[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]



                 AGENCY AUDIT: REVIEWING CFPB FINANCIAL
                       REPORTING AND TRANSPARENCY

=======================================================================




                                HEARING

                               BEFORE THE

                 SUBCOMMITTEE ON FINANCIAL INSTITUTIONS
                          AND MONETARY POLICY

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED EIGHTEENTH CONGRESS

                             SECOND SESSION
                               __________

                             APRIL 16, 2024
                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 118-88






                [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]





                                ______

                   U.S. GOVERNMENT PUBLISHING OFFICE 

56-439 PDF                 WASHINGTON : 2024





























                 HOUSE COMMITTEE ON FINANCIAL SERVICES

               PATRICK McHENRY, North Carolina, Chairman

FRANK D. LUCAS, Oklahoma             MAXINE WATERS, California, Ranking 
PETE SESSIONS, Texas                   Member
BILL POSEY, Florida                  NYDIA M. VELAZQUEZ, New York
BLAINE LUETKEMEYER, Missouri         BRAD SHERMAN, California
BILL HUIZENGA, Michigan              GREGORY W. MEEKS, New York
ANN WAGNER, Missouri                 DAVID SCOTT, Georgia
ANDY BARR, Kentucky                  STEPHEN F. LYNCH, Massachusetts
ROGER WILLIAMS, Texas                AL GREEN, Texas
FRENCH HILL, Arkansas, Vice          EMANUEL CLEAVER, Missouri
  Chairman                           JIM A. HIMES, Connecticut
TOM EMMER, Minnesota                 BILL FOSTER, Illinois
BARRY LOUDERMILK, Georgia            JOYCE BEATTY, Ohio
ALEXANDER X. MOONEY, West Virginia   JUAN VARGAS, California
WARREN DAVIDSON, Ohio                JOSH GOTTHEIMER, New Jersey
JOHN ROSE, Tennessee                 VICENTE GONZALEZ, Texas
BRYAN STEIL, Wisconsin               SEAN CASTEN, Illinois
WILLIAM TIMMONS, South Carolina      AYANNA PRESSLEY, Massachusetts
RALPH NORMAN, South Carolina         STEVEN HORSFORD, Nevada
DAN MEUSER, Pennsylvania             RASHIDA TLAIB, Michigan
SCOTT FITZGERALD, Wisconsin          RITCHIE TORRES, New York
ANDREW GARBARINO, New York           SYLVIA GARCIA, Texas
YOUNG KIM, California                NIKEMA WILLIAMS, Georgia
BYRON DONALDS, Florida               WILEY NICKEL, North Carolina
MIKE FLOOD, Nebraska                 BRITTANY PETTERSEN, Colorado
MIKE LAWLER, New York
ZACH NUNN, Iowa
MONICA DE LA CRUZ, Texas
ERIN HOUCHIN, Indiana
ANDY OGLES, Tennessee

                     Matt Hoffmann, Staff Director
                     
                     
                     
                     
                     
                     
                     
                     
                     












                     
       Subcommittee on Financial Institutions and Monetary Policy

                     ANDY BARR, Kentucky, Chairman

BILL POSEY, Florida                  BILL FOSTER, Illinois, Ranking 
BLAINE LUETKEMEYER, Missouri           Member
ROGER WILLIAMS, Texas                NYDIA M. VELAZQUEZ, New York
BARRY LOUDERMILK, Georgia, Vice      BRAD SHERMAN, California
  Chairman                           GREGORY W. MEEKS, New York
JOHN ROSE, Tennessee                 DAVID SCOTT, Georgia
WILLIAM TIMMONS, South Carolina      AL GREEN, Texas
RALPH NORMAN, South Carolina         JOYCE BEATTY, Ohio
SCOTT FITZGERALD, Wisconsin          JUAN VARGAS, California
YOUNG KIM, California                SEAN CASTEN, Illinois
BYRON DONALDS, Florida               AYANNA PRESSLEY, Massachusetts
MONICA DE LA CRUZ, Texas
ANDY OGLES, Tennessee 
























                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    April 16, 2024...............................................     1
Appendix:
    April 16, 2024...............................................    31

                               WITNESSES
                        Tuesday, April 16, 2024

Johnson, Brian, Managing Director, Patomak Global Partners.......     5
Peterson, Christopher L., John J. Flynn Endowed Professor of Law, 
  University of Utah, S.J. Quinney College of Law................     8
White, Adam J., Senior Fellow, American Enterprise Institute 
  (AEI); and Co-Director, Antonin Scalia Law School's C. Boyden 
  Gray Center for the Study of the Administrative State..........     6

                                APPENDIX

Prepared statements:
    Johnson, Brian...............................................    32
    Peterson, Christopher L......................................    48
    White, Adam J................................................    59

              Additional Material Submitted for the Record

Johnson, Brian:
    Written responses to questions for the record................    79
White, Adam J.:
    Written responses to questions for the record................    80

 
                        AGENCY AUDIT: REVIEWING
                        CFPB FINANCIAL REPORTING
                            AND TRANSPARENCY

                               ----------                              

                        Tuesday, April 16, 2024

                          U.S. House of Representatives,
                     Subcommittee on Financial Institutions
                                       and Monetary Policy,
                               Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 2:36 p.m., in 
room 2128, Rayburn House Office Building, Hon. Andy Barr 
[chairman of the subcommittee] presiding.
    Members present: Representatives Barr, Posey, Williams of 
Texas, Loudermilk, Timmons, Norman, Fitzgerald, Kim, De La 
Cruz, Ogles; Foster, Sherman, Green, Beatty, Vargas, and 
Pressley.
    Ex officio present: Representative Waters.
    Chairman Barr. The Subcommittee on Financial Institutions 
and Monetary Policy will come to order.
    Without objection, the Chair is authorized to declare a 
recess of the subcommittee at any time.
    Today's hearing is entitled, ``Agency Audit: Reviewing CFPB 
Financial Reporting and Transparency.''
    I now recognize myself for 5 minutes to give an opening 
statement.
    The Consumer Financial Protection Bureau (CFPB) is 
increasingly out of control and lacks transparency because 
there are virtually no checks on the agency's power. As the 
most recent example of the lack of transparency and 
accountability towards Congress, a request was made by this 
subcommittee for the CFPB to provide a witness for today's 
hearing, but the CFPB declined.
    While the GAO audits the CFPB's attestations about its 
financial condition, those audits have important caveats 
identifying that GAO is only monitoring numbers and not policy 
or budgeting decisions. Moreover, an additional independent 
audit is required by statute, but the CFPB does not seem to 
take this mandate seriously. The most recent audit was a mere 9 
pages long and curiously contained zero findings or 
recommendations, not independent.
    Due to this lack of oversight, the CFPB has acted 
unilaterally and arbitrarily outside of its statutory mandate 
routinely without engaging in notice-and-comment rulemaking 
and, instead, operating through rulemaking by guidance, press 
releases, or blog posts.
    Further, the agency has engaged in enforcement threats 
without adjudication. A rogue CFPB under Director Chopra is of 
no help to consumers, even if advocates of the CFPB tout the 
amount of fines and damages awards the CFPB claims to have 
generated. The sanctions generated have costs and they also 
come at the social costs of Director Chopra's blanket 
indictments of hardworking and honest workers throughout the 
financial system. These institutions play by the rules, help 
consumers, and provide fair financial services, yet their 
reputations are unfairly tarnished through Director Chopra's 
portrayal of them as crooks who are out to take advantage of 
their fellow Americans.
    Courts have acted to strike down numerous unlawful CFPB 
actions under Director Chopra as he continues to far overstep 
what he views as unbounded authority and power. And courts must 
play that role, partly because Congress has no ability to rein 
in the CFPB's overreached puffery and false statements through 
our own most effectual weapon, the power of the purse.
    The Supreme Court has the opportunity to confirm what 
Republicans have said all along, that the CFPB's unaccountable 
funding structure is unconstitutional, and the agency must be 
brought under the appropriations process. Congress should act 
now to reassert the power of the purse and ensure unelected 
bureaucrats do not have the ability to run roughshod over the 
personal rights of consumers and law-abiding businesses.
    Through a design feature in the Dodd-Frank Act, the CFPB 
was purposely set up to insulate the government agency from 
proper congressional oversight. The CFPB was set up to ensure 
unbridled power for an authoritarian agency head who wants to 
exercise partisan and unreasoned control over financial 
services, with the ultimate goal of turning financial 
institutions into public utilities.
    Unfortunately for consumers, the CFPB's policy actions 
under Director Chopra's leadership have become almost entirely 
reckless, arbitrary, and capricious. Pushing new rules, 
guidance, variable enforcement actions, blog posts, and email 
blasts that border on anti-capitalist propaganda does not 
promote consumer protection. The CFPB's activities under 
Director Chopra's leadership will serve primarily to increase 
the costs of financial services to consumers and reduce 
availability of those services, especially to traditionally-
underserved communities. This is quite the opposite outcome of 
what you would expect from an agency tasked with protecting 
consumers.
    The CFPB has increasingly become a hyper-partisan agency 
doing the bidding of the White House and the President's 
reelection campaign rather than protecting American consumers. 
It answers to no one but itself, and sometimes to the courts, 
where the CFPB Director's approach of using rhetoric and 
partisan theorizing over evidence and the law is often 
rejected. Where the Administration does not have the authority 
or votes in Congress to make a change, the Bureau simply forges 
ahead unchecked and uses subterfuge to make new laws.
    I look forward to discussing these important issues in our 
hearing today. We must understand the consequences of a rogue 
CFPB and explore the steps Congress must take to rein in the 
CFPB to better protect our citizens from an unchecked Federal 
bureaucracy. There must be guardrails on a rogue agency like 
the current CFPB, and that must at least begin with holding the 
CFPB's use of Federal resources accountable, transparent, and 
subject to congressional checks.
    The Chair now recognizes the ranking member of the 
subcommittee, the gentleman from Illinois, Dr. Foster, for 4 
minutes for an opening statement.
    Mr. Foster. Thank you, Mr. Chairman, and thank you to our 
witnesses here today.
    Since the Consumer Financial Protection Bureau opened its 
doors in 2011, it has served as the cop on the beat, protecting 
consumers from unfair, deceptive, and abusive practices, and 
taking action against violators of consumer protection laws. 
The CFPB has provided more than $19 billion in relief to 195 
million consumers and required financial firms who have broken 
the law to deposit more than $4.8 billion in the Victims Relief 
Fund, which is used to compensate consumers who have been taken 
advantage of in the financial marketplace. Bipartisan polling 
has shown that the CFPB is overwhelmingly popular among U.S. 
consumers, finding that 82 percent of voters, including 77 
percent of Republicans, support the CFPB's mission, so it is 
right up there with IVF.
    Today, we will discuss the CFPB's budget process, and I 
expect that we will hear the same decade-old arguments that in 
carrying out its mission to protect consumers, the Bureau, in 
its budget, has somehow gone rogue, to the detriment of 
American consumers. I believe that we can dispel this notion by 
looking at the facts. Like other independent agencies, the 
CFPB's budgetary process is subject to intense and independent 
scrutiny.
    The CFPB's annual budget is submitted to multiple 
independent entities for review, including the Government 
Accountability Office (GAO) and independent auditors. The 
results of these reviews have overwhelmingly affirmed the 
soundness of the CFPB's budget, with the Bureau receiving a, 
``clean,'' audit opinion with limited findings over the last 13 
years.
    The CFPB regularly publishes comprehensive financial and 
performance reports, including quarterly spending reports and 
manual performance plans, as well as monthly reports to the 
Treasury and GAO on its financial activities, including 
contract spending. In addition, the CFPB Director is 
statutorily required to testify before Congress twice per year 
to discuss the activities of the Bureau, its budget, and other 
topics to allow the committee to provide robust oversight on 
its activities.
    The 2008 financial crisis showed that the disjointed 
consumer protection efforts of the agencies had fallen short 
and that there was a clear need for an agency focused on 
protecting consumers in the financial marketplace. These 
lessons ultimately led our committee to create the CFPB through 
the Dodd-Frank Act, which I am proud to have helped draft. In 
addition to cracking down on inflationary and unnecessary junk 
fees, the Bureau is working to give consumers the ability to 
control their own financial data, curb discriminatory lending 
practices, and finalizing remaining rulemakings from Dodd-
Frank. It is doing so while also being responsive to new risks 
stemming from emerging technologies like peer-to-peer (P2P) 
payment applications and artificial intelligence.
    And despite its overwhelming popularity and many consumer 
protection successes, the CFPB has been under constant attack 
from those who wish to undermine its mission. The Supreme Court 
is set to rule on the constitutionality of the CFPB's funding 
mechanism as early as June of this year. A ruling against the 
CFPB would be massively disruptive and destructive to the 
Bureau's implementation of consumer protection laws and curtail 
protections that consumers expect and deserve. As members of 
this committee conduct oversight on the Bureau, I urge them to 
consider the progress that has been made since the 2008 
financial crisis and ensure that additional oversight does not 
undermine its important mission that has spared countless 
consumers from harm in the financial marketplace.
    I look forward to hearing the perspectives of our witnesses 
today, and thank you for joining us. I yield back.
    Chairman Barr. The gentleman yields back. The Chair 
recognizes the ranking member of the full Financial Services 
Committee, the gentlewoman from California, Ms. Waters, for 1 
minute.
    Ms. Waters. Thank you. Today, this subcommittee could have 
been examining ways to strengthen consumer protections with 
respect to predatory payday lending, debt collection, junk 
fees, and so much more. Instead, Republicans are here to 
continue their crusade to crush the Consumer Financial 
Protection Bureau.
    House Republicans revealed their true colors last year when 
two-thirds of their caucus voted to defund the CFPB, but 
thankfully, Democrats handily defeated that effort. Instead of 
doing the bidding of wealthy financial executives, Republicans 
should listen to their constituents. After all, 82 percent of 
Americans, including 77 percent of Republicans, support this 
popular agency because it is a strong, transparent, accountable 
agency, and it fights for them all, and Democrats will always 
protect the CFPB and the consumers they defend. Ladies and 
gentlemen, we got the CFPB as a result of the meltdown of 2008. 
I love it, and we are going to defend it every day.
    Chairman Barr. The gentlelady's time has expired.
    Ms. Waters. I yield back the balance of my time, if I have 
any left. Thank you.
    Chairman Barr. The gentlelady's time has expired.
    Today, we welcome the testimony of, first, Brian Johnson, 
the managing director at Patomak Global Partners, and former 
Deputy Director of the Consumer Financial Protection Bureau. 
Welcome back to the committee, Mr. Johnson.
    Second, Adam J. White, a senior fellow at the American 
Enterprise Institute, and co-director of the Antonin Scalia Law 
School's C. Boyden Gray Center for the Study of the 
Administrative State.
    And third, Christopher L. Peterson, the John J. Flynn 
Endowed Professor of Law at the University of Utah, S.J. 
Quinney College of Law.
    We thank each of you for taking the time to be here. Each 
of you will be recognized for 5 minutes to give an oral 
presentation of your testimony. And without objection, each of 
your written statements will be made a part of the record.
    Mr. Johnson, you are now recognized for 5 minutes to give 
your oral remarks.

        STATEMENT OF BRIAN JOHNSON, MANAGING DIRECTOR,
                   PATOMAK GLOBAL PARTNERS

    Mr. Johnson. Chairman Barr, Ranking Member Foster, and 
members of the subcommittee, thank you for holding this 
important hearing on the CFPB's financial reporting and 
transparency. I am Brian Johnson, managing director of Patomak 
Global Partners. I previously served as Deputy Director of the 
CFPB, and prior to that, I served as a member of----
    Chairman Barr. Sorry. The gentleman will suspend. If 
Members could please take their conversations off the 
committee, so we can hear the witness, that would be 
appreciated. Mr. Johnson, you will get your time back. You may 
proceed.
    Mr. Johnson. Thank you, Mr. Chairman. The Congress that 
created the CFPB and the Dodd-Frank Act designed it to be 
independent from both the President and Congress. It was meant 
to be independent from the President based on for-cause removal 
protection afforded to the Director. However, in 2020, the 
Supreme Court struck down this provision as unconstitutional.
    In Dodd-Frank, Congress also made the CFPB independent from 
itself through a novel funding source. Unlike most departments 
and agencies, the CFPB is not subject to the normal 
congressional appropriations process. Instead, it draws its 
funding from the Federal Reserve (Fed). The Supreme Court will 
soon decide whether this funding mechanism is also 
unconstitutional. No matter the outcome in the case, Congress 
must grapple with an extraordinary situation: what to do with 
an agency that now operates under the direct political control 
of the White House but is not answerable to Congress for its 
funding. For that reason, today's hearing is timely.
    I would like to provide a general overview of how the CFPB 
obtains and expenses its funds. First, any funds the CFPB draws 
from the Federal Reserve are not available to be remitted to 
the Treasury to reduce the deficit. The CFPB is entitled to Fed 
funds even when, as now, the Fed is taking combined quarterly 
losses.
    Second, by law, the CFPB's funds may not be reviewed by the 
Fed or by congressional appropriators, and the CFPB's budget is 
not subject to approval by the Office of Management and Budget 
(OMB). CFPB's funds may not be considered government funds or 
appropriated monies.
    Third, CFPB's annual draws from the Fed are subject to a 
statutory cap index for inflation. For Fiscal Year 2024, the 
cap is projected to be $785 million. However, the CFPB can also 
carry forward unobligated amounts to future fiscal years, so 
the CFPB's total budgetary resources are projected to exceed $1 
billion in the next fiscal year. Since Fiscal Year 2012, the 
CFPB's budgetary resources have grown at a compound annual 
growth rate of 7.7 percent, compared to the Federal Trade 
Commission's (FTC's) equivalent growth rate of 3.5 percent.
    Fourth, the CFPB estimates that its spending this fiscal 
year will reach $763 million, a 9.5-percent increase over last 
year. Almost two-thirds of this amount will be spent on staff 
salaries and benefits. The CFPB now has about 1,700 employees 
who, on average, receive compensation of over $257,000 per 
employee, an amount that has grown at a compound rate of 5.8 
percent since Fiscal Year 2012. By comparison, average FTC 
compensation is about $158,000 per employee and has grown at a 
2.5-percent annual rate over the same period. CFPB employees 
receive generous benefits, the dollar value of which has grown 
more rapidly even than salaries. The CFPB is also in the midst 
of negotiations with its labor union and is expected to reach 
an agreement on additional automatic raises and bonuses that 
will bind the agency for the next several years.
    Fifth, regarding contract and support obligations, the CFPB 
has entered into interagency agreements for services at a 
cumulative cost exceeding $1 billion since Fiscal Year 2013, 
and also contracts with private sector entities. And while 
aspects of the spending are not transparent, some of its major 
spending categories are known, such as an initial obligation 
amounts for management consulting and program support services 
now exceeding a cumulative $250 million, as well as over $41 
million for expert witness services.
    Sixth, oversight of these processes is minimal. There are 
GAO audits over CFPB's financial reporting controls but not of 
spending decisions, and the Fed Inspector General has only 
twice directly reviewed the CFPB's budget and funding process. 
Dodd-Frank separately requires an annual independent audit of 
the CFPB's operations and budget, but the most recent audit 
report, only 9 pages long and with no findings or 
recommendations, is far from comprehensive.
    Thank you to the members of the subcommittee for engaging 
in much-needed oversight of the CFPB's funding and 
expenditures. I will be pleased to answer your questions.
    [The prepared statement of Mr. Johnson can be found on page 
32 of the appendix.]
    Chairman Barr. Thank you. Mr. White, you are now recognized 
for 5 minutes to give your oral remarks.

     STATEMENT OF  ADAM J. WHITE,  SENIOR FELLOW,  AMERICAN
       ENTERPRISE INSTITUTE (AEI); AND CO-DIRECTOR, ANTONIN 
       SCALIA  LAW SCHOOL'S C. BOYDEN GRAY  CENTER  FOR THE
       STUDY OF THE ADMINISTRATIVE STATE

    Mr. White. Thank you, Chairman Barr, Ranking Member Foster, 
and members of the subcommittee. Thank you for the opportunity 
to testify. My opening statement will be brief, I hope. I 
simply want to make three key points.
    First, the Constitution's power of the purse is one of 
Congress' most significant powers and responsibilities. The 
crucial provision of Article I, Section 9, of the Constitution 
reads, ``No money shall be drawn from the Treasury, but in 
consequence of appropriations made by law.'' This was, at its 
very beginning, a crucial provision. James Madison recognized 
it--I described this in my written testimony--and other 
founders did, too. They understood the power of the purse's 
fundamental role in constraining executive power. That is why 
it was the subject of such fierce debate in the first Congress 
and every Congress thereafter.
    And as the scope of government has grown over 2 centuries, 
so has the importance of the appropriations process. Even 
today, the Administrative Procedure Act (APA) and White House 
Executive Orders are important checks and balances on the 
administration and mechanisms for oversight, but they are no 
substitute for Congress' constitutional power and 
responsibility. Indeed, now that the CFPB's connection to the 
White House is clear in the aftermath of the Supreme Court 
Seila decision--the CFPB is closely tied to the White House 
both legally and politically--this makes Congress' independent 
power and responsibility even more important.
    Second, there is no good reason to give the CFPB its 
special exemption from Congress' appropriations process and 
responsibility. The CFPB truly is exceptional. To be sure, 
other agencies, especially other financial regulators, do 
receive revenue from the agency's own operations. This is a 
longstanding practice and, in many ways, a sensible one, but to 
the best of my knowledge, no regulatory agency is allowed to 
simply reach into a completely different source of Federal 
money to be the agency's main source of revenue. No other 
agency gets to treat the Federal Reserve as a regulatory slush 
fund. The CFPB is, to the best of my knowledge, the first such 
agency, although I do worry it will not be the last.
    If the Supreme Court does not declare the CFPB's funding 
structure unconstitutional in the pending case, there will be 
many calls in the future to give other agencies special access 
to the Federal Reserve's funds. In fact, I recall in 2010, when 
the Dodd-Frank Act was first legislated and enacted, the Chairs 
of other financial regulators, including the CFTC and the SEC, 
publicly called for similar funding authority, a self-funding 
authority from Congress.
    This is my last point. Speaking of the Supreme Court case, 
the CFPB's characterization of its finances in the Supreme 
Court case has been astonishingly at odds with more than a 
decade of the agency's own reports and descriptions. The Dodd-
Frank Act itself stated explicitly that the CFPB's funds are 
not appropriated, and from the very start, the CFPB admitted 
this obvious fact that its funds are not appropriated, 
beginning at least with its 2013 first financial report.
    In then-Director Cordray's testimony before the 
Subcommittee on Oversight and Investigations in 2012 and every 
year thereafter, the CFPB said over and over again that its 
funds were not appropriated. In fact, the CFPB trumpeted this 
fact to reiterate the agency's independence. It would often say 
that non-appropriated funding gave the agency, ``full 
independence.'' It told the GAO in a 2016 contracting dispute 
that the GAO lacked jurisdiction over the agency because the 
agency's funds are not appropriated.
    But in the Supreme Court case now pending, the CFPB now 
makes the opposite argument, the novel argument that the Dodd-
Frank Act itself was an appropriations statute. That argument 
strains credulity, it strains the Constitution, and it is the 
latest reminder that the CFPB should not enjoy exceptional 
powers against oversight. The power of the purse, the 
Constitution's power of the purse, and the responsibility to 
use it wisely remains Congress'.
    Thank you again for the opportunity to testify and for the 
chance to answer your questions.
    [The prepared statement of Mr. White can be found on page 
59 of the appendix.]
    Chairman Barr. Thank you. Professor Peterson, you are now 
recognized for 5 minutes.

     STATEMENT OF CHRISTOPHER L. PETERSON,  JOHN J. FLYNN
       ENDOWED PROFESSOR OF LAW, UNIVERSITY OF UTAH, S.J.
       QUINNEY COLLEGE OF LAW

    Mr. Peterson. Chairman Barr, Subcommittee Ranking Member 
Foster, and Full Committee Ranking Member Waters, it is an 
honor to appear today. Thank you for your public service. My 
name is Chris Peterson, and I am the John Flynn Endowed 
Professor of Law at the University of Utah in Salt Lake City, 
where I teach consumer protection, constitutional law, and 
contract law classes. I am also a counsel at the public 
interest law firm of Gupta Wessler here in Washington, D.C., 
and I served at the CFPB in the Enforcement Office, and later 
as a Special Adviser to the Director, under Director Cordray.
    Today, I will focus on three points. First, the statute 
funding the Consumer Financial Protection Bureau is a 
constitutional exercise of Congress' spending power. Article I, 
Section 9, Clause 7, as my friend mentioned a moment ago, says 
that, ``No money shall be drawn from the Treasury, but in 
consequence of appropriations made by law.'' The Supreme Court 
has held that that sentence says simply that no money can be 
paid out of the Treasury unless it has been appropriated by an 
act of Congress, and Section 12 U.S.C. Sec. 5497 is a law 
adopted by Congress that appropriates funds.
    The fact that this law appropriated funds through an 
ongoing mechanism does not render the law unconstitutional. The 
general appropriations clause does not require Congress to use 
an annual spending bill. As a result, Article I, Section 8, 
Clause 12, in contrast, says that, ``no appropriation of money 
to raise or support armies shall be for a longer term than 2 
years.''
    Contrast the two and you can see that the founders knew how 
to require durationally-limited congressional appropriations 
but made a conscious decision to not impose that durational 
limit on the general appropriations power. And as a result, 
Congress has often chosen to pass laws appropriating funding to 
executive agencies outside the annual spending bill process.
    For example, in 1792, Congress did that with the Post 
Office; it allowed the Post Office to be funded through 
assessments and stamps, and it is not just the Post Office. In 
the founding era, the First Bank of the United States, the U.S. 
Mint, the U.S. Patent and Trademark Office, and the Office of 
the Comptroller of the Currency, by 1875, were all appropriated 
through mechanisms outside of the annual spending bills.
    And in the 20th Century, that has become the norm for 
financial regulatory agencies, including, of course, the 
Federal Reserve Board of Governors, the Federal Deposit 
Insurance Corporation, the National Credit Union 
Administration, the Farm Credit Administration, and the Federal 
Housing Finance Agency, as well as the U.S. Citizenship and 
Immigration Services, the U.S. Customs and Border Protection, 
and the Animal and Plant Health Inspection Service, which are 
all appropriated either in part or in entirety through non-
spending bill mechanisms. And of course, at any time Congress 
is free to exercise its power of the purse by simply amending 
the Bureau's appropriations statute, but as it stands, this 
method of appropriating is one that Congress is free to choose 
under our Constitution.
    Two, Title X of the Dodd-Frank Act requires the CFPB to 
prepare annual reports subject to GAO oversight. I did a good, 
careful review of that financial report as well as the GAO 
oversight audit, and the GAO found that the CFPB's financial 
statements were presented fairly in all material respects, and 
in accordance with U.S. Generally Accepted Accounting 
Principles (GAAP), had effective internal controls, and had no 
reportable noncompliance for the last fiscal year.
    I did not identify anything out of the ordinary, either. Of 
course, we will all disagree about what political priorities 
should be, but the simple fact is that the staff at the CFPB 
lived up to their reporting obligations and are in compliance 
with the law.
    Third, the CFPB has an admirable track record of 
accomplishments in protecting American consumers, including its 
recent amendments to the Credit Card Accountability 
Responsibility and Disclosure Act's (CARD Act's) late fee 
regulations. Since the financial crisis in 2008, we learned 
that financial products that don't work for consumers can 
destroy our national economy, and that is why Congress created 
the CFPB.
    And the CFPB has now returned $19 billion in relief to 
nearly 200 million Americans who have been harmed by violations 
of the laws that Congress adopted. And not only that, they have 
also succeeded in modernizing our residential mortgage lending 
regulatory system, and they created a modern national consumer 
finance complaint intake portal that has staffed up to receive 
complaints from consumers in 180 different languages, and 
forwards 25,000 complaints every month to financial services 
companies to help resolve disputes and help individual 
consumers improve their daily lives.
    Recently, the Bureau announced its new, final CARD Act 
implementing regulations that are going to require credit card 
late fees to be reasonable and proportional in the way that 
Congress had originally contemplated back in 2009. In recent 
years, credit card issuers have imposed $14.5 billion in late 
fees.
    On balance, I think that the CFPB is headed in a positive 
direction, and I welcome the committee's----
    [The prepared statement of Professor Peterson can be found 
on page 48 of the appendix.]
    Chairman Barr. The gentleman's time has expired. Thank you, 
Professor.
    Now, we will turn to Member questions, and the Chair 
recognizes himself for 5 minutes for questioning.
    Mr. Johnson, let me start with you. We all agree that the 
CFPB is funded like no other agency in the Federal bureaucracy. 
The Fifth Circuit Court of Appeals held that the Bureau's 
funding mechanism is unconstitutional, as it is double 
insulated from the appropriations process since it is funded by 
the Federal Reserve, the operations of which are also financed 
outside of the traditional appropriations process.
    But here is what I want to take up, because this was hotly 
debated within the oral arguments before the Supreme Court. The 
professor has made the argument, and he has made it well and 
echoed the Counsel for the Bureau--wait a minute--there are 
plenty of analogues to the Bureau of permanent appropriations 
of an ongoing funding mechanism, and these are perfectly 
constitutional structures. I would submit there is simply no 
analog in the history of our republic of this. This is 
different than the Post Office. This is different than the 
FHFA. This is different than the FDIC. And this is 
fundamentally different than the OCC.
    I want you to tell me, do you agree with that, and if you 
do, why is the Bureau's structure different? I would submit it 
is different because you don't have a structure anywhere in the 
constellation of the bureaucracy, any time in American history, 
where you have an agency exempt from the appropriations process 
that has an independent stream of funding from another entity, 
which is itself exempt from the appropriations process, no 
analogue anywhere in the history of our country. What say you?
    Mr. Johnson. Thank you, Mr. Chairman. I would agree with 
you that the CFPB's structure as designed is unique in American 
history. The CFPB fundamentally has a market conduct regulation 
function. And if you look for other agencies across the 
government and the funding structures that Congress has created 
for market conduct regulators, like the CFTC or the SEC, those 
are all agencies that are subject to congressional 
appropriations.
    The CFPB is unlike its sister regulators. It is not a 
prudential regulator. It is not like the OCC. It is not like 
the Fed. It is not like the NCUA. It is not like the FDIC. So 
among the independent financial regulatory agencies that 
Congress has seen fit to create, it is of a structure that is 
completely unique. It is additionally, unique after the Seila 
Law decision where the Director now serves at the pleasure of 
the President, and is subject to direct political control from 
the White House.
    Chairman Barr. Mr. White, I want to follow up on Mr. 
Johnson's last point there. Seila Law corrected a 
constitutional infirmity and made the Bureau accountable to the 
Executive Branch. How would the symmetry of the separation of 
powers be served or not served if the Supreme Court were to not 
provide Congress with an additional check on the Bureau similar 
to what it provided to the Executive Branch by subjecting the 
Bureau to the congressional appropriations process? Would that 
create an asymmetry of accountability to the White House post-
Seila but no accountability to the Congress without 
congressional appropriations?
    Mr. White. I agree. These dual problems, these 
constitutional flaws were evident from the start. The Supreme 
Court has corrected the first problem with regard to executive 
power. I hope it corrects the second with regard to Congress' 
power and responsibility.
    Chairman Barr. And, Mr. White, would you discuss some of 
the drawbacks of agency structures that insulate the agency 
from congressional accountability, such as an agency whose 
budget is not set through congressional authorization and 
appropriations? The professor talked about how they prepare 
reports to Congress. Is that enough?
    Mr. White. It is not enough, sir. First, the appropriations 
process is important in and of itself as the way that our 
nation helps settle on its collective value judgments about 
what government should and should not be doing. But second, the 
appropriations process is Congress' tool for making sure that 
the rest of its constitutional powers over the agencies are 
obeyed.
    Chairman Barr. I have heard this argument that, well, 
Congress set this mechanism into place and Dodd-Frank was an 
appropriation, so therefore, voila, Congress has satisfied the 
appropriations clause. I did not vote for Dodd-Frank. I have 
never been able to vote for an appropriation that is 
meaningful. And by the way, to the ranking member, I voted to 
fund the agency to assert the power of the purse in the 
amendment process, but that failed, and the Taking Account of 
Bureaucrats' Spending Act (TABS Act) is not law right now.
    One final point to Mr. Johnson. Justice Kavanaugh in the 
oral argument says, well, future Congresses could correct this. 
What say you to Justice Kavanaugh about that? Does the fact 
that Congress could pass a bill in the future remedy an 
existing constitutional defect?
    Mr. Johnson. I don't know that it would, Mr. Chairman. The 
larger point I think is that it is profoundly anti-democratic 
to sever the people away from the way in which their funds, 
collected by their government, are spent by their government.
    Chairman Barr. My time has expired. The ranking member of 
the subcommittee, Mr. Foster, is now recognized for 5 minutes.
    Mr. Foster. Thank you. Professor Peterson, first off, just 
for clarity, the Federal Reserve, the FDIC, the OCC, the NCUA, 
and other agencies have independent funding outside of annual 
appropriations, correct?
    Mr. Peterson. Yes.
    Mr. Foster. Okay. So, a distinction appears to be made by 
those attacking the CFPB that insulation is okay, but double 
insulation is not. Is there a constitutional principle that 
differentiates between single insulation and double insulation?
    Mr. Peterson. Dr. Foster, no, I don't think so. I think 
that is a red herring, and part of the reason you can tell that 
is that the Federal Reserve Board of Governors doesn't have any 
authority to deny transfer requests. So, there is not a double 
insulation that provides some political insulation for the 
Director of the CFPB, nor the President of the United States. 
Congress has the ability to shut down those transfers any time 
it can get the votes together to pass a law that changes it. 
Congress still has its power of the purse under Article I of 
the Constitution because it can cut off these funds anytime it 
has the votes.
    Mr. Foster. Now, you mentioned that you spent some time 
looking at the recent auditing that had been done. Can you say 
anything about it? Is just the fact that the final report 
doesn't span many pages an indication that there is anything 
wrong, and were there a reasonable number of man-hours going 
into these audits?
    Mr. Peterson. It appears to be just a typical report to me. 
Chairman Barr is correct that these reports don't tell us what 
the priorities of the agency are, but the Executive Branch of 
the government is entitled to make some decisions about how to 
prioritize things. The Admirals get to decide where they are 
going to float the boats in the Navy, and the CFPB has to make 
some learned informed decisions about the things to prioritize. 
The key thing that we can take away from the financial audit is 
that there is no evidence that there is anything inappropriate 
going on. And I think it is very important for the morale of 
the civil service and for the public to understand that there 
are no allegations of impropriety at the CFPB. Their books look 
like they are in order.
    Mr. Foster. Thank you. Professor, in addition to your time 
working at the Bureau, you also spent a good deal of time at 
the Pentagon working in the Office of the Under Secretary of 
Defense for Personnel & Readiness. As part of the Dodd-Frank 
Act, Congress established the Office of Servicemember Affairs 
within the CFPB so that special attention could be paid to the 
unique financial challenges facing U.S. servicemembers, 
veterans, and their families. Through this office, the Bureau 
ensures compliance by financial firms with important consumer 
protection laws, like the Servicemembers' Civil Relief Act, the 
Military Lending Act, and others. In fact, earlier this year, 
the CFPB announced that it would distribute nearly $6 million 
to veterans who had been targeted with predatory loans.
    So, given your experience at the CFPB and the Pentagon, 
would you expect that our servicemembers and veterans would be 
worse off should proposals to undermine the agency be allowed 
to advance?
    Mr. Peterson. Yes, 100 percent. Servicemembers and veterans 
throughout history have often been the target of predatory 
loans, scams, and other cons and abuses, and we need a cop on 
the beat in Washington to try to make sure that they get a fair 
shake. They have served our country, and our country should 
serve them back by providing reasonable consumer protections 
and law enforcement that benefits their interests.
    Mr. Foster. Yes. Could you say a little bit more about the 
types of abuses that servicemembers faced prior to the CFPB?
    Mr. Peterson. Yes. When I was starting my career, my first 
big study showed that payday lenders were clustering around 
military bases. And we, my co-author and I, proposed a national 
interest rate cap on loans to military servicemembers. 
Eventually, that was implemented by Congress, a bipartisan bill 
that was signed into law by George W. Bush, and that has really 
made a big difference. And it is the CFPB that conducts the 
regular examinations and audits to make sure that payday 
lenders are not illegally targeting our military servicemembers 
for triple-digit predatory loans. That is something that is of 
benefit to working servicemembers and their families across 
America of which I think we can all be proud.
    Mr. Foster. Yes. Do you believe that Congress was right to 
create the Office of Servicemember Affairs within the CFPB?
    Mr. Peterson. Yes, I do. It is a great office. 
Servicemembers and veterans should have a say and should be 
able to be empowered and communicate with their government 
about financial services products that may not be working well 
for them, and also to reflect back the kind of things that they 
need. That is the role of that office, and I think they are 
doing a good job.
    Mr. Foster. And since Congress does not directly 
micromanage their budget through the appropriations process, 
are they in some sense triple insulated?
    Mr. Peterson. I would have to think about that. It is 
getting pretty meta, Dr. Foster. I am not sure I understand 
what double-insulated is, let alone triple-insulated, so I have 
to take a pass on that one.
    Mr. Foster. Okay. My time is nearly up, so I yield back.
    Mr. Peterson. Thank you, sir.
    Chairman Barr. The gentleman yields back. The gentleman 
from Florida, Mr. Posey, is now recognized for 5 minutes.
    Mr. Posey. Thank you very much, Chairman Barr, for holding 
this hearing on the Consumer Financial Protection Bureau, one 
of the most beautifully sounding names of any Federal agency, 
most especially for the most arrogant, petulant, and defiant 
Federal agency of all times. I was really looking forward to 
questioning Ms. Cackley of the Government Accountability 
Office, who was going to be a witness today. I am sad that, for 
whatever reason, she is not here. I had most of my questions 
geared to her. I disagree with the professor that there is no 
evidence that the CFPB has ever done anything wrong. I have 
been on this committee for 16 years, and I have witnessed her 
arrogant, petulant, defiant attitude and refusal to answer 
questions over the years.
    Mr. Johnson, it is my understanding that the GAO's test for 
CFPB compliance is Generally Accepted Auditing Standards (GAAS) 
in their financial reporting and for contracts and grant 
agreements. Are you aware of whether or not this review seeks 
to ensure that money is being efficiently spent and that an 
adequate bidding process is involved?
    Mr. Johnson. Thank you, Congressman. My understanding is 
that the scope of the GAO audit is over the controls in place 
about financial reporting, not a review of the underlying 
spending decisions.
    Mr. Posey. Okay. Mr. Johnson, or Mr. White, do either of 
you know if the Comptroller General has ever been asked to 
provide an opinion of the constitutionality of the CFPB's 
funding?
    Mr. Johnson. I am not aware, sir.
    Mr. White. I am not aware.
    Mr. Posey. Okay. Given that the CFPB gets its money from 
the Federal Reserve, that would otherwise end up in the U.S. 
Treasury, wouldn't it appear that it equates to drawing money 
from the Treasury without appropriations? Just a simple view of 
it.
    Mr. Johnson. It would, sir, with the wrinkle now that the 
Federal Reserve, as it unwinds its balance sheet, is taking 
quarterly operating losses. So, the funds that it is providing 
to the CFPB, it is entering on its balance sheet as a deferred 
asset, which runs up the tab, so to speak, of future earnings 
the Fed will have to pay before it can even begin remitting 
surpluses to Treasury again.
    Mr. Posey. Okay. Mr. White, has the CFPB, in the past, ever 
characterized its own funding as non-appropriated?
    Mr. White. Repeatedly, and from the very start, and as 
recently as last November in its 2023 Annual Financial Report, 
in which the CFPB repeatedly referred to itself as an 
independent, non-appropriated bureau. These are documents that 
they published after arguing the exact opposite to the Supreme 
Court.
    And I would just add, in a 2016 bid protest, the CFPB 
argued to the GAO specifically that the CFPB is not an 
appropriated agency, and, therefore, the GAO should not have 
any jurisdiction over the bid protest. The GAO agreed that the 
agency does not receive appropriations, but they still had 
jurisdiction. That decision was published by GAO in 2016. I 
have tried very hard, through a Freedom of Information Act 
(FOIA) request to GAO, to get the CFPB's briefing, arguing the 
opposite that it now argues to the Supreme Court, that the CFPB 
is not an appropriated agency, but I was not able to obtain 
that document through FOIA.
    Mr. Posey. Thank you. Do you know how the CFPB compares to 
the FTC's Bureau of Consumer Protection in terms of size and 
productivity, number of enforcement investigations, actions, or 
budget?
    Mr. Johnson. Congressman, my understanding is that the CFPB 
has roughly double the budget, and over the past 2 years, has 
filed roughly half of the enforcement actions, civil 
complaints, or administrative complaints. The one difference in 
terms of the scope of FTC authority and CFPB authority would be 
that the CFPB has supervision authority, whereas the FTC does 
not.
    Mr. Posey. Thank you. I see my time is about to expire, so, 
Mr. Chairman, I yield back.
    Chairman Barr. The gentleman yields back. The ranking 
member of the Full Committee, the gentlewoman from California, 
Ms. Waters, is now recognized.
    Ms. Waters. Professor Peterson, thank you for being here 
with us. And I am very pleased with President Biden's 
initiative to eliminate junk fees, as well as all the hard work 
of the Consumer Financial Protection Bureau under the 
leadership of Director Chopra to do their part in this 
initiative. This initiative has really resonated with 
Americans, with the CFPB receiving more than 80,000 comments 
when they launched the initiative. To put this into 
perspective, House Republicans have held multiple hearings to 
attack the Basel III Endgame proposal, which received only 400 
comments, or 200 times less the amount of comments than the 
CFPB received on junk fees.
    Let's take credit card late fees, for example. Credit card 
companies typically charge consumers $32 for making a late 
payment. The CFPB recently finalized a rule that would 
generally lower these fees to just $8, ensuring that they are 
reasonable and proportional, as Congress required them to be in 
the CARD Act. In doing so, CFPB will save $220 per year for 
more than 45 million people who pay these fees. This adds up to 
an annual savings of $10 billion for consumers.
    Instead of joining Democrats to applaud the move, House 
Republicans plan to soon advance a bill that would eliminate 
this important CFPB rule. Professor Peterson, my colleagues on 
the other side of the aisle have contended that CFPB lacked 
legal authority for this rulemaking. Can you help us debunk 
this notion?
    Mr. Peterson. Thank you, Ranking Member Waters. The CARD 
Act from 2009 granted discretion and authority to the 
regulatory agency, at the time the Federal Reserve Board of 
Governors, to implement a safe harbor, and sets up four 
different factors the Federal Reserve Board of Governors was 
supposed to evaluate in considering what that safe harbor fee 
amount would be.
    But time has gone by, there is additional data that has 
been gathered, and now the CFPB has, as it is required to do, 
revisited that regulation and made a decision about whether or 
not that safe harbor is set at the appropriate level. The 
Bureau has ample authority to revisit that and has come up with 
a number of studies that provide detailed information about 
what the total proportionate and reasonable costs are 
associated with late fees. So, I believe that the CFPB is well 
within its legal authority to lower that safe harbor.
    Ms. Waters. Thank you. Moving ahead, I understand you 
previously served not only at the CFPB, but also at the 
Department of Defense, working on servicemember protections. 
How does CFPB work to combat junk fees of servicemembers, 
veterans, and their families? Will they be hurt if Congress 
rescinds the credit card late fee rule?
    Mr. Peterson. Yes, they will, Ranking Member Waters. The 
Military Lending Act, under current implementing regulations, 
does not prevent overdraft fees from being imposed on 
servicemembers, and it also doesn't prevent late fees from 
being imposed on servicemembers. So, those are junk fees that 
our active duty military servicemembers in the Army, the Navy, 
and the Marines all could potentially pay. And if the CFPB's 
implementing regulation is allowed to go forward, that will be 
cost savings. It will be passed on to our members serving----
    Ms. Waters. Unfair question, why would elected officials be 
opposed to their constituents, working people, being able to 
have a reduction in late fees? Why would any elected official 
on either side of the aisle be on the side of the big banks and 
corporations? That may be an unfair question, but I am asking 
it anyway.
    Mr. Peterson. Well, Ranking Member Waters, it is a hard 
question for me to answer. I think it is a really unpopular 
view. Honestly, I don't know why you are going to bat for these 
late fees. Don't you all have something better to work on? Yes, 
Chairman Barr is shaking his head at me. I think you have 
better things to do with your time, sir.
    Chairman Barr. Okay. I think you are right, Ranking Member 
Waters. Let's let these restrictions on junk fees go forward. 
It is supported by the public. It is going to provide 
meaningful protection to the American people. It is a good 
idea.
    Ms. Waters. Thank you so much for being here. I yield back 
the balance of my time.
    Chairman Barr. I appreciate the professor's cheerful 
delivery. I do. I genuinely do. I like cheerful people. The 
gentleman from Texas, Mr. Williams, is now recognized for 5 
minutes.
    Mr. Williams of Texas. Thank you, Mr. Chairman. I am a 
small business owner in Texas, and the CFPB's goal is to 
protect consumers from abusive financial practices, but like 
everything else the government does, the people they want to 
help, they actually hurt, but unlike most Federal agencies, the 
CFPB was designed to operate outside of Congress' annual 
appropriations process. This dangerous practice allows them to 
operate without any accountability or oversight from Congress, 
and the CFPB has a blank-check budget and a Director for whom 
there are no repercussions for his agency rules, and that is no 
way for a Federal agency to operate. Without oversight, the 
CFPB can act as a partisan voice, whose sole goal is to push 
the policy objectives and go on whatever misguided crusades 
they wish. The CFPB must be held accountable for the damage 
they are causing in financial institutions, their customers, 
and small business owners.
    Mr. White, could you elaborate on the dangers of having an 
agency with an unconstitutional leadership structure and 
unaccountable funding mechanism, and how does that hurt 
American consumers, who are getting hurt in the end?
    Mr. White. Our Constitution has elaborate procedures, not 
elaborate, but well-thought-out procedures for appointments and 
for funding of agencies, precisely because it is so important. 
Oftentimes, personnel is policy, and oftentimes, some of the 
most important decisions that Congress makes after it writes a 
law or amends a law is to decide who will administer that law 
under the President, and also how that agency will be funded. I 
am very much in favor of Federal regulators keeping an eye out 
for and policing unfair, deceptive, or abusive acts and 
practices. But it is ultimately Congress' responsibility to 
monitor agencies' own unfair or deceptive acts and practices.
    Mr. Williams of Texas. As we have seen, the CFPB's 
regulatory agenda has been a nonstop parade of partisan 
politics and wish list items from the Biden Administration. The 
CFPB's crusade on junk fees, as they call it, the increase on 
burdensome small businesses reporting requirements, and unfair, 
deceptive, or abusive acts or practices (UDAAP) authority are a 
few of the policies the agency is using to score political 
points, but which significantly hurt consumers and business 
owners.
    Now, the CFPB's process of legislating via press releases 
has many institutions across the financial spectrum terrified 
about what confusing regulations could possibly come out of 
this agency next. The CFPB must follow all proper rulemaking 
channels and not use policy statements or guides to regulate.
    Mr. Johnson, can you expand on how the CFPB's practice of 
creating new regulations outside of the proper process is 
harmful to consumers and small businesses?
    Mr. Johnson. Yes, sir. All forms of agency guidance by law 
cannot be binding, but when the agency seeks to bind parties 
through guidance rather than going through the formal APA-
required notice-and-comment process for rulemaking, it really 
warps expectations and creates uncertainty in the marketplace. 
That uncertainty pulls back on economic activity and that harms 
consumers and producers alike.
    Mr. Williams of Texas. Checks and balances are a vital 
function of our government to ensure accountability, and the 
funding structure of CFPB lacks appropriate oversight and is 
vastly different from other Federal banking agencies, as the 
CFPB relies on allocations from the Federal Reserve instead of 
from Congress. In order to have a check on the CFPB power, it 
is imperative that operations be subject congressional 
appropriations.
    Mr. White, if the courts determine the CFPB's funding 
mechanism is unconstitutional, do you believe the CFPB would be 
able to effectively operate under the regular appropriations 
process, and do you think a more transparent funding process 
would improve rulemaking by the CFPB?
    Mr. White. Yes, sir. I believe the CFPB can operate 
perfectly well under the normal appropriations process, just as 
other financial regulators draw substantial funds from the 
appropriations process.
    Mr. Williams of Texas. I don't think they can operate if 
they have to say in guidelines or rules. It is pretty clear to 
all of us. And I can tell you, as a small business owner, CFPB, 
the regulations it has put on small business are unbelievable, 
and like I say, the very people they think they are helping, 
they are hurting. They are hurting consumers, they are raising 
costs, and they have no oversight, so it is something that we 
have to address.
    I yield back, Mr. Chairman. Thank you.
    Chairman Barr. The gentleman yields back. I appreciate his 
leadership on the House Small Business Committee. The gentleman 
from California, Mr. Sherman, is now recognized.
    Mr. Sherman. The CFPB is doing outstanding work. It has put 
$17.5 billion back in Americans' pockets. It has provided $4 
billion to the Victims Relief Fund. It deals with 3,000 
complaints it receives every day. Many members of the committee 
are well aware of those statistics. What you may not be aware 
of is that on November 8th of last year, it ordered Citibank to 
pay almost $26 million in fines for intentionally and illegally 
discriminating against Armenian-Americans. And for those of you 
who do not have an Armenian-American community in your 
district, it is particularly easy to discriminate against 
Armenian-Americans because the vast majority of names end in, 
``-ian,'' or, ``-yan,'' of the Armenian-American community. But 
it is not just what was done with the $26 million or the $4 
billion or the $17.5 billion. That is the tip of the iceberg, 
because when the CFPB acts, it deters bad actors from doing 
these things on a much larger scale.
    We are told that the CFPB doesn't testify enough. Their 
Director comes before us at least twice a year, usually more 
often. We are told that the funding mechanism is 
constitutionally impaired. Professor, I think you did an 
excellent job of explaining why it is not, but let me just 
address that. It is the exact same funding mechanism that the 
Fed uses. And if the Supreme Court really wants to cause a 
tailspin for our economy and shake it to its fundamental roots, 
it would rule that the Fed is unconstitutional in some respect. 
I am confident the Supreme Court will not do that. The 
existence of police does not mean that our citizenry is 
criminal, and the existence of policing consumer transactions 
is not anti-capitalist propaganda.
    There is one piece of legislation before us that is noticed 
for this hearing, H.J. Res. 122, which is designed to 
invalidate the rule to reduce the charge for late credit card 
fees. Well, who amongst us has not sent in our payment late, 
and why should that fee be all they can get from us rather than 
something related to the bank's costs? I remember when credit 
cards were embossed and carbonized paper was used and the cost 
of processing transactions was high. Certainly, the bank can 
deal with the fact that a payment is late for $8, probably 
less.
    But focusing on that issue, Professor, 128 Members joined 
in a letter I wrote dealing with the exact date. If the date 
that your credit card pay payment is due on April 30th, say, 
some banks say it has to be in by 5:00 p.m. Eastern Time.
    Now, that makes sense if you are paying by mail, but so 
many people pay electronically. Is it fair to people who live 
in the Pacific Time Zone, let alone Hawaii or Alaska, for them 
to get statements that say, oh, you are on time if you get your 
money in by April 30th, and they get their money in 
electronically at 4:00 p.m. California time? These are banks 
that have hundreds of thousands of customers in my time zone, 
and yet somebody pays electronically at 4:00 p.m. on the due 
date and they get hit with what is now a $36 fee, which under 
the CFPB rule, would be an $8 fee. Shouldn't banks that operate 
with hundreds of thousands of cards in the West Coast Time Zone 
have their computers on past 5:00 p.m. East Coast time?
    Mr. Peterson. Well, Representative, I certainly agree with 
that. Our banks should be----
    Mr. Sherman. By the way, this also applies to Utah. You are 
just one time zone over.
    Mr. Peterson. I was thinking the exact same thing. That is 
right. Look, there might be something in the contract, some 
details in there where they use that as the predicate for 
allowing that as a matter of contract law, but it is not a good 
policy. It is not neighborly of the bank. If you say that is 
the due date, you should get all the way up until midnight, and 
everybody in the country should be treated the same way.
    Mr. Sherman. I would agree for electronic payments. And 
back in the day, when it was postal, one understands that there 
is only an afternoon mail delivery, but today, the computers 
can be on till midnight. I yield back.
    Chairman Barr. The gentleman yields back. The gentleman 
from Georgia, Mr. Loudermilk, who is also the Vice Chair of the 
subcommittee, is now recognized.
    Mr. Loudermilk. Thank you, Mr. Chairman, and I appreciate 
all of you being here today. Since its establishment in the 
Dodd-Frank Act, the CFPB source of funding has been 
controversial at least. Even now, the constitutionality of 
their funding is being considered by the Supreme Court, and I 
am hopeful that the courts share our concerns that the Bureau's 
current funding structure limits Congress' ability to oversee 
the agency through regular appropriations, and obviously, I am 
a supporter of Chairman Barr's bill to do that. It is way past 
time that the Bureau is held accountable to the people and gets 
the funding it deserves through the regular appropriations 
cycle.
    With that, Mr. White, should the Supreme Court find that 
the Bureau's current funding structure is unconstitutional or 
if Congress was to pass a funding mechanism for them, does the 
CFPB have a Plan B, per se, to fund itself outside the annual 
appropriations process?
    Mr. White. Thanks, Congressman. I must say I do not know 
what plans the CFPB is or is not making, but of course it 
should be prepared for that eventuality given that this issue 
has been litigated now for more than a decade.
    Mr. Loudermilk. Thank you. With the appropriate funding 
from Congress, is there any reason to believe that the CFPB 
wouldn't be able to fulfill its statutory mission?
    Mr. White. Me?
    Mr. Loudermilk. Yes.
    Mr. White. No, sir. The CFPB can carry out its statutory 
mission perfectly well, and if I may, a ruling against the 
CFPB's unique funding structure would not pose a threat to any 
other Federal agency, including the Federal Reserve.
    Mr. Loudermilk. Is there any legitimate reason that the 
CFPB should be fearful of operating under congressional 
appropriations authority?
    Mr. White. No, sir. I think discussions like this, where 
Members of Congress are touching on the substantive policies 
that CFPB is reviewing, shows that Members of Congress, just 
like the CFPB, can weigh these policy considerations just as 
much as an independently-funded agency.
    Mr. Loudermilk. Okay. Thank you. Last question. Mr. White, 
the CFPB and its supporters argue that having a single Director 
makes the Bureau more efficient at helping consumers. 
Meanwhile, other Federal financial regulators have multimember 
boards or directorates. What makes the CFPB any different from 
the other financial regulators, that having a multimember board 
would make them less effective?
    Mr. White. Congressman, I recall that when the CFPB was 
first proposed by then-Professor Warren, she proposed that it 
should be a multimember commission modeled after the Consumer 
Product Safety Commission. I think that the CFPB would do well 
as a multimember commission, assuming that it was funded 
appropriately and actually did carry out its mission in the 
kind of, as the Supreme Court once said, quasi-legislative, 
quasi-judicial approach that befits a true non-political 
agency, but that is very much not the CFPB right now.
    Mr. Loudermilk. Is it your impression that by, ``less 
effective,'' the Bureau supporters mean less effective at 
pushing partisan regulatory agendas?
    Mr. White. I can't read the mind of the current CFPB, and I 
can't read the minds of its supporters either, but I do know 
that the CFPB right now is a very enthusiastic embodiment of a 
number of President Biden's priorities, and I am sure people 
like that.
    Mr. Loudermilk. Thank you, Mr. White. And in the interest 
of efficiency, Mr. Chairman, I am going to give you back a 
minute and 40 seconds. I yield back.
    Chairman Barr. Thank you for your efficiency. The gentleman 
from Texas, Mr. Green, is now recognized.
    Mr. Green. Thank you, Mr. Chairman. And I thank the ranking 
member, and I thank the witnesses for appearing today.
    I had the preeminent privilege of being here when we had 
the 2008 downturn, and it was a time of great turmoil. I recall 
banks not lending to each other. That is a powerful statement. 
When banks do not trust each other, who would lend to each 
other? I recall how the consumers were being savaged with 3/27s 
and 2/28s, and all sorts of products that were designed to give 
consumers an opportunity to fail. Those were difficult times.
    The Consumer Financial Protection Bureau didn't occur 
because someone just had a great idea. It came to fruition 
because there was a need beyond any that we could comprehend, 
and there had to be some means by which we could assure 
ourselves to the extent that people can assure themselves that 
this wouldn't happen again. No, it is not perfect, but my guess 
is that if we didn't have it, we would be trying to create it. 
It is just that important.
    It seems to me that the GAO's most recent annual audit is 
something worthy of consideration. It indicates here that they 
found that the CFPB's Fiscal Year 2023 financial statements 
were reliable and that controls over the financial reporting 
were effective. It goes on to say the GAO also found that the 
Consumer Financial Protection Bureau's financial statements as 
of and for the fiscal years that ended September 30, 2023, and 
September 30, 2022, are presented fairly in all material 
respects, no reportable, noncompliance for Fiscal Year 2023. 
So, there is an audit that seems to favor the entity being 
sound, fiscally responsible.
    I am not sure I would like to see this Congress fund the 
CFPB. This Congress has difficulty maintaining leadership. This 
Congress has difficulty funding the Federal Government. Do we 
really want this Congress to fund the Consumer Financial 
Protection Bureau?
    So, Mr. Peterson, if Congress could not come to an accord 
such that we could fund the CFPB after some period of time, 
what would be the consequences of our failure to do our job?
    Mr. Peterson. Representative Green, thank you so much, and 
you won't remember this, but back in 2008, when you were here, 
I got to testify before you back then as well. And you have 
always struck me as such a wise and decent man and----
    Mr. Green. Thank you.
    Mr. Peterson. ----full of compassion. But to answer your 
question, if the Supreme Court or Congress strikes down the 
ability of the CFPB to gather its revenue through the Federal 
Reserve Board of Governors, and if Congress does not step 
forward and provide a source of funding, then we would expect 
that eventually, the Bureau's consumer protection tools would 
start to wither on the vine. We would have fewer examiners 
conducting audits, fewer enforcement cases, and less capability 
of providing clarity and information for compliance concerns 
for businesses. So, I think we would lose that protection that 
you all voted for back in 2010.
    Mr. Green. My suspicion is that at some point, we would not 
have a CFPB, and that would suit the aims of many people. I 
support the CFPB. I believe we have to have an agency to look 
out for the people, and that is what it does. Thank you, Mr. 
Chairman. I yield back.
    Chairman Barr. The gentleman yields back. The gentleman 
from South Carolina, Mr. Timmons, is recognized.
    Mr. Timmons. Thank you, Mr. Chairman. I have grave concerns 
surrounding the CFPB's funding structure and, really, its 
operational accountability in general. The CFPB was designed to 
be shielded from any form of accountability, and the 
combination of legislative, executive, and judicial powers in 
one agency opens the door for gross misconduct with impunity. 
Under Director Chopra and the Biden Administration, we have 
seen just that: a government agency weaponized to achieve 
political goals while forgetting its original charter to 
protect consumers.
    The current system of GAO audits is not enough to ensure 
there are proper checks and balances in place to rein in a 
rogue agency. Although the CFPB has consistently been given a 
clean bill of financial health, I think there is much to be 
said about how little we truly know regarding the Bureau's 
balance sheet. It is essentially a trust situation. I don't 
know about you, but I have come to distrust the CFPB's word. 
They tout their data privacy and cybersecurity measures, yet an 
employee was sending hundreds of thousands of tranches of 
consumer data to a personal cloud, but, again, we should trust 
them to operate in a functional and fiscally-responsible way 
despite the opaque veil they display.
    Mr. White, it is clear that in the modern administrative 
state, checks and balances have eroded as clearly as our 
separation of powers. What are the consequences of this 
erosion, and what steps can Congress take to restore the 
separation of powers of the CFPB and better protect our 
citizens from a Federal Government that at times seems unmoored 
from the Constitution?
    Mr. White. Thank you, Congressman. I see this delegation of 
perpetual funding authority of the CFPB to be part and parcel 
of Congress' broader decades-long withdrawal from day-to-day 
lawmaking, much akin to its delegation of regulatory powers to 
any number of agencies. What you get is a different form of 
lawmaking, one that is actually less accountable to voters, and 
one that is less moderated. It is unilateral because it is made 
swiftly by energetic agencies.
    If I may, a moment ago Congressman Green pointed out very 
eloquently the words of Dodd-Frank; choice is in its structure. 
These weren't just words. These weren't just ideas. I would say 
the exact same thing about the appropriations clause of our 
Constitution and our Constitution's clause for the raising of 
revenue. Those weren't just words. They weren't just abstract 
ideas. They were the hard-fought wisdom of the founding 
general, the hard-won wisdom of the founding generation, and 
our failure to live up to those rules today, I think, has had 
many, many bad consequences for the rule of law and government 
today.
    Mr. Timmons. Thank you for that. Switching gears for a 
moment, a few months ago, along with many of my colleagues, I 
authored a letter to the CFPB encouraging the Bureau to 
leverage their Civil Penalty Fund to educate consumers on scams 
and fraud within the financial sector. Dodd-Frank states that 
the Fund must first be used to compensate consumers who have 
been directly harmed by illicit financial activity. The CFPB 
then has the discretion to use the remaining balance for, 
``consumer education and financial literacy.'' In its annual 
financial report for Fiscal Year 2023, the Bureau noted that it 
made zero dollars in allocations for consumer education and 
financial literacy purposes.
    Mr. Johnson, given Congress' clear direction that the Civil 
Penalty Fund be available for the purpose of consumer education 
and financial literacy programs, do you have any insight into 
why the Civil Penalty Fund administrator has refused to 
allocate consumer education and financial literacy programs, 
and how do you believe a surplus in this Fund can be best 
allocated?
    Mr. Johnson. Thank you, Congressman. I believe, in the 
agency's history, there have been two such allocations early in 
the agency's history, the two separate financial literacy 
programs. The concern raised at the time was that there were no 
controls or parameters over how, once obligated, the CFPB would 
use those funds, and there was a risk that those funds could be 
used to compensate outside groups maybe aligned with the 
agency's advocacy efforts. So to the extent that they are used, 
I think that the administrator of the CFPB, and Congress 
serving an oversight function, should ensure that there are 
precise and firm controls around the use of those funds if they 
are diverted away from the victim compensation function.
    Mr. Timmons. Thank you for that. If a private business has 
a cybersecurity breach and an individual has damages associated 
with that breach, that private company is going to be sued and 
they are going to have to pay that individual for those 
damages. That is the civil court system. So, when the CFPB 
damages hundreds of thousands of individuals, how is the CFPB 
going to make those people whole for the cybersecurity breach 
in which they were damaged?
    Mr. Johnson. Congressman, it is unclear to me. I think the 
CFPB has been less than transparent in all regards about what 
exactly happened.
    Mr. Timmons. They didn't even want to tell us it happened.
    Mr. Johnson. And what the resolution might ultimately be.
    Mr. Timmons. I think they have money in weird places. They 
ought to use that to pay damages to the individuals that they 
wronged because of their lax cybersecurity.
    Thank you, Mr. Chairman. I yield back.
    Chairman Barr. The gentleman yields back. The gentlewoman 
from Massachusetts, Ms. Pressley, is now recognized.
    Ms. Pressley. Thank you, Mr. Chairman. According to a 
recent poll, 82 percent of all voters, including 77 percent of 
all Republicans, support the Consumer Financial Protection 
Bureau and its mission to protect consumers. Let that sink in. 
More Republicans, let the record reflect, support the CFPB than 
support Donald Trump, and it is clear why.
    The CFPB under Director Chopra's leadership has taken 
decisive action to combat junk fees, hold predatory lenders 
accountable, protect seniors against fraud, hold big banks 
accountable, remove the burden of medical debt, ensure harmed 
consumers get the relief they need, and the list goes on.
    Now, while the CFPB's record speaks for itself, Republican 
Members on this committee continue to show how out of touch 
they are with their own constituents as they launch attack 
after attack, willfully ignoring the broad support the CFPB has 
across the nation. This agency is dedicated to protecting 
consumers, and losing the Bureau would be disastrous for our 
financial system and economy. People are certainly entitled to 
their opinions, but not to their own version of the truth, and 
there is broad support that the CFPB has across the nation, so 
willfully ignoring that will not change the truth.
    Professor Peterson, the primary attack from Republicans is 
about the CFPB's funding structure. The CFPB is not the only 
financial regulator with a source of independent funding. Do 
the Federal Reserve, the FDIC, the Office of the Comptroller of 
the Currency, the National Credit Union Administration, and 
other agencies also have independent funding outside of the 
annual appropriations process?
    Mr. Peterson. Yes, Representative, they do.
    Ms. Pressley. Thank you. Now, the second attack from 
Republicans is that the CFPB is too good at protecting 
consumers. The CFPB recently finalized a rule to limit late 
fees that credit card companies could charge from $32 to $8. If 
this rule takes effect, consumers would save a staggering $10 
billion--that is with a, ``B,''--annually. Despite this, 
Republicans are trying to overturn this rule. They are choosing 
to defend a deeply exploitive late fee practice that harms 
consumers at the expense of millions of workers and families 
who live paycheck to paycheck, families who are struggling to 
make ends meet due to unlivable wages, a lack of affordable 
healthcare, the absence of paid leave, and many other policies 
that are pushing families further to the margins. At their most 
financially-vulnerable moments, these working families are 
charged predatory late fees by credit card companies. This is 
deeply unjust.
    Professor Peterson, can you elaborate on how the CFPB's 
late fee rule benefits everyday consumers, many of whom live 
paycheck to paycheck?
    Mr. Peterson. Sure, Representative. Look, when people can't 
make ends meet, they are likely to have a late payment on their 
credit card. And when they get socked with a fee, it is more 
money out of their bank account, which makes them less able to 
cover the cost, and to make sure their kids are getting enough 
to eat, and to make sure they can pay their rent. The CFPB's 
late fee rule is a simple rule, it decreases the safe harbor 
and makes it much more likely that banks are going to charge 
lower late fees, which means when people are really struggling 
to make ends meet, they are less likely to get hit with a high 
cost fee. It is just better for the public.
    Ms. Pressley. Thank you. These Republican attacks against 
the Bureau are baseless. They do nothing to support or benefit 
the people, our shared constituents. The CFPB supports our 
most-vulnerable and protects millions of consumers from 
exploitation, abuse, and predatory lending. We should be 
celebrating the Bureau and all of the staff for their hard work 
that often goes underappreciated instead of attacking them. 
Thank you, and I yield back.
    Chairman Barr. The gentlelady yields back. The gentleman 
from South Carolina, Mr. Norman, is now recognized.
    Mr. Norman. Thank you, Mr. Chairman. Mr. Johnson, would it 
be more disastrous for the country to lose the CFPB as an 
agency or to lose the ability for us to get credit cards?
    Mr. Johnson. I think one could argue that the lack of 
access to credit in a major consumer product vertical would be 
more detrimental to the U.S. economy and would potentially 
affect more consumers.
    Mr. Norman. Okay. The CFPB has tapped the Federal Reserve 
for roughly $7 billion, yet they have $2 billion in cash on 
hand from the civil penalties, and it is just sitting there. 
What is that going to be used for, and why would it not be 
given back to pay the debt off or to help some of these victims 
who have been brutalized by the CFPB with legal fees and costs?
    Mr. Johnson. Congressman, part of the accounting recognizes 
the fact that the civil penalties paid pursuant to an 
enforcement action come in immediately, but there is a delay 
between the time it takes to identify a victim class and then 
allocate the funds, so some of the questions about the 
unobligated balance in the fund relates to that timing effect. 
But one important consideration would be the amount of the 
unobligated balance that is not obligated to victim classes 
over the long term to understand whether or not those resources 
could be used for other purposes.
    Mr. Norman. So, it will sit there unused for how long, 
would you say?
    Mr. Johnson. Funds collected in one enforcement action can 
be used through the Civil Penalty Fund to be allocated to 
victims of other victim classes and future enforcement actions. 
It would depend on the number of future enforcement actions and 
the potential remediation required in those classes, so it is 
very difficult to assess.
    Mr. Norman. Who makes that call?
    Mr. Johnson. Ultimately, it is the Director.
    Mr. Norman. Mr. Chopra? It is totally up to him? I think 
the answer is, yes.
    Mr. Johnson. The agency has discretion on how to obligate 
funds from the Civil Penalty Fund for identified victim 
classes, yes.
    Mr. Norman. Okay. On the credit card fees, and I support 
Chairman Barr's bill for the CFPB to get involved with banks 
that have to compete with other banks and to cut a fee from, if 
you don't pay the bill on time, I think it is an average of 12 
to 15 days to pay a bill, from $32 to $8. If this extends to 
credit cards, should the next regulation of the CFPB come to 
eliminating if you do not pay your loan back or on your house 
or your car? Is that burdensome to anybody?
    Mr. Johnson. Congressman, I think one of the misnomers 
surrounding the credit card late fees rule is proponents are 
using a static analysis, so they are saying that if you just 
cut the size of a late fee, assess that there will be an 
equivalent savings. Of course, we live in dynamic marketplaces 
where providers and consumers adapt to changed circumstances. 
And even in the Bureau's own analysis, it admitted that those 
who will pay costs as a consequence of this rule are those 
Americans who do not make late payments, and then, other 
Americans who are marginal credit risks, who may have lower 
credit balances associated with their cards, may lose access to 
their credit cards, may have to pay higher fees and credit 
interest rates as a consequence of the rule. So on a dynamic 
basis, there are significant consequences for many Americans, 
and by and large, more Americans will pay those costs than will 
benefit from the rule.
    Mr. Norman. The banks borrow money, too. They pay an 
interest rate on funds that they lend out on credit card users, 
and for the most part, a lot of them don't have the credit 
card. That is why the fee is higher, both on the carry charges 
forward and on the debt. Your agency is overstepping its bounds 
in so many different areas that is going to end up costing 
consumers more in the long run than they are going to save. I 
yield back.
    Mr. Timmons. [presiding]. The gentleman from Wisconsin, Mr. 
Fitzgerald, is now recognized for 5 minutes.
    Mr. Fitzgerald. Thank you, Mr. Chairman. Unlike any other 
agencies, CFPB funding is protected by several layers of 
insulation, which was discussed a couple of times here today. 
And as we know, the CFPB Director is required only to submit a 
letter to the Federal Reserve Board each quarter certifying the 
amount of funds that are reasonably necessary. We have had Fed 
Chair Powell before the committee, sitting right where you are, 
and he was asked the question specifically about the CFPB and 
what did he think about the funding and how did it work, and 
his answer was, they send us a bill and we pay it.
    The Federal Reserve, which itself is funded outside of the 
appropriations process, has been discussed through assessments 
on Federal Reserve Banks, which are, in turn, largely funded by 
open market operations and not through appropriations process, 
as you know, then transfers the requested amount, which is 
capped at 12 percent. I would have loved to have been in the 
room when somebody was sitting at the table dreaming this up, 
said 12 percent of the Fed's total operating expenses is a good 
number. No rhyme or reason to it.
    The Constitution requires Congress to act first before the 
government can do anything. The current funding structure of 
the Bureau impermissibly reverses the process, right? It makes 
no sense, and by contrast, a handful of other agencies that are 
funded outside the typical appropriations process, like the 
FDIC and, what has been discussed, the NCUA and the FHFA will 
obtain their funding by assessing fees against what otherwise 
would be considered regulated entities, right? So there is a 
difference, but in each instance, the other financial 
regulators receive funding directly from regulated entities as 
authorized by statute. None of these agencies enjoy the 
perpetual funding mechanism with funds drawn from another 
agency, let alone one with another layer of budgetary 
independence.
    The Trump Administration proposed limiting the CFPB's 
mandatory funding in 2020 before providing discretionary 
appropriations in 2021. These changes were projected to provide 
over $5 billion in savings over 10 years.
    Mr. Johnson, can you elaborate on what sets the CFPB apart 
from other agencies in terms of accountability, and discuss the 
increased accountability that could come from moving the CFPB 
to the congressional appropriations? I understand there is 
somewhat of a redundancy. This question has kind of been asked 
in many different forms, but if you could just once again take 
a crack at it.
    Mr. Johnson. Certainly, Congressman. I think one key 
consideration for Congress to make is when agencies have siloed 
budgets, they don't make reasoned judgments about relative 
spending priorities for the U.S. Government as a whole. That is 
a job that Congress has. So, when the agency goes through its 
own budget process, particularly if there is no congressional 
oversight, if there is are no other external checks and 
balances, invariably, the lack of oversight incentivizes loose 
spending and skews priorities. So, the accountability that 
would come from congressional appropriations would be the 
collective judgment of Congress as a whole as to what the 
United States Government's spending priorities should be and 
where the CFPB's funding fits within those relative priorities.
    Mr. Fitzgerald. Mr. White, let me ask you, we have had 
Director Chopra before the committee numerous times as well. 
And the one thing that he is never able to, I think, address 
directly is, are there any reliable metrics available to 
evaluate the effectiveness of the CFPB in enforcing the Federal 
consumer laws, and if so, can you please provide an example? 
But he is unable to answer this because really, the way they 
measure success is to just kind of roll out data that says here 
is how many contacts, here is how many phone calls we got. 
Well, if a Member of Congress based their success as an elected 
official on how many phone calls come into the office, we would 
be out of office soon. So just, once again, are there any real, 
measurable, effective ways of saying, okay, the CFPB is doing a 
good job?
    Mr. White. There have been efforts over 40 years to use 
tools like cost-benefit analysis to show the effectiveness of 
an agency's rulemaking actions, both the benefits but also the 
costs, both of which are important. But I think that your 
question illustrates the fact that especially in this area and 
this agency, there has been a real paucity of metrics and a 
paucity of a commitment to finding metrics.
    Mr. Fitzgerlad. Thank you. I yield back.
    Mr. Timmons. The gentlewoman from California, Mrs. Kim, is 
now recognized for 5 minutes.
    Mrs. Kim. Thank you, Mr. Chairman. And I want to thank our 
witnesses for being here today. We are almost coming to an end.
    The Fed recently said it had a record loss in income of 
more than $114 billion. The CFPB is funded by earnings from the 
Federal Reserve System. Mr. Johnson, you mentioned earlier the 
operating loss, right? So how can we do that even with the 
operating loss? So, can you elaborate on that a little more?
    Mr. Johnson. Yes, Congresswoman. It is essentially an 
accounting gimmick that the Fed uses. Rather than recognize 
that it is losing money, and it has stopped remitting payments 
to Treasury from its surpluses, it is building up the amount of 
red ink from its losses on its balance sheet. And it is 
essentially a recognition that in the future, when it starts 
earning a surplus, it will have to pay off the accounting entry 
on its balance sheet. So, all dollars that are sent to the CFPB 
now, well, the Fed is losing money, run up the tab, so to 
speak, on future earnings that the Fed will have to realize in 
order to begin again sending surpluses back to the U.S. 
Treasury for purposes of deficit reduction.
    Mrs. Kim. Let me follow up on that. The Federal Reserve 
rubber stamps anything determined by the CFPB Director to be 
reasonably necessary to carry out the authorities of the 
Bureau. Is there a legal definition or standard to help 
calculate what is reasonably necessary?
    Mr. Johnson. It is not defined in the Dodd-Frank Act, 
although I could point to an example or two of CFPB spending 
that is not reasonably necessary.
    Mrs. Kim. Okay. Thank you. Let us move on to another 
matter. I am a Co-Chair of the House Financial Literacy and 
Wealth Creation Caucus, and one of my priorities is to be able 
to enhance financial literacy in our communities. And in the 
CFPB's Civil Penalty Fund, that was partially designed for the 
purpose of consumer education and financial literacy programs, 
total of all Civil Penalty Fund deposits was nearly $3.5 
billion through the end of September 2023.
    So tell me, why does the CFPB not have something akin to 
the Fed's Compliance and Internal Control Office under their 
Division of Financial Management to ensure that Civil Penalties 
Fund is used for financial literacy programs? It probably was 
discussed earlier, but can you elaborate on that?
    Mr. Johnson. Thank you, Congresswoman. Again, if there are 
not identifiable victims and victim classes, there is a 
mechanism by which the CFPB could use a portion of those funds 
to obligate for certain programs. I think there are careful 
controls in place to make sure that the primary use and purpose 
of the fund to compensate victims can be satisfied. But to the 
extent there are surpluses, there is a penalty fund governance 
board within the CFPB that would be responsible for making 
those judgments about whether to allocate unobligated funds for 
that purpose.
    Mrs. Kim. Thank you. Mr. White, I have a question for you. 
We have seen how the CFPB has moved well beyond its legal 
boundaries and rapidly reinterpreted consumer financial law. 
Given the agency's design, are you surprised by any of this 
behavior?
    Mr. White. No, Congresswoman, I am not. And I would add 
that in addition to stretching the bounds of the substantive 
laws, the CFPB has shown itself very willing to stretch the 
bounds of the procedural laws to evade some of the basic 
requirements of the Administrative Procedure Act in trying to, 
in effect, make and impose policy without going through at 
least the notice-and-comment rulemaking process that could 
improve policy and make the agency more accountable.
    Mrs. Kim. Thank you. Can you also talk to me about some 
actions that Congress could take to reclaim power over this 
rogue agency?
    Mr. White. Yes, Congresswoman. First, as things currently 
stand, there is the Congressional Review Act under which 
Congress can review the major rules of any agency, so that is 
generally a good place to start. But second, as discussed, and 
as I brought up repeatedly today, Congress could reclaim its 
power of the purse regardless of what the Supreme Court does in 
the pending case. And third, and just as importantly, Congress 
should return to the original Dodd-Frank Act and put more 
specific substantive standards in the Act, at the very least so 
that Congress is making the laws and not agencies.
    Mrs. Kim. I could not agree with you more on that. Would it 
be acceptable for any other agency with the size, scope, and 
broad authority of the CFPB to share an Inspector General with 
another agency?
    Mr. Johnson, do you want to answer that?
    Mr. Johnson. Yes, Congresswoman. I think it is an artifact 
of the CFPB's creation, and it is tied, I think, to the CFPB's 
funding mechanism.
    Mrs. Kim. Thank you. I yield back.
    Mr. Timmons. Thank you. The gentleman from Tennessee, Mr. 
Ogles, is now recognized for 5 minutes.
    Mr. Ogles. To be or not to be, Mr. Chairman, I think that 
is one of the important questions, and if I could think of an 
agency that should not be, it would be the CFPB. And the 
question was posed, do we have or don't we have better things 
to do with our time, and, Mr. Chairman, I would point out that 
an agency whose funding mechanism is unconstitutional--I think 
that deserves our time. I think an agency that has gone beyond 
its mandate, that deserves our time. I think an agency that 
regulates and legislates by rule enforcement versus following 
the Administrative Procedure Act (APA), I think that deserves 
our time.
    So, even though we may be getting into the minutiae of some 
of these issues or some of these rules, they deserve our time. 
And most banks, credit unions, and independent community banks 
will tell you that one of the biggest issues for them is the 
CFPB. We have all seen the negative impact of practices like 
regulation by enforcement and other questionable agency 
actions. As we have heard today, the impact of this growing 
compliance burden from the CFPB is evident as the number of 
financial institutions continues to decline.
    Mr. White, in your 2022 Wall Street Journal article, you 
noted that James Madison emphasized in Federalist Number 58, 
Congress' power of the purse was intended to be the powerful 
instrument preventing all the overgrown prerogatives of the 
other branches of the government. Please explain how this 
sentiment is applicable in the situation of the CFPB and what 
our founding fathers were warning us about?
    Mr. White. Thank you for your question, Congressman. It is 
crucial, and Madison recognized that it is crucial that 
questions of the writing of laws, the spending of Federal 
money, and the collecting of Federal money has to begin, first 
and foremost, with the part of government closest to the 
people, Congress, and, in particular, the House of 
Representatives.
    And I just want to point out, to this end, that a decade 
ago when I was still in private practice, I helped to file the 
original constitutional challenge to the CFPB's funding and its 
executive independence. Our client was not a big bank. We 
talked to the big banks about the case. They were interested in 
the issue, but they did not want to challenge the regulators. 
It was a West Texas community banker who was willing to really 
stick his neck out and say, this is unconstitutional, and I 
want to take a stand.
    And I think that is because the smaller banks and the 
regional banks have felt, more than any other of their 
competitors, the compliance burdens, the regulatory burdens, 
the way that technocratic rules are being imposed on community 
banking. And I think that also helps to explain, in part, the 
era of massive consolidation we are seeing at the community and 
regional banking levels.
    Mr. Ogles. Mr. Chairman, I want to point out that it is 
those community banks that are feeling the burden of the CFPB, 
that if you are Joe the plumber or you are the local mom and 
pop, it is the relationship that you have with the community 
bank. They are going to be your lender. It is not the big boys 
on the block, and they are feeling it too, quite frankly. But 
as you see the whittling down of the community bank, and what 
it is doing to rural America, and what it is doing to suburban 
America, enough is enough.
    The CFPB has unprecedented power and enforcement authority 
with nearly no accountability under its guaranteed funding 
mechanism. The CFPB estimated its funding at $717 million for 
Fiscal Year 2021, $734 million for Fiscal Year 2022, and $750.9 
million for Fiscal Year 2023. Is it sustainable to allow a 
rogue agency to continue down this kind of path? Please 
describe those dangers, Mr. White?
    Mr. White. Well, it is not, and if anything, Congressman, 
the problem is only getting worse. The more that the agency 
leans into some of the least-accountable tools for 
policymaking, even further away from notice-and-comment 
rulemaking towards enforcement, discretion, and opaque 
supervisory authority, if anything, Congress needs to try to 
impose even more transparency and procedural regularity onto 
this agency in addition to the other accountability measures 
that we have been discussing.
    Mr. Ogles. And to that point, is it fair to your small 
regional banks or, quite frankly, to any business that you have 
this uncertainty in the regulatory regime where suddenly, you 
are afraid of the heavy hand of government because of a rule? 
Is that a realistic environment in which to be operating?
    Mr. White. No, not at all. It is hard enough for the 
community banks right now to compete given some of the 
technological advantages and other just basic market 
competitive advantages that the bigger banks have. This is the 
worst possible time for agencies to impose even more 
disproportionate burdens of regulatory uncertainty on those 
competitors.
    Mr. Ogles. Mr. Chairman, I do have more questions, but I 
will submit those for the record. I yield back.
    Mr. Timmons. I would like to thank our witnesses for their 
testimony today.
    The Chair notes that some Members may have additional 
questions for this panel, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.
    I ask our witnesses to please respond as promptly as you 
can.
    With that, this hearing is adjourned.
    [Whereupon, at 4:12 p.m., the hearing was adjourned.]
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    


       

                            A P P E N D I X





                             April 16, 2024
                             
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