[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
IMPROVING TRANSPARENCY AND
ACCOUNTABILITY AT THE BUREAU OF
CONSUMER FINANCIAL PROTECTION
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON FINANCIAL INSTITUTIONS
AND CONSUMER CREDIT
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTEENTH CONGRESS
SECOND SESSION
__________
JUNE 6, 2018
__________
Printed for the use of the Committee on Financial Services
Serial No. 115-98
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
__________
U.S GOVERNMENT PUBLISHING OFFICE
31-474 PDF WASHINGTON : 2018
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
Shannon McGahn, Staff Director
Subcommittee on Financial Institutions and Consumer Credit
BLAINE LUETKEMEYER, Missouri, Chairman
KEITH J. ROTHFUS, Pennsylvania, WM. LACY CLAY, Missouri, Ranking
Vice Chairman Member
EDWARD R. ROYCE, California CAROLYN B. MALONEY, New York
FRANK D. LUCAS, Oklahoma GREGORY W. MEEKS, New York
BILL POSEY, Florida DAVID SCOTT, Georgia
DENNIS A. ROSS, Florida NYDIA M. VELAZQUEZ, New York
ROBERT PITTENGER, North Carolina AL GREEN, Texas
ANDY BARR, Kentucky KEITH ELLISON, Minnesota
SCOTT TIPTON, Colorado MICHAEL E. CAPUANO, Massachusetts
ROGER WILLIAMS, Texas DENNY HECK, Washington
MIA LOVE, Utah GWEN MOORE, Wisconsin
DAVID A. TROTT, Michigan CHARLIE CRIST, Florida
BARRY LOUDERMILK, Georgia
DAVID KUSTOFF, Tennessee
CLAUDIA TENNEY, New York
C O N T E N T S
----------
Page
Hearing held on:
June 6, 2018................................................. 1
Appendix:
June 6, 2018................................................. 43
WITNESSES
Wednesday, June 6, 2018
Day, Steven G., President, American Land Title Association....... 4
Hunt, Richard, President and Chief Executive Officer, Consumer
Bankers Association............................................ 6
Prochaska, Kate (Larson), Director, Center for Capital Markets
Competitiveness, U.S. Chamber of Commerce...................... 7
Shelton, Hilary O., Director, NAACP Washington Bureau, Senior
Vice President, Advocacy and Policy, National Association for
the Advancement of Colored People.............................. 9
Whitaker, Elmer K., Chief Executive Officer, Whitaker Bank
Corporation of Kentucky........................................ 11
APPENDIX
Prepared statements:
Day, Steven G................................................ 44
Hunt, Richard................................................ 61
Prochaska, Kate (Larson)..................................... 73
Shelton, Hilary O............................................ 87
Whitaker, Elmer K............................................ 97
Additional Material Submitted for the Record
Luetkemeyer, Hon. Blaine:
Written statement from the Association of Credit and
Collection Professionals (ACA)............................. 103
Written statement from the Credit Union National Association
(CUNA)..................................................... 130
IMPROVING TRANSPARENCY AND
ACCOUNTABILITY AT THE BUREAU OF
CONSUMER FINANCIAL PROTECTION
----------
Wednesday, June 6, 2018
U.S. House of Representatives,
Subcommittee on Financial Institutions
and Consumer Credit,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 2:04 p.m., in
room 2128, Rayburn House Office Building, Hon. Blaine
Luetkemeyer [chairman of the subcommittee] presiding.
Present: Representatives Luetkemeyer, Rothfus, Lucas,
Posey, Ross, Pittenger, Barr, Tipton, Williams, Love, Trott,
Loudermilk, Kustoff, Tenney, Hensarling, Clay, Maloney, Meeks,
Scott, Velazquez, Green, Heck, and Crist.
Also present: Representative Duffy.
Chairman Luetkemeyer. The committee will come to order.
Without objection, the chair is authorized to declare a recess
of the committee at any time.
I apologize for the coming and going here of everybody, but
we had votes on the floor, so there will be some more members
coming and going. And obviously, we have got one witness that
is still looking for the Rayburn building, apparently, so we
will see how that works out. But we do thank our witnesses for
being here today, and I think we have got a great panel of
folks, and I think we are going to have a great hearing.
So this hearing is entitled, ``Improving Transparency and
Accountability at the Bureau of Consumer Financial
Protection.'' Before I begin, I would like to thank the
witnesses for appearing today, and we appreciate your
participation and look forward to the discussion.
I now recognize myself for 5 minutes for the purpose of
delivering an opening statement.
As prescribed in Dodd-Frank, the mission of the Bureau of
Consumer Financial Protection is to regulate the offering and
provision of consumer financial products or services under the
Federal consumer protection laws, and to educate and empower
consumers to make better informed financial decisions.
Unfortunately, the Bureau has failed to carry out its mission.
The Bureau of Consumer Financial Protection hasn't
regulated based just on Federal consumer protection laws. Under
Director Cordray, the agency took upon itself to essentially
write law through guidance and regulate through enforcement.
Further, the Bureau hasn't worked to educate and empower
consumers to make better informed financial decisions. This
hasn't been a partnership between the Government and the
people. Rather, the bureaucrats have worked diligently to
eliminate options for Americans verily thinking that they are
better equipped than consumers to make financial decisions.
Thankfully, Acting Director Mulvaney is striving to foster
an environment that promotes transparency, legitimacy, and
greater consumer choice. He also would like to have us call the
Bureau by its correct name, which is Bureau of Consumer
Financial Protection, instead of Consumer Financial Protection
Bureau (CFPB).
The Bureau of Consumer Financial Protection hasn't
regulated--excuse me. There we go. We will get 'er done.
Mr. Mulvaney has committed to a more temperate and data-
driven process. He is outlining a vision that for the first
time conforms to Congress' mandate. The acting director is to
be commended for the progress he has made thus far, but we must
recognize that not all reforms can be done administratively.
In his latest semiannual report to the President and
Congress, Mr. Mulvaney sent a clear message to us: Congress
must act in an effort to establish meaningful accountability.
Specifically, Acting Director Mulvaney first pointed to the
need to fund the Bureau through the congressional
appropriations process. Next, subject the Director to the full
power of the President's executive authorities. Further,
require legislative approval of major Bureau rules. And
finally, establish an independent inspector general to oversee
the Bureau, its leadership, and its staff.
Members of this committee have promoted these very ideas
since the inception of the Bureau. I am very pleased to see
that the House Appropriations Subcommittee on Financial
Services and General Government Chairman Tom Graves included
all these provisions in his Fiscal Year 2019 Financial Services
bill.
Today, our distinguished panel will discuss their views on
these and other ideas for reform, many of which were also
included in title VII in Chairman Hensarling's CHOICE Act. We
look forward to a productive conversation of initiative that
will increase transparency and ensure that the Bureau focuses
more intently on its actual mission, rather than abusing its
authorities to promote a political agenda and in actuality does
little to protect consumers. The American people deserve a
Bureau of Consumer Financial Protection that enforces law
rather than creates it, and that gives power and choice back to
the consumers.
We thank our witnesses for appearing and look forward to
your testimony.
With that, the Chair recognizes the gentleman from
Missouri, Mr. Clay, the Ranking Member of the subcommittee, for
5 minutes for an opening statement.
Mr. Clay. Thank you, Mr. Chairman. Let me thank the panel
of witnesses for being here today.
For 6 years, America's consumers had a bureau that won
significant victories in the name of financial justice. The
CFPB was so effective that 29 million consumers received nearly
$12 billion in the aftermath of the housing crisis that
devolved into a deep recession, a Federal law assigned
authority to accept complaints, investigate, and when
warranted, take enforcement actions against bad financial
actors.
Rules affecting financial transactions as large as
mortgages and as small as payday loans were finalized after
extensive public hearings where lenders and borrowers alike
were afforded the opportunity to share their respective views
before any decisions were reached. And that is called
transparency and accountability. Homeownership was touted by
Presidents Clinton and Bush as a means of increasing minority
wealth through home equity, but the relaxing of regulations of
the housing market by Members of both parties produced the
dramatic rip-off of the most vulnerable.
Black and brown college grads lost more than 60 percent of
their wealth during the 2007-2008 financial crisis because of
laxed regulations. These homeowners have not recovered from
their losses to this day.
In June, the CFPB uncovered discriminatory lending
practices by BancorpSouth. According to the Department of
Justice, CFPB alleged that BancorpSouth bank violated the Fair
Housing Act and the Equal Credit Opportunity Act by using
policies and practices that unlawfully discriminated against
African Americans and other residents of predominantly minority
communities.
The CFPB took the uncommon practice of using secret
shoppers in its investigation. The settlement agreement
dictates that BancorpSouth pay millions of dollars in relief
and civil penalties. And that is called accountability.
In 2014, when a company named U.S. Bank illegally billed
customers for services they never received, the CFPB ordered
that the bank refund these consumers $48 million. And that is
called transparency.
And so I look forward to this testimony, and I yield back.
Chairman Luetkemeyer. The gentleman yields back.
Today we welcome the testimony of Mr. Steven Day,
President, American Land Title Association; Mr. Richard Hunt,
President and CEO of Consumer Bankers Association; Ms. Kate
Larson Prochaska, Director, Center for Capital Market
Competitiveness, U.S. Chamber of Commerce; Mr. Hilary Shelton,
Director of the Washington Bureau and Senior Vice President for
Advocacy and Policy, NAACP.
And at this moment I would like to recognize the gentleman
from Kentucky, Mr. Barr, for purposes of introducing the final
witness.
Mr. Barr. Thank you, Mr. Chairman.
And Chairman Luetkemeyer and Ranking Member Clay, it is an
honor to introduce my constituent, the CEO of Whitaker Bank,
Elmer Keith Whitaker. As a third-generation banker and head of
the largest family owned community bank in Kentucky, Mr.
Whitaker works every day with Kentucky consumers who have been
negatively impacted by the Consumer Financial Protection
Bureau, and is here today to help Congress better understand
what we can do to reform the Bureau to help consumers.
Mr. Whitaker, his father Jack, and his late grandfather
Elmer, who rose from the coal fields of eastern Kentucky as a
coal miner to build a very successful banking business, really
represent the best in the financial services industry, not only
as successful bankers, but also as philanthropists whose
charitable activities and community involvement reflect their
strong faith and their commitment to lifting up the people of
Kentucky, and we thank you for that.
So from financing a car loan, donating money to establish a
new YMCA, or helping a family purchase a home, to the
University of Kentucky Whitaker Bankshot, which is my favorite,
that supports the Cawood Ledford Scholarship Fund, community
banks are critical to our towns, and I am pleased to welcome
Mr. Whitaker here today.
I yield back.
Chairman Luetkemeyer. I thank the gentleman.
And we want to thank and welcome our witnesses. Just a
little bit of a tutorial on the timing mechanism, the lights in
front of you. Each one of you has 5 minutes to give your
presentation. The light when it turns green, means go. Please
pull the microphones to you. Those boxes in front of you do
move forward, so please pull them forward because we like to
have you very close to the microphones. It works very well that
way. And when a light comes on and it is yellow, that means you
have 1 minute to wrap up, and when it is red, we need to stop
and move on.
So with that, Mr. Day, you are recognized for 5 minutes,
and you may begin.
STATEMENT OF STEVEN G. DAY
Mr. Day. Thank you, Chairman Luetkemeyer, Ranking Member
Lacy Clay, and members of the subcommittee. My name is Steven
Day. I am the President of National Agency Operations for
Fidelity National Title Group. I am testifying today in my role
as President of the American Land Title Association (ALTA).
ALTA believes that the best step Congress can take to
improve the accountability and transparency at the Consumer
Financial Protection Bureau is require that the agency provide
the businesses it regulates with written reliable guidance on
how to comply with the law and protects consumers in real world
scenarios.
As I travel the country talking with small business
members, I have learned a simple truth: More information is
never a bad thing when it comes to decisionmaking. This is why
we urge Congress to pass H.R. 5534, the Give Useful Information
to Define Effective Compliance Act, introduced by
Representatives Sean Duffy and Ed Perlmutter. This bipartisan
bill creates a process for the Bureau to ensure formal and
reliable written guidance on how to comply with its
regulations.
In May, Acting Director Mulvaney spoke to our members. He
mentioned his philosophy that the Bureau should tell companies
the rules of the road and provide concrete guidance and
examples prior to enforcement. Guidance helps people and
businesses make more informed decisions on how to comply with
law in real life. This differs from former regulations that
implement and prescribe laws.
Guidance can come in the form of advisory opinions,
bulletins, no action letters, statements of policy, and answers
to frequently asked questions. These tools can apply widely to
guide an entire industry like a bulletin or be narrow and
specific to a single person, like an IRS private letter ruling.
Clear reliable guidance and examples are important for two
reasons. First, it provides businesses with a solid basis for
making decisions and investments that they know will not harm
consumers or lead to potential enforcement actions and fines.
Second, guidance improves the effectiveness of regulators'
supervision by providing a reference point for judging business
practices for compliance.
Our industry acutely felt the need for guidance when
implementing TRID, where both the quality and quantity of the
Bureau's guidance was lacking. Hundreds of questions arose as
we implemented this rule. Rather than answer these questions in
writing, the Bureau hosted five webinars. The problem with
these webinars is that from onset, staff read a disclaimer
telling us not to rely on their answers. At the same time, the
Bureau drafted 11 sample disclosures reflecting generic real
estate transactions. Despite their usefulness, the Bureau
refused to develop additional samples of more complex
transactions, such as construction loans and FHA (Federal
Housing Administration) and VA (Veterans Administration) loans.
The GUIDE (Give Useful Information to Define Effective)
Compliance Act would require the Bureau to have a standard
process for assessing these requests and timelines for
responding to them.
In the past, the Bureau refused to publish guidance under
the belief that saying less to the companies it regulates will
provide them with more flexibility. This was the case with the
Bureau's three-page memo that reminded banks they needed to
oversee their third-party service providers.
Instead of providing flexibility, it had the opposite
effect and led to confusion. Lenders tried to read the Bureau's
tea leaves and developed compliance processes that reduced
consumer choice or treated small businesses the same as large
national firms.
A more valuable bulletin would provide banks and nonbanks
with examples of vendor management programs based on different
risks. This is what the OCC (Office of the Comptroller of the
Currency) and the FDIC (Federal Deposit Insurance Corporation)
did in their comparable bulletins.
I also mention to you ALTA's support of a commission for
more bipartisan leadership at the Bureau.
And last, we want to applaud this committee and the House
for passing the bipartisan TRID (TILA RESPA Integrated
Disclosure) Improvement Act. The TRID Improvement Act fixes one
of the most confusing requirements of the Bureau's mortgage
disclosure rule and a main topic of questions the Bureau did
not address in guidance. We urge the Senate to follow the
House's lead on this important bill.
Thank you for offering us this opportunity to share our
views on how to improve the Bureau. Compliance is about more
than protecting consumers; it protects a company's reputation,
financial well-being, and employee morale. As an industry
predominantly made up of small and medium-sized businesses, we
need a regulator that helps remove the gray. We need a
regulator that matches simple and clear regulations with
helpful and illustrative guidance and examples. The GUIDE
Compliance Act makes us part of the Bureau's DNA, and we urge
Congress to pass this legislation. Thank you.
[The prepared statement of Mr. Day can be found on page 44
of the Appendix.]
Chairman Luetkemeyer. Thank you, Mr. Day.
And one little housekeeping thing right quick before we
move on. Without objection, each of the written statements will
be made part of the record.
So with that, Mr. Hunt, you are recognized for 5 minutes.
STATEMENT OF RICHARD HUNT
Mr. Hunt. Chairman Luetkemeyer, Ranking Member Clay, and
members of the committee, a very good afternoon. Thanks for the
invitation to discuss the importance of bringing increased
transparency and accountability to the Bureau of Consumer
Financial Protection. My name is Richard Hunt, and I am
President of the Consumer Bankers Association (CBA). Our
members operate in all 50 States, provide $4 trillion in
consumer loans, serve 140 customers, and employ 1.7 million
people in the United States.
Let me say from the onset, CBA and our members support the
mission of the Bureau, the mission to protect consumers and
take action against companies that break the law. That is why I
am happy to be here today to talk about the ways to strengthen
and to depoliticize the Bureau.
When Congress created the Bureau, it was granted
jurisdiction of over 11,000 banks and credit unions, as well as
countless nondepository institutions. It was given
unprecedented rulemaking, supervision, and enforcement powers
for nearly every financial institution and virtually every
financial consumer product.
All that power was given to one single director, which
means one person decides all enforcement actions. One person
decides all rules. One person controls every dollar of their
$600 million budget and has the power to adjudicate appeals of
their own enforcement decisions. It also means the next
director has the sole authority to undo every one of these
actions, like a political pendulum, swinging with each new
Administration.
As Congress contemplates changes to the Bureau, any
meaningful discussion should start with the Bureau's leadership
structure. Congress should create a bipartisan Senate-confirmed
commission to ensure all views, voices, and opinions are given
a seat at the table. Also to achieve greater balance and
stability for consumers and the industry and in an attempt to
depoliticize the Bureau.
I want to thank Representatives Ross, Sinema, Wagner,
Scott, Luetkemeyer, Gonzalez, and McHenry for their bipartisan
approach in introducing and supporting legislation to achieve
this goal. They are not the only ones who believe the
commission is the right way to go.
The House of Representatives recently passed legislation to
enact a commission at the Bureau, and as a reminder, as the
then Dodd-Frank bill was moving through the House and this
committee in 2009, it contained a five-person bipartisan
commission. Acting Director Mulvaney; former FDIC Chair, Sheila
Bair; members of this committee; and the American people in a
recent Morning Consult poll all support or have supported a
commission over a sole director.
In Mr. Mulvaney's testimony before this committee in April,
he expressed support for a commission and also outlined four
other recommendations.
Number one, he recommended creating an independent
inspector general at the Bureau. CBA fully supports that
endeavor. He also recommended placing the Bureau under
congressional appropriations. In the absence of a bipartisan
commission and other meaningful reforms, CBA supports this
recommendation. He also recommended making the director
fireable at will. We believe this would increase the overt
political nature of the Bureau. Finally, he recommended
congressional approval of major rulemaking. Our member
institutions need clarity, and requiring congressional approval
could create uncertainty. Also, Congress already has the
Congressional Review Act authority to overturn rulemaking.
Looking beyond those four recommendations, CBA also
supports the Protecting Consumers from Frivolous Claims Act,
the GUIDE Act, and ECOA (Equal Credit Opportunity Act).
Improving the financial lives of consumers is a goal that
unites lawmakers, regulators, and the industry. There are many
changes that can be made to enhance the functioning of the
Bureau and increase access to credit for consumers. But
improving the Government structure of the Bureau underpins them
all.
A bipartisan commission of the Bureau would depoliticize
it, bring long-term stability, and benefit consumers and small
businesses. We stand ready to work with Congress, and I am
happy to answer any questions you may have.
[The prepared statement of Mr. Hunt can be found on page 61
of the Appendix.]
Chairman Luetkemeyer. Thank you, Mr. Hunt.
Ms. Prochaska, you are recognized for 5 minutes.
STATEMENT OF KATE (LARSON) PROCHASKA
Ms. Prochaska. Good afternoon, Chairman Luetkemeyer,
Ranking Member Clay, and members of the subcommittee. My name
is Kate Larson Prochaska, Director at the Center for Capital
Markets Competitiveness (CCMC) at the U.S. Chamber of Commerce
where I lead consumer finance issues.
The Chamber is the world's largest business federation
representing the interests of more than 3 million businesses of
every size, sector, and region. Thank you for holding this
important and timely hearing about improving transparency and
accountability at the Bureau of Consumer Financial Protection.
We at the Chamber have long advocated for improvements to this
influential agency and are grateful for the opportunity to
share our views here today on behalf of the businesses we
represent.
Title X of the Dodd-Frank Wall Street Reform and Consumer
Protection Act created the Bureau to consolidate consumer
protection functions under one roof. We strongly believe in the
Bureau's statutory mission to, quote, seek to implement and,
where applicable, enforce Federal consumer financial law
consistently for the purpose of ensuring that all consumers
have access to markets for consumer financial products and
services, and that the market for consumer financial products
and services are fair, transparent, and competitive.
However, we believe the Bureau lost sight of portions of
their mandate, namely the directives to foster transparent and
competitive markets and to ensure that all consumers have
access to markets for the consumer financial products. Indeed,
the lack of accountability of the Bureau led to an abuse and
lack of process that made it difficult to meet this mandate and
to provide certainty needed for consumer protection.
Since the Bureau's inception, we tried to work with the new
leadership and create a trustworthy dialog between industry
stakeholders and policymakers. However, we were disappointed to
find our insight seemed more perfunctory rather than seriously
considered. With new leadership there is an opportunity to make
the Bureau a more mature, transparent, and accountable agency.
Only with this approach will the Bureau adequately fulfill its
entire mandate.
The Chamber deeply supports strong consumer protections and
a robust, transparent marketplace of consumer products and
services. This is why this past March, we released a
comprehensive agenda to reform the Bureau.
In the report, we noted that any consumer protection
agency, including the Bureau, has a three-part mission: One,
ensure consumers have access to the marketplace and choice in
products and services. Two, promote the availability of
information that consumers can use to make informed decisions.
And three, provide protection against bad actors.
We made six principal reforms that encompassed 23
individual recommendations to offer a series of concrete steps
to improve the Bureau. One, provide clear rules of the road.
Two, enforce the law fairly. Three, educate consumers with
accurate data-driven information. Four, commit to transparency.
Five, avoid regulatory duplication and burden. And six,
structure the Bureau for long-term success. The 23
recommendations are discussed extensively in my written
testimony, and the full report can be found on the CCMC
website.
We have also been providing feedback to the Bureau on how
to create a more transparent and accountable agency through
recent comment letters. We thank the Bureau for releasing their
call to evidence, which is a compilation of 12 separate
requests for informations to audit the agency. To date, we
filed six comment letters addressing civil investigative
demands, adjudication proceedings, the enforcement process,
supervision process, external engagements, and the complaint
database. We look forward to filing our rulemaking comment
tomorrow and the subsequent comments through July 16.
This brings me to the Bureau's 13th semiannual report that
was issued in April. In his opening letter, Acting Director
Mulvaney suggested four statutory changes to the Bureau: One,
fund the Bureau through appropriations. We have long supported
putting the Bureau under true congressional oversight and
included this in our reform agenda. A CCMC Morning Consult poll
found that 66 percent of those surveyed recognized the
importance of appropriations to provide effective checks and
balances over Governmental agencies.
Two, require legislative approval of major Bureau rules.
While we do not take a position on this legislation, we do
think there should be more oversight.
Three, ensure the Director answers to the President in the
exercise of executive authority. We also believe that a
commission structure would be a more balanced approach,
however, there should not be insulation from the Presidential
authority. Create an independent inspector general for the
Bureau. Just based on sheer bandwidth, an IG would be better
instead of looking at the Federal Reserve as well.
I look forward to working with the committee and this
subcommittee on legislative proposals that make the Bureau more
mature, accountable, and transparent. Thank you again to the
Chairman, Ranking Member, and committee for holding this
hearing and for the opportunity to testify. I am happy to take
any questions.
[The prepared statement of Ms. Prochaska can be found on
page 73 of the Appendix.]
Chairman Luetkemeyer. Thank you, Ms. Prochaska.
And, Mr. Shelton, you are welcome. I saw from your bio you
are from Missouri, so welcome to a fellow Missourian. You may
begin. Five minutes. Please turn on your microphone, sir.
STATEMENT OF HILARY O. SHELTON
Mr. Shelton. Thank you.
Good afternoon, Chairman Luetkemeyer, Ranking Member Clay,
and esteemed members of this subcommittee. Thank you so much
for inviting me here today to testify and requesting the input
of the NAACP (National Association for the Advancement of
Colored People). We currently have more than 500,000 card-
carrying members, 2,200 membership units across the Nation. We
have members in every one of the 50 States, as well as units on
military bases throughout the world.
Earlier this year, the National Fair Housing Alliance
released a report which demonstrated that racial and ethnic
minorities are, on average, charged a higher interest rate,
offered fewer financial options, and subjected to submissive
and disrespectful treatment more frequently than their
Caucasian counterparts who had lower credit scores. In fact, on
average, non-White testers who experienced discrimination would
have paid almost $2,700 more over the life of a loan than well-
qualified White testers.
The important study demonstrates the continuing economic
discrimination faced by people of color every day. It is
because of this ongoing bias and the resulting persistent
wealth gap between people of color and Whites in America that
financial empowerment and the economic security of communities
served and represented by the NAACP has been and continues to
be a cornerstone of our national policy agenda.
We need a strong, robust, and vibrant Consumer Financial
Protection Bureau which operates as it was intended by law.
Americans need facts and data which they can make informed
decisions. We also need protections from unscrupulous predatory
individuals and companies; industry needs to know where
corrections and their practices are needed. The policymakers
need to have concrete indisputable facts from which it makes
laws and regulations.
In my written testimony, I have made 10 suggestions which,
if taken, will allow the CFPB to continue on its current
important trajectory to protect and educate Americans
everywhere. By brevity's sake, I will summarize my suggestions
with this:
Suggestion No. 1, do not subject the CFPB to congressional
appropriations process. This will threaten its independence and
effectiveness.
No. 2, promulgate the short-term loan rule which covers
payday and car title loans as originally crafted and
implemented in the time set. Payday and car title lenders tend
to concentrate their abusive operations which charge an average
of almost 400 percent equivalent of interest and fees for a 2-
to 3-week loan in communities of color.
No. 3, Reassert the enforcement powers of the Office of
Fair Lending. By moving the Office of Fair Lending, the CFPB is
demonstratably weakening its efforts to fight discrimination in
the consumer financial marketplace, even as the Bureau returned
over $400 million from discriminatory financial institutions to
American families who have been overcharged and denied credit.
No. 4, do not require explicit congressional approval of
any proposed regulation in order for the rule to take effect.
This requirement will create crippling barriers to
administrative actions necessary to protect the public and
implement the law.
No. 5, do not revise or reduce access to CFPB's complaint
database. The current public complaint database is a tool that
empowers individuals to inform and protect themselves in the
financial services marketplaces.
No. 6, retain and reinvigorate the Office of Student and
Young Consumers. To close this office is an incredibly short-
sighted move with far reaching consequences which will harm
millions of students who are already struggling with debt or
those who are seeking an affordable higher education.
No. 7, increase, do not decrease, the amount of information
and the number of mortgage lenders required to make public
their loans under the Home Mortgage Disclosure Act. Without
this crucial data, regulators and others like the NAACP are
once again left without the full information we need to
determine patterns in loan terms and loan amounts that could
increase costs and risk of foreclosure for borrowers.
No. 8, retain a single director of the CFPB as opposed to a
commission. A single director facilitates effective
decisionmaking and ensures a clear point of responsibility. A
single director can often move quickly to respond when a new
national threat has been discovered.
No. 9, do not create a situation in which the director of
the CFPB must be responsive to the whims of a President. Make
sure that he or she retains independence.
And No. 10, reject efforts to establish an independent
inspector general for the CFPB. You see, the CFPB already has
an IG shared with the Federal Reserve within which the CFPB is
housed. To create an independent IG would be of questionable
value and debatable as to the use of taxpayers' money.
In closing, I would just like to say, reemphasizing the
need of a CFPB to stay on course, to remain a strong,
transparent, and robust tool for protecting all consumers in
the often confusing and too often predatory world of financial
services.
Dodd-Frank was enacted and the CFPB was created to respond
in response to the economic crisis of 2008. As of late, we
appear to be going backward in a pre-Dodd-Frank deregulation
much to the detriment and the potential economic ruin of the
American consumer.
We have not forgotten that many of our people and
communities are still hurting from the recession of 2008. Many
will never own a home again, have a nest egg pass or be able to
pass the nest egg on to future generations as a result. We have
not forgotten many of our people were targeted by unscrupulous,
nefarious lenders who had no concern for the economically
destructive--
Let me just say in closing, sir, I look forward to your
questions. I think you get my point.
[The prepared statement of Mr. Shelton can be found on page
87 of the Appendix.]
Chairman Luetkemeyer. Mr. Whitaker, you are recognized for
5 minutes.
STATEMENT OF ELMER K. WHITAKER
Mr. Whitaker. Chairman Luetkemeyer, Ranking Member Clay,
and members of the subcommittee, my name is Elmer Whitaker. In
addition to being CEO of Whitaker Bank, I am President of
Whitaker Bank Corporation of Kentucky, a family owned bank
holding company founded in 1978 and located in Lexington,
Kentucky. We operate two banks and Kentucky Trust Company,
which offers wealth management and insurance services with 45
locations in 17 counties and total assets of $1.75 billion.
I am pleased to be here today to share my views on
improving transparency and accountability at the Bureau of
Consumer Financial Protection. Before speaking on this subject,
I would like to first commend Chairman Hensarling and Members
of the House of Representatives for their support of the
Economic Growth, Regulatory Relief and Consumer Protection Act.
This commonsense legislation is long overdue. This new law will
help community banks like mine better serve our customers and
communities.
I would also like to thank Congressman Andy Barr for his
steadfast support on a number of provisions in the bill. In
particular, his leadership on creating a safe harbor for
qualified mortgage products. As a community banker, I fully
support effective consumer protection.
As you are aware, proposals have been introduced to replace
the position of director of Consumer Financial Protection
Bureau with a bipartisan five-member commission, similar to
other financial regulatory agencies. We believe a commission
would broaden the perspective on rulemaking and enforcement
activity of the Bureau. It would provide appropriate checks and
balances and a better appeals process. The Bureau has been
given the broad authority that can alter financial markets, but
it lacks accountability that comes with budget oversight.
Today, the Bureau is funded by a fixed portion of the
Federal Reserve's total operating expenses. I believe this
should be changed to have the Bureau funded through the regular
congressional appropriations process. This would allow the very
consumers who the Bureau was designed to protect to hold it
accountable through their elected officials.
Similarly, we support efforts to create transparency by
creating an independent inspector general. The inspector
general's function is to serve as an independent unit that
conducts audits, investigations, and reviews programs and
operations. I would hope the CFPB would welcome an independent
review of its operations. This is generally deemed a best
practice by the other regulatory agencies.
Mr. Chairman, as I noted, my bank supports consumer
protection. However, even the best intended regulations must be
reviewed to ensure they are meeting their intended purpose.
Bank regulatory changes have a big impact on the cost of
providing banking products and services and can adversely
impact consumers. In many communities, appraisal costs alone
for a home loan have doubled since the implementation of Dodd-
Frank.
Many community banks simply lack the resources and staffing
to stay up to date with the rapidly changing rules. The cost to
implement training is overtaxing, but the time it takes to
conduct the training is worse. This is time taken away from
serving the daily needs of their customers. It is the consumer
that suffers in that scenario. The rules in Dodd-Frank have
caused some banks to stop offering certain loan products, and
some banks have been forced to merge with other banks.
As reported by the Federal Reserve Bank of St. Louis, from
the first quarter of 2011 to the first quarter of 2018, the
number of commercial banks in Kentucky has been reduced by 20
percent. The number of commercial banks nationally has been
reduced by 24 percent.
Simply stated, community banks continue to be the backbone
of Kentucky and hometowns all across America. My bank's
presence means we have a personal stake in the economic growth,
health, and vitality of the communities we serve. By
eliminating unnecessary impediments and ensuring that the
agencies that oversee our products are fully transparent,
Congress can help stem the tide of the community bank
consolidation driven by unnecessary regulation which negatively
impacts every community across the United States.
Thank you again for the opportunity to testify today, and I
welcome your questions.
[The prepared statement of Mr. Whitaker can be found on
page 97 of the Appendix.]
Chairman Luetkemeyer. Thank you, Mr. Whitaker. I appreciate
your input this afternoon.
And with that, I recognize myself for 5 minutes as we begin
our questioning portion of the hearing.
Let me just begin by asking you a question with regards to
data collection. I know that Director Mulvaney made the
comment--or when he first came in, suspended the ability or the
collection of information. And recently I think as last week,
he went back to beginning to collect some information again
because of their concerns with regards to protecting
information.
Are any of you concerned about that? Do any of you have
some ideas about that particular action of the Director?
Ms. Prochaska. Sure. I will start. We definitely have
concerns about that. We all know that the Federal Government is
not immune to data breaches, and to have everything in one spot
for the hackers to come in I think is a huge concern. I think
for most consumers who are getting a mortgage, they would be
surprised that all of their mortgage data is then put into a
giant database. So I think for a lot of folks that would be a
little bit upsetting to them, so I do hope that the privacy
protections are adequately in place.
Chairman Luetkemeyer. I know that Director Cordray made the
statement that he collects 80 percent of all the credit card
transactions of this country, which is very, very, very
disturbing to me, so I appreciate the comment.
Ms. Prochaska, you made the comment during your discussion
here in your presentation, and I went back through your
testimony because I was concerned when you didn't indicate that
you were supporting a cost-benefit analysis of something. But
in your testimony, you did make that comment as one of your
recommendations. So would you like to elaborate on the
importance of having a cost-benefit analysis on all the rules
and regulations?
Ms. Prochaska. Absolutely. I think a lot of the rule
writers formerly at the CFPB, it is hard to know how it is
going to happen in practice, and so a robust cost-benefit
analysis, which is conducted at most of the other agencies, is
critical to see how this is actually going to impact consumers
and small business organizations. So I think that is a
preeminent concern that we have at the Chamber, especially
because we are so focused on economic growth and how that is
going to be in the marketplace.
Chairman Luetkemeyer. Mr. Whitaker, would you like to
elaborate on how much it costs you to comply with some of these
rules and regulations and guidance that the CFPB has put out?
Mr. Whitaker. I would simply state that as a small bank, in
terms of national presence, it has significantly changed my
cost structure. Hundreds of thousands of dollars a year just in
compliance staff has been added since the beginning of Dodd-
Frank.
Chairman Luetkemeyer. Have you changed your business model
as a result of this?
Mr. Whitaker. I'm sorry?
Chairman Luetkemeyer. Have you changed your business model
as a result of this?
Mr. Whitaker. I have been forced to, yes. I have had to add
locations just to house the staff to process work.
Chairman Luetkemeyer. Mr. Hunt, I know you have lots of
members that are dealing with these additional costs. Can you
give us a little--elaborate on some of the costs that your
members are incurring, or the total amount perhaps, of what
CFPB is costing?
Mr. Hunt. Yes. I don't have the total amount, but I will
tell you, in the first quarter of next year, we are going to be
giving to the regulators all the new HMDA (Home Mortgage
Disclosure Act) requirements that is going to increase it two-
to threefold from previously. So we are collecting information.
There was a report earlier by the inspector general a
couple--8 months ago, I believe, saying there were not enough
safeguards. We fully supported Mr. Mulvaney taking down the
collection of the data for a while until those safeguards are
there. Thankfully, he has concluded the safeguards are now in
place.
Chairman Luetkemeyer. One of the questions I have got is,
several of you have all advocated for the commission. And I
know that Mr. Shelton's testimony actually made the comment
that he supported, actually, something that would be illegal,
quite frankly, because the Congressional Review Act says that
Congress should be presented with all rules and guidance to be
able to be approved, and in his testimony he suggests that that
not happen, which quite frankly, would be illegal. So I would
point that out to Mr. Shelton and to all of you.
From the standpoint that I know recently we passed in the
Senate and now in the House a couple weeks ago, and it was
signed a week before last by the President, with regards to the
congressional Review Act, a recision--a rescinding of a rule
that was done by CFPB with regards to indirect auto lending.
So would any of you have some other rules or regulations
that you are familiar with that need to be reviewed under the
CRA and perhaps rescinded? And if you don't, I have got a
homework assignment for each one of you.
Mr. Hunt. Well, I don't think there are any more rules that
fall within the 60-day calendar. They just obviously lead to
arbitration last year by a landslide 50 to 50 vote in the
Senate. I can't think of any rule that is forthcoming by the
Bureau that will require a CRA rule.
Chairman Luetkemeyer. OK.
Ms. Prochaska. One guidance I think that might be worth
looking at is the vendor management guidance. I think that that
might be tantamount to a rule, and GAO might want to take a
look at that.
Chairman Luetkemeyer. OK. All right. Very good. Well, thank
you.
So again, I will make mention of that when we close the
hearing that we do have a homework assignment for you. OK.
Thank you very much. My time is up.
With that, I recognize the gentleman from Missouri, Mr.
Clay, the Ranking Member, for 5 minutes.
Mr. Clay. Thank you, Mr. Chair.
I just wanted to point out that I wanted to welcome a young
man from my hometown, St. Louis, and our State of Missouri,
back to the committee, Mr. Shelton, who I will start with.
As you know, the Center for Investigative Reporting
recently published results from their extensive analysis of
lending throughout America, and found modern-day redlining in
more than 60 metro areas across the country. And this is
despite the fact that most banks, some 99 percent of banks get
passing grades on their Community Reinvestment Act, or CRA
exams, even though that law was intended to help combat
discriminatory lending practices. And now, Mr. Mulvaney is
reorganizing the CF--the Consumer Bureau's Fair Lending Office,
eliminating its enforcement capabilities and diminishing fair
lending as an important priority of the Bureau.
So, Mr. Shelton, will Congress be helping to combat
discriminatory lending or weakening those efforts if we advance
proposals to radically reform and weaken the Bureau?
Mr. Shelton. Well, it would certainly weaken them,
Congressman. And it is very good to see you.
Indeed, we have not forgotten the challenges and problems
that we had that actually pushed us to create a Consumer
Financial Protection Bureau or pass the Dodd-Frank reform bill
as we did. We saw what happened with the so-called protections
that were in place and, quite frankly, the disparate impact
that they had on racial and ethnic minorities, women-owned
houses and other properties, and other problems in our
communities.
Anything can be done to actually step back or put back in
place the lack of oversight and protections would be derelict,
to say the least. In essence, it has not been that long. It has
not been that long since we sat before this very committee,
quite frankly, with other victims of those who were not
provided the protection of regulatory oversight that lost their
homes, that found themselves victim to predatory lending
processes and practices throughout the country. We need these
protections to prevent this from happening again.
Mr. Clay. OK. The regulators are discussing modernizing
CRA, though some seem to be more focused on making those CRA
exams easier. Does that make sense to you that now is the time
to make CRA exams easier, even though most banks pass their
exams, and yet we have pervasive redlining throughout this
country?
Mr. Shelton. Clearly, with the problems that we have now,
doing anything to weaken those very protections, again, would
be extremely problematic. It is moving in the wrong direction.
The reason we need a robust, powerful, comprehensive, and
transparent process that is covered by the CFPB is for these
very reasons.
You were, I believe, here when we heard from many of the
victims of the forms of discrimination that we are very well
trying to provide protections for. It would be outrageous to
make things weaker and easier for this kind of discriminatory
practice to continue.
Mr. Clay. Thank you for that response.
Mr. Hunt, do you believe that the time has come and gone
for the Fair Housing Act and collecting HMDA data or have we--
or do you think we have closed the disparity gaps in mortgage
lending and the way it impacts certain communities of color?
And is everything OK in the mortgage lending?
Mr. Hunt. Mr. Clay, thank you very much for the question.
First off, let me say, discrimination is just morally wrong. It
should not be allowed, and it cannot be allowed. It is totally
unacceptable. There is no place for it.
Credit profile is what we are looking at when we are trying
to find somebody who is creditworthy. We are about to send to
the regulators tons of information under HMDA. We were not
exempt under the Crapo bill, like other institutions were, so
we are fully in compliance. We are fully in compliance with the
ECOA and the fair housing law as well.
So, look, we don't want to have any discrimination. We want
to make sure our customers are happy and being served, and if
they choose to have a mortgage, make sure they are creditworthy
to make sure they can afford the monthly payment. And I go back
to what you addressed in your opening comments. We want the
Bureau to be very strong and diligent as well with us, so we
are not trying to weaken the Bureau at all in this regard.
Mr. Clay. So can we do both? Can we ensure that we close
the disparity gap, while still correcting, making corrections
at the Bureau? Can those both run simultaneously?
Mr. Hunt. I have no doubt in my mind that Acting Director
Mulvaney is going to make sure no one is discriminated against.
Mr. Clay. Thank you for that response.
Chairman Luetkemeyer. The gentleman's time has expired.
With that, we go to the gentleman from Pennsylvania. The
Vice Chairman of the committee, Mr. Rothfus, is recognized for
5 minutes.
Mr. Rothfus. Thank you. Thank you, Mr. Chairman.
Mr. Day, in your testimony, you discussed the importance of
having clear rules of the road. Unfortunately, until Acting
Director Mulvaney took over, the Bureau tended to prefer
ambiguous rules that provided a platform for broad regulation
by enforcement.
Can you provide an example of how uncertainty about the
rules of the road has hurt the members of the American Land
Title Association?
Mr. Day. Certainly. Probably the prime example is with
regard to, in my testimony, the three-page memo with regard to
lenders; just reminding lenders as to the requirements to
police their third-party vendors. There was not a lot of
explanation concerning that, and it left two issues in that
regard. One from the lending community. They were unsure as to
the best way to control that. Are we able to control based on a
sizing of that? Do we treat an agent who has five employees in
a rural community the same way we do with someone who has
locations in 45 States and hundreds of locations? So lenders
tended to shrink their controls and actually impact the
consumer choice.
On the other side, with our members, they look at it and
say which--where do we have to go to be able to be in
compliance? And some sought out our best practices as a way of
going forward. We could not get clarification from the Bureau
as to whether or not this was a viable way for the lenders to
feel comfortable that third-party vendors, our members were
going to be in compliance with the Act. So it added additional
expenses, additional concerns, the threat of enforcement. So it
just--that uncertainty really impacted a number of especially
small businesses.
Mr. Rothfus. Mr. Hunt, in your testimony, you wrote that
the Bureau, quote, ``has an unprecedented scope of authority
over almost the entire universe of consumer financial service
providers, ultimately touching almost all Americans.'' Can you
describe some of the consumer impacts that have followed from
the Bureau's aggressive use of its broad authority?
Mr. Hunt. Sure. There are many I could describe. I will
start with small dollar lending. They just wrote a rule not too
long ago that would not make it desirable for our banks to get
into small dollar lending. You have to keep in mind, some 50
percent of all Americans in this country do not have $500 in
their bank account to meet an emergency need. We need to be in
that space. I think they also played politics with that rule.
They exempted in financial institutions doing less than 2,500
loans.
Now, when it comes to consumer protection, I think every
consumer should be protected, not based upon where you bank. So
you can bank at Bank of America and have one set of rules, but
if you go to the local community in Kentucky, there will be a
different set of rules over there for the consumer. Not for the
bank, but for the consumer. So I think that has severely
impacted the short-term liquidity needs when Americans need it
most to meet a financial need.
Mr. Rothfus. Ms. Prochaska, we are all committed to
ensuring that the rules and enforcement actions taken by the
Bureau are fair to all parties and maximize consumer
protection. Putting the Bureau on appropriations will go a long
way toward improving the responsiveness of this agency and
enhancing the integrity of its rulemaking. Do you believe that
putting the Bureau on appropriations would in any way harm
consumer financial protection?
Ms. Prochaska. Thank you very much for the question, first.
And second, I do not think it would harm consumer protection in
any way, shape, or form. The rules are on the books. Mr.
Mulvaney has made it absolutely clear that he is a steward of
the law, that he is going to execute the law fairly and
accurately.
Just because the Fair Lending Office has now been rolled
into the Director's office doesn't necessarily mean that a ECOA
has been repealed, the Fair Housing Act has been repealed, HMDA
has been repealed. I think there is a discussion, and there can
be an argument made that that has actually made it even more of
a priority. So I think that having some sort of oversight over
the Bureau would be much better in the long term for everyone.
Mr. Rothfus. I have long been an advocate of putting it on
the appropriations process and also having a commission,
because this goes to some of the core principles of our
country, our republic. There is a whole notion of self-rule and
self-government, and recalling Abraham Lincoln even talking
about Government of the people, by the people, and for the
people, and this does happen through elected representatives.
It has to do with the nature of law in this country and the
three branches of Government we have. The Executive branch, to
enforce the law; the Legislative branch, to make the law; the
Judiciary branch, to adjudicate.
And when you see an agency that would make rules that the
people are not making, that really goes against, to me, the
principles of self-rule and self-government. Certainly, a
commission I could think be as effective as a single director,
perhaps more effective at going after discrimination. You have
a diversity of ideas that are going to be exchanged among
multiple commissioners.
So again, I thank everybody for participating in this
hearing, and it has been very informative. Thank you.
Chairman Luetkemeyer. The gentleman's time has expired.
With that, we go to the gentleman from Georgia. The
distinguished Mr. Scott is recognized for 5 minutes.
Mr. Scott. Thank you very much, Chairman. This is a very
important and very timely, timely hearing. And I have been
sitting here and I have been very impressed by the diversity of
thought on this most pressing of financial services industry.
The CFPB represents the interests and the protections of
over 330 million Americans. They cover the entire waterfront of
our financial services system. It is the greatest financial
service system in the world, but it is a very complex system.
It is a very diversified system.
Now, the CFPB has done some great things, no question about
that, but here is the situation. The CFPB has become a
political fire pit. Now, let me explain what I mean. And I hear
Mr. Shelton who brought some excellent points, but here, we
have a CFPB that is constructed to shift and sway with
political winds. All of what Mr. Shelton was so grateful for
occurred when the sole director reported to and was authorized
by President Barack Obama, but he is no longer President. And
so we have another President. And they have another sole
director that is coming in and trying to erase everything that
the previous Administration did. That is why we are in the fix
we are in. And that is why when we worked hard to put the CFPB
together, we did it as a commission for a reason: So it
wouldn't be subjected to this every 4 years. That
Administration comes in, changes what it does.
Here is a headline my staff just handed me, and it just
came over from the Associated Press: Mulvaney disbands Consumer
Advisory Board. The only simple thing there. That is gone.
There has been a lessening of the fair housing; changes made.
So here is my point: We worked hard to put this together,
this commission, and let me just say, Elizabeth Warren, the
President, Barney Frank, all of us here, most of us, all of us
here for sure, worked on this, passed it out as a commission.
But when it got over in the Senate, something happened. That
was, in my estimation--and even Barney Frank came back and
said, man, this is deceitful what they have done, they changed
this. And you know what happened? They never even had the
courtesy or the decency in the Senate to bring it back over
here. They passed it at that. But President Obama is not going
to be President for life. It changes, and so we have a measure
that is bipartisan.
Let me just tell you, let's suppose the Securities and
Exchange Commission wasn't a commission or the Commodities and
Futures and Trading Commission wasn't a commission. Look, if
you want stability, if you want accountability, that has to
come from the entity that birthed it. We did in Congress. We
must in Congress reclaim our position of responsibility in
bringing that accountability.
And so we have a bill I want to mention. It is House
Resolution 5266. Now, we all can come together and figure this
out with this piece of legislation and do it the way it should
have been in the first place and make it a commission with
direct responsibility, shared responsibility and authority with
the Executive branch and us, but the buck will stop here where
it was born.
Chairman Luetkemeyer. The gentleman's time has expired, and
we appreciate his eloquence.
With that, we go to the gentleman from Oklahoma. Mr. Lucas
is recognized for 5 minutes.
Mr. Lucas. Thank you, Mr. Chairman.
If I could, I would like to, with our witnesses, turn back
to the issues I hear back at home. And, with this, I would like
to begin with you, Mr. Hunt.
I hear frustrations from our bank and credit union folks
that multiple regulators are in their offices asking the same
questions. And this has the appearance of a lack of
coordination and redundancy.
Could you share with us what you hear from your members
with respect to regulatory coordination? And do you think more
can be done to improve the communication or, at the very least,
try to reduce some of the duplication of effort?
Mr. Hunt. So thank you very much for the question.
I will tell you, unfortunately, there is or there has not
been any regulatory coordination. I do believe, in the last
couple of years, each of the agencies has been trying to
justify their existence, trying to prove their value.
I will give you a perfect example under cross-selling. The
OCC and the CFPB and the FDIC took upon themselves, rightly so,
to go to our banks and examine cross-selling practices. I
understand that. It was very important. It was something that
needed to be done.
However, at several of our banks, you would have the OCC
and the CFPB in the bank at the same time asking sometimes for
the same identical documents. Sometimes one of the agencies
would hear what the other agency wanted, ask for the same
information, and said, ``We need more than that.'' That is
absurd. There is no reason you can't have one regulator in
there supervising us at all times. And I am hoping, under the
new heads of the agencies, that is something they will address
quickly.
Mr. Lucas. Follow up on that, if I could, Ms. Prochaska.
I believe your report included a little bit about the CFPB
in particular duplicating the activities of the other agencies.
Can you describe some of your findings and ways in which the
Bureau might improve on that duplication?
Ms. Prochaska. Yes. Thank you so much for the question, Mr.
Lucas.
To echo Richard's point, I think we get a lot of feedback
from bankers that there is inconsistent guidance within the
agency, different standards. So that can be incredibly
confusing, especially from an examiner level. And then one
note, at least--actually, two examples, one of which being the
small dollar rule. As we know, the OCC and the FDIC eradicated
the deposit advance product back in 2013 with their guidance.
The OCC has now repealed that guidance, and we hope that the
FDIC will follow suit.
But then the CFPB has their small dollar rule hanging out
there as well. And so then that creates confusion in the
marketplace. When, as Mr. Hunt mentioned earlier, according to
the Federal Reserve, 40 percent of the country can't foot an
emergency $400 expense, that, to me, is a travesty. And the
fact that there still is going to be that demand, even if there
isn't the small dollar loans out there. So we need to be able
to get consumers into those small dollar loans.
Another piece of duplication that I think has been a little
bit frustrating for industry both in banks and in online
lenders and other innovative companies is the confusion around
no action letters and who is minding the store when it comes to
innovation? Is there going to be an OCC fintech charter? Is the
FDIC going to get into the space. So those are two things that
have been very confusing.
Mr. Lucas. Mr. Whitaker, in your testimony, you also
mention whether there might be some duplication by the Bureau
when it comes to HMDA disclosures.
If someone were to do an analysis to the rule surrounding
HMDA, do you, as a community banker, manager think that the
analysis would find significant duplication between CFPB and
the other agencies?
Mr. Whitaker. What we have seen is the trickle down of CFPB
guidelines trickling down into the other agencies. While they
are not always applicable to a financial institution of my
size, I am often held to the standard of larger institutions
because of that trickle-down effect.
Mr. Lucas. Mr. Whitaker, one last question to you. And
there is lots of discussion in different quarters about the
idea potentially on the table of establishing an independent
inspector general at CFPB.
As a regulated entity of CFPB, do you have any sense of how
an inspector general would affect institutions like yours when
interacting with the Bureau?
Mr. Whitaker. I think it would add stability. That is the
number one thing. It adds accountability to the CFPB so that
perhaps we don't have the trickle down, and the rules stay on
the levels and platforms they were intended to stay when the
CFPB was created out of congressional law.
I think ultimately you have to have that accountability. I
have internal auditors. I have external auditors. I have State
regulators. I have the Federal Reserve as my primary
regulators. And it adds accountability. And I think you have to
have the inspector general to run those audits for the CFPB
just for that same checks-and-balance system.
Mr. Lucas. One last thought, Mr. Chairman, if you will
tolerate me. Being one of those folks who was here for the
conference committee process on Dodd-Frank, I would simply note
to my colleagues everything in Dodd-Frank has worked exactly
the way I think the authors intended at the time. None of this
has been accidental.
I yield back, Mr. Chairman.
Chairman Luetkemeyer. The gentleman's time has expired.
With that, we go to the gentlelady from New York. Ms.
Velazquez is recognized for 5 minutes.
Ms. Velazquez. Thank you, Mr. Chairman.
Mr. Shelton, whenever Republicans talk about the need to
structurally reform the CFPB to make it more accountable, I
always like to remind people of where we have come from. The
American consumers lost $19.2 trillion in wealth, $3.4 trillion
in retirement money.
So can you describe the factors that led to the 2008
financial crisis and why it was so important to create the
strong consumer watchdog in the first place?
Mr. Shelton. Thank you very much, Congresswoman, for that
question.
The issues and challenges that we had at that time were we
had so many Americans, and disproportionately racial and ethnic
minority Americans, women-owned households, the elderly, that
were actually being abused by many of the financial services
institutions because of a lack of protection and regulation.
Many of them were approached by not only the lending
institution themselves but, in many cases, actually by brokers
that actually came forward offering them great deals to address
other challenges happening at that time.
That was also a time in which fuel costs were surging. And
as such, we had a number of Americans that were on fixed
incomes that had paid off their mortgages who were approached
by brokers telling them that they could refinance their homes
to put in everything from systems to provide more insulation,
windows, new heating systems, and the like.
I sat next to a woman at this very table whose husband had
worked hard his entire life for a rather large tire company in
Ohio. He had retired with a pension and with other retirement
funds and Social Security. He passed away. Fuel prices began to
go up. She needed to do something about the home in which she
lived in, that she owned.
What they brought her was a mortgage that started out at
about $25,000 as a loan. But before things were over, it had
compounded to over $100,000 in something we call an exploding
ARM. Let me just say the sadness of those problems went far
beyond her just losing her home. The day that the marshals came
to take her home--her furniture out on the side of the street.
One of the other things her husband left behind was an old
shotgun. Sadly, she used that shotgun on herself as well.
That was simply one indication of how extraordinary those
circumstances were and how clear it was to us that the
protections that everyday American consumers need in the
financial services arena are not there.
Ms. Velazquez. Thank you.
Mr. Shelton. There is so much more that needs to be done.
Ms. Velazquez. Thank you.
Mr. Shelton, when OMB Director Mulvaney was here in April,
I questioned him on his dual role as head of OMB and the CFPB.
During our exchange, he did nothing to reduce my concern that
his dual roles present a conflict of interest and potentially
undermines the independence of the Bureau.
Do you share my concerns?
Mr. Shelton. Absolutely. I know what the job is like at the
CFPB. I have had an opportunity to spend much time with Rich
Cordray, our former Director. We have been in and out of that
office addressing the many issues of the communities that the
NAACP serves. It is very clear to me: If one person can handle
that job well, it is extraordinary. But suggesting a man can
run two major U.S. agencies at the same time is rather
concerning.
Ms. Velazquez. And we all know that Mulvaney's mission is
to basically deconstruct the CFPB. They cannot eliminate it.
They will gut it.
Mr. Shelton. Exactly.
Ms. Velazquez. And today's announcement is a clear example
of that.
So according to--well, yes, we heard, and I echo the
concerns expressed by Mr. Scott regarding the announcement of
Mr. Mulvaney today.
Mr. Day, in your testimony, you talk about the Bureau
needing to provide more regulatory guidance in the form of
examples of what will be permissible and impermissible business
practices.
Could you explain a situation in which more examples from
the Bureau will be helpful?
Mr. Day. Thank you for the question.
Yes, the example again concerning TRID when we were
involved with, we had--and I would say that the department was
very forthcoming with assisting the--giving information. But
having clarity as far as the examples, we have an industry that
wants to do the right thing. But, it is like getting a speed
limit guidance to understand where directions should you follow
or a street map. If we had more information on this is how the
disclosure should read on a more complicated situation, be it a
construction loan, be it a VA loan, an FHA loan, it would be
helpful for our members to then have that and to be able to
share that information with the consumers. So that is all we
are really looking for is to have better information that we
can best serve the consumer as far as the information we share.
Ms. Velazquez. So that is not an argument to say that the
CFPB should be restructured in a way that will be unable to
provide the protections to consumers.
Mr. Day. Certainly we support the department and what--and
the Bureau in what they have done relative to consumers,
because we share that concern. And so we are looking forward to
just having that clear guidance which will be necessary for our
operations.
Ms. Velazquez. I yield back, Mr. Chairman.
Chairman Luetkemeyer. The gentlelady yields back.
With that, we go to Mr. Ross. The gentleman from Florida is
recognized for 5 minutes.
Mr. Ross. Thank you, Chairman. And I thank the panel for
being here.
All of us here have experienced the adage that elections
have consequences, and to the victor goes the spoils, and
usually at the detriment of the electorate. And I think this
example that we have talked about today with a single Director
of CFPB is a shining example of that; as has been explained by
my colleague Mr. Scott so well, that it has been not only the
desire of this committee but the sense of this House that the
CFPB be a commission, that no one person, especially with no
accountability to Congress or anyone else, should be in this
position, not only for purposes of a denial of due process but
also for protection of the consumers.
And so my concern has been, and why I filed H.R. 5266,
which creates a commission, a five-member commission, is that
we need to have continuity and stability in the decisionmaking
process and the rule-promulgation process of the CFPB.
As members of this panel have discussed today, there is a
sense of uncertainty because of whomever is in power will
appoint whomever they want to do whatever is necessary to
implement their desires, and then the next Administration who
is contrary to that will appoint something just differently.
And as a result, we have seen an investment in capital that
would otherwise be used to help the commerce of this country to
now be tied up in the regulatory compliance arena.
And so my first question to Mr. Hunt, this pendulum swing,
what effect does it have on consumers and small businesses from
a banking perspective?
Mr. Hunt. Sure.
It has tremendous effect on everything they do, every
financial product, every loan they make. What are new rules?
What are the new regulations every single time?
I actually am going to agree with Mr. Shelton here for a
second. He said it is hard for one man to run the agency. One
person. He is correct. You can't have one person with all this
power under them to run this agency, this Bureau. So we concur
it should be a five-person commission from day one.
It is not just the rules but examination mentality,
enforcement mentality. One person gets to get up out of bed
every day with all that power.
You are having a great debate right now. There is no debate
at the Bureau about--
Mr. Ross. And can you estimate how much capital is tied up
in trying to just being able to anticipate the uncertainty of
who may be next Director of CFPB without any continuity?
Mr. Hunt. Sure.
S&P had an estimate that came out of about $30 billion in
the United States that is tied up in complying with all the
different rules and regulations.
Mr. Ross. That could be used to oil the wheels of commerce
and allow for innovators to start news businesses and expand
and employ more people and grow this economy.
Now, my concern about one person. Look, I know my
limitations, and I think everybody knows, to some degree, their
limitations. And it is why we rely on others to assist us in
performing our obligations. And so a commission might have
certain expertise in one area different from another
commissioner, different from another commissioner that would
allow even a safety net so that those commissioners can oversee
that what one may have missed in their expertise would be found
in their expertise.
So my concern is, would not there be a greater sense of
accountability and maybe even a better sense of innovation for
consumer protections if you have a commission of five as
opposed to a person of one?
Mr. Shelton--
Mr. Shelton. Oh, I would be delighted. Thank you so much
for giving me the opportunity to respond to that.
Our biggest concern is the lack of flexibility. Having five
people trying to make decisions as we play a game of whack-a-
mole that we--
Mr. Ross. But we do that in the SEC.
Mr. Shelton. May I finish?
Mr. Ross. We do it in FSOC. We do it in all types of--
Mr. Shelton. And we also have the President--
Mr. Ross. We do it with the Supreme Court.
Mr. Shelton. We have an Attorney General that runs an
incredible agency. We have many single people that run
Government agencies throughout this country that do an
excellent job. A commission under these circumstances, in our
opinion, would create the same kind of problems we had before.
Mr. Ross. But it would not abridge the rights of the
individuals and consumers.
Mr. Shelton. --lending products that pop up looking just
like the last lending product with a different name and expect
the commission to respond as flexibly as it needs to be, as
quickly to respond to these kinds of problems is exactly the
situation we found ourselves in prior to the 2008 economic
downturn.
Mr. Ross. I appreciate that, Mr. Shelton.
Mr. Hunt, do you want to respond?
Mr. Hunt. I do.
The Attorney General was appointed by the President, can be
fired by the President, fired at will. So that is not an
independent agency.
Mr. Ross. And there's congressional oversight there too--
Mr. Hunt. Yes. The CFTC, the NCUA. Remember, the NCUA is a
commission of three. Just three. So they can operate with
three. We are looking for five. Maybe we go down to three. I
don't know.
But also the FDIC, the FCC (Federal Communications
Commission), even the Consumer Product Safety Commission, a
commission the Bureau was modeled after, a commission.
Mr. Ross. Correct.
I see my time is up. I yield back.
Chairman Luetkemeyer. The gentleman yields back.
With that, we go to the gentleman from New York.
Mr. Meeks is recognized for 5 minutes.
Mr. Meeks. Thank you, Mr. Chairman.
And I thank you, each and every one of you, for your
testimony. And I think that, just for the record, what I want
to do is to make sure--I will start with Mr. Day and just go
down the line.
Do you agree that there is a need for the CFPB?
Mr. Day. I do.
Mr. Meeks. Mr. Hunt?
Mr. Hunt. We do indeed.
Mr. Meeks. Ms. Prochaska?
Ms. Prochaska. We do.
Mr. Meeks. Mr. Shelton?
Mr. Shelton. Yes, sir.
Mr. Meeks. Mr. Whitaker?
Mr. Whitaker. Yes. It doesn't apply to my community banks,
but I do think we have a need for it in the country, yes.
Mr. Meeks. Right. Because what happened after--
Mr. Whitaker. Just because of my size. Just because of my
asset size. Someday maybe.
Mr. Meeks. And I think I want to subscribe to some of the
things that Mr. Scott said and the reason why we worked hard
and created the CFPB, because there was a need. We didn't have
one, and we looked at it. And we saw that there were, in fact,
individuals who could not deal with and comprehend a lot of the
complicated issues that come to consumers. Because we would
agree that financial services, and at times, I know even here
in Washington, we have members on the committee who have not
been in the business of financial services; they don't
understand. So we need somebody at least that can give people
advice on what is or is not predatory because I think we would
also agree that certain individuals, individuals--and this is
whether you are Democratic or Republican or not, you don't
understand a product, and you can be taken advantage of. You
can be gouged. And I think Mr. Shelton indicated that it seemed
to be particularly prevalent with people of color where they
were gouged. And I think that was clear when we talked about
the financial crisis that we had and the mortgages. It was
clear that a lot of the high mortgages were steered toward
people of color when people had equal credit ratings.
So, if we can agree, and I think we can all agree, in the
history of our country, there has been redlining and things of
that nature. Will everybody agree with that? So there have been
some bad actions that have taken place that I don't think that
anybody that has a reputable bank or credit union or financial
institution, you want to get rid of the bad guys so that you
can continue to do your business. I think the chamber would be
in accord with that.
Ms. Prochaska. Absolutely.
Mr. Meeks. Is that correct?
Ms. Prochaska. Absolutely.
Mr. Meeks. And I know here the argument that we are having
now, whether or not we are going to--whether it is a single
person or a commission, I think Mr. Scott was right in that,
when it initially left the House--I worked on it--we did talk
about a commission at the time so that we did not get into the
kinds of headaches and the problems that we are having now so
that it swings--the pendulum swings one way or the other so
drastically as the result of who is in power, because for me
the Consumer Financial Protection Bureau is to protect the
American citizen, and it shouldn't be part of the politics. But
it is difficult.
And then I think that the problem that we have and how we
are in this now, when we look at--well, Mr. Hunt, I think you
just said in your testimony, we just spent a lot of money
complying with this new Government agency, complying with the
rules. The last thing we want to do is spend the same amount of
money going 180 degrees in the opposite direction, which I
think gives everybody a problem, because what you want to do
is--really is--we may have some arguments whether or not a rule
is too stringent or too loose, et cetera. But I think that it
will benefit everyone if you just know what the rule is so that
you can comply by the rule. And, so those arguments are going
to go back and forth. But if we know what the rule is, then I
think that makes it easier for everybody. And it is easier to
give the consumer the advice because we know what those rules
are. So we got to set those rules. And I think that is what we
are trying to do other than--because what we see now, rules
were set. Whether you like commission, whether you not, or an
individual person, rules had been set. That is what Mr. Hunt
had said. And to apply by those rules, you spent a lot of
money. And now we want to change the rules.
Mr. Hunt. Please don't mistake what I meant by that. There
are some rules that need to be turned 180 degrees but not every
4 years by a new Administration.
Mr. Meeks. Right. But there is going to be some debates on
that already. You look at sports. There are the rules. When you
play the games, some people say that shouldn't be the rule.
They want to change the rules. But the game--the rules are the
rules, and you got to abide by the rules, right?
That is what this thing is all about. And I think that what
Mr. Shelton was talking about was that we have some rules;
let's abide by the rules because if you get rid of the rules,
guess who gets hurt? What did you say it was? The 330 million
Americans that are dependent upon the CFPB. If we don't abide
by rules that have certain rules, 330 million American
citizens, American consumers, are the ones that will get hurt.
That is who I think that we should all be here to protect. They
are our constituents.
I yield back.
Chairman Luetkemeyer. The gentleman's time has expired.
With that, we go to the gentleman from North Carolina, Mr.
Pittenger. He is recognized for 5 minutes.
Mr. Pittenger. Thank you, Mr. Chairman.
And thanks to each of you for your willingness to come and
offer your advice.
I would like to say that my concerns related to the CFPB in
its inception, that they have essentially pushed the envelope
on the enforcement of regulatory matters, which, in many cases,
has done more harm than good, in any opinion. Director
Mulvaney, I believe, has done a very good job in addressing
many of these matters, but there is a lot of work left to be
done.
In that light, Mr. Hunt, I would like to ask you what can
be done at this time by regulators to encourage banks to offer
short-term credit to our constituents?
Mr. Hunt. Go back and look at the small dollar rule offered
by the Bureau. First off, as Ms. Larson mentioned earlier, A,
the OCC has removed its guidance. That is terrific. I am
hoping, under Ms. McWilliams, the FDIC will do the same thing.
We had six of our banking institutions offering short-term
liquidity needs. Once our Federal Government did that through
the OCC and FDIC, all six exited that business. Now, the OCC is
trying to get our banks back in because we have a much better
product than payday lending trying to help people meet their
financial emergency needs.
The CFPB needs to craft a rule that does not require banks
to underwrite a $500 loan as they would a $500,000 mortgage.
That is absurd to do that.
Allow us the flexibility to work with our customers. The
deposit advance product, sir, was one of the most favorably
rated products we had at the bank. Once it was removed from the
bank, guess what happened? Complaints at the CFPB rose, and the
CFPB then got on us for having more complaints. It was a
circular firing squad. So we need to be in this arena. We need
to do so very quickly.
Mr. Pittenger. Thank you.
Mr. Day, I am curious about something that you highlighted
in your testimony about the Bureau's third-party service
provider bulletin. You mentioned that some small businesses
were pushed to exit the market because of confusion among the
lenders whether they met the Bureau's service provider
requirements.
What exactly were lenders concerned about which led them to
end these business relationships?
Mr. Day. Thank you for the question.
And, actually, that was part of the confusion in our
request for improving on as far as guidance because the lenders
were given just a three-page edict of ``you have to be
concerned'' but not a lot of guidance of, what should they be
concerned about?
So the natural recourse of that is to be very restrictive.
And in doing that, one, as I mentioned earlier, it eliminated
consumer choice as to being able to select a provider for title
insurance because they were no longer on an approved lenders
list. It also made it difficult for those who were lenders who
came up with creating standards to the same degree for an
entity that was doing 2,000 loans a month for someone who does
two or three loans. And we think there is an appropriateness
for scalability to be able to say this is a provider that I
have a notice and comfort with that I should be able to allow
that provider to service and not have to put them under the
same constraints and restrictions and all of the expense to
meet the guidelines, many of them either merged out or just
closed their businesses because they could no longer engage in
that expense.
Mr. Pittenger. Very good. Thank you.
Mr. Hunt, I am concerned about the effects of section 1071,
which requires HMDA-like reporting for business loans, and what
that will have on the small business community and the
availability of capital.
What are your thoughts on the timing of future rulemaking
mandate about section 1071? And in your view, is it even
possible to construct a rule that will not impede business
lending and stifle economic growth?
Mr. Hunt. Yes, sir. We are very concerned about this rule
that may be coming down from the Bureau within, I don't know,
the next 4 to 5 years. Who knows.
I think this is a tough one. The Bureau has been working on
developing some type of rule for the last 6 years under
Director Cordray, and they could not reach a favorable
conclusion as well.
A small business loan is completely night-and-day different
than a mortgage loan. A mortgage loan is actually quite simple.
But a small business loan is very complex determining the
definition of a small business, how many people own the small
business, and the different types of loans as well. We will
continue working with the Bureau. But I think, sir, at the end
of the day, this is going to be tricky. What I don't want to
see happen is it to become so complex and erroneous that our
banks exit the small business area.
Mr. Pittenger. Thank you.
One last quick question. I would just like to know, do
enforcement actions provide companies with enough information
to know how to operate within the law? How do these companies
respond to an enforcement action against another company in
your industry? Mr. Day.
Mr. Day. Yes. I am sorry. Thank you.
No. Unfortunately, a lot of these enforcement actions are
negotiated resolutions. They are also fact-specific. So
although they may have reached a result, it is hard to glean
guidance from that to really understand that, how do I conduct
my business so as to not be subject to a future enforcement
action?
Mr. Pittenger. Thank you.
My time is expired.
Chairman Luetkemeyer. The gentleman's time has expired.
With that, we go to the gentleman from Texas.
Mr. Green is recognized for 5 minutes.
Mr. Green. Thank you, Mr. Chairman. I thank the Ranking
Member as well. I welcome the witnesses.
Mr. Chairman, it appears to me that Mr. Mulvaney has
indicated that he would like to ensure that the Director
answers to the President in the exercise of executive
authority, the Director being the Director of the CFPB,
Consumer Financial Protection Bureau.
The law currently, as codified, allows the President to
remove the Director of the CFPB for cause. For cause. And I
must tell you that I am adamantly opposed to the President who
would ban the LGBTQ from the military with a tweet. The same
President who would ban Muslims from this country. The same
President who refers to professional athletes as SOBs, meaning
their mothers are dogs. The same President who found that there
was some very fine people among those at Charlottesville who
were saying Jews will not replace us, blood and soil. One can
only imagine if one of them happens to be a banker how he would
treat a loan from a person of African ancestry or a Jewish
person.
The same President who says that countries in Africa refers
to some of them as s-hole countries. The same President who
would fire the current AG, but for his belief that it would
impact his future; has already fired one AG. I am adamantly
opposed to this President having the ability to fire the
Director of the CFPB at will.
This President has already demonstrated that he is
including, integrating, if you will, his bigotry into policy.
This President, if he had complete authority over the CFPB,
given the way he is treating the Justice Department, one can
only imagine what he would require of the CFPB. I am adamantly,
absolutely, totally, and completely opposed to this President
having that kind of authority to interfere with the
independence of the CFPB.
Now, let's talk about discrimination. Everybody says: I am
opposed to discrimination. I don't think anybody ought to be
discriminated against. As a matter of fact, let's do this
quickly, if you think that people should be discriminated
against in lending, raise your hand, please.
Let the record reflect that no one has raised their hand.
Now the question becomes, do you believe that
discrimination in lending exists? If you believe that it
exists, raise your hand, please.
Only one person on the panel--let the record reflect that
of the persons on this panel, but one person has raised his or
her hand indicating a belief that discrimination exists in
banking.
For fear that someone may have misunderstood my question,
allow me to ask it again politely. Sirs and ma'am, do you
believe that discrimination exists in lending in banking
institutions? If you do, would you kindly raise your hand.
Mr. Hunt. I don't think it is a yes-or-no question.
Mr. Green. Again, there is only one hand. And we have one
person who believes that it is not a yes-or-no question as to
whether or not discrimination exists in lending in this country
today as I speak.
The empirical evidence shows it. Testing has revealed it.
It exists, and we know it. And what we do is deny the existence
so that we don't have to do anything about it. And for
prominent persons such as yourselves to, by and through your
testimony, indicate that you don't believe that invidious
discrimination exists in banking--maybe I didn't use
``invidious.'' Permit me to ask again.
Do you believe that invidious, harmful--that is what
``invidious'' means--harmful discrimination exists in lending
in the United States of America today? If you do, raise your
hand.
Let the record show that Mr. Shelton is the only person who
has raised his hand.
Ms. Prochaska. I will second Mr. Hunt. I don't think it is
a yes-or-no question.
Mr. Green. You don't think it is a yes-or-no answer.
We have come a long way. But, my friends, we have a long
way to go because you control what happens. And if you control
what happens, you control what happens, and you sincerely
believe that there is no discrimination in lending, we have
come a long way, but we have a long way to go.
I will yield back the balance of my time because there is
not enough time to go into the behavior that has manifested
itself today in this testimony. It is a sad day for this House.
I yield back.
Chairman Luetkemeyer. The gentleman's time has expired.
With that, we go to the gentleman from Kentucky, Mr. Barr.
Mr. Barr. Thank you, Mr. Chairman.
And since my colleague did not offer the opportunity for
Mr. Hunt to offer an explanation and testimony, I will provide
that to him right now.
Mr. Hunt. Thank you very much for that opportunity to
respond.
I will tell you, our banks move Heaven and Earth to make
sure there is no discrimination, period. We do not support it.
Obviously, we work with the regulators all the time through
examinations, through the ECOA, through the Fair Housing Act.
On and on again, we do not--we totally--condone any type of
discrimination at our banks. As I mentioned earlier, I hope the
only profile we look at is the credit profile, that and that
alone.
Mr. Barr. Mr. Whitaker, again, welcome to the committee.
And as a constituent, I am honored to have you here in front of
us. And as I said in my introduction of you, I have had the
privilege of meeting your father. I had the privilege of
meeting your late grandfather. And they were pillars of our
community. And as I said, we are so grateful for the
philanthropy, not just the business and banking services that
you provided to the consumers of central and eastern Kentucky
all these many years, protecting consumers by offering them
opportunities of credit and giving them the American Dream, but
also, sir, for the charitable work that you and so many in your
industry offer to your communities.
The YMCA that you built in Hamburg and Lexington, the
Whitaker Bankshot, the scholarships that your institution has
provided for years and years and years. So not just protecting
consumers but lifting people up. Lifting people up. Thank you
to you and your industry for helping people. That is the
business you are in. And I know you have learned humility from
your dad and your grandfather. I know that about your family.
But I want you to just put that humility aside for a
minute. And I want to just confirm what I read in your written
testimony was that, when your grandfather started that bank in
1978, he started it with about $59 million in assets. Is that
about right?
Mr. Whitaker. That is correct.
Mr. Barr. And today your bank has grown to $1.7 billion in
assets. Is that correct?
Mr. Whitaker. That is correct.
Mr. Barr. So, by my reading, in over about 40 years, you
have grown about 30 times. Is that about right?
Mr. Whitaker. That is correct.
Mr. Barr. You are still a relatively small institution
relative to the banking sector. You are a community bank still.
But let me just ask you this, asking you to set that
instinctual humility aside. How did you grow? How did your bank
grow?
Mr. Whitaker. We grew primarily through acquisition and
product development and through integrity and our reputation of
treating people fairly and honestly.
Mr. Barr. Yes. And so you picked up customers because you
offer good service, because you offered affordable products,
because you provided folks with opportunity that they didn't
have before.
Let me ask you this: What would happen if one of your
competitors didn't do that? What would happen if one of your
competitors mistreated or discriminated against a customer?
What would happen then?
Mr. Whitaker. To your question, Congressman, that is why I
always say that community banks like mine, we function without
regulation because our reputation is our regulation. And if I
had a competitor that treated people unfairly, my company would
grow.
Mr. Barr. And so you grew by offering good services, by
serving your customers well, and by not--and by performing with
integrity.
Let me ask you this: Does it help or hurt consumers when
banks consolidate? When there are fewer community banks, does
that help or hurt customers?
Mr. Whitaker. That hurts our customers because it makes
credit less accessible, especially in our rural communities
where, if you close down the only bank in town, it is very
challenging for them to obtain the credit they need to help
recover that economic condition in those communities.
Mr. Barr. And so that just counsels in favor of exactly
what we are saying. Reform the CFPB, give you all more
flexibility, encourage greater competition and choice, and
guess what the result is? Better consumer protection.
Mr. Whitaker, as you know, and you pointed out, the Bureau
is not subject to the congressional appropriations process. And
you have supported putting it on the congressional
appropriations process. I introduced a bill, H.R. 2553, the
Taking Account of Bureaucrats' Spending Act, which would
subject the Bureau to the congressional appropriations process.
Let me quickly go back to Mr. Hunt.
Mr. Hunt, you testified that the current Bureau receives
direct funding from the Federal Reserve at the request of the
Director capped at 12 percent of the Federal Reserve's
operating expenses. And you said, as long as the budget request
falls below this cap, the budget request cannot be denied.
Mr. Hunt, does that mean that Acting Director Mulvaney has
the legal discretion to make a budget request well below its
budget today?
Mr. Hunt. He can, and he has.
Mr. Barr. And so I would like to finish with Mr. Shelton.
Mr. Shelton, would you or the NAACP have a grievance if
Acting Director Mulvaney did what is in his legal authority to
do, which is request a much lower budget?
Mr. Shelton. I would say that we would want to make sure
that the budget that is being requested is one that would
actually fulfill the task and needs of the--
Mr. Barr. And so Mr. Shelton--
Mr. Shelton. --in the communities we serve.
Mr. Barr. --this is the whole point.
Mr. Shelton. --demonstration--
Mr. Barr. Why wouldn't you want Congress to have the
authority to appropriate?
You have no--and your organization has no input into the
process. If you have a grievance, we want your grievance to be
recognized by your elected Representatives in Congress.
My time has expired, and I yield back.
Mr. Shelton. And, Mr. Chairman, if I might respond to the
question he left on the table with the time that is not left
for him at this point.
We had no problems whatsoever with the previous CFPB
Director in getting our points, our concerns, and the issues of
our communities heard by that very important agency. And as a
result, we were able to get much done to prevent the kinds of
discrimination that led to the economic downturn and the
discriminatory impact in the African American community and--
Chairman Luetkemeyer. We are going to allow a little bit
longer to go here because we are running out of folks here, and
we do have some time this afternoon.
So, Mr. Barr, if you would like another minute or two, I
see--
Mr. Shelton. Well, we could go for a drink.
Mr. Barr. Mr. Shelton--
Chairman Luetkemeyer. OK. Mr. Barr, you are recognized to
continue.
Mr. Barr. Very quickly, Mr. Shelton.
So I recognize we have a difference of opinion on some of
these things. But I do think we have an agreement here. And the
agreement is that you would have--the point is you would have a
grievance with Acting Director Mulvaney. And you have expressed
some of those grievances today.
And my only point is this. Let's go back to the Founding
Fathers, the two of us together, and look at what James Madison
said. James Madison wrote in Federalist No. 58 that the power
of the purse may, in fact, be regarded as the most complete and
effectual weapon with which any constitution can arm the
immediate representatives of the people for obtaining a redress
of every grievance and for carrying into effect every just and
salutatory measure. And so the point is this: I want you, as a
citizen of the United States, to be able to hold this Congress
accountable for this grievance that you have. Under the current
law, you cannot do that because the statute says you have no
say in your Government.
And I yield back.
Mr. Clay. Would the gentleman yield before he yields his
time?
Mr. Barr, could I engage you just--
Chairman Luetkemeyer. You have 1 minute left, guys.
Mr. Clay. Thank you.
Just to bring your attention. You talk about the power of
the purse string. You talk about antidiscrimination measures.
When you look at how much wealth was stripped from the
minority communities during the Great Recession--I am from
Missouri. And in Missouri, we have a saying: You have to show
us.
Anybody on this panel that would not answer Mr. Green's
question, all I ask for is the data to show me that you are
being fair, that you are being fair with your customer, that
you actually can show me by ZIP Code, not by credit score, by
ZIP Code, that you are lending into these ZIP Codes. And not
tell me about credit scores. A lot of that is discretionary.
And you know it, Mr. Hunt.
But that is the point I raise to Mr. Barr.
Look, the numbers tell it all.
I see our time has expired.
Chairman Luetkemeyer. The gentleman's time has expired.
With that, we go to Mr. Tipton. He is recognized for the
next 5 minutes. He is from Colorado. You may begin.
Mr. Tipton. I thank the panel, and I appreciate you taking
the time to be able to be here.
Interesting listening to the conversation because I think
there is a lot of common ground. Nobody is antiregulation. We
just want to make sure that we have got sensible regulation
that people can actually understand.
I would like to actually go back. Mr. Hunt, if you speak to
this just a little bit. My colleague Mr. Ross brought up the
ultimate impact ultimately on consumers of overregulation--or
regulation that can't really be understood and some of the
costs associated with that.
What are the real impacts ultimately on the ultimate
consumer?
Mr. Hunt. I think it is consumer choice, consumer financial
product choices. There are only so many products that we will
be able to offer to our consumer. So, when they need--short-
term liquidity needs or a mortgage, the rules set forth by the
Bureau may be too draconian for us to stay in that business, so
they have less choices to do it.
Mr. Tipton. In some of the cases where you do stay, it is
marginal. Does it increase the cost for the consumer?
Mr. Hunt. Of course, it does. In Economics 101, if you
drive the cost up in one, somebody has to feel the cost,
whether it is higher interest rates or fees or whatnot.
Mr. Tipton. So not having clarity and regulations, not
understanding what the field is actually is hurting access to
capital for the very people that you would like to be able to
help.
Mr. Hunt. Sir, we can handle bad news. What we don't like
to talk about is uncertainty. Just tell us the clear rules of
the road, and we can adjust.
Mr. Tipton. Great.
Now, when we go back, and we are looking at TRID right now,
Mr. Day, you had spoken to this a little bit in your testimony.
And when I looked at your written testimony, you noted that
webinars were held to try and be able to give some clarity to
the proposed rule that was coming out, but the Bureau staff
reading the disclaimer stated this presentation does not
represent legal interpretation, guidance, or advice from the
Bureau. Did you say, why are we here?
Mr. Day. Thank you for the point. It was exactly the--why
we support the GUIDE Act in saying that it is very important to
have guidance, but it needs to be guidance we can rely upon. We
can't just have a conversation and then have our members go
forward and then have a contrary result come back because,
well, that really wasn't what we meant.
And there have been a few examples where we have had these
kinds of discussions with the Bureau, and they would go so far
but then not continue it. And I think--I share with Mr. Hunt,
we are an industry that is very willing to take guidance and to
understand what the rules are that we need to follow. We just
need that level of certainty which the GUIDE Act would provide
to us in being able to not only have the guidance but be able
to rely upon it.
Mr. Tipton. Great.
And I think that led, actually, to my question. You have
spoken to that, the importance of being able to have actual
clarity for you.
And, Mr. Hunt, would you maybe like to be able speak to the
importance of what the GUIDE Act, Mr. Duffy's bill, can
actually achieve?
Mr. Hunt. Yes. I think the overarching theme of the GUIDE
Act, obviously, is to make sure that we know the rules of the
road. It is one thing to issue a rule, but a rule could be 800
pages long. We want to know what the Bureau was thinking at all
times.
I love the debate we are having today. We don't have that
at the Bureau today. I don't think there is anything wrong with
a five-person commission at 2 p.m. on a Wednesday saying why
they brought out this rule; here is exactly what we are
thinking; and here is why we are thinking, to bring more
clarity to it. Right now, all the person has to do is get up
and issue a press release, and it is over.
Ms. Prochaska. Mr. Tipton, could I add to that really
quickly?
Mr. Tipton. You bet.
Ms. Prochaska. I just wanted to tie something back to Mr.
Meeks' point earlier about sports and how there are certain
rules and regulations.
What the Bureau has been doing for the past 6 years, 7
years now, is calling a strike after the fact and not
delineating what the actual strike box is and then moving the
goalpost. So I am mixing metaphors now. But you know what I
mean. There hasn't been clear delineation.
Chairman Luetkemeyer. They are all sports, so you are OK.
Ms. Prochaska. Yes. Exactly, right?
So there haven't been clear delineations, and that is
exactly our point. If there were clear regs that institutions
could follow and clear guidance on how to actually implement
them, we would think that is wonderful, and at least we will
know how to meet that.
The problem is when you do enforcement actions after the
fact, the disparate impact, the auto cases are a perfect
example. Not exactly knowing what the rules of the road are and
then, on the aftermath, getting slapped on the wrist because of
it.
Mr. Tipton. Well, I know my colleague Mr. Williams will be
more than happy to be able to cover some of the auto industry
rules and regulations as well.
Ms. Prochaska. Happy to chat any time.
Mr. Tipton. He is a humble, small businessman.
But I do appreciate you all taking time to be able to be
here, and I do appreciate that concept of--I come from the
small business world. And we had a regular review process in
business and a very simple philosophy that if it isn't working,
fix it. If you can't, stop doing it. Not a bad policy. And I
think we are making some good moves and do applaud the efforts
by Mr. Duffy with the GUIDE Act.
And, with that, Mr. Chairman, I yield back.
Chairman Luetkemeyer. The gentleman yields back.
And, with that, the gentleman from Texas is also recognized
now for 5 minutes. Mr. Williams.
Mr. Williams. Thank you, Mr. Chairman.
And thank you for holding today's hearing. While the
regulatory relief package recently signed into law by President
Trump is a major win for all America, work remains particularly
concerning to CFPB reform. For too long, the CFPB has
undertaken a mission to impose big Government, one-size-fits-
all policies with far-reaching implications for businesses and
consumers. While I am glad Acting Director Mulvaney has begun
to take steps to rein in this unaccountable Bureau, the burden
falls on Congress to ensure that lasting reform occurs.
Ms. Prochaska, I gather you are a baseball fan.
You mentioned it.
Ms. Prochaska. I sure am. I played softball for 10 years.
Mr. Williams. First question. Should Pete Rose be in the
Hall of Fame?
Ms. Prochaska. I am a Padres fan.
Mr. Williams. Let me get to more matters at hand.
Acting Director Mulvaney recently appeared before this
committee and offered his perspectives on how to best reform
the CFPB. Among these reforms, Acting Director Mulvaney
identified the CFPB through congressional appropriations as a
way to successfully subject the CFPB to congressional
oversight.
So my question to you: Do you feel that subjecting the
Bureau to true congressional oversight would impede the
Bureau's ability to successfully carry out statutory consumer
protection obligations?
Ms. Prochaska. Absolutely not. I think that Mr. Barr made a
very good point earlier. Earlier this year, Mr. Mulvaney
actually did request zero dollars from the Fed. He indicated
that, because he already had the money allocated in his budget,
he was able to keep operations going. Theoretically, under law,
he doesn't have to do that. He could ask for zero yet again and
yet again, and that can go on for 5 years.
So, although he is going to be asking for more money in the
future, the fact that we don't have congressional oversight--
and I will reference again a poll that we conducted--66 percent
of Americans said that actual checks and balances of
appropriations are what we need to have over our Governmental
agencies. Most people, when I go back home to California, don't
understand what is going on in the regulatory State, and that
is something that we need to have some purview over.
Mr. Williams. Thank you.
Mr. Hunt, one of the most concerning past actions of CFPB
was their process for creating and implementing rulemakings.
Past rulemakings have lacked robust industry input, adherence
to formal rulemaking processes, and a flexible implementation
process following the issuance of a final rule.
So, without clear, predictable regulations, the Bureau
cannot issue proper guidance to ensure compliance across
countless industries. The CFPB's practice of issuing rules and
worrying about implementation later has caused damaging effects
for the consumer and businesses alike.
So how did the CFPB fall short in previous rulemakings? And
what must be done to prevent the shortcomings in the future?
Mr. Hunt. Yes. If I could point to one specific, I think it
would be the TILA-RESPA implementation. We were not opposed to
the rule. We understood the rule. But they basically want us to
implement it overnight. And they did not understand what takes
place in the banking industry. I would have to guess at the
Bureau probably less than 10 percent of their 1,600 employees
have real-world banking experience.
Now, I am not saying the Bureau should be 90 percent. They
wanted to create a different type of bureau than other
regulators, and they have accomplished that. But I do believe
you need to have real-world experience both from the consumer
protection side and on the banking side within the Bureau
itself.
Mr. Williams. OK. Thank you.
Mr. Whitaker, as a small business owner myself for over 47
years, I know all too well that banks like yours are the
backbone of Main Street America and continue to struggle under
the weight of an overly burdensome regulatory environment. One
of the main ways that we can fix this is through reforms
offered in my bill, the Community Financial Institution
Exemption Act, that would strengthen already existing language
within Dodd-Frank by exempting credit unions and community
banks under $50 billion in consolidated assets from CFPB's
rulemakings unless the Bureau and other Federal regulators have
cause to include them.
So would this kind of reform ease the regulatory burden at
institutions like yours?
Mr. Whitaker. It absolutely would. I will say that with my
current regulators, we have a great working relationship. And I
would like to see that continued, and that bill would certainly
help accomplish that.
Mr. Williams. Thank you.
Mr. Day, thank you for being here on behalf of the land
title professionals, many of whom I represent back home in
Texas. And these small businesses are critical to communities
across the Nation. And the lack of clarity from the CFPB has
left them with too many unanswered questions.
So, briefly, do you feel that enforcement actions of the
CFPB provide companies with enough information to know how to
operate within the law? And how do companies respond to an
enforcement action against another company in your industry?
Mr. Day. Thank you for the question.
No, unfortunately, it is difficult to glean from the
enforcement actions how they would like to proceed, and so that
is why our focus on the--getting improved guidance. And, in
fact, you could have an improving factor as far as the
consumers in having better guidance because we get the rules of
the road. Our small businesses can follow what are the
appropriate actions, and then the CFPB would have less
enforcement actions because it would not be necessary. The
guidelines would be clear, and we could follow it, and we can
move forward and protect the consumer.
Mr. Williams. Thank you.
I yield back my time.
Chairman Luetkemeyer. The gentleman's time has expired.
With that, we go to Mr. Kustoff. The gentleman from
Tennessee is recognized for 5 minutes.
Mr. Kustoff. Thank you, Mr. Chairman.
I do want to thank all the witnesses for appearing this
afternoon.
Ms. Prochaska, the years before the Bureau was established,
prudential regulators collected and helped to resolve
complaints but refrained from publishing comments as many of
them contained unsubstantiated and false claims.
With the enactment of Dodd-Frank, the Bureau was mandated
to collect complaints. Despite this--I don't think anywhere in
the statute does it even allude to making these comments
public, public comments. The Bureau did so regardless of
whether there was a statutory mandate. In fact, there wasn't.
And the fact that many times, sometimes the complaints,
frankly, they are unverified. They provide questionable--in my
opinion, questionable utility to consumers and certainly could
compromise consumer privacy.
With all that, do you think it is appropriate to publish
these comments or these complaints even though they could be a
serious threat to consumer privacy and there could be a
likelihood of misinterpretation? Your response.
Ms. Prochaska. Congressman Kustoff, thank you for that very
important question. I can't tell you how many comment letters I
have written to the Bureau about this exact topic. So very nice
to speak about it.
Nowhere in the statute does it say that it needs to be
public. And as you mentioned, the OCC, the Fed, the FTC, the
FCC, all of the alphabet soup, keep those complaints private
for the exact reasons that you just mentioned, one being
privacy and, two, that it is unverified.
Another issue is that it is not normalized. It is no
surprise that the four largest banks generally get the majority
of the complaints because they have the largest consumer base.
A couple years ago, the CFPB was producing monthly reports
that were saying the 10 most complained about companies, while
in reality, of course, it is the 10 largest companies, and it
was the same people every month. I don't really think that is
going to be valuable information for consumers.
Another point I would like to make as well is in the CFPB's
annual reports on complaints, 75 percent are closed with
explanation. So that could be inquiries. So that means that
there was theoretically nothing wrong that the institution did.
I have spent hours reading that complaint portal. I am probably
the only person who does. And, oftentimes there are complaints
about bank hours or that--there are just so many different
things that it wasn't an actual issue that arose with the bank.
So I think in the interest of keeping consumer information
private, we should have the Bureau just for market monitoring
purposes at the agency for the time being.
Mr. Kustoff. I do appreciate the response.
Earlier, I introduced legislation, and the title of it is
Protecting Consumers from Frivolous Claims Act. And it seeks to
prevent the CFPB from making public these consumer complaints.
Do you have--and I don't know if you are familiar with the
proposed bill. Do you have any opinion about this bill and
whether it would, in fact, lead to the prevention of those
complaints?
Ms. Prochaska. I am not familiar with the exact text. But
as you summarized it, it seems like something we would be
definitely supportive of. I think it has been a large concern
of industry that it is actually misleading customers by
thinking that, if you get a complaint, which it may actually be
an inquiry that you are a bad institution when, in reality,
that is definitely not the case.
Mr. Kustoff. Thank you very much.
Mr. Day, again, I appreciate you being here as well. I have
listened to all of your comments, your statements. And most of
you, if not all of you, talked about the complexity of having a
single inspector general and multiple inspector generals.
The Bureau and the Federal Reserve, of course, share an
inspector general. He or she is tasked with conducting the
audits and investigations relating to the program and the
operations of each of the agencies. Your opinion, given the
size, the scope, the complexity of the Bureau and the Federal
Reserve, do you think--is it hard for a single inspector
general to have the bandwidth, if you will, to identify
problems within both agencies? Your response.
Mr. Day. Thank you for the question.
I certainly support Acting Director Mulvaney's request that
there be an independent inspector general for the department.
It is a Bureau that is quite diverse with a lot of activities
and feel it would be very appropriate to have an independent
inspector general in supporting that effort.
Mr. Kustoff. Thank you, Mr. Day.
And I have got 2 seconds. I yield back the balance of my
time.
Chairman Luetkemeyer. The gentleman's time has expired at
this moment. We thank him for that.
Ms. Tenney is now recognized, the gentlelady from New York,
for 5 minutes.
Ms. Tenney. Thank you, Mr. Chairman. I appreciate it. And
thank you so much to all of you for being witnesses here today.
It has been a little bit more entertaining than most Financial
Services Committee meetings.
We have gotten into some sporting events, and now we are
going to talk a little bit about constitutional issues, which I
think is one of the most important issues in dealing with the
new bureau which has a new name, but I will still refer to it
as CFPB for simplification. And I am just going to follow a
little bit on what my colleague, Mr. Barr from Kentucky, said.
And I know I discussed this with Mr. Mulvaney when he was here,
and this is why I think the constitutional issue is really
important.
And I like to look at another section of James Madison's
Federalist Papers, which is Federalist No. 10 that states,
``Enlightened Statesmen will not always be at the helm.'' And
that is the very reason we need to have checks and balances
like we do with every other agency and why we have checks and
balances in our Government. If we do have an unenlightened
person, and God forbid we ever have that happen, never happened
in the history of the republic, but we have an opportunity to
vote that person out or we have an opportunity to deal with a
funding issue. And so I really appreciate your comments.
I come from a small business community and also an owner of
a small business, so I know how crushing regulatory burdens can
really hurt a small business and make it unfair for us to
compete against larger entities, and also how unfair it is when
often our competitors who are larger are getting subsidies from
Government, which makes it even harder. But I wanted to ask Mr.
Day, because I was really compelled by some of the testimony
you had.
First of all, I am a bank attorney. I used to represent a
number of small business. I was examining counsel until January
3, 2017, for a small title insurance agency in New York State,
which, is an attorney State versus a title State, so we are
still trying to have dominion over title insurance as lawyers
in New York.
But some of the issues that I am just shocked to find out
how big the tentacles are with the Bureau in being able to
regulate an industry, such as title insurance, where so many of
your small businesses are really trying to--they are
exceedingly careful in trying to make sure their loans are--
they are the ones insuring the actual title, which is really
important in New York, our property rights are important.
So can you tell me just a couple of things or maybe an
example of how the rules have made it difficult for your
industry to function? And you can choose a title or attorney
State, whichever you--
Mr. Day. Well, we will stay with New York and certainly the
practices there. Thank you for the question and the
opportunity. I believe where the difficulty is with the level
of uncertainty is that as businesses look to try to align
themselves with other professionals. Is this an appropriate
structure? Is this a new venture that will be supportive of
regulators? When business has looked to get into a new area,
how much capital do they have to invest to make sure they are
in full compliance? Can there be a scalability as I startup or
do I have to be, as you mention, competing with the big boys
and have to come in and have a SOC 2 audit and be at that level
to just be able to be approved by a lender?
So, yes, in our industry, the title end does not fall into
it, but the settlement practices do. And so with the confusion
with our lender partners, it then trickles down to confusion as
to our title entities who are just trying to proceed with their
settlements and not truly understanding. So that is really a
level of difficulty as far as--how far do I have to go? Can I
go and invest here? Will I be subject to constraints or
controls or possibly enforcement and not have any ability to
get guidance in that regard?
Ms. Tenney. And I appreciate your comments and your
testimony where you are distinguishing between the
Administrative Procedures Act in the laws versus guidance and
the failure on the part of the Bureau to really give good
guidance and tutorials and the ability of these businesses to
comply. So I do appreciate that.
And also, I do believe that the old RESPA form, the Real
Estate Settlement Procedures Act, I had a friend that worked in
Albany and said they are all in a storage house somewhere in
Albany and no one has ever looked at them again. But that is
the essence of overregulation is we regulate to the point where
we are preventing the most needy, and some people who maybe
aren't being treated fairly, for having the opportunity to have
a loan, to buy a house. And as Mr. Williams talked about, to be
able to buy a car, which is really important.
So I am going to be running out of my time, but I thank you
very much all of you. This has been really informative. And I
am just going to say go Yankees, and I hope you all have a
great day.
Mr. Day. Thank you.
Chairman Luetkemeyer. Keeping up with our baseball theme.
Thank you for your yielding back.
And with that, we go to the gentleman from Michigan, Mr.
Trott. He is recognized for 5 minutes.
Mr. Trott. I want to thank the Chairman for organizing this
most interesting hearing today. And for the record, I don't
believe Pete Rose belongs in the hall of fame.
So I apologize I didn't hear the opening statements. We
have the CEO from Ford Motor in today, so I was listening to
him.
But let me start with you, Mr. Shelton. You said you spent
some time with Director Cordray. And Mr. Scott in his 5 minutes
said that the CFPB has created a political fire pit, and I
would agree with him. And I think it is in part because it is
not on budget and it is not accountable. But I would also
suggest that Director Cordray really had a political--who is
now running for Governor of Ohio, really had a political agenda
that he pursued while he was the director.
Did you ever have occasion to read some of his press
releases that he issued after he entered into a settlement with
one of the targets of his investigation?
Mr. Shelton. Yes, sir.
Mr. Trott. So isn't it interesting that in the settlements,
if you look at those, almost always the defendant never
admitted any guilt or responsibility or culpability, but all of
the press releases made it sound like the CFPB had brought this
terrible big, bad company to justice and the consumers can be
safe once again? Don't you think that contributed to the
political fire pit problem?
Mr. Shelton. I am not convinced I agree with your
characterization of those press releases, though I appreciate
your right to have the positions you do. Let me say that my
experiences were quite different.
Mr. Trott. OK. I appreciate your comment, and we will agree
to disagree.
Mr. Day, let me go to you. And so one of the arguments
proffered by those who oppose any attempt to hold the CFPB
accountable is that it will lead to rampant pillaging and abuse
of consumers. So let me give you a hypothetical. You have been
at Fidelity and Chicago before that for a few years, so you
would be able to answer this perhaps better than anyone.
Let's assume that one of your members entered into an MSA
with a real estate broker that clearly violated and they
knowingly violated RESPA. If the CFPB was now on budget and
accountable, do you think that member would have nothing to
worry about?
Mr. Day. Thank you for the question. No, absolutely not. It
is--I think as several of the witnesses here have talked today,
the intent is still for the protection of the consumer and the
focusing. And our industry is very much focused on that. And
the bad practices are the ones that aren't actually being
controlled through this. It is--the good practitioners who are
being forced out, the bad practitioners may still be engaged in
it. I don't think the accountability or--in any way creates a
limitation that still would restrict the Bureau from enforcing
the law.
Mr. Trott. How many lawyers do you have at Fidelity who are
trying to make sure your company does things right?
Mr. Day. We have a multitude of lawyers that are--
Mr. Trott. Thirty, 30 lawyers, 50 lawyers?
Mr. Day. Probably closer to 50.
Mr. Trott. Yes. And those lawyers are not only worried
about the CFPB in compliance with their ambiguous directives,
but they are worried about State licensing authorities. They
are worried about litigation. They are worried about
whistleblowers. They are worried about class action lawsuits.
They are worried about shareholder liability. They are worried
about State attorney general, other Federal bodies. Isn't that
a fair statement? There are an awful lot of people, aside from
the CFPB, that you are worried about making sure you do things
right with?
Mr. Day. And I wouldn't--I don't know if I categorize this
as worried about, but I would say that, yes, we have a
multitude of regulators and watchdogs through either private
actions or public regulators that our industry is subject to
and regulated by in its rules and regulations, which we have
been living up to through our careers.
Mr. Trott. So the Democrats want this discussion to be
about the Republicans' desire to return to the wild frontier
where consumers can be abused and discriminated against, but
your answer--I have a prop; I am glad I went toward the end
here, Mr. Chairman.
This is what this discussion is about. This is the
oversight of the financial services industry. Every one of
those little dots is a regulatory body or rule that they have
to worry about.
Mr. Hunt, I don't know how your members are in business.
How can you possibly comply with this kind of regulatory
oversight?
Mr. Hunt. I will tell you that the fastest growing
department within a bank is in compliance. If you are a
lawyer--
Mr. Trott. And that doesn't generate any money, does it?
Mr. Hunt. No, sir, it doesn't. If you are a lawyer in this
country, you are going to be wealthy and fully employed for
many years.
Mr. Trott. Let's go back in the remaining seconds here, Mr.
Day. Let's talk about TRID and the 1,900-page rule. So that
lack of ambiguity and direction, no advisory opinion, no
guidance whatsoever, what impact did that have on your members,
on mortgage companies, and on consumers with respect to real
estate closings that were either delayed or having to be
postponed due to the lack of clarity relating to a 1,900-page
rule?
Mr. Day. Well initially, it delayed the closing process
significantly. And as Mr. Hunt noted, that a lot of it was put
forward without really a consideration of what all of the
pieces are that needed to be put into play as to allow for its
implementation. Costs from our members, all of new forms, new
procedures, understanding with the disclosures, the fear of
getting it right, and not having a real clarity or guidance as
to how to go forward. So it was a major disruption, but our
industry stepped forward, our association and the trade
association led the charge and I think helped the industry
overall to comply with it and move forward.
Mr. Trott. I appreciate it. I am out of time.
But I will close, Mr. Chairman, I would have raised my hand
when Mr. Green was asking about whether there is discrimination
today. Clearly, there is discrimination, unfortunately, in all
aspects of our society, but the solution that Mr. Green was
headed toward was to have a member of the central State Federal
Government be the last decisionmaker on any and all loans,
because that is the only way he could solve it through a
Federal bureaucracy.
Thank you for your time today. I yield back.
Chairman Luetkemeyer. The gentleman's time has expired.
And with that, we have exhausted all of our witnesses in
more ways than one.
We also thank you, our witnesses, today for being here. It
has been a very lively and entertaining and informative
afternoon, and we appreciate your participation.
Just a couple closing thoughts on my part here. Throughout
the hearing, I think we have heard a theme of less choice of
services, more costly services is what has happened as a result
of some of CFPB's actions. I think we all know, and we have had
testimony before, with regards to the numbers of banks and
credit unions are going down one a day. I have even got a
county or two in my State that no longer have any banks or
credit unions headquartered in that county whatsoever, so all
we are left with is so much as a facility or two.
So what has to happen? Even the director himself was here
and testified in committee recently and had four suggestions on
how to improve it. He himself made the comment, he said, I am
one of the most powerful guys in D.C., and I shouldn't be. And
so we need to take look at this long and hard as to how we
continue to work with the CFPB, what we need to be doing.
Mr. Barr, I think it was, and Ms. Tenney both made some
good comments with regards to what the Founders believed. They
believed in checks and balances. That is the nature of our
system here. You have got the three branches of Government, and
each one of them should be a check and balance, and the CFPB
should fall under that same situation, in my judgment. I
appreciate your comments to that effect.
And it is kind of interesting because, imagine, if you
would, the Federal Reserve or the FDIC with no commission over
it. What would happen if they had a single--if the Federal
Reserve chairman would be the president of the Federal Reserve
and he had nobody to answer to, or the chairman of the FDIC
would have nobody to answer to? That is on the banking side.
Would you like to have that? I think not. So why would we allow
the director of the CFPB to be that independent? I struggle
with that.
And I think Mr. Hunt made some great points with regards to
the amount of uncertainty that is caused by this pendulum
effect that goes back and forth, back and forth. And Mr.
Whitaker made a comment to that effect as well that, how do you
prepare for that? How do you as somebody in business sit there
and try to invest either in services or in people to try and
figure out how you are going to position yourself to be able
to, with a crystal ball on your desk, figure out what is the
next rule and regulation coming down from above that you are
going to have to figure out?
This is where we are with this particular agency, and I
think we have got to look at ways to find--to allow the
pendulum to swing back where it needs to be where you protect
the consumers, but you don't run the businesses out, provide
the services. And so we want to find that sweet spot, and we
appreciate what you have done today as witnesses to give us
your information. It has been very helpful.
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.
With that, the hearing is adjourned.
[Whereupon, at 4:15 p.m., the subcommittee was adjourned.]
A P P E N D I X
June 6, 2018
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