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

BUDGET HEARING--CONSUMER
FINANCIAL PROTECTION BUREAU

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

HEARING

BEFORE THE

SUBCOMMITTEE ON
OVERSIGHT AND INVESTIGATIONS

OF THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

SECOND SESSION

__________

FEBRUARY 15, 2012

__________

Printed for the use of the Committee on Financial Services

Serial No. 112-101

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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

James H. Clinger, Staff Director and Chief Counsel
Subcommittee on Oversight and Investigations

RANDY NEUGEBAUER, Texas, Chairman

MICHAEL G. FITZPATRICK, MICHAEL E. CAPUANO, Massachusetts,
Pennsylvania, Vice Chairman Ranking Member
PETER T. KING, New York STEPHEN F. LYNCH, Massachusetts
MICHELE BACHMANN, Minnesota MAXINE WATERS, California
STEVAN PEARCE, New Mexico JOE BACA, California
BILL POSEY, Florida BRAD MILLER, North Carolina
NAN A. S. HAYWORTH, New York KEITH ELLISON, Minnesota
JAMES B. RENACCI, Ohio JAMES A. HIMES, Connecticut
FRANCISCO ``QUICO'' CANSECO, Texas JOHN C. CARNEY, Jr., Delaware
STEPHEN LEE FINCHER, Tennessee

C O N T E N T S

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Page
Hearing held on:
February 15, 2012............................................ 1
Appendix:
February 15, 2012............................................ 47

WITNESSES
Wednesday, February 15, 2012

Cordray, Hon. Richard, Director, the Consumer Financial
Protection Bureau.............................................. 10

APPENDIX

Prepared statements:
Cordray, Hon. Richard, with attachments...................... 48

Additional Material Submitted for the Record

Grimm, Hon. Michael G.:
Written responses to questions submitted to Hon. Richard
Cordray.................................................... 136
Miller, Hon. Brad:
Office of the Comptroller of the Currency FY 2013 President's
Budget Submission.......................................... 137

BUDGET HEARING--CONSUMER
FINANCIAL PROTECTION BUREAU

----------

Wednesday, February 15, 2012

U.S. House of Representatives,
Subcommittee on Oversight
and Investigations,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 10:04 a.m., in
room 2128, Rayburn House Office Building, Hon. Randy Neugebauer
[chairman of the subcommittee] presiding.
Members present: Representatives Neugebauer, Fitzpatrick,
Pearce, Posey, Hayworth, Renacci, Canseco, Fincher; Capuano,
Lynch, Waters, Baca, Miller of North Carolina, Ellison, Himes,
and Carney.
Ex officio present: Representatives Bachus and Frank.
Also present: Representatives Royce, Green, and Maloney.
Chairman Neugebauer. Good morning. I will call the hearing
to order. I would like to remind the Members that we will have
2 minutes of opening statements on each side. I see that Mr.
Royce is here, and I think Mr. Grimm will also join us.
I ask unanimous consent that members of the full Financial
Services Committee who would like to sit in on this hearing be
allowed to sit and be a part of our panel this morning.
One of the primary responsibilities, I believe, of
government is to make sure there is transparency and
accountability. And sometimes, those two terms can be mutually
exclusive.
This hearing today is about a new entity that was created
in the Dodd-Frank Act--the Consumer Financial Protection
Bureau. It was tucked inside the Federal Reserve, some say to
preserve its independence. Others would say that in trying to
preserve its independence, it put this entity in a place where
there is a lack of transparency and accountability. And that we
give one person a tremendous amount of authority to not only
make rules and regulations but also to spend money without
congressional oversight or really accountability to any other
entities as well.
So, what we hope to accomplish with this hearing today is
to determine exactly what types of activities have been going
on in the Consumer Financial Protection Bureau.
With this understanding, a reminder to everyone that this
is budget season; and in the beginning of this week, the
President of the United States laid out a budget. And in that
budget, it calls for another trillion dollar deficit.
So, this will be the fourth trillion dollar plus deficit in
this term of this President. And this is an unsustainable
route.
Somebody asked, ``What does a hearing today on the Consumer
Financial Protection Bureau have to do with the deficit?''
This is a reminder to everyone that the Federal Reserve
(Fed) has gotten a great deal. It borrows through zero and it
buys bonds and pays interest and creates an arbitrage and
creates earnings for the Federal Reserve. And the Federal
Reserve then takes that money and spends some of it for the
operations of the Fed and then the balance of that money, and,
by the way, it has been increasing at a pretty substantial rate
here because the Fed has grown multifold since the beginning of
the crisis. And so, those revenues come back to the Treasury,
which is a part of the revenue source.
If you go through the President's budget, you will see
where they are expecting the Federal Reserve to send them some
money to spend which will either go for deficit reduction or
for operations of this country.
And so, to the extent that we make sure that the money that
is being spent by the Consumer Financial Protection Bureau,
because they get their money from the Federal Reserve, to the
greatest extent possible is being spent as efficiently and
effectively as we can is actually a deficit reduction
opportunity for this Congress.
I look forward to hearing from our witness today, Mr.
Cordray, and having a very open and honest discussion about
that.
And with that, I yield to my good friend, the ranking
member of the subcommittee, Mr. Capuano.
Mr. Capuano. Thank you, Mr. Chairman. Mr. Chairman, thank
you for having this hearing. Mr. Cordray, welcome. I am looking
forward to hearing your testimony.
I am using this hearing personally to kind of catch up on
where you are. I do want to know more about your budget. I
think our role as an oversight committee is important to make
sure that we agree with generally where you are going and what
you are doing.
But at the same time, I expect that during this hearing, it
is a little premature to draw our judgments. As I see it, you
are kind of just getting started. And I would hope that this
doesn't become just a rehash of why people didn't like your
creation in the first place. If they don't like it, repeal you,
and we will see about that.
But for me, I just kind of want to know where you are,
where you are going, and what to expect in the next year or so.
I will tell you unequivocally that I think the creation of
the CFPB is a good thing for America. I am hoping that--just
one little statistic. I am looking at a Pew report that says we
lost $3.4 trillion in wealth relative to real estate during the
last financial crisis.
If we could have saved one tenth of that with the amounts
of money that we spend in your agency, it would have been well
worth it for the American people and for the world economy as a
whole.
So, as far as I am concerned, I look forward to this CFPB
becoming a great and wonderful defender of American consumers
and I am hoping that you are in the right track. I will also
look forward to hearing your testimony today.
Thank you.
Chairman Neugebauer. I thank the gentleman.
Now, the vice chairman of the committee, Mr. Fitzpatrick,
is recognized for 2 minutes.
Mr. Fitzpatrick. Thank you, Mr. Chairman. I appreciate your
calling this hearing. I know we are all looking forward to the
hearing in part because there is a lot of talk in this town
about honest budgeting and transparency in government.
And as a big believer in these ideals, I look forward to
discussing them today with Mr. Cordray.
As this committee has explored for the better part of the
year, the CFPB is unique among not just regulators, but among
most government agencies. And that uniqueness is what has drawn
so much attention.
Despite not being subject to oversight that comes with the
normal, usual appropriations process, Congress still has a role
to play to ensure that taxpayer dollars are being well-spent,
which is arguably our most important role here in this town.
I also believe that the taxpayers deserve to know how their
money is being spent ahead of time rather than after the fact.
Careful and thorough planning makes a goal much easier to
achieve. Not only is that good fiscal management but it is also
common sense.
So, thanks, again, Mr. Chairman, for calling the hearing. I
look forward to hearing from the witness.
Chairman Neugebauer. I now recognize the ranking member of
the full Financial Services Committee, Ranking Member Frank.
Mr. Frank. Mr. Chairman, I would take, I guess, 5 minutes
now; and we can reserve if any other of our Members come
forward, if that is all right.
I welcome everybody to what I think is the sixth or seventh
hearing this year. It is the sixth or seventh oversight hearing
in which people complain that there is no oversight.
It makes me wonder. It raises philosophical questions,
``Are we really here?'' We are told that there is no oversight.
And we are told repeatedly in meetings of the Oversight
Subcommittee, in which we are conducting oversight, that there
is no oversight.
In fact the notion that this is unique is surprising to me
coming from people who have been serving on a committee which
has primary jurisdiction over the Office of the Comptroller of
the Currency. The Comptroller of the Currency is an independent
entity appointed by the President, funded not through the
appropriations process but by fees that office gets.
And, in fact, the previous Comptroller--an appointee of
President Clinton--after using his authority, which we tried to
curtail in the financial reform bill, to cancel all State
consumer protection laws, then sent out a CD to State-chartered
banks saying, in effect, ``come be chartered by me and you
won't be regulated.'' And that, of course, enhanced his
financial capability.
That may or may not be right. But I do not remember any
member of the Republican Party ever complaining about the
status of the Comptroller of the Currency, which is exactly the
same as that of the Consumer Bureau.
And I would say if you look historically and talk to
bankers about which agency is more important to them,
particularly community bankers, it is the Comptroller of the
Currency. The Comptroller of the Currency is a very significant
figure.
And while he is housed in the Department of the Treasury,
he is independent, very analogous to the role of the Consumer
Bureau in the Federal Reserve.
As to one individual, not a board, having enormous power,
once again, I would say that many people I think would believe
that the Environmental Protection Agency, run by a single
Administrator, has more authority that will affect the economy
and people's lives.
People did not object to the Comptroller of the Currency
because the Comptroller of the Currency had a very comfortable
relationship with the banks. And there are people in this
committee who believe that it is the job of regulators to
accommodate the banks.
What we did in the Financial Reform Bill was just say that
where consumer protection is concerned, it is kind of a
conflict of interest for the people who are the bank regulators
to also be the Consumer Bureau. And so, we created a new
Consumer Bureau.
Now, by the way, on the budget--and I am going to ask Mr.
Cordray for these numbers--the gross number for the budget is a
little bit misleading if it is suggested that is all new
spending, because one of the things that we did in the Consumer
Bureau was to transfer legal authority and personnel from
existing bank-regulating agencies.
There are personnel who work now in the Consumer Bureau who
had been at the Federal Reserve, at the Comptroller of the
Currency and, I believe, at the FDIC. I am told the number is
about 200 of the 700 and some odd employees. In other words,
more than 25 percent of the employees now working and charged
to the CFPB were budgeted for elsewhere. So, that is not a net
increase.
Finally, there have been some concerns raised about the
fact that the charter is statutorily to deal with issues that
are about fraud, deception or abuse. A number of Republicans
have complained about abuse. And they have said very
explicitly, ``But that must mean that something which is not
inherently dishonest is abusive as applied to some
individuals.''
Many of us believe that when 88-year-old semi-literate
individuals are being pressured into certain bogus terms, that
could be considered abusive. And, in fact, we recognize that in
the investment area, where we have the qualified investor. So,
investments that can be pitched to some people aren't pitched
to others.
But there is this question, ``Should the mandate of the
Bureau, even from people who don't like it, be limited only to
fraud and deception, or is it legitimate to also give them the
power to step in when there is a problem where things are
abusive as applied to the particular individuals?''
I want to read from a very distinguished economist whom I
think supports that. He says, ``In those systems that can be
rationally defended where the States just do nothing, an
effective competitive system--he a great advocate of
competition--needs an intelligently designed and continuously
adjusted legal framework as much as any other.
``Even the most essential prerequisite of its proper
functioning, the prevention of fraud and deception including
exploitation of ignorance, provides a great and by no means yet
fully accomplished object of legislative activity.''
It was written before we did the Bureau. But I want to
stress, again, this is a very distinguished economist arguing
that, ``Yes, you want to prevent fraud and deception.'' But he
includes in that the exploitation of ignorance. And that is the
strong endorsement of the charter that the Bureau has.
I yield back.
Chairman Neugebauer. I thank the gentleman. And I want to
say that I agree with the gentleman that the EPA Director does
have too much authority and I would be glad to work with him in
a bipartisan way to eliminate that position.
Mr. Frank. Will the gentleman yield?
Chairman Neugebauer. I will.
Mr. Frank. Has the gentleman filed legislation, done
anything before answering me to advance that?
Chairman Neugebauer. No. But now that I know you--
Mr. Frank. Oh, okay.
Chairman Neugebauer. I will.
Mr. Frank. Conversion is always proper even it is very
circumstantial in its motivation.
Chairman Neugebauer. I now yield to the chairman of the
full Financial Services Committee, Chairman Bachus.
Chairman Bachus. Thank you.
Mr. Cordray, welcome to the hearing. I think this is your
first appearance before this committee.
In a well-publicized speech 2 months ago in Kansas, the
President said we should be strengthening oversight and
accountability. Now, I totally agree with that. There should be
stronger oversight and accountability of every government
agency.
Unfortunately, the CFPB is designed in a way to avoid
critical oversight and accountability. The ranking member of
the full committee mentioned the EPA, and I know Mr. Neugebauer
picked up on that and my antenna went up as well.
And I think it was appropriate to mention the EPA. The CFPB
actually has more sweeping authority than the Director of the
EPA. Title 10 of the Dodd-Frank Act confers virtually
unfettered discretion on the Director of the CFPB.
As Mr. Cordray has said many times, ``This is not about
personalities. It is not about Elizabeth Warren. It is not
about you.'' But the Director, whoever it is, can identify
financial products and services that he or she alone finds
objectionable, ``unfair, deceptive, or abusive'' and ban them
under a highly subjective standard that has no legally defined
content.
Without question, this gives the CFPB Director power that
far exceeds that of any other financial regulator. We have seen
the EPA do that, and Chairman Neugebauer, I commend you for
holding this hearing. We have seen them do some things that the
American people have said, ``Whoa! Wait just a minute.''
They are doing that to fire trucks now--volunteer fire
departments. They put a new regulation that is costing
volunteer fire departments, some of them, a whole year's budget
just to put a different restrictor on their exhaust systems and
it is actually shutting down fire trucks as they go out to
fires and it has created a real problem.
Now, will the CFPB do something as we have seen the EPA do
in overreach? I don't know. But if they do, with the EPA,
political pressure can be brought on the President. He appoints
the Director of the EPA as a Cabinet position. He can fire him.
Mr. Cordray--even the President cannot fire him. The
difference in this agency--another difference--is that EPA gets
its appropriation from Congress.
The CFPB isn't under the appropriation process. If they
spend $100 million on paper clips, we can't even say, ``Wait a
minute, you can't do that next year. We are going to cut your
budget,'' no matter what they spend money on. We have
absolutely no control.
And let me tell you, in a time of a budget deficit,
oversight and accountability on spending is urgently important.
In this agency, there is no accountability. There is no board
and they have unfettered discretion to ban products or to
declare them as unfair.
And, ``unfair'' or ``fair'' could be a debate that could go
on forever. But we actually have somebody who can just say,
``Fair, unfair''--one person, no accountability, not even to
the President.
Thank you, Mr. Chairman.
Chairman Neugebauer. I thank the gentleman.
And now, Mr. Lynch is recognized for 1\1/2\ minutes.
Mr. Lynch. Thank you, Mr. Chairman.
I would also like to thank Director Cordray for joining us
here today. This is your first of what I expect will be many,
many appearances before this subcommittee. I have a feeling you
will be a frequent flyer here.
We are here today to examine the Consumer Financial
Protection Bureau's budgetary process, something that was
debated extensively during the Wall Street reform process in
the last Congress.
Before the Dodd-Frank Act was passed, there were seven
different Federal agencies that had partial responsibility over
consumer protections in the financial services sector and
apparently none of them did a very good job at it.
The Consumer Bureau was created to centralize that
authority over consumer protection into one agency and to give
that agency the necessary tools to carry out that mission
effectively.
To give the Consumer Bureau real teeth, we removed it from
the appropriations process and created a funding mechanism
whereby the Bureau draws the funds it needs from the Federal
Reserve up to a statutory maximum.
Still, the Consumer Bureau operates on a budget less than
that of the OCC, the SEC, the FDIC, and the Federal Reserve. A
recent report found that the Bureau costs each taxpayer less
than $2 per year. That same report found that the financial
crisis cost the American taxpayers $12 trillion in lost wages,
lost home value, lost stock wealth, and fiscal costs.
I would that less than $2 per year is a small price to pay
for the protection that you will provide. The bottom line here
is that the CFPB's statutory mandate is to implement and
enforce Federal financial consumer laws consistently for the
purpose of ensuring that all consumers have access to markets
for consumer financial products and services, and that those
markets for consumer financial products and services are fair,
transparent, and competitive.
Apparently, that scares the heck out of a lot of people in
the financial services industry. But I think that is a worthy
goal. I wish you the best of luck in your duties and I hope
that I can be a good partner for the Bureau in your work going
forward.
Thank you very much, and I yield back the balance of my
time.
Chairman Neugebauer. I thank the gentleman.
And now, the gentleman from Texas, Mr. Canseco, is
recognized for 1\1/2\ minutes.
Mr. Canseco. Thank you, Mr. Chairman.
Mr. Chairman, this is certainly a very important hearing as
we look into just how the CFPB managed to spend $160 million
last year and why it feels the need to spend an additional $330
million this year.
The CFPB seems to have no concrete plan on how this money
is going to be spent. But I guess, with this agency, that is
par for the course. I am reminded too that the crafters of
Dodd-Frank conveniently allowed the CFPB to spend however much
it wants without any input from Congress or any other body for
that matter.
So, in effect, while today's hearing is important, we as
Congress sit here powerless and can only listen to Mr. Cordray
as he lays out his priorities for how to spend money that could
be used to reduce our national debt, which just crossed $15
trillion this year.
And I am also reminded that Mr. Cordray is what is called a
``recess appointment,'' that occurred while the Senate was in
session. And it has created even more uncertainty for the
financial institutions and small businesses who now correctly
believe that every rule handed down by the CFPB will be subject
to judicial review.
What we have is a rogue Director in charge of a runaway
budget for an agency whose mission is still unclear. Mr.
Chairman, this is a recipe for disaster that will only hurt our
economy going forward.
Thank you, and I yield back.
Chairman Neugebauer. I thank the gentleman.
And now, Mr. Ellison is recognized for 1\1/2\ minutes.
Mr. Ellison. Mr. Chairman, thank you.
And I want to thank the ranking member.
Let me a tell you what a recipe for disaster is--allowing
citizens to be lied to and bilked into subprime predatory
mortgages, then repackaging those subprime mortgages into a
mortgage-backed security, then somehow convincing someone to
rate it AAA and then allowing banks to trade on their own
accounts to buy those assets in proprietary trading and then,
having some insurance-like product that would back it all up,
but of course, they wouldn't have any reserves to cover the
losses.
That is a recipe for disaster and that is exactly what
happened. It is shocking to me that my friends on the other
side of the aisle act like the financial crisis of 2008, 2009,
and 2010 didn't even happen. They don't think anything should
be done to try to rein in people who took advantage of
consumers and destroyed whole neighborhoods.
In the zip code of 55411, which is where I live, 48 percent
of the houses are in foreclosure; not underwater, in
foreclosure. This is because of the bad behavior that you want
to protect these people from.
If your business model is not about bilking consumers, you
have nothing to worry about from the CFPB; but if your aim and
your goal is to hook them and crook them and take advantage of
consumers, of course, you are horrified.
And all this stuff about: ``Oh, yes; they have too much
authority. They have taken too much money. We can't talk to
them. We can't control them''--this is all nonsense. This is
all just shilling and trying to run alibis and interferences
for crooked individuals.
I yield back.
Chairman Neugebauer. Thank you.
And now, the gentlewoman from New York, Mrs. Hayworth, is
recognized for 30 seconds.
Dr. Hayworth. Thank you, Mr. Chairman.
Mr. Director, I note that one of the key responsibilities
of the CFPB is to educate consumers. And I would implore you
that one key aspect of that financial education should be
regarding the unintended consequences of Federal intervention
in the markets, even when well-intentioned.
I would welcome the opportunity to work with your staff in
that regard because I do think that is a crucial piece of this
entire picture, including, as the distinguished Member from
Minnesota has just mentioned, the 2008 fiscal mortgage industry
crisis which can certainly be laid at least in part and a major
part at the feet of Federal intervention.
Mr. Chairman, I yield back.
Chairman Neugebauer. I thank the gentlewoman.
Now, I think the ranking member reserved--and I recognize
him for 30 seconds.
Mr. Frank. Thank you, Mr. Chairman.
Just a couple of points--first of all, this notion that the
Director cannot be removed is fanciful. It says in the statute
that, yes, the Director is appointed for a 5-year term, but can
be removed by the President for insufficiency, neglect of duty,
or malfeasance.
No one doubts that if a change in Administration comes, and
the new President disagrees with the existing Director, he or
she can be removed. And proving that you were not inefficient,
the burden of proof being on you, would be overwhelming.
Secondly, just as we are having an oversight hearing about
the lack of oversight, we capped the appropriation last year
and we are now hearing that we can't do that. This is just
bizarre.
Last year, in the appropriation in the budget, the amount
that this agency can spend was limited by Congress and people
keep arguing it wasn't. Finally, I read a quote--because I know
it has been controversial as whether or not the Bureau could
protect people against ignorance, the abusive--I am talking
about ``unfair,'' and we did say yes, there were some things
that may be ``fair'' with regards to some people and not
others.
I read the quote that said that even the most essential
prerequisite of the proper function of government, the
prevention of fraud and deception including exploitation of
ignorance, provides a great object of legislative activity.
And I forgot to mention that this endorsement of
legislative activity to prevent the ignorant from being
exploited was written, as I said, by a very distinguished
economist. His name was Friedrich Hayek.
I am quoting from the edition I have from the Library of
Congress, ``The Road to Serfdom,'' and it is Mr. Hayek who says
that he is against central planning but he believes strongly in
the appropriate regulation including the prevention of
ignorance. I don't claim that Mr. Hayek, were he still alive,
would have endorsed this particular wording, but the purpose of
going beyond this fraud and deception and preventing
exploitation of ignorance--and I have given out the quote--four
pages of it because it is very much in context.
I thank you.
Chairman Neugebauer. Thank you.
Now, the gentleman from Florida, Mr. Posey, is recognized
for 30 seconds.
Mr. Posey. Thank you very much, Mr. Chairman.
Mr. Cordray, I hope in your comments, you will address
Judicial Watch and other public interest organizations that
investigate and prosecute government corruption, address their
issues--one thing, such as, let us know why an Associate
Director of Consumer Education needs to make $251,288 a year
for the entry-level position.
Also many of us believe, unlike some on the other side,
that the only way we are going to stop the crisis and
corruption and the crony capitalism that we have seen in the
past and we see going on now is to hold somebody accountable,
and that means prosecute somebody for their bad deeds, which
the Justice Department, obviously, has not seen fit to do, at
least not yet, and I would like to know what your specific
plans are.
And if you think, maybe you can even get help from the
Justice Department that other agencies apparently can't, to
bring some of these criminals to justice. I think most of us on
both sides of this aisle want to see done. Thank you.
Chairman Neugebauer. I thank the gentleman.
And now, Mr. Royce from California is recognized for 1\1/2\
minutes.
Mr. Royce. Let me agree with Mr. Frank in terms of the
observations made by Professor Hayek. But when we look at this
situation, I think what Professor Hayek would also argue is
that government intervention into regulation in order to
achieve certain political ends could also create a problem.
The problem that exists here is that we have sort of a
bifurcated regulatory structure. At least in the opinion of
many of us, what we have done with the CFPB is to dilute the
power of the safety and soundness regulators in this situation.
The concern we have is that it might morph into the type of
situation we had with the bifurcated regulation when we had HUD
on one side and NOFA on the other.
The regulators wanted more power at that point in order
to--they wanted it by statute so that they could better
regulate safety and soundness. HUD, on the other hand, weighed
in. And so, we ended up with the situation of the overleverage
that existed with the GSEs of the zero down payment loans and
so forth.
Unless this power rests not with the products' regulator,
but with the prudential safety and soundness regulator, it is
much more likely that politics, government intervention will
come into play and who knows, we could end up with the argument
for the political allocation of credit.
We could end up with the same kinds of assertions that were
made over at HUD for zero down payment loans or for a 100 to 1
leverage through the GSEs. Why? Because we are going to put
everybody in a home and that was going to be everybody's right
whether they could afford to pay for it or not.
So what we are actually talking about is trying to get some
balance back in this so that the prudential regulator can step
in and prevent the type of thing that all of us saw happen
before. And I just wanted to make that point.
Chairman Neugebauer. I thank the gentleman. I would remind
all Members that your opening statements will be made a part of
the record.
And now, we will hear from our one and only witness, Mr.
Richard Cordray, Director of the Consumer Financial Protection
Bureau. You are recognized for 5 minutes. Thank you.

STATEMENT OF THE HONORABLE RICHARD CORDRAY, DIRECTOR, THE
CONSUMER FINANCIAL PROTECTION BUREAU

Mr. Cordray. Thank you, Chairman Neugebauer, Ranking Member
Capuano, members of the subcommittee, and those members of the
full committee who are here, for the opportunity to testify on
the budget of the Consumer Financial Protection Bureau.
Before I became Director, I promised Members of Congress in
both chambers and on both sides of the aisle that I would be
accountable to you for how the Consumer Bureau carries out the
laws you have enacted.
I said that I would always welcome your thoughts about our
work and I stand by that commitment today. This is the 14th
time that we have testified before either the House or the
Senate and my colleagues and I look forward to continuing to
work with you to provide the kind of oversight that allows you
to understand the work we are doing and helps us improve our
performance.
We are committed to fulfilling our statutory
responsibilities and delivering value to American consumers.
This means being accountable and using our resources wisely and
carefully.
As you know, the Consumer Bureau is funded through
transfers from the Federal Reserve. Under the new law, the cap
on those transfers for Fiscal Year 2011 was 10 percent of the
Federal Reserve's 2009 operating expenses or $498 million.
As this was our start-up year, we did not use all of our
available funds. In fact, we only used $123 million, but we got
under way and we continue to build toward a steady state that
will allow us to accomplish the objectives set forth in the
laws enacted by you, the Congress.
The Government Accountability Office rendered an
unqualified clean audit of our financial statements and an
additional independent third-party audit found that the
Consumer Bureau addressed all relevant budgeting requirements
under Dodd-Frank.
Because we are committed to transparency, we have posted
our budget justification, our financial statements, the GAO
audit, and the independent audit on our Web site at
consumerfinance.gov. We invite you and your staff to look at
these documents and we will be glad to answer any questions you
may have about them.
Now that we have completed our statutory transition period
and have become a full-fledged independent agency with the
legal responsibility to protect American consumers in the
financial marketplace, our expenditures have naturally
increased.
As you can see in our budget justification, however, our
budget estimates remain considerably below our budget cap at
$356 million for 2012 and $448 million for 2013. At this time,
we have no plans to ask Congress for any additional funds, as
we are authorized to do by law.
While our budget is small relative to the other banking
agencies, our mission is critical. Our budget is a means to an
important end: to make life better for American consumers. Much
is at stake. Consumer finance is a big part of the American
economy, and it bears heavily on all of our lives.
Mortgages allow people to buy homes and spread the payments
over many years. Student loans give young people with talent
and ambition, as well as those who may not be so young, access
to an education. Credit cards are a convenient means of
accessing money to make purchases.
Products like these undeniably help people achieve their
dreams. But as we have seen in recent years, they also can
create dangers and pitfalls if they are misused or
misunderstood. In State and local government, I was deeply
engaged in consumer finance issues. I saw good people
struggling with debt they could not afford. Sometimes, people
made bad decisions. Sometimes, an unexpected event, like a
loved one getting sick or a family member losing a job, can
overwhelm even the most careful planning.
Still other times, unscrupulous businesses obscured the
terms of loans or engaged in outright fraud, harming
unsuspecting consumers and even ruining lives and devastating
communities. I am sure each of you hears every day from your
family, friends, neighbors, and constituents who have these
kinds of stories to tell. They are not looking for special
favors. They just want a fair shake, and a chance to get back
on track toward achieving the American Dream.
They deserve a consumer financial system that actually
works for consumers. Accomplishing our mission will take time.
But we are already taking important steps to improve the lives
of consumers.
One of our main objectives is to make sure the costs and
risks of financial products are clear. People make their own
decisions, and nobody can or should try to do that for them.
But it is the American way for responsible businesses to be
straightforward and upfront with their customers, giving them
all the information they need to make informed decisions. That
is good for honest businesses and it is good for the overall
economy.
So another key objective is making sure banks and nonbanks
get the evenhanded oversight needed to promote a fair
marketplace. Our supervisors are going on-site to examine their
books, ask tough questions, and fix problems we uncover.
The Consumer Bureau will also make clear that violating the
law has consequences. We will use all the tools available in
our effort to ensure everyone follows the rules of the road.
Where we can cooperate with financial institutions to do that,
we will. When necessary, we will not hesitate to use
enforcement actions to uphold the law and right a wrong.
We are listening closely to consumers and the businesses
that serve them. We are holding events throughout the country.
We have been to Philadelphia, Minneapolis, Cleveland, and
Birmingham. Next week, we are going to be in New York City. We
hope you will join us at these kinds of events as we come to
your communities.
Thank you, Mr. Chairman. I look forward to your questions.
[The prepared statement of Mr. Cordray can be found on page
48 of the appendix.]
Chairman Neugebauer. Thank you, Mr. Cordray. Your full
written statement will be made a part of the record, and we
appreciate that you stayed within the 5 minutes.
We will now have the question-and-answer period for
Members. I recognize myself for 5 minutes.
Mr. Cordray, I have been looking through some of the
requests that you made for advances from the Fed and up on the
screen and I know it may be hard for Members to see, but it is
one that was, I think, sent on September 28, 2011, and it
requests $94,281,564 be transferred and I guess that would be
for operations for the first quarter of 2012.
I was just kind of surprised that you can get $94,281,564
with just a one-page letter. There was no back-up as it was
sent with that.
And that is evidently not an estimated number. If I was
going to get an advance on my budget, I would just say, ``Well,
send me $94 billion or $94 million.'' Don't you think that when
you are going to be submitting for these kinds of funds,
transfers, that there ought to be more documentation than just
writing a letter?
Mr. Cordray. Thank you, Mr. Chairman. The process that we
have is that the Fed--a portion of its budget, a dedicated
portion that Congress set by law is available to us for
expenditures and our budgeting purposes.
There are considerable controls around our budgeting
process. As noted, we are subject to two outside audits: the
GAO audit; and we also have an independent audit that you all
put in to the law that is special to our Bureau, different from
the other banking agencies.
We are, of course, subject to congressional oversight. And
one of the things that I would say is that I believe that the
oversight that you all are exercising over us is meaningful. It
is significant--the notion that, as was suggested earlier, we
would spend $100 million on paperclips.
And it would matter that we can be brought up here in front
of you and have to answer for that publicly and embarrass
ourselves if it turns out we were engaged in frivolous
expenditures. That is a very meaningful oversight, I believe.
We also have just put out our budget justification. We have
put it out for last year. We just put it out for the next year.
That is on our Web site. All of these materials I have
described are on our Web site.
We are also putting out quarterly reports on our
expenditures on our Web site which is something that the other
agencies do not do. That is above and beyond for us. So I think
there is considerable explanation and analysis of what our
budget is. And I think the Federal Reserve folks have total
access to all of that as well.
Chairman Neugebauer. I just would think--when I was in the
private sector and I asked for an advance, I had to provide
documentation. I want to go back to--I am glad you mentioned
your budget justification plan. We did go online and I believe
this is your--this is a 12-page budget justification plan. Do
you recognize this? Is that your budget justification?
Mr. Cordray. Yes. It is from our document.
Chairman Neugebauer. Yes. So, then we have looked at, for
example, the CFTC and some of the other agencies, and this is
the kind of document that they generate for their budget
justification.
I think when you are spending that amount of money--while
you mentioned that those amounts are small relative to other
agencies, they are still significant amounts of money. And so,
when I look at what you are producing and what other agencies
have to produce, it appears to me that you all could use a
little beefing-up in your budget plan and performance because
you are hiring a lot of people. You are spending a lot of
money.
And it would be hard to measure the performance of your
agency from a document like this, and I would think it would be
hard for you, as the Director, to hold accountable these
various groups if they haven't submitted to you some kind of a
justification of what they are going to be doing with the money
that they are asking you to request from the Fed.
Would you agree that is an area where we should move in and
get a little clearer plan; because, basically, you all have
hired nearly 800 people and have requested several hundred
million dollars? And when we requested from you a plan, you
said, ``We are developing a plan.'' Generally, everybody else
has to develop a plan and then they get that plan funded. Would
you agree that you are behind the curve on that?
Mr. Cordray. Mr. Chairman, I would agree that the general
commentary you are providing is a fair concern. Understand
again, that we are a start-up agency. Our budget justification
provided last year was nine pages. We were brand new. We had
just a few handfuls of employees at that time.
The budget justification we just provided is much more
fulsome. I think it runs 25 to 28 pages. It is not yet what we
want it to be and what it will be in future years. So I think
your comment is well taken. We are going to continue to provide
more detail, more specificity. But I would refer again--the
Government Accountability Office did audit our operations and
they gave us a clean financial audit, and they found that we
were appropriately handling and documenting our finances, but a
problem may be in part with the fact that we were new.
They will continue to audit us every year and render
opinions on that. We have a separate independent outside audit
that Congress provided for us, I think to make sure that we
would be highly accountable. That also was a good audit. But I
think there is more we can provide, and more we intend to
provide. We will continue to ramp that up. And I would be glad
to remain in contact with you as we go forward to see if as we
develop more detail, we are meeting your expectations.
Chairman Neugebauer. Just one follow-up--I am over my time.
But would it be possible and appropriate, in say, 48 hours
prior to requesting one of these advances, that you publish the
request for advance and the backup for that? If you are, as you
said, for transparency and accountability, would you think that
would be a fair thing to do?
Mr. Cordray. We will give that some thought. I think the
key is that--the important thing is what are we spending and
why; and we provide that in the budget justification. We
provide it in the quarterly expenditure reports that we are
posting on our Web site which also are becoming more fulsome.
The actual letter you are referring to is merely a matter
of the transfer of funds. That is sort of a ministerial act.
The important thing is the kind of oversight that we are
providing in our budget justification, in the audits that are
being done of us, and the like.
So we will be glad to go back and consider the point you
have raised. But I think the mere transfer of funds itself is
less to the point than the justification for our budget, the
audits that are being done both forward- and backward-looking
of our operations. But we will be glad to consider that.
Chairman Neugebauer. I just want to conclude by saying that
I think either we are going to have to beef up the budget
justification and performance, or we are going to need more
detail on the advances; because this is still--you have doubled
it from 13 to 25--and it is still, I think, woefully
inadequate.
With that, I recognize the ranking member of the
subcommittee.
Mr. Capuano. Thank you, Mr. Chairman.
Thank you, Mr. Director.
Mr. Director, the statute that created you, is that the
statute that has capped the amount of money that you can spend?
Mr. Cordray. That is correct.
Mr. Capuano. And as I understood, it doesn't matter what
the amount is at this point in time. But am I correct in
believing that at no time, have you even come close to reaching
that cap?
Mr. Cordray. That is correct. We are in a start-up phase as
I said, although we are building and moving forward.
Mr. Capuano. But up until now, you have--the last I heard,
you are about $150 million below the cap which is, give or
take, 20 percent, maybe more?
Mr. Cordray. We remain considerably below the cap. Yes,
sir.
Mr. Capuano. Are there any other agencies that you know of
that are equivalent to you that are capped by statute as to how
much they can spend?
Mr. Cordray. I know that there are none.
Mr. Capuano. There are none?
Mr. Cordray. Correct.
Mr. Capuano. You are the only one. So, we don't do direct
budgeting, but we allowed you to get off budget, which I think
is a good thing, but we still kept some control over it. We can
always go back tomorrow, change that statutory authorization,
and make it any number we choose. Is that correct?
Mr. Cordray. The Congress ultimately controls that. And
yes, they require us to live within a specified budget.
Mr. Capuano. In these audits and oversight via the Fed,
Inspectors General (IGs) or whatever, have there has been any
significant findings of deficiencies?
Mr. Cordray. There have not. As I said, both of those were
clean audits. We were pleased with that. As I said, we are in a
start-up phase, and you are always a little concerned as you
are getting your operations going and getting them organized.
But there are things, in the give and take of that, that we
learned from them that are improving our operations. We listen
very, very closely and take very seriously every audit and team
of auditors that is working with our agency. The same is true
of the Inspector General.
We were under two Inspectors General last year, both the
Treasury and the Federal Reserve. Going forward, we will be
subject to the Fed's IG. We have begun having discussions with
them to make sure we understand their interests, their
concerns, and that we are providing them with the kind--
Mr. Capuano. So if we had a hearing tomorrow with your
auditors and the other two IGs who will be seeing you and asked
them if there were material deficiencies in your activities or
your reporting, you would expect them to say no?
Mr. Cordray. That is as far as I know and as far as we are
aware. Yes, sir.
Mr. Capuano. Thank you. Honestly, I was listening to the
chairman's questions, and paper work for a justification is all
well and good, but the truth is I don't judge most agencies by
what they say they want to do. I judge them by what they do,
the EPA included.
I have actually voted to cut some EPA funding in the past
because I don't like some of the things they have done. I like
most of what they do but not everything, and I expect the day
will come when I won't like everything you do either and we
will have that discussion when the time comes.
At the same time, I think that I am looking forward, as I
said earlier, I understand that you are in a start-up phase and
there is really not a whole lot of substance I can ask you at
this point in time; but this subcommittee spent a lot of time
this year, and I think rightfully so, on trying to check out
the MF Global situation.
I understand that you don't have any authority over that
situation, but you have no authority over credit unions or
community banks with less than $10 billion, and I respect that.
I understand that. I wouldn't expect you to do everything
overnight, and maybe someday we will revisit all of that, but
you have to start someplace.
At the same time, my hope is that your agency is keeping an
eye on these things, and I am wondering if you are, and if you
will have either done it or plan on making any comments or
suggestions either to the appropriate regulatory agencies or to
this Congress as to some things that you might find in any of
the areas that you may not have specific authority to act.
And again, I am not suggesting you broaden your authority,
but you are the one who is out there dealing with consumers and
understanding how it all goes together. I would hope that if
you see things in areas you don't have authority on, that you
would be proactive in reaching out to other regulators or to
this committee to make those suggestions.
I guess I am just wondering, are you keeping an eye as best
you can, knowing you are in a start-up, knowing your hands are
full with what you have? I am hoping you are paying at least
some attention to things you don't have any specific authority
over. Is that a fair question?
Mr. Cordray. Thank you, Congressman. I appreciate that
perspective, and we will take it to heart. We are focused
primarily and almost exclusively, and certainly we should be,
on doing our job, the job that Congress has provided for us
implementing and following the law that we operate under. That
is what any Federal agency should be doing.
We also, by law--I sit on the Financial Stability Oversight
Council. I sit on the FFIEC. These are bodies that were created
in part to make sure that there is coordination among the
Federal financial regulators, and that they do share
perspective with one another.
I have found those meetings already to be useful and of
interest to our work, and I think we bring a consumer
perspective that may help inform the work that others are
doing. The same is true of the FDIC Board--the law placed us on
that Board, myself as well as the Comptroller of the Currency,
to bring our distinct perspectives to that work.
That, I think, is useful. I think more collaboration by us
with the other financial regulators is good for them. It is
good for us. It is good for the American economy. It is good
for the people we serve. But again, virtually entirely, our
focus is on the jobs we have ahead of us, the big jobs, the
important jobs that matter to the public that we both serve.
Mr. Capuano. My time has expired, but I do want to make one
last comment on that last point. I think that is great and I
think that is exactly what you should be doing. But as you are
getting started, remember that Congress wrote this law kind of
going forward, too. We didn't necessarily know everything that
was going to come out of this.
And as a strong proponent and supporter of the concept, if
we miss something that we should have given you authority over,
I would certainly like to know about it.
The whole reason I supported the creation of this agency is
that there were too many agencies doing their own little work
in their own little silo, and too many things that fell in
between the silos. And for me, I am hoping that doesn't happen
again ever. People can disagree on what to do about things, but
at least if we know about them, we can have a debate and
discussion if we want to do something and, therefore, what to
do.
So I am hoping that as you go forward, if you see areas
particularly that may fall out of your purview that maybe
should be in your purview, if not you or someone else, that you
let us know. I certainly don't want to be back in the same
situation we were in 2008 when everybody was pointing at
everybody else saying it wasn't me, it was the other guy. And
that is the whole idea in my mind as to why we created the
agency in the first place. Thank you, Mr. Director.
Chairman Neugebauer. I thank the gentleman.
And now, the vice chairman of the subcommittee, Mr.
Fitzpatrick, is recognized for 5 minutes.
Mr. Fitzpatrick. Thank you, Mr. Chairman.
Mr. Cordray, in your November letter last year, this
committee asked the CFPB to explain its spending plan for the
rest of Fiscal Year 2012 because we simply can't do oversight
by looking through the rearview mirror.
On behalf of the Bureau, Raj Date refused to provide this
plan until the President released his budget on the grounds
that OMB policy bars the advance release of information that
would be included in the President's upcoming budget
Mr. Date wrote, and this is a quote: ``We will be happy to
provide you with this update budget information for Fiscal Year
2012 at the appropriate time.''
I have two issues with this. First, I don't see how OMB
policy can be a bar to the Bureau providing its current year
spending plan to the Congress. Dodd-Frank specifically exempts
the Bureau from any requirement that it seek OMB approval for
its budget, so I don't see that as an objection.
And the second issue is that the Bureau's promised spending
plan for Fiscal Year 2012 is so limited as to be frankly almost
useless. For example, on page 9, there is a table that
identified something called ``other services'' for $130 million
with no further explanation. On one other page dedicated to
providing a justification, 400 employees--no further
information on a single page.
We need more than what has been provided currently in order
for us to do our due diligence. In contrast, we have a detailed
Treasury spending plan which gives us information on every
dollar spent and every new hire accomplished. This is the kind
of information that we are looking for.
You pledged to ensure transparency at the Bureau, and given
that pledge, I would like to ask you to make two commitments to
us today.
First, can you commit to providing Congress with a better
forward-looking spending plan for the current fiscal year, can
you do that now?
Mr. Cordray. Thank you, Congressman. On that point, one of
the things that I wanted to point out is when this committee
had that exchange with Deputy Director Date of the Bureau, we
were, at that time without a Director, and therefore, we were
part of Treasury by law. And so, we were subject to all of the
same constraints that Treasury, as a Cabinet Department, has,
including the OMB requirements that you note.
Now, we have a Director, we are an independent agency; we
are not part of Treasury. It is a different situation for us
and so we will consider going forward what is the appropriate
way to handle that situation and perhaps we can be more
forward-leaning then we were able to be, again, because we were
legally required to adhere to the President's budget process at
that time.
One of the things that we are doing, as I have noted, and
this is something that the other agencies do not do, the
appropriating agencies come up to you when they are
appropriated on an annual basis--each quarter, we are posting
on our Web site detail about our expenditures for that quarter.
We are trying to get those up within 30 to 45 days of the
end of the quarter, and so there is going to be considerable
information during the year prior coming back to you with that
process but, look, we are actively considering how we can
provide more detail, provide it sooner, and frankly satisfy
what I think are legitimate requests you all have to know what
we are doing, to know what we are spending, to know why we are
spending it, and to know that it is consistent with our
mission, which is the laws that Congress has enacted that we
are carrying out.
And so, I think that is a fair line of questioning and
something that we will attentive to.
Mr. Fitzpatrick. So for the current fiscal year, can we get
updated spending projections?
Mr. Cordray. We have already posted for the first quarter,
which was the quarter from October 1st to December 31st. That
is on our Web site. As the second quarter concludes, we will be
posting. And so, we will be posting all along.
We have just provided the budget justification, which I
think was the advance information you all were looking for. We
did post that on our Web site on Monday, and I know your staffs
have had access to it, and I believe have been reviewing it. It
is, as I have said to the chairman, more fulsome disclosure
than we were able to provide in our first year. It is not as
full a disclosure as I expect we will be able to provide next
year.
We are working towards that and we want it to be
satisfactory to you and your colleagues.
Mr. Fitzpatrick. And so, Mr. Cordray, our point--and we
appreciate these quarterly postings, but they are looking back.
I am talking about looking forward in the current fiscal year.
Can you provide that update?
Mr. Cordray. Yes, we have just provided the budget
justification for the coming year, and as I have said in the
exchange with the chairman, although it is more than we were
able to provide in our first year, it is not yet what we will
be able to provide next year. It will get fuller. And that is
the forward-looking justification that I think you are looking
for.
Mr. Fitzpatrick. So then on October 1, 2012, which is of
course the first day of the new fiscal year can we expect a
revised and updated spending plan?
Mr. Cordray. Let me say this: I would like to know in more
detail exactly what you are looking for and when. I would be
glad to have my staff work with your staff to see if we can
reach a satisfactory conclusion of that issue.
Mr. Fitzpatrick. I am sure we can discuss the detail of
what we are looking for, but essentially, more than one line
listing ``other services'' for $130 million.
Mr. Cordray. There is more than that on our Web site about
our contract services, much of which is going to Treasury,
because we are building off their IT and HR systems but, yes,
sir, we will be glad to direct your staff to that so they know
what is available.
Mr. Fitzpatrick. Thank you, sir.
Chairman Neugebauer. Thank you.
And now, Mr. Lynch is recognized for 5 minutes.
Mr. Lynch. Thank you, Mr. Chairman, and I appreciate that.
Thank you, Mr. Cordray, for appearing before the committee
and helping us with our work. Rather than ask a direct
question, I just want to push back a little bit on this
assumption that the funding of the Consumer Financial
Protection Bureau is somehow diverting money from the Federal
Reserve.
I just want to point out that in contrast to the scrutiny
that we are giving this agency that is assigned to protect
consumers, the Fed has done oftentimes without the approval of
Congress and without any oversight hearings.
I want to point out that since 2008, the Fed has diverted,
really diverted $868 billion to Barclays, that is a British
bank, without any hearing, without any oversight on our part.
It has diverted $541 billion to the Royal Bank of Scotland,
again, a foreign bank. And think about this, this is funding
that is supported basically by the good faith and credit of the
United States Government but backed up by the United States
taxpayer.
The Federal Reserve actually did divert $354 billion to
Deutsche Bank, a German bank, a foreign bank. I don't know how
the United States taxpayer gets to do that but we never had a
hearing on the real diversion of the reserve funding to a
foreign bank in Deutsche Bank; UBSAG--that is a Swiss bank--
$287 billion.
Did we have a hearing on that like we are having a hearing
on this--10 percent or 12 percent of the Fed's operating budget
to protect consumers in this country who actually support that
system? We never had a hearing on that.
I am trying to point out the disingenuousness of these
proceedings to go after Mr. Cordray, who is charged with the
responsibility of protecting consumers. I will go on. Credit
Suisse--we had the Fed divert $262 billion to Credit Suisse, a
Swiss bank; the Bank of Scotland, $181 billion. The Federal
Reserve diverted U.S. taxpayer money to them. BNP Paribas, a
French bank, along with Society Generale, also in France--$125
billion for them; and Paribas, $175 billion. Dexia, a Belgian
bank--$159 billion diverted from the Federal Reserve Bank.
Do you think we had a hearing on any of these banks? The
silence in this room is deafening. We never had a hearing, on a
total of $3 trillion that the Federal Reserve diverted to
foreign banks.
Did this committee ever have a hearing on that to
scrutinize where every single dollar is going? Zero, silence,
nada, but here we have an agency that is set up to protect the
American taxpayer, to protect the American consumer, and my
colleagues across the aisle are going over every single line to
make sure where the money is going, but the $3 trillion that
the Federal Reserve gave to the foreign banks, silence.
And so, I just want to point out the absurdity and the
disingenuousness of this process to go after Mr. Cordray, who
alone is assigned within that Federal Reserve Bank--is assigned
to watch out for the consumers.
I thank the gentleman for his time and I yield back.
Mr. Neugebauer. I thank the gentleman.
And now, Mr. Renacci is recognized for 5 minutes.
Mr. Renacci. Thank you, Mr. Chairman.
And I want to welcome my fellow Buckeye, Mr. Cordray, to
this hearing. Thank you for being here.
You have said several times in your testimony that you--and
by the way, I want to go back to the purpose of the hearing.
The hearing will be to examine your budget, and so, I am going
to try and stay within that realm.
You said you would be accountable to us and the American
people in your opening statement. One of my colleagues on the
other side said the statute allowed dollars to be spent and you
are below the cap. I applaud you for that, but it doesn't
justify you spending those dollars unwisely or inappropriately,
would you agree?
Mr. Cordray. I agree.
Mr. Renacci. Audits, you said you have audits and the
audits have come through and said that you are spending dollars
appropriately and handling your expenditures appropriately but
you would also agree that audits, outside auditors do not
confirm that expenditures are justifiable, reasonable, it
compares in other possible options, is that correct?
Mr. Cordray. I think that is probably right. You have more
of a background in accounting than I do, I am aware. There is a
different issue I supposed, which is--but I think the GAO tried
to assess this, which is, ``What are our objectives that the
statute provides? What is the job that Congress has told us we
have to do? Are expenditures appropriate to doing that job
rather than doing something else that isn't our job?''
And I think what they have said is that we are spending
appropriately in light of our mission, and I think that is an
important indicator of our responsibility.
Mr. Renacci. Thank you and not to--but I do think as a CPA,
as someone who has done audits, that they are probably making
sure that you are justified in spending within the purpose but
they are not justifying and that is what this is really about,
to talk about your expenditures.
Mr. Cordray. Yes.
Mr. Renacci. You said in doing your job--does your job
include appropriately spending your dollars? So you talked
about what your job is; it is to take those dollars and spend
them appropriately for the taxpayers.
Mr. Cordray. It is and again our budget relative to that of
the other Federal bank regulatory agencies, ours is smaller,
and so, we have to be careful about how we are allocating our
limited resources. And we are trying to do that, yes, sir.
Mr. Renacci. Thank you. So, I am just going to get down to
a specific concern--one concern I have. Now, it relates to what
some of my colleagues have also asked, too. Earlier, in 2011,
the chairman asked the CFPB to give us information related to
the construction or rehabilitation of its new headquarters.
At that time, the CFPB refused to give us the information.
Can you give me a reason why it was not presented to the
committee?
Mr. Cordray. I don't know that--I am not aware that we
refused to give information. I would say that at that time--and
it still remains true to some degree--the facility's solutions
for the Bureau's needs were rather unsettled.
We had been working to try to obtain a lease on a
particular building. It is the former Office of Thrift
Supervision building where we could consolidate our employees
who currently are spread out at several sites because it is
just difficult when you are a start-up agency.
This does not involve the construction of any building but
would potentially involve the renovation of a building that is
about 40 years old now. And as I understand it, unfortunately,
some of the electrical and mechanical systems in the building
have kind of reached their natural life span, and there are
some code issues of bringing the building up to code.
So there is some work that will need to be done and we are
also going to double the prior density of that building to try
to make it more efficient. It is a work in progress for us, and
it is a source of some frustration to us and it will be
probably for the next couple of years.
Mr. Renacci. It looks like in the President's budget, there
is $15 million to be spent in 2012, and $40 million in Fiscal
Year 2013 for land and structures. Will you commit to getting
us the details of what the $55 million is going to be spent on
so there is transparency to the American people and to
Congress?
Mr. Cordray. Yes, Congressman. I think that is a very fair
request. We will do that. That is not yet in focus. We do not
yet have contracts for that. As I said, we are still working to
procure a lease. We hope to have more progress on that soon. We
will be glad to update your staff regularly on how that is
going to make sure that we are acting responsibly.
Mr. Renacci. Thank you. I would like to also follow up on
another issue that is a little off topic but I believe is still
in line with overall transparency. It might provide you an
opportunity to give an example of how the Bureau is operating.
Back in November when Raj Date testified before this
subcommittee, I asked him whether the CFPB intends to provide
guidance to States seeking to enact transitional licensing laws
under the SAFE Act.
Mr. Date seemed to appreciate the issue but was unable to
answer whether the Bureau would provide guidance. In our home
State of Ohio, I understand the Senate may soon take up
legislation that would permit State bank regulators to issue
transitional licensing.
Can you please tell me whether States like Ohio should
expect to hear from the CFPB on whether their efforts will be
in compliance with the SAFE Act? And if so, what is your timing
for providing the guidance?
Mr. Cordray. It is a good question, Congressman. And it is
something that we are focused on as one of the issues we have
inherited from other agencies. As I understand it, we are
working closely with the State regulators and, in some cases,
as you note, there are State legislatures which are potentially
active in this area.
We are glad to consult with them at any time as to whether
proposed legislation would be in compliance with the SAFE Act.
That is the purpose of their legislating; they obviously need
and want to know that. So, I know we have had extensive
consultation with the States.
We have now signed a memorandum of understanding with, I
believe, 46 or 48 of these 50 State banking superintendents and
regulators who often are overseeing this type of licensing as
well.
So if people want to be in touch with us, if you want to
put constituents in touch with us or legislators to talk back
and forth about what they are trying to do and whether we are
going to have some difficulty that they wouldn't want to know
about later, they would rather know about it now, we are happy
to do that.
Mr. Renacci. Thank you, Mr. Cordray.
I yield back.
Chairman Neugebauer. I thank the gentleman.
And now, Ms. Waters is recognized for 5 minutes.
Ms. Waters. Thank you very much, Mr. Chairman.
I would first like to thank Director Cordray for being here
today and tell him how pleased we are that the President took
the necessary action to fill the vacancy.
I was a member of the conference committee that established
the CFPB. And I think it is one of the most important actions
this Congress has taken in many years and certainly the most
important action to give some protection to our consumers.
And so, despite the fact that there are those who have
tried to interfere with the establishment of this Bureau, I
want you to know that you have a lot of friends, a lot of
support not only in this committee and on this side of the
aisle, but I was at a huge public meeting this past weekend
where I did a public thank you to the President about your
appointment and got a standing ovation with people yelling out
all kinds of things about credit cards and payday loans and
operations, etc.
So I am just awfully pleased that you are here. Mr.
Cordray, I have spent a lot of time learning about servicers.
As a matter of fact, I went so far as to get the permission of
some of my constituents who had problems trying to get loan
modifications to allow me to interact with servicers.
And during that time, a couple of television stations
followed my actions in trying to get to a servicer where I
spent hours being sent on a menu to all kinds of places in one
of the banks trying to locate the servicer. It took hours and I
learned a lot.
I have learned, number one, that many of our constituents
can reach a servicer and I don't understand how this loss
mitigation operations are in the banks. They operate in all
kinds of different ways. In addition, the lost paperwork, the
over requirements of seniors who were trying to straighten out
fraud that has taken place, all of this.
We desperately need you to look at and do something about
the servicers. Having said all of that, I have a couple of
pieces of legislation I would like you to take a look at, as it
relates to servicers. H.R. 1567 is a servicer's reform piece of
legislation dealing with loss mitigation and single point-of-
contact.
And talking about a dedicated 1-800 number and, of course,
I have H.R. 3841 talking about principal reduction. With all
that you have to do, if you can get a handle on how we regulate
servicers, how we can create some kind of consistency in how
they operate so that constituents would know, number one, how
to get to them and what to expect of them, it would be the
greatest thing we could do for consumers.
So I have no questions for you. All that I have for you is
to say, God bless you. We are so glad that you are here. Your
work is not going to be easy. There are going to be those who
are going to picket you and try and talk about your budget and
try to manage your budget, all of that.
But I hope that you don't get disgusted with all of this,
that you will stick with it. It requires some fighting and some
of us are fighters and we are prepared to fight with you
because we think that your job is just so extremely important.
So, welcome, welcome, welcome.
Chairman Neugebauer. I thank the gentlewoman.
And now, the gentleman from New Mexico, Mr. Pearce, is
recognized for 5 minutes.
Mr. Pearce. Thank you, Mr. Chairman.
And thanks, Mr. Cordray, for your service, and for being
here today. I noticed that although you reported a clean audit,
there were deficiencies. What were the deficiencies?
Mr. Cordray. There were a number of things as--
Mr. Pearce. Give us the highlights.
Mr. Cordray. --come up in any audit where there are
suggestions for improvement. And, again, that was an audit that
was done on the Bureau at the very preliminary stage. As I say,
it was a clean audit but every auditor worth their salt, when
you look at your operations carefully, they are going to have
suggestions. They are going to have proposals.
And if the agency is worth its salt, it will listen
carefully to those proposals and look to implement--
Mr. Pearce. Anything to do with internal controls?
Mr. Cordray. They found that our internal controls were
appropriate at that time. But I think that my personal view
is--and we are hard at work on this--that there is much more we
can and should do in order for me to have confidence that the
Bureau is both spending money appropriately, which I believe we
are, but we want more controls on that, and also that we are
following through on the policies that we have adopted to make
sure that we are living those policies day in and day out.
Mr. Pearce. Hold on just a second. Excuse me. I noticed the
second audit that came from ASR Analytics. On page one, they
note that some members have ongoing efforts to achieve minimum
hours of continuing professional education that directly
relates to government auditing.
So somebody in the agency hired an audit firm that did not
have the required internal expertise. Who made that decision?
Mr. Cordray. I would have a different vantage point on
that. This was--
Mr. Pearce. I just want to know who made the decision to
hire this firm. I can read the report where they say they don't
have the background. So I don't care about someone's
interpretation. Who made the decision?
Mr. Cordray. Okay. I think they have a considerable
background but I would be glad to--
Mr. Pearce. No. Sir, if you would just tell me who made the
decision.
Mr. Cordray. Yes.
Mr. Pearce. We will have our differences of whether they do
or not.
Mr. Cordray. Sure.
Mr. Pearce. They are the ones who point out they don't have
the expertise.
Mr. Cordray. Yes.
Mr. Pearce. So, who made the decision?
Mr. Cordray. They have expertise. But that was done before
I was Director--
Mr. Pearce. Would you mind answering the question, sir?
Just who made the decision? There ought to be a name or a
position. I don't care which.
Mr. Cordray. I don't know offhand. That was before I was--
Mr. Pearce. If you would give me the information on who did
that, I would really appreciate it. Did you as Director kind of
find fault with--was there no one in the auditing community in
the whole Nation with expertise? Did you come back and find
fault with this or you did not?
You are just getting your feet on the ground. There are a
lot of great concerns. Wouldn't you want to check the box that
said yes, they are qualified, and everybody who comes out here
has the background, wouldn't you want that to kind of reassure
people that you are taking troubled waters and you are
beginning to calm them down?
Mr. Cordray. Shall I answer? That firm is a very qualified
firm, that some of their folks are keeping up with their
continuing education requirements is one thing. But we will
look again at your request at the firm we will use in the next
year.
That was a competitive process and I think it was an
appropriate process. No one to date, until your question, has
found any fault with that. But we will be glad to look at it
and I will get the answer to your staff that you asked of me.
Mr. Pearce. Thank you.
On page 16 of the GAO--that is actually page 21 of the GAO
report--but on page 16 of your pages, it talks about how the
people that you supervise have larger participation in nonbank
supervision, especially as it relates to Federal consumer
financial protection laws compliant with that. So explain to me
what kind of nonbank groups that you supervise.
Mr. Cordray. Sure. Congress specified in the law certain
nonbank--first of all, Congress specified in the law that we
should regulate financial products and services in the
marketplace without regard to whether it is a bank or a
nonbank, recognizing that in a lot of these markets, there are
nonbank participants who compete directly with banks, but they
are not subject to the same regulation. So you are regulating
part of the market and leaving part of the market unregulated.
That is not a formula that works.
So Congress specified us to be overseeing nonbank
participants in the mortgage market which can be mortgage
originators, mortgage brokers, mortgage servicers. They also
specified that we would oversee payday lenders. And Congress
specified that we would oversee private student lenders.
Mr. Pearce. Do you have anything to do with Fannie Mae and
Freddie Mac, do you have any oversight?
Mr. Cordray. That is a good question to the extent that
they would be servicers. We could have oversight over them,
yes. Other than that, many other financial industries not
specified by Congress in which Congress said to us, ``You
should oversee them as well, but you should first identify who
are the larger participants in those industries and those are
the ones that will be subject to direct supervision by you.''
So that can be other fields such as debt collection, check
cashing, debt relief and settlement, credit reporting, and a
number of others.
But that is something that we have to do by rule. We are in
the process of getting under way with that. We didn't have any
of that authority until we had a Director in place. It is
fairly early days for us.
The other thing I wanted to mention, sir, and it is
probably near to your heart, is our Office of Servicemember
Affairs, which has been working aggressively to bring attention
to the kinds of financial exploitation of servicemembers, often
when they are on active duty which is inexcusable--foreclosures
that were inappropriate on servicemembers, interest rates that
exceeded the Military Lending Act requirements, and other
problems.
Ms. Holly Petraeus has been hard at work on those issues
and I think is doing a terrific job of bringing those to the
attention of the Congress and the public at large and other
regulators, as well as things we can do directly.
Mr. Pearce. Thank you. It is near and dear to my heart. And
I hope that you will push that. Also, financial exploitation of
hog farmers is pretty near and dear to my heart. And so, I hope
that you will go back and ask the other regulatory agencies
why--ask the Justice Department why they have never had an
interview on MF Global. That is near and dear to a lot of
farmers across the entire United States.
But I thank you, Mr. Chairman, and I yield back.
Chairman Neugebauer. I thank the gentleman.
Now, Mr. Miller is recognized for 5 minutes.
Mr. Miller of North Carolina. Thank you, Mr. Chairman.
CFPB is hardly alone in having a dedicated source of
funding, in fact, all the financial regulators appear to have a
very similar budget process with a dedicated source of funding
and then require justification.
Mr. Cordray, have you had the chance to review the OCC's
Fiscal Year 2013 budget justification?
Mr. Cordray. I have not had the opportunity to do that in
detail. I am generally familiar with the broader outlines of
their budget.
Mr. Miller of North Carolina. That document and your budget
justification were strikingly similar in how they are
organized. And their budget justification for more than a
billion dollars in spending is 23 pages long, including the
cover sheet, and the title and the table of contents. Whereas
yours, to justify $448 million, less than half of that amount,
is 25 pages long, including the cover sheet and the table of
contents. Have you heard any complaints about the lack of
completeness in the OCC's budget justification?
Mr. Cordray. I have not heard any to this point. I am not
sure they would be directed at me, but I have not heard any.
Mr. Miller of North Carolina. The only financial regulator
that appeared to be subject to appropriations from Congress,
that it depends upon Congress for their annual appropriations
was OFHEO, the late, unlamented regulator of Fannie and
Freddie.
And it appears that OFHEO was completely captured by Fannie
and Freddie. Fannie and Freddie clout really prevented them
from getting the resources that they needed and OFHEO was
perhaps the most captured of all the regulatory agencies.
The OCC sets a high bar for capture, but it appears that
OFHEO truly was Fannie and Freddie's monkey. They got exactly
what they wanted from Fannie and Freddie.
Other oversight, Mr. Cordray--do you have an Inspector
General?
Mr. Cordray. Yes. Actually, last year, uniquely, we were
subject to two Inspectors General because we were both in
Treasury without a Director, but also within the Fed and by
statute.
Going forward, we are subject to the Inspector General of
the Federal Reserve. We have had meetings with the Inspector
General, a very capable individual, with a very capable team.
And they will have full access to information to assess our
performance.
Mr. Miller of North Carolina. Did they review your budget
submissions, your budget submission?
Mr. Cordray. I am not certain of that, but my staff could
tell you.
Mr. Miller of North Carolina. But they certainly can review
your budget?
Mr. Cordray. They can review anything they want to review.
Mr. Miller of North Carolina. All right. Under the IG
statute, the Inspector General statute, the head of the agency
is provided all IG reports, but also Congress. Is that correct?
Mr. Cordray. Correct, yes.
Mr. Miller of North Carolina. So we will get a copy of any
IG report?
Mr. Cordray. Yes, sir.
Mr. Miller of North Carolina. How about the effect of the
APA? Are you subject to the APA for rulemaking, the
Administrative Procedures Act?
Mr. Cordray. We are and therefore it is subject to review
by the courts.
Mr. Miller of North Carolina. Okay. So there is a notice of
proposed rulemaking, there is a comment period, and there is a
final rule and comment after that as well?
Mr. Cordray. I don't know that there is comment after the
final rule, but we are subject to all those same processes.
Mr. Miller of North Carolina. And then, there is a judicial
review after that?
Mr. Cordray. Yes.
Mr. Miller of North Carolina. How about for any--there was
some reference on the other side to sanctions that the CFPB
might have imposed and it sounded like it was an ``Off with
your head'' kind of power. But are you subject to contest the
case procedures under the APA for sanctions, any fines that you
imposed?
Mr. Cordray. Sir, everything we do, anything we do that
constrains anyone is subject to judicial review if they want to
challenge it in court. And we would be held to all of those
procedures.
I should add in response to your question about our
rulemaking process, we are subject to some special constraints
as well that are unique to us as a banking agency. No other
banking agency is subject to SBREFA panels to consider the
impact on small providers of our rules. There are only two
other agencies in government subject to that. And so, I think
that there is considerable oversight of our rulemaking.
Mr. Miller of North Carolina. Have you heard any problem at
the Federal Reserve Board or the FDIC or the OCC--that they
were spending entirely too much on paper clips?
Mr. Cordray. I have never heard that allegation, and I hope
I will never hear it about our Bureau as well.
Mr. Miller of North Carolina. Okay. I yield back.
Chairman Neugebauer. I thank the gentleman.
And now the gentleman from Florida, Mr. Posey, is
recognized for 5 minutes.
Mr. Posey. Thank you very much, Mr. Chairman.
Mr. Cordray, you mentioned in your remarks that one way to
be assured that you would be held accountable is that you were
going to face a couple of audits. I would hope that you would
know, as most of us know, that audits will tell you if any
money was blatantly stolen--in the classic sense of the word,
if anybody took cash or equipment.
But they don't generally tell you how efficient an agency
is or how well taxpayer dollars are spent or if agencies
plunder the public, the Trust, and the Treasury by overpaying
employees and giving exorbitant bonuses that aren't necessary
and aren't earned and things like that. You usually don't see
those in audits.
Audits didn't work with the SEC when 20-some investigators
and 30-some examiners and untold members of management or maybe
those numbers are reversed, it is not really important, turned
a blind eye to Bernard Madoff for over a decade after they were
given an open-and-shut case.
Audits didn't care about the poor victims of the MF Global
scandal. And audits have not yet exposed, and there has been no
prosecution for the crony capitalism of the crooked deals like
Solyndra that have burdened our taxpayers unnecessarily. And
so, my question to you is, do you plan to actually prosecute
any wrongdoers, and if so, how and when?
Mr. Cordray. Sure. And let me say a couple of things. First
of all, I didn't mean to misspeak. I don't mean to suggest that
the two audits here, even though it is more audits than the
other banking agencies are subject to, are sufficient
oversight.
I do think that the active oversight by Congress, as
exemplified by having me testify here today--and I testified in
front of the House Oversight Committee a couple of weeks ago--
and I assume we will be here frequently. I think that is
entirely appropriate. I welcome that. That is an important part
of the oversight as well.
In terms of the issue you raised in your opening statement,
and I think it is an important issue to raise, is what is being
done to hold people accountable for violations of law in the
financial marketplace? That is something that our Bureau has
the authority to do.
We are under way in our Enforcement Division, which I
headed up before being appointed as Director. I can say that
there are a number of investigations we have inherited and they
are working in a coordinated way with other agencies.
And a number that we have initiated ourselves, I can't, of
course, give details on those. But we take very seriously our
obligation to require people to comply with the law. And when
they don't, we will take action. It will be strong action. It
will make sure that consumers as much as possible are
recompensed for the harm that was done to them by a violation
of the law.
And I see that function particularly important as
supporting all the other responsible businesses in that market
who themselves are not violating the law, who are very careful
to comply with the law.
Often, it costs them money to do that. It means they can't
cut corners and cut costs in some ways that the violators do.
It is unfair competition. And so, I think when we enforce the
law evenhandedly and reasonably, we support all the good
businesses in that marketplace, and typically, they welcome
that.
Mr. Posey. Do you expect and should we expect any subprime
investigations and prosecutions?
Mr. Cordray. I want to be careful here because I know I am
not supposed to talk about ongoing investigations or give any
details or potentially move the markets by saying something
that I shouldn't.
What I would say is if you or your staff have particular
areas of concern that you want to bring to our attention, we
are all ears. We are interested in that perspective, not only
from you all who hear a lot from your constituents that we may
not hear although we hear a lot from the same people but also
from the public at large. We have a whistleblower portal on our
Web site now.
Mr. Posey. I only have a minute left.
Mr. Cordray. I am sorry.
Mr. Posey. Do you plan on overseeing errant regulators? We
have errant regulators whom I think have gone way beyond the
scope of their authority and have caused havoc in our community
banking industry. And there seems to be an inability of the
agencies to rein them in.
Mr. Cordray. I would say this, first of all, I think our
primary responsibility is that we not become some sort of
errant regulator ourselves, and I think that is important. And
I want to hear from you if people are bringing to your
attention ways in which we are erring in that regard.
We don't have the authority to control other regulators,
per se, but we work with them, we collaborate with them, and we
also collaborate and work cooperatively with State regulators
in a lot of these areas.
So to the extent we can set an example by working with them
to make sure that things are being done appropriately, we will.
Beyond that, I do want us to treat community banks and the
smaller institutions appropriately, recognizing that their
different size, their different model, and their community
roots often make them very different from the largest
institutions and we want to try to preserve and encourage that
model.
Mr. Posey. Thank you. I see my time is up.
Chairman Neugebauer. Thank you.
Mr. Ellison is now recognized for 5 minutes.
Mr. Ellison. Thank you, Mr. Chairman.
I would like to yield 15 seconds to Congressman Miller.
Mr. Miller of North Carolina. Thank you, Mr. Ellison.
I would like to ask unanimous consent to place in the
record the OCC's justification for Fiscal Year 2013, a 23-page
document explaining how they expect to spend a little more than
$1 billion.
Mr. Fitzpatrick [presiding]. Without objection, it is so
ordered.
Mr. Ellison. Thank you.
Thank you, Mr. Miller.
Mr. Cordray, could you talk about how consumer protection
figures into safety and soundness?
Mr. Cordray. Thank you, Congressman. It is a subject that
we have all been thinking a lot about at the Bureau because one
of the premises of Dodd-Frank was that consumer protection in
the financial marketplace was largely--``ignored'' is maybe too
strong a word--but it was a lower priority for the existing
Federal regulatory agencies because their primary focus,
appropriately so, since this was their mandate, was on safety
and soundness.
And so, there were issues that just got missed or didn't
get enough attention. Mortgage servicing, as was described
earlier, is a tremendous example. A lot of the practices in the
mortgage market that in fact, looking back on, led to and
precipitated the financial crisis, were caused in part by the
fact that people were not focusing on what was happening with
the actual consumers.
To me, safety and soundness and consumer protection go
together. They go in tandem in the following way: Safety and
soundness sort of takes a snapshot of an institution at a point
in time and looks at its books, looks at its capital reserves,
looks at its ongoing revenues and the like, and looks at the
risks.
But you can't really get a good picture of safety and
soundness if you aren't looking at how that institution treats
its customers over time, and whether that is a sustainable
business model or whether it is taking advantage of customers
in the short term in ways that cannot be sustained in the
future.
So, for example, when you give loans to people and you do
not require any documentation of income and you do not require
any kind of underwriting standards to be met, you can make that
loan, and for a moment, it will look okay on your books. But
over time, that loan is not going to succeed and you will not
be a safe and sound institution. Why? Because you are
mistreating your customers in ways that cannot be sustained.
So, to me, consumer protection is an important part of
this. As we work to protect consumers, I think we will help
strengthen the financial system and strengthen the economy. We
want people to be treated in ways that are sustainable over
time for them and for the institution. That is good business,
that is the way most businesses look at how they do their work,
and that is part of what I think the reforms in Dodd-Frank were
intended to accomplish.
Mr. Ellison. Thank you. Also, the chairman, before he left,
held up two documents: one appears to be your budget
justification, which looks like some white pieces of paper
stapled together; and the other one is a thick color-coded
document.
If you redirected the resources of your office, could you
come up with a big, fat, shiny, fancy document that might
please some people in this committee?
Mr. Cordray. I--
Mr. Ellison. You don't have to answer that.
Mr. Cordray. Yes, it is always a question of how much
detail and how much presentation do you provide and whether
that is the best use of your resources.
Mr. Ellison. What do you think, Mr. Cordray, about
simplicity? I remember talking about the--in the health care
debate, a lot of my friends on the other side of the aisle were
going on and on about how thick it was. And now, we get a thick
document and they don't like that.
So, I am just trying to figure it all out and this is not a
question, just sort of help trying to figure out when is a big,
fat, thick document a good thing and when is it a bad thing?
If it helps consumers get simplicity and frugality help for
something, I don't know. I am just asking a question for all of
us to ponder. I am sorry.
Mr. Cordray. I know before your old project, we were trying
to streamline the mortgage forms, trying to streamline credit
card agreements, trying to streamline student loan forms so
that consumers can really understand the most important
information that they really want to know before making a
choice. I think simplicity counts. Maybe there are times where
length counts but we are happy to take guidance on that as we
go.
Mr. Ellison. Right. And we you did point out there that
part of what you are doing is trying to make documents shorter
and simpler, and this is part of the mandate, that this is an
important function.
Let me ask this: If the CFPB funding were subject to
appropriations and could be significantly cut, what do you
think the impact would be on our servicemembers, older
Americans, and consumers generally?
Mr. Cordray. We will look again. We start from a budget
that is capped unlike every other Federal banking agency. It is
capped at a much lower level than the other Federal banking
agencies. Of course, we have different functions, they have
different functions.
But if we were forced to make really tough choices, can we
protect servicemembers, would we have to choose between them
and older Americans, would we have to choose between trying to
fix the problems in the mortgage market or taking a closer look
at things like payday lending or credit cards or student loans,
all of which are problems in various ways and pose issues for
consumers.
Those will be pretty tough choices to have to make. And we
will have to make them because we have limited resources as it
is. But to cut our budget tremendously would really cripple our
ability to protect consumers and the marketplace.
Mr. Ellison. I have to yield back, Mr. Cordray. Thank you
very much, and I am absolutely overjoyed that you are in the
role you are in.
Mr. Fitzpatrick. The Chair recognizes the gentleman from
Delaware, Mr. Carney, for 5 minutes.
Mr. Carney. Thank you, Mr. Chairman. Thank you for having
this hearing today.
Mr. Cordray, it is good to see you again. We met in my
office some months ago. I am delighted to see you as the
Director of this new Bureau. I think you were the Chief of
Enforcement at the time we had a conversation about your
priorities, and I want to get to that in a minute, but I also
want to start with some conversation about the budget.
So, your budget is tied to the Fed's operating budget at 12
percent. You mentioned that you spent $350 million, or
thereabouts, in 2012, and something over $400 million in 2013.
Your cap would have been $597 million, if my numbers are right.
How do you see yourself budgeting in the future? My
orientation is State government like yours and I am pleased
that you bring that experience to the table here.
How do you see yourself budgeting and staying within the
budget that you have in the years to come?
Mr. Cordray. Congressman, it is a great question. It is a
challenge for us as it is a challenge for any agency. Although
most are not subject to a budget cap, they may be subject to
caps imposed by the appropriations process.
I think we will do it in the same way that I did it when I
was attorney general in Ohio, when I was a treasurer in Ohio,
the same way you did it in the different offices you served in,
in Delaware, where you were subject to oversight by the
legislature there, which is we have--
Mr. Carney. And the budget director, the governor's budget
director.
Mr. Cordray. Absolutely, and the Secretary of Finance
perhaps. But we will have to set priorities, we are doing that.
We have obviously had to do that already. We will look
carefully at the mission that we are trying to carry out, the
objectives Congress has set out for us, that is our touchstone,
what is it that Congress has told us to do because that is the
law we are obliged to carry out.
We will look at the progress we are making in different
areas. Sometimes, things become priorities because you think
you can achieve something faster. Sometimes, you recognize you
need to study it, probably know more about it before you go
folding in.
We will look at the input that we are getting from you and
your colleagues. You are hearing from the same people that we
hear from.
Mr. Carney. Absolutely.
Mr. Cordray. You are serving the same people we serve, so
your insight into whether we are addressing the kinds of
problems we should be addressing or whether we are missing
things that will inform us. But it is an iterative process; it
is something we will learn from as we go.
Some of the things we start with are mandated for us, so we
don't really have a choice, although I think that there are
good choices Congress made. Fixing a number of specific
problems in the mortgage market is going to take up a lot of
our rulemaking time over the next year.
Obviously, examining these institutions to make sure that
they understand what is expected of them and what the law
requires and that they are carrying that out is a very
important function and that encompasses many of our personnel.
Mr. Carney. Let us talk about a couple of those areas that
you and I talked about some time ago. One other concern that I
hear from my constituents is payday lenders, these basically
high-risk individuals who are trying to get access to loans.
What is your approach going to be and do those clients of
lenders--nonbank lenders, if you will--where does that fit in
your priority and what is your approach going to be?
Mr. Cordray. It is a key part of our priorities because
Congress told us that it needs to be. Congress told us that in
some of these markets, you have banks and nonbanks competing
directly against one another, but they are under very different
regulatory regimes. That is not appropriate. And it is part of
the system that was broken before.
There are other markers where it is virtually all nonbanks
and you don't have much in the way of a bank competition. Those
markets matter a lot to consumers as well.
So, for example, we conducted our first field hearing in
Birmingham, Alabama, last month on the topic of payday lending.
We are looking carefully at how those products work. We
understand and acknowledge and we heard a lot of testimony that
there is a strong demand for short-term consumer loans in our
society, that is a real need people have.
What we want to make sure is that the products that are
fulfilling that need are actually helping consumers rather--
Mr. Carney. So how do you draw that line? We had a hearing
right here about just that subject.
Mr. Cordray. Yes.
Mr. Carney. And there are basically poor people who are
trying to get from here, from this week, the next week or
whatever it might be, but the annual rates are off the charts
even with the pilot program the Treasury has?
Mr. Cordray. Yes.
Mr. Carney. How do you strike that balance, I guess, and
what do you--?
Mr. Cordray. It is a tough issue in some ways and that is
part of why we started with the field hearing to try to gather
a lot of input. We got a balanced input on both sides of the
question: payday lenders themselves as well as customers who
like the product; and others who were critical of the product
and have seen some of the devastating consequences for some
people of getting trapped in the debt cycle.
One of the things we think there is a need for is to try to
foster competition in the small-dollar loan market. Some of the
banks are providing products. We want to scrutinize those
carefully.
But if they are good products, maybe they will help ease
some of the strain of this. It is something to which frankly,
we don't have all the answers. That is why we did a field
hearing. We are going to continue thinking about it. We are
interested in input from you all and your perspectives to help
inform us.
But some of these are not the easiest problems in the world
to figure out.
Mr. Carney. Thank you very much for your hard work. You
have a tough job. We wish you well and hope that your door and
your phone will remain open to us as we hear from--as you say,
these are our constituents, and I look forward to working with
you. It is great to see you today.
Thank you. I yield back.
Mr. Fitzpatrick. Thank you. I recognize the gentleman from
Texas, Mr. Green, for 5 minutes.
Mr. Green. Thank you, Mr. Chairman, for the recognition. I
also thank the chairman and the ranking member for the
opportunity to sit with the subcommittee today, as I am not a
member of the subcommittee.
Mr. Director, welcome to the committee and, hopefully, this
will be one of many visits that you will make.
The debate today and for some time now has really been
about how independent the CFPB will be. It is really about
independence. And in this country, we decide that certain
agencies--because of the sheer importance that they hold in the
orderly function, functionality, if you will of the country--we
decide how independent they will be.
We decided that we wanted our Judiciary to be exceedingly
independent; hence, they are appointed for life. Federal judges
are appointed for life, conditional to good behavior. They can
be removed, but the appointment is for life. Assuming that they
behave themselves, they will be there for life, unless they
choose to do otherwise.
So, it is not unusual for us to have agencies and offices
with a great amount of tenure.
The Comptroller General who heads the GAO is appointed for
15 years. That is because we want independence.
This agency, in my opinion, merits a great deal of
independence given what we went through with the debacle as it
relates to financial institutions and the crisis from which we
are still recovering.
But notwithstanding the independence that I believe you
have and should have, there is still accountability.
You are appointed by the President for 5 years, and you can
be removed for cause. You have to testify before Congress semi-
annually. You have an annual GAO audit. Your enforcement
measures can be appealed, meaning enforcement against some
party. That party has a right to take it before the courts and
have an independent judge make a decision as to whether or not
what you have done was correct.
Your actions are subject to judicial review, meaning, if
you implement some sort of rule, that can be reviewed in the
judicial system. You have other regulators that can literally
veto your actions, such as the FSOC. Any member of the FSOC can
petition to veto an action that you might take.
No other agency, as I understand it, has other agencies
that can override the rules and regulations that they
promulgate.
Mandatory rulemaking consultation: you can't just decide to
do something as it might appear based on some of the things
that we have heard. You are forced to consult with the Federal
banking agencies before you produce a final product.
And you have to perform a cost-benefit analysis of your
rules. You are required to conduct a cost-benefit analysis of
all proposed rules.
There seems to be a fair amount of checks and balances in
the process.
But in the final analysis, if I don't like the idea of a
CFPB, then I don't want you to be independent. I want you to
have to report to me. I want to control your budget. I want to
determine whether you can have an appointment of 5 years or
some smaller amount of time.
On the other hand, if you believe as I do, that 3/27s and
2/28s didn't help consumers, if you believe that prepayment
penalties that coincide with teaser rates were abhorrent at
that time, and if you believe that no-doc loans and certain
other products that were promoted and produced were
detrimental, then, you probably want to see someone looking out
for the consumer, someone whose job it is to put the consumer
first.
The prudential regulators had the opportunity to do this.
They had every opportunity. And this is not to demean them in
any way. But it is to say that history shows a need for what
you do and what you are about to do.
So, I thank you for accepting the challenge. I believe you
ought to have independence and I look forward to your many
visits in the future.
I yield back.
Chairman Neugebauer. I thank the gentleman from Texas. And
the gentlewoman from New York, Mrs. Maloney, is recognized.
Mrs. Maloney. I want to thank the chairman and the ranking
member for calling this important hearing and for recognizing
me. I am not a member of this subcommittee, so you are giving
me a great honor and privilege. Thank you so much.
First, I would like to welcome Mr. Cordray, and really
observe that during this entire confirmation process where
there have been many challenges and obstacles put in place,
none of the criticism in any way, shape, or form has been
directed towards your life in public service, your commitment
to doing the job, or your qualifications. You are really able
to do the job, and everyone thinks you are great.
And I would like to add my voice to that, and add my
concern that for the first time in my lifetime, I have seen the
confirmation process used as a way not to confirm a person but
as an attempt to change the underlying bill, in this case, the
creation of the CFPB.
A number of my colleagues on the other said of the aisle
and the Republicans in the Senate have publicly said, and said
in writing, that if we would change the underlying bill, which
they were not able to achieve in a vote in Congress or in the
Conference Committee, then Mr. Cordray would be confirmed.
I believe it is a severe abuse of a confirmation process.
The confirmation process should center on the qualifications of
an individual, not on attempting to change the underlying bill.
But I would like to return to the subject of today's
hearing and the budget. As I understand it, the CFPB's budget
is capped at $557 million for Fiscal Year 2012. Do you
anticipate using all of that? And do you happen to know what
the budget cap is or what the budget is for the OCC, the FDIC
or the FHFA?
Also, I understand that you are the only regulatory agency
that does have a budget cap. Could you clarify and comment on
those questions?
Mr. Cordray. Sure. Thank you, Congresswoman, for the
comments and the questions.
First of all, we do not anticipate spending through our
budget cap either this year or next year. We are building up,
as you know, as a start-up agency, building up from really zero
as of July 2010 when Dodd-Frank was enacted.
So, it will take us some time to get a steady state.
We are the only banking agency whose budget is capped on a
hard cap. It is lower than the budget of the OCC, the FDIC, or
the Federal Reserve. We are a fraction of the Federal Reserve.
There are some different functions that agencies perform
certainly. But there are some different functions we are
expected to perform such as overseeing and supervising nonbank
firms in a number of financial fields that are not touched by
the other regulators at all. And, of course, the consumer
protection function is one that I happen to believe Congress,
obviously, believed is incredibly important. It is important to
protect consumers. I think it is important to protect
responsible businesses that do compete fairly in these markets.
And I think that attention will strengthen our economy by
avoiding the kinds of problems we saw that lead to the
financial meltdown, the kinds of irregular mortgage practices
that Congressman Green was just detailing a moment ago that
should not have happened and, I believe, would not have
happened or not have metastasized to the point they did had the
Consumer Bureau been in place 10 years ago.
Mrs. Maloney. Thank you. I join some of my colleagues in
really believing that consumer protection is a very, very
important part of the safety and soundness of our financial
institutions. And, certainly, we need safety and soundness. We
need these services for our economy.
But as you pointed out earlier, the subprime crisis was a
threat to consumers and also to the overall economy of our
country.
So, my question is, what are you doing now or what has the
agency done to help fix the mortgage industry to promote
transparency and to help curb servicing abuses?
Mr. Cordray. Thank you. That is, in some respects, our
single highest priority, in part, because Congress told us it
should be; in part, because we can look at the financial crisis
and see what caused it; and in part, because that is the single
biggest expenditure many consumers make.
We are going to be adopting a number of rules that Congress
has told us to put in place to address some of these abuses, to
make sure loans are made with ability to repay in mind, to make
sure that mortgage servicer statements are given periodically
and that they do disclose the kinds of fees and up-to-date
status on where your mortgage is. Many people have received
very little communication in that regard.
There are other protections we are going to be putting in
place to address the mortgage servicing problems that have been
widely documented, very severe problems. GAO has documented
them. The other banking agencies have recognized now that there
were abuses going on for years; and that they have hurt
consumers and hurt the system.
And, actually, as you say, consumer protection issues that
became safety and soundness issues because they began to loom
so large and were so widespread and had been unaddressed for so
long.
So, this is a high priority for us.
We also have examination over both bank and nonbank
mortgage servicers now going forward. And we have the authority
to enforce the law, which is a very important thing as well.
Mrs. Maloney. Thank you. I think that is a tremendous step
forward. I think all of us can agree on both sides of the
aisle.
And just in closing, I have a tremendous amount of respect
for my colleagues on the other side of the aisle who run for
office and, certainly, for people who serve in government to
put your ego, your reputation, and, in many cases, the finances
of your family to take tremendous hits to serve this country.
And I really applaud public servants.
I thank you for what you are doing, Mr. Cordray. And I just
really appreciate it. It is meaningful and important for the
overall economy, the safety and soundness of our economy, and
really the protection of consumers, too.
So, thank you very much.
Mr. Cordray. Thank you.
Chairman Neugebauer. I thank the gentlewoman. We are going
to do another quick round here.
Mr. Cordray, I want to go back to kind of something I was
talking about earlier. I am looking at, I believe this might be
the current plan, the budget justification for 2013. And, I
believe, it shows that you estimate that you are going to have
1,359 employees by the end of 2013, if I am reading that
correctly. Is that correct?
Mr. Cordray. Correct.
Chairman Neugebauer. And so, what do you think the total
number of employees will be at the Consumer Financial
Protection Bureau? Were you maxed out at say, 1,400 people? Is
that where you are headed?
Mr. Cordray. I am not certain how to answer that question
at a specific number level. I think we are getting into the
range by the end of 2013 of what we--first of all, of what we
can actually do under our budget cap.
And also, second, I think in having the resources we need
to perform the responsibilities that Congress has laid out for
us.
So, I think that at the end of 2013, we will be getting
probably pretty close to the limits of our resources. And we
are going to have to make those stretches and make sure we are
doing the job we are supposed to do.
Chairman Neugebauer. And so, I will go back to this
planning process. If this is your planning document, how did
you determine that 1,400 is the number?
Mr. Cordray. We have a detailed and iterative process
within the Bureau. And, frankly, I would say very candidly that
we are getting better at this as we go along. Every division is
required to assess, analyze; look at the work that they have
ahead of them; put forward their projections in terms of what
they need in terms of hiring. That is scrutinized by the chief
operating officer and their team. It is a very experienced
team, a very capable team.
We had sort of a staff estimate process that we went
through in the fall. It took a number of months and there were
some tough discussions. There were people who wanted things who
were told ``no.''
Some of the things that we recognized were important
weren't immediate priorities for the Bureau, so we had to make
choices. I think this goes on in any organization, whether
public sector or private sector, and it goes on for us as well.
I think the ultimate measure is whether if you match up the
responsibilities Congress has told us by law we have to carry
out and match up the way in which we are spending our resources
and what the employees are actually devoting their time to,
whether those correspond and I think that is what the GAO said.
At that stage, they thought that we were doing that very well
but it is something that is a challenge for us, and obviously
goes to the responsibility that we are talking about today.
Chairman Neugebauer. I would love for you to furnish to the
committee those departmental analyses of how you got to those
numbers. I think that would maybe help us to better understand
the objectives, because quite honestly, it is really kind hard
at this particular point.
I understand you are new in that position, but a huge
amount of resources are committed, you are committed, and
obviously, if you are going to have this many people, you are
going to have to find space for those people, so I think it
would be extremely helpful for the committee to have the
background documents on how you are going to get to those
numbers, and what those people are going to be doing and what
level of business expectation that you have for those people.
In other words if you are hiring people to be in the call
center or something like that, how many calls that those
individuals would be expected to have. So I assume you would
furnish that?
Mr. Cordray. Yes, and in fact if you look at the budget
justification that we just put out, which I think is the
document you are looking at, there is considerably more detail
there then there was in the first year.
A lot of it is going into what we are doing to build an
institution; what we are doing to deliver tangible value, and
what some of our accomplishments were. It goes through, and
there are specific descriptions of what is going on in
supervision and fair lending; what is going on in consumer
education engagement; what is going on in research-markets
regulations.
I do expect that detail to become fuller and even more
comprehensive as we go along, but in the meantime, if your
staff wants to work with our staff to make sure that they think
that they have the kind of insight and information about what
we are doing and why, I think that is totally appropriate, and
we will be glad to work with you and provide that.
Chairman Neugebauer. I want to ask one last question. There
has been some discussion, and in fact I think the chairman of
the full committee has introduced a piece of legislation that
recommends that rather than going from a single Director who
has very broad authority on rule making and making these
decisions, that you switch to, say, a CFTC model where you have
commissioners and that you have more than one person making
those decisions.
You have the benefit of multiple people so that when a rule
or a change in the direction of determining whether a financial
is predatory or not, one person is not making that decision.
Would you agree that having a panel or a group of people would
give some--one, I think could make the system better but
certainly for those people who are being regulated and for the
people who are relying on good decisions to come from this
agency, that the multiple-panel scenario makes sense?
Mr. Cordray. It is an interesting question, Congressman. I
understand it was debated, Mr. Chairman, very extensively in
Dodd-Frank itself; and so there are four main banking agencies
now in the Federal Government. There is also the NCUA, but of
those four, two are headed by a single official, our Bureau and
the Comptroller of the Currency, the same model. Two are headed
by a Board or a Board of Governors, in the case of the Federal
Reserve.
And so, obviously organizations can function differently at
different models--
Chairman Neugebauer. I know the history, Mr. Cordray, I
have to ask, do you support that? Yes or no?
Mr. Cordray. I actually think that having a single Director
makes me more accountable to the Congress. If I come up here, I
am responsible for what we do. I can't say, well, there are
three others on the commission who feel this way or that way.
It is a model. When I was a State treasurer and State
attorney general in Ohio, I was singularly accountable for what
I did, and so, I see the advantages of that model. There are
also advantages to the other model. Whatever Congress does, we
will carry out that law.
Chairman Neugebauer. So your opinion is that you being in
charge is a better model?
Mr. Cordray. It is the same model as the Comptroller of the
Currency, it is a 100-year-old model and nobody is proposing to
change that. I don't hear anybody suggesting that here today.
It seems to work for them and I think it will work for us.
Chairman Neugebauer. So that is a ``yes,'' correct?
Mr. Cordray. Again, whatever you all decide to do as to our
structure, we will carry it out. I will say it is a big job. It
is a hard job but I have come to see that, and I don't know
that I fully appreciate it yet.
We have a team approach at the Bureau. We have a team of
senior executives who are excellent. I rely on them heavily. I
think you would be crazy to try to run an organization like
this if you didn't do it that way. They are all accountable to
you as well and you can speak to them at any time.
We have broad experience from the public and private
sectors there but whatever model you would give us, whatever
the law is, that is what we will carry out and we will do it
cheerfully.
Chairman Neugebauer. I recognize Mr. Fitzpatrick for 5
minutes.
Mr. Fitzpatrick. Thank you, Mr. Chairman.
Mr. Cordray, I also want to thank you for your service both
in Ohio and now to the country. And I agree with Mrs. Maloney,
you are making a sacrifice and I am sure you understand that
our obligation here, not just on this committee but in
Congress, is to make sure that we are watching the dollars and
that for every dollar that our residents, our constituents and
folks back home and taxpayers send here, they get a dollar in
value in return.
Are you familiar with the principles and the procedures of
performance based budgeting?
Mr. Cordray. I am. I first became familiar with those when
I was the county treasurer in Franklin County, Ohio, and found
that when we went into our budget process, it was something
that I had not known before because I had not been an executive
before. We found it very useful. It turned out when I was in
the State office that was being used, and the legislature was
holding us accountable for that. More and more I understand it
has now been a Federal Government model for at least a decade
or more.
Mr. Fitzpatrick. In Fiscal Year 2011, before you ran the
agency, was the agency engaged in the use of performance based
budgeting?
Mr. Cordray. In a manner of speaking, that is what we were
working toward when we were in our very first year. It was
difficult to implement that in a meaningful way because
obviously, the year before we didn't exist at all, and so, we
didn't have any objectives so then trying to measure us against
non-existing objectives doesn't make a lot of sense.
I would say that within 3 and 4 years here, as we are
building out and becoming more familiar and rendering a more
comprehensive budget justification and like we want you to be
able us to that and hold ourselves to that but it is for us it
is a start-up process. That is my only cautionary note.
Mr. Fitzpatrick. So in Fiscal Year 2011, when your agency,
in excess of $160 million, for instance, was there a strategic
plan in place? I just wanted the basics of performance based
budgeting.
Mr. Cordray. There was in a sense, in a rudimentary sense.
It is not the kind of strategic plan that you should rightfully
expect from us and that we are putting together now and it is
something that we have been working on over the last several
months and we will be providing you. And I think that is a fair
expectation of us going forward.
Again, what I would simply say is put all this, please, in
context of the fact that we started from nothing in July of
2010. We were an information team, not even an agency until
July of 2011. We did not have a Director until January of this
year which meant that quite a bit of what we are supposed to do
under the law we could not under the interpretations in place
at that time. So be patient with us but that is what we intend
to do and I think it is fair for you to hold us accountable for
doing that.
Mr. Fitzpatrick. Looking back at 1 and 1\1/2\ years, do you
have any comment on the agency's drawing on the reserve, I
think it was an extra $28 million. We are about 28 percent over
what was estimated. And how would the existence of a strategic
plan have changed that? Would you have blown though that budget
estimate with the strategic plan in place and how would that
change going forward?
Mr. Cordray. There were some things that came up that were
not anticipated and maybe couldn't have been anticipated. And
so, for example, it was mentioned earlier that we ended up
with--I think, in the end, at this current count, it is 232
transfer employees from other Federal agencies, including
predominantly the Federal banking agencies.
The Federal Reserve contacted us and indicated that for
those folks to transition into the Federal Reserve's pension
system, there was going to have to be a negotiation and an
adjustment made which would result in a payment by us to them
that was in the eight figures and that was part of what led to
the revision of the budget at that time.
There were also some IT needs. We have, as I said, been
contracting with Treasury, that is the bulk of our expenses to
provide IT and HR at a time when we really didn't have them in
place. We will be transitioning off of those. Some of those
expenses were not fully understood or estimated at the outset
when we were just getting started, and so, there was some of
that in the first year.
That is diminishing. I wouldn't expect that to be true
going forward, but I think that any time you see any kind of
adjustment or difference it is highly appropriate for you and
your staffs to call us in and talk to about it, and exert that
oversight. And frankly, that will give me confidence that if
you are satisfied with what we are doing, then I can be
satisfied with--
Mr. Fitzpatrick. There have been a number of comparisons
between the Bureau today and the OCC and the FDIC, but the
difference is the OCC and the FDIC can't go and demand money
within a day and receive it as the Bureau can, is that right?
Mr. Cordray. I actually don't know how the FDIC and the OCC
effectuate the transfer of funds and spend within their budget.
I don't know whether that is something they can do quickly or
not. Once you--
Mr. Fitzpatrick. One of the other distinctions--
Chairman Neugebauer. Just very quickly because we don't
have--
Mr. Fitzpatrick. Maybe that the dollars don't affect the
annual operating deficit of the Federal Government. I am
looking at the Fiscal Year 2013 budget that was delivered by
the President this week. General fund receipts is a line item
in the budget deposited by the Federal Reserve System, their
earnings that paid down the debt or go against the annual
operating deficit estimated this year to be about $81 billion,
estimated for Fiscal Year 2013 to be $80 billion. And so, it
goes down by $1 billion.
Is it fair to say that for every dollar your Bureau spends
from the Federal Reserve, that is $1 less that will be returned
to the Federal Treasury? So for every $100 million your agency
spends, that is $100 million less that will go to pay down the
annual budget deficit?
Mr. Cordray. I don't know if that is the full picture or
not. I know the Federal Reserve is unique because they conduct
open market operations, they have assets, they make earnings on
assets and the like and money comes back to Treasury.
I don't know if that is true of the OCC or the FDIC--
Mr. Fitzpatrick. But is it true of the Bureau that for
every dollar that you spend from the Federal Reserve, it is $1
in their earnings that will not be returned to the Federal
Treasury?
Mr. Cordray. What I know is, for example, our expenditures
have not approached our budget cap, and so, we have not made
the full demands that we could upon the Fed for funding. I
don't happen to know exactly what the Fed then does with money
that is not spent or whether it is returned to the Treasury or
whether they hold it in and then use it in the next quarter or
just what.
I am not as familiar with the Fed's--the details of their
expenditures as I am with the Bureau.
Mr. Fitzpatrick. I appreciate you being here. According to
the President's own budget, it is returned in earnings to the
Federal Treasury.
Mr. Cordray. Yes.
Mr. Fitzpatrick. So the dollars your Bureau spends are
dollars not returned to the taxpayers. We just need to make
certain that every dollar is accounted for and that every
dollar is wisely spent. That is our obligation.
Mr. Cordray. Agreed.
Mr. Fitzpatrick. Thanks for being here.
Mr. Cordray. Agreed. Thank you.
Chairman Neugebauer. Thanks, gentlemen.
And I now recognize the gentlewoman from New York, Mrs.
Maloney.
Mrs. Maloney. One of the proposals that my good friends on
the other side of the aisle are working very hard on is to make
the CFPB subject to the appropriations process.
And this is very troubling to me, because the other
regulators--the Fed, the FHFA, the FDIC, the SEC--are not
subject to the appropriations process. And the appropriations
process oftentimes can become very political and it could be
that it could result in significant cuts to your ability to
help people.
So I would like to ask you, what do you think the impact
would be on your programs to service the Office of
Servicemember Affairs, the Office of Older Americans, and for
consumers generally? What is the impact on how you would be
able to service them if the CFPB did not have the capped
budget--was subject to the yearly, daily appropriations spites
that we are involved in?
Mr. Cordray. It is a good question, Congresswoman. I would
go back to, I say, two things.
First, I would go back to the debate over the original
Dodd-Frank Act, and I know that this was extensively discussed
and debated and the determination was made that the Consumer
Financial Protection Bureau, as a bank regulatory agency,
should be treated like the other bank regulatory agencies.
In some other cases, the Comptroller of the Currency--the
Federal Reserve--they go back to approximately a century and it
has been determined over time that those should be nonpolitical
in their budgeting and appropriations.
I think the other issue that was raised earlier today which
is the cautionary tale was OFHEO. OFHEO was an appropriated
agency which was supposed to exert oversight over Fannie Mae
and Freddie Mac.
This Congress reviewed that situation and found it highly
unsatisfactory in the last decade, and therefore moved to a
model where the FHFA is now the overseer of Fannie Mae and
Freddie Mac and is not subject to appropriations because they
found that the politicization of the OFHEO mission had impeded
its ability to oversee these large and sophisticated and quite
powerful financial institutions.
We are now overseeing from the consumer protection
standpoint, some of the largest and most sophisticated
financial institutions in our country. Several of them have
assets in excess of $1 trillion. Doing the same kind of work
with a different emphasis as our fellow banking agencies, it
feels to me we should probably be on a par. And if we are not
on a par, it is dangerous to the confidence with which people
could expect to us to carry out our work.
Mrs. Maloney. Thank you.
Also, could you comment on the oversight of the Fed's IG on
your agency, the CFPB? And can you talk about how much is the
IG in contact with you and your staff, what types of activities
the IGs office looks at and what the IG has found in any report
or investigation the office has completed?
Mr. Cordray. Sure.
The Inspector General model is a new model to me because I
don't have background and experience with the Federal
Government before coming to this Bureau. At the State level, we
were always subject to oversight by our State auditor and they
had the ability to come in and look at any aspect of our
operations.
They could set the priorities--that was entirely
appropriate. And we always worked very closely with them, not
only because we thought it was important to have clean audits
for the public's trust and confidence, but also because that
was a measure of whether we were doing things right.
And if there were disagreements about how to do something,
we would typically defer to them. At this level, my
understanding, the Inspector General is--it is a broad
authority to give the public and the Congress confidence that
we are operating appropriately and effectively and efficiently.
We will be an open book to our IG. We already have been
open to both the Treasury and Fed IGs who both oversaw us last
year.
We have met with the Federal Reserve's Inspector General,
who is our IG--impressive individual; impressive staff;
obviously going to take their work very seriously. I take it
seriously as well.
I have let them know that they should bring anything they
want to my attention personally at any time. I would be
accountable in that way. And I think Congress obviously will
look very carefully at their work--
Mrs. Maloney. My time has almost expired. I do want to know
to what extent is the CFPB subject to Federal contracting
procurement and other laws. And is it comparable to other
similar agencies? Are you subject to the procurement laws of
the Federal Government?
Mr. Cordray. We are, again, analogous to the other banking
agencies. We are an independent agency, not part of the
Executive Branch, per se. We are closer to Congress, but we
are, again, akin in that respect to the other Federal banking
agencies.
Mrs. Maloney. So, are they subject to the contracting
procurement laws of the country?
Mr. Cordray. I know that we are subject to procurement laws
and the constraints and I believe they are the same ones as the
other banking agencies.
Mrs. Maloney. Thank you very much. I yield back. Thank you.
Mr. Fitzpatrick. I recognize the gentleman from Florida,
Mr. Posey, for 5 minutes.
Mr. Posey. Thank you, Mr. Chairman.
Just a follow up on a question from earlier in our first
round--did you indicate you plan to seek criminal and civil
penalties for wrongdoing?
Mr. Cordray. Congressman, we do not, under our statute,
have the authority to bring any criminal actions. What we are
authorized to do and in fact told to do by our statute is if we
uncover any conduct that we believe could be criminal in
nature, we are to refer it to the Department of Justice which I
think is akin to what you--
Mr. Posey. Yes, because most of the people I represent,
they resent the civil penalties without criminal penalties.
They don't like to see the big, rich people who are exploiting
them buy their way out of this stuff.
And I know the agencies like to levy the penalties there
because then they have it as revenue. It doesn't go directly
back into the Treasury like it should. And I hope that someday
Congress will have the political will to do that because that
is just right.
There were some discussions earlier about the level of
detail expected for your agency. And, while there may be people
in this Chamber who would be glad to check out of a grocery
store and have the cashier look at the basket and arbitrarily
say, ``Well, your bill is about $200 or so,'' but most people
would like to have an itemized receipt. They don't need to know
the ingredients that are in every item that they buy, but they
would like to have some kind of accountability for that.
Accountability changes behavior. Bureaucrats who don't
perform, don't change behavior. The SEC has over 200 lawyers.
They handle an average of 600 cases a year.
I hope that your attorneys that you have talked about will
be capable of handling more than an average of a half a case a
year. In the private sector, they carry a much greater load
than that. And if something else, I think that next to the
general public is suspect.
And speaking of general public suspect, again, I talked
about the article in Judicial Watch that discussed the salaries
that you began paying some of these new employees. And I
noticed an intern was hired at $42,000 a year.
Most of the interns in our offices work for nothing. If all
the agencies start paying interns that kind of money, we will
never get any interns to work for the experience which is
typically what they like to do.
I noticed we had a new employee, $251,388--an Associate
Director for Consumer Education. Now, that is over 5 times the
average household income for working people who play by the
rules back in my district.
How do I justify that? How can I explain that to my
constituents as being reasonable?
Mr. Cordray. Certainly. To begin with, I worked as an
intern for Senator John Glenn years ago and I was unpaid, so I
am familiar with what you are describing.
The salary levels for the Consumer Bureau are fixed by law
by Congress. And we are required by law to have a comparable
salary structure and benefit structure to that of the Federal
Reserve.
Congress did it, so Congress would know better than I why
it was done, but it was done, I believe, to make us comparable
and competitive with the fellow Federal banking agencies so
that we wouldn't consistently lose better and more experienced
employees to them.
The other thing that needs to be understood is that the
work that we do is attempting to oversee, again, the most
sophisticated, the most powerful--and many of them, very
extensive financial institutions in our society. And we need to
be able to do the kind of sophisticated work that involves
examining banks with a trillion dollars or more in assets,
multiple--
Mr. Posey. No. But this is for a Consumer Education
Associate Director, over a quarter of a million dollars a year.
That doesn't pass a straight-face test.
Mr. Cordray. Yes.
Mr. Posey. And are you telling me that Judicial Watch was
wrong when they said records show workers starting at twice the
maximum pay specified by the Office of Personal Management?
Mr. Cordray. Again, we have broad pay bands and we don't
always--we typically try to pay to the midpoint of our pay
range, not at the very top. So I would like to look at the
particular incidents that you are describing.
But what I will say is we are required by law to have pay
bands and a pay structure that is comparable to the Fed. As of
last account, as I was preparing for this hearing, we on
average are about 1 percent below the Fed in our pay bands and
we are about 4 percent below them in average salary.
So, we are complying with the law. That is what we are
supposed to do.
If you have concerns about individual positions or
individual salaries, we would be happy to take them up, go back
and review them, and get your staff whatever information you
require.
Mr. Posey. Yes. I have a lot of concerns and a lot of
questions about them. But if the Fed has an Assistant to the
Director of Consumer Education that they pay over $251,288 a
year, I would like to know about it. And if they do, I would
bet it is not an employee who just started at that. If another
employee made that in the Fed, I would guess they would
probably have been there a lifetime to accumulate that. I hope
I am right.
Mr. Cordray. We will go back and review that particular
incidence that you are noting. I assume that out of all of our
employees, your staff has looked carefully, and if there are
others that they want us to look at, we will do that as well.
Mr. Posey. I have a pretty good-sized file here. I will
just use that as an example.
Thank you. My time is up.
Mr. Cordray. Thank you.
Mr. Fitzpatrick. Mr. Cordray, there are no other questions.
I want to thank you for your attendance and for your
responsiveness.
The Chair notes that some Members may have additional
questions for this witness, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 30 days for Members to submit written questions to this
witness and to place his responses in the record.
This hearing is adjourned.
[Whereupon, at 12:21 p.m., the hearing was adjourned.]

A P P E N D I X

February 15, 2012

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