[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
THE SEMI-ANNUAL REPORT OF THE CONSUMER
FINANCIAL PROTECTION BUREAU
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
__________
JANUARY 28, 2014
__________
Printed for the use of the Committee on Financial Services
Serial No. 113-60
U.S. GOVERNMENT PRINTING OFFICE
88-522 WASHINGTON : 2014
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC
area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, Washington, DC
20402-0001
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 BRAD SHERMAN, California
EDWARD R. ROYCE, California GREGORY W. MEEKS, New York
FRANK D. LUCAS, Oklahoma MICHAEL E. CAPUANO, Massachusetts
SHELLEY MOORE CAPITO, West Virginia RUBEN HINOJOSA, Texas
SCOTT GARRETT, New Jersey WM. LACY CLAY, Missouri
RANDY NEUGEBAUER, Texas CAROLYN McCARTHY, New York
PATRICK T. McHENRY, North Carolina STEPHEN F. LYNCH, Massachusetts
JOHN CAMPBELL, California DAVID SCOTT, Georgia
MICHELE BACHMANN, Minnesota AL GREEN, Texas
KEVIN McCARTHY, California EMANUEL CLEAVER, Missouri
STEVAN PEARCE, New Mexico GWEN MOORE, Wisconsin
BILL POSEY, Florida KEITH ELLISON, Minnesota
MICHAEL G. FITZPATRICK, ED PERLMUTTER, Colorado
Pennsylvania JAMES A. HIMES, Connecticut
LYNN A. WESTMORELAND, Georgia GARY C. PETERS, Michigan
BLAINE LUETKEMEYER, Missouri JOHN C. CARNEY, Jr., Delaware
BILL HUIZENGA, Michigan TERRI A. SEWELL, Alabama
SEAN P. DUFFY, Wisconsin BILL FOSTER, Illinois
ROBERT HURT, Virginia DANIEL T. KILDEE, Michigan
MICHAEL G. GRIMM, New York PATRICK MURPHY, Florida
STEVE STIVERS, Ohio JOHN K. DELANEY, Maryland
STEPHEN LEE FINCHER, Tennessee KYRSTEN SINEMA, Arizona
MARLIN A. STUTZMAN, Indiana JOYCE BEATTY, Ohio
MICK MULVANEY, South Carolina DENNY HECK, Washington
RANDY HULTGREN, Illinois
DENNIS A. ROSS, Florida
ROBERT PITTENGER, North Carolina
ANN WAGNER, Missouri
ANDY BARR, Kentucky
TOM COTTON, Arkansas
KEITH J. ROTHFUS, Pennsylvania
Shannon McGahn, Staff Director
James H. Clinger, Chief Counsel
C O N T E N T S
----------
Page
Hearing held on:
January 28, 2014............................................. 1
Appendix:
January 28, 2014............................................. 77
WITNESSES
Tuesday, January 28, 2014
Cordray, Hon. Richard, Director, Consumer Financial Protection
Bureau (CFPB).................................................. 9
APPENDIX
Prepared statements:
Cordray, Hon. Richard........................................ 78
Additional Material Submitted for the Record
Hensarling, Hon. Jeb:
Written statement of the National Independent Automobile
Dealers Association (NIADA)................................ 81
Ellison, Hon. Keith:
Report entitled, ``Toward a Sustainable and Responsible
Expansion of Affordable Mortgages for Manufactured Homes,''
by Howard Banker and Robin LeBaron, dated March 2013....... 85
Garrett, Hon. Scott:
Letter to Dr. Thomas Stratmann, University Professor of
Economics and Law, George Mason University, dated January
22, 2014................................................... 137
Response letter from Dr. Thomas Stratmann, University
Professor of Economics and Law, George Mason University,
dated January 23, 2014..................................... 139
Luetkemeyer, Hon. Blaine:
Letter from Hon. Richard Cordray, Director, CFPB, dated
October 31, 2013........................................... 144
Letter from Peter J. Kadzik, Principal Deputy Assistant
Attorney General, U.S. Department of Justice, dated January
28, 2014................................................... 146
FDIC Financial Institution Letter, dated September 27, 2013.. 150
Perlmutter, Hon. Ed:
Letter to Financial Services Committee Chairman Jeb
Hensarling, dated January 10, 2014......................... 152
Royce, Hon. Ed:
Letter to House Speaker John Boehner and Minority Leader
Nancy Pelosi from NAFCU, dated January 22, 2014............ 154
Cordray, Hon. Richard:
Written responses to questions submitted by Chairman
Hensarling................................................. 158
Written responses to questions submitted by Representative
Huizenga................................................... 181
Written responses to questions submitted by Representative
Mulvaney................................................... 184
Written responses to questions submitted by Representative
Barr....................................................... 190
Written responses to questions submitted by Representative
Stivers.................................................... 194
Written responses to questions submitted by Representative
Luetkemeyer................................................ 197
Written responses to questions submitted by Representative
Velazquez.................................................. 201
Written responses to questions submitted by Representative
Ross....................................................... 203
THE SEMI-ANNUAL REPORT
OF THE CONSUMER FINANCIAL
PROTECTION BUREAU
----------
Tuesday, January 28, 2014
U.S. House of Representatives,
Committee on Financial Services,
Washington, D.C.
The committee met, pursuant to notice, at 10:04 a.m., in
room 2128, Rayburn House Office Building, Hon. Jeb Hensarling
[chairman of the committee] presiding.
Members present: Representatives Hensarling, Bachus, Royce,
Capito, Garrett, Neugebauer, McHenry, Pearce, Posey,
Fitzpatrick, Luetkemeyer, Huizenga, Duffy, Hurt, Grimm,
Stivers, Fincher, Stutzman, Mulvaney, Hultgren, Ross,
Pittenger, Wagner, Barr, Cotton, Rothfus; Waters, Maloney,
Velazquez, Sherman, Meeks, Capuano, Clay, Lynch, Scott, Green,
Cleaver, Ellison, Perlmutter, Himes, Peters, Carney, Sewell,
Foster, Kildee, Murphy, Sinema, Beatty, and Heck.
Chairman Hensarling. The committee will come to order.
Without objection, the Chair is authorized to declare a
recess of the committee at any time.
This hearing is for the purpose of receiving the testimony
of the Director of the Consumer Financial Protection Bureau
(CFPB) concerning the Bureau's semi-annual report.
I now recognize myself for 4\1/2\ minutes to give an
opening statement.
This morning, we welcome back Mr. Richard Cordray, Director
of the CFPB, for one of his two statutory semi-annual
appearances before our committee. It is an important appearance
because, by design, the CFPB is perhaps the single most
powerful and least accountable Federal agency in all of
Washington and demands rigorous oversight.
First, let's speak of its power. When it comes to credit
card loans, auto loans, and mortgages of hardworking taxpayers,
the CFPB has unbridled discretionary power not only to make
them less available and more expensive, but to absolutely take
them away. This is not the rule of law; it is the rule of
rulers, and the rulers are unaccountable.
The Bureau is fundamentally unaccountable to the President
since the Director can only be removed for cause, fundamentally
unaccountable to Congress because the Bureau's funding is not
subject to appropriations, and fundamentally unaccountable to
the courts because the Dodd-Frank Act requires courts to grant
the CFPB deference regarding its interpretation of Federal
consumer financial law. Thus, the Bureau regrettably, remains
unaccountable to the American people.
The American people deserve better. They now have witnessed
a failed stimulus plan, trillions of dollars of unsustainable
debt that we can witness on the monitors, revelations of NSA
domestic data collection, and a broken promise of, ``If you
like your health insurance, you can keep it.'' The American
people rightfully demand accountability from this
Administration.
Therefore, our committee took common-sense steps in
November to make the Bureau more accountable and transparent
when we passed six bills that reform the CFPB's flawed
structure, such as replacing its single unaccountable Director
with a bipartisan board; putting Bureau employees on the civil
service pay scale; introducing a safety and soundness check on
its regulations; and giving American citizens greater control
over their personal financial data that the Bureau is
collecting and maintaining on them at this time.
Our committee took another modest step towards greater
accountability for the CFPB when we announced that the
committee's Web site now offers an easy way for the American
people to let us know how the Bureau's works affect them, good
or bad. And since many citizens today justifiably fear
reprisals when it comes to speaking their mind about big
government agencies, citizens' stories and comments will be
treated confidentially, upon request.
We are already hearing a lot of feedback concerning the
harmful impact on consumers of the Bureau's Qualified Mortgage
(QM) rule, which went into effect just days ago.
Let me share a couple of those messages with you. One is
from Doyle Cooper, a small-town banker in Royse City, Texas. He
used our Web site and gave his permission to quote him: ``The
results of Dodd-Frank in the CFPB continue to be a burden on us
each and every day. We have just this past week decided to
suspend any and all mortgage products. We know our customers
and their businesses. But yet, we are being asked to use a one-
size-fits-all underwriting criteria to allow the loan to be a
Qualified Mortgage. The customers in our community have come to
rely on us to help their dreams happen, and now we are being
forced to say, `No, we can no longer help you.'''
Another small-town community banker wrote in to say this
about the QM rule: ``Our bank has had to exit this line of
business''--meaning mortgage lending. ``The bank cannot find a
way to generate these small-balance loans in a profitable
manner under the existing regulatory environment. I can't tell
you the number of times we have had to tell our good, low- to
moderate-income customers that we can no longer loan them money
to purchase a home to live in.''
I have one more story from a small-town community banker
out West. The community bank, due to the QM rule, discontinued
making owner-occupied home loans. The banker said, ``A typical
customer is one without a credit score but whom we have known
all of his or her life and have made many personal loans to
them over the years. Often, these are Hispanic customers--60
percent of our population. And many are more stable than so-
called qualifying secondary market individuals who are simply
overleveraged.''
The CFPB has a very important mission. Properly designed
and led, it is capable of great good, but stories like these
dramatically show the very real harm that the CFPB can inflict
on low- and moderate-income Americans. We can all imagine a
brighter day with abundant economic opportunity for all,
competitive markets, and where consumers' freedom to choose is
respected--a day when these consumers are protected not only
from deceptive practices and fraudulent claims that may come
from Wall Street, but they are protected from the power grabs
and excesses of Washington as well. Until that day comes, this
committee will do everything in its power to hold the CFPB
accountable to the American people.
The Chair now recognizes the ranking member, Ms. Waters,
for 4 minutes.
Ms. Waters. Thank you, Mr. Chairman.
Welcome, Director Cordray, on the Consumer Financial
Protection Bureau's 46th appearance before Congress since its
inception in 2011. Despite the Bureau's extensive engagement
with this committee over the past few years, the CFPB has
managed to do more than just testify before Congress. To the
contrary, the CFPB has built an unprecedented record of success
protecting our Nation's customers and consumers and
servicemembers who have been victimized by unscrupulous
corporations and financial institutions.
In fact, the Bureau's enforcement actions have resulted in
over $3 billion being directly refunded to nearly 10 million
consumers and servicemembers. And the CFPB has earned the trust
of the American public. It has received more than 269,000
consumer complaints, resolved tens of thousands of individual
problems, and answered more than 1,000 questions posed through
its online portal.
Director Cordray, you are here today to discuss findings of
your semi-annual report, which shows the Bureau's continued
success and effectiveness on behalf of consumers. In fact, the
reports shows that in just 1 year--1 year's period--the CFPB
received approximately 122,000 consumer complaints on issues
ranging from mortgages, credit cards, and banking services, to
credit reporting and student loans. These issues matter to our
Nation's consumers and the CFPB is ensuring that when it comes
to these industries, protecting consumers is the Bureau's top
priority.
Moreover, we know that when consumers complain, companies
listen. Recently, the CFPB has issued a number of important
regulations that protect consumers from predatory financial
practices. Most notable is the Qualified Mortgage rule, which
protects consumers by requiring that lenders only make mortgage
loans to those who can afford to repay them over the loan term.
The semi-annual report also indicates the Bureau has
continued this unprecedented success in enforcement actions
against a wide range of institutions for unscrupulous actions.
In Fiscal Year 2013, the CFPB was a party to 13 enforcement
actions related to deceptive marketing, unlawful debt
collection, discrimination, unlawful fees, and fraudulent
mortgage relief schemes.
I am truly proud of the CFPB's outstanding success on
behalf of our Nation's active duty military, restoring more
than $12.5 million to servicemembers.
I was particularly pleased to see that in November of last
year, the CFPB took its first enforcement action against a
payday lender, ordering Cash America to refund $14 million to
consumers for overcharging our servicemembers and robo-signing
court documents and debt collection lawsuits. These actions are
important and must continue.
In the midst of significant Republican scrutiny, and to
potential data breaches at the CFPB and other agencies, the
CFPB has actually helped consumers protect themselves from
fraud and identity theft and actual breaches, such as the
recent incidents at Target and other major retailers.
So, Director Cordray, I would like to take this moment to
commend you for the CFPB's impressive track record in these
short years. But despite all these successes, Republican
attacks on the CFPB continue, unrelenting. Their campaign to
undermine the Bureau is nothing more than a disservice to our
Nation's consumers and our men and women in uniform.
So I look forward to the witnesses' testimony, and I yield
back the balance of my time.
Chairman Hensarling. The Chair now recognizes the
gentlelady from West Virginia, the Chair of our Financial
Institutions Subcommittee, Mrs. Capito, for a minute-and-a-
half.
Mrs. Capito. Thank you, Mr. Chairman. And I would like to
thank Director Cordray for joining the committee this morning.
For the last 9 months, my subcommittee has spent a
significant amount of time learning about the Bureau's new
mortgage rules, and what impact they will have on consumers.
Community bankers and credit unions are very concerned about
their ability to offer targeted programs to help low- and
moderate-income borrowers.
Last June, the chairman of WesBanco, which is in Wheeling,
West Virginia, raised concerns about the ability of his bank to
continue administering a charitable trust that helps low-income
borrowers to realize that dream of home ownership.
Just 2 weeks ago, the executive from Orion Federal Credit
Union in Memphis raised the same concerns that many of his
members who benefited from the Orion Homerun Program, a
tailored rent-to-purchase program, will not fit the Qualified
Mortgage standard. And during that same hearing, the CEO of
Habitat for Humanity of Charlotte testified that, ``As the
regulations stand today, Habitat affiliates remain at risk of a
debilitating liability.''
In each of these cases, a local lender is losing their
ability to serve their community. Lenders who previously
assessed a borrower's ability to repay will be handcuffed by
arbitrary thresholds and a one-size-fits-all approach.
I am very concerned that what we are going to end up doing
with this QM rule is hurting those low- and moderate-income
borrowers who so desperately need the flexibility and the
ability to attain a mortgage.
So I look forward to hearing your comments on that, and I
want to make sure that these borrowers are not left out of the
system.
I yield back.
Chairman Hensarling. The Chair now recognizes the
gentlelady from New York, Mrs. Maloney, for a minute-and-a-
half.
Mrs. Maloney. I thank the ranking member and the chairman
for calling this hearing.
And I welcome Director Cordray.
In just 2\1/2\ years, the CFPB has made huge strides on a
number of important consumer protections, from mortgage
disclosures to credit cards to remittance transfers to
protecting our servicemembers.
The CFPB has also established itself as a data-driven
agency. Its rule-writing process has won praise from industry
and consumer advocates, and both Democrats and Republicans. The
Bipartisan Policy Center described the CFPB's QM rule writing
process as ``open, driven by data and research, and focused on
practical application in the mortgage market.''
And there is still plenty of work left to do. The Bureau is
working on some very important issues such as prepaid card
regulation, payday lending, debt collection, and credit card
overdraft policies. These are clearly issues that merit
attention from the CFPB because they affect a large number of
our constituents and consumers on a day-to-day basis.
As one who helped author the requirement of the semi-annual
report to Congress and other provisions in the CFPB law, I look
forward to Director Cordray's testimony today.
Thank you for your hard work.
Chairman Hensarling. The Chair now recognizes the gentleman
from New Mexico, Mr. Pearce, for 1 minute.
Mr. Pearce. Thank you, Mr. Chairman.
And, again, Director Cordray, we appreciate your appearance
here today. We have heard in previous hearings, and in this
one, that your job is to protect the consumers, that you, in
fact, yourself state that you are focused on making financial
markets work better. My belief is that in rural States like New
Mexico, you are making the market worse.
I would quote from a banker in Otero County: ``Hardworking
people in rural New Mexico are being denied access to credit
for purchasing a manufactured home because of CFPB policies.
Their policies are hurting the small guys.'' That is what I
have maintained in every hearing that we have had with you so
far.
In your attempts to protect the small guy, you are actually
limiting access to credit. Fifty percent of the homes in New
Mexico are trailer houses, and now, almost all of our lenders
are out of that market.
Twenty-five percent have gotten out of loaning money for
houses completely, so you are hurting--your war on the poor is
hurting New Mexico, and we would like to express our position
in this hearing.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Texas, Mr.
Green, for a minute-and-a-half.
Mr. Green. Mr. Chairman, I would like to yield 30 seconds
initially to Mr. Capuano.
Mr. Capuano. Thank you, Mr. Green.
Mr. Cordray, I just wanted to say I think you are doing a
great job. Keep it up.
Mr. Green. Thank you.
Thank you, Mr. Chairman.
And I thank the Director for appearing.
I would like to also thank Mr. Dodd and Mr. Frank. And I
would like to thank Mr. Dodd and Mr. Frank because I liken them
to Benjamin Franklin, who was questioned after the
Constitutional Convention of 1787. The question was whether we
have a monarchy or we have a republic. And his response was,
``We have a republic if you can keep it.''
Today, we have a Consumer Financial Protection Bureau. And
the question is, can we keep it?
My hope is that what Mr. Dodd and Mr. Frank have done in
requiring the semi-annual reports will give us enough empirical
evidence so as to convince the public and Members of Congress
that this agency is vital and important.
With this agency having returned $3 billion to 9.7 million
consumers, I think that speaks volumes. And I would also add,
the question is whether or not we would have received this $3
billion placed back in the hands of consumers if we did not
have the Consumer Financial Protection Bureau. My suspicion is
probably not, but I will ask the Director to elaborate on that
at a later time.
We have it. The question is, can we keep it?
I yield back.
Chairman Hensarling. The Chair now recognizes the gentleman
from Wisconsin, Mr. Duffy, for 1 minute.
Mr. Duffy. Thank you, Mr. Chairman.
I am here with a hopeful heart that the Director is going
to renew his commitment to providing us open and transparent
testimony, consistent with his promise and the promise that has
been made from the CFPB to the American people.
I am specifically interested in hearing testimony in regard
to the data collection program at the CFPB--specifically, the
extent of the information that is being collected on the
American people and the extent of the disclosure that the
American people get when you collect and monitor information on
their financial transactions.
I am also interested in hearing about the civil penalties
fund, how you find victims, designate victims, and decide to
reimburse victims. We are aware that you have provided $14.6
million in victim compensation.
I am also interested in hearing about the Consumer
Education and Financial Literacy Program, where you have
designated $13.4 million for that education. But I also want to
know about the $96 million that has been unobligated and what
the intent is for the use of those dollars.
With that, I yield back.
Chairman Hensarling. The Chair now recognizes the gentleman
from Connecticut, Mr. Himes, for a minute-and-a-half.
Mr. Himes. Thank you, Mr. Chairman, and welcome, Director
Cordray. I am glad you are here.
I was very heartened by the lengthy discussion we had some
time ago in which you were obviously committed to your mission
and had an appreciation for the limits of your mission and the
need you had, of course, to not overly regulate in ways that
would be harmful for our economy.
I am glad you are here. You will sense that is not a
sentiment universally shared in this room.
As the chairman said, they offered up the opportunity to
the American public to offer stories about the work you do. I
have been reading this survey. Apparently, you can help--they
helpfully point out that you are engaged in a massive data-
collection effort, gathering confidential financial information
on millions of Americans, adding piles of new burdensome
regulations on job creators--it goes on and on.
In my business, this is called ``push-pulling.'' It is
certainly leading the witness. It is certainly fear mongering.
And apart from the entertainment value of this white-hot
partisanship, I got to thinking, what about the stories that
can't be told?
How does one tell the story of a predatory loan that didn't
bankrupt an American family? How does one tell the story of a
liar's loan that didn't get made and of a family who is not
sitting on the curb, bewildered, surrounded by their meager
belongings? This is, of course, where we were, where the
Majority would put us back to, and I think it is worth
remembering that.
It is also worth pointing out that the Dallas Fed produced
a report just recently putting a price tag on that tragedy. And
the Dallas Fed said that the price tag per American household
was $50,000 to $120,000 per household.
Director Cordray, I thank you for the efforts you are going
to make to make sure that never happens again.
And I yield back the balance of my time.
Chairman Hensarling. The Chair now recognizes the gentleman
from Tennessee, Mr. Fincher, for 1 minute.
Mr. Fincher. Thank you, Mr. Chairman.
And welcome, Mr. Cordray. I read in your bio that you are
from Ohio, so you are somewhat familiar with rural America. I,
too, live in a small county in Tennessee where we don't have a
red light in the entire county. I have spent my life farming
and working in rural communities.
You may not realize it, but manufactured housing plays a
significant role in the lives of many folks who live in rural
communities in my district and across my State. For many
families, this may be the only home they can afford, and when
they are just starting out, sometimes rental properties are not
always abundant in rural areas. Starting this month, though, it
will be a lot harder for those families to get a loan to buy
manufactured housing homes.
I am concerned the CFPB is cutting off access to credit for
low- and moderate-income home buyers due to the Home Ownership
and Equity Protection Act (HOEPA) Loan rules implemented this
month. I have introduced legislation, H.R. 1779, the Preserving
Access to Manufactured Housing Act, to correct this problem,
and it has received bipartisan support with over 100 cosponsors
and a companion bill in the Senate.
Clearly, this is a problem for a lot of Members, and I am
hopeful we can work this out before families across America are
left without access to financing.
Chairman Hensarling. The Chair now recognizes the
gentlelady from Arizona, Ms. Sinema, for a minute-and-a-half.
Ms. Sinema. Thank you, Mr. Chairman.
And thank you, Ranking Member Waters.
Director Cordray, thank you for recognizing the
difficulties faced by homeowners in my State, and specifically
in Phoenix, and for choosing to hold a field hearing there to
kick off the Consumer Financial Protection Bureau's new
mortgage rules.
As you know, one in five Arizona homeowners with a mortgage
still owes more than their home is even worth. And across the
country, that number is roughly one in ten.
As of December 31st, the CFPB has received almost 6,000
consumer complaints from Arizonians, including over 2,500
mortgage-related complaints.
And my constituent, Mary, was one of these homeowners. Mary
lost her job. She was attempting to negotiate a short sale with
her bank but the bank refused to accept the terms of the deal,
delaying and unnecessarily preventing the sale of her property.
The problems were endless, and Mary felt like she had no
recourse. She was at the mercy of her bank until the CFPB
stepped in and helped facilitate a favorable outcome, which
allowed Mary to move on with her life.
Arizona's homeowners are still struggling, and we feel like
we must do everything we can to help them. The CFPB's new
mortgage rules protect Arizonians like Mary at every stage of
the process, from getting the right mortgage to paying back the
loan, and they provide hardworking families reasonable
safeguards against bad mortgage deals that ruin credit and cost
families their homes and financial security.
In addition to protecting homeowners, the Bureau has also
vigorously enforced protections for active duty military
families, restoring millions of dollars to servicemembers under
the Military Lending Act. This is a huge issue in Arizona.
Thank you.
Chairman Hensarling. The Chair now recognizes the
gentlelady from Missouri, Mrs. Wagner, for 1 minute.
Mrs. Wagner. Thank you, Mr. Chairman.
Welcome, Director Cordray.
It is unfortunate, but by no means surprising, that some of
the worst fears and predictions regarding the Bureau of
Consumer Financial Protection have already come true.
Earlier this month, our committee learned that
organizations such as Habitat for Humanity, as Mrs. Capito
referenced, are finding it more difficult to help low-income
families attain homeownership. Many of us have heard from our
community banks that are altogether leaving the mortgage
business or are seeing their compliance costs absolutely
skyrocket.
Regrettably, news such as this has become all too common
since the Bureau's inception, whether it is the unfair way in
which low- and moderate-income Americans are harmed under the
Qualified Mortgage rule, the deceptive public database of
unverified complaints maintained by the Bureau that only serves
to mislead consumers, or the abusive manner in which the Bureau
is spending money and irresponsibly gathering the sensitive
financial information of American families.
It is clear by now that this Federal bureaucracy is crying
out for reform. And I hope that today's hearing helps to shine
further light on the Bureau.
I thank you, and I yield back.
Chairman Hensarling. That concludes our opening statements.
Today, we welcome Richard Cordray, the Director of the
CFPB. Director Cordray has appeared before this committee
before, so I believe he needs no further introduction.
Without objection, the Director's written statement will be
made a part of the record.
Again, Director Cordray, welcome, and you are now
recognized for your testimony.
STATEMENT OF THE HONORABLE RICHARD CORDRAY, DIRECTOR, CONSUMER
FINANCIAL PROTECTION BUREAU (CFPB)
Mr. Cordray. Thank you, Chairman Hensarling, Ranking Member
Waters, and members of the committee. Thank you for inviting me
to testify about the fourth semi-annual report of the Consumer
Financial Protection Bureau. Since we opened our doors just
over 2 years ago, the Bureau has been focused on making
consumer financial markets work better for consumers and honest
businesses.
Representative Himes, you said you are not sure that
everybody is glad to see me today. My sense is different. I
think everybody here is glad to see me; they just may have
different reasons.
[laughter]
The report we are discussing today describes the Bureau's
efforts to achieve this vital mission. Through fair rules,
consistent oversight, appropriate enforcement of the law, and
broad-based consumer engagement, the Bureau is helping to
restore trust in consumer financial markets.
Through our collaborative enforcement work with fellow
regulators, we are putting approximately $3 billion back into
the pockets of millions of consumers who fell victim to various
violations of consumer financial protection laws. This includes
a refund of more than $6 million to thousands of U.S.
servicemembers based on failure to properly disclose costs
associated with repaying auto loans through the military
allotment system and expensive auto loan add-on products sold
to active duty military.
Because of our supervisory work, financial institutions are
making changes to their compliance management systems that have
prevented violations, reduced risk to consumers, and resulted
in financial restitution to many thousands of additional
consumers. That is good work by our supervision team, good
business practice for the companies, and good for consumers,
who deserve to be treated fairly under the law.
Over the past year we have enacted a number of new rules to
meet the mandates of the Dodd-Frank Act, including the
Qualified Mortgage rule, which I understand we will be talking
about today. This important rule requires mortgage lenders to
make a good-faith, reasonable determination that borrowers can
actually afford to pay back their loans. It is a back-to-basics
approach to mortgage lending. We also enacted the mortgage
servicing rules, which are designed to clean up sloppy
practices and ensure fair and more effective processes for
troubled borrowers who may face the loss of their homes. And we
adopted a remittance rule that provides transparency and
consumer protections for international money transfers for the
very first time.
During this period, the CFPB has also been closely focused
on making sure that businesses--both small and large--have what
they need from a practical and operational standpoint to
understand and comply with the new mortgage rules. We have put
up plain language versions of the rules, created and posted
video guidance, and met with major market players and the full
range of industry stakeholders, including vendors and smaller
lenders. We have worked with our fellow regulators to publish
interagency examination procedures well before the
implementation date so that industry understands our
expectations and has time to make necessary adjustments. We
have also coordinated with other regulators to ensure we all
have a shared understanding to promote consistent supervision
of compliance with these rules.
While we work on all of these important efforts, we also
recognize that consumers bear their own share of responsibility
for how they participate in the financial marketplace. We need
to promote informed financial decision-making. So we are
providing consumers with useful tools, including the ``Ask
CFPB'' section of our Web site, where we have developed answers
to more than 1,000 frequently asked consumer questions. I
encourage you to encourage your constituents to use these
resources. Send them to consumerfinance.gov to gain the benefit
of this expertise, and unbiased, helpful financial information.
The premise that lies at the very heart of our mission is
that consumers deserve to have someone stand on their side and
see that they are treated fairly. To this end, the Bureau
strengthened its Office of Consumer Response, and we have now
received over 270,000 consumer complaints on mortgages, credit
cards, student loans, auto loans, bank accounts, credit
reporting, debt collection, and money transfers, I venture to
say, from constituents in every one of your districts across
the country.
In the past year, in fact, we have received thousands of
private student loan complaints and nearly 30,000 comments in
response to our request for public information about how
student debt is affecting individual consumers and the economy
more generally. At a field hearing we held in Miami last May on
student loan debt, it became clear that there are many
troubling similarities to the mortgage market before the
financial crisis. The burden of student debt is having a domino
effect on our economy by jeopardizing the ability of young
Americans to buy homes, start small businesses, and save for
the future. We consider it a priority to continue to monitor
this market closely as it develops over time.
The progress we have made in the past 2 years has been
possible thanks to the engagement of thousands of Americans who
have used our consumer education tools, submitted complaints,
participated in rulemakings, and told us their stories through
our Web site and at numerous public meetings from coast to
coast. Our progress also reflects the cooperation of those we
regulate, and we attempt to remain considerate of the
challenges they confront. Each day, we work to accomplish the
goals of renewing consumers' trust in the marketplace and
ensuring that markets for consumer financial products and
services are fair, transparent, and competitive. These goals
not only support consumers as they climb the economic ladder of
opportunity, but also help responsible businesses compete on an
evenhanded basis, and reinforce the stability of our economy as
a whole.
Mr. Chairman, I saw with interest yesterday the
announcement that this committee would be accepting stories
from the American people about the effects of the CFPB on their
daily lives. That will provide good data on what our work has
been and how it is affecting people across this country, and we
hope and expect for transparency in understanding what stories
you are receiving from people across the country. We have
confidence in the stories they will tell.
Thank you for the invitation to appear before you today. If
we are quoting Ben Franklin, he said during the Revolution
that, ``We must all hang together or, most assuredly, we will
hang separately.'' As always, we welcome your oversight, and I
am glad to have the opportunity to hear and address your
concerns.
Thank you very much.
[The prepared statement of Director Cordray can be found on
page 78 of the appendix.]
Chairman Hensarling. Thank you, Mr. Cordray.
The Chair now recognizes himself for 5 minutes.
Mr. Cordray, I have no doubt that you have figured out that
the Majority of this committee feels that your agency is
unaccountable by design, but we are increasingly concerned it
may be unaccountable by practice, as well.
As you can tell from the monitors, the Majority also is
very focused on the unconscionable, unsustainable, and,
frankly, immoral debt that is being left to our children. So
how you expend the people's funds is a very salient issue.
You were last before the Senate Banking Committee on
November 12th, where Senator Coburn asked you, ``Can you tell
me why you need a $95 million building?'' I believe he was
referring to your renovation budget.
You answered, ``By the way, we do not own it, and I would
rather not spend a penny on it.'' You went on to say, ``The
HVAC and electrical apparently has to be brought up to snuff.''
And finally, ``It is not like we are building some palace for
the Bureau over the long term.''
Mr. Cordray. That is correct.
Chairman Hensarling. I discovered on December 16th of last
year, it says the Bureau released its financial report. Is it
not true that on page 39 of the report, it says that the
headquarter's renovation costs have now jumped to $145.1
million?
Mr. Cordray. I don't believe that is correct in terms of
construction costs. There are additional costs. We are using--
Chairman Hensarling. That is not part of the renovation
costs on page 39 of the report?
Mr. Cordray. I am just saying we are using GSA now to
oversee this renovation because it has, as we understood,
received scrutiny, and we want to make sure things are being
done right, so--
Chairman Hensarling. Let me ask you about the GSA, then,
because as I understand it, the GSA owns or leases 354 million
square feet in 9,600 buildings across 2,000 communities, and
that your $145 million renovation budget now is equivalent to
over half of their entire annual budget nationwide. Were you
aware of that?
Mr. Cordray. I don't know much about GSA's operations. That
is not the agency I run. I know a lot about the CFPB's
operations. What I would say is they are the experts at dealing
with these types of projects, so we got them involved.
Chairman Hensarling. Okay, so is the $145 million merely to
update the HVAC and electrical?
Mr. Cordray. No, and there have been different numbers
here, and the most recent number that I have seen is $114
million for construction. What I am told is that about two-
thirds of it is required in order to upgrade the basic
structure--the building. We bought a tough building,
apparently, and when I say ``bought,'' we have leased a tough
building. It is--
Chairman Hensarling. So, it is not your building, and you
are--
Mr. Cordray. That is correct.
Chairman Hensarling. --renovating a building that you do
not own--putting in almost as much as the entire value of the
building.
I have tried to get some comparable real estate costs. As
you say, ``We are not building some palace for the Bureau over
the long term.''
Apparently, your renovation cost is now $483 per square
foot, which is triple the typical Washington, D.C., luxury
commercial class-A luxury renovation rate of $150 per square
foot--3 times as much as the D.C. Metro area.
You are spending more per square foot than the Trump World
Tower, which came in at $334 per square foot. You are spending
more than the Bellagio Hotel and Casino which, at the time it
was completed, was the most expensive hotel ever built--$333
per square foot.
And if I am pronouncing this correctly, you are more
expensive than the Burj Khalifa, the tallest skyscraper in the
world, located in Dubai, which came in at $450 per square foot,
and which is known as a ``world class destination,'' a `` New
York urban masterpiece, superlative in every respect,''
designed by ``the world's most esteemed designers,'' one of
which was the architectural firm Skidmore, Owings & Merrill
LLP, while the Bureau paid $7.5 million for architectural and
engineering services at your headquarters.
So, here is the deal--what on God's green earth is going on
here?
Mr. Cordray. It is a--
Chairman Hensarling. Explain to me, Mr. Director, why I
shouldn't be outraged and why the American people shouldn't be
outraged.
Mr. Cordray. Thank you for asking a question, Mr. Chairman,
and let me restate.
First of all, we do not own this building. It is an asset
of the Federal Government. It is owned by the Comptroller of
the Currency.
We have leased the building. The renovations that are
performed there will make the building serviceable for years to
come, probably far outlasting the time of our lease.
The notion that we would try to build some palace that we
don't even own or control doesn't make much sense to me.
I am told that in order to--
Chairman Hensarling. I don't think it makes much sense to
the taxpayers, but you are spending the money.
Mr. Cordray. If I might finish, I am told that we have to
do certain things so that the building can be brought up to
code and work properly. We are going to have to vacate the
building while this is going on. None of this is convenient for
myself and our employees; none of this is something that we
would prefer to do.
We worked with GSA to try to understand what space was
available in Washington, D.C., and there is very limited space
for an agency with over 1,000 employees, so--
Chairman Hensarling. My guess is cheaper space could have
been found in Reston, and the American taxpayers would have
appreciated--
Mr. Cordray. We--
Chairman Hensarling. I am beyond--
Mr. Cordray. We looked around at surrounding areas, as
well.
Chairman Hensarling. I am beyond my time.
The Chair now recognizes the ranking member for 5 minutes.
Ms. Waters. Thank you very much.
Mr. Cordray, allow me to apologize for my chairman with
his, ``I got you'' politics. You are here to give your semi-
annual report and supposedly, as Members of Congress, we are
here for oversight and to try and work out problems.
I could ask and talk a lot about all the good work that you
are doing with students, our men and women in uniform,
predatory lending, payday lending. We have alluded to some of
that in our opening statements. But I wish to talk about
solving problems, not give political messages.
I heard some of the Members on the opposite side of the
aisle talk about manufactured housing. To tell you the truth,
if the chairman and I are really interested in providing
leadership, we would be working with you and the members to
deal with an issue that keeps being brought to our attention.
Would you please give me your take on what is happening
with manufactured housing? What are the differences here? What
can we do to solve this problem?
Mr. Cordray. Thank you, Ranking Member Waters.
I do think that the chairman's questions are fair, and I
want to have a chance to address them fully because as far as I
am concerned, this is an unavoidable one-time expense that we
simply want to put behind us.
And again, it is not something I would choose to do if we
could avoid it.
In terms of manufactured housing, I appreciated the
gentleman's comments--the Representative from Tennessee. I have
family who have lived and live in manufactured housing. I went
to school with many of my friends and other children who grew
up in manufactured housing in my area in Ohio. It is a useful,
beneficial, and often important housing alternative for people,
particularly in rural areas.
My understanding is that some of the issues around
manufactured home loans go back to the changes in the HOEPA
rule and before, that there was a certain retreat from
manufactured home lending at that time. We had executives from
the American Bankers Association come in recently and say that
many of the people who retreated at that time because they
feared the ability-to-repay regime under the HOEPA rules have
now come back into the market, realizing that they overreacted.
There is further concern now with the ability-to-pay regime
and the Qualified Mortgage rule. I personally have met with
leaders from the manufactured home community, both builders and
lenders.
We will continue to meet with them, and I want to
understand their concerns and what we can do to address them. I
do recognize that in parts of America this is the premiere
alternative for putting a roof over peoples' heads and giving
them a chance, and we want to make sure that happens. To the
extent that we can address their concerns and monitor the
market to see what the actual effect is, as opposed to doomsday
predictions that are easy to make in the early days of a rule
in a room like this, we will. We want to know what is actually
happening, and work with them to address those concerns.
Ms. Waters. I give you the rest of the time to address
those concerns. And I want to work with you.
If my chairman does not care enough about this issue to
spend some time on it, we will work with you and see if we
can't convince him that his Members on his side of the aisle
really do have some concerns about manufactured housing.
If you would like to address some of those concerns you
alluded to, please do that now.
Mr. Cordray. There are special difficulties with the kinds
of properties on which you would put a manufactured home, and
then the loans around those.
Almost inevitably, those are specialty properties. I refer
to the Representative from West Virginia and Southeastern Ohio
that I am familiar with in my area of Ohio. There are lots of
places where you cannot necessarily build a home and dig down a
foundation. A manufactured home provides an alternative to
that. Some of them are pretty basic; some of them are more
elaborate.
But the bottom line is it is a useful piece of the housing
market, and it is a necessary piece in certain areas.
Many of those loans are lower dollar loans, so there are
particular issues around the points and fees cap that Congress
imposed, which does become larger as you get to a smaller
dollar loan, and that is how we attempted to build it.
To the extent that there is any modification or change that
needs to be made to make sure that this market can work, we are
all ears, and we will continue to be all ears, both to the
Members of this committee and also to industry and consumers
who are affected by the rule.
Ms. Waters. You have done such a great job on solving
problems and providing leadership.
I would like to meet with you on this issue because I think
we need to demonstrate that we can solve difficult problems, no
matter the chairman's unwillingness to work on this issue and
to resolve it, but rather to simply do the political messaging.
I will meet with you on behalf of not only our constituents on
this side of the aisle, but his constituents that he fails to
pay attention to.
Thank you very much.
Chairman Hensarling. The Chair now recognizes the
gentlelady from West Virginia, the Chair of our Financial
Institutions Subcommittee, Mrs. Capito.
Mrs. Capito. Thank you, Mr. Chairman.
Mr. Director, let's start with the Habitat for Humanity
issue. I have expressed this to you in a private meeting and I
am very concerned about the impact on folks who have the
nonprofits that are--either a rent-to-own program or one like
they have at WesBanco or Habitat for Humanity.
They still don't feel like they are on firm ground in terms
of the rules to be able to move forward with their programs and
give themselves a level of comfort that they can move forward
in the way that they have conducted business in the past, which
is working with families individually.
They think they need more legislation in this issue. We are
ready to do that. What is your response to that?
Mr. Cordray. I actually share your concern about these
issues, and let me go back and review.
Last year when we were first finalizing the Qualified
Mortgage rule, Habitat for Humanity came to us and they had
several concerns about that rule. We told them that we shared
those concerns if they had them.
We worked with them. We sat down, we did a supplemental
proposal that was proposed and then finalized in May or June of
last year that provided a broad provision for coverage for
501(c)(3) charitable organizations such as Habitat.
My understanding at the time was that addressed their
concerns.
Now we come to the end of last year, beginning of this
year, and they have identified some additional concerns that
they did not present to us at that time. These are new
concerns; I understand circumstances change and new experiences
can occur.
We have been working to figure out how we can address those
concerns through further activity. I had a conversation with
Jonathan Reckford, the CEO of Habitat for Humanity, yesterday
to walk through specifically three issues that they have.
Mrs. Capito. If I could cut you off here, just quickly--
Mr. Cordray. Yes.
Mrs. Capito. Do you think these can be solved in your space
or is it--
Mr. Cordray. We do.
Mrs. Capito. --legislation?
Mr. Cordray. We do. And that--
Mrs. Capito. How quickly can you respond to this?
Mr. Cordray. We can respond during the course of this year.
And I asked Jonathan that directly: what kind of timeframe are
they looking at where this will start to pinch them?
And by the way, the main one involves how you characterize
first and second liens, which was an issue that--
Mrs. Capito. Right. It seems to me if you have already
identified the problem, we could go ahead and have the fix if
we--if you already know what it is--
Mr. Cordray. Yes.
Mrs. Capito. --and you think you could fix it--
Mr. Cordray. There are processes--
Mrs. Capito. I would encourage you to do it.
Mr. Cordray. --that we have to work through, in terms of
notice and comment, rulemaking, and the like.
But there are only six of their affiliates of the thousands
of affiliates nationwide that are affected by that. I will just
say that.
Mrs. Capito. --the large one--
Mr. Cordray. And of those six, they all would be addressed
by the discussion we had yesterday. So, we will--
Mrs. Capito. I will--
Mr. Cordray. --move forward to address those.
Mrs. Capito. Okay, I--
Mr. Cordray. I think we can, in fact, address these by
regulatory means and we have made a commitment to work with
them to do that--
Mrs. Capito. I would heavily encourage you to do that, but
there are other programs out there that don't have the voice
that Habitat had who are--
Mr. Cordray. Yes.
Mrs. Capito. --deeply affected by this.
In your statement, you mentioned that the Qualified
Mortgage rule requires mortgage lenders to ``make a good-faith,
reasonable determination that borrowers can afford to pay back
their loans.''
Now, if I was just reading that and didn't know anything
about this, I would think that you are giving the bankers or
the lenders the flexibility to make those determinations and
yourself, and really, that is not what the QM rule does. It
says, ``Here is a box. You write the mortgage within it and if
it doesn't fall within that, then you are going to''--and this
is not just me speaking. That is coming from testimony after
testimony after testimony from credit unions and community
banks who feel that they are not going to be able to have the
flexibility to give the farmer, to give the med student, to
give the single mother the ability to get the home because they
are not going to fit into this QM box.
So my question is, what is plan B here? How long do you
think it is going to take before you see and we see what effect
this is having and when are you going to be able to react to
this or--
Mr. Cordray. I could not disagree more with that
characterization of our rule. I remember at the time we
finalized the rule, we saw a press release from this committee
before anybody had even read what we did saying it is one-size-
fits-all.
That has been a narrative from the beginning. It is not
true.
We had a special provision that we added for small
creditors, community banks and credit unions, which covers
thousands of them--exactly the people you are talking about--
and says if they keep loans in portfolio they can do anything
that they traditionally have done in terms of lending. They
have carte blanche because we trust them on the lending that
they do.
Many of them, when we hear these complaints and I call them
and I speak to them, they just haven't understood that was
added to the rule. And we will continue to try to get the
message out to them.
Mrs. Capito. So the question is--
Mr. Cordray. For a small lender, with less than $2 billion
in assets, who makes fewer than 500 mortgages a year, every
mortgage they make is covered by the Qualified Mortgage rule,
either in its main provisions, or the small creditor provision.
And this is just an unreasoned and irrational--
Mrs. Capito. So the best thing for the two of us is to wait
and see when the data comes out. How long will that be?
Mr. Cordray. That is fine. Absolutely.
Mrs. Capito. Two months, 30 days, 6 months, 1 year? These
are families who are affected by this.
Mr. Cordray. There is data that comes out every month on
the mortgage market--
Mrs. Capito. So, monthly.
Mr. Cordray. --and the housing market. And as I have said,
and I said to you when we met, we are very open to hearing what
that data shows, and also stories. Frankly, we are interested
in hearing stories--
Mrs. Capito. But by your own comments, though, you have
said publicly that we are going to have flexibility here. That
signals to me that you know there are problems ahead. With
that, my time--
Mr. Cordray. No, that is not correct. From the beginning,
we have made further changes in the rule. We made a number last
year in response to what we heard from people. We are an open-
minded agency. We are listeners. As we hear more, we don't want
to have some sort of unexpected effect on this market.
Chairman Hensarling. The time of the gentlelady has
expired. The Chair now recognizes the gentlelady from New York,
Ms. Velazquez.
Ms. Velazquez. Thank you, Mr. Chairman. Director Cordray,
since 2012 the CFPB has been supervising credit bureaus. As you
know, the personal credit rating of small business owners can
have a direct impact on their ability to obtain financing for
their businesses.
Can you provide an update on CFPB supervision of the
consumer credit reporting market and whether it is having a
positive impact on small business owners' access to credit?
Mr. Cordray. Thank you for the question. We have now
undertaken, as the Bureau, for the first time, to provide
Federal supervision of the major credit-reporting agencies. It
is an adjustment for them because they are not used to this.
We have had examination teams into each of the three
largest credit-reporting agencies and there are various issues
that we have been discussing with them, and areas of concern.
As a result of our efforts, you may have seen that the
credit-reporting agencies, for the first time, are forwarding
the information that consumers send them about problems and
potential errors in their credit reports to the furnishers to
be evaluated.
Before they were simply taking all that information,
translating it into one number code, and not actually sending
the information along, so there was no way for furnishers to
actually evaluate whether you were right in saying there was an
error in your credit report.
That is a big change, and that change continues to evolve.
But we are concerned about errors. We are concerned about error
resolution. And we are concerned about the handling of data.
I think they know that we are--I know they know that we are
concerned and that we are going to work hard with them to see
that these things are fixed.
For years, that industry was pointed away from consumers.
It was a business-to-business industry with credit reporters
dealing with furnishers and then providing information to
lenders.
It has a dramatic impact on consumers, many of whom now
have their credit report checked when they go to apply for a
job, and all of whom have their credit report checked when they
go to apply for a loan. And it is an industry that needs to
take very seriously its obligations to the American public.
Ms. Velazquez. I am really concerned about access to
capital for small businesses. And if there are errors and they
don't have any recourse, it is going to have a negative impact
on their ability to access capital financing.
Mr. Director, Section 1071 of the Dodd-Frank Act requires
banks and lenders to collect and report credit application data
on small businesses as well as minority- and women-owned
businesses. Can you elaborate on how collecting this
information will help enforce fair lending laws and enable
lenders to identify opportunities for improvement in
underserved communities?
Mr. Cordray. We do understand that is the intent and
purpose of that provision of the law. It is a difficult area
for us, frankly, because the Bureau has no interaction with
business lending, or commercial lending, or any kind of small
business lending other than that single provision.
What we have determined is that as we undertake the
rulemaking that we are also required to do under the Act to
update the Home Mortgage Disclosures Act rule, which is under
way now, we will see how we can try to fold the small business
lending element into that as we develop. We are going to be
overhauling that whole database and working with the Fed on
that, which we believe is the right approach.
But we also very much want to work with the Small Business
Administration, the people who are more expert in this area
than we are.
Ms. Velazquez. And when can we expect the CFPB to publish
the rules implemented in this section?
Mr. Cordray. The HMDA overhaul will be getting under way
this year. It feels to me that the right spot for this, and we
have talked to a number of folks both from industry and
consumer side groups, is to make the HMDA overhaul part of the
later stages of that. So, it is coming, but not immediately.
Ms. Velazquez. Okay. As required by Section 1451 of the
Dodd-Frank Act, HUD is currently developing information on
materials to educate borrowers on the importance of home
inspections. These inspections are a simple, cost-effective way
for borrowers to identify problems with a property prior to
purchase and reduce their future risk of foreclosure.
Do you expect CFPB to adopt similar regulations to help
educate and protect homeowners under your jurisdiction?
Mr. Cordray. I am not entirely sure what our authority and
what HUD's authority would be and how they overlap, but I find
it remarkable that you are asking that question, because when I
was in the Ohio legislature, now 23 years ago, one of my very
first bills there was called the Residential Real Estate
Disclosure Act, and it was exactly the problem you are
describing.
I am going to sell my property. I may know it has termites.
But the buyer doesn't know any of that. If I don't say
anything, they are going to get a raw deal. Or maybe there are
problems in the plumbing or electrical that I have experienced
but they wouldn't know.
And it was about making disclosure of those items required
so that there would be fair information back and forth across
the table.
I find it remarkable that 20 years later, we are still
talking about the same thing that was State legislation in
Ohio, which we enacted at that time. That seems like the basic
principle of fairness to me, and if we can work with HUD--I
don't know who should do what on that--that seems to me the
right--
Chairman Hensarling. The time of the gentlelady has
expired.
The Chair now recognizes the chairman emeritus of the
committee, Mr. Bachus, from Alabama, for 5 minutes.
Mr. Bachus. Thank you.
Director, first of all, I appreciate your remarks about
manufactured housing, what is commonly referred to sometimes as
mobile homes.
In the South, they replaced tar-paper shacks, and often
without indoor plumbing or electricity. So they are, many
times, the only affordable alternative for people.
Mr. Cordray. Yes.
Mr. Bachus. And I would like to continue to work with you
as you refine your approach to lending.
We have had many conversations, and I know you have also
had conversations with Jerry Moran in the Senate, about
automobile lenders--indirect automobile lenders who go through
auto dealers to make loans on auto loans.
You have issued a directive or a bulletin, and I think it
is clear that you can compensate these dealers with a flat fee
per transaction. And there is some move in the market to go to
that.
You have also indicated there are other nondiscriminatory
practices to compensate automobile dealers other than the flat
fee, and I know you have been asked before to be more specific
about maybe what some of those are.
You have said, because of--I think there was a legal
action, which I think was resolved in December, you didn't want
to go into more detail, but could you give me some other
examples of what indirect auto lenders can use, other than the
flat fee system?
Mr. Cordray. Yes. And in fact, I would say that is a good
example of what I was trying to respond to Representative
Capito, who was saying that if you think you are considering
changes, it must mean that you think there are problems.
It doesn't mean that. It simply means that we don't know it
all. We were making our best judgment at the time, but if there
is new information and it turns out that there is something
that occurs to us and is brought to our attention that we
didn't understand or appreciate at the time, we are open to
making changes.
Here, too, in our bulletin we made it clear that flat fees
are one mechanism by which lenders could address this issue,
but it is by no means necessarily the only mechanism.
And my real answer to your question is, I don't know that
we know all the mechanisms yet that would be satisfactory, and
we are open to auto lenders and others bringing those to our
attention.
But we did say flat fees are one possibility. A flat
percentage of the loan might be a possibility. Some combination
of that with different durations of the loan, different levels,
and potentially other things that we haven't thought of but
others in the industry may think of and bring to our attention.
So, we are open-minded on that.
Mr. Bachus. As you make determinations on some
alternatives, can you make those public, too?
Mr. Cordray. We will. As we know more and we become
convinced of more and, frankly, some of the other alternatives
I just described have come from further discussions with auto
lenders who said, ``Well, what about this? What about that?''
And we are open to having those further discussions.
We also have tried to be very careful in this space,
because as you no doubt recall, in Dodd-Frank it was very
clearly defined that we do not have jurisdiction over auto
dealers.
Mr. Bachus. The separation--
Mr. Cordray. We have jurisdiction over auto lenders.
Mr. Bachus. Sure. And I understand that is limited due to--
but I appreciate that. I think they just want to be--they want
to know there are some alternatives.
Mr. Cordray. We are open to having discussions with them.
We just wanted to be careful and not have people think that we
were--
Mr. Bachus. And I think before we enforce some of this, it
needs to get to the point of them knowing what they can do and
what they can't.
Mr. Cordray. Yes. Fair enough.
Mr. Bachus. Many people--my constituents and others--get
calls from card servicers, which are--it is a fraudulent
enterprise, I think. And I know the FTC made a settlement in
December with some of those people, but I can tell you that the
calls have continued.
I know you advise and work with the Federal Trade
Commission (FTC), and I have talked to Chairwoman Ramirez. Are
you aware of that problem? They are promoting a financial
scheme which is absolutely fraudulent.
Mr. Cordray. We are aware of it, and particularly when it
comes to advertising these schemes, the Federal Trade
Commission has more jurisdiction than we do. I would say,
actually, they advise us more than we advise them. They have
been around for 100 years; we have been around for 2 years.
But we have a very good working relationship with them. We
are trying to make sure that we don't duplicate resources and
that we think there are more problems out there than both of us
can handle. It has been a very good working relationship so
far, and I appreciate that very much.
Mr. Bachus. Let me end with this. Almost every day I get
solicitations, as do most Americans, for financial products
that appear to be sponsored or promoted by the government or
approved by the government.
Mr. Cordray. Yes.
Mr. Bachus. I have one example that just came. This was
actually yesterday.
Mr. Cordray. That looks pretty good.
Mr. Bachus. And if you will keep an eye--I would like some
discussions on that. It is just getting overblown.
Mr. Cordray. Yes.
Mr. Bachus. Where the U.S. Government is inviting you to do
this, and Congress is authorizing this at a certain price.
Mr. Cordray. It is a terrible practice. I started seeing it
when I was Attorney General in Ohio. People will mimic the
government because it has a certain amount of credibility,
although not everybody agrees.
When we have the opportunity to enforce against those
things we take them very seriously, because what it does is it
pollutes the market for all of the legitimate programs that are
being offered. And it undermines all of the honest, self-
respecting businesses that are trying to do things right.
Mr. Bachus. I appreciate that--
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from California, Mr.
Sherman, for 5 minutes.
Mr. Sherman. A financial institution must hit an incredible
low in its credibility if it thinks that cloaking itself in
Congress is a step up.
Mr. Cordray, on ability to repay, if somebody wants to
mortgage their house to start a business--say, a risky
business. Will your rules in effect imperil the bank which
makes that loan, knowing that if the business doesn't work out,
it is going to be very difficult to repay the loan?
Mr. Cordray. That would be the very same consideration that
the bank or lending institution has always given, which is they
try to assess your ability to repay. They make a reasonable
determination--
Mr. Sherman. What if there is a one in ten chance you are
going to be a billionaire and buy the bank, and there is a 50
percent chance your business is going to go down and we are
going to--and you are going to have to sell the house in order
to pay this loan or you are going get foreclosed on. Is the
bank, in effect, punished for making that loan?
Mr. Cordray. No, I don't see--
Mr. Sherman. They have made a loan that, in all likelihood,
the borrower cannot repay.
Mr. Cordray. The bank has to make a reasonable
determination in good faith whether that loan would be repaid,
but that is their judgment to make.
Mr. Sherman. Gotcha.
Mr. Cordray. All they have to do under our rule is document
that they did that. And if it is a reasonable, good-faith
determination, then that is totally satisfactory. Banks have to
make these judgments about the risks that they are taking with
their capital--
Mr. Sherman. Okay.
Mr. Cordray. --and it is up to--
Mr. Sherman. And that is a different kind of loan, when you
know that there is a good chance you are going to have to take
the home or force the sale of the home, but--
Mr. Cordray. At some point what you are describing may
become an actual commercial loan as opposed to a residential
loan. I am not entirely clear on what you are describing.
Mr. Sherman. I want to pick up on Mrs. Capito's questioning
with regard to the affiliated title company versus
unaffiliated. Are you formally studying this--the
discrimination on the affiliated--as a consumer, I couldn't
care less whether my title company is affiliated or
unaffiliated, I just want the best possible deal. So are you
looking formally at how to fix that?
Mr. Cordray. Congress did seem to care, and in Dodd-Frank--
Mr. Sherman. Yes.
Mr. Cordray. --they, in various places, wrote in concerns
and protections about sometimes affiliated entities, where
there would be steering and--
Mr. Sherman. Yes. You certainly don't want the steering.
Mr. Cordray. On the other hand, affiliated entities can
provide more efficient one-stop shopping as well, so that is
something that we are aware of, as I have talked to a number of
the people in the industry who are affected by different
aspects of these rules. That is one where we have said very
clearly, ``We are very interested in what the data will show us
in terms of what impact this has and how that intersects with
the 3 percent point and fee cap,'' and we are interested to
have them come and show us what they are finding and what their
experience is.
Mr. Sherman. And I hope that if you see a need for a
legislative fix, you will be back to us with a clear proposal.
Mr. Cordray. Certainly. We will be receptive to thinking
about that as well.
Mr. Sherman. Okay. With regard to automobile dealers, there
is a lot of controversy about whether to even cover anything
that the automobile dealers did and do. Of course, the Equal
Credit Opportunity Act is something for you to focus on.
As it happens in our society, those with lower incomes and
lower credit scores pay more for credit. It is more difficult
to arrange the loan, it takes more time, and of course, there
is a greater risk.
In the work you are doing, do you believe that the CFPB has
sought and considered adequate input from the stakeholders on
the issue of fair lending in vehicle finance?
Mr. Cordray. I think we are always interested in having
more input from stakeholders. And frankly, I will say that we
have had more in the last 6 months than we had in the 6 months
before that. I think it has refined our thinking and it is
helpful to us.
It is, as you say, typically the way of the world that the
tougher it is to make the loan, the more people have to pay.
And that is a creditworthiness determination. That is fair
enough.
What we think is problematic is when a creditworthy
determination has been made and there is a rate that is gauged,
that somehow that rate will be pushed up because of financial
incentives for people to push that up higher at the expense of
the consumer. That is the yield spread premium we saw in the
mortgage market, which Congress acted to stamp out.
It is not quite the same dynamic in the auto lending
market, but there are some similar concerns.
Mr. Sherman. I yield back.
Chairman Hensarling. The gentleman yields back.
The Chair now recognizes the Chair of our Capital Markets
Subcommittee, Mr. Garrett of New Jersey, for 5 minutes.
Mr. Garrett. Thank you, Mr. Chairman.
Mr. Director, you started your comments out by saying that
someone needs to stand beside the consumer. After hearing the
chairman's questioning on the flagrant spending by the CFPB, I
guess we should also agree that someone needs to stand beside
the American taxpayer, between them and you.
I come here today because there are a number of questions
that were put to you months ago and still have not been
answered. And that is perhaps because your agency, as someone
else from your agency once testified, is not accountable to
Congress or to anyone else.
One of the questions we sent to you back in September was,
why is it necessary for the CFPB to collect consumer credit
card information on so many--literally millions?
According to the CFPB, the combined data collected from the
18 card issuers represents 80 to 90 percent of credit card
accounts. The Census Bureau projects there were approximately
over a billion credit card accounts in the United States, held
by over 100 million card holders last year.
It would appear that the CFPB is collecting account-level
data on at least 991 million credit card accounts, which would
account for literally 60 percent of the adult population here
in the United States.
So, I will ask the question from September: Why is it
necessary to collect so many credit card accounts on so many
Americans?
Mr. Cordray. A couple of things, Congressman. First of all,
I do strongly believe that the Bureau is needed and Congress
passed the measures that created the Bureau to stand on the
side of consumers and see that they are treated fairly.
I also very much agree with you that the Bureau needs
people looking over our shoulder to see that we are called to
account for how we do what we do. And that is the role of this
committee and others, and that is why I am here today, and I am
here regularly, as you know.
Mr. Garrett. Right. So let--
Mr. Cordray. Now on the credit card industry, as I said at
the time, the purpose of information-gathering by any agency is
to be able to make informed judgments about policy.
Mr. Garrett. Let me get into the--
Mr. Cordray. You would not want us shooting darts at a
board; you want us to be informed.
Mr. Garrett. Director, it is my time.
Since you did not answer the question, and you still
haven't, I ask the chairman, by unanimous consent, to submit my
letter to Dr. Thomas Stratmann, professor of economics and law
at George Mason University, and his response, for the record.
Chairman Hensarling. Without objection, it is so ordered.
Mr. Garrett. He is an expert in econometric analysis and he
looked at what you have been doing. We asked him to review the
CFPB credit card data collection efforts on over 900 million
credit card accounts, which represents over 60 percent of the
American public, and this is what he said about what you are
doing. He said, ``The CFPB is collecting far more data than is
necessary,'' and that, ``It is both expensive and risky.''
He concluded that if the CFPB limited its sampling to 1
percent of the population, like the Census Bureau does, the
CFPB would achieve its monitoring goals as well as bring the
CFPB more in line with the Census Bureau, which makes
anonymized granular data available to researchers and only
provides 1 to 5 percent samples for statistical analysis.
Why is the CFPB overcollecting credit card data by over
70,000 percent, more than what the Census Bureau does for their
data?
Mr. Cordray. With all due respect to Professor Stratmann,
and I don't mean to disparage him in any way, I have learned
that there are economic experts on about 16 sides of every
issue.
But on this one, what we have found when we work with
industry, and we are collecting information for them in the
very same way that other agencies have done so, they often
prefer to provide it wholesale rather than having to go in
themselves and develop a sampling device, every piece of which
costs them money. It is a little easier sometimes for them just
to provide the information. That has been our experience with
them, and that is why we have proceeded as we have.
Mr. Garrett. Do you tell the consumer that you are
collecting this data on them. Do you inform them? I have never
received a notice from you that you have collected data on me.
Mr. Cordray. We have had this conversation a number of
times, myself, with you and your colleagues. We are not
collecting information about Mr. Garrett or Mr. Cordray. We are
collecting aggregated information that is aggregated before it
comes to us about what credit card issuers are doing to their
customers and how they are treating their customers. That is
our focus.
Mr. Garrett. Let me just clear the record on that. I dug
into some of the contracts you have where you collect some of
this data, not necessarily on the credit card data but other
type of data.
Some of the information that you are collecting, true, you
don't have my name and my address, but with regard to one of
the contracts you do provide the zip code and the four digit
zip code after it. And you also get the date of birth.
So let me tell you, if you have my zip code and my last
four digits, and you know what my date of birth is, well there
is only one guy in my house who has that.
If you go to my neighbor and you go to his house, you will
know what his--and know what his daughter's birth date is.
Mr. Cordray. No. No. No.
Mr. Garrett. You are collecting that type of data,
according to your contracts.
Mr. Cordray. Look, you are not the only house in your zip
code. There are thousands--tens of thousands of houses in your
zip code.
Mr. Garrett. No, you are also collecting a four-digit zip
code afterwards. That goes right to my house.
Mr. Cordray. Look, we don't have information where we are
trying to reverse-engineer anything.
Mr. Garrett. This is in your contract, Mr. Director. This
is in your contract.
Mr. Cordray. I am not sure what you are talking about at
this point. You said this is no longer the credit card, it is
some other data collection.
Mr. Garrett. Experian Information Solutions is the contract
that you have.
Mr. Cordray. Okay, so you are talking about credit
reporting at that point. Yes. Again, we aggregate the data, and
that is what we are doing.
I have no interest in where you spend money and on what and
why and how. I have no interest in what I do.
The private industry does; that is exactly what they are
about. They want to know exactly what you are doing so they can
market to you.
But we are about aggregate information so we can determine
what is going on in these markets, so that we can bring law
enforcement actions against people for violating the law. We
can get money back to consumers.
If you don't want us to do that--
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from New York, Mr.
Meeks, for 5 minutes.
Mr. Meeks. Thank you, Director Cordray. And I appreciate
you being here. I think our State is number three--we are
keeping you busy--in complaints, especially in regards to
mortgage complaints. So we know that we are keeping you busy,
but we appreciate the work that you are doing.
I want to also just briefly say that I look forward to
continuing to work with you, and to work with you in the area
of manufactured housing. I think that it is important that we
have a voice and work together and try to fix and work
collectively together. So I wanted to add my voice to the many
that are looking forward to working collectively in resolving
and working with you on manufactured housing. So I look forward
to doing that. I think that it is important for us to work
together to get that done.
My issue is trying to help the unbanked. I come from an
area up--since I come--I have lived the life myself from coming
from my parents, who were struggling, and banks--they didn't--
weren't qualified or did not have enough money, but still they
needed certain credit to make ends meet.
Working paycheck to paycheck is a common thing. And I find
that I know many Americans are working paycheck to paycheck.
And going to a bank is not available to them, and so therefore,
they go to products that are nonbankable.
I have been working very closely, trying to make sure that
they still have access to some credit, to nonbank institutions.
And I have been working with my colleagues on the other side
there to try to get something done there.
But I want to make sure that the products are safe. I want
to make sure, because there is a statement that it is extremely
expensive to be poor.
So I was wondering if you could tell us how the CFPB is
making sure that underserved consumers will be able to access
affordable and better-suited products from some of the
regulated credits?
Mr. Cordray. Thank you for the question, and also for the
background. We have known for years that it is expensive to be
poor, particularly where you don't have good products and
services being offered to you.
We recognize that there is a real need and demand among the
public for small-dollar credit and, as you say, particularly
for people who don't have direct access to the banking system,
for a variety of reasons.
We have been careful in trying to assess the actual
dynamics of that marketplace. We put out a White Paper last
year on payday lending and on the deposit advance product by
banks that has been very similar to payday lending, and looked
at the need for that credit, and how it is being met. One of
the problems and concerns that we have is that the business
model seems to depend on a significant lump of consumers who
end up rolling loans over 6, 8, 10 times. They end up living
their lives off of 390 or 520 percent rate of interest, which
is not benefiting or helping them.
Now, there are others who use these products, and can get
in and out of them responsibly. And it is not solely payday
loans. It is car title loans; it is certain types of
installment loans. There is pawn brokering. It is a somewhat
complicated, dynamic market.
We have indicated that we are going to move ahead with
making some policy judgments and regulations in this area, and
we will. But our concern is exactly yours. We want people to
have access to the credit they need, but the kinds of products
that are going to make things better for them, not worse. And
there are many complicated dynamics around that.
Mr. Meeks. But that is important, because I can tell you
some--you hear the word just get rid of these--all the
products, but then those folks have no resource. And then they
end up, as I have seen--some of my friends' parents do when I
was growing up--there is the old loan shark. That is the person
I would want to make sure stays out of business, because not
only--they come in, they do some bad things.
Mr. Cordray. Yes.
Mr. Meeks. The American Banker reported last week that T-
Mobile will be joining a growing list of companies which are
enabling consumers to bank without going to banks also by
offering the reloadable prepaid Visa cards. Can you tell me
what--has the CFPB done any research on that? And any comments
on those kind of products?
Mr. Cordray. Yes, that is a great question. It is something
we watch very closely. A concern of mine is, can we stay ahead
of how fast moving some of these markets are? There are many
innovators trying to make their way into the space of mobile
banking and various products, and many of them of them may be
offered by phone. There may be other mechanisms, as well, such
as peer-to-peer lending.
We are trying to stay close to that. Some of it is
happening more quickly, some of it less quickly. It is very
difficult to predict how that is going to evolve. But you can
look around the world and see that it is arriving in various
ways in other countries and likely will arrive here, as well.
And it poses challenges to a regulatory system that is built on
a more physical notion of banks or phones. And the FCC does
phones, and so forth and so on.
So it is something that we are both trying to be very aware
of, trying to stay on top of, and also recognize we are going
to need to work with other regulators if we are going to be
effective in this space. And probably we will need help from
Congress addressing this.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Texas, Mr.
Neugebauer, Chair of our Housing and Insurance Subcommittee,
for 5 minutes.
Mr. Neugebauer. Thank you, Mr. Chairman.
Director Cordray, thank you for coming this morning.
Several high-profile data breaches at major U.S. retailers,
including the most recent breach at Target, have raised
Americans' anxiety levels about the security of their personal
financial information. Yet, I think most Americans would be
surprised to learn that one of the largest repositories of
financial data in the country is maintained not by a retailer
or a financial institution but by the CFPB.
The Bureau is tracking, as my colleague from New Jersey
mentioned, 991 million credit card accounts, at least 8.6
million individual credit reports, and now as many as 227
million mortgages. We know that the Bureau has already
experienced three breaches at its consumer complaint portal,
and the government's less-than-stellar track record in this
area suggests that there may be many more to come.
So my question to you, Mr. Cordray, is, can you personally
guarantee that consumers' personal financial information is 100
percent secure?
Mr. Cordray. First of all, there are a lot of comparisons
made, some of them very casually, in relation to us to the
stimulus bill, which we have nothing to do with, us to the NSA,
which we have nothing to do with, us to health care, which we
have nothing to do with.
What we do have to do with is the work that we are doing on
behalf of consumers and the issues we can control. And the
issue you raise is an important one, and it is one that I take
very seriously, just as you take it very seriously. And it
would be pretty bad for our agency if we didn't take it very
seriously.
What I can say is we attempt to safeguard any information
we have about the American public in two ways. First of all,
wherever possible, we are trying to gather aggregated
information. I don't really care or want to know anything about
your personal spending habits. All that does is get in my way
because there are provisions in the Federal law for that kind
of personal information, and how carefully you have to
safeguard it.
Where we do gather that information necessarily, like
through our consumer response function, where people have to
give us their details in order to have their complaint handled,
we are complying with all of the security and privacy
provisions that are pretty extensive in Federal law. We are
trying to do that very carefully, and people are looking at us
to see how we are doing that, including our Inspector General
and the GAO. It is something that I personally am very mindful
of and we will do our absolute best not to have a problem in
this area, because I recognize that a problem would hurt this
agency, hurt our mission, and not be what you or we want.
Mr. Neugebauer. So, you are collecting a lot of data. You
are doing the best you can, obviously.
I want to quote the President. He said recently, ``All of
us understand that the standards for government surveillance
must be higher. Given the unique power of the State, it is not
enough for leaders to say, `Trust us, we won't abuse the data
we collect.' For history has too many examples of when that
trust has been breached.''
And so, you are saying you are not doing it, but the
President is saying, we can't always take that at face value.
I think the question that I want to follow up with is
something Mr. Garrett mentioned, can this data be reverse-
engineered?
Mr. Cordray. First of all, again, you are giving me quotes
about the NSA, which is not us, and not what we are doing, and
I don't think there is any comparability there, so--
Mr. Neugebauer. But you are still collecting--almost as--I
think you and the NSA are in a contest of who can collect the
most information. And I think the jury is still out as--
Mr. Cordray. I fundamentally reject that--
Mr. Neugebauer. --to who is going to win that contest.
Mr. Cordray. --categorization. However, in terms of what we
are doing, we are making every effort to be very careful, both
in satisfying the Federal law in terms of security and privacy,
and in terms of treating consumers properly. If we are careless
with their information, that is not consistent with our
mission, and we are not.
Mr. Neugebauer. And so the question is, can this data be
reverse-engineered? That was the question.
Mr. Cordray. The issue of whether data can be reverse-
engineered is a complicated one. That is why we try to
aggregate as much as we can at a very high level. There may be
information-gatherings that the government has done across many
sectors that at one time could not be reverse-engineered but
may become more capable of having that happen. That is
something we are very careful about and mindful of and thinking
about.
My point is, that is not an issue that you can answer at
one time for all time. It is something that may change over
time.
Mr. Neugebauer. So the fact that you are concerned about
it--does that mean that you think it can be reverse-engineered?
Mr. Cordray. I think we are concerned about making sure
that could not happen as much as possible. Nobody at the
Bureau, I can tell you, is reverse-engineering anything. Nobody
has the time or interest to do that. It would only cause us
trouble.
However, we are trying to be mindful of, as we gather
information, making sure that it wouldn't be subject to
reverse-engineering by us or anyone, because I don't need that
kind of headache, frankly.
Mr. Neugebauer. I think it is one of the things that you
evidently have some concern about, because in one of your
contracts with CoreLogic, you say they must agree not to
attempt or directly or indirectly reverse-engineer. So
evidently that capability exists or you wouldn't have that in
your contract.
Chairman Hensarling. The time of the gentleman has expired.
Mr. Cordray. Again, we try to make sure that will not
happen. And that is a term in our contract and we are going to
hold our contractors to that--
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Missouri, Mr.
Clay, for 5 minutes.
Mr. Clay. Thank you, Mr. Chairman.
And thank you, Director Cordray, for your testimony this
morning.
The ranking member and several members of the Majority have
expressed interest in working with the CFPB to solve challenges
like making sure that manufactured housing remains a viable
alternative for the many families who benefit from this
important product.
As you know, many times when we attempt to address these
types of issues, we unintentionally create loopholes that
undermine consumer protections instead of fixing the problem.
Can you commit to working with us to address the concerns
of the manufactured housing industry while continuing to
protect our constituents from the actual bad actors that the
rules are meant to target?
Mr. Cordray. I do commit to that. I believe I have
committed to it today already, but I commit to it now.
We have been open and accessible to representatives from
both the building and lending industries. They have made a
strong case for why this fits a particular need in the
population. And it was a case that, as I said, I am familiar
with from my own personal experience and where I grew up and my
family, particularly in Eastern Ohio.
So yes, we are very interested in those issues.
Mr. Clay. Thank you for that response.
In the area of mortgage rules, what steps has the CFPB
taken to educate and help lenders as well as consumers
understand your new rules?
Mr. Cordray. I am actually really proud of the work we have
done in that area, because when we finalized our rules last
January we could have easily said, and it would have been a
classic response to industry, ``Well, we are done, and it is
your problem now, and we are moving on to other things.''
But instead, we dug in alongside with them and made it
clear that we had a whole project around regulatory
implementation. We wanted to hear from them about what kind of
practical problems they might be running into that we hadn't
foreseen, and they hadn't foreseen, because they told us
everything that they thought they had problems with before we
finalized the rules.
And there have been a number of things, including the small
creditors that I talked about with Representative Capito and
the special provision we made that covers thousands of
community banks and credit unions. That was in addition to the
original rule and it was meant to address concerns we heard
that we absolutely found to be valid and legitimate.
The examination protocols were done 6 months in advance so
people could get familiar with them. We continue to work with
industry. In fact, by the fall, they said to us, ``We
appreciate that you have been so helpful. Please stop being so
helpful until January 10th because we now need to finalize.''
But we have been taking further comments and issues, and we
will address some of those this year as well.
And again, there will be new circumstances people will run
into that we didn't quite anticipate, and they didn't quite
anticipate. We will listen to them and see what they have to
tell us and see what the data shows about actual impacts on the
market.
We do not want to upset the housing or mortgage market. We
are here to help--
Mr. Clay. Do we have any data yet on any decline in the
issuance of mortgages or--
Mr. Cordray. It is so soon that it is very hard to say
anything. The rules took effect January 10th. It is now January
28th.
I will say, I did see that mortgage lending was up for each
of the first 2 weeks under our rule, but that is such a small
slice that it is very hard to make anything of that over the
week before we finalized our rule.
Mr. Clay. Thank you for that response.
In the area of servicemembers, the Dodd-Frank Act created
the Office of Servicemember Affairs to address the specific
challenges faced by servicemembers, veterans, and their
families. This office, which monitors complaints from
servicemembers in conjunction with consumer response, received
approximately 3,800 complaints between July 1, 2012, and June
30, 2013.
What are some of the most common grievances expressed by
servicemembers, and what has the Bureau done or can it do to
address their concerns?
Mr. Cordray. Congressman, I am lucky with the people I get
to work with at the Bureau, and one of the best we have is
Holly Petraeus, who runs that office, and has tremendous
credibility across the country with servicemembers, their
families, and veterans. And she has lived that life herself.
We had a gentleman from Massachusetts tell us about his son
whom he thought was treated unfairly on an auto lending
program. We looked into it, and found a lot of complaints. We
addressed that through an enforcement action and got $6.5
million back to thousands of servicemembers.
We have addressed a lot of individual complaints. We have
addressed problems like permanent change of station orders,
which didn't qualify people for the kinds of adjustments that
other people were getting in the mortgage market.
And the Department of Defense and Veterans Affairs, I will
say, to their great credit, have been very responsive to the
problems we identify to them that we hear from servicemembers
and veterans and they have solved a lot of problems. It is a
great partnership that we have with them.
Mr. Clay. And thank you for your advocacy on behalf of
consumers in this country.
I yield back.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from North Carolina,
Mr. McHenry, the Chair of our Oversight and Investigations
Subcommittee.
Mr. McHenry. Director Cordray, to follow the chairman's
opening line of questions about your building renovation, would
you provide the committee with the occupancy agreement between
the Bureau and the OCC?
Mr. Cordray. I don't know that there would be any reason
why we could not provide that, and I would be surprised if we
haven't provided it, but I don't know offhand if we have--
Mr. McHenry. You haven't. So if you would, that would be
helpful for us to understand this.
Mr. Cordray. Yes. That was an agreement signed after I
became Director, but it is what we are going to be living under
for the next--
Mr. McHenry. Even easier then.
Mr. Cordray. --30 years, so--
Mr. McHenry. No, even easier--
Mr. Cordray. Well--
Mr. McHenry. --since it is a 20-year contract that you have
disclosed in your report.
The reason why we ask this is because you spent $12 million
a year in rent. You disclosed that. And we appreciate the fact
you disclosed that.
We also know from a Treasury audit that the value of the
building that you are occupying is $153.7 million as of 2011.
And yet, you are spending--first, we find out $55 million,
based on your disclosures, then $95 million, then $150 million.
So it looks very odd to us, and that is why we would like to
know the details of this. Don't you think that is reasonable?
Mr. Cordray. I do think that is reasonable, yes.
Mr. McHenry. Okay. Thank you.
You said today that you will actually have to move out of
this building that you are leasing--you don't own it, you are
leasing it. And you are going to have temporary space.
Mr. Cordray. Yes, it is a very annoying problem for us, and
it hasn't made anybody happy, including me.
Mr. McHenry. But, you think about the cost of it and seems
a little insane that you are spending $150 million of taxpayer
money and spending $12 million in rent and you are not even
going to be in it.
Mr. Cordray. Look, there is much that I am unhappy with
about this situation. It is a building that is a deteriorated
building. It is a classic white elephant.
Mr. McHenry. How old is it?
Mr. Cordray. It is going to cost a fair amount of money to
bring it back up to standard.
Mr. McHenry. How old is it?
Mr. Cordray. It is not that old.
Mr. McHenry. No?
Mr. Cordray. It must have been used pretty heavily. It was
built in the 1970s--
Mr. McHenry. Yes, this place looks pretty--
Mr. Cordray. --or the 1960s, I think, but--
Mr. McHenry. Yes. You know, Kennedy laid the cornerstone on
this little building.
Mr. Cordray. Yes.
Mr. McHenry. It is a little heavily used here, too. So
anyway--
Mr. Cordray. If I were a consumer--
Mr. McHenry. --I just want to find out--
Mr. Cordray. --I would be complaining a lot about that
building if I owned it.
Mr. McHenry. --if you would provide us with the details of
this arrangement for space, and what it is going to cost? Would
you do that?
Mr. Cordray. I think--as you have seen--
Mr. McHenry. Not today, but--
Mr. Cordray. As you have seen, our budget and spending has
become more and more transparent as we build up this agency.
Mr. McHenry. Sure.
Mr. Cordray. All of that is available on our Web site each
quarter.
Mr. McHenry. Okay. And let me follow up on that.
Mr. Cordray. Yes.
Mr. McHenry. I wrote you a letter at the beginning of the
month. I appreciate your responding in a timely manner.
You provided back--and my question--and I know you receive
letters--a few. And I understand that my letter request was
about the details of your budget. You responded back with some
links on your Web site, and I appreciate that. One was a newly-
issued report on your financials for the year.
What I asked for was the resource detail and operating
levels detail within your budget. Now, the report you sent me a
link to--I went to it, looked at it, and the level of detail
there is fairly nonspecific. And I will give you an example.
What I am asking for is a line item structure of this and
you have a $166 million line item that has 3 lines of
description in order to add up to $166 million. And it has a
great name: ``Prevent financial harm to consumers while
promoting good practices that benefit them.''
I don't know that we oppose that idea, we would just like
to know what it is. Now, your Bureau has also done something I
think is proper. You disclose contracts. So, we are able to ask
you about contracts.
Mr. Cordray. Right.
Mr. McHenry. Right? So I know that you spent $2.5 million
to pay for Web ads to drive traffic to your Web site. I know
that. And I know you contracted with well-known firms. Now, I
also know whether it is a no-bid contract, a bid contract,
right? And I appreciate that--
Mr. Cordray. And you have seen that we have placed a real
emphasis on competition in our contracts.
Mr. McHenry. Yes, and I appreciate that. I also saw the no-
bid contracts, and we could have questions about that.
Now, as a policymaker you are also spending a substantial
amount in salaries and benefits. You disclose that, but not in
the detailed level. In your budget estimates, we know you have
238 people working on one area, but we don't know anything more
than that.
So what is going to happen to you is you are going to come
before Congress, and we are going to have a lot of questions
about your contracts, even if you have enormous amounts of
wasteful spending to the tune of $300 million, $400 million a
year, and we don't know the details of it.
What I would ask you to submit to us is that budget line
item that other agencies who have to go through the
appropriation process submit on a regular basis. Would you
submit that to our committee?
Mr. Cordray. So what I would say is, as I said, the extent
of detail of our budget has grown greater as we have been
staffing the agency--
Mr. McHenry. It is still insufficient, sir.
Mr. Cordray. --and have the ability to do that.
It is my understanding that the amount of information we
provide about our budget is comparable to that of other
agencies, and we are now providing it on our Web site on a
quarterly basis, which other agencies do not do. If you have
other views about how much detail we should be providing, I
am--
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Georgia, Mr.
Scott, for 5 minutes.
Mr. Scott. Thank you, Mr. Chairman.
Over here, Mr. Cordray. How are you?
Mr. Cordray. Good.
Mr. Scott. Mr. Cordray, I want to ask you about the
Bureau's March 2013 fair lending guidance for our automobile
dealers. This is very important to me. I represent a district
that represents the six largest counties around Atlanta, which
means the suburbs, which means transportation, which means auto
dealers and auto consumers.
Now, I am very concerned about this because I, along with
12 other members of this committee, wrote you a letter
expressing our concerns on May 28th, and asked you to respond,
but we haven't gotten a response as of yet.
This is very, very critical. Number one, there was no study
that was done on the impact of flat fees for consumers or how
it would affect consumers and the availability of them getting
credit. This is very serious.
I am very concerned about the Bureau's actions because they
have had unintended consequences of: one, raising credit costs
for consumers; and two, pushing the marginally creditworthy out
of the market entirely.
And if, for example--if you learn, as many of us here in
Congress have learned, that the broad adoption of dealer
compensation methods that do not permit consumers to negotiate
lower prices would hurt marginally creditworthy consumers,
including many minorities, of which you are admirably trying to
make sure have fairness--but if you knew this, would the Bureau
review this guidance that it has used to finance sources that
you issued last March?
Mr. Cordray. I am trying to follow all of what you
described.
First of all, I believe we have responded to your May 28th
letter, and we will get to the bottom of that and make sure
that we are on the same page. I would be very surprised if we
had let 7, 8 months go by without responding--
Mr. Scott. Just to correct you, I have checked with my
staff in my office and you didn't. But I understand. That is
not the point here. I just mentioned that so you could see the
urgency of moving forward.
Mr. Cordray. Yes.
Mr. Scott. We need to treat both our auto dealers and our
consumers with fairness and the March 23rd guidance is not
fair.
Mr. Cordray. Let me say a couple of things about that. The
problem that we are trying to address is one where people walk
in to get a loan to buy a car, which, as you say, is a critical
thing in suburban and rural areas in order to get around. And
we find that they are treated differently. They are required to
pay different amounts, higher amounts, based solely on the
color of their skin or their ethnic background.
That is not right. That is what we are trying to address.
Now, in terms of how we are trying to address it, it
becomes a more complicated issue. The bulletin we put out last
March, there was nothing unfair about it.
It was restating law that has been on the books and
followed by all the other agencies, including the Department of
Justice, for almost 20 years. We, as a new agency, laid out
that we also felt that we were going to take the same approach.
The auto industry has a lot of concern about this, but the
auto lending industry is doing just fine. In fact, it had a
banner year in 2013 and I expect it will have a banner year in
2014. So the notion that we are somehow destroying lending or
killing off the ability of people to compete in this market, we
are not.
We are going to continue to work with people to address
concerns. You saw that we had an enforcement action that did
bear fruit against Ally for $98 million--
Mr. Scott. But, Mr. Cordray, please, my time is running
out. Here is the point--and all your points are here--and I
want you to do a great job. But if the people--if what you are
doing is not great within the auto industry and the consumers
between the people who are buying the cars and are not--and if
they have input, which, in fact, they did not--considering how
controversial this guidance was and has become, wouldn't it
have been more prudent for you to receive input from them,
which you didn't, to hear concerns from them, to hear their
concerns directly who are directly impacted by this guidance
before it was issued?
This could have been avoided.
Mr. Cordray. Look, the guidance itself is exactly a
restatement of existing law. That is all it is. I don't know
what people are telling you, but if they are making more of it
than that, they are wrong.
We have had lots of discussions with lenders over whom we
have jurisdiction. We were careful about not trying to reach
out to dealers over whom we don't have jurisdiction and
respecting the line that Congress drew.
Mr. Scott. Allow me to say this, please--my time is up.
But this is one Congressman who represents probably per
capita--certainly my area, because I represent the suburbs
where the action is--where they have to get fair treatment. If
you could work with my office more closely to make sure my
dealers and consumers are treated more fairly--
Chairman Hensarling. The time--
Mr. Cordray. I am happy to do that.
Chairman Hensarling. --of the gentleman has expired.
The Chair now recognizes the gentleman from New Mexico, Mr.
Pearce.
Mr. Pearce. Thank you, Mr. Chairman.
And thanks again, Director, for being here.
Just a follow up to Mr. Neugebauer's questions--a Federal
judge ruled the metadata collection by the NSA was
unconstitutional, and my question is, will you submit a request
for the Federal judge to look at your data collection and see
if it is constitutional? Would you do that?
Mr. Cordray. We will follow our statute, which is the law
Congress gave us, and that is what we will do.
Mr. Pearce. That was not my question.
Mr. Cordray. And by the way, I will say that we have an
enforcement action in which--
Mr. Pearce. If I could reclaim my time, sir--
Mr. Cordray. --the constitutionality of the Bureau was
raised--
Mr. Pearce. I just asked you a simple question. I asked a
simple question.
Mr. Cordray. --in the Federal district court in
California--
Mr. Pearce. Mr. Chairman, if I could reclaim my time?
Chairman Hensarling. The time belongs to the gentleman from
New Mexico.
Mr. Pearce. I know that Mr. Snowden was not a planned asset
of the agency, and I know that the IRS didn't plan for things
to be released, but I will say that the collection of data like
you are collecting has tremendous value in political campaigns,
and I worry that there might just be someone down the system
who might release that information. And you are saying that,
no, you are not going to ask a judge if it is constitutional.
I found your testimony almost amusing where you described
how many of your friends live in manufactured housing. That
smacks of a condescension that was rejected two generations
ago, and I wonder, have you personally talked to any people who
deal with manufactured housing?
On January 23rd, I got this unsolicited e-mail from a
friend of mine. I didn't tell him I was looking for
information.
``Good morning, Steve. I just returned from an educational
seminar that explained how we have to conduct our business as
manufactured home retailers now that the new laws are in
effect. I honestly can't believe what I have to do to sell
homes and how difficult it will be not to trip up. It just
takes the wind out of my sail and all others that are in my
industry. It just keeps getting more and more difficult to
operate a business and more and more easy to get sued for not
dotting I's or crossing a T.''
That is the legacy which lives in the manufactured housing
industry that you have given lip service to today and for the
last year.
But I will tell you that I found amusing your indignation
that the one-size-fits-all characterization, before you even
came here, was so offensive. And yet, you are doing the same
thing today.
You are declaring today that many times the mobile home,
the manufactured housing--that a regular house can't be built
there. Now, my county is flat from one end to the other; 50
percent of the homes are manufactured homes. And to declare
that one lot is not suitable for regular homes but is suitable
for those that many of your friends live in, I found to be
generalistic thinking--one-size-fits-all thinking.
You characterized that even your initial rules were coming
because you feared the ability to repay. Now, I wonder how many
banks who lend to manufactured home buyers you actually talked
to, because they tell me that they have the highest rate of
repayment of any form of home.
And you still have one-size-fits-all in the balloon
payments, which then kicks us out--kicks a lender out of the
Qualified Mortgage market without a secondary. When you do that
in New Mexico--we have 70 days of capital to lend for houses in
the entire State, and when you kick them out of the secondary
mortgage market, you then say that you have to lend that money
for that piece of property, and when it pays off 30 years from
now you can lend for a new house.
You are going to choke, then, the rural, small areas--the
areas that don't fit your definition of what is really right
for people to live in and your idea that balloon mortgages
aren't somehow okay.
None of your people from Wall Street are going to come to
New Mexico and lend on a trailer house and give them a 30-year
note because they can deteriorate or they can be held in good
condition for 50 years.
And so I find your indignation that we might have said or
might even be saying still that one-size-fits-all is not
working, it is a war on the poor that is being conducted by you
and this Administration and it is one where low-income people
suffer the most. They don't have other options.
So I find your testimony today to be diminishing, demeaning
to the people who are suffering the most. I wish that you would
change the rules instead of coming here and giving lip service.
Thank you, Mr. Chairman. I yield back.
Mr. Cordray. Mr. Chairman, point of personal privilege as
the witness at this hearing for the 5-minute filibuster that
resulted in no questions to me--
Chairman Hensarling. The gentleman--
Mr. Cordray. That is some of the most offensive--
Mr. Pearce. I asked a question early on.
Mr. Cordray. --some of the most offensive comments I have
heard from this committee--
Chairman Hensarling. The committee will come to order.
It is the gentleman from New Mexico's time. As a courtesy
to the witness, if he would like a brief moment to respond, the
Chair will yield him a brief moment.
Mr. Cordray. I would.
The completely unfounded suggestion that we are using data
for political campaigns, which you have not a shred of evidence
for, this is an independent agency and--
Mr. Pearce. I did not say that, Mr. Chairman.
Mr. Cordray. --is not subject to be controlled like--
Mr. Pearce. I said the possibility--
Mr. Cordray. That is what you said.
Mr. Pearce. --of Snowden, who would release that
information without your consent--
Mr. Cordray. And the notion that I am being condescending
in talking about manufactured housing because, in fact, I have
friends and family members who have lived and live in
manufactured housing--I don't begin to understand where you are
coming from on that.
You are being blunt with me--
Chairman Hensarling. Your brief moment--
Mr. Cordray. --and I will be blunt with you.
Chairman Hensarling. --has expired.
Mr. Cordray. And I expect courtesies from this committee--
Chairman Hensarling. The Chair--
Mr. Cordray. --of reasonable discussion.
Chairman Hensarling. --now recognizes the gentlelady from
New York, Mrs. Maloney, for 5 minutes.
Mrs. Maloney. I thank the Chair for yielding.
And I thank Mr. Cordray for your hard work.
I would like to yield him as much time as he would like to
respond to the line of disrespectful questioning.
Mr. Cordray. So the notion that we are being condescending
in trying to take account of these issues and recognize that
there are different guides of properties that have different
needs in rural, suburban, and urban areas is--and that is
somewhat amusing to you, it is not amusing to me.
We are trying to take this seriously. We are trying to meet
the needs of consumers across this country.
That is the mandate of this Bureau, and we will do it as
best we can. The notion that we are somehow going to take
information and use it for political campaigns is deeply
offensive.
You haven't a shred of evidence on which you are basing
that. That is just a wild allegation, and it is not befitting
of this committee, Mr. Chairman.
Thank you.
Mrs. Maloney. Okay.
Mr. Cordray, as you and my colleagues know, we created the
CFPB to protect consumers. We saw in the financial crisis that
consumers were often not thought about at all, or as an
afterthought. And it is highly appropriate to have one agency
whose prime focus is to make sure that abusive practices and
unfair deceptive practices are not out on the market.
I believe your record speaks for itself in really coming
forward with well-thought-out, researched positions that help
the economic security of our country by being fair to people
and giving notice to people about the products that they are
purchasing.
I would also like to ask specifically about an area that
you are working on which is becoming an emerging important
market, and that is prepaid cards. Prepaid cards hold a lot of
potential, but they are not subject to uniform Federal
protections or disclosure standards, and that makes it
difficult for consumers to be able to do comparison shopping.
I know that your office has been working on a proposed rule
for prepaid cards for quite a while and I look forward to
seeing what you come out with.
So I have two basic questions in this area. First, when
does the Bureau plan to release its prepaid card proposal?
And second, based on your research into this market, how
should we as policymakers think about the prepaid card
policies? Should we focus primarily on clear, consistent
disclosure of fees to consumers, or are there other limitations
that need to be placed on prepaid cards?
Mr. Cordray. Thank you, Representative Maloney.
The issue you raise is a very important one, and an
increasingly important one for many low- and moderate-income
consumers for whom a general purpose, reloadable prepaid card
may increasingly become some sort of alternative mechanism to a
bank account or check cashing or other things that can be very
costly at times for low- and moderate-income individuals.
The state at which the prepaid card issue is at at the
Bureau, is the proposed rule state. This means that we are on
the verge of undertaking to write rules governing prepaid
cards, which, as you know, and I know from your attention to
this, is right now a hole in the fabric of consumer protection.
Just as remittances had no consumer protections before we
acted to adopt those rules, prepaid cards are the same. Most
consumers don't realize the differences when they reach in
their wallet and pull out a credit card, a debit card, or a
prepaid card. I think they think they have the same protections
across all of those cards. It is not true. Prepaid cards are
not protected at all.
So we will be writing rules to take account of the
importance of providing protections in that area.
And what I would say is you are asking about kind of the
balance between: Do you simply proceed through improving
disclosures or is there some substance to be provided here?
My general impression is that in most of these markets, we
need better disclosures and we need better substance in the
rules. I don't want to prejudge the rulemaking process. We will
be putting out a proposal for comment and then finalizing it.
But action here is very much needed and it is an emerging
market that is now well over $100 billion being loaded onto
these cards every year and people need protections in a
balanced way.
We will welcome the input of members of this committee, as
well as consumers and industry, on getting those rules right.
Mrs. Maloney. And where do we stand on your rule on
overdraft protections? I understand you were reviewing that.
Overdraft would not be part of a prepaid card. That would
not be part of it. But the overdraft protection rule, where do
you stand on working on that area?
Mr. Cordray. In the Unified Agenda, which we publish, and
we publish on our Web site, actually in response to a
suggestion Representative McHenry made about a year ago, maybe
a couple of years ago now, that is at the pre-rule stage. It is
not as far along as prepaid cards but it is something that we
are looking at and trying to figure out. We are doing analysis
right now of the market to try to understand.
There are many ways in which the overdraft product is good
for consumers, like helping them avoid NSF fees. There are some
practices that concern us in that area, so we are moving
forward in trying to figure out how to approach those issues,
but it is not as far along as prepaid cards.
Mrs. Maloney. My time has expired. Thank you.
Chairman Hensarling. The time of the gentlelady has
expired.
The Chair now recognizes the gentleman from California, Mr.
Royce, the Chair of the House Foreign Affairs Committee.
Mr. Royce. Thank you. Thank you very much, Mr. Chairman.
And, Director, thank you.
I wanted to raise some concerns, but maybe in the process
lower the blood pressure a little bit over this issue on the
question of the Bureau's National Mortgage Database project
with the FHFA. I think you understand that beyond this room
there are others who have concerns with the privacy--
Mr. Cordray. I do.
Mr. Royce. --issue here, and at the end of the day you put
together a database like that and it is going to include credit
information on 50 million people here in the United States.
That is just the project.
Now, in your opinion, this information--the data collected
from market monitoring--does not include personally
identifiable information?
Mr. Cordray. That is my understanding. Yes.
Mr. Royce. Yes. And the real question here is, is it
searchable? Can it be reverse-engineered? And I assume that you
don't believe that you can identify a single individual through
that process.
But if we look at the actual risk that consumers have, we
saw the recent Target breach, which in theory should not, could
not happen. We saw what happened with Michael's. Even with the
best of intentions, even with high security--in these cases you
have companies with great reputational risk on the line. They
had done everything they could do to make sure that a breach of
personal information didn't happen, and it happened.
But now we are talking about the Federal Government. And
breaches of information at the Federal Government level--
according to the GAO, in 2012, there were 22,000 data breaches.
Now, some of that is small in terms of breaches of personally
identifiable information, but some of them were very large.
It was a 42 percent increase from the year before. It was
over a 100 percent increase from the year before that.
I would like to play a short video clip from a presentation
given last year by Bob Avery. He is the FHFA's Project Director
for the National Mortgage Database--that is this database.
So let's go to that if we could, Mr. Chairman.
[Video plays.]
Mr. Royce. So Mr. Avery states, in fact, the information
included in the database is, in his words, easily reverse-
engineered. And even more troubling, it will be available to
any Federal employee in the country and possibly others.
Now, this is why from the perspective of privacy advocacy,
there is this concern about consumer privacy in this case. And
personally, I don't believe that the project should move
forward until these issues are adequately addressed.
So I guess my question is, from your standpoint, you are
weighing the assumed benefits of the database. Do you believe
that outweighs the real privacy concerns here?
Mr. Cordray. Ultimately, it is a judgment and a balance.
But I would say two things in response to your line of
questioning.
The first is, in fact, the homeowner market is one where
there is a tremendous amount of information freely available to
the public. I don't know quite how they do things in
California, but in Ohio, the home that I own is on our county
auditor's Web site. There are pictures of it. There is a
valuation of it. There is the amount of taxes I pay. At a time
when I had a mortgage, there was the amount of the mortgage
that I owed.
All of that information was public information.
I had a law school class that told me back in 1990 how much
information there is out there. I wasn't sure I understood.
They brought in and they knew all about all of my homeowner
transactions. It was available on the Internet. That was true
20 years ago.
So nonetheless, it doesn't lessen the privacy concerns.
But let's get the paradox here of how important this is. I
am getting questions from you and your colleagues, in your
case, so far, your colleagues, about what we should be doing in
the mortgage market. Have we drawn too tightly the box around
QM? Is manufactured housing being unfairly affected or
undermined here?
In order to make judgments about that, in order to respond
to you, in order to get this right and for you to get it right
and us to get it right, we have to have information about the
market.
What we found with the mortgage database was that we didn't
always have the kind of information we would have liked to have
had about the mortgage market. This will help us provide it.
Then we will be able to all have confidence as to whether
we are getting this right or should adjust it. That is what
your colleagues are crying for. It depends on information.
Mr. Royce. And I am pointing out we had 20,000 breaches.
Mr. Chairman, I would like to submit something else for the
record, a recent letter from the National Association of
Federal Credit Unions to House leadership on data security and
protection, if I could?
Chairman Hensarling. Without objection, it is so ordered.
Mr. Royce. Thank you.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Texas, Mr.
Green, for 5 minutes.
Mr. Green. Thank you, Mr. Chairman.
And, Mr. Cordray, I thank you again for coming before us
today. I look forward to your visits. I am up here, Mr.
Cordray.
Mr. Cordray. You moved on me.
Mr. Green. I relocated temporarily.
I am appreciative of the fact that you are willing to stand
up for consumers. And when I say stand up, I mean you take a
firm position. You really believe in what you do. And it comes
through, and that is important to consumers.
I want to visit with you about the $3 billion in refunds--
$3 billion. That is a lot of money, impacting 9.7 million
consumers.
Can you give just a brief overview of this $3 billion that
9.7 million consumers have had an opportunity to receive?
Mr. Cordray. Thank you, Congressman. This is essentially
basic law enforcement work. On both sides of the aisle in this
committee, I know one basic principle everybody agrees with is
that people should have to comply with the law, and if they
violate the law, they should be held accountable.
And if they violate the law in a way that hurts people,
harms people financially, those people should have a right, if
possible, to get their money back. That is something we are
trying to do.
We have been engaged in addressing violations of the law
with credit card add-on products, which has been a big source
of redress for consumers. Hundreds of millions of dollars are
going back into people's pockets who were victims of
fraudulent, deceptive, and misleading marketing of products.
And that has been, I think, well-established. And it is not
unique to the United States; they had similar problems in the
United Kingdom.
The large mortgage servicing settlement we reached recently
with a large nonbank mortgage servicer, again, for violations
of the law, and practices that were unfair and deceptive to
consumers.
These are things that in a marketplace that works, the
good, honest businesses are also protected against those who
violate the law and potentially get a competitive advantage by
doing so. So, it is in everybody's interest for us to do this
work.
It does depend, I will say, on having information, being
able to analyze what is going on in the markets, not just
shooting blindly at problems. And that is part of why we feel
so strongly about having the information on which to base this.
But we will continue to do that work. We will continue to
be, I think, appropriately aggressive, while not unreasonable.
Where people are violating the law, it is our job to make sure
that they are held accountable.
Mr. Green. You received 122,000 complaints between July 1st
of 2012 and June 30th of 2013, over half of which or
thereabouts relate to mortgages; 3,800 of these complaints
dealt with service people.
I am sure that these complaints would have gone someplace
if the CFPB did not exist. I am sure they would have gone
someplace.
Mr. Cordray. Maybe to you.
Mr. Green. Probably.
Mr. Cordray. And your colleagues.
Mr. Green. But I am not sure that they would have received
the kind of attention that they have received by virtue of the
CFPB being there. And I am curious about the types of
complaints. I want to give you a chance to just talk about some
of them, because we will always hear about things that don't go
well. We don't hear enough about the things you do that benefit
the consumer.
So this is an opportunity for you to just take a moment,
and tell us about some of these complaints that have been
successful, where you have helped people, if you would?
Mr. Cordray. Sure. And Congressman, I know you understand
this. Stories that we hear from people when they file a
complaint are very similar and in fact, in many cases, are
exactly the same stories they are telling people in your
offices and your staff get all the time: somebody struggling
with their mortgage and they can't get anybody to respond to
them; they submitted the paperwork, it got lost again and
again; people won't answer the phone. Those are some of the
things we hear and we help cut through that.
We hear people who feel like they had an improper charge on
their credit report. They can't get the credit reporting agency
to pay attention and take it off and get it corrected, but it
is affecting them. They can't now get a mortgage or a car loan
because that blights their credit. And we get those things
fixed and get them removed.
People harassed by debt collectors. Debt collectors have
every right to do their job and collect money that people owe
and people should pay, but there are laws that say you can't
call after 9 p.m.
You can't harass people at their workplace if they ask you
not to. You are not supposed to do that. It is a violation of
the law. It is cheating and giving you an unfair advantage over
some other debt collector who actually abides by the law.
Those are the kinds of things that we are addressing and
dealing with every day. And again, a number of these are being
referred by your offices, people on both sides of the aisle
here. And we are happy to address these issues for all
consumers, all constituents, wherever the complaint comes from.
And we regard it as part of our job.
The other thing is, we learn from it. As we get hundreds of
complaints about a particular issue, then we know it is a real
big problem and we ought to address it more systematically.
Maybe we should write a rule about it. Maybe we should bring an
enforcement action to clean it up. Those are the kinds of
things we are trying to do.
Mr. Green. Thank you, Mr. Chairman.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Missouri, Mr.
Luetkemeyer, for 5 minutes.
Mr. Luetkemeyer. Thank you, Mr. Chairman.
Mr. Cordray, let me change speeds here a little bit and
talk to you a little bit about a different issue here. I
sponsored an annual privacy notice bill and you were kind
enough to--I wrote you a letter with regards to that in October
of this past year. You sent a letter to me and agreed that it
was something that we needed to do.
You supported it and I thank you for that. It was a timely
letter. And we may need your help in trying to get it pushed
through the Senate. They seem to be dropping the ball on the
issue over there.
But in your letter you also made the comment that you may
be able to do this by some rulemaking authority that you have.
Could you elaborate on that just for a moment?
Mr. Cordray. Yes. And thank you for asking about that. I
will say that sometimes processes move kind of slowly because
of different provisions in our law, in terms of how we proceed.
I do know that internally, we have been working on that
issue, and I believe that there is a presentation going to be
made to me fairly soon on it.
I am hopeful we can move forward on that. One of the things
I will find from the presentation is, do we think we can
comprehensively address the issues you are trying to raise
through your legislation? If so, you may not need the
legislation. On the other hand, if you move the legislation and
that resolves it and we don't need to work further on it, that
is fine too.
I don't care how we proceed, but I do think there are
issues, you have identified some of them and I think we are
identifying others, that need to be addressed and fixed. And
there can be a reasonable balance struck here that doesn't
burden institutions unnecessarily in ways that don't
necessarily benefit consumers.
Mr. Luetkemeyer. Very good. I appreciate that. With
unanimous consent, I would like to enter the letter into the
record, Mr. Chairman.
Chairman Hensarling. Without objection, it is so ordered.
Mr. Luetkemeyer. Thank you.
With regards to another subject, Director, we have--online
lending is something that is very concerning to me. A lot of it
is offshore, and we need to be regulating it to make sure that
our consumers aren't being taken advantage of.
By the same token, there is a lot of discussion right now
within the FDIC and the DOJ about payday lending, online
lending, and those sorts of things. And we have actually found
people within those agencies who, because of personal bias,
have tried to basically shut down those industries.
And they have admitted such to us, and we had them on
record to that effect and have had lengthy discussions with the
FDIC and the DOJ. And both of them have, as a result of those
discussions and the investigations of the oversight committee--
or I should say potential investigations--have given a letter
to not only us but the industries, saying that they are going
to allow these industries to continue. They believe that they
are worthwhile.
Any abuse that has taken place will stop. These are
legitimate industries. As long as they behave within the
confines of the law, they will be allowed to continue to do so.
And I would like your opinion on that. And if we could
perhaps get you to also do a letter similar to that, as what
they have done, to say that as long as these lenders are
behaving within the law, they have every legitimate reason to
be in business and provide credit to a lot of folks who can't
get it.
I know we had a lengthy discussion a minute ago with Mr.
Meeks, who brought this issue up as well, at least on the
peripheral parts of it, and indicated this is a very necessary
area of lending. Whether you like it or not, there are a lot of
folks for whom this is the only way they can get lending.
And I think as long as we regulate it properly, it doesn't
need to be here with things like Operation Choke Point, trying
to choke it off. So could you respond?
Mr. Cordray. Much economic activity is gravitating online.
That is the way of the world, and it seems to be in our
society.
A lot of commerce is going online. My wife orders a lot of
things now online, and I do, that before, we would have gone
somewhere to get. It is natural that lending would gravitate
there as well.
There are, however, important law enforcement issues. And I
struggled with them when I was attorney general of Ohio. And I
hear from my colleagues, former colleagues, that they struggle
with them now because online Internet activity doesn't have
clear jurisdiction, as there is nothing physical or tangible
about it.
It can be originating in a different State but not
complying with State laws here. It can be originated in a
different country and not complying with any American laws.
I think law enforcement officials are grappling with a
strategy for how to deal with that, because online lenders that
are legitimate and valid deserve protection against online
lenders that are undercutting them by violating the law and not
complying with the same requirements with which they comply.
So it is definitely a difficult subject and one that we
have been trying to hash out and understand with the State
attorneys general and others. We will continue to do that.
I definitely agree that there is a lot of online lending
that is perfectly proper and valid and may even cut some costs
over physical, in-person lending. There are also risks there,
and there is a risk of being able to evade law enforcement.
Mr. Luetkemeyer. Would you be willing to put that in
writing?
Mr. Cordray. I would be happy to. You mentioned a letter? I
would be happy to take a look at it. I don't obviously know--
Mr. Luetkemeyer. Okay. Without objection, I ask unanimous
consent to place in the record a copy of the letter from DOJ
indicating their concerns and their willingness to also allow
these businesses to be lawfully there as long as they are
behaving within the confines--
Chairman Hensarling. Without objection, it is so ordered.
The time of the gentleman has expired.
The Chair now recognizes one of the committee's reputed,
most rabid Seattle Seahawks fan, Mr. Perlmutter, from--
Mr. Perlmutter. I thank the chairman, and I want to thank
the gentleman from Missouri--
Mr. Luetkemeyer. A point of order, Mr. Chairman, for the
choice of the color of his tie in support of the Denver
Broncos. So with that, I will stop breaching the decorum of
this committee and just, I want everybody to know I am united
in orange against the Seattle Seahawks.
Chairman Hensarling. We see the gentleman's cap. Now, he
may remove it.
Mr. Perlmutter. Mr. Cordray, thank you for your testimony
today. And thank you again for your fairly even-keeled
testimony. I did appreciate your response to Mr. Pearce,
because there is a lot of data out there, and in your position,
whether it is gathering mortgage data, or anything else, there
is just a lot of data out there. We don't want it abused. We
have seen politicians in the past abuse it, and at the top of
the list would be Richard Nixon.
So I do understand your response. I understand his fear
that it can be abused because it has been in the past. But
there is a lot of mega data out there.
Mr. Royce brought up the Target Corporation. My wife and I
are Target shoppers. And she has a saying, if Target doesn't
have it, she doesn't need it.
But I also used my Target card--or I used my debit card in
Target in that period where their data was breached. So I am
one of 100 million people, apparently, or 100 million
cardholders who was affected by this. And when I went to Wells
Fargo and I said that I had used my card, they immediately took
my card and switched it out for a new card.
What is the CFPB's role in something like this, where there
has been a major data breach that affects millions of
consumers?
Mr. Cordray. We have been looking at that since this
occurrence. Of course, this is not, as you know, the first
occurrence of this kind. It is just one of the largest and most
stunning ones, and the most recent one.
In the past few days, we issued a bulletin to consumers: If
you are one of the people who is or feels that you may have
been victimized or affected by this, here are some steps you
can take to protect yourself, the kinds of information you need
to respond to this situation.
There are broader issues here for the credit card industry
and for retailers in terms of how they manage information.
Frankly, a lot of the same concerns that people have raised
appropriately, I think, with me about our agency today.
Everybody who has information is going to need to jealously
safeguard it in order to protect consumers. And there is real
consumer harm that happens, whether somebody steals your
identity or not.
Even switching out your card, as you did, involves
inconvenience and time and effort. You may have to change
accounts and account information may cause you to miss a
payment on something here or there. That can cause real harm to
people as well.
So, I think that the guidance we have provided to consumers
is meant to be very helpful. It is drawing, again, on some of
that expert, neutral information and advice I indicated is
available to your constituents on our Web site at
consumerfinance.gov, and we urge you to take advantage of it.
That is intended to help people.
Mr. Perlmutter. Thank you.
And, Mr. Chairman, if I could, I would like to introduce
for the record a letter that we--a number of Democrats--sent to
you on January 10th concerning some kind of hearing on this
breach of data.
Chairman Hensarling. Without objection, it is so ordered.
Mr. Perlmutter. Mr. Cordray, I would like to also ask you a
little bit about the QM situation. You have had a number of
questions already, but because you and I have had this
conversation on QM, the 43 percent debt-to-income ratio. Were
there other ways that a lender, if it didn't fit into that 43
percent box--were there other ways a loan might be considered
eligible under your rules? And if so, what are they?
Mr. Cordray. Okay, so there are actually three main boxes,
and sometimes it does get misstated and people either
intentionally or unintentionally don't quite get the purpose of
the debt-to-income ratio of 43 percent or less, which is a
pretty generous number by historic standards. We used to advise
people not to spend more than a third of their income on
housing, and then 36 percent was the number, and now people use
43 percent. It is meant to be broad--to provide a broad area
for mortgage lending. That is one box.
A second box--and this is very notable--any mortgage loan
that would qualify to be purchased by any of the GSEs--Fannie
Mae or Freddie Mac, if it qualifies as an FHA loan, if it
qualifies under VA or Ginnie Mae--all of those are also
Qualified Mortgages. That significantly extends and then covers
a lot of loans that are above a 43 percent debt-to-income
ratio. That is second.
As long as they are in conservatorship, that is a temporary
measure. This Congress may act on housing finance reform at
some point. We weren't sure where that was going, so we had to
sort of take account of that and draw that into our
calculations. That is a second box.
And it is very easy for a lender: 43 DTI or you just plug
it in, and you get a yes or no. You don't have to sell it to
Fannie or Freddie, it is just if it is eligible for sale.
The third box is the small creditor provision that I have
mentioned before. It covers thousands of community banks and
credit unions. Any mortgages they make, if they sell them in
the secondary market to Fannie or Freddie, are covered by that
second box. If they keep them in portfolio, they are covered by
this third box.
Mr. Perlmutter. Thank you sir, for your testimony.
I yield back.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Michigan, Mr.
Huizenga.
Mr. Huizenga. Thank you, Mr. Chairman. I appreciate that.
And, Director Cordray, I appreciate you being here.
Obviously, you have heard a lot of concern, some of it a little
more heated than others, but concern on both sides of the
aisle, frankly, about everything from auto loans to the
security of the data that is being collected.
QM has really sort of dominated this Qualified Mortgage
definition, and I would like to head a little in that
direction, and point out that there had been an American Banker
article entitled, ``Blacks and Hispanics Likely To Be Hurt by
Qualified Mortgage Rule,'' which reported on a Federal Reserve
Board report that found that ``roughly one-third of Black and
Hispanic borrowers would not meet the requirements of a QM loan
based solely on its debt-to-income requirement.'' That is what
we were just addressing.
I am a former REALTOR myself. I have dealt with those.
Frankly, I come from an area where the median income and the
median mortgage and household transaction, home sale
transaction, is far below any of those major markets like
California or New York or other places that might be falling
into a jumbo-loan trap.
But frankly, whether it is jumbo or whether it is small
loan borrowers, what we are anecdotally hearing, and it is only
half-funny, is that QM is quickly becoming ``quit mortgages,''
and I am very concerned about that. For those people out there
trying to lend, this--these assets, there is a real fear that
there is too much of that constriction on there.
Sort of the response, one of the things that was part of
the original Dodd-Frank bill was the 3 percent cap on
affiliated mortgages. I recognize that the CFPB has sought to
limit the impact of the 3 percent cap by providing more
generous ``points and fees allowance for loans under
$100,000.'' But frankly, it is not enough.
That has brought me to introduce H.R. 1077, and H.R. 3211.
My friend from New York, Mr. Meeks, is a cosponsor of that. It
is a bipartisan bill. We also have been working with Senator
Vitter and Senator Manchin. There is a Senate companion to
that, S.949 and S.1577.
Based on a survey conducted by the Real Estate Settlement
Providers Council, the inclusion of title charges causes 60
percent--60 percent of loans under $60,000 to fail as Qualified
Mortgages. These loans actually become high-cost, as we were
discussing earlier, these HOEPA loans, because of points and
fees that exceed 5 percent of the loan amount. The survey also
found that 45 percent of affiliated loans between $60,000 and
$125,000--so we are not talking massive jumbo-loans--failed to
qualify as Qualified Mortgages.
In fact, 97 percent of the loans that failed as QMs were
under $200,000, simply due to the inclusion of title insurance
on that. And if title insurance is excluded, only 3 percent of
those same loans would fail as QMs.
Now, the States by and large regulate most of this, and as
I have been working with people in the industry, I have had
some conversations with colleagues across the Capitol, some who
may or may not, not to name names, have been very involved in
creating your Bureau, who constantly bring up title insurance,
apparently not understanding that this is regulated by the
States, those amounts of what people are having to go in and
pay for their title insurance.
So introducing the Mortgage Choice Act is trying to seek
relief for the major players, like the Quicken Loans and
Flagstars of the bank, which are doing these across the Nation.
Both are headquartered in Michigan but do business in virtually
all 50 States, to the small firms, like myself, which was a
small real estate firm that put together its own title company,
not because they were trying to be out gouging consumers, not
because they were trying to charge more than what the other guy
down the road was going to charge for their title insurance,
but for the ease and convenience of the consumers.
And I know that is one of your stated goals of the Bureau,
but I am curious if you could comment on that.
And then I am--you had mentioned earlier about waiting for
data. How long are we going to have to wait for that data to
address this as well, that I believe is going to show that
there has been a reduction in mortgages offered?
Mr. Cordray. Yes. So again, as you say, we attempted to
alleviate some of the concern about the 3 percent points and
fees cap, which was a pretty blunt instrument in the statute,
by providing for graduated, higher levels on loans of under
$100,000. It is not clear to me exactly what we will all think
a year from now, whether that should be somewhat higher,
whether it should be $150,000 or where that should be set. That
is a question.
I have had discussions with Bill Emerson from Quicken about
their model, which they touted, and which is a very efficient
one-stop shopping model. And affiliate models can be that. He
also was very frank in acknowledging there had been some
affiliate abuses over the years, and we have all seen them.
Congress drew a line on that, we thought, and we are trying to
respect that line.
I think the--
Chairman Hensarling. I'm sorry, the time of the gentleman
has expired.
Mr. Huizenga. Mr. Chairman, I know my time has expired, but
I would--in writing, I would like to ask, how long are we going
to be able to wait? We think we have evidence now, after 30
days, so do we need 30 days of evidence, 60 days of evidence,
because the longer that we wait the more people are going to be
impacted and hurt by that.
Mr. Cordray. I haven't seen any data yet, but within a few
months I think we will get a sense of the impact.
Chairman Hensarling. Now, the time of the gentleman has
really expired.
Mr. Cordray. Sorry.
Chairman Hensarling. The Chair now recognizes the gentleman
from Massachusetts, Mr. Lynch.
Mr. Lynch. Thank you, Mr. Chairman.
I want to thank the ranking member as well.
And, Director Cordray, I appreciate your willingness to
come here and help the committee with its work.
Just as--at the outside, I would just like to say that I
think you present--well, the CFPB presents far less risk to
American security than, say, Target or some of these credit
card companies that actually have the specific data on
individual consumers as opposed to the aggregated, anonymous
data that is presented to the CFPB.
Now, I think we all understand, because of the housing
crisis, the need to have Qualified Mortgage regulations and
standards. That much being said, where the line is drawn, I
guess, is open to interpretation, and I guess it is a bit
subjective.
I do share some of the concerns with my colleagues across
the aisle, especially with respect to community banks and
making sure that the creditworthy population has that
opportunity to get a mortgage.
And there is the danger, I guess, if we use this bright
line, 43 percent, that there may be people in some of our
neighborhoods, especially communities of color, who might not
meet that bright line test but nevertheless, because of their
individual circumstances, should get a mortgage.
And I am just wondering, as my previous colleague just
mentioned, is there some ability going forward to look at the
data to see if we are boxing out some meritorious segment of
the population who should be getting mortgages but are getting
shut out, either because of demographics or urban versus
suburban versus rural? Is there some opportunity here going
forward to sort of tweak this in a way that we make sure that
folks aren't left out?
Mr. Cordray. Thank you, Congressman, and I agree with you,
and there will be and is opportunity to consider further those
provisions and the effect they are having. And I will just
point back to when we finalized this rule a year ago, we did
not have a provision for small creditors. We added that on.
That was the first very significant tweak of the rule and
it was meant to address exactly what you say. There are people
who won't qualify on some sort of boxed-up metric analysis, but
community banks and credit unions will work with people in
their community that they know and they have the personal
relationship to understand their situation, and will make that
loan.
The whole point of the small creditor exemption was to give
thousands of community banks and credit unions the flexibility
to continue doing the same kind of traditional lending they
have always done, which works well, pays attention to the
person's ability to repay, and makes good judgments about it.
They have that latitude under the rule.
Now, whether we have drawn all the lines exactly in the
right places or whether we could move them is something that we
will continue to hear from people about and listen to people
about. Over the course of the year, we will start to get a
sense of how this is affecting the market, and if it is
affecting the market in ways that you and I think were not what
we are trying to accomplish, then we will be open to thinking
further about it.
We have said that many a time, and I am happy to say it
again today.
Mr. Lynch. Are we hearing anything from our smaller credit
unions, smaller community banks right now in terms of--what is
the feedback so far?
Mr. Cordray. I hear from them all the time. We heard from
them before we adopted the rule last January and we heard from
them after we adopted the rule. We solicited their input and
comments on the small creditor provision and incorporated a lot
of what they told us.
They talk to us constantly. I have a Community Bank
Advisory Council and a Credit Union Advisory Council I didn't
have to set up, but I did, because I wanted to have more
feedback from them.
I think we have our ear pretty close to the ground. I think
a lot of what you hear we are also hearing. There is a fair
amount of concern, some of which is justified and some of which
is not. But as we go, if we need to make adjustments we are
open to considering that, as we have already shown that we have
been willing to do.
Mr. Lynch. Lastly, I know this is not necessarily in your
wheel house, but I am hearing from my constituents. I represent
a coastal area. There is a lot of pressure on REALTORS with
respect to these new flood maps. Have you encountered any
feedback in terms of what it is doing to the real estate
market?
I know it is--for folks on low income or fixed income, I
know it has had a dramatic impact on them. I am just wondering
if you are hearing anything on that end.
Mr. Cordray. Contrary to those who think we are all-
powerful, that is not in our wheel house. I don't know much
about it. We are probably hearing some things about it, but I
don't have a perspective on it at the moment.
Mr. Lynch. Thank you, Mr. Chairman. I yield back.
Chairman Hensarling. The time of the gentleman has expired.
The Chair recognizes the gentleman from Wisconsin, Mr.
Duffy.
Mr. Duffy. Thank you, Mr. Chairman.
I would just lend my voice and concern to the QM rule,
especially its impact on low- and moderate-income families and
the impact of the rule. And when you have banks--financial
institutions that are holding these loans in portfolio, we have
concern how that is working, especially across our districts.
But I am not going to spend my time there. I do want to
move to data and data collection.
We are all aware that the Bureau is collecting and
monitoring financial information on millions of Americans. That
is clear.
Earlier today, I forget who the exchange was with, but you
indicated that you weren't sure that the information that is
collected from individuals or third-party contractors could be
reverse-engineered, which concerns me because Mrs. Capito and
I, on July 9th of last year, asked you if it is possible for
the CFPB or any third-party vendor working on behalf of the
CFPB to reverse-engineer raw data to identify individual
consumers. That was the question.
And part of the response was: ``The Bureau purposely
reduces the likelihood of data being re-identified by
restricting access to data to those whose work requires it and
providing privacy and security training to Bureau personnel on
how to handle and protect data appropriately.''
So your response over half a year ago indicates, yes, you
do get information that can be reverse-engineered and identify
individuals, and today you are not as clear about that in the
question and answer. My--
Mr. Cordray. Do you want me to respond and clarify that for
you?
Mr. Duffy. Let me ask you a question.
Mr. Cordray. Okay.
Mr. Duffy. I think today you also said that you work on
behalf of consumers. You would agree with that, right?
Mr. Cordray. That is how I view my job, yes.
Mr. Duffy. Would you object to getting permission from
consumers, those people you work for, before you collect or
monitor their information?
Mr. Cordray. So, a couple of things. First of all, as to
whether there is any inconsistency in my testimony today with
that letter, I don't believe there is. I don't want to have you
mix apples and oranges, peaches and plums here. You have had a
big focus with us on the credit card data and we are very
careful about avoiding any prospect of reverse-engineering on
that.
The question to me earlier had to do with mortgage data,
where there is zip code information. And what I have said is I
think we are always concerned and want to be very careful about
the prospect of reverse-engineering. It is something that is
going to continue to evolve over time as more information is
publicly available, that it can be matched against and so
forth. So it is something we are going to be very mindful of
and very careful about.
As to your question of would we go to individual consumers
and ask their permission before we seek, say, aggregate data
about the credit card market, that is, I believe, intended to
and certainly would have the purpose of completely making it
impossible for the agency to have any kind of data to know what
is going on in these markets. Because to ask many, many
consumers for their permission before we could aggregate data
about them would mean that I wouldn't know anything about the
mortgage market when you want me to get the QM rule right, I
wouldn't know anything about the credit card market when you
want me to report to Congress on that, and how would that--
Mr. Duffy. I am going to reclaim my time.
Mr. Cordray. --and how--
Mr. Duffy. --I reclaim my time.
I don't know if you have done any polling to see what the
American consumer thinks about you monitoring and collecting
information. So I am concerned that you may not be aware of
where the American population is.
I would bet if you asked them, they would love to have the
opportunity to give you permission to access their information
or deny you permission, or in the least, I don't think you have
an opt-out provision on your Web site. So if you say, ``Listen,
I am one who doesn't want the group of people who claim to be
working for me--I don't want to give them my information,'' you
can't even opt out, which would be very easy for consumers, and
that concerns me.
And there has been some comparison to the Bureau and the
NSA, and I know that is a burr under your saddle and you don't
like it. The NSA does not ask Americans permission to collect
their phone records and e-mails and texts. And the CFPB does
not ask permission to collect information on the American
financial consumer.
I would love if you would differentiate yourself from the
NSA and actually ask the people that you work for, for
permission before you access information, or at least give
America an opportunity to opt out.
And I will ask you another question here. As you go to your
Web site--I pulled it up and looked at the disclosure of what
the information that you collect. It is horrible that you have
this much data on the American consumer that can be reverse-
engineered and they don't have that information and that
disclosure clearly and crisply delineated on the Web site is of
concern.
Mr. Cordray. Wait, what are you talking about there? Are
you talking about our consumer response function or what?
Mr. Duffy. On the bottom of your Web site--consumer--when
you talk about the data information on the Web site. If you
want a copy if you haven't looked at it, I can provide it to
you. Privacy policy and legal notices is what I am referring
to.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Michigan, Mr.
Peters, for 5 minutes.
Mr. Peters. Thank you, Mr. Chairman.
And thank you, Director Cordray, for appearing before the
committee today. Certainly, I appreciate all of your hard work
in protecting American consumers in relation to these financial
products. I know it is a difficult task and you are doing a
wonderful job.
To me, however, college affordability is probably one of
the top priorities we need to be focused on. And I believe that
the CFPB has done an excellent job of shining the light on some
of the difficulties that so many of our students are facing
now.
A CFPB report from last summer cited stakeholder comments
suggesting that it might be useful to allow for the
rehabilitation of private student loans on which borrowers have
defaulted. And as you know, there are currently more than
850,000 private student loans in default in the amount of about
$8 billion.
For many, student loans are a young person's first
experience with credit. And after graduation, many students
struggle for months and sometimes even years to find their
first good-paying job, especially as our economy continues to
recover.
This is why I have worked across the aisle, with my
colleague Michael Grimm, to introduce the Federal Adjustment in
Reporting Student Credit Act, which would allow seriously
delinquent private student loan borrowers a one-time offer to
remove a default from their credit report after making a series
of on-time payments.
This already exists for Federal student loans, which make
up a significant majority of the student loan market. Our
proposal basically allows private student loan furnishers to
offer a rehabilitation program similar to what is already
available for the public student loan borrowers, but doesn't
require them to do so. The bill creates no new regulations and
actually gives private lenders another tool to help borrowers
get back on track once they get that first job and are able to
make those payments.
I appreciate having the Financial Institutions Subcommittee
Chair, Shelley Capito, as a cosponsor of the legislation and
that both she and Chairman Hensarling have agreed to work with
me on putting together a hearing on this issue.
And I appreciate that, Mr. Chairman.
But, Director Cordray, I realize that it is difficult for
you to talk about a specific piece of legislation, particularly
one that is not in front of us right now, but maybe if you
could just generally discuss how harmonizing the public and
private loan rehabilitation policy would help recent graduates
get back on track?
Mr. Cordray. And thank you for saying that, Congressman,
because I do want to always be careful about just responding
off the top of my head to legislative ideas when I haven't seen
the text. But in general, I think I have a positive reaction to
what you have described.
As we have found in the mortgage market, with mortgage
servicers, the more tools that are available for them to give
people opportunities to get back on track, first, they have the
opportunity to collect money where they otherwise were going to
get none, and second, often people do need a second chance and
circumstances change. Maybe now they are employed, whereas at
the time they defaulted, they were not employed. That is
obviously going to be a big difference for people.
And the fact that it is analogous to what is being done
with Federal student loans, actually we would like to see more
of the practices that exist on Federal student loans, such as
income-based repayment and other things, be taken up in the
private sector on private student loans.
So in general, we think that private student lenders could
be doing more to provide options to their borrowers. We think
they would benefit by doing so. They would probably collect
more money.
At the same time, there is a tremendous overhang in our
economy right now. I described it as a domino effect earlier
about the student loan millstone around the neck of some of our
biggest achievers in society who have managed to get a higher
education and training and just happened to graduate into a
tough job market or didn't have the means and therefore have to
come out of college with tens of thousands of dollars in debt.
We want those people to be able to succeed, and giving them
some options to respond to their circumstances seems to me to
be a good thing.
Mr. Peters. I appreciate those comments. In fact, I have
heard from a number of private lenders who believe that if this
bill passes, they can start offering loan rehabilitation
shortly after enactment. This would be an incentive for folks
to really step up and move forward and rehabilitate their
credit and pay those loans down.
Do you agree that this is a market-driven policy change
that would help a significant number of borrowers, as far as
you know, from at least hearing it on the surface of this item?
Mr. Cordray. I would be happy to have our very strong
office of students and our student ombudsmen work with your
office--maybe they already are, for all I know--in terms of
ironing out some of the details and seeing if something could
be moved on this.
It is a crying need in our society right now. The student
loan problem is weighing down a generation of young people who
should be our next generation of leaders.
Mr. Peters. I appreciate your support of this legislation.
We will look forward to working closely with you. And
hopefully, we can get it passed with the help of Chairman
Hensarling.
Thank you, Mr. Chairman.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Ohio, Mr.
Stivers, for 5 minutes.
Mr. Stivers. Thank you, Mr. Chairman.
And thank you, Director Cordray, for being here. I want to
thank you for your service to our home State of Ohio, as well
as your service to the Federal Government as the Director of
the CFPB.
I have three sort of big area questions around mostly
organizational culture.
The first question I have for you involves a bipartisan
bill that Representative Tim Walz and I have introduced which
would create a standalone Inspector General for the CFPB. I am
curious if you would oppose that bill or not.
Mr. Cordray. So this--
Mr. Stivers. If you can be brief in these answers--
Mr. Cordray. Yes. Yes, I will. You know I have that
problem, Congressman. He is my Congressman, so he knows that I
am not always brief.
We have an Inspector General now. That Inspector General
has a strong staff and is doing a very good job with us. We are
subject to, I think, 10 open inquiries and supervision
processes right now. I think they are doing an excellent job.
Obviously, we will live by whatever Congress makes the law.
And the law that we have right now has us with a strong
Inspector General who is, I think, doing the kind of work that
you want him and his staff to be doing.
Mr. Stivers. And I can say, our bill is not an indictment
on the Fed's Inspector General. This is about an organization
that now has 1,300 people, is growing in size and scope. And we
just believe you deserve your own Inspector General.
The sort of second area I want to go through is the role of
your agency. Can you tell me, if I was to poll your 1,300
employees, would you say they would tell me that you are an
enforcement agency or a supervisory agency primarily?
Mr. Cordray. I believe I know exactly what they would say--
the same thing I would say: We are both.
Mr. Stivers. The problem that I have with your culture and
the way I believe it is going--you are both, but I believe you
need to make the rules of the road clear first and then enforce
those rules of the road.
I want to share with you a conversation I had with a bank
in my area recently where they told me their interactions with
the CFPB. The CFPB identified a problem area, and the
compliance officer asked for guidance on how they could make it
right, and the CFPB official said to them--and I will give you
this quote: ``You do what you think is right and we will tell
you later if it was okay or not.''
I have a problem with that. I believe you need to make it
clear what the rules of the road are first, and then use your
enforcement actions to focus on those and get that done.
I also noticed in your written testimony that you said,
``Through our enforcement and supervisory actions,'' so you put
enforcement first, too. And I just would ask you to think about
that, when you are building an organizational climate and
culture, about what comes first.
I have a couple other questions. I want to follow up on a
question that Representative Luetkemeyer had, and this is just
a yes-or-no question. Will you put in writing the same thing
the DOJ and the FDIC have done that makes it clear what your
guidance is for small-dollar, short-term lenders? I would love
it sooner rather than later, but I guess what I would like is a
commitment that you will ultimately put something in writing
that gives them guidance with regard to whether they can do
business with banks and processors and all that.
Mr. Cordray. Again, I don't have a yes-or-no answer. It is
actually a fairly complicated issue. How they should do
business is not just a simple matter of a one-page sheet.
I would be happy to look at the letters you are talking
about.
Mr. Stivers. That would be great. The DOJ and the FDIC have
managed to do it, so I would hope you would try to do it.
The next thing I--and this all goes to sort of
organizational culture. I hope you will solicit input from the
folks you are charged with regulating. In fact, the CFPB's
Section 1011 actually says you are supposed to solicit and get
input. I know you are supposed to get representation from these
covered groups.
And I would just ask you to take a look whether some--you
can have somebody from somewhere in these short-term loan
marketplace--somebody who has knowledge in it on one of your
existing groups that you have for input. So that is just me
urging you. It is not really a question, but take a look at
that again. You and I have had this conversation for--
Mr. Cordray. Yes.
Mr. Stivers. --a year.
Mr. Cordray. I think we are doing that, Congressman, and we
will continue to. I have probably spoken to some of the same
executives you are speaking to.
Mr. Stivers. Great.
Mr. Cordray. In defense of my folks, if they said, ``you do
this, and then we will tell you afterwards,'' that is not our
attitude. Sometimes, things are more complicated. That is all.
Mr. Stivers. I have one more question I want to follow up
on really quick.
Mr. Scott actually brought up a really good point about the
Bureau, and this goes to my bigger point of supervisory versus
enforcement--and I would ask you to do what you can with regard
to indirect auto lending to create a more formal rulemaking
process, because what is happening is, as you do enforcement
actions and not rulemaking, they don't get input. And so, I
would ask you to look at your overall organizational culture.
I am going to submit a few other questions in writing. I
apologize for going over my time.
I yield back the balance of my nonexistent time.
Mr. Cordray. Thank you.
Chairman Hensarling. The gentleman's nonexistent time has
expired.
The Chair now recognizes the gentleman from Illinois, Mr.
Foster.
Mr. Foster. Thank you.
And thank you, Director Cordray, for your service.
I would like to return to this issue of the National
Mortgage Database and databases more generally. I believe this
will be, over time, a tremendously valuable feature of our
government. During the collapse of the housing bubble,
homeowners in America lost roughly $9 trillion, which is
$30,000 for every man, woman, and child in the United States.
And one of the things that drove the housing bubble was
simply that regulators did not have the information to know
what was going on. Basic information like consolidated loan to
value, including second liens and stuff, was not available to
the Federal Reserve and others who, at the time, had the
authority to control mortgage origination in this country.
I would also like to point out that the PATH Act that
passed out of this committee, with the unanimous support of the
Republicans on the committee, in fact, had provisions to adjust
the underwriting requirements for mortgages on a county-by-
county basis in response to market conditions. That would have
required exactly the sort of a database that you are talking
about developing for the National Mortgage database.
But there are questions about statistical sampling, I
think, that were raised by Congressman Garrett, and I think
that they are actually valuable. This business with personally
identifiable data is a problem in the commercial world, and it
is a problem in the--and it is a problem for any federally-held
data set.
I think it was an interesting question of why you have
chosen 60 percent sampling, roughly, for credit cards and the
National Mortgage Database is a 5 percent sample, if I
understand correctly.
But I also understand that you have--a lot of the abuses
you are trying to identify are micro-targeted with the same
sort of micro-targeting that you are seeing for legitimate
marketing. You can easily imagine--and I am sure it has
happened--that you find abuses practices targeting, for
example, unmarried Asian women in manufactured housing.
So you are trying to track down abuses in small statistical
corners. You will have to slice and dice the data tremendously
and you get into statistical problems when you look for these.
And so how do you view that problem, and how do you intend
to handle it managing these data sets?
Mr. Cordray. First of all, it is a very fair concern, and
the smaller the category gets, the less confidence you can have
in trying to extrapolate patterns from it. So I think that is
just a general challenge in the work that we are doing and,
frankly, for the industry and everybody concerned about what is
happening in these markets.
I don't have much to say. You aptly, and I think very
eloquently, described the importance of having the information,
that people missed what was happening in the mortgage market
and caused all the harm that resulted from the financial
crisis, is--continues to be a scar on this entire generation,
and we are still trying to build back both household wealth,
and people trying to get their jobs back, and so forth.
If we can avoid that, by having information and knowing
what is happening in real time, I think it is clear what the
choice should be. We should make sure that we know what is
going on, so we can try to respond to it and prevent it where
we can.
Mr. Foster. I also think that you are correct in making the
distinction between you and the NSA. The NSA is interested in
targeting individual terrorists. You are looking for patterns
of abusive behavior in the market, and I think that is a
fundamental difference.
Mr. Cordray. Again, said better than I said, so thank you.
Mr. Foster. Listen, I want to change gears a little bit.
Having to do with--many immigrant communities--this is a
question of notarios and fraudulent advice being provided,
specifically targeting immigrant communities.
Many immigrant communities across the country fall victim
to what are sometimes called notarios. As you know, in many
Latin American countries a notario or a notario publico refers
to State-appointed lawyers whose qualifications are equal or
may even exceed those of an attorney. But in the United States,
a notary public, obviously, has only the authority to witness
certain documents.
But the linguistic discrepancy is being abused by a number
of fraudulent or simply incompetent advisers. Much of this is
on immigration issues, but a significant fraction overlaps
financial services. And I was wondering what you are doing--
what is on your radar screen in this area?
Mr. Cordray. Yes, I actually appreciate your asking about
that.
I first ran into notario fraud when I was the county
treasurer in Franklin County, which would have been about 2003,
2004. And we were working with our Latino community on
foreclosure issues and starting to translate some of our stuff
into Spanish, which seemed like not a normal thing in Central
Ohio at that time. But it has become very much a part of
dealing with these markets.
The notario fraud is just as you described it. Many
people--especially when it comes to things like land contracts,
which is often common as a means of securing housing--have
fallen victim to it.
We continue to work with people like State attorneys
general and the Federal Trade Commission, who often have more
to say about advertising types of fraud that aren't linked
specifically, sometimes, to mortgages and other products that
we oversee.
We have some information that we have been developing on
our Web site for consumers to be careful about this.
It is, I think, a broadly enough known scam now that there
is a lot of effort in the Latino community to make people aware
of it, but it is a problem of language and it is one that
people have exploited wrongly and hurt poor people as a result.
Mr. Foster. Thank you. My time has expired.
I yield back.
Chairman Hensarling. The Chair now recognizes the gentleman
from Tennessee, Mr. Fincher.
Mr. Fincher. Thank you. Thank you, Mr. Chairman .
And, Director Cordray, I appreciate you taking time for us
again today. It has been almost 3 hours now.
I learned a few minutes ago that you are a five-time
``Jeopardy'' champion. Is that--
Mr. Cordray. That was a long time ago, sir.
Mr. Fincher. Wow. Well. Phrase your answers in the form of
a question.
[laughter]
Mr. Fincher. On a lighter note. I'm sorry.
So, Director Cordray, we talked a lot today about
manufactured housing--and I am from Tennessee, a rural State--
and how important it is that we try to fix this problem.
I appreciate the chairman allowing us to put this fix in
the PATH Act. And so many of us were elected for solutions to
problems, and that is what we have been working with the
industry and with the CFPB to try to solve this problem.
You would agree that the CFPB is a data-driven agency,
correct?
Mr. Cordray. That is what we strive to be, yes.
Mr. Fincher. So I guess our concern is we, along with the
industry, have been actively engaged in providing you with
many, many pages of data, trying to fix this issue so that an
estimated 6 million people don't--are not able to access credit
to buy manufactured housing.
I guess our problem is as we have been giving you the data,
and you have responded to us from requests back in September,
and this is the response from the CFPB: ``The Bureau has met
with the representatives from the manufactured housing industry
and has requested additional data from a set of manufactured
housing lenders to gain more complete understanding of this
market and the potential effects of this and other rules on the
market for manufacturing home loans.''
What my question to you is--and we are willing, my staff,
industry folks, me, to come down to the CFPB, to sit down, as
the ranking member said a few minutes ago, whatever we can do
to try to fix this issue--but why would you go on and let the
rules go into effect not having all of the documentation or the
data that you need to have complete clarification of this
issue? Why could you not just delay the rule until we figured
out or you figured out or the agency figured out exactly what
to do?
Mr. Cordray. Thank you, Congressman. And I believe it was
your comments that kicked off this entire subject today, which
has gained a lot of attention in this hearing.
In terms of delaying the rules, there is a lot of pressure
on us to delay various aspects of the rules and we could keep
delaying, delaying, delaying, and go on forever. All that does
is preserve a lot of uncertainty in the marketplace, and we
thought it was very important to go forward with the rules on
January 10th.
But let me say this: You raised this issue in your opening
remarks. It was seconded by--and I have made some stars here--
Representative Pearce, Representative Waters, Representative
Bachus, Representative Meeks, and Representative Clay. A number
of you want to work with us on this issue. We will reach out to
work with you on it.
As I said, we have had a number of meetings with top
representatives from the industry to try to understand how this
affects parts of the country that don't always have an easy
voice--
Mr. Fincher. Right.
Mr. Cordray. --in the halls of Washington.
So we will work with you over the next several months to
try to understand what we are seeing, what we are finding,
again, what the concerns are, many of which I think we have
heard and begun to think about, and see what may need to be
done.
Mr. Fincher. Thank you. And again, we want everyone to
understand that we are willing to come down, we are willing to
sit down and do everything we can to resolve it.
And just wrapping up, when I go back home to my district
almost every weekend and sit down with constituents who don't
understand the process and don't understand what the CFPB is
and all of these different things, and I try to explain to them
why they are being harmed and the unintended consequences, I
think that is what is critical.
I don't think your intention or the intention of the agency
is to knock folks out of buying manufactured housing, but what
happens, and whether it is Republican, Democrat, any government
that is as big as the government that we are--we have turned
into, there is a problem. The right hand doesn't know what the
left hand is doing. So that is why we are trying to keep this
small, and hopefully work out these problems going forward.
So, I appreciate that. We will be in touch. And--
Mr. Cordray. I worry about what you described as well. Yes.
Mr. Fincher. Okay. Thanks.
Chairman Hensarling. The gentleman yields back his time.
The Chair now recognizes the gentlelady from Alabama, Ms.
Sewell, for 5 minutes.
Ms. Sewell. Thank you, Mr. Chairman.
And thank you so much, Director Cordray. I know that it has
been a long day for you. But I also wanted to echo the
sentiment--
Mr. Cordray. A lot of people work a lot more than 3 hours.
Thanks, though.
[laughter]
Ms. Sewell. I wanted to echo the sentiment of that litany
of folks who are concerned about manufactured housing. I
represent the State of Alabama, and in my State, just like
Representative Fincher's, sometimes manufactured housing is the
only available option. And I appreciate that the Bureau is
going to work with us. And you can add my office as one of
the--
Mr. Cordray. I will put a star next to your name, as well.
Ms. Sewell. Thank you so much, sir.
Can you also talk to us a little bit about the steps that
the Bureau is going to take to make sure that the voices of
industries are heard as well as being an advocate for
consumers, especially on this issue that seems to have taken up
the topic of the day?
Mr. Cordray. Okay.
Ms. Sewell. Can you sort of talk to us a little bit about
any of the steps--I know you said meeting with industry members
and with Members of Congress--
Mr. Cordray. First of all, we have had several insightful
and productive meetings with representatives of the
manufactured housing community.
I think number one was for them to lay out the narrative of
who this is, how it affects them. Let's face it, when you talk
about the mortgage market, people typically think about a
house. They don't naturally, in many parts of the country,
think about a motor home or a manufactured home. There are lots
of places in the country where that is what they would
immediately think about. And as I said, I am familiar with
those areas from my own background and my own life.
The fact that there are some special issues around many of
the manufactured home loans, like a distinction between the
dwelling and the underlying property which may or may not be
related to it, creates complexities, which is not, again, the
normal real estate transaction, where you buy a home and the
land it sits on.
And the fact that many of these loans come at higher cost--
many of them are for lower amounts, but at higher cost--for
years has triggered the HOEPA rules. And that is something that
the industry had been adjusting to, and I think it goes back at
least 4 or 5 years, maybe longer, and now these rules to deal
with them as well.
So, we will sit down. We will talk more back and forth. We
will try to understand, as this is unfolding, exactly what the
impact is on people, get a sense of whether that is what is
intended and to what extent that is affecting consumers. That
is going to be our major concern.
But we do understand, and one of the things that we have
come to appreciate is that there are a lot of ways in which the
lending industry serves consumers. If consumers don't have
credit available, if they don't have opportunities, then you
don't have anything to protect anyway. So, writing great
protections is kind of beside the point.
That is why when it comes to the mortgage rules, I think
fair-minded people will say that we worked hard to try to
balance access to credit and consumer protections and try to
provide both as much as we can.
Sometimes, there is a tradeoff. In many cases, there is not
necessarily a tradeoff between them.
We may not always have gotten those lines right. We may
need to redraw some of them as we go. We are open-minded to
recognizing that. We don't think that we know it all or that
one-size-fits-all.
And, as I have said, over the last year we have shown
ourselves open to making practical changes that help these
rules actually work. We continue to do that and we will
continue to think about how this affects consumers, which is
really our pole star on all issues.
Ms. Sewell. Yes. I just wanted to make sure that we say
thank you for being open-minded. I think that in jurisdictions
like mine, where we are mostly rural, sometimes manufactured
housing is the only option.
Mr. Cordray. Yes.
Ms. Sewell. And we want to make sure that we are protecting
the consumer, and we are also providing access to credit or
helping that process so that folks have the best shot of
getting a home that they possibly can.
So, I thank you for your willingness. Do add my office as
one of the offices willing to help out.
Thank you, sir.
And I yield back the rest of my time.
Mr. Cordray. Thank you, Congresswoman.
Chairman Hensarling. The gentlelady yields back.
The Chair now recognizes the gentleman from Kentucky, Mr.
Barr, for 5 minutes.
Mr. Barr. Thank you, Mr. Chairman.
Mr. Cordray, first a couple of questions about the indirect
auto lending bulletin, and then I want to ask you a couple of
questions about the Qualified Mortgage rule.
On the indirect auto lending bulletin, will failure to
conform to that bulletin bring adverse consequences to
noncompliant auto dealers?
Mr. Cordray. So again, the bulletin on indirect auto
lending governs lenders. It does not govern dealers.
And again, this is the landscape that we have been given
and we are trying to be very mindful of it.
Mr. Barr. Can auto dealers disregard the bulletin?
Mr. Cordray. The bulletin covers and is addressed to auto
lenders. It is not addressed to auto dealers, over whom we do
not have jurisdiction.
Now, when you have a transaction in today's market, the way
it often works is you will have a lender and a dealer engaged
in that transaction. But the Congress drew a line here and they
said dealers are subject to the jurisdiction of others; lenders
are subject to our jurisdiction, so--
Mr. Barr. Right. This does impact--
Mr. Cordray. So lenders have to worry about it and comply
with--
Mr. Barr. Sure. But it impacts the dealers' markup
practices, obviously.
Mr. Cordray. It could, depending on exactly what actions
are taken in response, yes.
Mr. Barr. Is it the intent of the Bureau to make this
legally binding on the auto lenders and, by extension, the auto
dealers?
Mr. Cordray. Again, we have a responsibility under our
statute to govern fair lending practices by auto lenders. We
have no ability to govern fair lending practices of auto
dealers.
Mr. Barr. I understand.
Mr. Cordray. No ability.
Mr. Barr. That is really not where I am going. Is it the
intention of the Bureau to make this legally binding on auto
lenders?
Mr. Cordray. Auto lenders are already bound to comply with
the law. This is a clarification of what the law is. We didn't
create that; we didn't change it. It is what it has been.
Mr. Barr. The point of my question, and I think you
understand what I am getting at, is why are you not using
notice-and-comment rulemaking here? If the intent is to make
this legally binding, why don't you give auto lenders and auto
dealers the opportunity--and the American people the ability to
comment on what it is that you are doing?
Mr. Cordray. We use notice-and-comment rulemaking when we
are actually changing the law. This is not a change in the law.
It is a restatement of law that other agencies have followed
for 20 years. They had a guidance document in 1994 or 1995 that
we were simply restating, so--
Mr. Barr. So can auto lenders disregard it since it is not
a restatement or a new law?
Mr. Cordray. No. They always had to regard it. They had to
regard it for 20 years. We are simply, again, reaffirming that
they still have to regard it.
Mr. Barr. Let me talk about the details of the bulletin,
and whether or not--and the question that really wasn't
answered in your response to the letter that we sent you, about
the analytical controls that you believe are appropriate in
implementing this.
We asked what were the controls that you were going to use
in applying the rule. Is the Bureau going to be using, for
example, nondiscriminatory factors--taking into account
nondiscriminatory factors, such as the creditworthiness of
borrowers?
Mr. Cordray. Creditworthiness of borrowers is always
relevant to these considerations and very, very valid criteria.
Mr. Barr. And the amount financed?
Mr. Cordray. The amount financed would matter because the
extent of harm to consumers is going to be potentially greater
with the greater amount financed.
Mr. Barr. And the length of time of the loan?
Mr. Cordray. That is a relevant factor, sure.
Mr. Barr. And what about the presence of a manufacturer's
subvention of a right?
Mr. Cordray. I believe that could be relevant criteria.
What you are laying out is that it is a somewhat nuanced
analysis and not so easy to say one-size-fits-all. It depends a
lot on circumstances.
Mr. Barr. If I may, with the remaining time, let me just
move quickly to the Qualified Mortgage rule. As you know, the
rule provides greater flexibility for lenders in rural and
underserved areas, particularly to originate balloon loans, for
example.
But we have heard from our constituents that there is a
problem in certain rural areas which have been improperly
designated as non-rural. My question to you would be whether or
not the Bureau would be open to allowing a process whereby
clearly wrongly designated rural areas could petition your
agency for a proper designation of rural status.
Mr. Cordray. So here is what we did: I was convinced that
we got the rural designation wrong or that it merited
reconsideration, so we took that off the table. None of these
lenders have to worry about that for the next 2 years while we
rethink it.
So I think we have done exactly what they wanted, which is
nobody is being affected by that designation now. We will
rethink it, and potentially it will end up being a different
designation when we are through working through this. And we
are interested in hearing from them in the meantime.
I heard a lot from them initially, and that is what caused
us to pull back on it.
Mr. Barr. Whether it is in the case of an auto lending
bulletin or in the case of the QM rule, I would encourage the
Bureau to allow more participation, whether it is notice-and-
comment or whether it is a petition process where the American
people can actually correct--
Mr. Cordray. If you know of anybody who is having trouble
getting a meeting with us, you let me know. We are pretty
widely accessible.
Mr. Barr. Thank you.
Thank you. I yield--
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Florida, Mr.
Murphy, for 5 minutes.
Mr. Murphy. Thank you, Mr. Chairman.
And thank you, Director Cordray, for your testimony. And
thank you for what you and the Bureau do to protect consumers.
Regarding Habitat for Humanity, as you know, it is a
charitable organization, which represents part of what makes
America great: neighbors all coming together with a simple idea
that affordable homeownership strengthens communities and helps
break the cycle of poverty.
Habitat homeowners enjoy no-interest, charity mortgages,
designed not to make a profit on the underlying loan, or affect
the risk of the homeowner, but simply to build communities and
promote affordable homeownership.
I have been working closely with my good friend and fellow
United Solutions Caucus Member Meadows, from North Carolina,
and the gentlelady from West Virginia, Chairwoman Capito, on
legislation to improve Wall Street reform by protecting Habitat
for Humanity and other such charity organizations from a
regulatory risk, which should be reserved for banks and credit
unions.
The process has benefited from the Bureau's responsiveness
and ongoing willingness to address legitimate concerns. One of
those concerns is whether forgivable loans actually count as an
extension of credit. If a borrower will not be expected to
repay a loan, as in the case for many downpayment assistance
loans, that borrower should not have that loan count against
them for the purposes of determining ability to repay.
Can you explain to the committee the Bureau's position on
whether forgivable loans are considered an extension of credit
for the purposes of determining ability to repay debt-to-income
ratio?
Mr. Cordray. Yes. And to go back, when we first finalized
the Qualified Mortgage rule in January of last year there was
not yet any provision that took account of 501(c)(3)'s like
Habitat. They spoke to us. They had several concerns.
We went back and did an additional rulemaking process,
which resulted in the small-creditor provision, which was very
important to community banks and credit unions, and a provision
that governed Habitat. The Bureau took care of their concerns,
or so I thought.
By the end of this year, as they worked through other
problems, they found that they have identified three other
concerns. This is the leading one, as I understand it. I had a
discussion with the CEO, Jonathan Reckford, yesterday, and we
talked back and forth. He had his lawyers in the room
explaining the details of the issues and we pledged to work to
see that we can resolve these issues through our rulemaking
authority.
Representative Capito, with whom you are working, knows
full well that we can resolve these issues because we had this
problem with stay-at-home moms under the credit card rules that
we inherited, that she raised. I agreed that it was a very
valid concern and we addressed that through rulemaking, it
always takes a little longer than we would like, but I think we
can do the same here.
Mr. Murphy. Thank you for your responsiveness to these
consumer concerns. When should we expect a formal, workable
position from you all?
Mr. Cordray. We are already working with Habitat to
understand the granular details of their concerns, including
this one. As you say, the big-picture issue on this one is very
much: do second liens have to count in the very peculiar
circumstances of Habitat, where they put a second lien on often
as a safeguard to avoid the homeowner getting themselves into
trouble on a second lien of their own.
We are working with them already. I think over the course
of this year, we will solve this problem, and if that is not
fast enough, we can work with them further to try to organize
the timeframe.
But I know in my area, it is a former colleague of mine
from the State legislature who runs the Habitat in our area.
They do a very good job. It is something we want to encourage
and they help a lot of people. So, we are mindful of protecting
their model.
Mr. Murphy. Thank you. And as you examine how to best
protect consumers in the short-term, small-dollar credit
sphere, I would be remiss to avoid sharing the benefit of good
regulation and great enforcement that we have in Florida, where
they are pulled away from unlawful and short-term loans by real
access to a functional market without castigating or endorsing
the industry.
The State of Florida has really demonstrated a workable way
to protect access and consumers. I hope, as we move forward,
that you recognize the States that are doing it right.
And my question is how, in an extremely well-regulated
market, do you protect consumers by keeping them from the black
market?
Mr. Cordray. We are looking at a number of States that have
developed different provisions on short-term, small-dollar
payday lending. Florida is one; Colorado is one; Washington is
one. There are some interesting new approaches.
I have been in direct contact with Drew Breakspear, who is
your banking commissioner, and they actually, in the interest
of the importance of data and information, when we did our
White Paper on payday lending, they then applied the same
analysis to their Florida data and were able to show us
differences in consequences because of their provisions.
Those are all things we are looking at as we are trying to
formulate the right approach.
Mr. Murphy. You are considering it.
Mr. Cordray. Yes.
Mr. Murphy. Thank you.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Florida, Mr.
Posey, for 5 minutes.
Mr. Posey. Thank you, Mr. Chairman.
Mr. Cordray, I wanted to ask you a few questions about the
time periods the CFPB provides for certain requests.
This is a set of regulations containing the rule relating
to investigations--that is 12 CFR 1080. When the CFPB initiates
a case, it serves a civil investigative demand requesting
certain information, including answers to questions, documents,
written reports, and testimony before an investigator.
Once they receive a civil investigative demand, do you know
how many days that person has before they have to meet with a
CFPB investigator?
Mr. Cordray. So first of all, what I know is this is
standard--
Mr. Posey. A one-or two-word answer, please. I only have 5
minutes. You don't know.
Mr. Cordray. No, no. It is more than that. Number one, it
is a standard practice. All attorneys general use the same
approach--
Mr. Posey. It is 10 days. It is my time. Ten days is what
they have.
Mr. Cordray. Secondly--
Chairman Hensarling. Sir, the time belongs to the gentleman
from Florida.
Mr. Cordray. He asked a question. Don't I get a chance to
answer?
Chairman Hensarling. The time belongs to the gentleman from
Florida.
Mr. Posey. I asked you how many days. It doesn't take a
book to answer that.
Mr. Cordray. We negotiate.
Mr. Posey. If a person wants to challenge the civil
investigative demand or modify the scope of the investigation,
do you know how many days they have to file an appeal with the
CFPB?
Mr. Cordray. There is a specified time in--
Mr. Posey. Twenty days is the answer. It could really be
answered that simply.
If a person wants more time to prepare a challenge to the
CFPB investigative demand, do you know what the CFPB
regulations say about the extension?
Mr. Cordray. What I know is our practice has been to
negotiate that timing with the party and to give them a
reasonable amount of time. We have done it many times.
Mr. Posey. Your literature says they are ``disfavored.''
Do you know what the penalty is for failure to comply
entirely or only in part with civil investigative demand?
Mr. Cordray. What I know is we had an example of this
recently. We investigated a payday lender. It resulted in our
first enforcement action. They were actually destroying
documents as they were under investigation.
Mr. Posey. Okay. The answer to my question is--
Mr. Cordray. That was totally inappropriate. It resulted in
a $5 million penalty.
Mr. Posey. --the Federal district court.
This is a set of regulations that governs the investigation
of non-bank-covered persons. It is 12 CFR 1091. When the CFPB
issues a notice of reasonable cause against a person who offers
consumer financial products, how much time do they have to
respond?
Mr. Cordray. --in our rules.
Mr. Posey. Thirty days. If that person fails to respond to
the notice of reasonable cause, do you know what happens to
them then?
Mr. Cordray. What I know is these are law enforcement
activities. People need to take them seriously.
Mr. Posey. --right to respond and have a decision in order
automatically entered against them.
Mr. Cordray. These are law enforcement activities and
people need to comply with the law.
Mr. Posey. Do you know what happens to a person if they
give vague or incomplete answers in their responses to a notice
of reasonable cause?
Mr. Cordray. That is something that we negotiate in terms
of--
Mr. Posey. They lose the right to rely upon any legal
argument, document, or other information that they could have
used in their defense if they fail to include it in their
response.
This is a letter from me to you, dated December 21, 2012,
containing 19 questions about the CFPB consumer data collection
program.
This is a CFPB response dated February 21st. This is a
letter responding to my questions. As you can see, it is three
paragraphs long. Nineteen questions I asked--the answer is
three paragraphs long. Paragraph three is a two-sentence
conclusion, actually.
How many days do you think it took the CFPB to respond to
me?
Mr. Cordray. So let me say, at the time that you
submitted--
Mr. Posey. Sixty-two days--
Mr. Cordray. At the time that you submitted 19 questions,
others submitted questions. There were well over 150 questions
that we had to respond to--
Mr. Posey. Listen, the people that you regulate can have a
lot of people asking them questions at the same time.
Mr. Cordray. And nobody got favorable treatment. They all
were responded to together.
Mr. Posey. Do you think a three-paragraph, one-page letter
provided complete and satisfactory answers to my 19 questions?
Mr. Cordray. I would like to see the letter, but many of
them were incorporating by reference. Other questions--
Mr. Posey. The answer is clearly no.
Mr. Cordray. Other questions were being answered at the
same time.
Mr. Posey. This, for the record, as marked, is the 19
questions I resubmitted in December 2012. Would you like to
guess when I got the answers to those questions?
Mr. Cordray. Again, I recall at one period--
Mr. Posey. These were July 9, 2012, questions for the
record, and the responses arrived on September 17, 2013.
Do you know how many days it took to respond to my question
from July? That is 70 days.
Do you know how many days it took for me to finally get a
response to the questions I originally sent you in December?
That is 270 days.
It is a bad case of, I think, democracy here--
Chairman Hensarling. The time of the gentleman has expired.
Mr. Cordray. What I understand is we have answered all your
questions. If it takes longer than you like, we will look at
that again.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentlelady from Ohio, Mrs.
Beatty, for 5 minutes.
Mrs. Beatty. Thank you. Thank you, Chairman Hensarling and
Ranking Member Waters.
And I apologize for my voice--I am losing it. But you can
also imagine when you are at the end of a 3-hour-plus hearing,
much has been said.
But, Director Cordray, let me say how honored I am to have
entered into the record that I can say something that people
here can't say--that I have had the opportunity to work with
you for several decades and witnessed your leadership and
administration. So, for the record, I could tell you that
condescending is not a word that you would find with this
Director.
Let me also say--we have heard a lot about protecting
consumers--how proud I am that in the capital city of my great
State of Ohio, that you and our mayor, Mayor Coleman, have set
up a 311 constituency line, which I think is very rare--that
you would have a Director and a mayor working together, that
individuals in my district can actually dial 311 and be
connected directly to the Bureau to talk about their concerns.
I would also like to thank you for your attention to ending
the broken system. And I was very pleased to read about how you
are working with consumers to make sure that when they are
getting a mortgage, they are not hit with surprises.
You have also heard from a lot of my colleagues on
manufacturing. I have had the opportunity to work with our
colleague--a Republican colleague who we both serve within the
House with Habitat for Humanity.
So it is also important for me to express my support for
efforts by the Bureau to address the manufacturing housing
issues without diluting important consumer financial
protection.
And lastly, we have heard a lot about the automotive
association. I have read your reports. The National Automotive
Dealers Association yesterday came out with a report and
suggests that its members set up a single markup rate for all
loans and only reduced the rate for documented reasons such as
a match or to beat a competitive rate.
I wanted to know if you have seen that report, and if you
think that it is something you will work with them on.
Mr. Cordray. We have just seen it, and to me, it is
encouraging that people are taking seriously and trying to
explore ways to address these kind of fair lending concerns,
and that the Auto Dealers Association, which I have come to
know as a very respectable body that is interested in solving
these kinds of problems, is trying to develop a solution for
dealers as notable.
The difficulty we have, again, is one that we oversee
lenders; others oversee dealers. We do not oversee dealers.
But we are happy to--if everybody understands that we are
respecting that line--we are happy to try to work together to
get to a broader solution of this issue and I think we have
made that plain.
Mrs. Beatty. Okay, thank you.
Mr. Chairman, I would like to yield the balance of my time
to the Director if there are any comments about anything he
would like to say, or to respond to any of the other questions.
Mr. Cordray. I appreciate that offer. I will pass at this
time. Thank you. Thank you very much, Congresswoman.
Mrs. Beatty. I yield back my time.
Chairman Hensarling. The Chair now recognizes the gentleman
from North Carolina, Mr. Pittenger, for 5 minutes.
Mr. Pittenger. Thank you, Mr. Chairman.
And thank you, Director Cordray, for being here. We are
near the end of this hearing, so it is time for Double
Jeopardy.
Mr. Cordray. Or Final Jeopardy.
[laughter]
Mr. Pittenger. Or final--how about that? That is even
better, isn't it?
Mr. Director, the Dodd-Frank Act established the Civil
Penalty Fund and the purpose of this was, of course, for
penalties that were levied to establish this fund. And unlike
the Federal Reserve or the OCC or the FDIC, you are in a
position to deposit these funds in your own account.
And to that end, I would like to ask this: Based on the
committee calculations that we have today, the unobligated
balance of this fund currently stands at about $96 million, and
roughly $124 million of that you have imposed in fines, which
would be allocated about $15 million--so, that is about 11.7
percent. Of that, about $1.5 million has been spent on
administrative costs.
I would just like to ask, why are you not using more of
these funds to compensate victims, as it was designed to be set
up? And can you not identify these people?
Mr. Cordray. Thank you, Congressman, for asking about that.
It is a provision in our statute that we are trying to be very
careful about and puzzled through.
What you are referring to, I think, at the moment is simply
a timing issue. In order to set up this fund and make sure that
it is subject to appropriate oversight by our Inspector General
and by the GAO, all of whom audit us, and that you would all
have confidence in it, we actually put out, as suggested on
many occasions for notice and comment, a rule on how we would
administer the fund.
That took some time setting it up. We now have made the
first allocations. We are able to compensate some victims in
matters where they did not get full compensation from the
perpetrator, often because funds were not available or on their
way out of business from scams and frauds.
Second, we have allocated some money for the first
financial education program, which is financial coaching for
servicemembers as they transition into civilian life. That is
something we will be working on with people on military bases
across the country.
I think that it is going to be an important initiative, and
it is very much within the letter and spirit of this law.
Mr. Pittenger. All right. I just want to clarify, because I
would like to move on--
Mr. Cordray. Yes.
Mr. Pittenger. --that the purpose of the fund--designed
that you have sole autonomy in--is to benefit these individuals
and to have educational programs. So, we would just encourage
you to use it for that.
Let me go ahead and ask you--
Mr. Cordray. Subject to oversight by you, the Inspector
General, GAO, and others.
Mr. Pittenger. Yes, right. Next question.
Mr. Cordray. Right.
Mr. Pittenger. On September 12, 2013, the Bureau announced
the creation of four advisory groups: the Consumer Advisory
Group; the Community Bank Advisory Council; the Credit Union
Advisory Council; and the Academic Research Council
Director Cordray, I would like you to discuss with us these
advisory boards and the councils. And why are the boards'
advisory group meetings held behind closed doors?
I understand that portions of the Consumer Advisory Board
meetings are public--
Mr. Cordray. Right.
Mr. Pittenger. --but most all other portions are private
and all other advisory groups meet in secret. Why deny the
public the right to observe these meetings?
Mr. Cordray. First of all, the only advisory council we are
required to have by law is the Consumer Advisory Board that is
set up by--
Mr. Pittenger. I am asking really more, as not by law but
as a matter of policy.
Mr. Cordray. No, I am trying to get there.
Mr. Pittenger. Okay.
Mr. Cordray. That one is by statute. And as you say, we
always make it a point with every meeting to have an open
portion and then there is a closed portion where we can get
their unvarnished advice and we can speak candidly about
matters that the Bureau is working on, including enforcement
actions and the like.
Second, in terms of the other councils, I created a
Community Bank Advisory Council and a Credit Union Advisory
Council because we wanted to hear more from them. We don't
oversee them in the normal course of things--all of those under
10 billion, which is thousands of them.
We are not covered by the Federal Advisory Committee Act--
Mr. Pittenger. I understand.
Mr. Cordray. --which exempts the Federal Reserve--
Mr. Pittenger. Director, let me just insert--we only have a
few minutes--
Mr. Cordray. Yes.
Mr. Pittenger. --a few seconds left.
In the spirit of transparency, will you commit yourself now
to at least some portions of these meetings being held up to
the public or permitting Congressional Representatives to be
there? We, as members of the Financial Services Committee, have
requested to be there in the past and those requests were
denied.
Will you commit yourself to more openness to allow for the
public to review what takes place in these meetings?
Mr. Cordray. These are advisory meetings to discuss matters
that often are not yet public, so they cannot--
Mr. Pittenger. Just yes or no.
Mr. Cordray. They cannot be made--
Mr. Pittenger. Sir--
Mr. Cordray. --public easily.
Mr. Pittenger. So, your answer is no?
Mr. Cordray. We do release minutes on the meetings and
members who come to speak to us from credit unions and
community banks can, if they want, go back and talk about what
we said--
Mr. Pittenger. Mr. Cordray, is your answer no?
Mr. Cordray. So I don't think it works for us to do that,
sir.
Mr. Pittenger. Thank you.
Mr. Cordray. And get their candid advice.
Mr. Pittenger. I yield back my time.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Washington, Mr.
Heck.
Mr. Heck. Director Cordray, I would like to start out by
apologizing on behalf of the committee. I think there are
instances where individual behavior in this committee does not
live up to the great heritage of this institution or this
committee, and I think earlier, there was an egregious breach
of protocol.
Indeed, I think the gentleman from Colorado's shameless
promotion of his individual sports franchise was way over the
line. And for my part, sir, I will simply allow the Seahawks'
performance to speak for itself. Let the record show that the
lady whose husband once played for the Denver Broncos just
turned my microphone off.
Mr. Chairman, I noted that Mr. Perlmutter got to start his
5 minutes over after his shameless self-promotion.
Chairman Hensarling. Reset the clock to 5 minutes. The
Chair is feeling rather indulgent at the moment.
Mr. Heck. I have been here for 3 hours.
Director Cordray, when you were here before I complimented
you and the agency, in particular the Office of Servicemember
Affairs, for the good work that we had done with them on behalf
of the men and women who wear a uniform. In particular, Holly
Petraeus has been just outstanding, and her staff. I thank you
again.
One of the issues that we continue to get exposed to in my
area is behavior on the part of high-interest-rate lenders. And
as you know, in accordance with the NDAA of 2013, the
Department of Defense was charged with updating the rules and
regulations associated with the Military Lending Act.
I recognize that you serve in an advisory capacity to that
effort, but it was due at the end of the last calendar year. It
is not here. I think it has recently been announced that it
will now be out probably by the end of the first quarter, or so
indicated. But as somebody who does indeed act in an advisory
capacity, could you provide us with any insight about what the
holdup is all about? People's lives are being affected every
day.
Mr. Cordray. I think I can, yes. We have actually been
actively engaged in writing new rules with the Department of
Defense. They have been actively engaged in this, as well as
our fellow agencies, including the Federal Reserve, the FDIC,
the OCC, the Treasury Department, and the FTC. And we are well
along in that process.
But I will just say it is always difficult to get multiple
agencies to work together. It is not so easy to do. It always
takes longer than we think.
Everything that you in Congress can do to keep our feet to
the fire and make it clear that you want to see that quickly.
However, we are trying to balance speed against getting it
right. We have made tremendous progress and I know the
Department of Defense wants to proceed on this. If you all just
keep attending to it and make sure that everybody knows that we
are on a timeframe and we need to move on that timeframe, that
is very helpful to all of us trying to get the work done, so--
Mr. Heck. I think Mr. Perlmutter just reentered the room. I
am just guessing.
Chairman Hensarling. The Chair is not going to reset the
clock again, so if I was the gentleman, I would keep on
trucking.
Mr. Heck. I am a little nervous right now, Director
Cordray.
Mr. Cordray. Do you have a hat like he does? You might want
to have a hat like he does.
Mr. Heck. I want to follow up on the earlier exchange about
mobile payments. I am pretty excited about mobile payments
because from my perspective, it removes friction from the
marketplace. And things that do that, if they are balanced
against consumer protection, I believe are inherently good. I
think it accelerates the velocity of a transaction; it benefits
retailers; and it is an increased convenience to the consumer.
But I note that we are in the embryonic stages and this is
growing in dozens of different ways. There is different
technology, different user interfaces, and different underlying
payment systems.
And it just seems to me that as the number one protector of
consumers' interests, it might be good on the front end of this
if we had had some kind of an in-depth analysis, I think best
conducted by your agency, about the pros and cons of developing
more harmonious consumer protections across these different
platforms.
Could I persuade you to be interested in such a thing and
get out ahead of the curve before--and I realize that you have
been fairly busy the last couple of years, but this could
explode on us. Let's get ahead of it.
Mr. Cordray. Yes. The trouble is that it is a hard area.
Exactly where it is going and when, and which platforms are
going to be the ones that get great take-up from the American
people. People have been working at this for several years
already and I still couldn't predict to you which ones are
going to be the dominant technologies of tomorrow and maybe
even, as you say, tomorrow on the calendar, not just tomorrow
metaphorically.
So we are trying to be very attentive to this. We recognize
prepaid cards have exploded very fast. It is just in the last
few years that they have ramped--
Mr. Heck. Sir, may I interrupt with a question in that
regard?
Mr. Cordray. I'm sorry, yes.
Mr. Heck. I apologize.
Mr. Cordray. No, that is fine.
Mr. Heck. I understand you have jurisdiction over prepaid
cards for banks.
Mr. Cordray. Yes.
Mr. Heck. But I kind of got lost--
Mr. Cordray. Not always--not--
Mr. Heck. Do you have jurisdiction over prepaid cards for
retailers?
Mr. Cordray. Yes.
Mr. Heck. If not, who does?
Mr. Cordray. We have jurisdiction over the offering of
financial products and services, and prepaid cards typically
are, especially the general purpose reloadable cards. So yes, I
think we do have jurisdiction over prepaid cards, and not just
banks, but also nonbanks.
Mr. Heck. Good.
So I think I am about done, Mr. Chairman, but I wonder, do
we have a sergeant at arms? I am not feeling particularly safe
right now.
Mr. Cordray. The generous Congresswoman who shared a
microphone with you, she and I wish we could talk about the
Browns, the Bengals, or the Buckeyes, but we will just have to
say wait until next year, so--
Chairman Hensarling. The apparent last questioner will be
the gentleman from Delaware, Mr. Carney, who is recognized for
5 minutes.
Mr. Carney. Thank you, Mr. Chairman. I was expecting
somebody from the other side, but I appreciate the opportunity
to be here. I apologize for having to leave and come back.
And I want to thank you for your service and for your
patience in this hearing. It has been trying, I am sure, and a
little disappointing to me, just the tone of it. It just seems
to me that consumer protection ought to be something that we
all care about, right?
And I know there are a lot of differences of opinion over
the agency and how it was created. I was not here when that
happened. It seems like now, though, we ought to be able to
move beyond that.
I did want to come back to ask you some questions about the
mortgage lending standards in particular. Something that many
of us on this side are working on is some of the unfinished
business, we think, from the near financial collapse--the
reform of Fannie Mae and Freddie Mac and the GSEs and so on.
Of course, the committee has passed a bill that would
address that, we feel like, by eliminating a government
backstop, which we think will be the end of the 30-year fixed-
rate mortgage and actually cause mortgage interest rates to go
up and make affordability more difficult.
I am curious. Obviously, the QM standards are important for
any kind of securitizing platform, but I want to revisit some
of the questions that were asked by Members on both sides about
how the QM rule that you--we are operating under now and
ability to pay. And you answered to I think Mrs. Capito's
question some time ago, a couple of hours ago, that you feel
like it was in a box.
Could you take a minute or 2 here at the end of the hearing
to explain why you think that is a good rule and why you think
it is something that we can work within as we attempt to reform
our system to address the problems that, frankly, that got us
into this financial mess the last time, and leading up to a
reform of the GSEs?
Mr. Cordray. Sure. No matter what the explanation of all
the background, and it differs among different people, I know,
everybody recognizes it was the mortgage market that collapsed
and caused the financial crisis and all the harm and misery we
have seen in this country over the last 5 years. And reforming
the mortgage market was, therefore, the highest priority
Congress set for us with the Qualified Mortgage rule.
There are several different ways that a loan can meet the
Qualified Mortgage test. And by the way, nothing prevents banks
and others from lending outside the Qualified Mortgage boxes--
Mr. Carney. As long as they hold the--
Mr. Cordray. --as long as they make a good-faith reasonable
determination of the ability to repay. And many of them are
going to be doing so and have said so.
But the boxes--
Mr. Carney. Have you gotten feedback if--sorry for
interrupting, but have you gotten feedback from the banks,
positive or negative, about that piece of it? Do they have
enough flexibility to make that determination? We will hear
from our community banks and we have heard some testimony
earlier today that ``the box is too tight'' is the term being
used.
What kind of feedback do you get?
Mr. Cordray. Yes. I think everybody always wants more
flexibility. They want to do whatever they want to do. We had
way too much before the crisis and there were a lot of loans
made that should not have been made.
Mr. Carney. Correct.
Mr. Cordray. And Goldman Sachs did a report, not a big fan
of government regulation, that said that 50 percent of the
loans that defaulted in 2005, 2006, and 2007 would not have
been made if the QM rule had been in place. It would have been
a very different story in the economy of this country.
But, we drew a box around a 43 percent debt-to-income
ratio. That is very generous by historical standards, but that
is one box.
We drew a box around loans eligible for sale to the GSEs,
which gives you all latitude to determine what you are going to
do about GSE reform. This is while they remain in
conservatorship over the next 5 to 7 years if nothing else
happens.
And when we went back and drew another box for small
creditors, hearing from them and recognizing that their lending
practices are very important in a lot of communities around
this country. Thousands of community banks and credit unions
are covered by those provisions and they have complete
latitude, whether they sell on the secondary market or keep in
portfolio, to lend in accordance with their traditional mode.
And that was an important adjustment that we needed to make and
we were convinced that we should make.
Mr. Carney. So, one last thing. You have mentioned a couple
of times that we will see. We will look at the data.
Mr. Cordray. That is right.
Mr. Carney. What will the benchmarks be? What do you think
will tell us whether it is working or not? Do you have a sense
of that or what you are going to be looking at in terms of
benchmarks there?
Mr. Cordray. Data and information about what is happening
in the mortgage and housing market will tell us how this is
going. The thing we will have to be careful of is there are a
lot of other factors here.
If the Congress acts on GSE reform, that will be a
dominating factor in terms of what goes on in the mortgage and
housing markets. If interest rates go on a sustained period of
rising which, you never know when or whether things happen in
that regard, that will obviously dominate this market. There
are other things that matter, clearly.
But in terms of our rules, we are going to continue to
listen closely, as we have all along, both to the consumer side
and to the industry side, about whether we are getting the
balance right. I think people have recognized that we have
tried hard to draw a balance. Many people think we have done
well at drawing the balance. To the extent we are not sure and
they are not sure, we are interested in seeing and hearing more
as we go.
Mr. Carney. My time is up, but let me thank you again for
your service, and I hope that we can have an ongoing
conversation about these issues. Thanks.
Chairman Hensarling. The time of the gentleman has expired.
The new apparent last questioner is the gentleman from
Minnesota, Mr. Ellison, who is recognized for 5 minutes.
Mr. Ellison. Thank you, Mr. Chairman.
And thank you to the ranking member.
Mr. Cordray, as we wrap up, I just want to offer my thanks
to the CFPB for the great work that you all do. I know this has
been a tough hearing in many ways. Of course, we are in a
pretty polarized political environment nowadays, and you are in
the crossfire. But I just want to say to the millions of people
that you have helped, I hope that you will continue to do the
hard work that you are doing, and I just want to let you know
that you have the support of many of us, including me.
Let's talk about manufactured housing, if we may. What is
up on the board is my district and all the little dots are
manufactured housing. In my congressional district we are very
proud to represent Hilltop, which is a manufactured housing
community.
Let me ask you this about manufacturing--or make these
points and then get your reflections. We have more than 68,000
manufactured homes in Minnesota, more than 3 percent of our
housing stock. And we also have about 900 manufactured home
communities. One of them, North Country Cooperative, is a
resident cooperative. And I have asked this chart for
manufactured homes to be posted on the screen just for your
reference.
I want to congratulate the CFPB for taking steps to improve
the finance options for manufactured home owners. Manufactured
homes offer attractive, safe, and affordable homes for millions
of people. But pre-crisis, too many manufactured home buyers
were only offered high-cost loans with completely inadequate
consumer protections.
Recently, I presented a question for the record to you
asking what data the industry has shared to justify those high
fees and high interest rates. And I know there are great
manufactured home loan providers, such as New Hampshire
Community Home Loan Fund and ROC USA. We should ask them to
come and testify before this committee.
I have a bill that strengthens CDFIs, H.R. 3656, which
invests in manufactured homes. And another of my bills, the
Common Sense Housing Investment Act, also helps manufactured
home buyers. I encourage my colleagues to cosponsor the bills.
Will you work with us to improve housing finance options
for manufactured home buyers?
Mr. Cordray. I would be happy to do that. And as I count
it, there are maybe half a dozen to a dozen Members today who
have raised these specific issues and we have heard about them
directly from both industry and consumers, and we are
interested in knowing more about whether the rules we have
written that mostly, again, have typical residential housing in
mind, are fitting in appropriate ways to this particular method
of housing.
Mr. Ellison. Good. I would like to introduce for the record
this report entitled, ``Toward a Sustainable and Responsible
Expansion of Affordable Mortgages for Manufactured Homes.''
This is a report I think would certainly elucidate and
elaborate on the issues we have.
Chairman Hensarling. Without objection, it is so ordered.
Mr. Ellison. Finally, let me just ask you about title
insurance. In the Qualified Mortgage rule, the CFPB includes
title insurance costs paid to affiliates in the fee cap.
Nonaffiliated title insurers are outside of the cap. What was
the CFPB's reasoning for making this distinction?
Mr. Cordray. It is a distinction that is drawn several
places in the statute. There were concerns, as I understand
it--I wasn't here for the debates on Dodd-Frank--about abuses
where people were steered toward affiliated companies and
people benefited financially from that.
It is not unique to title insurance. It is true of various
fees that are considered under the 3 percent points and fees
cap. It has been singled out by some as wondering whether the
same rationale should apply to title insurance as to other
things.
It is a fair question. It is something that we considered
as we were writing the rules. It is something that we will
continue to consider what the impact is as we look at how the
rules are operating going forward.
But it is the same general rationale as the other fees that
are treated in the same manner under the statute and under the
rule.
Mr. Ellison. I have had a number of constituents come to
me, and I just want to commend your staff on the fines against
the sham title agents. I am concerned about consumers,
particularly when they are being overcharged for the service,
and it is wrong, I think, for consumers to pay hidden
commissions and kickbacks.
So with that, I just want to say again, thank you. Your
work is very much appreciated around here by some, and we look
forward to your future success on behalf of American consumers.
Mr. Cordray. Thanks.
Chairman Hensarling. I am assuming the gentleman is
yielding back his 5 seconds.
I would like to thank Director Cordray for his testimony
today.
Before excusing you, Mr. Cordray, I would like to bring to
your attention several questions that are still pending,
including one from our Chairman Emeritus Bachus, dated June
21st, requesting all the studies, analysis, and information
relied upon by the Bureau in its compliance bulletin for
indirect auto lenders; one dating back to September 18th from
myself requesting a list of senior managers who have utilized
private e-mail accounts to conduct official business; one from
myself and Chairman McHenry requesting all documents relating
to the Bureau's awarding a $5 million research contract to
ideas42; and one dating back to October 22nd, where we have
requested all data upon which the Bureau relied in preparing
its April 2013 White Paper on payday lending and deposit
advance products.
I would note that, indeed, this committee has given the
CFPB many, many questions. We have received a number of
answers.
I know you find this sometimes voluminous and bothersome
but, Mr. Director, we consider it to be a critical check and
balance. This committee would like to continue to work with you
cooperatively and respectfully, and so I would respectfully
request that no later than the end of February, we receive full
answers. Otherwise, you will force us to rely upon our
compulsory process, which I prefer not to do.
Mr. Cordray. I will just say that sometimes the requests
are voluminous. We don't find them bothersome. It is part of
the vigorous oversight that I have come to expect, and
appreciate, and I would be disappointed if I didn't get that
from this committee.
On each of the four or so matters that you have pinpointed,
I know there have been multiple rounds of back and forth on
most, if not all of those. We have a job to do to try to
determine how best to manage this information. You have a job
to do, I understand, to oversee us.
We will try to make sure we can get as much as possible on
the same page. Sometimes these are not easy things to work
through, as you know.
Chairman Hensarling. If you could, Mr. Director, if you
would pay personal attention to these matters, that would be
greatly appreciated.
Mr. Cordray. Okay. Thank you.
Chairman Hensarling. The Chair notes that some Members may
have additional questions for this witness, which they may wish
to submit in writing. Without objection, the hearing record
will remain open for 5 legislative days for Members to submit
written questions to this witness and to place his responses in
the record. Also, without objection, Members will have 5
legislative days to submit extraneous materials to the Chair
for inclusion in the record.
This hearing stands adjourned.
[Whereupon, at 1:42 p.m., the hearing was adjourned.]
A P P E N D I X
January 28, 2014
[GRAPHIC] [TIFF OMITTED]