Chair now recognizes the gentleman 
from Michigan, Mr. Kildee.
    Mr. Kildee. Thank you, Mr. Chairman.
    And, again, thank you to the panel for participating in 
this hearing.
    A hundred and seven years ago, Santayana wrote that those 
who cannot remember the past are condemned to repeat it. A 
little more recently, Stephen Hawking said, ``We spend a great 
deal of time studying history, which, let's face it, is mostly 
the history of stupidity.''
    The reason I mention that is that I find it almost 
impossible to comprehend that those advocating for this 
legislation fail to study even the most recent history of this 
country.
    And as I said in my opening comments, I am now in my third 
term, but before I came here, I was working across the country, 
working with communities to try to breathe life back into 
abandoned properties. I founded an organization called the 
Center for Community Progress, still doing a lot of work in 
that field. And I saw, not just in my hometown of Flint, where 
chronic abandonment was the sort of predecessor to this episode 
of abandonment, but I saw strong communities, strong 
neighborhoods all across the country impacted in ways that, 
unfortunately, is not yet history.
    Sure, this was a decade ago, but the impact on our Nation 
and on individuals, on families, is still being felt. The loss 
of the sole source in some cases, but the primary source of 
lifetime savings, the equity in their home, vanished. In a lot 
of places around the country, we are not even close to 
recovering the value that was lost.
    And the consequence of that is significantly weakened 
communities, municipal governments that are struggling to try 
to provide basic public services, because the main source of 
revenue for those local governments has been the value of land 
and the ability to hold a community together and generate 
income, revenue, that can be put back into public services.
    This is a crisis that is still ongoing. So when we talk 
about it, we have to resist the temptation to say we want to 
just miss another rerun of that history and realize we are 
still in the long tail of that crisis.
    One area that I would like to get some comments on--and, 
Ms. Edelman, if you wouldn't mind beginning and then I will 
just see who else has something to say--I think we should be 
really clear about how this wrong choice act could put 
homeowners and potential new borrowers in a position of 
jeopardy.
    Because for most Americans the way they understood the 
crisis was not big institutional failures or shareholder 
losses; it is that they lost their house. Or, their neighbor 
lost their house and that abandoned shell that was sold to some 
online speculator has undermined the value of their asset that 
they continue to support and pay their mortgage on and pay 
their taxes for. It wasn't just people who lost their houses, 
it was all the people who surround those empty places that have 
suffered big losses.
    And I wonder, in the minute-and-a-half remaining, if you 
could start, Ms. Edelman, and just help us understand how this 
takes us back to a place where that could happen again?
    Ms. Edelman. Yes. Thanks for your statement. And just one 
thing to underscore is that there are still over 7 million 
borrowers who are--homeowners who are underwater on their 
mortgages, a thousand counties in the United States where 
negative equity rates are either stuck or actually getting 
worse. So we are not through this crisis in many parts of the 
country.
    In my mind, there are three or four main threats of the 
CHOICE Act to homeowners and homebuyers. First, mortgage 
servicing. Part of the reason that the foreclosure crisis was 
as bad as it was is that we did not have servicing standards in 
place to deal with the volume of delinquent borrowers that we 
had. So the CFPB has written new mortgage servicing rules, 
which should help going forward. This bill would expand an 
exemption that is currently just for very small banks for some 
larger banks from those rules.
    The second area that really concerns me is the provision of 
the bill, part of Title V, that would provide all sorts of 
freedom from any legal liability on any mortgage made even if 
it has risky features as long as the bank holds it on 
portfolio, and that is just not a good enough protection for 
homeowners. We learned that with Washington Mutual and 
Wachovia, which made plenty of lousy loans that they held on 
portfolio. It is not enough to protect consumers. And that, to 
me, is one of the provisions that truly keeps me up at night.
    And, finally, the one that I will mention with the 6 
seconds left, is provisions that would make it easier to steer 
manufactured housing borrowers into high cost loans. These are 
some of the most vulnerable of our consumers, and this bill 
would pose risk to them.
    Mr. Kildee. I appreciate that. And if I could just, on that 
issue of portfolio loans, I completely agree. We tried. There 
was a possibility we could have gotten something done. We tried 
to create some lanes to keep those products from going back to 
those exotic and dangerous exploding mortgages. But in an era 
of bipartisanship--which really doesn't exist--we couldn't get 
it done there too.
    So thank you very, very much.
    Mr. Hollingsworth. The Chair now recognizes the gentleman 
from Connecticut, Mr. Himes, for 5 minutes.
    Mr. Himes. Thank you, Mr. Chairman. And thank you to the 
panel for participating in this. I would really like to thank 
Ranking Member Waters for assembling this group and for doing 
this due diligence around a really important and threatening 
piece of legislation.
    I am one of three Members sitting in the room who was here 
when we wrote Dodd-Frank and passed it, and we did it over 
many, many months, with hearing after hearing after hearing, 
including input from everybody, including representatives of 
the industries, consumer groups, unions, you name it. It was a 
lot of hard work. And here we have a major revision, maybe even 
a repeal of much of the work that we did back then, based on 
one hearing.
    And here is the interesting thing. The theme that has been 
teased out today is that this repeal is being done in the 
service of the big banks and Wall Street, and I think there is 
something to that. But interestingly enough, when I look at the 
witnesses who actually participated in the hearing on April 
26th, oddly, there are no big banks, there is no representative 
of Wall Street. Instead, let me just read you who was here: the 
Cato Institute; The Heritage Foundation; the American 
Enterprise Institute; the R Street Institute; and the Mercatus 
Center. Each and every one of these groups is a Libertarian 
think tank.
    Now, there is a lot to be said about think tanks, but I 
think we would all agree that people who are in think tanks are 
not actually out there in the world regulating, doing things, 
participating in this industry. And without exception, these 
think tanks, which were the only witnesses in the only hearing 
around the CHOICE Act, are dedicated to the idea that 
government should shrink almost to the vanishing point. I am 
reminded of Grover Norquist, who said he wants to starve the 
government of money so that it can be strangled in the bathtub.
    Now, that, by the way, is a fair debate. This is why two 
parties exist. We should have a debate about how big government 
should or should not be. But in this area, this is a really 
dangerous instinct. We have 500 years-plus of history of what 
happens when you get leverage, fractional banking, when you get 
speculation in an unregulated environment, literally 500 years: 
the 17th century Dutch tulip bubble; the 18th century South 
Seas bubble; the 1929 crash, which devastated this country; the 
Japanese property bubble of the 1980s; the S&L crisis of the 
1980s, and of course the catastrophe that led to 2008 and all 
of the effects that you have been so good at reminding us of.
    All of those events happened because of this idea that you 
just do away with the regulated market, that when it was 
established in the 1930s created the stability that contributed 
to this country's middle-class growth. So I think it is a 
profoundly dangerous thing, and I want to just explore two 
areas.
    Number one is, it hasn't been remarked on today, but one of 
the things the CHOICE Act would do would be to repeal Section 
978 of Dodd-Frank, which provides a steady and predictable 
source of funding to the Government Accounting Standards Board 
(GASB). Now, we don't talk about it a lot, but these are the 
scorekeepers, these are the people who provide the financial 
statements that allow the municipal bond market to work. They 
are critical to the market, and of course this would, the 
CHOICE Act would repeal that provision.
    Mr. Chairman, I would like to seek unanimous consent just 
to insert into the record a letter to Chairman Hensarling from 
a bunch of Members who happen to be CPAs, as well as from the 
National Governors Association.
    Mr. Hollingsworth. Without objection, it is so ordered.
    Mr. Himes. Thank you.
    And then, Professor Coffee, first of all, I want to thank 
you for the work you have contributed to our efforts here to 
deal with insider trading and make the law clear there. But I 
want to give you in my remaining minute and 20 seconds or so an 
opportunity to talk about the CHOICE Act's replacement of the 
orderly liquidation authority. This is the authority that when 
we are back in 2008, no one knows who has authority to do what, 
says now we have a regime.
    I hear time and time again that bankruptcy suffices as a 
mechanism to deal with that kind of crisis. I don't happen to 
believe that is true. Can you just spend a minute telling us 
why bankruptcy, as normal firms think of it, does not work in 
the event of a financial crisis?
    Mr. Coffee. I want to be clear that I think there could be 
a robust bankruptcy provision that would be helpful and that 
would be a supplement, but it can't be a substitute. What we 
lose when we shut down orderly liquidation authority is 
basically four things.
    We lose the regulator making the decision to shut the bank 
down. Instead, it will be shut down when the bank totally runs 
out of money. Lehman was shut down the last day it could 
stagger to get any money paid.
    It will take much longer to shut down because the bank will 
wait until the last minute. So we will have bigger losses 
because there has been a longer period of insolvency.
    Three, we will lose any access to liquidity. Most bank 
failures of large banks are probably more caused by liquidity 
failures than by complete insolvency. That is the simplest way 
to solve the problem, and the FDIC has done that with small 
banks for decades successfully.
    Then, we lose accountability. Accountability is there under 
the liquidation authority, not there in the Bankruptcy Code. 
You can't hold these people liable.
    My time is up.
    Mr. Himes. Thank you, Professor.
    I yield back my time.
    Mr. Hollingsworth. The gentleman yields back.
    The Chair now recognizes the gentleman from California, Mr. 
Vargas, for 5 minutes.
    Mr. Vargas. Thank you very much, Mr. Chairman. And thank 
you for being here. I do appreciate it very much. And I also 
want to thank the ranking member for giving us this opportunity 
to question these witnesses.
    And, of course, I thank the panel here today for being here 
and allowing us to hear from you and to ask you questions.
    Now, I have to say that I think that the Dodd-Frank law has 
worked pretty well. I think that it has performed generally 
well. It is not perfect.
    But the thing that really touched me today was something 
you said, Pastor Gable, which is that somehow we get the notion 
that poor people should pay more, that they should pay more for 
a car, that they should pay more for a home, frankly, they 
should pay more for food even, it is more expensive in the 
community, and I think that is wrong.
    I do think we should love them more, I think that we should 
because they are the least among us. And I do believe in 
Canonized scripture. I know that my friend Mr. Sherman said a 
word about that, and I think more in line with Dodd-Frank. But 
I do believe in Canonized scripture, so I do think that we 
should love them more and I think we are obliged to do that and 
we should.
    But the one question I did want to ask about, and it is a 
little bit touchy, but I think it is important, which is, I do 
hear from some of my constituents these days that it is hard to 
get a loan, and I do hear that. I heard a little bit different 
today that the loans are being originated, funded at a higher 
level. But I do hear still a significant amount, less than a 
few years ago, to be frank too, but I do hear people come and 
they say, ``Look, I have a study job, I can prove that, I have 
the downpayment. Look, my credit score is high. I can show 
where I got my downpayment from. I am not hiding anything. I 
still can't get that loan.''
    Could you talk a little bit about that? And it seems, Ms. 
Edelman, you are chomping at the bit to get at it, so why don't 
you go ahead.
    Ms. Edelman. Yes. No, I am glad that you raised the 
question, and I think that this is worth discussing, because--
    Mr. Vargas. That is why I mentioned it.
    Ms. Edelman. Yes. In the housing market right now, credit 
is tight with respect to mortgages, but it has very, very 
little to do with Dodd-Frank. Last week, the Urban League 
hosted an event with civil rights groups, consumer groups, and 
two mortgage banking organizations, and all of them agreed on 
four major problems that are keeping access to credit too tight 
for most Americans.
    Number one, GSE pricing. Right now there is a 350-basis-
point difference between someone who applies for a loan at the 
higher end of the spectrum versus the lower end of the 
spectrum. If you have below a 700 credit score, you are not 
really going to get a loan that is bought by Fannie or Freddie. 
That is number one.
    Number two is an issue around FHA and the funding that it 
has available to really finish what is called the taxonomy to 
help mortgage lenders understand sort of the rules of the road. 
There are some enforcement and regulatory issues on the FHA 
side that people are working on already on a bipartisan basis.
    Number three is around credit score models. Right now your 
credit score is one of the major determinants of whether you 
can get an access to a loan. There are a lot of problems, and 
they are not all that representative of your credit risk.
    Finally, the final issue that they all agreed on was that 
we need more resources to help get borrowers, people who want 
to buy homes ready for home ownership. That means help with 
downpayments. That means help repairing credit, because we just 
came out of a major crisis and recession, and it takes a while 
to repair the credit.
    So there are a host of issues that are keeping our mortgage 
market from being accessible, but Dodd-Frank does not appear to 
be one of them.
    Rev. Gable. Congressman, in the area--and you are correct--
of small dollar loans, there is that need. Now, we have 
attempted to close that vacuum with churches and our 
nonprofits. In concert with credit unions, they are making 
small dollar loans. Catholic Charities, National Baptist is 
establishing a national Federal credit union model, that we 
will hope to do that also, working with another Federal credit 
union to do small dollars.
    It certainly has been our efforts through Faith and Credit 
Roundtable and Faith for Just Lending to talk with community 
banks to get back in the business of these smaller dollar 
loans.
    Let me just say this: Those who are trying to get small 
dollar loans, it would be okay if the payday lenders who were 
doing it and the borrower was getting the same rate that the 
military gets, 36 percent. I believe that what is good for the 
military ought to be good for America.
    Mr. Vargas. My time has expired, unfortunately, but I was 
going to ask--thank you. Thank you, Mr. Chairman.
    Mr. Hollingsworth. The Chair now recognizes the gentleman 
from Texas, Mr. Green, the ranking member of our Oversight and 
Investigations Subcommittee.
    Mr. Green. Thank you, Mr. Chairman. I thank the ranking 
member as well. I especially thank her, because this panel is 
really what America looks like. And this is a rare occasion for 
us here in the Financial Services Committee.
    So I thank all of you for being here today.
    When we talk about homes being lost, we sometimes don't 
understand the pain associated with the loss. Suffering can 
teach you that which you can learn no other way. I saw the 
suffering. I saw the people who were evicted from their homes. 
But they were evicted also from their dreams. Their children 
were evicted from the schools that they were attending.
    It was about more than a house. Many of these people had 
just purchased the home of their dreams, and many of them 
purchased that home based upon representations that were made 
to them by the person who helped them with the loan, that 
caused them to buy more than they could afford, when they 
qualified for less. They qualified for 5 percent, and they got 
homes for 8 percent, 9 percent, even higher.
    And the person who sold them the loan for 9 percent got a 
kickback. They have a pleasant way of saying it, called the 
yield spread premium, but it was a kickback. It was a bait-and-
switch scheme that allowed brokers to qualify people for 5 
percent, smile in their faces and shake their hands, and say, 
``Good news, you have a loan for 10 percent,'' and never tell 
them.
    In a righteous world, that would have been a crime. And the 
truth is this: We are about to go back to a circumstance that 
will allow this to happen again, and it won't be a crime. 
People will be taken advantage of.
    I remember the circumstances were so bad such that banks 
would not lend to each other. They declined to accept the 
credit from each other. And at that time, there was something 
called proprietary trading, which means that the banks could 
take the deposits from hardworking Americans and move them over 
to the investment side and go out on Wall Street and gamble. 
And if you win, great, you get to keep the profits. Who is the 
``you'' in this statement? The people who were making the 
investments, not the people who had the deposits in the bank.
    I don't believe that most Americans would think that it is 
appropriate to take the money that they deposit in a bank, 
allow that to go over to the investment bankers and let them 
gamble on Wall Street, and if they win, they get to keep the 
profits, and if they lose--by the way, those funds are FDIC-
insured. And they are FDIC-insured because at the time this was 
done, in 1933, I believe, or thereabouts, the deal that they 
cut was that if we allow the FDIC to insure these banks, you 
will have a firewall called Glass-Steagall, and Glass-Steagall 
will prevent the deposits from being used to gamble with on 
Wall Street.
    That was the deal that was cut. The deal was broken, and we 
are about to break it again, because we are going to rid 
ourselves of the Volcker Rule with this Bad Choice Act, which 
is the wrong choice.
    So I saw the pain and the suffering. And my hope is that by 
some miracle the Senate will stop what the House is about to 
do, because the Senate is a bit more deliberative and they have 
different rules.
    But as you can see, the folks who are about to do this are 
not really concerned, because they are not here today. God 
bless them, I love them all, but I have to tell the truth. This 
is almost an insult to what we are trying to accomplish. And I 
hope that the camera is constantly panning the other side so 
that people can see the lack of interest in what we are trying 
to accomplish.
    I don't have a question. I thank you, Mr. Chairman. And I 
yield back my time.
    Mr. Hollingsworth. The gentleman yields back.
    The Chair now recognizes the gentleman from Nevada, Mr. 
Kihuen, for 5 minutes.
    Mr. Kihuen. Thank you, Mr. Chairman.
    And thank you to the ranking member as well for bringing us 
all together.
    And thank you all for your presentations and being here to 
speak truth to power. It is very disappointing, looking at the 
other side, that only one of my colleagues from the other side 
of the aisle chose to be here to listen to your testimony.
    I wish that they would visit my district. As you all know, 
Nevada was one of the hardest hit States in the country. Las 
Vegas was even harder hit. And my congressional district had 
the highest foreclosure rate in the country. And as we speak, 
people are still losing their homes.
    And it is disappointing that I am coming here to Congress 
as a freshman to work in a bipartisan manner, to reach across 
the aisle to come up with solutions to keep my constituents in 
their homes, that we are going back to some of the same 
regulations that put them in a financial crisis to begin with. 
And this bill is going to do just that.
    Look, I am more than happy to sit down with the other side 
and come up with solutions, but when we can't even get them at 
the table, it is very disappointing. How do you go back to your 
constituents and explain to them that they are losing their 
home, yet they are not doing anything to try to help keep them 
in their home.
    So it is disappointing, but nevertheless, I appreciate each 
and every one of you for being here, for helping my 
constituents stay in their homes and for continuing to fight on 
behalf of the hardworking people who are still trying to make 
ends meet here in our country.
    I do have a question. Ms. Edelman, what kind of important 
housing reforms contained in Dodd-Frank would this bill, the 
wrong choice act, undermine?
    Ms. Edelman. The bill would undermine many of the 
protections put in place to prevent predatory mortgage lending. 
So after the crisis and after there were millions of predatory 
loans made, Congress put commonsense laws in place like, for 
instance, a lender needs to evaluate a borrower's ability to 
repay a loan before making it. They also put in place 
incentives to try and get lenders to make loans without high 
fees and risky features.
    So overall they encourage a more affordable lending 
environment, and the wrong choice act basically would gut, 
would undermine some of those new rules, in particular the 
qualified mortgage rule. As I mentioned in response to an 
earlier question, it would allow banks to get sort of this--it 
would get legal liability protection on any loan even if it has 
risky features as long as they hold it on portfolio, which we 
HAVE found time and time again is not a reliable strategy. It 
makes manufactured housing consumers more vulnerable.
    In addition to all of the large systemic issues that my 
colleagues have spoken to, it turns it back to a day where 
there was less trust between a buyer and a lender when you go 
into a bank. The Dodd-Frank Act has helped to reestablish some 
of that trust, and this proposal would really turn the clock 
back to the day where you don't want to send your mother or 
your kid or your grandmother in to get a mortgage loan.
    Mr. Kihuen. So is it fair to say that if this bill passes, 
we could potentially be facing another financial crisis in this 
country, and particularly a housing crisis in Nevada in my 
congressional district?
    Ms. Edelman. I think that is right. I think that most of my 
colleagues would agree that this bill, that this proposal would 
put the United States financial system in a precarious 
situation, similar to where it was right before the crisis, and 
it would really undermine the stability of our housing market. 
And home ownership, as you know, is really the path to wealth 
for most families, it is where most of them have their family 
wealth, and we don't want to gamble with that, and this would 
gamble with that.
    Mr. Kihuen. When you talk about the American Dream, it 
entails owning a home, a car, having a good job, getting your 
kids a good education. When you spend all your savings in 
purchasing that home and because of the bad laws that we are 
passing here in Congress you end up losing your home, and then 
we are here in Congress and we are not even coming up with 
solutions to try to keep them in their homes, that is 
incomprehensible to me.
    Ms. Edelman. That is right. And one thing to build on that 
is that in the crisis many people who got predatory loans were 
people who had owned their homes for decades, they had built 
equity in their homes, and they were tricked into refinancing 
into high interest rate loans that stripped them of their 
wealth. So it wasn't just people chasing after the American 
Dream, it was people who had achieved the American Dream and 
were in a position to pass that equity down to their kids, and 
they got derailed.
    Mr. Kihuen. Thank you.
    Mr. Chopra. If I could just add that you see closely the 
physical look of boarded-up homes, of abandoned property due to 
foreclosure, but I think sometimes we forget the invisible 
wounds that are everywhere. When your child has to change a 
school and sit alone at the lunch table. When your kids are 
having a tough time sleeping because they see you worrying 
about your finances. When you have to lose the neighbor who is 
helping take care of your mom later. These wounds are scars, 
and they don't go away easily, and we can't forget them.
    Mr. Hollingsworth. The gentleman's time has expired.
    The Chair now recognizes the gentleman from Florida, Mr. 
Crist, for 5 minutes.
    Mr. Crist. Thank you very much, Mr. Chairman.
    And I want to especially thank the ranking member. She made 
this hearing possible. So God bless you and thank you very 
much.
    Democrats are united under her leadership to protect all 
Americans from the wrong choice act and having to relive one of 
the worst financial crises in our Nation's history.
    I also want to thank the witnesses for agreeing to testify 
on such short notice. Thank you for your kindness.
    As Governor of Florida, which, as you know, was ground zero 
for the foreclosure crisis, I witnessed firsthand how the 
policies that led up to the crisis hurt families, hurt my 
neighbors, hurt my friends in my hometown of St. Petersburg. 
Imagine for a moment playing by the rules as you know them, 
achieving a certain level of success, eventually you buy a 
home, you achieved the American Dream, only to have it ripped 
out from under you. You lose everything. No appeals. No second 
chances. Nothing. The financial crisis took $17 trillion of 
wealth away from the American people, from families, from 
children, from grandparents. I never want to see that happen 
again ever.
    So I have a question. Ms. Liner, knowing all that we know 
about the crisis and what caused it, if the Dodd-Frank Wall 
Street Reform Act had been the law of the land in 2001, would 
it have prevented the crisis, in your view?
    Ms. Liner. Thank you for your question.
    What is really important about the Dodd-Frank Act is that 
it is proactive, it looks toward the future, about how can we 
make our banking system stronger, because we can reduce the 
likelihood of a crisis, and if we can reduce the amount of 
losses, whether they are financial or social losses, as we have 
spoken to both today, then we can prolong economic growth.
    I hesitate to speculate if Dodd-Frank could have stopped 
the crisis, because it is hard to say, but Dodd-Frank would 
have lessened--
    Mr. Crist. Let me rephrase, then. Is it less likely that we 
would have had the crisis if Dodd-Frank were already in effect? 
Less likely.
    Ms. Liner. I feel that we could say we could have reduced 
the probability that a crisis would have occurred and we could 
have reduced the losses that would have occurred in the crisis.
    Mr. Crist. If it had already been the law.
    Ms. Liner. If it had already been the law.
    Mr. Crist. Thank you.
    Professor Coffee, same question. Would Dodd-Frank have 
prevented the crisis?
    Mr. Coffee. I can't tell you it would have.
    Mr. Crist. I can't hear you. Sorry.
    Mr. Coffee. It would have armed regulators so they could 
have acted, if they had the courage and the foresight to do so. 
I think you would have had to take action by the beginning of 
2008, well before Bear Stearns failed, and it could have been 
stopped, but I don't know that it would have been. It depends 
on human beings.
    Mr. Crist. Right.
    Mr. Randhava. If I could add to that. It would have 
provided a more streamlined place when it came to other 
concerns that groups like ours had about mortgage products that 
were out there with so many different regulators. Much to her 
credit, former FDIC Chairwoman Sheila Bair really did a good 
job of hearing us out, but when there were multiple regulators 
dealing with consumer protection, there was not a whole lot she 
could do single-handedly.
    Mr. Crist. All right. Thank you.
    Ms. Liner, we are here to discuss the wrong choice act. 
Isn't that right?
    Ms. Liner. That is correct, Congressman.
    Mr. Crist. Thank you. Okay, then, knowing all we know about 
the bill and the financial crisis, if the wrong choice act were 
the law of the land in 2001, would it have prevented a crisis?
    Ms. Liner. On that question, I feel much more confident in 
my response, in that we would have really struggled to contain 
the losses of the financial crisis. It could have been much 
worse.
    Mr. Crist. Okay. Thank you.
    Professor Coffee, would the wrong choice act have prevented 
the crisis, in your view?
    Mr. Coffee. I don't see any way in which the wrong choice 
act would have prevented a crisis. It would have left us about 
as exposed as we were at that time.
    Mr. Crist. Thank you both. That is all I need to know. The 
wrong choice act ought to be defeated, and it is going to 
affect real people in a real way. And you alluded to it, sir, 
in some of your comments, about how this will affect children, 
their ability to be able to be in a good learning environment, 
so many things that are many times unseen rather than the more 
obvious foreclosure on your home that is seen. It has an 
incredible effect. So God help us.
    Mr. Hollingsworth. Does the gentleman yield back?
    Mr. Crist. Yes. I'm sorry. Forgive me.
    Mr. Hollingsworth. The gentleman yields back.
    The Chair now recognizes the gentleman from Washington, Mr. 
Heck, for 5 minutes.
    Mr. Heck. Thank you, Mr. Chairman.
    Professor Coffee, I am going to read you a statement and I 
am going to ask you to reconcile it with the wrong choice act, 
if you can. The statement is as follows: ``If you are a bank 
and you want to operate like some nonbank entity, like a hedge 
fund, then don't be a bank. Don't let banks use their 
customers' money to do anything other than traditional 
banking.''
    Can you reconcile that statement with the contents of the 
wrong choice act?
    Mr. Coffee. No, I don't think I can.
    Mr. Heck. Do you think the wrong choice act is highly 
violative of this statement, both in substance and in spirit?
    Mr. Coffee. You have just created a very prophylactic rule: 
If you are a bank, don't take a lot of risk. This statute would 
eliminate most of the risk-restricting provisions like the 
Volcker Rule, so they are contradictory.
    Mr. Heck. So if Speaker Ryan, who uttered this statement at 
a townhall in front of his constituents, votes in favor of the 
wrong choice act, he will in fact be violating what he said he 
thought ought to be the policy of this land?
    Mr. Coffee. I certainly see a tension.
    Mr. Heck. All right.
    This next question--I don't know to whom I should address 
it, so I will ask anyone who has a good answer--relates to an 
abiding concern of mine.
    I have the great privilege to represent Joint Base Lewis-
McChord, 55,000 people a day report to work there, most of them 
men and women in uniform. We are acutely aware of being 
vigilant on their behalf during times of armed conflict, but as 
our two theaters of armed conflict have declined in size and 
scope, I tend to think and worry that their welfare recedes 
from our uppermost thoughts. And indeed, as international 
tensions has risen, it is a good reminder that we cannot allow 
that to be the case.
    One of the features of the Consumer Financial Protection 
Bureau is the Office of Servicemember Affairs. And I would like 
to ask anyone who can answer what you think the implication 
might be to the capacity of the CFPB to educate and protect the 
men and women who wear the uniform in furtherance of the 
security of this Nation and its ability, the agency's ability 
to protect their interest.
    Mr. Chopra, you look like you are ready to get in, as a 
former employee of that agency.
    Mr. Chopra. There is just no question that service members, 
veterans, and their families have been a target by so many bad 
actors in the marketplace. And under the leadership of Holly 
Petraeus and now Paul Cantwell you have seen an aggressive 
change about how military families are treated. We saw major 
enforcement actions across all the regulators targeting illegal 
foreclosures, illegal car repossessions, illegal debt 
collection, and illegal student lending.
    And according to a report by the Department of Defense, a 
major reason for servicemembers leaving service is because of 
financial issues. Many lose their security clearances because 
of problems with debt. And the DOD even cites data suggesting 
that financial stress is a cost not only to increased costs due 
to retraining of new recruits, but it has real national 
security implications as well for morale and the strength of 
the force.
    We need to make sure that the Military Lending Act, the 
Servicemember Civil Relief Act, and the CFPB with its dedicated 
military office, which has been lauded by the senior enlisted 
leadership of the military, stays intact and is strengthened.
    Mr. Heck. So it would be fair and accurate for me to 
surmise from what you just said that you think both our 
Nation's security and the best interests of the men and women 
who wear the uniform on our behalf would be diminished by the 
passage of the wrong choice act?
    Mr. Chopra. Absolutely. Senior enlisted leaders have made 
clear that they need the CFPB on their side, and this bill 
would essentially destroy that agency.
    Mr. Heck. In the brief time I have left, I want to quote 
one of my favorite American philosophers, albeit he was 
Spanish-born, and that is, of course, George Santayana, who 
said, those who cannot remember the past are condemned to 
repeat it. Those who cannot remember the past are condemned to 
repeat it. And if we do not learn the lessons of the Great 
Recession and its causes, then we will be condemned to repeat 
them, and passage of the wrong choice act will only hasten the 
repeat of those very, very painful experiences.
    Thank you one and all for giving of your most precious 
commodity, your time, and being here with us today.
    And with that I yield back, Mr. Chairman.
    Mr. Hollingsworth. For what purpose does the gentlelady 
from California--
    Ms. Waters. I request unanimous consent to enter into the 
record a list of 138 groups that are opposing all or part of 
the CHOICE Act. These are the groups and I would like to enter 
them into the record. Thank you.
    Mr. Hollingsworth. Without objection, it is so ordered.
    The Chair now recognizes himself for 5 minutes to ask 
questions.
    Ms. Liner, tell me a little bit about why regulators failed 
to recognize the crisis in advance or the potential for a 
crisis in advance?
    Ms. Liner. Prior to the crisis, we did not have the Office 
of Financial Research, which was established by Dodd-Frank.
    Mr. Hollingsworth. We certainly had many other regulators, 
though.
    Ms. Liner. We did, but we didn't have a way for them to 
communicate with each other, because the FSOC wasn't in place.
    Mr. Hollingsworth. So they knew about it individually and 
failed to communicate with each other about it?
    Ms. Liner. The records show, the historical records show 
that all the regulators were looking at different parts of the 
financial system, and there was nothing in place for them to 
communicate.
    Mr. Hollingsworth. So it begs the question, if they didn't 
know about it individually and then, I guess, as you say, 
couldn't share the information about it, why do we think more 
regulators will uncover these things if the regulators 
beforehand couldn't uncover them before the crisis?
    Ms. Liner. Just to clarify, I think that the regulators in 
their spheres of the financial sector were aware of some of the 
issues that were bubbling up. It was the interconnectedness 
that really--
    Mr. Hollingsworth. So it is not a matter that you are in 
favor of the more regulation that Dodd-Frank has put it, you 
just want to make sure that those regulators are better 
connected?
    Ms. Liner. That is one aspect. We support smart regulation, 
and we think that Dodd-Frank is a modern smart regulation for 
the financial sector.
    Mr. Hollingsworth. Tell me a little about, what do you 
think the total cost to the FDIC of a bank's trading book 
losses were in reference to the Volcker Rule. Because we hear a 
lot about from committee members and others that say that banks 
used deposits to then make bets, and when, in fact, it was the 
loan books that caused the significant amount of losses in each 
institution and it was not their trading books, in fact, at 
all. Can you specify how much the FDIC lost because of trading 
books of various institutions?
    Ms. Liner. I don't have that information in front of me, 
but I would be happy to look it up and submit it for the 
record.
    Mr. Hollingsworth. Please do. I think when you look it up, 
you will find that it was zero. In fact, zero FDIC dollars were 
mobilized because of the losses in trading books, but instead 
because of the immense losses in loan books. And I don't think 
we are asking banks to get out of the loan business because 
they made mistakes in their loan books, are we?
    Ms. Liner. We, in fact, are hoping that banks continue to 
loan to consumers.
    Mr. Hollingsworth. Right.
    Ms. Edelman, earlier today, you talked about the inability 
of certain people with lower credit scores or who don't meet 
certain requirements to get loans. Could you expand upon that a 
little bit?
    Ms. Edelman. Sure. Right now the average credit score for a 
loan that is purchased by Fannie Mae or Freddie Mac is about 
740, which is significantly lower than the national average, 
which is under 700.
    Mr. Hollingsworth. Right. Can you help me understand how 
the Dodd-Frank bill addressed that concern and enabled and 
empowered more individuals of moderate means to get loans?
    Ms. Edelman. The GSE's have made a decision to price credit 
in this way. It doesn't have anything to do with Dodd-Frank.
    Mr. Hollingsworth. Got it. So when I think about getting 
credit out to small businesses and I think about getting credit 
out to individuals of moderate means, right, I would want to 
ensure that there was a lower spread between those that have 
higher credit scores and lower credit scores, right?
    Ms. Edelman. Correct.
    Mr. Hollingsworth. I think that is what you were pushing 
for before. And how do we do that?
    Ms. Edelman. I think that that is largely within the 
authority of the Federal Housing Finance Agency and the GSEs 
themselves, so I think that is a conversation to have with 
them. They have set the price--
    Mr. Hollingsworth. So the answer is more government price 
controls, not getting more capital into the market so that we 
can get individuals loans that they need in order to service 
their businesses?
    Ms. Edelman. Currently, the only reason we have private 
capital and that we have liquidity in the mortgage market is 
because of Fannie Mae and Freddie Mac.
    Mr. Hollingsworth. Yes, a problem that Republicans on this 
committee are definitely trying to solve to ensure that we get 
private capital back into the markets.
    I guess my last question is--I am certainly not a believer 
in perfect legislation, and someone else mentioned that as 
well--what are the issues with Dodd-Frank? What would you 
change about Dodd-Frank today?
    Ms. Edelman. Is that question directed to me or to anyone?
    Mr. Hollingsworth. Well, actually to the entire panel.
    Ms. Edelman. Okay.
    Mr. Hollingsworth. I guess the silence means everybody 
thinks Dodd-Frank is absolutely perfect?
    Ms. Edelman. I will kick it off. I think that there is an 
ongoing process with regulators to make sure that regulations 
are tailored in a way that works to banks. In the mortgage 
space, most of the things that need to be done, as I mentioned 
before--
    Mr. Hollingsworth. So we are counting on regulators to cut 
their own power and their own reach and the bureaucracy to 
shrink itself instead of Congress to take upon the 
responsibility to trim back the bureaucracy--
    Ms. Edelman. No. We are counting on them to do their job 
and to make sure that they are responding to what is happening 
on the ground.
    Mr. Hollingsworth. You mean the job that they did right 
before the crisis in ensuring that they found the crisis and 
they told everybody about it?
    Ms. Edelman. The CFPB wasn't around for the crisis.
    Mr. Hollingsworth. So it is the new regulator that we need 
and these new individuals are going to do it?
    Those are all the questions I have. I yield back.
    Ms. Jackson. I was going to say, I would just add that it 
is about preventing a regulatory patchwork, one of which we 
have seen before, and the pitfalls of having such. I think the 
CFPB in its current form, as independent as it is currently in 
its current being, allows for it to have the enforcement that 
it needs, the leverage that it needs to take on the actors 
that--
    Mr. Hollingsworth. We can definitely agree that the 
regulatory patchwork has been a serious problem for the 
financial sector and certainly held back the amount of economic 
growth that we can have. I have heard time and time again from 
witnesses that because loan amounts are up or because economic 
growth is not zero, then suddenly that is a testament to Dodd-
Frank adding economic growth, when in fact the counterfactual 
isn't zero economic growth, but should be the economic growth 
we thought would occur, especially coming out of such a deep 
recession.
    I thank all the witnesses for their time.
    The Chair notes that some Members may have additional 
questions for this panel, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.
    This hearing is hereby adjourned.
    [Whereupon, at 12:44 p.m., the hearing was adjourned.]

                            A P P E N D I X



                             April 28, 2017
                             
                             
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