[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]
CONSUMER FINANCIAL PROTECTION
BUREAU: RIPE FOR REFORM
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON FINANCIAL INSTITUTIONS
AND MONETARY POLICY
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTEENTH CONGRESS
FIRST SESSION
__________
MARCH 9, 2023
__________
Printed for the use of the Committee on Financial Services
Serial No. 118-7
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
__________
U.S. GOVERNMENT PUBLISHING OFFICE
52-365 PDF WASHINGTON : 2023
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HOUSE COMMITTEE ON FINANCIAL SERVICES
PATRICK McHENRY, North Carolina, Chairman
FRANK D. LUCAS, Oklahoma MAXINE WATERS, California, Ranking
PETE SESSIONS, Texas Member
BILL POSEY, Florida NYDIA M. VELAZQUEZ, New York
BLAINE LUETKEMEYER, Missouri BRAD SHERMAN, California
BILL HUIZENGA, Michigan GREGORY W. MEEKS, New York
ANN WAGNER, Missouri DAVID SCOTT, Georgia
ANDY BARR, Kentucky STEPHEN F. LYNCH, Massachusetts
ROGER WILLIAMS, Texas AL GREEN, Texas
FRENCH HILL, Arkansas EMANUEL CLEAVER, Missouri
TOM EMMER, Minnesota JIM A. HIMES, Connecticut
BARRY LOUDERMILK, Georgia BILL FOSTER, Illinois
ALEXANDER X. MOONEY, West Virginia JOYCE BEATTY, Ohio
WARREN DAVIDSON, Ohio JUAN VARGAS, California
JOHN ROSE, Tennessee JOSH GOTTHEIMER, New Jersey
BRYAN STEIL, Wisconsin VICENTE GONZALEZ, Texas
WILLIAM TIMMONS, South Carolina SEAN CASTEN, Illinois
RALPH NORMAN, South Carolina AYANNA PRESSLEY, Massachusetts
DAN MEUSER, Pennsylvania STEVEN HORSFORD, Nevada
SCOTT FITZGERALD, Wisconsin RASHIDA TLAIB, Michigan
ANDREW GARBARINO, New York RITCHIE TORRES, New York
YOUNG KIM, California SYLVIA GARCIA, Texas
BYRON DONALDS, Florida NIKEMA WILLIAMS, Georgia
MIKE FLOOD, Nebraska WILEY NICKEL, North Carolina
MIKE LAWLER, New York BRITTANY PETTERSEN, Colorado
ZACH NUNN, Iowa
MONICA DE LA CRUZ, Texas
ERIN HOUCHIN, Indiana
ANDY OGLES, Tennessee
Matt Hoffmann, Staff Director
Subcommittee on Financial Institutions and Monetary Policy
ANDY BARR, Kentucky, Chairman
BILL POSEY, Florida BILL FOSTER, Illinois, Ranking
BLAINE LUETKEMEYER, Missouri Member
ROGER WILLIAMS, Texas NYDIA M. VELAZQUEZ, New York
BARRY LOUDERMILK, Georgia BRAD SHERMAN, California
JOHN ROSE, Tennessee GREGORY W. MEEKS, New York
WILLIAM TIMMONS, South Carolina DAVID SCOTT, Georgia
RALPH NORMAN, South Carolina AL GREEN, Texas
SCOTT FITZGERALD, Wisconsin JOYCE BEATTY, Ohio
YOUNG KIM, California JUAN VARGAS, California
BYRON DONALDS, Florida SEAN CASTEN, Illinois
MONICA DE LA CRUZ, Texas AYANNA PRESSLEY, Massachusetts
ANDY OGLES, Tennessee
C O N T E N T S
----------
Page
Hearing held on:
March 9, 2023................................................ 1
Appendix:
March 9, 2023................................................ 47
WITNESSES
Thursday, March 9, 2023
Ellison, Hon. Keith, Attorney General, State of Minnesota........ 11
Himpler, William M., President and CEO, American Financial
Services Association (AFSA).................................... 5
Johnson, Brian, Managing Director, Patomak Global Partners LLC... 7
Thompson, Jessica L., Attorney, Pacific Legal Foundation (PLF)... 8
Watkins, Devin, Attorney, Competitive Enterprise Institute (CEI). 10
APPENDIX
Prepared statements:
Ellison, Hon. Keith.......................................... 48
Himpler, William M........................................... 54
Johnson, Brian............................................... 65
Thompson, Jessica L.......................................... 75
Watkins, Devin............................................... 86
Additional Material Submitted for the Record
Barr, Hon. Andy:
Written statement of ACA International....................... 95
Competitive Enterprise Institute, ``Congress Should
Appropriate Money for the CFPB Through the Congressional
Appropriation Process''.................................... 103
Written statement of the Consumer Bankers Association (CBA).. 105
Written statement of the Credit Union National Association
(CUNA)..................................................... 109
Written statement of the National Association for Latino and
Community Asset Builders (NALCAB).......................... 115
Pacific Legal Foundation, ``Small lending firm fights the
CFPB's illegal power grab and racial equity agenda''....... 118
Written statement of the U.S. Chamber of Commerce............ 126
Beatty, Hon. Joyce:
Written statement of U.S. PIRG............................... 144
Written statement of various undersigned organizations....... 171
Written statement of the Center for Responsible Lending (CRL) 175
Written statement of Lake Research Partners.................. 178
Written statement of Public Citizen.......................... 184
Written statement of 20/20 Vision............................ 187
Written statement of the National Coalition for Asian Pacific
American Community Development(National CAPACD)............ 188
Written statement of the National Association of Consumer
Advocates (NACA)........................................... 190
NCRC statement in opposition to the TABS Act................. 192
Written statement of the Woodstock Institute................. 194
Written statement of Prosperity Now.......................... 195
Ellison, Hon. Keith:
Written responses to questions for the record from
Representative Kim......................................... 197
Johnson, Brian:
Written responses to questions for the record from
Representatives Waters and Rose............................ 199
Thompson, Jessica L.:
Written responses to questions for the record from
Representative Rose........................................ 201
Written responses to questions for the record from
Representative Waters...................................... 203
CONSUMER FINANCIAL PROTECTION
BUREAU: RIPE FOR REFORM
----------
Thursday, March 9, 2023
U.S. House of Representatives,
Subcommittee on Financial Institutions
and Monetary Policy,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 9:59 a.m., in
room 2220, Rayburn House Office Building, Hon. Andy Barr
[chairman of the subcommittee] presiding.
Members present: Representatives Barr, Posey, Luetkemeyer,
Williams of Texas, Loudermilk, Rose, Timmons, Norman,
Fitzgerald, Kim, Donalds, Ogles; Foster, Velazquez, Sherman,
Meeks, Green, Beatty, Vargas, Casten, and Pressley.
Ex officio present: Representative Waters.
Also present: Representative Emmer.
Chairman Barr. The Subcommittee on Financial Institutions
and Monetary Policy will come to order. Without objection, the
Chair is authorized to declare a recess of the subcommittee at
any time.
Today's hearing is entitled, ``Consumer Financial
Protection Bureau: Ripe for Reform.''
I now recognize myself for 5 minutes to give an opening
statement.
Thank you to our witnesses for joining us today in the
Financial Institutions and Monetary Policy Subcommittee to
discuss the administrative process fouls and structural issues
that make the Consumer Financial Protection Bureau (CFPB) ripe
for reform.
At today's hearing, we will examine the CFPB's leadership
structure, current funding mechanism and how the agency manages
its budget, operations that are in need of reform, and current
tactics of regulation without rules.
Leadership structure: The CFPB does not have an executive
board, an independent Inspector General, or any true oversight
of the Director. This is unlike virtually every other Federal
agency.
The agency is led by a single partisan Director, Mr. Rohit
Chopra, who has routinely acted unilaterally and arbitrarily,
often outside any statutory mandate, without engaging in
rulemaking and compliance with the Administrative Procedure Act
(APA), and even sometimes without adjudication. This has led to
the CFPB becoming the most unchecked, unaccountable agency in
the entire Federal Government.
Funding mechanism and budget: Further, the CFPB operates
outside of the congressional appropriations process, receiving
its funding through the Federal Reserve, through an opaque and
arbitrary formula, operating, obviously, outside of the
traditional appropriations process. This denies Congress the
use of its most powerful oversight tool, the power of the
purse.
My legislation, the Taking Account of Bureaucrats' Spending
(TABS) Act, would give Congress the power of the purse and its
oversight power, reining in the unaccountable CFPB and
subjecting the agency to the traditional appropriations
process.
As many of you know, the U.S. Court of Appeals for the
Fifth Circuit recently held that the CFPB's funding mechanism
is unconstitutional, stating that it is, ``double insulated as
the Fed and CFPB both operate outside of the congressional
appropriations process.'' The Supreme Court will review the
Fifth Circuit's decision this fall and has the opportunity to
clarify the constitutionality of the CFPB's funding once and
for all.
The TABS Act provides a common-sense solution for questions
surrounding the funding mechanism and will put an end to
bureaucratic overreach, and we hope it will earn bipartisan
support once it becomes clear that this legislation is the way
to save the agency.
Additionally, the Fed does not exercise authority over the
CFPB in terms of its budget. Instead, the Director is required
to merely submit a short letter requesting funds each quarter
that the Director alone decides are reasonably necessary for
operations.
The Fed rubber-stamps the request each time. This unchecked
budget process allows for no accountability over the agency,
which, in turn, permits the agency to stray from its core
mission. This process must be reformed.
Regulation without rules: Under Director Chopra, the CFPB
has begun regulating without rules by evading the traditional
notice-and-comment process, instead doing rulemaking through
enforcement, blog posts, press releases, and changes to
examination manuals. Not only does this circumvent the
requirements of the APA, which provides for public input and
prevents whiplash for industry with each change in leadership,
but it also does not promote lasting policy directives and is
harmful to consumers' access to financial services.
Recently, the CFPB failed to fulfill its statutory
obligation to comply with the Small Business Regulatory
Enforcement Fairness Act (SBREFA), which is required when a
rule may have significant economic impact on small entities.
Evading this statutory obligation is not only unacceptable from
a process standpoint but also disadvantages the small
institutions which serve the consumers that the CFPB is charged
with protecting.
In addition to the TABS Act, today we will examine other
bills that reform the CFPB's leadership structure by
establishing an independent IG and creating a multimember
bipartisan commission, focusing on the requirements for funding
the agency's budget, requiring more oversight and quantitative
analysis of the rulemaking process, and protecting small
businesses and whistleblowers. These bills are the first steps
toward reforming the unaccountable CFPB.
I look forward to discussing these issues and to hearing
from our panel today on what reforms will be beneficial for the
agency and for consumers.
With that, I will yield back my time, and recognize the
ranking member of the subcommittee, the gentleman from
Illinois, Dr. Foster, for 4 minutes for an opening statement.
Mr. Foster. Thank you, Chairman Barr, and thank you
specifically for starting this hearing exactly on time. We are
setting a great precedent.
We are here today to discuss ways that we might,
``reform,'' the Consumer Financial Protection Bureau.
``Reform'' is an interesting word, which can be taken as to
improve, to alter, or to abolish. And if past is prologue, I am
afraid that I may hear from my Republican colleagues not ways
in which we can improve the CFPB, but ways in which we can
weaken or handicap it. Many in the Republican party have fought
against the CFPB since its inception, repeatedly seeking ways
to delegitimize, defund, or, most recently, to abolish the
agency entirely.
The most recent Fifth Circuit decision regarding the CFPB's
funding mechanism is the latest spearhead of this attack on one
of our nation's most important financial regulators. This has
far-ranging implications, carrying with it the danger of
invalidating crucial consumer protection rules that our
constituents have relied on for the past decade.
This threat does not end there, however, because the CFPB's
funding structure is not unique. The FDIC, the OCC, and the
Federal Reserve all share the same basic funding mechanism and
will be equally threatened if the CFPB's funding is ultimately
found to be invalid. Republicans have effectively launched an
attack that could impair much of the financial regulatory
infrastructure that has saved the U.S. economy in 2008 and
again in 2020.
The Fifth Circuit court has crafted a theory that would
empower courts to strike down mandatory spending on Federal
programs, compelling Congress to either reappropriate the money
each year or let the program die, the very embodiment of
Republicans' plans to, for example, sunset Social Security.
This radical reading of the Constitution could also threaten
Medicare, Medicaid, the Affordable Care Act, unemployment
benefits, child nutrition assistance, and so much more.
This decision specifically threatens to inflict immense
legal and practical harm on not just the CFPB but to consumers
and our nation's final sector who have invested billions of
dollars into a compliance regime which ensures that the vast
majority of good actors and financial servicers do not have to
suffer from competition from bad actors.
The CFPB has more than a decade-long track record of
working around the clock to fight for our nation's consumers.
Consumer protection should not be a partisan issue. Since its
inception, the CFPB has returned more than $16 billion back to
192 million harmed consumers, and has held bad actors
accountable to the tune of nearly $4 billion.
Moreover, roughly 80 percent of polled U.S. citizens
support the CFPB and want the agency to continue doing its job.
So my friends across the aisle would be wise to listen to their
constituents and work in a bipartisan way to truly improve the
CFPB and not to handicap or abolish it.
As American families are emerging from struggles of the
pandemic, now is not the time to weaken consumer protection.
The CFPB is integral to that goal, and I look forward to
discussing how we can support its mission to protect our
constituents.
Thank you. I yield back.
Chairman Barr. The gentleman yields back.
I think the ranking member of the full Financial Services
Committee, Ms. Waters, expressed an interest in giving an
opening statement, but I do not see her. So with that, we will
move on to the testimony of our witnesses.
First, we welcome the testimony of Mr. Bill Himpler. Mr.
Himpler is President and CEO of the American Financial Services
Association (AFSA), which was founded in 1916. The AFSA is a
trade association for the consumer credit industry, protecting
member companies' ability to offer affordable credit options to
American consumers and enhancing consumer choice.
Second, Mr. Brian Johnson, who is familiar to this
committee. He is the Managing Director in the banking
supervision and regulation group at Patomak Global Partners. He
previously served as Deputy Director of the CFPB, where he
oversaw the agency's rulemaking, supervision, and enforcement
activities.
He conceived and led the creation of high-profile agency
initiatives, including the Office of Competition and
Innovation, the Taskforce on Federal Consumer Financial Law
policy symposia series, and the Start Small, Save Up
Initiative.
Third, Ms. Jessica Thompson. Ms. Thompson is an attorney in
the Economic Liberty Practice Group at the Pacific Legal
Foundation. She has litigation experience in a variety of State
and Federal constitutional law issues presenting constitutional
challenges to the CFPB and COVID-19-related executive actions.
She also engaged in appellate advocacy for clients
challenging removal protections for SEC Administrative Law
Judges, and submitted amicus briefs of judicial deference to
State supreme courts.
Fourth, Mr. Devin Watkins. Mr. Watkins is an attorney at
the Competitive Enterprise Institute, where his expertise
focuses on government transparency and regulatory reform. Mr.
Watkins previously worked at the Cato Institute as a legal
associate, and interned at the Institute for Justice.
Another witness who has familiarity with our committee is
Attorney General Keith Ellison. It's good to see you, my
friend. Welcome back to the committee.
Mr. Ellison was sworn in as Minnesota's 30th Attorney
General on January 7, 2019. From 2007 to 2019, Keith Ellison
represented Minnesota's Fifth Congressional District in the
U.S. House of Representatives, and he served for 12 years on
this, the House Financial Services Committee.
We thank each of you for taking the time to be here. Each
of you will be recognized for 5 minutes to give--
Mrs. Beatty. Mr. Chairman, may I have a point of personal
privilege, please, before you start?
Chairman Barr. The gentlelady is recognized.
Mrs. Beatty. Thank you, for one minute.
Mr. Chairman, I would like to ask unanimous consent to take
a point of personal privilege to welcome back our former
colleague, Attorney General Keith Ellison.
Thank you, Attorney General Keith Ellison, and welcome
back. As many of us know, you served on this committee when we
created the CFPB through the Dodd-Frank Act, and you are now
Minnesota's chief law enforcement officer.
You are just the right person to help us discuss the issues
that this hearing is focused on, so we are glad to have you
back here in our committee room. And we are looking forward to
your testimony.
Mr. Chairman, I would like to request, on behalf of our
ranking member, to enter this statement for the record from the
following organizations who are in support of preserving the
CFPB's current leadership structure funding the mission to
protect consumers: Americans for Financial Reform; the Center
for Responsible Lending; the National Association of Consumer
Advocates; the National CAPACD and the National Community
Reinvestment Coalition; Public Citizen; Prosperity Now; U.S.
PIRG; the Woodstock Institute; and 20/20 Vision, D.C.
Chairman Barr. Without objection, it is so ordered.
Mrs. Beatty. Thank you, Mr. Chairman.
Chairman Barr. And without objection, each of the
witnesses' written statements will be made a part of the
record.
Mr. Himpler, you are now recognized for 5 minutes for your
oral remarks.
STATEMENT OF WILLIAM M. HIMPLER, PRESIDENT AND CEO, AMERICAN
FINANCIAL SERVICES ASSOCIATION (AFSA)
Mr. Himpler. Thank you, Mr. Chairman, Ranking Member
Foster, and members of the subcommittee.
My name is Bill Himpler, and I am President and CEO of the
American Financial Services Association, which represents the
consumer credit industry, protecting access to credit and
consumer choice. And I must say I am glad, Mr. Chairman, that
you have the really smart attorneys on the panel with me here.
I appreciate the opportunity to testify before the
Subcommittee to demonstrate how the CFPB's refusal to operate
within its congressional mandate and its unhelpful rhetoric
harms both consumers and creditors. Instead of a path that
exceeds its authority, I would suggest an alternative path for
the Bureau.
But allow me to share five examples of how the Bureau's
overreach could have detrimental effects on how an American
consumer safely accesses credit, and could throw the entire
consumer credit market into disarray.
First, the CFPB seeks to impose limits on arbitration,
despite Congress overturning its arbitration rule, and the
Bureau's own study and research which shows that arbitration
benefits consumers. The CFPB continues to pursue efforts to
eliminate arbitration agreements, this time by proposing a non-
bank registry that would require finance companies to register
certain terms and conditions, such as arbitration agreements.
This proposal is unnecessary because the information is already
publicly-available.
In addition, it will only serve to shame companies from
using this lawful tool and give trial lawyers a roadmap for
class action lawsuits to pay consumers $3 or $4 per case while
the lawyers make millions. By comparison, consumers actually
receive thousands of dollars in arbitration settlements.
Second, the Bureau focuses on press releases over rules,
meaning that struggling consumers remain just that: struggling.
The CFPB has issued press releases on so-called junk fees
without defining what they are, while some, such as resort fees
and ticket fees, are clearly outside the CFPB's jurisdiction.
This leads to greater compliance uncertainty, thereby limiting
consumer choice and credit access.
In short, the Bureau's rhetoric accomplishes absolutely
nothing for the consumer. If the Bureau has identified a
problem in the consumer finance marketplace, it should follow
the APA rulemaking authority that is at its disposal and
institute real change.
Third, regulation by press release can have serious
consequences for consumers. In December, the CFPB issued a
press release on the Servicemembers Civil Relief Act (SCRA).
That press release ignores the SCRA statutory requirements,
fails to account for the impact that the proposal will have on
the securitization market, and does not address the failings of
the Defense Manpower Data Center SCRA website. If creditors
followed the Bureau's recommendations, it could have dire
financial and privacy consequences for servicemembers that the
CFPB could have foreseen if it had engaged in APA rulemaking.
Fourth, the CFPB is using regulation by enforcement to
change the decades-old Truth in Lending Act (TILA) with little
concern for the harm that it could cause consumers. Under Dodd-
Frank, the CFPB has the authority to amend Reg Z, which
implements TILA.
A joint CFPB and New York Attorney General enforcement
action, however, attempts to create an ability-to-repay
standard for vehicle finance, and to punish companies for an
unacceptable default rate, despite the fact that there is
neither an acceptable default rate, nor an ability-to-repay
standard in any law or regulation governing vehicle finance, or
the fact that the proposal is unworkable. Such changes in the
credit practices could substantially limit availability and
would likely eliminate approximately $20 billion in the
subprime auto credit market.
Fifth, the CFPB's misinterpretation of the Military Lending
Act (MLA) would harm the servicemembers it seeks to help. The
MLA excludes vehicle finance, but CFPB is attempting to end-run
around Congress' clear intent by bringing vehicle finance under
the Military Lending Act. If the Bureau's interpretation
stands, it could have serious consequences for loans that are
already in the marketplace and could limit servicemembers'
ability to get credit going forward.
Instead of going after well-regulated financial
institutions and products, the CFPB should pursue bad actors,
such as credit repair organizations, which provide no benefit
to consumers, cost the consumers significant money upfront, may
damage the consumer's creditworthiness, and actually divert
resources from legitimate disputes.
AFSA and its members are committed to serving consumers in
a well-functioning marketplace, and we agree with Director
Chopra that markets work best when rules are simple, easy to
understand, and easy to enforce.
Chairman Barr. The gentleman's time has expired.
Mr. Himpler. Thank you, Mr. Chairman.
[The prepared statement of Mr. Himpler can be found on page
54 of the appendix.]
Chairman Barr. Thank you.
Mr. Johnson, you are now recognized for 5 minutes to give
your oral remarks.
STATEMENT OF BRIAN JOHNSON, MANAGING DIRECTOR, PATOMAK GLOBAL
PARTNERS LLC
Mr. Johnson. Chairman Barr, Ranking Member Foster, and
members of the subcommittee, thank you for holding this
important hearing on reforming the Consumer Financial
Protection Bureau.
I am Brian Johnson, Managing Director of Patomak Global
Partners, a financial services regulatory consultancy. I
previously served as the Deputy Director of the CFPB, and prior
to that, served for more than 5 years as a staff member for the
Financial Services Committee.
The CFPB has an important statutory purpose, and when
properly structured and managed, it can fulfill that purpose.
It can support free markets and promote consumer choice and
economic opportunity while protecting consumers.
Notwithstanding the admirable work of many of its staff, the
CFPB has not reached this potential, which is why today's
discussion is so important.
More than 12 years since its creation, we now have a track
record by which to judge this agency, but what yardstick should
we employ to measure the Bureau?
While reasonable people can and do disagree about the
policies and processes the CFPB employs in pursuit of its
mission, we should all agree that its activities must follow
the objective rule of law, and its actions must remain within
the authority set by statute by Congress. Measuring the extent
to which the CFPB has adhered to the rule of law can help
determine the need for reform and the contours those changes
should take.
In taking measure of the Bureau, my written testimony lists
many examples where the agency exceeded its statutory authority
and operated beyond the limits of the law and our Constitution.
Examples include an unconstitutional funding structure and
removal protections of its Director, as well as the Bureau's
disregard for due process, failing to properly notify those
subject to investigations, and proposing to restrict First
Amendment rights.
The CFPB has also aggressively sought and, at times, used
powers not authorized in statute, ignoring limits placed on it
by Congress.
My testimony goes into greater detail on how the Bureau has
claimed authority to examine institutions for compliance with
laws beyond those statutes assigned to it, has attempted to
apply laws governing applications for credit to non-applicants,
and sought to regulate auto dealers despite a statutory
exemption from its authority.
This litany, further detailed in my testimony, is by no
means exhaustive, and I take no pleasure in repeating it here.
While one or two of these examples could, perhaps, be
dismissed, the frequency with which these issues arise
demonstrates that the CFPB is ripe for reform.
There are many worthy legislative proposals, but I will
focus on those which re-establish the separation of powers or
other checks and balances and, therefore, are most apt to
preserve the rule of law and protect our liberties.
First, Congress should consider reforms to the funding
structure of the CFPB. In my experience, there is no oversight
of CFPB spending. This arrangement tempts Directors into
pursuing initiatives that bear little relation to the
priorities of the American people, nor to the boundaries of its
statutory authority. Placing the Bureau under appropriations
would refocus its efforts and better align them with all
Americans' needs and desires.
Second, Congress should determine the CFPB's primary
purpose and consider what structure best serves that purpose.
Our framers wisely designed the Executive Branch to be unitary
so it may act with decision and dispatch. They also recognized
that the creation of rules and laws requires careful
deliberation to balance and represent the diverse interests of
our citizens, so it created Congress to have many Members.
The same lesson can be applied to the CFPB. If you wish for
the agency to simply enforce consumer laws, there may be good
reason for it to be remain headed by a single Director. If you
wish for it to, instead, exercise your delegated legislative
powers through rulemaking, then its deliberations may benefit
from multiple commission members who can deliberate and better
reflect a diversity of views and interest.
Together, these basic reforms can enhance the legitimacy of
the Bureau and help it achieve its promise.
Again, I applaud this subcommittee for having this
discussion and acting on its responsibilities to build a
stronger CFPB that better adheres to the rule of law and better
reflects the consent of the governed.
Thank you, and I welcome the opportunity to answer any
questions you may have.
[The prepared statement of Mr. Johnson can be found on page
65 of the appendix.]
Chairman Barr. Thank you, Mr. Johnson.
And now, Ms. Thompson, you are recognized for 5 minutes to
give your oral remarks.
STATEMENT OF JESSICA L. THOMPSON, ATTORNEY, PACIFIC LEGAL
FOUNDATION (PLF)
Ms. Thompson. Chairman Barr, Ranking Member Foster, and
honorable members of this subcommittee, thank you for the
opportunity to testify at this hearing on why the CFPB is in
desperate need of reform.
My name is Jessica Thompson, and I am a constitutional
litigator in the separation of powers practice at the Pacific
Legal Foundation, where we defend Americans' liberties when
threatened by government overreach and abuse.
I would like to share three points: one, CFPB's current
funding mechanism is unconstitutional; two, CFPB uses consent
orders to evade the APA rulemaking process; and three, my
client's recent victory illustrates CFPB's pattern of
overreach.
First, in contrast to CFPB's recent arguments and briefing
before the U.S. Supreme Court, CFPB has always described itself
as a non-appropriated independent agency. This dual-level
exemption from the appropriations process plainly violates the
appropriations clause of the U.S. Constitution.
The second thing you need to know is that without
meaningful oversight and the accountability that accompanies
congressional appropriations, CFPB is free to evade the normal
rulemaking process by using consent orders to announce new
legal theories. Although these theories are often untested in
court, CFPB claims consent orders are precedential guidance for
regulated institutions. This presents constitutional concerns
for due process, undermines the rule of law, and will limit
consumers' access to financial services.
My third point illustrates the risk of constitutional harm
from an unaccountable agency. At Pacific Legal, we are helping
Americans fight CFPB's unconstitutional overreach, and we
recently secured an important win for our client, Townstone
Financial, and its owner, Barry Sturner. Last month, a Federal
court held that CFPB's interpretation of its own regulation
went beyond the authority granted to it by Congress in the
Equal Credit Opportunity Act (ECOA). CFPB was so far over its
skis that the judge dismissed the case with prejudice.
Faced with an enforcement action based on a novel
interpretation of a nearly 50-year-old regulation and
allegations of redlining, Townstone faced immense pressure to
enter into a consent order. But Townstone never discriminated
against any applicants for credit, and the CFPB didn't even
allege that it had. Instead, CFPB claimed that Townstone
violated an agency regulation with statements about crime it
made on a weekly radio show it hosted on a conservative
station.
As even Mr. Sturner would admit, it is difficult to talk
for an hour about mortgages alone. Conversation on the show
would often turn to local and national news, and in Chicago,
crime is a frequent topic of conversation. In the show's
history, Townstone never received a complaint about its
discussions, and CFPB could not identify anyone who claimed to
be discouraged from seeking credit, but that didn't stop CFPB
from plucking five innocuous statements about crime and life in
Chicago out of hundreds of hours of radio broadcast to allege
that Townstone intended to discourage African Americans from
seeking credit.
Luckily, Townstone had the courage to challenge the CFPB's
untested legal theory in court and, with pro bono assistance
from Pacific Legal, the wherewithal to sustain the legal fight
for 6 years. The court's rebuke of CFPB's overreach in the
Townstone case is a huge win for the separation of powers, but
we need Congress to act to prevent others from going through
the abuse that Townstone and Mr. Sturner suffered.
In closing, Pacific Legal urges Congress to bring CFPB
within the annual congressional appropriations process to
protect consumers' access to financial services and the rule of
law. Once this essential element of checks and balances is
restored, Congress should conduct oversight over the broad
powers delegated to CFPB to ensure its regulations and
enforcement actions do not exceed its authority or trample
constitutional rights.
Thank you again for this opportunity. I look forward to
answering your questions.
[The prepared statement of Ms. Thompson can be found on
page 75 of the appendix.]
Chairman Barr. Thank you, Ms. Thompson.
Mr. Watkins, you are now recognized for 5 minutes for your
oral remarks.
STATEMENT OF DEVIN WATKINS, ATTORNEY, COMPETITIVE ENTERPRISE
INSTITUTE (CEI)
Mr. Watkins. Thank you.
Chairman Barr, Ranking Member Foster, and members of this
subcommittee, I appreciate the opportunity to speak to you
today.
My name is Devin Watkins, and I am an attorney at the
Competitive Enterprise Institute. One of our principles is that
government agencies should face democratic accountability to
elected officials so that people can live freer, healthier, and
more prosperous lives. That vision is needed today more than
ever, especially for the Consumer Financial Protection Bureau.
Today, I will focus my testimony on three critical reforms
of the CFPB. All three of them implicate fundamental
constitutional rights. These three reforms are: ensuring
congressional appropriations; prohibiting any regulation by
enforcement; and prohibiting fines without juries.
First, the most critical CFPB reform is ensuring
congressional appropriations. The Dodd-Frank Act bypassed
congressional appropriations to avoid Congress' oversight of
the CFPB. This is a direct affront to democratic control and
public accountability.
Founders wanted to prevent the lack of accountability that
occurred when the King of England bypassed the legislature to
control government funds. That is why the Constitution requires
that no money should be drawn from the Treasury but on
consequence of appropriations made by law. Congress alone is
responsible for determining the budget for government agencies.
Indeed, the Supreme Court decision to consider the
constitutionality of the CFPB's funding mechanism says you have
some possibility that the court will decide that only Congress
may fund Federal agencies. Congress should scrutinize all other
funding mechanisms with an eye towards returning to the
congressional appropriations system.
The second critical CFPB reform is prohibiting the practice
of regulation by enforcement because it contradicts the rule of
law. Instead of providing clear rules for people to comply
with, the CFPB requires individuals to anticipate what the CFPB
Director considers unfair and abusive. This method is similar
to saying the speed limit is a reasonable speed and then
allowing officers to issue tickets based on their subjective
judgment of what a reasonable speed is. It leads to arbitrary
punishment and leaves no way for regulated parties to ensure
that their conduct remains lawful.
The determination of what violates the law shouldn't be
done by blog post. The regulated community should receive
notice of what is illegal by Congress or through the rulemaking
process that was laid out by Congress. This means a requirement
that a rule existed that clearly and convincingly demonstrates
that some given action is illegal. This means guidance issued
by the CFPB would be limited to explaining what conduct is
lawful. Constraining the CFPB in this way would block the
agency from sneaking in new regulatory requirements through
guidance documents.
Finally, the CFPB should end the practice of issuing fines
without jury findings of wrongdoing. The Seventh Amendment
mandates that in suits at common law where the value of
controversy shall exceed $20, the right to trial by jury shall
be preserved. Common law remedies, such as fines more than $20,
must be determined by a jury. The Seventh Amendment exists
because the government can abuse monetary penalties. So, the
jury system acts as a backstop to prevent such abuse.
The Declaration of Independence cited one of the causes of
American independence is the English Government, ``depriving us
in many cases of the benefits of trial by jury.'' And John
Adams recognized that, ``representative government and trial by
jury are the heart and lungs of liberty.''
Nevertheless, the CFPB regularly fines individuals without
allowing them a jury. Instead, the CFPB uses Administrative Law
Judges (ALJs) to determine if people have violated the law, but
it is the CFPB that appoints, oversees, and can fire these
judges at any time. How can any ALJ be impartial if their
livelihood depends on one of the parties before the judge not
removing them from office?
Whenever a citizen of this country is punished, only their
fellow citizens in a jury should make that determination.
These three issues are the most critical reforms to the
CFPB. The time for reforming the CFPB is now. Delaying action
at the CFPB will result in more harm both to consumers and to
industry.
Thank you for the opportunity to testify today regarding
this timely and important issue.
[The prepared statement of Mr. Watkins can be found on page
86 of the appendix.]
Chairman Barr. Thank you, Mr. Watkins.
And Mr. Ellison, you are now recognized for 5 minutes to
give your testimony.
STATEMENT OF THE HONORABLE KEITH ELLISON, ATTORNEY GENERAL,
STATE OF MINNESOTA
Mr. Ellison. Mr. Chairman, thank you. And I would also like
to thank Ranking Member Foster and Ranking Member Waters, who
is not here, but I do thank her as well.
And let me just say that it is good to be back with the
Financial Services Committee again. After 12 years of being
your colleague, it was certainly an honor and a joy, and it is
good to be back with you.
I remember well September 2008, and I know many of you do,
too, when President Bush's Treasury Secretary said, ``We need
$700 billion by Monday or the economy is going to collapse.''
We can argue whether that was accurate or not accurate, but
that was what we were told.
Let me tell you, the CFPB is part of our response to that
financial crisis, and the CFPB has been a wonderful partner to
State Attorneys General and to American families. Let me remind
everybody, the CFPB exists because we had four million
foreclosures. We had over a trillion dollars in home value
losses and blighted neighborhoods, and houses with copper
wiring ripped out.
We don't have a CFPB because somebody just thought it would
be a great idea. We are here because of a financial crisis.
Let me begin by discussing a case in Minnesota that we
worked on with the CFPB. Back in October 2019, my office,
alongside the CFPB, North Carolina, and the City of Los
Angeles' City Attorney's office sued a series of companies and
individuals running a fraudulent student loan relief scam that
falsely promised to help people pay off student loans and
obtain student loan forgiveness in the process.
In this time, when over 40 million Americans owe $1.75
trillion in student loans, these companies preyed on nearly
90,000 desperate consumers and illegally collected over $95
million in fees from them. Together, we shut them down, and
this past December, issued refund checks to the consumers.
Without the CFPB, we wouldn't have been able to get that
result. Not only did the Bureau provide resources to give us
the bandwidth to bring the case, but it is only because of the
CFPB's civil penalty fund that we were able to secure $95
million in refunds to compensate victims when the companies and
the people we sued couldn't afford to pay the full amount.
If not for the CFPB, consumers would likely have received
only a fraction, if anything. I fear this example shows exactly
why we need the CFPB and why some people are hostile to the
CFPB.
This is just one example of dozens where States like
Minnesota have joined with the Bureau to act against companies
and hold them accountable for defrauding consumers. Companies
being held accountable sometimes don't like being held
accountable, and sometimes that will explain the scenario we
have today.
It is not a matter of politics. It is not a red or blue
issue. The CFPB has joined together with States regardless of
politics to stop fraudulent actors. Let me give you an example.
All 50 States joined the CFPB in suing the country's largest
mortgage companies for numerous unfair and deceptive practices
related to servicing borrowers' mortgages.
In 2021, Georgia joined with the CFPB in suing a company
offering fraudulent credit repair and debt relief services. And
in just the last 3\1/2\ years, Arkansas, South Carolina, and
others have joined the CFPB on more than one occasion.
These cases get meaningful results for consumers. As a
result, as the end of 2022, the CFPB has recovered $16 billion
for consumers, obtaining $192 million for consumers nationwide.
But what consumers gained, somebody on the other side of the
transaction lost, and they are not happy about it.
States like Minnesota have historically served at the
forefront of efforts to protect consumers against fraudulent
and abusive practices, and for over a decade, the CFPB has
served as a critical enforcement partner for us in our efforts.
The CFPB has also been a partner to American families
struggling to make ends meet when they stand up against a
Goliath in the form of a financial services company.
Congress intended to create a CFPB in response to the 2008
financial crisis, as I noted, and it should remain, but the
Bureau doesn't just sue alongside States. It is essential in
acting as another cop on the beat for consumers, particularly
in targeted areas where--
Chairman Barr. The gentleman's time has expired, so could
you please wrap up quickly?
Mr. Ellison. Thank you, Mr. Chairman. I will do that.
Let me be clear, the CFPB is a critical partner, and we
certainly believe that their continued success is essential to
protect consumers and families.
[The prepared statement of Attorney General Ellison can be
found on page 48 of the appendix.]
Chairman Barr. Thank you, Mr. Attorney General.
And we will now turn to Member questions.
The Chair now recognizes himself for 5 minutes for
questioning.
As I mentioned in my opening remarks, I have introduced the
TABS Act to place the CFPB under the congressional
appropriations process, restoring the power of the purse and
vindicating the separation of powers doctrine.
Mr. Watkins, and Mr. Johnson, please amplify your testimony
as to how the CFPB's double-insulated funding mechanism is
unconstitutional and allows the CFPB to stray from its
statutory mission and evade proper oversight.
And as you answer that question, please also address these,
``sky-is-falling concerns,'' that if the Supreme Court upholds
the Fifth Circuit decision, this would call into doubt the
constitutionality of all of these other self-funded Federal
bank regulators, including the Federal Reserve, the FDIC, the
FHFA, et cetera.
Mr. Watkins. I will begin. In my view, when the
Constitution says, no money shall be drawn from the Treasury
but on consequence of appropriations by law, what it meant by,
``Treasury,'' was public money. It was money that the
government owns, and that includes all of the money that the
CFPB uses to fund its operations. And when it says that
Congress needs to appropriate that money, it means Congress
needs to decide the budget of the CFPB, not the Director of the
CFPB. That is a decision that Congress and Congress alone must
make.
That is really critical from an accountability standpoint,
but I do think that it isn't just the CFPB. There are other
agencies out there that do have non-appropriated funds, and
Congress should review those as well and think about how to
return those agencies to the congressionally-funded
appropriations process as well.
Chairman Barr. And Mr. Johnson, do you believe that the
CFPB's unique novel funding mechanism is distinguishable from
these other self-funded Federal financial regulators?
Mr. Johnson. Thank you, Mr. Chairman, for the question.
One of the interesting arguments that was made in the cert
petitions before the Supreme Court was whether or not the
Bureau's funding can be distinguished from similarly-situated
Federal regulators, and I believe it can.
The Fifth Circuit certainly cited the unique double-
insulation structure, but fundamentally, the CFPB is
differently situated than the FDIC, the NCUA, the Fed, and the
OCC, and as much as each of those agencies has been assigned by
Congress, a safety and soundness mission. In other words, they
are prudential regulators, and they provide a service to banks
in the form of guaranteed liabilities through deposit
insurance, and they supervise institutions for safety and
soundness to guard against the risk to taxpayers. And it may be
appropriate for Congress to establish funding structures for
those agencies to recoup the cost of that supervision from the
banking institutions that are supervised by those agencies.
The CFPB, contrary to those missions, is fundamentally a
market conduct regulator. It has no safety and soundness
mission. Fundamentally, the Bureau has no obligation to ensure
the continued operation of institutions as an ongoing concern.
It is simply there to supervise institutions for compliance
with a discrete set of Federal consumer financial laws. Market
conduct is distinct from prudential regulation, and it is a
fundamental difference that I think should be accounted for in
consideration of the funding.
Chairman Barr. Thank you, Mr. Johnson.
And another question for you. Since Director Chopra has
taken over the Bureau, we have seen a new tactic of regulation
without rules. For example, last month, when putting out a
notice for proposed rulemaking on credit card late fees, the
Bureau failed to fulfill its statutory obligation to convene
SBREFA.
Also, in March 2022, the Bureau updated its Unfair,
Deceptive, or Abusive Acts or Practices (UDAAP) exam manual as
a way of evading notice and comment.
Can you explain the importance of implementing lasting
policy directives? And how is the Bureau's recent rogue
behavior harmful to consumers' access to financial services?
Mr. Johnson. Thank you, Mr. Chairman.
Briefly, Congress has established specific procedures that
must be followed by agencies when promulgating rules, and rules
are those which bind regulated parties in specific ways. So any
time an agency departs from those specific rules, whether
reflected in the Regulatory Flexibility Act, or whether
reflected in the Administrative Procedure Act, a lot of
downstream consequences and bad results can occur.
And you are seeing where the agency departs from formal
legislative rulemaking or even departing from specifically-
established categories of guidance like interpretive rules or
statements of policy and blending the distinctions, and it
creates fundamental uncertainty for regulated parties in the
marketplace--
Chairman Barr. My time has--
Mr. Johnson. --in their operations.
Chairman Barr. Thank you.
My time has expired, but I think it does go to show that
guidance and interpretive rules should not create new
obligations. You can't change the law without notice and
comment or without statutory authorization.
With that, I recognize the ranking member of the
subcommittee, Dr. Foster, for 5 minutes.
Mr. Foster. Thank you, Mr. Chairman.
Attorney General Ellison, when Congress created the CFPB in
the Dodd-Frank Act, it was created as an independent agency
which would not be funded through the annual appropriations
process. Some of our witnesses and some of my colleagues on the
other side of the aisle seem to want to go against the original
intent of the authors of Dodd-Frank and subject the agency to
the annual appropriations process.
Now, you and I were in the room when the decision was made
in the wake of the financial crisis to establish an independent
funding mechanism for the CFPB, and you remember, for example,
the bipartisan incredulity. For example, when we ask ourselves:
How could the SEC possibly have missed Bernie Madoff? And the
answer came back that Congress had abused the power of the
purse to systematically eviscerate the SEC's capacity to find
bad actors like Bernie Madoff. And people on the other end of
those scamsters suffered.
And the same thing applies to the toxic assets that were
all based on mortgages that--I think officially, it was the
Federal Reserve that was supposed to have been the cop on the
beat to stop all of these garbage mortgages from being re-
bundled and all of that, in which I think Barney Frank,
referred to as someone with a tremendous sense of humor, put
the Federal Reserve in charge of oversight of the mortgage
industry.
There is a lot of history that I think is in danger of
being lost, so thank you for being here.
Do you have any concerns about an alternative approach to
funding? And what are the dangers that you have seen?
Mr. Ellison. Certainly, Ranking Member Foster.
The CFPB every day gets up and does things where there are
folks with very powerful financial interests who try to impact
what they are doing, and, therefore, it makes a lot of sense to
be able to have a funding mechanism that does not make them
easily susceptible to administrative capture, that makes them
somewhat immune from the vicissitude of one case or another.
Now, it is interesting because I think that it is simply
wrong that the appropriations process is the only way Congress
has to do oversight. We are having an oversight hearing on the
CFPB at this very moment. Congress can change the statutory
scheme for the CFPB any time that it wants to. If you can get
the House and the Senate and the President to sign it, then you
have the change.
It is set up for a reason because we know that if you
subject this institution to the appropriations process, it is
simply going to change from session to session, moment to
moment, giving no one any clear guidance or anything to rely
on.
So, thank you for your question. I think you are absolutely
right.
Mr. Foster. Okay.
Mr. Johnson, you had a rather tortured attempt to separate
safety and soundness from consumer protection, that they were
somehow fundamentally different. I think you are wrong in that,
actually.
The CFPB provides a service to all actors in the financial
services arena to protect them from competition from bad
actors, and that is a service that the financial system has
come to depend on because prior to the CFPB, we would--I am
sure Attorney General Ellison and I both had financial entities
come into our office and complain about other sectors of the
industry that were bad actors, and how come we are not doing
anything about that. And the CFPB was the answer. So, I think
it is false.
Now, actually, Mr. Watkins, you had indicated that there
were many other agencies that you thought should be looked at
by the courts or Congress. Prior to the CFPB, it was the
Federal Reserve that was responsible for consumer protection.
In your view, was that unconstitutional?
Mr. Watkins. It is my view that all Federal agencies,
including the Federal Reserve, should go through the
congressional appropriations process for their budget.
Mr. Foster. Okay. So, you believe it is perfectly fine if
the next time Jay Powell comes in front of us, we say, look, if
you don't raise interest rates, we are going to cut your
budget? You think that is a good future for the United States?
Mr. Watkins. I don't think that is what Congress should do.
I think it is perfectly appropriate, if you think the Federal
Reserve is doing a good job, to give it the money for which it
is asking.
Mr. Foster. Okay. And you don't see any lessons from the
history of having a non-independent Federal Reserve?
Okay. I am nearly out of time, so I will just yield back.
Mr. Loudermilk. [presiding]. The gentleman from Florida,
Mr. Posey, is now recognized for 5 minutes.
Mr. Posey. Thank you very much, Mr. Chairman.
Most citizens believe that we make all of the Federal laws,
that all of the Federal laws on the books are passed by
Congress, but most people in this room realize that for every
law we pass, there are probably 1,000 laws that are made by
unelected, un-recallable, oftentimes unaccountable,
bureaucrats. They are supposed to make rules that are
enforceable as laws, specifically at the direction of Congress,
but Congress has abrogated its responsibility to control the
rulemaking process.
So the odds are if you are called into court now on a
Federal violation, it is probably a thousand and one odds it is
against a rule enforceable as a law that some unelected
bureaucrat made.
When former Director Kraninger of the CFPB appeared before
us on her first semiannual report in 2019, I asked her whether
the CFPB should conduct cost-benefit analysis on its
regulations. She expressed her strong support of the idea, and
she held the Bureau symposium of cost-benefit analysis in 2020.
Apparently, little progress was made on that front after 2020,
under Director Chopra. So, I am pleased that we have two bills
for this hearing that would institutionalize a culture of cost-
benefit analysis at the CFPB.
Mr. Watkins, briefly, could you explain how cost-benefit
analyses could be used to improve rulemaking at the CFPB?
Mr. Watkins. Sure. In a cost-benefit analysis, we look to
the benefits and the harms of every rule. We try to evaluate in
detail all of the various benefits and all of the various
harms, and if you look at that in detail, you can find areas
where the harms outweigh the benefits.
And by relieving the pressure on those areas by either not
issuing rules or issuing less stringent rules, we can make the
rules provide more benefits to the American consumer and, at
the same time, cause less harm. It may be better to create a
slightly less stringent rule that provides the same benefits
and yet allows the industry to have more money to give to
consumers or to not cost consumers as much.
Mr. Posey. Thank you.
And I can't understand why they wouldn't do that other than
it has been my experience with the CFPB that they are the most
arrogant, petulant, and defiant agency with which I have ever
dealt.
Mr. Himpler, the current Director of the CFPB believes that
many or most of the fees that financial institutions charge are
junk fees and are merely made up. I don't want to call that
junk regulation, but it is tempting.
Please explain how or why even most so-called junk fees
represent a legitimate reflection of the economic opportunity
cost of the funds tied up in the consumer credit when consumers
pay late?
Mr. Himpler. Thank you, Congressman, and it is great to see
you this morning.
Essentially, the press release that the Bureau issued on
junk fees, one, it goes beyond its authority to address resort
fees, ticket fees well beyond anything in the financial
services arena to begin with. There is no definition of what
they are talking about, and it has a chilling effect on our
member companies, both depository institutions and finance
companies, in terms of wanting to stay within the guardrails of
what our regulator expects of us without knowing what those
rules are. It is kind of like trying to figure out what the
speed limit is without the sign being posted but still being
held accountable.
The Attorney General talked about accountability or
institutions not wanting accountability. What we are trying to
do here is figure out what the rules of the road are so that we
can be good corporate citizens. We want to stand shoulder to
shoulder with the CFPB in its mission to protect consumers. But
I think the best way to protect consumers is to protect access
to credit, and the best way to protect access to credit is to
have clearly-defined terms and conditions that both industry
and the regulatory community can understand and follow.
Mr. Posey. Under Section 1022(d) of the Dodd-Frank Act, the
Bureau is required to produce a report on an assessment of each
significant rule or order adopted by the CFPB in the Federal
consumer financial law. The review is to be completed 5 years
after each significant rule and is to be subject to public
comment.
Finding such review is hard. Ironically, there is an
assessment that was posted on March 3rd for the Mortgage
Disclosure Rule Act, which CFPB says was not a significant rule
under the Act.
Mr. Himpler, can you please comment on how well the CFPB is
complying with Section 1022(d)?
Mr. Himpler. With respect to the rules, I think where I
would start with is actually finding the rules that the Bureau
comes forward with, the regulations. These pronouncements they
put forward without giving industry any opportunity to provide
notice or comment means that they are really not well-informed
in terms of how they are implemented.
Mr. Posey. Thank you very much.
And thank you, Mr. Chairman.
Mr. Loudermilk. The gentleman's time has expired.
The Chair now recognizes the gentlewoman from Ohio, Mrs.
Beatty, for 5 minutes.
Mrs. Beatty. Thank you, Mr. Chairman. And thank you to all
of our witnesses who are here today.
We have certainly had a lot of discussion about this,
especially from my colleagues on the other side. Mr. Himpler,
can you tell me, if you know, how many dollars are returned
each year to consumers thanks to the CFPB and their great work?
Mr. Himpler. I believe the total has been put out there in
terms of $16 billion, but I couldn't tell you on an annual
basis.
Mrs. Beatty. Do you think that sounds--I will say it is $16
to $18 billion. So, I will give you that. I think you are in
the right range.
I think that is important for us to know, the work that
they did. Are you familiar with the work that Mick Mulvaney or
Kathleen Kraninger did?
Mr. Himpler. Some of it.
Mrs. Beatty. Okay. And they continued it, appointed by the
last Administration, and continued to do it.
Let me be clear and be on the record that I am very
supportive of the CFPB and the work that they have done,
Democrats and Republicans--two Republican Directors during the
last watch continued it.
We also know that in this country, there are things that
are discriminatory. There are people who are treated with
disparities. My good friend, the late John Lewis, civil rights
icon said, ``If you see something that is not right, that is
not fair, you have a moral obligation to do something about
it.''
And as a Member of this committee, along with many of my
colleagues, I take that very seriously, and I think that what
the CFPB has done, whether it is for our seniors, whether it is
for people who have been in abusive financial situations, they
have made it better.
Mr. Ellison, thank you for your work, not only in what you
are doing here, but for the years you invested in Congress. You
could have been off practicing law or doing some of those great
things, but you stayed here. And we served together on this
very committee, a committee that I have been on ever since I
entered Congress.
The CFPB, established in the wake of a dangerously-
underregulated industry that ultimately led to a national and
then a global recession, looks out for all of our constituents,
in my district, and in my Republican colleagues' districts, as
well as trying to create fairness, transparency, and
competition in our financial system.
And here is where I am going with this. I believe
wholeheartedly that we have a lot of work to do, and this
agency can help us, because we know that study after study will
show us that there is discrimination in lending, that there is
consumer abuse, that there is fraud.
I even wrote an op-ed that was published in The Hill last
month addressing these comments because I have had my
colleagues tell me that they were tired of hearing about
discrimination in lending, and we should move on. That has
bothered me from the time my colleagues said that until today.
Attorney General Ellison, part of the CFPB's mandate is to
rule out unfair, deceptive, and abusive practices, and they
authorized last year that this also extends to unfair
discrimination as well. Can you address the allegation that
discrimination does not exist in financial services? And tell
us why you think it is critical that the agency should protect
our consumers by combating these harmful practices?
Mr. Ellison. Congresswoman, it certainly does exist, and
Attorneys General around the country know it, and it is very
pernicious in its effects. It involves student lending. It
involves mortgage lending, auto lending, and the beat goes on.
And what it does is undermine the opportunity for meaningful
prosperity, the American Dream for women and people of color in
our country, and our economy would work better if people were
able to receive fair treatment.
And let me just tell you, not only is it going on now, but
it has been going on for quite a long time. I will just say
that for literally hundreds of years, we have seen this
disparity, and I am glad that you are committed to rooting it
out.
Mrs. Beatty. Thank you.
My time is up, and I yield back.
Mr. Loudermilk. The gentleman from Missouri, Mr.
Luetkemeyer, is now recognized for 5 minutes.
Mr. Luetkemeyer. Thank you, Mr. Chairman.
Just briefly, I know that the ranking member made a comment
a minute ago with regards to Mr. Johnson's testimony and saying
it was tortured. I have a question with regards to having
called the CFPB a service organization. I think that is a
tortured definition of the CFPB.
Mr. Johnson, you worked there. Would you call the CFPB a
service organization?
Mr. Johnson. What I meant to express was that the CFPB's
fundamental mission is to supervise institutions and enforce a
discrete set of laws and rules that are assigned to it by
Congress.
Mr. Luetkemeyer. So, it is basically an enforcement
organization?
Mr. Johnson. Right. And there are many market conduct
regulators, for example, the SEC, the FTC, the CFTC, and the
Consumer Product Safety Commission, whose fundamental mission
is to enforce a discrete set of laws. They regulate market
conduct, and they are all appropriated.
Mr. Luetkemeyer. Very good. Thank you.
Along that line, I would also like to--Mr. Johnson, you
worked there. You are an attorney. You saw the funding
mechanism that is in place right now. And I read to you out of
Dodd-Frank, Section 1017, ``Funding Penalties and Fines,''
where it says, ``The Board of Governors shall transfer to the
Bureau from the combined earnings of the Federal Reserve System
the amount determined by the Director to be reasonably
necessary to carry out the authorities of the Bureau.''
In our hearing yesterday with Fed Chairman Powell, he
admitted that because of the structure of his assets right now,
he is losing money at the Fed. There are no earnings. And, in
fact, I asked him, ``How are you going to pay your bills?'' And
he said, ``We just print the money.'' Then, I asked him, ``How
are you going to pay the bill that is presented to you from the
CFPB?'' And his answer was, ``We will print the money.''
My question is, the law says it is supposed to be paid out
of earnings. If there are no earnings, can the Fed pay the CFPB
bills with money it prints?
Mr. Johnson. I understand that there is a bill to clarify
whether or not it can do that. As a fundamental matter--
Mr. Luetkemeyer. I am not asking whether there is a bill to
do that, Mr. Johnson. I am asking, can they legally, at this
point in time, with no earnings, pay the bills of the CFPB?
Mr. Johnson. I would say, an average American finds it
difficult to pay bills with no earnings. I think the Fed's
accounting treatment maintains negative balances.
Mr. Luetkemeyer. Thank you very much for that.
One of the concerns that I have is, the CFPB has no
authority over overdrafts, do they, Mr. Himpler?
Mr. Himpler. They have no authority over--
Mr. Luetkemeyer. Over overdrafts.
Mr. Himpler. Right.
Mr. Luetkemeyer. They have no authority over the
description of service fees on a hotel bill, do they?
Mr. Himpler. No.
Mr. Luetkemeyer. And yet, they have created this phrase,
``junk fees.''
Ms. Thompson, is there such a phrase--or prior to their
creating this phrase, is there such a phrase as, ``junk fees,''
in the financial lexicon at this point or prior to this?
Ms. Thompson. Perhaps in the popular Rubicon and language,
but not in any enforcement authority, no, sir.
Mr. Luetkemeyer. There isn't a definition of, ``junk
fees,'' in the financial lexicon like there would be for annual
percentage rate (APR), right?
Ms. Thompson. That is correct.
Mr. Luetkemeyer. Okay. What we have done here is have a
Director who, because he has no authority over these things,
creates a word. And then, he twists his UDAAP authority to be
able to say, well, now we have this situation where we have
junk fees out here and we need to have somebody regulate these
things. And he has the authority because he has twisted UDAAP
to fall under junk fees, which he has no authority to do
because there is nothing there to provide oversight. Is that a
pretty fair statement, Ms. Thompson?
Ms. Thompson. I would agree.
Mr. Luetkemeyer. The fact that we now call them junk fees
doesn't mean it is real, because there is no such word out
there, and there is no such authority. So, I think we as a
group need to be pushing back. All of you here this morning
need to be pushing back.
Mr. Himpler?
Mr. Himpler. Thank you, Mr. Luetkemeyer. Directly on your
point, the fact that there is no definition leaves financial
institutions, both depositories and finance companies, with no
roadmap as to how to follow that. As I mentioned, he calls into
question resort fees and ticket fees, but he also calls into
question credit insurance, which is tied to the underlying
contract with the consumer. That very insurance product helped
out millions of Americans who were facing flooding situations
down in Louisiana just a couple of years ago.
Mr. Luetkemeyer. Thank you for that. I know that yesterday,
in one of the political magazines here, they had a long expose
on the CFPB as a result of this ruling. And they are talking
here about the legal uncertainty that could undermine the CFPB
as a result of this coming decision. It could put also their
other rules in jeopardy.
Mr. Watkins, do you see that happening?
Mr. Watkins. I do think there is a possibility as they kind
of expand their definition, things like junk fees where I think
the definition they seem to be working with is any fee they
don't like. And when the definition under how they are acting
is so broad like that, it raises real non-delegation concerns
that could undermine their authority to enact any of these--
Mr. Luetkemeyer. Thank you very much.
My time is up. I yield back.
Mr. Loudermilk. The ranking member of the full Financial
Services Committee, the gentlewoman from California, Ms.
Waters, is recognized for 5 minutes.
Ms. Waters. Thank you very much, Mr. Loudermilk.
I am going to break protocol here for a moment and just say
I would like to welcome Mr. Ellison. I am so excited to see
him. He served on this committee, and he is considered one of
the most respected and capable Attorneys General in the
country. Thank you very much.
Mr. Ellison. Thank you.
Ms. Waters. Attorney General Ellison, last year, the CFPB
launched an initiative to combat junk fees, which has the
potential to save consumers billions of dollars each year. The
CFPB's work is really resonating with consumers as they
received more than 50,000 complaint letters on this initiative.
It builds on the work of this committee, during my time as
Chair, to combat excessive overdraft and other fees that really
make it difficult for consumers to save money.
I understand that in 2021, you led a bipartisan coalition
of 33 Attorneys General to oppose an agreement that would have
allowed the mortgage servicer, PHH, to continue charging
illegal payment processing fees. Members on the other side of
the aisle apparently think the CFPB lacks the authority to
combat junk fees like this.
Do you think that the CFPB has the authority to combat junk
fees? If so, do you think they should use their tools to combat
excessive payment processing junk fees?
Mr. Ellison. Madam Ranking Member, let me express my
appreciation for being invited here today. It is really, really
wonderful to be back.
Regarding junk fees, maybe certain firms don't know what
junk fees are, but consumers do. Consumers know what a junk fee
is. It is a fee that when you signed up for the service or you
engaged the company they didn't disclose it, they didn't tell
you about it, you didn't know, you didn't have any reason to
anticipate it. It is a fee that they tack on because they have
the market power to impose that fee.
We enforce this not only in the financial services area but
in a lot of areas. For example, in the internet service fees,
when a company, for example, Comcast or Frontier, tells
consumers, ``Hey, this is an, `It is Thursday' fee, and you
have to pay it, and if you don't, we are going to cut you
off,'' these are the kinds of fees that are unfair. There is
often not proper notice; and if there is, it is buried deep in
the small print. And it is absolutely appropriate for the CFPB
to regulate this.
I can tell you that Attorneys General, both Democrat and
Republican, do it every day, and it is part of the way that we
create confidence, faith, and the ability for consumers to have
a shot at prosperity. So, I think it is entirely appropriate
for the CFPB to do this work.
Ms. Waters. Thank you.
Mr. Ellison, last year, the CFPB issued an interpretive
rule which reaffirms States' authority to initiate enforcement
actions based upon violations of Federal and State consumer
financial protection statutes. In your testimony, you state
that CFPB has been a critical partner in the enforcement
efforts by States, including Minnesota, to stop this
fraudulent--these actors in the area of student debt relief.
How was CFPB helpful in terms of halting student debt relief?
Mr. Ellison. Thank you for the question, Congresswoman
Waters. I noted that one of the cases that we brought in
October 2019 was with North Carolina and the City of Los
Angeles, when we sued a series of companies and individuals
running a fraudulent student loan relief scheme that falsely
promised to help people pay off their student loans and obtain
student loan forgiveness in the process.
The CFPB has been an indispensable partner in helping
working- and middle-class people pay their bills. And I would
add that a lot of small businesses look a lot like consumers.
So it is not only your typical consumer that the CFPB helps;
they help the entire market, as I think Congressman Foster
already noted, by creating market stability, and sending proper
signals.
And as you have noted, Bernie Madoff, in his kind of
behavior, did more to damage consumer confidence than any
regulatory agency. It is the bad actors that undermine market
stability, not regulators that are trying to protect consumers.
So, I thank you for your question.
Ms. Waters. And thank you so very much. I yield back the
balance of my time.
Mr. Loudermilk. The gentlewoman yields back.
The gentleman from Texas, Mr. Williams, is now recognized
for 5 minutes.
Mr. Williams of Texas. Thank you, Mr. Chairman.
I am listening to all the testimony today, and I can't
believe how many people in this room know about the car
industry. It is just pretty amazing. Full disclosure, I am a
car dealer. I know about this stuff. I am probably the only
person in this room who has had a confrontation with Operation
Choke Point. I can tell you, these people are not fair, and
some are not good people.
And I am listening to student loans, and I thought we
didn't want people to pay their student loans back. I thought
that was the issue. So with all that being said--talking about
junk fees too, I thought junk fees were taken care of in the
Obama Administration, so--
The CFPB has a history of neglecting the interests of small
businesses by creating burdensome regulations and evading the
traditional rulemaking process. And as a small business owner,
as I said, a car dealer, one who offers credit, I can tell you
that certainty is key. Businesses need to know the rules of the
road before they are hit with arbitrary enforcement acts and it
is making their operations more difficult.
Last December, for example, I asked Director Chopra how his
agency had been working to accommodate the concerns of small
businesses within the CFPB's rulemaking process. He responded
with the intention of improving the process by March, and here
we are, 2 weeks into March, and I have only seen the opposite
as the CFPB continues to ignore the concerns from the private
sector and small businesses.
Mr. Himpler, with your industry experience, have financial
institutions experienced increased compliance costs from
regulations or enforcement actions, and can you elaborate on
the effects these costs and regulations have on small
businesses?
Mr. Himpler. Thank you, Congressman. Your statement was
right on the money. It has a chilling effect on industry
overall. The compliance cost of trying to chase after phantom
regulations, junk fees, there is no definition. If there is
something that the Director wants to root out, we are happy to
work with them in a notice-and-comment process that allows
input from affected industries. But ultimately, the impact is
ultimately on the consumer. And what it has is a chilling
effect, and what it will do is essentially limit access to
credit, and that is in nobody's best interest.
Mr. Williams of Texas. Exactly. And banks have to hire more
compliance officers. I am in the car business. I have to hire a
compliance officer, and everybody in my business is on
commission, for crying out loud. So, how do you pay a
compliance officer on commission? Somebody needs to tell me
that.
Secondly, the CFPB was created with the primary goal of
protecting consumers from abusive financial practices. However,
unlike other Federal agencies, the CFPB was designed to operate
outside of Congress' annual appropriations process, as we have
talked about, shielding them from agency oversight and
accountability.
Now, the CFPB's ability to make rules, enforce those rules,
and adjudicate disputes gives them the power to act as
prosecutor, judge, and jury. This concentration of power in one
agency raises concerns from a lot of people. It is an abuse of
authority and a violation of due process rights for individuals
and businesses. And I am glad to see that this has been a
priority of the Financial Services Committee this Congress to
take action against the CFPB.
Ms. Thompson, how does the lack of accountability for the
CFPB hurt the interests of the American public, and how would
funding the CFPB through congressional appropriations benefit
consumers and increase transparency?
Ms. Thompson. The people's representatives are here in
Congress. And without the appropriations process, CFPB is free
to abuse its vast regulatory powers, which include adjudicatory
rulemaking and enforcement actions. Bringing the CFPB into the
appropriations process would ensure accountability not only to
the Members of Congress, but to the American people and the
Representatives that they have elected.
Mr. Williams of Texas. Thank you.
Now, in the brief time I have left, when I talk to
community bankers back home in my great State of Texas, and my
constituents, every person tells me how terrified they are
about the CFPB's 1071 small business data collection
rulemaking. They are concerned that the rule will push the
industry towards standardized small business loan products and
kill relationship banking, community banking, and that bank
employees will be forced to consider factors outside of
creditworthiness when reviewing small business loan
applications.
And last year, the SBA Office of Advocacy even stated that
they are concerned that the CFPB's approach may be
unnecessarily burdensome to small entities, may impact the cost
for credit for small businesses, and may lead to a decrease in
lending to small minority- and women-owned businesses.
So quickly, Mr. Himpler, can you expand on the potential
problems with the 1071 data collection rulemaking?
Mr. Himpler. If I could give you just one example,
Congressman. I know this is an area that is near and dear to
the ranking member's heart, that she worked on this in Dodd-
Frank. But just in the auto finance space, our industry is
governed by both the Federal Reserve and the CFPB and there is
incongruity there, and they are promulgating a rule that
doesn't mesh up.
Mr. Williams of Texas. Thank you.
Mr. Loudermilk. The gentleman's time has expired.
The gentleman from New York, Mr. Meeks, is now recognized
for 5 minutes.
Mr. Meeks. Thank you, Mr. Chairman.
And I am just listening, and I hear you, Mr. Himpler,
saying that--and I have worked with you and your organization,
and I appreciate what you do in that regard.
Mr. Himpler. Thank you.
Mr. Meeks. And I think that we need to find out, so that we
can continue to work together, but you keep saying access to
credit, which is very important. But the CFPB was put in place
to make sure that it was fair access to credit, because what
happened in the financial crisis is they got access to credit,
but that also made them lose all their wealth because they were
taken advantage of. There was fraud, and that is why it was
created.
So it wasn't just about access to credit, it was access to
fair credit, so that individuals would have an opportunity to
buy a home so that they could do what others--create wealth.
And as a result of not having failed credit and not having--
consumers--a voice to say this is a divisive piece that will
take away your wealth, we said that there had to be a voice for
consumers.
I appreciate everybody on this panel, but there is only one
person that I have listened to who has a voice for consumers
and that is the Attorney General. And do you know why we have
Attorneys General in this country? Because the people need a
voice separate from others. That is what we need. And then we
realized here in Congress, after the financial crisis, that
nobody spoke for the people. Nobody. And that is why 80 percent
of the people want the Consumer Financial Protection Bureau
because they want a voice also.
Mr. Watkins said something about subject to the king, that
the reason the founders of this country left is because they
didn't want to be subject to the king, because the people had
no voice. To give the people a voice. Well, guess what? We want
to give the people a voice. We don't want to be subject to the
king. The people must have a voice, and that voice is the CFPB.
And what I have heard from everybody thus far it that is
not about reforming; it is about getting rid of, diluting,
changing. Not for the benefit of the consumer for sure; it is
for others. So, you have to right the ship, and that is why the
CFPB is so important.
And you can't say now because you are not part of that
voice. Everybody has different responsibilities, but I want to
write the rules for them. No, that is subject to the king. That
is what the king used to do. The king would set the rules for
the people, and the people had nobody to speak for them. So, we
set up a government so that we have an Attorney General to
speak for the people.
And when we got here and we saw--because when we see all of
these things that are going on, the ones who were getting
ripped off were people, the average, everyday American, your
constituents and mine getting ripped off, rural and urban, in
every part of this country. Nobody escaped.
And we said in the conference, because that is what
Congress is supposed to do, in its infinite wisdom, let's get a
voice for the people that can look and and make something and
give an example. And that is why this is so important, not
ending the people's voice. Let the people have a voice. Let
there be some decisions.
I am a big advocate of homeownership. That is the way to
wealth, to create wealth for everybody. And we know that hasn't
been fair. We know that especially in minority communities, in
Black communities, redlining took place, and interest rates
were always different. It was not fair.
In fact, some would love to give you access to credit so
they could make more money by charging higher fees to these
individuals. They need a voice. So, we should be talking about
what we could do to help strengthen the CFPB. That is reforming
it so that the people have a stronger and louder voice.
That is what you do, Mr. Attorney General. Isn't that
right? Don't you protect the people in the State of Minnesota?
Mr. Ellison. Every single day, and I work with the Attorney
General to help folks in New York, and the Attorney General to
help folks in California and Ohio and all over the country.
Mr. Meeks. And Republican Attorneys General?
Mr. Ellison. Absolutely. We work in a bipartisan way.
Mr. Meeks. That is what this is all about. So if we are
really talking about the CFPB, let's talk about how we can
strengthen it and make sure that the consumers have a voice.
I yield back the balance of my time.
Mr. Loudermilk. The gentleman yields back.
The Chair now recognizes himself for 5 minutes for
questioning.
This is an interesting dialogue we are having. Thank you
all for being here. I partially agree with my colleague, Mr.
Meeks, in his comments about the king. The issue here is
defining who is the king. Kings have ultimate authority without
any constraint, without any oversight, and I think what we are
saying here is the CFPB is becoming the king.
It was brought up earlier also that if Congress wants to
change the CFPB, then it just needs to change the law. However,
Mr. Johnson, as you point out in your testimony, the CFPB has a
long track record of dodging or outright defying statutory
limits on its authorities, thus why the Framers of Our
Constitution gave Congress the power of the purse to ensure
that the Executive Branch stays within the statutory limits
that it is given.
One of my many frustrations with the Bureau has been its
historically-expansive view of its own authority, oftentimes in
conflict with congressional intent, legal precedent, and
administrative procedures. For example, last year, CFPB claimed
that it can apply UDAAP credit discrimination laws to any
decision-making by financial institutions, including deposit
and payment functions.
Mr. Johnson, does the Bureau have the authority to broadly
interpret and apply the law in this way?
Mr. Johnson. Thank you, Congressman.
Justice Scalia once said that Congress doesn't hide
elephants in mouse holes. And the Supreme Court has recently
spoken to the major questions doctrine, which says that an
expansion of authority requires an express grant of authority
in statute from Congress.
And it may be that what the Bureau is proposing to do is
eminently wise, but there is a method and a process that it
needs to follow to do so. And what it is proposing is an
interpretation of UDAAP authority that contradicts 80 years of
settled understanding, going back to the grant of original
unfairness authority to the FTC. And I think there was probably
no discussion whatsoever during deliberations, at least
reflected in the legislative record, that unfairness or UDAAP
authority could reach the type of conduct that the Bureau is
trying to reach.
I think this is fundamentally a decision for Congress to
make, and if it wishes to expand the CFPB's authority based off
of the arguments that it raises or the necessity in terms of
the conduct it observes in the marketplace, that is
fundamentally a decision for Congress.
Mr. Loudermilk. Thank you for that.
Aside from falling outside the strong congressional
oversight through the appropriations process, one of the
reasons that the CFPB is so troubled is because its single-
director governance structure makes it more susceptible to
dramatic policy shifts, depending on the political alignment of
the Director. For example, due to significant regulatory
uncertainty, many banks have withdrawn from the small-dollar
consumer lending. Can you discuss how a multi-member board
would bring regulatory stability?
Mr. Johnson. Sure. Fundamental in the consideration of
significantly-complex questions in terms of the operation of a
regulation and the downstream effects and perhaps consideration
of the unintended consequences, I think it is entirely
foreseeable that the inclusion of the views, the opinions, and
the experiences of multiple members could help the agency
ultimately arrive at a better conclusion.
That said, I would say that it is not a guarantee that is
the case, and there are folks who are observing government
agencies today that are multi-member commissions who believe
that the agenda is not hampered by the presence of minority
members of the commission.
Mr. Loudermilk. Thank you.
Mr. Watkins, the CFPB strategy seems to be to use every
means available except the formal rulemaking process to
regulate the financial industry. For example, like many other
agencies, the Bureau issues circulars that are meant to provide
clarity to the industry. However, many of these CFPB circulars
do not provide clarity at all. Instead, they set forth
disturbing expansions of CFPB authority all without clear
congressional authorization or the opportunity for public
comment.
What implication does this kind of regulation have for
public policy and the rule of law?
Mr. Watkins. It really undermines the rule of law. The rule
of law is based on the foundation that the rules of society,
the conduct that people are supposed to follow are well known
so that they can maintain within that boundary and make sure
that all of their actions that they do follow the rule of law
so that they don't get punished, and only the bad actors that
violate those rules get punished.
But when the agency has access like it has, it undermines
the rule of law by blurring that line. So, the people can't
tell if their actions are unlawful or not until it comes before
the agency, in when they say, I don't know if what I did was
lawful or not, because you haven't clarified that. And the way
that it does really undermines accountability and people's
ability to follow the law.
Mr. Loudermilk. Thank you. My time has expired.
The Chair recognizes the gentleman from Illinois, Mr.
Casten, for 5 minutes.
Mr. Casten. Thank you so much. And I appreciate you all
being here today.
I want to just ask a dumb question first. There is a lot of
talk about whether the--given what is going on in the court
right now with the funding structure of the CFPB, just a show
of hands, how many of you are funded through congressional
appropriations?
How many of you would like to be funded through
congressional appropriations?
How many think you could do your job better if you were
funded through congressional--okay. I thought we might end up
there.
Mr. Ellison, it is nice to see you here. I know that not
that long ago, you were sitting on the other side of the dais
in this committee, and I appreciate your service.
Mr. Ellison. Thank you.
Mr. Casten. I wonder when you were here in the work that
you did to look after our financial institutions, did you feel
like you were struggling to understand the needs of our banks
and our financial community, that their lack of congressional
funding for appropriations limited their ability to communicate
with you and make sure you understood their needs?
Mr. Ellison. Oh, no. They beat a path to my office
everyday. They were very well-represented.
Mr. Casten. So, to be less cute, you were also here before
and after the creation of the CFPB.
Mr. Ellison. Absolutely.
Mr. Casten. How did the creation of that institution affect
your ability to understand the needs of consumers and customers
and borrowers and the people who ultimately are the money that
drives our financial sector?
Mr. Ellison. One thing, Congressman, is that it gave me, as
a person trying to provide constituent services, a clear place
to help consumers to go. Because before the CFPB--and my
chairwoman will recognize this--there were a whole bunch of
different Federal agencies that had the responsibility. And, of
course, if everybody is responsible for something, then nobody
really is.
So, you have consumers who could go to a clear place and
get clear answers and really get some real relief within a
reasonable amount of time. And now that I have been Attorney
General, the CFPB is an excellent partner and is also an
advocate on a range of things when it comes to sharing
information, helping consumers to understand what they are
facing.
The work that you all do on this committee is complicated.
It is not intuitive. You have to study it. And for a consumer
who is just trying to get a loan for this or that, they don't
read all the fine print like you all do, but the CFPB does. So,
they are just this indispensable partner, whom I think really
does help the American family meet their financial obligations
and reach their dreams. And I think you have to have an
advocate like the CFPB.
Mr. Casten. I wonder if you are comfortable speaking for
our States' Attorneys General. We have these numbers of $16
billion returned. That doesn't happen if--what has that meant
for the resources that you have and how you can do the job of
the people?
Mr. Ellison. I can speak with some authority, because I do
talk to my colleagues all the time. Obviously, they are all
very capable of speaking for themselves. But in the AG world,
and there is one, we meet, and we talk about a whole range of
things. It might be anything from opioids, on the one hand, to
student loans or payday lenders on the other.
And I can tell you that we have our own partisan wrangling
that we do. But as a person who has been in this body in
Congress, and now I am in the AG world, there is no comparison.
We work together on a far better basis. So many of these
national multidistrict cases have Republicans and Democrats
together. So I hope that answers--
Mr. Casten. I want to just read you all a quote here:
``Civil government, so far as it is instituted for the security
of property, is in reality instituted for the defense of the
rich against the poor or against those who have some property
against those who have none at all.'' Does anybody know who
said that?
It was Adam Smith in, ``The Wealth of Nations.'' So much of
our job here is to make sure that if we believe in capitalism
and innovation and all that happens is making sure that
everybody has a voice. We voted a few weeks ago to condemn
socialism in all its forms on the House Floor, and let's hear
it for that, and let's read the foundational text.
Thank you. I yield back.
Chairman Barr. The gentleman yields back.
The Chair now recognizes the gentleman from South Carolina,
Mr. Timmons, for 5 minutes.
Mr. Timmons. Thank you, Mr. Chairman.
The CFPB was created to, ``make consumer financial markets
work for consumers responsible for providers and the economy as
a whole.'' Since that time, the CFPB has clearly strayed far
from that mandate. In court case after court case, many of
which are worthy of review by the Supreme Court, regulation by
enforcement action, consent order press releases, and even
conference speeches by the Director were all carried out under
the problematic umbrella of the CFPB's insulation from
congressional oversight and basic checks and balances.
What is not at a loss in this hearing today is the
understanding that a rabid, out-of-control CFPB only harms
consumers. After reading all of your testimonies, what I heard
loud and clear is that the CFPB has strayed far from its
mandate, and no one who works for the economy is responsible
for providers and, most importantly, consumers.
Mr. Chairman, I look forward to working with my colleagues
on this subcommittee to reign in the CFPB, and maybe sooner
rather than later work to reshape the CFPB into an accountable
and effective agency that works to empower consumers, not hold
them back.
Mr. Himpler, I am going to start with you. The CFPB has
rolled out several new enforcement mechanisms over the last 2
years, proposed results, defined rules, UDAAP authority
expansion, advisory opinions, supervisory opinions, we keep
going, enforcement by press release. These are all just some of
the tactics that allow the Bureau to weaponize dormant statutes
and regulations outside of APA rulemaking.
Industry has been forced to greatly increase their
compliance costs while the consumer has seen no real benefit.
In fact, over the last 2 years, we have seen costs for almost
all services go up to record levels. Can you talk about how
these actions have harmed consumers in the form of increased
costs of housing, financial services, et cetera, and I think,
more importantly, also hampered industry's ability to innovate
as they focus on complying with what is clearly an out-of-
control CFPB?
Mr. Himpler. Thank you, Congressman.
My head was almost spinning with the laundry list of things
that you have just--
Mr. Timmons. It is a lot.
Mr. Himpler. --mentioned.
I will go back to my oral statement. We like what the
Director has actually said, at least in one regard. He said
that markets work best when rules are easy to understand and
easy to enforce. We couldn't agree with him more. But what we
have in terms of press releases and blogs, it is like being on
I-95 and you are supposed to follow the speed limit, but the
speed limit is being set by somebody who has just issued a
press release or held a press conference or spoke at a
conference or anything of the like.
You don't know what the speed limit is, but at the same
time you are accountable. That has a chilling effect. It causes
increased costs in terms of just trying to chase after
compliance to hundreds of times of where it has been in the
past. And ultimately, those resources that could go to increase
access to credit are relinquished to following after these
ghosts.
Mr. Timmons. Businesses just want predictability. They want
stability. They don't want to be guessing what they are
supposed to do. And I think part of this is going to be a
leadership issue and examining how we appoint the Director or
the leadership structure entirely. So, that is the next
question I have.
Mr. Himpler. Congressman, could I comment on that?
Mr. Timmons. Yes.
Mr. Himpler. I don't think anyone here on this panel has
testified today for doing away with the CFPB. The CFPB's
mission is an important mission, but at the same time, we need
accountability. And that is what the witnesses who share the
panel with me--
Mr. Timmons. Sure. Absolutely. The broad authority and
unchecked power of the CFPB, particularly its single-Director
leadership structure, is alarming and has had a clear negative
impact on the consumer financial service's ecosystem. I know my
colleagues across the aisle appreciate the work being done by
the current Director, but it wasn't too long ago we had
Director Mulvaney, and I don't think they appreciated the way
that he went about his job.
Mr. Johnson, what are some key legislative solutions that
Congress should consider to ensure the CFPB abides by the
system of checks and balances?
Mr. Johnson. Thank you, Congressman.
I testified about the importance of congressional
appropriations as being a measure which can ensure that the
agency's priorities are aligned with those of your
constituents, and the collective needs and interests of the
American people as understood by Congress. So, that is one.
In terms of internal checks and balances, as you may know,
the CFPB doesn't have its own independent Inspector General. It
shares one with the Federal Reserve. That is a consequence, I
think, of the funding structure itself and housing the CFPB
within the Federal Reserve System. If the CFPB had an
independent Inspector General, I think the oversight that can
be provided through audits by an Inspector General could help
appropriately tailor and focus the agency's mission to align it
with its statutory responsibilities.
Mr. Timmons. I am running out of time. I appreciate your
answer. I think we are going to have an opportunity here in the
near future to reform the CFPB. I look forward to working with
my colleagues on that.
Mr. Chairman, I yield back.
Chairman Barr. The gentleman's time has expired.
The Chair now recognizes the gentlewoman from
Massachusetts, Ms. Pressley, for 5 minutes.
Ms. Pressley. Thank you so much, Mr. Chairman.
In today's hearing on the Consumer Financial Protection
Bureau, we should really be praising the work of the agency and
discussing how to augment its successes for consumers all
across our country.
I want to thank you, Attorney General Ellison, for joining
us today and for doing exactly that.
Without question, under Director Chopra's leadership, the
agency has taken action on junk fees, medical debt, and
appraisal equity, and has held bad actors accountable for their
greed, exploitation, and illegal behavior. Unfortunately, some
colleagues across the aisle are busy trying to criticize the
agency and to undermine its mission. There is a particular case
that the CFPB brought that has been raised in this hearing and
is the primary focus of legal arguments; it is the lawsuit
against Townstone Financial in Chicago.
Ms. Thompson, you are here on behalf of Pacific Legal
Foundation, which represented Townstone Financial, correct?
Ms. Thompson. Correct.
Ms. Pressley. And according to your testimony, the origin
of CFPB's suit was regarding redlining. For the record, since
there has been a lot of banter today about definitions, what is
the precise definition of redlining?
Ms. Thompson. The CFPB does not have a precise definition
of redlining.
Ms. Pressley. I will elucidate you as to the definition.
According to the Legal Information Institute, redlining is a
discriminatory practice that consists of the systematic denial
of services such as mortgages, insurance loans, and other
financial services to residents of certain areas based on their
race or ethnicity. The history of the term dates back decades
to when lenders would literally draw a red line around
neighborhoods to stop Black people from moving in, as a way to
maintain segregation.
Today, this practice is not as overt, but it still
persists, and again, not as overt since the passage of the
civil rights legislation. So instead of a map and a red marker,
discriminatory lenders often discourage applicants by using
racially-coded language.
Ms. Thompson, before I go any further, can you confirm that
Townstone used marketing services through radio ads and a
weekly radio show. Yes or no?
Ms. Thompson. Yes, Townstone marketed through--
Ms. Pressley. Reclaiming my time. On the radio, Townstone
repeatedly disparaged Black neighborhoods in Chicago. Now,
while I don't have enough time to go through all of their
statements, I will share a couple for the record. The mortgage
company described the south side of Chicago between Friday and
Monday as, ``hoodlum weekend.'' On another occasion, Townstone
described a grocery store in a Black neighborhood as, ``a
jungle.'' I can't even call these dog whistles because they are
as blaring as a bullhorn.
These racist messages were loud and clear for everyone to
hear, and it bore out in the data. In a City as racially
diverse as Chicago, where 30 percent of the population is
Black, only 1.4 percent of Townstone loan applicants were
Black, and less than 1 percent of applications were for
properties in Black neighborhoods. This is modern-day
redlining, plain and simple, and that is why the CFPB brought
the lawsuit against Townstone.
Today, I have the honor of representing Massachusetts in
the House of Representatives, but I was raised in Chicago. I
know the City well, and I, for one, am glad the agency took
action against discriminatory lending practices. We need more,
not less, of the CFPB.
On a final note, I want to address the suggestion that the
agency is rooted in political bias. Ms. Thompson, who was the
President in 2019 when CFPB brought that lawsuit against
Townstone?
Ms. Thompson. That was President Trump.
Ms. Pressley. And if you don't know who the Deputy Director
of the CFPB was when the lawsuit was filed, I will give you a
hint. It is the Republican witness sitting two seats down from
you, Mr. Brian Johnson.
Mr. Johnson. May I correct the record, Congresswoman? I
departed the Bureau on March 6, 2020.
Ms. Pressley. Reclaiming my time. Again, Donald J. Trump
was the President, and there is no political bias happening
here. The agency is doing what they are supposed to do, which
is to center consumers from across this country.
Attorney General Keith Ellison, in these final moments, I
want to give you a chance to add or correct anything for the
record that has been previously stated.
Mr. Ellison. I will make a few notes. First of all, I want
to thank you for laying out the record on Townstone. That was
brilliant and important for the record.
I think that there is more than ample oversight of the
CFPB: two annual presentations by the leader of that
institution; numerous report requirements; and a number of
appearances. When I was on the committee you are on now, ma'am,
we heard from them all the time. That is oversight. And this
idea that they are unaccountable makes no sense. We are having
accountability right this second.
Chairman Barr. The time of the gentlelady has expired.
The gentleman from South Carolina, Mr. Norman, is now
recognized for 5 minutes.
Mr. Norman. Thank you, Mr. Chairman.
Ms. Thompson, do you want to respond to that? I yield a
minute.
Ms. Thompson. I appreciate the opportunity to respond to
that.
Representing Townstone and Mr. Sturner, I have had the
opportunity to listen to the radio shows that were involved in
the CFPB's complaint against Townstone, unlike many others who
have reviewed the complaint. Listening to those shows, I can
tell you all that Townstone never discriminated against any
applicants for credit. Townstone never said racially-derogatory
statements to any prospective applicants.
What is really going on here is that the CFPB is trying to
be the police of free speech, and any speech that it disagrees
with on a viewpoint and content basis, and that is against the
First Amendment. They cannot censor creditor speech. Thank you.
Mr. Norman. Thank you.
I want to thank all of the panelists. If there is ever an
agency that ought to be zeroed out, it is the CFPB. I was on a
bank board for a number of years, and I can tell you that the
CFPB is a rogue organization. Now, the funding has been
mentioned. The budget in this past year was $717 million. There
are 1,500 people are employed by the CFPB, so if you ink that
out, it is $478,000 per employee: $478,000.
I know that some of that is overhead. But this agency, I
can't tell you the banks, and there are over 18,000 lending
institutions all over the country. And here on the other side,
everybody is a victim and everybody is being defrauded like
Bernie Madoff. I am sorry. Banks have to compete.
And I didn't realize we had so many experts who could
qualify fees as junk fees. I think banks compete. I think banks
have shareholders. I think banks have to make a profit for the
shareholders. And it is almost laughable some of the comments
being made here.
Mr. Watkins, your comment about a jury trial, that
everybody deserves a jury trial, a good example of government
gone rogue is the January 6th people who are being held without
a trial, without being able to defend themselves, or hire an
attorney.
And I think, Mr. Himpler, you mentioned the CFPB was doing
away with arbitration?
Mr. Himpler. Yes, I did.
Mr. Norman. I am a real estate developer. Do you know how
many times we have used arbitration? You get two unbiased
parties. You have a mediator. You pay for that. You decide. I
don't know that there is anything more American than--or more
the rights of the two parties. Why in the world would they have
the audacity to do away with arbitration?
Mr. Himpler. Congressman, that's a great point.
I will reiterate for the record that the CFPB put forward a
rule to essentially ban arbitration, despite the fact that its
own agency put forward a study which showed the benefits to
consumers of arbitration. Congress overturned that through the
Congressional Review Act, and the CFPB is trying to get around
that by having--our member companies have to register with a
database when we use arbitration clauses. That is going to work
against the consumer's best interest. And that type of end-run
around congressional intent, both in the first instance as well
as trying to end-run around congressional review ban on that
rule, that to me is the definition of unaccountable.
Mr. Norman. And it is unaccountable.
And the fact that Fed Chair Powell, on the funding end of
it, on paying folks out of profits of which there are none,
didn't have a clue. They get 12 percent. There is no
incentive--and I think in 2011, with Dodd-Frank, it started at
10 percent. There is no incentive to come under 12 percent of
some imaginary number. The businesses' or families' budgets
could not operate like this.
Ms. Thompson, what would be the cost, the legal fees
associated with bringing an action against the CFPB? Not
everybody can do this. Would you agree?
Ms. Thompson. Absolutely. And Pacific Legal was able to
help Townstone with pro bono legal services. But for other
entities that are engaged in legal fights with the CFPB, it can
cost hundreds of thousands of dollars, if not millions.
Mr. Norman. So, they say they are helping the consumers,
but they are actually just taking rights away. You have all
given me a great idea to try to get this agency nixed out, and
I appreciate your testimony. In every closing I have done, they
have listed every fee that I had to pay for, and I have never
seen one hidden.
I yield back.
Chairman Barr. The gentleman yields back.
And the gentleman from California, Mr. Vargas, is now
recognized.
Mr. Vargas. Thank you very much, Mr. Chairman.
First of all, I want to apologize that I wasn't here for a
lot of the testimony. Unfortunately, we had a Capital Markets
Subcommittee hearing at exactly the same time.
There was some discussion about the king. I just want to
make sure that I am on the record. I definitely believe in the
king, that king. But anyway, I never want to be embarrassed of
loving Jesus. I want to make sure of that, first and foremost.
There was also a comment made about Mr. Mick Mulvaney. He
was a colleague of ours. I don't think that there is anybody
more imminently principled than he is. He is an incredibly
principled person. You may disagree with him, but he's an
incredibly principled person, who is a friend to many of us,
including Mr. Ellison. And it is great to see you, Mr. Ellison.
But anyway, it is interesting. I have been around here now
for a while. It is my eleventh year. When I first got here, I
would love to say that Dodd-Frank was the boogie man. And a
good friend of ours, Sean Duffy, Congressman Sean Duffy, used
to yell and scream and be so theatrical in how this is going to
be the end of banking and finance. I loved it when it was his
turn, because I knew he was going to put on a good show.
But that kind of waned and petered out after a while
because we found out from the banks that, in fact, Dodd-Frank
was very helpful, especially when it had a real stress test,
which was this pandemic. The bankers came before us and we
asked them, ``Was it helpful?'' And they said, ``Yes, actually,
Dodd-Frank was helpful.'' Now, to be fair to them, there were a
few things that they didn't like.
So now, my colleagues on the other side--and not just on
the other side, some are on this side now--Mr. Ogles, how are
you doing, sir?
Mr. Ogles. It is a full room.
Mr. Vargas. And now, they are after the CFPB. But it is
kind of waning too, with the exception of maybe Mr. Norman, who
is a terrific guy, but everybody else is kind of, eh, and the
reason for that is quite simple: They have returned $16 billion
to U.S. consumers, answered over 47 million questions from U.S.
consumers, and they have basically been doing a pretty good
job.
Now it is, should we have a board as opposed to a single
Director, something like that, or trim back the amount of money
that they have? But it just doesn't seem that the heart is in
it anymore. Now, it is ESG that I think is going to be the next
big boogie man.
Attorney General Ellison, first of all, it is great to see
you, my friend.
Mr. Ellison. Likewise. Thank you. It's good to see you, my
friend.
Mr. Vargas. You were asked earlier about the CFPB and what
would happen if we didn't have it. What would happen if we
didn't have it?
Mr. Ellison. I think that most actors in the financial
services world would try to do the right thing. But then, what
would happen is you would have some that didn't. Without any
regulation, without pulling them back in, other industry
players would have to replicate them or would begin to lose
market share, and then you would begin to see bad practices
predominate.
You would clearly see foreclosures, you would see defaults,
you would see all kinds of problems like that among consumers,
which would, I think, have a cascading effect and would land us
right back where we were in 2007 and 2008. And you will recall,
first, it was Bear Stearns, then, it was Lehman Brothers, then,
it was Fannie Mae and Freddie Mac, and then, it was a mess.
Look, nobody likes regulation, but it is one of those things
that we need in order to keep a financial system that is
stable, and that is what I think would happen.
Mr. Vargas. No, I think you are right. And, in fact, I
think it is working fairly well. I think that is one of the
reasons that you hear complaints, but even Mr. Himpler--I think
I heard you correctly that you are not saying to do away with
the CFPB; you are saying that we have to reel it in a bit. I
will give you the opportunity to speak.
Mr. Himpler. Thank you very much. It is great to see you,
Congressman.
Mr. Vargas. Likewise. It's great to see you, sir.
Mr. Himpler. I would like to agree with the Attorney
General. We are for regulation. That is the problem. Right now,
the CFPB is being governed by press release, and lack of
definition. This Congress, and previous Congresses, enacted APA
rulemaking authority. It is there for a reason. Engaging with
all of the stakeholders and producing a meaningful and lasting
resolve that provides great guide posts down the road in terms
of financial services. That is what we are asking for.
Mr. Vargas. I understand that. But even some of their
guides, I think, is to give the companies an opportunity before
they get in trouble to make sure that they are doing the right
thing.
But my time is almost over, so I yield back the last 10
seconds.
Chairman Barr. The gentleman yields back.
The gentlewoman from California, Mrs. Kim, is now
recognized.
Mrs. Kim. Thank you, Mr. Chairman.
I want to thank all of the witnesses for being with us
today. I am concerned about the proposals under CFPB Director
Chopra, because his proposed rules will increase costs and
reduce access to capital, especially to women-owned and
minority-owned businesses and many families.
I want to talk about, as an example, the proposed rule
under Section 1071, because that would direct the lenders to
guess or estimate, guesstimate. A small businesses owner was
based on visual observation if they opt not to report it
voluntarily, which you know very well.
I wanted to ask you, Mr. Himpler, what are the most urgent
policy issues the CFPB should be taking into account as they
work on the final Section 1071 rule? Because we want to avoid
reducing credit for women- and minority-owned businesses.
Mr. Himpler. Thank you, Congresswoman.
This is critically important. The vehicle finance industry
is a key part of the economy. The auto market is another key
part. And what we have right now is a regulation that is put
forward by the CFPB to collect this data. By and large, my
member companies don't know whether or not these are minority-
or women-owned businesses and the like. That is largely data
that is available to the dealers and then our members get the
contract.
The Fed has not put forward a similar rule so that the two
can be married up. So, at the end of the day, the CFPB is
insisting on going forward with a rule that we can't implement
until the Federal Reserve acts, and I think that is going to
create chaos in the industry.
Mrs. Kim. The Bureau's new credit card late fee proposal
claims to help some credit card customers avoid higher fees,
but in reality, I think the CFPB also acknowledged in the
proposal that the customers who do not pay their late fees,
primarily about, what, 78, 80 percent, those Americans with
credit cards, will not benefit from the reduced fees, and they
could, in fact, face higher costs, maintenance fees, lower
rewards, or even high-interest-rate accounts.
I am concerned that the CFPB is breaking with prior
precedent by not allowing its obligations under SBREFA. The
SBREFA panels allow regulatory agencies to understand the cost
that proposed rules may have on small businesses. In that
proposed credit card late fee rule, the CFPB certified that it
would not have a, ``significant impact on a substantial number
of small banks and credit unions.''
I want to direct this question to you, Mr. Johnson. Based
on your experience, does the CFPB have a process in place to
officially certify the rules that do not have a disparate
impact on small businesses and small banks, and how do you
think that the CFPB reached the conclusion to waive that SBREFA
requirement?
Mr. Johnson. I don't know, Congresswoman, how they reached
that conclusion. The analysis in the CFPB's proposed rule was
perfunctory. It is a statutory requirement to consider whether
or not there would be an effect here. I do think, putting on my
old agency hat, that the Bureau has real risk with this rule.
The failure to abide by a SBREFA panel and process is a
significant risk to the agency's rulemaking, and the
insufficiency of the 1022 analysis through qualitative rather
than quantitative analysis is a real risk. And given the public
statements made, including at the State of the Union, I think
there is real prejudgment risk about where the Bureau is going
to come out in this rule.
Mrs. Kim. Thank you.
I would like to yield back the balance of my time to the
Chair.
Chairman Barr. Thank you to the gentlelady.
And following up with Mr. Himpler's testimony, Director
Chopra has defended his regulation-without-rules approach by
claiming that guidance and interpretive rules, blog posts, and
press releases merely respond to what the private industry is
asking for, just to give more clarity.
The question is, have Director Chopra's guidance and blog
posts enhanced clarity or made things more confusing about what
the legal requirements actually are?
Mr. Himpler. More confusing.
Chairman Barr. Mr. Johnson, are these blog posts and
informal proclamations designed to commit institutions and
credit providers to new legal obligations?
Mr. Johnson. They often do, although they are kind of sold
on the guise of something that does not.
Chairman Barr. Thank you.
The gentlelady's time has expired. And the gentlelady from
New York, Ms. Velazquez, is now recognized.
Ms. Velazquez Thank you, Mr. Chairman.
I am sorry that my colleague, Juan Vargas, left, but he
brought up Mr. Mulvaney--and how fun that he spoke about him. I
just wanted to remind him that an investigation by the
Inspector General rebuild that Mr. Mulvaney was responsible for
withheld funding that was allocated by this Congress to help
the people of Puerto Rico after Hurricane Maria. And that
investigation revealed how President Trump told him, Mr.
Mulvaney, that he didn't want a single penny to go to Puerto
Rico. And he did exactly what President Trump asked him to do
with total disregard to the fact that 4,000 Puerto Ricans,
American citizens, died because of Maria. And here was the
President telling Mr. Mulvaney, who didn't have the courage to
say to the President of the United States that that was morally
wrong.
Anyway, Attorney General Ellison, Congress established the
CFPB to provide a single point of accountability and to work
across all States and jurisdictions to enforce Federal consumer
financial laws and protect individuals and families from
predatory actors and wrongdoers. As the highest law enforcement
officer in your State, can you explain the areas in which you
collaborated with the CFPB?
Mr. Ellison. Thank you, Congresswoman.
I will tell you that we have had extensive cooperation
around student loan debt. We have had a number of conversations
that have helped guide us. We have collaborated across multiple
States with the CFPB. I can tell you that they are an excellent
partner.
Ms. Velazquez. What has you and your staff's interaction
with the CFPB been like?
Mr. Ellison. It has been very positive. As a matter of
fact, one of the things that I shared in my comments is an
October 2019 matter that involved North Carolina, and the City
of Los Angeles, when we sued a series of companies and
individuals running a fraudulent student loan debt relief
scheme that falsely promised to help people to pay off their
student loans and obtain student loan forgiveness in the
process.
And I can tell you that we were able, with the assistance
of the CFPB, to give restitution and relief to literally
thousands of people to the tune of millions of dollars.
So, we are very confident that the CFPB is meeting its
mission and its goals.
Ms. Velazquez. And in this era--
Chairman Barr. Could someone close the door, please?
Ms. Velazquez. Thank you.
Chairman Barr. Thank you.
And once we close the door, the gentlelady will be given
more time.
Ms. Velazquez. Thank you.
Mr. Ellison, it is so great to see you.
In this era of misinformation, can you remind members of
this committee who perhaps weren't here during that time why it
was important to create an agency like the CFPB?
Mr. Ellison. Congresswoman, as you know very well, there
were a number of agencies assigned the responsibility of
consumer protection, so many that nobody really took it
seriously. Others had dual responsibilities like prudential and
soundness responsibilities and consumer protection. Consumer
protection invariably took a back seat to those considerations.
We believed that it would be good to consolidate that
responsibility in one place, and we also concluded that we
didn't want the agency to be subject to agency capture. We all
know on both sides of the aisle that an agency can be subject
to capture. None of us want that. We want the agency to do what
it is there to do.
I think that Representative Foster made a great point.
Would it be a good idea to be able to go to the Fed and say,
``Raise interest rates or we are going to cut your budget.''?
That is a bad idea.
Ms. Velazquez. Thank you.
You and I have worked most of our careers to root out and
combat discrimination in lending. I know the CFPB is close to
finalizing its Section 1071 rulemaking, which will require
lenders to collect and report demographic data of borrowers who
apply for loans to start or grow their businesses, and shine a
light on lending disparities. Some claim that this will create
more discrimination and lead to less lending. Do you agree with
this assessment?
Mr. Ellison. I think it will really help us find out how
well we are doing in the area of equal opportunity, and I
welcome it. I think it is a good proposal.
Ms. Velazquez. Thank you, Mr. Chairman. I yield back.
Chairman Barr. The gentlelady yields back.
The gentleman from Florida, Mr. Donalds, is now recognized.
Mr. Donalds. Thank you, Mr. Chairman.
And thank you, witnesses for being here today. Attorney
General Ellison, welcome back. It is good to see you here as
well.
Let me be very clear with everybody here. I am the sponsor
in the House for the bill that repeals the CFPB, so I want to
just level set for a moment. I am not a fan of the agency,
never was, and I am actually glad that Members have talked
about the history of how we got to this point.
I was a part of the commercial banking industry from 2003
through 2007, and I was watching. The first congressional
committee I ever watched as an American citizen was the House
Financial Services Committee, because I was actually an
industry participant. I worked in the industry. So, I saw the
deliberations about the Troubled Assets Relief Program (TARP)
and all of that stuff, and then the deliberations on Dodd-
Frank.
One of the issues for the CFPB is that it is a highly-
partisan agency because it was created under partisan
parameters. It was one-party vote, one-party rule that created
the CFPB.
If you were to ask me if the CFPB is unconstitutional as a
whole, I would say yes, because the way I view it, there is no
oversight, obviously. Its funding comes out of the Fed. We all
know that.
If you ask Chairman Powell, he doesn't know how much money
goes into the CFPB. A letter shows up, they say, okay, the CFPB
gets their money, and they go on about their business. So,
there is no oversight of the CFPB at all at-large.
It appears to be a freelancer more than a regulator. It
goes and it roams the countryside looking for products that may
or may not pop up, and then it decides, frankly, at the
direction of the Director, if it likes the product or not. That
is not a regulator. That is a freelancer.
I have a couple of questions. Mr. Himpler, do vehicle loans
pose a systemic risk to the American economy?
Mr. Himpler. No.
Mr. Donalds. Mr. Johnson, do credit card late fees pose a
systemic risk to the American economy?
Mr. Johnson. No.
Mr. Donalds. Let me ask you this question, Mr. Johnson. Are
there serious issues about not only separation of powers but
due process at the CFPB? And can you detail them?
Mr. Johnson. Congressman, in my extended written statement,
I have provided a list of roughly 30 instances that in my view
constitute due process or separation of powers concerns or the
Bureau overreaching its statutory authority.
Mr. Donalds. Can you go into detail about one of your
comments where they pressured financial institutions to waive
attorney-client privilege during supervisory examinations?
Mr. Johnson. Sure. The Supreme Court has been very clear
that when Congress enacts a statute, including the CFPB's
enabling statute, if it wishes to abrogate a common law
privilege, especially one as foundational as attorney-client
privilege, it must do so expressly. There is no express
abrogation in Title X of attorney-client privilege. In other
words, the CFPB lacks authority to compel institutions in any
capacity to waive attorney-client privilege. It is especially
troubling in the context of supervisory examinations because
all of that communication with the Bureau is secret and can't
be made public. So, there is a ripe opportunity for the Bureau
to pressure institutions in a non-public setting to waive that
privilege.
Mr. Donalds. Mr. Johnson, I have to cut you off.
And I thank you for the more layman example because I am
not an attorney. I am a finance guy, so I appreciate that.
Thank you.
Mr. Attorney General, do you think it is okay for the CFPB
to force financial institutions to waive attorney-client
privilege?
Mr. Ellison. I think it would depend, but I would like you
to prove that is, in fact, what is going on. I think you need
to demonstrate that. That is an allegation, but I would like to
know what facts you are using to make that claim.
And I certainly think there are occasions in which the
attorney-client privilege is--I have been an attorney for 30
years, and I can tell you that there are occasions in which
that veil is pierced. It depends.
Mr. Donalds. Okay.
I am going to ask you one final question because, actually,
in your testimony, you have been citing the work that you do
with CFPB, your State and I forget the other State, that was
involved with respect to the student loan fraudsters. And I do
want to thank you for prosecuting that because we should not
have fraudsters roaming through the financial landscape. I
believe everybody agrees with that wholeheartedly. So when we
find that stuff, we have to root it out of the system. I
totally agree with you there.
You also state that the CFPB civil penalty fund secured $95
million in refunds for the affected parties in that case.
Mr. Ellison. That is right.
Mr. Donalds. Because the perpetrators, obviously, didn't
have the funds to pay people back.
Mr. Ellison. Right.
Mr. Donalds. Where does the CFPB get its money in the civil
penalty fund?
Mr. Ellison. It gets the money through the resolution of
other matters and so that is--
Mr. Donalds. So, fines levied on other institutions were
then used to give out rewards in other areas?
Mr. Ellison. Right.
Mr. Donalds. Okay.
Mr. Ellison. Which is an appropriate thing to do and
happens all the time.
Mr. Donalds. Okay.
I yield back. Thank you.
Chairman Barr. The gentleman's time has expired.
The gentleman from Texas, Mr. Green, is now recognized.
Mr. Green. Thank you, Mr. Chairman.
And I thank the witnesses for appearing today.
I especially thank Attorney General Ellison for appearing.
It is just good to have him back. He sat right next to me for
years. He always had things that were important to deal with,
and I am not surprised that he has become Attorney General. He
is capable, competent, and qualified. Welcome home.
Mr. Himpler, dear sir, would you kindly explain to us how a
servicemember can receive a reduction to 6 percent on a pre-
service loan? And if you can be terse and laconic, I would
greatly appreciate it.
Mr. Himpler. I will try, Congressman. A servicemember who
receives active duty orders can submit those orders to his
lender and immediately receive reduction to the statutory limit
under the Servicemembers Civil Relief Act of 6 percent.
Mr. Green. And if that servicemember has multiple loans, if
the servicemember complies, as you have indicated, the loans
would be reduced to 6 percent, all of these various loans, is
that a fair statement?
Mr. Himpler. That is correct.
Mr. Green. And the CFPB has indicated that if the
servicemember does as you have indicated with a single loan,
that would then apply to other loans. Is that a fair statement?
Mr. Himpler. What the CFPB has put forward is a request of
industry to essentially paying the Defense Department--
Mr. Green. Excuse me. If I may, I don't mean to be rude,
crude, and unrefined, but is it true that if the servicemember
applies and complies as you have indicated, with one loan, the
CFPB has concluded that that can apply to others?
Mr. Himpler. No.
Mr. Green. Okay. What have they concluded?
Mr. Himpler. They have put forward that what the industry
needs to do is regularly go into the Defense Department
database and look for active duty orders of servicemembers. So,
they don't have to comply with the statutory requirements at
all to notify lenders.
Mr. Green. Well, do they--
Mr. Himpler. The problem with--
Mr. Green. Excuse me, if I may. Do they indicate that one
loan must have been--there must have been a request for a loan?
Mr. Himpler. No.
Mr. Green. No loan at all? Just look for the loans and
reduce them?
Mr. Himpler. The industry is supposed to look into this
database that, quite frankly, is down on a regular basis, and
currently gets about 40,000 pings annually. What they have
asked the industry to do is now take that up to 120 million
pings annually. The Defense Department database cannot handle
that, and, quite honestly, it doesn't have the security
precautions that are necessary for this type of work.
Mr. Green. How would it harm the servicemembers if the
Defense Department--or if there is compliance with what the
CFPB has recommended?
Mr. Himpler. If industry pings it and does not find a
servicemember's active duty assignment and, thereby, the
extension is not granted but somehow that is not accurate, the
servicemember doesn't receive the relief they should get if
they were to pursue this as the statute requires.
Mr. Green. The servicemember would get loans reduced if the
industry complies with the request of the CFPB.
Mr. Himpler. I am not sure I understand.
Mr. Green. You have said that the servicemembers--the CFPB
has asked the industry to look into these loans and make the
reductions when they find that there is such a loan.
Mr. Himpler. Essentially, the database, as I said, is down
on a frequent basis. It is actually down this week.
Mr. Green. Let's assume that it is functioning for our
purposes. For our purposes, let's assume that it functions. If
it functions, would the servicemembers benefit?
Mr. Himpler. Congressman, my point is that we can't assume
that it is functioning, because if my members assume that it is
functioning and it is not, we are the ones who are accountable.
Mr. Green. I understand. But when it does function, do the
servicemembers get their loans reduced when they apply?
Mr. Himpler. If everything is accurate, yes.
Mr. Green. Thank you, Mr. Chairman.
Chairman Barr. Thank you.
The gentleman's time has expired.
The gentleman from Tennessee, Mr. Ogles, is now recognized.
Mr. Ogles. Thank you, Mr. Chairman, and thank you to our
panelists.
To be or not to be, that is the question that I borrow from
Shakespeare, as Hamlet contemplates death. And I can't think of
an agency that should meet a quicker end than the CFPB. I can't
think of an agency whose regulatory authorities could be
delegated to other agencies as quickly and efficiently as those
of the CFPB.
Let's say we disagree on that point. I think we can agree
that any agency, regardless of funding mechanism, that is out
of control, that has usurped its authority, should be brought
to bear and feel the full weight of Congress in the
appropriations process. Last year, the CFPB chose to completely
transform fair lending policy without any kind of public input.
They also didn't give any prior notice to stakeholders who
would be impacted by this change. Is it appropriate for a
Federal agency like the CFPB to upend transparency as it did by
undermining the Administrative Procedure Act (APA)?
Mr. Himpler?
Mr. Himpler. No, it is not fair, and that is our whole
testimony today, Congressman, is that we are looking for clear,
understandable rules from the CFPB.
Mr. Ogles. Mr. Johnson?
Mr. Johnson. If the agency wishes to impose new burdens on
anyone, it should do it forthrightly and in compliance with the
APA.
Mr. Ogles. Ms. Thompson?
Ms. Thompson. These raise constitutional concerns,
including the major questions doctrine, and is ripe for
consideration by the Supreme Court.
Mr. Ogles. Mr. Watkins?
Mr. Watkins. The regulated industry should only receive
what is unlawful from Congress or through the process that
Congress has mandated.
Mr. Ogles. Before I get to my next question, I did want to
revisit the idea of the process by which servicemembers have
reductions in loans. Would you like to clarify, Mr. Himpler?
Mr. Himpler. I don't believe what Congressman Green put
forward would require, under the CFPB's proposal, for the
servicemember to put forward their active duty assignment to a
single creditor or lender. But even if that were the case, the
conclusion of what he and I were discussing is that every other
creditor would be subject to knowing that the servicemember had
put that forward to that particular creditor, totally
uninformed but, at the same time, accountable.
Mr. Ogles. What you are saying is that you don't think the
Federal Government should be poking around in your personal
business?
Mr. Himpler. The statute is a great statute to protect
servicemembers. The statutory requirements are that once the
servicemember gets his or her assignment, they can then present
that to the creditor and get a reduction. Nobody takes any
exception with that. Trying to figure out willy-nilly by
somebody posting it in the Cloud doesn't make any sense in
terms of regular order.
Mr. Ogles. Last year, the CFPB unilaterally decided that
Dodd-Frank's grant of authority to prevent unfair, deceptive,
or abusive acts or practices known as the UDAAP now includes
controversial disparate impact liability. The Bureau announced
this change by press release.
So on this point, or really any other, is it fair that by
way of press release, an agency can transform industry
practices without due process and notice? Never mind the fact
that Congress didn't get a say.
Mr. Himpler?
Mr. Himpler. Congressman, that is a wonderful question.
What we are asking for is fairness from this regulator.
Having to follow supposed rules by press release, how do you
challenge a press release? How do you challenge a news
conference? You can't. It is only through APA rulemaking
authority that you can have the meaningful back and forth
between the regulator and the regulated entity.
Mr. Ogles. Mr. Johnson?
Mr. Johnson. The short answer is that it is not fair.
Mr. Ogles. Ms. Thompson?
Ms. Thompson. Not only is it not fair, but CFPB should only
exercise the power delegated by Congress.
Mr. Ogles. Mr. Watkins?
Mr. Watkins. The Constitution requires notice before due
process can be found for someone to have violated, and blog
post is not proper notice.
Mr. Ogles. I thank all of you for being here.
Mr. Chairman, I yield back the balance of my time.
Chairman Barr. The gentleman yields back.
The gentleman from California, Mr. Sherman, is now
recognized.
Mr. Sherman. Thank you.
It is interesting to find out there is a database of
servicemembers. That is interesting in the financial services
area. I sure hope our friends over at Armed Services are
looking at that from whether it is a national security concern
or a privacy concern.
But I am a nationalist. I like it when we have the same
standards nationwide. I realize, however, that if the CFPB
doesn't do its job, there is going to be even more pressure for
the States to do their job.
Mr. Ellison, you know something about State Government and
consumer protection. And welcome back.
Mr. Ellison. Thank you.
Mr. Sherman. If the CFPB is not as effective, do you see
your State and other States being more involved? And would
those regulations tend to be disparate so a business would have
to deal with, perhaps, 50 different sets of regulations?
Mr. Ellison. Congressman, I think that is an accurate
description. You would create a very hard-to-predict patchwork
from State to State, and I am sure that would not please
industry to have to deal that way. But I also would say that
some of our staffs are fairly limited, so it would mean that
people are just getting away with things they shouldn't be
doing and that are against the law.
Mr. Sherman. And some States would not step forward even
when they should.
One of the advantages of having national standards is that
sometimes those standards may not be quite as high as somebody
in Sacramento would like, but there are an awful lot of
Americans who live in States that don't provide much protection
at all, and at least we raise the floor for the whole country.
Mr. Himpler, can you explain why lenders in some industries
would have higher default rates than those in other industries?
Mr. Himpler. Mr. Sherman, if I may expound on--
Mr. Sherman. And you may have done that earlier. I realize
that I have come late to this hearing.
Mr. Himpler. Mr. Ellison is talking about what industry
wouldn't like. The American Financial Services Association
represents both banks and finance companies, and I can tell you
that our national finance companies deal with 50 sets of State
regulations, the, ``work,'' that he mentioned. The certainty
that we have in those States, all 50 of them together, is still
better than the uncertainty that we have by virtue of press
release from the CFPB.
With respect to your question about default rates, I didn't
quite understand what you were--
Mr. Sherman. Can you explain why some lenders have higher
default rates than other lenders?
Mr. Himpler. Some lenders go deeper into the credit
spectrum than others.
Mr. Sherman. So, they are willing to make loans to a group
of people knowing that, well, if we design our standards this
way, we will be able to make 100 more loans, but out of those
100, we may have 3 percent or 5 percent defaults that we
wouldn't otherwise have?
Mr. Himpler. Correct.
Mr. Sherman. We are talking about higher interest rates.
How is that going to affect the companies you represent and,
more importantly, the consumers that they serve?
Mr. Himpler. Congressman, each creditor serves a different
niche in the market, and our industry is committed to access to
credit. And to do that, folks need to take on varying levels of
risk, and in order to offset that, you have to charge different
rates in order to get to the same sort of outcome of performing
loans.
Even if folks are having a 20-percent default rate, which
is huge by any estimation--I respect your reaction--that still
means that 8 out of 10 people who otherwise wouldn't get access
to credit are getting access and performing on those loans.
Mr. Sherman. And the natural thing is we want all of our
constituents to get loans, even those where the statistics
would indicate there is a somewhat higher rate of default, and
we want all of our constituents to get the best possible,
lowest possible rates, and, obviously, you can't always do
that.
I just want to point out that I know the courts are going
to decide this issue about the powers of the CFPB. I am glad
that isn't being decided here in this room, and we, as a
committee, have to be able to react. But I think having a
single national organization setting the standards and, of
course, doing so in a way that the courts find is appropriate
is a good thing.
And I yield back.
Chairman Barr. The gentleman yields back.
Now, the gentleman from Wisconsin, Mr. Fitzgerald, is
recognized.
Mr. Fitzgerald. Thank you, Mr. Chairman.
In 2018, economic growth, regulatory relief, and the
Consumer Protection Act provided relief from the harms of Dodd-
Frank to community banks and credit unions who had nothing to
do with the financial crisis. However, many of these small
financial institutions still face, as has been discussed today,
the daunting regulatory compliance challenges.
In particular, the CFPB has abused its authority to advance
a political agenda and harmed small businesses in doing that.
Congress repeatedly has urged the CFPB to narrowly tailor its
rules to specific consumer abuses.
When the Small Business Regulatory Enforcement Fairness
Act, or SBREFA, the worst acronym in banking, was enacted in
1996, Congress intended to ensure Federal agencies throughout
would understand and thoroughly work their rules to see how it
would affect small firms and the use of that information to
eliminate unnecessary burdens. We had discussions about this in
the House Small Business Committee in the last Congress.
Over time, the SBREFA process has been treated as merely a
check-the-box initiative where outreach is made to the small
entity representatives, otherwise called the, ``real people,''
on the street, but their feedback is not adopted in the final
rulemaking.
That is why last Congress I, along with some other Members,
introduced the Making the CFPB Accountable to Small Businesses
Act. This bill would require the CFPB to presume that size and
sophistication-based tailoring of regulations are needed in
SBREFA panel reviews. If tailoring is not undertaken by the
panel, then they must issue a justification, which would be
painful for the CFPB.
Just a quick question to anyone on the panel, but I will
start with Mr. Johnson, can you just talk a little bit about
that process that otherwise is just a check-the-box kind of
exercise?
Mr. Johnson. It is critical that the agency undertake it,
and if there is ever a question about whether it should or not,
all it is, is an additional process that the agency
fundamentally benefits from, because they are hearing the type
of information that they wouldn't otherwise hear as part of the
rulemaking process.
And, by definition, larger institutions have the capital
base over which to spread the cost of compliance, so the agency
needs to pay critical attention to the smaller market
participants that lack that capacity so that the impact of the
regulation itself is not creating an uneven playing field.
Mr. Fitzgerald. Ms. Thompson, do you have a comment on
that?
Ms. Thompson. I would just like to emphasize the fact that
compliance falls especially heavy on some of the smaller
financial institutions which provide credit to people who may
not otherwise have access.
Mr. Fitzgerald. Mr. Watkins, do you want to talk about
that?
Mr. Watkins. I am in agreement. The small institutions just
can't afford the voluminous number of regulations and trying to
go through all of them. It adds costs with each one of them.
For large financial institutions, that cost may be a very small
percentage, but for smaller institutions, it can be a much
larger percentage.
Mr. Fitzgerald. Very good.
Thank you, Mr. Chairman. I yield back.
Chairman Barr. I thank the gentleman, and the gentleman
yields back.
I appreciate the witnesses' testimony today. I want to
thank all of them for their expertise in offering their
testimony.
I think a takeaway is that if there was ever a Federal
regulatory agency that needed greater scrutiny, and more
accountability to the American people through their elected
Representatives in Congress, subject to the appropriations
process, this agency is it.
And I will just say, as a final parting point, if any
agency pronouncement, whether it is an interpretive rule,
guidance, a blog post, a speech, or a press release creates new
legal duties, then it must do so within clearly-delegated
authority from Congress, subject to the West Virginia decision.
And it must comply with the Administrative Procedure Act, and
notice-and-comment rulemaking. Otherwise, it is not
constitutional, and it is a violation of basic administrative
due process fairness.
So with that, we want to make sure that the CFPB changes
its behavior in compliance with the law.
The Chair notes that some Members may have additional
questions for this panel, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to these witnesses and to place their responses in the record.
Also, without objection, Members will have 5 legislative days
to submit extraneous materials to the Chair for inclusion in
the record.
This hearing is now adjourned.
[Whereupon, at 12:25 p.m., the hearing was adjourned.]
A P P E N D I X
March 9, 2023
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