[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
PROTECTING CONSUMERS DURING
.
THE PANDEMIC? AN EXAMINATION
OF THE CONSUMER FINANCIAL
PROTECTION BUREAU
=======================================================================
HYBRID HEARING
BEFORE THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
SECOND SESSION
__________
JULY 30, 2020
__________
Printed for the use of the Committee on Financial Services
Serial No. 116-106
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
______
U.S. GOVERNMENT PUBLISHING OFFICE
43-343 PDF WASHINGTON : 2021
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 ANN WAGNER, Missouri
GREGORY W. MEEKS, New York PETER T. KING, New York
WM. LACY CLAY, Missouri FRANK D. LUCAS, Oklahoma
DAVID SCOTT, Georgia BILL POSEY, Florida
AL GREEN, Texas BLAINE LUETKEMEYER, Missouri
EMANUEL CLEAVER, Missouri BILL HUIZENGA, Michigan
ED PERLMUTTER, Colorado STEVE STIVERS, Ohio
JIM A. HIMES, Connecticut ANDY BARR, Kentucky
BILL FOSTER, Illinois SCOTT TIPTON, Colorado
JOYCE BEATTY, Ohio ROGER WILLIAMS, Texas
DENNY HECK, Washington FRENCH HILL, Arkansas
JUAN VARGAS, California TOM EMMER, Minnesota
JOSH GOTTHEIMER, New Jersey LEE M. ZELDIN, New York
VICENTE GONZALEZ, Texas BARRY LOUDERMILK, Georgia
AL LAWSON, Florida ALEXANDER X. MOONEY, West Virginia
MICHAEL SAN NICOLAS, Guam WARREN DAVIDSON, Ohio
RASHIDA TLAIB, Michigan TED BUDD, North Carolina
KATIE PORTER, California DAVID KUSTOFF, Tennessee
CINDY AXNE, Iowa TREY HOLLINGSWORTH, Indiana
SEAN CASTEN, Illinois ANTHONY GONZALEZ, Ohio
AYANNA PRESSLEY, Massachusetts JOHN ROSE, Tennessee
BEN McADAMS, Utah BRYAN STEIL, Wisconsin
ALEXANDRIA OCASIO-CORTEZ, New York LANCE GOODEN, Texas
JENNIFER WEXTON, Virginia DENVER RIGGLEMAN, Virginia
STEPHEN F. LYNCH, Massachusetts WILLIAM TIMMONS, South Carolina
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
----------
Page
Hearing held on:
July 30, 2020................................................ 1
Appendix:
July 30, 2020................................................ 75
WITNESSES
Thursday, July 30, 2020
Kraninger, Hon. Kathleen L., Director, Consumer Financial
Protection Bureau (CFPB)....................................... 5
APPENDIX
Prepared statements:
Kraninger, Hon. Kathleen L................................... 76
Additional Material Submitted for the Record
Waters, Hon. Maxine:
``Consumer Financial Protection in the COVID-19 Crisis: An
Emergency Agenda,'' by Richard Cordray, Diane E. Thompson,
and Christopher L. Peterson................................ 90
Written statement of the National Association of Consumer
Advocates (NACA)........................................... 100
Written statement of U.S. PIRG............................... 102
Budd, Hon. Ted:
Written statement of the Heritage Foundation................. 130
McHenry, Hon. Patrick:
Written statement of the Association of Credit and Collection
Professionals (ACA)........................................ 119
Written statement of the Consumer Bankers of America (CBA)... 122
Written statement of the National Association of Federally-
Insured Credit Unions (NAFCU).............................. 127
Mooney, Hon. Alexander X.:
Written statement of the American Bar Association (ABA)...... 147
Kraninger, Hon. Kathleen L. :
Written responses to questions for the record submitted by
Chairwoman Waters.......................................... 156
Written responses to questions for the record submitted by
Representative Cleaver..................................... 204
Written responses to questions for the record submitted by
Representative Kustoff..................................... 212
Written responses to questions for the record submitted by
Representative Tipton...................................... 214
PROTECTING CONSUMERS DURING
THE PANDEMIC? AN EXAMINATION
OF THE CONSUMER FINANCIAL
PROTECTION BUREAU
----------
Thursday, July 30, 2020
U.S. House of Representatives,
Committee on Financial Services,
Washington, D.C.
The committee met, pursuant to notice, at 12:38 p.m., in
room 2128, Rayburn House Office Building, Hon. Maxine Waters
[chairwoman of the committee] presiding.
Members present: Representatives Waters, Velazquez,
Sherman, Clay, Cleaver, Himes, Foster, Heck, Vargas,
Gottheimer, Gonzalez of Texas, Lawson, Tlaib, Porter, Axne,
Casten, McAdams, Wexton, Lynch, Adams, Garcia of Illinois,
Garcia of Texas, Phillips; McHenry, Wagner, Lucas, Posey,
Luetkemeyer, Huizenga, Stivers, Barr, Tipton, Williams, Hill,
Emmer, Zeldin, Mooney, Davidson, Budd, Kustoff, Hollingsworth,
Gonzalez of Ohio, Rose, Steil, Gooden, Riggleman, and Taylor.
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.
Before we begin today's hearing, I want to remind Members
of a few matters, including some required by the regulations
accompanying House Resolution 965, which established the
framework for remote committee proceedings.
First, I would ask all Members on the Webex platform to
keep themselves muted when they are not being recognized by the
Chair. This will minimize disturbances while Members are asking
questions of our witnesses. Members on the Webex platform are
responsible for muting and unmuting themselves. The staff has
been instructed not to mute Members except when a Member is not
being recognized by the Chair, and there is inadvertent
background noise.
Members on the Webex platform are reminded that they may
only attend one remote hearing at a time, so if you are
participating today, please remain with us during the hearing.
Members should try to avoid coming in and out of the hearing,
particularly during the question period.
If, during the hearing, Members wish to be recognized, the
Chair recommends that Members identify themselves by name, so
as to facilitate the Chair's recognition.
I would also ask that Members be patient as the Chair
proceeds, given the nature of the online platform the committee
is using.
In addition, the Chair informs the Members participating in
person that in enforcing order and decorum in the hearing room,
the Chair has a duty to protect the safety of the Members.
The attending physician provided the following guidance:
``For U.S. House of Representatives meetings in a limited
enclosed space, such as a committee hearing room, for greater
than 15 minutes, face coverings are required.'' Accordingly,
the Chair will treat wearing masks as a matter of order and
decorum, and all Members should wear masks.
The Chair has a strong preference for Members to wear masks
even while being recognized. Members who do not wish to wear
masks may participate virtually through the Webex platform.
Today's hearing is entitled, ``Protecting Consumers During
the Pandemic? An Examination of the Consumer Financial
Protection Bureau.''
I will now recognize myself for 5 minutes for an opening
statement.
I would like to welcome Director Kraninger to what I hope
will be her last appearance before this committee as Director
of the Consumer Financial Protection Bureau (CFPB).
Ten years after we passed the Dodd-Frank Act to end the
predatory and discriminatory practices that caused the
financial crisis, we find ourselves in the midst of an economic
and health crisis caused by incompetence and exacerbated by
narcissism, that once again hits the most vulnerable Americans
the hardest. The scale of the crisis is unprecedented.
Today, we learned from the Bureau of Economic Analysis that
the gross domestic product (GDP) decreased at an annual rate of
32.9 percent in the second quarter of 2020, which is the
largest drop ever recorded. Our consumers need a strong
Consumer Bureau that provides robust protections on their
behalf and holds financial institutions accountable when they
commit abuse. A record number of people have filed complaints
about financial institutions with the CFPB during the COVID-19
crisis.
We know that consumers are reporting major hardships in
working with payday lenders, mortgage servicers, credit card
companies, and the credit reporting bureaus. They are reporting
long wait times, inconsistent information from consumer
representatives, and a lack of follow-up.
Unfortunately, our witness today, CFPB Director Kathy
Kraninger, has done next to nothing of substance about any of
this. Instead, she has focused the Consumer Bureau on weakening
critical consumer protections, relaxing enforcement against
financial institutions, and undermining the agency from the
inside.
Director Kraninger, let's review some of the harmful
actions you have taken since March, when the pandemic began.
You issued a final rule, rolling back key safeguards for
payday, car title, and installment loans, exposing consumers to
high-cost predatory loans. It is shameful to open the
floodgates to predatory loan products to trap consumers in a
cycle of debt at any time. But to do so during a pandemic is
egregious. It is hands-down the most anti-consumer action you
have taken as Director, and given your record, that is saying a
lot.
You also weakened the reporting requirements under the Home
Mortgage Disclosure Act (HMDA), willfully hindering the ability
of the Consumer Bureau researchers, journalists, advocates, and
the public to detect redlining and patterns of discrimination
in mortgage lending.
An investigation by Reveal News found evidence of modern-
day redlining in 61 metropolitan areas across the country,
using the public data set that you are now degrading. It is
deeply irresponsible and malicious to undermine this important
tool.
In addition, you have issued an Advance Notice of Proposed
Rulemaking (ANPR) to make substantial changes to the agency's
Qualified Mortgage (QM) rule, which is the rule implementing
the standards with which lenders first demonstrate that a
borrower can repay a loan before signing mortgage documents.
It is, unfortunately, all too fitting that you seek to
undermine the standard on the 10-year anniversary of Dodd-
Frank. You may not remember the financial crisis, but I and the
members of this committee do. We included the standard in Dodd-
Frank because the proliferation of unaffordable and predatory
mortgage loans was an essential driver of the 2008 financial
crisis, and caused millions of families, and especially
borrowers of color, to unfairly lose their homes.
These actions are just the latest that you have carried out
to sabotage the very agency you have been entrusted with
leading. Your actions are betrayals of the consumers you are
tasked with protecting.
And so, having said that, I am a little bit disturbed that
I am missing the television portrayal of the funeral of John
Lewis, with magnificent speakers there today, but we have to
carry on with the business.
And I now recognize the ranking member of the committee,
the gentleman from North Carolina, Mr. McHenry, for 5 minutes
for an opening statement.
Mr. McHenry. Thank you, Madam Chairwoman. I would point out
that the Majority schedules the timing of these hearings. But
the partisan nature of the Chair's opening comments, I think,
belies the seriousness of our current politics in the midst of
this pandemic, sadly.
But, Madam Chairwoman, I want to welcome Director Kraninger
for the first of what I hope are many appearances before the
committee in the coming years. If I were not wearing a mask,
you would see that I say that with a smile and in an attempt to
be lighthearted in the midst of what is a pretty disastrous
political discussion we are having here in Washington.
Look, to me, Democrats are asking questions. The CFPB is
protecting consumers both during and outside of the pandemic.
If you look at the facts in a fair-minded way, and recent
actions by the Bureau, I can safely answer my colleagues'
questions with, yes, they are. Despite what the Democrats say
to score political points, this CFPB, under your leadership,
Director Kraninger, has worked diligently to provide resources,
guidance, and protection for consumers most at risk in these
unsettling times.
The reorder has encouraged financial institutions to work
with borrowers; provided increased flexibility for supervision
enforcement activity; clarified guidance to mortgage servicers
to comply with the Coronavirus Aid, Relief, and Economic
Security (CARES) Act forbearance requirements; created an elder
fraud prevention response network development guide; released
an updated COVID-19 consumer complaint data bulletin; and
outlined the roles and responsibilities of credit reporting
companies and furnishers to create a consumer relief guide for
mortgage payment forbearance and foreclosure protection.
Pretty darn good work, I must say, and at the same time,
keeping your workforce safe. These are just a few of the CFPB's
pandemic-related initiatives.
Apart from its response to the pandemic, this Bureau, under
your leadership, has approached difficult and polarizing topics
with a steady hand over the last year-and-a-half. And I want to
thank you for that.
You have increased clarity in the market for consumer
lending. One example is the Bureau's recent rulemaking to
revise the 2017 small-dollar lending rule.
We know that small-dollar loans are a lifeline for millions
of Americans in need. They help consumers cover unexpected
expenses or income shortfalls during periods of economic
stress, like we are currently experiencing now.
The decision to revise that 2017 rule is a necessary step
to increase clarity and access in a market that serves millions
of Americans trying to make ends meet. We must continue to
review and right-size burdensome regulations that inhibit
lending into the real economy at a time when the American
people need it most, and they can at least afford that
inhibited lending.
Lastly, Director Kraninger, as we have discussed in the
past, my colleagues and I believe you have too much power.
The structure of the Bureau is unchecked by Congress and
the President. And you have even agreed with me on that
consistently, both before and after your confirmation. And
since Dodd-Frank's enactment, Republicans have argued that the
Bureau's structure is unconstitutional; the funding mechanism
leaves it unaccountable to anyone. This past June, the Supreme
Court agreed with what Republicans have been saying all along.
In striking down a structure created by the Democrats in
2010, the Supreme Court found that the Director holds too much
power and violates the separation of powers.
We now have a real opportunity to work together on
necessary statutory reforms to the Bureau, reforms that will
benefit consumers and bring clarity and clear guidance. A
leader in that effort is my colleague and friend, Blaine
Luetkemeyer.
Director Kraninger, I want to thank you for your
leadership. And I want to yield the balance of my time to Mr.
Luetkemeyer.
Mr. Luetkemeyer. Thank you.
Thank you, Ranking Member McHenry, and thank you, Director
Kraninger for being here today. Just a few weeks ago, the
Supreme Court confirmed that the structure of the CFPB is
unconstitutional. The Director can be fired at will by the
President of the United States. The structure and in-person
authority of the CFPB have turned into a political football
that will no doubt swing back and forth, on a political
pendulum, creating uncertainty and confusion for financial
institutions and consumers for decades to come.
That is why I have introduced legislation that changes the
leadership structure of the CFPB from a single Director who can
be fired at will, to a bipartisan five-member commission.
Last Congress, this legislation enjoyed bipartisan support
in this committee. However, in the 116th Congress, this
solution only garners support from my side of the aisle.
Changing the leadership structure and increasing government
oversight of the CFPB are vital to protect businesses and
consumers.
I look forward to discussing these issues with you today.
With that, Madam Chairwoman, I yield back.
Chairwoman Waters. It is now time to hear from Director
Kathy Kraninger. Director Kraninger has testified before the
committee previously, so I believe she needs no further
introduction.
You will have 5 minutes to summarize your testimony. When
you have one minute remaining, a yellow light will appear, and
at that time, I will ask you to wrap up your testimony so we
can be respectful of the committee members' time. And without
objection, your written testimony will be made a part of the
record.
You will now be recognized for 5 minutes to present your
oral testimony.
STATEMENT OF THE HONORABLE KATHLEEN L. KRANINGER, DIRECTOR,
CONSUMER FINANCIAL PROTECTION BUREAU (CFPB)
Ms. Kraninger. Chairwoman Waters, Ranking Member McHenry,
and members of the committee, thank you for this opportunity to
provide you with an update on the fantastic work the CFPB has
been doing since we last met.
I appear before you as the country is engaged in the
national conversation on racial inequality and confronting the
unprecedented pandemic. Today, I would like to discuss both of
these topics with you.
Under my leadership, the CFPB is taking steps to help
create real and sustainable changes in our financial system so
that African Americans and other minorities have equal
opportunities to build wealth and close the economic divide.
Earlier this week, I authored a blog outlining the Bureau's
important fair lending work. We also issued a request for
information on how best to create a regulatory environment that
prevents credit discrimination in all aspects of the
transaction and expands access to credit. The information that
is submitted will help us Enforce the Equal Credit Opportunity
Act (ECOA).
Among the topics the public can comment on are how to
better protect consumers with limited English proficiency, as
well as applicants who derive income from any public assistance
program. I encourage the public to respond so that we can build
a financial system that treats everyone fairly and provides
clear rules of the road.
Having clear standards helps us identify any violations in
fair lending laws. Recently, the Bureau filed a lawsuit
alleging a lender had violated ECOA by discouraging African
Americans from applying for loans through its advertising.
The Bureau also announced a settlement last year with the
mortgage corporation that violated the Home Mortgage Disclosure
Act and Regulation C by intentionally submitting years of
mortgage loan data that contained errors in the fields of race,
ethnicity, and sex.
Since my last testimony before the committee, I have
requested critical authority from Congress to allow the Bureau
to compensate whistleblowers. In our enforcement work, we have
seen firsthand that whistleblowers can provide key information
on fair lending violations.
I want to thank Congressman Green for introducing
legislation similar to what I requested. I stand ready to work
with Congress to secure this important authority.
Now, let me take a moment to discuss how we are protecting
consumers during the pandemic.
We have worked to expand our reach to consumers to provide
them with actionable, useful information about their rights,
options, and expectations in the market for consumer financial
products and services. We have produced over 70 blogs and
videos that have been accessed directly by more than 3 million
users.
Through our social media reach, staff estimates our
materials have been sent to 41 million unique users. These
materials are available in seven different languages and have
been constantly updated to adapt to the changing dynamics.
We have also promoted our consumer complaint system. When
consumers submit complaints to the Bureau, they help inform our
work in supervision, enforcement, regulation, and education.
Specifically, in response to complaints and other market and
stakeholder feedback, we worked with interagency partners to
quickly address a student loan-related credit reporting issue,
as well as CARES Act mortgage forbearance lump sum payment
concerns.
From January 1, 2020, through July 26, 2020, consumers have
submitted more than 270,000 complaints to the Bureau, of which
more than 14,000 complaints specifically referenced the
coronavirus. Each month, from March through June, set a new
monthly record for complaints. Our consumer contact center and
our online portal have operated efficiently and effectively
throughout the pandemic to take those consumer complaints and
refer them to companies for response and ensure those responses
are received.
We also partnered with other Federal agencies to develop
and launch a unified housing website to provide consumers with
comprehensive and accurate information on their rights during
this time.
The Bureau has also developed a new targeted supervisory
approach called Prioritized Assessment to focus on those
markets and institutions that pose the greatest risk to
consumers as a result of pandemic-related issues.
We remain fully engaged in the execution of the Bureau's
critical mission, including continued progress on our
regulatory agenda, which is relevant to the pandemic and
ultimate economic recovery, as well as our supervisory and
enforcement work.
We work closely with partners and stakeholders, recognizing
the important roles that others play in supporting our consumer
protection mission and preventing harm.
I am particularly proud of the Bureau staff's excellent
work during these challenging and unprecedented times. And
thank you again for allowing me the opportunity to testify
today. I look forward to the questions.
[The prepared statement of Director Kraninger can be found
on page 76 of the appendix.]
Chairwoman Waters. Thank you very much. I now recognize
myself for 5 minutes for questions.
Director Kraninger, under your leadership, the Consumer
Bureau has brought fewer lending enforcement options, rolled
back consumer protections against predatory and payday lending,
scaled back data used to combat discriminatory practices like
redlining, and engaged in inappropriate personnel practices,
such as allowing political appointees like Thomas Ward to
burrow into the Agency and take what should be a nonpartisan
career position, and in hiring Eric Blankenstein, who has well-
documented racist views, and Paul Watkins, who was affiliated
with an anti-LGBTQ hate group.
Director Kraninger, when we were in a financial crisis more
than a decade ago, Congress determined that consumers needed an
agency solely dedicated to protecting them from the abusive
practices and products that contributed to the crisis.
When Congress passed the Dodd-Frank Act and created the
Consumer Bureau, we clarified the rules of the road and tasked
the Agency with enforcing the law and protecting consumers in
the financial marketplace. The pandemic has only heightened the
need for the Consumer Bureau to protect struggling consumers.
Unfortunately, the Consumer Bureau has engaged in
deregulation without facts or reasoning and seems to be
protecting the interest of industry over the interest of
consumers.
Director Kraninger, what proactive supervisory and
enforcement steps has the Consumer Bureau taken to protect
consumers who have lost income due to COVID-19 and are
struggling through no fault of their own? How are you utilizing
the authorities at the Consumer Bureau's disposal to protect
consumers against bad actors that are taking advantage of our
communities during this crisis? What have you done?
Ms. Kraninger. Chairwoman, our supervisory and enforcement
work continues through the pandemic. I will say briefly about
supervisory actions, because I think it is a very different
approach than we have had. Typically, examiners go to an
institution and look at loan files from 2 years ago, and assess
compliance against the law, which is important.
We instituted, as a result of the pandemic, a prioritized
assessment process. We are going to hundreds of institutions
across the spectrum in a risk-based approach to look at what
they are doing with respect to the pandemic.
What are their operational challenges? Are they following
the guidance to accommodate their customers? Are they following
the CARES Act processes? Are they providing clear information
to consumers? And we are looking to again prevent consumer harm
by addressing that right at the issue and right at the point
where that activity--
Chairwoman Waters. Director Kraninger, after you do all of
those reviews and ask those questions, then what do you do?
Ms. Kraninger. Chairwoman, if we find violations, we will
act on them. But I will say that the vast majority--
Chairwoman Waters. Give us an example of one of those
actions you have taken?
Ms. Kraninger. I'm sorry, Madam Chairwoman, I didn't
understand that.
Chairwoman Waters. After you have done your reviews making
sure that people are doing what they are supposed to do, when
you find that they have not been doing it, what do you do, and
give us an example of one that you have taken care of?
Ms. Kraninger. That is a confidential process through the
examination, but we do get restitution for consumers through
supervision. There are a bunch of examples in the semi-annual
report of the amount of restitution that has been gotten
through supervision.
We also certainly believe there are bad actors or if this
is a sustained issue with respect to violations, that is
referred to enforcement. We also independently take enforcement
actions. And in the pandemic, we have been incredibly active
with all of our law enforcement partners from State Attorneys
General to the Justice Department and the FTC and--
Chairwoman Waters. Director Kraninger, are those
enforcement options that you have taken available to Members of
this Congress? Can we see what you have documented that you
have done when you have done your reviews and discovered that
you have people in departments who are not doing what they are
supposed to do? Can we review what you have done?
Ms. Kraninger. Yes, Madam Chairwoman--
Chairwoman Waters. Thank you. Let the record indicate that
the chairwoman is interested in reviewing actions taken by the
Director of the Consumer Financial Protection Bureau after she
has done reviews in which she has determined that those who
have not been following the rules, the laws, the procedures, et
cetera, so we can understand exactly what she has done.
Also, while I have a few minutes here, consumer complaints
during the COVID-19 period have surged. Nearly half of all
complaints, 46 percent, were related to credit reporting.
Nevertheless, in April, the Consumer Bureau announced that it
would allow much greater flexibility in how long credit
reporting agencies may take to investigate consumer report
disputes.
Do you think it is appropriate for the Consumer Bureau to
announce that it would weaken enforcement of the Fair Credit
Reporting Act's requirements for credit reporting agencies,
like Equifax, to investigate disputes in a timely fashion?
My time is up. You do not have time to answer that. I will
submit that question to you in writing for further answers.
The gentleman from North Carolina, Ranking Member McHenry,
is recognized for 5 minutes.
Mr. McHenry. Thank you, Director Kraninger, for being here,
and thank you for managing this process. I know it is awkward
to speak with a mask on and to sit behind, effectively, a salad
guard, or whatever those things are that you are behind, but we
are trying to do our best.
And there are a couple of broad things I want to talk
about. Obviously, a Supreme Court decision, which is something
I brought up in my opening statement--you have consistently
said that you believe that the Director is given too much
power, and that Congress should remedy this. And I appreciate
the fact that you have continued to have that same view, even
though you have this enormous power and it sort of lacks
accountability standards as well.
Has your view of your role shifted since the Supreme Court
decision?
Ms. Kraninger. Congressman, certainly, we reviewed the
case. I was very gratified that the Supreme Court took up that
case and made the decision on it. It created a lot of
uncertainty in the Agency's enforcement actions and around the
Agency's mission. And I think that is incredibly helpful to the
process.
I will say with respect to additional changes in structure
or otherwise, I leave those in the hands of Congress. To the
extent that you all decide to make changes to that, and that it
becomes law, we will certainly work to institute those changes.
Mr. McHenry. I also mentioned a small-dollar lending rule.
There are details of this that I agree with, and there are
details of it with which I disagree. But why did you take the
action on the small-dollar lending rule?
Ms. Kraninger. Congressman, there was a lot of concern.
Frankly, we were in litigation over that rulemaking. There was
a lot of concern about the dramatic impact that would have on
the availability of small-dollar credit.
We know there is significant demand and need and interest
in small-dollar credit. That has been documented, and Congress
has even taken action, funding a small-dollar program through
CDFI.
So, trying to promote competition in that space is an
important aspect of it. And there were a lot of issues with
respect to the payday rule that were undermining that.
Most pointedly, though, we followed the Administrative
Procedure Act and noted and documented that the initial rule
did not have the robust evidence and legal basis given that
dramatic impact on small-dollar credit availability.
Mr. McHenry. So, there are benefits in terms of credit
availability and benefits for certainty, right? Regulatory
certainty? And that will have a positive impact on consumers
and their access. Will you continue to ensure that there is
diligent oversight of the industry?
Ms. Kraninger. Absolutely. Our enforcement actions have
continued apace in this industry as in others. We know there
are bad actors in every market. And so, we will continue to
enforce the law and engage in examinations of payday lenders,
which we have done.
But in addition to that, we are doing work on disclosure
testing to ensure that consumers do understand this product.
There is a lot of evidence that they understand it, but let's
actually continue to do the disclosure testing as well. So,
there are a lot of different aspects of this.
Mr. McHenry. Director Kraninger, I want to thank you for
reviewing Section 1033 of Dodd-Frank, and reaching out to the
industries about this, and consumers. That section focuses on
consumers' ability to access their financial information. I
know Congress, we want to do our work for data privacy for our
jurisdictions. I think there is consensus between all parties
on the need, and then we can dial down in terms of changes.
But this statutory requirement is interesting in light of
the massive change that is happening in banking, and the
feedback we have gotten.
For example, Fintech companies offer improved personal
financial management, faster loan underwriting, and better
payment services. And those are positive developments. And I
want to make sure that we continue to foster that exact sort of
innovation.
Is that the reason why you are undertaking this? What are
the benefits for review of the regulatory framework?
Ms. Kraninger. Certainly, one key priority and principle of
the activity is continuing to promote innovation in this case.
And we had a symposium just a few months ago to talk through
this issue and bring experts together. It was truly a robust
conversation.
The Agency has allowed the industry and all stakeholders
and the public to continue to take advantage of those
innovations in the marketplace. But we are at the point now
where we really should examine the way in which that data
transmission occurs, and that is why we are moving to an
advance notice of proposed rulemaking.
Mr. McHenry. And let me close by saying, thank you. You
have been a good public servant, and you continue to act in
accordance with the law, you have been open to feedback, and I
appreciate that. I very much appreciate it.
Madam Chairwoman, I ask unanimous consent to insert into
the record two letters. The first is a July letter to the
Financial Services Committee from the Consumer Bankers
Association articulating a number of thoughts on the CFPB's
rulemaking and actions. And the second is a July letter from
the Association of Credit and Collection Professionals opining
on the CFPB's rulemaking as it relates to the Fair Debt
Collection Practices Act.
Chairwoman Waters. Without objection, it is so ordered.
Mr. McHenry. Thank you, Madam Chairwoman.
Chairwoman Waters. The gentlewoman from New York, Ms.
Velazquez, is now recognized for 5 minutes.
Ms. Velazquez. Thank you, Madam Chairwoman, and Ranking
Member McHenry, for holding this important hearing, especially
at this time.
Director Kraninger, earlier this month the CFPB finalized
its revision to the payday lending rule, keeping out a key
provision of the regional rule developed by Dr. Cordray, the
ability-to-repay requirement.
Do you believe the Bureau's revised rule will leave low-
income borrowers and those of color more or less protected from
unscrupulous payday lenders during this pandemic?
Ms. Kraninger. Congresswoman, the mandatory underwriting
provisions are having the impact of a substantial reduction in
the availability of small-dollar credit for all communities,
and particularly the communities you mentioned, vulnerable
communities who are really in need of access to responsible
products for small-dollar loans. And that was the primary
consideration. If protections continue with respect to the
payments provision--
Ms. Velazquez. I hear you. I disagree with you in terms of
access to credit. Basically, smaller institutions are the ones
that are providing loans to individuals and small businesses,
not the--so how would you respond to the president of the
Center for Responsible Lending, Mike Calhoun, who said that the
pain caused by the CFPB regarding the payday rule will be felt
most by those who can least afford it, including communities of
color who are disproportionately targeted by payday lenders?
Ms. Kraninger. Congresswoman, the availability of credit
had--and that rulemaking did have a broader impact. The number
of banks that are issuing small-dollar products was
substantially limited. There are no mitigating factors to
support that--
Ms. Velazquez. You are saying that Mr. Calhoun is wrong,
but you are right?
Director Kraninger, a review of the CFPB's consumer
complaint database shows that consumer complaints have
increased dramatically in the start of the pandemic. However,
CFPB rules still allow companies up to 60 days to respond to a
consumer complaint.
Given the rising number of complaints and the economic
uncertainty many individuals and households are facing, why has
the CFPB not started to shorten this response time?
Ms. Kraninger. Congresswoman, I should, off the top of my
head, have the response time, but it is substantially shorter
than that. I believe we are basically in a week for most
turnarounds. The 60-day allowance is really because of some of
these more complicated issues, in terms of what the complaint
is and making sure it is addressed. So, I think we have a
fantastic record of actually getting a meaningful response--
Ms. Velazquez. So, why not shorten the 60-day requirement,
or the 60 days timeline, given the fact that consumers are
suffering in this country? These are people who are in trouble
right now, so why not shorten the 60 days?
Ms. Kraninger. Congresswoman, the vast majority--we will
get back to you with an actual number--
Ms. Velazquez. It would be great to have some empathy.
Director Kraninger, mortgage-related concerns represent the
highest percentage of COVID-related complaints received by the
Bureau. Earlier this month, we held an Oversight Subcommittee
hearing in which we learned that some mortgage servicers are
failing to notify borrowers of their right of forbearance under
the CARES Act.
Is the CFPB concerned that some servicers are failing to
accurately represent borrowers' rights under the CARES Act? How
is the CFPB working to address this issue?
Ms. Kraninger. We have produced a significant amount of
material in cooperation with HUD and FHFA scripts for servicers
so they have very clear messages that they are supposed to
provide to their customers. We have done videos for customers.
And, in fact, many of the servicers are pulling the information
off the CFPB's website and sending it to their customers in
multiple languages. This is all available--
Ms. Velazquez. Do you have any data as to any complaints
coming from individuals who feel that their rights have not
been protected?
Ms. Kraninger. There were complaints right around the CARES
Act passage about concerns about being able to pay their
mortgages, and concerns about the messages that they were
getting. We acted expeditiously, really, since March-April
complaints and address them through a lot of different actions
and they have gone down substantially since that time.
We are certainly still monitoring, and if we see an
increase, or if we see any bad action, working really closely
with FHFA, actually, we were looking at all of this, and we are
acting.
Ms. Velazquez. Thank you.
Chairwoman Waters. Thank you.
The gentlewoman from Missouri, Mrs. Wagner, is recognized
for 5 minutes.
Mrs. Wagner. Thank you, Madam Chairwoman.
And welcome back, Director Kraninger. I want to just first
thank you for your service to our country and for your service
to all of the consumers in Missouri's Second Congressional
District. I appreciate your leadership now, and I look forward
to it in the future.
Before I begin my questions, I also wanted to thank you for
all the work that you have done, not only increasing
transparency at the CFPB, but also streamlining and tailoring
regulations to better protect and provide, I think, clarity for
consumers and the private sector. So, thank you for that.
While I am proud of your efforts to increase transparency
and accountability, the CFPB issues regarding its structure go
beyond that of any one Director. Now that the Supreme Court has
made its decision regarding the structure of the Bureau, it is
time for Congress to work together to put the Bureau on a
budget, overseen by Congress, and run by a bipartisan board.
Director Kraninger, would you please discuss how the credit
reporting provisions in the CARES Act are working to protect
consumers who have been impacted by COVID-19?
Ms. Kraninger. That is a very important issue, and I think
we are in a much better position than we were after the
financial crisis in recognizing the importance of the credit
reporting system, and our ability to act very quickly on issues
as they occur, and address them so that they don't impact
consumers.
The CARES Act provision first requires that those who are
affected by the pandemic be reported as, ``current,'' when they
are in a forbearance program under the CARES Act. And that is
something that we are monitoring. I mentioned earlier the
prioritized assessment that includes a constant presentation
that the CFPB has with the national credit reporting agencies.
We are looking at, specifically, what they're doing with the
information that comes in. We are also doing examinations of
furnishers on the other side to make sure they are reporting
the right way.
Of course, ``current,'' is not the only thing that is in
the data that gets transmitted by the furnishers. There are a
lot of different details about how precisely you continue to
comply with FCRA in terms of accuracy and otherwise. But we are
all working very closely together to keep that intent of
Congress implemented.
Mrs. Wagner. Recently, the Bureau announced that it would
be issuing an advance notice of proposed rulemaking regarding
consumer-authorized access to financial records. How does the
Bureau intend to address privacy and security concerns in an
environment where many unregulated or underregulated companies
are eager to, as we know, obtain and resell consumers'
financial data?
Ms. Kraninger. Section 1033 is, of course, what you are
referencing, and Congress anticipated there might be a need for
rulemaking. We are still looking at that. The primary driver is
that the consumer should be the one who authorizes the data
use. But to your point, privacy and security issues are
intertwined with that, and are incredibly important.
The means by which many of the data aggregators have been
accessing that data is by consumers providing their banking
credentials. And that, of course, means the entity can go in
and screen scrape the data and take it out. That has caused a
lot of concerns by those who believe they are stewards of that
data.
So, we have a lot of technical data access issues there
with respect to how that happened. And it was not pre-decided
that there needs to be a rule, but it will be a challenging
rulemaking to take precisely the privacy and security, and make
it lasting so that it doesn't change based on technology
changes as well. So, we are really looking to do that right.
Mrs. Wagner. I think so, too. How will the Bureau ensure
that the password's enhanced data portability does not lead to
consumer exploitation or an uneven playing field between
depositing holding institutions and potentially underregulated
Fintech companies? I have concerns about that, too, as you move
forward.
Ms. Kraninger. No, you are outlining precisely the
challenge here. Again, the consumer is front and center in
Section 1033, but there also needs to be information to that
consumer about what they might be opening up.
Mrs. Wagner. Okay. Thank you. My time has expired, and I
yield back.
Chairwoman Waters. Thank you. The gentleman from
California, Mr. Sherman, who is also the Chair of our
Subcommittee on Investor Protection, Entrepreneurship, and
Capital Markets, is now recognized for 5 minutes.
Mr. Sherman. I have five quick, easy questions. First,
paced loans: Congress passed a law in 2018 requiring
regulations, including the ability to repay. In March 2019, you
issued a proposed rule. In October 2019, and February 2020, I
had a chance to ask you about the status. We need to protect
the consumers. When do we get the regulations?
Ms. Kraninger. Congressman, I can give you a slightly
better answer than I did in February. The data collection that
we need to predicate that notice of proposed rulemaking will
begin in September, early September. The Paperwork Reduction
Act requirement does take a significant amount of time. But by
early September, that data collection will happen. We will have
the data this year.
Mr. Sherman. So, the work you promised in February will
start in September. Next, I want you to be as quick as possible
on that.
Ms. Kraninger. Understood.
Mr. Sherman. Next, consumer credit scores: People lose
their jobs because of COVID. They have negative--they are
unable to pay this or that bill. Is that a fair entry on their
credit report and a good predictor of how well they will be
able to pay their bills once the crisis is over?
Ms. Kraninger. Congressman--
Mr. Sherman. Can we prevent these negative items during the
COVID crisis from being on the credit report?
Ms. Kraninger. I know you are asking a critically important
question that you in Congress are actually thinking about and
looking at now.
Mr. Sherman. You could solve the problem for us. You could
simply prohibit--I hope you will look at preventing these
negative items from being on the credit report.
But one particular area where Congress has acted, the CARES
Act, said that mortgage forbearance is allowed to homeowners
and prohibits negative credit reporting from using that
forbearance.
But FHFA charges premiums on mortgages to borrowers who
have accessed the forbearance, which means that that is being
reported and it is disadvantaging the homeowner.
What can you do to make sure that the forbearance that the
CARES Act indicates should not be on the credit report, is not
reported in a way that causes FHFA to raise the premiums?
Ms. Kraninger. I can't speak to the premium aspect,
Congressman, but I can in the overall context of this. We are
working very closely with the NCRAs and with the furnishers to
understand what else they are reporting--
Mr. Sherman. Can you call the folks over at the FHFA and
say, ``Hey, it is my job to make sure that you don't get this
information on the credit report, so where are you getting
it?''
Ms. Kraninger. We will talk about this because you are the
first person to mention the premium issue, so I will go back
and look at that, and we will certainly get back to you on what
the decision is there.
Mr. Sherman. The next issue is Facebook. The entities you
regulate are supposed to make sure they don't discriminate
based on age, gender, race, et cetera. Facebook has this
complicated algorithm, so that when you buy an ad on Facebook,
you don't quite know whom you are reaching.
Facebook probably isn't going to reveal its algorithms. But
if one of the entities being regulated by your Agency gets a
certification from Facebook saying, you have opted for an ad
campaign that we are making sure does not discriminate against
the people you are not supposed to discriminate against, would
that be adequate, or do the entities that you regulate have to
not be on Facebook unless Facebook reveals the algorithm?
Ms. Kraninger. There are a lot of facts and circumstances
behind, obviously, the premise to your question. And I wouldn't
want to answer that in this unique case. I will tell you
overall that we do engage in fair lending examinations of the
institutions. That certainly includes looking at their
advertising. And beyond that, I can't get into too much more
depth here, that--
Mr. Sherman. I hope you will look at the specifics. Back in
the old days, you would put an ad in the newspaper, and that
would be the way--the town had one big newspaper.
Now, you have so many different choices. When you advertise
with Facebook, it is one big entity, but you have thousands of
different advertising campaigns you can ask for. And I would
assume that you would create a circumstance where if you
specify nondiscrimination, that it is on Facebook if they
violate that.
One last thing is these Fintech companies that ask you to
give them all of your information so they can access your bank
account and your brokerage statement, and then, they can sell
the information they know about you; they are providing this
free service at the cost of your privacy.
What is your perspective? What can we do to protect
consumer privacy?
Ms. Kraninger. Certainly, we have some limitations on our
oversight of privacy. But I will say on this point, we do have
Section 1033 to look at what the data aggregators are telling
consumers in terms of the product what they are getting from
it.
And there are a number of things that we are doing on that
front for the disclosure and access.
Mr. Sherman. Thank you.
Chairwoman Waters. The gentleman from Oklahoma, Mr. Lucas,
is recognized for 5 minutes.
Mr. Lucas. Thank you, Madam Chairwoman.
Director, can you detail the resources that CFPB has
provided to consumers experiencing financial hardship during
the COVID-19 pandemic?
Ms. Kraninger. Certainly. We have announced public
enforcement--in terms of educational resources, I will admit,
my mind went to money. But I will say, educational resources
are extensive. We have issued over 70 blogs and videos in
multiple languages, extensive information on how to manage your
finances and think about them, and what questions to ask your
servicers.
As soon as the CARES Act was passed, we issued that video
and that information within a week, which was a significant
accomplishment in moving mountains here to make sure we clearly
and concisely told consumers what they were entitled to. And we
have had millions of people watch that video in English and in
Spanish, and that is something that I think we are particularly
proud of in terms of, again, making sure consumers understand
their rights.
And I commend the financial institutions and other consumer
advocates, and Members of Congress, who are also sharing that
very same information with their constituents or with their
customers.
Mr. Lucas. It is important, because many of our
constituents have never faced the kind of challenges they are
facing economically as a result of a pandemic, just as
virtually no one alive has had to deal with this kind of a
circumstance before.
Continuing my line of questioning, you mentioned in your
testimony that the Bureau will launch a website with HUD and
FHFA for consumers to find accurate information about relief
options. Do you outline what consumers should expect when
seeking out a forbearance or mortgage relief as provided in the
CARES Act?
Ms. Kraninger. Yes, Congressman, that website is launched.
It has a lot of the resources I just talked about on it.
Consumers can expect that they can contact their servicer and
say, I have experienced a hardship, and therefore they are
entitled to forbearance if it is either a federally-backed loan
or a GSE-backed loan. So, that is clear to them.
In addition, even those that are privately-funded loans,
certainly, they have direction from all of us as regulators to
accommodate their customers, and many of them are also
providing different kinds of forbearance, again, consistent
with their contractual obligations and abilities.
But a significant, overwhelming number of institutions are
providing options to their customers, and the first step is
having those customers contact them.
The second is to come to us, the CFPB, if they have any
issues or questions or complaints, and we are expeditiously
addressing those.
Mr. Lucas. I very much appreciate that, Director. As I
mentioned earlier, there are many of my constituents, our
constituents out there who are facing the kind of economic
challenges we have never faced before, and this is a whole new
terrifying experience to them.
With that, Madam Chairwoman, I yield back the balance of my
time.
Chairwoman Waters. Thank you.
The gentleman from Missouri, Mr. Clay, who is also the
Chair of our Subcommittee on Housing, Community Development,
and Insurance, is recognized for 5 minutes.
We will move on. I think there is some technical difficulty
with the gentleman from Missouri.
The other gentleman from Missouri, Mr. Cleaver, who is also
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 appreciate very much this subject today with Director
Kraninger, because I don't know if there are very many other
issues that are in the same area of importance.
I am wearing my protective gear because someone close to me
has now contracted the virus, and so I am trying to be as
protective of others as I can possibly be.
Director Kraninger, I have a couple of questions, and I
will try to make them as clear as I can. I think everybody has
already been mentioning about how things are difficult
economically.
And so, I am concerned about minority consumers, who are
frankly, hemorrhaging, right now and are at heightened risk of
attack by financial predators. There is a saying that a sign of
blood in the water is a sign that someone can be attacked,
especially because they are already in a weakened state, and
that is the case right now.
Last Friday, July 24th, the CDC released a report, and the
first sentence read, ``Longstanding systemic health and social
inequities have put many people from racial and ethnic minority
groups at increased risk of getting sick and dying from COVID-
19.''
The report goes on to highlight discrimination as a primary
factor and the heightened rate of death of minorities, and
especially noted housing and financial discrimination.
We know that the access to emergency relief to help
communities of color who are being disparately impacted is not
being equitably distributed.
A national online survey of 500 African Americans and
Latinx who owned small businesses conducted by the Global
Strategy Group released a report, and they said that after the
second round of funding for the program was allocated, they
found that just 12 percent received the full assistance they
requested, and two-thirds reported that they had not received
any.
If you go to the Center for Responsible Lending, 100
percent of businesses owned by people of color were shut out of
the Paycheck Protection Program, and of the pending evictions,
that 40 million Americans may have been evicted.
So, I think the first issue is, it would be helpful for me
to find out your belief as it relates to systemic racial
discrimination. Director, do you believe that it exists in this
country?
Ms. Kraninger. Yes, Congressman, I know that it exists in
this country, but it is abhorrent, and it is certainly part of
my duty to root that out in the financial system.
Mr. Cleaver. Yes, I agree with you, and thank you. Do you
think that consumers of color and women have been experiencing
this disparate impact during the crisis, or do you think they
have been harmed by discrimination?
Ms. Kraninger. Certainly, the evidence that you stated does
show that they are not starting in precisely the same place.
And we have been doing everything we can to make sure that
they do. And I will say that CFPB, specifically, is supporting
our fellow agencies in trying to get the word out on economic
impact payment entitlement, and on forbearance options, to
limited English proficiency groups, and to African-American
communities.
And even on the Paycheck Protection Program, again, I have
had significant outreach as well with communities of color to
make sure that they have the information they need, and then we
can increase access to these programs.
Mr. Cleaver. I believe my time is running out. But maybe,
you understood that the enforcement and supervisor authority of
the Office of Fair Lending and Equal Opportunity, that that
might be an adequate response to the problems we are having.
What say you?
Ms. Kraninger. I'm sorry, Congressman. I didn't quite catch
the last question.
Mr. Cleaver. Have you considered restoring the supervisory
and enforcement authorities of the office?
Ms. Kraninger. I'm sorry, you are asking about the
supervisory enforcement activities we are doing in fair
lending, is that--
Mr. Cleaver. Yes, of the Office of Fair Lending and Equal
Opportunity.
Ms. Kraninger. The Supervision, Enforcement, and Fair
Lending Division still engages very deeply in supervisory
enforcement matters across-the-board, including fair lending,
and we can get you some more information on that.
Mr. Cleaver. I think my time is up. Thank you.
Chairwoman Waters. Thank you.
The gentleman from Florida, Mr. Posey, is recognized for 5
minutes.
Mr. Posey. Thank you very much, Madam Chairwoman, for
calling this hearing, and I thank the ranking member as well.
For a number of years now, I have tried to get the CFPB to
issue advisory opinions. [inaudible] Pretty much [inaudible]
Filing that [inaudible] I am afraid to ask that [inaudible]
Comply [inaudible] Rules and regulations of the agency.
[inaudible] What they are asked to deal with [inaudible]
Eliminate so many problems of the plans with them. As we
[inaudible] Emphasis should be on the recovery, the economic
woes [inaudible] And our hard-working Americans [inaudible].
Regulation should not be a burden to society, [inaudible]
Recovery before this vicious virus brought so much [inaudible]
Imposed for the nation's economy [inaudible] Across this
nation.
President Trump's policies to reduce taxes and regulations,
we are finally bringing, coming back from the long stop
national luggishness that we suffered.
Getting government off the backs of our hard-working people
gave us the strongest economy in our history. There are
important lessons to learn, moving forward. My first question
for you, Ms. Kraninger, is, what your early experience
[inaudible] advisory [inaudible].
Ms. Kraninger. I'm sorry, Congressman, you broke up a
little on the question. The experience with, what,
specifically?
Mr. Posey. The advisory opinion [inaudible].
Ms. Kraninger. With the advisory opinion program we have
launched, what has come in, I am guessing, you would like to
know?
Mr. Posey. Yes, ma'am.
Ms. Kraninger. Okay. Thank you, sir. As you know, we are
engaged right now in the pilot, and we are in a Paperwork
Reduction Act process to get comments on the full program. We
have not gotten anything in yet, specifically, but it has only
been a few weeks since we launched that. And we do anticipate
it.
And as I told you, the biggest part about this is, it is
making formal and transparent interpretive rules that we have
essentially been giving to individuals as they have asked along
the way. So, it's incredibly useful.
Mr. Posey. Thank you.
Many of us believe that the rules and regulations must be
applied with [inaudible] Overregulate credit in such a way that
[inaudible] Approach [inaudible] And puts a burden on families
[inaudible]. Please tell us about your strategy to carry out
the standard [inaudible] Without unduly constraining our
economic recovery from this pandemic as we go forward.
Ms. Kraninger. I'm sorry, Congressman, your sound is
cutting in and out, so it is hard to actually gather the
question.
Mr. Posey. I don't know why. Maybe the lowest bid here is
not the best bid for communications. [inaudible]
Ms. Kraninger. That I heard, of course.
Mr. Posey. What metrics and policies would give you
[inaudible] To ensure that we protect consumers but
[inaudible].
Ms. Kraninger. I have no idea. I'm sorry, sir.
Chairwoman Waters. We are having technical difficulties,
and I can't hear Mr. Posey either. So, we are going to come
back to him.
And we are going to move on, so that he can finish the
remainder of his time.
With that, we will start the clock over. The gentleman from
Missouri, Mr. Clay, who is also the Chair of our Subcommittee
on Housing, Community Development, and Insurance, is recognized
for 5 minutes.
Mr. Clay. Thank you, Madam Chairwoman, and let me thank
Director Kraninger for her testimony today.
Director Kraninger, the CARES Act includes important
foreclosure forbearance protections for homeowners struggling
to pay their mortgages.
Given these protections, it is very concerning that 55
percent of COVID-19-related mortgage complaints identified
struggling to pay the mortgage as a primary issue, according to
the most recent Bureau report. Consumers reported that some
mortgage servicers are providing information that conflicts
with guidance regarding lump sum payments.
What are you doing to ensure that mortgage servicers are
complying with the CARES Act?
Ms. Kraninger. Thank you, Congressman. That is obviously a
significant issue right now. The complaint that you are
referencing came in very significantly, particularly, in March
and early April. We actually looked carefully at those. And we
took a bunch of actions with FHFA and with HUD, including
producing scripts for servicers to make sure they are clearly
conveying their CARES Act rights to consumers who contact them.
In addition, with respect to the complaints, we noted that
a lot of them came around what happened after the forbearance
period.
So we worked together, and actually the CFPB issued an
interim final rule enabling servicers who offer consumers a
beneficial outcome, which is a lump sum payment at the end of
the mortgage term, rather than having a question over what loss
mitigation options would be there.
And under the mortgage servicing rules, the fact of the
matter is that servicers would have to literally start a full
application process that was probably going to confuse
consumers.
So we gave them this option, and acted very quickly with
that, in partnership with the other Federal regulators.
I can say we are working very closely on an ongoing basis
to monitor those complaints, to monitor what the servicers are
concerned about or hearing, and what consumer advocates are
saying in terms of concerns they are hearing, as well as
housing counselors.
And I will say, it seems as though those primary early
issues have been addressed, and we will keep monitoring as
things dynamically change.
Mr. Clay. Last month, the Bureau released a proposed rule
that would dramatically change the definition of ``qualified
mortgage'' (QM) and weaken consumer protection by replacing the
debt-to-income (DTI) threshold with a standard based on a
loan's pricing.
Many consumer and industry groups have expressed concerns
with such a QM definition that only relies on the price of the
loan and the broad, Dodd-Frank statutory product restriction, a
definition that relies on pricing reflects investors'
assessment of risk, but does not assess an individual
borrower's ability to repay. Can you address that?
Ms. Kraninger. Gladly, Congressman. I think that is a
critically important misunderstanding. The Dodd-Frank statutory
requirements remain in effect. That includes consideration and
verification of debt and income and the ability to repay. That
is still very much a critical part of the process.
The question is, in addition to that, how would you
determine what is a qualified mortgage? As we looked at the
hard, 43 percent debt-to-income ratio requirement out there,
many consumer organizations and financial institutions have
supported our approach, as a pricing approach. It takes into
account wider aspects about the applicant and their
creditworthiness, but it is not a replacement of consideration
and verification of debt and income. That is in the statute,
and that continues.
Mr. Clay. I guess, as a final question, have you been able
to prevent foreclosures of any great number, or have you been
able to err on the side of the homeowner to keep people in
their homes? Is there any anecdotal or documentary evidence of
that?
Ms. Kraninger. Congressman, I certainly believe that
Congress took the right action, and I supported HUD and FHFA
actually prior to the CARES Act when they put in place a
foreclosure and eviction moratorium on the properties that they
back. It is critically important during this uncertain time,
and I know it is something that you are all looking at again
now.
Mr. Clay. Thank you so much.
And Madam Chairwoman, I yield back.
Chairwoman Waters. Thank you. The gentleman from Missouri,
Mr. Luetkemeyer, is recognized for 5 minutes.
Mr. Luetkemeyer. Thank you, Madam Chairwoman.
Thank you for being here today, Ms. Kraninger. I appreciate
your testimony.
As you heard in my opening statement, I am supportive of
changing the CFPB structure and putting a commission in charge
of the CFPB. I was just curious as to your thoughts on whether
the commission, if structured correctly, would be able to
complete the mission of the CFPB, and whether you thought it
would stop it from being a political football, which we had
another example of yet today in our opening statement?
Ms. Kraninger. Congressman, I certainly would support
things that would take down the political temperature. I think
you will recall that that is something I have talked about
since my nomination, and that has certainly been my intent with
the actions I have taken.
But I do think there are some inherent issues that are
stacked against a single director in this dynamic.
In terms of the solutions to put into place, I respectfully
defer to Congress and what actions you all decide to take
there, and I would look forward to helping the Agency
transition to the extent that such changes are enacted.
Mr. Luetkemeyer. I think in response to Mrs. Wagner's
concerns with regards to data and screen scraping and things
like that, you articulated some concerns and indicated you are
watching and looking at it and looking to try and do some
things.
Could you articulate a few ideas that you have with regards
to how we can do certain things?
I was a part of a group today that discussed this very
issue of privacy, how do you protect, where do you draw the
line, who owns the data, and how much access should you allow?
Can you give us just some of your thoughts of directions you
might be going on some of this stuff?
Ms. Kraninger. Yes. Certainly, we have been talking
extensively to all of the stakeholders who care about this,
including the industries that are running the technical back-
and-forth of the data.
Progress has been made at least to reduce screen scraping
as the primary method. There are now APIs that are agreed-upon
between entities that allow you to actually have a transmission
of that data in a more secure way.
That doesn't mean the consumer needs to hand over their
banking credentials to accomplish that data-sharing, but I
think in our symposium discussion, we found a lot of questions
around, what truly is the consumer's financial data? There are
concerns by institutions, likely for competitive reasons, over
what data might be proprietary around pricing and otherwise.
At the same time, the consumer may very well think that
data is their own, because it is what they are paying, it is
what they are getting, it is the servicers that they have.
So, I think there are some legitimate questions around
that, that really do get to why we decided to do the advance
notice of proposed rulemaking step as our next step on this
topic.
As I noted to the Congresswoman, this is going to be a
complicated area for rulemaking, and to the ranking member as
well, there is a broader conversation happening around data
privacy and data security that also complicates it. But we will
endeavor to again get feedback and think about the smartest way
to proceed in this issue.
Mr. Luetkemeyer. Okay, very good. I want to talk a little
bit about the breadth of the ideas today about some of the
pandemic problems that we are having with regards to consumers
being able to pay back their debts and the concern with regards
to reporting on it.
One of the concerns I have is with regards to forbearance.
To me, I am concerned that if the regulators don't give the
banks and credit unions and those lenders the ability to give
forbearances, I am concerned that we are going to wind up with
an elongated recovery here that is going to be very difficult
to get out of.
And it will destroy local economies, destroy businesses,
and take away jobs, much as it did in 2008 and 2009, whenever
the regulators came in and basically got rid of lots and lots
of the lines of business.
Although your area of oversight is a little bit more
narrow, it still is in the area where forbearance would be a
big help to some of the consumers. Would you like to comment on
that just a little bit?
Ms. Kraninger. Congressman, you are very correct, and that
is certainly something that many consumers would benefit from,
and have frankly benefitted from. The first action that we took
with prudential regulators was an FFIEC-issued statement about
accommodating consumers.
I do think that my fellow regulators have sent that clear
message. So if you are hearing otherwise, we would love to get
some specifics on that, so that we can make sure that is done.
I recognize it gets to safety and soundness issues
potentially that are outside of my--
Mr. Luetkemeyer. I appreciate your comments, but my concern
is, I have been a former regulator, and I know that the
regulators themselves are hamstrung by the rules and
regulations that they have to operate under.
So when you go in, much as they did in 2008 and 2009, they
said, okay, well, my rules say I have to do this, so therefore,
I have to classify this loan, which means I classify the loan.
Then, you have to reserve more against it, you have to have
more capital, whatever the case my be. And at some point, you
turn around and force the banks to liquidate those loans.
We are in a position where if we allow the time that it
takes to get these loans back up, because of the uniqueness of
the recession that we are in, I think we can get back out of
this with minimal damage to a lot of our businesses and,
therefore, our jobs and our local economies. So, to me, I have
a bill to fix this problem, and I appreciate your comments.
Thank you very much.
With that, I yield back, Madam Chairwoman.
Chairwoman Waters. The gentleman from Illinois, Mr. Foster,
is recognized for 5 minutes.
Mr. Foster. Thank you, Madam Chairwoman, and Director
Kraninger. The Bureau's proposed definition of a qualified
mortgage would remove the 43 percent debt-to-income limit from
the QM loan definition and instead use a price-based approach
that creates a new limit on the spread between a loan's annual
percentage rate (APR) and the average prime offer rate (APOR).
Now, as someone who has lived through the financial crisis
and saw firsthand how much havoc was wreaked on the economy
from shoddy underwriting practices, this, to me, shows an
amazing confidence in the ability of a mortgage crisis to
appropriately price risk.
The proposed rule itself identifies several shortcomings
with relying on pricing. It says, ``The Bureau anticipates that
a price-based approach would incentivize some creditors to
price some loans just below the threshold in order to receive
QM status. More broadly, a lender's pricing of a mortgage
reflects many factors outside of a borrower's individual risk
profile, including prepayment speeds, balance sheet capacity,
business goals, as well as broader economic conditions.''
I am very concerned with having a definition that could be
so easily manipulated. So, Director Kraninger, how will you
ensure that this rule does not just incentivize an
irresponsible race to the bottom, reminiscent of what we saw in
the lead-up to the 2008 financial crisis?
And if the CFPB acknowledges that the APR can be
manipulated by lenders, ``to meet the mark,'' then how can this
serve as an effective measure of a borrower's ability to repay?
Ms. Kraninger. Congressman, the nature of a rulemaking
process, of course, is that you put a proposal forward, and you
acknowledge all sides of the argument, so you are definitely
doing that with the quote in there. But I will say, just taking
one step back, that the requirements of the Dodd-Frank Act
remain in effect. So, the features that were so concerning
during the financial crisis that are precluded from being
qualified mortgage and precluded from being offered this way,
are still statutorily-prohibited features.
In addition, the statute still requires debt and income to
be considered and verified. So, that is part of the proposal as
well as a premise of the pricing approach. The pricing approach
is then what we get to. The 43 percent DTI cap, well, we
frankly found in 2018, a third of the loans that the GSEs
backed had DTIs that were higher than 43 percent, and many of
these loans are performing, and many of these loans are also to
those in minority communities.
And so, again, thinking holistically about what a pricing
approach benefit has, and that is that it really does take
away--it provides that opportunity above that DTI threshold
that is so hard and it will go into effect in January without
additional action by me, which is why we put the rule out, but
we are trying to alter that effect.
Mr. Foster. I am very worried about the word, ``consider.''
While the CFPB's proposal does eliminate the 43 percent DTI, it
does, as you say, require lenders to consider a borrower's DTI
as part of the underwriting process. But it also emphasizes
that lenders would be given great latitude in how they
considered a borrower's DTI. And I am concerned that,
``consider,'' is just so loose that people are going to drive a
truck through it, and we are going to see this all over again.
Do you have any--
Ms. Kraninger. Congressman, if I could, there are
standards--I know you probably have other questions, but there
are standards proposed in the rule for the debt and income
consideration, and we are open to industry and consumer groups
coming together and coming up with other standards.
So, there does have to be a standard, to be clear.
Mr. Foster. I think that having some clarity on exactly
what, ``consider,'' means, would help a lot in this, and so
that is--I am close enough to being out of time, that I think I
am just going to yield back the balance of my time. I don't
really have time to get the next question out.
Thank you, and I yield back.
Chairwoman Waters. The gentleman from Michigan, Mr.
Huizenga, is recognized for 5 minutes.
Mr. Huizenga. Madam Chairwoman, at this point, I would
prefer if you could go to the next person and then come back to
me, if that is okay?
Chairwoman Waters. The gentleman from Ohio, Mr. Stivers, is
recognized for 5 minutes.
Mr. Stivers. Thank you, Madam Chairwoman. And thank you,
Director, for being here today. I want to thank you for
everything you do on behalf of consumers. I am really sorry to
see that the nature of your agency has gotten so partisan. I am
convinced that is driven by the structure of your agency.
Recently, the Supreme Court, in a Supreme Court opinion,
said that your structure violates the constitutional separation
of powers.
I am curious what action the agency is either taking or
planning to take, to ensure some certainty and stability, given
the recent Supreme Court decision, certainty and stability in
your actions, decisions, and the things you do?
Ms. Kraninger. Congressman, as I said, I welcomed the
decision and the action in this because bringing that stability
and certainty is certainly what I was hoping to do.
And we have looked at prior actions, litigation that is
ongoing, and prior rulemaking actions, and I did ratify those
prior actions again, just in an abundance of caution, to make
sure that those can continue to be relied on, because they have
been relied on appropriately, and certainly going forward, I
don't know that it changes a lot, but we are certainly looking
at the opinions still and talking to the Justice Department
about anything else that that may impact.
Mr. Stivers. Thank you, Director.
Second, there has been a lot of talk today about your QM
rule, and you also temporarily extended the sunset on the GSE
Patch that is out there. The Bureau is proposing to extend that
patch for 6 months after the publication in the Federal
Register of the final rule.
Do you believe 6 months is an adequate time for the
mortgage market participants to develop, test, and implement
new standards, models, and business operations?
Is it possible that maybe 12 to 18 months might be a better
transition, especially given everything that is going on with
COVID-19 and the pandemic?
Ms. Kraninger. It is a proposal in terms of the time
length, and we asked for comments on it. I think, again, based
on experience, the 6 months seems appropriate.
I will say the pricing threshold is not new. It is actually
part of the current safe harbor and rebuttable presumption of
the qualified mortgage. So it is not a new concept, and
institutions are already doing those calculations.
DTI--they are still considering debt and income as required
under statute, so it is not precisely a DTI ratio necessarily--
Mr. Stivers. It is because of the change. It is a change.
Ms. Kraninger. It is a change.
Mr. Stivers. You take the DTI, safe harbor, add a
percentage, take it away. It is still considered. You look at
costs more than you are in today's--and it is a little more--it
is a change.
I want to ask you to think about how long that transition
will take for folks, that's all.
Ms. Kraninger. Absolutely.
Mr. Stivers. The next issue I wanted to bring up is online
security. With the pandemic, more people are doing everything
online. And according to the FBI, in 2019, victims lost over
$221 million to real estate scams and fraud, and that is based
only on crimes that were reported.
I have had individual constituents who had mortgage
closings where the entire proceeds of the closing have been
wired to different accounts through fake emails and scams.
And I am curious what the agency is doing to build
awareness on this massive consumer problem, and what you are
doing to help potentially address real estate fraud and scams,
and prevent them in the future?
Ms. Kraninger. The particular scheme that you mentioned is
one that we were aware of. I don't recall precisely when. It
has been at least a year-and-a-half, I feel like, so that is
something that we, right away, worked with industry on. We
actually, I believe, produced a video on that frankly, that
REALTORS were sending out to their customers close to closing
to make sure they are aware of that, make sure they know
precisely how they should be contacted and where they should be
sending closing money. So, that is a significant issue.
It highlights the need in general to make folks aware of
the frauds that are out there and certainly to use our
enforcement actions to go after fraudsters. I will say a lot of
those things, like those online frauds, are particularly hard
because they are--
Mr. Stivers. They use offshore accounts, they do lots of
other things. This happened to my constituent about 18 months
ago, and it is something I have become aware of, and I am
trying to build an awareness of, and I would ask you to
continue to build awareness.
We are talking about a quarter billion dollars of reported
real estate scams and fraud in 2019, and probably it is higher
today, and given that more things are moving online, I hope you
will continue to look after those consumers because they need
protection, and we are talking about in many cases, somebody's
biggest asset and the entire proceeds scammed from them.
Ms. Kraninger. You are absolutely right. I will say, the
Department of Justice, the Federal Trade Commission, all of us
are pretty engaged in this.
Mr. Stivers. Thank you, I yield back.
Chairwoman Waters. Thank you.
The gentleman from Connecticut, Mr. Himes, is now
recognized for 5 minutes.
Mr. Himes. Thank you, Madam Chairwoman, And Director
Kraninger, thanks very much for being with us today.
I would like to follow up on the question that Ms.
Velazquez was talking to you about, which is the revised payday
lending rule.
You commented to her that it was your opinion that the rule
promulgated under Director Cordray resulted in a lower
availability of credit, and I think you implied that the new
rule would, therefore, make credit more available.
I understand that, and if I can just frame my question--and
I think you agree with this framing--financial regulation is
hard because it is always a balance. And always, availability
of credit is on one side of the balance, and the safety of
consumers, somehow defined, is on the other side of that
balance.
So, I want you just to elaborate, please, for us--
presumably you did a lot of quantitative work, and we don't
have the time to get into all of the quantitative work, but I
am really interested, if you could give us a minute or two on
how the revision to the rule will provide how much more credit
out there at the cost of how many more people who may find
themselves in difficult financial straights?
Whether that is defined as personal bankruptcy or finding
themselves in a situation where debts spiral. I am interested
in what the quantification was of finding that revised balance
point.
Ms. Kraninger. And I appreciate you framing it as a balance
point, because I have often found in my public policy life that
that seems to be the spectrum we talk on. I certainly believe
it is my job to protect consumers while increasing availability
of credit. And I don't think it is an either/or.
I think with respect to this, I would offer a few other
things. The rulemaking itself did have a substantial and
dramatic impact on small-dollar credit availability, as its own
terms said. So, roughly 70 percent of branches would be closed
or those locations would be closed by the rules assessments.
But there were other factors to the effect of credit--
Mr. Himes. I'm sorry, 70 percent of locations of what?
Ms. Kraninger. Of the payday and title loan outlets, and so
the distance that people had in terms of availability.
But what I want to get to is also banks and credit unions
and others who were also due to other actions, but also
influenced by the rule, other guidance issued by regulators
that reduced their interest in engagement in this area. And so
I think it is not an either/or.
There are a couple of things that we are trying to do, and
one is, disclosure testing, to look at--for those individuals
who may be more vulnerable, is that something that will help?
There are clearly consumers who understand the product well.
There are consumers who pay within the term. The data that we
produced in the rule demonstrated that. There is a substantial
portion.
And there is a substantial portion who also defaulted on
the loan very early in the term, very early in the process.
That also demonstrates understanding of the product. So, how do
we support and help that last group?
Mr. Himes. Director, I'm sorry, I do want to get an answer
to my question. You partly answered it.
You said that your work indicated that 70 percent of payday
loan locations would be closed under the old rule. Thank you.
That is a very specific, checkable fact.
But before you go on to the other stuff you are doing, tell
me what the CFPB's analysis showed in terms of the increase
associated with bad outcomes, however defined, under the new
rule? Or is it your belief that there actually won't be an
increase in irresponsible borrowing or negative effects as a
result of the newly promulgated rule?
Ms. Kraninger. I would say the way that was--it was the
total lending under payday loans that was in that original
rulemaking, and I think that is where you start to get to a
challenge, because parsing out what was lost, you don't
understand what choice that individual consumer was making--
what outcome did they get that might have made it worse to
them, in terms of that loan, and what was the alternative they
had at the time?
And so that is something that, again, additional research
could probably bear out, but there is data in the rule that
gets to the point that you are making. I just don't have it at
my finger tips here.
Mr. Himes. I have one last question--I really would like to
understand. I really do believe there is a balance here, and I
really would like to hear from you as to kind of what the
implications are if this form of credit is more available, how
many more people get themselves in trouble with it?
But in my very short remaining time, I am having a hard
time--this gets pretty technical, but basically, the revised
rule eliminates the necessity for a payday lender or other
lender to come to a conclusion that there is a reasonable
ability to pay on the part of the borrower. And just for the
people watching at home, why does that make any sense at all?
Why shouldn't a lender undertake a very basic process to
determine that there is a reasonable ability to repay?
Ms. Kraninger. Madam Chairwoman, I know time is out, so I
can--
Chairwoman Waters. The gentleman's time has expired. Could
you please respond to the gentleman in writing?
Ms. Kraninger. Yes, certainly.
Chairwoman Waters. Thank you, Mr. Himes. She will respond
to you in writing.
The gentleman from Kentucky, Mr. Barr, is recognized for 5
minutes.
Mr. Barr. Thank you, Madam Chairwoman, and welcome back to
the committee, Director Kraninger.
Thanks also for your work to give consumers access to fair,
transparent, and competitive markets by focusing your work on
clarifying the rules of the road.
I do think giving consumers access to competitive markets
and clear rules of the road is, by definition, consumer
protection, and because of that good work, I certainly hope
this is not your last time in front of this committee.
Last July, in my capacity as the ranking member of the
Oversight and Investigations Subcommittee, I wrote to the
Inspector General of the Federal Reserve asking for details
about how the Fed reviews the Bureau's budget request prior to
approval. This week the Fed IG published its report. This is
it. This is the report--I think you have probably seen it--in
response to my letter.
The report and the ensuing briefing with my staff confirmed
what I initially suspected, which is that it is more or less a
rubber stamp. The Fed only reviews whether the request is
within the statutorily-mandated cap. If the request is under
the cap, the Fed approves the request. There is no back-and-
forth between the Bureau and the Fed. There is no discussion of
any line item. It is just a version of a blank check.
And given the fact that Dodd-Frank gave the Bureau
extraordinary powers--rulemaking, enforcement, adjudicatory
powers, including the authority to conduct investigations,
issue subpoenas, civil investigative demands, initiate
administrative adjudications, prosecute civil actions in
Federal court, and issue binding decisions in administrative
proceedings--
And given the fact that the Bureau can seek restitution,
disgorgement, injunctive relief, and significant civil
penalties for violations of 19 Federal statutes under its
purview, it is troubling that the Bureau's budget and funding
process lacks any meaningful external oversight.
Of course, the Supreme Court, as many of my colleagues have
noted here today, recently held that the Dodd-Frank law
violated the separation of powers, concluding that the Bureau's
structure, limiting the President's power to remove the
Bureau's single Director, is unconstitutional.
In my view, this decision properly vindicates the
President's power under Article II to supervise and, if
necessary, remove those who exercise the President's authority
on his behalf.
The Court's decision holds that the Bureau must be
accountable to the President, but I would argue that the Bureau
should also be accountable to Congress. And the Supreme Court
recognized this in its opinion, noting that the lack of
accountability is alarming.
And the majority opinion said this, ``The CFPB's receipt of
funds outside the appropriations process further aggravates the
agency's threat to Presidential control.''
So, there is clearly a lack of accountability at the Fed,
and as you know, I have been a frequent and vocal critic of
this lack of transparency and accountability in the Bureau's
spending. I have a bill, the Taking Account of Bureaucrats'
Spending Act (TABS Act), which would place the Bureau under the
congressional appropriations process.
Unfortunately, my colleagues in the Majority refuse to
consider this common-sense measure. But I want to ask you,
Director Kraninger, do you believe that subjecting the Bureau
to the congressional appropriations process would enhance
accountability and fix this lack of external check, and would
it in any way diminish your ability, or the Bureau's ability,
to protect consumers?
Ms. Kraninger. Congressman, I certainly appreciate where
you are coming from in asking this. I respectfully defer to
Congress on determining how best to operate this. I do take
seriously, of course, the internal controls that I put in place
in our budget process and I believe I am accountable for the
fund, but--
Mr. Barr. And the IG recognized that good work, by the way.
The IG recognizes that good work, and that is encouraging. I
just think that we shouldn't leave it just to the agency and
your leadership. We, as representatives of the American people,
owe it to the taxpayers, I think, to also hold the Bureau
accountable as well.
Let me ask one final question also about the QM rule and
the change to the loan definition, the QM loan definition. Can
you detail what impacts the rule might have on the portfolio
lending market and how might the changes proposed help
struggling borrowers especially during this time?
Ms. Kraninger. Certainly, providing that certainty with
respect to the Patch replacement is part of what we think will
be helpful coming out of--hopefully, coming out of the
pandemic.
In addition, in terms of helping struggling borrowers, we
did take into account and ask about how this time period should
be treated in terms of that consideration and verification of
debt and income for borrowers who may have experienced a
hardship. So, that is also something that will be part of the
ultimate rule, to address that issue that you raised.
Mr. Barr. Thanks for your testimony and your work, and I
yield back.
Chairwoman Waters. Thank you. The gentleman from
California, Mr. Vargas, is recognized for 5 minutes.
Mr. Vargas. Thank you very much, Madam Chairwoman, and
thank you for holding this hearing. I appreciate it very much.
I also want to thank the Director for being here. Thank you
very much, Director.
You did say earlier that it would be nice to take the
political temperature down a bit. I don't know if you witnessed
when Director Cordray was here, the yelling and screaming that
would normally come from this side, including some of my good
friends, who now find it to be political. It sounds like the
old Captain Renault in, Casablanca, ``Gambling, I am shocked.''
The truth of the matter is that in cases like this, we do
have different views, and I think that plays out. I thank God
that we have some people who have real tenacity, like our
Chair, who made sure that Dodd-Frank was in place.
One of the things that would be disastrous right now is if
the banks were failing. If we had all of what we have right now
because of the pandemic, and if our banks were crumbling and
failing at the same time, we would be falling into a deep
depression. So, I thank God that we put these regulations in. I
wasn't here at the time, but I am very thankful, and, of
course, oftentimes that comes because of the rub of politics.
I wasn't going to state that, but I think I had to because
of some of the comments that were made earlier about politics.
But I did foreshadow what I was going to ask you about, and
that is the issue of these networks and how to prevent fraud
and capture fraud.
As you know, the agencies have shown an alarming increase
in financial crime and exploitation during this pandemic. The
Financial Crimes Enforcement Network (FinCEN) has issued two
advisories since late May on the medical scams, imposter scams,
and money-mule schemes targeted at consumers.
The FBI has also recently stated in a hearing before the
Senate Judiciary Committee that the pandemic has also only
served to increase the number of stimulus, healthcare, bank,
elder and government fraud schemes.
The CFPB has ordered a solution to reduce the victimization
of elderly individuals. I am sure you would agree this solution
could also be used to prevent victimization of low-income
minority groups that tend to be vulnerable to these schemes as
well.
Could you comment on that? Because I do think that these
networks could be something that could become very helpful.
Ms. Kraninger. With respect to the elder fraud prevention
and response networks, a really fantastic groundswell at the
ground level between financial institutions, social service
providers, and law enforcement, sharing information about what
they are seeing, and absolutely I take your point.
I would say one of the things that we find, though, with
respect to older Americans, is the isolation that is further
compounded by the pandemic, which is why putting out additional
resources at this time on how to build and sustain those
networks has been a particularly valuable undertaking.
There are a lot of different fraud schemes, certainly, that
we are keeping an eye on, but that is one population in
particular that is further isolated by the pandemic.
Mr. Vargas. I agree, it is a very vulnerable population.
You also spoke, though, earlier, about having information in
Spanish, too. Obviously, language can be a real issue as well
in these fraud schemes.
In your opinion, have these networks been worthwhile? I
know the coordination and everything costs money to do, but
have they been effective?
Ms. Kraninger. Yes. We actually have done a couple of
reports around that, and we are certainly encouraging financial
institutions to continue to do the Suspicious Activity Reports
(SARs) to FinCEN, and to their partners, making sure partners
have access to that information that is happening too, and so
we are really rapidly increasing the--or I guess shortening the
time, I should say, for people to be made aware of the
different schemes and then be able to intervene.
Mr. Vargas. And lastly, I guess I would ask about
forbearance. I know a couple of my colleagues and friends have
asked about this already. Under the CARES Act, forbearance is
not supposed to be held against you. In fact, I know that now
over at the FHFA, the Director there has stated--and I have
language here from his note of 5/19/20--that they are going to
attempt to not have this be a negative if you are going to
refinance or buy another house, if you are in forbearance
because of the great interest rates at the moment.
But again, I would ask you to take a look at this, because
this is an extraordinary moment in our history, and a lot of
people who could normally pay their mortgage are in trouble
because of the pandemic, and hopefully we can get over this,
and get back to normal.
But anyway, I would ask you, as my colleagues did, to
follow up on that. And again, I thank you for being here.
Thank you, Madam Chairwoman. I yield back.
Chairwoman Waters. The gentleman from Michigan, Mr.
Huizenga is recognized for 5 minutes.
Mr. Huizenga. Thank you, Madam Chairwoman. I appreciate
that. And it is good to have you here today, Director, and I
appreciate your time.
I would remind my colleague and friend--and he is a
friend--from California, that there are a number of us who have
been amazingly consistent in our belief that the structure of
the CFPB needs to be a commission. And whether it was the Duffy
legislation in previous Congresses or the TABS Act, as my
colleague, Mr. Barr, was talking about, I do believe that this
is the right way to organize the CFPB.
And Director, I guess I will ask a question along the lines
of what my colleague, Mr. Barr, was asking about--refinement. I
understand you don't want to get into the, ``what should
Congress do'' question, but let me ask this: Do you believe
that somehow the ability to protect consumers would be
diminished under a commission structure, and would consumer
protections be lessened under such a commission approach?
Ms. Kraninger. Congressman, I will certainly say there are
other organizations that have commissions, and that is
something that I am sure could be looked at or compared. I will
say at this point, it is a similar answer to you--I know it's
not fully satisfying--that I will allow you all to make that
call yourselves, and I will certainly take any action that
Congress directs us to take by law.
Mr. Huizenga. I fully understand that. I guess that is one
of our jobs, is to ask those types of questions, to find out
whether those involved and engaged believe that there would be
a diminished ability for them to do their jobs. And the nature
of my question is really more along those lines, trying to make
sure that based on your professional experience and your
opinion, whether you could effectively do your job with a
different structure.
Let's say Congress decided to move away from the
dictatorial structure that they currently have and decided to
make it that every single decision you made would be subject to
a vote of Congress. I don't think that would be a wise move. I
would assume professionally, you would maybe discourage that.
I am reminded that, in the previous Administration,
Director Cordray had no problem sharing his opinion on the idea
of whether or not there should be a commission structure.
So, I will give you one last shot at that, if you care to
expand. Do you think that you could make that type of structure
work or--
Ms. Kraninger. Congressman, how about I tackle it this way?
Certainly, if I see legislation that I think would be
detrimental to the agency in terms of a miss, and it is
progressing, I will certainly let you know my views. And I
welcome the action on structure by Congress, generally
speaking, and I do believe that Congress would come to a good
conclusion on that.
Mr. Huizenga. Great, okay. That is helpful. And unlike the
Chair, I guess, I hope this isn't your last appearance before
this committee.
Let's move on to credit reporting and debt collection
here--and sorry, I don't see the clock right in front of me, so
I will try to move quickly. We know, and I think there was
[inaudible] In the CARES Act about [inaudible]. But we know
that that may be a temporary fix, but what might [inaudible]
Long-term [inaudible]. Could that adversely affect consumers?
Ms. Kraninger. Congressman, I think you were asking about
credit reporting, but you did cut in and out. So if there is a
specific question, I know we don't have a lot of time left.
Mr. Huizenga. Okay. So, what type of negative effect might
there be on credit for consumers if there is not accurate
credit reporting that is allowed at all?
I believe that there is a proper time and is a proper time
under the CARES Act to suspend that, but if this becomes a
long-term solution, which I know some of my friends on the
other side believe ought to happen, that there should never be
any sort of actual, accurate credit report, and I am curious
about the negative effects?
Ms. Kraninger. Yes. Accuracy in the system is hugely
important. I would at least agree with that, and I know--
Chairwoman Waters. The gentleman's time has expired.
The gentleman from Florida, Mr. Lawson, is recognized for 5
minutes.
Mr. Lawson. Thank you very much, Madam Chairwoman, and to
you, Madam Chairwoman and Ranking Member McHenry, I appreciate
you having this hearing. My question centers around student
lons, because I have so many students in my area. As you know,
the CARES Act provides student loan relief that includes
suspending payments, interest, and collection of the
government-held, Federal student loans from, I think March of
2019, through September 3, 2020.
I am especially concerned about how credit reporting
bureaus are not complying with the Federal coronavirus relief
requirements under the CARES Act. Some student loans servicers
appear to be reporting the student loans and the language in
nonpayment status to national credit bureaus.
On May 20th, students loan borrowers filed a class action
lawsuit against Great Lakes and the major credit bureaus for
their erroneous credit reporting.
Director, what are you doing to ensure that credit
reporting bureaus and the lenders that furnish data are
complying with the CARES Act, and holding accountable the
companies that do not?
Ms. Kraninger. Congressman, thank you. It is an important
issue with respect to credit reporting agencies and the
furnishers that, of course, provide the data to the credit
reporting agencies. And so, we are actively engaged in ongoing
oversight over FCRA compliance, with respect to accuracy and
dispute resolution, and the CARES Act requirement is certainly
an overlay of that.
One thing we are doing under the pandemic is a prioritized
assessment, which is a kind of special exam, going in and
looking at what is happening right now. So, we are going into
furnishers, and looking at their compliance overall, in all
product areas. We did an assessment of risk. We recognized that
the student lending space, given CARES Act requirements, was an
area that should be looked at, and so we are going in and
looking at the furnishing side.
We are also talking to the credit reporting agencies about
how they are engaging on their side as well to make sure that
there is compliance happening.
With respect to, I think, Great Lakes, there were some
mistakes made that were caught very quickly, both through
complaints to the Bureau and things that consumer advocates and
financial institutions noticed. And there was a very quick
resolution, both in how scoring happened and the data that was
provided by the furnishers. So, that was something that was
addressed very quickly.
And I think it is a good example of how quickly we can act
when we see mistakes are made.
Mr. Lawson. That is great. What is the status of that
lawsuit at this point? Or is it too early to make any comments
on it?
Ms. Kraninger. I'm sorry, Congressman. Was there a question
there?
Mr. Lawson. Yes. I was trying to see if you could elaborate
on the status of the lawsuit at this time, or is it too early
to comment on it?
Ms. Kraninger. Oh, understood. The Bureau is not a party to
that lawsuit, so I am aware of it, but I do not know the status
of it.
Mr. Lawson. Okay.
With that, Madam Chairwoman, I yield back.
Chairwoman Waters. Thank you very much.
The gentleman from Colorado, Mr. Tipton, is recognized for
5 minutes.
Mr. Tipton. Thank you, Madam Chairwoman. And Director
Kraninger, thanks for being here, and I hope you have an
opportunity to do it 8 more times, if you so choose.
We recently had--and this is a little follow-up to Mr.
Huizenga's questions--Secretary Mnuchin was here before the
committee a few weeks ago, and he had noted that the credit
reporting agencies, in order to be able to function properly,
need to be able to maintain a complete profile of the
consumers' credit history, especially during this pandemic.
Some proposed legislation that we have would suspend
negative consumer credit reports during the COVID-19 pandemic
and any other future disaster for a period of 120 days, or
until the emergency ends. My view is, this would weaken, not
increase, access to credit, as lenders would lose confidence in
the accuracy of the information before them.
And I guess my question is, do you agree with Secretary
Mnuchin, that it is important to be able to maintain complete
credit profiles and not alter credit-related data during this
pandemic?
Ms. Kraninger. Let me answer it this way, Congressman, the
Fair Credit Reporting Act actually holds accuracy in the system
as a high priority, and the Bureau is tasked with compliance
with those FCRA requirements around accuracy in the system. It
is hugely important.
I appreciate why you are raising the question, because
there is a concern with respect to the system itself. If those
lenders who are seeking to do a creditworthiness assessment,
can't actually access information, or trust the system to give
them good information, then there is a problem.
But we also have a situation where we are looking for
alternate data and other sources of information that is going
to give a more robust credit picture of a creditworthy
borrower. And so, there are a lot of discussions around what
happens in the credit reporting system. I clearly recognize
that as well.
And certainly with respect to making sure that those
minority communities as well, that individuals actually have
information in the credit reporting system that will enable
them to get credit if they are creditworthy.
Mr. Tipton. Great. Thank you.
As we previously discussed, responsible debt collection is
an important part of maintaining access to credit for
consumers, and ensuring good access to credit is more important
now than ever, especially in rural places like the ones I
represent.
But the technology has changed dramatically since the last
time the debt collection rules were updated, and the CFPB has
proposed common-sense reforms, allowing mandatory disclosures
in the body of an email, to ensure that consumers have access
to important information in a timely manner.
But communication is a two-way street, and both collectors
and consumers should be able to communicate with one another
electronically, especially during this pandemic.
My question is, would the Bureau consider allowing an
exemption from the Electronic Signatures in Global and National
Commerce Act (E-Sign Act) requirements for validation notices
for companies who are otherwise complying with the Fair Debt
Collection Practices Act (FDCPA) requirements and rules?
Ms. Kraninger. Congressman, we have recognized some of the
challenges with the E-Sign Act requirements, pursuant to the
pandemic and did provide some flexibility. I am not aware of a
concern or a conflict with FDCPA or other challenges with
respect to that.
But I can tell you that our debt collection Notice of
Proposed Rulemaking does address electronic communications, in
addition to, obviously, continuing to preclude harassing
communication, trying to facilitate that two-way communication
that you talked about is important, setting some bright-line
rules for it, and enabling individuals to communicate the way
they want to communicate, whether that is receiving texts or
receiving emails, rather than getting phone calls, for example.
So those things are all addressed in the rule, and we are
poring through comments right now to think through the right
approach going forward.
Mr. Tipton. Okay. Thank you. And Mr. Stivers brought up
some issues in regards to technology and fraud. Could you maybe
expand a little bit on the financial technology and how it has
changed during the pandemic, and how you are monitoring the
regulatory environment around the technology to make sure that
consumers can safely access the important tools?
Ms. Kraninger. That is critically important. Clearly, we
have a number of processes that contemplated in-person
interactions or expect that, and we have done a lot to address
it in terms of appraisal processes and other processes in terms
of, particularly, mortgage loans and mortgage origination. So,
it is something that we are looking at.
The Bureau also is engaged in technology sprints, to think
about, again, how do we promote electronic disclosure? But the
point that you raise is a real one, and that Congressman
Stivers did, that you have to take into account fraud and other
cybersecurity issues, privacy issues, with that data.
Mr. Tipton. Thank you. I yield back.
Chairwoman Waters. Thank you.
The gentleman from Texas, Mr. Gonzalez, is recognized for 5
minutes.
Mr. Gonzalez of Texas. Thank you.
And thank you, Director Kraninger, for being here before
us.
Our nation has a patchwork of mortgage protections in
place, and this fact is reflected on the Consumer Financial
Protection Bureau website, which highlights that we have one
system in place for at least the federally-backed mortgages.
And up until now, we have relied on the tendency of non-
federally-backed loans to simply follow along the path.
While many lenders have voluntarily given similar relief as
the federally-backed programs, consumers are not protected in
this lending space for COVID-induced foreclosures and financial
problems.
First, how is the Consumer Financial Protection Bureau
helping consumers with non-federally-backed mortgages, and do
you have the tools and authority that you need to help these
folks?
Ms. Kraninger. Thank you, Congressman. There are obviously
distinctions there with respect to CARES Act treatment. One
thing that we did very early on in the pandemic was to provide
clear direction to all of the entities subject to our
responsibility, our regulated entities, that their first
responsibility is accommodation of customers during this time,
consistent with safety and soundness and compliance with
consumer protection law.
So, that does send the strong signal to all those that are
regulated, including those entities that are servicing non-
federally-backed loans, about those requirements.
And I would say, generally speaking, the information that
we have is that the right steps are being taken there, but we
also have the backstop of our supervision and enforcement
activities to ensure that that is the case and that they are
complying with the law.
Mr. Gonzalez of Texas. Okay. Changing the subject just for
a second to landlords, what can a landlord do who is not
getting their rent but has eviction problems, and foreclosure
is looming? How are they getting help, especially smaller
landlords?
Ms. Kraninger. I will say, Congressman, that the landlord-
tenant issues are a little bit outside of our purview.
We took on the responsibility, recognizing the need for one
Federal Government website to provide that avenue for
landlords, tenants, borrowers, and everyone, to get information
from one site.
So, we do have CFPB.gov/housing, but it is really HUD and a
few other dynamics there in the States that have the avenues
for and resources for folks to follow. But we were trying to be
at least a conduit, as one place to go for that information, so
we are housing that information.
Mr. Gonzalez of Texas. Yes. That is the concern,
particularly for smaller landlords.
Do you feel like the Home Mortgage Disclosure Act, which
requires many financial institutions to maintain, report, and
publicly disclose loan-level information about mortgages, is
useful in detecting discrimination in the marketplace?
Ms. Kraninger. That is one of the purposes of the Home
Mortgage Disclosure Act. Certainly, the collection of that
information does provide transparency to the marketplace and to
the public and is useful to agencies. We do use that
information on a regular basis to engage in fair lending
analysis and to understand what is happening in the
marketplace.
Mr. Gonzalez of Texas. Are there improvements that you
believe could be made?
Ms. Kraninger. We are continuing to improve the way that we
make that data available. I have also looked to work with our
partner agencies around how we do the fair lending analysis.
Each agency does it slightly differently, and frankly, I
would like to better understand that. So, we have been trying
to get the economists together from each of the agencies to see
how they are doing that analysis, frankly to help also
institutions, because many of them do the analysis themselves,
to also ensure compliance with the law.
I think there is a real opportunity to look at how we
analyze that data, thinking about it, sharing it, understanding
what it means, and understanding what we are looking for. So,
that is a dialogue that I have sought to further.
Mr. Gonzalez of Texas. Thank you, and we look forward to
working with you on that.
And I yield back.
Chairwoman Waters. Thank you. The gentleman from Texas, Mr.
Williams, is recognized for 5 minutes.
Mr. Williams. Thank you, Madam Chairwoman, and thank you,
Director, for being here today. And before I begin my
questions, I just want to echo what we have heard quite a bit
today about the Supreme Court and their decision that said the
current structure of the CFPB is unconstitutional.
I think you have been a 100 percent improvement over the
first Director, but I still think it would benefit everyone if
there was greater oversight and less power concentrated in one
individual.
Now, Director, the economic recovery from the coronavirus
is going to be driven by small businesses, Main Street America,
opening the doors and hiring back workers. These businesses are
going to need to adjust their storefronts and business models
to make the necessary changes to make this happen, and to
satisfy State and Federal safety guidelines.
The ability of a business to access capital will be
critical during this time. The CFPB is under a settlement
agreement to adhere to a predetermined timeline to issue a rule
regarding small business data collection in the course of Dodd-
Frank Section 1071. As I have mentioned to you before--you and
I have talked about this--I have serious concerns with the
effect that this rule will have on the cost of capital for
small businesses.
So, could you please give us an update, a timeline, on the
implementation of this rule, and tell us how you will ensure
that these actions will not inhibit small businesses and Main
Street from getting loans?
Ms. Kraninger. Yes, Congressman, I absolutely understand
your concerns and frankly share some of them as well. I will
say that Section 1071, of course, is a mandatory rulemaking in
the Dodd-Frank Act. Even in my confirmation process, I pledged
to make that a priority because it is a required rulemaking.
So, we are engaged in that effort. We are issuing a Small
Business Regulatory Enforcement Fairness Act (SBREFA) outline
by September 15th. That is the small business regulatory relief
process where we sit down with a panel of affected small
businesses, with the Small Business Administration (SBA), and
with the Office of Management and Budget (OMB), and go through
that outline and get comments.
It is a kind of early stage in the rulemaking process. So,
we will have a draft proposal out by September 15th, and this
fall, we will really engage in that process of discussion of
that draft.
And then, the next step after that would be a Notice of
Proposed Rulemaking, but we have not come up with any firm
timeline for that.
Mr. Williams. Thank you. On June 18th, the Bureau announced
a Pilot Advisory Opinion Program that would allow businesses to
try new products and services without fearing that the CFPB
would come down with some enforcement actions for trying
something new.
This is a welcome step towards providing more certainty to
the private sector, as they are often fearful that they will be
targeted by your agency.
So, Director, how have you been publicizing this pilot
program to industry participants, and can you give us an update
on how many people have submitted requests to be a part of this
program?
Ms. Kraninger. Congressman, I am sorry. Which pilot
program?
Mr. Williams. It is called the Pilot Advisory Opinion
Program.
Ms. Kraninger. Oh, the advisory opinion--absolutely. I
wanted to make sure I had the right pilot program.
Mr. Williams. Sorry.
Ms. Kraninger. That's okay.
The Advisory Opinion Program is out for comment right now.
So it will go final. We are just--when we collect data from an
entity, we need to actually do the Paperwork Reduction Act.
So needless to say, we launched the pilot, but we expect it
to be fully going soon. It is an interpreted rule that we would
be issuing. We have not gotten any applications yet, but any
entity that is seeking an interpretation or additional
information about how to comply, because they have a
particularly challenging issue.
What happened prior to this program is, they would send us
an email through our site, and we would send them back an
answer. Right now, though, I think that process should be
transparent.
I think all of the entities that are equally situated
should actually benefit from getting that information, and it
should happen formally from the agency and not just informally
through trade groups or otherwise when someone actually gets
that useful piece of paper.
So, that is what we are hoping for with the Advisory
Opinion Program.
Mr. Williams. Thank you.
I am in the credit business. And when this whole pandemic
began, I said I did not want to see a person's credit score,
like we saw in 2008, ruined as a result of the pandemic and the
mandated government shutdown.
As you know, the CARES Act--and we have talked about this--
included provisions for lenders to work with their customers
who make changes to their credit accommodations, such as
adjusting or delaying certain payment agreements, while at the
same time ensuring the integrity of the credit reporting system
is kept intact, which is very important.
Last week, TransUnion released a report that showed
delinquencies decreased in June on a month-to-month basis,
which makes it seem that people are still managing their
finances and debt with responsibility throughout this pandemic
and that the CARES Act provisions have been working.
So quickly, Director, does this data point released by
TransUnion align with what your Bureau has seen?
Ms. Kraninger. Yes, it does.
Mr. Williams. Thank you.
I yield back.
Chairwoman Waters. Thank you.
The gentlewoman from Michigan, Ms. Tlaib, is recognized for
5 minutes.
Ms. Tlaib. Thank you, Madam Chairwoman. And thank you,
Director Kraninger, for being here. I appreciate your time. I
am actually in the people's business. That is what I do, is
help people. And I know during this pandemic, your Bureau
received quite a number of complaints, I think 42,000, a little
bit over 42,000 in April, and a little over 44,000 complaints
in May.
I want to talk to you a little bit about this. I know it is
about a 60-percent increase, Director. So I just want to know
if my resident is calling and, of course, they qualify for a
forbearance, they are calling over to the mortgage company, and
they call you all, what is the process that they go through to
get your help and your advocacy to make sure that this mortgage
servicer is complying?
Ms. Kraninger. That complaint is processed immediately, and
sent to the relevant company, and we do a little bit of quality
control on that in terms of making sure it is something that
can be responded to, but that is sent to the company. And I did
get a little bit of an update from a prior question about the
average response time. Our average response time of the
consumer getting an answer from the company is 9 days. So, that
is what is generally happening in terms of the issue they are
raising.
Ms. Tlaib. That is great in some cases. Do you know what
the resolutions are? Are they just contacting via email, or are
they resolving the issue? Because what I am hearing from
residents is they qualify for forbearance, but the mortgage
servicers are kind of giving them the runaround.
Ms. Kraninger. It is a response. We do quality control and
the responses back. We also, particularly with respect to
mortgage servicers and the CARES Act forbearance and the issues
that are happening right now, we are looking at all of those to
see if there is an issue with a particular servicer.
Ms. Tlaib. --Give me an example of one that you all
resolved, and it doesn't have to be a mortgage. I know the next
number-one issue folks call about is credit cards, and then
issues with their consumer report or credit report.
Ms. Kraninger. The one that has gotten a lot of attention,
and it certainly got my attention, was in late March and early
April, we did get a significant number of complaints submitted
about payment of mortgage payments, and around the forbearance
option that was given to servicers, and when they would have to
pay. Because the initial information from servicers was, we put
you in 90-day forbearance, and you are going to have to pay
that full 90-day deferral after the 90 days, because that is
the way the process tends to work in normal times. So, that
concern came through loud and clear. And people said, ``If I
can't pay now, I am sure not going to be able to pay in 90
days.''
That is something that we took very seriously. I talked to
FHFA, in particular, but HUD, all of us came together as
Federal partners and said, that really doesn't make sense. That
resulted in some guidance from them, but also an interim final
rule adjusting our mortgage servicing rules to make clear that
the option that can be offered is deferred to the end of the
mortgage period.
So, that is to the end of the loan, a lump sum payment at
the end. And that was, I think, a demonstration of how this can
work and how it should work.
Ms. Tlaib. And, Director, in that case, that service, it
was just that mortgage servicer, it wasn't any other companies,
they just tried to find--so we have to actually school them and
get the actual accurate guidance that that is not how they have
to do it? What happens to them when they do that? What do you
do? Smack them on the hand? What exactly happens? My worry is,
what else are they doing that, if they can get away with it, or
maybe we don't find out about it, some people don't even know
to call you, your Bureau. I am just curious what happens in
that case, do they get fined or something?
Ms. Kraninger. Absolutely. If they are not complying with
the law, they can have to pay restitution. And there are other
outcomes.
Also, the example I gave you is a good example of where
they were doing what they should do, but it was not the outcome
that any of us would want.
Ms. Tlaib. Yes.
Ms. Kraninger. I think there are a lot of examples across-
the-board. But making sure we address servicers who are not
taking compliant action with the law is important, too.
Ms. Tlaib. And my last question is, do you work with other
departments? One of the things I have noticed is if there is a
huge--do you all ask or see a pattern of complaints maybe from
communities of color? And do you work with the civil rights
division within the Department of Justice if you see a pattern
of discrimination based on someone's ethnic background, faith,
or things like that? But, primarily, I would say, there is a
huge impact on the African-American community and people of
color, and I am wondering what your Bureau is doing to work
with other agencies to push back on that?
Ms. Kraninger. Definitely, if we see a pattern or practice
there, we have our own authority, obviously, to act under ECOA,
but we also do make referrals to DOJ and work with them
closely.
Ms. Tlaib. Thank you, Madam Chairwoman.
Chairwoman Waters. Thank you. The gentleman from Arkansas,
Mr. Hill, is recognized for 5 minutes.
Mr. Hill. Thank you, Madam Chairwoman. I appreciate the
opportunity to have this hearing.
Director Kraninger, I want to commend you for leading the
Agency during this very difficult time of COVID-19. Given the
current economy, many of us in Arkansas, many of our families
have been really navigating a tough financial space. I want to
thank you and the Agency for doing a number of good updates and
adding helpful information to your website. We have been using
these newsletters you send out several times a week on the
COVID-19 crisis, and the materials have been very beneficial to
consumers. So, please thank your team for the extra efforts to
communicate.
I want to touch, Director, on the topic that Dr. Foster
spent quite a bit of time on, which is your revisions for the
qualified mortgage rule. You walked through, I think, the
background quite clearly, and a lot of us are concerned about,
will this rule approach that you are taking, that you put out
for comment, lead us down a road towards weaker credit
underwriting by the banks or by the Federal entities that
insure or purchase those loans?
You did a good job answering these questions, so I won't
belabor that point, but the DTI is just one of many
considerations to be taken in underwriting. But since that is
true, what is your philosophy--all bankers take into account a
variety of compensating factors when underwriting a loan. Why
is what you viewed that it is necessary to replace the DTI
definition with something that appears pretty open-ended?
Ms. Kraninger. I think, Congressman, and I appreciate your
interest in this important marketplace, clearly, for mortgages
for many Americans, the point that you just made is precisely
why we are moving from DTI solely to a pricing approach,
because it really does bring in the more holistic
considerations of the borrower's creditworthiness. And,
certainly, you would expect and want responsible lenders to be
pricing in the risk that they see, and that is a different
approach than a hard debt-to-income ratio that, frankly, at 43
percent, but, frankly, as we looked at, what would be an
acceptable DTI threshold if you were going to stay at that? And
we, in fact, asked that question in the rulemaking.
But clearly, at 43 percent, we know we are keeping a lot of
creditworthy borrowers and, particularly, borrowers of color
out of the qualified mortgage market.
Mr. Hill. Thank you for that. Do you have any concern that
granting a safe harbor to underwriting standards of third-party
guidelines could be too open-ended? Are you concerned about
that?
Ms. Kraninger. No, it isn't just third party--arbitrarily,
it is third-party guidelines that we would have to actually
recognize. So, there is that check in the process.
Mr. Hill. And you would approve those guidelines?
Ms. Kraninger. Yes.
Mr. Hill. Okay.
Ms. Kraninger. That is what is proposed.
Mr. Hill. Let me switch subjects and talk about the
difference between the 150-basis points pricing range that you
considered, and, yet, for the safe harbor, you think it should
be 200 points for the QM. Don't you think that spread could do
two things: One, create a potential for misunderstanding in
lawsuits, and that it would actually deter private sector
players from making the loan, and could they even be shifted
more to a government-type loan, such as an FHA loan? Are you
concerned about that spread?
Ms. Kraninger. Ccertainly, it is a proposal, Congressman,
so we absolutely won't comment on that to the extent that
anyone in the public has data that would demonstrate a greater
risk. We outlined why we chose that threshold, and that it is
not too different from the thresholds that are already
recognized in the current QM. Because there is a pricing
threshold differential between the safe harbor and the rebuttal
presumption now. So, the APR APOR spread is something that is
in the current system. But, again, we looked closely at
performance over the last many years. That data is in the rule,
and we welcome comments on alternate concepts or risks that
might be introduced here.
Mr. Hill. Thank you, Madam Chairwoman. I yield back.
Chairwoman Waters. Thank you. The gentlewoman from Iowa,
Mrs. Axne, is recognized for 5 minutes.
Mrs. Axne. Thank you, Madam Chairwoman. And thank you,
Director Kraninger, for being here. I would love to start with
some positive news by thanking you and your staff for taking
some time to give us some feedback on a bill I introduced a
couple of months ago to create a working group with the CFPB
and the SEC to help protect consumers and investors from fraud.
So, thank you for that. I do hope we can move forward to get
your two agencies working together to prevent Americans from
being taken advantage of.
And I also appreciate the website you set up with
information on the prepaid debit cards that a lot Americans
received. I wish that had been communicated earlier, and then
my colleagues and I may not have had to push the Treasury to
make those improvements. But thank you for those two pieces.
I want to go back to the last time you were here. You had
just signed an information-sharing agreement with the
Department of Education on student loan servicers, marking the
first time in more than 2 years that that information was
properly being shared. But 2 years is far too long to go
without full compliance information that we need to understand
how the $1.6 trillion of student loan debt is being handled. I
am glad that part is resolved, but it should have been done
much sooner. However, not only did the agreement not restore
the supervisory memorandum of understanding (MOU), the last
time you were here, you couldn't even tell me when that would
be done.
In September, just a month from now, we will be at 3 years
without the Consumer Financial Protection Bureau properly
supervising student loan servicers for the 40 million Americans
with these loans.
So, I am going to ask you again: When are regular exams of
student loan servicers going to resume?
Ms. Kraninger. Congresswoman, I am happy to be able to tell
you that they have already resumed. We started in that--that
was the lag time, frankly, between the February House hearing
and the March Senate hearing. I managed to get that done in
February, so that the supervisory exams commenced, and there
are no barriers to us doing the supervision work that we need
to do in the student loan space. We are working very closely
with the Department of Education so they can continue to do
their contractual oversight, but we are pursuing our own
information requests, we are getting that information, and we
are engaging in those exams.
Mrs. Axne. Perfect. From what I have heard, though, I
believe that there has been one exam done, and that was in
March. Is that correct?
Ms. Kraninger. Congresswoman, we do not stipulate what
exams are happening and in what product areas. I made the
exception by at least trying to show Congress, recognizing the
great interest in this--
Mrs. Axne. I appreciate that, but have you done any exams
since that March exam?
Ms. Kraninger. There are no barriers in our way. We are
doing all of the exams that we would like to do. That is what I
can say at this point in time. And I know that is not
satisfactory to you, but we don't talk about the number of
exams that we do in any given industry.
Mrs. Axne. I am going to take that as a no, because if you
can't tell me that you have more than one exam, and you won't
answer the question, I am assuming that is a no. I would like
the question answered, when will regular exams resume?
Ms. Kraninger. Congresswoman, I don't want to parse words
with you, but it is definitely not a no. We are engaged in
every exam that we need to be in the student loan space.
Mrs. Axne. How many exams have you had?
Ms. Kraninger. Again, that is not a publicly disclosed
number. It is not in any area except our total number of exams
conducted. We don't issue exam numbers publicly in each
industry.
Mrs. Axne. So, you don't issue it for each industry? How
then are we supposed to get the information that we need?
Ms. Kraninger. And we never have. So again, I am--
Mrs. Axne. That is certainly a problem that we are going to
have to figure out, because how are we going to make sure that
there is oversight of these 40 million loans that people in
this country need to have oversight of, if we can't get that
information, and you are not willing to tell me how many you
have done within this industry? That was the specific question.
Ms. Kraninger. I understand. It is not a publicly available
number. It is something that I--I think is appropriate given
the confidential nature of supervision. It's the same with the
number of investigations that we have ongoing in any industry;
we don't actually disclose that publicly, given the
confidential nature. Certainly, when it is public, we do have a
number of ways to do that, and I am absolutely looking at this.
But I am trying to tell you that it is not any obfuscation,
this is important, and we are engaged in every exam that we
need to be.
Mrs. Axne. Listen, from what I have been told, there has
been one examination. And I believe there should be around--
there are about 12 servicers, 10 to 12 that would need an
examination. So, I think we are failing the people in this
country right now. I yield back.
Ms. Kraninger. You were told there was one exam, because I
am the one who actually publicly released that there has been
at least one exam.
Mrs. Axne. We just went all through that, and now you just
said that there has been one exam. I yield back.
Chairwoman Waters. We will explore that a little bit
further, Mrs. Axne.
The gentleman from Minnesota, Mr. Emmer, is now recognized
for 5 minutes.
Mr. Emmer. Thank you, Madam Chairwoman. I appreciate the
opportunity. Thank you, Director Kraninger, for being here
today and for the great work you are doing. Unfortunately,
under the Obama Administration, Democrats created an agency
which is completely unaccountable to the American people.
Outcomes and oversight of the agency were, by no means,
transparent. We have also, unfortunately, faced unnecessarily
partisan attempts to reform the structure of the Bureau by
putting it on a budget and creating a bipartisan forum.
On a brief personal note, Director Kraninger, I want to
sincerely applaud you for being open and accessible to every
Member. My staff and others constantly praise your efforts to
be responsive to our requests for input and feedback. I know
this willingness to meet and discuss policy occurs across the
aisle as well, so I just wanted to take a moment to thank you
for your service.
I also appreciate Paul Watkins, and the work you are doing
to advance inclusion through Fintech innovations. This is one
of our top priorities at the committee, and the FinTech Task
Force. He didn't receive the most welcoming comments from the
Majority when he came before us. But advancing Fintech
innovation to help those in need should be a nonpartisan issue.
Now more than ever, families need to have access to options
to cover unexpected costs. For many, short-term lending can be
a lifeline in difficult times. Abuse cannot occur, but this
must remain an option. Your work to ensure that borrowers have
access to loans will increase competition and choice in the
marketplace at a time when it is so desperately needed.
Turning for a moment to ongoing litigation started by the
past Administration, Director Kraninger, I noticed that in your
budget request, there is no mention of the funds the Bureau
expends to continually pursue Cordray-era litigation. Can you
please speak to the cost of that ongoing litigation?
Ms. Kraninger. Certainly, the Bureau continues to engage in
litigation, both before and under my term, and also litigation
that Director Mulvaney approved at the time that he was
Director. There is a cost, obviously, as you noted, and we do
include in the budget lines for expert witnesses and document
production, and things like that. But I don't think,
Congressman, I can give you a specific delineation for which
Director signed off on which enforcement action, and what the
litigation costs have been. But, certainly, there are some
complex litigation cases that we are still involved in that are
costly, but I deem them necessary to continue,
Mr. Emmer. I would move to follow up with you outside of
the hearing on that.
Listen, I share the concerns of my colleague, French Hill,
and I also share the praise that Mr. Hill was giving you for
your work to update the qualified mortgage rules. But I do
share his concerns that he raised with you, and I am not going
to go over those again. I appreciate you being aware of them,
and appreciating the concerns.
And now that we have a definitive answer that CFPB's
leadership structure does violate the separation of powers, I
am curious about your plans regarding transparency and
accountability. Given these developments, and under your
leadership, where do you plan to take the CFPB?
Ms. Kraninger. Congressman, certainly since I was named and
testified before you all for the first time, that has been
something that is significantly important to me, given my
public service career. We are endeavoring to engage in that
transparent dialogue in every aspect of what we do. I would say
the Advisory Opinion Program that was recently launched is a
great example of that. Again, we are providing guidance or
essentially, interpretations to one entity that asks. But
through that advisory opinion process, we are making that
public, and we are providing that interpretive rule to
everyone, so that they can see what the rules of the road
actually are, and it is not just benefiting one entity, or who
that entity decides to share that with.
So that is one example. And certainly, our rulemaking
efforts as well, and I am trying to ensure that we are fully
transparent there.
Mr. Emmer. My colleague, Andy Barr, was asking about
congressional oversight of the budget. And I know you didn't
want to step into Congress' role. But could you answer the
question: Would congressional oversight of your budget inhibit
your ability to do the job as Director?
Ms. Kraninger. Congressman, I have endeavored not to get
into that. But I will certainly acknowledge that I was a long-
time appropriations staffer on both sides of the Hill.
Mr. Emmer. I am sure we will talk more. Thank you for your
time, Director. Madam Chairwoman, I yield back.
Chairwoman Waters. Thank you. We have now reached the end
of Group 1. The committee will stand in recess for 5 minutes
while the room is cleaned.
[recess]
Chairwoman Waters. The committee will come to order. The
gentlewoman from California, Ms. Porter, is recognized for 5
minutes.
Ms. Porter. Director Kraninger, would your proposal to
implement the Fair Debt Collection Practices Act prohibit
repeated calls from debt collectors?
Ms. Kraninger. Congresswoman, it is a proposal, and it did,
in fact, propose a limit on the number of calls that can be
received in a week.
Ms. Porter. Great. Good work. Would it prohibit some debt
collectors from making calls harassing families and friends?
Ms. Kraninger. Yes, harassment is already precluded by the
law.
Ms. Porter. So we can agree that harassing practices by
debt collectors are something that you can probably pretty
comfortably say falls within the jurisdiction of the Consumer
Financial Protection Bureau?
Ms. Kraninger. Yes.
Ms. Porter. Great. In the last 4 years, has the Bureau
taken any enforcement actions to punish medical debt collectors
that break the law and harass consumers?
Ms. Kraninger. We have taken public enforcement actions
against debt collectors. I am not sure about what kind of debt,
off the top of my head.
Ms. Porter. I am specifically asking about medical debt
collectors. Have you taken any enforcement actions against
medical debt collectors that would--
Ms. Kraninger. I understand the question, Congresswoman. I
do not have an answer for you off the top of my head. Many of
the debt collectors actually collect on behalf of multiple
clients, so it is very possible.
Ms. Porter. Okay. Let me answer that for you, the CFPB has
taken zero actions against medical debt collectors. So, if you
are just tuning into this hearing, here is what you have
missed. Nothing. You have missed nothing, because that is what
the CFPB has been doing to protect you against predatory
medical debt collection, even in the midst of a terrible
pandemic.
The CFPB, Ms. Kraninger, was created to protect consumers,
that is its mission, that and nothing else. Would you consider
it pro-consumer to not enforce the law to prevent consumers
from being illegally abused by debt collectors?
Ms. Kraninger. There were a lot of caveats to that
statement, Congresswoman. Let me just tell you that we are
committed to enforcing the law. I am committed to enforcing the
law. And we have taken action against a number of practices in
the debt collection space, including through our supervisory
effort. So, it is not just the public enforcement action that
you are citing, certainly, through supervision, we have issued
supervisory highlights that articulate what we have done in the
debt collection space, we provide information to consumers
about their expectations from debt collectors.
Ms. Porter. But, Ms. Kraninger, just to be clear, if I am a
medical debt collector, I can break the law under your CFPB,
and know that there is a zero percent--if the past predicts the
future, and we are looking back at the past 4 years, there is a
zero percent chance that I will get sued. How is that robustly
enforcing the consumer mission of the agency? You are not--
Ms. Kraninger. Congresswoman, I respectfully disagree with
you. There is certainly no guarantee that that is the case. And
I would endeavor to have you give us information on any debt
collectors that you are concerned about their practices. We
absolutely will follow up on them. It is a career decision to
open an investigation for CFPB, and I welcome any information
that you have on bad practices.
Ms. Porter. Ms. Kraninger, in your own database, in the
CFPB's own database, there are thousands of complaints about
medical debt collectors. Each time you come before this
committee, I appreciate that you welcome me to do your job for
you, but my job is to make sure you are doing it. I wanted to
ask you about something else. Are you familiar with Mike
Hodges, H-o-d-g-e-s?
Ms. Kraninger. No, I do not believe I am.
Ms. Porter. You aren't?
Ms. Kraninger. I don't believe so, no.
Ms. Porter. He is the CEO of Advanced Financial, one of the
country's largest retail lenders. Do you know how much he has
donated to the Trump campaign?
Ms. Kraninger. I have no idea, nor do I care.
Ms. Porter. So, you don't know anything about him. Let me
read you this quote. ``I have gone to the RNC and said, `Ronna,
I need your help on something.' She has been able to call over
to the White House and say, `Hey, we have one of our large
givers. They need an audience.' The White House has been
helpful on this particular rule we are working on right now.''
That was Mike Hodges in October 2019. Do you know what rule he
was talking about?
Chairwoman Waters. The gentlelady's time has expired.
The gentleman from Ohio, Mr. Davidson, is recognized for 5
minutes.
Mr. Davidson. Thank you, Madam Chairwoman. Director
Kraninger, I thank you and your team for all of the work you
are doing to protect America's consumers. I appreciate having
you on the job. And I want to say a special thanks to Paul
Watkins and the attention he has given not just to Fintech, but
to privacy.
In your proposed rulemaking on privacy--I guess I am
looking at the scope of privacy. You think about the key things
for consumer protections, their data and the use of it has
really defined at lot of this age, whether it is data breaches
or the way that any number of companies have monetized the
access to data that consumers have.
So, what is the scope that you are looking at and how do
you use that to protect consumers?
Ms. Kraninger. Absolutely, Congressman. I believe you are
referencing the Section 1033 policy discussion that we are
having now about consumer-authorized access to their own
financial data. It is a complex issue. Certainly, the Bureau
issued principles, and privacy and data security are part of
that consideration for how best to enable that data access to
consumers.
We had a symposium a few months ago. We just issued the
report out from that symposium and announced we would engage in
an advance notice of proposed rulemaking.
It is a complex area. There are a lot of issues to consider
that we are looking forward to getting more data on. But I
would say that there has been progress made in moving away from
screen scraping as the means by which many aggregators would
get consumers' financial data using their bank credentials and
having that be provided by the consumer.
That is something that is not a best practice certainly.
And so moving in the direction of APIs so that there is an
automated data transfer that can happen, and that there is more
control on both sides. But that is something that we are really
looking to having more extensive dialogue around, and that is
what we announced last week.
Mr. Davidson. When you think about the consumer protections
with respect to data, the work you are doing there is
critically important, in large measure because Congress has
failed to act. We don't have a comprehensive data protection
law for all consumer activities in the United States. We have a
somewhat outdated Gramm-Leach-Bliley Act that I think you
proposed to update. But there are lots of data houses that make
use of this, that aren't covered by Gramm-Leach-Bliley. So do
you feel like you have the authority or scope to do everything
that you would need to do to protect consumer data?
Ms. Kraninger. Congressman, you are raising an interesting
issue here with respect to not just 1033, but more globally. We
do have, I think, a number of issues around privacy and data
security with standards in California and Europe and what
happens in the United States. And there are many parts of this
that are outside the CFPB's purview. Specifically, the
safeguards in the Gramm-Leach-Bliley Act are outside the
authority of the CFPB, generally.
That is just to make you aware, but I am actually looking
at privacy and data security broadly, and may have some
requests of Congress or some suggestions around that. So, I am
looking at that internally, particularly when it comes to
credit reporting, because that is where we have at least a
little more of an engagement and a responsibility there,
particularly when it comes to our supervisory work.
But I will certainly get back to you on that and others; I
know it is of great interest. But with Section 1033, we do have
the ability to take this into account, as we think about how
best to move forward in that.
Mr. Davidson. Thank you very much for your attention to it.
There is really no excuse for Congress' failure to provide the
safeguard for all of America's consumers. And I hope that I can
collaborate broadly for a good bipartisan solution on privacy,
not just with respect to government, warrantless surveillance
and things like that, but consumer financial data. Our seniors
are especially vulnerable, and I appreciate the work you are
doing to safeguard our seniors.
And I think the last thing I would say is, as you have
conversations with the members of FSOC, with the Treasury and
everything else, most of America has their assets in U.S.
dollars. It is the store of value, it is the means of exchange.
And this idea that we can, in an unlimited way, just continue
to print money and not damage the value of all of the other
dollars is foolish. We have printed an awful lot of money. We
haven't truly borrowed it, because there is not a real lender.
And I just urge you to weigh in where you can on the
importance of protecting the U.S. dollar, store value, and
means of exchange. And for that purpose, my colleagues and I
recently formed the Sound Money Caucus. Thanks again for what
you do to protect America's consumers, and I yield back.
Chairwoman Waters. The gentleman from Illinois, Mr. Casten,
is recognized for 5 minutes.
Mr. Casten. Thank you, Madam Chairwoman. I think I probably
speak for all of us on this committee, saying that when I woke
up this morning, I was going through the news headlines, and I
was completely gobsmacked, for lack of a better word, to see
that the GDP has collapsed by almost 33 percent in the last
quarter. That is well outside the range of challenges that I
anticipated that I was going to be grappling with when I was
asked to serve on this committee. I suspect, Director
Kraninger, it is probably outside the scope of yours, as well.
The old Monty Python sketch says nobody plans for the Spanish
Inquisition, right?
I think all of us knew it was going to be difficult. We did
have leading indicators. Your own Bureau, in the case of
leading indicators, is unfortunately the case. When the economy
gets tight, unscrupulous actors emerge.
And as Congresswoman Tlaib was calling out, I think you saw
an all-time record for consumer complaints at the Department in
March, which was then topped in April. And a new record was set
in May, and a new record was set in June.
During the Q2, you are basically running about 50 percent
above historic complaints at the CFPB. In spite of that, you
have had 13 public enforcement actions this calendar year,
which basically puts you on track to finish about at the level
of 24 that you did last year, which, as The Wall Street Journal
had reported, is down 80 percent from the 2015 peak.
My question for you is, why has the CFPB decided against
taking enforcement actions, despite the rising complaints that
Americans are feeling during this economic downturn?
Ms. Kraninger. Congressman, we are taking robust actions
using all of our tools, and, certainly, that includes
enforcement. So, I would ask you to reserve judgment until we
actually get to the end of the year and see where we end up. I
will not manufacture enforcement cases, but I will take the
right action against bad actors. And we do have a number of
actions in the pipeline that I have authorized that I expect to
see move forward. So, I will at least note that.
Mr. Casten. I want to just--hang on. Because you said to
Congresswoman Tlaib that you are averaging 9 days between when
the complaint comes in and you respond. I just gave you data
going back to March that is 50 percent up. You are saying you
have gone through, and you have gotten back to people in 9
days, but you haven't decided what to do with that yet?
Ms. Kraninger. Congressman, complaints are different from
enforcement actions. The complaints do get resolved in 9 days--
Mr. Casten. I understand.
Ms. Kraninger. --on their initial response.
Mr. Casten. Okay. On April 1st, your Bureau issued a
statement which said, in part, ``The Bureau specifically states
that it does not intend to cite an examination or bring an
enforcement action against firms who exceed the deadlines to
investigate such disputes, as long as they make good-faith
efforts to do so as quickly as possible.''
It sounds like you are saying you are not taking
enforcement actions, and the data would be consistent with
that. What motivated you to issue that guidance?
Ms. Kraninger. You are, specifically, talking about credit
reporting dispute resolution. And the dispute cannot be
resolved if the small business merchant, for example, is
actually shuttered and cannot respond to the credit reporting
agency. So, that is what the good faith effort is about.
Absolutely, the mandates to respond remain in place, and
they need to be met. But there are extenuating circumstances,
like the closure of a small business, for example, that is a
merchant that is the subject of the dispute.
Mr. Casten. I am pretty sure your job is to protect
consumers. What are you telling consumers who are sitting there
saying, I need a response, you got a 50 percent surge in
consumers, and what are you doing, you are calling them back
and saying, I'm sorry, I just can't address this? Figure out
how to pay your own rent? Figure out how to pay your medical
bills? Figure out how to pay your car payments? The title of
your agency is, ``Consumer.''
Ms. Kraninger. Congressman, there are remedies that come
after that particular example that I gave you, so it is not
acceptable not to respond. And I noted to Congresswoman Tlaib,
as you noted, that we do actually get initial responses, and
for the vast majority of complaints, on average, it is a 9-day
response. But there are responses that take a little longer.
Mr. Casten. Let me just close the way I started. All of us
in this hearing, yourself included, are entrusted with looking
after the public interest. When these circumstances arise that
are way, way outside of the range of situations that we would
encounter, we have an obligation to make sure that we are
adjusting our tools. There is a reason why the captain goes
down with the ship. Because the captain has to look over the
safety of everyone on the ship.
I would hope that you are seriously looking at what your
agency can do better. Because what you are doing right now is
the status quo, which is 80 percent down from what it was when
it was created. I think that you know you can do a better job.
I yield back.
Chairwoman Waters. The gentleman's time has expired. The
gentleman from North Carolina, Mr. Budd, is recognized for 5
minutes.
Mr. Budd. Thank you, Madam Chairwoman.
Director, thanks for being here today. I wanted to
highlight a QFR response that I received from your team
regarding a concern I had with the Bureau's marketing service
agreement under Rezpo. Now, there is still some need for
clarification between me and my team as far as what we
received. But you did indicate that you are willing to receive
some feedback on this. Is it okay if we follow up with you
after this on that issue?
Ms. Kraninger. Absolutely. Please do.
Mr. Budd. Okay. I would also like to ask unanimous consent
to submit for the record a recent article on this issue, and it
was actually authored by your former Deputy Director, Brian
Johnson. And I will be sure to share this with your team.
Chairwoman Waters. Without objection, it is so ordered.
Mr. Budd. Thank you, Madam Chairwoman. I have a few
questions, Director. In the notice of proposed rulemaking for
the ability-to-repay rule, the CFPB encourages stakeholders to
develop additional verification standards that the Bureau could
incorporate into the QM safe harbor. Given the Bureau's
important desire to move away from the static and data
verification standards in the appendix Q to promote and foster
innovation, how can industry and stakeholders help inform and
define the Bureau's definition of qualified mortgages?
Ms. Kraninger. I think I am very much looking forward to
the conversation around the standards, because it is a critical
part of the ability to repay. And considering verified debt and
income is what the statute requires. We know that alternative
data considerations, residual income as opposed to other means
of assessing income. And we have a challenge of the current
Appendix Q as well with respect to self-employed or gig economy
workers. So understanding how industry has been looking at
that, frankly, with input from all stakeholders, it is not just
industry, but also consumer advocates and others who pay very
close attention to what is happening in this space, how we can,
again, bring forward creditworthy borrowers who are going to
have successful loans, that is part of this.
So we are very much looking to promote that and are
welcoming engagement with all stakeholders, frankly, on what
standards they would propose.
Mr. Budd. Thank you. I want to point to the CFPB's July
10th report on debt settlements and credit counseling. And in
that, you looked at the critical issue of options for
consumers. You just found out they have more debt than they can
actually handle.
In this report, your agency found a rise in debt settlement
since 2016, and an even more significant increase in
settlements that are facilitated by companies that actually
charge the consumers to settle those debts for less money than
they owe.
In my home State, North Carolina, we have seen a rise in
complaints about the practices of that industry, including
misleading advertising and high fees, that particularly targets
the military, which is very concerning to all of us.
So, I want to encourage you to continue to look into this
industry and take all appropriate actions to protect our troops
and all Americans who could be misled by false promises and
high-pressure sales tactics from this industry. Any thoughts or
follow-up on that?
Ms. Kraninger. Congressman, I will tell you it is an
important area. We have taken a number of enforcement actions,
including with State attorneys general against bad actors in
this space. There are clear rules about their ability to
collect any fees prior to actually getting the outcome they
promised to the consumer. So, that is generally where our
actions have been taken, and we will continue to pursue that.
Mr. Budd. Thank you. A priority of mine, and also of my
committee Republican colleagues here, is to eliminate costly
and confusing regulations that make it more difficult for
businesses to thrive and innovate for the benefit of consumers
and markets. Particularly during this pandemic, when we are
striving to get our economy back on its feet, it is critical to
only promulgate clear, well-founded regulations. That is why I
believe that the failure to change the payment provisions in
the small-dollar rule will create a patchwork of inconsistent
standards for payment provisions based purely on the consumer
of the product.
For example, some products will be judged by the standards
of the National Automated Clearing House Association (NACHA),
and others by the CFPB rules. And when the Federal Reserve
announces the payment standard, that rule will judge yet other
products. This is, particularly, the type of regulatory mess
that the Administration has sought to eliminate.
Would it not be better to undertake an appropriate study of
the payment provisions rather than to ratify and implement the
flawed findings of the 2017 Cordray Rule?
Ms. Kraninger. Congressman, we will undertake a review, of
course, 5 years after the rule is in place, and take a look at
how it is actually implemented. We did try to provide great
clarity around which entities and which products are actually
pulled into that rule. I know there were some questions about
products that clearly were not actually even contemplated in
the rule, so we did a lot with guidance on that,
Mr. Budd. Thank you. I yield back.
Chairwoman Waters. Thank you. The gentleman from Utah, Mr.
McAdams, is recognized for 5 minutes.
Mr. McAdams. Thank you, Madam Chairwoman. Director
Kraninger, when you first appeared before this committee last
March, we had a discussion then about balancing access to
credit, while at the same time, ensuring that consumers are
protected from harmful products. Specifically, I asked about
CFPB's planned actions on its payday rule, and I expressed my
concern that payday products can quickly become debt traps,
especially if a lender doesn't ensure that the borrower has the
ability to pay. And you noted that it was a proposal at the
time, and you would continue to review your consumer protection
mission as you undertook the rulemaking.
Earlier this month, you issued a final rule that repeals
the requirement that lenders determine a borrower's ability to
repay those loans before making them. So I would like to ask
you again, what role does consumer protection play as you
undertook and finalized this rulemaking?
Ms. Kraninger. Congressman, the mandatory underwriting
provisions were very specific. I recognize that it is
frequently referred to as an ability to repay, but there were
specific stipulations there that would be particularly
challenging. Again, by the Bureau's own estimation, it would
have a significant reduction in the availability of credit
there. So, that would be something that we looked at--
Mr. McAdams. I would just say from my perspective, it seems
like you just made it much easier to have consumers get trapped
in that cycle of debt, that they would be cycling through over
and over again. And I worry there are rulemaking sacrifices of
reasonable consumer protections, and I know it is a balance,
but it seems like the balance is against the consumers.
And as I understand it, that part of your assertion for
repealing the mandatory underwriting provisions is due to what
you claim as insufficient research that went into the 2017
rule, is that correct?
Ms. Kraninger. Yes, Congressman, as well as the legal
reasoning that was in that rule.
Mr. McAdams. I would like to read you a footnote in your
rulemaking from this month, footnote 343 buried on page 177 of
the PDF, and it says, ``Consumer protection issues have arisen,
and will continue to arise in the payday market, as in other
markets as a result of a given lender's specific practices. And
the Bureau is prepared to address those issues, for example,
through supervision and enforcement against deceptive claims in
advertising or marketing for payday loans.''
So, you acknowledged in your own rule that there are
consumer protection problems in the payday industry. And I
would ask, is your contention that supervision and enforcement
are sufficient tools to keep consumers safe?
Ms. Kraninger. Congressman, that is certainly part of the
protections that are in this basis and others. I have vented
that there are bad actors in every market space, including this
one. So they are a key part of it. I would also say that we are
doing work on disclosures, because I think there is great
evidence in those rulemakings that there are consumers who
understand the product, and there might be some who don't quite
understand the product when they actually get them. And that is
something we want to look into, and are doing disclosure
testing on.
So, that is another example of another protection, in
addition to the payments provisions and supervision and
enforcement.
Mr. McAdams. Thank you. I think if we are putting a lot of
stock in supervision and enforcement as our means in protecting
consumers in this regard, I would like to see what your plans
are for beefed-up supervision and enforcement plans. And if
not, do you intend to study the issue to put together
sufficient research and pursue regulations that actually do
keep consumers safe, which is the mission of the CFPB?
Ms. Kraninger. I am committed to constant review of the
rules. We have 5-year lookback requirements by Congress that I
think were incredibly--there is a lot of foresight in those,
but we will definitely do that on this rule, as we do on
others, for example. But any feedback based on what is
happening in the marketplace needs to inform the way we
operate.
Mr. McAdams. But as it stands right now, even though you
acknowledge that there are consumer protection issues, you are
not looking for any additional tools that would help to protect
consumers in regards to this debt trapping in payday loans?
Ms. Kraninger. Our disclosure testing would represent that.
I would also note increased competition is part of what we are
seeking, and we have been working through our innovation
policies to get banks and credit unions to offer responsible
products in this space, too.
Mr. McAdams. Okay. I would like to see what research was
used to base that conclusion, that that would be adequate and
sufficient for consumer protections.
Lastly--and we are about out of time, so maybe I will
submit this in written form. But on Friday, the CFPB announced
that it plans to release an advance notice of proposed
rulemaking on consumer-authorized access to financial records.
This is a topic that this committee has explored before, and it
is of great interest to consumers, to financial institutions,
and to Fintech companies.
So I would love for you to elaborate on the CFPB initiative
and what the Bureau's goals are with the NPR and rulemaking
process. And I do see that we are out of time, so we can take
that outside of this forum. But thank you, and I yield back.
Chairwoman Waters. Thank you. The gentleman from Tennessee,
Mr. Kustoff, is recognized for 5 minutes.
Mr. Kustoff. Thank you, Madam Chairwoman. Thank you for
convening today's hearing. Director, thank you for appearing
today.
I would like to follow up on Congressman Budd's question
towards the end of his questioning. I know about 3 weeks ago,
you did finalize the final rule as it relates to these payments
to the small-dollar lenders. The rule that you promulgated 3
weeks ago or so kept in place the 2017 rule provision. It
imposed, frankly, a restrictive requirement by allowing just
one re-presentment of a returned ACH payment. And it also
extended the re-presentment limit to transactions not covered
by the NACHA rule.
So by my first question is, is there a disparity in that,
that the NACHA rules shouldn't be applied to all lenders?
Ms. Kraninger. Congressman, we were starting with the
rulemaking we had in place. And so, the mandatory underwriting
provisions were the ones that had the significant impact on the
availability of credit, as well as the issues that we have been
discussing here today. The insufficiency of the evidence and
legal reasoning that underpin that part of the rule. So, that
is where the reconsideration came into play. It was my judgment
that the payments provisions, again, should, continue so that
we can see how that is implemented. And as I said to
Congressman McAdams, we can certainly look at what happens, and
see if there are unintended effects to it.
We did also put out some very clear guidance to try to
stipulate what products are affected and what products are not.
And I appreciate the point you are raising, the rulemaking that
was promulgated, and that is the process that we engaged in.
Mr. Kustoff. Let me ask it another way: Doesn't the final
rule create more burdensome regulations for just some covered
lenders?
Ms. Kraninger. It does only affect certain lenders, that is
very true. And that was certainly by design of the rule, and we
will certainly take into account what impacts that has when
that is able to be implemented.
Mr. Kustoff. Okay. Are there plans to revise the payment
provisions in the future, or is it your position you have to
wait for 5 years?
Ms. Kraninger. Congressman, I certainly respond to things
that we see in the market. If we get evidence sooner that there
is an issue that needs to be dealt with, I would certainly be
happy to consider that.
Mr. Kustoff. Thank you, Director. I was reading a report
from Yahoo Money last week that talked about how 1 in 4
Americans with credit cards said that they had an account
involuntarily shut down during the span of May to July. And,
specifically, the article talked about those consumers with
FICO scores between 550 and 700. I think that article said that
that roughly covers about 60 million Americans.
I think we all know that the credit card, for so many
Americans, is not just a lifeline; it is a necessity. Are there
any steps that the CFPB is taking--and, again, I am talking
about, specifically, for those consumers in the 550 to 700
credit score range, so that they don't lose their credit cards
due to the pandemic?
Ms. Kraninger. Congressman, you raised an important issue.
I am certainly aware of credit limit changes, and certain cards
that don't have activity on them. But I was not aware of the
article you just cited, so I am happy to take a look at it and
see precisely what happened there and what action we should
take.
Mr. Kustoff. Thank you, Director. And with that, I yield
back the remainder of my time.
Chairwoman Waters. The gentlewoman from Virginia, Ms.
Wexton, is recognized for 5 minutes.
Ms. Wexton. Thank you. Thank you, Madam Chairwoman, and
thank you, Director Kraninger, for joining us today. Director
Kraninger, I did read your extended testimony, and in 14 pages,
I saw just one reference to the Paycheck Protection Program,
which I am sure is something that you all are very much
involved in at this time. This is such a timely program and
doing so much work here in our country. And you do have the
role of supervising implementation of that program, do you not?
Ms. Kraninger. Only a narrow slice of that, with respect to
the Equal Credit Opportunity Act compliance by covered lenders.
Ms. Wexton. Right. So you do have to manage and make sure
that--you have to assess the compliance of lenders with fair
lending laws, right?
Ms. Kraninger. Yes. With ECOA, yes.
Ms. Wexton. Are those assessments taking place, and what
have you found out about Paycheck Protection Program loans?
Ms. Kraninger. We are engaged in what we are calling
prioritized assessments, so very targeted exams of entities
with respect to what is happening right now, and we did include
small business lending, ECOA compliance, as part of that
effort, so we are engaged in that now.
Ms. Wexton. Let me ask you, and if you need to, you can
just ballpark it, what percentage of Paycheck Protection
Program loans are to minority-owned small businesses?
Ms. Kraninger. Congresswoman, off the top of my head, I
don't know the answer to that question. I do know it is an area
that, again, I am interested in generally, that the
Administration has been interested in promoting, and we have
done a lot of outreach to try to expand that availability.
Ms. Wexton. So, I don't suppose you can ballpark what
percentage of paycheck protection loans went to women-owned
small businesses either?
Ms. Kraninger. No, I cannot.
Ms. Wexton. Okay. Well, an Inspector General report from
May criticized the FDA for not requiring applicants to submit
demographic data. I am sure you are aware of that. And my
colleagues and I have repeatedly called on the SBA and Treasury
to collect this information on loans or the loan forgiveness
application and make it mandatory. But so far, it is only being
collected on a voluntary basis.
And that is concerning, because in my district, we
performed an assessment of our own of those applications put
out there in Virginia 10. And in my district, 95 percent did
not provide the race or ethnicity data, and 83 percent did not
provide gender ownership.
So, Director Kraninger, it is probably a lot harder for you
to do your job if you don't have the information, the
demographic data to do your assessment with, is that correct?
Ms. Kraninger. There were certainly other issues at play
with trying to move quickly and get this program running, so I
will say--
Ms. Wexton. I understand. I get that. Reclaiming my time. I
understand that time was of the essence and everything, but it
is hard for to you do your job if you don't have the data to do
your assessment. I know you don't work for the SBA or
Treasury--well, I guess a little bit for Treasury. But have you
communicated with them about their decision not to require
demographic data for collection of the Paycheck Protection
Program on either the application or the forgiveness
application?
Ms. Kraninger. We have talked about the data that is
available in terms of what the reach of the program has been
and the extent, the number of small businesses that it has
helped. We are continuing to look at how we can promote, again,
access, which is the core of your question, and, certainly, the
core of my interest in understanding them better. And that is
part of why we engaged in prioritized assessment.
Ms. Wexton. How are you going to know what kind of access
has been provided when 95 percent of the people, at least in my
district, aren't even answering the questions, so that makes it
very difficult. Now, you are responsible for implementing
Section 1071 of Dodd-Frank, right?
Ms. Kraninger. Yes.
Ms. Wexton. And that does require that lenders collectively
maintain information about a loan application by women-owned,
and minority-owned small businesses, and that requires the CFPB
to collect and publish that information. Is that correct?
Ms. Kraninger. Yes, that is correct.
Ms. Wexton. But the Bureau, under your leadership, has
slow-walked the implementation of this section, and in February
of this year, you settled a lawsuit seeking to compel you to
implement the law. Is that correct?
Ms. Kraninger. No, that is actually false. I committed
during my confirmation process that that was a statutorily
required regulation, and I was committed to implementing it.
And I actually announced that in the regulatory agenda prior to
the filing of the lawsuit.
Ms. Wexton. But you entered into a settlement that had
court-ordered implementation deadlocks. Is that correct?
Ms. Kraninger. That is correct.
Ms. Wexton. And have you started the rulemaking process?
Ms. Kraninger. Yes. We will issue a brief outline, which is
a small business regulatory relief process outline by September
15th, and engage in that part of the regulatory process this
fall.
Ms. Wexton. And you commit to meet your deadlines under
this section? Thank you.
Ms. Kraninger. Yes, that is the only deadline at this time.
Thank you.
Chairwoman Waters. The gentleman from Indiana, Mr.
Hollingsworth, is recognized for 5 minutes.
Mr. Hollingsworth. Good afternoon, Director Kraninger,
thank you for being here, and thank you for your continued work
at the CFPB. I am sure at times today, a quarter of an inch of
Plexiglass doesn't seem like enough protection.
I wanted to step back and talk more generally for a second
about some of the larger dynamics at play in our economy and
certainly, at the CFPB as well. You recently published a blog
post--or I should say, the CFPB generally published a blog post
about the use of artificial intelligence (AI) and machine
learning (ML) on increasing the financial protection laws.
I wondered if you might venture into, do you intend to do
more in this space? And if so, what might that look like? What
are you trying to balance in terms of your next actions in that
space?
Ms. Kraninger. That is a great question. I think what we
were seeking to do with the look that we have done at AI and ML
and also, alternative data in underwriting is the recognition
that there is a great opportunity there in terms of expansion
of access, particularly for underbanked and unbanked
individuals who have not been reached before, so taking that
information into account.
There is also some risk introduced in that process, again,
understanding it. So, we are continuing to look at how lenders
are approaching that, looking at what innovations they are
bringing. Our innovation policies are an opportunity for them
to engage with us, and look at either a sandbox policy or a no-
action letter policy, to have a more robust conversation about
that, and then have data from actual operations, by an actual
lender or a creditor, to base any additional action on.
We are certainly looking at it with respect to our
supervisory activity, enforcement activity too, but I think,
largely, it is making sure we have experts inside who
understand how it works, understand how industry is seeking to
apply it, and looking at how that is hopefully being beneficial
to consumers and taking action where it is not.
Mr. Hollingsworth. Yes. Director Kraninger, I think that is
extremely well-said. There are tremendous opportunities. There
are also limitations in the technology certainly, but
tremendous opportunities to increase inclusion in the financial
sector and empower Americans in our district, and in many other
districts across the country, to be able to live better lives
and achieve the American Dream.
And I think you would agree with this, but to hear you say
it, it sounded like you also said there are real costs to
retarding innovation in this country, retarding financial
inclusion in this country, to families, their lives, and their
futures. Is that true?
Ms. Kraninger. Yes. I do see that.
Mr. Hollingsworth. And that is something that you will
weigh as you continue to think about what that sandbox might
look like, and how we increase, perhaps, the pace of innovation
while also recognizing the safety that needs to go into place
as well?
Ms. Kraninger. Yes.
Mr. Hollingsworth. Great. Second question, again generally,
I know my friend across the aisle, Ms. Wexton, touched on
prioritized assessments. I wondered if you might talk a little
bit about what you have learned in some of that, about how our
financial institutions have been able to serve their customers,
help their customers, empower their customers, during the
course of the last 4 months.
Ms. Kraninger. Yes. That is certainly what I expect to find
in the vast majority of the prioritized assessments, is
precisely that, and understanding--getting, again, some more
information about how that is going, what practices are
successful for consumers, and what activities, or what
challenges are those institutions facing in trying to help
their customers.
Mr. Hollingsworth. But I am sure--
Ms. Kraninger. We don't have much at the moment, but we are
literally in the midst of it right now.
Mr. Hollingsworth. Right. I am sure not all of their
challenges are policy-related, but some of them may be policy-
related, regulatory-related, to ensure that they have the
flexibility to be able to serve those customers, not just
during more ordinary times perhaps, more ordinary
circumstances, but also the flexibility to address their
customers' needs during extraordinary circumstances as well. So
providing some of that latitude and flexibility, I imagine,
will be an important learning point going forward, right?
Ms. Kraninger. Yes. Definitely.
Mr. Hollingsworth. Great. And then in addition to that, I
wanted to ask about further coordination and some of these
exams done by multiple agencies in making sure that a company
or an institution is providing that information as few times as
possible, and is disseminated as widely as possible, as
needed--not overly disseminated by the way--within the reaches
of the Federal Government.
Ms. Kraninger. Yes. That is something that has been a focal
point for me as the Chair of the Federal Financial Institutions
Examination Council (FFIEC), where we are coming together and
coordinating on exams. Despite the challenges of the pandemic
and other priorities that do supersede this, we have a
continued activity going on around common technology and common
data collection and sharing. So that is still happening, and we
are still looking to make some progress on that.
Mr. Hollingsworth. Right. Obviously, institutions are
rightfully concerned about the proliferation of hours that are
being used in submitting to exams, which they are ready and
willing to do, but they also want to make sure it is
coordinated and done as efficiently as expected so that they
can spend their time serving, helping, and empowering those
customers.
And with that, I will yield back.
Chairwoman Waters. Thank you. The gentleman from
Massachusetts, Mr. Lynch, is recognized for 5 minutes.
Mr. Lynch. Thank you, Madam Chairwoman, for having this
hearing, and thank you, Director Kraninger, for appearing and
helping us with our work.
Director, last week, the CFPB announced an Advance Notice
of Proposed Rulemaking around Section 1033 of Dodd-Frank, which
obviously deals with the consumer authorization of access to
financial data and records. We recently had a hearing on this
issue, and I am following up on Mr. Davidson's concerns.
We recently had a hearing on this issue on the Financial
Services FinTech Task Force, and the concerns were largely in
two areas, and they were bipartisan. First of all, Members were
concerned about the full spectrum gathering of data from
consumers, and whether that happens from screen scraping, which
you mentioned, or web scraping, content scraping, or whether it
is telematics. Right now, through our cell phones and other
technology, financial firms and others know everything about
our lives, who we are with, where we travel, how fast we drive,
and those tools can be used to discriminate.
We have seen, in some instances, where individuals who live
in a certain census tract were discriminated against because
they lived in a low-income area, or in public housing. So, that
was one concern about the use of that data and the practice of
screen scraping in particular.
The other issue was the consent form, the so-called
consumer consent. And you have a 19-page consent form that
basically, the application administrator requires you to sign
off on this 19-page item that, even as an attorney, I had a
difficult time understanding, and that is for regular
consumers.
So, two questions: First, where are we on screen scraping?
You mentioned we are moving away from screen scraping in your
earlier comments, but we have been moving away for over a year.
We are just not moving that fast.
And second, the issue of those consent forms, are you
thinking in this rulemaking that you will address both of those
aspects? And I would just love to get your insights and your
thoughts on both of those issues. Thank you.
Ms. Kraninger. Thank you, Congressman. I am glad you all
had the opportunity to talk about that and take advantage of
that ourselves. We had our symposium where these issues came
up, and the purpose of the Advance Notice of Proposed
Rulemaking is to really formalize that data-gathering and think
about what might be needed in a rulemaking and what would make
sense.
But the two issues you raise are important ones certainly,
one with respect to what kinds of data is actually available
and how it gets used, and then, certainly, what consumers know
about the data that they have permissioned and how it is going
to be used.
And the disclosure aspect of this, the consent process that
you noted, is one that has been a concern to me since I have
been in this position, and we are going to make some progress
on trying to do better disclosures and give people the key
information they need, rather than giving them legalese that
they just end up checking the box on. So that is a huge, I
think, concern on many fronts.
Mr. Lynch. On screen scraping, you started to address that
earlier, but you were cut off.
Ms. Kraninger. Oh, yes. With respect to screen scraping,
the ``we,'' of course, is the marketplace at this point in
time. The Bureau certainly would intervene in a UDAP
circumstance, or other compliance issue, but the market really
is moving away from that.
There have been a number of agreements on API means of
sharing that are making progress, and some real deadlines from
financial institutions in shifting on APIs, or shutting off
access. I won't comment, frankly, on--there are issues with
that, for sure, on both sides, but I do think there has been
progress, actual progress, made to reduce the screen scraping,
so that is in the marketplace generally.
Mr. Lynch. And what about the length and complexity of
these consent forms?
Ms. Kraninger. That is a concern area. It is something that
we will take feedback on and see what we can do about that, or
what would require rulemaking, or what might be able to be
addressed in other ways. But that is what the ANPR will do.
Mr. Lynch. All right. Thank you, Madam Chairwoman. And
thank you, Director Kraninger.
Chairwoman Waters. Thank you. The gentleman from Ohio, Mr.
Gonzalez, is recognized for 5 minutes.
Mr. Gonzalez of Ohio. Thank you, Madam Chairwoman, and
thank you, Director Kraninger, for being here today and for
your continued service to the country. I applaud you and your
staff for continuing to work on behalf of our country during
the pandemic. It is not easy for anybody, and you all have
performed well, so thank you for that.
As you know, there is growing evidence that one of the best
things regulators could do to expand credit access is to make
it clear that lenders are allowed to use new underwriting
techniques that leverage alternative kinds of data. Mr.
Hollingsworth referenced this as well.
Traditional credit scores are generally good predictors of
risk for people who have high scores, but they don't work for
people with little or no credit history, and don't work for
many people who are creditworthy but have lower scores due to
complex factors that the scoring process does not capture.
Fintechs and some banks have been innovating in the use of
non-score factors now that it is easy to capture new kinds of
data that can be analyzed with techniques like machine
learning. Research by the nonprofit FinRegLab and others
supports the argument that these methods are predictive of
risk.
However, the industry, especially banks, has hesitated to
adopt the methods because of concerns about regulatory
criticism, and, especially, the potential to run afoul of the
prohibition against unintentional discriminatory disparate
impact.
You and other regulators have issued joint encouragement
that lenders consider these new methods, but have not yet
offered clarity on how to do so in ways that regulators
consider inside a green zone on disparate impact.
First question, do you see this innovation as a high-impact
way to expand credit access? I think the answer is yes. You
sort of elaborated already, but just to say it again.
Ms. Kraninger. Yes. Yes, I do.
Mr. Gonzalez of Ohio. Great. And then, what plans are you
currently working on to clarify the rules of the road to
encourage faster adoption here?
Ms. Kraninger. Congressman, I would point particularly to
our innovation policies, having that opportunity to have
engagement with an entity, understand the product, they have to
provide the benefits that they see of the product to consumers,
the risks that they see, the way they are mitigating those
risks, and what regulatory issue is a barrier or is a
challenge.
And we can have that dialogue about that product and be
very specific about the ability to move forward with that
product with guardrails. So, that is certainly the top avenue.
We are looking at what additional guidance would be useful.
We have issued guidance on alternative data, we did on AI and
ML use in underwriting, and I think we are very open to that in
terms of the conversation.
I did issue a request for information just 2 days ago on
the Equal Credit Opportunity Act, and it did specifically ask
about alternative data and other issues that might be posing
challenges to entities, or where we think there might be
opportunities. So, responses to that could lead to different
action.
Mr. Gonzalez of Ohio. Thank you. And is there anything that
we can provide at the congressional level that would empower
you even more to sort of help set up the guardrails here? And
other regulators generally, yes.
Ms. Kraninger. Congressman, I don't have anything at the
moment that I would seek or suggest, but I appreciate the
question, and I will certainly let you know if we do find
something that would be useful.
Mr. Gonzalez of Ohio. Okay, thank you. Because, I think,
like a lot of my colleagues, one of my biggest fears coming out
of this pandemic is--and you can just see this looking at what
is happening in the markets--for very wealthy people or people
in the upper-income scale, it is inconvenient but not
financially devastating, certainly not. For people who are
lower-income, especially minority communities, it's absolutely
devastating, setting them back even further.
And so, I see alternative data sources and different ways
of expanding access to credit as one of the most important
things we can do, because people are going to have to rebuild
their lives, and we have to provide them with all of the
opportunities necessary to do that.
So I would encourage you to keep that work alive and to
keep interacting with us if we can provide help, because people
are going to need it.
With that, I yield back.
Chairwoman Waters. Thank you. The gentlewoman from North
Carolina, Ms. Adams, is recognized for 5 minutes.
Ms. Adams. Thank you, Chairwoman Waters, for convening
today's hearing. Thank you, Director Kraninger, for being here.
I wanted to ask a few questions regarding predatory debt
settlement companies and the harmful settlement activities that
are happening in my State, that are likely also happening
across the country.
In North Carolina, we have seen a rise in complaints about
the practices of this industry, including misleading
advertising, and high fees, particularly from the military and
their families. I have gotten letters from high-ranking
officials at Camp Lejeune and Fort Bragg in North Carolina, and
from one of our largest credit unions, the State Employees
Credit Union. So, yes or no, have you heard of a company called
Freedom Debt Relief, or Freedom Financial Network?
Ms. Kraninger. I have not heard of those companies
specifically, Congresswoman.
Ms. Adams. Okay. So you are not aware, then, of their
business model or predatory practices, if you are not familiar
[inaudible]. It is one of the largest--
Ms. Kraninger. I will say that the concerning practices by
some debt settlement companies is definitely something that I
am aware of, and we have engaged in enforcement actions, I
believe, with the State of North Carolina, with the attorney
general of North Carolina. I believe he was a party to that, to
one of those cases. So there are concerning practices happening
there, and we are taking enforcement action.
Ms. Adams. Thank you, but the CFPB, under Mr. Mulvaney,
brought an action against Freedom Debt Relief, and secured
about $20 million in restitution and $5 million in damages, for
violating the law by charging customers or consumers without
settling their debts as promised. But are you aware that the
CFPB entered a consent order with Freedom Financial Service
after the agency filed this complaint?
Ms. Kraninger. Congresswoman, I do apologize that I don't
remember that particular case, but I stipulate that you are
probably right.
Ms. Adams. Okay. Let me ask you, do you believe that it
helps consumers when debt settlement companies encourage
customer borrowers to deliberately default on credit card debt?
Do you think that helps consumers when they do that? Yes or no?
Ms. Kraninger. No. There are many concerning practices in
the debt settlement space, there is no doubt. We are certainly
paying very close attention to that and taking action. They
cannot accept fees when they have not actually provided the
results, and there is a requirement to actually do that several
months after the outcome they promised has been delivered.
Ms. Adams. Okay. In this time of COVID, with an economy
that is hurting, it is very likely that our constituents will
find themselves saddled with more debt. So I want to know what
you and the CFPB will do to protect American consumers and our
military from being misled by false promises and high-pressure
sales tactics from the for-profit debt settlement industry,
because they are really leaning hard on these folks?
Ms. Kraninger. I agree with you, it is a concerning area. I
can say we are also working with the Department of Defense. In
addition to all of our enforcement actions, we are working to
make sure we get information to those military personnel, and
to consumers generally, about being cautious in the debt
settlement space, and frankly pointing them also to nonprofit
entities where they would get the support that they may need.
Ms. Adams. Let me ask you, in terms of smaller lenders,
they are probably finding it more difficult to compete in this
kind of environment. Several industry groups and consumer
advocate organizations have also expressed concern that a
pricing-based definition could result in a race to the bottom.
Based on the Bureau's own recognition that pricing can be
manipulated, the proposed qualified mortgage standard does not
appear to be an effective measure of a borrower's ability to
repay. So how would you ensure that a pricing-based qualified
mortgage does not incentivize irresponsible mortgage lending
similar to what we witnessed in the lead-up to the 2008
financial crisis?
Ms. Kraninger. Congresswoman, I appreciate the question. It
is an important one. The statutory features that are precluded
from being part of a qualified mortgage, that continues. In
addition, a requirement to actually consider and verify debt
and income is part of the law.
Ms. Adams. Okay. Thank you very much.
I yield back, Madam Chairwoman.
Chairwoman Waters. Thank you. The gentleman from Tennessee,
Mr. Rose, is recognized for 5 minutes.
Mr. Rose. Thank you, Chairwoman Waters and Ranking Member
McHenry, for holding this hearing, and thank you, Director
Kraninger, for appearing before us today.
I would like to jump right into the CFPB's recently
finalized small-dollar lending rule. The Bureau has previously
acknowledged the key role that small-dollar loans can play in
helping consumers meet credit needs, usually resulting from
unexpected expenses. At the beginning of this month, the Bureau
took a step in the right direction by rescinding the mandatory
underwriting provisions of the Obama-era small-dollar lending
rule.
However, like several of my colleagues, I am very
disappointed that the CFPB chose to leave the payment
provisions of the original rule intact. Much like the ability-
to-repay provisions, the Bureau's own evidence didn't support
its payment practices provisions. They were flawed, and based
on unsupported data.
It also imposes onerous requirements that could make it all
but impossible for consumers to use recurring payments.
I want to get a real answer to this question, Director
Kraninger. Please explain to me why you kept this particular
provision in place, choosing to enforce an Obama-era rule
requiring overly burdensome compliance?
Ms. Kraninger. Congressman, I recognize that that is an
important issue for you. It has been raised by many Members.
First and foremost, it was the reconsideration of the mandatory
underwriting provisions that really were the focal point, given
the dramatic impact that that would have on the availability of
credit in this space. So, that was the priority.
With respect to the payments provisions, it was also a
recognition that there is some consumer protection in there
with respect to certain products. I recognize there were also
concerns about how broad this may be applying, and we did issue
additional guidance when we issued the final rule that laid out
the types of products that are covered, and are not covered
under this rule, to try to address some of those issues.
And the last thing I would say, that I have not mentioned
earlier, is that we are still in litigation over these
provisions, so that is still ongoing.
Mr. Rose. Since we last spoke about this, I know you were
looking again at this provision. However, it remained in the
final rule published on July 7th. How long will the lenders be
given to comply with this payment provision?
Ms. Kraninger. Because of the litigation, the rule is still
stayed. The Bureau is seeking to propose to the court that it
lift it after a reasonable period of time. Since we have not
done that filing, I can't tell you here what the reasonable
period of time is, but that would be my intention, and that
filing should happen relatively soon. So, we can answer that
question for you relatively soon.
Mr. Rose. So once that filing occurs, would you expect it
to be 60 days from that time?
Ms. Kraninger. I am looking at a reasonable period of time,
and I can't tell you right now precisely what that will be, but
we will get back to you.
Mr. Rose. Keeping this provision in place will cause, in my
view, an undue compliance burden on financial institutions and
payment processors. Ultimately, the end result will be that
responsible lenders, unable to manage and mitigate the risk,
will choose to de-risk and quit, or not form relationships with
companies offering covered loans, increasing the cost of these
products to the consumers who need them.
This will also drive the small-dollar lending market back
to the storefront payday lenders, putting us in the position of
picking winners and losers.
Moving forward, I believe it is crucial that we maintain
consistent payment system rules, which are grounded in
associated laws and regulations, and I urge you and the CFPB to
revisit this finalized rule, and roll back the payment
provisions created by the 2017 small-dollar lending rule.
In my remaining time, I want to just turn to another issue.
Back in January 2017, under Director Cordray, the CFPB filed a
suit in Federal court, alleging that hundreds of thousands of
student loan borrowers have been harmed by steering borrowers
away from income-driven repayment, and toward costlier options.
In nearly 4 years, how many borrowers have been proven to have
been steered?
Ms. Kraninger. Congressman, that is ongoing litigation, and
obviously in the midst of discovery and other parts of that
process there, so I can't answer that question for you, but I
understand why it is important.
Mr. Rose. I am very concerned that this ongoing litigation
that you describe, without discovering any evidence, is a bad
use of taxpayers' dollars. And I am concerned that the CFPB is
dragging out cases like this, in search of a problem, in order
to justify the costs that have already been incurred. I hope
this practice does not continue.
With that, Madam Chairwoman, I yield back.
Chairwoman Waters. Thank you. The gentleman from Illinois,
Mr. Garcia, is recognized for 5 minutes.
Mr. Garcia of Illinois. Thank you, Madam Chairwoman, and
Ranking Member McHenry, for convening this hearing, and thank
you, Director Kraninger, for joining us today.
Congress passed Dodd-Frank and authorized the Consumer
Financial Protection Bureau 10 years ago this month. In 2010,
our country faced high unemployment, and millions of people
lost their homes to eviction and foreclosures. My community was
hit hard by the last financial crisis, and many people never
recovered.
And now, the COVID-19 crisis has left my constituents piled
with housing debt, medical debt, and credit card debt, and who
knows when they will get back on their feet to pay it off.
That is why the CFPB was established during the last
crisis, to give ordinary people, like my neighbors in Chicago,
their own voice against big banks, against mortgage lenders,
and against debt collectors. But that is not what we see from
watching the Bureau today.
During a nationwide pandemic, when we have no idea when
jobs can come back, and consumers have no idea how they are
going to pay off their debt, the CFPB has been working for
industry instead of the public. Gutting the payday lending rule
earlier this month is a scary example.
I represent a working-class immigrant district. There are a
lot of payday lenders in my district, as lobbyists always like
to point out. The CFPB's new rule eliminated the requirement
that lenders ensure that the borrowers can pay the loan back.
This means that a lender can now make a loan when they know
that a borrower cannot pay it back. Director Kraninger, do you
think that a lender should make a loan to a customer if they
know that they cannot pay it back?
Ms. Kraninger. Congressman, the mandatory underwriting
provisions of the small-dollar rule have not--
Mr. Garcia of Illinois. Can you give me a yes or no answer,
Director?
Ms. Kraninger. I will just say, the small-dollar space is a
little bit different, and that ability to--
Mr. Garcia of Illinois. Should they make such a loan if
they know that it can't be paid back?
Ms. Kraninger. Congressman, I appreciate the principle--
Mr. Garcia of Illinois. Okay, you won't answer that. Are
you worried about trapping customers in a cycle of debt that
they aren't able to repay?
Ms. Kraninger. Congressman, again, I appreciate the
principle you are trying to establish. This is a complex area--
Mr. Garcia of Illinois. Are you concerned about that?
Ms. Kraninger. I absolutely want to make sure that
consumers understand the products that they are engaged--
Mr. Garcia of Illinois. Are you concerned about it?
Ms. Kraninger. I want consumers to understand the products
that they are--
Mr. Garcia of Illinois. Maybe? Or not. Let's move on, if
you don't want to answer those two questions.
The Military Lending Act protects our servicemembers from
getting trapped in a cycle of debt by setting a 36 percent
interest rate cap on their consumer finance products. I
introduced the bipartisan Veterans and Consumers Fair Credit
Act to extend the cap to all consumers, so that all of my
constituents can enjoy that protection. Do you support the 36
percent interest rate cap currently in effect under the
Military Lending Act?
Ms. Kraninger. It is current law, Congressman, so that is--
Mr. Garcia of Illinois. Do you support it?
Ms. Kraninger. I don't have a role in examining that, but
certainly, we enforce it.
Mr. Garcia of Illinois. Do you think that the rate cap
helps servicemembers avoid being trapped in a cycle of debt?
Ms. Kraninger. Congressman, I believe that Congress put
that in place for a reason that is outlined in the--
Mr. Garcia of Illinois. Do you think it helps them? Your
opinion, not Congress'?
Undecided.
Okay, my last one. Director, some of my colleagues across
the aisle seem to be mistaken about the recent Supreme Court
decision in Seila Law v. CFPB. I want to clarify that the
Supreme Court did not rule that the CFPB itself was
unconstitutional, but that only the requirements needed to
remove the Director were unconstitutional.
So my question is, does this case, in any way, limit your
authority or ability to protect consumers moving forward?
Ms. Kraninger. I continue to carry out what the Dodd-Frank
Act empowered me to carry out, which is protecting consumers.
So I think at this point, I would say no.
Mr. Garcia of Illinois. Okay, thank you.
I yield back the rest of my time, Madam Chairwoman.
Chairwoman Waters. The gentleman from West Virginia, Mr.
Mooney, is recognized for 5 minutes.
Mr. Mooney. Thank you, Madam Chairwoman. So for preface, I
am not a lawyer myself, but a lot of businesses and individuals
have needed good lawyers when they need to exercise their legal
rights. And in many cases, that is when money is owed to them.
They loaned money in a fair contract, it is owed back to them,
and it is not getting paid back, which prevents the lender from
paying their bills, employing more people, and putting food on
their table.
So for hundreds of years, attorneys have been regulated and
disciplined, primarily by State supreme courts that license
them, and by the State court judges, not by the Federal
agencies. I fear that the proposed rule change from the CFPB on
debt collection could jeopardize this norm. The CFPB's safe
harbor proposal to codify the meaningful attorney involvement
doctrine is intended to clarify regulation for creditor
attorneys, but I fear it would do exactly the opposite.
The meaningful attorney involvement doctrine appears
nowhere in the Fair Debt Collection Practices Act or the Dodd-
Frank Act. The concept has gone far beyond the statute, and
creates uncertainty and confusion over the rules regulating
attorneys. So Director Kraninger, I fear that the CFPB's
proposed safe harbor rule, for meaningful attorney involvement
in debt collection, could lead to a codification of meaningful
attorney involvement doctrine, bringing further uncertainty.
The American Bar Association and the National Creditors Bar
Association have both stated their opposition to the safe
harbor provision in this rule. Would you be open to
reconsidering the proposed safe harbor rule for meaningful
attorney involvement?
Ms. Kraninger. It is a proposed rule, Congressman. I
actually had not heard of those organizations' opposition, but
I imagine that I will hear it soon because we are going through
all of the comments now. We did get thousands of comments on
this rulemaking, and as it comes forward to me, in terms of
recommendations and decisions, I absolutely will take those
comments into account.
Mr. Mooney. Thank you for that. Since the founding of our
country, up until the CFPB was created, the legal process has
worked well. People may not always get the results they want,
but they have legal representation, and they have a fair
hearing. And it is regulated by the courts, and if you do
something wrong, you get disbarred. We have all heard of
lawyers who have been unethical and gotten disbarred. They have
a working process. If it ain't broke, don't fix it.
So, I am glad to hear that you want to do that. I had a
bipartisan bill I introduced myself last Congress called the
Practice of Law Technical Clarification Act, which would have
amended the fair debt collection practice to exclude law firms
and licensed attorneys engaged in litigation, from the
definition of debt collectors.
Had it passed, it would have made absolutely clear that
licensed attorneys are regulated by the courts, not Federal
regulatory bodies. But thank you for your answers. And Madam
Chairwoman, I yield back the balance of my time.
Chairwoman Waters. Thank you. The gentlewoman from Texas,
Ms. Garcia, is recognized for 5 minutes.
Ms. Garcia of Texas. Thank you, Madam Chairwoman, and thank
you for being with us today, Director. I know it has been a
long day, but we are down to the final stretch. First, I want
to thank you. I want to thank you because back in March of last
year when you first came by, I mentioned to you my concerns
about protecting those with limited English proficiency. That
is a real concern in my district, which is predominantly
Latino, about 77 percent, and I have seen your Spanish-
language, COVID-related outreach, and I really do appreciate
that, so thank you.
However, there is so much more work to be done, not just in
outreach, but in enforcement. You mentioned this issue in your
oral testimony, but it is not mentioned in your written
testimony, and only once in the agency's Spring report. I would
like the agency to devote additional resources in this area.
How is your agency working to target unfair practices that
target the limited English proficiency community?
Ms. Kraninger. Thank you, Congresswoman, for that question,
and we have a lot of sources for the enforcement actions that
we take. Certainly, whistleblowers come forward. We use the
complaints, so encouraging communities--and we have many
communities we still need to continue to reach so they know
about us, but when they do submit complaints, we take those
seriously. We look for any patterns or practices. We go in and
do examinations based on that or go straight to an enforcement
action. So, there are a lot of ways--
Ms. Garcia of Texas. How many times have you gone to an
enforcement action?
Ms. Kraninger. We have hundreds of ongoing investigations
and many other--
Ms. Garcia of Texas. No, but how many times have you taken
an enforcement action?
Ms. Kraninger. There are 40 public enforcement actions that
I have taken in my term to date.
Ms. Garcia of Texas. And how many of those were based on
any targeting of unfair practices against limited English
proficiency (LEP) consumers?
Ms. Kraninger. I will admit to you that I do not recall
there being an LEP nexus to these cases, but that doesn't mean
we don't have other work that we are doing in that area.
Ms. Garcia of Texas. Okay. Can I hear from you a commitment
to be more vigilant about that?
Ms. Kraninger. Yes, Congresswoman. I would pledge, too, if
there are particular entities that your constituents are
interacting with, where you have heard about issues, raise them
to us, and we would be happy to take that into account, too.
Ms. Garcia of Texas. I am going to switch topics now. I am
tremendously upset--tremendously upset--by your agency's recent
action to allow payday lenders to continue to prey on those
most in need. You have testified that the previous rule would
have reduced access to credit by 70 percent, and that is why
you changed this rule, correct?
Ms. Kraninger. Yes. That is certainly one reason.
Ms. Garcia of Texas. Okay. But what I don't think you
understand is that payday loans aren't credit. They are chains
of debt. A cycle of debt entraps--as some of my colleagues have
described, they are tools that extract wealth from the most
vulnerable. This isn't just my opinion; this is something we
all know to be true.
That is why Congress enacted the Military Lending Act
nearly 15 years ago, to protect our servicemembers from being
trapped in a cycle of debt. It was such a concern that the
Department of Defense was beginning to see the impact to
military readiness.
Mr. McHenry calls these products a lifeline, and that is
what people are looking for when they seek out a payday loan.
They are seeking a lifeline, but instead, they are being thrown
an anchor by these predatory companies. If the military felt
that these institutions were degrading the readiness of our
military personnel, imagine what these predators are doing to
the very fabric of our society.
Predatory payday lenders extract wealth from poor and
minority communities. They perpetrate the racial wealth gap.
They are part of a system that has let inequity grow and wealth
accumulate to the very few, while leaving those in my community
struggling just to maintain.
I have always said that payday lenders just make poor
people poorer. I am afraid that your actions have made you an
enabler, and I am just really distressed and concerned that you
have taken that recent action.
Finally, one last topic, I want to talk about the stimulus
checks. This spring, Treasury sent out about 159 million
checks. That is a lot of people. There was a lot of concern
about some of the calls our constituents were getting, people
saying, ``Hey, we can get you the check, but there is going to
be a fee. We are going to take 10 percent.''
Knowing that there has been some fraud and some issues with
stimulus checks, and knowing that we are looking at another
round through this relief package, what are you doing to help
prevent some of these scams from recurring?
Ms. Kraninger. Congresswoman, that is an important
question. I know we are limited here. We are already talking to
Treasury about that, and we were with them from day one, trying
to figure out, as soon as they made a policy decision about how
to distribute the funds, how do we communicate that and reach
people?
Ms. Garcia of Texas. Thank you, and I yield back.
Chairwoman Waters. The gentleman from Wisconsin, Mr. Steil,
is recognized for 5 minutes.
Mr. Steil. Thank you very much, Chairwoman, and thank you,
Director, for being with us today. As several Members have
mentioned, the Supreme Court finally confirmed what many of us
have been arguing for years, that the leadership structure at
the CFPB was unconstitutional, and to me, that is just one of
the structural problems with the agency that was seemingly
built to be unaccountable.
That is not a comment to you. That is a comment to us in
the House of Representatives, and in the United States Senate,
who structured it to be that way, to be unaccountable.
And one of my big frustrations is that the Bureau is set up
to be regulated and to put forward regulation by enforcement,
rather than allow the regulations to be developed here in this
committee, in the House of Representatives, and the Senate,
where I think it would be far better suited rather than an
unaccountable agency, where I think there can often be
disastrous consequences.
Neither Republicans nor Democrats can do anything about it
if we feel that the Bureau is overstepping its bounds. I have
made this offer before, and I am going to make it again, I am
willing to work with anybody on this committee, regardless of
party, to do meaningful reform to the structure of the CFPB.
I think the Bureau needs to have a leadership structure
that respects the principles of our Constitution. I think it
needs to be tied to the appropriations process and truly be
accountable to the people and to Congress. Consumer protection
is a vitally important issue, and we should be working together
to make sure that the Bureau is lawful, built to protect
consumers, and to respond to the concerns of the American
people. And so, I call on our colleagues to get to work.
Now, I would like to chat with you. Director Kraninger. I
spent some time reading through your budget. In trying to parse
this out--and you were asked earlier by my colleague from
Minnesota on your litigation cost, but I think--and I
understand you are not--and I am not asking you to speak to any
specific piece of litigation, but trying to just get some
clarity into the structure of your budget. In going through it,
you had about $112 million--in Fiscal Year 2020, about $112
million in what I viewed as salary: $47 million in benefits;
and $107 million in what was labeled as other contractual
services. I'm unclear if that might be additional litigation
expenses.
I am wondering if you can provide some level of clarity to
me and to my colleagues here on this committee as to what,
broadly speaking, your litigation expenses may be across-the-
board?
Ms. Kraninger. We certainly can, and we can get back to you
on that. There are contractual costs associated with
litigation, as I was saying, with document production and
sometimes data analysis efforts, in getting depositions and all
of those kinds of things involved, generally speaking, some
contract support. So off the top of my head, I don't have it,
but we can get back to you on it.
Mr. Steil. I think it is an important number, and as you go
forward and put forward these documents, I think it is helpful
to the committee to get a broader understanding of what the
vast majority of the spending is inside the CFPB and what
portion of that is in litigation.
The reason I am concerned is, I think it is a really poor
way to go about policymaking, when it is done through
litigation and enforcement. I think we are far better off at
policymaking here at this committee through a deliberative
process where the people are represented through their elected
representatives, rather than an unelected agency through
litigation. That's not a comment to you, but a comment really
to how this agency was structured, I think, to set up
potentially disastrous consequences in the future.
I appreciate you coming back with some additional details
on the litigation costs.
Let me shift gears. I am also very concerned during the
coronavirus, in particular, about bad actors. In the ongoing
pandemic, there are criminals taking this as an opportunity to
take advantage of American consumers, and so, I have introduced
bills to increase penalties on these types of criminals.
Can you comment on what the CFPB has done to ensure that
consumers of financial products are protected during some of
the most challenging of times?
Ms. Kraninger. Absolutely. We are in partnership with the
Department of Justice, the FTC, and all of the prudential
regulators, and State attorneys general, talking regularly
about fraud schemes that we see, and who is handling them.
There are certainly a lot of things happening in the healthcare
space.
We have seen admittedly slightly less in the financial
products space. And I will say that the financial institutions
are a huge help in that as well because they are keeping their
eyes open, consumers advocates are keeping their eyes open, but
the minute we hear about anything, we are investigating and
moving on it. So, that is an ongoing vigilance, as well as
making sure that we get good information to consumers so they
are aware of it, so that it is front and center for them.
Mr. Steil. Thank you very much. I appreciate your
leadership in this regard, and I yield back.
Chairwoman Waters. Thank you. The gentleman from Virginia,
Mr. Riggleman, is recognized for 5 minutes.
Mr. Riggleman. Thank you, Madam Chairwoman, and thank you,
Director, for being here today. I would like to start by
thanking you for your continued efforts to make the Consumer
Financial Protection Bureau more accountable and transparent,
and for many actions the Bureau has taken since your appearance
in February.
I also, going near the end, get some advantages to being
near the end of these, and I would like to know, the challenges
that you had, one of my colleagues talked about the number of
complaints that you have had and the increase in those
complaints from March until now. And I know you have also had
to work under the same structure of CDC guidelines and COVID
issues also. Is that correct, ma'am?
Ms. Kraninger. Yes. We take that seriously.
Mr. Riggleman. And obviously, the challenges have been
pretty huge with your workforce, right, for either teleworking
and things like that. You all have had to actually sort of
navigate all the same challenges that other workforce people
have done. Is that correct?
Ms. Kraninger. Yes, it is.
Mr. Riggleman. So I think you understand your civic
responsibility, and I want to thank you for all those
challenges and the amazing number--I know data and I know
volume, and the fact that you are getting back to people in 9
days, I think is commendable. And there is a difference between
receiving the information and responding to it and doing an
investigatory action, which I had to do when I had to process
requests for information in intelligence analysis, so I
appreciate that.
I also want to talk about Section 1033, and I know you
announced an intent to issue an ANPR on consumer authorized
access to financial records later in the year, and I know we
have heard that. So again, the benefit of going later--I don't
know if anybody knows how long Section 1033 is, and I know all
of us have probably read it, but Section 1033 is only 335
words. I don't know if people have looked at Section 1033, and
about 10 years ago, it would be the same with me.
And I don't know if people have seen 1033 and what it is
dictating, and what you have to do in that rulemaking. There
are some challenges I don't think people really realize, even
like somebody handing me a piece of paper that is 335 words,
and it pretty much says, ``Hey, Denver, don't worry, you have a
couple of years to make a missile to go between mach 5 and mach
25, it has to reentry from space, and it has to hit a target
with 10 meters, go ahead, you can do this.'' And that is pretty
much how many words you have in Section 1033.
Here are some of the challenges that I think the CFPB is
going to have, and I have been writing these down. You are
really talking about aggregated or interconnected banking. You
are talking about a critical path checklist that is huge for
1033 on rulemaking.
You are talking about the legal issues people have to deal
with--data transfer issues, universal API middle ware
challenges, data translation, cloud utilization or not, policy
on authorizations, interconnected banking like we talked about,
and how people actually stress test interconnected banking with
that volume of data.
You are talking about data-volume issues because of that,
and then you are talking about access to consumers, or
aggregators, or consumer agents. That is just part of the
critical path checklist that you have to worry about during
your critical path checklist bill and when you are making
rulemaking. Is that correct?
Ms. Kraninger. Yes, that is the case. And I would always
say, the distinction, of course, is that you have an end user
who actually is building that missile. This is a distributed
system. I am not the builder of this system.
Mr. Riggleman. And that is why I found it so interesting,
the challenges that you have not being the builder of the
system, but somehow, being identified as the one responsible
for that entire system, based on Dodd-Frank and the rulemaking
that you worry about on 1033. And I have seen some of the
talent that you sort of array around you, and I am really
impressed with that.
But this is the question I want to get at. Do you see the
CFPB, even with you not building something--and I would never
ask that or never even infer that--do you see yourself almost
as the lead system integrator for this, or do you see when you
do this rulemaking that you are just going to have a threshold
that these private entities have to actually answer to, or bill
to, or do you see it actually putting out specific rule sets or
specific ways of actually approaching this technology, and you
are going to be the final arbiter on that?
Ms. Kraninger. You have definitely laid out a lot of
challenges of this. I would say that we are really just taking
a tiptoe in this direction with that Advance Notice of Proposed
Rulemaking. We are not necessarily committing to do a
rulemaking, because there are some who would argue that Section
1033 and its 335 words is self-effectuating.
But trying to put some parameters around this, and at least
have a conversation around these complicated issues is what we
are looking to facilitate.
Mr. Riggleman. Even when you look at Dodd-Frank, when it
came back over a decade ago, we have gone from things like
relational databases to graph analytic databases, and the
ability to parse data on a level we have never seen before,
right, FinCEN, looking at different types of aggregators all
across the financial sector?
I think that is why it is such a challenge, and why I
wanted to just express to you that I appreciate what you have
done during the COVID pandemic, but I also hope people
understand the challenge of rulemaking at this level, with the
amount of technology that sort of presented before the CFPB,
but also for those certain banks to actually do this.
I think I would love to have seen, if I was here when that
was made--I don't see where there is a technical solution for
all of this embedded within Dodd-Frank. So, I appreciate the
efforts that you have made.
The next question would take 17 minutes to answer, so I am
not going to ask it. I appreciate your time, and Madam
Chairwoman, I yield back.
Chairwoman Waters. Thank you. The gentleman from Texas, Mr.
Taylor, is recognized for 5 minutes.
Mr. Taylor. Thank you, Madam Chairwoman. I appreciate this
hearing and this opportunity. And Director Kraninger, I
appreciate you being here.
I grew up legislatively in the Texas Senate with my
colleague from Texas, Ms. Garcia, and I am used to a, perhaps,
more professional environment, where when you are asked a
question, you allow the person to answer it, rather than
cutting them off and then accusing them of refusing to answer.
Is there anything you wanted to add? I noticed you were cut
off a couple of times since I have been here, and maybe there
is some question you wanted to answer that--I will just yield
you some time to answer a question.
Ms. Kraninger. Thank you, Congressman, I do appreciate
that. I would say we fulsomely have been able to cover some of
these things along the way. I know there is a lot of interest
certainly in the qualified mortgage effort that deserves some
more conversation. Given that it is a proposed rule, though, we
have time for that. We expect to get comments on it. But just
noting that the Act requires debt and income to be considered
and verified.
We believe that under a rulemaking, there has to be a
standard for that, that the CFPB would allow to be used, and so
that is what we are trying to promote that. That is where the
core ability to repay comes into play. Linking that, then, to
the pricing threshold that we are proposing, it really is about
a more holistic view than just DTI itself as that ratio that is
a hard cap right now under the current rule.
So at any rate, there is time on that particular topic to
continue the conversation.
Mr. Taylor. Thank you for answering that, and it is, again,
frustrating to watch people not have the respect and give you
the time to answer the question they are asking.
Something that has come up repeatedly in this hearing is
the recent Supreme Court ruling. I know you have had a chance
to think about it, and I have had a chance to listen to some of
my colleagues and some of your responses. But if you were to
give us what we are supposed to do from here, it seems like we
need to change some things in statute. Could you speak to that?
What changes would you recommend, or what kind of direction
should we start to go in hunting around to get the agency in
constitutional compliance?
Ms. Kraninger. I will tell you, Congressman, the decision
with respect to, of course, the removal of the Director and the
President's ability to do that, that is certainly the starting
point for the conversation. I know that is, for some, the way
the organization was created, and then there becomes some
questions about other changes that Congress might want to
contemplate.
And so, I have respectfully declined to opine about
precisely what those structural changes or proposals should
look like, but I certainly stand ready to provide anything, as
a process goes forward on that, that we can provide, and should
something be enacted, I also obviously stand ready to help
implement that.
Mr. Taylor. Yes. I certainly hope, at a bare minimum, that
Congress would take action to fix this. And I guess, one of my
frustrations with this institution is its inability to act, and
to see simple, straightforward legislative solutions go
through, that I hope we could all agree that your agency should
be constitutional, and that we would take some actions, and I
hope that we could do that on a bipartisan basis. I don't think
it is terribly difficult to say, Okay, let's let the President
appoint and relieve the Director of the CFPB, which I think
is--my understanding is that would basically bring you in
constitutional compliance. Is that directionally correct?
Ms. Kraninger. The decision essentially did that. The
question then becomes if there are other changes that the
Congress would want to see made.
Mr. Taylor. Okay. And so, I look forward to working to try
to make this institution functional, to actually be able to
issue legislation so that it doesn't have to feel like we are
so impotent that we must create eight new agencies that are
then non-accountable to the institution.
I know, again, in my time in the Texas legislature, we were
powerful in that we could actually pass common-sense
legislation. We could bring agencies to heel because we could
actually wield legislation. That legislature would pass between
1,000 and 1,500 bills in a 20-week session. Here, we are
passing about 50 or 100 bills a year. So, the volume of
production is just so much lower, and, therefore, the power
that it wields is consequently reduced. And enough of my
pontificating on that. I yield back.
Chairwoman Waters. Thank you. And I would like to thank
Director Kraninger for her time today. This may be her last
presentation before this committee.
Before we adjourn, I have statements for the record, and
without objection, the statements will be made a part of the
record.
The Chair notes that some Members may have additional
questions for this witness, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to this witness and to place her responses in the record. Also,
without objection, Members will have 5 legislative days to
submit extraneous materials to the Chair for inclusion in the
record.
This hearing is now adjourned
[Whereupon, at 4:45 p.m., the hearing was adjourned.]
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