[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
PUTTING CONSUMERS FIRST? A SEMI-ANNUAL
REVIEW OF THE CONSUMER FINANCIAL
PROTECTION BUREAU
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
__________
MARCH 7, 2019
__________
Printed for the use of the Committee on Financial Services
Serial No. 116-6
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
________
U.S. GOVERNMENT PUBLISHING OFFICE
36-461 PDF WASHINGTON: 2019
HOUSE COMMITTEE ON FINANCIAL SERVICES
MAXINE WATERS, California, Chairwoman
CAROLYN B. MALONEY, New York PATRICK McHENRY, North Carolina,
NYDIA M. VELAZQUEZ, New York Ranking Member
BRAD SHERMAN, California PETER T. KING, New York
GREGORY W. MEEKS, New York FRANK D. LUCAS, Oklahoma
WM. LACY CLAY, Missouri BILL POSEY, Florida
DAVID SCOTT, Georgia BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri SEAN P. DUFFY, Wisconsin
ED PERLMUTTER, Colorado STEVE STIVERS, Ohio
JIM A. HIMES, Connecticut ANN WAGNER, Missouri
BILL FOSTER, Illinois ANDY BARR, Kentucky
JOYCE BEATTY, Ohio SCOTT TIPTON, Colorado
DENNY HECK, Washington ROGER WILLIAMS, Texas
JUAN VARGAS, California FRENCH HILL, Arkansas
JOSH GOTTHEIMER, New Jersey TOM EMMER, Minnesota
VICENTE GONZALEZ, Texas LEE M. ZELDIN, New York
AL LAWSON, Florida BARRY LOUDERMILK, Georgia
MICHAEL SAN NICOLAS, Guam ALEXANDER X. MOONEY, West Virginia
RASHIDA TLAIB, Michigan WARREN DAVIDSON, Ohio
KATIE PORTER, California TED BUDD, North Carolina
CINDY AXNE, Iowa DAVID KUSTOFF, Tennessee
SEAN CASTEN, Illinois TREY HOLLINGSWORTH, Indiana
AYANNA PRESSLEY, Massachusetts ANTHONY GONZALEZ, Ohio
BEN McADAMS, Utah JOHN ROSE, Tennessee
ALEXANDRIA OCASIO-CORTEZ, New York BRYAN STEIL, Wisconsin
JENNIFER WEXTON, Virginia LANCE GOODEN, Texas
STEPHEN F. LYNCH, Massachusetts DENVER RIGGLEMAN, Virginia
TULSI GABBARD, Hawaii
ALMA ADAMS, North Carolina
MADELEINE DEAN, Pennsylvania
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
DEAN PHILLIPS, Minnesota
Charla Ouertatani, Staff Director
C O N T E N T S
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Page
Hearing held on:
March 7, 2019................................................ 1
Appendix:
March 7, 2019................................................ 113
WITNESSES
Thursday, March 7, 2019
Davis, Jennifer, Government Relations Deputy Director, National
Military Family Association.................................... 82
Frotman, Seth, Executive Director, Student Borrower Protection
Center......................................................... 83
Jun, Linda, Senior Policy Counsel, Americans for Financial Reform 80
Kraninger, Hon. Kathy, Director, Consumer Financial Protection
Bureau (CFPB).................................................. 5
Shelton, Hilary O., Director & Senior Vice President for Advocacy
and Policy, National Association for the Advancement of Colored
People (NAACP)................................................. 78
Weltman, Scott, Managing Shareholder, Weltman, Weinberg & Reis
Co., LPA....................................................... 85
APPENDIX
Prepared statements:
Davis, Jennifer.............................................. 114
Frotman, Seth................................................ 120
Jun, Linda................................................... 136
Kraninger, Hon. Kathy........................................ 150
Shelton, Hilary O............................................ 158
Weltman, Scott............................................... 163
Additional Material Submitted for the Record
Waters, Hon. Maxine:
Written statement of Veterans Education Success (VES)........ 369
Garcia, Hon. Sylvia:
CFPB report entitled, ``Spotlight on serving limited English
proficient consumers,'' dated November 2017................ 377
Tlaib, Hon. Rashida:
``Riding the Stagecoach to Hell: A Qualitative Analysis of
Racial Discrimination in Mortgage Lending''................ 407
Kraninger, Hon. Kathy:
Written responses to questions for the record submitted by
Chairwoman Waters.......................................... 426
Written responses to questions for the record submitted by
Representative Budd........................................ 457
Written responses to questions for the record submitted by
Representative Cleaver..................................... 458
Written responses to questions for the record submitted by
Representative Garcia of Illinois.......................... 469
Written responses to questions for the record submitted by
Representative Gonzalez of Texas........................... 472
Written responses to questions for the record submitted by
Representative Kustoff..................................... 475
PUTTING CONSUMERS FIRST?
A SEMI-ANNUAL REVIEW OF
THE CONSUMER FINANCIAL
PROTECTION BUREAU
----------
Thursday, March 7, 2019
U.S. House of Representatives,
Committee on Financial Services,
Washington, D.C.
The committee met, pursuant to notice, at 10:07 a.m., in
room 2128, Rayburn House Office Building, Hon. Maxine Waters
[chairwoman of the committee] presiding.
Members present: Representatives Waters, Maloney,
Velazquez, Sherman, Meeks, Clay, Scott, Green, Cleaver, Himes,
Foster, Beatty, Heck, Vargas, Gottheimer, Gonzalez of Texas,
Lawson, San Nicolas, Tlaib, Porter, Axne, Casten, Pressley,
McAdams, Ocasio-Cortez, Wexton, Lynch, Adams, Dean, Garcia of
Illinois, Garcia of Texas, Phillips; McHenry, Wagner, Lucas,
Posey, Luetkemeyer, Huizenga, Stivers, Barr, Tipton, Williams,
Hill, Emmer, Zeldin, Loudermilk, Mooney, Davidson, Kustoff,
Hollingsworth, Gonzalez of Ohio, Rose, Steil, Gooden, and
Riggleman.
Chairwoman Waters. The Financial Services Committee will
come to order. Without objection, the Chair is authorized to
declare a recess of the committee at any time.
Today's hearing is entitled, ``Putting Consumers First? A
Semi-Annual Review of the Consumer Financial Protection
Bureau.'' I will now recognize myself to give an opening
statement.
Today, this committee convenes for a hearing on the Semi-
Annual Report of the Consumer Financial Protection Bureau
(CFPB). Testifying today before the committee for the first
time is the Consumer Bureau's new Director, Kathy Kraninger.
The Consumer Bureau is the centerpiece of the Dodd-Frank Wall
Street Reform and Consumer Protection Act, which Congress
passed after the financial crisis to provide America's
consumers with a watchdog that would swiftly and effectively
crack down on unscrupulous financial practices, products, and
actors.
Under the leadership of former Director Richard Cordray,
the Consumer Bureau was a tremendous success, returning nearly
$12 billion to over 30 million consumers who were harmed,
handling over 1.2 million consumer complaints about financial
institutions, and making the financial marketplace stronger and
fairer for all Americans. Because of the Consumer Bureau,
American consumers no longer must worry about exploding
mortgages, hidden prepaid card fees, or unnecessary
foreclosures due to weak servicing standards.
The Consumer Bureau has also helped to take the confusing
jargon out of consumer lending by requiring clear disclosures
from financial institutions and providing consumers with easy-
to-understand materials to empower them to make the best
decisions. However, despite the successes, congressional
Republicans have done everything they can to stymie the
Consumer Bureau's good work, and the Trump Administration has
undertaken a sustained effort to destroy the agency. I am
deeply concerned about the damage they have done.
During his tenure running the Consumer Bureau, Mick
Mulvaney--who is currently Trump's acting Chief of Staff--took
many actions that hurt consumers. Mr. Mulvaney closed the
Office of Young Consumers, stripped the Office of Fair Lending
of its ability to enforce fair lending laws, cozied up to
payday lenders, gave lenders a free pass to abuse active-duty
servicemembers and their families, and fired the Consumer
Bureau's Consumer Advisory Board.
His mission was to dismantle the agency from within and he
leaves behind no less than 12 political appointees who are
continuing to cause damage. I am disappointed Mr. Mulvaney
declined to respond to our invitation to testify here today.
This committee still has serious questions for him, so I am
expecting our new Director, Director Kraninger, to answer for
him.
As chairwoman of this committee, I am committed to
reversing the damage that Mr. Mulvaney caused, to ensure that
the Consumer Bureau can resume its important work. That is why
I have reintroduced my bill, H.R. 1500, the Consumers First
Act, which restores the agency's supervisory and enforcement
powers, and provides the transparency and accountability needed
for the agency to carry out its important mission.
This committee will not tolerate the Trump Administration's
anti-consumer actions and we will act to ensure that the
Consumer Bureau is fully empowered to protect consumers. So I
look forward to Director Kraninger's report on the Consumer
Bureau's activity, and to discussing the agency's recent
harmful proposal to undermine its payday rule, as well as the
loss of more than 10 percent of agency staff, among other
important issues. I also look forward to the second panel's
testimony on how Congress can help ensure the Consumer Bureau
is putting consumers first.
The Chair now recognizes the ranking member of the
committee, the gentleman from North Carolina, Mr. McHenry, for
4 minutes for an opening statement.
Mr. McHenry. Thank you, Chairwoman Waters, for yielding.
And Director Kraninger, thank you for being here. And thank
you for your first testimony before this committee. Many of us
have expressed serious reservations over the establishment of
the CFPB. Those are still the initials, as you have re-
established. Our concerns were driven by the fear that Congress
was creating one of the most powerful and unaccountable
bureaucracies ever; unfortunately, we were right.
For nearly a decade, America's small businesses, community
banks, and families have experienced firsthand what an
unacceptable agency looks like. Since 2011, the CFPB has run
roughshod over due process and advanced a political, partisan
agenda rather than serving as a place to help consumers.
Want to know whether the CFPB thinks the product is
abusive? Well, the Bureau knows it when it sees it. And you
will find out as soon as there is an enforcement action. Want
to understand how to comply with financial regulations? Yes,
you will see that, too, just wait and see if the Bureau's
enforcement team visits you. It is called ``regulation by
enforcement'' and it is a dangerous and destructive approach to
supervision.
That is why we invited Scott Weltman on the second panel
today. He is someone who fought Mr. Cordray's CFPB and its
abusive practices and won. Several years ago, Mr. Weltman's
firm was awarded a State contract by Ohio's then-Attorney
General, Richard Cordray. Mr. Weltman's firm worked with Mr.
Cordray on disclosure language and ultimately had his contract
renewed.
The debt collection disclosures were acceptable to Attorney
General Cordray, but not to then-CFPB Director Richard Cordray,
who charged that Mr. Weltman's firm had harmed consumers by
using the very disclosures he had previously approved. Now,
keep in mind, there is no evidence of consumer harm and the
Bureau had never promulgated standards on debt collection; yet,
the Bureau still tried to extract $1 million from this firm
because, well, they just didn't like the look of it. Is that
how we are going to regulate? Is that a government standard? Is
that best practices?
Despite the heavy-handed approach, Mr. Weltman decided to
fight the CFPB in court and won. The good news is that it is a
new day in the CFPB, and I welcome that. Under Director
Kraninger's leadership, she has pledged to provide more
transparency and stop the Bureau's ugly history of regulation
by enforcement. And she has prioritized the importance of
financial innovation to drive greater financial inclusion,
which should be the core of the mission for the Bureau.
Director Kraninger, I applaud your commitment to
innovation. I welcome your new leadership for this Bureau. The
work being done by your Office of Innovation is very important
and I hope you will continue to make it a priority.
Still, today you will face criticism from my friends on the
other side of the aisle over some of the steps you have taken.
The reality is that you have had unilateral authority to do
whatever you want, and I am not sure everyone in this room
thinks that is a good idea; they have a point.
While we have seen more transparency in the last year since
the inception of the Bureau, the structure of the agency still
alarms me. It is run by a single individual who has no real
oversight or accountability. We expect that you will testify
next year as well, and we are hopeful you will respond to
letters in the meantime. That is not really the best way for us
to have executive oversight.
The Bureau still has an unfettered line of credit with the
Federal Reserve and there still isn't a CFPB Inspector General.
It is not you, Director Kraninger, that has me worried, it is
your successor, and your successor's successor, and what we do
to American regulation going forward.
Good government should not be a partisan exercise. So to
you I offer a welcome, and my hope that you will follow the
rule of law and the letter of the law at the creation of the
Bureau. But in spite of the improvements that we have sought
legislatively, the Bureau still is in need of reform.
And to my friends on the other side of the aisle, I ask you
to work with us to pursue sensible improvements to the CFPB.
Let us not allow politics to distract the consumer protection
that is so vital and so important and that we all hold so dear.
I yield back.
Chairwoman Waters. Thank you.
The Chair now recognizes the subcommittee Chair, Mr. Meeks,
for 1 minute.
Mr. Meeks. Thank you, Chairwoman Waters, for calling this
very important hearing.
An often-overlooked driver of the financial crisis was the
failure of prudential regulators to identify and curb systemic
patterns of consumer abuse. When Wall Street collapsed and
businesses across the country began to fail, American families
and consumers bore the brunt of the financial burden, losing
their jobs, their homes, and what little savings they had. To
address this systemically, we established the CFPB, an
independent bureau focused solely on consumer protection.
And I am extremely concerned that actions taken since
President Trump assumed office have undermined these central
pillars of the organization. The independence of the CFPB is
greatly undermined by the inappropriate injection of a dozen or
more un-vetted senior political appointees, focused not on
fulfilling the organization's mission but rather on political
outcomes at the expenses of the American consumers. I hope that
Director Kraninger will address this in detail and commit to
remedy this promptly.
And I yield back.
Chairwoman Waters. The Chair now recognizes the
subcommittee ranking member, Mr. Luetkemeyer, for 1 minute.
Mr. Luetkemeyer. Thank you, Madam Chairwoman.
Director Kraninger, we are happy to welcome to you to your
semi-annual testimony before this committee, and to
congratulate you as the newly confirmed Director of the Bureau
of Consumer Financial Protection. The Bureau is a unique
entity. As CFPB Director with no commission or board over you,
you are accountable to no one. To quote your predecessor, Mr.
Mulvaney, ``The Director has a kind of absolute power which
would frighten most of us.''
In the past, my Democratic colleagues sang the praises of a
CFPB Director's ability to independently lead the Bureau in its
well-intended mission. Today, my colleagues are going to pick
apart every single decision you have made or could make as
Director, simply because President Trump appointed you.
Transparency and accountability are guiding principles of
our American democracy, not the tenants of partisan politics. I
trust that in your tenure at the CFPB, you will ensure
consumers are well protected by prioritizing increased
accountability and transparency in the actions of the Bureau
and those it oversees. I congratulate you, again, on your well-
deserved confirmation. I look forward to working alongside you
as you lead the Bureau to meet its mission.
And I yield back.
Chairwoman Waters. Today, we have two panels. I want to
welcome the first panel, the Honorable Kathy Kraninger, the
Director of the Consumer Financial Protection Bureau. Ms.
Kraninger has served as Director of the CFPB since December
2018 and is appearing for the first time before the committee.
Prior to assuming this position, Ms. Kraninger was
Associate Policy Director at the Office of Management and
Budget (OMB), where she was involved in overseeing the budgets
of the Departments of Homeland Security, Justice, and Treasury,
among others. Prior to her work in OMB, she served as a
committee staff member for several Senate and House committees,
finishing as Clerk for the Senate Appropriations Committee's
Subcommittee on Homeland Security.
Ms. Kraninger, without objection, your written statement
will be made a part of the record. You will have 5 minutes to
summarize your testimony. When you have 1 minute remaining, a
yellow light will appear. At that time, I would ask you to wrap
up your testimony so we can be respectful of both the
witnesses' and the committee members' time.
You are now recognized for 5 minutes to present your
testimony. Thank you, Ms. Kraninger.
STATEMENT OF THE HONORABLE KATHY KRANINGER, DIRECTOR, CONSUMER
FINANCIAL PROTECTION BUREAU (CFPB)
Ms. Kraninger. Chairwoman Waters, Ranking Member McHenry,
and distinguished members of the committee, thank you for the
opportunity to present the Consumer Financial Protection
Bureau's most recent semi-annual reports to Congress. While the
reports describe actions undertaken before I arrived, they
provide a touchstone as we create the fresh outlook at the
agency under my leadership.
This testimony appropriately takes place during National
Consumer Protection Week. As such, I want to take a moment to
thank the dedicated team at the Bureau. I am impressed by these
exceptionally talented staff and their commitment to the
mission.
I also want to recognize the many partners in our work,
stakeholders in Congress, the media, financial institutions,
educators, consumer advocates, as well as fellow regulators at
the Federal and State level. Since my confirmation, I have been
engaged in a listening tour to meet as many of those
stakeholders as possible, including many of you, and those I
just mentioned.
I have visited our regional offices in San Francisco, New
York, and Chicago, interacting first and foremost with Bureau
staff. In D.C., and in the field, I have held roundtables and
met with consumer advocates, faith leaders, banks of all sizes,
credit unions, non-depository financial companies, and
innovators.
I have spoken with current and former members of the
Bureau's Consumer Advisory Board, and many individuals who care
about the Bureau, including Senator Dodd, Congressman Frank,
and former Director Cordray. Hearing all perspectives is
critical to bringing the best thinking as we carry out our
mission of protecting consumers.
The following gives you a flavor for the discussions I have
been having. I have heard far and wide that the Bureau produces
phenomenal financial education content. Stakeholders and the
Bureau, however, are struggling with the challenge of measuring
how education changes behavior and leads to action. I have
talked to my examiners about working with institutions to build
a culture of compliance and how supervision should be a more
prominent tool in the Bureau's toolkit.
Also, on exams, financial institutions and non-bank lenders
alike have noted the value of the exam process, as well as
their interest in having clear rules of the road. State
Attorneys General and bank supervisors have cited the valuable
work that we have done together, particularly on enforcement
actions. And I have heard from legal aid providers how they
play whack-a-mole against bad actors until one of the Bureau's
enforcement actions deters certain behavior.
As I look to wrap up my listening tour this month, I have
pledged that these engagements will continue on a regular
basis. As one example, I have invited all the members of this
committee to visit the headquarters on Monday, May 20th. I hope
that all of you will be able to participate in this event.
In the midst of the listening tour, I have also ensured
that the ongoing work of the Bureau continues at-pace. I will
highlight a few of our most recent actions.
First, I pledge to protect consumers from bad actors, and
the Bureau's enforcement attorneys continue their work to that
end. I have announced five enforcement actions since I started,
including one against a payday lender that failed to prevent
overcharges, and made harassing collection calls; and a second
against an online lender that debited consumers' bank accounts
without authorization, and failed to honor loan extensions.
Second, with the intent to maintain access to credit and
ensure more choice for consumers in need of emergency funds,
the Bureau is reconsidering the sufficiency of the evidence and
analysis supporting the underwriting requirements of the short-
term, small-dollar lending rule. We want consumers empowered to
make their own decisions that best suit their individual
financial needs and we want to make sure our evidence is
sufficiently robust and reliable. I have an open mind on this
matter and look forward to reviewing the comments and evidence
that are submitted in response to our proposals.
During America Saves Week, I announced the Start Small,
Save Up initiative to help promote the importance of savings
among Americans. A simple message but one urgently needed,
given a study that 40 percent of adults lack enough liquid
savings to cover a $400 emergency expense. We have also issued
a number of important reports, including our assessments of
significant rules and some on consumer credit trends, as well
as an analysis of suspicious activity reports on elder
financial fraud.
Last, I have spent significant time understanding the
Bureau's operations and looking at ways to improve delivery of
the Bureau's mission. With the incredible flexibility that
Congress has provided this agency, I feel a deep sense of
responsibility for ensuring we become a model for efficient and
effective use of resources in delivering that mission.
Looking ahead, I will be setting our priorities for the
Bureau, including setting the tone for how we will operate as
an agency. I expect to emphasize stability, consistency, and
transparency as hallmarks as we mature the agency and
institutionalize the many partnerships that are key to our
success in protecting consumers. I am also examining how we can
best utilize all of the tools that Congress has given this
agency, broadening our efforts to focus on prevention of harm
is a primary goal for our actions.
Thank you, again, for the opportunity to present the CFPB's
work to you and to provide you with an update on the activities
so far in my tenure. I would be happy to answer your questions.
[The prepared statement of Ms. Kraninger can be found on
page 150 of the appendix.]
Chairwoman Waters. Thank you very much, Ms. Kraninger.
I want to start by recognizing myself for 5 minutes for
questions. My first question has to do with fair lending.
Mr. Mulvaney's tenure at the Consumer Bureau was extremely
harmful to consumers. In just over a year, the Consumer
Bureau's staffing was reduced by more than 10 percent, and
public enforcement actions dropped nearly 70 percent from 2017
to 2018. In addition, there was zero fair lending public
enforcement actions taken during Mr. Mulvaney's tenure.
Perhaps that should not come as a surprise since he
stripped the Office of Fair Lending and Equal Opportunity of
its supervisory and enforcement powers, and he installed a
political appointee with a well-documented perspective, who is
not worthy of overseeing fair lending enforcement.
Director Kraninger, I have several questions for you. Given
the lack of fair lending public enforcement actions since Mr.
Mulvaney's tenure, does the Consumer Bureau have any ongoing
fair lending investigations that have been initiated since you
became Director?
Ms. Kraninger. Chairwoman Waters, I can assure you that
fair lending is a continuing priority in the Bureau.
Supervision and enforcement work is ongoing. Many of the
examiners and enforcement attorneys who did that work prior to
the transition continue to do it.
Chairwoman Waters. Ms. Kraninger, I am going to interrupt
you--
Ms. Kraninger. There are currently open investigations--
Chairwoman Waters. I am going to interrupt you and reclaim
my time.
Ms. Kraninger. Yes.
Chairwoman Waters. I am asking you a direct question. I am
asking you, does the Consumer Bureau have any ongoing fair
lending investigations that have been initiated since you
became Director?
Ms. Kraninger. There are--
Chairwoman Waters. Yes or no?
Ms. Kraninger. --ongoing investigations in the fair lending
space--
Chairwoman Waters. Has the Bureau initiated any lending
investigations since you became Director? Not ongoing ones. I
want to know what you have done since you have been there.
Ms. Kraninger. Generally speaking, the opening of an
investigation is actually a decision made by the enforcement--
by attorneys.
Chairwoman Waters. Excuse me. I am going to reclaim my
time. What you are saying is, ``no.''
Ms. Kraninger. I am actually saying enforcement attorneys
make the decision to open an investigation.
Chairwoman Waters. I am saying that you are not able to
answer the question by saying that there have been fair lending
investigations that have been initiated since you became
Director, that you know about.
Will you restore the Office of Fair Lending and Equal
Opportunity's supervisory and enforcement powers?
Ms. Kraninger. The ongoing work of the Bureau in
enforcement and supervision of fair lending laws continues. The
change with respect to where the Office of Fair Lending is and
bringing that into the office of the Director, I believe,
facilitates the larger policy interests and considerations for
outreach and education, and brings fair lending--again,
broadening it across the agency to make sure that we are
focused--
Chairwoman Waters. Thank you very much.
Ms. Kraninger. --absolutely on that mission.
Chairwoman Waters. Do you believe that there is a need to
restore the Office of Fair Lending and Equal Opportunity's
supervisory responsibility and powers? Do you believe that it
has been weakened and that it needs to be restored?
Ms. Kraninger. I believe that it has indeed been
strengthened, Madam Chairwoman, with the Director's office--
Chairwoman Waters. Do you believe that it needs to be
restored because of what Mr. Mulvaney has done? And will you do
it?
Ms. Kraninger. I believe that the importance of fair
lending has actually been enhanced by the change in the
organization.
Chairwoman Waters. So you are saying that you do believe
that there is a need to restore it and you will do that, is
that right?
Ms. Kraninger. I commit to you that fair lending continues
to be a strong priority.
Chairwoman Waters. I am asking you, do you believe that it
needs to be restored and that you will do it? You will restore
the Office of Fair Lending and Equal Opportunity's supervisory
and enforcement powers. Will you do that?
Ms. Kraninger. The mission of fair lending has been
enhanced by the reorganization, in my perspective.
Chairwoman Waters. I am going to move on. Mr. Mulvaney
appointed Eric Blankenstein to oversee supervision and
enforcement, including fair lending enforcement, even though
many of his colleagues at the Consumer Bureau believe his blog
posts uncovered by The Washington Post and The New York Times
were racist, and that these posts directly conflict with the
agency's mission and responsibility.
Let me quickly review some of the racist and reprehensible
comments that he has written. I will not repeat them all, but
let me just ask, are you aware of this comment on the
University of Virginia's honor code and acting against hate
crimes? He wrote, ``Until a hood-wearing KKK member is caught,
why should the honor system be changed?'' Are you aware of
that?
Ms. Kraninger. Chairwoman, I have read what is--
Chairwoman Waters. Are you aware of that? Please, Ms.
Kraninger, just answer the question.
Ms. Kraninger. I have read what is reported by the press.
All of this took place in his--
Chairwoman Waters. Oh, so you know that the press has
indicated that this was something that he said, you are aware
of that?
Ms. Kraninger. I have read what has been covered in the
press, I would also--
Chairwoman Waters. And so you are aware of the fact that
this was reported in the press. You have seen, heard or you
know about that, is that correct?
Ms. Kraninger. That is correct and I would--
Chairwoman Waters. Okay. Thank you.
Ms. Kraninger. There is an ongoing investigation on it.
Chairwoman Waters. That is all I need to know. Here is
another quote, fine, let's say they called him the n-word, this
is a quote from him, ``Would that make them racists, or just an
a-hole?'' Are you aware of that quote?
Ms. Kraninger. Chairwoman, I have stipulated that I have
read the press reporting on this matter and--
Chairwoman Waters. Okay. Then you are aware--
Ms. Kraninger. --it preceded my time at the Bureau.
Chairwoman Waters. You are aware that that has been quoted.
Thank you very much. We will continue to move on.
Mr. McHenry, the ranking member, the gentleman from North
Carolina, is recognized for 5 minutes.
Mr. McHenry. Director, I said in my opening statement that
the design of your Bureau, you have a fixed term of office, and
absent--as the courts have found and the statute pertains--some
exceedingly grievous act, you can't be removed from office. So
the Bureau, as designed by my Democrat colleagues without
Republican votes in the Dodd-Frank Act, designed this Bureau to
be unaccountable.
The chairwoman spent time, I would say, badgering you about
the design of offices within your Bureau that are fully within
the purview of you as Director to design. So let me just drill
in on this question of independence of your Bureau. Would you
describe, as you see it, what Dodd-Frank, the Act that created
the CFPB and your office, gives you the power to do?
Ms. Kraninger. Congressman, as you stipulated, there is
tremendous authority that Dodd-Frank vests in the Director of
the Bureau, including related to the organization of the Bureau
itself. Section 1012 stipulates that the Director has the
flexibility to organize the Bureau as it sees fit. Many of the
sections of the Act stipulate that the authority is vested, in
fact, in the Director and certain activities can be delegated
further at the Director's discretion.
Mr. McHenry. Okay. So that does include the power to make
decisions as to staffing?
Ms. Kraninger. Yes.
Mr. McHenry. Does it include limitations on political
appointees or no limitations on political appointees?
Ms. Kraninger. Dodd-Frank reiterates the powers to the
Executive Branch under Title V for the hiring authorities that
are there.
Mr. McHenry. So does that include the availability of a
consumer complaint database?
Ms. Kraninger. Yes, it does. There is a responsibility to
collect consumer complaints, and Dodd-Frank stipulates some
ways that those complaints should come to the Bureau.
Mr. McHenry. Okay. Does that include redesigning offices
within the Bureau, to the question of the chairwoman?
Ms. Kraninger. Yes, it does.
Mr. McHenry. So you have that capacity to change the
structure of the offices that report to you as Director?
Ms. Kraninger. Yes. There are some offices that are listed
in the statute that shall exist, but, again, there is
flexibility with respect to which responsibilities go to those.
Mr. McHenry. So absent a change of statute, you have that
flexibility on reporting structures?
Ms. Kraninger. That is correct.
Mr. McHenry. Okay. And as you highlighted, you think this
reporting structure that you currently have is better than what
you previously saw?
Ms. Kraninger. With respect to fair lending, I do believe
that. Again, the purpose was to enhance the prominence of that
as part of the Bureau's mission. In the office of the Director,
as in many other agencies across the government, putting that
in the front office is something that actually enhances the
ability of that office to influence the other activities and
coordinate activities across the entire agency.
Mr. McHenry. And you also have flexibility on the
membership and structure of the Consumer Advisory Board, do you
not?
Ms. Kraninger. Yes, the statute does stipulate some skill
sets that must be present in the membership but there is much
flexibility there.
Mr. McHenry. Okay. Have you had a chance to review the
Consumers First Act that the chairwoman has offered?
Ms. Kraninger. Yes, I am generally familiar with it. We are
still looking at it. I know it is similar to, in some ways, a
previously introduced legislation--
Mr. McHenry. And it seems as though that legislation
mandates specifics on every one of the questions I just asked,
does it not?
Ms. Kraninger. I believe that it does.
Mr. McHenry. But you could also implement all the changes
within this legislation without the bill getting signed into
law, could you not?
Ms. Kraninger. Some of them, certainly, with respect to
organizational issues you raised, yes.
Mr. McHenry. So if we are talking about the Democrat
message today, it is that you are an independent Bureau but we
don't like you, right? It is a very confusing thing when we see
legislation to get into your space and interfere with your
independence, right?
We are talking about the broad structural challenges at the
CFPB we see and how that impacts consumers. So I think we just
have a fundamental debate here within Congress that is a debate
for us as lawmakers to make.
You need to act under the statute as designed, not based
off of what is being yelled at you via a congressional hearing.
We would like for you to hear our input. Unfortunately, in the
design of your statute, you don't have requirements to do so.
I want to change that statute so that we have a structure
that is a bipartisan board, a structure that puts you on
budget, but that is something that is for me to fight about,
not you. You are the Director and you have a statute to operate
under. The final thing I would ask for is one final--
commensurate with your time, chairwoman--question about
innovation.
We had a hearing last week about consumer credit reporting
agencies. In your written testimony, you say the number one
consumer complaint in 2018 was about consumer credit reporting
agencies. Do you believe that innovation in the marketplace and
competition can create better options for consumers?
Ms. Kraninger. As a general matter, absolutely, yes.
Chairwoman Waters. The gentleman's time has expired.
Mr. McHenry. Would you please let her finish answering the
question? I didn't hear, if you--
Chairwoman Waters. I will give you that courtesy. You know
the time has expired, but I will give you that courtesy.
Mr. McHenry. I would give the witness that courtesy.
Chairwoman Waters. I will give it to you; you are asking
for it, for the witness.
Ms. Kraninger. As a general matter, the answer to that
question is absolutely, yes, Congressman.
Mr. McHenry. Thank you.
Chairwoman Waters. Thank you very much.
The gentlewoman from New York, Mrs. Maloney, the Chair of
our Investor Protection Subcommittee, is recognized for 5
minutes.
Mrs. Maloney. Thank you, Chairwoman Waters, and Ranking
Member McHenry. And thank you, Chairwoman Waters, for
introducing yesterday the Consumers First Act.
Welcome, Director Kraninger.
Director Kraninger, the Consumer Bureau published a study
on overdraft fees in 2014. Are you familiar with this study?
Ms. Kraninger. Congresswoman, we had a very nice
conversation about this. I did go back and look at the
overdraft reports we have issued. I can't say I will be able to
recite every fact from them, but I have a general familiarity.
Mrs. Maloney. Do you have any reason to question the
numbers in that study? Have you reviewed the study and found
any factual errors?
Ms. Kraninger. I know that the Bureau continues to look at
this issue from a research standpoint. But I would stipulate
that we are continuing to look at the issue.
Mrs. Maloney. Okay. Well, let me just remind you that the
Bureau study found that most overdraft fees are incurred on
purchases of just $24 or less and are paid back within 3 days.
But the median overdraft fee for these small overdrafts is
still a whopping $34. So if I overdraft with a cup of coffee,
my fee would be $34.
Now, if you borrowed $24 for 3 days and paid $34 in
interest, do you know what the annual percentage rate on that
loan would be?
Ms. Kraninger. It would be substantial, certainly.
Mrs. Maloney. Yes, it is. I will tell you exactly what it
will be. It is an annual percentage rate of about 17,000
percent.
So my question is, given the Consumer Bureau's own research
on overdraft fees, which you don't dispute, do you plan to do
anything about these excessive overdraft fees? Do you plan on a
rulemaking on overdraft?
Ms. Kraninger. Congresswoman, I absolutely appreciate where
you are coming from on this issue and know that you have spent
a lot of time on this issue. I have asked the staff about this
topic per our conversation. We are actively looking at what the
priorities are for the rulemaking agenda. I commit to you that
this is certainly on the table in terms of what we would look
at and when we can get to it.
Mrs. Maloney. Thank you. I want to ask you about the Credit
CARD Act, which I authored along with many Democrats on this
committee. In that bill, we required the Consumer Bureau to do
a study on the credit card market and the impact of the CARD
Act every 2 years.
Now, the bill cut down on unfair, deceptive practices but
we wanted a report on what it meant. When the Bureau published
its CARD Act study in 2015, it estimated that the bill had
saved consumers roughly $16 billion in unnecessary fees and
that credit had actually become more available and more
affordable. I call this the ``Democratic stimulus package''
because it kept the money in the consumers' hands.
But when the Bureau published its latest CARD Act study in
December of 2017, it removed that estimate of how much the bill
has saved consumers. So my first question is, why did the
Bureau remove that estimate?
Ms. Kraninger. Well, Congresswoman, I am, again, generally
familiar with this issue. I knew you would ask this question
about it and I understand your concern. My understanding is
that there was an assessment of what is required under the
statute to be reported and that was what is included in the
report.
Mrs. Maloney. Okay. Well, do you believe that the CARD Act
has saved consumers money?
Ms. Kraninger. I will say I have not spent detailed time on
that topic, but I take you at your word in terms of what the
prior reports say.
Mrs. Maloney. Well, $16 billion a year. That is a lot of
money.
Now, in the Consumer Bureau's recent payday loan proposal
it said that one of the reasons it was removing the ability-to-
repay requirement was that it ``does not believe it is cost-
effective for itself and for lenders and borrowers to conduct
the necessary research'' to determine whether an ability-to-
repay requirement is necessary.
By refusing to even do the necessary research, you are
basically putting your head in the sand, which I think is
totally inappropriate for the agency charged with protecting
consumers. Will you commit to doing the necessary research on
the need for an ability-to-repay requirement for payday loans
before finalizing the Bureau's revision to the rule?
Ms. Kraninger. Congresswoman, as I know I will discuss
extensively, and as I mentioned in my opening statement, the
review of the short-term, small-dollar lending rule does look
at the sufficiency of the legal arguments as well as the fact
basis. That proposal is out for open comment right now under
the Administrative Procedure Act. We welcome all of the
comments and data and we will certainly look at the full record
going forward once all that information is in--
Chairwoman Waters. The gentlelady's time has expired.
Mrs. Maloney. Okay. I yield back.
Chairwoman Waters. The gentlelady from Missouri is
recognized for 5 minutes, Mrs. Wagner, the vice ranking member.
Mrs. Wagner. I thank the Chair.
Protecting consumers is one of my most important missions.
But the Consumer Financial Protection Bureau deprives consumers
of necessary choices and complicates access to financial
products. Director Cordray's CFPB abused its power and it
issued regulations that make it more difficult for consumers to
qualify for a mortgage, obtain auto loans, and access forms of
credit. It is imperative that this committee exercises
oversight over the CFPB to reign in abuses. And I can't tell
you how much I am looking forward to your leadership, Director
Kraninger.
Director Kraninger, thank you for your testimony and,
again, your leadership at the CFPB. You took the helm in
December, and have since taken what I believe to be a
thoughtful approach to the duties of an agency that many of my
colleagues, myself included, believed to be unconstitutionally
structured.
You have conducted a 3-month listening tour to hear from
State regulators and consumer advocates, and to talk with your
employees to see what is working well and what isn't. What have
you discovered through these discussions in terms of how to
ensure the Bureau is actually helping consumers and not abusing
its powers?
Ms. Kraninger. Thank you for that question, Congresswoman;
it is a really central one to what I am trying to do in hearing
from all perspectives on this matter. I think, again,
protecting consumers is our mission and I have been truly
impressed by the staff who are there, and are truly dedicated.
I have had a lot of discussions with our own examination
staff, understanding even the most mundane pain points that
they are experiencing from how they have to manage their
travel. That is time away from the mission and that is my focus
on how we best utilize our resources. It is, again, how do we
make sure that every dollar is actually going to protect
consumers and not towards administrative activities,
bureaucratic things that are standing in people's ways. So
certainly, they have raised those issues.
I have talked to educators about the most effective ways to
get the American people and the public to understand better the
products and services they are interacting with, how to help
Americans make the best financial decisions for themselves in
their own lives, and to give them the information that they
need to do that, and carry out all the missions of the Bureau,
of which there are many.
Mrs. Wagner. When your predecessor appeared before this
committee last April, he was very blunt. And he described the
scope of his individual authority and power as Director,
explaining at the outset that he could, if he chose, decline to
answer any questions from committee members or refuse even to
appear at all. Because the plain reading of this failed statute
does not require it.
He went on to describe the Director's sole authority and
complete discretion to define entire classes of financial
institutions and products, to target regulations and
enforcement actions as he alone saw fit.
In your read of the law, do you as Director have unfettered
power and authority?
Ms. Kraninger. Congress vested tremendous power and
authority and responsibility in the Director, yes.
Mrs. Wagner. Which is something that we, here in Congress,
need to fix. How will you approach the directorship to best
serve Americans, and what tools does the Bureau need from
Congress to be successful in following through with your
mission to end the era of regulation by enforcement?
Ms. Kraninger. I appreciate that question, Congresswoman.
We have, certainly, a very important responsibility to
establish clear rules of the road. As I noted, I have heard
that from industry; in some respects, I have heard that from
the examiner's staff as well, making sure that they can hold
institutions accountable and to have clear rules and ensure a
culture of compliance in the way that they are operating.
So that is something that I am looking at very carefully. I
don't have a specific ask of Congress to that point. There is a
lot of flexibility in how we do things, but the law is
certainly our touchstone in terms of what we undertake for
supervision.
Mrs. Wagner. I thank you for your answers. I thank you,
again, for your leadership. We look forward to your leadership,
moving forward. You do not deserve to be berated or badgered;
you are a fine public servant, and I appreciate all of the work
that you are doing.
It is Congress' job to change the statutory authority and
rein in the CFPB. I thank you, and I yield back.
Chairwoman Waters. The gentlelady from New York, Ms.
Velazquez, is recognized for 5 minutes.
Ms. Velazquez. Thank you, Madam Chairwoman. Director
Kraninger, I was here for the passage of Dodd-Frank. We
designed the CFPB to be an independent organization, outside
the influence of Congress and, most importantly, from the
Executive Branch.
At his appearance before the committee last year, I
expressed my concerns to Mr. Mulvaney about his dual roles at
OMB and the CFPB. Given your previous employment at OMB, and
your reported close ties to Mr. Mulvaney, I feel it is
necessary to ask you a similar set of questions.
First, how many conversations have you had with Mr.
Mulvaney since being confirmed as Director of the CFPB?
Ms. Kraninger. I have certainly seen Mr. Mulvaney several
times socially since I was confirmed.
Ms. Velazquez. Okay. So no conversations--
Ms. Kraninger. I have seen him socially. I can assure you,
if where you are going is about the independence of my
decisions--
Ms. Velazquez. Yes, correct.
Ms. Kraninger. I can tell you that I absolutely take
seriously the responsibilities vested in me, and that the
decisions that I make at the Bureau are my decisions.
Ms. Velazquez. Reclaiming my time, how many conversations
have you had with President Trump since being confirmed as
Director of the CFPB?
Ms. Kraninger. None.
Ms. Velazquez. Has the President given you any directive
that you felt interfered with your authority as an independent
regulator?
Ms. Kraninger. No.
Ms. Velazquez. Has Mr. Mulvaney or any other person from
inside the Trump Administration given you a directive that you
felt interfered with your authority as an independent
regulator?
Ms. Kraninger. No, definitely not.
Ms. Velazquez. Have you been to the White House since you
have been sworn in as the Director of the CFPB?
Ms. Kraninger. I went there for one social event.
Ms. Velazquez. Just one social event. Have you conducted
official CFPB business from within the White House since you
have been sworn in?
Ms. Kraninger. I have only been there once for a social
event.
Ms. Velazquez. Okay. Director Kraninger, last week The
Washington Post published an article describing how a lawyer
with ties to the payday lending industry directed a report
which concluded that repeatedly taking out payday loans didn't
harm borrowers, and then later discussed those results with a
CFPB economist.
First, is it your continued position that the CFPB was not
influenced by the payday lending industry lobby on the issue as
you were reconsidering the rule?
Ms. Kraninger. I also saw the article you referenced by The
Washington Post. I have never heard that person's name before.
I can tell you that in the entire history of the prior
rulemaking in addition to this one, the Bureau has taken input
from all kinds of stakeholders.
Ms. Velazquez. Okay. Thank you. Specifically, what evidence
and academic research did the CFPB use in its recent
determination to rescind the original rule?
Ms. Kraninger. The reconsideration of the rule is driven by
a concern about the legal and factual sufficiency of the
determination of unfairness and--
Ms. Velazquez. Legal interpretation is not influenced by
the report by the payday lending industry, so tell me, what
evidence did you use? What report or study did you use as you
were rescinding this rule?
Ms. Kraninger. Again, it is a proposal, so we are in the
comment phase and we welcome all comments and evidence as we
have stipulated, and I continue to stipulate publically, there
is a decision to make on the full docket but as a result of
what was the reconsideration--
Ms. Velazquez. Okay, so no research and no study.
I would also like to point out for the record that the
Community Financial Services Association, which is the trade
association for the payday lending industry, held their 2018
Annual Conference at the Trump National Doral Club in Miami.
So maybe it is true that the CFPB was not influenced by the
payday industry when making its determination to rescind the
rule, but holding their conference at the President's golf
club, and the Director's prior connection to Mr. Mulvaney
certainly gives the appearance of impropriety and corporate
influence.
I yield back.
Chairwoman Waters. The gentleman from Florida, Mr. Posey,
is recognized for 5 minutes.
Mr. Posey. Thank you very much, Madam Chairwoman.
Not a single person in this room, I believe, would suggest
that consumers shouldn't be protected from unfair practices in
dealing with financial institutions to obtain the products and
services that they need.
But I regret to say that the history of the Bureau and the
legislation that created it has caused many of us pause to see
what we feared when Dodd-Frank was actually passed.
The Bureau gets direct funding from the Federal Reserve and
it is completely outside the oversight of the annual
appropriations process. The history of the Bureau under Mr.
Cordray has received just criticism for the heavy-handed way
that it regulated through enforcement.
Consumer protection is important, for sure, but when it is
pursued with excess intimidation as it has been, the very
consumers we seek to protect suffer a decline in services as
financial institutions face negative incentives and crippling
uncertainties to take risks and serve the public. The power to
regulate should not become the power to destroy. I am pleased
former Acting Director Mulvaney had a year to right the ship
and curb the excesses, or many of them. And I look forward to
your leadership and to the moderate and temperate protection of
consumers.
Director Kraninger, in the last Congress I sponsored the
Bureau Advisory Opinion Act that was ultimately included in the
House financial package, the CHOICE Act that passed on the
House Floor. As you know, Federal regulations can be
complicated and hard for smaller businesses to comprehend
unless agencies are willing to offer guidelines.
They can say, we want this done in red. And we know there
are a thousand different shades of red, from fire engine red to
Ferrari red and 998 more others in between. And the agency
seemed to get some kind of thrill out of saying, ``Oh, you
chose the wrong red.''
And so, the advisory opinions, I would suggest, would let
people know specifically which red, just for example, you were
talking about. Many Federal agencies already do that. And we
had hoped the CFPB would on its own do that but they refused
to, said there was no need. I don't believe that is true.
I was just wondering if you would consider implementing
such a rule administratively?
Ms. Kraninger. I appreciate the question. Because, again,
the clarity of what the rules are and ensuring that
institutions who are seeking to comply and working to comply
know what those rules are, is critically important.
We need to spend time taking enforcement actions against
those true bad actors who have no intention of complying, and
that is where the focus should be on the enforcement front.
That is why we have a great supervision tool; we have
regulatory authority to provide the clarity you are discussing.
Mr. Posey. Well, thank you.
Before us today, we have a bill called the Consumers First
Act. Now, most of the text of this bill is a set of findings,
including a long list of complaints about Mr. Mulvaney's tenure
as acting Director.
One of the complaints is that he had the nerve to create an
Office of Cost-Benefit Analysis to see actually what the cost
was to consumers for the alleged benefits that they receive on
the other end. Many, many other agencies have those. President
Reagan issued such a directive. President Clinton and President
Obama continued along that same line. And it seems like
applying the same principle to the Bureau regulations makes
sense to me. Can you comment on that principle?
Ms. Kraninger. Absolutely, I agree that it is an important
principle in the way the government should operate in looking
at the costs and benefits, and weighing those, and quantifying
them.
To the extent that there is an opportunity to do that,
really laying those out is a core part of every part of
analysis that we should be doing with the Bureau's activities.
I am certainly looking to do that moving forward, and working
with the staff about how we do that best and how we best
organize to do that.
Mr. Posey. Well, I want to thank you for your direct
answers, and I want to apologize for some of the contentious
approaches, antagonistic approaches toward you today. Keep up
the good work.
I yield back, Madam Chairwoman.
Chairwoman Waters. The gentleman from California, Mr.
Sherman, is recognized for 5 minutes.
Mr. Sherman. Thank you for being here, Director.
Dodd-Frank Section 1022 allows the Bureau to exempt certain
classes from rulemaking at its discretion or to have one rule
applied to the giant institutions and a separate rule applied
to smaller institutions, or even small or medium-sized
institutions. And I would hope that as you go through the
process, whether it is reviewing older regulations or
promulgating new ones, that you fully use that power because it
was not the intent of Congress that one size would fit all.
I want to draw your attention to what are called PACE
loans, the property assessed clean energy loans. We are all for
clean energy, but even if you are buying an improved air
conditioning system that will help save the planet, you still
should be protected from any kind of loan document that you
don't fully understand, and that is why the Economic Growth and
Regulatory Relief and Consumer Protection Act has led to you
issuing regulations dealing with PACE loans.
I know that you have issued the advanced notice of proposed
rulemaking on this issue. I hope you will give it a high
priority and move it forward. But if it is still germane, I
hope that you would consult with California Commissioner of
Business Oversight Jan Owen. These loans started in California.
We have had a wealth of experience, we have passed legislation,
and I think that it can provide you with additional input.
Ms. Kraninger. Thank you, Congressman. If I may on that, I
actually have met with Jan, and spoke to her about this topic,
and I appreciate what California has done on it. We are working
very closely together on it.
Mr. Sherman. Thank you. Because these things come in as, in
effect, something higher than a first trust deed.
And another issue that has confronted us is wire fraud. I
had a chance to--when Jay Powell was there at the Fed, this is
both a bank regulatory issue and consumer protection issue.
What happens is people are buying a home, so they know they are
going to be wiring a bunch of money to somebody. Somebody hacks
their account, impersonates the home seller, and gets them to
wire the money to the Bahamas, Peru, or Saint Petersburg.
So I hope that you, along with the bank regulators, would
look at what we can do. What Britain has done is payee
identification, so that when you wire money you are not just
wiring it to a numbered account. You are wiring it to a
numbered account that must be held in the name of the person
you are trying to send the money to. And I hope that you would
view that as a consumer protection issue.
We have had some recent court decisions that have been
helpful in interpreting the Real Estate Settlement Procedures
Act (RESPA). Will the CFPB work to eliminate the uncertainty
that led to this litigation to begin with, and issue new
regulations, particularly in light of the new judicial
decisions?
Ms. Kraninger. Congressman, I think you are talking about
the TILA-RESPA Integrated Disclosure? Or is there a particular
RESPA issue that perhaps I am not as familiar with? The
disclosures that Congress directed us to do a rulemaking on,
combining the Truth in Lending Act and Real Estate Settlement
Procedures Act disclosures process and that is a rulemaking
that I have heard from stakeholders that there are perhaps some
questions or clarifications that we need to deal with. So that
is something that we are looking at.
Mr. Sherman. I hope that you would look at whether to
modify or withdraw the 2015 RESPA bulletin which has been
problematic, and I believe that recent court decisions point to
different conclusion than that document.
With that, I will yield back, unless you have any further
comments?
Chairwoman Waters. Thank you, the gentleman's time is
almost expired. You have 20 seconds.
Ms. Kraninger. Congressman, no, I appreciate the issues you
have raised and they are certainly all the ones that I am
looking at. I am not familiar with that 2015 RESPA bulletin but
we will go back and look at it.
Mr. Sherman. We will get you some material. Thank you. I
yield back.
Chairwoman Waters. Thank you. The gentleman from Michigan,
Mr. Huizenga, is recognized for 5 minutes.
Mr. Huizenga. I thank the Chair for that, and it's good to
see you, Director Kraninger.
How do you define success for the Bureau?
Ms. Kraninger. I am obviously listening right now to a lot
of different stakeholders to hear their perspectives. I am
starting to think around a philosophy of focusing on prevention
of harm. Again, we have tremendous tools and powers that
Congress gave us to drive to that end.
There are certainly institutions that are also motivated to
support their customers and consumers and prevent harm. That is
what is going to be what is best for consumers at the end of
the day. I think that is certainly, again, a goal that I have
that doesn't take away from the fact that we know there are bad
actors who absolutely are seeking to take advantage of and
engage in unfair practices that need to be addressed.
But I think that is the kind of message and the power that
I think the Bureau can bring forward.
Mr. Huizenga. So it is not just the Bureau that is
concerned about consumers?
Ms. Kraninger. No, a myriad of stakeholders are, as I have
heard across the country and certainly here.
Mr. Huizenga. Should success be defined by the number of
complaints that the Bureau receives or the number of fines or
the amount of those fines or the number of employees that the
Bureau has? Should that be the standard? Because that is what
we heard earlier.
Ms. Kraninger. I do not believe any of those measures alone
tell the story that is important to tell.
Mr. Huizenga. Because I kind of think it would be nice to
have fewer complaints and fewer reasons to have these
complaints coming in. And, in fact, you had kind of the closing
statement in your testimony that prevention of harm was a
primary goal. And I want to commend you on that. Because I
think that really ought to be the goal. Not the number of
paychecks that are collected by CFPB employees but about the
number of people who don't need the services of the CFPB, that
ought to be your measurement.
I have a background in real estate and construction, and
something that has been an issue that I have been dealing with
for a number of years now, or a number of Congresses, has been
on points and fees. You certainly have a qualified mortgage
situation, and I am concerned that there is a difference
without a distinction that we have here with affiliated and
unaffiliated companies, and the distinction that that this
causes is for first time homebuyers especially, but all
homebuyers, to potentially be paying more in costs, not less in
costs.
And I think it stems from a lack of understanding of
exactly how the mortgage industry--title insurance industry
works. It may be one way in Massachusetts where lawyers are
doing this but it is very different in Michigan where everybody
has to charge the exact same amount for title insurance.
And in addition to this affiliated/unaffiliated
distinction, because of vagaries in the Dodd-Frank Act,
escrowed homeowner's insurance premiums may count as points and
fees in this, which makes absolutely no sense and is not even
connected to any of the affiliation or non-affiliation.
The Bureau has repeatedly asked Congress to deal with this;
we have attempted to deal with it; I certainly have attempted
to deal with it in this committee, and this committee has moved
forward on a few of those things.
But, in the meantime, I am curious what the CFPB is doing
to help these smaller companies, especially these title
insurance companies, compete in the mortgage lending space
while we are working on a legislative fix. And do you agree
that supporting these businesses actually increases access to
mortgage credit and consumer choice and, therefore, lowers
those costs for those buyers?
Ms. Kraninger. Certainly, access to credit and the cost to
consumers are key considerations. I know through the request
for information that we have put out and the call for evidence,
there were a lot of ideas on reducing regulatory burden.
I believe we received 1,750 comments specific to that,
including on the issue that you raised. So there are a number
of regulatory issues that, to the extent we have the authority,
we certainly are looking at how we can prioritize and act on
them.
Mr. Huizenga. Are you considering changes to that 3 percent
cap as you review the QM?
Ms. Kraninger. That is something we have been asked to
reconsider. It is something I am talking to the staff
extensively on the issues that are--
Mr. Huizenga. Okay. Well, please do. And, by the way, let's
get into the structure of the CFPB. That is all we can do is
request. Because the way that my friends--I wasn't here for the
passage of Dodd-Frank but I am living with the echo effects.
And I guess for some folks, a double standard is better than no
standard. Before, they wanted no accountability for this
Bureau; now, they want all of the accountability in Congress. I
hope that they will be working with us on this side, who have
been consistent in asking to make sure that we have the same
type of structure in place for the CFPB--
Chairwoman Waters. The gentleman's time has expired.
Mr. Huizenga. --as other agencies. I yield back.
Chairwoman Waters. The gentleman from New York, Mr. Meeks,
the Chair of our Subcommittee on Consumer Protection and
Financial Institutions, is recognized for 5 minutes.
Mr. Meeks. Thank you, Madam Chairwoman.
Madam Director, let me ask first, how many career staff are
on board currently with the CFPB?
Ms. Kraninger. We have a total of just about 1,500
employees on staff now. That is roughly the number.
Mr. Meeks. Okay. Well, have you worked with any of the
career staff members there, sort of the upper echelon?
Ms. Kraninger. I have made it a priority to meet as many as
I possibly can. I would venture to say I have met with hundreds
of the staff to date, including in New York and Chicago and San
Francisco, how could I forget.
Mr. Meeks. So would you say that many of the career staff
who are there came because they were motivated and dedicated,
had some background with regards to consumer protection?
Ms. Kraninger. I have found all the staff to be truly
dedicated and committed and, frankly, a very talented staff.
Mr. Meeks. And do you rely upon them?
Ms. Kraninger. I absolutely rely upon them.
Mr. Meeks. And have you heard about any dissatisfaction?
Because I understand that at least 10 percent of them have
left.
Ms. Kraninger. I can tell you that certainly there are
people--
Mr. Meeks. Low morale.
Ms. Kraninger. --who reported--I'm sorry, the?
Mr. Meeks. They have low morale since Mr. Mulvaney has been
there, and now you.
Ms. Kraninger. Yes, certainly it is natural for people to
depart from an agency. I can give you an example. I actually
knew a number of the chiefs who departed recently and knew
their reputation, they knew me--
Mr. Meeks. But I am just trying to--
Ms. Kraninger. They were moving on for again their own
time. They would have been there for 5 or 6 years--
Mr. Meeks. I am just trying to find out, because when I
look at your background, for example, prior to this job, you
never had an interest in consumer protection. You have not done
anything in that regard, correct?
Ms. Kraninger. I am a consumer and I would definitely
stipulate I have--
Mr. Meeks. No, no. You have never had as a motivation as
far as your career is concerned, or any of your ambition or
anything that you have done previously has not related to
consumer protection.
Ms. Kraninger. Certainly, I have had an extensive public
service career and one that I take seriously. And I welcome the
opportunity to do this job.
Mr. Meeks. I think the answer to that is no, just looking
at your resume. And it is a fine resume. But this is a serious
agency, correct? And, you agree with that, that the agency's
focus should be on consumer protection and you have hired or
there had been hired a number of individuals who interviewed
and went through an interview process.
And they were evaluated based upon their expertise in
consumer protection and how they could fulfill their roles. Is
that not correct?
Ms. Kraninger. I would hope that everyone who was
interviewed--
Mr. Meeks. I would hope so also.
Ms. Kraninger. --was actually looked at from the lens of
their interest in the mission.
Mr. Meeks. Good.
Ms. Kraninger. And carrying out their responsibilities--
Mr. Meeks. So, correct. So, when you also see that--because
it has been reported that there are a number of individuals--I
look at Mr. Brian Johnson. I guess he is your number two,
correct?
Ms. Kraninger. He is the acting Deputy Director, yes.
Mr. Meeks. Right. And when I looked at his resume, I also
see that there is nothing in there that he has ever done that
has resulted from a desire and an opportunity to help and be
involved in consumer issues.
Now the reason I asked that question is because if you look
at any of our other regulatory agencies, you would always find
at the top of those agencies, someone who has done something
and has worked in those areas for an extensive period of time.
Because I would imagine that a President of the United
States, in putting whomever they put in, they would put someone
in who has experience in that area.
Now, if you don't want a--or don't consider an agency to be
significant and important because the mission of this agency is
consumers, then you put in someone who may not have that
experience. Generally, you would work your way up.
From the way I look at it, though, I don't see anyone now,
I saw before those who had some experience, were in the top of
the chain at 10 percent. Most of those who left weren't those
guys on the bottom, they were those on the top who came there
because their mission in life was to make a better way.
And now they felt that under the current leadership, they
cannot perform their jobs to do what they were there to do. And
as a result, they left. I am out of time, unfortunately.
Ms. Kraninger. If I could, Madam Chairwoman, I would just
note that I am sure you would stipulate that congressional
staff absolutely care and have experience in the issues, and
frankly, make great hires in the Executive Branch and across
the government and in industry as well.
Chairwoman Waters. The gentleman's time has expired. The
gentleman from Missouri, Mr. Luetkemeyer, is now recognized for
5 minutes.
Mr. Luetkemeyer. Thank you, Madam Chairwoman. Welcome,
Director Kraninger. The last time Mr. Mulvaney reported for
this committee, he outlined four ways to make the CFPB more
transparent and accountable.
Those four proposals included requiring the CFPB to be
funded through the congressional appropriations; requiring
major CFPB regulations to be reviewed by Congress; compelling a
CFPB Director to answer to the President; and creating a
dedicated Inspector General for the Bureau.
I guess my first question will be, do you agree that these
principles would improve transparency and accountability for
the CFPB?
Ms. Kraninger. Congressman, I will say that is a matter for
Congress to determine. I can tell you I am committed with the
authority that I have to transparency and accountability.
Mr. Luetkemeyer. Do you believe that Congress should enact
these principles, then?
Ms. Kraninger. I believe that is up to Congress. I
recognize where you are coming from, and certainly I welcome
additional accountability and transparency.
Mr. Luetkemeyer. Very good. Yes, I think this is a concern
that we all have. And I think going down the road of
questioning your abilities for the job, this is a job for the
Senate to confirm you.
And I think we need to continue to require of you that you
do what the law says, which is I think what Mr. Mulvaney tried
to do: to get the CFPB back in this pew so to speak to be able
to adhere to the law and the principles of the law. So, we
thank you for that.
In terms of the recent actions taken by the CFPB on payday
lending, the proposed rulemaking discusses how aspects of the
original final payday rule had insufficient evidence and legal
support. What about this evidence of legal support was
insufficient in your view?
Ms. Kraninger. I'm sorry, I missed the premise--are we
talking about the short-term small dollar lending rule, sir? Or
is there something else?
Mr. Luetkemeyer. Yes, in the rulemaking, discuss how
aspects of the final payday rule had insufficient evidence and
legal support to be able to come to a decision, apparently. And
so, what about this evidence of legal support is insufficient,
in your mind?
Ms. Kraninger. The basis of the rulemaking was certainly
the determination that it was inherently unfair and abusive to
engage in short-term small dollar lending without stipulating
the mandatory underwriting requirements that were laid out in
the rule itself. That is the subject of an ongoing litigation,
and the courts in fact have stayed our ability to move forward
with the rule. Last year, the Bureau told the courts that there
would be reconsiderations.
I look forward to the full evidence. But that is largely
what this is about. It is that the basis of the rulemaking
itself and the opportunity to gather the evidence on that
issue.
Mr. Luetkemeyer. So what you are saying is that the
previous Administration's Director basically didn't do his due
diligence on this and didn't support his decisions with the
kind of evidence and fact-based stuff that would be important
to be able to put something like this together? Is that what
you basically just said?
Ms. Kraninger. Congressman, I certainly would not say it
that way.
Mr. Luetkemeyer. You wouldn't say it that way, well
doggone.
Ms. Kraninger. I have a responsibility to protect the
record of the agency and we are reconsidering it. But--yes.
Mr. Luetkemeyer. Okay, let me ask the question this way: Do
you suspect other actions by the Cordray regime were conducted
with insufficient evidence and legal support?
Ms. Kraninger. As I noted in my opening statement, I have
spoken to Director Cordray, and I do appreciate the challenges
of standing up an organization, and I know that the staff of
the Bureau have certainly done their best with not a lot of
time on a lot of different tasks that they undertook in the
early days of the agency.
Mr. Luetkemeyer. Just a final comment here before I yield
back. In the fall of 2018, in some annual report submitted to
Congress, the CFPB listed the current enforcement actions of
the Bureau. I went though and counted those actions, and there
are roughly 35 current enforcement actions ongoing by the CFPB.
I know you cannot discuss ongoing cases. However, many of
the cases currently pending for the CFPB are from the Cordray
regime. For these cases, the CFPB, in my judgment, should look
directly at the consumer harm. If consumer harm is present,
CFPB needs to pursue these bad actors.
However, if there is no consumer harm, I would hope that
you would dismiss the case as quickly as possible. The CFPB
needs to protect consumers and be good stewards for the tax
dollars and not tie up businesses with unnecessary litigation
for years to come. Would you like to comment?
Ms. Kraninger. I certainly am reviewing all of the ongoing
matters. I take advice and input from all sides, and certainly
from my own staff, so we are certainly looking at the issues
here and making the best use of our resources to protect
consumers as a focus.
Mr. Luetkemeyer. Thank you. I yield back.
Chairwoman Waters. Thank you. The gentleman from Missouri,
Mr. Clay, Chair of our Housing, Community Development, and
Insurance Subcommittee, will be recognized for 5 minutes.
Mr. Clay. Thank you, Madam Chairwoman. Director Kraninger,
in a report published in November of 2018, the Senate Banking
Committee's minority staff noted that the enforcement role of
the Bureau is intended to be mandatory, not discretionary.
In all fairness, this was written in response to Mr.
Mulvaney's actions which stripped the agency of its enforcement
and supervisory powers. And why is that important? Because the
Bureau had adjudicated over $400 million in remediation for
consumers who were harmed under fair lending statutes and
policy. But post-Mulvaney, zero dollars--not one penny has been
reclaimed for consumers. Have you read this report?
Ms. Kraninger. Yes, Congressman, I have read the report.
Mr. Clay. And what are the staffing plans for fair lending?
How many attorneys and examiners would devote all or a portion
of their time to make sure our markets don't discriminate?
Ms. Kraninger. I appreciate the question, Congressman,
because fair lending continues to be a substantial priority.
I can tell you I am absolutely looking now at the resources
that are allocated across the Bureau, and particularly within
supervision enforcement and fair lending where that supervision
and enforcement work continues on fair lending, as well as in
the office of fair lending which has moved into the Director's
office. It is looking at coordinating the fair lending
activities and issues across the Bureau and working with
partner agencies on that issue.
Mr. Clay. Okay, give me a number--how many attorneys and
examiners?
Ms. Kraninger. I don't have the specific number of that--
now, I can tell you that many of the examiners and enforcement
attorneys who worked on fair lending before continue to do
that, and I have talked with some of them about some of the
cases they are working on.
Mr. Clay. Wait a minute, now, does your staff sitting
behind you have a number?
Ms. Kraninger. I can tell you it is certainly--it is
similar to what was the case before the reorganization, but I
may have to get back to you on very specific--
Mr. Clay. Okay, give us a hard number, please.
Ms. Kraninger. Yes.
Mr. Clay. Are you familiar with a coalition called
Americans for Financial Reform?
Ms. Kraninger. Yes, I am.
Mr. Clay. Okay, Linda Jun, who will provide testimony this
morning, notes in her statement that after 2 months on the job,
you haven't gotten the memo. She notes that you have already
presided over the proposed repeal of the heart of the CFPB's
rule against payday and car title lending abuses, and lax
enforcement actions that are missing the mark when it comes to
trying to curb abuses that harm consumers.
And harm consumers in my district in St. Louis, Missouri,
and across this nation--and I ask you in all sincerity, are you
prepared to reverse the course of your predecessor, Mick
Mulvaney, and return the CFPB to its mandate of consumer
protection?
Ms. Kraninger. I pledge to you, Congressman, that
protection of consumers and the mission of this agency is at
the heart of every decision that I will make, and certainly has
been at the heart of every decision I have made so far.
Mr. Clay. Okay. Consumers are supposed to get relief when
they are harmed, so can you explain how they are entitled to
relief in your last few orders like payday lending? What kind
of relief is there for consumers?
Ms. Kraninger. So there were civil monetary penalties that
were imposed in several of the cases that I had the honor of
signing in terms of the consent orders that have finalized
under my term. It is a years-long investigation in many cases,
as you know, to get to this stage of the game.
The one thing I would say is that restitution and harm to
consumers, and the remedies there are certainly something that
we consider as we are seeking to get justice in these cases.
There are a lot of factors that go into the decision to, for
example, bring suit and litigate, or settle a case. In
addition, the settlements consider that remedies, injunctive
relief and--
Mr. Clay. Okay--
Chairwoman Waters. The gentleman's--
Mr. Clay. My time is up--but restitution is important for
consumers.
Chairwoman Waters. The gentleman's time has expired. The
gentleman from Oklahoma, Mr. Lucas, is recognized for 5
minutes.
Mr. Lucas. Thank you, Madam Chairwoman. Director Kraninger,
many members of this committee have some concerns about the
recent small-dollar rule from the Bureau. And I also have
concerns, specifically, that the rule allows three pings on an
account for an automatic payment.
In my opinion, this feels like an arbitrary number that has
no real consequences. For longer loans and loans offered by
online lenders, an automatic payment is often the only way
payment happens over the life of the loan. If the number stays
at three, I worry that lenders who rely at all on automatic
payments might be forced to use the third ping as a balloon
payment, or send the loan to the collection agencies.
In my opinion, that puts lenders in a tough spot--we are
trying to eliminate balloon payments, and also find ways to
preserve credit scores of consumers. The payments section of
the proposed rule, I think endangers both of those objectives.
Director, can you walk us through any steps you think should be
taken to ensure that the payments options don't damage credit
reports?
Ms. Kraninger. I appreciate the question. I have certainly
heard from a number of entities on the payments portion of the
rule. Our focus on the reconsideration of the underwriting
requirements was, again, related to the legal and factual
basis. That was a little different when it came to the payments
provisions.
In the reconsideration we said that certainly entities can
submit comments on the payments portion, but we are not looking
at that at this time through that method. But we have also
gotten a petition for reconsideration of the payments
provisions and that is something that under the Administrative
Procedure Act, we have to consider. So the short answer is that
we are considering the issue there and looking at it.
Mr. Lucas. I will give you a short question, would you
support reopening the payment portion to implement those steps?
Ms. Kraninger. I don't want to pre-judge the outcome of
that process, Congressman.
Mr. Lucas. Thank you.
Lastly, Director, I want to commend your agency for being
willing to consult with lending entities of all sizes and
shapes. I represent a few in Oklahoma that really appreciate
the Bureau's willingness to discuss various issues, and I thank
you for that.
And in the efficient use of my time, I yield back, Madam
Chairwoman.
Chairwoman Waters. Thank you very much.
The gentleman from Georgia, Mr. Scott, is recognized for 5
minutes.
Mr. Scott. Thank you very much, Madam Chairwoman.
Director, it is very important for you to understand why
this hearing is so important. It is important for this reason.
First of all, Director Mulvaney did some very, very terrible
things in his position as Director that really affected what is
the sole purpose of the CFPB: consumer protections.
First, he stopped monetary payments from the Civil Penalty
Fund to consumers who were harmed. Second, he stopped efforts
to combat discrimination for consumers and he failed to promote
fair lending.
And this one gets me most of all. Under Director Mulvaney,
he abandoned supervision of regulated entities for compliance
with the Military Lending Act, which gives critical protections
for our precious military servicemembers and their families.
That is why we are here, to erase those things. And so that
is why I am a proud co-sponsor with Chairwoman Maxine Waters of
the Consumers First Act. And here's what we want to do, we want
to reverse these things. And they are there to protect
consumers.
We also want to re-establish a definite and dedicated
Student Loan Office. So many of these problems emanate from our
student loans, and we have to correct that. And it will re-
establish transparency at the CFPB. Now, will you support our
bill?
Ms. Kraninger. Congressman, I understand that--
Mr. Scott. No, no, no, I don't have much time. I have to
know your answer. Yes or no, please?
Ms. Kraninger. Congressman, I--
Mr. Scott. You are a very pleasant person, I enjoyed
meeting you, but please, will you support the--I don't see how
in the world you can't. That is your job. To lessen the
protections for our military? To do away and to stop monetary
payments for consumers who are harmed? Won't you support us?
Ms. Kraninger. Congressman, I very much support your
oversight actions. And what Congress finds--
Mr. Scott. Well, all right. Let me say this then--I
understand, because I have another important one coming--I want
to talk with you. I want to help you be a great Director here.
But in order to do that you have to help us fix the damage that
your predecessor did.
I have another question, the FDIC said in 2017, that 25.2
percent of all American families are unbanked or underbanked.
So I have introduced a bill that would put your agency at the
leadership in helping the unbanked and underbanked establish
stable relationships with depository banks. Could you support
that bill?
Ms. Kraninger. I absolutely share your interest in the
issue--
Mr. Scott. No, no, but--
Ms. Kraninger. --and have taken actions on it.
Mr. Scott. Listen, we have a serious problem here. And I
hope you will leave this hearing with the knowledge that we
have to correct this mess--and it is a mess. I like Mr.
Mulvaney, we served together. He is a friend. He served on this
committee. But you know it was the wrong situation for him when
the President turns right around and puts him in another
position at the same time: he is Director of the CFPB, and he
is the Budget Director. That lets you know right there that
consumer financial protection was on a backburner at this
Administration.
Chairwoman Waters. The gentleman's time has expired.
Mr. Scott. Thank you.
Chairwoman Waters. The gentleman from Kentucky, Mr. Barr,
is recognized for 5 minutes.
Mr. Barr. Thank you, Madam Chairwoman.
And Director Kraninger, welcome to the committee.
Congratulations on your appointment to the CFPB. I want to
follow up on my friend, Mr. Scott's, line of questioning
related to the Military Lending Act.
And I ask this question to you, not only as a member of
this committee, but also as a member of the House Veterans
Affairs Committee. And we are all very interested in making
sure that our military families, not only are protected, but
also have access to credit given the financial strains that
many of these families are facing on an annual basis.
Director, my staff shared with you a draft of my latest
legislation that would grant Military Lending Act supervision
authority to the CFPB. And I would like to quickly discuss the
need for this legislation. My friend from Georgia's questions
seemed to insinuate that Director Mulvaney pulled back the
Bureau's supervisory authority.
But just for the record, clear this up for us. Do you
believe that the current law, that the current statute actually
gives the CFPB authority to supervise lenders for MLA
compliance?
Ms. Kraninger. I do not.
Mr. Barr. And so the issue is not that your predecessor
withdrew the CFPB from supervisory activities; it is that the
law does not grant the CFPB that authority, is that your
interpretation?
Ms. Kraninger. That is correct.
Mr. Barr. And would you, Director Kraninger, like a bill
like mine to fix that and actually grant specifically in
statute authority to you to supervise for MLA compliance?
Ms. Kraninger. Yes, I would, and I have submitted draft
legislation to the Members here.
Mr. Barr. Thank you. And I think that helps, maybe, clear
this up. Now, I do want to address Chairwoman Waters' draft
bill. In her draft text released before this hearing, and I
think we all have a copy of it, there is a provision that would
direct the Bureau ``to reverse all anti-consumer actions taken
during Mr. Mulvaney's tenure.'' And this presumably would
include the MLA supervision issue. Would that provision, and
would that language in her bill, prevent the Director who
follows your tenure from acting under the same interpretation
that you just provided to the committee?
Ms. Kraninger. I don't have that particular language in
front of me, so I don't want to offer a legal opinion as I am
sitting here, but I do want explicit authority from Congress to
carry on this kind of supervisory work.
Mr. Barr. Yes. And so, let me ask the question a different
way. Wouldn't it be better that we would--if we wanted to do
this, if we wanted to confer a CFPB supervisory authority for
MLA, wouldn't it better to clear this up with an explicit
statement giving the Bureau supervisory authority as opposed to
the language that I just read to you?
Ms. Kraninger. Yes, getting explicit authority is what I am
seeking.
Mr. Barr. Okay. Thank you for that. Let me ask you about
unfair, deceptive or abusive acts and practices (UDAP) really
quickly, in the remaining time that I have. Section 1031 of
Dodd-Frank gave the Bureau what is called UDAP authority.
However, when I talk to lenders back in Kentucky, they tell
me that there is no clear definition or guidance regarding what
exactly constitutes an ``abusive act or practice under UDAP.''
Further, these institutions state that they are in full
compliance with the regulations of their primary regulator, but
because of the lack of clarity from the Bureau about UDAP
violations, and what constitutes an abusive act or practice,
they sometimes fall short of these unknown standards.
The result of this regulatory uncertainty is less financial
innovation, less consumer choice, less competition, and,
ultimately, less access to credit for Americans. Can you
provide more clarity about what constitutes a UDAP violation,
and what do you plan to do to provide that clarity?
Ms. Kraninger. So with respect to the definition of
``abusive,'' there certainly is one in the statute, and the
Bureau has taken actions in its history that rely on that
definition. The one thing that I would note also though is that
the regulatory agenda for the agency includes consideration of
pre-rulemaking activity to have a discussion around that
definition.
In particular, the statute contemplates--it involves an
unreasonable advantage taken of a consumer. If there is an
unreasonable advantage, then there must be reasonable
advantage. And certainly, the definition of that reasonable
advantage is one that deserves some exploration and
conversation in a transparent way.
Mr. Barr. Thank you. I encourage you to pursue that and
provide additional guidance and clarity for the regulated
parties.
Chairwoman Waters. The gentleman's time has expired.
Mr. Barr. Thank you. I yield back.
Chairwoman Waters. The gentleman from Texas, Mr. Green, the
Chair of our Subcommittee on Oversight and Investigations, is
recognized for 5 minutes.
Mr. Green. Thank you, Madam Chairwoman. I thank the witness
for appearing as well. Madam Director, you are a Georgetown
lawyer. Is that correct?
Ms. Kraninger. That is correct, sir.
Mr. Green. And as a Georgetown lawyer, you understand that
the public has a right to know certain things, true?
Ms. Kraninger. Absolutely. I believe in accountability and
transparency.
Mr. Green. And as a believer in accountability and
transparency, you understand that persons who commit felonies
are exposed to the public before they are convicted, and some
who are never convicted have their names published. Some of the
President's friends have been charged, and we know who they are
and we know what at least one is charged with. That is the
public's right to know. Do you think the public doesn't have
the right to know this kind of information?
Ms. Kraninger. Certainly, when a case is filed and the--
Mr. Green. I take it your answer is ``yes.'' Thank you so
much. And I would also add that the public has a right to know
because they can make decisions based upon what they know. The
Consumer Complaint Database has served us well, 1.5 million
consumers have many complaints, and 97 percent of these
consumers receive timely responses.
They have a right to know; they file their complaints.
There is a belief that you do not support the public's right to
know, that the public should be placed in a position such that
regulators can find out about these complaints but that the
public can't. That is what people think.
My guess is that if you were given the opportunity to say
that you would have the complaint database that exposed Wells
Fargo that you would have this complaint database continue to
remain public because the public has a right to know. Do you
think the public has a right to know and see the complaints
that are not felonies, that are not criminal charges, but to
see these complaints?
Ms. Kraninger. Congressman, you are asking a very
reasonable question.
Mr. Green. I understand that it is reasonable. If I may, I
don't mean to be rude, crude, and unrefined, but this is a
question wherein I will tell you the answer. The answer is yes,
I think the public has a right to know. Now if you hesitate or
equivocate--if you don't do this without hesitation,
reservation or consternation, then I have to conclude that you
don't think the public has a right to know. Again, I ask, does
the public have a right to know?
Ms. Kraninger. Congressman, the statute establishes a
process for submission of complaints--
Mr. Green. I do understand. But will you allow that
process, that statute, to continue to expose the names of the
complaints that have been filed, as has been the case for over
1.5 million complaints? No consumers are complaining about
this. The public believes that it has a right to know. Now I
will give you final response, and when you finish, then I will
give my commentary.
Again, will you keep the database in place because you
understand that even if felons, they have their names published
and they are found not guilty, not felons, people just simply
charged, found not guilty, or cases are dismissed--you are a
Georgetown lawyer, you know many cases are dismissed, but their
names have been exposed to the public. Does the public have a
right to know about these complaints at the Consumer Financial
Protection Bureau by and through its complaint database?
Ms. Kraninger. We have a responsibility to take in
complaints, and absolutely--
Mr. Green. I understand. Look, I know a ``no'' when I hear
it. I know when a person says, ``no.'' Madam Director, you are
not the person for this job. You don't believe in the public's
right to know. I yield back.
Chairwoman Waters. The gentleman's time has expired. Mr.
Williams, the gentleman from Texas, is recognized for 5
minutes.
Mr. Williams. Thank you, Madam Chairwoman. And first of
all, a lot of people are beating up on Mr. Mulvaney. I thought
he did a great job. Ms. Kraninger, I think you are doing a
great job and you are certainly qualified. And thanks for
speaking to us, Director. I start off asking all witnesses
before this committee a simple question. Are you a capitalist
or are you a socialist?
Ms. Kraninger. I am a capitalist.
Mr. Williams. Thank you for that. I am, too. I am a Main
Street businessman, have been for 50 years, and I am a car
dealer. And I am probably the only person in this room who was
affected by Operation Chokepoint, where the bankers decided
that they would not want my business anymore because
government--that the government was playing such a heavy hand
on with--with CFPB. And for those who think Obamacare was a
mess, I can tell you the CFPB was a mess to Main Street
America; it cost a lot of jobs. And we have been talking about
consumer protection and maybe since you are a consumer, you are
qualified for this job.
And I can tell you the best people to take care of the
consumer is Main Street America because if we don't take care
of consumers, we don't have consumers. And so this is a lot of
bureaucracy we do not need. During the Obama years, under the
direction of Director Cordray, it seemed as if the sentiment of
the CFPB was that business is bad, and if you are being
profitable, it must be because you are taking advantage of the
consumer rather than giving service to the consumer. This
simply isn't true and everybody knows that. And profits are a
good thing, not a bad thing.
So I asked Federal Reserve Chairman Powell the other day a
question, and I would love to get your opinion as well. The
question is this: Do you believe that the probability of an
industry is justification for increasing regulations?
Ms. Kraninger. No, I do not.
Mr. Williams. Thank you. And I said earlier, I am a small
business owner: 50 years. I know how uncertainty affects
business decisions. This is especially true for smaller
financial institutions that operate along tighter profit
margins. I received information from a community mortgage
lender whose compliance costs for every single loan increased
by 35 percent because of the uncertainty surrounding CFPB
supervision authority. They had to hire more compliance
officers than they did loan officers. And it was a lot easier
to just not make the loan than to mess with this bureaucracy.
So when these small institutions have to spend more money on
compliance, it reduces, as I said, the amount of money that is
loaned in the communities they serve and affects the consumer
and affects the economy.
So my question is, what steps has the CFPB taken to try to
better tailor regulations and supervision for smaller
institutions?
Ms. Kraninger. I truly appreciate that question,
Congressman, because that is what I have been asking as well.
Certainly, reduction of the burden is something that we have as
a statutory responsibility on institutions as well as
authorities to look at tailoring appropriately based on
considerations, again, in a lot of the different statutes that
we enforce and regulate under.
One issue about which I have heard extensively from smaller
entities, and one thing that I am looking at--and we are in the
middle of the discussions again about it is how to most
effectively carry out our examination process, certainly
looking at, to your point, how much time we spend with
different institutions, how much we require of them when they
are setting up their compliance management system.
So many of them feel helped by the examination process, so
we have had those conversations. I think, too, on the
regulatory front, as I noted to one of your colleagues, there
were 1,750 comments that came back on reduction of regulatory
burden. And we are working through those. Many of them were
comments about how best to tailor. So I am certainly looking at
that issue.
Mr. Williams. Thank you. Leadership from the top down is
important in any business or government agency. From its
conception, the CFPB has commonly been referred to as Elizabeth
Warren's brainchild. Now I don't think that is a very good
label to have. If you want to be taken seriously, you don't
need that. And as a nonpartisan financial regulator, you don't
want to be an organization that is being described as a
brainchild, so how have you been changing the culture of the
CFPB into an agency that protects consumers without removing
choice from the marketplace?
Ms. Kraninger. Congressman, I think that is an important
point as well. Certainly at this stage, I am 86 days in, and
that includes weekends, holidays, and snow days that we have
had, so it is a conversation that we are having. I believe the
staff is dedicated and committed and frankly excited to have
stable, consistent leadership and I am setting that tone with
respect to making sure that we are looking at maintaining
choice in the marketplace and understanding what impact we have
on consumers' access to credit when we are looking to take
action.
Mr. Williams. Thank you very much. I yield back.
Chairwoman Waters. The gentleman from Illinois, Mr. Foster,
is recognized for 5 minutes.
Mr. Foster. Thank you. Director Kraninger, thank you for
being here today.
I would like to talk about an issue of tremendous
importance to the people in my district and to 44 million
Americans across the country, the enormous economic and
consumer protection challenges posed by student debt. Today,
you have heard a lot of enthusiasm for fact-based policies here
and there is a considerable concern across the ideological
spectrum about the significant lack of data for what is now the
second largest consumer debt market in the country.
Collecting data to better understand consumer markets and
so being able to anticipate the next crisis before it happens
was a critical design goal when we created the Bureau less than
a decade ago, one that I hope the Bureau still considers a top
priority. And with that backdrop in mind, I was heartened to
see the Bureau under Director Cordray take steps to begin
systematically collecting data on the student loan market. In
February 2017, the Bureau, using its specific authorization
under Section 1022(c)(4) of Dodd-Frank published a proposal to
require that the largest private companies in the student loan
industry, including some of the biggest banks and the
government's biggest contractors, provide data directly to the
Bureau about the performance of more than $1 trillion in
outstanding student debt and about the borrowers' experiences
in repaying that debt.
This included information, for example, about the total
size of the loan market, the percentage of the loan
modifications that are entered into, delinquency rates,
forbearance of the deferment rates, default and discharge
information. You know, basic stuff, but all of which would be
crucial in understanding the student loan market at a macro
level and potentially preventing version 2.0 with the mortgage
lending crisis. And after taking public comment on this
proposal, the Bureau then submitted it to the OMB in September
2017, 8 weeks prior to Director Cordray's departure.
The OMB would then normally evaluate comments from the
public and authorize the Bureau to finalize this market
monitoring initiative, collecting data and greatly improving
the transparency of the student loan market. But in this case,
no OMB approval was issued, and your agency has done nothing.
Notably, Mick Mulvaney was operating both as acting Director of
the CFPB and the Director of OMB during much of this time. It
now appears that this critical data collection initiative has
been in a state of limbo for nearly a year and a half, during
which time more than 1.5 million Americans defaulted on their
student loans.
What I am trying to understand is why this important
initiative, one that simply seeks to gather data and shed
greater transparency on the student loan market, has been
ignored for so long. You know, I am a scientist, and I see this
as really a troubling pattern from this Administration of
suppressing even the collection of data, when they are afraid
that the facts may not support their opinions, a pattern that
we see everywhere from climate change to the default rates for
for-profit colleges. So Director Kraninger, first question, did
Betsy DeVos or any other political appointees at the U.S.
Department of Education provide feedback or encourage the
Bureau to abandon or delay this proposal?
Ms. Kraninger. Congressman, I am sorry to say that I am
unfamiliar with the proposal you are referring to. I have
actually just asked the staff too, and we are trying to find
out what it is. I have not had anyone mention this to me
before.
I understand why you would be interested in it. I certainly
understand the extent of the marketplace and the growing
student debt issues. It is something that I am paying attention
to. I can tell you some things that I am doing in this space,
but I will have to get back to you on this particular study.
Mr. Foster. Okay, yes, I would like to know specifically
any feedback you received from any political personnel after
the Department of Education, whether the Office of Management
and Budget has ever communicated any specific concerns about
this, or did they just sit on that?
And does the Bureau plan to retract it, or continue? And I
encourage you to perhaps contact Mr. Frotman, a member of the
second panel, who is familiar with some of the details in this.
So let's see, I have 44 seconds--just quickly to another
issue, it has been noted that several recent CFPB enforcement
settlements didn't require compensation for victims for any of
the harm they suffered from the firm's conduct, and so who
personally takes that decision as to whether or not a firm
should have to pay restitution to victims?
Ms. Kraninger. That is a complicated issue. Certainly in
the course of the investigation, the enforcement attorneys are
looking at trying to quantify consumer harm and look at how
they can identify--
Mr. Foster. But who makes the decision, do you make the
decision, or--
Ms. Kraninger. Ultimately, I make the decision based on the
recommendations of the staff who worked the issue and reviewed
it along the way to get to me.
Mr. Foster. Thank you. I yield back.
Chairwoman Waters. The gentleman's time is up. The
gentleman from Colorado, Mr. Tipton, is recognized for 5
minutes.
Mr. Tipton. Thank you, Madam Chairwoman. Director, thank
you for being here, I appreciate the effort that you have made
in the 86 days--I think it was commented--that you have been in
office. I come from a rural district, and one of the most
important things is to be able to grow jobs and to be able to
create opportunities, and one of the big issues that we face
continues to be--and we have had the concern in this committee
as well, is going to be on access to capital. I do coach here
the Small Business Caucus, here on the House side.
We have had a variety of different meetings and I thought
there were some interesting statistics that came out. The U.S.
Chamber of Commerce just reported in the fall of last year that
lending to small businesses--which are the businesses that make
up my district--is down 13 percent since 2008.
Now on top of that, a recent report which came from the
Senate found that women account for just 16 percent of the
conventional small business loans and received only 4 percent
of all commercial loan dollars. So Director, is this an issue
that has come to your attention during your limited tenure at
the CFPB? And do you think that this is part of an issue that
could possibly be addressed in terms of some of the regulatory
burden that you mentioned?
Ms. Kraninger. Yes, in terms of small business lending we
have--when it comes to the Equal Credit Opportunity Act, and we
have some authority there to look at discrimination in small
business lending which we have done at our supervisory and
enforcement work.
And we also have responsibility under Section 1071 to enter
into a rulemaking to try to assess what is happening in this
small business lending space.
Mr. Tipton. Great. I appreciate that, and would encourage
you to go ahead and formalize that rule to be able to get that
data--7 out of 10 jobs in the country are created by small
businesses. A lot of them are out in the rural areas, and I
think that is going to be important for us to be able to keep
the economy moving.
You have had a few comments that you have been making here
that I would like you to maybe follow up and expand on a little
bit. Your predecessors had opposing views when it came to the
use of enforcement actions and determining policy. Could you
expand on that, maybe just a little bit more, would you share
those thoughts on regulations versus enforcement?
Ms. Kraninger. I am certainly committed to having clarity
in the rules that entities that are seeking to comply can rely
upon, and I do think that the regulatory tool that Congress
gave the Bureau is an important one in terms of setting out
what those rules are. Certainly, the supervisory and exam
process that we have is also, again, geared to that.
I am looking at all of the tools that the Bureau has in
trying to assess how best to utilize them and apply them in
terms of a rubric perhaps of prevention of harm, and thinking
about how that can really assist in thinking about the way that
we carry out our mission. When it comes to enforcement
specifically, it is absolutely still a critical tool that we
use because we know there are entities that have no intention
of trying to comply.
They are not going to be the ones that are going to self-
report what they have found or mistakes that have been made.
They are not going to be in a productive relationship with
their regulator, they are going to be thwarting and they are
going to be engaged in unfair practices vis-a-vis consumers,
and that is where the enforcement tool really is most effective
and where we need to focus it.
Mr. Tipton. So would we be in agreement that you don't
enforce first, then regulate? You stay within the boundaries of
congressional intent and the law? And would you make any
recommendations on--is there something that Congress should
actually be doing to help give you clarity on those boundaries?
Because this is an unbridled agency that it seems when we
looked at Director Cordray and the enforcements that he was
putting into place that extended, in the opinion of many, far
beyond some authorities--is there something that we should be
doing legislatively to be able to put those guardrails in place
to give you greater clarity?
Ms. Kraninger. The law is certainly my guidepost in the
activities that I will undertake, and the approach I am taking
to the position of Director. I do leave to Congress
consideration of what other things should be enacted, and I
encourage, as I mentioned earlier, continued transparency and
accountability of the agency.
Mr. Tipton. And with just a few seconds left, you didn't
really get a chance to answer on the fair lending, in regards
to in the investigative process. I assume you don't
individually do that, but do you want to lay out quickly what
that process is for fair lending?
Ms. Kraninger. Yes, it is similar to all the other
enforcement actions. The enforcement attorneys are the ones who
open investigations and they certainly carry that through
research stages, and others it takes many, many months and
years to build the case for those who are litigators they know
that. Certainly, it becomes public at the time of actually
filing the case, or having a consent order in place.
Chairwoman Waters. The gentleman's time has expired--
Mr. Tipton. I yield back.
Chairwoman Waters. The gentleman from Missouri, Mr.
Cleaver, the Chair of our Subcommittee on National Security,
International Development and Monetary Policy, is recognized
for 5 minutes.
Mr. Cleaver. Thank you, Madam Chairwoman. I will announce
my pedigree, as I guess we are going to start doing that. I am
a Methodist, not a capitalist or a socialist, just a Methodist.
What I would like to do is to focus in on--well, first of
all, I was here when we did Dodd-Frank and I didn't miss any
meetings. I never remember having a meeting about how we could
politicize it. It didn't happen; in fact, it was the contrary.
We were trying to figure out a way to avoid the
politicization of it by having a Director who would go over one
term, so that it would be possible for a Director to serve,
actually, under two different Presidents. And there was no
funding to be received from Congress, there was no decision to
be ratified by the President or Congress, and the budget wasn't
going through the congressional budget process.
Do you agree with those decisions that we made as it
relates to the CFPB?
Ms. Kraninger. Congressman, I take the law as it has been
presented to me in the responsibilities that I have as
Director. I did note that I am going to take advantage of the
flexibility I have in terms of administering the agency when it
comes to the resources, certainly, as an example.
Mr. Cleaver. Because what I just laid out about the
independence is actually the same independence for the Federal
Reserve. And actually the Federal Reserve, as you very well
know, provides the funding. And their structure is very similar
to the--to the Federal Reserve. Do you support the Federal
Reserve as an independent agency as well?
Ms. Kraninger. I will leave to Congress these issues in
terms of how these entities are established, but I certainly
work closely with them.
Mr. Cleaver. Do you believe that the CFPB should be
independent?
Ms. Kraninger. I am carrying out my duties as Director,
consistent with the independent agency status.
Mr. Cleaver. I am with you on that, except that the problem
was we tried to make sure that was one political appointee, the
President appointed Mr. Cordray, one. And I am just wondering
what the number of political appointees is today?
Ms. Kraninger. The number of political appointees, I would
say, specifically it is a Schedule C appointment. The Dodd-
Frank Act did give us the ability to hire under all of the
Title V authorities, including Schedule C.
Mr. Cleaver. Yes, I am not mad.
Ms. Kraninger. There are 13 Schedule Cs at the Bureau
today.
Mr. Cleaver. Yes, that is what I was getting at.
Ms. Kraninger. Yes.
Mr. Cleaver. I am not upset. I am not growling or anything.
I want you to look at the difference. We were saying, let's
depoliticize it. I think you would agree that the
politicization is a little higher, based on your answer a few
minutes ago.
Ms. Kraninger. Well, if you are stipulating because there
are Schedule Cs, I would note that there were more than 500
people hired at the Bureau appropriately, by the way, under a
waiver authority from Congress who were noncompetitively hired.
And that was over the first 4 years of the Bureau's
establishment: 423 of them are still at the Bureau today.
Mr. Cleaver. Yes, I am not saying anything was done wrong,
and some of the people--I know at least one of the people, and
I know that person is eminently qualified. But I just--there is
this push that suggests that somehow there was a plan that
politicized this agency, and there wasn't.
And one of the problems that we are having right now is
that the MLA, and I--because my time is running out--all these
are military agencies, all of them, who are opposed to what
just took place with MLA--all, it is not just something a
Democrat is pushing. These military agencies are concerned
about what is going on, all of them.
I will give you this. You probably already know all of them
because I think they have communicated with your office. Does
this give you pause to want to make corrections?
Ms. Kraninger. I am committed to protecting servicemembers.
I have worked much of my career with servicemembers.
Mr. Cleaver. I know, Madam Director. I am not mad at you.
You look like a nice person and you probably, you know, cheer
for the Chiefs and stuff. But all I am just trying to get you
to say is, don't you agree that something needs to be done?
Ms. Kraninger. I do, and I have asked Congress to grant the
Bureau the authority to supervise for the Military Lending Act
specifically.
Mr. Cleaver. All right, thank you.
Chairwoman Waters. The gentleman's time has expired.
The gentleman from Arkansas, Mr. Hill, is recognized for 5
minutes.
Mr. Hill. I thank the Chair. I appreciate that.
And Director, thank you for appearing before the committee.
During my first two terms in Congress, I spent a lot of time
with Director Cordray working through all the problems with the
TRID rule, which is the merger of Truth in Lending with Real
Estate Settlements, which is very costly to the industry, and
confusing to consumers. So I tried to get them to make
improvements along the way. And he was very cooperative and
recognized that his guidance wasn't informative, his guidance
wasn't binding and that, occasionally, the rule was very
confusing.
One of those things was the consumer disclosure for
combined rate on title insurance. And I had a bill last
Congress to straighten that out, to make sure consumers really
knew what they were paying. Because the current disclosure
required by the lawyers--the Georgetown lawyers, I am sure--at
the Bureau make it appear that it is more expensive than it
actually is for a consumer. Would you support changing that
disclosure rule?
Ms. Kraninger. I can tell you, Congressman, that I am aware
of the issue. I have heard it from you and I know that you have
a bill on the issue. We are looking at this very carefully, so
I don't want to prejudge the outcome of what we can and cannot
do, and how fast, but I am absolutely aware of the issue.
Mr. Hill. Well, I would ask you to study that. And I will
be reintroducing that legislation and I would like to--I think
you have the authority to change it at the Bureau and not go
through the legislative process. So thank you for that.
I was looking at your consumer complaints, only 0.8, so
less than 1 percent, 0.8 percent of consumer complaints relate
to payday lending. So I guess that is good. That must mean
that, generally, regulation of payday lending across the
country is decently successful, looking at your consumer
database.
But I wondered when I was looking at your rule--following
up on Congressman Lucas' question--NACHA, the clearinghouse,
has a common set of ways of looking at this issue of how many
times you can try to debit in an account in a payday rule. Did
you look at the NACHA standard and consider just using that,
since that is already out in the marketplace?
Ms. Kraninger. Congressman, you raise an interesting point.
It is actually a question that I had as well in terms of
looking at this issue. It is something that I want to explore
further.
I can tell you, with respect to the reconsideration of the
rule, the basis of that really is the sufficiency of the legal
and factual basis for that unfairness and abusive
determination. That is really where the reconsideration is
focused.
Mr. Hill. Thank you, because you know if you do try to
debit the debit card, that doesn't go against the NSF. And so,
I thought that was a good point. I would urge you to take a
look at that in your rule.
As you know, the committee is very interested in financial
technology (Fintech) and the CFPB has been a leader on that
under Director Cordray and under Director Mulvaney and now you
to urge innovation to reduce compliance costs and get consumer
products out to our consumers, particularly the underserved
community.
Are you aware of the U.K.'s effort at open banking and
giving consumers more control over their data when it comes to
selecting financial products?
Ms. Kraninger. Yes. I probably know enough to be dangerous
on that particular topic. But we are certainly looking at what
other countries are doing, and Paul Watkins, who heads up the
Office of Innovation, knows this deeply and understands it.
Mr. Hill. I think that is a real trend, to make sure that
the consumer controls more of their information and protects it
more capably and is not preyed upon by either Facebook or a
financial services company.
I note in your annual report that education is a major part
of the Bureau's mandate. And so, when you look at again your
customer complaints that are reported to the Bureau, over 50
percent relate to credit or consumer reporting and debt
collection way over 50 percent.
And so, when you look at FICO Scores, the FICO Score of
400--something under 500, that is considered a very poor FICO
Score. Does the Bureau help consumers with information about
how to improve their credit through either education resources
at your website or when they file a complaint?
Do you help them understand how to improve their score,
because clearly someone with a 400 credit score has a financial
literacy challenge or a huge financial problem in their family
at that time?
Ms. Kraninger. There are a number of tools on our website
and that we share with financial educators around this issue,
because having a good credit history is part of financial well-
being. It is part of your ability to build opportunity and
certainly build wealth.
So, there are a number of things that we have produced on
that front, the challenge largely is getting that information
to those who need it in the best way that they can receive it
and measuring the effectiveness of our efforts in changing
people's behavior.
Chairwoman Waters. The gentleman's time has expired.
Mr. Hill. Thank you, Madam Chairwoman.
Chairwoman Waters. The gentlewoman from Ohio, Ms. Beatty,
Chair of our Subcommittee on Diversity and Inclusion, is
recognized for 5 minutes.
Mrs. Beatty. Thank you, Madam Chairwoman, and to our
witnesses, thank you for being here today. I am going to start
with a question that I have asked every one of your
predecessors since I have been here. I have asked every
Director and Chair who has sat in that seat as a witness. So, I
wanted to start with that.
But before I ask you the question, how did you prepare for
this hearing? Did you have your staff talk about some of the
questions and answers to Director Mulvaney or to Director
Cordray?
Ms. Kraninger. First and foremost, it is the time on the
job. I actually have been spending a lot of time with the staff
getting briefed on various topics.
Mrs. Beatty. But did you listen to or watch any of the
tapes with the questions?
Ms. Kraninger. Yes, I have watched prior hearings of this
committee.
Mrs. Beatty. Okay. So, you know that we have had Directors
sit in that seat who have been questioned for some 5 hours, and
some reports have said that it was a new level of hostility by
those in charge. Others have said it was a withering attack on
Mr. Cordray, very contentious.
And the only reason I do this is, a couple of my colleagues
have used the word ``battered.'' So, I don't want you to feel
that I am battering you. I am just trying to ask a few
questions. My question that I have asked everyone--as you
heard, I serve as the Chair of the Subcommittee on Diversity
and Inclusion, and the Office of Minority and Women Inclusion
(OMWI) falls under that.
I read your press release on January 25, 2019, where CFPB
announced changes in senior leadership and acknowledged Lora
McCray as your new Director of OMWI. So my question to you is,
does the OMWI office have enough staff and resources to carry
out the responsibilities in Section 342? Yes or no?
Ms. Kraninger. I can tell you--
Mrs. Beatty. Yes or no, please. Either they have it or they
don't. I know you--
Ms. Kraninger. I certainly--
Mrs. Beatty. Let me finish. I know you didn't go out and
hire somebody who has been the Vice Chair of Diversity through
the Federal Reserve, with all of her experience, and bring her
into an environment where there is not enough money or enough
staff.
So, do you believe that the office has enough staff and
resources to carry out the responsibilities of Section 432?
Please, yes or no?
Ms. Kraninger. I--
Mrs. Beatty. Yes--that means you either have the money--
Ms. Kraninger. Moment--
Mrs. Beatty. I will if you give me the answer--
Ms. Kraninger. Lora--
Mrs. Beatty. --to my question.
Ms. Kraninger. Lora and I are both very new. And she knows
that I am committed to ensuring that she does have enough
resources, and she has the ability to--
Mrs. Beatty. So, that would be a yes?
Ms. Kraninger. --ask for them. So again, we are absolutely
assessing that. The answer is there are--
Mrs. Beatty. So, you hired somebody without knowing if she
is going to have enough staff and funding to do her job?
Ms. Kraninger. She absolutely will. You are asking me to
affirmatively say--
Mrs. Beatty. So--
Ms. Kraninger. At this moment--
Mrs. Beatty. So, then let me ask the question--
Ms. Kraninger. The answer is yes.
Mrs. Beatty. --differently. Will you assure us that as you
testify today, the OMWI office will have enough staff and
resources to carry out the responsibilities as identified in
Section 342 of Dodd-Frank?
Ms. Kraninger. The answer is absolutely yes.
Mrs. Beatty. Okay, thank you. And welcome aboard, Ms.
McCray. My next question is, have you heard of the term that is
being used inside the Consumer Financial Protection Bureau
called the ``Mulvaney Discount?'' Have you heard of that?
Ms. Kraninger. I have certainly heard the term, yes.
Mrs. Beatty. Okay, because I have a press release right
here with your picture on it. I think this is you where you all
talk about it.
Ms. Kraninger. I would say--
Mrs. Beatty. Well, it is mentioned in the headlines.
Ms. Kraninger. I certainly have not talked about it.
Mrs. Beatty. Okay, where it was brought up, and I can read
you some quotes. So, you are familiar with it?
Ms. Kraninger. I have heard the term used.
Mrs. Beatty. So for those situations where people have been
abusing and some would say swindling veterans, minorities, and
others, and the fee for something, if you swindled somebody out
of hundreds of thousands of dollars, you would have to pay
thousands in fees, while the Mulvaney Discount is $1.00.
Do you agree with that? And do you plan to continue it, yes
or no? Do you plan to continue, because it exists, I can give
you case after case.
Ms. Kraninger. Every--
Mrs. Beatty. Wait a minute; I am going to let you talk
afterwards. Do you plan to continue it, yes or no?
Ms. Kraninger. Every enforcement case presents its own
facts--
Mrs. Beatty. Will you have dollar discounts for people who
have been swindled out of hundreds of thousands of dollars?
Ms. Kraninger. These are all negotiated settlements. And
there are factors--
Mrs. Beatty. So, you are not answering. Okay. My time is
up.
Ms. Kraninger. --that are taken into consideration.
Chairwoman Waters. Mr. Loudermilk, the gentleman from
Georgia, is recognized for 5 minutes.
Mr. Loudermilk. Thank you, Madam Chairwoman. Director, I am
going to make sure I see this. It doesn't say, ``Mulvaney,'' it
says, ``Kraninger,'' am I right? Okay. I just want to make sure
that we are actually--it seems that a lot of the discussion we
have had here is as though you were your predecessor, and I
think it's important that we engage on what is actually
happening in the Bureau right now. And I appreciate you being
here. I understand by Dodd-Frank you are required to come
occasionally and provide a report, but as it was brought up
before, I don't think the law requires you to even answer the
questions when you are here, so the fact that you are here and
engaging, I appreciate that.
Before I get to the questions--because I want you to answer
the questions. I think there's so much that we need to be doing
and there are so many issues out there, it's important that we
engage and we have a relationship and that we can work together
and just not be adversarial. When Director Cordray was here, I
questioned him on the consumer complaint database because I
felt like at the time it was actually being used as a shaming
system of businesses. And I apologize that you were not given
the opportunity to answer the questions--obviously, there was a
preconceived idea there. I just want to give you a moment.
Is there anything you would like to--I will give you a
moment of my time to answer the question that you weren't given
the opportunity to answer earlier.
Ms. Kraninger. Thank you, Congressman. I recognize how
important an issue this is. I have certainly heard from
consumer groups and researchers in particular--I was actually
visiting Consumer Reports last week and they talked about how
much they use the data that is available in the consumer
database. So also on the other side of that, certainly some
very real reputational harm concerns from institutions about
making sure people understand what the complaints that they are
seeing mean will put them in some kind of context. So I have
heard those comments.
This is certainly an active issue. I am talking to the
staff inside the Bureau. We did a whole request for information
on this issue as well about what should be public, and what
should not be public. Those were all questions that were asked
and I am actively looking at the issue now.
Mr. Loudermilk. Thank you, I appreciate that. Because the
only way that we are going to be able to get things resolved is
to actually have dialogues. And I think you deserve the respect
to bring that up. I think a lot of the frustration that you
hear is that regardless of what you answer, there's not really
a thing we can do about it. That is because of the
organization, the way it was established. So one of the years
that is key to me is in the Fintech community. I from Georgia,
and we have two-thirds of the country's payment processing
there. I also come from an IT background, and I understand the
value of technology and how it empowers the individual, the
consumer, and I'm particularly interested in the bank Fintech
partnerships.
One of the concerns that we usually hear is how these
partnerships can raise safety and soundness and consumer
protection concerns. So the question I have is, when a Fintech
company is interfacing with a consumer and it's actually a bank
or credit union that's filling the loan, the loan has to meet
the same safety and soundness protection standards as if the
consumer walked into the local bank, is that correct?
Ms. Kraninger. Yes, I believe so.
Mr. Loudermilk. Okay. What is it that we, and I am talking
about Congress and the regulators, what can we do to ensure
that these partnerships can continue and flourish?
Ms. Kraninger. That is an excellent question because
innovation and facilitating innovation are a key part of the
Bureau's mission, something we take very seriously. I have met
with innovators and seen the kind of things that they are
doing. I would note that I recognize the concerns that
advocates have brought up on the other side of this. But I
would certainly venture that the entities that are actually
actively coming forward seeking to work with the regulators,
seeking to understand what the rules are so that they can
follow them, are those that certainly like to be--there looks
to be an opportunity there. And certainly for the underserved,
as Mr. Hill mentioned.
Mr. Loudermilk. And one of the things about technology is
you get into areas where the rules don't exist if you are
really progressing and bringing in new technology. An example
is the Wright Flyer, which is on display down at the Air and
Space Museum here. These guys were bicycle mechanics and they
achieved something scientists and engineers couldn't. I don't
think you could replicate that today because of the adversarial
relationship between regulators and innovators. I think the
sandboxes are important to give them the ability to try new
products, new ideas. Can you briefly--I know we are out of
time, but this Office of Innovation, what is it that you are
doing to help innovators?
Ms. Kraninger. In the last 6 months in all we have issued
proposals for a disclosure sandbox policy, a no-action letter
policy and a product sandbox policy, and we got robust comments
back on all of them. That is also something that I am actively
looking at and we are looking to close out and address those
and again, put these processes in place to facilitate
innovation.
Chairwoman Waters. The gentleman's time--
Mr. Loudermilk. Thank you.
Chairwoman Waters. --has expired. The gentleman from
Washington, Mr. Heck, is recognized for 5 minutes.
Mr. Heck. Thank you, Madam Chairwoman, very much. Thank
you, Director Kraninger, for being here. Thanks for the phone
call a couple of weeks ago to introduce yourself. I suspect you
know where I am going with my time opportunity today.
As you will recall, I have the honor to represent some
44,000 men and women who report to work every day at Joint Base
Lewis-McChord. I consider it frankly a sacred part of my job to
look out for their best interest. Do you consider it an
important part of your job to look out for the servicemembers
and their families?
Ms. Kraninger. I absolutely do. I have been honored to also
work with servicemembers and their families throughout my
career. And I certainly recognize that Congress created an
office inside the Bureau specifically to ensure that--
Mr. Heck. We will get to that in a second. So have you yet
visited a military base or met with a military community?
Ms. Kraninger. Yes, I have. I was actually at Travis Air
Force Base outside of San Francisco as one of my first trips.
Mr. Heck. I noted that on January 25th, you announced the
hiring of 5 senior positions. We kind of did a little research
and dug down. It does not appear--and I hope I am wrong--as
though any of them is a veteran or a member of the Reserves or
the National Guard.
Ms. Kraninger. I do not recall if any of them are. I can
tell you that it is certainly a consideration in the hiring
process and an important one. And there are a number of
veterans.
Mr. Heck. And yet five senior people were hired without any
of them being veterans or members of the Reserve or the Guard.
In fact, the position of the Office of Servicemember Affairs
Director has been ``acting'' for a year and a half. Can you
share with us today what your specific and concrete plans are
to name a permanent Director of the Office of Servicemember
Affairs?
Ms. Kraninger. I can tell you that I have one. He started
on the job literally--I believe last week. We are gathering--
Mr. Heck. A permanent Director?
Ms. Kraninger. A permanent Director who actually--who is a
veteran, by the way. His name is Jim Rice, and he just started,
as I said, 2 weeks ago, and we are going to gather up again
some more--
Mr. Heck. Somebody is trying to get your attention behind
you.
Ms. Kraninger. Oh. Oh, he starts Monday. Well, then, I am
making news. I thought he was here already since I was talking
to folks about it.
Mr. Heck. Great.
Ms. Kraninger. But he starts on Monday.
Mr. Heck. We weren't aware of that. I want to tell you--
Ms. Kraninger. Yes.
Mr. Heck. I am very pleased that you have done this.
Finally, have you allowed the Bureau's examiners to resume
reviewing compliance with the Military Lending Act?
Ms. Kraninger. I know that we are not in agreement on this
issue, Congressman. I want to just at least note that. I would
say that I do not believe that we have the authority, that is
why I sought, to again specifically--
Mr. Heck. Well, wait a second, they have been doing it.
Ms. Kraninger. --conduct compliance for the Military
Lending Act.
Mr. Heck. They have been doing it for--
Ms. Kraninger. We have robust enforcement authority--
Mr. Heck. They have been doing it since the inception of
the Bureau and it is at a minimum, arguable, at a minimum. I
assert in fact, you absolutely do have the authority to do
this. General Cantwell, who is the former Director of the
Office of Servicemember Affairs, likens failure to exam, as
standing down the guards or the sentinels around military base.
It seems like a perfect analogy--at a minimum, after nearly 10
years of actually doing it, it is arguable given that you have
said that it is an important part of your job to look out for
servicemembers.
Why wouldn't you continue to do that which has occurred for
10 years, if in fact your values are as you state they are?
Because I want to remind you of, I think the eternal wisdom of
the suffragette movement, which in Great Britain and later in
the United States, adopted the slogan, ``deeds not word.'' So
we would be looking for deeds, not words, to comport with what
you assert are your values, that you care about servicemembers.
Ms. Kraninger. We absolutely continue to take enforcement
actions and look at enforcement issues associated--
Mr. Heck. That is completely reactive. If you are not
examining to look for that, then all you are doing is reacting
to the committee--it is as though you have stood down the
sentinels of the base, and only when they have come over the
ramparts, do you react. How is it that you can deny the 10-year
history of these examinations, never having been stated in a
court of law as not being within your authority?
Please be clear. We will not go gently into the night on
the issue of how it is we protect the servicemembers, the
people who put on uniforms and put themselves in harm's way on
our behalf every single day, nor their families, especially in
the context of the long-standing practice of the agency.
Ms. Kraninger. Congressman, to read into the statutory
authority--
Chairwoman Waters. The gentleman's time has expired.
Ms. Kraninger. --is beyond what I believe I should do. I am
staying true--
Mr. Heck. And you are wrong.
Chairwoman Waters. The gentleman from Tennessee, Mr.
Kustoff, is recognized for 5 minutes.
Mr. Kustoff. Thank you, Madam Chairwoman. Thank you,
Director, for appearing today. We appreciate it. If I could, I
would like to follow back up on some comments that you made in
your opening statement, and also the line of questioning by
Congressman Lucas and Congressman Hill, about the small dollar
lending rule, if I could. I do applaud the efforts by the CFPB
in taking and reviewing certain provisions of the rule as the
rule is written.
We know that the CFPB issued a notice of proposed
rulemaking that would examine the underwriting provisions of
the rule and also issue a delay until, I believe August the
19th of this year. I believe that is correct as the compliance
date. While I think that the two notices do not address the
provision governing payments, it is my impression that the CFPB
may be still evaluating the comments and also the evidence
prior to making a decision as to whether to reopen this portion
of the rule as well.
I do have concerns, and I know that Congressman Hill asked
about this as it relates to debit cards, debit cards and method
of payment on the loans. Payment provision, the way I
understand it is written, would apply when a payment is made
through a debit card, despite the fact that this method of
payment doesn't result in a charge to the consumer if there are
insufficient funds.
Now in light of the fact that debit cards could prevent
overdrafts or further economic harm, should the CFPB promote
this method of payment as a preferred choice to consumers
instead of maybe limiting it?
Ms. Kraninger. I certainly have heard a number of concerns
about the payment provisions in addition to the underwriting
portion of the rule. The proposal seeks specifically to address
the underwriting issues because of the access to credit
concerns and the impact to the industry in general as that
relates to access for consumers of credit. On the payment
provisions, we have a petition in hand that is asking us to
reconsider, and under the Administrative Procedure Act, that is
absolutely something that we now need to respond to. So that is
something that we are looking at.
Mr. Kustoff. I would appreciate that. I appreciate your
candid answer. Education is an important part of the CFPB, part
of your mandate, part of the agency's mandate. Can you talk
about what role education has in promoting clarity and
guidance, if you will, to consumers, and also the businesses to
seek and understand the responsibilities that they may have?
Ms. Kraninger. Definitely. I think it is an important part
of our mandate and we strive to put the tools in consumers'
hands, both by working with educators and putting things on our
website to get them the right tools in their hands so they can
make the best decisions for themselves financially. There are a
lot of products and services and a lot of issues and we seek to
have it organized in a way that consumers can get to it readily
and easily.
But it is a challenge, frankly, for any education process,
to understand what the impact of that is and how to continue to
improve that, improve the access to the information, and it is,
I think, an exciting part of what we are doing, that we have
tailor-made for different types of consumers, whether it is
those looking to buy a home, so the whole know-before-you-owe
and homebuyer guides.
If you are looking to get a student loan, if you are
looking to bolster your savings and ways to do that, so all of
those things are critical. I think Mr. Hill or others asked
about understanding what the credit reporting agency's role is,
and what your credit score actually means. So a lot of things
like that, that we are seeking to make sure there is good
information for consumers on.
Mr. Kustoff. Thank you very much. In my remaining time, in
past Congresses in this committee, we have discussed and
debated about an Inspector General for the CFPB. Can you talk
in your term now as Director, as I understand it, now less than
3 months or around 3 months, the importance, in your opinion,
one way or the other, of having your own Inspector General?
Ms. Kraninger. I understand why you are asking the
question, Congressman. I have noted this is a matter certainly
for statute and Congress to consider, and anything that
Congress would pass to address accountability and transparency
concerns that they have, I would welcome.
Mr. Kustoff. Thank you. I yield back my time.
Chairwoman Waters. Thank you. The gentleman from Guam, Mr.
San Nicolas, is recognized for 5 minutes.
Mr. San Nicolas. Thank you, Madam Chairwoman. Forgive me,
Director, is it ``Kraninger'' or ``Kraninger?''
Ms. Kraninger. I accept both, but it is ``Kraninger,''
thank you.
Mr. San Nicolas. ``Kraninger.'' Well, thank you for being
here today and thank you for answering everyone's questions. I
wanted to first begin with a casual observation. It appears
that depending on what snapshot in time you are looking at, at
the CFPB, you have both sides of the aisle upset at some point.
And it has been my experience that when we have both sides
of the aisle upset about something, we are either dealing with
a colossal mistake or a colossal success. But I think that the
variable on either extreme has been the predecessors who have
sat in your chair. And I think that variable has caused either
side of the aisle to want to always try and find balance
because they felt like the boat was tipping too far one way or
too far the other.
And that is why in Chairwoman Waters' bill, the Consumers
First Act, I think she is doing her due diligence in trying to
rebalance the boat that she feels, and I feel because I co-
sponsored it, that your predecessor might have tipped too far.
I do have a deep appreciation for your position. Your
predecessor is the right hand of the individual who appointed
you to the position.
And I can understand how that would make it very difficult
for you to reconsider or walk back or change some of the
activities that he has put into place. And so, at this
juncture, we are left with having to rely on you to be that
source of balance, so to speak, but also with the context of
having to do so with that weight of your predecessor and his
position and how that reflects on the position that you are in.
I wanted to, I guess, tie it all together by saying that
one of the things that provides a lot of stability to
organizations is not just the leadership that is in place, but
everybody behind the leadership. And all of the employees who
make up the organization can have a very strong balancing
effect on whether or not the organization is going to continue
to pursue its purpose and its mission with the veracity for
which it is intended.
And so, I wanted to pose a question to you as to whether or
not you would be open to establishing a precedence within CFPB
to perhaps do a biannual survey of the employees, as to whether
or not they feel that the organization is staying true to its
mission and whether or not you would allow for that survey to
perhaps be done anonymously and provide it to this committee?
Ms. Kraninger. I do appreciate the question because the
people of the Bureau are absolutely essential to how we carry
out the mission and are fundamental to it. They are very
important to me, in supporting my decision-making processes. On
the survey specifically, there is an annual employee survey
that happens. It is anonymous. The Bureau actually has added
some specific questions, Bureau-related, to it over time. And
the results of that are certainly something I am using, looking
forward, so that we can make sure we address concerns that the
staff have.
Mr. San Nicolas. I think that it would be useful for those
results perhaps to be done--for these surveys to be done a
little bit more frequently and for those surveys to even be
forwarded to the committee. Not necessarily as a reflection on
you, but as one of my colleagues on the other side of the aisle
mentioned, it may not necessarily be you who are concerned
about it but those who may come after you.
But if we have that precedent established within CFPB,
especially given the very unique powers that your single
position has, it could really help for this committee to be
able to review those surveys to provide the necessary checks
and balances, because the rank and file employees, the boots on
the ground, might, on an anonymous basis, be willing to express
concerns that, if brought to the attention of this committee,
we may able to address and ask specifically.
So I would like for you to perhaps consider, in the
interest of finding that balance in your position and setting
that kind of precedence, perhaps doing that survey more
frequently and making the results of the survey available to
the committee. Thank you, Madam Chairwoman. And I yield back.
Chairwoman Waters. Thank you. The gentleman from Indiana,
Mr. Hollingsworth, is recognized for 5 minutes.
Mr. Hollingsworth. Good afternoon. I am so excited that you
are here, and I really appreciate the testimony and the answers
that you have given thus far and I really appreciate the work
that I know you are doing and I know you are committed to doing
going forward. Obviously, the CFPB's aims are laudatory, and
many of us welcome the work that will be done in protecting
consumers.
But many of my Hoosiers back home feel that they would been
disempowered by some of the regulatory efforts that have taken
place before you. They feel like they have been pushed further
away from the financial system instead of included in the
financial system. I represent a part of Indiana that has some
suburban areas, a great college town, and also some rural
areas.
And those rural areas are dramatically underserved,
compared to their suburban and urban counterparts, with regard
to financial services. And I wonder, as you continue to look at
the process--you are going on this listening tour, continuing
to undertake an understanding of the wide variety of impacts
that regulatory actions can have on individuals and Americans
from sea to shining sea--if you are continuing to take into
account the fact that the higher the regulatory burden, the
more challenges and hoops these companies have to go through in
order to serve customers and potentially find new customers,
and that more and more people might be pushed aside and pushed
further from the banking system, that 6.5 percent of Americans
remain unbanked and we want to get them into the system.
We want to create better financial futures for them and
then give them the power to create better financial futures for
themselves. And I wondered if you might talk a little bit about
the effort that is being undertaken, just to understand the
other side of the argument, that though the aims are laudatory,
that perhaps sometimes that misguided approach ends up hurting
the very people we all in this committee want to help the most.
Ms. Kraninger. Certainly, the outcomes are critically
important to understanding. I think there are two things that I
would say in response to that. One is that Congress did have
the foresight in looking at our regulatory actions to require a
5-year assessment to say, what was the actual impact of that
regulation. And I am looking at the process of that. I want to
make sure it is robust; I want to make sure we have the
information and the evidence base to actually make a judgment
on that, that is valuable.
Mr. Hollingsworth. Right.
Ms. Kraninger. I will say, with the ones we have done so
far in the mortgage space, it was challenging because pulling
apart various regulations on their own, in terms of the impact
they had on the marketplace, with all of the changes that
happened after the financial crisis, on mortgages, was a huge
challenge, but again, the economists are endeavoring to do
that, and I am challenging them to do that.
I want that 5-year look back to truly be a mechanism for us
to look at reconsideration and address things. The second thing
I would say is very much related. The flexibility that Congress
did give the Bureau is a flexibility that we can take in
applying logic and reason to these things. If something didn't
work, we can throw it away.
Mr. Hollingsworth. Great.
Ms. Kraninger. And that is absolutely what I want to do to
get to the right outcomes to protect consumers.
Mr. Hollingsworth. I love that. The evaluation of these
rules that have been put in place and their effects, not only
on the consumers who were already part of a system but those
consumers who aren't a part of the system, is hugely important
to me and hugely important to my rural Hoosiers back home.
So I really appreciate the fact that you are going through
that robust process and acknowledge that, on occasion, we have
to revise and even remove rules that have had a more
deleterious impact than expected. Now you mentioned a little
bit about the process. The other thing I wanted to ask about
the process is, I know Mr. Mulvaney, under his leadership, had
sent out an RFI to talk about what is the practice that we can
do in order to improve enforcement, and you have talked about
that a lot already.
But I wondered if you might talk a little bit about some of
the early indications that you have gotten. We have seen some
of that referenced, under Mr. Cordray, how enforcement actions
were perhaps taken. But in addition to that, fishing
expeditions were undertaken to where one opened an
investigative process that seemingly had no results and
seemingly cost these companies millions of dollars in order to
provide the information necessary and cost the taxpayer more
and more dollars to go about all these fishing expeditions.
Can you talk a little bit about that and the process that
you are trying to reform there?
Ms. Kraninger. Yes. I certainly want to talk about that
looking forward. I would say from where I sit, the enforcement
tool is one that is not the first tool we used. For entities
that are seeking to comply, for entities that self-report, that
is the mechanism for examination. The supervisory authority we
have is a great way to work with those kinds of entities, where
enforcement is, I think, most powerful is obviously those who
are not seeking to comply and who are bad actors in the system
and are engaged in unfair practices and they are the ones that
enforcement, under my leadership, will go after.
Mr. Hollingsworth. Great. Well, I certainly agree with
that. Mitch Daniels, the Governor of Indiana, used to say we
are going to hit the bad actors with a sledgehammer but we are
going to enable and empower the good actors to serve more
Hoosiers and more Americans. Thank you for the service that you
undertake, and with that, I will yield back.
Chairwoman Waters. Thank you. The gentlewoman from
Michigan, Ms. Tlaib, is recognized for 5 minutes.
Ms. Tlaib. Thank you so much. Thank you, Director, for
being here. The 2018 report detailed how a subprime auto-
lending company called Credit Acceptance Corporation has been
preying on consumers for decades, extending credit to people it
knows are likely to default. Indeed, the Credit Acceptance
Corporation has admitted that it repossesses 35 percent of its
vehicles it finances.
And its debt collectors have hounded consumers for as many
as 25 years. Ground zero for this crisis, and I believe it is a
crisis, is in my district: one out of eight civil lawsuits
filed in the district court in my district and collection cases
filed by the actual corporation. And I mentioned 12 percent of
those are open civil lawsuits in my district.
And tens of thousands of my constituents are subject to
wage garnishment actions which can take up to 25 percent of
their wages and push more families into bankruptcy. Please tell
me what the CFPB is doing to hold predatory subprime auto
lenders accountable, including what the Bureau is doing to hold
the Credit Acceptance Corporation accountable.
And one other question, if you can remember that one for
me, please, I just want to get this one in because this is the
one that really shocks me. Increasingly, subprime auto lenders
have been using kill switches that allow them to turn off and
lock a car when a consumer misses a payment. Owning or leasing
a car is the price of admission to the economy and society in
much of America, including my district, where public transit
fails to connect our region very much. And we still struggle
with it. What is the Bureau doing to investigate the use of
kill switches? And do you think it should be permitted?
Ms. Kraninger. Congresswoman, I appreciate where you are
coming from, certainly this being a priority. I can tell you
that I have not committed to memory every enforcement action
that was reported in the reports, I apologize for that; 86 days
on the job and things that occurred prior to my arrival. But I
can tell you that this is an issue, so we will get back to you
on specifically what is happening with the Credit Acceptance
Corporation and where the status of that is and holding them
accountable pursuant to what I presume is a consent order, but
as I said, I don't have it in front of me.
With respect to auto lenders in general and our posture, we
are continuing to conduct the supervisory work, and look at
enforcement actions in a wide variety of markets and areas
within our purview. This is something that I will continue to
have more conversations with the staff about specifically.
As I said earlier, the enforcement matters that do come to
the Bureau come via myriad methods, frankly certainly
complaints from consumers through the supervisory process from
State partners whether it is attorneys general or State
supervisors. And so those opportunities to work in partnership
with them are also important.
Ms. Tlaib. So are you familiar with kill switches?
Ms. Kraninger. Oh, I'm sorry--on kill switches--
Ms. Tlaib. Please do, yes.
Ms. Kraninger. I am familiar with it as a concept, but I do
not know at this stage what the Bureau has looked at on that
issue.
Ms. Tlaib. I would love maybe a follow-up, maybe
investigate more, Director. But do you think it should be
permitted? I think this would lead to a huge crisis in our
country to have kill switches on these vehicles, especially
when we know that they are targeting certain communities they
know will not be able to pay for the vehicle, and they have no
business loaning to those individuals in the first place.
One of the things that I heard in committee--profits are a
good thing, and I am not against that, I don't think anybody
really is, right? But not when it is a scam. When it is
scamming the people we serve, and it is a scam, a scheme, or
whatever you want to call it. We serve people, not the
corporations. And I feel like the Bureau--the full intent was
that. Do you believe that we even need the Bureau at all?
Ms. Kraninger. I absolutely believe consumer protection is
a responsibility of the Federal Government, and as I said,
Congress created the Bureau to that end.
Ms. Tlaib. One of the things that I struggle with also is
where people--I think the first thing I heard in committee was
``regulation by enforcement.'' I am a lawyer just like you, and
I don't know--how do we make people do the right thing?
Especially when it comes to corporate greed, how do you
make a corporation not do the things that they do, primarily
because they are looking only at numbers, not the impact or the
harm on people?
And I applaud you for saying you want to prevent the harm,
but the only way you could ever do that is to really hold them
accountable, and that is to hold investigations and open them
up, and really hold their feet to the fire. It is a really
important approach, I think for the Bureau, and I really would
urge you to do so.
Chairwoman Waters. The gentleman from Tennessee, Mr. Rose,
is recognized for 5 minutes.
Mr. Rose. Thank you, Chairwoman Waters, and Director
Kraninger, thank you for being here with us today and
subjecting yourself to these questions. I think it is an
important part of the transparency that the American people
demand and deserve, and my only concern is that I am not sure
you are really obligated to be very forthcoming, and I would
like to change that so that both you and those who might follow
you are held to a stricter standard by the Members of this
Congress.
Back in my district, and I am a new Member of Congress
having been here about 8 or 9 weeks--one of the people I look
to for guidance and advice is a fellow named Senator Ferrell
Haile, and Senator Haile is a Senator in the State Senate in
Tennessee, and he has a good way of saying it, I think when it
comes to the regulatory function of government and that is that
he views the role of regulators to be to help the regulated
comply, not first to punish them when they fail to comply.
I think Senator Haile is exactly right about that, and so I
encourage you as you pursue your reign--and I use that word
somewhat euphemistically--at the CFPB that you would encourage
the staff around you, including the career staff to keep in
mind that what we want is to protect consumers, not to punish
premarket actors when they might make a mistake.
And so I encourage you to go about that business
aggressively so that free market actors know what they are
supposed to do, and don't just get punished for it.
I have a little boy who is 17-months-old, I think I showed
you a picture of him recently, and his name is Guy. Guy is at
that age where he is starting to explore the boundaries of his
world, and anyone who has children has been through that. Guy
is constantly looking to see what he can get by with, and what
can he do? And so he has learned very much the meaning of the
word, ``no.''
In fact, he is at that very early stage of using the word
``no.'' And so what I have learned as a young parent--or a new
parent, I am not young--with a new child is that it is
important to set those boundaries and to set them clearly.
And so again my point here is that I hope that your
leadership at the agency will guide the agency away from
regulation by enforcement, or in some cases what I have seen is
regulation by press release and more toward regulation by rule
making and by setting boundaries, and by working with the
regulated and the industries that touch consumers, so that they
understand what they are supposed to do and so they can follow
the rules.
Guy likes to follow the rules; he doesn't like to get
spanked. And I hope my colleagues on the other side of the
aisle would agree that it is probably not good when Guy gets a
lot of spankings for breaking the rules. It would be better if
we told him what the rules were and then he learned to follow
them.
I want to echo the comments from Mr. Lucas and Mr. Hill and
Mr. Kustoff about the small-dollar rule, particularly the
ability-to-repay section, but also the payment provision
including both ACH and debit card use, and I think those are
good options for consumers, and I hope you will take a strong
look at those and make sure that we are not denying these
important tools to customers who want to borrow money and need
access to credit.
I want to shift gears now and talk a little bit about
Section 1035 of Dodd-Frank, which conferred jurisdiction over
private student loans to the Bureau. During the reign of one of
your predecessors, they saw fit to expand the scope beyond
private student loans, which is clearly set out in the statute,
I think without statutory authority to do so, and brought an
enforcement action that is still ongoing today against what
they thought was a borrower harm, but where no borrower harm
has been identified, it is my understanding. And I know you
can't comment on existing litigation, but I would encourage you
to take a strong look at those enforcement actions where
millions of dollars have been spent, and yet no borrower harm,
it is my understanding, has yet to be identified.
I know you have an unlimited budget, courtesy of the
Federal Reserve, and so unfortunately consumers end up picking
up the tab for defending those actions even when they are
meritless. And so I hope you will take a look--will you take a
look at those cases and make sure that there are justifications
for continuing them?
Ms. Kraninger. I certainly am looking at all the ongoing
litigation and getting familiar with the history of the issues.
Chairwoman Waters. The gentlelady from California, Ms.
Porter, is recognized for 5 minutes.
Ms. Porter. Hello, Director. Could you please explain to
this committee the difference between an interest rate and an
APR?
Ms. Kraninger. APR is the extrapolation if it were a 1-year
term in terms of the loan. So that is the calculation that is
laid out in particular.
Ms. Porter. So if I take the stated interest rate, and do
the math to deal with the fact it is annualized, the APR, I
would be correct?
Ms. Kraninger. Yes.
Ms. Porter. Okay. Ms. Kraninger, the annual percentage
rate--and I will be happy to send you a copy of the textbook
that I wrote, which explains that the APR is derived from the
finance charge, the amount financed, and the payment schedule.
It is a mathematical transformation of those three numbers into
the cost of credit expressed at a yearly rate.
Ms. Kraninger. It is a simplification, I understand, that
you know well--
Ms. Porter. Well, my concern is whether you know well,
ma'am, because you are the one responsible for making sure that
American consumers know well when they take out loans. Let's do
an example. I am a single mom, I am by the side of the road,
and my car is broken down. I need money right now. I pick up my
cell phone, and I call Speedy Cash, an online lender. I am in
California, I have to get to work, and I have to have the cash
to fix my car to get to work.
I can barely read the little disclosure on my phone. The
cost of Speedy Cash is--you may want to write this down--$10
per $100 borrowed. I need $200 to fix my car. The origination
fee is $20. The term of the loan is 2 weeks, typical, for what
I get paid. What is the APR? And if you would like a
calculator, we have one for you.
Ms. Kraninger. I understand what you are getting at. At the
end of the day, the issue is certainly when you actually are
able to repay the loan and whether or not you take out an
additional loan going through this and you are certainly--
Ms. Porter. Ms. Kraninger--
Ms. Kraninger. --short-term small dollar--
Ms. Porter. Reclaiming my time. Ms. Kraninger, I am asking
you what the APR is. I am not asking you to wax eloquently on
the pros and cons of--
Ms. Kraninger. I understand. This is not a math exercise,
though, this is a policy conversation about what the
implications are--
Ms. Porter. Reclaiming my time.
Ms. Kraninger. --and what the appropriate level of an
interest rate--
Ms. Porter. Reclaiming my time.
Ms. Kraninger. And--
Ms. Porter. Reclaiming my time.
Chairwoman Waters. The time belongs to the gentlelady from
California.
Ms. Porter. Thank you, Madam Chairwoman. I am asking if you
could even ballpark on a $200 loan for a term of 2 weeks with a
$20 origination fee and a rate of $10 per 100, that is 10
percent. Ballpark, what is the APR?
Ms. Kraninger. And I am telling you that the APR
calculation is--
Ms. Porter. Is that a ``no?''
Ms. Kraninger. --a math exercise and the question is--
Ms. Porter. Okay, but it is a--
Ms. Kraninger. --when am I going to pay off the term of my
loan--
Ms. Porter. Reclaiming my time.
Ms. Kraninger. --and what are the other issues that are
happening in my life?
Ms. Porter. Reclaiming my time, I take that as a ``no,''
that you cannot do the calculation, but I am particularly
concerned about this given that you could not even correctly
define the APR. Changing directions, since that isn't going
well, do you think the Military Lending Act harms
servicemembers?
Ms. Kraninger. I think Congress passed the Military Lending
Act to provide protections to servicemembers.
Ms. Porter. Can I count on you personally, in your role as
Director, to robustly enforce and defend the Military Lending
Act?
Ms. Kraninger. The Bureau has very clear enforcement
authority when it comes to the Military Lending Act and
absolutely, we will carry out that authority.
Ms. Porter. In your capacity as Director, how many military
servicemembers or their families have you met with since you
began service, to understand the way in which servicemembers--
the challenges that they face in the marketplace for consumer
financial services?
Ms. Kraninger. With 86 days on the job, I visited Travis
Air Force Base in San Francisco--outside of San Francisco--and
I met with a number of servicemembers and educators, their
C.O.s, I met with the chaplain, I met with a number--
Ms. Porter. Great. Thank you. I am glad you did that.
Ms. Kraninger. --at the air force base.
Ms. Porter. The Consumer Financial Protection Bureau, in
2015--I am going to contrast two things--took 56 enforcement
actions and there were 168,000 complaints; in 2016, 42
enforcement actions, 191,000 complaints; in 2017, 32
enforcement actions, 243,000 complaints; and in 2018, 6
enforcement actions. The number of complaints is going up and
your number of enforcement actions is going down. Thank you.
Chairwoman Waters. The gentleman from Ohio, Mr. Gonzalez,
is recognized for 5 minutes.
Mr. Gonzalez of Ohio. Thank you, Madam Chairwoman. Thank
you, Director Kraninger, for being here and sitting through
this interesting experience, to say the least.
You testified earlier and I think it has been well-
established that the CFPB has broad authority and almost
unilateral authority to do essentially whatever it wants. And I
think Director Cordray, when he was in your shoes--and we are
going to hear from someone just outside my district later on
about just how abusive that can be. To me, as we sit here, it
makes no sense why Congress would provide an agency with such
broad authority and no accountability. I believe the lesson we
have learned today, quite frankly, is that neither side is
really happy with this outcome and that we need structural
reforms.
I think the case for structural reform is actually very
clear and that it should be a bipartisan initiative. One of my
concerns--and I have had this concern since we started this
Congress--is that all the bills that come forth are purely
partisan, appear to have no input from the other side, and so
therefore I can't help but sit here and think that as long as I
am in Congress, if this is going to continue to be the M.O.,
that we will be right back in this position next time you are
here and for the next Director and the Director after that.
We simply have to solve these in a bipartisan way, and I
think we all agree that the CFPB is just not working the way
that we want. Having said that, the issue specifically that I
want to ask you about today is the 3 percent cap. As you are
aware, the Dodd-Frank Act requires that the CFPB cap, the total
on mortgage cost of 3 percent of the loan amount. I am
personally not a big believer in price controls. I think you
have all kinds of unintended consequences. You see that
wherever they are used. Given the fact that just creating a
mortgage costs close to $8,500 per loan, how do you see this
affecting lower loan amounts, loans for middle-income and
lower-income folks?
Ms. Kraninger. Certainly, this is something that the Bureau
has looked at and that a number of lenders have mentioned to
us, particularly smaller banks and community banks and credit
unions and entering into these loans and the cost of even
providing that service to their members. So I recognize the
challenge that you are laying out. There is not a decision
directly before me at this time. This is something that we are
looking at carefully.
Mr. Gonzalez of Ohio. Okay. And then are you aware of any
studies that have been done to kind of look at the effects that
this has had? And if not, are you currently looking at
conducting any yourself?
Ms. Kraninger. I would like to get back to you on that. I
think I know the answer, but I would rather give you an
accurate answer.
Mr. Gonzalez of Ohio. That is fine. And then switching
gears, I want to touch base on what I think is a positive
initiative taking place at the CFPB. Too often, I think
lawmakers and regulators are not forward-thinking with our
ideas. This is why I was encouraged to see the CFPB with the
No-Action Letter proposal. Can you discuss how this proposal
would allow for innovation but also ensure that consumers
remain protected?
Ms. Kraninger. Absolutely. I do think, as I have said
before, facilitating innovation is an important part of our
mission. I think there was a recognition, frankly, in the past
by the Bureau that it is a challenging balance to strike. And
the prior No-Action Letter policy was a step in seeing that we
didn't get entities coming forward, wanting to use it. We are
looking at reassessing it.
We issued the new No-Action Letter proposal with a number
of protections for consumers in place, first of all, that there
is a self-selection. These are entities that are voluntarily
coming forward because they are seeking a way to provide a
service and make sure that they are complying and make sure
that they understand what the rules are.
There is, of course, the application process where they
would have to identify consumer harms, if we laid it out. The
Bureau reviews that. We certainly could revoke that, in what
was stipulated. And there is room for reporting, as well as
enforcement action where the entities would not comply. So, we
have some guardrails. We got back comments on it, too. So we
are looking at those comments, but I would like to put a robust
process in place.
Mr. Gonzalez of Ohio. Great. Thank you. And I yield back
the balance of my time.
Chairwoman Waters. The gentlewoman from Ohio, Mrs. Axne, is
recognized for 5 minutes.
Mrs. Axne. Thank you, Madam Chairwoman, and thank you,
Director Kraninger, for being here. I appreciate it. I just
want to follow up on Ms. Porter and Mr. Heck's earlier
questions about our military. In my State, in Iowa alone, we
have 255 active duty men and women and another 10,000 National
Guardsmen.
When you took office as Director, I was really hoping that
you would reverse Mr. Mulvaney's misguided decision not to
supervise the Military Lending Act. In your response to Mr.
Heck, you said that you don't have the authority to conduct
examinations. However, in your opening statement, you said that
supervision should be a more prominent tool.
Can you provide me with a legal analysis backing up this
decision not to use that tool? Because I have a letter, right
here, from 33 State attorneys general, including my own Tom
Miller from my own home State, that said you do have that
authority and that you are failing to abide by your statutorily
mandated duty to enforce the MLA by not using it.
Ms. Kraninger. I have asked Congress for this authority. I
would very much like to get this authority. As you look at the
Dodd-Frank statute, there were a number of places where the
authority on supervision was specifically limited. The
reference that I think the people are hanging their hat on is
in--
Mrs. Axne. I appreciate that, but can you provide me with a
legal analysis backing up your decision?
Ms. Kraninger. I'm sorry. I was trying to get to that, but
if you would like it in writing, we can do that as well.
Mrs. Axne. What is the exact legal--
Ms. Kraninger. Yes. So what the legal pin that people are
hanging their hat on here is 1024(b)(1)(c) that gives the
Bureau the ability, and I want to make sure I say it properly,
to assess and determine risks to consumers. It is to conduct
examinations, and to do that in a very broad sense. But again,
it is very deep in where limitations are already otherwise
provided.
Mrs. Axne. I understand what you just said, but I am not
following where there is a legal decision to not use that tool
of oversight.
Ms. Kraninger. So the reason not to, again, it is the
reading of that specific language that is the point of
contention in where I made my determination that I do not have
the authority to do it. It is that--
Mrs. Axne. So am I correct--
Ms. Kraninger. There is an encouragement of an incredibly
broad reading of that provision that would actually open the
door to all kinds of other things--
Mrs. Axne. Reclaiming my time, please. So am I correct
here, when you said you made the decision to not use that
authority, that you would discount the legal decision by 33
State attorneys general, including my own attorney general, who
is the longest-serving attorney general in this whole United
States?
Ms. Kraninger. I met him, yes.
Mrs. Axne. Wonderful, isn't he?
Ms. Kraninger. Yes, he is. I am saying I made the
determination that that statute does not actually grant this
authority in this case.
Mrs. Axne. Okay. So if I am hearing this correctly, you
believe that your understanding of this authority outweighs
that of 33 State attorneys general, including the longest-
serving attorney general in the United States?
Ms. Kraninger. I am telling you that Congress vested this
authority and responsibility for running this agency in the
Director, and that is me. So, yes.
Mrs. Axne. Well, thank you so much for that. I would argue
that the lack of supervision puts all the onus on our
servicemembers to fix, and that absolutely contradicts with our
earlier statement that said prevention of harm is your primary
goal.
But moving onto another topic that I know we are all
concerned with, 65 percent of my Iowa college students did have
student loans in this past year, owing an average of almost
$30,000.
But despite that--and more than $1.5 trillion in student
loans nationwide--unfortunately, Mr. Mulvaney eliminated the
CFPB's office for protecting students.That was the Office of
Students and Young Consumers. Do you, and I am not tying you to
what his decisions were, but I am asking if you will
reestablish the Office of Students and Young Consumers?
Ms. Kraninger. There is an office for protecting students;
it is called a section. I don't want to parse things or make
you think things are different. But we have a group of people
at the Bureau who are focused on student issues, and that
continues. I have actually posted the job that is a statutorily
required position to hire, which is the private education loan
ombudsman--so that position would leave that office.
Mrs. Axne. I appreciate an office that serves our students,
but I believe earlier you mentioned that it is about financial
literacy, less about financial protection. Is that correct?
Ms. Kraninger. It is the same organization that office was
in before. So that is--
Mrs. Axne. So are you focused on financial protection for
our students or financial literacy? What is the priority?
Ms. Kraninger. The organization, writ large, our
responsibility is consumer protection. And we do that using all
of the tools that Congress gave us.
Mrs. Axne. But I believe that what you are providing more
is financial literacy. Is that correct?
Ms. Kraninger. So again, the office that you are referring
to that was the source of concern existed in that same division
which is called consumer education and engagement.
Mrs. Axne. Okay. Thank you.
Chairwoman Waters. The gentlelady's time has expired. The
gentleman from Wisconsin, Mr. Steil, is recognized for 5
minutes.
Mr. Steil. Director, thanks for joining us. If there is any
benefit of being at the end of the dais at the end of a long
hearing, it is that I get to hear a lot of my colleagues on
both sides of the aisle ask you questions.
If there is one theme, and it really seems like there is
today, it seems like both sides want to provide oversight to
CFPB, which is kind of interesting, because we have an entity
that doesn't allow for congressional oversight. And if you look
at the funding mechanism, it comes from the Fed. So you would
logically think, being relatively new to Congress and from the
private sector, that logically that oversight would stem from
the Fed. But that is not true. It is an independent entity
without oversight, so if I look at the questions--some of which
seem a little big badgering to you--being from Wisconsin, I
like the Badgers in general, but it seems like you are getting
badgered. Congress should sit and have that conversation as to
how we allow Congress to do our role of oversight and not to
allow independent agencies to be off and running. But that is a
conversation for us; that is not a conversation for you.
So I would like to ask you a couple of questions. Early in
your tenure you said that the Bureau would follow the rule of
law and not engage in regulation by enforcement. And I am
concerned that there are still cases of regulation by
enforcement that are ongoing inside the agency. And so I would
like to ask you, have you conducted a review of the factual
basis for CFPB's claims in the cases that it is currently
pursuing?
Ms. Kraninger. Congressman, I appreciate the question
fully, and I take that responsibility to do that. In the 86
days that I have been Director, I have not gone through every
case. We have been looking at the cases, particularly
enforcement actions as they are coming to decision. But that is
something that--
Mr. Steil. Understood. So you can't assure us that today,
regulation by enforcement is not occurring?
Ms. Kraninger. I can tell you that I believe that the staff
are trying to carry out the mission, and are following the
direction that I have given them as the leader. They welcome
the stability and consistency and my approach to this, so I
have had some very good conversations with them.
I believe that they are seeking to follow the direction.
The one thing I would say is that it is challenging when you
have ongoing actions, there is a regulatory record--there is a
litigation record, there is a reputation with the courts in
terms of making sure that we continue to be recognized from
that vantage point too. So all of those things need to be
considered as we look at what actions we might take going
forward.
Mr. Steil. I appreciate that--I appreciate your direction,
obviously new to the tenure, but I will just reiterate my
concern that we are looking at cases where there are actual
consumers who are treated illegally or harmed rather than
looking at the broad picture. And so I appreciate your efforts
in that regard.
Before coming to Congress, I served on the University of
Wisconsin Board of Regents, and was heavily involved in higher
education. And so student loan debt is front of mind for me, as
we look at student loan debt increasing dramatically
approaching $1.5 trillion that is sitting out there. And given
that CFPB's mission is to protect and educate financial
consumers, I assume you are concerned with this trend of
increasing student debt?
Ms. Kraninger. Yes, I am.
Mr. Steil. What role can the CFPB play in improving the
outcomes for students and their families? What are you working
on?
Ms. Kraninger. There are a number of things--I referenced
earlier some of our education efforts, there is a literacy
component to this, certainly in terms of understanding when you
actually enter into a loan what that means for you.
We have a few things going on in this space, one is seeking
to hire the person who is going to be responsible for thinking
about these issues on an hour and minute basis as opposed to
where I am coming from.
So that position is out to hire, and Congress created that
position of the private education loan ombudsman. The other
thing that Congress directed the Bureau to do is to enter into
a memorandum of understanding with the Department of Education.
Obviously, the largest in the student loan market--the
largest part of it is the Federal Government in terms of both
the lender and the servicing arrangements and by contract that
they enter into. So that is an important relationship that we
are just starting--at least under my tenure to make sure that
we can work on there. I hope to have some progress on that
front before the next time I come before you.
Mr. Steil. I appreciate that. I look forward to following
up, and I appreciate your efforts in those regards. Thank you.
I yield back the remainder of my time.
Chairwoman Waters. The gentleman from Illinois, Mr. Casten,
is recognized for 5 minutes.
Mr. Casten. Thank you, Madam Chairwoman, and thank you
Director. Staying on the theme of student loan debt, as you
know, in our next panel we are going to have Seth Frotman, who
in August of 2018 resigned from the CFPB, and in his
resignation letter to your predecessor, he said that the
Bureau, under your leadership, has abandoned the very customers
it is tasked by Congress with protecting. Are you aware of any
changes that were made in response to his concerns with the
Bureau?
Ms. Kraninger. I can tell you certainly I am taking a fresh
look at everything that the Bureau does. The office of
students, which is now a section focused on student issues,
there is certainly a robust focus on research and other things
that we need to do across markets. I can't speak specifically
to those allegations, frankly, but I am certainly making sure
that we are protecting the consumers that we are directed to
protect.
Mr. Casten. Between August and March, the ombudsman who was
tasked to be your ombudsman said that you were failing in your
obligations that were granted by Congress. So are you aware,
during the prior 6 or 7 months, whether any changes were made
to address those concerns?
Ms. Kraninger. So again we--I moved to hire that position,
it is a statutory position--it is important to have someone who
is carrying out those responsibilities. That is certainly where
I am going to go in my tenure is working with that individual
to set the path forward.
Mr. Casten. Okay, well, let me roll back the clock a little
bit earlier then. Back in January of 2018, acting Director
Mulvaney said, ``We work for the people and that means
everyone, those who use credit cards and those who provide
those cards, those who take out loans and those who make them,
those who buy cars and those who sell them.''
Essentially, he was saying that he saw an obligation both
to consumers and lenders. Do you share Mr. Mulvaney's sentiment
that your job is to serve both the consumers and the industry?
Ms. Kraninger. The Dodd-Frank Act, in fact, gives us a
number of responsibilities--and just speaking specifically to
industry setting a fair and competitive marketplace or setting
it is an overstatement. Supporting a fair and competitive
marketplace is certainly part of that niche, and I would say
that does help lenders--good lenders that are looking to offer
credit and help consumers--
Mr. Casten. No, but I am asking specifically--
Ms. Kraninger. --and reducing regulatory burden. Those are
the two things with respect to the market and the lenders
themselves for which we have a responsibility.
Mr. Casten. I am asking very specifically--in the title of
the Bureau is ``Consumer Protection Bureau,'' not ``Lender
Protection Bureau.'' Is it your experience that lenders are
regularly victimized by consumers and need Federal protection?
Ms. Kraninger. I understand what you are saying,
Congressman. But I would say that the impact to consumers of
what regulatory actions are taken vis-a-vis the market are the
things that we are looking at. When there is a burden or a
cost, the lenders are in many cases passing that on to
consumers, so it has a consumer impact.
Mr. Casten. So what--
Ms. Kraninger. That is the part that is our focus is
certainly the consumer impact.
Mr. Casten. So it is your view that the Consumer Financial
Protection Bureau has an obligation to pursue a deregulatory
agenda at the expense of consumer protection, is that what you
are suggesting?
Ms. Kraninger. I am telling you that Congress gave us as a
responsibility among others, that we need to weigh--and I need
to weigh in every action that we take, that regulatory burden
is a consideration.
Mr. Casten. I guess I would submit to you that Mr.
Mulvaney's quote was not held by his predecessor. My last
question is, in March of 2018 the Department of Education said
that student loan services should be exempted from State rules
that may be tougher than Federal law. This matters for us in
Illinois because we recently passed a student loan bill of
rights, and all other States have adopted a wide range of
requirements to protect borrowers and keep students in check.
Do you agree that the Federal Government should be able to
override States' rights, and that States' rights should not be
allowed to set a higher standard of protection than the Federal
Government provides when the Federal Government is failing to
fully protect consumers, in the views of the States?
Ms. Kraninger. There is a lot packed into that question,
Congressman. I would tell you that certainly what is happening
in the student lending marketplace is important for the Bureau
to understand. We have a responsibility to act from many
different facets on that and I certainly do, from my
standpoint, as a very general matter, support the States'
abilities to exercise their authorities on behalf of their
consumers in a variety of ways.
That is something that is important. When it comes to this
issue that you raised very specifically, that is something that
I think we will need to talk to the Department of Education
about. I would say having that conversation is something I have
not gotten to yet, but it is important. I wanted to have my
private education loan ombudsman in place before we had that
conversation.
Chairwoman Waters. The gentleman's time has expired.
Mr. Casten. Thank you.
Chairwoman Waters. The gentleman from Texas, Mr. Gooden, is
recognized for 5 minutes.
Mr. Gooden. Thank you, Madam Chairwoman. And thank you,
Director, for the great work you are doing. I realize your job
is not to comment on pending legislation, but to carry out what
is already passed. Would you agree with that?
Ms. Kraninger. Yes, thank you.
Mr. Gooden. And kind of think going down the same path with
respect to congressional intent of the legislation that created
your CFPB and with your oversight responsibilities, do you feel
that the CFPB has oversight authority over insurance products
in the insurance industry?
Ms. Kraninger. The Dodd-Frank Act specifically precluded
activity that is State-regulated when it came to insurance.
Mr. Gooden. So that would be a ``no?'' Okay, thank you. I
yield back.
Chairwoman Waters. The gentlewoman from New York, Ms.
Ocasio-Cortez, is recognized for 5 minutes.
Ms. Ocasio-Cortez. Thank you, Madam Chairwoman. Many of my
colleagues here today have rightfully highlighted the extent of
the student loan crisis. And it is not just a concern, it
really looks like it is a debt crisis that is going to get
worse. And so I want to make sure that we are doing everything
we can to make sure that we are preventing what could be a
major threat to our overall economy.
Bloomberg News has reported that the student loan debt
crisis is about to get worse, and in fact, the next generation
of graduates will include more borrowers who will never be able
to repay their loans. Student loans are growing--I have seen
almost 157 percent cumulative growth, compared to auto loans,
which is just 52 percent. They are being issued at
unprecedented rates as tuition and interest rates get higher
but wages aren't keeping pace.
Student loan debt currently has a 90 percent delinquency
rate of all household debt despite the fact that it is now the
second largest amount of debt load. So all of these things are
pointing to a crisis. In fact, Fed Chairman Powell told
Congress last year that these delinquencies may come with a
significant negative impact on the broader economy.
It is preventing household formation: millions of houses
and apartments aren't being purchased. And in fact, Ira Jersey,
the chief U.S. rate strategist for Bloomberg stated, ``You have
to wonder if the lack of transparency surrounding student loans
is intentional.'' He also said that students shouldn't assume
their loan servicer has their best interests in mind. So with
all that, I have a few questions to make sure we are addressing
these issues.
Section 1035 of the Dodd-Frank Act requires the Bureau to
send Congress reports every year documenting consumer
complaints submitted by student loan borrowers. And the Bureau
has sent a report to Congress each October from 2012 to 2017.
Did the Bureau publish that report in October 2018, as required
by Federal law?
Ms. Kraninger. No, because the position that is required to
submit it under Federal law, which is the private education
loan ombudsman--there was no one in that position at the time.
Ms. Ocasio-Cortez. So, has it been filed in the 5 months
since?
Ms. Kraninger. No, it has not been. I am actually in the
process of hiring that position and that is, again a part of
the reason why it has not been done.
Ms. Ocasio-Cortez. When do you think we will be able to get
that report?
Ms. Kraninger. It is going to take a little bit of time.
There are staff in the student office, in terms of--
Ms. Ocasio-Cortez. Is there a projection? Six months, a
year?
Ms. Kraninger. I would certainly hope that we can get the
next report in timely. It is just what time period that is
meeting. I hope to get someone on board relatively quickly, but
it is a--
Ms. Ocasio-Cortez. So no hard time commitment on when we
will get the 5-month-overdue report?
Ms. Kraninger. I am happy to get back to you,
Congresswoman, on that, specifically.
Ms. Ocasio-Cortez. Great. Let me see here, in December of
2016, the Bureau explained how banks and colleges are teaming
up to gouge college students with high debit bank account fees,
and committed to publishing a report each year documenting the
risks to students as part of the annual report on college
credit card agreements required by Congress.
In December of 2017, did the Bureau include information in
its college credit card report about banks like Wells Fargo
that are charging exorbitant debit card fees on college
campuses across the country?
Ms. Kraninger. My understanding--and I responded to another
one of your colleagues earlier on this--is that the report
included what was statutorily required to be included, but that
does pre-date me.
Ms. Ocasio-Cortez. Great. And I am concerned as well that
in this balance between wrongdoing by some lenders and
consumers, that the agency may be erring too much on the side
of these lenders that may be engaging in predatory practices.
In July of 2017, the CFPB settled with TCF National Bank, a
regional bank in Minnesota. The CFPB issued a fine in 2017,
claiming the bank deceitfully forced customers to opt into its
overdraft services for debit and ATM card transactions,
subjecting them to costly fees when their balance dropped too
low. In fact, the CEO of the bank that was sued, was also the
former head of the Minnesota Republican Party. He owned a yacht
named, ``Overdraft.'' But the CFPB issued a fine of $5 million.
He agreed to remit $3 million of that to the Federal
Comptroller's office. The TCF carries assets that are very
large, and I am wondering why the agency agreed to reduce the
amount of their fine by $3 million?
Ms. Kraninger. Congresswoman, that case in particular,
predates my term, but we are happy to get back to you on what
we can on that.
Chairwoman Waters. The gentlelady's time has expired. The
gentleman from Virginia, Mr. Riggleman, is recognized for 5
minutes.
Mr. Riggleman. Thank you, Madam Chairwoman, and thank you,
Director, for testifying today. You know, I am pretty new to
politics, so before I get started, I would like to address an
issue that many of my colleagues have mentioned today, which is
the politicization of the Bureau. And I would like to note that
former Director Cordray, who ran the CFPB from 2012 to 2017,
then ran for Governor of Ohio, and was a Democrat. So I think
it is inherently political, it is seems to me, based on, we
passed a law for the CFPB, but that is suddenly new to
politics. So maybe I am naive.
It is not a secret and it shouldn't be a secret that I am a
freshman Member of Congress. And compared to many of my
colleagues on both sides of the aisle, I don't have a whole lot
of experience. But even without political experience, I have
live experience as a former and current business owner; as
somebody who dealt in strategic intelligence, and helping DHS;
and also as a 9/11 veteran.
And there is something I wanted to thank you for, I looked
at your resume. Thanks for what you did during 9/11. I was part
of that operation as soon as it happened, so it is something I
am very impressed with. I am a novice in politics, but after
looking at your resume, I think you are uniquely qualified to
do this.
With me doing multiple businesses, people would say, ``Why
are you running for politics? Why are you trying to get into
government?'' I think life experience in trying to manage
people but also resources, assets, operational issues, measures
of effectiveness, anything to do with H.R., but also mission
creep, mission specifics, and every piece of language when you
are actually running an organization that big is an incredible
challenge. So I thank you for being here today. You are not a
novice; I am.
So anyway, as we get going, as Director of the Consumer
Financial Protection Bureau, you have an awesome amount of
power and authority in the Federal financial regulatory sphere.
Wouldn't you agree?
Ms. Kraninger. I would agree.
Mr. Riggleman. Yes. And--
Ms. Kraninger. As granted by Congress.
Mr. Riggleman. Yes, granted by Congress. And on the website
of the CFPB, it reads, ``The aim is to make consumer financial
markets work for consumers, responsible providers, and the
economy as a whole. We protect consumers from unfair,
deceptive, or abusive practices and take action against
companies that break the law. We arm people with the
information, steps, and tools that they need to make smart
financial decisions.''
As a new Member of Congress, I can already see--including
as recently as yesterday in the committee--that the debate
about your agency is not about the Bureau's mission or
objectives, but about a power grab that is dictated by the
political seesaw of what party is in the Majority. I fully
support your agency's mission and I think most of my colleagues
would agree with that.
My question for you, Director Kraninger is, in your
opinion, what has your agency done well to protect consumers
and what are some areas where that agency has fallen short of
its mandate?
Ms. Kraninger. I appreciate that question, Congressman,
because we always seek ways to continually improve how we are
delivering on that mission, and that is certainly where I am
coming from. I can tell you, with my interactions with the
staff, they have raised themselves opportunities to improve,
issues to address, ways to do things better and differently,
and I am encouraging that kind of thinking because, again, I
don't think it is a full-scale criticism of the past.
You know, this is an agency similar to--again, experiences
that you noted--standing up any agency or an organization, in
the early days there are a lot of mandates that are before you
and a lot of things that have to happen in a short period of
time given pressure and, frankly, the mission need. And the
financial crisis was certainly something that drove many people
to come to the Bureau and to want to serve.
So I think, in terms of ways to improve, we have talked
about using all of the tools at our disposal and thinking about
how best to do that. Certainly in our conduct of exams, we have
matured and will continue to. I want to be more agile in our
examination process as we think about how we are able to pivot
to address the risks that we see, how we are able to work with
entities that are seeking to comply in a more consistent and
stabilized manner.
And education, frankly, I am very interested in how we can,
again, measure the effectiveness of the things that we are
doing in that arena. I am finding a staff that is very excited
about the opportunity to do that.
Mr. Riggleman. Well, my time is short, but I want to say
this. My staff in Congress has allowed me to transition in a
way I didn't think possible, especially the professionalism of
it. It looks like your staff has done the same thing.
And obviously, I had two or three more questions because I
actually read some of this and I am pretty excited about what
the CFPB could do for consumers, but I am also well aware of
what overreach and regulatory weaponization can do to
companies, based on when I have been in the DOD, but also in
the manufacturing space and also trying to get loans in rural
areas.
So I thank you for your time. I am not even going to go
over time. I think we have about 10 seconds left. So, thank
you.
And I yield back.
Chairwoman Waters. Thank you very much. And let me just
remind Mr. Riggleman that serving as the Director of the
Consumer Financial Protection Bureau, no matter what your party
is, does not eliminate your choice to run for office.
The gentlewoman from Virginia, Ms. Wexton, is recognized
for 5 minutes.
Ms. Wexton. Thank you, Madam Chairwoman.
And thank you, Director Kraninger, for joining us here
today. As you know, the CFPB was created to protect consumers
from unfair, deceptive or abusive practices in the financial
marketplace. But I am troubled by many of the anti-consumer
actions taken by the CFPB under your leadership and that of
your predecessor, Mick Mulvaney, someone who called the CFPB a
``sick, sad joke'' and sponsored legislation to dissolve the
very agency he later headed.
And it is troubling to me because I am no longer confident
the CFPB will fulfill its mission. Now, Director, in your
written remarks you discuss the nine items that you are
statutorily mandated to report to us about semi-annually. Is
that correct?
Ms. Kraninger. That is correct.
Ms. Wexton. Okay. And the first of those items is
significant problems faced by consumers in shopping for or
obtaining consumer financial products or services. Is that
correct?
Ms. Kraninger. Yes.
Ms. Wexton. Yes. And the first item that you mention are
credit products marketed to non-prime borrowers, correct?
Ms. Kraninger. I think that might be the spring one? There
are two reports here and both pre-date me. So I apologize, but
I am probably a little more familiar with the fall points. I
will address it when you have asked the question.
Ms. Wexton. Generally, one of the top things that--
Ms. Kraninger. Yes.
Ms. Wexton. That appears in that section, right?
Ms. Kraninger. Yes.
Ms. Wexton. Okay. And would you agree that payday loans and
car title loans are lending instruments that are marketed to
subprime borrowers?
Ms. Kraninger. I believe that it is important to ensure
that we do have access to credit. That is why we are looking at
this issue--
Ms. Wexton. No. Would you agree--the question was, do you
agree that those are loans that are marketed to subprime
borrowers?
Ms. Kraninger. I do believe that is available to a wide
variety of consumers. But I think there have probably been
studies to that point.
Ms. Wexton. I am from Virginia, and we instituted very
strict consumer protection rules on payday lenders at the State
level. But I appreciate your remarks about whack-a-mole here
today.
Because what we have seen is that, although we don't have
payday lenders really anymore, we have a lot of car title
lenders who have popped up. These storefronts have popped up in
low-income areas or especially near our military bases. We have
Marine Base Quantico, Norfolk Naval Base, and a number of
others here in Virginia.
They are not required at this time to determine ability to
repay, is that correct, in making those loans?
Ms. Kraninger. I won't stipulate exactly what every single
company decides to do with respect to its underwriting and with
State laws that are in place. There are a number of things--
Ms. Wexton. The question was, they are not required to by
the CFPB? The rule that would require that assessment has not
gone into effect, is that correct?
Ms. Kraninger. It was set to go in effect in--or is set in
August, except that it is stayed by the court. So yes, there is
not a Federal requirement on them on this point.
Ms. Wexton. Okay. Now, would it surprise you to hear that
despite the fact that these are marketed as short-term loans,
in Virginia in 2015, the average duration of such a loan was
354 days, or just short of a year? Would that surprise you?
Ms. Kraninger. There are a lot of studies that have been
done on this in terms of what happens in different States--
Ms. Wexton. Right, but this is--
Ms. Kraninger. I am not familiar with that particular
study--
Ms. Wexton. Well, I will tell you that I am using
statistics from the Virginia State Corporate Commission--
Ms. Kraninger. Understood.
Ms. Wexton. So it is not a study, it is statistics from the
State itself. Okay, would it surprise you to hear that the
average APR for these loans in 2015 in Virginia was 221
percent? Does that surprise you?
Ms. Kraninger. Again, you are listing statistics I haven't
seen, but I stipulate that they are accurate.
Ms. Wexton. But would it surprise you that these loans that
are marketed to people who by definition have more trouble
repaying them than wealthy folks, or than people who don't have
to put their car on the block for it, does it surprise you to
hear that the average APR is 221 percent?
Ms. Kraninger. I understand what you are getting at in
terms of looking at this industry in general. The
reconsideration of the rule, and the--
Ms. Wexton. I'm sorry, we are running out of time. If you
don't want to give me a yes or a no, I will just reclaim my
time. Does it surprise you to know that more than 38 percent of
these borrowers went into arrears by 60 days or more and
incurred additional fees and penalties, does that surprise you,
yes or no?
Ms. Kraninger. Again, I know what you are getting at, and
in terms of--
Ms. Wexton. Thank you. Reclaiming my time, would it
surprise you to know that more than 15 percent of these people
had their cars repossessed in 1 year?
Ms. Kraninger. Again, I will stipulate that you are listing
statistics from the cite that you said in terms of what happens
in Virginia.
Ms. Wexton. Okay, thank you very much. Given statistics
like those, it surprises me that you want to rescind this rule
that protects these people. And with that, I yield back.
Chairwoman Waters. The gentleman from Utah, Mr. McAdams, is
recognized for 5 minutes.
Mr. McAdams. Thank you, Chairwoman Waters. Director
Kraninger, I know this is your first appearance before our
committee, so I want to welcome you to the committee and I hope
that we can work together in the coming years to fulfill the
CFPB's mission of protecting consumers, while also making sure
that consumers have safe access to financial products--that is
important.
In general, I am a believer that capitalism with proper
guardrails and direction can be a force for good. The modern
financial system is able to provide credit to borrowers who
would otherwise be locked out, and lending can fuel economic
growth, which is also important.
Whenever I talk to small businesses in my district, they
always mention access to capital as one of the biggest hurdles
in starting a business and scaling up their business. And so I
want to encourage that form of capitalism in particular,
because I know the potential a small business loan can unleash
for an entrepreneur.
And unlike some of my colleagues, I was not in Congress
when the Dodd-Frank Act was enacted into law. And I know that
everything in that law wasn't perfect, but I remember the Great
Recession, and I know, and remember, the pain so many Utah
families suffered as they lost their homes.
I don't want to go back to those days, and I don't want to
go back to the days before the CFPB existed, because I believe
it has an important mission and that it fills a critical role--
a critical void that existed during the financial crisis.
So Director Kraninger, I wanted to ask you about one of the
first steps you took after you were confirmed and sworn into
your current role regarding the rollback of the payday rule. In
the CFPB's press release announcing the payday rule rollback,
and the proposal to rescind ability to pay requirements, your
agency said, ``Rescinding this requirement would increase
consumer access to credit.''
I wanted to contrast that statement with findings from the
CFPB's 2017 final rule, and in the 2017 final rule the CFPB
found that half of all storefront payday loan sequences contain
at least four loans. One-third contained 7 loans or more, and
almost one-quarter of loan sequences contained at least 10
loans in a row.
So Director Kraninger, my question, for the one-quarter of
people who have taken out 10 loans in a row is, is access to
credit their biggest problem, or are they stuck in a debt trap?
Ms. Kraninger. I understand the premise of your question,
and I would say there are--again, a lot of the rulemakings have
different impacts on a number of different consumers.
We looked at a wide variety of things from the number of
loans affected, the storefronts affected, the loan revenue
affected, physical access affected--how that worked with
respect to the vehicle title loans versus the payday loans, and
the lien sequence--the loan sequences affected. So there are a
vast array of cost and benefits that we need to continue to
look at.
The preceding issue really is the legal sufficiency of the
basis for the unfair and abusive practice determination. That
is what is being looked at--that is what is being litigated as
well, so we were in litigation when I took office--there is a
stay in place on that particular issue. It is with that pledge
to the court to reconsider and take action--
Mr. McAdams. Expanding access to credit certainly is
important, but my question is, what role did consumer
protection play in making that decision, because there is a
balance between expanding access to credit, and consumer
protection, so what role did consumer protection play in making
that decision to rescind the rule?
Ms. Kraninger. I would say again that is certainly at the
heart of what we do as an agency, but at the same time, the
guidepost is the law. The legal sufficiency of the arguments
that we make is paramount and critically important.
I have an open mind because this is an active rulemaking,
and because I am telling you that I do have an open mind on
this issue, we need to review the record and the evidence
through this process, and--
Mr. McAdams. Are you concerned that the proposal on the
table now will subject more consumers to high-cost loans that
they can't afford and that they will never be able to pay off?
How much is that weighing into the factor?
Ms. Kraninger. Again, that is certainly a consideration as
we are looking at the full body of evidence, and the data that
comes forward on this.
Mr. McAdams. You know, I think ultimately payday lending
can quickly become a debt trap, and I don't think that the
proposed rollback strikes the right balance between consumer
protection and access to credit. Thank you. I yield back.
Chairwoman Waters. The gentlewoman from Pennsylvania, Ms.
Dean, is recognized for 5 minutes.
Ms. Dean. Thank you, Madam Chairwoman. Director, just in a
sentence or, for the clarification of the folks who may be
listening in who hate acronyms just as much as I do, what is
the mission of the agency that you direct?
Ms. Kraninger. The mission of the agency in short is
consumer protection, that is absolutely at the heart of what we
do.
Ms. Dean. Wonderful, and I am so glad for that
clarification because it seemed like it morphed into consumer
protection and lender protection. So I am so glad to get that
clarity from you. With whom did you interview before becoming
Director of this agency?
Ms. Kraninger. There were certainly a variety of people
involved in the process as there are in any of the personnel
processes in the White House, and ultimately it is the
President's decision whom he is going to nominate.
Ms. Dean. So could you tell us some of the people you
interviewed with? Names?
Ms. Kraninger. I would say again, I don't want to get
outside--National Economic Council--again if anyone has worked
inside the system they know that is the core organization
inside the White House that would be responsible for providing
policy input--
Ms. Dean. I don't know who those people are. Could you say
who you interviewed with in order to achieve this terrific
position?
Ms. Kraninger. Well, I can tell you that Larry Kudlow is
the National Economic Advisor who runs that organization.
Ms. Dean. Meaning you interviewed with Larry?
Ms. Kraninger. Yes, I did.
Ms. Dean. Okay.
Ms. Kraninger. The Presidential Personnel Office, again,
helps through the process. And there were interviews with folks
there.
Ms. Dean. Director Mulvaney?
Ms. Kraninger. No, Director Mulvaney was not part of the
process.
Ms. Dean. Okay. And through that interview process, how
were you informed that you got the job?
Ms. Kraninger. I had my last step with the President, and
my nomination went forward from there.
Ms. Dean. So you spoke with the President about the
position?
Ms. Kraninger. Yes, I did. It is his nomination.
Ms. Dean. Okay. And what direction did the President give
you in order to appoint you to this important position?
Ms. Kraninger. The President told me to go do a good job.
Ms. Dean. By that, he meant what?
Ms. Kraninger. I presume he meant that I should carry out
the responsibilities Congress has given this position as I
intend to do and have done.
Ms. Dean. He didn't specifically articulate what he thought
the job was?
Ms. Kraninger. He did not give me any particular direction.
I know that is what you are looking for, in terms of anything
that I should do on the job or not. He wanted to make sure and
satisfy himself that I was the person he wanted to nominate for
the job.
Ms. Dean. Okay. Well, I am not clear on what the
conversation was like, but we will move on from there. In terms
of student loan debt, I too care deeply about that because I
come from Pennsylvania, and in my home State of Pennsylvania,
students have an average debt when they leave college of almost
$37,000.
Unfortunately, we suffer the second-highest rate in the
United States. And as many of our colleagues have discussed,
this is not just a problem of student loan debt but the
barriers that it creates to other types of borrowing, whether
this cripples them from being able to borrow for purchase of a
house or save for retirement.
So I was interested that the agency, under your stewardship
for the last 3 months, left open the ombudsman position. Could
you explain to us why that was left open for 6 months?
Ms. Kraninger. Yes. I would say first that my predecessor
was hoping that I would get the opportunity to actually appoint
that position. So it did take a little bit of time to get
confirmed. In the time that I have been on board, we had to
work with the Treasury Department because Congress actually
gave the authority to appoint this position to the Treasury
Secretary, despite the fact that the person works for me. There
was a little bit of conversation to work out. The position was
posted just this week because we got through all of that.
Ms. Dean. It was actually posted yesterday.
Ms. Kraninger. Yes.
Ms. Dean. I was fascinated. One of my colleagues--
Ms. Kraninger. And I could tell you, actually, despite the
fact that you may be skeptical, it literally was as fast as I
could do it. It had absolutely nothing to do with this hearing.
It was getting that done--
Ms. Dean. No, nothing to do with that. ``Wednesday, March
the 6th, at 1:30 pm, good afternoon. We are currently seeking
candidates for the private education loan ombudsman position.''
I think that is terrific. Finally, we are going to fill that,
and we let it go for 6 months, a statutorily created and
required position. I might go on.
Ms. Kraninger. There are folks in the student offices who
are paying attention to student lending issues, and I have
certainly met with them and talked to them. But I think that
is--
Ms. Dean. Even though your predecessor shattered those.
Ms. Kraninger. It is an important note to know.
Ms. Dean. In your passion for controlling student loan
debt, what recommendations have you made or will you make to
this committee to address the student debt crisis?
As many of my colleagues have talked about, $1.5 trillion
is approaching the burden of home mortgage debt. What specific
ambitions do you have to tamp that down and to control
predatory lending and to help young people claim their
education without burdening their future?
Ms. Kraninger. I can tell you very quickly, since we are
being gaveled, that education already, I know, is a huge part
of this. We need to give students the information, and the
parents and the grandparents who are helping them the
information they need to assess whether to undertake the loan
to begin with. And there is certainly much more.
Chairwoman Waters. The gentlelady's time has expired.
Ms. Dean. Thank you, Madam Chairwoman.
Chairwoman Waters. Mr. Garcia, the gentleman from Illinois,
is recognized for 5 minutes.
Mr. Garcia of Illinois. Thank you, Madam Chairwoman. Good
afternoon, Director. In some of the previous remarks that you
made, you mentioned bad actors in the financial services
market. Can you tell us who some of the bad actors are?
Ms. Kraninger. Congressman, I appreciate why you are asking
that. I would say, I can't stipulate that. There are a number
of entities who have had enforcement actions taken against them
by the Bureau. There are ongoing investigations right now that
are not public, where there is a concern that unfair practices
and other violations of the law have taken place.
Mr. Garcia of Illinois. Okay. I appreciate ongoing
investigations, but who are some of the bad actors that were
moved on by the Bureau?
Ms. Kraninger. Perhaps the best example I can give you of a
public action that was recently taken, and that is one that I
know the committee asked about but perhaps it sets the tone, in
terms of injunctive relief--one of the things that the Bureau
can do is actually preclude an entity from engaging in and
debarring them from an opportunity to even participate in the
marketplace to begin with. We had an entity with an
extraterritorial presence. They were not present in the United
States and they were yet trying to deceive and engage in
illegal conduct in the process.
Mr. Garcia of Illinois. And who was that?
Ms. Kraninger. It is Northway that we were--it is a
complicated, again, structure, in terms of who it is.
Mr. Garcia of Illinois. Any others come to mind?
Ms. Kraninger. That one just, at least, gives you the
example because they are completely debarred as part of the
consent order from engaging at all in our financial system.
Mr. Garcia of Illinois. Okay, fair enough. Any others
within the last 3 months of your tenure?
Ms. Kraninger. Certainly, there are enforcement actions
that have been taken. I mentioned in my statement, and it is
public information, that I signed consent orders on Cash Time,
Enova, Sterling Jewelers, and an individual name, Mr. Corbitt.
Mr. Garcia of Illinois. Okay, good. I like the specificity.
I think that helps to send a message to the bad actors if we
truly care about that. Let me change gears quickly to the topic
of student lending, which previous Members have raised with
you.
Latinos comprise about one-third of the folks who are not
currently making payments on their student loans. This is less
than African Americans but still slightly higher than whites.
Of those Latinos who are not making payments, almost half, 46.4
percent, are not making payments because they are in
forbearance or in the grace period.
What is the CFPB looking at doing for communities of color,
in terms of student debt counseling? And how are student
debtors being guided away from forbearance and default?
Ms. Kraninger. I can tell you, Congressman, we do provide a
number of educational tools, and information to students. I
think we can do a better job getting some of that information
out more widely in the different stages of the process.
Mr. Garcia of Illinois. Are you going to?
Ms. Kraninger. Yes, it is absolutely something I am looking
at. As I noted, having the private education loan ombudsman
position filled will be extremely helpful, in terms of getting
recommendations on the inside.
I have a number of individuals dedicated to this issue, in
the students' office. And they have made recommendations and
certainly set a strategic plan of the activities that we are
going to undertake in this space by their recommendation. But
having the person in charge of the office will certainly help.
Mr. Garcia of Illinois. We will be watching closely on that
front. My last question is, are you seeking to renew the
memorandum of understanding (MOU) that was done away with by
the Secretary of Education and your agency, since it seemed to
have a pretty doggone good purpose and function?
Ms. Kraninger. I would agree that it had a good purpose and
function. And I would note that, obviously, Congress required
us to have that MOU in place. So it is a priority to have the
conversation--
Mr. Garcia of Illinois. By when?
Ms. Kraninger. --with the Department of Education on that.
Mr. Garcia of Illinois. So is that a yes?
Ms. Kraninger. Yes, it is. It is a definitely a priority to
move forward on that.
Mr. Garcia of Illinois. Okay. Thank you. I just want to
point out that matters like the MOU and the student loan study
are very, very important, and it is very key to be aware of the
student loan study, and to have a full understanding of the
student debt problem, particularly as it is affecting
communities of color. And I will be asking in the future for
reports on that.
Thank you, Madam Chairwoman. I yield back.
Chairwoman Waters. Thank you very much.
The gentlewoman from Texas, Ms. Garcia, is recognized for 5
minutes.
Ms. Garcia of Texas. Thank you, Madam Chairwoman.
And thank you, Director, for your endurance. I know it has
been a long hearing. And the good news is, I am the last one
who appears, unless Mr. Phillips shows up. So the end is in
sight, perhaps. Somebody else is waiting, too? Well, that is
what happens.
Ms. Kraninger. Yes.
Ms. Garcia of Texas. But I want to zero-in on your
listening sessions. I had some questions related to payday
loans and payday lenders. I always tell everybody payday
lenders do nothing but make poor people poorer.
And I don't usually even use the word ``hate'' because my
parents taught me at an early age, and my faith, not to hate
anybody. But I really do hate anchovies, eggplant, and payday
lenders. Because I really do think that they prey on poor
people and the most vulnerable populations. And I hope that you
do reconsider changing any of the rules that have been in
place, that have provided more protections.
But I wanted to zero-in on people who have cultural
language barriers, that add to this issue and that make it
harder for them to do business with some of the financial
institutions that are under your oversight. I saw that you all
have looked at fair lending enforcement. I looked at this and I
also found a report that you all made on serving the limited
English language population.
So I was curious, when you went to New York and Chicago and
San Francisco on your listening tours, did you visit any of the
minority or poverty populations, or any of the community-based
organizations that are involved with representing them, to
really look at the concerns of that population of consumers?
Ms. Kraninger. I did absolutely meet with the
organizations. It was due to time and some very constrictive
things that I didn't get to go out to those organizations but I
have expressed my interest in doing that. But I have met with--
Ms. Garcia of Texas. Which organizations did you visit
with?
Ms. Kraninger. We can probably get back to you with a list.
I apologize that it is not readily at my fingertips. But it was
a myriad of organizations and hearing their concerns was
important to me.
Ms. Garcia of Texas. Right. Because it strikes me that at
least New York, Chicago, and San Francisco--I may have missed
one that you mentioned--are certainly recognized as financial
banking centers. I was afraid that you were listening to the
lenders and not to the poor consumers.
Ms. Kraninger. No. I absolutely have met with consumer
advocates in those cities, legal aid organizations as I said,
too. And I did have a housing counselor and his client actually
there at one of them, and he was an Hispanic-American
gentleman.
Ms. Garcia of Texas. Well, I would certainly hope that when
you continue these sessions--and I would encourage you to do
that--that, of course, you come to Texas, you come to Houston--
Ms. Kraninger. Yes.
Ms. Garcia of Texas. And that you come to listen to those
who are not as proficient in English or not as culturally used
to using some of our lending in financial institutions.
And Madam Chairwoman, I do have a document I wanted to
submit for the record. It is called, ``Spotlight on Determining
Limited English Proficient Consumers--
Chairwoman Waters. Without objection, it is so ordered.
Ms. Garcia of Texas. Thank you, Madam Chairwoman.
Also, I wanted to zero-in on immigrant communities. Have
you visited with any immigrant communities, or any people who
deal with immigrant communities other than payday lenders?
Because immigrant communities, from some of the data I have
seen, make up about 14 to 15 percent of the consumer borrowing,
consumer transactions in this country, so they are obviously
contributing a lot.
So what protections are you going to plan, or are you
involved with or what is on your horizon as you are moving on
with your position, on making sure that we protect the
immigrant population from the abuse of payday lenders and
others?
Ms. Kraninger. I can tell you that the purview of the CFPB
is to protect all consumers and I take that seriously. I did
remember one other institution that, perhaps, gets to an answer
of both of your questions. There was a community banker,
actually, who was in a New York meeting who was an Asian
American and running a bank specifically to help the Asian
American community in New York where much of the population was
immigrants--
Ms. Garcia of Texas. Thank you. I would encourage you to do
more of that. And very quickly, what efforts would you be
making for outreach to those communities? I know this same
report that you gave us today outlines a lot of materials,
pamphlets.
And it takes more than just preparing a preparing a
pamphlet in Spanish. It takes more than preparing a pamphlet in
Chinese. It is really about outreach and making sure that
people have an opportunity to learn how to use the banking
system and, frankly, they learn how not to get ripped off.
Chairwoman Waters. The gentlelady's time has expired.
Ms. Garcia of Texas. Thank you, Madam Chairwoman.
Ms. Kraninger. If I could, Madam Chairwoman, there is an
Office of Public Engagement and External Affairs and an Office
of Community Affairs that is responsible for thinking about the
issues that those populations face.
Ms. Garcia of Texas. Okay. Thank you.
Chairwoman Waters. Thank you.
The gentleman from West Virginia, Mr. Mooney, is recognized
for 5 minutes.
Mr. Mooney. Thank you, Madam Chairwoman.
Direcor, if there was anything else you wanted to follow-up
on that, I am happy to yield you another minute.
Ms. Kraninger. No, but thank you.
Mr. Mooney. Okay. Well, I know it has been a long day and I
am sure you have had a lot of tough questions. And some of my
friends on the other side of the aisle would like to see you be
more active, go outside your area, be more aggressive.
I am, frankly, the opposite of that. I don't think your
department should exist. I would abolish it tomorrow if I
could. It should never have been created to begin with.
But that being said, you are there now, and your
predecessor testified last year. And he bragged that for every
dollar CFPB used to investigate people, they were able to bring
back $7 into the CFPB. And that was, for him, a point of pride.
I was a little concerned that he is measuring his success
by how much money he can get from people he investigates. How
do you measure your success in what you are doing? Is it by how
much money you can get from people in settlements?
Ms. Kraninger. Congressman, this is a very important
question because I think it gets to the heart of how we do what
we do. I am still in the midst of my listening tour, really
trying to hear from all the stakeholders about what they think
on that front.
What I am starting to formulate around is a focus on
prevention of harm, that is obviously a challenge to measue, to
your point, in getting at measuring success is important,
looking at that challenge from how education changes behavior
certainly in this space and how we can get our education
materials to those who need them, and see change happen,
frankly all communities in need on that front.
But no one measure, as in the number of fines that are
imposed, or the measure of staff that we have--others have said
that to me, it is not that alone, it really is about outcomes
and achievement of the mission which is protecting consumers.
Mr. Mooney. Well, thank you for that. There is a new
movement in this country of socialism, some of my colleagues on
the other side of the aisle are socialists--they don't think
capitalism should exist in America. They don't think that
companies that they would like you go to after should exist as
profitable companies. They have a different view of the world,
and I hope you do not take that view.
This country was founded and became successful because of
capitalism and free markets, and just because they have a
corporation after their name or their business is profitable
doesn't make them bad, doesn't make them guilty. And I think
there are those who believe all companies are somehow guilty,
and they have to prove that they are innocent, and I take great
offense at that.
Everybody is innocent until proven guilty in this country--
not guilty until proven innocent. And I think from what I have
seen in a lot of departments in the last Administration and in
your department, there might have been a view--I am not saying
you have this view, I hope you do not.
But I think there was a view that you just go after these
businesses and you dig, and dig, and dig until you find
something. And they are all going to be guilty, so let's just
keep going until they basically pay a settlement and beg for
mercy and get out of whatever investigation is going on.
So I urge you not to do that going forward. Follow-up
question, the CFPB structure has been an issue in multiple
jurisdictions. Judge Loretta Preska of the U.S. District Court
for the southern district of New York ruled the structure to be
unconstitutional, limiting the Bureau's authority to pursue
claims, how do you interpret these rulings?
Ms. Kraninger. Congressman, I recognize that the litigation
is ongoing on these issues, and I don't intend to comment on,
nor does the Bureau comment on ongoing litigation. I will tell
you that it is my responsibility to continue to carry out the
mission that Congress gave this Bureau until that changes.
Mr. Mooney. Okay. I am just going to conclude by saying
there are a lot of patriotic Americans who love this country,
who have built businesses and treat their employees very well.
They want to make a profit so that their employees can have
good paying jobs and take care of their families, invest in
their children's futures, be able to go to college and have a
better life.
There are a lot of good men and women out there who have
done this, that I think have been unfairly treated by their own
government from various agencies. So I am glad we have some new
blood in there now. Again, as I said at the beginning, I don't
think this ever should have been created and Dodd-Frank was a
mistake, but I encourage you to be fair to people. Thank you.
Chairwoman Waters. Mr. Mooney, I would caution you to
refrain from identifying others or characterizing them in
relationship to their political party or whether or not they
are capitalists or socialists. I don't think anybody has
identified that to you, and so I would hope you would refrain
from doing that--
Mr. Mooney. If the Chair is announcing a point of
parliamentary procedure--
Chairwoman Waters. No, the Chair is not, the Chair--
Mr. Mooney. But if the Chair is giving an opinion, this is
not a conformist--
Chairwoman Waters. The Chair is taking the opportunity to
utilize her ability to intervene when she thinks it is
necessary.
Mr. Mooney. Am I allowed to say my friends on the other
side of the aisle--
Chairwoman Waters. No, you may not.
Mr. Mooney. Is that against the rules too?
Chairwoman Waters. The gentlewoman from Massachusetts is
recognized for 5 minutes.
Mr. Mooney. Is the Chair stating a point of parliamentary
procedure? Is the Chair stating a point of parliamentary
proceeding--
Chairwoman Waters. No, the Chair is not asking or stating
parliamentary procedure. The Chair has made her statement and
is moving on.
Mr. Mooney. Does the Chair believe in free speech? I hope
you believe in free speech because I do.
Chairwoman Waters. The gentlewoman from Massachusetts, Ms.
Pressley, is now recognized for 5 minutes.
Ms. Pressley. Thank you, Madam Chairwoman, and thank you,
Director Kraninger. You know, certainly you have a job to do,
and it just so happens that our job is to make sure that you
are doing your job, which is to protect borrowers.
I will be picking up on some of the line of questioning
that was offered earlier, and I apologize in advance if it is
repetitive, but some things I just want to make sure that we
have clarity on for the purposes of the record, if you will
indulge me.
So across my home State of Massachusetts, more than 850,000
people owe $33 billion in student debt. As was alluded to
earlier, the Massachusetts seventh district is certainly not an
anomaly; this is true for many Congressional districts.
This debt is acting as a barrier to economic mobility and
further exacerbating inequities and economic disparities--it
impacts purchasing power, one's ability to start a family, to
purchase a home, to save for retirement.
So there is an individual impact and then a tsunami of
hurt, I do believe, on our economy and perhaps for generations.
Yes or no, would you agree that we have a student debt crisis
in our country?
Ms. Kraninger. Certainly, growing student debt is a concern
that we absolutely need to look at and ensure that people going
into debt--
Ms. Pressley. Yes or no--would you agree that we have a
student debt crisis in this country?
Ms. Kraninger. I think that word is a very loaded word
and--
Ms. Pressley. I will take that as a ``no.'' Okay. Research
has shown that student debt, particularly defaults and
delinquencies, have a disproportionate impact on certain
borrowers, particularly black and Latino borrowers.
Despite the fact that all Federal student loan borrowers
have a right under Federal law to an affordable student loan
payment, the Bureau is responsible for administering fair
lending laws including the Equal Credit Opportunity Act
intended to protect consumers including student loan borrowers
from discrimination by financial service firms. Does the Bureau
expect student loan companies, specifically student loan
servicers, to abide by these fair lending laws, yes or no?
Ms. Kraninger. Yes.
Ms. Pressley. Thank you. In April 2017, under Director
Cordray, the Bureau announced that it was prioritizing
oversight of student loan servicers in its fair lending work.
Since the Bureau's 2017 announcement, has the CFPB ever
informed the public that it is no longer your priority to
police discrimination in the student loan servicing market, yes
or no?
Ms. Kraninger. I think what you are asserting is not
perhaps accurate. I think that we continue to take actions
through the supervisory work and through the enforcement work
in this area. The broader challenge is of course that the
Federal Government is a very large player in the student loan
arena and so the Department of Education has roles and
responsibilities here that have also been given to them by
Congress.
Ms. Pressley. Okay, so are you honoring the law or not?
Ms. Kraninger. Absolutely, the Bureau continues to operate
in this space, with identified student loan servicers as a
larger participant in the market place. The issue is Federal--
Ms. Pressley. And policing specifically discrimination,
because this is what I am really concerned about--that the
Bureau is unwilling to take on Betsy DeVos and the student loan
industry to obtain the records and data needed to effectively
police this potential discrimination or fair lending violations
in the student loan market.
Ms. Kraninger. So now you are getting to the heart of the
matter. I absolutely want to address this issue with the
Department of Education. We have a responsibility in statute to
have a memorandum of agreement on the issue that you are
relating.
Ms. Pressley. Okay.
Ms. Kraninger. It is not an MOU that is in place today. It
is a conversation that we need to have. I want to have the
private education loan ombudsman in place to have that
conversation and facilitate a productive working relationship
going forward with the Department of Education so they can
carry out their responsibilities and the Bureau can carry out
its responsibilities.
Ms. Pressley. Very good. Has any student loan servicer ever
relied on the December 2017 memo or refused to provide
documents to the Bureau's office of supervision, or office of
fair lending?
Ms. Kraninger. I'm sorry, can you repeat the beginning of
that? I am not sure I am familiar with the particular matter--
Ms. Pressley. Okay, so this is the matter that you said was
getting at the heart of the matter. In December 2017, the
Department of Education sent a memo to all the private sector
companies it contracts with to perform student loan servicing.
The memo specifically instructed these firms to stop sending
documents to third parties, which in turn blocked State law
enforcement officials, such as attorneys general, from
accessing key records. Are you familiar with that?
Ms. Kraninger. Yes, I am.
Ms. Pressley. Okay. Has any student loan servicer ever
relied on this December 20, 2017, memo, and refused to provide
documents to the Bureau's office of supervision or office of
fair lending, yes or no?
Ms. Kraninger. I do not know the answer to that question,
but we can certainly find out.
Ms. Pressley. Thank you.
Chairwoman Waters. The gentlelady's time has expired.
Ms. Pressley. I yield back.
Chairwoman Waters. Thank you. The gentleman from
Connecticut, Mr. Himes, is recognized for 5 minutes.
Mr. Himes. Thank you, Madam Chairwoman, and thank you for
that attempt to call out the intellectually bankrupt statement
of one of our colleagues on the other side.
I have a slightly different view, which is that if that is
the best they got, calling us who are here because we want a
capitalist market system that is regulated in such a way as to
provide a decent opportunity to most Americans--if they are so
intellectually bankrupt that they can only respond to that by
name-calling and taking Fox talking points and calling us
socialists, if they would rather do that than defend the one
thing they got done which was a massive tax cut handing $2
trillion to the very wealthiest people in this country, if all
they have is to point at us and call us socialists, Madam
Chairwoman, I would say let us let them do that and let us let
the American people see what is going on.
But Director, I want to say thank you for being here. I may
be the last questioner and I appreciate your-stick-to-it-
iveness on this hearing. I really believe that the mission of
the CFPB is essential, and we talked about this when we had a
phone call a number of weeks ago. I don't understand why people
would look to do away with an agency, even as we have a debate
about how it should be structured and what its scope of
activity should be, I don't know why we would do away with an
entity that has returned $12 billion to consumers who were
defrauded when we all know that there is predatory behavior out
there.
I have a set of questions that you have heard before and I
am hoping to elicit maybe some specific commitments on your
part. You have heard a lot about student borrowing here and I
think that is because there has been a track record of actions
taken prior to your leadership of the agency that have really
taken some of the fangs out of the institution with respect to
student learning. And we care about this because we are talking
about a very vulnerable group of young people in which we have
a huge outstanding volume of student loans. There will be some
testimony later on that alleges a couple of things and I would
like to get your specific responses to them.
The Student Borrower Protection Center is testifying that
in December of 2017, the Bureau refused to publish findings
documenting the behavior of large banks with respect to their
treatment of student borrowers, alleging that in February 2018,
the political leadership of the Bureau blocked attempts by
career staff to stop the Department of Education from
regulating the market. In May of 2018, the political leadership
of the Bureau shuttered the only office in the Federal
Government whose sole mission was protecting student borrowers.
So I would love to get you in this last 2 minutes or so to
respond to those.
Do you support them, do you intend to reverse those things,
and specifically, apart from the ombudsman which you have
talked about, what specific commitments can we expect from you
in terms of protecting student borrowers?
Ms. Kraninger. Thank you for the question, Congressman. I
think the ombudsman position heads up the office--it is called
a section, so I think that is where we are parsing words here,
but there is a group of people at the Bureau who are focused on
this particular set of borrowers and the challenges that they
face. And so that office is already actively engaged in looking
at the needs of students in particular and trying to respond to
them consistent with our mission. We have a number of
educational tools and things that are available to students to
think about how they enter into the process, what they can
expect after the process, so we are trying to get that
educational information out as best we can.
I would say the means of providing education these days and
technology changes to reach students is something that I think
we need to look at further to make sure we can actually reach
them where they want to be reached with this kind of
information. But that is--
Mr. Himes. Let me stop you there quickly because you are
describing an office that exists. I appreciate that and you
said you think it needs to be looked at. I guess I am looking
for just a little bit more sense from you as a Director with a
great deal of discretion about how you allocate resources and
where you focus. I guess I am looking for a specific statement
from you about how important you think this is and whether you
think you will devote a meaningful portion of your time and
resources to making sure that this market is well-regulated and
fair to students beyond what exists today.
Ms. Kraninger. Understood. It is certainly a significant
market. I think it is something that the Bureau needs to work
on with the Department of Education to set up what the rules
are going to be in this space and make sure they can carry out
their responsibilities and we can carry out ours.
And that is a conversation that, again, in my short term I
have yet to have and I would like to have the private education
loan ombudsman position in place to do it. But you certainly
have my commitment that we will move forward on that MOU with
them and we will understand better what those relationships
need to be so that we can provide the certainty and carry out
what the Federal Government's responsibilities are.
Mr. Himes. I appreciate that. In my remaining 2 seconds, I
would just draw your attention in particular to the fact that a
lot of students experience problems as loans are sold to
additional servicers. So I would just highlight that. I had
some personal experience with that and I would just highlight
that as an area where I hope for focus on your part. And thank
you, Madam Chairwoman. I yield back.
Chairwoman Waters. Thank you. The gentleman's time has
expired, and that is our last Member who will be questioning
you today, Ms. Kraninger. I would like to thank Ms. Kraninger
for her testimony and her time. I know it has been 4 hours, and
I appreciate the fact that you were able to stay with us today
and respond to our concerns. So thank you very, very much. With
that, the committee will take a 30-minute recess and reset the
room for the second panel. The committee will stand in recess.
[recess]
Chairwoman Waters. The committee will come to order. We now
have a distinguished second panel: Mr. Hilary Shelton, director
and senior vice president for advocacy and policy, National
Association for the Advancement of Colored People, that is the
NAACP; Ms. Linda Jun, senior policy counsel, Americans for
Financial Reform; Ms. Jennifer Davis, government relations
deputy director, National Military Family Association; Mr. Seth
Frotman, executive director, Student Borrower Protection
Center; and Mr. Scott Weltman, managing director at Weltman,
Weinberg and Reis.
Without objection, your written statements will be made a
part of the record. Each of you will have 5 minutes to
summarize your testimony. With 1 minute remaining, a yellow
light will appear. At that time, I will ask you to wrap up your
testimony, so we can be respectful of both the witnesses' and
the committee members' time.
Mr. Shelton, you are recognized for 5 minutes to present
your oral testimony.
STATEMENT OF HILARY O. SHELTON, DIRECTOR & SENIOR VICE
PRESIDENT FOR ADVOCACY AND POLICY, NATIONAL ASSOCIATION FOR THE
ADVANCEMENT OF COLORED PEOPLE (NAACP)
Mr. Shelton. Thank you, and good afternoon, Chairwoman
Waters, Ranking Member McHenry, and the sitting members of the
Financial Services Committee. It is a real honor and pleasure
to be here today to speak on a crucial issue to the NAACP: the
need for the restoration of a strong Consumer Financial
Protection Bureau. As I have often said in congressional
hearings and briefings prior to the passage in 2010 of the
Dodd-Frank Wall Street Reform and Consumer Protection Act,
predatory lending is one of the leading civil rights equal
opportunities and equal protection issues of our era.
During those briefings, I was referring primarily to
targeted, unsustainable mortgage lending. Although predatory
lending, in fact, refers to this problem and so much more. In
2010, however, Congress passed and the President signed into
law, the Dodd-Frank Wall Street Reform and Consumer Protection
Act. This bill not only prohibits some of the most outrageous
practices we were witnessing by predatory mortgage lenders, but
it also created the CFPB.
From our perspective, it is the job of the CFPB to educate
and protect consumers from experiencing any horrors, the like
of the economic collapse of 2008. This is especially important
to groups like ours, and the people we serve at present and
represent in every State in our country as well as American
soldiers, including those deployed overseas.
These are the people who were targeted by unscrupulous
lenders. In the first 5 years of its existence, I would argue
the CFPB was on the right track in terms of informing the
American people and protecting American consumers. In my
written testimony, I have supplied a number of CFPB successes
up to December of 2016.
They are sufficiently numerous that I will simply refer you
to my written testimony. Today, unfortunately, the CFPB is but
a shell of its former vibrant and effective self. In just 2
years, Congress and the current Administration have effectively
neutered the CFPB.
And in doing so, they have dramatically decreased the
protections we were able to gain. Since 2016, Congress has
passed and the President has signed no fewer than 16
congressional view acts, CRA resolutions, some of which were
aimed at actions taken and rules issued by the CFPB. Congress
also passed, and in May of last year the President signed, the
misnamed Economic Growth, Regulatory Relief, and Consumer
Protection Act.
Among other things, this law will represent 85 percent of
depository and lending institutions from full reporting on loan
data under the Home Mortgage Disclosure Act or HMDA.
Without this crucial data, which is currently required,
regulators and others like the NAACP would once again be left
without the information we need to see patents and loan terms
and loan amounts that would unfairly increase cost and risk of
foreclosure for borrowers.
Furthermore, Acting Director Mulvaney took the teeth out of
the office of Fair Lending and Equal Opportunity by
illuminating its supervisory and enforcement powers, a trend
which has sadly been continued by his successor, Director
Kraninger.
There is also the fact that CFPB's Office of Fair Lending
and Equal Opportunity is now being led by a political appointee
who has expressed numerous questionable views on the challenges
faced by every American it is meant to protect. To say that he
does not inspire the confidence of racial and ethnic minority
communities served by the NAACP, as well as other members of
protected classes, is simply being polite.
We fear for the economic well-being of our families,
neighborhoods, communities, and our nation because we were
beginning to see the good that a strong CFPB can do, and we
know what we are losing.
The NAACP is proud to support a number of pieces of
legislation to rebuild the CFPB, most notably the bill which
was introduced by you, Chairwoman Waters, and many of our
colleagues here today, entitled the Consumers First Act.
Put simply, the Consumers First Act pushes the CFPB back to
the carrying out of its statutory purpose of putting American
consumers first and protecting them from bad actors by taking a
number of proactive, pro-consumer steps.
Madam Chairwoman, the income gap between white Americans
and Americans of color continues to widen. Yet, our communities
are consistently being targeted by nefarious financial
servicers with their unsustainable wealth steaming products. We
need protection.
I have often compared the communities we represent and
serve to the proverbial canary in the coal mine. The weakening
of the very agency that was designed to provide information and
protection should be seen as a warning, one that we remember
all too well leading up to the 2008 financial meltdown.
The decimation of the CFPB hurts all Americans. We should
all be concerned and quite frankly outraged. Thank you again
for allowing me to testify. I stand ready to answer whatever
questions the committee may have. Thank you so much.
[The prepared statement of Mr. Shelton can be found on page
158 of the appendix.]
Chairwoman Waters. Thank you very much. Ms. Jun, you are
now recognized for 5 minutes to present your oral testimony.
STATEMENT OF LINDA JUN, SENIOR POLICY COUNSEL, AMERICANS FOR
FINANCIAL REFORM
Ms. Jun. Chairwoman Waters, Ranking Member McHenry, and
members of the committee, I thank you for inviting me to
participate in today's hearing. My name is Linda Jun, and I am
senior policy counsel at Americans for Financial Reform (AFR),
a coalition of over 200 groups working for a safer and fairer
economy.
Our member organizations represent the consumers, workers,
seniors, servicemembers and veterans, students, people of
color, and unrepresented communities across our country who
rely on the consumer protections that the CFPB was created to
strengthen, support, and enforce. But before coming to AFR, I
was a legal aid attorney representing low-income families in
foreclosure cases. Most of my clients were people of color.
My clients, just to give you an example, included an
African-American police officer who fell behind on his mortgage
after his sister fell into a coma, an immigrant family from
Nepal who were tricked into taking out an interest-only
adjustable rate mortgage to buy their first home in America,
and a Vietnamese-American homeowner who spent 2 years trying to
negotiate with his bank on a resolution to save his home when
the bank sued him anyway on foreclosure without ever giving him
an answer.
I saw the most vulnerable consumers, including the elderly
and disabled, especially them, targeted for scams and predatory
products. Households like these are the ones who suffered the
most harm in the 2008 crisis. They are the very people in need
of the strong consumer protections the CFPB put into place.
Before the CFPB's mortgage servicing rules went into effect,
even with my assistance, negotiations with banks would drag on
for months or years because often banks and their attorneys
would provide us with inaccurate or incomplete information.
The CFPB's mortgage servicing rules directly improved my
ability to help people and have improved outcomes for the
people I served, because they provided me with a tool to push
companies to either give us an answer or to properly review my
client's applications. As a result, we were able to keep more
people in their homes. We were able to give them the fair deal
for which they qualified.
One of my cases that sticks out is of a client who was
overcharged $3,000 of attorney's fees past the guidelines that
is allowed to be charged. It was through the CFPB's error
resolution procedures that we were able to get that amount
taken off her account. It made her mortgage ultimately more
affordable.
The public complaint database also greatly improved my
ability to help people. Before the database, both my client and
I suffered enormously trying to get the answers that we needed
from the bank, froms simple questions about accounting, to more
complicated answers about why they were being denied whatever
resolution they were seeking.
After the complaint database, once we were able to start
filing complaints, companies started responding. Sometimes even
just the threat of filing a complaint would finally give us an
answer we weren't able to get for months, simply because the
database is a public place. I have seen firsthand, through
these experiences, how the CFPB has strengthened consumer
protections, giving the ability to help consumers stand up for
themselves, which is why I am especially concerned about the
ways the current CFPB is undermining consumer protection.
Instead of understanding for people like my clients, the
Mulvaney CFPB has favorite industry interests, and this pattern
is continuing with Director Kraninger. Under their leadership,
the CFPB has proposed to resend the ability-to-pay requirement
of the 2017 payday rule, which simply requires lenders to
determine whether a borrower can afford to repay before issuing
them a loan. These loans again, as we have heard this morning,
average approximately 300 percent.
The 2017 rule was a culmination of 5\1/2\ years of
research, evidence, and stakeholder input, and nothing has
changed in the payday lending over the last 18 months that
supports a rollback of these protections. They have also issued
proposals that would exempt not only individual companies, but
trade associations and entire industries from oversight, and
seek to guarantee them a sweeping safe harbor from liability,
enforcement or supervisory rate findings, both by the CFPB but
also for enforcement by Federal agencies, States, and
consumers' own private rights of action.
There is no guarantee a new product will be better for
consumers, just because it is new, and there is no guarantee
that products won't harm consumers, either intentionally or
unintentionally, and yet the CFPB's no action letter and
product sandbox policy proposes to just excuse companies from
liability for a new idea.
More disturbingly, even despite the particularly unknown
dangers of new products, the CFPB does not require any consumer
input into the process or ongoing reporting after their
application is granted. The CFPB should do more, not less, when
looking into new products.
As you have heard this morning, the CFPB has also on
relaxed its enforcement. We are concerned because robust
outcomes serve as a deterrence to bad actors, but recent
settlements have been sending the opposite message. The CFPB
has an obligation to put consumers first, and it is currently
falling woefully short. We thank you for holding this hearing
and ask that you hold the CFPB accountable to the statutory
purpose of protecting consumers. Thank you.
[The prepared statement of Ms. Jun can be found on page 136
of the appendix.]
Chairwoman Waters. Thank you very much. Ms. Davis, you are
now recognized for 5 minutes to present your oral testimony.
STATEMENT OF JENNIFER DAVIS, GOVERNMENT RELATIONS DEPUTY
DIRECTOR, NATIONAL MILITARY FAMILY ASSOCIATION
Ms. Davis. Chairwoman Waters, Ranking Member McHenry, and
committee members, thank you for holding this hearing and for
extending the opportunity to testify before the committee on
behalf of the National Military Family Association.
As a veteran and a spouse of an active duty servicemember,
I am both honored and humbled to speak from the military
community perspective regarding recent policy shifts of the
Consumer Financial Protection Bureau and the importance of
protections found in the Military Lending Act.
Prior to the enactment of the Military Lending Act or MLA,
quick cash stores, used car lots, pawnshops, and title loan
companies clustered around military installation gates. The net
laid by these predatory lenders was extensive, and for some
military families struggling financially due to a recent move
or lack of spouse employment, the draw was too great.
These lenders provided attractive options to military
families, offering quick loans and anonymity with no intrusive
questions surrounding credit history or the ability to repay.
Often, however, interest rates soared into the triple digits,
annual percentage rates of 200 and 300 percent were common, and
in States that had no rate caps, they ran as high as 700
percent.
And then the Military Lending Act (MLA) was passed. The
MLA's passage capped interest rates at 36 percent on many loan
products for servicemembers, and protected military families
from mandatory allotments of pay, forced arbitration, and
penalties due to early loan repayment.
In 2010, the Consumer Financial Protection Bureau or CFPB,
was created after the financial crisis of 2008, and granted
executive and administrative authority and implementation of
Federal consumer financial laws through rules, orders,
guidance, interpretations and statements of policy,
examinations, and enforcement actions.
While the MLA was not included in that group of laws at the
time, it was CFPB's creation, the Fiscal Year 2013 National
Defense Authorization Act, that changed that, specifically
referencing administration of the MLA in compliance with
Section 108 of the Truth in Lending Act and any applicable
authorities.
However, recently we have become alarmed at CFPB's decision
to no longer supervise lenders for compliance with the Military
Lending Act. Current leadership has expressed the opinion that
the agency does not explicitly have the authority to supervise
examinations to ensure Military Lending Act compliance. We
disagree. We urge CFPB to reverse this decision.
In February, CFPB announced a proposal to delay
implementation of the payday lending rule. Currently, the rule
is set to be implemented in August of this year, but the
proposal would push this date back to November 2020. In the
same announcement, CFPB introduced a proposal to reverse
underwriting requirements of lenders before issuing loans.
CFPB's belief is that such a reversal would enable
consumers to obtain increased access to credit. While reversing
this provision may, in fact, increase access to credit, what
would be the cost to consumers? Conventional wisdom and
economic theory state a lender should ensure a consumer's
ability to repay before extending credit.
We believe lenders who do not take this approach are simply
preying on consumers with a business model that relies on
revenue from rollovers, late fees, and penalties. Reversal of
the payday lending rule would place consumers at greater
financial risk, which goes against CFPB's very purpose to
protect consumers.
The National Military Family Association believes, due to
the importance of the payday lending rule as currently written
with underwriting requirements included, that any delay by CFPB
would put consumers--to include veterans and their families who
are not protected by the MLA--at increased financial risk. We
urge CFPB to maintain the integrity of the payday lending rule
as written, thereby protecting consumers.
Evolving world conflicts keep our military servicemembers
and their families on call, even as they are dealing with the
long-term effects of almost 2 decades of war. The government
should ensure that military families have the tools to remain
ready, and MLA is one of those tools. The Military Family
Association implores CFPB to maintain the integrity of the MLA
and protect the financial readiness of America's servicemembers
and their families.
Thank you for your time. I look forward to your questions.
[The prepared statement of Ms. Davis can be found on page
114 of the appendix.]
Chairwoman Waters. Thank you very much.
Mr. Frotman, you are now recognized for 5 minutes to
present your oral testimony.
STATEMENT OF SETH FROTMAN, EXECUTIVE DIRECTOR, STUDENT BORROWER
PROTECTION CENTER
Mr. Frotman. Thank you. Chairwoman Waters, Ranking Member
McHenry, and members of the committee, thank you for the
opportunity to testify today.
In March of 2011, I had the honor of joining the CFPB, and
that is where I would like to start today, by recalling what
this country looked like in 2011. It had been 3 years since the
peak of the financial crisis, but for millions across the
country it was still raging, leaving real, tangible human
affliction in its wake. And this affliction was fueled by
companies that had no shame when stealing the last dollar in
someone's bank account, in large part because they knew they
could get away with it.
Across the country, American families needed someone,
needed their government in their corner, and that is where the
CFPB stepped in. Congress created the Consumer Bureau to serve
as this desperately needed lifeline to the families being
pushed off the edge of a financial cliff. But that was not our
only job.
We were tasked with fixing a broken credit market that
declared open season on American consumers and, in turn,
destroyed the nation's economy. Were we perfect? Of course not,
but the work we did during those 7 years mattered. The CFPB
returned $12 billion back to American consumers, returned over
half a billion dollars to victims of discrimination, closed
loopholes exploited by unscrupulous companies that targeted
military families, and so much more.
The Consumer Bureau had one simple mission, to protect
consumers. We were there to make sure our neighbors, our
grandparents, our children, your constituents, were not being
ripped off by big banks or small scams. Americans rely on
credit and a well-functioning credit market to achieve the
American dream.
But the stakes are much bigger than simply credit markets.
At stake is the character of our country, whether the American
Dream, a house to raise our family, a car to get to work, a
college education for a better life, will be the province of
only a select few, while the rest have their money stolen at
every turn. That is why the Bureau matters, because consumer
financial protection matters. And that is why the actions of
the Trump Administration and the political leadership installed
at the Bureau have been so devastating.
The last 15 months at the Bureau have been plagued with
inaction and incompetence, all under the guise of some supposed
ideology. They have prioritized the wishes of the most powerful
financial companies in America over the needs of the very
people they were tasked by Congress to protect, all under the
selective invocation of statutory restraint.
The efforts of Mick Mulvaney and Kathy Kraninger are
hurting people. And perhaps the most poignant example of this
is how their actions are hurting the 44 million Americans with
student loan debt. These Americans collectively owe $1.5
trillion in student debt, and after piling historic levels of
debt onto an entire generation, we push them into a market
plagued with illegal practices that drive them to financial
ruin.
And that is what the Bureau worked to stop. We helped
servicemembers, disabled veterans, teachers, nurses, and
borrowers in all 50 States and in every U.S. territory. We
never shied away from doing our job of independently
implementing and enforcing the consumer financial protection
laws of the United States, even when it made those in the
Administration, in any Administration, uncomfortable.
And it worked. In those 7 years, the Consumer Bureau
returned more than $750 million to student loan borrowers. But
almost immediately upon the arrival of Mick Mulvaney and his
political appointees, this work came to a grinding halt. And
what my written testimony shows, from varying reports and
shuttering offices, is that the Bureau systemically undercut
enforcement of the law, undermined the Bureau's independence,
and shielded bad actors from scrutiny.
And since I left the Bureau last year, this abdication of
responsibility has continued. The position of Student Loan
Ombudsman, as mandated by Congress, sits vacant. The Bureau's
congressionally mandated student loan complaint report remains
unwritten. Perhaps most disconcerting, in the last 15 months,
it is impossible to cite a single significant action that the
Bureau has initiated on behalf of student loan borrowers.
There is no ideology that justifies these actions--or more
accurately, inaction. Shielding companies from the consequences
of their lawlessness is not ``making markets work.'' Protecting
Betsy DeVos from the consequences of the Education Department's
failures is not conservative. The Bureau is not meant to be a
political appendage of any Administration, particularly one
that is flailing as it mismanages the trillion-dollar portfolio
it holds.
And that is why the work of this committee is so important,
both in terms of oversight and policymaking. Because right now
we have $1 trillion black hole in our financial markets.
Millions of Americans with student debt are falling further
behind as their Federal Government coddles predatory players.
So thank you for asking the tough questions of this
Administration. Thank you for taking on the challenge to make
sure that student loan borrowers have the rights and
protections that exist in nearly every other debt market. I
look forward to your questions. Thank you.
[The prepared statement of Mr. Frotman can be found on page
120 of the appendix.]
Chairwoman Waters. Thank you very much.
And Mr. Weltman, you are recognized for 5 minutes.
STATEMENT OF SCOTT WELTMAN, MANAGING SHAREHOLDER, WELTMAN,
WEINBERG & REIS CO., LPA
Mr. Weltman. Chairwoman Waters, Ranking Member McHenry, and
members of the committee, thank you for inviting me today.
My name is Scott Weltman. I am managing shareholder of
Weltman, Weinberg & Reis Company, L.P.A., a creditor's rights
firm headquartered in Cleveland, Ohio. It has been in business
since 1930. I am grateful for the opportunity to share our
firm's experience with the CFPB.
Our case with the CFPB was the epitome of an effort to
legislate through misguided enforcement instead of by
rulemaking. We encountered overzealous enforcement attorneys
with the power of the U.S. Government behind them.
Our nearly 4-year ordeal included an extensive CID process,
followed by a lawsuit that we won. Our law firm incurred nearly
$2 million in attorney's fees. And as a direct result of being
sued, numerous clients of the firm fired us. And over 100
employees out of a total 650 lost their jobs.
Our story with the CFPB, however, began before the Bureau
was formed. In 2009, our law firm was hired by Ohio Attorney
General Richard Cordray as special counsel, which meant that
our law firm was directly responsible for collecting the State
of Ohio's debts.
Mr. Cordray not only significantly vetted our firm and
condoned exactly how we did business; he also required that our
letters be written precisely to his specifications. And after
observing firsthand how we did business, he hired us a second
time.
Once he became Director of the CFPB, however, Mr. Cordray
then approved a lawsuit against us, claiming that virtually
identical letters violated the law. And he authorized a press
release accusing us of illegal behavior, which was subsequently
reprinted by every major local and industry news agency.
That makes Mr. Cordray's deposition testimony in our case
all the more troubling since he admits, you know, I don't know
what the state of the law was then--I am not sure what the
state of the law is now.
He was a former State Attorney General, the Director of the
CFPB, and had no clue what the law was or is. I have included
the full transcript of his deposition in my written testimony.
I have also submitted and encourage you to read the final
opinion in our lawsuit from Judge Donald Nugent, whom I would
like to point out was a democratic presidential appointee.
The Judge specifically wrote that despite requiring similar
indications and disclosures of attorney involvement in the debt
collection letters used on behalf of the State of Ohio, Richard
Cordray, when he became head of the CFPB, authorized this
lawsuit against Weltman. The singularly most offensive part of
the lawsuit against our firm was the aggressiveness with which
we were pursued by the CFPB despite the complete absence of any
consumer harm.
The CFPB continually insisted that our firm provide
consumer redress but never once identified a single consumer
harmed by any of our alleged illegal conduct. Our firm provided
the CFPB with over 1 million call recordings for its review,
and how many did it play at trial? None. It claimed that our
phone calls violated the law, but it dismissed that portion of
the lawsuit, half of its original claims on the first day of
trial and never had any evidence.
In my written testimony, I have provided a letter from the
CFPB enforcement attorneys threatening to pursue us for more
than $95 million in ill-gotten gains, and over $13 million in
civil monetary penalties. This claim of ill-gotten gains
called, ``disgorgement,'' was also dismissed by the CFPB on the
first day of the trial; again, it never had any evidence.
I implore the committee to question the CFPB's goals when
it made its allegation against us in a very public lawsuit and
press release, the allegations with no facts behind them which
damaged our firm's reputation and ultimately cost 100 of our
employees their jobs.
Additionally, I hope the committee will investigate just
how much money was spent by the CFPB to pursue our firm's case.
Those expenses also included the hiring of an expert, a
marketing professor from Georgetown whose discounted government
rate was $750 per hour, and whose testimony the judge deemed
not credible.
And when the case was over and our firm had won, when the
CFPB decided not to appeal and was ordered to pay our firm
about $10,000 out-of-pocket costs, what happened? The CFPB
asked if we would take a credit card for the $10,000.
Before I wrap up, I would be remiss if I did not touch on
rulemaking. When the CFPB was established in 2011, its power to
make rules in the debt collection area was welcomed. To this
day, however, 7\1/2\ years after its formation, how many rules
has it published? None. If it made rules, then it would lose
its ability to regulate through enforcement.
On January 23, 2018, former interim Director Mulvaney sent
an e-mail to every employee of the CFPB in which he stated,
``It is not appropriate for any government entity to push the
envelope when it comes to conflict with our citizens.
``The damage that we can to do people can linger for years
and cost them their jobs, their savings, and their homes. If
the CFPB loses a court case because we pushed too hard, we
simply move on to the next matter. But where do those who we
have charged go to get their time, their money or their good
names back?
``If a company closes its doors under the weight of a
multiyear civil investigative demand, you and I will still have
jobs at the CFPB, but what about the workers who are laid off
as a result? Where do they go the next morning?'' I can tell
you this, for our firm and for our employees who lost their
jobs, those are empty words. Thank you very much.
[The prepared statement of Mr. Weltman can be found on page
163 of the appendix.]
Chairwoman Waters. Thank you very much. I now recognize
myself for 5 minutes for questions, and I am going to ask Mr.
Shelton and Ms. Jun to engage with me about their lending. I am
looking at information here--data that has been compiled.
And some of this information, I think paints a picture that
I think we must be concerned about. The 2017 HMDA data showed
that disparities in underwriting and pricing persist.
Underwriting of conventional loans--the type that Fannie Mae
and Freddie Mac buy--are described as such. The white loan
origination rate in 2017 was 25.23 percent compared to 58.29
percent for blacks, thus whites had a 28 percent higher
origination rate.
Black loans were denied at 22.97 percent versus 8.14
percent for whites, which means that blacks were denied 82
times more often than whites. Also, the black fallout rate was
10 percent higher than whites, and with respect to pricing,
blacks had higher cost loans 2.86 times, and Hispanics 2.96
times more often than whites for conventional home purchase
loans.
And this is just part of the information that we had. We
went through the crisis in 2008, and we discovered an awful lot
about what was happening in targeted communities, for the most
part communities of color, where people had been basically
lured into signing on the dotted line for all of these exotic
products like interest rates that were going to reset, when
people didn't understand what they were, and then of course,
foreclosures started wiping out communities all over this
country.
Now without going further into that, I know that you
panelists kind of know what happened with this targeting, and
absolutely it was identified that blacks earning the same
amount of money as whites, and basically paying their bills at
the same rate, et cetera, were ushered into these bad loans.
And we would expect the Consumer Financial Protection
Bureau to have every reason to be concerned about fair lending.
But yet it seems as if not only have they cut back on it, it is
not the mission of the Consumer Financial Protection Bureau.
Could you elaborate a bit on what this means in terms of not
having enforcement and not having investigations, starting with
Mr. Shelton?
Mr. Shelton. Thank you very much, Madam Chairwoman. The
issue for us has been very clear. In 2008, what we started
seeing was the kind of targeting that was actually done in
African-American and other racial and ethnic minority
communities.
As opposed to going after those with a fixed income,
oftentimes brokers were being utilized--we rarely hear that
term ``utilized'' these days, but brokers were being utilized
in the most unscrupulous manners.
I can think of a woman I sat next to testifying in 2008
from Ohio. Her husband had worked for one of the larger tire
manufacturers in the country, they had a pension fund, they
paid off the house as they planned on doing, and after he
retired, he later passed away, and she was there managing the
house herself.
It looked like everything was very well in place, until the
broker showed up. The broker came into her community, and
recognized that her home, through nicely kept, was quite old
and utilizing oil heat, and as such, quite expensive in a place
like Ohio to manage. As such, he talked to her about how he
could refinance her home and allow her to pay for all the
improvements she needed in everything from insulation to new
windows and everything else, and a new heating system for
roughly $50,000.
He told her she could manage it, but gave her an exploding
ARM mortgage that she knew nothing about, an exploding ARM in
which she had a very nice introductory rate but it increased
every 2 years until the end of the sixth year, in which case
both her insurance, and her taxes were dropped altogether.
She found herself in an awful position in which she began
losing the home. She testified at a hearing in Congress. Let me
tell you the thing that was most outrageous, and why I share
this story. It is to show you how these issues not only impact
disproportionately racial and ethnic minorities, but because
she had no place else to go.
Sadly, one of the other things her husband left behind as
he passed away was his old shotgun that she ultimately used on
herself. This level of outrage is something that we have to
focus on, and is why the Consumer Financial Protection Bureau
was put together as it was, to provide the kind of protection
and oversight we very well needed.
The last point I will make is this. I heard the term
``whack-a-mole'' used a little bit earlier. One of the reasons
that we pushed forward for the passage of the Dodd-Frank Wall
Street Reform Bill, as well as the Consumer Financial
Protection Bureau, was because we needed someone at the helm
that would have the dexterity and the flexibility to be able to
move very quickly to address these new products with a
different--
Chairwoman Waters. Thank you so very much. I know that
there is a lot more information you could share, but that is
very striking. The gentleman from Tennessee, Mr. Rose, is now
recognized for 5 minutes.
Mr. Rose. Thank you, Chairwoman Waters. Mr. Weltman, thank
you for joining us today. We appreciate you being here. And
thank you to the other panel members as well. In earlier
questioning, I shared with the panel and with my colleagues the
adage that I have heard and learned about from our State
senator in Tennessee, and that is his view that regulators
should be in the business of helping the regulated comply, as
opposed to punishing them, as in the first instance, for
failing. Would you agree with that mindset for a regulating
body?
Mr. Weltman. Yes, Congressman. Thank you. Yes, I would
agree with that.
Mr. Rose. And if you would, tell me a little bit about your
broader practice, your creditors' rights firm. And so, if you
could give us a little bit of a sense of a broader
understanding of what you do.
Mr. Weltman. Thank you, Congressman. Our law firm is a
creditors' rights law firm. Again, we are down to about 550
people, and we practice in the areas of consumer debt
collection and litigation, and commercial debt collection and
litigation. I represent creditors of all types in bankruptcies
and foreclosures, and have a general creditor litigation
practice as well.
We are licensed in a number of different States. We have
offices, more than just in Ohio. And we have a lot of very
solid professionals who take great pride in their work. And
quite honestly, we focus on ethics and compliance all the time;
we invest a lot of money in that area.
Mr. Rose. And this experience that you have been through
with fighting with the Consumer Financial Protection Bureau,
had you ever experienced anything like that in your career?
Mr. Weltman. Never in my career, at all. It is unique.
Mr. Rose. One of the concerns that I and think others on my
side of the aisle have, and I think actually maybe some on the
other side have about the CFPB is the lack of oversight and the
lack of control that Congress retained, if you will, or gave
even to the Executive Branch. Does that concern you?
Mr. Weltman. Congressman, we focus a lot on our job and
what we do, we don't get involved in the political issues
related to the Bureau. We are happy to do our job every day, to
the best of our ability, and we let Congress worry about those
things.
Mr. Rose. Okay. I can appreciate that. Well, it does
concern me. And you know, as I think about the province of the
CFPB and the structure that has been set up, it concerns me
greatly that we have very little oversight opportunity, that we
do not even control, in any way, their budget or get the
chance, on behalf of the taxpayers, to exert any influence
there.
And so, as I heard of your case and, and looked over some
of the background information, the old adage of fighting city
hall came to mind and how it difficult it is when the plenary
power of government is brought down upon you. And it kind of
hearkened back in my mind to the earliest days of our country
and the revolt that led to the formation of this country
against King George and the notion of taxation without
representation.
I believe our founding fathers would be horrified that we
have created such an entity that draws its funding from a
source where there are there really no limits to how much money
it spends, and then uses those resources to, without oversight,
without really any limits or control, to pursue whomever the
current leader of that organization chooses to pursue and
without really any recourse on their part.
And so, these are major concerns of mine. And I think it is
something--as I have visited with folks in the 6th District of
Tennessee at least, I hear very little about what CFPB is doing
to protect the consumers in my district. I hear a great deal
about the problems that occur when a regulator is really
untethered and is able to exert plenary power and doesn't even
have the restrictions of budgetary controls to limit the
province of what they do.
I am sorry that your firm suffered through the ordeal that
you have, and I appreciate you taking the time to be here today
and share that story with us. I have heard similar stories from
other businesses in the 6th District of Tennessee who have
been, in my opinion, abused by the overreaching of this
regulator. And so, thank you for being here. I yield back.
Chairwoman Waters. Thank you. The gentleman from Georgia,
Mr. Scott, is recognized for 5 minutes.
Mr. Scott. Thank you, Madam Chairwoman. Mr. Shelton, let me
start with you. The CFPB took away the Office of Student Loans
and Young Consumers. Tell me how devastating this is? This is a
very serious issue, not only in terms of the amount of loans
that our students have to pay, but there are some unsavory
characters out there that take advantage of young consumers who
are eager to consume but are not knowledgeable enough about the
rules and regulations.
And these young consumers are taken advantage of. I want to
ask you, how serious is this? Can you share with us the
seriousness of this issue of students and the fact that the
Consumer Bureau removed that office?
Mr. Shelton. In a very short way, it is overwhelming. As we
think about just African-American students alone, about 75
percent of African-American college students come from an
income level that allows them maximum Pell Grants. That means
they are the poorest of the poor. And as we are thinking about
the purchasing power of a Pell Grant, we know that, nowadays,
it does not cover nearly as much of the tuition or the
educational cost as we were hoping it would at the time of
origin.
What that means is students have to take out more loans
much more often. The presumption of most students is that their
lending source is watching out for their best interest. The
truth is, that is not the case. And as such, we are finding
that students and even myself found ourselves in a very awkward
position of now having a great education but not enough income
to be able to pay off that student loan and other living
expenses.
It is tremendous; we are getting more and more reports from
across the country. It is outrageous on so many levels.
Mr. Scott. And what do you think we need to do about that,
Mr. Shelton, to correct that problem? Very briefly.
Mr. Shelton. Very briefly, greater oversight. The Consumer
Financial Protection Bureau needs to do what it started doing--
Mr. Scott. Which means we must pass Ms. Waters' Consumers
First Act--
Mr. Shelton. That would be my vote.
Mr. Scott. --because that is one of the things we are going
to do, is reestablish this office and the CFPB that will
address student loans and young consumers. Now Ms. Davis, I
mentioned earlier when the acting Director was here, about the
Military Lending Act, and I stated unequivocally that under Mr.
Mulvaney, they abandoned supervision of regulated entities for
compliance with the Military Lending Act. They did that. Can
you explain for the committee how devastating that is in
removing the protections we have for, as I said, our precious
military servicemembers and their families?
Ms. Davis. Thank you for your question. It is devastating.
And it is a national security, it is a readiness issue for our
servicemembers and their families. So when you think about what
we heard earlier was preventing harm, well, when you supervise
for compliance you are preventing harm.
What happens when you don't do that is that it puts the
burden on the servicemember and their family to figure out that
they have been defrauded, what law applies to them, what
protections are out there--it is the Military Lending Act, you
know, in this case that we are talking about--and then what law
enforcement agency is protecting them, and file the complaint.
So it distracts from the mission. There are huge ripple
effects out from there. It is not just the servicemember or
their family, but it affects the unit, it affects the mission
downrange and at home.
Mr. Scott. It is very important because we have a pretty
sizable C-SPAN audience, and this is very important to this
committee, pointing out these discrepancies against our
military servicemembers and our young people, particularly. And
rest assured, we will address that, and it is also will be a
part of Ms. Waters' Consumers First Act to reestablish that
supervision for our military servicemembers. Thank you.
Ms. Davis. Thank you.
Chairwoman Waters. The gentleman from Ohio, Mr. Gonzalez,
is recognized for 5 minutes.
Mr. Gonzalez of Ohio. Thank you, Madam Chairwoman. I want
to thank our panel for being here today and for answering all
of our questions. Mr. Weltman, it is always great to have a
fellow Buckeye in the room and a Northeast Ohioan, and it is
great to see your family here. I met your father earlier. So,
welcome. I am thrilled to have you here. I especially want to
thank you for sharing your story with the committee and for the
courage that you had to stand up to the overreach of the CFPB,
to fight for not only your company's reputation but also for
the reputation of your family.
In your testimony, you quoted former interim Director
Mulvaney's comments on the CFPB, which I think are just so
powerful they need to be said again. He said, ``It is not
appropriate for any government entity to push the envelope when
it comes into conflict with our citizens. The damage we can do
to people could linger for years and cost them their jobs,
their savings, and their homes. If the CFPB loses a court case
because we push too hard, we simply move on to the next matter,
but where do those that we have charged go to get their time,
their money or their good names back?'' That is so powerful and
it speaks directly to your situation.
Just 2 seconds ago, I Googled your name, just to see what
would come up, where you work, and profile pages. The first
article is a negative article written by one of our papers
about your experience. It talks about how you are being sued
and all the terrible things that come along with it. That is
the first article that comes up. So let me ask you this. Do you
have children?
Mr. Weltman. Yes, I have three children in college.
Mr. Gonzalez of Ohio. So if your kids are going to Google
your name, this is the first thing they are going to see,
right?
Mr. Weltman. My kids and probably their friends as well.
Mr. Gonzalez of Ohio. That is completely unacceptable. Mr.
Weltman, can you talk more about the impact that this
experience with the CFPB has had on your company and also your
family? And let's keep in mind that you won your case.
Mr. Weltman. Yes, we did win our case. And thank you,
Congressman. It was a very trying time for our company. It
caused a lot of internal strife and again, as I mentioned in my
testimony, within days of being sued--being accused with, as it
turns out, no evidence, numerous clients of the firm fired us.
Clients to this day that we haven't gotten back. We have to
continue to explain our situation, and to be honest with you,
to add insult to injury, if you were to Google and go to the
Bureau's active enforcement action website, it shows our matter
as still active.
Mr. Gonzalez of Ohio. Really?
Mr. Weltman. Yes, it does. I went to that website yesterday
to see the status of our enforcement action, and it shows it as
active. So we are going to have to continue to explain the
situation. We did win and we are very proud of that and we
certainly tout that. We had a lot of clients stay with us, so
we are still in business and we are doing just fine, thank you
very much. But it is something we have to explain. And by the
way, when we go to hire people, we have to explain it.
Mr. Gonzalez of Ohio. Of course. And just to reconfirm, you
were initially hired by Richard Cordray?
Mr. Weltman. Yes. Our managing shareholder at the time was
appointed a special counsel, which really meant that our firm
was being hired when Richard Cordray was Attorney General of
Ohio, yes.
Mr. Gonzalez of Ohio. And presumably, he vetted you. He
actually rehired you.
Mr. Weltman. It was a very extensive vetting process with a
significant amount of information that had to be provided to
him twice.
Mr. Gonzalez of Ohio. And then he became Director of the
CFPB and sued you?
Mr. Weltman. That is correct. He authorized that lawsuit
and was quoted accusing us of illegal activity in a press
release.
Mr. Gonzalez of Ohio. I think everybody in this committee,
everybody here agrees that consumers need to be protected.
Nobody disagrees with that. We all agree on that.
But what happened to you is patently unfair. It is unfair
to you, it is unfair to your employees, unfair to your clients,
and unfair to your family. The CFPB needs reform but that
reform needs to be bipartisan.
The bill that we are talking about today is a pure partisan
bill. We are going to be--we know for sure it is not going to
pass. It will pass out of this committee, it might come up to
the Floor, but it is not going to get passed into law, but we
actually all agree that this system needs to be reformed, and
so what I would urge the committee to do is actually put in a
process where we are going to agree on some things that might
actually get signed into law, because what happened to you and
what happens to all the folks who are sitting here, we all
agree it is broken.
The system needs to be fixed and it needs to be fixed in a
way to make sure that we are not having the same arguments over
and over and over again, every single Congress. So thank you,
Mr. Weltman, for your testimony. I thank you and your family. I
am so sorry that this happened to you; it doesn't make any
sense. It is flat out wrong, and I hope that it never happens
again. I yield back.
Chairwoman Waters. Thank you. The gentleman from Texas, Mr.
Green, the Chair of our Subcommittee on Oversight and
Investigations, is recognized for 5 minutes.
Mr. Green. Thank you, Madam Chairwoman. Mr. Weltman, thank
you for your testimony. You are a litigator, is that correct?
Mr. Weltman. Yes, I am.
Mr. Green. And as a litigator, have you had courts rule,
perhaps against you, and on appeal, have those decisions
overturned?
Mr. Weltman. If I can understand your question, you are
saying, when I am litigating on behalf of a client?
Mr. Green. Yes, sir. Have you ever lost a case at the trial
level that you won on appeal at the appellate level?
Mr. Weltman. I am thinking back over 27 years--
Mr. Green. Did you win all of your cases?
Mr. Weltman. I do not win all of my cases.
Mr. Green. Okay. Well, let's just assume you did. When this
occurred, do you want to eliminate the judiciary?
Mr. Weltman. Pardon me?
Mr. Green. Do you want to eliminate the judiciary? Because
see, a lot of my friends on the other side, they don't want a
CFPB at all. And they want to use you, sir, as a part of a
process to eviscerate and decimate the CFPB. Do you want to be
a part of that?
Mr. Weltman. Congressman, I want--
Mr. Green. I will take it, your answer is ``no.'' Because
you are a reasonable person, you would not want to be a part of
the evisceration of the Consumer Financial Protection Bureau,
would you, simply because of one bad experience?
Mr. Weltman. Congressman, our experience was not a pleasant
experience.
Mr. Green. I understand. I have had unpleasant experiences
in life, but that doesn't mean that I want to eliminate the
police department because I had an unpleasant encounter with
one police officer. Do you tend to be of the type of person who
takes his one experience as an assault against all of society?
Is that your position?
Mr. Weltman. Congressman, our employees were accused of
illegal activity after a 2\1/2\-year investigation with no
evidence.
Mr. Green. I see.
Mr. Weltman. That was our experience.
Mr. Green. So from your point of view, the CFPB is of no
value. All right, let me move on to someone else. Thank you for
your point of view, kind sir.
I want talk for just a moment about invidious
discrimination. My assumption is that everyone on the panel
agrees that there is invidious discrimination in lending. But
for fear that I may be incorrect, if you think that there is
invidious discrimination in lending, would you kindly raise a
hand?
Invidious discrimination is harmful discrimination against
persons who are seeking to borrow money. Please put your hands
up, and keep them up. Okay, so we have Mr. Weltman, you don't
believe there is discrimination in lending, I see. And you
understand ``invidious'' because you are a lawyer. So now you
want to eliminate the CFPB, and you don't think that people are
discriminated against in lending. The empirical evidence is
there to support it.
Lawsuits have supported it. I am just amazed that you,
living in the United States of America, would come to the
conclusion that there is not invidious discrimination in
lending.
Let's move on to the next question. There is something
called ``testing.'' This is the methodology by which we acquire
the empirical evidence necessary to prove the invidious
discrimination. As a matter of fact, I know of no better way to
acquire the empirical evidence.
If you are familiar with what testing is, would you kindly
extend a hand into the air? All right, let the record show that
we have two people who are not familiar. If you will lower your
hands. For edification purposes, this is where you send in
persons, lets assume you have three, and one of them happens to
be Anglo, and the Anglo person will receive a loan at an
interest rate, let us call it 5 percent, and then two African
Americans will come in afterwards and they will receive loans
at a higher interest rate. And the African Americans will be
more qualified than the Anglo-American that went in.
That is the way you test to ascertain whether or not
discrimination exists. Do you believe that this is a fair way
of acquiring intelligence? If so, would you kindly raise your
hand?
Okay, I said, Mr. Weltman, you don't think that testing is
a fair way to acquire intelligence. So Mr. Weltman, are you a
person who believes that people like me and others who have
been discriminated against--and by the way, some of us are
still being discriminated against--should just suffer, because
you had an unpleasant incident? I yield back, thank you, Madam
Chairwoman.
Chairwoman Waters. Thank you. Our ranking member, Mr.
McHenry, the gentleman from North Carolina, is recognized for 5
minutes.
Mr. McHenry. Well, Mr. Weltman, I don't question your
motives for being here. I don't think that it would be
appropriate for a Member of Congress to do that to a panelist,
I don't think it is becoming of this Congress to do something
like that, nor do I think that was the intention of anybody who
was questioning you about your awful experience. And I know you
have already testified as to your story.
The reason why you were invited to be on this panel is to
provide an example of the harm that Richard Cordray's CFPB
pushed upon consumers and individuals and companies. Let us
just talk through structural changes here. You have dealt with
an attorney general, you have dealt with the Bureau, and you
are quite familiar with the law. So did the CFPB ever provide
you with any guidance on how to word your disclosures?
Mr. Weltman. Thank you, Ranking Member McHenry. We had
discussions with the enforcement attorneys at the CFPB
throughout the process and actually invited them to provide us
the language that they would condone and endorse in writing,
and they would not do that for us.
Mr. McHenry. Okay, so have you dealt with other banking
regulators?
Mr. Weltman. I have not.
Mr. McHenry. Have you dealt with other regulators?
Mr. Weltman. Others at our firm--we have a very robust
compliance department whom I think deal with various other
regulators. I personally haven't.
Mr. McHenry. Okay. Were there any rules of the road that
were given to you from the CFPB?
Mr. Weltman. Before the enforcement attorneys served us
with our CID, we had had no interaction with them directly. So
beyond that, no.
Mr. McHenry. In the wording of that document, did it give
you reference to law that they were enforcing, a specific law
that they were enforcing or words of a law or reference to a
piece of a criminal code?
Mr. Weltman. When the Bureau attorneys presented us with
what they considered to be a consent order that they would
agree to, it was, for the most part, their way, take it or
leave it.
Mr. McHenry. Okay. And you have testified to this, but just
to be clear, did you just base your disclosures off what would
have been previously approved by Richard Cordray as attorney
general?
Mr. Weltman. Our law firm has invested millions of dollars
over the years in compliance. And again, we have a very robust
compliance department, headed by one of my partners, who heads
up our compliance area, who studies the law constantly and
stays on top of all the legal requirements.
And we based our disclosures and how we craft our letters
on the state of the law at all times, which was confirmed when
we did work for the State of Ohio and what they would find
acceptable as well.
Mr. McHenry. Okay. So in this process, were you ever made
fully aware of how you violated CFPB rules?
Mr. Weltman. Well, Congressman, there were no rules that
were promulgated in this area by the CFPB.
Mr. McHenry. So as a legal matter, you had no point of
reference for whether or not you were in fact breaking the law
until you were served?
Mr. Weltman. And just to be clear, there is statutory and
case law that we follow at all times. I think the Bureau had a
different interpretation, which was found by the court, as it
turns out, to not be correct.
Mr. McHenry. Okay. So what you are telling me is what was
good for Attorney General Cordray was not good for Director
Cordray. That is something else.
This scenario has happened many times to many other
individuals and companies. What other structural reforms do you
think are needed so that this doesn't happen again? Just as a
matter of best practices in the law, in your view?
Mr. Weltman. Again, we like to stick to doing our job and
doing it to the best of our ability representing our clients.
And as far as structural changes within the Bureau, I would
certainly defer to Congress on that.
Mr. McHenry. Would a rules-based regime be better than
``sue and find out later?''
Mr. Weltman. As I stated--
Mr. McHenry. And I don't mean this as a knock on lawyers.
Mr. Weltman. As I stated in my testimony, and I am
certainly aware that there have been discussions of rules in
the debt collection area, when we have rules, we certainly
intend on following them. And we would welcome the publication
of those, finally.
Mr. McHenry. Thank you.
Chairwoman Waters. The gentlewoman from Texas, Ms. Garcia,
is recognized for 5 minutes.
Ms. Garcia of Texas. Thank you, Madam Chairwoman. And I
find it really interesting that we have an almost unanimous
opinion on this and--and I wanted to start with one of the
questions--I think most of you were in the room when I asked
them of the Director.
Do you think that it is necessary to fully implement and do
outreach for limited English-speaking populations to make sure
that we reach all consumers? And I just want a yes or no from
the whole panel.
Mr. Shelton?
Mr. Shelton. Yes.
Ms. Jun. Yes, most definitely.
Ms. Davis. I'm sorry. Can you ask the question again?
Ms. Garcia of Texas. I asked her the question about the
outreach and what we were doing to ensure that the limited
English-speaking populations of consumers, those particular
populations were getting the information they need so that they
would not get ``ripped off.''
Ms. Davis. Right. Yes.
Ms. Garcia of Texas. Okay.
Mr. Frotman. Absolutely, Congresswoman.
Mr. Weltman. It is--
Ms. Garcia of Texas. Mr. Weltman?
Mr. Weltman. It is more for all consumers to get
information, yes.
Ms. Garcia of Texas. So is that a yes?
Mr. Weltman. Yes.
Ms. Garcia of Texas. Finally, a unanimous decision here.
Well, thank you. And now I will ask you the follow-up question.
How can we best do that? And in the interest of time, let's
keep our answers short.
Mr. Shelton?
Mr. Shelton. Mandate that everything is transcribed into
the language that you are trying to make sure were covered, I
would think something along the lines of Section 205 of the
Voting Rights Act, and apply it to these financial services
issues.
Ms. Garcia of Texas. Great. Ms. Jun?
Ms. Jun. I would also just add that the CFPB has done
really good consumer testing in other areas, and all of those
documents, once they are translated, should be extensively
tested to make sure they can reach lots of different
populations with different dialects and that sort of thing.
Ms. Garcia of Texas. Ms. Davis?
Ms. Davis. I would like to answer that one in writing for
the record.
Ms. Garcia of Texas. Okay.
Mr. Frotman. I think this is another example about why
disbanding things like the Consumer Advisory Board are so
devastating. I know in my time at the Bureau, we learned a ton
from that advisory board about how to better do our job. I
think it is another example about not wanting to necessarily
hear from consumers because there was a particular point of
view already.
Ms. Garcia of Texas. Mr. Weltman?
Mr. Weltman. Unfortunately, I don't think I am qualified to
contribute an answer to that. It is not my area of--
Ms. Garcia of Texas. Do you not have any clients from any
of the populations I may be talking about?
Mr. Weltman. Do we have clients that serve that population?
Ms. Garcia of Texas. No. No--clients, yes, correct.
Mr. Weltman. Yes, we do.
Ms. Garcia of Texas. You do? Okay, well, thank you.
Now the other question I have, and, again, it is for the
whole panel, is, I, too, was a legal aid lawyer and I did do
consumer laws, and back then, we were all concerned about
redlining--do you think that redlining still exists?
Mr. Shelton. Is it racist? Yes.
Ms. Garcia of Texas. No. Does it exist?
Mr. Shelton. Oh, absolutely. Yes.
Ms. Garcia of Texas. No, I know it is racist. But we were
talking about that earlier, and my colleague from Houston,
Congressman Green, was alluding to some of it. But do you think
that redlining exists? I know that there were so many things
put in place to try to correct that, but are we there yet?
Mr. Shelton. The short answer is that it does still exist.
We get reports about just across streets, as a matter of fact,
how differently people are treated with various services. So
the short answer is yes, it does.
Ms. Garcia of Texas. And do you think it is just in the
financial services or in other sectors as well?
Mr. Shelton. Oh, no, many other sectors as well, as a
matter of fact. I think we find the experience not only in
financial services but even education and other issues along
those lines.
Ms. Garcia of Texas. Ms. Jun?
Ms. Jun. I think the other thing I will add is we have
heard a lot about new ideas. And there have been some studies
about using algorithms and alternative underwriting as if
hopefully, a computer won't be discriminatory.
But a lot of studies lately have been showing that those
automatic computer type models and new ideas are still
concluding discriminatory results in lending. So I think it is
still very much a problem and we as a society need to do a lot
more about it.
Ms. Garcia of Texas. Ms. Davis?
Ms. Davis. Again, I would like to answer that one for the
record.
Ms. Garcia of Texas. Okay, thank you.
Mr. Frotman?
Mr. Frotman. I think it obviously still exists. But I think
I would encourage the committee to think about it in a broader
sense than just the traditional mortgage context. I think we
see this extend out to issues in Fintech, we see it in student
lending issues, and I think it is a significant problem where
there are real concerns about the Bureau's commitment to
addressing it.
Ms. Garcia of Texas. Mr. Weltman?
Mr. Weltman. Yes, and I am sorry. I am just not qualified
to speak to that issue.
Ms. Garcia of Texas. You are not qualified? I thought
lawyers knew the answers to everything. I always thought--that
is the kind of lawyer I was, but maybe that is a discussion for
another time.
Now, Ms. Jun, I wanted to ask you because you do the legal
aid work, if you could think of one single thing that we could
do in changing to help poor people have more access to credit,
and to lending, and to being able to have some access to
capital, what would that be?
Ms. Jun. I think that is actually just more regulation and
not less, because what is filling the hole right now are more
bad choices and more predatory practices. And so I think the
way you open up the space for better ideas to fill that space
with better options is to make sure that bad practices are in
fact very strongly discouraged by the CFPB and other
regulators, and that real innovation, real new products as
companies develop them are closely scrutinized to see how they
are benefiting people.
Ms. Garcia of Texas. Okay, well, thank you all.
Chairwoman Waters. The gentleman from Michigan, Mr.
Huizenga, is recognized for 5 minutes.
Mr. Huizenga. I appreciate the Chair for recognizing me,
and Mr. Weltman, I am sorry, it was almost 6 hours ago when
this hearing started. I was here for a number of hours at the
beginning, and then had to step out for a few things.
As I was listening to the ranking member here, I am
fascinated by this notion that an attorney general would act in
one way at the State level, and then come to Washington, D.C.,
with a bright, new shiny object called the CFPB and act in a
completely different way. So why did he reverse course? Did you
ever hear in the explanation as to why there was a reversal?
Mr. Weltman. Thank you, Congressman, no, he did not address
that in his deposition. He was asked the question and didn't
really provide a sufficient answer.
Mr. Huizenga. Oh, that would have been like when he was
here testifying in front of us. But, okay. So literally, he did
not have an answer as to why he thought it was okay as attorney
general but then reversed himself--I mean, that is 180 degrees.
Going back to then try to hold you culpable, whom he had
blessed, checked the box, whatever you want to say, had
approved your process that he as attorney general had oversight
of.
Mr. Weltman. That is accurate to my testimony, yes.
Mr. Huizenga. Okay, well, that is stunning--but I had an
experience around a couple of other things, and I will ask the
question this way. Do you believe that the tactic of regulation
by enforcement is a problem?
Is the Bureau going after a business without issuing any
guidance or promulgating any rule--so in other words, there is
a course of action--this might be a little different than what
you had dealt with, but there is a course of action, and that
is deemed legal and acceptable, and then suddenly a regulator
decides that no longer is that acceptable--and by the way we
are going to then go after you for doing something that had
been approved before?
Mr. Weltman. I am familiar with our experience and haven't
really spent a lot of time worrying about other experiences
outside of our own. I certainly felt that our experience was an
attempt at regulation through enforcement, just based upon some
of the terms that the Bureau was requiring us--if they weren't
going to sue us, things that weren't the current law, things
that they didn't include in the lawsuit.
Mr. Huizenga. Explain that a little bit--unpack that a
little bit.
Mr. Weltman. Well, their tactic, after their 2\1/2\-year
investigation and before they sued us, they came to us and
said, we are going to sue you unless you sign a consent order.
And we asked to see what it would look like because certainly
we were interested--
Mr. Huizenga. You would want to know what you are agreeing
to.
Mr. Weltman. We wanted to know what they had in mind--
Mr. Huizenga. Yes.
Mr. Weltman. And what they had in mind, again, some of
which was not the current state of the law and it was something
that we felt they were going to use that as an example to tell
people what the law should be.
Just because we agreed to something--we wouldn't agree to
it because it wasn't the law. And again, that was validated
that when they finally filed the lawsuit--and again, the
lawsuit had no basis as it turned out. But they didn't even
include those terms in the lawsuit because it wasn't law--they
couldn't have even gotten--
Mr. Huizenga. Well, that is exactly the experience I had
with a small title insurance company back in the second
district of Michigan, and I won't incriminate my colleague on
the other side of the aisle because I want him to have a future
here in Washington. But he actually helped me when I went to
him with this issue and called the CFPB on my behalf to kind of
work through this. And it was exactly that situation.
They were conducting themselves in a way that was
completely legal and acceptable, but the CFPB decided that they
no longer wanted companies to act like that, so they sued them
and fined them, would have put them out of business had it not
been for my friend on the other side of the aisle who helped
mitigate that a bit.
I think that is why a number of us believe that there need
to be some safeguards that the Dodd-Frank Act didn't have in
it, but we need to have some safeguards to prevent the CFPB
from overreaching. And I am assuming in your opinion that would
have helped your situation have more clarity, transparency?
Knowing the rules of the road as you were moving forward?
Mr. Weltman. We asked the CFPB for the rules that they
wished us to follow because we certainly are interested in
those and would love them to be published.
Mr. Huizenga. I think that that had been the last
Administration's M.O. I am hopeful that this current
Administration and Director Kraninger, who was here earlier, is
going to follow through that. My time is expired. I appreciate
your time.
Chairwoman Waters. Thank you. The gentlewoman from North
Carolina, Ms. Adams, is recognized for 5 minutes.
Ms. Adams. Thank you, Madam Chairwoman, and thank you for
convening today's hearing, and to the witnesses, thank you very
much for your testimony. Each of you know that the Consumer
Financial Protection Bureau's primary role is to protect
consumers, and I have never believed that that should be a
partisan issue. But having said that, let me ask a question
first of all to Mr. Shelton. I was troubled by the way Mr.
Mulvaney fired the 25 members of the Consumer Advisory Board
last June, and by the changes that he made which seemed to
diminish the role that the board plays with the agency.
And yesterday, as you have heard me introduce compliments
in legislation--the Consumers First Act attempts to address
this issue. But can you just share from your point of view
which steps should be taken to ensure that the Consumer
Advisory Board and the other advisory boards are diverse and
inclusive in every opportunity to provide meaningful advice to
the Consumer Bureau's staff?
Mr. Shelton. Let me first say that I believe passing the
Consumers First Act is a good start. Mandating many of these
provisions and making sure that the voices of the American
people, as diverse as they may be, as those of us who worked on
passing the original Dodd-Frank Wall Street Reform bill had
intended.
I think it is crucial that that kind of information is
available, and again with the great diversity we call the U.S.,
and of course the type of redlining and other problems we have
experienced with the financial institutions in our country.
Ms. Adams. I am curious about whether your organization or
any other organizations represented here on the existing
boards--anybody from NAACP?
Mr. Shelton. Can you say that one more time--I'm sorry, the
last part?
Ms. Adams. Is anyone from the NAACP on the board?
Mr. Shelton. We were with the first board--
Ms. Adams. Oh, okay.
Mr. Shelton. We weren't more recently.
Ms. Adams. So you were asked off, pretty much?
Mr. Shelton. Yes, ma'am.
Ms. Adams. Okay. Let me follow up and ask--I was an
educator for 40 years, I taught at the Bennett College in
Greensboro, and I believe deeply in the value of creating
opportunities for students to access and complete their higher
education. For many, especially students who attend
Historically Black Colleges and Universities (HBCUs), it is the
key to upward economic mobility.
But our students today are young and overburdened by the
student loan debt that is putting the so-called American Dream
out of reach. So can you talk a little bit about--I understand
that we don't have an ombudsman anymore for young people to
stand in the gap for them, no one looking out for them. And I
would really like to hear your thoughts about that, not only
from Mr. Shelton, but also from Mr. Frotman.
Mr. Shelton. Let me just start it by saying very quickly,
that of course the cost of higher education continues to spiral
upwards. And as such, we are looking at some of the tools that
have been made available in the past. The Pell Grant program
was one of the most effective and successful ways to keep from
going into debt, because that provided resources that we didn't
have to pay back.
But unfortunately, if you can go back to 1980 in the Reagan
Administration, first cutting Pell Grants and then freezing
them and thus never catching up with the buying power that was
intended for Pell Grants, which are a really good start for
low- and moderate-income students. Just look at the lack of
control for student loans as we know, we continue to raise that
issue here for the assumption, we have to address as well. It
means more and more students are dependent on student loans
that have to be paid back with a group of lenders that are
quite frankly not regulated in the manner in which they should
be.
Ms. Adams. Mr. Frotman, I understand that you were the
former student loan ombudsman and you are not there anymore,
you resigned. Can you tell me a little bit about your concerns?
Mr. Frotman. Thank you for the question. On top of the
historic debt that we have pushed upon tens of millions of
Americans, they face a financial marketplace that is littered
with predatory players, from for-profit schools to student loan
servicers, debt collectors, private student lenders, private
equity funds, you name it, that view the trillion plus dollars
in student debt as their chance to make a quick buck. And that
is what we worked on at the Bureau for 7 years while I was
there.
This is an issue that should know no partisan bounds. The
fastest growing segment of student loan borrowers is actually
older Americans. We see huge problems in rural America. Issues
impacting everything from infantrymen to clergyman. And what I
saw at the Bureau, nearly instantaneously after Director
Cordray left, there was just zero desire to actually work on
these consumer protection issues anymore. Maybe because of
partisan reasons, maybe because of industry, but the result is
the same.
Ms. Adams. Thank you very much, I am out of time. Madam
Chairwoman, I yield back.
Chairwoman Waters. Thank you very much. The gentlelady from
New York, Ms. Ocasio-Cortez, is recognized for 5 minutes.
Ms. Ocasio-Cortez. Thank you, Madam Chairwoman. Mr.
Frotman, can you very quickly tell us why the CFPB was
established?
Mr. Frotman. I think the CFPB was established for two
reasons. One is that families throughout America were hurting
after the financial crisis and we were there to help those
individual folks. And when I first started, it was helping
servicemembers who were ripped off by predatory lenders. Later,
it was individual borrowers who were struggling with student
loans. But we always had a view that was broader, which was
that our job was to be sure nothing like the financial crisis
ever happened again.
Ms. Ocasio-Cortez. And in your time there, can you give,
maybe a quick example of some of the most important and vital
pieces of work and protections that you all, kind of carried
out?
Mr. Frotman. Sure. In my first job, standing up for
military families, it was definitely helping the Department of
Defense strengthen the Military Lending Act. Because for years,
I was lucky enough to travel the country with Holly Petreaus,
and everywhere we went, we saw predatory lenders just camped
outside of military bases. So for years, we worked with all the
banking regulators within the Department of Defense to pass a
rule to close all of those loopholes. In my second role at the
Bureau, working on student lending issues, we did a
considerable amount of work, especially on predatory for-profit
colleges, but also around the fundamental breakdowns in student
loan servicing.
Ms. Ocasio-Cortez. Thank you. And do you think that it is
possible there are special interests or industries that would
like to see the CFPB weakened or abolished?
Mr. Frotman. Absolutely. I think the steps that Mick
Mulvaney and Kathy Kraninger have taken are pretty indefensible
across the board.
Ms. Ocasio-Cortez. And sorry to interrupt, just because I
have a short period of time, what would some of those special
interests that would really want to abolish the CFPB be? Who
would be some of those actors?
Mr. Frotman. When it comes to student lending issues, I
think the fundamental issue is that the Bureau has become the
political arm of the Department of Education and is willing to
do anything that Congress casts it to do to stand up for
student loan servicers.
Ms. Ocasio-Cortez. So the Department of Education under the
leadership of Secretary Betsy DeVos, has kind of the interest
there, could have sought, potentially with political
appointments to the CFPB, to dismantle it from within, north,
in order to continue predatory student lending? Is that what
you are--
Mr. Frotman. I think that the Bureau is unwilling to do
anything that they think makes the Department upset.
Ms. Ocasio-Cortez. Now, why on earth would a corporation or
a special interest group, so let's say, for-profit colleges or
universities, want to dismantle that? What is going on here?
Why do you think that these political appointments are
happening? To what end does it serve?
Mr. Frotman. We now have $1.5 trillion in debt and a lot of
folks want to get rich off of the misery of student loan
borrowers, and for 7 years, the Bureau stood as the most vocal
bulwark against that happening. And unfortunately, now the
Bureau is in a place where it is open season on student loan
borrowers.
Ms. Ocasio-Cortez. So you are saying that the Consumer
Financial Protection Bureau was one of the guardrails against
this runaway student lending crisis, and so there is a vested
interest to take that guardrail away?
Mr. Frotman. Absolutely.
Ms. Ocasio-Cortez. Do you think we are kind of on the way
to a potential precipice or cusp with the student lending?
Mr. Frotman. I know there is a lot of debate about where we
are in the student lending market. I think the truth is you are
unable to say this is anything but a crisis. There are now 8
million student loan borrowers in this country who are in
default, and another million student loan borrowers default
each and every year. That means every 28 seconds, another
student loan borrower defaults. We heard on this morning's
panel, Director Kraninger talk a lot about how she is getting
up to speed. In her nearly 90 days at the Bureau, 250,000
student loan borrowers have defaulted.
Ms. Ocasio-Cortez. And very quickly, you bring up an
excellent point about earlier, and so you are saying that the
Consumer Financial Protection Bureau is one of the only
agencies that we have to check the student loan crisis? And
just this morning, Director Kraninger was asked by my colleague
here from Michigan, if she thought the CFPB should even exist,
and she refused to say yes, unequivocally. Do you believe that
it should exist?
Mr. Frotman. Of course. I think for the nearly 45 million
Americans with student debt and the 300 million American
consumers, the CFPB is a lifeline for them in the consumer
financial markets.
Ms. Ocasio-Cortez. Thank you.
Chairwoman Waters. The gentleman from Illinois, Mr. Foster,
is recognized for 5 minutes.
Mr. Foster. Thank you, Madam Chairwoman, for holding this
hearing and thank you to our witnesses here. Mr. Frotman--well,
first off, I want to thank you for your current work at the
Student Borrower Protection Center and your previous work at
the CFPB as a student loan ombudsman, and the light that you
have shed on all of the issues surrounding the student loan
market. This is something that affects 44 million Americans and
yet we are not doing what we should about it.
You probably saw during the previous panel during my
questioning of Director Kraninger--well, I personally was very
surprised to learn that after almost 3 months in the job that
she was unaware of the--that neither she nor her company staff
actually seemed aware of the market monitoring data initiative
that the Bureau had previously spearheaded and was specifically
authorized under Section 1022(c)(4) of Dodd-Frank. Did this
surprise you that she and her staff seemed unaware?
Mr. Frotman. It did. It is hard to be surprised a lot now,
right? But I think this is exactly why the United States
Congress created the CFPB: to better understand the emerging
risks on the horizon so they could take action and folks on
this committee could understand what steps were necessary.
This was an action that was entirely authorized within
Dodd-Frank Section 1022(c)(4), which specifically authorizes
the Bureau to engage in market monitoring activity. And this
was an effort that we spent a ton of time getting right.
And it is just another example of the indefensible. This is
the second largest class of consumer debt in America. People
are really hurting, and the fact that the Bureau has been
sitting on their hands for months on this project, it is just
indefensible.
Mr. Foster. What are the sort of risks that that opens us
up to if we don't have access to this data?
Mr. Frotman. As I mentioned before, we are in the midst of
a student debt crisis, and I think one of the goals of this
project, which I guess has been put in the drawer, at OMB, was
for regulators to better understand what was happening. Student
loans are a completely opaque market. Even some of the tools we
have in the mortgage context like OCC--had an ability for
policy makers--for regulators to understand what the true harm
was.
I was the top person in charge of student loans at the CFPB
for years, and I couldn't tell you right now what the true
scope of the problems were in the market because we just don't
have access to the data. And for whatever reason, if it was to
appease industry or to appease the Department of Education that
this project was just stopped, runs fundamentally in the
opposite direction of where the Bureau needs to be.
Mr. Foster. Was the absence of this data going to be
something that will make it difficult to identify the bad
actors? For example, for-profit colleges with a very high rate
of student loan defaults?
Mr. Frotman. It will be. This project was 100 percent
focused on trying to better understand where there were
problems in this market on the student loan servicing side. So,
what type of borrowers were being driven into consecutive
forbearances and not getting help? Where was that happening?
And I think this is a testament to what the Bureau was
trying to be and what this committee tried to create, which was
a data-driven enterprise which would look at where the data
was, where consumers were hurting, and take action from that.
By essentially stonewalling and stopping this project, the top
regulator in charge of overseeing over a trillion dollars of
non-bank serviced loans is just putting its head in the sand
when it comes to student debt.
Mr. Foster. In the remaining minute or so, what are the
emerging things having to, risks having to do for example with
Fintech that we are going to need the CFPB's help with?
Mr. Frotman. I think one of the big issues that I worked on
and you had one of the experts here talk about this, too, is
the concern about using alternative data as a part of black box
algorithms and what comes out the other end.
One of the things I would love to talk to you more about is
the use of educational criteria in terms of underwriting
decisions which I think raises a whole host of fair lending
concerns.
Mr. Foster. Thank you.
Ms. Jun, did you have any comments?
Ms. Jun. I think I will just add that there are a lot of
new interesting ideas in the world and I think that it is
really important that CFPB keeps track of how they are actually
doing in the market. I hope some of those ideas are actually
good and to the results and the consequences that they intend,
but I think it is really important that we keep an eye on all
of that because there are dangers that come with new things,
too.
Mr. Foster. Thank you. I yield back.
Chairwoman Waters. Thank you.
The gentlewoman from Pennsylvania, Ms. Dean, is recognized
for 5 minutes.
Ms. Dean. I thank you, Madam Chairwoman.
Good afternoon. It has been a long day. Before I came to
public service, in my previous life I taught at La Salle
University for 10 years. It was a real privilege. And so, I
have to point out that we are joined today by a former student
of mine, Christopher Goins, who is here reporting for us today.
How about that? So, it is heartwarming to have you here.
But the underlying subject matter is particularly
troubling. I care deeply about student loan debt for the
reasons that I was a professor, but also because I am a parent.
My community members struggle with it. It is certainly not
something that anyone should want to ignore or anyone should
want to shut down an agency tasked with an independent
oversight in this area.
I said earlier this morning that in Pennsylvania, my home
State, students have an average debt when they leave college of
nearly $37,000. Unfortunately, we are the second highest rate
in the United States. And as you, Mr. Frotman, have pointed
out, it is not just the crushing burden of the debt. It is the
long-term consequences, and it is of course consequences to our
economy whether we want to grow it or not, because those
struggling with this kind of debt are hindered by predatory
loan services.
They wind up in short-term repayment processes that are
crippling, that keep them from borrowing for buying houses. It
keeps them from saving for retirement. All of these things
build up and become something much greater.
I read with interest your letter of resignation and your
testimony. And I have to tell you and maybe I want to know your
reaction, I was baffled by our earlier panel, because I didn't
hear a passion for the mission and in fact, we heard a split
passion that somewhere along the way and I think you
experienced this in your professional journey, somewhere along
the way, this agency went from a goal of protecting consumers
to a tug-of-war between protecting consumers and undoing
regulations because lenders didn't like them.
That is what I heard. That is what I think is at the crux
of this problem and who's caught in the balance? Student loan
debt, students, and all other consumers. So, I ask you and I
will read just a little bit of your letter really quick: ``It
is with great regret that I tender my resignation.'' This
letter was to Acting Director Mulvaney. ``It was an honor of a
lifetime to spend the past 7 years working to protect American
consumers. However, after 10 months under your leadership, it
has become clear that consumers no longer have a strong,
independent consumer bureau on their side.''
And I will skip down, ``Instead, you have used the Bureau
to serve the wishes of the most powerful financial companies in
America.'' Can you describe to us what you saw in the change of
mission and specifically who got caught? And what does student
loan debt look like in its problematic pieces?
Mr. Frotman. Sure. So, for years, I ran the Bureau's
student loan work and it was obviously a massive team effort.
We did a lot of good. I think the flipside of that is we saw
families across the country hurting. We got 60,000 complaints
from student loan borrowers. These were active duty
servicemembers, nurses, and teachers who were just trying to
get a better life for them and their families.
And they chased the American Dream like we all do and we
want for our families. And then, they were pushed into a market
that was just littered with predatory players. Your home State
Attorney General is suing one of the largest servicers for a
lot of these practices. And for years, we worked with the
Department of Education when they wanted to help borrowers, but
never once under my tenure, under Director Cordray, or under
Elizabeth Warren, did we ask for a permission slip to do the
right thing.
And for months, I have been trying to figure out how to
articulate this, and I think you heard it this morning in
response to your questions and others, the answer to what is
the Bureau going to do on student debt always came back to,
``We want to meet with the Department of Education.'' That is
not why this committee created the Bureau.
Ms. Dean. I really appreciate that. I apologize because we
are tight on time.
Mr. Frotman. Yes.
Ms. Dean. I just want to note, and I am sure you noted that
the Ombudsman position, a statutory position, was left empty
for 6 months. And yesterday, one of my staff members learned
that there is an opening, ``Good afternoon. CFPB is currently
seeking candidates.'' This was 1:39 yesterday--coincidence? I
don't know.
I want to end on the payday lending issue and I want to get
your opinion of this, the Director said that the removal of the
rule of checking whether or not there was an ability to repay
had to do with--I love this euphemism--access to borrowers. We
want to give them access.
If I could--may I indulge just to ask for a response to the
question?
Chairwoman Waters. The gentlelady's time has expired. We
must move on. We are going to have a vote on the Floor in a few
minutes.
Ms. Dean. Thank you, Madam Chairwoman.
Chairwoman Waters. All right. Thank you.
The gentlewoman from Michigan, Ms. Tlaib, is recognized for
5 minutes.
Ms. Tlaib. Thank you, Madam Chairwoman. Thank you all so
much for being here.
Mr. Weltman, I have a question for you. Do you believe the
Bureau should exist?
Mr. Weltman. I spend my time focusing on our firm and doing
our job. And again, I leave those type of policy issues for
Congress.
Ms. Tlaib. But you are before our committee. I mean, I
honestly as your expertise, a lot of colleagues on the other
side ask you a question I am just asking. Like, in your
opinion, I mean you are here before congressional body
educating us on the pros and cons or your experiences. Do you
believe the Bureau should exist?
Mr. Weltman. I was invited today to share my experience.
Ms. Tlaib. Sure.
Mr. Weltman. And certainly the way we were treated--
Ms. Tlaib. Yes. You wouldn't answer it either. It is so
bizarre to me that out of anybody we could have had here is to
have somebody who actually doesn't support consumer protection.
I mean, the whole idea of the Bureau was actually in many ways
supported by a lot of colleagues on both sides. That is what's
so bizarre about it. And now, we are here trying to dismantle
it in many ways by some of the rhetoric.
Thank you. This question is for the panel. You all know Mr.
Mulvaney. We keep hearing about him. He clearly did not act in
conformity with the Dodd-Frank Act, nor within the spirit and
purpose of what the Consumer Bureau was designed by Congress to
do. We all remember the period of reckless and unchecked
lending that nearly sent this nation into a second Great
Depression and most certainly caused the Great Recession of
2008.
I saw it in my neighborhood in Detroit. So many people to
this day are still struggling to get out of it. Trillions of
dollars of household wealth was lost and many hardworking
communities are still recovering from this disaster caused by
unchecked predatory lending. In your opinion, how important is
it that we have a strong and functional Consumer Bureau for
America's families?
Second, and this one I am really wanting you to dig deep, I
know it is hard to pick one, but if you could ask the Director,
if she was here right now, to do at least one thing for
consumers in her position, what would that be?
Mr. Shelton. The one thing would be simply to restore it
back to the conditions and the position it was in, in 2016 at
the time they took over and took office. In essence, what we
are trying to do is restore something that proved to be
successful and let us continue to move in that direction.
Ms. Jun. The people that you just mentioned, and all of the
clients, they are all the people who were destroyed by the
foreclosure crisis and even the ones who were able to save
their houses are still struggling.
So, yes, overall, pre-CFPB is one that really, really
disturbs me. That idea scares me. And I was trying to think of
one thing, but I feel like to tie this entire hearing together,
it would be to put consumers first again and to protect
consumers. And whether you reduce regulation or create new
rules or do anything else at this Bureau, the whole point,
number one, is to protect consumers. So, I think that would be
the one thing I would choose.
Ms. Davis. I was going to say the same thing, put consumers
first and upholding the authorities that have been granted
regarding examinations and comprehensive rules and exercising
all the authorities given.
Mr. Frotman. I think, listen to the career staff. The
people that I worked with for 7 years were some of the best and
brightest out there. And where you see the worst coming out of
the Bureau is the politicization, from the dropping of Golden
Valley to the Military Lending Act. This is what is happening
when you politicize an agency that is supposed to be
independent and standing up for consumers.
Mr. Weltman. Again, thank you. I don't know that I am
qualified to comment on the operation of the Bureau, but what I
would ask her to do is exactly what I ask you to do: just do
her job to the best of her ability.
Ms. Tlaib. Sure. So, please tell me, if any of you know,
the last time that the Bureau brought a fair lending
enforcement action against a financial institution and tell me
what you think is happening with racial discrimination in
mortgage lending?
Mr. Shelton. The last time we can remember?
Ms. Tlaib. Yes.
Mr. Shelton. It was prior to 2016, and the second part of
your question was--
Ms. Tlaib. That is fine. It is part racial discrimination--
I am just going to submit this for the record. I am new here
and this timing thing, there is nothing that Chairwoman Waters
can do, but it really--it is just awful, and I come from the
Michigan legislature and we never had this like timing thing.
But I want to submit this for the record.
But I think it is really important to show that right now
black applicants were almost twice as likely to be denied
conventional home purchase loans as white applicants in 2016,
and Detroit alone ranked 44 out of 48 communities nationally
that found blacks were denied loans at a higher rate. That is
really important and I want the Bureau to be able to address
that, but I will submit this for the record.
Thank you, Madam Chairwoman.
Chairwoman Waters. Without objection, it is so ordered.
Mr. Garcia, the gentleman from Illinois, is recognized for
5 minutes.
Mr. Garcia of Illinois. Thank you, Madam Chairwoman.
I want to return to the office of ombudsman, because I
think it is so important given the crushing amount of student
indebtedness that is out there. So, for 7 years, the Bureau's
Office of Students and Young Consumers was led by an
independent student ombudsman who stood up for student loan
borrowers and young consumers.
And according to the Consumer Federation of America, among
some of the good work that was done was returning over $750
million to student loan borrowers. You helped more than 60,000
borrowers demand answers from student loan companies and you
held predatory companies like Navient and ITT Tech accountable
for their practices.
So, earlier today, it seemed that Director Kraninger
conflated the ombudsman role which she now says she is hiring,
which I think is a positive development, with the Office of
Students and Young Consumers which has been shuttered. So, my
question is, how is the student loan ombudsman role more
limited now that the Office for Students and Young Consumers
has been eliminated, if that is the case?
Mr. Frotman. When they first, in May, announced that they
were closing down my office, the Office for Students and Young
Consumers, there were a lot of promises about how nothing was
going to change. We obviously quickly realized that that was
not the case.
You don't have to take my word for it. There was a
Bloomberg article recently published titled, ``New Head of
Student Loan Oversight Office Will Have Less Power.'' This is
just factually true. And I think it is really concerning,
because what you heard on the panel earlier, every answer the
Bureau had about student debt, about education, trying to
encourage borrowers to make better decisions, which we all
agree with.
What you didn't hear once was how is the Bureau going to go
after financial companies that are preying on student loan
borrowers, and that is the flipside of a very important mission
that the Bureau undertook. And I think based on everything that
I witnessed, based on what you guys heard this morning, there
is a real concern about whether the Bureau is still undertaking
that role and this is where that work used to emanate from.
Mr. Garcia of Illinois. Thank you.
Ms. Jun, you relayed in your testimony earlier a powerful
story about a consumer in New York who was able to get $1,200
back from their bank after filing a complaint in the CFPB's
public database. As you know, while he was heading the CFPB,
Mr. Mulvaney said of his compliance database, ``I don't see
anything in here that says I have to run a Yelp for financial
services sponsored by the Federal Government.''
Can you elaborate on why it is important that the database
remain public?
Ms. Jun. Sure. And I will again draw back on my legal aid
experiences. That story in my testimony is actually from a
colleague of mine, and I saw her handle that case. Another
example with the complaint database that comes to mind is we
had a client who couldn't get a copy of their credit report.
They kept calling Equifax, requesting it. They just couldn't
get it. Her attorney filed a complaint with the complaint
database and suddenly Equifax was mailing the report. The
reason this all works though as you alluded to, Congressman, is
because it is public. Companies are aware that it is public and
they want a good reputation.
In one of my foreclosure cases, opposing counsel would not
give me an answer, and the bank would not give my client an
answer, but their accountant eventually had filed a complaint
and I remember the attorney was very, very upset with me and he
said, ``My client really doesn't like being called out in
public.'' And I share that all to say the reason this database
works is not because the CFPB is merely collecting the
complaints, but because that information is available for
anyone to see it.
Individual consumers can use it to decide where they want
to take their business. Advocacy organizations can look at
patterns. Regulators can look at that and do research on what
is going on in the marketplace. That all happens because it is
public and available to a lot of people as an important tool.
Mr. Garcia of Illinois. And when it isn't public, what
happens?
Ms. Jun. I would fear that--I would refer again to the pre-
CFPB world where I was litigating, where either you would have
to try to sue to get that information and I am a lawyer. So, I
have other tools. But an individual consumer probably just
keeps calling the 1-800 number for months or years on end, and
if they are lucky enough, they might be able to get help and if
not, I would really be afraid that they would just never get
the information or the help that they need.
Mr. Garcia of Illinois. Thank you.
Madam Chairwoman, I yield back.
Chairwoman Waters. Thank you very much.
The gentleman from Florida, Mr. Lawson, is recognized for 5
minutes.
Mr. Lawson. Thank you, Madam Chairwoman, and welcome to the
committee, witnesses.
In a debate that we had earlier today, I was very
disappointed that Congress allowed the CFPB to have the
independent status that they have today, and they have people
in control of the organization right now who really I don't
think really care about the consumers.
I have heard the testimony from you all which I think was
very credible but one of the things that really bothered me,
and I know it is a stressful time and probably the Federal
Government still makes about $1.6 billion off of students. And
from the standpoint of the vampires at the corporate level,
makes even more than that.
Even though you stress, Mr. Frotman, that we have about
$1.5 trillion in defaults, people are still making a tremendous
profit off of students, and according to Mr. Shelton and he is
absolutely right, higher education cost is increasing. So,
higher education cost increases, student loans increase, and as
a result, it creates more debt, and higher education can
continue to increase because we can't stop it the way it is
exploding.
But we have corporate vampires that are sucking the blood
out of this situation. And there is something that needs to be
done. It is going to have to be Federal legislation that really
changes it. And I don't know whether any of you all care to
respond. The $1.6 billion that was made by the Federal
Government in 2016, now in 2018, how much money is still being
made by the Federal Government? I don't think the Federal
Government should be, in my opinion, making a profit off of the
back of students. If you all care to respond, please do.
Mr. Shelton. I might start it. I think the response is we
have to be--we have to think about it freshly and anew. If you
think about when programs like Pell Grants were initially put
in place and student loan programs were simple, they were done
to respond to the present cost of higher education hoping to
open the doors of real opportunity for all students across the
country.
We have to go back to that, at least look at the programs
they put in place and see what the buying power is now. Forcing
students into debt is absolutely unacceptable. We are very
clear on that. We are seeing today on how damaging and
destructive it is to one's future. Going to college in the
first place, making that investment in yourself in the first
place or your children was all set planning for that future and
indeed, what we are seeing is something that is doing just the
opposite, we see those who are making tremendous profits again
at the hides and the very future of our young people.
So, we are going to have to move along those, assess each
of the programs, move them away from student debt into Pell
Grant programs and other grant programs along those lines. So,
again, every student in our country can truly get an
opportunity.
Let me say this last point. We are one of the few
industrialized countries on the face of the earth that forces
our students into this level of debt. Let's take a look at some
of those other countries as well and see why it is different. I
met a Ph.D. candidate who works for one of our Congresswomen
right now here in Washington who was in Germany because the
tuition to get her Ph.D. was free.
Mr. Lawson. Wow.
Mr. Frotman, would you like to respond?
Mr. Frotman. Just to add quickly, we also see a whole host
of private sector companies who are getting hundreds of
millions of dollars, of taxpayer dollars, to then service that
debt. So, one of the things that the Bureau spent a lot of time
on was trying to improve Federal student loan servicing, which
is good for consumers, but also represents the fact that we are
paying these companies to try to help borrowers and they are
failing miserably.
One of the companies, in Federal court, Navient, wrote,
``There is no expectation that the servicer will act in the
interest of consumers.'' And that is what the Bureau was trying
to tackle while I was there.
Mr. Lawson. I am not going to ask, my time is running out,
but what is happening at the university level? I am a former
coach and athlete, and they are paying athletes now more money
to perform. They don't leave with debt. But at the same time,
and wind it down is our students at the same level leave with
tremendous amount of debt.
Madam Chairwoman, I yield back.
Chairwoman Waters. Thank you very much.
I would like to thank our witnesses from this second panel
for your testimony today. I am so appreciative for your
patience. Many of you or all of you I think have been here all
day. You sat through the first panel and you stayed. You didn't
run away and I am very grateful for that, and I thank you so
very much.
And while we don't normally give applause to our witnesses,
I break the rules all the time.
[applause]
The Chair notes that some Members may have additional
questions for these witnesses, 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.