[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
THE SEMI-ANNUAL REPORT OF
THE BUREAU OF CONSUMER
FINANCIAL PROTECTION
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
FIRST SESSION
__________
SEPTEMBER 29, 2015
__________
Printed for the use of the Committee on Financial Services
Serial No. 114-52
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HOUSE COMMITTEE ON FINANCIAL SERVICES
JEB HENSARLING, Texas, Chairman
PATRICK T. McHENRY, North Carolina, MAXINE WATERS, California, Ranking
Vice Chairman Member
PETER T. KING, New York CAROLYN B. MALONEY, New York
EDWARD R. ROYCE, California NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma BRAD SHERMAN, California
SCOTT GARRETT, New Jersey GREGORY W. MEEKS, New York
RANDY NEUGEBAUER, Texas MICHAEL E. CAPUANO, Massachusetts
STEVAN PEARCE, New Mexico RUBEN HINOJOSA, Texas
BILL POSEY, Florida WM. LACY CLAY, Missouri
MICHAEL G. FITZPATRICK, STEPHEN F. LYNCH, Massachusetts
Pennsylvania DAVID SCOTT, Georgia
LYNN A. WESTMORELAND, Georgia AL GREEN, Texas
BLAINE LUETKEMEYER, Missouri EMANUEL CLEAVER, Missouri
BILL HUIZENGA, Michigan GWEN MOORE, Wisconsin
SEAN P. DUFFY, Wisconsin KEITH ELLISON, Minnesota
ROBERT HURT, Virginia ED PERLMUTTER, Colorado
STEVE STIVERS, Ohio JAMES A. HIMES, Connecticut
STEPHEN LEE FINCHER, Tennessee JOHN C. CARNEY, Jr., Delaware
MARLIN A. STUTZMAN, Indiana TERRI A. SEWELL, Alabama
MICK MULVANEY, South Carolina BILL FOSTER, Illinois
RANDY HULTGREN, Illinois DANIEL T. KILDEE, Michigan
DENNIS A. ROSS, Florida PATRICK MURPHY, Florida
ROBERT PITTENGER, North Carolina JOHN K. DELANEY, Maryland
ANN WAGNER, Missouri KYRSTEN SINEMA, Arizona
ANDY BARR, Kentucky JOYCE BEATTY, Ohio
KEITH J. ROTHFUS, Pennsylvania DENNY HECK, Washington
LUKE MESSER, Indiana JUAN VARGAS, California
DAVID SCHWEIKERT, Arizona
FRANK GUINTA, New Hampshire
SCOTT TIPTON, Colorado
ROGER WILLIAMS, Texas
BRUCE POLIQUIN, Maine
MIA LOVE, Utah
FRENCH HILL, Arkansas
TOM EMMER, Minnesota
Shannon McGahn, Staff Director
James H. Clinger, Chief Counsel
C O N T E N T S
----------
Page
Hearing held on:
September 29, 2015........................................... 1
Appendix:
September 29, 2015........................................... 73
WITNESSES
Tuesday, September 29, 2015
Cordray, Hon. Richard, Director, Consumer Financial Protection
Bureau (CFPB).................................................. 5
APPENDIX
Prepared statements:
Cordray, Hon. Richard........................................ 74
Additional Material Submitted for the Record
Ellison, Hon. Keith:
Chart entitled, ``State Payday Loan Regulation and Usage
Rates''.................................................... 77
Hurt, Hon. Robert:
Letter from Payne's Check Cashing, with attachments, dated
September 28, 2015......................................... 78
Cordray, Hon. Richard:
Written responses to questions for the record submitted by
Representatives Garrett, Hinojosa, Stivers, Murphy, and
Williams................................................... 87
THE SEMI-ANNUAL REPORT OF
THE BUREAU OF CONSUMER
FINANCIAL PROTECTION
----------
Tuesday, September 29, 2015
U.S. House of Representatives,
Committee on Financial Services,
Washington, D.C.
The committee met, pursuant to notice, at 10:07 a.m., in
room 2128, Rayburn House Office Building, Hon. Jeb Hensarling
[chairman of the committee] presiding.
Members present: Representatives Hensarling, Royce, Lucas,
Garrett, Neugebauer, Pearce, Posey, Fitzpatrick, Luetkemeyer,
Huizenga, Duffy, Hurt, Fincher, Stutzman, Mulvaney, Hultgren,
Ross, Pittenger, Wagner, Barr, Rothfus, Messer, Schweikert,
Guinta, Tipton, Williams, Poliquin, Love, Hill, Emmer; Waters,
Maloney, Velazquez, Sherman, Meeks, Capuano, Hinojosa, Clay,
Scott, Green, Cleaver, Ellison, Perlmutter, Himes, Carney,
Sewell, Foster, Kildee, Delaney, Sinema, Beatty, Heck, and
Vargas.
Chairman Hensarling. The Committee on Financial Services
will come to order.
Without objection, the Chair is authorized to declare a
recess of the committee at any time.
Today's hearing is entitled, ``The Semi-Annual Report of
the Bureau of Consumer Financial Protection.''
I now recognize myself for 3 minutes to give an opening
statement.
Today, the committee holds a hearing again on the semi-
annual report of the Consumer Financial Protection Bureau
(CFPB), a creation of the Dodd-Frank Act. The committee
recently concluded a series of hearings to examine the impact
of the Dodd-Frank Act in the 5 years since it became law. The
hearings clearly reveal how the law in numerous ways has indeed
harmed consumers and low-income Americans.
Dodd-Frank and the CFPB are the prime reason that the big
banks are now bigger and the small banks are now fewer. This
has eliminated competition, stifled innovation, and given
consumers fewer choices.
Dodd-Frank and the CFPB help raise prices; eliminate free
checking for millions; and are cutting off access to mortgages,
bank accounts, and credit cards. This tragically makes it
harder for low-income Americans living paycheck to paycheck to
improve their lives and achieve financial independence.
Regrettably, still more harmful consequences appear just
over the horizon. Soon Director Cordray, one man neither
elected nor accountable to either the President or Congress,
will presume to decide for all low-income Americans whether he
will allow them to take out short-term small-dollar loans.
These are the very loans many need to keep their utilities from
being cut off suddenly or to keep their car on the road so they
can in turn keep their jobs. One man will decide whether he
will permit Americans to resolve contract disputes more
efficiently outside the courts or allow the regulatory capture
of his Bureau by wealthy and litigious trial attorneys. And the
Director, one man, violating the express provisions of the
Dodd-Frank Act and using junk science, will continue forcing
many consumers to pay more when they finance the purchase of an
automobile.
Why have so many zealous defenders of the Dodd-Frank Act
suddenly turned silent?
Now, my problem is not with this one man, but with the
insidious belief among Washington elites that low-income
Americans cannot be trusted with freedom, cannot be trusted to
make good decisions for themselves, so Washington must do it
for them. It is insulting. It is degrading and an affront to
social justice. Every American, regardless of which side of the
tracks they grew up on, regardless of who their parents are,
regardless of how humble their circumstances may be, has the
right to shape their own financial destiny. But today they find
themselves at the mercy of an arrogant, overgrown, distant, and
unaccountable Washington bureaucracy. Instead of the equal
protection offered by the impartial rule of law, they are today
dictated to by the arbitrary rule of regulators. And exhibit
No. 1 is the CFPB Director.
I was struck at our last hearing by the Democrat witness'
description of the CFPB as the Dodd-Frank Act's crown jewel.
Herein lies the problem: In America, we don't want crowns,
because we don't want kings, including a king of consumer
financial products. Freedom, opportunity, and choice allow
consumers to pursue their dreams and achieve financial
independence. If Congress is to protect the fundamental rights
and opportunities of all Americans, including low-income
Americans, then one essential step we must take is to reform
the CFPB.
I now yield 4 minutes to the ranking member for an opening
statement.
Ms. Waters. Thank you, Mr. Chairman.
And I am pleased to welcome you back to the committee,
Director Cordray. We gather to discuss the Consumer Financial
Protection Bureau's semi-annual report, which reflects your
diligent work to protect American consumers and establish clear
rules of the road to improve our financial marketplace.
Director Cordray, first and foremost, I want to take the
time to commend your efforts to return hard-earned money to the
families who rightly earned it, specifically with the $11
billion of ill-gotten gains you have returned to 25 million
Americans. This is no small feat, and I applaud you for it.
Likewise, I want to commend your agency's work to end the sorts
of unfair, deceptive, and abusive practices that nearly brought
our economy to its knees 7 years ago and that continue to strip
wealth from American families. This includes your work to
implement payday rules free of debt traps; to establish debt-
collection guidelines that promote honest settlements and block
bad actors; and to ensure that borrowers have access to fair,
responsible, and sustainable mortgage credit.
I also want to commend you on your recent enforcement
action against a bank for redlining. I know many people think
these types of ugly policies are a thing of the past. But this
recent enforcement action demonstrates how badly your agency is
needed.
As you state in your report, the CFPB has also taken steps
to empower the American public, launching consumer resources
specifically tailored for college students, older Americans,
and people preparing for home ownership, not to mention the
nearly half a million consumer complaints you have processed
through your own online portal.
It is unfortunate, however, that rather than working to
encourage good behavior in our markets and support American
consumers, opponents on this committee continue to promote
measures to eliminate or weaken the Bureau. They have
perpetuated false narratives of an agency that is unaccountable
and lacks transparency, despite the record number of times you
yourself have made yourself available to Congress, and the many
checks and balances on the Bureau contained in Dodd-Frank. And
they continue to support and amplify industry challenges to the
CFPB's constitutionality in court with little or no success.
So what we are seeing now that the CFPB has celebrated its
fourth birthday is that the dire predictions of the Republicans
on this committee have not come true. For example, we have
actually seen an increase in the share of mortgages made to
African-American and Hispanic borrowers since your qualified
mortgage rule was put in place in 2014.
After several years of decline, data shows that access to
consumer credit cards is expanding even for low FICO score
borrowers. At the same time, the defaults on credit are
declining. And one analyst has noted that for all the talk
about the death of free checking, nothing could be further from
the truth. These are all important facts that bear repeating.
Finally, just last week we had the Holy Father Pope Francis
come to a joint session of Congress and deliver an historic
address. In his remarks, he encouraged us lawmakers to ``keep
in mind all of those people who are trapped in a cycle of
poverty.''
Director Cordray, I believe your work and the work of the
Bureau lives up to the promise of a better economy, one that
serves working people and fulfills the American promise of
opportunity. I look forward to hearing your testimony today.
And I will yield back the balance of my time.
Chairman Hensarling. The gentlelady yields back.
The Chair now recognizes the gentleman from Texas, Mr.
Neugebauer, chairman of our Financial Institutions
Subcommittee, for 2 minutes.
Mr. Neugebauer. Thank you, Mr. Chairman. Since its creation
5 years ago, the CFPB has aggressively pursued a rulemaking and
enforcement agenda which has really dramatically changed the
consumer marketplace. While prudential banking regulators were
widely criticized for falling down on the job in the runup of
the financial crisis, the CFPB has not only consolidated
consumer protection laws into one agency but has dramatically
expanded their scope. As a result, it is not only necessary but
healthy to have serious policy discussions about the proper
balance and calibration of these new and pending regulations.
Today, I look forward to hearing from Director Cordray
about two forthcoming rulemakings. First, the CFPB has
announced plans to move forward with rulemaking that will
completely alter an offering of short-term small-dollar
products. The rule will entirely disrupt the robust State-based
regulatory framework of this marketplace. In doing so, the
Bureau has paid little attention to the existing authority and
past legislative actions by States across the country.
Additionally, the Bureau has failed to identify alternative
products for the segment of customers or consumers who will
lose access to credit. This is particularly disappointing given
the demonstrated high demand and usage for these products.
Second, it is widely expected that the Bureau will move
forward to prohibit predispute mandatory arbitration clauses.
These clauses are a form of alternative dispute resolution that
produce a faster and more cost-effective legal avenue as
compared to class action suits for many consumers. I am
concerned that the Bureau will fail to give weight to the pro-
consumer features of arbitration agreements which were outlined
in the Bureau's own study. For example, the study demonstrates
consumer recovery under arbitration is 166 times greater than
under class actions. I look forward to learning more about how
the Bureau plans to balance the identifiable benefits of these
clauses with the theoretical costs associated with their use.
While I know my colleagues and I disagree on certain policy
positions and actions of the Bureau, I hope that today we can
foster a forward-looking dialogue that truly examines how this
agency balances consumer protection and access and cost.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Connecticut,
Mr. Himes, for 1 minute.
Mr. Himes. Thank you, Mr. Chairman.
And I thank you, Director, for joining us today.
I find myself on either side of the regulatory debate from
time to time because I believe that regulation should be there
but that it should be finely and carefully balanced. I find
myself puzzled by the incessant attacks on you and on your
agency. Look, derivatives, securitization, margin rules, these
things are complicated and difficult to fully understand. But
the kinds of predatory and inappropriate behavior that the CFPB
has countered over the years are not difficult to understand
and not difficult to see. I thank you for the fact that the
CFPB has returned $11 billion to 25 million consumers.
Director, I thank you for making the obvious point, if you
have studied any economics, that there is no such thing as free
checking, that there are products that look free but that get
paid for through less transparent and less visible mechanisms.
And I thank you, frankly, for the work that your agency is
doing in my district. In leafy Fairfield County, a bank of $35
billion in assets stands accused of redlining, something that I
would have hoped we would have seen the end of long, long ago.
So know that you have supporters and friends here in the
Congress, and I hope that your mission continues in keeping the
American people safe.
I yield back the balance of my time.
Chairman Hensarling. The time of the gentleman has expired.
Today, we welcome the testimony of the Honorable Richard
Cordray, Director of the CFPB. Director Cordray has previously
testified before this committee, so I believe he needs no
further introduction.
Director Cordray, without objection, your full written
statement will be made a part of the record. You are now
recognized for 5 minutes to give an oral presentation of your
testimony. Thank you.
Chairman Hensarling. Your microphone--
Mr. Cordray. Yes. It has been a little while since I have
been in this room, but I should have remembered that.
Chairman Hensarling. We can arrange more appearances.
STATEMENT OF THE HONORABLE RICHARD CORDRAY, DIRECTOR, CONSUMER
FINANCIAL PROTECTION BUREAU
Mr. Cordray. Thank you, Chairman Hensarling, Ranking Member
Waters, and members of the committee. Thank you for the
opportunity to testify today about the Consumer Financial
Protection Bureau's latest semi-annual report to Congress. To
frame it as you did, Mr. Chairman, I am one person who will not
be silent about the work and importance of what I believe the
Consumer Bureau to be doing on behalf of the American public in
promoting and improving the choices in life for American
consumers.
This July marks 5 years since the passage of the financial
reform law. As you know, Congress created the Bureau in
response to the financial crisis with the purpose and sole
focus of protecting consumers in the financial marketplace.
Through fair rules, consistent oversight, appropriate
enforcement of the law, and broad-based consumer engagement,
the Consumer Bureau is working to restore people's trust and
confidence in the markets they use for everyday financial
products and services.
As we continue our work, consumer financial markets are
showing increasing signs of health. This is very important
because, Mr. Chairman, you in your introduction and other
speeches, and others have said that the Bureau is cutting off
access to credit for the American public. The facts do not bear
that out. For example, the latest HMDA data released by Federal
agencies last week showed increasing numbers of consumers are
taking out home purchase mortgages. In 2014, the first year of
our new mortgage rules, mortgage originations for owner-
occupied home purchases increased between 4 and 5 percent. The
upward trend appears to have accelerated over the first half of
this year. After adjusting for merger activity, the number of
lenders that reported having originated mortgages showed an
increase in 2014, including for community banks and credit
unions. Those are the facts.
Other consumer credit markets also show encouraging signs
of expanding access to credit. In the first half of this year,
over 14 million consumers obtained new auto loans, up 8 percent
over the prior year. For auto loans, this marks a 45-percent
increase since 2011, and a 9-year high since the Dodd-Frank Act
took effect. Similarly, 54 million new consumer credit card
accounts were opened in the first half of 2015, which is 12
percent more than in the same period last year and 48 percent
higher than the same period of 2011, just after Dodd-Frank took
effect.
At the same time, the percent of loan balances that are
seriously delinquent dropped below 4 percent last quarter for
the first time since 2007 and down from 7 percent 4 years ago,
just after Dodd-Frank took effect.
Equally heartening is the strength being exhibited by
community banks and credit unions. Last quarter, lending by
community banks grew by 8.8 percent compared to the prior year,
growing at almost twice the rate of noncommunity larger banks.
Credit union lending grew at an even faster pace, and
credit union membership over the past year grew at the fastest
rate in over 20 years.
These are all positive trends for the consumer financial
marketplace, which are very much aligned with the Bureau's
mission. I hope, based on the facts, we can decide it is time
that we could all be friends in this particular space.
The Bureau helps consumer financial markets work by making
rules more effective, by consistently enforcing those rules,
and by empowering consumers to take more control over their
economic lives.
To date, our enforcement activity has resulted in more than
$11 billion in relief for over 25 million consumers who have
been wronged by violations of the law.
We have handled over 700,000 complaints from consumers
addressing all manner of financial products and services. Many
of these consumers are constituents from each of your States.
As with the letters you receive from your constituents, the
customer complaints submitted to the Bureau raise issues of
serious concern. Along with our enforcement, supervisory
rulemaking, and market monitoring activity, these complaints
and the voices of consumers are important to the Bureau. Our
work is focused on ensuring that the markets for all consumer
financial products and services are marked by responsible
practices that help rather than harm consumers.
In the most recent semi-annual report, we describe our
efforts to achieve our vital mission. We describe various
enforcement actions taken by the Bureau. We worked with the
Department of Education to obtain $480 million in debt relief
to student loan borrowers who were wronged by Corinthian
Colleges. We also issued a final rule to reduce burdens on
industry by promoting more effective privacy disclosures from
financial institutions to their customers. We issued a Notice
of Proposed Rulemaking to provide strong new Federal consumer
protections for prepaid accounts, which currently have none,
and a proposal to clarify various provisions of our mortgage
servicing rules.
We are in the process of developing new rules governing
payday, vehicle title, and certain installment loans, and we
recently finalized changes to some of our mortgage rules to
facilities even broader mortgage lending by small creditors,
including community banks and credit unions, particularly in
rural or underserved areas.
As a data-driven institution, we published several reports
through the reporting period that highlight important topics in
consumer finance such as medical debt, arbitration agreements,
reverse mortgages, and consumer perspectives on credit scores
and credit reports.
In the year to come, we look forward to continuing to
fulfill Congress' vision of an agency that is dedicated to
cultivating a consumer financial marketplace based on
transparency, responsible practice, sound innovation, and
excellent customer service, where consumers can be both more
prosperous and more free to make choices that improve life for
themselves and their families.
Thank you for the opportunity to testify today. I look
forward to your questions.
[The prepared statement of Director Cordray can be found on
page 74 of the appendix.]
Chairman Hensarling. The Chair now recognizes himself for 5
minutes for questioning.
Director Cordray, recently there has been an expose by the
American Banker, 3 articles dealing with indirect auto lending
over the last 2 weeks. Are you familiar with these articles,
and have you reviewed them?
Mr. Cordray. I am, yes. I have had a chance to read them at
least--
Chairman Hensarling. The American Banker claims it has
multiple internal CFPB documents showing that your disparate
impact analysis overstates disparities, and in fact the title
of their first article is, ``CFPB Overestimates Potential
Discrimination, Documents Show.'' Do such internal documents
exist, which indicate that the CFPB may be overestimating such
racial disparities?
Mr. Cordray. I don't believe that is an accurate account of
what the discussion and careful analysis of this issue has
been.
Chairman Hensarling. Specifically, is there a document from
Patrice Ficklin, Assistant Director of the Office of Fair
Lending, dated April 2013, where she says, ``There may be some
risk of overestimating disparities?'' Are you familiar with
such a memo?
Mr. Cordray. I will try to be persistent in answering your
questions. I started to answer the last one and you cut me off,
so I didn't get a chance to finish. Shall I finish?
Chairman Hensarling. I don't think you were actually--you
answered the question. You do not agree with that assessment.
So now I have moved on to a different question. Are you--
Mr. Cordray. No, no, that is not what I said, and that is
not my answer. So I will try to answer your questions, but if
you are going to cut me off in the middle, it is difficult.
What I will say is, there have been robust discussions within
the Bureau as to how to approach these methodologies. There
have also been robust discussions from outside the Bureau,
including from this committee, in terms of checking--
Chairman Hensarling. Director Cordray, I have a limited
amount of time here, so I am asking a different question now.
Are you familiar with the memo that I just referenced from
Patrice Ficklin?
Mr. Cordray. I believe that I am roughly familiar with
various memos that I have seen. Yes.
Chairman Hensarling. Okay. Are there any memos that you are
aware of at the CFPB which indicate that you are overestimating
such racial disparities?
Mr. Cordray. What I will say again is there have been
various efforts and discussions to try to make sure that the
estimation is as correct and accurate as possible.
Chairman Hensarling. Let's be--
Mr. Cordray. There are various methodologies that might
cause it to be overestimated, and some that might cause it to
be underestimated.
Chairman Hensarling. Director Cordray, I get to control the
time here.
So you employ a proxy known as BISG, correct?
Mr. Cordray. I believe that is correct, sir.
Chairman Hensarling. Are you aware of any other proxy
methods for estimating racial disparities that are more
accurate than BISG?
Mr. Cordray. I don't believe that we are trying to find
anything other than the most accurate method we can. There have
been different approaches to this over the years--
Chairman Hensarling. So you are unaware of other more
accurate proxies?
Mr. Cordray. ``Accurate'' is in the eye of the beholder. We
are trying to get it right. We are trying to understand what
``accurate'' means. But if some people--
Chairman Hensarling. Okay. So in your opinion--
Mr. Cordray. They would say it is more--
Chairman Hensarling. --the CFPB is using the most accurate
proxy method available?
Mr. Cordray. We are certainly trying hard to do that, and I
believe we are trying to do that, yes.
Chairman Hensarling. Has the Bureau ever evaluated how your
proxy method estimates race by comparing it to data where race
is actually known? For example, HMDA data, have you ever
performed such an analysis? Are you aware of any such analysis?
Mr. Cordray. That is something that has been a bone of
contention from the beginning, both in our discussions and with
external parties. There is a desire to compare auto lending to
mortgage lending and say they are the same thing, but the pool
of borrowers is quite different--
Chairman Hensarling. I understand that, but are you aware
of any such analysis that has actual racial characteristics as
opposed to purported?
Mr. Cordray. Again, HMDA data can pinpoint all of these
characteristics too.
Chairman Hensarling. I am just asking, Mr. Director, are
you aware of such an analysis, yes or no?
Mr. Cordray. I believe there have been multiple analyses by
many different people of that comparison.
Chairman Hensarling. You consider it an invalid analysis,
but isn't it true that the CFPB has an analysis showing that
its own proxy method has overestimated African Americans by
almost 100 percent?
Mr. Cordray. You are mixing apples and oranges. Mortgage
borrowers are one set of the population. Auto borrowers are a
very different set of--
Chairman Hensarling. They are either a member of a racial
minority or they are not a member. We are comparing actual data
to your purported data.
Mr. Cordray. You are also comparing two distinct markets
with different universes.
Chairman Hensarling. I know, but Mr. Director, you did the
same thing when you compared auto lending to the general
population, did you not?
Mr. Cordray. That is correct. Both of us try to make that
comparison and try to get it right. We may disagree about
whether we are getting it right, but we are trying hard to do
that.
Chairman Hensarling. Has the Bureau at least--
Mr. Cordray. You hit the nub of the issue, though--
Chairman Hensarling. Has the Bureau at least controlled for
other factors like creditworthiness? Do you control for credit
scores?
Mr. Cordray. We attempt to control for all of the variables
that have nothing to do with prohibited characteristics, such
as race--
Chairman Hensarling. Including credit scores.
Mr. Cordray. Again, it depends on the analysis, and there
are different approaches to this, and some people would say
certain ones are more accurate than others. We have done our
best to try to understand--
Chairman Hensarling. Isn't it true that credit scores could
account for some, if not all, of the disparities that you have
observed under current law as deigned by the Supreme Court?
Don't we have to look at causation?
Mr. Cordray. I don't think that it is fair to say--again, I
am not the biggest expert on this at the Bureau or in the
social science field--I don't think it is fair to say that
credit scores can explain the disparities.
However, that is a relevant point. Creditworthiness in
other measures is a relevant point. But, again, the nub of the
issue, which you have hit upon, Mr. Chairman, is whether it is
fair to simply compare mortgage borrowers to auto borrowers and
say that they are comparable. We think they are not. That has
been a basic difference between us and the Charles River
report, for example.
Chairman Hensarling. My time has expired.
The Chair now recognizes the ranking member of the
committee.
Ms. Waters. Thank you very much. Mr. Cordray, I want to
thank you and commend you for the settlement that was announced
with Hudson City Bank for structuring its businesses so as to
avoid majority Black and Hispanic neighborhoods. This is a
well-known practice to those of us who pay attention to
minority access to credit.
And I was very surprised, as Mr. Himes said, at the attempt
to go back to redlining. This was a very important settlement
that you were able to enforce. And, unfortunately, it appears
that Hudson City didn't consider any of these majority minority
neighborhoods to be a part of their CRA assessment area. And I
suppose we are going to have to be on the lookout for other
institutions that are going to attempt to do this.
But really today should be a time of celebration. You have
done some extraordinary things with this Bureau. And as I look
at just a few of them--and you mentioned that you stopped an
illegal kickback scheme for marketing services which resulted
in $11.1 million in redress for wronged consumers. You also
worked with the Department of Education to obtain $480 million
in debt relief to student loan borrowers who were wronged by
Corinthian Colleges, a for-profit chain of colleges that
violated the law and has since declared bankruptcy. I want to
give you an opportunity to just discuss some of this. Prior to
the creation of the Consumer Financial Protection Bureau,
consumers literally had little or no protection in this
government. And you have moved in ways that have benefited our
consumers in such a grand way. Tell us about this 11.1 or
Corinthian or what you have done with student loans. Expand on
that for us.
Mr. Cordray. Okay. Thank you, Ranking Member Waters.
On the Corinthian matter, I will say that I was impressed,
surprised, and pleased at the work done by our team, which was
some of the most diligent and creative work I have seen during
my time at the Consumer Bureau, where they were pressing to get
debt relief for students. We had sued Corinthian, and we were
in court with them. They had sold a lot of debt out from under
the lawsuit so it couldn't necessarily be reached by the
lawsuit itself, and it was a tremendous amount of work by our
folks, who were ultimately able to secure $480 million in
relief for current and former students. That was one of the
most impressive things I have seen during my time at the
Bureau.
On the marketing service agreements that you mentioned,
that matter, which was the $11 million matter, we have found
over our experience over the last several years that marketing
service agreements carry a great deal of legal risk for the
participants that may not have been fully recognized by people
in the industry. It is very difficult to have such agreements
and have them be effectuated and monitor them carefully so that
they are compliant with the law. That has been a source of
concern for us. That was an enforcement action, a major
enforcement action. We continue to look carefully at that
problem, and it is something that really needs to be cleaned
up. It is something we will continue to attend to.
On the redlining matter that you just mentioned, I was
surprised as well. There is such good and detailed Home
Mortgage Disclosure Act (HMDA) data out there now that every
bank and every lender should know that if they are redlining,
it is going to be apparent from the data. And I would have
thought that we would have stamped that out a long time ago. We
apparently haven't. The Justice Department, which works with us
on these matters, has indicated that they have more matters
open on the issue. So we will see where that goes. Obviously,
nobody here, nobody on either side of the aisle, nobody in this
room believes that people should be deprived of access to
mortgages and other credit simply because they live in areas
that have a high concentration of minority residents. That is
un-American. It is not right. And we will continue, wherever we
see that, to work that problem very hard. I know everybody in
this room agrees on that.
Ms. Waters. I want to thank you so much for that. I was in
the State legislature when redlining was absolutely something
that was being done all over this country. And I thought we had
worked in ways that would wipe that out, but to see it coming
back means that not only are we going to have to catch those
who are doing it, what can we do to try and prevent it from
happening? What can we do as public policymakers?
Mr. Cordray. I think the deterrent effect of an action like
this is very important. I like to think and hope it will prove
to be an aberration, but the data is very good on this issue.
And it is something we can monitor carefully, and we are very
attentive to the problem, maybe more so than might have been
true in the past, for all I know.
Ms. Waters. I want to thank you.
And on Corinthian, we have been working to try and get rid
of Corinthian for years. They have been ripping off our
students, who were looking for just an opportunity to learn and
to get a job. And we finally got them, and there are a lot more
out there like them. And I thank you for your work.
Chairman Hensarling. The time of the gentlelady has
expired.
The Chair now recognizes the gentleman from Texas, Mr.
Neugebauer, chairman of our Financial Institutions
Subcommittee.
Mr. Neugebauer. Thank you, Mr. Chairman.
Director Cordray, Section 1028 of Dodd-Frank grants the
CFPB authority to conduct a study of predispute arbitration.
Depending on your findings of the study, the Bureau may
prohibit or limit the use of arbitration's rulemaking, or it
may choose not to act. I think, in March, the Bureau finalized
its study, and in testimony before the Senate Banking Committee
in July, I think you stated the Bureau would move forward with
the rulemaking process. I would like to get into kind of the
nitty-gritty of this issue with you a little bit.
The statute says that the findings of the report must lead
to a conclusion that it would be in the public interest or
protect consumers to move forward with a rule. But your report
found that customers who prevailed in arbitration recovered an
average of $5,300 compared to $32.35 obtained by the average
class action member in class action settlements. Can you walk
me through how prohibiting arbitration is better when you look
at those kinds of numbers?
Mr. Cordray. Yes. And I like to try to make eye contact
when we are talking back and forth.
On the arbitration issue, it is, as you said it, in our
statute. What is notable is, first of all, in the Military
Lending Act of 2007, Congress enacted a statute to protect
servicemembers, which said that there should be no enforced
predispute arbitration in any financial service contracts to
military servicemembers, Active Duty. That was the first sort
of walk-back in this area.
In the Dodd-Frank Act itself, Congress outlawed predispute
enforced arbitration agreements in mortgages. They further
mandated, as you correctly and accurately framed it, that on
all other consumer financial products and services, the Bureau
would conduct a study, which we tried to do in a very careful,
thorough way. It took us several years to gather the data, put
it together, and its analysis that even its critics have said
it is the most comprehensive treatment of this issue they have
ever seen and very complimentary about the approach to it, even
though they may disagree with some of the conclusions. And I
take it perhaps you do as well. Once we had finished the study,
we were to report that to Congress, which we did earlier this
year, and then we were to try to make judgments from that
report about whether we should adopt regulations affecting
those clauses in any way. That is something we are now moving
forward with.
Mr. Neugebauer. But in Section 1028, there was not a
mandate that you do that. It was Congress who gave you the
authority to study and to come up with your own determination.
Mr. Cordray. It was a mandate for us to diagnosis the
problem and an authorization for us to act on that diagnosis.
That is fair.
Mr. Neugebauer. Now, your study looked at 562 class action
cases. In 92 percent of those class actions, arbitration was
not even a factor, and this presented no barrier to moving into
a class action suit. So can you explain how your study supports
the position that arbitration is a barrier to class action
suits?
Mr. Cordray. I hate to try to boil down the conclusions of
a pretty exhaustive study into just a couple of sentences.
Essentially what we found was that the arbitrations were rarely
pursued by individual consumers because the nature of consumer
financial issues and concerns is that there is often very
little money at stake for the individual, although in the
aggregate for the financial institution there may be a great
deal of profit to be had from a particular practice. We did a
close comparison of class action suits such as exist in the
area--many of which have been cut off because of these
arbitration agreements, but some of them still exist--and
arbitrations. And we found that in terms of preventing and
cleaning up violations of law and getting redress to consumers,
you could compare for yourself the numbers. You could draw your
own conclusions. We are now trying to move forward and figure
out what is the appropriate rulemaking answer to that. That is
a process which will unfold.
Mr. Neugebauer. One of the things that the Bureau has
committed to is a pretty aggressive educational process of
educating consumers on the choices that they have. What kind of
resources has the Bureau dedicated to educating consumers about
arbitration and the pros and cons of arbitration? Have you done
any education in that direction?
Mr. Cordray. I would actually say that the first question
is, what kind of education has industry done who have enforced
these clauses over the years to encourage people to pursue
individual arbitrations? I don't know that there has been any
educational effort by industry over decades. As to what we have
done over the last several years, first of all, we wouldn't
have engaged in some aggressive education program during a
period in which we were studying the problem and trying to
diagnosis it. We obviously needed to try to understand it
first. And, again, we took several years to gather data, put it
together. Even the critics of the study have recognized this is
the most comprehensive, fullest treatment they have seen, and
it breaks new ground.
Now having accomplished that, we will go through a
rulemaking process where it will be open, notice and comment,
lots of people will have points of view. I am clear on that. We
will have a chance to process all of that. That is how we will
try to proceed.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentlelady from New York, Ms.
Velazquez.
Ms. Velazquez. Thank you, Mr. Chairman.
Director Cordray, I would like to thank you for your
response to our letter regarding implementation of Section 1071
of the Dodd-Frank Act. As you know, 1071 requires banks and
lenders to collect and report credit application data on small
businesses as well as minority- and women-owned businesses. Can
you please elaborate on some of the groundwork you have done to
prepare for the rulemaking on Section 1071?
Mr. Cordray. Yes, I can. And I have appreciated--I have
gotten quite a bit of input on this issue in particular over
the last number of months from Members of Congress and also
from community groups around the country.
What we have always said here is this is an undertaking
that under the Dodd-Frank Act was placed with the Consumer
Bureau. It is a somewhat unusual undertaking because it
involves small-business lending, not consumer lending. And we
don't--we otherwise have very little authority over small-
business lending. We do have an amount of--a little window of
authority under the Equal Credit Opportunity Act, and we have
indicated we are going to begin some examinations of
institutions on their small-business lending within the next
year.
We also said we had another job that Congress gave us to
do, a mandatory job, which is to first, overhaul the Home
Mortgage Disclosure Act rules, and second, to take on another
job of bringing over from the Federal Reserve the operational,
technological aspects of gathering that data, collecting it,
and being able to make it accessible to people, which will
allow us to update the technology and make that information
better, cleaner, and easier for everyone to use so that when
the ranking member asked me about the redlining case, everyone
will be able to see the data and diagnosis it for themselves.
That is good transparency that will help make sure that we can
enforce and monitor these types of things. As we are completing
that rulemaking, which I expect to be completed before the end
of the calendar year, we have then always said that we can move
forward with 1071--that is a section of the Dodd-Frank Act--
small-business lending project, which is intended--it requires
us now--to adopt a rule and then figure out all the technical
and operational details of gathering data on small-business
lending akin to how we have done it for mortgage lending.
Having done as much work as we have done on the HMDA
project, both operationally and then rulemaking, we can now
turn to the small-business lending and work on the rule. I
think it will take some time. We have to--we are going to be
reaching out to the Small Business Administration, people at
the State level, any of you who are interested in trying to
understand how we would do a new data collection for small-
business lending, how to try to minimize the burdens of that
and how to accomplish the benefits of it.
Ms. Velazquez. Thank you. As a follow up to my last
question, we have heard critics of Section 1071 saying that the
costs will outweigh any benefit the data collected will
provide. In light of the recent enforcement action against
Hudson City Bank for discriminatory redlining practices against
Black and Hispanic neighborhoods, I would agree the benefits of
Section 1071 to minority small-business borrowers will justify
any monetary cost to a financial sector. Would you agree with
that?
Mr. Cordray. It is obviously something very hard to judge
at the outside of a project, but I will say that I have heard
from a number of groups who have spoken powerfully and
eloquently to this issue. What they have said to me is for the
average middle class and working class family--people trying to
rise, and it is true of many communities of color--their wealth
building happens to occur through home ownership, which was
devastated by the financial crisis and through small-business
creation. That is often a big engine of growth and economic
development for new families in this country and for
communities of color, who are otherwise maybe shut out of other
traditional networks. For those reasons, the small business
lending seems to me to go hand in hand with the mortgage
lending data collection. And it seems to me to be a very
powerful way for us to try to understand how we can create more
economic opportunity in communities of color and for minorities
around this country. That makes a great deal of sense to me.
Ms. Velazquez. Thank you. And last I would like to mention
to you or, yes, to make a comment regarding the fact that
American citizens of Puerto Rico who invest in mutual funds are
not covered by the Investment Company Act of 1940. This leaves
them without the safeguards that those on the mainland have. Do
you think this is fair?
Mr. Cordray. I don't know that I know enough to answer that
question. I'm sorry. I would be glad to go back and have our
folks look at it--
Ms. Velazquez. I introduced legislation to close this
loophole, H.R. 3670, and I would like for you to take a look
into this issue that is really disrupting the lives of Puerto
Ricans, American citizens. Thank you.
Mr. Cordray. Okay.
Chairman Hensarling. The time of the gentlelady has
expired.
The Chair now recognizes the gentleman from New Jersey, Mr.
Garrett, chairman of our Capital Markets Subcommittee.
Mr. Garrett. I thank the chairman. And I thank the Director
for being here.
I might just take a little different tack on this. You talk
about the mandate you had on the mortgages in that area. Okay.
Good. You know, my dad always said to give credit where credit
is due. You have talked a lot already here about what you are
doing in the auto industry in the lending area. Those are the
initial questions and some of your focus--and you are nodding
your head. Some of the focus of what you are doing in some of
the cases that are out there as far as what you have been able
to recover for the claimed discrimination and that sort of
thing that went on there.
Why that is puzzling, though, to me is I was on the Dodd-
Frank conference committee, and I was one who carried the
amendment that said that there would be an exclusion for
activity within the jurisdiction of the CFPB dealing with the
auto industry. And this is one that Chairman Frank accepted,
and it was passed in a bipartisan manner, and it passed out of
the House and the Senate and was signed into law to exclude
that area of authority for you to do. Yet, you are nodding your
head that you are proud of all the work you have done in that
area. And that puzzles me. So, one of my questions is, it has
been reported in that same article that the CFPB has been
considering how to eliminate dealer reserves. So the first
question along that line, is that something that you are doing,
despite the fact that we have carved that exception there? Is
that something you are doing? Yes or no?
Mr. Cordray. I don't really speak in terms of having pride
in this or that.
Mr. Garrett. Okay. But I only have 3\1/2\ minutes. Is that
something you have done? Is that something you are doing,
trying to eliminate dealer reserves?
Mr. Cordray. I would start with what you said that the
exception--
Mr. Garrett. Is that something that you are doing? Here
is--
Mr. Cordray. That is not the way it is worded.
Mr. Garrett. Director, I only have 3 minutes left. Let's
run down the questions. The question is: Are you working to
eliminate dealer reserves? Yes or no?
Mr. Cordray. We have been working to try to address a
practice that we believe is discriminatory--
Mr. Garrett. So that is a yes. Is that a yes, please? Just
answer the questions yes or no.
Mr. Cordray. Not necessarily eliminate. We had an
enforcement action yesterday in which it would limit dealer
reserve but not eliminate it, and we think that may be a fair
way to try to address the--
Mr. Garrett. So the answer is yes, you are doing that. And
there was a memo back in May of 2013 which said the purpose of
a meeting you had is to continue our discussion about a market-
tipping settlement that would resolve discriminatory
disparities caused by auto dealers by markup by eliminating
markup at major auto lenders. Is that something you are working
on as well?
Mr. Cordray. What we found is that it is a somewhat more
complex problem than maybe we thought at first. It is, live and
learn--
Mr. Garrett. So the answer to that question is ``yes?''
Mr. Cordray. No. The answer is, we started out thinking
that the right answer to that concern--
Mr. Garrett. Is that in a general area that you are looking
into? Is that a general area that you are looking into? That
answer seems to be yes.
Mr. Cordray. Yes. And I was trying to be more specific.
Mr. Garrett. I don't have time for more specific. I am
just--are you looking into it?
Mr. Cordray. Yes. We are.
Mr. Garrett. What is the authority for you to do so?
Mr. Cordray. We have authority in the statute. It doesn't
exempt the auto industry. It exempts auto dealers. It does not
exempt auto lenders. We have a responsibility to address auto
lenders--
Mr. Garrett. Whoa, whoa, whoa. What did you just say? It
exempts the auto industry?
Mr. Cordray. It does not. That is what you said in your
opening.
Mr. Garrett. So it exempts the auto dealers?
Mr. Cordray. It exempts auto dealers, but it gives us--
Mr. Garrett. So who are the ones--
Mr. Cordray. --responsibility over auto lenders.
Mr. Garrett. --who are on the front line, who are actually
making these loans? Isn't it the auto dealers?
Mr. Cordray. Look, Congress drew the statute. I didn't draw
it. I have to live with it. It exempts auto dealers but gives
us responsibility over auto lenders. I am not sure that makes a
lot of sense, but we are trying our best to observe the lines
that Congress drew.
Mr. Garrett. But when you make these decisions, you are
directly affecting the auto dealers. It is the auto dealer that
I just went to in order to buy a car or not buy a car, right?
And it is the auto dealer that people will be paying the
interest rates that are affected by your actions, right?
Mr. Cordray. The loan is made by an auto lender, and an
auto lender controls their auto lending program. They decide
whether they are going to deal through dealers or on their own
or whatever they do. We have a responsibility over auto
lenders. It is a funny provision in the statute. I am not sure
it is very logical, but it is what we--
Mr. Garrett. Let's see what the practical consequence are.
And the studies have shown this to be true. By your actions,
the interest rates that somebody who goes to an auto dealer,
because that is where I go to buy a car, is an auto dealer, are
actually going up because of the actions you are taking. Isn't
that correct? Isn't that what some of the reports have shown?
Mr. Cordray. Let's make an analogy to the mortgage
industry.
Mr. Garrett. No, no, no. We are on auto here. We are not
talking about mortgage. The results of your actions are raising
the cost of buying cars. It is making the interest rates go up.
That is what the studies have shown. Correct?
Mr. Cordray. What I would say is this, as we do our work,
and we have a responsibility--
Mr. Garrett. I understand that. But is the result--
Mr. Cordray. --to auto lenders. It does affect auto
dealers. I would agree with you on that. That is why the
logical provision is not--
Mr. Garrett. Sir, is the result of your action that it is
costing more for people to buy cars now? Is that what the
CFPB's bottom line is? Because the results of one study--
Mr. Cordray. There is disagreement about that. But if you
are engaged in potential discrimination in a market and you
cure that discrimination, and that discrimination has been
cross-subsidized by the--
Mr. Garrett. At the end of the day, are the people who are
most hurt by this the very same people that you claim to help,
the people of that--the poor, and the middle class are the
people who are actually paying the higher rate. Isn't that
true, sir?
Mr. Cordray. No. That is not true.
Mr. Garrett. That is what the studies seem to show. But I
yield back.
Mr. Cordray. No, that is not what it seems to show.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from California, Mr.
Sherman.
Mr. Sherman. Mr. Cordray, there is a lot of discussion as
to whether your successor should be an individual or a
commission. And, obviously, an individual is more efficient,
makes decisions quicker, but when we have that efficiency, that
means that your successor will be appointed by whomever the
next President is, and then the next successor will be
whomever, and we could swing very efficiently and extremely
from the forces of light to the forces of darkness, and then
back to the forces of light, which of course will make it
pretty complex to transact business.
Let's imagine, God forbid, that your successor is your evil
twin, just as capable as you but determined to undo every good
thing that you have done or are about to do. How efficiently
could that person, one person running your agency, replace all
of the regulations that you will have in force by January of
2017 with new regulations that would be touted as good consumer
protection but would in fact eliminate the lion's share of the
good that you plan to do in this your first term? How efficient
could your evil twin be in undoing everything you have done or
will do between now and January 2017?
Mr. Cordray. It is theoretically possible, but it is not so
easy to do. Once you have passed rules and regulations through
a notice and comment process and they are protective of
consumers and those start to become the lay of the land and
institutions adjust to them, even though you might decide, I am
going to undo all of those, it is a whole process to go
through. You have to fight the opposition on that. You have to
fight whatever evidence there is--
Mr. Sherman. I would point out the opposition that you face
is the industry. In this case the industry would be on the--
that somebody moving the other direction would face less
opposition than you have faced.
Mr. Cordray. No, they might well face considerable
opposition from the American public--
Mr. Sherman. They might if the American public understood
the details. As I said, I am positing that these replacement
regulations would be billed as a major increase in consumer
protection. But, obviously, it would be more efficient for your
evil twin to do this if it was one person rather than a
commission made up of both Democrats and Republicans, some of
whom agreed with you, some of whom who didn't.
I want to move on to another--
Mr. Cordray. Could I respond briefly to that?
Mr. Sherman. No. Because I have to move on to the next
question.
Mr. Cordray. Okay. Fine.
Mr. Sherman. You can respond for the record.
TILA-RESPA, TRID, if you are building a new ship, you want
some extra time to get the ship done, but no matter how long
you spend at the dock, you are really not done until you take
it on a shakedown cruise. October 3rd begins the shakedown
cruise, the chance to actually try out these regulations and
see how they work. And it is going to be difficult. Now, you
have given additional time for the ship to be built, but it
still hasn't been on a shakedown cruise, and in fact you have
to--you can't use the new regulations for September
transactions, but we are closing in on October 3rd. Are you
willing to announce a formal temporary 3-month hold harmless
period for those who are making a good faith effort to comply
with the 1,800 pages of regulations and are acting in good
faith knowing that they have never used them before, although
they have had enough time--they have had plenty of time at the
dry dock?
Mr. Cordray. Actually, all of this area was changed and
overhauled in 2010 by the Department of Housing and Urban
Development (HUD). Congress then legislated it be changed again
by us. I am not sure that is the way you would have drawn it up
if you had started from scratch, but they got through it in
2010. There is obviously lots of angst around it, and people
are trying hard to make their systems work. We did give them
more time, as you have said. You and I have had a chance to
have back and forth on this a number of times. I have never
quite fully understood your phrase ``shakedown cruise,'' but I
think I have--
Mr. Sherman. Well, a shakedown cruise is when you go out
and you try to sail the ship the best you can, but you don't
get sued if the facilities don't work.
Mr. Cordray. So the nub of this, which I think is your
biggest concern is, we have said and we are working now to
provide written guidance on this, and we are working with the
other agencies so that we all provide the same written guidance
on this, that for a period--for some period of months, we are
not going to be very specific about it. It might be longer.
Right? There will be a diagnostic approach to this that is
not--nobody believes that the market participants here are
going to be trying to abuse consumers here. They are just going
to be trying to change their systems and get it right. So it
would be diagnostic and corrective, not punitive, and there
will be time for them to work to get it right and not have to
be perfect on the first day.
Mr. Sherman. Will you be announcing something by October
3rd?
Mr. Cordray. I am pushing hard the see to it that it is out
before October 3rd. I was hoping it was going to be out before
today, but it is going to happen, and it is going to be along
the lines of what you have asked for. I think it will be
satisfactory.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Missouri, Mr.
Luetkemeyer, chairman of our Housing and Insurance
Subcommittee.
Mr. Luetkemeyer. Thank you, Mr. Chairman. And I want to
just follow up on the gentleman from California's remarks
there.
Mr. Cordray, you and I have had some discussions with
regards to TRID and my concerns about it. And I committed to
you that I was going to send a letter to all the associations
representing people or industry folks who made mortgages and to
let us know whenever there were some sort of punitive actions
that were out of line that was taken by your agency. And I want
to let you know that letter goes out Thursday. So just to put
you on notice that we are going to be watching.
Mr. Cordray. That is great. I am actually glad to have you
monitor this because it is my intention--this is how we handled
the first set of mortgage rules, and I haven't heard of any
problems, and we are now 21 months in, but I am glad to have
you monitor it because I want what you want, to make sure this
is what actually happens. So I appreciate that.
Mr. Luetkemeyer. If you live up to your end of the bargain,
this will all go away and we will all live happily ever after.
Mr. Cordray. Okay. Fair enough.
Mr. Luetkemeyer. Thank you.
With regards to--I want to follow up just for a second with
regards to the gentleman from New Jersey's remarks with regards
to the relationship between the auto dealer and the lender. I
think you just mentioned a minute ago that you came out these
last few days with a recommendation to have a 1.5-percent
spread between what the lender and the dealer have in their
relationship. Is that correct?
Mr. Cordray. There is a consent order that was entered
yesterday that would have a one and a quarter differential for
certain loans, and 1 percent differential for other loans
depending on timeframe.
Mr. Luetkemeyer. It is very concerning to me. Number one,
where is the authority to do that? And number two, why are you
getting in the middle of the general competitiveness of the
marketplace?
Mr. Cordray. Why am I getting in the middle of what?
Mr. Luetkemeyer. It looks like you are price fixing to me.
Why are you getting in the middle of a discussion between two
entities that determine the risk of the loan between the two?
Interest rates should be reflective of risk. They always have
been. I am old enough to remember when we had usury rates. And
a few years ago, we took them off. And now with this action it
looks like we are putting them back in place because you are
limiting the amount that people can make based--and you are
taking all the other risk factors out, which that is the
definition of interest.
Mr. Cordray. This is not just a general philosophical thing
that we are deciding to do because we have some ideology on
this. This is a result of an enforcement action, an
investigation by us and the Justice Department. We are not solo
on this. We are working with the Justice Department. They have
much more lengthy experience in these matters than us on
investigation of potential discrimination. There was a back and
forth with that entity and various other entities--there has
been a number of them--in which it was determined that this was
a reasonable result to address the problem and yet to allow the
entity to move forward and continue to lend aggressively to
customers.
And as I said in my outset, auto lending is at some of its
highest levels ever right now. This is not interfering with
that.
Mr. Luetkemeyer. Director, that is because the economy has
come back and people can finally afford to have an automobile
in their garage.
Let me move on. It seems to me along that same line here, a
while ago you said that you are a data-driven institution.
Mr. Cordray. We try to do that, yes.
Mr. Luetkemeyer. I know in talking with one of my bankers
last night, I called him and said: Listen, tell me what is
going on with you and this disparate impact situation. And he
is very concerned because whenever he was examined, basically
the examiners looked at three things: loan to value; debt to
income; and FICO score. And he was cited by the examiner for
inappropriate loans. He had an outside accounting firm come in,
and they came up with two reasons that he had this problem:
Number one, he loaned to people outside the State; and number
two, he loaned to very small auto dealers. If you take those
two things out, he would have been in perfect compliance.
Yet if that happens, now we are going to restrict the
amount of dollars that are available, and you are going to
lessen the competition. And in talking with him--you made the
comment a while ago that there is plenty of access to credit
out there. I can tell you that there are a number of banks that
have already quit doing this and are looking to quit doing
this. And when that happens, there will be less bidding going
on for those dealer loans. And that means the rates will go up.
Mr. Cordray. Could you help me a little bit? Is that a big
bank or a small bank?
Mr. Luetkemeyer. It is a mid-sized bank.
Mr. Cordray. Over $10 billion in assets?
Mr. Luetkemeyer. Yes.
Mr. Cordray. I would love to hear more. I would like to
know more.
Mr. Luetkemeyer. I would be glad to fill you in. I have 46
seconds. It is concerning to me, and I think that you need to
be willing to look at other factors when you are modeling this
and take those into account because I don't think that is
happening, and I think that is where a lot of problems begin.
Just one more quick comment. I also had an entity who was a
debt buyer come into my office recently, and they were fined
for a word in their settlement agreement that you are proposing
a rule in the future for. That made no sense to me.
Mr. Cordray. I have heard that, and it doesn't make sense
to me either. I don't really understand how we fine somebody
for a word. I would love to hear more and understand that
problem. When we investigate it--again, I am not sure which one
it is. We have taken several actions against debt buyers who
have engaged in some pretty predatory practices. And when we
get into the details of it, you wouldn't find them very
appetizing either.
Mr. Luetkemeyer. They were fined for a word that was going
to be noncompliant in the future with one of your rulings, and
as a result--
Mr. Cordray. Give us a chance to talk with your staff and
understand that problem and see if we can clear that up. I
would love to do that.
Mr. Luetkemeyer. I yield back.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from New York, Mr.
Meeks.
Mr. Meeks. First, I want to thank you, Mr. Cordray, for
your leadership at the CFPB because, clearly, over the last 4
years, recovering approximately $11 billion in relief for over
25 million American consumers, that is tremendous, and the CFPB
clearly is changing some of the most egregious behaviors from
bad actors in our financial markets and helping consumers every
day. And your leadership has been to that very same effort.
And I think that you have a difficult job. The job is
difficult because at the same time you are helping consumers,
you are trying to figure out that balance to make sure people
still have access to credit and they are not left out.
And so there has been this conversation that we have had
going on for a long time, and I come from my experience,
especially when you deal with the short-term loans or payday
loans or whatever, how do you balance that? How do you make
sure that people have access to credit but are not being ripped
off? For example, I think you came out with a report that said
we have to get rid of these rollovers for folks who can't
afford them. But at the same time, from my background, knowing
what I have seen, I want to put the loan sharks out of
business. In the neighborhood that I grew up in, when banks
turned folks down, there was harm done to folks because they
didn't have any other choice but to go to some of these loan
sharks.
So the question of harm and how do you--because I don't
think that--to get rid of the bad individuals--I don't want to
throw the baby out with the bath water--but I want to make sure
that we can keep--because I have found some to be good business
folks but others to be bad. You indicated that you were going
to be looking at some of the State regulations and how they
handled it to get rid of the good and the bad, et cetera. I was
wondering if you could give us the benefit of your knowledge
and whether or not you think you have gotten enough information
from looking at some of the States as to how to properly maybe
we can regulate this, because I am for regulating this
industry, not necessarily getting rid of it but having some
firm regulation because folks are going to try to find a way to
get some money.
Mr. Cordray. I appreciate that what you have just done is
to put yourself in our shoes and recognized in a very eloquent
way, better than I would have done, what the two sides of the
problem are. You want to have access to responsible credit for
people that doesn't get them into more trouble and sink them in
these debt traps, but you also don't want people to be in
credit that is going to destroy their lives. And there are some
really ugly kinds of credit out there that we have seen that
are quite predatory. How you balance that is not easy.
Now, you are from the State of New York. The State of New
York bans payday lending because the usury cap is on in New
York, and it doesn't really exist. And yet, I take it your
constituents are managing somehow or other, and that is true of
13 States across the country.
States handle this issue in very different ways. We have
been very carefully going to school on what the States do and
the different approaches and what seems to be working in some
respects or not working in other respects, and we want to be
respectful of that. At the same time, we have done two pretty
comprehensive White Papers showing that in this industry, a
significant number of consumers end up in a debt trap where
they get a loan at a very high cost and they can't repay it and
they have to roll it and roll it and roll it. A large number of
consumers end up in cycles of 8, 10, 12 loans. That is very
destructive to their economic well-being. Now, can we find some
reasonable restrictions here that would allow access to credit
and maybe a number of repeat loans but without people getting
so far into it--I have an example from a court opinion in
Missouri. The person took out a $100 loan. By the end of the
whole thing, they had repaid several thousand dollars and they
owed several thousand more. It was all being garnished from
their paycheck. That is not helping their economic situation at
all, for a $100 loan.
These are some of the things that we are grappling with and
trying to understand, but it is not an easy problem. The way
you framed it is exactly right. We are trying to balance two
things here, and it is not easy to strike the balance. We are
working hard at it, and we are trying to get there. Not
everybody will agree, I am sure.
Mr. Meeks. Thank you. And I would love to continue to work
it as you look at some of the States, et cetera. For example,
what happened in New York and I am finding some, there is a
black market.
Mr. Cordray. And the Internet too.
Mr. Meeks. They are getting money in that regard, and I
would rather have something that was strongly regulated that
they could go to. Then I would have more confidence that no one
ends up with the broken arms or the black eyes that I see some
folks ended up with. So I would appreciate your continuing to
work on that. I thought I had more time. I didn't realize, but
I am going to give you the chance to be more specific about the
auto loans that you didn't have the opportunity to earlier.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Michigan, Mr.
Huizenga, chairman of our Monetary Policy and Trade
Subcommittee.
Mr. Huizenga. Thank you, Mr. Chairman. I am going to try to
be quick. The dealer reserves, I just want to revisit that a
little bit and make sure to give you an opportunity to clarify
briefly on this. So my colleague from New Jersey brought up his
amendment, and it is my understanding that neither one of us
were here when Dodd-Frank was created, but we are living with
the echo effect of it here.
Mr. Cordray. We are both blameless.
Mr. Huizenga. The intent of the exemption was the entire
transaction, is my understanding. Is that your understanding as
well?
Mr. Cordray. I don't have that understanding. I don't know
one way or the other about that. What I know is, as I read the
statute, we have jurisdiction over auto lenders. We have a
responsibility there. We don't have jurisdiction over auto
dealers.
Mr. Huizenga. Got it. Will you support then expanding or
clarifying the exemption to both dealers and lenders?
Mr. Cordray. If you ask me what direction it would go--I
try to be very careful of not stepping into the shoes of
legislators. You have to make those judgments. I don't have
that authority.
Mr. Huizenga. You suggest a lot of other things.
Mr. Cordray. It has been suggested that you go in that
direction. It has been suggested that you go the opposite
direction. And there is a suggestion to leave it alone.
Mr. Huizenga. Have you issued guidance on appropriate
levels then of what a dealer reserve should be?
Mr. Cordray. Guidance?
Mr. Huizenga. Have you told people, here is what we think
is the acceptable level?
Mr. Cordray. We have had several enforcement actions.
Mr. Huizenga. That is different than outlining. I know, I
saw what happened with Ally. You have $80 million that you
haven't been able to distribute so far. Right?
Mr. Cordray. That is one action, but we have had several
enforcement actions involving other auto lenders as well where
this has come into better focus, and it is gravitating toward
what I said about yesterday's action limiting caps.
Mr. Huizenga. Why not get specific then on what that level
is?
Mr. Cordray. I think our enforcement--our consent orders
now are quite specific, and they have signalled to the industry
a possible way for us to resolve this on a global basis, and I
think that would be a good thing.
Mr. Huizenga. I want to quickly move on to another thing,
marketing services agreements (MSAs). You and I had this
conversation the last time you were here, and I will ask the
same question: Have you issued specific guidance on MSAs?
Mr. Cordray. We have gotten increasing input asking us to
do that.
Mr. Huizenga. Why have you not done it?
Mr. Cordray. We are working on it.
Mr. Huizenga. Why not just ban them or outlaw them?
Mr. Cordray. What I have said is that what we have seen--
and we have had several enforcement actions--there is huge risk
involved in those agreements, and people don't seem to have
realized it. We are going to try to signal based on our
experience what we have seen. And I think people will get the
message.
Mr. Huizenga. Let me ask a question just quickly going back
on this Ally situation. You have $80 million. You have asked
people to self-identify as to whether they are a minority and
may even qualify. Will you give Ally a refund of the money that
is not claimed? Because there are a lot of people who believe
that you overextended. You are getting $18 million already in
general, and this $80 million is supposed to be distributed.
What happens to that money if it is not distributed?
Mr. Cordray. I understand. We are in the process in this,
but we are quite confident from what we have seen so far from
the response rate that all of the money will be distributed. If
it isn't, it will not go back to Ally. That would reward them
for not getting money out. It would be disgorged to the
Treasury.
Mr. Huizenga. It is actually you not proving that there was
discrimination or DOJ not proving that.
Mr. Cordray. Not necessarily.
Mr. Huizenga. On both--on dealer reserves and the MSAs and
a number of other things, it seems to me that you are not
willing to issue that guidance because you quite possibly don't
have the authority to do that.
Mr. Cordray. No, no. We are working on it. I believe we
will issue guidance shortly. People have asked us very much for
that.
Mr. Huizenga. The American Banker, in this story on
September 24th--well, I am going to read this opening
paragraph: The consumer, the CFPB, the Bureau, has struggled
internally on how to end potential discrimination auto
lending--I would add MSAs and other things--including debating
whether it should cite a large lender in the hope of
effectively ending the ability of partnering dealers to mark up
loans to all lenders.
And what I am afraid of, Director, is--and the last time
you were here, March 3rd, we were talking about the press
release situation. And you had said that the ombudsman for the
Bureau is looking into whether there have been differences in
the language on the consent orders and the press releases on
the actions given. And it seems to me that is still the case,
and I am afraid that it seems your goal is to intimidate
businesses big and small into actions or inaction that you
think it needs to have because you don't have the legal
authority to execute those.
Mr. Cordray. I understand you may think that. I don't think
that is true. That is certainly not how I intend to operate.
The ombudsman did look at the issue of the press releases and
consent decrees and found that there really weren't any
significant problems there, and on the MSA--
Mr. Huizenga. Could you share that report with us? Could
you share that report with me specifically because I would like
to see that?
Mr. Cordray. I am sure we can. It may even be posted on our
website for all I know. The ombudsman has a fair amount of
independence from me but did look at that.
On both auto and MSAs, we have consent decrees in place
that do give very specific guidance based on specific facts and
situations. On MSAs, you and others have really pushed us to
give more guidance on that. We are going to be doing that. We
are working on it.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Massachusetts,
Mr. Capuano.
Mr. Capuano. Thank you, Mr. Chairman.
Thank you, Mr. Cordray. I have been reading through your
report. I don't know. It doesn't seem like you have been too
busy to me. It strikes me as though you are not doing much.
From what I see, you have done one proposed policy statement;
one final policy statement; 4 requests for information; 13
proposed rules; 11 final rules; 5 bulletins; 2 guidances; 20
orders; 5 assessments of State attorney general actions, which
of course is not yours, you are just looking over what the
State attorney general does. You have appeared before Congress
5 times yourself; your staff 2 more times. I know that is very
easy. It takes no preparation, no time. I get that. You have
done 37 public speeches in front of different groups that are
interested in everything you do. Your staff has done four more
speeches. You have had 14 executive actions taken against
different companies, and you have issued 63 reports and
financial reports during the last calendar year. It doesn't
strike me as though you have been too busy. It strikes me as
you are probably just sitting around not protecting consumers
and everything else. At least that is what it sounds like
today. But then again this is the bulk of what you do is only
part of it. Apparently, as I read this, you are allowed to
spend up to $619 million, but you only spent $302 million. You
only spent 48 percent of what you are allowed to spend. I don't
think there will be another agency in the entire Federal
Government or any State government or any city government for
that matter that would do that and have the results that you
have had. And on top of that, you have collected $47 million in
fines against companies that have bilked consumers, and you
distributed $113 million to different victims across this
country. Sounds to me like maybe you are actually doing
something to fulfill the title of the agency, Consumer
Financial Protection.
Mr. Cordray, I am here to say thank you. I am here to
congratulate you and your team for doing a great job. It
doesn't mean I don't want to nitpick certain things. Of course,
we do. I know you do that internally. And to be perfectly
honest, I think you have been pretty receptive to our comments
and to our suggestions along the way on different rules and
regulations. You have worked with us. It doesn't mean I agree
with everything you have done. It just means I think this
country is a lot better off with the CFPB than without you, and
I wanted to say thank you for that.
I do want to ask you, do you think you have any ability or
any regulatory authority to maybe take a look at the effect on
consumers of different Federal agencies, most notably the FHA
and maybe Fannie Mae and Freddie Mac? Do you think that might
be within your purview or outside of your purview?
Mr. Cordray. I don't think it is within our purview to, for
example, try to enforce the law against other agencies. I do
think it is within our purview--and really would be
irresponsible if we didn't, to collaborate and coordinate and
cooperate with the other agencies and try to work toward common
policies, which we do try to do with each of the ones you
mentioned and many more, so that is something that takes a fair
amount of time and effort; and these agencies are pretty
receptive. We try to be pretty receptive because the worst
thing that could happen to an institution is to have different
agencies coming at them with contradictory positions because
then the institution, how do you treat that institution fairly?
Mr. Capuano. Let me encourage you to work as cooperatively
and forcefully as you can with both of them because both of
them, in my opinion, are participating in what I consider to be
the slow and steady destruction of various neighborhoods around
this country by selling these bulk mortgages to companies that
then make a profit--not just a profit, a massive profit. The
largest one is the Lone Star Funds run by a gentleman who
voluntarily gave up his United States citizenship. I will
repeat that. We have made a billionaire out of a person who
voluntarily gave up his United States citizenship. This
Congress spends an awful lot of time debating how we can allow
more people to come to this country. I don't know anybody who
wants to leave, except for the person who is currently in
charge of the largest fund slowly destroying various
neighborhoods across this country because Fannie and Freddie
and the FHA refuse to allow local communities to have a say on
what to do with houses that have been lost because people
couldn't afford to keep them. And I would dare say--talk about
consumer protection--what they have done, not directly but
indirectly, by allowing these companies to do this, I think
certainly should fall into your purview, and if not directly in
your purview based on the job you have done to protect
consumers, I would strongly suggest you get on the phone and
talk to them, educate them, enlighten them as to how we help
individuals, as opposed to the people who are not even United
States citizens out of their own volition.
With that, I yield back the rest of my time, because I
don't really have any questions; I just wanted to say thank you
again.
Chairman Hensarling. The gentleman yields back.
The Chair now recognizes the gentleman from New Mexico, Mr.
Pearce.
Mr. Pearce. Thank you, Mr. Chairman.
Thanks for being here, Mr. Cordray. The question that came
from Mr. Huizenga about the money going back, and I understand
not a penny has been given back to the people who are
discriminated against?
Mr. Cordray. Are we talking about the Ally matter
specifically because we have had many discrimination matters,
and there is a lot of money--
Mr. Pearce. The Ally. The money has not gone back or has
gone back? It is a simple question.
Mr. Cordray. There have been many matters where consumers
have received money back. The Ally is a somewhat complicated
process, but it is being worked through.
Mr. Pearce. But nobody has received money?
Mr. Cordray. That is correct at the moment, but they will.
They will receive all of it, I believe.
Mr. Pearce. Patrice Ficklin wrote on your website that--in
December of 2013--we are starting to pay back some of those
things already, and it just doesn't seem very believable. And
by the way, if you are not giving the money back, is that
racist on your part that these consumers have been defrauded
and you have the money and you have had it in your hand? Is
your action not racist?
Mr. Cordray. We are giving the money back. It is somewhat
complicated, but it will get there.
Mr. Pearce. It is very complicated. It is not complicated
to cheat them upfront, but it is complicated for you.
Mr. Cordray. I could just throw money out there, but nobody
would be happy about that. We are going through a careful
process, and it will get there.
Mr. Pearce. And just to put this in perspective, the
assertion in The Wall Street Journal is that consumers are
being defrauded of about $200 to $300 over the life of the
loan. Is that more or less correct?
Mr. Cordray. I'm sorry. What are we talking about?
Mr. Pearce. The Wall Street Journal says that the
differences in interest could amount to $200 or $300 over the
life of the loan.
Mr. Cordray. Is it the Ally matter or generally or--
Mr. Pearce. Generally, in auto finance, you might have
that.
Mr. Cordray. That, depending on the facts, could be about
right.
Mr. Pearce. Which ends up at 60 months, which Mr. Williams
told me that is what the general financing is for is $5 a
month, 16 cents a day at the high end; at the low end is $3 a
month. Now consider that compared to--and in my 11 years, I
have never had one person come up and say: We are being
cheated, discriminated against in auto loans. But I have had
multitudes of people come up and say: In our student loans,
they are charging us exorbitant interest rates--8.7 percent is
the one that came up to our office most recently; $60,000, 8.5,
8.7 percent interest, which is a huge amount more, but you all,
according to the memos, the internal memos, are redirecting
your enforcement away from these high-priced educational
problems into the auto industry. That was an internal memo that
is circulated.
Another memo says that we are not sure that we have the
legal authority for doing what we are doing at all and that the
rule could be perceived as an attempt to circumvent the law and
our lack of authority. Now, you had told Mr. Garrett that you
didn't really agree with the law. Is that something that I
heard or maybe I didn't hear?
Mr. Cordray. I didn't agree with the law?
Mr. Pearce. The law that said you can't go after the auto
dealers, but you can go after the financial part of it. So you
do agree with the law?
Mr. Cordray. My job is to enforce the law, whether I agree
or disagree with it. What I disagreed with was the
characterization that the auto industry had been exempted from
Dodd-Frank. That is not what the statute says, and that is not
my understanding of the authority we are supposed to exercise.
Mr. Pearce. So auto dealers are not exempt or the auto
industry, which?
Mr. Cordray. Auto dealers are exempt under the statute. The
auto industry is not exempt, and auto lenders in particular are
within our responsibility, and we have a responsibility to
them.
Mr. Pearce. So you are attempting to go after the dealer
markup. Is that right? You are trying to assess that. That is
the whole 1 percent, 1 and a quarter percent; you are trying to
determine that.
Mr. Cordray. What I would say is we are assessing lender
programs where they authorize discretionary dealer markup with
financial incentives to mark up the rate, none of which is
known to the consumer, which is part of the reason they don't
complain about it. Consumers don't realize that the buy rate
was 4 percent and they are being offered 5.5 percent.
Mr. Pearce. Consumers who do realize they have a problem in
the student loan industry who complain a lot, they are okay.
Mr. Cordray. We are working hard on student loans. The
whole Corinthian matter--
Mr. Pearce. You are saying the memo is incorrect, that you
are not redirecting resources?
Mr. Cordray. We are allocate resources all the time, but
the notion that we are not addressing student loan harms--
Mr. Pearce. Seems like a complicated concept of billiards
to avoid the law. We are going to hit this ball over here, and
it is going to hit that bank, and it is going to come over
here, and it is going to tap the auto dealers. And that is who
we are really after.
Mr. Cordray. We have been very careful to observe that
line. As I said, it is not a particularly logical line, but we
have been very careful. We didn't even talk to dealers for 2
years until they started to want to talk to us.
Mr. Pearce. Maybe that is the reason some on our side have
disagreements.
I yield back.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Texas, Mr.
Hinojosa.
Mr. Hinojosa. Thank you, Chairman Hensarling and Ranking
Member Waters, for holding this important hearing; and thank
you, Director Cordray, for your appearance here today and for
your steadfast leadership at the Consumer Financial Protection
Bureau.
I am going to go directly to questions and skip the other
points that I wanted to make. Our Nation faces a severe student
loan crisis. Student loan debt now stands at $1.2 trillion and
tops out credit card debt, auto loan debt, and home equity
debt. Moreover, default rates on student loans keep rising
every year. Can you tell us more about efforts at the CFPB to
provide student loan relief?
Mr. Cordray. Yes. And there have been a lot of different
efforts. This is an area where we don't really act alone. We
try to work with others, including States, State attorneys
general and others, the U.S. Department of Education. We have
worked with the U.S. Department of the Treasury on these
issues. There is a whole variety of things that we have tried
to do.
First, we have tried to make it clearer and easier for
consumers themselves to make their own judgments about what is
the right answer for them in a particular set of circumstances.
That is our paying for college tool. This is one of the ways in
which, as the chairman would put it, we are trying to help
consumers become more free. If they can make more informed
choices, they can make choices that are the best ones in their
view for themselves and not have regrets later. We hear plenty
of regrets from people who didn't have that kind of
transparency around student loans in the past.
Second, student loan servicers, the people who are actually
handling the debt that is already owed, and there is $1.2
trillion owed in this country, so it is a very significant
concern for many Americans, millions of Americans. We feel that
there are various practices in that industry that are subpar,
very much like mortgage servicing practices have been very
subpar for a long time. We are looking at figuring out how we
can work to sort of clean that up and bring that up to a
standard so that people who already owe a fair amount of money
to get an education--that is burden enough--aren't further
burdened with misappropriation of payments or payments that go
to the lower interest and keep the higher interest and various
ways in which this industry is not serving their interests
well.
Third, we have worked with the Department of Education, and
the Department of the Treasury, to press for more refinancing
options, particularly for people with private student loans,
which have largely been unavailable to them in the past. There
is a lot of movement on that, and there is progress on that.
Fourth, one of the things we are trying to call attention
to is a lot of this is a matter of public policy, and it is at
either the Federal or State level or both, is that the amount
of student loan debt in this country is itself becoming a
negative drag on our economy. Younger people are forming
households later. They are forming small businesses at lesser
rates than in the past. They are making different choices
because of the amount of debt that they have. Student loan debt
is affecting the broader economy. We need to rethink public
policy in this country. It goes well beyond my limited mandate,
but it is something that we think needs to be aired and needs
to be discussed and policymakers need to think more about it,
so we are trying to be active on all fronts.
Another issue is a lot of these student loan issues affect
servicemembers who are trying to figure out what to do with
their GI benefits and/or other student loans that are available
to them and make sure that they don't go to waste and that they
benefit by them. And with Holly Petraeus, who heads the
Servicemember Affairs Office, we have been working with the
Department of Education and also the Departments of Defense and
Veterans Affairs to make sure that servicemembers can really
maximize their benefits in ways that will improve their lives
as they come back into the civilian population. There are a lot
of different fronts for us, very big problem, very big concern.
It should be a big concern for anybody making policy in this
country.
Mr. Hinojosa. I want to thank you for all those things that
you are doing. I want to jump to another point that I want the
record to show. A year ago, the Bureau announced an action
against a former for-profit college chain, Corinthian Colleges,
Inc., in response to a scheme that lured thousands of students
into expensive loans and conducted abusive collection tactics
that preyed on students. Moving forward, do you expect that the
Corinthian experience will inform the Bureau's work with
respect to institutional student loan programs at those for-
profit colleges?
Mr. Cordray. Yes, and thank you. I meant to wind up with
that work, which has been very aggressive on our part. We have
been working with State attorneys general and other partners,
Department of Education, Department of Justice, and others. We
did bring the action against Corinthian. We thought that they
had misled students in significant ways and engaged in various
predatory practices. Obviously, others have felt the same, and
they are now in a bankruptcy proceeding. We have sued ITT,
which we think have engaged in many of the same practices. We
continue to monitor that market. It has been a source of a lot
of harm to people, and it needs to be thought about more
carefully.
Mr. Hinojosa. Thank you for your good hard work on this
issue.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Florida, Mr.
Posey.
Mr. Posey. Thank you very much, Mr. Chairman.
It's good to see you again, Mr. Cordray.
Mr. Cordray. Thank you.
Mr. Posey. I want to go back to something that one of my
colleagues across the aisle, Mr. Meeks, mentioned just a little
while ago. And that is a concern my colleagues in Florida have
about our earlier experience in Florida with short-term
lending. The legislature in Florida worked hard to balance the
needs of the citizens of Florida for short-term credit with
consumer protections. The Florida experience has been a
positive for Floridians and shows the value of State
legislatures who desire to meet the needs of their local
communities. As the CFPB considers regulations of short-term
lending, you have said that your rule will be just a ``floor''
over which the States can regulate. However, I have been told
the proposal that the CFPB has released is, in fact, a floor
that no existing State law meets, period. So it is effectively
a preemption. And that is why I think you have seen so much
concern within the Florida delegation and others, New York now.
Do you intend to follow through with your rule that effectively
throws out the hard work of the Florida legislature, and that
of 31 other States for that matter, that have acted to regulate
a responsible payday and other short-term lending?
Mr. Cordray. One of the things I have found is there is a
lot of people saying to us on payday lending, vehicle title,
certain installment loans, they are saying to us, oh, you
really shouldn't do anything. You should just leave alone what
the States are doing, and it is all fine. We did two extensive
White Papers, the largest research that has ever been done on
this issue, which showed that a large number of consumers under
these existing regimes end up trapped in debt, getting 8, 10,
12 loans in a cycle, paying more in fees than they ever
borrowed in the first place. Some of the stories are quite
gross, and I can't in good conscience just leave that alone. If
we can make reasonable interventions to improve this market so
that consumers are not victims of predatory lending, I think we
have an obligation to do that. As to Florida in particular, you
and I and your colleagues have had a number of discussions
about it. One view of Florida is it is really fine. It is a
model for the Nation. Another view that consumer groups in
Florida have put forward--Consumers for Responsible Lending did
a report, and other groups have written to the delegation more
recently--they said it is actually still problematic in various
ways. A lot of people end up rolling into these long sequences,
and the percentage of people who re-borrow is just as high
really in Florida as in the rest of the country. That is what
our analysis has shown as well. Again, I was referring earlier
to an example from Missouri. This is a judicial opinion. The
judge was so offended they went to the evidence record there
and indicated, for example, class member DW took out a $100
loan from this company--this is in the record. A judgment was
entered against them for $705.18. There was a garnishment of
his wages. So far, $3,174.81 has been collected on a $100 loan,
and a balance of $4,105.77 remains. That is the kind of thing
we are seeing around this country. We can all talk about access
to credit and all credit should be allowed, but some of this is
quite predatory. It is quite problematic, and this is something
that we need to address. And I feel strongly about it, and I
don't feel in good conscience I can just give it a pass and
move on to other things.
Mr. Posey. I don't know what they do in Missouri. I heard
somebody from our Financial Services Office, in a meeting--you
were in the meeting.
Mr. Cordray. Yes.
Mr. Posey. I think you heard him say he had two complaints
out of how many hundreds of thousands. That kind of shocked me,
which indicated to me that Florida maybe and some States got
some things right. But it seems if you come out with your
floor, a standard that no State can meet, your effort to
protect some people is going to have the unintended consequence
of hurting people.
I don't think anybody chooses to go to a payday lender. I
heard somebody from your agency say we would like to get these
people more involved in going to credit unions and conventional
banks. Yes, except they will not make the loans a payday lender
makes. When somebody goes to a payday lender, they are usually
pretty doggone desperate. And the next step is--I don't even
want to mention it. There are three ways people get through
life if they are not independently wealthy: they work; they
steal; or they are on welfare. So if you don't have jobs for
people, you really can't complain when you have the bad two
scenarios. It is a similar thought with payday lending. When
you don't have some conduit for these people to survive, you
are asking for trouble.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Missouri, Mr.
Clay, the ranking member of our Financial Institutions
Subcommittee.
Mr. Clay. Thank you, Mr. Chairman.
And thank you, Director Cordray, for being here today. We
have heard a lot this morning about auto loans and credit
related to auto loans. A February 2015 settlement announcement
from the Department of Justice against two North Carolina-based
buy-here-pay-here auto dealers for violations of the Equal
Credit Opportunity Act alleged reverse redlining, finding that
the dealerships intentionally targeted African-American
customers in extending high-cost auto loans when the borrowers
otherwise qualified for more reasonable interest rates.
Mr. Cordray, how concerned are you that the recent growth
in subprime auto lending may also include the kind of reverse
redlining that the Department of Justice uncovered just in
February 2015?
Mr. Cordray. By the way, buy-here-pay-here auto dealers are
a different part of the market. Again, when you say the CFPB
isn't sure of its legal authority--one of the things we try to
do is be very careful about our legal authority. We discuss it
a lot. We try to analyze it carefully. We try very hard to be
on the right side of that rather than the wrong side. If we are
on the wrong side, courts will smack us down, and they may do
that from time to time. We are trying to be careful about it.
We have investigated buy-here-pay-here auto dealers because
they pose a somewhat different and special risk, I think. What
was your question?
Mr. Clay. How are you addressing it, the reverse redlining,
elaborate on the buy-here-pay-here business model? And are
there unique risks associated with the buy-here-pay-here
business model?
Mr. Cordray. Reverse redlining is not unique to auto. It is
also in mortgage. We took an action against National City that
got back to consumers $25 million in compensation because of
reverse redlining in the mortgage market.
In the auto market, the same types of concerns. Although I
will say, I don't think the right answer is to cut off auto
lending to people who have less than perfect credit. People
need to have transportation in most parts of the country,
certainly my part of the country, in order to get to work and
make something better for themselves. So I don't think it is
just because it is subprime that it is wrong or bad.
It is the case that when you go into the subprime market,
prices tend to be somewhat higher. Some of that is inevitable.
It also creates risks because maybe you will try to exploit
those consumers in ways that are not appropriate. That is
something for us all to monitor very carefully.
The Justice Department has indicated it is monitoring that
carefully. We are trying to monitor it carefully. I don't think
the right answer is that people whose credit is under, say, a
FICO score of 680 should not be able to get auto loans. They
need them. It is actually helpful to their situations. But if
people are using that market as a means of engaging in
predatory conduct--and we saw it in the mortgage market, so it
is certainly a risk--that is something we should be very
careful about.
Mr. Clay. So, in other words, my colleagues should not be
naive about the fact that some in this industry are steering
people for no other reason than because of the color of their
skin into high-cost loans?
Mr. Cordray. If somebody qualifies for a prime loan and
they are being steered into subprime, that is the kind of abuse
that we would want to take action against. If someone just has
less good credit and, therefore, they are a subprime customer,
the notion they shouldn't get a loan for that reason is not a
right answer, I don't think, either.
Mr. Clay. Thank you for that response.
Let's shift over to diversity and inclusion. What role has
the Office of Minority and Women Inclusion played in helping
the CFPB recruit a diverse and qualified workforce?
Mr. Cordray. They have been very instrumental for us. I
have had a number of discussions with some of you and
particularly with the ranking member on the importance of the
Office of Minority and Women Inclusion, which was of course
created in Dodd-Frank and applies to all of the financial
agencies. I, in response to work that we have done and some
issues that we have worked to address, elevated that role
within the Bureau. The Office of Minority and Women Inclusion
is at the highest levels. That office has been incredibly
helpful to us both in understanding our own workforce,
understanding our recruiting and hiring, understanding our
retention, and also thinking about our contracting and trying
to work as aggressively as we can with the other regulators in
the industry to see the practices changed there as well. I
would say it is one of the successes of the Dodd-Frank
legislation.
Mr. Clay. Thank you, Mr. Director.
Mr. Chairman, I yield back.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Virginia, Mr.
Hurt.
Mr. Hurt. Director Cordray, thank you for appearing before
our committee. I represent a rural district in southside,
central Virginia. During August, we had the opportunity to
travel across the district and met with a lot of folks who live
on Main Street and are served by our local Main Street
financial institutions. We heard a lot of concerns as we
travelled across the district about the CFPB and the impact
that it is having on these institutions' ability to deliver
access to capital. But the question that I wanted to focus on
today relates to the truth in lending RESPA, integrated
disclosure rules that are going into effect.
I will recount for you one conversation that we had with
one of those representatives from the compliance office with
one of those institutions, and they said they were glad that
there was an announced effort to try to streamline those
complicated and complex rules that have to be undertaken when
closing real estate transactions, but they were also concerned
about the end product, and concerned about the process. So I
guess I was wondering if you could talk a little bit about your
analysis in terms of the actual costs to consumers. What will
the costs be ultimately? Will this result in higher costs? And
how much extra time will be required or if you could just talk
about that briefly?
Mr. Cordray. Sure. Again, it was Congress' decision that
these forms really needed to be streamlined. They have been out
there for 40 years, 2 different statutes, 2 different--
Mr. Hurt. You all looked at the cost directly?
Mr. Cordray. Yes, although it was a mandatory rule. We
didn't have discretion to say, we are not going to do this. We
did our best to try to mitigate costs and make it feasible for
industry. We spent a fair amount of time on it. The statute was
enacted in 2010, and this rule isn't taking effect until now,
almost 5 years later. At the same time, we have been working
with the industry extensively to try to help them comply,
trying to provide a lot of guidance, trying to provide
webinars.
Mr. Hurt. Are you able to talk specifically about the cost
and the analysis that you all have done, about the specific
costs that will be passed on to consumers or the time?
Mr. Cordray. I am not convinced that there are going to be
any significant costs passed on to consumers. It really is a
change of forms. There is a lot of angst around the transition
because they made a transition 5 years ago when HUD changed the
form. It probably happened too fast in light of that, but
Congress mandated it all. Industry did it 5 years ago. They
will do it now. It will be a better, cleaner process. Consumers
will understand these forms better. That is what our testing
has shown. The industry will benefit because consumers will be
both clearer and happier about what they are doing, with less
angst around the closing, and less surprises; unhappy surprises
at the closing table are a big source of dissatisfaction. I
think it will be better, but it is a matter of getting through
it.
Mr. Hurt. And as you point out, the timeline has proven to
be a burden to a lot of these institutions, especially smaller
ones that have a hard time. There are lot of partners in these
transactions, and trying to make sure everybody is on the same
page is very important. So I guess my question to you is, I
understand that the CFPB has rejected the request by industry
to grant a grace period for the implementation of this for the
next 6 months, let's say, until February. It is my
understanding that has been rejected.
Mr. Cordray. That is not right.
Mr. Hurt. My question to you is, will the CFPB pledge not
to bring enforcement actions against those institutions that
are acting in good faith? Obviously, we don't want people
abusing that grace period, but will you pledge that you will do
that?
Mr. Cordray. It is wrong that we have rejected that. In
fact, I saw just the other day an article that may not be
legislation--
Mr. Hurt. So my question--
Mr. Cordray. But CFPB has granted most of what industry
wanted. We have done that.
Mr. Hurt. But you haven't offered a blanket grace period
for those who are acting in good faith in terms of not bringing
an enforcement action. I would like to get you on the record as
saying if that is your position.
Mr. Cordray. What we have done is actually better for the
industry. We have worked with the other agencies. And as I
said, this is going to be in writing. I have said it verbally.
I have made my commitment, but it is going to be in writing by
all the agencies, that during the early period, and this may be
less or more than 6 months, we will be diagnostic and
corrective, not punitive. That means we are not going to hammer
people if they happen to get the forms somewhat wrong. We know
industry is trying to get it right. We know there is no
advantage to them in undermining consumers by changing the
forms in some way. They are just trying to get it right, and I
believe that. And so that is the way we are going to handle it,
and that is the way I have talked to the other agencies about
it. They agree. You are a former prosecutor. I know you know
law enforcement and you have to sometimes be a little nuanced
about it. We are trying to do that.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Georgia, Mr.
Scott.
Mr. Scott. Thank you, Mr. Chairman.
Over here, Mr. Cordray, in the corner. I served in the
Georgia legislature. I was the chairman of the Senate Rules
Committee, and there we passed and enacted into law a fairly
restrictive State short-term lending law. But even so, online
companies like Elevate offer a 59-percent rate product in
Georgia that complies with our State law, and certainly gives
our constituents there more access to good short-term credit.
But under the proposed small-dollar lending rule, Elevate
wouldn't be able to offer this 59 percent product in our State
of Georgia.
So my question to you is, how will my constituents who use
the credit as intended and needed be better served by a rule
that is overly prescriptive and does not complement our
existing State law and that our State legislatures have
concluded is in the best interests of our constituents in
Georgia?
Mr. Cordray. I will say this is something we are trying to
listen very carefully to you and others who are bringing these
different scenarios to us. I am very sympathetic and the point
has been made on both sides of the aisle today that alternative
means of satisfying small-dollar credit for people are very
important, whether it is credit unions or maybe community
banks, or as you say, companies that are now innovating around
trying to find more consumer-friendly methods of supplying that
credit that people need. I am sympathetic to that. We are
trying to work with the rules we are trying to develop such
that there will be room for that. If we are not getting that
right, we will be interested in hearing from people about how
they think we might adjust the proposals somewhat here or
there, and the product you described seems to me much more
user-friendly than some of the products I have seen out there.
Mr. Scott. It is. It helps my constituency. I am going to
be working on that, and I am glad to hear you say you will work
with us so that my folks in Georgia will be happy.
Now to another matter, Mr. Cordray. This business with the
auto dealers. First of all, let me say that the CFPB have done
some good things, but this business with the auto dealers is a
bad thing. It is a bad deal. Now let me tell you why. There is
racism everywhere. We know that. But in the ruling and the
guidance that you put out, it was done unfairly. You offered a
rule. You charged the dealers with the basis of it that they
were racially discriminating. You based that on a report that
was shamefully flawed. It was inaccurate. And to tell you the
truth, it was downright insulting to African Americans because
you just assumed their last name was Johnson or Williams or
Robinson or maybe even Scott. But let me tell you, there are a
lot of white people with the same names. How can you be
accurate?
And even you yourself, you as the CFPB, said that even this
is about 25 percent inaccurate. But yet still you directed an
extraordinary and deceitful approach that harmed some of the
very people that you are trying to help. You have hundreds of
auto dealers who are African Americans, but when you put this
blanket indictment, you hurt them. And then, you went to the
lenders. You pressured them to cut out their ability to
discount their loans, the one little measure they have in there
with which they can make a profit. Now, you did this without
congressional approval. We said right here in Dodd-Frank and
wrote--there has been some discussion about the law. Here is
what we wrote. We said--and I wrote this with Barney Frank and
many members on this committee. Section 1029, says these words:
``The Consumer Financial Protection Bureau may not exercise any
rulemaking, supervisory, enforcement, or any other authority
including any authority to order assessments over a motor
vehicle dealer that is predominantly engaged in the sale, the
servicing of motor vehicles, the leasing and servicing of motor
vehicles and both.
Mr. Cordray. I strongly disagree with much of what you just
said, but I--
Mr. Scott. You can disagree. I read it from the law.
Mr. Cordray. No, no. I don't disagree with the reading of
the law. Auto dealers are one thing. Auto lenders are another.
I disagree with quite a bit of what you said about
characterizing our efforts here--
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Illinois, Mr.
Hultgren.
Mr. Hultgren. Thank you, Mr. Chairman.
Director Cordray, thank you for being here today. Your
testimony is an important opportunity certainly for us to hear
about the Bureau's policymaking, formal and informal, and for
Congress to use the limited oversight provided to us by the
Dodd-Frank Act.
First of all, I was drawn to the part of your testimony
that I think awkwardly tries to make the case that community
banks and credit unions are faring well in the current
regulatory and economic environment. I assume you read the
American Banker, but just in case you don't, I wanted to flag
some stats from a story that was published on Friday. It said:
``Today, there are 1,524 fewer banks with assets under $1
billion than there were when Dodd-Frank was signed into law.''
It also said: ``The number of banks with under $1 billion in
assets fell by 5.6 percent in the second quarter.'' This is the
second largest percentage reduction since 1984. The annual
shrinkage rate in the number of banks under $1 billion has
accelerated every quarter but one since the third quarter of
2012. As I have observed the Bureau over the last few years, I
have become increasingly concerned it is more interested in
expanding its influence than in protecting consumers' access to
financial products and services. The revised QM rules for small
creditors and those operating in a rural or underserved area
was released by the Bureau last week.
I appreciate many of the considerations you made for these
lenders. However, the entire Illinois delegation--House,
Senate, Republicans, Democrats--made a recommendation to the
CFPB that economically challenged areas be included in the
definition of underserved areas. Why did the CFPB avoid an
opportunity to make this commonsense change that would have
eased compliance for community lenders and improved access to
credit?
Mr. Cordray. There are two parts to your question. The
first part is on community banks. I think you are just wrong on
the facts.
Mr. Hultgren. My question was specific to this. You can
comment on my statement, but my question is economically
challenged--again this was Republicans, Democrats, House,
Senate, all said: ``This is important; please do this.'' You
just ignored it, and I wonder why you did and why you wouldn't
put the commonsense change in there, first question.
Mr. Cordray. We have done two or three rounds of rulemaking
now on the meaning of ``rural'' and ``underserved.'' We have
heard a lot of comments on those, and we have done our best to
digest those comments and reach conclusions. We have in all
these cases expanded the coverage of that and so as to benefit
community banks and credit unions and have considerably done
so.
Mr. Hultgren. We are not feeling it, and the American
Banker article clearly says so. I want to get to my second
question quickly. Again, this is bipartisan, Republicans,
Democrats, House, Senate, asking: Please, commonsense. This
makes sense. Please do it. Please take another look.
Second question, I want to talk a little bit about how your
agency chooses to engage the media and the public. I have
noticed your press office is much more aggressive and
inflammatory than any other financial regulators. First of all,
your agency is well-known for its use of midnight embargoes to
create one-sided stories. Additionally, these press releases
frequently use language that misrepresent the facts. In the
Bureau's semi-annual report, you cite 45 public enforcement
actions in the preceding calendar year ending March 31, 2015,
and many of these standalone enforcement actions most commonly
resulting in consent orders, the report and press releases
describe the Bureau as finding or ordering companies to conform
to a judgment determined by the Bureau. Do any of those
standalone consent orders admit any facts or guilt?
Mr. Cordray. Ordering is certainly accurate. When we say
finding--we tend to be careful about this language--but usually
this is the result of a prolonged investigation by us,
sometimes in conjunction with other agencies, including the
Justice Department at times or other financial agencies or
States, who are all joining the investigation and reaching the
same conclusion. So the notion that we are somehow off on our
own doing crazy things when we are typically working with
partners who are themselves law enforcement partners and
reaching the same conclusions, I think speaks for itself.
Mr. Hultgren. But even with your statement, since liability
has not been proven in a court of law, why does the Bureau
issue over-the-top press releases that state facts that are not
proven? Why does the Bureau try to insist a company has
violated the law if it has not proven it did so?
Mr. Cordray. I don't think that is a fair characterization.
Mr. Hultgren. They did. If you look at the press releases--
Mr. Cordray. I don't think they are over-the-top press
releases. We are calling attention to practices that usually
are the result of a prolonged investigation. The facts are
usually clear enough that the institution wants to resolve
without further proceeding because they recognize the problems,
and they are going to clean up the problems.
Mr. Hultgren. We can hear it. We have several regulatory
agencies that come and report to us. We see the difference. It
is such a glaring difference to us what the CFPB is doing. I am
just asking you: Look at what the other Departments are doing.
Your press releases are so far over the top. Who writes the
press releases--
Mr. Cordray. Often, we issue press releases in matters
where State Attorneys General issue press releases as well. I
don't think there--
Mr. Hultgren. Who writes the press releases?
Mr. Cordray. I don't think the Justice Department--
Mr. Hultgren. My time is almost up. Who writes your press
releases?
Mr. Cordray. Many people at the Bureau are involved in
writing accurate, fair accounts of our matters.
Mr. Hultgren. It doesn't look that way. My time has
expired. I yield back.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentlelady from New York, Mrs.
Maloney, ranking member of our Capital Markets Subcommittee.
Mrs. Maloney. Thank you, Mr. Chairman.
I want to thank you for calling this hearing, as well as
Ranking Member Waters, and I welcome you, Director Cordray. As
you know, I am a big supporter of CFPB, under your leadership I
might add, and I think you have done a fantastic job. I believe
this report is absolutely excellent that you are issuing, and
your statements, your press releases, and your actions have all
been data-driven and factual, and I want to congratulate you.
And the numbers speak for themselves. The Bureau has returned
over $11 billion--$11 billion--to 25 million consumers who have
been harmed by illegal consumer practices. The Bureau has also
gone out of its way to help our men and women in the military
through the Office of Servicemember Affairs, led by Holly
Petraeus. And you have shown great flexibility and reacted to
letters and inquiries from members of this panel and the public
as well.
And I want to give one example. The Bureau helped stay-at-
home spouses by clarifying that the credit card bill of rights,
the CARD Act, did not prevent stay-at-home spouses from taking
out credit in their own names. And this was a bipartisan
request for clarification, and we want to thank you for that.
Now, I would like to ask you about co-ops. As you know, co-
ops are a big part of New York City, and many thousands of our
residents, hundreds of thousands of our residents, literally
live vertically not horizontally. And, unfortunately, there is
a great deal of uncertainty about whether co-ops are included
or excluded in the Bureau's new integrated disclosure rule for
mortgages. Co-ops have always been treated as real estate under
both TILA and RESPA, and so lenders to co-ops have always
provided the same disclosures as everyone. They have always had
the same.
But under the Bureau's new integrated disclosure rule, the
Bureau did not specify whether co-ops were still included, as
they always have been under Federal law. Different lenders have
come to different conclusions about whether co-ops are included
in the rule. Some say they are included; some say they are
excluded. Now this is a big problem because if you are not
allowed to voluntarily comply, you are not allowed to
voluntarily comply with the integrated disclosure rule, without
violating the law. And this is a rare situation where the co-op
industry thinks that you and your Bureau has done such a good
job on the integrated disclosure rule that they actually want
to be included in the rule. So I would like to ask you for the
record, can you take this opportunity to clarify that co-ops
are, in fact, intended to be covered by the new integrated
disclosure rule?
Mr. Cordray. Thank you for the question. I don't know that
I can today on the spot at this moment. I know that our staff
has been talking back and forth to your staff, as you brought
this issue to our attention, and as we have been looking at it
and trying to understand it, it feels that the issue can vary
in different parts of the country depending on State law. Now,
whether that is the right answer or whether that is just a
current answer, whether we should be more specific somehow here
is something I believe we have taken under consideration, and
we are considering and will continue to talk back and forth
both with your staff and any other Members who are interested
in this issue. Maybe others from your State would be interested
in it as well.
I would like to get it right. I would like it to be
satisfactory. As you say, I would like to--if people like our
forms and want to be covered by them, I would like that to be
the answer, but I can't tell you today exactly how the legal
issue comes out here as we are trying to work on it as we
speak, I believe.
Mrs. Maloney. Okay. I would also like to ask you about
overdraft fees. As you know, I have been focused on overdraft
fees, which can be outrageously high and can eat into
consumers' hard-earned savings. In fact, I will be
reintroducing Mr. Ellison's and my Overdraft Protection Act
next week, and my bill would ensure that overdraft fees are
reasonable and proportional to the amount of the overdraft,
which would end the $35 cup of coffee. But I want to know, are
you still working on this? When are you going to come out with
it? And are you going to be looking at mainly disclosure on
overdrafts, or are you considering some more substantive
limitations on oversight fees?
Mr. Cordray. Yes. We are well aware of your interest in
this, and you have been proposing legislation on it. We are
working on it right now. I think there may be some
misunderstanding because we recently put out to start some
customer testing around disclosure, but that does not signal
that that is the only thing we are thinking about in this
regard. I agree with you that there is a broad set of issues
here--some substantive, some maybe handled by disclosure--for
us to try to figure out. It is not a suggestion that we are
narrowing our scope of our inquiry here.
Chairman Hensarling. The time of the gentlelady has
expired.
The Chair now recognizes the gentleman from Florida, Mr.
Ross.
Mr. Ross. Thank you, Mr. Chairman.
Director Cordray, it is a pleasure to see you again. You
and I have had multiple conversations with regard to the payday
lending industry. I have explained in the past that I was
active in the Florida legislature in initiating legislation
that corrected a very bad market, a very terrible market for
consumers in the payday lending industry. As a result, I think
we have probably the best State-run payday lending institution
anywhere. We protect our consumers. We limit what they can do,
but we also make sure that the bad players are not in there.
Now, the fact that we are here talking about payday lending
doesn't mean that I am here talking on behalf of payday
lenders. No, I am here on behalf of payday consumers. The fact
that they have a paycheck means that they have a job which
means they are working hard to meet the needs of their family
to better their life. And yet when they have a need for
capital, when they need a short-term loan, according to
Commissioner Breakspear in Florida, your proposed regulations
will absolutely eliminate this source. It will absolutely
delete any opportunity for these hard-working taxpayers to have
access to capital in a market where nobody else will fill that
void. Have you had a chance to talk to any of these payday
consumers?
Mr. Cordray. Yes, I have. And I have also had a chance to
talk, as you know, to talk extensively with Commissioner
Breakspear and with folks about the Florida structure, both
Members of Congress who are very interested in it I have seen,
and people from Florida, providers and consumer groups. There
are different points of view on that regime. Not everybody
thinks it is the greatest thing since--
Mr. Ross. Eliminating the supply will not eliminate the
demand, and these poor consumers who are trying to make ends
meet will now be subjected to usurious lenders, mostly
offshore. Maybe Cousin Guido or somebody who has interest rates
that they can't afford. We are not doing any benefit for the
consumer, and yet that is your mission.
Now, when you promulgate your regulations, I would assume
it is done based on objective evidence. You would look at data
that you may collect, and I would assume that you would look at
how bad the industry is in terms of how many complaints have
been registered in the payday lending industry. And according
to the CFPB's complaint database, since its inception by
product only 3,030 complaints have been filed against payday
loan companies. That is less than one-tenth of 1 percent. At
what point do we say that is egregious?
Mr. Cordray. First of all, we staged products over time.
Payday was one of the later products to come online. That is
one piece. Another piece, what we find is that consumers may be
characterizing a complaint in one way where it is actually
another. A lot of our debt collection complaints actually turn
out to be joint debt collection payday complaints--
Mr. Ross. Still. Only 3,000. Less than--
Mr. Cordray. No, no, no. That is--which suggests that is
not the right number. But it is a fair point. Again, for us,
one of the things we are trying to figure out is we want there
to be access to credit. We understand the needs people have,
and we have heard a lot about it in the individual situations.
But if it is credit that is going to roll them into sequences
of 8, 10, 12 loans--
Mr. Ross. I agree with you, and that is what we have to--
Mr. Cordray. And it still happens under Florida law.
Mr. Ross. But if I might point out under the Florida law,
over the last year, there were nearly 8 million, 8 million,
payday transactions. And according to the Florida Office of
Financial Regulations, there were only 117 complaints. It
sounds like something is working. And I think we need to take a
look at that. I think if we are going to look at--
Mr. Cordray. It is a relevant datum.
Mr. Ross. Relevant? It is compelling because where--
Mr. Cordray. I don't know that it is.
Mr. Ross. --are these people going to go? Where are these
people going to go when they can't make ends meet, when it is
11 o'clock at night and they need to be able to get lunch money
for their children, when they need to be able to pay the rent.
Are they going to go to a bank that is not open? Are they going
to go a non-bank lending institution that doesn't want to touch
these long-term loans?
Mr. Cordray. This is why we are looking at the different
regimes in all 50 States. There are 13 States where no payday
lending is allowed. That doesn't mean that is the answer we are
going to come to. But in 13 States, it is not allowed. What do
the people do in those States? They do something.
Mr. Ross. And I am here to tell you that there is a good
guidance to follow, and that is the State of Florida.
Now, I know that in a conversation you had some time ago,
you indicated that Florida has--that consumers are charged up
to almost 300 percent per year. I take issue with that, and I
just wanted to know where you might have gotten that--
Mr. Cordray. I'm sorry. What is this?
Mr. Ross. That they pay up to 300 percent per year APR on
their payday loans.
Mr. Cordray. In Florida?
Mr. Ross. Yes.
Mr. Cordray. That is my understanding. And--
Mr. Ross. And I take issue with that--
Mr. Cordray. And consumer groups--again, consumer groups
don't agree with you on that.
Mr. Ross. The one thing I would just please ask you to do:
These are hard-working taxpayer dollars. They have a job, as
evidenced by the fact that they have a paycheck. My concern is
not for the payday lenders. My concern is for the payday
consumers, and I ask and I plead with you to make sure that we
keep this industry alive, and protect our consumers.
And I yield back.
Mr. Cordray. Okay. Thank you.
Chairman Hensarling. The gentleman yields back.
The Chair now recognizes the gentleman from Texas, Mr.
Green, ranking member of our Oversight and Investigations
Subcommittee.
Mr. Green. Thank you, Mr. Chairman.
And I thank the ranking member as well. I thank the
President of the United States of America, the Honorable Barack
Obama, for appointing you, Mr. Cordray, to this position as the
Director of the CFPB. And I thank him for doing so because he
appointed someone with courage, someone with intestinal
fortitude, someone who is willing to stand up for consumers. It
is just not easy to do. You have been through the fire and the
storms. Just getting positioned required an inordinate amount
of effort, and I am grateful that you are in the position that
you are in.
Now, let me just say one more thing. This is not really a
part of what I am called upon to talk about today. But I am
proud to serve under the leadership of the Honorable Barack
Obama. I am saying it because too often so much is said about
him on the negative side, such that people assume that
everybody in the room thinks negatively of the President. I do
not. He has been elected twice. It was no fluke. And I just
don't want the record to show that there were some of us who
acquiesced when statements were made that we should have
objected to. I am proud.
Now, Mr. Cordray, you are not saying that all auto dealers
engage in invidious discrimination, are you? I assume your
answer is no, you are not. Is that correct?
Mr. Cordray. That is correct.
Mr. Green. And you are not saying that all--by the way,
this is not under the purview of your bailiwick, but all
investment advisers are engaging in invidious discrimination or
all mortgage lenders, but--
Mr. Cordray. I don't think all anybody in any industry.
Mr. Green. Absolutely, but those that do are the ones that
we have to stop.
Mr. Cordray. Yes.
Mr. Green. Do you agree?
Mr. Cordray. I very much agree. It is a law enforcement
obligation and duty that we have.
Mr. Green. I saw you anxiously desiring to respond to some
commentary that was made earlier, and you did not get the
opportunity because time was limited, but as it relates to the
auto lenders. So would you take a moment please and give your
response before I continue with my concerns?
Mr. Cordray. We are not trying to make up problems to
address, but when we see problems and they are brought to our
attention, and again, in the auto lending, it is not unique to
us. The Justice Department feels just as strongly and feels the
same way as we do about the concerns here. And they have been
at this a lot longer than we have. We feel that when people go
to get an auto loan and lending programs have been established
by lenders, even though they may be executed by dealers, that
allow or--and that bless high risks of discrimination, based on
race or national origin or other prohibited characteristics,
that is an issue we need to investigate and we need to try to
address. If we can find a way to address it that mitigates and
roots out the risks of that but at the same time allows the
industry to do what it does best, which is sell cars to people
and give them the opportunity to have transportation to get to
work, which is so important for people's economic well-being,
that is what we are trying to accomplish. And it is a balance,
and it is--people can look at it and say we are getting the
balance wrong, or they can say I disagree with this or I
disagree with that, or the methodology here seems complicated
and I think you don't have it right. We always try to listen to
that. And if we can adjust and take account of their concerns,
we try to do it. The fact that we do have those discussions
frequently--
Mr. Green. With less than 50 seconds left, Mr. Cordray, let
me go to something quickly. Let me do this quickly. People--
there has been much said about how powerful you are. But isn't
it true that the Financial Stability Oversight Council (FSOC)
has within its purview the authority to override decisions that
you make in terms of rulemaking?
Mr. Cordray. They do.
Mr. Green. And--
Mr. Cordray. No other agency is subject to that.
Mr. Green. Only agency subject to this. And isn't it also
true that your rules are subject to judicial review?
Mr. Cordray. Absolutely.
Mr. Green. And isn't it true that while you are confirmed
by the Senate, you have to be--that you can be removed by the
President should the President find that you have not behaved
properly while in office?
Mr. Cordray. For cause, that is my understanding.
Mr. Green. And isn't it true that you are also subject to
audits by the GAO?
Mr. Cordray. Yes. Every year, in fact, more so than I think
many agencies are.
Mr. Green. So while you do have some authority to help
consumers, you are still regulated yourself. Is this not true?
Mr. Cordray. I think extensively, including coming here at
least twice a year and to the Senate at least twice a year and
hearing your oversight, which I take very seriously. I don't
feel that I can sit here, listen to concerns you raise, and
then not pay attention to them.
Mr. Green. Our time is up. But I want to close with, Mr.
Chairman, there was some mention about African-American auto
dealers. If an African-American auto dealer engages in
invidious discrimination, that person ought to be stopped too.
Doesn't matter about your color. You ought not discriminate
against people regardless of who they are.
Mr. Huizenga [presiding]. The gentlemen's time has expired.
With that, the gentleman from North Carolina is recognized
for 5 minutes.
Mr. Pittenger. Thank you, Mr. Chairman.
Mr. Cordray, I have in my hand the annual employee survey,
dated December of 2014, of your employees. And question 57
says: ``How satisfied are you with the policies and practices
of your senior leadership?''
Mr. Cordray, less than half of the people questioned were
satisfied with the policies of your leadership. This must be
very disturbing to you as you consider that these individuals
have worked with you for the last 4 years and followed these
policies. How do you account for this? What is happening within
your Bureau, and why do you believe that you have been given
such a vote of no confidence by your own employees?
Mr. Cordray. First of all, I think I would agree with some
of the employees at that point in time. I thought that there
were reasons that I wasn't satisfied--
Mr. Pittenger. Excuse me, sir. This is December 2014.
Mr. Cordray. I understand. And what I am saying is--
Mr. Pittenger. This is just a few months ago.
Mr. Cordray. What I am saying is, I wasn't satisfied with
our senior leadership, including myself, at that time either.
We had had significant problems with our performance management
system. That needed to be changed and fixed. We were in the
process of doing that and that was a source of a lot of
dissatisfaction for our employees, and--
Mr. Pittenger. You had tremendous autonomy and authority to
write rules and regulations. They apparently don't like your
policies.
Mr. Cordray. No, no. No, no. Different things here.
Mr. Pittenger. Well, no, that is a real thing.
Mr. Cordray. These are operational issues, but I will say
we have just had the new Annual Employee Survey this year.
There is a significant positive increase, which I have been
pleased to see--
Mr. Pittenger. Let's go on to my next question because
this--I am sure you were disturbed by that. Let's look at this.
Your employees have come forward and said that they have been
subjected to discrimination, retaliation, and other kinds of
maltreatment. How do you account for the fact that not one
single manager has been held accountable for what has been
done?
Mr. Cordray. Again, a lot of this stemmed from the
performance management system, which was unsatisfactory. We
have scrapped that system, and we are working with our union to
overhaul it. But I just want to say, since you are raising the
AES, the annual employee survey, the most recent numbers
indicate that the diversity inclusion index from our own
employee base is higher than it was last year, and higher than
it is government-wide.
Mr. Pittenger. That is not necessarily a good correlation--
Mr. Cordray. And I take each one seriously. The overall
tenor at this CFPB is very positive.
Mr. Pittenger. Given what we have seen in the various
departments and agencies of government, I don't believe I would
use that as a reference.
Now, according to the Bureau, only 3.8 percent of all
consumer complaints in the last 12 months have received any
actual monetary relief. Does this mean that most of these
complaints are without merit, or does it mean that you are
remarkably deficient in obtaining financial relief for these
consumers?
Mr. Cordray. First of all, I would say that the consumer
complaint system that we have set up is revolutionary among
Federal agencies in the Federal Government. We are getting more
relief for people--
Mr. Pittenger. Excuse me, sir. Excuse me, sir, 3.8 percent
of all consumer complaints, only that number received in the
last 12 months any monetary relief.
Mr. Cordray. A lot of them are--on a debt collection
complaint, the issue may be stopping the harassing phone calls.
On a credit reporting complaint, the issue might be cleaning
up--
Mr. Pittenger. Answer the question. Does it mean that most
of these complaints are without merit?
Mr. Cordray. No. As I am saying, just listen for a moment.
On a debt collection complaint, different kinds of relief that
are not monetary are very important to people, and the same
with credit reporting. There are a whole bunch of complaints
where monetary relief is not the immediate issue, although it
has monetary consequences. If I get my credit report cleaned
up, now I can get a loan. That has a lot of consequences, but
it wasn't that money came to my pocket immediately.
Mr. Pittenger. Let me ask you this, sir. The CFPB has
promulgated rules that have impacted credit unions and
community banks, enforced by the FDIC, the Fed, the OCC--
Mr. Cordray. NCUA. Yes.
Mr. Pittenger. Do you see any relief that you have given to
reduce the regulatory burden for these entities? I work with
these entities on a constant basis. I was on a community bank
board for a decade.
Mr. Cordray. I know you were.
Mr. Pittenger. And yet I see here time and again how they
are faced with such a burden in compliance that they are hiring
more compliance officers than loan officers and development
officers. How do you account for that?
Mr. Cordray. Take our mortgage rules, for example. We had
special provisions that we created in the rules to create
special coverage for community banks and credit unions; 98.5
percent of the credit unions are covered by those special
provisions. The credit unions' share of the mortgage market is
up since our rules. How do you explain that? This is positive
in many respects for some of these smaller entities.
Mr. Pittenger. The housing market has come back. I wouldn't
credit that with--
Mr. Huizenga. The gentleman's time has expired.
Mr. Pittenger. And community banks have come out of--have
left that business as well.
Mr. Huizenga. The gentleman's time has expired.
Mr. Cordray. That is a myth that is not necessarily being
borne out--
Mr. Huizenga. The gentleman's time has expired.
With that, the Chair recognizes the gentleman from
Missouri, Mr. Cleaver, for 5 minutes.
Mr. Cleaver. Thank you, Mr. Chairman.
Thank you for being here, Mr. Cordray.
Mr. Cordray, my first question--first, let me associate
myself with the comments of my colleague, Mr. Green from Texas.
I thought he spoke quite eloquently for many people in this
country.
My first question is, Director Cordray, can you tell me
what the approval rating of Congress is?
Mr. Cordray. I don't know.
Mr. Cleaver. I do. It is 14 percent.
Mr. Cordray. Fourteen percent?
Mr. Cleaver. Fourteen percent.
Mr. Cordray. Okay.
Mr. Cleaver. Fourteen percent. It is up from 9 percent.
Mr. Cordray. That is a 50 percent increase.
Mr. Cleaver. My point is, 50 percent of your employees say
that they are dissatisfied, and 90 percent of the people say
they are dissatisfied with us.
Mr. Cordray. And my point about that is if 50 percent are
satisfied and 50 percent want us to do better, I want us to do
better too, and we are working to do better. That is the only
appropriate way for us to address these issues, and that is
exactly what we are trying to do.
Mr. Cleaver. I agree and I appreciate what the agency is
doing, and also your flexibility. I said many times, I was in
here, as were a few of us, when Treasury Secretary Hank Paulson
came in, he was sent over from the White House, and Fed Chair
Ben Bernanke and others came in this very room, and told us
what was happening and that we only had a short time to
respond, and we did what we thought was in the best interest of
the country.
I listened to Ben Bernanke this past Sunday on one of the
shows, and he said he thought that the Great Recession was
worse than the Depression because of the whiplash that is still
being felt. And one of the things we did--we did a lot of
things trying to bring the country out. Obviously, some of
those things worked because we are a much healthier Nation
economically now. We tried and failed, I will admit, to reduce
the big banks. Too-big-to-fail was something we all were
interested in but what happened was the red tape has become so
costly that we have unintentionally pushed more and more
consolidations and concentrations of the financial services
world. We didn't intend to do it. Now, that is not your fault.
It is not the agency's fault.
I went into one of my banks in Marshall, Missouri. Well,
there is only one bank there. And they put the regulations on a
desk so I could see how high they were, and it was quite
impressive. That is--the agency didn't do that. Congress did
that. We did that, albeit unintentionally. I looked at--one of
my favorite Chairs of this committee was Mr. Oxley, a
Republican on the other side. He was a fair and good and decent
guy. I speak at one of his forums once a year. I think he is
just--he is great. The Sarbanes-Oxley Act--I think it was in
the early 2000s; I can't remember today--but they had I think
16 rulemakings. And I guess your agency had hundreds and
hundreds of rulemakings to do.
Mr. Cordray. My agency?
Mr. Cleaver. Yes.
Mr. Cordray. I don't think it has been hundreds, no.
Mr. Cleaver. But you had more than 16.
Mr. Cordray. Probably, including a lot of little ones, yes.
Possibly.
Mr. Cleaver. So what has happened is that community banks,
which no one intended to hurt--not Republicans, not Democrats,
not anybody. I don't think there is anybody in this room who
intended for community banks to be in the condition that they
are in, in terms of many of them struggling just to maintain
their assets. And what I am hoping to finish my sentence, if
everybody disagrees, it would seem to me that it is logical if
we had men and women of good will sit down here and figure out
a way to bring some legislation forth to provide relief to the
community banks.
Mr. Huizenga. The gentleman's time has expired.
With that, the Chair recognizes Mr. Rothfus of Pennsylvania
for 5 minutes.
Mr. Rothfus. Thank you, Mr. Chairman.
Director Cordray, welcome.
In September 2014, the GAO published a report requested
after industry participants and Members of Congress raised
questions about the nature and scope of the Bureau's data
collection activities. The report found that the Bureau has
undertaken 14 data collection projects, including the monthly
collection of data concerning up to 600 million credit card
accounts and 127 million mortgages, as well as consumer credit
reports. This can only be characterized as an unprecedented Big
Government grab of individual financial records. In fact,
George Mason University economist Thomas Stratmann has
estimated that the number of credit card accounts for which the
Bureau wants to collect consumer information is some 70,000
times greater than is necessary for the agency to execute its
regulatory mission.
Leaving aside the fact that Americans have a fundamental
interest in not having their purchases tracked by the Federal
Government, there is also the risk of data security breaches
and the compromising of personal information. When testifying
before the committee before, even you admitted that the
Bureau's data collection is not secure and could be hacked.
Since then, of course, we have witnessed the Office of
Personnel Management (OPM), another Federal Government agency,
admit that it allowed more than 22 million Americans to have
their personal information stolen. So why should Americans
trust the Bureau with their personal information anymore than
OPM?
Mr. Cordray. First of all, I am always eager to hear from
you on this issue because I know you have background and
expertise in information management. What I would say is, first
of all, we try hard and virtually all of our data collections
are done on a sampling basis because we have heard and agree
with the concern raised about why get more information than you
really need to monitor the market, which is all we are trying
to do.
Second, I would be the last to say that any database is
immune from being hacked: OPM, Target, Home Depot, big banks.
Everybody is under fire these days. But I do think that we have
are making sure that we comply with every reasonable standard
that is in place across the Federal Government, which, again,
is not the be-all-and-end-all because OPM got hacked. But our
data is less interesting to the hackers because it is
anonymized. They can't get credit card numbers. They can't get
names. They can't get personal information.
Mr. Rothfus. Are you familiar with the recent article in
Science Magazine where they used only 3 months of anonymous
credit card data and they were able to re-identify 90 percent
of the individuals with some reverse engineering?
Mr. Cordray. This was from what database?
Mr. Rothfus. A recent Science article--
Mr. Cordray. But what database were they talking about?
Mr. Rothfus. I don't have that--
Mr. Cordray. They weren't talking about the CFPB's
database, I don't think.
Mr. Rothfus. Going back to the CFPB database, you just
mentioned data sampling. Collecting 600 million credit card
accounts, that is data sampling?
Mr. Cordray. No. The only place we haven't done sampling is
on the credit card data because we are simply getting the same
data that other agencies have already gotten. The industry has
told us it is more efficient for them to just give it rather
than them having to create a representative sample. It is a
cost issue for them. Now, if you are telling me that regardless
of the cost, we should do something different, but we are doing
exactly what other agencies have done. It is the very same
data. It is swimming around out there in the private sector all
over the place, that is for sure, but in our case, it is
anonymized. And, therefore, it is really not of that much
interest to hackers I would think because--
Mr. Rothfus. Except to the extent it can be reverse-
engineered, but Director Cordray--I only have a minute-and-a-
half left.
The Bureau's consumer complaint database has come under
heavy criticism since its July 2015 rollout for publishing
complaints and allegations of wrongdoing without the Bureau
actually verifying that all of the underlying information is
both accurate and complete. There have also been reports that
the Bureau has failed to scrub personally identifying
information from some of the CCD complaints that have been
already been published, thereby putting individuals' financial
information at risk. And recent reports from the Office of the
Inspector General have identified noticeable inaccuracies and
other shortcomings related to the management and maintenance of
the database. What does it say about the Bureau and the
database that there have been so many problems associated with
this database?
Mr. Cordray. I think our data collection has been scrubbed
pretty hard by the GAO, which did a yearlong review of this at
the suggestion of Senator Crapo and others. GAO made a number
of recommendations which we have implemented, and with which we
agree. The Inspector General has looked at it and had further
suggestions.
Mr. Rothfus. What kind of processes have you put in place
to identify complaints that are materially inaccurate or
identifying complaints that were not submitted in good faith?
Mr. Cordray. In terms of consumer complaints in particular,
the process is that the complaints are submitted to the
company. The company has an ability to decide whether that is
actually a customer relationship or not. There are various
screens on this process. But I want to go back. You know
probably better than anyone in this room, better than I do,
that in the issue of data collection and data integrity, it is
an ongoing process, and it is a constant evolution where you
think you have met the standards and then something new arises
and you are kind of chasing the goal all the time. We are
trying to do that. We are trying do it very carefully. We are
trying to keep up with all of the latest standards and we have
been meeting them. But it is a challenge. I would agree with
you, it is--
Mr. Rothfus. Going back to an earlier question on--
Mr. Huizenga. The gentleman's time has expired.
Mr. Rothfus. --credit card accounts.
Mr. Cordray. Yes, the credit card--
Mr. Huizenga. The gentleman's time has expired.
Mr. Cordray. --for cost reasons. I would be happy to talk
further with your staff.
Mr. Huizenga. You can do that on the other time. But thank
you. The gentleman's time has expired.
With that, the Chair recognizes Mr. Ellison for 5 minutes.
Mr. Ellison. Allow me to thank the Chair and Ranking Member
Waters.
Mr. Cordray, thank you for all the great work you do. I
don't want to go into it. Other people have done it. It is
somewhat surprising to me that you have to put up with all of
this when you have done so much good for American consumers,
but the reality is that American consumers are at work. They
don't have lobbyists. They don't have people to pressure them
to pressure you.
So, anyway, I want to applaud your work on considering a
rule to end payday lending traps. I hear from constituents,
both borrowers and pastors and other leaders in the community,
about the damage these short-term high-cost loans do. In fact,
I had a meeting with a group called Isaiah on these--on payday
lending and the work you are doing. And on the screen is a map
of payday loan laws, which shows great gaps in consumer
protections. And I want to urge you to move forward with a
proposed rule, and I have discussed the agency's March
statement with my constituents at this meeting with a group
called Isaiah in Minneapolis, and at this time, my constituents
seem to be leaning toward option B, which is loans could
require a borrower repay no more than 5 percent of the
consumer's gross monthly income. Could you give me an update on
your payday lending rulemaking, and what are you considering
doing moving forward?
Mr. Cordray. The payday rulemaking is an ongoing
rulemaking. And it is a difficult rulemaking. It is a
surprisingly complicated rulemaking that we are trying to work
through carefully. What I will say is we have put out a
framework that is out there that people have been shooting at--
and some people like it, and some people have suggestions about
it--that we think it is very important to establish a principle
that the lenders on these loans verify and assess the ability
to repay of the borrower. If there are going to be exceptions
to that principle, because maybe people think that is too
onerous to do, although it is pretty normal in a lending-
borrower relationship, that maybe we allow certain kinds of
alternatives where they don't even have to do that loan. But as
long as lenders can't catch consumers in debt traps and roll
them over and over and over again.
One of the things I will say that has been notable to me
over the past year is we have had a lot of faith groups come to
see us on this issue. They have been Protestant. They have been
Catholic. They have been Jewish. They have been Muslim. They
have been fundamentalists. They have been progressive. And they
feel very strongly about this issue. They feel very strongly
that reasonable steps need to be taken to address some of the
harms they see in their congregations, in their synagogues, in
their mosques, and that has had a powerful effect on me. I
think that this is an issue that people in the communities who
care about others and who see the problems coming to them--
maybe they are not complaining to the financial banking
regulator because they don't realize that is who it should be--
but they are complaining to their pastor or their minister or
whomever it may be. We are seeing and hearing this, and it is a
powerful dynamic, and I think that it matters in terms of
thinking about how we try to address this problem.
Mr. Ellison. I just want to say, I talked to one lady who
had gotten in deep on some payday loans, and I asked her if she
had made any complaints. She said no because she feels so
stupid that she let herself get into this situation. But when I
talked to her, she wasn't stupid at all. She was just trying to
make a dollar out of 95 cents. It was just a tough situation.
And she was being taken advantage of. And much of the money she
had to re-borrow to pay back the money she borrowed in the
first place was really high in terms of fees.
I wonder if you would take my last minute to explain why it
is that the alternative to good regulation in payday lending is
not illegal loan sharking? You hear people say that all the
time.
Mr. Cordray. Yes, I do.
Mr. Ellison. Could you rebut that, if you please?
Mr. Cordray. Yes. The notion that you are going to drive
people to further illegal conduct, that is not where most
families are going to go. There hasn't been some uptick in loan
sharking in the 13 States that have effectively banned payday
lending. It is an interesting experience to see what the real
experience has been in those States over many years now. But I
do think we are trying to make sure that there is room for
responsible lending, room for community banks and credit unions
in particular, but other installment lenders who are
traditional and have responsible products. It is a tough
balance. That is why it has been a difficult rulemaking. We
have been at it quite some time, and we are still hard at it.
But we are trying to--again, the voices in the room from the
faith community have altered the dynamic in powerful ways. We
encourage those voices. We want to hear more from them on this
issue.
Mr. Ellison. Well, be quick to do that.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Arizona, Mr.
Schweikert.
Mr. Schweikert. Thank you, Mr. Chairman.
Mr. Director, you had a bit of a discussion about data.
What are the data sets? Because the news stories have been that
they are pretty stunning in size and complication. Have you
blinded them so you have removed the personal identifiers and
made that data public so if I am a researcher, if I am a left-
wing researcher, a right-wing, or just some--an academic,
someone doing their post-grad, I have access to this publicly
financed collection of data to understand trend lines. What is
available to the public?
Mr. Cordray. We typically have worked to anonymize or de-
identify data before it comes to us because we don't need--I
don't need to know that it is you or it is me.
Mr. Schweikert. --directives from the White House how to do
it--
Mr. Cordray. --marketing against us all the time, but that
is now what we are doing. We are trying to monitor the market,
not the individuals. So that is important.
But the second point to your question was what again?
Mr. Schweikert. My great interest is, as you are creating
public policy, ultimately what you are doing, and we are having
these sorts of discussions, it would be neat to have a fact-
based database discussion because you said something very early
on--and I don't think you meant to--that sometimes the data is
in the eye of the beholder. It is not. The data is the data is
the data. It is--
Mr. Cordray. Assessment of the data is what I mean. So,
yes, good point.
Mr. Schweikert. And I am sure that is not what you meant
because you have gone out of your way to say you are a data-
centric agency. Then we all deserve to touch the data and model
it and stress it and match it against other data sets to see if
it is saying the same things that you are saying.
Mr. Cordray. Good. So wherever we can, it is our principle
that if we can make the data more publicly available to
everybody so they can see for themselves and judge for
themselves and maybe they see things that we didn't think of
and maybe they see things that refute things that we thought we
thought of--
Mr. Schweikert. Or other paths for better policy.
Sometimes, it is not a ``gotcha.'' Sometimes, it is: Hey, when
we matched it against this, did you see this, this noise?
Mr. Cordray. Yes, first of all, that reinforces, as you
make the point, the importance of the data. And where we can
make it public, for example, the Home Mortgage Disclosure Act
(HMDA) data is public. We worked on better tools to make that
more accessible.
Mr. Schweikert. But you have some massive trendline data
and regional data, and even some, my understanding, it is
broken out demographically with ethnic tags. Please make that
as--
Mr. Cordray. Where we can. Some of it is proprietary data
that we purchased. We don't have the authority to make it
public. Some of it is supervisory or enforcement data that is
confidential. But wherever we can, our principle is to try to
make it public so that everybody can make their own judgments
about it.
Mr. Schweikert. Just as one policymaker, I have great
concerns about proprietary data making public policy because
when the rest of us cannot sort of stress it and see it and
match it and test it, there is something almost unseemly of:
Well, we bought this data but we have a nondisclosure on it,
but we are going to make rules that affect your lives. Just
understand I think that is a bad direction.
And this may be a future conversation. Your faith groups.
Quick anecdote. It was 20-some years ago. We had a check-
cashing issue--and I have already pitched you on this once
before--where the fees were outrageous in my community. And
guess what happened? A couple of my faith-based groups actually
set up little windows at their church and this, and they were
cashing checks for a minimal fee. And then some of our local
regulators said: Hey, why don't we give check-cashing charters
to anyone that wants it, the Circle K, the 7-Eleven, the
church? And the fees crashed. If your faith-based groups care
about this issue, how do you promote them to also step up and
participate in those low-dollar short-term loans?
And that is the next step back to the data sets. Do you
have data sets that say, hey, here is an incredibly competitive
market where lots and lots of players of different groups are
participating in these low-dollar, short-term loans? Look at
their cost structure compared to areas where we have set up so
many regulatory barriers that only a handful get to
participate.
Mr. Cordray. Yes. I have a lot of the same instincts you
do. Maybe it comes from having both been in public office as
treasurers at the local level. I have always been puzzled as to
why other lenders don't compete down the high costs of these
payday loans, the 390-percent interest rates and the like. It
doesn't seem to happen, and that is a puzzle to me because it
feels like that is at odds with the natural workings of the
marketplace.
Mr. Schweikert. Because we heard our member from New York
allude to saying, hey--and you actually said the online, some
of the dodgier access to these short-term, isn't the ultimate
solution here actually the market itself allowing many, many
actors and players to participate in that line of business?
Mr. Cordray. I might have thought so, but it has been 20
years, and it hasn't been happening.
Mr. Schweikert. Well, maybe it is time that you come up and
promote a simplified charter.
Mr. Cordray. I would be glad to.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentlelady from Ohio, Mrs.
Beatty.
Mrs. Beatty. Thank you, Mr. Chairman.
And thank you, Director Cordray, for being here today.
Let me first say that I am proud to associate myself and my
comments along with what Congressman Al Green stated about
President Obama and his appointment of you. Today, I join my
colleagues in congratulating you on many of the successes. As
we talk about students and those entering college, I thank you
for the actions against the Corinthian College chain. Also, I
think it is worth repeating that $11 billion was recovered for
some 20 million American consumers and, more recently, the
actions that your office took against an Ohio bank for
discriminating against African Americans with credit cards.
But let me say this. I have asked every Director who sat in
that chair a question about Section 342 of the Dodd-Frank Act,
OMWI, the Office of Minority and Women Inclusion, and I do that
for several reasons. For more than 2 decades, I traveled across
the United States as a diversity consultant with private
corporations and with government. But also, I think it is
important for people who look like me to have someone who is
standing there advocating for them. And my role is to protect
the institutional consumer and the individual consumer, just as
your role is.
So the question that I have asked everybody is to address
what attention and actions that they have taken as it relates
to OMWI, and I think that is very important with you because we
have heard about the data, the surveys. We have all read the
American Bankers Report of 2014 and 2015. And you kind of have
a mark against the culture of your operation as it relates to
fairness in pay for women and African Americans. And then so I
want you to answer what you have done. I noticed most recently
you have appointed a Director to report directly to you.
Mr. Cordray. Yes.
Mrs. Beatty. That is good news from where I sit, and I am
going to thank you in advance for that.
And the second thing I want you to answer is most recently,
in the joint ruling where you can report your diversity either
on a voluntary basis or it could be mandatory, talk to me about
the differences and if you think that people will fairly report
and accurately report and what you think about it being
available to the public? Because, clearly, we are gathered here
in this hearing because we all have a concern. Those concerns
might be a little different depending on what side of the aisle
you sit on. But if you could address that for me?
Mr. Cordray. Yes. And I have always valued, as you know,
Representative, your insight into this because you have spent
years as an expert in the field dealing with lots of different
workplace settings and having a sense of how they--I remember
when we worked together in financial education at the State
level, you brought a perspective of how that affects different
communities in a way that was very valuable for us. For us, in
terms of the issues within the Bureau itself that have been
very real for me and of great concern, there is both procedure,
and there is substance. The procedure, in terms of things like
elevating our OMWI, et cetera, and showing our concern, that is
one thing. We have been doing that. And that is important.
The other thing is substance. The performance management
system was the root of a lot of this. We have thrown it out. We
are working with the union to overhaul that in a way--and the
number of complaints people have had have diminished
significantly accordingly because they are not having that
problem that many of them were reacting to.
In terms of pay, there have been pay equity issues at the
new Bureau, partly because we were in a hurry to start up and
things didn't always--you couldn't always put them on a grid,
and we found later that some of it maybe was not as it should
have been. We have adjusted a lot of pay equity grievances and
complaints as well. I don't know that they correlated by race
or gender. I don't believe they did. But we have been working
to correct those wherever they lie. And in terms of the OMWI in
terms of the standards in the other agencies, we are trying to
work hard with the agencies to bring the spirit of OMWI, which
Ranking Member Waters has really impressed upon me, into our
agency and to the other agencies. Also, to push on, and this is
where, again, you have perspective, how can we push on the
financial services industry to itself become more diverse and
to recognize there is a huge opportunity here with their broad
consumer base, which itself is becoming more diverse? If you
don't keep up with it, you are going to fall behind the times
in terms of your business success.
Mrs. Beatty. I am going to stop you because my time is up,
and I want to end with saying, thank you. One, we have hit you
with some hard questions.
Mr. Cordray. It is always fair.
Mrs. Beatty. But I want to say to you that I like your
words that you said, ``I want to do better.'' And so, we will
help you do better.
Mr. Cordray. Thank you.
Mrs. Beatty. Thank you.
Chairman Hensarling. The time of the gentlelady has
expired.
The Chair now recognizes the gentleman from Wisconsin, Mr.
Duffy, chairman of our Oversight and Investigations
Subcommittee.
Mr. Duffy. Thank you, Mr. Chairman.
And welcome, Director Cordray. Obviously, you are a very
smart man, and you are working, I think diligently, on what you
would argue is the protection of consumers. We might disagree
on how far you have gone or what you have done, but I do think
you are trying to do the best that you can.
I have a couple of questions for you, and I know we are
getting late in the day, and I would just ask you for--I think
they are pretty simple questions, and they are yes-or-no
questions. Or if you don't know, you can tell me that too.
Mr. Cordray. We will try it. It doesn't always lend itself
to that, but I will try.
Mr. Duffy. But I think this will. And hopefully, with our
limited amount of time, you will just give me yes or noes. So,
with that, have you ever been advised by senior CFPB staff or
attorneys that eliminating dealer reserve either is or should
be a goal of the CFPB?
Mr. Cordray. I think that early on we thought that might be
one of the solutions to the problem. We never said the only
solution. I think we have moved in the direction of thinking
that--
Mr. Duffy. My question really is--
Mr. Cordray. --limiting the reserve might be a satisfactory
solution.
Mr. Duffy. So you were advised by senior staff that you
should look at eliminating dealer reserve? The answer to that
is yes?
Mr. Cordray. What I would say is, on an issue like that, we
debate lots of different alternatives.
Mr. Duffy. So the answer is yes.
Mr. Cordray. So I would say yes, at some point in that
discussion, some people advocated that. Others advocated--
Mr. Duffy. So right.
Mr. Cordray. --the policy of the Bureau.
Mr. Duffy. That wasn't my question if there was a policy.
You were advised in discussions about eliminating dealer
reserve. So the answer is yes, you were.
Mr. Cordray. Some people thought that was the right answer;
others didn't--
Mr. Duffy. Let's not do this. I am not asking you whether
some people thought it was good or bad--
Mr. Cordray. I think I have answered your question.
Mr. Duffy. Okay. I think you have too.
Have you ever met with senior CFPB staff or attorneys to
discuss eliminating auto dealer reserve? The answer to that is
yes, right?
Mr. Cordray. That was one of the possible solutions to the
problem, not the only solution.
Mr. Duffy. So the answer is yes.
Mr. Cordray. Yes, there were discussions of that.
Mr. Duffy. Okay. Great. Have you ever discussed with senior
CFPB staff or attorneys any strategy for eliminating dealer
reserve? Have you talked about the strategy on how you would do
that?
Mr. Cordray. I think that follows from your earlier
questions. I believe that is so.
Mr. Duffy. You talked about the strategy. Okay.
Have you ever discussed with senior CFPB staff or attorneys
ways to encourage indirect auto lenders to eliminate dealer
reserve?
Mr. Cordray. Auto lenders, yes. I would say yes.
Mr. Duffy. Have CFPB staff or attorneys ever advised you
that they were considering rulemaking as a way of potentially
banning dealer reserve?
Mr. Cordray. That was one of the alternatives, yes.
Mr. Duffy. Okay. And, obviously, you did not go for that
alternative, correct?
Mr. Cordray. I beg your pardon?
Mr. Duffy. You didn't go with the rulemaking; you went for
enforcement, right?
Mr. Cordray. I would say we haven't ruled it out, but we
haven't done that yet, obviously.
Mr. Duffy. Okay.
Have you ever have met with senior CFPB staff or attorneys
to discuss the impact that a market tipping settlement or
settlements would have on auto lenders?
Mr. Cordray. I think we have considered that from time to
time, yes.
Mr. Duffy. Have you ever met with senior CFPB--
Mr. Cordray. --say we still think about that, yes. Quite a
bit.
Mr. Duffy. Yes. Have you ever met with senior CFPB staff or
attorneys to discuss the risks and benefits of publicizing the
proxy methodology that the CFPB is using?
Mr. Cordray. I have always been in favor of being as public
as we can about our approaches to these issues. Again, our
approaches are similar to those of other agencies and the
Justice Department--
Mr. Duffy. Now, let's try my question. Did you guys, you
and the senior CFPB staff or attorneys, discuss the risks and
benefits of publicizing the proxy methodology?
Mr. Cordray. We did publicize the methodology, and
therefore we would have assessed the risks before doing so.
Mr. Duffy. Okay. You approved the CFPB's settlement with
Ally Financial, correct?
Mr. Cordray. I did.
Mr. Duffy. And isn't it true that in the Ally matter, the
statistical model used by the CFPB to determine whether there
was appropriate--there was--I'm sorry about that. In the
statistical model that you used to determine whether there was
a disparate impact, you excluded creditworthiness as a
variable. Correct?
Mr. Cordray. I don't recall exactly what the components of
that were. That may be correct; that may not be correct. As I
sit here, I don't have a specific--
Mr. Duffy. So is it your testimony that it is possible that
in the Ally settlement that you reviewed, that you did consider
creditworthiness?
Mr. Cordray. I think we have always tried to include the
components that relate to creditworthiness in the--
Mr. Duffy. Director Cordray, so I am talking about--it is
my time. In regard to the Ally settlement, did you consider
creditworthiness?
Mr. Cordray. We typically have regarded that. What we tried
to weed out is the prohibited characteristics and factors that
would be--
Mr. Duffy. Mr. Cordray, we didn't talk about what you do
typically. I am asking you specifically with regard to the Ally
settlement which you approved, did you consider
creditworthiness as a variable?
Mr. Cordray. I believe that our methodology attempts to
take account of creditworthiness and other nondiscriminatory
factors in order to then weed out the discriminatory factors.
Mr. Duffy. Mr. Chairman, I would note my time has expired,
but I would ask to be recognized for an extended question
period as permitted by the committee rules.
Chairman Hensarling. Pursuant to clause (d)(4) of Committee
Rule III, the Chair recognizes the gentleman from Wisconsin for
an additional 5 minutes.
Mr. Duffy. Thank you.
I want to be clear. You did consider creditworthiness in
the Ally settlement?
Mr. Cordray. I don't recall now a couple of years ago
exactly what we were doing at the very moment at which we would
have reached the resolution there, but our models typically are
trying to take account of creditworthy types of issues for the
customers and weed out--
Mr. Duffy. Is it your testimony that you don't recall
whether you--when you--
Mr. Cordray. I would be happy to work with your staff to
give you very--
Mr. Duffy. So you have no independent recollection right
now whether that was taken--
Mr. Cordray. I don't have any specific recollection of--I
am not sure when you say ``creditworthiness'' whether you mean
there is something specific or whether there are a number of
factors that bear on that, which is how I would regard it.
Mr. Duffy. Specific or broadly. We can go either way.
Mr. Cordray. Yes. I am happy to follow up with you on that.
Mr. Duffy. Did you ever discuss with or receive inquiry
from the CFPB staff or attorneys regarding the possibility of
accepting any controls proposed by Ally, such as
creditworthiness of borrowers, in your disparate impact
analysis in an effort to settle the case?
Mr. Cordray. I am sure that there were discussions of that
back and forth. I don't tend to myself be involved in the
details of the settlement discussions. I leave it to the team
that is negotiating that. But I am sure that would have been
raised on both sides, and there would have been discussion of
that.
Mr. Duffy. But in your internal discussions about the Ally
case, isn't it true that the CFPB staff advised you that there
was a correlation between an applicant's trustworthiness and
his or her dealer reserve? You were advised of that. Weren't
you?
Mr. Cordray. Say that again.
Mr. Duffy. You were advised by the CFPB staff that there
was a correlation between an applicant's creditworthiness and
his or her dealer reserve.
Mr. Cordray. A moment ago you asked the question, you said
``trustworthiness.'' I wasn't sure what that--
Mr. Duffy. I'm sorry. Creditworthiness.
Mr. Cordray. Creditworthiness and dealer reserve. There
probably were a lot of discussions, and that may have been
something that was raised. I can't remember a specific
conversation, but--
Mr. Duffy. Okay. So you are not aware of whether you were
advised about the correlation between creditworthiness and
dealer reserve.
Mr. Cordray. Again, when this gets into negotiating some of
the details of a resolution, the team will work with the
institution on that and with the Justice Department who is a
three-cornered party in those discussions.
Mr. Duffy. This goes to Mr. Scott's point, though, doesn't
it? That you have a factor like creditworthiness which factors
into disparate impact and the dealer reserve, and you are not
considering it?
Mr. Cordray. No, no. That is not what I have said.
Mr. Duffy. So I want to be clear on this point.
Mr. Cordray. What I said is, when you say
``creditworthiness,'' you may think that that is like--that is
like my size, which is 6, 2, and it is a firm clear fact. I
think it is a set of characteristics and a set of criteria that
may vary depending on--Ally might have had a view of what goes
into creditworthiness. We might have had a view--
Mr. Duffy. So for the CFPB's analysis, did you look at
creditworthiness? Do you have your own, not mine, no one
else's, but Director Cordray has a view of what
creditworthiness is and you applied that to the Ally
settlement?
Mr. Cordray. Look, I think, generally, creditworthiness is
a fair consideration when people are making a loan. I believe
that we try to find ways to take appropriate account of that in
our approach to these issues.
Mr. Duffy. And it can account for the differential in the
dealer reserve, which your staff told you. Right?
Mr. Cordray. That would be one of the points of contention
that people would have.
Mr. Duffy. Did your staff not advise you of that?
Mr. Cordray. No, no. Again, it wouldn't be whether
creditworthiness itself is on or off the table so much as what
kind of factors bear on that and which ones are relevant and
which ones are not. And, again, somebody like Ally and us and
DOJ may have different views of that, and we try to work them
through and talk them through. It is just not quite as easy as
a simple on/off switch on creditworthiness. I don't know how
to--I would love to just do yes or no with you on this, but it
is fairly complicated.
Mr. Duffy. I would love that too, but--and just my last 50
seconds. I think that it is important when your government
makes rules, whether it is in this institution or in the CFPB,
they are very clear. And so when you are advised that you can
actually do a rulemaking in regard to this issue and you choose
not to, but you try to make rules by way of enforcement, people
don't know what the rules are. So the heavy hand of the CFPB
comes bearing down on an institution making claims of racism,
and if you think this is so important, why wouldn't you do a
rule? Why wouldn't you let people offer comments? Why wouldn't
you give guidance?
Mr. Cordray. It is a fair question. The tool-making choice
for us is a difficult choice. Where we think a matter is going
to involve more in terms of specific facts and circumstances,
it is harder for us to--
Mr. Duffy. My time is up.
Mr. Cordray. --write a rule at the outset. We want to get
more experience with that. That is what we have done here. You
may think, in retrospect, it wasn't the right answer. Maybe
years from now, I will look back and think it wasn't the right
answer, but that is how we have tried to proceed.
Chairman Hensarling. The time of the gentleman has expired.
I ask unanimous consent that the gentleman from Texas, Mr.
Green, be recognized for 5 minutes.
Without objection, the gentleman is recognized.
Mr. Green. Thank you, Mr. Chairman.
Mr. Cordray, are you a lawyer?
Mr. Cordray. Am I a lawyer?
Mr. Green. Yes.
Mr. Cordray. I am. I haven't really been active in practice
for a while.
Mr. Green. And so, as a lawyer, do you understand that a
settlement is an agreement?
Mr. Cordray. Yes, it is.
Mr. Green. And an agreement by definition means that
parties have reached a conclusion that they find themselves
amenable to; they can go forward with that conclusion. Is that
a fair statement?
Mr. Cordray. I think that is fair. It doesn't mean they all
agree with each other on all the subparts, but, yes, I think
that is fair.
Mr. Green. And is it true that in the Ally case, there was
an agreement, a settlement, which means that the offending
party--this is my terminology--agreed to certain penalties and
certain payments such that this could be resolved and such that
persons who had been harmed could be justly compensated?
Mr. Cordray. And notably also certain changes in their
practices going forward, which may be more valuable in the long
run than the payments made.
Mr. Green. But the gravamen of my contention and the
gravamen of this discussion is agreement. This is not something
that the party, who has now found itself in a position to make
these payments, it is not something that the party refused to
do, refused to sign, said: I won't deal with you. Take me to
court. I don't want to cooperate with you.
There was a certain amount of cooperation in this. Is this
correct?
Mr. Cordray. They could have done that, but they didn't.
Mr. Green. They did not. And here is what I find from my
review of some intelligence, the CFPB and the DOJ determined
that more than 235,000 minority borrowers paid higher interest
rates for their auto loans between a certain period of time,
April 2011 and December 2013, because of Ally's discriminatory
pricing system. Now, this is not something that Ally had to
acquiesce to. This is something Ally chose to do for whatever
reasons it chose to do this. And by the way, Ally is not
without a battery of lawyers. Is that a fair statement?
Mr. Cordray. That is a fair statement.
Mr. Green. And their lawyers, I assume, are capable,
competent, and qualified persons who could easily decide that
this is better suited for litigation than for some sort of
settlement resolution. Fair statement?
Mr. Cordray. I think so.
Mr. Green. So I see in this, the largest ever settlement in
an auto loan discrimination case, an opportunity for us to send
a message to others that if you discriminate, we are going to
come after you. This is lawful. It is ethical. It is righteous.
People who discriminate ought not be allowed to do so with
impunity, and others ought to get the message that you if you
do it, you too will have to pay a price. I find very little to
complain about with this decision because the party paying
agreed to make the payments, agreed to the settlement, which by
the way is large. But when you do a great amount of harm, you
should pay a great amount in penalties. I am showing here that
$18 million in civil penalties were agreed to.
So, Mr. Cordray, if you have a conversation about your
options, is that in some way unethical if you talk about
options in rulemaking? My assumption is that you will look at
the entire range of options when discussing rulemaking. Is this
true?
Mr. Cordray. I don't think we could act responsibly if we
didn't discuss all the options and then try to make our best
decisions, which may or may not be the right decision. Somebody
else might disagree, but, yes, we talked through the options. I
don't think there is anything wrong with that, and I think it
is the right way to proceed.
Mr. Green. And in talking through options, do you sometimes
talk about options that the industry might not find favorable?
Mr. Cordray. Sure.
Mr. Green. Do you also sometimes discuss options that
consumers might not find favorable?
Mr. Cordray. I am sure that is the case.
Mr. Green. But that is your duty.
I yield back the balance of my time.
Chairman Hensarling. The Chair now recognizes the gentleman
from South Carolina, Mr. Mulvaney.
Mr. Mulvaney. Very quickly just to follow up, Mr. Cordray,
you all had a little bit of leverage over Ally, though, didn't
you? It wasn't exactly a typical negotiation. They needed
Federal Reserve approval, didn't they? They needed approval
from the Fed that your deal would settle with them? That was
leverage you had over them you wouldn't have over other folks?
Mr. Cordray. I don't put it that way. What I would say is
this. We pursued an auto discrimination matter--
Mr. Mulvaney. That is not my line of questioning. I just
want to follow up. They needed to have a deal with you in order
to get Federal approval. In fact, they got their Fed approval 4
days after their deal with you. Right? Do you think that
factored at all into the negotiations?
Mr. Cordray. Here is what I would say. That is what they
wanted. We had an open discrimination matter against them that
they were resistant to resolving, and then suddenly they
decided they wanted to resolve it. That is their choice. That
is not me. I didn't create the leverage. I didn't set that up.
Mr. Mulvaney. You mentioned something before with Mr. Duffy
about creditworthiness, that you have your measure and that DOJ
has theirs, and Ally might even have theirs.
Mr. Cordray. Yes.
Mr. Mulvaney. I buy that. You all didn't use anybody's
creditworthiness in your statistical model on Ally, did you?
Mr. Cordray. I don't believe that is the case. Again, it is
not so easy to say creditworthiness like it is a specific
packaged fact.
Mr. Mulvaney. You all have a measure of creditworthiness.
Right. Let's use credit scores. Did you use credit scores in
your statistical analysis of the Ally case?
Mr. Cordray. I don't believe we did.
Mr. Mulvaney. Why not?
Mr. Cordray. There are a lot of things we could do.
Mr. Mulvaney. I recognize the fact that creditworthiness
may have a lot of different pieces and parts to it, but it
would strike me that everybody would agree that credit scores
would be part of creditworthiness. Right?
Mr. Cordray. There are a lot of financial institutions we
have seen that don't use credit scores as the bright indicator
of creditworthiness.
Mr. Mulvaney. Do you use it in your analysis?
Mr. Cordray. No, I am saying, for example, the FICO score
is the most well-known credit score. A lot of banks have moved
away from that. They think it is too crude, and they have more
nuanced approaches to creditworthiness that they think are more
refined and better from their standpoint. So again,
creditworthiness is a more elusive concept, and just to say
credit scores equals it is not--
Mr. Mulvaney. Using whatever definition of creditworthiness
that you want to use, did you use a creditworthiness analysis
as part of your statistical model in the Ally case?
Mr. Cordray. I think we try to use criteria that we think
will--
Mr. Mulvaney. I didn't ask you about that. I am asking what
you actually did.
Mr. Cordray. I am saying that is what we tried to do.
Mr. Mulvaney. Mr. Cordray, listen, we can do this all day
because I will get 5 minutes. I am not asking what you tried to
do. I am simply asking you a straight question. Did you use
creditworthiness, however you want to define that, in your
statistical analysis of the Ally case?
Mr. Cordray. I think we used factors that tried to reflect
that aspect of the transaction, yes. Ally might disagree. You
might disagree.
Mr. Mulvaney. Listen, I am sure there are a lot of things
we disagree on, but I am actually trying to find what we agree
on. Did senior staff or your attorneys ever tell you that your
disparate impact methodology will at times overstate disparate
impact?
Mr. Cordray. I think there is always a risk that any
methodology might either overstate or understate.
Mr. Mulvaney. I didn't ask you that question. I asked you
if your people told you that.
Mr. Cordray. One of the things you are trying to do is to
get it as right as possible, and depending if you compare it to
the mortgage universe, it might seem to overstate.
Mr. Mulvaney. Wonderful. Does your methodology at times
overestimate disparities?
Mr. Cordray. We don't intentionally overestimate anything.
We try to get it right.
Mr. Mulvaney. Okay. You try to get it right. Do you ever
get it wrong?
Mr. Cordray. I think we may. Sometimes over, sometimes
under; I am not sure that it is systematic either way.
Mr. Mulvaney. Did the senior staff or your attorneys ever
advise you that the Bureau had evaluated an alternative
methodology for estimating racial disparities, the disparate
impact analysis, and that this alternative methodology reduced
the disparities for several racial groups, including African
Americans and Hispanics?
Mr. Cordray. I think we have seen different methodologies
that can lead to different results.
Mr. Mulvaney. I will take that one as a yes.
Mr. Cordray. So I will just say, some of them we think are
illegitimate. Some of them we have decided there may be
different reasonable approaches to this that may differ from
one another.
Mr. Mulvaney. Did your attorneys or staff ever tell you
they thought you had serious litigation risk in the Ally case?
Mr. Cordray. Say that again?
Mr. Mulvaney. Did your senior staff or attorneys ever tell
you they thought you had serious litigation risk in the Ally
case and that they wanted you to seek prelitigation settlement?
Mr. Cordray. I think we have litigation risks every time we
pursue a matter.
Mr. Mulvaney. Got you. I didn't ask you that question
either.
Mr. Cordray. I would say we had that risk in Ally. We have
it in every matter, and it is something that we have to take
account of and think about. So does the institution, by the
way.
Mr. Mulvaney. In my last 30 seconds, I want to follow up
with something Mr. Ellison said. Your own database, your
complaint database, shows that payday loans are one of the
least complained-about financial products. It is the only
product, I understand, which has an actual year-over-year
decrease in the number of complaints from 2014 to 2015. So if
people aren't complaining, and you haven't brought to us any
peer-reviewed studies saying that it is actually a problem, why
are you considering rules that will dramatically reduce short-
term small-dollar credit to people who need it?
Mr. Cordray. What I will tell you is in the last year, the
voices of the faith community, who hear these complaints from
their congregation members, have gotten louder, and I would
love to have them come and visit you and tell you what they see
and hear among their congregations and their parishes and in
their synagogues and in their mosques because they are very
concerned about this problem, and I have found their voices to
be powerful. I would like you to hear those voices as you are
assessing--
Mr. Mulvaney. I will do that just as soon as the lady down
the street, down the hallway today on Planned Parenthood will
listen to the faith community about funding Planned Parenthood
and abortion. How about that? Is that a deal?
Mr. Cordray. I don't have anything to do with Planned
Parenthood.
Mr. Mulvaney. I can't believe you just told us you are
making decisions based upon meetings with a faith-based
community on a selective basis, but we will leave that for
another day.
Mr. Cordray. Wait a minute.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Kentucky, Mr.
Barr.
Mr. Barr. Thank you, Mr. Chairman.
Director Cordray, welcome back to the committee. And I
would first just like to take a little issue with your
testimony about the relative health of the mortgage market and
the recovery that you cited, and you cited Federal agency data
and in particular Home Mortgage Disclosure Act data.
Mr. Cordray. Yes, everybody agrees that is the best data
around.
Mr. Barr. I understand, but the data is at least mixed
because the National Association of REALTORS reported that in
the first quarter of 2015, which appears to be a pretty recent
data, only 1.2 percent of originated mortgages did not fit the
definition of qualified mortgages, so there is at least a fear
of liability in terms of originating non-QM mortgages which I
hope the Bureau would recognize--
Mr. Cordray. Can I make a point on that?
Mr. Barr. I will let you. I want to just finish my point
quickly, and I will be happy to let you respond. The other part
of that data is that a third of the National Association of
REALTORS survey respondents reported being unable to close
mortgages due to a requirement of the Qualified Mortgage rule,
and what I would specifically like for you to respond to is
maybe the explanation for the health in the data that you are
citing is because of the GSE exemption.
The problem with the financial crisis was the originate-to-
distribute model. As you know, I am promoting a portfolio
lending model which would encourage risk retention, which was a
core policy of the Dodd-Frank Act. The GSE exemption, which is
the reason for the relative health in the data that you are
citing, is exactly why we got into the mortgage financial
crisis to begin with, originate to distribute to Fannie and
Freddie. That is why your data conflicts with the National
Association of REALTORS' data. You can respond.
Mr. Cordray. I don't think it conflicts at all. What in
fact, you are seeing is that mortgage lending is up for home
purchase mortgages. What varies in the market, of course, are
refinancings. Those go up and down with the interest rate, so
you can't really say much from that. In terms of the legal risk
being so prominent from the Qualified Mortgage rule, I met with
the Mortgage Bankers Association recently, the top CEOs of
mortgage units, top 40 companies, and I asked them
specifically: ``Have any of you had a single lawsuit on the
Qualified Mortgage rule?'' It has been 21 months now--21
months--and not a single lawsuit. Not one. All this foaming at
the mouth about legal liability really did not pan out. It was
an overreaction.
Mr. Barr. I understand if you are in safe harbor, you are
not at risk. The point is that access to mortgage credit is not
available if you are going to portfolio a loan right now, but
there is a safe harbor if you sell it to Fannie and Freddie,
which is how we got into the problem in the first place. So the
policy is counterproductive in my opinion, not only in terms of
constraining access to responsible mortgage credit that is
retained by the institution, but you are actually incenting
with the GSE exemption, the kind of risky practices that caused
the financial crisis. I do want to--
Mr. Cordray. I see the point, but two things. First, while
they are in conservatorship, which is a constraint, very
significant. Second, we have just expanded the ability of
smaller institutions, community banks and credit unions, to do
more portfolio lending, which I agree with you; I think it is
very positive, and I think they think it is very positive.
Mr. Barr. But it doesn't do what my bill would do, which
would be to allow a petition process. Let me get to TRID
quickly. As you may recall, Congresswoman Maloney and I and 252
of our colleagues sent you a letter on May 22nd requesting a
grace period. We met. We asked if closing attorneys and
REALTORS and title insurers could count on a grace period. You
said they would be happy, but what happened the next day was
that you would engage in a policy of sensitive enforcement,
which gave unfortunately no clarity or--and I am just telling
you what my constituents were telling me. I am not opining. I
am telling you--
Mr. Cordray. I would like to clarify it today then.
Mr. Barr. I am telling you what the closing attorneys are
telling me back home in Kentucky. They are saying we are going
to have to do two closings--one with a HUD settlement
statement; and one that is TRID-compliant--which doesn't
decrease the amount of disclosures that are going to be
required for the homeowners and home buyers to actually review.
It is not a simplification. We are still trying to get this
right. All we want from the Bureau is not just a promise of
sensitive enforcement but a grace period, a transition period.
And the question for you is, are the closing attorneys, the
REALTORS, the title carriers, can they count on you to not
bring an enforcement action for a period of, say, 6 months
while they are trying to sort through the complexity and trying
to get up to speed?
Mr. Cordray. Look, I don't think it is appropriate for me
to say I won't enforce the law when my job is to enforce the
law, but I think what I have said says to them that we are
going to be diagnostic and corrective, not punitive, in that
early period. I think if they read between the lines, they will
understand that we are trying to allow them to have the
latitude that they have asked for. And I think people should be
able to take ``yes'' for an answer.
Mr. Barr. With my remaining time, on short-dollar loans,
one of my constituents testified, a small-business owner, that
she was going out of business as a result of your proposed
rulemaking here.
Mr. Cordray. What kind of person?
Mr. Barr. A small-dollar lender, a payday lender. The
attorney general of Kentucky, the Democratic attorney general,
the Democratic Governor, his financial institutions department
and the Democratic General Assembly in Kentucky all reformed
our payday lending and usury laws. Why don't you trust the
Kentucky Democrats who have put these rules into place? What do
you know that they don't know?
Mr. Cordray. To me, this isn't a Democrat or Republican
issue. That is not the way I look at things.
Mr. Barr. I understand.
Mr. Cordray. There are different States that have different
approaches, but if you look at it on a national basis, there
are a ton of rollovers. There are a lot of consumers in a lot
of trouble. By the way, the last time I was here, you asked me
about Bath County in Kentucky.
Mr. Barr. Thank you.
Mr. Cordray. Under our new provision, it is all rural.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Colorado, Mr.
Tipton.
Mr. Tipton. Thank you, Mr. Chairman. Director Cordray,
according to Treasury's website, over 5 million recipients have
enrolled in the Direct Express Program, which is used by
Federal and State Governments to disburse supplemental security
income and Social Security benefits to those enrolled.
According to the U.S. Treasury, it costs $1.03 to issue a paper
check, and only 10.5 cents to be able to use electronic
payments like Direct Express. Yet, the CFPB has proposed a
prepaid account rule that would fundamentally change how
government cards, including a statement at the top to require
disclosure to all recipients that the recipient does not have
to accept a government benefit card. I guess my question is,
this has been popular. It seems to have worked. Is this new
policy going to create some disharmony and actually
disincentivize people from being in the program?
Mr. Cordray. I have the same reaction you do. I think the
fact that government programs at the Federal, State, and local
level, county, city, have moved towards benefits on cards as
opposed to issuing paper checks is beneficial to consumers in
many ways. I don't think our prepaid card rule is affecting
those government programs, but if it is, I would be glad to
have our folks follow up with your staff and make sure that we
can give you assurances in that regard. If it is a problem,
then we still have that rulemaking pending, and we could take
account of that as we finalize it. I would be happy to have
that discussion.
Mr. Tipton. Good. I would appreciate that. I think there is
a 95-percent approval rating with those government cards that
is going out.
Mr. Cordray. It is more secure, better for the consumers.
They don't have to deal with cash or check cashing and other
things. I agree with that.
Mr. Tipton. Yes. And, Director, the proposed rule for
prepaid accounts has raised some serious concerns over the
treatment of credit futures for prepaid products. Consumers are
using these products obviously to be able to meet their
everyday needs. In my own district in Colorado, we have Delores
from Pueblo who wrote that the prepaid card will help her to
put food on the table for her family or to be able to pay a
utility bill. I am concerned that the lack of understanding of
how this product is used by folks back home will lead to its
elimination. What is the CFPB's plan to be able to make sure
that consumers, like Doris in Pueblo, continue to have access
to overdraft protection?
Mr. Cordray. So in terms of prepaid cards, the rulemaking
that we have under way--and it is still pending, so it is not
final--is intended to create consumer protections for those
cards that have never existed. I think people reach into their
wallet, and they get out a debit card or prepaid card or credit
card, and they assume they have the same protections. They
don't. Prepaid cards have nothing. If you have errors, you
can't get them corrected. If you have disputes, you can't get
them resolved. You have no rights in that regard. So that has
been the focus of our rulemaking.
In terms of overdraft on the prepaid cards, what we
proposed in our initial proposal that we are still working
through and thinking about, was that those cards should be
treated similar to credit cards in terms of whether they are
credit or not if they involve overdraft. That was the proposal.
We have gotten a lot of comment on that both ways, and we are
working through that.
Mr. Tipton. And just making sure that is available, and I
hope that you are taking into consideration the concern this
creates in terms of the industry almost unanimously noted that
they will stop offering overdraft features with some of the--
Mr. Cordray. By the way, very few in the industry offer
overdraft now. Almost unanimously they do not offer overdraft,
so it is a very small portion of the industry that this would
affect. But the proposal at least was to offer such people
credit-card-like protections like in the CARD Act. We have seen
both criticism and endorsement of that, and we will have to
size that up.
Mr. Tipton. Director, I would like to go back a little bit
to the conversation you were having with Mr. Rothfus and Mr.
Schweikert in regards to some of the data that is coming out.
The government has suffered obviously some very embarrassing
security and privacy breaches recently and lost sensitive data
for millions of Federal employees. And CFPB is about to issue a
new Home Mortgage Disclosure Act rule, which will require
lenders to be able to submit detailed private information on
their customers. With that in mind, can you specify what steps
that the Bureau is taking to be able to protect homeowners from
data breaches?
Mr. Cordray. Yes, that information for our National
Mortgage Database, if that is what you are referring to, will
be de-identified and anonymized before it comes to the Bureau.
And that is exactly how we are trying to handle it. Therefore,
I think it is of little interest to hackers because they would
have to, as the Congressman was mentioning earlier, go through
an arduous re-identification process, if they even could do it,
as opposed to other databases that companies have where if they
can hack into those, they can get right into personal
information and the like.
That is how we are trying to handle that. It has been
looked at by the GAO and the Inspector General. I think it is a
responsible approach. If people have further suggestions on it,
I am glad to hear them.
Mr. Tipton. Yes. The U.S. Chamber of Commerce put out a
statement that the Bureau is putting consumer personal
information at risk by collecting enormous volumes of
identifiable information yet failing to be transparent or
instill confidence that it has recognized and addressed
cybersecurity risks posed by such a vast amount of data.
Mr. Cordray. Yes. I don't think that is really accurate to
the details of what we are doing. I understand the statement
for rhetorical purposes. I would be happy to talk to the
Chamber about it.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Texas, Mr.
Williams.
Mr. Williams. Thank you, Mr. Chairman.
And thank you, Director Cordray. I am a small business
owner, have been for 44 years, and I am a car dealer. And like
my colleague, Congressman Green, I stand up for customers every
single day. You are not the only one who stands up for
customers. I want to go back to Section 1029. We talked about
it a little bit today, but let me read what it says: The Bureau
may not exercise any rulemaking, supervisory enforcement or any
authority, including any authority to order assessment over a
motor vehicle dealer--that is me--and this predominantly
engages in the sale and servicing of motor vehicles, the
leasing and servicing of motor vehicles or both. I am kind of
new to this committee, but I am not new to the automobile
industry. My family has been selling cars for over 70 years,
and we have done a great job, and we have taken care of a lot
of people.
But I think you and just about everyone here knows that.
Now, I know we talked about this issue a lot, so there is
certainly a lot to talk about when it comes to this topic. We
can talk about the flawed data we have talked about today used
to claim disparate impact or the fact that we have established
the auto dealers are exempt, they are exempt from the CFPB
supervision, or the way in which you released your auto finance
guidance in 2013, or even how your agency has paid out claims
to discriminated customers with little oversight.
But I wanted to take this time today instead to educate you
a little bit on what it means to be in the retail industry,
what it means to be a small-business owner in America today,
what it means to be an auto dealer, and, quite frankly, what it
means to be a small-business owner on Main Street in America.
My family business employs about 150 people. Just like any
retail business in America, the cost of owning a business is
not cheap. We have to worry about paying our employees, our
utility bills, our credit, our debt, and making sure we have
plenty of inventory for our customers to choose from.
Now if I sold every car at your price, at the wholesale
price, which is what I think the Bureau would like me to sell
it at, I would be out of business in no time.
Mr. Cordray. I wouldn't like that, by the way.
Mr. Williams. You are not giving that opinion. But you know
what, I have to make a living. Frankly, I have to be
profitable. I have to provide for my family. I have to take
care of my employees. No business in America should be told by
the Federal Government to sell their product at a given price.
I think you know this. I think you really believe this.
But the financing part of buying a car is just one piece of
the equation. Other factors include what the borrower pays for
the vehicle or what trade-in value they receive. Every deal is
different. No two are the same. But because of the jurisdiction
of the CFPB, you have focused this on the financing aspect of
purchasing a car, and I think it is obvious why. I think what
your agency is trying to get at is forcing auto lenders to
offer a flat fee to dealers. Is that what you are trying to do?
Mr. Cordray. We have said that is one alternative, but it
is not the only one.
Mr. Williams. Essentially, when you do that, you eliminate
the dealer reserve.
Mr. Cordray. No, I understand that. We are not saying that
is the only alternative.
Mr. Williams. If you do that, you eliminate the dealer
reserve and ultimately telling me what I can sell my product
for. So what we have seen with Ally Financial, Honda Financial,
and just yesterday, Fifth Third Bank, is to force them to
change their pricing and compensation models and in turn avoid
stricter fines, but ultimately you will put these dealers at a
competitive disadvantage by capping the rates and putting them
out of business. In fact, some lenders have even told me
personally that they are discontinuing indirect auto lending
because of the CFPB's campaign and increased compliance risk.
They are scared to death. In other scenarios, some lenders, as
is the case of Honda Financial, have responded by overhauling
their loan pricing in ways that will likely mean higher costs
for some borrowers.
So, Director Cordray, who does this hurt? You think about
it. It hurts the consumer. The very people you are trying to
protect, you are turning back and hurting them. Really quickly,
yes or no, we have covered a lot of questions--are you really
trying to eliminate dealer reserve?
Mr. Cordray. When we first came to this problem, when we
said this, that is one alternative, but it is not the only one,
as we have come to understand the problem better. So to say
that we are simply trying to eliminate dealer reserve, that
would be--no, that would not be accurate. That is one
alternative, but limiting it would be an alternative.
Mr. Williams. Do you have an idea what to replace it with,
with the dealers?
Mr. Cordray. What I would say is this, if you set up a
lending program where you are going to allow people to mark up
rates and be financially incentivized to do so, and the
consumer is none the wiser, we believe it creates great risk of
discrimination. All right? We want to try to minimize that and
limit as much as possible.
Having said that, if the preexisting regime allowed for a
certain amount of discrimination, where some borrowers are
charged more than others, and you eliminate that, some of the
others may now be charged a little bit more--
Mr. Williams. Do you talk to dealers like me on how to have
a better idea? Nobody has talked to me.
Mr. Cordray. We were very careful about not going out and
doing a lot of talking to dealers because we want to respect
the line that Congress drew. Again, it is not a very logical
line--
Chairman Hensarling. The time of the gentleman has expired.
The Chair wishes to advise all Members that there are votes
pending on the Floor. Regrettably, we anticipate clearing only
two more Members before adjourning: Mr. Poliquin and Mrs. Love.
Mr. Poliquin is now recognized for 5 minutes.
Mr. Poliquin. Thank you, Mr. Chairman.
Mr. Cordray, thank you very much for being here. I
appreciate it. Your organization was created about 5 years ago
by Dodd-Frank. You have about 1,400 employees, and in that
short period of time, sir, you are one of the most powerful
regulators in America. You regulate companies that provide
automobile loans and home mortgages, credit cards, student
loans, and you reach into almost every family in America. Now,
we all know that these departments and agencies throughout
Washington have their inspectors general. Now these are
important functions to make sure at every organization there is
no fraud or abuse or wasting of taxpayer dollars.
I have a list right here, Mr. Cordray, of 76 departments
and agencies in the Federal Government. Each one of them has
their own inspector general, except the CFPB. You don't. You
share one with the Federal Reserve. The Federal Reserve, as we
all know, is involved with monetary policy and regulating banks
as institutions. Your agency, on the other hand, is involved in
regulating financial products that are sold to consumers. So
can't we agree right now that your functions are so different
that you deserve your own inspector general, sir?
Mr. Cordray. So if I heard you right, you said 76
departments and agencies have their own inspector general, and
we are the only one that doesn't?
Mr. Poliquin. That is correct.
Mr. Cordray. I don't believe that is correct.
Mr. Poliquin. Here is the list right here, Mr. Cordray.
Mr. Cordray. I don't think that is correct. Many, many
agencies share an inspector general--
Mr. Poliquin. --that is your testimony. Okay. Well, fine. I
will let you look it up just the way I did, and you will find
you are the only one. My question to you is the following.
Mr. Cordray. We will get back to you on that. I don't think
that is correct.
Mr. Poliquin. Don't you think it makes sense for you to
have your own inspector general to look over your shoulder? So
that the taxpayers know they are being fairly treated and that
you are held accountable?
Mr. Cordray. I haven't dealt with inspectors general until
I came to the Federal Government. In the State government, as
you and I were, we had the State auditor who would look at us
every year, and that was appropriate and helpful.
Mr. Poliquin. It is my time not yours, sir. Amtrak, the
Postal Service, the EPA, even the Peace Corps has their own
Inspector General. You don't.
Mr. Cordray. That may be. That is up to Congress. Congress
decides that.
Mr. Poliquin. Let's talk about transparency. Let's talk
about transparency, sir. In your own semi-annual report on page
132, you make it very clear that it is important to be
transparent in your operations, and I happen to agree with
that. You told us 6 months ago when you came here that you were
going to make sure you posted on your website all your vendor
contracts. We went to your website, and guess what? We didn't
find contracts. If I am not mistaken, you have contracted about
$60 million for the next 3 years on management consulting
contracts with a number of different firms. Where are those
contracts?
Mr. Cordray. I believe that all of our contracts are posted
on USA.gov, which is I believe what Federal law requires,
except for contracts with other parts of the Federal
Government. And in the start-up phase with Treasury, we had a
lot of contracts with Treasury itself.
Mr. Poliquin. Here is what I would like to do. We are going
to get in touch with your office. I would like to see those
contracts.
Mr. Cordray. If there are any contracts that you think are
not posted as they should be, I will be glad to try to take
account of that--
Mr. Poliquin. Let's shift gears here. You sit on an
organization, on a board called the Financial Stability
Oversight Council (FSOC). You sit on there with Treasury
Secretary Lew, the Chair of the Federal Reserve, and also the
Chair of the SEC, along with other organizations.
Mr. Cordray. That is what the law requires.
Mr. Poliquin. Now, FSOC is responsible for determining
which non-bank financial institutions are too-big-to-fail,
meaning if they get in trouble, then the taxpayers are on the
hook to bail them out. We have about $24 trillion in this
country that is managed by pension fund managers and mutual
fund companies, and asset managers. And you know if one of
those mutual fund companies isn't performing well, an investor
can call up on an 800 number, replace that account with another
asset manager, so there is no risk to the market if one of
those asset managers gets in trouble. Now, here is what I worry
about. I am sure you know a fellow by the name of Douglas
Holtz-Eakin. He is the former Director of the CBO, which is a
nonpartisan organization. And you have seen the study I am
sure, from 2014, which says if asset managers that handle the
retirement savings, $24 trillion of retirement savings in this
country, if those asset managers, that pose no risk to the
economy if they get in trouble, if they come under the guise of
the Dodd-Frank regulations because you folks designate them as
SIFIs, then the rate of return long term of those retirement
savings will go down about 25 percent.
Now, where is the compassion? We are supposed to help small
investors. You know what I worry about, Mr. Cordray? I worry
about a nurse in Gardiner, Maine, or I worry about an auto
mechanic in Ellsworth, Maine. They are putting aside $100 a
month to try to save for their retirement, and all of a sudden,
you folks have an opportunity to ding them by 25 percent of
their long-term rate of return in their nest egg. So I want to
see if you and I can agree on something today, sir. Can we
agree that it is a bad idea for FSOC to designate pension fund
managers, mutual funds, and other asset manage as SIFIs?
Mr. Cordray. First of all, FSOC acts as a body. I think
they have indicated that they are--
Mr. Poliquin. Do you think it is a good idea or a bad idea
to so designate them?
Mr. Cordray. I don't know enough to jump the gun on any
decision-making--
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentlelady from Utah, Mrs.
Love.
Mrs. Love. Thank you, Mr. Cordray. Thank you for being
here.
Mr. Cordray. My pleasure.
Mrs. Love. I just have a quick couple of questions that are
concerning to me and to constituents in my district. In the
CFPB's most recent annual report, it stated, on page 131, that
a critical part of making financial markets work is ensuring
transparency in those markets. The CFPB believes that it should
hold itself to that same standard and strive to be a leader by
being transparent with respect to its own activities. So my
question for you is, what has the Bureau done to make sure that
the consumers know that you are tracking their credit card
data?
Mr. Cordray. We are trying hard to meet that aspiration of
being a very transparent institution.
Mrs. Love. So what have you done to make sure that the
customers know that you are extracting credit card data?
Mr. Cordray. First of all, I am not tracking your data or
my data or anyone's data. What we are doing is we are getting
data that is anonymized and de-identified so that we can
evaluate the market. How can I possibly fulfill my
responsibility to Congress to give you a report on how--
Mrs. Love. Wait a minute. We are going to get there. Do you
think most Americans know that you are actually doing this,
collecting data?
Mr. Cordray. Doing what?
Mrs. Love. Collecting credit card information. So when they
are going and they are actually making those credit card--you
are actually collecting data from their credit cards.
Mr. Cordray. I am not collecting it the way a bank would be
collecting it, where they are actually trying to assess what
Congresswoman Love ate for dinner last night and where you are
shopping and trying to market to you. I am just looking at the
overall patterns in the market that have nothing to do with you
or me or anyone else in particular.
Mrs. Love. You are saying you actually do not collect data
from individuals who are using their credit cards? You are not
collecting that information? Is that what you are saying?
Mr. Cordray. It is all de-identified. That is really
important.
Mrs. Love. Do you believe that consumers have the right to
know you are actually collecting the data? It is really simple.
I am not trying to have a fight with you here. I just want to
know what is happening.
Mr. Cordray. I don't know if this is the answer to your
question, but it wouldn't have your name on it. It wouldn't
have your credit card number.
Mrs. Love. It doesn't matter. Don't you think that my
information belongs to me? Don't you think that consumers have
a right to opt out at least?
Mr. Cordray. Many other Federal agencies have had this for
years. What is special about us? Why do you come after us?
Mrs. Love. Okay. Do you think it gives the American people
comfort to know that just because other agencies are collecting
data, that it is okay for you to additionally collect data? I
think it is actually quite absurd to hear that other agencies
are collecting as much data also.
Mr. Cordray. Answer me this. We are supposed to do a report
to Congress every year on the credit card market and how it is
faring. How would we do that if we didn't have data?
Mrs. Love. Let me ask you a question. Let me ask these
questions. I am glad that you led us down this path. Can the
Bureau receive complaints about credit card companies?
Mr. Cordray. I beg your pardon?
Mrs. Love. If there is a company that is out there that is
a terrible actor in the market, can you receive complaints
about credit card companies if they are taking advantage of
consumers?
Mr. Cordray. Can we the CFPB receive complaints about
credit card companies?
Mrs. Love. Yes.
Mr. Cordray. We do. We do every day.
Mrs. Love. Does the Bureau have the power to conduct direct
examination of financial institutions?
Mr. Cordray. We do.
Mrs. Love. Does the Bureau have a whistleblower program for
employees to blow whistles on misconduct of their companies?
Mr. Cordray. We have a hotline where whistleblowers can
give us information if they see fit.
Mrs. Love. So you are still telling me that the powers that
you have aren't sufficient for you to uncover and investigate
actual problems in the marketplace? Even with all of those
tools, you still have to go in and not allow people to know you
are collecting their data in order to make these assessments?
Mr. Cordray. You are saying we could collect it through
examinations and supervision. Instead, we have collected it in
the same way other agencies have. How is that different?
Mrs. Love. What I am saying is one way is somebody
complaining to you that something is happening, and the other
way is you actually extracting data without the consumer
knowing that you are extracting data. What I asked at the
beginning is what provisions that you have put in place to let
Americans know when their data is actually being extracted,
when it is being mined?
Mr. Cordray. We are having a public hearing here that is
wide open to the entire American people--
Mrs. Love. Thank goodness for Congress that is looking out
for the American people, not the CFPB.
First of all, I want you to know that the CFPB--I have been
very, very fair in looking at what you actually do. Let me say
you are always under the guise that you are protecting those
who can't protect themselves. You are always under the guise--
you are trying to let people know that you are the
compassionate institution. Let me just say that you can't be a
compassionate institution because everything you do is through
force. And that is through jail time and fines. If people do
not comply with you, it is through jail time and fines. And I
want you to know that these businesses that you go after are
the ones that gave my father a job when he came to this country
with just $10 in his pocket.
Mr. Cordray. How does that make us different from the Utah
attorney general? How does that makes us different from the
U.S. Attorney General?
Mrs. Love. You are saying because everybody else does it,
that we are going to do it also?
Mr. Cordray. No, no. It is law enforcement. Do you not want
the law to be enforced? Of course, you want the law to be
enforced.
Mrs. Love. This is why Washington is a problem. This is why
you are the problem, sir.
Mr. Cordray. Do you want people to not abide by the law?
Chairman Hensarling. The time of the gentlelady has
expired.
I would like to thank the witness for his testimony today.
The Chair notes that some Members may have additional
questions for this witness, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to this witness and to place his responses in the record. Also,
without objection, Members will have 5 legislative days to
submit extraneous materials to the Chair for inclusion in the
record.
This hearing stands adjourned.
[Whereupon, at 1:38 p.m., the hearing was adjourned.]
A P P E N D I X
September 29, 2015
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