[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]
AGENCY AUDIT: REVIEWING CFPB FINANCIAL
REPORTING AND TRANSPARENCY
=======================================================================
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
SECOND SESSION
__________
APRIL 16, 2024
__________
Printed for the use of the Committee on Financial Services
Serial No. 118-88
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
______
U.S. GOVERNMENT PUBLISHING OFFICE
56-439 PDF WASHINGTON : 2024
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, Vice EMANUEL CLEAVER, Missouri
Chairman JIM A. HIMES, Connecticut
TOM EMMER, Minnesota BILL FOSTER, Illinois
BARRY LOUDERMILK, Georgia JOYCE BEATTY, Ohio
ALEXANDER X. MOONEY, West Virginia JUAN VARGAS, California
WARREN DAVIDSON, Ohio JOSH GOTTHEIMER, New Jersey
JOHN ROSE, Tennessee VICENTE GONZALEZ, Texas
BRYAN STEIL, Wisconsin SEAN CASTEN, Illinois
WILLIAM TIMMONS, South Carolina AYANNA PRESSLEY, Massachusetts
RALPH NORMAN, South Carolina STEVEN HORSFORD, Nevada
DAN MEUSER, Pennsylvania RASHIDA TLAIB, Michigan
SCOTT FITZGERALD, Wisconsin RITCHIE TORRES, New York
ANDREW GARBARINO, New York SYLVIA GARCIA, Texas
YOUNG KIM, California NIKEMA WILLIAMS, Georgia
BYRON DONALDS, Florida WILEY NICKEL, North Carolina
MIKE FLOOD, Nebraska BRITTANY PETTERSEN, Colorado
MIKE LAWLER, New York
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, Vice BRAD SHERMAN, California
Chairman GREGORY W. MEEKS, New York
JOHN ROSE, Tennessee DAVID SCOTT, Georgia
WILLIAM TIMMONS, South Carolina AL GREEN, Texas
RALPH NORMAN, South Carolina JOYCE BEATTY, Ohio
SCOTT FITZGERALD, Wisconsin JUAN VARGAS, California
YOUNG KIM, California SEAN CASTEN, Illinois
BYRON DONALDS, Florida AYANNA PRESSLEY, Massachusetts
MONICA DE LA CRUZ, Texas
ANDY OGLES, Tennessee
C O N T E N T S
----------
Page
Hearing held on:
April 16, 2024............................................... 1
Appendix:
April 16, 2024............................................... 31
WITNESSES
Tuesday, April 16, 2024
Johnson, Brian, Managing Director, Patomak Global Partners....... 5
Peterson, Christopher L., John J. Flynn Endowed Professor of Law,
University of Utah, S.J. Quinney College of Law................ 8
White, Adam J., Senior Fellow, American Enterprise Institute
(AEI); and Co-Director, Antonin Scalia Law School's C. Boyden
Gray Center for the Study of the Administrative State.......... 6
APPENDIX
Prepared statements:
Johnson, Brian............................................... 32
Peterson, Christopher L...................................... 48
White, Adam J................................................ 59
Additional Material Submitted for the Record
Johnson, Brian:
Written responses to questions for the record................ 79
White, Adam J.:
Written responses to questions for the record................ 80
AGENCY AUDIT: REVIEWING
CFPB FINANCIAL REPORTING
AND TRANSPARENCY
----------
Tuesday, April 16, 2024
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 2:36 p.m., in
room 2128, Rayburn House Office Building, Hon. Andy Barr
[chairman of the subcommittee] presiding.
Members present: Representatives Barr, Posey, Williams of
Texas, Loudermilk, Timmons, Norman, Fitzgerald, Kim, De La
Cruz, Ogles; Foster, Sherman, Green, Beatty, Vargas, and
Pressley.
Ex officio present: Representative Waters.
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, ``Agency Audit: Reviewing CFPB
Financial Reporting and Transparency.''
I now recognize myself for 5 minutes to give an opening
statement.
The Consumer Financial Protection Bureau (CFPB) is
increasingly out of control and lacks transparency because
there are virtually no checks on the agency's power. As the
most recent example of the lack of transparency and
accountability towards Congress, a request was made by this
subcommittee for the CFPB to provide a witness for today's
hearing, but the CFPB declined.
While the GAO audits the CFPB's attestations about its
financial condition, those audits have important caveats
identifying that GAO is only monitoring numbers and not policy
or budgeting decisions. Moreover, an additional independent
audit is required by statute, but the CFPB does not seem to
take this mandate seriously. The most recent audit was a mere 9
pages long and curiously contained zero findings or
recommendations, not independent.
Due to this lack of oversight, the CFPB has acted
unilaterally and arbitrarily outside of its statutory mandate
routinely without engaging in notice-and-comment rulemaking
and, instead, operating through rulemaking by guidance, press
releases, or blog posts.
Further, the agency has engaged in enforcement threats
without adjudication. A rogue CFPB under Director Chopra is of
no help to consumers, even if advocates of the CFPB tout the
amount of fines and damages awards the CFPB claims to have
generated. The sanctions generated have costs and they also
come at the social costs of Director Chopra's blanket
indictments of hardworking and honest workers throughout the
financial system. These institutions play by the rules, help
consumers, and provide fair financial services, yet their
reputations are unfairly tarnished through Director Chopra's
portrayal of them as crooks who are out to take advantage of
their fellow Americans.
Courts have acted to strike down numerous unlawful CFPB
actions under Director Chopra as he continues to far overstep
what he views as unbounded authority and power. And courts must
play that role, partly because Congress has no ability to rein
in the CFPB's overreached puffery and false statements through
our own most effectual weapon, the power of the purse.
The Supreme Court has the opportunity to confirm what
Republicans have said all along, that the CFPB's unaccountable
funding structure is unconstitutional, and the agency must be
brought under the appropriations process. Congress should act
now to reassert the power of the purse and ensure unelected
bureaucrats do not have the ability to run roughshod over the
personal rights of consumers and law-abiding businesses.
Through a design feature in the Dodd-Frank Act, the CFPB
was purposely set up to insulate the government agency from
proper congressional oversight. The CFPB was set up to ensure
unbridled power for an authoritarian agency head who wants to
exercise partisan and unreasoned control over financial
services, with the ultimate goal of turning financial
institutions into public utilities.
Unfortunately for consumers, the CFPB's policy actions
under Director Chopra's leadership have become almost entirely
reckless, arbitrary, and capricious. Pushing new rules,
guidance, variable enforcement actions, blog posts, and email
blasts that border on anti-capitalist propaganda does not
promote consumer protection. The CFPB's activities under
Director Chopra's leadership will serve primarily to increase
the costs of financial services to consumers and reduce
availability of those services, especially to traditionally-
underserved communities. This is quite the opposite outcome of
what you would expect from an agency tasked with protecting
consumers.
The CFPB has increasingly become a hyper-partisan agency
doing the bidding of the White House and the President's
reelection campaign rather than protecting American consumers.
It answers to no one but itself, and sometimes to the courts,
where the CFPB Director's approach of using rhetoric and
partisan theorizing over evidence and the law is often
rejected. Where the Administration does not have the authority
or votes in Congress to make a change, the Bureau simply forges
ahead unchecked and uses subterfuge to make new laws.
I look forward to discussing these important issues in our
hearing today. We must understand the consequences of a rogue
CFPB and explore the steps Congress must take to rein in the
CFPB to better protect our citizens from an unchecked Federal
bureaucracy. There must be guardrails on a rogue agency like
the current CFPB, and that must at least begin with holding the
CFPB's use of Federal resources accountable, transparent, and
subject to congressional checks.
The Chair now recognizes the ranking member of the
subcommittee, the gentleman from Illinois, Dr. Foster, for 4
minutes for an opening statement.
Mr. Foster. Thank you, Mr. Chairman, and thank you to our
witnesses here today.
Since the Consumer Financial Protection Bureau opened its
doors in 2011, it has served as the cop on the beat, protecting
consumers from unfair, deceptive, and abusive practices, and
taking action against violators of consumer protection laws.
The CFPB has provided more than $19 billion in relief to 195
million consumers and required financial firms who have broken
the law to deposit more than $4.8 billion in the Victims Relief
Fund, which is used to compensate consumers who have been taken
advantage of in the financial marketplace. Bipartisan polling
has shown that the CFPB is overwhelmingly popular among U.S.
consumers, finding that 82 percent of voters, including 77
percent of Republicans, support the CFPB's mission, so it is
right up there with IVF.
Today, we will discuss the CFPB's budget process, and I
expect that we will hear the same decade-old arguments that in
carrying out its mission to protect consumers, the Bureau, in
its budget, has somehow gone rogue, to the detriment of
American consumers. I believe that we can dispel this notion by
looking at the facts. Like other independent agencies, the
CFPB's budgetary process is subject to intense and independent
scrutiny.
The CFPB's annual budget is submitted to multiple
independent entities for review, including the Government
Accountability Office (GAO) and independent auditors. The
results of these reviews have overwhelmingly affirmed the
soundness of the CFPB's budget, with the Bureau receiving a,
``clean,'' audit opinion with limited findings over the last 13
years.
The CFPB regularly publishes comprehensive financial and
performance reports, including quarterly spending reports and
manual performance plans, as well as monthly reports to the
Treasury and GAO on its financial activities, including
contract spending. In addition, the CFPB Director is
statutorily required to testify before Congress twice per year
to discuss the activities of the Bureau, its budget, and other
topics to allow the committee to provide robust oversight on
its activities.
The 2008 financial crisis showed that the disjointed
consumer protection efforts of the agencies had fallen short
and that there was a clear need for an agency focused on
protecting consumers in the financial marketplace. These
lessons ultimately led our committee to create the CFPB through
the Dodd-Frank Act, which I am proud to have helped draft. In
addition to cracking down on inflationary and unnecessary junk
fees, the Bureau is working to give consumers the ability to
control their own financial data, curb discriminatory lending
practices, and finalizing remaining rulemakings from Dodd-
Frank. It is doing so while also being responsive to new risks
stemming from emerging technologies like peer-to-peer (P2P)
payment applications and artificial intelligence.
And despite its overwhelming popularity and many consumer
protection successes, the CFPB has been under constant attack
from those who wish to undermine its mission. The Supreme Court
is set to rule on the constitutionality of the CFPB's funding
mechanism as early as June of this year. A ruling against the
CFPB would be massively disruptive and destructive to the
Bureau's implementation of consumer protection laws and curtail
protections that consumers expect and deserve. As members of
this committee conduct oversight on the Bureau, I urge them to
consider the progress that has been made since the 2008
financial crisis and ensure that additional oversight does not
undermine its important mission that has spared countless
consumers from harm in the financial marketplace.
I look forward to hearing the perspectives of our witnesses
today, and thank you for joining us. I yield back.
Chairman Barr. The gentleman yields back. The Chair
recognizes the ranking member of the full Financial Services
Committee, the gentlewoman from California, Ms. Waters, for 1
minute.
Ms. Waters. Thank you. Today, this subcommittee could have
been examining ways to strengthen consumer protections with
respect to predatory payday lending, debt collection, junk
fees, and so much more. Instead, Republicans are here to
continue their crusade to crush the Consumer Financial
Protection Bureau.
House Republicans revealed their true colors last year when
two-thirds of their caucus voted to defund the CFPB, but
thankfully, Democrats handily defeated that effort. Instead of
doing the bidding of wealthy financial executives, Republicans
should listen to their constituents. After all, 82 percent of
Americans, including 77 percent of Republicans, support this
popular agency because it is a strong, transparent, accountable
agency, and it fights for them all, and Democrats will always
protect the CFPB and the consumers they defend. Ladies and
gentlemen, we got the CFPB as a result of the meltdown of 2008.
I love it, and we are going to defend it every day.
Chairman Barr. The gentlelady's time has expired.
Ms. Waters. I yield back the balance of my time, if I have
any left. Thank you.
Chairman Barr. The gentlelady's time has expired.
Today, we welcome the testimony of, first, Brian Johnson,
the managing director at Patomak Global Partners, and former
Deputy Director of the Consumer Financial Protection Bureau.
Welcome back to the committee, Mr. Johnson.
Second, Adam J. White, a senior fellow at the American
Enterprise Institute, and co-director of the Antonin Scalia Law
School's C. Boyden Gray Center for the Study of the
Administrative State.
And third, Christopher L. Peterson, the John J. Flynn
Endowed Professor of Law at the University of Utah, S.J.
Quinney College of Law.
We thank each of you for taking the time to be here. Each
of you will be recognized for 5 minutes to give an oral
presentation of your testimony. And without objection, each of
your written statements will be made a part of the record.
Mr. Johnson, you are now recognized for 5 minutes to give
your oral remarks.
STATEMENT OF BRIAN JOHNSON, MANAGING DIRECTOR,
PATOMAK GLOBAL PARTNERS
Mr. Johnson. Chairman Barr, Ranking Member Foster, and
members of the subcommittee, thank you for holding this
important hearing on the CFPB's financial reporting and
transparency. I am Brian Johnson, managing director of Patomak
Global Partners. I previously served as Deputy Director of the
CFPB, and prior to that, I served as a member of----
Chairman Barr. Sorry. The gentleman will suspend. If
Members could please take their conversations off the
committee, so we can hear the witness, that would be
appreciated. Mr. Johnson, you will get your time back. You may
proceed.
Mr. Johnson. Thank you, Mr. Chairman. The Congress that
created the CFPB and the Dodd-Frank Act designed it to be
independent from both the President and Congress. It was meant
to be independent from the President based on for-cause removal
protection afforded to the Director. However, in 2020, the
Supreme Court struck down this provision as unconstitutional.
In Dodd-Frank, Congress also made the CFPB independent from
itself through a novel funding source. Unlike most departments
and agencies, the CFPB is not subject to the normal
congressional appropriations process. Instead, it draws its
funding from the Federal Reserve (Fed). The Supreme Court will
soon decide whether this funding mechanism is also
unconstitutional. No matter the outcome in the case, Congress
must grapple with an extraordinary situation: what to do with
an agency that now operates under the direct political control
of the White House but is not answerable to Congress for its
funding. For that reason, today's hearing is timely.
I would like to provide a general overview of how the CFPB
obtains and expenses its funds. First, any funds the CFPB draws
from the Federal Reserve are not available to be remitted to
the Treasury to reduce the deficit. The CFPB is entitled to Fed
funds even when, as now, the Fed is taking combined quarterly
losses.
Second, by law, the CFPB's funds may not be reviewed by the
Fed or by congressional appropriators, and the CFPB's budget is
not subject to approval by the Office of Management and Budget
(OMB). CFPB's funds may not be considered government funds or
appropriated monies.
Third, CFPB's annual draws from the Fed are subject to a
statutory cap index for inflation. For Fiscal Year 2024, the
cap is projected to be $785 million. However, the CFPB can also
carry forward unobligated amounts to future fiscal years, so
the CFPB's total budgetary resources are projected to exceed $1
billion in the next fiscal year. Since Fiscal Year 2012, the
CFPB's budgetary resources have grown at a compound annual
growth rate of 7.7 percent, compared to the Federal Trade
Commission's (FTC's) equivalent growth rate of 3.5 percent.
Fourth, the CFPB estimates that its spending this fiscal
year will reach $763 million, a 9.5-percent increase over last
year. Almost two-thirds of this amount will be spent on staff
salaries and benefits. The CFPB now has about 1,700 employees
who, on average, receive compensation of over $257,000 per
employee, an amount that has grown at a compound rate of 5.8
percent since Fiscal Year 2012. By comparison, average FTC
compensation is about $158,000 per employee and has grown at a
2.5-percent annual rate over the same period. CFPB employees
receive generous benefits, the dollar value of which has grown
more rapidly even than salaries. The CFPB is also in the midst
of negotiations with its labor union and is expected to reach
an agreement on additional automatic raises and bonuses that
will bind the agency for the next several years.
Fifth, regarding contract and support obligations, the CFPB
has entered into interagency agreements for services at a
cumulative cost exceeding $1 billion since Fiscal Year 2013,
and also contracts with private sector entities. And while
aspects of the spending are not transparent, some of its major
spending categories are known, such as an initial obligation
amounts for management consulting and program support services
now exceeding a cumulative $250 million, as well as over $41
million for expert witness services.
Sixth, oversight of these processes is minimal. There are
GAO audits over CFPB's financial reporting controls but not of
spending decisions, and the Fed Inspector General has only
twice directly reviewed the CFPB's budget and funding process.
Dodd-Frank separately requires an annual independent audit of
the CFPB's operations and budget, but the most recent audit
report, only 9 pages long and with no findings or
recommendations, is far from comprehensive.
Thank you to the members of the subcommittee for engaging
in much-needed oversight of the CFPB's funding and
expenditures. I will be pleased to answer your questions.
[The prepared statement of Mr. Johnson can be found on page
32 of the appendix.]
Chairman Barr. Thank you. Mr. White, you are now recognized
for 5 minutes to give your oral remarks.
STATEMENT OF ADAM J. WHITE, SENIOR FELLOW, AMERICAN
ENTERPRISE INSTITUTE (AEI); AND CO-DIRECTOR, ANTONIN
SCALIA LAW SCHOOL'S C. BOYDEN GRAY CENTER FOR THE
STUDY OF THE ADMINISTRATIVE STATE
Mr. White. Thank you, Chairman Barr, Ranking Member Foster,
and members of the subcommittee. Thank you for the opportunity
to testify. My opening statement will be brief, I hope. I
simply want to make three key points.
First, the Constitution's power of the purse is one of
Congress' most significant powers and responsibilities. The
crucial provision of Article I, Section 9, of the Constitution
reads, ``No money shall be drawn from the Treasury, but in
consequence of appropriations made by law.'' This was, at its
very beginning, a crucial provision. James Madison recognized
it--I described this in my written testimony--and other
founders did, too. They understood the power of the purse's
fundamental role in constraining executive power. That is why
it was the subject of such fierce debate in the first Congress
and every Congress thereafter.
And as the scope of government has grown over 2 centuries,
so has the importance of the appropriations process. Even
today, the Administrative Procedure Act (APA) and White House
Executive Orders are important checks and balances on the
administration and mechanisms for oversight, but they are no
substitute for Congress' constitutional power and
responsibility. Indeed, now that the CFPB's connection to the
White House is clear in the aftermath of the Supreme Court
Seila decision--the CFPB is closely tied to the White House
both legally and politically--this makes Congress' independent
power and responsibility even more important.
Second, there is no good reason to give the CFPB its
special exemption from Congress' appropriations process and
responsibility. The CFPB truly is exceptional. To be sure,
other agencies, especially other financial regulators, do
receive revenue from the agency's own operations. This is a
longstanding practice and, in many ways, a sensible one, but to
the best of my knowledge, no regulatory agency is allowed to
simply reach into a completely different source of Federal
money to be the agency's main source of revenue. No other
agency gets to treat the Federal Reserve as a regulatory slush
fund. The CFPB is, to the best of my knowledge, the first such
agency, although I do worry it will not be the last.
If the Supreme Court does not declare the CFPB's funding
structure unconstitutional in the pending case, there will be
many calls in the future to give other agencies special access
to the Federal Reserve's funds. In fact, I recall in 2010, when
the Dodd-Frank Act was first legislated and enacted, the Chairs
of other financial regulators, including the CFTC and the SEC,
publicly called for similar funding authority, a self-funding
authority from Congress.
This is my last point. Speaking of the Supreme Court case,
the CFPB's characterization of its finances in the Supreme
Court case has been astonishingly at odds with more than a
decade of the agency's own reports and descriptions. The Dodd-
Frank Act itself stated explicitly that the CFPB's funds are
not appropriated, and from the very start, the CFPB admitted
this obvious fact that its funds are not appropriated,
beginning at least with its 2013 first financial report.
In then-Director Cordray's testimony before the
Subcommittee on Oversight and Investigations in 2012 and every
year thereafter, the CFPB said over and over again that its
funds were not appropriated. In fact, the CFPB trumpeted this
fact to reiterate the agency's independence. It would often say
that non-appropriated funding gave the agency, ``full
independence.'' It told the GAO in a 2016 contracting dispute
that the GAO lacked jurisdiction over the agency because the
agency's funds are not appropriated.
But in the Supreme Court case now pending, the CFPB now
makes the opposite argument, the novel argument that the Dodd-
Frank Act itself was an appropriations statute. That argument
strains credulity, it strains the Constitution, and it is the
latest reminder that the CFPB should not enjoy exceptional
powers against oversight. The power of the purse, the
Constitution's power of the purse, and the responsibility to
use it wisely remains Congress'.
Thank you again for the opportunity to testify and for the
chance to answer your questions.
[The prepared statement of Mr. White can be found on page
59 of the appendix.]
Chairman Barr. Thank you. Professor Peterson, you are now
recognized for 5 minutes.
STATEMENT OF CHRISTOPHER L. PETERSON, JOHN J. FLYNN
ENDOWED PROFESSOR OF LAW, UNIVERSITY OF UTAH, S.J.
QUINNEY COLLEGE OF LAW
Mr. Peterson. Chairman Barr, Subcommittee Ranking Member
Foster, and Full Committee Ranking Member Waters, it is an
honor to appear today. Thank you for your public service. My
name is Chris Peterson, and I am the John Flynn Endowed
Professor of Law at the University of Utah in Salt Lake City,
where I teach consumer protection, constitutional law, and
contract law classes. I am also a counsel at the public
interest law firm of Gupta Wessler here in Washington, D.C.,
and I served at the CFPB in the Enforcement Office, and later
as a Special Adviser to the Director, under Director Cordray.
Today, I will focus on three points. First, the statute
funding the Consumer Financial Protection Bureau is a
constitutional exercise of Congress' spending power. Article I,
Section 9, Clause 7, as my friend mentioned a moment ago, says
that, ``No money shall be drawn from the Treasury, but in
consequence of appropriations made by law.'' The Supreme Court
has held that that sentence says simply that no money can be
paid out of the Treasury unless it has been appropriated by an
act of Congress, and Section 12 U.S.C. Sec. 5497 is a law
adopted by Congress that appropriates funds.
The fact that this law appropriated funds through an
ongoing mechanism does not render the law unconstitutional. The
general appropriations clause does not require Congress to use
an annual spending bill. As a result, Article I, Section 8,
Clause 12, in contrast, says that, ``no appropriation of money
to raise or support armies shall be for a longer term than 2
years.''
Contrast the two and you can see that the founders knew how
to require durationally-limited congressional appropriations
but made a conscious decision to not impose that durational
limit on the general appropriations power. And as a result,
Congress has often chosen to pass laws appropriating funding to
executive agencies outside the annual spending bill process.
For example, in 1792, Congress did that with the Post
Office; it allowed the Post Office to be funded through
assessments and stamps, and it is not just the Post Office. In
the founding era, the First Bank of the United States, the U.S.
Mint, the U.S. Patent and Trademark Office, and the Office of
the Comptroller of the Currency, by 1875, were all appropriated
through mechanisms outside of the annual spending bills.
And in the 20th Century, that has become the norm for
financial regulatory agencies, including, of course, the
Federal Reserve Board of Governors, the Federal Deposit
Insurance Corporation, the National Credit Union
Administration, the Farm Credit Administration, and the Federal
Housing Finance Agency, as well as the U.S. Citizenship and
Immigration Services, the U.S. Customs and Border Protection,
and the Animal and Plant Health Inspection Service, which are
all appropriated either in part or in entirety through non-
spending bill mechanisms. And of course, at any time Congress
is free to exercise its power of the purse by simply amending
the Bureau's appropriations statute, but as it stands, this
method of appropriating is one that Congress is free to choose
under our Constitution.
Two, Title X of the Dodd-Frank Act requires the CFPB to
prepare annual reports subject to GAO oversight. I did a good,
careful review of that financial report as well as the GAO
oversight audit, and the GAO found that the CFPB's financial
statements were presented fairly in all material respects, and
in accordance with U.S. Generally Accepted Accounting
Principles (GAAP), had effective internal controls, and had no
reportable noncompliance for the last fiscal year.
I did not identify anything out of the ordinary, either. Of
course, we will all disagree about what political priorities
should be, but the simple fact is that the staff at the CFPB
lived up to their reporting obligations and are in compliance
with the law.
Third, the CFPB has an admirable track record of
accomplishments in protecting American consumers, including its
recent amendments to the Credit Card Accountability
Responsibility and Disclosure Act's (CARD Act's) late fee
regulations. Since the financial crisis in 2008, we learned
that financial products that don't work for consumers can
destroy our national economy, and that is why Congress created
the CFPB.
And the CFPB has now returned $19 billion in relief to
nearly 200 million Americans who have been harmed by violations
of the laws that Congress adopted. And not only that, they have
also succeeded in modernizing our residential mortgage lending
regulatory system, and they created a modern national consumer
finance complaint intake portal that has staffed up to receive
complaints from consumers in 180 different languages, and
forwards 25,000 complaints every month to financial services
companies to help resolve disputes and help individual
consumers improve their daily lives.
Recently, the Bureau announced its new, final CARD Act
implementing regulations that are going to require credit card
late fees to be reasonable and proportional in the way that
Congress had originally contemplated back in 2009. In recent
years, credit card issuers have imposed $14.5 billion in late
fees.
On balance, I think that the CFPB is headed in a positive
direction, and I welcome the committee's----
[The prepared statement of Professor Peterson can be found
on page 48 of the appendix.]
Chairman Barr. The gentleman's time has expired. Thank you,
Professor.
Now, we will turn to Member questions, and the Chair
recognizes himself for 5 minutes for questioning.
Mr. Johnson, let me start with you. We all agree that the
CFPB is funded like no other agency in the Federal bureaucracy.
The Fifth Circuit Court of Appeals held that the Bureau's
funding mechanism is unconstitutional, as it is double
insulated from the appropriations process since it is funded by
the Federal Reserve, the operations of which are also financed
outside of the traditional appropriations process.
But here is what I want to take up, because this was hotly
debated within the oral arguments before the Supreme Court. The
professor has made the argument, and he has made it well and
echoed the Counsel for the Bureau--wait a minute--there are
plenty of analogues to the Bureau of permanent appropriations
of an ongoing funding mechanism, and these are perfectly
constitutional structures. I would submit there is simply no
analog in the history of our republic of this. This is
different than the Post Office. This is different than the
FHFA. This is different than the FDIC. And this is
fundamentally different than the OCC.
I want you to tell me, do you agree with that, and if you
do, why is the Bureau's structure different? I would submit it
is different because you don't have a structure anywhere in the
constellation of the bureaucracy, any time in American history,
where you have an agency exempt from the appropriations process
that has an independent stream of funding from another entity,
which is itself exempt from the appropriations process, no
analogue anywhere in the history of our country. What say you?
Mr. Johnson. Thank you, Mr. Chairman. I would agree with
you that the CFPB's structure as designed is unique in American
history. The CFPB fundamentally has a market conduct regulation
function. And if you look for other agencies across the
government and the funding structures that Congress has created
for market conduct regulators, like the CFTC or the SEC, those
are all agencies that are subject to congressional
appropriations.
The CFPB is unlike its sister regulators. It is not a
prudential regulator. It is not like the OCC. It is not like
the Fed. It is not like the NCUA. It is not like the FDIC. So
among the independent financial regulatory agencies that
Congress has seen fit to create, it is of a structure that is
completely unique. It is additionally, unique after the Seila
Law decision where the Director now serves at the pleasure of
the President, and is subject to direct political control from
the White House.
Chairman Barr. Mr. White, I want to follow up on Mr.
Johnson's last point there. Seila Law corrected a
constitutional infirmity and made the Bureau accountable to the
Executive Branch. How would the symmetry of the separation of
powers be served or not served if the Supreme Court were to not
provide Congress with an additional check on the Bureau similar
to what it provided to the Executive Branch by subjecting the
Bureau to the congressional appropriations process? Would that
create an asymmetry of accountability to the White House post-
Seila but no accountability to the Congress without
congressional appropriations?
Mr. White. I agree. These dual problems, these
constitutional flaws were evident from the start. The Supreme
Court has corrected the first problem with regard to executive
power. I hope it corrects the second with regard to Congress'
power and responsibility.
Chairman Barr. And, Mr. White, would you discuss some of
the drawbacks of agency structures that insulate the agency
from congressional accountability, such as an agency whose
budget is not set through congressional authorization and
appropriations? The professor talked about how they prepare
reports to Congress. Is that enough?
Mr. White. It is not enough, sir. First, the appropriations
process is important in and of itself as the way that our
nation helps settle on its collective value judgments about
what government should and should not be doing. But second, the
appropriations process is Congress' tool for making sure that
the rest of its constitutional powers over the agencies are
obeyed.
Chairman Barr. I have heard this argument that, well,
Congress set this mechanism into place and Dodd-Frank was an
appropriation, so therefore, voila, Congress has satisfied the
appropriations clause. I did not vote for Dodd-Frank. I have
never been able to vote for an appropriation that is
meaningful. And by the way, to the ranking member, I voted to
fund the agency to assert the power of the purse in the
amendment process, but that failed, and the Taking Account of
Bureaucrats' Spending Act (TABS Act) is not law right now.
One final point to Mr. Johnson. Justice Kavanaugh in the
oral argument says, well, future Congresses could correct this.
What say you to Justice Kavanaugh about that? Does the fact
that Congress could pass a bill in the future remedy an
existing constitutional defect?
Mr. Johnson. I don't know that it would, Mr. Chairman. The
larger point I think is that it is profoundly anti-democratic
to sever the people away from the way in which their funds,
collected by their government, are spent by their government.
Chairman Barr. My time has expired. The ranking member of
the subcommittee, Mr. Foster, is now recognized for 5 minutes.
Mr. Foster. Thank you. Professor Peterson, first off, just
for clarity, the Federal Reserve, the FDIC, the OCC, the NCUA,
and other agencies have independent funding outside of annual
appropriations, correct?
Mr. Peterson. Yes.
Mr. Foster. Okay. So, a distinction appears to be made by
those attacking the CFPB that insulation is okay, but double
insulation is not. Is there a constitutional principle that
differentiates between single insulation and double insulation?
Mr. Peterson. Dr. Foster, no, I don't think so. I think
that is a red herring, and part of the reason you can tell that
is that the Federal Reserve Board of Governors doesn't have any
authority to deny transfer requests. So, there is not a double
insulation that provides some political insulation for the
Director of the CFPB, nor the President of the United States.
Congress has the ability to shut down those transfers any time
it can get the votes together to pass a law that changes it.
Congress still has its power of the purse under Article I of
the Constitution because it can cut off these funds anytime it
has the votes.
Mr. Foster. Now, you mentioned that you spent some time
looking at the recent auditing that had been done. Can you say
anything about it? Is just the fact that the final report
doesn't span many pages an indication that there is anything
wrong, and were there a reasonable number of man-hours going
into these audits?
Mr. Peterson. It appears to be just a typical report to me.
Chairman Barr is correct that these reports don't tell us what
the priorities of the agency are, but the Executive Branch of
the government is entitled to make some decisions about how to
prioritize things. The Admirals get to decide where they are
going to float the boats in the Navy, and the CFPB has to make
some learned informed decisions about the things to prioritize.
The key thing that we can take away from the financial audit is
that there is no evidence that there is anything inappropriate
going on. And I think it is very important for the morale of
the civil service and for the public to understand that there
are no allegations of impropriety at the CFPB. Their books look
like they are in order.
Mr. Foster. Thank you. Professor, in addition to your time
working at the Bureau, you also spent a good deal of time at
the Pentagon working in the Office of the Under Secretary of
Defense for Personnel & Readiness. As part of the Dodd-Frank
Act, Congress established the Office of Servicemember Affairs
within the CFPB so that special attention could be paid to the
unique financial challenges facing U.S. servicemembers,
veterans, and their families. Through this office, the Bureau
ensures compliance by financial firms with important consumer
protection laws, like the Servicemembers' Civil Relief Act, the
Military Lending Act, and others. In fact, earlier this year,
the CFPB announced that it would distribute nearly $6 million
to veterans who had been targeted with predatory loans.
So, given your experience at the CFPB and the Pentagon,
would you expect that our servicemembers and veterans would be
worse off should proposals to undermine the agency be allowed
to advance?
Mr. Peterson. Yes, 100 percent. Servicemembers and veterans
throughout history have often been the target of predatory
loans, scams, and other cons and abuses, and we need a cop on
the beat in Washington to try to make sure that they get a fair
shake. They have served our country, and our country should
serve them back by providing reasonable consumer protections
and law enforcement that benefits their interests.
Mr. Foster. Yes. Could you say a little bit more about the
types of abuses that servicemembers faced prior to the CFPB?
Mr. Peterson. Yes. When I was starting my career, my first
big study showed that payday lenders were clustering around
military bases. And we, my co-author and I, proposed a national
interest rate cap on loans to military servicemembers.
Eventually, that was implemented by Congress, a bipartisan bill
that was signed into law by George W. Bush, and that has really
made a big difference. And it is the CFPB that conducts the
regular examinations and audits to make sure that payday
lenders are not illegally targeting our military servicemembers
for triple-digit predatory loans. That is something that is of
benefit to working servicemembers and their families across
America of which I think we can all be proud.
Mr. Foster. Yes. Do you believe that Congress was right to
create the Office of Servicemember Affairs within the CFPB?
Mr. Peterson. Yes, I do. It is a great office.
Servicemembers and veterans should have a say and should be
able to be empowered and communicate with their government
about financial services products that may not be working well
for them, and also to reflect back the kind of things that they
need. That is the role of that office, and I think they are
doing a good job.
Mr. Foster. And since Congress does not directly
micromanage their budget through the appropriations process,
are they in some sense triple insulated?
Mr. Peterson. I would have to think about that. It is
getting pretty meta, Dr. Foster. I am not sure I understand
what double-insulated is, let alone triple-insulated, so I have
to take a pass on that one.
Mr. Foster. Okay. My time is nearly up, so I yield back.
Mr. Peterson. Thank you, sir.
Chairman Barr. The gentleman yields back. The gentleman
from Florida, Mr. Posey, is now recognized for 5 minutes.
Mr. Posey. Thank you very much, Chairman Barr, for holding
this hearing on the Consumer Financial Protection Bureau, one
of the most beautifully sounding names of any Federal agency,
most especially for the most arrogant, petulant, and defiant
Federal agency of all times. I was really looking forward to
questioning Ms. Cackley of the Government Accountability
Office, who was going to be a witness today. I am sad that, for
whatever reason, she is not here. I had most of my questions
geared to her. I disagree with the professor that there is no
evidence that the CFPB has ever done anything wrong. I have
been on this committee for 16 years, and I have witnessed her
arrogant, petulant, defiant attitude and refusal to answer
questions over the years.
Mr. Johnson, it is my understanding that the GAO's test for
CFPB compliance is Generally Accepted Auditing Standards (GAAS)
in their financial reporting and for contracts and grant
agreements. Are you aware of whether or not this review seeks
to ensure that money is being efficiently spent and that an
adequate bidding process is involved?
Mr. Johnson. Thank you, Congressman. My understanding is
that the scope of the GAO audit is over the controls in place
about financial reporting, not a review of the underlying
spending decisions.
Mr. Posey. Okay. Mr. Johnson, or Mr. White, do either of
you know if the Comptroller General has ever been asked to
provide an opinion of the constitutionality of the CFPB's
funding?
Mr. Johnson. I am not aware, sir.
Mr. White. I am not aware.
Mr. Posey. Okay. Given that the CFPB gets its money from
the Federal Reserve, that would otherwise end up in the U.S.
Treasury, wouldn't it appear that it equates to drawing money
from the Treasury without appropriations? Just a simple view of
it.
Mr. Johnson. It would, sir, with the wrinkle now that the
Federal Reserve, as it unwinds its balance sheet, is taking
quarterly operating losses. So, the funds that it is providing
to the CFPB, it is entering on its balance sheet as a deferred
asset, which runs up the tab, so to speak, of future earnings
the Fed will have to pay before it can even begin remitting
surpluses to Treasury again.
Mr. Posey. Okay. Mr. White, has the CFPB, in the past, ever
characterized its own funding as non-appropriated?
Mr. White. Repeatedly, and from the very start, and as
recently as last November in its 2023 Annual Financial Report,
in which the CFPB repeatedly referred to itself as an
independent, non-appropriated bureau. These are documents that
they published after arguing the exact opposite to the Supreme
Court.
And I would just add, in a 2016 bid protest, the CFPB
argued to the GAO specifically that the CFPB is not an
appropriated agency, and, therefore, the GAO should not have
any jurisdiction over the bid protest. The GAO agreed that the
agency does not receive appropriations, but they still had
jurisdiction. That decision was published by GAO in 2016. I
have tried very hard, through a Freedom of Information Act
(FOIA) request to GAO, to get the CFPB's briefing, arguing the
opposite that it now argues to the Supreme Court, that the CFPB
is not an appropriated agency, but I was not able to obtain
that document through FOIA.
Mr. Posey. Thank you. Do you know how the CFPB compares to
the FTC's Bureau of Consumer Protection in terms of size and
productivity, number of enforcement investigations, actions, or
budget?
Mr. Johnson. Congressman, my understanding is that the CFPB
has roughly double the budget, and over the past 2 years, has
filed roughly half of the enforcement actions, civil
complaints, or administrative complaints. The one difference in
terms of the scope of FTC authority and CFPB authority would be
that the CFPB has supervision authority, whereas the FTC does
not.
Mr. Posey. Thank you. I see my time is about to expire, so,
Mr. Chairman, I yield back.
Chairman Barr. The gentleman yields back. The ranking
member of the Full Committee, the gentlewoman from California,
Ms. Waters, is now recognized.
Ms. Waters. Professor Peterson, thank you for being here
with us. And I am very pleased with President Biden's
initiative to eliminate junk fees, as well as all the hard work
of the Consumer Financial Protection Bureau under the
leadership of Director Chopra to do their part in this
initiative. This initiative has really resonated with
Americans, with the CFPB receiving more than 80,000 comments
when they launched the initiative. To put this into
perspective, House Republicans have held multiple hearings to
attack the Basel III Endgame proposal, which received only 400
comments, or 200 times less the amount of comments than the
CFPB received on junk fees.
Let's take credit card late fees, for example. Credit card
companies typically charge consumers $32 for making a late
payment. The CFPB recently finalized a rule that would
generally lower these fees to just $8, ensuring that they are
reasonable and proportional, as Congress required them to be in
the CARD Act. In doing so, CFPB will save $220 per year for
more than 45 million people who pay these fees. This adds up to
an annual savings of $10 billion for consumers.
Instead of joining Democrats to applaud the move, House
Republicans plan to soon advance a bill that would eliminate
this important CFPB rule. Professor Peterson, my colleagues on
the other side of the aisle have contended that CFPB lacked
legal authority for this rulemaking. Can you help us debunk
this notion?
Mr. Peterson. Thank you, Ranking Member Waters. The CARD
Act from 2009 granted discretion and authority to the
regulatory agency, at the time the Federal Reserve Board of
Governors, to implement a safe harbor, and sets up four
different factors the Federal Reserve Board of Governors was
supposed to evaluate in considering what that safe harbor fee
amount would be.
But time has gone by, there is additional data that has
been gathered, and now the CFPB has, as it is required to do,
revisited that regulation and made a decision about whether or
not that safe harbor is set at the appropriate level. The
Bureau has ample authority to revisit that and has come up with
a number of studies that provide detailed information about
what the total proportionate and reasonable costs are
associated with late fees. So, I believe that the CFPB is well
within its legal authority to lower that safe harbor.
Ms. Waters. Thank you. Moving ahead, I understand you
previously served not only at the CFPB, but also at the
Department of Defense, working on servicemember protections.
How does CFPB work to combat junk fees of servicemembers,
veterans, and their families? Will they be hurt if Congress
rescinds the credit card late fee rule?
Mr. Peterson. Yes, they will, Ranking Member Waters. The
Military Lending Act, under current implementing regulations,
does not prevent overdraft fees from being imposed on
servicemembers, and it also doesn't prevent late fees from
being imposed on servicemembers. So, those are junk fees that
our active duty military servicemembers in the Army, the Navy,
and the Marines all could potentially pay. And if the CFPB's
implementing regulation is allowed to go forward, that will be
cost savings. It will be passed on to our members serving----
Ms. Waters. Unfair question, why would elected officials be
opposed to their constituents, working people, being able to
have a reduction in late fees? Why would any elected official
on either side of the aisle be on the side of the big banks and
corporations? That may be an unfair question, but I am asking
it anyway.
Mr. Peterson. Well, Ranking Member Waters, it is a hard
question for me to answer. I think it is a really unpopular
view. Honestly, I don't know why you are going to bat for these
late fees. Don't you all have something better to work on? Yes,
Chairman Barr is shaking his head at me. I think you have
better things to do with your time, sir.
Chairman Barr. Okay. I think you are right, Ranking Member
Waters. Let's let these restrictions on junk fees go forward.
It is supported by the public. It is going to provide
meaningful protection to the American people. It is a good
idea.
Ms. Waters. Thank you so much for being here. I yield back
the balance of my time.
Chairman Barr. I appreciate the professor's cheerful
delivery. I do. I genuinely do. I like cheerful people. The
gentleman from Texas, Mr. Williams, is now recognized for 5
minutes.
Mr. Williams of Texas. Thank you, Mr. Chairman. I am a
small business owner in Texas, and the CFPB's goal is to
protect consumers from abusive financial practices, but like
everything else the government does, the people they want to
help, they actually hurt, but unlike most Federal agencies, the
CFPB was designed to operate outside of Congress' annual
appropriations process. This dangerous practice allows them to
operate without any accountability or oversight from Congress,
and the CFPB has a blank-check budget and a Director for whom
there are no repercussions for his agency rules, and that is no
way for a Federal agency to operate. Without oversight, the
CFPB can act as a partisan voice, whose sole goal is to push
the policy objectives and go on whatever misguided crusades
they wish. The CFPB must be held accountable for the damage
they are causing in financial institutions, their customers,
and small business owners.
Mr. White, could you elaborate on the dangers of having an
agency with an unconstitutional leadership structure and
unaccountable funding mechanism, and how does that hurt
American consumers, who are getting hurt in the end?
Mr. White. Our Constitution has elaborate procedures, not
elaborate, but well-thought-out procedures for appointments and
for funding of agencies, precisely because it is so important.
Oftentimes, personnel is policy, and oftentimes, some of the
most important decisions that Congress makes after it writes a
law or amends a law is to decide who will administer that law
under the President, and also how that agency will be funded. I
am very much in favor of Federal regulators keeping an eye out
for and policing unfair, deceptive, or abusive acts and
practices. But it is ultimately Congress' responsibility to
monitor agencies' own unfair or deceptive acts and practices.
Mr. Williams of Texas. As we have seen, the CFPB's
regulatory agenda has been a nonstop parade of partisan
politics and wish list items from the Biden Administration. The
CFPB's crusade on junk fees, as they call it, the increase on
burdensome small businesses reporting requirements, and unfair,
deceptive, or abusive acts or practices (UDAAP) authority are a
few of the policies the agency is using to score political
points, but which significantly hurt consumers and business
owners.
Now, the CFPB's process of legislating via press releases
has many institutions across the financial spectrum terrified
about what confusing regulations could possibly come out of
this agency next. The CFPB must follow all proper rulemaking
channels and not use policy statements or guides to regulate.
Mr. Johnson, can you expand on how the CFPB's practice of
creating new regulations outside of the proper process is
harmful to consumers and small businesses?
Mr. Johnson. Yes, sir. All forms of agency guidance by law
cannot be binding, but when the agency seeks to bind parties
through guidance rather than going through the formal APA-
required notice-and-comment process for rulemaking, it really
warps expectations and creates uncertainty in the marketplace.
That uncertainty pulls back on economic activity and that harms
consumers and producers alike.
Mr. Williams of Texas. Checks and balances are a vital
function of our government to ensure accountability, and the
funding structure of CFPB lacks appropriate oversight and is
vastly different from other Federal banking agencies, as the
CFPB relies on allocations from the Federal Reserve instead of
from Congress. In order to have a check on the CFPB power, it
is imperative that operations be subject congressional
appropriations.
Mr. White, if the courts determine the CFPB's funding
mechanism is unconstitutional, do you believe the CFPB would be
able to effectively operate under the regular appropriations
process, and do you think a more transparent funding process
would improve rulemaking by the CFPB?
Mr. White. Yes, sir. I believe the CFPB can operate
perfectly well under the normal appropriations process, just as
other financial regulators draw substantial funds from the
appropriations process.
Mr. Williams of Texas. I don't think they can operate if
they have to say in guidelines or rules. It is pretty clear to
all of us. And I can tell you, as a small business owner, CFPB,
the regulations it has put on small business are unbelievable,
and like I say, the very people they think they are helping,
they are hurting. They are hurting consumers, they are raising
costs, and they have no oversight, so it is something that we
have to address.
I yield back, Mr. Chairman. Thank you.
Chairman Barr. The gentleman yields back. I appreciate his
leadership on the House Small Business Committee. The gentleman
from California, Mr. Sherman, is now recognized.
Mr. Sherman. The CFPB is doing outstanding work. It has put
$17.5 billion back in Americans' pockets. It has provided $4
billion to the Victims Relief Fund. It deals with 3,000
complaints it receives every day. Many members of the committee
are well aware of those statistics. What you may not be aware
of is that on November 8th of last year, it ordered Citibank to
pay almost $26 million in fines for intentionally and illegally
discriminating against Armenian-Americans. And for those of you
who do not have an Armenian-American community in your
district, it is particularly easy to discriminate against
Armenian-Americans because the vast majority of names end in,
``-ian,'' or, ``-yan,'' of the Armenian-American community. But
it is not just what was done with the $26 million or the $4
billion or the $17.5 billion. That is the tip of the iceberg,
because when the CFPB acts, it deters bad actors from doing
these things on a much larger scale.
We are told that the CFPB doesn't testify enough. Their
Director comes before us at least twice a year, usually more
often. We are told that the funding mechanism is
constitutionally impaired. Professor, I think you did an
excellent job of explaining why it is not, but let me just
address that. It is the exact same funding mechanism that the
Fed uses. And if the Supreme Court really wants to cause a
tailspin for our economy and shake it to its fundamental roots,
it would rule that the Fed is unconstitutional in some respect.
I am confident the Supreme Court will not do that. The
existence of police does not mean that our citizenry is
criminal, and the existence of policing consumer transactions
is not anti-capitalist propaganda.
There is one piece of legislation before us that is noticed
for this hearing, H.J. Res. 122, which is designed to
invalidate the rule to reduce the charge for late credit card
fees. Well, who amongst us has not sent in our payment late,
and why should that fee be all they can get from us rather than
something related to the bank's costs? I remember when credit
cards were embossed and carbonized paper was used and the cost
of processing transactions was high. Certainly, the bank can
deal with the fact that a payment is late for $8, probably
less.
But focusing on that issue, Professor, 128 Members joined
in a letter I wrote dealing with the exact date. If the date
that your credit card pay payment is due on April 30th, say,
some banks say it has to be in by 5:00 p.m. Eastern Time.
Now, that makes sense if you are paying by mail, but so
many people pay electronically. Is it fair to people who live
in the Pacific Time Zone, let alone Hawaii or Alaska, for them
to get statements that say, oh, you are on time if you get your
money in by April 30th, and they get their money in
electronically at 4:00 p.m. California time? These are banks
that have hundreds of thousands of customers in my time zone,
and yet somebody pays electronically at 4:00 p.m. on the due
date and they get hit with what is now a $36 fee, which under
the CFPB rule, would be an $8 fee. Shouldn't banks that operate
with hundreds of thousands of cards in the West Coast Time Zone
have their computers on past 5:00 p.m. East Coast time?
Mr. Peterson. Well, Representative, I certainly agree with
that. Our banks should be----
Mr. Sherman. By the way, this also applies to Utah. You are
just one time zone over.
Mr. Peterson. I was thinking the exact same thing. That is
right. Look, there might be something in the contract, some
details in there where they use that as the predicate for
allowing that as a matter of contract law, but it is not a good
policy. It is not neighborly of the bank. If you say that is
the due date, you should get all the way up until midnight, and
everybody in the country should be treated the same way.
Mr. Sherman. I would agree for electronic payments. And
back in the day, when it was postal, one understands that there
is only an afternoon mail delivery, but today, the computers
can be on till midnight. I yield back.
Chairman Barr. The gentleman yields back. The gentleman
from Georgia, Mr. Loudermilk, who is also the Vice Chair of the
subcommittee, is now recognized.
Mr. Loudermilk. Thank you, Mr. Chairman, and I appreciate
all of you being here today. Since its establishment in the
Dodd-Frank Act, the CFPB source of funding has been
controversial at least. Even now, the constitutionality of
their funding is being considered by the Supreme Court, and I
am hopeful that the courts share our concerns that the Bureau's
current funding structure limits Congress' ability to oversee
the agency through regular appropriations, and obviously, I am
a supporter of Chairman Barr's bill to do that. It is way past
time that the Bureau is held accountable to the people and gets
the funding it deserves through the regular appropriations
cycle.
With that, Mr. White, should the Supreme Court find that
the Bureau's current funding structure is unconstitutional or
if Congress was to pass a funding mechanism for them, does the
CFPB have a Plan B, per se, to fund itself outside the annual
appropriations process?
Mr. White. Thanks, Congressman. I must say I do not know
what plans the CFPB is or is not making, but of course it
should be prepared for that eventuality given that this issue
has been litigated now for more than a decade.
Mr. Loudermilk. Thank you. With the appropriate funding
from Congress, is there any reason to believe that the CFPB
wouldn't be able to fulfill its statutory mission?
Mr. White. Me?
Mr. Loudermilk. Yes.
Mr. White. No, sir. The CFPB can carry out its statutory
mission perfectly well, and if I may, a ruling against the
CFPB's unique funding structure would not pose a threat to any
other Federal agency, including the Federal Reserve.
Mr. Loudermilk. Is there any legitimate reason that the
CFPB should be fearful of operating under congressional
appropriations authority?
Mr. White. No, sir. I think discussions like this, where
Members of Congress are touching on the substantive policies
that CFPB is reviewing, shows that Members of Congress, just
like the CFPB, can weigh these policy considerations just as
much as an independently-funded agency.
Mr. Loudermilk. Okay. Thank you. Last question. Mr. White,
the CFPB and its supporters argue that having a single Director
makes the Bureau more efficient at helping consumers.
Meanwhile, other Federal financial regulators have multimember
boards or directorates. What makes the CFPB any different from
the other financial regulators, that having a multimember board
would make them less effective?
Mr. White. Congressman, I recall that when the CFPB was
first proposed by then-Professor Warren, she proposed that it
should be a multimember commission modeled after the Consumer
Product Safety Commission. I think that the CFPB would do well
as a multimember commission, assuming that it was funded
appropriately and actually did carry out its mission in the
kind of, as the Supreme Court once said, quasi-legislative,
quasi-judicial approach that befits a true non-political
agency, but that is very much not the CFPB right now.
Mr. Loudermilk. Is it your impression that by, ``less
effective,'' the Bureau supporters mean less effective at
pushing partisan regulatory agendas?
Mr. White. I can't read the mind of the current CFPB, and I
can't read the minds of its supporters either, but I do know
that the CFPB right now is a very enthusiastic embodiment of a
number of President Biden's priorities, and I am sure people
like that.
Mr. Loudermilk. Thank you, Mr. White. And in the interest
of efficiency, Mr. Chairman, I am going to give you back a
minute and 40 seconds. I yield back.
Chairman Barr. Thank you for your efficiency. The gentleman
from Texas, Mr. Green, is now recognized.
Mr. Green. Thank you, Mr. Chairman. And I thank the ranking
member, and I thank the witnesses for appearing today.
I had the preeminent privilege of being here when we had
the 2008 downturn, and it was a time of great turmoil. I recall
banks not lending to each other. That is a powerful statement.
When banks do not trust each other, who would lend to each
other? I recall how the consumers were being savaged with 3/27s
and 2/28s, and all sorts of products that were designed to give
consumers an opportunity to fail. Those were difficult times.
The Consumer Financial Protection Bureau didn't occur
because someone just had a great idea. It came to fruition
because there was a need beyond any that we could comprehend,
and there had to be some means by which we could assure
ourselves to the extent that people can assure themselves that
this wouldn't happen again. No, it is not perfect, but my guess
is that if we didn't have it, we would be trying to create it.
It is just that important.
It seems to me that the GAO's most recent annual audit is
something worthy of consideration. It indicates here that they
found that the CFPB's Fiscal Year 2023 financial statements
were reliable and that controls over the financial reporting
were effective. It goes on to say the GAO also found that the
Consumer Financial Protection Bureau's financial statements as
of and for the fiscal years that ended September 30, 2023, and
September 30, 2022, are presented fairly in all material
respects, no reportable, noncompliance for Fiscal Year 2023.
So, there is an audit that seems to favor the entity being
sound, fiscally responsible.
I am not sure I would like to see this Congress fund the
CFPB. This Congress has difficulty maintaining leadership. This
Congress has difficulty funding the Federal Government. Do we
really want this Congress to fund the Consumer Financial
Protection Bureau?
So, Mr. Peterson, if Congress could not come to an accord
such that we could fund the CFPB after some period of time,
what would be the consequences of our failure to do our job?
Mr. Peterson. Representative Green, thank you so much, and
you won't remember this, but back in 2008, when you were here,
I got to testify before you back then as well. And you have
always struck me as such a wise and decent man and----
Mr. Green. Thank you.
Mr. Peterson. ----full of compassion. But to answer your
question, if the Supreme Court or Congress strikes down the
ability of the CFPB to gather its revenue through the Federal
Reserve Board of Governors, and if Congress does not step
forward and provide a source of funding, then we would expect
that eventually, the Bureau's consumer protection tools would
start to wither on the vine. We would have fewer examiners
conducting audits, fewer enforcement cases, and less capability
of providing clarity and information for compliance concerns
for businesses. So, I think we would lose that protection that
you all voted for back in 2010.
Mr. Green. My suspicion is that at some point, we would not
have a CFPB, and that would suit the aims of many people. I
support the CFPB. I believe we have to have an agency to look
out for the people, and that is what it does. Thank you, Mr.
Chairman. I yield back.
Chairman Barr. The gentleman yields back. The gentleman
from South Carolina, Mr. Timmons, is recognized.
Mr. Timmons. Thank you, Mr. Chairman. I have grave concerns
surrounding the CFPB's funding structure and, really, its
operational accountability in general. The CFPB was designed to
be shielded from any form of accountability, and the
combination of legislative, executive, and judicial powers in
one agency opens the door for gross misconduct with impunity.
Under Director Chopra and the Biden Administration, we have
seen just that: a government agency weaponized to achieve
political goals while forgetting its original charter to
protect consumers.
The current system of GAO audits is not enough to ensure
there are proper checks and balances in place to rein in a
rogue agency. Although the CFPB has consistently been given a
clean bill of financial health, I think there is much to be
said about how little we truly know regarding the Bureau's
balance sheet. It is essentially a trust situation. I don't
know about you, but I have come to distrust the CFPB's word.
They tout their data privacy and cybersecurity measures, yet an
employee was sending hundreds of thousands of tranches of
consumer data to a personal cloud, but, again, we should trust
them to operate in a functional and fiscally-responsible way
despite the opaque veil they display.
Mr. White, it is clear that in the modern administrative
state, checks and balances have eroded as clearly as our
separation of powers. What are the consequences of this
erosion, and what steps can Congress take to restore the
separation of powers of the CFPB and better protect our
citizens from a Federal Government that at times seems unmoored
from the Constitution?
Mr. White. Thank you, Congressman. I see this delegation of
perpetual funding authority of the CFPB to be part and parcel
of Congress' broader decades-long withdrawal from day-to-day
lawmaking, much akin to its delegation of regulatory powers to
any number of agencies. What you get is a different form of
lawmaking, one that is actually less accountable to voters, and
one that is less moderated. It is unilateral because it is made
swiftly by energetic agencies.
If I may, a moment ago Congressman Green pointed out very
eloquently the words of Dodd-Frank; choice is in its structure.
These weren't just words. These weren't just ideas. I would say
the exact same thing about the appropriations clause of our
Constitution and our Constitution's clause for the raising of
revenue. Those weren't just words. They weren't just abstract
ideas. They were the hard-fought wisdom of the founding
general, the hard-won wisdom of the founding generation, and
our failure to live up to those rules today, I think, has had
many, many bad consequences for the rule of law and government
today.
Mr. Timmons. Thank you for that. Switching gears for a
moment, a few months ago, along with many of my colleagues, I
authored a letter to the CFPB encouraging the Bureau to
leverage their Civil Penalty Fund to educate consumers on scams
and fraud within the financial sector. Dodd-Frank states that
the Fund must first be used to compensate consumers who have
been directly harmed by illicit financial activity. The CFPB
then has the discretion to use the remaining balance for,
``consumer education and financial literacy.'' In its annual
financial report for Fiscal Year 2023, the Bureau noted that it
made zero dollars in allocations for consumer education and
financial literacy purposes.
Mr. Johnson, given Congress' clear direction that the Civil
Penalty Fund be available for the purpose of consumer education
and financial literacy programs, do you have any insight into
why the Civil Penalty Fund administrator has refused to
allocate consumer education and financial literacy programs,
and how do you believe a surplus in this Fund can be best
allocated?
Mr. Johnson. Thank you, Congressman. I believe, in the
agency's history, there have been two such allocations early in
the agency's history, the two separate financial literacy
programs. The concern raised at the time was that there were no
controls or parameters over how, once obligated, the CFPB would
use those funds, and there was a risk that those funds could be
used to compensate outside groups maybe aligned with the
agency's advocacy efforts. So to the extent that they are used,
I think that the administrator of the CFPB, and Congress
serving an oversight function, should ensure that there are
precise and firm controls around the use of those funds if they
are diverted away from the victim compensation function.
Mr. Timmons. Thank you for that. If a private business has
a cybersecurity breach and an individual has damages associated
with that breach, that private company is going to be sued and
they are going to have to pay that individual for those
damages. That is the civil court system. So, when the CFPB
damages hundreds of thousands of individuals, how is the CFPB
going to make those people whole for the cybersecurity breach
in which they were damaged?
Mr. Johnson. Congressman, it is unclear to me. I think the
CFPB has been less than transparent in all regards about what
exactly happened.
Mr. Timmons. They didn't even want to tell us it happened.
Mr. Johnson. And what the resolution might ultimately be.
Mr. Timmons. I think they have money in weird places. They
ought to use that to pay damages to the individuals that they
wronged because of their lax cybersecurity.
Thank you, Mr. Chairman. I yield back.
Chairman Barr. The gentleman yields back. The gentlewoman
from Massachusetts, Ms. Pressley, is now recognized.
Ms. Pressley. Thank you, Mr. Chairman. According to a
recent poll, 82 percent of all voters, including 77 percent of
all Republicans, support the Consumer Financial Protection
Bureau and its mission to protect consumers. Let that sink in.
More Republicans, let the record reflect, support the CFPB than
support Donald Trump, and it is clear why.
The CFPB under Director Chopra's leadership has taken
decisive action to combat junk fees, hold predatory lenders
accountable, protect seniors against fraud, hold big banks
accountable, remove the burden of medical debt, ensure harmed
consumers get the relief they need, and the list goes on.
Now, while the CFPB's record speaks for itself, Republican
Members on this committee continue to show how out of touch
they are with their own constituents as they launch attack
after attack, willfully ignoring the broad support the CFPB has
across the nation. This agency is dedicated to protecting
consumers, and losing the Bureau would be disastrous for our
financial system and economy. People are certainly entitled to
their opinions, but not to their own version of the truth, and
there is broad support that the CFPB has across the nation, so
willfully ignoring that will not change the truth.
Professor Peterson, the primary attack from Republicans is
about the CFPB's funding structure. The CFPB is not the only
financial regulator with a source of independent funding. Do
the Federal Reserve, the FDIC, the Office of the Comptroller of
the Currency, the National Credit Union Administration, and
other agencies also have independent funding outside of the
annual appropriations process?
Mr. Peterson. Yes, Representative, they do.
Ms. Pressley. Thank you. Now, the second attack from
Republicans is that the CFPB is too good at protecting
consumers. The CFPB recently finalized a rule to limit late
fees that credit card companies could charge from $32 to $8. If
this rule takes effect, consumers would save a staggering $10
billion--that is with a, ``B,''--annually. Despite this,
Republicans are trying to overturn this rule. They are choosing
to defend a deeply exploitive late fee practice that harms
consumers at the expense of millions of workers and families
who live paycheck to paycheck, families who are struggling to
make ends meet due to unlivable wages, a lack of affordable
healthcare, the absence of paid leave, and many other policies
that are pushing families further to the margins. At their most
financially-vulnerable moments, these working families are
charged predatory late fees by credit card companies. This is
deeply unjust.
Professor Peterson, can you elaborate on how the CFPB's
late fee rule benefits everyday consumers, many of whom live
paycheck to paycheck?
Mr. Peterson. Sure, Representative. Look, when people can't
make ends meet, they are likely to have a late payment on their
credit card. And when they get socked with a fee, it is more
money out of their bank account, which makes them less able to
cover the cost, and to make sure their kids are getting enough
to eat, and to make sure they can pay their rent. The CFPB's
late fee rule is a simple rule, it decreases the safe harbor
and makes it much more likely that banks are going to charge
lower late fees, which means when people are really struggling
to make ends meet, they are less likely to get hit with a high
cost fee. It is just better for the public.
Ms. Pressley. Thank you. These Republican attacks against
the Bureau are baseless. They do nothing to support or benefit
the people, our shared constituents. The CFPB supports our
most-vulnerable and protects millions of consumers from
exploitation, abuse, and predatory lending. We should be
celebrating the Bureau and all of the staff for their hard work
that often goes underappreciated instead of attacking them.
Thank you, and I yield back.
Chairman Barr. The gentlelady yields back. The gentleman
from South Carolina, Mr. Norman, is now recognized.
Mr. Norman. Thank you, Mr. Chairman. Mr. Johnson, would it
be more disastrous for the country to lose the CFPB as an
agency or to lose the ability for us to get credit cards?
Mr. Johnson. I think one could argue that the lack of
access to credit in a major consumer product vertical would be
more detrimental to the U.S. economy and would potentially
affect more consumers.
Mr. Norman. Okay. The CFPB has tapped the Federal Reserve
for roughly $7 billion, yet they have $2 billion in cash on
hand from the civil penalties, and it is just sitting there.
What is that going to be used for, and why would it not be
given back to pay the debt off or to help some of these victims
who have been brutalized by the CFPB with legal fees and costs?
Mr. Johnson. Congressman, part of the accounting recognizes
the fact that the civil penalties paid pursuant to an
enforcement action come in immediately, but there is a delay
between the time it takes to identify a victim class and then
allocate the funds, so some of the questions about the
unobligated balance in the fund relates to that timing effect.
But one important consideration would be the amount of the
unobligated balance that is not obligated to victim classes
over the long term to understand whether or not those resources
could be used for other purposes.
Mr. Norman. So, it will sit there unused for how long,
would you say?
Mr. Johnson. Funds collected in one enforcement action can
be used through the Civil Penalty Fund to be allocated to
victims of other victim classes and future enforcement actions.
It would depend on the number of future enforcement actions and
the potential remediation required in those classes, so it is
very difficult to assess.
Mr. Norman. Who makes that call?
Mr. Johnson. Ultimately, it is the Director.
Mr. Norman. Mr. Chopra? It is totally up to him? I think
the answer is, yes.
Mr. Johnson. The agency has discretion on how to obligate
funds from the Civil Penalty Fund for identified victim
classes, yes.
Mr. Norman. Okay. On the credit card fees, and I support
Chairman Barr's bill for the CFPB to get involved with banks
that have to compete with other banks and to cut a fee from, if
you don't pay the bill on time, I think it is an average of 12
to 15 days to pay a bill, from $32 to $8. If this extends to
credit cards, should the next regulation of the CFPB come to
eliminating if you do not pay your loan back or on your house
or your car? Is that burdensome to anybody?
Mr. Johnson. Congressman, I think one of the misnomers
surrounding the credit card late fees rule is proponents are
using a static analysis, so they are saying that if you just
cut the size of a late fee, assess that there will be an
equivalent savings. Of course, we live in dynamic marketplaces
where providers and consumers adapt to changed circumstances.
And even in the Bureau's own analysis, it admitted that those
who will pay costs as a consequence of this rule are those
Americans who do not make late payments, and then, other
Americans who are marginal credit risks, who may have lower
credit balances associated with their cards, may lose access to
their credit cards, may have to pay higher fees and credit
interest rates as a consequence of the rule. So on a dynamic
basis, there are significant consequences for many Americans,
and by and large, more Americans will pay those costs than will
benefit from the rule.
Mr. Norman. The banks borrow money, too. They pay an
interest rate on funds that they lend out on credit card users,
and for the most part, a lot of them don't have the credit
card. That is why the fee is higher, both on the carry charges
forward and on the debt. Your agency is overstepping its bounds
in so many different areas that is going to end up costing
consumers more in the long run than they are going to save. I
yield back.
Mr. Timmons. [presiding]. The gentleman from Wisconsin, Mr.
Fitzgerald, is now recognized for 5 minutes.
Mr. Fitzgerald. Thank you, Mr. Chairman. Unlike any other
agencies, CFPB funding is protected by several layers of
insulation, which was discussed a couple of times here today.
And as we know, the CFPB Director is required only to submit a
letter to the Federal Reserve Board each quarter certifying the
amount of funds that are reasonably necessary. We have had Fed
Chair Powell before the committee, sitting right where you are,
and he was asked the question specifically about the CFPB and
what did he think about the funding and how did it work, and
his answer was, they send us a bill and we pay it.
The Federal Reserve, which itself is funded outside of the
appropriations process, has been discussed through assessments
on Federal Reserve Banks, which are, in turn, largely funded by
open market operations and not through appropriations process,
as you know, then transfers the requested amount, which is
capped at 12 percent. I would have loved to have been in the
room when somebody was sitting at the table dreaming this up,
said 12 percent of the Fed's total operating expenses is a good
number. No rhyme or reason to it.
The Constitution requires Congress to act first before the
government can do anything. The current funding structure of
the Bureau impermissibly reverses the process, right? It makes
no sense, and by contrast, a handful of other agencies that are
funded outside the typical appropriations process, like the
FDIC and, what has been discussed, the NCUA and the FHFA will
obtain their funding by assessing fees against what otherwise
would be considered regulated entities, right? So there is a
difference, but in each instance, the other financial
regulators receive funding directly from regulated entities as
authorized by statute. None of these agencies enjoy the
perpetual funding mechanism with funds drawn from another
agency, let alone one with another layer of budgetary
independence.
The Trump Administration proposed limiting the CFPB's
mandatory funding in 2020 before providing discretionary
appropriations in 2021. These changes were projected to provide
over $5 billion in savings over 10 years.
Mr. Johnson, can you elaborate on what sets the CFPB apart
from other agencies in terms of accountability, and discuss the
increased accountability that could come from moving the CFPB
to the congressional appropriations? I understand there is
somewhat of a redundancy. This question has kind of been asked
in many different forms, but if you could just once again take
a crack at it.
Mr. Johnson. Certainly, Congressman. I think one key
consideration for Congress to make is when agencies have siloed
budgets, they don't make reasoned judgments about relative
spending priorities for the U.S. Government as a whole. That is
a job that Congress has. So, when the agency goes through its
own budget process, particularly if there is no congressional
oversight, if there is are no other external checks and
balances, invariably, the lack of oversight incentivizes loose
spending and skews priorities. So, the accountability that
would come from congressional appropriations would be the
collective judgment of Congress as a whole as to what the
United States Government's spending priorities should be and
where the CFPB's funding fits within those relative priorities.
Mr. Fitzgerald. Mr. White, let me ask you, we have had
Director Chopra before the committee numerous times as well.
And the one thing that he is never able to, I think, address
directly is, are there any reliable metrics available to
evaluate the effectiveness of the CFPB in enforcing the Federal
consumer laws, and if so, can you please provide an example?
But he is unable to answer this because really, the way they
measure success is to just kind of roll out data that says here
is how many contacts, here is how many phone calls we got.
Well, if a Member of Congress based their success as an elected
official on how many phone calls come into the office, we would
be out of office soon. So just, once again, are there any real,
measurable, effective ways of saying, okay, the CFPB is doing a
good job?
Mr. White. There have been efforts over 40 years to use
tools like cost-benefit analysis to show the effectiveness of
an agency's rulemaking actions, both the benefits but also the
costs, both of which are important. But I think that your
question illustrates the fact that especially in this area and
this agency, there has been a real paucity of metrics and a
paucity of a commitment to finding metrics.
Mr. Fitzgerlad. Thank you. I yield back.
Mr. Timmons. The gentlewoman from California, Mrs. Kim, is
now recognized for 5 minutes.
Mrs. Kim. Thank you, Mr. Chairman. And I want to thank our
witnesses for being here today. We are almost coming to an end.
The Fed recently said it had a record loss in income of
more than $114 billion. The CFPB is funded by earnings from the
Federal Reserve System. Mr. Johnson, you mentioned earlier the
operating loss, right? So how can we do that even with the
operating loss? So, can you elaborate on that a little more?
Mr. Johnson. Yes, Congresswoman. It is essentially an
accounting gimmick that the Fed uses. Rather than recognize
that it is losing money, and it has stopped remitting payments
to Treasury from its surpluses, it is building up the amount of
red ink from its losses on its balance sheet. And it is
essentially a recognition that in the future, when it starts
earning a surplus, it will have to pay off the accounting entry
on its balance sheet. So, all dollars that are sent to the CFPB
now, well, the Fed is losing money, run up the tab, so to
speak, on future earnings that the Fed will have to realize in
order to begin again sending surpluses back to the U.S.
Treasury for purposes of deficit reduction.
Mrs. Kim. Let me follow up on that. The Federal Reserve
rubber stamps anything determined by the CFPB Director to be
reasonably necessary to carry out the authorities of the
Bureau. Is there a legal definition or standard to help
calculate what is reasonably necessary?
Mr. Johnson. It is not defined in the Dodd-Frank Act,
although I could point to an example or two of CFPB spending
that is not reasonably necessary.
Mrs. Kim. Okay. Thank you. Let us move on to another
matter. I am a Co-Chair of the House Financial Literacy and
Wealth Creation Caucus, and one of my priorities is to be able
to enhance financial literacy in our communities. And in the
CFPB's Civil Penalty Fund, that was partially designed for the
purpose of consumer education and financial literacy programs,
total of all Civil Penalty Fund deposits was nearly $3.5
billion through the end of September 2023.
So tell me, why does the CFPB not have something akin to
the Fed's Compliance and Internal Control Office under their
Division of Financial Management to ensure that Civil Penalties
Fund is used for financial literacy programs? It probably was
discussed earlier, but can you elaborate on that?
Mr. Johnson. Thank you, Congresswoman. Again, if there are
not identifiable victims and victim classes, there is a
mechanism by which the CFPB could use a portion of those funds
to obligate for certain programs. I think there are careful
controls in place to make sure that the primary use and purpose
of the fund to compensate victims can be satisfied. But to the
extent there are surpluses, there is a penalty fund governance
board within the CFPB that would be responsible for making
those judgments about whether to allocate unobligated funds for
that purpose.
Mrs. Kim. Thank you. Mr. White, I have a question for you.
We have seen how the CFPB has moved well beyond its legal
boundaries and rapidly reinterpreted consumer financial law.
Given the agency's design, are you surprised by any of this
behavior?
Mr. White. No, Congresswoman, I am not. And I would add
that in addition to stretching the bounds of the substantive
laws, the CFPB has shown itself very willing to stretch the
bounds of the procedural laws to evade some of the basic
requirements of the Administrative Procedure Act in trying to,
in effect, make and impose policy without going through at
least the notice-and-comment rulemaking process that could
improve policy and make the agency more accountable.
Mrs. Kim. Thank you. Can you also talk to me about some
actions that Congress could take to reclaim power over this
rogue agency?
Mr. White. Yes, Congresswoman. First, as things currently
stand, there is the Congressional Review Act under which
Congress can review the major rules of any agency, so that is
generally a good place to start. But second, as discussed, and
as I brought up repeatedly today, Congress could reclaim its
power of the purse regardless of what the Supreme Court does in
the pending case. And third, and just as importantly, Congress
should return to the original Dodd-Frank Act and put more
specific substantive standards in the Act, at the very least so
that Congress is making the laws and not agencies.
Mrs. Kim. I could not agree with you more on that. Would it
be acceptable for any other agency with the size, scope, and
broad authority of the CFPB to share an Inspector General with
another agency?
Mr. Johnson, do you want to answer that?
Mr. Johnson. Yes, Congresswoman. I think it is an artifact
of the CFPB's creation, and it is tied, I think, to the CFPB's
funding mechanism.
Mrs. Kim. Thank you. I yield back.
Mr. Timmons. Thank you. The gentleman from Tennessee, Mr.
Ogles, is now recognized for 5 minutes.
Mr. Ogles. To be or not to be, Mr. Chairman, I think that
is one of the important questions, and if I could think of an
agency that should not be, it would be the CFPB. And the
question was posed, do we have or don't we have better things
to do with our time, and, Mr. Chairman, I would point out that
an agency whose funding mechanism is unconstitutional--I think
that deserves our time. I think an agency that has gone beyond
its mandate, that deserves our time. I think an agency that
regulates and legislates by rule enforcement versus following
the Administrative Procedure Act (APA), I think that deserves
our time.
So, even though we may be getting into the minutiae of some
of these issues or some of these rules, they deserve our time.
And most banks, credit unions, and independent community banks
will tell you that one of the biggest issues for them is the
CFPB. We have all seen the negative impact of practices like
regulation by enforcement and other questionable agency
actions. As we have heard today, the impact of this growing
compliance burden from the CFPB is evident as the number of
financial institutions continues to decline.
Mr. White, in your 2022 Wall Street Journal article, you
noted that James Madison emphasized in Federalist Number 58,
Congress' power of the purse was intended to be the powerful
instrument preventing all the overgrown prerogatives of the
other branches of the government. Please explain how this
sentiment is applicable in the situation of the CFPB and what
our founding fathers were warning us about?
Mr. White. Thank you for your question, Congressman. It is
crucial, and Madison recognized that it is crucial that
questions of the writing of laws, the spending of Federal
money, and the collecting of Federal money has to begin, first
and foremost, with the part of government closest to the
people, Congress, and, in particular, the House of
Representatives.
And I just want to point out, to this end, that a decade
ago when I was still in private practice, I helped to file the
original constitutional challenge to the CFPB's funding and its
executive independence. Our client was not a big bank. We
talked to the big banks about the case. They were interested in
the issue, but they did not want to challenge the regulators.
It was a West Texas community banker who was willing to really
stick his neck out and say, this is unconstitutional, and I
want to take a stand.
And I think that is because the smaller banks and the
regional banks have felt, more than any other of their
competitors, the compliance burdens, the regulatory burdens,
the way that technocratic rules are being imposed on community
banking. And I think that also helps to explain, in part, the
era of massive consolidation we are seeing at the community and
regional banking levels.
Mr. Ogles. Mr. Chairman, I want to point out that it is
those community banks that are feeling the burden of the CFPB,
that if you are Joe the plumber or you are the local mom and
pop, it is the relationship that you have with the community
bank. They are going to be your lender. It is not the big boys
on the block, and they are feeling it too, quite frankly. But
as you see the whittling down of the community bank, and what
it is doing to rural America, and what it is doing to suburban
America, enough is enough.
The CFPB has unprecedented power and enforcement authority
with nearly no accountability under its guaranteed funding
mechanism. The CFPB estimated its funding at $717 million for
Fiscal Year 2021, $734 million for Fiscal Year 2022, and $750.9
million for Fiscal Year 2023. Is it sustainable to allow a
rogue agency to continue down this kind of path? Please
describe those dangers, Mr. White?
Mr. White. Well, it is not, and if anything, Congressman,
the problem is only getting worse. The more that the agency
leans into some of the least-accountable tools for
policymaking, even further away from notice-and-comment
rulemaking towards enforcement, discretion, and opaque
supervisory authority, if anything, Congress needs to try to
impose even more transparency and procedural regularity onto
this agency in addition to the other accountability measures
that we have been discussing.
Mr. Ogles. And to that point, is it fair to your small
regional banks or, quite frankly, to any business that you have
this uncertainty in the regulatory regime where suddenly, you
are afraid of the heavy hand of government because of a rule?
Is that a realistic environment in which to be operating?
Mr. White. No, not at all. It is hard enough for the
community banks right now to compete given some of the
technological advantages and other just basic market
competitive advantages that the bigger banks have. This is the
worst possible time for agencies to impose even more
disproportionate burdens of regulatory uncertainty on those
competitors.
Mr. Ogles. Mr. Chairman, I do have more questions, but I
will submit those for the record. I yield back.
Mr. Timmons. I would like to thank our witnesses for their
testimony today.
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.
I ask our witnesses to please respond as promptly as you
can.
With that, this hearing is adjourned.
[Whereupon, at 4:12 p.m., the hearing was adjourned.]
A P P E N D I X
April 16, 2024
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