[House Hearing, 113 Congress] [From the U.S. Government Publishing Office] LEGISLATIVE PROPOSALS TO IMPROVE TRANSPARENCY AND ACCOUNTABILITY AT THE CFPB ======================================================================= HEARING BEFORE THE SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND CONSUMER CREDIT OF THE COMMITTEE ON FINANCIAL SERVICES U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED THIRTEENTH CONGRESS SECOND SESSION __________ MAY 21, 2014 __________ Printed for the use of the Committee on Financial Services Serial No. 113-82 U.S. GOVERNMENT PRINTING OFFICE 88-544 PDF 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. VELAAZQUEZ, 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 RUBEEN 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 STEVE STIVERS, Ohio PATRICK MURPHY, Florida STEPHEN LEE FINCHER, Tennessee JOHN K. DELANEY, Maryland MARLIN A. STUTZMAN, Indiana KYRSTEN SINEMA, Arizona MICK MULVANEY, South Carolina JOYCE BEATTY, Ohio RANDY HULTGREN, Illinois DENNY HECK, Washington DENNIS A. ROSS, Florida STEVEN HORSFORD, Nevada ROBERT PITTENGER, North Carolina ANN WAGNER, Missouri ANDY BARR, Kentucky TOM COTTON, Arkansas KEITH J. ROTHFUS, Pennsylvania LUKE MESSER, Indiana Shannon McGahn, Staff Director James H. Clinger, Chief Counsel Subcommittee on Financial Institutions and Consumer Credit SHELLEY MOORE CAPITO, West Virginia, Chairman SEAN P. DUFFY, Wisconsin, Vice GREGORY W. MEEKS, New York, Chairman Ranking Member SPENCER BACHUS, Alabama CAROLYN B. MALONEY, New York GARY G. MILLER, California RUBEEN HINOJOSA, Texas PATRICK T. McHENRY, North Carolina CAROLYN McCARTHY, New York JOHN CAMPBELL, California DAVID SCOTT, Georgia KEVIN McCARTHY, California AL GREEN, Texas STEVAN PEARCE, New Mexico KEITH ELLISON, Minnesota BILL POSEY, Florida NYDIA M. VELAAZQUEZ, New York MICHAEL G. FITZPATRICK, STEPHEN F. LYNCH, Massachusetts Pennsylvania ED PERLMUTTER, Colorado LYNN A. WESTMORELAND, Georgia MICHAEL E. CAPUANO, Massachusetts BLAINE LUETKEMEYER, Missouri JOHN K. DELANEY, Maryland MARLIN A. STUTZMAN, Indiana DENNY HECK, Washington ROBERT PITTENGER, North Carolina KYRSTEN SINEMA, Arizona ANDY BARR, Kentucky TOM COTTON, Arkansas KEITH J. ROTHFUS, Pennsylvania C O N T E N T S ---------- Page Hearing held on: May 21, 2014................................................. 1 Appendix: May 21, 2014................................................. 41 WITNESSES Wednesday, May 21, 2014 Chapman, Rob, President, the American Land Title Association (ALTA)......................................................... 10 Mierzwinski, Edmund, Consumer Program Director, U.S. Public Interest Research Group (U.S. PIRG)............................ 11 Peirce, Hester, Senior Research Fellow, Mercatus Center, George Mason University............................................... 8 Pincus, Andrew, Partner, Mayer Brown LLP, on behalf of the U.S. Chamber of Commerce............................................ 6 APPENDIX Prepared statements: Chapman, Rob................................................. 42 Mierzwinski, Edmund.......................................... 52 Peirce, Hester............................................... 63 Pincus, Andrew............................................... 68 Additional Material Submitted for the Record Capito, Hon. Shelley Moore: Written statement of the Credit Union National Association (CUNA)..................................................... 80 Written statement of the National Association of Federal Credit Unions (NAFCU)...................................... 83 Ellison, Hon. Keith: ``Protect the Rule of Law: Support H.R. 1844, the Arbitration Fairness Act of 2013''..................................... 85 Written statement of Fair Arbitration Now.................... 86 Letter to Representative Shelley Moore Capito from Representative Henry C. ``Hank'' Johnson, Jr., and Representative John Conyers, Jr., dated May 21, 2014....... 88 MarketWatch article by Catey Hill entitled, ``You won't believe your bank's newest fee. Suing your bank? Prepare to pay up,'' dated April 9, 2014.............................. 91 Washington Times article by Paul Samakow entitled, ``When Mandatory Arbitration Replaces Litigation, Consumers Lose,'' dated June 16, 2013................................ 93 Written responses to questions submitted to Rob Chapman...... 95 Written responses to questions submitted to Edmund Mierzwinski................................................ 100 Written responses to questions submitted to Andrew Pincus.... 114 LEGISLATIVE PROPOSALS TO IMPROVE TRANSPARENCY AND ACCOUNTABILITY AT THE CFPB ---------- Wednesday, May 21, 2014 U.S. House of Representatives, Subcommittee on Financial Institutions and Consumer Credit, Committee on Financial Services, Washington, D.C. The subcommittee met, pursuant to notice, at 2:03 p.m., in room 2128, Rayburn House Office Building, Hon. Shelley Moore Capito [chairwoman of the subcommittee] presiding. Members present: Representatives Capito, Duffy, McHenry, Pearce, Posey, Fitzpatrick, Westmoreland, Luetkemeyer, Stutzman, Pittenger, Barr, Cotton, Rothfus; Meeks, Maloney, Hinojosa, Scott, Green, Ellison, Capuano, and Sinema. Also present: Representatives Stivers and Mulvaney. Chairwoman Capito. The subcommittee will come to order. Without objection, the Chair is authorized to declare a recess of the subcommittee at any time. And by way of warning, we are expected to be called for one vote here very, very shortly. So I am going to go ahead and start, maybe get our opening statements out of the way, and then we will recess for a short period, for just one vote. I now recognize myself for an opening statement. This afternoon's hearing is a continuation of this committee's efforts to make the Consumer Financial Protection Bureau (CFPB) a more transparent and accountable agency. I would like to thank the sponsors of the legislation before us for their hard work in crafting commonsense reforms to the Bureau. I would also like to highlight that some of the bills are the product of bipartisan efforts. One of the items that we will consider today is the legislation that I have drafted that puts the Bureau on a level playing field with the other banking regulators. Much like the other Federal banking regulators, the Bureau is provided with the power to assess fines on supervised entities that are in violation of Federal laws or regulations. These fines are an important tool to discourage other market participants from engaging in similar practices. Traditionally, these fines have been remitted to the United States Treasury, benefiting all taxpayers. However, unlike the other banking regulators, the Dodd-Frank Act requires the Bureau to retain these fines in a ``civil penalty fund,'' and allows the Bureau to use these funds for consumer education financial literacy programs. To date, the Bureau has collected nearly $125 million in fines. Last year, we learned that the Bureau earmarked $1.6 million of these funds for administrative costs. My issue is not that the Bureau is collecting these fines. My issue is that the taxpayers would be better served if these fines were remitted to the Treasury to pay down the historic national debt. My legislation simply states that funds currently held in the Civil Penalty Fund should be remitted to the Treasury, and all future fines levied by the Bureau should be remitted directly to the Treasury. This approach maintains the ability of the Bureau to fine the bad actors while providing a direct benefit to the taxpayers. At this time, I would like to yield to the ranking member of the subcommittee, Mr. Meeks, for the purpose of making an opening statement. Mr. Meeks. Thank you, Madam Chairwoman. And let me just say this first off. I just hope, as I review some of the bills, that we are not trying to, in certain ways, undermine or weaken or cripple the CFPB. I don't think that is the way to go, because if we are trying to slow it down or undermine the Consumer Financial Protection Bureau or the rights of average Americans to be protected from fraud or predatory or discriminatory financial practices, we will find that we are back to where we were. I think that context does matter, and we need to learn from the past, from past matters. Just a few years ago, I can't forget that we were in the middle of a great recession because the financial sector had remained one of the major sectors of our economy where consumer rights had been neglected and treated as a stepchild among other financial regulatory issues. You don't have to go into how many foreclosures, et cetera, that we had. I am always willing to work together. And I think that the CFPB has done some things, for example, like the small and rural lenders have received significant relief, and the QM rules, and nonprofit and philanthropic organizations, such as Habitat for Humanity, received relief for their financial products. Those are ways that the CFPB has worked continually to try to help and work together. And with the internal process, there are ways that I am looking at. For example, I agree with the intent of H.R. 4262 from Representative Duffy and H.R. 4383 from Representative Pittenger to require the CFPB to establish a Small Business Advisory Board. So my caution is that I feel concerned that some of my colleagues are looking to just undercut the CFPB. I have confidence in Director Cordray. And I want to congratulate the CFPB, for example, for last week's announcement with the Justice Department that it had reached a settlement against Sallie Mae for violating the legal rights of U.S. servicemembers in student loan servicing. And Sallie Mae was ordered to pay $96.6 million in restitution and penalties. This is just an example of how the CFPB works every day to protect vulnerable Americans and bring relief to them. Chairwoman Capito. Thank you. I now recognize Mr. Pittenger for 1 minute, please, for an opening statement. Mr. Pittenger. Thank you, Madam Chairwoman, for calling this hearing, and I appreciate the time to address this distinguished group. At this time, we are to discuss H.R. 4383, the Bureau of Consumer Financial Protection Small Business Advisory Board Act. As the Consumer Financial Protection Bureau works to promulgate and implement new regulations affecting the American economy, it is vital that small businesses within the financial services sector have a seat at the table to voice their opinion. That is why I have joined with Congressman Denny Heck to establish a Small Business Advisory Board within the CFPB. The mission of this Board will be to advise and consult with the CFPB on any new regulations coming forth and their effect on the small business community. The CFPB Small Business Advisory Board will consist of at least 12 members from the financial services community and will be appointed by the CFPB Director. In order to be selected to serve on the Board, members must represent a small business dealing with financial service products. This is a bipartisan, common-sense piece of legislation that all Members should support. And I thank Congressman Heck for his strong support. I yield back the balance of my time. Chairwoman Capito. Mr. Green is recognized for 2 minutes for an opening statement. Mr. Green. Thank you, Madam Chairwoman. And I thank the ranking member as well, and would associate myself with his comments. I, too, am concerned about the possibility of our going too far. I do believe that there is room for improvement. But I am very much concerned about overreach. I recall what duration of time it took for us to get a Director for the CFPB in place. And I am always concerned about consumers, and I want to make sure that as we do this, we strengthen the CFPB. Transparency is great, and I look forward to helping with this, but I want to make sure that we strengthen the entity, that we don't eviscerate or emasculate it. And with that, I will yield back the balance of my time. Chairwoman Capito. I now recognize Mr. Stutzman for 1 minute for an opening statement. Mr. Stutzman. Thank you, Madam Chairwoman. I want to thank the Chair for holding this hearing to explore legislative proposals to improve transparency and accountability at the Consumer Financial Protection Bureau. I also want to thank each of the witnesses for taking the time to lend their expertise today. Today, we consider H.R. 4684, the Bureau Guidance Transparency Act, the bill that I have introduced to increase accountability when the CFPB issues guidance. While guidance is supposed to be merely a restatement of law or a further explanation of a rule, there have been recent examples where the CFPB has gone outside of this scope. This bill requires a notice-and-comment period prior to the issuance of guidance at the CFPB and also has the CFPB show its work by providing any data or other analysis on which they relied. These are fair and reasonable adjustments to avoid informal guidance substituting for formal rulemaking. I want to thank Mr. Chapman for his testimony on possible further action we can take to make feedback on bulletins or guidance public on CFPB's Web site. I wholeheartedly support his idea, and I currently have draft language to do just that. So I look forward to working with all of my colleagues to make this possible. With that, Madam Chairwoman, I will yield back. Chairwoman Capito. Thank you. Mr. Ellison is recognized for 2 minutes. Mr. Ellison. Let me thank the chairwoman and the ranking member. I am deeply proud of the creation of the Consumer Financial Protection Bureau. I believe Americans should have access to fair and appropriately priced financial products. And we know that information gaps between consumers and a financial product firm can be very large, and that can be to the disadvantage of consumers. Let's also remember that the crash of 2008, that the root of it was a lack of consumer protection as relates to people in the mortgage market. And it is that problem that the Consumer Financial Protection Bureau was designed to solve, and many others. So as we move forward with all of these bills, I hope we don't get the misimpression that the problem is the Consumer Financial Protection Bureau. The problem is the bad, irresponsible behavior that led to its creation. There is a particular bill that I am concerned about, and I would like to point out first that more than $3.8 billion has been refunded to the 12.6 million consumers as a result of CFPB enforcement actions. This $3.8 billion is compensation to consumers who have been subjected to illegal practices. Unfortunately, one of the bills--I think it is the Slush Fund Elimination Act--that we will consider today will prevent consumers from receiving financial redress and also stop providing funding for financial education. This would be very, very unfortunate. I would like to talk to my colleagues about this bill and others. But I certainly hope that at the end of the day, we don't find ourselves dismantling what is helping literally millions and millions of Americans, some of whom are not sophisticated people in the financial markets, some of whom are workaday folks who are just trying to save a little bit of money and get by and not get ripped off by people with considerably more resources than they have. So I am looking forward also to having some dialogue about mandatory arbitration clauses. I would like to ask the members of the panel today about that. I yield back. Thank you. Chairwoman Capito. I now recognize Mr. Westmoreland for 1 minute. Mr. Westmoreland. Thank you, Madam Chairwoman. And thank you for including my bill, H.R. 4604, in the hearing today. Last week, it came to my attention that contrary to testimony from the committee, CFPB will be collecting personally identifiable information, including Social Security numbers, financial account numbers, telephone numbers, race, gender, religion, and even the GPS coordinates of your home. My bill, H.R. 4604, the CFPB Data Collection Security Act, once again tries to stop some of CFPB's massive data collection by allowing consumers to opt out of all CFPB data collection. The provision has been modeled after the successful National Do Not Call Registry. H.R. 4604 also requires the CFPB to purge data after 60 days, and requires CFPB employees accessing personal data to obtain a confidential security clearance. I don't know if the CFPB has intentionally misled this committee about the scope of their data collection, but I hope this committee will soon mark up H.R. 4604. And thank you again, to the chairwoman and the ranking member. Chairwoman Capito. For our next opening statement, we will go to Mr. Barr for 1 minute. Mr. Barr. I want to thank Chairwoman Capito for including my discussion draft, the Preventing Regulatory Abuse Act, in this important hearing. In talking with community bankers throughout Kentucky, one thing has been made clear to me, and that is the anxiety and frustration with the inconsistencies and uncertainties in bank examinations. I know the chairwoman is very familiar with this issue, having introduced the Financial Institutions Examination Fairness and Reform Act, and I appreciate her leadership on that important legislation. I hope that we would all agree that a foundation of effective examination and enforcement and ultimately protecting consumers from unscrupulous behavior and preserving access to affordable credit is making sure that standards for what is permissible and not permissible are clearly defined and understood. Unfortunately, Section 1031 of Dodd-Frank has added confusion to this area by broadening the longstanding UDAP standard to now include the ambiguous ``abusive'' term without providing clear guidance on its meaning. My proposed legislation is a good faith effort to try to provide constructive boundaries to this currently undefined ``abusive'' standard. And I would appreciate any thoughtful feedback on this discussion draft. Thank you. Chairwoman Capito. Thank you. I now recognize Mrs. Maloney for 2 minutes for an opening statement. Mrs. Maloney. First of all, I would like to thank you, Madam Chairwoman, and the ranking member. In just 3 years, the CFPB has made huge strides on a number of important consumer protections, from mortgage disclosures to helping veterans, seniors, credit cards, to remittance transfers. In the process, the CFPB has established itself as a thoughtful and data-driven agency. Its rule-writing process has won praise from industry and consumer advocates, Republicans and Democrats. 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.'' So I am concerned and a little surprised, given the Bureau's record and their willingness to be open-minded, that some of the bills we are discussing today would hinder the Bureau's ability to conduct the necessary analysis to inform its rules. I describe it as a death by a thousand cuts, cut here, cut there, but put it all together and it will hinder tremendously the ability of the CFPB to be effective. For instance, forcing the Bureau to define ``an abusive financial practice'' in just 15 days strikes me as almost reckless, that we all want them to be as careful and as thoughtful as possible in defining such an important term. Additionally, I am concerned about proposals that would prevent the CFPB from producing high-quality research, because these research papers have helped to inform both the Bureau's own rules and our debates here in Congress. So I am interested in hearing more from our witnesses about these proposals. And I yield back. Thank you. Chairwoman Capito. Mr. Fitzpatrick is recognized for 1 minute. Mr. Fitzpatrick. Thank you, Chairwoman Capito. Any government agency that is purporting to be a data- driven organization should welcome the opportunity to operate in a more transparent manner. I have introduced the Bureau Research Transparency Act, which simply requires that research papers released by the CFPB include the studies, the data, and the analysis on which the paper was based. This is especially important in light of a pattern that has emerged in which the Bureau is engaging in rulemakings based on this research. If the research is sound, and the need for a regulation is evidence-based, then let the Bureau make available the supporting data and methodology so that the public and also interested parties have the opportunity to review the CFPB's work. This legislation improves the CFPB's rulemaking process by ensuring that its policy prescriptions are supported by objective and unbiased research. I look forward to the testimony. And I yield back. Chairwoman Capito. That concludes our opening statements. We have just been informed that votes are now pushed back another 5 or so minutes, so we are just going to soldier on here. And I appreciate your indulgence and your patience. Each of our witnesses will be recognized for 5 minutes to give an oral presentation of your testimony. And without objection, each of your written statements will be made a part of the record. Our first witness is Mr. Andrew Pincus, who is a partner at Mayer Brown LLP. Mr. Pincus? STATEMENT OF ANDREW PINCUS, PARTNER, MAYER BROWN LLP, ON BEHALF OF THE U.S. CHAMBER OF COMMERCE Mr. Pincus. Thank you, Chairwoman Capito, Ranking Member Meeks, and members of the subcommittee. Thank you very much for the opportunity to appear before the subcommittee on behalf of the Chamber of Commerce's Center on Capital Markets Competitiveness. Consumer protection is of course important for consumers, but it also is important for businesses. Legitimate companies are hurt when fraudsters lure away customers by using deceptive claims and other marketing techniques that violate the law. And unfair practices can make consumers skeptical about all businesses and reluctant to participate in the market at all. The fundamental job of a consumer protection agency is of course to protect consumers, but to do so in a way that allows law-abiding companies to understand the rules and to comply with them. That is the only way to promote competitive, efficient, and innovative markets, which of course provide crucial benefits to consumers. Particularly important, given the state of our economy, is that is the only way to ensure the availability of credit that is essential for small businesses to create jobs, for consumers to buy a home or a car, and for them to send their children to college. I think everyone would agree that several years after the end of the recession, we continue to suffer from a lack of credit availability, particularly for small businesses. Congress recognized the reality of this dual goal in the Dodd-Frank Act itself, authorizing the CFPB to exercise its authorities for the purpose of protecting consumers against illegal practices, and also for the purpose, and I am quoting, ``of ensuring that markets for consumer financial products and services operate transparently and efficiently to facilitate access and innovation.'' Sadly, in its nearly 3 years of existence, the CFPB's actions have not met this standard. First, for a number of critical legal standards, the Bureau simply refuses to provide clear rules of the road that would allow law-abiding companies to conform their conduct to the law. The subcommittee is very familiar with the Bureau's secret legal standard for indirect auto lending and its refusal to provide any clue about what makes a business practice abusive or the extent of supervision needed to protect a company against vicarious liability for the acts of a service provider. And the Bureau has consistently refused to implement a process enabling companies to obtain advisory opinions or other forms of informal advice, even though other Federal agencies have long had that method available. Second, the Bureau frequently announces broadly applicable legal standards in guidance or in enforcement actions without first obtaining public comment to inform its decisions. The Bureau's view appears to be: seek public comment only when absolutely required to do so. That inevitably leads to bad decision-making, as the Bipartisan Policy Center explained in its recent report criticizing the Bureau for this practice. Third, the Bureau seems to view statutory requirements as burdens to circumvent rather than restrictions that must be recognized. By using guidance rather than rulemakings, the Bureau can avoid the requirements of the Small Business Regulatory Enforcement Fairness Act that otherwise would apply, and require the Bureau to seek out and take into account the views of small businesses regarding the impact of its actions. And the Bureau has refused to employ the Small Business Regulatory Enforcement Fairness Act (SBREFA) process in guidance and other contexts, even though the impact of those actions on small business is significant. By targeting indirect auto lenders, the Bureau can try to alter the practices of auto dealers, notwithstanding Congress' specific decision to expressly exclude auto dealers from the Bureau's jurisdiction. By seeking data from 9 companies on credit cards rather than 10, the Bureau can circumvent the notice and comment and other requirements of the Paperwork Reduction Act. Given this pattern of conduct, enactment of reasonable measures imposing clear rules designed to promote transparent, informed decision-making by the Bureau, such as the bills now before this committee, appear to be the only way to force the Bureau to follow the regulatory approach that Congress expressly specified in Dodd-Frank, and practices that are utilized as a matter of course by many, many other Federal regulatory agencies. Thank you. And I look forward to answering the subcommittee's questions. [The prepared statement of Mr. Pincus can be found on page 68 of the appendix.] Chairwoman Capito. Thank you. Our next witness is Ms. Hester Peirce, Senior Research Fellow at the Mercatus Center at George Mason University. Welcome. STATEMENT OF HESTER PEIRCE, SENIOR RESEARCH FELLOW, MERCATUS CENTER, GEORGE MASON UNIVERSITY Ms. Peirce. Thank you. Chairwoman Capito, Ranking Member Meeks, and members of the subcommittee, it is an honor to be here today to talk about the Bureau's consumer financial protection. The Bureau's logo is a spotlight. Unfortunately, the Bureau itself likes to operate in the dark. This penchant for darkness is in part a result of Dodd-Frank, which sought to make the Bureau independent of both Congress and the President. More fundamental changes, such as replacing the Director with a commission and putting the Bureau under congressional appropriations, would be necessary to address those problems fully. But incremental reforms can go a long way to help the Bureau do a better job of what its mission is, which is protecting consumers. And so, I would recommend holding the Bureau to standards of accountability and transparency and putting some constraints on their statutory discretion. One way to add some accountability would be to put an inspector general in place who is devoted solely to the Consumer Financial Protection Bureau instead of sharing the job with the Federal Reserve. The Fed got a lot of new powers under Dodd-Frank, and so taking care of the Fed itself is a big job, let alone also covering the Bureau. Another area in which the Bureau has been problematic is that its general approach is an enforcement-minded approach, and that is how it has approached its examinations as well. So, putting constraints on how the Bureau conducts its examinations, and reminding the Bureau that the purpose of an exam is not to find an enforcement action, the purpose is to work with well-intentioned companies to improve their compliance processes so that they work better and so that they protect consumers. In the area of transparency, it is very important for the Bureau to be clear about what its intentions are so that again, well-intentioned businesses know what is expected of them and know what to expect from the Bureau. And the public, too, should be able to have an eye into the Bureau to see whether it is doing the job of protecting consumers with which it was charged. One thing that changed this week is that now the Bureau will be making public its Advisory Council meetings, which is a good change. In the past, they have been having these meetings behind closed doors. And that is very troubling, that other agencies all have to have these meetings in public, and they should do the same thing. Another area where I have noticed problems is small banks have mentioned that one of their really big concerns is the lack of transparency at the Bureau. They are never sure what to expect from the Bureau. The Mercatus Center did a survey of small banks, and that was one of the big complaints that we got in the survey. And another area in which transparency is necessary is the area of what data, what studies is the Bureau relying on in making its regulations. That is just good government, for an agency to let people know, here is what we looked at, here are the assumptions we made, here are the things we are uncertain about. And that leads to better public comment and leads ultimately to better rulemaking. Because the Bureau has such wide statutory discretion, putting some restraints on how they exercise that is very important, whether that would be making them define terms before they start enforcing them, or whether that would be telling them, no, you can't set up a penalty fund that essentially is an extension of your budgetary authority. That is highly unusual, and it leads to very bad incentives for the agency. The agency's incentives then become collecting penalties because they can enhance their budget that way rather than collecting penalties because they have figured out that is the right penalty amount to collect. And then another area in which constraints are necessary is the Bureau has been very aggressive in collecting data about individual consumers. And so, they are amassing huge amounts of data, very personal data, and data that is able to be tracked back to particular consumers. That practice should be reined in. In addition--and the Bureau is not alone in this--the Bureau has not developed a good track record so far in using non-APA rulemaking methods to make rules. And that practice should be stopped early in the Bureau's existence. So I would just close with the idea that holding the Bureau to high standards of accountability and transparency doesn't harm the Bureau's mission; it will make the Bureau a more credible regulator. It will make it more possible for the Bureau to go out and hold the industry to those same high standards. Thank you. [The prepared statement of Ms. Peirce can be found on page 63 of the appendix.] Chairwoman Capito. Thank you. Our next witness is Mr. Rob Chapman, president, American Land Title Association. Welcome. STATEMENT OF ROB CHAPMAN, PRESIDENT, THE AMERICAN LAND TITLE ASSOCIATION (ALTA) Mr. Chapman. Chairwoman Capito, Ranking Member Meeks, and members of the subcommittee, good afternoon. My name is Rob Chapman, and I am the president of the American Land Title Association, and executive vice president and chief information officer for Old Republic National Title Insurance Company. I joined the company 18 years ago. There is no doubt that the Dodd-Frank Act has increased the complexity of regulatory compliance. As we implement all of these rules and regulations, it has become clear that Congress needs to work in a bipartisan way to improve the regulatory process. The end result will be better compliance by businesses and stronger protections for consumers. We agree with the Bipartisan Policy Center's report last year that when the Bureau operates in a transparent, open, and iterative manner, the results are generally positive. However, when the Bureau makes unilateral decisions, rolls out initiatives, rules, or processes in a more closed deliberation, the results are far more likely to be problematic. Our industry experienced this with CFPB Bulletin 2012-03. It restated longstanding Federal guidance that banks and nonbanks must oversee their vendors. But unlike other regulators, the Bureau offered no additional direction to help banks and nonbanks effectively oversee the action of their vendors and left many open, unanswered questions about how to demonstrate compliance. How this bulletin applies to our industry is also unclear because unlike a traditional bank vendor, consumers primarily choose their real estate settlement providers. To help our members fill this void, ALTA created a best practice framework for title and settlement companies. These are reasonable, prudent business practices. However, lots of uncertainty, varying practices and vetting procedures are predominant in lender-vendor management. We fear that some lenders will limit the number of vendors with whom they are willing to work, which will limit competition and hurt consumer choice. A better outcome would have been a process where CFPB consulted to reduce these unintended consequences. An example of a more open and transparent process that worked well is the Bureau's rulemaking for integrated mortgage disclosure under Section 1032 of the Dodd-Frank Act. This includes a nine-round iterative process and a one-time small business review panel to ensure that the regulation was not overly burdensome on small business. My written statement outlines six commonsense ways the Bureau can make small business review panels more effective. Other Bureau rulemakings did not use the small business review process, but probably would have been better off if they had, including the Qualified Mortgage rule. These panels encourage collaboration to produce better outcomes for consumers and business. Another good example of how a transparent and open process results in better outcomes for business and consumers is the Bureau's recently released study entitled, ``Mortgage Closings Today: A Preliminary Look at the Role of Technology in Improving the Closing Process for Consumers.'' Released last month, this highly credible research identifies four key pain points for consumers and industry and was the result of ample input, including interviews, an opportunity for public comment, and demonstrations with technology vendors. Open and transparent processes like this one led to a good outcome for consumers and our members. Based on these experiences, ALTA recommends that Congress work in a bipartisan way to improve outcomes for consumers and businesses in three ways. First, Congress should pass H.R. 4383. This bipartisan legislation by Representative Pittenger and Representative Heck would establish a Small Business Advisory Board at CFPB, similar to those already established for community banks and credit unions. They provide clear, formal, and open channels of communication between the Bureau and the industry. Second, direct the CFPB to issue advisory opinions. An advisory opinion provides greater certainty to those of us who comply with Federal consumer financial law in real-life situations. Consumers will see better outcomes if the Bureau spends more time advising people in industry how to best follow the law. Finally, encourage public feedback on draft policy statements, bulletins, and other guidance documents. Public comments ensure the final documents are useful and understandable to industry, provide a safety valve to reduce unintended consequences, and produce better policy outcomes for consumers and industry. Thank you for inviting me to testify. I am happy to answer any questions that you may have. [The prepared statement of Mr. Chapman can be found on page 42 of the appendix.] Chairwoman Capito. Thank you. Our final witness is Mr. Ed Mierzwinski, who is the consumer program director of the United States Public Interest Research Group. Welcome. STATEMENT OF EDMUND MIERZWINSKI, CONSUMER PROGRAM DIRECTOR, UNITED STATES PUBLIC INTEREST RESEARCH GROUP (U.S. PIRG) Mr. Mierzwinski. Thank you, Chairwoman Capito, Ranking Member Meeks, and members of the subcommittee. U.S. PIRG, by the way, is the witness today. But I want to point out that Americans for Financial Reform and six or seven other consumer groups recently sent up a letter that I would like entered into the record, if possible, that opposes all the bills on this docket today. U.S. PIRG opposes all 11 proposals before the committee. We do not think they are necessary to protect consumers. None provide any necessary oversight function. Some roll back important authorities of the CFPB, particularly the McHenry proposal, giving the CFPB the authority to ban or regulate forced arbitration. And finally, others will subject the Bureau to enormous regulatory burden and litigation risk and raise the cost of government. Also, most of the bills only--in fact, I think all of the bills only apply to the CFPB. None apply to the other regulators. And we don't think that is a good idea. Instead of enacting these bills, we would urge you to take a look--why don't you have a hearing on the achievements of the CFPB? It would be a long hearing because they have done tremendous work. They have saved billions of dollars. They have helped military families. They have educated students. They have helped families wanting to send money overseas. They have done tremendous work. It is just a very successful agency, and I would encourage you to look at that side of the agency at some point. At the same time, the CFPB is a work in progress. It is a baby agency. It is a startup, and it is less than 3 years old, still growing. It has growing pains. In response to some legitimate oversight by this committee, it has announced new changes on staff evaluations; new changes, as noted by other witnesses, on its disclosure of information and the openness of its committee advisory board. So we don't think the agency needs new legislation to continue to do the good work that it is doing. I am going to quickly do the lightning round on all of the bills. I want to spend a little bit of time on the Bureau Arbitration Fairness Act, which of course should not be confused with Representative Henry Johnson's Arbitration Fairness Act. Consumer groups support that bill because it bans arbitration. We don't oppose all arbitration. We only oppose forced arbitration. Let me make that clear. Consumer groups allow for the choice of arbitration after a dispute has already arisen. In the CFPB's research on arbitration, research that contrary to the Chamber's testimony has been open and transparent and many members of the Chamber, many members of industry have marched in and out of the CFPB as part of the research into that bill, the CFPB looked at some major class action lawsuits involving bank fraud, where banks were tricking consumers into paying extra overdraft fees. And the CFPB found that class action lawsuits on behalf of consumers had recovered hundreds of millions of dollars for consumers. The CFPB also looked and found that only two consumers--two consumers--had actually used the arbitration process individually to try to protect themselves. So arbitration on the one hand is a system that favors corporate wrongdoers, and the private rights of consumers to go to court buttress the work of the CFPB, the work of Federal laws, and the work of State attorneys general to make markets work. So we oppose that bill. Regarding your bill, Madam Chairwoman, I have to disagree. We oppose the CFPB Slush Fund Elimination Act. The purpose of the CFPB's authority to take extra civil penalty money and use for it other purposes is twofold. First, when you have a financial fraudster who spends all the money that he stole, the CFPB can make his victims whole. And that is what it has done with the money. Second, if you have extra money left over, the CFPB has targeted the money to another important constituency that this Congress has given it: to protect military widows and widowers. That is financial literacy. That is what the CFPB wants to spend this extra money on. It doesn't want to spend it on anything to aggrandize the purpose of the agency. I think that they are a remedial agency, and they should have the authority to do remedial things. They are different than other agencies because they were set up to protect consumers. The rest of my testimony goes through all the other nine bills. I am happy to answer questions to talk about any of them. I respect the committee's authority to conduct oversight. Again, your oversight has already resulted in the CFPB doing things to make changes as you have requested. And finally, I would just close by saying, to quote the late environmentalist Edward Abbey, I think the idea of the CFPB needs no defense, only more defenders. Thank you. [The prepared statement of Mr. Mierzwinski can be found on page 52 of the appendix.] Chairwoman Capito. Thank you. I want to thank you all for your testimony. And I will begin the questioning. But before I do, I will take the letters, Mr. Mierzwinski, and ask that they be entered into the record. Without objection, it is so ordered. And without objection, the following statements will be made a part of the record: the National Association of Federal Credit Unions; and the Credit Union National Association. Without objection, it is so ordered. I would like to talk about my bill, the Slush Fund Elimination Act. There is $96 million in that fund right now. And I would like to clarify for Mr. Ellison, we are kind of talking about two different things here. Not kind of. We are. And my bill would not eliminate at all any ability for the CFPB to remunerate or make restitutions to any victims. That is explicitly written into the bill. It is the rest of the money that I am concerned about. It is sort of sitting there, accounted for, yes, but with the only specific purpose to go to financial literacy. I am not opposed to financial literacy. We had a financial literacy hearing just, what, 2 weeks ago, and we found that there are financial literacy programs throughout the government that have no coordination, some accountability, but it is sort of diluted resources. And I think we can do a much better job in that in coordination with the private sector. There is lots going on the private sector in the arena of financial literacy, and I certainly agree there is much more that we can do. So I would like to see whatever is left in that civil penalty, rather than be in what I am calling a slush fund, because that is how I identify it, to go to help to eliminate the enormous debt that we have, after all of the victims have been paid, after a certain period of time, and all that is cleared out. So I would like to ask Mr. Pincus if you have an opinion on the Civil Penalty Fund and what it is used for and the transparency, because the Bipartisan Policy Center issued a report last fall that was critical of the transparency and suggested that it be used for other purposes. So do you have a comment on that? Mr. Pincus. I do. Thank you, Madam Chairwoman. A couple of things. I think, first of all, it is important to point out how unique this is in an agency that is already unique. First of all, the CFPB's budget is already quite unique because it gets a $600 million-plus check from the Federal Reserve without any oversight or prior approval by the Congress or the President about how it is spent. The Director has sole discretion to decide how to spend all of that money, escalated for inflation. So the CFPB already has a lot of money that it decides for itself without prior approval by anybody how to spend. And what is happening here is yet another pot of, as you say, almost $100 million that is sitting around waiting for them to decide how to spend it. And I think it is just troubling that in an era of fiscal scarcity and deficits, as you said, there is this money that will be disposed of not to compensate victims, but for other purposes, without any review by the Congress, by the President, coordination with other programs, just as the CFPB decides. That is quite extraordinary. And I think it is also quite extraordinary, as one of my fellow witnesses said, when you think of the fact that civil penalty decisions, which have a lot of discretion in them, should be based on whether the punishment fits the crime. They shouldn't be revenue-raising devices. But if it is a fund that the Bureau has the ability to spend for all kinds of different purposes, that creates a very skewed incentive system that is dangerous. Chairwoman Capito. I would make note, too, that in the accounting from the CFPB, they have used this for administrative costs of $1.5 million. Mr. Ellison. Would the chairwoman yield? I'm sorry, Madam Chairwoman. I seek recognition because you specifically mentioned me. Chairwoman Capito. Okay. Mr. Ellison. I just wanted to note that in the bill, your bill, the slush fund bill, which I think is very unfortunately named, from that-- Chairwoman Capito. Could you make it quick? Because I only have a minute. Mr. Ellison. I will. From the fund that you want to eliminate in your bill, on November 29, 2013, in accordance with the Civil Penalty Fund rule, the Bureau allocated $499,000-plus to two eligible classes of victims from the American Debt Settlement Solutions, Inc., case, and $2 million- plus to eligible class victims from the National Legal Help Center case. Chairwoman Capito. Okay. Mr. Ellison. I mention that because you seemed to imply that all this money is only for education purposes. Chairwoman Capito. I would like my time back. Mr. Ellison. But the victims have been compensated from this fund. I yield back. Chairwoman Capito. If you were listening to me, I said specifically that the money goes to the victims and what is left after that, which is now $100 million-- Mr. Ellison. Well-- Chairwoman Capito. I am going to claim my time here, because I don't have much left. So, that is what I am getting at. Mr. Ellison. You are incorrect, Madam Chairwoman. Chairwoman Capito. I have the accounting right here. And in any event, I would also note that--and I started on this--the administrative cost for this has already been $1.5 million. If the Bureau has $600 million to operate on, why do they need to take out of the Civil Penalty Fund another $1.5 million for their administrative costs? With that, I yield back. Mr. Meeks is recognized for 5 minutes. Mr. Meeks. Thank you. Let me first find out and ask Mr. Pincus, do you think there is a need for the CFPB? Mr. Pincus. I think the purpose of consumer protection is important. I think Congress could have done it different ways. Mr. Meeks. That is not my question. Mr. Pincus. It established the CFPB. And I think the consumer protection role that it is performing is important. Mr. Meeks. That is not my question. My question is a simple one, you can say yes or no. Do you think there is a need for the CFPB? Yes or no? Mr. Pincus. Yes. Mr. Meeks. Ms. Peirce? Ms. Peirce. No. Its functions could be done by other agencies. Mr. Meeks. Mr. Chapman? Mr. Chapman. Yes. Mr. Meeks. Mr. Pincus, since you think that there is a need, are there any objections you have to any of the proposed bills, the nine bills that are before us, do you agree with all of them or disagree with any of them? Mr. Pincus. I think there are some details on some of them that I think we would like to talk about. But if I could just expand on my yes-or-no answer to your prior question, I think there is a need for the CFPB. The unfortunate thing that happened when it was created, the original proposal of course was that there would be one Federal agency that would deal with consumer protection for all kinds of businesses that engaged in financial activities. We didn't have that, as it turned out. The FTC kept all of its authority over this activity. Mr. Meeks. Reclaiming my time, let me just say this. Because we have talked about all of the consumers who have been protected now, some reimbursed because of the bad practices. And we should have learned, because, you know what? Had there not been the fraud and the misleading that took place in the first place that caused us to have the financial crisis that we have had, we wouldn't be talking about a CFPB now. We are talking about it because of what we learned. And that is the reason for it. That is why I am shocked Ms. Peirce has indicated there is no need for it when, in fact-- Mr. Pincus. If I could say, Congressman, I said there was a need for it. Mr. Meeks. Well, Ms. Peirce said there is no need for it. Ms. Peirce. May I elaborate on that? Mr. Meeks. In a second. Because when we look at what has taken place, if everything was fair then I would agree. But we have witnessed individuals where, in fact, people lost--there were over 10 million foreclosures, 8 million jobs lost, trillions of dollars of wealth lost. And nobody was there to protect these individuals. That is why we have the CFPB. And I am trying to find out, and if anybody says that they are for it, yet there is not one of these bills that is being proposed, which is clearly cuts that is intended to get rid of the CFPB, as Mrs. Maloney said, it gets into what the motivation is. Do we want to protect consumers? Mr. Pincus. May I elaborate? I think I can answer your question. These bills basically impose on the CFPB practices that are routine for other Federal agencies. Every agency has their own IG, every agency except for the Federal Reserve and the CIA has to abide by FACA. Many other agencies have advisory opinion processes that are in place. The FTC and the SEC are role models of getting input before they issue guidance. The CFPB doesn't do any of these things. Mr. Meeks. I am running out of time. Mr. Pincus. These are procedural changes that would bring it into line with those other agencies. Mr. Meeks. I am running out of time. Because all of those agencies existed, yet still the consumers did not have a voice. They did not have a voice until we had the CFPB. Let me just ask really quick, Mr. Mierzwinski, I am just looking at H.R. 464, for example. How feasible would it be for the Bureau to comply with a requirement to not collect personally identifiable information about a consumer if the consumer chooses to opt out of being eligible for data collection? Doesn't that go against the very nature of how the CFPB is supposed to work and collect data to protect the most vulnerable? Isn't it the same information that most banks have? Mr. Mierzwinski. Absolutely. The banks already have that information. I am unaware of any of the studies that the other Representative pointed out that claim that the CFPB is collecting all this detailed information. In most cases, the CFPB does not collect personally identifiable information unless the consumer has opted in, for example, in a complaint. Mr. Meeks. I see I am running out of time, and I heard the bells ring. We are going to have a vote. So let me just ask again: You talked about the Civil Penalty Fund. How would that impact consumers if they didn't have the money to pay out to the consumers for their being defrauded? Mr. Mierzwinski. May I answer? Chairwoman Capito. Yes. Quickly, please. Mr. Mierzwinski. Very briefly, it is my understanding that Section D eliminates civil penalty funds and requires them all to be put into the general fund. That is my reading of the bill. And I would be happy to talk to your counsel about their reading of the bill, Madam Chairwoman. Chairwoman Capito. Okay. With that, this is what I am going to do, if we can work this out. I want the full attention of the membership. Since we only have one vote, what I would like to do is keep this rolling. So Mr. Duffy is going to come to the Chair. I will go vote and come back. Is that satisfactory to the rest of the committee? So we are going to go with Mr. McHenry. Do you want to question? Mr. McHenry. Yes. Am I now recognized? I will take that as recognition. My bill is a very simple one. And I want to ask you, Mr. Pincus, a few questions about arbitration and the utilization of arbitration. We have a fairly long history in this country with arbitration being in statute, in Federal statute. So why is arbitration important? Mr. Pincus. Arbitration is important because it is a quicker, cheaper, and more efficient way of resolving many kinds of disputes, especially, as members of the Supreme Court have said, the kind of small, individualized disputes that many consumers have. As you know, our courts, especially small claims courts, have incredible budget pressure, are overcrowded. They are just not a realistic option for real people who have real disputes and are trying to get someone to decide them. You have to go to court, you have to file papers. You almost always have to have a lawyer. Arbitration today you can do online or over the phone. It doesn't have to be done in person. It is an informal process. And it is a way for people to get their disputes-- Mr. McHenry. Is arbitration harmful to consumers? Mr. Pincus. I think arbitration is beneficial to consumers because it gives them a way to get their disputes to a decision-maker and courts don't. Mr. McHenry. Okay. So, is this a constitutional question? Is it a debatable constitutional or dubious under the Constitution for arbitration to exist? Or is this a policy debate? Mr. Pincus. This is a policy debate. The current law is clear. The Federal Arbitration Act protects the enforceability of arbitration agreements. The reason we have this policy debate is that Dodd-Frank gave the Bureau the power to first investigate arbitration and then regulate it. But this is totally a policy question. Mr. McHenry. So is the Dodd-Frank Act a departure when it comes to arbitration? Mr. Pincus. Yes, it is a significant departure in terms of creating the possibility that these claims will be placed off limits to arbitration as opposed to the Federal Arbitration Act's rules which apply generally across-the-board. Mr. McHenry. So it is a departure of longstanding Federal policy? Is that correct? Mr. Pincus. There have been a few other areas in Federal law where Congress has taken that step, but a very, very few. Mr. McHenry. Okay. Is there an incentive for the CFPB to release a study on arbitration that shows that consumers are harmed by arbitration? Mr. Pincus. If the Bureau wants to eliminate arbitration, obviously the way to do it is to conduct a study that concludes that arbitration is bad for consumers. And what is troubling about the preliminary results that the Bureau released at the end of last year is that it seemed as if they were focused on a lot of the wrong questions and not on a lot of the right questions, which is, for a consumer, what is a realistic way of getting a dispute resolved, as opposed to what is good for lawyers, what is sort of the traditional way things have been done in the legal system? Mr. McHenry. Okay. So you undertook a study on arbitration. And what did that study find? Mr. Pincus. We undertook two studies. We undertook to gather as much of the outstanding information about arbitration that we could find. And what we found was the results, which seemed to be the most important thing, do consumers or people situated like them get as good results in arbitration as they do in court. And the answer from the studies was a resounding, yes, they do. Is arbitration supervised to make sure that a maliciously minded company couldn't construct an unfair arbitration clause? And it is, under generally applicable contract unconscionability rules. Courts invalidate unfair arbitration clauses all the time. If the company general counsel is going to be the arbitrator, guess what? That arbitration clause isn't going to be enforced. The other study we did, because a lot of the debate about arbitration comes down to class actions, frankly-- Mr. McHenry. And the trial bar. Mr. Pincus. And plaintiffs' lawyers who embark on class actions. And so the question is, even if arbitration gives more justice for individualized claims, because arbitration is one by one, you are taking away class actions, and that outweighs the expanded justice for individual claimants. And so we looked at a neutrally selected group of class actions and found, of the ones that had decided, two-thirds gave nothing to the class. The one-third that were settled, and they were all settled, produced settlements that, frankly, you couldn't trace because the big secret in class actions is there is a headline that says $250 million settlement, but as we all know from getting those forms in the mail or seeing them in the paper, you have to file. And what is never revealed is how many people file and how much of that $250 million is distributed to real people, how much goes either back to the defendant or to some charity that the judge and the defendant and the plaintiff's lawyer all pick together. And the sad fact is, of the ones we could find, a huge percentage, 99.9 percent in some cases, does not go to the consumers. Mr. McHenry. Thank you. Mr. Duffy [presiding]. The gentleman yields back. The Chair recognizes Mr. Ellison from Minnesota for 5 minutes. Mr. Ellison. I thank the Chair and the ranking member. Let me start by asking you this, Mr. Mierzwinski. Does the Civil Penalty Fund, which would be eliminated by Chairwoman Capito's bill, does that bill help consumers when the business that has taken advantage of them and been found to be wrong doesn't have the wherewithal to pay out? Mr. Mierzwinski. That is absolutely the purpose of the fund. And the way that it has worked so far is it has given, I think, about $13 million to customers of bankrupt financial fraudsters who otherwise would not receive any money. So in the examples of this big credit card add-on cases, the CFPB has sued five big credit card companies for misleading add-on identity theft and debt cancellation products. In the most recent Bank of America case just a month or so ago, they recovered $727 million for consumers directly. But there have been a number of other cases where they have imposed civil--and then they had about $100 million civil penalty on top of that. That civil penalty goes into the fund because there are a number of small-time financial fraudsters who might have ripped off 10,000 or 50,000 consumers but don't have the money like Bank of America has. That is the main purpose of the money. The secondary purpose is to help military widows and widowers and others at risk of being financially at risk, and so they are going to increase their financial literacy. And by the way, Mr. Ellison, it is not a unique fund. The Department of Justice has a similar fund. Mr. Ellison. Now, if that fund were eliminated, as it would be with Representative Capito's bill, what would happen to those consumers in the case where the people who defrauded them or the business that defrauded them doesn't have the money to be paid out? What relief would they have? Mr. Mierzwinski. I respect the purpose of her bill to put money to help taxpayers. But it would hurt victims. I would urge, instead of her bill to help taxpayers, a better solution is something that my organization supports. And we have met with many agencies, including the CFPB. When an agency signs a settlement agreement, it should prohibit companies from taking a tax write-off on any settlement agreement with the government. Mr. Ellison. We need to pursue that in any case. Now, if a business is able to take advantage of consumers and then just doesn't have the money to pay them out, what message does that send to other people who might be looking to make a quick buck at the expense of consumers with fraud and deception? Mr. Mierzwinski. These are so-called last-dollar scammers. They even often go after people who are already in financial trouble. They don't care, and they will be encouraged. Mr. Ellison. Let me just say that I would like to introduce for the record an article entitled, ``You won't believe your bank's newest fee. Suing your bank? Prepare to pay up. Thought ATM, overdraft and bounced-check fees were bad? Banks want to fine for you beating them in court.'' Mr. Pincus, I would like to just ask you a general question before we run out of time. I mean, we are at bottom talking philosophy here. And I am a person who owned a business, and was very proud to be a business owner. And I just thought that if I did a good job for my consumers and I charged them a fair price, then that would be good. And the other businesses that are trying to get over on consumers and not do a good job, I don't want them in the business. I want to get rid of these people. But you seem to be arguing for the bad guys. Why don't you want to have a business community with people who want to give a good product at a fair price and get rid of all the other bad ones? Why don't you want that? Mr. Pincus. As I said in my opening statement, Congressman, I absolutely agree with you. And that is why I think consumer protection is important, that the CFPB's purpose is important. But the problem is, if you are a legitimate company-- Mr. Ellison. Wouldn't you agree that we are here today because we had a massive financial collapse in part due to people being taken advantage of in bad mortgaging, bad consumer practices? Would you agree with that, in part? Mr. Pincus. I think, in part, we could quarrel about that part. But if I could finish my other answer. I think what is critical here for legitimate businesses is what they want to know is what do I have to do to be law-abiding? I don't want to engage in an abusive practice. What is abusive? So I can build a compliance system that doesn't violate the rules. What can I do-- Mr. Ellison. Thank you, Mr. Pincus. I got my red light. I do need to try to get some things in for the record. I appreciate your answer, sir. There are three articles I would like to introduce into the record, without objection: a Washington Times article, ``Mandatory Arbitration Replaces Litigation, Consumers Lose;'' and ``Protect the Rule of Law and Arbitration Now.'' Mr. Duffy. Without objection, it is so ordered. Mr. Ellison. I think my time is up, so thank you, Mr. Chairman. Mr. Duffy. The gentleman yields back. The Chair now recognizes himself for 5 minutes. I had one of the bills up today that provides access for the public to the Consumer Advisory Committee meetings. I tried to attend one of those meetings and was advised, per the staff of the CFPB, that Congressman requests would not be accommodated. We just found out yesterday that the CFPB has changed course and thought that transparency would be the best course and are now going to allow the public access to those meetings. They are diverting from the course of the CIA and the Federal Reserve. So I am sure you all know that, but I am pleased. But I guess, Ms. Peirce, to you, do you think we still need to go forward with legislation? I guess I would tell you, I have some concerns that it took us this much effort and this long to get the CFPB to agree to open up these meetings. Do you think we still need to go forward with legislation or do you think now they have seen the light and this issue is behind us? Ms. Peirce. Even before yesterday, they said that they complied with the FACA in spirit. And so, that seems to be a selective compliance. The problem with an agency that is run by a single director is that it runs on the whim of the director, so what they felt yesterday might not be what they feel next week. Mr. Duffy. So you would agree that a legislative fix is still warranted? I don't think it is necessary, but based on their interpretation. Ms. Peirce. If you put something in legislation, it is harder for them to ignore, although they might try. Mr. Duffy. I would agree. I want to change course to Mr. Westmoreland's bill. I have a real concern on data and the information that has come out in regard to the CFPB's collection of data, but more recently, what has been told to us by the FHFA on the kind of information and data they are going to be collecting in conjunction with the CFPB. I guess, Mr. Mierzwinski--hopefully I didn't slaughter your name--do you agree that if we want to empower consumers, we should give consumers an opt-out provision to make sure that government doesn't have information on how they spend, when they spend, their race, their religion, their kids, that the government should not have all this data without their permission or consent? Do you agree with that premise? Mr. Mierzwinski. Mr. Duffy, I don't know any consumer or privacy organization that has endorsed the proposals to rein in the CFPB's use of data. I think nobody is concerned about the government agency's use of data. They are confident that it will protect it. Mr. Duffy. Let me stop you there. Does anyone else on the panel have a concern about the data collection going on by the FHFA and the CFPB? Ms. Peirce. I am absolutely concerned, and I think, given the amount of information the Bureau already has, and the amount that the FHFA wants to add to that pile, they are going to have very specific, very personal information about a lot of Americans. And I think a lot of Americans would want to opt out of that. Mr. Pincus. Yes, just last week the Chamber filed comments with the FHFA raising these issues. And I am surprised to hear, given everything that has happened with the NSA and data collection, that anybody wouldn't be worried about a government agency collecting a lot of data, especially one where there have been concerns by the GAO and others about data security. Mr. Duffy. And I have to tell you, what surprises me is usually we see liberal outrage. Traditional liberals see government and its expansion, especially into the privacy of others, that is an affront to liberal principles. And oftentimes we see liberals now coming forward and saying, no, this is actually a good thing, that the government should have this kind and this amount of information on Americans. I guess I would submit a question to the panel. Doesn't it change the fundamental relationship that the citizenry has with the government when the government has this much information on them? Mr. Pincus? Mr. Pincus. I think it is concerning, and I think it is very worrisome. Obviously, there are some targeted reasons that government needs targeted information. Mr. Duffy. I agree. Mr. Pincus. The construction of very large databases that are going to be permanent and accessible by a lot of people, I think, is very worrisome. Mr. Duffy. I am going to rephrase my question as I have 45 seconds left. If we are here to protect consumers--and that is the objective of the Consumer Financial Protection Bureau--why wouldn't you give the consumer an opt-out if that is who you are here to protect? Ms. Peirce? Ms. Peirce. I agree with that. I think the standards that the Bureau wants applied to itself are very different than the standards it wants applied to anyone else. Mr. Duffy. Very good. And, Mr. Mierzwinski, why does the CFPB need to know a consumer's religion? Mr. Mierzwinski. I wouldn't venture to guess why the CFPB needs to know that except to say that the CFPB is not trying to study individual consumers. The CFPB is trying to study markets, and it feels that information could help it. Mr. Duffy. And what does religion have to do with markets? No good answer, right? You shrug your shoulders? Mr. Mierzwinski. As far as I know, Congressman, there are many faith-based organizations that are in the market and there are many companies that are faith-based, so it might matter. Mr. Duffy. Very well. My time has expired. I don't see that we have any Democrats. We will now go to the gentleman from North Carolina, Mr. Pittenger. Mr. Pittenger. Thank you, Mr. Chairman. Mr. Chapman, you have been in business for 18 years, I believe I heard? Mr. Chapman. Yes, sir. Mr. Pittenger. Small business. You have seen a lot of transitions, I am sure, in the role of the Federal Government. Do you believe that the voice of small business is sufficiently represented at this time on the Bureau? Mr. Chapman. I do not. Mr. Pittenger. What would you recommend could be done to ensure that small business does have a voice? Mr. Chapman. In the industry that I represent, the majority of those members of our association are small business people. And they need to have a voice in which they can communicate their concerns with the Bureau and be able to articulate the real world activities that are brought down. Mr. Pittenger. What actions taken by the Bureau, Mr. Chapman, have impacted your business? Mr. Chapman. As an example, when the first CFPB 2012-03 came out, we didn't know directly how it affected our business. So we are out here trying to slay dragons with no idea of what we are trying to thwart off. So from the title insurance settlement world, we are not directly regulated by the CFPB, but those that we serve, the lender community, have a great deal of regulatory environment that we need to be adherent to. So it was very, very hard for us to try to understand how we would keep our members relevant and continue to have them be applicable with the new regulations. Mr. Pittenger. So do you feel, Mr. Chapman, that you and other members of ALTA are sufficiently represented, then, on the Bureau before they took these kind of actions? Mr. Chapman. I think we have a great relationship with the Bureau, but I think there could be better representation if there was a small business panel. Mr. Pittenger. Thank you. Ms. Peirce, it has been argued that small businesses have a voice into the CFPB's decision-making processes through the SBREFA process. Are you aware of occasions that CFPB has ignored this requirement based upon a technicality? Ms. Peirce. I think it was on the QM rulemaking that they said they didn't need to have a panel because the original proposal was done by the Fed as opposed to the Bureau. And to me, that indicates just a willingness to live and die based on technicalities rather than really seeking the input of small businesses, which should be what you would think the Bureau would want to have. Mr. Pittenger. Did the CFPB agree to convene a SBREFA panel? Ms. Peirce. They did not for that rulemaking. They have for others. But, again, it is not something that they do willingly. Mr. Pittenger. Ms. Peirce, if the CFPB has the power and the authority to ignore the law requiring that it listen to small businesses, should we provide small businesses with another avenue to ensure that their voices are heard at the Bureau? Ms. Peirce. I think that giving small businesses more avenues to speak to the Bureau will lead to their concerns being taken into account. Mr. Pittenger. Thank you. Mr. Chapman, one more time. Are small businesses exempt from the CFPB's supervision and examination? Mr. Chapman. Yes, they are. Mr. Pittenger. Then, how do the decisions of the CFPB that are intended for the largest companies end up affecting small business? Mr. Chapman. Unintended consequences of not having representation. Mr. Pittenger. So you would be in support of the bill that we have offered, H.R. 4383, the Bureau of Consumer Financial Protection Small Business Advisory Board Act? Mr. Chapman. Yes. Mr. Pittenger. Thank you, sir. Mr. Pincus, do you have any comments to offer on this? Mr. Pincus. While the Chamber is also very supportive of increasing the voice of small business at the Bureau, as I said in my written statement and in my opening statement, there is a lot of concern that because the Bureau's approach has been to only use rulemaking when it is absolutely required, and because SBREFA only applies to rulemaking, there are a lot of decisions that the Bureau is making in its so-called guidance and other areas where there is no voice of small business heard at all, and that is a terrible problem. Mr. Pittenger. Thank you. Mr. Mierzwinski, I think you would have to agree, as well, that it surely doesn't hurt to have the input from small business and concerns that they express. That makes sense, doesn't it? Mr. Mierzwinski. Congressman, I think that through the existing panels, the SBREFA panels and the Consumer Advisory Board which small businesses are eligible to sit on, through the Office of Financial Institutions and Business Liaison-- which by the way, was set up by the CFPB-- Mr. Pittenger. Sir, I am running out of time. What we are hearing from these small business-- Mr. Mierzwinski. I just-- Mr. Pittenger. --they have not had that access. Mr. Mierzwinski. --I respect the purpose of your bill, but I don't think your bill is necessary to provide the input. Mr. Pittenger. According to the people who are in the real world, it is. I yield back my time. Chairwoman Capito. The gentleman yields back. Mr. Fitzpatrick? Mr. Fitzpatrick. I thank the Chair. Ms. Peirce, on November 4th the Mercatus Center released a commentary entitled, ``CFPB Study of the Overdraft Program.'' And according to the commentary, the authority found several aspects of the White Paper that raise concerns, including the following: first, general statements that are not supported by rigorous analyses; second, selective quotations that do not provide context that would accurately portray the meaning as intended by the original source; third, leading statements in the body of the White Paper that are then modified in footnotes; fourth, lack of discussion of the economic welfare overdraft protection provides to a population with few other options; and finally, no discussion of the democratization of providing overdrafts to low- to moderate-income consumers. Who wrote that study at the Center? Ms. Peirce. That was by my colleague Todd Zywicki, and he wrote it with someone else, as well. Mr. Fitzpatrick. Do you agree with those findings? Ms. Peirce. I read the study, and I think it was a good study. Mr. Fitzpatrick. Do you believe that these flaws support the need for the Bureau to make the research that it relies upon public? Ms. Peirce. I think that is just good government, that you should make the data that you use, the assumptions that you make, the uncertainties that you have, you should make those all public. You are not trying to weaken your case, you are trying to draw in as much information from the outside as you can. And that leads to better rulemaking. This is not about the Bureau specifically. This is what all agencies are supposed to do. This is just good government. Mr. Fitzpatrick. Mr. Pincus, are you familiar with the CFPB study on the prevalence and use of payday loans and deposit advance products? Mr. Pincus. Yes, somewhat. Mr. Fitzpatrick. Do you believe that the research that underlies the study should be made public? Mr. Pincus. Absolutely. I agree with Ms. Peirce. There is no reason not to make the underlying data public of almost any study. Obviously, you don't want to make public confidential information or personally identifiable information and whatever is released has to be scrubbed to take care of that. But the agency depicts itself as being data-driven, and any good researcher will tell you that the best way to be sure that you are drawing the right conclusions from data is to not only put out your conclusions, but make the data available. Mr. Fitzpatrick. So you are saying you can think of no reason not to make--there might be some even peripheral or any reason at all? Mr. Pincus. I think you want to protect, as I said, personally identifiable information. There may be business confidential information that obviously would have to be protected from release, as that is under FOIA and other statutes. But if this is just statistical data that isn't being tied to anyone, that is being used to generate particular results, I think that is important. There is a lot of concern among many of the companies I talk to that, although the Bureau references data, a lot of what it does is often driven by anecdotes or sort of one-off information. And I think not only would releasing the data allow the Bureau's conclusions to be tested, but it would rebut the argument and the concern that these are really being driven, these regulatory decisions are being driven by things other than data. And I think that would make the Bureau more credible. Mr. Fitzpatrick. In your experience, what do other agencies do? Mr. Pincus. A lot of other agencies release data. I was struck by Ms. Peirce's comment generally about openness. A lot of other agencies are just much more open than the CFPB. For example, I have some experience with the FTC. And when the FTC is thinking about a problem, a policy problem, what it will do is put out a notice for comment, ask for public comments, and have a day-long symposium where different people can debate it. All of that is webcast and open to the public. And then it will follow up by using all of that information to make its decision. And the Bureau has sort of taken the opposite conclusion. In the arbitration study, for example, that Mr. McHenry was referencing, it is true that the Bureau will meet with people, but it won't tell anybody what it is studying. It never laid out the topics of the study and said, ``Please submit any information you have, please conduct other empirical studies. If you get them in by date X, we will use them. Here are the studies that we are relying on.'' It is a very one-way process. You can give information, but you don't know if it is relevant at all to what the Bureau is doing, and you have no idea what the Bureau is using as its information base. Mr. Fitzpatrick. My time has expired. Thank you. Chairwoman Capito. Mr. Luetkemeyer? Mr. Luetkemeyer. Thank you, Madam Chairwoman. Thank you all for being here today, too. It is extremely important. I know that we have a lot of issues here, a lot of bills that try and find ways to improve CFPB's ability to do its job. Whether you agree with it or not, I think there is no perfect bill, there is no perfect agency, and to try and improve it is not something to be discounted. So I am kind of curious. All of you have, I assume, looked at the whole list of bills. Are there some in here that you think are fantastic or some that you think are a total waste of time? I would just be kind of curious about your feelings on them. I know we have read your statements and listened to your testimony. Give me a little heads-up. Give you one more shot, take a shot at the bill. How is that? Mr. Pincus. I think the Chamber's view is that all of these bills address areas that have to be addressed, that for the vast majority they deal with process issues in which the Bureau is following a path very different than other agencies, and I would just list off the IG. Every agency has an IG. As I was just saying, many other agencies before they issue guidance will have a process for getting public comment. Many other agencies have a process for getting advisory opinions or some kind of informal advice. Other agencies, because of the appropriations process, if for no other reason, don't have the ability to collect civil penalties and spend them on broad purposes. For example, the SEC has a procedure for depositing civil penalties that it collects into what is called a Fair Fund and distributing that to victims of securities fraud, but it doesn't get to use that money for any other purpose. Mr. Luetkemeyer. Okay. I don't want to cut you off, but I would like to have Ms. Peirce get a chance here. Ms. Peirce. I can't endorse specific bills, but I will say that Mr. Mierzwinski said something about how the Bureau is still young. And so I think that is the point: that the Bureau is a young agency and this is the time to fix the problems, because otherwise they develop into pathologies that are very difficult to correct. So anything you can do to kind of get them on the straight and narrow now will benefit consumers down the road. Mr. Luetkemeyer. Mr. Chapman? Mr. Chapman. It looks like the bill should be supported. I think the jury is out at this juncture, and we will still need some more time to answer that question specifically. Mr. Luetkemeyer. Okay. Mr. Mierzwinski? Mr. Mierzwinski. Congressman, if you weren't here, I opposed all the bills, as did Americans for Financial Reform. I think the most problematic is Mr. McHenry's bill. The Chamber is losing in an open, fair transparent process on whether or not arbitration should be banned or regulated by the CFPB. That is why they support taking away the CFPB's authority. I haven't talked about a couple of the bills. Mandating advisory opinions by statute would be analysis paralysis, and subject the CFPB to numerous lawsuits. If one company's product is determined to be good and another company's is not so good, you are going to have a lot of litigation. You are going to have litigation over any statutory advisory opinion process. And defining the word ``abusive,'' it is clarified in the statute, and there are several cases that the CFPB has brought using the abusiveness prong. Mr. Luetkemeyer. Okay. Mr. Mierzwinski, I have a couple of questions for you, then. I have a situation where I had a local bank, a small bank, and the director called me and said, ``Hey, we just got out of the CFPB meeting, we just got fined $107,000 because the entity, the small mortgage lending company that we purchased had taken out a lease that they believed, the CFPB believed was $300 per month above what the market is and over the course of 9 months overpaid $2,700.'' They fined them $107,000. Do you think that is abusive? Mr. Mierzwinski. I don't know about that case, Congressman. Mr. Luetkemeyer. That is a true story, by the way. Mr. Mierzwinski. $300 and $1,700, I don't know about that case. Mr. Luetkemeyer. My question is, do you think that is abusive by the CFPB? Mr. Mierzwinski. I would have to look at the case. Mr. Luetkemeyer. $300 above market. Their reasoning for fining the bank was it is going to have to raise the cost of doing business on the rest of the clients, $2,700, make up the $2,700. Is that a rationale you can support? Mr. Mierzwinski. I would have to look at the case. Mr. Luetkemeyer. Thank you. Another situation we are aware of is I had a group of bankers who went to the CFPB to talk to them about the QM rule. They were told by the CFPB folks that they were the 42nd group who had come there to talk about this, and yet they continued down this path to issue a rule that everybody in the whole industry told them will not work and is going to be abusive. I think it is time that they were reined in. I understand that they are new, but that is a good time also to make some changes to make sure they stay on the right path. With that, I yield back. Thank you, Madam Chairwoman. Chairwoman Capito. Thank you. Mrs. Maloney for 5 minutes. Mrs. Maloney. I want to thank all the panelists, and the chairwoman and ranking member for calling this important hearing. I was ranking with Mrs. Capito in other Congresses and it is an incredibly important committee. I agreed very much with Mr. Pincus' opening statement that industry should support consumers because that helps industry, and if consumers don't trust industry, then the investment in our products doesn't happen. And I would venture to say that every member of industry would accept the Dodd-Frank reforms if they had known before and known that could have prevented what we lived through. We lost roughly $18 trillion of wealth in this country. I remember one weekend I went to bed, and by the time I woke up, there were about 10 companies that went under in the district that I have the privilege of representing. The amount of human suffering and corporate loss was unprecedented. And what is so staggering to me about that crisis is that it could have been prevented. Testimony after testimony before the Joint Economic Committee has been that it was the only financial crisis in our history that could have been prevented if we had regulated products better, mainly the subprime crisis that hurt so many homeowners and hurt so many people and hurt the financial industry of our country. So the Consumer Financial Protection Bureau, a lot of people have the responsibility to speak up for consumers as many on the panel pointed out, but oftentimes they don't do it because they have other responsibilities, such as safety and soundness or the bottom line or whatever. They have other responsibilities that come before the consumer. So, I support the CFPB. I think it is good for the country and good for business to have an agency that focuses on protecting consumers, because when we are protecting consumers we are basically protecting businesses in our country. And when you take all of these items that are before us and you put them together, in my opinion, it is death by 1,000 cuts to the CFPB. And by all accounts, industry in my district has been complimentary to the CFPB in their openness to listen and their responsiveness to it. Now, there is one that if I were industry, I would be objecting to. And that is the one calling upon the CFPB to issue a thoughtful and workable rule defining the term ``abusive'' in just 15 days, as one of these bills would require. And it appears to me that forcing the Bureau to rush to such an important definition, the definition of abusive financial practices, would open the final rule to litigation by industry, because if I didn't like the rule, boy, I would be suing that it is capricious and not thoughtful to come forward with a rule within 15 days that would have a serious impact on my bottom line as an industry. So I just would start on this end and go down the line on whether you think 15 days to come out with such an important rule--does that make any common sense to you whatsoever? Mr. Mierzwinski. I think, Congresswoman, that bill is very poorly drafted in that regard. And it also--I raised the question that if the CFPB did that proposed rule, then held the notice and comment, then issued a final rule, does the bill allow it, if new abusive practices that aren't defined by the rule occur later, does it allow them to have a second rulemaking? I don't think it does. Mrs. Maloney. But anyone else, do you think 15 days--let's just go down the row, Mr. Chapman, Ms. Peirce, and then Mr. Pincus, is 15 days enough time to come back with a rule on abusive practices? It is a term that is used by the Fed all the time. But is 15 days enough time? I would be objecting if I were a member of industry. I am just curious as to your response. Mr. Chapman? Mr. Chapman. Specific to that, I am sorry, I can't give you a factual comment. But I can say I think that the CFPB is doing a wonderful job. It just needs to look at some different transparency and different communications to those that it regulates. So by the nature of creating the Small Business Advisory Committee-- Mrs. Maloney. Actually, I support that. What is wrong with that? Everybody should have an advisory committee. Who cares, you know? There are other advisory committees all over the place. So I think that is a good recommendation, quite frankly. Mr. Chapman. Thank you. Mrs. Maloney. But to write a rule, a major rule in 15 days, I think is unreasonable. Ms. Peirce? Ms. Peirce. They are already using the term in their enforcement actions, so they already know what it means, and it shouldn't be hard for them to write a rule. Mr. Pincus. I think the particular timeline may be too short, but I think that the bill gets at a problem, which is, again, going back to the legitimate businesses that want to do the right thing, they don't know how-- Mrs. Maloney. But Mr. Pincus, you are very knowledgeable. This is a term that has been used by all the regulators. Every rule I see coming out of the Fed uses ``abusive practices,'' so why have they not been called upon to define it? Mr. Pincus. It has not been a term previously used in the consumer protection area, and I think that is the concern. And the greater concern is that what the Bureau has done, rather than create a process to at least get some input on what the consequences might be of different interpretations, is it has used enforcement actions where it also has made claims under its ``unfairness and deceptive'' authority to put out very, very broad definitions of ``abusive.'' The cases are settled. They are never challenged. And companies don't know what to do because what the-- Mrs. Maloney. The cases can be challenged. Chairwoman Capito. The gentlewoman's time has expired. Mr. Barr? Mrs. Maloney. They can be challenged and rules put out by the Fed have used the term ``abusive.'' Mr. Barr. Thank you, Madam Chairwoman. Since we are on the topic of the proposed legislation that I have offered relating to defining abusive practices, whether it is 15 days or 30 days or 60 days to develop the rule, it is important to note that there is a notice-and-comment period that would give regulated parties and other interested parties the opportunity to weigh in on the proposal, a very deliberative process. The problem is that the CFPB is not going through that process. There is no timetable now. And so the issue is, if we want some timetable, some deliberative process to give notice to regulated parties, what the rules actually are, let's give them at least 15 days, maybe more, and then give them more time to have a notice-and-comment rulemaking process. I think it goes to the good testimony of Mr. Pincus and Ms. Peirce that the regulated parties here don't know what the rules of the road are. And so to that point, let me go beyond the argument Ms. Peirce makes about, this is just good government and that we want to eliminate legal uncertainty. Is there legal authority for the CFPB to simply ignore the Administrative Procedure Act and just engage in ad hoc, after-the-fact rulemaking? It is almost as if you say there is a reasonable speed limit, we are not going to tell you what it is, but here are the keys, go out on the road, and the police officer who pulls you over is going to decide there on the spot whether or not you get a ticket. Is that a proper analogy here, Ms. Peirce? Ms. Peirce. I think it is. In fact, that is what Director Cordray has said. He said, ``Well, you will know it when I see it and when I tell you I have seen it. And that is just not an acceptable way for a regulator to work, and that, to your point, is the reason that we have the Administrative Procedure Act. It is so that we have rulemaking done in a very careful way with input and then people will know which standards they are subject to. Mr. Barr. Mr. Pincus, in defining the boundaries of what the abusive standard actually should be, obviously the draft legislation has a 60-day notice and comment period. Does providing that period give the public sufficient opportunity to provide input so that the rule and the definition of abusive can be the right standard? Mr. Pincus. Yes, I think it does. Mr. Barr. And what would be the consequences of lack of public input? Mr. Pincus. What happens when there is no public input is that regulatory standards get devised without the agency knowing what the consequence is and also get sort of elaborated on in a way that companies that absolutely want to be law abiding don't know what the rules are, can't build compliance systems that screen out what has been determined to be bad behavior. And the other problem that we have here is that the Bureau seems to be going down a path of defining ``abusive'' in just the way Congress said--to do just what Congress said the Bureau couldn't do, which is to impose suitability requirements for financial services and products. Because what it said in these few settlements where it is mentioned abusive is that what was abusive, it appears to be, it is very oblique, but what it appears to be is that the company could have known if it had put a bunch of information together that this product wasn't right for this consumer, and because the product was offered to these consumers, that was abusive. And that obviously goes directly contrary to Congress' intent in removing suitability authority when Dodd-Frank was being legislated. Mr. Barr. And does after-the-fact enforcement and ad hoc enforcement without a clear rulemaking that gives advance notice to regulated entities also increase the likelihood of inconsistent enforcement? Mr. Pincus. It increases the likelihood of inconsistent enforcement, and what it does is chill companies from entering the market. If you don't know what the rules of the road are, the only safe thing to do is don't do anything new or different, don't try and serve a market that is underserved, because you may get into trouble. Mr. Barr. Yes. And, Mr. Mierzwinski, Director Cordray said that we expect a marketplace where companies are honest and clear so that consumers know the key terms and conditions of financial products up front. Shouldn't that same philosophy apply to the regulator, that the regulator should be honest and clear and provide what the rules are up front so that the American people know what the rules are before they are asked to comply with the rules? Mr. Mierzwinski. Congressman, I would simply say that if the companies that had lost the abusiveness cases thought they had a case, their learned counsel would be down at the D.C. Circuit Court appealing those decisions. Mr. Barr. One final question. You had mentioned in your testimony, sir, that this is a start-up agency going through growing pains. Should the CFPB apply a more relaxed scrutiny to start-up banks or financial institutions or lenders that are experiencing growing pains? Mr. Mierzwinski. I think it does. I think it does already. I think it is a very flexible agency, sometimes much more flexible than people on the Hill really know. And you should go down there. They will have you in for a visit. Mr. Barr. Thank you. I yield back. Chairwoman Capito. The gentleman's time has expired. Mr. Green? Mr. Green. Thank you, Madam Chairwoman. I thank the witnesses for appearing. I am intrigued by the style of the hearing which deals with transparency and accountability, and I think it is appropriate to have transparency and accountability. But I am intrigued because H.R. 4662--and I am pleased that the sponsor is present--would have a statement issued that is confidential. It deals with the advisory opinions. And I am willing to yield to my friend to have him give me--Mr. Duffy, if you would. Mr. Duffy? Chairwoman Capito. Mr. Duffy? Mr. Green. I'm sorry. I didn't mean to interrupt you. I just wanted to ask you about your bill. Might you and I have a polite exchange? Mr. Duffy. Oh, absolutely. Mr. Green. Because I do commend you and compliment you on a good many of your accomplishments, especially seven children. Mr. Duffy. Thank you. Mr. Mulvaney. That is actually what we were talking about. Mr. Green. All girls? Mr. Duffy. Five girls, two boys. He wanted to know if I know what caused that, and I said Catholicism. Mr. Green. Okay. But I am very serious and this is with the best of intentions that I ask: Why would we have a confidential opinion given as opposed to an opinion that all could benefit from, given that we are seeking transparency? And honestly, my question is with the best of intentions. And I would ask you to give me your response. Mr. Duffy. Are you talking about my bill-- Mr. Green. I think it is--H.R. 4662 is yours, isn't it? Mr. Duffy. The consumer advisory bill? Mr. Green. Right. Yes, sir. Mr. Duffy. And I'm sorry, your question again is? Mr. Green. My question has to do with the confidentiality associated with the opinion that is requested, and I am asking why would it be confidential? We are talking about transparency. Why would you want an opinion that others can't benefit from? Mr. Duffy. I don't know that I have a confidentiality portion of my bill. Mr. Green. Unless I have a bad copy, I am assuming this is H.R. 4662. Mr. Duffy. I am going to move down here, as we talk, to my materials. Mr. Green. Okay. Great. It is titled, ``the Bureau Advisory Opinion Act.'' Is that yours? Mr. Duffy. That is Mr. Posey's bill. Mr. Green. Mr. Posey's. Mr. Duffy. You were confusing me there for a moment. Mr. Green. All right. Sorry about that. He is not the guy with the kids. Okay. He is not here. I didn't want to bring this up without the person who actually is the sponsor being here. And the bill does deal with confidentiality. So with that said, let me just ask the panel, why would we have a confidential opinion? And I am asking with the best of intentions. Why would we want to have opinions issued that are not available for others to benefit from given that we are placing transparency on a pedestal? Why would we do this? Mr. Mierzwinski. If you are starting at the left end, I would say, Congressman, I don't know why we would do that bill because I think that it puts the Bureau into very complicated, murky legal terrain. There would be challenges. And the other thing about it is that it is a tremendous resource drain. The Bureau has to write rules, the Bureau has to conduct enforcement, it has to study markets, it has to provide information to consumers, and now it has to deal with every single request from any company for an advisory opinion that is private. It doesn't make sense to me. Mr. Green. Would someone else like to respond? Mr. Chapman. I think the opinion should be open and available to the public, redacted where appropriate. Mr. Green. Yes. Mr. Pincus. I think the practice of many agencies is that they are open. I think the question is, if a company has a business confidential, a new idea that it doesn't want to share with the rest of the world but wants to get some advice, is there a way to redact the confidential information, which other agencies do, so that the advice is there but the idea remains-- the company that is seeking to do the right thing keeps the ability to capitalize on its idea? Mr. Green. Have you read this bill? Mr. Pincus. I have. Mr. Green. You have? Do you believe that is what is accomplished with this bill? Mr. Pincus. I am not sure that this language does exactly that. I think there probably is a way to provide for opinions to be published or to be put up on the Web site, which is what people do now, but to provide that business confidential information as it is in other circumstances is redacted so that is protected. Mr. Green. Thank you, Madam Chairwoman. Chairwoman Capito. Thank you. I now recognize Mr. Westmoreland. Mr. Westmoreland. Thank you, Madam Chairwoman. Mr. Mierzwinski, I want to follow up on an answer that you gave Mr. Duffy earlier. I'm sorry, I was not here. But you said that the CFPB should collect information about religion because the CFPB is monitoring markets and not individuals. Was that your statement? Mr. Mierzwinski. Generally, yes. Mr. Westmoreland. Okay. Mr. Mierzwinski. Could they collect the information, but I said it is not important to study the consumer. They want to study markets. And in follow-up, I said to the Congressman--he asked me why, and I said, well, I think there are a lot of companies that target people of different faiths and it might be something you want to study because of that. Mr. Westmoreland. Okay. Then, why would they need to collect Social Security numbers or GPS locations of somebody's house if they were just doing market research? Mr. Mierzwinski. Market research today involves trying to figure out what companies are doing with information. What this has to do with is-- Mr. Westmoreland. I know, but what would that have to do with an individual? Mr. Mierzwinski. I'm sorry, they are trying to find out whether or not you, at your location, are being treated differently than me, at my location, all other things being equal, and how companies are marketing to people in three dimensions. Mr. Westmoreland. With a GPS system, not just a ZIP code? Don't most people do it by ZIP code? Mr. Mierzwinski. Most companies, Congressman, are now tracking you on your mobile phone. They want to know where you are at any time of the day. Mr. Westmoreland. So you think that is appropriate, for the CFPB to track you on your mobile phone? Mr. Mierzwinski. The CFPB, I understand, is collecting data sets that include it. I don't think they are tracking people in the way that the companies are tracking people. I think that if they are collecting, and I would have to look at this FHFA study, if they are collecting data, they are collecting data on what the companies are doing with GPS data. They are not tracking you. Mr. Westmoreland. Okay. You also, I think, said that consumers trust the CFPB? Mr. Mierzwinski. Oh, I think the consumers do. Mr. Westmoreland. Now, have you done a poll on that or what have you done to prove that? Just talk to people in your neighborhood? Mr. Mierzwinski. Congressman, Americans for Financial Reform has conducted surveys, legitimate statistical studies; Celinda Lake's organization, Lake Research, has done them for us. I would be happy to enter them into the record. But I don't know if we have a question, do we trust the CFPB's use of privacy? But we absolutely have questions, do you trust the CFPB and do you see a need for an agency that has only one job, protecting consumers? Absolutely. Mr. Westmoreland. It is interesting that their one job is to protect consumers, yet they have more information than the NSA does or any other agency in the government on these consumers, and the people who have as a repository for this information do not have a security clearance other than just a background check. So do you think that gives the consumer any type of sense of protection, and do they understand when they answer one of these surveys that somebody sends out that they have all this information and that the people who hold it do not have any type of security clearance? Mr. Mierzwinski. I am unaware, and I would be interested in the committee's background memos, because I don't have them, and I was asked to testify just a few days ago. I haven't found out whether any agency that collects personally identifiable information (PII) requires a security clearance of all the employees who have a chance to look at it. But I don't think that the American public is concerned right now. The CFPB is responsive to OMB's requirements on protection of data and they are doing it. Mr. Westmoreland. I don't think there is a lot of faith in the IRS that they are keeping that data confidential either. And it is just amazing to me that this start-up agency has the access to all of somebody's personal information. I just think that is of great concern to the American people that these folks have nothing but a background check, no security clearance, no confidential clearance, nothing else, but yet to be a Consumer Financial Protection Board one breach, one thing from them, it could be--and identity theft is the worst crime that we can have for somebody's credit right now. So with that, ma'am, I know my time is up, and I yield back. Chairwoman Capito. Mr. Scott? Mr. Scott. Thank you. I just got back from voting. I have a couple of questions. Ms. Peirce, I think it was you who said that you didn't think there was any need for the CFPB. Is that correct? Ms. Peirce. It is correct that I said that. My thinking is that the functions that the Bureau performs could be performed by existing agencies. Mr. Scott. What existing agencies? Ms. Peirce. The banking regulators could have performed the functions that were given to the Bureau. And there are good arguments-- Mr. Scott. You are very much aware that the banking regulators could not provide the function to prevent the Wall Street crash? Ms. Peirce. I agree with you that they did not do a good job, and so giving regulators more authority is not the answer that I would have written. Mr. Scott. That is very revealing what you said. The CFPB, without question, is needed, there is no question about that, to protect consumers. Adjustments, perhaps, in certain cases, yes. There is no law that is perfect. There is no approach that is perfect. But it just struck me as rather odd that you were the only one who said that and would refer to agencies when those agencies didn't do the job, the main job, that caused the need for the CFPB in the first place. Ms. Peirce. I think that we are all here today to see that the Bureau that does have those authorities is doing the job right, and I think that is why additional protections are needed on how they do that. Mr. Scott. Yes, I agree with you, and I agree with you 100 percent on that statement. What I don't agree with you on is that we didn't need it. But I am glad to hear you say that what you want to do is make it work and make it apply. But let there be no question, we need this. And I work with the CFPB. There are areas there that I am working with them on where we can fashion and we make the industry. There is no law we have on the books, there is no policy we have on the books that is foolproof. We are still working with things like Medicare, Social Security, whatever it is, you are constantly working with. But, again, I am glad I clarified that, and I certainly welcome your work with us to fix the ailments that may come up with the CFPB. I wanted to talk about something that hadn't been talked about, though, and that is Mr. Stivers' bill on inspector general reform. Now, that gives me some problems, too. And, Mr. Mierzwinski--I hope I didn't murder your name, but Mierzwinski, I think, all right--what is going on here? It seems to me the IG that we have in place is basically working. Why do you think we need a new one? Do you agree with this, that we need a new IG in there? Mr. Mierzwinski. I am always surprised when the majority party asks to make government bigger. It does surprise me. And I would point out in my testimony I have a letter, excerpts from a letter that the Inspector General for the Fed and the CFPB sent to the Bipartisan Policy Center, the group that organized and supported in their report this notion of an independent IG, and the Inspector General found mistakes in that BPC report, and he asked for them to be retracted. And he also said we absolutely have all the authorities, all the power, and all the resources we need to continue to do this job. So, again, I don't see the need for the legislation. Mr. Scott. Do you or any of you on the committee, is there any evidence that even would suggest that the current IG has failed to conduct rigorous and adequate oversight of the CFPB? So no evidence, nothing-- Ms. Peirce. I would argue that there certainly is more work that they could have done. And I think the other half of that problem is that the Federal Reserve got a lot of new powers under Dodd-Frank, and I think the Federal Reserve is woefully underinspected by their Inspector General. So I think that there is work to be done on both agencies that is not getting done. Mr. Scott. All right. But you don't have any specific examples or evidence where-- Mr. Stivers. Would the gentleman yield? Mr. Scott. Sure. Mr. Stivers. I don't know if you are aware, and it is in the committee's report, but in the 15 reports that the Fed's IG was supposed to do on the CFPB, there were 35 delays. And if you find that acceptable, then maybe you are okay with the current situation, but I don't find that acceptable. Mr. Scott. I also think if you would look at several other IGs in several other agencies, the Veterans Affairs IG comes to mind, you can come up with some examples of that. But I am talking about rigorous enforcement, a need to overhaul and replace them with a totally new IG, correct that malfunction, and move on. I don't see where there is a need for the entire new IG. But anyway, Madam Chairwoman, thank you. Mr. Stivers. Would the gentleman yield again? Chairwoman Capito. The gentleman's time has expired. Mr. Scott. Yes, I already yielded. Mr. Stivers. I will make my points during my time, then. Chairwoman Capito. Mr. Mulvaney? Mr. Mulvaney. Thank you, Madam Chairwoman. Thank you to both you and the ranking member for letting me participate in this subcommittee today. Mr. Pincus, when you started off, one of the very first things you said was that one of the difficulties that many of the companies that are regulated by the CFPB are facing is that they just don't know what the rules are. They want to abide by the rules, but they just don't know what the rules are because either they don't exist or they are not clearly defined. Mr. Mierzwinski, you did not get a chance to comment on my proposed legislation in the long list of ones that you talked about at the beginning, but let's talk about that now if we get a chance. Because I understand that one of the complaints I hear is that it takes too long to get these rules put in place. The examinations take too long. It takes too long to get the final reports. I think that the CFPB actually has internal goals on its own, they are not statutory, for 65 days for supervisory letters, 110 days for depository institutions' final reports. So one of the things my proposed bill does, the Bureau Examination Fairness Act, is to codify those deadlines and to give the CFPB 60 days to do the initial investigation, and 120 days to actually come up with the final decision, which could be extended to 180 days one time. What is wrong with that, Mr. Mierzwinski? Mr. Mierzwinski. Congressman, first of all, on your bill, I think that the Bureau has already accepted the basic premise of your bill. They are no longer doing ride-alongs for the enforcement staff in the examination process. So, examiners are not being accompanied by enforcement staff. But I think it should be made clear in your bill that if an examiner finds evidence of continuing mistakes or problems at a company, they ought to be able to call an expert enforcement official to discuss it with them, and it is unclear from your bill whether you can do that. But getting to the part you are talking about, I think Congress imposing deadlines like that on examiners and with so many of the terms undefined for the coordinated examinations and the overlapping examinations and that limit of $50,000--by the way, I think that would benefit the bigger banks at the expense of the smaller banks-- Mr. Mulvaney. Let's stay on the number of days first, because you have touched on a couple of things, and I want to try and touch on all of them in 2 minutes and 40 seconds. But let's stay on just the number of days. If 60 and 120 days aren't the right numbers, what are? Mr. Mierzwinski. Again, I don't know that the other bank regulators--some bank regulators have permanent examiners at banks. Mr. Mulvaney. That is not my question. What is the number? Mr. Mierzwinski. When there is a permanent examiner at a bank, what is the number they are using? I don't know. Mr. Mulvaney. Are 60 and 120 days the right number, Mr. Pincus? Ms. Peirce? Anybody? Do you have any thoughts on this? Mr. Pincus. I think it is the number the Bureau itself came up with, so that sort of indicates that it is the right number. And I think, talking to a lot of companies, this is a huge difference between Bureau examinations and examinations by the safety and soundness regulators, is that the Bureau examinations never end. Even if safety and soundness regulators are on the premises, the examinations have a time period, there are lots of different ones, and you get a closing letter at the end that tells you how you did or what you have to fix. And the frustration for many, many, many banks and other institutions that are being examined is they never get the end. It is just everything is held open forever. There is no closure. Again, people don't know what the rules of the road are so that they can implement what other changes they have to implement. And meanwhile, some other examination on another topic has started and is overlapping and that is a huge consumption of resources. Mr. Mulvaney. Let's come back to the enforcement agents, the ride-alongs, because you are exactly right, Mr. Mierzwinski, you mentioned that the CFPB has stopped doing that. What is wrong, then, with codifying that? Again, all I think I am doing with my 60 and 120 days is codifying what the Bureau says is its best practice? And I would like to codify that for the enforcement agency, as well. Do you have a difficulty with that? Mr. Mierzwinski. Again, as I said, I am not sure that applies to other agencies as well, does it? Do the other agencies have a prohibition on ride-alongs in statute? Mr. Mulvaney. Some of them do, yes. Mr. Mierzwinski. Then, again, the question is could an enforcement agency take a phone call from an examiner under your bill? Mr. Mulvaney. I don't know the answer to that question. But generally speaking, do you have difficulty with codifying these rules? Do you think that an agency should operate under defined rules from Congress, or do you think they should be able to make up their own rules on how they want to function? Mr. Mierzwinski. I have always felt that agencies are expert and Congress should provide overriding general statutes, but putting numbers into statutes is always problematic. Mr. Mulvaney. And I guess doing what you have just suggested then would be overly problematic because the oversight ability we have is extraordinarily limited. If they get to make up their own rules on how long they want to take-- or not make up any rules--I don't know what oversight is available to us. I had some other questions about the 50,000, but I am out of time. So I appreciate the opportunity. Chairwoman Capito. Thank you. Mr. Stivers? Mr. Stivers. Thank you, Madam Chairwoman. I really appreciate the chance to have this hearing, and I appreciate the witnesses being here today. I want to talk a little bit about the bill that the gentleman from Georgia brought up earlier, my bill, that is a bipartisan bill to create an independent Inspector General for the CFPB. As everybody in the room knows, the CFPB has no budget that is approved by Congress. They are not a board. It is one individual who runs the organization, and they draw down their money from the Federal Reserve. And unlike the 50 other agencies that have independent Inspectors General--and when I say independent, I mean appointed by the President, confirmed by the Senate--the CFPB has an Inspector General who is appointed by the head of the Federal Reserve, but not confirmed by the Senate. It does not make sense. And so, I think they should be on the same plane as the SEC, the CFTC, the FHFA, the FDIC, and the Treasury. That is all we are asking for here. This is a bipartisan bill. It is a bipartisan solution. And one of the witnesses suggested that they don't like it when Republicans want to grow government. I just want to make government work better. There is nothing wrong with having transparency and accountability for everybody. Does anybody on the panel know of any reason why the CFPB should be created or treated any differently than the other 50 agencies that have an Inspector General who is appointed by the President of the United States and confirmed by the United States Senate? I will take that as a no. So is there anybody on the panel who believes that transparency is a bad thing, accountability is a bad thing? Is there anybody on the panel who believes that transparency is a good thing? Mr. Pincus. Yes. Mr. Stivers. I will note that every witness is shaking their head that transparency is a good thing. Now I will, Mr. Mierzwinski--is that how you pronounce your name, sir? Mr. Mierzwinski. Very good. Mr. Stivers. Is that correct? Mr. Mierzwinski. Correct. Mr. Stivers. You had a dialogue earlier with the gentleman from Georgia to which I interjected that the CFPB--the Fed Inspector General has had 15 reports relating to the CFPB, and they have had 35 delays on just 15 reports. Do you find that acceptable? Mr. Mierzwinski. I don't find that necessarily acceptable, but I would have to compare it to other IGs. Mr. Stivers. So you don't want to compare it against any sort of regular standard that when they make their work plan they report their work plan to our oversight committee every quarter. You don't think it should be that they get to make their own work and plan their work and they should generally meet the deadlines they set. Nobody set these deadlines for them; they missed their own deadline 35 times on 15 reports. So you could compare that and say, well, everybody else is really bad so it is okay for them to be really bad. But I think for accountability and transparency and for the taxpayers, we want them to meet their own deadlines. And you may or may not know that they have over twice as many people, the Fed Inspector General oversees double the number of employees as overseen at the Federal Trade Commission, the Consumer Product Safety Commission, the NCUA, or the CFTC. The problem is they oversee a lot of folks, and that is a problem. I guess the other question I would have for Ms. Peirce is, so the Fed Inspector General serves the Federal Reserve Board and the Consumer Financial Protection Bureau. Do the missions of these two agencies differ? Ms. Peirce. They differ significantly. Mr. Stivers. Can you serve two masters in two missions easily? Mr. Peirce. That is my big concern, is the Inspector General should get to know the agency for which he or she is Inspector General. And having to know both the Fed and the CFPB is a very difficult task. Mr. Stivers. And, Mr. Pincus--is that how you pronounce it? Mr. Pincus. Yes. Mr. Stivers. Mr. Pincus, the CFPB is a start-up agency. It now has over 1,300 employees. In your experience, when is the time that you can make the most mistakes in an agency, is it when you are a mature agency or when you are a start-up agency? Mr. Pincus. I think mistakes are possible all the time. But certainly when you are a start-up, the growing pains can often lead to problems. And it is also the time when bad practices can get institutionalized or--rooted out right at the beginning, which is obviously preferable. Mr. Stivers. If the CFPB were to have their own Inspector General, Mr. Pincus, don't you believe that they could root out those potential institutional policies? For example, the CFPB just, I believe--I don't know if it is public--had an issue with discrimination. And they are only 2\1/2\ years old. And they paid out millions of dollars related to that. Does that sound like it could have been something that could have been prevented if they had their own Inspector General? Mr. Pincus. Absolutely. The Inspector General would have been looking at what was going on and giving independent advice. One of the problems for the CFPB, as Ms. Peirce mentioned earlier, is unlike all the other agencies you mentioned that have multimember commissions, it is just one Director. So the opportunity to have input from others who might have a different perspective just isn't there. And an IG would supply that. Chairwoman Capito. The gentleman's time has expired. Mr. Stivers. Thank you, Madam Chairwoman. Chairwoman Capito. In conclusion, I would like to thank all of you. Thank you for your patience. I know we were a little in and out here. But I think we got a lot of good information, and I appreciate everybody's opinion. The Chair notes that some Members may have additional questions for this panel, which they may wish to submit in writing. Without objection, the hearing record will remain open for 5 legislative days for Members to submit written questions to these witnesses and to place their responses in the record. Also, without objection, Members will have 5 legislative days to submit extraneous materials to the Chair for inclusion in the record. Without objection, this hearing is adjourned. [Whereupon, at 4:05 p.m., the hearing was adjourned.] A P P E N D I X May 21, 2014 [GRAPHIC] [TIFF OMITTED]