[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
EXAMINING LEGISLATIVE PROPOSALS
TO REFORM THE CONSUMER FINANCIAL
PROTECTION BUREAU
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON FINANCIAL INSTITUTIONS
AND CONSUMER CREDIT
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
OCTOBER 29, 2013
__________
Printed for the use of the Committee on Financial Services
Serial No. 113-48
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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
Subcommittee on Financial Institutions and Consumer Credit
SHELLEY MOORE CAPITO, West Virginia, Chairman
SEAN P. DUFFY, Wisconsin, Vice GREGORY W. MEEKS, New York,
Chairman Ranking Member
SPENCER BACHUS, Alabama CAROLYN B. MALONEY, New York
GARY G. MILLER, California MELVIN L. WATT, North Carolina
PATRICK T. McHENRY, North Carolina RUBEN HINOJOSA, Texas
JOHN CAMPBELL, California CAROLYN McCARTHY, New York
KEVIN McCARTHY, California DAVID SCOTT, Georgia
STEVAN PEARCE, New Mexico AL GREEN, Texas
BILL POSEY, Florida KEITH ELLISON, Minnesota
MICHAEL G. FITZPATRICK, NYDIA M. VELAZQUEZ, New York
Pennsylvania STEPHEN F. LYNCH, Massachusetts
LYNN A. WESTMORELAND, Georgia MICHAEL E. CAPUANO, Massachusetts
BLAINE LUETKEMEYER, Missouri PATRICK MURPHY, Florida
MARLIN A. STUTZMAN, Indiana JOHN K. DELANEY, Maryland
ROBERT PITTENGER, North Carolina DENNY HECK, Washington
ANDY BARR, Kentucky
TOM COTTON, Arkansas
C O N T E N T S
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Page
Hearing held on:
October 29, 2013............................................. 1
Appendix:
October 29, 2013............................................. 31
WITNESSES
Tuesday, October 29, 2013
Sharp, Jess, Managing Director, Center for Capital Markets
Competitiveness, U.S. Chamber of Commerce...................... 7
Silvers, Damon A., Policy Director and Special Counsel, American
Federation of Labor and Congress of Industrial Organizations
(AFL-CIO)...................................................... 12
Smith, Lynette, President and Chief Executive Officer, Washington
Gas Light Federal Credit Union, on behalf of the National
Association of Federal Credit Unions (NAFCU)................... 11
Tissue, Robert S., Chief Financial Officer, Summit Financial
Group (Summit), on behalf of Summit, and the West Virginia
Bankers Association............................................ 9
APPENDIX
Prepared statements:
Sharp, Jess.................................................. 32
Silvers, Damon A............................................. 43
Smith, Lynette............................................... 51
Tissue, Robert S............................................. 61
Additional Material Submitted for the Record
Capito, Hon. Shelley Moore:
Written statement of the Credit Union National Association
(CUNA)..................................................... 70
Written statement of the Financial Services Roundtable (FSR). 76
Written statement of the Independent Community Bankers of
America (ICBA)............................................. 77
Posey, Hon. Bill:
Written responses to questions submitted to Lynette Smith.... 79
Written responses to questions submitted to Damon A. Silvers. 80
EXAMINING LEGISLATIVE PROPOSALS
TO REFORM THE CONSUMER FINANCIAL
PROTECTION BUREAU
----------
Tuesday, October 29, 2013
U.S. House of Representatives,
Subcommittee on Financial Institutions
and Consumer Credit,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 3 p.m., in
room 2128, Rayburn House Office Building, Hon. Shelley Moore
Capito [chairwoman of the subcommittee] presiding.
Members present: Representatives Capito, Duffy, Bachus,
Pearce, Westmoreland, Luetkemeyer, Stutzman, Pittenger, Barr,
Cotton, Rothfus; Meeks, Green, and Lynch.
Chairwoman Capito. The subcommittee will come to order.
Without objection, the Chair is authorized to declare a recess
of the subcommittee at any time.
The ranking member is on his way, but I am going to go
ahead and give my opening statement.
This morning's hearing begins a very important discussion
about the structure of the Consumer Financial Protection Bureau
(CFPB). Although the CFPB is in its third year of existence,
members of this committee have significant concerns about the
structural flaws in the leadership of the CFPB. We are here
this morning to gain insight on proposals to reform the CFPB so
that it is better suited to provide a stable regulatory
environment for consumer credit.
Consumer protection is not a partisan issue, and the
proposals before this committee do not attempt to weaken the
CFPB in any way. Rather, these measures attempt to provide more
accountability and transparency to an agency whose structure
makes it susceptible to regulatory overreach and unbalanced
rule-writing.
The first reform that we will discuss today is moving the
leadership of the CFPB from a single director to a five-member
commission. This change will provide the CFPB with greater
accountability and diversity of opinion. These are positive
steps for consumers, who will best be served by regulations
developed by consensus among commissioners of various
professional and educational backgrounds. This diversity of
opinion is critical to ensuring that regulations are drafted in
a manner that strikes an appropriate balance between protecting
consumers and preserving a variety of ways for consumers to
access financial products.
Another proposal before us today is to modify the threshold
for the Financial Stability Oversight Council (FSOC) to review
a CFPB rule. Under the Dodd-Frank Act, the threshold for
reviewing a rule is so high that it is unlikely it will ever be
triggered. An FSOC review of CFPB rules is critical because for
the first time, a Federal agency is solely responsible for
developing consumer credit rules without any concern for the
relationship these rules will have with the safety and
soundness of the financial institutions governed by the rules.
The tension between safety and soundness and consumer
protection is essential to the health and safety of our
Nation's financial system. Legislation before us today to
restore that tension by lowering the threshold for FSOC reviews
is of critical importance.
Finally, we will discuss other legislative proposals to
modify the manner in which the CFPB draws its funding.
Currently, the CFPB is an independent agency housed within
another independent agency, the Federal Reserve. The CFPB draws
its funding from the Federal Reserve's operating expenses
without any consultation from Congress. This arrangement is
unprecedented and a fundamental flaw in the structure of the
CFPB. It is virtually impossible for Congress to carry out its
oversight responsibilities without the ability to reshape the
agency's budget.
In previous cases, this has been the only way for Congress
and the public to rein in an agency that has stepped beyond its
bounds. Given the CFPB's core mission of regulating consumer
credit product, it is essential for Congress to have oversight
over the budget.
I would like to thank the authors of the legislation before
us today for their leadership: Chairman Emeritus Bachus;
Representative Neugebauer; Representative Duffy; Representative
Posey; and Representative Westmoreland. I look forward to
hearing from our witnesses on these proposals.
And until the ranking member gets here, I will yield
Congressman Duffy 2 minutes for the purpose of making an
opening statement.
Mr. Duffy. Thank you, Madam Chairwoman. I appreciate the
panel coming in. And I am grateful that you called this very
important hearing. I would echo your comments, Madam
Chairwoman, in that the CFPB is a large and powerful agency
which is unaccountable. It is unaccountable to Congress, which
means it is unaccountable to the American people. It is
unaccountable to the appropriations process. We are concerned
about the accountability as it relates to a director versus a
board governing the agency. And we are concerned about the
review process as set out in FSOC for rules that come out of
the CFPB.
But one of my main concerns as we have looked at the
American people's relationship with its government is in regard
to data collection. We have learned a lot about what the NSA is
doing with regard to Americans' phone records. We have a lot of
concern about what the IRS is doing in regard to political
activity with our financial information that is given to them.
We are concerned about our health records and Obamacare.
But now we are concerned about the CFPB and its collection
of our credit card information and our mortgage information.
And when the government has access to so much of America's
information, it truly changes the dynamic between the people
and their government. And I would like to hear the panel's
views on the amount of information that the CFPB is collecting
in regard to credit card data--it is our understanding that
they are collecting almost a billion cards or more--and whether
that is necessary or not. Oftentimes, we hear how effective
sampling can be in regard to garnering a pretty good
perspective of what is happening in the whole as opposed to the
CFPB and its near 100 percent collection on information in the
credit card space.
I think this is a very important topic in regard to an
agency that has very limited accountability to the American
people and Congress. And again, I thank the chairwoman for
calling this hearing, and I yield back.
Chairwoman Capito. Thank you.
Mr. Luetkemeyer for 1 minute.
Mr. Luetkemeyer. Thank you, Madam Chairwoman.
As I have said in the past, it is important that Congress
examine the CFPB at every opportunity, particularly given that
there are still considerable structural challenges at this
agency. The legislative proposals we will examine today take
great steps toward creating a Bureau that is responsible,
transparent, and as has been testified to here today,
accountable. These reforms are reasonable, take steps to
protect taxpayer dollars, and represent good government,
something that should gain support on both sides of the aisle.
This agency has been given some of the broadest, most
unchecked authorities in the history of our Federal Government.
It can wade into nearly any territory and operate without any
meaningful oversight from Congress. I believe we need reform at
the CFPB and these legislative initiatives we are discussing
today are steps in the right direction. I thank the chairwoman,
and I look forward to a productive hearing. I yield back the
balance of my time.
Chairwoman Capito. Thank you.
Mr. Westmoreland for 1\1/2\ minutes.
Mr. Westmoreland. Thank you, Chairwoman Capito, and thank
you for having this hearing. And I am grateful to you for
including the bill that I introduced, H.R. 3183, in this
hearing.
Today, it seems that government agencies like the CFPB know
more about me than I do. H.R. 3183 is designed to give
individuals control of their financial data. To me, H.R. 3183
is a simple bill, but so powerful because it allows individual
consumers oversight over the agency that is supposedly looking
out for them.
Simply put, H.R. 3183 would allow an individual, once a
year, to request from the CFPB all the information CFPB has
collected and stored on them. This bill has been modeled on the
very successful program allowing individuals to acquire one
free annual credit report. This bill hopes to apply this
success to your CFPB data file.
Since the bill attempts to apply commonsense reforms to the
CFPB, my guess is that the CFPB won't like it. I am sure we
will hear that they don't have the money, or the staff, or the
ability to implement this commonsense legislation. Let me just
say to the CFPB, do not obstruct commonsense, bipartisan
legislation. The CFPB collects the data, analyzes the data, and
uses the data for supervision and enforcement.
My question to the CFPB is, if you don't want to disclose
it to the individuals that you were supposedly created to
protect, then what do you have to hide?
With that, I yield back.
Chairwoman Capito. The gentleman yields back.
Mr. Bachus for 2 minutes.
Mr. Bachus. I thank the Chair.
When school groups come to the Capitol, most Members of
Congress get to host them and sometimes we get our picture
taken on the steps of the Capitol. And many of us pull out a
copy of the Constitution, and we say, this is your Capitol and
this is your Constitution. And it is all based on the
Constitution. It starts with the three branches of government.
And we talk about checks and balances, and that is what we are
talking about here, that no branch of government would have an
overriding power over another.
And when we form government agencies, we carried this a
step further. They are not elected. Members of Congress, we
have an additional check that is written into Article I, and
that is we have to run for reelection. But with government
agencies, the Constitution said that the Legislative Branch
will make an appropriation. Well, that didn't happen with the
CFPB. So we don't have that check and balance. But with every
other agency, with the exception of the EPA, which is actually
under our power, our budgetary power, all the others were
commissions, bipartisan commissions. And I think we have seen
in the past few weeks when we don't have compromise, when we
don't try to build consensus, we see that things get badly off
track.
That is why I have introduced a bill which was not an
original thought in my mind, but it was what this committee
passed originally in Dodd-Frank, and that was for a bipartisan
commission of five people. There was agreement on both sides of
the aisle that it is what we need to do. That is what we have
done in the past. It helps build consensus. Bipartisanship, we
say we are starved for that.
That bill has already been introduced again, and this
committee will get the right to do the same thing it did back
when we originally passed Dodd-Frank in 2009, and that is to
create a check and balance. And that is for protection of the
people, not for Members of Congress, or not for any one group,
but for the people.
Thank you.
Chairwoman Capito. Thank you.
We are going to go to another Member on the Republican
side, Mr. Pittenger, for 1 minute, and then I will yield to the
ranking member.
Mr. Pittenger. Thank you, Madam Chairwoman, for yielding me
the time.
We are here today to highlight the structural problems with
the CFPB. This has already been touched upon throughout several
hearings this year, but with the immense power that the CFPB
yields, it is vital the American people know the scope and the
reach of this government agency. One of the major causes for
concern is that the CFPB lacks internal checks and balances
because it has a sole director with absolute and unchecked
control rather than a multimember, bipartisan commission.
Another major issue of concern is their budget is not
subject to the appropriations process. The CFPB receives its
funding from the Federal Reserve, which presents robust
congressional oversight. These defects, along with others, make
the CFPB one of the most unaccountable agencies in American
history. As a result, the CFPB will continue to be extremely
susceptible to the bureaucratic pathologies that manifest
themselves in overly burdensome regulation and overly
aggressive enforcement action, which will harm consumers by
making credit scarce and more expensive.
This regulatory onslaught will only end when people
recognize the harm that has been done. We have already seen
this with the IRS. I look forward to hearing the witnesses'
testimony on how we can reform the CFPB for the betterment of
the American people. I yield back the balance of my time. Thank
you.
Chairwoman Capito. Thank you.
I would now like to yield to the ranking member for the
purpose of an opening statement.
Mr. Meeks. Thank you, Madam Chairwoman.
Ever since legislation was enacted in 1872 to protect
consumers from frauds involving the U.S. mail, the Congress,
and the Executive Branch have been increasingly aware of the
responsibility to make certain that our Nation's economy fairly
and adequately serves consumers' interests.
In certain sectors of our economy, we have done pretty
well. Today, American consumers enjoy the safest products and
services in the world in various sectors such as agriculture,
health care, aviation, construction, manufacturing, and the
list goes on and on. In fact, throughout the history of our
Nation, consumers have depended on the government to ensure the
safety and quality of the products and services we consume on a
daily basis. And the success we have had in doing so has led to
the biggest consumer-based economy in the world. Each
succeeding generation has enjoyed a greater variety of goods
and services due to our strong consumer rights laws and
culture.
But our success has not been evenhanded in all sectors, nor
has it been present at all times in the history of our Nation.
Just a few short years ago, we found out the hard way that the
financial sector remained one of the major sectors of our
economy where consumer rights were still treated as a stepchild
among other issues. The philosophy was that banks and other
market participants were conscientious and logical
institutions, and that they would never do something which
would undermine their own survival or lead to their self-
destruction.
As former Fed Chairman Greenspan later recognized, boy,
were we wrong. Not only were they able to do great harm to
themselves, they were also capable of bringing the whole
financial sector and economy down the drain with them. In other
words, the lesson learned was that consumer rights remain and
will continue to remain government's business and ultimate
responsibility. And when left unchecked, the damage can be
devastating for everyone.
And devastating it was: 10 million foreclosures; 8 million
jobs lost; and trillions lost in wealth. Between November 2008
and April 2010, about 39 percent of households had either been
unemployed, had negative equity in their house, or had been in
arrears in their house payments. Thirty-nine percent of all
American households. Indeed, we paid a heavy price for not
putting consumer rights at the top of our priorities.
Fortunately, Congress acted to address this flawed
philosophy with the creation of the CFPB. Just like we have
with the FDA for the safety of the food and drug industry, or
the Federal Aviation agency for the safety of our aviation
industry, we now have the CFPB for protecting consumer rights
in the financial services industry. Consumers shopping for
mortgages, applying for credit cards, or simply using their
checking account can now do so with a little more confidence
that someone is looking out for their rights.
Furthermore, because we have the CFPB, it is my hope that
we will never see another financial crisis resulting from the
massive abuse of consumers being misled into products and
services they neither understand nor can afford. With two-
thirds of our economy depending on consumer spending, our
Nation simply can't afford any attempt to weaken or undermine
consumer rights protections. I know that my constituents in
southeastern Queens can't afford it, after having suffered one
of the highest rates of fraudulent mortgages in the country,
resulting in an overwhelming number of people with mortgages
underwater or facing foreclosure. And if the financial crisis
taught us anything, it is that we need a strong, independent
agency to focus on predatory lending practices.
In fact, let me share with you a quote from a well-
recognized consumer advocate: ``Strong regulatory standards,
adequate review of new products, and transparency to consumers
are all good things. Indeed, had there been stronger standards
in the mortgage markets, one huge cause of the recent crisis
might have been avoided.'' That was Jamie Dimon, the CEO of
JPMorgan, addressing his shareholders a few years after the
crisis.
Yet today, we sit here considering a number of bills to
defang the consumer bureau that even Wall Street supports. I
wonder why and when we keep choosing to pick on the most
crucial part of financial reform in an agency that my
constituents and all Americans desperately need and desire.
Thank you. I yield back the balance of my time.
Chairwoman Capito. Do either of the gentlemen on the other
side have an opening statement?
Mr. Green. Yes.
Chairwoman Capito. Yes. Mr. Green is recognized for how
many minutes, sir?
Mr. Green. Two minutes will be fine.
Chairwoman Capito. Two minutes.
Mr. Green. Thank you, Madam Chairwoman. And I thank the
ranking member as well.
And thank you for the appearing, witnesses.
We have a Consumer Financial Protection Bureau because we
went through some very difficult times. It is not something
that materialized out of thin air. We had a circumstance
wherein the economy was pulled down because of some what were
called toxic assets. We had these 2/28s, and 3/27s. We had no-
doc loans. We had negative amortization.
All of these things became what were called exotic
products, and as a result we had them packaged and sent into a
secondary marketplace; they were securitized. And it made quite
an impact on the economy. It shocked the economy. And as a
result of this, we decided that consumers didn't get a fair
shake, and that we would try as best we could to put in place
an agency that could benefit consumers. Obviously, the
prudential regulators have had some impact on regulations and
laws that could help consumers, but this agency is there for
consumers.
I think, quite candidly, as I reflect on it now, that it is
a little bit short of a miracle that we were able to do it. Mr.
Dodd and Mr. Frank ought to be canonized. Perhaps we should
name a small State after them. I am just not sure what we can
do to adequately recognize the accomplishment of the Consumer
Financial Protection Bureau. So I am one of the supporters of
it, as you might guess, and my hope is that we will not lose
something that was nearly impossible to achieve.
I yield back.
Chairwoman Capito. Okay. The gentleman yields back.
And with that, we conclude our opening statements, and I
would like to welcome our panel of distinguished witnesses.
Each of you will be recognized for 5 minutes to give an oral
presentation of your testimony. And without objection, each of
your written statements will be made a part of the record.
I also ask unanimous consent to submit statements for the
record from the Independent Community Bankers of America, the
Credit Union National Association, and the Financial Services
Roundtable. Without objection, it is so ordered.
Our first witness is Mr. Jess Sharp, managing director,
U.S. Chamber Center for Capital Markets Competitiveness.
Welcome, Mr. Sharp.
STATEMENT OF JESS SHARP, MANAGING DIRECTOR, CENTER FOR CAPITAL
MARKETS COMPETITIVENESS, U.S. CHAMBER OF COMMERCE
Mr. Sharp. Thank you, Chairwoman Capito, Ranking Member
Meeks, and members of the subcommittee. Thank you for having me
here this morning before the subcommittee to testify on behalf
of the hundreds of thousands of businesses that the U.S.
Chamber represents. The Chamber firmly supports sound consumer
protection regulation that deters and punishes financial fraud
and predation. But consumer protection, like every other
government function, must be carried out in a fair, transparent
manner consistent with the principles embodied in the
Constitution.
The CFPB, by design, fails these basic tests. Structural
reforms such as those specified in the bills now before the
subcommittee are urgently needed to incorporate the controls
and oversight that apply to other Federal regulatory agencies,
which will, in turn, ensure far greater stability over the long
term for those who provide and rely on consumer credit.
As the Chamber and others have pointed out on many
occasions, the CFPB places extraordinary unchecked power in the
hands of a single individual. Some agencies have single
directors, that is true, and the heads of independent
regulatory agencies generally do serve for fixed terms. And a
few agencies are even funded outside the appropriations
process. But there is no other entity in the Federal Government
that combines all of these features in one place. And together,
they render the Bureau virtually immune from the checks and
balances that normally constrain agency action.
Moreover, the regulatory and enforcement authority
exercised by the Director is extraordinarily broad. It has the
power to regulate a number of consumer products and services
that are common sources of financing for Main Street
businesses, and in some cases to regulate the service providers
to those companies. And it has a very broad standard to enforce
as well, the prevention of unfair, deceptive, or abusive acts
or practices.
So what are the real-world consequences of giving up some
of these important oversight tools? Here are just a couple of
examples. You begin to lose transparency, we believe, and we
are very concerned about that. The Bureau frequently argues
that it is subject to unprecedented oversight, pointing to
hearings before this committee, sort of the budget
documentation they submit and their semiannual reports as
evidence of that. But the number of hearing appearances and
reports is irrelevant if little or no information is conveyed
in the testimony or those documents. To this day, for example,
despite multiple congressional appearances, the Bureau has
never coherently explained the legal justification for its data
collection programs, discussed the reasons why the collection
is necessary, or adequately responded to concerns about the
security of consumers' financial data. And the Bureau certainly
has not explained why it believes the benefits of these
collection programs outweigh the costs being imposed on the
affected companies.
Businesses want to comply with government regulations, but
they need the government to set clear rules. But rather than
following the rulemaking process, the CFPB prefers to set
standards through enforcement actions and brief informal
guidance memos. For example, the Bureau issued a bulletin
explaining that when a service provider violates an applicable
law or regulation, ``Depending on the circumstances, legal
responsibility may lie with the supervised entity as well as
with the supervised service provider.'' This vague language
provides no real information to companies wishing to exercise
appropriate oversight of service providers, and we are hearing
this is already leading companies to limit the number of
vendors with which they work. The Bureau has declined to
provide any additional information.
Similarly, the Bureau has issued guidance regarding
possible unfair, deceptive, or abusive acts or practices in
connection with debt collection. The guidance document includes
descriptions and examples of conduct that the Bureau deems
unfair or deceptive, but provides no guidance regarding the
meaning of ``abusive'' other than simply reciting the statutory
definition. If ever a term required a notice and public comment
rulemaking process to establish a workable transparent
standard, it is ``abusive.'' But the CFPB expects companies to
do for themselves what the CFPB is unable to do, and that is to
define the term.
Finally, at least two separate letters from members of this
committee have raised questions about the CFPB's actions with
regard to indirect auto lending in compliance with ECOA.
Members have asked for more information about the CFPB's
methodology and the Bureau's apparent choice to create new
legal standards that will fundamentally alter the economics of
the market through enforcement rather through notice and
comment rulemaking. Thus far, the Bureau has not meaningfully
clarified its approach.
The CFPB operates this way because it is fast and because
it maximizes their flexibility, but this approach is enabled by
the Bureau's structure, which makes this strategy virtually
impossible to second-guess. And we just think that is not a way
to design or to run a transparent regulatory agency.
Even the Bipartisan Policy Center just last month said that
the CFPB succeeds when it writes rules, and I think there is
good evidence to illustrate that point. The Qualified Mortgage
rule, I think there is substantial support for where that
process ended up. The remittances rule had some false starts,
but I think it ended up in a reasonable place. When you have a
notice-and-comment process that is informed by the public and
there is collaboration among the parties, you end up with
better results.
So we believe there is urgent need for reform on the
structural side, including the transition to a commission,
including bringing the CFPB under appropriations, and we have
also heard that there may be consideration of a dedicated
Inspector General, which we also think is a terrific idea. So
with that, thank you for the opportunity to testify, and I am
happy to answer your questions.
[The prepared statement of Mr. Sharp can be found on page
32 of the appendix.]
Chairwoman Capito. Thank you.
Our next witness is from my home State of West Virginia,
and I appreciate him driving over the mountains into the
traffic to help us out here today. Mr. Robert S. Tissue is the
chief financial officer of Summit Financial Group, and is
testifying today on behalf of Summit, and also the West
Virginia Bankers Association.
Welcome, Rob.
STATEMENT OF ROBERT S. TISSUE, CHIEF FINANCIAL OFFICER, SUMMIT
FINANCIAL GROUP (SUMMIT), ON BEHALF OF SUMMIT, AND THE WEST
VIRGINIA BANKERS ASSOCIATION
Mr. Tissue. Good afternoon, Chairwoman Capito, Ranking
Member Meeks, and members of the subcommittee. My name is Rob
Tissue. I am the chief financial officer of Summit Financial
Group. Summit is a financial holding company headquartered in
Moorefield, West Virginia, and provides banking and insurance
services to the communities located in the eastern panhandle
and south-central regions of West Virginia, as well as in the
Shenandoah Valley and northern regions of Virginia. I
appreciate the opportunity to present my views on legislation
that we believe would improve the accountability of the CFPB.
But let me begin by first emphasizing that the banking
industry fully supports effective consumer protection.
Americans are best served by a financially sound banking
industry that safeguards deposits, lends those deposits
responsibly, and processes payments efficiently. My bank's
philosophy has always been to treat our customers right and do
whatever we can to make sure that they understand the terms of
their loans and their obligations. Fair service to our
customers is inseparable from sound management of our banks.
Despite this, Dodd-Frank erected a Bureau that divides
consumer protection regulation from safety and soundness
supervision. As such, we must ensure that this new Bureau is
accountable to the fundamentals of safe and sound operation, to
the gaps in regulating nonbanks that motivated financial
reform, and to the principles of consistent regulatory
standards.
There are several features of the Bureau that make improved
accountability imperative. Dodd-Frank gave the Bureau expansive
new quasi-legislative powers and the discretion to rewrite
rules of the consumer financial services industry based on its
own initiative and conclusions about the needs of consumers.
The resulting, practically boundless grant of agency discretion
is exasperated by giving the head of the Bureau sole authority
to make decisions that could fundamentally alter the financial
choices available to consumers.
Not only has the Bureau been given these extraordinary
powers, but it also lacks the accountability that comes with
budgetary oversight. Funding for the Bureau comes not from
Congress, but from the Federal Reserve as a fixed portion of
its total operating expenses. This lack of oversight means that
the Bureau is free to direct its nearly $600 million budget
towards any issue it sees fit, without input from Congress.
Because of its pivotal role, the CFPB must be held accountable
for the consequences of its actions, which includes the
availability of, or the lack thereof, of credit and financial
services to deserving people.
There were a number of bills proposed that begin to address
the accountability of the CFPB. For example, Representatives
Bachus and Duffy begin to address the issue of the structure of
the Bureau in their bills, while Representatives Posey and
Duffy address what the oversight and source of funding should
be in their bills. These bills are a few of many options to
address concerns about the role of the Bureau and its exercise
of power.
An important principle that underlines these and other
bills is that there needs to be an effective check and balance
on the Bureau's authority. We must also ensure that the
Bureau's funds are used effectively and disclosed fully.
I support this principle of accountability and balance and
applaud the congressional efforts to ensure an effective
mechanism is in place to achieve it for the Bureau.
Finally, the improved oversight of the Bureau should be
utilized to guide it to better accomplish its mission.
Specifically, Congress should ensure that nonbanks receive
equal regulation and that new mortgage rules do not prevent
qualified borrowers from obtaining loans. Too often, the focus
seems only to be on banks and other regulated financial
institutions, which are already subject to significant
regulation. This focus will inevitably push customers to less
regulated nonbanks that were one of the major key offenders
leading up to the crisis.
In summary, Congress must take steps to ensure the CFPB is
held accountable or it risks allowing it to harm the very
consumers it is designed to protect. Congress must be vigilant
in overseeing that the actions of the Bureau do not restrict
access to good financial products by responsible American
families.
Thank you, and I welcome the opportunity to answer your
questions.
[The prepared statement of Mr. Tissue can be found on page
61 of the appendix.]
Chairwoman Capito. Thank you.
Our next witness is Ms. Lynette Smith, president and chief
executive officer, Washington Gas Light Federal Credit Union,
on behalf of the National Association of Federal Credit Unions.
Welcome.
STATEMENT OF LYNETTE SMITH, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, WASHINGTON GAS LIGHT FEDERAL CREDIT UNION, ON BEHALF
OF THE NATIONAL ASSOCIATION OF FEDERAL CREDIT UNIONS (NAFCU)
Ms. Smith. Thank you. Good afternoon. Chairwoman Capito,
Ranking Member Meeks, and members of the subcommittee, my name
is Lynette Smith, and I am testifying today on behalf of NAFCU.
I serve as the president and CEO of Washington Gas Light
Federal Credit Union in Springfield, Virginia. Washington Gas
Light has more than 7,200 members and $90 million in assets.
NAFCU appreciates the opportunity to participate in this
hearing today concerning legislative proposals to improve the
structure of the Consumer Financial Protection Bureau.
Credit unions were not the cause of the financial crisis,
and yet we are still greatly impacted by a number of provisions
contained in the Dodd-Frank Act. For example, all credit unions
are subject to the rulemaking authority of the new CFPB. The
requirements in Dodd-Frank have created a number of new and
unnecessary compliance burdens for small credit unions like
mine.
NAFCU believes consumer protection is important, and
supported new regulations for the unregulated bad actors during
the financial crisis. Because consumer protection provisions
already existed in the Federal Credit Union Act, that laws
other governing institutions did not have, NAFCU was the only
financial services trade association to oppose credit unions of
any size being placed under the CFPB's direct regulatory
authority.
Unfortunately, our concerns have proven to be true. A
recent survey of NAFCU members found that 94 percent have seen
their regulatory burden increase since enactment of the Dodd-
Frank Act. We believe that the CFPB's focus should be on
regulating the unregulated entities that contributed to the
financial crisis, not increasing the regulatory burden on good
actors.
While the current CFPB leadership has been open to
listening to credit unions' concerns, NAFCU believes that some
fundamental structure changes at the CFPB could be helpful in
the long term. We believe changes could improve operations,
give it the proper oversight, and result in better
understanding between the Bureau and the entities it regulates.
First, NAFCU supports the concept of creating a five-person
board or commission to govern the CFPB. No matter how qualified
and competent a single individual is, a commission setup would
allow multiple consumer perspectives to be brought to the table
in the CFPB's decision-making process. This would allow for a
healthy debate on new proposals before they are issued.
Second, NAFCU supports legislation that would modify the
threshold needed for the FSOC to veto a proposed rule, and that
clarifies the standard of what can be considered.
Third, NAFCU supports legislative efforts to help ensure
that the government, including the CFPB, does everything
possible to take great care in handling member financial
information.
Fourth, NAFCU believes that Congress should change the
funding mechanism for the CFPB to require annual congressional
appropriation. We believe that subjecting the Bureau to the
traditional appropriations process would allow for better
oversight of this powerful agency.
Finally, there are a number of other areas where CFPB
operations could be improved and the regulatory burden on
credit unions could be lessened. These are outlined in my
written testimony and in NAFCU's five-point plan for regulatory
relief.
In conclusion, I continue to remain at a loss as to why my
credit union has been placed under a new regulatory regime.
While consumer protection is important, credit unions like mine
were good actors before the crisis and now face overwhelming
regulatory burdens post-crisis. Thank you for the opportunity
to participate in this discussion today as the subcommittee
debates possible changes to improve the structure and the
operations of the CFPB. I would welcome any questions that you
may have.
[The prepared statement of Ms. Smith can be found on page
51 of the appendix.]
Mr. Duffy [presiding]. Thank you, Ms. Smith.
The Chair now recognizes Mr. Silvers, the policy director
and special counsel for the AFL-CIO, for 5 minutes.
Mr. Silvers.
STATEMENT OF DAMON A. SILVERS, POLICY DIRECTOR AND SPECIAL
COUNSEL, AMERICAN FEDERATION OF LABOR AND CONGRESS OF
INDUSTRIAL ORGANIZATIONS (AFL-CIO)
Mr. Silvers. Yes, good afternoon, Chairwoman Capito and
Ranking Member Meeks. My testimony today is given on behalf of
the AFL-CIO and on behalf of Americans for Financial Reform
(AFR), a coalition of more than 250 national, State, and local
organizations with a membership of close to 50 million people.
Congress created the Consumer Financial Protection Bureau
as part of a comprehensive set of reforms designed to address
the causes of the financial crisis of 2008, which cost the
world economy in excess of $60 trillion, according to the Bank
of England. After the crisis, a clear consensus emerged that
consumer protection regulation was fragmented and essentially a
stepchild within the various bank regulatory agencies that had
jurisdiction over it.
In response, Congress designed the Consumer Financial
Protection Bureau to unify the consumer protection work of the
Federal Government in the financial services sector in one
government body and to clearly define that body as part of the
overall bank regulatory system. Thus, Congress located the CFPB
within the Federal Reserve System, one of the three bank
regulators. The Bureau, like the other bank regulators and the
FHFA, has a budget that is not set through the congressional
appropriations process. This is not unusual in bank regulation.
The CFPB, again like the other bank regulators, is able to
offer higher salaries, above the General Schedule for Federal
employees, in recognition of the need to offer salaries that
are at least somewhat competitive to people with experience in
the banking sector.
Finally, the CFPB, like the Comptroller of the Currency and
the regional Federal Reserve banks which do the actual
regulating for the Fed, is headed up by a unitary executive.
None of these provisions in Dodd-Frank with respect to the CFPB
are unusual for a bank regulator.
At the same time, in response to some of the concerns that
appear to motivate this hearing, Congress placed a number of
unique constraints on the CFPB. The CFPB is the only financial
regulatory agency whose rules may be overturned by a vote of
the FSOC--the only one. The CFPB must consult with other bank
regulators when engaging in rulemaking and those bank
regulators have no such obligation to consult with the CFPB
when they do their own rulemaking.
The other bank regulators have access to CFPB inspection
reports and the CFPB does not have access to theirs. The CFPB
is subject to mandatory cost-benefit analyses in doing
rulemaking--the other bank regulatory agencies are not--with a
particular requirement to assess the effects of its rules on
small banks, credit unions, and rural consumers. Compared to
other bank regulators, the CFPB is actually substantially more
accountable to Congress and to its fellow regulators.
Nonetheless, since its establishment the CFPB has succeeded
in returning over $700 million to consumers in improperly
assessed fees and charges, including $300 million from JPMorgan
Chase alone. The CFPB has also established standards of conduct
leading to greater transparency and more consumer-friendly
financial markets, including in the critical mortgage market,
as some of my fellow witnesses have attested. These rules have
been hailed by industry leaders, such as David Stevens of the
Mortgage Bankers Association, who said of the mortgage rule
that it accomplished Congress and the CFPB's goal of
``eliminating the risky products and features that once plagued
our industry.''
Today, the subcommittee takes up a series of measures--I
believe there are 9 bills, but perhaps there are now 10, I'm
not sure--each of which is designed to weaken the CFPB, to
deprive the CFPB of its status as a genuine bank regulator, and
to effectively subordinate the CFPB politically to the too-big-
to-fail banks that dominate the markets the CFPB regulates. The
AFL-CIO and Americans for Financial Reform strongly oppose
weakening the CFPB in comparison to other bank regulators by:
(A) replacing the Director of the CFPB with a five-member
board; (B) reducing the required vote at the FSOC to a simple
majority; (C) making the CFPB's budget subject to congressional
appropriation; and (D) requiring the CFPB to pay its employees
less than other bank regulators or limiting the CFPB's
inspection powers.
To put it simply, each of the nine bills before this
subcommittee has no merit. I would make an exception for the
bill that I just heard about a moment or two ago around
disclosing information to consumers who request it. I haven't
seen it and I can't give an opinion about it. The AFL-CIO and
the AFR strongly oppose all nine of these bills. Each is an
effort to weaken the CFPB, will make America's consumers more
vulnerable, will benefit too-big-to-fail banks at the expense
of the public interest, and will make our financial system more
vulnerable to systemic crises.
I appreciate being invited to testify today, and I look
forward to your questions.
[The prepared statement of Mr. Silvers can be found on page
43 of the appendix.]
Mr. Duffy. Thank you, Mr. Silvers.
The vice chair will now recognize himself for 5 minutes.
Just to note, Mr. Silvers, I have to respectfully disagree.
I look at several of the bills here, one being taking the CFPB
from a single director to a board and claiming that undermines
the CFPB's effectiveness when you have a bipartisan commission
that is actually working together on the behalf of consumers, I
don't think holds water. And to think that empowering Congress
through the appropriations process for the CFPB in some way
diminishes the CFPB's effectiveness, I have to tell you, I
disagree with that completely.
But I want to go in a little different direction here. I
have a bill that tries to address many of my constituents'
concerns about the CFPB collecting credit card information.
They are concerned about their privacy. And I have a bill that
would actually make the CFPB, under the auspices of protecting
consumers, ask the consumer's permission before they take their
credit card financial data.
Does anyone on the panel disagree that if we are going to
protect consumers, the CFPB should ask the consumer before
monitoring and collecting their financial credit card data? Mr.
Sharp?
Mr. Sharp. No, I don't disagree. I think if the CFPB is
going to be collecting personally identifiable information in
particular, I think everybody has--I think that people have an
obligation to do that sort of eyes wide open, make sure that
people are consulted.
Mr. Duffy. Mr. Tissue?
Mr. Tissue. As the vice chair is well aware, the banks and
all financial institutions are subject to very strenuous
privacy laws, primarily most recently from the Gramm-Leach-
Bliley Act, and we take privacy very seriously. It is very
important. And obviously, our regulators should be held to
similar standards to protect privacy.
Mr. Duffy. Ms. Smith?
Ms. Smith. Yes, I do also believe that. The CFPB cannot be
too careful with personal information. There is reputation risk
to my credit union members. And NCUA's part 748, which is a
regulation that I have to adhere to which includes member
information and how I have to protect it is a law that I have
to live by every day, and I have to spend thousands of dollars
making sure that my members' information is protected, and I
feel that the CFPB should be held accountable for doing the
same thing. Thank you.
Mr. Duffy. Mr. Silvers?
Mr. Silvers. Yes, I disagree with the proposal you put up
there, and I think that in certain respects my fellow witnesses
have not articulated clearly what the issue is here. If this
information was not held by anyone other than the consumer, Mr.
Vice Chairman, I think you would have a point. But this is
information that already is in the hands of the consumer's bank
or other financial services provider. And in total, all of that
personal, private information in the hands of these commercial
institutions give those institutions an ability to design
intentionally exploitative products using the computer power of
big data.
Mr. Duffy. And I want to interrupt you for one moment. Now,
if I am doing business with Ms. Smith in her credit union, I
have knowingly given Ms. Smith and her institution access to my
financial information. And we have a relationship together to
which I have consented. Where would I as a consumer have
consented to the CFPB taking my information?
Mr. Silvers. Are you suggesting that you have knowingly
given, for example, Jamie Dimon and his staff the ability to
take your information and figure out how to cheat you with it?
Because you haven't.
Mr. Duffy. What I am saying is if I bank with Wells Fargo
or a credit union--
Mr. Silvers. Because you haven't. And my members would
appreciate being protected against that type of exploitation,
and there is no way to do it without giving the CFPB access to
the same information that Jamie Dimon has.
Mr. Duffy. And so my point to the panel is, and I think
most of the panel would agree that we should actually give
permission before the CFPB collects this information.
My time is running out. The CFPB has admitted that it is
taking 80 percent or more of our credit card information. There
are about a billion credit cards out there. Americans
oftentimes have more than one. Does the panel, Mr. Sharp maybe
to you specifically, do you see a need to collect near 100
percent of all of this information or can the same data be
collected and extrapolated by sampling, let's say, 8 or 10
percent of the information as opposed to 80 to 100 percent?
Mr. Sharp. Yes, I guess the way I would answer that is,
this is the conversation the CFPB should be having with the
public. If they want to make the case that they need every
credit card transaction or account data on every cardholder,
let them make that case, and maybe there is a reasonable case
they can make. But we are not having that conversation.
Instead, we are sort of finding out in dribs and drabs that
this collection program exists.
And so, sort of our top-line position is that the CFPB
needs to be much more transparent about what they are doing and
engage the public in a debate about what a reasonable program
looks like and what the costs and benefits are.
Mr. Duffy. Thank you.
My time has expired, so I now recognize the distinguished
ranking member, Mr. Meeks, for 5 minutes.
Mr. Meeks. Thank you, Mr. Vice Chairman.
Let me start out by first, I guess, asking Ms. Smith: I was
listening to your testimony very carefully, and you started out
by saying, which I completely agree with, that the credit
unions are not or were not the cause of the financial crisis.
But you acknowledged that there was a financial crisis, and
that there were bad actors that helped cause that financial
crisis. And you also acknowledge the fact that there is a need
to protect consumers. It is just that you feel that credit
unions shouldn't be part of it, is that correct?
Ms. Smith. That is correct.
Mr. Meeks. So if the credit unions were not covered under
the CFPB, then the credit unions would agree, I would assume,
to protect the good actors, that you would have a CFPB that is
strong and independent so that it could do its job as other
independent regulators do that are not subject, so they could
have the freedom to do what they need to do as far as their
jobs. Would that not also be correct?
Ms. Smith. That would be correct.
Mr. Meeks. Okay. And let me just--and I am just wondering
on this theme of appropriations, especially coming out of what
we just came out of with reference to a government shutdown and
utilizing the appropriation process to somewhat hold the CFPB
or others somewhat hostage to Congress, as opposed to allowing
them to do what they were designed to do when we passed Dodd-
Frank, would be substantial. So, for example, and I will just
ask you again, Ms. Smith, and then I will leave you alone.
Ms. Smith. Sure.
Mr. Meeks. But you did say in your testimony that the CFPB
should be subject to the traditional appropriation process to
allow for better oversight of this powerful agency. Would you
extend that statement to the Federal Reserve, for example, or
the FDIC, or the OCC, and/or the National Credit Union
Administration?
Ms. Smith. No, I would not.
Mr. Meeks. Those are very powerful financial institutions
or regulators, and in fact I would argue that many of those are
even more powerful than the CFPB. The CFPB is probably less
powerful than these organizations. So my only concern is why
single out the CFPB, with this requirement, and we are not
talking about all the others. But I am not going to ask you to
answer that question at this time.
Let me just ask Mr. Silvers a question. Our Republican
friends have suggested that the Bureau's budget be set through,
again, this congressional appropriations process. Can you
explain to us why most of the great lessons from the financial
crisis taught us that bank regulators' lack of attention to
consumer protection was one of the major causes of the crises,
leading to more than 10 million families losing their homes. In
fact, the former Fed Chairman himself admitted that regulators
had been mistaken for not paying more attention to consumer
protection issues in the mortgage lending industry. Do you
agree with him or don't you?
And so, can you just simply answer the question then, do
you believe that if the appropriations process was covered
under the CFPB, would the CFPB have the independence to perform
its duties?
Mr. Silvers. Congressman, since the 1870s, as I think you
began your opening remarks, it has been well-understood on a
bipartisan basis that bank regulators need to be insulated from
the appropriations process, because the nature of that process
tends to interfere with them making hard calls around issues of
safety and soundness. That is a 150-year-old lesson that every
time we back away from, we reap a catastrophe.
The particular lesson of the last 10 years is that if you
allow bank regulators who are largely focused on safety and
soundness and who have an ideological belief, as Chairman
Greenspan did, that markets are inherently self-correcting, if
you give them authority over consumer protection, then they
will essentially ignore consumer protection. And the failure to
do consumer protection effectively will lead to the
proliferation of exploitative financial products such as the 2/
28 mortgage that you referred to, that the proliferation of
those products will effectively undermine the safety and
soundness of the financial system.
The two lessons put together are this. First, you must have
a regulatory agency within the banking regulation system that
is exclusively focused on consumer protection, because
otherwise it will be ignored to the Nation's peril. And second,
that like the other bank regulatory agencies, the consumer
protection agency must be insulated from the appropriations
process, like other bank regulators are, because it is an
essential part of bank regulation. It is not merely a sort of
sop for consumers. It is critical to whether or not we will
preserve the safety and soundness of our financial system.
Chairwoman Capito. Thank you. The gentleman's time has
expired. I am going to recognize myself for 5 minutes for
questions.
We have had a lot of rulemaking by the CFPB here over the
last 3 years, and it seems to me we have a really important one
coming out in January, the Qualified Mortgage (QM). And you
have seen some of the projected squeezing down of the number of
mortgages that are going to be able to fit into this QM box, so
that the unintended consequences are still yet to be seen.
So my question would be on the structure of a singular
director as opposed to a committee or a commission of five, can
you speak to how you think regulations could be better
formulated and better refined under a system of a commission as
opposed to a singular director? And I will start with Mr.
Sharp.
Mr. Sharp. Thank you for the question. I think first and
foremost if we were talking about a CFPB that was run by a
commission, I think we would have, and I will explain myself
here, more rulemaking and less sort of shoot-from-the-hip
regulation by press release.
Again, one of our major concerns here is, the CFPB is
required to write certain rules. Qualified Mortgage is an
example; remittances is another example. But otherwise, where
they are not required by Congress to write rules, they have
opted to use sort of nonrulemaking channels to set standards.
They put out guidance memos. They bring enforcement cases,
which may be absolutely meritorious, and I don't want to say
anything good or bad about the particular enforcement cases.
But that is the way they have chosen to set standards, and the
concern is that it is not a transparent process, there is no
opportunity for notice and comments. We just think that is not
the way to run a regulatory agency and we think if we had the
benefit of a commission, we think there would be much less of
that, much more regular order, which we think is to the good
for everybody, consumers and the business community.
Chairwoman Capito. Mr. Tissue?
Mr. Tissue. Madam Chairwoman, I am not a government
organization specialist. I am, to paraphrase a former Member of
Congress very loosely, just a country banker.
It seems to me that we have talked about what appears to me
is that we have a commission of one is the way that the CFPB is
set up, that the model for the regulatory bodies of having the
commission is to have the collegiality, the discussion. I know
there is going to be political partisanship both ways, but just
that interaction, that debate, that process, in my view, it is
only commonsensical it is going to arrive at a better product,
as opposed to a dictatorial--I hate to use such a harsh term,
but that is all that comes to mind.
So it seems to me common sense. I think we all would agree
the QM/ATR standard was challenging for the CFPB to deal with.
And I will say on behalf of my folks in the banking industry,
we are very pleased that particularly banks my size were given,
with the small lender rule, some reprieve from the most
onerous, that we can still do what we do best.
Chairwoman Capito. Ms. Smith, let me ask you a little bit
different question. The original point of the CFPB was to put
all of the consumer protection under one umbrella, and that all
of the other prudential regulators would ostensibly fold their
consumer protection function into the CFPB umbrella. But it
doesn't seem to be pulling forth that way. You have a
regulator. Are you finding at the Federal Credit Union that you
are having to answer to for one consumer protection and then
the overlay of the CFPB in a duplicative, or maybe even
sometimes conflicting way?
Ms. Smith. Yes. If you look at the upcoming laws and rules
from the NCUA, and from the Consumer Financial Protection
Bureau, the laws are lists long and very overwhelming for a
credit union my size.
I don't have the infrastructure in place at my credit
union. I don't have a department of lawyers who can analyze
everything. So it really makes it difficult for me.
But if I can answer the board versus the single director
question that you asked, the board would offer more diversity
of opinion and continuity over time given the change in the
Administration. And I also feel that board terms could be
staggered over a period, and that would ensure continuity to
leadership and be fair to all participants, which the credit
union is a participant. I feel it would be fair.
Chairwoman Capito. Thank you. My time has expired.
Mr. Green?
Mr. Green. Thank you, Madam Chairwoman.
I have an idea. Why don't we a have a board of about 435
and let's give them the authority to work together and
harmonize, and let's give them the opportunity to negotiate. I
think that would yield some sort of work product, one that I
rarely see, but I think we could get a work product out of
that.
I am just curious about this idea of having a board. In
another life, this is a true vignette, without giving a lot of
details, we were confronted, members of this organization, with
something that we wanted to slow down. And someone said, well,
let's slow it down by placing it with a committee, because
obviously you have a number of people to make a decision. And
then someone else said, no, we don't want to kill it, we just
want to slow it down, so we don't want to send it to the
committee.
Friends, if we give the authority to five people, why would
I conclude that these five people, appointed at some point in
time by various different Presidents, are going to be on the
same accord and are going to be able to work and give us a work
product? We have one agency right now that is stalled, has been
stymied for some time, without going into names, because they
can't reach any kind of agreement. This is the protection of
consumers.
Mr. Silvers, give me your thoughts on the one person versus
the five people and why you see the one the better or the five
the better.
Mr. Silvers. I think--
Chairwoman Capito. You need to put your microphone on.
Excuse me, you need to put your microphone on.
Mr. Silvers. I'm sorry, Madam Chairwoman. Is it on now?
Yes.
There are agencies in the Federal Government that have
five-person boards and three-person boards, and then there are
agencies with singular directors. In the bank regulation area,
which is what the CFPB is in, there I think has been an
understanding on the part of Congress and observers of policy
for a long time that day-to-day bank regulation is best in the
hands of a unitary executive who can move quickly. And I think
part of the understanding of Dodd-Frank that you spoke so
complimentarily about earlier was that we needed that type of
approach in the consumer financial protection area as well.
What I am referring to is that the Comptroller of the
Currency is a unitary executive. And it is also the case,
although not well understand, that the Federal Reserve's
regulation of bank holding companies is really undertaken at
the regional level by regional banks with unitary executives,
the President of each Federal Reserve Bank. The Board here in
Washington rarely undertakes the kind of market-specific acts
that the CFPB does routinely.
There is no question in my mind that the effort to move
from a unitary director to a five-person board is motivated by
the knowledge that it will always be possible to have a
blocking member controlled by the industry on a five-member
panel, and that regardless of whether it is a predominantly
Republican panel or a predominantly Democratic panel, there
will always be that swing vote that the industry themselves
controls.
Mr. Green. Now, let's talk about the appropriations process
with the little time that we have left. Are you absolutely
convinced that Congress is going to appropriately appropriate
funds for the CFPB, given that the SEC is understaffed,
underfunded, and we can't come to terms in terms of what the
needs are for the SEC? Mr. Silvers, would you kindly comment?
Mr. Silvers. Congressman, I think you have hit on the most
critical set of facts to appreciate in this debate. We have two
kinds of financial regulatory agencies in our government. One
kind is subject to an annual appropriation by Congress; the
SEC; the Commodity Futures Trading Commission. The other kind
are the bank regulators we talked about earlier: the CFPB; the
Fed; the FDIC; and the Comptroller of the Currency.
The agencies that are subject to annual appropriation are
extremely unhappy with that phenomenon, because they will tell
you it is used to yank their chain and to block them from
effective enforcement. If you can get them to speak to you
candidly, that is what they will tell you; that is what I have
been told on numerous occasions. The reason why we don't have
bank regulators subject to annual appropriation is because it
has been known since the 19th Century that if you do it that
way, you will endanger the safety and soundness of the U.S.
financial system because you will make the decisions of the
bank regulators subject to the political process.
And this is exactly what the realization that consumer
financial protection is at the heart of systemic safety and
soundness led to in Dodd-Frank, the understanding that if we
don't insulate consumer financial protection from the back and
forth of day-to-day politics in Washington, we will endanger
the health of the U.S. economy, as we just did in the financial
crisis of 2008.
Mr. Green. Thank you very much, Mr. Silvers.
And thank you, Madam Chairwoman.
Chairwoman Capito. Thank you.
Mr. Bachus for 5 minutes.
Mr. Bachus. Thank you.
Mr. Silvers, the other three panelists have indicated
pretty strongly that they believe in a bipartisan commission
for the CFPB. Has the AFL-CIO taken any formal position on a
single director as opposed to a bipartisan commission?
Mr. Silvers. Yes, Congressman. I am here representing the
AFL-CIO. It is our position that it should remain a single
director.
Mr. Bachus. They have taken that formal position?
Mr. Silvers. That is a position the AFL-CIO has stated
formally, yes, sir.
Mr. Bachus. Okay, thank you.
Just looking at your experience as their legal counsel, can
you think of any agencies that have issued regulations which
have negatively affected your members and their livelihood?
Mr. Silvers. Congressman, I am sure you know at various
times in an institution as old as ours, I am sure we have had
that view of pretty much everybody at one time or another.
Mr. Bachus. Yes, just over maybe the past 2 or 3 years, can
you think of any that really have been criticized by some of
the labor unions?
Mr. Silvers. Congressman, I think that in the past 2 or 3
years, we have seen a variety of decisions by a variety of
agencies. I am not quite sure which one--you are referring to
somebody in particular, I gather, but I am not sure which--
Mr. Bachus. One comes to my mind, and that is the EPA,
particularly in the coal industry. Do many of your members
believe that some of their decisions as they relate to coal
have been adverse to your interest?
Mr. Silvers. Congressman, I can say there is a wide range
of opinion on that subject within the AFL-CIO. Currently, we
are in--
Mr. Bachus. What is your opinion?
Mr. Silvers. Currently, the AFL-CIO is in dialogue with the
EPA on coal rules, and we have not come out with a final
opinion about their current coal rules.
Mr. Bachus. All right. The EPA and the CFPB are the only
two with single directors.
Mr. Silvers. Congressman, that is not the case. As my
earlier testimony indicated, the Comptroller of the Currency,
which is far more relevant to this conversation than the EPA,
is a single-director agency.
Mr. Bachus. The Comptroller of the Currency can be recalled
at any time. So he almost instantaneously can be replaced, and
he is under supervision by the Secretary of the Treasury, who
is appointed by the President.
Mr. Silvers. It is rarely done.
Mr. Bachus. They are under the appropriation process.
Mr. Silvers. As a matter of custom, as I said, it is rarely
done.
Mr. Bachus. It can be done.
Let me ask you this. In your testimony, you start out
talking about the financial crisis of 2008. You cited those
figures we have all heard, which we agree with, that the cost
to the economy was devastating, and to jobs. Do you recall what
companies were failing then?
Mr. Silvers. All too well, Congressman.
Mr. Bachus. AIG probably was the biggest failure, as well
as Bear Stearns, Lehman, Washington Mutual, Wachovia.
Mr. Silvers. Congressman, if you want my opinion, I would
add Citigroup, Bank of America, and potentially more.
Mr. Bachus. Absolutely. They were shaky. They were in
trouble.
Mr. Silvers. I would suggest that 2 years ago, Citigroup
was bankrupt if not for the Federal Government.
Mr. Bachus. I think a lot of people share that opinion.
What do all of those have in common? They are not your mom-and-
pop or your Main Street bank or credit union, are they?
Mr. Silvers. Congressman, what those banks have in common
is that they totally dominate the markets the CFPB regulates.
Mr. Bachus. That is right. They absolutely. They are a
dominant position, they control over 70 percent of the assets
of all financial institutions.
What do you think about the proposals by NAFCU and others
to raise that $10 billion threshold on direct examinations? If
you raised it to 25, it would still cover 75 percent of the
banking assets. Do you all have an opinion on whether the
smaller institutions ought to be exempted not from the
jurisdiction, but simply from the direct examinations?
Mr. Silvers. Congressman, I have thought about this
question a lot. I think you pose a very thoughtful question. I
think one of the lessons of the financial crisis is that it is
possible for large institutions to act through smaller
institutions. If you go back and look at the situation in the
private label mortgage market during the bubble, most of those
mortgages were actually originated, the consumer interface was
through very small institutions, storefronts.
The import here is that if you are trying do consumer
financial protection, it may be the case that the markets in
fact are dominated by large institutions, but they essentially
subcontract. So that if you exempt at too small a level, which
you tried to do initially--
Mr. Bachus. AIG didn't do that.
Mr. Silvers. --you will miss the problem.
Chairwoman Capito. The gentlemen's time--
Mr. Bachus. Bear Stearns, Lehman didn't, Washington Mutual
didn't.
Chairwoman Capito. The gentlemen's time has expired.
Mr. Bachus. All right. Thanks. Could I ask him, you don't
believe that we ought to exempt some of the smaller
institutions from some of these regulatory burdens?
Mr. Silvers. You asked about the AFL-CIO. We have not taken
a formal position on this question that I know of.
Mr. Bachus. For or against?
Mr. Silvers. But my view as policy director is that the $10
billion number is about right.
Chairwoman Capito. I am going to go to the next questioner,
Mr. Lynch, for 5 minutes.
Mr. Bachus. The others have already stated in their
policies that they believe it ought to be raised.
Ms. Smith. Absolutely. We think all credit unions should be
exempt, regardless of the asset size.
Chairwoman Capito. All right. Thank you.
Mr. Lynch?
Mr. Lynch. Thank you, Madam Chairwoman.
Let's see. I do want to go back to the point that in
looking at all the bank regulators prior to the collapse of the
financial system in 2008, the SEC, the OCC, the CFTC, the FDIC,
the Fed, those are all institutionally focused bank regulators.
So after Congress voted to give $787 billion to the big banks--
I voted against it, by the way--our thinking in the course of
Dodd-Frank was that we need to have somebody out there looking
out for the consumer. That is what the CFPB was established to
do, to be the dog in the fight for the consumer, not looking
out for banks or credit unions or institutions. And so, that is
why we set it up.
And since it has been established, there has been a
relentless effort by my colleagues to varying degrees on the
other side of the aisle to do away with the CFPB. We have bills
sponsored by my colleagues on the other side of the aisle that
would just flat out repeal Dodd-Frank, it would repeal section
10. And so, you see, even though people say they are in favor
of consumer protection, their actions really lead you to
another conclusion.
I just want to point out a couple of things. One is, as has
been pointed out previously, the FDIC, the Fed, and the OCC are
self-funded, they do their own thing, they don't have to rely
on congressional appropriations. The two bank regulators that
have to rely on us, the SEC and the CFTC, are grossly
underfunded. And every time we have a debate in this hearing
room over funding for the SEC or the CFTC, there have been
relentless efforts to cut their funding so that they can't do
their job. And I believe that the reason the folks want the
CFPB, the Consumer Financial Protection Bureau, to be subject
to appropriation is so you can kill it, so you can kill it like
you try to kill funding for the SEC, like you try to kill
funding for the CFTC, so that they can't carry out their
obligations under Dodd-Frank either. That is just the way it
is.
And the issue of data, this is like a circular firing
squad. Okay, on the issue of data there is a requirement in the
bill that was advocated by my colleagues on the other side of
the aisle, that was accepted, which said that the CFPB has to
do a cost-benefit analysis and has to back up their policy
decisions based on data. So they asked the banks give us the
data that you are relying upon, let's say, for instance, in
marketing credit cards to folks who shouldn't have credit
cards, people who don't have the income for it. The only way we
can actually have the CFPB verify whether they are gouging the
consumer is to get the data from the banks so we can see
whether they are red-lining certain consumers and taking
advantage of them. So it has to be data-driven. But you are
saying there are now major concerns and you don't want the CFPB
to have the data that is already in the possession of the banks
that are sending out the credit cards which are taking
advantage of consumers.
So you are setting up a system that is completely
unworkable. The CFPB has to have the data that the bank uses to
make their policy decisions. The CFPB needs to have the data so
that they can protect consumers. Everybody is wringing their
hands about what the one agency that is responsible for
protecting consumers might do, God forbid, but yet we allow
these banks to grow bigger and bigger and bigger.
A week doesn't go by without another scandal either at Bank
of America or JPMorgan Chase with billions and billions of
dollars in penalties because they took advantage of Fannie Mae
and Freddie Mac and average people who were trying to get
mortgages. And yet, we have all this handwringing about this
one agency, the only agency that we have in the government
today that is really looking specifically at the interests of
consumers. I think that it is disingenuous to suggest that this
one agency is the root of our problems. This agency, if run
properly, may be the salvation of the economy; it may finally
protect American consumers.
And I see my time has expired. I will yield back the
balance of my time. Thank you, Madam Chairwoman.
Chairwoman Capito. The gentleman yields back.
Mr. Luetkemeyer?
Mr. Luetkemeyer. Thank you, Madam Chairwoman.
Mr. Sharp, thank you for being here today. In reading your
testimony, one of the reforms that you suggest is support for
the bipartisan five-member commission. And I would like to ask
you a question with regards to the fact that data from the
Federal Reserve shows that the finance companies, which fill an
important lending niche and account for nearly a quarter of the
Nation's $3 trillion of consumer credit, are important assets
to our lending services. These companies will lend their own
capital, not that of depositors, so that they are able to make
loans to families with impaired or no credit. These companies
have a very different business model and likely receive a lot
of attention from the CFPB. Yet, the Bureau staff has limited
experience overseeing these companies.
Do you believe that the CFPB would benefit from a
commission structure like what you are suggesting that would
have at least one member having experience regulating consumer
credit at the State level?
Mr. Sharp. The short answer is, I do.
Mr. Luetkemeyer. What other changes would you suggest or
what other recommendations would you make with regards to
people on that commission?
Mr. Sharp. I think it makes sense to have someone from the
banking regulatory community on the board, either from the FDIC
or even from the OCC. Again, I think the goal of a commission
is to a have a broad range of views represented, political
views and sort of industry views, consumer views as well. So I
guess I would be happy to get back to you to give you sort of a
specific list of maybe how we would see a five-member
commission constituted. But our view is have as many points of
view assembled there as possible.
Mr. Luetkemeyer. It would seem that one of the arguments
that has been made, that some of the discussion we are having
here is that a lot of other commissions they say don't work,
yet in the financial regulatory area you have the FDIC, which
has a commission. So I am not sure where they are going to go
with that. It seems to work pretty well.
One of the concerns that I have is with regards to the
effectiveness of the rulemaking that goes on with the CFPB.
And, Mr. Sharp, I would like to relate to you a little bit of a
story that I had, a situation that I had come up in my office
recently.
I met with a group of bankers with regards to the Qualified
Mortgage rule, and they had just been to the CFPB and had
discussed with them the Qualified Mortgage rule that is being
proposed. And the CFPB response was, from the official they
talked to, that you are the 41st group to bring this to our
attention, but we still aren't convinced that this is an actual
problem.
That is unbelievable, that they have 41 different groups
that have brought to their attention this problem with the
Qualified Mortgage, explaining the unintended consequences of
what is going to happen when this thing comes out in January,
and they are ignoring it. And then today in The Hill, Richard
Cordray, the Director of the CFPB, says that, in addressing a
group of lenders recently here in D.C., indicates that we are
all in this together, our oversight of new mortgage rules in
the early months will be sensitive to the progress made by
those lenders and servicers who have been squarely focused on
making good-faith efforts to come into substantial compliance
on time. A little bit contradictory, isn't it?
Mr. Sharp. Yes.
Mr. Luetkemeyer. Where do we go?
Mr. Sharp. I think this is a good example of why a
commission makes sense. As it is now, you have one person to go
make your case to. And if it doesn't work, if they are not
convinced, then you are out of luck. With a commission,
obviously, particularly a commission that would have members of
different backgrounds and different expertise, there is a
better chance that you are going to be able to make your case
effectively to someone within the agency and find some sort of
constituency there that understands your problem of your
particular industry. So, I agree.
Mr. Luetkemeyer. Mr. Tissue, would you like to comment on
that? You are the banker on the panel today. I am sure you have
some concerns with the QM rule and probably have already
expressed to your local West Virginia Bankers Association your
concerns. Here we have an agency that seems to be ignoring the
problems, have a Director who says, well, we are going to work
on it, hand in glove, we are not fitting here. What is your
opinion?
Mr. Tissue. Thank you, Congressman. I am representing the
West Virginia bankers. My particular institution is under $2
billion. As I stated earlier, the small lender exception or the
small lender Qualified Mortgage standard, our biggest issues in
my particular institution was the prescribed DTI of 43 percent
as well as using certain of the Appendix Q standards. That, as
you are aware, under the small lender QM, is not applicable to
banks that are under $2 billion.
That said, in West Virginia there are, in the West Virginia
bankers, there is a large institution that is approaching 10
billion. In fact, it will soon be going. And I talked to their
CFO recently, and they are in the process of moving from the 9
billion so to be over 11 billion. They indicated to me they
have added 24 additional compliance staff people who were
virtually prescribed to them by the regulatory authorities.
Now, I don't know if that was particularly by the CFPB, but to
meet those standards that they will have to now. And it is a
variety, they are not just the QM rules. But it seems to me
what is developing, and I think it is important, what I am
seeing developing is there are two banking standards now. There
are those that are under 10 billion and over 10 billion.
Chairwoman Capito. The gentleman's time has expired.
Mr. Luetkemeyer. I appreciate your perspective.
Thank you, Madam Chairwoman.
Chairwoman Capito. Mr. Rothfus?
Mr. Rothfus. Thank you, Madam Chairwoman.
We are hearing a good bit of debate today on the issue of
having a commission as opposed to a single director. And we
know that our other Federal financial regulators are indeed
governed by a commission, the FDIC, the Fed, the CFTC, and the
SEC, which includes as part of its mission the protection of
investors. That fact alone demonstrates that these aren't just
``institution-focused entities.'' And of course, we have on the
consumer side the FTC and the Consumer Product Safety
Commission that are looking at consumer protection.
Mr. Luetkemeyer raised the issue of the composition of what
a commission might look like. Mr. Sharp, data shows that
finance companies account for nearly a quarter of the Nation's
consumer credit. Because these companies lend on capital, they
are able to make loans to families with impaired credit or no
credit history at all.
From what I understand, though, the CFPB has limited
experience overseeing this nonbank segment of the consumer
credit marketplace. In an effort to maintain this important
avenue of credit to these individuals, would the CFPB benefit
from employing a multimember commission structure with at least
one individual having experience regulating consumer credit at
the State level, similar to how the FDIC board is structured?
Mr. Sharp. Yes, I think that is a good idea. In some ways
being lost here in this discussion is that the CFPB isn't just
a bank regulator. They have domain over a large chunk of the
financial services market that is not pure bank companies. And
so, I do think that experience would be useful on a commission.
Mr. Rothfus. Would you suggest that Congress would
legislate that by statute, that a member of that part of the
industry would be on the commission?
Mr. Sharp. I think that would probably make sense.
Mr. Rothfus. Mr. Tissue and Ms. Smith, I would like to
direct this to you. On July 9th, the subcommittee held a
hearing on the CFPB's data collection practices, and members on
both sides of the aisle expressed concern regarding the CFPB's
ability to maintain the confidentiality and security of
personally identifiable information the Bureau collects about
American consumers. In response, CFPB Deputy Director Atonakes
testified that we have no reason to believe that there has been
a breach. However, in response to questions for the record
submitted to the CFPB by Members following the hearing, Mr.
Atonakes later admitted to us that there have been no less than
three privacy breaches involving the loss or compromise of an
individual consumer's personally identifiable information held
in the CFPB's Consumer Complaint Database. Given these
breaches, how can your members be confident that the CFPB will
safeguard sensitive information contained in the complaints
that consumers submit to the Bureau?
Mr. Tissue. Congressman, as stated earlier, banks hold very
precious our reputation; it is really our lifeblood. And part
of that is expected, the expectation of our customers or our
consumers that we serve is to protect the utmost their privacy.
And I would just say that we would be very troubled if that
reputation is at risk in any way, because it would reflect not
only on the CFPB, but on us as well, we believe.
Mr. Rothfus. Ms. Smith?
Ms. Smith. Yes. I do agree with Mr. Tissue that there would
be reputation risks if our members' information was compromised
due to flaws within the CFPB.
Mr. Rothfus. In the context of our discussion today about
the structure of the CFPB, what can be done to better protect
your members or clients from the privacy risks posed by the
CFPB?
Mr. Tissue. I think that one of the bills we were
discussing today is a disclosure, similar to that where the
consumer has the right to inquire of the CFPB what information
may or may not be held by them. I think our consumers would be
very interested in that. Just as we are under the GLB privacy
portion of the Privacy Act, we are required to inform our
consumers or our customers annually what we are doing with the
information that we are holding on their behalf.
Mr. Rothfus. Mr. Sharp, do you see any reason why the CFPB
should be treated differently from other consumer protection
agencies, like the Consumer Product Safety Commission or the
FTC or the SEC, that are subject to the congressional
appropriations process?
Mr. Sharp. No. Again, we think it makes all the sense in
the world to have the CFPB subject to regular appropriations.
We think, particularly as I laid out in my testimony, the
combination of no appropriations, a single director who is
unremovable except for cause, is not the way to set up an
agency and a situation that is likely to lead to a place where
every time we have a new director there is substantial change
in the attitude and outlook and practices of the agency. So,
yes, we don't think they should be treated differently.
Chairwoman Capito. The gentleman's time has expired.
Mr. Barr?
Mr. Barr. Thank you, Madam Chairwoman.
Mr. Sharp, you alluded earlier to the CFPB's guidance on
dealer-assisted auto financing. I want to ask you a couple of
questions about that. To your knowledge, did the CFPB take into
account any input from auto dealers?
Mr. Sharp. Not that I am aware of.
Mr. Barr. What about consumers, are you aware whether or
not they took into account any input from consumers?
Mr. Sharp. Certainly nothing was taken into account on the
record from anybody as far as I know.
Mr. Barr. Were they required to?
Mr. Sharp. I think that is a good question. I think they
would certainly say that they are not required to.
Mr. Barr. And obviously, as you testified, no notice and
comment rulemaking occurred because it was guidance, informal
guidance.
Mr. Sharp. Right.
Mr. Barr. Did the CFPB hear from Congress on this issue, to
your knowledge?
Mr. Sharp. Not to my knowledge. Not prior to.
Mr. Barr. Did the CFPB disclose in any formal or informal
way, to your knowledge, the analysis, the studies, the
methodology that they used to justify their particular
guidance?
Mr. Sharp. No, not to my knowledge.
Mr. Barr. Did the CFPB do anything at all that would
indicate that it is a responsive, accountable, transparent
agency in issuing this guidance?
Mr. Sharp. Not as far as I can tell.
Mr. Barr. Could the fact that this is a single director,
noncommission agency, not subject to appropriations from
Congress, have anything to do with the fact that this agency is
not taking into account the regulated entities' input or even
the consumers' input on this issue?
Mr. Sharp. Yes, I think that, as I said in my testimony, I
think the structure absolutely enables the agency to sort of
skip steps wherever they feel like they can and should for the
sake of expediency. I am not saying it is bad faith. I know
they are trying to get to quick results. But in doing so I
think they are leaving on the table a huge opportunity to hear
from those who will be affected and to come to sort of a more
reasonable outcome.
Mr. Barr. Mr. Tissue and Ms. Smith, a quick question:
Earlier this year, the CFPB published a final rule creating an
additional category of QM, one for mortgages with balloon
payments that are originated by small creditors in rural or
underserved areas. But there is significant evidence that the
CFPB's categorization of rural and nonrural areas for purposes
of this QM category is flawed. For example, in my congressional
district there is a place called Bath County, Kentucky, which
is manifestly rural, there is nothing urban about it
whatsoever, and yet the CFPB has classified Bath County,
Kentucky, as nonrural.
Is there anything about the CFPB's unaccountable structure,
the fact that it is so completely out of touch with the
counties that it is designating as rural or nonrural, that is
contributing to the flaws in these rural and nonrural
designations?
Mr. Tissue. Congressman, I would point out that in our
State as well, in the chairman's district is Clay County, West
Virginia. This is identical, I believe, to the situation you
refer to in Kentucky. I can't understand how areas like that
would be deemed not to be rural. Perhaps if you had a
commission and you had back-and-forth discussion by those that
would point out the fact that just because a county borders a
SMA, that it doesn't necessarily have to be--it is not a
bedroom community of that SMA.
Mr. Barr. And, Ms. Smith, I beg your pardon, I am going to
move on to a final question, my time is expiring.
Ms. Smith. Oh, okay.
Mr. Barr. So to Mr Silvers, if I could, I do want to ask
you a question. One of your arguments for shielding the CFPB
from congressional appropriations in the budget process is that
the agency needs extra-competitive salary structure to recruit
people in the banking sector. Do you know how many employees
are at the CFPB?
Mr. Silvers. Congressman, I do not. I assume it is a large
number.
Mr. Barr. Do you know how many actually have a banking
background?
Mr. Silvers. Most of the individuals that I have dealt with
on a relatively senior level in the CFPB have a banking
background.
Mr. Barr. You don't know the ratio of whether or not--
Mr. Silvers. I do not.
Mr. Barr. And is the fact that maybe that agency is not
transparent that you don't know how many actually have a
banking background which you say is the justification for not
subjecting this agency to congressional appropriations?
Mr. Silvers. Congressman, since my experience is that the
senior people that I have dealt with at the agency typically
have a banking background, it never occurred to me to ask what
the ratio was.
Mr. Barr. So the people on the ground, the regulators
themselves, not senior, you don't know how many of them
actually do have a banking background, and yet they are subject
to this extra-competitive salary structure. Is that correct?
Mr. Silvers. Congressman, all the bank regulators have this
ability. It is impossible to be an effective bank regulator
without the ability to hire competitively in the banking
sector.
Mr. Barr. Mr. Silvers, final question, do you think the
Securities and Exchange Commission went easy on JPMorgan Chase
in recent activities and the recent enforcement actions? Did
they go easy on them because they were a commission?
Mr. Silvers. Congressman, I serve in a pro bono capacity to
the Attorney General of New York in this matter. I can't really
comment on it.
Chairwoman Capito. The gentleman's time has expired.
Mr. Barr. I yield back.
Chairwoman Capito. Mr. Stutzman?
Mr. Stutzman. Thank you, Madam Chairwoman.
And thank you to the panelists for being here today. I
appreciate your testimony and your comments. I would like to
talk a little bit about just the regulatory experience that you
all have had in the past. I have been reading through some of
the testimony. I actually had a couple of questions for Mr.
Tissue first.
You say in your testimony that recent rulemakings on
remittances and mortgage financing and servicing will benefit
consumers, providers in the market as a whole. The Bureau's
willingness to respond flexibly rather than dogmatically has
enabled these win-win outcomes. But then you say responsiveness
is not of course a substitute for accountability. Could you
follow up a little bit more on that, and what do you mean by
that?
Mr. Tissue. What I mean by that is that just having good
intentions is not good enough, would be my response to that,
that because we have a--circumstances can change and gets back
to the idea of having the commission versus a single director,
is that you have the continuity of administration of the
agency. And I want to be clear here, the banking industry is
not in favor of dismantling the CFPB. I think it has been
asserted by some of the other members, and that is not our
intent. It is in my testimony, when I say we support effective
consumer regulation protection. And it troubles me as a banker
that it would be questioned.
Mr. Stutzman. Soon after that you talk about how there is
more that the Bureau can do immediately, and you touch on
Qualified Mortgages. And then towards the end of that paragraph
you say, ``In order to do this, we need to extend the existing
deadlines, as well as address outstanding issues to ensure that
all creditworthy borrowers have access to credit.'' Can you
give us a little bit more detail on the timelines that you are
dealing with now?
Mr. Tissue. Yes, Congressman. The QM/ATR rule goes into
effect, I believe, on January 14th. We have to, as you know,
train people. We have to put in place the systems, the
processes, and have them up and running to a standard that is
acceptable to them. We, unlike perhaps the healthcare folks,
are held accountable and we will have to have that in place
because we will be reviewed and there will be repercussions if
we do not.
Here again, we are fully in favor of moving forward. We
think there are improvements that could be made. But we are
interested in successfully implementing it, it is just that we
have asked for a bit more time. There has continued to be
changes to that. They say that they have given us a year. That
was a year from the final, but there has been two or three
finals since the final.
Mr. Stutzman. Ms. Smith, would you like to comment on that?
Ms. Smith. Yes. Oh, absolutely, I would like to comment on
the Qualified Mortgage rule that will come into place next
year. I am concerned about it. Over the last 3 years, since the
inception of the CFPB, I have had to increase my compliance
costs. My $100,000 is now going to be $250,000 next year. That
is a lot, that is significant. And credit unions over the last
several years have really had to struggle just to maintain a
positive return on asset. And so, that has been a constant
struggle for us.
We were not the problem. If you look at the reports that I
have, on pages 2 and 4, you will see that in delinquency
ratios, we far outperformed the banks. We were still lending
and my credit union still continues to lend, offer first
mortgages on down.
Mr. Stutzman. You don't have the large armies of lawyers
that you mentioned that large Wall Street banks have to keep up
with the pace of regulations. Can you give us a typical,
average size credit union, how do they handle this? Are they
hiring shared firms, are they sharing a firm, or how do they
handle this?
Ms. Smith. Yes, we do have an organization that assists us
in underwriting our mortgage loans. We do review them, but we
have someone to help us in that regard. And what we are seeing
from them is because they are assisting with some of the
underwriting, they are going to then increase their mortgage
origination costs and pass that cost on down to my members. So,
that is what I am seeing.
Mr. Stutzman. Okay. Thank you very much. I will yield back.
Chairwoman Capito. All right. The gentleman yields back. I
think that concludes the hearing. No more questioners are here.
The Chair notes that some Members may have additional
questions for this panel, 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 these witnesses and to place their 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.
I want to thank all of our witnesses for being so
forthright in your opinions, and I appreciate you taking time
out of your day. And travel safe home back to West Virginia,
Mr. Tissue. Thank you very much. This hearing is adjourned.
[Whereupon, at 4:41 p.m., the hearing was adjourned.]
A P P E N D I X
October 29, 2013
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