[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
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88-544 PDF WASHINGTON : 2014
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HOUSE COMMITTEE ON FINANCIAL SERVICES
JEB HENSARLING, Texas, Chairman
GARY G. MILLER, California, Vice MAXINE WATERS, California, Ranking
Chairman Member
SPENCER BACHUS, Alabama, Chairman CAROLYN B. MALONEY, New York
Emeritus NYDIA M. 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
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