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THE DODD-FRANK ACT FIVE YEARS 

LATER: ARE WE MORE FREE? 

HEARING 

BEFORE THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTEENTH CONGRESS 

FIRST SESSION 

SEPTEMBER 17, 2015 

Printed for the use of the Committee on Financial Services 

Serial No. 114–50 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

JEB HENSARLING, Texas, Chairman 

PATRICK T. MCHENRY, North Carolina, 

Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

ROBERT HURT, Virginia 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

MARLIN A. STUTZMAN, Indiana 

MICK MULVANEY, South Carolina 

RANDY HULTGREN, Illinois 

DENNIS A. ROSS, Florida 

ROBERT PITTENGER, North Carolina 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

KEITH J. ROTHFUS, Pennsylvania 

LUKE MESSER, Indiana 

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 

MAXINE WATERS, California, Ranking 

Member 

CAROLYN B. MALONEY, New York 

NYDIA M. VELA ́ ZQUEZ, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JAMES A. HIMES, Connecticut 

JOHN C. CARNEY, JR., Delaware 

TERRI A. SEWELL, Alabama 

BILL FOSTER, Illinois 

DANIEL T. KILDEE, Michigan 

PATRICK MURPHY, Florida 

JOHN K. DELANEY, Maryland 

KYRSTEN SINEMA, Arizona 

JOYCE BEATTY, Ohio 

DENNY HECK, Washington 

JUAN VARGAS, California 

SHANNON MCGAHN, Staff Director 

JAMES H. CLINGER, Chief Counsel 

(III) 

C O N T E N T S 

Page 

Hearing held on: 

September 17, 2015 .......................................................................................... 1 

Appendix: 

September 17, 2015 .......................................................................................... 57 

WITNESSES 

THURSDAY, SEPTEMBER 17, 2015 

Gray, Hon. C. Boyden, Founding Partner, Boyden Gray & Associates ............... 7 

Gupta, Deepak, Founding Principal, Gupta Wessler PLLC ................................. 9 

Skeel, David A., Jr., S. Samuel Arsht Professor of Corporate Law, University 

of Pennsylvania Law School ................................................................................ 8 

Spalding, Matthew, Associate Vice President and Dean of Educational Programs, Hillsdale College ...................................................................................... 5 

Zywicki, Todd J., Foundation Professor of Law and Executive Director of 

the Law and Economics Center, George Mason University School of Law ..... 11 

APPENDIX 

Prepared statements: 

Hinojosa, Hon. Ruben ....................................................................................... 58 

Gray, Hon. C. Boyden ...................................................................................... 60 

Gupta, Deepak .................................................................................................. 66 

Skeel, David A., Jr. ........................................................................................... 97 

Spalding, Matthew ........................................................................................... 112 

Zywicki, Todd J. ................................................................................................ 124 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Zywicki, Todd J.: 

Written responses to questions for the record submitted by Representative Hultgren ................................................................................................. 137 

Written responses to questions for the record submitted by Representative Murphy ................................................................................................... 139 

Gray, Hon. C. Boyden: 

Written responses to questions for the record submitted by Representative Murphy ................................................................................................... 141 

(1) 

THE DODD-FRANK ACT FIVE YEARS 

LATER: ARE WE MORE FREE? 

Thursday, September 17, 2015 

U.S. HOUSE OF REPRESENTATIVES, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. 

The committee met, pursuant to notice, at 10:03 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, Stivers, Stutzman, Mulvaney, Ross, 

Pittenger, Barr, Rothfus, Messer, Schweikert, Guinta, Williams, 

Poliquin, Love, Hill, Emmer; Waters, Maloney, Velazquez, Sherman, Hinojosa, Lynch, Scott, Green, Cleaver, Himes, Kildee, 

Delaney, Sinema, and Vargas. 

Chairman HENSARLING. The Financial Services Committee will 

come to order. Without objection, the Chair is authorized to declare 

a recess of the committee at any time. 

Today’s hearing is entitled, ‘‘The Dodd-Frank Act Five Years 

Later: Are We More Free?’’ 

Before proceeding further, I would like to sadly inform all Members who may not be aware that the gentlelady from Missouri, Mrs. 

Wagner, lost her mother earlier this week, so she will not be here 

for today’s hearing. And if you could certainly keep her and her 

family in your thoughts and prayers. 

I now recognize myself for 3 minutes to give an opening statement. 

Today, the committee holds the third of its three hearings looking at some of the consequences of the Dodd-Frank Act upon its 

fifth anniversary. Earlier, we explored how in many ways, DoddFrank has made us less prosperous and the economy less stable. 

Today, as Americans commemorate the 228th anniversary of the 

signing of the Constitution, perhaps the greatest document devised 

by the mind of man, we explore how Dodd-Frank has, regrettably, 

made us less free. 

We hold these hearings because too many of our fellow citizens 

have still not achieved economic recovery for themselves and their 

family, and many are losing hope. We want their lives to be better; 

we want them to thrive, achieve their dreams, pursue happiness, 

and earn success. 

But none of that is possible without basic economic freedom in 

the rule of law, bedrock principles upon which our republic rests. 

Dodd-Frank erodes the economic freedom and opportunity that emVerDate Nov 24 2008 17:47 Nov 09, 2016 Jkt 099729 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 K:\DOCS\99729.TXT TERI
2 

powers low-income Americans to rise and generate greater shared 

prosperity. 

Dodd-Frank moves us away from the equal protection offered by 

the impartial rule of law towards the unequal and victimizing rule 

of political bureaucrats. Of all the harm Dodd-Frank inflicts, this 

is the most profound and disturbing. 

Dodd-Frank exemplifies the insidious belief among many Washington elites that the American people cannot be trusted to make 

good decisions for themselves so government must do it for them. 

Without Washington’s coercive mandates we might just pick the 

wrong health plan, the wrong mortgage, the wrong financial advisor, or maybe even, God forbid, the wrong lightbulb. 

Perhaps the ultimate expression of this elitist attitude is the Bureau of Consumer Financial Protection. Why? Why in America 

would we trust one American to decide which financial products 

and services the rest of us are allowed to have? 

Pray tell, how does Dodd-Frank empower people to rise when it 

centralizes power in secretive distant bureaucracies and takes 

away consumers’ freedom to make their own choices? This is not 

the rule of law; it is the rule of rulers. 

Equally offensive is the Financial Stability Oversight Council. By 

defining vague statutory terms in any fashion that pleases them, 

this amalgamation of regulators can exert ultimate functional control of almost any large financial firm in our economy, and do so 

with utter disregard for due process. Again, this is not the rule of 

law; it is the rule of rulers. 

Quite simply, Dodd-Frank hurts the poor and the unemployed 

when it smothers opportunities for their success with oppressive 

and costly rules that squeeze small businesses and devour dollars 

that could otherwise be used to secure a good job and a career path 

for those who need them. 

To restore upward mobility, fight opportunity inequality, and create a healthier economy, it is time to move beyond Dodd-Frank. It 

is time to reinvest in the power of economic freedom and the American people, reestablish the rule of law, and then watch the American people rise and create a nation of boundless opportunity for 

all. 

I now recognize the gentlelady from New York, Mrs. Maloney, 

ranking member of our Capital Markets Subcommittee, for 3 minutes. 

Mrs. MALONEY. Thank you, Mr. Chairman, for calling this third 

hearing of the committee. 

Today, we meet to debate the merits of the constitutional challenges that have been brought against the Dodd-Frank Act and to 

consider whether the Act has made us ‘‘more free.’’ However, I am 

afraid today’s discussion won’t be much of a debate. 

In at least four cases, Federal district courts have rejected constitutional challenges against the Consumer Financial Protection 

Bureau (CFPB), the Financial Stability Oversight Council (FSOC), 

and the Orderly Liquidation Authority (OLA). 

But today I would like to focus on the challenges to the Consumer Financial Protection Bureau because one of the most frequent criticisms of Dodd-Frank in these court challenges is that the 

CFPB is somehow a threat to individual liberty because the Bureau 

3 

is not, ‘‘accountable to Congress.’’ I agree that it is important for 

the CFPB to be accountable to Congress, but exactly what does ‘‘accountable’’ mean? 

Webster’s dictionary defines the word accountable as, ‘‘required 

to explain actions or decisions to someone.’’ By this definition, the 

CFPB is definitely accountable to Congress. In fact, we are having 

a hearing next week in which Director Cordray will be here to explain his actions and decisions to this committee. 

Every court that has addressed the issue of the CFPB’s constitutionality has concluded that it is perfectly constitutional. In fact, 

just a few months ago a Federal court upheld the constitutionality 

of the CFPB and stated that the CFPB is, ‘‘no venture into uncharted waters. It is a variation on a theme—the independent regulatory agency with enforcement power—that has been a recurring 

feature of the modern administrative state.’’ 

So instead of arguing about whether the CFPB undermines the 

‘‘rule of law,’’ this committee would be better off recognizing that 

Dodd-Frank is the law and working cooperatively to improve the 

law. 

Thank you. I yield back, and I look forward to the testimony of 

our guests today. 

Chairman HENSARLING. 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. 

This hearing poses the question: Are we more free? And as I look 

at the government, particularly the structure of our financial regulatory system, I think the answer most surely is, we are not. 

Seven years ago this week, Lehman failed. And in the following 

weeks our financial institutions experienced more failures. Government response focused on the suspension of free market principles 

by policymakers. 

Looking back at this crisis, I can’t help but think about the quote 

from Rahm Emanuel: ‘‘Never allow a good crisis to go to waste.’’ 

You see, the financial crisis provided political cover for suspending the rule of law and allowing the government to pick winners and losers. Crisis is often invoked to rationalize both government discretion and the waiver of rule of law. 

Crisis also produced Dodd-Frank, which cemented principles that 

provide to the government broad and unchecked tools to micromanage private companies and the financial habits of American 

consumers. 

One such example is the creation of the Orderly Liquidation Authority, OLA, over financial institutions in distress. Under OLA, 

once a financial institution is in the hands of the FDIC, the government can pick winners and losers of the firm’s failed creditors. 

This process subverts the carefully calibrated rules designated to 

protect all creditors under the bankruptcy principles. Further, 

OLA’s original intent to liquidate failing firms has been distorted 

under the single-point-of-entry approach, to focus instead on reorganization of the firm with taxpayers taking the risk. Under this 

framework, the basic expectations of the rule of law that rules will 

be transparent and knowable in advance are subverted. 

4 

When the government is granted this much power, we surely 

cannot be free. I hope this committee will continue to take steps 

to restore the rule of law for our financial markets. 

With that, Mr. Chairman, I yield back. 

Chairman HENSARLING. The gentleman yields back. 

Today, we welcome the testimony of a distinguished panel of witnesses. 

First, Dr. Matthew Spalding, who is the associate vice president 

and dean of educational programs at Hillsdale College. Dr. Spalding is the executive editor of the ‘‘Heritage Guide to the Constitution.’’ He was previously vice president of American Studies at the 

Heritage Foundation. He is a senior fellow at the Claremont Institute for the Study of Statesmanship and Political Philosophy. And 

he is a graduate of Claremont McKenna College and the Claremont 

Graduate School. 

Ambassador Boyden Gray is founding partner of Boyden Gray & 

Associates. Mr. Gray has held a number of senior positions in government service, including as White House Counsel to President 

Bush 41, and ambassador to the European Union. 

He practiced law for 25 years at an international law firm and 

clerked for Chief Justice Earl Warren. Ambassador Gray is a graduate of Harvard College and the University of North Carolina at 

Chapel Hill. 

Professor David Skeel, of the University of Pennsylvania Law 

School, is the author of a number of books on financial services and 

law. In addition to Penn Law, he has taught at Georgetown University, the University of Virginia, the University of Wisconsin, and 

Temple University. He is a graduate of the University of North 

Carolina and the University of Virginia Law School. 

And I wish to announce to all Members that we will be excusing 

this witness, Professor Skeel, at 12:30 due to a previous commitment. 

Mr. Deepak Gupta is a founding principal of Gupta Wessler 

PLLC. Mr. Gupta specializes in Supreme Court appellate and complex litigation on a range of issues, including on constitutional law 

matters. 

He was previously Senior Counsel for Enforcement Strategy at 

the CFPB. Mr. Gupta is a graduate of Georgetown University Law 

Center and Fordham University. 

Last but not least, and no stranger to this committee, Professor 

Todd Zywicki of George Mason University School of Law. Mr. 

Zywicki previously practiced law in an international law firm, and 

worked for Judge Jerry Smith at the U.S. Court of Appeals for the 

5th Circuit. 

He has published many articles in leading journals and has held 

academic appointments at a number of institutions across the country. He is a graduate of the University of Virginia Law School, as 

well as Clemson University and Dartmouth College. 

Each of you will be recognized for 5 minutes to give an oral presentation of your testimony. For those of you who have not testified 

before, there is a lighting system before you. Yellow means that 

you have 1 minute to go, and red means it is time to stop and yield 

to the next witness. 

5 

Dr. Spalding, you are now recognized for a summary of your testimony. 

STATEMENT OF MATTHEW SPALDING, ASSOCIATE VICE PRESIDENT AND DEAN OF EDUCATIONAL PROGRAMS, HILLSDALE 

COLLEGE 

Mr. SPALDING. Thank you, Mr. Chairman. 

My testimony this morning focuses on the broader issue of the 

rule of law and the rise of bureaucratic government, and I will 

summarize it by making four points. 

First, the rule of law is the most important and significant and 

influential accomplishment for the long history of human liberty. 

One need only read Shakespeare to see that Anglo American history for 1,000 years is replete with the back-and-forth between despotism and the slow development of the concept of the rule of law. 

English kings regularly sought to get around the law by exercising 

the prerogative power. 

It is associated with four key components: first, a regular process 

of law enforcement and adjudication, not arbitrary will. 

Second, rules binding on rulers and the rulers alike and the 

ruled. No one is above the law. No one is privileged. 

Third, there are certain unwritten rules and generally understood standards with which lawmaking must conform. No ex post 

facto laws, but there is due process. 

And lastly, the rule of law is based on and emphasizes centrality 

of lawmaking as the authoritative source of those laws. In America, 

we can add to the Declaration of Independence, based on natural 

rights, the idea that legitimate governments are organized and 

structured according to the consent of the governed, and a carefully 

designed and maintained written Constitution where the primary 

functions of governing—lawmaking, executing, and enforcing the 

law—are divided into branches with independent, unique powers 

that can’t be delegated away. 

The modern state has a very different view that grows out of a 

faith in science applied to public policy. The 19th Century progressives took this argument and Americanized it to reshape the old 

constitutional rule of law system into a more efficient form they 

call the administrative state. 

Politics were to remain in the realm of expressing opinions, but 

the real decisions and details of governing would be handled by administrators or experts, separate and immune from the influence 

of politics and public scrutiny. 

The United States has been moving down this path for some 

time in fits and starts from the initial progressive-era reforms 

through the New Deal, but a significant shift and expansion occurred more recently under the Great Society and its progeny, 

Democratic and Republican. Whereas initial regulations dealt with 

targeted commercial activity, there was a turn in the 1970s to 

broader regulations concerning wide areas, such as the environment, employment, civil rights, and health care. 

And the modern phase we are currently under is even a vast expansion to even more areas, and everything must be dealt with 

comprehensively, meaning centrally, uniformly, and systemically, 

6 

by administrative apparatus that is more complicated and expansive than ever. 

The Affordable Care Act is an example of that, but so is the 

Dodd-Frank Act. It requires administrative rulemakings reaching 

not only to every financial institution but well into the corners of 

everything in the American economy. Its new bureaucracies operate outside of the public eye and are subject to virtually none of 

the traditional checks. 

The CFPB is literally outside the rule of law. It has its own 

source of revenue, insulation from legislative and executive oversight, and broad latitude and discretion to determine and enforce 

its own rulings, which is to say, define its own limits of its own authority. 

The result, and my conclusion, is that the rise of bureaucratic 

government has changed the structural workings of the United 

States Constitution to the detriment of liberty and self-government. 

When Congress writes legislation that uses very broad language 

that turns extensive powers over to agencies, the result is that 

most of the practical decisions, for all intents and purposes, of lawmaking public policy are willingly, by Congress, delegated to others 

whose rules, there is no doubt, have the full force and effect of laws 

passed by Congress. 

Modern administrative forms of governing consolidate the powers 

of government by exercising the lawmaking power, executing their 

own laws, and then judging their application in administrative 

courts, guiding individuals through rulemaking based on increasingly broad and undefined mandates with more and more authority 

over an ever-wider range of subjects, all the while less and less apparent and accountable to the political process and popular consent. 

This is not merely an aspect of modern political life, a necessary 

adaptation. It is a new and all-encompassing form of political organization. 

And so here we are 800 years after England’s barons forced King 

John to sign the Magna Carta, and we are seeing the institutionalization of the very forms of prerogative power that, once practiced 

by feudal monarchs and against which the whole development of 

the rule of law was directed, operating outside the law and not responsive to the democratic institutions of government. 

We should all—Republicans and Democrats alike—recognize and 

fear this new state of things, whether it is coming from the left or 

the right. If this becomes the undisputed norm of how things work 

in America, the characteristic of the modern state, I fear for the future of our experiment in self-government. 

Thank you. 

[The prepared statement of Dr. Spalding can be found on page 

112 of the appendix.] 

Chairman HENSARLING. Ambassador Gray, you are now recognized for a summary of your testimony. 

Mr. GRAY. Thank you very much. 

7 

STATEMENT OF THE HONORABLE C. BOYDEN GRAY, 

FOUNDING PARTNER, BOYDEN GRAY & ASSOCIATES 

Mr. GRAY. Thank you very much for the opportunity to testify. 

I have talked about these issues before, and I have enclosed the 

testimony with my prepared text so that everything will be included here before this committee. 

The structural difficulties with the Dodd-Frank Act are, I think 

by now, fairly well known, and they have not been cured. The 

courts are beginning to get into it, and I hope that you will, also. 

For example, the Orderly Liquidation Authority has legislation 

introduced in the Senate by Senator Cornyn and others to fix the 

favoritism and the discretion that is included in that legislation— 

included in Dodd-Frank, and including the secrecy and the penalties for disclosure to the public of what is happening. 

The structural difficulties for the titles that I am going to talk 

about and have been involved in litigation against are Titles I, II, 

and X: the FSOC; the OLA, which you have mentioned; and the 

CFPB, which has also been mentioned. What appears to be the 

characteristic is just a stripping of all accountability among the political branches. 

There is no White House supervision over the executive actions— 

or the agency action taken in any of these titles. There is virtually 

no congressional oversight. There may be a hearing, but Congress 

doesn’t have control over the CPB’s budget, and it doesn’t have control over the OLA’s budget. 

The OLA, the Orderly Liquidation Authority, has the ability to 

raise money, to borrow money from the Treasury and get it paid 

back from a fee. It is called a fee, but it is really a tax on the financial community, which bypasses Congress’ taxing authority and 

takes away from Congress, of course, as a result, Congress’ ability 

really to follow what is going on. 

And then for all three titles, there is truncated judicial review. 

In the case of the first two titles, the key issue identified by the 

White House as the most important defense, if you will, from abuse 

is that the agencies involved have to find that there is a systemic 

danger to the financial stability of the United States, but that 

standard, both as a matter of statutory construction and constitutionality, is expressly excluded from judicial review by the statute. 

Whether the courts will accept that exclusion is another question, 

but nevertheless, there it is. 

The CPB has gotten the most attention of all of the agencies because it is doing the most at the moment. But it, again, is insulated 

from review by the White House, insulated from review by the Congress. It gets its money from the Federal Reserve, and the courts 

are required to exhibit deference to whatever the CPB says no matter what jurisdiction has—or belongs to other agencies that share 

the execution of these statutes. 

The CPB has caused a lot of difficulty, along with Dodd-Frank, 

in just heaping regulations on all banks. The big banks don’t like 

it, but they can live with it, and they can pay for it. And as the 

chairman of JPMorgan once said, ‘‘It is my moat—M-O-A-T—my 

protection against competition.’’ Goldman Sachs has said much the 

same thing. 

8 

And this makes it very hard for community banks to survive. 

They have been consolidating at a very, very rapid rate. And the 

liquidity that I think local communities are used to is drying up 

as the community banks contract. 

Some of the people on this panel have said, well, this is really 

nothing more than the nondelegation doctrine. It is a lot more. It 

involves all branches of the government, all three. 

It is a much more serious problem than nondelegation, but I 

would submit that the nondelegation problems here are severe 

enough to cause dramatic change in the way these statutes are 

written and your attention. 

Thank you. 

[The prepared statement of Ambassador Gray can be found on 

page 60 of the appendix.] 

Chairman HENSARLING. Professor Skeel, you are now recognized 

for your testimony. 

STATEMENT OF DAVID A. SKEEL, JR., S. SAMUEL ARSHT PROFESSOR OF CORPORATE LAW, UNIVERSITY OF PENNSYLVANIA LAW SCHOOL 

Mr. SKEEL. Thank you for giving me the opportunity to testify. 

It is a great honor to be here. 

The last time I was here, I said that it sends chills through my 

spine when I sit in this room, and it does, but somebody said 

maybe we should turn down the air conditioning. So maybe I 

shouldn’t say that. 

I would like to focus on the single most puzzling and worrisome 

feature of the Dodd-Frank Act. After previous economic crises, lawmakers have nearly always made a concerted effort to correct any 

departures from the rule of law. The Dodd-Frank Act did precisely 

the opposite. 

The Dodd-Frank Act set up a corporatist partnership between 

the government and the largest financial institutions that perpetuates, in my view, some of the worst abuses of the bailouts of 2008 

and 2009. The bailouts themselves repeatedly subverted rule-of-law 

principles. 

When Bear Stearns was bailed out in early 2008, its sale to 

JPMorgan Chase flagrantly violated Delaware corporate law. In 

the AIG bailout, the government illegally acquired nearly 80 percent of AIG’s stock. Troubled Asset Recovery Program (TARP) 

money was used for purposes for which it clearly was not intended. 

Rather than restoring the rule of law, the Dodd-Frank Act reinforced the partnership between the government and the largest 

banks, as Ambassador Gray just mentioned. And it invites regulators to channel policy through the banks by putting almost no 

rule-of-law curbs on their regulatory discretion. 

Let me briefly mention two examples. 

The most important source of regulation for the biggest banks 

right now is the so-called stress tests they are required to undergo, 

and the requirement that the banks prepare living wills. It is not 

any of the other regulations in Dodd-Frank and elsewhere; it really 

is the stress tests and the living wills. The stress tests and the living will process are highly secretive in most respects, often quite 

9 

arbitrary, and put no real constraints of any kind on regulators’ 

discretion. 

The second example is the new resolution rules in Title II of the 

Dodd-Frank Act. When the FDIC takes over a bank, the bank is 

given almost no opportunity to respond. There is no due process 

whatsoever involved. 

And although Title II purports to create creditor priorities, an orderly priority scheme for an orderly liquidation, the FDIC actually 

can pick and choose which creditors it would like to pay and which 

do not get paid. 

Moreover, the FDIC has announced its intention to ignore one of 

the few very clear commands that the Dodd-Frank Act does provide. Although it is instructed to liquidate any big banks it takes 

over—and the liquidation requirement was added with great fanfare late in the legislative process—the FDIC has developed a 

strategy that would ignore this command and reorganize the troubled bank instead. 

The cost of these and other radical departures from rule-of-law 

principles are enormous. Many of these costs—again, as Ambassador Gray just mentioned—will actually fall on the small and medium-sized banks that lend money to small and medium-sized businesses throughout our country. 

My hope is that you all will re-work these features of the DoddFrank Act and establish rule-of-law principles as the foundation, 

once again, of American financial regulation. 

Thank you. 

[The prepared statement of Mr. Skeel can be found on page 97 

of the appendix.] 

Chairman HENSARLING. Mr. Gupta, you are now recognized for 

your testimony. 

STATEMENT OF DEEPAK GUPTA, FOUNDING PRINCIPAL, 

GUPTA WESSLER PLLC 

Mr. GUPTA. Chairman Hensarling and distinguished members of 

the committee, thank you for the opportunity to testify this morning. 

I am going to be focusing my remarks on what I think is the 

Dodd-Frank Act’s crown jewel, the Consumer Financial Protection 

Bureau, and in particular, the accountability critiques of the Bureau and the constitutional critiques of the Bureau that we heard 

from Ambassador Gray. I will make three basic points. 

The first is that the CFPB has already proven that it is protecting the freedom of consumers to achieve the American Dream, 

and Congress should resist efforts to gut the agency. When we talk 

about the CFPB, we should not lose sight of the fact that Congress 

created the Bureau in response to an epic financial crisis—a crisis 

that touched the lives and livelihoods of millions of Americans and 

threatened the financial system’s very stability. 

Underregulated and unregulated risky financial products set off 

a wave of millions of foreclosures and depleted as much as $9 trillion in home equity. In just a few years of existence, the CFPB has 

already returned $11 billion for more than 25 million consumers 

harmed by illegal practices and has reined in some of the worst 

abuses. That includes $14 million that the Bureau won back from 

10 

the payday lender Cash America for targeting and illegally overcharging members of the military. 

And the Bureau’s victories go beyond the numbers. Across a 

range of products and services, it is already making financial products more transparent and serving as a much-needed watchdog. 

The Bureau is working to level the playing field both between financial institutions and consumers, and between large financial institutions and small financial institutions. And that makes all of us 

more free, not less free. 

Yet the Bureau’s opponents—those who stand to gain by exploiting consumers—are trying to hamstring its efforts and alter its 

structure to make it less effective. Those efforts should be stopped. 

Second, the basic accountability critiques of the CFPB and DoddFrank are groundless. We should all care about whether our institutions of government are transparent and accountable, but the 

CFPB, which was specifically designed to resist capture by special 

interests in the financial industry, is at least as accountable to the 

public as were the existing banking regulators before and during 

the crisis. 

And in several respects, the Bureau is actually more accountable. 

Its budget is capped. Its rules can be vetoed by a committee of 

other regulators, something that is not true of any other agency in 

Washington. And it is subject to special, time-consuming small 

business reviews that only the EPA and OSHA similarly face. Finally, the CFPB has also gone beyond legal requirements, using 

technology to make itself more directly responsive to the American 

consumer. 

The third and final subject I want to address is the constitutional 

challenges to Dodd-Frank. These challenges are extreme. And they 

are utterly lacking in legal merit, and have failed across-the-board 

in the courts. 

In the 5 years since the enactment of Dodd-Frank, its opponents 

have invoked every conceivable constitutional principle, from the 

separation of powers to the void for vagueness doctrine to procedural due process, in an effort to turn back the clock on consumer 

protection. As I said, these efforts have failed in every court that 

has considered them. 

And these legal challengers are truly at the fringe. To see that, 

look at the recent D.C. Circuit case Big Spring—that is Ambassador Gray’s case—where there were no amicus briefs; none of the 

major financial institutions or trade groups supported those challenges. 

Unfortunately, however, these challengers tell us something 

about the moment we live in, in which every political disagreement, from health care to immigration, seems to become 

constitutionalized. When we don’t have the votes to do what we 

want here, we take it across the street to the courts. 

And we can have a legitimate policy debate about Dodd-Frank. 

We should. But we should be clear that that is not the same thing 

as a constitutional debate. 

The main constitutional arguments against Dodd-Frank are at 

odds with at least 80 years of settled precedent. Most of them are 

really disguised nondelegation arguments, arguments that ConVerDate Nov 24 2008 17:47 Nov 09, 2016 Jkt 099729 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 K:\DOCS\99729.TXT TERI
11 

gress somehow delegated too much or too vague authority to the 

agency. 

That doctrine hasn’t successfully been invoked in the courts since 

1935, at the height of judicial resistance to the New Deal, and it 

has only worked once in the Supreme Court’s history. As Justice 

Scalia has explained, the Court has never felt qualified to secondguess Congress regarding the degree of policy judgment that can 

be left to agencies. 

The challenges based on Presidential removals similarly seek to 

turn the clock back to 1935, when the Supreme Court in Humphrey’s Executor removed virtually identical for-cause removal procedures for Federal Trade Commissioners as we have with the 

CFPB. 

So at the end of the day, these arguments are not really attacks 

on Dodd-Frank or the CFPB as much as attacks on the very foundations of the modern administrative state. 

Thank you. 

[The prepared statement of Mr. Gupta can be found on page 66 

of the appendix.] 

Chairman HENSARLING. Professor Zywicki, you are now recognized for your testimony. 

STATEMENT OF TODD J. ZYWICKI, FOUNDATION PROFESSOR 

OF LAW AND EXECUTIVE DIRECTOR OF THE LAW AND ECONOMICS CENTER, GEORGE MASON UNIVERSITY SCHOOL OF 

LAW 

Mr. ZYWICKI. Thank you, Chairman Hensarling, and members of 

the committee. 

By coincidence, yesterday in the mail I just happened to receive 

the Human Freedom Index, and one of the things I found from that 

is today the United States has sunk to 20th in the world in economic freedom, and one reason is because we sunk to 19th in freedom of our financial system, tied with, among others, Panama and 

Mauritius and a few others, lagging behind countries such as Poland and a few others. 

Now, what this simple number is telling us is that we are learning the hard way lessons we have learned in the past, which is giving more power, more money, and less democratic accountability to 

Washington bureaucrats is not a recipe for improving the freedom 

and prosperity for American families. 

We see it every day in the impact on American families and 

small businesses, as they are losing access to mortgages, small 

business loans, and credit cards. 

We see it in initiatives such as Operation Choke Point, an initiative which has targeted completely legal businesses, such as firearms dealers, payday lenders, and home-based charities, all under 

the theory of so-called reputational risk, while other controversial 

industries such as abortion clinics have escaped the net. 

We see it in a crushing regulatory burden that is driving community banks out of business at twice the rate that they were shrinking prior to Dodd-Frank. 

We see it in Jamie Dimon’s remark that was referenced earlier, 

that Dodd-Frank has built a bigger moat around the big, too-bigto-fail institutions, protecting them from competition. And we see 

12 

community banks leaving entire markets such as mortgages because of the regulatory burden and the risk of liability that they 

confront under those. 

We see it in the inability of small businesses to get a loan to 

start a business, to build a business, to grow a business over time. 

Why? Because community banks provide most of the small-business lending in this country and most of the agriculture lending, 

as well. 

And it is reflected in the fact that last year, for one of the first 

times in recent memory, we saw more small businesses disappear 

than were founded in the United States, in part because of DoddFrank shutting off access to small-business capital. 

We see it in the continued inability of many consumers to be able 

to obtain mortgages because of the one-size-fits-all regulatory burden that Washington is imposing on banks all over the country, depriving community banks of, among other things, one of their 

greatest competitive advantages, which is the ability to engage in 

relationship lending with consumers, and the rule-of-law concerns 

about the threat of put-back liability for mortgages that end up 

going sour later. 

We see it in the CFPB’s attack on auto dealers through its claim 

of alleged discrimination, an industry over which the CFPB doesn’t 

even have jurisdiction. What they have done here is basically 

weaponized American banks, as they have done with Operation 

Choke Point, to go after and enforce as an arm of the Federal Government at the whim of bureaucrats. 

Yet, they have given no notice and comment rulemaking; they 

have never given any formal enforcement action. They promulgated 

their attack on the auto dealers through a five-page guidance document that contains no cost-benefit analysis, no analysis of the impact on consumers. 

And we saw an article last week in The Wall Street Journal 

about what the impact on consumers has been. As a result of the 

CFPB’s attack on auto dealers, the average American is now paying more for a car loan than they were previously. 

What is the methodology they use for this? So-called Bayesian 

Improved Surname Geocoding, a concoction they came up with 

after the fact and which is shredded as completely scientifically unreliable in a report by Charles River Associates, yet they seem to 

continue doing it. 

We see it in the CFPB’s unbelievable data-mining operations. 

They scoop up hundreds of millions of credit card accounts every 

month, tens of millions of mortgages, tens of millions of bank accounts data, payday lending data, and the like. 

Yet, they still have given us no explanation why they need so 

much data when there is no real regulatory purpose for needing 

data on this scale, and at the same time, they admit that there is 

a threat that this data could be compromised. As someone who just 

received a letter last week from the IRS telling me that I was a 

victim of identity theft, I am not comfortable with the Federal Government taking this much of my personal data without some good 

reason. 

What we have seen, unfortunately, is something that we saw and 

learned our lesson about the hard way in the 1970s. In the 1970s, 

13 

we unleashed unaccountable bureaucrats on the economy, and 

what we saw was declining American competitiveness, declining 

American entrepreneurship, and restrictions on freedom. 

We are doing the same thing today under Dodd-Frank, and 

American consumers and small businesses in the economy are suffering. 

Thank you. 

[The prepared statement of Mr. Zywicki can be found on page 

124 of the appendix.] 

Chairman HENSARLING. Thank you. 

I thank each of you for your testimony. Without objection, each 

of your written statements will be made a part of the record. 

The Chair now yields himself 5 minutes for questions. 

Professor Zywicki, on page two of your testimony you mention 

that a loss of the rule of law is ‘‘laying the foundation for the next 

financial crisis.’’ 

And Professor Skeel, I think you say something similar on page 

seven of your testimony when you say that departures from the 

rule of law might ‘‘magnify the consequences’’ of the next financial 

crisis. 

So first Professor Zywicki, and then Professor Skeel, could you 

elaborate on those comments? How is the erosion of the rule of law 

in Dodd-Frank laying the foundation for the next crisis? 

Mr. ZYWICKI. Thank you for asking that question. 

It really has to do with what by pretty much common consensus 

is the entrenchment of the too-big-to-fail regime. Nobody seriously 

thinks that if there is another financial crisis, anybody will actually 

comply with the rules laid out in Dodd-Frank under the Orderly 

Liquidation Authority. 

And what we have learned over time is that lack of respect for 

the rule of law creates a moral hazard problem. What we saw last 

time around is that the reason we ended up bailing out the big 

banks, Secretary Paulson said, was because the market expected us 

to bail out the big banks. 

According to the studies we have—evidence is mixed, but most 

of this evidence points in the direction that there is still a too-bigto-fail subsidy for the largest banks, at least according to the GAO 

report. They said it has gotten smaller, but it is still there. And one 

would expect it would get bigger if we actually reach that point. 

As long as the government has the ability to bail out banks and 

is not constrained by the rule of law, people are going to expect 

that they are going to do that. That creates its own moral hazard 

problem, and that creates an entrenchment of too-big-to-fail. 

Chairman HENSARLING. The same question for you, Professor 

Skeel. 

Mr. SKEEL. There are a couple of ways in which it seems to me 

Dodd-Frank has made us riskier rather than safer. 

One of them is the effect of the so-called Volcker Rule, which prohibits banks from engaging in propriety trading. The effect that is 

already having—it has just gone fully into effect, and not even fully 

into effect, recently—is it is pushing a lot of basic banking activities such as market-making and trading for clients’ accounts, outside of banks. 

14 

And so what is going to end up happening is banks are going to 

be doing less of this. They are concerned about regulatory intrusion 

in what they are doing, and it is impossible to tell where the lines 

are. 

So this is going to end up outside of the banking system, and 

whatever potential problems there are down the road are going to 

blow up away from regulation, it seems to me. 

The other thing I will mention is not so much in the Dodd-Frank 

Act itself, but in the litigation against the big banks after the crisis. The government leaned on the big banks, as part of the partnership that was set up, to acquire troubled institutions. JPMorgan 

was leaned on to acquire Bear Stearns; Bank of America was 

leaned on to acquire Merrill Lynch. 

And then the government turned around and whacked them with 

a bunch of litigation that bears no relationship to traditional litigation. Much of the recovery goes to States and to people who were 

not harmed by the alleged misbehavior. 

Next time around, those banks aren’t going to be there. They are 

not going to agree to buy anything in a crisis, and so if we have 

another crisis, there is going to be no way to minimize its effect or 

to preempt it. 

So those are two of the ways, I think, that we are in more dangerous waters now than we were— 

Chairman HENSARLING. Another aspect of your testimonies that 

is somewhat similar, particularly in your close, Professor Zywicki— 

you indicate that this erosion of the rule of law ultimately is going 

to essentially hurt the unemployed, and low- and moderate-income 

persons the most. 

I think, Professor Skeel, you used the term ‘‘corporatism,’’ to 

where the average American can’t afford a high-priced lobbyist or 

a presence in Washington. 

So what aspects of the erosion of rule of law in Dodd-Frank are 

hurting the unemployed, low- and moderate-income, Professor 

Zywicki? 

Mr. ZYWICKI. That is exactly right. What people don’t appreciate 

is that the rule of law exists for all of us. It exists for the small 

banks, the small businesses, and the rest of us. 

In a world of chaos, in a world where nobody knows what the 

rules are, the big banks, the Goldman Sachs or the JPMorgans, 

they can hire the lobbyists and the lawyers to weave their way 

through this, to figure out the regulatory burden, to create the contacts that they need in order to get through this process. 

The rest of us can’t afford high-priced lawyers; we can’t afford 

lobbyists. All we can do is try to comply by the rules as they are 

written. And when the rules are constantly shifting around, when 

the rules are subject to push and pull of special interests and that 

sort of thing, the rest of us get the short end of the stick. 

Chairman HENSARLING. Well, in an attempt to set a good example for other Members, I see my time has expired, so I won’t go any 

further. 

The Chair now recognizes the gentlelady from New York, Mrs. 

Maloney, ranking member of our Capital Markets Subcommittee. 

Mrs. MALONEY. Thank you. Thank you very much. 

15 

Mr. Gupta, as you know, prior to Dodd-Frank the responsibility 

of enforcing consumer financial protection laws was spread across 

seven different agencies, and it was not a priority for any of them. 

And because these agencies all enforced consumer financial protection laws differently, that inconsistency was very confusing and 

frustrating for the financial industry. 

And because it was not a priority, consumer protections were not 

thought about. It was an afterthought. It was the secondary 

thought, the third thought, or not thought about at all. 

So we came out with things called the no-doc mortgages. The 

joke in New York was if you can’t afford your rent, go out and buy 

a home, because they didn’t even look at anything. They just 

signed up knowing that this was a disaster, collecting their fees, 

going on and creating a financial crisis. 

In fact, many people argued back then that what really undermined the rule of law was the inconsistent enforcement, or not 

even looking or caring at all about consumer financial protection 

laws. If you looked at the responsibilities of agencies, they had this, 

and then you got way, way down there, they might mention consumer protection. And it wasn’t protected. 

So my question to you is, doesn’t consolidating the responsibility 

for enforcement of consumer financial protection laws into one Bureau actually promote the rule of law? 

Mr. GUPTA. Yes, exactly, Congressman Maloney, it does. 

And I agree at a high level of generality with some of what Professor Zywicki said about the rule of law. For the rule of law to 

work, the rules have to be the same across-the-board. We can’t 

have special rules for some people and different rules for other people. 

And this was a central insight in creating the Consumer Financial Protection Bureau. As you said, you had these regulatory responsibilities spread out across a very confusing patchwork of different agencies with partially overlapping authority that left gaps 

which created very strange incentives, where you had, for example, 

the Office of Thrift Supervision—an agency that, thankfully, no 

longer exists—competing to basically offer the least regulation possible, and institutions could choose which regulator they wanted. 

That was a nonsensical system. 

And, we hear critiques about the Bureau’s funding scheme, but 

it was even worse with some of these agencies. They were actually 

getting their funding from the folks they were supposed to be regulating, rather than through congressional appropriations. 

So it was a very bad system that we had, and part of the idea 

of the CFPB is, let’s bring all of these institutions under the same 

umbrella. Let’s bring nonbanks and banks under the same umbrella so that you can’t have products offered by one kind of institution that are not allowed to be offered by another institution. 

So if we care about rule of law, we should celebrate this consolidation so that we have a single set of rules that everyone has to 

play by. 

Mrs. MALONEY. Mirroring some of your comments is a set of letters from a coalition of consumer groups on the constitutional challenges to Dodd-Frank. 

16 

And I ask unanimous consent to place this into the record, if I 

may. 

Chairman HENSARLING. Without objection, it is so ordered. 

Mrs. MALONEY. Okay. Thank you. 

Mr. Gupta, can you discuss how Dodd-Frank and the CFPB’s implementation of Dodd-Frank has been tailored to fit the unique 

needs of smaller banks, and credit unions, and consumer banks? 

When you worked for the CFPB, did you find that the Bureau was 

aware of and responsive to the needs of smaller institutions? 

Mr. GUPTA. Thank you for the question. I think it is an important question because we hear today a lot of criticisms of the Bureau that are sort of made in the name of small banks or community banks. And I think what is really happening is that larger financial institutions or opponents of the Bureau are using smaller 

community banks as a guise to make criticisms that are really not 

about those smaller institutions. 

The Bureau cares a lot about those smaller institutions and 

makes a lot of effort to specifically reach out to those institutions. 

There is no question that they are hurting. They were hurting before the CFPB was created. They face a lot of challenges. It is built into the DNA of the CFPB. There is a $10 billion 

threshold so that banks under a certain threshold are not subject 

to CFPB enforcement. But it is also part of the charge of the agency to make sure that small banks are not harmed simply by being 

small, and that the regulatory compliance burden on them doesn’t 

put them out of business. 

So that is something that the agency cares a lot about. I think 

simply by having the same set of rules by all actors in the consumer financial marketplace, we ensure that doesn’t happen, that 

the smaller players aren’t squeezed. 

Thank you. 

Mrs. MALONEY. Thank you. 

My time has expired. 

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. 

I want to review what I think I just heard. What I just heard 

is that consolidating the power to one agency to make unilateral 

decisions on the types of financial products that will be available 

promotes the rule of law and increases economic freedom for America’s consumers. 

Professor Zywicki, what would be your response to that? 

Mr. ZYWICKI. I actually don’t have a problem—and I have testified before—with actually having systematized the Federal consumer protections system in one agency. I oppose the idea of having a completely unaccountable agency that operates in violation of 

the Constitution and, in fact, does go out and ride herd on American consumers. 

I think that the unfortunate thing to me, as somebody who has 

spent his life working in this field, is we had a great opportunity 

with Dodd-Frank to create a truly innovative 21st Century consumer protection agency that would promote innovation, would promote consumer choice, and would promote lower prices for conVerDate Nov 24 2008 17:47 Nov 09, 2016 Jkt 099729 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 K:\DOCS\99729.TXT TERI
17 

sumers. Instead, what we got was a throwback to the 1970s, like 

a Jurassic Park-type agency that learned nothing from the experience of the last 30 or 40 years about what makes a responsive, innovative consumer protection agency. 

Instead, we have old-fashioned command-and-control regulation 

that is restricting choice, raising prices, and restricting innovation, 

and I think that is a real tragedy. 

Mr. NEUGEBAUER. Professor Skeel, does consolidating all of this 

power and giving the government unilateral control over our financial markets promote the rule of law and promote economic freedom? 

Mr. SKEEL. My answer I think is a little bit more mixed than 

Todd’s answer. I do think there was a problem before 2008, and the 

one danger with multiple regulators was that they were competing 

with each other. And you can get a race to the bottom if you are 

not careful how you structure that interaction, and I think we had 

it before 2008. 

So it seems to me there are some things to be concerned about 

with the CFPB, with consolidating the power. I have some concerns 

about not having oversight of the funding. I have some concern 

about the difficulty of overturning rules put in place by the CFPB. 

But I, like I think Professor Zywicki suggested, think the idea of 

a consumer bureau is a good idea. 

Mr. NEUGEBAUER. I think the concern I have is that basically, 

there is a lot of talk about the Orderly Liquidation Authority and 

how the rule of law, and you have the government picking winners 

and losers, but I think who ends up being the losers in all of this 

that we don’t think about—I think Professor Zywicki was trying to 

go to that point—is that now we have consolidated all this power 

into one agency with one person, and that person is basically telling the American consumers what kind of financial products that 

are appropriate for them. 

How that promotes freedom in America is beyond my wildest 

dreams. I don’t know how anybody can defend that that is in the 

best interest. 

And what is happening, because of the thought out there in the 

credit markets that you can get haircuts arbitrarily, that the rule 

of law will not be followed, that raises the risk premium for the 

people who are actually buying car paper and how that trickles 

down to that single mom who is out there working two jobs trying 

to keep the wheels on her life, is the fact that her interest rate on 

her car may be increased because now the people who finance—buy 

car paper are concerned about whether the rule of law will be followed in the future. 

And so I think the two things that are wrong there are, one, we 

have consolidated all that power—and by the way, the founders 

never intended to have a big, massive consolidation of power in the 

government. The power was supposed to reside in the people and 

not the government, and basically what we have done is we have 

tried to make utilities out of the financial markets with the government having the controls. 

Professor Zywicki, you wanted to— 

Mr. ZYWICKI. Yes. I will just add, we know how to design a regulatory agency. The Federal Trade Commission has been around for 

18 

a century. It has congressional appropriations; it has a bipartisan 

commission structure; it has a dual mission of competition and consumer protection. It has worked for 100 years. 

And all of a sudden, now we are going to just spring this new 

thing on the economy that has none of those advantages. 

Mr. NEUGEBAUER. I see my time has expired, Mr. Chairman. 

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. 

Mr. Gupta, later today the Small Business Committee is holding 

a hearing to examine the effects of the Dodd-Frank Act on small 

financial institutions and small business access to credit. And this 

is what we know: The CFPB is required to comply with both the 

Regulatory Flexibility Act and the Small Business Regulatory Enforcement Fairness Act, SBREFA, to specifically examine how 

small entities will be affected by the agency’s new regulation. 

In listening to Professor Zywicki, he said that Dodd-Frank has 

hindered the ability of small businesses to access credit and to access capital. Yet according to the Thomson Reuters/PayNet Small 

Business Lending Index, access to credit continues to improve for 

small businesses. 

The index, which measures the volume of U.S. small business 

lending, reached its highest level ever in June 2015. Small business 

lending is up 19 percent over the same period in 2014. 

Also, the Wells Fargo/Gallup Small Business Index poll, conducted in July 2015, indicated a plus-11 percentage margin between the 33 percent of small business owners who say credit was 

easy to get in the past 12 months. 

How do you reconcile that, Professor Zywicki? 

And, Mr. Gupta, could you please explain how the CFPB implementation of that Act has been tailored to fit the unique needs of 

small business bank and credit unions that, after all, yes, Professor, they are the one who lend to small businesses? 

Mr. ZYWICKI. I haven’t carefully studied all the particular surveys that you reveal. 

Ms. VELAZQUEZ. I will show them to you. 

Mr. ZYWICKI. I would be happy to look at them. I have seen other 

ones that point the other way. 

What I also know is that—we know that community banks do a 

lot of the small business lending in this country, and we also know 

that community banks are shrinking and disappearing, and that is 

having an impact on small communities and access to small business credit and the like. So I would be happy to look at the surveys 

that you suggest. 

Ms. VELAZQUEZ. Professor, yes, I welcome you to look at both 

polls conducted by reliable sources. Don’t come here and make such 

an assertion that Dodd-Frank is killing access to capital when the 

facts are demonstrated that you are wrong. 

Mr. Gupta? 

Mr. GUPTA. Thank you. I also haven’t reviewed those studies, 

but—or polls, but I am not surprised to hear it. It is hard for me 

to see how the Consumer Financial Protection Bureau is inhibiting 

access to credit for small businesses. 

19 

This is not—the Consumer Financial Protection Bureau first of 

all doesn’t regulate business-to-business lending, right? It only regulates consumer lending. 

And we hear the claim that the community banks or the small 

banks are being strapped. It is true. But as I said earlier, that was 

true even before the crisis. It is because community banks and 

credit unions faced a whole host of challenges in the financial marketplace. 

There is absolutely no evidence whatsoever of any correlation or 

causation between the existence of the CFPB or its regulation and 

the problems that are facing community banks. 

So I am not surprised at all to hear those findings. 

Ms. VELAZQUEZ. Thank you. 

Mr. Zywicki, you have stated that the CARD Act would have a 

disastrous effect on the consumer credit market. However, the data 

have shown that not to be the case. 

What do you make of this data? Would you say that the CARD 

Act has been helpful to consumers? 

Mr. ZYWICKI. First, on the impact of the CFPB on community 

banks, I am just referring to a Mercatus study where 60 percent 

of small banks said that it has a significant impact on their bank 

earnings and that the regulatory cost imposed on them by the 

CFPB is causing a problem. 

With respect to the CARD Act, I have written a 65-page paper 

analyzing the data on this, and the data is quite clear, which is 

that the studies that believe that the CARD Act has helped consumers are methodologically flawed because they simply do not account for the Federal Reserve regulations that came before the 

CARD Act. They are simply worthless studies. 

In fact, what has happened is consumers lost trillions of dollars 

of credit access, low-income consumers lost access to credit cards— 

Ms. VELAZQUEZ. Okay. I hear you. 

Mr. ZYWICKI. —and fees and interest rates went up. 

Ms. VELAZQUEZ. Thank you. And so you will say— 

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 for this important hearing. 

And I think the majority of the panel would agree with the 

axiom that our country lives by, that no one is above the law. If 

you would just nod in agreement if you agree with that? 

I see Mr. Gupta nodding, but I think your statements belay that. 

Your statements are that someone is above the law. 

You lay out a pretty good case, that prior to the CFPB, other 

agencies had a bad system as far as their funding and their mechanism. But instead of correcting the problems in those other systems 

or formats, we created a new system, the CFPB, which is above the 

law. 

Why do we say that? If you have come to our hearings in the 

past, this panel knows—Mr. Gupta, you would have learned—that 

when we asked the CFPB and Rich Cordray, ‘‘Are you answerable 

to the House?’’ 

He replied, ‘‘No.’’ 

‘‘Are you answerable to the Senate?’’ 

20 

‘‘No.’’ 

‘‘Are you answerable to the President of the United States?’’ 

‘‘No.’’ 

‘‘Are you answerable to the inspector general?’’ 

‘‘No.’’ 

‘‘Are you accountable to anyone?’’ 

‘‘Well, no.’’ 

So here we have an agency that is above the law, and how you 

can come here and say we have had a problem before—and I agree, 

we did—but now you propose or you support an idea that we actually have a system of government where some individual is above 

the law is beyond me. 

You say also that there should not be special rules for some and 

not for others. If you dig into the testimony that we have here 

today, if we look in Dodd-Frank, that is exactly what we have. 

Ambassador, you talked very plainly about that very fact with 

OLA and with FSOC, saying that what we have done in DoddFrank is something unheard of in the history of this country, and 

that is what? Take away judicial review. 

And in the OLA situation, you actually take away judicial review 

except for arbitrary and capricious, which means, Mr. Gupta, that 

your statement that there should not be special rules—there are 

special rules. 

And whom are those special rules for? It is not the middle class, 

it is not the lower income, it is not the minorities, it is not for 

women. 

Those special rules are for whom? The insiders, the well-connected, the rich, the powerful, the lawyers, those who are able to 

find their way around the system and get to the solutions that they 

need, unlike the regular people who don’t have access to those. 

That is not just me speaking; that is various economists who are 

quoted in the testimony of the panel here today—I think, Professor, 

you raised that in some of the testimony here—that it is the rich 

and the powerful, the insiders who are able to play the game, those 

who are making lofty salaries, and the regular American people are 

the ones who are hurt. 

Professor Skeel, would you want to comment in 10 seconds? 

Mr. SKEEL. I have said most of what I had to say about the Consumer Bureau. I focused more on the other parts of Dodd-Frank. 

But— 

Mr. GARRETT. Let’s take a look at the Consumer Bureau for 1 

second, then. Local auto dealers—we all have local auto dealers. 

One of the things that Dodd-Frank and the CFPB is trying to do 

is to do what? Just tell the banks that they have to have a uniform 

level of lending. 

Whom does that benefit? When some average person goes in to 

get his car loan, there should be a level of lending. Whom does that 

benefit? That benefits the banks, the Wall Street insiders, the people who now will make a larger profit on the loans. 

Whom does that hurt? The poor, the middle class, the minorities 

who, in the past, went to an auto lender and could actually get a 

lower rate. How? By competition. 

Anyone want to— 

21 

Mr. SKEEL. I will jump in for a second on that. I agree with you 

that there are some pretty significant problems with some of the 

things the Bureau is doing. The auto lending is a concern to me. 

It is also a concern to me that the qualified mortgage requirements are pretty close to making illegal other forms of mortgages 

that have benefited many consumers in the past. So I think there 

is a risk to what turns out to be command-and-control regulation— 

Mr. GARRETT. Dr. Spalding, you referenced that the history of 

where law comes from is—first was—or not law, but where power 

comes from goes to the strong and the forceful through force and 

fraud. And whom does that go to? Those who are in power. And 

whom does that hurt? And that is the weak. 

I am paraphrasing what you said in your testimony. But now we 

have come to a civilized society where that is not the case. 

But doesn’t Dodd-Frank turn that on its head? Doesn’t that take 

away the rule of law and the equal treatment to all and due process rights to all? And isn’t that, at the end of the day, meaning that 

what Dodd-Frank does is help the 1 percent and hurt the 99 percent? 

Mr. SPALDING. Oh, absolutely. I think Dodd-Frank is a perfect 

example of how we have completely turned things on their head. 

The American Revolution was precisely to overthrow that old regime, and as the only non-lawyer on this panel, I would point out 

the obvious sometimes, which is that we are being ruled by someone else who is not responsible to us. That is a blatant violation 

of everything the American Constitution stands for—in technical 

detail, which my legal friends who have been pointing out, but in 

general. And the Legislative Branch should be very aware of that 

violation. 

Mr. GARRETT. Thanks a lot. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from California, Mr. 

Sherman. 

Mr. SHERMAN. Mr. Chairman, the subject of this hearing is, are 

we more free? I would hope that banks would be less free to rip 

off consumers and less free to rip off the U.S. taxpayer through 

some new bailout program. 

Dr. Spalding, you talk about the regulators having too much 

power. They clearly do. 

We punted the power over to them, and we can take it back if 

we reach bipartisan agreement, but we can’t take it back if it is 

only going to be Republican proposals that we will find a way to 

block in the House, the Senate, or at the President’s desk. Congress 

will be powerful when Congress acts in a bipartisan way. 

There is massive illegality. It was best exemplified by Secretary 

of the Treasury Paulson who just commented for a newspaper. His 

philosophy was to just act boldly and ignore the statute. That is 

what he did. And he got away with it. 

The better example is the Iran Sanctions Act, which several Administrations ignored for more than a decade. And then we should 

be surprised that we aren’t able to get a better deal in Vienna. If 

you ignore the Iran Sanctions Act because it requires sanctioning 

international oil companies and you don’t want to do that, you are 

22 

not only violating the U.S. law for the benefit of those who do business with Iran, you are gutting American foreign policy. 

This body, when we passed Dodd-Frank, required the SEC to 

deal with the credit rating agencies—the only game where the umpire is selected and paid by one of the teams. 

Debt issuances are far more significant than stock issuances. 

They involve trillions rather than billions or tens of billions of dollars—not any one issuance, but overall. And the SEC’s response 

was to just issue a report saying that they are not going to do what 

Congress instructed them to do, and the statute gave them a way 

to weasel out. It said, ‘‘or they can adopt another plan.’’ So they decided to do nothing at all. 

We are told by Professor Zywicki about bailouts and how there 

is this subsidy the big banks get, as if the problem is Dodd-Frank. 

We didn’t have Dodd-Frank in 2008. 

Everybody on Wall Street was convinced we would pass a new 

law to bail them out. And guess what? They were right. 

And Dodd-Frank doesn’t provide a way for government money to 

be put at risk for the benefit of the creditors of giant financial institutions. But you know what? Everybody on Wall Street thinks that 

if it comes to it again, we will do the same thing again. And they 

are probably right. 

There is only one way to end too-big-to-fail, and that is to say 

too-big-to-fail is too-big-to-exist. That is why Bernie Sanders in the 

Senate and myself in the House have introduced the Too Big to 

Fail is Too Big—break them up. That is real capitalism. 

But you don’t find support—enough support on either side of the 

aisle for that. I think we have two cosponsors in the House and no 

cosponsors in the Senate for the only bill that will prevent us from 

being back in 2008 and being told we have to pass some new statute, or just have the Administration ignore the law completely and 

bail out the big banks. 

We need small business lending. That is why this committee 

needs to pass the member business lending bill for the credit 

unions. 

Credit unions are prevented from making small business loans. 

You would think that instead of breaking the social contract and 

having TARP and giving money to the banks, we would just allow 

the credit unions to make small business loans. 

Democrats control the Executive Branch of Government. They 

are using Operation Choke Point, as I believe Mr. Skeel pointed 

out, against those—who was it that mentioned Operation—Professor Zywicki. I am always raising the—always the same hands. 

Anyway, I think it has been pointed out that we will not always 

control the Executive Branch of Government and the ‘‘reputational 

risk’’ won’t be that a bank provides a checking account for a payday 

lender or the Republican Party or some other disreputable organization. There will come a time when the DCCC or an abortion clinic cannot get a bank account. That is a giant threat to democracy 

because if we are going to regulate abortion or we are going to regulate payday lending, we should do it here in Congress by majority 

vote, not secret statements by bank regulators, ‘‘Oh, don’t give that 

group a checking account; choke them off.’’ 

I yield back. 

23 

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. 

We very seldom ever get anything right here in Congress. Whenever we pass a bill it is either the pendulum swings too far or it 

doesn’t swing far enough. 

And I think in this environment what we have done with DoddFrank is we have swung it too far, and what we have done is created an environment within which the bureaucracy believes that 

they can do more than what the law actually allows them to do because they are—we are overreacting to the situation created in 

2008, they are overreacting to the law itself. 

I think when you do that, I think Professor Zywicki made the 

comment a while ago that the lack of the rule of law creates a 

moral hazard problem, and I think we have done that with Operation Choke Point. 

I am the gentleman who carries the bill, and we passed it out 

of committee here recently, and I think that the Oversight and 

Government Reform Committee’s own reports of the emails of these 

two agencies, FDIC and DOJ, indicate a collusion there and even 

a disagreement among themselves whether doing something is 

even legal. CFPB is jumping in on this as well, although they won’t 

quite admit to it. 

But, Professor Zywicki, have you ever seen a precedent like this 

before for a government agency to try and choke off legitimate businesses doing legal business from access to credit to actually drive 

them—or access to financial services to actually drive them out of 

business? 

Mr. ZYWICKI. I have never seen anything like it. In the past, 

agencies have—in situations in which a payment processor is clearly involved in sort of facilitating a fraud, things have happened. 

But to target entire legal industries and say, ‘‘We are going to 

choke off the air that they need to breathe basically because we 

don’t like those industries and so we are going to declare a 

reputational risk,’’ I have never seen anything like it, and I would 

have never dreamed that anybody would even think that was an 

appropriate use of government power. 

Mr. LUETKEMEYER. Dr. Spalding, in your testimony you have a 

quote from John Adams, and let me read from your testimony: The 

classic American expression of the idea of the rule of law comes 

from the pen of John Adams when he wrote the Massachusetts 

Constitution in 1780, in which the powers of the commonwealth are 

divided in the document ‘‘to the end it may be a government of 

laws, not of men.’’ 

It looks like with Operation Choke Point, we have ignored the 

law, and we have a government of men. What do you think? 

Mr. SPALDING. No, that is exactly right. The reason why these 

ideas of consolidation and efficiency are problematic is that is not 

the end of government. You, as the Legislative Branch, decide 

where exactly to draw those lines, but you must be careful about 

having gone too far. Process is important. 

24 

Rule of law is there to prevent, on both sides of the political 

aisle, that kind of corruption—moral corruption, political corruption, just administrative corruption and small-mindedness—from 

taking over our politics. This is clearly the rule of men, and the 

whole system of American constitutional government, why power is 

divided, why power is checked against each other, is because we 

don’t trust individual men and women to rule. That is why we have 

popular government in the first place. 

Mr. LUETKEMEYER. With Choke Point, though, we are not only 

allowing—we are allowing men to have their own interpretation of 

the law and allow their own outside ideas, political philosophies, 

moral judgments, and moral values to be imposed on somebody and 

not the rule of law. 

Mr. SPALDING. That is exactly right. You also remember in the 

Federalist Papers when James Madison says the accumulation of 

all powers in the hands of one—executive, legislative, and judicial. 

That is the very definition of tyranny. 

It is not what they do. It is the very idea of putting it all together 

in one place in the hands of one, based on their own passions and 

political own opinions, tends to cause problems. 

Mr. LUETKEMEYER. Thank you. 

Mr. Gupta, you were in an enforcement branch of the CFPB at 

one time. Is that correct? 

Mr. GUPTA. Correct. 

Mr. LUETKEMEYER. I had a discussion yesterday with a business 

that was fined by CFPB because they had a word in their documents that down the road CFPB is getting ready to propose a rule 

that will make that noncompliant. Now, let me go over this one 

more time. We have a situation where CFPB is fining an entity for 

what a rule down the road is going to hopefully—and it may not 

even go into effect, but they are proposing a rule down the road 

that it would be noncompliant. 

Now, is that something that whenever you were there that you 

would have done? 

Mr. GUPTA. No. I am not— 

Mr. LUETKEMEYER. Can you tell me the reasoning on how that 

is legal? 

Mr. GUPTA. I am not familiar with the facts of that case, and I 

suspect if you have only heard from one side, it might be more complicated than that. But the CFPB has a variety of tools. It has enforcement and it has rulemaking, and— 

Mr. LUETKEMEYER. Okay, let me— 

Mr. GUPTA. —lots of other agencies are like that. There is nothing wrong— 

Mr. LUETKEMEYER. My time is running out, and I just want to 

make one more comment here. 

What has happened with regard to Dodd-Frank, is now not only 

are the financial services folks supposed to be worried about complying with all these rules, they now have to be clairvoyant. They 

now have to have a crystal ball on their desk to be able to see down 

the road what may be proposed so that they will not be in noncompliance at some point. 

25 

That is how far they have gone. That is how out of control this 

agency is and what Dodd-Frank has allowed to happen with this 

environment. 

Mr. GUPTA. I certainly saw nothing like that when I was— 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Texas, Mr. Hinojosa. 

Mr. HINOJOSA. Mr. Chairman, I ask unanimous consent for my 

statement to be made a part of the record so that I can go right 

into questions. 

Chairman HENSARLING. Without objection, it is so ordered. 

Mr. HINOJOSA. Thank you. 

My first question goes to Mr. Gupta. 

The general gist of this hearing today is that an army of unaccountable bureaucrats over at the Consumer Financial Protection 

Bureau and the Federal Reserve and the Financial Stability Oversight Council have essentially overthrown the Constitution and the 

Congress via a regulatory coup d’etat. What do you make of these 

allegations? Why would the CFPB be any more unconstitutional 

than, say, the Federal Reserve? 

Mr. GUPTA. Right. In fact, the CFPB is a lot more accountable 

than the Federal Reserve. And it is true that there are features of 

the CFPB that are new. They are designed primarily to resist industry capture, which was a problem before the crisis with the existing regulators. 

But the various component parts of the CFPB that are being attacked here are nothing new. So there have been complaints 

about—we heard from—Congressman Garrett I guess is no longer 

here—that the Director of the CFPB is accountable to no one. In 

fact, the Director of the CFPB is removable for cause by the President, and that is the same system that we have for the Federal 

Trade Commissioners, and Professor Zywicki held up the Federal 

Trade Commission as an example of how to design an agency. 

So that is nothing new. The Supreme Court in 1935 said—in a 

case called Humphrey’s Executor—that is a perfectly permissible removal mechanism and is consistent with the separation of powers. 

We also hear complaints that there is too much delegated authority to the agency—for example, the authority to define unfair and 

deceptive acts and practices. That is authority that the Federal 

Trade Commission has had for 100 years, and it is no different 

from authority that we delegate to agencies like the Environmental 

Protection Agency to consider environmental protection rules, and 

that Justice Scalia himself has said is perfectly permissible. 

So the arguments that are being made here—this is why I said 

in my opening remarks—they are really efforts to attack the administrative state as a whole. The constitutional underpinnings of 

these arguments, if they were accepted, wouldn’t simply attack the 

CFPB; they would sort of demolish the administrative state as a 

whole. 

And I think at least the first witness we have heard, Dr. Spalding, is open about that. I think his testimony is an attack on the 

administrative state as a whole. 

26 

Mr. HINOJOSA. After that explanation, then tell us how the Bureau and the Council are accountable to the American people and 

to the Congress? 

Mr. GUPTA. As you know, the Bureau is subject to congressional 

oversight and is up here—if there is another agency in Washington 

that has to face congressional hearings more than the CFPB and 

its Director, I am not aware of it. I think the average, if you look 

at the number of times they have been up on the Hill, is about once 

a month since the Bureau’s inception. 

So they are subject to congressional oversight. They are subject, 

as I mentioned earlier, to small business reviews that only two 

other agencies face. They are subject to the Financial Stability 

Oversight Council, a committee of other regulators that can conclude that—if they think that a substantive consumer protection 

rule poses a threat to the economy, they can actually gang up on 

the CFPB and veto the CFPB’s rules. 

The CFPB is subject to a really wide panoply of accountability 

measures that most other agencies are not subject to. So that is 

why I said in some ways this agency is more accountable than 

other regulators. 

Mr. HINOJOSA. Thank you. 

Mr. GUPTA. But to the extent that it is insulated from the appropriations process, that is a good thing. 

Mr. HINOJOSA. Thank you for that explanation. My time is running out very quickly, and so I thank you for your responses. 

My next question is to Professor Skeel. 

Mr. Skeel, in the first footnote of your written testimony, you 

note that you believe that the Bureau has been a valuable and necessary innovation. Can you elaborate on what you meant by that? 

Mr. SKEEL. What I meant was what I was referring to earlier, 

and that is I do believe that there were real problems with consumer protection and that the major agencies who had responsibility had conflicts of interest. And we did not have effective consumer protection in the financial services space before 2008. 

I do think there are some rule-of-law issues with the Consumer 

Bureau. I think there are legitimate concerns about no accountability with the funding and with the difficulty of altering what the 

Bureau does, but I believe the Consumer Bureau was necessary. 

Mr. HINOJOSA. I agree with you. 

And I want to put into the record that I was here at the—in the 

year 2007 at the end of that year and the first quarter of 2008, 

when we heard many of the leaders on the other side of the aisle 

say, ‘‘We don’t want any more regulations. We are doing fine. The 

financial system is strong.’’ Vice President Cheney said that. Secretary Paulson said that. 

And then all of a sudden, by the third month they wanted us to 

help the financial system be saved because they took us over the 

cliff. 

You are absolutely right. 

Chairman HENSARLING. The time of the gentleman has expired. 

Mr. HINOJOSA. I yield back. 

Chairman HENSARLING. The Chair now recognizes the gentleman 

from Michigan, Mr. Huizenga, chairman of our Monetary Policy 

and Trade Subcommittee. 

27 

Mr. HUIZENGA. Thank you, Mr. Chairman. 

And I am a little flabbergasted by Mr. Gupta, who believes that 

somehow just because Congress created the CFPB that somehow 

the CFPB is accountable to it, since Congress then proceeded to put 

it outside of its purview. From the funding side itself, oversight— 

congressional oversight is very different than power of the purse. 

That is the constitutional power that we had. 

So, Professor Zywicki, if you want to touch base on that. I am 

curious if this is, I think as you laid out, that this probably isn’t 

even constitutional in the structure of it, and certainly isn’t smart 

to do that. So if you don’t mind touching on that. 

I really want to get to, because we just had a graphic up there 

about business lending, how suddenly that has become apparently 

very easy to get business loans now that we passed Dodd-Frank. 

As a small business owner, I would like to actually give some testimony against that. 

But when we are talking about consumer credit, in 2013 the Federal Reserve Board had a report which found that 22 percent of 

consumers who borrowed to buy a home in 2010, one out of every 

five, would not have met underwriting requirements of the qualified mortgage. That is the kind of damage, I think, that we are seeing from CFPB—maybe not intended, but that is the effect. 

And again, this is the Fed saying who this is going to affect is 

34 percent of the African American borrowers, and 32 percent of 

Hispanic borrowers in 2010 would be unable to meet the debt-toincome ratio requirements but for the temporary GSE-backed loan 

exemption that the CFPB has so graciously given to everybody. 

So, but guess what? If you can give it you can take it back, and 

that is the fear. 

So, Professor Zywicki, do you have a comment? 

Mr. ZYWICKI. I will try to be brief. 

First, we all know that you have to—that the only way to make 

bureaucracies accountable is to have carrots and sticks, otherwise 

it is just a dog and pony show when they come up here. And the 

power of the purse is, of course, is Congress’ first prerogative. And 

this is an agency that is engaging in widespread policymaking on 

the economy and should be subject to the power of the purse. 

It is also the case, yes, that removal for cause has been held by 

the Supreme Court to be constitutional, but the idea of one person 

running the entire agency? What we have learned over time is the 

reason why the FTC works to the extent it does is because the bipartisan process of deliberation, the ability of dissenting Commissioners to speak, that sort of thing, that we basically substitute internal accountability into deliberation. 

And the Supreme Court has basically said if you have a commission, that is good enough. I don’t know that they have said that 

unleashing one person on the economy like this is not. 

Just a final word about your comment on CFPB and mortgage 

lending, which is one of the astonishing things about the qualified 

mortgages rule is as it is depriving consumers of credit, they did 

nothing to increase requirements on downpayments, for example. 

So the chairman asked earlier, how will this exacerbate the next 

crisis? One of the reasons is they didn’t do anything about one of 

the primary causes of foreclosures, which was negative equity. By 

28 

not requiring higher downpayments and that sort of thing, they did 

nothing to stave off that problem. 

Mr. HUIZENGA. Thank you. I appreciate that. 

Ambassador Gray, I would like to really quickly have you touch 

on the SIFI designation situation. In your testimony you wrote 

about the wide latitude granted to FSOC by Dodd-Frank to designate these SIFIs. Is it constitutionally appropriate to so drastically alter a designated financial company’s standing within a 

greater global financial system? 

So if you wouldn’t mind just commenting on that? 

Mr. GRAY. The latitude that the FSOC has, that the government 

has—it is a little agency that is set up by Dodd-Frank—the latitude is very, very wide, and the only standard, the only limit to the 

designation of a financial institution is that it may be in trouble 

and therefore may endanger the financial stability of the United 

States. The problem— 

Mr. HUIZENGA. Is there an impending threat to that right now? 

Mr. GRAY. I don’t think there is any, but there is a case that has 

been brought that is a designation made of MetLife. It is an insurance company. It doesn’t pose a threat to anybody. 

I could go into—I don’t have time to go into the— 

Mr. HUIZENGA. Yet they have been designated, correct? 

Mr. GRAY. But they have been designated, and there is no way 

really to review it because the courts are prohibited from reviewing 

a question about whether the designation actually endangers the— 

or poses a risk to the economy of the United States. 

So there is no accountability. The designation is final. There is 

no appeal. There is no appeal to you; there is no appeal to the 

courts; and there is no appeal to the White House. 

I am sure that designation is going to fail, but I think it is going 

to be followed by more and more and more as the government continues to try to strengthen its hand and broaden its power. That 

is always the case with bureaucracy. 

Mr. HUIZENGA. Thank you. 

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. 

Professor Zywicki—I hope I got your name right there— 

Mr. ZYWICKI. Perfect. 

Mr. SCOTT. —your testimony certainly intrigued me in your talk 

about Dodd-Frank. I want to mention just one of the issues you 

talked about, the impact with community banks, auto dealers, and 

you mention Operation Choke Point. 

Now, what I try to find is ways we can work up in this committee in a bipartisan way to get a solution to the problem, to solve 

unintended consequences. And I want to get your take on this. 

Operation Choke Point is basically right now an investigative 

issue, really in the hands of the Justice Department and the Federal Trade Commission. And it is based upon basically one big example with payday lenders with one bank, Fair Oaks Bank, I believe, in North Carolina, that they have done. 

My concern comes in with this is a growing—rapidly growing industry of online electronic transactions. More and more people are 

29 

now shopping at the mall online. Malls are being replaced with online. They go on, they get what they want from eBay, then they go 

to something like PayPal, a transaction payment processor, to get 

this. 

So the accounts for our consumers that need protection on this 

rests within this wheel of which at the center of which are your 

electronic payment transaction processors, a growing, growing business. My concern is that—and the reach of this Justice Department 

on some of these cases, there is an excellent opportunity here for 

Dodd-Frank to work if it is used to work here, because what will 

happen is if we are not careful, because of this action by some 

bad—one or two bad actors—and let me say, everybody is a good 

actor until they do something bad, so how do you catch them? 

And so I am concerned about these people who are vitally important to the consumer who goes online, and they have to have confidence with that payment processor. So don’t you see some value 

here where Dodd-Frank, and particularly with the consumer protection angle of that, can come in there and make sure that we are 

not throwing the baby out with the bath water in this Operation 

Choke Point and really doing a devastating hit on some innocent 

people like our payment transaction processors? 

Can’t Dodd-Frank be a positive role to make sure that doesn’t 

happen? 

Mr. ZYWICKI. Thank you, Congressman Scott. I agree with pretty 

much everything you said, and the nuanced way in which you said 

it, which, as I alluded very quickly earlier, I worked at the Federal 

Trade Commission. I understand that the ability to have this sort 

of power does have a legitimate power, and the FTC is using it. 

In situations where a payment processor is basically knowingly 

engaged in and facilitating fraud, it has been a longstanding power 

to be able to do that. The problem is once you move beyond that 

very narrow area, which the DOJ has tried to claim that is all Operation Choke Point is, when in reality it seems to be much, much 

more. 

We don’t know how much more because they are so—it is really 

like a Black Ops operation, as far as I could tell. It is really hard 

to find out who they are targeting, why they are targeting them, 

and that sort of thing. 

And I agree with you that one of the tragedies of Dodd-Frank is 

that we are driving consumers out of the mainstream financial system. We have taken away bank accounts as a result of the Durbin 

Amendment; we have taken away credit cards as a result of the 

Credit Card Act; we have targeted—and payday loans are disappearing. And we are driving more and more consumers online. 

I agree with you that online lending and the way in which that 

is done raises for me real concerns that other things do not. That 

is not to say it is inherently corrupt, but giving somebody online 

your bank account information raises for me particular concerns. 

And so I share your concern, and I share a recognition that there 

can be a legitimate power here, and I just don’t like the sort of targeting of big groups. 

Mr. SCOTT. Well, okay. 

My time is up. Thank you. 

Mr. ZYWICKI. I hope I was agreeing with you—more or less— 

30 

[laughter] 

Mr. SCOTT. But the point I am trying to make is that this is a 

growing industry that is going to grow by even more leaps and 

bounds, and if we don’t have something in there to deal with these 

unintended consequences to protect both sides of the equation, both 

the processors and the customers they rely on. 

Thank you, sir. 

Chairman HENSARLING. The time of the gentleman 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. 

I think it appropriate on Constitution Day that we celebrate the 

idea that man could be free, the idea that man could govern itself, 

that Americans could make decisions for themselves. They didn’t 

need the elite to govern them. They didn’t need the elite to make 

decisions for them. 

Sadly, I think that we are having that debate again 200 and 

some odd years later because there are some across the aisle—and 

they don’t want to say it; I know they were called out by Mr. 

Gupta, who basically said Americans are stupid. They are dumb. 

And there is a belief that Americans are too stupid to make decisions for themselves. 

I don’t believe that to be the case. I think if we have disclosure, 

if we have good information, Americans make the best choice for 

them and their family. And bureaucrats at the CFPB don’t know 

what is best for them. 

And so it brings me to the idea of the administrative state versus 

elected representatives—who is more accountable? 

There was a really bad health care law that was passed. I am hearing stories about monthly costs going up from $800 to $1,300 

and $1,400 a month. To all of my friends across the aisle who voted 

for that, what happened to many of them? 

To the panel, what happened? 

They got voted out. They lost their elections. Many of them are 

no longer here because America said, ‘‘That is a bad law. That 

doesn’t work for my family.’’ And they held them to account. 

Because it wasn’t special interest who on that day carried the 

Obamacare legislation. The real accountability came when they 

had to go back home and face their constituents who said, ‘‘I am 

going to vote you out.’’ And so now, they are no longer here. 

But I want to talk about the CFPB a little bit because I think 

there is this perception that special interest has no impact on the 

CFPB because they are an agency that isn’t funded through Congress, right? They are unaccountable; they can do whatever they 

want with their single director. 

So there was a recent study that came out and it says the Consumer Financial Protection Bureau released a study indicating that 

arbitration agreements restrict consumers’ relief for disputes with 

financial service providers by limiting class actions. 

Now, does anyone on the panel have an idea on how this study 

might impact the special interests? Anybody? 

Ambassador Gray, enlighten me. 

Mr. GRAY. The first think that comes to mind is the plaintiffs’ 

bar, which— 

31 

Mr. DUFFY. I agree. The plaintiffs’ bar. 

Does anyone disagree with that? 

Mr. Gupta, yes? 

Mr. GUPTA. I do disagree with that. There is— 

[laughter] 

Mr. GUPTA. This is a—the CFPB’s— 

Mr. DUFFY. Credibility— 

Mr. GUPTA. —study on arbitration is the most rigorous empirical 

study on the prevalence of arbitration in consumer contracts. You 

asked them— 

Mr. DUFFY. Oh, I know your objection. Let me ask you a question, though. Do you think that the trial bar tried to communicate 

and impact the CFPB in regard to their decision with regard to 

class action lawsuits and arbitration? 

Mr. GUPTA. Well, obviously. 

Mr. DUFFY. Answer my question. 

Mr. GUPTA. —obviously everyone weighed in on the study— 

Mr. DUFFY. Of course, they did. And are you telling me special 

interests don’t have an impact on the CFPB? 

Mr. GUPTA. It is an empirical study, and it is really hard to 

argue with the conclusion of the study, which is that— 

Mr. DUFFY. Who is going to— 

Mr. GUPTA. —class action bans ban class action. 

Mr. DUFFY. As Democrats in the Senate and the House lost their 

jobs when they were held accountable to the American people, who 

at the CFPB can be held accountable for bad decisions? Are any of 

them up for election? None of them. 

And to argue that this is a better form of government, that you 

know what is best—that we have this debate today is incredibly 

frustrating. 

The QM rule—that I have small credit unions and banks that— 

a banker wants to lend to a family that they know and they will 

take their risk on; they are not going to send it into the market. 

But they have known the family and the dad and the mom and the 

brothers and sisters. They want to take a risk on this family. 

The CFPB says, ‘‘Oh no, you can’t. And if you do, there is additional liability if that loan goes bad even though you have all the 

risk of the loan because it is on your books.’’ Come on. 

Mr. GUPTA. These are really arguments against consumer protection at all— 

Mr. DUFFY. No, they are not. 

Mr. GUPTA. —or administrative agencies. 

Mr. DUFFY. No, they are—and we might have a debate on the administrative agencies, but not about consumer protection. I believe 

in disclosure. I believe people should know the deal. They should 

know what they are getting into. 

But I also believe that if they know the deal, let them decide if 

it is right for them. 

With regard to payday lending, you know what? If the credit 

unions and the banks won’t give me a loan and you take away this 

source, where am I going to go? I am going to go to Vinny down 

the street or I am doing really bad things that affect our society. 

32 

Mr. GUPTA. Payday loans are often not that different from Vinny 

down the street. We are talking about interest rates that exceed 

$1,000 and that trap people in a cycle of debt. 

Mr. DUFFY. I would love to have a better solution. 

I am concerned that on the settlement side that it is not just 

going to victims; it is going to third-party groups, ACORN-esque 

groups that you will argue, oh, this is great for the American people, but you are going to drive money into third-party groups not 

funded through Congress, not funded through the appropriations 

process. 

It is just like the DOJ’s settlements with banks. It doesn’t go to 

the Treasury. It doesn’t go to victims, all of it. A great portion of 

it goes to left-wing community organization groups and not through 

the congressional appropriations process. 

And I know my time is done, Mr. Chairman. I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Pennsylvania, Mr. 

Fitzpatrick, chairman of our Terrorism Financing Task Force. 

Mr. FITZPATRICK. Thank you, Mr. Chairman, for calling this 

hearing, ‘‘Dodd-Frank Five Years Later.’’ 

I think that most of the members of this committee probably 

were not in Congress when the law was passed for the reasons Mr. 

Duffy indicated. I was one who ended up here because of a series 

of bad laws and the voters in my district decided to send a new 

Representative. 

And we feel that we have been robbed of the ability to make a 

lot of the decisions, even though they are tough decisions. These 

are tough votes that we should have been sent here to make. 

And I do appreciate the acknowledgement of my colleague, Mr. 

Sherman, who indicated earlier—he said we punted in passing 

Dodd-Frank. Essentially, we punted to the bureaucracy. 

So I want to talk a little bit about the regulatory branch of government and I want to discuss the amount of regulations that have 

been passed, rules and regulations under Dodd-Frank—not just 

those that have been passed but those that have been discussed, 

those have been threatened, those that have been noticed and are 

being discussed now, and the impact of not just those that have 

been passed but those that may be passed on institutions, and how 

do they affect Wall Street? 

My understanding is Dodd-Frank was passed in order to rein in 

Wall Street, but we have heard several references today to Mr. 

Dimon’s comment that a larger moat was created around him. Wall 

Street seems to be benefiting from Dodd-Frank 5 years later. 

The impacts really seem to be on the small Main Street community institutions, the small community banks in districts like my 

district in Bucks County, Pennsylvania, and consumers, as well, 

and innovators. 

And so, Professor Zywicki, perhaps you can start. Who really 

bears the brunt of this new massive wave of regulations that have 

come under Dodd-Frank that we haven’t had a chance to vote on? 

Mr. ZYWICKI. I haven’t looked at all the methodology, but one estimate was that so far it has imposed $21.8 billion and 60.7 million 

paperwork hours on compliance costs. It is estimated that over the 

33 

next 10 years it could be $895 billion in reduced gross domestic 

product and $3,346 per working-age person. 

I haven’t seen a lot of other estimates. I give that as some sense 

of at least what some economists think about this. 

And I think you are exactly right, which is the cost of DoddFrank is falling on people with the least—the fewest options, the 

least flexibility in their budgets, and that sort of thing. We are 

driving people out of bank accounts; we are taking away people’s 

credit cards; we are taking away people’s mortgages. 

And upper middle-class people largely can avoid that. We can 

carry the higher balances in order to keep a free bank account. 

Smaller people can’t, or—and it is lower- and middle-class people 

who are really bearing the brunt of this law. 

Mr. FITZPATRICK. Dr. Spalding, we have spoken at great length 

today about the impact of Dodd-Frank, and for good reason. But in 

many ways Dodd-Frank is a symptom of a larger disease, which is 

the growth of the—sort of the modern administrative state that Mr. 

Duffy spoke about. 

You have written about this development and how it is a departure from our founding principles. Can you explain the difference 

between our founders’ vision of the government and that of the progressives who have given us this modern bureaucracy? 

Mr. SPALDING. Thank you for the question. My testimony does go 

to that answer to some extent. 

In short, the American founders wanted to control the powers of 

government and make them responsible. That is why we have a 

Constitution in the first place, to get around the problems that the 

English kings had. 

Powers were divided into branches. Branches operated the main 

functions of governing—lawmaking, executing, adjudicating. 

Those are grants of powers from the sovereign people. That is 

why you can’t delegate those powers to someone else. Someone else 

can’t exercise the lawmaking power. 

The problem with the modern administrative state—and I am 

launching a challenge to the modern administrative state. It is constitutionally illegitimate, and we have clearly crossed a Rubicon. 

Congress has lots of power to regulate. I don’t object to regulations, 

per se. 

But we are clearly operating in another world. These things that 

Dodd-Frank is doing, these are laws. They are passing laws that 

you have not approved. 

That is practicing the lawmaking power. The courts might not 

say that it is delegation, but it clearly is, and the Legislative 

Branch must recognize that. 

The idea is based upon the notion that, using modern science and 

using the best forms of efficiency and consistency, someone else can 

rule us better. You are our representatives to make sure that 

doesn’t happen. 

So it is a violation of delegation, but it is more largely a violation 

of the whole concept of the rule of law and the rule of laws rather 

than the rule of men. 

Mr. FITZPATRICK. My time has expired. Thank you. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Texas, Mr. Green. 

34 

Mr. GREEN. Thank you, Mr. Chairman. 

And thank you, to the witnesses, for appearing today. 

Let me start by asking each witness this question, and you may 

respond by simply raising your hand if you agree: If you were a 

Member of Congress and you had an opportunity to vote to repeal 

Glass-Steagall—to repeal it; that would be the essence of your 

vote—would you vote to repeal Glass-Steagall? If so, would you 

kindly extend a hand into the air? 

I am not sure about the gentleman on the end. I see four—all 

right. All right. Everybody would repeal Glass-Steagall. 

All right. If you had an opportunity in Congress to repeal DoddFrank in its entirety, would you repeal Dodd-Frank? 

One? All right. Two. 

Mr. SPALDING. That depends on the definition of ‘‘entirety.’’ 

Mr. GREEN. Repeal it entirely—entirely as in entirely. 

Mr. SPALDING. The Legislative Branch has the ability to— 

Mr. GREEN. Okay, let me just go on. I really don’t want to debate 

it with you. I trust that we can get back to it later. 

So we have at least one person who would repeal it in its entirety. All right. 

Now, let’s do this. Let’s just examine what has happened in this 

whole question of, are we more free. More free to do what? 

More free to go back to 3/27s and 2/28s, when you had 2 years 

of fixed rates and 28 years of variable rates? Same thing with the 

3/27s—go back to teaser rates that coincided with prepayment penalties so that if you tried to get out of a loan that you were in you 

would have to pay this huge penalty to get out, which most people 

couldn’t do? 

Go back to no-doc loans, such that people could come in and get 

a loan and walk away with a monthly payment that they couldn’t 

afford because they didn’t have the documentation to acquire the 

loan? Go back to liar loans, when you could literally fabricate a 

story that wouldn’t be validated and get a loan that you couldn’t 

pay? 

Go back to the yield spread premium, when consumers were 

ripped off by persons who accorded them loans for higher rates 

than they qualified for? Literally, you could qualify for a loan at 

5 percent and the person working with you that you had a great 

deal of confidence in would give you a loan for 8 percent and get 

a kickback. 

All of that was legal because we allowed it to be legal. So go back 

to a time when people were free to just rip off the consumer, just 

take advantage of consumers, just do whatever you could to make 

money off of unsuspecting consumers. 

Many people don’t know that they were ripped off by the yield 

spread premium. And I use that highly technical term ‘‘ripped off’’ 

because we need to be clear and concise about this. 

Consumers are being taken advantage of even today with other 

products that are out there, and the CFPB is doing its best to try 

to eliminate some of these products. 

So we are talking about going back to a time when we could generate loans without liability. The people who were generating the 

loans knew that they were going to pass them on to someone else, 

the liability wouldn’t remain with them, and as a result of being 

35 

able to pass them on, they would take just about anything they 

could to get their numbers up so that they could make more money 

by passing more loans on to the secondary market. 

And as a result, consumers would be—again, highly technical 

term—ripped off. A generation of wealth was lost. We had literally 

9 million jobs lost as a result of this crisis; we had 5 million homes 

lost as a result of this crisis; $13 trillion of families’ wealth was destroyed as a result of the crisis. 

Dodd-Frank was the solution that we came up with that is not 

perfect, that we could tweak, that we could mend rather than end. 

Unfortunately, there are a good many people who want to see the 

demise of Dodd-Frank. 

Dodd-Frank is not the problem. The problem is a Congress that 

is unwilling to work together to maybe amend some aspects of it, 

but not to end Dodd-Frank in its entirety. 

I would say to you, my dear friends, as I close, I don’t concur 

with you on Glass-Steagall. It took 66 years to eliminate GlassSteagall. Glass-Steagall separated investment banking from commercial banking, and prevented people from gambling with consumer dollars that were federally-insured. 

I don’t know how long it is going to take, but people right here 

in this Congress are going to do everything that they can to end 

Dodd-Frank just like they ended Glass-Steagall. 

Thank you. I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from California, Mr. 

Royce, chairman of the House Foreign Affairs Committee. 

Mr. ROYCE. I appreciate the time here. 

And a quick question, because when we travel overseas with the 

Foreign Affairs Committee, I often have conversations with foreign 

leaders about issues that go to the heart of the importance of rule 

of law and the role that it plays in encouraging foreign investment, 

and the role that it plays in political stability, and how badly these 

foreign nations need the rule of law, need the credibility that comes 

with it. So it is a little bit of a shock to me that on our own shores, 

we have blatant examples of discretionary choice and political influence running afoul of the rule of law. 

In Europe in the 1930s, there was this concept of fluid law and 

it didn’t work out very well. The rule of law for the United States 

has been sort of a cornerstone. 

So you get into these areas with fluid law—the SIFI designation 

process is just one I would make an example of, and I appreciate 

several of my colleagues raising this issue this morning. I worry 

that the costs of what economists call here the cloud of political 

risk that comes into play—Professor Zywicki referenced this—this 

is one of the consequences, this is one of the mistakes in DoddFrank, one of the things that we did not get right. 

And that effect could be permanent. It could be long-lasting. 

And so, Mr. Gray, we have seen how the CFPB has strayed well 

outside of its legal boundaries, expanding its reach now into 

telecom companies and seeking information protected by attorneyclient privilege, and even indirectly trying to regulate auto dealers 

and so forth. Given the agency’s design, are you surprised by any 

of this behavior? 

36 

Mr. GRAY. I am not surprised, because there is nothing to constrain them. There is no check or balance. There is no operation 

of the separation of powers that would conduct an oversight role to 

rein them in. 

The White House can’t do anything about it. The Congress can 

hold hearings, but they are not supposed to review the budget. 

That statute, as I recall, actually says the Congress can’t review 

the budget. I don’t expect anyone is going to be arrested for doing 

so, but the budget is not in your hands, and that is where your 

power comes from. 

The courts are required to defer to whatever the agency wants 

to do under the Chevron Doctrine. That is true even in the case of 

rulings, say, on what is abusive. The agency has refused to spell 

out what the law means by notice and comment rulemaking, which 

is the hallmark of American administrative law, one of the 

geniuses of post-war development. 

It is going to be, ‘‘I know it when I see it.’’ It is going to be an 

ad hoc decision made after the fact, and so nobody knows before 

they are zapped. 

Mr. ROYCE. There is going to be fluid law that is constantly 

evolving, constantly requiring new interpretations by the regulatory community, constantly causing costs out there—compliance 

costs. This is one of the reasons I opposed Dodd-Frank. 

But there is another aspect here which is—and the chairman is 

well aware of this, as well—the fact that the prudential regulators 

have the responsibility for safety and soundness, and taking them 

out of this equation and not allowing them to weigh in on these decisions also has a long-term risk in terms of the first responsibility, 

which is safety and soundness. 

If we were smart, what we would have done was put this function underneath the prudential regulators. It might surprise some 

to know that every former prudential regulator that I talked to, 

whether Democrat or Republican, felt that this was a profound 

error in the legislation. 

Mr. GRAY. Sir, if I might just sort of add— 

Mr. ROYCE. Yes. 

Mr. GRAY. —one thing about the rules about making mortgages, 

it is just a—I grew up in the South, and the South didn’t have a 

lot of big banks until all of a sudden they did have some big-size 

banks. But the hallmark of the growth of the southern banking industry was making character loans, loans based on people’s understanding of the character of the person who was borrowing, the 

knowledge of the family, knowledge of that person. 

And there are Fed studies saying that character loans are better 

than the cookie-cutter loans that are now being required. But you 

can’t make a character loan anymore. 

Who benefits from that? Nobody. 

Mr. ROYCE. We have choked off so many loans. 

Mr. GRAY. Nobody. 

Mr. ROYCE. Mr. Chairman, thank you. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Virginia, Mr. 

Hurt. 

Mr. HURT. Thank you, Mr. Chairman. 

37 

I thank the Chair for continuing to focus on the anniversary of 

Dodd-Frank 5 years later. 

And I thank each of the panelists for appearing today. 

I represent Virginia’s 5th District. It is a sprawling, rural district, south side, Central Virginia. Over the August break we 

were—had the chance to travel across the district and visit across 

the 23 counties and cities that I represent. Many, many Main 

Streets along the way. 

And we had the opportunity to visit with families, small businesses, small farmers; had the opportunity to stop by several 

banks, community banks in Charlotte County, Fauquier County, 

Halifax County. These banks are important to these Main Streets 

because they provide a tremendous amount of capital that is necessary now, in a way, more than ever, because of the job losses that 

we have seen over the last several years. There was a recent study 

which indicated that 70 percent of loans made in the agricultural 

sector are made by community banks. 

So as I talked to the bank presidents and the compliance officers 

at these institutions, I think, Mr. Gupta, they would be very surprised, maybe even relieved, to find out that actually Dodd-Frank 

has not been the cause of their decline. I think they would be relieved to know that their customers are really benefiting from 

Dodd-Frank and the Consumer Protection Bureau. And I appreciate Mr. Zywicki’s responses to your statements. 

And I won’t pursue that any further and move on to something 

that is a little—is more in the big picture. 

I wanted to ask Mr. Spalding and Mr. Gray about this: The Richmond Federal Reserve recently published something called a Bailout Barometer. I don’t know if you are familiar with it, but it is 

an estimate that the financial safety net covers some $26 trillion 

in liabilities, or 60 percent of the total liabilities of the financial 

system. 

And I was wondering from the standpoint of too-big-to-fail, and 

from the standpoint of moral hazard, what is the threat to the taxpayer when we have accumulated this amount of backstop by the 

Federal Government? What is the threat to the consumer? What is 

the threat to our free markets? 

If Mr. Gray wants to go first, and then Mr. Spalding, I would 

love to have you address that. 

Mr. GRAY. I think the threat is not first to the taxpayer but to 

the Fed. It is money they print; it is money they sort of manufacture. Their balance sheet is something totally unique in the history 

of America. I don’t know how they are going to work their way out 

of it, but it is going to be inflationary, it is going to dilute, it is 

going to degrade the quality of the savings of most Americans in 

order to have this happen. 

And banks are not going to do any more lending. They are probably going to do less lending than they would have without this crisis, and that is the basic issue. A complicated economic one, and 

I am not an economist, but this is a basic issue about when they 

should start raising interest rates. 

And I think they got themselves in a fix, which is the direct result of the government’s encouragement of loans that couldn’t be 

repaid. And the reason loans couldn’t be repaid is because the local 

38 

banker wouldn’t make a loan that he knew he couldn’t repay or 

that would irritate his neighbor, because he would have to see his 

neighbor in church or at the Safeway. 

No, the loans were made because Fannie Mae and Freddie Mac 

had an insatiable appetite to cook up any loan they could do, and 

so if you got a broker, going to make a loan, and is not then responsible for it because he shoved it off to the Federal Government or 

a Federal Government agency, it all—it is all easy to do. And why 

not? Why would you not do that? 

So the government bears a huge responsibility for having caused 

all this. There is nothing in Dodd-Frank which does anything about 

Fannie Mae or Freddie Mac, or about any of the other practices 

that actually led to the crisis that we had and the crisis that we 

haven’t gotten out of. 

And I am sorry to say, I can’t give you an answer for the Fed, 

because it is going to take years to work out. 

Mr. HURT. Thank you, Mr. Gray. 

Mr. Spalding? 

Mr. SPALDING. That was a very good answer, and I defer to it. 

I would just, again, point out a general point. Vast operations of 

the administrative state of this magnitude going into large reaches 

of the economy, whether it is the health care economy or the financial economy, displaces and completely takes the place of market 

mechanisms. And in doing so, it prevents the market from making 

its natural adjustments. The rule— 

Mr. HURT. And who suffers? 

Mr. SPALDING. The average person suffers. I mean— 

Mr. HURT. The consumer. 

Mr. SPALDING. —the role of Congress is to uphold the rule of law, 

maintain contracts, make sure that there is a certain legal fairness 

in how it operates, watch out for the problems, but otherwise let 

it correct itself so that the real opportunity in the marketplace can 

serve the American people. 

Mr. HURT. Thank you, Mr. Spalding. 

My time has expired. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from North Carolina, 

Mr. Pittenger. 

Mr. PITTENGER. Thank you, Mr. Chairman. 

Ambassador Gray, thank you particularly for your great service 

to our country over the last many decades. I remember meeting 

you a long time ago and I’m just grateful to have your expertise 

involved with us today. 

I would like to ask you, as it relates to CFPB and how it has 

strayed out from its own legal boundaries, expanding into the 

telecom industry, impacting its own attorney-client protection privileges, regulating automobile dealers, is this a surprise to you? 

And what do you envision in the future? It seems to me that we 

have relegated those—the laws to—in the hands of these individuals and other regulators, so would you kind of expand on that, 

please? 

Mr. GRAY. I never underestimate the ingenuity of a bureaucrat 

to expand. 

[laughter] 

39 

And I wouldn’t really want to predict where they will go. But I 

do think the automobile lending issue is very instructive. 

I happen to know—a very close friend of mine was head of the 

National Association of Auto Dealers, and they threw everything 

they could into this fight to get exempted. Now, you might argue 

that, boy, they really abused their monetary power or whatever to 

get this exemption, but they did get it. 

But it is like Mr. Cordray said—or the President said when Mr. 

Cordray was rejected by the Senate the first time around, ‘‘I will 

not take no for an answer.’’ So they have gone after the dealers 

anyway. 

And that kind of defiance is what really scares me. We are at a 

point—and this is a slightly different point, but it encapsulates so 

much of what keeps me awake at night, frankly; not all nights, but 

some nights. The agencies have captured, have aggregated so much 

power—not just the ones you are talking about here and out in the 

financial industry, but EPA, one could—FDA, one could go on— 

they have so much power that they can threaten to go blackmail 

their subjects into submission, into accepting whatever they want 

to dish out to them. 

They can threaten them not to seek judicial review, which has 

happened in the automobile industry. All of the regulations against 

the automobile industry, the auto industry had to promise not to 

challenge for 8 years of the Obama Administration. 

It is hard to believe, but they had to make a promise—I have 

seen it in writing, and they have published it. The EPA has published it. Why they would be proud of it I don’t know, but they got 

a promise from the Ford Motor Company, for example, that they 

would not challenge anything the DOT or the EPA ever did to 

them. 

So this is the way it is going across the government, across the 

administrative state. You are dealing with a microcosm—a very big 

microcosm, a very good example. And if you can fix it and get the 

pendulum going just in the other direction, you would serve an 

enormous benefit to the American people because the administrative state is out of hand. 

Mr. PITTENGER. Thank you, sir. 

Ambassador Gray, you have also referred to how the moat is protecting against competition. Can you discuss further how the current regulatory barriers to entry are harming small businesses and 

institutions, while helping the largest ones? 

Mr. GRAY. This is not a new problem of what is known in the 

administrative trade—perhaps you should ask Professor Zywicki, 

he may be more expert. He teaches where this doctrine was developed; so do I part time—George Mason. 

But it is a common thing across the regulatory state that regulations help big business by creating barriers to entry to competition. 

It is as simple as that. And big government likes big business because the progressives like not to have to deal with 10,000 little 

guys; they are very happy to deal with 3 or 4 really big guys. 

Mr. PITTENGER. Can you give us some examples, please, of how 

it has harmed the smaller institutions? 

Mr. GRAY. I referred to it in my testimony and others have mentioned it. To me, the best example is the demise—not the demise 

40 

yet, but the harm to consumer banks because of the inability to 

cope with the regulations that are the moat for their much, much 

bigger competitors like JPMorgan. 

And that is, I think, the best example. There are others. There 

are many others that are like that. 

Take the drug approval process; it takes much too long. The FDA 

asks for way too much information during these clinical trials when 

they know that once the drug gets out in the marketplace to millions of people, they will really then find out what the reactions 

are, and that is when they really do find out, and that is when they 

can make corrections. 

But to think they can do that—it is arrogant to think they can 

do that in these relatively small clinical trials, compared to public 

approval or public distribution. And I am sorry to speak too long, 

but that hurts the small drug companies because they can’t afford 

an 8-year, $2 billion drug trial. 

Mr. PITTENGER. Thank you. My time has expired. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Pennsylvania, Mr. 

Rothfus. 

Mr. ROTHFUS. Thank you, Mr. Chairman. 

Professor Zywicki, in a recent op-ed for The Wall Street Journal, 

former Senator Phil Gramm argued that President Obama’s progressive legacy is destined to fail in the long run because he enacted vague laws and abused his executive power to impose policies 

that are unpopular with the American people. In making this case, 

Senator Gramm points out that all of the President’s Executive Orders can be overturned by the next President, and that Dodd-Frank 

can be largely circumvented using exactly the same discretionary 

powers that President Obama used to implement it in the first 

place. 

Do you agree with Senator Gramm? 

Mr. ZYWICKI. Absolutely. That is the nature of the modern administrative state that we have been talking about. 

And one of the things I—I think it is awful, but— 

Mr. ROTHFUS. What sort of costs would this lingering uncertainty 

have for the U.S. economy? 

Mr. ZYWICKI. Huge costs. In order to make a loan, you have to 

be able to predict the risk of the loan. To the extent that political 

risk in the regulatory environment is shifting around, that makes 

it more difficult to price the risk of the loan, and so you have to 

either raise interests rates or you have to reduce risk exposure. 

Mr. ROTHFUS. Let’s— 

Mr. ZYWICKI. And so it impacts banks probably more than any 

other sector of the economy. 

Mr. ROTHFUS. Let’s translate that to people. All too often when 

Congress debates issues relating to the rule of law or government 

expansion and overreach, we tend to spend too much time on the 

underlying policy and lose focus on why the debate matters in the 

first place. 

We need to be focused on the impact of Washington, D.C., on 

people—on the family who is trying to purchase their first home, 

on the entrepreneur with a promising startup, on the small business who wants to expand their operations and hire more of the 

41 

local community. As we look back on 5 years of Dodd-Frank, how 

have average Americans been impacted? 

Mr. ZYWICKI. I think a great example is when we—is the auto 

dealer attack that they are doing and this—we don’t have scientific—the scientific and economic experiment, but what we discovered is exactly what we expected from what we know. The Wall 

Street Journal says that everybody has to pay more for a car loan 

now because of this uncertainty and this overreach by the CFPB. 

Mr. ROTHFUS. So are Americans more or less free to pursue the 

American Dream as a result of Dodd-Frank? 

Mr. ZYWICKI. Clearly, we are all less free as a result of this 

vagueness and this lack of rule of law. 

Mr. ROTHFUS. Mr. Gupta, you claim on page 10 of your written 

testimony that Dodd-Frank and the CFPB work to protect the interests of smaller banks. I have to tell you, this committee hears 

from community bankers all the time, and they vigorously argue 

the precise opposite. 

Are you really claiming that Dodd-Frank has enhanced the competitive position of community financial institutions? 

Mr. GUPTA. I think the picture is complicated and— 

Mr. ROTHFUS. Let me tell you, it is not complicated for a small 

community bank in my district which spent 2,000 hours going 

through a CFPB regulation. What would you say to that small community bank which has limited resources, versus a large bank 

which has lots of resources? 

Mr. GUPTA. Yes. No, I sympathize with the plight of community 

banks. As I said earlier, I think they are facing a lot of challenges 

and— 

Mr. ROTHFUS. Are there more or fewer community banks today 

than there were when Dodd-Frank— 

Mr. GUPTA. There are certainly fewer, and that was happening 

already. That is an independent process that has been happening— 

Mr. ROTHFUS. Has it accelerated the process? 

Mr. GUPTA. —before Dodd-Frank, and I— 

Mr. ROTHFUS. Has it accelerated the process? 

Mr. GUPTA. No, I don’t think that— 

Mr. ROTHFUS. Professor Zywicki— 

Mr. GUPTA. —the existence of the CFPB is accelerating that 

process. 

Mr. ROTHFUS. I’m sorry, reclaiming my time, Mr. Zywicki, would 

you care to comment on that, whether Dodd-Frank may have accelerated the process? 

Mr. ZYWICKI. The only study I know about this, and the one that 

everybody seems to think is a good study, is from the Kennedy 

School of Government, which says that community banks, the assets are shrinking at twice the rate they were before Dodd-Frank. 

Mr. ROTHFUS. One of the things we see with the CFPB is that 

we have a single director. 

Mr. Gupta, Chairman Frank thought that a five-member commission was an acceptable structure for the Bureau. Is he wrong? 

Mr. GUPTA. I think— 

Mr. ROTHFUS. Is he wrong? 

42 

Mr. GUPTA. I think you can have a legitimate debate about how 

to set up an agency. I think that the CFPB was set up in the right 

way. I think the problem with five-member agencies— 

Mr. ROTHFUS. Originally, Chairman Frank thought a five-member commission was a good idea. Is he wrong? 

Mr. GUPTA. I think he would support the current structure of the 

agency if you asked him today, and I think that was the right decision. And the reason I think it was the right decision is— 

Mr. ROTHFUS. Reclaiming my time here, I would like to move 

over to Dr. Spalding— 

Mr. GUPTA. Let me just finish. There are agencies in Washington 

that are five-member commissions that do nothing, like the Nuclear Regulatory Commission and the Federal Elections— 

Mr. ROTHFUS. Are you saying that the SEC does nothing? 

Mr. GUPTA. No, but I think a lot of agencies that have multimember commissions become deadlocked and incapable of doing 

anything, and that is the problem— 

Mr. ROTHFUS. The CFTC does nothing? 

Mr. GUPTA. I’m sorry? 

Mr. ROTHFUS. Do you think the CFTC does nothing? 

Mr. GUPTA. No. I don’t think all multimember commissions are 

incapable of doing something, but it is a risk. 

Mr. ROTHFUS. Yes, but Chairman Frank thought it was a good 

enough idea to put into his original legislation. 

If I could go to Dr. Spalding, Mr. Gupta claims in his written testimony that the CFPB must carry out its work insulated from the 

‘‘partisan vagaries of the appropriations process.’’ He is arguing 

that the American people, through their elected Representatives, 

deserve no say in how their government spends their money and 

governs on their behalf. 

This turns the American project on its head. Was that the founders’ vision? 

Mr. SPALDING. Absolutely not. The argument that I am hearing 

in defense of the administrative state appears otherwise—is the 

same you get from Woodrow Wilson forward about the modern administrative state: You must protect these decision-makers from 

the public, from Congress— 

Mr. ROTHFUS. In the administrative state, where does sovereignty rest, in the people or in the government? 

Mr. SPALDING. It rests in the government. The government both 

secures rights, and the court tells what those rights are— 

Mr. ROTHFUS. Doesn’t that turn the— 

Mr. SPALDING. —and the administrators carry out those policies 

and tell us how to run our lives. 

Mr. ROTHFUS. Doesn’t that turn the American experiment on its 

head, where it shifts the sovereignty to the government instead of 

the people? 

Mr. SPALDING. It completely turns it around. 

Mr. ROTHFUS. Thank you. I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the ranking member of the committee, 

the gentlelady from California, for 5 minutes. 

Ms. WATERS. Thank you very much, Mr. Chairman. Sorry I could 

not be here with the committee earlier today. 

43 

And I am just wondering if we have learned anything new. This 

is the third hearing we have had on Dodd-Frank reform, and when 

I came in, I asked my staff if we learned anything new today? And 

of course, they responded that we have not. 

Let me just say, as I have said over and over again, that DoddFrank is the law, and we have the responsibility to enforce it. 

We believe that on this side of the aisle, we have been very responsible in the way that we have handled all of those who do not 

think that Dodd-Frank should have been signed into law. We have 

said over and over again, where there are technical problems, 

where there is confusion, where there needs to be some modest 

modification, we are prepared to do that. 

And we have demonstrated that in the way that we have worked. 

We have not attempted in any way to dismiss the concerns that 

have been raised. 

But honestly, Mr. Chairman, I don’t know if we are spending our 

time holding these hearings over and over again in a way that is 

productive for our constituents or for this House, et cetera. 

I know these lawsuits have been filed. Let me just kind of go 

through a few of them. 

The lawsuits that filed alleging the unconstitutionality of the 

CFPB tend to come from rather fringe actors in the financial marketplace. The State National Bank of Big Spring is a $340 million Texas 

bank, and it was not supported by any amicus briefs, by any other 

parties when it filed its lawsuit. Morgan Drexen was a debt settlement firm which appears to have sued in retaliation for a CFPB 

enforcement action and now has filed for bankruptcy. ITT is a forprofit post-secondary school that has had regulatory run-ins with 

the CFPB, the SEC, and industry, where I have worked to correct 

abuses for much of my career. 

So I don’t think I am going to ask a question. I don’t want to 

take these gentlemen through that. 

I just want to say—I want to remind all of you what happened 

in this country when Lehman Brothers failed and all of a sudden 

we understood the impact that was going to have on all of the financial services industry, not only in this country, but offshore. 

And we were poised for disaster. 

We ended up with a subprime meltdown. Many communities 

have been devastating by the exotic products that were on the market, where people signed up for mortgages they couldn’t afford, 

they were not vetted properly, no-documentation loans, on and on 

and on. 

We should all want to have to correct what took place in this 

country that took us into a recession, almost a depression. And so 

these attempts to somehow dismantle Dodd-Frank, and to talk 

about how it is unconstitutional, and to continue to hold these 

hearings, is a waste of time. 

And so while I am here, and I respect the chairman for providing 

the leadership that he needs to provide on this committee, I just 

wish we could take up some—I need to talk about what is happening in America with the homeless population that just appears 

to be expanding—16 percent. I need to talk about the lack of affordable housing. 

44 

I need to talk about what we are going to do about real consumer 

issues and how this committee is going to look out for these consumers, who expect this Congress to work for them and not just 

the biggest, riches banks and financial institutions in America. 

And so I have 20 seconds left, 19 seconds left, 18, 17, 16, 15, 14, 

13, 12, 11, 10, 9, 8, 7, 6, 5, 4, 3, 2, 1. There is nothing left to be 

said. 

Thank you. 

Chairman HENSARLING. The time of the gentlelady has expired. 

The Chair now recognizes the gentleman from Maine, Mr. 

Poliquin. 

Mr. POLIQUIN. Thank you, Mr. Chairman. I appreciate it. 

And thank you all very much for being here today. 

I represent Maine’s 2nd District, which is the real Maine; it is 

not northern Massachusetts. It is Western, Central, Northern, and 

Down East Maine. We have about 650,000 of the hardest-working 

people you could possibly imagine. They are honest. 

I go back to the district every weekend, and what I hear all the 

time from our small business owners is that, ‘‘Please, Bruce, help 

us get the government off our back.’’ I talk to our credit unions and 

our small community banks, and they are spending more time dealing with government regulations than they are expanding their 

businesses and pushing out credit and loans to folks who really 

need it. 

And the problem with that, of course, is that your economy is not 

growing the way it should be and folks aren’t getting the jobs they 

need so they are more dependent on the government. We have one 

heck of a problem now. 

There is an outfit here in Washington, D.C., called the Competitive Enterprise Institute, if I get this right, and they have taken 

a look at all the regulations—now not at the State level, but at the 

Federal level—and they compute that the cost of regulations to the 

American economy is about $1.7 trillion per year. That is about 

one-tenth of our economic output. 

Of course, businesses who have to suffer these regulatory costs 

pass along those costs in the prices that they charge for their goods 

and services. So if my math is right, every family in America is 

now paying about $15,000 per year for these Federal-only regulations. 

Dodd-Frank is one of those problems. Now, I understand when 

the housing market collapsed because folks were pushing out the 

ability to buy homes even though you might not have a job, or you 

didn’t have to put any money down, and you couldn’t afford the 

homes but you were pushed into those homes. And that caused a 

real problem for our economy. 

But now you have this big net—we do a lot of fishing up in 

Maine—and this big net is smothering everybody who should be 

able to swim through that net. 

I will give an example. Let’s say you have someone who is a 

great furniture-maker in Bangor, and they also run an organic 

farm. And they are trying to put aside about $100 a month to save 

for their retirement. And they have a fellow down in Lewiston who 

is a financial advisor who is helping them with that retirement 

savings. 

45 

And if you believe the study done by a fellow who used to run 

the CBO saying, if these investment management firms that are 

running these retirement plans come under the SIFI designation, 

too-big-to-fail, it means their costs are going to go up to run these 

accounts, the rates of return of what they can charge are going to 

go down to the tune of about 25 percent over the long run, and so 

the nest egg, the retirement nest egg for this organic farmer and 

the fellow who is also working in the family who is making furniture are going to go down, which means more dependence on the 

government and less freedom. 

The bigger our government gets, the smaller the people get. And 

this is a real problem. 

So this, in my opinion, is not fair. Government is supposed to 

work for our people. Where is the compassion in the fourth branch 

of government, these regulators who write the rules that we all 

have to live by and our businesses have to work by? 

Ambassador Gray, you have done an awful lot of work on the 

SIFI designation, the too-big-to-fail, under the Dodd-Frank umbrella. And I would like to know what you think, sir, about an 

asset management firm, a pension fund investment firm that runs 

other people’s money, represents no risk to the economy, if all of 

a sudden they are designated as too-big-to-fail, they have additional regulations, more costs, they offer less products for our savers, and the rates of return go down. 

How does an investment firm—how does a pension fund management firm that is trying to help our retirees and kids going to college—how do they deal with a SIFI designation? How do they determine if, in fact, they are ever going to be designated so and how 

do they respond? 

Mr. GRAY. Of course, in many ways that is a really good question, the $64,000 question. The vagueness of the charter of much 

of the CFPB’s business model is so unclear that you wouldn’t know. 

There is no way a pension fund, a mutual fund, an insurance 

company can pose a systemic risk to anybody—except maybe to 

itself, but certainly not to a widespread community. And why that 

is included and why that is possible is only because the terms are 

so vague, and there is no accountability, and there is no court ability to say no, you can’t do this. The courts are cut out of the key 

decision about whether or not there is a risk to the underlying 

economy. 

I really can’t answer your question except to say that it is just— 

something hypocritical about a comment I just heard about the implication that we on, say, my side, our side, your side, are representing big business, when I have been at the same time criticized for only having as a plaintiff to challenge some of this a little 

teeny $270 million bank in Big Springs, Texas, which no one had 

ever heard of, and must be useless. And why should it carry any 

weight, because it hasn’t gotten any big-bank amicus briefs filed to 

support it, as if somehow it has no legitimacy as a small bank and 

can only be legitimate if it were joined by JPMorgan as an amicus. 

I will tell you that we can’t get any amicus briefs. It took 18 

months to find Mr. Purcell, one of the great, great people I have 

met in Big Springs. Actually, I met him there; he has been here, 

46 

and wowed this committee in testimony some months ago. The only 

reason we got him at all is because we were really lucky. 

But my own law firm cheering me on, ‘‘Go. Go, Gray. Go, go, go, 

go, go.’’ And I said, ‘‘You know, I don’t need your money but I 

would like a face or two just to show your face to show’’—no, no, 

no, no, no, no, no, no. We are not going to take that risk. We are 

not going to—one bank examiner’s examination can knock out a 

bank in 24 hours, so I think we will just take a back seat. 

But go to it. Go to it. You have all—you have everything at our 

back—at your back. 

Thanks a lot, old firm. 

But that is the problem. No one wants to help out in this because 

the power of the government is so intimidating. But we are going 

to prevail. We are going to prevail. 

Mr. POLIQUIN. Thank you very much. Let’s keep pushing back 

against this law. Thank you very much. 

Chairman HENSARLING. The time of the gentleman has long 

since expired. 

The Chair now recognizes the gentleman from Arkansas, Mr. 

Hill. 

Mr. HILL. Thank you, Mr. Chairman. 

And I thank our panel. 

I particularly want to thank Ambassador Gray. I certainly think 

of a hallmark of my career as our service on the White House staff 

for President Bush 41, and thank you. I know you looked back 

fondly this summer with the commemoration of the Americans with 

Disabilities Act that you were such an instrumental leader on, in 

having that passed in the Congress. 

Chairman Royce was talking about how the consumer protection 

rules were basically under the guidance of the prudential regulators, and for me that is no academic exercise, for I was a CEO 

of a consumer and commercial bank until December 31 of 2014, so 

this hearing, Mr. Chairman, is no academic exercise to me. I have 

run an institution under the first 5 years of Dodd-Frank, or 41⁄2

years. 

And to me, the CFPB really was a redundant exercise, and let 

me explain why, because I never once in over 21⁄2 decades of commercial banking ever saw a State or a Federal regulator shirk their 

consumer protection responsibility under Federal law. So I just 

want to repeat that at every hearing; that is the way I feel very, 

very strongly. 

And I heard today from both Mr. Green and the ranking member 

that where Dodd-Frank has gone too far, we should work in a bipartisan way to amend it, mollify it. I couldn’t agree more, and I 

would like to thank the chairman and our bipartisan group who 

are working to take care of one of those things right now, which 

is this new HUD-1 RESPA form, the TRID form, and trying to get 

bipartisan support here in the House and the Senate to remove the 

penalties in the implementation of that Act. 

Mr. Cordray has refused to do that in his own authority at the 

CFPB, and we have now had to ask Congress to delay the possible 

penalties to players on that rule of the CFPB. 

And I want to side with the consumer here. Some 230,000 Americans refinance or buy a new home every month, and they are going 

47 

to be the one who are victimized by this confusing rule that didn’t 

get implemented properly either due to a technology reason or a 

misunderstanding at a real estate brokerage or a title company or 

a bank. So I hope we can get this bill passed before October 3rd 

so that our title and commercial banks, mortgage bankers, and real 

estate agents all have some confidence that they can go into this 

new closing regime but not be penalized either by the Federal Government or through civil liability. 

And I want to thank Mr. Sherman, and certainly Mr. Pearce, for 

their help on this committee, and you, Mr. Chairman. 

We can’t defend bureaucratic intransigence at the expense of our 

home-buying public. 

I love this hearing on the rule of law. It is exceptional. 

I thank the chairman. I want to echo appreciate for it. 

And I want to turn to Mr. Gray and Mr. Skeel. 

The missing man in this formation—where the airplanes fly over 

at a funeral, the missing man formation—sort of in the DoddFrank Act, the missing man is reform of the GSEs, Fannie Mae 

and Freddie Mac. Mr. Gray referenced equal treatment for privately—or similarly situated creditors. 

You were referring, I think, to GM in your testimony, but I think 

that might apply in the Fannie Mae and Freddie Mac 

conservatorships. 

And, Mr. Skeel, you talked about the 100 percent sweep that is 

now in place between Treasury on Fannie and Freddie, the socalled third amendment to their conservatorship. 

It struck me that it is—that may not even have been a legal action, given the conservatorship statute. I would like both of you to 

address that. 

Ambassador Gray, if we could start with you? 

Mr. GRAY. The actual example I was thinking of was the bailout 

of AIG, where certain creditors were treated differently than others, and some got paid 100 cents on the dollar, and others didn’t. 

And in the Chrysler bankruptcy, the Indiana Pension Fund lost everything just because of the way the government played favorites. 

And that kind of favoritism is what is codified in the OLA Title 

II section of Dodd-Frank, and I think it is a very dangerous way. 

The old-fashioned way of doing it is the right way: a level playing 

field, everybody gets treated the same. And I wish we could get 

back to that, and I think there is legislation pending in the Senate, 

as I may have said in my testimony, proposed by Senator Cornyn 

and others, that would try to resurrect the historic bankruptcy 

principles. 

Mr. HILL. Dr. Skeel? 

Mr. SKEEL. I do believe there were great problems with what was 

done in 2012. In 2008 Fannie and Freddie were taken over, they 

were put in conservatorship by the government, and they were left 

there for a period of years. And lo and behold, Fannie and Freddie 

started to make money again, and so Treasury changed the deal 

and basically made it impossible for private shareholders to get 

anything. 

I am not a constitutional law scholar, but it sure looks like a taking to me. There is some litigation on this. The plaintiffs lost one 

hearing, but there is some other litigation going on. 

48 

The worst effect of this, in my view, is it has reduced any incentive for you all to do something about Fannie and Freddie. As long 

as they are sitting there in limbo and they are making money, 

there is no pressure to fix them, and Dodd-Frank did nothing to fix 

them. 

Mr. HILL. Thank you, Mr. Skeel. 

And thank you, Mr. Chairman. 

Chairman HENSARLING. The time of the gentleman has expired. 

Professor Skeel, I understand that you have asked to be excused 

at this time, so we thank you for your testimony and you are excused. 

The Chair now recognizes the gentleman from Minnesota, Mr. 

Emmer. 

Mr. EMMER. Thank you, Mr. Chairman, and thanks for holding 

this hearing. 

I appreciate all the witnesses being here this morning and sharing with us the benefit of your expertise. 

As we have been reminded today, Dodd-Frank was drafted in response to the financial crisis of 2008 and 2009, during which the 

Federal Government bailed out a large number of financial firms 

at taxpayer expense. At the time of enactment, the law was 2,300 

pages which required Federal regulators to create more than 400 

new rules. 

Forgetting for a moment that almost 40 percent of the rules 

needed to implement the 2,300 pages have yet to be finalized, my 

colleagues on the other side of the aisle argue that real GDP 

growth has rebounded since Dodd-Frank was signed into law. They 

say that despite the fact that our average GDP growth since 2010 

is about 2 percent. 

Now, forgetting for a moment also that if we look back in history 

at the history of economic recoveries after major economic crisis in 

this county, the rebound has been much stronger, I want to ask— 

and I guess I will ask Professor Zywicki—my understanding is the 

way we calculate GDP is we include government spending in that 

number. 

Mr. ZYWICKI. That is correct, yes. 

Mr. EMMER. And my understanding also is that government 

spending accounts for about 2 percent of that calculation—close to 

it, anyway. 

Mr. ZYWICKI. I would have to take your word for that. 

Mr. EMMER. All right. If that is true, regardless of the number, 

government spending is included. It doesn’t give us an accurate 

view as to how our private economy or our private economic growth 

has occurred since 2010. Isn’t that fair, Professor? 

Mr. ZYWICKI. That is absolutely right, and pretty much all economists agree on that. 

Mr. EMMER. And while there are many factors, including excessive regulation beyond the excessive and vague regulation created 

by Dodd-Frank and an overly burdensome tax system that contributes to the lack of private economic growth in this country, I have 

to say I am beyond surprised to hear Mr. Gupta say that an unaccountable, Soviet-style organization ruled by one appointed bureaucrat who isn’t subject to judicial review should be considered the 

‘‘crown jewel’’ of the Dodd-Frank experience. 

49 

Based on the facts and information I have received directly from 

my constituents, by the way—both involved in the financial industry providing opportunity, and the consumers who are looking for 

capital to buy cars, buy homes, to start businesses and create new 

opportunities—to suggest that there is absolutely no correlation between the actions of the Consumer Finance Protection Bureau and 

the problems faced by our community banks, credit unions, and, 

yes, our constituents, the consumers, who are losing access to the 

capital necessary to do these things I just described, frankly is out 

of touch with the reality that those of us who have been sent here 

to represent these folks—our experience outside of this academic 

bubble known as Washington, D.C. 

In addition to all of the other problems with Dodd-Frank, we 

have an unelected, unaccountable political theocracy called the 

CFPB that is directly impacting the freedom of Americans to pursue their dreams. 

Small banks are eliminating or planning to discontinue certain 

products and services, including residential mortgages, mortgage 

servicing, home equity lines of credit, and overdraft protection— 

just some of the most obvious ones. And nearly 64 percent of small 

banks that have been surveyed are actually making changes to the 

nature, mix, and volume of mortgage products as a direct result of 

Dodd-Frank and the dictates of the CFPB. 

Also, as a direct result of the substantial additional compliance 

costs required by Dodd-Frank, we are losing smaller banks and 

credit unions at an alarming pace, as they either cease to exist or 

are absorbed into larger financial institutions. 

And now the CFPB, that some seem to think is accountable and 

responsive to the needs of consumers and of this country, is going 

to eliminate credit access for those with little or no other reasonable option, and it is going to violate the principle of Federalism 

by invading the States with another misguided top-down Washington approach when it comes to payday lending and other opportunities that are available. 

I really hope the members of this committee and Members of 

Congress, on both sides of the aisle, can find a way to correct the 

mistakes of Dodd-Frank and make the CFPB truly accountable before it causes even more serious damage to this country and, frankly, my constituents. 

Thank you, Mr. Chairman. I yield back. 

Mr. GUPTA. If I can, I just want to be on the record— 

Chairman HENSARLING. Time— 

Mr. GUPTA. I am opposed to Soviet-style dictatorships and political theocracies. I wanted to clarify that— 

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 I would like to thank all of you for being here today and for 

your testimony, and also say hello to my friend, Ambassador Gray. 

It is good to see you, and thank you for your service to our country. 

50 

This whole dialogue is really personal to me. I am a small-business owner. I have been in business for 44 years, a family business 

since 1939. 

And in full disclosure, I am one of ‘‘them’’—I am a car dealer. 

And so when you start talking about Dodd-Frank, you start talking 

about the CFPB, and you start talking Operation Choke Point, it 

gets personal with me. 

So my first question to you, Mr. Zywicki is, in your testimony you 

stated, ‘‘Lacking the authority to reach the auto dealers, the CFPB 

came up with a creative solution—it decided to hold the financial 

institutions—the indirect lenders, in other words—responsible for 

any alleged discriminatory lending patterns by the auto dealers 

themselves.’’ 

You and I spoke about this before during your last testimony before this committee, but I think it bears me repeating. 

We are currently seeing this play out with Ally Financial, who, 

although it has settled—I quote, ‘‘settled’’—with the CFPB, has yet 

to actually pay out any funds to those who were discriminated 

against. In fact, the process for how funds from the settlement are 

being distributed is somewhat unknown and certainly definitely 

vague. 

Now, you also highlighted the CFPB’s allegations of discrimination by auto dealers as examples of regulators exceeding their 

bounds of the rule of law in order to force banks to do their bidding 

and limit consumer choice. 

So, question: Aren’t legal businesses entitled to due process, and 

should they, as in the case of auto dealers like me, understand that 

the process is being used to back up alleged discrimination? 

Mr. ZYWICKI. That is exactly what is going on here is by evading 

anything that resembles the rule of law—there is no notice and 

comment rulemaking here; there is no study of the impact on consumers. Basically, what they have done is in this sort of nudgenudge, wink-wink, backroom way in which Ambassador Gray indicated that they can push around the banks now because they are 

so interwoven with them, they are just imposing this rule on the 

auto dealers, and the auto dealers have no say in it, they have no 

opportunity to object to it. 

And I think this is just an example of an out-of-control entity 

conscripting private financial institutions to do their bidding and to 

go after people that they don’t like. And it is exactly like Operation 

Choke Point in that way. 

Mr. WILLIAMS. And what they don’t understand is the consumer 

tells us if we are doing a good job or a bad job, and the government 

doesn’t understand that. 

Mr. ZYWICKI. That is right. Yes. 

And another thing with the auto dealers is they don’t understand 

that you are selling cars, not loans, right? The financing and selling of the cars goes together. 

It is a very complicated process, and they are just so obsessed 

with this one little part of it—of a larger transaction that those are 

the kind of—that is why we have notice and comment rulemaking, 

right, so you can point out to somebody, ‘‘You don’t know what you 

are doing,’’ right? It is an opportunity to basically explain the complexity of this transaction and explain the impact on consumers, 

51 

and this is what happens when we remake the entire car dealer 

industry with a five-page informal guidance. 

Mr. WILLIAMS. With that being said, we both mentioned Operation Choke Point. How does Operation Choke Point undermine the 

rule of law, in your opinion? 

Mr. ZYWICKI. Operation Choke Point is one of the most frightening government initiatives I have seen, and one of the things— 

we have talked about the rule of law—that is awful about all this 

is they took an idea that was not necessarily unsound, but what 

we have seen again and again and again over the past several 

years is just the Executive Branch pushing things beyond any sort 

of reason, right? 

And that is the case here, which is it is just blatant targeting of 

companies and industries that they don’t like, and using this vague 

notion of reputational risk while there are other equally plausible 

targets that they are not going after purely because of political and 

ideological reasons. 

Mr. WILLIAMS. I think most would agree competition and consumers should drive the economy, not these regulations we see 

from the Federal Government. 

Mr. ZYWICKI. That is right. And that is what is awful about 

Dodd-Frank is that Dodd-Frank now basically is picking and choosing the winners and losers among banks based on who can best arbitrage, pull strings, and bear the regulatory burden, rather than 

the playing field of fair and free competition and markets. 

And what it is doing is making the big banks bigger, killing the 

small banks, getting rid of innovation and consumer choice, and 

supplanting marketplace competition with the heavy hand of bureaucratic central planning. 

Mr. WILLIAMS. And in the end, the consumer is the one who is 

affected. 

Mr. ZYWICKI. That is right. They know best, not Washington. 

Mr. WILLIAMS. In my short period of time, Dr. Spalding, quickly, 

Operation Choke Point—if you had to describe it to the Nation’s 

Founders, what do you think their reaction would be? 

Mr. SPALDING. The problem is that Cass Sunstein has this theory 

of nudging things along; this is a shove, all right, so push comes 

to shove. The problem is that this is government actively forcing 

people to do things and directing their behavior. It clearly violates 

the whole concept of self-government. 

Mr. WILLIAMS. Thank you, Mr. Chairman. I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentlelady from Utah, Mrs. Love. 

Mrs. LOVE. Thank you, Mr. Chairman. 

Mr. Zywicki—is that—did I pronounce that correctly? 

Mr. ZYWICKI. That is great. 

Mrs. LOVE. Okay, great. 

We have heard a lot today about the centralization of power and 

how it has unleashed arbitrary regulatory discretion and empowered interest groups beyond any time in American history. Ultimately, this trend has succeeded in taking power out of the hands 

of people, and that is what I want to concentrate my questions on 

today. 

52 

A couple of things that you mentioned in your testimony are particularly concerning to me and my constituents—for example, the 

fact that the CFPB is data-mining American families’ personal financial data. Obviously, my constituents don’t want their credit 

card purchases to be tracked by Federal Government. Do you know 

what the CFPB is collecting this data for? 

Mr. ZYWICKI. They have never explained what they are collecting 

it for, or why they need so much of it, or why they couldn’t do with 

less. A while back, economist Thomas Stratmann submitted a letter where he estimated that the CFPB is collecting 70,000 percent 

more credit card accounts than they need for any legitimate regulatory purpose. 

Mrs. LOVE. What was that percentage? 

Mr. ZYWICKI. 70,000 percent, in order to get statistical significance, as an economist would say. And so, there may be a legitimate regulatory purpose, but is there a legitimate regulatory purpose why they need 991 million credit card accounts instead of 500 

million or 2 million? 

The answer is ‘‘no.’’ They could do a couple million at most is all 

that is necessary. 

Mrs. LOVE. Okay. 

Do you have an answer for that, Mr. Gupta, as to why they are 

collecting this data— 

Mr. GUPTA. I think— 

Mrs. LOVE. —so much data? 

Mr. GUPTA. —there is so much misinformation about this issue 

that has been put out. 

Mrs. LOVE. Okay. 

Mr. GUPTA. What the CFPB is doing is really no different from 

any of the existing regulators that all have been collecting similar 

data. This is— 

Mrs. LOVE. So you are actually saying that pretty much all of 

the— 

Mr. GUPTA. The prudential regulators, the ones that existed— 

Mrs. LOVE. All of the regulators— 

Mr. GUPTA. —before Dodd-Frank. And this is not transactionlevel data; it is account-level data. It is anonymized. It doesn’t have 

information about American citizens. 

The reason to collect this data is not to spy on people or to collect— 

Mrs. LOVE. So, what is it for? 

Mr. GUPTA. —information about individuals. It is to get an aggregate picture of the market. We should want regulators to understand what is happening in the market. 

Mrs. LOVE. Would you assess that most consumers actually know 

that this data is being collected? 

Mr. GUPTA. This is data that mostly is already public. This is 

data about— 

Mrs. LOVE. Okay. 

Mr. GUPTA. —who owns automobiles, who owns— 

Mrs. LOVE. So are you assessing—are you saying that most constituents—if I put this video up today, that most of my constituents, most of America knows that all of this data is actually being 

collected? 

53 

Mr. GUPTA. I think most of your constituents would know that 

mortgages are available in public land records— 

Mrs. LOVE. Okay. Wait a minute. Hang on a second. Hang on one 

second. This is the problem. 

Where you say most of my constituents would know, that is the 

problem with Washington. You don’t know what my constituents 

think. 

Every time I have had about five town hall meetings in the last 

week of August, not one constituent knew that their financial data 

was being collected. 

What responsibility do you think the CFPB has to make sure 

that they know that their financial data is actually being collected, 

and what right do they have to actually collect that data? 

Mr. GUPTA. I think the Bureau should be completely transparent 

about it. 

Mrs. LOVE. I agree. 

Mr. GUPTA. And I think they have been. And I think—what I 

was saying earlier is that I think your constituents would know 

that mortgages—that who owns what house and the mortgage 

data, that is available in public land records, and the same thing 

with automobile ownership records. I think they would understand 

that the DMV has that information about them. 

The information that the CFPB is collecting is primarily that information that is already public. And to the extent it is information 

from financial institutions, it is anonymized, it is not transactionlevel data— 

Mrs. LOVE. And again, I still have heard no reason as to why this 

information is being collected, and I am telling you right now I 

think it is the responsibility of the CFPB to stop collecting this 

data or at least tell the American public why this is being collected. 

Another question I wanted to ask is that we mentioned that the 

CFPB’s intrusion on the business of auto dealers has, according to 

recent reports, resulted in higher interest rates for car loans for 

consumers. 

Again, please explain to me, Mr. Zywicki, how that actually helps 

the poorest among us and those who are struggling to make ends 

meet? 

Mr. ZYWICKI. Obviously it doesn’t, and this is what happens 

when you make a regulation—or whatever this is; you can’t call it 

a regulation because it is not—in the back rooms in the ways that 

they are doing here. 

Just one note on the data-mining operation, as this committee 

will know, Director Cordray was once asked, ‘‘Why don’t you notify 

consumers and give them a chance to opt out from having this information sent to the CFPB?’’ And he said, ‘‘Because nobody would 

participate and so the program wouldn’t work.’’ 

So I think to say that people kind of implicitly understand it isn’t 

very accurate. 

Mrs. LOVE. My time is very short. I have 6 seconds. 

But I just want to make a note and let every American who is 

watching this right now know that their information is actually 

being mined. Their financial information is being mined, and the 

CFPB has yet to tell us why it is being mined, why they need this 

information. 

54 

I again would like to make sure that we let the American public 

know that this government has gotten so big that we cannot navigate through that. They have no idea what people are collecting, 

why they are collecting it, and I think that this is something that 

every American should know, and I just want to make sure that 

we put that on record. 

Chairman HENSARLING. The time of the gentlelady has expired. 

The Chair now recognizes the gentleman from Kentucky, Mr. 

Barr. 

Mr. BARR. Thank you, Mr. Chairman. Thank you for holding this 

hearing examining the Dodd-Frank Act 5 years later, are we more 

free, and especially holding the hearing on Constitution Day, where 

we can examine whether or not the Dodd-Frank law is consistent 

with the Constitution’s separation of powers and the rule of law enshrined in the Constitution. 

In particular, I think it is timely to make this assessment or examination into the constitutionality of the Dodd-Frank law in light 

of the fact that the D.C. Circuit in July has revived a constitutional 

challenge to the structure of the agency and conferred a standing 

to a small $340 million community bank in Texas. 

But I would like to first focus on this issue of the nondelegation 

doctrine. Mr. Gupta, in his testimony, dismissed the arguments 

against the constitutionality of the agency, saying that these were 

merely a thin-veiled attempt to breathe life into the nondelegation 

doctrine, which some of us believe actually is a pretty profound and 

important provision in Article I, Section 1 of the Constitution: ‘‘All 

legislative powers herein granted shall be vested in a Congress of 

the United States’’. 

So I would like to ask Ambassador Gray and Dr. Spalding, as 

students of the Constitution, what the word ‘‘all’’ means, and 

whether or not ‘‘all’’ implies that Congress should be permitted to 

delegate legislative power to another branch of government. 

Mr. GRAY. I believe, obviously, it clearly does not. My colleague 

to my left thinks that the nondelegation doctrine was buried in 

1937 with the sick chicken case, the Schechter Poultry case. Cass 

Sunstein, the great Harvard-law Poobah, administrative-law 

Poobah, has once said nondelegation doctrine had 1 good year and 

111 bad years. 

But in fairness, there haven’t been many statutes—or any statutes—thrown out since Schechter, but it has led to the creation of 

a very powerful doctrine of construction called the nondelegation 

canon of construction, and the courts have been using it to narrow 

statutes to avoid the problems of too much delegation. And this, I 

think, is something to bear very much in mind. 

One of the recent cases, Whitman v. American Trucking, or viseversa—Justice Scalia looked as though on the surface he was 

throwing out a nondelegation challenge but, in fact, he accepted the 

challenge, ruled that it was valid to the extent of saying that an 

agency can’t act unless it has a significant risk that it is addressing. And that is a lot of what the CFPB does. It doesn’t appear to 

be addressing any significant risk of anything. 

Mr. BARR. So if I may just jump in here, when you look at the 

open-ended delegation and the unfettered discretion that Congress 

delegated these authorities to the CFPB, and when you see guidVerDate Nov 24 2008 17:47 Nov 09, 2016 Jkt 099729 PO 00000 Frm 00058 Fmt 6633 Sfmt 6633 K:\DOCS\99729.TXT TERI
55 

ance that circumvents the Administrative Procedure Act (APA), 

that doesn’t involve notice and comment rulemaking, where the 

agency is not listening to congressional feedback—bipartisan congressional feedback—do you believe that there is a nondelegation 

doctrine problem with the structure of the CFPB? 

Mr. GRAY. Absolutely, and I have said so. The legislation says 

that the Congress has to defer to what the agency rules, but the 

Whitman case says equally clearly that in a case of nondelegation 

challenge, the agency has no say in— 

Mr. BARR. In fact, you have circumstances where the CFPB is 

specifically circumventing the expressed intent of Congress by indirectly regulating auto dealers—not lenders, auto dealers—through 

the guidance that doesn’t even involve notice and comment rulemaking. 

Dr. Spalding, did you want to just quickly jump in on that? 

Mr. SPALDING. No, I think—I completely agree with Ambassador 

Gray. 

The thing I was going to point out is the underlying problem 

here is not nondelegation per se; it is a complete breakdown of the 

separation of powers. Just because the courts are unable to see the 

obvious, which is this nondelegation has really gone into a new 

form, does not mean Congress should not and must not protect its 

own legislative powers. 

These regulatory agencies, this one in particular, are clearly exercising your lawmaking powers that ‘‘all’’ means all and they must 

stay in article one. 

Mr. BARR. Professor Zywicki, really quickly, Mr. Gupta says that 

the CFPB comes before Congress and that the CFPB is bound by 

the APA. 

To me, that is like saying King George is accountable to Thomas 

Paine simply because Thomas Paine is providing feedback to King 

George. Can you comment on Mr. Gupta’s argument that the Bureau is, in fact, accountable? 

Mr. ZYWICKI. I think the Constitution has this right. Congress 

has the power of the purse, and the Executive Branch—you have 

to be accountable somewhere in a real way, and they are not. 

Mr. BARR. Thank you. 

I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

There are no other Members in the queue. 

Thus, I would like to thank all of our witnesses for their testimony today. 

The Chair notes that some Members may have additional questions for this panel, which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 5 legislative days for Members to submit written questions to these witnesses and to place their responses in the record. Also, without objection, Members will have 5 legislative days to submit extraneous 

materials to the Chair for inclusion in the record. 

This hearing stands adjourned. 

[Whereupon, at 12:55 p.m., the hearing was adjourned.] 

(57) 

A P P E N D I X 

September 17, 2015 

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