[House Hearing, 119 Congress]
[From the U.S. Government Publishing Office]
DODD-FRANK TURNS 15:
LESSONS LEARNED AND THE ROAD AHEAD
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HEARING
BEFORE THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED NINETEENTH CONGRESS
FIRST SESSION
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JULY 15, 2025
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Serial No. 119-33
Printed for the use of the Committee on Financial Services
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
60-992 PDF WASHINGTON : 2026
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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
C O N T E N T S
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Tuesday, July 15, 2025
Page
OPENING STATEMENTS
Hon. French Hill, Chairman of the Committee on Financial
Services, a U.S. Representative from Arkansas.................. 1
Hon. Maxine Waters, Ranking Member of the Committee on Financial
Services, a U.S. Representative from California................ 2
Hon. Bill Huizenga, Vice Chairman of the Committee on Financial
Services, a U.S. Representative from Michigan.................. 4
WITNESSES
Hon. Ken Bentsen, President and Chief Executive Officer,
Securities Industry and Financial Markets Association.......... 4
Prepared Statement........................................... 7
Mrs. Lindsey Johnson, President and Chief Executive Officer,
Consumer Bankers Association................................... 23
Prepared Statement........................................... 25
Mr. Tom Quaadman, Chief of Government Affairs and Public Policy,
Investment Company Institute................................... 50
Prepared Statement........................................... 52
Dr. Paul Kupiec, Senior Fellow, American Enterprise Institute.... 68
Prepared Statement........................................... 70
Mr. Dennis Kelleher, Co-Founder, President, and Chief Executive
Officer, Better Markets........................................ 121
Prepared Statement........................................... 123
APPENDIX
MATERIALS SUBMITTED FOR THE RECORD
Hon. Bill Huizenga:
2024 GAO report.............................................. 204
GAO Highlights............................................... 341
Hon. John Rose:
Independent Community Bankers of America (ICBA).............. 342
Hon. Sean Casten:
Wall Street Journal, ``Want to Trade Amazon on Crypto
Exchange? The Price Might Be Off by 300 Percent.''......... 343
Hon. Troy Downing:
National Association of Manufacturers (NAM).................. 347
Hon. Mike Flood and Hon. Young Kim:
Letter to Mr. French Hill and Maxine Waters from Brett Palmer 354
Hon Andrew Garbarino:
Statement for the record from the U.S. Chamber of Commerce... 356
Hon. Marlin Stutzman:
Defense Credit Union Council (DCUC).......................... 372
DCUC Bill Positions and Recommendations...................... 374
RESPONSES TO QUESTIONS FOR THE RECORD
Written responses for the record from Mrs. Lindsey Johnson
Representative French Hill................................... 381
Representative Scott Fitzgerald.............................. 0382
Representative Maxine Waters................................. 385
Written responses to questions for the record from Mr. Tom
Quaadman
Representative Ann Wagner.................................... 387
Representative Zachary Nunn.................................. 388
Written responses for the record from Mr. Dennis Kelleher
Representative Maxine Waters................................. 390
Written responses to questions for the record from Mr. Paul
Kupiec
Representative Maxine Waters................................. 395
LEGISLATION
H.R.----, the Small Lenders Exempt from New Data and Excessive
Reporting (LENDER) Act......................................... 396
H.R.654, the Taking Account of Bureaucrats' Spending (TABS) Act
of 2025........................................................ 401
H.R.3445, the Consumer Financial Protection Commission Act....... 421
H.R.2885, the Bank Loan Privacy Act.............................. 437
H.R.2513, the CFPB-IG Reform Act of 2025......................... 439
H.R.2183, the CFPB Dual Mandate and Economic Analysis Act........ 445
H.R.2331, the Transparency in CFPB Cost-Benefit Analysis Act..... 449
H.R.3446, the FDIC Board Accountability Act...................... 454
H.R.1606, the Making the CFPB Accountable to Small Businesses Act
of 2025........................................................ 457
H.R.1652, the Rectifying UDAAP Act............................... 460
H.R.1653, the Civil Investigative Demand Reform Act of 2025...... 469
H.R.----, the Business of Insurance Regulatory Reform Act of 2025 474
H.R.3213, the Restoring Court Authority Over Litigation Act of
2025........................................................... 477
H.R.----, the Credit Access and Inclusion Act.................... 489
H.R.3682, the Financial Stability Oversight Council Improvement
Act of 2025.................................................... 493
H.R.----, the Small Dollar Loan Certainty Act.................... 495
H.R.3141, the CFPB Budget Integrity Act.......................... 502
H.R.----, the American Access to Banking Act..................... 504
H.R.----, a bill to require the Federal financial institutions
regulatory agencies to jointly review the cumulative impact of
regulations issued by such agencies, and for other purposes.... 512
H.R.----, a bill to amend the Federal Reserve Act to specify
additional responsibilities of the member of the Board of
Governors of the Federal Reserve System who was appointed as
the member with experience working in or supervising community
banks, and for other purposes.................................. 515
H.R.----, a bill to amend the Consumer Financial Protection Act
of 2010 to require the attestation of certain information as
part of the consumer complaint submission process, and for
other purposes................................................. 518
H.R.----, a bill to amend the Consumer Financial Protection Act
of 2010 to provide procedures for guidance issued by the Bureau
of Consumer Financial Protection, and for other purposes....... 522
H.R.----, a bill to amend the Consumer Financial Protection Act
of 2010 to direct civil penalties to victims and transfer
excess funds to the Treasury, and for other purposes........... 528
H.R.----, a bill to amend the Consumer Financial Protection Act
of 2010 to eliminate the market monitoring functions of the
Bureau of Consumer Financial Protection, and for other purposes 530
H.R.----, a bill to amend the Consumer Financial Protection Act
of 2010 to revise the structure and maximum amounts of civil
monetary penalties, and to provide incentives for the self-
reporting of violations........................................ 532
H.R.----, a bill to amend the Financial Stability Act of 2010 to
authorize appropriations for the Office of Financial Research
and the Financial Stability Oversight Council, and for other
purposes....................................................... 535
H.R.----, a bill to amend the Fair Credit Reporting Act to
require resellers of information contained in consumer reports
to follow reasonable procedures to assure maximum possible
accuracy of such information before transmitting such
information, and for other purposes............................ 538
H.R.----, a bill to amend the civil liability requirements under
the Fair Credit Reporting Act to include requirements relating
to class actions, and for other purposes....................... 540
H.R.----, a bill to require the Secretary of the Treasury to
submit a report that contains a list of unused authorities in
the Dodd-Frank Wall Street Reform and Consumer Protection Act
and in the amendments made by such Act, and for other purposes. 544
H.R.----, a bill to repeal unused authority of the Securities and
Exchange Commission related to restricting certain mandatory
pre-dispute arbitration, and for other purposes................ 546
H.R.3484, the Business Owners Protection Act of 2025............. 548
H.R.----, a bill to remove certain authority of the Securities
and Exchange Commission over other matters related to fiduciary
duties, and for other purposes................................. 551
H.R.----, a bill to repeal the disclosure requirement applicable
to payments by resource extraction issuers, and for other
purposes....................................................... 553
H.R.----, a bill to repeal certain unused authority of the
Securities and Exchange Commission related to standards of
conduct........................................................ 555
H.R.----, a bill to amend the Securities Exchange Act of 1934 to
repeal certain disclosure requirements related to conflict
minerals....................................................... 556
H.R.3959, the Protecting Private Job Creators Act................ 558
H.R.2478, the Financial Exploitation Prevention Act of 2025...... 562
DODD-FRANK TURNS 15:
LESSONS LEARNED AND THE ROAD AHEAD
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Tuesday, July 15, 2025
U.S. House of Representatives,
Committee on Financial Services,
Washington, D.C.
The committee met, pursuant to notice, at 10:16 a.m., in
room 2128, Rayburn House Office Building, Hon. French Hill
[chairman of the committee] presiding.
Present: Representatives Hill, Lucas, Huizenga, Wagner,
Barr, Williams of Texas, Davidson, Rose, Steil, Timmons,
Stutzman, Norman, Meuser, Kim, Garbarino, Fitzgerald, Flood,
McClain, Downing, Haridopolos, Moore, Waters, Velazquez,
Sherman, Meeks, Scott, Lynch, Green, Himes, Foster, Beatty,
Vargas, Gottheimer, Gonzalez, Casten, Pressley, Tlaib, Torres,
Garcia, Pettersen, Bynum, and Liccardo.
Chairman Hill. The Committee on Financial Services will
come to order.
Without objection, the chair is authorized to declare a
recess at any time.
Today's hearing is entitled, ``Dodd-Frank Turns 15: Lessons
Learned and the Road Ahead.''
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. FRENCH HILL, CHAIRMAN OF THE
COMMITTEE ON FINANCIAL SERVICES, A U.S. REPRESENTATIVE FROM
ARKANSAS
Good morning. Today's hearing is focused on reviewing Dodd-
Frank's real-world impact and its unintended consequences over
the past 15 years. Our colleagues across the aisle often
criticize today's banking system, but rarely do they
acknowledge that it is a direct result of the policies they
enacted after the 2008 financial crisis along party lines.
Dodd-Frank was sold to the American people as a sweeping fix to
prevent another crisis, yet over time, it has become clear that
this approach has not delivered as promised for main street.
Instead, history shows that it punished community financial
institutions through its one-size-fits-all mandates, shifted
activity outside the regulated banking system, created new and
unaccountable agencies like the Consumer Financial Protection
Bureau (CFPB), and prioritized duplicative compliance and
regulatory issues and, most importantly, regulation by
enforcement over actual consumer protection. These smaller
institutions did not cause the crisis, but they have been
forced to navigate new compliance burdens and divert resources
away from serving their communities and toward satisfying
Washington bureaucrats. The law created new agencies like the
CFPB, which has operated with unprecedented autonomy and
minimal accountability to Congress or the American people.
For 15 years, we have lived under the shadow of Dodd-Frank.
This law did not just reshape banking, it rewrote the rules for
our capital markets. It handed the Securities and Exchange
Commission (SEC) sweeping new powers that have led to
regulatory overreach, costly disclosure mandates, and mission
creep into areas like corporate governance and executive
compensation: areas historically governed by State law and
protected by the business judgment rule. For 15 years, these
policies have burdened the U.S. public companies while giving
foreign competitors a leg up. Even worse, foreign private
issuers were exempted from many of the most burdensome Dodd-
Frank disclosure requirements.
We all know that healthy competition and innovation drive
economic growth, creating more opportunities and better
financial services for all Americans. Instead of burdening
institutions with excessive red tape, we should be empowering
them to serve families, small businesses, and local
communities. That includes small and mid-sized companies trying
to raise capital or grow through public market access.
Unfortunately, the complexity and cost imposed by Dodd-Frank
have helped fuel the long-term decline in U.S. initial public
offerings, discouraging companies from going public altogether.
As we examine the last 15 years, I hope we can do so with clear
eyes.
It is also time to take a hard look at the rules that never
made sense in the first place, rules that sit on the shelf and
create needless uncertainty for market participants, just
waiting for some new unelected bureaucrat to dust them off and
put them to work. That is not how our system should work. We
must work together to craft thoughtful, bipartisan reforms that
restore balance, foster growth, and protect consumers. I look
forward to a robust and productive discussion today. I am
grateful to our panel for being with us, and I am hopeful that
we can chart a better path forward for all Americans through
financial oversight and through reform of Dodd-Frank. I yield
back.
I now recognize the distinguished ranking member of the
committee, Ms. Waters, for 5 minutes for an opening statement.
OPENING STATMENT OF HON. MAXINE WATERS, RANKING MEMBER OF THE
COMMITTEE ON FINANCIAL SERVICES, A U.S. REPRESENTATIVE FROM
CALIFORNIA
Ms. Waters. Thank you very much, Mr. Chairman. Good
morning, everyone. Before I discuss today's hearing topic, we
just got news that inflation has jumped to 2.7 percent as
Trump's tariffs have started to take effect. This is another
reason Trump's reckless tariffs and attacks on the Fed's
independence are so dangerous, and consumers and small
businesses will pay the price. It is striking that with this
hearing, we are marking the 15th anniversary of the Dodd-Frank
Act, a legislation enacted in the aftermath of the 2008
financial crisis, which unfolded under a Republicans' watch
with President George W. Bush's Administration. Yet, the same
week, Republicans in Congress are repeating the same mistakes
that triggered the crisis in the first place. It is as if they
have learned nothing from the painful lessons of 2008: the wave
of foreclosures, the millions of jobs lost, and the devastation
of countless families watching their entire life savings vanish
in a blink of an eye.
Unfortunately, over the past 15 years, Republicans spent
more time trying to undo Dodd-Frank than they have spent time
trying to protect consumers and investors. They have done more
to fight for interests of the same Wall Street CEOs whose
reckless actions destabilize our economy than fighting for the
main street and working-class Americans who power our economy.
There is no clearer example of this than what we are witnessing
just this week.
Republicans are pushing two particularly dangerous bills
that will unleash risky cryptocurrency into our mainstream
financial system without proper guardrails to protect
hardworking Americans. If that sounds familiar, it is because
it is.
The rise of complex, poorly regulated financial instruments
was precisely what sparked the 2008 crisis, but these crypto
bills do not just risk another economic meltdown. They are also
riddled with loopholes that President Trump that gave him the
green light to continue his crypto scheme that so far has
netted him $1.2 billion. Yes, he owns crypto companies now. He
owns crypto companies. Melania owns crypto companies. His sons
own bitcoin companies. They are mining bitcoin coins right now.
It is appalling that this Republican-led Congress can sit idly
by and enable this blatant scheme and cash grab, especially
after just voting so hard to hand Trump and his insiders a
massive tax giveaway. This is more of the same taking from
hard-working Americans to further enrich billionaires and
crypto insiders. That is why I have joined with Ranking Member
Lynch in leading Democrats in Anti-Crypto Corruption Week where
we are outlining the true economic costs of these dangerous
bills.
Deregulating crypto and enable a con by the most corrupt
President in the history are not the only ways that Republicans
are setting the stage for another 2008-style crisis. They are
also working with the Trump regime to gut a core pillar of
Dodd-Frank, the Consumer Financial Protection Bureau. This is
incredibly dangerous. The Consumer Bureau was created to ensure
a Federal watchdog that monitors Big Banks to protect consumers
from the abusive practices and holds institutions accountable
for ripping off consumers, but now, Trump and the Republicans
are making good on their promise to delete the Agency. From
slashing CFPB's budget in half, to firing dedicated staff, or
halting lawsuits that would return stolen money to victims from
them. They are dragging us back to the dark days before Dodd-
Frank when consumers had no one looking out for them in the
financial marketplace. Committee Democrats are committed to
defending the Dodd-Frank Act from Republicans' 15-year campaign
to repeal the law.
We will also continue fighting against reckless
deregulation that favors mega banks and Big Tech over community
banks and credit unions that put our taxpayers at risk. We will
still see what happens when Republicans allow Wall Street, Big
Tech, Big Crypto to police itself. Spoiler alert, it will not
end pretty for our constituents, and with that, I yield back.
Chairman Hill. The gentlewoman yields back. I now recognize
the vice chair of our full committee, Mr. Huizenga, for 1
minute for an opening statement.
OPENING STATEMENT OF HON. BILL HUIZENGA, VICE CHAIRMAN OF THE
COMMITTEE ON FINANCIAL SERVICES, A U.S. REPRESENTATIVE FROM
MICHIGAN
Mr. Huizenga. Thank you, Mr. Chairman. On the 4th of July,
President Trump and congressional Republicans delivered on a
promise to pass legislation that helps all Americans. There is
a stark difference between the One Big Beautiful Bill and the
Dodd-Frank Act. The One Big Beautiful Bill will increase
economic opportunities for those who need it most. It will
strengthen our economy by slashing red tape and will make
lasting reforms to the financial system. Dodd-Frank empowered
Big Government bureaucrats and agencies like the Securities and
Exchange Commission with sweeping unchecked authority. It
allowed agencies to promote woke ideology and Environmental,
Social, and Governance (ESG) mandates while straying from their
core mission. Now by reining in the reach and the footprint of
organizations like the CFPB, Republicans and President Trump
will end regulation by enforcement. We will end burdensome
regulations that harm every one of our constituents. In the
Financial Services, Republicans will promote innovation and
consumer choice that has been stifled under Democrat
leadership. So I say I was not here for the passage of Dodd-
Frank, but I have been living with the echo effects of it since
2011. With that, Mr. Chairman, I yield back.
Chairman Hill. The gentleman yields back. Today we welcome
the testimony of our all-star panel: the Hon. Ken Bentsen,
President and CEO of the Securities Industry and Financial
Markets Association, a former Member of Congress from Texas and
a member of this committee; Mrs. Lindsey Johnson, President and
CEO of the Consumer Bankers Association; Mr. Tom Quaadman,
Chief of Government Affairs and Public Policy in the Investment
Company Institute; Dr. Paul Kupiec, Senior Fellow at the
American Enterprise Institute; and Dennis Kelleher, Co-Founder,
President, and CEO of Better Markets. We thank each of you for
taking time to be with us today. Each of you will be recognized
for 5 minutes to give an oral presentation of your testimony,
and without objection, your written statements will be made
part of the record.
The Honorable Ken Bentsen, you are now recognized for 5
minutes for your oral remarks.
STATEMENT OF KEN BENTSEN, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, SECURITIES INDUSTRY AND FINANCIAL MARKETS ASSOCIATION
Mr. Bentsen. Chairman Hill, Ranking Member Waters, and
distinguished members of the committee, thank you for the
opportunity to testify today. My name is Ken Bentsen. I am
President and CEO of the Securities Industry and Financial
Markets Association (SIFMA).
U.S. securities markets are the deepest and most liquid in
the world. They are also the envy of the world. In the U.S., 75
percent of commercial activity is financed through our capital
markets, significantly more than any other developed economies.
In fact, I just spent the last week in Europe meeting with U.K.
and EU financial regulatory officials, where both jurisdictions
have prioritized development of their capital markets to spur
investment and economic growth like that we have here at home.
Vibrant and healthy capital markets allow companies to invest
in plant and equipment, spurring job creation and economic
growth, and American workers prepare for their retirement
directly and through investment vehicles such as 401(k)
accounts, providing investment capital that fuels our economy.
Again, if you look around the world, virtually every other
nation looks at the U.S. as a model for our robust capital
markets and investment system. Therefore, it is critical for
policymakers to tailor regulatory policies to ensure
transparency, investment protection, and mitigate legitimate
market risk without unnecessarily disrupting or constraining
these critical markets. Further, Congress has an important role
to play beyond simply enacting the laws. It is important for
Congress to periodically review previously enacted statutes to
determine effectiveness, adherence to legislative intent, and
impact on the market. So, I commend the committee for holding
this hearing.
Beyond question, our markets and related participants are
among the most regulated sectors in the U.S. economy, but not
without cost. The post-2008 financial crisis regulatory and
supervisory reforms, culminated in the Dodd-Frank Act, were the
most expansive financial regulatory action since the 1930s. The
act, comprised of 16 titles and approximately 400 rulemakings,
significantly expanded the number and breadth and intensity of
regulatory and supervisory requirements with which the U.S.
financial sector is subject. I brought my table copy with me.
These changes have significantly reduced the probability that a
major banking organization would fail during an extreme shock
while also reducing the potential contagion and cost if such a
failure were to occur. In particular, large banking
organizations have more and higher-quality capital today than
pre-crisis, which provides them with larger buffers against
failure if they experience unexpected losses.
Though many of the Dodd-Frank reforms have made the U.S.
financial system more resilient and less prone to shocks, we
believe that appropriate, tailored regulation should balance
the dual goals of enhancing financial stability and investor
protection while supporting the flow of investment capital to
end users. The financial sector can continue to be well
regulated, well capitalized, and resilient even with
recalibration of certainly unnecessarily burdensome
regulations. If banking organizations were permitted to unlock
more of their capital and liquidity, additional lending and
financing to consumers and businesses would provide for greater
levels of economic expansion.
SIFMA has expressed deep concern about the Basel III
Endgame proposal that was issued in 2023 by banking regulators
not only because it would significantly increase aggregate U.S.
bank capitals beyond their current historically robust levels,
but because it inappropriately targets banking organizations
and capital markets activities for some of the largest
increase. These impacts are, in turn, greatly exacerbated by
overlaps between these frameworks and the Federal Reserve's
stress testing regime. This is not only about the ability of
banks to lend. Large bank broker-dealers comprise a significant
market share of our Nation's securities and derivatives markets
and, when combined with foreign banking operations, comprise
about 90 percent of the market, so the knock-on effect is quite
extreme.
It is also not just about large banks. Nonbank affiliated
and regional broker-dealers and asset managers, all subject to
robust rules and oversight by Federal market regulators, have
been subject to enhanced regulatory and compliance burden. The
cost of compliance has increased. According to one study, by
over $50 billion annually. Many of our smaller broker-dealer
members have reported the need to merge due to increased
compliance costs. Over the last 15 years, the number of
registered broker-dealers in the United States has declined by
30 percent. Some regulators have interpreted certain provisions
of the Dodd-Frank Act as a license to establish new rules
outside the original intent of the statute, notwithstanding the
lack of any obvious market failure.
The U.S. financial system is significantly stronger and
more resilient than it was before Dodd-Frank was passed in
2010. That is a good thing. However, SIFMA believes that it is
now appropriate to evaluate whether certain components of the
regulatory framework developed under the mandates of Dodd-Frank
are excessively conservative and impose costs on the U.S.
economy or financial markets and on main street that outweigh
their benefits.
We appreciate the committee's interest in exploring these
important questions on this 15th anniversary of Dodd-Frank. I
yield back.
[The prepared statement of Mr. Bentsen follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman Hill. The gentleman yields back. Mrs. Johnson, you
are now recognized for 5 minutes for your oral presentation.
STATEMENT OF MRS. LINDSEY JOHNSON, PRESIDENT AND CHIEF
EXECUTIVE OFFICER, CONSUMER BANKERS ASSOCIATION
Mrs. Johnson. Thank you, Chairman Hill, Ranking Member
Waters, and members of the committee. I appreciate the
opportunity to testify on behalf of the Consumer Bankers
Association about the lessons learned from the Dodd-Frank Act.
My name is Lindsey Johnson. I am President and CEO of
Consumer Bankers Association (CBA), the only national trade
association focused exclusively on retail banking. CBA and our
members work to promote sound policy to enable consumers
individualize approaches to finance their own American dreams.
CBA member institutions account for nearly 2 million employees
across the country, extended roughly $3.4 trillion in consumer
loans, and provided nearly $173 billion in small business loans
last year alone. The vast majority of our members are more than
$10 billion in assets, making them subject to CFPB's
supervision and enforcement.
The Dodd-Frank Act was enacted to address vulnerabilities
in the U.S. financial system exposed in the 2008 financial
crisis. Dodd-Frank raised capital requirements for banks,
established mortgage underwriting requirements, heightened
oversight of systemically important institutions, and
consolidated Federal consumer protection authority into a
brand-new Federal regulator, the CFPB. It is important for
Congress to continually review statutes to ensure that they are
meeting their intended purpose, to know any unintended
consequences, such as unnecessarily increasing costs for
businesses or consumers, and to understand how markets have
evolved and where certain standards may no longer be
appropriate. While this is true for all titles of the Dodd-
Frank Act, my comments will focus on Title X of Dodd-Frank: the
creation of the CFPB.
American consumers deserve a credible, durable CFPB that
executes on its statutory mission, heeds the bounds of its
statutory authority, and addresses true market failures and
consumer harms. Unfortunately, the political shifts at the
Bureau have been seismic from administration to administration.
To some degree, Bureau policy will inevitably reflect
differences in political philosophies. However, numerous
actions by the Bureau's prior leadership have raised important
questions about whether it prioritized politics over people. We
expand on these and other issues in great detail in my written
testimony, and we are working with the Bureau's current
leadership to address many of the most egregious concerns. This
committee has a critical role to play to make more permanent
reforms that can reboot the Bureau into a credible, durable,
and more stable regulator. In my written testimony, I address
three key issues where Congress should focus its review of the
Bureau: first, ensuring the Agency follows the law; second,
addressing true impacts of regulation on consumers; and third,
focusing on fact-based policies and on true consumer harm.
The most direct action Congress could take is to clarify in
its statute the Bureau's vague and largely undefined Unfair,
Deceptive, or Abusive Acts or Practices (UDAAP) authority. The
Bureau has in the past regularly expanded its authorities or
illegally interpreted the statutory provisions to meet its own
objectives. There are even examples where the Bureau sought
civil monetary penalties retroactively for previously undefined
violations. Now, even after 15 years, the CFPB still has not
clearly explained what abusive acts and practices are and how
they are distinct from unfair and deceptive acts.
Unfortunately, this has placed all entities that the Bureau
regulates at risk of inadvertent noncompliance, stymieing
lending and innovation for consumers. It is imperative for
Congress to pass Congressman Barr's Rectifying UDAAP Act to
provide the needed clarity and definitions of CFPB's UDAAP
authority so regulated entities know what is and is not
permitted and how they can comply.
Second, the Bureau must consider the true impact of its
actions on both consumers and regulated entities. To date, the
Bureau is not required to perform a rigorous cost-benefit
analysis to ensure the actions it is taking outweigh both the
financial costs and the cost to consumers. The transparency in
CFPB Cost-Benefit Analysis Act would eliminate this concern.
The Bureau also needs to take into account the cumulative
impact on the numerous oversight agencies for banks.
Legislation to review the impact of overlapping regulations and
impacts on consumer access and overall economic activity would
greatly benefit consumers without diminishing the supervision
and examination of banks.
Lastly, it is critical for the CFPB to be facts and data
driven in its regulatory focus. The Bureau's Complaint
Database, a tool that could provide important data beneficial
to both consumers and regulated entities to help resolve
problems early, is structurally flawed. The tool should be
improved as duplicative, frivolous, and fraudulent complaints
currently plague the system. Draft legislation released by this
committee on the Bureau's Complaint Data base would
significantly improve that process.
Thank you again, Chairman Hill, for the opportunity to
testify. We stand ready to work with you and the committee to
achieve thoughtful and effective change to ensure the Bureau is
a strong and durable consumer protection regulator. I look
forward to answering any questions you may have.
[The prepared statement of Mrs. Johnson follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman Hill. The gentlewoman yields back. Mr. Quaadman,
you are recognized for 5 minutes for your oral remarks.
STATEMENT OF MR. TOM QUAADMAN, CHIEF OF GOVERNMENT AFFAIRS AND
PUBLIC POLICY, INVESTMENT COMPANY INSTITUTE
Mr. Quaadman. Chairman Hill, Ranking Member Waters, members
of the committee, thank you for holding this hearing and for
your leadership on keeping America's financial markets the
global gold standard.
Prior to the financial crisis, many raised concerns that
the U.S. financial regulatory architecture was out of date.
Indeed, issues such as blind spots and lack of coordination
hampered the ability of regulators and policymakers to address
the crisis. Congress, through the passage of the Dodd-Frank
Act, sought to respond to the crisis but ignored many of those
issues. Instead, the Dodd-Frank Act added floors onto an old
house that was built on a rickety foundation. Dodd-Frank, in
certain areas, sought to eliminate risk, but really, you cannot
eliminate risk. You can only transfer it elsewhere. Dodd-Frank
also did not allow regulators the flexibility to meet future
market developments and investor needs.
Dodd-Frank did get some things right. Transparency around
the derivatives markets actually addressed a critical part of
the financial crisis. The creation of Financial Stability
Oversight Council (FSOC), which is a codification and expansion
of the President's Working Group, was an important step forward
in coordinating regulators. However, Congress largely delegated
to agencies to flesh out the details of the bill. In some
cases, regulators naturally sought to fill the void of
ambiguity and expand their powers. Some examples include FSOC's
attempt to designate nonbank financial institutions through
systemic risk regulation was a mismatch in attempting to apply
bank-like regulations on a business model which were not banks.
Similarly, on money market fund reforms, FSOC sought to subvert
a majority of the SEC commissioner's judgment in the path
forward. The Commodity Futures Trading Commission (CFTC)
created a duplicative regulatory regime on community pool
operators without investor benefit. The Volcker Rule, which is
a prohibition on proprietary trading by banks, in its
implementation, the regulators actually included regulated
funds. Even though it is not part of Dodd-Frank but does exert
influence on Dodd-Frank policies, the Financial Stability
Board, which is largely made up of central banks and finance
ministers, directs pressure on policymakers in other areas.
These issues can be fixed. The FSOC Improvement Act, which
was introduced by Congressmen Foster and Huizenga, would
actually have an activities-based approach to systemic risk
regulation. We would be happy to collaborate with the committee
on clarifying language, both on community pool operators and
the Volcker Rule. Furthermore, we believe that this committee
and Congress should exact oversight over the activities of
American regulators within the Financial Stability Board and
should also make sure that there is a Team USA approach, while
also broadening representation of other agencies within
discussions at the Financial Stability Board (FSB).
Furthermore, this committee and Congress should also ensure
that we are addressing the needs of the market for today and
tomorrow as well as where investors are going.
We believe it is important for Congress to pass the GROWTH
Act, which was introduced by Congresswoman Van Duyne and
Sewell, to remove a punitive tax on investors. We believe it is
long past time to mandate e-delivery for investors, and we
think it is very important for legislation introduced by
Congressmen Huizenga and Sherman to move forward with this
commonsense approach. Furthermore, there needs to be
modernization of closed-end funds. We think it is important
with legislation that was introduced by Congresswoman Wagner
and Congressman Meeks that will allow for access of private
capital in highly regulated funds, as well as ending activist
campaigns.
Lastly, the Investment Company Institute (ICI), after a 3-
year effort, issued a report earlier this year reimagining the
1940 Act with 19 different recommendations for how the 1940 Act
can be modernized. The 1940 Act has not been reviewed by
Congress in 30 years. We think that is an important step
forward, and I want to submit this for the record. We look
forward to working with you all on these issues, and I am happy
to take any questions you may have.
[The prepared statement of Mr. Quaadman follows:]
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Chairman Hill. Thank you, sir. Dr. Kupiec, you are
recognized for 5 minutes for your oral remarks.
STATEMENT OF DR. PAUL KUPIEC, SENIOR FELLOW, AMERICAN
ENTERPRISE INSTITUTE
Dr. Kupiec. Thank you, Mr. Chairman, Chairman Hill, Ranking
Member Waters, and distinguished members of the committee.
Thank you for convening today's hearing and for inviting me to
testify. I am a Senior Fellow at the American Enterprise
Institute, but this testimony represents my personal views and
research.
As the Dodd-Frank Act work as the authors intended, the
goals in the Act's preamble include financial stability,
improved accountability and transparency, and an end to too big
to fail to protect the American taxpayer by ending bailouts,
but in March 2023, the Federal Government was forced to take
emergency measures to bail out the banking system. The crisis
occurred when depositors withdrew their funds wholesale after
recognizing that large, unrealized interest rate losses had
effectively rendered their banks insolvent. The crisis was
averted when the Treasury instituted a blanket deposit
insurance guarantee for failed banks and funded a $25 billion
first-loss backstop for a Federal Reserve emergency lending
program needed to bail out the banking system. The Fed's term
funding program provided banks with emergency liquidity. It
made nearly 10,000 loans on bank collateral that had very large
market value discounts as a consequence of increased interest
rates.
The program loaned banks the full par value of their
collateral for periods up to a year and, by some estimates,
lent banks about $20 billion more than the market value of the
collateral they pledged, and all at favorable rates. The
decision to insure all depositors in the failed banks created
very large insurance fund losses compared to the losses under a
Federal Deposit Insurance Corporation (FDIC) lease cost
receivership. Federal bank regulators failed in their oversight
responsibility but still made the large banks, banks that bore
no responsibility for the poor management at the failed
institutions, pay for the large insurance fund losses.
Dodd-Frank orderly liquidation authority gave authorities
the power to take SVB's bank holding company into an FDIC
receivership, liquidate its assets, and use the proceeds to
reduce the Silicon Valley Bank (SVB) insurance fund losses, and
yet, it was not invoked. It is possible that authorities did
not invoke Orderly Liquidation Authority (OLA) because OLA
funding was precluded by the congressional debt ceiling, which
was also a problem for FDIC failed bank receiverships. The
receivership's funding needs exceeded the balance in the
Deposit Insurance Fund because the congressional debt ceiling
was binding, the FDIC could not borrow from the Treasury. The
receiverships were forced to borrow from the Fed Reserve
discount window and pay a penalty interest rate 70 basis points
over Treasury borrowing rates on hundreds of billions of
dollars in loans. These additional insurance fund losses were
just passed on to the large banks through special differential
item functioning (DIF) assessments without much, if any, public
discussion. So much for improved accountability.
The large, unrealized interest rate losses that caused the
March 23 crisis could have been detected as losses grew
throughout 2022, as I show conclusively in my written
testimony. The FSOC and its Federal banking regulator members
could have used their extensive prompt corrective action powers
to proactively impose remediation measures, yet they did not.
Indeed, the past 15 years have demonstrated that the FSOC has
little ability to detect and mitigate actual systemic risks. On
several occasions, the FSOC completely missed actual sources of
systemic risk, and on others, they falsely identified firms and
activities as a systemic risk. The most recent example is the
so-called Brown Industries Crusade launched to advance a
political agenda rather than to address any demonstrable
financial sector risk. The political nature of the FSOC's
activities raises the cost of financial intermediation as FSOC
policies change each time a new party assumes executive power.
The Dodd-Frank regulations also impacted financial
intermediations, particularly for large, complex financial
institutions. To be fair, changes in intermediation patterns
also reflect changes in Federal Reserve monetary policy and the
outpaced growth in Treasury debt. The largest banks increased
their use of deposit funding while reducing their use of
subordinated debt, Federal funds borrowing, and Federal home
loan bank advances. These changes replaced active monitoring by
lenders with skin in the game with regulatory monitors. The
largest banks' share of investments to loans to businesses and
consumers also declined as they substituted liquid Federal
Government guaranteed securities and Federal Reserve interest-
bearing deposits. Smaller banks not subject to Dodd-Frank
enhanced supervision did not make these adjustments.
By many objective measures, the complex provisions and
regulations in the Dodd-Frank Act did not work as their authors
intended. I look forward to your comments and thank you.
[The prepared statement of Dr. Kupiec follows:]
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Chairman Hill. The gentleman yields back. Mr. Kelleher, you
are now recognized for 5 minutes for your oral presentation.
STATEMENT OF MR. DENNIS KELLEHER, CO-FOUNDER, PRESIDENT, AND
CHIEF EXECUTIVE OFFICER, BETTER MARKETS
Mr. Kelleher. Good morning, Chairman Hill, Ranking Member
Waters, and the members of the committee. Thank you for holding
this important hearing and for the invitation to Better Markets
to testify.
While the focus today is the Dodd-Frank Wall Street Reform
law, that law cannot be properly discussed or understood
without reviewing the devastating financial crash that started
in 2008 that made the law so necessary. That was the worst
financial crash since the Great Crash of 1929, and it caused
the worst economy since the Great Depression of the 1930s,
which is why it was called the Great Recession. The damage
caused by that crash ruined the lives of tens of millions of
Americans, crushed small businesses and community banks,
grievously damaged our economy and financial system, ballooned
the country's debt, and undermined the pillars of our
democracy, which depends upon an economy delivering rising
living standards and broad-based prosperity.
Just a few facts to illustrate the horrific scope of the
damage caused to Americans from that crash. Thirteen months
after the September 15 bankruptcy of Lehman Brothers, the U6
unemployment rate reached 17.2 percent, throwing more than 27
million Americans out of work. Sixteen million foreclosure
filings happened during the Great Recession, causing millions
of families to lose their homes. Forty-plus percent of homes in
the United States were underwater, meaning their mortgages were
higher than the value of their homes for years after the Lehman
bankruptcy. Ten years passed before the unemployment rate in
the United States return to pre-2008 crash levels, and after 8
years after the Lehman bankruptcy, 90 percent of the American
people were poorer at the end of 2016 than they were in 2007 by
17 to 34 percent.
It is also critical to remember that the 2008 crash was an
avoidable, man-made financial crash and disaster that did not
have to happen. It only happened because too many elected
officials, policymakers, regulators, and others who should have
known better listened to the financial industry's siren song of
deregulation, which, as in the Greek myth, inevitably resulted
in a catastrophic crash. That deregulation and crash resulted
from too many believing the financial industry's claims that
its interests overlap with the public interest, and that the
industry is primarily focused on economic growth, job growth,
credit supply, helping community banks, small businesses, and
disadvantaged groups. The industry continues to trumpet these
issues. Indeed, it is the chorus for the siren song of
deregulation. Those claims, however, are usually smoke screens
behind which they hide their profit and bonus-maximizing
motives. That is fine for the private sector and that is fine
for private companies, but that is not the public interest.
The overriding lesson that should be learned and guide the
road ahead is to reject that misleading but appealing
deregulation song that the industry is singing again. It will
lead to an even more horrific result, in part because the
country simply does not have the fiscal or monetary capacity to
properly respond to another financial and economic crash. The
truth is that the threat from too-big-to-fail, too-big-to-
manage, too-big-to-jail, and too-big-to-regulate financial
institutions remains alive, well, and getting much worse due to
the deregulation juggernaut unleashed by the Trump
Administration. That was proved by the failure and bailouts of
the three much smaller banks in 2023, which resulted from the
deregulation in the first Trump Administration and cost the
country more than $40 billion in direct bailouts and more than
$300 billion in all-in costs. Yet the largest of those banks
only had a little more than $200 billion in assets. In
contrast, JPMorgan Chase alone has $3.64 trillion in assets,
and the 15 largest banks in the United States have a combined
$14 trillion in assets. There is no chance these much larger,
much bigger, too-big-to-fail financial institutions can be
resolved without destabilizing contagion and gigantic bailouts.
Now, because everybody knows that, even if many will not
admit it, regulators have tried to varying degrees over the
years to increase the resilience of these financial
institutions in the event of the inevitable stressful
situations that will threaten their viability. Engaging in
massive deregulation that significantly reduces the resilience
of these gigantic financial institutions, knowing that they
cannot be resolved, virtually guarantees the next crash will be
much worse than the 2008 crash and could well cause a second
Great Depression. That is the bad news. The good news is it is
not inevitable. It can be prevented. Indeed, we know how to
prevent it because we did it for more than 70 years. From the
major laws and regulations imposed on the financial industry
during the Great Depression of the 1930s until about September
2008, the U.S. did not suffer from a major financial crash.
Importantly, and finally, at the same time during those decades
when the financial industry was under the most robust
regulation in the history of the world, the U.S. economy grew
at historic rates and generated broad-based wealth creation.
That proves that a strong, regulated financial industry is not
only compatible with but necessary to achieve above-trend
growth, stability, and broad-based wealth creation. Thank you.
[The prepared statement of Mr. Kelleher follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman Hill. The gentleman yields back. We will now turn
to member questions. I recognize myself for 5 minutes for
questions.
First, let me say that in looking at the inflation report
this morning, the core Consumer Price Index (CPI) prices rose
by less than expected for 5 months in a row, and on a
cumulative basis, inflation, both headline and core, are
trending close to the Fed's target of 2 percent; so, I think we
continue to get inflation headed in the right direction in
looking at today's report.
Dodd-Frank, back in 2008, 2009, 2010, during those debates,
I was a bank CEO during that time of a community bank, and so I
know very much what it was like before Dodd-Frank and post
Dodd-Frank as a private citizen working in a private financial
environment. Everyone knows the best efforts by Congress was to
try to prevent another financial crisis, but since its passage,
the regulatory framework has grown significantly more complex.
For example, the Code of Federal Regulations that relates to
commercial banking has expanded by 3,000 pages. Dr. Kupiec,
based on your experience, has Dodd-Frank's complex regulatory
framework provided meaningful improvements to safety and
soundness, or has it created so much complexity and associated
costs that it is unclear for both consumers, business, and the
community banking environment to figure out what the benefits
actually were? How do you parse that?
Dr. Kupiec. The regulations have gotten entirely complex
and out of hand, and they do not work, as is evidenced by the
March 2023 crisis. I do not understand this notion that there
was no crisis for 70 years. I think there was a savings and
loan (S&L) crisis and a banking crisis in the 1990s, and before
Dodd-Frank, we had a lot of financial crises over the years,
well before Dodd-Frank, but the regulations have gotten very
complex and they do not actually address the risks in the
banking system.
As I lay out in my written testimony in tables, very
comprehensive tables, the rules that they have created now do
not even address interest rate risk, which is a basic risk, and
the regulatory rules do not address that. While the regulatory
ratios suggest that the banking system is solidly capitalized,
once you take into account the fact that banks, which were
loaded up with Treasury securities and other things, had huge,
unrealized interest rate losses on their books, these complex
regulations just do not tell you what the real truth of the
matter is, and I will stop there.
Chairman Hill. Yes, I appreciate that perspective. I mean,
when you look at Silicon Valley, which Mr. Kelleher noted in
his views, I do not view Dodd-Frank having helped or hurt
there. I mean, I think you had a gap in regulatory oversight by
the San Francisco Federal Reserve that was embarrassing, and
the State regulator in Sacramento and terrible management who
are not paying attention to the most basic banking rules. I do
not think you can point at any law change that caused the
terrible outcome there. I really do not. We will debate that
off the dais. The regulatory bodies created by Dodd-Frank,
including CFPB and FSOC, have created an estimated, that I have
read, according to American Bankers Association, some $38
billion in additional annual pre-tax costs for banks with
smaller institutions bearing a disproportionate share of that
burden. Mrs. Johnson, do you believe that this expanded
bureaucracy has improved financial oversight, or has it
resulted in so much excessive red tape, stifled economic growth
that it has ended up restricting credit, and you have bank
credit committees more focused on the next week's compliance
meeting than lending money to their customers? What do you say
on that?
Mrs. Johnson. I can say any time that you have banks who
are spending more time and more money on compliance and
understanding the compliance that is necessary for multiple
different agencies, that is really problematic. On the
supervision side, at least from a bank perspective, you have
consumer protection from the Bureau, but we often hear from
banks who have different but three examiners in their
institutions at the same time asking for similar information.
It is just an incredible burden on these institutions, and it
really does take their attention away from things that they
should be doing, which is lending in their communities.
Chairman Hill. Thank you. Mr. Bentsen, I am going to turn
to you on the capital market side of Dodd-Frank, and you can
respond to me in writing. I want to just ask you, the small
institutions did not create the financial crisis, but Dodd-
Frank imposed this big one-size-fits-all burden. Does that not
hurt our capital market system?
Mr. Bentsen. It certainly created some dysfunction within
the system, so you are right. We have seen mergers amongst the
smaller broker-dealers----
Chairman Hill. If you would expand that in writing,
Congressman, and thanks for being here today.
Chairman Hill. I yield back, and we turn to the
distinguished ranking member of the full committee, Ms. Waters,
for her questions for 5 minutes.
Ms. Waters. Mr. Kelleher, thank you for your testimony and
reminding this committee of what a disaster and how costly the
financial crisis really was. After the housing crash, where we
saw mortgage brokers pedal no doc loans and other predatory
products, why is it so important for Congress to create the
Consumer Financial Protection Bureau. That way consumers of all
stripes--students, seniors, servicemembers, and more--had a
Federal cop on the beat fighting for them to make sure that
mega banks or payday lenders or other bad actors were not
ripping them off. Now, I understand you served for 4 years in
the Air Force. Is that correct?
Mr. Kelleher. Yes.
Ms. Waters. Thank you for your service to our country.
Trump's CFPB has claimed that they are going to prioritize
protecting servicemembers and veterans, but I want your take on
their actions. For example, Trump's CFPB proposed slashing
staffing levels from 1,700 to 200 and proposed reducing CFPB's
Office of Servicemember Affairs to just one employee, except
the one employee they chose had already decided to retire,
which would leave the office unstaffed. That office, which we
required to be set up in Dodd-Frank, has been well respected
across the political spectrum, with people like Holly Petraeus
running the office before. How is it that the CFPB is supposed
to protect servicemembers, veterans, and their families if they
have no staff in the office?
Mr. Kelleher. Anybody who claims that the CFPB currently
manages protecting servicemembers, veterans, and their families
is lying. You cannot do it with one person. You need a full
staff and let me just give you a few statistics. The median
loss from fraud from January 2015 to October 2019 to civilians,
$658; to active-duty members, $775; retired military and
veterans, $950. Servicemembers, veterans, and their families
are being disproportionately targeted by financial scams and
financial predators, and they need a strong cop on the beat,
and they need the Office of Servicemember Affairs at the CFPB
to be properly regulated.
Since 2011, the CFPB has received more than 400,000
complaints from servicemembers, and it has been responsible for
recovering approximately $363 million in restitution for
military and their families. One person is not doing that. Ten
people are not doing that. We need a CFPB that is funded,
staffed, independent, and an effective cop on the beat not just
for servicemembers, veterans, and their families, but for all
Americans who are getting ripped off too often, which is why
the CFPB was the most successful financial consumer protection
agency in the history of the country, returning $21 billion,
with a ``B,'' billion dollars, to more than 200 Americans.
Ms. Waters. Thank you very much. Another lie told by the
President of the United States of America about how he cares
about veterans and how he is going to help veterans. Let me
tell you something. All of this talk about deregulation, about
being consumed by regulation, it is because the rich, the big,
and the powerful do not want oversight. They do not want us to
have legislation that will make them accountable. Let me just
tell you something. When we take a look at what is going on
right now, the President, take a look at what he is doing with
crypto. The President of the United States is engaged in a
crypto con of massive proportion. In just 6 months, he has
entered into the following crypto ventures. The President of
the United States owns a $TRUMP meme coin, Trump digital
trading coins; non-fungible tokens (NFTs); World Liberty
Financial, his crypto company that is launching the stablecoin
USDi; American Bitcoin, a bitcoin-mining corporation founded by
Eric and Donald Trump, Jr.; and Social Truth Bitcoin Exchange-
Traded Fund (ETF) and Crypto Blue Exchange-Traded Fund ETF; and
even Melania owns crypto.
I want to tell you, as we sit here and listen to those who
have been trying to destroy CFPB, I was here and I knew what
was happening. We had no protection for consumers, and with
Dodd-Frank, we were able to come up with ways that we could
have consumers call in, have someone investigate their problem,
help consumers who were being ripped off. I want to tell you
the big boys will keep ripping us off as long as we let them,
and I tell you we are going to be dealing with this all week. I
am absolutely outraged by the way that they have tried to kill
the Consumer Financial Protection Bureau. I am outraged with
the crypto ownership----
Chairman Hill. The gentlewoman's time has expired. The
gentleman from Michigan, the vice chair of the full committee,
Mr. Huizenga, is recognized for 5 minutes.
Mr. Huizenga. Thank you, Mr. Chairman. I am going to jump
right in. Mr. Bentsen, I will start with you. Over the years,
you have seen multiple iterations of the Financial Stability
Oversight Council, FSOC. In the early years, post the great
financial crisis, FSOC was given broad reaching authorities to
designate nonbanks as systemically important financial
institutions, or SIFIs. Under President Trump's first
Administration, the FSOC moved to an activities-based
approach--this was in 2019--which I believe was appropriate,
especially in response to the post-MetLife debacle that had
gone on. Four years later, 2023, under President Biden, the
FSOC snapped right back to using an analytic framework for
identifying and dealing with systemic risk, and as you can
guess, Secretary Bessent, who is now the FSOC Chair, might have
a very different view on how FSOC will operate under his
leadership.
As you are familiar, Mr. Foster and I have once again
introduced the FSOC Improvement Act. The bill would revise the
flawed risk assessment framework and designation guidance
governing the SIFI designation process for nonbank financial
institutions. Here is the question: After 15 years, is it time
for Congress to make these improvements? Are there enough data
and use cases to show that how FSOC determines designations is
not working or has not been working and has not worked in the
past, and did they make the financial system safer and sounder,
which is what we would all like to see?
Mr. Bentsen. Thank you, Congressman. We support the bill
that Mr. Foster and you have introduced. We have supported it
in other iterations through previous Congresses, so yes, I
think the time is overdue. Short of that, we would hope that
the FSOC would revert back to, I think, the 2018 activity-based
process that you noted, and the problem here is the way it was
constructed, it is trying to impose a bank-like regulatory
structure over asset managers. We have had now 15 years to
think about this. We have had 15 years of experience in the
marketplace and----
Mr. Huizenga. There is data there to----
Mr. Bentsen. Yes. I think we know that activity space is a
better approach, so we commend you all for the legislation.
Mr. Huizenga. Mr. Quaadman, do you mind commenting on this?
Mr. Quaadman. Yes, we would agree. I mean, ping-pong
guidance is not a way to allow businesses to plan for the
future. We do expect that the Trump Administration will move
back to an activities-based approach, where, really, we do need
to have legislation that is going to settle this once and for
all and allow businesses the certainty to move forward.
Mr. Huizenga. So, clarity is what you are looking for?
Mr. Quaadman. Exactly. Clarity and----
Mr. Huizenga. Not in this week's clarity, Mr. Chairman, and
the work that we have done, but clarity on this particular
issue. Okay. I am going to stick with you, Mr. Quaadman,
because I want to talk about conflict minerals. I know you have
something that you have worked on, I have worked on. That is an
issue that has been nearly a decade. I first started working on
this with Congresswoman Gwen Moore, and it is Section 1502. I
believe it was a failure then. I believe it is a failure now.
Under the rule required by Dodd-Frank Act, public companies are
required to scour their supply chain for tin, tantalum, and
tungsten, and gold linked to militia groups in the Democratic
Republic of Congo (DRC) and the surrounding Great Lakes Region.
However, there was a report in 2024. This is one page of the
140 pages, I believe, or 120 pages of that 2024 Government
Accountability Office (GAO) report, which I would like to
submit to the record, Mr. Chairman.
Chairman Hill. Without objection.
[The information referred to can be found in appendix.]
Mr. Huizenga. While that report concluded that the SEC's
rule under Section 1502 of the Dodd-Frank Act has not actually
reduced violence in the Congo and in the region, and, in fact,
there is a small chart that I will point out to everybody, it
has actually expanded. It has expanded, and, in fact, Secretary
Rubio and the Trump Administration had to intervene in the area
in the last couple of weeks. Here is a quote from the report:
``The GAO found no empirical evidence that the rule has
decreased the occurrence or level of violence in the Eastern
DRC.'' Here is the question: Section 1502 should absolutely be
repealed, in my opinion, but what have we learned about some of
the other Dodd-Frank rules that may have been very well
intentioned, but, frankly, have not hit the mark?
Mr. Quaadman. Yes. This is based on my previous experience,
but I think if you look at conflict minerals, there are a lot
of difficulties there as you referenced. Even The New York
Times and Washington Post have had front-page stories of how
that provision actually made things on the ground even worse.
We also have the disclosure was kicked out by the D.C. Circuit
Court of Appeals. Yet, companies still have to do all the
collection around it, which actually then means that investors
have to bear the cost of that. I think it is a good example of
where you can have well-intentioned disclosures that do not hit
the mark and do not provide investors with useful information.
We should really take a very strong look at whether or not they
should even be in place. I also believe, too, of conflict
minerals, what the Trump Administration is trying to do there
as well as access to critical materials is important for
American national security.
Chairman Hill. The gentleman's time has expired.
Mr. Huizenga. I yield back.
Chairman Hill. The gentleman yields back. The gentlewoman
from New York is recognized, the ranking member of our Small
Business Committee.
Ms. Velazquez. Thank you, Mr. Chairman, and good morning,
everyone. Thank you for being here. If we are going to talk
about Dodd-Frank 15 years later, we need to also look at the
whole picture, including the industry and Republicans' attempt
to weaken the original protections. Mr. Kelleher, can you
explain the changes made to the Dodd-Frank Act by the passage
of S. 2155 a few years ago and how those changes, particularly
with regard to bank capital, left our financial system more
vulnerable?
Mr. Kelleher. Yes. Thank you for the question, and I want
to start by agreeing with the chairman that it was miserable
management that primarily drove those banks into high-risk
activities and ended up resulting in their failures. Those were
avoidable. Also, management ran those banks into the ground,
and their boards failed to supervise them, and the regulators,
frankly, did not do their job either. There was plenty of blame
to go around, and there has been no accountability even now.
Unfortunately, there was an attempt to pass legislation, as you
know, to claw back executive compensation under those
circumstances that never saw the light of day but 2155
essentially eliminated, either de facto or by requirement, the
prudential regulations on banks with less than $250 billion in
assets.
Better Markets filed comment letters at the time that
talked about 2155, and then when it was passed and went to the
regulatory agencies, particularly the banking agencies, we said
in letters, in writing, commenting on the proposed rules at the
time that if you implement this law the way you are going to do
it, you are going to have banks engage in higher-risk
activities, and they are going to ultimately fail, and there
are going to be bailouts.
Ms. Velasquez. So----
Mr. Kelleher. That is exactly what happened. It was
predictable, foreseeable, and that is what happened.
Ms. Velazquez. It is not entirely accurate to say that
Dodd-Frank has not worked. Is it not a more accurate statement
to say that changes made post-Dodd-Frank have weakened original
protections and cost vulnerabilities in our financial system?
Mr. Kelleher. Yes, and it is not only true for 2155. As I
detailed in my written testimony, the primary reason that Dodd-
Frank did not work is because of the war that the industry and
its allies engaged in to attack and undermine Dodd-Frank at
every step of the way in the regulatory process. When they did
not win in the regulatory process, they ran to court and sued
to try and win in the judicial arena what they could not win in
the regulatory arena or the legislative arena. This law would
have worked. It had the authority and the power to do the job.
As I detailed in my written testimony, it was not allowed to do
the job, and that is why it has not been successful.
Ms. Velazquez. Like this hearing right now. Since 2011, the
CFPB has secured more than $21 billion of relief for more than
205 million consumers. Unlike other financial regulators,
Congress provided it with an independent funding mechanism.
Yet, this has not stopped the Trump Administration and
congressional Republicans from trying to destroy the Bureau
from within, including as part of the One Big Ugly Bill, which
slashed the Bureau's operating funding nearly in half. Can you
explain the potential harm facing not just consumers, but the
broader financial system by slashing the Bureau's funding by
such a large amount?
Mr. Kelleher. I think the Consumer Financial Protection
Bureau has proved almost on a daily basis its importance to
main street Americans who are getting ripped off and
discriminated against as a routine matter. Look at the cases
that the CFPB has brought over the 14 years that it existed.
These are against giant financial institutions that have
settled cases for hundreds of millions of dollars. They are not
doing that because they are generous. They are doing that
because they broke the law, and the highest-priced, the best
lawyers in America are representing these premier financial
institutions, and they are settling their legal violations.
That is why the CFPB is needed. They need an effective cop on
the beat, and you can only have an effective cop on the beat if
you fund them. You cannot send cops into an inner-city, high-
crime area with no bullets, guns, or cars, or flat tires, and
that is what you are doing on the consumer protection beat here
by crippling the Agency.
Ms. Velazquez. I rest my case, Mr. Chairman. I yield back.
Chairman Hill. The gentlewoman yields back. The gentleman
from Oklahoma, the Chair of our Monetary Policy Task Force, Mr.
Lucas, you are recognized for 5 minutes.
Mr. Lucas. Thank you, Mr. Chairman. I, too, was one of the
limited members of this committee who served on the Dodd-Frank
conference committee, and I remember our efforts to get a
legislative agreement that appropriately addressed the economic
turmoil our country was facing. Unfortunately, Dodd-Frank
ultimately resulted in dramatic regulatory overreach that I
could not support, and we are still dealing with the
consequences of the bill 15 years later. Many of the changes
made during the time continue to damage our competitiveness and
limit our economic growth. They do not account for the credit
needs of farmers, ranchers, and main street businesses.
Starting with you, Dr. Kupiec. In our country, we have
assigned the Fed to deal with monetary policy and prudential
matters. We have also had this dual role, but after the passage
of Dodd-Frank, their prudential functions expanded
dramatically, and they have begun policing behavior they had no
authority to do. As Chairman of the Task Force on this issue, I
have a concern that I continue to raise that the broadening of
authority of the Fed's regulatory and supervisory roles
ultimately politicizes the institution and threatens monetary
independence. Doctor, do you think mission creep from the
regulatory side of the Fed complicates their role as our
central bank?
Dr. Kupiec. Yes, clearly. Clearly, and the climate change
brought that to the fore in the last administration; the remit
that the Fed should regulate climate change risks in banks and
things like that. I think now they have abandoned that in the
newest administration is another example of the ping-ponging of
the FSOC and the executive role about designating things that
really are not systemic risk as systemic risks.
Mr. Lucas. Anyone who thinks that this was a negotiated
bill, this was a slam dunk. I remember the opening day of the
conference committee when the chairman of the conference, our
Financial Services Committee Chairman, Barney Frank, announced
that we would not be using the House draft, which represented a
compromised effort in this committee, and we picked up the
Senate document. That is when we knew the fix was on as members
of this body.
Mr. Bentsen, as you know, Dodd-Frank altered the risk
retention rules on securitized assets. In your view what is the
effect on the cost of and the access to credit if this tool is
cost prohibitive for lenders?
Mr. Bentsen. Thank you, Mr. Lucas. Part of the problem with
the changes in the risk retention rules was that there are so
many different parts of Dodd-Frank that overlap and, in
particular, the capital rules, and, in particular, we think
about the stress test regime and the component of that, the
global market shock. None of that has ever been adjusted to
take into consideration the risk retention rules that were put
into effect; so, we have a, I do not want to call it a double
count. We have double counts elsewhere, but in effect, we are
scoring things according to the pre-legislative rules, so it
compounds the impact of the capital rules. That affects the
price on securitization.
Mr. Lucan. Continuing with you, Mr. Bentsen, we have a new
vice chairman for supervision at the Fed, and I believe Vice
Chair Bowman is perfectly suited for the role. What should Vice
Chair Bowman look at in a Basel re-proposal to address the
concerns raised by market participants after the last proposal?
How should Vice Chairman Bowman approach the Fundamental Review
of the Trading Book in a Basel re-proposal?
Mr. Bentsen. There are a number of issues that the Fed and
Vice Chair Bowman should take a look at with respect to the
Fundamental Review of the Trading Book, some issues that are
inconsistent with other participants in the Basel framework in
Europe and the U.K., but also how the Fed staff initially gold
plated the proposal that would raise capital above already
historic levels. Most importantly, and I think Vice Chair
Bowman has said that she intends to do this as she has a
conference next week that the Fed is hosting, is, again, to
think about the interaction of all these rules. If the Fed
agreed with us, and who is to say that they should or they
should not? If they agreed with us and took all the suggestions
that we put forth, they would still have an exorbitant increase
in risk-weighting capital requirements on things like
securitization. The reason for that is because of the
interaction with the stress test regime, and that is a double
count, and we have had a lot of discussions with them about
this to sort of look at that.
Frankly, I think the Fed themselves were shocked with how
their original proposal came out. Hopefully, now they will take
that into consideration because this does have knock-on effect,
not just the mortgages, but small business lending, equipment
financing, things that are done through the securitization
market.
Mr. Lucas. Mr. Chairman, we can do better than the status
quo we have now.
Chairman Hill. The gentleman's time has expired. The
gentleman from California, Mr. Sherman, the Ranking Member of
our Capital Markets Subcommittee, you are recognized for 5
minutes.
Mr. Sherman. Thank you. I enjoyed the exchange between Dr.
Kupiec and our chair. The chair points out that Silicon Valley
Bank was terrible management, as if that was a lightning
strike. No. We have a system that says you buy long-term bonds.
If they go up, you sell them, the bank recognizes an immediate
profit, and the board of directors gets a huge bonus, and if
they go down, you can hide that loss. Ninty-nine times out of
100, you will get away with it. So, bad management is from bad
rules, and I have been in this committee for a long time saying
we have to mark-to-market long-term debt held by banks.
The chair also says that we should allow State regulation
to provide for corporations. That is a race to the bottom, and,
again, we have bad management because of bad incentives. A
State legislature in a small State, they are focused on getting
revenue for their State, not upon providing good corporate
management and oversight for corporations that may have a
little impact on their State; so, we need to deal with long-
term debt on bank balance sheets. We need the Federal law to
provide the rules for national corporations.
Finally, we have a system which does not give investors the
information they need. A hundred years ago, when our accounting
systems were designed or the financial statements were
designed, the vast majority of the value of a company was in
its physical assets shown on its balance sheet. Today, the most
valuable thing is intangibles, particularly the workforce. Yet
again and again, we do not require the disclosure of turnover
rates, training expenditures, or anything else relevant to the
workforce. For several years now, I have been pushing for us to
disclose the China risk because what is the good of knowing
last year's earnings per share if you cannot even get
management to tell you how they would be affected by a
breakdown in the U.S.-China relationship?
Today, we are focused on Dodd-Frank, and it brings the
post-traumatic stress disorder (PTSD) of the 2008 crisis when
this committee said never again. History does not repeat
itself, but it rhymes. We have an echo of 2008 in Crypto Week.
Now, this is also tax evaders' month and drug dealer
facilitations year. Both bills rejected an amendment that I
proposed here and to Rules Committee saying no bailouts for
anyone in the crypto ecosystem. Those amendments were rejected,
and the crypto world is looking forward to telling its
investors they are as bailout eligible as Bank of America, but
what caused the 2008 collapse? It was the subprime and liars'
loans. What is a liars' loan? You agree to pay 1 percent more
on your mortgage, and the lender says, well, just tell us what
your income is, and you do not have to give us a W-2. You do
not have to give us a tax return. So, the financial system back
in 2008 strained to provide financial services to those who
turned to their mortgage broker and said I really make a lot. I
am just lying to the Internal Revenue Service (IRS) or my ex-
spouse. Well, history rhymes.
This week we are going to deal with stablecoin. What is
stablecoin? It is a money market fund that pays zero interest,
a worse deal for consumers, just like the liars' loan is where
you pay more on your mortgage, but what does the stablecoin
offer? It offers hidden money so that you can defraud the IRS,
your ex-spouse, engage in drug trafficking, et cetera. History
does not repeat itself, it rhymes, and here we are back again
trying to have our financial system meet the needs of those who
want to cheat on their taxes, engage in illegal activity, et
cetera.
Mr. Bentsen, your letter to the SEC talks about the
separation of functions with vertical integration, where a
single platform can act simultaneously as the issuer, broker,
and exchange, and custodian. Can you explain what the risks are
of allowing that integrated structure in the crypto world?
Chairman Hill. The gentleman's time has expired. If Mr.
Bentsen, you would respond to the member in writing, please.
Chairman Hill. The gentlewoman from Missouri, Mrs. Wagner,
who is the Chair of our Capital Markets Subcommittee, is
recognized for 5 minutes.
Mrs. Wagner. I thank you, Mr. Chairman. I thank our
witnesses for being here today. Under former Chairman Gensler,
the SEC repeatedly overstepped its statutory boundaries,
invoking authorities under Dodd-Frank in ways that neither
align with the law's intent nor advance the Commission's
threefold mission: to protect investors; to maintain fair,
orderly, and efficient markets; and to facilitate capital
formation. In fact, Gensler's regulatory agenda undermined
these goals.
Under President Biden, everyday Americans in Missouri's 2nd
Congressional District were told they would have fewer choices,
increased costs, and less clarity on who they could ask for
financial advice. In June 2024, the Fifth Circuit unanimously
vacated the SEC private fund advisor rule, which would have
imposed significant requirements on private fund advisors and
made broad changes to how private funds operate. The SEC
claimed the authority to propose this rule through Section 913
of Dodd-Frank, which is focused on the fiduciary duty of
broker-dealers and investment advisors who are providing advice
to retail customers. In this decision, again, an unanimous
decision, the court rightly held that Section 913 of Dodd-Frank
has nothing to do with private funds, and the SEC should not
rely on this section of the statute to regulate private fund
advisors and investors.
Mr. Quaadman, how does the Fifth Circuit's ruling on
private funds rule redefine the scope of the SEC's authority
under Dodd-Frank, and what are the potential implications for
future financial regulations?
Mr. Quaadman. Thank you for that question, Mrs. Wagner. It
is very important, and you have to remember, too, we are also
living in a West Virginia verses Environmental Protection
Agency (EPA) world now.
Mrs. Wagner. Yes.
Mr. Quaadman. The Agency itself cannot move forward without
clear direction by Congress. I would also say, too, I think
some of the legislation that this committee is considering in
terms of unused authorities really needs to be looked at very
closely. The predictive analytics rule is another one which is
very misguided.
Mrs. Wagner. I am moving to that next.
Mr. Quaadman. There we go. I will let you ask the question
then.
Mrs. Wagner. In a similar way to the Commission's private
funds rules, former Chairman Gensler's predictive data
analytics proposals disregarded the limitations of Dodd-Frank
Section 913 again. Section 913 primarily focused on retail
customers and personalized investment advice about securities.
However, the proposal stretched his authority to cover broad
investor interactions and technologies like predictive data
analytics and, which Congress never intended, and that is the
heart of the matter here. Let me move to Mr. Bentsen. With
legislative action, Mr. Bentsen, what action should Congress
pursue to clarify the precise limits of this authority and
prevent future instances of regulatory overreach?
Mr. Bentsen. First of all, we agree with the court's
decision with respect to the private funds. We were not a party
to the suit, but we did file an amicus brief in support of the
suit. Frankly, and in the case of the predictive data
analytics, which we thought was not a very well-thought-out
rule, and we are glad it has now been withdrawn. We actually
think it was also unnecessary because, frankly, whatever
concerns there might have been are already covered under Reg
Best Interest----
Mrs. Wagner. Correct.
Mr. Bentsen [continuing]. and so, there is not really a
need for that. Section 913, and I was around, too, 15 years
ago, Section 913 was highly negotiated between the House and
the Senate, between then Chairman Frank and the Chairman of the
Senate Securities Subcommittee, Senator Johnson, and Congress'
intent was very, very narrow and very clear, to the point that
you are making.
Mrs. Wagner. It has been abused, certainly abused by the
SEC during Democrat leadership that we have seen over and over
again.
Mr. Bentsen. I mean, the courts have kind of reeled it in,
and so----
Mrs. Wagner. Yes, but that costs money.
Mr. Bentsen. Right.
Mrs. Wagner. It gets trickled down to my Missouri retail
investors, everyday investors. It is so infuriating to me that
we have been litigating this for 15 years, Mr. Chairman. Let me
move on.
While the SEC was rightly challenged for exceeding its
authority during the Biden Administration, litigation
contributes to a climate of uncertainty for investors and
market participants across the country and costs. Businesses,
particularly those in innovative sectors like fintech, become
hesitant to invest in new technology or business models if the
rules of the road are constantly in flux. Mr. Quaadman, to what
extent did SEC's overreach and the court battles trigger,
ultimately stifle, capital formation by creating an
unpredictable operative environment? I am about out of time.
You may have to respond in writing, but this is important.
Mr. Quaadman. Number one, there is a chilling effect.
Number two, and I will respond in writing about
interconnectedness of rules, which is not considered either.
Chairman Hill. The gentlewoman's time has expired.
Mrs. Wagner. Thank you. I yield back.
Chairman Hill. Thank you very much. We now recognize the
distinguished Ranking Member on our House Foreign Affairs
Committee, Mr. Meeks from New York, for 5 minutes.
Mr. Meeks. Thank you, Mr. Chairman. I want to thank you for
holding one of the most consequential pieces of Financial
Services legislation. I was in Congress back during the height
of the financial crisis when Lehman Brothers failed, when major
insurers were about to go under, when then President Bush had
Secretary Paulson running to the House floor. I will never
forget, he ran and met me in the Democratic room on the floor
trying to get votes, saying that if we did not do something
immediately, our entire financial system would fail. They did
not have all the votes that they needed on the Republican side
to get it done, so they desperately needed Democratic votes.
One of the things that we talked about at that time was
there was one voice because I remember during that time, people
were losing their homes, their credit gone, they are out, they
are homeless, they are trying to find some, still could not get
rent. The idea or the thought was everybody had some kind of
coverage, except one group. It was called the consumers. I
surely wish there was a panel here that some of the consumers
would be here to testify, also, who benefited for the last 15
years from having a Consumer Financial Protection Bureau.
Now, I am all for looking to see what we can do to improve,
but one of the things that I think that we have not seen since
2008, we had a once-in-a-century pandemic that did not lead to
contagion of the financial variety, the regional bank failures
of 2023. What did not happen, that did not spiral because of
Dodd-Frank, the reforms in it? Higher capital requirements,
stress testing, and the Volcker Rule. It worked as intended,
even with the failed management, what you said. Those practices
that were put in place because of Dodd-Frank helped save more
consumers who would have been victimized.
Now, I am really concerned, and I look at ways that we can
try to fix a bill because sometimes bills change and move
forward. One of the things that I was in favor of, and I think
that we could look at, and I think, Mrs. Johnson, you talk
about this, is how to get the politics out of this. Now, I was
in favor and still am, and I believe you are, Mrs. Johnson, in
having a bipartisan commission, and I think that the CBA has
been talking about that so that we are not from administration
to administration and things changing. I think that is
something that we should be talking about here. I think that is
really important, and I think you agree, Mrs. Johnson, that
there is a need. You recognize the need for a CFPB. Is that not
correct? Please say ``yes'' so that is on the record.
Mrs. Johnson. Yes.
Mr. Meeks. My first question is under President Trump and
Republican leadership, they wanted to zero out the Bureau, an
effort that was slightly mitigated by the Senate's
parliamentarian, but what the administration tried to do was to
cut the Bureau staff by 90 percent in just 24 hours. Now, do
you think that reflects a regulatory approach that is grounded
in facts and data, or is that just trying to get rid of an
agency? Yes, Mrs. Johnson?
Mrs. Johnson. I think what Congress ultimately did was a
policy decision--I am sorry--a budget decision, not a policy
decision.
Mr. Meeks. I am just saying, zeroing out, that was not
done. Let me just go because I am running out of time. I wanted
to ask Mr. Kelleher, do you believe that the CFPB is being
deliberately weakened under the guise of regulatory reform, and
who stands to benefit from that if that is the case?
Mr. Kelleher. There is no question that the CFPB is being
weakened, if not killed, for the purpose of benefiting the
financial industry and making sure there is not an effective
cop on the consumer beat standing up for main street Americans,
and having the power, authority, and funding to help them when
they are getting ripped off.
Mr. Meeks. So, we would go back to where we were before,
where there would be no one there for the consumer. It was
named the Consumer Financial Protection Bureau to protect the
consumer who has never had a voice before this Congress before.
Chairman Hill. I thank the gentleman. The gentleman yields
back. The gentleman from Kentucky, Mr. Barr, the Chair of our
Financial Institutions Subcommittee, is now recognized for 5
minutes.
Mr. Barr. Thank you, Mr. Chairman. Let me start just where
my friend from New York left off. I was encouraged to hear my
good friend from New York embrace the idea of a bipartisan
commission. We have that bill in our package of reforms, and I
would invite the gentleman, my good friend, to look at that, to
co-sponsor. I would love to work with you on a bipartisan
commission reform. Also, the gentleman expresses concern about
our One Big Beautiful Bill, which reduces the funding formula
for the Bureau. I would encourage the gentleman and all my
friends on the other side of the aisle to look at co-sponsoring
my legislation that would allow them and us to reclaim the
power of the purse over the Agency, the TABS Act, the Taking
Account of Bureaucrats' Spending Act, which would restore
Congress' bipartisan and meaningful oversight over the Bureau
so that we would control the appropriation. So, I think the
gentleman's line of questioning is timely because it gives us
an opportunity in the Congress, on a bipartisan basis, to
reclaim our oversight functions over the Bureau.
Mrs. Johnson, let us talk about CFPB reform. Would you
explain how my legislation, the Taking Account of Bureaucrats'
Spending Act, which would subject the Bureau to congressional
appropriations, would enhance accountability and limit
bureaucratic overreach?
Mrs. Johnson. I think that for far too long, the CFPB has
not been accountable. We have not had a commission. We have not
had consensus or dissenting views welcomed at the Bureau. It
has been by one director, and oftentimes they have got kind of
ruling by fiat, so Congress has not had the authority and the
visibility into the Bureau. I think that they will be more
responsive if there is an ability for you all to control the
purse strings.
Mr. Barr. I appreciate your testimony endorsing my
legislation to put some guardrails and definition around the
abusiveness prong of Unfair or Deceptive Acts or Practices
(UDAP). Why is that important?
Mrs. Johnson. Look, Congress did create an exceptional
standard for UDAP with the CFPB, unlike the Federal Trade
Commission (FTC), unlike some of the other prudential
regulators. For far too long it has been undefined, and
entities that are regulated by the CFPB do not have the clarity
needed to understand what constitutes as an abusive act or
practice and how that differs from, say, deceptive or unfair
acts and practices. In addition to that, the CFPB has at times
gone far beyond and really interpreted UDAP into things that it
never was intended for. Oftentimes, it actually decides 1 day
that something is illegal or that it is a UDAP violation when
it was perfectly legal and acceptable and actually done by the
entire industry the day before, then it applies, retroactively,
penalties to different institutions. This is wrong.
Mr. Barr. Yes, and it is wrong. It denies Americans due
process, and it is why the Bureau has such a black eye. It can
be reformed into a much more professional Agency, and that is
also why we need to stop these roving fishing expeditions,
these civil investigative demands with no statutory violation
or regulatory violation even alleged, just a fishing expedition
with no due process. We need to reform that process as well.
Mr. Bentsen, as you pointed out, Dodd-Frank ushered in over
400 new regulations and granted regulators like the SEC broad
discretionary authority. Nearly 15 years later, many of these
powers remain unused, yet their mere existence creates
regulatory uncertainty. For example, Section 921(a) allows the
SEC to ban mandatory arbitration clauses and securities
contracts without any additional action from Congress. Congress
has already weighed in on this issue. In 2017 we overturned the
Bureau's mandatory arbitration rule, not just on procedural
grounds, but because the evidence showed arbitration delivers
better outcomes for consumers than costly, drawn-out class
action lawsuits. That was a clear bipartisan message.
Regulators should not restrict arbitration based on ideological
or political agendas, and that is why I introduced the Business
Owners Protection Act to repeal these unused powers, to provide
legal clarity, and enhance transparency and accountability at
the SEC. Mr. Bentsen, how do these dormant but broad
discretionary powers contribute to uncertainty and risk in the
capital markets?
Mr. Bentsen. Certainly, with respect to things like pre-
dispute arbitration agreements, which is the mainstay in the
securities world, and then to your point, is very investor
friendly, very cost efficient, and much more cost efficient
than court litigation. It is a little bit like a sword of
Damocles hanging over you. So, we would agree with you that we
are not sure why Congress felt the need to give the SEC the
authority in this instance, and so, we would agree with
repealing that.
Mr. Barr. There are a lot of dormant, unused authorities.
It has been 15 years, and the SEC or other regulators empowered
by Dodd-Frank have not acted, and Congress has sent a message
to the contrary. We need to repeal those unused and dormant
authorities. I yield back.
Chairman Hill. The gentleman yields back. The gentleman
from Massachusetts, Mr. Lynch, the Ranking Member of our
Digital Assets, Financial Technology, and Artificial
Intelligence (AI) Subcommittee, recognized for 5 minutes.
Mr. Lynch. Thank you, Mr. Chairman. I want to thank all the
witnesses for your willingness to come before the committee
today. Mr. Bentsen, good to see you again, sir. Welcome. I want
to associate myself with the remarks of the gentleman from
California, Mr. Sherman, earlier today----we have somebody's
phone going off here.
--especially with respect to Mr. Sherman's comparison to
2008 and the conditions that existed then and today, where we
have Crypto Week and some of the suggestions and bills that
have come forward. Back then, in 2008, we had some very complex
and novel innovations. We had collateralized debt obligations.
We had credit default swaps. We had all these complex
derivatives that were the wonder of the day, and the financial
services industry came to us, and I think convinced a lot of
members--not me, but a lot of members--to support that whole
regime, and we saw how it blew up. Today, we have crypto, and
even though it does not have any legal use case as yet, there
is a lot of hype and there is a lot of support for it. It has
only accelerated since President Trump became a crypto issuer,
and his family has gotten into the business as well.
I am just concerned because I am seeing the same regulatory
forbearance that I saw back in 2008 happen today. The SEC,
under Trump, they came in and said, we are going to rescind the
guidance that we used to give banks about crypto. Mr. Kelleher,
as you pointed out earlier, we have some massive banks. Back in
2008, JP Morgan was $2 trillion. Now they are $3.4 trillion,
Now Trump's SEC is saying to the Big Banks, all the Big Banks,
and there are at least 5 of them over $1 trillion, 6 of them
over $1 trillion, close to $2 trillion, he is saying, go ahead
and get involved with a very volatile and speculative asset.
What I worry about? I worry about the American taxpayer being
on the arm on this one.
Back in 2008, I voted against it twice, but we had a huge
bailout, over $700 billion. I had constituents in my district
that did not even have bank accounts, and they took their
taxpayer money to bail out the people who caused the problem. I
see that happening again. This is not going to end well. This
is not going to end well. Crypto is still an immature
technology, an immature architecture. It is not there yet. It
has got huge gaps, huge problems, and yet we are rushing in,
and it is not going to end well and there is going to be a
bailout required. Mr. Sherman and I both had amendments during
the debate over some of these bills to say, okay, okay, if you
want to take risks for the banks and others, do it on your own
dime. Hold the American taxpayer harmless. Take all of that
risk, but you are not getting a bailout. Every single
Republican member voted against that. Every single Republican
member said, no. No, the taxpayer is going to stay on the hook.
That is what worries me. If the banks were taking the risks on
their own, but they are insured. They are insured. They are
just too big to fail.
Mr. Kelleher, what do you think the consequences are going
to be when there is a disaster on crypto and a bunch of these
meme coins or crypto assets go to zero, and there is a bunch of
people that were led to believe by Congress that it was a safe
bet, and they were led to believe by the banks that it was a
safe bet, and then they are scrambling to recover their life
savings? How is that going to go?
Mr. Kelleher. It is the worst of all worlds because you are
adding massive deregulation of financial institutions that are
already too big to fail, and if they fail, they are going to
get massive bailouts. So, on top of that deregulation, you are
pouring the gasoline of the crypto industry, which, by the way,
and we have a lot of materials on our website about this, are
not even supported by the American people. They come up here
and they claim they are supported by voters. We put out a
Substack yesterday showing that is a false claim. So, crypto
plus deregulation equals disaster and bailouts.
Chairman Hill. The gentleman's time has expired.
Mr. Lynch. I yield back, Mr. Chairman. Thank you.
Chairman Hill. The gentleman yields back. The gentleman
from Texas, Mr. Williams, the Chairman of our Small Business
Committee, is recognized for 5 minutes.
Mr. Williams of Texas. Thank you, Mr. Chairman, and thank
all of you for being here today. The biggest issue I hear from
lenders in my district from the great State of Texas is the
CFPB's 1071 small business lending rule. I have introduced
legislation, H.R. 976, the 1071 Repeal to Protect Small
Business Lending Act. My bill will repeal the unnecessary and
burdensome rule, protecting lenders from endless compliance
costs and protects the small businesses who rely on credit to
expand operations and meet the needs of their customers.
Now, the CFPB's small business lending rule mandates that
financial institutions collect and report sensitive personal
data about small businesses loan applicants. The implementation
of 1071 is a direct threat to relationship banking and pushes
lenders toward a standardized one-size-fits-all loan process.
These mandates subject smaller institutions to endless hours of
compliance and paperwork and will decrease the amount of loans
to small businesses that support their local economies. Mrs.
Johnson, can you elaborate on how Section 1071 of Dodd-Frank
has created unnecessary regulatory burdens for all financial
institutions, and how will this negatively affect the
relationship-based lending model for smaller community
financial institutions that we have all had for years?
Mrs. Johnson. It is a really important question because
banks really want to be able to provide the lending in their
communities to the small businesses that fuel the overall
economy. The requirements under Dodd-Frank were really for 13
data points to be collected. It took the CFPB a very long time
to do that because even that is going to be an extraordinary
effort for all banks, not just small banks, for large banks;
so, I can only imagine how difficult this compliance burden
will be for community banks.
The CFPB went far beyond that, and 80-plus data fields
would be required under the CFPB's final rule. It was almost
impossible for a lot of banks to actually collect that data and
to do it in a way that was not going to be used against them.
That was the other concern. I heard multiple times many lenders
say they may have to stop small business lending altogether, so
it was going to be a hamper on the overall economy as well.
Mr. Williams of Texas. When that happens, the economy gets
smaller, not larger. Another major issue with Dodd-Frank that I
hear about when I am back home in North Texas is how complexity
and cost of making a mortgage loan is simply too much for
smaller community banks that do fewer than 20 per year. So,
this means handing off essential business relationships to
another financial institution which may not have much
flexibility or willingness to work with borrowers, especially
in rural areas where this happens where the loan may be
unconventional. Doctor, can you expand on how overreach of
Dodd-Frank has been a driving force in small financial
institutions exiting the mortgage business altogether and
killing and hurting small businesses and individuals?
Dr. Kupiec. The ability-to-repay rules are complicated.
There are a lot of rules related to originating and holding
mortgages that have been instituted after the Dodd-Frank Act.
They were designed to protect consumers, but they raise a lot
of costs for banks. There are studies that show community banks
have faced very large compliance costs. There are some cutouts
for the rules for very small institutions that make just a few
loans, but even there, it favors larger shops that can have big
compliance staff that can do these sort of things. So, it
really does put community banks at a disadvantage for making
these kind of loans.
Mr. Williams of Texas. As we always say, community banks
hire more compliance officers now than loan officers, and that
affects main street Americans.
Dr. Kupiec. One thing that might be interesting is the
effect of AI on the regulatory community. I mean, if you really
think about so many things in the FSOC and other things are
backward looking, and if AI can digest all the connections and
past data, then maybe we can shrink the financial regulator
staff and still do the same job we are doing. I mean, it is
kind of interesting to think about that when people talk about
the CFPB and cutting staff. Has anybody thought about where we
are going to go and can AI actually do a lot of what the staff
currently do? I mean, if you think about what they do, they are
not particularly prescient about looking forward and
identifying risks. They are looking always backward at data,
and we feed in all kinds of data, so just a thought.
Mr. Williams of Texas. I have limited time. What specific
policies from Dodd-Frank would cause a decrease in competition
in the banking industry, to you, Doctor, and what can Congress
do to reverse the course and allow financial institutions of
all sizes to compete and avoid consolidation?
Dr. Kupiec. There has been a trend in small bank
consolidation for decades now. Dodd-Frank adds complex rules
that do not make it any easier to be a community banker. I
mean, I think right-sizing a lot of these rules would be
helpful.
Chairman Hill. The gentleman's time has expired.
Mr. Williams of Texas. I yield back.
Chairman Hill. The gentleman yields back. The gentleman
from Illinois, Mr. Foster, the Ranking Member of our Financial
Institutions Subcommittee, is now recognized for 5 minutes.
Mr. Foster. Thank you, Mr. Chair, and to our witnesses. You
may not recognize it, this here, it is a pin for the 110th
Congress. I entered Congress in March 2008, and this is the pin
I received and so, Lehman Brothers fell in October. I was up
there in front as a junior member of the committee in the first
row there, so I was just maybe 6 or 8 feet away when we had the
famous hearing with eight failed banks coming up telling us
that we had to, like, write them a great big check, or they
were all going to be in trouble. That sort of was my initiation
into this thing.
On the 15th anniversary, I think we should think deeply
about fundamental issues. One of them is, why do we have
financial services at all? It has three basic functions. One of
them is to allocate capital. There are three basic functions--
allocate capital, to do so efficiently, and to control risk--
and at the time, our system had failed dramatically at all
three of those. The housing bubble was probably the biggest
misallocation of capital in human history because people were
able to hide the true risk of non-repayment of these mortgages.
The efficiency? In the run-up to the financial collapse,
the lion's share of corporate profits was in financial
services, and that tells you right there that we were not
running an official financial system, and that is very related
to many of the abusive practices. None of you have mentioned
the CARD Act or the credit card reforms that were just doing
unbelievable things to consumers just to gouge them for money,
people in vulnerable positions, and then its third function of
controlling risks that is I think enough is said about that,
and I think it is very significant.
In the dog days of trying to deal with this first, to the
emergency bailout that we had to vote for, then the stimulus of
the economy, and then the Dodd-Frank rules of the road that we,
I think, did our best to implement. I always tell myself that
my goal was to die before we had another financial crisis and
we have come pretty close to that. What happened a couple of
years ago? Okay. It was a crisis, but it was minuscule on the
scale of what happened in 2008. So, the discussion we have been
having in the 15 years since then, there are two big buckets.
The first one, to my mind, is systemic risk and with bank
leverage at the very heart of that, and then the second thing
has to do with consumer protection, and that has to do very
much with the discussion of the maldistribution of wealth in
our society, and the politics gets mixed up there. I would like
to just talk about systemic risk.
The battle we cannot lose is bank capital on that. That was
the thing. When I discovered as a junior member that the giant
investment banks like Lehman were levered 30 to 1, that cannot
be the right number. What is the right number? No, in fact,
that was the right number, and the fact that anyone thought
that was okay was just mind-boggling to me. In the 15 years
since, when bank CEOs come into my office, 9 times out of 10,
they have a complicated argument about why they want to lever
up, okay? It takes a while to analyze these arguments, but we
have to really understand the fundamental role of good bank
capital requirements.
If you look at the comparison that gets made, we had a long
discussion about the Basel III Endgame on this. Compared to
Europe, we had higher bank capital requirements, and that
should have crushed us, right? No, and, in fact, the U.S.
banking system went from being on its back at the end of the
financial crisis and source of ridicule to the rest of the
world to the dominant financial enterprises in the world. So,
we have done pretty damn well with really high, strong capital
requirements. That is the battle we cannot lose.
The other one has to do with technology. I think it was Ben
Bernanke that referred to the American International Group
(AIG) as a well-run, traditional insurance company with a hedge
fund grafted onto it that was playing in all these new
derivative games and providing credit default products to all
the European banks, and in such an interconnected way that if
AIG went under. The European banks would be in violation of
their capital requirements and have a huge contraction in
Europe and around the world. So, these things, these are really
the heart of this. The FSOC Improvement Act, which you talked
about here, I believe that I have been working on this for
years, and an activity-based approach is the right one. The
arguments that I hear against it that are hardest for me to get
my arms around are we have to be sure that this cannot be an
excuse to drag out the process for a long time. So, with that
one thing----
Chairman Hill. The gentleman's time has expired----
Mr. Foster. Thanks much.
Chairman Hill [continuing]. and I would encourage the panel
to follow up on Dr. Foster's request for information.
Chairman Hill. The gentleman from Ohio, Mr. Davidson, the
Chair of our Subcommittee on National Security, is recognized
for 5 minutes.
Mr. Davidson. Thank you, Chairman, for doing this hearing.
Thank you for our witnesses for being here today and the work
you have done to prepare for it and, frankly, the work you have
done in many ways in the private sector and think tanks and
whatnot to contribute to the discussion today.
Dodd-Frank was sold as a fix to the 2008 financial crisis,
but honestly, it has been pretty bad for markets. It has
probably been worst of all for student loans. The Federal
Government took over student loans as part of that process as
well, and that should indicate how bad this bill has been. It
has gone about as badly as the student lending takeover has
gone. It has choked off investor access, stifled capital
formation, buried small banks under compliance costs that only
the Wall Street giants can afford. Worst of all, it has created
more bureaucracy, often in the name of helping consumers like
the CFPB. One of the biggest ways consumers are being exploited
is their data is being harvested, monetized, and exploited in
all kinds of ways. CFPB has done nothing to modernize privacy
and data protection, and when you look at Dodd-Frank
regulations that have pushed regulators to hike capital and
liquidity rules, mandate stress tests that have choked off
capital to small businesses, it has really had a big negative
impact in our economy.
Let us focus first on Basel III Endgame. Mr. Bentsen, Dodd-
Frank was supposed to tailor regulations to the actual risks of
each bank. So, how can anyone justify Basel III's one-size-
fits-all capital standards?
Mr. Bentsen. Thank you, Congressman. So, Basel III Endgame,
the Fundamental Review of the Trading Book, is supposed to be
the last component of the enhanced capital rules under Title I
of Dodd-Frank. The problem with the proposal that is put forth
is that we already are at historically high levels of capital.
Dr. Foster was sort of talking about that, where we were and
where we are today. The way that rule, as originally proposed,
would increase the total aggregate amount of capital for the
largest institutions beyond their already historical levels. To
your point about the impact on business financing and lending
is it would directly impact the Trading Book and raise capital
in exorbitant amounts, which would definitely have a knock-on
effect to small business lending and a negative consequence.
So, it really needs to be reworked.
Mr. Davidson. Yes, thank you for that. We tried with S.
2155 to do some tailoring, but often, the regulators have
really pushed a different approach and used chokepoint tactics
in other ways to really limit capital formation in the private
sector, certainly limit it for small businesses and disfavored
industries or disfavored individuals.
Another troubling development is the Fed's payment on
interest. Prior to the 2008 financial crisis, just prior to
that, they changed the rules, and before, when banks wanted to
earn interest on their reserve requirements, they had to manage
their own book. They had to buy Treasuries or whatever to earn
a return, but they had to hold that capital in reserve. Now the
Federal Reserve is paying interest not just on the required
reserves, but on excess reserves. When interest rates were 50
basis points, there was not a massive motivation to hold excess
capital there, but when interest is over 4 percent, they are
making 440 basis points, more than double what a normal rate
for a management fee is for a hedge fund. They are not
deploying their capital. Concurrent with Dodd-Frank and this
change in interest rates, you have seen a massive growth in
nonbank lenders.
Dr. Kupiec, could you explain the implications of that,
where the capital is held with the excess reserve requirements?
The Central Bank, in a way, is providing a disincentive. Why
would banks want to loan at 6 percent to small businesses when
they can get 440 for doing nothing?
Dr. Kupiec. The Fed, as you point out, changed its
operating procedures in 2008, in the fall of 2008. Paying
interest on reserves was a way when the Fed did their
quantitative easing and bought all these securities, to keep
the banks from lending it out and causing inflation. So,
interest on reserves has become a key part of the way the
Federal Reserve does monetary policy. As you mentioned,
unfortunately, now it requires the Fed to pay banks billions of
dollars in interest on their reserves every year, and it causes
the Fed huge losses, but they are kind of locked into that
right now.
Mr. Davidson. Yes, they are over $100 billion per year
right now, and when you look at it, big businesses have access
to the bond market. Small businesses are being denied loans,
and that is why you see the growth in nonbank lenders. We
really need to relook this, and I applaud the chairman for
creating a task force to look at it. Thank you, and I yield
back.
Chairman Hill. The gentleman's time has expired. The
gentleman from California, Mr. Vargas, who is our Ranking
Member on the Monetary Policy Task Force, is recognized for 5
minutes.
Mr. Vargas. Thank you very much, Mr. Chairman and Ranking
Member, and also for all the witnesses here today.
Two things around here seem to be assured. One, my friends
on the opposite side of the aisle, Republicans, always say they
are deficit fighters. They are not going to raise the deficit,
and they are not going to increase the debt. That is what they
always say, and then, of course, they increase the deficit, and
they increase the debt. It is exactly what they do, and then
they walk away as if they did not do it. It is like when you
watch the sports, it is a late hit in football and then they
walk away like, I did not do it. Yes, you did. Everyone saw it.
It is on video, baby. Everybody saw what you did, and that is
one of the things that is always assured here.
The second thing that is always assured is they cry for
deregulation. We want to deregulate, we have to deregulate, and
then they come up with some crazy financial instruments that do
not work well. There is a collapse, and they do the same thing.
They walk away once again, like, no, no late hit here, I did
not do that, and they forget all about it. We saw that in 2008
with the financial collapse. We just saw it again with their
big, ugly bill, and, unfortunately, I think we are going to see
it with crypto here. Mr. Kelleher, could you comment on that?
Mr. Kelleher. No, you are right. It is a huge problem
because they are not just walking away. There is zero
accountability, and the problem with zero accountability is you
create moral hazard, and you actually incentivize people to
take bigger risks because they do not bear the downside. It is
the problem with too big to fail. Everybody rails about Federal
bureaucrats, bureaucrats, bureaucrats, but in 2008, they ran in
here with their hands out looking for money from those
bureaucrats. In 2023, they did not run to Wall Street saying
help us save the banks. They came to the Federal regulators,
the bureaucrats that are getting bashed all the time, who
cannot do anything right until they wanted to ladle out the
bailouts for their misconduct and for their high-risk
activities. They took the bonuses. They are happy to get the
bonuses in good times, then they are shifting the cost of
bailouts to the American people. They did it in 2008, they did
it in 2003, and that is going to happen again in the future
with the deregulation supercharged by unregulated crypto.
Mr. Vargas. I agree, and it is going to happen once again
as it always does, walk away and say we did not do it. Now, Mr.
Bentsen, I do not want to pick on you, but I do want to quote
you. In your written testimony, you argue that ``Many of the
policies required by Dodd-Frank promoted in the aftermath of
the financial crisis have made the U.S. financial system
stronger and more resilient today than it was in 2010.'' Now, I
heard the parade of horribles by the chairman at the beginning
how horrible Dodd-Frank was, and you did not seem to parade
that horrible here. Could you explain yourself?
Mr. Bentsen. I think it was me.
Mr. Vargas. Mr. Bentsen, you are the one that I quoted.
Mr. Bentsen. I should note that I first met the Congressman
when I testified before a joint committee of the Senate and the
Assembly in California, and he was Chair of the California
Senate Banking Committee, and I think it was whether or not
California should adopt its own Dodd-Frank Act. My testimony
was short. The answer was no. There are certain things, for
sure, that we think that Dodd-Frank did to provide more
resiliency to the system, addressed areas in the swaps market,
at capital levels of quality.
Mr. Vargas. Was it a good idea or a bad idea?
Mr. Bentsen. But----
Mr. Vargas. No, no, no, no, no, no. I am not going to
``but'' here. Was it a good idea? I have limited time, was it a
good idea or a bad idea, Dodd-Frank?
Mr. Bentsen. There were some parts that were good ideas,
and there were some parts that were not good ideas.
Mr. Vargas. Okay. Mr. Kelleher, is it a good idea or a bad
idea? Yes?
Mr. Kelleher. Dodd-Frank?
Mr. Vargas. Yes.
Mr. Kelleher. Dodd-Frank was absolutely essential at the
time, and the interesting thing is Dodd-Frank was actually
bipartisan legislation. It was a partisan vote, but Dodd-Frank,
as you all know, from the 20 days of the conference, many,
many, many Republican provisions are throughout Dodd-Frank, as
does friend Ken Bentsen know.
Mr. Vargas. Of course, but they forget like they always
forget and walk away. The other thing I find interesting, we
had a bunch of bankers one time, and I asked the same thing of
the bankers. You know what the bankers said? It was generally a
good idea. There are some things that we thought were good.
There are some things they did not like, but now we have the
parade of horribles like it is the worst thing in the world.
Now, the worst thing in the world is when the American people
have to bail out the damn banks because these rich guys make
all this money, and these guys allow it to happen, and then
they simply put the cost on all of the consumers, all the
United States' taxpayers, and you let the fat cats get away
with it. That is the problem. With that, I yield back.
Chairman Hill. The gentleman yields back. The gentleman
from Tennessee, Mr. Rose, is recognized for 5 minutes.
Mr. Rose. Thank you, Chairman Hill and Ranking Member
Waters, for holding this hearing, and thank you to our
witnesses for taking time out of your schedules to be with us.
Mrs. Johnson, small businesses are incredibly important to
Tennessee's economy. They make up the majority of all companies
in the State and are considered the backbone of the economy.
These businesses not only create jobs but also foster
innovation and contribute significantly to the local
communities. Section 1071 of the Dodd-Frank Act requires
lenders to compile, maintain, and report information regarding
loan applications made by certain businesses. Unfortunately, I
understand that implementation of these requirements based on a
rulemaking under the Biden-era leadership of the CFPB can be an
enormous undertaking. The compliance burdens could result in
some lenders choosing to terminate their small business lending
programs altogether due to compliance costs.
I would like to touch on Chairman Hill's H.R. 941, the
Small Lender Act. This bill would reduce the definition of a
small business for purposes of 1071 reporting from $5 million
to $1 million. Can you discuss how this bill would better focus
the scope of 1071 reporting and how it would also ultimately
benefit small businesses that are seeking access to hire more
employees and expand their operations?
Mrs. Johnson. Absolutely. Small businesses, as you know,
are the backbone of the economy. They hire the vast majority of
employees throughout the country, and banks want to lend to
them, and so, it was extremely problematic. CBA represents
institutions $10 billion and above for the most part. I can
tell you from some of the very largest institutions, some of
the largest small business lenders in the country, that this
was a compliance nightmare and a cost nightmare. So, for
smaller institutions, it was going to be even more burdensome.
I think the stretching of the requirement under Dodd-Frank from
13 data fields to 80-plus data fields was exorbitant and so, I
think that the bill that Chairman Hill has introduced, the
Small Lender Act, is very, very needed to reduce the reporting
requirement from $5 million in annual revenues to $1 million in
annual revenues that will better capture small businesses this
bill is intended to capture.
Mr. Rose. Thank you, and, Mrs. Johnson, as you may know,
one of my bills, H.R. 2885, the Bank Loan Privacy Act, which
has been attached to today's hearing, I was proud to introduce
this legislation, which would require the CFPB, before
modifying or deleting any personal information collected under
Section 1071, to engage in a formal rulemaking process with
advance notice and public comment. Specifically, the rule would
need to include a description of the intended modifications or
deletions and an explanation for how these changes serve a
legitimate privacy interest. In your view, would this
legislation help ensure greater transparency and accountability
in how the CFPB handles sensitive personal data under Section
1071?
Mrs. Johnson. It is extremely important. The data fields
that are required under 1071 are personal-identifiable
information; so, anything that they are doing in terms of
collecting this information or changing or deleting that
information, it should go through a notice and public comment
period. Banks will want to provide feedback and input and make
sure that it is done correctly.
Mr. Rose. Mr. Chairman, I ask unanimous consent to have a
letter from the Independent Community Bankers of America
supporting the Bank Loan Privacy Act inserted into the record.
Chairman Hill. Without objection.
[The information referred to can be found in the appendix.]
Mr. Rose. Mr. Bentsen, in your prepared testimony, you
noted that large banking organizations are subject to up to 19
separate capital requirements and five separate liquidity
requirements. Can you discuss the negative effects on the U.S.
banking system of so many duplicative capital and liquidity
requirements?
Mr. Bentsen. Probably the most consequential impact is the
interrelation and the lack of coordination of these different
requirements. I have talked about the stress test and how it
does not comport well, for instance, with the Basel III
Endgame. When you have these many different items, not only do
you drive up compliance requirements and compliance costs, but
you also have to look and see how all of these capital and
liquidity rules interact together. Again, as I mentioned, next
week, the Federal Reserve is holding a conference which is
looking at all of the capital and liquidity reforms that have
been implemented since the great financial crisis. This is a
good start for prudential regulators to sort of think about how
do all of these rules stack up together.
Mr. Rose. Thank you, and with the remaining moments, I will
just tell a story. This morning, at a breakfast, I was eating a
cinnamon roll, Mr. Chairman. It had a little-on it with some
icing, and it tumbled off and down the front of my suit. It hit
my shirt, my suit jacket, and my suit pants. That is the way I
feel about Dodd-Frank at this point: a lot of unintended
consequences, and they are not good. I yield back.
Chairman Hill. The gentleman yields back. I hope you
changed clothes. We now turn to the gentlewoman from Ohio, Mrs.
Beatty, who is the Ranking Member of our Subcommittee for
National Security. You are recognized for 5 minutes.
Mrs. Beatty. Thank you, Mr. Chairman and Ranking Member,
and thank you to all of our witnesses today. Certainly, as you
have witnessed and you have heard, we are here because Dodd-
Frank turns 15. We are here to take a closer look at the last
15 years of Dodd-Frank, and I would like to walk you through
some of the benefits we have seen since the law has been
enacted.
Certainly, we will recall and know, before Dodd-Frank,
predatory mortgage lending was rampant, consumers were
vulnerable to unfair and abusive practices with no recourse,
and financial institutions were subject to a disjointed
regulatory and supervisory framework that created dangerous
gaps in oversight and accountability. We also know, as my
colleague, Mr. Vargas, pointed out, what happened in 2008 and
what happened with the banks and where people came and the
crises that we were in. Certainly, as we have witnessed from
you, we all have a different view. I have never thought of it
as a cinnamon roll and how it bounced off and what it did to a
suit. I am not even sure that I got it, but that is another
view that my colleague has presented. Certainly, I have a
different view of what it has done, especially in the areas
that you work, what it has done for financial stability, what
it has done for accountability, what it has done for protecting
our consumers. I think it is also worth noting that since Dodd-
Frank, we have not had any wide scale to the magnitude of 2008
financial crisis. Certainly, we have had some, but the law has
worked, in my opinion.
Mr. Kelleher, in the last several months, we have,
unfortunately, seen that many Federal agencies have chosen to
over comply with the administration's executive orders around
diversity, equity, and inclusion. Let me kind of take you back
again through history and remind you of Section 342 in the
Dodd-Frank Act, which we are so fortunate that Congresswoman
Maxine Waters played a lead role in Dodd-Frank and creating
Section 342, which was the establishment of the Office of
Minority and Women Inclusion, or as we refer to as OMWI, at our
financial agencies, which is charged with promoting diversity
and inclusion within the agencies that they are regulated
entities. Mr. Kelleher, what impact will these attacks on
diversity, equity, and inclusion have on policymakers' ability
to address the racial wealth gap and ensure that there are
truly equal opportunities to get ahead for all Americans?
Mr. Kelleher. I think everybody recognizes, certainly in
the private sector, the value and importance of diversity,
multiple voices, and people with different experiences at the
table, and that is certainly true at the financial regulatory
agencies and the financial institutions that they oversee. We
can see that by the identification and addressing of the
predatory targeting of certain communities--communities of
color, low-income communities, and others--and those
communities are not visible often at the financial regulators
when the people at the financial regulators do not have any
visibility or experience in those communities.
The OMWI offices have been critical junction points in
making sure that those issues are maintained a priority both
within the agencies and within the regulated entities that
those agencies are focused on. The more people are aware of the
breadth of our communities, the people, and their experiences,
the more that the rules can actually be tailored appropriately.
The racial wealth gap was not talked about, was not visible for
many years. It was not visible because people who are actually
on the wrong end of the racial wealth gap were not represented
in the regulatory agencies and even in policymaking, more
broadly. The identification of that and addressing that through
various regulations and laws has been critical, but diversity
is what has driven that.
Mrs. Beatty. Thank you. My time is almost up but let me
just thank you for that and also say, although the Dodd-Frank
made some great progress, there is no doubt that this country
still faces persistent disparities in access to safe and
affordable credit. Mr. Bentsen, we have had the opportunity
with SIFMA to work together. Have you seen in financial
literacy, in your work, the difference it makes when you are
more inclusive?
Mr. Bentsen. First of all, Congresswoman, I want to thank
you and Congresswoman Kim for the work that you all do on
financial literacy--that is very important--and for your
engagement with the SIFMA Foundation. Absolutely, the
foundation has seen the spinoff of increased financial literacy
impact on students----
Chairman Hill. The gentlewoman's time has expired.
Mr. Bentsen. We will answer for the record.
Mrs. Beatty. Thank you so much. I yield back.
Chairman Hill. I commend you both on the financial literacy
partnership. We now recognize the gentleman from South
Carolina, Mr. Timmons. You are recognized for 5 minutes.
Mr. Timmons. Thank you, Mr. Chairman. I want to thank all
the witnesses for joining us today to examine where 15 years of
Dodd-Frank has gotten us. I want to begin by addressing the
CFPB and the unchecked regulatory power that its past director
wielded to impose his personal worldviews on the Agency. The
constant pendulum swings in leadership direction between
administrations, combined with inconsistent rulemaking, have
made it challenging for well-intentioned businesses to operate
and thrive under its oversight. As I have mentioned before,
just hours before Director Chopra was removed from his
position, the CFPB sent out a wave of civil investigative
demands to businesses across the country at 5:30 on a Friday
evening. I think we all know that no CFPB employee is working
at 5:30 on a Friday. These actions were not based on legitimate
grounds. Rather, they appear to be a final attempt by the
former director to make a statement, sowing confusion and panic
on his way out the door.
Mrs. Johnson, given the notion that the CFPB cannot be
fully dismantled and that we cannot return to pre-2010 status
quo, where do you see Congress stepping in to ensure the Bureau
stays focused on its core mission and does not allow a rogue
director in the future to expand its authority beyond that
purpose?
Mrs. Johnson. Thank you for the question. I think it is
going to be essential for us to take the opportunity and see
what works and what does not work, and I think we have seen
over the last 15 years that CFPB, even as, I think, it is by
some bipartisan recognition, has been political. It has been
driven by polling at times. To your point, they rushed things
out the door even after an election, like the overdraft rule,
which was significant. The biggest thing we can do is better
define our UDAP authority so that companies, banks in
particular, have certainty about how to comply and what it
means to comply.
I think the second thing would be creating a rigorous cost-
benefit analysis for the CFPB. They do not take into account
the true cost to consumers when they are issuing different
rules, whether it is credit cards, which are the number one way
to access the financial system, or whether it is overdraft,
where you have people on the margins who really rely on this
product. Again, these are really critical lifelines for a lot
of consumers, and I think those would be two very significant
steps. There are a number of other things that we recommend in
our testimony, too.
Mr. Timmons. It was about a year ago when Director Chopra
was here, and I told him that given the potential outcome of
the November election, it would be, and my colleagues across
the aisle, best interest for us to implement some reforms so we
can stop the pendulum from swinging back and forth. Obviously,
that wish was not heeded, so we now have an opportunity to
address this going forward. To that point, are there specific
regulatory tools or enforcement powers that CFPB should be
leveraging more aggressively to deter repeat offenders and
large-scale scam operations?
Mrs. Johnson. On the fraud and scam situation? Yes,
absolutely. I mean, CBA, and actually, you all have been a
phenomenal lead in heeding consumers' plea for help on being
scammed out of their own money. For far too long, it has often
been finger pointing from the CFPB when they actually have as
one of their six core missions to help educate consumers so
that the consumer can make informed financial decisions. You
all are taking a leadership role in this. You have co-sponsored
the GUARD Act, which will direct a more whole-of-government
approach that will provide the resources necessary to law
enforcement to be more engaged on this front. Banks spend
billions of dollars and millions of man hours to help protect
consumers from being scammed out of their own money, but these
things are often originating outside the banking system. They
are from telecom and social media, from State actors. We need a
whole-of-government approach. I really commend you and your
colleagues for taking a lead here.
Mr. Timmons. Thank you for that. I think we have an
opportunity for some bipartisanship to get the CFPB back to its
core mission and to not regulate by enforcement, and to create
predictable standards that businesses and banks can then meet.
I think that if we can create the predictability and seek out
the bad actors without tying everyone else up with endless
attorney fees and compliance costs, that is the path forward.
My goal is for America to lead in all sectors of financial
innovation by creating an environment where consumers have full
control over their own financial data. For this to work,
customers should be able to share their information seamlessly
and securely with the applications of their choice, empowering
them to access a wider range of financial services tailored to
their needs. This requires a balanced approach that promotes
innovation while ensuring strong privacy protections and
cybersecurity standards. I think that we have an opportunity,
this Congress, the next Congress, over the next 3-4 years to
bring balance to something that we are not going to get rid of.
I look forward to working with my colleagues across the aisle
in that endeavor, and with that, Mr. Chairman, I yield back.
Chairman Hill. The gentleman yields back. The chair
recognizes the gentleman from Illinois, Mr. Casten, the vice
ranking member of the full committee, for 5 minutes.
Mr. Casten. Thank you, Mr. Chair. I would submit to you
that there is only one lesson to be learned from every
financial crisis. It is always the same lesson, and we have
never learned it. The lesson is that if you have something on
your balance sheet that is risky and you would like to sell it,
it is in your interest to have deep liquid markets of
unsophisticated off-takers. That was the S&L crisis, and it was
certainly the housing crisis. I mean, the housing crisis,
right, we had risk in subprime mortgages. We offloaded those by
bundling them into mortgage-backed securities. That got risky,
so we offloaded those into credit default swaps, and then we
figured out that if we could put those on over-the-counter
markets, we could get less transparency, less regulation, and
it was all good until it was not, and then it took everything
down with it.
Now, if we had learned that lesson, we would not be voting
on all this crypto crap this week, but we have not learned that
lesson. I want to just understand because specifically in Dodd-
Frank, there was this effort to create joint SEC-CFTC
jurisdiction for some things that had run away from the
supervision of SEC markets into less disclosure-intensive CFTC
markets. Specifically, if you had a derivative tied to a
security, it had to be inside the SEC. Mr. Bentsen, I want to
just get some clarifying questions from you. If Microsoft were
to custody their own stock and then issue a token that tracked
that stock without granting ownership or redemption rights,
would that be a derivative?
Mr. Bentsen. Oh, you are asking prospectively. You are not
asking with respect to Dodd-Frank, right?
Mr. Casten. I am saying right now under current law, would
that be a derivative if they issued their stock as a token
without granting ownership or redemption rights out of
Treasury?
Mr. Bentsen. Yes, I think that is----
Mr. Casten. Okay. That is not just if it is Microsoft,
right, but if an investment company did that out of stocks that
they controlled, that would also be a derivative?
Mr. Bentsen. Again, you would have to look, but if you are
not transferring all the rights of ownership that you would
have----
Mr. Casten. Okay. So----Mr. Bentsen--with the individual
equity, then it would be----
Mr. Casten. Okay, I agree, and for the record, I think we
both agree with Hester Peirce, the Republican SEC----
Mr. Bentsen. That actually goes beyond Dodd-Frank back to
the Commodity Futures Modernization Act.
Mr. Casten. Yes, because Hester Peirce has just said that
tokenized shares do not offer ownership of the underlying
asset. Then in that case, it is a security-based swap and
should not be traded at retail. That matters because in the
CLARITY Act that is coming through this week, Section 202
specifically says that if you tokenize a security and raise $50
million or less, all of a sudden you can get out of SEC
jurisdiction.
I would like unanimous consent to enter into the record an
article in today's Wall Street Journal, ``Want to Trade Amazon
on Crypto Exchange? The Price Might Be Off by 300 Percent.''
[The information referred to can be found in the appendix.]
Mr. Casten. It says that the tokens of Amazon today are
trading at as much of a 300 percent premium over the stock
price. That does not suggest an efficient market. I have one
example on Jupiter, where it is over 100 times above the stock
price.
So I guess, Mr. Kelleher, if we have the SEC commissioner
saying this should not really be sold at retail, we seem to
have agreement on this committee that is a derivative that
should be subject to the SEC. Yet, we are going to vote this
week to say let us not have the SEC regulate these tokenized
securities, which are, according to today's Wall Street
Journal, massively inefficient. Is that a good idea? Should we
be concerned about that, or have we, in fact, learned nothing
from Dodd-Frank?
Mr. Kelleher. Everybody should be concerned about that. I
mean, it has been said repeatedly that we have the most liquid,
best capital markets in the world, that are the envy of the
world, but that is only true because they are well regulated
and well policed. That causes the faith and trust of investors
worldwide to put their money into our markets. It is not
preordained or predestined for us to always have the best
markets in the world. When you pass laws that have ambiguities,
carveouts, and loopholes that evade the most fundamental parts
of our securities laws that make them well regulated and well
policed, then you are not only opening loopholes for companies
and financial predators and illegal and bad conduct that
creates consumer risk as well as financial stability risk, you
would literally endanger the entire capital formation
allocation system and the status of our capital market.
Mr. Casten. I mean, it strikes me, like, if I was going to
raise money today, I would raise a little bit of smart money on
functioning equity markets and then I would lever it up with
dumb money on the token, right? I mean, it seems like a smart
thing to do. Look, I am about out of time, but just because you
raised the police, you are reminding me that I remember when
Gary Gensler first came into his job, he came to my office and
talked about what he wanted to do on crypto regulation. I said
you have two problems. Your advantage is that the Wild West
needs a sheriff. Your disadvantage is that everybody in the
Wild West likes to shoot the sheriff, and my Republican
colleagues' commitment to defunding the white-collar police has
been noted.
Chairman Hill. The gentleman's time has expired. The
gentleman from Montana, Mr. Downing, you are recognized for 5
minutes.
Mr. Downing. Thank you, Mr. Chair. First, I would like to
submit this letter from the National Association of
Manufacturers to the record.
Chairman Hill. Without objection.
[The information referred to can be found in the appendix.]
Mr. Downing. Thank you, Mr. Chair, and thank you for the
witnesses. There is this saying that just because you are not
interested in politics does not mean politics is not going to
be interested in you. The first time I ever came to DC, I was
basically issuing Regulation D exemptions, securities, and had
an investment bank group, a broker-dealer, and this thing
called Dodd-Frank was coming down the pipe. That is the first
time I ever climbed in an airplane and flew to DC to make sure
people understood how that affected me, my business, my
investors. I think that in reaction to the crisis at the time
the pendulum swung. I think it swung a little too far and
picked up a little too much baggage, and I think there is an
opportunity to right-size that, and I think there is a need to
right-size it.
I am going to start off. I have heard from many of the
banks and credit unions in my district across Montana just how
harmful Dodd-Frank has been. One bank plainly told me that the
creation of the CFPB has been the most negative and costly
provisions of Dodd-Frank. Another small bank told me they have
gone from one compliance officer before Dodd-Frank to four
today, drastically increasing costs. I have heard similar
stories on Rule 1071, specifically. In 2008, Montana had 64
State-chartered community banks, 64. Today there are 33.
I am going to start with Dr. Kupiec. Hopefully, I said that
right. I am going to apologize. Is it fair to describe Dodd-
Frank as irresponsibly pushing bank regulations into a one-
size-fits-all model where the balance sheets of all banks look
the same?
Dr. Kupiec. It is not exactly one-size-fits-all. The
largest banks are subject to different rules than the smaller
banks. I think the crux of it all, though, is the regulations
that have been put in place are very complex, very expensive,
and they do not do what they were supposed to do. They do not
work as advertised, and I think taking the time to right-size
some of these regulations would be a good thing.
Mr. Downing. Do you believe that this hurts smaller players
and innovators the most who specialize in their local
communities?
Dr. Kupiec. Small banks have been consolidating for
decades, but it is certainly the compliance cost. If you have a
small bank, you cannot spread the compliance costs across a big
business like you can if you are Jamie Dimon and JPMorgan.
Mr. Downing. Thank you. I am going to move to Rule 1071.
Mrs. Johnson, do you think the consequences of the CFPB's 1071
final rule will be especially pronounced in rural communities
who already struggle with limited lending capacity?
Mrs. Johnson. I do, yes.
Mr. Downing. Thank you. I am going to switch quickly to
mortgage lending. A bank in Montana recently told me Dodd-
Frank's mortgage lending rules have made mortgage lending far
more burdensome for the lender and more confusing for the
borrower. In fact, the bank told me Dodd-Frank's regulatory
requirements have caused many rural banks to get out of the
mortgage lending business entirely. I am going to go back to
Dr. Kupiec. Do you think Dodd-Frank's qualified mortgage rule
has been successful in reducing systemic risk in the mortgage
sector?
Dr. Kupiec. The rule and the ability to repay rules are
complicated, and they certainly impose a lot of compliance
costs on banks. Again, small banks do not have the staff, and
so it has caused a lot of small banks to get out of the
business. It is kind of the inflation we have had in housing
prices recently, the higher mortgage rates. The Qualified
Residential Mortgage (QRM) rules, they are being stretched to
allow higher debt-to-income ratios and things like that, and
the Government-Sponsored Enterprises (GSEs) are funding loans
with higher debt-to-income ratios. So, we are letting the risk
of underwriting buildup to accommodate lending, and so, in
essence, the rules, in some sense, are not doing what they were
designed to do: protect people from taking out loans they
cannot afford. Now, given the housing price inflation and the
high mortgage rates, policymakers are pushed to allow more
people to qualify for loans. There is a tradeoff there.
Mr. Downing. Thank you. In my remaining time, I would like
to highlight another issue I am very passionate about, which is
eliminating the Federal Insurance Office, which was established
by Dodd-Frank to monitor all aspects of insurance. The Federal
Insurance Office, I believe, should be eliminated. The
McCarran-Ferguson Act of 1945 makes clear that States have sole
regulatory authority over the insurance industry, and the Biden
Administration has weaponized the Federal Insurance Office,
pursuing politicized data calls on climate rather than looking
for ways to make the insurance sector operate more efficiently.
Chairman Hill. The gentleman's time has expired.
Mr. Downing. I yield, Mr. Chair. Thank you.
Chairman Hill. The gentlewoman from Michigan, Ms. Tlaib,
you are recognized for 5 minutes.
Ms. Tlaib. Yes. Thank you, Mr. Chairman. I hope I can ask
all of you a simple question. In 2008, do you believe shadow
banks that took on short-term liabilities played a huge role in
the financial crisis? I will start with you, Mr. Bentsen.
Mr. Bentsen. I am not sure exactly how you want to define
shadow banking.
Ms. Tlaib. Yes or no?
Mr. Bentsen. There was no question that there were
liquidity problems that have been addressed.
Ms. Tlaib. People acting like banks that are not banks,
yes. How about you, Mrs. Johnson?
Mrs. Johnson. Yes, outside the regulated system.
Ms. Tlaib. Yes.
Mr. Quaadman. A housing crisis that morphed its way
throughout the economy.
Ms. Tlaib. Yes. I was talking about shadow banks. Folks
that acted like a bank, took on short-term liabilities was one
of the main causes of the 2008 financial crisis. It is okay,
Doc. You do not have to answer.
Dr. Kupiec. I do not----
Ms. Tlaib. It is okay. Hey, it is still happening. It is
going to happen, and Dodd-Frank did not come from, like, thin
air, but----
Dr. Kupiec. There were a lot of mortgages----
Mr. Kelleher. There is no question----
Ms. Tlaib. That is right.
Mr. Kelleher [continuing]. by any objective observer----
Ms. Tlaib. That is right.
Mr. Kelleher [continuing]. that non-regulated shadow banks
contributed significantly.
Ms. Tlaib. I would appreciate you three be honest.
Mr. Kelleher. Unregulated Lehman Brothers----
Ms. Tlaib. That is right.
Mr. Kelleher [continuing]. AIG, Bear Stearns.
Ms. Tlaib. Yes.
Mr. Kelleher. You could go down a long list of non-
regulated shadow banks----
Ms. Tlaib. That is right.
Mr. Kelleher [continuing]. that drove the crash.
Ms. Tlaib. I know even those like Lehman Brothers or money
market mutual funds that had the collateralized short-term debt
experienced devastating runs. We know this. So, we have now
nonbanks performing bank-like functions but without the
regulation and oversight of the traditional banking sector.
That is something that I want my colleagues to understand was
happening. You can disagree certain things that CFPB is doing,
hopefully factually based, but to say that it was not needed
because of this, to me, is being dishonest with the American
people.
Mr. Kelleher, would you say, like, stablecoin issuers right
now act essentially like banks?
Mr. Kelleher. Stablecoins are nothing but money market
funds in disguise, for all intents and purposes, with high-run
risk, and the way they are currently being talked about will
have almost no regulation to protect the American people.
Ms. Tlaib. That is right. Mr. Kelleher, without deposit
insurance, are these stablecoin users subject to runs like we
saw occur in shadow banks in 2008?
Mr. Kelleher. I do not think there is any question you are
going to see runs, failures, and bailouts.
Ms. Tlaib. I want to be clear, so my colleagues know this
is coming. In 2008, we saw the collateralized short-term
liabilities held by nonbanks helping bring down the financial
system, and now we are working to dramatically expand a whole
new type of shadow banking in our country right now. Mr.
Kelleher, do you agree that part of what made 2008 financial
crisis so damaging was the linkages between the traditional
banking sector and the shadow banking sector in the real
economy?
Mr. Kelleher. The interconnection between the shadow banks
and the banks with transmissions of risk, and those
transmissions of risk over time, created the circumstances,
together, that systemically significant institutions, whether
they were banks or nonbanks, ultimately failed. Now we are
going to overlay, as you say, an entirely new shadow banking
system called crypto, call it stablecoins----
Ms. Tlaib. That is right.
Mr. Kelleher [continuing]. call it whatever you want, and
they are not going to regulate them, so they, too, are going to
be underregulated.
Ms. Tlaib. That is right. I do not even know who comes up
with the names, Mr. Dennis Kelleher, but the GENIUS Act
recreates and amplifies the same kind of linkages. For example,
the act would allow banks to issue their own stablecoins,
linking traditional financial sector to the volatile crypto
industry. Perhaps most troubling about the GENIUS Act, it
undermines the separation between commerce and banking.
Walmart, Amazon, Meta, and all these are exploring the use of
this right now. What sorts of risk are we talking about? Again,
pretend our moms are watching us. Like, explain it because I
need them to understand what my colleagues' lack of action or
enabling right now is going to cause real impact on their
lives.
Mr. Kelleher. The biggest risk is that people are going to
conclude, based on what is likely to pass, that these new
financial instruments, that have no legitimate social purpose,
are properly regulated by the Federal Government, and that is
the biggest fraud on the public out there.
Ms. Tlaib. I tell people Amazon and Facebook could do
shadow banking that could spill over to commercial financial
sectors. Yes or no?
Mr. Kelleher. You are going to be legitimizing a new
financial product that is highly volatile, littered with
conflicts of interest and almost no regulation, but there will
be a claim of regulation and legitimacy, and that is going to
drive the marketing, and that is going to cause massive losses
to main street----
Ms. Tlaib. I got to get this in, Mr. Kelleher. Guess who is
going to bail them out? Guess who is going to bail them out
again? It is exactly what is going to happen. I just want to be
on record saying I told you so. I am going to be here to say
that.
Chairman Hill. The gentlewoman yields back. The gentleman
from South Carolina, Mr. Norman, you are recognized for 5
minutes.
Mr. Norman. Thank you, Mr. Chairman. Since Dodd-Frank, the
credit unions faced a dramatic increase in regulations, not
knowing what the cost would be other than it was more cost. How
can we in Congress balance the need for financial safeguards
and protection with providing targeted relief for credit
unions, particularly in the form of regulatory tailoring,
exemptions, and the repeal of certain provisions, and make sure
that this does not happen again because it created a world of
problems and we are feeling the effects now? I guess, Mr.
Bentsen, we can start and go down.
Mr. Bentsen. Congressman, we do not represent credit
unions, so I cannot really opine on the question. Sorry.
Mrs. Johnson. We represent mostly banks but a few credit
unions in there. It is a duplicative regulatory environment
that many institutions live under, especially if you have CFPB
regulation in addition to your prudential regulation. You have
multiple examiners. Other Members of Congress have mentioned
more compliance officers at times and other functions of the
bank, which just simply does not make--so, I think coordinating
and just trying to reduce the duplication where you can is one
very meaningful step.
Mr. Quaadman. Mr. Norman, ICI represents mutual funds and
other regulated funds with the SEC. As I mentioned in my
opening remarks and also with our testimony, there are
duplicative regulatory requirements which are confusing and
also where regulators are going beyond where Congress had
mandated them to go. So, that creates problems not only for
those funds, but even for those investors who want to deploy
their money into those funds as well.
Dr. Kupiec. I think many credit unions are sort of in the
same position as community banks in terms of having to bear the
cost of the regulations, but actually my written testimony
shows that the credit union share of lending has actually grown
relative to the banks over the last few years. So, they have
actually done better than the banking system as a whole, a
couple of percentage points difference. So, they have not had
it as bad as the regular banks, I do not think.
Mr. Kelleher. If you look at the facts, credit unions and
community banks as well as the economy were crushed by the
crash. Long before Dodd-Frank got enacted or got implemented,
community banks and credit unions and small business across the
country were failing at massive rates because of the Great
Recession that was caused by the crash. The damage done to
those institutions from the crash far exceeded any even claimed
damage by Dodd-Frank, and so the real issue is people are going
to pay one way or the other. They are either going to pay for
regulation and compliance costs to prevent the crash, or they
are going to pay 10 times, 20 times, 100 times more to clean up
a crash because they were not properly regulated. There is no
choice in the world where there are no costs. The question is,
when are the costs incurred and who is going to pay them?
Mr. Norman. Yes, but there is a question of one size does
not fit all. I am in the real estate business. Let us talk
about banks. A lot of them got out of the mortgage servicing
and had to rely on other banks. I have the closing statements
where the costs went up the minute Dodd-Frank took effect, and
I guess to avoid duplicating that again, what lessons have we
learned from that on the servicing side?
Dr. Kupiec. The mortgage service business, there are some
capital regulations that make them unfavorable for banks to do
that business. A lot of it has consolidated and moved out.
There are lots of government lawsuits against banks for
underwriting subprime mortgages back under the Obama
Administration where they went after lots of banks for the
Financial Institutions Reform, Recovery, and Enforcement Act of
1989 (FIRREA), and they paid huge fines for supposedly creating
bad subprime mortgages, and most of them were settled without
going to court. The banking system paid a lot, and the banking
system, by and large, has shied away from the mortgage business
for reasons of regulation, for reasons of getting sued, for
things like that. It is not just the Dodd-Frank effect, but
also there are other things that have gone on since the crisis
that have made the banking system a bit shy about the mortgage
business.
Mr. Kelleher. They, of course, paid those massive fines
because of fraud and illegal behavior, not because they were
generous and not because they were not represented by the best
lawyers in America.
Mr. Norman. Yes, but you had a lot of frivolous suits too
that were charged, and that was not right. It is driving up the
cost today. I thank each one of you for being here.
Mr. Stutzman [presiding]. The gentleman's time has expired.
The chair recognizes the gentleman from Connecticut, Mr. Himes.
He is now recognized for 5 minutes.
Mr. Himes. Thank you, Mr. Chairman. Thank you to our
witnesses. It has been a trip down memory lane to reflect this
way on Dodd-Frank. I was actually in the very bottom row, a
freshmen, when it was written, and it is interesting to see the
very different opinions that are offered by our witnesses
today. My own view, for what it is worth, is we were promised
when it became law by many in the industry that this was going
to obliterate the American strategic advantage of our deep
capital markets. To be fair, on the left, people said this is
the apocalypse in waiting and it is all going to happen again 2
years from now. None of that turned out to be true. Our capital
markets and our banking system are, in fact, the envy of the
world, as Mr. Bentsen says, and with a few exceptions and
including, by the way, the mother of all stress tests in the
form of the pandemic, our system has held up remarkably well.
I guess I am intrigued. Dr. Kupiec highlights the Silicon
Valley Bank disaster. I am not sure I agree with him that is
evidence that Dodd-Frank is a failure, but I want to use my
remaining 4 minutes to do something that I think is actually
kind of useful, which is Dodd-Frank, of course, emerged because
too few people saw the mortgage crisis coming. I certainly did
not see Silicon Valley Bank crisis coming. My question to all
five of you, and I think you have each got about 25 seconds to
answer this. I am going to start with you, Mr. Kelleher,
answering to the question. At the end of 2025, 6 months from
now, there is a systemically threatening event. Let us think of
the magnitude of Silicon Valley Bank, just for argument sake.
That event originated how and in which market? Mr. Kelleher?
Mr. Kelleher. Nobody knows, and we do not know because we
put blinders on. We have defanged FSOC. We have gotten rid of
25 percent of the personnel at the FDIC. You could go agency by
agency, and what you are doing is essentially disarming the
frontline financial stability cops at the regulatory agencies.
They are not just putting their head in the sand. They are
leaving the field, and that is going to cause us to be
surprised again like we were in 2008. AIG, everybody ran around
going, ``What is AIG?''
Mr. Himes. Okay. Mr. Kelleher, your answer is that we are
gutting the regulatory apparatus, I think. Is that a fair
characterization, Dr. Kupiec?
Dr. Kupiec. Yes, Silicon Valley Bank was a systemic problem
because there were thousands of banks that had huge, unrealized
interest rate losses on their books and could fail too. If you
look at my written testimony, you will see that.
Mr. Himes. I understand. I am looking for the answer to the
question of when it happens again 6 months from now, why did it
happen.
Dr. Kupiec. I do not know.
Mr. Himes. Okay. Fair enough. I do not either. None of us
do. Mr. Quaadman?
Mr. Quaadman. Mr. Himes, thank you for that exercise. I
would actually say if you looked at Dodd-Frank, the Office of
Financial Research is supposed to be the early warning system
for the Financial Stability Oversight Council. I would say if
you looked at any of the hiccups that have happened in the
system since 2010, the Office of Financial Research (OFR) has
not performed that function. So, I think that actually makes
the argument for why it should be brought under the
appropriations process for congressional oversight.
Mr. Himes. That does not sound like the source of a
systemically threatening event. You do not want to opine on
that?
Mr. Quaadman. Excuse me?
Mr. Himes. I was looking for the answer to the question----
Mr. Quaadman. No, I know, but Dodd-Frank put in place a
mechanism for that warning to happen, and that warning system
has not worked.
Mr. Himes. Okay. Okay. Mrs. Johnson?
Mrs. Johnson. Look, I do not think anybody knows. If we
did, we all would be millionaires at this point. That is what
we are constantly watching for. I can say that the consumer
health right now is still very strong, that banks are
incredibly well capitalized. I would say that there is an
opportunity for something to happen outside of the banking
system, and I just want to make this point because I have not
had the chance to orally say this yet. The problem with so much
regulation is that you do continually push consumers,
especially consumers on the margin where the risk is highest,
outside of the banking system. That is one thing that I think
we all just need to be cognizant of. Banks are going to fail;
nonbanks are going to fail over time. We want to make sure that
there is an orderly process for that. We are a free market.
That is going to happen, and I think that is something that
will play out, but we absolutely want to be cognizant of
pushing lending outside of the banking system.
Mr. Himes. Okay, got it. Thank you. Mr. Kelleher?
Mr. Kelleher. Hopefully, we are not graded whether we are
right or wrong, and hopefully nothing happens. My sense would
be if something happens that has a systemic-like effect, it is
going to be some sort of extraneous event, whether it is
geopolitical or pandemic-like, hopefully not another pandemic,
but something along those lines.
Mr. Himes. I am intrigued, and I got 25 seconds, that
nobody said private credit. That is a market that has grown
substantially. Nobody said crypto. We are talking a lot about
that. Nobody said swap margins, which I was promised would
bring down the system. Anybody want to use 10 seconds to
elaborate?
Mr. Kelleher. Let us worry about the Treasury markets. I
mean, there are a lot of things to worry about, and that is why
the rules are supposed to be in place to cover them all, to
have discretion, to be able to identify emerging risks, and
that is what has been shut down.
Mr. Himes. Okay. Thank you. I very much appreciate it.
Thank you to our witnesses. I yield back.
Mr. Stutzman. The chair recognizes the gentleman from
Pennsylvania, Mr. Meuser, who is also the Chair of the
Subcommittee on Oversight and Investigations. He is now
recognized for 5 minutes.
Mr. Meuser. Thank you, Mr. Chairman. Thank you all to our
witnesses, a robust conversation and important. Barely a day
passes, particularly being on this committee, where we do not
hear from banks, large and small, about the compliance burdens
that they are forced to navigate, and they do stem from Dodd-
Frank. It is a common subject. Dodd-Frank created the FSOC, the
CFPB, entities that operate with really little accountability
really by design, leaving banks unsure on how to comply, not
bright green lines, very subjective ideological lines. So,
consumer fraud and scams are surging, yet the very agencies
tasked with protecting consumers seem more focused on writing
new rules and literally engaged in drive-by random
investigations. That is why we are trying to roll back some
unnecessary regulations and why this is critical, so; financial
institutions can focus on customers, providing capital and
growing the economy.
Mrs. Johnson, Dodd-Frank promised stronger consumer
protection, but banks consistently raise concerns about rising
fraud and scams and heavy compliance. Fifteen years later, has
the law improved consumer safety or bank performance?
Mrs. Johnson. I think, overall, the banking system is very
resilient. I think they are very conservative in terms of
making sure that they can lend to consumers and that consumers
are able to repay. I think, more generally, one of the concerns
that we have is the complexity and the redundancy of so much
regulation into things that oftentimes are not really where the
risk is. SVB was brought up earlier, and I think that those
were pretty obvious errors of omission from the management on
that case. We want to make sure that bank regulators are
focused on where real risk exists, like interest rate and
credit risk and then also outside of the banking system, where
more lending is going because of all the regulatory burden and
costs that banks have, including smaller banks, pushing lending
out of the banking system. So just having a much more wholesome
view.
Mr. Meuser. Thanks. You brought up before you would like to
see things based upon facts and data driven, your term, and
your three pillars. Follow the law, that is one that should be
a given, right? Review impacts, real impacts, and respond to
those properly, as you do in business, as you do in life, and
focus on real consumer fraud, and that just does not seem to be
happening. In your view what is the biggest factor driving the
rise in scams that we see today?
Mrs. Johnson. This is an area where we have called on the
CFPB to fulfill its statutory mission and one of its core
principles to educate consumers. Look, I mean, with the
proliferation of technology and digital banking and social
media and text messaging, consumers are being bombarded with
opportunities to fall victim to handing their own money.
Oftentimes, it is through a Facebook link that says there is a
designer puppy and click here and pay me, and suddenly you have
paid someone who is a complete fraudster. It is very, very
difficult for a consumer to determine whether or not that
person on the other end is a scammer.
Banks have spent, and I said this earlier today, billions
every single year. It has been millions of man hours. We have a
fraud committee within CBA that is extremely robust. I can tell
you details of how much banks do to combat fraud and scams, but
we need the government to step in and to recognize that often
this is State sponsored, that this is originating outside of
the banking system. We need telecom to step in. We need law
enforcement to also step up. We appreciate Congressman Nunn and
Congressman Gottheimer and others who have co-sponsored the
GUARD Act. We think that is a really meaningful step forward.
Mr. Meuser. All right. Good. Thanks. That was a big
difference what Mr. Kelleher brought up a little while ago,
appropriately regulated. That is a big, big difference from
excessively regulated, and seeing that only 19 percent of small
businesses say they have adequate access to capital. I think we
can really go from good to great, and that should be a goal.
Dr. Kupiec, really quick--I am short of time--the Council
of U.S. Financial Regulators relies heavily on the Office of
Financial Research for data analysis. What agencies like FSOC
depend on their own internal research shops? Does that risk not
create an echo chamber?
Dr. Kupiec. I am sorry. I did not hear the last bit. I
mean, you are out of time----
Mr. Meuser. All right. Does that create an echo chamber? I
am out of time, so maybe we could talk about it later. Thank
you very much. I yield back, Mr. Chairman.
Mr. Stutzman. Thank you. The gentleman yields back. If the
witnesses also would be willing to submit the answer in writing
to the committee, that would be fine.
Dr. Kupiec. I will submit it.
Mr. Stutzman. Okay, we will submit it for the record. We
can follow up.
Mr. Stuzman. The chair recognizes the gentleman from
California, Mr. Liccardo, who is recognized for 5 minutes.
Mr. Liccardo. Thank you, Mr. Chair. Mr. Kelleher, I
certainly understood from your testimony, and we have all
understood over the last several months, that the Consumer
Financial Protection Bureau has been gutted: its budget, its
staff, et cetera, in the last several months, and specifically,
some very important functions of that Agency appear to have
severed. Specifically, the consumer complaint database that
millions of Americans have relied upon is being dismantled. Who
is going to step into that role to receive and act upon the
complaints of millions of Americans who feel that they have
been defrauded or scammed?
Mr. Kelleher. Yes. When it is shut down, it is gone. There
is not going to be any substitute or location for that.
Mr. Liccardo. Many rules have been rescinded and repealed,
for example, the excessive overdraft fees rule. Who is going to
protect consumers against excessive overdraft fees?
Mr. Kelleher. There will be no institution with the power
and authority to be able to do that.
Mr. Liccardo. The credit card late fees rule, who will
protect consumers against exorbitant credit card late fees?
Mr. Kelleher. Main street Americans getting ripped off by
credit card companies are going to be left on their own to fend
for themselves.
Mr. Liccardo. The data broker rule was also rescinded. What
about those many Americans who feel concerned about their
privacy and abusive practices of data brokers?
Mr. Kelleher. Yes. Americans, just hardworking main street
Americans who are subject to abuse by data brokers selling
their private information and spreading it around and causing
identity theft and other fraud and illegal conduct. They are
going to be on their own, once again having to fight against
these huge financial institutions on their own.
Mr. Liccardo. I understand that the agencies indicate they
will no longer prioritize enforcement or supervision of fair
lending laws. In fact, I think we saw a really extraordinary
situation in which the CFPB essentially attempted to pull back
on a settlement and a Federal judge stepped in and refused to
allow them to do that in Illinois. Is that right?
Mr. Kelleher. He not only did that, but if you read his
opinion, he excoriated the current leadership of the CFPB for
trying to go back years to undo the settlement of an anti-
discrimination law in a way that was quite shocking to even the
Federal judge. So, we will see where that goes on appeal.
Better Markets participated as an amicus in that case.
Mr. Liccardo. For Americans who are not savvy enough or
perhaps wealthy enough to have access to attorneys and they
suffer from discriminatory lending or redlining, what options
they have with the CFPB stepping back?
Mr. Kelleher. This is why the CFPB was created, is that
main street Americans do not have the time or the money to be
going after huge financial institutions or financial predators
who are prowling, frankly, the wallets and pocketbooks of main
street Americans, from their credit cards to their checking
accounts to their savings accounts, whether it is
discrimination or other unfair and deceptive acts, and we saw
that gap. This is not a theoretical problem. We saw it before
2008 and how consumers were abused. We also saw the systemic
implications of it because the predatory subprime lending on
the individual basis, where individual people getting mortgages
were getting ripped off, that was bad, but it also got rolled
up into becoming a systemic crisis. So, the purpose of consumer
protection is, yes, to protect main street Americans and their
wallets and pocketbooks. It is also to protect the systemic
risk of failures and bailouts. All of that is gone. We created
the CFPB for that purpose. It did really a shockingly good job
in a very short period of time.
Mr. Liccardo. I think it is important that as we think
about the Consumer Financial Protection Bureau, this is,
ultimately, an acronym that gets lost in the American public
because there are so many agencies in the Federal Government.
So many seem to have so little impact on our daily lives, but
it is important for us to understand exactly what this
particular Agency does. Undoubtedly, there have been cases of
bureaucratic overreach, regulatory overreach. I have never
known a regulatory agency that was not guilty of that, but
there is a lot at stake here. Specifically, as I am thinking
about the Civil Penalty Fund and $3.3 billion have been
returned to Americans who have been scammed in various ways,
what agency is going to step in?
Mr. Kelleher. I have a chart in my written testimony that
shows by State how much money every State has received from the
Civil Penalty Fund, and everything from $35 million to Arkansas
to $46 million to Connecticut. I mean, the CFPB protects
everybody and benefits everybody in all 50 States, and every
single congressional district here has received money. Their
people, their citizens, their voters have received money from
the CFPB when they were ripped off.
Mr. Liccardo. Thank you, Mr. Kelleher. I yield.
Mr. Stutzman. The gentleman yields back. The chair
recognizes the gentlewoman from California, Mrs. Kim. You are
now recognized for 5 minutes.
Mrs. Kim. Thank you, Chairman and Ranking Member, for
hosting this hearing today, and I want to thank all of our
witnesses for joining us. Fifteen years later, it has really
become self-evident that Dodd-Frank has only hurt consumers,
small businesses, and the community financial institutions that
it was supposed to protect. Regulatory costs have only
increased since the passage of Dodd-Frank Act in 2010, and
although financial institutions below $10 billion in assets are
exempt from CFPB examination, they still face very high
compliance costs. It is our credit unions and community banks
who suffer the most as they do not have the resources to bear
the burden of this regulatory scrutiny the same way that large
commercial banks may be able to do. That is why they are hurt
the most. Unfortunately, the result of all this has been
consolidation among banks and credit unions over the last 15
years, and there have been few to no community financial
institutions to replace those losses.
Let me talk about the real impact that it had in Orange
County, where I represent. We have seen this firsthand with
only one new bank and zero credit union formed in 2021. Since
2015, we have seen zero new credit unions from all across
California. This would not be the case without the
overburdening regulatory policies that were implemented in the
Dodd-Frank legislation. I am going to ask this question to you,
Mrs. Johnson. As we see the retail banking services pull back
from our community, can you talk about the consequences for
consumers and small businesses?
Mrs. Johnson. Sure, and thank you for the question. Look,
there has undoubtedly been an impact. I mean, there is around a
40-percent reduction in the overall number of banks. We still
have a highly competitive marketplace because you have still
got around 4,500 banks and 4,400 credit unions, but it is
extremely problematic when you do not have new players who want
to come into this marketplace because they know that they can
compete and do it efficiently and effectively. I think that
there is a concern among otherwise budding entrepreneurs to
come into the banking system, so we want to reduce that effect.
Mrs. Kim. Thank you. My view is that rather than promoting
policies like those in Dodd-Frank that hurt consumers, we need
to be promoting policies that put consumer first, which is why
I introduced a couple of my bills, and I want to talk about
that right now. The first is Credit Access and Inclusion Act,
and the second one is Small Dollar Loan Certainty Act. I
believe this will do just that in promoting the small
businesses and our consumers. The Credit Access and Inclusion
Act would responsibly expand the credit access for millions of
Americans with limited or nonexistent credit history. I really
want to thank my committee Chairman Hill for noticing that
draft, and I hope that we can move forward with this bill with
strong bipartisan support in the near future. The Small Dollar
Loan Certainty Act would codify the prudential banking
regulators' small-dollar lending guidance into law. Mrs.
Johnson, can you explain why it is important for Congress to
provide this type of statutory certainty for small-dollar
lending policies rather than relying on the guidance alone?
Mrs. Johnson. Absolutely, and we want to thank you for that
bill because millions and millions of Americans actually live
paycheck-to-paycheck. They want options for short-term
liquidity loans, and a number of banks have actually been
successful in coming back into this market, but that was after
a period of time of a lot of regulatory uncertainty. There have
been significant pendulum swings within the regulatory
agencies, and there are multiple agencies involved, including
the CFPB. So, them issuing guidance in 2020 was helpful to
encourage banks to come back in so we have some clarity, but
legislation is needed so we do not have that pendulum swing and
the banks understand the rules of the road.
Mrs. Kim. Just to be clear, even though President Trump's
regulators created the small-dollar guidance, it was maintained
by President Biden's prudential regulators as well, right?
Mrs. Johnson. Yes. Yes.
Mrs. Kim. I want to shift gear very quickly and focus on
one of the regulatory institutions created in Dodd-Frank; that
is the FSOC. I have become really increasingly concerned that
it is no longer fulfilling its mission of promoting financial
stability in coordination with primary regulators. Mr.
Quaadman, would you agree that the Council has really strayed
away from its original mission?
Mr. Quaadman. Yes. With FSOC, the primary regulator really
needs to be in the lead on that, and I will be happy to give
more a detailed answer in writing if you like.
Mrs. Kim. Thank you.
Mr. Stutzman. The gentlelady's time has expired. The chair
recognizes the gentlewoman from Massachusetts. Ms. Pressley is
now recognized for 5 minutes.
Ms. Pressley. Thank you to our witnesses for joining us
today. In 2008, families across this country lost everything
during the Great Recession. It was an economic catastrophe.
Millions of people lost homes, lost jobs, and lost hard-earned
savings. Now, the majority of Gen Z, who will see this hearing
later, were just babies 17 years ago, so I cannot fault them
that. They are completely unaware of the foreclosures and the
pink slips, but I know my Republican colleagues and I certainly
do remember. Republicans remember the heartache and pain that
our country went through. It is estimated there were more than
5,000 suicides as a result of the financial crisis. Two
thousand and eight was an avoidable economic crisis, a direct
result of greed, reckless speculation, and weak regulation.
That is why Dodd-Frank was essential. I do want to acknowledge
good work of our very own Massachusetts Congressman, Barney
Frank, in drafting of this seminal piece of legislation. It
created basic guardrails, stronger capital requirements so
banks could not gamble with our livelihood. The CFPB, the only
Agency dedicated solely to protecting consumers, regular stress
tests for banks so we would never be caught off guard again,
Just 10 years later, in 2018, while 65 percent of families
still had not financially recovered from a crash, Republicans
rolled back key parts of Dodd-Frank.
They sent a clear message to their constituents: Wall
Street profits margins matter more than your recovery and well-
being. Now they are at it again by dismantling the CFPB. Just
look at how Townstone, a mortgage lender, would repeatedly
disparage black neighborhoods in Chicago with racist comments.
The CFPB rightly held them accountable for discrimination in
housing in a case that was settled last November. When the
Trump Administration tried to reverse CFPB's win, a Federal
judge denied that outrageous request, affirming the critical
role of the CFPB in stopping racial discrimination in mortgage
lending. This is just one example of how Republicans
dismantling the CFPB has real-world consequences, like letting
mortgage lenders off the hook for illegal redlining.
To all of our witnesses, loud and proud, yes or no, do you
support mortgage lenders getting away with breaking the law and
discriminating against black people? Yes, just for the record.
Mr. Bentsen. I do not.
Mr. Quaadman. We do not represent mortgage lenders, but
personally, I do not.
Dr. Kupiec. This is not my area of expertise.
Mrs. Johnson. No.
Ms. Pressley. The colleague requested----
Dr. Kupiec. Yes, I do not want them to discriminate against
anybody.
Ms. Pressley. Sir, I had a colleague across the aisle a
moment ago who said that it is just a matter of following the
rule of law, basic law, so this is not even a controversial
thing. Racial discrimination is illegal.
Dr. Kupiec. I am----
Ms. Pressley. This is not a trick question. Really quick,
loud and proud----
Dr. Kupiec. I think people should follow the law.
Ms. Pressley [continuing]. yes or no?
Dr. Kupiec. I think people should follow the law.
Ms. Pressley. Okay. I will take that as a no.
Mr. Kelleher. I agree.
Ms. Pressley. All right, good. Since its creation in Dodd-
Frank, the CFPB has returned $21 billion to more than 205
million consumers who were exploited by predatory lenders and
Big Banks, but today, Trump has fired nearly 90 percent of CFPB
staff, and the Agency, under his administration, has withdrawn
over 60 guidance documents, dropped enforcement cases, and
brought the Agency to a halt, leaving hardworking Americans
vulnerable to exploitation. To all my witnesses, yes or no, do
you agree with the CFPB returning $21 billion to 205 million
victims of deceptive and predatory financial practices? Yes or
no.
Mr. Bentsen. We do not engage with the CFPB, so I cannot
really comment because I do not have the background in the case
that you are citing; so, I apologize.
Mrs. Johnson. When a company breaks the law and consumers
are harmed, they should have redress, but I have to say the
CFPB's use of penalties has got to have some parameters. I can
tell you firsthand that there are multiple times when they go
after salacious headlines and outlandish sums of money when the
company either did not break the law or they claimed a UDAAP
violation on something that was completely----
Ms. Pressley. Okay. I will take that as a no. I am
reclaiming my time because I got to get everyone else on the
record here. Okay. Yes or no, do you agree with the CFPB
returning $21 billion to 205 million victims of deceptive and
predatory financial practices?
Mr. Quaadman. ICI's members are not regulated by the CFPB.
Mr. Kelleher. Not my area. No comment. My only disagreement
is it should have been higher.
Ms. Pressley. All right. Thank you. If we as Members of
Congress forget the visceral harm that families across the
country suffered from in 2008, then we risk rolling back the
very regulations and funding the very agencies that could
prevent the next financial crash. Thank you, and I yield back.
Mr. Stutzman. The gentlelady yields back. The chair
recognizes the gentleman from Nebraska, Mr. Flood, who is also
the Chair of the Subcommittee on Housing and Insurance. He is
now recognized for 5 minutes.
Mr. Flood. Thank you, Mr. Chairman. Before this hearing, I
reached out to some Nebraska bankers to get their take on what
the biggest takeaways from the Dodd-Frank law have been from
their perspective. One significant change that has been the
consolidation that has taken place post-Dodd-Frank. In 2009,
there were 225 commercial banks in Nebraska according to the
FDIC. In 2024, there are just 142. That is a 36-percent
decrease over the last 15 years. My first question is for Mrs.
Johnson and Dr. Kupiec. Can each of you please describe how
Dodd-Frank has driven bank consolidation over the last 15
years, particularly in States with lots of community banks like
Nebraska?
Mrs. Johnson. I think, unfortunately, your experience in
Nebraska is fairly consistent with what has happened
nationwide, and FDIC data paints a pretty stark picture. There
has been about a 40-percent reduction. Look, CBA represents
institutions $10 billion and above. Most of those institutions
are going to have the wherewithal to absorb a lot of these
costs. Community banks cannot, but I can tell you a $10 billion
institution to a $500 billion institution, the costs only
increase and it becomes more and more difficult to be at those
different thresholds. The last thing I will say is, you do see
banks staying at arbitrary thresholds, say, right below $10
billion or right below $100 billion. That is not what you want
to see in a free market.
Dr. Kupiec. Yes, I agree. There are thresholds that apply
in the rules and make it more expensive to grow, but for small
banks, compliance costs mean you have to grow to a certain
scale to absorb those, and the fact that there is no entry
means it is not a healthy market. In a healthy market, you have
entry and you have exit. When you have no entry, it is not a
healthy market.
Mr. Flood. I appreciate those answers. One of the things I
want to stress is I am talking about towns with 1,200 people.
When the bank closes, the cheerleaders do not get the check for
$150, the football team does not get a pizza party, the post-
prom does not happen, the community support dries up, and
access to capital for people that farm within 5 miles is more
difficult, and sometimes they end up with a bank that does not
have that personal relationship with them and they will not
work with them. So, there are real-world consequences to losing
these banks.
To dig into the second theme that came up when I reached
out to local bankers, I would like to read a quote from Zac
Karpf, president of the Platte Valley Bank in Scottsbluff,
Nebraska. He writes, ``When Dodd-Frank was passed, we embarked
on a soul-searching journey of whether to stay involved in
mortgage lending or not. Many of our competitors, most in rural
or underbanked areas, did not stay as involved in mortgage due
to the regulatory cost burden. While we decided to stay
involved, the cost associated with Dodd-Frank compliance
contributed to doubling of costs that have outpaced any
increase in interest or fee income. Our compliance department
is more than triple the size that it was in terms of when Dodd-
Frank was passed. Especially since community banks had
virtually zero participation in the root causes of the
financial crisis, these additional costs have been directly
unfair to entities that were not responsible and reduced the
availability of credit to borrowers, specifically in rural
areas.''
Basically, I heard the same variation of what Mr. Karpf
said from about four other bankers: either Dodd-Frank drove
their bank out of the mortgage origination business, or they
chose to stay in and are paying more for compliance as a result
just to provide that service to their customers. So, let me be
clear. In the aftermath of the financial crisis, we did need
reforms to combat some of the abuses and practices that led to
mortgages being issued to borrowers that had no business
receiving them, but the end result seems to be that smaller
banks are loath to participate in the mortgage business at all.
Dr. Kupiec, is this problem where small banks are leaving the
mortgage business something you have encountered in your
research?
Dr. Kupiec. Yes. There are surveys that say exactly what
you are finding.
Mr. Flood. Secondly, to you again, we saw some tailoring in
the 2018 law, S. 2155, in the Economic Growth, Regulatory
Relief and Consumer Protection Act. Do you feel that this
committee could explore any further changes to statute to help
keep community banks in the mortgage origination business, and
if so, what would you have us focused on?
Dr. Kupiec. I do not view myself as an expert on all the
mortgage rules, so I would prefer not to offer comments there.
Mr. Flood. Very fair. All right. With that, I do ask
unanimous consent to enter a letter to Mr. French Hill and
Maxine Waters from Brett Palmer, President of the Small
Business Investor Alliance into the record.
Mr. Stutzman. Without objection.
[The information referred to can be found in the appendix.]
Mr. Flood. I yield back.
Mr. Stutzman. The gentleman's time has expired. The chair
recognizes the gentlewoman from Texas. Ms. Garcia is now
recognized for 5 minutes.
Ms. Garcia. Thank you, Mr. Chair, and thank you to all the
witnesses here today. As you can see, we are nearing the end,
and while I have some time to say something about the
witnesses, I want to especially welcome my friend and colleague
from Houston, Congressman Bentsen. I still remember, Ken,
campaigning for you back when we both had less gray hair. I
color it and you do not, but it is good to see you, and my best
to Tamra.
I remember the 2008 financial crisis. Americans lost their
retirement nests eggs, their jobs, and their homes. In numbers,
nearly 10 million Americans lost their homes. Nearly 9 million
people lost their jobs. By 2012, 46.5 million Americans were
living in poverty, and it should not surprise anyone in the
room that communities of color were the most impacted. That is
why Dodd-Frank exists, to prevent another devastating crisis
and to provide guardrails and protections. Today, we are not
here to celebrate its successes. We are instead mourning its
dismantling as the current administration continues to undo the
work in progress accomplished through Dodd-Frank, but we cannot
rest on our laurels. We must also demand answers and fight to
protect the historic law that protects our financial system and
consumers.
Mr. Kelleher, what can be done with the Trump
Administration's CFPB or supervision actions concerning
penalties or fines against payday lenders and other high-cost
lenders to protect consumers against multiple non-sufficient
funds and overdraft fees on affordable loans?
Mr. Kelleher. If the CFPB was in business doing its job as
required by the law, it would properly regulate payday lenders,
and it attempted to do so during the Obama Administration where
payday lenders were required to actually determine--this is
what the rule proposed--actually required payday lenders to
determine that the person they were knowingly giving the loan
to could repay the loan. It is shocking that you would need a
rule that would tell a financial institution that it should see
whether or not the person it is giving money to, a loan to, can
repay it but they had to do that for payday lenders because the
money that is made by the payday lenders is getting people into
a debt cycle, giving money to people that they know they cannot
repay it. So, the loan has to keep getting rolled over, more
fees, more money, higher interest rates, over and over getting
locked into a debt trap. Those rules actually were proposed and
finalized by the CFPB to prevent that from happening, and,
unfortunately, those rules are no longer applicable, and the
CFPB is out of business, so there is nobody to enforce those
rules or even enact those rules.
Ms. Garcia. Tragically, that is something that is a big
issue in my district. It is a 77-percent Latino district in
Houston, and it is especially an issue for us because the
people are struggling, particularly today, just to get gas,
groceries, and food on the table, and they are desperate. If
they cannot make it, they are working paycheck-to-paycheck, the
payday lender may be the one to say, here, we will help you.
You are right, they are probably going to end up paying back 5
to 10 times of what they originally borrowed, which is why
those protections are necessary. In fact, a lot of them end up
in situations where they have to rely on Buy Now, Pay Later
practices to even make ends meet. So, how can we have greater
predictions against payday lenders?
Mr. Kelleher. At this point, Congress is going to have to
either enact statutes, or somebody is going to have to get the
CFPB back into business, and that does not look like it is
going to happen. One of the more important things that can help
is to prevent crashes to be properly regulated. One of the
charts that I have in my written testimony shows the
unemployment rate took 10 years after the financial crash to
return to pre-crash levels. When you look at the economic
wreckage caused by that crash, many people are still suffering
today. Frankly, that crash caused the United States a lost
generation of Americans. People coming out of college did not
get jobs. People who wanted to retire lost their nest eggs.
People who wanted to advance in their careers; they did not get
it. Twenty-seven million Americans were out of work in October
2009, 13 months after the crash of Lehman Brothers. That had
ripple effects, literally, through today, to them, their
children, their homes, their hopes, and their dreams. So,
preventing those crashes by proper regulation and enforcement
of the rules can do more to help everybody get on the economic
ladder, stay on the economic ladder, and so that we can have an
economy where the financial system supports it in this broad-
based wealth creation. That is what we need, not deregulation.
Ms. Garcia. I agree with you. Director Chopra came to my
district to talk to our seniors because they had been
particularly preyed on, not only by payday lenders, but
telemarketers online phishing emails. I wanted to ask you more
questions about that particularly for seniors, but I have run
out of time, so I am going to submit the questions for your
answer in writing.
Mr. Kelleher. Sure. Thank you.
Ms. Garcia. Thank you. I yield back.
Mr. Stutzman. The gentlelady yields back. The chair now
recognizes the gentleman from Wisconsin, Mr. Steil, who is also
the Chair of the Subcommittee on Digital Assets, Financial
Technology, and Artificial Intelligence. He is now recognized
for 5 minutes.
Mr. Steil. Thank you very much, Mr. Chairman. Thanks for
holding today's hearing, to full Chair Hill.
I want to start with you if I can, Dr. Kupiec. Let us go
back a decade. In 2014, you wrote an op-ed in the Wall Street
Journal back when I was in the private sector, a couple of
years after Dodd-Frank was enacted. One of the concerns you
raised was that FSOC, the Council's systemic risk designation
authority was broad and prone to abuse, and you said, ``The
Council's designation power makes a mockery of property rights
in due process.'' Ten years later, a decade later, we got some
empirical data. Would you say that your prediction was
accurate?
Dr. Kupiec. I would. Systemic risk is never even defined in
the Dodd-Frank Act. Yet, you are supposed to detect it and pass
rules and regulations to stop systemic risk, something that has
never even been defined in the act.
Mr. Steil. What should Congress do to reform that area?
Dr. Kupiec. I would make the FSOC just an advisory body. I
would take away their designation authority, and they should
report to Congress, and Congress should legislate if they want
to expand regulation.
Mr. Steil. Let me build on this by going to you if I can,
Mr. Bentsen, on the same topic. FSOC famously designated two
nonbanks as systemically important. One ultimately challenged
that in court successfully. SIFMA has argued that the
designations are inappropriate for nonbanks. Can you provide
color as to why do you believe that to be the case?
Mr. Bentsen. Yes. The problem is that the designation would
create bank-like regulation of a designated entity, and
particularly for asset managers who are regulated by the
Securities and Exchange Commission. They are not----
Mr. Steil. Was that a better way to regulate it through the
SEC?
Mr. Bentsen. A better way to look at it is to look at
activities and not regulate entities that are nonbank entities,
like a bank. So, I think both what the previous Trump
Administration did in terms of focusing on activities and the
legislation that Mr. Huizenga and Mr. Foster are pursuing are a
better approach.
Mr. Steil. Mr. Quaadman, do you agree with that assessment?
Mr. Quaadman. Yes, I agree because you want to have the
primary regulator in charge. You want to have an activities-
based approach, and the FSOC Improvement Act is the best way to
get there rather than having this ping-pong guidance between
administrations.
Mr. Steil. Not only is there a ping-pong guidance, but you
also view there to be a potential overlap between the actions
and expertise of the regulators and the actions of FSOC.
Mr. Quaadman. Yes.
Mr. Steil. A better way to divide those responsibilities?
Mr. Quaadman. One example to raise as well, even though it
was not a designation example was where you had a majority of
commissioners with the SEC wanting to go down a particular path
of money market funds and the FSOC did an end-run around that.
So, we want to make sure, through legislation like that, that
there are very clear lines of authority and who is in charge.
Mr. Steil. I think the more we have clear lines of who is
in charge, the more efficient the markets are going to operate.
Speaking of ambiguity, I am going to shift here slightly with
you, Mrs. Johnson, if I can. CFPB, under Director Chopra, he
had an opportunity to pursue rulemaking through a normal
rulemaking process, but often, we saw then Director Chopra
issue guidance, press releases, blog posts, in some cases,
often, in my opinion, with inflammatory language. In theory,
those types of things could be nonbinding, but in practice,
that was not really the case because a lot of entities viewed
themselves as potentially at risk of actions by the CFPB. Could
you just comment very briefly as to how that would impact banks
but, ultimately, their customers?
Mrs. Johnson. Yes. Look, I mean, I think issuing guidance
on something that should have been a rule in the first place
creates a ton of uncertainty in the marketplace. There were
examples, including a Buy Now, Pay Later advisory opinion that
the CFPB had issued where it would not even apply to banks, but
we came out against it because we said, you should have written
a rule. It was substantive change. If I can just expand for one
second because it will allow me to respond to some things that
Mr. Kelleher has said a few times earlier about the complaint
database and the credit card late fee and the 20 billion civil
penalties that have been paid out.
Facts matter. Facts matter when you are writing rules. We
could talk about the complaint database being structurally
flawed. We actually think it could be beneficial for consumers.
If the CFPB had wanted to rely on facts and even leaned on the
complaint database to do so, it would have known that credit
cards are very minimal in terms of the complaints from
consumers. It would have focused instead on things like fraud
and scams that are happening. When it talks about issues like
credit card late fees, it completely paints an obscure and
opposite picture of what the market reality is.
Mr. Steil. Ultimately, to the detriment, often, of
consumers because the focus of the CFPB was not on the fraud
and scams that people were victims of. Seeing the time, Mr.
Chairman, I yield back.
Mr. Stutzman. The gentleman yields back. The chair
recognizes the gentleman from Texas. Mr. Green is now
recognized for 5 minutes.
Mr. Green. Thank you, Mr. Chairman. I thank the witnesses
for appearing. I especially thank Congressman Bentsen for being
here today. Have not seen you in a while. Good to see you.
Mr. Kelleher, permit me to start with you, if I may, and,
as you know, the CFPB was charged with assisting with military
lending. In fact, we passed a Military Lending Act here in
Congress. You cannot have an interest rate of more than 36
percent on military loans. Before that, it was all over the
place. Mr. Kelleher, given the current situation with the CFPB,
will our military people start to suffer and find themselves
back where they were paying higher interest rates? Of course,
they are not the persons who make the most money while they
serve. They do have a salary, but it is probably just enough to
get by on. Your thoughts, please.
Mr. Kelleher. Look, it is pretty despicable. I commented on
this earlier. Servicemembers, veterans, and their families are
disproportionately targeted by financial scams and financial
predators, and the data bears this out. The median loss for
fraud is $658 for civilians; it is $775 for active-duty
military; and it is $950 for military retirees and veterans.
They are being targeted disproportionately, and their losses
are disproportionately high, and that is why military
servicemembers and their families actually had more than
400,000 complaints filed with the CFPB since it was created in
2011. The CFPB, to its credit, returned approximately $363
million in restitution for military-connected families.
So, not only the military. They are enforcing the Military
Lending Act. They are enforcing the consumer protection laws
against groups that are targeted, be they the elderly, as
referred to earlier, or the military, who have other things,
too. I served in the Air Force. You have a lot going on. You
are being moved around. You are under a lot of pressure. You
have a crazy job. Nowadays, we are still deployed all over the
world. They are coming and they are going. Their families are
at home sometimes, and they are somewhere else. They need and
deserve the protection and this CFPB cut the Office of
Servicemember Services to one person, and that person retired.
That should be unacceptable to every American. That should just
not be allowed in this country, and yet, that is what is
happening, and not a peep--not a peep--from far too many people
in the Congress to say, no, that is wrong, do not do it.
Mr. Green. Where will they take their complaints now? Where
would they take their complaints now? They have these
complaints. Where will they take them without a CFPB?
Mr. Kelleher. There are a variety of consumer protection,
the Better Business Bureau, but they do not have an empowered,
funded consumer protection agency or advocate anywhere. The
Department of Defense and the different services have a variety
of services that they try to provide, but they are fragmented,
and by the way, they actually have other really important jobs
to do, like protecting the country. So, we created the CFPB and
the Office of Servicemembers, so that there would be one place
where everybody knew they could go, and they did know because
they went there. We know based on the complaints, and we know
based on the recoveries and the actions of the CFPB to stand up
for the military, that it worked. It was very effective.
Frankly, I think if you look at the cases the CFPB brought
for the military, the servicemembers, and their families being
ripped off, nobody will disagree with a single one of those
cases. In fact, they might actually agree with me that the
problem with the amount of money returned by the CFPB was too
low. Too low when you look at the egregious, outrageous conduct
that is happening out there, and it is happening today. No cop
on the beat. No place to go. They are on your own. You have to
worry about doing your duty. You have to worry about your
family back home while you are somewhere else. You have to
worry about the bank and the credit card and the bills and the
kids, and you have to do it on your own. That is wrong.
Mr. Green. Just quickly, if you can. You talked about the
recovery from the financial crisis. Which ethnic group or race
in this country had the most difficult time recovering?
Mr. Kelleher. All the objective statistics prove that
communities of color across the country and low-end communities
actually disproportionately suffered and took a
disproportionately long time to recover. As I said, many of
those communities have not recovered. They are still suffering
today from the financial setback that they suffered in the wake
of the financial crisis. Those are the real victims. That is
who we should be worrying about, not financial institutions
complaining about costs that they do not actually bother
providing the data and analysis for.
Mr. Green. Thank you, Mr. Chairman. I yield back.
Mr. Stutzman. The gentleman's time has expired. The chair
recognizes the gentleman from New York. Mr. Garbarino is now
recognized for 5 minutes.
Mr. Garbarino. Thank you, Mr. Chairman. Thank you to all
the witnesses for being here today.
Our financial systems benefit from firms offering a variety
of products and services to the American businesses and
consumers. Dodd-Frank and all of its rules and requirements
have negatively impacted U.S. banks and have been stifling
foreign banks' abilities to operate and invest in the United
States. These limitations have real ramifications for lending
and capital markets that drive economic growth. Currently,
regulators do not account for foreign banks' unique ring fence
structure and lower categorized risk profiles. In fact, rules
like Basel are just blindly applied. Consequently, foreign
banks are shrinking or outright leaving the U.S. markets and at
a time that we want them to support consumers, businesses, and
markets like U.S. Treasury market. Mr. Bentsen, what steps can
Congress or the agencies take so that foreign banks are better
able to invest in the U.S. and contribute to our economy?
Mr. Bentsen. Thank you, Congressman. First of all, I agree
with your analysis that foreign banking operations add a
tremendous amount of capacity to U.S. capital markets. That
capacity has been constrained because of various capital and
liquidity rules coming out of Dodd-Frank and other reforms that
came out. Some of that was tailored as a result of the S. 2155,
but we still see that the Financial Banking Organizations
(FBOs) are capital constrained from adding capacity to the U.S.
capital markets, and they often are very large players, along
with the U.S. firms in that area. So, it would be helpful,
starting with the regulators, I think, to think about more
tailoring, which they have the authority to do under 2155 and
think about the contribution that those banks provide to our
market system.
Mr. Garbarino. If they do, it will probably be quicker than
if we have to act.
Mr. Bentsen. Yes.
Mr. Garbarino. Thank you. I would like to focus now on the
U.S.-based institutions. A recent report on broker-dealer
activity from SEC revealed that the amount of money handled by
broker-dealers has grown from $4.6 trillion in 2010 to
approximately $6.4 trillion in 2024. That is around a 36-
percent increase in assets since the enactment of Dodd-Frank.
At the same time, the number of broker-dealers has declined
from more than 4,700 to less than 3,400, a 30-percent decrease
over the same pyramid. Mr. Bentsen, how has Dodd-Frank
contributed to this wave of industry consolidation?
Mr. Bentsen. Firms report to us, particularly smaller
broker-dealer firms report that their compliance costs have
grown exponentially, and so, it is harder for a smaller firm to
absorb that cost compared to a larger firm. So, we see a number
of firms merging, and I think that is part of the reason that
we see the decline in the number of broker-dealers over the
last 15 years, and we see other firms who get out of the
business completely. They go in and just become a registered
investment advisor if they are primarily in the retail space.
So we are definitely seeing a knock-on effect.
Mr. Garbarino. That was going to be my follow up point, if
you did not hit it, but the fixed costs are pushing smaller
people out of business. What can we do or what can the SEC do
to encourage industry diversification and competition in the
way the Dodd-Frank----
Mr. Bentsen. I think that the SEC and along with the
Financial Industry Regulatory Authority (FINRA) need to think
about looking at their rule book. FINRA has recently put out
FINRA Forward, which they are looking at are there changes in
their rule book that could help, particularly smaller firms,
with their compliance costs.
Mr. Garbarino. I appreciate that answer. Thank you.
Switching gears for my remaining time. In 2010, Dodd-Frank's
enactment provided regulators with a comprehensive and wide
range of authorities to regulate our financial markets.
However, there are several rulemaking authorities in Dodd-Frank
that continue to remain unused even 15 years after its
enactment. Dr. Kupiec, how does the continued non-exercise of
these powers contribute to the legal uncertainty for both
investors and industry?
Dr. Kupiec. I think this is a question more appropriate for
SEC than the banking regulators.
Mr. Garbarino. Okay. All right. Not a problem. All right.
Mr. Bentsen, Section 913(g) of Dodd-Frank grants the Securities
and Exchange Commission authority to establish a fiduciary duty
for broker-dealers when providing personalized investment
advice to retail customers, aligning their standard of conduct
with that of investment advisors. However, this authority is
also unused. If the SEC exercises authority under 913(g) and
subjected brokers-dealers to a fiduciary standard, how could
this disrupt capital markets?
Mr. Bentsen. 913 was, as I mentioned earlier to one of your
colleagues, was a highly negotiated part of Dodd-Frank, and it
was really designed to provide a uniform standard or an equal
standard of care between brokers and advisors operating under
two different standards: the 1934 Act and the 1940 Fiduciary
Act. Congress actually got this right in how they did it, and
then the SEC, through multiple SECs, got it right with Reg Best
Interest. I think reading it broader, and the courts found this
was the case, reading it too broad was not what Congress
intended.
Mr. Stutzman. The gentleman's time has expired.
Mr. Garbarino. I would appreciate unanimous consent----
Mr. Stutzman. Without objection.
Mr. Garbarino [continuing]. to enter a statement for the
record from the U.S. Chamber of Commerce.
Mr. Stutzman. Without objection.
[The information referred to can be found in the appendix.]
Mr. Garbarino. Thank you.
Mr. Stutzman. The gentleman from New York, Mr. Torres, is
now recognized for 5 minutes.
Mr. Torres. Thank you, Mr. Chair. My comments are going to
be focused on housing. Since the 1980s, the home price-to-
income ratio has nearly doubled. In the 1980s, the median home
price was 3.5 times the median household income. Today, the
median home price is 6 times the median household income. In
the past half century, America has been witnessing the death of
affordable homeownership. First-time homebuyers have
historically made up 38 percent of overall homebuyers. In 2024,
that number fell dramatically to just 24 percent, the lowest
level ever recorded. The housing crisis is both a market
failure and a regulatory failure, and it is a regulatory
failure not only at the level of excessive zoning restrictions,
but also at the level of excessive lending restrictions.
Abundance has become a ubiquitous term in our political
discourse, but housing abundance requires financial abundance.
Since the financial crisis, financing for first-time
homeownership has not been abundant and affordable. It has
become scarce and expensive. Before the financial crisis, the
average credit score for approved loans was 710 to 720. After
the financial crisis, the average credit score for approved
loans was 760. The 50-point shift in the average approved Fair
Isaac Corporation (FICO) credit score has meant the
catastrophic loss of homeownership access for 10 million to 20
million prime borrowers. So, we are in a country where there
are fewer people who own homes because of an artificially
restricted pool of potential homebuyers. There were fewer homes
to own because of an artificially restricted supply of housing,
and homeownership itself has been delayed by a decade. In 1991,
when I was only 3, the median age of a first-time homebuyer was
28 years. Today, that number has risen to 38 years, the oldest
median age ever recorded for first-time homeownership. I am
among the millions of young Americans who have lived through
the death of the American dream of affordable homeownership.
So, here is the question. When it comes to housing finance,
did the U.S. get the regulatory balance right in the wake of
the financial crisis, or did we swing the pendulum too far in
restricting the supply of credit for first-time homeownership?
That is an open question for anyone.
Dr. Kupiec. I think the evidence from the American
Enterprise Institute's (AEI's) Housing Center shows that the
loan underwriting characteristics have been loosened to try to
allow people to buy mortgages with a higher mortgage rate and
the higher prices. In fact, underwriting standards have even
slipped. I think the Federal Housing Administration (FHA) and
the GSEs take now loans with 50-percent debt-to-income ratio,
which, historically, is a really high ratio. So, things have
actually moved toward less restriction on some of the lending,
but the housing prices and the mortgage rates have just blown
past that, and so, you are really at one of these quagmires. It
gets really risky to make people loans, when the debt-to-income
ratios get that high. Their ability to repay is not there and
that is kind of the situation we are in. The regulations have
been stretched to try to allow people to buy homes, but the
house prices and the mortgage rates just make it unaffordable.
Mr. Kelleher. I am not a housing expert, but you have put
your finger on a really important issue that is complex and has
many reasons. One of the reasons it is never discussed is the
way capital is allocated in this country and to whom, right? If
you look at the Big Banks, only about 40 cents of every dollar
of deposits actually goes to lending. If you look at community
banks, 75 cents of every dollar goes to lending. Why is that?
Too often kind of high margin wealth extraction, financialized
activities return the biggest profits and therefore bonuses as
the banks get bigger. They use their balance sheet for all
sorts of things having nothing to do with lending, and that is
how you end up with 40 cents on a dollar of deposits going to
lending at the Big banks, 75 cents at community banks because,
as a number of your colleagues mentioned earlier, that is what
they are into. They are into building their communities,
whether it is small businesses or mortgages, and we need to
think hard about the incentive structure that has our biggest
banks putting a minority of their deposits into actual lending.
It hurts the wealth gap. It hurts the racial wealth gap. It
hurts the housing gap. Across the board, it impacts the
problems that we are all trying to think about and address.
Mr. Bentsen. I would just say there are multiple factors.
There are some Dodd-Frank factors, things like Reg AB2, that
came out of Dodd-Frank that has affected the Residential
Mortgage-Backed Securities (RMBS) market. Pretty much the vast
majority of loans now are either conforming loans or government
guaranteed loans, so, our private market has gone away. That is
number one but there are other factors as well, as you pointed
out, so it is a much more holistic problem that needs to be
addressed.
Mr. Torres. Thank you.
Mr. Stutzman. The gentleman's time has expired. I now
recognize myself for 5 minutes. I would like to submit for the
record a letter from the Defense Credit Union Council.
[The information referred to can be found in the appendix.]
Mr. Stutzman. Two decades ago, there were over 8,500 FDIC
insured banks in the United States. Today, that number is just
4,000. Many of the banks we have lost are small community
banks, which play a vital role in my district in northeast
Indiana. Though there are several reasons for this decline, I
believe Dodd-Frank's one-size-fits-all regulatory approach for
banks is a key contributor. Mrs. Johnson, can you explain how
Dodd-Frank's compliance burdens have contributed to
consolidation in the banking sector, and what are the long-term
consequences for communities if we continue down this path?
Mrs. Johnson. I think it is an incredibly important
question, and anytime that we are talking about regulation, I
think it is really important that we start with the outcome.
What is the outcome that we want to see? We have the most
competitive banking system in the world. It is diverse. Even to
Mr. Kelleher's earlier points, you want banks who are out in
the capital markets. You want them trading. You want them
lending. There are a variety of things that all the banks do
and they compete on. You are right, we have seen around a 40
percent reduction in the number of banks, and I think that
consolidation is largely--not only, but largely--driven because
of the regulatory burden. The problem with that is that you
have less competition in for consumers' business, right?
The other piece of this is that it pushes lending outside
of the banking system. You want banks competing with nonbanks.
You want banks competing on every single product line. So, we
just talked about mortgage. This pendulum has swung, and the
majority of mortgage lending at different periods of time is
now outside of the banking system entirely. You want banks in
that business competing for those consumers. Same thing is
happening for personal loans where the majority of loans are
actually out of the banking system, auto lending. The list goes
on and on. I do not think anybody argues against regulation and
wanting safety and soundness in consumer protection, but there
is always a cost, and we have to start weighing the costs and
if it actually outweighs the benefits.
Mr. Stutzman. Thank you. As we have heard today, the result
of Dodd-Frank was an entirely new regulatory regime with broad
powers, expansive mandates, and little accountability to the
American people. Under the Biden Administration, we saw this
regime in a full display. Whether it was Director Chopra
weaponizing the CFPB to pursue policies that would have
destroyed the overdraft protections many of my constituents
rely on, or Vice Chair Barr's efforts to impose the harmful
Basel III Endgame capital requirements on banks. We have seen
how far out of bounds agencies can venture because of Dodd-
Frank. Dr. Kupiec, do you think the current Dodd-Frank
regulatory regime is accountable to the American people and is
this expansive regulatory regime watering down congressional
authority?
Dr. Kupiec. I do not exactly know how it could be
accountable to the American people. Does it serve the American
people well? Parts of it work well, lots of it are too
complicated, and lots of it, I think, could be revised and
serve the people better. I will leave it at that. We are
certainly not at a perfect regulatory balance.
Mr. Stutzman. What about the relationship with Congress?
Dr. Kupiec. Oh, I think Congress has delegated too much
authority to things like the FSOC to make designations, and I
think those kind of powers belong in the legislature, and you
guys should debate it and decide who gets regulated and who
does not and the regulators should not decide on their own.
They should advise you who they think, who you should be
talking about, but I would not give them powers if it were my
choice.
Mr. Stutzman. Thank you. Here in Washington, we have far
too many agencies that seem to be more interested in expanding
their own power than actually serving the public. Americans
across the country, and certainly in my district, are fed up
with this, as we just discussed a little bit. A prime example
of this is the Office of Financial Research, which was created
by Dodd-Frank to aid in data collection. The problem is that,
prior to Dodd-Frank, Federal regulators already had an
extensive ability to collect data. The Federal Reserve Board
alone employs over 400 Ph.D. economists. In addition, each of
its regional banks can conduct its own localized research, not
to mention the extensive data collected by our other financial
regulators. Mr. Bentsen, can you elaborate on how OFR has
failed to add significant value beyond what existing agencies
already provide, and how do you think this reflects the broader
problem of regulatory sprawl under Dodd-Frank?
Mr. Bentsen. Thank you, Congressman. OFR does collect a lot
of data. You are right. Other agencies collect data. Congress
has talked about this before, of looking to see can there be
some coordination or streamlining of financial data collection,
and in addition, protection of that data, I would add as well,
because we know the government is susceptible to cyber risk,
just as the industry is. On top of that, I mean, OFR, on the
one hand, does play an important role. They collect data for
the Secured Overnight Financing Rate (SOFR) reference rate.
That is very important. On the other hand, they have had
situations of mission creep. So, I do think it is appropriate
for Congress to take a look at that.
Mr. Stutzman. All right. Thank you. My time has expired.
I would like to thank all of the witnesses for their
testimony today.
Without objection, all members will have 5 legislative days
to submit additional written questions for the witnesses to the
chair. The questions will be forwarded to the witnesses for
their response. Witnesses, please respond no later than August
20 of 2025.
[The information referred to can be found in the appendix.]
Mr. Stutzman. This hearing is adjourned.
[Whereupon, at 1:46 p.m., the committee was adjourned.]
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