[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]

WHO'S WATCHING THE WATCHMEN? OVERSIGHT OF THE CONSUMER FINANCIAL
PROTECTION BUREAU

=======================================================================

HEARING

before the

SUBCOMMITTEE ON TARP, FINANCIAL SERVICES
AND BAILOUTS OF PUBLIC AND PRIVATE PROGRAMS

of the

COMMITTEE ON OVERSIGHT
AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

FIRST SESSION

__________

MAY 24, 2011

__________

Serial No. 112-76

__________

Printed for the use of the Committee on Oversight and Government Reform

Available via the World Wide Web: http://www.fdsys.gov
http://www.house.gov/reform

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COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

DARRELL E. ISSA, California, Chairman
DAN BURTON, Indiana ELIJAH E. CUMMINGS, Maryland,
JOHN L. MICA, Florida Ranking Minority Member
TODD RUSSELL PLATTS, Pennsylvania EDOLPHUS TOWNS, New York
MICHAEL R. TURNER, Ohio CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina ELEANOR HOLMES NORTON, District of
JIM JORDAN, Ohio Columbia
JASON CHAFFETZ, Utah DENNIS J. KUCINICH, Ohio
CONNIE MACK, Florida JOHN F. TIERNEY, Massachusetts
TIM WALBERG, Michigan WM. LACY CLAY, Missouri
JAMES LANKFORD, Oklahoma STEPHEN F. LYNCH, Massachusetts
JUSTIN AMASH, Michigan JIM COOPER, Tennessee
ANN MARIE BUERKLE, New York GERALD E. CONNOLLY, Virginia
PAUL A. GOSAR, Arizona MIKE QUIGLEY, Illinois
RAUL R. LABRADOR, Idaho DANNY K. DAVIS, Illinois
PATRICK MEEHAN, Pennsylvania BRUCE L. BRALEY, Iowa
SCOTT DesJARLAIS, Tennessee PETER WELCH, Vermont
JOE WALSH, Illinois JOHN A. YARMUTH, Kentucky
TREY GOWDY, South Carolina CHRISTOPHER S. MURPHY, Connecticut
DENNIS A. ROSS, Florida JACKIE SPEIER, California
FRANK C. GUINTA, New Hampshire
BLAKE FARENTHOLD, Texas
MIKE KELLY, Pennsylvania

Lawrence J. Brady, Staff Director
John D. Cuaderes, Deputy Staff Director
Robert Borden, General Counsel
Linda A. Good, Chief Clerk
David Rapallo, Minority Staff Director

Subcommittee on TARP, Financial Services and Bailouts of Public and
Private Programs

PATRICK T. McHENRY, North Carolina, Chairman
FRANK C. GUINTA, New Hampshire, MIKE QUIGLEY, Illinois, Ranking
Vice Chairman Minority Member
ANN MARIE BUERKLE, New York CAROLYN B. MALONEY, New York
JUSTIN AMASH, Michigan PETER WELCH, Vermont
PATRICK MEEHAN, Pennsylvania JOHN A. YARMUTH, Kentucky
JOE WALSH, Illinois JACKIE SPEIER, California
TREY GOWDY, South Carolina JIM COOPER, Tennessee
DENNIS A. ROSS, Florida

C O N T E N T S

----------
Page
Hearing held on May 26, 2011..................................... 1
Statement of:
Warren, Elizabeth, Special Adviser to the Secretary of the
Treasury for the Consumer Financial Protection Bureau, U.S.
Department of the Treasury................................. 10
Zywicki, Todd, foundation professor of law, George Mason
University; David S. Evans, chairman, Global Economics
Group, lecturer, University of Chicago Law School; Adam J.
Levitin, associate professor of law, Georgetown University
Law Center; and Andrew Pincus, partner, Mayer Brown Rowe &
Maw LLP.................................................... 41
Evans, David S........................................... 50
Levitin, Adam J.......................................... 63
Pincus, Andrew........................................... 77
Zywicki, Todd............................................ 41
Letters, statements, etc., submitted for the record by:
Evans, David S., chairman, Global Economics Group, lecturer,
University of Chicago Law School, prepared statement of.... 52
Levitin, Adam J., associate professor of law, Georgetown
University Law Center, prepared statement of............... 65
McHenry, Hon. Patrick T., a Representative in Congress from
the State of North Carolina, prepared statement of......... 4
Pincus, Andrew, partner, Mayer Brown Rowe & Maw LLP, prepared
statement of............................................... 79
Quigley, Hon. Mike, a Representative in Congress from the
State of Illinois, letter dated May 19, 2011............... 7
Warren, Elizabeth, Special Adviser to the Secretary of the
Treasury for the Consumer Financial Protection Bureau, U.S.
Department of the Treasury, prepared statement of.......... 13
Zywicki, Todd, foundation professor of law, George Mason
University, prepared statement of.......................... 43

WHO'S WATCHING THE WATCHMEN? OVERSIGHT OF THE CONSUMER FINANCIAL
PROTECTION BUREAU

----------

TUESDAY, MAY 24, 2011

House of Representatives,
Subcommittee on TARP, Financial Services and
Bailouts of Public and Private Programs,
Committee on Oversight and Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 1:16 p.m., in
room 2247, Rayburn House Office Building, Hon. Patrick T.
McHenry (chairman of the subcommittee) presiding.
Present: Representatives McHenry, Guinta, Buerkle, Amash,
Gowdy, Issa (Ex Officio), Quigley, Maloney, Yarmuth, Speier,
Cooper, and Cummings (Ex Officio).
Staff present: Robert Borden, general counsel; Katelyn E.
Christ, research analyst; Benjamin Stroud Cole, policy advisor
and investigative analyst; Drew Colliatie, staff assistant;
John Cuaderes, deputy staff director; Adam P. Fromm, director
of Member services and committee operations; Linda Good, chief
clerk; Tyler Grimm and Ryan M. Hambleton, professional staff
members; Peter Haller, senior counsel; Christopher Hixon,
deputy chief counsel, oversight; Hudson T. Hollister, counsel;
Jaron Bourke, minority director of administration; Jason Powell
and Steven Rangel, minority senior counsels; Brian Quinn and
Davida Walsh, minority counsels; Dave Rapallo, minority staff
director; and Cecelia Thomas, minority counsel/deputy clerk.
Mr. McHenry. The committee will come to order.
The hearing today is Who's Watching the Watchmen? Oversight
of the Consumer Financial Protection Bureau.
The committee is now in order. We make it a policy here on
the Oversight and Government Reform Committee to read our
mission statement.
We exist to secure two fundamental principles. First,
Americans have a right to know that the money Washington takes
from them is well spent; and, second, Americans deserve an
efficient, effective government that works for them.
Our duty on the Oversight and Government Reform Committee
is to protect these rights. Our solemn responsibility is to
hold government accountable to taxpayers, because taxpayers
have a right to know what they get from their government. We
will work tirelessly in partnership with citizen watchdogs to
deliver the facts to the American people and bring genuine
reform to the Federal bureaucracy.
This is the mission of the Oversight and Government Reform
Committee.
I now recognize myself for 4 minutes for an opening
statement.
Today's Oversight hearing underscores the role of the U.S.
Congress to scrutinize the implementation and enforcement of
key provisions of the Dodd-Frank Act. The Consumer Financial
Protection Bureau, which is the brainchild of today's first
witness, has been hailed by some as a much-needed regulatory
authority to limit the risk of financial fraud. Yet others,
myself included, are skeptical that the Bureau's creation,
structure, and broad discretionary powers are warranted.
Nevertheless, Dodd-Frank is now the law of the land; and in
a few short weeks the Bureau will become a powerful instrument
in the hands of progressive regulators. Once fully operational,
the Bureau will possess virtually unchecked discretion to
identify financial products and services that the director
determines to be ``unfair, deceptive, or abusive.''
To fund and execute this mandate, the law has granted the
Bureau an unparalleled budgetary authority, free from
congressional authorization and an unacceptable degree of
autonomy, hidden from congressional oversight.
While we have yet to hit the date of transfer of authority
to the Bureau, Congress has a responsibility to assess and the
American people have a right to know the designs that Professor
Warren has implemented in its creation. What controls are being
created to protect the American people from abusive government
power? We demand internal controls of companies. What internal
controls govern the Bureau? What limits are being set to guard
them from administrative overreach? In the absence of the
normal checks and balances established by the Constitution,
what guarantees do the American people have that the Bureau
will behave responsibly, spend wisely, and regulate fairly?
Furthermore, in earlier testimony before the Financial
Services Committee here in the House, Professor Warren asserted
that the Bureau is ``the most constrained and the most
accountable agency in government.'' Yet the lofty promise of
restraint and accountability seems to be backed by the highest
appeal threshold in regulatory history.
In that same appearance, Professor Warren testified that
the Bureau's role in ongoing mortgage settlement negotiations
was limited to ``advice.'' Furthermore, one of her staffers
then e-mailed the press and defines the role and the quote of
advice defined by Miriam Webster.
Since her testimony, however, Congress received evidence
that Professor Warren and the Bureau were deeply involved in
the negotiations. The emergence of the Bureau's ``Settlement
Presentation'' and the fact that Professor Warren has been in
dozens of meetings with Federal and State officials about these
settlements raise concerns about the veracity of her earlier
testimony.
This hearing, however, is not about a confirmation hearing
for Professor Warren or a potential Senate race. This hearing
is about the mission, policy, and structure that affect the
creation and implementation of the Bureau. It is also the need
for critical oversight of an agency which has so vast oversight
authority over large portions of the American economy. Simply
stated, who is watching the watchmen?
The Constitution creates a government that protects the
freedoms of the American people, not one that provides for
them. It empowers the people through their elected officials,
who are directly accountable to them, not a super-class of
administrative elite. Protecting American consumers from
abusive institutions and unaccountable authorities is the first
priority of this committee and the U.S. Congress. Today, we
will examine whether the key provisions of the Dodd-Frank Act
serve this purpose.
With that, I yield 4 minutes to the ranking member, Mr.
Quigley of Illinois.
[The prepared statement of Hon. Patrick T. McHenry
follows:]

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Mr. Quigley. Thank you, Mr. Chairman.
Like any government agency, this new agency needs vigilant
oversight from Congress and this committee, but we should not
obstruct it from carrying out the intent of the Dodd-Frank Act.
Millions of Americans are still suffering the consequences
of the housing and financial crisis. This crisis was caused in
large part by weak or nonexistent regulation. These regulatory
failures allowed dangerous consumer financial products and
toxic financial instruments to infiltrate the marketplace.
Before Dodd-Frank, consumer financial protection
responsibilities were scattered across seven different
agencies. Unscrupulous lenders were able to take advantage of
consumers by selling them faulty, fraudulent, and deceptive
financial products. This reckless lending poisoned the
financial system and directly contributed to the mortgage
meltdown.
While today we may have the benefit of hindsight, some
sounded the alarm well in advance of the crisis. In 2007,
before the onset of the crisis, Professor Elizabeth Warren
recognized that there was a serious problem. ``Nearly every
product sold in America has passed basic safety regulations
well in advance of reaching store shelves,'' she observed.
``But credit products, by comparison, are regulated by a
tattered patchwork of State and Federal laws that have failed
to adapt to changing markets.''
This new agency was explicitly designed to address these
regulatory shortcomings. Just like the Consumer Products Safety
Commission protects consumers against exploding toasters, the
new agency will protect consumers against faulty mortgages. One
of the CFPB'S strengths is its accountability. The CFPB has a
capped budget, its action are subject to a veto by the
Financial Stability Oversight Council, and it must follow
stricter rulemaking procedures than most other agencies.
Another strength is the CFPB's focus on the ``shadow
financial services sector'' which has been the most responsible
for victimizing consumers. These unregulated lenders will, for
the first time, be held to the same standards as banks and
credit unions.
Our number one priority on this committee must be ensuring
that we never have a repeat of the financial crisis and that
the CFPB is a strong step in the right direction. The CFPB has
won early praise, even from financial industry groups that were
initially hesitant to support it. Both the ICBA and the ABA
have praised the Bureau for its transparent and accessible
rulemaking process.
On that point I ask unanimous consent that the May 19,
2011, article from the American Banker entitled ``New CFPB
Mortgage Disclosures Win Praise for Content and Process'' be
submitted for the record.
Mr. McHenry. Without objection.
[The information referred to follows:]

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Mr. Quigley. This transparency is especially important
given the CFPB's mandate to increase transparency in the
consumer lending market. I am confident Ms. Warren and the CFPB
can continue to build on its early successes and both consumers
and businesses will be stronger for it. It is critical that the
CFPB be implemented as set forth in the Dodd-Frank Act.
Thank you, Mr. Chairman, and I yield back.
Mr. McHenry. I thank the ranking member.
Members will have 7 days to submit opening statements and
extraneous material for the record.
Pursuant to committee rules, all witnesses will be sworn
before they testify. If you will stand and raise your right
hand and repeat after me.
[Witnesses sworn.]
Mr. McHenry. The record will indicate that the witness
answered in the affirmative.
Our first panel, our sole witness on our fist panel is Ms.
Elizabeth Warren, who serves as the Assistant to the President
and Special Adviser to the Secretary of the Treasury for the
Consumer Financial Protection Bureau at the U.S. Department of
Treasury.
Ms. Warren, you are well accustomed to testifying before
Congress. So we have the system of lights. With 1 minute
remaining, you will get the yellow light. You will have 5
minutes to give your opening statement or to summarize your
opening statement. We will move forward with questions
thereafter.
You are now recognized for 5 minutes.

STATEMENT OF ELIZABETH WARREN, SPECIAL ADVISER TO THE SECRETARY
OF THE TREASURY FOR THE CONSUMER FINANCIAL PROTECTION BUREAU,
U.S. DEPARTMENT OF THE TREASURY

Ms. Warren. Thank you--let me hit the button.
Thank you, Chairman McHenry, Ranking Member Quigley, and
members of the subcommittee for inviting me today to testify
about the work of the Consumer Financial Protection Bureau.
Two-and-a-half years ago, I came to Washington to serve
Congress as chair of the TARP Congressional Oversight Panel. I
developed a keen appreciation for the important role of
oversight, and I respect careful oversight work.
For today's hearing, I have prepared 10 pages of written
testimony to document our startup efforts, and that supplements
the 34 pages of testimony I provided for the Subcommittee on
Financial Institutions and Consumer Credit in March.
In my testimony, I discuss the Consumer Bureau's
straightforward mission, to make prices and risks clear and to
cut down on the fine print so customers can make straight-up
comparisons among financial products, so they can compare two
or three or four credit cards or three or four mortgages before
they actually sign on the dotted line. That is what Congress
created the consumer agency to do, and that is what we are
already doing.
Last week, after months of consultation with borrowers and
lenders and their representatives, we started testing a
prototype of the mortgage shopping sheet. Eventually, the
result of this process will be a simple, streamlined mortgage
disclosure to replace the longer, more complicated, and more
burdensome forms that are now required by law.
Now, in this process we have taken another step, something
pretty much unprecedented in the regulatory world. We have
invited everyone in the door early, before the cake is baked.
We are months away from formal rulemaking, but we believe that
by opening up our process and getting help from the people who
are affected by these rules we will be more likely to produce
something that works right.
We have posted early versions of the form on our Web site,
www.consumerfinance.gov--come and see us there--and we have
asked people to let us know what they think. So far, a lot of
people have been willing to help. Within hours after our
posting of the new forms, we had more than 20,000 visits to our
Web site.
The reaction to the forms has been almost unanimously
favorable. The article that Congressman Quigley referred to in
the American Banker was headlined ``New CFPB Mortgage
Disclosures Win Praise for Content and Process.'' You know, a
lot of very different people have been supportive throughout
this process. The Consumer Federation of America and the
American Enterprise Institute, U.S. PIRG and the Financial
Services Roundtable have all been supportive.
The draft forms are not perfect. We are only at the
beginning. But the process really matters. It is an example of
how a new Federal agency can shed some of the old bureaucratic
attitudes and develop ideas and approaches that serve both
consumers and businesses.
Mr. Chairman, the title of this hearing is Who Watches the
Watchmen. The answer can be found in a single word--everyone.
At the consumer agency, we aren't just talking about
transparency and openness, we are living it right now. We are
building an agency that involves American families, small
banks, credit unions, and other financial services providers in
our work from the ground up.
Recently, there have been many overblown claims about the
nature of the consumer agency's powers. Critics claim that the
CFPB is ``the most powerful regulatory agency that has ever
been put together'' and that it is ``the most powerful agency
ever created.''
The consumer agency isn't even the strongest of the banking
regulators, much less the most powerful agency ever created.
Those kinds of claims disregard the significant limits on the
Consumer Bureau's authorities, the long debates over these
issues more than a year ago, and the very meaningful oversight
that Congress imposes on the Bureau's functioning. Those claims
also ignore the intensity with which large and powerful
interests watch everything we do and make certain that their
views are carefully considered.
Most importantly, those claims ignore what we are doing,
building an agency in plain sight with help from good people
across this country.
Together, we can create a fairer system that works for
families and works for the community banks, for the credit
unions, and for the other financial institutions that want to
serve those families honestly and openly.
Thank you for inviting me here today, and I look forward to
your questions.
[The prepared statement of Ms. Warren follows:]

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Mr. McHenry. Thank you Ms. Warren. Thank you for your
testimony.
I recognize myself for 5 minutes.
Ms. Warren, if the President makes you the CFPB's first
director through recess appointment, would you accept it? Yes
or no would be fine.
Ms. Warren. Congressman, it is----
Mr. McHenry. Yes or no would be fine.
Ms. Warren. It is up to the President of the United States
under Dodd-Frank to make the nomination. It would not be
appropriate, I think, for anyone to be speculating about that.
Mr. McHenry. As Assistant to the President for Consumer
Financial Protection, you are advising the President about the
nomination for this Bureau, are you not?
Ms. Warren. Congressman, I have tried to help the President
in any way I can on the nomination process.
Mr. McHenry. Have you recommended anyone?
Ms. Warren. Congressman, I have tried to help the
President.
Mr. McHenry. I understand. That is fine. If you don't want
to answer, that is fine.
Ms. Warren. I have been doing this for a month.
Mr. McHenry. I understand. You don't want to answer, and
that is fine.
I would call up--if you look at the screen, we have a
PowerPoint presentation.
Now, when I last asked you questions, which was before the
March 16th House Financial Services Committee hearing, I asked
about your role in the mortgage settlement issue and the CFPB's
role there. You said, ``We have been asked for advice, and
wherever we can be helpful we are not only glad to be helpful,
we are proud to be helpful.''
Slide one, as you see, this document is dated February
14th, a month before you answered that question and gave that
answer. Apparently, it is authored by the CFPB. Are you
familiar with this document?
Ms. Warren. Congressman, I believe, although obviously----
Mr. McHenry. Are you familiar with it? Yes or no.
Ms. Warren. Congressman, I haven't seen the rest of the
pages, but I assume what this document is is a document that
was initially prepared for internal discussions with the
Secretary of the Treasury.
Mr. McHenry. Right. At the bottom left corner, if I might
point out, it says ``draft confidential for AG Miller.'' Are
you familiar with that?
Ms. Warren. Thank you very much. Yes, Congressman, I am.
Mr. McHenry. Second slide. This slide, the second slide,
indicates that the CFPB is pushing for significant policy
change.
The third slide. This quote indicates that the CFPB is
leading the charge to persuade other regulators to demand
punitive penalties.
Fourth slide. If you look at the fourth slide, it is
apparent that the CFPB is pushing a policy proposal called the
Principal Reduction Mandate. Is that something that the CFPB
has been pushing?
Ms. Warren. Congressman, if you want to ask about our
participation----
Mr. McHenry. I am going to get to that. I am asking a
question. If you could respond to my question, I would
certainly appreciate that.
Ms. Warren. Congressman, we have given our advice when we
have been asked for advice, and we have done so proudly and
enthusiastically.
Mr. McHenry. So if you are so proud and enthusiastic about
your advocacy and advice, why didn't you express that before
the committee when I asked you your involvement in the
settlement issue?
Ms. Warren. Congressman, I thought the quote you quoted
said exactly that, and I believe it said that I was proud to
give that advice and I thought there was some word enthusiasm.
Mr. McHenry. Let me give you the fuller quote here. ``When
the Treasury came to me and said we would like your advice, I
was glad to.''
Ms. Warren. Glad to.
Mr. McHenry. Right. Okay, AG Miller----
Ms. Warren. Was there more? I just lost it.
Mr. McHenry. Who is Attorney General Miller?
Ms. Warren. I believe Attorney General Miller is the
Attorney General for the State of Iowa.
Mr. McHenry. Okay. That is different than advice to the
Treasury Secretary, which is part of your job title, and advice
to the President, is it not?
Ms. Warren. I am sorry, is what different? Is the Attorney
General different from the Secretary of the Treasury?
Mr. McHenry. You said you are providing advice to the
Treasury Secretary in your sworn testimony.
Ms. Warren. That is right, yes.
Mr. McHenry. What is apparent is you are providing advice
to the Attorney General of Iowa in their suit against mortgage
servicers, is that correct?
Ms. Warren. Congressman, the Secretary of the Treasury
asked for advice, and we gave advice. We also gave advice--at
his instruction, we gave advice to other Federal agencies, and
we gave advice where asked. I think we tried to make that
clear.
Mr. McHenry. In terms of mortgage settlement talks, would
you disclose the meetings that you have had about those
mortgage settlement talks?
Ms. Warren. Congressman, I believe that my calendar is an
open book, that we have been posting my calendar since last
October, last November. I actually can't remember.
Mr. McHenry. So your calendar would entail when you have
discussions about the mortgage settlements?
Ms. Warren. I can say my calendar is an open book. We make
it part of the public record.
Mr. McHenry. I understand. Reclaiming my time, so it has
gone beyond your advice to Treasury. You are also providing
advice to other governmental agencies?
Ms. Warren. Congressman----
Mr. McHenry. I understand. You can use the word
``Congressman'' a number of times, Ms. Warren, but I am simply
asking a very simple question, who you are providing advice to?
Ms. Warren. Congressman, there was a question on this from
Chairman Bachus----
Mr. McHenry. I know. I am asking you a question.
Ms. Warren. What I want to do----
Mr. McHenry. A question different from that, Ms. Warren. If
you will answer my question, are you giving advice to any
governmental agency outside of the Treasury and the President?
Yes or no?
Ms. Warren. Congressman, let me read the letter that I sent
almost 2 months ago.
Mr. McHenry. My time has expired. I am asking you a yes or
no question.
Ms. Warren. We have provided advice to Federal and State
officials regarding a potential settlement--servicing
settlement. In doing so, we have been an active participant in
interagency discussions, sharing our analysis and
recommendations in support of a resolution that would hold
accountable any servicers that violated the law.
We sent this letter nearly 2 months ago. We have not heard
from back from you or from anyone else so far as I know in the
House of Representatives or in Congress. This is a statement.
We have given advice when asked.
Mr. McHenry. I appreciate your statement.
I have one final question. Have you been in meetings with
the Department of Justice regarding the mortgage settlement
issue? Yes or no.
Ms. Warren. Yes, we have given advice to the Department of
Justice, when asked, as we say here. We have provided advice to
Federal and State officials.
Mr. McHenry. Thank you for your testimony.
I now recognize Mr. Quigley for 5 minutes.
Mr. Quigley. Thank you, Mr. Chairman.
Professor, it is obviously serious when someone accuses
anyone of lying to Congress, but let's just walk back through
this.
First, as was mentioned, the definition of advice somehow
will magically appear. If not, Random House defines it as an
opinion or recommendation offered as a guide to action. So,
Professor, you were asked to provide advice by another agency
involved in these negotiations, is that correct?
Ms. Warren. Yes, Congressman, it is.
Mr. Quigley. Did you provide advice in response?
Ms. Warren. Yes, Congressman, we did.
Mr. Quigley. Okay. Did you provide options for how the
Federal Government might proceed in those negotiations?
Ms. Warren. Congressman, that is what we have tried to do,
is give advice, as we said here, shared our analysis and
recommendation. That is what we are trying to do.
Mr. Quigley. Did you ever talk directly with the private
parties to those negotiations?
Ms. Warren. Congressman, it is not our job to negotiate on
behalf of the Federal agencies. That undertaking is led by the
Department of Justice at the Federal level. What we have done
is tried to be helpful to those regulators who are trying to
hold those who broke the law accountable for their actions.
Mr. Quigley. If the Department of Justice ends up taking
your advice, that would give some qualities or reference to how
good your advice was, correct?
Ms. Warren. Congressman, what they ultimately decide I am
sure will be a mix of many things. I hope we have given good
advice.
Let me say this as clearly as I can, Congressman: This is
our job, and we are trying to do our job, and that is to be
helpful to other agencies, to work with other agencies in
trying to hold those who break the law accountable for their
misdeeds.
Mr. Quigley. Well, unfortunately, many of these entities
that you will be regulating as a new agency are mortgage
servicing companies that have already admitted to breaking the
law, that they have illegally foreclosed on U.S. service
members and their families, for example, that they have charged
inflated fees and they have perpetrated fraud on the courts.
You are aware of those admissions as well, correct?
Ms. Warren. Yes, Congressman. I am aware now that the
Office of the Controller of the Currency, the Office of Thrift
Supervision, the Federal Deposit Insurance Corporation, and the
Federal Reserve Bank have all found serious, widespread
deficiencies. They have found violations of local law, of State
law, and of Federal law that have damaged families, that have
damaged mortgage markets, and that have damaged the entire
economy.
Mr. Quigley. Sort of a David and Goliath discussion, but it
flips on its side to an extent. You are being accused of being
an all-powerful, monolithic-type Goliath, but the reality your
budget is probably going to be about 1 percent of what these
agencies have been charging just in credit card penalties and
overdraft penalties. So I guess the question is, how are you
going to keep up with them?
Ms. Warren. Congressman, I think that is a tough question,
but I believe that the Consumer Financial Protection Agency is
well-crafted so that we are going to be able to make a
significant difference, that we are going to be an effective
cop on the beat. We will have responsibilities in the rule-
writing area, doing research, and, as our new mortgage project
shows, doing what we can to make sure that our rules are
streamlined and efficient and effective.
We will have responsibilities in supervision and in
enforcement. In fact, about half of our budget will go to
supervision and enforcement. We will have responsibilities in
consumer complaints, to hear from Americans around the country
when they have problems with credit providers; and we will have
responsibility for financial education.
We have a lot to do. But the good part is I think those
things work together, work in concert. We have a real
opportunity here to make prices clear, to make risks clear, to
give families the opportunity to compare one product with two
or three others. And when that happens, markets can start to
work. They can start to work on behalf of American families.
Mr. Quigley. In the end, all we have is our good name. Is
there anything else you would like to say about allegations
that have been made?
Ms. Warren. You know, Congressman, all I can say is it is a
deep honor to be here to try to set up an agency that is
designed to be a voice for American families. They have been
shut out of this process for far too long.
This most recent crisis was the consequence of a
substantial----
Mr. McHenry. The gentleman's time has expired. You can
finish your thoughts, and then we will move to the next
question.
Ms. Warren. Thank you. I appreciate that, Mr. Chairman.
I will just say this most recent crisis started one lousy
mortgage at a time. If we had had a Consumer Financial
Protection Bureau in place, we could have avoided a lot of the
pain that we have gone through in the last 2\1/2\ years.
Thank you, Mr. Chairman.
Mr. McHenry. I thank the ranking member.
With that, Ms. Buerkle of New York is recognized for 5
minutes.
Ms. Buerkle. Thank you, Mr. Chairman. Thank you for calling
this hearing, and thank you to Ms. Warren for being here today.
Thank you.
Ms. Warren. Thank you.
Ms. Buerkle. The Dodd-Frank bill that passed last year
included sweeping reforms in the regulation and the oversight
of the financial industry. And while it made many changes, it
completely ignored--and you just alluded to this in your last
comment--it completely ignored reforming Fannie Mae and Freddie
Mac, whose poor big business practices led to massive losses
and taxpayer bailouts. Instead of addressing the problems
created by political appointees, Dodd-Frank sought to increase
the level of government regulation with the creation of a new
regulatory body, the Consumer Financial Protection Bureau.
The thing that concerns me about this new regulatory body
is that the House does not get to approve the director; and,
even worse, it appears that the administration is going to
install political appointees using a recess appointment
process. This takes it away from the Senate and the House and
an opportunity to question and to do what they should be doing
as elected representatives.
My question to you today has to do with the salaries of the
folks who are going to work in this consumer finance Bureau. A
quick look at your Web site lists job openings that you are
seeking to fill in D.C. and three other cities: Chicago, New
York, and San Francisco. After a close look at these openings,
I found that the starting salaries with the CFPB are, in most
cases, 60 to 90 percent higher than the GS equivalent listed on
the Federal Government's Web site.
So my first question to you is, given the absolute fiscal
constraints that this Nation faces, the deficit and the debt
that this country is trying to grapple with in trying to get
this country back on a fiscal sanity course, how do you justify
that kind of a disparity in salaries between a government
worker versus the folks who are going to be hired by your
regulatory agency?
Ms. Warren. You know, Congresswoman, I really appreciate
your question and your concerns in this area.
You know, when you talk about the structure--the new
structure for the Consumer Financial Protection Bureau, I know
you are aware that this new Bureau was designed to pick up
consumer laws and consumer responsibilities that have been
scattered among seven different agencies, none of those
agencies focusing on consumer practices and consumer products.
This is important in the context of the most recent
financial crisis, the reason so many people across this country
are unemployed, so many millions of families are losing their
home and others have lost their savings, and that is the
question of what kind of regulatory structure do we want,
including what kind of pay structure. And I think you are right
to raise this.
Dodd-Frank was very careful and thoughtful in its point,
and that was to say, in effect, the Office of the Controller of
the Currency, the principal banking regulator in the country,
is paid at one level----
Ms. Buerkle. Excuse me, if I could interrupt, as you know,
we only have 5 minutes here.
Ms. Warren. Yes, ma'am.
Ms. Buerkle. Let me just give you an example. There is 10
positions, and it is the consumer response policy and procedure
analyst. The starting salary range for that position is $72,000
in your regulatory body. The top salary range is $149,000. Now
the GS equivalent of that is a GS-9. In the Federal Government,
a GS-9 starts at $41,000 and the top salary is $54,000.
My question to you is, why are these folks getting paid
such an exorbitant amount more than someone in the Federal
Government system? And you are not answering my question. You
are going around.
Ms. Warren. I am sorry, Congresswoman. I am trying to give
it the context about we are following the law set up in Dodd-
Frank. The five banking regulators that exist today, the
Federal Reserve Bank, the Office of the Controller of the
Currency, the Office of Thrift Supervision, the FDIC, those
banking regulators are paid on a different pay scale; and the
reason they are paid on a different pay scale in part is
because they are bank regulators and the competition for those
jobs includes people who are in the financial services
industry. We will never be able to pay like the financial
services industry pays. But this was Congress' judgment----
Ms. Buerkle. Excuse me, this is a government agency. This
is not the private sector. And we, the Congress, we, the
government, needs to be accountable to the American people why
someone can come into this government agency and make starting
salaries $72,000 with a range of $149,000.
Mr. McHenry. The gentlelady's time has expired. You can
finish the thought.
Ms. Buerkle. It just seems like I think that this
regulatory body has some questions to answer regarding the huge
disparity in the Federal jobs versus the job salaries that you
are offering.
I yield back. Thank you, Mr. Chairman.
Mr. McHenry. I thank the Member.
I now recognize the full committee ranking member, Mr.
Cummings of Maryland, for 5 minutes.
Mr. Cummings. Can you start my time? I already have 21
seconds.
Mr. McHenry. No, it was the previous time. I will give you
the full time. We will start over right now. Hold on 1 second.
We will pause.
Mr. Cummings. Like a basketball game. All right.
Ms. Warren, first of all, let me say this: I don't care
what happens in this hearing today. I don't care what is said.
I am begging you, I am begging you to keep the fire. I have
constituents who have lost so much and they don't even know how
they lost it. And we need you. We really desperately need your
passion, your concern, and thank you for synchronizing your
conscience with your conduct. And I just want you to know that.
Now, you know, one of the things that is so significant,
one of the things that you are doing for us and part of your
mission, is to protect consumers from unfair, deceptive, or
abusive acts or practices and from discrimination. Every single
Member of Congress has people, whether they know it or not, who
have suffered and have lost. And, like I said, some of them
don't even know what they lost and how they lost it. They still
don't know.
Professor Warren, Ranking Member Quigley said something
that I agree with. He said your situation is like David and
Goliath. Let me ask you about the consumer resources compared
to the fees generated by banks you are supposed to regulate.
According to the firm R.K. Hammer, consumers paid more than
$20 billion--that is our constituents--in credit card penalty
fees in 2009. The same year, consumers paid more than $38
billion in overdraft fees, our constituents. So that is about
$59 billion in 1 year, and that is just some of the fees they
generated.
Professor Warren, your budget at the consumer Bureau will
be capped at about $600 million, is that right?
Ms. Warren. Yes, sir, it is.
Mr. Cummings. Let me get this straight. Let me show you a
chart.
If my math is correct, the Consumer Bureau's budget is only
about 1 percent--where is my chart? Get my chart up.
The Consumer Budget Bureau's budget is only about 1 percent
of the amount banks generate just from late fees and overdraft
fees. I have to ask you, how in the world will you be able to
compete against this Goliath when you are so mismatched?
Ms. Warren. You know, Congressman, it is a good and fair
question, but I want to say this: I think in the creation of
the Consumer Financial Protection Bureau, Congress made some
very smart moves. And one of the key ones is that we have the
capacity at the consumer agency to drive toward making the
price clear, making the risk clear, making it easy, not 111
pages of documentation and fine print, but making it easy for
families to compare one product to another.
I ultimately believe that the real partners for this agency
will be families all over this country, who, if they have clear
and simple information in front of them, if they can really
make apples-to-apples comparisons, will be able to turn this
market around so that those providers, those community banks,
those credit unions, those providers who in good faith are
willing to get out there and compete in the marketplace, they
are willing to offer the most value at the lowest price, or
they are willing to offer good customer service that draws
people in, that those will be the providers who will flourish
in consumer credit, ultimately serving families. So I believe
we can do this, sir.
Mr. Cummings. On Radio One, Cathy Hughes has a slogan; and
she says, information is power, information is powerful when
you use it. So I think that summarizes pretty much what you are
saying. Give them the information and let them run with it and
make decisions based on sound information.
Now, some people are saying that you are the Goliath.
Incredible. They say you are going to overrun the industry with
overbearing regulations and a complete lack of accountability.
But isn't it true that your rulemaking power can be vetoed by
the Financial Stability Oversight Council? Vetoed, is that
right?
Ms. Warren. Yes, Congressman, it is.
Mr. Cummings. Does any other bank regulator have that kind
of requirement?
Ms. Warren. No, Congressman, they do not.
Mr. Cummings. You are not looking too much like a Goliath
to me so far. And to issue regulations, you have to make
particularized findings and consult with other banking
regulators, is that right?
Ms. Warren. Yes, sir, it is.
Mr. Cummings. I understand that the banks want to protect
their fees just like the oil companies in the Gulf want to
protect their profits. But, as I said this morning--we had a
hearing this morning on oil--we cannot go back to the era of
inadequate protection for the American people.
So I want to thank you for everything you are doing. I want
to thank your staff for everything they are doing. Again, there
are people in my district who applaud what you are doing. And
may God bless you. Stay on the battlefield.
Ms. Warren. Thank you, sir.
Mr. McHenry. The gentleman's time has expired.
I now recognize Mr. Guinta of New Hampshire for 5 minutes.
Mr. Guinta. Thank you very much, Mr. Chairman.
Thank you, Ms. Warren, for being here today.
I wish this wouldn't have to be described as a battlefield.
Rather than that, I would like to see a more productive manner
in which we could solve the Nation's problems.
I do have some questions, though, about the formation of
this entity and the need for its existence and how it plans to
operate; and I am sure you could appreciate that some Members
of Congress do have questions, given the unique nature of this
entity.
The first question I want to ask is, can you quickly
describe how unique this is in comparison to other bank
regulator organizations in terms of who you have overseeing
you?
Ms. Warren. Well, like the OCC, we have a single director.
Unlike the OCC, any rule that comes out of the Consumer
Financial Protection Bureau can be overruled by a group of
other regulators.
I am trying to think. Like the OCC, we have rulemaking
authority; we are subject to the Administrative Procedures Act.
Unlike the OCC, we are also subject to--I think the acronym is
SBREFA--the small business panels, that we have to bring in
panels to be able to go through the impact on small businesses.
We are required to do cost-benefit analyses. We are required to
consult with the other banking regulators before we issue
rules.
I think it is fair to say that our charter is written very
much in mind with the notion that we are there to be
cooperative with the other banking regulators, at least to work
with them. We are--I am trying to think. We have a research
function that is somewhat different from the other regulators.
Mr. Guinta. Can you tell me why there is a necessity for a
5-year fixed term, when I don't believe anyone else in history
has had that period of time as an appointment?
Ms. Warren. Congressman, I think many terms are 5-year
fixed terms. It is my understanding that the head of the Office
of the Controller of the Currency finished his 5-year term last
August.
Mr. Guinta. But I think those entities, I think, are at the
discretion of Congress. There is an oversight process through
appropriations. You are excluded from that.
Ms. Warren. No, Congressman. I am sorry, but that is not
the rule with the Office of the Controller of the Currency.
There is no banking regulator who is subject to the political
process or to appropriations. All banking regulators are funded
independently; and, indeed, all of the other banking
regulators, not the consumer agency but all of the other
banking regulators, are able to set their own funding levels.
So, for example, if the Office of the Controller of the
Currency decides they need more money to run exams or they need
more money to engage in their other activities, they up the
assessment on banks and simply raise more money. There is no
oversight from Congress in that process.
Mr. Guinta. So do you have an idea of what your budget is
going to be?
Ms. Warren. The cap on our budget is set at just under $600
million. The actual budget I actually have brought with me,
because I knew that you wanted to do oversight on this. Our
estimates for fiscal year 2011 are $143 million, and our
estimate for fiscal year 2012 is $329 million. So at least as
best we can project in the next 2 years we will be
substantially under the caps that are set by Congress in the
Dodd-Frank Act.
Mr. Guinta. Of the seven separate agencies that you are
going to assume authority over, do you plan on hiring from
those agencies?
Ms. Warren. Congressman, we have already begun the process
of hiring some people. I believe it is the case from each of--I
think it is the case from each of the Federal agencies. We have
certainly been in talks with all seven agencies. We have been
very----
Mr. McHenry. The gentleman's time has expired. Please
finish your thoughts.
Ms. Warren. We have been very lucky to have detailees from
each of those Federal agencies come and help us in the stand-up
process, and then we have gone through an interview process--I
would be glad to describe it in more detail, but I understand I
am past time.
Mr. Guinta. I would just state to the chairman the reason I
am asking that question is earlier the witness had stated that
if this entity had existed we wouldn't have the financial
meltdown that we had. So I wonder why we would hire people from
those other agencies who were doing this oversight in the first
place.
Mr. McHenry. Thank you.
I now recognize Mrs. Maloney of New York for 5 minutes.
Mrs. Maloney. Thank you. Thank you very much.
I truly believe the title of this hearing today and really
the GOP efforts in general should be: Let's pretend the
financial crisis never happened. Let's forget that 15 million
families lost household wealth in America, that our financial
community was brought to its knees and had to be bailed out by
the American taxpayer.
And in response to this crisis, with overwhelming support
from the American people, we created the CFPB, and it is
carefully constructed, urgently needed, and should be allowed
to go into operation as planned by the bill that was signed
into law by President Obama.
Now, the CFPB fills a gaping hole in our regulatory
framework. This is a body that will focus completely and
totally on consumer financial protection. Too often, consumer
protection was a second thought, a third thought, or not even
thought about at all, so you came out with abusive and anti-
competitive practices and credit cards, subprime loans that had
a degree of probability of throwing American families out on
the street and hurting our financial system. So this was put in
place to help our overall economy and to help consumers; and
all of the efforts so far have been to dismantle, disrupt,
delay, and not allow the agency to go into effect.
There was an astonishing abuse of power, of confirmation
power in the Senate. Forty-four Senators signed a letter that
said we will not allow this agency to go into effect or for you
to confirm a director unless you pass bills that will destroy
it, that will make it meaningless, that will make it
ineffective. That is not what the confirmation process is
supposed to be. It is literally holding the entire government
hostage to their demands on dismantling this program.
I would say that there is a lot of unfounded concern about
lack of oversight on this agency. I would argue that the
oversight and balance of power over this agency is greater than
any other agency in the entire Federal Government, with audits
and requirements and the unprecedented ability of another
agency, the Financial Stability Oversight Council, to overrule
the decisions made by the CFPB. I don't believe any other
government agency has that ability to overrule another agency.
Would you comment on that, Dr. Warren?
Ms. Warren. Yes, Congresswoman.
So far as I know, there is no agency anywhere in the
Federal Government whose rulings, once arrived at through the
full process, through hearings, through fact-finding, all the
way through, could actually be overruled by a group of other
agencies. It is unprecedented.
Mrs. Maloney. So how many other banking regulators can be
overruled? Can banking regulators be overruled with, say, a
faulty mortgage product? Can they be overruled?
Ms. Warren. No, Congresswoman. Right now, there is no
banking regulator who can be overruled.
Mrs. Maloney. And could you go through and outline some of
the oversight and, really, constraints? No other agency has
their budget capped, I don't believe.
Ms. Warren. I appreciate your bringing up the question of
budget, because I think it is so important here, Congresswoman.
As Congress has known since the middle of the 1800's when
they made the decision in the establishment of the first bank
regulator to make the funding for that regulator outside the
appropriations and political process, we knew that we wanted
banking regulators that, at a minimum, were not glancing over
their shoulders as they walked in, now, walked into trillion
dollar financial institutions to try to do supervision or
enforcement. They are not glancing over their shoulders
wondering if something they do or something they say will
create problems and increase lobbying efforts against the
agency next time around in the political process.
This agency--and, as a result, all of the banking
regulators are set up so they determine their own funding. It
is not just that they are out of the political process. They
decide the number of dollars that they get.
The consumer agency is capped. If we need more money for
supervision and enforcement, our only option is to come to
Congress. But we are capped, and there is only a certain amount
of money that comes to this agency to carry out its functions
before we would be forced to go into the political process.
Mrs. Maloney. I want to thank you for your testimony and
your hard work.
My time has expired, but I would say those who want to gut
this agency want to leave consumers prey to unscrupulous
mortgage efforts and credit card abuses. So I believe this
agency is important, and we should allow it to go forward and
be implemented.
Mr. McHenry. Mr. Gowdy of South Carolina is recognized for
5 minutes.
Mr. Gowdy. Thank you, Mr. Chairman.
Thank you, Ms. Warren.
The first question I was going to ask you is directly from
a constituent of mine in South Carolina who is in the business
of providing financial services. What steps will you take to
ensure that complaints received by the Bureau are legitimate
ones and not merely post-contractual gripes against a company
when the consumer decides they don't want to live with the
terms?
Ms. Warren. Congressman, I am glad you asked about the
complaint system. It is one of the most significant features I
think of the new consumer agency. And what we are planning to
do with it is, instead of having sort of a general complaint
line, we are really trying to develop more effective complaint
resolution in the consumer agency on a product-by-product
basis.
So, for example, we will be starting with credit cards. And
what we are hoping to do is we are working on setting up a
hotline and a form online for people who have had problems with
their credit card issuers and they believe perhaps that there
have been violations of law and want to get in touch with the
new consumer agency.
Mr. Gowdy. Will the complaints be made public? Because I
think you will agree with me that unfounded, unsubstantiated
complaints have a deleterious effect on the accused.
Ms. Warren. So what we will be doing--and I really want to
give a shout-out here to five of the largest credit card
companies in the country who are working with us right now on a
way that, as soon as we receive a complaint, that complaint can
go directly to the credit card company. They can help us
understand whether the complaint has merit. They have the
opportunity to try to resolve it with the customer, keeping us
in the loop.
Mr. Gowdy. Is that just for credit card companies or is it
for all financial service providers?
Ms. Warren. Here is what I want to make clear. As we build
this----
Mr. Gowdy. I only have 5 minutes. I am not trying to cut
you off.
Ms. Warren. Fair enough, sir. I am just trying to give you
a picture of what we are doing.
Mr. Gowdy. Are the complaints public? Let's try that with a
yes or no answer.
Ms. Warren. Congressman, I have tried to describe the
process for one product. We are trying to get this product
right, and we have had a lot of cooperation from the credit
card companies.
Mr. Gowdy. I am probably not asking my question very
artfully. Are the complaints public, yes or no?
Ms. Warren. Congressman, there is no single answer for all
products in the same way. We are working----
Mr. Gowdy. Are any of the complaints public?
Ms. Warren. Congressman, we don't have any complaints yet.
What we are trying to do is build a system to deal with
complaints.
Mr. Gowdy. So you do have the discretion to keep the
complaints non-public if you like?
Ms. Warren. What we are trying to do is work with the
industry to find a complaint system that works for American
families and works for those who are providing them services.
We are in the middle of that process. This is part of stand-up.
And we are glad, Congressman, to hear from you, to hear from
your constituents, and to hear from everyone else about this
process. We are an open door on this subject.
Mr. Gowdy. Well, thank you. I will encourage them to
participate.
I want to ask you about some of the definitions. I saw a
definition for abusive: ``Materially interferes with the
ability of a consumer to understand a term of condition of a
consumer financial product or service.'' That suggests to me
that some interferences are immaterial. Is that what you meant
by that?
Ms. Warren. Congressman, I believe the language you are
quoting is out of the Dodd-Frank Act, and it is Congress'
intention. I believe, if I am not mistaken--I don't have a copy
of it with me here.
Mr. Gowdy. Will you not be the one enforcing that? Will you
set regulations that define these terms?
Ms. Warren. Congressman, this is the guidance that Congress
has given.
Mr. Gowdy. I am asking you. Are some interferences
immaterial?
Ms. Warren. Congressman, we will go through the process of
interpreting the language that Congress has given us.
Mr. Gowdy. I don't mean for that to be a trick question.
Are some interferences immaterial? Because the word
``material'' modifies ``interference.''
Ms. Warren. Congressman, I want to be clear about this. It
is statutory language that you are asking. There is a process
in place for the Consumer Bureau. You don't want me standing
here shooting from the hip about how I might want to interpret
individual language.
Mr. Gowdy. Let me ask you about the second one. It also
defines it as an unreasonable advantage or taking unreasonable
advantage of a consumer's lack of understanding. Are there some
instances where taking advantage of a consumer's lack of
understanding are reasonable?
Ms. Warren. Congressman, this is the language that Congress
has adopted in the Dodd-Frank Act. Ultimately, it will fall to
this Bureau through a lengthy process to interpret this on a
case-by-case basis. I believe it would be irresponsible for me
to stand here and pop off about how I would interpret
particular words.
Mr. Gowdy. Do you believe there is a duty to educate or a
duty to learn on behalf of the consumer?
Ms. Warren. I believe that consumers want to learn. I think
they want to know----
Mr. Gowdy. Well, that is a different question. I didn't ask
whether or not they wanted to. Do you believe that there is a
duty to do it? Since the law itself says consumer's inability
to protect his own interest, do you agree there is a duty to
educate yourself?
Ms. Warren. Congressman, we have, as part of our
responsibility under the Consumer Financial Protection Bureau
laws, undertaken consumer financial education, and I embrace
this. I think it is exactly where this agency should be.
Mr. Gowdy. Is that a yes? Is that a yes?
Ms. Warren. We are going to help consumers by giving them
products where prices are clear, where risks are clear, where
they can make comparisons.
Mr. Gowdy. Is there a duty to educate yourself, yes or no?
Ms. Warren. I believe that an empowered consumer is a
consumer who can not only protect himself or herself but one
who can change the market.
Mr. Gowdy. Mr. Chairman, I give up.
Mr. McHenry. Thank you.
We have two votes on the House floor. We have two
additional Members and not enough time for them to ask
questions. We're going to recess until the second vote is cast.
We'll come back over here as quickly as possible and we'll have
our final Members ask their questions.
And the committee's in recess until we return.
Mr. Gowdy. Mr. Chairman, procedurally, let's make sure Ms.
Warren is still available.
Mr. McHenry. That was never the pledge. We have two
additional Members with questions, and originally this hearing
was at 2. Are you not able to stay for these?
Ms. Warren. Congressman, when you asked to change the time
four times in the last 12 hours, including waking people up at
home last night to change the time again----
Mr. McHenry. Ms. Warren, let me be direct with you. I never
made a single phone call about this. So be very clear about
what you're saying.
We have two additional Members. We have 8 minutes remaining
on the floor to vote. If you won't stay around for the
questions, then we're going to stay around, and we're going to
finish this out. I never heard that you had to leave at 2:15,
which is the time----
Ms. Warren. Then, Congressman, you might want to have a
conversation with your staff. When they asked us to move the
hearing, we said the only way we could do this is if I could
leave here at 2:15 for a meeting that would be at 2:30, and
your staff agreed.
Mr. McHenry. All right. Then we're going for questions now.
Mr. Yarmuth, you're recognized for 5 minutes.
Mr. Yarmuth. Thank you, Mr. Chairman.
And I want to say for the record that I apologize to the
witness, Dr. Warren, for the rude and disrespectful behavior of
the chair. The snarky comments about a Senate race and the
questioning of your veracity when there's documented evidence
that you are being totally truthful indicates to me that this
hearing is all about impugning you, because people are afraid
of you and your ability to communicate in very clear terms the
threats to our consumers, the threats to our constituents, and
possibly very, very effective ways to combat them.
So I think in one respect, I congratulate you for
instilling such fear in the committee on the majority side and
in some aspects or segments of the business community, because
they understand how effective you are in getting the message
out to the American people that there are better ways to do
things.
That being said, one of the major questions that's being
asked here is whether there's a need for your agency or the
agency that you conceived, in light of the fact that there are
seven related agencies, all of whom who have some authority in
this area.
These seven agencies have been around for some time. During
the time that those seven agencies have been around, have
financial products, the disclosure statements and so forth,
gotten easier to understand? Has the type gotten bigger? Have
they shrunk? Or, in fact, have they gotten much more
incomprehensible?
Ms. Warren. Congressman, during the time these agencies
have been around I believe that financial products have become
more complicated and much more heavily laden with fine print
that effectively make it impossible for consumers to compare
risks and costs.
Mr. Yarmuth. In respect to the question that Ms. Buerkle
asked regarding the comparative salaries, would you be willing
to speculate on what the average salary is of the people who
are writing financial agreements, mortgages, and credit card
agreements for the major corporations, compared to what the
Consumer Financial Protection Bureau would be paying?
Ms. Warren. Congressman, I couldn't begin to speculate on
the difference between the salaries of the government officials
who will be hired into the new consumer agency to try to
oversee this market and the salaries of those who are writing
the financial products, particularly for the Wall Street
companies. I suspect though, sir, there is a large
differential.
Mr. Yarmuth. I suspect you're right. And I'm going to yield
back the balance of my time in a second so that we can get out
of here.
But I just want to say that the question of
accountability----
Mr. McHenry. If the gentleman will yield, I will say that
Mr. Issa went to vote. He's coming back to ask his question.
Mr. Walsh went to vote. He's coming back to ask his question.
So we'll give you 20 additional seconds for my interruption. Go
right ahead.
Mr. Yarmuth. Thank you. That's quite all right.
But the title of the hearing involves accountability of
your agency. I'd just like you to spend a few seconds talking
about what accountability there has been in terms of the credit
card companies, mortgage writers, and so forth over the last
decade or so. Because it seems to me that that's where the real
accountability issue has been, that the consumers have no way
to hold those companies accountable for the products that they
offer.
Ms. Warren. Congressman, we have seen very little
accountability among the largest financial services providers
and among the largely unregulated financial services providers,
both before the crash of 2008 and after the crash of 2008.
And I just want to point out that has been really hard on
American families. It's been hard on them directly when they've
gotten their feet tangled in credit card agreements and payday
loans that were deceptive. It's been hard on them when they
thought they were doing sensible things on mortgages, only to
learn that they were going to lose their homes.
But it's also been hard on others in the economy, people
who did nothing to get involved with financial services but who
lost their jobs. People who see the companies, the small
businesses they're working for, their markets have dried up.
And it has also been hard on community banks, on credit unions
who work so hard day in and day out to work with their
customers, to be the relationship lenders, to be there over the
long haul, and who are getting crushed in a financial
turnaround that was not their fault. The problems have gone
everywhere. The problem of lack of accountability is one that
is squarely on the industry, and this consumer agency is going
to do its best to help turn that around.
Mr. Yarmuth. I congratulate on your work and thank you for
your service.
Mr. Cummings. Will the gentleman yield?
Mr. Yarmuth. I will yield to the gentleman.
Mr. Cummings. Mr. Chairman, my understanding is that your
staff made an agreement with Professor Warren. The agreement
was that she would available to this committee for 1 hour. And
pursuant to that agreement, if she accompanied your late-
breaking request made by your staff at 9 p.m. last night that
she appear at an earlier time than previously scheduled, you
would allow her to leave 1 hour after that, at 2:15 p.m., in
keeping with the agreement. It is 2:15 now. She kept her side
of the bargain, and now it's time for you to keep yours.
Mr. Chairman, out of respect for Professor Warren's
schedule and the flexibility she showed to accommodate your
request, you should now dismiss this witness and get on with
the remainder of the hearing. I mean, in fairness. I mean, we
were here.
Mr. McHenry. I certainly appreciate it. And in reaction to,
as the ranking member, the original agreement was that we would
have a 2 p.m. Hearing in order to accommodate votes which we
expected to be at 1:30. Knowing that the Professor is very
busy, we don't want to keep witnesses here while we adjourn to
go--recess to go vote. And so we changed the time in
anticipation of the vote we're about to have. So rather than
gavel in and have opening statements and go to vote and come
back 30 minutes later and have an hour of questions, rather
than do that, we tried to work with the witness.
In exchanging of e-mails, your staffer, your Government
Affairs staffer talked to Mr. Haller on the committee staff,
and he asked for confirmation on this. He called you up, the
Government Relations head, did not respond to your e-mail,
called you up and said, I'll do my best to get you out of
there, but we need to accommodate people's questions. And so
that's where we are today.
Mr. Cummings, I understand, and I certainly appreciate your
questions.
Mr. Cummings. I just want to make it clear. I know you
sound like you've already decided, but just this one real quick
thing. Peter Haller, according to my staff, changed the time on
us a few times. And they bent over backward, moved things
around and agreed to 1:15 to 2:15. She needed to get out of
here by 2:15. That has been constant, and Peter McHenry and his
staff knew this.
Mr. McHenry. Peter Haller, you said. Because there is no
Peter McHenry.
Mr. Cummings. Yeah. I just want to make it clear. I know
you're going to do what you're going to do, but out of respect
for Ms. Warren, I mean, she's got her own limitations. She's
trying to protect our constituents, yours and mine, big time.
Mr. McHenry. And I would respond to the ranking member. I
would respond to the ranking member that the date of this
hearing was chosen by Ms. Warren. We worked with her and her
staff diligently and gave them a number of options. They came
back with different options. We accommodated those options in
context for a hearing room. We're here to have the former
chairman's unveiling of a picture in the main committee room.
So that's an accommodation, number one.
Number two, we accommodated her schedule. That's why it's
on this date.
Furthermore, I'm skipping this vote, as are you, to have
this debate, rather than simply allow for a few additional
minutes.
Mr. Cummings. I'm going to get my vote in. But the only
thing I'm saying is that, at the rate we're going, it looks
like she'll be here--what--until about 20 of at least.
Mr. McHenry. Well, actually, I anticipate that the two
Members will have 5 minutes apiece. And, as the gentleman
knows, I kept folks to the 5-minute timeframe today.
So with that, I'm not trying to cause you problems, Ms.
Warren, but we're trying to accommodate folks. And if you
wanted to stick around, we're going to have two more Members
with questions, and then we'll see you off.
Ms. Warren. Congressman, you are causing problems. We had
an agreement for a later hearing. Your staff asked us to move
around so that we had to change everything on my schedule to
try to accommodate your time.
Mr. McHenry. And I certainly appreciate that.
Ms. Warren. But the agreement was that I would be out of
here at 2:15 because there are other things now scheduled at
2:30.
Mr. McHenry. That was a request. But we moved the hearing
so that you could actually get the questions in.
Ms. Warren. Congressman, you told us one thing.
Mr. McHenry. I did not tell you anything.
Mr. Cummings. We have no one here to ask questions, Mr.
Chairman. We have no one here to ask questions.
Ms. Warren. I have other obligations I committed to based
on the representations of your staff and our effort to try to
accommodate you and rearrange our schedule to accommodate you.
Mr. McHenry. Look, Ms. Warren, it was a simple request.
Your staff had a request. My staff said we're trying to
accommodate you. We're going to get you out of here in 10
minutes if you just----
Ms. Warren. Congressman, we had an agreement.
Mr. McHenry. You had no agreement.
Ms. Warren. We had an agreement for the time this hearing
would occur.
Mr. McHenry. You're making this up, Ms. Warren. This is not
the case. This is not the case.
Mr. Cummings. Mr. Chairman, you just did something that--
I'm trying to be cordial here, but you just accused the lady of
lying.
Mr. McHenry. She's accusing me of making an agreement that
I never made.
Mr. Cummings. I think you need to clear this up with your
staff. They have moved this thing around 50 million times, and
she's got to go to another hearing.
Ms. Warren. Not to another hearing, to another meeting.
Congressman, I would be glad to answer questions for the
record. We can do that on--if you'll just send us questions for
the record, we're glad to answer them, and they'll be a matter
of the public record.
Mr. McHenry. I certainly appreciate that. And I have tried
to accommodate you. I just want to be very clear and make sure
that this is on the record. There was no agreement about
departure time. And I want to just make sure to the ranking
member that I didn't make those representations. I've confirmed
with my staff before this thing started. The reason why we
moved the times is so that she wouldn't have to wait during a
vote in the middle of the hearing.
So, with that, I understand your frustration. But just ask
you to see my side of this thing as well, because we thought we
had you for more time. I thought I had you for more time.
Mr. Cummings. Most respectfully----
Mr. McHenry. So, with that--if the gentleman will simmer.
You know, I would just say----
Mr. Cummings. No, I'm cool. I just want to make sure she's
treated fairly. I mean----
Mr. McHenry. I understand. We've had more debate than
actually the questions remaining.
So, with that, you know, Ms. Warren, I appreciate your
service to our government. I do. And, you know, I was just
trying to get on the record a few of these things that we have
seen counter to my questions of you back in March of this year.
And it is informative and instructive for this committee on the
construct of this enormous Bureau that you're constructing. And
so that's why Congress wants to have this oversight.
I thank you for your testimony. I'll dismiss you now. And
I'll ask the two Members that are not being given the
opportunity to ask questions to submit theirs for the record,
and I'd ask you to turn around those questions as quickly as
you possibly could.
Ms. Warren. Thank you, Congressman.
Mr. Cummings. Mr. Chairman, thank you very much.
Mr. McHenry. And we're going to recess for votes and come
back for the second panel.
[Recess.]
Mr. McHenry. The committee will come back to order.
We'll now recognize the second panel. We have Mr. Todd
Zywicki, a foundation professor of law at George Mason
University. Dr. David S. Evans is the chairman of the Global
Economics Group and lecturer at the University of Chicago Law
School. Mr. Adam J. Levitin is associate professor of law at
Georgetown University Law Center. Mr. Andrew Pincus is a
partner at Mayer Brown Rowe and Maw LLP.
And, with that, as is pursuant to committee rules, all
witnesses are sworn before they testify. If you'll stand and
raise your right hands.
[Witnesses sworn.]
Mr. McHenry. The record will reflect that all witnesses
answered in the affirmative.
In order to facilitate discussion, if you can--your written
statement will be admissible to the record, and you can just
simply summarize, a simple 5 minutes. And at 1 minute you'll
get the yellow light, which sort of helps you round up. And
we'd love to hear your testimony.
Mr. Zywicki, we'll start with you, sir.

STATEMENTS OF TODD ZYWICKI, FOUNDATION PROFESSOR OF LAW, GEORGE
MASON UNIVERSITY; DAVID S. EVANS, CHAIRMAN, GLOBAL ECONOMICS
GROUP, LECTURER, UNIVERSITY OF CHICAGO LAW SCHOOL; ADAM J.
LEVITIN, ASSOCIATE PROFESSOR OF LAW, GEORGETOWN UNIVERSITY LAW
CENTER; AND ANDREW PINCUS, PARTNER, MAYER BROWN ROWE & MAW LLP

STATEMENT OF TODD ZYWICKI

Mr. Zywicki. Thank you, Mr. Chairman. It's a pleasure to be
here today.
I want to say at the outset that I was in favor and remain
strongly in favor of regulatory reform dealing with consumer
financial protection and that sort of thing. I think that we've
been much in need of regulatory reform, streamlining coherence,
and that sort of thing. And to this day I remain disappointed
that I think with the CFPB we've squandered a golden
opportunity to create new, useful safeguards for consumers that
would promote competition, consumer choice, and consumer
protection simultaneously.
Instead, what I think is we've created a monster of an
agency that is going to reduce access to credit, increase the
cost of credit, and, ironically, have the unintended
consequence of probably exposing more consumers to fraud and
abuse when it comes to lending products.
The Truth in Lending Act was three pages long. Now it's
grown to thousands and thousands of pages. We've seen
duplicative regulatory enactments over time; and, in
particular, years of class action litigation, heavy-handed
regulation legislation have larded up the current system with a
lot of counterproductive regulation; and, unfortunately, this
isn't going to change that.
This Bureau is simultaneously the most powerful and
unaccountable bureaucracy that I've ever been aware of. It is
an independent agency within another independent agency inside
the Federal Reserve. It may be the most powerful that's ever
been considered by most to be constitutional.
It has the power to reach every single credit card, payday
loan, mortgage in America. It has the potential to impact small
businesses that use consumer credit and personal credit in
their operations. Yet an agency with this kind of power is
presided over by one person, with no effective external
oversight, a completely unreviewed and unreviewable budget, and
really no checks on them except for this loose check by the
FSOC.
Now, history tells us what happens when we give bureaucrats
this much unaccountable power to regulate massive swaths of the
economy. This super regulator is like something that we haven't
seen since the Nixon administration; and there's a good reason
why we haven't seen this since the Nixon administration, is we
know what happens when we give this sort of unaccountable power
to bureaucrats to make decisions for consumers as to what kind
of products they're allowed to have and what the terms of those
products are going to be.
It is, as I mentioned, a one-person commission. I think it
seems obvious that this should be a commission, rather than a
one person sort of thing.
I also agree with the proposal to reduce the two-thirds
super majority oversight to a simple majority rule for
oversight.
Failing that, or perhaps in addition to that, I think that
this should be formally required to undergo some sort of
external review by OIRA or someone else, rather than what I
take to be the really toothless cost-benefit analysis that's
included here.
And we saw--and the reason we haven't seen this since the
Nixon administration is we saw what happened when we give this
kind of unaccountable power to bureaucrats. We saw a generation
of economic stagnation, stifled innovation, declining American
competitiveness, and the like. And it's completely predictable
this is what happens to bureaucracies when they lack the
feedback and the accountability from outside. You get tunnel
vision, mission creep, and you get the pet hobbyhorses of
whoever the person is who happens to be running the
organization is the one who sets the priorities.
And what we learned from that experience and the harm to
the American economy is that we need accountability, oversight,
and transparency in our processes.
Why does that matter? Because overregulation by this body
could inflict huge harm on the American economy. It will raise
costs and reduce access to credit. I'm not familiar with any
theory that says that increasing the costs of a business could
possibly cause prices to go down. And it will increase the
costs and reduce access to credit. And what we've learned over
time is that you simply cannot wish away the need for credit.
That if somebody needs $500 to repair their transmission to get
to work on Monday, they need $500 to repair their transmission
to get to work on Monday.
What should be done? I lay out in my statement which is the
model here is the Federal Trade Commission, a multi-member
commission with internal checks and balances. One reason that
independent agencies typically are not subject to OIRA review
is precisely because they are commissions that have an internal
deliberative process. This agency will not be subject to any
budget oversight. It is not a multi-member commission. It is
not subject to external review by OIRA or anybody else, and I
think that this needs to be fundamentally reviewed.
[The prepared statement of Mr. Zywicki follows:]

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Mr. McHenry. Thank you for your testimony, Mr. Zywicki.
And, Dr. Evans, you have 5 minutes.

STATEMENT OF DAVID S. EVANS

Dr. Evans. Chairman McHenry, Ranking Member Quigley, and
members of the subcommittee, thank you very much for asking me
to testify on the CFPB.
Shortly after the U.S. Department of the Treasury proposed
the CFPA Act, Professor Josh Wright from George Mason and I
started studying the legislation and the rationales being put
forward for it. Early last year, we published an extensive
study on the proposed agency.
Based on our research, I'm quite concerned that the CFPB
could make it harder and more expensive for consumers to borrow
money and for small businesses, who often rely on credit cards
and other lending products. Just because someone puts the words
``consumer protection'' in the title of an administrative
agency doesn't mean that's what it's going to do.
There are two reasons, in my view, to believe that the CFPB
could become an anti-lending and borrowing bureau that could
harm consumers and small businesses and ultimately reduce
economic growth.
The first is that there's an anti-borrowing bias built into
the CFPB. Professor Warren co-authored a long article in the
University of Pennsylvania Law Review in late 2008 that laid
out the rationale for the new agency and its agenda in some
detail. She claimed that consumers aren't rational when it
comes to borrowing money, that consumers make lots of mistakes,
and consumers end, up in the end, borrowing too much.
Professors Barr, Mullainathan, and Shafir wrote an article
that proposed very intrusive government regulation for
financial services. That included requiring lenders to offer
plain vanilla products as the default. Now, while at Treasury,
Professor Barr was involved in drafting the CFPA, and Professor
Mullainathan was just appointed to Assistant Director for
Research at the CFPB.
Professor Wright and I have reviewed the intellectual
foundations of the CFPB based on the writings of the people
behind its creation. The view that people don't really know
what they're doing when they borrow money and that we need to
protect consumers from themselves has really become part of the
genetic code of the CFPB. Unfortunately, at least in the
writings that have provided the foundation for the new agency,
there's little recognition of the fact that consumer lending
has really improved the lives of millions of people and spurred
job growth in this country.
Now, the CFPB has the tools to put the highly
interventionist agenda described in these foundational papers
into effect, and that's the second reason I'm concerned. This
new agency can ban, ``abusive lending products.'' What those
are are pretty much left up to the discretion of the head of
the CFPB.
The new agency can also steer financial services companies
toward offering plain vanilla products designed by the CFPB by
either banning products that don't conform to the CFPB view or
by making it legally risky and expensive to deviate too far
from the products that the CFPB wants. I understand plain
vanilla was excised from the language, but there's still the
possibility of, in effect, doing it.
Through prohibitions, disclosure requirements, and fines,
the CFPB has the means to place a heavy thumb on consumer
lending products that consumers and small businesses would
willingly consume and that financial services companies would
willingly offer.
There's no dispute that some lenders act very badly and
that we need consumer protection. The proponents of the CFPB
have made some real contribution, I think, to our understanding
of some of the problems and some of the possible solutions, and
I have a lot of respect for their passion and their intellect.
But regulation needs to be based on a balanced view of the
benefits as well as the costs of lending and borrowing. In
fact, most consumers and small businesses are responsible, and
most consumers and small businesses don't get into trouble.
Over the last several decades, the fraction of consumer
loan debt that banks have had to write off has varied from
about 1.5 to 3 percent. Charge-offs for consumer loans rose
during the recent very deep recession, but they're now coming
back down to that low level. Most lenders provide products that
people want and that people benefit from.
There are serious risks to the economy of restricting
consumer credit. Let me just focus on one of them.
Between 1992 and 2005, brand new small businesses generated
an average of 3 million jobs a year. Access to consumer credit
can make or break those entrepreneurs. Many of them use
personal credit cards for financing. In fact, the founders of
some of our greatest companies, Google, for example, had to max
out their credit cards to stay afloat in the early days. Over
time, a heavy regulatory thumb on credit availability could
therefore pose a significant drag on employment and economic
growth.
In closing, I counsel the subcommittee to ensure that the
CFPB has leadership that's balanced and that recognizes the
great value that lending products provide for consumers and
small businesses, as well as the occasional problems. I'd also
suggest that Congress keep watch over the CFPB to insure that
it doesn't become the anti-lending and borrowing Bureau and
harm the very consumers that it was put in power to protect.
Thank you very much.
[The prepared statement of Dr. Evans follows:]

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Mr. McHenry. Thank you, Dr. Evans.
Mr. Levitin, you're recognized for 5 minutes.

STATEMENT OF ADAM J. LEVITIN

Mr. Levitin. Chairman McHenry, Ranking Member Quigley,
members of the subcommittee, my name is Adam Levitin. I'm a
professor of law at Georgetown University. My research focuses
on consumer finance and financial regulation. I'm not here
representing any financial interest or to plead the interest of
banks or trade groups. Instead, I'm here as an expert on
consumer finance and as a scholar whose work is deeply
concerned with the financial security of American families.
I'm happy to discuss the CFPB's regulatory structure and
how it compares with other Federal bank regulators. I do so in
detail in my written testimony.
I'm also happy to address unfounded concerns that the CFPB
will crimp the availability of sustainable credit. It's frankly
premature to speculate on this, but I would note that the CFPB
is required by statute to do a cost-benefit analysis on
prohibitions of financial products.
I am also happy to make the case, as I do in my written
testimony, that the CFPB is more accountable than any other
Federal bank regulator, period.
But I think it's important that we all be honest about
what's going on here. This hearing really isn't about improving
the CFPB or ensuring that there's sufficient oversight. Those
would both be laudable goals. But the CFPB hasn't even gotten
up and running yet. And by all accounts the CFPB transition
team, led by Professor Warren, is doing an outstanding job.
There's simply nothing that suggests that there is an oversight
problem that needs to be addressed.
Instead, this hearing is part of an attempt to hobble the
CFPB and render it ineffective because there simply aren't the
votes to kill it off outright. This is about politics not
oversight, unfortunately; and there's no clearer proof of this
than the written testimony of Mr. Pincus here on my left on
behalf of the Chamber of Commerce.
Mr. Pincus expresses concerns that the CFPB's structure
leaves it vulnerable to regulatory capture. Regulatory capture
is the phenomenon of a regulatory agency advancing the interest
of the industry it regulates rather than the public interest.
The typical story of regulatory capture is the oil industry
capturing the Minerals Management Service or Wall Street
capturing regulators like the OCC or the Fed. As Representative
Bachus put it, Washington and the regulators are there to serve
the banks.
So this leaves me wondering, who does the Chamber fear will
capture the CFPB? Is it the multitude of well-financed consumer
groups that have shown themselves to be the terror of Capitol
Hill? Is it middle-class citizens? Military families? Seniors?
I'm really quite perplexed by it.
And I find it very strange for the Chamber, of all
entities, to express concerns about capture. Because regulatory
capture is the Chamber's signature mode of operation. Perhaps
the Chamber is simply worried that it won't be able to capture
the CFPB and that the CFPB won't be the lapdog of Wall Street
but will be a real financial watchdog.
That the Chamber is sounding the alarm about regulatory
capture reveals the various CFPB reform proposals for what they
really are, naked attempts to gut the CFPB and render it
ineffective because there aren't the votes to kill it outright.
That's the same reason some members of the subcommittee want to
put the CFPB under their regular appropriations process.
Because if you don't have the votes to kill off an agency, you
can starve it to death via appropriation by playing hostage
with the Federal budget.
So let's be frank about what this hearing is about. This is
about banks versus families. The issue presented by this
hearing is whether Congress cares more about increasing the
profits of banks or protecting the financial security of
American families. Which is more important, bank or families?
Turning to the so-called reform proposals, one would
replace the single CFPB director with a five-person commission.
Put differently, the bill proposes paying five people to do one
person's job. Where I come from that's called government waste.
What's more, by having five people do one person's job,
accountability is diminished and leadership becomes less
effective. Policy ends up getting set by horse trading among
the commissioners, rather than by exacting analysis of the
issue at hand. There's little evidence that a five-person
commission provides a meaningful check against agency
overreach, and if a single director is good enough for the OCC
it's good enough for the CFPB. Put another way, if a single
director is good enough for an agency that protects large
banks, then it's good enough for an agency that protects
American families.
Another so-called reform proposal would lower the threshold
for the Financial Stability Oversight Council to veto CFPB
rulemakings. It would require a veto if a CFPB rulemaking were
inconsistent with bank safety and soundness.
Now, bank safety and soundness is a technical term. It
means profitability. Let me repeat that. Bank safety and
soundness means bank profitability. It's axiomatic that a bank
can only be safe and sound if it is profitable. The consumer
protection is often at loggerheads with bank profits.
The only reason to engage in predatory lending, for
example, is because it's profitable. It's not done out of spite
or malice. What this means is that any CFPB rulemaking that
affected bank profitability would therefore be inconsistent
with safety and soundness and thus be subject to a veto.
Thus, under this proposal, both the Credit Card Act of 2009
and Title 14 of the Dodd-Frank Act, which reforms the mortgage
lending industry, could not be implemented because they would
affect bank profitability and thus be inconsistent with bank
safety and soundness.
Congress established the CFPB to protect American families,
not maximize bank profits. Let's let the CFPB have a chance to
do its job.
[The prepared statement of Mr. Levitin follows:]

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Mr. McHenry. Thank you, Mr. Levitin. Thank you for
testifying.
Mr. Pincus, you're recognized for 5 minutes.

STATEMENT OF ANDREW PINCUS

Mr. Pincus. Thank you, Mr. Chairman.
Mr. Chairman, Ranking Member Quigley, and members of the
subcommittee, thank you for the opportunity to testify before
the subcommittee today on behalf of the Chamber of Commerce and
the hundreds of thousands of businesses that the Chamber
represents.
Let me, at the outset, correct Mr. Levitin's apparent
misperception about what the Chamber's long-held position has
been on this issue.
Through the debate over Dodd-Frank, the Chamber made clear
that it strongly supported sound consumer protection regulation
and enhanced consumer protection at the Federal level. The
Chamber businesses, just like consumers, have a strong interest
in a marketplace that's free of fraud and free of other
deceptive and exploitative practices so legitimate businesses
can compete on a level playing field. So businesses, just like
consumers, don't like predatory practices that hurt consumers.
At the same time, what is essential is to ensure that
regulation does not impose duplicative and unjustified burdens
that have two ill effects.
First of all, they unjustifiably divert resources that are
essential to fueling economic growth, to complying with rules
that are not necessary; and in this context, as Mr. Zywicki has
mentioned, they prevent small businesses from obtaining the
credit they need to expand and creating the jobs that our
economy needs because the well-documented fact is that small
business credit is often consumer credit. And misguided
regulation of consumer credit that shrinks its availability
will shrink the credit that is the lifeblood of small
businesses in this country.
So the Chamber actually looks forward to working with the
Consumer Financial Protection Bureau once it's up and running
to meet these goals and has already had several productive
meetings with some of the people that have been designated to
take roles at the Bureau.
But the Chamber is concerned that the Bureau's structure
will make it impossible to achieve the goals that have been set
out for it.
First of all, I think it's important to make clear at the
outset, given some of the earlier testimony, that the plain
fact is that Dodd-Frank sets up for the Bureau an unprecedented
structure that consolidates more power in the director than in
the head of any other agency that regulates private individuals
and entities. Just want to repeat that again. It concentrates
more power in a single person than any other Federal agency
head of an agency that regulates private individuals and
entities. So let me talk a little bit about why that's so and
address some of the comparisons that were put on the table
earlier.
First of all, I think we're all familiar with the basic
model of the Federal agency. Like the Federal departments,
they're headed by a single individual, a Secretary, or the head
of the FDA, one individual. But there are two important
characteristics there. It's one individual who serves at the
pleasure of the President. The President has total power to
fire that person if he or she disagrees with the President's
policy views. And, of course, for all those executive agencies,
the appropriations process is there and Congress reviews their
appropriations.
Now, we do have independent agencies. The structure for
independent agencies virtually uniformly throughout the
government is that they are headed by a multi-member,
bipartisan commission whose members serve for fixed terms. So
there is a built-in compromise there. Yes, it's true the
President doesn't have the unfettered power to fire a member of
the FTC or the SEC, but neither does one of those people have
all the power to run the agency. So you need a majority. And so
there's a built in check on the power of any one of those
individuals who have protection against the President's
discretionary firing.
Second of all, for most all of those agencies there is
still the appropriations process oversight to ensure that there
is a second check on what they're doing through the people's
elected representatives in this House and in the Senate.
The Bureau, of course, is headed by a single director who
serves for a fixed term and with respect to whom the President
is limited in his ability to fire him, except for cause--him or
her--except for cause; and there is no appropriations
oversight.
So it is those three things coming together--single person,
limitation on the President's power to fire, except for cause,
and no appropriations oversight--that makes this different than
any other agency.
And I want to address the OCC comparison, because that has
been floated earlier again in the hearing. The OCC Comptroller
is someone who is subject to firing at the discretion of the
President. So, again, critical difference in the checks and
balances that exist with respect to that agency and the agency
here.
And as I detail in my testimony, the Secretary of the
Treasury also exercises some oversight authority over the
Comptroller.
Finally, just two quick additional points.
First of all, the question of the FSOC review of
regulations and whether that's unique. I served in the
executive branch. The OIRA regulatory review process within
OMB--I'm sorry, Mr. Chairman. I'm running over a little bit.
The OIRA process brings all the executive agencies around the
table to reach a compromise about what--a united view about
what that executive branch agency regulation should be.
Second of all, I'd be happy to talk more about the
regulatory capture point that Mr. Levitin made, but suffice it
to say that the banks are not the only special interests in
this debate. There are lots of special interests, and the
question is how do we create a structure that makes sure that
the resulting rules are the public interest and not the product
of one special interest or another.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Pincus follows:]

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Mr. McHenry. Thank you, Mr. Pincus. Thank you for your
testimony, and I thank all of you for waiting and being here
and understanding that the congressional schedule tends to
lengthen things.
Mr. Levitin, you mention in your testimony you mention OCC
as an apt comparison to the CFPB. In Ms. Warren's testimony,
she also mentions that as the appropriate comparison. Why do
you believe that to be the case?
Mr. Levitin. One of the primary reasons that we separated--
that Congress separated consumer finance from bank safety and
soundness was that it found that those two did not work well
together because safety and soundness always took the foremost
position and consumer protection ended up being subordinated.
Mr. McHenry. I understand. You're talking about the
previous Congress' intent on this law, on the structure of
Dodd-Frank and CFPB in particular. What in particular--why is
OCC the appropriate comparison?
Mr. Levitin. Because OCC is the strongest of the Federal
bank regulators; and if we want to have a bank regulator that
is able to act efficiently and decisively to protect American
families, we want a structure that works like OCC. OCC has been
a very effective structure in furthering banks' interests. We
want a structure like that that furthers the interest of
American families.
Mr. McHenry. You speak that these commissions--the
commission structure is not ideal. Why?
Mr. Levitin. When you have a commission structure--there
are two reasons. First of all, just with any commission
structure, you end up often having just simply horse trading
among the commissioners. Commissioners have their pet issues,
as Professor Zywicki pointed out, and as a result of that
sometimes commission decisions end up being based on political
tradeoffs, rather than what is really the right resolution of
the issue.
Mr. McHenry. And you're saying this to Congress.
Mr. Levitin. I'm saying this to Congress, certainly,
because Congress is a different structure, and Congress is
meant to be----
Mr. McHenry. I'm sorry. Your second point. I didn't mean to
interrupt.
Mr. Levitin. Oh, no. But I think that's an important
distinction. The Congress is a political agency and is meant to
do that. We do not want our regulatory agencies operating that
way.
Mr. McHenry. And your second point?
Mr. Levitin. The second point is that when you're dealing
with the traditional model of the five-person agency--we don't
have this always, but in most cases we have the rule that no
more than three members of that five-person commission can be
from any one party. The problem is when you apply that partisan
division to consumer financial protection it doesn't work,
because consumer financial protection issues do not fall on
partisan lines.
Mr. McHenry. Okay. Thank you.
It is interesting because when you're talking access to
credit there is a division there.
Mr. Zywicki, you mentioned in your testimony that the
comparison to the FTC is the preferable one. Compare that to
the OCC. I'd like to sort of understand the difference here, if
there is a difference.
Mr. Zywicki. Thank you, Mr. Chairman.
And that's exactly right. The Federal Trade Commission is
the obvious analogy here. I worked at the Federal Trade
Commission as the Director of the Office of Policy Planning.
The Federal Trade Commission for a long time has had authority
over some pockets of consumer protection. And what we see is
that the FTC is the model of how this should be done, which is
that it has an internal deliberative process where they can
discuss the policy tradeoffs. Too much consumer protection can
be harmful to consumers.
Mr. McHenry. Why is that?
Mr. Zywicki. We could make the foreclosure rate zero if we
just said you couldn't get a mortgage.
Mr. McHenry. What would the impact of that be? People would
keep their homes. So what would the impact of that be?
Mr. Zywicki. People wouldn't be able to buy homes, because
they'd have to save up. They'd have to get cash before they
could buy a home, for instance.
Mr. McHenry. Because people wouldn't lend to them if they
could not reclaim their property is what you're saying.
Mr. Zywicki. Exactly right. Exactly. And so there is a
tradeoff then. There is a tradeoff between two good things,
consumer protection and consumer choice, competition and lower
prices. If you raise prices, then consumers get less access to
credit.
Mr. McHenry. Okay. Does the rest of the panel agree, just
yes or no, that there are tradeoffs in this, just as Mr.
Zywicki outlined. Dr. Evans? Just yes or no.
Dr. Evans. Yes.
Mr. McHenry. Okay. Mr. Levitin.
Mr. Levitin. Yes, there are tradeoffs.
Mr. McHenry. Okay.
Mr. Pincus. Yes.
Mr. Zywicki. And elaborating on the FTC then, which is that
what we see is the FTC through the deliberative five-member
process comes up away with doing this. We also see at the FTC
that there is an internal check of competition, consumer choice
on one side of the agency, consumer protection on the other
side of the agency. And when I think about this--and the FTC,
nobody has ever said that the FTC is incompetent because
they've got an agency--I never saw horse trading with respect
to these sorts of things. What I saw was a deliberative process
that had internal checks and balances, that weighed all of the
considerations here.
And when I think about the CFPB, what I think is that I was
at the FTC. I know a lot of people who have worked at the FTC.
And if people had said that consumers would be better off if we
just took the Consumer Protection Bureau of the FTC and spun it
off and just let it sue whoever it wanted to, do any
regulations it wanted to, without any consideration about other
sorts of things, people would think you had lost your mind. Yet
that is the model. That is the model for the Consumer Financial
Protection Bureau, would be the FTC Consumer Protection
Division standing alone. And that would be a disaster.
Mr. McHenry. My time has expired.
Mr. Quigley of Illinois, the ranking member, is recognized
for 5 minutes.
Mr. Quigley. Thank you again, Mr. Chairman.
Mr. Levitin, Professor, obviously, a significant part of
this new agency's mission is to help level the playing field
between the larger lenders and smaller lenders such as credit
unions and the small community banks in my district.
You published, I believe, this report in December 2009, in
which you made the point, ``better regulation of the consumer
marketplace would result in both safer and more affordable
products.'' Specifically, you mentioned the issue of incomplete
price competition, which makes it very difficult, if not
impossible, for consumers to comparison shop for products based
on total cost.
Would you explain the concept of incomplete price
competition and the effect it has on the consumer finance
market?
Mr. Levitin. Sure. I want to start by saying that I think
that the Consumer Financial Protection Bureau could end up
being a major source for relief, could end up really benefiting
community banks and credit unions by leveling the competition
playing field within the financial services space. That within
financial services there are economies of scale that--
especially in areas of credit cards and debit cards, there is
simply economies of scale that smaller financial institutions
cannot match.
Having the Consumer Financial Protection Bureau encourage
more transparent products where consumers are able to compare
apples to apples, where they don't have to try and guess what
is it going to cost me to use this credit card over the course
of a year, that they can know if I use this card this will be
the cost, if I use this card this will be the cost, and I can
make an informed comparison. Just like I go to the grocery
store and I can look at unit prices, that I can make an
informed comparison like that. Then I can make sure that I
choose the right product.
And that lets smaller financial institutions that offer
really good products and really good services be able to
compete fairly because they don't have to compete with hidden
price terms. Their price terms are up front and clear and part
of their price terms are that they have excellent service. And
often they have to compete with large financial institutions
that have an incentive to hide the price terms in small print
and make it hard to figure out what is it going to cost to use
this product.
Mr. Quigley. You're talking about improving transparency.
Mr. Levitin. Very much so, sir.
Mr. Quigley. And exactly, if you were them, how do you do
that? What are the steps so the everyday person can find what
you're talking about?
Mr. Levitin. I think, first and foremost, you focus on
disclosure of information. The way we have done consumer
protection in the United States since the Truth and Lending Act
has focused primarily on disclosure; and you try and improve
the disclosure forms, as the CFPB has already started to do
with reconciling their Real Estate Settlement Procedures Act
and Truth in Lending Act disclosures for mortgages, started
doing that with credit cards, trying to boil down, you know, a
typical 30-page credit cardholder agreement into hopefully what
will end up being a one-page agreement that you and I can look
at and read in plain English and that you don't have to be a
lawyer to understand.
Mr. Quigley. Is there some other place that you think this
makes sense to disclose so it's not just in that? Is there some
on-line possibility?
Mr. Levitin. That's one of the possibilities. It's not
clear exactly what the right answer is. Part of the task before
the CFPB is going to be to figure out what is the optimal way
to do this. And I expect that the CFPB will consider, among
other things, whether having--enabling easier on-line
comparisons just the way you might compare used cars on Carmax
or something would be an option.
Mr. Quigley. And your best guess on how the market reacts
to these requirements?
Mr. Levitin. Well, you know, if I were a large financial
institution and I made a lot of money by hiding the price
terms, I wouldn't like this. I would want to stop this, and I'd
want to kill off this agency. But if I were a small financial
institution that, you know, where my calling card was excellent
customer service and, you know, a straightforward, honest
product, I would embrace this wholeheartedly.
Mr. Quigley. I don't fault them for trying to make profits.
I just think it's something that the market always should
encourage and that's the competitive aspects that transparency
allows. So I'd like to think that they'd eventually embrace
this and see it as a marketing opportunity, as you said, you
know, like a Carmax. Some people are advertising, hey, we make
this easy for you to know what you're actually buying when you
buy this car. So I'd like to think that they'd embrace it at
some point, recognizing the cost and the competitive qualities
that it would bring to bear against them in some respects.
Mr. Levitin. Transparency is the consumer's best friend.
Mr. Quigley. Thank you, Mr. Chairman. I yield back.
Mr. McHenry. I recognize myself for 5 minutes.
Dr. Evans, you mention that your concern is that the CFPB
would really put in place an anti-credit policy. Can you
explain why that would be? Why would we have an agency with an
anti-credit, anti-borrowing, anti-lending policy?
Dr. Evans. The philosophy of many of the people who are
behind the Consumer Financial Protection Bureau is really that
there are some fundamental problems in the financial market.
There is a belief that consumers really don't know what they're
doing, that consumers make a lot of mistakes, and what you
really need is you need a nanny, you need a super nanny, in
effect, to be telling consumers what they should be doing.
How does that happen? Well, you basically tell financial
institutions what kind of products they should design, what
kind of products they should offer to consumers. If you look at
the writings of a lot of people involved in the agency, there
is a tendency on their part to basically believe that borrowing
money is not a great thing and that consumers get sucked into
borrowing too much.
How do you react to that if you're an agency with those
beliefs? You put policies in place that make it more difficult
for banks to lend money to consumers, and you put policies in
place. And one of the things that has been suggested by some of
the backers of the CFPB is basically what's known as sticky
opt-out policies, where you basically tell a financial
institution that they have to tell consumers that this is the
product that we have to give you and make it very difficult for
the financial institution to let that consumer take another
product. That basically makes it difficult for the financial
institution to lend money to that consumer.
If I might just elaborate just a little bit and respond to
Professor Levitin's points, I think history tells us that the
notion that this regulatory agency is going to lower prices to
consumers, that this massive regulatory agency is going to
lower prices to consumers, is going to increase competition I
think is extraordinarily naive.
And if you look at the facts, we've had the experiment with
the CARD Act. What have we seen as a result of the CARD Act?
One of the effects of the CARD Act in this marketplace is that
prices have gone up to consumers and it has been more difficult
for consumers to get credit.
Why is that? Because one of the things that the CARD Act
does--and I am not saying the CARD Act doesn't do good things--
but one of the things that the CARD Act does is it makes it
very, very difficult for financial institutions to price risk.
It is simply not the case that credit is like a car or is
like a toaster. The difference is that when a bank extends
credit to Mr. Zywicki or Mr. Levitin or to me or to Mr. Pincus,
the chances are each one of us has different risk
characteristics, and the bank has to figure out a way to price
that. The CARD Act and that particular regulation made that
more difficult to do, and one of the consequences of that is
banks had to basically increase their prices and reduce the
availability of credit.
The other example that I've written on recently, of
course--and we don't know how this is going to play out--is the
Durbin amendment and debit card interchange fees. Based on the
work I've done, I think it's pretty clear. I think it's pretty
clear from how the market has already operated that that is
going to have a very clear effect on the marketplace. It's
going increase the price that consumers pay. I simply don't
think it's plausible that this regulatory agency is going to
result in lower prices for consumers. I just don't think
there's a lot of experience in history that's comported with
that particular view.
Mr. McHenry. The FSOC--the ability of the FSOC to overrule
the rules of the CFPB. Ms. Warren says that this basically
weakens the agency, and it's not a strong regulatory agency
because you have to get 7 out of 10--really, excluding the
director of the CFPB, 7 out of 9--members to vote; and the
limitation on that overruling is that it would provide a
systemic risk to the American financial system. High hurdle. So
that means the CFPB could really eliminate particular
businesses and business lines, and the FSOC wouldn't have the
authority to overrule it.
Mr. Pincus, you mentioned this about the FSOC. Why is the
FSOC not a powerful tool to overrule CFPB rules?
Mr. Pincus. I think for both of the reasons you mentioned,
Mr. Chairman. First of all, the supermajority requirement is
very unlikely to be met. The standard that has to be applied
threatens the entire U.S. financial system, an incredibly high
standard.
Second of all, the process that is employed. Typically the
way agencies discuss proposed regulations is there is a process
before the rule is issued. What this says is the Bureau issues
its rule, and then if somebody doesn't like it, they can start
what will be a very public process to overrule it, and I think
there will be obvious reasons why, absent something that is
almost so cataclysmic it is impossible to think about, nobody
is going to want to do that.
Mr. McHenry. Thank you for your testimony.
With that, I yield to Mr. Cummings for 5 minutes.
Mr. Cummings. Thank you very much.
I was sitting here and listening to you, Dr. Evans, and
you, Mr. Pincus, I could not help but think about a rap group
that has a song entitled ``Get Rich Or Die Trying.'' And the
reason why I say that is that I want to do everything in my
power to protect my constituents who are suffering every day
and the constituents of Chairman McHenry, by the way, and
others. And we need to--I don't want us to throw up our hands
and say we can't protect consumers, because we can do it and we
can do it effectively and efficiently. And I am sure that is
what you all are talking about, trying to get to that.
You may have a disconnect from the people I see every day,
who pay the high bank fees and who have been messed over over
and over and over again. And they go to work, they get on the
early bus at 5:30 a.m. They scrub other people's floors,
operate the elevators and then pay these high fees. One of the
reasons is banks won't even locate in their areas. Payday loans
all throughout the district. People who rent them appliances
that they could buy.
That is why we need this protection, CFPB. And we all need
to work to make it work, because the American people are paying
for this and they deserve to be protected and they need
protection.
Professor Levitin, you published an academic paper in 2009
entitled ``A Critic of Evidence in Wright's Study of the
Consumer Financial Protection Agency Act,'' which was a
critique of a study by David Evans, who is one of our guest
panelists today, and Joshua Wright, that found among other
things that the CFPB Act, the section of Dodd-Frank that
created the Consumer Financial Protection Bureau, could
increase interest rates and reduce new jobs.
You explained that their report was just the latest phony,
and I am going to quote you, I don't want them to think I am
saying this about them, ``The latest phony lobby statistics to
come out of the banking industry,'' and pointed out that the
study was funded by the American Bankers Association. Is that
correct? Did you do that?
Mr. Levitin. It is correct, and my particular objection
with that paper was that it tried to estimate an increase in
the cost of credit due to the creation of the CFPA and the
CFPB, and its methodology was this, and you will see it is very
obvious the flaw in this methodology.
It said here is another piece of legislation dealing with
interstate bank regulation, and one study found that resulted
in an increase of cost of credit of X basis points. Therefore,
the CFPB will result in an increase in the cost of credit of X
times some number they pulled out of the air. And it was simply
that. Just take a multiplier and apply that multiplier to an
inapposite study and say that is going to be the effect of the
CFPB.
I was rather shocked, because Dr. Evans has produced some
really excellent academic work previously, and this was just
very surprising for me to see.
Mr. Cummings. Just let me ask one other question, then I
will get to you, Dr. Evans--no, you go ahead, because I want to
be fair to you.
Dr. Evans. With all due respect, Professor Levitin hasn't
done any research. He just testified concerning what is going
to happen to prices based on absolutely nothing. When pressed
to say what is going to happen to interest rates and so forth,
the reaction we get, and I will quote from his testimony just
earlier, it is speculative. We don't really know.
What Josh and I, Professor Wright and I tried to do, it was
a study. It was not based on perfect evidence. But the
particular study that Professor Levitin has pointed to is
actually an analog. The best analog we could find, not a
perfect analog, the best analog we could find of something that
is comparable to the CFPB. It provided a baseline for the
imposition of credit in the economy. That particular study that
Professor Levitin just referred to showed that another
regulatory bill and as a result of state restrictions on
banking and credit, and so forth, led to an 80 basis point
increase in interest rates. That is what you typically get with
regulation.
We did a comparison to CFPB and made the point that CFPB
would allow a greater set of regulatory restrictions on lending
than that. We took that as a----
Mr. Cummings. I have to cut you off, because I got to give
Levitin a chance to respond.
Mr. Levitin. They took that 80 basis points, and what did
you multiple it by, 2 or 3, or just some number that was yanked
out of the air, and that is not scholarship. That is simply not
scholarship, just to yank a number out of the air and say this
study was 80 basis points, therefore CFPB is going to be 160.
You can't do that. This one is 80 basis points, and we just
don't know yet with the CFPB. We have to give it a chance
before we find out.
Mr. Cummings. Thank you. I see my time has expired.
Mr. McHenry. I recognize Mr. Guinta for 5 minutes.
Mr. Guinta. Thank you, Mr. Chairman.
Dr. Evans, did you pull a number out of the air?
Dr. Evans. No. If you read the paper and if you look at our
response to Professor Levitin, which we can certainly make
available to you, we used that as a baseline of 80 basis points
and we couched it in very careful language. We said that this
isn't accurate. This is the best we can do given the available
evidence. And we gave the reader an explanation as to why they
should consider multiples of 80 basis points, twice that or
three times that, based on a very lengthy analysis that we did
in the paper, pages and pages explaining why the CFPA, why the
CFPB, has the power and has the likelihood, particularly the
earlier version of the legislation, to increase interest rates.
Again, with all due respect to Professor Levitin, he has
produced absolutely nothing on this topic. The notion that we
are engaging in this exercise and creating this massive agency
and the best we can get is ``we will just have to see,'' for me
that is not good enough.
Mr. Guinta. Thank you for that testimony. I would concur
that it is not good enough for Congress either, or it shouldn't
be good enough for Congress either. This is not a notion--this
issue is too important for us to guesstimate how to solve the
problem. I think all Members of Congress want to solve the
problem, but I have failed to see yet how this agency will
correct the actions that led up to what you, Mr. Levitin, had
talked about that built up to this.
So the one question I guess I would have for you, I think
that you had made some statements that if the CFPB had existed
from 2004 to 2008, this could have been averted. It may not
have occurred. I heard that testimony earlier in the first
panel as well.
So, my question would be even though this entity is
supposedly going to have some responsibilities of other
entities that should have prevented this or should have maybe
suggested this was going to occur and we could have put some
stopgap measures into place, can you tell me what exactly this
agency will do, say, in the next 12 months, to ensure that this
would not happen again?
Mr. Levitin. Well, Congress already took care of a lot of
the first steps itself. Title XIV of the Dodd-Frank Act
undertook a major reform of mortgage lending markets, including
a requirement that for nonqualified mortgages, which is a term
that regulators are going to have to define, that lenders will
have to verify ability to repay. That seems like a pretty
obvious first step and I am glad Congress took it.
I think it is very important to note that the major step
forward with the CFPB is changing the regulatory architecture.
Previously, when bank safety and soundness was yoked together
with consumer protection, consumer protection always ended up
being the subordinated mission and entities like the Office of
the Comptroller of the Currency would routinely turn a blind
eye to predatory lending practices because they were profitable
and they didn't want to stop the music at the party.
The CFPB does not have that bank profitability mission. It
is not tasked with maximizing bank profitability, and therefore
it is an agency that is incentivized to make sure that there is
good consumer protection.
Mr. Guinta. Wasn't that, ``consumer protection,'' didn't
that exist in these other agencies? Their missions were not to
have bank profitability?
Mr. Levitin. Sure, they were. They were tasked with bank
safety and soundness, and a bank that is not profitable is not
safe and sound.
Mr. Guinta. So you are saying their sole focus was bank
profitability. There was nothing, no protections, no concern,
no issue with respect to the consumer?
Mr. Levitin. Virtually none, and I can give you some
examples. The Federal Reserve had the power under the Home
Owners Equity Protection Act [HOEPA], to pass regulations that
would have curbed some of the worst abuses of subprime lending.
It didn't act for over a decade.
Mr. Guinta. Would Fannie and Freddie fall into this
category you referred to?
Mr. Levitin. Fannie and Freddie are a complicated and
rather sad side story to this. The real problem in the home
lending market was from the private label securitization area,
and that then spilled over into Fannie and Freddie. Fannie and
Freddie were really not government agencies. They weren't
tasked with consumer protection. And FIFA, or OFHEO, was not
tasked with consumer protection either.
Mr. Guinta. I note my time has expired. Thank you, Mr.
Chairman.
Mr. McHenry. The ranking member, Mr. Quigley, is recognized
for 5 minutes.
Mr. Quigley. Thank you, Mr. Chairman.
Dr. Evans, Professor Levitin, I actually appreciate the
disagreements here. Our judicial system is built on zealous
advocates disagreeing, because from that we like to think we
move toward the truth. So toward that end, while I recognize we
are not going to hold hands and sing Kumbaya here, it is good
to see this warm and fuzzy moment.
Dr. Evans, the professor's comments about transparency,
while you may disagree with much of what this agency is about,
could you talk about how transparency might help this industry
and if you agree or what parts of transparency might improve
things from the consumer's point of view without, as you would
be unhappy with, destroying competition?
Dr. Evans. Yes, that is a very fair question, and I
appreciate it. And let me take that and just start out by
saying that I am certainly not suggesting that there aren't
problems to be solved. I mean, there are a ton of problems in
the lending industry, there are certainly lots of problems that
consumers have faced and I would be the last person to deny
that there is a set of problems that some agency needs to deal
with.
One of the things that is beneficial for consumers, subject
to qualifications, is transparency. It is not a good thing when
banks hide the ball. It is not a good thing when consumers are
tricked into doing things. And it is certainly the case that
there are some members of the financial services industry that
have acted badly. And I am the last person to suggest that
everything is okay and that there are no problems. So I am in
favor of consumer protection, consumer financial protection. I
think this agency could do lots of good things.
The one qualification, I guess the thing that I would
really like to get across, is that as with many things we have
to have a perspective on the marketplace, and, by and large,
this is an industry that does a lot of great things. It helps
the people in Mr. Cummings' district in lots of ways.
We just have to have the perspective that while there are
bad things going on that we need to take care of, it is also an
industry that does a great deal of good for consumers and small
businesses, and the regulation that we have for this industry
needs to be conscious of both the bad things that are going on,
but it also needs to really recognize that the bad things are
often exceptions and that there are lots of good things that we
need to make sure we don't harm.
Mr. Quigley. So would you suggest that the bad things you
talked about are in large part undertaken by what was deemed
the shadow banking industry? I mean, when this bill was being
discussed, many of the largest financial institutions were
supportive of--they weren't for this agency, but they were
certainly for somebody going after the problems from what was
deemed the shadow banking industry. If you want to use a
different term, that is fine.
Dr. Evans. No, I am hesitating here because I think
probably one of the things that Professor Levitin and I agree
on is that some of the large financial institutions engaged in
practices that, you know, probably weren't a great thing for
consumers. So there were elements of the financial services
industry, whether it is large, whether it is shadow and so
forth, you know, there were certainly issues, and those issues
I think should be appropriately dealt with.
So I don't want to draw this dividing line between big
financial institutions and the shadow financial institutions,
because the shadow financial institutions, while we think of
them as charging very high prices, in some cases they are also
meeting a consumer need for people that aren't able to get
loans from the large financial institutions but actually have a
need that needs to be served.
So, again, I don't want to suggest that there aren't
problems there, but we also need to recognize that just because
we say payday lender, that not all payday lenders are doing bad
things and not helping consumers.
Mr. Quigley. Well, I appreciate your candor, and I would
suggest to all the witnesses here that kind of candor helps us
get to the truth in the end because there will be another day
and another issue and another bill. In the end, what we are all
trying to do is help all of our constituents. So, Dr. Evans,
that helps.
Thank you, and I yield back.
Mr. McHenry. I now recognize Mr. Guinta for 5 minutes.
Mr. Guinta. Thank you, Mr. Chairman. I wanted to follow up
with both Mr. Zywicki and Mr. Pincus on a couple of items.
First, Mr. Zywicki, look, I understand the notion of
appropriate consumer protection. I think most of us do. I think
all of us probably agree that there is either redundancies or
even in some circumstances additional burdens in some
regulatory requirements. I think even some of us would agree
with this philosophy or notion of the CFPB.
I have great concerns about the structure. I have great
concerns about the ultimate power that can be provided to this
one individual and to the individuals within this organization.
I have serious concerns about the funding of the agency and the
lack of ability for this agency to be called in front of
Congress. And I think those are concerns that anybody in
Congress should have, because ultimately, people in this
country are going to rely on Congress to make sure that the
right things are being done.
So my question to you would be in two parts, I guess. Could
you talk a little bit about how this agency is structured and
maybe some of the problems we should consider or see in the
future; and, second, what alternatives do exist or can exist,
rather than the structure that has been outlined in Dodd-Frank?
Mr. Zywicki. Thanks. Again, I think the Federal Trade
Commission is the obvious model for how this thing should have
been set up. In fact, I think all of these duties should have
just been given to the Federal Trade Commission and we could
have all gone home at that point and they would have done the
right job. And I think the Federal Trade Commission, where I
worked from 2003-2004, is a much stronger, capable, effective
agency precisely because of all of the apparatus that is set up
around it. A multi-member commission, internal checks and
balances, congressional oversight, all those sorts of things
makes that agency much better. An agency that lacks all that is
prone to tunnel vision and sort of navel gazing and that sort
of thing and just sort of losing it its way. So I would
strongly urge this be reformulated along the lines of the FTC.
Fundamentally, if this is the right thing here, then the
FTC is wrong, and I don't think anybody thinks the FTC is
wrong.
Mr. Guinta. Can you expand a little bit on the commission?
Why doesn't the CFPB have a commission, and does that suggest
that the other commissions are not necessary?
Mr. Zywicki. It seems to suggest that if this is right,
then all the other ones are wrong, and that just doesn't seem
plausible to me. If this is how we are supposed to set up
consumer protection, then I guess you need to wipe out the FTC,
which has been here since 1914, and replace it with a director
rather than a commission. The OCC is not analogous at all. The
OCC is safety and soundness. It basically does accounting. It
doesn't do broad scale policy analysis of the sort of things we
have here.
So let me give an example, if I may. I agree totally with
Mr. Cummings about his concerns with respect to access to
credit. But if you think about it, the combination of CFPB, the
Durbin amendment, the Credit Card Act, that sort of thing, we
are going to drive because of the Durbin amendment maybe a
million consumers out of the mainstream banking system. CFPB,
by increasing the regulatory burdens here, is going to drive
more consumers out of the mainstream banking system. We are
going to put them exactly in the hands of the payday lenders
and the check cashers and everybody else. We have already seen
this. When you go after the payday lenders, what happens is the
payday lending migrates online and then you have online payday
lending. You have payday lending people migrate to pawn shops.
We are talking about a situation where when you go in with
good intentions, you end up hurting the people you intend to
help. And that is what I am concerned is going to happen with
this.
Mr. Guinta. Mr. Pincus, to follow up a little bit, I don't
know that you heard earlier testimony, but I have some concerns
about OCC versus CFPB. I believe there are clear differences
between the two. Could you talk a little bit about the
differences between the OCC and the CFPB in terms of oversight?
Mr. Pincus. The clearest difference, Congressman, is that
the Comptroller serves at the pleasure of the President and the
Director doesn't. The Director can only be dismissed for I
think the statute says inefficiency, neglect of duty or
malfeasance. So it is a much more restrictive standard.
So in terms of the checks of the elected officials, much
less of a check than on the OCC, than on the Comptroller. And
within the Treasury Department, the Secretary does also have
some ability to oversee what the Comptroller does. Again, the
statute is completely clear. The Federal Reserve has zero role
with respect to what the Director does. So those are the key
differences, I think.
Mr. Guinta. I appreciate that, because that is completely
different than testimony we heard earlier today. Earlier today
we had heard that they are similar, if not identical. And I
would agree with you that that primary function of
responsibility in how you can be hired and how you can be fired
is paramount to the job that you are expected to complete.
I thank the chairman for the time.
Mr. McHenry. I thank the vice chair. I appreciate that.
Mr. Cummings is recognized for 5 minutes.
Mr. Cummings. I am listening to all of this and it is so
easy to forget how we got here. We can have testimony to paint
over the past and talk about--my mother used to tell us don't
concentrate on what you don't have, concentrate on what you do
have. I have been listening and I am just trying to--thinking
about $20 billion in credit card penalty fees, talking about
$38 billion in overdraft fees. I am trying to figure out, where
do we think this money comes from? It is coming from regular,
everyday citizens.
Dr. Evans, I heard what you said about the fact that these
are people who will rent you a washing machine for $75 a month
when you could possibly buy one for $350, particularly in this
kind of economy, that they are doing a service.
One of the things that Ms. Warren talked about today is
trying to give people information. And I think information is
power, I really do, but it is powerful when you use it. In some
kind of way in this country we have to get to the point where
we don't let the little guy and lady go down the tubes.
Some kind of way we got to get there. Because, you know
what? Because you are going to always have--I live in the
inner, inner, inner-city of Baltimore, so I see it every day.
They don't have the big fancy cars. They may have a car that is
5 or 6 years old. They are making extremely high car payments.
They are paying extremely high rent for what they are getting.
They pay the most for food and the food is not very good. And
they are constantly digging into a hole that gets deeper and
deeper while the folks, a lot of the folks who get these fees,
they move out into the suburbs, into the mansions.
Then these folks who are getting up at 5:30 a.m., paying
all these fees to these people who you say are doing them a
great favor, they can't do for their children, they can't take
care of their children the way they would like to or even
close, and they find themselves in generational cycles going
down, down, down, instead of going up, up, up.
That is why I go to every graduation I can go to and beg
people to get an education, because you are going to broaden
the gap between the have's and have-not's, because again, the
people who don't have pay the most and they are the ones in
most instances that get royally screwed.
So, I am just here representing my constituents, trying to
make sure that we find a way out of this.
So this organization was not, the CFPB, was not established
to just be something fancy and to be able to say we did
something. We wanted to make sure--by the way, I don't think we
had one Republican vote--we wanted to make sure that we did
something to take care of all of our constituents. I don't care
where they live.
So then the question becomes is how do you take this and
make it work well so that those people don't keep going in a
downward cycle; so that because they cannot afford the things
that they need because they just paid $20 billion in credit
card penalty fees, if they can get a credit card of course, and
$30 billion in overdraft fees, so how do we make it work? You
guys are the geniuses. You are the gurus. What do you say to my
constituents, if they have a television?
Dr. Evans. Sir, personally I have a lot of sympathy for
your constituents and I understand the problems that they face
and I wish I could tell you I was here today and I could give
you the solution to all the problems you laid out. I think all
of us would like to solve them.
I guess the one thing I would say, maybe to just put a
little bit of perspective on it, is if you go 20 years ago,
many of your constituents who now have credit cards probably
wouldn't have been able to get them. One of the things that has
happened over the last 20 years is more socially and
economically disadvantaged people have been able to get credit
cards, they have been able to get bank accounts, and that has
actually helped them out.
One of the areas that I have worked on quite a bit,
Congressman Cummings, not recently but a long time ago was
minority businesses. I am sure you have minority businesses.
Mr. Cummings. A lot of them.
Dr. Evans. I am sure you have a lot of them. And one of the
problems they faced 20 years ago is if they wanted to get
financing on their credit cards, 20 years ago, 15 years ago,
they would have had great difficulty doing that. They are now
able to do that now.
So I am not suggesting your constituents don't have deep
problems that need to be solved. I guess I would like to maybe
persuade you a little bit that some of these financial services
products, whether it is bank accounts and debit cards or credit
cards, while there may be aspects of it that you see as bad, I
guess I would like to persuade you that there is an aspect of
them has actually has been pretty good for your constituents
and that it is actually getting better over time.
Finally, I would just point out that my wife is from
Baltimore and she will be amused when I go home and tell her
that you compared me to anything involving rap.
Mr. Cummings. I see my time is up. Thank you, Mr. Chairman.
Mr. McHenry. We are going to do a final round here. Mr.
Guinta is recognized for 5 minutes.
Mr. Guinta. Thank you very much, Mr. Chairman. I happen to
in the last month or so visit Beach Street School in the inner-
city of Manchester, New Hampshire. Many people of think of New
Hampshire not as the home to an inner-city, but it has many
inner-cities, many neighborhoods that are inner-cities. I
happened to be mayor for 4 years of that city and have great
compassion for those who are financially and socially
challenged in this society.
So I think it is imperative and important for us to make
sure that we have rules in place that allow a level playing
field, that will allow any individual if he or she chooses, to
succeed in life. I am often reminded of some of the kids that
go to the Boys and Girls Club in my hometown of Manchester, New
Hampshire, and where they started and where they are today. And
I am proud to be part of a family of constituents and community
members who feel very strongly that it is our responsibility as
Americans to lead by example, to ensure that the American dream
is alive and well, and that anyone who wants a part of that
American dream can reach for that American dream.
So I guess my question would be this to Mr. Zywicki, if
there was an alternative that you would suggest would enhance
that type of America that I could cosponsor with the gentleman
from Baltimore, and I would be happy to do it, because I have
great respect for him. I have watched him serve with passion
and compassion and I admire his approach to trying to help his
constituents, and I want to be part of that solution.
So if there was a piece of legislation that Congress could
embrace in a bipartisan way to make that American dream,
whether it is in Baltimore or Manchester come true, what would
it be?
Mr. Zywicki. I certainly think incrementally the things
that are on the table, I endorse all of those, the multi-member
commission, that sort of thing.
But what I would urge this panel to think about going
forward, because the CFPB will likely turn out to be a failure.
If it is not, if these accountability issues are not fixed,
this thing is going to run off the rails and it is going to be
a job killer and it is going to raise the cost of credit and
everything else and it is going to hurt the people it is
specifically intended to help.
So hopefully that will--that is unfortunate, but I think
that is entirely predictable. I hope that causes people to
reexamine this.
Let me stress again, I think that there is an urgent need
and a great opportunity for a new approach to consumer
financial protection. In my testimony I talk about the
difference between market reinforcing regulation on the one
hand and market replacing regulation on the other hand. I am
all for savvy regulation that makes use of technology,
harnesses the power of competition and consumer choice. A lot
of the things that this agency might do, like a simplified
mortgage disclosure form, would be great. Going back and paring
back some of the mountains of junk that has been attached to
the Truth in Lending Act would be great.
My concern is that in order to bring about heightened
competition and consumer choice, we could do that. Doing things
like creating vague, open-ended standards of liability, like
the ability to sue somebody for an abusive product because
somebody in Washington thinks that somebody out there is too
stupid to be able to understand the products that they are
purchasing, not based on anything that I can tell, that is not
going to help people.
We know--the concern I have is both for middle class people
to be able to have choice and competition, and I am concerned
about lower income people who already have very limited credit
options. And if we have a regulator that takes away options
from people that already have limited options, that is not a
very good way of making those people's lives better off. And we
know this even just from regulating payday lending. When you
get rid of payday lending, what happens? Evictions go up,
bounced checks go up, utility shutoffs all go up in a situation
like that.
So I think that the desire for Washington bureaucrats to
think that they know better about how consumers and people live
their lives I think is a folly and I would think we would want
to go in a different direction toward competition and consumer
choice.
Mr. Guinta. Thank you. I yield back to the chairman.
Mr. McHenry. The ranking member is recognized for 5
minutes.
Mr. Cummings. I want to thank the gentleman from New
Hampshire for his kind words, and I really mean that. Thank
you.
I am trying to figure out where do we--you were talking,
Dr. Evans, about helping folks, helping minority contractors.
One of the things that I have noticed is when we pull together
minority contractors, and not just minority contractors, others
too, one of the things they talked about was just in light of
all the problems we have been experiencing with the economy,
just being able to get credit. A lot of them had opportunities
but they couldn't even get a line of credit or the line of
credit was canceled. And, you know, for some of these small
firms, a $10,000 line of credit is, as I am sure you well know
if you have worked with minority contractors, that is like
worth $1 million just to get from payday to payday and
whatever.
I was wondering, Mr. Guinta was talking, I was just
thinking to myself this other question. You know, there are a
lot of organizations now that are spending a lot of energy and
effort in this whole thing of financial literacy, and I am just
wondering how much that plays in. Mr. Guinta very sincerely
said he is trying to find solutions, as I am, and I am
wondering how much value that has. Because I do believe that
sometimes people don't know how to handle money.
Some folks, they don't know. They just have never been
taught. And balancing checkbooks, if you have fees for bouncing
checks, I remember somebody told me once a banker said
something to the effect if people stopped bouncing checks, he
would be out of business. I think he was exaggerating a little
bit. But that is a lot of money. You know what happens. You
bounce one, and then because that one bounces, you have a whole
series of bouncing, and then the next thing you know you have
bounced all the way around the world.
So I am just wondering, there is a certain part of it is
personal responsibility, but as my mom used to say, there is
nothing like a person who don't know what they don't know. And
I was just wondering how significant a role do you think that
plays in trying to help people?
I know there are some people that may be informed, they
just don't have the resources. But there are other people that
maybe if they were taught at an early age that a penny saved is
a penny--however it goes, you know, if you hold on to it you
are in good shape.
So I was just wondering.
Dr. Evans. So you are asking an economist whether we ought
to have more economic instruction in the schools?
Mr. Cummings. Yes, that is right.
Dr. Evans. Yes. We absolutely should.
Mr. Cummings. Do you think it helps a lot, if it is done
right?
Dr. Evans. I do. I think there is not enough instruction in
the school systems on how finances work, how the economy works,
and I think probably that is something that Adam and I probably
agree on, that getting more of that in society, both in the
school system and generally in society would be a good thing.
I know that is one of the things that the CFPB is supposed
to be doing and I think I would applaud them for doing that. So
I think that would be helpful. I think it would be helpful for
your constituents, and I think it would be helpful, frankly,
for a lot of people.
If I could just quickly comment on the first part of your
remarks though concerning the minority contractors, I
absolutely hear you. I know tons of businesses in the last few
years that had their lines of credit canceled, and it is a very
tough time the last few years for small businesses.
What we need to do in order to fix that problem is we need
to get money flowing to small businesses to get them moving
again. And this probably isn't the right opportunity to go into
all the reasons why they are not getting it, but one problem is
some of the capital requirements that banks and in particular
community banks have. As you probably know, community banks are
one of the major sources of lending for small businesses. So
there are a multitude of problems that I think minority and
other small businesses face at this point that we could
probably give some attention to.
Mr. Cummings. I will be in contact with you on that. Mr.
Levitin?
Mr. Levitin. Briefly. First to address the constriction of
capital to small businesses, it is important to note that that
constriction of capital happened before any new Federal
regulation went into place. That started in really the fall of
2008 in particular, and that was the result of a lack of
regulation. That was not caused by regulation. I think we need
to keep that in mind.
As far as financial literacy, you know, it is hard to argue
against it, except the evidence there is really not very
convincing. There isn't real good evidence that it works. If
you stop and think about it for a second, of course it doesn't.
You know, I think I am pretty financially literate, and I
guarantee you there are a lot of lawyers around at Mr. Pincus'
firm and other firms that can draft forms that I will not
understand, and they are paid very well to do it, and I know it
because I used to be paid to do that.
Mr. McHenry. The gentleman's time has expired. I recognize
myself for the final 5 minutes of the day.
That is by far the most shocking thing that I have heard
here today, that financial literacy doesn't matter. That is
insane. With all due respect, I would tell you that if I look
at a form and I say it is too complex for me to understand, I
will not sign it. Right? And it is skepticism, that additional
bit of financial literacy, and I am not trying to attack you.
But, look, maybe your point is that financial literacy isn't
going to fix everything. I would accept that.
Mr. Levitin. Sure. Not everyone is as skeptical as you are.
I wish that were the case.
Mr. McHenry. But there are those that are more financially
literate.
Mr. Levitin. But skepticism is not financial literacy. It
is just skepticism.
Mr. McHenry. Right. Okay. Well, I understand. Maybe we
should teach skepticism.
Mr. Levitin. I think that would be a very good thing.
Mr. McHenry. To a skeptical American public. Look, I do
want to ask a few questions that I want to better understand.
There are two--well, the headline of this hearing was
``Who's Watching the Watchmen.'' Let's get back to that. I
don't want to lose sight of this kerfuffle with Ms. Warren
earlier today because she wanted to leave.
I think the American people have a lot of questions about
this Bureau. People that are providing credit, those that are
accessing credit, those that hope to borrow, those that are
trying to have a business providing some level of lending,
either short term, long term, whatever it may be, have a lot of
questions about this Bureau. And it is very clear that Ms.
Warren is not intent on being very forthright about her ideas
for this. So, that is why we have an expert panel, to get a
diversity of views.
Mr. Zywicki, in terms of inspector generals, would it be
helpful to have a Special Inspector General for the CFPB?
Mr. Zywicki. Yes.
Mr. McHenry. Dr. Evans.
Dr. Evans. Yes.
Mr. McHenry. Mr. Levitin.
Mr. Levitin. I would need to think about that issue
further. I am happy to submit written comments on it.
[The information referred to follows:]
[Note.--The information referred to was not provided to the
subcommittee.]
Mr. McHenry. Certainly. I would appreciate that.
Mr. Pincus.
Mr. Levitin. I think I would like to think about it. I
mean, the Fed Inspector General has that job now, and I think
the question you are asking is should it be a more focused
focus.
Mr. McHenry. What would you think of that?
Mr. Pincus. I think I should talk to my client before I get
back to you.
[The information referred to follows:]
[Note.--The information referred to was not provided to the
subcommittee.]
Mr. McHenry. Smart man.
Cost-benefit analysis, OIRA. So we have an enormous swath
of our government, the greater portion of our government is
required to actually do a solid cost-benefit analysis. There is
a lot of oversight and balance for that. Do you think it would
be appropriate and helpful that the CFPB be subject to OIRA?
Mr. Zywicki. Absolutely. Yes.
Mr. McHenry. Why?
Mr. Zywicki. Independent agencies typically are not
subjected to OIRA oversight, but the reason is because they are
multi-member commissions, so you basically substitute that
accountability and that internal deliberative process where you
essentially go through a cost-benefit analysis like we did at
the Federal Trade Commission.
This has neither of those, and so if you are not going to
have at least a multi-member commission, you need to have
something like OIRA. We have been talking most of the time here
about the inherent tradeoff between higher costs and consumer
protection, access to credit, those sorts of things, and a
serious, rigorous external check and cost-benefit analysis I
think with be very valuable, unlike the sort of haphazard thing
that is in there now.
Mr. McHenry. Dr. Evans, you mention it in your testimony.
Would you comment?
Dr. Evans. Well, yes, if it is done seriously.
Mr. McHenry. What would you point to as a good way of cost-
benefit analysis being done? Is it currently being done in
government, period?
Dr. Evans. Yes, this is not an area I am an expert on. Todd
knows more about it than I do. My impression is that it is not
currently being done very well anywhere.
Mr. McHenry. Mr. Levitin.
Mr. Levitin. I would concur with Dr. Evans that the current
OIRA process is a bit of a disaster. It ends up being mainly a
cost analysis, not a cost-benefit analysis.
Mr. McHenry. Would that be helpful though?
Mr. Levitin. Well, I would note that the CFPB statute
requires a cost-benefit analysis, and that if the CFPB's
analysis is not good, it can be challenged in court. So it
already has that baked in. I am not sure that OIRA does
anything except create an obstacle for government action.
Mr. McHenry. Thank you. Mr. Pincus.
Mr. Pincus. Well, I think it would be great. I think what
OIRA does is bring some external rigor both to the cost-benefit
analysis, but also brings other policy voices to the table. I
mean, one of the values of the OIRA process is it is not just
the agency that is proposing the rule, it is the whole
government that gets a chance to have input, and that is what
you want in an area where you have such conflicting--not
necessarily conflicting, but a multitude of policy interests.
Mr. McHenry. Thank you. To the point of cost-benefit
analysis, it is currently required for the CFPB for small
institutions. It is not across-the-board, is my understanding.
Mr. Levitin. My understanding is that under the CFPB's
unfair, deceptive and abusive practices, that it is included.
But, you know, without looking, having the statute before me--
--
Mr. Zywicki. I believe it is sort of an internal cost-
benefit analysis. OIRA reviews only for the small business
divisions, I think.
Mr. Pincus. I was just going to say, Mr. Chairman, one
problem is all the things we are talking about only apply to
rules, and what Ms. Warren said and certainly what other
agencies such as the FTC have done have basically set standards
through enforcement actions.
So I think another whole area of important discussion is
where an enforcement position gets taken, and either through
settlement or whatever becomes something that is prevailed on,
what is the check on that as something that then legitimate
businesses are going to say hey, I better start complying with
this. Even though it is one enforcement action, I could be
next.
Mr. McHenry. That was one of my questions of Ms. Warren,
was the relationship to the mortgage settlement. It is very
clear that they were not intent on communicating very much of
what they are doing, and their agency isn't even up and
running. So it is a great concern that we have, is that there
are not internal controls within this agency, whereas a
balanced approach would have a board oversee it, even like Ms.
Warren's original proposal, to be quite frank about it, where
there would be internal debate or wrestling with rulemaking
rather than one director simply doing it.
The additional thing that is clear from today is that the
CFPB will neither increase access to credit nor reduce the cost
of credit. That is for certain, and I think there is wide
agreement on that. I would say further that it is also clear
that the current Special Assistant, the Assistant to the
President and Assistant to the Treasury Secretary, Ms. Warren,
has been calling the shots at organizing this Bureau. It has
been a rather less than transparent operation, if we can be
very direct about it. Her answers were less than forthcoming
and they raise more questions than they actually provide
answers. That is what we have learned over the course of the
last 3 hours in this committee room.
I certainly appreciate this panel's testimony. Thank you
for waiting through the afternoon, and thank you for your
forthrightness and willingness to sort of engage in this
discussion, because it is enormously important, not simply to
policymakers in Washington, not simply to academics or business
folks, but to the small business person who hopes the small
person, and in another of my colleague's terms, who wants to
start a business.
My dad, who wanted to start a business out of the garage,
and he started that business on a credit card, something he
told me to never do, except for that business put five kids
through college, put a roof over our head and an opportunity.
So I want to make sure that people have access to credit,
whether it is a person trying to make it to the next paycheck
or the person who has an aspirational goal of employing people
and growing this economy. That is really what it is all about.
We can have a debate about how you achieve it, but this
CFPB is not the construct to make that more available, achieve
greater opportunities for those individuals that we care so
much about.
Thank you for your testimony. I certainly appreciate your
willingness to be here today. This meeting is now adjourned.
[Whereupon, at 4:20 p.m., the subcommittee was adjourned.]