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

THE CONSUMER FINANCIAL PROTECTION
BUREAU: THE FIRST 100 DAYS

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

HEARING

BEFORE THE

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

AND CONSUMER CREDIT

OF THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

FIRST SESSION

__________

NOVEMBER 2, 2011

__________

Printed for the use of the Committee on Financial Services

Serial No. 112-80

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HOUSE COMMITTEE ON FINANCIAL SERVICES

SPENCER BACHUS, Alabama, Chairman

JEB HENSARLING, Texas, Vice BARNEY FRANK, Massachusetts,
Chairman Ranking Member
PETER T. KING, New York MAXINE WATERS, California
EDWARD R. ROYCE, California CAROLYN B. MALONEY, New York
FRANK D. LUCAS, Oklahoma LUIS V. GUTIERREZ, Illinois
RON PAUL, Texas NYDIA M. VELAZQUEZ, New York
DONALD A. MANZULLO, Illinois MELVIN L. WATT, North Carolina
WALTER B. JONES, North Carolina GARY L. ACKERMAN, New York
JUDY BIGGERT, Illinois BRAD SHERMAN, California
GARY G. MILLER, California GREGORY W. MEEKS, New York
SHELLEY MOORE CAPITO, West Virginia MICHAEL E. CAPUANO, Massachusetts
SCOTT GARRETT, New Jersey RUBEN HINOJOSA, Texas
RANDY NEUGEBAUER, Texas WM. LACY CLAY, Missouri
PATRICK T. McHENRY, North Carolina CAROLYN McCARTHY, New York
JOHN CAMPBELL, California JOE BACA, California
MICHELE BACHMANN, Minnesota STEPHEN F. LYNCH, Massachusetts
THADDEUS G. McCOTTER, Michigan BRAD MILLER, North Carolina
KEVIN McCARTHY, California DAVID SCOTT, Georgia
STEVAN PEARCE, New Mexico AL GREEN, Texas
BILL POSEY, Florida EMANUEL CLEAVER, Missouri
MICHAEL G. FITZPATRICK, GWEN MOORE, Wisconsin
Pennsylvania KEITH ELLISON, Minnesota
LYNN A. WESTMORELAND, Georgia ED PERLMUTTER, Colorado
BLAINE LUETKEMEYER, Missouri JOE DONNELLY, Indiana
BILL HUIZENGA, Michigan ANDRE CARSON, Indiana
SEAN P. DUFFY, Wisconsin JAMES A. HIMES, Connecticut
NAN A. S. HAYWORTH, New York GARY C. PETERS, Michigan
JAMES B. RENACCI, Ohio JOHN C. CARNEY, Jr., Delaware
ROBERT HURT, Virginia
ROBERT J. DOLD, Illinois
DAVID SCHWEIKERT, Arizona
MICHAEL G. GRIMM, New York
FRANCISCO ``QUICO'' CANSECO, Texas
STEVE STIVERS, Ohio
STEPHEN LEE FINCHER, Tennessee

Larry C. Lavender, Chief of Staff
Subcommittee on Financial Institutions and Consumer Credit

SHELLEY MOORE CAPITO, West Virginia, Chairman

JAMES B. RENACCI, Ohio, Vice CAROLYN B. MALONEY, New York,
Chairman Ranking Member
EDWARD R. ROYCE, California LUIS V. GUTIERREZ, Illinois
DONALD A. MANZULLO, Illinois MELVIN L. WATT, North Carolina
WALTER B. JONES, North Carolina GARY L. ACKERMAN, New York
JEB HENSARLING, Texas RUBEN HINOJOSA, Texas
PATRICK T. McHENRY, North Carolina CAROLYN McCARTHY, New York
THADDEUS G. McCOTTER, Michigan JOE BACA, California
KEVIN McCARTHY, California BRAD MILLER, North Carolina
STEVAN PEARCE, New Mexico DAVID SCOTT, Georgia
LYNN A. WESTMORELAND, Georgia NYDIA M. VELAZQUEZ, New York
BLAINE LUETKEMEYER, Missouri GREGORY W. MEEKS, New York
BILL HUIZENGA, Michigan STEPHEN F. LYNCH, Massachusetts
SEAN P. DUFFY, Wisconsin JOHN C. CARNEY, Jr., Delaware
FRANCISCO ``QUICO'' CANSECO, Texas
MICHAEL G. GRIMM, New York
STEPHEN LEE FINCHER, Tennessee

C O N T E N T S

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Page
Hearing held on:
November 2, 2011............................................. 1
Appendix:
November 2, 2011............................................. 53

WITNESSES
Wednesday, November 2, 2011

Date, Raj, Special Advisor to the Secretary of the Treasury,
Consumer Financial Protection Bureau (CFPB).................... 9

APPENDIX

Prepared statements:
Date, Raj.................................................... 54

Additional Material Submitted for the Record

Maloney, Hon. Carolyn:
Assorted newspaper articles.................................. 61
Letter from the National Association of Attorneys General.... 74
Westmoreland, Hon. Lynn:
Compliance documents......................................... 78
Date, Raj:
Written responses to questions submitted by Representatives
Fincher and Manzullo....................................... 88

THE CONSUMER FINANCIAL PROTECTION
BUREAU: THE FIRST 100 DAYS

----------

Wednesday, November 2, 2011

U.S. House of Representatives,
Subcommittee on Financial Institutions
and Consumer Credit,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 10:01 a.m., in
room 2128, Rayburn House Office Building, Hon. Shelley Moore
Capito [chairwoman of the subcommittee] presiding.
Members present: Representatives Capito, Renacci, Royce,
Manzullo, McCotter, Pearce, Westmoreland, Luetkemeyer,
Huizenga, Duffy, Canseco, Grimm, Fincher; Maloney, Gutierrez,
Watt, McCarthy of New York, Baca, Miller of North Carolina,
Scott, Meeks, and Carney.
Ex officio present: Representatives Bachus and Frank.
Also present: Representatives Posey and Green.
Chairwoman Capito. This hearing will come to order.
This morning's hearing marks the second oversight hearing
this subcommittee has conducted regarding the newly created
Consumer Financial Protection Bureau, the CFPB.
Today, we are joined Mr. Raj Date, Special Advisor to the
Secretary of the Treasury for the Consumer Financial Protection
Bureau.
I would like to welcome Mr. Date to his first hearing
before this committee in his capacity. And I also would like to
thank him for his willingness to participate.
Thank you.
Created by the Dodd-Frank Act, the CFPB has officially been
operational for a little over 100 days. However, absent Senate
confirmation of the Director, the CFPB does not have its full
powers.
The focus of this morning's hearing will give members of
the subcommittee the opportunity to learn more about the
operations of the Bureau since the designated transfer date.
These types of hearings are critical as the drafters of Dodd-
Frank allowed for little oversight of the CFPB.
As my colleagues know, the CFPB is funded through a unique
mechanism that allows them to draw a percentage of the Federal
Reserve's operating expenses each year. They do have the
ability to draw on $200 million in additional Federal
appropriations if they exhaust the Federal Reserve funds, which
they have not done, as we speak.
However, they have not drawn on these funds so it is very
difficult for the U.S. Congress to have oversight about how
they are spending taxpayers' dollars.
Bringing the CFPB into the annual appropriations process is
just one of the several reforms that Republicans have offered
to improve the structure of the CFPB and make it more
accountable and a more transparent agency.
Earlier this year, the House passed commonsense reforms to
convert the leadership structure of the CFPB to a five-person
committee, which is reflective in several other committees and
throughout the government, and allow for greater balance
between consumer protection and the safe and sound operation of
United States financial institutions.
The U.S. Senate should adopt these reforms so that we can
move forward with ensuring that American consumers are
protected by a balanced and transparent agency.
I look forward to hearing from Mr. Date about the
operations of the CFPB. And I thank him also for his visit to
my office since the designated transfer date.
I know Members will have many questions for him, so I will
save my time for further questions and statements.
In case the Members do not have sufficient time for their
questions, I would encourage them to submit their questions in
writing. There are many important issues to discuss and we may
not have enough time to cover them all today.
I would like to say that on the issue of consumer
protection, Republicans and Democrats agree that consumer
protection is an extremely important aspect as we make sure
that our fellow Americans have access to credit, have fair and
transparent disclosures when signing agreements in securing
credit, and that oversight of consumer products is an extremely
important aspect.
Again, I would like to thank Mr. Date for appearing before
the subcommittee.
And I will now yield to the ranking member of the
subcommittee, the gentlelady from New York, Mrs. Maloney, for
the purpose of making an opening statement.
Mrs. Maloney. Thank you so much.
Today, I applaud the CFPB for a remarkable string of
achievements in its first 100 days of existence. It has already
formed two special offices to help advise and educate segments
of the market that have been especially vulnerable to predatory
practices.
The Bureau is already helping seniors through the Office of
Older Americans headed by Skip Humphrey, a former Minnesota
State AG and State chair of the AARP.
The Bureau is already looking out for members of our
military services through the Office of Servicemember Affairs
headed by Holly Petraeus, whom we are honored to have with us
today.
Thank you, Holly, for working and responding so swiftly to
complaints that mortgage servicers were illegally foreclosing
on the homes of servicemembers while they were deployed. She
reached out to the CEOs of 25 companies and got them to stop
these abusive practices.
The Bureau is already working to help students. It drafted
a new financial aid form last week that breaks down the real
cost of student loans into an easy-to-understand sheet. It
features a total tuition cost, projected monthly payments, and
the loan default rate from each university.
Yesterday, the Financial Services Roundtable issued a
statement strongly supporting the ``Know Before You Owe''
student initiative saying, ``It will help strengthen students'
knowledge about student loans.''
And I request unanimous consent to place their letter in
the record.
Chairwoman Capito. Without objection, it is so ordered.
Mrs. Maloney. The Bureau is already makings some
regulations simpler. It will also begin a targeted review of
regulations it inherited from seven different agencies to
eliminate unnecessary rules.
It has proposed two versions of a new simplified mortgage
disclosure form as part of their ``Know Before You Owe''
program, and posted them on a crowdsource for comments.
And the Bureau combined two federally acquired mortgage
disclosure forms, TILA and RESPA, and made it simpler. And
these are the forms that you can literally go on the Internet
and vote for the one you think would work the best for you.
The Bureau and its nominee have strong support from the
attorneys general around the country. Thirty-seven AGs recently
urged the Senate to approve Richard Cordray as the Bureau's
first Director. They described him as a brilliant, well-
qualified leader, who has defended consumers while also working
to find fair and reasonable solutions for the financial
industry.
And I ask unanimous consent to place in the record the
statement by 37 different attorneys general.
Chairwoman Capito. Without objection, it is so ordered.
Mrs. Maloney. And also the statement from Treasury
Secretary Geithner that talks about all the areas that will be
unregulated, that caused the financial crisis, if the CFPB is
not up and running.
They have been with us for only 100 days and look at the
difference they have made in the lives of so many Americans. I
wish it had been 100 years.
My time has expired.
Thank you for what you have achieved under remarkably
difficult circumstances. Many seniors, members of the military,
and students are better served, and mortgages are simpler.
Thank you for your efforts.
Chairwoman Capito. Thank you.
I would like to recognize the chairman of the full
Financial Services Committee, Chairman Bachus, for 2 minutes
for an opening statement.
Chairman Bachus. Thank you, Chairwoman Capito.
All of us, Republicans and Democrats, support strong
consumer protection. After all, we are all consumers. Our
family members are all consumers. Our constituents are all
consumers. And they all deserve consumer protection.
In fact, I proposed a subprime lending bill back in 2005,
and credit card reform in 2007, and I sponsored the FACT Act.
Then-Ranking Member Frank and I, I think agreed on many
things. But one thing that we disagree on, I think, across the
aisle is the structure of the CFPB. My fear is that there are
simply no checks and balances. It could easily become a loose
cannon.
Now, that would be the worst-case scenario and it may not
happen. But the CFPB is headed by a single Director who answers
to no one. The Director exercises sole authority over the
agency and its staff, a staff that according to the President's
budget will be comprised of over 1,200 individuals.
The Director has unprecedented power to ban financial
products and services based on whether or not he deems them
unfair, deceptive, or abusive under a highly subjective
standard that has no legally defined content.
I looked at the 800-page document that was recently
released and there are still a lot of loose ends. The Director
has singular authority to spend hundreds of millions of dollars
with no congressional oversight.
For all these reasons, and the fact that it actually was
originally designed by Elizabeth Warren, who first proposed it,
as a commission, Republicans have supported a commission and
will continue to do so, and urge the Senate to take it up and
have a commission.
Thank you, Madam Chairwoman.
Chairwoman Capito. Thank you.
I would like to recognize the ranking member of the full
Financial Services Committee, Mr. Frank, for 3 minutes for an
opening statement.
Mr. Frank. First, I want to comment on the incongruity of
people at an oversight hearing lamenting the lack of oversight.
This is an oversight hearing.
Apparently, it is a figment of some people's imagination,
because they tell us there was no oversight. So I guess I am
wasting the morning.
We are also told that it is unprecedented.
That comes from people who have been on this committee for
many years and apparently never heard of the Comptroller of the
Currency, because it is structured very much like the
Comptroller of the Currency, who was formerly independent of
anybody.
This is the same individual with, frankly, greater powers
over the bank system of America than this agency has.
We are also then told, there is no oversight here because
it gets its money from the Federal Reserve.
If that is the case, if there is no oversight here because
it gets its money from the Federal Reserve, then there must not
be any oversight of the Federal Reserve, because the Federal
Reserve is not subject to appropriation.
The Federal Deposit Insurance Corporation is not subject to
appropriation. The Office of the Comptroller of the Currency is
not subject to appropriation.
In other words, my Republican colleagues did not object to
financial institution regulators being exempt from the
appropriations process until the Consumer Bureau came up.
It was okay for the Comptroller of the Currency, a single
individual; okay for the Federal Reserve--I have never heard
that we didn't have any oversight over the FDIC or over the
Comptroller of the Currency.
And I think that gets to the point where my colleagues, two
of them have said that Republicans are all for consumer
protection. If the consumers could be protected by that kind of
rhetoric, I guess they would be in great shape, but they can't
be.
And what we should be very clear about is that among the
major changes that the Republicans were insisting on before
they will confirm people, is a total wrenching out of shape of
the Constitution.
The Constitution sets forward ways to legislate and then it
has a confirmation power. And because the Republicans don't
have the power to get their legislation through, they are using
the confirmation power inappropriately to try and coerce us
into adopting legislation.
And the commission is a small part of it. The big thing
they want to do is this: They want to put the bank regulators
back in charge of consumer protection.
Now, my colleagues have said they are for consumer
protection, but they seem to have forgotten how to do that when
they were in power. I don't remember a single effort to do
anything about strengthening consumer protection in general
when they were in power.
Yes, the gentleman from Alabama did propose a subprime
bill, and we tried to work with him. But the then-Majority
Leader, Mr. DeLay, sent word to this committee that it should
not be taken up.
And it wasn't until we took the Majority that we were able
to get legislation on subprime, first in this committee,
although the Wall Street Journal denounced our bill as a
Sarbanes-Oxley, which to them is a swear word. For the Wall
Street Journal, Sarbanes-Oxley is even worse than hacking
people's telephones.
But what we have is a failure to do anything when they were
in power.
The argument is that we need better balance. I have to say
my colleagues in this committee may be the only people in
America who think that the danger is that we will over-protect
consumers.
The history of the relationship of consumers to financial
institutions, and the role of the regulators, hardly supports
the argument that there is a danger that the consumers will be
overprotected.
This is the one chance we have to give them the kind of
protecting they ought to have.
Chairwoman Capito. Thank you.
I would like to recognize Mr. Royce for 1\1/2\ minutes for
the purpose of making an opening statement.
Mr. Royce. Thank you. Thank you, Madam Chairwoman.
The distinction is that our concern is that the danger in
this process is that we will not protect in terms of safety and
soundness.
Our distinction, our concern, is that the prudential
regulator doesn't have the seat at that table that the
prudential regulator needs in order to offer the advice on
safety and soundness.
And the reason we are concerned about this is because we
have gone down this road before. The reason we are concerned
about this is because this committee has heard time after time
after time from Fannie Mae and Freddie Mac's regulators, both
past and current, on this subject.
They have said that the bifurcated regulation contributed
to the failure of Fannie and Freddie.
And the CFPB, frankly, expands this problem throughout the
financial system. So what we have suggested, which doesn't
sound radical to me, is that we go back to the original House
legislation introduced by Mr. Frank that had a commission, and
allow for the input of the prudential regulator.
That is the ground we are fighting on right now. We are
trying to make certain that at least in the process, we don't
go down the road again that we faced with respect to the GSE
regulation.
And I think that the notion that an independent regulator
with no oversight or opportunity for dissent is good for
consumers is simply flawed. At the end of the day, the likely
result will be higher cost and less access to credit in a
market for consumers, and the way this is structured, less
input from the prudential regulator.
Chairwoman Capito. Thank you.
I would like to recognize Mr. Gutierrez for 2 minutes.
Mr. Frank. Will the gentleman yield for 10 seconds first?
Mr. Gutierrez. I would be happy to yield.
Mr. Frank. I thank him.
I would say this, the gentleman talked about my objection
to my original bill. Yes, there was a commission, although I
preferred it individually.
But the biggest difference is not the commission. It is the
Republican bill, to put the bank regulators back in charge by
abetting them under more easily achieved basis overrule the
Bureau.
That was never in my bill. This power of the bank
regulators by majority rule, to overrule the Bureau in any
particular case, that is the heart of my objection to their
approach.
Mr. Royce. Will the gentleman yield?
Chairwoman Capito. It is time for the gentleman from
Illinois to make his opening statement.
Mr. Gutierrez. Thank you very much.
Mr. Date, it is wonderful to have you here. I hope they
receive you warmly over in the Senate for your confirmation
hearing. I know that at least on this side, we are receiving
you warmly.
It astonishes me what can happen a year later, after we
passed the bill. I don't remember a single one of my colleagues
on the other side of the aisle voting for the bill that created
the consumer protection.
I remember being there working day in and day out. And I
don't remember anybody saying, ``We are for the consumer.''
As a matter of fact, I really like my colleague from
California, Mr. Royce, because the American public just heard
the Republican response--the prudential regulator. We are
concerned about the prudential regulator making sure.
I am sure that makes everybody in America feel so warm and
fuzzy about the Congress of the United States and what we are
doing, because the prudential regulator is being defended here
in this fine committee hearing.
Let me tell you why I think this is a great hearing to
have.
I don't know about the prudential regulator, because Bank
of America had to cancel the $5 fee, and that is saving the
American people--it will save the American people millions of
dollars.
Safety and soundness, yes, the safety and soundness of your
debit card and your debit card and your account each and every
month so that you have extra dollars in your account in order
to access your money.
Why? Because we passed this legislation that said, guess
what? You have to tell everybody because you know what? It is
dangerous at banks and it is dangerous out there when people
take a gun and stick somebody up. That is true.
But you know what you are doing? You are making sure that
the electronic stick-up of the banks on American consumers is
stopped in America.
How do you do that? By telling people about what these
mysterious fees are.
And everybody in America may not know what the prudential
regulator is, but let me tell you what they do know. They know
about the mysterious fees that show up on their checking and
banking accounts.
Mr. Date, I am excited that you are finally going to have
an opportunity, hopefully, to get confirmed by the Senate.
Chairwoman Capito. Thank you.
The gentleman from Georgia, Mr. Westmoreland, for 1\1/2\
minutes for an opening statement?
Mr. Westmoreland. Thank you, Madam Chairwoman.
Mr. Date is, hopefully--did you know that Georgia banks
have been hit very hard for failures? Most of these banks would
not be directly supervised by the CFPB, but would still have to
comply with CFPB rules and regulations.
Recently, a banker gave me this 10-page document of forms
that had to be filled out if somebody was trying to purchase a
home.
And, Madam Chairwoman, I would like to ask unanimous
consent that these documents be submitted for the record.
Chairwoman Capito. Without objection, it is so ordered.
Mr. Westmoreland. And they must be selling houses to first-
graders with all the different things that have to be given to
the purchaser.
I know that CFPB is committed to reducing paperwork for
borrowers. However in its zeal to reduce paperwork, the CFPB
must be mindful not to increase regulatory burdens on community
banks and credit unions.
The CFPB must make sure that both consumers and businesses
get the benefits of streamlined disclosures.
Finally, I have serious concerns that the CFPB will use its
unchecked authority to create a backdoor, plain vanilla
product.
CFPB must not steer borrowers to certain approved products.
If a person is responsible enough to buy a house, they must be
responsible enough to decide what mortgage product works best
for them, not the one that the government tells them is best
for them.
And with that Madam Chairwoman, I yield back.
Chairwoman Capito. Thank you.
I would like to recognize Mr. Scott for 2 minutes for the
purpose of making an opening statement.
Mr. Scott. Thank you very much, Madam Chairwoman.
Let me just say how important this hearing is because of
the timeliness of it. I was one of the co-sponsors who created
the CFPB through the Dodd-Frank bill and was very proud to do
so.
I think what we have to ask ourselves at this time is what
is in the best interest of two things: the consumer; and our
financial institutions.
And the CFPB is designed at this time to do both. But most
importantly right now, I think we have to look at the plight
that the consumer is in.
We started this about 2 years ago. And the plight of the
consumer is in a worse situation today than even then.
We have staggering unemployment and joblessness. In my
State of Georgia, it is 10.2 percent. In many parts of my
district, it is 15 percent to 16 percent.
And when you combine that with the loss of mortgages, never
has there been a more significant time to offer the consumer
what the CFPB has to offer. To give them the education that is
needed. To give them the protective armor that they need as
they go and they battle these two twin hurricanes that are
hitting them simultaneously: joblessness; and loss of their
homes.
In the midst of this, you still have predators out there,
predators who are willing to take advantage of this double
whammy that the consumer is in.
Now, we are arguing here. But as the old saying goes,
``While we are arguing, Rome is burning.''
Consumers often look at us up here, trading back and forth,
back and forth in here.
We have the CFPB. It is in place. It is an excellent
foundation.
Is it perfect? What is perfect?
But it is certainly the best vehicle to go about what we
need to do at this time, to do the essential good of providing
our consumers with the information and the protections that
they need to be able to deal in this whirlwind of economic
downturn that they find themselves in.
Thank you, Madam Chairwoman.
Chairwoman Capito. Thank you.
I would like to recognize Mr. Luetkemeyer for 1\1/2\
minutes for the purpose of making an opening statement.
Mr. Luetkemeyer. Thank you, Madam Chairwoman.
I appreciate you holding this hearing today because I
believe it is important that Congress examine the CFPB at every
opportunity, particularly given that there is little or no
oversight of the--our concerns that the authorities given to
the CFPB are far too broad.
The CFPB, in my judgment, will undoubtedly change the way
the private sector offers financial products to consumers. And
I remain unconvinced that it will do so in a way that truly
benefits the American people.
Before the July 21st transfer date, CFPB examiners were
collecting information and participating in examinations. They
have already undertaken major rulemakings that will no doubt
change the way the private sector operates.
We understand that regulations are meant to protect
consumers. However, in the past few years, we have seen
numerous examples of overly burdensome regulation that has and
will continue to hurt consumers.
In some ways, we seem to be missing the goal of consumer
protection, and in doing so, we are compromising safety and
soundness over financial institutions.
People in the financial services industry are very
apprehensive about the CFPB. From the rules already proposed
and the areas of those yet to be promulgated, it gives us all
cause for great concern.
I thank Mr. Date for testifying today--for participating,
and I appreciate that he has requested feedback from the
private sector.
I would encourage the Bureau to continue to engage with the
industry and consumer groups to encourage that all points are
taken into account.
Thank you, Madam Chairwoman, and I yield back the balance
of my time.
Chairwoman Capito. Thank you.
I would like to recognize Mr. Canseco for 1\1/2\ minutes
for the purpose of making an opening statement.
Mr. Canseco. Thank you, Madam Chairwoman.
The 2,300-page Dodd-Frank legislation created the Consumer
Financial Protection Bureau, an incredibly powerful agency
giving sweeping powers to carry out its well-intended, but
vaguely defined, mission of consumer protection.
Like many other members on the Financial Services
Committee, I have serious concerns with the CFPB. Nonetheless,
it is the law of the land.
As Members of Congress, we have a duty to ensure that this
new agency is operating correctly and appropriately.
The CFPB reached a milestone earlier this year when on July
21st, it stood up and officially acquired consumer protection
rules and authorities from seven other agencies.
Given the vast mandate and power of the CFPB, the decisions
it makes will have an enormous impact on our Nation's financial
institutions and the consumers they serve, as well as our
economy.
I look forward to hearing from Mr. Date.
And I thank Madam Chairwoman for holding this important
hearing.
I yield back.
Chairwoman Capito. Thank you.
That concludes our opening statements.
I would now like to introduce our witness for the purpose
of giving a 5-minute opening statement, Mr. Raj Date. Mr. Date
is the Special Advisor to the Secretary of the Treasury for the
Consumer Financial Protection Bureau.
Welcome, Mr. Date.

STATEMENT OF RAJ DATE, SPECIAL ADVISOR TO THE SECRETARY OF THE
TREASURY, CONSUMER FINANCIAL PROTECTION BUREAU (CFPB)

Mr. Date. Thank you, Chairwoman Capito.
Chairwoman Capito. Pull the microphone closer to you. I
know how fast you talk, so I want to make sure I get it all.
Mr. Date. I'm ready.
Thank you, Chairwoman Capito, Ranking Member Maloney,
Chairman Bachus, Ranking Member Frank, and members of the
subcommittee for inviting me today.
I am eager to testify about the Consumer Financial
Protection Bureau.
My name, again, is Raj Date. I serve as the Special Advisor
to the Secretary of the Treasury for the Consumer Financial
Protection Bureau, where our mission is to help consumer
financial markets work by making rules more effective, by
consistently and fairly enforcing those rules, and by
empowering consumers to take more control over their economic
lives.
Before the Dodd-Frank Act, responsibility for administering
and enforcing the various Federal consumer financial laws was
scattered across seven different Federal agencies, but not one
of those agencies was solely focused on consumer financial
protection.
The CFPB is the first agency whose mission is making sure
that consumer financial markets work for American families.
In our first 100 days, we have been hard at work to promote
a consumer financial market where consumers know what they are
getting into, where firms follow the rules, and where specific
populations are protected and empowered.
The Bureau is creating more transparent financial markets
starting with mortgages and student loans. With our ``Know
Before You Owe'' mortgage initiative, we are creating a single,
shorter, more useful mortgage disclosure form to replace two
overlapping documents that Congress asked us to combine.
Our work in this area will not only reduce regulatory
burden, but it will also make the cost, and the risk of a loan,
more clear and allow consumers to comparison shop for the best
loan.
Before we began the regulatory process, we displayed those
prototype forms on our Web site. And we invited comments from
the public, from industry participants, and from market
experts.
We have conducted five rounds of testing. And we have
received more than 22,000 comments to date.
Just last week, we announced another ``Know Before You
Owe'' initiative, this time on student loans. We partnered with
the Department of Education to develop a draft, one-page
financial aid shopping sheet that would improve the way schools
communicate loan and repayment information to students.
The Bureau is also working to create a market where firms
follow the rules. One thing made clear in Dodd-Frank was that
the Bureau is to make mortgage markets work for all consumers
irrespective of the charter that a business happens to fall
under.
To this end, we recently released our supervision and
examination manual, and our examination procedures for mortgage
servicing. Both of those documents are meant to provide
direction to our examiners in how to determine providers of
financial products and services are following the law. We
consider both to be evolving documents and we welcome feedback.
Over the coming months, we will release more guides like
these that explain examination procedures for different
products and lines of business.
We have also been hard at work building up the Bureau to
protect and empower specific groups of consumers.
Dodd-Frank directs the Bureau to create offices and
positions focused on the needs of servicemembers, seniors, and
students. Our Office of Servicemember Affairs, headed by Holly
Petraeus, has been traveling across the country hearing from
servicemembers and their advocates about the unique challenges
that they face.
With that on-the-ground information, Mrs. Petraeus has
already brought attention to important issues like aggressive
marketing by for-profit colleges to military personnel. She has
also brought attention to the difficulties of servicemembers
who are underwater, but not delinquent on their mortgages, and
then they receive military orders to move.
We recently brought on Skip Humphrey to head our Office of
Older Americans. That office will help seniors navigate
financial challenges by educating them about their options in
areas like long-term savings, and planning for retirement, and
long-term care.
The Bureau will work with senior groups, financial
institutions, law enforcement offices, and other Federal and
State agencies to identify and prevent scams targeting seniors.
We also recently named Rohit Chopra as our private education
loan ombudsman.
The Bureau will work with the Department of Education to
receive, review, and attempt to resolve complaints of borrowers
of private student loans. In July, the CFPB and the Department
of Education will provide a report on private student loan
complaints to Congress.
At the same time, we are also working to fill other
important positions like the head of our Office of Minority and
Women Inclusion.
Finally, and perhaps most importantly, the CFPB will tackle
our mission knowing that we are singularly accountable for it.
Consumer protection in financial services is a hard job.
And by enacting Dodd-Frank, Congress recognized that if you do
not make someone singularly responsible for a hard job, you
should not expect that it gets done well.
You can count on us to make sure that consumer financial
markets actually work for families, for the honest firms that
serve them, and for the economy as a whole.
Thank you again for this opportunity. I look forward to
your questions.
[The prepared statement of Mr. Date can be found on page 54
of the appendix.]
Chairwoman Capito. Thank you.
We will now start the question-and-answer portion of the
hearing, and I will begin with the first question.
You mentioned just at the end of your statement about your
agency being singularly responsible for consumer protection.
And in the Dodd-Frank bill, it actually says, ``Section 1064
requires that the prudential regulators cede that authority to
the CFPB.''
But in fact, in talking anecdotally with you and others, it
seems to me as though the prudential regulators have still held
on to consumer protection staff and responsibilities.
So are you really singularly responsible or is it still
spread out over the seven prudential regulators?
And what are you doing to makes sure those silos, that Mrs.
Warren talked about consistently, are still not erected and
serve as barriers?
Mr. Date. In very important ways, that authority has been
consolidated from the seven different agencies into the CFPB.
For example, we have rulemaking authority across the Federal
consumer financial laws that transferred to us on July 21st.
But you point out a very important point, and one that
informs our efforts, which is that our supervisory authority
extends only to those depositories--banks, thrifts, and credit
unions with more than $10 billion in assets. So that translates
into about 100 of the largest bank, thrifts, and credit unions.
There are 15,000 depositories in the country, and so
supervision authority with respect to those--everyone else not
the biggest 100--remains with the prudential regulators.
That is important for us in at least two ways. One is to
make sure--as any right-minded person would I think--that we
are coordinated with the other regulators. To me, that is just
common sense and good hygiene.
But also it means that we lack, to my mind, the critical
feedback loop between community bank supervision and the policy
apparatus.
So we have to make sure as we have been doing to date that
we get out in the field, and we talk to community banks and
credit unions about issues that they are seeing on the ground.
Chairwoman Capito. So then, let me follow up here because
that is--we were just in Wausau, Wisconsin. We have been in
Georgia. I live in West Virginia.
And as you know, there is a great concern amongst small
financial institutions. You have already said you are going to
have--I think if I am interpreting correctly, that you have the
rulemaking authority over these institutions but you don't have
the supervisory role.
And so, the carve-out doesn't really exist. Then I think
there is a lot of angst out there--even though I realize that
you have been out talking with them--as to what kind of role
the CFPB is going to be playing over the institutions we know
were not the ones doing the subprime loans or the ones who are
helping the lady down the street buy a car for her family etc.,
etc.
And there is a lot. And these institutions are hiring new
compliance officers because they are not sure where they are
going to fall in this spectrum of authority including your
agency.
So what would you say to that?
Mr. Date. It is certainly true that community bankers are
not subject to a different set of rules as the rest of the
marketplace.
But in my experience, community bankers are not looking for
a special handout or special treatment. What community bankers
are looking for is for everybody to play by the same rules.
So in other words, if I run a small bank and I am in the
business of providing auto finance, it doesn't feel
particularly fair, oftentimes, that someone who is a finance
company, not a depository, is not subject to supervision on
exactly the same laws that I am subject to supervision on.
To my mind, that is a fair complaint. And one of the
beauties to my mind of the Bureau--
Chairwoman Capito. I think the concern--if I could just--
because I only have a minute left. The concern, and I share
this concern, is that small institutions are face-to-face with
the consumer every single day.
They know their families, they know their backgrounds, they
know their businesses. They are able to make some, on the face
of it, kind of calls, some flexibility.
I think they are concerned about that flexibility, because
it could be a one-size-fits-all consumer financial product that
will exclude them from being able to offer that to their
customers.
But at the same time, I think what they are also worried
about is their margins are so thin they don't have--if they
have to hire two or three compliance officers to make sure that
they are complying with a lot of the things that they comply
with anyway, that takes money out of their ability to loan to a
small business, to make a car loan or whatever kind of loan
they might be making.
And this is the concern that we are hearing especially in
the downturn of the economy--high unemployment. The jobs that
are being created are--it even said in the study of the Bureau
of Labor Statistics that increasing financial regulations will
spur employment growth of financial examiners and compliance
officers by 31 percent over the next 10 years.
I think that is what is happening in Wausau, Wisconsin, and
in Charleston, West Virginia, and that is a source of concern.
But my time is up. I am going to recognize the ranking
member for 5 minutes for questions. Thank you.
Mrs. Maloney. Thank you.
Mr. Date, do you think that there is anyone out there in
the consumer finance world who has studied the regulatory
structure of the last decade and thinks, that works, let us
keep doing that?
Mr. Date. Congresswoman, I know a great many people within
the business, and I have yet to find a person who says, ``Yes,
what we were doing over the last decade seems to work, so let
us stick with that.''
The status quo, to any reasonable person who has been
around this business, is untenable.
Mrs. Maloney. Then why do you think there is still such
resistance to the creation of a Bureau which is so clearly
needed and everyone says they want to protect consumers, where
we have a Bureau that is doing just that as their prime
responsibility and focus?
Why do you think there is still such resistance?
Mr. Date. My sense is that it is because talk is cheap. And
when it comes time that the Bureau--as we do all the time--
talks about how it is that we are focused on making regulation
more efficient and more effective.
How in the case of the mortgage disclosure forms, we are
trying to make things cheaper to comply with and simpler for
management teams at the same time that it is more effective for
consumers.
When we talk about all that, sometimes people are a little
bit skeptical, because they have heard things that sound like
that before.
And for me, I view it this way, at some level if you don't
believe what we say, look at what we do, because that which we
have done in the first 100 days is very much in the spirit of
reducing the burden and making things better.
Mrs. Maloney. So you have been reducing the burden and
making the financial markets work better and the economy
improve in addition to helping our consumers.
I really would like to ask the question of, whose side do
you think the opponents of the CFPB are on?
We know from your testimony and reports that Holly Petraeus
jumped right in defending servicemembers--our men and women
serving overseas for being evicted, foreclosed.
So whose side are they on when they say they don't want the
CFPB or such an outstanding advocate to help our men and women
in the services?
Whose side do you think they are on when they are not
supporting the work of the Bureau to protect our seniors?
And I must say I was very pleased to see the support of the
business community for your efforts on the student loans.
So whose side are they on when they are objecting and
fighting what you are obviously doing to help our seniors, our
members of the military, and now our students?
Mr. Date. Congresswoman, of course I wouldn't speculate on
anything like that.
All I know is that the Congress has given us a set of
authorities to be able to make this market better, and to make
sure that somebody is on the side of American families in this
very important marketplace.
And we have the tools to be able to do that. We have a team
that we have assembled that is smart because we are dealing
with tough problems, energetic because we work very hard, and
that has guts because it takes guts to stand up for ordinary
people.
And, that has sacrificed, where they come and they work
hard for the public good.
Mrs. Maloney. I have been told that I cannot place into the
record editorials in support of the CFPB at this hearing. So I
hope many of my colleagues on the panel will join me on the
Floor for a special order tonight where we can read editorials
in support for the record.
Chairwoman Capito. If I could interrupt--you can ask for
unanimous consent. I don't recall who--I am the chairman, and I
didn't say--
Mrs. Maloney. I was told we couldn't put them in.
Well then, let us put into the record a statement from the
Consumer Federation of America that outlines all of the areas
that there is oversight of the CFPB.
Chairwoman Capito. Without objection, it is so ordered.
Mrs. Maloney. And, Mr. Date, in your own finances, would
you want to put the financial management and the protection of
your assets and your finances in a committee to decide how to
handle your finances?
Or would you like to have one person, like a Mr. Cordray,
who is in charge, who is accountable, who has to respond to
Congress, the President, and consumers in this country?
Would you put your finances--I wouldn't. I don't think
other members in this panel would.
Could you comment on that?
Mr. Date. Congresswoman, I have been a bank regulator for
102 days, so most of my career has been spent in the private
sector investing shareholder money and my money over time.
And I will confess, I typically look for management teams
that are headed by a person who knows that they are on the
hook, so that you know who to credit and who to blame, so that
you know who to help or who to try to influence. Somebody has
to be on the hook for her job. That has always been my
perspective.
Mrs. Maloney. My time has expired.
Thank you for your 102 days of service. Thank you.
Chairwoman Capito. Thank you.
I would say in terms of the mortgage form, I welcome a one-
page or two-page mortgage form, having just refinanced our
house. That would be great.
But we know that the other 50 pages are still going to be
there.
And I think that in order to--I am not being critical so
much of just the way you are stating it, I guess, to say one
page on top of the 50 pages that you are still going to have.
Mr. Frank. Madam Chairwoman, pardon my--whose time is this
coming out of?
Chairwoman Capito. I am the chairwoman. I took about 30
seconds because I was modeling after you.
Mr. Frank. No, I always ask unanimous--
[laughter]
I take exception to that. I abide by the rules and ask for
unanimous consent--
Chairwoman Capito. Okay, with unanimous consent, I will--
post-unanimous consent, I will recognize the chairman of the
full committee, Mr. Bachus, for 5 minutes.
Chairman Bachus. Thank you.
Mr. Date, Congressman Gutierrez said he hoped you would get
approved by the Senate. But now, you haven't even been
nominated. I guess he was talking about Richard Cordray? Was
that--I didn't know?
Mr. Gutierrez. Yes, you are right.
Chairman Bachus. Okay.
You were the number two person at the agency. Do you know
why you weren't nominated?
Mr. Date. Mr. Chairman, I would not presume to have any
opinions about something that is solely in the discretion of
the President of the United States.
Chairman Bachus. Okay.
Let me ask you this, the commission form, do you see any
advantages to a bipartisan commission as opposed to a single
Director?
Mr. Date. My perspective on governance of the Bureau is
that it seemed to me, very much as an outsider at that time,
that the Congress deliberated and debated various different
governance mechanisms, various means by which to provide
accountability and real leadership for the Bureau and its
important task, and came to a conclusion.
And my job, as a Special Advisor to the Secretary, is to
take that structure and make it work, and to make it work in
every dimension. And that is what I am doing.
Chairman Bachus. But could you do that under a commission
form?
Mr. Date. As I mentioned to the Congresswoman a moment ago,
it has been my experience--and again, I have mostly been on the
private sector side of this business--that if you want
something hard done, you really should have someone singularly
accountable for it.
But again, that is my experience. I would not presume to
tell the Congress what to do--
Chairman Bachus. Sure, okay. Thank you.
The term ``abusive,'' that is really a new term in consumer
protection as far as financial products. How would you define
that? If it is unfair, if it is not unfair, if it is not
deceptive according to you--could it still be abusive and could
you give me some examples?
Mr. Date. In a way, the advantage that we all have is that
the Congress set out the definition for ``abusive'' in the
statute. It seems to me to be one that makes sense, and one
that over time, we will be able to evaluate against actual fact
patterns that we see in the marketplace.
One of our commitments at the Bureau is to make sure that
what we do is evidence-based, participatory, and transparent.
And the evidence-based part of that means nothing if we pre-
judge facts before we actually see them.
But I look forward to being able--
Chairman Bachus. Are you going to issue regulations? Let us
say you go in and you start an enforcement action. Will there
be at least a regulation or a guideline that someone will have
violated before they are found to have committed abuse?
Mr. Date. The statute, of course, provides contours for
what it--the term ``abusive'' amongst our other
responsibilities--
Chairman Bachus. So the statute defines ``abusive?''
Mr. Date. Yes, the statute defines ``abusive.''
Chairman Bachus. Do you know what that definition is?
Mr. Date. Sure. There are two prongs essentially. One has
to do with--I will paraphrase. These are my words and not those
of the statute precisely--materially interfering with the
consumers' ability to understand something.
And, by the way, that takes us back to what I was saying
earlier about the substance of transparency. A market works if
consumers and providers--
Chairman Bachus. So if they don't understand it, it could
be abusive just because they didn't understand it?
Mr. Date. The words in the statute, I think, relate to a
provider materially interfering with the consumers' ability to
understand--
Chairman Bachus. Okay.
Mr. Date. And that is one prong. But, there is some level
of detail in the statute.
Chairman Bachus. Okay. What is the other prong?
Mr. Date. The other prong which itself has various features
is about--and again, these are my--
Chairman Bachus. Sure.
Mr. Date. --paraphrasing of the words. But you will recall
that it talks about unreasonably taking advantage of the
consumers' lack of understanding in particular moments. And
there are various prongs, sub-prongs, within that definition.
It is quite detailed. There are a lot of words there. And
hopefully, I have given some credit to that in my paraphrasing.
Chairman Bachus. You keep getting back to that term that
``a consumer doesn't understand.''
Would a financial institution be liable if the consumers
simply didn't understand the agreement, if it was not unfair or
deceptive?
Mr. Date. I think the experience of the past few painful
years is that it is in the financial institutions' interest to
have consumers who understand what they are getting into.
When we look at the explosion in the most troubling credit
performance in mortgages in the United States, it is quite
disproportionately those structures that realistically
consumers at that time--not in retrospect but even at the
time--probably had difficulty truly appreciating--
Chairman Bachus. I understand that. But would you determine
that on a case-by-case basis or would you have some regulation
on--
Chairwoman Capito. The gentleman's time has expired.
Mr. Frank, for 5 minutes, for questions.
Mr. Frank. Thank you, Madam Chairwoman.
Thank you for making clear that the gentlewoman from New
York is able to put that material into the record.
I said before I thought it was interesting that we were
having an oversight hearing to in part denounce the lack of
oversight, and I misspoke.
This is the second oversight hearing we have had this week
to denounce the lack of oversight, because there was a field
hearing. And I look forward to many more hearings in which we
denounce the lack of oversight while we are overseeing this
agency.
I am also struck again by the fact that two of my
colleagues ever appeared to have heard of the Comptroller of
the Currency, an individual appointee independent of any other
check and self-financed.
It is apparently only when consumers are the beneficiary of
that independence that it upsets some of my colleagues.
Then I should also add that procedurally, this hearing
comes 2 days too late. It should have been on Halloween,
because we have conjured up a series of spooks, and ghosts, and
goblins, and nonexistent creatures.
My colleague from Georgia said, this is going to be a
backdoor way for them to do the plain vanilla product.
In fact, the ability of this agency to order financial
institutions to produce a so-called plain vanilla product was
proposed by the Obama Administration and specifically and
explicitly rejected.
There is no such power, and that was a conscious decision
by this committee.
They are talking about banning. There will not be a lot of
things banned.
As a matter of fact, the model we have here--and people
talk about the Bank of America--the model of this agency
assumes the competitive nature of the American financial system
because most of what they will do will be to give people
information. And it is no use getting information unless you
have options.
The Credit CARD Act, which the gentleman from New York took
the lead on and which we passed, did not set rate limits. Some
of my colleagues wanted to put rate limits.
What we said was you cannot retroactively raise the
interest rate on people which is unfair. They should have the
benefit of the bargain they made at that time, but you have to
give them notice of any future rate increase.
Now, the notice of a future rate increase wouldn't do any
good if you didn't have options. So, I stress again that is
essentially our model.
Now, as to ``abusive'', let me say to the gentleman from
Alabama, no, the fact that a consumer couldn't understand it is
not in itself a reason to be declared ``abusive.'' And
``abusive'' came forward, and the gentleman from Texas, Mr.
Hensarling, and I had a colloquy about that.
And he pointed out it was an undefined term, unfair and
deceptive have a history. And we did define ``abusive.'' There
are things that could be neither unfair nor deceptive that
could be abusive, and it is not that the consumer didn't
understand it. But there were two categories.
First of all, that if not quite deceptive but framed in a
way that made it very hard for the consumer to understand and
it wasn't the consumer's fault. That is why it says, as Mr.
Date says, materially interferes with the ability of the
consumer to understand the term.
Secondly, it says that you should not take unreasonable
advantage of lack of understanding.
Is it case-by-case? Yes, there are mortgage products that
are suitable for some people that are not suitable for an 89-
year-old woman who has never had her own experience in economic
affairs.
There are things that are reasonable for some people and
not for others. And we make that distinction also.
We are about to pass legislation today that says you can
offer things to ``qualified investors,'' but you can't offer
them to, presumably, unqualified investors, although we don't
quite rudely say so.
What makes you a qualified investor?
Apparently, that you have $1 million. That is less of a
guarantee of wisdom than people seem to think.
But this distinction, and that products offered by
financial communities will be subject to different rules
depending on the personality of the individual, is already in
law. And we do say, yes, particularly in the mortgage area.
Now, let me just ask Mr. Date a couple of quick questions.
You have already moved in the Bureau to deal with the
congressional problem of a split between the Real Estate
Settlement Procedures Act (RESPA) and the Truth-in-Lending Act
(TILA).
Talk briefly about what you did there and what the reaction
was in the lending community.
Mr. Date. Sure. Again, the disclosure forms associated with
the Truth-in-Lending Act and the Real Estate Settlement
Procedures Act are actually quite similar in their content, but
almost confusingly similar, but they are separate requirements
to date before Dodd-Frank.
We have the mandate by the Congress--and I am glad to have
that mandate--to be able to figure out how to combine that into
a single document, one that, therefore, will be not confusingly
similar and, therefore, less confusing.
Mortgages are a gigantic--
Mr. Frank. What is the process of--where are you in that
process?
Mr. Date. We have taken what I believe to be a fairly
unique approach in terms of really developing, before proposing
a rule, a prototype and getting public feedback on it.
Mr. Frank. What is the feedback you have gotten quicker
from the lending community so far?
Mr. Date. In general, I think it has been quite helpful.
Mr. Frank. All right. I am going to be--my time is up.
So, let me say--and the gentlewoman has been holding us to
the time, the gentleman from Georgia mentioned the long forms.
In fact, the one case where you have done anything about
the forms, you are in the process of consolidating two very
different forms. And my feedback from the lending community is
they are really quite happy with it.
Thank you.
Chairwoman Capito. The gentleman's time has expired.
Mr. Renacci, for 5 minutes?
Mr. Renacci. Thank you, Madam Chairwoman, and thank you Mr.
Date for being here.
Mr. Date, the CFPB has taken over responsibility for the
Secure and Fair Enforcement for Mortgage Licensing Act, SAFE,
including determining whether State laws are consistent with
SAFE.
In this capacity, I understand the CFPB has been asked to
provide its views on whether State enactment of transitional
licensing would be acceptable.
Such a proposal would allow State-regulated lenders to hire
and immediately put to work well-qualified, experienced
registered loan originators employed by depository institutions
or by out-of-State lenders while they complete any additional
State education and testing formalities.
This is a very important issue for many State-regulated
lenders. And I understand there is a legal opinion from a major
law firm that found it within the State's authority to enact
transitional licensing provisions.
When does the CFPB expect to provide its views on this
important issue?
Mr. Date. Thank you, Congressman.
This is obviously not the first time I have heard of the
issue. It has been voiced in a number of different forums as we
have reached out across the marketplace.
It is one of these issues that actually touches on a lot of
the things that really are core to the structure of the Bureau.
So the competitiveness on an even playing field as between
depositories and non-depositories.
Frankly, the mobility or lack thereof of talent from one
kind of institution to another; the efficiency of front-line
sales staff, because, after all, complicated financial products
have to be explained and sold by someone.
They are all very important issues in a very important
market that appear to be unfortunately quite dysfunctional for
some period of time.
So we are going to take seriously the issues that have been
raised and I know that the team is aware of it.
Mr. Renacci. Okay. Thank you.
You stated many times that the CFPB will be making
decisions based on data. We both know that data can be
manipulated in favor of a point of view.
What quality control measures are you putting in place to
ensure that the data collected is done so objectively, and that
the subsequent decisions made based on that data are also done
in an objective manner?
Mr. Date. It is a great question, because it gets not just
to the commitment to be able to use fact-based analytics to
inform policy, but the process by which you hardwire that into
the decision-making of the Bureau.
We have approached it both through structural means and
through processed means.
By structural I mean there is a single person who is the
associate director for research, markets and regulations at the
Bureau whose job it is to integrate the points of view
generated by empirical research, by market-based pragmatism--
understanding how money is actually made in the marketplace and
what operational constraints exist--and by technical legal
regulatory expertise. A single person is responsible for that.
That integrated point of view in which different views can
and should be aired is very much core to the structure of what
we are doing.
And as you might imagine, there is also governance
processes by which internally, even before the various right-
minded administrative procedures that we have to undertake to
publish a rule, even before those kick in within the Bureau. We
have decision-making processes that we will refine presumably
over time to make sure that what we are doing is sensible,
fact-based, pragmatic, and effective.
Mr. Renacci. In your testimony earlier, you said that the
Bureau has--actually in your written testimony, you said the
Bureau has the unique opportunity to streamline and simplify
rules. You have also, of course, indicated you have released
some manuals and guides already.
My question is, and I am hearing this already, that there
is a lot of duplication. What are your--you know duplication of
efforts by other organizations.
How is the CFPB going to make sure that we eliminate these
duplication of efforts which are going to hamper banks and
financial institutions when there are multiple people asking
for similar information?
Mr. Date. I would like to take credit for consolidating a
lot of the activity. But really it was the Congress that
consolidated a lot of this duplicative effort by moving the
authority for the administration of some 18 Federal consumer
financial laws into a single place from 7 different places.
Mr. Renacci. But what are you going to do to make sure that
those other organizations don't continue to ask for similar
things or will be talking about similar issues that you are
going to be talking about?
Mr. Date. Both the statute and common sense, I suppose,
dictates that our exam reports for example will typically be
available to the prudential supervisors. There is no reason why
sister agencies should not be able to see what it is that we
work on and conclude in the course of our exams.
And so, that prevents the need for somehow redoing work or
seeing data that otherwise--
Mr. Renacci. I am running out of time.
But what if they did? Are you going to pull back that
authority at some point in time?
Mr. Date. I am not sure I understand the question.
Mr. Renacci. What if they are asking for duplicative
information? And, you are saying you are giving them
information.
But what if the other organizations are asking, are you
going to be the single authority that says here is the
information and here is where you get it from?
Mr. Date. I personally have never been especially shy about
my perspective on such things. But they are independent
agencies.
Chairwoman Capito. The gentleman's time has expired.
Mr. Renacci. Thank you, Madam Chairwoman.
Chairwoman Capito. Mr. Gutierrez for 5 minutes?
Mr. Gutierrez. Thank you very much.
I would like to yield the first 30 seconds to Congressman
Frank so we can continue this line of questioning.
Mr. Frank. Well, briefly, I appreciate what the gentleman
said because he is telling you to defend your turf, and I think
that is reasonable.
The one thing that I just wanted say, and this literally is
genuinely bipartisan, the gentleman from Ohio began his
questioning with reference to this Federal--to give credit,
that was a proposal that came from the chairman of the full
committee, Mr. Bachus.
So that is a duty that you have as a result of a very good
idea from Mr. Bachus which we incorporated. I just, in his
absence, wanted to make clear that insistence on that being
harmonized was Mr. Bachus' idea that we were very pleased to
incorporate.
Mr. Gutierrez. Thank you. I thank the gentleman.
I want to read a quote from the president of the American
Bankers' Association: ``Unsound, unscientific and dangerous.''
Don't worry. It is not about the CFPB.
It is from 1933, about none other than the Federal Deposit
Insurance Corporation. And the banks railed against it in 1933.
But today, I think you would be pretty hard-pressed to find
anyone that thinks that ensuring deposits is somehow unsound
and dangerous.
And I think the fact is that the CFPB won't be doing
anything dangerous either, or unscientific, or unsound. And
hopefully, you won't have to wait 70 or 80 years because none
of us will be here.
Hopefully, it won't be long before they say--well, maybe
you have that hope.
But I would like to just ask you, simplified forms,
valuable guidance so customers can actually understand what
they are buying and repaying. Can you tell us a little bit
about that in terms of a mortgage?
Mr. Date. Sure.
Mr. Gutierrez. What is different?
Mr. Date. Absolutely. So if you were to--and I think it is
useful to reground this in terms of the credit bubble and the
ensuing crisis.
Mr. Gutierrez. Okay.
Mr. Date. So during the course of the mortgage credit
bubble, some of the fastest growing products were precisely
those products that were the most difficult to understand.
For example, auction ARMs which are potentially negatively
amortizing, interest-only loans. Other products where in order
to evaluate the risk and the cost of the product, you have to
have a relatively sophisticated understanding of rate spreads,
and rate movements, some perspective of the forward curve.
I have known bond traders who have difficulty with those
concepts. And as a result, we should not be surprised that a
number of people who got into these loans didn't fully
appreciate the risk of what they were looking at.
And we should not be surprised that credit performance on
those loans--which is bad for investors and terrible for
borrowers--has been terrible, really quite remarkably awful.
So nobody wins if products are structured in a way and
communicated in a way that the borrowers don't really
understand what they are getting into--
Mr. Gutierrez. My friends on the other side of the aisle
say that they love consumers and are--they say there is going
to be a lot more paperwork created and that is going to
actually stop consumers from getting a mortgage.
Mr. Date. I think the opposite is true.
There is a point at which more information, more tiny
little mice-type, 10-font type in sheet after sheet of paper,
not only does not provide any affirmative good in terms of
understanding, but it affirmatively destroys whatever
understanding otherwise would have been there.
Mr. Gutierrez. How about reverse mortgages?
Because we have this growing population, the Baby Boomers,
right? I am one of them. And it is growing. It is going to
continue by millions and millions of people.
Reverse mortgages, are you going to take a look at those?
Mr. Date. We are. It is one of these products that on its
face, actually it is quite an ingenious thing. The demographics
look quite positive. There might be a real productive use for
the product and its growth over time.
It is also something that is obviously definitionally the
most relevant for a potentially vulnerable population, and one
that we are specifically charged with.
And we also have the duty to perform a study and publish it
with respect to reverse mortgage. It is important.
Mr. Gutierrez. So we will learn--because reverse mortgages
sound great. But if you have to pay the taxes, and you have to
fix the leaky roof, and you don't understand all of the
conditions, a reverse mortgage could literally put you on the
street without a stream of income.
So you are going to take a look at that both from--because
of your requirement that we put that you look at senior
citizens and protect them with a special capacity and in terms
of mortgages in a general capacity.
Mr. Date. Absolutely.
Mr. Gutierrez. I think that I am looking forward to those
studies and making sure that the public has a broad
understanding of those studies so that they can be better
protected.
And I thank you very much for your testimony today.
Mr. Date. Thank you.
Chairwoman Capito. Thank you.
Mr. Luetkemeyer, for 5 minutes for questions?
Mr. Luetkemeyer. Thank you, Madam Chairwoman.
Mr. Date, in your testimony this morning you were talking
about basically, you have supervisory authority on anything
over $10 billion and rulemaking authority over everybody else,
is that basically correct?
Mr. Date. Rulemaking authority across the marketplace.
Mr. Luetkemeyer. Right.
Mr. Date. Banks, non-banks.
Mr. Luetkemeyer. Right, right.
It is that area I would like to discuss with you just a
second here.
With regards to the mortgage loan originator rule as issued
by the Fed in last year and finalized in April, that issue has
been transferred to you, the CFPB. And basically, the rule is
intended to predict mortgage borrowers from unfair, abusive,
and deceptive lending practices that can range from loan
originator compensation practices.
Many financial institutions feel the rule has been unclear
and confusing, and has led to a lot of compliance problems.
And my question is, because of these concerns, are you in
the process of looking at and trying to clarify this rule at
all?
Mr. Date. I absolutely appreciate the purpose for the rule
which is that, in the long of the day, you should expect
problems if front-line sales staff are incented to sell
products in a way that is affirmatively not in a consumer's
best interest. So I understand the purpose of the rule.
I also know that it is new. And I also know that there has
been a significant amount of friction associated with
implementing it.
We also have the ability, and I think the obligation, to
revisit pieces of loan originator compensation in terms of our
work to be done. And I think that will create an anchor point
to be able to evaluate how it is that the new rules are
actually working.
We have no particular pride of authorship over something.
If something isn't working, we will make sure to try and make
it better--
Mr. Luetkemeyer. The question is--are you going to revisit
this rule?
Are you looking it right now to try and see if there is a
way that you can just clarify it to make sure that everybody is
in compliance with it and that it is continuing to do the job
it is supposed to do, which is to protect consumers, yet do in
a way that enables the folks to comply with it and make sure it
is done correctly?
Mr. Date. As a general matter, that is true of what we do.
And with respect to this specific example, the answer is quite
clearly, yes, because let us say--
Mr. Luetkemeyer. Okay.
What is the timeframe on getting that done?
Mr. Date. You know what? I would have to look at the
specific kind of deadline that is set out in the statute if
there is one, and how it fits in to our overall work plan.
But it is definitely on that agenda. There is no question
about it.
Mr. Luetkemeyer. All right. Do you mean 2 weeks, 2 months,
2 years?
Mr. Date. Certainly, between 2 weeks and 2 years.
[laughter]
Mr. Luetkemeyer. Okay. Okay, you must work for the
government.
Mr. Date. I have never heard that before actually, so thank
you.
Mr. Luetkemeyer. Okay, very good. Thank you.
With regards to--the gentleman from Georgia a minute ago
held up a whole stack of papers that had to do with home
mortgage loans.
I know one of the concerns that a lot of originators of
home mortgage loans have is the Home Mortgage Disclosure Act,
HMDA. It is a very cumbersome rule, a group of regulations to
deal with.
The FDIC, whenever they supervise it are very arbitrary in
the way that they look at discrepancies in those things. And I
am wondering if--is that a rule that you are looking at as
well?
Mr. Date. There are modifications to the HMDA disclosure
regime that are required under the statute that will have to be
promulgated under regulation. That again, as per your other
question, Congressman, creates a logical anchor point to see
whether or not the overall kind of reporting regimen makes
sense and how it can be streamlined.
It is a source of data that is astonishingly important, and
is otherwise not replicable.
Mr. Luetkemeyer. I am not talking about the data itself. I
am talking about the way that it is interpreted by the FDIC,
and the way that they supervise.
If you have one error within one loan, and there are 27
things that have to be checked off, little boxes that have to
be checked off with this one loan and if you miss one, your
whole loan is considered non-compliant instead of one twenty-
seventh of a problem.
And so, suddenly, instead of one loan out of 100 or one
loan out of--or 10 loans out of 100 being 10 percent problems,
it actually is less than four-tenths of a percent, if you have
one problem for each one of those loans. So it is a supervisory
issue with the FDIC.
But I was curious if you are looking at trying to
streamline that because, again, in discussing these situations
with my local financial institutions, the last guy I talked to
said he is having to hire five people for compliance now, when
he hires four people to do work in the bank--five compliance to
four people he hires.
That is where we are headed. If you can streamline that, it
would be wonderful. That, to me, should be your charge, just to
go and try to find a way to do things easier, simpler, and
still protect all the parties involved.
With that, I yield back.
Thank you, Madam Chairwoman.
Chairwoman Capito. Thank you.
Mr. Watt, for 5 minutes?
Mr. Watt. Thank you, Madam Chairwoman.
I confess that when I first heard of this hearing, I was a
little troubled. But I want to thank the Chair for convening
the hearing, because I think the more we learn about what the
Consumer Financial Protection Bureau is doing, the more the
American people understand why it was created and why it is so
important to have such an agency.
So the more hearings we have about this agency, I think the
better off we are, especially when we have outstanding
witnesses like Mr. Date come and talk about what they are
doing.
I am going to presume that my colleagues are listening to
the fact that well over 60 percent of the American people think
this is an important agency to have, that despite the fact that
the Senate has said it is not going to confirm anybody to head
the agency.
You all, obviously, are listening to the fact that the
agency is important because there has been little effort to try
to repeal the creation of the Consumer Financial Protection
Bureau, even though you second-guessed it to death.
The more of these kinds of discussions we have, maybe the
better off we are, so I thank you for being here.
One of the big advantages of arguments, benefits I thought
of having such an agency was this big differential between
players in the industry that were regulated already and had
somebody overseeing, or at least pretending to oversee the
consumer protection part of their imperative, and those players
in the industry that were not regulated.
Talk to us a little bit, Mr. Date, if you would, about how
the agency has approached trying to equalize the regulatory
standards for those who were previously unregulated, and those
who were previously regulated.
Mr. Date. Thank you, Congressman.
It gets to one of the core advantages to my mind of the
Consumer Financial Protection Bureau structure, which is that
when we have a Director, we will have supervisory authority
over both depositories and non-depositories.
And let me give you an example of why that is so important,
which again trues back to why it is--at some level why we are
here to begin with, which is the mortgage credit bubble and the
crisis.
Some of the mortgage products I talked about earlier that
proved to be so problematic from the point of view of consumers
understanding what they were getting into, and the point of
view of ultimate financial performance of those loans.
Most of those products were not originated and held by
depositories. They were not originated by bank or thrift or
credit union employees for a bank or a thrift or a credit union
balance sheet. They tended to be originated by non-banks, or
funded in the capital markets by Wall Street or the GSEs, which
are also non-banks.
So if one actually wants to be serious-minded about a level
playing field and fixing the problems of the past, we have to
take, in my view, a uniform view of both depositories and non-
depositories. And that to me is a great advantage of the CFPB.
Mr. Watt. And I would say to my colleagues that of all of
the handwringing about the existence of this agency that you
sometimes hear, that we sometimes hear in the political arena,
the comments I get from my community banks and the previously
regulated entities believe that this is a tremendously
important benefit to have somebody overseeing all of those
entities out there.
The players who were doing just terrible things in the
marketplace that the regulated entities were not allowed to do
because they were regulated.
So I will yield back.
Thank you.
Chairwoman Capito. The gentleman's time has expired.
Mr. Canseco, for 5 minutes?
Mr. Canseco. Thank you, Madam Chairwoman.
Thank you, Mr. Date, for being here today.
I have the privilege of representing a huge area of Texas
that spans from San Antonio to El Paso. There is an enormous
number of community banks throughout the district.
And I speak to almost every one of them and I hear the same
thing: There is a lot of uncertainty with regards to the
regulatory landscape. And given the number of rules and
regulations mandated by Dodd-Frank, those things are foremost
in their mind.
Now, the CFPB has already undertaken several significant
rule-writing initiatives such as the definition of larger
participants and also the efforts that we talked about here to
consolidate several mortgage disclosure forms.
Has the CFPB made an effort to lay out a game plan, if you
will, that will allow financial institutions to know what they
can expect and what they should expect in the way of forms or
rules and regulations in the foreseeable future?
Mr. Date. Thanks for the question, which I think is a good
one, because having a sense of what is coming is very important
to planning, and planning is very important to judicious
exercise management bandwidth in any institution, big and
small.
As a practical matter, we have tried to communicate with
financial institutions across the country in the best way that
we know how, which is to actually get out there and spend time
with associations of community bankers across the country and
over time.
So it is literally true that myself and my predecessor have
met with the community bank associations of every State in the
union. And what it is that I try to make clear in meetings like
those is that the rulemaking agenda for the Bureau, over the
near term which I define as that period of time between 2 weeks
from now and 2 years from now, is going to be principally
driven by what is mandated by Dodd-Frank.
Dodd-Frank involves, to my mind, a lot of quite sensible
reforms of a marketplace that did not appear to work
particularly well. And to do those things well, it is going to
take--from a rulemaking point of view--the bulk of our energy
and good efforts.
Mr. Canseco. So there is a map out there for them, is that
what you are saying?
Mr. Date. Yes, that map has been helpfully provided to us
by the Congress.
Mr. Canseco. Let me--in that vein, do the policies that you
are generating take into account the regulatory costs that
financial institutions could incur? And that if they incur
them, they will pass them on to the consumer?
Are they being factored into your rulemaking and regulatory
actions?
Mr. Date. Yes, Congressman.
Regulatory compliance cost is a real cost, irrespective of
whether it is passed on to consumers or not. It is still a
cost.
And as a result, because we are obliged both by the statute
and by common sense to consider both the benefits and the
burdens associated with rules, so absolutely consider
regulatory burden.
Mr. Canseco. So the CFPB has assumed supervisory and
examination authority over large depository institutions which
are defined as having $10 billion or more in assets. For those
institutions with less than $10 billion in assets, prudential
regulators retain supervisory examination authority.
However, Section 1026(c) of the Dodd-Frank Act authorizes
the CFPB to include its examiners on a sampling basis when the
prudential regulators examine an institution with less than $10
billion in assets.
Now, regulatory costs fall harder on community banks,
especially smaller community banks. The prospect of the CFPB
also participating in an examination could lead to increased
regulatory costs.
Has the CFPB taken steps to outline how it plans to use its
authority pursuant to Section 1025(c)?
Mr. Date. That provision, to me, seems like a sensible way,
one of several sensible ways to make sure that the overall
regulatory approach to the sector is coordinated.
But I will broaden out the sort of notion of regulatory
cost and compliance cost, because it is broader than merely
ride-along activity in the following way.
We are very aware that compliance burdens are
disproportionately fixed in nature. In other words, they are
more like a fixed cost than a variable cost.
And as a result, the arithmetic suggests that they
disproportionately burden smaller institutions. It is difficult
to argue with the arithmetic of that proposition.
Now, the good news is that means all of our efforts which
are multi-faceted to make regulatory burdens streamlined, that
is better for institutions and a lot better for consumers, that
therefore disproportionately benefits smaller institutions, not
bigger ones, for exactly the same dynamics.
So I am pleased by that. And I think we are on the right
track.
Mr. Canseco. Thank you for your candor, Mr. Date.
And, Madam Chairwoman, thank you.
I yield back my time.
Chairwoman Capito. Thank you.
Mrs. McCarthy, for 5 minutes for questions?
Mrs. McCarthy of New York. Thank you, Madam Chairwoman.
And I sympathize with you because I spent a good part of
Friday and Saturday filling out refinancing paper forms too.
And I am not done yet.
But with that being said, I thank you, Mr. Date, for being
in front of us today and bringing your point of view.
Just a couple of questions, being that the Senate has not
basically brought up the nomination of the agency's Director,
has that implemented you in any way or has that been able to
give you certainly the authority at this point to go forward on
what the direction of the agency is doing?
Mr. Date. This is a good news/bad news answer I am afraid,
Congresswoman. The good news, from our point of view, is that
we have important work to do today. We are literally, today, we
have the authority for rule making and supervision authority to
transfer it over from the existing Federal regulators on July
21st. And that is an important set of work to both fix that
which has been done poorly in the past and make sure that we
operate in a surefooted way moving forward.
The bad news part is that there are tens of thousands of
non-depository consumer financial products, firms out there,
that are supposed to be within the supervisory authority of the
Bureau but are not today, absent the Director.
So, I am pleased by where we are but obviously there is a
great deal more that we could be doing.
Mrs. McCarthy of New York. So basically, it is almost like
a stalling technique so you really can't get up and running and
doing the job that you actually need to do?
Mr. Date. My concern would be that--and this is not just a
concern that I have had within this position, but one that I
have observed about the industry over the course of time is
that there no great right-minded reason why some firms, namely
community banks, credit unions, thrifts should be subject to,
in practical terms, a different set, a more exacting set of
compliance burdens than other people who are in exactly the
same business.
It doesn't make sense. It is bad for consumers. It is bad
for the function in the market.
Mrs. McCarthy of New York. I am being curious--
Mrs. Maloney. Will the gentlelady yield for 2 seconds?
Mrs. McCarthy of New York. Certainly.
Mrs. Maloney. For 5 seconds, so I want to compliment her
for raising this issue. It is one that Secretary Geithner
repeatedly raises in his public statements on the need to
confirm and get the CFPB running.
And what he points out is that a vast array of non-bank
financial institutions, that are outside the scope of consumer
protection, which was exactly the same mistake that left us so
vulnerable to the financial crisis we went through.
As we know, banks and institutions are regulated but there
is a whole other area of non-bank institutions that are very
large, such as AIG, that are unregulated and this stops that
regulation.
So your point is a very important one, and I want to
compliment you for raising it.
I yield back.
Mrs. McCarthy of New York. Thank you, and I take back my
time.
I guess the second question would be, how do you envision
Congress, especially the way we seem to be in gridlock on
everything over here, being involved in supporting the CFPB
going forward as we go forward for our consumers?
Mr. Date. Well, in two principal ways. But I view the role
of what it is that we are doing now, the role of oversight, as
being quite key to any institution functioning well.
That is part of the reason why I am happy that this is
something like--it is probably the eighth. And then Mrs.
Petraeus is testifying on the Senate side tomorrow.
So I think that will be the ninth hearing that we will have
participated in, which I am glad for that opportunity.
The second is we are in a retail enterprise here. And so
understanding issues on the ground, as they are really
confronted by community banks on the one hand and consumers on
the other, will help us in what we do.
And obviously, Members of Congress have a good and
appropriate kind of lens into those issues over time and we
would love to hear about them.
Mrs. McCarthy of New York. Going back to the first part,
the question that I had asked you, and you had mentioned the
thousands of people who are out there who are going to need to
do their job.
Are these going to be new hires or are these coming from
the different agencies coming into the new agency?
Mr. Date. At the CFPB today, we have something like 700 or
a little bit more than 700 people. We were privileged to have
something like 1,300 applications for people from the
prudential regulators to transfer to the Bureau.
We made something like 300 or 350 offers from those 1,300
applications. We have also been in the position--and given the
clarity of the mission and the importance of what we are doing
and the early team that we assembled, to really get some
astonishing talent from other places in the government and the
private sector--
Mrs. McCarthy of New York. Unemployment does that.
Mr. Date. I think we are the beneficiaries of the fact that
the mission is very clear and very important.
Mrs. McCarthy of New York. I yield back the balance of my
time.
Chairwoman Capito. Thank you.
Mr. Pearce, for 5 minutes for questions?
Mr. Pearce. Thank you, Madam Chairwoman, and thank you, Mr.
Date.
On page four of your written statement, you talk about
following the rules and then you make a comment about the lead
up to the worst financial crisis.
You talk about the explosion in lending. And you talk about
the failure of the regulatory system.
As you assess those failures, did you ever factor in the
calculations or the changes in the lending standards that
prohibited institutions from calculating previous payment
history?
In other words, that was one of the things that caused bad
loans. So, did you calculate concepts like that?
Mr. Date. In my experience, credit underwriting has been
quite different across different asset classes in consumer
credit. And to the extent that mortgage has suffered
disproportionately in this current crisis, and as the asset
class were risk and return were the most divorced from each
other, it is precisely because credit underwriting that was
seen in the mortgage business was rather divorced from past
commonplace, commonsense practices that--
Mr. Pearce. I just asked if you studied it. Have you
analyzed it and assessed it?
Yes or no?
Have you analyzed the effect of telling lenders they could
not calculate previous payment history?
Mr. Date. Which precisely--what was the prohibition on not
using--
Mr. Pearce. I think if you look at the New York Federal
Reserve, maybe they have made some comments that declared many
of the subprime loans to be--oriented. They have manufactured
data.
Have you taken a look at that New York Federal Reserve
issuance?
Mr. Date. Congressman, I am reasonably familiar with, for
example, how credit scores are generated. And I am quite
certain that payment histories are in fact used--
Mr. Pearce. Did you--I am asking about the New York Federal
Reserve.
Did you take a look at that?
Mr. Date. I don't think I recognized--
Mr. Pearce. We will get a copy of it to you because it
appeared to--have you looked at Members of Congress who are
urging institutions that they could not discriminate on loans,
they couldn't charge different rates to one payer and another?
Have you looked at that?
Mr. Date. I am sure I would not have devoted your resources
to individual Members of Congress--
Mr. Pearce. I see.
On page five, you talk about the Bureau's central
responsibility as to identify, address, update unnecessary or
unduly burdensome regulations.
Do you have an example of an unduly burdensome regulation
that you all have actually have tossed out?
Mr. Date. Sure, as I discussed earlier, we are now
developing the harmonization and streamlining of two very
important disclosure forms that are used throughout the multi-
trillion dollar mortgage business.
Mr. Pearce. When you talk about protecting the consumer,
are you going to have some sort of a--you constantly talk about
in your presentation, your written presentation, the need for
better information.
Do you have a little quiz or something that you are going
to give to consumers to make sure that they actually read the
stuff that you provide to them?
In other words, the consumer may have some culpability and
maybe they didn't and maybe they are totally innocent in the
processes of this run-up that you have discussed on page four
of this run-up of the debt.
But maybe consumers have something to do with that. Are you
going to have a measure to see that they are no longer playing
their part in trying to get access to credit that maybe they
shouldn't get access to?
Mr. Date. Let me answer that in two ways, both of which are
quite core to what the Bureau's mandate is.
Number one is that we, in our dealings with consumers and
what we hear from them and what we hear from bankers, who
frankly are on the front line of trying to sell products, is
that consumers across America by and large are, and want to be,
accountable for their own decisions.
American consumers are not children. They want to be
treated like grown-ups.
But in order to hold people accountable for decisions and
hope that they make good decisions over time, you have to hope
that the right information is put before them over time. And we
have--
Mr. Pearce. No, sure, I understand that. But then, they
have the ultimate responsibility to take a look at it.
In your discussions nationwide, all the comments that you
have gotten from all the bankers, community bankers, what have
they told you about Section 10-71?
Mr. Date. Across-the-board, anyone who has, in my
experience, spent time trying to understand the availability,
access, pricing, trends, and small business credit finds the
paucity of data in small business credit across the United
States deeply distressing.
Mr. Pearce. And now, you are going to implement some of
those--are you going to do something to address those concerns,
because in a meeting just yesterday with bankers, they still
said that this is an operation that they are alarmed by and
that they find no useful function in.
And are you going to those or you just got the comment?
Mr. Date. I will follow the instruction of the United
States Congress which is to implement Section 10-71 in a way
that is productive to the--
Mr. Pearce. Thank you, Madam Chairwoman.
I yield back.
Chairwoman Capito. Thank you.
Mr. Miller, for 5 minutes?
Mr. Miller of North Carolina. Thank you, Madam Chairwoman.
Mr. Date, I have been described in the press in the last
month, including the last couple of days, as a critic of the
announced debit card fees. And that would probably be a more
politically popular position than my real position, which is
that I don't want to be approving every fee that a bank
charges.
I don't want you, the CFPB, to be approving every fee that
a bank charges. I don't get the sense from you that you want to
do that either.
But what I would like is for consumers to have the benefit
of normal, healthy competition, so that they can figure out
what they are getting. They can shop around. And so that the
normal forces of competition will give them the best deal
available.
And if they want to pay a debit card fee, but not pay
something else, that is okay, but the way that these fees were
announced and then retracted shows that is simply not happening
in consumer banking.
The numbers appear to be snatched out of thin air. One bank
said $5, another bank said $3, and they both said they were
just kidding. And that is not the way pricing happens, pricing
works, in other areas of the economy where there is normal,
healthy competition.
And some of them are Members on the other side who have
talked about--who have suggested that the CFPB's rules might be
a threat to safety and soundness of banks, also suggest that
normal, healthy competition isn't working because you don't
have the power to require banks to offer anything.
If there is a product or a CFPB requirement that would make
a line of business unprofitable they don't have to do it. What
they are really saying is that they need to be able to make
money off consumer banking to make up for losses somewhere
else.
And that is a pretty good remarkable suggestion that the
big banks that they are facing massive liability from selling
mortgage-backed securities, where if a small bank, a community
bank, many of which are just dirt lenders, are facing losses
from commercial real estate that they will be able to make up
that with their consumer practices.
And other lines of business, other industries can't do that
where there is normal competition. You don't see companies with
several lines of business losing money on one hand, and just
raising their prices on the other hand, because consumers will
take their business down the street.
And that is obviously not happening in consumer banking.
Mr. Date, do you think there is normal competition, normal
healthy competition in consumer banking?
Do you think consumers really do understand currently that
they can compare in an understandable way what services and
fees are that different banks are offering so they can
comparison shop, as you said earlier?
Would standardized plain English disclosures help them, and
is that something that you are working on?
Mr. Date. Thank you, Congressman.
We absolutely are working across the Bureau, across our
various policy tools, towards the goal of substantive
transparency which is that markets, as you point out, work
better if consumers and providers are actually talking about
the same transaction.
And to the extent that is made opaque unnecessarily by
virtue of regulation that exists, we can make that better. And
so, we are absolutely oriented towards that goal.
I will say that in some very important parts of the
marketplace, things are definitely better today than they were
just a few years ago.
Mr. Miller of North Carolina. That is a low bar.
Mr. Date. I grew up for the most part around the credit
card business, for example. The credit card business today,
after the CARD Act of 2009, is a dramatically more transparent
business than it was in 2008--dramatically.
I think that is fundamentally good for franchises in the
business, for issuers, for banks, and absolutely for consumers
as well. So there are improvements.
Mr. Miller of North Carolina. How difficult or easy is it
for consumers to move from one bank to another if they decide
they are unhappy with their bank and think they can get a
better deal somewhere else?
Is that something that you are all looking at?
Mr. Date. We would examine the fact base associated with,
in general, deposit practices like is it clear how one opens,
maintains, and closes an account over time as part of our usual
supervisory activities.
Obviously, it will differ across products, and my sense is
money market accounts, and the core DDA product, etc., have
historically behaved quite differently from that point of view.
My sense is they probably will behave differently going
forward, but there is no reason why we can't really kind of
understand the facts on the ground.
Mr. Miller of North Carolina. I yield back.
Chairwoman Capito. Thank you.
Mr. Duffy?
Mr. Duffy. Thank you, Madam Chairwoman.
One of my concerns as I sit in these hearings is the back
and forth in regard to what we, on this side of the aisle, have
done to actually reform the CFPB.
I had a bill, I am not sure if you are aware of it. It was
the Consumer Financial Protection Safety and Soundness
Improvement Act of 2011.
And one of the components of that bill that passed the
House, that is now one of the many that is stacked up in the
Senate, was that we would move the CFPB from a Director to a
commission. And the commission was the original language in the
Democrats' bill that passed last year.
I hear a number of comments about how now we want to defang
the CFPB when all we are trying to do is make it work better.
And that is one of the frustrating things as I sit here.
I think we should have a real conversation about what we
are trying to do.
Are we trying to defang it? Are we trying to make it work
better?
I don't know if some across the aisle believe that this is
the one law that was written perfectly, and we can't have any
reform that can improve it, but that is the impression that I
get as I listen to this conversation.
And I guess I come from a district with a lot of small
banks, a lot of small credit unions.
Is it fair to say that the work of the CFPB will no doubt
have an impact on many small banks and credit unions?
Mr. Date. Yes.
Mr. Duffy. Okay.
Mr. Date. Yes, I think things will be better in the
marketplace for small institutions.
Mr. Duffy. But it is going to have an impact on them,
right?
Mr. Date. A better impact, yes.
Mr. Duffy. Great. And so can you give me some examples of
what my banks and my credit unions did to help cause the
financial crisis?
Mr. Date. That, Congressman, gets to exactly the right
point, I think.
Mr. Duffy. What did they do?
Mr. Date. Precisely, community banks, for example in the
State of Wisconsin.
Mr. Duffy. What did my community banks do?
What did my credit unions do?
Mr. Date. Community banks in Wisconsin entered the crisis
with exposure, as all community banks did, to real estate
lending. And by virtue of an inflation of a real estate bubble,
principally by, frankly, non-depositories due to lax
underwriting standards over time, when that bubble burst, it
disproportionately impacted community banks, of which Wisconsin
has many.
Mr. Duffy. So is it their fault that they were following
these standards? They were following standards, correct?
Mr. Date. Exactly.
Mr. Duffy. Were they bad actors?
Mr. Date. Congressman, the notion of being able to extend
the same set of practical rules across non-depositories is
exactly the point.
Mr. Duffy. Let me ask you this: Do you recall what the
original name of the Dodd-Frank bill was?
Mr. Date. I would not have occasion to recall that.
Mr. Duffy. Would it surprise you that it was called the
Wall Street Reform Act?
Mr. Date. I have no particular reason to be surprised--
Mr. Duffy. You think a better name for this bill would be
the Main Street Reform Act?
Mr. Date. I am not in the habit of naming legislation,
Congressman.
Mr. Duffy. Okay. And as I hear you testify, you have talked
about how it is great that for your management background that
you have a one person Director on the CFPB.
Now, I wonder if you would think that the U.S. Government
will work better without a board, whether it is Congress or the
Senate, and we just have a one person director who manages the
control of the country.
Is that your philosophy as well?
Mr. Date. I am quite sure no sensible person would say
that, Congressman.
Mr. Duffy. Great. I am happy to hear that.
Because as I look at what is happening right now, your
agency--I wouldn't say your agency--the CFPB has an incredible
amount of power and 1,200 employees, with a $329 million
budget.
And as I look around, I say, who has been elected to run
this agency? Who has been nominated to run this agency?
Who has been confirmed to run this agency? And that is my
concern.
When we talk about oversight, we can look at these hearings
and they are great. I think one of our concerns is there hasn't
been a nomination, there hasn't been an election, there hasn't
been a confirmation. We don't have budgetary control
necessarily over the CFPB.
And as I analyze the impact that this agency is going to
have on my consumers, on my small businesses, on my small
banks, and on my credit unions, when they really had nothing to
do with the financial crisis, that gives me great concern.
I think the original intent was to look at what went wrong
on Wall Street, what went wrong with the big financial
institutions. But in essence, you have admitted that that is
not all that we are going for. We are going for every financial
institution, every small bank, every credit union.
And for me, that gives me pause. I don't think we grow our
economy. I don't think--I think Mr. Gutierrez was talking about
gun stick-ups, was what he said.
I can tell you that my financial institutions, my banks
didn't do any gun stick-ups. They treat their customers fairly,
openly, and transparently.
Mrs. Maloney. Will the gentleman yield?
Mr. Duffy. Oh, my time is up. I yield back to the
chairwoman.
Mrs. Maloney. I ask unanimous consent to respond to his
statement that there is no oversight of the CFPB. There is
considerable oversight of the CFPB.
Chairwoman Capito. Mr. Meeks, for 5 minutes for questions?
Mr. Meeks. Thank you, Madam Chairwoman.
I was just listening to the colloquy also. But I do believe
that Richard Cordray was, in fact, nominated by the President
and we are just waiting for the Republican Senate to stop
filibustering in the nomination so we will have a person in
place there.
Let me just say this: I am pleased to know that you
mentioned in your testimony that a well-functioning market is
one where the buyer and the seller both understand the terms of
the deal, and that buyers are able to make comparisons among
products.
Markets function on the availability of information and
transparency. And we see obstructions to the information so
markets are disrupted. That is why bringing transparency into
the marketing and sale of mortgages and consumer loans, I
believe, is absolutely fundamental.
I strongly support what you are doing in simplifying
mortgage disclosure forms because if you look at my district in
South Queens, we have the highest foreclosure rates in New York
City. And that is partially because we have the greatest number
of fraudulent mortgages that were sold in America.
Countless seniors were duped into taking out reverse
mortgages that have left them destitute and many of them
homeless. And a vibrant consumer protection agency is
necessary, I believe, to protect all Americans from such
predatory behavior.
As indicated, a number of my colleagues on the other side
of the aisle have complained that the CFPB is not subject to
the congressional appropriations process.
But I want to make two points on that.
First, it was a result of a Republican formulation--Bob
Corker, the Senator Corker special, as it is known on the
Senate side--that put the CFPB in the Federal Reserve and thus
not subject to the annual appropriations process.
But more importantly, we see the Republican obstruction and
funding the SEC as well as the CFTC trying to cut the budgets
of those agencies to below pre-crisis, pre-Bernie Madoff
levels.
Why would we want to subject an agency--created solely to
protect consumers and enhance transparency to enable markets to
function properly--to the whims of anti-consumer crusaders.
And that is not even to say that on the line of what my
colleague was talking about before, we have many laws. Most
citizens don't break the law, but they still have the law that
they have to abide by also.
So I agree, the credit unions, a lot of the small banks,
they have not--maybe they don't have any real negative
involvement in this. So they--you still have somebody to look
over, doesn't mean you abolish the police. And most of the
individuals in a city abide by the law, but you still have the
police there.
So the functioning that you have is tremendously important
and to make sure that consumers are protected and have choices
and have in fact--one of the things that I think that you are
doing and stories that I have read that is egregious over the
last few days about predatory lending, targeted toward active
military service men and women.
Can you describe some of what you learned about this and
what specifically, say, I think it is Ms. Petraeus and the
Bureau will do to ensure that our folks in uniform and their
families are protected from unscrupulous behavior?
Mr. Date. It is an important focus for us, and one that I
am glad that Mrs. Petraeus is leading our efforts in.
We are going to simultaneously make sure that we understand
the special circumstances and particular difficulties that our
servicemembers have today in financial services, do what we can
to make sure that our men and women in uniform are equipped to
be able to understand the financial ramifications of what it is
that they are going to get into, and that we are attentive to
those who would break the law in order to take advantage of
precisely those men and women who don a uniform to serve the
country.
We take it very seriously.
And I think that Mrs. Petraeus has already been shining a
bright light on these issues that inform both our efforts as
well as more broadly made a real difference in this
marketplace.
Mr. Meeks. You also, in your testimony, talked about a
financial age shopping sheet.
What complications to an efficiently functioning market or
consumer protection initially do you see in the student loan
market, if you will, in the little time I have left?
Mr. Date. Student lending is a very big market. And for any
individual family or student making a decision to borrow money,
it is a big, big decision.
But those decisions are made unnecessarily complicated by
the fact that individual schools tend to use their own
terminology to describe exactly the same things. So in cases
like that, it becomes difficult for a student, or his family,
to really get a handle on what they are getting into and how to
compare how various schools stack up.
Mr. Meeks. Again, so that just shows various choices.
And the last thing I wanted to talk is checking
transparency.
Can you tell me what you see doing there so that it could
be easier for voters, for constituents to move with their feet
if they have to?
Mr. Date. In the PDA or that is to say in checking
accounts, broadly speaking, it should function just like other
consumer financial services. Consumers should be in the
products that they understand and that they want.
That is how a market works. And if we do our jobs right,
that will happen.
Chairwoman Capito. The gentleman's time has expired.
Thank you.
Mr. Grimm, for 5 minutes for questions?
Mr. Grimm. Thank you, Madam Chairwoman.
Thank you, Mr. Date, for testifying today, and I have to
tell you, I appreciate the fact that you have a lot of zeal.
You are coming with a perspective that is almost completely
private sector. I think we do need more of that.
But I am a little cautious because I have heard you say
several times throughout your testimony things like
``commonsense.'' This is just commonsense or how the Bureau is
going to be making things more efficient, more effective.
And this is my first year here at the Congress, but it is
my 17th year in the government. And unfortunately, one of the
things I learned early on was--and it is something we need to
change--to check common sense at the door.
And if you think a bureaucracy is going to make things more
efficient and more effective, then you probably should be
medicated. You need to just accept the fact that more
government often is the problem, not the answer.
So I just want to put that out there. I know it has only
been 100 days, and I would love to have this conversation 3
years from now. I think you would have a totally different
perspective. But I think you are being honest from where you
sit right now and I respect that.
But I do want to go back because you mentioned before about
how someone has to be on the hook. And in the private sector
where you come from, you are right, someone is on the hook. If
you screw up, if you don't do what you are supposed to do and
you get paid for it, you get fired.
And if you screw up badly enough, no one else is going to
hire you. That is not how it works in the government.
The accountability is one of the biggest issues we have. It
is one of the reasons I ran for Congress because I felt that no
one is held accountable.
So the idea that now all of a sudden, a new Bureau has been
created, and somebody is going to be held accountable, is
almost absurd.
You were asked a question by my colleague, Mr. Duffy, as to
what exactly did the smaller institutions, the small banks, the
small credit unions do to exacerbate the financial meltdown,
for lack of a better term. And you answered how they were
affected by it.
Did they contribute? Did they play a major role in the
financial meltdown? Yes or no?
Mr. Date. No.
Mr. Grimm. Okay.
Mr. Date. And that is exactly why the--
Mr. Grimm. Okay, okay, hold on, hold on.
Mr. Date. [Off mike.]
Mr. Grimm. It is a yes-or-no question. Thank you.
They didn't. And that is why I think when I speak to my
community bankers and my credit unions, they say, ``We had
nothing to do with the meltdown. We played by the rules and now
we are hiring more compliance officers.''
I know the intent, and I don't think there is anyone on
this panel, I don't think there is anyone who was involved in
Dodd-Frank, or in the new Bureau who doesn't have the noblest
of intentions. I believe that in my heart and soul.
So it is not the intent that I am worried about. What I am
worried about is we are talking about streamlining
inefficiencies, and they are already hiring more compliance,
and already paying more administrative fees knowing they had
nothing to do with it.
Do you understand at least the frame of mind, that they
feel they are being punished for something they had nothing to
do with? But yet, they are being told by bureaucrats--and
whether you like it or not, now you are a bureaucrat--that
don't worry, we are going to make it all better. That is a
problem.
And I keep hearing about fraud and predatory lending, which
are two different things.
Have you personally, and has the Bureau analyzed the
defaulted mortgages, how much of that was, in fact, fraud? How
much of that never ever should have taken place had the rules
that were already on the books been enforced?
I think we had a big lack of enforcement. And adding more
rules on top of rules that were not enforced in the first place
may not be the answer.
Have you analyzed that?
Mr. Date. That particular matter which is how many of these
loans that were made during the 2005, 2006 integers did not
conform to underwriting standards that were later attested to
as the loans were sold to investors.
I am quite sure it will be litigated between private
parties for quite some time. So, the actual fact-based
discovery will be continuing for some period of time.
But I would agree with the notion that an effective
regulatory apparatus that is efficient has to include a
multitude of tools so you can use the right one, the most
efficient one for any given problem. And enforcement does
matter.
Consumers--
Mr. Grimm. I only have 20 seconds.
So on that note, taking the military perspective, if I have
a unit that is not working efficiently and effectively, do I
throw more bodies and more resources at it, or do I fix what I
have first, get that to operate correctly and then worry about
expanding it?
That, to me, is common sense. Yes? No?
Mr. Date. We are building a Bureau that is different in
kind and dramatically better at the mission the Congress has
given us. And we are dead serious about doing it right.
Mr. Grimm. Fair enough.
Chairwoman Capito. The gentleman's time has expired.
Mr. Carney, for 5 minutes?
Mr. Carney. Thank you, Madam Chairwoman.
And thank you, Mr. Date, for coming up today.
I am interested in your answer to the question about the
community banks and the effect--they weren't responsible maybe
for the financial crisis, but how they might benefit from your
actions because I haven't heard that answer yet.
Mr. Date. Sure. Let me talk about it in two ways: one is
near-term; and one is longer-term.
The near-term gets to the fact that compliance costs are
real costs and they tend, not always, but they tend to be fixed
cost. In other words, it doesn't matter if you are a $100
million institution or a $100 billion institution. It doesn't
really scale with size.
What that means is that compliance costs are
disproportionately tough for small community banks right away.
To the extent we can streamline regulations as we are doing
right now on the mortgage disclosure forms, as we are kicking
off an effort to really target and review existing regulations
to do, well, that benefit disproportionately benefits community
banks.
Mr. Carney. And you think you can really have some impact
there with that review?
Mr. Date. Absolutely.
Mr. Carney. Are you getting much feedback?
I saw in your remarks, your prepared remarks, that you have
a survey out, if you will.
Have you been getting much feedback about that?
Mr. Date. We will get, I think, a fair amount of feedback
and we will do primary work, because not every regulatory
burden is the same, some things cost real money--
Mr. Carney. Right.
Mr. Date. --and impact how institutions function, and some
things do not.
So we want to make sure that we target the right things,
that is what--if it were your own money, that is what you would
do and that is what we are doing.
Mr. Carney. I am glad to hear that. I have to move on. But
I think it will be good for all our community banks.
I am also interested in--you mentioned earlier your role in
regulating mortgage servicers. And there is, I guess, a release
that you put on out on October 13th that talks a little bit
about that.
I think that there are real problems in the servicing and
our offices hear that every day in terms of timing this
documentation, I think it is a complete disaster.
What I am interested in is what do you see as your role
there? I have seen your press release. What are the standards
you are going to apply for accuracy and timeliness? And then
you mention at the end, appropriate enforcement. What does that
mean in the context of the servicers?
Mr. Date. Mortgage servicing is one of these things that is
simultaneously a market that is very important in terms of risk
to consumers, but also is one that in the pre-Dodd Frank
regulatory regime tended to attract not as much supervisory
attention as it otherwise should have.
The reason for that was--and these are not my words; I
think that the GAO pointed this out earlier in the year--that
mortgage servicing was not viewed as a safety and soundness
concern, or not a significant one. And as a result, it didn't
attract the same kind of supervisory attention as did other
areas of the bank.
That has turned out to be a real problem.
When the prudential regulators reviewed 14 institutions in
a report that they published in April of this year, 14 out of
14 had serious deficiencies, which is not a great batting
average.
We have today, as of July 21st, supervisory authority over
most of the largest mortgage servicers in the country with
respect to existing Federal consumer financial laws, which
means that we will take quite seriously the supervisory
authority that we have to make sure that the law is followed,
and that those deficiencies get remedied, and that consumers
are not harmed.
Mr. Carney. We run into this all the time, consumers not
having a single point of contact, lost documents, documents
that are really in bad shape. Which by the way is a whole other
problem and issue, and maybe a subject for an oversight hearing
in terms of mirrors and all that, but it is a disaster out
there.
And what is your role in that documentation side, if you
see any or if you have any?
Mr. Date. There are real structural problems in mortgage
servicing. So for example, the way that servicing compensation
works, it is difficult for servicers to actually get paid for
dealing with delinquent loans in the right way, in a thoughtful
way, in a nuanced way.
And as a result, there has been a systematic
underinvestment in the right people, and processes, and
technology, and we are living with the results now.
But the fact of the matter is even if the compensation
structures are not ideal, you still have to follow the law and
that is what we can do.
Mr. Carney. So what does the law say?
And then lastly, in 30 seconds, what are the appropriate
enforcement actions that you can take?
Mr. Date. We have an entire range of potential remedies. We
have at the front end sort of the ability to participate in an
interagency process that we are doing right now, to try to
develop sensible, right-minded, practical, national mortgage
servicing standards.
The existence of a patchwork set of regulations in this
area has not done anyone any great service. So if there can
be--come to a conclusion on some sensible national mortgage
servicing standards that would go a long way.
Mr. Carney. Thank you.
Chairwoman Capito. Thank you.
Mr. McCotter, for 5 minutes?
Mr. McCotter. One of the questions that has been repeatedly
asked and I think you touched upon it in your opening statement
when you referred to--yes, here it is on page four--regulatory
arbitrage, which I believe you mean to say businesses,
financial entities, look for a least-regulated area to try to
set up shop.
Is that correct?
Mr. Date. That is the gist of it--yes.
Mr. McCotter. Could there not be a corollary related to the
community banks and credit unions or bureaucratic arbitrage,
where the government looks for areas that are less regulated so
that they can expand their power and influence over them?
Mr. Date. In my experience, the more problematic aspect of
it is actually the issue you were raising, that everybody knows
where community banks are. Everybody knows the address. You
know how many there are. You know how to find them. You know
who runs them.
And so as a result, they are much easier to regulate and
hold to high standards than are non-depositories. And that is
what we have an advantage in fixing.
Mr. McCotter. The second question is, people back home have
difficulty in relating to the concept that the government
creates bigger bureaucracies to streamline government.
And you said you have hired some 700 employees, the reason
for which and I think the reason for the existence of the
agencies put forward is so that you can centralize the
authority-making within the new consumer Bureau, right?
Mr. Date. The what Bureau? I am sorry.
Mr. McCotter. The CFPB, you can centralize--
Mr. Date. Consolidate--
Mr. McCotter. --the host of duplicative authorities that
have spread out throughout the years within one central place,
right?
Mr. Date. That is correct, Congressman.
Mr. McCotter. I think the phrase you used was
``centralization of authority.''
Mr. Date. ``Consolidation,'' but yes.
Mr. McCotter. ``Consolidation,'' a difference without a
distinction.
To me, the question then is what happened to all the other
people who were doing this in the Federal bureaucracy? Where
did they go?
Since you have consolidated the operations and authority,
where did they go?
Mr. Date. We had something like 1,300 applications from
potential transferees from existing prudential regulators.
Mr. McCotter. Will all the people whose authority you have
consolidated from their bureaucracies now work for the CFPB?
Mr. Date. To the contrary, we made 300 to 350 offers
amongst those 1,300 applicants because we are building a Bureau
that is taking off--
Mr. McCotter. I got what you are doing.
Where will they go?
Mr. Date. I don't personally know them all, Congressman.
Mr. McCotter. Where will the positions go?
Mr. Date. [Off mike.]
Mr. McCotter. What happens to the positions whose authority
you have consolidated within this new bureaucracy?
What happens to the old bureaucracy?
Mr. Date. Congressman, I wouldn't be in a position to be
able to--
Mr. McCotter. But you know that you have consolidated their
authority? What happens to the positions that are currently
tasked with implementing that authority within the Federal
bureaucracy?
Mr. Date. Those people, they are individual human beings--
Mr. McCotter. The positions?
Mr. Date. I am sorry, Congressman. I would not have line-
of-sight into the internal staffing decisions of, for example,
the OCC or the FDIC that--
Mr. McCotter. Then how can you say you have consolidated
the authority if they continue to do the same job in the same
positions, despite the fact that this Bureau, this new
bureaucracy has been created.
Mr. Date. I mean it in the quite literal sense that there
is--
Mr. McCotter. So do I.
How can you say you have consolidated the authority within
this new bureaucracy if you cannot tell me whether the extant
positions that are currently doing them have been eliminated,
or have had new tasks assigned to them.
Otherwise, you have just added a new bureaucracy on top of
people who are continuing to operate as the old bureaucracy.
Mr. Date. Dodd-Frank, I think, is relatively explicit about
this. There are authorities to administer an enumerated set of
laws that transferred over to the Bureau on a date certain.
That has happened--
Mr. McCotter. Are all those positions now, again, perhaps I
misheard you, are all of those positions now coming into the
new bureaucracy? And if not, what happens to them?
Mr. Date. As I said, Congressman, I don't have visibility
nor would I into--
Mr. McCotter. So you don't know whether you have
consolidated the authority because there may still be positions
within the existing bureaucracy that are doing them?
Mr. Date. Congressman, I--
Mr. McCotter. So you don't know?
Mr. Date. No, I am quite confident that the authority that
it transferred to us by the Bureau--
Mr. McCotter. So what happened to the positions?
Mr. Date. [Off mike.]
Mr. McCotter. If you take it, so the positions are sitting
there with people in them spending taxpayer money with no
specific direction at all and no plan for their subsequent
phase-out or elimination in a time of massive deficits and
debt, decide to save taxpayer's money, you don't know if that
is happening?
Or was that not envisioned by the foresight of the bill's
drafters?
Mr. Date. I know that I am executing in the most
disciplined way possible for us.
Mr. McCotter. That is not what I asked you. You may be
doing the best you can, but it doesn't mean it is good enough.
Chairwoman Capito. The gentleman's time has expired.
Mr. McCotter. Thank you.
Chairwoman Capito. Mr. Green?
Mr. Green. Thank you, Madam Chairwoman. And thank you for
allowing me to be a part of the hearing. As you well know, I am
an interloper.
And I would like to thank you, sir, for testifying today. I
would also like to compliment you on getting your Office of
Older Americans and the Office of Servicemember Affairs up-to-
speed. It is important that we serve these two communities.
To this end, a brief bit of information which will give you
some indication as to why I have some concern about the
question, or perhaps the statement that I will make.
In my congressional district, we have the ballot now in
four languages: English; Spanish; Vietnamese; and Chinese. By
the way, that is for American citizens.
Every person voting is an American citizen and that is the
law in this country. So it is all pursuant to the law.
But with reference to our older Americans, senior citizens
who are in the twilight of life, many of whom do not understand
English as well as you and I, are you preparing to have your
materials printed in other languages so that they may be not
only informed, but they may have an opportunity to benefit from
much of what you do?
Mr. Date. It is a great question, Congressman. And we are
trying to address that access in a couple of different ways.
One is to test over time, if you co-develop in both English
and another language, you get to a different result or not.
Because, for example, if it makes just as much sense to develop
in English and then translate after that, that is one thing.
But you may--I don't know--and you may in some cases, if
you co-develop in, for example, English and Spanish at the same
time, you might get slightly different looking things. And we
are going to test that over time. If there is no difference,
then we will just develop in English.
The other important element, though, is that we have
multilingual capabilities in our consumer response center
today. Literally, like 150 different languages capability,
which is important, that is the nature of America.
Mr. Green. Thank you. And I celebrate this diversity. I
think it makes us a better country.
Now, moving to another area, it has been my opinion that
where we have few facts, we have much speculation. There is a
lot of speculation about the appeals process for some of our
financial entities given that you don't have your permanent
Director in place. They are concerned that appeals may be
arbitrary, whether findings may be arbitrary and capricious.
Now, I have met with some of the small bankers, and I have
not heard any say that they want a process that will allow them
to always prevail. They tell me that they want a fair process
so that they can get a fair hearing such that they can have
some confidence in the findings.
To this end, what are we doing to not only have it but to
make sure that they understand it, and that there is a desire
to be fair so that they won't have this speculation that can
create adverse opinions.
Mr. Date. Yes, I absolutely agree, Congressman, with the
notion that speculation about what we might do or not do
doesn't actually do anybody any good.
Our supervisory process is not meant to sneak up on
anybody. We want to be clear about what our expectations are
not just to our field examiners but to institutions as well.
And that is why I think we took an important step a couple
of weeks ago in publishing our supervision and examination
manual. It has become sort of the guidepost of what financial
institutions can expect.
Mr. Green. Does it contain within it--and I have not
perused it but I will--information about the appeals process
when there is a desire to challenge a decision made by the
agency?
Mr. Date. Already, and over time, we will supplement a
number of published guidelines about what appeals processes and
administrative procedures will apply to that set of issues,
which I think are important ones. We obviously have had the
benefit of being able to look at what other Federal agencies
have done to be able to construct something that is fair-
minded.
Mr. Green. Thank you.
I have two final comments. First, I do meet with small
bankers and they are exhibiting a lot of consternation about
additional staffing and this appeals process. I don't find that
to be unusual when people are having to deal with the unknown.
So if we can make it as much known to them as quickly as
possible, I think it would be a great benefit to all of us.
And the final comment is with reference to the original
name of the Dodd-Frank Act. I have received some intelligence
indicating that it was the Wall Street Reform and Consumer
Protection Act. So it has always contained the notion that
there would be consumer protection as a part of the Act.
Thank you, Madam Chairwoman.
I yield back.
Chairwoman Capito. Thank you.
Mr. Huizenga, for 5 minutes?
Mr. Huizenga. Thank you, Madam Chairwoman. And I apologize
for having to step out to get prepared for another hearing with
this committee a little later on this afternoon that I may be a
part of.
But I was able to be here for about the first hour or so,
and I appreciate your time again here in front of us.
And I know you have covered a lot of ground, a lot of
territory, but I don't think this has been talked about much. I
feel I need to learn a little more about it and hope this is
enlightening to the committee as well.
I know that the CFPB has stated it had some plans to
finalize the ability to pay rule early next year, and that it
is regarding a regulation for lenders, what they are going to
be able to do.
Now, I have a background in real estate and developing, and
am very concerned about how we got ourselves into this with
some of those practices before.
But it is requiring, or potentially requiring, a lender to
do a ``good faith investigation'' as to the ability to pay for
a loan, which seems slightly redundant to me. I want to know
why people will be making loans who wouldn't have an ability to
pay. But I think that is a part of our problem.
I understand there are two alternatives regarding qualified
mortgages. And I am wondering if you could expand on that a
little bit regarding safe harbor, as well as, I believe, it is
rebuttable presumption, what those differences would be and why
we wouldn't just go with the safe harbor standards so that
everybody knows what the rules are clearly and can play by
those.
Mr. Date. Congressman, it is a--when I get to sort of
process setting where we are, describe a little bit about what
is this qualified mortgage thing anyway, and then see if there
are some subsequent points that we have time for around it.
Mr. Huizenga. We will have to go quickly. We have about 3
minutes.
Mr. Date. You would be astonished by how fast I can talk.
So, first, let us start with the premise, why would people
be making loans where the borrower doesn't have the ability to
repay, anyway. Certainly, I grew up on the credit card
business, the subprime auto finance business.
Believe me, lenders in those businesses tend to care
whether or not borrowers can pay you back. It is an important
facet of the lending process.
As we saw on the mortgage credit--and during the credit
bubble though, because risk and return tended to be de-linked
just given the fragmentation of the secondary markets around
mortgages, you ended up with originators not necessarily having
the same stake in the outcome.
And as a result, it became less important in terms of how
you actually got paid on the front end. It is whether or not
the borrower had the ability to repay down that road.
Now Dodd-Frank, appropriately in my mind, takes a sensible
approach to say, there should be a good faith investigation and
to ability to repay.
But that alone, as your question points out, would not
necessarily provide concrete guidance to the marketplace on
such an important topic. And as a result, we are moving
quickly, as quickly and as carefully as we can, to be able to
provide some guidance about the so-called qualified mortgage
which would be something that definitionally meets the ability
to repay requirement.
Process-wise, the Federal Reserve Board proposed a
definition for the qualified mortgage. We inherited on July
21st that proposal.
We are right now evaluating the fairly extensive comments
associated with it with an eye towards providing a final rule
to the marketplace in real clarity early next calendar year.
That is actually substantially ahead of the deadline set
out in Dodd-Frank. The reason why this is really at the top of
our agenda in terms of the alacrity with which we are pursuing
it is that it is a gigantically important concept. And it is
important in that it provides kind of a foundational element
for other elements of mortgage reform that are being pursued by
other agencies.
So for example, the risk retention framework and the
qualified residential mortgage definition in part depends on
the definition of qualified mortgage. So that is why we are
moving so quickly.
Mr. Huizenga. All right, I appreciate that. And I had a
chance with Chairwoman Capito to be in Wisconsin earlier this
week, and talked a little bit about this.
When I was going through and getting my real estate license
20 years ago, I was taught that people aren't brown, they are
not yellow, they are not white, and they are not black. They
are green. And they are green because they simply do or do not
have an ability to repay. It is my hope and desire to make sure
that those rules that you are implementing are based on that,
and that it then provides that guidance.
Because we got way outside the bounds, I believe, when we
saw people taking on mortgages, oftentimes voluntarily, that
they didn't fully understand what that meant, and they had no
ability to sort of control themselves.
Hey, I am of that generation. We want it all. I get it.
And I only want the third stall garage and the master
bathroom suite, but sometimes, we can't have that.
So, thank you, Madam Chairwoman. I appreciate the time.
Chairwoman Capito. Mr. Manzullo, for 5 minutes?
Mr. Manzullo. Thank you.
I find it quite frightening that you made the statement
that there are tens of thousands of products to be examined to
see whether or not they should be regulated.
I practiced law for 22 years before I came here, and closed
over 1,000 real estate transactions: commercial; agricultural;
and residential.
We made up our closing statements at that time that gave
enough information so that people could understand.
When RESPA came along in the mid-1970s, we had to sit there
and pretend that the closing took place 3 days before because
the requirements were so stupid that said that we should
adjourn the closing, and come back 3 days later because a
consumer had the right to vitiate the mortgage.
And now, we have the community banks who did absolutely
nothing to bring about this crisis, bearing the brunt of the
regulations. When in fact--and I totally disagree with your
statement that says on page four, ``The regulatory system prior
to Dodd-Frank failed to protect consumers from harmful
practices in this gigantic lending market.''
Number one, Fannie Mae and Freddie Mac could have set their
own underwriting standards, not only to the loans that they
collateralized, but also the crap that they bought on the open
market, the subprimes that two Presidents said that they should
buy up because they wanted to have more housing going on.
The second thing is the Fed has always had the authority,
as per Chairman Bernanke in the summer of 2009, to set
underwriting standards and to govern documents of the
institutions over which the Fed has had the authority.
But you know what they did? Not until October 1, 2009, did
the Fed come out with the outlandish regulation that you had to
have written proof of your earnings.
Come on. Now, we have another bureaucracy coming along,
blaming the smaller institutions, putting more regulations upon
them, when in fact, it was the Federal Government itself that
could have stopped this, knowing full well that people were
buying homes when they could not even make the first mortgage
payment on it.
The people are not going to read documents. When I used to
close a real estate transaction, it was maybe this many papers.
The mortgage was two pages. The note was one page. And now, it
is this many pages.
People don't read all that stuff. The lending agent or the
person who closes the loan hands the documents and essentially
says if you don't sign this stuff, you don't get your new
house.
And now, we are going to have more and more and more and
more and more disclosures.
This doesn't work, Mr. Date, going in and trying to set up
a new Bureau to do the job that the Federal Government could
have done adequately before.
And my question is, you are going to redo RESPA, is that
correct?
Mr. Date. One of our--
Mr. Manzullo. Tell me. Yes or no?
Mr. Date. We are streamlining RESPA--as we speak.
Mr. Manzullo. Oh, okay, no. No, there are, according to the
testimony of several years ago when we fought RESPA like crazy,
because it really is not that clear. It tries to add things to
it. It is more confusing for the consumer.
There were eight people at HUD who worked on RESPA. Are
those eight people still doing the same thing? Do you know
that?
Mr. Date. I wouldn't know exactly who the eight people
were--
Mr. Manzullo. Can you find out for me?
I want you to make an inquiry, and get back to this
committee within 7 days and find out if anybody at HUD is
working on the RESPA disclosures. I want to know that.
And if they are doing that, they should be reassigned
somewhere else or fired because that is the authority that you
say that you have assumed as part of the Consumer Financial
Protection Bureau.
Wouldn't you be concerned if they were still doing the same
thing at HUD on RESPA?
Mr. Date. I am across the Bureau. I am quite concerned
about our continued ability to make sure we have absolutely the
best people in the room--
Mr. Manzullo. That is what I am talking about.
Mrs. Maloney. Will the gentleman yield?
Mr. Manzullo. No, I won't yield.
My question is, according to your testimony, you are going
to be streamlining whatever it is and working over this
document that has been beaten to death over the past several
years, that continues to expand in size, scope, and makes it
even more difficult for consumers to read.
I want to know if the people at HUD who have been working
on that for years are still going to be working on that same
RESPA form. Do you know that to be a fact?
Mr. Date. We have a team that--
Mr. Manzullo. No, no. Do you know that to be a fact? Are
they still at HUD working on RESPA?
Mr. Date. Congressman--
Mr. Manzullo. If you don't know, you can say you don't
know.
Mr. Date. I have been a Federal regulator for 102 days. I
don't know the specific--
Mr. Manzullo. I am not holding it against you if you don't
know. If you don't know, just say you don't know, and that is
okay.
Mr. Date. Of course, I don't know. I am sorry.
Mr. Manzullo. Okay. But could you find out for us if they
are still doing that work?
Mr. Date. I am confident that our staff will find a way to
make sure that you have the oversight information you need.
Chairwoman Capito. The gentleman's time has expired.
Mr. Manzullo. Does that mean that you are going to get back
to me with the information?
Mr. Date. I am entirely happy to provide you with the
information that you need with respect to RESPA administration,
which I think is a very important topic in consumer finance
broadly.
We take that job quite seriously, and I am heartened to
hear your enthusiasm for it.
Mr. Manzullo. Thank you.
Chairwoman Capito. Thank you.
I asked the ranking member if--because I had one additional
question I wanted to ask--she wouldn't mind if I ask for
unanimous consent that both of us would get another 2 minutes
for questioning.
And without objection, I think she said to go ahead.
Mrs. Maloney. Absolutely.
Chairwoman Capito. Good. So I thank you.
And I know you have a busy schedule, so this won't take
very long.
I wanted to go to the Bank of America interchange, the
debit card, $5 a month issue, because we heard several Members
talking about a concern about what it is doing to consumers.
The CFPB was made aware of this change that Bank of America
was making to their debit card previous to the announcement
that they made? Is that correct?
Mr. Date. I would, if you don't mind Chairwoman Capito,
like to steer clear of talking about specific conversations
with specific supervised entities.
But I can say that we routinely are talking to institutions
that are within our supervisory universe across the range of
consumer finance issues.
Chairwoman Capito. But transparency is what we are looking
for here. This has been the big complaint, obviously, the
transparency and previous subprime.
And my assumption would be that Bank of America came to the
CFPB in a disclosure and examination, saying that this was
their intent. They have obviously since dropped this intent.
And I guess my question, my follow-up question, would be if
it went forward, then it was judged by the CFPB to not be
deceptive, unfair, and abusive because it was revealed in
transparent.
Is that a safe assumption?
Mr. Date. I think it is broadly true that in a productive
regulatory relationship, bank management teams--and I will
broaden that--financial institution management teams ought to
feel comfortable talking about what is happening in the
business, plans for the business with their regulators, at
least in part to have a sense of whether or not something feels
like it is within the confines of the law.
Chairwoman Capito. Okay. So let us take it a different
step.
Let us say this fee was assessed without revealing to the
customer or to you, that would be judged as abusive, unfair, or
deceptive?
Mr. Date. There are specific disclosure requirements, I
believe, in the Truth in Savings Act with respect to pricing
changes on--
Chairwoman Capito. Right.
Mr. Date. --deposit accounts.
Chairwoman Capito. Right.
Mr. Date. But there is an existing law and existing
regulation--
Chairwoman Capito. Right.
Mr. Date. --that govern it.
Chairwoman Capito. So I am really not getting an answer, I
guess. And maybe we can talk about this outside the scope of
the committee hearing.
But I am curious to know since this has caught a lot of
attention, shall we say, and rightly so, to see what the
interplay of the Bureau and this type of financial move would
have been and should be, and would be going forward.
So I will ask the ranking member, and I will do a little
wrap up.
Mrs. Maloney. Just in response to your question, in Bank of
America's own statement that they sent out, they said they
listened to their customers and they were repealing this.
What happened is many customers were voting with their feet
and going to other institutions that were not charging this
additional fee. And so in a sense, the open and transparent
market brought more competition into the area. And Bank of
America said they listened to their customers and that is why
they were withdrawing it.
I would like to respond to my good friend who is asking you
about regulation. And I want to compliment you for beginning a
targeted review of all regulations that you inherited from
seven different agencies that had consumer protection in them.
But it wasn't their first goal; they had other duties. So
consumer protection became a secondary thought, or a third
thought, or wasn't even thought about at all.
That is why we need one agency which is focused on helping
consumers. And I would state that when you help consumers, you
help the overall economy. You help the financial institutions.
So following up on his request for information, I would
like you to bring back to this committee, and I would like a
copy of it as well as the chairwoman, the regulations that you
are seeing that are a duplication, that aren't necessary, that
no longer are needed, so that we are saving money for
institutions.
I want to document how much money we are saving for
institutions by erasing unnecessary regulations. And you have
come out with ``Know Before You Owe,'' which has received a
mountain of applause for taking complicated documents that no
one reads, where the fine print is so small that one can even
hardly see it and making it understandable, so that consumers
can understand the risk, so that they can understand the cost,
and so that they can make choices that are appropriate for
them.
Madam Chairwoman, I request additional minutes to respond
to what I feel was an unfair attack on the CFPB. And I think it
is important for the public knowledge and important for this
hearing.
I request an additional 2 minutes to respond.
Chairwoman Capito. And I will take another 2 minutes.
Mrs. Maloney. Yes, absolutely.
This is an important hearing. This is important to our
economy. It is important to our consumers.
And I feel--I would like to point out that many people
today made the allegation that there was no oversight of the
Consumer Financial Protection Bureau.
That is not true. There is more oversight on this facility,
on this Bureau, than all of the other Federal regulators.
First of all, it is accountable to the President, to the
Congress, and to the Judiciary. The Director is appointed by
the President and can be removed by the President for any cause
that is appropriate.
The Director must testify before Congress semi-annually.
They are required to. They have an annual GAO audit. They have
annual reports to Congress on consumer complaints and financial
literacy, again, required in our law.
Enforcement measures can be appealed. They can be appealed
to the United States Court of Appeals. And agency actions are
subject to judicial review.
Now, they have incredible oversight which, I think, is--no
other regulator has it. Other regulators have unprecedented
veto over CFPB rules.
Even after the CFPB finalizes the regulation, any member
agency of the Financial Stability Oversight Council (FSOC) that
objects to a regulation can petition the FSOC to get it
removed. So other agencies can overrule the actions of the
CFPB.
No other regulator has that oversight. And there is
mandatory rulemaking consultation with regulators and small
businesses and information sharing on bank supervision.
Any study they do on a financial institution, that
institution has access to that study.
And they also have a capped budget. They have a capped
budget. Other regulators do not.
Like all bank regulators, the CFPB's budget is not subject
to the appropriations process.
This is the standard operating procedure, but it is tied to
a percentage of the Federal Reserve's budget. So, their budget
is capped.
And I would say that there is oversight and that was
misinformation. But the information that has come out today is
the extraordinary help that Mrs. Petraeus is giving to help our
service men and women keep their homes while they are defending
America in Afghanistan and Iraq, that there is a new senior
area to help the seniors who are incredibly abused by predatory
practices, and even the business community is coming out in
applause of the student loan know before you sign these
contracts.
How are you going to repay it? These are positive steps
forward that help out young people, help our seniors, help our
members of the service. And they are part of the solution, not
the problem.
They didn't create the financial crisis. And I would argue
that if they had been in place, we might have prevented the
financial crisis.
So I want to congratulate you, Mr. Date, and the dedicated
members of your staff for the hard work that you are doing. And
I appreciate your testimony today and your hard work.
I yield back.
Chairwoman Capito. Thank you. And I would like to also
thank you, Mr. Date, for your very informed testimony today.
Obviously, you know your stuff, so to say and I appreciate
that.
And I want to thank Mrs. Petraeus for joining us here today
and for what she is doing to benefit our Armed Forces. I do
think you have targeted, we in our legislation, in the
legislation that targeted three extremely--
Mrs. Maloney. I applaud the chairwoman's statement. But may
I be recognized for 2 seconds on Holly Petraeus?
Chairwoman Capito. Okay.
Mrs. Maloney. Two seconds. We agree. Everyone says Congress
doesn't agree.
We agree on the fine work that they are doing to protect
the men and women in the service. And I request a hearing on
what we are doing in this particular area.
Stories of what this agency has done to protect the homes
of the men and women serving in the military, I think is
something that is worth exploring more. Maybe there is more
support we should give to her in her efforts.
Chairwoman Capito. All right. I thank the ranking member,
and I think that is an excellent suggestion.
Let me just ask a quick question on TILA and RESPA, because
we have heard a lot about that. And I mentioned and I think at
the very beginning that I am refinancing--a lot of people here
across America are refinancing and still finding this when you
come in and you try to read through it.
So, I have tried to find out what are the actual lengths of
a RESPA and TILA agreement now, 6 to 12 pages, is that your
understanding?
Mr. Date. I wouldn't be able to tell you precisely--it is
longer than it should be.
Chairwoman Capito. Okay. Amen to that. So it is going to go
to two pages, but just for point of clarification for folks who
go in and you told me when you were in my office that this
final regulation probably will not be finalized for at least 2
years after it goes to the comment period, etc., etc., right in
the form it gets voted on and all that.
Is that pretty much essentially what--
Mr. Date. Yes, among other things, we actually have to
formally propose a regulation.
Chairwoman Capito. Right.
Mr. Date. And we will--there are all manner of quite right-
minded procedural--
Chairwoman Capito. Right. So it is a couple of years away.
So if you are refinancing a couple of years away, you might
have instead of this first 12 pages, you might have 2 which
should be great because you can see--
We are still going to have all this. And I think that is
what Mr. Manzullo was alluding to as well because even as the
attorney, he was saying he is not reading it.
I know certainly I was not reading it, signing some things
that are probably--not exactly sure what I signed. And I think
that is an issue with these complex--as particularly something
as valuable and as precious as a home.
So we will follow that and see where you go.
I would like to say in response to my colleague's assertion
that the FSOC that one certain regulator can come in and say
that a decision by the CFPB needs to be overturned.
The threshold to overturn is upending the entire financial
system of the United States is one of the issues.
And also, in order for that to be overturned it is a to
what extent-thirds vote by that body which is a pretty high bar
as we know as we try to pass some things here with two thirds
votes. And it is very difficult.
We had a commonsense reform to that because we liked the
concept of being able to overturn a decision.
However, let us make it a reasonable bar, a high bar, but a
reasonable bar. And I think that we should look at that, maybe
not in the first 102 days. Maybe that is not going to get all
the way through the Senate.
But I certainly think it is an issue that is going to be
recurring as the CFPB grows and matures into a longer-serving
Bureau.
But essentially, I think that--no, I am going to bring it
down here, because we have already dragged Mr. Date through a
couple of hours, and I think he is ready to go home.
So I appreciate you coming, and I appreciate the dialogue
that your office has with this committee. And I look forward to
seeing you in the future.
Thank you very much.
Mr. Date. Thank you.
[Whereupon, at 12:31 p.m., the hearing was adjourned.]

A P P E N D I X

November 2, 2011

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