[House Hearing, 119 Congress]
[From the U.S. Government Publishing Office]
A NEW ERA FOR THE CFPB: BALANCING POWER
AND REPRIORITIZING CONSUMER PROTECTIONS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON FINANCIAL INSTITUTIONS
of the
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED NINETEENTH CONGRESS
FIRST SESSION
__________
MARCH 26, 2025
__________
Serial No. 119-11
Printed for the use of the Committee on Financial Services
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
www.govinfo.gov
______
U.S. GOVERNMENT PUBLISHING OFFICE
59-940 PDF WASHINGTON : 2025
HOUSE COMMITTEE ON FINANCIAL SERVICES
FRENCH HILL, Arkansas, Chairman
BILL HUIZENGA, Michigan, Vice MAXINE WATERS, California, Ranking
Chairman Member
FRANK D. LUCAS, Oklahoma SYLVIA R. GARCIA, Texas, Vice
PETE SESSIONS, Texas Ranking Member
ANN WAGNER, Missouri NYDIA M. VELAZQUEZ, New York
ANDY BARR, Kentucky BRAD SHERMAN, California
ROGER WILLIAMS, Texas GREGORY W. MEEKS, New York
TOM EMMER, Minnesota DAVID SCOTT, Georgia
BARRY LOUDERMILK, Georgia STEPHEN F. LYNCH, Massachusetts
WARREN DAVIDSON, Ohio AL GREEN, Texas
JOHN W. ROSE, Tennessee EMANUEL CLEAVER, Missouri
BRYAN STEIL, Wisconsin JAMES A. HIMES, Connecticut
WILLIAM R. TIMMONS, IV, South BILL FOSTER, Illinois
Carolina JOYCE BEATTY, Ohio
MARLIN STUTZMAN, Indiana JUAN VARGAS, California
RALPH NORMAN, South Carolina JOSH GOTTHEIMER, New Jersey
DANIEL MEUSER, Pennsylvania VICENTE GONZALEZ, Texas
YOUNG KIM, California SEAN CASTEN, Illinois
BYRON DONALDS, Florida AYANNA PRESSLEY, Massachusetts
ANDREW R. GARBARINO, New York RASHIDA TLAIB, Michigan
SCOTT FITZGERALD, Wisconsin RITCHIE TORRES, New York
MIKE FLOOD, Nebraska NIKEMA WILLIAMS, Georgia
MICHAEL LAWLER, New York BRITTANY PETTERSEN, Colorado
MONICA DE LA CRUZ, Texas CLEO FIELDS, Louisiana
ANDREW OGLES, Tennessee JANELLE BYNUM, Oregon
ZACHARY NUNN, Iowa SAM LICCARDO, California
LISA McCLAIN, Michigan
MARIA SALAZAR, Florida
TROY DOWNING, Montana
MIKE HARIDOPOLOS, Florida
TIM MOORE, North Carolina
Ben Johnson, Staff Director
------
SUBCOMMITTEE ON FINANCIAL INSTITUTIONS
ANDY BARR, Kentucky, Chairman
BARRY LOUDERMILK, Georgia, BILL FOSTER, Illinois, Ranking
Vice Chairman Member
BILL HUIZENGA, Michigan NYDIA M. VELAZQUEZ, New York
ROGER WILLIAMS, Texas GREGORY W. MEEKS, New York
JOHN W. ROSE, Tennessee DAVID SCOTT, Georgia
WILLIAM R. TIMMONS IV, South BRAD SHERMAN, California
Carolina AL GREEN, Texas
RALPH NORMAN, South Carolina JUAN VARGAS, California
DANIEL MEUSER, Pennsylvania SEAN CASTEN, Illinois
YOUNG KIM, California STEPHEN F. LYNCH, Massachusetts
BYRON DONALDS, Florida JOYCE BEATTY, Ohio
SCOTT FITZGERALD, Wisconsin CLEO FIELDS, Louisiana
MIKE FLOOD, Nebraska
MONICA DE LA CRUZ, Texas
TIM MOORE, North Carolina
C O N T E N T S
----------
Wednesday, March 26, 2025
OPENING STATEMENTS
Page
Hon. Andy Barr, Chairman of the Subcommittee on Financial
Institutions, a U.S. Representative from Kentucky.............. 1
Hon. Bill Foster, Ranking Member of the Subcommittee on Financial
Institutions, a U.S. Representative from Illinois.............. 3
STATEMENTS
Hon. French Hill, Chairman of the Committee on Financial
Services, a U.S. Representative from Arkansas.................. 4
WITNESSES
Mr. Bryan A. Schneider, Partner, Manatt, Phelps & Phillips, LLP.. 5
Prepared Statement........................................... 8
Mr. David Pommerehn, General Counsel, Head of Regulatory Affairs,
Consumer Bankers Association (CBA)............................. 19
Prepared Statement........................................... 21
Ms. Ana Fonseca, President and CEO, Logix Federal Credit Union... 29
Prepared Statement........................................... 31
Ms. Rebecca E. Kuehn, Partner, Hudson Cook, LLP.................. 50
Prepared Statement........................................... 52
Mr. Seth Frotman, Former General Counsel and Senior Advisor to
Director Chopra, Consumer Financial Protection Bureau (CFPB)... 66
Prepared Statement........................................... 68
APPENDIX
MATERIALS SUBMITTED FOR THE RECORD
Hon. Bill Foster:
Americans for Financial Reform (AFR)......................... 104
Consumer Action.............................................. 114
National Association of Consumer Advocates (NACA)............ 117
Hon. Daniel Meuser:
Association of Credit and Collection (ACA)................... 120
RESPONSES TO QUESTIONS FOR THE RECORD
Written responses to questions for the record from Mr. Bryan A.
Schneider
Representative French Hill...................................
Question...................................................
Response...................................................
Representative John Rose..................................... 126
Question...................................................
Response...................................................
Representative Maxine Waters................................. 130
Question...................................................
Response...................................................
Written responses to questions for the record from Mr. David
Pommerehn
Representative French Hill...................................
Representative Maxine Waters................................. 130
Mr. Seth Frotman............................................. 00
Question...................................................
Response...................................................
Written responses to questions for the record from Ms. Ana
Fonseca
Representative French Hill...................................
Representative Maxine Waters.................................
Written responses to questions for the record from Ms. Rebecca E.
Kuehn
Representative William R. Timmons............................
Representative Maxine Waters.................................
LEGISLATION
H.R. ------, the Business of Insurance Regulatory Reform Act of
2025........................................................... 141
H.R. 2183, CFPB Dual Mandate and Economic Analysis Act........... 144
H.R. ------, CFPB-IG Reform Act of 2025.......................... 148
H.R. ------, Commission of the Bureau of Consumer Financial
Protection Act................................................. 153
H.J. Res. 74, Disapproving the rule submitted by the Bureau of
Consumer Financial Protection relating to "Prohibition on
Creditors and Consumer Reporting Agencies Concerning Medical
Information (Regulation V)..................................... 169
H.R. 1606, the Making the CFPB Accountable to Small Businesses
Act of 2025.................................................... 171
H.R. 1652, the Rectifying Undefined Descriptions of Abusive Acts
and Practices (UDAAP) Act...................................... 174
H.R. 1653, the Civil Investigative Demand Reform Act of 2025..... 183
H.R. 654, the Taking Account of Bureaucrats' Spending (TABS) Act
of 2025........................................................ 188
H.R. ------, the Transparency in CFPB Cost-Benefit Analysis Act.. 208
A NEW ERA FOR THE CFPB: BALANCING POWER
AND REPRIORITIZING CONSUMER PROTECTIONS
----------
Wednesday, March 26, 2025
U.S. House of Representatives,
Subcommittee on Financial Institutions,
Committee on Financial Institutions
Washington, DC.
The subcommittee met, pursuant to notice, at 10:05 a.m., in
room 2128, Rayburn House Office Building, Hon. Andy Barr
[chairman of the subcommittee] presiding.
Present: Representatives Barr, Huizenga, Williams of Texas,
Rose, Norman, Meuser, Kim, Donalds, Fitzgerald, Flood, De La
Cruz, Moore, Foster, Scott, Sherman, Vargas, and Casten.
Also present: Representative Hill.
Chairman Barr. The Subcommittee on Financial Institutions
will come to order.
Without objection, the chair is authorized to declare a
recess of the committee at any time.
This hearing is titled, ``A New Era for the CFPB: Balancing
Power and Reprioritizing Consumer Protections.''
Without objection, all members will have 5 legislative days
within which to submit extraneous materials to the chair for
inclusion in the record.
I now recognize myself for 4 minutes for an opening
statement.
OPENING STATEMENT OF HON. ANDY BARR, CHAIRMAN OF THE
SUBCOMMITTEE ON FINANCIAL INSTITUTIONS, A U.S. REPRESENTATIVE
FROM KENTUCKY
Thank you to our witnesses for joining us today for our
first Financial Institutions Subcommittee hearing in the 119th
Congress. I am excited to lead this subcommittee again,
especially at a time when we have an administration which
understands the costs of burdensome overregulation. Nowhere has
overregulation and overreach been more evident than at the
Consumer Financial Protection Bureau (CFPB), which became the
most unchecked and unaccountable agency in the entire Federal
Government under the previous administration. Under former
Director Chopra, the CFPB prioritized politics over sound
policy, leading to disastrous outcomes for American consumers.
The good news is that a new era has begun under President
Trump, an era where businesses are not attacked through press
releases or tweets, curtailing their ability to offer financial
services and products. Instead, they are encouraged to provide
them in a competitive, safe, and sound manner. An era where the
Bureau's approach is not opaque and abusive but transparent and
fair. An era where those in charge prioritize administrative
law over overregulation by enforcement, avoiding extortionary
Civil Investigative Demands, or Civil Investigation Demands
(CIDs). I look forward to working with the CFPB in this new
era.
Past abuses, like those under Director Chopra, stem from
significant structural flaws at the CFPB, which reduce
accountability and lead to regulatory swings that stifle
innovation and competition. Republicans have long called for
reforms to ensure the Bureau is accountable to the American
people. Today, we will propose transitioning the CFPB to a
bipartisan commission and bringing it under congressional
appropriations.
I recently reintroduced the Taking Account of Bureaucrats'
Spending (TABS) Act, which would require the CFPB to go through
the traditional congressional appropriations process. This
would restore the power of the purse to Congress and ensure
that the elected representatives of the American people have a
say in the Bureau's operations and budget.
Beyond the structural flaws that we will explore today, I
want to highlight two areas where the CFPB has abused its power
and threatened--not helped--consumers in the process. The first
is the abuse of CIDs.
Under Director Chopra, the Bureau forced law-abiding
financial services providers to sift through thousands of pages
of business documents and sit for hours of oral testimony
without specifying alleged wrongdoing, just hoping to find
something. These fishing expeditions were designed to litigate
companies into bankruptcy or destroy their reputations, doing
nothing to protect consumers, but harming them by eliminating
products and services from the market. Alarmingly, Director
Chopra acted as judge, jury, and executioner in each case,
rejecting even the appearance of due process.
In response, I introduced the CID Reform Act to impose
guardrails on the use, scope, and process surrounding CIDs.
The second is the Bureau's Rectifying Undefined
Descriptions of Abusive Acts and Practices (UDAAP) authority.
The abusiveness prong in the CFPB's UDAAP authority is
undefined. Under Director Chopra, the CFPB identified
abusiveness in the same way Supreme Court Justice Potter
Stewart did in describing his threshold test for obscenity: ``I
know it when I see it.'' This lack of guidance gives
institutions no clarity on how to comply and opens the door for
abuse by a rogue director.
During President Trump's first term, Bureau Director Kathy
Kraninger defined abusiveness. Unsurprisingly, Director Chopra
revoked this much-needed guidance. My bill, Rectifying UDAAP
Act, defines abusiveness to inject clarity and certainty,
encouraging financial services providers to operate
confidently, and, in turn, increasing consumer access to vital
products and services.
The best consumer protection is consumer choice. A
transparent, law-abiding Bureau will foster an environment that
promotes competition and delivers better outcomes for all
Americans. I look forward to discussing these issues today, and
I yield back.
The chair now recognizes the ranking member of the
subcommittee, Dr. Foster, for 4 minutes for an opening
statement.
OPENING STATEMENT OF HON. BILL FOSTER, RANKING MEMBER OF THE
SUBCOMMITTEE ON FINANCIAL INSTITUTIONS, A U.S. REPRESENTATIVE
FROM ILLINOIS
Mr. Foster. Five.
Chairman Barr. Oh, 5 minutes. Excuse me. 5 minutes for an
opening statement.
Mr. Foster. Well, thank you, Chair Barr, and to our
witnesses.
Under normal circumstances, a change in administration will
naturally result in a recalibration of policies and introducing
new legislation with ideas old and new to reflect those shifts
in policies will be part of that. Our witnesses today make some
valid points about some CFPB policies which could be discussed,
but these are not normal times.
Since taking office, President Trump, Elon Musk, and
Russell Vought have abused their authority to shut down the
CFPB and other agencies that Americans rely on for their
financial security. After Department of Government Efficiency
(DOGE) employees raided the Bureau's headquarters, CFPB
employees were told to stop all work. Hundreds were let go. Its
contracts were canceled. Lawsuits brought by the agency against
bad actors were summarily dropped, and even the Bureau's name
was ripped from the building.
These are not reforms. They are illegal attacks on the
CFPB's congressionally mandated existence and also attacks on
the dedicated civil servants that fight every day to protect
consumers and hold big financial firms accountable. In fact,
this hearing today, discussing tweaks to the CFPB policies and
organizations, feels a bit like Republicans rearranging the
deck chairs on the Lusitania after they torpedoed it.
Members who were in office in the wake of the 2008
financial crisis will never forget what it was like. Holding
workshops for terrified families facing foreclosure and
bankruptcy, but the unregulated storefront mortgage originators
that talked them into those mortgage contracts had all gone
bankrupt. They were being squeezed by credit card companies
using a parade of horribles like double-cycle billing and
universal default, with pages of fine print deliberately
written to be so complex that no human beings could ever read
and understand them. There was almost nothing that we could do
to help them. They have signed contracts, and we are a country
of laws. The best that we could do is to make sure that it
never happens again.
Following the financial crisis, Congress established the
CFPB as the primary agency responsible for enforcement of
consumer financial protection laws. Since its creation, the
financial watchdog has helped millions of Americans get more
than $21 billion back from scammers and financial companies
that have violated the law. The Bureau's Office of
Servicemember Affairs returned more than $363 million to
military servicemembers harmed by financial companies. The
CFPB's Office for Older Americans monitored for abuses
targeting senior citizens and shut down nationwide
telemarketing scams. Just one enforcement action by the Bureau
returned more than $53 million to American seniors who had been
cheated.
Despite these accomplishments, after the DOGE raid on the
CFPB, Bureau employees were informed that new leadership
intends to turn the CFPB into a single room with ``five men and
a telephone.'' That is not Congress' intent.
In the last administration, the CFPB wrote important new
rules protecting Americans from overdraft fees, rules giving
consumers control over their financial data, and rules to
ensure that a medical emergency, domestic violence, or elder
abuse, will not ruin an individual's credit score and financial
future.
The Bureau also regulates nonbank financial companies. I
expect many of our witnesses today will agree that nonbank
financial companies should face similar regulatory requirements
to banks and credit unions if they offer similar services, but
with the CFPB shut down, that is not going to happen.
The CFPB was the only cop on the beat for consumer finance,
and without it, it will once again be open season for scammers
preying on hardworking American families. Big Tech companies
will have a free rein to invade the regulated financial system
without accountability, while banks and credit unions continue
to be highly regulated.
Finally, I do not believe it is an accident that Elon Musk
and his DOGE crew shut down the CFPB exactly at the time that
Musk is planning to turn X into a payments and financial
platform that the CFPB would naturally have the authority to
regulate.
The CFPB was created to protect consumers from abuses by
some of the most powerful financial institutions in their
lives. The Bureau's work is important, it is constitutional,
and consumers benefit when financial firms are held
accountable. We need to reopen the CFPB and let its employees
do their jobs. I yield back.
Chairman Barr. The gentleman yields.
The chair now recognizes the chairman of the full
committee, Mr. Hill, for 1 minute.
STATEMENT OF HON. FRENCH HILL, CHAIRMAN OF THE COMMITTEE ON
FINANCIAL SERVICES, A U.S. REPRESENTATIVE FROM ARKANSAS
Chairman Hill. Thank you, Chairman Barr. I appreciate your
leadership for holding this hearing on the CFPB.
Since its creation, the CFPB has acted as an overreaching
regulator. Partisan political agendas have led to burdensome
regulations and truly redundant, duplicative supervision that
overlooks the impact on Americans' access to credit and
discouraging innovation. The CFPB urgently needs reform to
ensure accountability and transparency to Congress and the
American people.
Financial institutions, particularly smaller banks and
credit unions, have reported increased compliance burdens that
are making their operations unnecessarily difficult. Today's
witnesses will discuss real-world consequences of the CFPB's
misguided policies.
I look forward to hearing these ideas for reforms today
that will foster clarity and consistency so that financial
institutions, in fact, can innovate, grow, and better serve
their customers, because it is competition and innovation, not
government mandates, that are the best ways to improve access
and reduce costs for financial services. I yield back.
Chairman Barr. The gentleman yields. Thank you.
Today, we welcome the testimony of Mr. Bryan Schneider, a
Partner at Manatt, Phelps & Phillips in Chicago, Illinois,
where he focuses on advising clients through the gamut of
consumer financial services and regulatory and enforcement
matters, particularly as it relates to supervision enforcement
and fair lending. He previously held roles at the Consumer
Financial Protection Bureau and was Secretary of the Illinois
Department of Financial and Professional Regulation under
Governor Bruce Rauner.
Mr. David Pommerehn is general counsel and head of
regulatory affairs at the Consumer Bankers Association, a trade
association representing financial institutions offering retail
lending products and services.
Mrs. Ana Fonseca is the CEO of Logix Federal Credit Union
in Valencia, California, and is testifying on behalf America's
credit unions. She has been with Logix for over 20 years and
previously served as chief operating officer and chief
financial officer.
Mrs. Rebecca Kuehn is a Partner with Hudson Cook, LLP, a
consumer financial services law firm in Washington, DC, where
she counsels businesses on compliance with financial and
consumer laws, fair lending, and other Federal and State
regulations. She was formerly an Assistant Director for the
Division of Privacy and Identity Protection at the Federal
Trade Commission where she was responsible for leading
enforcement policy outreach and rulemaking activities for the
FTC's Fair Credit Reporting Act program.
Finally, Mr. Seth Frotman is the former general counsel and
Senior Advisor to Director Rohit Chopra at the Consumer
Financial Protection Bureau.
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. Without objection, your written
statements will be made part of the record.
Mr. Schneider, you are now recognized for 5 minutes for
your oral remarks.
STATEMENT OF BRYAN A. SCHNEIDER, PARTNER, MANATT, PHELPS &
PHILLIPS, LLP
Mr. Schneider. Thank you, Mr. Chairman, Ranking Member
Foster, and members of the subcommittee. Thank you, again, for
the opportunity to testify at today's hearing.
My name is Bryan Schneider. I work at the law firm of
Manatt, Phelps & Phillips, where I focus my practice primarily
on advice concerning consumer financial matters. The views I
offer today, however, are my own.
I previously served as Associate Director for Supervision
Enforcement and Fair Lending at the CFPB, and prior to that, I
did serve as Secretary of the Illinois Department of Financial
and Professional Regulation, the chartering, licensing, and
supervisory authority for all financial services companies
operating in the land of Lincoln.
I appreciate the opportunity to submit written testimony,
and I will highlight at this time some points that I believe
could be most relevant as you and your colleagues consider
options for setting new priorities for consumer financial
regulation.
Acting through rigorous compliance with the Administrative
Procedure Act and related laws is indeed the hallmark of
careful regulation. Similarly, risk-based supervision is key to
the successful oversight of the financial services system.
Supervision facilitates the prevention of consumer harm before
it occurs, but supervision must be built on confidence that a
supervisory exam is not a civil enforcement investigation by
another name. The involvement of enforcement staff in the
planning or execution of supervisory exams should be
prohibited.
Enforcement is a tool that is essential to the CFPB's
mission--during my tenure at the Bureau, we brought dozens of
enforcement actions--but enforcement should be reserved for
situations in which the CFPB has determined that it must
proceed against a bad actor whose behavior has caused
significant consumer harm, and has allowed it to operate out of
compliance to the detriment of its competitors that follow the
law.
The aim of enforcement should be on stopping the entity
from engaging in the prohibited conduct, and the prompt and
fulsome remediation and redress of all consumer harm. Civil
penalties unquestionably play a role in a reasoned enforcement
regime, but eye-popping finds just for the sake of grabbing
headlines should have no place.
Moreover, enforcement should be undertaken only when the
entity's actions violate clearly articulated statutory or
regulatory requirements. When Congress has given the CFPB
broader, less specific authorities--such as the prohibitions
against unfair, deceptive, or abusive acts or practices--its
enforcement activity should be stayed in advance of development
of a procedurally valid regulatory requirement or proceed in an
incremental matter that provides clarity for regulated entities
through the careful development of the common law.
The CFPB must rigorously abide by its statutory obligations
to coordinate with Federal and State prudential banking and
financial services regulators. The CFPB should respect their
expertise and not discharge its obligation to coordinate by
merely listening to the appropriate fellow regulator and then
opening its own new duplicative examination or investigation.
I make no quarrel with the CFPB nor the fine people that
work there, but because their work occurs within an agency
whose very structure seems designed to subvert constitutional
principles, it will, in its current form, likely never be able
to fulfill its mission.
Some ideas on what to do. In the wake of the recent
multiyear blizzard of guidances, blog posts, interpretations,
manual amendments, and speeches, the CFPB ought to rescind or
repeal those that fail to comply with the Administrative
Procedure Act (APA), or that exceed its lawful authority.
Pending enforcement action should be similarly reviewed.
The CFPB should balance its resources to effectively deploy
each of its four tools: rulemaking, supervision, enforcement,
and often overlooked, consumer education. The CFPB's current
funding mechanism, while constitutional, is troublingly
inconsistent with fundamental principles of separation of
powers and ordered liberty.
While serving the government of the State of Illinois, I
had to request appropriations for our operations from the
Illinois General Assembly. Despite some occasional messiness,
Illinois legislators consistently discharged their duties and
provided our agency with the necessary resources to do its work
in a manner consistent with the authority they gave us. The
same can be expected from Congress and should be demanded.
Congress should consider the need for the establishment and
strengthening of limitation periods concerning both the
issuance of Civil Investigative Demands and underlying conduct,
and Congress should evaluate the need to cabin the CFPB's use
of its UDAAP authority to situations where the entity has acted
in good--has not acted in good faith with respect to its
compliance obligations.
Thank you for the chance to testify. I look forward to your
questions.
[The prepared statement of Mr. Schneider follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman Barr. Thank you.
Mr. Pommerehn is now recognized for 5 minutes.
STATEMENT OF MR. DAVID POMMEREHN, GENERAL COUNSEL, HEAD OF
REGULATORY AFFAIRS, CONSUMER BANKERS ASSOCIATION
Mr. Pommerehn. Thank you, Chairman Barr, Ranking Member
Foster, and members of the subcommittee. The Consumer Bankers
Association (CBA) greatly appreciates the opportunity to
testify today on the CFPB's recent activities and the agency's
future.
My name is David Pommerehn. I am General Counsel for the
CBA, the only national trade association focused exclusively on
retail banking.
To start, I want to make it clear that CBA supports a
credible and durable consumer regulator. However, the political
shifts over the past few years have created instability and
uncertainty, and we have now directly seen the need for reform
at the agency. The reform should be focused on ensuring that
the Bureau is following the law while protecting consumers.
In the past, we have worked closely with the Bureau to
ensure rulemakings do not have adverse effects. However, under
the leadership of the former director, the Bureau has failed to
follow the law and exceeded its statutory authority. This has
resulted in an unprecedented number of lawsuits against the
agency by the entities it regulates. CBA believes that facts
matter, and that regulators must represent facts accurately.
Under its previous leadership and in an attempt to justify
its rulemakings, the Bureau misrepresented its own data about
the state of the consumer financial services market. The prior
administration's politicization of the Bureau eroded public
confidence, damaged the Bureau's long-term credibility, and led
to policy outcomes that were optimized for short-term political
gains at the cost of consumers' long-term financial health.
There are a number of positive administrative changes that
could easily be implemented by the new leadership at the
Bureau. However, as we have seen with the increasingly drastic
political swings, any of these changes can just as easily be
undone by the next administration. To create long-term
stability and credibility for the Bureau, legislative reforms
are needed.
CBA supports enacting legislation that would ensure the
Bureau operates within its authority and creates greater
stability, transparency, and credibility. CBA has long
prioritized the need for reform at the Bureau--of the Bureau's
UDAAP authority, and we strongly support Chairman Barr's
Rectifying UDAAP Act.
Treating customers fairly and closely following consumer
protection laws are core to banks' business models. However,
the Bureau's UDAAP authority has been largely undefined and
closed to input from stakeholders. A clear and defined process
will provide guardrails which are needed to ensure regulated
entities know what is or is not permitted and how they can
comply.
The Bureau has put all companies it regulates at risk of
inadvertent noncompliance because it is unclear how and when
the abusive standard will be applied. In particular, CBA
supports requiring the Bureau to refrain from using its unfair
and abusive authorities to seek monetary relief, unless it has
previously articulated a specific harm. In other words, the
Bureau should not be able to move the target without letting
the market know first.
There are additional pieces of legislation that would
directly impact the Bureau's oversight. For example, the TABS
Act would place the Bureau's funding structure under the
appropriations process. This would allow for greater
congressional oversight and hold the Bureau more accountable to
Congress.
CBA also supports the Consumer Financial Protection
Commission Act, which would update the Bureau's leadership
structure to a five-person, bipartisan commission instead of a
sole director. We believe this would help reduce the radical
pendulum shifts between administrations and bring long-term
stability to the Bureau.
It is also necessary for the Bureau to conduct a more
robust cost-benefit analysis in its rulemakings, which is
provided for in the Transparency in CFPB Cost-Benefit Analysis
Act. We believe it is also important for the Bureau to have an
independent inspector general, which is provided for in the
CFPB IG Reform Act. These legislative proposals would ensure
the rulemaking processes, and the law are being properly
followed.
Other ways Congress could improve the Bureau's regulation
and supervision would be to create independent lookbacks to
review major rules that would require a rule to sunset or be
reproposed if that rule's cost outweighs its benefits. We also
believe the Bureau should commit to considering self-reporting
and remuneration of compliance issues when weighing whether it
brings an enforcement action or saddles a supervised
institution with a matter requiring attention.
Thank you, Chairman Barr. Thank you, Ranking Member Foster
and the subcommittee for the opportunity to testify here today.
We appreciate you convening this very important hearing, and we
stand ready to work with you and the subcommittee to achieve
thoughtful and effective policies to ensure the Bureau is a
durable and strong consumer protection regulator. Thank you.
[The prepared statement of Mr. Pommerehn follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman Barr. Thank you.
Ms. Fonseca, you are now recognized for 5 minutes.
STATEMENT OF ANA FONSECA, PRESIDENT AND CEO, LOGIX FEDERAL
CREDIT UNION
Ms. Fonseca. Good morning, Chairman Barr, Ranking Member
Foster, and members of the subcommittee. My name is Ana
Fonseca, and I am testifying today on behalf of America's
credit unions. I certainly serve as the President and CEO of
Logix Federal Credit Union, a $9.8 billion institution
headquartered in Valencia, California. Thank you for the
opportunity to share our thoughts and perspectives on the CFPB
and consumer financial protection.
At Logix, we pride ourselves on our programs to serve our
members. Logix was founded during the Great Depression as
Lockheed Aircraft Employees Federal Credit Union. What started
as a small financial cooperative on Lockheed's Burbank campus
has grown into a trusted financial institution serving 253,000
members and managing $9.8 billion in assets.
As we have grown, we remain true to our founding
principles. Logix is a member-owned and not-for-profit
institution prioritizing affordable, consumer-friendly
financial services over profit. This is just part of the credit
union difference. Our member-owned cooperative structure makes
credit unions the original consumer financial protectors.
Still, credit unions find themselves subject to the rules,
burdens, and costs associated with being regulated by the CFPB.
For an institution like Logix, our expected crossing of the
arbitrary $10-billion threshold that subjects us to greater
CFPB scrutiny has a cost. Our own internal estimates are that
those burdens that come with crossing that threshold will
average about $4 million a year, and that does not count the
roughly $10 million a year that we expect to lose in debit
interchange income due to the Durbin Amendment, and that is
just in the first year.
With such a significant decrease in revenue combined with
the substantial increase in CFPB compliance-related expenses,
our ability to deliver the superior value our members have come
to expect over the past 88 years will be severely impacted.
Credit unions are different than other entities that are
regulated by the CFPB in that there are a number of statutory
consumer protection provisions included in the Federal Credit
Union Act that other types of financial institutions do not
have. Credit unions also do not have the armies of lawyers that
large Wall Street banks have to keep up with the pace and scope
of regulations coming out of the CFPB. Yet, we are still
subject to them either directly or indirectly. This has led to
significant consolidation in the industry since the passage of
the Dodd-Frank Act and the creation of the CFPB.
Recent years have also seen the CFPB focus less on its
statutory mission and become more focused on changing the
marketplace in a politicized fashion. My colleagues in the
credit union industry feel as though they are dying a death of
a thousand cuts. The revenue on all fronts is under attack, and
their costs to comply with ever-increasing regulation continue
to mount. Change needs to come to CFPB, and we believe the time
for Congress to act is now.
We support and would recommend a series of legislative
changes that include, first, moving the leadership to a
bipartisan commission. A single director makes the Bureau more
political and does not allow for open robust discussion like a
five-person commission would. Second, increasing congressional
oversight of the CFPB through subjecting the Bureau to
congressional appropriations and creating its own inspector
general. Third, providing greater clarity on UDAAP. Fourth,
expanding and clarifying exemptions for credit unions from the
CFPB. Fifth, increasing CFPB usage of cost-benefit analysis and
Small Business Regulatory Enforcement Fairness Act (SBREFA)
panels. Finally, reforming the civil investigative demand
process.
These statutory changes and clarifications should be
combined with the renewed focus and commitment from the Bureau
to be data-driven--to be a data-driven organization that
focuses on its specific statutory obligations to protect
consumers from unregulated entities and bad actors operating in
the financial system. Any new CFPB rulemaking should follow the
principles outlined in my written testimony that will help
ensure this approach.
In conclusion, consumer protection in financial services is
important. Making these changes now will help ensure that we
have an apolitical focus on consumer protection moving forward.
We applaud the subcommittee for beginning this difficult
discussion on how to reform and improve the CFPB. I thank you
for the opportunity to appear before you today and welcome any
questions you may have.
[The prepared statement of Ms. Fonseca follows:]
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Chairman Barr. Ms. Kuehn, you are now recognized for 5
minutes for your oral remarks.
STATEMENT OF REBECCA E. KUEHN, PARTNER, HUDSON COOK, LLP
Ms. Kuehn. Good morning, Chairman Barr, Ranking Member
Foster, and members of the subcommittee. Thank you for the
opportunity to appear----
Chairman Barr. Ms. Kuehn, if you could start over and turn
on your microphone.
Ms. Kuehn. Push the button. Yes. Thank you, sir.
Chairman Barr. Yes. Thank you. Thank you.
Ms. Kuehn. Good morning, Chairman Barr, Ranking Member
Foster, and members of the subcommittee. Thank you for the
opportunity to appear before you.
My name is Rebecca Kuehn, and I am a Partner at the law
firm Hudson Cook, which focuses on consumer financial services
law. Earlier in my career, I worked for the Federal Trade
Commission as an assistant director in the Division of Privacy
and Identity Protection. I am appearing today in my own
capacity, and my remarks are my own and not those of my firm or
any particular client of the firm.
The CFPB is a comparatively young agency by Federal agency
standards, but its approach to consumer protection,
particularly its use of enforcement actions to define the
activities that the CFPB violates--believes violates the law,
has raised significant concerns about regulatory overreach, and
has created uncertainty in the financial services market.
My testimony today will be focused on two areas that are in
need of reform: The CFPB's exercise of its enforcement
authority over alleged violations of the Dodd-Frank Act,
prohibition against unfair, deceptive, or abusive acts or
practices or UDAAP, and the CFPB's use of its investigatory
authority, in particular, its use of CIDs or Civil
Investigative Demands.
The Dodd-Frank Act grants the CFPB the authority to take
action against companies to prevent unfair, deceptive, or
abusive acts or practices in connection with a consumer
financial product or service. The concepts of deception and
unfairness have a long history in case law, largely from the
work of the Federal Trade Commission, but the concept of
abusive does not. The contours of the Bureau's abusiveness
authority, particularly how it differs from unfairness and
deception--remain unclear to this day.
The Bureau has primarily used its enforcement authority to
declare what it believes is abusive, but the cases themselves
have not shown how that is different from unfairness or
deception, and they have been inconsistent in applying the
abusiveness prongs to similar facts and circumstances. The
result is that the enforcement looks arbitrary or results-
oriented, and, as some have said, it is regulation by
enforcement.
This approach has real due process and fairness concerns.
The CFPB can simply declare an existing practice abusive and
penalize financially companies without giving them a chance to
adjust their policies. To provide regulatory certainty, the
CFPB should be required to clearly define the standard for
finding an act or practice abusive through a notice-and-comment
rulemaking, and the CFPB should only seek monetary relief,
where it has defined a specific practice as abusive through
formal rulemaking or it has obtained a prior order against a
company. This would provide more regulatory certainty while
allowing the CFPB the ability to address new and emerging
issues.
The CFPB investigative process similarly needs reform.
Civil Investigative Demands or CIDs are one of the primary
tools used by the CFPB to compel companies to produce
documents, answer questions, and even provide oral testimony to
the CFPB before any formal enforcement proceedings commence.
CIDs impose enormous costs on companies and result in business
disruptions that last months, often years. The demands involve
a substantial electronic discovery cost, not to mention
attorneys' fees, and there is a real human cost for the
employees of the companies who are subjected to these demands.
The law allows the CFPB to issue a CID when it has reason
to believe that there is a violation. Where there is no reason
to believe there is a violation, no CID should be issued, but
that is not our experience. The CFPB has not limited its use of
the CIDs to that. Rather, they use it to gather information
about a particular segment of the market or to conduct top-to-
bottom reviews of businesses that have been disfavored by the
CFPB, even where they do not have examination authority over
those entities.
The law gives companies the right to file a petition to
modify or limit a CID, but if you do that, then your
investigation is made public. This has the effect of making a
confidential investigation open to public view, and it
dissuades companies from exercising their rights to object to
what are otherwise overbroad, or unduly burdensome consumer
investigation demands.
The bill before us, H.R. 10036, would reform the CID
process by creating a process to address concerns early in the
investigation to adjust the scope of it to an appropriate size,
and it would require the CFPB to treat petitions to modify as
confidential. This would make the process more fair.
Thank you for the opportunity to testify before you today.
I am happy to answer any questions.
[The prepared statement of Ms. Kuehn follows:]
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Chairman Barr. Thank you.
Mr. Frotman, you are now recognized for 5 minutes.
STATEMENT OF SETH FROTMAN, FORMER GENERAL COUNSEL AND SENIOR
ADVISOR TO DIRECTOR CHOPRA, CONSUMER FINANCIAL PROTECTION
BUREAU
Mr. Frotman. Chairman Barr, Ranking Member Foster, my name
is Seth Frotman. Until about a month ago, I was general counsel
at the Consumer Financial Protection Bureau, but today, I am
speaking for myself about the profound disconnect between a
hearing that purports to be about, ``consumer protection,'' and
the devastation that this administration's actions and
legislative agenda will unleash for working people.
Over the last 4 years, the CFPB cracked down on junk fees,
tackled the crushing impact of medical debt, protected military
families from fraud and widowed spouses from scams, and took on
Big Tech's relentless stampede into consumer finance. We stood
up to unscrupulous corporations and billionaires on behalf of
working families, the people that this administration promised
to fight for. The CFPB has gotten back more than $20 billion
for working people on a budget that is the fraction of that
size.
All that came to a screeching halt when President Trump,
Elon Musk, and Russell Vought, took over the CFPB. They have
taken Wall Street's cops off the beat, granting shameless
pardon after shameless pardon to companies that ripped off
their own customers. This administration's attack on the CFPB
drips with disdain for everyday Americans. The actions of this
administration to take money from working people and give it to
the rich speak louder than words, especially in the empty
rhetoric about reprioritizing consumer protection that will be
said at this hearing.
I will repeat what I told this committee almost 6 years ago
about the vital role of the CFPB. It is important to recall
what people's lives looked like, and what this Nation looked
like as the CFPB opened its doors in 2011. It had been 3 years
since the peak of the financial crisis, but for millions across
the country, the crisis was still raging. Families were losing
their homes. Servicemembers were falling victim to financial
predators who viewed them as dollar signs in uniforms.
Everyday Americans were targeted with bogus add-ons and
hidden fees, leading to financial ruin by a thousand cuts. The
combined forces of these ripples of deceit and devastation left
millions of shattered families and shattered dreams. That is
where the CFPB stepped in.
Six years later, we are on the verge of returning to that
bleak and dangerous past, and while this is going on, we are
now subjected to the same old tired industry talking points.
The same push for deregulation that makes too-big-to-fail
bankers, Big Tech, and billionaires rich while leaving working
people and their communities bankrupt when the music stops.
A lot of people in this town--the K Street lobbyists, the
revolving-door lawyers--try to make straightforward things
complicated. The battle over the future of the CFPB is not. It
comes down to a handful of simple questions. Are you on the
side of military families or the predators who lurk outside the
base? Are you on the side of parents struggling with error-
ridden medical bills or the debt collectors trying to make a
quick buck on their backs? Are you on the side of people who
get debanked or the financial institutions that fight like hell
to keep doing it?
When you look past the rhetoric, the deceptively labeled
bill touting through-the-looking-glass reform, and what is
going on in the executive branch alongside what is being pushed
here in Congress, it really boils down to one-time tested
proposition: Which side are you on?
If you are going to stand idly by while the Nation's
consumer watchdog is decimated, if you push a legislative
agenda of more junk fees, abusive medical debt collection
practices, Big Tech domination, and predatory lending, then the
answer is pretty clear.
I want to close with this: You, your family, your
neighbors, and your community are at risk today because
President Trump and Elon Musk have corruptly handed over the
keys of our Nation's consumer watchdog to the largest banks and
tech companies in the world. To be clear, the rogue efforts to
shut down an agency that was created in the wake of the worst
financial crisis in memory are blatantly illegal.
Right now, there is an $18-trillion ticking time bomb of
consumer debt, a real and imminent threat to your family's
future. We have seen this movie before, and the sequel may be
much worse than the original. It is time to end this debacle.
The CFPB must get back to work. A hearing that purports to be
about consumer protection that focuses on anything else is an
insult to the many hardworking Americans who just want a fair
shake in today's economy. Thank you.
[The prepared statement of Mr. Frotman follows:]
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Chairman Barr. Thank you, Mr. Frotman.
Let us examine who the real predator is, the Orwellian
predator, the Consumer Financial Protection Bureau.
Since President Trump took office, we have heard multiple
complaints from my Democrat colleagues about executive power
and DOGE and Elon Musk controlling funding. For example,
Ranking Member Waters referred to Elon Musk as, quote, an
unelected billionaire Co-President, end quote, multiple times
in front of this committee and that, quote, they attempted to
illegally kill the CFPB, end quote, and, quote, unelected
billionaire Elon Musk seizes control of American people's
money, end quote. My friend, Representative Casten, brought up
how Elon Musk is violating Congress' power of the purse.
My question really should be geared toward my friends
across the aisle. If you are so concerned about unelected
officials in the executive branch controlling funding and the
future of the Bureau, why are you not supporting reforms to the
Bureau's structure to bring oversight back to Congress? If you
are so worried about violations to the power of the purse, why
are you not supporting my TABS Act and bringing appropriations
powers back to Congress?
Ms. Kuehn, during your tenure at the Federal Trade
Commission, did you find that a commission structure or being
funded through the normal congressional appropriations process
somehow prevented you from protecting consumers?
Ms. Kuehn. No, I did not. The Commission structure at the
Federal Trade Commission (FTC) allowed business to continue
even through changes of administration, as it is now, and it
allowed the work to have the insight of both sides of the
aisle. So, issues were fairly considered in front of the
Commission.
Chairman Barr. Well, under Director Chopra, the Bureau
engaged in fishing expeditions through its CID process,
burdening institutions with requests for documentation, time,
resources, and other demands without any foreseeable end in
sight.
Ms. Kuehn, you, I think, in your written and oral testimony
really laid out the abuses from the Bureau, and this is why I
introduced the CID Reform Act.
Ms. Kuehn, you have represented clients who have been
victimized by these fishing expeditions. Can you describe what
these small business owners, these American citizens have to
endure with these CIDs?
Ms. Kuehn. Yes, sir. I think it is really telling because I
think the focus of Mr. Frotman's opening remarks were talking
about large banks, but the clients I represent are not large
banks. They are small businesses in your local community trying
to serve a variety of needs of consumers, and when they receive
a CID, it is exhausting. It is a lot of documents under short
time frames.
The usual return date for a CID is 30 days, and there can
be 30 or 40 requests in a particular CID. That is a lot of time
and effort on the part of the company to try to gather that
information, and there are very limited abilities of the
company to bring objections in a meaningful way that does not
expose the investigation.
Chairman Barr. I think your testimony brings to light who
the real predator is here.
Mr. Schneider, how do these demands discourage financial
providers from offering financial products and services to
consumers?
Mr. Schneider. Well, if you do not know what the rules of
the road are, it is very difficult to innovate. It is very
difficult to know what you can bring to the market that is not
going to be immediately attacked. You just end up spending a
lot of money trying to figure out--hiring lawyers and trying to
figure out what you need to do just to keep going with your
current products, and your innovation is lost. That is never
seen, quite frankly. What does not happen is never seen.
Chairman Barr. We want cops on the beat, but we want due
process. CIDs from the Bureau lack due process. Can you speak
to that?
Mr. Schneider. I would echo my colleague's statements.
These are extraordinarily broad requests. They are often
seeking information about conduct that could never be the
subject of an enforcement action. There are extraordinarily
tight deadlines. If you have any objection to the scope of the
CID, you have to go back and hope to get relief from the entity
that has delivered it to you.
I might add, when you do that--if you dare to petition to
modify or set the CID aside--that becomes part of the public
record. You are tainted with as being an entity under
investigation, merely by the action of seeking to make it more
reasonable for you to respond.
Chairman Barr. Yes. I think it is also reasonable just to
require the CFPB to tell the target why they are actually doing
this investigation.
Mr. Pommerehn, last question to you. In fulfilling the
America First Agenda, the President has begun removing
government waste and overreach and ending the disastrous
Diversity, Equity and Inclusion (DEI) cancer that has spread
throughout our financial system.
In the finalized Section 1071 small business data
collection rulemaking, this rule requires small business
lenders to collect 81 data fields from small businesses,
including whether the applicant is minority-owned or Lesbian,
Gay, Bisexual, Transgender, and Queer (LGBTQ), the sex,
ethnicity, race of the principal owners, et cetera, increasing
compliance costs and reducing loan availability.
Can you discuss some of the costs of this rulemaking and
elaborate why it must be rescinded to protect small business
access to credit?
Mr. Pommerehn. The 1071 rulemaking has lots of different
avenues right now. Of course, it is subject to litigation. The
original statutory language only required 13 data fields. I
believe the end result was 81 data fields, which is why the
Bureau was sued in the first place.
Our concern with the 1071 data fields beyond the 13 is that
it will complicate the process. Banks have spent a lot of time
going in and out of compliance and preparing for compliance
with this rule.
Chairman Barr. My time has expired. I am sure there will be
more questions about this later.
The chair now recognizes the ranking member of the
subcommittee, Dr. Foster, for 5 minutes.
Mr. Foster. Thank you, Chair Barr.
As a threshold manner, do any of our witnesses believe that
five men and a telephone will provide adequate consumer
protection in our country?
Okay. I will let the record say that I saw no hands here.
What about protecting financial businesses who are good
actors against new unregulated online competition? Do you
believe that five men and a telephone will provide adequate
protection for those good actors?
Again, no hands. I think that is really what is at the
heart of this hearing.
Mr. Frotman, can you sort of give us the lay of the land in
what is actually currently happening at the CFPB?
Mr. Frotman. Thank you, Congressman.
What is happening at the CFPB now is devastating for
working people, it is a boondoggle for the billionaires calling
the shots in this administration, and it is nothing more than
sheer corruption.
Since the beginning of February, this administration has
been hell-bent on destroying the Nation's consumer watchdog.
The financial inspectors that were spread across the country
making sure that businesses were following the law and making
sure there was a level playing field for honest businesses were
sent home. They are still not back on the job. There have not
been exams of financial institutions to make sure they are
following the consumer financial protection laws by the CFPB in
over a month.
They have dropped nearly a dozen enforcement actions. Just
to give you a few examples: They dropped the CFPB's enforcement
action against Zelle and the Nation's largest banks for
allowing hundreds of millions of dollars of fraud to fester on
their payment system.
They dropped the Bureau's case against Cap One where they
tricked and deceived people with savings accounts from getting
the interest rate that they were entitled to, money that could
have been used to help them pay for groceries.
They dropped a case against SoLo Funds, an outfit that was
ripping off working people with junk fees and tip schemes and
dark patterns that numerous other State attorneys general and
regulators from coast to coast had already taken into account.
The current CFPB director tried to take credit for this and was
shamed so much in a community note on X that we have not heard
from him since.
This is what is happening across the board. They shut down
the Bureau's office that this Congress created to protect
servicemembers, to protect students, to protect older
Americans. I do not see who this benefits. It does not benefit
the honest businesses that we have heard so much today from our
panelists. It does not protect American consumers who
desperately need help. The only people this help are too-big-
to-fail bankers and Silicon Valley billionaires.
Mr. Foster. So, right now, if a servicemember or an elder
gets ripped off, who do they go to? Where do they actually get
help from today?
Mr. Frotman. It is entirely unclear. We have had sworn
testimony in Federal court talking about how this
administration broke the consumer complaint system. The system
where if servicemembers call in or write a complaint--more than
400,000 military families have done this--that system is not up
and running. It is not getting them the information they need.
The examiners on the ground making sure that banks and
nonbanks are complying with key military consumer protections
like the Military Lending Act, the Servicemembers Civil Relief
Act--those inspectors are not on the ground making sure that
these companies are following the law.
I spent years of my life at the Bureau trying to protect
military families, and the idea that we would just shut off
this incredibly important tool--that is not only important for
individual families' financial future, but imperative for our
military readiness--is just appalling.
Mr. Foster. Thank you. One of the key promises from the
Trump--from President Trump on the campaign trail was to drive
down prices and make America affordable again starting on day
one. A key element of that was his promise to cap credit card
interest rates at 10 percent, which I do not think we see
legislation on this or any action on that front.
Could you say whether overall the shutting down the CFPB
and the rest of the actions are actually going to lower costs
for Americans?
Mr. Frotman. They will do nothing to lower costs. I had a
chance to look through the agenda, and it is hard to believe
that this is on track with a President who, on the campaign
trail, talked a big game about taking on banks and driving down
credit card interest rates; nothing in the agenda you see here.
The fight to make sure that people pay more junk fees when it
comes to their bank account, their credit card or on medical
debt will do nothing to make working people's lives better.
Mr. Foster. Thank you. I yield back.
Chairman Barr. The gentleman yields.
The gentleman from Michigan, Mr. Huizenga, the sponsor of
the Consumer Financial Protection Commission Act, is recognized
for 5 minutes.
Mr. Huizenga. Thank you, Mr. Chairman. Mr. Chairman, I see
Mr. Chopra has surrounded himself with like-minded activists,
and I quite honestly never thought I would pine for the days of
Richard Cordray to have some reasonableness injected into the
CFPB.
But the CFPB's unique structure prevents Congress from
conducting meaningful oversight. I know this, because last
session, I was Chairman of the Oversight and Investigations
Subcommittee, and I know too well the roadblocks and speed
bumps and, frankly, brick walls we ran into with the CFPB. A
single director who has no accountability, no boundaries,
limitless funding, and will go and push the accepted and legal
bounds of their organization is a recipe for disaster. I think
that is why we have seen this one agency be challenged so much
over its own existence and its actions.
Unlike other agencies such as the FDIC, the Federal Reserve
System (Fed), the alphabet soup of all the regulators who
paused their rulemaking after President Trump was elected,
Director Chopra made the very conscious decision to continue to
push forward on rules that he knew would be unlawful and
overturned. You saw it with the overdraft. You saw it with
medical debt. He was the one regulator that decided to not put
his pen down and allow someone else to make some of those
decisions.
Mr. Pommerehn, in your written testimony, you called the
Bureau a, ``political lightning rod'' that can have, ``radical
pendulum shifts depending on who occupies the White House.'' My
observation would be it seems most of the time when it is the
Republicans--that they come in and say, hold on, we have gone
too far, too fast, let us just stop in place, while the
Democrats just continue to blow through these legal bounds.
Anyway, the idea of converting them into a commission
structure is not a new concept. I have been here for now--this
is my year 15, and I think for 15 years, this has been a
discussion because there is a recognition of the dangers of
this structure. What advantages do you see with changing that
structure?
Mr. Pommerehn. We are at a critical point in time, right?
There is an inflection point here where we can make the Bureau
more credible, more durable going forward. We believe that a
five-person commission and a bipartisan commission would allow
for the aforementioned dissent and debate that is required to
actually form the policy and take some of the political
ideology----
Mr. Huizenga. Which is the structure that virtually every
other regulator--Securities Exchange Commission (SEC), others--
they all have internal checks and balances, not CFPB.
Mr. Pommerehn. CFPB does not.
Mr. Huizenga. Is it important to have industry experience
when you are leading?
Mr. Pommerehn. We believe so. I mean, it is good to have
the background of industry and how products and services
actually work. Oftentimes, they are misunderstood.
Mr. Huizenga. Okay. This is a structure that Mr. Barr and I
have talked about.
Do you believe that the CFPB can and will actually still
protect consumers with this new structure?
Mr. Pommerehn. I believe so. The CFPB has a statutory-
required duty that it has to carry out. I do not think having a
commission structure is going to----
Mr. Huizenga. So, wait a minute. Just because we changed
President does not mean we have automatically thrown out
consumer protection. That is what we hear from the other side.
Mr. Pommerehn. That is correct.
Mr. Huizenga. Okay. I just wanted to clarify that. That
does not seem to be the narrative.
Okay. Basically, essentially, enforcement has become
arbitrary. The current Bureau sends a signal to industry that
the Bureau will let you know when you have violated the law or
harmed consumers because they have given themselves that broad
authority. Not that Congress has, not that anybody else has,
but they have now suddenly--through enforcement letters and
other things, they are bending the will of the law to what they
view as what is proper. By the way, CFPB cannot actually give a
clear and consistent, definitive definition to the term
``abusive'' regarding unfair, deceptive, or abusive acts or
practices.
Is there anything that is considered abusive that is not
considered unfair or deceptive?
Mr. Pommerehn. That is unclear at this point.
Mr. Huizenga. It seems like a layman would actually be able
to discern that, but we are talking about legalese, right?
Mr. Pommerehn. Without the guidance from the former
administration under Director Kraninger, we do not have a
definitive definition of abusive.
Mr. Huizenga. Yes. All right and I have a few seconds.
Ms. Fonseca, I am sorry. I am running out of time.
Community and financial institutions are often caught in
the cross hairs, and we know about the cost of compliance. If
the CFPB has its way--and I would like to take your answer in
writing, if I could--but if the CFPB has its way, what would
the cost of eliminating and reducing overdraft products have on
consumers that you serve? I look forward to having that answer
in writing. Thank you.
Ms. Fonseca. Okay. Thank you.
Chairman Barr. The gentleman's time has expired.
The gentleman from Georgia, Mr. Scott, is now recognized.
Mr. Scott. Mr. Frotman, how are you?
Mr. Frotman. Great. Thank you, sir.
Mr. Scott. Please excuse my cold.
I think it would be very helpful if you explained this
phrase that is being used in these exchanges. They say, ``with
prejudice.'' Explain to us what that means in terms of the
relationship to the CFPB making any charges.
Mr. Frotman. Great. Thank you. If I could just have 1
minute, I would just like to respond to some of the questions
before that referenced our agenda.
We are talking a lot about boards and funding. I think that
people need to look around. They are firing FTC commissioners.
One of the FTC commissioners who was fired is in the room down
the hall. They are impounding funds. To be lectured about
separation of powers at this moment of time is something else.
We are so through the looking-glass that I think people
need to go back to the drawing board in terms of what we are
talking about and update the talking points that are now a
decade old because, if we want to talk about executive
overreach, if we want to talk about separation of powers, we
should be talking about how this committee and this Congress
created an office to look after military families that was shut
down. We should be talking about how this committee, and this
Congress, created an office to look after people with student
loans that were shut down.
These are the issues that are actually happening around us,
but we keep going back to these same old tired talking points
and bills, and it is just ever clear what they were always
about. They were always about hamstringing the Bureau, making
it easier for big banks to rip people off and making it easier
for Silicon Valley to steal people's data when they make a
transaction. We should just be honest. If you care about
separation of powers, if you care about executive overreach, we
could talk about that because that is what is happening right
now at 1700 G Street.
Congressman Scott, I think to your question--if I
understand it correctly--what we have seen now is the current
leadership of the CFPB has dropped nearly a dozen cases where
the Bureau brought forward credible evidence that companies
were ripping off their own customers to the tune of billions
and billions of dollars. In each of those instances, the
current leadership chose to dismiss, with prejudice, those
cases, meaning that the Bureau could never again try to get
money back on behalf of those people, whether they were ripped
off because a company lied to them when they were trying to buy
manufactured housing, when they were just trying to take out a
loan to make it through the week.
Student loan borrowers who were ripped off by an enormous
student loan company who was collecting on discharged debt,
that is this administration's priority now. Dropping those
cases and making sure the Bureau can never again help those
borrowers, your constituents.
Mr. Scott. Yes. I think that is very important for people
to understand that the CFPB--once they use that ``with
prejudice,'' it means that case goes bye-bye. How damaging is
that?
Mr. Frotman. It is tremendously damaging. I mean, it is
damaging for the Bureau, but it is damaging for the people on
the ground.
I think one of the things that we heard on the campaign
that we heard from the administration is they want to help
people with costs. You know what would help people pay for
groceries and pay for eggs? If they had a little more interest
in their savings account at Capital One. But that company chose
to deceive their own customers into not getting billions of
dollars of interest. That would have helped real people, and
that case was dismissed with prejudice.
Mr. Scott. Had it been dismissed without the CFPB first
trying to provide help to them?
Mr. Frotman. No. I think this is one of the most
frustrating things to see, which is each of these cases
involved thousands of hours of people's time. These are cases
before a Federal judge, and all of that work--all of the work
to try to make working people's lives a little better basically
lit on fire, for what?
Mr. Scott. I hope, Chairman, that we can find a way to
really address the impact that this is having on the lower
income and the people who need the help the most.
Chairman Barr. The gentleman's time has expired.
The gentleman from Texas, the Chairman of the Small
Business Committee, Mr. Williams, is now recognized.
Mr. Williams of Texas. Thank you, Mr. Chairman. Thank you
all for being here.
I must say, listening to all of this, that under a Trump
Administration, my business, my family, my friends, and my bank
are much better off today with a diluted CFPB. The CFPB's 1071
small business lending rule requires financial institutions to
report 81 unnecessary data points on the loan. For smaller
institutions, this rule creates a mountain of compliance,
burdens, and will harm the relationship with consumers, which
many are community banks and credit unions, and who they rely
on. This also leads to a reduction in the amount of small
business loans, and the cost of a loan will skyrocket and
decrease excess to capital.
Now, my bill, the 1071 Repeal Protect Small Business
Lending Act, will repeal this burdensome rule and give relief
to the financial institutions who serve small businesses every
single day.
Ms. Fonseca, how will complying with these burdensome 1071
data requirements impact your ability to provide affordable
access to credit for your small business members, and could you
expand on the benefits of repealing this burdensome regulation?
Ms. Fonseca. Yes. Complying with this burdensome
requirement is going to limit our ability to lend to small
businesses.
Mr. Williams of Texas. Regulations keep you from loaning,
basically?
Ms. Fonseca. Absolutely.
Mr. Williams of Texas. Okay. When I talk to friends of mine
that are bankers, accountants back home in Texas, one of the
biggest concerns with CFPB is regulatory agenda and the
compliance burdens that accompany that agenda under former
President Biden and former Director Chopra. The CFPB was left
unaccountable and regulated through blog posts, speeches, and
other illegitimate means. This left the financial service
industry in a constant state of worry, never knowing what
regulations or enforcement was coming next and how it would
affect them and their customers.
We must prevent this approach to regulation, the
uncertainty it brings to smaller entities and other
institutions and hold the CFPB accountable to Congress. That is
a new word to them, by the way.
Mr. Schneider, can you explain to the compliance--can you
explain the compliance difficulties that financial institutions
face when dealing with the CFPB, those always expanding and
often opaque regulatory regime?
Mr. Schneider. During the past--preceding 4 years, it was
certainly an exciting time to pick up the trade press in the
morning because there was going to be a new blog or a post or
something that your clients would be calling you about because
it seemed to speak with the force of law that there is some new
requirement that you have to deal with.
There was absolutely no formal process that surrounded
that. Not only are you questioning the legitimacy of the rule
itself because of the manner in which it was announced, but you
have no real way to understand what is required. You are
searching in the dark, you are spending a lot of money seeking
advice from counsel, but I guess that is great for lawyers, but
I am not sure it is good for institutions that could be
devoting those resources to lowering the cost of credit and
providing more innovative products.
Mr. Williams of Texas. Mr. Pommerehn, in your testimony,
you mention that CFPB had misrepresented data to justify their
policy decisions. I agree with you when you say facts matter
and regulators must represent facts accurately.
It is deeply troublesome the CFPB misrepresented data to
support their highly politicized actions, and industry
participants should be able to trust that regulators are not
falsifying information to achieve a political victory. This
kind of behavior could have detrimental effects on our
financial system.
Mr. Pommerehn, could you elaborate on the most serious
examples of the CFPB misrepresenting data and explain the harm
caused by these practices?
Mr. Pommerehn. Sure. Take the credit card late fee rule.
This is a rule that would exponentially lower the late fee from
$32 down to $8. The Bureau's justification for this was that
there was a lack of competition in the marketplace and that the
four largest issuers actually kind of dominated that market,
when actually their data shows that those four issuers actually
lost 4 percent of the market the previous year.
It is important for them to be intellectually honest with
the data when they are presenting it to the public. Otherwise,
we are being led down roads based on intellectual dishonesty
that will possibly affect the access to credit, especially for
some prime borrowers, if we are not actually looking at the
data correctly.
Mr. Williams of Texas. Thank you. I just would close by
saying the Trump Administration, I said earlier, is right on
the right path with the CFPB. As a business owner myself for
over 50 years, car business in Texas, an economy with a lesser
CFPB is much better than one that is under steroids like we
have seen in the past.
Thank all of you for being here. I yield my time back.
Chairman Barr. The gentleman yields.
The gentleman from California, Mr. Sherman, is recognized.
Mr. Sherman. Ms. Fonseca, I want to thank you and the other
Southern California credit unions for helping us after the
Palisades fire. I represent the Pacific Palisades.
Mr. Chair, I could not agree with you more that we need
oversight. A hearing like this, we do not have any government
witnesses. In fact, this committee and its subcommittees have
not had a government witness except from the Fed, but none that
are part of the administration. You cannot have meaningful
oversight by Congress if you do not have government witnesses,
and I look forward to us bringing Russell Vought and others
before this committee.
Mr. Huizenga tells us that Chopra should not have taken
action that might be overturned by the court. Boy, I wish we
had a current administration that not only adhered to court
rulings but even was reluctant to take action that they thought
might face a credible attack in the court.
I have been here for a long time and today is a throwback
to the committee that I have understood for so long. We are
talking about the structure of the CFPB and the regulation
process, and we have businesses telling us that there are high
compliance costs, and the Republicans are making some good--
some good points about the CID system. We are being told by--
that regulations are too tough, and Democrats are--God, this
feels like nine--90 days ago.
Today is different. Today is not a hearing about whether
the CFPB has a good or bad regulation. Today is a day when Elon
Musk says CFPB RIP, and we have thousands of people sitting at
home subscribing to Netflix and being paid by the U.S.
Government. The question that is really before us is, how do
the generals react--how would the generals react when they are
instructed by the President to arrest all the leaders of
Democratic Party?
We are acting like this is normal times. It makes me feel
better to spend these--this last hour in a normal committee
hearing where Democrats and Republicans are saying the normal
things they always say but that is not the real situation here.
It is not a matter of do we get rid of this or that regulation.
The CFPB has returned $21 billion to Americans since 2011
when it was founded, collected $5 billion in penalties. We have
to not defund the police if we are going to deal with crime in
the suites. Not only do we have the enforcement actions with
the dollar amounts I indicated, but think of all the crimes and
all the abuses that are not occurring that never even get past
the thinking stage because we have had a CFPB.
Of course, the CFPB has protected veterans and secured $363
million in monetary relief for them. The structure of the CFPB
was approved in a decision by Justice Clarence Thomas, not a
member of my political party.
We also have a major conflict of interest in that we see
that Elon Musk is moving to make the X platform a payment
system.
Mr. Frotman, could that payment system be more profitable
if there was no CFPB?
Mr. Frotman. Thank you for the question, Congressman.
I think that this is one of the central issues, I think,
before the committee if we are going to talk about oversight,
if we are going to talk about separation of powers, is there is
no secret that Elon Musk wants to turn Twitter into a payment
system.
I found this tweet on the platform from him speaking in
2003 that says, ``Elon Musk says if done right, X would become
half of the global financial system.'' That should be
petrifying to----
Mr. Sherman. Now, this payment system, we have bank
regulators that regulate most of the folks represented here and
credit union regulators. Musk would not have any of that
regulation and he would not have any CFPB regulation.
Correct me if I am wrong. I mean, the--they sent up the
most recent email saying, oh, we did not tell you not to do any
work, we just told you to do no work except the statutorily
required work.
Is anybody at the CFPB doing any consumer protection today?
Mr. Frotman. They are certainly not overseeing the nonbank
payment system in this country, which is the direct ambitions
of Elon Musk and most of Silicon Valley.
Mr. Sherman. Thank you.
Chairman Barr. The gentleman's time has expired.
Before we move on to the next question, I ask unanimous
consent to insert into the record a bill I have sponsored in
the past, the Financial Protection for Our Military Families
Act. The bill helps correct the record from the testimony of
Mr. Frotman, former CFPB Director Kraninger alerted us that she
did not have the statutory authority to supervise Military
Lending Act violations and asked that Congress grant the Bureau
this authority. My bill would have done that, but we were
never, never able to get Democratic support to move it.
[The information referred to can be found in the appendix.]
Chairman Barr. The gentleman now from Tennessee, Mr. Rose,
is recognized for 5 minutes.
Mr. Rose. Thank you, Chairman Barr and Ranking Member
Foster, for holding this hearing. Thank you to our witnesses
for taking time to be with us. I will dive right in.
Mr. Kuehn, can you talk about why many financial
institutions would prefer to settle with the CFPB versus having
their name dragged through the mud by an activist CFPB in
litigation? I am sorry, Ms. Kuehn.
Ms. Kuehn. Thank you for that question.
A lot of companies are pressured to settle because CFPB has
enormous penalty authority. It has a lot of tools in its
ability to issue expansive demands on companies. Rather than
drag this out, they seek the certainty of a settlement rather
than the uncertainty of lengthy litigation.
Mr. Rose. Thank you. From your experience of watching this,
do those settlements--would you say that the decision to settle
has anything to do with the settling party's belief that they
have done--that they have acted inappropriately?
Ms. Kuehn. If you look at the language of settlements, the
companies do not admit that they have done anything wrong. A
lot of times there is uncertainty, particularly where new or
innovative--I will put a nice word on it--theories are brought
by the CFPB. Rather than risk uncertainty in going to
litigation and fighting over it, they will resolve it even if
they do not agree with it. That includes whether or not they
think the CFPB has authority to bring the enforcement action.
There have been several enforcement cases settled with
companies who do not appear to be under the CFPB's
jurisdiction, but they would rather settle than have to deal
with that uncertainty which impacts their businesses.
Mr. Rose. Thank you for that further insight. That is my
experience and observation as well.
Mr. Pommerehn, can you discuss how government price
controls like those that the CFPB instituted on credit card
late fees and overdraft service limits--services limit--limit
the ability of financial institutions to offer products and
services to consumers?
Mr. Pommerehn. Yes. Thank you for the question.
Placing artificially low fee caps on services will
ultimately result in those services not being available or that
credit not being available to consumers. Who is going to hit
the hardest? That is probably going to hit the subprime
borrowers the hardest because they are harder to underwrite and
there is more risk involved.
When you place these--and overdrafts, a whole another
thing, because of this issue around whether or not it is
actually credit or not and whether or not the alternatives
given in the overdraft rule are actually real alternatives.
Most banks will have to get rid of those products, and the
customers that utilize them and depend on them will no longer
have access to short-term liquidity.
Mr. Rose. From my experience--and you might just give me
whether you agree with this or not. From my experience, the
alternatives that consumers face are far less desirable than
perhaps a modestly higher fee. Is that a fair assessment of
what the alternatives are then?
Mr. Pommerehn. I think that is a fair assessment, and we
believe that consumers ultimately fare better in the depository
system.
Mr. Rose. I appreciate that.
Ms. Kuehn, what is the purpose of the Administrative
Procedures Act, and how does adhering to its requirements
benefit consumers?
Ms. Kuehn. The purpose of the Administrative Procedures Act
is to allow a regulator a full opportunity to develop a record
in support of whatever it wants to do. Basically, you take in
evidence, you take in comments, you look at cost-benefit
analysis in connection with a regulation that you are looking
to promulgate.
The Administrative Procedures Act allows for sunshine on
the process, full notice and comment, so that all participants
and folks who can be affected by a particular regulation will
have an opportunity to provide information to the agency to
consider in development of its rule.
Mr. Rose. Thank you.
Unfortunately, many banks have withdrawn from small-dollar
consumer lending due to the significant uncertainty regarding
regulatory treatment of these products.
Mr. Schneider, during your tenure at the CFPB, you oversaw
small-dollar lending. Can you discuss the importance of the
CFPB issuing clear, well-justified rules with robust cost-
benefit analysis for the small-dollar lending industry? You
have 20 seconds.
Mr. Schneider. Small dollar--many companies that provide
small-dollar products are smaller companies. The compliance
costs are going to hit them even harder, quite frankly, on a
proportionate basis. If they do not know what they are supposed
to do, if they do not know how they are to do it, they have no
choice but to raise costs on everybody or withdraw from the
market.
Mr. Rose. Thank you. My time has expired. I appreciate
those answers, and I yield back.
Chairman Barr. The gentleman yields back.
The gentleman from Illinois, Mr. Casten, is recognized.
Mr. Casten. Thank you.
Quick question first. Ms. Fonseca, Mr. Pommerehn, would you
both agree that nonbanks that engage in bank-like activities
should abide by the same consumer protection rules that are
required of banks? Just yes or no.
Mr. Pommerehn. Yes.
Ms. Fonseca. Yes.
Mr. Casten. Okay. I thought you would say that.
I raise that because I want to respond to something that
Mr. Barr said in his opening testimony. He said that we have
entered a new era where businesses are not attacked by tweets.
Of course, they are not because the owner of Twitter put a
couple hundred million dollars into President's election
campaign and, in exchange, got himself a job in the White House
where he is hoping to earn a return on that investment.
If the President were to attack Twitter or if the
President's sycophantic enablers in the Republican Party were
to attack him on Twitter, I mean, I do not know, that would
require a level of patriotism, courage, and public-mindedness
that they have never shown. Of course, they are not--does not
make it right. Of course, they are not attacking by tweet.
Let us talk instead about how Elon Musk plans to get a
return on his $200 million because if we give a damn about
consumer protection, if we give a damn about competition and
functioning markets, we should be petrified by what Musk is
doing.
Mr. Frotman, you mentioned briefly with Mr. Sherman that
Elon Musk is talking about this new payment system, X Money,
that is expected to launch later this year. I believe you had
referred to his quote when he said he hopes--I am going to
misquote it. He said he hopes to have users conduct their
entire financial world on X.
The former Certified Financial Planner (CFP) Chief
Technologist said that he has been given ``God-tier access'' to
the CFPB system. I guess my first question for you, Mr.
Frotman, is have you ever seen a CEO of a bank, a nonbank, or
anybody being given God-tier access to the CFP data system
before?
Mr. Frotman. Absolutely not.
Mr. Casten. Can you describe exactly what that means and
what data Musk is now getting that nobody else in the private
sector has access to?
Mr. Frotman. Sure. This is tremendously concerning, I
think, for consumers and competition is that here is a person
who has billions of dollars on the line when it comes to the
dream of turning Twitter not only into a payments company but
into a super app, like we see happening in China and other
places. You have the person who stands to benefit from this
seemingly in charge and making decisions over what is basically
their only Federal regulator.
I think there are significant questions, if we want to talk
about oversight by this committee, if we want to talk about
investigations by the Inspector General about what happened
when DOGE employees were in the CFPB on February 7th, and then
that same day Elon Musk is tweeting ``CFPB RIP.''
Mr. Casten. Can you just clarify, though, because he is
getting information that Zelle, Venmo, Cash App, they do not
have that information about specific consumers, right?
Mr. Frotman. I think he is not only getting information
about consumers; he is getting information about his
competitors.
Part of the job of the CFPB, as tasked by Congress, is to
make sure we understand markets and where there is risk. There
is a ton of risk when it comes to nonbank payments.
Mr. Casten. I want to say something very partisan. I think
the richest man in the world is rich enough, but apparently
that is not a widely held opinion.
Justice Brandeis famously back in the 1930s said that when
you have great concentrations of wealth in society, you only
have three options. You can either allow wealth to take over
the government, which is to embrace fascism; you can allow the
government to take over the wealth, which is to embrace
communism; or you can break up the wealth and embrace
competition.
What is clear and the fact that it is so partisan to attack
the fact that the richest man in the world is now taking over
our system is that it is partisan to attack fascism. To say
anything else in this committee at this hearing at this moment
is naive.
Now, we are shortly going to move to marking up stablecoin
legislation. It is my understanding that Mr. Musk is saying he
would also like to use a stablecoin rule in order--some
stablecoin legislation in order to facilitate what he is doing
in the CFPB, which would--unless we put really strict
guardrails, is going to make it even harder.
So I guess, with the last 40 seconds, Mr. Frotman, let us
assume that he has all that data. Let us assume that he has a
very permissive stablecoin environment. It sounds to me like we
have a nonbank that is going to compete the hell out of all of
the banks and all the systems that we have right now in a way
that is deeply anti-competitive. Please tell me if I am wrong.
Mr. Frotman. You are a hundred percent correct.
Mr. Casten. Are we going to defend capitalism around here?
We are going to defend competition or are we going to put in a
ball gag, climb down to the dungeon and just do whatever Trump
tells us to do?
I yield back.
Chairman Barr. The gentleman yields back.
The gentleman from South Carolina, Mr. Norman, the sponsor
of the Congressional Review Act (CRA) disapproving the Bureau's
prohibition on creditors and consumer reporting agencies
concerning medical information, is recognized for 5 minutes.
Mr. Norman. Thank you, Mr. Chairman. I think it is--and
thank all of you for taking the time to come.
I am a businessman. I am a real estate developer.
Mr. Frotman, your comments are outrageous, to be honest
with you. You are talking to Democrat points. I am glad you are
bringing up Elon Musk. The American people owe a debt of
gratitude to a man that is showing where tax money is going.
They do not agree with it. Seventy-seven million people do not
agree with the former President, and in your--you resigned
twice under Trump. You resigned most recently in February 2025.
I kind of wish you had stayed because you would be the first
one to get fired. Let me just say this. The fact that----
Mr. Frotman. Congressman, could I reply?
Mr. Norman. The fact that you--on the student loan, you
formed the Student Borrower Protection Center. You took part in
the Biden Administration's forgiveness of loans. The people
that you talk about, the veterans and the poor families, their
tax dollars meant to pay student loans, they are forced to
pay----
Mr. Frotman. Congressman, I think what----
Mr. Norman. I am reclaiming my time. I am reclaiming my
time.
Mr. Frotman [continuing]. is appalling is this is a man in
America telling dedicated public servants who want to protect
servicemembers and students----
Mr. Norman. Do you not have any decency? Do you not have
any--this is not your platform. I have 3 minutes left. I am
going to ask some sane people over here. The fact that you took
money, took part in paying off loans that the taxpayers had no
say-so in is unbelievable.
Ms. Kuehn, one of Dr. Chopra's midnight rulemaking moves
before he left, was to remove medical debt information from the
consumer report and prohibits lenders from examining the credit
history of a borrower. We have a bill that we are trying to get
out of committee, but do you think the CFPB even has the
authority under the Fair Credit Reporting Act to require the
removal of a debt that they owe? The payment of it I think is
an important part of a credit report. Why is it being removed,
and does the CFPB have that right to do it?
Ms. Kuehn. I do not believe they have that right. The Fair
Credit Reporting Act actually addresses medical debt--and it
protects consumers' privacy with respect to their medical
information. It allows financial institutions to use the
financial aspect--does a consumer have significant medical
debt, and consider that in connection with making a loan or a
larger mortgage transaction, for example.
The rule ignores the restrictions and requirements of the
Fair Credit Reporting Act. It ignores data that had been
supplied. It relies on 10-year-old studies that really have no
bearing on what today's market looks like.
From the time those studies were conducted by the CFPB to
the issuance of the rule, the market had changed. It had
already made significant changes, and so it is based on faulty
premises. It has a terribly weak record associated with it, and
even the Small Business Administration filed comments raising
concerns about the process that led to the rule.
I agree that I do not believe they have the authority, and
even under the administration--Administrative Procedures Act,
they do not have the record that supports the steps that they
took.
Mr. Norman. That is the audacity of Mr. Chopra and his
disdain for the American people.
If you go--exclude medical debt, what about paying your
credit card off? What about paying your loan on your house off?
Why not exclude that? Why not just exclude everything so you
really--and student loan repayments, what is left, that was so
much advocated by Mr. Frotman to give away from--or to force
the American people to pay for, what about excluding that?
Ms. Kuehn. That is one of the concerns about the approach
that the CFPB took in the medical debt rule. What is the next
thing that is not popular is that they want to take out of the
financial system to hide or mask information?
The legal theory that they use to support the actions they
took and the rules which support them basically anything they
are not happy with, small dollar or student loans or things
like that, it is my view that is the role of Congress to make
those decisions.
The Fair Credit Reporting Act has a whole section where
Congress has decided what is fair to include and what is not,
and they ignore that entirely in the rule.
Mr. Norman. Okay. Thank you so much.
Chairman Barr. The gentleman's time has expired.
The gentleman from Pennsylvania, Mr. Meuser, the author of
the CFPB IG Reform Act, is now recognized.
Mr. Meuser. Thank you, Mr. Chairman. Thank you to our
witnesses.
Mr. Chairman, we are maybe pleased Mr. Frotman is here. His
testimony outlines precisely why the CFPB needs to be
completely overhauled. Mr. Chairman, I mean, the level of
arrogance that we saw when the CFPB was in existence, the
seemingly superiority complex, the dogmatic ideology, the
narrow-mindedness, the unwillingness to listen to even the
testimony that is here, the unchecked power, Mr. Chairman, is
dangerous to our government. Clearly, absolute power corrupts
absolutely.
Listening to what has been cited by the other witnesses,
they fail to follow the law, that is a pretty serious comment
from an objective stakeholder. Dying a death of a thousand
cuts, meaningless to the previous CFPB and to one of the
witnesses up here. Weaponizing the Bureau to use $700 million
to carry out its unauthorized mission, while being asked simply
for credible and durable Consumer Protection Bureau is what is
being asked, Mr. Chairman.
I have never heard anything from stakeholders that was
positive about the CFPB under Mr. Chopra and apparently under
this Mr. Frotman, except from Democrats who on this committee
are protecting bureaucratic power while they could control it.
To get to questions. Ms. Fonseca, the--many institutions
cap their growth quite deliberately to avoid crossing the $10
billion triggering the CFPB activities. However--and I know
this from--speaking of those in the field and throughout the
industry--10 billion--under 10 billion still feel the pressure
to build out compliance teams just in case.
Can you give us an example of what sort of fear existed and
forced you to slow down or scale back services to your members?
Ms. Fonseca. Yes. We have not scaled back services.
However, we have spent the last four, now going on the fifth
year of preparing for CFPB oversight.
As I mentioned in my testimony, that is going to cost us
about $4 million a year. We have spent at least half a million
dollars so far, and that is in addition to the $10 million-plus
that we are going to incur in lost interchange revenue from
debit cards.
Mr. Meuser. Thank you.
Ms. Kuehn, over the last 4 years, CFPB stretched its
authority, ignored the law, as been pointed out. Can you
provide some examples where the CFPB was intrusive, not
helpful, even damaging?
Ms. Kuehn. The CFPB has taken upon itself in the last
several years to look at companies that are on the edge and
often outside of their authority. Using their CID authority,
they have the ability to look at a company to see if they are
covered. They have not thought about that first.
So they have issued expansive demands on companies in areas
that have nothing to do with consumer financial services, and
they require those companies to expend a lot of money just to
prove a negative to say, hey, no, we are not covered by you, we
have not violated the law, there is nothing here.
Mr. Meuser. What did that look like in terms of business
loss, operations disrupted, reputations damaged?
Ms. Kuehn. For many of these companies, they have a
relatively small compliance group. These are small-to mid-sized
businesses that requires everyone to put work on hold to comply
with these demands. It required a lot of expenses from
electronic discovery demands.
There is a several-page list of specifications that the
CFPB will send and say, we want your data, but you have to
synthesize it and make it fit in exactly the way we want to
look at it. That is very expensive for small-to mid-sized
businesses.
Mr. Meuser. Many irrational disclosure requirements, sure.
Do you all agree that CFPB should become more focused or
maybe even solely focused on addressing consumer fraud?
I will start with you, Mr. Schneider.
Mr. Schneider. It is certainly an important part of their
mission and would be resources well spent.
Mr. Meuser. To the other witnesses?
Mr. Pommerehn. I would agree that they are an important
part of the equation. There are many parts of the government
that should be claimed in that space as well.
Ms. Fonseca. I agree as well. Fraud has grown
significantly, and many consumers are being impacted by fraud.
Mr. Meuser. Okay, great. What do you all think as well
about the CFPB being structured with a bipartisan commission,
like the FTC, with a three-member bipartisan board?
Mr. Schneider. It would certainly facilitate discussion.
Staff would have to appeal to a broader set of interests as
they make presentations.
Mr. Pommerehn. I would agree. I would say a five-person
bipartisan board would work best here. For the reasons
mentioned, we certainly have to have debate and dissent. It is
important in the policy.
Mr. Meuser. Thank you. My time has expired. I yield back.
Chairman Barr. The gentleman yields back.
The gentleman from Wisconsin, Mr. Fitzgerald, is now
recognized, and he is the author of the Making the CFPB
Accountable to Small Business Act.
Mr. Fitzgerald. Thank you, Chairman Barr. Thank you for
holding this hearing. Thank the witnesses for being here today.
Seems to be a little bit of revisionist history going on
here this morning, kind of in line with everything else I have
seen in my other committee, Judiciary.
For years, I mean, the CFPB has operated kind of with
significant regulatory power, and Director Chopra sat before us
many times with that grin on his face because I think that
certainly he enjoyed the havoc that he was creating and raising
throughout the private sector. He thought that was part of his
mission, I am convinced of it.
While consumer protection is critical, the regulations are
overly burdensome and are poorly analyzed. They can reduce
access to financial products and that has been the issue since
the CFPB came into play on these issues.
The bill that the chairman is referring to, I think the
CFPB being accountable to Small Business Act, it kind of
addresses some of the concerns that we have been discussing
here this morning. I think strengthening the agency's
obligation to do the cost-benefit analysis--I mean, that is
fine if you are going to come up with ideas, how you are going
to have a direct effect on financial institutions, but if you
do not have any cost-benefit analysis, it flies in the face of
financial services, right. I mean, that is--we kind of live and
die by the idea that the numbers tell the truth.
Mr. Pommerehn, can you discuss how kind of failing to
tailor the regulations for a small business institution has a
direct effect on their ability to serve small business and
consumers? This has been the problem for us, is that you cannot
come in here and listen to Director Chopra tear apart the banks
and the credit unions of this Nation and then on Tuesday bring
in the same committee and have a discussion about, well, it
just does not seem like the banks or the credit unions are
really helping the average consumer at this point.
So, there was this discussion that continued over the last
2 years that really made no sense, but there were never any
numbers to back it up. I was wondering if you could comment on
that.
Mr. Pommerehn. We are certainly in favor of a more robust
cost-benefit analysis when the Bureau is considering policy
considerations that are going to affect either the consumer or
small businesses. Oftentimes, the Bureau will ignore its own
data that shows that there will be detrimental effects to
actual small businesses or consumers but proceeds with those
rulemakings because of ideological guidance.
We believe that the cost-benefit analysis needs to be paid
attention to. We need to understand how it is going to affect
the economy, how it is going to affect consumers, and not just
throw out pejorative terms to prove a point.
Mr. Fitzgerald. Thank you.
Under former Director Chopra, the CFPB saw a significant
shift in its approach to consumer protection, right. I mean, it
was characterized by overextension of its power. I think the
Director was proud of the idea that he could continue to kind
of stir the pot on many of these different fronts.
Ms. Kuehn, how would greater statutory clarity and limits
on the Bureau's authority to improve regulatory certainty just
bring more of a competitive and consumer-friendly marketplace?
Ms. Kuehn. When companies know what the rules are, then
they are better able to compete. If it is more of a gotcha
game--right--where you have already innovated and created new
products and then to find out that someone in Washington has
decided they do not like that. That is unfair to companies, and
it really does stifle innovation and the creation of new
products and services to serve consumers.
Mr. Fitzgerald. I do not want to put you on the spot, but
is there something--is there an example of that really comes to
mind where everyone, whether you were in a banking or credit
union environment, knew that it was absolutely an overextension
of the CFPB's authority?
Ms. Kuehn. I think the most recent example is a rule that
is still out for comment, which is the revisions to the Fair
Credit Reporting Act rule. There are a lot of proposed new
interpretations that are well outside the statute.
Companies have built their businesses with an understanding
of the law and if what the CFPB has proposed were to go forward
as a rule, it would require a complete overhaul of the consumer
data industry of financial services uses of consumer reports.
That is a significant change and will result in a significant
cost. It also will drive many companies out of business,
because in the proposed rule, the CFPB says we want to now
declare these companies who have not been viewed as a consumer
reporting agency to be ones, and then they will have to comply.
Mr. Fitzgerald. Thank you, Chairman. I yield back.
Mrs. Kim [presiding]. Time is up. Thank you.
I now recognize myself for 5 minutes of questioning. I know
we have--subcommittee Chairman Andy Barr just left, but I want
to thank him for holding this hearing and I want to thank all
the witnesses for joining us today. This is an important
hearing as we discuss the future of the Consumer Financial
Protection Bureau.
The CFPB was created to, as the namesake says, to look out
for the American consumers, and at times it has lived up to
that mantle. However, in most cases it has become a political
tool with little to no oversight. That is why the Senate must
confirm Director McKernan so that the important process of
refocusing the agency back on consumer protection can finally
begin.
Ms. Fonseca, I want to ask you a question. Thank you for
making the trip all the way from Southern California, where I
am from, to testify before us today about how the CFPB has hurt
your ability to better serve your--or in our communities.
As an institution that is approaching the $10 billion
threshold for greater CFPB scrutiny, have you examined the
impact and costs that will be crossing this arbitrary
threshold?
Ms. Fonseca. Yes. Thank you very much for that question,
Congresswoman, and nice to see you again.
Mrs. Kim. Nice to see you.
Ms. Fonseca. Yes. As I mentioned in my testimony, we have
spent the last 4 years, going on our fifth year, preparing for
regulatory oversight by the CFPB and that we have already spent
over half a million dollars, and we will be spending about $4
million a year forward. That includes the addition of at least
30 staff members to oversee compliance related to CFPB
regulation.
Mrs. Kim. Would you say your focus on how you serve your
members be any different as a $10.1 billion institution or if
you are a $9.9 billion institution?
Ms. Fonseca. Yes. It does not even make sense that it would
have to change at all but having to focus on CFPB oversight
takes that focus away from our ability to serve our members,
and that is why we are here. Credit unions are here to serve
our members.
Mrs. Kim. Thank you.
Ms. Kuehn, as you know, CFPB is required to maintain a
consumer complaint system and publish an annual report to
Congress. That report should summarize complaints received in
the previous year, and this system is used by the CFPB to
sometimes even support agency actions or include the major
rulemaking.
I have heard that the system has been overrun by large
volumes of fraudulent disputes by bad actors that have
distracted from their legitimate wrongful conduct complaints.
This is not only unfair, but it skews the complaints and also
undermines the integrity of the complaint data. Do you share my
concerns regarding this integrity of the data?
Ms. Kuehn. I do. The CFPB's consumer portal was stood up to
collect complaints for consumers. What it has become for a lot
of companies is an avenue for credit repair and that is
affecting not only consumer reporting agencies, but also
financial institutions who want to hear from their consumers if
they have an issue. Instead, these third-party companies are
flooding the system with disputes about credit reporting that
have nothing to do with the complaints about a financial
product or service.
Mrs. Kim. As Director McKernan comes in, do you have any
advice for him to improve the customer compliance system? How
would he do a better job?
Ms. Kuehn. Yes. I think that he could direct his office
that runs the complaint system to meet with industry, to look
at these complaints, and to talk through ways in which we can
identify when it is being abused by third parties and not for
the benefit of a consumer.
Mrs. Kim. Thank you.
Ms. Fonseca, let me come back to you again. You are part of
an institution that is regulated by a bipartisan board, the
National Credit Union Administration. We all know that
regulated entities do not always agree with everything that
comes from the regulator. Would you say that the--overall, the
regulatory environment is more stable and transparent when you
are regulated by the National Credit Union Administration
(NCUA) board?
Ms. Fonseca. Absolutely. There is transparency, we are able
to add insights into their board meeting discussions, and there
are not--there is not a lot of volatility, but you are right,
we do not always agree with them, but it works, and it works
very well.
Mrs. Kim. Given its long track records, I think you would
agree that NCUA has been able to be an effective financial
regulator with a bipartisan board.
Ms. Fonseca. Absolutely.
Mrs. Kim. Thank you. I think the NCUA is a great example of
how we could reform the CFPB to be more bipartisan and
accountable. Thank you for being here.
Now, I yield back my time.
I want to recognize the gentleman from California,
Representative Vargas, for 5 minutes of questioning.
Mr. Vargas. Thank you very much, Madam Chair. I appreciate
it. Apologize, I had to slip out for a second. That is what
happens when they double-book you around here, but I am back,
and I heard most of the testimony earlier.
I represent the San Diego region. The San Diego region is
blessed by having the Navy there and many, many military
personnel. We are very blessed because many of them stay there.
They retire there. Unfortunately, they become victims
oftentimes of financial scams.
Mr. Frotman, in San Diego--in the San Diego region, we have
96 percent more CFPB consumer complaints filed by
servicemembers. You know that, I am sure. Could you talk a
little bit about what is happening right now and how we have
helped them before and how we are not helping them right now?
Because I am getting these complaints right now from people,
and they are saying they are calling, there is nobody there.
Mr. Frotman. Thank you so much for the question,
Congressman. I have actually visited the Marine Corps depot and
training facility with Holly Petraeus.
So this is critically important. One of the central tasks
that Congress directed the CFPB to do was look after military
families, and the track record of the Bureau across
administrations before the most recent change, I think, was
stellar. We got back more than $200 million for military
families through enforcement actions. We helped with 400,000
complaints.
What you see now is just devastating to military families.
They told the people who staff the office that the Congress
required the Office of Servicemember Affairs to stop working.
They broke the complaint system.
We heard a ton today about overreach. We have heard these
amorphous vague comments about CFPB overreach. Is it overreach
when the Bureau took enforcement actions against a bunch of
scammers who ripped off military families, who ripped off
veterans, who ripped off retirees?
We have heard a lot in the abstract about the Bureau and
the prior leadership, but we have not heard specifics because I
think this is one example of exactly what the Bureau was tasked
to do, and they are not doing right now.
Mr. Vargas. The other thing that I think is very important
also is to talk about the elderly. Again, San Diego is a young
town, but it is not that young. I mean, a number of us are
retired--not me, I am not retired, for the record--but a number
of people are, and there are a lot of scams, again, against the
elderly.
Before, I got all these positive comments about how the
CFPB was doing its job. Now, I am getting all these complaints
because nobody is there. Could you comment about that?
Mr. Frotman. That is correct. The acting Director Vought
told the Office of Older Americans to stop working. The people
who submit complaints about themselves or an elderly parent or
grandparent saw that system broken.
There have been a lot of charges leveled, but I think one
of the things that I think we all agree on is that the CFPB
needs to work. The CFPB needs to work on behalf of consumers
and servicemembers and older Americans. It needs to work on
behalf of honest businesses, and it is not now.
The inspectors that are supposed to take care of
servicemembers and older Americans are sitting at home instead
of doing their job.
Mr. Vargas. Mr. Frotman, I want this on the record because
I think that I have been around long enough now that you see
cycles and the unfortunate cycles are this. We have talked
about predators, and we have seen this. Oftentimes, my
colleagues on the other side ultimately control government, and
then you do see an overreach all right, but by the banks and
others, and we get into a financial slide. Then we get into a
recession, then we get into real trouble. Then consumers, we
saw in 2008, get ripped off.
We heard today that the CFPB is the predator, that you guys
are the predator, that you were the predator. Could you
straighten the record out on that? I want this on the record
because I think it is going to happen again, and I want to make
sure that you tell the truth. Go ahead, sir.
Mr. Frotman. Thank you so much. We have heard a lot of
attacks on CFPB leadership, but these are really attacks on
dedicated public servants who wake up every single day just
trying to make their neighborhoods safe.
So many of us who work at the CFPB lived through the
financial crisis and watched community after community
decimated, while a bunch of billionaire bankers got off scot-
free. What we do every day at the Bureau or what we did every
day at the Bureau was to try to make sure that does not happen
again.
What is happening now at the Bureau where there is no
oversight over massive nonbanks in this country is bad for
businesses. It is bad for consumers. They are setting up the
situation that there will be another financial crisis in this
country, and you all or the people sitting in the chairs after
you will be forced to deal with it once again.
Mr. Vargas. I agree.
I do want to last, with 10 seconds, just thank the people,
the dedicated servants of the CFPB, for all their hard work.
Thank you.
I yield back.
Mrs. Kim. Thank you.
I now recognize the gentlewoman from Texas, Representative
De La Cruz, for 5 minutes.
Ms. De La Cruz. Thank you, Chairwoman and thank you,
witnesses, for being here today.
My district lies in deep south Texas on the border of
Mexico and Texas encompassing Hidalgo County, which is over 80
percent Hispanic. That being said, in speaking with my
community banks in my district, we are a rural area. Community
banks, regional banks play an important role in our community
and helping first-time entrepreneurs, which I once was as a
Hispanic female-owned business; It is hard. It was hard to be a
first-time entrepreneur and not have a wealthy family that
could help subsidize my desire to 1 day be a business owner. I
leaned into my regional banks that provided me the American
dream as a Hispanic female in a rural community.
That being said, the work that the regional banks and the
community banks do in our community is very, very important.
Unfortunately, under the Biden Administration, the CFPB became
a political organ for the administration. It pushed partisan
rulemaking, like the 1071 rule, which everyone disliked,
including minority depository institutions, as I said, that are
in my district.
I am a proud original cosponsor of my fellow Financial
Services Committee member and Chair of the Small Business
Committee, Roger Williams, to repeal section 1071. We have to
use our control in Congress to set the CFPB straight and
enhance transparency and establish guardrails.
As a freshman in the last Congress, it baffled me that in a
House that had a very slim majority, where Republicans and
Democrats could hardly agree on anything, there was one thing
that we agreed on in both the House and the Senate and that is-
that 1071 was bad for minority communities like mine, it was
bad for entrepreneurs like I once was, it was bad all the way
around.
I want to remind everybody in this room that the House
agreed that 1071 was bad. The Senate agreed that 1071 was bad,
and when it went to the White House, the Biden Administration,
President Biden, vetoed the repeal of 1071. Thus saying that
the people's voice in the House, the people's voice in the
Senate did not matter and that they were going to put this
burdensome regulation on community banks, regional banks that
make a real difference in Hispanic districts and minority
districts like mine--that they were going to forge forward in
having 1071 hurt communities like mine.
It is despicable. It was gross that the Biden
Administration moved forward and vetoed what the House and
Senate wanted to move forward in repealing this.
That being said, I am going to ask Mr. Pommerehn, can you
share the benefits of passing Chair Williams' bill to repeal
1071 and why it is necessary to ensure small businesses are
able to access the critical capital and continue to serve our
communities?
Mr. Pommerehn. A repeal of the rule would certainly reduce
compliance costs for lenders to lend to small business. That
would increase the number of small businesses out there, and,
of course, that is good for the economy.
Absent a repeal, the rule should be looked at and possibly
reproposed to lessen that burden going forward.
Ms. De La Cruz. What I am hearing is the repeal of 1071 is
going to be good for minority communities like mine, it is
going to be good for entrepreneurs who have the American dream
of owning their small business, and that it is going to be good
for the economy. Is that correct?
Mr. Pommerehn. That is correct, Congresswoman.
Ms. De La Cruz. Then I see no reason why it should not be
repealed.
With that, I yield back.
Mrs. Kim. Very well. Thank you very much.
I now recognize the gentleman from Nebraska, Representative
Flood, for 5 minutes.
Mr. Flood. Thank you, Madam Chairman.
There is a fundamental problem that I think is going to
continue to come up in this committee related to the CFPB. The
Bureau has been at work extending its authority for as long as
possible when led by Democrat-appointed directors. A good
example of this is CFPB's larger participant rulemaking
targeting consumer payment applications.
The rulemaking lumps several different types of payment
actors under the same umbrella. The Bureau even hinted via an
employee's speech that merchants might be implicated as large
payment players in the future.
Last year, I asked Director Chopra about the merchant
exclusion and whether payments alone continued--constituted
commerce. In a response via question for the record, the
director made the case that a merchant, quote, that
incorporates payment capabilities directly into a website, end
quote, could potentially blur the lines between banking and
commerce and, therefore, be subject to CFPB oversight in the
future.
To be clear, Dodd-Frank--Mr. Frotman--Dodd-Frank explicitly
calls for an exclusion for merchants from the CFPB's regulatory
purview. The idea that a merchant engaged in consumer financial
activity due to payments activities in the merchant's own store
or website is ridiculous. Using that logic could lead the CFPB
to have examination authority over every mid-size to large
retailer in the country.
This part of a larger pattern from the Bureau, it extends
its--this is part of a larger pattern by extending its reach
and authority as far as possible over time with limited checks.
That is why it is so incredibly important that Congress work to
rein in the Bureau's authority and lack of accountability.
Mr. Schneider, given your experience working at the CFPB,
do you have any thoughts on how Congress and the new Director
should aim to keep the Bureau from expanding its own authority
in the future?
Mr. Schneider. Put them under appropriations, then they
have to explain to you what they want to use resources for, and
you can decide if you wish to approve that.
I think putting meaningful restrictions on their use of
their Unfair, Deceptive and Abusive Practices (UDAP) authority
is too broad. They should articulate a principle before they
bring an enforcement action. There is a case that they brought
that would upend the entirety of indirect auto lending, and it
is brought on a UDAP theory that, I might add, stands in
contravention of their own interpretations of an actual
regulation. I think that is ripe for--that is certainly ripe
for reform.
Mr. Flood. Continuing with you, Mr. Schneider. One of the
interesting things about your testimony is that you made the
observation that enforcement staff should not be involved with
directly planning or executing the exams.
Can you speak to why it might be problematic to have
enforcement staff directly involved with planning routine
examinations?
Mr. Schneider. Supervision is a confidential prudential
process. It is quite powerful, in my experience. It requires
cooperation between the Bureau and the entity, and it can
result in a very quick action to stop unlawful activity and to
redress consumers.
If the entity feels that this is really just a fishing
expedition that is going to get handed off to the enforcement
team, they are going to treat it like it is a law enforcement
matter. They are not going to cooperate, and the entire thing
is just going to become an enforcement action, which is going
to delay redressing to consumers.
So there has to be a divide, and having any involvement of
enforcement personnel in supervisory activities I think is
troubling.
Mr. Flood. As a Member of Congress who is very interested
in our housing supply issues and getting first-time homeowners
into homes, I think it is interesting that the cost to
originate a mortgage has gone up nearly 50 percent over the
last 4 years. It is nearly triple what it was before 2010.
Mr. Schneider, to what degree do you think this increase in
the cost of mortgage origination is a result of regulatory
burden, including from the CFPB?
Mr. Schneider. It intuitively seems a lot can be attributed
there. There are State regulators that have always regulated
mortgage services. They are quite well-equipped. They have
extraordinarily broad powers that are extended to them by their
State governments. They have been working very dutifully in the
past several years to coordinate their activity on a nationwide
basis.
Simply layering on another level of Federal oversight, to
some extent, is adding additional costs that could very easily
be handled by the State system.
Mr. Flood. Thank you very much.
At the end of the day, we do need to protect consumers. We
need to think about fraud. We need to think about deepfakes.
Fraud is monopolizing the time of a lot of folks in this lane,
and I want to see the consumer protection of the Federal
Government folks more on fraud and less on gotcha tactics.
With that, I yield back.
Mrs. Kim. Thank you.
Before I go to the next member, I would like to recognize
Ranking Member Foster.
Mr. Foster. Thank you.
I would like to ask unanimous consent to enter three
statements into the hearing record from groups strongly
opposing the Republican bills that we are considering today
that would undermine the CFPB and weaken consumer protections,
including one from Americans for Financial Reform, a second one
from Consumer Action, and a third from the National Association
of Consumer Advocates.
Mrs. Kim. Without objection. Thank you.
[The information referred to can be found in the appendix.]
Mrs. Kim. Now I recognize the gentleman from North
Carolina, Representative Moore, for 5 minutes.
Mr. Moore. Thank you, Madam Chair.
A little bit about--I am the--I guess I am the newest
member on the committee, which is why I get to speak last.
Before becoming a Member of Congress, for 30 years I was an
attorney, and I actually represented consumers during that
time, represented businesses, represented a number of folks,
and had the opportunity to deal with fraud cases over time.
When I came as a new Member of Congress, I wanted to see,
well, what does the CFPB do. I actually had somewhat high
hopes, which I guess proved my naivete on that subject. As I
dealt with this, becoming a member of this committee, I
realized that the comments made by members like Ms. De La Cruz
to my left and others of the abusive practices, Madam Chair, of
this agency just shocked my conscience. This is as an American,
as an attorney, seeing this happen.
The fact that financial institutions could not even rely
with any certainty on what was legal and what was not. It was
completely a game of gotcha. An agency that is not funded by
the normal appropriations process but is incentivized,
incentivized to get money by levying fees and fines, it is
almost like if you had a police officer out there paid more to
write more tickets or something. I mean, it is antithetical. It
is completely antithetical to any notion of due process and
equal protection in any way.
I think what you have with the way CFPB under the prior
administration governed was actually--was actually the predator
in this case by preying on businesses, preying on companies to
exert fines, forfeitures, and fees.
With all due respect to Mr. Frotman--I read your comments,
heard your comments. I have been an attorney for 30 years and
to approach something like this when it comes to a significant
part of regulatory law affecting somebody in this country with
a clear political agenda just shocks my conscience.
I would ask that--I am glad the new agency is not doing
that, and I would just ask those that ever want to serve in
these positions, certainly do not do this. This is--you have
millions of Americans who count on having access to capital.
You have individuals, you have companies, businesses that are
built on providing that capital.
The one thing that folks need to know is what are the
rules, what are the rules of the road, and follow those rules,
and do not change them midstream, and do not do them in such a
punitive way simply to either exercise or abuse power or to try
to obtain more money from these entities.
The more I have studied this, Madam Chair--and I hope that
it comes to the attention of the American people who see this
absolute abuse in government, and it is exhibit A of what is
wrong or what has been wrong in so many things.
I did think about something. Under the former--under the
former director, it seems that the CFPB made a habit of
bypassing the Administrative Procedures Act notice and comment
requirements, just enacting things. I think there was a whole
host of these, what, midnight entries. I do not know if they
were done with an auto pen, I do not know how they were done,
but they were done.
I have a question for Mr. Schneider. You have extensive
experience with enforcement at the CFPB, as well as the APA. I
am just curious, first off, would you agree that the APA
applies to the CFPB?
Mr. Schneider. Of course. Yes, sir.
Mr. Moore. Is agency guidance, is that a rule?
Mr. Schneider. It should not have the binding effect of law
if it has not gone through the appropriate approval process.
Mr. Moore. What about a press release?
Mr. Schneider. No. No question there.
Mr. Moore. All right. How about just a statement by the
director? Is that a rule?
Mr. Schneider. No.
Mr. Moore. So should a press release or a statement by the
director be the basis of an enforcement action?
Mr. Schneider. It certainly should not be.
Mr. Moore. My understanding is that did happen under this
prior administration. Is that correct?
Mr. Schneider. Certainly, the prior administration took
enforcement actions that did not seem to be well grounded on
any properly promulgated rule and, in some cases, stood in
contrast to properly promulgated rules.
Mr. Frotman. That is 100 percent not correct. Over and over
again----
Mr. Moore. Mr. Frotman, you are clearly a political hack. I
did not ask you a question. I did not ask you a question.
Mr. Frotman. If you want the truth, we could have a
conversation.
Mr. Moore. I did not ask you a question, sir.
I would just simply say that the comments from----
Mrs. Kim. It is still the gentleman's time.
Mr. Moore [continuing]. Mr. Frotman are disregarding the
rules of this committee. His disregarded rules there simply
show the problems with this agency.
With that, Madam Chair, I yield back.
Mrs. Kim. Thank you.
I now recognize the gentleman from Florida, Representative
Donalds, for 5 minutes.
Mr. Donalds. Thank you, Madam Chair.
In this committee it goes without question my views on the
CFPB. I have been very clear that this agency is a rogue agency
that was created on a partisan basis at a time period when,
frankly, the Democrats were choosing to solely blame bank
activity for the financial collapse, as opposed to looking at
the regulatory environment that had been set up which--based
upon faulty underwriting which cascaded through the financial
economy.
There were many people who bear the burden of what happened
in the economy in 2008 and 2009. Just setting up this
regulatory behemoth with no oversight and no accountability to
the American people except to the whims of Democrat politicians
has always been wrong; in my view, is still unconstitutional,
and this agency should be repealed never to be seen again.
I think that the argument of this is the only way to have
consumer protections at the Federal level is a complete folly,
and it is wrong, and it is shortsighted. Consumer protections
have existed in every Federal agency long before the CFPB was
ever contemplated or created. Those are the facts.
That being said, if the least we could do is actually
reform the CFPB and actually be an agency that is responsive to
Congress and responsible as it executes rulemaking in the
marketplace, that could have some positive benefits. But my
position remains that this agency just needs to be completely
removed and then we move forward to a real and responsible
regulatory environment that allows our economy to grow in a
responsible manner going into the future.
That being said, Ms. Fonseca, as the head of a company
right on the cusp of being subject to CFPB overreach, can you
describe how the CFPB stifles growth and innovation?
Ms. Fonseca. Thank you for the question.
As I mentioned previously, we have been very focused on
preparing for CFPB oversight and also concerned about
classification of junk fees for programs that our members want.
We are spending way too much time on that and not enough time
on innovating new products and services for our members.
Mr. Donalds. Thank you.
Mr. Schneider, what is the actual cost of compliance
imposed on the private sector by former Director Chopra over
the last 4 years?
Mr. Schneider. I will be perfectly honest, Congressman. I
do not know that figure. I know, just to respond to an initial
Civil Investigative Demand, given the short scope of time
involved and the massive amount of data, it could be tens if
not hundreds of thousands of dollars. Much less just thinking
about what a particular proposed speech idea might have, the
cost to your compliance department would be enormous.
Mr. Donalds. Tens of thousands or hundreds of thousands of
dollars just for one company?
Mr. Schneider. For one company for one investigation.
Mr. Donalds. Okay. Ms. Kuehn, what was the consumer
protection regulatory landscape before the creation of the
CFPB?
Ms. Kuehn. Before the creation of the CFPB, you had
prudential regulators who had authority to look at the
companies that they examine for consumer protection. In
addition, you had the Federal Trade Commission. I want to take
exception that there has never been a cop on the beat. As
someone who ran a division at the Federal Trade Commission, we
investigated companies for violations of consumer financial
protection laws and brought cases against those companies.
Mr. Donalds. Okay. Thank you so much.
Mr. Pommerehn, how would financial institutions,
businesses, consumers, and the economy as a whole benefit from
the abolition of the CFPB?
Mr. Pommerehn. First and foremost, we need a strong
consumer regulator. We need one that is going to be fair and
reasonable.
I think that, to the points made earlier, when we have
rules and guidance and even racking to blogs and circulars,
things of that nature, it is hard to comply with what is
actually needed to be complied with. It is unclear to comply
with the uncertainty that is created by an agency that does not
go through an APA process with notice and comment and the like.
I think consumer protection needs to be had. We need a
durable, credible consumer regulator that is going to be fair
to all the policy stakeholders going forward.
Mr. Donalds. To add on to your comment--and I think people
will hear me say get rid of the CFPB. Trust me, I mean it; get
rid of it. But to that point, yes, there are consumer
protections that should be durable that follow the
Administrative Procedures Act and not have an agency which is
rogue, in my view, depending on the Presidential Administration
and just moving through our economy with no accountability
whatsoever.
With that, I yield back.
Mrs. Kim. The gentleman's time is up. Thank you.
Please join me in thanking all of our witnesses for joining
today and answering the questions from the members.
Without objection, all members will have 5 legislative days
to submit additional written questions for the witnesses to the
chair and the questions will be forwarded to the witnesses for
your responses. The witnesses, you will have until April 30th
to provide written responses if you receive that question.
[The information referred to can be found in the appendix.]
Thank you very much for being with us today.
With that, the hearing is now adjourned.
[Whereupon, at 12:13 p.m., the subcommittee was adjourned.]
APPENDIX
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MATERIALS SUBMITTED FOR THE RECORD
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