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WHO’S WATCHING THE WATCHMEN? OVERSIGHT

OF THE CONSUMER FINANCIAL PROTECTION

BUREAU

HEARING

BEFORE THE

SUBCOMMITTEE ON TARP, FINANCIAL SERVICES

AND BAILOUTS OF PUBLIC AND PRIVATE PROGRAMS

OF THE

COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

FIRST SESSION

MAY 24, 2011

Serial No. 112–76

Printed for the use of the Committee on Oversight and Government Reform

(

Available via the World Wide Web: http://www.fdsys.gov

http://www.house.gov/reform

(II)

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

DARRELL E. ISSA, California, Chairman

DAN BURTON, Indiana

JOHN L. MICA, Florida

TODD RUSSELL PLATTS, Pennsylvania

MICHAEL R. TURNER, Ohio

PATRICK T. MCHENRY, North Carolina

JIM JORDAN, Ohio

JASON CHAFFETZ, Utah

CONNIE MACK, Florida

TIM WALBERG, Michigan

JAMES LANKFORD, Oklahoma

JUSTIN AMASH, Michigan

ANN MARIE BUERKLE, New York

PAUL A. GOSAR, Arizona

RAU ́ L R. LABRADOR, Idaho

PATRICK MEEHAN, Pennsylvania

SCOTT DESJARLAIS, Tennessee

JOE WALSH, Illinois

TREY GOWDY, South Carolina

DENNIS A. ROSS, Florida

FRANK C. GUINTA, New Hampshire

BLAKE FARENTHOLD, Texas

MIKE KELLY, Pennsylvania

ELIJAH E. CUMMINGS, Maryland, Ranking

Minority Member

EDOLPHUS TOWNS, New York

CAROLYN B. MALONEY, New York

ELEANOR HOLMES NORTON, District of

Columbia

DENNIS J. KUCINICH, Ohio

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

STEPHEN F. LYNCH, Massachusetts

JIM COOPER, Tennessee

GERALD E. CONNOLLY, Virginia

MIKE QUIGLEY, Illinois

DANNY K. DAVIS, Illinois

BRUCE L. BRALEY, Iowa

PETER WELCH, Vermont

JOHN A. YARMUTH, Kentucky

CHRISTOPHER S. MURPHY, Connecticut

JACKIE SPEIER, California

LAWRENCE J. BRADY, Staff Director

JOHN D. CUADERES, Deputy Staff Director

ROBERT BORDEN, General Counsel

LINDA A. GOOD, Chief Clerk

DAVID RAPALLO, Minority Staff Director

SUBCOMMITTEE ON TARP, FINANCIAL SERVICES AND BAILOUTS OF PUBLIC AND

PRIVATE PROGRAMS

PATRICK T. MCHENRY, North Carolina, Chairman

FRANK C. GUINTA, New Hampshire, Vice

Chairman

ANN MARIE BUERKLE, New York

JUSTIN AMASH, Michigan

PATRICK MEEHAN, Pennsylvania

JOE WALSH, Illinois

TREY GOWDY, South Carolina

DENNIS A. ROSS, Florida

MIKE QUIGLEY, Illinois, Ranking Minority

Member

CAROLYN B. MALONEY, New York

PETER WELCH, Vermont

JOHN A. YARMUTH, Kentucky

JACKIE SPEIER, California

JIM COOPER, Tennessee

(III)

C O N T E N T S

Page

Hearing held on May 26, 2011 ............................................................................... 1

Statement of:

Warren, Elizabeth, Special Adviser to the Secretary of the Treasury for

the Consumer Financial Protection Bureau, U.S. Department of the

Treasury ......................................................................................................... 10

Zywicki, Todd, foundation professor of law, George Mason University;

David S. Evans, chairman, Global Economics Group, lecturer, University of Chicago Law School; Adam J. Levitin, associate professor of

law, Georgetown University Law Center; and Andrew Pincus, partner,

Mayer Brown Rowe & Maw LLP ................................................................. 41

Evans, David S. ......................................................................................... 50

Levitin, Adam J. ........................................................................................ 63

Pincus, Andrew .......................................................................................... 77

Zywicki, Todd ............................................................................................. 41

Letters, statements, etc., submitted for the record by:

Evans, David S., chairman, Global Economics Group, lecturer, University

of Chicago Law School, prepared statement of ........................................... 52

Levitin, Adam J., associate professor of law, Georgetown University Law

Center, prepared statement of ..................................................................... 65

McHenry, Hon. Patrick T., a Representative in Congress from the State

of North Carolina, prepared statement of ................................................... 4

Pincus, Andrew, partner, Mayer Brown Rowe & Maw LLP, prepared

statement of ................................................................................................... 79

Quigley, Hon. Mike, a Representative in Congress from the State of

Illinois, letter dated May 19, 2011 .............................................................. 7

Warren, Elizabeth, Special Adviser to the Secretary of the Treasury for

the Consumer Financial Protection Bureau, U.S. Department of the

Treasury, prepared statement of ................................................................. 13

Zywicki, Todd, foundation professor of law, George Mason University,

prepared statement of ................................................................................... 43

(1)

WHO’S WATCHING THE WATCHMEN? OVERSIGHT OF THE CONSUMER FINANCIAL PROTECTION BUREAU

TUESDAY, MAY 24, 2011

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON TARP, FINANCIAL SERVICES AND

BAILOUTS OF PUBLIC AND PRIVATE PROGRAMS,

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM,

Washington, DC.

The subcommittee met, pursuant to notice, at 1:16 p.m., in room

2247, Rayburn House Office Building, Hon. Patrick T. McHenry

(chairman of the subcommittee) presiding.

Present: Representatives McHenry, Guinta, Buerkle, Amash,

Gowdy, Issa (Ex Officio), Quigley, Maloney, Yarmuth, Speier, Cooper, and Cummings (Ex Officio).

Staff present: Robert Borden, general counsel; Katelyn E. Christ,

research analyst; Benjamin Stroud Cole, policy advisor and investigative analyst; Drew Colliatie, staff assistant; John Cuaderes,

deputy staff director; Adam P. Fromm, director of Member services

and committee operations; Linda Good, chief clerk; Tyler Grimm

and Ryan M. Hambleton, professional staff members; Peter Haller,

senior counsel; Christopher Hixon, deputy chief counsel, oversight;

Hudson T. Hollister, counsel; Jaron Bourke, minority director of administration; Jason Powell and Steven Rangel, minority senior

counsels; Brian Quinn and Davida Walsh, minority counsels; Dave

Rapallo, minority staff director; and Cecelia Thomas, minority

counsel/deputy clerk.

Mr. MCHENRY. The committee will come to order.

The hearing today is Who’s Watching the Watchmen? Oversight

of the Consumer Financial Protection Bureau.

The committee is now in order. We make it a policy here on the

Oversight and Government Reform Committee to read our mission

statement.

We exist to secure two fundamental principles. First, Americans

have a right to know that the money Washington takes from them

is well spent; and, second, Americans deserve an efficient, effective

government that works for them.

Our duty on the Oversight and Government Reform Committee

is to protect these rights. Our solemn responsibility is to hold government accountable to taxpayers, because taxpayers have a right

to know what they get from their government. We will work tirelessly in partnership with citizen watchdogs to deliver the facts to

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the American people and bring genuine reform to the Federal bureaucracy.

This is the mission of the Oversight and Government Reform

Committee.

I now recognize myself for 4 minutes for an opening statement.

Today’s Oversight hearing underscores the role of the U.S. Congress to scrutinize the implementation and enforcement of key provisions of the Dodd-Frank Act. The Consumer Financial Protection

Bureau, which is the brainchild of today’s first witness, has been

hailed by some as a much-needed regulatory authority to limit the

risk of financial fraud. Yet others, myself included, are skeptical

that the Bureau’s creation, structure, and broad discretionary powers are warranted.

Nevertheless, Dodd-Frank is now the law of the land; and in a

few short weeks the Bureau will become a powerful instrument in

the hands of progressive regulators. Once fully operational, the Bureau will possess virtually unchecked discretion to identify financial products and services that the director determines to be ‘‘unfair, deceptive, or abusive.’’

To fund and execute this mandate, the law has granted the Bureau an unparalleled budgetary authority, free from congressional

authorization and an unacceptable degree of autonomy, hidden

from congressional oversight.

While we have yet to hit the date of transfer of authority to the

Bureau, Congress has a responsibility to assess and the American

people have a right to know the designs that Professor Warren has

implemented in its creation. What controls are being created to

protect the American people from abusive government power? We

demand internal controls of companies. What internal controls govern the Bureau? What limits are being set to guard them from administrative overreach? In the absence of the normal checks and

balances established by the Constitution, what guarantees do the

American people have that the Bureau will behave responsibly,

spend wisely, and regulate fairly?

Furthermore, in earlier testimony before the Financial Services

Committee here in the House, Professor Warren asserted that the

Bureau is ‘‘the most constrained and the most accountable agency

in government.’’ Yet the lofty promise of restraint and accountability seems to be backed by the highest appeal threshold in regulatory history.

In that same appearance, Professor Warren testified that the Bureau’s role in ongoing mortgage settlement negotiations was limited

to ‘‘advice.’’ Furthermore, one of her staffers then e-mailed the

press and defines the role and the quote of advice defined by Miriam Webster.

Since her testimony, however, Congress received evidence that

Professor Warren and the Bureau were deeply involved in the negotiations. The emergence of the Bureau’s ‘‘Settlement Presentation’’ and the fact that Professor Warren has been in dozens of

meetings with Federal and State officials about these settlements

raise concerns about the veracity of her earlier testimony.

This hearing, however, is not about a confirmation hearing for

Professor Warren or a potential Senate race. This hearing is about

the mission, policy, and structure that affect the creation and imVerDate 17-JUN-2003 12:47 Jan 24, 2012 Jkt 000000 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\71821.TXT KATIE PsN: KATIE
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plementation of the Bureau. It is also the need for critical oversight

of an agency which has so vast oversight authority over large portions of the American economy. Simply stated, who is watching the

watchmen?

The Constitution creates a government that protects the freedoms of the American people, not one that provides for them. It

empowers the people through their elected officials, who are directly accountable to them, not a super-class of administrative

elite. Protecting American consumers from abusive institutions and

unaccountable authorities is the first priority of this committee and

the U.S. Congress. Today, we will examine whether the key provisions of the Dodd-Frank Act serve this purpose.

With that, I yield 4 minutes to the ranking member, Mr. Quigley

of Illinois.

[The prepared statement of Hon. Patrick T. McHenry follows:]

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Mr. QUIGLEY. Thank you, Mr. Chairman.

Like any government agency, this new agency needs vigilant

oversight from Congress and this committee, but we should not obstruct it from carrying out the intent of the Dodd-Frank Act.

Millions of Americans are still suffering the consequences of the

housing and financial crisis. This crisis was caused in large part by

weak or nonexistent regulation. These regulatory failures allowed

dangerous consumer financial products and toxic financial instruments to infiltrate the marketplace.

Before Dodd-Frank, consumer financial protection responsibilities

were scattered across seven different agencies. Unscrupulous lenders were able to take advantage of consumers by selling them

faulty, fraudulent, and deceptive financial products. This reckless

lending poisoned the financial system and directly contributed to

the mortgage meltdown.

While today we may have the benefit of hindsight, some sounded

the alarm well in advance of the crisis. In 2007, before the onset

of the crisis, Professor Elizabeth Warren recognized that there was

a serious problem. ‘‘Nearly every product sold in America has

passed basic safety regulations well in advance of reaching store

shelves,’’ she observed. ‘‘But credit products, by comparison, are

regulated by a tattered patchwork of State and Federal laws that

have failed to adapt to changing markets.’’

This new agency was explicitly designed to address these regulatory shortcomings. Just like the Consumer Products Safety Commission protects consumers against exploding toasters, the new

agency will protect consumers against faulty mortgages. One of the

CFPB’S strengths is its accountability. The CFPB has a capped

budget, its action are subject to a veto by the Financial Stability

Oversight Council, and it must follow stricter rulemaking procedures than most other agencies.

Another strength is the CFPB’s focus on the ‘‘shadow financial

services sector’’ which has been the most responsible for victimizing

consumers. These unregulated lenders will, for the first time, be

held to the same standards as banks and credit unions.

Our number one priority on this committee must be ensuring

that we never have a repeat of the financial crisis and that the

CFPB is a strong step in the right direction. The CFPB has won

early praise, even from financial industry groups that were initially

hesitant to support it. Both the ICBA and the ABA have praised

the Bureau for its transparent and accessible rulemaking process.

On that point I ask unanimous consent that the May 19, 2011,

article from the American Banker entitled ‘‘New CFPB Mortgage

Disclosures Win Praise for Content and Process’’ be submitted for

the record.

Mr. MCHENRY. Without objection.

[The information referred to follows:]

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Mr. QUIGLEY. This transparency is especially important given the

CFPB’s mandate to increase transparency in the consumer lending

market. I am confident Ms. Warren and the CFPB can continue to

build on its early successes and both consumers and businesses will

be stronger for it. It is critical that the CFPB be implemented as

set forth in the Dodd-Frank Act.

Thank you, Mr. Chairman, and I yield back.

Mr. MCHENRY. I thank the ranking member.

Members will have 7 days to submit opening statements and extraneous material for the record.

Pursuant to committee rules, all witnesses will be sworn before

they testify. If you will stand and raise your right hand and repeat

after me.

[Witnesses sworn.]

Mr. MCHENRY. The record will indicate that the witness answered in the affirmative.

Our first panel, our sole witness on our fist panel is Ms. Elizabeth Warren, who serves as the Assistant to the President and

Special Adviser to the Secretary of the Treasury for the Consumer

Financial Protection Bureau at the U.S. Department of Treasury.

Ms. Warren, you are well accustomed to testifying before Congress. So we have the system of lights. With 1 minute remaining,

you will get the yellow light. You will have 5 minutes to give your

opening statement or to summarize your opening statement. We

will move forward with questions thereafter.

You are now recognized for 5 minutes.

STATEMENT OF ELIZABETH WARREN, SPECIAL ADVISER TO

THE SECRETARY OF THE TREASURY FOR THE CONSUMER

FINANCIAL PROTECTION BUREAU, U.S. DEPARTMENT OF

THE TREASURY

Ms. WARREN. Thank you—let me hit the button.

Thank you, Chairman McHenry, Ranking Member Quigley, and

members of the subcommittee for inviting me today to testify about

the work of the Consumer Financial Protection Bureau.

Two-and-a-half years ago, I came to Washington to serve Congress as chair of the TARP Congressional Oversight Panel. I developed a keen appreciation for the important role of oversight, and

I respect careful oversight work.

For today’s hearing, I have prepared 10 pages of written testimony to document our startup efforts, and that supplements the 34

pages of testimony I provided for the Subcommittee on Financial

Institutions and Consumer Credit in March.

In my testimony, I discuss the Consumer Bureau’s straightforward mission, to make prices and risks clear and to cut down

on the fine print so customers can make straight-up comparisons

among financial products, so they can compare two or three or four

credit cards or three or four mortgages before they actually sign on

the dotted line. That is what Congress created the consumer agency to do, and that is what we are already doing.

Last week, after months of consultation with borrowers and lenders and their representatives, we started testing a prototype of the

mortgage shopping sheet. Eventually, the result of this process will

be a simple, streamlined mortgage disclosure to replace the longer,

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more complicated, and more burdensome forms that are now required by law.

Now, in this process we have taken another step, something pretty much unprecedented in the regulatory world. We have invited

everyone in the door early, before the cake is baked. We are

months away from formal rulemaking, but we believe that by opening up our process and getting help from the people who are affected by these rules we will be more likely to produce something

that works right.

We have posted early versions of the form on our Web site,

www.consumerfinance.gov—come and see us there—and we have

asked people to let us know what they think. So far, a lot of people

have been willing to help. Within hours after our posting of the

new forms, we had more than 20,000 visits to our Web site.

The reaction to the forms has been almost unanimously favorable. The article that Congressman Quigley referred to in the

American Banker was headlined ‘‘New CFPB Mortgage Disclosures

Win Praise for Content and Process.’’ You know, a lot of very different people have been supportive throughout this process. The

Consumer Federation of America and the American Enterprise Institute, U.S. PIRG and the Financial Services Roundtable have all

been supportive.

The draft forms are not perfect. We are only at the beginning.

But the process really matters. It is an example of how a new Federal agency can shed some of the old bureaucratic attitudes and develop ideas and approaches that serve both consumers and businesses.

Mr. Chairman, the title of this hearing is Who Watches the

Watchmen. The answer can be found in a single word—everyone.

At the consumer agency, we aren’t just talking about transparency

and openness, we are living it right now. We are building an agency that involves American families, small banks, credit unions, and

other financial services providers in our work from the ground up.

Recently, there have been many overblown claims about the nature of the consumer agency’s powers. Critics claim that the CFPB

is ‘‘the most powerful regulatory agency that has ever been put together’’ and that it is ‘‘the most powerful agency ever created.’’

The consumer agency isn’t even the strongest of the banking regulators, much less the most powerful agency ever created. Those

kinds of claims disregard the significant limits on the Consumer

Bureau’s authorities, the long debates over these issues more than

a year ago, and the very meaningful oversight that Congress imposes on the Bureau’s functioning. Those claims also ignore the intensity with which large and powerful interests watch everything

we do and make certain that their views are carefully considered.

Most importantly, those claims ignore what we are doing, building an agency in plain sight with help from good people across this

country.

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Together, we can create a fairer system that works for families

and works for the community banks, for the credit unions, and for

the other financial institutions that want to serve those families

honestly and openly.

Thank you for inviting me here today, and I look forward to your

questions.

[The prepared statement of Ms. Warren follows:]

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Mr. MCHENRY. Thank you Ms. Warren. Thank you for your testimony.

I recognize myself for 5 minutes.

Ms. Warren, if the President makes you the CFPB’s first director

through recess appointment, would you accept it? Yes or no would

be fine.

Ms. WARREN. Congressman, it is——

Mr. MCHENRY. Yes or no would be fine.

Ms. WARREN. It is up to the President of the United States under

Dodd-Frank to make the nomination. It would not be appropriate,

I think, for anyone to be speculating about that.

Mr. MCHENRY. As Assistant to the President for Consumer Financial Protection, you are advising the President about the nomination for this Bureau, are you not?

Ms. WARREN. Congressman, I have tried to help the President in

any way I can on the nomination process.

Mr. MCHENRY. Have you recommended anyone?

Ms. WARREN. Congressman, I have tried to help the President.

Mr. MCHENRY. I understand. That is fine. If you don’t want to

answer, that is fine.

Ms. WARREN. I have been doing this for a month.

Mr. MCHENRY. I understand. You don’t want to answer, and that

is fine.

I would call up—if you look at the screen, we have a PowerPoint

presentation.

Now, when I last asked you questions, which was before the

March 16th House Financial Services Committee hearing, I asked

about your role in the mortgage settlement issue and the CFPB’s

role there. You said, ‘‘We have been asked for advice, and wherever

we can be helpful we are not only glad to be helpful, we are proud

to be helpful.’’

Slide one, as you see, this document is dated February 14th, a

month before you answered that question and gave that answer.

Apparently, it is authored by the CFPB. Are you familiar with this

document?

Ms. WARREN. Congressman, I believe, although obviously——

Mr. MCHENRY. Are you familiar with it? Yes or no.

Ms. WARREN. Congressman, I haven’t seen the rest of the pages,

but I assume what this document is is a document that was initially prepared for internal discussions with the Secretary of the

Treasury.

Mr. MCHENRY. Right. At the bottom left corner, if I might point

out, it says ‘‘draft confidential for AG Miller.’’ Are you familiar with

that?

Ms. WARREN. Thank you very much. Yes, Congressman, I am.

Mr. MCHENRY. Second slide. This slide, the second slide, indicates that the CFPB is pushing for significant policy change.

The third slide. This quote indicates that the CFPB is leading

the charge to persuade other regulators to demand punitive penalties.

Fourth slide. If you look at the fourth slide, it is apparent that

the CFPB is pushing a policy proposal called the Principal Reduction Mandate. Is that something that the CFPB has been pushing?

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Ms. WARREN. Congressman, if you want to ask about our

participation——

Mr. MCHENRY. I am going to get to that. I am asking a question.

If you could respond to my question, I would certainly appreciate

that.

Ms. WARREN. Congressman, we have given our advice when we

have been asked for advice, and we have done so proudly and enthusiastically.

Mr. MCHENRY. So if you are so proud and enthusiastic about

your advocacy and advice, why didn’t you express that before the

committee when I asked you your involvement in the settlement

issue?

Ms. WARREN. Congressman, I thought the quote you quoted said

exactly that, and I believe it said that I was proud to give that advice and I thought there was some word enthusiasm.

Mr. MCHENRY. Let me give you the fuller quote here. ‘‘When the

Treasury came to me and said we would like your advice, I was

glad to.’’

Ms. WARREN. Glad to.

Mr. MCHENRY. Right. Okay, AG Miller——

Ms. WARREN. Was there more? I just lost it.

Mr. MCHENRY. Who is Attorney General Miller?

Ms. WARREN. I believe Attorney General Miller is the Attorney

General for the State of Iowa.

Mr. MCHENRY. Okay. That is different than advice to the Treasury Secretary, which is part of your job title, and advice to the

President, is it not?

Ms. WARREN. I am sorry, is what different? Is the Attorney General different from the Secretary of the Treasury?

Mr. MCHENRY. You said you are providing advice to the Treasury

Secretary in your sworn testimony.

Ms. WARREN. That is right, yes.

Mr. MCHENRY. What is apparent is you are providing advice to

the Attorney General of Iowa in their suit against mortgage

servicers, is that correct?

Ms. WARREN. Congressman, the Secretary of the Treasury asked

for advice, and we gave advice. We also gave advice—at his instruction, we gave advice to other Federal agencies, and we gave advice

where asked. I think we tried to make that clear.

Mr. MCHENRY. In terms of mortgage settlement talks, would you

disclose the meetings that you have had about those mortgage settlement talks?

Ms. WARREN. Congressman, I believe that my calendar is an

open book, that we have been posting my calendar since last October, last November. I actually can’t remember.

Mr. MCHENRY. So your calendar would entail when you have discussions about the mortgage settlements?

Ms. WARREN. I can say my calendar is an open book. We make

it part of the public record.

Mr. MCHENRY. I understand. Reclaiming my time, so it has gone

beyond your advice to Treasury. You are also providing advice to

other governmental agencies?

Ms. WARREN. Congressman——

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Mr. MCHENRY. I understand. You can use the word ‘‘Congressman’’ a number of times, Ms. Warren, but I am simply asking a

very simple question, who you are providing advice to?

Ms. WARREN. Congressman, there was a question on this from

Chairman Bachus——

Mr. MCHENRY. I know. I am asking you a question.

Ms. WARREN. What I want to do——

Mr. MCHENRY. A question different from that, Ms. Warren. If

you will answer my question, are you giving advice to any governmental agency outside of the Treasury and the President? Yes or

no?

Ms. WARREN. Congressman, let me read the letter that I sent almost 2 months ago.

Mr. MCHENRY. My time has expired. I am asking you a yes or

no question.

Ms. WARREN. We have provided advice to Federal and State officials regarding a potential settlement—servicing settlement. In

doing so, we have been an active participant in interagency discussions, sharing our analysis and recommendations in support of a

resolution that would hold accountable any servicers that violated

the law.

We sent this letter nearly 2 months ago. We have not heard from

back from you or from anyone else so far as I know in the House

of Representatives or in Congress. This is a statement. We have

given advice when asked.

Mr. MCHENRY. I appreciate your statement.

I have one final question. Have you been in meetings with the

Department of Justice regarding the mortgage settlement issue?

Yes or no.

Ms. WARREN. Yes, we have given advice to the Department of

Justice, when asked, as we say here. We have provided advice to

Federal and State officials.

Mr. MCHENRY. Thank you for your testimony.

I now recognize Mr. Quigley for 5 minutes.

Mr. QUIGLEY. Thank you, Mr. Chairman.

Professor, it is obviously serious when someone accuses anyone

of lying to Congress, but let’s just walk back through this.

First, as was mentioned, the definition of advice somehow will

magically appear. If not, Random House defines it as an opinion or

recommendation offered as a guide to action. So, Professor, you

were asked to provide advice by another agency involved in these

negotiations, is that correct?

Ms. WARREN. Yes, Congressman, it is.

Mr. QUIGLEY. Did you provide advice in response?

Ms. WARREN. Yes, Congressman, we did.

Mr. QUIGLEY. Okay. Did you provide options for how the Federal

Government might proceed in those negotiations?

Ms. WARREN. Congressman, that is what we have tried to do, is

give advice, as we said here, shared our analysis and recommendation. That is what we are trying to do.

Mr. QUIGLEY. Did you ever talk directly with the private parties

to those negotiations?

Ms. WARREN. Congressman, it is not our job to negotiate on behalf of the Federal agencies. That undertaking is led by the DeVerDate 17-JUN-2003 12:47 Jan 24, 2012 Jkt 000000 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\71821.TXT KATIE PsN: KATIE
26

partment of Justice at the Federal level. What we have done is

tried to be helpful to those regulators who are trying to hold those

who broke the law accountable for their actions.

Mr. QUIGLEY. If the Department of Justice ends up taking your

advice, that would give some qualities or reference to how good

your advice was, correct?

Ms. WARREN. Congressman, what they ultimately decide I am

sure will be a mix of many things. I hope we have given good advice.

Let me say this as clearly as I can, Congressman: This is our job,

and we are trying to do our job, and that is to be helpful to other

agencies, to work with other agencies in trying to hold those who

break the law accountable for their misdeeds.

Mr. QUIGLEY. Well, unfortunately, many of these entities that

you will be regulating as a new agency are mortgage servicing companies that have already admitted to breaking the law, that they

have illegally foreclosed on U.S. service members and their families, for example, that they have charged inflated fees and they

have perpetrated fraud on the courts. You are aware of those admissions as well, correct?

Ms. WARREN. Yes, Congressman. I am aware now that the Office

of the Controller of the Currency, the Office of Thrift Supervision,

the Federal Deposit Insurance Corporation, and the Federal Reserve Bank have all found serious, widespread deficiencies. They

have found violations of local law, of State law, and of Federal law

that have damaged families, that have damaged mortgage markets,

and that have damaged the entire economy.

Mr. QUIGLEY. Sort of a David and Goliath discussion, but it flips

on its side to an extent. You are being accused of being an all-powerful, monolithic-type Goliath, but the reality your budget is probably going to be about 1 percent of what these agencies have been

charging just in credit card penalties and overdraft penalties. So I

guess the question is, how are you going to keep up with them?

Ms. WARREN. Congressman, I think that is a tough question, but

I believe that the Consumer Financial Protection Agency is wellcrafted so that we are going to be able to make a significant difference, that we are going to be an effective cop on the beat. We

will have responsibilities in the rule-writing area, doing research,

and, as our new mortgage project shows, doing what we can to

make sure that our rules are streamlined and efficient and effective.

We will have responsibilities in supervision and in enforcement.

In fact, about half of our budget will go to supervision and enforcement. We will have responsibilities in consumer complaints, to hear

from Americans around the country when they have problems with

credit providers; and we will have responsibility for financial education.

We have a lot to do. But the good part is I think those things

work together, work in concert. We have a real opportunity here

to make prices clear, to make risks clear, to give families the opportunity to compare one product with two or three others. And when

that happens, markets can start to work. They can start to work

on behalf of American families.

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Mr. QUIGLEY. In the end, all we have is our good name. Is there

anything else you would like to say about allegations that have

been made?

Ms. WARREN. You know, Congressman, all I can say is it is a

deep honor to be here to try to set up an agency that is designed

to be a voice for American families. They have been shut out of this

process for far too long.

This most recent crisis was the consequence of a substantial——

Mr. MCHENRY. The gentleman’s time has expired. You can finish

your thoughts, and then we will move to the next question.

Ms. WARREN. Thank you. I appreciate that, Mr. Chairman.

I will just say this most recent crisis started one lousy mortgage

at a time. If we had had a Consumer Financial Protection Bureau

in place, we could have avoided a lot of the pain that we have gone

through in the last 21⁄2 years.

Thank you, Mr. Chairman.

Mr. MCHENRY. I thank the ranking member.

With that, Ms. Buerkle of New York is recognized for 5 minutes.

Ms. BUERKLE. Thank you, Mr. Chairman. Thank you for calling

this hearing, and thank you to Ms. Warren for being here today.

Thank you.

Ms. WARREN. Thank you.

Ms. BUERKLE. The Dodd-Frank bill that passed last year included sweeping reforms in the regulation and the oversight of the

financial industry. And while it made many changes, it completely

ignored—and you just alluded to this in your last comment—it

completely ignored reforming Fannie Mae and Freddie Mac, whose

poor big business practices led to massive losses and taxpayer bailouts. Instead of addressing the problems created by political appointees, Dodd-Frank sought to increase the level of government

regulation with the creation of a new regulatory body, the Consumer Financial Protection Bureau.

The thing that concerns me about this new regulatory body is

that the House does not get to approve the director; and, even

worse, it appears that the administration is going to install political appointees using a recess appointment process. This takes it

away from the Senate and the House and an opportunity to question and to do what they should be doing as elected representatives.

My question to you today has to do with the salaries of the folks

who are going to work in this consumer finance Bureau. A quick

look at your Web site lists job openings that you are seeking to fill

in D.C. and three other cities: Chicago, New York, and San Francisco. After a close look at these openings, I found that the starting

salaries with the CFPB are, in most cases, 60 to 90 percent higher

than the GS equivalent listed on the Federal Government’s Web

site.

So my first question to you is, given the absolute fiscal constraints that this Nation faces, the deficit and the debt that this

country is trying to grapple with in trying to get this country back

on a fiscal sanity course, how do you justify that kind of a disparity

in salaries between a government worker versus the folks who are

going to be hired by your regulatory agency?

28

Ms. WARREN. You know, Congresswoman, I really appreciate

your question and your concerns in this area.

You know, when you talk about the structure—the new structure

for the Consumer Financial Protection Bureau, I know you are

aware that this new Bureau was designed to pick up consumer

laws and consumer responsibilities that have been scattered among

seven different agencies, none of those agencies focusing on consumer practices and consumer products.

This is important in the context of the most recent financial crisis, the reason so many people across this country are unemployed,

so many millions of families are losing their home and others have

lost their savings, and that is the question of what kind of regulatory structure do we want, including what kind of pay structure.

And I think you are right to raise this.

Dodd-Frank was very careful and thoughtful in its point, and

that was to say, in effect, the Office of the Controller of the Currency, the principal banking regulator in the country, is paid at one

level——

Ms. BUERKLE. Excuse me, if I could interrupt, as you know, we

only have 5 minutes here.

Ms. WARREN. Yes, ma’am.

Ms. BUERKLE. Let me just give you an example. There is 10 positions, and it is the consumer response policy and procedure analyst. The starting salary range for that position is $72,000 in your

regulatory body. The top salary range is $149,000. Now the GS

equivalent of that is a GS–9. In the Federal Government, a GS–

9 starts at $41,000 and the top salary is $54,000.

My question to you is, why are these folks getting paid such an

exorbitant amount more than someone in the Federal Government

system? And you are not answering my question. You are going

around.

Ms. WARREN. I am sorry, Congresswoman. I am trying to give it

the context about we are following the law set up in Dodd-Frank.

The five banking regulators that exist today, the Federal Reserve

Bank, the Office of the Controller of the Currency, the Office of

Thrift Supervision, the FDIC, those banking regulators are paid on

a different pay scale; and the reason they are paid on a different

pay scale in part is because they are bank regulators and the competition for those jobs includes people who are in the financial services industry. We will never be able to pay like the financial services industry pays. But this was Congress’ judgment——

Ms. BUERKLE. Excuse me, this is a government agency. This is

not the private sector. And we, the Congress, we, the government,

needs to be accountable to the American people why someone can

come into this government agency and make starting salaries

$72,000 with a range of $149,000.

Mr. MCHENRY. The gentlelady’s time has expired. You can finish

the thought.

Ms. BUERKLE. It just seems like I think that this regulatory body

has some questions to answer regarding the huge disparity in the

Federal jobs versus the job salaries that you are offering.

I yield back. Thank you, Mr. Chairman.

Mr. MCHENRY. I thank the Member.

29

I now recognize the full committee ranking member, Mr.

Cummings of Maryland, for 5 minutes.

Mr. CUMMINGS. Can you start my time? I already have 21 seconds.

Mr. MCHENRY. No, it was the previous time. I will give you the

full time. We will start over right now. Hold on 1 second. We will

pause.

Mr. CUMMINGS. Like a basketball game. All right.

Ms. Warren, first of all, let me say this: I don’t care what happens in this hearing today. I don’t care what is said. I am begging

you, I am begging you to keep the fire. I have constituents who

have lost so much and they don’t even know how they lost it. And

we need you. We really desperately need your passion, your concern, and thank you for synchronizing your conscience with your

conduct. And I just want you to know that.

Now, you know, one of the things that is so significant, one of

the things that you are doing for us and part of your mission, is

to protect consumers from unfair, deceptive, or abusive acts or

practices and from discrimination. Every single Member of Congress has people, whether they know it or not, who have suffered

and have lost. And, like I said, some of them don’t even know what

they lost and how they lost it. They still don’t know.

Professor Warren, Ranking Member Quigley said something that

I agree with. He said your situation is like David and Goliath. Let

me ask you about the consumer resources compared to the fees

generated by banks you are supposed to regulate.

According to the firm R.K. Hammer, consumers paid more than $20 billion—that is our constituents—in credit card penalty fees in

2009. The same year, consumers paid more than $38 billion in

overdraft fees, our constituents. So that is about $59 billion in 1

year, and that is just some of the fees they generated.

Professor Warren, your budget at the consumer Bureau will be capped at about $600 million, is that right?

Ms. WARREN. Yes, sir, it is.

Mr. CUMMINGS. Let me get this straight. Let me show you a

chart.

If my math is correct, the Consumer Bureau’s budget is only

about 1 percent—where is my chart? Get my chart up.

The Consumer Budget Bureau’s budget is only about 1 percent

of the amount banks generate just from late fees and overdraft

fees. I have to ask you, how in the world will you be able to compete against this Goliath when you are so mismatched?

Ms. WARREN. You know, Congressman, it is a good and fair question, but I want to say this: I think in the creation of the Consumer

Financial Protection Bureau, Congress made some very smart

moves. And one of the key ones is that we have the capacity at the

consumer agency to drive toward making the price clear, making

the risk clear, making it easy, not 111 pages of documentation and

fine print, but making it easy for families to compare one product

to another.

I ultimately believe that the real partners for this agency will be

families all over this country, who, if they have clear and simple

information in front of them, if they can really make apples-to-apples comparisons, will be able to turn this market around so that

30

those providers, those community banks, those credit unions, those

providers who in good faith are willing to get out there and compete in the marketplace, they are willing to offer the most value

at the lowest price, or they are willing to offer good customer service that draws people in, that those will be the providers who will

flourish in consumer credit, ultimately serving families. So I believe we can do this, sir.

Mr. CUMMINGS. On Radio One, Cathy Hughes has a slogan; and

she says, information is power, information is powerful when you

use it. So I think that summarizes pretty much what you are saying. Give them the information and let them run with it and make

decisions based on sound information.

Now, some people are saying that you are the Goliath. Incredible.

They say you are going to overrun the industry with overbearing

regulations and a complete lack of accountability. But isn’t it true

that your rulemaking power can be vetoed by the Financial Stability Oversight Council? Vetoed, is that right?

Ms. WARREN. Yes, Congressman, it is.

Mr. CUMMINGS. Does any other bank regulator have that kind of

requirement?

Ms. WARREN. No, Congressman, they do not.

Mr. CUMMINGS. You are not looking too much like a Goliath to

me so far. And to issue regulations, you have to make particularized findings and consult with other banking regulators, is that

right?

Ms. WARREN. Yes, sir, it is.

Mr. CUMMINGS. I understand that the banks want to protect

their fees just like the oil companies in the Gulf want to protect

their profits. But, as I said this morning—we had a hearing this

morning on oil—we cannot go back to the era of inadequate protection for the American people.

So I want to thank you for everything you are doing. I want to

thank your staff for everything they are doing. Again, there are

people in my district who applaud what you are doing. And may

God bless you. Stay on the battlefield.

Ms. WARREN. Thank you, sir.

Mr. MCHENRY. The gentleman’s time has expired.

I now recognize Mr. Guinta of New Hampshire for 5 minutes.

Mr. GUINTA. Thank you very much, Mr. Chairman.

Thank you, Ms. Warren, for being here today.

I wish this wouldn’t have to be described as a battlefield. Rather

than that, I would like to see a more productive manner in which

we could solve the Nation’s problems.

I do have some questions, though, about the formation of this entity and the need for its existence and how it plans to operate; and

I am sure you could appreciate that some Members of Congress do

have questions, given the unique nature of this entity.

The first question I want to ask is, can you quickly describe how

unique this is in comparison to other bank regulator organizations

in terms of who you have overseeing you?

Ms. WARREN. Well, like the OCC, we have a single director. Unlike the OCC, any rule that comes out of the Consumer Financial

Protection Bureau can be overruled by a group of other regulators.

31

I am trying to think. Like the OCC, we have rulemaking authority; we are subject to the Administrative Procedures Act. Unlike

the OCC, we are also subject to—I think the acronym is SBREFA—

the small business panels, that we have to bring in panels to be

able to go through the impact on small businesses. We are required

to do cost-benefit analyses. We are required to consult with the

other banking regulators before we issue rules.

I think it is fair to say that our charter is written very much in

mind with the notion that we are there to be cooperative with the

other banking regulators, at least to work with them. We are—I

am trying to think. We have a research function that is somewhat

different from the other regulators.

Mr. GUINTA. Can you tell me why there is a necessity for a 5-

year fixed term, when I don’t believe anyone else in history has

had that period of time as an appointment?

Ms. WARREN. Congressman, I think many terms are 5-year fixed

terms. It is my understanding that the head of the Office of the

Controller of the Currency finished his 5-year term last August.

Mr. GUINTA. But I think those entities, I think, are at the discretion of Congress. There is an oversight process through appropriations. You are excluded from that.

Ms. WARREN. No, Congressman. I am sorry, but that is not the

rule with the Office of the Controller of the Currency. There is no

banking regulator who is subject to the political process or to appropriations. All banking regulators are funded independently; and,

indeed, all of the other banking regulators, not the consumer agency but all of the other banking regulators, are able to set their own

funding levels.

So, for example, if the Office of the Controller of the Currency

decides they need more money to run exams or they need more

money to engage in their other activities, they up the assessment

on banks and simply raise more money. There is no oversight from

Congress in that process.

Mr. GUINTA. So do you have an idea of what your budget is going

to be?

Ms. WARREN. The cap on our budget is set at just under $600

million. The actual budget I actually have brought with me, because I knew that you wanted to do oversight on this. Our estimates for fiscal year 2011 are $143 million, and our estimate for

fiscal year 2012 is $329 million. So at least as best we can project

in the next 2 years we will be substantially under the caps that are

set by Congress in the Dodd-Frank Act.

Mr. GUINTA. Of the seven separate agencies that you are going

to assume authority over, do you plan on hiring from those agencies?

Ms. WARREN. Congressman, we have already begun the process

of hiring some people. I believe it is the case from each of—I think

it is the case from each of the Federal agencies. We have certainly

been in talks with all seven agencies. We have been very——

Mr. MCHENRY. The gentleman’s time has expired. Please finish

your thoughts.

Ms. WARREN. We have been very lucky to have detailees from

each of those Federal agencies come and help us in the stand-up

process, and then we have gone through an interview process—I

32

would be glad to describe it in more detail, but I understand I am

past time.

Mr. GUINTA. I would just state to the chairman the reason I am

asking that question is earlier the witness had stated that if this

entity had existed we wouldn’t have the financial meltdown that

we had. So I wonder why we would hire people from those other

agencies who were doing this oversight in the first place.

Mr. MCHENRY. Thank you.

I now recognize Mrs. Maloney of New York for 5 minutes.

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

I truly believe the title of this hearing today and really the GOP

efforts in general should be: Let’s pretend the financial crisis never

happened. Let’s forget that 15 million families lost household

wealth in America, that our financial community was brought to its

knees and had to be bailed out by the American taxpayer.

And in response to this crisis, with overwhelming support from

the American people, we created the CFPB, and it is carefully constructed, urgently needed, and should be allowed to go into operation as planned by the bill that was signed into law by President

Obama.

Now, the CFPB fills a gaping hole in our regulatory framework.

This is a body that will focus completely and totally on consumer

financial protection. Too often, consumer protection was a second

thought, a third thought, or not even thought about at all, so you

came out with abusive and anti-competitive practices and credit

cards, subprime loans that had a degree of probability of throwing

American families out on the street and hurting our financial system. So this was put in place to help our overall economy and to

help consumers; and all of the efforts so far have been to dismantle, disrupt, delay, and not allow the agency to go into effect.

There was an astonishing abuse of power, of confirmation power

in the Senate. Forty-four Senators signed a letter that said we will

not allow this agency to go into effect or for you to confirm a director unless you pass bills that will destroy it, that will make it

meaningless, that will make it ineffective. That is not what the

confirmation process is supposed to be. It is literally holding the

entire government hostage to their demands on dismantling this

program.

I would say that there is a lot of unfounded concern about lack

of oversight on this agency. I would argue that the oversight and

balance of power over this agency is greater than any other agency

in the entire Federal Government, with audits and requirements

and the unprecedented ability of another agency, the Financial Stability Oversight Council, to overrule the decisions made by the

CFPB. I don’t believe any other government agency has that ability

to overrule another agency.

Would you comment on that, Dr. Warren?

Ms. WARREN. Yes, Congresswoman.

So far as I know, there is no agency anywhere in the Federal

Government whose rulings, once arrived at through the full process, through hearings, through fact-finding, all the way through,

could actually be overruled by a group of other agencies. It is unprecedented.

33

Mrs. MALONEY. So how many other banking regulators can be

overruled? Can banking regulators be overruled with, say, a faulty

mortgage product? Can they be overruled?

Ms. WARREN. No, Congresswoman. Right now, there is no banking regulator who can be overruled.

Mrs. MALONEY. And could you go through and outline some of

the oversight and, really, constraints? No other agency has their

budget capped, I don’t believe.

Ms. WARREN. I appreciate your bringing up the question of budget, because I think it is so important here, Congresswoman.

As Congress has known since the middle of the 1800’s when they

made the decision in the establishment of the first bank regulator

to make the funding for that regulator outside the appropriations

and political process, we knew that we wanted banking regulators

that, at a minimum, were not glancing over their shoulders as they

walked in, now, walked into trillion dollar financial institutions to

try to do supervision or enforcement. They are not glancing over

their shoulders wondering if something they do or something they

say will create problems and increase lobbying efforts against the

agency next time around in the political process.

This agency—and, as a result, all of the banking regulators are

set up so they determine their own funding. It is not just that they

are out of the political process. They decide the number of dollars

that they get.

The consumer agency is capped. If we need more money for supervision and enforcement, our only option is to come to Congress.

But we are capped, and there is only a certain amount of money

that comes to this agency to carry out its functions before we would

be forced to go into the political process.

Mrs. MALONEY. I want to thank you for your testimony and your

hard work.

My time has expired, but I would say those who want to gut this

agency want to leave consumers prey to unscrupulous mortgage efforts and credit card abuses. So I believe this agency is important,

and we should allow it to go forward and be implemented.

Mr. MCHENRY. Mr. Gowdy of South Carolina is recognized for 5

minutes.

Mr. GOWDY. Thank you, Mr. Chairman.

Thank you, Ms. Warren.

The first question I was going to ask you is directly from a constituent of mine in South Carolina who is in the business of providing financial services. What steps will you take to ensure that

complaints received by the Bureau are legitimate ones and not

merely post-contractual gripes against a company when the consumer decides they don’t want to live with the terms?

Ms. WARREN. Congressman, I am glad you asked about the complaint system. It is one of the most significant features I think of

the new consumer agency. And what we are planning to do with

it is, instead of having sort of a general complaint line, we are really trying to develop more effective complaint resolution in the consumer agency on a product-by-product basis.

So, for example, we will be starting with credit cards. And what

we are hoping to do is we are working on setting up a hotline and

a form online for people who have had problems with their credit

34

card issuers and they believe perhaps that there have been violations of law and want to get in touch with the new consumer agency.

Mr. GOWDY. Will the complaints be made public? Because I think

you will agree with me that unfounded, unsubstantiated complaints have a deleterious effect on the accused.

Ms. WARREN. So what we will be doing—and I really want to

give a shout-out here to five of the largest credit card companies

in the country who are working with us right now on a way that,

as soon as we receive a complaint, that complaint can go directly

to the credit card company. They can help us understand whether

the complaint has merit. They have the opportunity to try to resolve it with the customer, keeping us in the loop.

Mr. GOWDY. Is that just for credit card companies or is it for all

financial service providers?

Ms. WARREN. Here is what I want to make clear. As we build

this——

Mr. GOWDY. I only have 5 minutes. I am not trying to cut you

off.

Ms. WARREN. Fair enough, sir. I am just trying to give you a picture of what we are doing.

Mr. GOWDY. Are the complaints public? Let’s try that with a yes

or no answer.

Ms. WARREN. Congressman, I have tried to describe the process

for one product. We are trying to get this product right, and we

have had a lot of cooperation from the credit card companies.

Mr. GOWDY. I am probably not asking my question very artfully.

Are the complaints public, yes or no?

Ms. WARREN. Congressman, there is no single answer for all

products in the same way. We are working——

Mr. GOWDY. Are any of the complaints public?

Ms. WARREN. Congressman, we don’t have any complaints yet.

What we are trying to do is build a system to deal with complaints.

Mr. GOWDY. So you do have the discretion to keep the complaints

non-public if you like?

Ms. WARREN. What we are trying to do is work with the industry

to find a complaint system that works for American families and

works for those who are providing them services. We are in the

middle of that process. This is part of stand-up. And we are glad,

Congressman, to hear from you, to hear from your constituents,

and to hear from everyone else about this process. We are an open

door on this subject.

Mr. GOWDY. Well, thank you. I will encourage them to participate.

I want to ask you about some of the definitions. I saw a definition for abusive: ‘‘Materially interferes with the ability of a consumer to understand a term of condition of a consumer financial

product or service.’’ That suggests to me that some interferences

are immaterial. Is that what you meant by that?

Ms. WARREN. Congressman, I believe the language you are

quoting is out of the Dodd-Frank Act, and it is Congress’ intention.

I believe, if I am not mistaken—I don’t have a copy of it with me

here.

35

Mr. GOWDY. Will you not be the one enforcing that? Will you set

regulations that define these terms?

Ms. WARREN. Congressman, this is the guidance that Congress

has given.

Mr. GOWDY. I am asking you. Are some interferences immaterial?

Ms. WARREN. Congressman, we will go through the process of interpreting the language that Congress has given us.

Mr. GOWDY. I don’t mean for that to be a trick question. Are

some interferences immaterial? Because the word ‘‘material’’ modifies ‘‘interference.’’

Ms. WARREN. Congressman, I want to be clear about this. It is

statutory language that you are asking. There is a process in place

for the Consumer Bureau. You don’t want me standing here shooting from the hip about how I might want to interpret individual

language.

Mr. GOWDY. Let me ask you about the second one. It also defines

it as an unreasonable advantage or taking unreasonable advantage

of a consumer’s lack of understanding. Are there some instances

where taking advantage of a consumer’s lack of understanding are

reasonable?

Ms. WARREN. Congressman, this is the language that Congress

has adopted in the Dodd-Frank Act. Ultimately, it will fall to this

Bureau through a lengthy process to interpret this on a case-bycase basis. I believe it would be irresponsible for me to stand here

and pop off about how I would interpret particular words.

Mr. GOWDY. Do you believe there is a duty to educate or a duty

to learn on behalf of the consumer?

Ms. WARREN. I believe that consumers want to learn. I think

they want to know——

Mr. GOWDY. Well, that is a different question. I didn’t ask whether or not they wanted to. Do you believe that there is a duty to do

it? Since the law itself says consumer’s inability to protect his own

interest, do you agree there is a duty to educate yourself?

Ms. WARREN. Congressman, we have, as part of our responsibility under the Consumer Financial Protection Bureau laws, undertaken consumer financial education, and I embrace this. I think

it is exactly where this agency should be.

Mr. GOWDY. Is that a yes? Is that a yes?

Ms. WARREN. We are going to help consumers by giving them

products where prices are clear, where risks are clear, where they

can make comparisons.

Mr. GOWDY. Is there a duty to educate yourself, yes or no?

Ms. WARREN. I believe that an empowered consumer is a consumer who can not only protect himself or herself but one who can

change the market.

Mr. GOWDY. Mr. Chairman, I give up.

Mr. MCHENRY. Thank you.

We have two votes on the House floor. We have two additional

Members and not enough time for them to ask questions. We’re

going to recess until the second vote is cast. We’ll come back over

here as quickly as possible and we’ll have our final Members ask

their questions.

And the committee’s in recess until we return.

36

Mr. GOWDY. Mr. Chairman, procedurally, let’s make sure Ms.

Warren is still available.

Mr. MCHENRY. That was never the pledge. We have two additional Members with questions, and originally this hearing was at

2. Are you not able to stay for these?

Ms. WARREN. Congressman, when you asked to change the time

four times in the last 12 hours, including waking people up at

home last night to change the time again——

Mr. MCHENRY. Ms. Warren, let me be direct with you. I never

made a single phone call about this. So be very clear about what

you’re saying.

We have two additional Members. We have 8 minutes remaining

on the floor to vote. If you won’t stay around for the questions, then

we’re going to stay around, and we’re going to finish this out. I

never heard that you had to leave at 2:15, which is the time——

Ms. WARREN. Then, Congressman, you might want to have a conversation with your staff. When they asked us to move the hearing,

we said the only way we could do this is if I could leave here at

2:15 for a meeting that would be at 2:30, and your staff agreed.

Mr. MCHENRY. All right. Then we’re going for questions now. Mr.

Yarmuth, you’re recognized for 5 minutes.

Mr. YARMUTH. Thank you, Mr. Chairman.

And I want to say for the record that I apologize to the witness,

Dr. Warren, for the rude and disrespectful behavior of the chair.

The snarky comments about a Senate race and the questioning of

your veracity when there’s documented evidence that you are being

totally truthful indicates to me that this hearing is all about impugning you, because people are afraid of you and your ability to

communicate in very clear terms the threats to our consumers, the

threats to our constituents, and possibly very, very effective ways

to combat them.

So I think in one respect, I congratulate you for instilling such

fear in the committee on the majority side and in some aspects or

segments of the business community, because they understand how

effective you are in getting the message out to the American people

that there are better ways to do things.

That being said, one of the major questions that’s being asked

here is whether there’s a need for your agency or the agency that

you conceived, in light of the fact that there are seven related agencies, all of whom who have some authority in this area.

These seven agencies have been around for some time. During

the time that those seven agencies have been around, have financial products, the disclosure statements and so forth, gotten easier

to understand? Has the type gotten bigger? Have they shrunk? Or,

in fact, have they gotten much more incomprehensible?

Ms. WARREN. Congressman, during the time these agencies have

been around I believe that financial products have become more

complicated and much more heavily laden with fine print that effectively make it impossible for consumers to compare risks and

costs.

Mr. YARMUTH. In respect to the question that Ms. Buerkle asked

regarding the comparative salaries, would you be willing to speculate on what the average salary is of the people who are writing

financial agreements, mortgages, and credit card agreements for

37

the major corporations, compared to what the Consumer Financial

Protection Bureau would be paying?

Ms. WARREN. Congressman, I couldn’t begin to speculate on the

difference between the salaries of the government officials who will

be hired into the new consumer agency to try to oversee this market and the salaries of those who are writing the financial products, particularly for the Wall Street companies. I suspect though,

sir, there is a large differential.

Mr. YARMUTH. I suspect you’re right. And I’m going to yield back

the balance of my time in a second so that we can get out of here.

But I just want to say that the question of accountability——

Mr. MCHENRY. If the gentleman will yield, I will say that Mr.

Issa went to vote. He’s coming back to ask his question. Mr. Walsh

went to vote. He’s coming back to ask his question. So we’ll give

you 20 additional seconds for my interruption. Go right ahead.

Mr. YARMUTH. Thank you. That’s quite all right.

But the title of the hearing involves accountability of your agency. I’d just like you to spend a few seconds talking about what accountability there has been in terms of the credit card companies,

mortgage writers, and so forth over the last decade or so. Because

it seems to me that that’s where the real accountability issue has

been, that the consumers have no way to hold those companies accountable for the products that they offer.

Ms. WARREN. Congressman, we have seen very little accountability among the largest financial services providers and among

the largely unregulated financial services providers, both before the

crash of 2008 and after the crash of 2008.

And I just want to point out that has been really hard on American families. It’s been hard on them directly when they’ve gotten

their feet tangled in credit card agreements and payday loans that

were deceptive. It’s been hard on them when they thought they

were doing sensible things on mortgages, only to learn that they

were going to lose their homes.

But it’s also been hard on others in the economy, people who did

nothing to get involved with financial services but who lost their

jobs. People who see the companies, the small businesses they’re

working for, their markets have dried up. And it has also been

hard on community banks, on credit unions who work so hard day

in and day out to work with their customers, to be the relationship

lenders, to be there over the long haul, and who are getting

crushed in a financial turnaround that was not their fault. The

problems have gone everywhere. The problem of lack of accountability is one that is squarely on the industry, and this consumer

agency is going to do its best to help turn that around.

Mr. YARMUTH. I congratulate on your work and thank you for

your service.

Mr. CUMMINGS. Will the gentleman yield?

Mr. YARMUTH. I will yield to the gentleman.

Mr. CUMMINGS. Mr. Chairman, my understanding is that your

staff made an agreement with Professor Warren. The agreement

was that she would available to this committee for 1 hour. And

pursuant to that agreement, if she accompanied your late-breaking

request made by your staff at 9 p.m. last night that she appear at

an earlier time than previously scheduled, you would allow her to

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leave 1 hour after that, at 2:15 p.m., in keeping with the agreement. It is 2:15 now. She kept her side of the bargain, and now it’s

time for you to keep yours.

Mr. Chairman, out of respect for Professor Warren’s schedule

and the flexibility she showed to accommodate your request, you

should now dismiss this witness and get on with the remainder of

the hearing. I mean, in fairness. I mean, we were here.

Mr. MCHENRY. I certainly appreciate it. And in reaction to, as

the ranking member, the original agreement was that we would

have a 2 p.m. Hearing in order to accommodate votes which we expected to be at 1:30. Knowing that the Professor is very busy, we

don’t want to keep witnesses here while we adjourn to go—recess

to go vote. And so we changed the time in anticipation of the vote

we’re about to have. So rather than gavel in and have opening

statements and go to vote and come back 30 minutes later and

have an hour of questions, rather than do that, we tried to work

with the witness.

In exchanging of e-mails, your staffer, your Government Affairs

staffer talked to Mr. Haller on the committee staff, and he asked

for confirmation on this. He called you up, the Government Relations head, did not respond to your e-mail, called you up and said,

I’ll do my best to get you out of there, but we need to accommodate

people’s questions. And so that’s where we are today.

Mr. Cummings, I understand, and I certainly appreciate your

questions.

Mr. CUMMINGS. I just want to make it clear. I know you sound

like you’ve already decided, but just this one real quick thing. Peter

Haller, according to my staff, changed the time on us a few times.

And they bent over backward, moved things around and agreed to

1:15 to 2:15. She needed to get out of here by 2:15. That has been

constant, and Peter McHenry and his staff knew this.

Mr. MCHENRY. Peter Haller, you said. Because there is no Peter

McHenry.

Mr. CUMMINGS. Yeah. I just want to make it clear. I know you’re

going to do what you’re going to do, but out of respect for Ms. Warren, I mean, she’s got her own limitations. She’s trying to protect

our constituents, yours and mine, big time.

Mr. MCHENRY. And I would respond to the ranking member. I

would respond to the ranking member that the date of this hearing

was chosen by Ms. Warren. We worked with her and her staff diligently and gave them a number of options. They came back with

different options. We accommodated those options in context for a

hearing room. We’re here to have the former chairman’s unveiling

of a picture in the main committee room. So that’s an accommodation, number one.

Number two, we accommodated her schedule. That’s why it’s on

this date.

Furthermore, I’m skipping this vote, as are you, to have this debate, rather than simply allow for a few additional minutes.

Mr. CUMMINGS. I’m going to get my vote in. But the only thing

I’m saying is that, at the rate we’re going, it looks like she’ll be

here—what—until about 20 of at least.

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Mr. MCHENRY. Well, actually, I anticipate that the two Members

will have 5 minutes apiece. And, as the gentleman knows, I kept

folks to the 5-minute timeframe today.

So with that, I’m not trying to cause you problems, Ms. Warren,

but we’re trying to accommodate folks. And if you wanted to stick

around, we’re going to have two more Members with questions, and

then we’ll see you off.

Ms. WARREN. Congressman, you are causing problems. We had

an agreement for a later hearing. Your staff asked us to move

around so that we had to change everything on my schedule to try

to accommodate your time.

Mr. MCHENRY. And I certainly appreciate that.

Ms. WARREN. But the agreement was that I would be out of here

at 2:15 because there are other things now scheduled at 2:30.

Mr. MCHENRY. That was a request. But we moved the hearing

so that you could actually get the questions in.

Ms. WARREN. Congressman, you told us one thing.

Mr. MCHENRY. I did not tell you anything.

Mr. CUMMINGS. We have no one here to ask questions, Mr.

Chairman. We have no one here to ask questions.

Ms. WARREN. I have other obligations I committed to based on

the representations of your staff and our effort to try to accommodate you and rearrange our schedule to accommodate you.

Mr. MCHENRY. Look, Ms. Warren, it was a simple request. Your

staff had a request. My staff said we’re trying to accommodate you.

We’re going to get you out of here in 10 minutes if you just——

Ms. WARREN. Congressman, we had an agreement.

Mr. MCHENRY. You had no agreement.

Ms. WARREN. We had an agreement for the time this hearing

would occur.

Mr. MCHENRY. You’re making this up, Ms. Warren. This is not

the case. This is not the case.

Mr. CUMMINGS. Mr. Chairman, you just did something that—I’m

trying to be cordial here, but you just accused the lady of lying.

Mr. MCHENRY. She’s accusing me of making an agreement that

I never made.

Mr. CUMMINGS. I think you need to clear this up with your staff.

They have moved this thing around 50 million times, and she’s got

to go to another hearing.

Ms. WARREN. Not to another hearing, to another meeting.

Congressman, I would be glad to answer questions for the record.

We can do that on—if you’ll just send us questions for the record,

we’re glad to answer them, and they’ll be a matter of the public

record.

Mr. MCHENRY. I certainly appreciate that. And I have tried to

accommodate you. I just want to be very clear and make sure that

this is on the record. There was no agreement about departure

time. And I want to just make sure to the ranking member that

I didn’t make those representations. I’ve confirmed with my staff

before this thing started. The reason why we moved the times is

so that she wouldn’t have to wait during a vote in the middle of

the hearing.

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So, with that, I understand your frustration. But just ask you to

see my side of this thing as well, because we thought we had you

for more time. I thought I had you for more time.

Mr. CUMMINGS. Most respectfully——

Mr. MCHENRY. So, with that—if the gentleman will simmer. You

know, I would just say——

Mr. CUMMINGS. No, I’m cool. I just want to make sure she’s

treated fairly. I mean——

Mr. MCHENRY. I understand. We’ve had more debate than actually the questions remaining.

So, with that, you know, Ms. Warren, I appreciate your service

to our government. I do. And, you know, I was just trying to get

on the record a few of these things that we have seen counter to

my questions of you back in March of this year. And it is informative and instructive for this committee on the construct of this

enormous Bureau that you’re constructing. And so that’s why Congress wants to have this oversight.

I thank you for your testimony. I’ll dismiss you now. And I’ll ask

the two Members that are not being given the opportunity to ask

questions to submit theirs for the record, and I’d ask you to turn

around those questions as quickly as you possibly could.

Ms. WARREN. Thank you, Congressman.

Mr. CUMMINGS. Mr. Chairman, thank you very much.

Mr. MCHENRY. And we’re going to recess for votes and come back

for the second panel.

[Recess.]

Mr. MCHENRY. The committee will come back to order.

We’ll now recognize the second panel. We have Mr. Todd Zywicki,

a foundation professor of law at George Mason University. Dr.

David S. Evans is the chairman of the Global Economics Group and

lecturer at the University of Chicago Law School. Mr. Adam J.

Levitin is associate professor of law at Georgetown University Law

Center. Mr. Andrew Pincus is a partner at Mayer Brown Rowe and

Maw LLP.

And, with that, as is pursuant to committee rules, all witnesses

are sworn before they testify. If you’ll stand and raise your right

hands.

[Witnesses sworn.]

Mr. MCHENRY. The record will reflect that all witnesses answered in the affirmative.

In order to facilitate discussion, if you can—your written statement will be admissible to the record, and you can just simply summarize, a simple 5 minutes. And at 1 minute you’ll get the yellow

light, which sort of helps you round up. And we’d love to hear your

testimony.

Mr. Zywicki, we’ll start with you, sir.

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STATEMENTS OF TODD ZYWICKI, FOUNDATION PROFESSOR

OF LAW, GEORGE MASON UNIVERSITY; DAVID S. EVANS,

CHAIRMAN, GLOBAL ECONOMICS GROUP, LECTURER, UNIVERSITY OF CHICAGO LAW SCHOOL; ADAM J. LEVITIN, ASSOCIATE PROFESSOR OF LAW, GEORGETOWN UNIVERSITY LAW

CENTER; AND ANDREW PINCUS, PARTNER, MAYER BROWN

ROWE & MAW LLP

STATEMENT OF TODD ZYWICKI

Mr. ZYWICKI. Thank you, Mr. Chairman. It’s a pleasure to be

here today.

I want to say at the outset that I was in favor and remain

strongly in favor of regulatory reform dealing with consumer financial protection and that sort of thing. I think that we’ve been much

in need of regulatory reform, streamlining coherence, and that sort

of thing. And to this day I remain disappointed that I think with

the CFPB we’ve squandered a golden opportunity to create new,

useful safeguards for consumers that would promote competition,

consumer choice, and consumer protection simultaneously.

Instead, what I think is we’ve created a monster of an agency

that is going to reduce access to credit, increase the cost of credit,

and, ironically, have the unintended consequence of probably exposing more consumers to fraud and abuse when it comes to lending products.

The Truth in Lending Act was three pages long. Now it’s grown

to thousands and thousands of pages. We’ve seen duplicative regulatory enactments over time; and, in particular, years of class action litigation, heavy-handed regulation legislation have larded up

the current system with a lot of counterproductive regulation; and,

unfortunately, this isn’t going to change that.

This Bureau is simultaneously the most powerful and unaccountable bureaucracy that I’ve ever been aware of. It is an independent

agency within another independent agency inside the Federal Reserve. It may be the most powerful that’s ever been considered by

most to be constitutional.

It has the power to reach every single credit card, payday loan,

mortgage in America. It has the potential to impact small businesses that use consumer credit and personal credit in their operations. Yet an agency with this kind of power is presided over by

one person, with no effective external oversight, a completely

unreviewed and unreviewable budget, and really no checks on

them except for this loose check by the FSOC.

Now, history tells us what happens when we give bureaucrats

this much unaccountable power to regulate massive swaths of the

economy. This super regulator is like something that we haven’t

seen since the Nixon administration; and there’s a good reason why

we haven’t seen this since the Nixon administration, is we know

what happens when we give this sort of unaccountable power to

bureaucrats to make decisions for consumers as to what kind of

products they’re allowed to have and what the terms of those products are going to be.

It is, as I mentioned, a one-person commission. I think it seems

obvious that this should be a commission, rather than a one person

sort of thing.

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I also agree with the proposal to reduce the two-thirds super majority oversight to a simple majority rule for oversight.

Failing that, or perhaps in addition to that, I think that this

should be formally required to undergo some sort of external review by OIRA or someone else, rather than what I take to be the

really toothless cost-benefit analysis that’s included here.

And we saw—and the reason we haven’t seen this since the

Nixon administration is we saw what happened when we give this

kind of unaccountable power to bureaucrats. We saw a generation

of economic stagnation, stifled innovation, declining American competitiveness, and the like. And it’s completely predictable this is

what happens to bureaucracies when they lack the feedback and

the accountability from outside. You get tunnel vision, mission

creep, and you get the pet hobbyhorses of whoever the person is

who happens to be running the organization is the one who sets

the priorities.

And what we learned from that experience and the harm to the

American economy is that we need accountability, oversight, and

transparency in our processes.

Why does that matter? Because overregulation by this body could

inflict huge harm on the American economy. It will raise costs and

reduce access to credit. I’m not familiar with any theory that says

that increasing the costs of a business could possibly cause prices

to go down. And it will increase the costs and reduce access to credit. And what we’ve learned over time is that you simply cannot

wish away the need for credit. That if somebody needs $500 to repair their transmission to get to work on Monday, they need $500

to repair their transmission to get to work on Monday.

What should be done? I lay out in my statement which is the

model here is the Federal Trade Commission, a multi-member commission with internal checks and balances. One reason that independent agencies typically are not subject to OIRA review is precisely because they are commissions that have an internal deliberative process. This agency will not be subject to any budget oversight. It is not a multi-member commission. It is not subject to external review by OIRA or anybody else, and I think that this needs

to be fundamentally reviewed.

[The prepared statement of Mr. Zywicki follows:]

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Mr. MCHENRY. Thank you for your testimony, Mr. Zywicki.

And, Dr. Evans, you have 5 minutes.

STATEMENT OF DAVID S. EVANS

Dr. EVANS. Chairman McHenry, Ranking Member Quigley, and

members of the subcommittee, thank you very much for asking me

to testify on the CFPB.

Shortly after the U.S. Department of the Treasury proposed the

CFPA Act, Professor Josh Wright from George Mason and I started

studying the legislation and the rationales being put forward for it.

Early last year, we published an extensive study on the proposed

agency.

Based on our research, I’m quite concerned that the CFPB could

make it harder and more expensive for consumers to borrow money

and for small businesses, who often rely on credit cards and other

lending products. Just because someone puts the words ‘‘consumer

protection’’ in the title of an administrative agency doesn’t mean

that’s what it’s going to do.

There are two reasons, in my view, to believe that the CFPB

could become an anti-lending and borrowing bureau that could

harm consumers and small businesses and ultimately reduce economic growth.

The first is that there’s an anti-borrowing bias built into the

CFPB. Professor Warren co-authored a long article in the University of Pennsylvania Law Review in late 2008 that laid out the rationale for the new agency and its agenda in some detail. She

claimed that consumers aren’t rational when it comes to borrowing

money, that consumers make lots of mistakes, and consumers end,

up in the end, borrowing too much.

Professors Barr, Mullainathan, and Shafir wrote an article that

proposed very intrusive government regulation for financial services. That included requiring lenders to offer plain vanilla products

as the default. Now, while at Treasury, Professor Barr was involved in drafting the CFPA, and Professor Mullainathan was just

appointed to Assistant Director for Research at the CFPB.

Professor Wright and I have reviewed the intellectual foundations of the CFPB based on the writings of the people behind its

creation. The view that people don’t really know what they’re doing

when they borrow money and that we need to protect consumers

from themselves has really become part of the genetic code of the

CFPB. Unfortunately, at least in the writings that have provided

the foundation for the new agency, there’s little recognition of the

fact that consumer lending has really improved the lives of millions

of people and spurred job growth in this country.

Now, the CFPB has the tools to put the highly interventionist

agenda described in these foundational papers into effect, and

that’s the second reason I’m concerned. This new agency can ban,

‘‘abusive lending products.’’ What those are are pretty much left up

to the discretion of the head of the CFPB.

The new agency can also steer financial services companies toward offering plain vanilla products designed by the CFPB by either banning products that don’t conform to the CFPB view or by

making it legally risky and expensive to deviate too far from the

products that the CFPB wants. I understand plain vanilla was

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excised from the language, but there’s still the possibility of, in effect, doing it.

Through prohibitions, disclosure requirements, and fines, the

CFPB has the means to place a heavy thumb on consumer lending

products that consumers and small businesses would willingly consume and that financial services companies would willingly offer.

There’s no dispute that some lenders act very badly and that we

need consumer protection. The proponents of the CFPB have made

some real contribution, I think, to our understanding of some of the

problems and some of the possible solutions, and I have a lot of respect for their passion and their intellect.

But regulation needs to be based on a balanced view of the benefits as well as the costs of lending and borrowing. In fact, most consumers and small businesses are responsible, and most consumers

and small businesses don’t get into trouble.

Over the last several decades, the fraction of consumer loan debt

that banks have had to write off has varied from about 1.5 to 3 percent. Charge-offs for consumer loans rose during the recent very

deep recession, but they’re now coming back down to that low level.

Most lenders provide products that people want and that people

benefit from.

There are serious risks to the economy of restricting consumer

credit. Let me just focus on one of them.

Between 1992 and 2005, brand new small businesses generated

an average of 3 million jobs a year. Access to consumer credit can

make or break those entrepreneurs. Many of them use personal

credit cards for financing. In fact, the founders of some of our

greatest companies, Google, for example, had to max out their credit cards to stay afloat in the early days. Over time, a heavy regulatory thumb on credit availability could therefore pose a significant drag on employment and economic growth.

In closing, I counsel the subcommittee to ensure that the CFPB

has leadership that’s balanced and that recognizes the great value

that lending products provide for consumers and small businesses,

as well as the occasional problems. I’d also suggest that Congress

keep watch over the CFPB to insure that it doesn’t become the

anti-lending and borrowing Bureau and harm the very consumers

that it was put in power to protect.

Thank you very much.

[The prepared statement of Dr. Evans follows:]

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Mr. MCHENRY. Thank you, Dr. Evans.

Mr. Levitin, you’re recognized for 5 minutes.

STATEMENT OF ADAM J. LEVITIN

Mr. LEVITIN. Chairman McHenry, Ranking Member Quigley,

members of the subcommittee, my name is Adam Levitin. I’m a

professor of law at Georgetown University. My research focuses on

consumer finance and financial regulation. I’m not here representing any financial interest or to plead the interest of banks or

trade groups. Instead, I’m here as an expert on consumer finance

and as a scholar whose work is deeply concerned with the financial

security of American families.

I’m happy to discuss the CFPB’s regulatory structure and how it

compares with other Federal bank regulators. I do so in detail in

my written testimony.

I’m also happy to address unfounded concerns that the CFPB

will crimp the availability of sustainable credit. It’s frankly premature to speculate on this, but I would note that the CFPB is required by statute to do a cost-benefit analysis on prohibitions of financial products.

I am also happy to make the case, as I do in my written testimony, that the CFPB is more accountable than any other Federal

bank regulator, period.

But I think it’s important that we all be honest about what’s

going on here. This hearing really isn’t about improving the CFPB

or ensuring that there’s sufficient oversight. Those would both be

laudable goals. But the CFPB hasn’t even gotten up and running

yet. And by all accounts the CFPB transition team, led by Professor Warren, is doing an outstanding job. There’s simply nothing

that suggests that there is an oversight problem that needs to be

addressed.

Instead, this hearing is part of an attempt to hobble the CFPB

and render it ineffective because there simply aren’t the votes to

kill it off outright. This is about politics not oversight, unfortunately; and there’s no clearer proof of this than the written testimony of Mr. Pincus here on my left on behalf of the Chamber of

Commerce.

Mr. Pincus expresses concerns that the CFPB’s structure leaves

it vulnerable to regulatory capture. Regulatory capture is the phenomenon of a regulatory agency advancing the interest of the industry it regulates rather than the public interest. The typical

story of regulatory capture is the oil industry capturing the Minerals Management Service or Wall Street capturing regulators like

the OCC or the Fed. As Representative Bachus put it, Washington

and the regulators are there to serve the banks.

So this leaves me wondering, who does the Chamber fear will

capture the CFPB? Is it the multitude of well-financed consumer

groups that have shown themselves to be the terror of Capitol Hill?

Is it middle-class citizens? Military families? Seniors? I’m really

quite perplexed by it.

And I find it very strange for the Chamber, of all entities, to express concerns about capture. Because regulatory capture is the

Chamber’s signature mode of operation. Perhaps the Chamber is

simply worried that it won’t be able to capture the CFPB and that

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the CFPB won’t be the lapdog of Wall Street but will be a real financial watchdog.

That the Chamber is sounding the alarm about regulatory capture reveals the various CFPB reform proposals for what they really are, naked attempts to gut the CFPB and render it ineffective

because there aren’t the votes to kill it outright. That’s the same

reason some members of the subcommittee want to put the CFPB

under their regular appropriations process. Because if you don’t

have the votes to kill off an agency, you can starve it to death via

appropriation by playing hostage with the Federal budget.

So let’s be frank about what this hearing is about. This is about

banks versus families. The issue presented by this hearing is

whether Congress cares more about increasing the profits of banks

or protecting the financial security of American families. Which is

more important, bank or families?

Turning to the so-called reform proposals, one would replace the

single CFPB director with a five-person commission. Put differently, the bill proposes paying five people to do one person’s job.

Where I come from that’s called government waste.

What’s more, by having five people do one person’s job, accountability is diminished and leadership becomes less effective. Policy

ends up getting set by horse trading among the commissioners,

rather than by exacting analysis of the issue at hand. There’s little

evidence that a five-person commission provides a meaningful

check against agency overreach, and if a single director is good

enough for the OCC it’s good enough for the CFPB. Put another

way, if a single director is good enough for an agency that protects

large banks, then it’s good enough for an agency that protects

American families.

Another so-called reform proposal would lower the threshold for

the Financial Stability Oversight Council to veto CFPB

rulemakings. It would require a veto if a CFPB rulemaking were

inconsistent with bank safety and soundness.

Now, bank safety and soundness is a technical term. It means

profitability. Let me repeat that. Bank safety and soundness means

bank profitability. It’s axiomatic that a bank can only be safe and

sound if it is profitable. The consumer protection is often at loggerheads with bank profits.

The only reason to engage in predatory lending, for example, is

because it’s profitable. It’s not done out of spite or malice. What

this means is that any CFPB rulemaking that affected bank profitability would therefore be inconsistent with safety and soundness

and thus be subject to a veto.

Thus, under this proposal, both the Credit Card Act of 2009 and

Title 14 of the Dodd-Frank Act, which reforms the mortgage lending industry, could not be implemented because they would affect

bank profitability and thus be inconsistent with bank safety and

soundness.

Congress established the CFPB to protect American families, not

maximize bank profits. Let’s let the CFPB have a chance to do its

job.

[The prepared statement of Mr. Levitin follows:]

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Mr. MCHENRY. Thank you, Mr. Levitin. Thank you for testifying.

Mr. Pincus, you’re recognized for 5 minutes.

STATEMENT OF ANDREW PINCUS

Mr. PINCUS. Thank you, Mr. Chairman.

Mr. Chairman, Ranking Member Quigley, and members of the

subcommittee, thank you for the opportunity to testify before the

subcommittee today on behalf of the Chamber of Commerce and

the hundreds of thousands of businesses that the Chamber represents.

Let me, at the outset, correct Mr. Levitin’s apparent

misperception about what the Chamber’s long-held position has

been on this issue.

Through the debate over Dodd-Frank, the Chamber made clear

that it strongly supported sound consumer protection regulation

and enhanced consumer protection at the Federal level. The Chamber businesses, just like consumers, have a strong interest in a

marketplace that’s free of fraud and free of other deceptive and exploitative practices so legitimate businesses can compete on a level

playing field. So businesses, just like consumers, don’t like predatory practices that hurt consumers.

At the same time, what is essential is to ensure that regulation

does not impose duplicative and unjustified burdens that have two

ill effects.

First of all, they unjustifiably divert resources that are essential

to fueling economic growth, to complying with rules that are not

necessary; and in this context, as Mr. Zywicki has mentioned, they

prevent small businesses from obtaining the credit they need to expand and creating the jobs that our economy needs because the

well-documented fact is that small business credit is often consumer credit. And misguided regulation of consumer credit that

shrinks its availability will shrink the credit that is the lifeblood

of small businesses in this country.

So the Chamber actually looks forward to working with the Consumer Financial Protection Bureau once it’s up and running to

meet these goals and has already had several productive meetings

with some of the people that have been designated to take roles at

the Bureau.

But the Chamber is concerned that the Bureau’s structure will

make it impossible to achieve the goals that have been set out for

it.

First of all, I think it’s important to make clear at the outset,

given some of the earlier testimony, that the plain fact is that

Dodd-Frank sets up for the Bureau an unprecedented structure

that consolidates more power in the director than in the head of

any other agency that regulates private individuals and entities.

Just want to repeat that again. It concentrates more power in a

single person than any other Federal agency head of an agency

that regulates private individuals and entities. So let me talk a little bit about why that’s so and address some of the comparisons

that were put on the table earlier.

First of all, I think we’re all familiar with the basic model of the

Federal agency. Like the Federal departments, they’re headed by

a single individual, a Secretary, or the head of the FDA, one indiVerDate 17-JUN-2003 12:47 Jan 24, 2012 Jkt 000000 PO 00000 Frm 00081 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\71821.TXT KATIE PsN: KATIE
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vidual. But there are two important characteristics there. It’s one

individual who serves at the pleasure of the President. The President has total power to fire that person if he or she disagrees with

the President’s policy views. And, of course, for all those executive

agencies, the appropriations process is there and Congress reviews

their appropriations.

Now, we do have independent agencies. The structure for independent agencies virtually uniformly throughout the government is

that they are headed by a multi-member, bipartisan commission

whose members serve for fixed terms. So there is a built-in compromise there. Yes, it’s true the President doesn’t have the unfettered power to fire a member of the FTC or the SEC, but neither

does one of those people have all the power to run the agency. So

you need a majority. And so there’s a built in check on the power

of any one of those individuals who have protection against the

President’s discretionary firing.

Second of all, for most all of those agencies there is still the appropriations process oversight to ensure that there is a second

check on what they’re doing through the people’s elected representatives in this House and in the Senate.

The Bureau, of course, is headed by a single director who serves

for a fixed term and with respect to whom the President is limited

in his ability to fire him, except for cause—him or her—except for

cause; and there is no appropriations oversight.

So it is those three things coming together—single person, limitation on the President’s power to fire, except for cause, and no appropriations oversight—that makes this different than any other

agency.

And I want to address the OCC comparison, because that has

been floated earlier again in the hearing. The OCC Comptroller is

someone who is subject to firing at the discretion of the President.

So, again, critical difference in the checks and balances that exist

with respect to that agency and the agency here.

And as I detail in my testimony, the Secretary of the Treasury

also exercises some oversight authority over the Comptroller.

Finally, just two quick additional points.

First of all, the question of the FSOC review of regulations and

whether that’s unique. I served in the executive branch. The OIRA

regulatory review process within OMB—I’m sorry, Mr. Chairman.

I’m running over a little bit. The OIRA process brings all the executive agencies around the table to reach a compromise about

what—a united view about what that executive branch agency regulation should be.

Second of all, I’d be happy to talk more about the regulatory capture point that Mr. Levitin made, but suffice it to say that the

banks are not the only special interests in this debate. There are

lots of special interests, and the question is how do we create a

structure that makes sure that the resulting rules are the public

interest and not the product of one special interest or another.

Thank you, Mr. Chairman.

[The prepared statement of Mr. Pincus follows:]

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Mr. MCHENRY. Thank you, Mr. Pincus. Thank you for your testimony, and I thank all of you for waiting and being here and understanding that the congressional schedule tends to lengthen things.

Mr. Levitin, you mention in your testimony you mention OCC as

an apt comparison to the CFPB. In Ms. Warren’s testimony, she

also mentions that as the appropriate comparison. Why do you believe that to be the case?

Mr. LEVITIN. One of the primary reasons that we separated—

that Congress separated consumer finance from bank safety and

soundness was that it found that those two did not work well together because safety and soundness always took the foremost position and consumer protection ended up being subordinated.

Mr. MCHENRY. I understand. You’re talking about the previous

Congress’ intent on this law, on the structure of Dodd-Frank and

CFPB in particular. What in particular—why is OCC the appropriate comparison?

Mr. LEVITIN. Because OCC is the strongest of the Federal bank

regulators; and if we want to have a bank regulator that is able

to act efficiently and decisively to protect American families, we

want a structure that works like OCC. OCC has been a very effective structure in furthering banks’ interests. We want a structure

like that that furthers the interest of American families.

Mr. MCHENRY. You speak that these commissions—the commission structure is not ideal. Why?

Mr. LEVITIN. When you have a commission structure—there are

two reasons. First of all, just with any commission structure, you

end up often having just simply horse trading among the commissioners. Commissioners have their pet issues, as Professor Zywicki

pointed out, and as a result of that sometimes commission decisions end up being based on political tradeoffs, rather than what

is really the right resolution of the issue.

Mr. MCHENRY. And you’re saying this to Congress.

Mr. LEVITIN. I’m saying this to Congress, certainly, because Congress is a different structure, and Congress is meant to be——

Mr. MCHENRY. I’m sorry. Your second point. I didn’t mean to interrupt.

Mr. LEVITIN. Oh, no. But I think that’s an important distinction.

The Congress is a political agency and is meant to do that. We do

not want our regulatory agencies operating that way.

Mr. MCHENRY. And your second point?

Mr. LEVITIN. The second point is that when you’re dealing with

the traditional model of the five-person agency—we don’t have this

always, but in most cases we have the rule that no more than three

members of that five-person commission can be from any one party.

The problem is when you apply that partisan division to consumer

financial protection it doesn’t work, because consumer financial

protection issues do not fall on partisan lines.

Mr. MCHENRY. Okay. Thank you.

It is interesting because when you’re talking access to credit

there is a division there.

Mr. Zywicki, you mentioned in your testimony that the comparison to the FTC is the preferable one. Compare that to the OCC.

I’d like to sort of understand the difference here, if there is a difference.

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Mr. ZYWICKI. Thank you, Mr. Chairman.

And that’s exactly right. The Federal Trade Commission is the

obvious analogy here. I worked at the Federal Trade Commission

as the Director of the Office of Policy Planning. The Federal Trade

Commission for a long time has had authority over some pockets

of consumer protection. And what we see is that the FTC is the

model of how this should be done, which is that it has an internal

deliberative process where they can discuss the policy tradeoffs.

Too much consumer protection can be harmful to consumers.

Mr. MCHENRY. Why is that?

Mr. ZYWICKI. We could make the foreclosure rate zero if we just

said you couldn’t get a mortgage.

Mr. MCHENRY. What would the impact of that be? People would

keep their homes. So what would the impact of that be?

Mr. ZYWICKI. People wouldn’t be able to buy homes, because

they’d have to save up. They’d have to get cash before they could

buy a home, for instance.

Mr. MCHENRY. Because people wouldn’t lend to them if they

could not reclaim their property is what you’re saying.

Mr. ZYWICKI. Exactly right. Exactly. And so there is a tradeoff

then. There is a tradeoff between two good things, consumer protection and consumer choice, competition and lower prices. If you

raise prices, then consumers get less access to credit.

Mr. MCHENRY. Okay. Does the rest of the panel agree, just yes

or no, that there are tradeoffs in this, just as Mr. Zywicki outlined.

Dr. Evans? Just yes or no.

Dr. EVANS. Yes.

Mr. MCHENRY. Okay. Mr. Levitin.

Mr. LEVITIN. Yes, there are tradeoffs.

Mr. MCHENRY. Okay.

Mr. PINCUS. Yes.

Mr. ZYWICKI. And elaborating on the FTC then, which is that

what we see is the FTC through the deliberative five-member process comes up away with doing this. We also see at the FTC that

there is an internal check of competition, consumer choice on one

side of the agency, consumer protection on the other side of the

agency. And when I think about this—and the FTC, nobody has

ever said that the FTC is incompetent because they’ve got an agency—I never saw horse trading with respect to these sorts of things.

What I saw was a deliberative process that had internal checks

and balances, that weighed all of the considerations here.

And when I think about the CFPB, what I think is that I was

at the FTC. I know a lot of people who have worked at the FTC.

And if people had said that consumers would be better off if we just

took the Consumer Protection Bureau of the FTC and spun it off

and just let it sue whoever it wanted to, do any regulations it

wanted to, without any consideration about other sorts of things,

people would think you had lost your mind. Yet that is the model.

That is the model for the Consumer Financial Protection Bureau,

would be the FTC Consumer Protection Division standing alone.

And that would be a disaster.

Mr. MCHENRY. My time has expired.

Mr. Quigley of Illinois, the ranking member, is recognized for 5

minutes.

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Mr. QUIGLEY. Thank you again, Mr. Chairman.

Mr. Levitin, Professor, obviously, a significant part of this new

agency’s mission is to help level the playing field between the larger lenders and smaller lenders such as credit unions and the small

community banks in my district.

You published, I believe, this report in December 2009, in which

you made the point, ‘‘better regulation of the consumer marketplace would result in both safer and more affordable products.’’

Specifically, you mentioned the issue of incomplete price competition, which makes it very difficult, if not impossible, for consumers

to comparison shop for products based on total cost.

Would you explain the concept of incomplete price competition

and the effect it has on the consumer finance market?

Mr. LEVITIN. Sure. I want to start by saying that I think that the

Consumer Financial Protection Bureau could end up being a major

source for relief, could end up really benefiting community banks

and credit unions by leveling the competition playing field within

the financial services space. That within financial services there

are economies of scale that—especially in areas of credit cards and

debit cards, there is simply economies of scale that smaller financial institutions cannot match.

Having the Consumer Financial Protection Bureau encourage

more transparent products where consumers are able to compare

apples to apples, where they don’t have to try and guess what is

it going to cost me to use this credit card over the course of a year,

that they can know if I use this card this will be the cost, if I use

this card this will be the cost, and I can make an informed comparison. Just like I go to the grocery store and I can look at unit

prices, that I can make an informed comparison like that. Then I

can make sure that I choose the right product.

And that lets smaller financial institutions that offer really good

products and really good services be able to compete fairly because

they don’t have to compete with hidden price terms. Their price

terms are up front and clear and part of their price terms are that

they have excellent service. And often they have to compete with

large financial institutions that have an incentive to hide the price

terms in small print and make it hard to figure out what is it going

to cost to use this product.

Mr. QUIGLEY. You’re talking about improving transparency.

Mr. LEVITIN. Very much so, sir.

Mr. QUIGLEY. And exactly, if you were them, how do you do that?

What are the steps so the everyday person can find what you’re

talking about?

Mr. LEVITIN. I think, first and foremost, you focus on disclosure

of information. The way we have done consumer protection in the

United States since the Truth and Lending Act has focused primarily on disclosure; and you try and improve the disclosure forms,

as the CFPB has already started to do with reconciling their Real

Estate Settlement Procedures Act and Truth in Lending Act disclosures for mortgages, started doing that with credit cards, trying to

boil down, you know, a typical 30-page credit cardholder agreement

into hopefully what will end up being a one-page agreement that

you and I can look at and read in plain English and that you don’t

have to be a lawyer to understand.

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Mr. QUIGLEY. Is there some other place that you think this

makes sense to disclose so it’s not just in that? Is there some online possibility?

Mr. LEVITIN. That’s one of the possibilities. It’s not clear exactly

what the right answer is. Part of the task before the CFPB is going

to be to figure out what is the optimal way to do this. And I expect

that the CFPB will consider, among other things, whether having—

enabling easier on-line comparisons just the way you might compare used cars on Carmax or something would be an option.

Mr. QUIGLEY. And your best guess on how the market reacts to

these requirements?

Mr. LEVITIN. Well, you know, if I were a large financial institution and I made a lot of money by hiding the price terms, I

wouldn’t like this. I would want to stop this, and I’d want to kill

off this agency. But if I were a small financial institution that, you

know, where my calling card was excellent customer service and,

you know, a straightforward, honest product, I would embrace this

wholeheartedly.

Mr. QUIGLEY. I don’t fault them for trying to make profits. I just

think it’s something that the market always should encourage and

that’s the competitive aspects that transparency allows. So I’d like

to think that they’d eventually embrace this and see it as a marketing opportunity, as you said, you know, like a Carmax. Some

people are advertising, hey, we make this easy for you to know

what you’re actually buying when you buy this car. So I’d like to

think that they’d embrace it at some point, recognizing the cost and

the competitive qualities that it would bring to bear against them

in some respects.

Mr. LEVITIN. Transparency is the consumer’s best friend.

Mr. QUIGLEY. Thank you, Mr. Chairman. I yield back.

Mr. MCHENRY. I recognize myself for 5 minutes.

Dr. Evans, you mention that your concern is that the CFPB

would really put in place an anti-credit policy. Can you explain

why that would be? Why would we have an agency with an anticredit, anti-borrowing, anti-lending policy?

Dr. EVANS. The philosophy of many of the people who are behind

the Consumer Financial Protection Bureau is really that there are

some fundamental problems in the financial market. There is a belief that consumers really don’t know what they’re doing, that consumers make a lot of mistakes, and what you really need is you

need a nanny, you need a super nanny, in effect, to be telling consumers what they should be doing.

How does that happen? Well, you basically tell financial institutions what kind of products they should design, what kind of products they should offer to consumers. If you look at the writings of

a lot of people involved in the agency, there is a tendency on their

part to basically believe that borrowing money is not a great thing

and that consumers get sucked into borrowing too much.

How do you react to that if you’re an agency with those beliefs?

You put policies in place that make it more difficult for banks to

lend money to consumers, and you put policies in place. And one

of the things that has been suggested by some of the backers of the

CFPB is basically what’s known as sticky opt-out policies, where

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sumers that this is the product that we have to give you and make

it very difficult for the financial institution to let that consumer

take another product. That basically makes it difficult for the financial institution to lend money to that consumer.

If I might just elaborate just a little bit and respond to Professor

Levitin’s points, I think history tells us that the notion that this

regulatory agency is going to lower prices to consumers, that this

massive regulatory agency is going to lower prices to consumers, is

going to increase competition I think is extraordinarily naive.

And if you look at the facts, we’ve had the experiment with the

CARD Act. What have we seen as a result of the CARD Act? One

of the effects of the CARD Act in this marketplace is that prices

have gone up to consumers and it has been more difficult for consumers to get credit.

Why is that? Because one of the things that the CARD Act

does—and I am not saying the CARD Act doesn’t do good things—

but one of the things that the CARD Act does is it makes it very,

very difficult for financial institutions to price risk.

It is simply not the case that credit is like a car or is like a toaster. The difference is that when a bank extends credit to Mr.

Zywicki or Mr. Levitin or to me or to Mr. Pincus, the chances are

each one of us has different risk characteristics, and the bank has

to figure out a way to price that. The CARD Act and that particular regulation made that more difficult to do, and one of the

consequences of that is banks had to basically increase their prices

and reduce the availability of credit.

The other example that I’ve written on recently, of course—and

we don’t know how this is going to play out—is the Durbin amendment and debit card interchange fees. Based on the work I’ve done,

I think it’s pretty clear. I think it’s pretty clear from how the market has already operated that that is going to have a very clear effect on the marketplace. It’s going increase the price that consumers pay. I simply don’t think it’s plausible that this regulatory

agency is going to result in lower prices for consumers. I just don’t

think there’s a lot of experience in history that’s comported with

that particular view.

Mr. MCHENRY. The FSOC—the ability of the FSOC to overrule

the rules of the CFPB. Ms. Warren says that this basically weakens the agency, and it’s not a strong regulatory agency because you

have to get 7 out of 10—really, excluding the director of the CFPB,

7 out of 9—members to vote; and the limitation on that overruling

is that it would provide a systemic risk to the American financial

system. High hurdle. So that means the CFPB could really eliminate particular businesses and business lines, and the FSOC

wouldn’t have the authority to overrule it.

Mr. Pincus, you mentioned this about the FSOC. Why is the

FSOC not a powerful tool to overrule CFPB rules?

Mr. PINCUS. I think for both of the reasons you mentioned, Mr.

Chairman. First of all, the supermajority requirement is very unlikely to be met. The standard that has to be applied threatens the

entire U.S. financial system, an incredibly high standard.

Second of all, the process that is employed. Typically the way

agencies discuss proposed regulations is there is a process before

the rule is issued. What this says is the Bureau issues its rule, and

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then if somebody doesn’t like it, they can start what will be a very

public process to overrule it, and I think there will be obvious reasons why, absent something that is almost so cataclysmic it is impossible to think about, nobody is going to want to do that.

Mr. MCHENRY. Thank you for your testimony.

With that, I yield to Mr. Cummings for 5 minutes.

Mr. CUMMINGS. Thank you very much.

I was sitting here and listening to you, Dr. Evans, and you, Mr.

Pincus, I could not help but think about a rap group that has a

song entitled ‘‘Get Rich Or Die Trying.’’ And the reason why I say

that is that I want to do everything in my power to protect my constituents who are suffering every day and the constituents of

Chairman McHenry, by the way, and others. And we need to—I

don’t want us to throw up our hands and say we can’t protect consumers, because we can do it and we can do it effectively and efficiently. And I am sure that is what you all are talking about, trying to get to that.

You may have a disconnect from the people I see every day, who

pay the high bank fees and who have been messed over over and

over and over again. And they go to work, they get on the early

bus at 5:30 a.m. They scrub other people’s floors, operate the elevators and then pay these high fees. One of the reasons is banks

won’t even locate in their areas. Payday loans all throughout the

district. People who rent them appliances that they could buy.

That is why we need this protection, CFPB. And we all need to

work to make it work, because the American people are paying for

this and they deserve to be protected and they need protection.

Professor Levitin, you published an academic paper in 2009 entitled ‘‘A Critic of Evidence in Wright’s Study of the Consumer Financial Protection Agency Act,’’ which was a critique of a study by

David Evans, who is one of our guest panelists today, and Joshua

Wright, that found among other things that the CFPB Act, the section of Dodd-Frank that created the Consumer Financial Protection

Bureau, could increase interest rates and reduce new jobs.

You explained that their report was just the latest phony, and

I am going to quote you, I don’t want them to think I am saying

this about them, ‘‘The latest phony lobby statistics to come out of

the banking industry,’’ and pointed out that the study was funded

by the American Bankers Association. Is that correct? Did you do

that?

Mr. LEVITIN. It is correct, and my particular objection with that

paper was that it tried to estimate an increase in the cost of credit

due to the creation of the CFPA and the CFPB, and its methodology was this, and you will see it is very obvious the flaw in this

methodology.

It said here is another piece of legislation dealing with interstate

bank regulation, and one study found that resulted in an increase

of cost of credit of X basis points. Therefore, the CFPB will result

in an increase in the cost of credit of X times some number they

pulled out of the air. And it was simply that. Just take a multiplier

and apply that multiplier to an inapposite study and say that is

going to be the effect of the CFPB.

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I was rather shocked, because Dr. Evans has produced some really excellent academic work previously, and this was just very surprising for me to see.

Mr. CUMMINGS. Just let me ask one other question, then I will

get to you, Dr. Evans—no, you go ahead, because I want to be fair

to you.

Dr. EVANS. With all due respect, Professor Levitin hasn’t done

any research. He just testified concerning what is going to happen

to prices based on absolutely nothing. When pressed to say what

is going to happen to interest rates and so forth, the reaction we

get, and I will quote from his testimony just earlier, it is speculative. We don’t really know.

What Josh and I, Professor Wright and I tried to do, it was a

study. It was not based on perfect evidence. But the particular

study that Professor Levitin has pointed to is actually an analog.

The best analog we could find, not a perfect analog, the best analog

we could find of something that is comparable to the CFPB. It provided a baseline for the imposition of credit in the economy. That

particular study that Professor Levitin just referred to showed that

another regulatory bill and as a result of state restrictions on banking and credit, and so forth, led to an 80 basis point increase in

interest rates. That is what you typically get with regulation.

We did a comparison to CFPB and made the point that CFPB

would allow a greater set of regulatory restrictions on lending than

that. We took that as a——

Mr. CUMMINGS. I have to cut you off, because I got to give

Levitin a chance to respond.

Mr. LEVITIN. They took that 80 basis points, and what did you

multiple it by, 2 or 3, or just some number that was yanked out

of the air, and that is not scholarship. That is simply not scholarship, just to yank a number out of the air and say this study was

80 basis points, therefore CFPB is going to be 160. You can’t do

that. This one is 80 basis points, and we just don’t know yet with

the CFPB. We have to give it a chance before we find out.

Mr. CUMMINGS. Thank you. I see my time has expired.

Mr. MCHENRY. I recognize Mr. Guinta for 5 minutes.

Mr. GUINTA. Thank you, Mr. Chairman.

Dr. Evans, did you pull a number out of the air?

Dr. EVANS. No. If you read the paper and if you look at our response to Professor Levitin, which we can certainly make available

to you, we used that as a baseline of 80 basis points and we

couched it in very careful language. We said that this isn’t accurate. This is the best we can do given the available evidence. And

we gave the reader an explanation as to why they should consider

multiples of 80 basis points, twice that or three times that, based

on a very lengthy analysis that we did in the paper, pages and

pages explaining why the CFPA, why the CFPB, has the power and

has the likelihood, particularly the earlier version of the legislation,

to increase interest rates.

Again, with all due respect to Professor Levitin, he has produced

absolutely nothing on this topic. The notion that we are engaging

in this exercise and creating this massive agency and the best we

can get is ‘‘we will just have to see,’’ for me that is not good

enough.

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Mr. GUINTA. Thank you for that testimony. I would concur that

it is not good enough for Congress either, or it shouldn’t be good

enough for Congress either. This is not a notion—this issue is too

important for us to guesstimate how to solve the problem. I think

all Members of Congress want to solve the problem, but I have

failed to see yet how this agency will correct the actions that led

up to what you, Mr. Levitin, had talked about that built up to this.

So the one question I guess I would have for you, I think that

you had made some statements that if the CFPB had existed from

2004 to 2008, this could have been averted. It may not have occurred. I heard that testimony earlier in the first panel as well.

So, my question would be even though this entity is supposedly

going to have some responsibilities of other entities that should

have prevented this or should have maybe suggested this was

going to occur and we could have put some stopgap measures into

place, can you tell me what exactly this agency will do, say, in the

next 12 months, to ensure that this would not happen again?

Mr. LEVITIN. Well, Congress already took care of a lot of the first

steps itself. Title XIV of the Dodd-Frank Act undertook a major reform of mortgage lending markets, including a requirement that for

nonqualified mortgages, which is a term that regulators are going

to have to define, that lenders will have to verify ability to repay.

That seems like a pretty obvious first step and I am glad Congress

took it.

I think it is very important to note that the major step forward

with the CFPB is changing the regulatory architecture. Previously,

when bank safety and soundness was yoked together with consumer protection, consumer protection always ended up being the

subordinated mission and entities like the Office of the Comptroller

of the Currency would routinely turn a blind eye to predatory lending practices because they were profitable and they didn’t want to

stop the music at the party.

The CFPB does not have that bank profitability mission. It is not

tasked with maximizing bank profitability, and therefore it is an

agency that is incentivized to make sure that there is good consumer protection.

Mr. GUINTA. Wasn’t that, ‘‘consumer protection,’’ didn’t that exist

in these other agencies? Their missions were not to have bank profitability?

Mr. LEVITIN. Sure, they were. They were tasked with bank safety

and soundness, and a bank that is not profitable is not safe and

sound.

Mr. GUINTA. So you are saying their sole focus was bank profitability. There was nothing, no protections, no concern, no issue

with respect to the consumer?

Mr. LEVITIN. Virtually none, and I can give you some examples.

The Federal Reserve had the power under the Home Owners Equity Protection Act [HOEPA], to pass regulations that would have

curbed some of the worst abuses of subprime lending. It didn’t act

for over a decade.

Mr. GUINTA. Would Fannie and Freddie fall into this category

you referred to?

Mr. LEVITIN. Fannie and Freddie are a complicated and rather

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ket was from the private label securitization area, and that then

spilled over into Fannie and Freddie. Fannie and Freddie were

really not government agencies. They weren’t tasked with consumer protection. And FIFA, or OFHEO, was not tasked with consumer protection either.

Mr. GUINTA. I note my time has expired. Thank you, Mr. Chairman.

Mr. MCHENRY. The ranking member, Mr. Quigley, is recognized

for 5 minutes.

Mr. QUIGLEY. Thank you, Mr. Chairman.

Dr. Evans, Professor Levitin, I actually appreciate the disagreements here. Our judicial system is built on zealous advocates disagreeing, because from that we like to think we move toward the

truth. So toward that end, while I recognize we are not going to

hold hands and sing Kumbaya here, it is good to see this warm and

fuzzy moment.

Dr. Evans, the professor’s comments about transparency, while

you may disagree with much of what this agency is about, could

you talk about how transparency might help this industry and if

you agree or what parts of transparency might improve things from

the consumer’s point of view without, as you would be unhappy

with, destroying competition?

Dr. EVANS. Yes, that is a very fair question, and I appreciate it.

And let me take that and just start out by saying that I am certainly not suggesting that there aren’t problems to be solved. I

mean, there are a ton of problems in the lending industry, there

are certainly lots of problems that consumers have faced and I

would be the last person to deny that there is a set of problems

that some agency needs to deal with.

One of the things that is beneficial for consumers, subject to

qualifications, is transparency. It is not a good thing when banks

hide the ball. It is not a good thing when consumers are tricked

into doing things. And it is certainly the case that there are some

members of the financial services industry that have acted badly.

And I am the last person to suggest that everything is okay and

that there are no problems. So I am in favor of consumer protection, consumer financial protection. I think this agency could do

lots of good things.

The one qualification, I guess the thing that I would really like

to get across, is that as with many things we have to have a perspective on the marketplace, and, by and large, this is an industry

that does a lot of great things. It helps the people in Mr.

Cummings’ district in lots of ways.

We just have to have the perspective that while there are bad

things going on that we need to take care of, it is also an industry

that does a great deal of good for consumers and small businesses,

and the regulation that we have for this industry needs to be conscious of both the bad things that are going on, but it also needs

to really recognize that the bad things are often exceptions and

that there are lots of good things that we need to make sure we

don’t harm.

Mr. QUIGLEY. So would you suggest that the bad things you

talked about are in large part undertaken by what was deemed the

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cussed, many of the largest financial institutions were supportive

of—they weren’t for this agency, but they were certainly for somebody going after the problems from what was deemed the shadow

banking industry. If you want to use a different term, that is fine.

Dr. EVANS. No, I am hesitating here because I think probably

one of the things that Professor Levitin and I agree on is that some

of the large financial institutions engaged in practices that, you

know, probably weren’t a great thing for consumers. So there were

elements of the financial services industry, whether it is large,

whether it is shadow and so forth, you know, there were certainly

issues, and those issues I think should be appropriately dealt with.

So I don’t want to draw this dividing line between big financial

institutions and the shadow financial institutions, because the

shadow financial institutions, while we think of them as charging

very high prices, in some cases they are also meeting a consumer

need for people that aren’t able to get loans from the large financial

institutions but actually have a need that needs to be served.

So, again, I don’t want to suggest that there aren’t problems

there, but we also need to recognize that just because we say payday lender, that not all payday lenders are doing bad things and

not helping consumers.

Mr. QUIGLEY. Well, I appreciate your candor, and I would suggest to all the witnesses here that kind of candor helps us get to

the truth in the end because there will be another day and another

issue and another bill. In the end, what we are all trying to do is

help all of our constituents. So, Dr. Evans, that helps.

Thank you, and I yield back.

Mr. MCHENRY. I now recognize Mr. Guinta for 5 minutes.

Mr. GUINTA. Thank you, Mr. Chairman. I wanted to follow up

with both Mr. Zywicki and Mr. Pincus on a couple of items.

First, Mr. Zywicki, look, I understand the notion of appropriate

consumer protection. I think most of us do. I think all of us probably agree that there is either redundancies or even in some circumstances additional burdens in some regulatory requirements. I

think even some of us would agree with this philosophy or notion

of the CFPB.

I have great concerns about the structure. I have great concerns

about the ultimate power that can be provided to this one individual and to the individuals within this organization. I have serious concerns about the funding of the agency and the lack of ability

for this agency to be called in front of Congress. And I think those

are concerns that anybody in Congress should have, because ultimately, people in this country are going to rely on Congress to

make sure that the right things are being done.

So my question to you would be in two parts, I guess. Could you

talk a little bit about how this agency is structured and maybe

some of the problems we should consider or see in the future; and,

second, what alternatives do exist or can exist, rather than the

structure that has been outlined in Dodd-Frank?

Mr. ZYWICKI. Thanks. Again, I think the Federal Trade Commission is the obvious model for how this thing should have been set

up. In fact, I think all of these duties should have just been given

to the Federal Trade Commission and we could have all gone home

at that point and they would have done the right job. And I think

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the Federal Trade Commission, where I worked from 2003–2004, is

a much stronger, capable, effective agency precisely because of all

of the apparatus that is set up around it. A multi-member commission, internal checks and balances, congressional oversight, all

those sorts of things makes that agency much better. An agency

that lacks all that is prone to tunnel vision and sort of navel gazing

and that sort of thing and just sort of losing it its way. So I would

strongly urge this be reformulated along the lines of the FTC.

Fundamentally, if this is the right thing here, then the FTC is

wrong, and I don’t think anybody thinks the FTC is wrong.

Mr. GUINTA. Can you expand a little bit on the commission? Why

doesn’t the CFPB have a commission, and does that suggest that

the other commissions are not necessary?

Mr. ZYWICKI. It seems to suggest that if this is right, then all the

other ones are wrong, and that just doesn’t seem plausible to me.

If this is how we are supposed to set up consumer protection, then

I guess you need to wipe out the FTC, which has been here since

1914, and replace it with a director rather than a commission. The

OCC is not analogous at all. The OCC is safety and soundness. It

basically does accounting. It doesn’t do broad scale policy analysis

of the sort of things we have here.

So let me give an example, if I may. I agree totally with Mr.

Cummings about his concerns with respect to access to credit. But

if you think about it, the combination of CFPB, the Durbin amendment, the Credit Card Act, that sort of thing, we are going to drive

because of the Durbin amendment maybe a million consumers out

of the mainstream banking system. CFPB, by increasing the regulatory burdens here, is going to drive more consumers out of the

mainstream banking system. We are going to put them exactly in

the hands of the payday lenders and the check cashers and everybody else. We have already seen this. When you go after the payday lenders, what happens is the payday lending migrates online

and then you have online payday lending. You have payday lending

people migrate to pawn shops.

We are talking about a situation where when you go in with good

intentions, you end up hurting the people you intend to help. And

that is what I am concerned is going to happen with this.

Mr. GUINTA. Mr. Pincus, to follow up a little bit, I don’t know

that you heard earlier testimony, but I have some concerns about

OCC versus CFPB. I believe there are clear differences between the

two. Could you talk a little bit about the differences between the

OCC and the CFPB in terms of oversight?

Mr. PINCUS. The clearest difference, Congressman, is that the

Comptroller serves at the pleasure of the President and the Director doesn’t. The Director can only be dismissed for I think the statute says inefficiency, neglect of duty or malfeasance. So it is a

much more restrictive standard.

So in terms of the checks of the elected officials, much less of a

check than on the OCC, than on the Comptroller. And within the

Treasury Department, the Secretary does also have some ability to

oversee what the Comptroller does. Again, the statute is completely

clear. The Federal Reserve has zero role with respect to what the

Director does. So those are the key differences, I think.

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Mr. GUINTA. I appreciate that, because that is completely different than testimony we heard earlier today. Earlier today we had

heard that they are similar, if not identical. And I would agree

with you that that primary function of responsibility in how you

can be hired and how you can be fired is paramount to the job that

you are expected to complete.

I thank the chairman for the time.

Mr. MCHENRY. I thank the vice chair. I appreciate that.

Mr. Cummings is recognized for 5 minutes.

Mr. CUMMINGS. I am listening to all of this and it is so easy to

forget how we got here. We can have testimony to paint over the

past and talk about—my mother used to tell us don’t concentrate

on what you don’t have, concentrate on what you do have. I have

been listening and I am just trying to—thinking about $20 billion

in credit card penalty fees, talking about $38 billion in overdraft

fees. I am trying to figure out, where do we think this money comes

from? It is coming from regular, everyday citizens.

Dr. Evans, I heard what you said about the fact that these are people who will rent you a washing machine for $75 a month when

you could possibly buy one for $350, particularly in this kind of

economy, that they are doing a service.

One of the things that Ms. Warren talked about today is trying

to give people information. And I think information is power, I

really do, but it is powerful when you use it. In some kind of way

in this country we have to get to the point where we don’t let the

little guy and lady go down the tubes.

Some kind of way we got to get there. Because, you know what?

Because you are going to always have—I live in the inner, inner,

inner-city of Baltimore, so I see it every day. They don’t have the

big fancy cars. They may have a car that is 5 or 6 years old. They

are making extremely high car payments. They are paying extremely high rent for what they are getting. They pay the most for

food and the food is not very good. And they are constantly digging

into a hole that gets deeper and deeper while the folks, a lot of the

folks who get these fees, they move out into the suburbs, into the

mansions.

Then these folks who are getting up at 5:30 a.m., paying all

these fees to these people who you say are doing them a great

favor, they can’t do for their children, they can’t take care of their

children the way they would like to or even close, and they find

themselves in generational cycles going down, down, down, instead

of going up, up, up.

That is why I go to every graduation I can go to and beg people

to get an education, because you are going to broaden the gap between the have’s and have-not’s, because again, the people who

don’t have pay the most and they are the ones in most instances

that get royally screwed.

So, I am just here representing my constituents, trying to make

sure that we find a way out of this.

So this organization was not, the CFPB, was not established to

just be something fancy and to be able to say we did something.

We wanted to make sure—by the way, I don’t think we had one

Republican vote—we wanted to make sure that we did something

to take care of all of our constituents. I don’t care where they live.

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So then the question becomes is how do you take this and make

it work well so that those people don’t keep going in a downward

cycle; so that because they cannot afford the things that they need

because they just paid $20 billion in credit card penalty fees, if

they can get a credit card of course, and $30 billion in overdraft

fees, so how do we make it work? You guys are the geniuses. You

are the gurus. What do you say to my constituents, if they have

a television?

Dr. EVANS. Sir, personally I have a lot of sympathy for your constituents and I understand the problems that they face and I wish

I could tell you I was here today and I could give you the solution

to all the problems you laid out. I think all of us would like to solve

them.

I guess the one thing I would say, maybe to just put a little bit

of perspective on it, is if you go 20 years ago, many of your constituents who now have credit cards probably wouldn’t have been

able to get them. One of the things that has happened over the last

20 years is more socially and economically disadvantaged people

have been able to get credit cards, they have been able to get bank

accounts, and that has actually helped them out.

One of the areas that I have worked on quite a bit, Congressman

Cummings, not recently but a long time ago was minority businesses. I am sure you have minority businesses.

Mr. CUMMINGS. A lot of them.

Dr. EVANS. I am sure you have a lot of them. And one of the

problems they faced 20 years ago is if they wanted to get financing

on their credit cards, 20 years ago, 15 years ago, they would have

had great difficulty doing that. They are now able to do that now.

So I am not suggesting your constituents don’t have deep problems that need to be solved. I guess I would like to maybe persuade

you a little bit that some of these financial services products,

whether it is bank accounts and debit cards or credit cards, while

there may be aspects of it that you see as bad, I guess I would like

to persuade you that there is an aspect of them has actually has

been pretty good for your constituents and that it is actually getting better over time.

Finally, I would just point out that my wife is from Baltimore

and she will be amused when I go home and tell her that you compared me to anything involving rap.

Mr. CUMMINGS. I see my time is up. Thank you, Mr. Chairman.

Mr. MCHENRY. We are going to do a final round here. Mr. Guinta

is recognized for 5 minutes.

Mr. GUINTA. Thank you very much, Mr. Chairman. I happen to

in the last month or so visit Beach Street School in the inner-city

of Manchester, New Hampshire. Many people of think of New

Hampshire not as the home to an inner-city, but it has many innercities, many neighborhoods that are inner-cities. I happened to be

mayor for 4 years of that city and have great compassion for those

who are financially and socially challenged in this society.

So I think it is imperative and important for us to make sure

that we have rules in place that allow a level playing field, that

will allow any individual if he or she chooses, to succeed in life. I

am often reminded of some of the kids that go to the Boys and

Girls Club in my hometown of Manchester, New Hampshire, and

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where they started and where they are today. And I am proud to

be part of a family of constituents and community members who

feel very strongly that it is our responsibility as Americans to lead

by example, to ensure that the American dream is alive and well,

and that anyone who wants a part of that American dream can

reach for that American dream.

So I guess my question would be this to Mr. Zywicki, if there was

an alternative that you would suggest would enhance that type of

America that I could cosponsor with the gentleman from Baltimore,

and I would be happy to do it, because I have great respect for him.

I have watched him serve with passion and compassion and I admire his approach to trying to help his constituents, and I want to

be part of that solution.

So if there was a piece of legislation that Congress could embrace

in a bipartisan way to make that American dream, whether it is

in Baltimore or Manchester come true, what would it be?

Mr. ZYWICKI. I certainly think incrementally the things that are

on the table, I endorse all of those, the multi-member commission,

that sort of thing.

But what I would urge this panel to think about going forward,

because the CFPB will likely turn out to be a failure. If it is not,

if these accountability issues are not fixed, this thing is going to

run off the rails and it is going to be a job killer and it is going

to raise the cost of credit and everything else and it is going to hurt

the people it is specifically intended to help.

So hopefully that will—that is unfortunate, but I think that is

entirely predictable. I hope that causes people to reexamine this.

Let me stress again, I think that there is an urgent need and a

great opportunity for a new approach to consumer financial protection. In my testimony I talk about the difference between market

reinforcing regulation on the one hand and market replacing regulation on the other hand. I am all for savvy regulation that makes

use of technology, harnesses the power of competition and consumer choice. A lot of the things that this agency might do, like

a simplified mortgage disclosure form, would be great. Going back

and paring back some of the mountains of junk that has been attached to the Truth in Lending Act would be great.

My concern is that in order to bring about heightened competition and consumer choice, we could do that. Doing things like creating vague, open-ended standards of liability, like the ability to

sue somebody for an abusive product because somebody in Washington thinks that somebody out there is too stupid to be able to

understand the products that they are purchasing, not based on

anything that I can tell, that is not going to help people.

We know—the concern I have is both for middle class people to

be able to have choice and competition, and I am concerned about

lower income people who already have very limited credit options.

And if we have a regulator that takes away options from people

that already have limited options, that is not a very good way of

making those people’s lives better off. And we know this even just

from regulating payday lending. When you get rid of payday lending, what happens? Evictions go up, bounced checks go up, utility

shutoffs all go up in a situation like that.

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So I think that the desire for Washington bureaucrats to think

that they know better about how consumers and people live their

lives I think is a folly and I would think we would want to go in

a different direction toward competition and consumer choice.

Mr. GUINTA. Thank you. I yield back to the chairman.

Mr. MCHENRY. The ranking member is recognized for 5 minutes.

Mr. CUMMINGS. I want to thank the gentleman from New Hampshire for his kind words, and I really mean that. Thank you.

I am trying to figure out where do we—you were talking, Dr.

Evans, about helping folks, helping minority contractors. One of

the things that I have noticed is when we pull together minority

contractors, and not just minority contractors, others too, one of the

things they talked about was just in light of all the problems we

have been experiencing with the economy, just being able to get

credit. A lot of them had opportunities but they couldn’t even get

a line of credit or the line of credit was canceled. And, you know,

for some of these small firms, a $10,000 line of credit is, as I am

sure you well know if you have worked with minority contractors,

that is like worth $1 million just to get from payday to payday and

whatever.

I was wondering, Mr. Guinta was talking, I was just thinking to

myself this other question. You know, there are a lot of organizations now that are spending a lot of energy and effort in this whole

thing of financial literacy, and I am just wondering how much that

plays in. Mr. Guinta very sincerely said he is trying to find solutions, as I am, and I am wondering how much value that has. Because I do believe that sometimes people don’t know how to handle

money.

Some folks, they don’t know. They just have never been taught.

And balancing checkbooks, if you have fees for bouncing checks, I

remember somebody told me once a banker said something to the

effect if people stopped bouncing checks, he would be out of business. I think he was exaggerating a little bit. But that is a lot of

money. You know what happens. You bounce one, and then because that one bounces, you have a whole series of bouncing, and

then the next thing you know you have bounced all the way around

the world.

So I am just wondering, there is a certain part of it is personal

responsibility, but as my mom used to say, there is nothing like a

person who don’t know what they don’t know. And I was just wondering how significant a role do you think that plays in trying to

help people?

I know there are some people that may be informed, they just

don’t have the resources. But there are other people that maybe if

they were taught at an early age that a penny saved is a penny—

however it goes, you know, if you hold on to it you are in good

shape.

So I was just wondering.

Dr. EVANS. So you are asking an economist whether we ought to

have more economic instruction in the schools?

Mr. CUMMINGS. Yes, that is right.

Dr. EVANS. Yes. We absolutely should.

Mr. CUMMINGS. Do you think it helps a lot, if it is done right?

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Dr. EVANS. I do. I think there is not enough instruction in the

school systems on how finances work, how the economy works, and

I think probably that is something that Adam and I probably agree

on, that getting more of that in society, both in the school system

and generally in society would be a good thing.

I know that is one of the things that the CFPB is supposed to

be doing and I think I would applaud them for doing that. So I

think that would be helpful. I think it would be helpful for your

constituents, and I think it would be helpful, frankly, for a lot of

people.

If I could just quickly comment on the first part of your remarks

though concerning the minority contractors, I absolutely hear you.

I know tons of businesses in the last few years that had their lines

of credit canceled, and it is a very tough time the last few years

for small businesses.

What we need to do in order to fix that problem is we need to

get money flowing to small businesses to get them moving again.

And this probably isn’t the right opportunity to go into all the reasons why they are not getting it, but one problem is some of the

capital requirements that banks and in particular community

banks have. As you probably know, community banks are one of

the major sources of lending for small businesses. So there are a

multitude of problems that I think minority and other small businesses face at this point that we could probably give some attention

to.

Mr. CUMMINGS. I will be in contact with you on that. Mr.

Levitin?

Mr. LEVITIN. Briefly. First to address the constriction of capital

to small businesses, it is important to note that that constriction

of capital happened before any new Federal regulation went into

place. That started in really the fall of 2008 in particular, and that

was the result of a lack of regulation. That was not caused by regulation. I think we need to keep that in mind.

As far as financial literacy, you know, it is hard to argue against

it, except the evidence there is really not very convincing. There

isn’t real good evidence that it works. If you stop and think about

it for a second, of course it doesn’t.

You know, I think I am pretty financially literate, and I guarantee you there are a lot of lawyers around at Mr. Pincus’ firm and

other firms that can draft forms that I will not understand, and

they are paid very well to do it, and I know it because I used to

be paid to do that.

Mr. MCHENRY. The gentleman’s time has expired. I recognize

myself for the final 5 minutes of the day.

That is by far the most shocking thing that I have heard here

today, that financial literacy doesn’t matter. That is insane. With

all due respect, I would tell you that if I look at a form and I say

it is too complex for me to understand, I will not sign it. Right?

And it is skepticism, that additional bit of financial literacy, and

I am not trying to attack you. But, look, maybe your point is that

financial literacy isn’t going to fix everything. I would accept that.

Mr. LEVITIN. Sure. Not everyone is as skeptical as you are. I

wish that were the case.

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Mr. MCHENRY. But there are those that are more financially literate.

Mr. LEVITIN. But skepticism is not financial literacy. It is just

skepticism.

Mr. MCHENRY. Right. Okay. Well, I understand. Maybe we

should teach skepticism.

Mr. LEVITIN. I think that would be a very good thing.

Mr. MCHENRY. To a skeptical American public. Look, I do want

to ask a few questions that I want to better understand.

There are two—well, the headline of this hearing was ‘‘Who’s

Watching the Watchmen.’’ Let’s get back to that. I don’t want to

lose sight of this kerfuffle with Ms. Warren earlier today because

she wanted to leave.

I think the American people have a lot of questions about this

Bureau. People that are providing credit, those that are accessing

credit, those that hope to borrow, those that are trying to have a

business providing some level of lending, either short term, long

term, whatever it may be, have a lot of questions about this Bureau. And it is very clear that Ms. Warren is not intent on being

very forthright about her ideas for this. So, that is why we have

an expert panel, to get a diversity of views.

Mr. Zywicki, in terms of inspector generals, would it be helpful

to have a Special Inspector General for the CFPB?

Mr. ZYWICKI. Yes.

Mr. MCHENRY. Dr. Evans.

Dr. EVANS. Yes.

Mr. MCHENRY. Mr. Levitin.

Mr. LEVITIN. I would need to think about that issue further. I am

happy to submit written comments on it.

[The information referred to follows:]

[NOTE.—The information referred to was not provided to the subcommittee.]

Mr. MCHENRY. Certainly. I would appreciate that.

Mr. Pincus.

Mr. LEVITIN. I think I would like to think about it. I mean, the

Fed Inspector General has that job now, and I think the question

you are asking is should it be a more focused focus.

Mr. MCHENRY. What would you think of that?

Mr. PINCUS. I think I should talk to my client before I get back

to you.

[The information referred to follows:]

[NOTE.—The information referred to was not provided to the subcommittee.]

Mr. MCHENRY. Smart man.

Cost-benefit analysis, OIRA. So we have an enormous swath of

our government, the greater portion of our government is required

to actually do a solid cost-benefit analysis. There is a lot of oversight and balance for that. Do you think it would be appropriate

and helpful that the CFPB be subject to OIRA?

Mr. ZYWICKI. Absolutely. Yes.

Mr. MCHENRY. Why?

Mr. ZYWICKI. Independent agencies typically are not subjected to

OIRA oversight, but the reason is because they are multi-member

commissions, so you basically substitute that accountability and

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that internal deliberative process where you essentially go through

a cost-benefit analysis like we did at the Federal Trade Commission.

This has neither of those, and so if you are not going to have at

least a multi-member commission, you need to have something like

OIRA. We have been talking most of the time here about the inherent tradeoff between higher costs and consumer protection, access

to credit, those sorts of things, and a serious, rigorous external

check and cost-benefit analysis I think with be very valuable, unlike the sort of haphazard thing that is in there now.

Mr. MCHENRY. Dr. Evans, you mention it in your testimony.

Would you comment?

Dr. EVANS. Well, yes, if it is done seriously.

Mr. MCHENRY. What would you point to as a good way of costbenefit analysis being done? Is it currently being done in government, period?

Dr. EVANS. Yes, this is not an area I am an expert on. Todd

knows more about it than I do. My impression is that it is not currently being done very well anywhere.

Mr. MCHENRY. Mr. Levitin.

Mr. LEVITIN. I would concur with Dr. Evans that the current

OIRA process is a bit of a disaster. It ends up being mainly a cost

analysis, not a cost-benefit analysis.

Mr. MCHENRY. Would that be helpful though?

Mr. LEVITIN. Well, I would note that the CFPB statute requires

a cost-benefit analysis, and that if the CFPB’s analysis is not good,

it can be challenged in court. So it already has that baked in. I am

not sure that OIRA does anything except create an obstacle for government action.

Mr. MCHENRY. Thank you. Mr. Pincus.

Mr. PINCUS. Well, I think it would be great. I think what OIRA

does is bring some external rigor both to the cost-benefit analysis,

but also brings other policy voices to the table. I mean, one of the

values of the OIRA process is it is not just the agency that is proposing the rule, it is the whole government that gets a chance to

have input, and that is what you want in an area where you have

such conflicting—not necessarily conflicting, but a multitude of policy interests.

Mr. MCHENRY. Thank you. To the point of cost-benefit analysis,

it is currently required for the CFPB for small institutions. It is not

across-the-board, is my understanding.

Mr. LEVITIN. My understanding is that under the CFPB’s unfair,

deceptive and abusive practices, that it is included. But, you know,

without looking, having the statute before me——

Mr. ZYWICKI. I believe it is sort of an internal cost-benefit analysis. OIRA reviews only for the small business divisions, I think.

Mr. PINCUS. I was just going to say, Mr. Chairman, one problem

is all the things we are talking about only apply to rules, and what

Ms. Warren said and certainly what other agencies such as the

FTC have done have basically set standards through enforcement

actions.

So I think another whole area of important discussion is where

an enforcement position gets taken, and either through settlement

or whatever becomes something that is prevailed on, what is the

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check on that as something that then legitimate businesses are

going to say hey, I better start complying with this. Even though

it is one enforcement action, I could be next.

Mr. MCHENRY. That was one of my questions of Ms. Warren, was

the relationship to the mortgage settlement. It is very clear that

they were not intent on communicating very much of what they are

doing, and their agency isn’t even up and running. So it is a great

concern that we have, is that there are not internal controls within

this agency, whereas a balanced approach would have a board oversee it, even like Ms. Warren’s original proposal, to be quite frank

about it, where there would be internal debate or wrestling with

rulemaking rather than one director simply doing it.

The additional thing that is clear from today is that the CFPB

will neither increase access to credit nor reduce the cost of credit.

That is for certain, and I think there is wide agreement on that.

I would say further that it is also clear that the current Special Assistant, the Assistant to the President and Assistant to the Treasury Secretary, Ms. Warren, has been calling the shots at organizing

this Bureau. It has been a rather less than transparent operation,

if we can be very direct about it. Her answers were less than forthcoming and they raise more questions than they actually provide

answers. That is what we have learned over the course of the last

3 hours in this committee room.

I certainly appreciate this panel’s testimony. Thank you for waiting through the afternoon, and thank you for your forthrightness

and willingness to sort of engage in this discussion, because it is

enormously important, not simply to policymakers in Washington,

not simply to academics or business folks, but to the small business

person who hopes the small person, and in another of my colleague’s terms, who wants to start a business.

My dad, who wanted to start a business out of the garage, and

he started that business on a credit card, something he told me to

never do, except for that business put five kids through college, put

a roof over our head and an opportunity.

So I want to make sure that people have access to credit, whether it is a person trying to make it to the next paycheck or the person who has an aspirational goal of employing people and growing

this economy. That is really what it is all about.

We can have a debate about how you achieve it, but this CFPB

is not the construct to make that more available, achieve greater

opportunities for those individuals that we care so much about.

Thank you for your testimony. I certainly appreciate your willingness to be here today. This meeting is now adjourned.

[Whereupon, at 4:20 p.m., the subcommittee was adjourned.]

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