[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
THE SEMI-ANNUAL REPORT OF
THE CONSUMER FINANCIAL
PROTECTION BUREAU
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
SEPTEMBER 12, 2013
Printed for the use of the Committee on Financial Services
Serial No. 113-43
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HOUSE COMMITTEE ON FINANCIAL SERVICES
JEB HENSARLING, Texas, Chairman
GARY G. MILLER, California, Vice MAXINE WATERS, California, Ranking
Chairman Member
SPENCER BACHUS, Alabama, Chairman CAROLYN B. MALONEY, New York
Emeritus NYDIA M. VELAZQUEZ, New York
PETER T. KING, New York MELVIN L. WATT, North Carolina
EDWARD R. ROYCE, California BRAD SHERMAN, California
FRANK D. LUCAS, Oklahoma 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 STEPHEN F. LYNCH, Massachusetts
MICHELE BACHMANN, Minnesota DAVID SCOTT, Georgia
KEVIN McCARTHY, California AL GREEN, Texas
STEVAN PEARCE, New Mexico EMANUEL CLEAVER, Missouri
BILL POSEY, Florida GWEN MOORE, Wisconsin
MICHAEL G. FITZPATRICK, KEITH ELLISON, Minnesota
Pennsylvania ED PERLMUTTER, Colorado
LYNN A. WESTMORELAND, Georgia JAMES A. HIMES, Connecticut
BLAINE LUETKEMEYER, Missouri GARY C. PETERS, Michigan
BILL HUIZENGA, Michigan JOHN C. CARNEY, Jr., Delaware
SEAN P. DUFFY, Wisconsin TERRI A. SEWELL, Alabama
ROBERT HURT, Virginia BILL FOSTER, Illinois
MICHAEL G. GRIMM, New York DANIEL T. KILDEE, Michigan
STEVE STIVERS, Ohio PATRICK MURPHY, Florida
STEPHEN LEE FINCHER, Tennessee JOHN K. DELANEY, Maryland
MARLIN A. STUTZMAN, Indiana KYRSTEN SINEMA, Arizona
MICK MULVANEY, South Carolina JOYCE BEATTY, Ohio
RANDY HULTGREN, Illinois DENNY HECK, Washington
DENNIS A. ROSS, Florida
ROBERT PITTENGER, North Carolina
ANN WAGNER, Missouri
ANDY BARR, Kentucky
TOM COTTON, Arkansas
KEITH J. ROTHFUS, Pennsylvania
Shannon McGahn, Staff Director
James H. Clinger, Chief Counsel
C O N T E N T S
----------
Page
Hearing held on:
September 12, 2013........................................... 1
Appendix:
September 12, 2013........................................... 73
WITNESSES
Thursday, September 12, 2013
Cordray, Hon. Richard, Director, the Consumer Financial
Protection Bureau (CFPB)....................................... 7
APPENDIX
Prepared statements:
Cordray, Hon. Richard........................................ 74
Additional Material Submitted for the Record
Hensarling, Hon. Jeb:
Written statement of the Independent Community Bankers of
America (ICBA)............................................. 76
Beatty, Hon. Joyce:
Script from ``40 Million Mistakes,'' which aired on CBS on
February 10, 2013, and was rebroadcast on August 25, 2013.. 132
Cordray, Hon. Richard:
Written responses to questions submitted by Representative
Foster..................................................... 138
Written responses to questions submitted by Representative
Murphy..................................................... 140
Written responses to questions submitted by Representative
Sinema..................................................... 144
Written responses to questions submitted by Representative
Ross....................................................... 148
Written responses to questions submitted by Representative
Stivers.................................................... 151
Written responses to questions submitted by Representative
Pittenger.................................................. 152
Written responses to questions submitted by Representative
Luetkemeyer................................................ 153
Written responses to questions submitted by Representative
Fincher.................................................... 158
Written responses to questions submitted by Representative
Garrett.................................................... 160
Written responses to questions submitted by Representative
Royce...................................................... 165
Written responses to questions submitted by Representative
Pearce..................................................... 166
Written responses to questions submitted by Representative
Bachus..................................................... 169
Written responses to questions submitted by Representative
Mulvaney................................................... 172
THE SEMI-ANNUAL REPORT OF
THE CONSUMER FINANCIAL
PROTECTION BUREAU
----------
Thursday, September 12, 2013
U.S. House of Representatives,
Committee on Financial Services,
Washington, D.C.
The committee met, pursuant to notice, at 9 a.m., in room
2128, Rayburn House Office Building, Hon. Jeb Hensarling
[chairman of the committee] presiding.
Members present: Representatives Hensarling, Miller,
Bachus, Royce, Capito, Garrett, Neugebauer, McHenry, Campbell,
Pearce, Posey, Fitzpatrick, Luetkemeyer, Huizenga, Duffy, Hurt,
Grimm, Stivers, Fincher, Stutzman, Mulvaney, Hultgren, Ross,
Pittenger, Barr, Cotton, Rothfus; Waters, Maloney, Velazquez,
Watt, Sherman, Meeks, Hinojosa, Clay, Lynch, Green, Ellison,
Perlmutter, Himes, Peters, Carney, Sewell, Foster, Kildee,
Murphy, Delaney, Sinema, Beatty, and Heck.
Chairman Hensarling. The committee will come to order.
Without objection, the Chair is authorized to declare a
recess of the committee at any time.
For Members who are arriving and seeing our hearing room
for the first time since our last hearing, yes, it did receive
a coat of paint. For those of you who were wondering when
Chairman Frank's portrait would make its appearance, it is here
now, and as I said to him at the unveiling ceremony of his
portrait, as a conservative Republican, I have long since
looked forward to the day when Barney could be seen but not
heard.
[laughter]
That day has arrived. If I could say, it did seem to elicit
a chuckle from our former chairman. I don't know how Chairman
Frank got to my right, I don't know. That disturbs us both.
Recognizing the time constraints this morning, we are
expecting first votes sometime between 10:15 and 10:30. The
ranking member and I have agreed to limit opening statements to
8 minutes per side. Without objection, it is so ordered.
At this time, I will recognize myself for 5 minutes for an
opening statement.
This morning, we welcome Richard Cordray, the Director of
the Consumer Financial Protection Bureau (CFPB) to deliver the
Bureau's latest Semi-Annual Report. Mr. Cordray, we recognize
that the Bureau's latest Semi-Annual Report may be a little bit
dated due to the legal controversy that previously surrounded
your appointment, and thus delayed your timely appearance.
Nonetheless, we welcome you today and congratulate you on your
recent Senate confirmation.
The CFPB is arguably the single most powerful and least
accountable Federal agency in the history of America. Thus, it
is an agency that demands rigorous oversight and consequently
will undoubtedly demand numerous congressional hearings and
inquiries. So again, not only do we welcome the Director today,
but we look forward to welcoming you to our hearing room for
many further appearances before us.
As all of us know, the CFPB was designed to operate outside
the usual system of checks and balances that applies to almost
every other government agency.
Number one, the CFPB is effectively unaccountable to
Congress; it is exempted from the congressional budgetary and
appropriations process. Thus, unlike many other agencies, there
is no check to ensure that the CFPB Director is spending the
peoples' money effectively to promote consumer protection, much
less effectively in a time of runaway debt and deficits.
Not even the agency from which the CFPB obtains its
funding, the Federal Reserve, has oversight over the CFPB
Director's spending.
The CFPB is unaccountable to the Executive Branch. Once
appointed and confirmed, the Director can only be removed by
the President for cause. Neither can the Nation's Chief
Executive enforce spending discipline on the Bureau because it
is not subject to the Office of Management and Budget nor does
the CFPB have its own Inspector General.
I also find it fascinating, as Syria has dominated our
national consciousness, that it merely takes a majority vote of
Congress to launch military action or to go to war, but it
takes a super majority vote to the Executive Branch Financial
Stability Oversight Council to overturn a ruling of the CFPB,
and then only if that ruling can be shown to threaten the
safety and soundness of the entire U.S. financial system.
Next, the CFPB is uniquely unaccountable to the courts,
since Section 1022 of the Dodd-Frank Act provides that where
the Bureau disagrees with any other agency on the meaning of a
provision of Federal consumer financial law, the reviewing
court must give deference to the Bureau's view under the
Chevron Doctrine.
Finally, in many respects the CFPB is uniquely
unaccountable even to itself since there is fundamentally no
``it,'' no ``they,'' only a ``he.'' There is no commission,
only one omnipotent Director fundamentally accountable to no
one.
Combined with this breathtaking lack of accountability is a
grant of power under Dodd-Frank to the CFPB Director that is
unilateral, unbridled, and unparalleled. The Director can
unilaterally declare virtually any financial product or service
as unfair or abusive at which point Americans will be denied
that product or service even if they need it, understand it,
and want it.
Be he our credit czar, national nanny, or benevolent
financial product dictator, Mr. Richard Cordray is now
empowered fundamentally to decide what types of credit cards
Americans are allowed to have, what types of mortgages they may
have, and whether or not they can access a payday lender.
All of this does beg the question, who will protect
consumers from the Consumer Financial Protection Bureau? True
consumer protection requires access to competitive,
transparent, and innovative markets vigorously policed for
force, fraud, and deception.
True consumer protection empowers consumers and respects
their economic freedom to make informed choices free from
government interference and FOIA.
Consumer protection is not a zero sum game where for
consumers to win, producers must lose, or where borrowers can
only win when lenders lose.
And consumer protection is not having powerful government
agencies ``nudge'' consumers to make correct choices, since
they believe that consumers are incapable of making rational
decisions for themselves.
When it comes to true consumer protection, and when it
comes to the Consumer Financial Protection Bureau, this
committee will do everything we can to demand the highest
levels of accountability, transparency, and answers.
I will now recognize the ranking member for 4 minutes.
Ms. Waters. Thank you very much, Mr. Chairman.
Director Cordray, congratulations again on your
confirmation. I am so pleased that you are here today. Your
presence before this committee is long overdue, particularly
after the nearly 6 months of Republican obstruction that has
threatened consumer protection in order to score certain
political points.
As you know, the Wall Street reform law requires the
Director of the Consumer Financial Protection Bureau to appear
before this committee every 6 months to discuss the agency's
Semi-Annual Report. The report that you are here to discuss
today was released back in March. Unfortunately, at that time
we were denied the benefit of your perspective.
The timing of this hearing turns out to be somewhat
appropriate, however. This month, we must observe the 5-year
anniversary of the Lehman bankruptcy rooted in the risky and
irresponsible lending and financial practices that brought the
economy to the brink of collapse, wiped out the life savings of
many of our constituents, and set off a foreclosure epidemic
that has left many States still struggling.
The Consumer Financial Protection Bureau was born from that
crisis as one of the cornerstones of the Dodd-Frank Act. The
CFPB is now on the front lines of protecting consumers from bad
actors in the financial system and ensuring nothing like what
happened 5 years ago ever happens again.
Mr. Director, I would like to commend you on how well you
have worked with a wide array of stakeholders during your
tenure, for your careful leadership of this young agency. You
have consistently earned praise from both consumer advocates
and industry leaders.
Those of us in Congress know that is not an easy task. Your
leadership has resulted in achievements at the Bureau that
cannot be understated. In just 2 short years, the CFPB's
enforcement actions have resulted in $432 million being
directly refunded to over 6 million consumers victimized by
unscrupulous actors in the financial system.
Importantly, the CFPB has ensured for the first time that
someone is monitoring a number of industries that have a
history of problematic interactions with consumers. These
include the hundreds of millions of consumers interacting with
consumer reporting agencies, debt collectors, and payday
lenders, just to name a few.
In just the past few months, we have seen the agency
investigate and raise concerns about the harmful impact of a
number of practices on consumers including overdraft fees,
private education loans, and the cycle of debt that payday and
deposit advance loans can become.
Mr. Director, your agency has also finalized several
mortgage rules that help guard against the risky and
irresponsible lending that brought the economy to its knees
just 5 years ago.
These rules aim to protect consumers from irresponsible
mortgage lending, establish strong protections for homeowners
facing foreclosure, and prevent lenders from steering
homebuyers into risky mortgages at a time when numerous Dodd-
Frank regulations--we have seen indefinite delays, and I am
very pleased with your progress.
But, Mr. Director, while your accomplishments are
significant, issues such as data collection practices continue
to need your attention. I believe all Federal agencies
regulators--credit report bureaus, financial service providers,
and others--must proceed with caution on this front, affording
the highest respect to the protection of consumer privacy. The
CFPB is a data-driven agency, as you know.
The Dodd-Frank Act specifically prohibits the CFPB from
gathering or analyzing any information that is personally
identifiable. I trust you are carefully adhering to the letter
of the law and carefully balancing your Bureau's duty to
monitor the market with your responsibility to protect consumer
privacy.
I strongly support the important work of the CFPB and Mr.
Director, I want to congratulate you for the Bureau's
impressive record of accomplishments for our Nation's
consumers.
I look forward to your testimony.
And I yield back the balance of my time.
Chairman Hensarling. The Chair now recognizes the Chair of
the Financial Institutions and Consumer Credit Subcommittee,
the gentlelady from West Virginia, Mrs. Capito, for 3 minutes.
Mrs. Capito. Thank you, Mr. Chairman, and I would like to
thank the chairman for having this hearing. This marks the
first appearance by Mr. Cordray as full Director, and
congratulations to you.
I also would like to thank you for including me in
conversations. It is very important that we have a good
relationship and communication, and you have certainly extended
the hand of welcome to me. So, I appreciate that.
I would also like to thank you for the CFPB's reaction to
the ability-to-repay rule for stay-at-home spouses that Mrs.
Maloney and I worked on. I know you worked on that and reshaped
the rule, so thank you so much for that.
Last month, I held a roundtable with lenders from across my
district. We addressed numerous challenges, but one issue that
everybody expressed great concern about is the mortgage rules
that are expected to come into effect in January.
Many of the lenders I talked to are extremely concerned
about their ability to have their systems in place to be fully
compliant with the rules. In fact, in the PATH Act we address
these concerns by pushing back the implementation by 1 year.
This extra time is especially important to community
lenders, like those we have in West Virginia. It is
unreasonable to expect the small community lender with one
compliance officer to be able to absorb the challenges of 3,500
pages of new regulations proposed and the additional amendments
that have been issued throughout the year.
Community lenders need to ensure their systems are
compliant in order to properly extend credit to their
consumers. I noticed in a report that you had addressed this
issue with the community bankers in North Carolina most
recently, and you said that you are going to be releasing a
second set of amendments to its ability-to-repay rule any day
now.
I wonder what kind of adjustments--you did express some
flexibility here--I would be interested, if we can dig down on
that in the question portion.
Another issue we learned about in a previous hearing is the
inability of some institutions' charitable programs to comply
with the new mortgage rules. We heard testimony about a program
that has served borrowers in one county in West Virginia for
nearly 50 years.
This institution's trustees work with borrowers to
determine their ability to pay on a case by case basis with
great success. However, the institution remains concerned that
this program will not comply. These are folks who would never
be able to secure a home without the help of the charitable
program.
I have deep concerns that the Qualified Mortgage rule will
result in less availability of credit for low- and moderate-
income borrowers. Yet, these are the consumers that supporters
of these rules claim to help. Are they better off if we would
extend credit, if credit becomes more difficult to obtain.
I think the problem with the rules--and the chairman talked
about it--really points to something that we have had
discussions on in this committee, and that is the structure of
the CFPB.
We still continue to, and I still continue to, believe that
creating rules and having a buy-in from a committee would
actually better serve the consumer and the institutions that
are set up to serve the consumer.
So with that, I yield back.
Chairman Hensarling. The Chair now recognizes the gentleman
from Illinois, Mr. Foster, for 1 minute.
Mr. Foster. Thank you, Mr. Chairman, and Ranking Member
Waters.
I would like to take a moment to congratulate Director
Cordray for his long overdue confirmation, and welcome him
before this committee.
Since its inception in 2011, the CFPB has been a very
effective advocate for consumers and taxpayers. I would note
that in just 2 years, the CFPB's enforcement actions have
resulted in $432 million being directly refunded to more than 6
million consumers.
And for the first time, consumers have an advocate at some
of the highest levels of government to fight on their behalf,
and to help level the regulatory playing field.
Just 5 years ago, American families lost $16 trillion in
wealth in less than 2 years. Our economy lost 8 million jobs
and the unemployment rate jumped to over 10 percent.
Measured as a decline in the percentage of household net
worth, the 2008 crisis was actually worse than the Great
Depression. This was no accident; it was the result of reckless
deregulatory policies that allowed certain bad actors to prey
on the most vulnerable members of our communities with little
or no economy.
I want to thank Mr. Cordray for the transparent and
effective manner he has gone about engaging on these issues,
and I look forward to his testimony. Thank you, and I yield
back.
Chairman Hensarling. The Chair now recognizes the gentleman
from Michigan, Mr. Kildee, for 1 minute.
Mr. Kildee. Thank you, Mr. Chairman, and Ranking Member
Waters.
And welcome, Mr. Cordray, and congratulations to you.
You and I have both served as county treasurers at the same
time in our neighboring States, and I congratulate you on that,
and I particularly congratulate you on choosing Michigan State
University as your college, rather than the one in closer
proximity to your home.
I will tell you that I am really glad that you are in the
position that you are in. For as long as I have known you, I
have known you to be a careful and diligent steward of the
public trust, and I am very confident that you will continue to
do the great job that you have.
I do ask that you address two issues as you move forward.
The first is to carefully look at ways to provide additional
protection from predatory lending for our Nation's
servicemembers. This is a significant issue that needs to be
addressed, and I know you are aware of it.
Second, to carefully review the proposed guidance being
issued on fair-lending practices to indirect auto lenders, and
I know you are examining that, ensuring that the proposed
guidance provides consumers access to credit.
And finally, we know now, in my State and in California,
that we still do need to have significant regulation. What we
have seen in energy trading is--
Chairman Hensarling. The time--
Mr. Kildee. I encourage you to continue--
Chairman Hensarling. --of the gentleman has long since
expired.
Mr. Kildee. Thank you, Mr. Chairman.
Chairman Hensarling. The Chair now recognizes the gentleman
from Washington, Mr. Heck, for 1 minute.
Mr. Heck. Thank you, Mr. Chairman, and Ranking Member
Waters. Director Cordray, thank you, in general, for what you
do and for your presence today.
And before we get into what I would euphemistically
characterize as challenging questions, a couple of which I have
of my own, I wanted to say something else: Thank you.
I have the honor of representing the third largest military
installation in America, with tens of thousands of
servicemembers. I feel a strong sense of duty to them, as you
might imagine. And I have no better ally in my efforts than
your office.
In particular, the Office of Servicemember Affairs, ably
led by Holly Petraeus, has been instrumental in several
efforts. They helped me successfully draft language to the
Defense Authorization Act that will literally help people save
their homes.
On an individual casework basis, they have been not just
responsive, but proactive, and I think the most important thing
that we need to remember here is that this work makes a
difference in people's lives, and I thank you, sir, very much.
Chairman Hensarling. The Chair now recognizes the
gentlelady from Ohio, Mrs. Beatty, for 1 minute.
Mrs. Beatty. Thank you, Mr. Chairman, and thank you,
Ranking Member Waters.
I want to extend a sincere thanks to Director Cordray for
being here. I have never been prouder or more honored to serve
here. I would certainly like to disclose that I have known Mr.
Cordray for a number of years.
I had the proud honor, when he was the Franklin County
treasurer, as well as the State of Ohio--our hometown
treasurer--that we had the opportunity to work across the
breadth of that State, making a difference in lives, whether it
was financial literacy, home mortgages, looking at credit and
protecting folks--your being here makes a difference.
Ditto to everything my other colleagues have said. Let me
just say to this body here, he has a proven track record of
integrity, transparency, and scholarship.
I am pleased that you are here. I look forward to working
with you, and I make a commitment to support your endeavors.
Job well-earned.
Chairman Hensarling. Today, we welcome the testimony of
Richard Cordray, who was confirmed by the Senate to serve as
the CFPB's first Director on July 16th of this year. Prior to
his service at the CFPB, Director Cordray served the people of
the State of Ohio as treasurer and solicitor general.
Without objection, the Director's written statement will be
made a part of the record. Again, we welcome Director Cordray,
and you are now recognized for your oral statement.
STATEMENT OF THE HONORABLE RICHARD CORDRAY, DIRECTOR, THE
CONSUMER FINANCIAL PROTECTION BUREAU (CFPB)
Mr. Cordray. Thank you, Mr. Chairman, Ranking Member
Waters, and members of the committee for inviting me to testify
today about the third Semi-Annual Report of the Consumer
Financial Protection Bureau (CFPB).
Born out of the worst financial crisis since the Great
Depression, the CFPB is the Nation's first Federal agency whose
sole focus is protecting consumers in the financial
marketplace. We are dedicated to improving the lives of
everyday Americans, and to restoring trust in consumer
financial markets.
The Semi-Annual Report we are discussing today embodies our
work over the last 6 months of 2012. The Report illustrates the
ways we are using the tools Congress has provided us to empower
consumers--as you have said, Mr. Chairman, and I agree, it is
so important to promote a fair, transparent, and competitive
marketplace for consumer finance.
We have taken steps to improve the workings of markets,
particularly those in which consumers cannot choose their
financial service providers.
One such market is debt collection. Concerned about
systemwide problems that pose risks to consumers, we gained
authority at the beginning of the year to supervise debt
collectors.
The debt collectors covered by our supervisory authority
account for over 60 percent of the industry's annual receipts
in that market. Bad actors in this market are a detriment to
consumers, and to every debt collector that operates lawfully.
We also expanded our supervision program to include the
larger credit reporting companies. Credit reports have a
profound impact on people's lives, although people often do not
realize it. Previously, these companies were not subject to any
Federal supervision and consumers often struggled to get errors
resolved.
In addition to our new supervision program, we began
handling consumer complaints about credit reporting issues, all
of which will open a clear window into the actual operations of
these companies.
As a result, the Bureau can now evaluate whether Federal
consumer laws are being followed throughout the process, from
credit origination to debt collection. By identifying problems
and rooting them out early, we are working to minimize consumer
harm.
Our report also encompasses the Bureau's first enforcement
actions, which were against credit card companies that deceived
and misled consumers. In some cases, the companies targeted
economically vulnerable consumers with low credit scores and
low credit limits.
We were able to secure $425 million in relief for 6 million
consumers, and we also imposed penalties on the companies to
deter such activity in the future.
There is more to come in this area, and these actions will
serve as a warning signal for anyone who seeks to profit by
deceiving or misleading consumers.
In the second half of 2012, we also tackled issues in the
market for private student loan debt, with a total of about
$150 billion in outstanding student loan debt. Our studies
detailed the struggle students and recent graduates are
experiencing in that market, which they tell us about every
day.
Together with Education Secretary Arne Duncan, we have made
recommendations to policymakers and common-sense reforms to
ensure that the risky underwriting practices of the past are
not repeated.
The work I have discussed here today and will discuss is
merely a snapshot of our efforts on behalf of consumers. We are
also addressing consumer complaints on a growing number of
financial products and services, totaling more than 130,000 as
of the end of last year, and now exceeding 200,000.
We have adopted comprehensive new mortgage regulations,
banning irresponsible lending practices which helped bring
about the recent financial crisis. Our ability-to-repay rule
follows the simple principle that lenders should offer
consumers mortgages which they can actually afford to pay back.
We have actively conducted outreach on various issues to
older Americans, students, servicemembers, and others, and what
we have heard from them has guided the direction of our work.
Each day, we take another step in pursuit of our vision to
create a consumer financial marketplace where customers can see
crisis and risk up-front, and easily make product comparisons,
in which no one can build a business model around unlawful
practices, and that works well for individual consumers, for
responsible businesses, and for the economy as a whole.
We will continue to persist in this work, and we appreciate
your oversight. It is very meaningful to me, and to the Bureau.
As always, I will be glad to answer your questions and
certainly to stay as long as you like. Thank you.
[The prepared statement of Director Cordray can be found on
page 74 of the appendix.]
Chairman Hensarling. The Chair now recognizes himself for 5
minutes.
Thank you, Mr. Cordray, in particular for your last
statement about your willingness to answer our questions, and
my first question, or statement, frankly has to do with that. I
know that the agency, and you yourself, take great pride in the
commitment to transparency and accountability, and frequently
speak about the number of appearances that you and your staff
have had before our committee, but it is not really a question
of quantity; it is a question of quality.
And frequently we have found, Mr. Director, that members of
your staff can be uniquely unresponsive to our inquiries,
particularly on July 9th, your number two, I believe, Steven
Antonakes, appeared before our committee, dealing with what the
ranking members spoke of, this very sensitive issue of data
collection regarding our citizens. And here is just a snippet
of what we had to deal with if we could please roll the video.
[Begin video.]
``Mr. Antonakes. I don't have the exact number. I would be
happy to follow up with you on what the number is. I can get
back to you with precise numbers.
``Voice. Will you send those to us?
``Mr. Antonakes. We are happy to provide the contract
information to you.
``Voice. Thank you.
``Mr. Antonakes. I would have to verify that, Congressman.
I can verify that for you. I would have to get back with you.
``Voice. Could you get back with us on that?
``Mr. Antonakes. Yes.
``Voice. We would be interested to know that.
``Mr. Antonakes. I would have to confirm that for you,
Congressman.
``Voice. Okay.
``Mr. Antonakes. I would have to get back with a precise
number. And we could provide that information to you.
``I would have to provide that information for you. I want
to be accurate.
``I would have to get that information for you.
``I have to verify the contract to see exactly what type of
information we are--
``We can seek to provide that information to you. We will
do it in as timely a fashion as possible.
``Voice. Okay.''
[End video.]
Chairman Hensarling. Now, Mr. Director, that appearance was
on July 9th, which was over 2 months ago. Because your number
two was unable or unwilling to answer so many questions, there
have been roughly 100 follow-up questions from both sides of
the aisle, and we have yet to hear any response,
notwithstanding the fact that Mr. Antonakes said he would get
right back to us, so the question is, do you have any knowledge
of when your agency plans to respond to this committee?
Mr. Cordray. Thank you, Mr. Chairman, and thank you for
raising that set of issues.
I have reviewed the transcript of that hearing, and
whenever someone else comes to testify rather than myself--and
as you know, I was not invited to testify during that period--I
always make it a habit to review the transcript and follow up
within the Bureau on things that are raised.
My understanding of those exchanges that were edited and
truncated there was that this committee is quite interested in,
and I think quite appropriately concerned about the manner in
which the Bureau collects information and what it is being used
for.
I do think that the statute and the law contemplates that
an agency should be well-informed in its work, and that as we
report to you, report to Congress, write regulations, you have
required--
Chairman Hensarling. Mr. Cordray, you know our time is
short. I am happy to get the background, but do you have the
answers? The committee has been waiting for 2 months. Do you
know when we can anticipate answers to these questions?
Mr. Cordray. Yes. Let me be specific about that, then. That
hearing occurred on July 9th, as you indicated. There were a
few questions for the record provided to the Bureau in the days
thereafter, but there was a huge slug of questions that
actually totaled close to 200 that came to the Bureau on August
12th, so more than a month after the hearing. It took time,
obviously to prepare those and to make sure we had
comprehensively addressed the issues. We have been working in
the ensuing now month to prepare responses to the questions for
the record, and also to gather contract documents and other
information. You will have that--
Chairman Hensarling. I understand that, Mr. Cordray. Right
now, I have less than 1 minute of time. Is there an estimate?
Mr. Cordray. You will have that any day now.
Chairman Hensarling. Any day now.
Mr. Cordray. You will. Yes. Certainly by--week.
Chairman Hensarling. Thank you. In the limited time that I
have remaining--I know a number of other Members will be asking
questions regarding QM.
It is a standard that I fear may be simultaneously
underinclusive and overinclusive, but I am somewhat curious,
and perhaps in my limited time--you may have to answer in
writing. But as I speak to a number of community financial
institutions, they are very concerned about a line being drawn
at 43 percent debt-to-income.
It begs the question, what if somebody has 44 percent debt-
to-income, but is willing to put 20 percent down, and has a 740
FICO score, which is a great credit score, but apparently they
will be denied credit under this standard, versus somebody who
has a 43 percent DTI, has a 440 FICO, and puts 0 percent down.
So on the one hand, you could be restricting credit to
deserving creditworthy borrowers, and on the other hand,
although I know you are not a safety and soundness agency, you
could be helping put the government's imprimatur on exactly the
type of mortgages that helped bring about the crisis in the
first place.
My time has lapsed. The Chair now recognizes the ranking
member for 5 minutes.
Mr. Cordray. Did you want me to respond to that question,
or not?
Chairman Hensarling. I would like you to, but I am going to
attempt to set a good example for the rest of the Members.
Perhaps you could submit that in writing, and I will go ahead
and yield to the ranking member.
Ms. Waters. Mr. Chairman, would it be appropriate for me to
yield at least a minute to Mr. Cordray so he can respond?
Mr. Cordray. Thank you. And--
Chairman Hensarling. Without objection, by unanimous
consent.
Ms. Waters. Thank you.
Mr. Cordray. I appreciate the questions about the Qualified
Mortgage rule, which I know is a focus of tremendous interest
among Members here, and I was in North Carolina yesterday
addressing the American Mortgage Conference, where there was
tremendous interest as well.
The point that we made, and I just want to address it
because it is not entirely accurate to say that every mortgage
has to have a 43 percent or less debt-to-income ratio. That is
one of the categories, bright-line categories that get you to a
Qualified Mortgage.
There is a separate category, also a bright-line category,
that the loan is eligible for purchase by any of the GSEs in
conservatorship, Fannie Mae or Freddie Mac. That is a very
significant band of things. It could be above a 43 DTI.
A third category that we drew in response to some of the
concerns that members of this committee and community bankers
across the country brought to us is that if you are a smaller
creditor of under $2 billion in assets, and you make mortgages
that you keep in portfolio, those also are Qualified Mortgages,
regardless of the 43 DTI, so it is not one-size-fits-all. It is
not a procrustean bed fitting everybody into one metric. It is
an attempt to respond to different considerations we have heard
around the country. I am happy to address that in more detail
as Members wish.
Chairman Hensarling. I think you will have that
opportunity. The Chair now yields 5 minutes to the ranking
member.
Ms. Waters. Thank you very much. Mr. Cordray, I want you to
know that as the chairman described the questions that were
asked of your assistant, he said there were 170 from both sides
of the aisle.
This side of the aisle only had one question, so I guess it
was 169 from the other side, and I also would like to tell you
that if you had not been blocked from coming to this committee,
we would not have had to rely on other people.
You are very well-qualified to answer any questions, and I
am so glad that you are confirmed and you are here now, so I
would like to continue with that line so that you can, as you
had started to do, so expertly explain what has happened with
QM.
A lot of my friends on the opposite side of the aisle talk
about wanting to help community banks, and I have been trying
desperately to reach an agreement so that we could do more. I
just want to know how, and perhaps you can give some
assistance, some resources, to help our community banks get
into compliance. So will you continue with that line of
discussion on QMs?
Mr. Cordray. Sure. And in background, I want to say that
when the Dodd-Frank Act was passed in July of 2010, there were
provisions in the statute that could have simply taken effect
of their own momentum, and they would have taken effect in
January of 2013, governing the mortgage market.
If this Congress had not created this agency and not
authorized us to write rules, that is what would have been the
timeframe.
The rules that we wrote actually contoured the criteria of
what was in the statute in ways that were very responsive,
deliberately responsive, to the concerns that we heard from
community banks, credit unions, and many others in the mortgage
market who were very concerned that in this era, maybe was not
true in 2006 and 2007 about access to credit, and we are very
concerned about it as a result of what we have heard.
With respect to the community banks and credit unions and
helping them to get into compliance, we have been working at
that intentionally and purposefully, and alongside them every
day of this year. We have developed plain language guides to
the rules that translate them, frankly, into understandable
English, because none of us, including myself, enjoys reading
the Federal Register.
We have made compliance videos, how-to guides, and we have
also worked with the other agencies to make the examination
procedures clear. They have been finished and published well in
advance of the effective date, which I think is unprecedented
in past recent experience.
So we are working very hard. We are also taking questions
every day and attempting to address issues. And when you
mentioned some amendments to the rules, all of those amendments
have been in response to industry questions and concerns about
making it more operational, and making it easier for them to
implement.
There has not been a single thing which has added burden.
They have all been burden-relieving, and we continue to be
devoted to that effort.
It is very important for us to recognize that we can write
rules, and we can say to industry, ``Now, it is your problem.''
That would not be an appropriate approach. It is a problem for
all of us. We want the rules to be effective. We want them to
be able to successfully implemented.
We want the lenders to be lending in the mortgage market,
and the housing recovery, which is well under way, to continue.
And we are working to make sure that we understand those issues
and I tend to be responsive, not only to the Members here, but
to those across the country who have such a stake in that
market, most of all, average Americans.
Ms. Waters. Thank you very much. On this side of the aisle,
many of our Members are convening our meetings with community
banks. We have been doing that all during our break, and we are
very engaged with them to find out how we can perhaps get them
out from under the yoke of regulations that should not apply to
them. And, of course, we have been centered on QM as I have
indicated.
So, I would like to know if we could have someone from your
shop attend one of our meetings where we have convened the
community banks? Would you make someone available so that we
can make sure that they have access to the information that can
help them come into compliance that many of them may not know
about or easily understand?
Mr. Cordray. Gladly. And I make that offer to Members on
both sides of the aisle, whether they are on the committee or
not: Feel free to convey to your colleagues, I know there are a
lot of questions and issues people are having.
We have met just this week with at least five or six State
community banking organizations. I have met with several myself
personally. We have a number of people out and around who can
attend those meetings.
As you know, we have worked on meetings in your district
before, and I am happy to do that with all the Members to make
sure people understand and have their questions addressed. That
is something we want to do and I appreciate any invitations we
have on that score.
Ms. Waters. Let me thank you for the attention that you
have given to the community banks. It is high on our list of
priorities on this side of the aisle, and I appreciate your
support and assistance.
Chairman Hensarling. The Chair now recognizes the Chair of
the Financial Institutions and Consumer Credit Subcommittee,
the gentlelady from West Virginia, Mrs. Capito, for 5 minutes.
Mrs. Capito. Thank you, Mr. Chairman.
Mr. Director, I would like to go back--I would like to
stick with the QM discussion. I mentioned in my opening
statement that in roundtables with institutions, this obviously
has been number one, because of the pressure of the deadline
coming in January.
You mentioned being in North Carolina, and mentioned some
adjustments that were going to be made. Do you have full
assurance that this is going to be ready for prime time, that
community institutions are going to be able to have their back
office and IT and everything ready to meet the challenges if
you are still changing some of the rules and provisions?
I would like to hear--we would be interested in pushing it
back. Is there any thought in your mind that might be a good
idea?
Mr. Cordray. Yes, it is a very live topic at the moment.
Let me say several things. The first thing I would say is
we have been in close touch with both larger and smaller
institutions and both lenders but also REALTORS and home
builders and appraisers and everybody else who has a stake in
this market over the course of this year. Most of the
institutions have told us that they will be in compliance, but
they have had concerns about it. They have been nervous about
it.
They have been looking for questions to be answered and
certain relief to be given on operational issues. I think that
for the most part, they have said they will be in substantial
compliance by January 10th.
With the smaller institutions, we did include special
provisions, and I alluded to them a moment ago, that sometimes
the smaller banks and credit unions don't seem to be yet aware
of, and so it is incumbent on us and I am happy to work with
all of you to get that message out.
Some of them are worried about the QM rule. I had this come
up in North Carolina yesterday. We had it come up with some
Oklahoma bankers earlier in the week. If they are under $2
billion in assets, if they make fewer than 500 mortgages a
year, it covers the vast majority of community banks and credit
unions in this country. Then anything they make and keep in
portfolio, which is what many of them do, which means they pay
close attention to ability to repay is a Qualified Mortgage
rule and has the Safe Harbor.
Many of them don't seem to fully appreciate that there
actually was a further amendment and further work we did after
January 10th that took effect in May and we want to make sure
we get that message out.
Beyond that, there was another piece I wanted to say about
that, and I can't honestly remember what it was. So, if it
comes back in my mind, I will pass that along.
Mrs. Capito. Let me shift gears a little bit here. One of
the provisions in Dodd-Frank was that you and others and the
Secretary of the Treasury would be looking at old and outdated
regulations. Because this is another complaint we hear. It is
just a complete compounding on top of regulation upon
regulation.
Mr. Cordray. Yes.
Mrs. Capito. And one of the charges of Dodd-Frank was to
look at these old and outdated regulations. How much time do
you really spend at the CFPB scraping out any old and outdated
and irrelevant regulations, and can you name a few of those?
Mr. Cordray. Yes, thank you for that question. It is a
concern of mine and I think it is an appropriate concern for
you all because I do think it is a question in the regulatory
world. Each individual rule, people focus on it, they have a
rationale, they have a justification and they think it is great
and needed and what they often don't do is look at the totality
of it. What is the overall burden? So, we are trying to be very
accessible to institutions and invite them to raise those
issues with us.
We embarked on a streamlining initiative last year, put it
out for notice and comment for people to tell us what kinds of
things they would like to see us streamline. There is a certain
amount of streamlining we have been doing all along as we write
rules. We do try to find ways to weed things out.
Mrs. Capito. But you could actually give me a listing of
rules that have sort of been--
Mr. Cordray. Yes, I--
Mrs. Capito. --grandfathered out.
Mr. Cordray. I think as we write each rule, we are finding
things that we peel out of what was there previously, as well
as updating. But in particular, we were working on the ATM
sticker issue which in the end--
Mrs. Capito. Right, we have--
Mr. Cordray. --in the end--
Mrs. Capito. --right.
Mr. Cordray. --in the end Congress addressed it.
Mrs. Capito. Right.
Mr. Cordray. We are in the process of writing a rule.
The next one that we are going to be taking on, which I
think has been an issue some of you have raised, is the annual
privacy notices in which we think the burden there may outweigh
the benefits to consumers. We are going to be looking at that
and that will be under way in the next few months.
And if there are other things that you would like us to
look at, please submit them to us, because I am interested in
doing that. I think it would help build our credibility to be
addressing those.
Mrs. Capito. I think it would definitely help your
credibility and I think it would help the institutions that are
under your purview. If you could as a follow up, maybe we could
get together and you could--
Mr. Cordray. That would be fine.
Mrs. Capito. --show me some of the proof that this is
actually occurring because in the field, it doesn't seem to be
as such.
I do want to register a concern because I am one of those
who asked for certain data from the last hearing in July and we
still don't have a follow up and I would like to have that as
well.
The other question I have and I have only 8 seconds so you
are not--the other issue I would like to raise maybe in another
forum is when you are collecting fines, you are retaining some
of the fine, you are not giving it all to the person who has
been wronged, whether it is a credit card or mortgage or
whatever. I would like to talk further about what you are doing
with the remains of those dollars, but I am out of time.
Mr. Cordray. Yes, I don't think I would characterize it
that way. We try to seek full compensation for victims. If
there is overage in terms of fees, we can potentially offer
that to uncompensated victims either in that matter or in other
matters, that is something we are trying to focus on.
Chairman Hensarling. The--
Mrs. Capito. I think it is important to know that is adding
up to tens of millions of dollars right now.
Chairman Hensarling. --time of the gentlelady has expired.
The Chair now recognizes the gentlelady from New York, Mrs.
Maloney, for 5 minutes.
Mrs. Maloney. Welcome, Director Cordray.
The creation of the CFPB was one of the most important
victories for consumers in a generation. It is extremely
important that we have one regulator whose sole focus is
protecting consumers so the consumer is not an afterthought or
a secondary thought, a third thought, or not thought about at
all as we saw they were treated when we moved towards the
financial crisis.
And in my opinion, the Bureau has done an excellent job so
far in working with both consumers and the financial industry
to write common-sense rules of the road.
I want to give one specific example, which was a rule that
came out in April at the request of Chairwoman Capito and
myself as it concerned the Credit Card Bill of Rights, the Card
Act.
The interpretation from the Fed was that stay-at-home
spouses could not have access to credit, and that was not
Chairwoman Capito's and my intent. When we wrote that law, we
appealed to every single regulator and you finally took action
and had a rule that allows credit card issuers to consider
income that a stay-at-home spouse applicant shares with a
spouse.
That is just common sense. And I think that this rule is a
concrete example of the agency working with consumers and the
financial industry to allow responsible access to credit and
liquidity to American families. So I want to thank you for
responding to the chairwoman's and my request. You took too
long, but you got it done. And so we are very grateful, and
consumers across this country are, as well.
I would like to go back to the chairman's issue of focusing
on data collection, and I would say that this is getting a
tremendous amount of attention before Congress now throughout
government, and under Dodd-Frank, we required the Bureau to
collect data in order to improve your rule making, your
understanding and supervisory functions.
And Dodd-Frank also included numerous safeguards to protect
consumers' personal privacy and to prevent the misuse of
confidential information. That was an important hearing, and
after that hearing, Chairwoman Capito and I feel that it is not
only important for you to give us this data, but that every
financial regulator gives us this data.
So, we have appealed to the GAO for a bipartisan report on
what all the financial regulators are collecting so that we can
see if there is any inefficiency. Is there any overlap? Is
there sharing between the agencies? And what are the specific
safeguards for the personal privacy of individuals?
I would like to use my remaining time to hear from you,
first of all, what data are you collecting? I know it is--it
can't be exact, but you will get that to the chairman. But off
the top of your head, what are you collecting? And what are the
safeguards that you have put in place to protect consumers'
personal information? This is very personal information and it
is important to protect it.
Mr. Cordray. If I could, just a brief word on the credit
card rule that you mentioned that both you and Congresswoman
Capito pushed so hard on and effectively. When you raised that
to me, I thought of my mother who passed away now 33 years ago
and was a working mom and she would have felt exactly as both
of you did, and that was important to me in thinking about
addressing that issue.
On data collection, we welcome the GAO examination of this
issue, and we have worked closely with the GAO on a number of
matters. They also do an annual audit of us, which is unusual
among the Federal agencies. They will deal with this, I think
appropriately, and help us. Potentially, they will have
suggestions for improvement, which we welcome.
Second, in terms of the data that we collect, it is
information that has nothing to do with individual consumer
behavior patterns; we are not interested in whether Richard
Cordray went to this restaurant and spent X dollars on dinner
last night. That is not what we do. That is what private
financial institutions do in the private sector. They are all
about that. Our issue is that we have to oversee the financial
institution. We have to be able to understand the pattern of
how they treat their customers in order to understand that
financial consumer laws are being followed or being violated.
So we collect data in, sort of, three main buckets. One is
in our consumer complaint function, where people come to us
voluntarily because they have a complaint they want us to
resolve. They obviously need to give us information in order
for that to happen, the same as with constituents who come to
your offices.
A second is the area of supervision, where our job is to
supervise these financial institutions. Some of the biggest,
most powerful financial institutions in the country and the
world, and we have to be able to go in and gather enough
information--
Chairman Hensarling. Mr. Cordray, if you could quickly
summarize the rest of your answer. The time of the gentlelady
has expired.
Mr. Cordray. Okay.
Chairman Hensarling. Or did that summarize your answer?
Mr. Cordray. There was a third bucket I could just do in 30
seconds.
Chairman Hensarling. If you could quickly, quickly.
Mr. Cordray. The third is our market monitoring function,
which I think is an appropriate subject of inquiry from this
committee, where we are sampling data from different markets to
assess.
We have a CARD Act report due to this Congress by October
1st. It wouldn't be a very good report if we didn't have
information to base it on. And so, that is a big part of our
work as well, and I am happy to address that more as other
Members--
Chairman Hensarling. The time of the gentlelady has
expired.
The Chair now recognizes the gentleman from California, Mr.
Miller, for 5 minutes.
Mr. Miller. Thank you, Mr. Chairman. Welcome, Mr. Cordray.
I enjoyed your opening statement. You talked about empowering
consumers, fair, transparent, and competitive marketplaces, and
dealing with bad actors, which we saw plenty of before 2007.
And you expanded your supervisory program to include larger
credit reporting companies.
The one thing that is kind of glaring to me is you took
title insurance and you tagged it as optional for the buyer.
And that is a real concern for me because I--
Mr. Cordray. I'm sorry. What--
Mr. Miller. Title insurance policies.
Mr. Cordray. Yes.
Mr. Miller. You have tagged those as optional. Now, any
time a buyer would look at something that says ``optional'' and
it costs money, generally they don't do it, because most people
really don't understand what ``optional'' means or they don't
know what title insurance really means, but your bank
regulators and GSEs all require title insurance before they
make a loan.
But the issues they look at in title insurance are
completely different than what a buyer would look at on a title
insurance policy. Banks look at financial encumbrance. Does
anyone know if they have free and clear titles? So, they really
don't get into the back pages on title policies.
But I have been in real estate and buildings since I was in
my early 20s, and often you find historic easements, right-of-
way issues that will come up in the back pages of title
policies that lenders really don't--they are not concerned
with, they don't care about.
And if we are concerned about empowering consumers, we
really should be concerned about their safety. Why would you
take something that I believe is very, very important which
could arise in the future and put ``optional'' on it?
Mr. Cordray. I am not sure I am following exactly what you
are referring to in terms of--
Mr. Miller. A buyer does not have to get a title insurance
policy.
Mr. Cordray. No, I understand, but in what manner--
Mr. Miller. Generally, they will now.
Mr. Cordray. Yes. In what manner have we addressed that
issue in a way--
Mr. Miller. You put it as optional for a buyer.
Mr. Cordray. In what?
Mr. Miller. To be able to be required--
Mr. Cordray. No, in some document or some rule or what--
Mr. Miller. Yes, on your RESPA TILA proposal, you have in
there that title insurance is optional.
Mr. Cordray. Okay.
Mr. Miller. And if you are going to really protect
consumers, that is something I would be very concerned about,
because you could have historic utility easements. You could
have right-of-way easements on property, and especially many
seniors are downsizing and they are not necessarily getting a
loan.
They are taking and selling an expensive home and they are
buying a smaller home because they just don't need the big home
any longer. So, they are not even involved with a lender. They
are going in and buying a piece of property and it says
``optional.'' In many cases, they won't pull a title policy.
Mr. Cordray. I'm sorry. I am now up-to-speed on what you
are asking. So you are talking about the TILA RESPA proposed
rule which has not yet been finalized but I hope will be
finalized--
Mr. Miller. Yes. That is what I am trying to get you to
consider.
Mr. Cordray. --sometime this fall. First of all, I take
your point. Your point is obviously meritorious. Title is often
in question with properties in different parts of the county
more so than others. Title insurance obviously is meant to
address the risks of that. I will be happy to go back and take
a look at the point you are raising about how we are
characterizing it on that proposed--
Mr. Miller. I would encourage it because many times you
will have a utility easement, but if there is no utility used
at that point in time, but later the utility company comes in,
and they can't put in a pool. They can't do things on their
property that they would otherwise want to do.
I think that is an issue we really--if we are dealing with
consumer safety and empowering them, I think that is something
we need to encourage them to do, if anything.
But I know QM has been talked about. And I have some real
concerns. You exempted Freddie and Fannie, which I think
probably increased the number of loans that you would say would
quality under QM with their exemption from--if you took it,
CoreLogic showed 48 percent would not quality today that
qualified in 2010.
And if you are looking at liquidity and stability in the
marketplace, a tremendous amount of lenders I am talking to are
very concerned about this issue. And if you put Fannie and
Freddie back into the equation, which--they put themselves in
the equation. They said they will not be exempted. You are
talking about almost half of the loans that were made in 2010,
which are good-performing loans, that will not be made now.
Now, don't get me wrong. There are a lot of lenders that
made predatory loans and they tagged them as subprime. They
should be put in jail and they never were. But we are going to
have guidelines that are so stringent based on a worst-case
situation that would not be applicable today using good
underwriting standards. Is that not a concern for you?
Mr. Cordray. It is a concern for me. And I thank you for
the question because there has been some confusion around the
CoreLogic analysis. They at first indicated that the way we
drew the rule, only half of the loans in the market would now
be covered.
They have since clarified that is not correct, that in
fact, the vast majority of loans will be covered now. What we
tried to do, frankly, was to leave room for Congress. We know
you are looking at GSE reform. That is a matter for Congress to
determine.
We had to write a rule for the mortgage market that allowed
some flexibility depending on what would happen with GSE
reform. We tried to make sure that we were covering the market
broadly as it is now, and I think everybody has recognized we
are--
Mr. Miller. I am out of time, but please would you look at
that? Because that is--I am not attacking you, but I am very
concerned about liquidity.
Mr. Cordray. We will continue to monitor this as we go. And
as you all perhaps address GSE reform, we will respond and
react to that to make sure we don't freeze the mortgage market
or constrain it.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentlelady from New York, Ms.
Velazquez.
Ms. Velazquez. Thank you, Mr. Chairman. Director Cordray,
medical debt reporting continues to be a source of
consternation for many consumers. The Medical Debt
Responsibility Act, which I co-sponsor, will require paid or
settled medical debt to be removed from credit reports within
45 days. That bill directly addressed the negative impact such
information has on consumer's credit score.
With the CFPB now regulating credit bureaus, do you plan to
address how medical debt is treated on credit reports?
Mr. Cordray. I think that question and issue is one of many
things I have run across at the Bureau that is fairly
complicated and not necessarily very helpful to consumers,
frankly.
Many of us will go to the doctor's office and will end up
potentially with a bill that is covered by insurance, maybe it
is all covered. Maybe there is a copay. Maybe we have to pay
something. We may not know when we leave the office exactly how
it is going to be handled. And sometimes, that can end up being
reported as a debt.
We may not even owe it. It may be just a battle among
insurance companies, or it may be that we owe $10 or $20 but it
wasn't billed to us immediately. So, there are lots of things
that end up showing up on peoples' credit reports that they are
unaware of, that probably are not necessarily correct, and that
may or may not be justified.
So, the issue of medical debt is a particularly difficult
one. Many of those amounts are very small, but they can loom
large in terms of qualifying for a mortgage or something. So, I
do think it is a fair point that you raise that it may be a
subject for legislative attention and or action.
It is something we are looking at, at the Bureau. It is
clear that medical debt is kind of a separate category that is
tripping up a lot of Americans, and often in ways that they
would not anticipate or understand and don't necessarily seem
to be appropriate.
Ms. Velazquez. Thank you. Section 1071 of the Dodd-Frank
Act requires banks and lenders to collect and report credit
application data on small businesses, as well as minority- and
women-owned businesses. Can you elaborate on how collecting
this information will help enforce fair lending laws and enable
lenders to identify opportunities for improvements in
underserved communities?
Mr. Cordray. Yes. There are a couple of different issues
there. First of all, I think the logic of what Congress did in
Dodd-Frank makes a great deal of sense. My understanding is
that there were some efforts to collect this data maybe by the
Fed at one time. They had a survey that was discontinued at
some point. This Congress obviously expressed its will that
that data, which is important, and can shed light on lending
patterns, needs to be developed.
It was determined to create a provision in the Act which
puts some responsibility on us to take this up. We want to work
with the Small Business Administration, which obviously is much
more knowledgeable in that area than we are. There has also
been some talk and efforts among some other departments in
terms of how to work on this. We are trying to first of all
figure out what is the best way to proceed.
The second thing I want to point out is we are going to be
undertaking, and we have indicated now, the HMDA data, which
has been very valuable but is in need of an update. Everybody
pretty much agrees.
Congress also addressed that, and we are going to be
undertaking new rules to govern HMDA data. And out of that, we
expect to learn a lot that relates to small business data
collection, and there may be some overlap there operationally
as well. So, we are under way. We are thinking about this. We
understand the importance of it and why you are looking for it.
It is not necessarily in our immediate comfort zone because
we deal with consumers typically, and it is about the only area
where we are given any responsibility in business. So, we want
to work with others to make sure that can be done properly and
appropriately.
Ms. Velazquez. When can we expect the CFPB to publish rules
implementing that section?
Mr. Cordray. I can't give you a date in terms of when we
will publish rules. I can give you the assurance that as of
this fall, we are under way. We are thinking about how to staff
that, how to work with the other agencies, how it intersects
with the HMDA update, which is extremely important and that we
are under way with immediately. And there may be things there
that can be jointly collected, which would obviously be
efficient. So--
Ms. Velazquez. Regarding the remittance transfer providers,
last year the Bureau published a rule and critics took
exception with a rule for potentially increasing the cost on
small banks and credit unions. What changes did the CFPB make
to the final rule, and when that is supposed to take effect
next month?
Mr. Cordray. I'm sorry. Which rule are we talking about?
Ms. Velazquez. The one that will require remittance
transfer providers to provide senders with certain disclosures.
Chairman Hensarling. I am afraid the time of the gentlelady
has expired.
Mr. Cordray. I would be happy to follow up or--
Chairman Hensarling. If the Director could add that to the
list of answers to submit in writing, please. The Chair now
recognizes the gentleman from Alabama, the chairman emeritus of
the committee, Mr. Bachus, for 5 minutes.
Mr. Bachus. Thank you, Mr. Chairman. Director Cordray, I
sent you a letter on indirect lending, and you responded to
that letter. In fact, 35 of my fellow members on this committee
joined that letter. Your response, in my opinion, was very
general.
So, I just wanted to alert you that I will be sending a
follow-up letter.
Mr. Cordray. Okay.
Mr. Bachus. And I would like the agency, as soon as
possible, to give me a more detailed response.
Mr. Cordray. I will look forward to that--
Mr. Bachus. Thank you.
Director, Section 1022 of Dodd-Frank says that, ``The
Bureau may not use its authorities under this paragraph,'' and
that is to obtain records from other agencies and other
individuals, ``for purposes of gathering or analyzing
personally identifiable financial information of consumers.''
You are aware of that section, are you not?
Mr. Cordray. I am, yes.
Mr. Bachus. Is the agency collecting personally
identifiable financial information of individual consumers?
Mr. Cordray. Yes. I want to address this kind of carefully
and comprehensively. There are different provisions in our
statute about gathering information needed to do our work that
Congress expects us to do and carry out our responsibilities,
so if we have no information, we can't carry out the
responsibilities. That is pretty clear. Section 1022 is
referring to efforts we might undertake to monitor markets in
order to be able to understand patterns and--
Mr. Bachus. And getting information from other agencies
that might have personal information in it.
Mr. Cordray. So if we undertake to gather that information
to monitor the market, we are required to proceed by either
rule or order. We had not, until very recently, proceeded under
Section 1022 at all. We did just now send out an order to a
number of companies to provide us with template consumer credit
agreements as part of our efforts on the arbitration study, but
there are other areas where we are permitted to collect
information, and it is obviously necessary. The consumer
complaint function, again, is one where we--
Mr. Bachus. All right, let me ask you this--
Mr. Cordray. Yes. Personally identifiable information.
Mr. Bachus. You are aware that back on May 11th of last
year, your agency approached the U.S. Trustees Program and
asked them to make a request before the Federal District Court
in Tampa, Florida, for 5 million bankruptcy files?
Mr. Cordray. We don't typically comment on the details of
enforcement matters. I understand that other parties feel free
to comment, and apparently do feel free to comment on those. We
are working with a number of different agencies, including the
Justice Department, to carry out our responsibilities, and we
will try to do that in an appropriate--
Mr. Bachus. You may not want to comment, but those 5
million files have all sorts of personal information in them.
Let me ask you this: If you did that, hypothetically, and you
were to receive personal financial or private information on
U.S. citizens from the U.S. Trustees Program, that came from
the files of attorneys, would that not violate the Act?
Mr. Cordray. First of all, no, and second, let me be--
Mr. Bachus. No, it would not?
Mr. Cordray. Let me be straightforward about this, and let
me give you a related example. We had enforcement actions
against a number of credit card companies.
Mr. Bachus. Now, let us just use that example.
Mr. Cordray. No, I am just saying we had to make
restitution to millions of consumers--
Mr. Bachus. If you used that information--let me say,
Director--
Mr. Cordray. In order to do that--
Mr. Bachus. If you requested that the U.S. Trustee's Office
file an action, or request the files of every bankruptcy file
in this country, would that not violate the Act?
Mr. Cordray. First of all, there is some garbling going on
in the facts. Not on your part, but on those who are trying to
report the facts. That was the subject of a--
Mr. Bachus. I am just asking, would it violate the charge
of the specific limitation, and you are aware that you have
been walled off from obtaining, from interfering with the
practice of law, or intervening in the judicial process. Let me
just say this: That is a data mining and data collecting
process that you request the U.S. Trustees Department to do,
without the knowledge or consent of citizens of the United
States. Now, is that true, or not? You can answer yes or no, or
you can say you can't talk about it.
Mr. Cordray. No, I think it is a general principle that
when we have an enforcement action, and we are trying to figure
out--
Chairman Hensarling. The gentleman can give a brief answer.
Mr. Cordray. --to consumers, we need to understand
individual consumer harm, and we will do that. We need to do
that in order to be effective.
Chairman Hensarling. The time--
Mr. Cordray. The number of people around the country who
are purporting to be--
Chairman Hensarling. --of the gentleman has expired.
The Chair now recognizes the gentleman from North Carolina,
Mr. Watt, for 5 minutes.
Mr. Watt. Thank you, Mr. Chairman, and welcome, Director
Cordray. I just have two quick questions, and I will leave all
the rest of the time for you to answer, and if that is not
enough time, then maybe you can answer in writing.
There seems to be a proliferation of online payday lending,
which seems to be able to evade State laws governing payday
lending, and I am interested in knowing, now that the CFPB has
the ability to regulate payday lending, what options you are
exploring in this arena and what is your timetable for doing
so?
Second, a couple of my constituents, bank constituents,
have raised questions about a recent rule that requires them to
issue separate statements for bank accounts and loan accounts
on the theory that it requires them to duplicate mailing costs
and drives up the cost of the regulation.
I am wondering whether you have the ability to go back and
take a look at that or provide information to me that justifies
why that requirement is necessary? Particularly, small and
community banks and credit unions are concerned that the extra
cost of mailing, in much the same way as the cost of mailing
privacy policies, is just an onerous cost.
So if you could address those, in the 3 minutes that I have
remaining. And if you need additional time, you can submit it
in writing. Thank you.
Mr. Cordray. Thank you, Representative Watt. A number of
your friends in North Carolina said hello yesterday when I was
down there and wanted me to pass that on to you.
On the second point, I don't know that I am familiar with
the question you are raising. It is not a concern that I recall
hearing, that there is some sort of duplication in terms of
bank accounts and loan accounts and extra costs of mailing, but
I would be very interested to hear about it. We will follow up
with you. If there are--
Mr. Watt. They have indicated to me it is a recent rule, so
maybe that is the question you will want to get back to me on,
preferably after we do--
Mr. Cordray. Maybe it is a proposal or something. We will
get back to you. We certainly wouldn't want that to be the
result, and I would agree with you on that.
On your first question, which is a very good question, and
a very active topic right now, the issue of online payday
lending, online payday lending is interesting because first of
all, much brick-and-mortar payday lending is migrating to the
Internet now. It is estimated that the majority of payday
lending will have gone to the Internet in the next several
years.
And what often happens is that can create problems in
States where there is a usury cap, as you know, in North
Carolina and, and in I think 13 States. So if the loan is being
made into that State above the rate of interest that can be
charged legally in that State, that is problematic.
If the loan is being made into that State by someone from
the Internet who is not licensed to provide a loan in that
State, that also can be problematic.
These are issues that obviously require us to coordinate
and cooperate with different State authorities, both banking
regulators and also attorneys general. I met with Attorney
General Roy Cooper yesterday in North Carolina, and he is very
concerned about this issue.
It also requires us to coordinate with financial
regulators, and as you have seen, there has been some activity
now about trying to understand some of these online lenders,
and what their relationship is with banking institutions.
Typically, they can only operate if there is both a
transmission mechanism and a collection mechanism with the
financial entities, and that can be problematic. It is a
subject of some considerable scrutiny right now, by us and by
others.
So I wouldn't say more than that right now, but we are
mindful of the fact. I would go back to my experience as
attorney general in Ohio. Internet practices can be very
difficult for law enforcement authorities at the State level
because they are borderless; they go beyond jurisdictions. They
go beyond the national jurisdiction as well. So--
Mr. Watt. Do you anticipate the CFPB having some rules
issued at some point in this area?
Mr. Cordray. I think at the moment it is an issue that we
see as a potential issue for enforcement and supervision.
Perhaps rules, we are looking at the payday and small title
lending industry. I think that is known. We have indicated that
in our unified regulatory agenda.
These are things that we are looking at, because they are
hard problems. I have seen them at the State level. I know
their frustrations. I work with the attorneys general
constantly. We want to make sure that we all can be effective
together.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the chairman of our Capital Markets
Subcommittee, the gentleman from New Jersey, Mr. Garrett.
Mr. Garrett. Thank you, Mr. Chairman. Mr. Director, when a
senior government official comes before a hearing of Congress
and fails to answer questions in a timely manner, I believe, in
the minds of the American public, there is an appearance of
impropriety by that individual and by his agency as well.
When that same agency is responsible for secretly looking
into the private papers of an American public as well, I think
that raises even to a higher level. Let me understand your
testimony, then.
Your testimony is that you were well aware of these
questions that were asked of your second in command at your
agency back on July 9th, and yet over a month went by, all the
way to, according to your testimony, August 12th, and you still
had not answered any of those questions, and the excuse that
you give to Congress today is that more questions came in after
that fact.
Mr. Cordray. No. No, that is not my testimony. If you want
me to restate it.
Mr. Garrett. Can you explain why you did not answer in the
first 5 weeks after July 9th?
Mr. Cordray. On July 9th, with the testimony, there were a
few, just a few questions submitted.
Mr. Garrett. Correct.
Mr. Cordray. And there were multiples of that then
submitted on August 12th, so it took the committee--
Mr. Garrett. Can you explain why you did not answer in the
first 5 weeks?
Mr. Cordray. No. It took the committee a month to formulate
the vast majority of the questions. It is a huge amount of
information.
Mr. Garrett. Can you explain why you did not answer those
basic questions in the first 5 weeks?
Mr. Cordray. Okay. There were a few questions submitted to
us. We would have had an easy time answering those. At the same
time--
Mr. Garrett. Can you explain why you did not do what you
just said is easy, then?
Mr. Cordray. I would like to respond to your question, if
you would like to give me a chance to respond. Would you like
to give me a chance to respond?
Mr. Garrett. So far, you have not answered why you did not
answer the first time--
Mr. Cordray. There were a few questions submitted that we
could have answered easily in a timeframe. As we were working
on those, a vast number of almost 200 questions were further
submitted--
Mr. Garrett. How many--
Mr. Cordray. --that intersected with the other questions
and they involved gathering contracts and other things. It took
this committee more than a month to formulate the questions. We
have had less than a month now to respond to them, but we
will--
Mr. Garrett. Let me just--
Mr. Cordray. --have responses to you--
Mr. Garrett. Let me just--
Mr. Cordray. --in a matter of days--
Mr. Garrett. You still have not answered the basic
question. We gave you a number of questions. As you said, they
were easy to answer, and yet, in 5 weeks, you could not answer
those questions.
Mr. Cordray. That is not--
Mr. Garrett. Here is, for example--
Mr. Cordray. That is not my testimony. But if you want--
Mr. Garrett. Your testimony is--
Mr. Cordray. [Off mike.]
Mr. Garrett. Your testimony, a moment ago, to quote you
just now, was that ``some of those questions would have been
easy to answer''--
Mr. Cordray. Had they not been followed by a vast number of
questions that intersect with them and affect the answers--
Mr. Garrett. Did you know--
Mr. Cordray. --and need to be responded to.
Mr. Garrett. --in the week after July 9th, that there were
subsequent questions coming?
Mr. Cordray. I beg your pardon?
Mr. Garrett. Did you know on July 10th, 11th, and 12th that
separate other questions were coming?
Mr. Cordray. Our staff has had regular contact with your
staff. We are very responsive to questions for the record. We
always respond.
I would add that I am supposed to be back here, as the
chairman has indicated, to testify again next month. So, you
will have plenty of opportunity with me on these.
My understanding is that we have received over 200
questions for the record. We have taken less time to respond
than the committee took to formulate the questions, and we will
have the answers in days.
Mr. Garrett. Here is a question: ``Will you commit to
sending us all the contracts engaged with third party
vendors?'' ``Yes, we are happy to provide that contract and
information.'' It is 2 months later. You haven't provided that.
Mr. Cordray. They are being provided in response--
Mr. Garrett. Another question: ``Do you have agreements
with any foreign countries?'' ``I can verify that for you,
Congressman.'' You haven't provided that answer.
We can go through--these are what you just said were the
easy questions and you said you couldn't answer them because
you were waiting for the other ones. If you would like--
Mr. Cordray. No, we don't have any agreements with foreign
countries. Mr. Antonakes testified to that at the hearing, and
that is the answer. So, there is nothing--
Mr. Garrett. I'm sorry, no, he did not. You said you read
the transcript--
Mr. Cordray. He did, in fact--
Mr. Garrett. I will verify that for you.
Mr. Cordray. That is fine, but that is the answer.
Mr. Garrett. Okay.
Mr. Cordray. But look, we are going to have the answers to
you in days. It is an immense amount of information, you will
see. Our staff has been working incredibly hard and they have
been communicating back and forth with your staff on it.
You will have a crack at me next month; I will be happy to
answers your questions, at that point.
Mr. Garrett. So, I will--
Mr. Cordray. I have no intention here to be unresponsive. I
take the oversight responsibilities of this committee and of
our Bureau very seriously, and I think that has been our track
record, and we will continue to try to establish that track
record.
I want to satisfy you on this point.
Mr. Garrett. Obviously, you haven't satisfied today--
Mr. Cordray. I know I haven't, yet.
Mr. Garrett. One of the other questions--I will submit my
questions to you. Of course, I am not going to get into in 35--
mine are basic questions, and I have your commitment, I can
have some answers from you by the beginning of next week?
Mr. Cordray. We will take all the questions for the record
that are submitted. If there are a lot, it will take us a
little while to respond to them. If there are a few, it will
take us--
Mr. Garrett. How many U.S. consumer accounts is the CFPB
monitoring in its data collection? Basic question.
Mr. Cordray. Okay. There are several pieces to that answer.
And I am sorry it is a complicated answer, but it is. We have
our consumer response function, where there are over 200,000
consumers who have submitted information to us, and that is one
basket.
There is our supervision program, which deals with the 110
largest financial institutions in the country, who have an
extensive customer base, across this country that we deal with
all the time--
Mr. Garrett. When will it--
Mr. Cordray. Third, is our market monitoring--
Mr. Garrett. When can we expect answers to these questions?
Mr. Cordray. The QFRs that you all submitted, approximately
200, and you will see that it is pages and pages of luminous
answers and documentation--
Chairman Hensarling. The time--
Mr. Cordray. --will be within days.
Chairman Hensarling. --of the gentleman has expired.
The Chair now recognizes the gentleman from New York, Mr.
Meeks.
Mr. Meeks. Thank you, Mr. Chairman.
Director Cordray, let me first thank you for your
cooperation in working with this committee, and getting us
information and being willing to extend your staff to come to
anything that we ask and we ask you to, as you, in response to
Ranking Member Waters, when she asked to have staff available
to ask questions dealing with the queue and anything else, you
were more than willing to say that whatever you need, not only
on this side of the aisle, but both sides of the aisle, and
whether or not people are on the committee.
So, I just want to thank you for your cooperation with
this--and being open and transparent about it. I think that is
tremendously important, and something that we need to get done.
And clearly, for the American people, I want to thank your
agency again. Over 6 million consumers have received refunds
since you have been in office; over 200,000 consumer complaints
have been recorded, and there have been several rules and
guidelines issued that affect millions of Americans and
consumer protection rights, which we didn't have.
So, it is been a real service, I think, to the American
people, and I want to thank you and your agency for what you
are doing in that regard.
In your answer, you talked and referred, in one of the
questions, to your own personal life, with your mother, when
you answered the question of the gentlelady from New York.
I often do the same thing when I think about credit. I look
at my family, who lived in public housing and didn't have many
resources, and therefore, had to try to get banking--
institutional banking, sometimes they would deny it, and try to
figure out other ways in which they could make a living without
going to a loan shark--
And so, to that end, again, I applaud you for showing
leadership on the issue, which I think you had it released in
June of final rules to establish procedures to cover--to bring
and recover non-banks, who are lending money under your
supervisory authority, including those that may--payday loans,
et cetera.
So, I was wondering, first, could you comment on the study
that the CFPB has been undertaking to bring clearer
supervisions to the industry, and have you looked at what some
of the borrowing or analyzed some of the borrowing activity by
the consumers that Mr. Watt was talking about, who are using
online payday loans?
Because we are trying to figure out how they could have
access to credit also, but not be abused, and how the CFPB
could be involved there.
And lastly, and then I will just be quiet and let you
answer the questions, I also have been trying--I had a
conversation with some banks yesterday, asking them, why won't
they compete in this market?
And they said that they would like to, and they were
complimentary of you, but they said that they thought that
there was some conflict at times, between your rulings and some
of the jurisdiction between either the FDIC or the OCC that
seems to be conflicting, and so, they are not clear, but they
would like to be under, clearly, the rulings that would--
dealing with consumers, under the CFPB. So, could you give me
some responses in that regard?
Mr. Cordray. Okay. Actually, I am intrigued by your last
point, because I would be glad to hear more about that. I do
think that many financial institutions could make small dollar
loans cheaply.
They would have very little cost in doing so. A lot of
credit unions have done this, and that would be helpful to
provide more of that kind of credit to people who need it, and
potentially could avoid some of the higher cost cycles of
indebtedness that they get into.
I want to go back a couple of comments. First, the point
you made about thinking about your own family and so forth.
That is something that I try to preach at the Bureau all the
time.
In preparing for this hearing, I was looking at the
backgrounds of the members of this committee; there are very
sophisticated people here. A lot of people with real estate
background, a lot of legal background, extensive legislative
background, but none of us has to look very far in our lives to
think about mothers and fathers, sisters and brothers, sons and
daughters, who struggle with these issues. And those are the
people that we are working for. I think it is important for us
to keep that in mind.
And as we work for them, one of the issues is, how do we
protect them against some of the predatory practices that,
frankly, do unfortunately exist, in a number of these markets?
You mentioned our White Paper on payday and deposit advance
lending earlier this year. There were a number of concerns we
had identified in that report, and it is a great example of
how, if we don't have the data or information that we need to
make those judgments, we are going to be very ill-informed in
our policy judgments. We are going to be pretty wild in
targeting what, exactly, are the major concerns.
The better data and information we have about what is going
on in these markets, the more precisely we can pinpoint what is
an appropriate action and what is not, which is something you
all, I think, should want and do want, and that is as to the
importance of us gathering information on these issues.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the chairman of our Housing and
Insurance Subcommittee, the gentleman from Texas, Mr.
Neugebauer.
Mr. Neugebauer. Thank you, Mr. Chairman.
Director Cordray, I have here in my hands a copy of the
CFPB's supervision and examination manual, which is referenced
in your Semi-Annual Report. And I assume that this is intended
to give your field people some direction on their examinations,
is that correct?
Mr. Cordray. It is that general problem--you are running an
agency, you have intentions, but you need to make sure
everybody in the field is doing what you intend and--
Mr. Neugebauer. But it is a guidance document, is that
correct?
Mr. Cordray. It is a guidance document, yes.
Mr. Neugebauer. So, it has three sections. It talks about
unfair, deceptive, and abusive acts or practices.
And when you look at the--has a statutory definition of
``unfair,'' and it has a number of examples to it--a fairly
large number--and then it has deceptive acts, and it also has a
statutory definition of what deceptive acts are, and then a
number of examples so that, I guess, a person in the field
could know what to look for there.
And then, when we get over to abusive acts, it is a small
paragraph here, and it just has a statutory definition, but it
doesn't have any examples. And so, I guess the first question I
have is, who is telling the examiners what abusive is, and are
the examiners just making that call as they are out in the
field?
In the first two examples there, you are very detailed
about what to look for, but when you get to abusive acts or
practices, you just give a definition. And so, are you telling
them what an abusive act is, and that is what they are looking
for, or are they making that decision on their own?
Mr. Cordray. I appreciate the question, Congressman. It has
been an issue, as you know, that we have gone around the block
on before a few times, both you and others. In fact, under our
statute, ``unfair'' is a defined statutory term.
``Deceptive'' is not a defined statutory term. Congress
gave us no specific guidance on that, but there is a fair
amount of case law we can work with in terms of what is
deceiving someone, and that is a fairly straightforward
concept, I suppose. ``Abusive'' is another term that Congress
defined.
So, in terms of what our examiners are looking for, they
are looking for what meets the definition Congress itself laid
down. We are not making anything up. Congress imposed this
term, Congress defined the term.
In terms of examples, they have been a little harder to
come by. I will certainly agree with that, and we have talked
about this before.
We have not been actively oppressing people with some
concept of what is abusive that is not unfair and deceptive,
and one of the questions in this area is there is presumably a
circle of what is unfair, and there is a circle of what is
deceptive, and they overlap to some degree. And, there is a
circle of what is abusive, and that also overlaps to some
degree.
The hard question for me is what is abusive that is not
also unfair and deceptive. Many things would be both or all
three at the same time.
Mr. Neugebauer. So here is the question, have you brought
any enforcement action or determined that practices or products
were abusive up until this point?
Mr. Cordray. We have brought several and they have involved
pretty egregious examples of outright defrauding of customers.
Mr. Neugebauer. Could you furnish examples?
Mr. Cordray. Yes.
Mr. Neugebauer. If those are examples, then why wouldn't
they be in this document?
Mr. Cordray. Yes, so some of that we are working through as
we go, as we see new situations. Those instances were
subsequent to that examination guidance. We will be updating
that from time to time. I am happy to have our staff provide
you with more information.
Some of what we have done has been public, in terms of
consent decrees, and other resolutions of cases. I'm happy to
give you more.
But I would say it is still a difficult issue for us and it
is one that we have tried to tread carefully on and not be wild
and overly aggressive in terms of making up things that can't
be easily defended.
Mr. Neugebauer. Yes, I think some more transparency here is
certainly warranted.
Mr. Cordray. Fair enough.
Mr. Neugebauer. I have two other quick issues. I want to go
back to the data collection issue. I think the American people
are very concerned about data collection and one of the things
that I hear from the people that your agency has been in to do
examination is that you are requesting a huge amount of data,
as a couple of things. One, it is very sensitive information;
and two, it is very costly.
The examination process is generally meant to be a
sampling, going in and looking at a few records and confirming
if there is a pattern or practice here. As I understand it, in
many cases you are requesting almost the entirety of the
records of those companies. I don't think that was the intent
of Congress.
We have OFR, they are collecting data. We have the IRS
collecting data and I think that one of the things we need to
hear from you is who has access to that data and what you are
doing to secure that data.
Mr. Cordray. I--
Chairman Hensarling. Brief answer, please.
Mr. Cordray. We typically do proceed by sampling and intend
to do so. Sometimes, it is situational, for example, if we are
into an enforcement situation, we may need to know all the
consumers affected to make sure they are getting restitution as
appropriate. I am happy to follow up with you further on that.
I think I share your instinct, we should be sampling, not
oppressing institutions, and that is what we are trying to do.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Texas, Mr.
Hinojosa.
Mr. Hinojosa. Thank you, Chairman Hensarling.
I also want to thank Director Cordray for his testimony and
his hard work on behalf of America's consumers.
Director Cordray, I would like to congratulate you on your
bipartisan confirmation in the Senate. While I hear many of my
friends across the aisle in this committee bemoaning the work
of Director Cordray and his Bureau, let me remind everyone that
17 Senate Republicans voted for cloture and 12 Senate
Republicans voted to confirm Mr. Cordray as the Director of the
CFPB.
It is possible that those Senate Republicans had heard of
the impressive accomplishments of the young Bureau, including
$432 million refunded to 6 million consumers because of the new
Bureau's enforcement actions.
They probably also heard of the Bureau's work on behalf of
college students, of older Americans, and our servicemen and
servicewomen and a full commission by the AARP, two-thirds of
respondents agreed that this Bureau is a needed institution and
I could not agree more.
My first question to Director Cordray is as follows, can
you provide highlights of the forthcoming financial literacy
efforts of the Bureau including research results, pilot
programs, and the recently announced financial coaching
initiative?
Mr. Cordray. Thank you, Congressman. That is actually a
subject very near to my heart. I am putting a lot of emphasis
at the Bureau on financial education with an eye to, as the
chairman noted at the outset, not trying to dictate the
decisions that consumers make.
They have to make their own decisions and make their own
choices. We would like to feel confident that they are in a
position to know more and to make more responsible choices,
based on their judgment, that they can live with over the
course of their lives and not regret.
So, in the financial education area, we are trying to focus
on how can we deliver more information to consumers in an
effective manner. It is not an easy issue. People have been
working at this for decades and we do a very poor job in this
country at preparing young people to go out into the world and
deal with some of the fairly complicated financial decisions
they are going to be asked to make in an increasingly complex
financial marketplace.
We are trying to focus on schools, focus on workplaces, and
focus on faith communities. I was in North Carolina to speak to
the National Baptist Ministers Convention recently, and we are
going to be doing more outreach of that kind. We want groups of
people around this country to focus on the importance of having
people be in a position to fend for themselves, to stand up for
themselves, to stand up for their rights, and to see that they
are making good decisions. And that is quite a bit of work that
we are going to be doing on that score.
We are working with the Financial Literacy Education
Commission and other Federal agencies. We are reaching out to
folks at the State level including governor's offices to try to
get more focus on this. Nobody seems to ever say that this is
not important. They just don't always manage to prioritize it.
We need to prioritize it, it has been getting second shift to
everything else in this country for way too long.
Mr. Hinojosa. I want to say that I worked very closely as
co-chair with Judy Biggert on the other side of the aisle to
start a bipartisan caucus here in Congress 10 years ago, and
that number is close to 100. I recommend that you see who those
Congressmen are on both sides of the aisle because they are
half and half, 50 percent Republicans and 50 percent Democrats
and--
Mr. Cordray. It is an excellent--
Mr. Hinojosa. --engage them because together, we cover lots
and lots of people and there are over 100 partners in the
JumpStart umbrella that has many banks and the U.S. Treasury
and the U.S. Federal Reserve so that together we need to move
it up and do what you said that we are lacking communication
out there to the institutions you mentioned.
Mr. Cordray. Excellent suggestion. I have heard from
Congressman Stivers on this point, and he is interested in
working with us to figure out how we can better deliver good
financial education that provides meaningful help to both young
people and adults. It is something that I am very focused on
and I intend for us to make headway over the next several
years.
Mr. Hinojosa. I understand that you are appointed to the
President's forthcoming advisory council on financial
capability for young Americans, and seeing that we have a debt
of $1 trillion in college student loans, I wish you would
address that and help us.
Mr. Cordray. Okay, thank you.
Chairman Hensarling. The time of the gentleman has expired.
The Chair would like to announce that there are votes on
the Floor. They just began, so it is the Chair's intention to
clear two more Members, the gentleman from North Carolina, Mr.
McHenry, and the gentleman from Missouri, Mr. Clay.
Other Members who wish to go to the Floor now, if they
would leave quietly after clearing two more Members for
questions, we will declare a recess and ask for the patience
and indulgence of our witness. I am told that there are two
votes on the Floor, so it shouldn't take too terribly long, and
then we will reconvene as soon as votes have concluded on the
Floor.
So at this time, I would like to recognize the Chair of the
Oversight and Investigations Subcommittee, the gentleman from
North Carolina, Mr. McHenry.
Mr. McHenry. Mr. Cordray, thank you for being here.
You authorized, did you not, the creation of the Academic
Advisory Commission or Council?
Mr. Cordray. I think it is called the Academic Research
Council, but yes.
Mr. McHenry. And you authorized it?
Mr. Cordray. It was before I became Director, but it is
something that has existed at the Bureau for some time.
Mr. McHenry. Okay, now does that Council report to the
Assistant Director of Research, who was until recently Sendhil
Mullainathan?
Mr. Cordray. Yes, I wouldn't say ``report to,'' it is an
advisory council that is meant to assist us in our work and
give us broader perspective on many of these issues.
Mr. McHenry. But in the organizational chart, where would
they report to?
Mr. Cordray. They are not with the Bureau. They are folks
from outside who are willing to--
Mr. McHenry. Sure, okay.
Mr. Cordray. --spend some of their time helping us think
about these issues.
Mr. McHenry. Okay, but this is a group that you gather in
and you decided this was a good idea to have this board.
Mr. Cordray. Again, this existed since before I was the
Director, but yes, it is a good idea.
Mr. McHenry. Okay.
So have you heard of the company called Ideas 42?
Mr. Cordray. I believe I have heard that name.
Mr. McHenry. Okay.
What do you know about it?
Mr. Cordray. Not much.
Mr. McHenry. Okay.
Are you aware that the CFPB awarded a research contract for
$5 million to Ideas 42?
Mr. Cordray. I believe I knew that, I am not familiar with
all the details of that.
Mr. McHenry. And was this a process that was a competitive
bid process or was this more of a single source contract?
Mr. Cordray. All of our procurements at the Bureau go
through the regular Federal laws and contracting guidelines and
we have been audited on that. And I don't know offhand whether
that was--
Mr. McHenry. Single source contracting--
Mr. Cordray. --competitive or single source--
Mr. McHenry. Yes.
Mr. Cordray. --but it was done according to government
procedures.
Mr. McHenry. No, I understand, but single source
contracting exists. Right? And that is permissible.
Mr. Cordray. I believe so, yes.
Mr. McHenry. Okay.
So if you would let us know whether or not that was
competitive bids, how many bids there were, and from what
companies?
Mr. Cordray. Okay.
Mr. McHenry. And then furthermore, you know the full
process for this.
Mr. Cordray. Okay.
Mr. McHenry. It is a $5 million contract and that is
important.
Are you aware that Sendhil Mullainathan was a co-founder of
the company, Ideas 42?
Mr. Cordray. I don't know if I was familiar with that or
not. I don't believe so.
Mr. McHenry. Okay.
But he was the former head of research, right? Or assistant
director for research?
Mr. Cordray. That is correct, he was. He is no longer
employed by the Bureau, but he is a well-regarded economist, a
MacArthur grant winner and well-known in the field.
Mr. McHenry. Yes, and the question I asked is about your
policies and procedures.
Mr. Cordray. Yes.
Mr. McHenry. For a former staffer of yours to get a $5
million contract without any apparent bids, he is the co-
founder of this company and--go ahead, please respond.
Mr. Cordray. Yes, I don't know that the details of that are
all accurate. I don't believe as far as I know that Sendhil is
involved in the management of that company but--
Mr. McHenry. No, he is the co-founder of that company.
Mr. Cordray. At one time, yes.
Mr. McHenry. And are you aware that four of your six
members of the Academic Research Council have direct
connections to Ideas 42?
Mr. Cordray. Again, I don't know what you mean by ``direct
connections.''
Mr. McHenry. One is a founder and board member of Ideas 42,
one is an adviser, and two are affiliates of that firm.
Mr. Cordray. I don't know what you mean by adviser or
affiliates. And when you say ``founder,'' are you talking
about--
Mr. McHenry. This is, yes.
Mr. Cordray. Okay. I am happy to have our staff follow up
with you. I am quite confident that everything done there, as
has been true of all of our procurements, was done properly and
in accordance with government procedures.
Mr. McHenry. So do these connections raise any questions
about conflicts of interest? When you have an advisory board,
and four of the six members have a connection to a company that
gets a direct contract from the CFPB for $5 million? And
furthermore, that you have a founder, who was formerly with
your employ, and we are not sure of the circumstances of his
leaving, but he has apparently departed in the ensuing amount
of time between, in the last year, it appears.
Mr. Cordray. Right. That is correct.
Look, I am quite confident that everything was done
properly, and that we have carefully vetted these kinds of
conflicts of interest. I am happy to have my staff work with
your staff to go through it in detail.
Mr. McHenry. We would like to have some answers on this,
because it appears to us--
Mr. Cordray. And if there is, it will be a concern to me.
So--
Mr. McHenry. It appears to us an enormous conflict of
interest. And it raises greater concerns that we have with the
policies and procedures you have to avoid conflicts of interest
with your staff and former members of your staff who have
enormous connections both with policymaking, without much in
the way of a cooling-off period of any sort before they come
back to either receive a no-bid contract, or maybe even a
competitive contract. We don't know. So, I would like to have
answers to these questions.
Mr. Cordray. That would be fine. Thank you.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Missouri, Mr.
Clay.
Mr. Clay. Thank you, Mr. Chairman, for conducting the
hearing.
And thank you, Mr. Cordray, for your leadership at the
CFPB.
My questions are related to mortgages. As you are aware,
part of the issues concerning our economic meltdown going into
2007 was shaky mortgages, and the whole process of steering
people who normally would be qualified for conventional
mortgages into subprime mortgages.
I was wondering, what has been the CFPB's record of
preventing those kind of abuses, especially now, since it is a
little more difficult to obtain a mortgage. I was wondering,
what has been your experience there in the leadership of the
CFPB and how have you addressed it?
Mr. Cordray. Thank you for the question. That is one of the
responsibilities Congress gave us, that they really highlighted
as being very important to this country and gave us the
responsibility to write the set of mortgage rules, and a very
specific, firm deadline for doing that, both so that the
mortgage market could be protected and safe, and also so that
it could proceed forward and industry could have certainty. And
we understood those various aspects of the problem.
What you mentioned goes directly to our ability-to-repay
rules of the so-called Qualified Mortgage rule, which is
intended to root out some of the practices that were
inappropriate and improper. They weren't necessarily illegal in
the somewhat lacking regime that we had before the crisis. And
many were being offered by lenders that were not being
supervised or overseen by anyone.
The other issue was the steering, as you say, of people who
actually would have qualified for a prime rate mortgage and
didn't know it. They assumed the person across the table was
being straightforward with them, but people actually had
financial incentives to steer them into a higher-cost mortgage
and then they get a kickback on that.
That is totally inappropriate and that is very exploitive
of consumers. And it happened to millions of Americans. There
is a loan originator compensation rule that, first of all, the
Federal Reserve wrote, and then we have had a further round
which is meant to prevent the use of yield spread premiums,
which was the mechanism by which--that is a somewhat
bureaucratic term--but that is how it actually worked.
And the point is to make sure that can't happen again. We
have been working hard to see that is actually happening. We
are focused very much on the issue you raise.
Mr. Clay. And have you taken any action if you have found
players in the market who have steered people into these high-
cost, high-risk mortgages?
Mr. Cordray. We have. I typically am not in a position to
talk about--first of all, the regulation is important because
going forward, that is not going to be possible. We are
supervising around that issue every day. Second, we recently
filed an action against a lender that we found was still
engaged in that process as a sort of routine business model,
which is inappropriate and violates the law. And we will
proceed whenever we see that.
Mr. Clay. Thank you for that response.
Home mortgages and student loan debt are the two largest
categories of outstanding consumer debt in America. We are
still feeling the effects of the subprime mortgage crisis and
are only beginning to understand the threat that excessive
student debt possesses to the economy.
What steps are being taken at the CFPB to promote
transparency of student loans and other financial products?
Mr. Cordray. It has been a big issue for us. We have a
great ombudsman, a student ombudsman that was created by
Congress in the law. It was an excellent insight and it is an
important position for us.
We have worked on a ``know before you owe'' effort around
student loans, because for many people, it is new to them. They
are engaging in it for the first time as their son or daughter
is thinking of going off to college or getting any kind of
further education, whether training school or vocational school
or community college.
We have also developed the financial aid shopping sheet so
you can actually compare and contrast institutions, and created
more uniformity in the disclosures there. And all of this has
been folded into a suite of tools on our Web site that we want
people to use and we are working to get out to guidance
counselors, teachers, and parents called ``paying for
college.''
It is an excellent, excellent Web site. I recommend to all
Members that you should be promoting it to your constituents
who are all going to potentially be in this position of having
to deal with paying for school. And there is great advice and
expert information that will benefit them.
Mr. Clay. Thank you for your responses.
Chairman Hensarling. The time of the gentleman has expired.
Pending the termination of votes on the Floor, the
committee stands in recess.
[recess]
Chairman Hensarling. The hearing will come to order.
The Chair now recognizes the gentleman from California, the
Chair of our Monetary Policy and Trade Subcommittee, Mr.
Campbell, for 5 minutes.
Mr. Campbell. Thank you, Mr. Chairman, and good morning,
and welcome back, Director Cordray.
For a number of the things that the CFPB is looking into,
like home mortgages and so forth, there are some pretty obvious
reasons as to why you are doing that. They contributed
substantially to the 2008 financial meltdown, or there is a
significant number of consumer complaints, or whatever.
Now, we may disagree on whether the solutions are helping
or hurting the problem, but the need to wade into some of those
areas and to look into some of those areas is pretty evident.
The question I have for you is about car loans. This is an
area of lending which clearly did not contribute to the
financial crisis. No one makes any assertions to that regard.
There has been, even through the 2008-2009 period, a relatively
slow delinquency rate, certainly relative to other forms of
lending.
There are a lot of them, over 10 million a year, new and
used car loans. It is extremely competitive. Virtually every
financial service provider in the United States--bank, credit
union, non-bank--makes car loans, most of them aggressively,
with an extremely low number of consumer complaints.
Like a point zero zero zero-type, very low number of
consumer complaints. So, as the old adage goes, ``If it ain't
broke, don't fix it,'' and it would seem to me that is an area
that is not broke.
But yet, the CFPB has waded in, in a couple of areas, one
of which was recently--on a car loan application, there is no
indication of race or ethnicity, so there is no way, even if a
financial provider wants to discriminate that they can, because
they don't know to whom they are lending. But yet, you, at one
point, the agency considered introducing race and ethnicity, I
guess so you could discriminate on that basis into it. And I
just want to ask you broadly, what are you doing in the area of
car loans and why?
Mr. Cordray. Thank you, Representative Campbell, for asking
about this subject. And I would agree with much of what you
said.
First, I am from Ohio and we make cars in Ohio, and I would
agree with you that for a number of years in the middle of the
last decade, we were not selling enough cars in the United
States as shown by the average life of the car on the road is
now higher than ever, I think 11 years. That is even older than
my car, which is already fairly old. Second--
Mr. Campbell. I believe it is 12 years.
Mr. Cordray. I am appreciative to see the recovery in the
auto market, and it has been pronounced and it has been
significant, and it is actually one of the things very much
contributing to economic recovery, and I think it will continue
to do so. In terms of what we are doing, we did release a
bulletin for what you are referring to back in the spring.
Congress was very specific about how they divided up
jurisdiction in this market. Auto dealers are not subject to
the jurisdiction of the CFPB, but auto lenders are subject to
our jurisdiction. We both have to be careful not to exceed our
jurisdiction with respect to auto dealers, and to exercise our
jurisdiction appropriately with auto lenders.
The purpose of the bulletin was to remind auto lenders that
if you have a lending program, it is important for you to
recognize that just because you are also working with third
parties, whether they are dealers or someone else, you still
are responsible for your program and how it is carried out.
That was essentially the gist of that bulletin. There has
been no indication in the wake of that--a number of months
ago--that any of that has affected the auto sales market, which
continues to be very robust. August was one of the best months
we have had in some time.
We are mindful of the need for access to credit. We are
mindful of the number of different players in the market. We
are concerned. There are a fair number of complaints that do
occur about potential discrimination in this area, as was also
true in mortgage lending. Nobody should have access to credit
denied or put at a higher price because of their ethnic
background. I think we all appreciate that and recognize that,
and we are trying to do careful work to sort of gauge whether
there are issues or concerns of that kind in this market.
But I will be happy to continue to be in touch with you and
your staff about--
Mr. Campbell. Okay, just in my last 6 seconds, the only
thing I would say is if you don't know--you can't discriminate
on the basis of something you don't know, and so if we keep it
that way, that is the best way to not discriminate. I believe
my time has expired.
Chairman Hensarling. The time of the gentleman has indeed
expired.
The Chair recognizes the gentleman from California, Mr.
Sherman.
Mr. Sherman. I am happy to yield to a Democrat who would
like 5 minutes of time.
Mr. Carney. I will be happy to go, Mr. Chairman.
Chairman Hensarling. Okay, apparently the gentleman from
Delaware is recognized for 5 minutes.
Mr. Carney. I would like to thank my colleagues on this
side for allowing me to go, and I want to thank the gentleman
from Delaware. I used to be down there when you first came in.
I am up here now.
Mr. Cordray. I wasn't sure who was going to end up asking
the question.
Mr. Carney. I want to thank you for coming in and for your
great work. I have a number of questions, some of which you and
I have spoken about before.
Mr. Cordray. Yes.
Mr. Carney. But I would like to talk just about a couple,
and maybe follow up with your staff on the others. You and I
have talked before you were confirmed about non-bank lending,
and the focus there, particularly on payday lending, subprime
lending, that kind of thing. Could you just highlight a couple
of things that you think we need to continue to do that you are
not satisfied with yet, with respect to those lenders--those
non-bank lenders?
Mr. Cordray. When you say ``we,'' do you mean what I think
Congress needs to do?
Mr. Carney. No, I mean you.
Mr. Cordray. We need to continue--
Mr. Carney. You at the CFPB.
Mr. Cordray. Yes. So, I think there are, as there are
throughout the mortgage market, and all the lending markets,
competing considerations. One is, we need to make sure that
some of the abuses that did occur, no question about it, and
they were part of what helped to create problems, both for the
mortgage market and the economy, occurred in the subprime
market, that those don't recur again.
Our ability-to-repay rule is designed to root out some of
those practices. The yield spread premium provision, and the
mortgage loan originator rule that we discussed a little bit
ago, are also designed to address those. It is important for us
to monitor as we go, and hear from the market and make sure
that we are actually addressing this problem appropriately.
At the same time, there is an access to credit issue, and
it is an access to credit issue for low and moderate-income
Americans, much of which falls in the subprime market that we
need to be mindful of as well. So, it is something of a
delicate balance.
We try to address that by being very accessible and hearing
from lots of different points of view, and also having access
to the kind of data we have talked about today, but it is
critically important, if we are going to do--
Mr. Carney. --and it would be more so as we try to reform
our housing finance system and to keep credit available for
folks who have difficulty getting it--
Mr. Cordray. I agree.
Mr. Carney. So I appreciate your attention to that. In a
related issue, mortgage foreclosure prevention, there was a
piece on public radio this morning that you may have heard,
that talked about people who get themselves underwater, if you
will, not getting access to the Federal programs to help them.
Have you looked at that problem? I know it is something that
has been on your radar.
Mr. Cordray. Yes, definitely, the underwater mortgage
issue, which of course is more of an issue in some parts of the
country than others, and more pronounced in some parts of the
country than others has been a major problem with economic
recovery.
First of all, the problem is easing a bit, month by month,
as the housing market has recovered. There are millions of
Americans who had been underwater, who have come out and gotten
their heads back above water, but there are still millions who
are not yet.
Mr. Carney. What about this access to some of the Federal
programs? The idea was that the servicers or the banks were
foreclosing before they had an opportunity to avail themselves
maybe of something that would help.
Mr. Cordray. Yes, yes. There have been ongoing changes
being made in both the HAMP program, and the HARP program,
which we don't have direct jurisdiction over, we have
jurisdiction over the mortgage servicers, so there is an
intersection there, changes being made in FHA programs and
others to try to address the underwater mortgage problem.
It is a difficult problem. There is no easy fix, by any
means. But there is continuing attention to it. We are paying
attention to it. I don't really have more to say, other than
that we are all working toward the day where we have addressed
that problem sufficiently and the market has recovered to the
point where it is more manageable, and it is not--
Mr. Carney. One of the issues that I have been trying to
work on, particularly over the last several months, is college
affordability. And I notice that you have done some reports on
student loans and private lenders in that regard. Is there
something there that jumps to mind?
One of your reports was more generic in terms of the effect
that it is having on the ability of those young adults to
purchase in the economy. What else in terms of the structure of
the loans?
I have heard from a lot of students and families, frankly,
that they didn't really know what they were getting into. I
think part of it was maybe they weren't paying attention to the
fine print or what have you. What have you found there, if
anything?
Mr. Cordray. There are a variety of problems there. First
of all, it is a more than $1 trillion issue in this country
now. It is very significant. It is something we need to--
Mr. Carney. It is killing our young people, just--
Mr. Cordray. And it is killing them. It is driven in part
by losing control over tuition costs, which is an issue that
goes well beyond the CFPB.
Mr. Carney. And the bigger problem, in my view, that is the
bigger problem. But I just--
Mr. Cordray. Yes. But in terms of us, we have been noting,
and increasing numbers of Federal policymakers are noting, the
domino effect of this, that the student loan albatross around
young people's necks is keeping them out of the housing market,
and it is keeping them out of starting businesses or starting a
family.
Mr. Carney. My time is up, but this is something that
hopefully I can follow up on with you and your staff.
Mr. Cordray. Absolutely.
Mr. Carney. I appreciate it. Thanks very much for your good
work.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Missouri, Mr.
Luetkemeyer, for 5 minutes.
Mr. Luetkemeyer. Thank you, Mr. Chairman.
And, Mr. Cordray, I appreciate your comments earlier, your
testimony with regards to the ATM bill, which I was a lead
sponsor on last year, that managed to get through. And now, we
have the privacy bill that is sitting in the Senate.
So if you are anxious to help in that regard, we sure
wouldn't oppose a phone call or a letter or some sort of
something to get the Senate on the ball there, to help us along
with that.
Mr. Cordray. Okay. And I will say, I do find the things we
tend to focus on most immediately are also things that Congress
is focused on most immediately. And if Congress addresses an
issue, we are always happy to see that. If it needs to be us
who addresses it, we are happy to do that and work with you,
either way.
Mr. Luetkemeyer. Thank you very much.
I would like to follow up on a couple of things that have
been discussed a little bit with regards to online lenders. It
is come to my attention, with the number of banks that have
called, as well as a number of online lenders that have called
our office, that the FDIC is really coming down on the banks
who have online lenders who have accounts and clearing their
third-party payments through them.
In the Wall Street Journal the other day, there was a
comment made by a Department of Justice spokesman who said,
``they intend to choke online lenders off from the very air
they need to survive.''
Are you aware of this activity going on by the Department
of Justice and the FDIC to choke online lenders off from the
very air they need to breathe, to survive?
Mr. Cordray. I don't know about that characterization. I am
aware, and there is work going on to try to understand the
relationship between online lending, which, as I indicated
before, is a very difficult law enforcement problem, because it
tends to be borderless, and how that relates to the involvement
and responsibilities of financial institutions.
Mr. Luetkemeyer. Mr. Cordray, your agency, if I am not
mistaken, is primary over all these nonbank lenders. From the
regulatory side?
Mr. Cordray. I don't know if we are primary. We have
jurisdiction over non-bank lenders, yes.
Mr. Luetkemeyer. You are the primary regulator--
Mr. Cordray. --also has some involvement. The State
attorneys general have involvement. State banking regulators,
and--
Mr. Luetkemeyer. But you are the primary Federal regulator.
Mr. Cordray. Yes, with the FTC.
Mr. Luetkemeyer. Are the FDIC and the DOJ coordinating with
you with regards to these efforts that they are undertaking to
force online lenders out of banks?
Mr. Cordray. We pretty much coordinate with the FDIC, the
OCC, and the Fed on--
Mr. Luetkemeyer. So they are coordinating with you, then,
on these efforts?
Mr. Cordray. There is work going on, and we are trying to
work with a broad range of partners, some of--
Mr. Luetkemeyer. So you are aware, and you are working with
them to get the online lenders out of the banks. Is that
correct?
Mr. Cordray. Again, trying to characterize the objective is
one thing. We are working to try to understand how the online
lenders work--
Mr. Luetkemeyer. It is pretty simple. They just have a
business model, like every other business that is online, where
they use the banks as a clearinghouse for their transactions.
Mr. Cordray. That is right, but if they are making loans
that are illegal, or if they are making loans where they are
not licensed to make loans, then that is a business model that
we don't want to endorse.
Mr. Luetkemeyer. From the banks I have talked to and the
online lenders I have talked to, that is not the problem. I am
not here to support the bad actors. What we have is a problem
where there is this blanket policy, as the DOJ spokesman has
indicated, as the FDIC, with the way they are carrying out
their activities, they are out there to just get rid of them,
period.
And to me, I guess my question would be, what is your
stance on online lending? Are you here to get rid of all these
online lenders as well?
Mr. Cordray. My stance on online lending, as with all
lending, is that it should be done legally; it should be done
by folks who are licensed and qualified to do it. It should be
done in compliance with Federal and State law.
Mr. Luetkemeyer. So your stance would be, then, if they are
licensed and they are behaving according to the laws, then you
should have no problem with them being in business.
Mr. Cordray. Anybody who is behaving according to the law,
is behaving according to the law. And our job is to make sure
that is happening.
Look, I know you get this. You were both a bank official
and also a bank regulator. So, you have been on both sides of
the table.
That is our job, to make sure they are complying with the
law. But we have to investigate and understand the--
Mr. Luetkemeyer. Mr. Cordray, I appreciate the fact you did
your homework. The problem here is you also have a--also don't
need to be punitive in the way that you take action against
these people if they are behaving in a business-like manner,
according to the law, we don't need to be punitive about this
and drive them out of business. That is my concern.
One of the things that we are discussing with these online
lenders is a national charter that would give you the ability,
and then whoever, wherever we land with this charter, the
ability then to enforce it on a national basis.
Would you support something like that?
Mr. Cordray. You are talking about a national charter for--
Mr. Luetkemeyer. For online lenders.
Mr. Cordray. For online lenders?
Mr. Luetkemeyer. Yes. That way, you don't have to, that
would alleviate the State-by-State-by-State situation, where
you--
Mr. Cordray. Yes.
Mr. Luetkemeyer. --making it, according to this law, that
rule, this rate or whatever.
Mr. Cordray. You know, I--
Mr. Luetkemeyer. --support something like that?
Mr. Cordray. I don't know what to say about that. The
online problem, unfortunately, is a bigger problem, because
some of the online lending is coming now from outside the
borders of the United States.
Mr. Luetkemeyer. The question, then--this is a way to solve
the problem. I just asked a simple question, do you support it
or do you not?
Mr. Cordray. I would have to look at that and think about
it. I don't have a position for you today.
Mr. Luetkemeyer. Okay.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from California, Mr.
Sherman.
Mr. Sherman. Thank you, Mr. Chairman.
I want to pick up on Mr. Luetkemeyer's comments. And,
again, he and I have carried this bill to eliminate unnecessary
privacy notifications.
Mr. Cordray, is there any way that you could, in effect,
implement, that bill without legislation, through regulation,
or do we have to rely upon the House of Lords--I mean, the
United States Senate--to move on that?
Mr. Cordray. We have been working on this issue and looking
at it. And it has risen to the top of our list of streamlining
things that we hear a lot about from community banks and
others, and we tend to agree, as is often the case in the
consumer space, there is often more disclosure than the
consumer benefits from, but it is burdensome.
So our sense is that there is quite a bit we could do by
regulation. It may or may not be everything that Congress
wants. Congress can always do whatever they want within the
Constitution.
I would be happy to have more conversations with you. But I
think we think we could make considerable headway--
Mr. Sherman. I will ask you to do all you can to deal with
this through regulation, and do all you can to get the Senate
to move on the bill.
Mr. Cordray. Let me say two things--
Mr. Sherman. We in the House have passed it through this
committee and through the Floor 3 times.
Mr. Cordray. Let me say two things. We would be happy to
work with you and have you understand our thinking about what
we can do by regulation, and see if that falls short of what
you are trying to do by legislation.
We are also happy to work with you if you are working on
legislation to think about how to craft that and whether there
are particular technical issues or so forth with which we could
help you.
Mr. Sherman. I know the gentleman from Missouri and I look
forward to working with you on this.
Mr. Cordray. Either way. Yes.
Mr. Sherman. The next issue is that some credit rating
agencies are tagging homeowners as if they went through a
foreclosure simply because they did a short sale.
Now, a short sale is not an A-plus, smiley face, financial
institution thing on your record. But it is not a foreclosure.
What can you do to make sure that the credit rating
agencies say a foreclosure is a foreclosure, and just because
you began the foreclosure process and went into a short sale
does not mean that you have a foreclosure on your record?
Mr. Cordray. Thank you for the question. As you know, we
worked on this quite a bit this summer. It is a complicated
issue. It involves lots of different actors.
We could have walked away from it and said, ``Well, we
can't solve it ourselves,'' but we thought it was important to
address it. It is wrong for people who are not foreclosed on--
when we are actually encouraging short sales and public policy
is encouraging short sales--to then be tagged with a
foreclosure in their credit records.
We worked very closely on this issue. It has been a success
story for us with Fannie Mae, and with the credit reporting
agencies, to get processes changed and fixed so that this will
no longer be a problem. It was a very complicated undertaking,
and I am happy to report that we were able to push and pressure
for progress, working significantly with Senator Nelson and
others.
And I am pleased with the work our staff did, which was
great work, hard work, and important work.
Mr. Sherman. You are pleased that the hard workers--is this
problem solved, or you are just moving in that direction?
Mr. Cordray. No, the problem is being solved. It involves
changes in the computer processes of Fannie Mae and one of the
credit reporting agencies, and they are making those changes,
and they have committed to making those changes. And we are
monitoring to make sure the changes are made correctly.
Mr. Sherman. My final issue is remittances, which are
important in my district. A number of banks and credit unions
have looked at the new regulations and decided to just get out
of the remittance business.
What can you do to keep a high level of competition and at
the same time protect consumers?
Mr. Cordray. Several things. First of all, there is a high
level of competition in the remittance area. And it is an area
where technology is changing it dramatically. Prepaid cards are
now a method of remitting money. Phones may be a method of
remitting money in some areas. Online and PayPal and other
things are methods of remitting. So there is a lot of
competition in this space, and it is hard to separate out all
the cause and effect.
We did go back after--we had finalized that rule at a time
when we were reluctant to think of further changes. Industry
came to us, and they said they had three significant problems.
They had a problem of being responsible for errors when
they didn't do anything wrong. They had a problem with trying
to understand what fees were being imposed in some other
country that they didn't control. And they had a problem with
having to be able to understand and report taxes that might be
imposed at several different levels in other countries and were
not transparent to them.
We went back and reopened the rule and made changes
specifically to address all three of those concerns. And we
have heard very little further anxiety around anything that we
can do operationally to make the rules work.
I know there will be some unease since this is now an area
that has consumer protections, and it didn't before so, that
imposes some costs and there will be some change in the market
but we are open to hearing more from people if they have
specific concerns.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Michigan, Mr.
Huizenga.
Mr. Huizenga. I appreciate that, Mr. Chairman.
And Mr. Director, thank you for your time.
I have a couple of things; I think I am going to save them
for the end about college tuition and about the online loan
situation that my friend Mr. Luetkemeyer was talking about.
But I want to touch a little bit on QM rules. As you know,
current QM rules have included affiliated title insurance and
that 3 percent points and fees trigger. Unaffiliated title
insurance is not included in that, however, and since title
insurance rates are filed by underwriters and approved at the
State level, is there really any reason to differentiate
between affiliated versus unaffiliated title insurance?
Mr. Cordray. Thank you for the question. It has been raised
to me by a number of folks and raised to our staff by a number
of folks, including the folks at Quicken Loans who are affected
by this. They have told us--
Mr. Huizenga. If I can make the--I am from Michigan, by the
way--
Mr. Cordray. Yes.
Mr. Huizenga. --we can get into a little debate about
Michigan and Ohio, the auto building and cars, from your
earlier answer, but yes, Michigan is home to Quicken, it is
home to Flagstar, it is also home to my former real estate firm
that I was affiliated with, Woodland-Schmidt, which has its own
title insurance, Fivestar and Lighthouse Insurance, so it is
big, but it is also small. And they are all being pinched by
this.
Mr. Cordray. Yes.
So the 3 percent points and fees was imposed by Congress in
the law. We had to try to figure out how to apply it, which we
did. There is a--
Mr. Huizenga. Would you support changing it?
Mr. Cordray. --pretty strong statement in the law. There
are two sides to this, right? There are affiliates where there
was some abuse of steering people and potential payments being
made and so forth and then there are other affiliates where it
is very much an efficiency and a synergy that creates.
So we did our best to sort of write the rule within an
understanding of those polar opposite views of affiliates both
of which have some validity. We are happy to think further
about these things in response to that request. I have begun
talking to our staff about whether title insurance is different
because it is regulated.
Mr. Huizenga. It certainly seems to me that it would be,
and I fail to see the true benefit to the consumer if title
insurance is purchased through an affiliated or unaffiliated,
and my colleague from New York, Mr. Meeks, and I are sort of
leading that charge with House Bill 1077 which was included
within the Path Act as well.
Mr. Cordray. We would be happy to work with you to provide
technical assistance if you are looking at--
Mr. Huizenga. I would like your support, frankly. If this
is something on which we need a determination, and we need to
figure out why if something is regulated by the State and has a
cost attached to it, we are actually penalizing people who can
deliver it more efficiently, in my view. So, I appreciate your
looking further at that.
Mr. Cordray. I understand the question, yes, and the issue.
Mr. Huizenga. Okay, I look forward to that.
The other element that I had, and I was glad to hear you
say--I think I wrote down this quote accurately--that in
response to some of the discussion about student loans, losing
control of tuition costs which is beyond the CFPB, so I am
glad, Mr. Chairman, we have found an area that is beyond the
control of the CFPB.
Mr. Cordray. We are not as powerful as people seem to
think.
Mr. Huizenga. You are still pretty darn powerful, because I
am concerned about that as well. We have to have parents and
students, and as a father of a couple of high schoolers and
with more following, I am keenly aware of that, and I just want
to make sure that we are not going in and shooting the
messenger.
As parents are making decisions and the students are making
decisions, they need to have their eyes wide open, there should
not be anything hidden from them, but at the same time, the
system shouldn't be penalized for providing opportunities for
them to go after college educations that they are looking for
whether they really truly believe that they need to be going to
the Ivy League versus maybe the community college, that is
another thing.
And then I do have lastly in my last little bit here, as
Blaine Luetkemeyer was talking about, I am a bit concerned
about an uneven playing field being created if 50 percent of
all online lending occurs offshore and we are going to start
putting in regulations that are really going to be hampering
ours but I am curious specifically, do you count the Native
American reservation-based companies that are doing this as
well as ``offshore?''
Mr. Cordray. What do you mean, ``count?''
Mr. Huizenga. Would you categorize them as offshore or
beyond your control?
Mr. Cordray. No, they are not beyond our control. I think
it is well-established in Federal law that the Federal
Government can regulate tribal business activities affiliated
with Tribes.
There is some question whether States can do so and so it
has been a somewhat difficult area. But that is different from
outside of the United States which is a particular
jurisdictional problem, which mirrors the one I described as
Ohio attorney general when people would lend from other States
and would not necessarily be licensed in our State, that is the
problem.
Chairman Hensarling. The time of the gentleman has expired.
Mr. Huizenga. Thank you, Mr. Chairman.
Chairman Hensarling. The Chair recognizes the gentleman
from Texas, Mr. Green.
Mr. Green. Thank you, Mr. Chairman.
I thank the ranking member, as well.
And I thank you, Mr. Cordray, for appearing today.
I want to compliment you on your fine job that you are
doing, and I look forward to working with you. I do have a
couple of concerns that I would like to call to your attention.
As the ranking member indicated, over our district work
period--and I do emphasize ``work period,'' not ``break;''
there seems to be a misunderstanding about that we do. Over the
district work--
Mr. Cordray. I don't misunderstand it. I know how hard you
work.
Mr. Green. Thank you.
Mr. Cordray. Yes.
Mr. Green. Over the district work period, as she indicated,
many of us decided that we would visit some of the community
banks, smaller banks. I visited at least three of them, and
upon visiting with them, I was amazed at some of the things
that were presented to me.
To be very honest with you, the term ``paperwork'' is a
nebulous term until you have an opportunity to see what
``paperwork'' actually looks like from the point of view of a
smaller bank, an institution which has one person, possibly
multitasking, doing more than one thing within the bank, all
proper of course.
But after having this opportunity to visit with the smaller
banks, many of whom keep loans on their portfolios, I am
absolutely convinced, Mr. Cordray, that they need some help.
And I am going to work with the ranking member to do all that I
can to provide them some assistance.
But I just want to add my voice to her voice in letting you
know that I believe that there sincerely, really is a problem
that needs our attention for the smaller community banks. So in
the weeks and months to come, perhaps we will talk to you more
about it.
I did ask that they provide proposed solutions, so at some
point I will start to get these proposed solutions in. I will
visit with the ranking member before passing them on, but I
hope that we will be able to help you at least with some
thoughts as to how we might provide some degree of help for
them.
Now moving to several things that have been called to my
attention, the second appraisal for the smaller lenders, loans
that are maintained on portfolios under $250,000, how are you
proposing to address this concern that has been raised?
Mr. Cordray. First of all, Congressman, I very much hear
your point of view about the smaller institutions, community
banks and credit unions. I have said time and again, they
really were not at all causes of the financial crisis and we
should not be oppressive in our responses in how they may
affect their operations.
So we did draw special provisions, that I mentioned earlier
to the chairman, for the Qualified Mortgage rule. Smaller
creditors who make loans and keep them in portfolio, the kind
you just described, are deemed to be Qualified Mortgages
regardless of the other aspects of that rule and have a safe
harbor from litigation which is designed to help them feel
confident in continuing to make the kinds of loans they make
that work very well and support our communities. So, that is
essentially how we are trying to address that.
I am always interested to hear more from the smaller
institutions, that is why we have a Credit Union Advisory
Council, and that is why we have a Community Bank Advisory
Council, so that we can know how we are affecting them, which
otherwise we don't know, because we don't examine them
directly. Anything you want to pass on to us or any way we can
hear from you about what you are hearing, we are probably
hearing it already, but just in case, we would like to have you
share it--
Mr. Green. Thank you.
Let me move forward to sophisticated borrowers and the
homeownership counseling. Many of these persons have net worths
that are fairly substantial if you are a sophisticated
borrower, has there been any thought given to how you will
address these persons and their homeownership counseling
requirements?
Mr. Cordray. Are you talking about unsophisticated
borrowers or--
Mr. Green. I actually I am talking about those who happen
to be high net worth.
Mr. Cordray. Oh, I see.
Mr. Green. Yes.
Mr. Cordray. High net worth borrowers?
Mr. Green. Yes, sir.
Mr. Cordray. That doesn't generally seem to me to be an
area of great concern at the Bureau. What we saw recently is
the jumbo loans being made to higher net worth borrowers are
actually being offered now at an interest rate in the market
surprisingly and historically below that for other borrowers.
So high net worth borrowers generally take care of
themselves very well and institutions serve them. We have no
problem with any of that of which I am aware.
Mr. Green. Is there a requirement of counseling for a high
net worth borrower?
Mr. Cordray. I am not familiar with that, but I would be
happy to get back to you.
Mr. Green. Thank you.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Wisconsin, Mr.
Duffy.
Mr. Duffy. Thank you, Mr. Chairman.
And Director Cordray, welcome to the committee room and the
hearing.
I want to focus on data. We have touched on that a little
bit today. I want to go back to that conversation and give you
an opportunity to tell the committee how many Americans you are
collecting their financial debt on--how many Americans do we
have that you collect on?
Mr. Cordray. So again, and I have tried to give this answer
several different times.
Mr. Duffy. I am looking for a number, how many Americans?
Mr. Cordray. Okay.
It is not the way the question can be answered.
Mr. Duffy. Let me--
Mr. Cordray. Do you want me to try to answer it?
Mr. Duffy. Do you have a number?
Mr. Cordray. Okay.
Mr. Duffy. Do you have a number?
Mr. Cordray. Three different buckets of pieces--
Mr. Duffy. All right.
Mr. Cordray. --there is consumer complaint data, a couple
hundred thousand--
Mr. Duffy. So some are bringing it directly to the
supervisory capacity. How many Americans do you collect from
here?
Mr. Cordray. Okay, we don't collect directly from any
Americans in a supervisory capacity--
Mr. Duffy. So--
Mr. Cordray. We go to institutions and we work with the
institutions to understand how they are affecting their
customers.
Mr. Duffy. How many institutions collect from Americans--
how many Americans are collected for you through these third-
parties?
Mr. Cordray. Okay.
So, we oversee approximately 110 large banks and a few
credit unions with assets of $10 billion or more. They have
significant customer base--
Mr. Duffy. Mr. Cordray, how many Americans? That is my
question for you. Give me an answer.
Mr. Cordray. That is not the way the work is done, sir. It
is like asking me, what color is this song. That is just not
quite the same thing. So--
Mr. Duffy. Let us go to credit cards. How many actual
credit cards are you collecting on Americans--credit card data,
credit card information?
Mr. Cordray. So, three different ways. One would be they
may come to us with a consumer complaint. That would--
Mr. Duffy. Mr Cordray, listen, I think America wants to
know a number of how many you are collecting. And you are
giving me a lot of explanation, but I want an answer of how
many credit cards does the CFPB collect data on?
Mr. Cordray. Okay. We don't collect any data from
individuals about their credit card accounts, other than those
who come to our consumer response functions. What we do is we
go to credit card issuers who we are required to oversee and
make sure they are complying with the law. And we need to look
at their institutions and their practices to see if they are
complying with the law.
And by the way, some of them have not--and we have gotten
back--
Mr. Duffy. Do you monitor credit card accounts? Do you
monitor credit cards through your agency or through any of your
third party contractors any credit card accounts?
Mr. Cordray. And that is the third bucket, okay? So,
consumer complaint, supervision, and then market monitoring. On
the market monitoring, as we have indicated before, and--has
indicated to you, we are gathering sample data on the credit
card market.
Mr. Duffy. I am going to reclaim my time for a second. Mr.
Antonakes was asked these questions. You were asked these
questions by the Senate Banking Committee. And you came today
ill-prepared to give us numbers on the number of Americans who
have their financial transactions and data collected by the
CFPB.
Mr. Cordray. So, what I am fully prepared to do is to give
you explanations of how these programs work--
Mr. Duffy. And what I think America deserves is the
transparency that you promised.
Mr. Cordray. Okay. So again--
Mr. Duffy. And you are not giving us that transparency.
Mr. Cordray. Again, what we are delivering for consumers on
credit cards is enforcement actions--
Mr. Duffy. I am asking the questions, so would you give me
the names of the banks, the financial institutions for which
you--
Chairman Hensarling. The time belongs to the gentleman from
Wisconsin.
Mr. Duffy. You are not going to give me a direct number. I
am fine with that.
Mr. Cordray. Okay.
Mr. Duffy. Stonewall me.
Let us talk about financial institutions. Will you give me
the names of the financial institutions for which you collect
financial data on Americans? Will you give me those names?
Mr. Cordray. Okay.
Mr. Duffy. Yes or no?
Mr. Cordray. What we are collecting is--your question, I
just need to correct the premise of the question.
Mr. Duffy. Will you give me the information on--
Mr. Cordray. We are collecting data on how those
institutions comply with the law. And they haven't always
complied with the law.
Mr. Duffy. Would you give me the names of those banks?
Mr. Cordray. All right. There are 110 large institutions--
Mr. Duffy. Reclaiming my time, do you want to answer my
question?
The claim for transparency, Mr. Director, isn't being met.
So let me say this, I am going to ask you this. The American
people don't know what the CFPB is doing. And if you look at
another agency, it is called the NSA. And they collect
information about Americans' phone records.
America has said, ``My phone company has information about
my phone records. But, man, am I outraged when the Federal
Government takes that information from me.''
You are here to protect consumers, and you are taking this
financial data that they have said it is okay for the financial
institution to have, and you are taking it and you are not
giving them any transparency about the information you are
taking, how much you are taking, or from whom you are taking
it.
And that is incredibly frustrating. Why don't you just
level with us? We have asked you these questions over and over
again. And you come in and you stonewall. You try to explain.
But never do we get answers. Never does America get answers.
Mr. Cordray. Look, I understand that you want to make a
speech and I appreciate that, but there is no comparison
between the NSA and the CFPB.
Mr. Duffy. Oh, there is.
Mr. Cordray. It is a false comparison.
Mr. Duffy. Oh, no--
Mr. Cordray. We are doing work to protect the consumers--
Mr. Duffy. Do you have numbers for me?
Mr. Cordray. Six million consumers have benefited--
Mr. Duffy. Do you have numbers for me?
Mr. Cordray. --and many more will benefit.
Mr. Duffy. Do you have names of banks or numbers of
consumers who had their data collected--do you have those
numbers or those names?
Mr. Cordray. There are 110 banks, okay? I can name a number
of them. We are looking at credit card matters at Morgan Chase.
We are looking at credit card matters at Bank of America. We
are looking at credit card matters at Capitol One. We are
looking at credit card matters at Discover, American Express,
all of the biggest--
Mr. Duffy. Now, America knows that those are the greatest--
Mr. Cordray. And we are going to make sure that they are
complying with the law--
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Minnesota, Mr.
Ellison.
Mr. Ellison. Thank you, Director Cordray. And
congratulations on your confirmation.
Mr. Cordray. Thank you.
Mr. Ellison. And thank you also on behalf of so many
Americans who have benefited from the good work of your agency.
I believe there is a total of $432 million being directly
refunded to more than 6 million consumers because of your work.
You have had to endure criticism regarding data and I think
questions that people want answered, but I think the 6 million
people whom you helped get refunds are pretty happy about the
work you are doing. So many proclamations made in the name of
Americans, but those 6 million are Americans, too.
For example, the members of the United States military who
were refunded about $6. 5 million due to deceptive car loans.
They are Americans and they are glad that they got their money
back.
I happen to have a very close relative who is an 18-year-
old enlisted member of the Army. And every time he walks
outside that base, he sees those low terms. I don't want him to
get financially caught up. And because of your work, he won't
be or is less likely to be.
Also, Capital One paid about $210 million because they
engaged in deceptive credit card practices. What is in your
wallet? The CFPB has a little bit more left in Americans'
wallets than would have been if you guys hadn't had acted. And
also, the CFPB has fined 4 private mortgage insurance companies
for more than $15 million for alleged kickbacks.
So, I don't begrudge my colleagues at all for asking
questions of concern to themselves or their colleagues. That is
fine. That is what Congress is all about. But I just don't want
it to be lost that literally millions of Americans and millions
of dollars have been refunded because of your good work. In
fact, I don't claim that the CFPB couldn't work better. Maybe
it could. But I do believe that you guys are off to an awesome
start and you are operating as we contemplated.
And I could tell you this, there is no such thing as a
Republican or Democrat consumer fraud. They happen in
everybody's district, all over this country, all the time. And
no matter how you voted in the last election and no matter how
you plan to vote, if you are getting full measure for your
dollar, then the CFPB is well-justified. And I thank you for
the work that you are doing.
I just also want to note that there are issues that we want
to inquire about. And before my time runs out, I do want to
just get to one of them. One of the things that I am concerned
about is the credit-invisible. These are folks who aren't
banked at all.
But what we have learned, and what has come to my attention
is that if cell phone records and utility bills were able to be
counted, then maybe some of these people could get a score and
might be credit-visible.
And therefore, that could improve their lives, reduce the
cost of purchases, and even employment, which might hinge upon
a good credit score. People might be able to acquire that.
Could you talk a little bit about how you see this issue? And
if anything, what the CFPB is doing about it or might do about
it?
Mr. Cordray. Thank you, Congressman. It is an important
area, an interesting area. There are a lot of people who make a
lot of payments in their lives, and they don't seem to get much
credit for it when it comes to positives showing up in their
credit report or boosting their credit score.
It is an issue we are very interested in. We have been
studying the impact of remittances, which is one of the kinds
of payments some people make very steadily and very
persistently, how that could affect credit scores. The same, as
you say, with utility payments, rent payments, and the like.
There are some interesting pilots and models out there to
try to figure out how we can do this better. Because, frankly,
up to now, the credit reports tend to reflect only certain
kinds of credit that tend not to be as common among low- and
moderate-income Americans. And so, it is something of a skewed
picture of the market.
So, it is a good line of inquiry and one that we are
interested in and happy to work with your staff on.
Mr. Ellison. Yes, me and Democrats and Republicans, the
bipartisan bill that we have, we would love to get your
technical assistance on it, because we would like to help
people improve their financial outlook.
Mr. Cordray. Yes.
Mr. Ellison. And again, I do want to encourage you to go
after that student loan thing. This is a big, big deal. You
mentioned the overhang on individual students and families.
What about the macroeconomy? We are expecting those kids to go
out and buy refrigerators one day.
Mr. Cordray. Yes.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Ohio, Mr.
Stivers.
Mr. Stivers. Thank you, Mr. Chairman.
Director Cordray, I want to congratulate you on your
appointment. My questions are around three areas that are all
around the theme of transparency. You were congratulated for
your transparency, and I want to talk to you about three things
on transparency. One is the Inspector General, and then some
information on advisory panels, and then activities.
First, with regard to your Inspector General--and if you
can give me brief answers to the first two questions. They are
kind of yes-or-no questions.
Mr. Cordray. Sure. Okay.
Mr. Stivers. Is your Inspector General solely dedicated to
the CFPB? Yes or no?
Mr. Cordray. We share an Inspector General with the Federal
Reserve.
Mr. Stivers. With the Federal Reserve.
Mr. Cordray. We are within that system.
Mr. Stivers. And is your Inspector General Senate-
confirmed?
Mr. Cordray. I actually don't know, offhand, the answer.
Mr. Stivers. The answer is no, and I didn't mean to answer
your question for you. But--
Mr. Cordray. Okay. Fair enough--
Mr. Stivers. I guess given what Representative McHenry, the
chairman of our Oversight Subcommittee, talked about earlier
with regard to Ideas42, some stuff that has been in the paper
with--data. I don't want you to comment on either of those
particular possible conflicts. But I believe an independent,
Senate-confirmed Inspector General is important because of the
challenges of accountability of this agency with regard to
having a budget that is not part of the normal appropriations
process, and then not having a board. Boards normally preserve
the rights of the minority view and then give a voice for that.
And so, given those things, I think it is really important
that you have a separate Inspector General who is focused on
you, who is Senate-confirmed. And if you can give me brief
comments on that. I don't want to get you sideways with your
current Inspector General or anything.
Mr. Cordray. I would just say two things on the Inspector
General. We have an Inspector General. We share with the Fed,
but a very strong I.G., strong staff, and they have been
working to improve our operations and are doing so in a number
of respects.
Whatever Congress provides is what we will carry out. And
it is true of all of our oversight provisions, the numerous
audits we're subject to; the mandatory testimonies both here
and in Senate Banking and FSOC veto and other things.
Mr. Stivers. Great.
Mr. Cordray. You know--
Mr. Stivers. Thank you.
So, the other thing I want to focus on is advisory panels.
And you mentioned earlier that the CFPB doesn't know a lot yet
about payday lending, doesn't completely understand it. You
have done some White Papers on it.
But you got a letter signed by 30-some members of the
committee here. Then, I know you got a letter from at least one
Democrat who is very prominent, and holds a position outside
the Congress, saying you should consider having an advisory
panel.
And I know Section 1014 of the Dodd-Frank Act actually
requires you to have this consumer advisory board or--and you
have set up one for credit unions. You have set up one for
community banks. That is great.
But because you are, essentially, the sole Federal
regulator or the primary sole--Federal regulator for non-bank
financial institutions, and because you can potentially
regulate them out of business as was referred to earlier, it
would be great if you would try to set up some type of advisory
panel. And even if you set up one that had diverse interests--
because I know you talk about--
Mr. Cordray. Yes.
Mr. Stivers. When you and I talked, you talked about--you
have credit bureaus. You have student loans.
Mr. Cordray. Yes, that is right.
Mr. Stivers. You have other financing agencies. But if you
set up one as a voice for non-bank financial institutions, even
though there would be disparate interests at the table, it
would be great for you to have that input and feedback.
So I guess that is more of an urging than anything. I would
ask you to consider that. If you want to make a brief
statement, I have one more thing I want to talk about really
quickly.
Mr. Cordray. Yes, that is fine. Look, I have responded to
the letter. It is a--we have the Credit Union and Community
Bank Advisory Councils because they fill a hole. We don't
examine them. We don't see them day to day. We are constantly
dealing with the non-bank focus.
We do have examination authority. So we are working with
them day to day. That is what felt different to me. I am happy
to talk with you further and--
Mr. Stivers. Maybe we can talk offline a little bit about
it. The last thing is more of an activities warning. It has
come from multiple sources. Mr. Campbell talked about it. Mr.
Luetkemeyer talked about it.
Sometimes, the activities you do target financial
activities that you might not like, whether it is specific
types of car loans or online lending, they can actually--if
they are products that consumers demand, your activity can
actually result in credit allocation that hurts borrowers. And
I am really concerned about that.
And I want to focus on one piece of it. Do you think it is
appropriate to have non-written guidance that, basically, tries
to force people, force businesses to not have a banking
relationship without any due process? Because I think that is
what is happening with online lending.
Mr. Cordray. I am not understanding. Forcing--
Mr. Stivers. Okay, so--
Mr. Stivers. It is not you. It is the FDIC--
Mr. Cordray. Yes.
Mr. Stivers. --that is twisting some banks' arms saying,
``Don't bank these particular types of companies.'' And if they
are following State laws; should that happen? Shouldn't we make
sure that--and you stated it earlier--
Chairman Hensarling. Very brief answer, since the time of
the gentleman has expired.
Mr. Cordray. If people are following all the laws, then
there is not a problem. If they are not following all the laws,
I understand that is what people are looking into. And there
may be, obviously, a distinction between the financial
institutions following the law, whether the online lender is
following the law, and what they know about each other. Those
are the complexities we are all trying to work through.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentlelady from Ohio, Mrs.
Beatty.
Mrs. Beatty. Thank you, Mr. Chairman, and Ranking Member
Waters.
Again, thank you, Mr. Cordray, for being here. And let me
join others in congratulating you on your confirmation and also
receiving the bipartisan accolades prior to your confirmation
on your credentials and character.
I have three questions also. Certainly, as you are aware,
the Attorney General in Ohio has taken an extremely aggressive
approach to scrutinizing the consumer credit reporting
companies for failing to investigate and correct. And,
certainly, we all know how important credit reports are.
He went so as much to go on record and drew attention not
only from national media, but ``60 Minutes,'' in saying he
thought they were breaking the law. And there is an article,
Mr. Chairman, I need to enter into the record.
Chairman Hensarling. Without objection, it is so ordered.
Mrs. Beatty. That happened in August, around the last week
of August. Let me just say how much I appreciated your
immediate response to that, coming out with your release in
strong words of holding them accountable. So I wanted to thank
you for that.
I also, before I ask my two questions to allow you enough
time to answer, wanted to say I really appreciate your
deliberate detail in somewhat lessly, but historical answers.
Because there are at least a dozen of us who were not here July
21st of 2011 when your agency went into effect from Dodd-Frank.
And as we move forward, especially since a lot of my
colleagues on the other side of the aisle have wanted us to
move the needle, it is very much appreciated that you help
educate us on where we were.
Secondly, had you had the opportunity to be here before
when we were going through some of those questions and issues,
I think we would have been served. Unfortunately, you were not
invited and not here. And I appreciate your bipartisan
responses to some of the questions.
Let me move forward. For many, financial literacy--as you
know, we made many changes in Ohio through your leadership. I
would like to go on record in bipartisan support to say that I
would like to join Mr. Stivers in working with you on financial
literacy. Because I think as we look at our young folks, they
are the economic engines of the future for financial growth.
My question that I would like an answer to from you is on
the Office of Minority and Women Inclusion (OMWI). As you have
heard repeatedly on this side of the aisle, our ranking member,
Congresswoman Maxine Waters, defined break for us, i.e., work.
So, we have had the opportunity to work through that break.
Mr. Cordray. Yes.
Mrs. Beatty. And even most recently, had the opportunity to
have a mini town hall meeting with those new Directors of OMWI.
So having a big interest in what happens with small businesses
as a small business owner, can you help us when we talk about
women and minorities and Federal contracts of how you propose
to help us increase those numbers and make a difference?
Mr. Cordray. Yes, so thank you for that question. Thank you
for all your comments.
On the Office of Minority and Women Inclusion (OMWI), which
is what OMWI represents, first of all, I am very pleased and
have developed a deep respect for the OMWI at the CFPB, whom
you met the other day, maybe met before, former commissioner of
the EEOC and really very thoughtful about the work that we are
doing in this area.
There are three areas of work. The first is hiring
practices at the different Federal agencies. The second is
contracting practices at the different Federal agencies. We
have been very mindful of that, and we have made some changes
in our own human capital and procurement processes to reflect
some of that input.
And the third is the issue of diversity in the financial
services industry itself, which is a broader issue. There are
not any compulsory tools that have been given to the agencies
to effect that. And it feels to me that is going to be a
cooperative effort back and forth between the agencies and the
industry on that front.
We are just working to--I think we are finalizing a
memorandum of understanding with standards within the next
month or two, maybe one month. And we will move forward from
there. But we are very mindful of our obligations here. We take
them seriously, and I think it is going to be interesting and
important work.
Mrs. Beatty. Thank you.
And, Mr. Chairman, I actually yield back my time.
[laughter]
Chairman Hensarling. The gentlelady from Ohio is setting a
fine standard for this committee.
[laughter]
The Chair now recognizes the gentleman from Pennsylvania,
Mr. Rothfus.
Mr. Rothfus. Thank you, Mr. Chairman.
And congratulations, Director Cordray, on your
confirmation.
A recent survey from the Independent Community Bankers of
America (ICBA) reveals that more than 10 percent of the
community banks are indicating that they are going to get out
of the mortgage lending business due to the QM rule. How does
the fact that these banks will be exiting this market help
increase access to credit?
Mr. Cordray. First of all, I am not familiar with this
survey, although I will now look for it. You say it is an ICBA
survey?
Mr. Rothfus. Yes.
Mr. Cordray. Okay. It would be unfortunate, in my mind, if
community bankers who had been making loans, typically,
according to a very responsible underwriting model that is safe
and sound and often performed extremely well, even during the
worst economic crisis of our lifetimes, were to stop making
mortgages because they have some anxiety around the rules that
I think is not justified.
The smaller banks, as I said, we have a special provision
to cover them so that they make loans and keep them in
portfolio. They are Qualified Mortgages with a safe harbor from
litigation. It would be a bad business decision if they were to
leave that money on the table and not make those loans.
Mr. Rothfus. Yes, I think it is important that you reach
out to the--
Mr. Cordray. I know. They need to know. Some of them don't
seem to know that yet.
Mr. Rothfus. If I could just talk a little bit about some
transparency issues. We are coming up on a very sad anniversary
in this country in November--
Mr. Cordray. Yes.
Mr. Rothfus. --with the death of President Kennedy. And one
of the things I have always heard about his Administration was
the call to public service. Indeed, you look at some of his
words, ``Let the public service be a proud and lively career.
And let every man and woman who works in any area of our
national government in any branch at any level be able to say
with pride and with honor in future years, `I served the U.S.
Government in that hour of our Nation's need.'''
And, of course, we all remember, ``Ask not what your
country can do for you. Ask what you can do for your country.''
President Kennedy also told the American people to ask of those
in public service the same, to hold them to the same high
standards of strength and sacrifice that we ask of the American
people.
There was an ad on the American Bankers Web site from the
CFPB, advertising employment. ``Not satisfied with your day to
day? Why not give public service a try? Take your private
sector skills and put them to good use at the CFPB. Make a
difference without compromising premium salary and benefits.
Now hiring: all levels of our supervisory team.''
There are 741 staffers at the CFPB: 61 percent make a six-
figure salary; 111 staffers make more than $179,000; 56
employees make more than $199,000; and 14 make more than
$227,000, which is how much the Vice President of the United
States gets paid.
Does the CFPB pay bonuses in addition to these salaries?
Mr. Cordray. So, first of all--
Mr. Rothfus. Does the CFPB pay these people who are making
the six-figure and higher salaries bonuses? Yes or no?
Mr. Cordray. We have had limited supplemental pay
adjustments--
Mr. Rothfus. Okay, so would that be a bonus?
Mr. Cordray. I don't consider it a bonus.
Mr. Rothfus. Okay, do you know what the top enforcement
attorneys make at the Department of Justice?
Mr. Cordray. I know that they are on a different pay
schedule than the independent Federal agencies, but I don't
know what they make.
Mr. Rothfus. And do you know that the people who have those
top enforcement jobs at the Department of Justice could be
making a lot more money on the outside?
Mr. Cordray. And I believe many of our people could be
making a lot more money on the outside as well.
Mr. Rothfus. But they are making more than the attorneys at
the Department of Justice, is that correct?
Mr. Cordray. Different people make different amounts at
different levels that have--
Mr. Rothfus. Do you know what the top salaries are for the
people at the Consumer Product Safety Commission?
Mr. Cordray. Again, the Federal banking agencies are on a
different pay scale than the GS scale. One of the things that I
want to note, it is very important here. Our statute requires
us, it requires us, this is the law of the land that we are
bound to follow that we are to have a pay scale comparable to
that of the Federal Reserve. Last I checked on our statistics,
we were 1 percent lower in average salary than the Federal
Reserve, so we are complying with the law--
Mr. Rothfus. But who sets your salary, Director?
Mr. Cordray. I beg your pardon?
Mr. Rothfus. Who sets your salary?
Mr. Cordray. Congress.
Mr. Rothfus. Congress sets the salary.
Mr. Cordray. And it is lower than many of the people at the
agency, but I am willing to do that to--
Mr. Rothfus. Would you support legislation that sets
guidelines for what salaries at the CFPB should be?
Mr. Cordray. Congress has set those guidelines so they
specifically provided in our statute, that, like the other
Federal banking agencies, we would be on a pay scale, and that
wouldn't--
Mr. Rothfus. Would you oppose legislation that would make
the pay scale be comparable to the enforcement people at the
Department of Justice?
Mr. Cordray. Again, I don't know what level you are talking
about, apples-to-apples comparison. I am happy to have our
staff talk to your staff about pay if that is an issue for you.
But we are just following the law. We are trying carefully to
follow the law.
Mr. Rothfus. Thank you.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Washington, Mr.
Heck.
Mr. Heck. Thank you, Mr. Chairman, and Ranking Member
Waters. Director Cordray, I want to pick up on the line of
inquiries made by Congressman Green and others, namely the
relative layer of regulatory burden on small institutions. I
actually don't think this is rocket science. I think it is
axiomatic. Small institutions run on people. Big institutions
run on processes. And fairly understandably, the CFPB's
regulatory approach is geared to processes.
So given what you had said earlier about there being a lack
of culpability on the part of smaller banks and credit unions
to contribute to the economic crater we experienced, is there
anything else that you can do that would ease that regulatory
burden to enable them to continue to be a part of the rich
fabric, the financial institutions that offer services to
consumers?
Indeed, is there anything you can even say that would help,
I think virtually everyone on this committee, feel better that
you really get this? Indeed, Director Cordray, if you want to
take today to announce a new initiative in this regard and make
news, please feel free.
Mr. Cordray. So thank you, Congressman, and I think there
are things that I can say that are important. First of all, I
have never worked at a big financial institution. That is not
my background. It is of some, and it is an important experience
that some bring to the Bureau and bring to this Congress.
I am from a small town in Ohio. I grew up there. I commute
from there now which gives me an appreciation for all of you
who commute from all over the country and you go 3 time zones
as I understand. That is above and beyond. And we did that
because we want to serve this country, and we take pride in
having a role in helping lead this country.
In terms of the smaller banks, they are the backbone of the
economy in many parts of America. We have a unique small
banking system in this country that is not replicated in
Europe. It is not replicated in most countries around the
world.
A banker told me recently that he had been in China and
they were very curious about, ``How could they set up a bank, a
system of 7,000 or 10,000 small banks?'' It is not easily done.
It required decades and decades of work.
It is important for us to preserve that system, because I
know in many small towns, if the local bank or local credit
union is not providing that credit, bigger banks aren't going
to come in and do it. I was taken by your initial comment,
which I think is exactly right. Larger institutions tend to
work on processes, and smaller institutions on persons, who
often exercise a lot of discretion and judgment.
The way they have exercised that discretion and judgment
historically has been sound and responsible and deserves our
respect and our admiration. It is a model that performed well
through the worst financial crisis of our lifetimes, and
continues to perform well.
We are trying to figure out where we can make special
exemptions and special provisions to recognize that model and
encourage it and not oppress it with a slew of rules that they
don't necessarily need to meet because they were not part of
the problem.
We will continue to do that and I meet regularly with them,
to hear from them, both the State institutions, State-to-State
association level, individual institution-level, the ICBA,
credit union groups, and also our advisory council.
It is something that I mean for this agency to be able to
point to as a success and not as a failure, and I appreciate
your input to help us accomplish that.
Mr. Heck. Please hear us, it is universal.
Mr. Cordray. Yes.
Mr. Heck. Maybe quickly, on the QM, I have the sense that
you had gone back and done a retrospective analysis of how many
loans made in the last few years would have been enabled or
allowed under the QM.
But I am actually more curious, especially given the
decision on QRM as to whether or not you have gone back and
done any analysis retrospectively on how many loans would not
have been allowed in the years of a run up to the crater, and
whether or not you think that it would have helped us,
materially helped us avoid bursting that bubble by having fewer
people placed in loans for which they probably shouldn't have
been?
Mr. Cordray. Yes, two points. First, your question is, how
can we continue to monitor how the mortgage market may be
affected by our rules, and make sure that we are not having
undue effects of the kinds the chairman has referenced that we
don't want to have.
We have to have data and information in order to do that.
There is no substitute for it. If you cut us off from having
information about the markets, we won't do a very good job, and
you will justly criticize us for that. In terms of this issue
in particular, the QRM is a rule that we are not involved in
writing.
There seems to be a growing proposal by the other agencies
now to conform that significantly to the Qualified Mortgage
rule, which I assume is a complement to that rule. We will
continue to work with the other agencies to help them get that
right in their judgment. It is not our rule, it is their rule,
but we are happy to continue to work with them on it.
Chairman Hensarling. The time of the gentleman has now
expired. The Chair recognizes the gentleman from South
Carolina, Mr. Mulvaney.
Mr. Mulvaney. Thank you. Mr. Cordray, in looking over the
reports, something jumped out at me, which was the section
regarding the amount of money you had requested from the
Federal Reserve for the first quarter of this year.
It said that as of December 31st, you had requested--
Federal Reserve filling $136.2 million to fund your operations.
But later on in the same document, it says that you only spent
$85.9 million. What did you do with the extra $50-odd-million?
Mr. Cordray. We make quarterly requests to the Federal
Reserve.
Mr. Mulvaney. I know what you do, and again, I am not
trying to cut you off. I really just want to have a
conversation.
Mr. Cordray. I know.
Mr. Mulvaney. I am not going to give speeches. What did you
do with the extra $50 million?
Mr. Cordray. I know how it works. Yes, what I am saying is,
you need to look at it over time. Some quarters we are asking
for more because we spent more before. Some, we are asking for
less because we spent less before. It is an ongoing thing, and
it is a reasonable answer--
Mr. Mulvaney. --and that is why I went back to look at 2011
and 2012.
Mr. Cordray. Yes.
Mr. Mulvaney. In leading up to your question for 2013--in
2011, you asked for $161 million and spent $123 million.
Mr. Cordray. Yes.
Mr. Mulvaney. In fiscal 2012, you asked for $343 million
and only spent $299 million before you asked for $136 million
versus only spending $85 million in the first quarter of 2013.
So by my calculations, going back to the beginning of your
existence, you have asked for roughly $135 million more than
you have spent. I want to know where the money is going?
Mr. Cordray. Let me say a couple of things. First of all, I
hope you understand, there is a challenge to creating a new
agency out of nothing. We had no agency, no personnel, no
structures, anything in July of 2010. We are about 3 years old
now.
We have had something of a pattern in the early phases of
the Bureau as we have been building up, of underspending. In
part, because we had anticipated a hiring trajectory that has
been slower than we intended--
Mr. Mulvaney. How long do you expect it to be before your
quarterly requests start to line up more closely with your
quarterly expenditures?
Mr. Cordray. I think they are beginning to line up more
closely now. The other piece I want to mention is--
Mr. Mulvaney. I don't have the second or third quarter
numbers in 2013, but how closely did they line up, say for your
most recent request?
Mr. Cordray. Okay. So the other piece that I wanted to get
out on the table is, we are leasing a building that is
apparently in need of substantial renovation--
Mr. Mulvaney. I understand all that.
Mr. Cordray. And we have had timing issues where we have
requested funds for that, and then the renovation wasn't able
to proceed yet, so some of those numbers have looked larger
than they have turned out to be. That is the other piece.
Mr. Mulvaney. Your authority to ask the Federal Reserve for
money seems to come from Section 1017 which gives you the right
to, ``an amount determined by the Director to be reasonably
necessary to carry out the authorities, et cetera.'' Okay, that
is the statutory authority for your ability to go request money
from the Federal Reserve. If anybody thought that your request
was unreasonable, who could make that challenge?
Mr. Cordray. I think we are subject to oversight by the
Congress right here. You are the only--
Mr. Mulvaney. No, the only oversight we have on your
spending is the caps that are set every single year as a
percentage of the expenses of the Federal Reserve, so I am
asking you, has your Inspector General ever asked you about the
relationship between the size of your requests and the size of
your expenditures?
Mr. Cordray. We are subject to a GAO audit every year. We
are subject to an additional outside audit every year. This is
all the law of the land. We are subject to Inspector General--
Mr. Mulvaney. I don't care about that. Has anybody ever
asked you that question?
Mr. Cordray. I think that question has been asked several
times, actually in these hearings, it has been asked before,
because people want to make sure, just as you are legitimately,
and very validly, as far as I am concerned, asking now. How is
our spending matching up with our budget--
Mr. Mulvaney. And the reason I ask, Mr. Cordray, is because
the money comes directly from the Fed, and because the Fed
remits its extra earnings back to the Treasury, this is money
that comes straight off of the bottom line. This is money that
would go to reduce the deficit that you all are sitting on.
Again, my calculations, roughly $135 million plus interest.
Mr. Cordray. Yes. Again, there has been some underspending
issues around the hiring trajectory and also the timing of
building renovations that will smooth over time. As for us, we
are like every other banking agency, but we have a hard cap on
our budget which the others do not have.
Mr. Mulvaney. Are you operating under a specific plan to
run up the amount in that account?
Mr. Mulvaney. How large do you expect that amount to be?
Mr. Cordray. I expect that as soon as the building
renovations get under way, I am sorry to say, because I would
rather spend $0 on it, much of that will be--
Mr. Mulvaney. Good, because that will happen some time.
I want to follow up very briefly now on something that Mr.
Green and Mr. Heck both asked about the smaller financial
institutions. My understanding is that you have some primary
authority over the larger, and then some secondary authority
over some of the smaller institutions of less than $10 billion.
Tell me, sir, how you handle your rule-making, your
oversight authority differently for the small institutions
versus the large ones, and the specific example I am interested
in, there is the prohibition on financing credit insurance
premiums which I understand rules now apply the same for the
large institutions versus the small. So tell me how you treat
those two institutions differently in that particular
circumstance.
Mr. Cordray. The institutions are treated differently in
part under the law because we don't have any authority to
examine any institutions with assets of $10 billion or less. So
we have no examination teams that go in, we are just not part
of that. It is a very significant difference and its one that I
understand people lobbied hard for in the Dodd-Frank Act.
In terms of how we write our rules, as I indicated in
several respects, we have tried to take account very carefully
of the smaller creditors and their particular needs and the
fact that a few employees can't bear the same compliance burden
as a 200,000 employee institution, as some of the larger ones
are or even larger.
In terms of the things, it is something that we are trying
to be careful about all the time and that is why we have Credit
Union and Community Bank Advisory Councils to help with that.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Colorado, Mr.
Perlmutter.
Mr. Perlmutter. Thanks, Mr. Chairman.
Mr. Cordray, equanimity and perseverance are the two words
that come to mind watching you today. I appreciate the fact
that you have been very mellow under certain cross-examination
and also for being here as long as you have been.
I have three points I want to make.
The first involves the title insurance question that you
received from Mr. Miller using the word ``optional,'' title
insurance being optional.
I just suggest that you remain--that the document be silent
that we in the Federal Government are not mandating title
insurance but in virtually every real estate transaction, if
you have a lender and a borrower, title insurance is going to
be required, and if you are fortunate enough not to need a
lender, you certainly don't want some hazardous waste pipeline
going across your property that you don't know about. So, I
would just suggest you get rid of the word optional.
Mr. Cordray. Okay.
Mr. Perlmutter. Secondly, on Qualified Mortgages, I think
that the Bureau is in kind of a dilemma here with its 43
percent debt to income ratio and the potential that those loans
remain either with the credit union or with the small bank or
with the original mortgage lender because they cannot now be
sold in the secondary market which will then really reduce
their liquidity, and what I fear is that lower-income borrowers
are going to be, in effect, redlined out of borrowing.
And so, there is a potential for discrimination at the same
time, trying to have legitimate underwriting criteria in place,
and I would just ask that your Bureau really look at that
closely because I have had a number of complaints now from
small banks, credit unions, and other lenders that they feel
like they are in an impossible position.
Mr. Cordray. Yes.
Look, I would just say that I think it is going to be very
important to us, and we made a commitment to monitor the
effects of these mortgage rules as we go and as the market
continues to evolve. And if there is GSE reform or other
significant changes in the market, we are all going to have to
think about how those affect the application of some of these
rules.
That is again, I just want to stress this again, that is
why having the information and data about what is actually
going on in the mortgage market is so critical to us being able
to do that successfully and making sure that things aren't
going off the rails. We are also going to be required to review
these rules within 5 years, that is in the law and consider
updating or changing them as appropriate once we have more
experience with them. Again, we won't be able to do that if we
don't have the information necessary to have a--
Mr. Perlmutter. I, for one, want you to have the data, you
need the data to be able to do this right.
Mr. Cordray. Yes.
Mr. Perlmutter. But I think this one, you better watch it
closely from the get-go because--
Mr. Cordray. Fair enough.
Mr. Perlmutter. --I think it is going to be a problem.
Mr. Cordray. Fair enough.
Mr. Perlmutter. The third thing, and it is a subject that
has not come up yet today, is marijuana and banking. And the
reason I bring it up is that in your position at the CFPB, and
then you also sit on the FDIC Board or one of the other
financial boards, we now have two States that allow for adult
use of marijuana, being Washington and Colorado, and 20 States
that have medical marijuana, so 22 States out of the 50 where
there is some use of marijuana and under the banking
regulations whether it is credit unions, banks, the ability to
provide financial services has been questioned by some.
And if that is a consequence, everything goes to cash. And
when it is cash, you have public safety problems. I think you
were Attorney General in your role, you could see that. People
are going to be more subject to robbery, obviously fraud, you
can't follow the money. From a tax point of view or from any
kind of audit trail kind of a point of view.
So, this matter came up before the Senate Judiciary
Committee a couple of days ago, the Attorney General and their
office has said, look, we understand that there is a banking
issue here. We have sent, Denny Heck and I have sent you a
letter on this subject and we would like for you to really be
on it because we think this is a public safety issue. We now
have 22 States, something that has to be addressed.
And with that, I yield the balance of my time to the
ranking member.
Mr. Cordray. Do you want me to make a brief statement on
that, because when you first raised the issue of marijuana and
banking, I was a little surprised, and then I recalled the
letter which I did see, and that there are some legitimate law
enforcement and financial issues here that we will be glad to
take a look at. I am from Ohio, and we are not one of those
States, so it is not as front and center in my mind as maybe it
is elsewhere.
Mr. Perlmutter. But the law enforcement piece would be.
Mr. Cordray. Yes.
Mr. Perlmutter. I now yield to the ranking member.
Ms. Waters. Thank you.
I was hoping I would have a little bit more time because I
think you have been so rudely interrupted on any number of
issues that you really didn't have time to respond. I don't
have any time to really give you so we will get with you to
make sure that we get that information from you.
Mr. Cordray. Look, I just wanted to say, I understand this
is oversight. I take it very seriously. It is important to me.
I understand Members feel strongly about certain issues and
sometimes it is not easy for me to give a simple answer to a
question about a complicated matter.
I hope people can understand and respect that and I know
that can be frustrating. That is not my intention, not my
purpose, and I am happy to continue to work with you to see
that you have the oversight that you want and need.
Chairman Hensarling. The time of the gentleman from
Colorado has expired.
The Chair now recognizes the gentleman from New Mexico, Mr.
Pearce.
Mr. Pearce. Thank you. Mr. Cordray, congratulations and
condolences on your confirmation.
I represent New Mexico, and 50 percent of the loans in New
Mexico for housing are for trailer houses, so when your agency
excluded balloon loans, it made it very difficult to loan money
on houses that are--if they are misused, they actually
deteriorate, fall down in 4 or 5 years, so the balloons were
common practice and you have made that very difficult. Any
prospects of changing that?
Mr. Cordray. Thank you, Congressman, and this was an issue
that we worked hard on to try to give more latitude in the
rural or underserved areas. I come from an area of Ohio that I
consider rural. There is a farm across the road but I have come
to understand that in western States, rural really means
something quite different from my experience.
Mr. Pearce. That would bring up then the second point--
Mr. Cordray. Yes and so--
Mr. Pearce. --I will show you a map.
Mr. Cordray. That is right.
Mr. Pearce. Yes, so this is New Mexico.
Mr. Cordray. That is right.
Mr. Pearce. We have 2 million people in the same size
geographically as the northeast where 55 million people live in
that same size area. Now if you look over here in this corner
here, that is Luna County. It is about 2,500 square miles,
which makes it larger than Rhode Island and Delaware, and it
has 25,000 people, which means that we have 8 people per square
mile. In New York, for instance, you have 27,000 people per
square mile, and they are being treated the same here.
There is one road north and south, one road east and west,
and the one town sits right in the middle and they are being
treated--so this definition of rural and underserved somehow
doesn't play out--Cibola County right here goes over to the
Arizona border, it is 6 people per square mile and they are not
declared rural in your definition.
Mr. Cordray. Yes, let me just--because I think I can lance
the boil on this.
I have seen a similar map for Ohio, and as soon as I saw
the map, I realized we didn't get that right. What we did then
was we put in a 2-year moratorium on that. We have given
everybody comfort and security for 2 years that this will not
be a problem for anybody in any of those counties for the next
2 years and it--
Mr. Pearce. How many home loans fall in the 2-year--0- to
2-year category, sir?
Mr. Cordray. No, no, no for 2 years, this does not take
effect. That is what we have done. We have pulled that back--
Mr. Pearce. So they could make 100,000 loans, and for 15
years and they wouldn't have to reconsider those loans.
Anything done here--
Mr. Cordray. No, no, no, no. For 2 years, we have
completely solved this problem. No lender has to worry about
this for anything they are doing for the next--
Mr. Pearce. I am asking about the loans that are made
during this 2-year period that extend beyond the 2-year period.
Mr. Cordray. Oh that; any loans they make in the next 2
years, this is not a problem.
Mr. Pearce. That is--
Mr. Cordray. We have pulled it back.
Mr. Pearce. --my question.
Mr. Cordray. And during those 2 years, we are going to
reconsider this and redo that definition in a way that is more
aligned, and we are happy to talk to you and your staff as we
go. That is back off the table and is going to be reconsidered.
It is not a problem for people in part because of the input we
got from people that you are talking about.
Mr. Pearce. The general prevailing direction--we had Ms.
Kelley here in this committee room on May 21st, and then she
came in on July 10th to visit personally with us. We still
haven't heard any answers. I know you haven't had quite enough
time to answer some of the things that have come in August, but
this is now dating back to May and July and still no answers on
these things.
Mr. Cordray. But--
Mr. Pearce. I understand that when you declare that banks
are going to be okay, they don't have to follow QM if they hold
things in their portfolio, understand that the portfolio of the
average bank in New Mexico is 70 days.
That means we can lend money for trailer houses for 70
days, then we have to wait until those pay off. So when you
treat these areas of the west the same way that you treat Wall
Street, understand that you have a war on the poor that is
going on.
That is who suffers access to credit and access to being
able to borrow money just to get into some used trailer house.
And so, the one-size-fits-all has been disadvantageous to us
there in the poor rural areas.
Some of the counties in New Mexico got $14,000 per capita
income. So as you make your rules, and again, it would have
been nice to get answers from Ms. Cochran before now. We had a
good dialogue on this very thing.
You gave high praise to community banks, but understand it
is the community banks who are telling me that they are
probably just going to shut down and go out of business because
of the CFPB. That is what I am hearing across the State.
And so with your high praise for them, understand that your
rules are the ones that are probably going to choke off the
banks, and no one from Wall Street is ever going to come to New
Mexico and lend money for a trailer house.
Mr. Cordray. We will make it a point--I know we have spoken
before--to reach out to New Mexico community bankers
associations and get the word to them. I don't think that
smaller lenders should be making a decision to get out of this
market.
I think it is a bad business decision. But I want to make
sure that they understand that some of these anxieties are not,
in fact, accurate and that we are working to continue to
address--like that rule thing was not done correctly by us. We
pulled it back. We are going to rethink it.
And we are avoiding creating that problem. If there are
other things you bring to our attention, we will listen to
those, as well. I do realize, as you say, the West is different
in--
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Illinois, Mr.
Hultgren.
Mr. Hultgren. Thank you, Mr. Chairman.
And thank you, Director. I appreciate you being here.
I had a question about--and I know it is a challenge in
government to have good staff and to keep good staff. I read
recently in--I guess it was a little while ago, back in June--
the American Banker said though some turnover was expected, the
sheer number of senior officials leaving worries bankers. They
wonder who will fill these vacancies and how the new management
will treat the industry.
I think there is a real concern about the number of people
leaving your organization, the CFPB, but also real concern over
who is taking these positions. The other thing that I am very
concerned about is the expertise and uncertainty of people who
are serving in these positions of not really knowing details of
the industry and not having a background in the industry.
I also know there was, back in 2012, a questionnaire that
asked, ``How satisfied are you with the training you receive
from your present job?'' At the CFPB, only 38.8 percent of CFPB
employees agreed that the training they received was
sufficient.
I have talked to my bankers. I have talked to some small or
medium-sized banks around the country. And what I have heard is
a frustration. They have been in this industry for their entire
lifetime. They want predictable, understandable regulation and
regulators who understand.
One of the quotes I heard from one of the bankers was, ``It
is very frustrating when I have been in this business for
decades, and someone who was playing Hacky Sack on the quad 2
years ago is now regulating my bank.''
I have some questions.
Mr. Cordray. Somebody who what?
Mr. Hultgren. ``Was playing Hacky Sack on the quad 2 years
ago now is a regulator over my bank.'' That is a concern I have
heard over and over again. So I wondered if you could respond
to that, the exodus of senior management, and then also the
apparent lack of training and having qualified people to serve
in these important roles.
Mr. Cordray. Sure. First of all, and there has just been
some reporting on this that has been off-base. The notion that
there is some massive exodus of senior officials at the CFPB is
just wrong. We have turnover at the CFPB, as every organization
does, but our retention level has been quite high. The turnover
level is quite low.
There are people who come and go from time to time. And
when they go, they are replaced. And we are finding that the
people we are replacing them with are of equal quality, as good
or better. We get hundreds of resumes for every opening. And we
have actually been able to recruit quite effectively.
Mr. Hultgren. Let me just jump in there. What I am hearing
is that is not the case, at least that is not the perception of
the people who are being regulated. Let me switch gears here
because I have another question. I know you are working on one
more major mortgage rulemaking, the merging of RESPA and TILA
mortgage disclosures into one document.
And the proposed rule was over 1,000 pages and will affect
everyone involved in a home purchase: home-buyers; lenders; and
REALTORS.
As I understand it, given how much technical work must go
into getting every system updated and ready, I would like to
think it would be impossible to have this rule implemented
before January 15th. Is that true? Why or why not?
Mr. Cordray. It was a special mortgage rule in the sense
that Congress required us to do it, but didn't give us a
deadline, which told us that Congress wanted it done, but not
quite on the same priority maybe as some of the other rules.
We will now finalize that rule later this year. We will
give an implementation period for that I think will be
sufficient for industry. And we are talking and listening
closely to what they have to say about that. We recognize that
is going to require a fair amount of systems and process
changes. And that will lag behind the changes that they are
making for January--
Mr. Hultgren. So there will be a delay in implementation
requirements--
Mr. Cordray. It is not even finalized yet, that one, unlike
all the others. And when it is finalized, there will be a
period of time to recognize they need to finish implementing
this rule and then have ample time to bring that into effect.
Mr. Hultgren. Getting very specific on this, I know one of
the requirements the Bureau's RESPA-TILA proposal is to require
all disclosure forms to be in machine-readable record format. I
wonder if you could tell me what that means, what is the
purpose of machine-readable forms? While I understand and
appreciate that this will help the Bureau in examination,
convergence to these systems, as you can imagine, will be
incredibly costly for small lenders, escrow agents, and title
companies.
I wonder what efforts you are taking to help minimize the
cost burdens on this rule on small businesses?
Mr. Cordray. Yes, thank you for the question. Just as you
are hearing about that, we are also hearing about it. We are
trying to think about exactly what purpose that serves and to
what extent those benefits are worth the burdens.
Obviously, the point I know is to create some uniformity so
that there can be more comparison, more analysis, and more
understanding of the market. Whether that is all appropriate or
needs to be done now is something that we are looking at.
Mr. Hultgren. My time is just about done. I hope you will
look at cost-benefit analysis. That doesn't happen enough in
this. And it absolutely is having an impact on small
businesses.
Thank you, Mr. Chairman. I yield back.
Chairman Hensarling. Okay, the time of the gentleman has
expired.
The Chair now recognizes the gentleman from Florida, Mr.
Ross.
Mr. Ross. Thank you, Mr. Chairman.
Director Cordray, I want to talk to you about payday loans
or advanced products, deferred presentment providers. How do
you feel about those particular products?
Mr. Cordray. About payday loans?
Mr. Ross. Yes.
Mr. Cordray. So, as with all small-dollar loans--and there
are different ways of providing it: car title loans; pawn
brokers; and others--they are a mechanism for credit that some
people find absolutely necessary to meet particular situations.
They are often a very high-cost loan. We did a White Paper that
we published in the spring that analyzed this market pretty
carefully. I think some--
Mr. Ross. Let me ask you about that White Paper, the April
24th White Paper of this year.
Mr. Cordray. Yes.
Mr. Ross. The detail of the data that you utilized for
that, have you released any of that yet?
Mr. Cordray. We did publish the paper.
Mr. Ross. But the data upon which the paper relies, and the
data that you collected to write the paper, have you released
any of that?
Mr. Cordray. I am not certain that we can. There is a
certain amount of--
Mr. Ross. Why can't you? There is not a privacy act out
there to prevent you. What privilege would you assert--
Mr. Cordray. What we are talking about is business
information. There may be proprietary and trade secret issues
there. There may be--it was provided to us in confidence on the
understanding it wouldn't be published, could affect the
competitive position of the companies. There is just some
concern--
Mr. Ross. But did it take into consideration just a one-
time user of a payday loan as opposed to a frequent or
repetitive user of a payday loan?
Mr. Cordray. We did, in fact.
Mr. Ross. But did it take into consideration all States and
their programs that they have here?
Mr. Cordray. We did, in fact, yes.
Mr. Ross. The Web site that you have on payday loans has a
particular graphic that says, ``Would you pay--would you take a
taxi across--cross-country trip?'' And it discusses the median
loan, payday loan of $350. The medium number of transactions
per year is 10. The data--the conclusions here are based on the
data from your White Paper? Is that--
Mr. Cordray. I believe so, yes.
Mr. Ross. Don't you think that the integrity of your
report, the White Paper itself is going to be somewhat
tarnished as a result of not disclosing the data?
Mr. Cordray. Look, we can't always disclose the data. What
we can do is analyze it and provide the conclusions.
Mr. Ross. So is it my understanding that you are going to
refuse to disclose the data?
Mr. Cordray. Actually, I will have my staff get back to you
on that.
Mr. Ross. Thank you.
Mr. Cordray. But--
Mr. Ross. I appreciate that.
Mr. Cordray. --there are proprietary trade secrets--
Mr. Ross. I understand that.
Mr. Cordray. --issues, competitive issues--
Mr. Ross. That is being--
Mr. Cordray. --be harmed by disclosing that data, you would
not want that, I would not want that.
Mr. Ross. I agree with you. But you would also agree though
that there is a market out there for payday loans that is not
being met by traditional bank or lending institutions.
Mr. Cordray. There is a market for payday loans--
Mr. Ross. And--
Mr. Cordray. --it is a multibillion dollar market--
Mr. Ross. Yes. And if we--
Mr. Cordray. --there are other ways to meet that demand
too.
Mr. Ross. --overregulate the good players to where they get
out of the market, where is the demand going to go? Most
likely, it will go offshore. Most likely, it will go on the
Internet. You are not going to eliminate the demand just
because you eliminate the supply.
Mr. Cordray. There is actually data on that because there
are 13 States that basically bar payday loans because they
don't allow lending above a 36 percent rate of interest, which
is a pretty healthy rate of interest.
Mr. Ross. Good point, and I want to talk to you about rate
States--
Mr. Cordray. Okay.
Mr. Ross. --that deals with payday loans because when I was
in the legislature in Florida, we addressed this. We have by
far the best regulatory scheme. We address every issue and I
would ask you to please take a look at how we addressed Florida
and if I might just share with you--
Mr. Cordray. Actually, I could help you on that. Drew
Breakspear is your current superintendent of banking and he
provided us with their steps after we did our White Paper, they
took the data and analyzed it for Florida in particular and
provided us with that so we could see how those provisions you
are talking about are unique in Florida.
Mr. Ross. And how did that turn out, do you recall?
Mr. Cordray. It was similar results to what we had in our
report, maybe slightly better numbers in some respects because
of some of the rollover and other types of constraints in
Florida, but it was an interesting analysis and it was a good
example of how they could use our approach, analyze their own
data, provide it to us and then we could have a comparison. It
was very helpful.
Mr. Ross. For example, in your warning here that you say
that the median fees paid for more than $457, repeat borrowing
often results in a cycle of debt, typical APR on a $350 loan is
over 300 percent based on your report.
Now if you look at Florida, Florida limits their borrowing
to $500 per loan. They may have only one outstanding at a time,
the maximum fee, the interest rate is 10 percent plus a $5
verification fee. I wish that was as good on my credit cards.
They even have to wait 24 hours after they pay off the loan
before they can go get another loan. The minimum loan is 7
days, the maximum is 31 days. All I am suggesting to you is
that there is a system that works.
It works effectively, it meets the market demand, and I
would only ask that you please take a look at that and use that
as your model as you go into the payday loans.
Mr. Cordray. I thank you, and actually the Florida data was
very helpful in making a comparison and helping us make
judgments about what may work or not work around the country,
and I just want to emphasize this point again, that without the
data, we can't have any idea what to do about this product. We
have to have that data and Florida provided it, we have our
own, and it is very, very helpful to getting this right.
Mr. Ross. Thank you.
Mr. Cordray. Thank you.
Chairman Hensarling. All Members have been heard.
I would like to thank Director Cordray for his testimony
today.
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 5 legislative days for Members to submit written questions
to this witness and to place his responses in the record. Also,
without objection, Members will have 5 legislative days to
submit extraneous materials to the Chair for inclusion in the
record.
Mr. Cordray. And before those 5 days pass, we will have
those QFRs everybody has been asking about from the last time--
Chairman Hensarling. The committee will be most
appreciative.
This hearing stands adjourned.
[Whereupon, at 12:49 p.m., the hearing was adjourned.]
A P P E N D I X
September 12, 2013
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