[Senate Hearing 116-8]
[From the U.S. Government Publishing Office]
S.Hrg. 116-8
THE CONSUMER FINANCIAL PROTECTION
BUREAU'S SEMIANNUAL REPORT TO CONGRESS
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
ON
A REVIEW OF THE CONSUMER FINANCIAL PROTECTION BUREAU'S SEMIANNUAL
REPORT TO CONGRESS
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MARCH 12, 2019
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Printed for the use of the Committee on Banking, Housing, and Urban
Affairs
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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
MIKE CRAPO, Idaho, Chairman
RICHARD C. SHELBY, Alabama SHERROD BROWN, Ohio
PATRICK J. TOOMEY, Pennsylvania JACK REED, Rhode Island
TIM SCOTT, South Carolina ROBERT MENENDEZ, New Jersey
BEN SASSE, Nebraska JON TESTER, Montana
TOM COTTON, Arkansas MARK R. WARNER, Virginia
MIKE ROUNDS, South Dakota ELIZABETH WARREN, Massachusetts
DAVID PERDUE, Georgia BRIAN SCHATZ, Hawaii
THOM TILLIS, North Carolina CHRIS VAN HOLLEN, Maryland
JOHN KENNEDY, Louisiana CATHERINE CORTEZ MASTO, Nevada
MARTHA MCSALLY, Arizona DOUG JONES, Alabama
JERRY MORAN, Kansas TINA SMITH, Minnesota
KEVIN CRAMER, North Dakota KYRSTEN SINEMA, Arizona
Gregg Richard, Staff Director
Joe Carapiet, Chief Counsel
Brandon Beall, Professional Staff Member
Laura Swanson, Democratic Deputy Staff Director
Elisha Tuku, Democratic Chief Counsel
Corey Frayer, Democratic Professional Staff Member
Cameron Ricker, Chief Clerk
Shelvin Simmons, IT Director
Charles J. Moffat, Hearing Clerk
Jim Crowell, Editor
(ii)
C O N T E N T S
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TUESDAY, MARCH 12, 2019
Page
Opening statement of Chairman Crapo.............................. 1
Prepared statement........................................... 33
Opening statements, comments, or prepared statements of:
Senator Brown................................................ 3
Prepared statement....................................... 34
WITNESS
Kathy Kraninger, Director, Consumer Financial Protection Bureau.. 5
Prepared statement........................................... 35
Responses to written questions of:
Senator Brown............................................ 40
Senator Cotton........................................... 45
Senator Perdue........................................... 46
Senator Tillis........................................... 48
Senator Moran............................................ 51
Senator Reed............................................. 54
Senator Menendez......................................... 55
Senator Warner........................................... 57
Senator Warren........................................... 61
Senator Cortez Masto..................................... 70
Senator Sinema........................................... 83
Additional Material Supplied for the Record
Semiannual Report of the Bureau of Consumer Financial
Protection--Fall 2018.......................................... 86
Letter submitted by the Association of Credit and Collection
Professionals.................................................. 128
Letter submitted by the Credit Union National Association........ 138
Statement submitted by Scott S. Weltman, Managing Shareholder,
Weltman, Weinberg, and Reis Co., LPA........................... 143
Letter submitted by the Consumer Banker's Association............ 349
(iii)
THE CONSUMER FINANCIAL PROTECTION BUREAU'S SEMIANNUAL REPORT TO
CONGRESS
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TUESDAY, MARCH 12, 2019
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10:08 a.m., in room SD-538, Dirksen
Senate Office Building, Hon. Mike Crapo, Chairman of the
Committee, presiding.
OPENING STATEMENT OF CHAIRMAN MIKE CRAPO
Chairman Crapo. The hearing will come to order, and, Ms.
Kraninger, please take your seat.
Today we will receive testimony from CFPB Director Kathy
Kraninger on the CFPB's most recent semiannual report.
On February 12, the CFPB issues its fall 2018 semiannual
report which outlines the CFPB's significant work between April
2018 and September 2018, including rulemakings and supervisory
and regulatory activities.
The report also provides insight into what the CFPB plans
to undertake in the coming work period.
In the report, Director Kraninger said, ``As I begin my
stewardship of the CFPB, I will also be moving forward with the
agency as a team to make sure the American people have access
to the financial products and services that best suit their
individual needs, the financial institutions that serve them
are competing on a level playing field, and the marketplace is
innovating in ways that enhance consumer choice.''
Providing individuals and businesses with access to a wide
array of financial products and services is foundational to
robust economic growth and job creation.
Under Director Kraninger's leadership, the CFPB has already
started to take action to ensure that regulations that could
affect consumers' access to credit are based on solid evidence
and legal support, rather than flawed analysis.
On February 6, the CFPB proposed to rescind the mandatory
underwriting provisions of its payday lending rule and delay
their compliance date.
The decision was made nearly 1 year after initially
noticing its intention to revisit the rule and after conducting
extensive due diligence.
The CFPB found insufficient evidence and legal support for
the mandatory underwriting provisions and said that it is
concerned that those provisions would reduce access to credit
and competition in States that have determined it is in their
residents' interest to be able to use such products, subject to
State law.
The CFPB has also taken steps to implement provisions of
the Economic Growth, Regulatory Relief, and Consumer Protection
Act--Senate bill 2155--that increase protections for consumers.
On March 4, the CFPB issued an advance notice of proposed
rulemaking to gather information on residential Property
Assessed Clean Energy financing, or PACE loans, that will be
used in its proposal to implement Section 307 of the bill.
In September, the CFPB announced as effective a provision
of S. 2155 that provides consumers concerned about identity
theft or data breaches the option to freeze and unfreeze their
credit for free.
A New York Times article commenting on the provision noted
that, ``one helpful change . . . will allow consumers to
`freeze' their credit files at the three major credit reporting
bureaus--without charge. Consumers can also `thaw' their files,
temporarily or permanently, without a fee.''
Susan Grant, director of consumer protection and privacy at
the Consumer Federation of America expressed support for these
measures, calling them ``a good thing.''
In August, the CFPB issued an interpretive and procedural
rule to implement Section 104 of S. 2155 to exempt qualifying
community banks and credit unions partially from reporting
certain data points under HMDA.
The CFPB took another positive step on HMDA reporting in
December issuing policy guidance describing HMDA data that it
intends to publicly disclose in a manner that protects
consumers' privacy.
The Committee will continue to make implementation of S.
2155 a top priority this Congress, and I encourage the CFPB to
take the necessary steps to provide meaningful relief that will
ultimately benefit consumers.
Data privacy is another issue that the Committee will spend
significant time on this Congress.
Americans are rightly concerned about how their data is
collected and used and how their data is secured and protected
by both Government agencies and private companies.
I have long raised concerns about big data collection by
the CFPB, especially with respect to credit card and mortgage
information.
Although there have been positive changes in recent years
under new leadership, the CFPB must ensure that the collection
of consumer information is limited, information is retained
only as long as is absolutely necessary to fulfill the CFPB's
obligations, and that appropriate safeguards are in place to
protect it.
It is also worth examining how the Fair Credit Reporting
Act, or FCRA, should work in a digital economy, and whether
certain data brokers and other firms serve a function similar
to the original consumer reporting agencies.
The FCRA establishes standards for the collection and
permissible purposes for dissemination of information by
consumer reporting agencies and gives consumers access to their
files and the right to correct information.
The CFPB, through its supervision of larger participants it
defines by rule, oversees a large segment of the consumer
reporting marketplace.
I look forward to working with the CFPB to identify
opportunities to update FCRA so that it works in a digital
world.
During this hearing, I look forward to hearing more about
Director Kraninger's priorities for the CFPB in the upcoming
work period, additional legislative or regulatory opportunities
to provide widespread access to financial products and
services, and steps that could be taken to increase the
protection of consumers' financial and other sensitive
information.
Director Kraninger, again, thank you for joining the
Committee this morning to discuss the CFPB's activities and its
plans.
Senator Brown.
Senator Brown. Still trying to get that quorum over here,
Mr. Chairman.
Chairman Crapo. I appreciate your help on that.
OPENING STATEMENT OF SENATOR SHERROD BROWN
Senator Brown. Thank you, Mr. Chairman. And welcome,
Director, to the Committee again.
We created the Consumer Financial Protection Bureau to
crack down on Wall Street predators and shady lenders that prey
on hardworking families. Wall Street, as we know, as we see
here about every day, has armies of lobbyists fighting for
every tax break, every exemption, every opportunity to be let
off the hook for scamming customers and preying on families,
and in some cases destroying communities.
Ordinary Americans do not have those lobbyists. They do not
have that kind of power. The Consumer Protection Bureau is
supposed to be their voice, it was created to be their voice,
created to fight for them.
When a toxic mortgage robs a family of their home, it is
not the CEO of Bank of America, it is not the top management at
Wells Fargo who sits down with those kids and has the tough
conversations around the table. It is those families explaining
that to their children, explaining their house is being taken
away, explaining they are going to have to change schools,
explaining why they are going to have to get rid of their
family pet. It is the parents who were ripped off by corporate
greed, those are the people who have to look their children in
the eye and explain things away.
We created the CFPB so there would be fewer of those
conversations--to look out for danger before it crashes down on
hardworking families, robs them of their homes, their jobs,
their savings. Like food inspectors, the CFPB is supposed to
hunt down scammers trying to sneak toxic products onto kitchen
tables. But under new leadership, the Consumer Bureau has
turned its back on that job.
CFPB inspectors used to show up at Wall Street banks and
other lenders to make sure they were obeying the Military
Lending Act. That is a law that protects active-duty
servicemembers and their families from predatory loans. Under
new leadership, CFPB inspectors simply are not protecting
servicemembers the way they used to.
The CFPB used to protect borrowers from shady lending
practices that trapped hardworking families in that endless
cycle of debt. Now the CFPB Director is giving payday lenders
and car title lenders free rein. In fact, Director Kraninger
wants us to believe that an endless cycle of debt is a benefit
to hardworking families.
The CFPB used to make sure loans have clear explanations
that regular Americans could understand. Now the CFPB has
created the George Orwell-type named ``Office of Innovation'',
which as far as we can tell is dedicated to helping big banks
and tech firms innovate new ways to trick customers into new
loans and other complicated financial products.
The old CFPB prosecuted debt collectors who used shady
tactics to harass borrowers and threaten them in their homes or
at their jobs. Now the CFPB is considering a proposal to let
debt collectors call borrowers as many times as they want. You
thought telemarketers were bad? Try being harassed over your
student loan debt.
If the Director of the Consumer Financial Protection Bureau
wanted to help customers, she would not have to look very far
to find people in need.
Student loan debts have reached record levels, record
delinquency rates. Seven million Americans, as we read, are
more than 3 months behind; 7 million Americans 3 months behind
on their car payments--the highest level in 19 years, worse
than during the Great Recession. Forty percent of Americans do
not have enough savings to cover a $400 emergency expense.
Instead, CFPB is siding with the rest of this
Administration that looks like an executive retreat for Wall
Street. It is clear whose side everyone in this Administration
is on. They continue to create excuses for eliminating
financial protections, saying they are ``increasing access to
credit.''
What they really mean is increasing access to bad credit
that drains people's savings and traps them in debt. Right now
today, at this time, Tim Sloan, CEO of Wells Fargo, is
testifying in the House Financial Services Committee about a
laundry list of ways his bank abused its consumers.
Millions of Americans got hurt because this bank cared more
about their profits than about their customers and about their
employees. It was the CFPB, as we remember, the old CFPB, that
helped uncover this scandal. It was the CFPB that got many
Americans their money back. That is what Ms. Kraninger's job
should be about.
Chairman Crapo. Thank you, Senator Brown. I will go first
on the questions, and as I indicated in my opening statement--
oh, excuse me. I do not want to get to my questions before I
let the Director speak. Senator Brown has corrected me twice
now in this hearing.
[Laughter.]
Chairman Crapo. Director Kraninger, please make your
opening statement, and then I will jump into questions.
STATEMENT OF KATHY KRANINGER, DIRECTOR, CONSUMER FINANCIAL
PROTECTION BUREAU
Ms. Kraninger. Thank you, Mr. Chairman.
Chairman Crapo, Senator Brown, Members of the Committee,
thank you for the opportunity to present the Consumer Financial
Protection Bureau's most recent Semiannual Reports to Congress.
While the reports describe actions undertaken before I arrived,
they provide a touchstone as we create a fresh outlook at the
agency under my leadership.
Since my confirmation, I have been engaged in a listening
tour to meet as many of our stakeholders as possible, including
many of you. I have visited our regional offices in San
Francisco, Chicago, and New York, interacting first and
foremost with Bureau staff. I have been impressed by the
exceptionally talented staff and their commitment to our
mission of protecting consumers.
In D.C. and in the field, I have held roundtables and met
with consumer advocates, faith leaders, banks of all sizes,
credit unions, nondepository institutions, innovators, and
fellow regulators at the Federal and State level. I have spoken
with current and former members of the Consumer Advisory Board
and many individuals who care about the bureau, such as Senator
Dodd, Congressman Frank, and former Director Cordray. Hearing
all perspectives is critical to bringing the best thinking as
we carry out our mission.
The following gives you a flavor for the discussions that I
have been having.
I have heard far and wide that the Bureau produces
phenomenal financial education content. Stakeholders and the
Bureau, however, are struggling with the challenge of measuring
how education changes behavior and leads to action. I have
talked to my examiners about working with institutions to build
a culture of compliance and how supervision should be a more
prominent tool in the Bureau's toolkit.
Also, on examinations, financial institutions and nonbank
lenders alike have noted the value of the exam process, as well
as their interest in having clear rules of the road.
State Attorneys General and bank supervisors have cited the
valuable work that we have done together, particularly on
enforcement actions, and I have heard from legal aid providers
about how they play whack-a-mole against bad actors until one
of the Bureau's enforcement actions deters certain behaviors.
As I look to wrap up my listening tour this month, I have
pledged that these engagements will continue on a regular
basis. As one example, I have invited the Members of this
Committee to visit our headquarters on Monday, May 20th. I hope
that all of you are able to attend.
In the midst of the listening tour, I have ensured that the
important work of the Bureau continues apace, and I will
highlight a few of our recent activities.
First, I pledge to protect consumers from bad actors, and
the Bureau's enforcement attorneys continue their work to that
end. I have announced five enforcement actions since I started,
including one against a payday lender that failed to prevent
overcharges and made harassing collection calls, and a second
against an online lender that debited consumers' bank accounts
without authorization and failed to honor loan extensions.
Second, with the intent to maintain access to credit and
ensure more choice for consumers in need of emergency funds,
the Bureau is reconsidering the sufficiency of the evidence and
analysis supporting the underwriting requirements in the short-
term, small-dollar lending rule. We want consumers to be
empowered to make their own decisions that best suit their
individual financial needs. And we want to make sure that our
evidence is sufficiently robust and rigorous. I have an open
mind on this matter and look forward to reviewing the comments
and evidence submitted in response to our proposals.
During America Saves Week, I announced the Start Small,
Save Up Initiative to help promote the importance of savings
among Americans--a simple message but an urgently needed one,
given a study showing that 40 percent of adults lack enough
liquid savings to cover a $400 emergency expense, as Senator
Brown noted. Savings in addition to manageable debt and good
credit are cornerstones of financial well-being.
We have issued a number of important reports on topics
including assessments of our significant rules, consumer credit
trends related to first-time homebuying by servicemembers, and
trends related to suspicious activity reports on elder
financial fraud.
Lastly, I have spent significant time understanding the
Bureau's operations and looking at ways to improve delivery of
the Bureau's mission. With the incredible flexibility Congress
provided this agency, I feel a deep sense of responsibility for
ensuring that we become a model for efficient and effective use
of our resources.
Looking forward, I will be setting priorities for the
Bureau, including setting the tone for how we will operate as
an agency. I expect to emphasize stability, consistency, and
transparency as hallmarks as we mature the agency and
institutionalize the many partnerships that are key to our
success in protecting consumers.
I am also examining how we can best utilize all of the
tools that Congress gave us, broadening our efforts to focus on
prevention of harm as a primary goal of our actions.
Thank you for the opportunity to present the CFPB's work to
you and provide you with an update on the activities of the
Bureau in my tenure. I would be happy to answer your questions.
Chairman Crapo. Thank you, Director Kraninger, and now I
will proceed with my questions.
My first question, as I indicated, is going to be on data
privacy, and I want to focus on FCRA rather than the CFPB
first. In today's digital economy, there appear to be companies
that serve a very similar function to those that were
historically regulated by FCRA in terms of the impact and
function that they performed in access to credit and credit
reporting in our economy.
It seems to me, though, that the scope of FCRA has not been
able to keep up with the scope of activities in the marketplace
in terms of our digital world and data collection to adequately
provide us the necessary regulatory and statutory oversight
that is necessary for these types of functions. And the CFPB
plays an important role in the credit reporting marketplace
overseeing consumer reporting agencies that are larger
participants and shares the FCRA enforcement responsibility.
First of all, can you commit to working with this Committee
to find a balanced approach to making FCRA more effective in
the digital economy? And, second, could you comment on this
issue?
Ms. Kraninger. Yes, Senator. I am committed to working with
Congress on this. I recognize again that in a digital world
there are a lot of things that are changing with respect to how
financial products and services are interacting with consumers,
and that is something that we need to spend some more time
looking at.
Chairman Crapo. All right. I appreciate that. And we will
be looking very aggressively at that and, as I said, welcome
your input and advice on where you see the need to fine-tune
FCRA and other jurisdictional aspects of this Committee on the
entire data collection arena today.
So let us move to the CFPB. As you are well aware, I have
long been concerned about the ever-increasing amounts of big
data collected by the Government in addition to that collected
by the private sector. And when CFPB was established, it began
a number of data collection undertakings that I felt were far
excessive to what was necessary and which exposed Americans to
ever-increasing collection of data about their private lives
and the potential to violate that privacy that I believe
Americans deserve.
In September of 2018, the CFPB issued a report on its
sources and uses of data that detailed its major data bases as
well as how this data is gathered, used, and protected. I
appreciate those efforts of the CFPB--in fact, I should say
finally the CFPB is starting to be responsive to these
concerns--and I appreciate our new leadership being transparent
about its data practices.
What I would like to know is what the CFPB's next steps are
with respect to its data collection, its use, and its
protection of that data.
Ms. Kraninger. Mr. Chairman, I share your concerns, and we
certainly discussed this last summer. I can say first and
foremost that the first principle is to only collect the
information that you absolutely need to carry out the mission.
That is a conversation that we are having on a regular basis as
we look at the data collections that the Bureau determines are
necessary, limiting the personally identifiable information
that is collected, because if it is not collected, it does not
have to be protected.
Moving to the next iteration of this, we are looking at the
comments that came back on the data uses and sources report
that we put out. We are also looking at making sure that our
internal processes are laid out properly. I had the honor of
signing the Data Access Policy that governs the way the Bureau
will utilize information internally, and there is also a group
that is looking at data intake on a regular basis. So
institutionalizing those processes to make sure that we are,
again, limiting our collection and then protecting it is
important.
Chairman Crapo. Well, thank you. And I know that at the
outset, one of the--well, the agency was collecting data on
credit card transactions, on mortgages, and on car loans, I
believe. Is that correct, on car loans?
Ms. Kraninger. Yes, Senator. For a number of different
reasons, supporting rulemakings, conducting research, yes.
Chairman Crapo. And student loans? And just to look at
credit cards, for example, I think one of the original goals of
the CFPB was to collect data on something like 900 million
credit card accounts. Is that accurate, or do you know?
Ms. Kraninger. Senator, there is certainly a lot of
information collected pursuant to the CARD Act and our
responsibilities, but we do try to limit at least account level
information and individualized information, and I can get back
to you with the exact number.
Chairman Crapo. All right. I would appreciate that because,
frankly, I have had a hard time getting the CFPB to give me an
exact number of all the credit card accounts that it is
collecting data on and the number of data sets that it is
collecting on each transaction. So I would appreciate you
getting back to me on that.
Chairman Crapo. My time has expired. Senator Brown.
Senator Brown. Thank you. Thank you, Mr. Chairman.
Payday lender ACE Cash Express used this chart to train its
employees. There is a copy that I believe Mr. Hardy just put on
the table, a copy on the table for you. This is what the payday
loan cycle of debt looks like without an ability-to-repay
requirement, which you have proposed to repeal. Now lenders do
not even have to consider if borrowers even have a shot at
repaying their loans, and you can see this is the document that
this company, one of the largest payday lenders, ACE Cash
Express, put out, and this document is a training document for
its employees.
Director, can you show me on this chart where in this cycle
a family actually pays off their loans?
Ms. Kraninger. Senator, I have seen this document. I know
it was part of the rulemaking process that the Bureau went
through and finalized in 2017. It certainly is going to be part
of the record that we take forward as we are reconsidering the
rule as well. All of the evidence that has been submitted in
the past as well as any new evidence and data will be
considered as part of the rulemaking going forward.
Senator Brown. Well, but the question, where in this
cycle--the customer applies for a loan around and around and
around. This is the training provided. This is the training
document to train payday lenders at one of the--to train the
workers at payday lending firms, one of the biggest in the
country, and there appears to be--this is just a circle where
you get one loan and then another and then another.
So where on here, if you would again examine it and read
each of those descriptions, where on here does this company or
do you expect them to repay the loan? Where is that?
Ms. Kraninger. Senator, again, with respect to the loan
itself and the products that are out there, I would like to see
a broad panoply of products available to consumers so that they
can make the best decision possible for themselves looking at
the product----
Senator Brown. I am sorry to interrupt, but every time they
go through the cycle, you know what happens. They know what
happens. This is the reason they put out this training
document. You know what happens; they know what happens. They
get a loan. They spend the money. They had to have the loan.
Their car breaks down. They cannot pay it back right away. Then
the customer does not make a payment. The account enters
collections. The customer applies for another short-term loan,
around and around. And you know four out of five people who get
a payday loan either have to get another loan to pay off the
first or they default. You know that happens. And when you
eliminate the ability-to-repay requirement, we know what is
going to happen again more and more and more. And this led to
the--this was part of the finding, part of the rule, part of
the reason they did the ability-to-repay requirement.
Let me move to another question. Eric Blankenstein, one of
your top deputies in charge of enforcing antidiscrimination
laws, his title I believe is ``Chief of Supervision,
Enforcement and,'' I underscore, ``Fair Lending''. You may
remember reporters uncovered he has a history of writing racist
statements on his blog. If Mr. Hardy would come forward and
please present this to the Director, these are some of the
statements that Mr. Blankenstein made, if you would take a look
at those.
These are statements--the worst statements he made I did
not print, some that are just really unspeakable in the halls
of the Senate and unbelievable to me in the year 2018 when he
said these. Would you be willing to read any of those aloud to
us, his statements?
Ms. Kraninger. Senator, the words here are not words that I
would use.
Senator Brown. I guess that means no, right? So if you are
not willing to say those things aloud to the Committee, do you
think someone who wrote them--remember, he did not write these
in college. He wrote these last year. They were written in
2018. Do you think someone who wrote them, someone who feels
that way about people of color should be in charge of enforcing
antidiscrimination laws?
Ms. Kraninger. Senator, I understand what you are getting
at, and I can tell you that the matter in total that happened
last fall when statements were covered by the press is a matter
that was referred to the Inspector General by my predecessor.
He made that public. There is an ongoing investigation, and so
it is not appropriate for me to comment on----
Senator Brown. Yet he still works there, correct?
Ms. Kraninger. That is correct, and there is----
Senator Brown. He was hired by your predecessor. When you
took over, I asked you to remove him because if he has those
attitudes--I mean, you know these numbers. Black homebuyers are
still denied mortgages at more than twice the rate, twice as
often as white homebuyers. You know that racism is still--I
think you know that racism--I do not think your President may
know, but you know--you are a smart, educated young woman--that
racism is lending is still very real in this country.
So because you resisted my pleas and others' to remove him,
I assume that means you personally endorse having him, somebody
who thinks like him, in charge of our antidiscrimination
policy. Really?
Chairman Crapo. And if you could keep your response brief,
please.
Ms. Kraninger. Senator, I believe in due process, and I
certainly believe that the process should be followed in this
case, as in the cases of any of the other employees who have
worked for me if there are issues that are raised. And so the
process is being followed.
Senator Brown. This is not due process in terms of a court
of law. This is someone who has proudly uttered racist
statement after racist statement after racist statement, and
you have chosen to keep him in a job to enforce laws on
antidiscrimination in lending. Correct?
Ms. Kraninger. The process is being followed, Senator, and
we will certainly get back to you when that changes.
Chairman Crapo. Senator Shelby.
Senator Shelby. Thank you.
Director Kraninger, you launched the ``listening tour,'' we
call it, which I thought was very good, to meet with your
regional offices as well as with the regulators and other
stakeholders last year. We have talked about that some. What
did you learn from going out in the field, which I think was
very important? What did you learn?
Ms. Kraninger. Thank you for the question.
Senator Shelby. Overall.
Ms. Kraninger. Yes, overall, there are a number of
stakeholders across the country who are truly committed to the
mission of consumer protection. I have met with financial
educators. I have met with reporters, even, financial reporters
who want to further the education base across the country and
really push literacy. I have talked to many of your colleagues
about this issue. I think the Bureau has been given tremendous
authorities, including a number of tools that, as we mature as
an agency, we need to utilize all effectively, so certainly the
education tool.
Having clear rules of the road is the other thing that I
have heard from every entity out there, and that includes our
partners at the State level who are also working with us to
ensure that financial institutions understand what the rules
are and are following them. Frankly, it makes much more clear
those who are not seeking to actually comply with the law and
provide their consumers with good financial services and
products. So taking those enforcement actions continues to be a
priority.
Senator Shelby. I want to get into another area that we
have talked about a long time. Cost-benefit analysis I think is
very important for rulemaking and regulations. I was pleased
that you announced the creation of the Office of Cost-Benefit
Analysis in 2018 at the CFPB. I want to commend you for
emphasizing that, increasing the use of cost-benefit analysis,
because everything costs money.
There is no better consumer than an informed consumer. We
know that. But how has the rulemaking process changed with the
creation of this office?
Ms. Kraninger. Senator, the issue of cost-benefit analysis
is important across the Bureau, and I am looking at the best
way to structure that. My predecessor announced the office, and
we are actually going to bring someone in to look at the role
of economists across the Bureau in general. Right now that
responsibility is still sitting in our Research, Markets, and
Regulations Division, but we are going to look holistically at
how we can utilize the economists and economic rigor and cost-
benefit analysis across all of the activities at the Bureau. I
look forward to getting back to you about the path I decide to
take on that issue.
Senator Shelby. Absolutely. Another issue is in the
rulemaking process. I have some issues with that. It is the
practice of regulation through enforcement rather than
rulemaking. For many years, the Bureau overwhelmingly looked to
enforcement actions to impose policies rather than going
through the rulemaking process. We are talking about due
process.
I am pleased to see the Bureau under your leadership has
prioritized ensuring that future rulemaking is both fair and
transparent. I think it has to be both.
Could you provide an update on where you are to increase
transparency, which helps us all as consumers, in the
rulemaking process?
Ms. Kraninger. Thank you, Senator. I agree completely that
we need to be transparent with stakeholders and those who are
interested about what the rulemaking actions are that we can
take. Last year, the Bureau issued a request for comment on all
kinds of issues across the spectrum. With respect to
regulation, we received 1,750 comments back about how to reduce
regulatory burden and increase transparency. We are going
through all of those ideas and looking at how we make a more
rigorous process.
Senator Shelby. Chairman Crapo got into this just a little
bit--I have just got maybe a minute or less--and that is data
protection, which is so important, privacy and so forth. A lot
of privacy--data is everywhere. A lot of it is unnecessary. How
are you trying to tailor that to only get the data you need
rather than just sweeping everything that is extraneous and
violates people's privacy?
Ms. Kraninger. It is truly important, and I am committed to
making sure that we have a very clear understanding of the
information that we need. Rulemaking is a good example. We need
to understand the effectiveness of the rules and whether we are
getting the outcomes that we planned for, and that does require
actually having data on the impacts and the process at every
stage.
But there is a way to limit that, again, making sure that
we are putting rigor to the process of identifying which types
of data are going to be most important, figuring out if that
data is already collected and by whom, and doing the due
diligence to make that a robust but, again, limited process and
limited collection.
Senator Shelby. Thank you.
Thank you, Mr. Chairman.
Chairman Crapo. Thank you.
Senator Cortez Masto.
Senator Cortez Masto. Thank you, Mr. Chair.
Ms. Kraninger, thank you for being here. Thank you for the
call regarding the PACE loans. I appreciated that.
There is another issue that I have concerns about, and I
want to talk to you about it. It is the Military Lending Act.
As you know, I joined with every Democrat in the Senate who
sent you a letter opposing your decision to no longer require
the Bureau to supervise financial institutions for compliance
with the Military Lending Act.
Now, the Military Lending Act, as you well know, provides
servicemembers and their immediate families against exploitive
loans that charge more than 36 percent interest or include
various predatory features. By choosing not to include the MLA
as part of the CFPB's supervisory exams, particularly of payday
lenders, you appear to be putting the burden on servicemembers
and their families to complain about violations of the MLA
before your agency can take action. That is a change in the
position of the CFPB.
Can you explain why there is that change?
Ms. Kraninger. Yes, Senator. I share the concern over the
unique challenges that servicemembers face. That is certainly
what motivated Congress to enact the Military Lending Act. It
is what motivated Congress to create an Office of Servicemember
Affairs in the Bureau. And so it is an issue we spend a lot of
time on.
Senator Cortez Masto. But you agree, the CFPB is required
to enforce the MLA?
Ms. Kraninger. Absolutely. We have clear authority to
enforce the Military Lending Act----
Senator Cortez Masto. So why have you changed your position
in actually going out there and as part of your exams--because
you do engage in examination of payday loan companies, right?
Ms. Kraninger. Yes.
Senator Cortez Masto. So why would you take out the MLA
provision in there as part of ensuring they are complying with
the MLA when you conduct that exam?
Ms. Kraninger. So the examiners do have the ability if they
actually--in the course of other exams, see a violation, to
highlight that, and we can take action on it. But the Military
Lending Act was not designated by Congress as one of the
enumerated Federal consumer financial laws, and----
Senator Cortez Masto. No, but it was designated right in
the Military Lending Act that the CFPB would be the enforcer,
and so I am curious as to why there is this semantics between
enforcement and supervision. I do not understand it, and that
is what--it is a change in the CFPB provision. That is why a
number of Attorneys General, that is why many military
organizations, including the Democrats here on the Committee
and in the Senate, are challenging why you have made this
change. I am trying to understand it.
Ms. Kraninger. In Title X, the supervision authority and
the enforcement authorities are laid out separately, so it
really does get back to Section 1024 and the authorities that
are given there. There has been an assertion that 1024(b)(1)(c)
actually gives us broad authority to supervise for basically
anything, the opportunity to assess risk to consumers broadly.
At the same time, though, in the other part of that
section, there was a stipulation about the enumerated consumer
laws that we are supervising for. So that is the tension in the
issue. If----
Senator Cortez Masto. It does not make sense to me. So you
are basically saying--so, for instance, a police officer,
literally what you are basically saying is that anytime a
police officer can take action is if a complaint is filed. So
those beat cops that are on the street every day, that are
engaging in community policing, that are educating, that are
talking in the community, they literally should not be on the
street under your analysis and should be waiting and sitting at
a desk for a complaint to come in. That is what I am hearing,
and I do not understand that.
So what made the CFPB--why did you change that position?
Ms. Kraninger. If I could, Senator----
Senator Cortez Masto. Was there something specific that
changed that position in your mind?
Ms. Kraninger. Yes, it really is the reading of the
supervision authority that the Bureau has----
Senator Cortez Masto. Your reading of it or somebody else's
reading of it?
Ms. Kraninger. Yes, it is my reading, and it is based on--
--
Senator Cortez Masto. In your letter to us, you said that
you relied on legal analysis. Who did the legal analysis?
Ms. Kraninger. The Bureau lawyers have looked at this issue
over a number of years, and we outlined the information and
perspective that was----
Senator Cortez Masto. Do you have a written legal analysis
that changed your position?
Ms. Kraninger. There is a legal analysis, yes, and we
provided----
Senator Cortez Masto. I saw an addendum of that. Can I see
the full legal analysis that made that determination that
changed your mind that you would no longer actively engage in
supervision of the MLA when it comes to those examinations?
And here is the other thing. Let me ask you, under your
statute--I noticed on your website that you actually go out and
you engage in prevention, and you tell consumers how to prevent
waste and fraud or consumer fraud, and you educate them. Where
in the statute, based on your analysis, do you have the
specific and explicit authority to educate people? Is there
some specific language in there that says you can engage in
education?
Ms. Kraninger. Yes.
Senator Cortez Masto. Where is the language?
Ms. Kraninger. There are a number of provisions, actually,
in Title X that do that. It is a responsibility and authority
of the Bureau--actually, it is one of our primary mission
objectives to educate consumers. There is an Office of
Financial Education with enumerated responsibilities in the
statute.
Senator Cortez Masto. So then you actually educate military
families about the MLA?
Ms. Kraninger. We do that with the Department of Defense. I
am not 100 percent sure, frankly, if we do that specifically,
but----
Senator Cortez Masto. Well, that would be part of your
authority under the MLA----
Ms. Kraninger. ----it would certainly be part of----
Senator Cortez Masto. ----and what you are saying is to
educate them on the MLA. So you would educate them on their
rights under the MLA. You would enforce the MLA. But you would
not actively go out as part of your examinations that you
engage in already with payday lenders to ensure those payday
lenders are not abusing the law when it comes to MLA. Is that
what I am understanding?
Ms. Kraninger. Yes, my reading----
Senator Cortez Masto. And I notice my time is up, so can
you send me that legal opinion? In your response to us, you
explicitly stated that you changed your position based on a
legal analysis that was given, and you gave us a summary of
that. I would like to see a full copy of that analysis and who
wrote that analysis for the CFPB. If you would provide that,
that would be helpful.
Ms. Kraninger. I understand, Senator, why you are asking. I
would say there is a protection of the deliberative process
within the executive branch----
Senator Cortez Masto. So then why did you provide us with
any of it?
Ms. Kraninger. I provided you with a summary that we could
argue was definitely not deliberative, and I want to work with
you to get you the right information. But I would assert that I
am asking Congress to explicitly give me the authority to----
Senator Cortez Masto. But I am arguing you already have the
authority.
Ms. Kraninger. I understand, and my----
Senator Cortez Masto. One final thing, and I know I am
running out of time, but is your opinion based on a challenge
to that authority in the courts? Did somebody challenge----
Ms. Kraninger. No, Senator.
Senator Cortez Masto. Did anybody come and challenge your
legal authority the CFPB had to move forward already under the
supervision and examination?
Ms. Kraninger. Senator, I think it is appropriate----
Senator Cortez Masto. That was a no?
Ms. Kraninger. ----for an agency to actually make sure that
it is complying with the law and carrying out the
responsibilities that Congress gave it under the law.
Senator Cortez Masto. Thank you. I notice my time is up.
Thank you for the indulgence.
Chairman Crapo. Senator Scott.
Senator Scott. Thank you, Mr. Chairman. Good morning,
Director. Thank you for being here this morning.
Ms. Kraninger. Thank you.
Senator Scott. I am going to try a new concept. I am going
to ask you questions, and I am going to actually give you time
to answer the questions, so we will see if that works here.
You were kind enough to come by my office and talk about a
few topics that are important to me and I think important to
the Nation as well as to South Carolina specifically. We talked
a little bit about indirect auto lending; we talked a little
bit about insurance and some about credit unions--three issues
that I think are incredibly important that we understand and
appreciate the boundaries that the CFPB should have and I think
from a legislative perspective should follow as it relates to
under your leadership.
So I think it is clear that last year Congress and the
President spoke definitively on this issue when the President
signed S.J. Res. 57 repealing CFPB's 2013 regulations on
indirect auto lending and compliance. CFPB overreached on a
variety of levels as it relates to indirect auto lending.
Can you confirm to me that no one at the CFPB is trying to
bring an enforcement matter under this theory of law?
Ms. Kraninger. I will admit to you, Senator, that there are
a number of open investigations, and the Bureau attorneys take
that action without the Director's involvement. I can certainly
assure you that they are following the law, and Congress spoke
very clearly when it came to that CRA.
Senator Scott. OK. Thank you.
Let me move to the topic of insurance. As you know, I spent
my professional career in the insurance arena, so it is
important to me that we understand and appreciate the
limitations the CFPB has. As you know, Dodd-Frank did not
provide the CFPB authority to regulate insurance products.
Given that the CFPB's actions in this area have caused
confusion, let us set the record straight.
Do you view the CFPB as an insurance regulator?
Ms. Kraninger. No, Senator, I do not. Dodd-Frank stipulated
in Title X that we do not regulate State-regulated insurance.
Senator Scott. I do think that the best system of
regulating insurance in the world is the State-based regulation
system that has worked very well in every State in this Union
as long as we have had it. I hope that we continue to see that
as the direction that CFPB will continue. Thank you for that
answer.
Credit unions have served a number of our fellow citizens
very well for a very long time. About 115 million Americans are
credit union members. About 1.5 million South Carolinians are
members of credit unions. Credit unions provide sound
resources, sound professional services to those credit union
members.
The challenge has been that so often the one-size-fits-all
approach has been detrimental to not only credit unions but to
the credit union members. The 65 credit unions in South
Carolina have had about a $67 million regulatory burden placed
on them. Given your position, how do you plan to address rules
that hinder credit unions and their operations? Is there a way
that you see of unwinding any unnecessary burdens placed on
credit unions through the CFPB?
Ms. Kraninger. Senator, it was certainly an objective of
the Bureau in Title X to understand and reduce undue regulatory
burden. As I noted to Senator Shelby, we received a number of
comments in last year's call for evidence on this topic and are
looking at ways that we can tailor and address opportunities to
reduce burden.
I would also say--and I have said this in other contexts as
well--that certainly is a mission that we have, and it is
important, but it is also about how this impacts consumers in
terms of access to credit and the cost of credit. So those are
the things that we are looking at holistically as we approach
any rulemaking action and ensure that we are looking at the
impacts to these institutions.
Senator Scott. Thank you. I would close with saying that
anytime we see an increased regulatory burden, that means an
increased cost associated with those burdens, which means fewer
dollars to be loaned out and more people focusing on the
Government as opposed to the actual members where you can see
lives improved by the access to credit. So every time we see an
additional unnecessary burden placed on institutions, we see a
reduction in the loan volume and a reduction for those who are
creditworthy to be able to receive the credit that they need to
improve the quality of lives that they are experiencing.
Thank you.
Chairman Crapo. Senator Warren.
Senator Warren. Thank you, Mr. Chairman.
So before the 2008 crisis, it was open season on consumers.
Giant financial institutions cheated people on mortgages, on
credit cards, and a bunch of other financial products, and
Government regulators did nothing.
After the crisis, the CFPB was created to be a cop on the
beat to aggressively enforce laws that protect consumers,
especially those who get regularly cheated.
So, Director Kraninger, during your confirmation hearing
you testified, ``Under my stewardship, the Bureau will take
aggressive action against bad actors who break the rules.'' Is
that still your plan?
Ms. Kraninger. Yes, Senator, it is.
Senator Warren. Good.
Ms. Kraninger. I have actually signed----
Senator Warren. You also said before you became Director
that the Interim Director, Mick Mulvaney, never made a decision
you disagreed with. So let us put that together and see how you
and Director Mulvaney have been doing in your combined year and
a half running the CFPB.
Let us start with student loans. The law that set up the
CFPB established a student loan ombudsman at the Bureau because
Congress believed that students needed a regulator who had
their back when loan companies and for-profit colleges tried to
cheat them.
Director Kraninger, in the past year-and-a-half, how many
lawsuits has the CFPB filed against student loan companies?
Ms. Kraninger. I do not know the specific answer to that
question.
Senator Warren. Well, I can tell you because it is a matter
of public record.
Ms. Kraninger. Yes, we do have active litigation.
Senator Warren. How many have you filed?
Ms. Kraninger. There are two active cases in this area.
Senator Warren. Gee, what the public record seems to show
is zero. Right, not one single action against lenders and
servicers who scam students, not one dollar returned to
students who get cheated.
In contrast, when he led the CFPB, Rich Cordray filed 15
cases, and he recovered $712 million for those students who had
been cheated.
In fact, you have done worse than nothing. You and Mulvaney
disbanded the Office of Student Ombudsman. It was so bad that
your student loan ombudsman resigned because the ``leadership
of the Bureau has abandoned its duty to fairly and robustly
enforce the law.'' So that is student loans.
Now let us ask about discrimination. Before the financial
crisis, banks targeted communities of color for the worst of
the worst--cheating mortgages. So after the crash, Congress
said there would be a special office at the CFPB to enforce
laws to stop lending discrimination.
Director Kraninger, in the last year-and-a-half, how many
lawsuits has the CFPB and the DOJ filed for fair lending
violations?
Ms. Kraninger. I can tell you, Senator, that we do have
ongoing investigations in this area.
Senator Warren. How many have you filed?
Ms. Kraninger. I have been on the job for 3 months as of
today. There are active----
Senator Warren. That is right, and you have Mick Mulvaney,
together you have said you agree with everything he has done.
That is a year-and-a-half period. How many have been filed in a
year-and-a-half? It is a matter of public record.
Ms. Kraninger. I understand that----
Senator Warren. And the answer is zero.
Ms. Kraninger. ----have been filed, but there is active
investigation happening.
Senator Warren. The answer is zero that you have filed. Not
one single action against lenders who discriminate, not one
dollar returned to borrowers who got turned down or charged
more because of the color of their skin.
Rich Cordray filed 11 lending discrimination cases,
recovered almost $620 million for consumers who were targets of
discrimination.
And, again, in this area you have done worse than nothing.
You took enforcement powers away from the CFPB experts who were
in charge of the Office of Fair Lending. And who did you put in
charge of the office? A political appointee with a history of
writing racist blogs.
OK. Student loans, lending discrimination. Now let us do
credit reporting companies and debt collectors. Two-thirds of
the complaints that come through the CFPB hotline are about
credit reporting or debt collection. Under Rich Cordray, the
CFPB brought 20 debt collection cases and 24 credit reporting
cases, putting almost $1.2 billion back into the pockets of
consumers who were cheated.
Director Kraninger, in the last year-and-a-half, the CFPB
has filed three cases alleging violations of credit reporting
or debt collection laws. How much relief did the Bureau win for
consumers in those cases?
Ms. Kraninger. With respect to restitution and----
Senator Warren. How many dollars----
Ms. Kraninger. ----remedies, there are a number----
Senator Warren. ----went back to the consumers?
Ms. Kraninger. Senator, I am assuming that you have it in
front of you----
Senator Warren. I do have it in front of me because it is a
matter of public record. I am a little surprised----
Ms. Kraninger. I recognize that, yes.
Senator Warren. ----you do not know the answer, because the
answer is the same in all three of the questions I have asked
you. It is zero. You have put zero dollars back in the pockets
of consumers who were cheated.
So student loans, lending discrimination, credit report
companies, debt collectors. Much more we could talk about, but
I see I am out of time. It seems pretty clear to me that you
stopped enforcing the laws designed to protect consumers. Money
returned to consumers as a result of the CFPB's lawsuits has
slowed to a trickle. And when you do bring a case, the
settlements you have secured from the companies average about
\1/125\ the size of the ones that Rich Cordray got. That is
hundreds of millions of dollars that companies stole from
consumers and that you are permitting them to keep.
Director Kraninger, you are supposed to be the cop on the
beat, but you are only watching out for the crooks who are
cheating American consumers. If you had any decency, you would
either do your job or resign.
Thank you, Mr. Chairman.
Chairman Crapo. Thank you. And before we move to Senator
Menendez, Senator Brown asked for----
Senator Brown. Yeah, thank you. On one of my questions, I
misspoke. The press stories about Mr. Blankenstein were from
2018. The quotes were from 2016 and when he was in law school.
The point still stands that he is not fit to be in charge of
enforcing antidiscrimination laws and preventing discrimination
when he has had these racist writings.
Chairman Crapo. All right. Thank you.
Senator Menendez.
Senator Menendez. Thank you, Mr. Chairman.
Director, we are in the midst--I want to follow up on
Senator Warren's comments--of a full-blown student debt crisis.
Forty-four million Americans owe $1.56 trillion in student loan
debt, more than credit card debt and auto loans combined. The
amount of student loan debt has shaken the very foundation of
the American middle class. And yet in the last 15 months, the
CFPB has not taken a single new action--not a single one--to
help these 44 million student loan borrowers.
On the contrary, the CFPB closed the only office in the
Federal Government whose sole priority is to protect student
borrowers, withdrew a planned student loan servicing rulemaking
that would have provided enhanced student protections, and
refused to publish findings about how big banks were charging
students outrageous fees, among other examples.
So when I voted to create this agency, that certainly was
not the type of action that I had envisioned the CFPB taking.
And there are problems all over the student loan market.
Take, for example, the Public Service Loan Forgiveness
Program. More than 99 out of every 100 public service workers
who applied for loan forgiveness had been rejected since the
Department of Education started accepting such applications.
That is a major problem. What is the CFPB doing about it?
Ms. Kraninger. Senator, I understand it is a significant
issue, and we still have an office that is focused on student
issues. They are engaged in regular education efforts
expansively across the spectrum of dealing with students at
every stage of the process.
I would also tell you that I take seriously that Congress
created that private education loan ombudsman position. It has
been vacant. Congress gave the authority to appoint the
position to the Secretary of the Treasury for some reason, and
so since I arrived, we have been working back and forth to get
that position moved forward. The position posted last week, so
I am very much looking forward to having someone in that place.
We also have some responsibilities under the statute
working with the Department of Education on an MOU to do
information sharing on complaints and other things, and all of
that is work that we will take on as soon as I can get the
person on board who is going to oversee that.
Senator Menendez. Well, two things. Number one, the reason
that you have a vacancy in the office is because in his
resignation letter, Mr. Frotman, who had this position, said,
``The Bureau has abandoned the very consumers it is tasked by
Congress with protecting. The Bureau has undercut enforcement
of the law, undermined the Bureau's independence, shielded bad
actors from scrutiny.'' That is why you have a vacancy.
So you have an environment and the wrong mission, and you
did not respond to my question about the Public Service Loan
Forgiveness. Why is it that 99 percent of PSLF applicants are
being denied? Are loan servicers at fault?
Ms. Kraninger. Senator, that is a question for the
Department of Education. Certainly it is their process and
program when it comes to Federal student loans. As you know, 92
percent of the market is with the Federal side. That is why I
do want to have a conversation with the Department of Education
about their responsibilities and our responsibilities and how
we can make sure we are working together to----
Senator Menendez. Well, you know, it is your responsibility
to oversee, whether it is the Department of Education, whether
it is a private lender, whoever it is, to make sure that you
are protecting consumers. Telling me that it is the Department
of Education is just simply not acceptable. And the fact that
you have not had that conversation as of yet when 99 percent
are being denied, there is something desperately wrong.
In 2017, the CFPB updated its manual for student loan
servicer supervision to include examining loan servicers'
practices around the PSLF program. So pursuant to the
examination manual that is currently on your website, have you
examined why 99 percent of PSLF applicants have been rejected?
Ms. Kraninger. Senator, again, I understand why you are
asking the question, and it is an important one. With 3 months
on the job, I do not have a specific answer to your question on
this topic. It is one that is important, and we will look----
Senator Menendez. Can you tell me whether it is no longer
the CFPB's practice to review how loan servicers handle the
PSLF program despite it being in your examination manual?
Ms. Kraninger. Senator, I would have to get back to you to
answer your question specifically, which I am happy to do.
Senator Menendez. Well, let me just say on that, on
following up, I think one of my colleagues raised the question
of the Military Lending Act. You have authorities over the
entities that you--supervisory authority over entities you
regulate, do you not?
Ms. Kraninger. With respect to enforcement, our authority
is very clear, and we will continue to take action where we
find violations of the Military Lending Act.
Senator Menendez. Well, you need to use your authorities,
and you are just not doing that. And 3 months on the job, that
is not the answer. You know, you need to make this a priority.
And if you do not, you are not helping consumers. And the whole
purpose of this entity is to stand up for the little guy
against those who have enormous power and the ability to push
back.
Thank you, Mr. Chairman.
Chairman Crapo. Senator Smith.
Senator Smith. Thank you, Chair Crapo. And thank you very
much, Director, for being with us today, and I appreciated our
conversation yesterday. And I indicated yesterday I was
interested in also diving into this student loan question a
little bit, so that is what I would like to focus on.
As my colleagues have said, we have $1 trillion in student
loan debt and 44 million Americans, a high number, trying to
manage that debt. And so here is what I hear from my
constituents: that there is just a deep frustration with the
loan servicing organizations. It is hard to get a straight
answer. You get different answers from different people at
different times. And what they are trying to do is to figure
out how to stay out of default and to work with the loan
servicing organizations. But it is just not working, and it
feels to the people in my State with these crushing student
loans like all the power is with these big companies. And they
do not have any real remedy.
And so I thought it was really a good thing when the CFPB
published this proposal to get data from the student loan--from
these big private loan servicing companies to try to figure out
what is going on and to get some accountability and kind of
rebalance the power a little bit.
So that was announced in February of 2017, and there was a
comment period. And then when that was done, as is typical,
that was submitted to OMB for its routine review. And there it
sits--no approval to move forward, even when Mr. Mulvaney, you
know, was running both agencies. And, meanwhile, since that
happened, 1.5 million Americans have defaulted on their loans,
and there is just so much frustration.
So can you help me understand this? You have worked at both
agencies, right?
Ms. Kraninger. Yes, Senator.
Senator Smith. So has OMB told you why they are sitting on
this proposal?
Ms. Kraninger. Senator, I was unaware of this prior to last
week. We have certainly had conversations about what is going
on in the student lending space and the Bureau's
responsibilities, and I talked with you a little bit, as I did
earlier, about getting the private education loan ombudsman
position filled and in place to work with the Department of
Education on what their responsibilities are when it comes to
student servicers because, in particular, they are contracted
with the Department of Education.
But on this collection in particular, it was not an issue
that had been raised to me before last week. It is something we
will absolutely look at to figure out, again, why that was
submitted, where it stands. I do not have all the answers on
that at the moment, but it is something we will look at.
Senator Smith. Well, I think it is really important, and I
think you should be looking at it. I mean, are you aware of
Secretary DeVos or anybody, any other political appointee,
encouraging this to move forward or not to move forward or to
express their opinion one way or another on this?
Ms. Kraninger. I am not aware of anything on that front,
but, again, I am looking into this to understand what motivated
the request, where it stands, and what we need to do going
forward.
Senator Smith. But wouldn't you agree that you would need
to have some data in order to be able to assess, you know, what
is happening with these student loan servicing organizations
and why there is so much frustration and why sort of the
consumer side of this has been so, you know, basically hung out
to dry? Would you agree that having that data would be
valuable?
Ms. Kraninger. Senator, I do not know what was specifically
laid out in that particular data request. That is why I
hesitate to give you a very direct answer to that question. But
I can tell you that we absolutely want the information
necessary to assess the marketplace, as is our responsibility,
and move from there.
Senator Smith. Well, it has been described to me that this
is a little bit of a black box, that nobody really knows. So I
do not know how we can provide protection to those 44 million
Americans who are living with student debt if we do not have
some basic answers to the questions about what is going on with
these loan servicing organizations. I think this is very--you
know, it is very important, and our job is to sort of be on the
side of people when they need to be--you know, that is why we
have consumer protection, because sometimes the power is out of
balance between these big companies and people. So I think this
is a really core responsibility.
Mr. Chair, I want to just add my concern about the way in
which the agency is, in my view, sort of choosing not to
enforce a key part of the military lending--you know, standing
up to our military against these predatory lenders. I do not
understand how we can--if we cannot examine whether there has
been an issue, how we can enforce that. That is what I just am
struggling to understand here. And I understand that you think
that you do not have the authority, but it strikes me that
since there has not been any lawsuits complaining about a
misuse of authority, I mean, that to me is very telling.
Mr. Chair, I am out of time. I just wanted to issue that
concern as well. Thank you.
Chairman Crapo. Thank you.
Senator Van Hollen.
Senator Van Hollen. Thank you, Mr. Chairman, and thank you,
Ms. Kraninger.
So I am very concerned about your decision to first delay
and then rescind the mandatory underwriting provisions of the
payday lending rule. It seems to me you are giving a total
green light to predatory lenders around the country to take
advantage of consumers.
Senator Merkley, myself, and 47 Senators sent you a letter
on February 13 on this issue. Did you get it?
Ms. Kraninger. Yes, Senator, I did.
Senator Van Hollen. Have you responded as of today?
Ms. Kraninger. I believe we did.
Senator Van Hollen. I just checked with Senator Merkley's
office about the letter.
Ms. Kraninger. Oh, I am sorry, Senator. The response is due
on Friday, and we are pulling the response----
Senator Van Hollen. Is that due--I think it would have been
useful, knowing that you were going to come in front of this
Committee, to give us a response. It has been almost a month.
Ms. Kraninger. I understand, Senator. I think the due date
was actually in the letter, but I recognize that it is not----
Senator Van Hollen. I think it was probably set before that
date, and since we have got a hearing today, it would have been
useful to have that information.
I am looking at both the notice you provided in the Federal
Register on the delay rule and on the rescind proposal. Let me
ask you this: Bank regulators for years have found that an
aspect of predatory lending is deliberately lending to people
who do not have the ability to repay their loans and relying
instead on their ability to seize the collateral of those
consumers, whether it is a house or a bank account.
So if you can tell me why payday lenders should be allowed
to have a business model where they prey on people who cannot
afford to repay their loans, why should we carve out that
particular exception for payday lenders?
Ms. Kraninger. Senator, the reason for the reconsideration
of the rule is the underlying legal and factual basis around
the Bureau's determination of unfairness and abusiveness
without those underwriting rules, as you noted, and that is the
issue at hand, and that is what we----
Senator Van Hollen. So you are rescinding a rule that is
designed to protect consumers, right?
Ms. Kraninger. That was certainly the opinion of the agency
at the time, and, again, we are looking at that. And I have an
open mind----
Senator Van Hollen. You are proposing--I am just reading
your documents here. You are proposing to rescind it, are you
not? Yes or no.
Ms. Kraninger. Yes, Senator.
Senator Van Hollen. OK. The CFPB, when they put that rule
in, they did a lot of research. One of their findings was four
out of five payday loans ends with the borrower unable to pay
or having to take out another loan to pay off the first. Do you
dispute that finding?
Ms. Kraninger. No, Senator, but that was also a finding in
the context of many other findings that----
Senator Van Hollen. I am just asking you on that finding.
They also found that over 60 percent of loans result in
borrowers paying more in interest and fees than the amount they
borrow. Do you dispute that finding?
Ms. Kraninger. Senator, that was, again, one of the
findings of----
Senator Van Hollen. It was a finding. I am asking you
whether you dispute the finding.
Ms. Kraninger. No, Senator, I do not----
Senator Van Hollen. OK. Thank you.
Ms. Kraninger. ----dispute the finding in the----
Senator Van Hollen. Now, listen, so I am looking at your
analysis here now. Are you familiar with the Dodd-Frank Act
Section 1022(b)(3) analysis that accompanied the notices?
Ms. Kraninger. Yes, Senator.
Senator Van Hollen. OK. And are you familiar with the fact
that you found that the payday lending industry on an
annualized basis would save about $7.3 to $7.7 billion that
they would not otherwise have under the previous rule?
Ms. Kraninger. Senator, again, there were a number of
things that were looked at, including what----
Senator Van Hollen. I am just asking you about this
provision, which is right here in the documents you submitted.
Does it conclude that by rescinding the rule on an annualized
basis, payday lenders will be able to pocket $7.3 to $7.7
billion more? Isn't that what it says right here?
Ms. Kraninger. Yes, Senator, it does.
Senator Van Hollen. That is what it says. And isn't that
money coming from harming consumers? These are consumers that
the previous analysis concluded could not pay these loans on
time. Is that not true?
Ms. Kraninger. Senator----
Senator Van Hollen. Is that not true?
Ms. Kraninger. Senator, yes, I understand where you are
getting, and----
Senator Van Hollen. It is not where I am getting. I am just
looking at the facts. Is that not true?
Ms. Kraninger. There are a number of facts here, and we had
a responsibility to look at the full record of this rulemaking.
We are in litigation actively on the issue, so the rule was
already stayed, and the Bureau did pledge to the court that the
reconsideration would be part of its process.
Senator Van Hollen. You chose to move forward on this
decision to rescind the rule, right? That was your decision?
Ms. Kraninger. Absolutely, and it was very----
Senator Van Hollen. Absolutely. And in your own documents,
it says, does it not, that the payday lending industry will
pocket over $7.3 billion additional on an annualized basis?
Isn't that what it says right here in your own analysis?
Ms. Kraninger. Yes, Senator, and there are----
Senator Van Hollen. And isn't it true that, based on the
previous analysis, that $7.3 billion is coming from harm done
to consumers by payday lending? Isn't that true?
Ms. Kraninger. Senator, there are 12 million consumers that
take advantage of the payday loan----
Senator Van Hollen. I am asking you----
Ms. Kraninger. ----products in the States where they are
allowed to do so----
Senator Van Hollen. The question is----
Ms. Kraninger. ----and the States have looked at----
Senator Van Hollen. ----not whether we should just pull off
the reins off payday lending, which is what you are trying to
do so. The question is whether we should be protecting
consumers. I would like an answer to my question. Isn't it true
that that $7.3 billion that you say will now be in the pocket
of the payday lending industry is as a result of harm done to
consumers according to the previous analysis by your Bureau?
Ms. Kraninger. Senator, I would note that there are 12
million----
Senator Van Hollen. I am just looking for a yes-no answer
on that $7.3 billion.
Ms. Kraninger. But, again, individuals are accessing these
products and making the best----
Senator Van Hollen. I know they are accessing these
products. And then we they cannot pay them back when the
lenders should have known it, they are coming after their cars
and other possessions. Isn't that true?
Ms. Kraninger. Consistent with State law, but, again, there
are places where that is not the case----
Senator Van Hollen. But isn't your job to protect people
from predatory lending where people are just scamming and
taking advantage of people's situations? Isn't that your job?
Ms. Kraninger. Senator----
Chairman Crapo. And if you would answer briefly.
Ms. Kraninger. Yes, taking action against bad actors who
are engaged in what you would----
Senator Van Hollen. You are opening the door----
Ms. Kraninger. ----predatory activity----
Senator Van Hollen. ----to bad actors. It is really
outrageous what you have done here--outrageous--because there
were protections in place based on a detailed analysis, and
your own writings show that you are just going to give a big
payday to payday lenders.
Thank you, Mr. Chairman.
Chairman Crapo. Senator Reed.
Senator Reed. Well, I think Senator Warner was here before
me.
Chairman Crapo. It was not on my list. Senator Warner,
you----
Senator Reed. Will that take him off the list?
[Laughter.]
Senator Warner. The very generous support of Senator Reed,
I appreciate it. Thank you, Mr. Chairman.
I actually want to follow up a little bit with my colleague
from Maryland. I think you made a dreadful error in rescinding
the payday lending rules. And what I am trying to also
understand is that the agency spent 5 years doing research into
this rule, and I can remember when the CFPB issued this rule
back in 2017, and opponents of the rule at that moment in time
said, ``Oh, my God''--I think it was 1,690 pages--``this is way
too much information, way too much data.''
Now, when you rescind, you are basically throwing all that
data and all that information out for this new approach. What
has factually changed that undermined the 5 years of data and
research that went into the original payday lending rule that
has allowed you to make this determination?
Ms. Kraninger. Senator, if I could, the full record from
the prior rulemaking is absolutely part of the process going
forward, so that is an important thing that I would note.
Senator Warner. But that full rulemaking included
conclusions that were indicated based upon the Senator from
Maryland's criteria that this was a rule that was well needed
to protect a whole host of consumers. The fact that now all
this work is kind of in a sense thrown out, what has factually
changed in the underlying analysis that has allowed you to, I
believe rather arbitrarily, throw out this rule?
Ms. Kraninger. The Bureau is in active litigation over the
very issue that the reconsideration is intended to address, and
that is the legal and factual basis, whether it is robust and
rigorous enough to warrant the determination of abusiveness and
unfairness in this market without those mandatory underwriting
requirements. And so that is the very issue that is being
looked at in the reconsideration.
Senator Warner. Respectfully, we remember how long this
rule took to put in place. We remember how much research was
done. I do not believe you have got a factual basis. I think
this was a politically driven decision, and I am deeply
concerned by your decision.
I want to move to another area around the GSE patch. As you
know, the CFPB's QM rule created an exemption from the 43
percent DTI cap for mortgages under Fannie and Freddie, and
this is a subject matter that the Chairman and I and a number
of us on this Committee have spent an awful lot of time on.
This exemption, as we all know, is commonly known as the ``GSE
patch,'' which is set to expire on January 10, 2021, or the day
on which the GSEs would exit the conservatorship.
I am very concerned about what termination of the patch
could mean for affordable housing, particularly in communities
of color, because the number one reason, as we all know, that
mortgage applications are rejected is because of the DTI
requirement, and nearly 30 percent of the GSE mortgages are in
that 43 to 50 percent DTI range.
So the question is: If, again, the role of your agency is
to protect consumers, if the role of your agency is for folks
to get a fair shake, how do you view the GSE patch? And how do
you view CFPB's authority to act on this issue?
Ms. Kraninger. Senator, I am well aware of the stats that
you noted in terms of how large a role the GSE patch plays in
the mortgage space today. When the rule was finalized on the
ability to repay and stipulating what the qualified mortgage
safe harbor would be, there was an intent at the time or an
expectation at the time that a non-QM market would stem from
that. And there was a determination that the patch was intended
to be at least shorter term or nearer term at the time the
Bureau stipulated that, so in place for 7 years.
We just completed our 5-year lookback assessment that was
released in January on that rulemaking and the outcome of that
rule, and it is evident that the non-QM market has really not
materialized for a number of reasons. And so the Bureau is
faced with responsibility in this area. Important to note,
though, is that that 7-year QM patch could expire at the end of
the conservatorship of Fannie and Freddie, so those two things
were tied in the rulemaking. This is something that I am
looking at very closely, and we are looking to make sure--there
will not be any dramatic actions taken with respect to the
mortgage market by me, and I can tell you I do not want to make
news on this topic here. It is a very market-moving issue, as
you well know, and it is something that I will look at
responsibly and in a timely manner, and I appreciate your
interest in----
Senator Warner. All I would say--and the Chairman and I and
a number of us have worked on this issue, and affordability is
extraordinarily important. I am still hopeful we can get a
legislative solution, but I hope you will look at this data.
And as you indicated, the non-QM market has not moved forward,
and the extraordinarily detrimental effect that would have on
affordability, if there were arbitrary and capricious actions,
again, in terms of getting rid of that patch.
Thank you, Mr. Chairman.
Chairman Crapo. Thank you.
Senator Reed.
Senator Reed. Well, thank you very much, Mr. Chairman. And
thank you, Director Kraninger.
Like several Members of this Committee, I spent my youth in
the military. I commanded paratroopers at Fort Bragg, and I saw
on a daily basis soldiers being victimized by predatory
lenders. Not surprising. They were not from around there. They
were transients. Most of them were 18, 19, 20 years old, not a
lot of financial sophistication. And they needed to be helped.
I felt sort of useless, really, because all I could do was
inform the lender that what they were doing was wrong or
illegal, but I had no authority.
So when I got here, I was very active in trying to fix that
problem because it was not theoretical to me. It was real. So I
was active in passing the Military Lending Act along with my
colleagues, particularly active in creating the Office of
Servicemember Affairs in your organization. That was an
amendment that former Senator Scott Brown of Massachusetts and
I passed because we wanted to give, in your organization,
special emphasis. In fact, I think it is the only subset that
is dedicated to a specific group of individual Americans. And I
am, frankly, appalled that you have decided that it is not
within your supervisory responsibilities to cover the MLA.
You do have enforcement responsibilities, which you admit,
but supervision is the key to preventing enforcement. We
learned that in Dodd-Frank. If we had been supervising these
financial institutions and these nonbank banks and all the
other bad actors of 2008 and 2009, we would not have had the
crisis and the corruption that we witnessed.
So did anyone from the Office of Servicemember Affairs
comment about your decision to exclude the MLA? Did you seek
comments and were there any objections raised?
Ms. Kraninger. Senator, there was certainly a robust
discussion at times in the history of the Bureau where this
conversation was had. I can tell you that the determination is
mine, and that is what Congress gave me, as Director, the
authority and responsibility to do.
Senator Reed. Well, thank you. I think you have made the
wrong determination. In fact, I think your legal counsel feels
you have made the wrong determination, but let me get to that
later. When this decision was made, we asked the Department of
Defense, who has a vested interest in protecting the men and
women of the military. Their comments to us on a letter of
September 7, 2018: ``The Department believes that the full
spectrum of tools, including supervisory examinations,
contribute to effective industry education about, and
compliance with, the MLA.'' I think that is right. And they
certainly have a vested interest in this, and it is not a
partisan, political interest. It is the protection of the men
and women who protect us. Now every veterans organization of
note has indicated the same feeling.
Now, your view is that you cannot do it, but your own legal
analysis, that you submitted to us in your letter, states,
``One possible reading of the statute would allow that the
Bureau may seek to uncover and remedy violations of the MLA in
the course of exercising its authorities.'' So you do have the
legal authority to do it. You have chosen to read the statute
to protect payday lenders even though your own legal counsel
said the statute can be read, as the Department of Defense and
as many of my colleagues feel, to protect the men and women of
the armed forces. Is that right?
Ms. Kraninger. Senator, I agree with the Department of
Defense that I would like the full panoply of authorities----
Senator Reed. You have the full panoply. That is exactly
what your counsel said. ``One possible reading of the
statute''--this is your legal counsel, not me--``would allow
that the Bureau may seek to uncover and remedy violations of
the MLA in the course of exercising its authorities.'' That
would be including your supervisory authorities. You chose not
to read that section. You sort of omitted it.
Ms. Kraninger. I have, Senator, and the reason for that is
that then the Bureau could be engaged in examinations for
safety and soundness. The Bureau could be engaged in
examinations for tax law and other criminal law----
Senator Reed. No.
Ms. Kraninger. The all-encompassing provision----
Senator Reed. No, no.
Ms. Kraninger. ----there is about any risk to consumers.
Senator Reed. That is the fallacy: if you follow the law,
you can make up things. That is not true. There is no one here
asking you to examine, generally speaking, safety and soundness
of payday lenders. What we are saying is we passed the Military
Lending Act, we passed supplemental language giving you the
clarity to do this in Dodd-Frank so that you would protect
consumers, and you are not doing it. And particularly military
consumers. And what is so frustrating to me is that if this is
the policy of your Administration, I do not know how on
Memorial Day and Veterans Day everyone stands up and says,
``Oh, we have to do all we can for the service men and women in
this country. They do so much for us,'' and you have decided
you should not supervise these companies. And we know
supervision prevents the need for enforcement. That is one of
the great lessons of Dodd-Frank. Had we been supervising these
institutions, we would not have had the collapse we had.
So I cannot say how profoundly distressed I am with your
rejection of the opportunity to protect the soldiers, sailors,
Marines, and airmen and Coast Guardsmen of the United States.
Thank you, Mr. Chairman.
Chairman Crapo. Thank you.
Senator Kennedy.
Senator Kennedy. Thank you, Mr. Chairman. Madam Director,
welcome.
You believe in protecting consumers, do you not?
Ms. Kraninger. Yes, Senator, I do.
Senator Kennedy. Do you consider that your guiding mission
as Director?
Ms. Kraninger. Yes, I do.
Senator Kennedy. You have a lot of experience in
Government. What mistakes were made when the agency was
established?
Ms. Kraninger. Senator, as you noted, I have a lot of
experience in Government, and that includes involvements in
startups in Government, and I do believe that those who stood
up the Bureau took the mission very seriously and tried to
carry out the authorities that Congress gave them in the
context they were operating in. A lot of things happen fast and
furious in the early part of an agency.
Senator Kennedy. What mistakes were made?
Ms. Kraninger. Senator, I really make it a point of not
looking back to criticize those who I did not have the
opportunity to serve with who truly understand a lot of
challenges during the time, as you well know.
Senator Kennedy. Well, if you do not look back, then how do
you fix the agency in the future?
Ms. Kraninger. So one thing that my predecessor did
extensively--and you are aware of it--is the call for evidence
and a lot of requests for information from all the stakeholders
that the Bureau has on ways to improve how the Bureau operates
going forward, and that I absolutely believe in, and we are
taking to heart all of those comments that we have gotten.
Senator Kennedy. Let me ask you this, Madam Director: Do
you think the agency would be better governed by a board?
Ms. Kraninger. I believe that is an issue for Congress to
determine and, Senator, I would----
Senator Kennedy. I am in Congress. I am asking your
opinion.
Ms. Kraninger. I understand. I would welcome whatever
changes Congress sees fit to make that will increase the
transparency and accountability of the agency. I am absolutely
dedicated and focused on that.
Senator Kennedy. Would you support something like that?
Ms. Kraninger. Senator, I am making it a point to not
endorse legislation, but I appreciate why you are considering
the issue.
Senator Kennedy. All right. My copy of the Constitution
says that Congress gets to appropriate the money, but that is
not the case with your agency, is it?
Ms. Kraninger. No, it is not.
Senator Kennedy. Do you think we ought to fix that? Would
you oppose legislation--let me put it this way: Would you
oppose legislation if we decided to make your agency
financially accountable to Government?
Ms. Kraninger. If Congress put such legislation in front of
the President and the President signed it, I would dutifully
carry that out. I think that is--again, anything that increases
transparency and accountability in Congress' estimation is
something I would welcome.
Senator Kennedy. When you took over, Madam Director, and
had a chance to catch your breath and look around and assess
things, what are the three biggest problems you see?
Ms. Kraninger. I think with respect to the agency in
general, there are some really dedicated people who are focused
on the mission and the mission is our strength. It is really
now----
Senator Kennedy. I know, but they are not a problem. I am
interested in----
Ms. Kraninger. Understood.
Senator Kennedy. ----the three problems, biggest problems
that you see, if you could answer my question.
Ms. Kraninger. One is continuing to mature the agency and
its processes. There are a lot of stovepipes that were created
in the divisions, and I think there is a lot of power that
comes----
Senator Kennedy. What does that mean?
Ms. Kraninger. There are six different divisions in the
Bureau, and they did kind of operate in a bit of an
individualized way.
Senator Kennedy. Do they have turf battles?
Ms. Kraninger. I think it is, again, with the mission in
mind and individuals being very proud of what they do, but,
yes, there is a little bit of an understanding that there is an
individual vantage point.
Senator Kennedy. Is each one headed by somebody? There are
supervisors who run the divisions?
Ms. Kraninger. Yes.
Senator Kennedy. Can you fire them?
Ms. Kraninger. No.
Senator Kennedy. Do you think that is a problem?
Ms. Kraninger. There are a lot of challenges with civil
service law, Senator, and that is probably another area where,
again, should Congress take action----
Senator Kennedy. Well, you can fire them, but they can sue
you, right?
Ms. Kraninger. There are a lot of challenges in terms of
removing people, but I would say in this case I----
Senator Kennedy. Well, let us suppose one of your directors
of one of those little areas of turf, you fired them, and they
said, ``You cannot fire me.'' And you said, ``I just did.'' And
they said, ``I am going to sue.'' And you say, ``Good. I can
draw you a map to the courthouse.'' And they said, ``I am going
to get a lawyer.'' You say, ``Well, I am going to get a lawyer,
and I can get more lawyers than you because my budget is
bigger.''
Why doesn't that ever happen?
Ms. Kraninger. Following your hypothetical, Senator, is
dangerous, but I would say that there are cases where----
Senator Kennedy. Why is it dangerous?
Ms. Kraninger. It is a----
Senator Kennedy. You know that would happen in the real
world.
Ms. Kraninger. And in the Government, there are a lot of
protections that are appropriate for civil servants.
Senator Kennedy. I mean, you are sitting here as Director
trying to run this thing, and you have got people under you you
cannot fire who are fighting among each other and presumably
not following all of your directives. Is that right?
Ms. Kraninger. Senator, I would not go that far with it. I
think there is an intent to follow the direction and they
really are welcoming the stability that I am bringing and the
consistency that I am bringing.
Senator Kennedy. You need to fire somebody. That is what is
wrong with Government and what is wrong with the bureaucracy.
Nobody is ever held accountable, and nobody ever gets fired.
And they know that.
I am done. Thank you.
Chairman Crapo. Senator Jones.
Senator Jones. Thank you, Mr. Chairman. Thank you for
coming here today, and I apologize for being a little bit late.
Ms. Kraninger, I want to ask you about--I think it was
Senator Kennedy who talked about the guiding missions of the
Bureau, and one of those under the objectives under the statute
is that consumers are protected from unfair, deceptive, and
abusive acts and practices, and from discrimination.
Discrimination in fair lending is also a guiding mission of the
CFPB, and it seems to me that under the leadership of Acting
Director Mulvaney, there was a total lack of commitment toward
enforcing fair lending laws and that guiding mission of the
agency. For millions, it is not just your income or your credit
that determines how you receive financial services. The reality
is that it can also be the color of your skin. That is why the
Government has to be committed to enforcing laws prohibiting
discrimination. For years, that discrimination has been direct
and explicit, but today it is much more subtle and beneath the
surface.
In your confirmation hearing, I asked you about that and
asked you if you were committed to using disparate impact
theory to enforce fair lending violations, which I think is a
strong tool that you have in your toolbox to enforce fair
lending laws. And I think your answer at that time was you
would have a detailed conversation with staff, if confirmed,
about the use of disparate impact.
Have you had that conversation? And what was the result?
Ms. Kraninger. Senator, we have started that conversation.
As you may be aware, the Bureau, in its unified regulatory
agenda, stipulated that this is something that may be worth a
prerulemaking activity so that we can have a conversation about
whether disparate impact is cognizable and how under the Equal
Credit Opportunity Act. And so that is an issue that I think
does deserve some conversation in the public sphere, and we are
looking at the best way to facilitate that and take the
prerulemaking action.
Senator Jones. All right. What is your personal opinion
about the use of disparate impact?
Ms. Kraninger. Senator, we are still having conversations
with staff on that issue. Given that it is in a pre-rulemaking
stage, I do not think it is appropriate to talk about a
personal opinion on this matter. I can tell you that I am
committed to our fair lending mission, and we have taken a lot
of steps to look at that and make sure that we are robustly
both engaged in education on that issue and engaged in
supervision and enforcement work on that issue.
Senator Jones. All right. So let me talk about payday
lending as well. I know that that has been a subject of a
number of questions, and it is obviously a huge concern in my
State. And I have been just incredibly disappointed, and
confused, quite frankly, as to why you rolled back critical
parts of the rule after so many public comments on the issue.
And when you did so recently, made the announcement to roll
back those critical parts of this rule, particularly on ability
to pay, the CFPB cited a decade-old study that used surveys
from 2001 and 2007 that found consumers were generally
satisfied with their short-term loans. Are you familiar with
that?
Ms. Kraninger. Senator, I do believe there were studies
similar to that. I would tell you that we are looking at the
full panoply of studies that have been available----
Senator Jones. Well, you cited the study that did surveys
from 2001 and 2007, and that study itself said it accounted for
differences between the 2001 and 2007 surveys by saying,
``Economic conditions changed and affected survey results.''
I know you are aware that in 2008 and 2009 we had a major
recession in this country, one of the worst since the
Depression. So my question--and your change, you said that the
results of that study ``add to the Bureau's preliminary
conclusion that its interpretation in the 2017 Final Rule of
limited data''--which I would disagree with it was limited
data--``from the Mann Study provides an insufficiently robust
and representative foundation for the findings on which the
Bureau relied in concluding that its identified practice was
unfair and abusive.''
How in the world can you justify using a survey from 2001
and 2007 when the economy was doing pretty well and not in
today's world and the reality after the 2008 and 2009
recession? How do you justify using that as a way to get rid of
so many parts of the payday lending rule?
Ms. Kraninger. Senator, we did not rely on any one survey
or study from that time period or more recently. We are looking
at both the full evidence base that underlies the 2017 rule and
evidence that may come forward----
Senator Jones. Well, this was the only rule that I saw that
was cited. This was the only study that I saw that was cited. I
did not see anything about surveys of people today in today's
world or even 5 years ago when they were having trouble. So
this study that I am talking about was relied on pretty heavily
in this, and I am trying to figure out how that rule was even
cited as representative of what is happening in 2019.
Ms. Kraninger. It is a proposed rule that we welcome
additional evidence and comments on. There are studies that I
have seen in press reports that we have also looked at across
the board. We definitely welcome the most robust and rigorous
evidence we can for this reconsideration process.
Senator Jones. Well, Ms. Kraninger, you had millions of
comments earlier, and you apparently chose to ignore them. So I
candidly do not know how additional comments are going to
change your mind.
Thank you, Mr. Chairman.
Chairman Crapo. Thank you.
That concludes the questioning for today's hearing. For
Senators who wish to submit questions for the record, those
questions are due to the Committee by Tuesday, March 19. And,
Director Kraninger, we ask that you respond to those questions
as promptly as you can.
Unfortunately, we did not have a quorum present to vote on
the three nominees that Senator Brown and I spoke about at the
beginning of the hearing. We will vote off of the Senate floor
this afternoon on the first vote that is called at 2:30.
Again, we thank you for being here, Director Kraninger. We
appreciate your work at the CFPB. And with that, this hearing
is adjourned.
[Whereupon, at 11:41 a.m., the hearing was adjourned.]
[Prepared statements, responses to written questions, and
additional material supplied for the record follow:]
PREPARED STATEMENT OF CHAIRMAN MIKE CRAPO
Today, we will receive testimony from Consumer Financial Protection
Bureau (CFPB) Director Kathy Kraninger on the CFPB's most recent
semiannual report.
On February 12, the CFPB issued its Fall 2018 Semiannual Report,
which outlines the CFPB's significant work between April 2018 and
September 2018, including rulemakings and supervisory and regulatory
activities.
The report also provides insight into what the CFPB plans to
undertake in the coming work period.
In the report, Director Kraninger said, ``As I begin my stewardship
of the CFPB, I will be moving forward with the agency to make sure the
American people have access to the financial products and services that
best suit their individual needs, the financial institutions that serve
them are competing on a level playing field and the marketplace is
innovating in ways that enhance consumer choice.''
Providing individuals and businesses access to a wide array of
financial products and services is foundational to robust economic
growth and job creation.
Under Director Kraninger's leadership, the CFPB has already started
to take action to ensure that regulations that could affect consumers'
access to credit are based on solid evidence and legal support, rather
than flawed analysis.
On February 6, the CFPB proposed to rescind the mandatory
underwriting provisions of its Payday Lending rule and delay their
compliance date.
This decision was made nearly 1 year after initially noticing its
intention to revisit the rule and after conducting extensive due
diligence.
The CFPB found insufficient evidence and legal support for the
mandatory underwriting provisions, and said that those provisions would
reduce access to credit and competition in States that have determined
it is in their residents' interest to be able to use such products,
subject to State law.
The CFPB has also taken steps to implement provisions of the
Economic Growth, Regulatory Relief, and Consumer Protection Act (S.
2155) that increase protections for consumers.
On March 4, the CFPB issued an advance notice of proposed
rulemaking to gather information on residential Property Assessed Clean
Energy financing, or PACE loans, that will be used in its proposal to
implement Section 307 of the bill.
In September, the CFPB announced as effective a provision of S.
2155 that provides consumers who are concerned about identity theft or
data breaches the option to freeze and unfreeze their credit for free.
A New York Times article commenting on the provision noted that,
``one helpful change . . . will allow consumers to `freeze' their
credit files at the three major credit reporting bureaus--without
charge. Consumers can also `thaw' their files, temporarily or
permanently, without a fee.''
Susan Grant, director of consumer protection and privacy at the
Consumer Federation of America expressed support for these measures,
calling them ``a good thing.''
In August, the CFPB issued an interpretive and procedural rule to
implement Section 104 of S. 2155 to exempt qualifying community banks
and credit unions partially from reporting certain data points under
HMDA.
The CFPB took another positive step on HMDA reporting in December
issuing policy guidance describing HMDA data that it intends to
publicly disclose in a manner that protects consumers' privacy.
The Committee will continue to make implementation of S. 2155 a top
priority this Congress, and I encourage the CFPB to take the necessary
steps to provide meaningful relief that will ultimately benefit
consumers.
Data privacy is another issue that the Committee will spend
significant time on this Congress.
Americans are rightly concerned about how their data is collected
and used, and how their data is secured and protected by both
Government agencies and private companies.
I have long raised concerns about big data collection by the CFPB,
especially with respect to credit card and mortgage information.
Although there have been positive changes in recent years under new
leadership, the CFPB must ensure that the collection of consumer
information is limited, information is retained only as long as is
absolutely necessary to fulfill the CFPB's obligations and that
appropriate safeguards are in place to protect it.
It is also worth examining how the Fair Credit Reporting Act, or
FCRA, should work in a digital economy, and whether certain data
brokers and other firms serve a function similar to the original
consumer reporting agencies.
The FCRA establishes standards for collection and permissible
purposes for disseminating information by consumer reporting agencies,
and gives consumers access to their files and the right to correct
information.
The CFPB, through its supervision of larger participants it defines
by rule, oversees a large segment of the consumer reporting
marketplace.
I look forward to working with the CFPB to identify opportunities
to update the FCRA so that it works in a digital world.
During this hearing, I look forward to hearing more about Director
Kraninger's priorities for the CFPB in the upcoming work period;
additional legislative or regulatory opportunities to provide
widespread access to financial products and services; and steps that
could be taken to increase the protection of consumers' financial and
other sensitive information.
Director Kraninger, thank you again for joining the Committee this
morning to discuss the CFPB's activities and plans.
______
PREPARED STATEMENT OF SENATOR SHERROD BROWN
We created the Consumer Financial Protection Bureau to crack down
on Wall Street predators and shady lenders that prey on hardworking
families. Wall Street has armies of lobbyists fighting for every tax
break, every exemption, every opportunity to be let off the hook for
scamming customers and preying on families.
Ordinary Americans don't have those lobbyists. They don't have that
kind of power. The Consumer Protection Bureau is supposed to be their
voice, to fight for them.
When a toxic mortgage robs a family of their home, it's not the CEO
of Bank of America or Wells Fargo who has to sit down with those kids
and have the tough conversations around the kitchen table--explaining
that their house is being taken away, explaining they're going to have
to change schools, explaining why they are going to have to get rid of
the family dog.
It's the parents who were ripped off by corporate greed who have to
look their children in the eyes.
We created the CFPB so there would be fewer of those
conversations--to look out for danger before it crashes down on
hardworking families and robs them of their homes and their jobs and
their savings.
Like food inspectors, the Consumer Financial Protection Bureau is
supposed to hunt down scammers trying to sneak toxic products onto our
kitchen tables.
But under new leadership, the Consumer Bureau has turned its back
on that job.
CFPB inspectors used to show up at Wall Street banks and other
lenders to make sure they were obeying the Military Lending Act--that's
a law that protects active-duty servicemembers and their families from
predatory loans.
Under new leadership, CFPB inspectors aren't protecting
servicemembers anymore.
The CFPB used to protect borrowers from shady lending practices
that trapped hardworking families in an endless cycle of debt.
Now, the CFPB Director is giving payday lenders and car title
lenders free rein. In fact, Director Kraninger wants us to believe that
an endless cycle of debt is a benefit to hardworking families.
The CFPB used to make sure loans have clear explanations that
regular Americans could understand.
Now, the CFPB has created the Orwellian-ly named ``Office of
Innovation'', which as far as we can tell is dedicated to helping big
banks and tech firms innovate new ways to trick their customers into
new loans and other complicated financial products.
The old CFPB prosecuted debt collectors who used shady tactics to
harass borrowers and threaten them in their homes or at their jobs.
Now, the CFPB is considering a proposal to let debt collectors call
borrowers as many times as they want. You thought telemarketers were
bad? Try being harassed over your student loan debt.
If the Director of the Consumer Financial Protection Bureau wanted
to help consumers, she wouldn't have to look very far to find people in
need.
Student loan debts have reached record levels, and record
delinquency rates. Seven million Americans are more than 3 months
behind on their car payments--the highest level in 19 years, worse than
during the Great Recession. Forty percent of Americans don't have
enough savings to cover a $400 emergency expense.
But instead, she's siding with the rest of this Administration that
looks like an executive retreat for Goldman Sachs. It's clear whose
side everyone in this Administration is on.
And they continue to create excuses for eliminating financial
protections, saying they are--``increasing access to credit.''
What they really mean is, increasing access to bad credit that
drains people's savings and traps them in debt. Right now, Wells Fargo
CEO Tim Sloan is testifying in the House Financial Services Committee
about a laundry list of ways his bank abused its customers.
Millions of Americans got hurt because this bank cared more about
profits than its customers. It was the CFPB that helped uncover this
scandal and it was the CFPB that got many Americans their money back.
That's what Ms. Kraninger's job should be about.
______
PREPARED STATEMENT OF KATHY KRANINGER
Director, Consumer Financial Protection Bureau
March 12, 2019
Chairman Crapo, Ranking Member Brown, and distinguished Members of
the Committee, thank you for the opportunity to present the Consumer
Financial Protection Bureau's most recent Semiannual Reports to
Congress. While the reports describe actions undertaken before I
arrived, they provide a touchstone as we create a fresh outlook at the
agency under my leadership.
The Bureau presents these Semiannual Reports to Congress and the
American people in fulfillment of its statutory responsibility and
commitment to accountability and transparency. The Bureau's Spring 2018
(October 1, 2017, to March 31, 2018) and Fall 2018 (April 1, 2018, to
September 30, 2018) Semiannual Reports meet this mandate. My testimony
highlights the contents of these reports.
Significant Problems Faced by Consumers in Shopping for or Obtaining
Consumer Financial Products or Services
In each Semiannual Report, the Bureau identifies relevant trends
affecting consumers shopping for or obtaining consumer financial
products or services. In the two Reports submitted to Congress in 2018,
the Bureau identified a total of four trends of relevance.
First are credit products marketed to ``nonprime borrowers.'' Given
the higher late payment and default rates associated with ``nonprime
borrowers,'' products issued to these consumers generally feature
higher all-in costs than products issued to consumers with higher
scores, but offer such consumers the dual possibility of access to the
credit card market as well as an avenue for building or rehabilitating
credit records when timely repayments are made.
Second are secured credit cards. Consumer awareness and demand for
secured cards have increased in recent years, however, low product
awareness remains a barrier to secured credit card adoption. Outside
research has found that many ``nonprime borrowers'' may not be aware
that secured credit cards are a potential option for them, or even that
the product exists.
Third, the Bureau found that credit invisibility--i.e., lacking a
credit record that is treated as ``scorable'' by widely used credit
scoring models--among adults 25 and older is concentrated in rural and
highly urban geographies. Lack of internet access appears to have a
stronger relationship to credit invisibility than does the presence of
a bank branch. Among consumers who successfully transition out of
credit invisibility, the overall rate of using a credit card as an
entry product is much lower for those living in rural areas and in
lower-income neighborhoods.
Lastly, many homebuyers do not comparison shop for their mortgages
even though mortgage interest rates and loan terms can vary
considerably across lenders. Reasons may include that rates change
regularly, getting an accurate rate quote generally requires sharing
personal financial information, and most consumers believe comparison
shopping doesn't make a difference. A Bureau study found that consumers
who were encouraged to comparison shop became more knowledgeable and
confident regarding the mortgage market.
Justification of the Budget Request of the Previous Year
The Bureau is funded principally by transfers from the Federal
Reserve System, up to the limits set forth in the Dodd-Frank Act.
Funding from the Federal Reserve System for FY2018 is capped at $663
million. As of September 30, 2018, the Bureau had received a total of
$381.3 million in transfers for FY2018, which was added to the $177.1
million the Bureau had in unobligated balances at the end of FY2017.
As of September 30, 2018, the end of the fourth quarter of FY2018,
the Bureau had spent approximately $553 million in FY2018 funds to
carry out the authorities of the Bureau under Federal financial
consumer law. Approximately $320.5 million was spent on employee
compensation and benefits for the 1,510 Bureau employees who were on-
board by the end of the quarter.
Significant Rules and Orders Adopted by the Bureau, as Well as Other
Significant Initiatives Conducted by the Bureau, During the
Preceding Year and the Plan of the Bureau for Rules, Orders, or
Other Initiatives To Be Undertaken During the Upcoming Period
In its Semiannual Reports, the Bureau set forth the rules it had
produced during the year preceding each report and the initiatives it
intends to take during the upcoming reporting period. Below is a
selection of the most relevant such matters.
Significant Rules Adopted by the Bureau During the Preceding Year:
Final Rule: Payday, Vehicle Title, and Certain High-Cost
Installment Loans.
Final Rule: Arbitration Agreements (note, however, that
this rule will not go into effect because Congress subsequently
adopted a joint resolution of disapproval which the President
signed pursuant to the Congressional Review Act). \1\
---------------------------------------------------------------------------
\1\ www.federalregister.gov/documents/2017/07/19/2017-14225/
arbitration-agreements; www.federalregister.gov/documents/2017/11/22/
2017-25324/arbitration-agreements
---------------------------------------------------------------------------
Less Significant Rules:
Final Rule: Mortgage Servicing Rules Under the Truth in
Lending Act (Regulation Z). \2\
---------------------------------------------------------------------------
\2\ www.federalregister.gov/documents/2018/03/12/2018-04823/
mortgage-servicing-rules-under-the-truth-in-lending-act-regulation-z
Final Rule: Rules Concerning Prepaid Accounts Under the
Electronic Fund Transfer Act (Regulation E) and the Truth in
Lending Act (Regulation Z). \3\
---------------------------------------------------------------------------
\3\ www.federalregister.gov/documents/2018/02/13/2018-01305/rules-
concerning-prepaid-accounts-under-the-electronic-fund-transfer-act-
regulation-e-and-the-truth
Interim Final Rule: Mortgage Servicing Rules Under the Real
Estate Settlement Procedures Act (Regulation X). \4\
---------------------------------------------------------------------------
\4\ www.federalregister.gov/documents/2017/10/16/2017-21912/
mortgage-servicing-rules-under-the-real-estate-settlement-procedures-
act-regulation-x
Final Rule: Equal Credit Opportunity Act (Regulation B)
Ethnicity and Race Information Collection. \5\
---------------------------------------------------------------------------
\5\ www.federalregister.gov/documents/2017/10/02/2017-20417/equal-
credit-opportunity-act-regulation-b-ethnicity-and-race-information-
collection
Final Rule: Home Mortgage Disclosure Act (Regulation C).
\6\
---------------------------------------------------------------------------
\6\ www.federalregister.gov/documents/2017/09/13/2017-18284/home-
mortgage-disclosure-regulation-c
Final Rule: Amendments to Federal Mortgage Disclosure
Requirements Under the Truth in Lending Act (Regulation Z). \7\
---------------------------------------------------------------------------
\7\ www.federalregister.gov/documents/2017/08/11/2017-15764/
amendments-to-federal-mortgage-disclosure-requirements-under-the-truth-
in-lending-act-regulation-z
---------------------------------------------------------------------------
Significant Initiatives:
Notice of Proposed Policy Guidance: Policy To Encourage
Trial Disclosure Program.
Symposium on Building a Bridge to Credit Visibility.
Call for Evidence.
Plan for Upcoming Initiatives
Policy Statement: Public Release of Home Mortgage
Disclosure Act Data.
Pre-Rule Activity: Threshold Adjustment to Escrow Provision
for Higher Priced Mortgage Loans.
Plan for Upcoming Rules
Payday, Vehicle Title, and Certain High-Cost Installment
Loans: The Bureau announced in January 2018 that it intends to
open a rulemaking to reconsider its 2017 rule titled Payday,
Vehicle Title, and Certain High-Cost Installment Loans. The
Notice of Proposed Rulemaking was issued by the Bureau on
February 6, 2019. \8\
---------------------------------------------------------------------------
\8\ www.consumerfinance.gov/policy-compliance/rulemaking/rules-
under-development/payday-vehicle-title-and-certain-high-cost-
installment-loans-delay-of-compliance-date/
Debt Collection Rule: The Bureau is working toward
releasing a proposed rule regarding FDCPA collectors'
---------------------------------------------------------------------------
communications practices and consumer disclosures.
Home Mortgage Disclosure (Regulation C): The Bureau
announced in December 2017 that it intends to engage in a
rulemaking to reconsider various aspects of the Bureau's 2015
rule under the Home Mortgage Disclosure Act (Regulation C),
which could involve issues such as the institutional and
transactional coverage tests and the rule's discretionary data
points.
Partial Exemptions From the Requirements of the Home
Mortgage Disclosure Act Under the Economic Growth, Regulatory
Relief, and Consumer Protection Act (Regulation C):
The Bureau will incorporate into Regulation C
interpretations and procedures set forth in an interpretive and
procedural rule issued to implement and clarify the
requirements of section 104(a) of the Economic Growth,
Regulatory Relief, and Consumer Protection Act, which amended
certain provisions of the Home Mortgage Disclosure Act.
Analysis of Complaints About Consumer Financial Products or Services
That the Bureau Has Received and Collected in Its Central
Database on Complaints During the Preceding Year
The Bureau's Office of Consumer Response analyzes consumer
complaints, company responses, and consumer feedback to assess the
accuracy, completeness, and timeliness of company responses. The Bureau
uses insights gathered from complaint data to scope and prioritize
examinations and ask targeted questions when examining companies'
records and practices, to help understand problems consumers are
experiencing in the marketplace, to provide access to information about
financial topics and opportunities to build skills in money management
that can help them avoid future problems, and to inform enforcement
investigations to help stop unfair, deceptive, or abusive acts or
practices.
In the Spring 2018 Semiannual Report, the Bureau noted that it had
received approximately 326,200 consumer complaints and sent
approximately 260,200 (or 80 percent) to companies, and companies
responded to approximately 94 percent of complaints that the Bureau
sent to them. In the Fall 2018 Semiannual Report, the Bureau received
approximately 329,000 consumer complaints and sent approximately
263,200 (or 80 percent) to companies, and companies responded to
approximately 93 percent of complaints that the Bureau sent to them.
The Bureau does not verify all the facts alleged in complaints, but
takes steps to confirm a commercial relationship between the consumer
and the company.
In both reports, the credit or consumer reporting categories
received the most complaints, at 37 percent in the most recent report,
and debt collection received the second highest number of complaints,
at 25 percent in the most recent report. The remaining categories, from
highest to lowest percentage of total complaints, are: mortgage (10
percent), credit card (9 percent), checking or savings (7 percent),
student loan (3 percent), money transfer or service or virtual currency
(3 percent), vehicle loan or lease (3 percent), personal loan (1
percent each period), payday loan (0.7 percent), prepaid card (0.7
percent), credit repair (0.3 percent), and title loan (0.2 percent).
Public Supervisory and Enforcement Actions to Which the Bureau Was a
Party During the Preceding Year
The Bureau's supervisory activities with respect to individual
institutions are nonpublic. The Bureau has, however, issued numerous
supervisory guidance documents and bulletins described in the Spring
and Fall Semiannual Reports.
The Reports note that the Bureau was a party in several public
enforcement actions, as well as actions involving Office of
Administrative Adjudication Orders with respect to covered persons
which are not credit unions or depository institutions, between the two
Reports. For a list of each case, along with brief descriptions, please
refer to the Bureau's Semiannual Reports.
Actions Taken Regarding Rules, Orders, and Supervisory Actions With
Respect to Covered Persons Which Are Not Credit Unions or
Depository Institutions
The Bureau's Semiannual Reports list all its public enforcement
actions, noting when the action was taken against a covered person that
is not a credit union or depository institution. Additionally the
Bureau's Supervisory Highlights publications provide general
information about the Bureau's supervisory activities and key findings
at banks and nonbanks without identifying specific companies.
Assessment of Significant Actions by State Attorneys General or State
Regulators Relating to Federal Consumer Financial Law
For purposes of the section 1016(c)(7) reporting requirement, the
Bureau determined that any actions asserting claims pursuant to section
1042 of the Dodd-Frank Act are ``significant.'' The reporting period of
the two most recent Semiannual Reports is October 1, 2017, through
September 30, 2018. The Bureau is aware of three State Attorney General
actions that were initiated during the reporting period(s) and that
asserted Dodd-Frank Act claims: State of Alabama et al. v. PHH Mortgage
Corporation, No. 18-cv-0009 (D.D.C. Jan. 3, 2018); Navajo Nation v.
Wells Fargo & Company, Wells Fargo Bank, N.A., and Does 1-10, No. 17-
cv-1219 (D.N.M. Dec. 12, 2017); and Commonwealth of Pennsylvania v.
Navient Corporation and Navient Solutions, L.L.C., No. 17-cv-1814 (M.D.
Pa. Oct. 5, 2017).
Analysis of the Efforts of the Bureau To Fulfill the Fair Lending
Mission of the Bureau
The Bureau's Spring and Fall 2018 Semiannual Reports highlight the
Bureau's fair lending enforcement and rulemaking activities, along with
its continued efforts to fulfill the Bureau's fair lending mission
through, for example, supervision, interagency coordination, and
outreach.
For exam reports issued by Fair Lending Supervision during the
reporting period, the most frequently cited violations of Regulation B
and Regulation C were:
Section 1002.5(d)(2): Improperly requesting information
about an applicant's source of income.
Section 1002.6(b)(2): Improperly considering age or whether
income is derived from any public assistance program.
Section 1002.9(c)(2): Failure to adequately notify an
applicant that additional information is needed for an
application.
Section 1002.14(a): Failure to routinely provide a copy of
an appraisal report to an applicant for credit secured by a
lien on a dwelling.
Section 1003.4(a): Failure by a financial institution to
collect data regarding applications for covered loans that it
receives, originates, or purchases in a calendar year, or,
failure to collect data regarding certain requests under a
preapproval program in a calendar year.
In the Spring Report, the Bureau conducted fewer fair lending
supervisory events, and issued fewer matters requiring attention (MRAs)
or memoranda of understanding (MOUs) than in the prior period, and
cleared a substantially higher number of MRAs or MOU items from past
supervisory events than in the prior period. In the Fall Report, the
Bureau initiated a higher number of fair lending supervisory events,
and issued a greater number of MRAs or MOUs than in the prior period,
and found that entities satisfied a lower number of MRAs or MOU items
from past supervisory events than in the prior period.
In addition to fair lending supervision, the Bureau has the
statutory authority to bring enforcement actions pursuant to the Home
Mortgage Disclosure Act (HMDA) and the Equal Credit Opportunity Act
(ECOA). The Bureau announced a fair lending public enforcement action
involving credit cards, as described in the Semiannual Reports.
The Bureau continues to administer prior fair lending enforcement
actions, including consent orders requiring defendants to pay redress
to affected consumers. These matters include ongoing orders pertaining
to autolending that govern American Honda Finance Corporation and
mortgage lending governing Provident Funding Associates and
BancorpSouth Bank.
The Bureau also conducts fair lending outreach through issuance of
Reports to Congress, Interagency Statements, Supervisory Highlights,
Compliance Bulletins, letters and blog posts, as well as through the
delivery of speeches, meetings, and presentations addressing fair
lending and access to credit matters. As set forth in the two most
recent Semiannual Reports, Fair Lending staff worked directly with
stakeholders, and, on September 17, 2018, the Bureau held a day-long
symposium titled Building a Bridge to Credit Visibility. The symposium
explored challenges related to access to consumer and small business
credit and potential innovations and strategies to expand credit
access. On the day of the symposium, the Bureau also released a new
research publication providing a closer look at the relationship
between geography and credit invisibility.
The Spring and Fall 2018 Semiannual Reports also describe that Fair
Lending staff coordinated with partners on the Interagency Task Force
on Fair Lending, the Interagency Working Group on Fair Lending
Enforcement, and the Federal Financial Institutions Examinations
Council (FFIEC) HMDA Data Collection Subcommittee.
Analysis of the Efforts of the Bureau To Increase Workforce and
Contracting Diversity Consistent With the Procedures
Established by the Office of Minority and Women Inclusion
(OMWI)
The Bureau developed its ``Diversity and Inclusion Strategic Plan
2016-2020'' to guide the Bureau's efforts to manage its diversity and
inclusion goals, and objectives. The Bureau also publishes an Annual
OMWI report in the spring of each year; its 2017 report was issued on
March 29, 2018.
As of September 2018, an analysis of the Bureau's current workforce
reveals the following key points:
Women represent 49 percent of the Bureau's workforce in
2018 with no change from 2017.
Minorities represent 40 percent of the Bureau workforce in
2018 with a 1 percentage point increase of ethnic minority
employees (Hispanic, Black, Asian, Native Hawaiian/Other
Pacific Islander (NH/OPI), American Indian/Alaska Native (AI/
AN), and employees of Two or More races) from 2017.
As of September 30, 2018, 12.4 percent of Bureau employees
(excluding interns) identified as an individual with a
disability. Out of the workforce, 3.2 percent of employees
identified as an individual with a targeted disability. The
Bureau has already exceeded the workforce goals of 12 percent
for employees with disabilities and 2.0 percent for employees
with targeted disabilities--exceeding in both salary categories
as required in the EEOC's Section 501 regulations.
The Bureau enhances diversity by recruiting, hiring, and retaining
highly qualified individuals from diverse backgrounds to fill positions
at the Bureau. To promote an inclusive work environment, the Bureau
focuses on strong engagement with employees and utilizes an integrated
approach to education, training, and engagement programs that ensures
diversity and inclusion and nondiscrimination concepts are part of the
learning curriculum and work environment. The Bureau also ensures that
senior leaders are aware of demographic trends of the Bureau's
workforce. Planning is done to increase inclusion and retention of the
diverse workforce.
Further, in accordance with the mandates in section 342(b)(2)(B) of
the Dodd-Frank Act, the Bureau takes efforts to increase contracting
opportunities for diverse businesses including Minority-owned and
Women-owned Businesses (MWOBs), including: creating and publishing a
procurement forecast; proactively making recommendations that promote
the use of qualified MWOB contractors in Bureau contracts; updating,
distributing, and publishing online technical assistance guides for
businesses; publishing the Bureau's supplier diversity policy on the
Bureau website; participating in four national supplier diversity
conferences aimed at MWOBs; and providing technical assistance meetings
to businesses new to Government contracting or doing business with the
Bureau. As a result of these efforts, 32.6 percent of the $139 million
in contracts that the Bureau awarded during this time went to MWOBs.
Finally, in accordance with the mandates in section 342(c)(2) of
the Dodd-Frank Act, the Bureau's Diversity and Inclusion Plan describes
the Bureau's efforts to determine that a contractor will ensure, to the
maximum extent possible, the fair inclusion of women and minorities in
the contractor and subcontractor workforce. The Bureau developed and
inserted a contract clause, known as the Good Faith Effort, into all
Bureau contracts, and as a result more than 200 Bureau contractors will
submit documentation detailing their workforce diversity practices in
FY2019.
Conclusion
The reports describe actions undertaken before my tenure as
Director of the Bureau, yet they provide a touchstone as we create a
fresh outlook at the agency under my leadership.
Since my confirmation, I have been engaged in a listening tour to
meet as many of our stakeholders as possible, including many of you.
Through listening, I am building relationships, both inside and outside
of the Bureau. Hearing all perspectives is critical to bring the best
thinking as we carry out our mission of protecting consumers.
Looking ahead, I will be setting priorities for the Bureau,
including setting the tone for how we will operate as an agency. I
expect to emphasize stability, consistency, and transparency as
hallmarks as we mature the agency and institutionalize the many
partnerships that are key to our success. I am also examining how we
can best utilize all the tools that Congress has given us--broadening
our efforts to focus on prevention of harm as a primary goal for our
actions.
Thank you again for the opportunity to present the CFPB's work to
you.
RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN
FROM KATHY KRANINGER
Q.1. In November 2016, the CFPB issued ``A snapshot of
servicemember complaints'' noting that veterans had reported
``being targeted with aggressive solicitations by lenders to
refinance'' their home loan using a Department of Veterans
Affairs (VA) product. \1\ Veterans also reported that
solicitations were ``potentially misleading.'' \2\ One year
later, the CFPB and the Department of Veterans Affairs (VA)
issued a joint Warning Order about aggressive and potentially
misleading advertising of VA home loan refinances. \3\
---------------------------------------------------------------------------
\1\ https://files.consumerfinance.gov/f/documents/112016-cfpb-OSA-
VA-refinance-snapshot.pdf
\2\ Id.
\3\ ``CFPB and VA WARNO: VA Refinancing Offers That Sound Too Good
To Be True'', Patrick Campbell and Anthony Vail, November 20, 2017,
available at https://www.consumerfinance.gov/about-us/blog/cfpb-and-va-
warno-va-refinancing-offers-sound-too-good-be-true/.
---------------------------------------------------------------------------
Most recently, the VA published an Advanced Notice of
Proposed Rulemaking (ANPR) \4\ and a subsequent interim final
rule \5\ on cash-out refinances on VA loans, in compliance with
Section 309 of P.L. 115-174, the Economic Growth, Regulatory
Relief, and Consumer Protection Act. Both of these documents
indicated that potential lender abuses remain a substantial
problem. That ANPR stated that ``perhaps more than 50 percent
of [VA] cash-out refinances remain vulnerable to predatory
terms and conditions'' and that ``some lenders are pressuring
veterans to increase artificially their home loan amounts when
refinancing, without regard to the long-term costs to the
veteran and without adequately advising the veteran of the
veteran's loss of home equity.'' \6\
---------------------------------------------------------------------------
\4\ ``Loan Guaranty: Revisions to VA-Guaranteed or Insured Cash-
Out Home Loans'', 83 FR 61573, November 30, 2018, available at https://
www.federalregister.gov/documents/2018/11/30/2018-26021/loan-guaranty-
revisions-to-va-guaranteed-or-insured-cash-out-home-loans.
\5\ ``Loan Guaranty: Revisions to VA-Guaranteed or Insured Cash-
Out Refinance Loans'', 83 FR 64459, December 17, 2018, available at
https://www.federalregister.gov/documents/2018/12/17/2018-27263/loan-
guaranty-revisions-to-va-guaranteed-or-insured-cash-out-home-refinance-
loans.
\6\ See 83 FR 61573.
---------------------------------------------------------------------------
Since November 2016, has the CFPB received referrals from
the VA or Ginnie Mae to review potentially unfair, deceptive,
or abusive actions and practices or other violations of
consumer protection laws by VA mortgage lenders? If so, how
have the volume and nature of those referrals changed over
time? If not, why not?
A.1. Since November 2016, Consumer Financial Protection Bureau
(Bureau) staff has met with the Veterans Affairs (VA) staff to
discuss the VA's concerns that veterans are the subjects of
aggressive and potentially misleading advertising of VA home
loan refinances. Periodically, the VA has provided the Bureau
with samples of potentially misleading advertisements.
Q.2. Does the CFPB participate in the VA and Ginnie Mae's
Lender Abuse Task Force to address harmful practices in the VA
loan refinance market? If so, what steps is each agency in the
Task Force taking to address lender abuses in the VA loan
refinance market? If not, why not?
A.2. Although the Bureau was not asked to be a member of the
Task Force, certain Bureau offices have provided technical and
market expertise on a limited basis when requested by Ginnie
Mae and/or the VA. Such expertise has been limited to a review
of specific advertisements and some product offerings.
Q.3. What additional steps has the CFPB taken or will the CFPB
take to address complaints received from consumers or referrals
from the VA or Ginnie Mae (if applicable) to communicate with
consumers and address practices in the VA loan refinance market
that may be abusive or misleading and ultimately harm
servicemembers?
A.3. The Bureau does not generally comment publicly on
confidential enforcement investigations. In a public action,
the Bureau partnered with the Department of Veterans Affairs to
issue a consumer advisory, \7\ CFPB and VA WARNO: VA
Refinancing Offers That Sound Too Good To Be True, on November
20, 2017.
---------------------------------------------------------------------------
\7\ https://www.consumerfinance.gov/about-us/blog/cfpb-and-va-
warno-va-refinancing-offers-sound-too-good-be-true
Q.4. Appraisals--In December 2018, the Office of the
Comptroller of the Currency (OCC), the Board of Governors of
the Federal Reserve System (Fed), and the Federal Deposit
Insurance Corporation (FDIC) jointly proposed to increase their
agencies' appraisal threshold on residential mortgage loans
from $250,000 to $400,000. \8\ Lenders would instead be
required to obtain an evaluation for any mortgage loan below
$400,000 not otherwise subject to requirements by the mortgage
insurer or guarantor or the secondary market. \9\
---------------------------------------------------------------------------
\8\ ``Real Estate Appraisals'', 83 FR 63110, December 7, 2018,
available at https://www.federalregister.gov/documents/2018/12/07/2018-
26507/real-estate-appraisals.
\9\ Id.
---------------------------------------------------------------------------
This proposal comes less than 2 years after these same
banking regulators and CFPB rejected an increase in the
residential loan appraisal threshold based on ``considerations
of safety and soundness and consumer protection'' in their
Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA)
report. \10\
---------------------------------------------------------------------------
\10\ Joint Report to Congress: Economic Growth and Regulatory
Paperwork Reduction Act, Federal Financial Institutions Examination
Council, March 2017, p. 36, available at https://www.ffiec.gov/pdf/
2017_FFIEC_EGRPRA_Joint-Report_to_Congress.pdf.
---------------------------------------------------------------------------
As you know, the Financial Institutions Reform, Recovery,
and Enforcement Act of 1989, as amended by the Dodd-Frank Wall
Street Reform and Consumer Protection Act, requires the Federal
banking regulators charged with setting appraisal exemption
thresholds to receive concurrence from the CFPB to ensure that
``such threshold level provides reasonable protection for
consumers'' before any amendment. \11\ In the EGPRA report, the
banking regulators noted that ``CFPB staff shared concerns
about potential risks to consumers resulting from an expansion
of the number of residential mortgage transactions that would
be exempt from the Title XI appraisal requirement'' if the loan
threshold was raised. \12\
---------------------------------------------------------------------------
\11\ 12 U.S.C. 3341(b).
\12\ Id.
---------------------------------------------------------------------------
Did the Federal banking agencies confer with staff or
leadership at the CFPB or seek concurrence before issuing the
proposal to increase the appraisal exemption threshold? If not,
at what point in the regulatory process do Federal banking
agencies seek concurrence with the CFPB on appraisal threshold
changes?
A.4. Staff of the Federal banking agencies conferred with
Bureau staff before publication of the December 7, 2018, Notice
of Proposed Rulemaking (NPRM). During the November 20, 2018,
Federal Deposit Insurance Corporation (FDIC) Board meeting at
which the FDIC Board voted in favor of the FDIC moving forward
with issuing the NPRM, then Bureau Acting Director Mick
Mulvaney indicated that his vote in favor of such action in his
capacity as an FDIC Board member was not an exercise of the
Bureau's concurrence authority under section 1112(b) of the
Financial Institutions Reform, Recovery, and Enforcement Act of
1989 (FIRREA), \13\ and that the Bureau will make its
determination of whether to concur at the final rule stage.
---------------------------------------------------------------------------
\13\ Id.
Q.5. Is the CFPB aware of any changes in the real estate market
or in appraisal or evaluation services that would affect its
consumer protection concerns, cited in the EGRPRA report, with
increasing the residential mortgage appraisal threshold above
---------------------------------------------------------------------------
$250,000? If so, please detail these changes.
A.5. As reflected in the EGRPRA report, the Federal banking
agencies were particularly interested at that time with
addressing potential appraiser availability issues in rural
areas, and, among other things, the Federal banking agencies
planned to issue a statement regarding how section 1119(b) of
FIRREA provides authority for temporary waivers of appraiser
certification or licensing requirements where there is a
scarcity of qualified appraisers, \14\ without proposing to
raise the residential mortgage appraisal threshold pursuant to
section 1112(b) of FIRREA. \15\ Bureau staffs conversations
with staff of the Federal banking agencies about increasing the
residential mortgage appraisal threshold pursuant to section
1112(b) of FIRREA occurred in the context of these discussions
and do not constitute a Bureau concurrence determination
regarding a proposed increase to the residential mortgage
appraisal threshold. Now that the Federal banking agencies have
issued the NPRM, Bureau staff are currently in the process of
assessing the availability of information to enable me to make
a determination of whether to concur.
---------------------------------------------------------------------------
\14\ 12 U.S.C. 3348(b).
\15\ See Joint Report to Congress: Economic Growth and Regulatory
Paperwork Reduction Act, Federal Financial Institutions Examination
Council, March 2017, pp. 36-37, available at https://www.ffiec.gov/pdf/
2017-FFIEC-EGRPRA-Joint-Report-to-Congress.pdf.
Q.6. What factors does the CFPB consider when determining
whether or not to grant concurrence on proposals to increase
---------------------------------------------------------------------------
the residential mortgage appraisal threshold?
A.6. As noted above, section 1112(b) of FIRREA provides that
the Federal banking agencies may establish a threshold level
described therein only if the agency ``receives concurrence
from the [Bureau] that such threshold level provides reasonable
protection for consumers who purchase 1-4 unit single-family
residences.'' \16\ As also noted above, the Federal banking
agencies' NPRM includes a requirement that the lender must
obtain an evaluation where a lender does not obtain an
appraisal due to the proposed threshold (unless another
exemption not carrying the evaluation requirement applies). As
a result, among the information the Bureau is interested in is:
(1) information regarding the presentation or content of
evaluations in practice, including what valuation information,
if any, consumers would lose in practice if more evaluations
are performed rather than appraisals; (2) the extent to which
appraisals or evaluations provide benefits or protections for
consumers that are purchasing l-4 unit single-family residences
(including the nature and magnitude of the differences between
using evaluations rather than appraisals, if any, in consumer
protection, such as with respect to credibility); and (3)
information relating to current and potential future use of
evaluations by lenders.
---------------------------------------------------------------------------
\16\ 12 U.S.C. 3341(b).
Q.7. Wells Fargo--In April 2018 consent orders with Wells
Fargo, both the CFPB \17\ and the Office of the Comptroller of
the Currency (OCC) \18\ required Wells to develop Remediation
Plans or Programs and submit them to the Regional Director at
the CFPB and Examiner-in-Charge at the OCC for nonobjection.
These orders also allowed the Regional Director and Examiner-
in-Charge to require Wells to submit future remediation
programs for review and nonobjection while the consent orders
remained effective.
---------------------------------------------------------------------------
\17\ See https://files.consumerfinance.gov/f/documents/cfpb_wells-
fargo-bank-na_consent-order_2018-04.pdf.
\18\ See https://www.occ.gov/static/enforcement-actions/ea2018-
025.pdf.
---------------------------------------------------------------------------
Beginning in its August 2018 10-Q report \19\ and in
subsequent materials, \20\ Wells Fargo disclosed that an
internal calculation error led the lender/servicer to
improperly deny modifications to 870 homeowners, 545 of whom
were subsequently foreclosed upon, between 2010 and 2018. To
date, neither the CFPB nor the OCC has taken a public
enforcement action with respect to these modification denials
and foreclosures. Wells Fargo's initial disclosure indicated
that they have set aside just $8 million to remediate harmed
consumers.
---------------------------------------------------------------------------
\19\ Wells Fargo and Company Form 10-Q, August 3, 2018, available
at https://www08.wellsfargomedia.com/assets/pdf/about/investor-
relations/sec-filings/2018/second-quarter-10q.pdf.
\20\ Wells Fargo and Company Form 10-Q, available at https://
www08.wellsfargomedia.com/assets/pdf/about/investor-relations/sec-
filings/2018/third-quarter-10q.pdf.
---------------------------------------------------------------------------
Does the CFPB have the authority under existing consent
orders or other law or policy to review Wells Fargo's methods
for determining how many borrowers were harmed by the bank's
modification errors? If so, has the CFPB reviewed those
methods? If not, why not?
A.7. I am firmly committed to ensuring that Wells Fargo fully
complies with the requirements of Federal consumer financial
law. The Bureau has authority to examine certain institutions,
including Wells Fargo, to assess compliance with the
requirements of Federal consumer financial law. It also has the
authority to bring enforcement actions for violations of
Federal consumer financial law. As part of the April 2018
Consent Order, Wells Fargo was required to develop a
Remediation Program, which would include, among other things,
developing Consumer Remediation Plans when it identifies
violations of Federal consumer financial law. The Bureau
expects Wells Fargo to comply with this requirement and has the
capability to examine for that compliance.
Q.8. Does the CFPB have the authority under existing consent
orders or other law or policy to request to review Wells
Fargo's remediation plan for the 870 borrowers that Wells has
determined were harmed by the bank's calculation errors?
If the CFPB has this authority:
Has the CFPB reviewed or requested to review Wells Fargo's
remediation plan?
If the plan has been reviewed, has the CFPB approved Wells
Fargo's remediation plan? If so, why? If not, why not?
If the plan has not been reviewed, why not?
If the CFPB does not believe it has this authority, why
not?
A.8. As noted in my previous response, I am firmly committed to
ensuring that Wells Fargo fully complies with the requirements
of Federal consumer financial law. The Bureau has authority to
examine certain institutions, including Wells Fargo, to assess
compliance with the requirements of Federal consumer financial
law. It also has the authority to bring enforcement actions for
violations of Federal consumer financial law. As part of the
April 2018 Consent Order, Wells Fargo was required to develop a
Remediation Program, which would include, among other things,
developing Consumer Remediation Plans when it identifies
violations of Federal consumer financial law. The Bureau
expects Wells Fargo to comply with this requirement and has the
capability to examine for that compliance.
The information you requested related to specific
activities undertaken by the Bureau in the course of its
supervisory relationship constitutes confidential supervisory
information.
The Bureau has issued regulations governing the disclosure
of confidential supervisory and investigative information. See
12 CFR 1070.41, 1070.45. These rules are designed to protect
the integrity of the law enforcement process, including the
confidentiality and due process interests of those subject to
supervisory or investigatory activity.
Q.9. How does the CFPB determine whether remediation for
consumers who were wrongfully denied a loan modification is
adequate?
A.9. Many factors are weighed to determine the precise mix of
restitution, penalties, and injunctive relief appropriate in
each case. At the center of that effort is serving justice in
the public interest. Generally, when analyzing remediation, the
Bureau considers all relevant facts and circumstances and seeks
to make consumers whole for losses caused by a party's illegal
conduct.
Q.10. How does the CFPB determine whether remediation to
consumers who wrongfully lost their home to foreclosure is
adequate?
A.10. As noted in my previous response, generally, when
analyzing remediation, the Bureau considers all relevant facts
and circumstances, including the extent of direct and indirect
harm, and seeks to make consumers whole for losses caused by a
party's illegal conduct.
Q.11. The President's Budget claims to save $5 billion over the
next 10 years by ``restructuring the CFPB.'' \21\ That figure
represents most of the agency's budget. In order to recognize a
$5 billion reduction in CFPB spending, which programs,
services, and staff would you cut at the Bureau?
---------------------------------------------------------------------------
\21\ Budget of the U.S. Government for Fiscal Year 2020, p. 127,
March 11, 2019, available at https://www.whitehouse.gov/wp-content/
uploads/2019/03/budget-fy2020.pdf.
---------------------------------------------------------------------------
What impact would this budget reduction have on the ability
of the CFPB to investigate and enforce against consumer abuses?
A.11. The President's budget proposes a change in law regarding
how the Bureau is funded for Congress' consideration. As
Director, I have spent significant time understanding the
Bureau's operations and looking at ways to improve delivery of
the Bureau's mission. With the incredible flexibility Congress
provided this agency, I feel a deep sense of responsibility for
ensuring we become a model for efficient and effective use of
resources. Should Congress change the way the Bureau is funded,
I will take all appropriate steps consistent with those changes
to support the Bureau's mission.
Q.12. During your service at the Office of Management and
Budget, did you assist in the consideration or publication of
budget proposals that reflected similar reductions in CFPB
spending?
Did you object to those reductions and if not, why not?
A.12. The President's budget request is precisely that. As
stated above, the President's budget proposes a change in law
regarding how the Bureau is funded for Congress' consideration.
Should Congress change the way the Bureau is funded, I will
take all appropriate steps consistent with those changes to
support the Bureau's mission.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR COTTON
FROM KATHY KRANINGER
Q.1. Director, the concept of easing balloon-payment
requirements and increasing payment affordability for consumers
was clearly of interest to the CFPB when the original rule was
published. Installment loan products offer alternatives to
balloon-payment loans, but the payment section of the rule
requiring reauthorization after two failed ACH or debit
attempts increases the repayment risk for multipay products.
Do you believe the payment provisions create an incentive
for lenders to offer single payment loans over longer term
installment loan products?
A.1. No. The Bureau's 2017 Payday Rule's cap on making further
attempts to debit a consumer's account after two consecutive
attempts have failed due to nonsufficient funds applies to all
loans covered by the Rule, including short-term loans with
balloon payments and longer-term loans. The cap's provisions
are based on the conclusions the Bureau reached in the 2017
Final Rule based on its analysis of internal and external data
showing that when some covered lenders attempt to debit
consumers' accounts after two consecutive failures, all
subsequent attempts are far more likely than not to result in
failure. In 2017, the Bureau concluded that two consecutive
failed debit attempts are a strong indication that a consumer's
account is in severe distress and is therefore no longer a
reliable means of ensuring repayment. Thus, the Bureau
determined in 2017 that the relatively small subset of
consumers to whom the cap's protections apply have already
demonstrated a high repayment risk at the time the cap is
triggered. The 2017 Payday Rule's cap is not intended to be an
absolute prohibition on collecting payments from that subset of
consumers. Rather, the Rule's reauthorization and related
provisions required lenders to obtain a new and specific
authorization to obtain payment from consumers.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR PERDUE
FROM KATHY KRANINGER
Q.1. Director Kraninger, similar to the prudential regulators,
the CFPB has market monitoring powers under Section 1022(c) of
Dodd-Frank. Unlike prudential regulators, who use these
extraordinary powers to ensure safety and soundness of the
financial system, the CFPB's role is a consumer protection
watchdog and its market monitoring powers are far more
expansive than any of the prudential regulators. In the past,
the CFPB has undertaken massive data collection of American
consumers' detailed financial information. Especially under
your predecessor, some of these massive data collections were
to help develop solutions for nonexistent problems.
What is your view on when the CFPB should use its market
monitoring powers?
A.1. Section 1022(c) of the Dodd-Frank Wall Street Reform and
Consumer Protection Act provides that ``[i]n order to support
its rulemaking and other functions, the Consumer Financial
Protection Bureau (Bureau) shall monitor for risks to consumers
in the offering or provision of consumer financial products or
services, including developments in markets for such products
or services.'' The Bureau is also required to evaluate the
costs, benefits, and impacts of rules it is considering and to
conduct retroactive assessments of significant rules.
Guidelines for exercising these authorities are described
further in that section. I believe the Bureau should only
collect that data that it needs to perform its statutory
functions, including market monitoring, and the Bureau must be
vigilant to keep data secure to protect the privacy of data
about consumers the agency collects, maintains, or uses. In
September 2018, the Bureau issued a report on the ``Sources and
Uses of Data at the Bureau of Consumer Financial Protection''
\1\ and a Request for Information (RFI) with respect to the
Bureau's data collection activities. The Bureau is reviewing
the comments received in response to that RFI and considering
whether modifications are appropriate with respect to data
collection activities.
---------------------------------------------------------------------------
\1\ https://files.consumerfinance.gov/f/documents/bcfp_sources-
uses-of-data.pdf
Q.2. Do you believe the CFPB needs to provide a specific cause
---------------------------------------------------------------------------
for each time it uses its market monitoring powers?
A.2. As stated above, I believe the Bureau should only collect
data that it needs to perform its statutory functions,
including market monitoring, and the Bureau must be vigilant in
protecting the privacy of consumers in any data the agency
collects, maintains, or uses.
Q.3. Director Kraninger, the Paperwork Reduction Act was
enacted to reduce the total amount of paperwork burden the
Federal Government imposes on individual businesses. However,
the Paperwork Reduction Act did not require the OMB to approve
the collection of data in situations where there were less than
10 parties involved. Under Director Cordray, the CFPB often
took advantage of certain chokepoints within the financial
industry, where 3 to 4 companies held the data of tens of
millions of Americans because they comprised 95 percent of the
market share of a certain industry.
From your experience at the OMB, do you believe that under
10 parties' exemption to the Paperwork Reduction Act was made
for de minis data collection efforts and the CFPB violated the
spirit of the law when it undertook such massive data
collection actions?
A.3. Under the Paperwork Reduction Act (PRA), any collection of
information addressed to all or a substantial majority of an
industry is presumed to involve ten or more persons and is not
subject to exemption; therefore, the Bureau generally would not
authorize a collection of information from nine or less
companies that comprise 95 percent of the industry without
first obtaining approval from OMB under the PRA.
Q.4. What actions have you undertaken at the CFPB to ensure
that the Agency adheres to the Paperwork Reduction Act?
A.4. The Bureau maintains a PRA compliance program that is well
integrated into the Bureau's overall information management
program under the leadership of a Chief Data Officer, in
compliance with Title II of the Foundations for Evidence-Based
Policymaking Act of 2018--Open Government Data Act. The PRA
program is integrated into the Bureau's data management
processes to ensure that before the Bureau requests information
from the public, the collection of that information is
justified, has practical utility, and is not unduly burdensome,
in keeping with the PRA.
The Bureau's PRA program facilitates the Office of
Management and Budget (OMB) information collection process and
provides guidance and assistance to program offices to ensure
that data intakes meet OMB requirements and compliance with the
PRA.
Q.5. Director Kraninger, under Section 1071 of the Dodd-Frank
Act, the BCFP was instructed to create a HMDA like reporting
process for business loans. I have very grave concerns about
the chilling effect such a process will have on the small
business community and the availability of capital.
What are your thoughts on the timing of future rulemaking
mandated by Section 1071?
A.5. In connection with its Spring 2019 Rulemaking Agenda, \2\
the Bureau announced it intends to recommence work within the
next year to begin to develop rules to implement section 1071
of the Dodd-Frank Act. The Bureau also has announced that it
intends to hold a symposium to hear from a diverse group of
experts with respect to the issues implicated in developing a
data collection regime for small business loans. Before issuing
a rule that may have a significant impact on a substantial
number of small entities, the Bureau is required to convene a
panel under the Small Business Regulatory Enforcement Fairness
Act and confer with small entity representatives about the
proposals the Bureau is considering putting forward. After
completing that process, the Bureau is required by the
Administrative Procedure Act to publish a proposal in the
Federal Register and provide an opportunity for public comment
on the proposal. Given those requirements, the Bureau will not
be releasing a final rule under Section 1071 this year.
---------------------------------------------------------------------------
\2\ Diane Thompson, ``Spring 2019 Rulemaking Agenda'' (May 22,
2019), https://www.consumerfinance.gov/about-us/blog/spring-2019-
rulemaking-agenda/.
Q.6. In connection with both your comments on cost-benefit
analysis and limiting the scope of data collections, would any
---------------------------------------------------------------------------
rule coming out of Section 1071 run afoul of both concerns?
A.6. Considering costs and benefits is an important part of our
Dodd-Frank Act statutory responsibility when issuing rules.
There are costs associated with any data collection which have
to be evaluated along with the benefits. The Bureau recognizes
that certain financial institutions may not be collecting and
reporting information regarding small business lending in
connection with other regulatory requirements and that
therefore a new data collection requirement could pose
implementation and operational challenges. The Bureau is
interested in exploring potential ways to implement section
1071 in a balanced manner with a goal of providing timely data
with the highest potential for achieving the statutory
objectives, while minimizing burden to both industry and the
Bureau.
Q.7. Is it even possible to construct a rule that will not
impede business lending and stifle of economic growth?
A.7. Small businesses are critical engines for economic growth
and access to credit is a crucial component of their success.
The Bureau is sensitive to concerns about costs imposed by
regulations and would like to explore ways to implement Section
1071 in a balanced manner to fulfill its statutory objectives
while minimizing burden on industry. The Bureau will also
carefully consider the costs and benefits of regulations as
part of its Dodd-Frank Act statutory responsibilities. As noted
above, the Bureau will begin to develop rules to implement
section 1071 with a symposium to hear from a diverse group of
experts with respect to the issues implicated in developing a
data collection regime for small business loans.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR TILLIS
FROM KATHY KRANINGER
Q.1. With respect to the CFPB's enforcement actions related to
the National Collegiate Student Loan Trusts (NCSLT), there have
been allegations of potential conflicts of interest between the
CFPB and one party of the securitization trust--Vantage Capital
Group. To that end, a proposed consent order filed by the CFPB
under the former Director Cordray in this matter would appoint
Vantage Capital to become the special servicer of the trusts'
student loan assets even though they have no prior special
servicing experience. Additionally, no other party to the
securitization trust approved such change as required by the
parties' contractual agreements.
What is the Bureau's rationale for endorsing and attempting
to appoint, Vantage Capital, an unproven servicer to service
the debt of student loan borrowers which are the assets of the
NCSLT trusts?
And what is the Bureau's rationale for attempting to
unilaterally appoint Vantage Capital in contradiction to the
contractual terms agreed to by the securitization parties
(where these specific terms also represent fundamentally
important protections provided to investors across transactions
in the securitization market)?
A.1. As a general matter, the Bureau does not comment on active
litigation except through its public filings.
Q.2. One of the cited contributors to the failure of the
private label RMBS market to rebound from its crisis-driven
lows are market concerns around the inviolability of their
contracts and a general lack of trust that securitization cash
flows will be allocated as dictated by the transaction
documents. Actions initiated under former CFPB Director Richard
Cordray, that the CFPB continues to pursue today, appear to
have aggravated those concerns among securitization
participants. Specifically, the CFPB filed a case against the
National Collegiate Student Loan Trusts while simultaneously
filing a proposed consent judgment whereby the CFPB's proposed
consent judgment is seeking to:
Penalize investors, including pension plans, retirement
plans, and by extension the consumers that have entrusted their
savings to them, for alleged violations of a third party
service providers and rewrite the contractual provisions that
the securitization parties had agreed to without the
involvement of any of the key parties to the securitization
transactions. Why has the CFPB chosen to not follow long-
standing precedent of other regulatory bodies, and the CFPB's
other enforcement actions, whereby the parties whose actions
allegedly violated the law were pursued for wrongdoing?
Has the CFPB evaluated the impact of holding investors in
the securitization market responsible for other parties'
actions on the availability and cost of credit to consumers
given the significant funding the securitization market
provides to consumers?
A.2. Please see the response to Question 1.
Q.3. The richness and diversity of financial data available to
lenders for accurately assessing a borrower's ability to repay
have made the rigid guidance provided in Appendix Q outdated.
In order to expand access to high quality mortgages for all
Americans, is the Bureau open to permitting other Government
approved documentation standards, such as those used by GSEs,
FHA, and VA, for determining a consumer's DTI instead of
Appendix Q?
A.3. You raise an important question that the Bureau is
currently considering recognizing the expiration of the
``patch'' described further below. A provision of the Ability
to Repay/Qualified Mortgage rule (ATR/QM) currently allows
creditors to obtain Qualified Mortgage (QM) status for a loan
by establishing the loan's eligibility for purchase or guaranty
by the GSEs. A creditor may establish this by, among other
things, demonstrating that the loan satisfies GSE underwriting
requirements, including GSE standards for the consideration and
verification of a borrower's income and debt obligations. This
regulatory provision, known as the ``patch,'' is temporary and
scheduled to expire no later than 2021. Currently Federal
Housing Administration and Veterans Affairs verification
standards can be used under those agencies' own QM definitions.
The Bureau's own General QM definition currently allows use of
Appendix Q verification standards only. The Bureau's report \1\
assessing the effectiveness of the ATR/QM rule identified
concerns that Appendix Q is too limiting and rigid. The Bureau
is open to improvements to it and to identifying alternative
standards for consideration and verifying income and debt
obligations.
---------------------------------------------------------------------------
\1\ https://www.consumerfinance.gov/data-research/research-
reports/2013-ability-repay-and-qualified-mortgage-assessment-report/
Q.4. Entrepreneurs and self-employed Americans help drive
economic growth and innovation in communities across the
Nation. Yet the underwriting standards in Appendix Q have
prevented self-employed individuals from qualifying for QM
loans, thus hindering a potential area of growth in the market.
Because Appendix Q contains a set of underwriting standards
that are written into regulations, these standards have not
kept pace with changes in the market. Are you willing to work
with industry and other market participants to find ways to
make QM underwriting standards more dynamic?
A.4. The Bureau understands the concerns that Appendix Q is too
limiting, especially when it comes to self-employed consumers.
The Bureau recognizes the importance of regulatory standards
keeping up with changes in the market. The Bureau is currently
considering this issue, particularly recognizing the expiration
of the ``patch'' as articulated in the prior response. We
welcome suggestions on this topic from industry, consumer
advocates, and other stakeholders.
Q.5. Ensuring high-quality and affordable mortgage access for
underserved, creditworthy borrowers is an essential mission
that helps drive economic growth. Currently, the QM patch is
key to helping achieve that mission with the overall U.S. home
ownership rate rising to the highest level (64.8 percent) since
2014.
If the GSEs remain in conservatorship beyond January 2021
and the QM patch were to expire without any sort of reliable
substitute, approximately 30 percent of loans backed by the
GSEs could face new liability which would negatively impact
home values and create instability across the secondary market.
The June 2017 Department of Treasury report examining core
principles for regulating the U.S. financial system outlined
important areas for reform with respect to the Ability to
Repay/Qualified Mortgage (ATR/QM) Rule and the QM Patch, which
is currently set to expire on January 10, 2021, or when the
GSEs exit conservatorship, whichever comes first.
As discussions around conservatorship status continue and
the Patch expiration date quickly approaches, can you commit to
working with market participants, including financial
institutions and consumer advocates, to align QM requirements
with GSE eligibility requirements in order to preserve a robust
market?
A.5. I understand the importance of maintaining the smooth
functioning of the mortgage market and avoiding any unnecessary
or undue disruption that would interfere with consumers' access
to credit. The potential expiration of the patch is a complex
situation, and the Bureau is working diligently to formulate
and implement appropriate strategies to handle it. Further, we
have been discussing it with other appropriate regulators,
given the interconnected nature of the decisions we are
separately facing. In addition, we have been consulting with
various market participants, including financial institutions
and consumer advocates, to identify appropriate methods that
will ensure that QM requirements impose as little burden on
industry and consumers as possible and that access to credit is
preserved.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR MORAN
FROM KATHY KRANINGER
Q.1. As you know, the Dodd-Frank statute includes a requirement
that the CFPB tailor its supervision of nonbanks based on
factors which include a firm's size and volume, product risk,
and extent of State supervision. Under the last Administration,
the CFPB provided a one-size-fits-all approach to regulating
mortgage lenders.
When do you expect to apply Section 1024(b)(2) to
regulating lenders based on more appropriate attributes,
specifically the absence of any systemic risk to the mortgage
lending market?
A.1. The Consumer Financial Protection Bureau (Bureau) uses a
risk-based prioritization process, consistent with the
requirements of, and applying the factors set forth in 12
U.S.C. 5514(b)(2) in determining where to focus supervision
resources. The Bureau evaluates each institution product line
based on potential for consumer harm related to a particular
market; the size of the product market; the supervised entity's
market share; and risks inherent to the supervised entity's
operations and offering of financial consumer products within
that market. Accordingly, the Bureau's prioritization approach
assesses risks to the consumer at two levels: the market level
and then the institution level.
At the marketwide level, we assess the risk to the
consumer from the products and practices being followed
in a particular market.
At the institution level, we start with
institution's market share within an individual product
line, which corresponds to the number of consumers
affected.
Our prioritization approach augments this size
consideration significantly with qualitative and quantitative
factors for each institution product line, such as:
the strength of compliance management systems;
the existence of other regulatory actions;
findings from our prior exams;
metrics gathered from public reports;
the number and severity of consumer complaints we
receive; and
Fair-lending-focused information.
Taken together, the information that we gather about each
institution product line at the market level and at the
institution-level allows us to focus our resources where
consumers have the greatest potential to be harmed. We apply
this disciplined risk assessment process to each market in
which the Bureau conducts supervisory authority, including the
mortgage market.
Q.2. Community and smaller banks that fall outside of the
CFPB's jurisdiction use service providers that are considered
nonbank entities. These nonbank entities are almost always
small businesses that like the banks they service are overseen
by prudential banking regulators. In the past, the CFPB gave no
deference to this prudential banking oversight.
Will you commit to reevaluating this policy to assist our
Nation's small businesses minimize their regulatory burden and
lessen the duplicative regulatory oversight?
A.2. The Bureau has authority to examine service providers to
financial institutions that are otherwise subject to the
Bureau's examination authority. \1\ With respect to service
providers to insured depository institutions with total assets
of $10,000,000,000 or less, the Bureau's supervisory authority
is limited to service providers to ``a substantial number'' of
such institutions. \2\ If the Bureau conducts an examination or
requires a report from such a service provider, the Bureau is
required to coordinate with the appropriate prudential
regulator. \3\
---------------------------------------------------------------------------
\1\ 12 U.S.C. 5514(e), 5515(d).
\2\ 12 U.S.C. 5516(e).
\3\ Id.; 12 U.S.C. 5514(e), 5515(d).
---------------------------------------------------------------------------
To date, the Bureau has focused its examinations of service
providers on a targeted group of major service providers to
both large depository institutions and nonbanks subject to its
supervisory authority. As a general matter, absent significant
indicia of risk of consumer harm, the Bureau likely will
continue to focus on larger service providers to the large
banks and nonbanks subject to the Bureau's supervisory
authority. More broadly, I am engaged with the prudential
regulators on ways to help minimize regulatory burden and
duplication on all supervised institutions, while accomplishing
our separate, distinct, and independent statutory mandate.
Q.3. In the past, the CFPB Enforcement Office propounded
onerous Civil Investigative Demands on these small businesses.
As you can imagine, responding to such Federal Government
demands can be time consuming and impose an extraordinary cost
on such businesses.
Will you commit to reviewing this practice to help protect
small businesses that form the backbone of hardworking America?
A.3. A Civil Investigative Demand (CID) is an important tool
that the Bureau uses to investigate possible law violations. In
crafting CIDs and participating in meet and confer discussions
with CID recipients, the Bureau considers the burden on the
recipient and alternative, less burdensome means to obtain
information required for the investigation. Under my
leadership, this practice will continue.
On April 23, 2019, the Bureau announced changes to its
policies regarding the notification of purpose included in
Civil Investigative Demands (CIDs). \4\ Now CIDs will provide
more information about the potentially applicable provisions of
law that may have been violated. CIDs will also typically
specify the business activities subject to the Bureau's
authority. In investigations where determining the extent of
the Bureau's authority over the relevant activity is one of the
significant purposes of the investigation, staff may
specifically include that issue in the CID in the interests of
further transparency.
---------------------------------------------------------------------------
\4\ https://www.consumerfinance.gov/about-us/newsroom/cfpb-
announces-policy-change-regarding-bureau-civil-investigative-demands/
---------------------------------------------------------------------------
The new policy takes into account recent court decisions
about notifications of purpose, and is consistent with a 2017
report by the Bureau's Office of Inspector General that
emphasized the importance of updating Office of Enforcement
policies to reflect such developments. The new policy is also
consistent with comments the Bureau received in response to the
Requests for Information it issued in 2018, seeking feedback
about various aspects of its operations, including its use of
CIDs in enforcement investigations.
Q.4. I've also heard from constituents that in the past, the
CFPB has brought enforcement actions on small businesses that
effectively terminate innovative offerings and their ability to
provide certain products merely because it was politically
convenient to do so. For example, prepaid cards have helped
bring banking services to the underbanked and underserved. The
CFPB's new Prepaid Card Regulation is about 1,800 pages of
burden that hampers innovation and small business development.
I understand that this regulation is set to go into effect next
month.
Can you commit to undertaking a thorough cost-benefit
analysis as it relates to this regulation and any additional
regulatory burden of any industry or small business?
A.4. Before issuing any regulation, the Bureau is required by
section 1022(b)(2)(A) of the Dodd-Frank Wall Street Reform and
Consumer Protection Act to consider the benefits and costs to
consumers and to providers of consumer financial products or
services, including the potential reduction of access by
consumers, impacts on small depository institutions, and the
effect on consumers in rural areas. In addition, if a proposed
rule will have a significant impact on a substantial number of
small entities, the Bureau is required under the Small
Business. Enforcement and Regulatory Fairness Act to convene a
panel to confer with a group of small entity representatives. I
am committed to assuring that the Bureau's cost benefit
analysis are rigorous and robust and that the Bureau carefully
considers the regulatory burden of any proposed or final rule.
The Prepaid Rule, which took effect on April 1, 2019,
contains a cost benefit analysis prepared pursuant to section
1022(b)(2)(A). In issuing the Rule, the Bureau determined that
it would not have a significant impact on a substantial number
of small entities based on the determination that there were
not a substantial number of small entities which issued prepaid
accounts or managed prepaid account programs, and not a
substantial number of small entities that would experience a
significant economic impact from the rule. Congress also
required the Bureau to assess the effectiveness of each
significant rule within 5 years of the effective date of such
rules. The Bureau will continue to monitor the implementation
of the Prepaid Rule and take comment from stakeholders
regarding any issues.
Q.5. I've heard from many small businesses that have been under
the thumb of the CFPB Enforcement Office--some rightfully so
and others not. The commonality that I have heard is that no
matter how cooperative the small business is with the CFPB
Enforcement Office, the CFPB never discloses what it believes
may be a violation of law until after its investigation with a
``gotcha'' phone call. A more transparent process would lead to
more efficient and cost-effective investigation and be far less
burdensome for the entity being investigated.
Will you commit to reevaluating this practice to provide
businesses with more transparency regarding their alleged
wrongdoing?
A.5. As I indicated in an earlier response, the Bureau
announced changes to its policies regarding the notification of
purpose included in Civil Investigative Demands (CIDs). Now
CIDs will provide more information about the potentially
applicable provisions of law that may have been violated. CIDs
will also typically specify the business activities subject to
the Bureau's authority. In investigations where determining the
extent of the Bureau's authority over the relevant activity is
one of the significant purposes of the investigation, staff may
specifically include that issue in the CID in the interests of
further transparency.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR REED
FROM KATHY KRANINGER
Q.1. Why has the CFPB decided to use its discretion to
establish an Office of Innovation and an Office of Cost Benefit
Analysis, two offices not explicitly authorized in the statute,
while at the same time failing to continue prior agency
activities designed to protect student consumers by monitoring
campus financial products?
A.1. Section 1012(a)(3) of Title X of the Dodd-Frank Wall
Street Reform and Consumer Protection Act (Dodd-Frank Act)
authorizes the Director to establish the general policies of
the Consumer Financial Protection Bureau (Bureau) with respect
to all executive and administrative functions, including:
``directing the establishment and maintenance of divisions or
other offices within the Bureau, in order to carry out the
responsibilities under the Federal consumer financial laws, and
to satisfy the requirements of other applicable law'' as well
as ``distribution of businesses among personnel appointed and
supervised by the Director and among the administrative units
of the Bureau.'' \1\ Consistent with those authorities and the
objective in section 1021 of the Dodd-Frank Act to ensure that
markets for consumer financial products and services operate
transparently and efficiently to facilitate access and
innovation, the Office of Innovation was established. While I
have not made a decision to establish an Office of Cost Benefit
Analysis, I have prioritized ensuring robust evidence and cost-
benefit analysis undergird our efforts at the Bureau. Writ
large, the Bureau's responsibility is consumer protection and
we do that using all of the tools that Congress gave us. The
Bureau has an office, the Section for Students and Young
Consumers, focused on student issues, and the individuals in
that section have made recommendations and set a strategic plan
for Bureau activities going forward. These efforts include a
robust focus on research and other market issues.
---------------------------------------------------------------------------
\1\ 12 U.S.C. 5493.
---------------------------------------------------------------------------
------
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR MENENDEZ FROM KATHY KRANINGER
Q.1. You have asserted that the CFPB lacks statutory authority
to include the Military Lending Act (MLA) in its supervisory
exams, despite the fact that the 2013 National Defense
Authorization Act (NDAA) specifically states that the MLA
``shall be enforced'' by the CFPB ``under any other applicable
authorities available to such agencies by law.'' \1\
---------------------------------------------------------------------------
\1\ 10 U.S.C. 987(f)(6).
---------------------------------------------------------------------------
If the 2013 NDAA, which is now law, states that the CFPB
shall enforce the MLA with all of its applicable authorities
(including supervisory authority), why is the Bureau failing to
use all of its authorities and conduct supervisory exams that
include the MLA?
A.1. When Congress created the Consumer Financial Protection
Bureau in 2010, it did not give it the authority to supervise
for compliance with the Military Lending Act (MLA). In 2013,
when Congress amended the MLA, it explicitly gave the Bureau
enforcement authority, but not supervisory authority.
The Bureau remains committed to the financial well-being of
America's servicemembers, and that commitment includes ensuring
that those lenders subject to our jurisdiction comply with the
MLA. I submitted a legislative proposal to Congress on January
17, 2019, to explicitly grant the Bureau authority to supervise
for compliance with the MLA by amending the Consumer Financial
Protection Act. The requested authority would complement the
work the Bureau currently does to enforce the MLA. Furthermore
the Bureau has worked with members of Congress as well as
military and veterans' advocacy groups to develop legislative
language to amend the MLA to give the Bureau explicit
supervisory authority.
Q.2. On what date did the CFPB stop including the MLA as part
of its supervisory exams?
A.2. By August 2018, the Bureau stopped including reviewing for
MLA compliance as part of any new supervisory exams. By
October, 2018, all ongoing supervisory work on MLA compliance
issues concluded.
Q.3. You have stated that your focus at the CFPB is on
``prevention of harm.'' And yet, enforcement actions have
dropped by about 75 percent and consumer complaints have risen
to new highs. Moreover, the enforcement actions the CFPB does
take are weaker than ever. For example, earlier this year the
CFPB fined a pension advance company $1 for scamming veterans
out of their pension funds. \2\
---------------------------------------------------------------------------
\2\ https://www.consumerfinance.gov/about-us/newsroom/consumer-
financial-protection-bureau-settles-broker-high-interest-credit-offers/
---------------------------------------------------------------------------
As part of your role to prevent harm, shouldn't the Bureau
penalize companies for cheating consumers so they will not
engage in these practices again, and also send a message to
other would-be bad actors?
When calculating how much to fine a company pursuant to an
enforcement action, is it your practice to take the
recommendations of career staff?
According to a report by the Washington Post, leadership at
the Bureau has ignored or circumvented career staff
recommendations. Notably, Eric Blankenstein--a political
appointee with a history of despicable, racist writing--has
been a part of this dynamic. \3\ According to the report,
despite recommending that a debt collector return $60 million
dollars to consumers and pay a heavy fine, Mr. Blankenstein
decided to scrap consumer restitution and levied only an
$800,000 penalty on the company.
---------------------------------------------------------------------------
\3\ https://www.washingtonpost.com/investigations/how-trump-
appointees-curbed-a-consumer-protection-agency-loathed-by-the-gop/2018/
12/04/3cb6ed56-de20-11e8-aa33-
53bad9a881e8_story.html?utm_term=.08814a64a5d9
---------------------------------------------------------------------------
Will you commit that you will not circumvent reasonable
recommendations from career staff in favor of imposing lower
penalties on companies pursuant to enforcement actions?
A.3. Many factors are weighed to determine the precise mix of
restitution, penalties, and injunctive relief appropriate in
each case. At the center of that effort is serving justice in
the public interest. The Bureau determines whether a penalty is
warranted, and, if so, in what amount, based on the facts and
circumstances of a particular matter. The Consumer Financial
Protection Act (CFPA) provides three tiers of penalties,
escalating based on the degree of intent behind the conduct. To
determine the appropriate penalty amount, the Bureau takes into
account the policy goals of civil penalties to accomplish
specific and general deterrence and the mitigating factors in
12 U.S.C. 5565(c)(3), including the size of financial
resources and good faith of the person charged, the gravity of
the violations, the severity of the risks to or losses of the
consumers, and ``such other matters as justice may require.''
The Bureau is also authorized to modify or remit any penalty.
In authorizing the Office of Enforcement to settle or sue
in a matter in which the Bureau seeks to impose a penalty, I
apply the law to the facts and circumstances at issue, and
consider any Bureau staff recommendation.
Q.4. The Consumer Advisory Board (CAB) is integral to the
CFPB's ability to successfully fulfill its mandate to protect
consumers. The CAB not only advises and consults with the CFPB
on how the Bureau can best implement consumer protection laws,
but also informs the CFPB of potential emerging threats to
consumers.
What role do you think the CAB should play in informing the
Bureau's work?
A.4. I have seen firsthand how the Bureau benefits from the
valuable input provided by the Consumer Advisory Board (CAB)
and the Bureau's other advisory committees. The CAB is an
important resource for providing market intelligence and
feedback on the Bureau's work. In the Dodd-Frank Wall Street
Reform And Consumer Protection Act, section 1014(a) provides
specific direction and requires the Director to establish the
CAB ``to advise and consult with the Bureau in exercise of its
functions under the Federal consumer financial laws, and to
provide information on emerging practices in the consumer
financial products or services industry, including regional
trends, concerns, and other relevant information.'' I intend to
utilize the CAB for this important, statutorily mandated
purpose.
Q.5. How does the current composition of the CAB comply with
statutory requirements under the Dodd-Frank Wall Street Reform
and Consumer Protection Act? \4\
---------------------------------------------------------------------------
\4\ 12 U.S.C. 5494.
A.5. The current composition of the CAB is reflective of the
requirements of the Dodd-Frank Wall Street Reform and Consumer
---------------------------------------------------------------------------
Protection Act, section 1014(b).
Q.6. When did the CAB meet last? When is the CAB's next
scheduled meeting?
A.6. The CAB last met on June 5-6, 2019. I am looking forward
to having them return for their in person meetings in October
2019.
Q.7. As a result of Mr. Mulvaney's actions to reduce the size
of the CAB from 25 members to 9 members, there are fewer civil
rights, consumer protection, and fair lending representatives
than in the previous CAB.
Can I get your commitment to increase the numbers of civil
rights, fair lending, and consumer protection representatives
on the CAB?
A.7. On March 21, 2019, the Bureau announced a series of
enhancements to the advisory committee program. The
enhancements are a result of my engagements with current and
former advisory committee members during a 3-month listening
tour and feedback from the CAB, CUAC, and CBAC meetings earlier
that same month. The listening tour and meetings demonstrated
how the Bureau benefits from the valuable input provided by the
CAB and the other advisory committees; these groups help to
improve our work on behalf of consumers. With these
enhancements the membership will increase and terms for the
committees will be extended from 1 year to 2 years, and the
terms will be staggered. The 1-year term of all existing
members expires September 2019, however a 1-year term extension
will be provided to the appropriate number of current members
in order to transition to the staggered terms and ensure
continuity. In addition to a Chair, each committee will be
assigned a Vice-Chair. The number of meetings will be increased
to three in-person gatherings per year. Bureau staff are in the
process of reviewing applications for the next round of
appointments. I will seek to ensure that the membership of the
committees includes, a broad array of experts meeting statutory
requirements, mission needs, and demographic diversity.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNER
FROM KATHY KRANINGER
Q.1. As you know the CFPB's QM Rule created an exemption from
the 43 percent DTI cap for mortgages eligible for purchase by
Fannie Mae and Freddie Mac. This is known commonly as the ``GSE
patch.'' There's evidence from historical default rates that
show looking at mortgage rate is a better predictor of default
than the DTI ratio alone.
Do you believe changing the current DTI-heavy framework
with one that captures risk more holistically would strike
better balance between expanding access while mitigating credit
risk?
A.1. The Consumer Financial Protection Bureau (Bureau) has been
considering the impact of the ATR/QM rule and the role of the
GSE patch in the mortgage market, recognizing the expiration of
the patch no later than 2021. The potential expiration of the
patch is a complex situation, and the Bureau is working
diligently to formulate and implement appropriate strategies to
handle it. Further we have been discussing it with other
appropriate regulators, given the interconnected nature of the
decisions we are separately facing. Your specific question
about the weight given to the debt to income ratio (DTI) is one
that would require significant research, particularly in terms
of developing an alternative that would strike the balance you
suggest. However, we have been consulting with various market
participants, including financial institutions and consumer
advocates, to identify appropriate methods that will ensure QM
requirements impose as little burden on industry and consumers
as possible and that access to credit is preserved.
Q.2. Ensuring high-quality and affordable mortgage access for
underserved, creditworthy borrowers is an essential mission
that helps drive economic growth. Currently, the QM patch is
key to helping achieve that mission with the overall U.S. home
ownership rate rising to the highest level (64.8 percent) since
2014.
If the GSEs remain in conservatorship beyond January 2021
and the QM patch were to expire without any sort of reliable
substitute, approximately 30 percent of loans backed by the
GSEs could face new liability which would negatively impact
home values and create instability across the secondary market.
The June 2017 Department of Treasury report examining core
principles for regulating the U.S. financial system outlined
important areas for reform with respect to the Ability to
Repay/Qualified Mortgage (ATR/QM) Rule and the QM Patch, which
is currently set to expire on January 10, 2021, or when the
GSEs exit conservatorship, whichever comes first.
As discussions around conservatorship status continue and
the Patch expiration date quickly approaches, can you commit to
working with market participants, including financial
institutions and consumer advocates, to align QM requirements
with GSE eligibility requirements in order to preserve a robust
market?
A.2. I understand the importance of maintaining the smooth
functioning of the mortgage market and avoiding any unnecessary
or undue disruption that would interfere with consumers' access
to credit. The expiration of the patch is a complex situation,
and the Bureau is working diligently to formulate and implement
appropriate strategies to handle it. We have been consulting
with various market participants, including financial
institutions and consumer advocates, to identify appropriate
methods that will ensure that Qualified Mortgage requirements
impose as little burden on industry and consumers as possible
and that access to credit is preserved.
Q.3. Data Security--In your written testimony, you mention that
the number one consumer complaint in 2018 was about consumer
credit reporting agencies. According to the CFPB's data, the
Bureau has handled well over 150K credit reporting complaints.
I have a bill with Senator Warren--the Data Breach
Prevention and Compensation Act--that would impose strict
liability for breaches involving consumer data at credit
reporting agencies. It provides additional authority to the FTC
to levy fines, but that's certainly not the only workable
approach. I'm interested to know more about how you view the
CFPB's authority to regulate these firms, both with respect to
data reporting accuracy and cybersecurity.
How has the CFPB used its supervisory authority to address
complaints over data accuracy at the credit reporting agencies?
A.3. In carrying out its supervisory function, the Bureau has
focused on the accuracy of consumer reports provided by
consumer reporting agencies (CRAs) as well as the accuracy of
information supplied by furnishers. The Bureau also focuses on
dispute handling. Complaints regarding data accuracy are
reviewed and evaluated to assess the CRA's compliance with the
accuracy requirements of the Fair Credit Reporting Act (FCRA).
Often consumer complaints focus on a dispute about the accuracy
of information contained in a consumer report. Frequently,
these complaints implicate those provisions of the FCRA that
require CRAs and furnishers to take certain actions in response
to a dispute. Thus, complaints about disputes receive
particular attention from the Bureau and are one of many data
points evaluated when deciding to conduct supervisory
examinations of CRAs and furnishers.
The Bureau previously summarized the results of its
consumer reporting Supervision program in its March 2017
edition of its Supervisory Highlights publication. \1\ As
discussed in the report, the Bureau has focused its supervisory
work on the key elements underpinning accuracy. As a result of
these reviews, the Bureau directed specific improvements in
data accuracy and dispute resolution at one or more CRAs,
including:
---------------------------------------------------------------------------
\1\ https://www.consumerfinance.gov/documents/2774/
201703_cfpb_Supervisory-Highlights-Consumer-Reporting-Special-
Edition.pdf
improved oversight of incoming data from
---------------------------------------------------------------------------
furnishers;
institution of quality control programs of compiled
consumer reports;
monitoring of furnisher dispute metrics to identify
and correct root causes;
enhanced oversight of third-party public records
service providers;
adherence to the independent obligation to
reinvestigate consumer disputes; including review of
relevant information provided by consumers; and
improved communication to consumers of dispute
results.
In addition, the Bureau directed both bank and nonbank
furnishers, consistent with the FCRA's requirements, to develop
reasonable written policies and procedures regarding accuracy
of the information they furnish and to take corrective action
when they furnished information they determined to be
inaccurate. The Bureau also found that furnishers failed to
either conduct investigations or send results of dispute
investigations to consumers and required that these furnishers
bring their dispute handling practices into compliance with
legal requirements.
In addition to supervisory work, the Bureau has brought
enforcement actions and entered into settlements related to
institutions' violation of the FCRA's accuracy and dispute
investigation requirements. \2\ The Bureau's work in this
important area is ongoing, using the authority and tools
provided by FCRA, the Dodd-Frank Wall Street Reform and
Consumer Protection Act, and other statutes.
---------------------------------------------------------------------------
\2\ See, e.g., http://files.consumerfinance.gov/f/201510-cfpb-
consent-order-general-information-service-inc.pdf; http://
files.consumerfinance.gov/f/201512-cfpb-consent-order-clarity-services-
inc-timothy-ranney.pdf; https://files.consumerfinance.gov/f/documents/
bcfp-security-group-inc-consent-order-2018-06.pdf; https://
files.consumerfinance.gov/f/documents/201701-cfpb-CitiFinancial-
consent-order.pdf.
Q.4. Do you believe the CFPB has the authority to supervise
---------------------------------------------------------------------------
financial institutions with respect to cybersecurity?
A.4. The Bureau has certain statutory authorities that may be
used to examine supervised entities for data security issues,
but it is important to note that the Bureau has been excluded
from exercising authority over certain cybersecurity statutes
and rules.
As a general matter, the Bureau may ``require reports and
conduct examinations'' of financial institutions within its
supervisory authority for the purposes of (1) assessing
compliance with the requirements of Federal consumer financial
law, (2) obtaining information about compliance systems or
procedures, and (3) detecting and assessing for risks to
consumers and to markets for consumer financial products or
services. \3\ Federal consumer financial law includes most
provisions of the Fair Credit Reporting Act (FCRA), certain
provisions of sections 502 through 509 of the Gramm-Leach-
Bliley Act (GLBA), and the Dodd-Frank Wall Street Reform and
Consumer Protection Act's prohibition on unfair, deceptive, or
abusive acts or practices. \4\ Aspects of an institution's data
security may implicate these provisions depending on the facts
and circumstances, particularly in the event of a breach. The
Bureau can supervise financial institutions within its
supervisory authority for compliance with these provisions and
require those institutions to so comply.
---------------------------------------------------------------------------
\3\ 12 U.S.C. 5514(b)(1)(A); see also 12 U.S.C. 5515(b)(1)(A).
\4\ 12 U.S.C. 5531, 5536.
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Critically, however, Congress specifically excluded certain
statutory provisions related to data security from the Bureau's
purview. The Bureau does not have authority to supervise for,
enforce compliance with, or write regulations implementing the
GLBA's safeguards provision or the FCRA's red flags and records
disposal provisions. The GLBA safeguards provision and
implementing rules and guidelines require certain financial
institutions to develop, implement, and maintain comprehensive
information security programs that contain administrative,
technical, and physical safeguards. The FCRA records disposal
provision and implementing rules require certain financial
institutions to take reasonable measures to protect against
unauthorized access to or use of consumer report information in
connection with its disposal. Finally, the FCRA red flags
provision and implementing rule and guidelines require certain
financial institutions to implement written Identity Theft
Prevention Programs designed to detect, prevent, and mitigate
identity theft.
Q.5. Do you believe CFPB has the authority to levy fines
against Equifax through its Unfair and Deceptive Acts and
Practices authority for the exposure of over 146 million
Americans' credit files?
A.5. If an entity violates Federal consumer financial law, the
entity can be required to pay a civil penalty. The Bureau
determines whether to seek a penalty, and, if so, in what
amount, based on the facts and circumstances of a particular
matter. The Consumer Financial Protection Act (CFPA) provides
three tiers of penalties, allowing for higher penalties based
on the degree of intent of the person who has been charged. To
determine the appropriate penalty amount, the Bureau takes into
account the mitigating factors in 12 U.S.C. 5565(c)(3), which
include the financial resources and good faith of the person
charged, the gravity of the violations, the severity of the
risks to or losses of the consumers, and ``such other matters
as justice may require.'' The Bureau is also authorized to
modify or remit any penalty. In general, the Bureau does not
comment publicly on confidential enforcement investigations to
protect the integrity of the law enforcement process, including
the confidentiality and due process interests of those subject
to supervisory or investigatory activity.
Q.6. Does this type of behavior warrant such a fine?
A.6. As noted in my previous response, in general, the Bureau
does not comment on confidential enforcement investigations.
Premature disclosure can interfere with investigations and
create reputational harm. The Bureau determines whether it
believes a penalty is warranted and, if so, in what amount
based on the facts and circumstances of a particular matter and
the statutory factors set forth in the CFPA.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN
FROM KATHY KRANINGER
Q.1. Operations--Please provide staffing levels for each
division (e.g., SEFL) and office (e.g., Enforcement, NE Region)
at the Bureau at the end of the pay period closest to November
17, 2017, December 11, 2018, and today.
A.1.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Q.2. In her testimony, Director Kraninger mentioned that
Director Mulvaney had asked to the CFPB Inspector General to
investigate conduct by Policy Associate Director Eric
Blankenstein. Please provide a copy of the referral. If you're
unable to provide the referral, please describe in detail what
the Inspector General was asked to investigate.
A.2. Pursuant to Section 6 of the Inspector General Act, the
Inspector General may make such investigations and reports
relating to the administration of programs and the operations
of the Bureau as are, in the judgment of the Inspector General,
necessary or desirable. To protect the privacy and due process
interests of everyone involved, it would not be appropriate for
me to comment further on this matter. I will consider carefully
any findings or recommendations of our Inspector General.
Q.3. Rules--On February 6, 2019, the CFPB proposed rescinding
the mandatory underwriting provisions of its rule on Payday,
Vehicle Title, and Certain High-Cost Installment Loans (payday
rule).
Did the CFPB have any new facts or evidence to justify the
new rule or was the change an interpretation of existing
evidence?
A.3. As discussed in part V.B. of the Payday Reconsideration
Proposal, the Bureau, in tentatively determining to reconsider
the Bureau's mandatory underwriting requirements, focused its
analysis primarily on the weight to be accorded to the key
evidence, including research, on which the Bureau relied for
the 2017 Final Rule. Nevertheless, in developing the Payday
Reconsideration Proposal, the Bureau also considered other
potentially relevant evidence, including research which became
available between the time the Bureau issued the 2017 Final
Rule in October 2017 and the time the Bureau published its
Payday Reconsideration Proposal in February 2019. Although
there were relatively few new studies made available during
this limited interval, the Payday Reconsideration Proposal
describes and analyzes several of them. See Bureau of Consumer
Financial Protection, Payday, Vehicle, Title, and Certain High-
Cost Installment Loans, 84 FR 4252, 4292-94 (Feb. 14, 2017).
The Bureau also sought public comment on the Payment
Reconsideration Proposal, including the submission of any
potentially relevant research.
Q.4. The text of the new rule suggests that the existing
evidence ``is not sufficiently robust and reliable to support
that determination, in light of the impact those provisions
will have on the market for covered . . . loans, and the
ability of consumers to obtain such loans.'' Does the Bureau
plan to do additional research related to the short-term loan
market, including into the ability of payday customers to
anticipate whether they will be able to repay the loans in full
and on time?
A.4. As the Bureau noted in its Payday Reconsideration
Proposal, ``[a]fter many years of rulemaking, outstanding
questions that the Bureau and other stakeholders have on
whether the identified practice is unlawful and whether the
Bureau intervention (i.e., the Mandatory Underwriting
Provisions) is appropriate remain; the Bureau therefore
preliminarily concludes that significantly more time, money,
and other resources would be needed from the Bureau, industry,
consumers, and other stakeholders to engage in the research and
analysis required to develop specific evidence that might
support determining that the identified practice is unfair and
abusive and that imposing an ability-to-repay regulatory scheme
is a necessary and appropriate response to that practice.''
That being said, the Bureau will consider relevant research
that is available in deciding its future steps for its Payday
Reconsideration Proposal.
Q.5. The CFPB has filed numerous enforcement actions against
entities that would have been covered by the payday rule. Did
CFPB consider evidence gathered in the investigations or
contained in the record of any cases before rescinding the
underwriting standards?
A.5. In short, yes. In developing the Payday Reconsideration
Proposal, ``the Bureau relied on its expertise and experience
in supervisory matters and enforcement actions concerning
covered lenders in making judgments about the covered short-
term and longer-term balloon-payment loan markets.'' \1\
---------------------------------------------------------------------------
\1\ 84 FR 4266.
Q.6. The CFPB is reportedly in the process of writing a rule to
implement the Fair Debt Collection Practices Act. Debt
collection is consistently one of the top sources of consumer
complaints.
What do you think are the most important issues facing
consumers with respect to debt collection and how do you
propose to address these problems?
A.6. On May 7, 2019, the Bureau issued a Notice of Proposed
Rulemaking (NPRM) to implement the Fair Debt Collection
Practices Act (FDCPA). The proposal would provide consumers
with clear protections against harassment by debt collectors
and straightforward options to address or dispute debts. Among
other things, the NPRM would set clear, bright-line limits on
the number of calls debt collectors may place to reach
consumers on a weekly basis; clarify how collectors may
communicate lawfully using newer technologies, such as
voicemails, emails, and text messages, that have developed
since the FDCPA's passage in 1977; and require collectors to
provide additional information to consumers to help them
identify debts and respond to collection attempts. The Bureau
will carefully consider feedback received in response to the
NPRM before issuing a final rule.
As the Bureau summarized in its 2019 Fair Debt Collection
Practices Act Annual Report, \2\ written notifications about
the debt were the second-most common debt collection issue
consumers complained to the Bureau about in 2018, while
complaints about communication tactics were the third-most
common issue. Any final debt collection rule issued by the
Bureau will aim to bring clarity for both consumers and
collectors as to the application of this over 40-year-old
statute.
---------------------------------------------------------------------------
\2\ https://www.consumerfinance.gov/data-research/research-
reports/fair-debt-collection-practices-act-annual-report-2019/
Q.7. Is the CFPB considering exempting limited content
communications that ask a consumer to call back, potentially
---------------------------------------------------------------------------
paving the way for unlimited contacts from debt collectors?
A.7. The proposal would not exempt limited content
communications from the FDCPA. The FDCPA prohibits collectors
from harassing or abusing consumers or engaging in unfair
practices. These standards apply today and under the proposed
rule; they would continue to apply, including where limited
content messages are used to harass or abuse consumers or
subject them to unfair practices. A collector who emails or
texts too frequently may face liability, even if the emails or
texts are limited content messages.
The Bureau's proposed rule would define, and provide
example language for, a ``Limited-content message'' that a debt
collector could send by, for example, voicemail or text and
which would include a request that the consumer reply to the
message. The proposal would further provide that a limited-
content message is an attempt to communicate but is not a
communication. The Bureau's proposed rule generally would limit
debt collectors to no more than seven attempts by telephone per
week to reach a consumer about a specific debt including
telephone calls that are limited content messages. Once a
telephone conversation between the debt collector and consumer
takes place, the debt collector must wait at least a week
before calling the consumer again. The Bureau will carefully
consider feedback received in response to the NPRM before
issuing a final rule.
Q.8. Data obtained by FOIA from the FTC indicate that, in 2017,
more than 200,000 consumers complained about repeated calls
from debt collectors. \3\ Do you think it is important to
impose stringent limits on the number of times collectors can
call?
---------------------------------------------------------------------------
\3\ National Consumer Law Center ``Consumer Complaint About Debt
Collection'', February 2019, https://www.nclc.org/images/pdf/pr-
reports/report-analysis-debt-coll-ftc-data.pdf.
A.8. FDCPA section 806 prohibits a debt collector from engaging
in any conduct the natural consequence of which is to harass,
oppress, or abuse any person in connection with the collection
of a debt. FDCPA section 806(5) describes one example of debt
collector conduct that section 806 prohibits: causing a
telephone to ring or engaging any person in telephone
conversation repeatedly or continuously with intent to annoy,
abuse, or harass any person at the called number.
As noted in the previous response, the Bureau's proposed
rule generally would limit debt collectors to no more than
seven attempts by telephone per week to reach a consumer about
a specific debt. Once a telephone conversation between the debt
collector and consumer takes place, the debt collector must
wait at least a week before calling the consumer again. The
proposed rule also would clarify how debt collectors may
lawfully use newer communication technologies, such as
voicemails, emails, and text messages, to communicate with
consumers and would protect consumers who do not wish to
receive such communications by, among other things, allowing
them to unsubscribe to future communications through these
methods. The Bureau will carefully consider feedback received
in response to the proposed rule before issuing a final rule.
In addition, the Bureau has taken law enforcement action
against a debt collector whose calling practices violated FDCPA
section 806 and 806(5). \4\
---------------------------------------------------------------------------
\4\ https://www.consumerfinance.gov/policy-compliance/enforcement/
actions/green-tree-servicing-llc/
Q.9. Will the cost benefit analysis for the new rule count as a
harm to a consumers the collections of debts that are beyond
---------------------------------------------------------------------------
the statute of limitations?
A.9. Pursuant to section 1022(b)(2) of the Dodd-Frank Wall
Street Reform and Consumer Protection Act, the Bureau is
considering the benefits and costs to consumers and covered
persons of proposed regulation under the FDCPA. In conducting
its analysis under section 1022(b)(2), the Bureau generally
takes as a baseline the state of the world absent the proposed
rule and evaluates potential benefits and costs of the proposal
relative to that baseline. The Bureau is not considering
proposed rules that it would expect to increase collection or
attempted collection of debts that are beyond the statute of
limitations, and therefore the Bureau does not expect that
proposed rules would harm consumers in that way.
Q.10. You visited a debt collection agency last month while you
were in Chicago. \5\ Have you visited any legal services
programs that help people with alleged debts? Any credit
counseling agencies? Any trial courts where consumers are being
sued on debts?
---------------------------------------------------------------------------
\5\ AccountsRecovery.Net ``Behind the Scenes of Kathy Kraninger's
First Visit to a Collection Agency'', https://www.accountsrecovery.net/
2019/02/20/behind-the-scenes-of-kathy-kraningers-first-visit-to-a-
collection-agency/.
A.10. Since becoming Director of the Bureau, I have made it a
priority to hear from various community and consumer groups,
including legal aid organizations that provide direct client
services. I have hosted a series of listening sessions and met
with consumer advocates including legal aid attorneys to learn
more about consumer finance issues affecting their communities.
On January 18, 2019, I hosted a community listening session
in San Francisco, CA, where I met with approximately 21
consumer advocacy, civil rights, community organizations as
well as legal service providers including staff representing
the following organizations: the East Bay Community Law Center,
National Housing Law Project, and Western Center on Law and
Poverty. Debt collection was one of several issues discussed
during the meeting.
On January 22, 2019, I met with nearly 40 consumer
advocacy, civil rights, and community organizations at the
Bureau headquarters to discuss a variety of topics, including
debt collection. The National Consumer Law Center (NCLC) and
the National Association of Consumer Advocates (NACA), both of
which represent legal aid and private consumer attorneys,
participated as did representatives from the Atlanta Legal Aid
Society and Texas Rio Grande Legal Aid.
On February 5, 2019, I hosted a community listening session
in Chicago, IL, where I met with approximately 14 consumer
advocacy, civil rights, community organizations as well as
legal service providers including staff representing the
following organizations: Legal Assistance Foundation, Northwest
Side Housing Center, Shriver Center on Poverty Law, and Spanish
Coalition for Housing. The legal aid attorneys and local
advocates in attendance discussed debt collection alongside
other issues affecting local consumers.
On March 28, 2019, I met with approximately five consumer
advocacy, civil rights, and community organizations. Debt
collection was the primary topic of my meeting with consumer
groups in New York City. Representatives from legal aid
organizations, including Legal Services NYC, Mobilization for
Justice, and The Legal Aid Society relayed client stories and
made policy recommendations.
On April 30, 2019, I hosted a community roundtable in Los
Angeles with approximately 20 community groups. Debt
collections was one of few topics discussed. Representatives
from legal aid organizations, including Bet Tzedek Legal
Services, Legal Aid Foundation of Los Angeles, Legal Aid
Society of San Diego, Public Counsel, NACA, and the University
of Berkeley Center for Consumer Law and Economic Justice. I
also visited Bet Tzedek Legal Services during that trip.
On May 8, 2019, I hosted a community roundtable in
Philadelphia following a public town hall on debt collection.
NCLC, Clarifi, Community Legal Services of Philadelphia,
National Consumer Bankruptcy Rights, Public Interest Law
Center, Senior Law Center, and members of NACA attended to
discuss their views on the Bureau's proposed debt collection
rule.
Most recently, I met with legal aid and private consumers
attorneys in Austin on May 22, 2019, including Texas RioGrande
Legal Aid and members of NACA to discuss a few policy issues,
including debt collection.
Bureau staff continue to engage in discussions with these
groups to maintain regular exchanges of information about how
issues such as debt collection affect consumers. In addition,
Bureau subject matter experts have met with credit counseling
agencies, such as Money Management International, and legal
advocacy organizations, such as NCLC and the National
Association of Consumer Bankruptcy Attorneys (NACBA), to
discuss debt collection and debt settlement issues.
Q.11. Enforcement--In the first 6 months of his tenure, former
Interim Director Mick Mulvaney indicated \6\ that he had not
initiated any new enforcement actions. How many investigations
have been initiated since November 17, 2017? How many since
December 11, 2018?
---------------------------------------------------------------------------
\6\ Politico, ``Mick Mulvaney Isn't Blowing Up the CFPB'', April
30, 2018, https://www.politico.com/story/2018/04/30/mick-mulvaney-
consumer-protection-507460.
A.11. The Bureau does not generally comment publicly on
---------------------------------------------------------------------------
confidential enforcement investigations.
Q.12. In March 2018, the CFPB acknowledged that it was
investigating consumer abuses related to the massive security
breach announced by Equifax on September 7, 2017, but a year
later, no enforcement action has been announced. \7\ Is the
enforcement action still ongoing?
---------------------------------------------------------------------------
\7\ American Banker ``Equifax Cites `Ongoing Investigation' by
CFPB, Other Agencies'', March 2, 2018, https://www.americanbanker.com/
news/equifax-cites-ongoing-investigation-by-cfpb-other-agencies.
A.12. On February 21, 2019, Equifax published its Form 10-K,
which disclosed that the Bureau, among other Government
entities, was investigating the 2017 data breach. Beyond
sharing what is in the public record, the Bureau will not
comment further publicly on the details or status of this
---------------------------------------------------------------------------
investigation at this time.
Q.13. On March 12, 2019, an OCC spokesman said ``[w]e continue
to be disappointed with Wells Fargo Bank N.A.'s performance
under our consent orders and its inability to execute effective
corporate governance and a successful risk-management program.
We expect national banks to treat their customers fairly,
operate in a safe and sound manner, and follow the rules of
law.'' The OCC partnered with the CFPB on an enforcement action
against Wells Fargo in April 2018, related to its auto and
mortgage lending practices. \8\
---------------------------------------------------------------------------
\8\ CFPB ``Bureau of Consumer Financial Protection Announces
Settlement With Wells Fargo for Auto-Loan Administration and Mortgage
Practices'', April 20, 2018, https://www.consumerfinance.gov/about-us/
newsroom/bureau-consumer-financial-protection-announces-settlement-
wells-fargo-auto-loan-administration-and-mortgage-practices/.
---------------------------------------------------------------------------
Is the CFPB satisfied that Wells Fargo is satisfying the
terms of its consent order in the April 2018 case?
A.13. I am firmly committed to ensuring that Wells Fargo fully
complies with the consent order, including the requirements of
remediation and restitution for harmed consumers. The current
details and specific status of Wells Fargo's remediation plan
is confidential supervisory information under the Bureau's
regulations. I can tell you that while the Bureau is working
with Wells Fargo to ensure its compliance with the consent
order, I am not satisfied with the Bank's progress to date and
I have made that clear.
Q.14. If not, what tools does the CFPB have to force Wells
Fargo to comply?
A.14. The Bureau expects Wells Fargo to comply with the terms
of the consent order, and has the capability to examine for
that compliance as well as take further enforcement action. In
dealing with complex issues involving large institutions such
as Wells Fargo, it is important that the Bureau consult with
our regulatory partners in determining appropriate next steps.
More specific information regarding the Bureau's deliberations
in this matter implicates longstanding Executive Branch
confidentiality interests that protect the Government's
deliberative process and law-enforcement proceedings.
Q.15. Has Wells Fargo fully complied with the terms of its
September 2016 consent order with the Bureau related to fake
accounts?
A.15. The Bureau continues to work with Wells Fargo to ensure
it fully complies with the Bureau's September 2016 consent
order related to fake accounts.
------
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR CORTEZ MASTO FROM KATHY KRANINGER
Q.1. Budget--Will you reverse the decisions to eliminate
positions, freeze new hiring, and draft an adequate budget that
ensures the CFPB is fulfilling its statutory mission?
A.1. I have been working with Bureau leadership since my
confirmation to understand the immediate staffing needs of the
Consumer Financial Protection Bureau (Bureau) and have already
approved at least 100 exceptions to the hiring freeze to date,
which has resulted in over 190 internal and external personnel
actions and/or hires across different program areas to ensure
the important work of the Bureau continues with minimal
interruptions during this initial transition period.
As I said in my testimony, I have also spent significant
time understanding the Bureau's operations and looking at ways
to improve execution of the Bureau's mission. With the
incredible flexibility Congress provided this agency, I feel a
deep sense of responsibility for ensuring we become a model for
efficient use of resources. I will continue to examine how we
can best utilize all the tools that Congress has given us--
broadening our efforts to focus on prevention of harm as a
primary goal for our actions.
With that in mind, I have approved a number of initiatives
designed to help determine optimal staffing for the long term
to ensure the Bureau runs as effectively as possible in service
of our mission and that we dedicate resources to those
functions that are of the highest value to consumers. These
initiatives include better aligning resources with top policy
priorities and improving how mission, administrative, and
operational functions are performed across the Bureau. I am
working with Division Leaders on a Staffing Planning exercise
which will take the Bureau out of the hiring freeze. Senior
Leadership is aligning staffing resources and requests to
ensure we can accomplish our mission in the most efficient and
effective way possible. I expect we will complete the Staffing
Planning before the start of Fiscal Year 2020, October 1, 2019.
Q.2. Staffing at the CFPB--How many lawyers now work in the
enforcement division?
A.2. As of June 28, 2019, 104 attorneys work within the Office
of Enforcement in the Division of Supervision, Enforcement, and
Fair Lending.
Q.3. How many lawyers work in enforcement now compared to when
Richard Cordray left the agency?
A.3. As of June 28, 2019, 104 attorneys work within the Office
of Enforcement. On the date Director Richard Cordray resigned,
the Office of Enforcement had 111 attorneys.
Q.4. Are you hiring new lawyers for the enforcement division or
does your hiring freeze include attorneys who investigate
consumer complaints for fraud and deceptive practices?
A.4. The Office of Enforcement is subject to the agency-wide
hiring freeze. However, the Office has been granted an
exception to the freeze in order to hire new line attorneys.
Q.5. What is the status of the Pathways Program now?
A.5. The hiring freeze includes the Pathways Program. The
Bureau is not currently hiring paid interns, recent graduates,
or Presidential Management Fellows under the Pathways Program.
The Director's Financial Analyst (DFA) program has continued. A
new cohort of DFAs just began.
Q.6. How many Pathways Program participants still work at the
Bureau?
A.6. There are not any Pathways Program participants who still
work at the Bureau.
Q.7. Are you recruiting a new cohort of applicants for the
Pathways Program?
A.7. The Bureau is not actively recruiting new applicants for
any of the Pathways Programs. As provided in response to
earlier questions, I am working with Division Leaders on a
Staffing Planning to ensure we can accomplish our mission in
the most efficient and effective way possible. In addition, I
have asked for a proposal related to the Pathways Program.
Q.8. Political Appointees at the CFPB--How many political
appointees have you hired at the Bureau?
A.8. The Bureau has hired four political appointees during my
tenure at the Bureau.
Q.9. What are their positions?
A.9. The four positions are:
Policy Associate Director for External Affairs
(replacing a departing incumbent of this position)
Deputy Assistant Director for Communications
Deputy Chief of Staff, and
Deputy Director.
Q.10. What are their salaries?
A.10. The salaries of the four political appointees are:
Policy Associate Director for External Affairs:
$259,500
Deputy Assistant Director for Communications:
$185,615
Deputy Chief of Staff: $239,595, and
Deputy Director: $259,500.
Q.11. Please explain why the Bureau has hired this many
political appointees?
A.11. The Dodd-Frank Act vests significant authority in the
Director, including with regard to fixing the number and means
of appointment of all Bureau employees, in accordance with the
provisions of title 5, United States Code. It is a priority for
me to develop a diverse, capable, and motivated team at the
Bureau to carry out our important mission. As such, I will use
the authorities Congress provided to that end.
Q.12. Do you plan to hire more political appointees? If so, in
what positions?
A.12. With the above response in mind, the Bureau does not have
any requests pending with OPM for additional Schedule C
appointments.
Q.13. Data Collection on the Student Loan Market--During your
testimony before the House Financial Services, Representative
Foster asked you about a proposal by the Consumer Financial
Protection Bureau to collect and analyze data on the student
loan market.
Do you have further information on the Bureau's proposal to
collect student loan debt?
Did you receive any feedback on the proposal from the
Department of Education or the Office of Management and Budget?
Do you plan to continue with this proposal to analyze the
student loan market?
A.13. In accordance with the Paperwork Reduction Act of 1995
(PRA), the Bureau published two notices in the Federal Register
soliciting comment on a new proposed information collection--
the ``Student Loan Servicing Market Monitoring'' project. The
collection was submitted to the Office of Management and Budget
(OMB) and the second notice was published in the Federal
Register on September 6, 2017. The comment period for this
notice closed on October 6, 2017. As of July 1, 2019, the
information and collection request is still pending at OMB. At
the hearing, I noted the priority of hiring the statutorily
required position of Private Education Loan Ombudsman, which is
underway. Once this position is filled, we will review the data
request, assess how the data may support ongoing market
monitoring, and make a determination after that whether the
information request appropriately supports our work. This
evaluation will contribute to the work I am already doing in
assessing our market monitoring efforts relative to student
loans. In the meantime, the Bureau continuously monitors this
market.
Q.14. Auto Lending--A record 7 million Americans are 3 months
or more behind on their car payments. Economists suggest that
rising car loan delinquencies signify major distress for low-
income families.
Are you monitoring the large delinquencies in auto lending?
A.14. Yes. The Bureau's Markets Office includes a program
dedicated to monitoring the auto finance industry. As part of
that work, we review market data and information and we work to
identify the causes of any trends we observe. The absolute
number of outstanding auto loans has increased by 7 percent
over the past 2 years which, all else being equal, would be
expected to lead to some increase in the absolute number of
delinquent loans. Measured as a percentage of loans, as of the
end of the first quarter of 2019, 1.49 percent of auto loans
were 60 days or more delinquent. That was slightly below the
delinquency rate at the end of the first quarter of 2018 and
slightly above the delinquency rate at the end of the first
quarter of 2017. We intend to continue to monitor this issue.
Q.15. Do you know how many of those borrowers with delinquent
loans got their loans from a car dealership?
A.15. Estimates as to the share of auto loans that are
originated through car dealerships range from a low of 63
percent to a high of over 80 percent. The data available to the
Bureau through its market monitoring does not indicate the
delinquency rate for these loans. The Bureau does monitor
delinquency rates by credit scores and by the type of
institution holding the loan and the Bureau has issued a
research report analyzing the performance of loans by loan size
and credit score.
Q.16. The CFPB still has a responsibility to enforce fair
lending laws in auto lending.
What are you doing to ensure that borrowers of color are
not being charged more due to discretionary dealer markups?
A.16. On May 21, 2018, the President signed a joint resolution
passed by Congress disapproving the Bureau's Bulletin titled
``Indirect Auto Lending and Compliance with the Equal Credit
Opportunity Act'' (Bulletin), which had provided guidance about
Equal Credit Opportunity Act (ECOA) and its implementing
regulation, Regulation B. Consistent with the joint resolution,
the Bulletin has no force or effect. The ECOA and Regulation B
are unchanged and remain in force and effect, and the Bureau
continues to work to ensure compliance with their requirements.
The Bureau also continues to administer prior fair lending
enforcement actions, monitor the market generally, and
investigate, as appropriate, information and complaints that
come to the Bureau.
Q.17. Is the CFPB going to limit or prevent auto lenders from
installing ``kill switches'' in cars that prevent the owner
from driving them?
A.17. The Bureau's Markets Office includes a program dedicated
to monitoring the auto finance industry. As part of that work,
staff review market data and information that suggests trends
in the market, and then work to identify possible causes. The
Bureau is aware of the trend by auto lenders to include ``kill
switches,'' better known as starter interrupt devices, in cars.
Bureau staff have been researching various market sources,
including lenders who utilize the starter interrupt devices,
and vendors who provide the devices, to better understand their
use and their effects, including their potential risks to
consumers.
Q.18. Military Lending Act--In your testimony before the Senate
Banking Committee, I requested the CFPB's legal analysis that
led you to determine the CFPB could not use its supervisory
authority to ensure compliance with the Military Lending Act
(MLA). Your staff told me that the legal analysis is considered
confidentially deliberative analysis and not available.
Please share whatever information you can regarding your
MLA decision.
A.18. In July 2018, Acting Director Mulvaney determined that
the Bureau lacks statutory authority to supervise for
compliance with the MLA. I agree with his determination. In
2013, when Congress amended the MLA, it explicitly gave the
Bureau enforcement authority, but not supervisory authority.
This is why I submitted a legislative proposal to Congress on
January 17, 2019, to explicitly grant the Bureau authority to
supervise for compliance with the MLA. The requested authority
would complement the work the Bureau currently does to enforce
the MLA.
Q.19. Please provide a list of which stakeholders you spoke to
in making your determinations.
A.19. Although there were robust discussions on this topic at
the Bureau, this determination is mine, per my authority and
responsibility as the Director of the Bureau. In both my
confirmation process and since becoming Director, I have
discussed this issue extensively with Bureau staff, Department
of Defense officials, members of Congress, and many stakeholder
representatives. I take seriously my responsibility to protect
servicemembers and, for that reason, officially transmitted a
legislative proposal to Congress seeking the authority to
conduct examinations for MLA compliance.
Q.20. Please explain how you expect servicemembers to identify
and report violations of the MLA.
A.20. There are several ways in which the Bureau could obtain
information about potential noncompliance. First, the Bureau
could learn of potential violations of the MLA through a lender
examination. Examiners might encounter evidence of violation of
the MLA even though the examination was not specifically
intended to review for MLA compliance. Absent routine lender
examinations, the Bureau could learn of potential violations of
the MLA through means including: (1) Direct complaints to
Bureau as noted in the question; (2) self-reporting by the
financial institutions under Bureau jurisdiction; (3) in the
course of an investigation; (4) complaints to commanding
officers or The Judge Advocate General's Corps; (5)
whistleblower tips; (6) referrals or information provided from
State or other Federal regulators; or (7) consumer advocates.
While the 2013 amendment to the MLA did not give the Bureau
explicit supervisory authority, it gave the Bureau explicit
enforcement authority, which I am firmly committed to
utilizing. The Bureau works to ensure MLA compliance by using
its enforcement tools, which include investigations, civil
investigative demands, and litigation.
It is important to note that the Department of Defense
provides a variety of resources to help servicemembers
understand their legal and financial rights, including legal
assistance attorneys provided through the Judge Advocate
General, and Personal Financial Managers. The Bureau routinely
speaks to these practitioners and highlights the rights of
servicemembers under the MLA. For example, the Bureau has sent
staff to provide instruction on the MLA to teach at the Army
Legal Assistance Continuing Legal Education course. When
speaking with these stakeholders, Bureau staff routinely
indicate that if a practitioner or their client suspect the
client's rights have been violated, or if they have a question
about a financial product or service, the client can submit a
complaint to the Bureau.
The Bureau's Office of Servicemember Affairs has also
published literature to inform servicemembers directly about
their rights under the MLA. This material also explains to
servicemembers that they can submit a complaint to the Bureau
if they have an issue with a financial product or service.
Q.21. Please share the impact you expect will occur due to the
CFPB no longer supervising financial institutions for
compliance with the MLA.
A.21. The Bureau is committed to the financial well-being of
America's servicemembers. This commitment includes ensuring
that lenders subject to our jurisdiction comply with the
Military Lending Act, so our servicemembers and their families
are provided with the protections of that law. One way the
Bureau promotes MLA compliance is by using its enforcement
tool, which include investigations, civil investigative
demands, and litigation. While the Bureau does not have
explicit supervisory authority, I submitted a legislative
proposal to Congress on January 17, 2019, to grant the Bureau
authority to supervise for compliance with the MLA by amending
the Consumer Financial Protection Act. The requested authority
would complement the work the Bureau currently does to enforce
the MLA. Furthermore the Bureau has worked with members of
Congress as well as military and veterans advocacy groups to
develop legislative language to amend the MLA to give the
Bureau explicit supervisory authority.
Q.22. Enforcement--When Director Cordray left, there were 100
investigations in the pipeline and 25 in litigation. Complaints
from consumers to the Bureau are increasing but enforcement
actions are falling. Under Director Cordray, there were about
two to four enforcement actions every month. Banks, credit
cards, credit reporting firms, and online lenders were held
accountable for deceptive practices.
How many investigations are the CFPB staff working on now?
A.22. The Bureau does not generally comment publicly on
confidential enforcement investigations. I can note that there
are 18 cases in litigation and that, during my tenure, nine
consent agreements have been announced.
Q.23. During your testimony before the House Financial
Services, Representative Clay asked about staffing plans for
fair lending. How many attorneys or examiners will devote all
of their time to enforcing fair lending laws? Please provide a
number.
A.23. The Office of Enforcement is responsible for the
enforcement of fair lending laws. As of June 28, 2019,
Enforcement has 104 attorneys, including the 5 attorneys who
transferred from the Office of Fair Lending, all of whom are
generalists who can participate in the investigation of any
potential violation of Federal consumer financial law,
including those focused on fair lending. The resources the
Office of Enforcement deploys on fair lending matters is
dependent on a number of factors, including the facts and
circumstances of particular investigations.
The Office of Supervision Examinations is responsible for
supervising entities for compliance with fair lending laws.
Every CFPB examiner is trained to conduct fair lending
examinations. During the course of a fair lending examination,
the assigned team of examiners reviews the institutions books
and records for compliance with fair lending laws using the
Bureau's fair lending examination procedures. In addition, the
Office of Supervision Examinations operates a National Fair
Lending Examination Team, which includes a representative from
each of the four regions, in addition to a senior examination
manager, who are fully dedicated to fair lending examination
work. This national team develops fair lending training,
creates fair lending job aids and serves as an expert resource
on fair lending matters for examiners across the country as
they engage in fair lending work. The Office of Supervision
Policy's fair lending product team currently includes five
attorneys and one analyst who are devoted to fair lending
supervision matters.
Q.24. Credit--Has the CFPB produced, or in the process of
producing any new research on Americans' credit scores in the
last year?
A.24. During the last year, the Bureau has produced four
reports on American's credit scores or factors that may be used
in calculating credit scores. Three of the Bureau's Quarterly
Consumer Credit Trends reports addressed this topic. The first
examined the prevalence of telecommunications debt and its
effect on credit scores. \1\ The second examined the effect of
natural disasters on credit scores, focusing on Hurricane
Harvey in 2017. \2\ The third explored the relationship between
fluctuations in consumers' credit scores and the timing of
consumers' applications for credit. \3\ The Bureau also
produced a report that looked at the relationship between where
Americans reside and the likelihood of remaining credit
invisible. \4\ This report was the third in a series of reports
addressing credit invisibles.
---------------------------------------------------------------------------
\1\ https://files.consumerfinance.gov/f/documents/bcfp-consumer-
credit-trends-collection-telecommunications-debt-082018.pdf
\2\ https://www.consumerfinance.gov/data-research/research-
reports/quarterly-consumer-credit-trends-natural-disasters-and-credit-
reporting/
\3\ https://www.consumerfinance.gov/data-research/research-
reports/quarterly-consumer-credit-trends-timing-applications-consumer-
credit/
\4\ https://files.consumerfinance.gov/f/documents/help-data-point-
the-geography-of-credit-invisiblity.pdf
Q.25. Do you think that credit checks for job applicants are
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``racially blind?''
A.25. Subject to certain requirements, the Fair Credit
Reporting Act (FCRA) permits the use of consumer reports for
employment purposes, including reports that contain information
about a job applicant's use of credit. The FCRA generally
requires that consumer reporting agencies may provide a
consumer report for employment purposes only if the person who
obtains the report certifies that ``information from the
consumer report will not be used in violation of any applicable
Federal or State equal employment opportunity law or
regulation.'' \5\ The Bureau notes that the U.S. Equal
Employment Opportunity Commission (EEOC) has provided guidance
to employers on the use of consumer reports in compliance with
Federal laws that protect applicants and employees from
discrimination. \6\
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\5\ 15 U.S.C. 1681b(b)(1)(A)(ii).
\6\ See https://www.eeoc.gov/ccoc/publications/background-checks-
employers.cfm.
Q.26. Do you think that allowing private employers to check the
credit history of their job applicants can lead to racial and
---------------------------------------------------------------------------
gender discrimination?
A.26. As noted in the previous response, subject to certain
requirements, the FCRA permits the use of consumer reports for
employment purposes, including reports that contain information
about a job applicant's use of credit. The FCRA generally
requires consumer reporting agencies to provide a consumer
report for employment purposes only if the person who obtains
the report certifies that ``information from the consumer
report will not be used in violation of any applicable Federal
or State equal employment opportunity law or regulation.'' \7\
The EEOC has provided guidance to employers on the use of
consumer reports in compliance with Federal laws that protect
applicants and employees from discrimination.
---------------------------------------------------------------------------
\7\ 15 U.S.C. 1681b(b)(1)(A)(ii).
Q.27. Are the free credit freezes operating as intended? Have
---------------------------------------------------------------------------
there been any problems?
A.27. The Bureau has been working expeditiously to implement
the new consumer protections Congress provided in the Economic
Growth, Regulatory Relief, and Consumer Protection Act, which
include the new right to free credit freezes. The Bureau issued
an interim final rule last year to amend the Summary of
Consumer Rights and the Summer of Consumer Identity Theft
Rights to conform to the EGRRCPA, including its provisions on
credit freezes. As part of its efforts, the Bureau is preparing
to supervise for compliance with the new requirements under the
FCRA, and we are actively monitoring the implementation of the
new protections in effect so far. At this time, the Bureau is
still evaluating the implementation of the right to free credit
freezes, and has not yet determined whether there are any
problems or concerns with implementation or with the operation
of the freezes. For an overview of issues from credit reporting
complaints, please see our 2018 annual report to Congress, \8\
which was published on March 29, 2019. This report details
complaint data and trends across products and services for the
prior year.
---------------------------------------------------------------------------
\8\ https://www.consumerfinance.gov/data-research/research-
reports/2018-consumer-response-annual-report/
Q.28. Civil Penalty Fund--What is the status of the Civil
---------------------------------------------------------------------------
Penalty Fund?
A.28. The Civil Penalty Fund continues to operate according to
the guidelines described in the Civil Penalty Fund rule. The
most recent allocation period ended on March 31, 2019. The most
recent allocation of funds to classes of eligible consumers
with uncompensated harm occurred on May 29, 2019. The next
allocation will be made within 60 days after September 30,
2019, the date that the next allocation period ends. As of July
1, 2019, the Civil Penalty Fund has an unallocated available
balance of $430,083,461.60.
Q.29. Has every consumer who was harmed during the Fund's
freeze received redress?
A.29. To date, all classes of eligible consumers with
uncompensated harm as of March 31, 2019, which was the end of
the previous allocation period, have received allocations of
funds from the Civil Penalty Fund sufficient to fully
compensate that uncompensated harm. The next allocation, which
will address uncompensated harm as of September 30, 2019, will
occur by November 29, 2019. Distributions to consumers in all
cases where allocations have been made are in progress.
Q.30. Please provide information on how many consumers have
received redress from institutions that engaged in harmful and
deceptive practices for the following firms. Please note the
median amount of redress per firm/action per consumer, the
amount of redress derived from the CPF and what percentage of
the civil penalty damages remains to be distributed for each of
these firms:
Hydra and its affiliated firms?
A.30. Consumers harmed by Hydra and its affiliated firms
received an allocation of $69,623,528 from the Civil Penalty
Fund to compensate their harm on November 29, 2018. \9\
Analysis of the data to determine the amount of compensation to
each consumer is ongoing.
---------------------------------------------------------------------------
\9\ https://www.consumerfinance.gov/policy-compliance/enforcement/
actions/ssmhydra-group/
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Q.31. Wells Fargo's fake accounts scandal?
A.31. The Wells Fargo consent order provides $5,000,000 in
estimated remediation. Analysis of actual remediation is
ongoing. The consent order requires Wells Fargo to provide
redress to affected consumers. It also includes a civil money
penalty of $100,000,000. \10\ This penalty is independent of
consumer redress required by the order. No money from the Civil
Penalty Fund has been allocated to compensate victims of the
violations identified in the order addressing Wells Fargo's
sales practices.
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\10\ https://www.consumerfinance.gov/policy-compliance/
enforcement/actions/wells-fargo-bank-2016/
Q.32. Equifax, Transunion, and Experian's ``educational''
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credit scores settlement?
A.32. The Equifax consent order provides for $3,795,643 in
consumer redress to approximately 340,000 consumers. \11\ It
also includes a civil money penalty of $2,500,000. This penalty
is independent of consumer redress required by the order.
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\11\ https://www.consumerfinance.gov/policy-compliance/
enforcement/actions/equifax-inc-and-equifax-consumerservices-llc/
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The Transunion consent order provides for $13,930,000 in
consumer redress to approximately 700,000 consumers. \12\ It
also includes a civil money penalty of $3,000,000. This penalty
is independent of consumer redress required by the order.
---------------------------------------------------------------------------
\12\ https://www.consumerfinance.gov/policy-compliance/
enforcement/actions/transunion-interactive-inc-transunion-llc-and-
transunion
---------------------------------------------------------------------------
The Experian consent order provides for a civil money
penalty of $3,000,000. \13\ It did not provide for consumer
redress.
---------------------------------------------------------------------------
\13\ https://www.consumerfinance.gov/policy-compliance/
enforcement/actions/experian-holdings-inc-experian-information-
solutions-inc-and-consumerinfocom-inc-dba-experian-consumer-services/
Q.33. Woodbridge Gold & Pawn's deception of annual costs of
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loans?
A.33. The consent order provides for $56,763.36 in consumer
redress. \14\ This redress was administered by the Virginia
Attorney General. The consent order does not include a civil
money penalty.
---------------------------------------------------------------------------
\14\ https://www.consumerfinance.gov/policy-compliance/
enforcement/actions/woodbridge-coins-and-jewelry-exchange-inc-db-
woodbridge-gold-pawn/
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Q.34. RushCard's service breakdown?
A.34. The consent order provides for $10,000,000 in consumer
redress to approximately 100,000 consumers. \15\ It also
includes a civil money penalty of $3,000,000. This penalty is
independent of consumer redress required by the order.
---------------------------------------------------------------------------
\15\ https://www.consumerfinance.gov/policy-compliance/
enforcement/actions/unirush-llc-and mastercard-international-
incorporated/
Q.35. Planet Home Lending's illegal kickbacks for mortgage
---------------------------------------------------------------------------
referrals?
A.35. The consent order provides for $265,000 in remediation.
\16\ It does not include a civil money penalty.
---------------------------------------------------------------------------
\16\ https://www.consumerfinance.gov/policy-compliance/
enforcement/action/planet-home-lending-llc/
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Q.36. Williamson Law Firm's illegal fee charges?
A.36. A consent order with the Williamson Law Firm defendants
was entered on March 27, 2019. \17\ The affected consumers'
received an allocation of $35,206,275 from the Civil Penalty
Fund to compensate their harm on May 29, 2019. Analysis of the
data to determine the amount of compensation to each consumer
is ongoing.
---------------------------------------------------------------------------
\17\ https://www.consumerfinance.gov/policy-compliance/
enforcement/actions/vincent-howard-lawrence-w-williamson-howard-law-pc-
williamson-law-firm-llc-and williamson-howard-llp/
Q.37. Works and Lentz's provision of inaccurate credit
---------------------------------------------------------------------------
information?
A.37. The consent order provides for $577,135 in remediation.
\18\ It also includes a civil money penalty of $78,800. This
penalty is independent of consumer redress required by the
order.
---------------------------------------------------------------------------
\18\ https://www.consumerfinance.gov/policy-compliance/
enforcement/actions/work-lentz-inc/
Q.38. Debt Collection--Since Richard Cordray left, how many
---------------------------------------------------------------------------
cases against debt collection firms have been dropped?
A.38. The Bureau does not generally comment publicly on
confidential enforcement investigations.
Q.39. Will you survey consumers about their experiences with
debt collection? If so, when?
A.39. The Bureau published the results of a survey about
consumers' experiences with debt collection in January 2017.
\19\ In November 2017, the Bureau sought Office and Management
and Budget (OMB) approval under the Paperwork Reduction Act to
conduct a web survey for the purpose of quantitative testing of
disclosures in connection with the Bureau's ongoing debt
collection rulemaking. Then-Acting Director Mulvaney decided
that, before proceeding with the survey, he wanted to review
the proposals under consideration for the rulemaking so that
any data collection could be tailored to the scope of the
rulemaking. The Bureau withdrew its original submission to OMB
to permit this review. On February 4, 2019, the Bureau
republished a 30-day notice regarding this disclosure testing.
The comment period closed on March 6, 2019, and the Bureau has
begun the consumer testing.
---------------------------------------------------------------------------
\19\ https://files.consumerfinance.gov/f/documents/201701-cfpb-
Debt-Collection-Survey-Report.pdf
Q.40. Consumer Complaint Database--Will you commit to keeping
the Consumer Complaint database open to public view? Easily
---------------------------------------------------------------------------
searchable? Without removing historic data?
A.40. I recognize the importance of this issue and have heard
from consumer groups and researchers on the importance of
keeping the database open to the public. I have also heard from
financial institutions that have expressed concerns about
reputational harm. My predecessor, Acting Director Mulvaney,
issued a Request for Information on this topic through which
the Bureau received a number of comments, and I am actively
looking at this issue now.
Q.41. Small Business Lending--Will the Bureau release the rule
for Section 1071 in 2019?
A.41. In connection with its Spring 2019 Rulemaking Agenda,
\20\ the Bureau announced it intends to recommence work within
the next year to begin to develop rules to implement section
1071 of the Dodd-Frank Act. The Bureau also has announced that
it intends to hold a symposium to hear from a diverse group of
experts with respect to the issues implicated in developing a
data collection regime for small business loans. Before issuing
a rule that may have a significant impact on a substantial
number of small entities, the Bureau is required to convene a
panel under the Small Business Regulatory Enforcement Fairness
Act and confer with small entity representatives about the
proposals the Bureau is considering putting forward. After
completing that process, the Bureau is required by the
Administrative Procedure Act to publish a proposal in the
Federal Register and provide an opportunity for public comment
on the proposal. Given those requirements, the Bureau will not
be releasing a final rule under Section 1071 this year.
---------------------------------------------------------------------------
\20\ Diane Thompson, ``Spring 2019 Rulemaking Agenda'' (May 22,
2019), https://www.consumerfinance.gov/about-us/blog/spring-2019-
rulemaking-agenda/.
Q.42. How can the Bureau undertake market monitoring activities
as you describe them without the data collection contemplated
---------------------------------------------------------------------------
by the requirement itself?
A.42. Within the Research, Markets, and Regulations (RMR)
division, the Bureau maintains the Office of Small Business
Lending Markets (SBLM). SBLM serves as the subject matter
expert regarding small business lending and compiles, analyzes,
and distributes information on such matters. It is staffed by
industry experts with extensive small business lending
experience at various financial institutions including
commercial banks, Community Development Financial Institutions,
and the Small Business Administration. The Office provides the
Bureau with insights from monitoring the market, understanding
of the operational dimensions associated with such financing,
and the needs of small business borrowers. SBLM meets on a
regular basis with key stakeholders including industry (banks,
credit unions, and nonbank providers), business organizations
and the community advocacy community. It also provides other
parts of the Bureau with ongoing support on supervisory and
regulatory matters related to small business lending.
Q.43. Is it possible to isolate discrimination in small
business lending without data broken down by gender and
ethnicity?
A.43. Since at least 2015, the Bureau has prioritized small
business lending in its fair lending examination activity.
Those examinations have focused on assessing possible
redlining, discrimination in application, underwriting, and
pricing processes, and potential weaknesses in fair lending
related compliance management systems. Redlining assessments
rely on information about the race and ethnicity that
predominates in the census tract in which a business's lending
activity is located. Lending discrimination assessments of
application, underwriting, and pricing processes rely on race,
gender, and ethnicity data pertaining to specific applications
or loan files. The Bureau has utilized standard proxy
methodologies to develop probabilities for such loan-level
data.
Q.44. Payday Lending--Earlier this year, the Bureau proposed
rescinding the 2017 rule to protect consumers from debt traps.
The CFPB argued that if the 2017 rule were to take effect there
would be a reduction in short-term loans under 45 days.
What are the issues with giving borrowers more time to
repay? Please cite any data or empirical evidence that supports
your answer.
A.44. Neither the 2017 Payday Rule nor the current proposals
mandate length of loan terms. The 2017 Payday Rule identifies
the impact of the Mandatory Underwriting Requirements of
Subpart B on the volume of short-term (loans with terms of
fewer than 45 days) and longer-term balloon-payment loans. \21\
The Payday Reconsideration Proposal identifies the likely
impact of the proposed rescission of these requirements. \22\
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\21\ See 82 FR 54824-54835.
\22\ See 84 FR 4287-4288.
Q.45. What new information did the CFPB rely on before the 2019
rescission? Please provide a full list and copies of this
---------------------------------------------------------------------------
information if possible.
A.45. The Bureau has not rescinded the Mandatory Underwriting
Requirements in the Payday Rule, but rather has only proposed
such a rescission. The information the Bureau relied on before
its current proposal is set forth in the Federal Register
Notice for the 2017 Payday Rule. The information relied on by
the Bureau for its current proposal (including any information
in addition to that relied on in the 2017 Payday Rule) is set
out in the Federal Register Notice for the Payday
Reconsideration Proposal.
Specifically with regard to new information, as discussed
in part V.B. of the Payday Reconsideration Proposal, the
Bureau, in tentatively determining to reconsider the Bureau's
mandatory underwriting requirements, focused its analysis
primarily on the weight to be accorded to the key evidence,
including research, on which the Bureau relied for the 2017
Final Rule. Nevertheless, in developing the Payday
Reconsideration Proposal, the Bureau also considered other
potentially relevant evidence, including research which became
available between the time the Bureau issued the 2017 Final
Rule in October 2017 and the time the Bureau published its
Payday Reconsideration Proposal in February 2019. Although
there were relatively few new studies made available during
this limited interval, the Payday Reconsideration Proposal
describes and analyzes several of them. See Bureau of Consumer
Financial Protection, Payday, Vehicle, Title, and Certain High-
Cost Installment Loans, 84 FR 4252, 4292-94 (Feb. 14, 2017).
The Bureau also sought public comment on the Payment
Reconsideration Proposal, including the submission of any
potentially relevant research.
Q.46. Did the CFPB conduct any new research on payday lending
after the release of the 2017 rule?
A.46. The Bureau did not conduct any new research focused on
payday lending after the release of the 2017 Payday Rule. The
information relied on by the Bureau is set out in the Federal
Register Notice for the Payday Reconsideration Proposal. The
Payday Reconsideration Proposal, 84 FR 4252, identifies the
information the Bureau relied on in proposing to rescind the
Mandatory Underwriting Provisions.
Q.47. Did the CFPB rely on research done by outside observers?
If so, please provide a list of this information.
A.47. The Bureau relied on research by outside observers both
in issuing the 2017 Payday Rule with its mandatory underwriting
provisions and in recently proposing to rescind those
provisions. The information relied on by the Bureau is set out
in the Federal Register Notice for the Payday Reconsideration
Proposal. The Payday Reconsideration Proposal, 84 FR 4252,
identifies the information the Bureau relied on in proposing to
rescind the Mandatory Underwriting Provisions.
Q.48. If the lender has direct access to the borrower's bank
account, should the lender make sure the borrower has the
ability to repay the loan?
A.48. Regardless of the 2017 Payday Rule, lenders are free to
make sure the borrower has the ability to repay the loan. In
the 2017 Payday Rule, the Bureau mandated, with certain
exceptions, that lenders follow specific and detailed standards
in assessing consumers' ability to pay. The Bureau has
preliminarily concluded that the weaknesses in the legal
rationales and the evidentiary record on which the Bureau
relied for these Mandatory Underwriting Provisions in the 2017
Payday Rule support reconsidering these provisions. The Bureau
requested comment on this preliminary conclusion and on
alternatives to the rescission of the Mandatory Underwriting
Provisions. The comment period ended on May 15, 2019, and the
Bureau is in the process of analyzing the roughly 190,000
comments it has received.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA
FROM KATHY KRANINGER
Q.1. Without including Military Lending Act (MLA) compliance as
part of the CFPB's routine lender examinations, it is difficult
to imagine how the CFPB would learn of illegal predatory
lending--short of military families themselves recognizing on
an individual basis that a lending product or practice is
illegal and reporting the lender directly to the CFPB. Please
provide an exhaustive list of official means, absent routine
lender examinations, by which the CFPB would learn of potential
violations of the MLA.
A.1. Regardless of whether the Consumer Financial Protection
Bureau (Bureau) conducts examinations specifically intended to
review for compliance with the Military Lending Act (MLA),
covered creditors are required to comply with the MLA and its
implementing regulation. I have indicated that all parties
would benefit from greater legal clarity from Congress
regarding the Bureau's authority to conduct examinations
specifically intended to review for MLA compliance. In the
meantime, there are several ways in which the Bureau could
obtain information about potential noncompliance. First, the
Bureau could learn of potential violations of the MLA through a
lender examination. Examiners might encounter evidence of
violation of the MLA even though the examination was not
specifically intended to review for MLA compliance. Absent
routine lender examinations, the Bureau could learn of
potential violations of the MLA through means including: (1)
Direct complaints to Bureau as noted in the question; (2) self-
reporting by financial institutions under Bureau jurisdiction;
(3) in the course of an investigation; (4) complaints to
commanding officers or The Judge Advocate General's Corps; (5)
whistleblower tips; (6) referrals or information provided from
State or other Federal regulators; or (7) consumer advocates.
As you know, when Congress created the Bureau in 2010, it
did not give it the authority to supervise for compliance with
the MLA. In 2013, when Congress amended the MLA, it explicitly
gave the Bureau enforcement authority, but not supervisory
authority. The Bureau remains committed to the financial well-
being of America's servicemembers, and that commitment includes
ensuring that those lenders subject to our jurisdiction comply
with the MLA. This is why I submitted a legislative proposal to
Congress on January 17, 2019, to explicitly grant the Bureau
authority to supervise for compliance with the MLA by amending
the Consumer Financial Protection Act. The requested authority
would complement the work the Bureau currently does to enforce
the MLA. Furthermore the Bureau has worked with members of
Congress as well as military and veterans advocacy groups to
develop legislative language to amend the MLA to give the
Bureau explicit supervisory authority.
Q.2. Prior to making this decision, did the CFPB conduct a
cost-benefit analysis to determine whether or not this decision
to remove MLA compliance from routine lender examinations is
the most efficient and effective regulatory approach? If so,
what did the CFPB conclude? If not, why not?
A.2. In July 2018, Acting Director Mulvaney determined that the
Bureau lacks statutory authority to supervise for compliance
with the MLA. I agree with his determination. In 2013, when
Congress amended the MLA, it explicitly gave the Bureau
enforcement authority, but not supervisory authority. This is
why I submitted a legislative proposal to Congress on January
17, 2019, to explicitly grant the Bureau authority to supervise
for compliance with the MLA. The requested authority would
complement the work the Bureau currently does to enforce the
MLA.
Q.3. Did the CFPB consult with the Department of Defense, the
agency primarily tasked with MLA implementation, prior to
making this decision?
A.3. This predates my arrival at the Bureau. I understand that
on November, 21, 2018, the Bureau communicated to the
Department of Defense that the Bureau believes it does not have
clear legal authority to supervise for compliance with the
Military Lending Act (MLA). In addition to Bureau staff, I have
discussed this issue with Department of Defense officials,
members of Congress, and many stakeholder representatives since
becoming Director. I take seriously my responsibility to
protect servicemembers and, for that reason, officially
transmitted a legislative proposal to Congress seeking the
authority to conduct examinations for MLA compliance.
Q.4. Regarding the proposed Small Dollar Rule, please provide
any all research on small-dollar lending published between
October 5, 2017, and February 6, 2019, that CFPB used to
justify changes to the 2017 Rule.
A.4. The information relied on by the Bureau is set out in the
Federal Register Notice for the Payday Reconsideration
Proposal.
As discussed in part V.B. of the Payday Reconsideration
Proposal, the Bureau, in tentatively determining to reconsider
the Bureau's mandatory underwriting requirements, focused its
analysis primarily on the weight to be accorded to the key
evidence, including research, on which the Bureau relied for
the 2017 Final Rule. Nevertheless, in developing the Payday
Reconsideration Proposal, the Bureau also considered other
potentially relevant evidence, including research which became
available between the time the Bureau issued the 2017 Final
Rule in October 2017 and the time the Bureau published its
Payday Reconsideration Proposal in February 2019. Although
there were relatively few new studies made available during
this limited interval, the Payday Reconsideration Proposal
describes and analyzes several of them. See Bureau of Consumer
Financial Protection, Payday, Vehicle, Title, and Certain High-
Cost Installment Loans, 84 FR 4252, 4292-94 (Feb. 14, 2017).
The Bureau also sought public comment on the Payment
Reconsideration Proposal, including the submission of any
potentially relevant research.
Q.5. In its proposed changes, the CFPB revised its definition
of ``unfair'' and ``abusive'' for the Ability-to-Repay
provisions while keeping the current definition of ``unfair''
and ``abusive'' for the payment provisions. What analysis
justifies multiple definitions of these terms within the
context of a single Rule?
A.5. In the 2017 Payday Rule, Section 1041.4 identified as ``an
unfair and abusive practice for a lender to make covered short-
term loans or covered longer-term balloon-payment loans without
reasonably determining that the consumers will have the ability
to repay the loans according to their terms.'' Also in the 2017
Payday Rule, Section 1041.7 identified as ``an unfair and
abusive practice for a lender to make attempts to withdraw
payment from consumers' accounts in connection with a covered
loan after the lender's second consecutive attempts to withdraw
payments from the accounts from which the prior attempts were
made have failed due to a lack of sufficient funds, unless the
lender obtains the consumers' new and specific authorization to
make further withdrawals from the accounts.''
The 2017 Payday Rule sets out factual and legal analyses
identifying as unfair and abusive the practice described in
Section 1041.4. \1\ The 2017 Payday Rule set out separate
factual and legal analyses identifying as unfair and abusive a
separate practice related to payments under Section 1041.7. \2\
These analyses supporting Section 1041.7 are independent from
the grounds that support the identification of an unfair and
abusive practice under Section 1041.4.
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\1\ 82 FR 53533-54624.
\2\ 82 FR 54720-54744.
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The Payday Reconsideration Proposal revisits only the
identification of an unfair and abusive practice under Section
1041.4, on factual and legal grounds specific to that practice
(i.e., originating and underwriting of short-term and longer-
term balloon-payment loans). The Proposal does not revisit the
distinct factual or legal grounds supporting the identification
of unfairness and abusiveness in Section 1041.7.
Q.6. Additionally, has the CFPB analyzed which types of short-
term, small-dollar lending products benefit and do not benefit
from this bifurcated structure? In both instances, please
provide the analysis in question.
A.6. The analyses of the predicted impacts of the 2017 Payday
Rule, including the respective impacts of the mandatory
underwriting provisions (Subpart B) and the payment provisions
(Subpart C), are set out in that Rule's Section 1022 analysis,
found at 82 FR 54814-54853. The analysis pertaining to the
predicted impact of the proposed rescission of only the
mandatory underwriting provisions of the 2017 Payday Rule is
set out in the Payday Reconsideration Proposal's Section 1022
Analysis, at 84 FR 4281-4295.
Additional Material Supplied for the Record
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
LETTER SUBMITTED BY THE ASSOCIATION OF CREDIT AND COLLECTION
PROFESSIONALS
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
LETTER SUBMITTED BY THE CREDIT UNION NATIONAL ASSOCIATION
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
STATEMENT SUBMITTED BY SCOTT S. WELTMAN, MANAGING SHAREHOLDER, WELTMAN,
WEINBERG, AND REIS CO., LPA
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
LETTER SUBMITTED BY THE CONSUMER BANKER'S ASSOCIATION
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]