[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]

                             CFPB'S ROLE IN
                          PAYDAY LENDING RULE



                               BEFORE THE


                                 OF THE

                         COMMITTEE ON OVERSIGHT
                               AND REFORM

                        HOUSE OF REPRESENTATIVES


                             FIRST SESSION


                              MAY 16, 2019


                           Serial No. 116-25


      Printed for the use of the Committee on Oversight and Reform

                  Available on: http://www.govinfo.gov

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                 ELIJAH E. CUMMINGS, Maryland, Chairman

Carolyn B. Maloney, New York         Jim Jordan, Ohio, Ranking Minority 
Eleanor Holmes Norton, District of       Member
    Columbia                         Justin Amash, Michigan
Wm. Lacy Clay, Missouri              Paul A. Gosar, Arizona
Stephen F. Lynch, Massachusetts      Virginia Foxx, North Carolina
Jim Cooper, Tennessee                Thomas Massie, Kentucky
Gerald E. Connolly, Virginia         Mark Meadows, North Carolina
Raja Krishnamoorthi, Illinois        Jody B. Hice, Georgia
Jamie Raskin, Maryland               Glenn Grothman, Wisconsin
Harley Rouda, California             James Comer, Kentucky
Katie Hill, California               Michael Cloud, Texas
Debbie Wasserman Schultz, Florida    Bob Gibbs, Ohio
John P. Sarbanes, Maryland           Ralph Norman, South Carolina
Peter Welch, Vermont                 Clay Higgins, Louisiana
Jackie Speier, California            Chip Roy, Texas
Robin L. Kelly, Illinois             Carol D. Miller, West Virginia
Mark DeSaulnier, California          Mark E. Green, Tennessee
Brenda L. Lawrence, Michigan         Kelly Armstrong, North Dakota
Stacey E. Plaskett, Virgin Islands   W. Gregory Steube, Florida
Ro Khanna, California
Jimmy Gomez, California
Alexandria Ocasio-Cortez, New York
Ayanna Pressley, Massachusetts
Rashida Tlaib, Michigan

                     David Rapallo, Staff Director
              Richard Trumka, Subcommittee Staff Director
      William Cunningham, Chief Counsel and Senior Policy Advisor
                     Joshua Zucker, Assistant Clerk
               Christopher Hixon, Minority Staff Director

                      Contact Number: 202-225-5051

              Subcommittee on Economic and Consumer Policy

                Raja Krishnamoorthi, Illinois, Chairman
Mark DeSaulnier, California,         Michael Cloud, Texas, Ranking 
Katie Hill, California                   Minority Member
Ro Khanna, California                Glenn Grothman, Wisconsin
Ayanna Pressley, Massachusetts       Chip Roy, Texas
Rashida Tlaib, Michigan              Carol D. Miller, West Virginia
Gerald E. Connolly, Virginia
                        C  O  N  T  E  N  T  S

Hearing held on May 16, 2019.....................................     1


Thomas Pahl, Policy Associate Director for Research, Markets and 
  Regulations, Consumer Financial Protection Bureau
    Oral Statement...............................................     4

* The prepared statement for Mr. Pahl is available at the U.S. 
  House of Representatives Repository:  https://docs.house.gov.

                           INDEX OF DOCUMENTS


The documents entered into the record during this hearing are 
  listed below, and available at: https://docs.house.gov.

  * Emails Show Pro-Payday Loan Study Was Edited By The Payday 
  Loan Industry, submitted by Rep. Krishnamoorthi

  * How a Payday Lending Industry Insider Tilted Academic 
  Research in Its Favor, submitted by Rep. Krishnamoorthi

  * How Predatory Payday Lenders Plot to Right Government 
  Regulation, submitted by Rep. Krishnamoorthi

  * Millions of People Post Comments on Federal Regulations. Many 
  are Fake, submitted by Rep. Krishnamoorthi

  * Payday Lenders Drum Up Customer Support to Ease Regulations, 
  submitted by Rep. Krishnamoorthi

  * Payday Lenders Get Thousands of Borrowers to Complain to 
  Government About Rules Meant to Protect Them, submitted by Rep. 

  * Payday Loan Group Paid KSU for Favorable Research, Records 
  Show, submitted by Rep. Krishnamoorthi

                             CFPB'S ROLE IN
                          PAYDAY LENDING RULE


                         Thursday, May 16, 2019

                  House of Representatives,
      Subcommittee on Economic and Consumer Policy,
                         Committee on Oversight and Reform,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 2:07 p.m., in 
room 2154, Rayburn House Office Building, Hon. Raja 
Krishnamoorthi (chairman of the subcommittee) presiding.
    Present: Representatives Krishnamoorthi, Pressley, Tlaib, 
Connolly, and Cloud.
    Mr. Krishnamoorthi. Good afternoon. The Subcommittee on 
Economic and Consumer Policy will come to order. Without 
objection, the chair is authorized to declare a recess of the 
committee at any time.
    This hearing is being convened to examine CFPB's role in 
empowering predatory lenders and examine the proposed repeal of 
the Payday Lending Rule.
    I now recognize myself to give an opening statement.
    In the wake of the financial crisis, the CFPB was 
established to stop predatory financial activity central to the 
collapse. For years, the CFPB has stood up to financial 
predators, holding companies accountable for wrongdoing and 
returning $12 billion of ill-gotten money to consumers.
    When the CFPB saw predatory payday and auto title lenders 
targeting the poorest Americans with high-interest debt traps, 
it began studying the issue. Five years of careful research 
uncovered an industry preying on desperation. Many lenders 
advertised short-term loans, but they know the truth; their 
products lock in the average consumers for 11 months. In fact, 
most consumers pay more in fees than they borrowed in the first 
place. Furthermore, interest rates approach 400 percent.
    But you don't have to take my word for how predatory these 
loans are. Please watch this video on the CFPB's own website.
    [Video shown.]
    Mr. Krishnamoorthi. Well, I think we'll see it eventually 
after it ends the buffering here. Why don't you pause the 
video, please.
    Most types of lenders make money when loans are repaid, but 
payday and auto title lenders succeed when their borrowers 
fail. Ninety percent of fees come from people who take out 
seven or more loans just to repay the first.
    CFPB's five years of research produced substantial evidence 
that action was needed. It issued the 2017 rule, also known as 
the Payday Lending Rule, to stop the debt traps, by simply 
requiring payday, title, and other high-cost installment 
lenders to determine up front whether people could afford to 
    Indeed, Americans overwhelmingly support this commonsense 
rule. Nationwide, 73 percent of Americans support requiring 
payday lenders to check a borrower's ability to repay before 
lending money, including 74 percent of Democrats, 72 percent of 
Republicans, and 77 percent of Independents.
    Today, we are going to discuss the CFPB's proposed repeal 
of this wildly popular rule. Why are we so focused on it? 
Listen to the plight of Billy A, one of the many borrowers 
central to the story. Billy A is from Springfield, Illinois. 
She is disabled and on a fixed income. She took out a title 
loan to help when her grandchild was born. After a year, she 
had paid $1,500 on a $1,000 payday loan, and still owed $800 on 
top of that. She couldn't pay basic living expenses, turning to 
a food bank, and eventually living in her car. One month she 
took out a payday loan to cover her title loan to avoid 
    The lender never asked about other debts or if she could 
repay, but it got her bank information so it could pull from 
her account every month. When there is no money, it charges her 
$25 more. Billy describes her situation as, quote: ``being like 
a hamster on one of those wheels. I just keep running and 
running and never get anywhere. It's scary to tell my story, 
but someone's got to tell people what the payday lending 
industry is doing to us. They are profiting off the backs of 
poor people. It's predatory, plain and simple, and it's got to 
stop,'' close quote.
    Billy is just one of 12 million Americans who use these 
types of loans each year, and her story is not unique. The 
CFPB's 2017 Payday Lending Rule was developed over the course 
of a half a decade to protect people like Billy, but the CFPB's 
current leadership has decided to abandon it, based on no new 
research. In this hearing we will ask the question why?
    Today, Mr. Pahl is here from the CFPB to discuss payday 
lending. We in this room may not be payday borrowers, but we 
need to stand up for them. If we do not, what protections will 
CFPB come for next?
    The chair now recognizes the ranking member, Mr. Cloud of 
Texas, for five minutes for an opening statement.
    Mr. Cloud. Thank you, Chairman.
    We are here today to discuss the CFPB's Payday Lending 
Rule, which if allowed to come into effect later this year, 
could do major disservice to the very people the CFPB is 
charged with serving. Since the passage of Dodd-Frank and other 
post-crisis financial regulatory legislation, it has become 
increasingly difficult for many Americans to access the 
financial system.
    It is too often the case that Congress can make snap knee-
jerk reactions to problems and passes legislation that has far-
reaching and unintended consequences. Before these laws were 
implemented, 76 percent of bank accounts qualified for free 
checking. After Dodd-Frank, this number fell to just 39 
percent. Congress has made it more expensive to participate in 
the financial system, and Americans who lack financial 
resources are the ones who paid the price most dearly and 
continue to struggle today.
    From 2009 to 2012, the average minimum balance required to 
have fees waived on a bank account rose from $186 to $723. Even 
at $15 an hour wage, that's more than a full week's salary for 
many people. If you're someone getting established in life and 
living paycheck to paycheck, you can't afford that, and 
Congress has shut you out of the financial system many 
Americans take for granted every day.
    Because of these regulatory burdens that Congress put in 
place, low-income and credit-impaired Americans were forced to 
look elsewhere for financial services. For up to 12 million 
Americans, that meant turning to payday loans. These Americans 
are generally considered to be unbanked or underbanked. They 
lack a credit history and so can't obtain credit through 
traditional channels like credit cards or they have an adverse 
credit history that makes banks unwilling to lend to them. They 
tend to be younger, hourly wage workers toward the beginning of 
their career, with 56 percent of payday loan customers making 
between $25,000 and $75,000 per year.
    The CFPB could have tried to make payday loans safer for 
the people who use them through requirements like increased 
disclosure and more enforcement against lenders who take 
advantage of consumers or engage in fraud. Instead, the CFPB 
sought to kill the industry and remove one of the few remaining 
sources of credit for a significant number of Americans.
    The CFPB's own analysis of the rule impacts project up to 
80 percent decline in the number of loans being issued to the 
rule. Payday lenders commissioned their own study of the rule 
and an impact, as estimated, could be 90 percent of a decline.
    The CFPB did this while ignoring the impact its rule will 
have on unbanked and underbanked consumers who use these loans. 
Research has shown that when access to small-dollar consumer 
credit, like payday loans is restricted, people turn to illegal 
and unregulated lenders like loan sharks to make ends meet. 
Studies also show that restricting access to small-dollar 
consumer credit results in consumers bouncing checks and filing 
for bankruptcy at much higher rates than when credit like 
payday loans is available.
    The CFPB also ignored the role that states were already 
playing in regulating these credit markets. All 50 states 
regulate small-dollar consumer credit like payday loans, and 
states have long been the primary regulators of consumer credit 
and lending. There is no unregulated Wild West crying out for 
Federal intervention, particularly when the Federal 
intervention ignored the evidence before them.
    Before regulating, the Bureau should have considered 
whether the proposed rule would harm consumers. They are 
required to do (this) under the law, and that did not 
adequately happen in this case. Professor Ronald Mann of 
Columbia Law School, whose work the CFPB used to build the 
foundation for the Payday Lending Rule, disputed how the Bureau 
used his own research. He even went so far to write a letter to 
the CFPB, calling his use of research on consumer credit, 
quote, ``inaccurate and misleading,'' unquote.
    Professor Mann further alleged that the CFPB was engaging 
in, quote, ``a distortion of evidence to suit policies that the 
Bureau has preselected for implementation,'' unquote. The 
Bureau finalized the rule anyway, saying simply that they 
disagreed with how Professor Mann was interpreting his own 
    I am glad that under the CFPB's new leadership, the agency 
appears to be serious about having rigorous, research-based 
regulatory process, and that the agency is willing to look back 
at its prior actions and identify any mistakes when necessary 
and consequently how to correct them.
    Thank you. I yield back.
    Mr. Krishnamoorthi. Thank you, Mr. Cloud.
    Today we are joined by Thomas Pahl, the policy associate 
director for Research, Markets and Regulations at the Consumer 
Financial Protection Bureau, the CFPB.
    If the witness would please rise, I will begin by swearing 
you in.
    Do you swear or affirm that the testimony you are about to 
give is the truth, the whole truth, and nothing but the truth, 
so help you God?
    Thank you.
    Let the record show that the witness answered in the 
affirmative. Thank you, and please be seated.
    We will begin with questions. And before that, we will 
start with an opening statement. How is that?
    Mr. Pahl.

                       PROTECTION BUREAU

    Mr. Pahl. Thank you.
    Chairman Krishnamoorthi, Ranking Member Cloud, and 
distinguished members of the subcommittee, thank you for the 
opportunity to testify here today. I am Thomas Pahl. I am the 
policy associate director for the Division of Research, Markets 
and Regulations at the CFPB. I have worked at the FTC and CFPB 
for more than 25 years doing consumer protection work, 
primarily as a career staff attorney.
    I am pleased to discuss the Bureau's activities concerning 
payday lenders and what the CFPB is doing to make a final 
determination whether there is a sufficient factual and legal 
basis for the 2017 rule.
    Our goal is to protect borrowers from harm, while not 
unduly restricting the ability of borrowers to decide what 
credit is best for them. A large portion of American consumers 
live paycheck to paycheck, sometimes facing a financial 
shortfall due to an emergency expense or a pressing bill and a 
lack of liquid savings. These consumers are the primary 
potential customers for small-dollar lenders.
    Rulemaking is just one of the four tools the CFPB uses to 
prevent harm to these consumers. To get a complete picture of 
what the Bureau is doing to protect these consumers requires an 
understanding of the Bureau's use of all of its tools.
    First, the CFPB's consumer education activities are focused 
on helping consumers help themselves, protect their own 
interests, choose the financial products and services that best 
fit their needs. This education is vital to preventing consumer 
harm and building a high level of financial well-being.
    The Bureau's efforts include its new Start Small, Save Up 
initiative, which consumers are encouraged to build a basic 
savings cushion and develop a savings habit. Having such 
emergency savings is critical to helping people address the 
broader issues in their financial lives around attaining and 
retaining good credit, managing their debt, and saving 
habitually. The Bureau is firmly committed to doing the work 
needed to move the needle on emergency savings.
    Second, the CFPB's supervision program examines lenders and 
other firms to ensure that they comply with a variety of 
existing Federal statutes and regulations. The Dodd-Frank Act 
provides the Bureau with express authority to engage in 
supervision of payday lenders. The Bureau uses supervision 
effectively and efficiently to increase compliance with the law 
and prevent consumer harm, including by keeping payday lenders 
on the straight and narrow.
    Third, the Bureau's enforcement program targets bad actors. 
Over the past year, the Bureau has initiated five new 
enforcement actions involving payday lenders and obtained final 
judgments on two other previously filed payday lending cases. 
These cases are a testament to the agency's commitment to use 
its enforcement tool to take decisive action to deter 
wrongdoers so that all lenders can compete with each other on a 
level playing field. In its supervisory activities and its law 
enforcement, the Bureau often cooperates and coordinates with 
other Federal and state agencies.
    Let me now turn to the small-dollar rulemaking. In November 
2017, the Bureau published a rule to regulate small-dollar 
lenders. That rule addressed two discrete topics. First, the 
rule contains mandatory underwriting provisions. Second, the 
rule contains provisions with respect to attempts to withdraw 
payments from consumers' checking or other accounts.
    The Bureau has not proposed to rescind or delay the rule's 
payment provisions. However, with respect to the mandatory 
underwriting provisions, the Bureau has doubts as to whether 
the appropriate standards for unfairness and abusiveness under 
the Dodd-Frank Act were applied. The Bureau also has doubts 
whether, despite the abundance of evidence in the record on 
many issues, the evidence was sufficiently robust and reliable 
to support the necessary factual findings to support the 
conclusion that a lack of mandatory underwriting was unfair and 
    The Bureau, therefore, decided in February 2019 to issue a 
notice of proposed rulemaking to reconsider the mandatory 
underwriting provisions of the rule, especially important in 
light of the large and lasting effects that the mandatory 
underwriting provisions would have on the market and on 
consumers' ability to choose small-dollar loans to address 
financial shortfalls.
    The Bureau also preliminarily concluded at the same time 
that delaying the compliance date for the mandatory 
underwriting provisions was necessary for an orderly rulemaking 
process to proceed. The CFPB, therefore, also issued a notice 
of proposed rulemaking to delay the compliance date.
    The comment periods on both notices of proposed rulemakings 
have now closed. The Bureau received 145 comments on the delay 
proposal, and as of May 13, the agency had received more than 
150,000 comments, and counting, on the reconsideration 
    Because the Bureau is in the midst of rulemaking 
proceedings, I'm sure you'll understand that I can neither 
offer any final views nor comment on the Bureau's internal 
deliberations. I can assure the subcommittee, however, that the 
Bureau will approach comments with an open mind and will 
carefully review them before reaching any conclusions. We also 
are committed to a fair and transparent rulemaking process.
    Thank you very much. I look forward to answering any 
questions that you may have.
    Mr. Krishnamoorthi. Thank you, Mr. Pahl.
    It looks like the video is now working, so we're going to 
play your own website video for one minute.
    Could you please roll the video?
    [Video shown.]
    Mr. Krishnamoorthi. Well, that was a nice video from the 
CFPB. Thank you.
    I am going to recognize myself for five minutes for 
    Mr. Pahl, thank you so much for being here. I'd like your 
help in establishing the timeline behind the Payday Lending 
Rule. As you know, the final payday rule was issued on October 
5, 2017, and then CFPB leadership changed on November 27, 2017. 
Within a few days, on December 4, less than a week later, 
Director Mulvaney told the press that the CFPB was considering 
repealing the payday rule. And just one month later, in January 
2018, the CFPB formally announced that it was reconsidering the 
payday rule.
    Isn't that your understanding as well, Mr. Pahl?
    Mr. Pahl. Thank you. I returned to the Bureau in April 
2018, so those events preceded my return to the agency, but 
what you have described is consistent with what my 
understanding is of the course of events.
    Mr. Krishnamoorthi. Very good. And two days after that 
announcement, that formal announcement, on January 18 of 2018, 
the CFPB voluntarily dismissed a lawsuit called CFPB v. Golden 
Valley Lending. This was a lawsuit against a payday lender that 
had charged 950 percent interest. Unfortunately, this was the 
beginning of a pattern in the litigation that the CFPB had 
previously initiated but now was beginning to dismiss.
    Four days later, on January 22, Business Wire reported that 
CFPB ended its investigation into payday lender World 
Acceptance Corporation. Are you aware of this particular 
decision to drop that investigation as well?
    Mr. Pahl. These events preceded my time returning to the 
Bureau. I have a general understanding that there were some 
payday lending investigations that were closed or matters that 
were closed, but, as I say, it predates my time. And also, I 
would note that I run the Division of Research, Markets and 
Regulations. All of the law enforcement activity is handled by 
a different division at the agency.
    Mr. Krishnamoorthi. I understand.
    Mr. Pahl. And so it was not part of my responsibility to be 
involved in those decisions----
    Mr. Krishnamoorthi. I understand.
    Mr. Pahl [continuing]. Even once I arrived.
    Mr. Krishnamoorthi. And, without objection, I enter into 
the record a New York Times report stating that on April 5, 
2018--so this is nearing or after the time that you joined the 
Bureau--the deputy director of the CFPB met with payday lender 
group Consumer Financial Services of America to discuss 
repealing the payday rule.
    Are you aware that four days later, on April 9, that same 
group of payday lenders sued CFPB to block the payday rule from 
going into effect? This was on April 9, 2018, Consumer 
Financial Services Association versus CFPB.
    Mr. Pahl. I actually started later that same month. These 
two events also preceded my return to the Bureau. I do know 
that the CFSA suit was filed on the date you mentioned, and it 
is my understanding that there was a meeting between Acting 
Deputy Director or actually now Deputy Director Brian Johnson 
and CFSA.
    Mr. Krishnamoorthi. Very good. Interestingly, court records 
in that case show that instead of defending the lawsuit against 
it, CFPB joined with the payday lenders suing it and actually 
stopped the litigation and sued to stop the CFPB rule from 
going into effect. In fact, according to campaign finance 
records, the CFPB's industry partner in that case, Consumer 
Financial Services Association, made significant campaign 
contributions to Director Mulvaney while he was still in 
    Now, Mr. Pahl, are you aware that on February 1, 2019--so 
it's this year--CFPB settled with payday lender NDG Financial?
    Mr. Pahl. Yes, I am aware of the settlement with NDG 
Financial. But, again, that was a matter handled by a different 
part of the agency than the part of the agency that I oversee.
    Mr. Krishnamoorthi. I understand. And do you know how much 
they settled that case for?
    I'll tell you. It was zero dollars and zero cents. CFPB 
settled it for zero dollars, despite the fact that NDG had been 
alleged to charge illegally high interest rates and tried to 
collect on debts not owed.
    So if you just stay with me, that's the fourth piece of 
litigation now that the CFPB has either dropped or settled for 
zero dollars and zero cents.
    Will you commit to providing us, within two weeks, the 
names of the CFPB personnel that were involved in each of the 
four enforcement actions that I mentioned?
    Mr. Pahl. Yes, I think we can do that. And--yes. One thing 
I would note--I do want to offer one response to the CFSA 
litigation versus the Bureau. I mean, we and CFSA are adverse 
parties in that litigation and our positions in that litigation 
are set forth in the briefs. But I do want to avoid----
    Mr. Krishnamoorthi. I understand.
    Mr. Pahl [continuing]. The misimpression that we are 
somehow in alliance with CFSA. We are adverse parties and we 
are pursuing our own interests in that litigation.
    Mr. Krishnamoorthi. I understand. But both of you joined 
hands to stop the litigation and stop the rule from going into 
    I want to move on to my last question here. Without 
objection, I enter into the record a February 27 New York Post 
article from this year. And in it, it says: Payday industry 
representative Hilary Miller confirmed to the New York Post 
that he, and I quote, ``represented individual lenders in 
discussions with CFPB last year in the months before the agency 
scrapped the 2017 rule.'' That directly contradicts a statement 
from CFPB spokeswoman two days earlier on February 25 that, and 
I quote, ``the Bureau did not discuss its proposal to rescind 
the rule with industry officials before making the 
    Will you commit to me, Mr. Pahl, information about the 
personnel from CFPB who were involved in those particular 
meetings with industry representatives before the CFPB scrapped 
the rule?
    Mr. Pahl. Let me see how I can answer it this way. The CFPB 
spokeswoman's statement was accurate. Between the time the 
final rule was issued and the time that the notice of proposed 
rulemaking went out, no one in the Division of Research, 
Markets and Regulations that worked on the rule discussed the 
proposal with anybody in industry or any trade association. So 
the meetings--my understanding of the meetings you're defining, 
I don't think they exist.
    Mr. Krishnamoorthi. So you are saying that Hilary Miller is 
lying about what exactly happened?
    Mr. Pahl. Mr. Miller, my understanding, has revised his 
statement to clarify that the period of time that he was 
referring to was prior to the time that the rule was issued in 
2017, not post the time the rule was issued in 2017.
    So what Hilary Miller has said with this modification and 
what the Bureau is saying are consistent. We did not talk to 
Hilary Miller from the time the final rule was issued until the 
proposal came out.
    Mr. Krishnamoorthi. So you did not discuss with anybody in 
industry between the time the final rule was issued in October 
2017 and when the rescinding of the rule happened?
    Mr. Pahl. We have many contacts with stakeholders that 
occur while we are doing rule development, including deciding 
whether we want to reconsider a rule and on what grounds. As 
part of that, we would have spoken with members of industry, 
consumer advocates, academics, all sorts of other people. But 
we never took our proposal and went to a payday lender or a 
payday trade association and said, what do you think about 
this, or do you have different ideas for proposals? We did, 
however, receive information and have meetings. You 
    Mr. Krishnamoorthi. So on those meetings--I understand what 
you're saying. You've met--you admit that the agency did meet 
with folks from the payday lending industry after October 5, 
2017, with regard to this rule.
    Will you commit to providing us the details of every single 
meeting that the CFPB had with industry representatives or 
    Mr. Pahl. I believe--I believe that actually we have--yes. 
Frankly, I think we----
    Mr. Krishnamoorthi. Very good. We will expect that in two 
weeks. So thank you so much for that vital information. Thank 
you so much.
    Okay. Mr. Cloud, I recognize you now for five minutes for 
    Mr. Cloud. Thank you, Chairman.
    Thank you, Mr. Pahl, again, for being here. For me, the 
thing that I'm concerned with is good governance. You've 
mentioned that the prior rule was made on what was not well-
researched information. And so a number of think tanks have 
criticized the Bureau's research in this regard. The research 
also failed to take into account state-level regulation. 
Professor Mann, as was mentioned, even had questions about his 
own research and how it was used.
    Can you walk us through the role that this evidentiary 
concerns played into your decision or the Bureau's decision to 
reconsider the 2017 rule?
    Mr. Pahl. Sure. One of the factual findings that needs to 
be made in order to support either a finding of unfairness or 
some of the theories of abusiveness under the Dodd-Frank Act is 
essentially that consumers couldn't reasonably avoid the harm 
from taking out loans that had not been underwritten.
    What Professor Mann's study looked at is it really compared 
what consumers thought was going to happen in terms of how long 
they would be in a payday lending sequence versus what their 
actual experience had been. Professor Mann, looking at his own 
study, said that consumers made a realistic assessment of how 
long that they would be in those sequences and that they 
generally did a good job of predicting that they were likely to 
roll over and have more loans. The notion is that if consumers 
are aware of the risks of a product and they have reasonable 
opportunity to take steps to avoid those risks, then you don't 
have a basis for unfairness or abusiveness under some theories. 
That's what Professor Mann's original conclusion was.
    What the Bureau did in the 2017 rule is took some of the 
data from Professor Mann's study and did its own analysis of 
it; and the Bureau decided, based upon its own analysis of 
Professor Mann's study, that it wasn't predictive. Consumers 
did not have an expectation as to what their experience was 
going to be with a payday loan. And the Bureau based its 2017 
final rule essentially on that one piece of research or relied 
very heavily on that one piece of research.
    One of the things that we have done in reconsidering the 
rule--and we are still--we just got tons of comments on this, 
of course, so it's being analyzed. But we went back and took a 
look at really how strong a basis is the Bureau's analysis of 
some data from the Mann study to support what the Bureau did, 
and decided that essentially it wasn't--we have questions about 
whether it really was strong support for two main reasons.
    One is that it didn't address vehicle title loan customers. 
So one of the main products that's covered by the rule, the 
study didn't even purport to address those products.
    The other is, even within payday loans, the Mann study 
involved one lender in five states. Obviously, there are 
numerous payday lenders throughout the United states. Consumers 
have the ability to get payday loans in 33 states, and in each 
of those states, there are different disclosure regimes, 
requirements that could affect consumers' experience.
    So, essentially, what we decided in going forward with 
reconsidering it is that because the Mann study, even if you 
took what the CFPB had concluded in 2017 as accurate, even if 
you took it as accurate, the limited scope of the study--that 
it didn't deal with vehicle title loans, it only dealt with one 
payday lender, it only dealt with five states--that was a very 
thin basis on which to impose requirements which would have a 
draconian effect on the ability of vehicle title lenders and, 
to a lesser extent, payday lenders to operate.
    Mr. Cloud. So as limited as Mr. Mann's study is, your 
understanding is that his understanding of the data was that 
customers by and large knew what they were getting into and 
they were able to predict when they would have--when they would 
be able to pay back their loan, but somehow the Bureau flipped 
the equation on that?
    Mr. Pahl. The Bureau did its own--yes. The Bureau did its 
own analysis and reached a conclusion. Professor Mann had 
reached a different conclusion. And so really what you have is 
two sets of experts looking at one set of data reaching very 
different conclusions about it. And that is the primary piece 
of evidence on a key factual finding that needs to be found in 
order to justify a finding of unfairness or abusiveness.
    Mr. Cloud. Do you have any insight into how that was 
    Mr. Pahl. How----
    Mr. Cloud. How the Bureau at that time--I realize this was 
before he was able to reinterpret that data--to come to a 
different conclusion.
    Mr. Pahl. Yes. I was either not at the Bureau or not 
working the project at that time. But my understanding is what 
the Bureau's economist, the economic staff working that did, is 
they got data from Professor Mann about his study. They did 
their own analysis to see whether there was a correlation 
between consumers' expectations and their actual experience.
    The results they got, they reached out to Professor Mann 
and said, hey, this is what we found. And they engaged with him 
on that. So, really, it is two sets of experts talking about 
data and trying to decide whether they really think that it 
shows or does not show that consumers anticipate what their 
experience is going to be with payday loans.
    And essentially, we have decided to reconsider the rule, in 
part, because the research that was done, you know, nothing 
wrong with it in and of itself, but it is not a very strong 
basis for addressing all vehicle title lenders nationwide, all 
payday lenders nationwide. And for that reason, we have 
questions about it, and that's why we put it out for public 
comment, to see if there are other sources of information on 
this point before the Bureau makes final determinations.
    Mr. Cloud. Thank you.
    Mr. Krishnamoorthi. Thank you, Mr. Pahl.
    I now recognize Congresswoman Pressley for five minutes.
    Ms. Pressley. Mr. Pahl, thank you for joining us. I was 
fortunate enough to discuss this issue before the House 
Financial Services Committee just last month and to express my 
concerns regarding the perpetual debt trap that these products 
leave and create for some of our most vulnerable residents and 
    I want to ask you about CFPB's stated justifications for 
the proposed rule. They seem to share a similar focus. The 
proposed rule states, and I quote: ``A more robust and reliable 
evidentiary record is needed to support a rule that would have 
such dramatic impacts on the viability of payday lenders.''
    Mr. Pahl, other than the industry just not liking it, by 
what measure are the five years of research and outreach 
leading up to this rule not robust or reliable evidentiary 
    Mr. Pahl. Thank you. I think the best example is reflected 
in the exchange that I just had with the members. Essentially, 
on one key determination as a matter of law that needs to be 
established, there was one study in the record. There's great 
debate/controversy as to the strength of that, as well as how 
limited in scope that study is. And it is looking, you know, 
not at overall the quantum of evidence that came in, but the 
evidence on some specific issues on which we need a factual 
predicate that was--our preliminary conclusion is that was 
weak, so we went out and asked the public, you know, is this 
all there is or is there other evidence on this specific point?
    You know, it's not that we didn't get a lot of comments. We 
got 1.4 million comments last time. It's not that there aren't 
a number of studies that we considered as part of our analysis. 
But on the particular point that we have to establish as a 
matter of law to justify the provisions in the rule, the 
research on that particular point we thought was weak enough 
that it justified going out and seeking public comment on that 
particular issue.
    Ms. Pressley. In the interest of time. So CFPB also says 
that the 2017 rule is welfare-decreasing for lenders, and, 
quote, ``reversing the restriction should, therefore, be 
welfare-enhancing for lenders,'' unquote.
    Mr. Pahl, what is the name of your agency?
    Mr. Pahl. The Consumer Financial Protection Bureau or the 
Bureau of Consumer Financial Protection.
    Ms. Pressley. Consumer, right. So why should the Consumer 
Financial Protection Bureau care about enhancing the welfare of 
predatory lenders? Are these lenders new consumers?
    Mr. Pahl. Lenders are not consumers. I think, though, that 
the language that you're quoting from or paraphrasing is 
incomplete. Immediately following those statements in the 
notice of proposed rulemaking, there is an indication by the 
agency that those estimates are based upon assuming that 
consumers don't adequately understand what their risks are for 
taking out payday loans and being able to avoid them.
    So essentially what happens is that that conclusion as to 
the welfare effects also is contingent upon the state of the 
record with regard to whether consumers anticipate loans or 
not, anticipate their experience.
    Ms. Pressley. Okay. But then let me just go on then. So 
then following the concern for lenders' welfare, then the CFPB 
states that the primary impact of the proposed rule would be, 
and I quote, ``a substantial increase in the volume of loans 
and a corresponding increase than the revenue lenders realize 
from these loans,'' unquote.
    Now, many would argue that the primary impact is to hurt 
consumers, but I guess you're right, that the flip side of that 
is to line lenders' pockets. So yes or no, is that an important 
consideration for the CFPB?
    Mr. Pahl. When we do rulemakings, we look at the costs and 
the benefits of the rules that we put into place. The effects 
on industry, the effects on consumers are both things that we 
consider as part of our 1022 analysis, which is required by the 
Dodd-Frank Act.
    Ms. Pressley. I have to reclaim my time just in the 
interest of time.
    So the proposed rule does not leave this to speculation. 
However, Mr. Pahl, CFPB's own cost-benefit analysis includes a 
projection of the additional amount that the predatory lenders 
will be able to extract from borrowers if the 2017 rule is 
repealed. So that additional revenue is around $8 billion per 
year. Is that correct?
    Mr. Pahl. That is correct, yes.
    Ms. Pressley. Okay. So while borrowers are struggling to 
make ends meet, the agency tasked with their protection is busy 
gifting predatory lenders $8 billion a year. Is that correct?
    Mr. Pahl. I wouldn't describe it as gifting. We are----
    Ms. Pressley. I'm sorry, in the interest of time. This 
confusion around the CFPB's mission even extends to court 
filings. When the payday lenders sued CFPB to block the rule, 
your agency joined hands with the industry suing it and asked 
the court to stop CFPB's rule from taking effect.
    In that joint motion, CFPB stated that, quote, ``the 
balance of equities heavily favors a stay, particularly in 
light of the irreparable injury that the payday lenders face,'' 
    And I yield.
    Mr. Krishnamoorthi. Thank you, Ms. Pressley.
    Now I recognize Congresswoman Tlaib for five minutes.
    Ms. Tlaib. Thank you, Chairman.
    CFPB did an incredibly thorough job in developing a Payday 
Lending Rule. It studied the markets for five years. It held 
multiple field hearings, conducted supervisory examinations and 
multiple enforcement investigations, reviewed over a million 
comments. It published five research reports and reviewed the 
loan-level data of tens of millions of consumers, our 
residents. The mountain of evidence was gathered in support of 
the 2017 Payday Lending Rule, which now you seek to repeal.
    To justify repealing the rule backed by such evidence, I 
would have expected you to have done at least that much work. 
In gathering support for the repeal, you didn't hold any field 
hearings or publish any research reports, did you?
    Mr. Pahl. That is correct. We did not do any new research. 
We evaluated the strength of the research.
    Ms. Tlaib. You know, you can just say no. You didn't do 
either of those things, correct?
    Mr. Pahl. That is correct. Yes, we did not do either of 
those things.
    Ms. Tlaib. It only took a few days in this tenure of 
Director Mulvaney----
    Mr. Pahl. Mulvaney.
    Ms. Tlaib [continuing]. Mulvaney, sorry, to announce CFPB 
was considering repealing the rule without any evidence 
supporting this change. I thought maybe there would be new 
studies, but the proposed rule states that no new studies 
influence the CFPB's views.
    The proposed rule points to no new facts and no new 
evidence. Is it true that CFPB based its analysis on 
reinterpretation of the same evidence that was available in 
    Mr. Pahl. We reviewed the same evidence and found that 
there was a sufficient basis for believing it was lacking on 
fundamental legal prerequisites to having a rule.
    Ms. Tlaib. As an objective observer, it is hard to see any 
gaps in the evidence, but if you think there are gaps, how can 
you justify not conducting the research to fill them?
    Mr. Pahl. Well, in the short run, we asked for public 
comment. Public comment can provide that, can provide more 
studies, more information that could speak to the issue that--
the issues that we think need more evidence.
    The other reason is that none of the sort of research that 
would be required had been started under the prior 
administration. And so were we to do such research, it would 
probably take--and I'm just making a rough guess here--a year 
and a half, two years to do it. Delaying the entire proceeding 
for that kind of substantial period of time, the agency 
expressed concerns about whether that was really in the 
interest of consumers, industry, everybody else.
    Ms. Tlaib. Yes. The CFPB is supposed to be research-driven.
    Mr. Pahl. We are research-driven, yes.
    Ms. Tlaib. Well, when was the initial decision made to 
reconsider the payday rule?
    Mr. Pahl. Acting Director Mulvaney in January 2018----
    Ms. Tlaib. Who was involved in the initial decision to 
reconsider the rule?
    Mr. Pahl. That precedes my time at the Bureau. My 
understanding, it was the usual process, in which case people 
throughout the agency would have----
    Ms. Tlaib. It was Mulvaney, I believe. But will you commit 
to providing us CFPB's decision memo within two weeks?
    Mr. Pahl. No, I will not. That involves the deliberative 
process of the agency.
    Ms. Tlaib. You can't give me the memo of how you all 
decided, how you made that decision?
    Mr. Pahl. I cannot give you the memo with our 
recommendations that were made to the Director that formed the 
basis of his decision because we need to have frank and candid 
conversations about the evidence and the law to make decisions.
    Ms. Tlaib. Prior to issuing the proposed rule, who did you 
meet or communicate with from the industry?
    Mr. Pahl. I had one meeting with the board of FSCA in May 
2018. I also met between October 2018 and February 2019 with 
the American Bankers Association, the Consumer Bankers 
Association, and the Online Lenders Alliance, to hear some of 
their concerns about the issues that we were not--we had not 
suggested that we would reconsider.
    Ms. Tlaib. Will you commit to providing us with a calendar 
schedule, meeting notes, and communications regarding the 
proposed repeal within two weeks?
    Mr. Pahl. I certainly can provide mine, yes.
    Ms. Tlaib. Okay. Will you commit to helping us get the same 
information for the Director's and the Deputy Director?
    Mr. Pahl. I will have to take that back to the agency. A 
lot of those--those are decisions for them to make in 
consultation with our general counsel.
    Ms. Tlaib. Sir, how many people worked on the 2017 rule for 
the CFPB?
    Mr. Pahl. I don't know. It was worked on over the course of 
roughly six years, so I don't know how many people at various 
times or total.
    Ms. Tlaib. How many people worked on the proposed rule?
    Mr. Pahl. On the current proposals?
    Ms. Tlaib. Current, yes.
    Mr. Pahl. Within my shop, it would be, I'd say roughly 10.
    Ms. Tlaib. Okay. Will you commit to telling us within two 
weeks who worked on each rule?
    Mr. Pahl. Yes, we can do that.
    Ms. Tlaib. All right. Thank you.
    I yield the rest of my time.
    Mr. Krishnamoorthi. Thank you, Congresswoman Tlaib.
    I now recognize--we're going to a second round. Good news.
    I now recognize Ranking Member Cloud for five minutes.
    Mr. Cloud. Thanks again, Mr. Chairman.
    We mentioned that it was determined that the data was 
inconclusive and that right now you're in a listening session, 
so to speak, of public comment. Would it be fair to state the 
CFPB's position is that there's not enough evidence at this 
point to make a decision on this rule and that you're 
investigating it?
    Mr. Pahl. That's fair. I mean, we decided that there were 
weaknesses in the evidence on particular points. That's why we 
went out for public comment. We will consider the comments, and 
then ultimately, the Director of the agency will make a 
decision as to whether she thinks that what we've got is 
sufficient or not. But at this point in time, we are looking 
for more information through the public comment process, which 
just concluded.
    Mr. Cloud. Do you have a ballpark of how long that process 
will take?
    Mr. Pahl. We don't. We're moving as quickly as possible. 
You know, given that we have, at a minimum, 150,000 comments, 
it's going to take a while to go through the comments, because 
we do, in fact, read them all so we can consider them. We'll 
move as quickly as we can because we know that resolution of 
this matter and the outstanding issues, would be in everyone's 
interest to provide more certainty, and so we're committed to 
moving as quickly as we can.
    Mr. Cloud. Now, one of the issues with this study, as I 
understand, was that it didn't really take into account what 
states are doing to regulate. Could you speak to how many 
states do regulate these types of loans?
    Mr. Pahl. Sure. It depends on which type of loan that you 
are talking about. With regard to payday loans, my 
understanding is that they are either prohibited or effectively 
prohibited in 17 states and 33 states allow them. With vehicle 
title loans, my understanding is that 17 states allow them.
    I would offer the disclaimer that those estimates may be 
like a year or two old, and so there may have been some changes 
at the state level. But that gives you a rough idea of how many 
states permit and prohibit these types of products.
    Mr. Cloud. So all 50 states, I guess, at some level 
regulate or prohibit, depending on the state?
    Mr. Pahl. Many states do. I don't know if it's all 50, and 
it will depend upon which of the two products as well.
    Mr. Cloud. Right. Okay. Could you speak to--I know they 
vary, but what would be a mean of the regulatory burden that 
already exists, I guess?
    Mr. Pahl. Sure. I mean, it depends. Since much of the 
regulation of payday lending, there's some at the Federal 
level, traditionally it's been a matter of state law. Some of 
the regulations find their forum in usury caps that are 
applied. Some states require various disclosures. Some states 
limit how many loans you can take out. Some states limit the 
amount of loans you can take out. Some of them limit how 
frequently you can roll them over. Still, other states say if 
you get to a certain point in paying loans back and have 
problems, essentially you get an opportunity to go off the 
repayment track, rehabilitate yourself before you try to repay. 
I believe there are 16 states who have those restrictions. And 
some states mix and match each of them.
    So what your costs are, what kind of state regulations 
you're subject to is highly dependent upon state law and state 
legislators' opinions/views on what their constituents need to 
protect themselves.
    Mr. Cloud. Okay. And you mentioned you're not the 
enforcement arm, but could you speak to what enforcement there 
is there for those who do fall predatory in their practices?
    Mr. Pahl. Sure. Yes. You know, there are a number of 
different provisions that we can use as part of our law 
enforcement activities with regard to payday lenders. The 
primary tool is the Dodd-Frank Act, which prohibits unfair, 
deceptive, and abusive acts or practices. We frequently use 
that if payday lenders are making misrepresentations about, 
let's say, what the terms of the loan is; or if they're engaged 
in certain actions in collecting on loans, we will take action 
for violations of the Dodd-Frank Act against payday lenders.
    Some payday lender activity is subject to the Truth in 
Lending Act and Regulation Z. We have brought cases against 
them for those violations. They are subject to the Gramm-Leach-
Bliley Act in Regulation P. We have brought cases based upon 
that. They are subject to EFTA, the Electronic Funds Transfer 
Act, in its implementing Regulation E. The Bureau has brought 
cases under that statute and regulation as well.
    So there are many different restrictions that apply both at 
the Federal and the state level to payday lenders and their 
activities. And also, what will be added to the mix if, as our 
proposal goes forward, is the payments provisions in the 2017 
rule will also kick in.
    So payday lenders, you know, are not getting off scot-free. 
There are many, many restrictions on what they do at the 
Federal and state level. What we have simply concluded 
preliminarily is that the evidence in the record is not 
sufficient to justify one particular intervention, that is the 
imposition of mandatory underwriting requirements.
    Mr. Cloud. Thank you. I yield back.
    Mr. Krishnamoorthi. Thank you, Mr. Cloud.
    I now recognize my friend Congressman Connolly for five 
    Mr. Connolly. Thank you, Mr. Chairman. And welcome, Mr. 
    Mr. Pahl, how important do you think independent academic 
research is to rulemaking?
    Mr. Pahl. It's very important.
    Mr. Connolly. Why is that?
    Mr. Pahl. We try to figure out where consumers have 
problems that warrant regulatory responses and figure out what 
the proper responses to them are. Having the views of 
researchers of all types is incredibly important as we try to 
figure out the best possible decisions to make for consumers.
    Mr. Connolly. And when you do that, you want it to be as 
objective and untainted by industry influence as possible. 
Would that be a fair statement?
    Mr. Pahl. When we look at research, our researchers, almost 
every piece of research we looked at is paid for by somebody. 
Industry pays for some. Consumer groups pay for some. Academic 
institutions pay for some. What we try to do is we look at all 
of the research, regardless of who funded it. We look at the 
underlying data to try to see how strong it is, how relevant it 
is to the issues that we have to decide.
    So we don't go into looking at research from the 
perspective of we shouldn't consider those that are research 
funded by industry or we shouldn't consider it if it's funded 
by consumer advocates. We consider all of it.
    Mr. Connolly. Okay. But surely you rank them in terms of 
objectivity and consider the source. For example, The 
Washington Post and The Atlanta Journal talked about a story 
where the payday lending industry directly tried to influence 
the rulemaking process through the use of an academic research 
paper. Consumer Credit Research Foundation, a payday lending 
industry group led by Hilary Miller, paid a Kennesaw State 
University professor named Jennifer Priestley $30,000 to 
ghostwrite a, quote, ``academic,'' unquote, study clearly 
designed to influence policy.
    Emails show that Mr. Miller provided line edits and drafted 
the paper's abstract. That is to say the industry lobbyist and 
advocate, not the academic professor. He instructed the 
professor, however, not to use the term ``cycle of debt.''
    In another, she responded, and I quote: I'm here to serve 
you, the special interest. I just want to make sure that what 
I'm doing analytically is reflecting your thinking, she said.
    Professor Priestley offered Mr. Miller authorship credit, 
but he wisely declined, stating in an email, and I quote, ``We 
want them to believe that the results are honest,'' unquote.
    Now, is that the kind of research you'd look at just like 
any other academic research prior to rulemaking?
    Mr. Pahl. I think what we would do is we would take a look 
at what the data itself was.
    Mr. Connolly. Let's not talk theoretically. Are you 
familiar with this case?
    Mr. Pahl. With the----
    Mr. Connolly. The case I'm describing that was published 
and written up in The Washington Post and The Atlanta Journal.
    Mr. Pahl. I have read that article at some point in time, 
    Mr. Connolly. Did it bother you?
    Mr. Pahl. It bothered me in the sense that I never like the 
idea that people are trying to spin information in a way to 
achieve a result that information on the merits may not 
warrant. But from the point of view----
    Mr. Connolly. Does it bother you at all that somebody flat 
out would make an assertion that's not true? For example, the 
cover of Professor Priestley's ostensibly independent report 
falsely stated that the payday industry, and I quote, ``did not 
exercise any control over the study or over the editorial 
content of the paper.''
    We know from emails that's flat out untrue. So she 
submitted a paper to your organization that was factually 
untrue and clearly misleading, at best.
    Mr. Pahl. If someone submits something to us that is 
factually untrue, certainly that troubles me. What I think we 
would do as part of our rulemaking, however, is try to look at 
the actual data and analysis itself to see whether there were 
reasons why it may be useful to us or not. It may not be useful 
to us on the merits. But certainly, the idea that someone is 
making misstatements, misrepresentations about the research 
they provide us would concern us.
    Mr. Connolly. Well, I'm glad it concerns you. Maybe that's 
your Minnesota nice coming out. But for me, I'm bothered by 
that answer, because when we know that the industry is paying 
for it, when we know the industry is directly interfering with 
content and editing it, when we know that the author of that 
report is not telling the truth in asserting industry had no 
influence over this paper when, in fact, we know from emails 
the contrary is true, I'd throw that paper out. I don't care 
what data they've got. It's so tainted and it's so corrupt, you 
risk compromising public confidence in your rulemaking process 
even looking at something like that.
    Mr. Pahl. I'd like to offer one response just to be very 
specific and clear. Our reconsideration proposal that was put 
together on my watch does not in any way rely on that 
particular research. So whatever its merits or demerits, it is 
not part of our current proceeding and what we're looking at.
    Mr. Connolly. Yes. Thank you. My time is up, but I'd feel 
better if you told me, when something comes to us that tainted, 
we put it aside. We don't allow it to corrupt the rest of the 
process. And I do think, Mr. Pahl, you've got to take into 
account, you know, public confidence in the process. And that's 
not--it may be intangible, but it's not inconsequential.
    For all of government to work, we've got to make sure we're 
doing what we can to reassure the public that the process is an 
open, objective, fair one. And when we know that industry is 
paying for a paper posing as an academic research paper 
directly to influence your rulemaking on their self-interest, 
that taints and corrupts the process. And I'd feel a lot better 
if you told me, we throw that in the trash bin when we get it.
    My time is up. Thank you, Mr. Chairman.
    Mr. Krishnamoorthi. Thank you, Mr. Connolly.
    Without objection, I enter into the record a Washington 
Post report entitled, ``How a payday lending industry insider 
tilted academic research in its favor''; an Atlanta Journal-
Constitution article entitled, ``Payday loan group paid KSU for 
favorable research, records show''; and third, a Huffington 
Post article entitled, ``Emails show pro-payday loan study was 
edited by the payday loan industry.''
    Mr. Krishnamoorthi. With that, I now recognize 
Congresswoman Tlaib for five minutes.
    Ms. Tlaib. Thank you so much.
    I do want to followup on my good colleague, Congressman 
Connolly, about corruption in this process. The comment period 
for the proposed payday lending payday rule repeal ended 
yesterday. So I want to ask you about CFPB's process for 
filtering the comments it has received.
    Reports show that CFPB received duplicates, fake comments 
opposing the original 2017 payday rule at alarming rate. Out of 
1.4 million comments, CFPB received it only deemed around about 
200,000 to be so-called unique. Even this, quote, unique batch 
was plagued with fake duplicative comments.
    According to a Wall Street Journal survey, 40 percent of 
the respondents it contacted claimed they had not submitted the 
comments made in their name. In one instance, a woman who took 
out $323 payday loan and ended up owing more than $8,000 had a 
fraudulent pro-payday--get this--comment submitted in her name 
which stated she said, quote, her only good option for 
borrowing money, so I hope these rules don't happen.
    You would agree this seems a highly unlikely comment from 
someone who paid--who had a loan ballooned nearly 25 times 
over, correct?
    Mr. Pahl. Yes. Knowing only those facts about that 
hypothetical consumer, yes.
    Ms. Tlaib. Unfortunately, this story is not atypical. 
CFPB's own research supports that 80 percent of the payday loan 
borrowers' debts were rolled over or reborrowed within 30 days, 
ultimately costing borrowers much more than they anticipated.
    Even more troubling is that the industry may be playing a 
significant role in submitting fake and even coerced comments. 
Reports show that lenders may have been asking borrowers to 
submit pro-industry comments while they are applying for their 
loans, Mr. Pahl.
    Mr. Pahl, would you agree that payday lenders asking for 
vulnerable borrowers to submit comments while applying for a 
loan is, at best, suggestive and, at worst, coercive?
    Mr. Pahl. I think it's real hard for me to speak to why 
consumers send in the comments they do. As you noted, we got 
1.4 million comments last time. 1.4 million comments, there's 
probably a story behind each of them. What we try to do is try 
to read as many of them as we can to understand what the public 
thinks, recognizing that the problems you've identified, I 
think, are a big challenge to our agency and other agencies.
    Ms. Tlaib. But, Mr. Pahl, I do hope you take this very 
seriously, because they're asking our residents to submit 
comments while applying for a loan.
    So CFPB spokesperson, former Director--I want to get this 
right now--Mulvaney was, quote, concerned about any inauthentic 
data that comes to the Bureau and stated that, quote, we intend 
to look into this matter further.
    Mr. Pahl, would you agree that any role industry played in 
submitting fake or coerced comments is worthy of additional 
scrutiny that could justify excluding such comments from 
    Mr. Pahl. One of the things I've seen this week is 
complaints from some groups that consumer advocates are sending 
problematic comments to us. I've also heard complaints that 
industry is sending problematic comments to us. I think we will 
do our best to try to figure out which are legitimate comments.
    Ms. Tlaib. So what has the CFPB done to protect the 
integrity of the rulemaking process so far?
    Mr. Pahl. Well, this particular rulemaking process, the 
comment period ended yesterday. So we are just starting to look 
at the comments. One of the things that we have done in the 
past is try to figure out which are, in fact, duplicates.
    But one thing, I think looking at numbers of comments in 
some ways misses the point. To go back to some of the earlier 
discussion, we're really looking at the quality of information 
that goes to the most relevant issues in the record, and so it 
really isn't about numbers. I know that that's what many people 
view the public comment process as.
    Ms. Tlaib. I agree, it has to be both. Is it a Federal 
crime to intentionally make--it is a Federal crime to 
intentionally make false or fraudulent statements to a 
government agency. However, The Wall Street Journal reports 
that payday lending industry hired a firm called IssueHound to 
create websites to gather rule comments. An alarming number of 
fake comments can be traced back to the IssueHound platform 
used by payday groups.
    Mr. Pahl, our democracy and our voice of the American 
people are undermined when abuses of this nature go unchecked. 
Can you agree today to ensure fake comments are filtered and 
that when industry players abuses the comment process, they 
will be held accountable?
    Mr. Pahl. I think we will do our best not to consider 
comments that are inappropriate, and I think anyone who submits 
commits that are problematic, we deserve--it warrants taking a 
look to see what remedies may be appropriate for that.
    Ms. Tlaib. Thank you. I do look forward to the Bureau 
making meaningful and swift action to ensure this process is 
not corrupted.
    Thank you so much, and I yield the rest of my time, 
    Mr. Krishnamoorthi. Thank you, Congresswoman Tlaib.
    Without objection, I'd like to enter the following four 
documents into the record. First, a Wall Street Journal report 
entitled ``Millions of People Post Comments on Federal 
Regulations. Many Are Fake''; two, a Cleveland Plain Dealer 
article entitled ``Payday lenders get thousands of borrowers to 
complain to government about rules meant to protect them''; 
third, a Vice article entitled ``How Predatory Lenders Plot to 
Fight Government Regulation''; and fourth, a Wall Street 
Journal article entitled, ``Payday Lenders Mobilize in Support 
of Rules Repeal.''
    Mr. Krishnamoorthi. I now recognize myself for five 
    Mr. Pahl, you were hired in April 2018, correct?
    Mr. Pahl. That is correct, yes.
    Mr. Krishnamoorthi. And what did you do before this 
    Mr. Pahl. Immediately prior to that, I was the acting 
director of the Bureau of Consumer Protection at the Federal 
Trade Commission.
    Mr. Krishnamoorthi. Okay. And in your conversations leading 
up to your hire in April 2018 in this current position, did you 
talk to Director Mulvaney about the Payday Lending Rule?
    Mr. Pahl. No, I did not.
    Mr. Krishnamoorthi. Did you talk to anybody else at the 
Consumer Financial Protection Bureau about this rule?
    Mr. Pahl. As part of the interviewing process, I was told 
that the Bureau was moving forward to reconsidering it. So I 
knew that from part of the interviewing process, but I was not 
asked for my--I was not--what--the conversation didn't go 
beyond that.
    Mr. Krishnamoorthi. And what did you say in response to 
their telling you that the Payday Lending Rule was being 
    Mr. Pahl. I think I said that I have experience as both one 
who is engaged in the rulemaking process, someone who's done 
litigation, and if that were part of the job, that I would have 
the ability to do that.
    Mr. Krishnamoorthi. And have you written anything on this 
particular issue of payday loans or auto title loans in the 
    Mr. Pahl. Not on either of those topics, no.
    Mr. Krishnamoorthi. Have you written anything on the issue 
of high-cost installment loans?
    Mr. Pahl. Nothing that I can recall.
    Mr. Krishnamoorthi. Did you talk to anybody at the White 
House before being hired in this current job about the Payday 
Lending Rule?
    Mr. Pahl. I have not, did not.
    Mr. Krishnamoorthi. How many supervisor examinations have 
been conducted of payday or title loan lenders during the 
tenures of Directors Mulvaney and Kraninger?
    Mr. Pahl. I don't know the answer to that because that's 
not the shop at the Bureau that I'm responsible for.
    Mr. Krishnamoorthi. Okay. Could you commit to assist us in 
getting that type of information?
    Mr. Pahl. I can take that back to the agency and we can see 
what could be provided.
    Mr. Krishnamoorthi. What is the current litigation pending 
against any payday or title loan lender?
    Mr. Pahl. Sorry, I don't understand your question.
    Mr. Krishnamoorthi. Okay. Let me back up. Is there any 
litigation currently pending against any auto title lender or 
payday lender?
    Mr. Pahl. I don't know the answer to that. I would have to 
check, because again, that's not the part of the organization 
that I'm responsible for.
    Mr. Krishnamoorthi. Sure. Can you please provide that--or 
go back to the agency and provide that information to us?
    Mr. Pahl. If there are cases that we have filed or 
announced, we can give you that information, certainly.
    Mr. Krishnamoorthi. Sure. Unfair, deceptive, and abusive 
practices are what Dodd-Frank covers. Is there any level of 
interest rate above which a payday loan would be considered 
unfair or abusive?
    Mr. Pahl. The Dodd-Frank Act explicitly prohibits the 
agency from imposing usury requirements, so basically doing any 
kind of regulation based upon the price of a loan. And so for 
that reason, the price of a loan is not something that we can 
use essentially as a basis for our actions.
    Mr. Krishnamoorthi. Is there any interest rate above which 
you would think a payday loan is unconscionable?
    Mr. Pahl. I think unconscionability is a matter of state 
law traditionally. And so, to me, to figure out whether there 
is such a rate would depend upon what state you were and with 
the judgment of that state.
    Mr. Krishnamoorthi. So you don't believe that there's any 
threshold that would necessarily apply across the board? So, 
for instance, would an interest rate of 500 percent be 
unconscionable to you?
    Mr. Pahl. It is not part of the Bureau's work. And also, if 
it's a 500 percent rate, I also would want to know what's 
included and how it's calculated.
    Mr. Krishnamoorthi. Okay. Tell me how you could justify a 
500 percent rate on a payday loan.
    Mr. Pahl. It's not whether I could or could not justify it. 
It's just something that is not within the ambit of my agency's 
responsibility or authority. And so therefore, you know, my 
personal opinions as to pulling a number, you know, as to 
what's too high or too low for an interest rate alone is not 
part of my job, part of my position, part of my agency's work.
    Mr. Krishnamoorthi. So, Mr. Pahl, I have another question 
for you. Do you believe that the lion's share of deregulation 
is likely to commence once President Trump's appointees assume 
their leadership roles throughout the Federal Government, 
including the CFPB?
    Mr. Pahl. I'm sorry, could you repeat the question?
    Mr. Krishnamoorthi. Do you believe that the lion's share of 
deregulation is likely to commence once President Trump's 
appointees assume their leadership roles throughout the Federal 
Government, including the CFPB?
    Mr. Pahl. That's a question that goes way beyond my 
    Mr. Krishnamoorthi. Well, that's what you wrote back on--
let's see here. You wrote in The Hill, in an article, on 
February 2, 2017, an article titled, ``The tortoise, not the 
hare, will win the deregulation race.''
    Mr. Pahl. Right.
    Mr. Krishnamoorthi. So I think it's within your expertise, 
if it was back then.
    Mr. Pahl. My point was simply that I was making a general 
statement in that article that it takes a long time to make 
regulatory changes, pro or con. I thought you were asking me 
whether--about other specific agencies and other specific 
regulatory regimes and who benefits from them.
    Mr. Krishnamoorthi. And you're one of those senior 
appointees at CFPB, correct?
    Mr. Pahl. I am, yes.
    Mr. Krishnamoorthi. Thank you. Thank you.
    Well, I'd like to thank our witness for his testimony 
today. Without objection, all members will have five 
legislative days within which to submit additional written 
questions for the witness to the chair which will be forwarded 
to the witness for his response. I ask our witness to please 
respond as promptly as you are able, and we will followup as 
well on our request to you for the information that was posed 
in this hearing.
    Mr. Pahl. Chairman, there is one point I'd like to make, 
with your indulgence. You know, I received some requests for 
information from members of this panel. I want to clarify that 
I'm not authorized to provide documents on the agency's behalf.
    Mr. Krishnamoorthi. Are you asserting executive privilege 
over that too?
    Mr. Pahl. I would be asserting executive privilege as--
depends on what the documents are as to----
    Mr. Krishnamoorthi. We're going to followup with the 
request. You've already answered those questions during the 
hearing, and then you can put on paper what you--what 
objections you have. But I think you already answered on the 
record with regard to those documents. So if you want to go 
back and ask those questions of the agency as to what you're 
going to be able to provide, I appreciate it.
    Thank you very much. This hearing is adjourned.
    [Whereupon, at 3:37 p.m., the subcommittee was adjourned.]