S. HRG. 114–520 

THE CONSUMER FINANCIAL PROTECTION 

BUREAU’S SEMIANNUAL REPORT TO CONGRESS 

HEARING 

BEFORE THE

COMMITTEE ON 

BANKING, HOUSING, AND URBAN AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED FOURTEENTH CONGRESS 

SECOND SESSION 

ON 

A REVIEW OF THE CONSUMER FINANCIAL PROTECTION BUREAU’S 

SEMIANNUAL REPORT TO CONGRESS 

APRIL 7, 2016 

Printed for the use of the Committee on Banking, Housing, and Urban Affairs 

( 

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23–056 PDF 2017

S. HRG. 114–520 

THE CONSUMER FINANCIAL PROTECTION 

BUREAU’S SEMIANNUAL REPORT TO CONGRESS 

HEARING 

BEFORE THE

COMMITTEE ON 

BANKING, HOUSING, AND URBAN AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED FOURTEENTH CONGRESS 

SECOND SESSION 

ON 

A REVIEW OF THE CONSUMER FINANCIAL PROTECTION BUREAU’S 

SEMIANNUAL REPORT TO CONGRESS 

APRIL 7, 2016 

Printed for the use of the Committee on Banking, Housing, and Urban Affairs 

( 

Available at: http://www.fdsys.gov/ 

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS 

RICHARD C. SHELBY, Alabama, Chairman 

MIKE CRAPO, Idaho 

BOB CORKER, Tennessee 

DAVID VITTER, Louisiana 

PATRICK J. TOOMEY, Pennsylvania 

MARK KIRK, Illinois 

DEAN HELLER, Nevada 

TIM SCOTT, South Carolina 

BEN SASSE, Nebraska 

TOM COTTON, Arkansas 

MIKE ROUNDS, South Dakota 

JERRY MORAN, Kansas 

SHERROD BROWN, Ohio 

JACK REED, Rhode Island 

CHARLES E. SCHUMER, New York 

ROBERT MENENDEZ, New Jersey 

JON TESTER, Montana 

MARK R. WARNER, Virginia 

JEFF MERKLEY, Oregon 

ELIZABETH WARREN, Massachusetts 

HEIDI HEITKAMP, North Dakota 

JOE DONNELLY, Indiana 

WILLIAM D. DUHNKE III, Staff Director and Counsel 

MARK POWDEN, Democratic Staff Director 

DANA WADE, Deputy Staff Director 

JELENA MCWILLIAMS, Chief Counsel 

SHELBY BEGANY, Professional Staff Member 

LAURA SWANSON, Democratic Deputy Staff Director 

GRAHAM STEELE, Democratic Chief Counsel 

PHIL RUDD, Democratic Legislative Assistant 

DAWN RATLIFF, Chief Clerk 

TROY CORNELL, Hearing Clerk 

SHELVIN SIMMONS, IT Director 

JIM CROWELL, Editor 

(II)

C O N T E N T S 

THURSDAY, APRIL 7, 2016 

Page 

Opening statement of Chairman Shelby ................................................................ 1 

Opening statements, comments, or prepared statements of: 

Senator Brown .................................................................................................. 2 

WITNESS 

Richard Cordray, Director, Consumer Financial Protection Bureau ................... 4 

Prepared statement .......................................................................................... 45 

Responses to written questions of: 

Chairman Shelby ....................................................................................... 49 

Senator Brown ........................................................................................... 56 

Senator Toomey ......................................................................................... 68 

Senator Heller ........................................................................................... 73 

Senator Sasse ............................................................................................ 82 

Senator Moran ........................................................................................... 95 

Senator Reed .............................................................................................. 98 

Senator Merkley ........................................................................................ 98 

ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD

Semiannual Report of the Consumer Financial Protection Bureau, October 

1, 2015–March 31, 2016 ....................................................................................... 102 

Letters and statements submitted for the record ................................................. 291 

(III)

(1) 

THE CONSUMER FINANCIAL PROTECTION BUREAU’S SEMIANNUAL REPORT TO CONGRESS 

THURSDAY, APRIL 7, 2016 

U.S. SENATE, 

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, 

Washington, DC. 

The Committee met at 10:17 a.m., in room SD–538, Dirksen Senate Office Building, Hon. Richard Shelby, Chairman of the Committee, presiding. 

OPENING STATEMENT OF CHAIRMAN RICHARD C. SHELBY 

Chairman SHELBY. Mr. Cordray, welcome again to the Committee. You have seen this before here. We welcome you, and I will 

proceed with an opening statement. 

On Tuesday, the Committee heard testimony from private sector 

experts on consumer finance regulations. We heard a number of 

concerns regarding the Bureau’s actions in areas such as indirect 

auto lending, arbitration, the consumer complaint database, and 

small dollar short-term lending. We also heard broader critiques of 

the Bureau’s approach to regulating, including its use of enforcement actions to set market standards rather than the rulemaking 

process. There was also concern expressed regarding the Bureau’s 

current structure and the lack of accountability inherent in it. 

I have said many times that regulatory independence should 

never mean independence from accountability or vigorous Congressional oversight. The drafters of Dodd–Frank immunized, I believe, 

the Bureau from any meaningful Congressional influence, leaving 

it free to engage in questionable practices and unreasonable expansions of its jurisdiction. The only effective restraint available now 

resides in the courts. 

Fortunately, this week, a Federal Court of Appeals has directed 

the CFPB to defend the constitutionality of its basic structure. This 

particular case follows what is now becoming a string of court decisions criticizing or striking down this administration’s implementation of Dodd–Frank provisions, including the FSOC’s so-called systematically important designation of MetLife, the SEC’s cost-benefit analysis, and the SEC’s conflict of minerals rule. 

I believe that future legal challenges will lead to the invalidation 

of many parts of Dodd–Frank. That is what happens when a 2,300- 

page bill is forced through Congress without sufficient process and 

before the lessons of the financial crisis were fully understood. Congress did not even wait for the Financial Crisis Inquiry CommisVerDate Nov 24 2008 14:48 Sep 25, 2017 Jkt 046629 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 L:\HEARINGS 2016\04-07 ZDIST\23056.TXT JASON
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sion’s work to be completed or its report to be released before it 

passed Dodd–Frank and created the CFPB. 

And while the Committee held a number of hearings in the leadup to the passage of Dodd–Frank, I can assure you that the thousands of pages of text were being drafted, or were already drafted 

well before we ever had a single hearing. We often hear about the 

importance of data and data-driven decision making at our hearings. I would like to highlight once again my concerns about the 

striking lack of data and data-driven decision making that produced the law we now know as Dodd–Frank. 

It still strikes me as stunning that this Committee approved this 

massive piece of legislation without deposing a single market participant. The Committee did not subpoena a single document from 

a single person or financial institution. And now, we are starting 

to see the results of this partisan, uninformed effort. 

There is now growing concern that despite the Bureau’s mission, 

its rules and regulations actually restrict access to credit, increase 

costs, and deny financial products to the consumers who need 

them. Last year’s survey by the Federal Reserve found that 47 percent of U.S. households are unable to come up with $400 in emergency funds without selling something, going into credit card debt, 

or using a short-term loan. By targeting some of these products in 

its rulemakings, the Bureau may be blocking access to the very financial services many Americans may need in a crisis. Consumer 

protection should not mean limiting a consumer’s options by substituting the Bureau’s judgment for the consumer’s. 

Today, again, we will hear from CFPB Director Richard Cordray 

so that we can have what we hope will be a productive discussion 

on these important topics and concerns. 

Senator Brown. 

STATEMENT OF SENATOR SHERROD BROWN 

Senator BROWN. Thank you, Chairman Shelby, for holding this 

important hearing. 

Today’s hearing is one example of how the CFPB is accountable 

to Congress. You almost cannot turn on C-SPAN and not see Director Cordray speaking to the House Finances Services Committee or 

the Senate Banking Committee, it seems. So, the issue of accountability bewilders me that anybody would say you are anything but 

that. 

The law requires the Director to be available twice a year to testify before this Committee. Director Cordray has been available 

every time this Committee has wanted, and I assume, I am almost 

certain, for any of you individually that want to talk to him or try 

to persuade him of something. 

CFPB is subject to three separate annual audits. The banking 

agencies have unprecedented authority to veto CFPB rules that 

threaten the safety and soundness or financial stability of our system. Yet, the CFPB’s existence continued to be attacked, now 5, 6 

years later, with false arguments that it lacks accountability. 

The industry—and it is the industry—continues to fight CFPB’s 

existence, and those in Congress who are advocating for the industry join them to fight their existence, fight their actions, most recently by trying—unsuccessfully, and I am glad of that—to attach 

3 

riders to end-of-year funding legislation. One of these riders would 

require a commission of Senate-confirmed members. Just imagine 

that. This Committee has gone now 15 months and we have not 

seen one person coming out of this Committee who has been confirmed on the Senate floor, yet some of my colleagues on the other 

side of the aisle want a commission of Senate-confirmed measures. 

In a dysfunctional Senate Banking Committee and a dysfunctional Senate, it is strange credibility to think that would be good 

Government. Maybe that is how they want it to be, the opponents 

to the Bureau want it to be, that they cannot simply act because 

they would not have enough Senate-confirmed members, since the 

purpose of the rider is obviously to turn the CFPB into ideological 

road kill. 

Today’s hearing on consumer finance rules, we heard from—excuse me, at Tuesday’s hearing, we heard from three witnesses representing the financial industry—three—and one witness representing everyday Americans. The business witnesses claimed 

CFPB is hurting people it is supposed to help. But bipartisan polling shows that three in four voters support this agency. Just this 

morning, the Committee received petitions from literally hundreds 

of thousands of Americans supporting the Consumer Bureau. Many 

of you are in the room today. I thank you for showing your support 

for the CFPB. 

CFPB has been a strong watchdog for consumers since it started just 5 years ago. The agency has obtained $11 billion in relief for 

25 million people in our country. Nearly one million people, including 25,000 in Ohio, submitted complaints to the agency about their 

problems with mortgages, student loans, credit reports, debt collection, or bank accounts. What amazed me about the Tuesday hearing was that at least one, maybe two of those three corporate representatives on the panel complained about these one million people that were sending in complaints, amazingly enough, because 

they were not—I guess because they were not industry lobbyists 

that sent in their complaints. 

We saw in the crisis that regulators ignored their consumer protection duties and did not have the authority to act. They focused 

on the financial industry’s soundness and ignored the plight of consumers. In my view, these are complementary, not competing, responsibilities. If people are treated fairly, the financial system is 

far less likely to run off the rails. 

A former Fed official claimed on Tuesday it did not have evidence 

to act against predatory lending. Imagine that. It is a fact that 

foreclosures in my home of Cuyahoga County doubled from 1995 to 

2000. They doubled again by 2006. And according to that former 

Fed consumer protection official, who was one of our witnesses 

Thursday on the corporate side, there was no data that showed any 

kinds of problems. 

Local officials begged the Fed to act in 2001. The same story 

played out across the country. Prior to the CFPB, there was no centralized place for individuals to file complaints about consumer financial products. There was no centralized place for Congress to 

determine what consumers were experiencing in the marketplace. 

There was no centralized place for regulators to determine when a 

financial product had become so abusive that Americans all across 

4 

the country, a million of them, as I said, would file complaints 

about it. 

Today, we all have that place. CFPB has exposed bad behavior 

by financial companies that had no Federal regulator, such as credit reporting, student loan servicing, auto finance. We finally have 

strong mortgage rules and disclosure designed for people who have 

to pay the mortgage. 

More is needed. The Bureau is working on rules to regulate prepaid cards, debt collection, arbitration, and payday loans. The payday loan market is a prime example. States have fought predatory 

lending with mixed results. More than a dozen States in our country do not allow payday lending. My State did not until a Republican majority came in the 1994 elections in Ohio and payday lending, in essence, in my State was created. But even that legislature, 

because of abuses, a decade later enacted a 28 percent rate cap. 

The industry attempted to repeal the cap through a ballot initiative. Ohioans by almost a 2-to-1 vote defeated that ballot initiative, 

even though payday lenders were outspending in that campaign 

40-to-one. Since then, unfortunately, the legislature has caved to 

those interests, and unfortunately, it means that payday lending is 

alive and well in Ohio again. 

I hope the CFPB will finish these rules soon on payday lending. 

The costs of delay demand it. 

I look forward to hearing from Director Cordray about their priorities. I understand, Director, this is the 61st time that you have 

testified before Congress. I hope we can focus on substantive issues 

before allowing you to, as we say around here, do your job. 

So, thank you. 

Chairman SHELBY. Mr. Cordray, your written testimony will be 

made part of the hearing record. You proceed as you wish. 

STATEMENT OF RICHARD CORDRAY, DIRECTOR, CONSUMER 

FINANCIAL PROTECTION BUREAU 

Mr. CORDRAY. Thank you, Mr. Chairman, Ranking Member 

Brown, Members of the Committee, for the opportunity to testify 

today about the Consumer Financial Protection Bureau’s Semiannual Report to Congress. 

I appreciate our continued dialogue as we work together to 

strengthen our financial system and ensure that it serves consumers, responsible businesses, and the long-term foundations of 

the American economy. 

As we continue to build this new agency, we have made considerable progress on our core responsibilities to exert supervisory oversight over the Nation’s largest banks and nonbank financial companies and to enforce the consumer financial laws enacted by the 

Congress. Our analytical approach to risk-based supervision is 

leading to more systematic consumer-friendly changes at these financial institutions, and we are making progress on leveling the 

playing field for all market participants. 

During this reporting period, our supervisory actions resulted in 

financial institutions providing more than $95 million in redress to 

over 177,000 consumers. Our enforcement actions are based on 

careful and thorough investigations and most have identified deceptive practices by the parties involved. During this reporting peVerDate Nov 24 2008 14:48 Sep 25, 2017 Jkt 046629 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 L:\HEARINGS 2016\04-07 ZDIST\23056.TXT JASON
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riod, the orders entered on enforcement actions led to approximately $5.8 billion in total relief for consumers victimized by violations of the law. These consumers are located in every one of your 

States across the country. 

We are also working to provide tools and information to develop 

practical skills and help people understand the choices they will be 

making to manage the ways and means of their lives. Our ‘‘Ask 

CFPB’’ resource provides guidance and response to inquiries across 

the entire spectrum of consumer finance. Our major moment in 

time-decisional tools now include paying for college, owning a 

home, and planning for retirement. We have developed a new partnership with the Financial Services Roundtable to work together 

on financial education in the schools, in the workplace, and on behalf of older Americans, which is proving to be productive. 

Listening and responding to consumers is central to our mission. 

We continue to refine the capabilities of our Office of Consumer Response to receive, process, and facilitate responses to consumer 

complaints. We also continue to expand our public Consumer Complaint Database, which updates nightly, and is now populated by 

over half-a-million complaints from consumers about a broad range 

of consumer financial products and services. 

We marked a milestone for consumer empowerment when we 

began to publish Consumer Complaint Narratives, which allows 

people to share in their own words their experiences in the consumer financial marketplace. 

Reasonable regulations are essential to protect consumers from 

harmful practices and ensure that consumer financial markets operate in a fair, transparent, and competitive manner. We focused 

our efforts on promoting functioning markets, such as the all-important mortgage market, in particular, where consumers can shop 

effectively for financial products and services and are not subject 

to unfair, deceptive, or abusive acts or practices. 

During this reporting period, we issued several proposed rules, 

final rules, or requests for information. To support industry compliance with our rules, we publish plain language compliance guides 

and other resources to aid in their implementation. We are also 

seeking to streamline, modernize, and harmonize financial regulations that we have inherited from other agencies. 

Over this reporting period, the Bureau has continued to expand 

its efforts to support and protect consumers in the financial marketplace. Recent data indicates that sound consumer protections in 

our major markets are strengthening them for consumers and providers alike. 

The mortgage market has been expanding briskly for 2 years 

now since our major rules have taken effect. The credit card market has greatly improved, with strong consumer protections, better 

industry performance, and increasing customer satisfaction. The 

auto lending market is supporting record sales of cars and trucks 

to meet consumer demand. 

The growing sense of consumers that these markets can actually 

work for them, without fear of tricks and traps and other predatory 

conduct, and is stoking their confidence and restoring their trust. 

These developments reflect well on the work being done by the 

Consumer Bureau, and taken as a whole, they are making substanVerDate Nov 24 2008 14:48 Sep 25, 2017 Jkt 046629 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 L:\HEARINGS 2016\04-07 ZDIST\23056.TXT JASON
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tial contributions to the continued recovery of the American economy. 

Mr. Chairman, Ranking Member Brown, Members of the Committee, thank you again for the opportunity to be here today and 

to discuss the work we are doing on behalf of consumers. We will 

continue to listen closely to our stakeholders and attend carefully 

to your oversight in order to ensure that all Americans can be assured of fair treatment in the consumer financial marketplace. 

I look forward to your questions. 

Chairman SHELBY. Thank you, Director Cordray. 

I would like to summarize my understanding here today of your 

enforcement actions regarding the indirect auto lending and then 

get some of your impressions, if I could. As I understand it, Mr. Director, you do not have any statutory authority to regulate auto 

dealers. In fact, Dodd–Frank specifically proscribes that. 

Mr. CORDRAY. That is correct. We have never brought any action—— 

Chairman SHELBY. I know. 

Mr. CORDRAY. ——against a single auto dealer. Correct. 

Chairman SHELBY. You do, however, have the authority to regulate indirect auto lenders. 

Mr. CORDRAY. Not only the authority, but we feel a responsibility. Congress gave us that task, yes. 

Chairman SHELBY. The CFPB, in other words, you, recently approved an enforcement action against certain lenders using the theory of disparate impact. In these cases, you argued that the lenders’ policies created a significant risk—these are your words—that 

they will result in pricing disparities on the basis of race, national 

origin, and potentially other prohibited bases. 

I presume that you pursued the disparate impact theory because 

the lender actually has no idea whether the borrower belongs to a 

protected class. Unlike mortgage lending that is subject to HMDA 

data collection, auto lending is not. In other words, it is my understanding that the lender cannot intentionally discriminate on the 

basis of race because the borrower’s race is unknown to them. 

Nevertheless, it is my understanding that you did determine— 

you, the agency—you did determine that certain racial groups were 

being charged the higher rate for their loans and, hence, the disparate impact. The bad act, for lack of a better term here, was the 

lender’s policy, not the fact that they intentionally discriminated 

against anyone because they actually could not, even if they wanted to. They did not know who they were. If anyone was in a position to actually discriminate, it was the person selling the car. But, 

the law does not allow you to regulate the dealer, only the lender, 

as you acknowledged. As a result, the indirect lenders were penalized to the tune of $162 million for what may or may not have been 

the action of someone else. 

Assuming here that your conclusion of disparate impact was 

valid, it would seem to me that this would be a poster child for a 

rulemaking as opposed to an enforcement action. There is a big difference. The lenders did nothing to intentionally discriminate 

against anyone, and yet it would appear that you treated them as 

such because you do not have the authority to go after your real 

target here. Your own press release is entitled, and I will quote, 

7 

‘‘CFPB To Hold Auto Lenders Accountable for Illegal Discriminatory Markup.’’ That is your press release. 

I understand that you make these decisions on a case-by-case 

basis, but here today in this Committee, tell us in detail why you 

chose to go after these lenders as if they were knowingly discriminating against certain individuals as opposed to pursuing a rulemaking that would give the lenders some clarity and some certainty in the area. 

Mr. CORDRAY. So, I would say a couple of things, and I would put 

the matter, I think, somewhat differently than how you just stated 

it, but, first of all, auto lenders set up their lending programs. They 

can lend directly or they can lend indirectly. They set up those programs. The results of those programs are their responsibility. If, in 

fact, there is a systematic pattern or practice, in their programs of 

people being given higher rates based on race or ethnic origin, that 

is against the law. 

As to disparate impact, there are two things I would say. First 

of all, we enforce the Equal Credit Opportunity Act in the same 

way and with overlapping jurisdiction of as the Justice Department. The Justice Department only has enforcement authority. All 

of these matters have been taken jointly with the Justice Department and they have led to findings of disparate impact discrimination. 

As to whether this is the law, my job is to enforce the law, whatever it is, whether somebody disagrees with it or not. 

Chairman SHELBY. Your job is also to follow the law, is it not? 

Mr. CORDRAY. Yeah. This law—— 

Chairman SHELBY. Is it not—— 

Mr. CORDRAY. ——was reaffirmed by the U.S. Supreme Court 

last June. 

Chairman SHELBY. Excuse me. 

Mr. CORDRAY. I am sorry. 

Chairman SHELBY. Your job is also to follow the law. 

Mr. CORDRAY. Absolutely, and the U.S. Supreme Court—— 

Chairman SHELBY. Respect the law. 

Mr. CORDRAY. ——last June reaffirmed that disparate impact 

discrimination is the law of the land. 

Chairman SHELBY. OK. 

Mr. CORDRAY. That is the law we are required to enforce. We will 

enforce it vigorously, and we believe to root out discrimination, 

which nobody supports, in any of these markets. 

Chairman SHELBY. There has been a lot of talk here before the 

Committee and in the discussion a couple of days ago about your 

agency using enforcement as a tool rather than rulemaking, that 

some people believe that what you all are after, money rather than 

justice. What do you say to that? 

Mr. CORDRAY. I think if you are enforcing the law, there are people who are not going to like it because they would rather get away 

with violating the law, cutting corners, and saving money. But, if 

people are violating the law, they should be made to pay. They 

should be made to reimburse consumers who are harmed. That is 

a basic premise of any law enforcement agency. I know you were 

a prosecutor early in your career. I am sure you took seriously your 

obligation to make people follow the law. That is all we are doing. 

8 

It is what we should be doing, and if it has not been done previously and people are used to it not being done, then that is not 

correct. That is not the way things should be. 

Chairman SHELBY. But everybody should have respect for the 

law and the rules, and that includes you and your agency, is that 

correct? 

Mr. CORDRAY. Absolutely, yes. 

Chairman SHELBY. OK. Senator Brown. 

Senator BROWN. Thank you, Mr. Chairman. 

Director Cordray, again, thank you. We heard a lot 2 days ago 

about the Bureau’s arbitration study. I would like to give you a 

chance to talk about the study, specifically, its methodology and its 

findings. What did you find? What does the Bureau plan to do to 

allow consumers to seek justice in court? 

Mr. CORDRAY. OK. And, it is very important to understand the 

authority here. Congress spoke in the Dodd–Frank Act and they 

spoke loudly on this issue of arbitration agreements in consumer 

finance contracts. And what they said, what Congress said—this is 

the law of the land now—is that those arbitration agreements were 

harmful in most mortgage contracts and would be banned flat out 

in most residential mortgage contracts. 

Congress also said in the statute that as to the rest of consumer 

finance, we are going to task this new agency, our agency, with the 

job of studying this problem carefully and reporting to Congress 

about it, and then based on the results of that study, to consider 

whether policy interventions are warranted, consistent with the 

study, and—they gave broad latitude here—consistent with the 

public interest to protect consumers. 

So, our first job, a mandatory job, was to conduct a study of arbitration clauses in consumer finance contracts. We took that very 

seriously. It took us a couple of years to do that study. We assembled and brought in data that no one had ever had a chance to look 

at before about arbitration matters, about court cases, about every 

manner in which different disputes may be resolved in the consumer finance arena. Those who have criticized the study acknowledge that it was the single most comprehensive, really 

groundbreaking study that had ever been done and that continues 

to have ever been done in the history of arbitration agreements, 

which go back under Federal law to the 1920s. 

And, the study found that in consumer finance issues in particular, very often, what you have is a small amount of harm to individual consumers on a broad basis. Maybe millions of consumers 

are harmed to the tune of $50 or $100. That is enormously profitable for financial institutions, but it is not worth it to individual 

consumers, in most cases, to pursue either an arbitration or a court 

case. And, in fact, what we found is arbitration agreements in 

these contracts tends to cutoff people’s remedies pretty much altogether, in particular because it bans their ability to group together 

and bring group claims so that financial institutions who harm on 

a broad basis cannot be held accountable. 

That is essentially what our study found. There is a lot of detail 

in there, and it is not easily subject to a 30- or 60-second discussion 

because it runs to hundreds and hundreds of pages. But, it conVerDate Nov 24 2008 14:48 Sep 25, 2017 Jkt 046629 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 L:\HEARINGS 2016\04-07 ZDIST\23056.TXT JASON
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tinues to be discussed and debated and we continue to discuss and 

debate it and consider all of the input we have gotten. 

We offered to speak to the authors of one critical study. One of 

them was willing to speak to us about it, the other was not. And, 

we will take input from all sides on this. 

But, we are moving forward. We have indicated that we are contemplating a proposed rulemaking to build on the results of that 

study and to address this issue and I expect that to be in a proposal stage at some point this spring. 

Senator BROWN. Thank you, Director. 

Our panel Tuesday claimed that regulations are reducing access 

to products like free checking and, therefore, they say, pushing consumers into payday loans. However, Americans have a record $3.5 

trillion in consumer debt, a full trillion dollars more than just 6 

years ago. Talk, if you would, about the availability of credit and 

the research that the Bureau has done on this topic. 

Mr. CORDRAY. Sure. I had a chance to review the transcript from 

Tuesday and there were comments made about free checking that 

I think are dubious. I saw some of it was being pinned on the Durbin Amendment and I thought you were right to be skeptical of 

that claim, which has not been established as a cause or effect. 

In fact, access to credit is expanding, by the way, there was also 

a lot of looseness around dates in some of that testimony. Some of 

the testimony talked about things that have happened since 2008, 

like credit being restricted. Credit was restricted immediately in 

the wake of the financial crisis because households lost $12 trillion 

in household wealth. Mortgages became tight. 

Credit cards became tight. But, what has been happening since 

the Dodd–Frank Act was passed in 2010 and the CARD Act in 

2009, and also the Consumer Bureau, which did not open its doors 

until July of 2011, is that we now see credit begin to expand again, 

in the mortgage market and in the credit card market. The Federal 

Reserve studies have shown that credit is expanding. And, I would 

say, in the credit card market, in particular, there is broadly increasing consumer satisfaction with these products. 

We think that is a good thing. We are not just pro-consumer protection at the CFPB, we are pro-consumer, and if consumers have 

access to responsible credit, that is a very good thing, and we do 

see that expanding across markets. 

Senator BROWN. Could I do one more question? 

Chairman SHELBY. Go ahead. 

Senator BROWN. Thank you, Mr. Chairman. 

Last year, the Bureau announced it was considering proposing 

rules, and we have talked about this in the past, that would cover 

payday lending, vehicle title loans, other high-cost loans. Our home 

State of Ohio, as you know, attempted to block payday lending. Its 

law has been ineffective. Talk about how these companies have 

skirted State laws. Talk about the importance of the rule. And, you 

have also commented in the past that there are a dozen States that 

do not allow payday lending, and in those States, how have they 

done with small dollar credit in those States without the access to 

payday lenders, if you will. 

Mr. CORDRAY. Yeah. There has been no research, and it ranges, 

depending on people’s definitions here, from 12 to possibly 18 

10 

States that restrict payday lending because they have usury caps 

in place to indicate that consumer welfare is harmed in those 

States. And, in fact, there are studies indicating that both credit 

scores may be higher and bankruptcies may be lower. So, that is 

a question. 

I think as to circumvention, the best example is one that this 

Committee can understand very readily because you have been involved in the Military Lending Act. The Military Lending Act was 

passed in 2006 with the promise Congress made to cut off some of 

the predatory credit that was being offered to servicemembers, active duty servicemembers. The rules that were then implemented 

by the Federal agencies at that time were pathetic. They were narrow. They were easily circumvented. And you can still see to this 

day predatory products being offered outside military bases and online at 500-, 700-, 900-percent rates of interest. 

Congress reopened that a couple years ago. The Consumer Bureau was part of the discussions about creating new rules, and we 

now have strong rules in place—some took effect last October, and 

the rest of the rules will take effect this October—that will bring 

the meaning of the Military Lending Act to fruition for 

servicemembers and their families across the country. 

But, if loopholes are allowed and if rules are flimsy, then the industry will circumvent those rules, and, in fact, they have shown 

their ability to do so. 

Senator BROWN. Thank you. Thank you, Mr. Chairman. 

Chairman SHELBY. Senator Crapo. 

Senator CRAPO. Thank you, Mr. Chairman. 

Director Cordray, as you know, I have privacy concerns about the 

CFPB’s big data collection efforts and the ability to reverse engineer this information. 

Mr. CORDRAY. Yeah. 

Senator CRAPO. Last Congress, I requested an official review of 

the CFPB’s data collection by the Government Accountability Office. The report acknowledged CFPB’s ongoing collection of up to 

600 million credit cards, 11 million credit reports, 700,000 auto 

sales, 10.7 million consumers, cosignors, and borrowers, 29 million 

active mortgages, and 5.5 million private student loans. 

I do not want to get into it now, but I would like you to verify 

that data with me. I want to know if the data that I just put out 

is accurate or whether the numbers are higher or lower. 

Mr. CORDRAY. So, as you know, when we discussed it, we were 

glad to have you commission the GAO study. They issued their report. They made a number of recommendations to us. They have 

now indicated to us that we have successfully implemented all of 

those recommendations and they will be moving to close those out, 

so that is good news, and I think the result has been it improves 

our process as an agency. 

As we have discussed before, the last thing I want is for our 

agency to mishandle data and to be criticized for that. You have 

been apprehensive on this issue, I think with legitimate reason, 

from the beginning, but we have handled this data responsibly and 

carefully and we are looking, in response to some of the dialogue 

and oversight we have had from you and Members of this Committee and House committee, we are looking to do sampling of data 

11 

wherever possible. We are now looking at how we can do that with 

credit cards. 

Senator CRAPO. I appreciate your efforts on that. And, what I 

was saying, though, is I want to verify with you the data that I just 

put out. For example, are you actually only looking at 600 million 

credit cards? Are you looking at more or less or what have you? So, 

the data I put out, I would like—I do not want to get it and use 

my time—— 

Mr. CORDRAY. So, I mean, the reality is, that is actually in a 

state of flux right now and we are looking to find ways, and I believe that we will be able to report successfully to you over time 

that we will be doing—— 

Senator CRAPO. That you are reducing—— 

Mr. CORDRAY. ——a sampling of that data—— 

Senator CRAPO. I appreciate that. 

Mr. CORDRAY. ——rather than comprehensive—— 

Senator CRAPO. As of October 31, 2015, the CFPB has issued 

eight mandatory data collection requests under its Section 1022 

market monitoring authority, and six of those mandatory data collection requests were sent to fewer than nine companies, the significance of which is that that effectively avoids the review of the 

request by the Office of Management and Budget and circumvents 

the opportunity for public comment on the information request. 

The feedback I received from the CFPB’s mandatory data collection request on deposit advance products was that it was voluminous and sought a number of data fields, including the use of deposit advance products, overdraft protection, and nonsufficient fund 

fees. While it did include a caveat that the financial institution 

should not produce any personally identifiable information that directly identifies the consumer or the account, I understand that the 

data collection request effectively required these institutions to 

scan customer accounts line by line for their financial behavior 

going back years. It would seem to me that this is a large-scale 

data collection into the individual consumer’s use of financial products on a transaction by transaction basis. 

Can you confirm to me how many data fields were collected 

through this request and how many customer accounts were 

scanned to get this data? 

Mr. CORDRAY. So, there were different requests with different 

data fields, but what I want to say is I think the story you tell, 

which I agree with, actually vindicates and shows careful concern 

by us to comply with the Paperwork Reduction Act and Congress’ 

purpose in that Act. The fact that we would limit ourselves to a 

small number of institutions in order to get data is sampling of a 

kind, and we are doing that, in part, because the Paperwork Reduction Act provides the incentive to do sampling. Rather than 

going out to 400 institutions, we may go to nine. If we are going 

to try to go to 400 institutions, if that becomes essential, there are 

heavier burdens to bear, and we have done that at times and gone 

through the OMB process. 

Senator CRAPO. Well, I understand that, but if you look at credit 

cards, for example, my understanding is, and this is obviously a 

rough number, that there are somewhere over a trillion credit 

cards in the United States—credit card accounts in the United 

12 

States. If you are looking at 600 million of them, that is half, at 

least. And, I understand that you may be far above the 600 million 

level, which is why I asked for that number earlier. 

Mr. CORDRAY. Yeah, sure, but the credit card database is different from the 1022s. The 1022s—— 

Senator CRAPO. Understood. 

Mr. CORDRAY. ——where you think it is circumventing the PRA, 

it is actually compliance with the PRA and it leads to sampling, 

which is a good thing. 

On the credit card issue, as I said, we are working to go to a 

sampling process for that. I believe we will be able to do that over 

time and we will continue to report to you on that, and that is in 

response to your oversight and your concern, which I share. 

Senator CRAPO. Well, thank you. And, again, my question specifically was how many data fields were collected and how many customer accounts were scanned to get this data, so I would like 

to—— 

Mr. CORDRAY. OK. I am happy to follow up with you, again, depending on which 1022 you are talking about or which database 

you are talking about, and we will be glad to brief your staff and 

make sure that you are satisfied. 

Senator CRAPO. All right. Thank you very much. 

Chairman SHELBY. Senator Reed. 

Senator REED. Well, thank you very much, Mr. Chairman, and 

thank you, Mr. Cordray, for your great work. 

I worked very hard with my colleagues on the Committee to ensure that the Office of Servicemember Affairs was included in the 

Consumer Financial Protection Bureau, and I must say, under your 

leadership and the leadership of Holly Petraeus, it is doing a remarkable job. Just last year—in 2015, you returned over $5 million 

to service men and women and their families. And, one of the reasons this is so critical to me is that when I was a younger person, 

I was an XO of a paratrooper company and most of my time was 

consumed fending off creditors coming after my troops based on 

very suspicious credit arrangements that they had worked out. 

So, I really appreciate what you are doing, and I do not think 

there is anyone in this Congress that would object to protecting the 

financial well-being of men and women who are wearing the uniform of the United States. And, I would go further, saying that I 

do not think there should be a difference for their brothers and sisters who may not be wearing the uniform of the United States but 

are being exploited by other people. 

Mr. CORDRAY. Amen to that. 

Senator REED. Thank you. One of the things, though, that your 

inquiries have uncovered is a practice that seems to be, if not growing, very disturbing, and that is creditors contacting commanders 

and threatening the security clearance of an individual member of 

the Armed Forces based on a debt, and this has huge ramifications. 

It can prevent promotion. In fact, in some cases, because of their 

job, they might be separated if this comes about. Can you comment 

on that and what you are doing? 

Mr. CORDRAY. Sure. It is flatly against the law for a debt collector to threaten anyone, let alone a servicemember, with consequences that a debt collector has no ability to carry out. So, for 

13 

example, it is common for debt collectors, those who push the envelope, those who do not care about compliance, to threaten arrest or 

imprisonment, which they have no ability to effectuate. 

In the servicemember context, the ominous activity that many 

debt collectors engage in is to threaten to go to the commanding 

officer of the servicemember and threaten their security clearance, 

which would threaten their ability to remain on active duty in the 

military and perhaps lead to a dishonorable discharge. That is an 

execrable practice. It is against the law. We have taken strong enforcement actions against it. 

And, by the way, when people talk about regulation by enforcement, when we take an enforcement action against a debt collector 

for doing that, threatening the security clearance of a servicemember, I hope that people do take that as regulation by enforcement, 

and every other debt collector out there understands they are at 

risk, they are violating the law, and we will come down hard on 

them if we become aware of the fact that they continue to do that. 

Everybody should be on notice in this marketplace, no one should 

be doing that. 

Senator REED. Well, I really appreciate that, because I saw it 

from the perspective of an executive officer in an infantry company 

where I was getting barraged. The commander would hand—that 

was my job. I did that stuff for the commander. And, letters every 

day of young men—at that point, all young men—who had been 

really goaded into buying vehicles they could never afford at extraordinary interest rates and then being hounded and beaten up, 

finally going to the commander and threatening that their status 

in the military would be impaired. So, what you are doing there is 

absolutely critical. As the Ranking Member on the Armed Services 

Committee, it is critical to our readiness and the ability of our 

troops to concentrate on their jobs, so thank you. 

There is one other thing, too, that I must commend you on. 

Through your work, we have made improvements in the Military 

Lending Act. We had an Act that capped interest rates for active 

duty personnel at 36 percent, but people went in—the Consumer 

Federation of America, and found that because of the loopholes in 

the previous regulation, in fact, some lenders were charging 400 

percent for a title insurance loan, 584 percent for an open end line 

of credit, 360 percent for an online installment loan—these are to 

men and women in the military. 

And, thank you for your efforts, because I think now we have got 

a better hold on keeping the level at 36 percent. And, by the way, 

36 percent interest in today’s interest economy is still pretty plush 

for the lenders, but that is the law. Thank you. 

Mr. CORDRAY. I think that, actually, the regulations that were 

first adopted in the wake of the MLA were disrespectful of the Congress. Congress clearly indicated its purpose, to protect 

servicemembers in this area, and the rules did not get that job 

done. And, I am grateful to the Congress for reopening this issue 

several years ago so that we could do it right this time, and I am 

proud of our team that worked with other agencies and with the 

Department of Defense, and I am proud of the Department of Defense for their determination to make this work for their 

servicemembers. 

14 

Senator REED. For the record, it was title installment loan, not 

title insurance loan. Thank you. 

Chairman SHELBY. Senator Corker. 

Senator CORKER. Well, thank you, Mr. Chairman, and Mr. 

Cordray, it is good to see you again. 

Mr. CORDRAY. Thank you. 

Senator CORKER. I had written you a letter about TILA RESPA, 

and I know we—and I appreciate your efforts to try to make that 

more simplified for folks. Because of the line of work I have been 

involved in in the past, I closed a lot of loans in the past, and, candidly most of the times, I did not see the sheet until I was actually 

at the closing table—— 

Mr. CORDRAY. Yeah. 

Senator CORKER. ——and I was OK with that, because it sped 

up the closing process. At the same time, I know that the attempt 

here is to make sure that people know what they are doing in advance and have the opportunity to see it. And, yet still, things are 

pretty fluid with most loans, and there are some calculations that 

take place at the last minute for lots of reasons. 

And, what we found, and I know that you know this, we found 

that what is happening is you have got responsibility or legal obligations shifting to the settlement agent, which really is just collecting the information and putting it in a closing statement. And, 

I am just wondering, I know that they can correct this within 60 

days or a period of time, but there is some confusion over what is 

something that is just a little clerical error and something that 

matters. I know that right now, attorneys are litigating over this 

and we are finding that sometimes people are having difficulty selling these loans in the secondary market. 

Mr. CORDRAY. Mm-hmm. 

Senator CORKER. I am just wondering if you are considering 

making a ruling of some kind to alleviate the problems that I know 

you are aware of that are existing out there. 

Mr. CORDRAY. Yeah. So, several things. First of all, it is a great 

example of Congressional oversight and how these hearings matter. 

We received that letter from you. Because I am testifying today, we 

did respond to that letter, it may have been late last night, it may 

have been early this morning that your office received it. You probably have not seen it yet, and I apologize for that. 

Senator CORKER. No, I read it. I read it. 

Mr. CORDRAY. OK. And, that is because we knew that you would 

want to raise this issue again with me, or likely would. 

In terms of the Know Before You Owe rule, the purpose of that 

rule, and this is something Congress mandated, it was not something we just dreamed up on our own—and there was a good purpose, and everybody acknowledged it was a good purpose—there 

used to be two different application forms, one issued by the Federal Reserve, one issued by HUD, that occurred at the application 

stage, and two different closing forms, again, by each of those agencies under different statutes, and it was inherently confusing for 

consumers. 

Senator CORKER. Right. 

Mr. CORDRAY. Why am I getting two forms? What is the difference between them? 

15 

Senator CORKER. No, I got that. I understand that. 

Mr. CORDRAY. You know all that. 

Senator CORKER. I understand the reasoning and I applaud—— 

Mr. CORDRAY. And the purpose here was to streamline those 

forms. You all had a hand in making sure this happened. But, our 

agency was given the job and we have completed that job. 

Now, having said that, that is a big transition for mortgage lenders, who have to work with lots of others in the industry and all 

of their IT systems have to work together. We have recognized 

that. We have said that we are going to be understanding and diagnostic about the oversight of this in the early period. The early period now has stretched past 6 months. We still feel the same way, 

and I will reemphasize that today. 

There are some concerns that we want to be very mindful of. We 

convened recently the leading trade associations, the Mortgage 

Bankers, American Bankers Association, others, to hear from them 

about specific concerns they have that we can address. We have 

held webinars. We have another one coming up next week on these 

issues. We have compliance guides out. We do want to make sure 

that although this is better for consumers, and they tell us that it 

is, that it works for industry, as well. 

Senator CORKER. Right. 

Mr. CORDRAY. I was pleased to see mortgage lending was up 12 

percent year over year in January from a year before. That is a 

good thing. As I say, it is something we like to see, because this 

is good, responsible lending. And, the closing times initially ticked 

up on this, but they ticked back down, and in February, the Ellie 

Mae folks said that this is, you know, kind of status quo as far as 

that is concerned. It is not necessarily for every institution, though. 

I get that, and we hear that. 

Senator CORKER. But, I want to ask you another question, if I 

could. 

Mr. CORDRAY. All right. 

Senator CORKER. I think when you get to a point, and hopefully 

very soon, you will be able to issue some clarifying language—— 

Mr. CORDRAY. Yes. 

Senator CORKER. ——so that people know, you know, whether 

something is a minor error or something that, you know, is something that is major and actually taints the loan, if you will. I just 

think that would be helpful to industry and I appreciate your concern in responding to my—— 

Mr. CORDRAY. We have been doing that. We will continue to do 

that. And, if you are hearing things that we are not addressing, we 

are glad to have you continue to bring them to our attention. We 

are probably hearing them directly, but we are glad to hear them 

from you—— 

Senator CORKER. I want—— 

Mr. CORDRAY. ——because we sit up and take notice of that. 

Senator CORKER. I am trying to adhere to the time here. 

Mr. CORDRAY. Yeah. 

Senator CORKER. Payday lending—I know in our State, if you 

continued a loan, ad infinitum, for an entire year, the interest rate 

would be 459 percent. And, obviously, we want to make sure that 

people have access to loans at affordable rates. We have had our 

16 

Commissioner of Banking was in yesterday talking about this. It 

is just an observation. 

Mr. CORDRAY. Mm-hmm. 

Senator CORKER. What is it that you see that are potential outlets down the road for people whose credit has been tarnished and 

has issues? Is it through FinTech? I mean, what are you seeing out 

there? I would love to hear what your thoughts are relative to people having access to loans that are a little different from that if 

they are in the capacity, if you will, to be able to execute on them. 

Mr. CORDRAY. Sure. A number of things. And, some of these, we 

are trying to sort out and understand. 

First, there is the payday lending industry itself, which could reform in light of potential regulations at the Federal level, just as 

they have often changed their practices at the State level in response to changes. And, frankly, nobody wants to cut off people’s 

ability to get one or two loans when they need them. It is the debt 

trap, when people get stuck in the loans for 8, 10, 12—— 

Senator CORKER. I understand the problem—— 

Mr. CORDRAY. Yes. 

Senator CORKER. ——and I really do. I am understanding—what 

I would like to understand is what the solution is—— 

Mr. CORDRAY. Yeah. 

Senator CORKER. ——so you do not cut people off from—— 

Mr. CORDRAY. Let me be real specific. I think there are possibly 

three different solutions here. One is reform of the payday industry 

itself. 

A second is community banks and credit unions. Credit unions 

do offer a small dollar product called a PAL product. It is blessed 

in law. We think it is a good product and we want to make sure 

that there is room for that under any regulations we would adopt. 

And community banks could do that. We want to allow room for 

that—responsible products, not payday-type products. 

The third piece is FinTech, and there are real opportunities here, 

although small dollar lending is tricky. It is difficulty. And we will 

see if that develops over time. But, whatever FinTech innovations 

occur, we want them to be consumer friendly and we will be mindful of that and watchful for that, and I think those in the industry 

know that. Many of them have met with us and they are mindful 

of the CFPB’s role here. 

Senator CORKER. Thank you. 

Chairman SHELBY. Senator Menendez. 

Senator MENENDEZ. Thank you, Mr. Chairman. 

Director, let me say, I came today in part, unlike others, maybe, 

to praise the Consumer Financial Protection Bureau, not to bury 

it, and let me say that I think an example of what you and your 

colleagues at the Bureau are doing is embodied in something I 

fought very hard as a Member of this Committee, which is the 

Credit Card Act. The Bureau noted in its most recent evaluation 

that since enactment, consumers have saved more than $9 billion 

in over-limit fees, $7 billion in late fees, and the total cost of credit 

has dropped almost 2 percentage points, and all the while, the 

availability of credit card credit has increased. And that, in my 

mind, is just one example of why consumer financial protection 

laws and regulations create a fairer marketplace. 

17 

In that regard, as I think you know, I have been very engaged 

in the question of prepaid cards, which has exploded over the last 

few years, especially among households who lack access to traditional banking services. And, I have introduced legislation which 

would require clear disclosure of fees and prohibit the most abusive 

kinds of charges. It would also require prepaid cards to have FDIC 

insurance, like a traditional bank account, and comparable protections to a bank account if a card is lost or stolen. 

Many card providers have already voluntarily provided such 

measures and standards, which shows it can be done, but it also 

highlights the need for strong, consistent protections across the full 

market. 

So, could you give us an update on the status of the Bureau’s 

work on prepaid cards, and particularly, since I see that the rule 

did not include, or the proposed rule did not include the issue of 

FDIC, how will we create the type of protection necessary in that 

regard. 

Mr. CORDRAY. Sure, and we have had some discussions around 

this previously. We have been very attentive to the legislation that 

you introduced and to the thought and care and research that went 

into thinking about those issues, which we have attempted to incorporate into our own approach to these issues. That rulemaking is 

pending. It was out for notice and comment. We have digested 

those comments and we expect to finalize that, or we will finalize 

that rule sometime this spring. 

On the issue of FDIC insurance, in particular, that is one of the 

issues that is under submission there. I do not want to overstep 

proper bounds here, but we have had discussions with the FDIC 

about it and we understand the concern there. 

Many of these general purpose reloadable prepaid cards now effectively serve as substitute bank accounts for people who are 

unbanked, and they can be pretty effective bank accounts if they 

have consumer protections. Right now, as you know, we have no 

consumer protections. This rule will provide consumer protections 

for the first time, very similar to those for bank accounts, the Reg 

E protection. 

The other thing I would say on this issue that is new since we 

last talked in committee about it is we did have the RushCard fiasco, and the Consumer Bureau was very engaged in addressing— 

these people had prepaid money loaded onto cards and then thousands of them found that they could not get their money off the 

cards because of an operational glitch by the company, some sort 

of problem that we continue to sort through from a standpoint of 

an investigation and making sure consumers are made whole. 

And, you know, that is outrageous. People prepay money onto a 

card in order to be able to use it when they need it, and if they 

cannot use it when they need it, then they have been cheated of 

their service. So, that, if anything, shows all the more to me the 

need for strong protections in this area. 

Senator MENENDEZ. Well, I appreciate that. I know that Senator 

Brown and I wrote to you about that and I am glad to see that the 

Bureau is pursuing it. 

Mr. CORDRAY. Yeah. 

18 

Senator MENENDEZ. Two last issues. One is zombie mortgages, 

zombie foreclosures, I should say. Unfortunately, my State of New 

Jersey has the highest rate of zombie foreclosures, which is basically a bank begins a foreclosure action, but then, because of the 

low value of the house, chooses to abandon the foreclosure without 

providing any notice to the homeowner that they are still on the 

hook for repaying mortgage debt, taxes, and other expenses. So, 

can you talk to me about what steps, if any, the Bureau has taken 

or is looking to take to address this issue? At least can homeowners 

receive notice when the bank has decided not to pursue it? 

And, last, the National Council La Raza reported that 48 percent 

of counselors reported that mortgage servicers rarely or ever provide written communications in the preferred language of a borrower with limited English proficiency. I know the Bureau has 

identified the provision of language services as an issue in its mortgage servicing examination procedures, but particularly for homeowners who encounter trouble on their mortgage, it seems to me 

that more is needed to ensure they receive the type of comprehensive loss mitigation assistance that is necessary. 

Can you address those two issues. 

Mr. CORDRAY. Sure. I will take the second one first, in terms of 

preferred language. There was a very helpful provision in the statute that Congress passed on remittances that said that if you are 

basically selling a product and marking in a preferred language, 

then you ought to follow up in all respects through the product in 

that language. That is probably a good principle across the board, 

but it was specified there and so we were able to implement it. 

In terms of preferred language, that is something we are working 

on with FHFA and others, and we recognize the issues there and 

the importance and the vital elements of that for communities that 

are affected. And, of course, it is not only Spanish-speaking, but it 

is a wide variety of languages in different parts of the country, we 

have come to understand. 

In terms of zombie foreclosures, it is a difficult issue. It is often 

an issue for investor properties, but—sometimes there are properties taken over by banks. And what you are talking about is 

starting a foreclosure, then stopping the foreclosure at some point. 

The consumer does not necessarily have any notice. They do not realize they are still going to be on the hook legally, since the property was never foreclosed on and sold, for taxes and insurance and 

other payments. They may well have left the home in the meantime, because if you are being foreclosed—if you think you are 

being foreclosed on, often, you start examining your options and 

you take one when you can find it. 

So, it is a difficult problem. I do think you are right, that notice 

is a basic problem there. It often will not be effective for consumers, entirely effective, because they may have already left the 

home. And, it is worse, frankly, in the States with the longest foreclosure processes because there is more chance of a bank starting 

and then stopping maybe 200, 300, 400, 500 days in, at which point 

the consumer may have left the home. 

So, we understand there is consumer harm here. There are complexities around it, but it is something that we are looking to see 

19 

what we can do and maybe what others can do, as well, and how 

we can work together on that, including with State courts. 

Senator MENENDEZ. Thank you. I look forward to working with 

you. Thank you. 

Chairman SHELBY. Senator Scott. 

Senator SCOTT. Thank you, Mr. Chairman. 

Thank you, Mr. Cordray, for being here this morning. You made 

a speech to the credit unions and talked about how the mortgage 

market was good news for all around, that more opportunity for 

more consumers and a wider path to the American dream in a 

mortgage market made stronger by the changes we have made. 

But, the evidence for first-time homeowners over the last 3 years 

is that the first-time homeowners have been in decline, and that 

disproportionately impacts minority would-be homeowners, since 

the fact of the matter is that about 74, 75 percent of the majority 

population owns homes. About 45 percent of African Americans 

own homes. About 55 percent of Hispanics own homes. 

So, my question really is, when you look at the rules and Dodd– 

Frank being put in place, how do we reconcile the mortgage market 

specifically is good news for all around, when, in fact, for first-time 

homebuyers, who are disproportionate minority, the news is not 

nearly as good? But, what we have seen throughout the country, 

and specifically at home in South Carolina, is that the rental market is far more expensive and the growth, really, an explosion, in 

apartments is nearing an all-time high in the last decade or so. 

Mr. CORDRAY. Yeah. So, this is—and I know you raised that 

issue on Tuesday and I had a chance to review the transcript of 

the hearing, and it is an important and interesting—it is actually 

a very interesting issue, a lot of pieces to it. 

So, first of all, I would say, in terms of first-time homebuyers, I 

think if you look at the statistics on the mortgage market, what 

you will find is that of owner-occupied real estate, first-time homebuyers are still maintaining about the same share that they have. 

The difference that is affecting the market is that there are many 

more investor-owned and investor-purchased properties than there 

had been before the crisis. It appears that investors have seen their 

opportunity as prices plummeted and they have bought up a lot of 

properties, and this is going to be a problem in a number of communities, because although it helped find a bottom in certain markets and maybe create equilibrium, it has pulled inventory off the 

market and made it unavailable to, say, you and me, if we were 

going to go try to buy a house tomorrow. 

There are also inventory problems in local markets around the 

country. Sometimes, many houses are tied up in the foreclosure 

process, depending on the State. Sometimes, many houses remain 

underwater, depending on local valuations, so it is difficult for 

someone to sell if they are underwater on their mortgage. And, 

homebuilders have been kind of reluctant to come back in with a 

rush to the market and build new inventory, although that is starting to happen. 

So, by the way, I do not want to be viewed as some sort of happy 

talker who sees a glass half full if there are just a few drops in 

it. But, what I do see in the mortgage market is that the share of 

the mortgage market that is taken right now by credit unions and 

20 

community banks together has risen since Dodd–Frank, has risen 

since our rules took effect, and is at levels that are the highest they 

have been in 20 years. That is a good thing. Those institutions did 

do the best lending right through the crisis. When everybody else 

was deteriorating, they stayed firm. They had low default rates. 

And we have tailored our rules to give them advantages and recognize their model in the mortgage market, and I think that is a good 

thing. 

Senator SCOTT. It certainly appears to me that the consolidation 

within the banking space has led to more access and opportunities 

for smaller credit unions to continue to grow—— 

Mr. CORDRAY. I think so. 

Senator SCOTT. ——and, frankly, in Section 1022 of Dodd–Frank, 

it states plainly that the Bureau, by rule, may conditionally or unconditionally exempt any class or covered persons, service providers, or consumer financial products or services from any provision of this title or from any rule issued under this title. Do you 

think if the credit unions or community banks were being detrimentally impacted—we have talked about the mortgage market 

specifically, but generically speaking—by the rules of your agency, 

this section would allow there to be more tailoring of regulations? 

Do you see that as a possibility that you are going to take hold of, 

or do you see the need of it or not? 

Mr. CORDRAY. We have been doing that since the beginning, and 

we tailored our mortgage rules, in particular, which, of course, is 

the most significant finance market for all players, at around $10 

trillion, we tailored our rules in notable ways for smaller providers, 

and we continue to do that. We have just implemented Congress’, 

I thought, helpful legislation on definition of ‘‘rural’’ in a way that 

was very broad for smaller institutions. 

What I will say about the exemption authority is we tend to be 

fairly careful about it. We do not regard Congress as having said 

to us, you have broad exemption authority. You can do whatever 

you want despite what Congress said. That would be too much. 

But, where we have evidence that we think we can build on, in 

particular, rulemaking, such as the mortgage origination rules, the 

mortgage servicing rules, the remittance rules, we will tailor for 

smaller institutions because, very often, that is the right answer. 

They are responsible. They are close to their customers. They provide good service. 

But, the notion that we would simply countermand—I mean, 

Congress set its own limits here in terms of we have authority over 

banks over $10 billion but not under, in terms of supervising them, 

and the like, and Congress did not just exempt credit unions from 

all laws and regulations, and, therefore, I do not feel that I can just 

come in as a matter of opinion or ideology and overrule that. 

But, where I can see that, say, in mortgage rules and the mortgage market, they have done well and we should try to tailor our 

rules accordingly, we have done that and we will continue to do 

that. And, I would be glad to take your and your colleagues’ input 

on how you think we should be doing that. And, we get that input 

directly from ICBA, from NAFCU, from CUNA all the time. 

Senator SCOTT. I would be happy to have that conversation with 

you offline, if you are open to it. 

21 

Mr. CORDRAY. Sure. 

Senator SCOTT. My main concern, as I wrap up, Mr. Chairman—— 

Chairman SHELBY. Thank you. 

Senator SCOTT. Yes, sir—is that when you look at the number of 

households that are unbanked or underbanked, I know that we 

talked on Tuesday, about a million households—— 

Mr. CORDRAY. Yes. 

Senator SCOTT. ——the fact of the matter is that with better information provided by staff, the number is around four million 

under- and unbanked households, because the more—the regulatory burden impacts the institutions. The higher the cost, the 

higher the cost, the lower the access. And, for the unintended consequences—I assume unintended—is the fact of the matter is that 

4.4 million households are now either unbanked or underbanked 

than was at the beginning of Dodd–Frank. 

Mr. CORDRAY. Yeah. Well, actually, I would be interested in 

knowing exactly what the numbers and the dates are, because 

since the crisis, certainly that number has gone up, because the crisis blew up the economy for people. Whether it can actually be 

pinned on Dodd–Frank when we did not even open our doors until 

July of 2011—that is where I get off the train on some of the commentary I have seen on this. 

Senator SCOTT. Happy—— 

Mr. CORDRAY. Yeah. 

Senator SCOTT. One of the things that we did was make sure 

that the numbers that we used did not start in 2008 and immediately after the crisis. 

Mr. CORDRAY. Yeah. That is 3 years before we came along. 

Senator SCOTT. Exactly. That is why we did not use the 2008 

numbers. 

Mr. CORDRAY. By the way, I think we certainly—— 

Senator SCOTT. I am happy to—— 

Mr. CORDRAY. I know we would agree that the fact that credit 

unions reached an all-time high in membership nationally last year 

is a good thing. I am very supportive of that. I am sure you are, 

too. But, again, it is notable that if our rules are supposedly killing 

the credit unions, how is their membership now at an all time 

high? It does not really make sense. 

Senator SCOTT. There is no doubt that the number of members 

at credit unions are higher. The number of credit unions themselves are lower, so the fact that—— 

Mr. CORDRAY. Yeah, although that has been a decline that has 

been steady for 30 years. 

Senator SCOTT. The contraction of credit unions and banks, obviously, are happening, and there is a consequence that comes with 

the regulations that may be contributing to that fact, as well. 

Mr. CORDRAY. Maybe, although that has been a consistent trend 

for 30 years, and the evidence I have seen is that it has not accelerated since Dodd–Frank, although there was a Lux–Greene study 

that I think is, in my view, discredited, that seems to suggest that. 

I do not think it bears out when you do the analysis more carefully. 

Senator SCOTT. Happy to continue to the debate. 

Mr. CORDRAY. All right, sure. 

22 

Senator SCOTT. Thank you. 

Mr. CORDRAY. Thank you. 

Chairman SHELBY. Senator Warner, thank you for your patience. 

Senator WARNER. Appreciate that, Mr. Chairman. 

Director Cordray, great to see you again, and I also want to commend you for your service. I would point out that if you look behind 

you, you will see a lot of folks who are supporters of the Bureau, 

many of them actually from the Commonwealth of Virginia brought 

in by Virginia Organizing who will, I think—it is a shorter commute for them than some of the people from around the country. 

Mr. CORDRAY. Amen. 

Senator WARNER. Although, still, something needs to be done 

about that traffic in this region. I wish I knew somebody who was 

still Governor. 

[Laughter.] 

Senator WARNER. I want to pick up on where Senator Corker 

was. I think there would be actually bipartisan sense that some of 

the more egregious actions on payday lenders needs to be stopped, 

and people are taken advantage of, and we look forward to your 

guidance and rulemaking. 

But, an area, as we have discussed before, I have spent some 

time looking into is FinTech, and there remains opportunities in 

this new area, as we think about more and more of our banking 

is going to be put, frankly, with the supercomputing power you 

have got on your phone, I have looked at a number of firms who 

are looking at tools around income smoothing, around differential 

ways of paying folks. Many low- and moderate-income people, because of managing their finances on a regular basis, fall off that 

cliff at the end of a pay period and end up then having to resort 

to a payday lender or others that will put them in that debt spiral. 

Mr. CORDRAY. Yeah. 

Senator WARNER. The challenge, though, is when you have got 

these new technology tools, how do you balance the innovation, but 

at the same time, as we have seen entities like Dwolla, who did not 

do a very good job of protecting consumer information, get this 

right, and what standard are we going to hold them to. They are 

not full financial-banking institutions, but I think there is going to 

be the same kind of disruption from FinTech that we have seen 

perhaps with Uber with taxis, or Airbnb with hotels. I think it is 

one of the next areas to be disrupted. Good, but there are also possibilities for abuse. 

Mr. CORDRAY. True. That is true. The nature of innovation is 

that it is neutral, but hopeful and encouraging, and some innovations have been very bad for consumers. The exotic mortgages that 

were developed in the lead-up to the crisis were innovative, no 

doubt about that. They were also terrible for consumers, as it 

turned out. 

As we look at FinTech, and I am very interested in these issues, 

as I know you are, and we have a team that we call Project Catalyst at the Bureau that is very engaged with the financial innovation community, not just in Silicon Valley, but across the country, 

and also innovations that are occurring within larger institutions 

that are constantly researching how to improve their products. 

23 

What I would say is we believe it would not be appropriate for 

new FinTech startups to be getting an advantage in the marketplace because they are arbitraging the regulatory system. They are 

not complying, they are not taking seriously, or as seriously what 

the banks and regulated institutions have to do. 

Our enforcement action against Dwolla has been much remarked 

upon, but it was actually a rather modest action. It simply said 

that if you are telling your prospective customers and consumers 

that you are going to handle data security in a certain way that 

gives them confidence and then they want to deal with you, and, 

in fact, you are not, then you are deceiving your customers and you 

are getting an unfair advantage by doing so and that should stop. 

And, that should be a signal to the whole market that, at a minimum, deliver on your promises to your customers. 

But, I do think it is going to be interesting to see how this develops. There is a lot of promise in FinTech. It could lower costs in 

some areas. It could promote convenience, may well do that, which 

is great for people. That is a different kind of cost for them. It may 

be that the banking system and the FinTech companies will converge in some ways so that there is better compliance, but also we 

get the benefit of the innovation. We will see. But, we are trying 

to stay on top of it, because if we fall behind it, this could dramatically affect markets over time and we could end up thinking that 

we are dealing with a market that is very different from the one 

that is actually happening. 

Senator WARNER. And, I guess I think there will be somewhat of 

a distinction. There is a lot of research out now about the amount 

of income volatility that is affecting—— 

Mr. CORDRAY. Yes. 

Senator WARNER. ——close to half of Americans, and some of 

these tools that could even and level some of that income volatility—and, I guess, I would simply point out that I hope Catalyst 

is also working with the regulators around the rest of the world. 

This is a worldwide phenomena. 

Let me get one last question and—— 

Mr. CORDRAY. I think our team has actually been leading regulators around the world. Operation—Project Sandbox in Britain is 

modeled after our program. 

Senator WARNER. I actually want to stay close to my timeline, 

though, because I want to get in my last question. Something we 

raised a year or so ago here, and you had a response, I would like 

to reraise it again, the different level of credit protections between 

debit cards and credit cards, and particularly debit cards being 

with younger persons. I did not realize until we got into the data 

breach issues, and we have got legislation to try to equalize those 

credit protections. Would you like to speak to that? I know I had 

to go back and try to change out my daughter’s cards from debit 

cards to credit cards because it is—— 

Mr. CORDRAY. These are always the best stories, when we are 

talking about some specific issue we dealt with within our own 

lives and we find it to be vastly more complicated than we might 

have hoped. 

But, look, this is exactly what we are doing with prepaid cards, 

as well. We are trying to bring them from a standard of no protecVerDate Nov 24 2008 14:48 Sep 25, 2017 Jkt 046629 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 L:\HEARINGS 2016\04-07 ZDIST\23056.TXT JASON
24 

tion to comparable to debit cards and not exactly credit cards. 

There are some specialized provisions for credit cards. But, there 

should be—you reach into your wallet, you pull out a card. You 

may not distinguish that well between what kind of card it is. You 

should be protected in all three areas 

And if there are some special protections for credit cards, those 

are sometimes—those are applicable. They may be applicable in 

some cases to prepaid cards. That is something we have under consideration, debit cards—again, I am not sure that all the same provisions should apply to all cards, but they all should be subject to 

protection. Certain provisions should apply to all cards, and that is 

a subject we can continue to discuss. And, I appreciate your interest in it, because it is a hard issue, but it is an important one. 

Chairman SHELBY. Senator Cotton. 

Senator COTTON. Thank you. 

Mr. Cordray, I want to discuss the CFPB’s actions on indirect 

auto lending and specifically the Ally case. 

Mr. CORDRAY. OK. 

Senator COTTON. So, in this matter, since auto lenders are not 

permitted by law to collect race, you did not have the actual race 

of potential claimants available, is that correct? 

Mr. CORDRAY. We did not have it through Ally’s own records, 

that is correct. 

Senator COTTON. OK. So, in administering the settlement funds 

from the CFPB’s enforcement action, you used a two-tiered approach to notify potential victims of discrimination based on a statistical determination of race using the customer’s last name and 

address, is that correct? 

Mr. CORDRAY. So, and this is consistent with how redress has 

been handled in these types of cases in every instance where you 

do not have, say, the granular mortgage data, which is true only 

for the mortgage market. 

Senator COTTON. Yes. So, yes. And, as I understand it, if someone had a 95 percent chance of being nonwhite by the Bureau’s 

model, he or she would have received mailing information informing them of eligibility for and forthcoming receipt of a remuneration check unless they returned an opt-out notice? 

Mr. CORDRAY. And discussing what the criteria were for eligibility and making it plain that they should satisfy those criteria, 

yes. 

Senator COTTON. And then there was a second tier threshold of 

a 50 to 95 percent likelihood of being nonwhite and that mailing 

required them to return a form opting into the settlement, is 

that—— 

Mr. CORDRAY. That is correct. I think you are accurately stating 

all pieces of this thus far, yes. 

Senator COTTON. In neither group, though, were individuals required to affirmatively identify the protected minority race or ethnicity to which they belonged? 

Mr. CORDRAY. So, then, there is always a question, how much 

specificity do you want them to actually provide. I mean, there are 

various things you could make them do, and you could also require 

them to swear under oath and other things. Everything that makes 

25 

the whole transaction more complex, you know, there is a dropoff 

rate of people who do not bother. 

Senator COTTON. Well, since you raised that, were they required 

to make any kind of statement or affirmation under penalty of perjury that they did, in fact, belong to a protected class under the settlement? 

Mr. CORDRAY. So, they were required to make an opt-in, which 

essentially was a statement that they belonged to the protected 

class. 

Senator COTTON. Did they have to make that statement under 

penalty of perjury or—— 

Mr. CORDRAY. I do not believe that was the case, but I could clarify with my staff for you if I have that wrong. 

Senator COTTON. I recently discovered a very handy program on 

the Wall Street Journal that is similar to the methods that you use 

to evaluate the race of buyers of cars in pursuit of this enforcement 

action. You just plug in the name and the zip code and out pops 

a statistical likelihood of race. Now, the website on the Journal 

does caveat that they do not have the exact method you do, and, 

of course, the address is more reliable than the zip code. 

But, coincidentally, at a hearing on Tuesday, Senator Brown revealed his zip code in Ohio to be 44105. Shockingly, the program 

says that Senator Brown has an 89 percent likelihood of being 

black—— 

Mr. CORDRAY. Mm-hmm. 

Senator COTTON. ——based on that name and zip code. 

Mr. CORDRAY. Mm-hmm. 

Senator COTTON. Senator Shelby turns out to have a 70 percent 

probability of being black. Tom Cotton, in the zip code where we 

sit, has an 88 percent probability of being black. 

So, using this example, Senator Brown financed his vehicle 

through Ally. He fell within the racially guessed threshold you just 

confirmed, and he had no legitimate business reason that existed 

to discount the APR he was offered. Would the CFPB have sent 

him a remuneration check? 

Mr. CORDRAY. OK. So, let us take those specific examples and let 

us also take this back to what we are talking about. In each of 

those three examples, they would have to affirmatively opt in to receive a check. 

Senator COTTON. They would have—— 

Mr. CORDRAY. They would have to state—— 

Senator COTTON. They would have been in the second tier. 

Mr. CORDRAY. They would have to respond and state that they 

were a minority borrower. I assume that each of you would not do 

that, or otherwise, you are committing fraud. 

But, let us go back here. What we have is we have a discrimination matter against Ally Financial. Three-hundred-and-twenty-five 

thousand or so consumers were affected. They were charged higher 

rates based on a pattern or practice that systematically showed 

that minorities in certain categories paid higher rates. And then 

the question becomes—— 

Senator COTTON. No, I am not—— 

Mr. CORDRAY. I am just—— 

Senator COTTON. I am not disputing the underlying facts. 

26 

Mr. CORDRAY. I just want to—— 

Senator COTTON. No, no. I am not disputing any of the underlying facts. 

Mr. CORDRAY. But—but the—— 

Senator COTTON. I am talking about the redress—— 

Mr. CORDRAY. Sure—— 

Senator COTTON. ——the redress that potential claimants receive. 

Mr. CORDRAY. But, then, what do you do for those 325,000 people? 

Senator COTTON. So, Senator—— 

Mr. CORDRAY. Do you set up a system that is difficult for them 

to comply and get their money, or do you set up a system that is 

reasonable for them to comply and get their money? Now, if there 

turns out to be some systematic large number of people who fraudulently got checks under this settlement, that is something we will 

take very close account of—— 

Senator COTTON. But—— 

Mr. CORDRAY. ——and consider responding to. But, 325,000 people did qualify for appropriate redress here, and, you know, I have 

not seen the large number of fraud cases. It is just all this hypothetical—people have an apprehension—people think it could have 

occurred—— 

Senator COTTON. Well, it is hypothetical like your model is hypothetical, that says Senator Brown has an 89 percent chance of 

being black—— 

Mr. CORDRAY. Yeah, but there is nothing hypothetical about 

325,000 consumers who were systematically discriminated 

against—— 

Senator COTTON. But, Senator Brown would have been in the 

second tier. He would have had to opt in. 

Mr. CORDRAY. And you would have had to opt in, and Senator 

Shelby would have had to opt in. I assume you would not have 

done so—— 

Senator COTTON. But he would not have had to make a statement—— 

Mr. CORDRAY. ——you would have been committing fraud. 

Senator COTTON. He would not have had to make any statement 

under penalty of perjury or other kind of punishment for making 

a false statement. 

Mr. CORDRAY. So, you tell me, would you have committed fraud 

simply because it did not say you had to do it under penalty of perjury? 

Senator COTTON. Did the Department of Justice recommend that 

you require some kind of oath or affirmation under penalty of perjury? 

Mr. CORDRAY. We worked with the Justice Department on these 

remedies, so—— 

Senator COTTON. I did not ask if you worked with them. I asked 

if they recommended it. 

Mr. CORDRAY. I do not recall—— 

Senator COTTON. The Department of Justice—— 

Mr. CORDRAY. ——and I do not—— 

27 

Senator COTTON. The Obama Department of Justice suggested 

that you require what is—you routinely require it on Federal 

forms. 

Mr. CORDRAY. So, I would not speak to any internal deliberations 

here. In the end—— 

Senator COTTON. We do not have to speak to them. 

Mr. CORDRAY. ——we agree. 

Senator COTTON. The House Financial Services Committee has 

released the documents. 

Mr. CORDRAY. We are not doing something differently than the 

Department of Justice in this case. We are acting together. We are 

on the same page. But, again, I do not think you would have committed fraud. 

Senator COTTON. Did you personally decline the Department of 

Justice recommendation that a penalty of perjury attach to 

such—— 

Mr. CORDRAY. I do not believe I did. I would be happy to have 

my staff follow up with you. But, again, I do not want to characterize internal discussions with them, but I do not believe I did. I 

have no recollection of having done that, and I do not believe that 

was the case. 

Senator COTTON. I would like to—— 

Mr. CORDRAY. And I do think that—let me just say, I stand by 

and believe this was a reasonable approach to how to get relief to 

hundreds of thousands of consumers who were discriminated 

against under the disparate impact theory that I know some people 

disagree with, but the Supreme Court has reaffirmed is the law of 

the land. 

Senator COTTON. Well, 330 members of the House of Representatives, to include many Members of the Congressional Black Caucus, 

disagree. My time has expired. 

Chairman SHELBY. Thank you, Senator Cotton. 

Senator Merkley. 

Senator MERKLEY. Thank you very much, Mr. Chair, and thank 

you, Mr. Cordray, for your testimony. 

I wanted to make sure I have the numbers right. It seems like 

every time you come here, I am underestimating the amount of 

money you have returned to consumers, either in the form of direct 

restitution after—because of predatory practices or principal reductions or canceled debts. I believe that number is now over $11 billion. 

Mr. CORDRAY. I believe it is also true that every time I come 

here, my age gets a little older, but now it is—I believe it is over 

$11.2 billion in relief made available to consumers. 

Senator MERKLEY. It is a pretty phenomenal thing, that support 

for fairness in financial transactions have returned so much to 

hard working American families who were victims of predatory financial practices. 

I also was reading recently an estimate of the savings, and these 

are the savings that occur because of practices were discontinued 

on credit cards, an estimate of about $16 billion in saved fees, and 

I believe that is independent from the $11 billion, is that correct? 

Mr. CORDRAY. Yes, and, in fact, that was the CARD Act that put, 

or kept $16 billion in consumers’ pockets over a period of time. But, 

28 

there is another point that I have heard Senator Warren make 

many times that is very powerful, which is when we talk about 

looking backward, $11 billion was made available to consumers in 

relief, or $16 billion was saved to consumers over a backward-looking period of time. 

It is also the case that those changes, as lasting changes, mean 

that every month, every year going forward, people are saving the 

same amount of money, which over time results in tens—eventually hundreds of billions of dollars for consumers. That is really 

meaningful. It is hard to add that up because it is prospective—— 

Senator MERKLEY. Yes. 

Mr. CORDRAY. ——but it is very meaningful. 

Senator MERKLEY. Which leads right into the question I was 

going to ask you, was in terms of the mortgage reforms that have 

been undertaken, do we have an estimate of what have been saved 

because people got fair, square, fair deal mortgages rather than 

predatory mortgages? 

Mr. CORDRAY. I actually do not begin to know how to count that, 

but I will ask our Office of Research, who are a lot smarter than 

I am about such things, about how they might be able to go about 

doing that. Clearly, the mortgage market, when you compare markets, the mortgage market is about $10 trillion, the largest single 

consumer finance market in the world. Credit cards are under a 

trillion. Student loans are a little over a trillion. And auto loans are 

somewhat around a trillion. So, if there are savings from our rules, 

and I am sure there are, but it may be heard to document them, 

they are going to be at a much higher scale for people. 

Senator MERKLEY. Well, it sure is a wonderful thing to have so 

much good done for hard working American families by having fair 

practices in the financial markets, and sometimes that just seems 

to get lost in the conversation in this Committee, so I wanted to 

emphasize that point. 

I wanted to turn—— 

Mr. CORDRAY. Could I say, just briefly, one other thing? You 

know, people often talk about, and it’s true in this hearing at 

times, the Bureau, you, meaning me personally. We have about 

1,500 people who do this work and achieve these results that people can be very proud of and that benefit every one of your constituents. They benefit constituents in every one of your States. 

And, I am very proud of them, and when you say nice things about 

the Bureau, it is them you are talking about, not so much me. 

Senator MERKLEY. Thank you. Now, I have two more questions 

and only a minute and a half, so I will try to be very quick here. 

Mr. CORDRAY. OK. 

Senator MERKLEY. But, one is you did a study of arbitration 

clauses, a very thorough study, the Ross v. Bank of America settlement that affects Bank of America, Capital One, Chase, and HSBC. 

I read through that, and it sounded like the conclusion was that, 

contrary to what is often asserted, there were no particular costs, 

if you will, raised in terms of the products when the use of arbitration clauses was discontinued. Is that a fair summary of—statistically significant, that could be identified within your study? 

Mr. CORDRAY. It is a fair summary, and it was notable that there 

were institutions we could isolate, some of whom had arbitration 

29 

clauses all along, some of whom did not have them at all, some of 

whom had them for a while and then stopped, particularly in response to the class action litigation. 

Senator MERKLEY. Let me just make the point here that, right 

now, across the country, citizens are so frustrated by this system 

that is rigged against them, from Citizens United on to the actions 

of the House and the Senate under current leadership. It is—but 

this is a real example, an arbitration clause in a contract where, 

essentially, the judge of asserting your rights when there is a predatory action goes before someone who is hired by the person on the 

other side of the issue and only keeps getting hired if they find in 

favor of the folks who are hiring them. That is the system that is 

rigged. So, I applaud your work on arbitration. 

I have a few seconds. Let me turn to payday loans. In State after 

State after State, the States have gone to work to say, these are 

unfair practices—and, by the way, just yesterday in our Chairman’s State, 28 to one, the State weighed in, the State legislators 

weighed in and said, we absolutely want to curtail the abuses of 

the payday loan industry. And, often, the payday loan industry 

says this reduces access to credit and they cite a reduced number 

of loans being made after these State actions. But, what that does 

not take into account is a family that gets a fair loan gets one loan 

instead of getting ten in the course of a year, and so on and so 

forth. 

I found in Oregon, after we cracked down on payday lending and 

put an interest rate cap on and a rollover cap, that we still have 

payday loan companies operating, but citizens do not have to get 

continuously rolled over and they get a much fairer deal, and they 

still have access to credit, but they have access to credit at a much 

lower interest rate. So, it is a complete win. And the pastor who 

testified this week noticed that and certainly many of the pastors 

in my State, working directly with poor families, see that. 

Is that your impression, as well, that the consumer gets a much 

better deal when they get a low interest rate than when they get 

a high interest rate that can be 500 percent or more? 

Mr. CORDRAY. I think some of that is probably simple mathematics. But, what I would say is that I think a point you made that 

is quite powerful is there is often this comment made, well, there 

are not a lot of complaints about payday loans, I mean, people 

going in and being treated well by being rolled over, rolled over, 

and rolled over. Ultimately, it can damage their finances beyond 

repair. 

But, I would say that talk to the faith community. Talk to—I 

would like each of you to talk to ministers and leaders in your 

States. They can tell you the stories they hear, where people come 

to them not because they are financial experts, but because they 

know they care about them, and we hear horrendous stories of the 

effects of this on people’s lives and they are repeated in massive 

volume across the country. That is a good place to start in trying 

to understand this issue. 

Senator MERKLEY. Amen to that, and thank you, Mr. Chairman. 

Chairman SHELBY. Senator Toomey. 

Senator TOOMEY. Thank you, Mr. Chairman. 

Mr. Cordray, welcome back. 

30 

Mr. CORDRAY. Thank you. 

Senator TOOMEY. Thanks for being here. 

As you know, Section 1071 of the Dodd–Frank Act instructs the 

Bureau to collect data on small business lending, and I noticed recently that the CFPB has posted a job listing with reference to Section 1071. It described the job as, and I quote, ‘‘once in a career 

opportunity to make the market for small business finance fairer 

and more transparent,’’ end quote. So, is it your intent that the 

market will become fairer and more transparent by virtue of the 

disclosure of data? Is that—— 

Mr. CORDRAY. I think that is clearly what Congress said to us 

by mandating this test in the statute—— 

Senator TOOMEY. Well, but it is your words in the job description, so that is why I want to understand your intent. 

Mr. CORDRAY. I think it is a great opportunity—— 

Senator TOOMEY. OK. 

Mr. CORDRAY. ——and I hope you will recommend candidates to 

us. 

Senator TOOMEY. So, my question is, is it your intention that the 

Bureau will limit its work in the small business lending space to 

the compilation of data? 

Mr. CORDRAY. So, what I would say is, first of all, we do not have 

much authority in the small business lending area, and so that is 

what our focus under our statute is, individual consumers—— 

Senator TOOMEY. Right. 

Mr. CORDRAY. ——products for household purposes. But, there 

are a couple of places in our statute—you know, again, Congress 

said it, not me. 

Senator TOOMEY. Right. 

Mr. CORDRAY. We have jurisdiction over small business lending 

under the Equal Credit Opportunity Act and we have this 1071 

that you identified here, which is a mandatory job Congress gave 

us—— 

Senator TOOMEY. Yes. 

Mr. CORDRAY. ——to set up a reporting, data collection, and data 

publishing regime for small business lending comparable to what 

HMDA has created for the mortgage market, yes. 

Senator TOOMEY. Yeah. So, my understanding is that what 

Dodd–Frank does in Section 1071 is exclusively about data collection. That is the only authority that I read for the CFPB with respect to small businesses in Section 1071. Is that your—— 

Mr. CORDRAY. Yeah. Ten-seventy-one speaks for itself. We are 

doing our best to implement it faithfully. It is going to be a big job 

for us, but it is a task Congress instructed us to do and so we follow the law. 

Senator TOOMEY. Yeah. Getting back to this issue of your approach to enforcement, you gave a speech before the Consumer 

Bankers Association in which you were essentially defending your 

enforcement approach, and one of the things you said in the 

speech, and I will quote, it says, ‘‘Any agency is bound to recognize 

that they should develop a thoughtful strategy for how to deploy 

their limited resources. That means working toward a pattern of 

actions,’’ by which I think is meant enforcement actions—— 

Mr. CORDRAY. Correct. 

31 

Senator TOOMEY. ——‘‘that conveys an intelligible direction to 

the marketplace so as to create deterrence that can be readily understood and implemented.’’ 

That reads to me—that sounds to me like we are talking about 

enforcement as a substitute for rulemaking, at least in some cases, 

and one of the things that concerns me about that is that the rulemaking is an entire process that requires a level of transparency 

and gets input and there is a cost-benefit analysis, and my worry 

is that if we are using enforcement instead of rulemaking, that we 

are going to miss those pieces. What is your response to that? 

Mr. CORDRAY. So, if I may, I would be glad to speak to this, and 

I saw a lot of testimony on Tuesday about this, where people make 

sort of perfunctory nods to, of course, we have to root out fraud, 

but, you know, should not do much more than that. Ninety percent 

of the $11 billion in relief made available through our enforcement 

actions has been in cases where one or more of the claims involved 

deception, lying to customers or prospective customers. That is 

good solid law enforcement, as far as I am concerned. 

Now, as to the pattern of orders, I think everybody would agree 

that basic fairness in law enforcement is that if person A or institution, bank A, say, is doing these things and they are found to violate the law, an action has to be taken in consequence, that everybody else in the market that is doing these things—— 

Senator TOOMEY. Yeah. 

Mr. CORDRAY. ——is also violating the law and should stop doing 

what they are doing. 

Senator TOOMEY. I get that. Let me—— 

Mr. CORDRAY. So, signaling the marketplace very clearly around 

each enforcement action is an important thing, but it is basic. 

Senator TOOMEY. Yeah. I am going to run out of time here, but 

in the case in which you guys discovered discrimination on the 

basis of protected class being committed by people who were not 

aware of the protected class status of the people they were supposedly discriminating against, you are applying a, what seems to 

me, a novel new approach to interpreting the ECOA, which has 

been a law since 1974. The Justice Department never took your approach, that I am aware of—— 

Mr. CORDRAY. That is not true—— 

Senator TOOMEY. The Justice Department has your model and it 

uses your methodology—— 

Mr. CORDRAY. In 1994—— 

Senator TOOMEY. ——to determine discrimination? 

Mr. CORDRAY. In 1994, joint guidance was put out by the banking agencies and the Justice Department—we were not around 

then—that said, this is the law of the land, that wewould enforce. 

Senator TOOMEY. That your model would be the law of the land. 

So, you are using that model? 

Mr. CORDRAY. Yeah. Disparate impact is the law of the land. 

Senator TOOMEY. And the methodology that you use in developing that—— 

Mr. CORDRAY. The methodology—— 

Senator TOOMEY. ——and determining the probability of people’s 

race, that is all from 1994, is it? 

32 

Mr. CORDRAY. It actually goes back to the 1970s and employment 

discrimination law and the like. But, the other agencies all said 

that—and the guidance that we issued early on simply said, we are 

a new agency, so people might not know what our position is. We 

join our fellow agencies and the Justice Department in believing 

disparate impact is the law of the land. That was then challenged 

up to the Supreme Court, and the Supreme Court reaffirmed that 

it is the law of the land, and to me, that is pretty conclusive on 

the subject. 

Senator TOOMEY. So—OK. So, I am now learning something new, 

which is that the methodology that you have learned for identifying 

race and identifying people’s status in these protected classes is 

decades old, and there is nothing new there. You did not come up 

with a new approach, no new models, no new methodology—— 

Mr. CORDRAY. No, that is not—that is not what I said. 

Senator TOOMEY. So, it is new, then. 

Mr. CORDRAY. No, no. Let me just—if I may—disparate impact 

is the law of the land. It has been recognized since at least—— 

Senator TOOMEY. That is not what I am talking about. 

Mr. CORDRAY. ——since well before 1994, explicitly recognized by 

agencies in 1994. It continues to evolve. There have been cases 

since then and there have been modifications in this or that approach, this or that methodology. But, the law is clear, and people 

who want us not to enforce that—— 

Senator TOOMEY. No, you are changing the subject. The point is, 

you developed a new methodology. You have described it as an evolution. However you choose to describe it is fine. But, it is a new 

methodology that was not being used before and it was not subject 

to the transparency of a rulemaking process. 

Mr. CORDRAY. I do not think that is true. If you looked at yourself 10 years ago, you are the same person then as you are now. 

But have you changed in certain ways between then and now? Very 

likely. I mean, you may look a little different. You may think a little different. But, you are the same person. 

Disparate impact has been the law of the land for decades. It has 

been reaffirmed by the Supreme Court. Methodological approaches 

have evolved over time. There has been case law on this. People 

have adjusted to the case law. There have been—people have actually taken input from Congressional leaders and others and 

thought, maybe that is a better approach, and thought to refine 

that. We should certainly continue to do that, I would think. You 

are trying to do that with me today. 

Senator TOOMEY. And all I am suggesting is if you are going to 

do that and you are going to develop a new methodology for identifying people’s status in a protected class, it ought to be in a transparent process, and that is part of the way the rulemaking process 

is designed and what it is meant to achieve, and you chose not to 

use it. 

Mr. CORDRAY. No, it is certainly fair game as to whether you 

think, or others think, and whether we agree, that we have or 

should be as transparent as we should be. And, that is always a 

legitimate grounds for discussion. I would be happy to have our 

staff talk with you further about what we have tried to do around 

transparency. 

33 

But, to say that this is a brand new methodology, that it is somehow radically different from anything done before, it is modifications and developments on law that has been around for decades, 

law that was resoundingly reaffirmed by the Supreme Court just 

last June, and is law that I believe we are required to enforce. And 

why are we required to enforce it? Because it is supposed to root 

out discrimination against individuals based on their racial or ethnic origin or gender and that is very un-American. And, this is the 

way in which Congress developed this law and the Supreme Court 

has interpreted and we believe that it is our job to enforce it. 

Senator TOOMEY. Thank you, Mr. Chairman. 

Chairman SHELBY. Senator Warren. 

Senator WARREN. Thank you, Mr. Chairman. 

Thank you for being here today, Director Cordray. Welcome to 

your 61st hearing. 

As you know, the payday lending industry is now doing $7 billion 

a year in loans. There are now more payday loan storefronts in 

America than there are Starbucks, plus all of the online payday 

lenders, often charging 200, 300, even 400 percent interest. Now, 

when emergencies arise, people need access to credit, but payday 

lenders that build business models around trapping people in the 

never ending cycle of debt are throwing bricks to a drowning man. 

Director Cordray, I know the CFPB is close to issuing its payday 

lending rules, so I want to ask you three questions about this process. 

Mr. CORDRAY. OK. 

Senator WARREN. First, can you describe the research and data 

gathering that the CFPB has done to try to figure out where to 

draw the line between preserving access to credit and trapping people in never ending cycles of payday loans? 

Mr. CORDRAY. Yes. So, here, as with arbitration, we have engaged in the most comprehensive research ever done by anyone on 

this marketplace. We have done two significant white papers, analyzed millions—millions—of payday loans across all types of lenders, and what we found is that the model here is to, in particular 

on payday balloon loans, is to get someone into a payday balloon 

loan, and if they had to borrow $300 today, the notion they are 

going to be able to repay $345 two weeks from now is not very likely, although some do and great for them, and maybe it works for 

them. But, many others end up rolling it over and rolling it over, 

because they can pay the $45 at the end of the 2 weeks, but they 

cannot pay the $345, and they can never pay the $345. 

And, by the way. you described these products as 200, 300, 400 

percent interest rates. In Missouri, we have seen products, loan 

products, that go as high as 1,950 percent rate of interest. You can 

actually lend where the fees amount to 75 percent of the face value 

of the loan. That is a $1,000 loan that becomes $18,000 or $20,000 

by the end of the first year and goes on from there, and this is from 

a class action decision by a Missouri appellate court in which they 

read out of the record some of the actual instances of people who 

borrowed $100 and ended up paying back thousands of dollars and 

still owing thousands of dollars. That is not a recipe for financial 

success for people. 

Senator WARREN. Thank you very much. 

34 

Let me ask a second question around this. States currently have 

different standards for regulating small dollar lending, but the 

CFPB would create a single national floor. So, States could still 

issue stronger payday lending restrictions if they wanted to, but 

they could not drop below the CFPB standard. Can you explain the 

benefits of having a single baseline rather than just a lot of different local rules? 

Mr. CORDRAY. Yeah, sure. In fact, this is the same approach we 

took in our mortgage servicing rules, where we established a baseline of requirements on mortgage servicers—not on States, by the 

way, but on mortgage servicers—and said that States were free to 

add further requirements on mortgage servicers if they deemed it 

appropriate to do so. 

And, by the way, this is an approach that has been common in 

American law in our system of federalism. It is true of securities 

law. It is true of environmental law. It is true of antitrust law. It 

is true in many different areas of law, where the Federal Government may intervene to a certain degree and set certain requirements on individual citizens and companies. The States are free to 

have their own regimes, and they do, and they set requirements on 

individuals and companies and the two systems coexist. There is 

nothing unusual about this. It has been described as cooperative 

federalism and it works reasonably well. It can be a little complicated at times, I suppose, but a Federal system is bound to be 

a little complicated at times. 

Senator WARREN. All right. Good. Thank you. 

And, let me ask my third question here. The CFPB has been 

working in this area now for 3 years. You have been gathering data 

as you have described. You have drafted different approaches, 

talked about it with industry. Now certain Members of Congress 

has proposed imposing an additional 2-year delay on your efforts. 

Can you give us some idea about the impact of that delay and estimate how many more families will get stuck in a debt trap during 

that time? 

Mr. CORDRAY. So, I feel keenly already the amount of time that 

it takes to embark on a Federal rulemaking in an area that has 

a baseline of no research previously. It has taken us several years 

to do the kind of detailed research that you asked me about and 

I described. It is taking us time to go through the processes in our 

statute, including a small business review panel and report and so 

forth, and we are now on the verge of actually proposing the rule. 

And it will take time to work through it and finalize it. 

I feel keenly that every day that passes—if you think a rule is 

going to improve life, and it may or may not, but if you think it 

is going to improve life, you would like that to happen as soon as 

possible. 

Senator WARREN. Mm-hmm. 

Mr. CORDRAY. And, delay for delay’s sake simply means that if 

there are harms here, and our research has identified harms to 

consumers, then they will go on, and that anybody should feel like 

that is no big deal means that they simply disagree with the findings around the country of what this does for people and for families, and—— 

Senator WARREN. So—— 

35 

Mr. CORDRAY. ——and I cannot agree with that. 

Senator WARREN. We are talking about perpetuating a lot of misery here. 

Mr. CORDRAY. Yes. That is right. 

Senator WARREN. Well, I want to thank you. I want to thank all 

of the people who work at the CFPB for their terrific efforts in this 

area. 

You know, I know that the payday lending industry hires a lot 

of lobbyists and they make a lot of political contributions to try to 

protect their multibillion dollar business. I also know that families 

that get cheated by payday lenders do not have lobbyists and they 

do not have Political Action Committees, which is why the independence of the CFPB is so important. 

You know, I hope you will move quickly to complete your rulemaking on payday loans. You are the best hope for millions of 

American families to avoid these debt traps in the future. Thank 

you for your work. 

Chairman SHELBY. Senator Rounds. 

Senator ROUNDS. Thank you, Mr. Chairman. 

Good morning, Director Cordray. 

Mr. CORDRAY. Good morning. 

Senator ROUNDS. It is not too much longer and it will be good 

afternoon. 

Mr. CORDRAY. I was wondering myself. I did not know. 

Senator ROUNDS. Director Cordray, in a recent speech before the 

Consumer Bankers Association, one which Senator Toomey alluded 

to a little earlier—— 

Mr. CORDRAY. Mm-hmm. 

Senator ROUNDS. ——you discussed your philosophy on consent 

orders. You had said that, and I will briefly lay this out, our public 

enforcement actions have been marked by orders which specify the 

facts and the resulting legal conclusions. These orders provide detailed guidance for compliance officers across the marketplace 

about how they should regard similar practices at their own institutions. 

What I want to talk about a little bit, my concern is that the consent orders without a finding or even an admission of guilt—the 

Ally settlement is an example of that—could mean little more than 

a company’s business decision to settle a lawsuit with minimal expense. 

My question is, do you agree that for compliance officers to consider following a decree from another company, that decree should 

be a part of either a court finding or contain an admission of guilt, 

or if not, come from, as Senator Toomey was alluding to, perhaps 

a rulemaking process laid out clearly, definitively, and I am—just 

your thoughts on it. 

Mr. CORDRAY. Sure. Well, first of all, Ally is a great example because we worked there in partnership with the Justice Department 

and they, as part of their process, were obliged to file an order in 

court that the judge had to sign off on. So, if that is your issue, 

then Ally is not a good example of it. 

But, let me say this. If you are trying to address harm to consumers out there in society, there are a number of ways you can 

go about it. You can do your own research and try to think about 

36 

what you think is best and then go through a process to adopt a 

rule. But another way, and one tool that Congress gave us very 

specifically and emphatically, is to investigate facts of individual 

circumstances, and if you find an actual violation of law, clean it 

up, and that is what we do all the time in enforcement. 

And, what I say about sort of rulemaking by enforcement, which 

is kind of a nice slogan people like and somehow that is a bad 

thing, if we find through a thorough investigation, and the institution typically does not dispute the facts that we find, that there is 

a violation of law, then everybody in the country should be able to 

see transparently that if they have similar facts and similar practices and similar situations, they are violating the law and they 

ought to stop it right now. 

And what I said in that speech, and I stand by it, is it would 

be—it is compliance malpractice for other institutions not to look 

carefully at our orders in these cases, whether they are entered in 

administrative order or court order, and not to think about, am I 

doing the same thing, and am I violating the law, and, therefore, 

should I clean that up? That is a basic of consistent uniform law 

enforcement. And people can call it regulation by enforcement. I 

call it good, solid law enforcement. 

Senator ROUNDS. Even though there was no admission of guilt in 

this particular case—— 

Mr. CORDRAY. That does not have to be an admission of guilt. We 

did a thorough investigation. We found the facts. Our decree will 

state the facts as we know them to be. Whether the institution 

agrees with that or not does not matter to me. In the end, the facts 

are the facts, and if other people find the same facts in their organization, they are on notice to clean it up. And when we come to 

supervise them, we will be looking to see if they have similar practices and they will be treated similarly. 

The key principle here is a basic principle of justice, which is 

similar situations should be treated in the same way, and it should 

not just be that one institution gets whacked and other institutions 

go blithely on doing the same things that violate the law. Everybody should be treated the same. 

And we try to be very transparent to the marketplace as quickly 

as we can through detailed enforcement orders, and when we act 

through supervision, which is a confidential process, without violating the confidentiality for individual institutions, periodically, 

we put out our supervisory highlights that tells you what we found 

in general at banks and other institutions, what we thought violated the law, what we did about it—— 

Senator ROUNDS. Well—— 

Mr. CORDRAY. ——and people should take account of that, as 

well. 

Senator ROUNDS. OK, then let me just slide this in a little 

bit—— 

Mr. CORDRAY. OK. 

Senator ROUNDS. ——on a little bit different approach, and that 

is with regard to the way that you have looked at offering no action 

letters. 

Mr. CORDRAY. OK. 

37 

Senator ROUNDS. I know that you finalized your rules on the no 

action letters, but it seems like what we are really challenged with 

here is do you start out by saying, look, heads up on your enforcement actions and that is the way that we are going to be basically 

laying out the guidance of how we are going to be interpreting and 

enforcing the issues, and yet when you have companies that step 

back in and ask for guidance—and by that, I mean in the Bureau’s 

rulemaking it is estimated that it would issue no action letters only 

in extraordinary circumstances and anticipated issuing about one 

to three letters per year. By contrast, the SEC is issuing—has 

issued 104 no action letters in 2015. It looks to me that if companies are asking for guidance on this, would it not be fair to say, 

rather than going through the process of trying to adjudicate it— 

I mean, would you consider thinking twice about really not issuing 

no action letters as a—— 

Mr. CORDRAY. Yeah. I actually think this is a very legitimate line 

of questioning and I am not sure that I am satisfied with where 

we appear to have landed on this, although we did issue that to 

get something going in the area. 

There are different agencies—we looked at a lot of agencies. 

Some of them do a lot of this, like the IRS does private letter rulings. They do them by the hundreds. Others do very, very few. The 

banking agencies tend to do very, very few. 

I do not know what the right answer is for us, but I feel keenly, 

and I have had this discussion on the other side with Representative Heck, who has been very persuasive on the subject, that a 

process like this that ends up not really amounting to anything is 

not really worth anybody’s while. I tend to agree with that and I 

want us to think more about that as we go. We are leery of how 

much volume we can handle, but we have begun to get inquiries 

and we are setting up a process for how to try to figure out what 

to do with those inquiries and see where we—— 

Senator ROUNDS. I think if there are questions out there and 

they are asking for guidance on it, it seems like it would be reasonable to find a way to try to work with them rather than end up 

in an adjudication process in front of a court. 

Mr. CORDRAY. Yeah. By the way, another thing I would say is, 

on the enforcement and regulation differential, regulation is something more where we feel the law needs to be changed in certain 

ways, and we have authority to do that, subject to Congressional 

authorization and oversight. Enforcement is more the law is what 

it is and it is applying it to specific facts and finding specific facts. 

And the facts are powerful. You know, when the facts show that 

in the—— 

Senator ROUNDS. Mr. Cordray, I hate to cut you off—— 

Mr. CORDRAY. I am sorry. 

Senator ROUNDS. ——but I know the Chairman’s time is valuable, as well, and I appreciate your temperance with me, sir. 

Thank you. 

Chairman SHELBY. Thank you. 

Senator ROUNDS. Thank you, Mr. Cordray. 

Chairman SHELBY. Senator Donnelly. 

Senator DONNELLY. Thank you, Mr. Chairman, and we can now 

officially say good afternoon, Mr. Cordray. 

38 

Mr. CORDRAY. Thank you. 

Senator DONNELLY. Director, one of your recent undertakings 

has been related to auto finance companies. The CFPB finalized a 

rule last year to supervise large nonbank auto finance companies 

and also reached separate agreements with several auto finance 

companies to limit loan pricing and compensation. 

I have been hearing from a number of auto dealers in my State 

with their concerns on this issue and I just want to ask to make 

sure that you work with all the stakeholders involved in this issue, 

including auto dealers, to make sure we get this right, to make 

sure there is continued access and that everybody be treated fairly 

in this process. 

Mr. CORDRAY. OK. And, by the way, I would say that in the early 

going, we were kind of leery about talking to auto dealers because 

we did not want anybody to think that we were crossing that line 

and trying to enforce the law against auto dealers, which we do not 

have authority to do. But, we have always understood ourselves to 

have authority and, therefore, responsibility to address auto lenders. I mean, I would not necessarily have drawn the statute up the 

way it was drawn up, where there was a distinction made between 

the two, because they tend to work together in the marketplace. 

But, I do not see how we can address practices of auto lenders 

without having some effect on auto dealers. So, we are quite willing 

to engage with taking input from dealers now, as long as they are 

very clear that we respect that line. 

Senator DONNELLY. Understood, but like you said, these are 

some of our small businesses that employ the most people in our 

towns. 

Mr. CORDRAY. Yeah. 

Senator DONNELLY. They are our friends and our neighbors. 

Mr. CORDRAY. Yeah. 

Senator DONNELLY. And they want to get it right for their customers, as well. 

Mr. CORDRAY. And, by the way, I worked closely with them in 

Ohio. I was the Ohio Attorney General. We had a program where 

they had the opportunity to correct problems before we took action 

that worked fairly well. We had the General Motors and Chrysler 

bankruptcies that unfolded while I was Attorney General. We 

worked to save dealerships across the State who were being cutoff 

by the manufacturers and we created procedures for them to appeal and many of them were saved. 

I understand and very much agree with you on the importance 

of auto dealers in our local communities. At the same time, if we 

find problems in auto lender lending programs, we have to deal 

with them. That is part of our job. We are a law enforcement agency. But, I am quite willing to have that discussion and engage in 

it vigorously and I hope you will find that nobody says that they 

are unable to talk to the Consumer Bureau if they have a concern. 

That is not what I intend. 

Senator DONNELLY. Another area I wanted to mention is an area 

important to my State, because we have so much manufacturing in 

this area, and that would be manufactured housing. We have previously discussed the impact of CFPB rules on manufactured housing lending, and I do have concerns that new rules would negaVerDate Nov 24 2008 14:48 Sep 25, 2017 Jkt 046629 PO 00000 Frm 00046 Fmt 6633 Sfmt 6633 L:\HEARINGS 2016\04-07 ZDIST\23056.TXT JASON
39 

tively impact the ability of consumers to buy, sell, or refinance 

these homes, as financing for smaller balance loans is becoming 

more difficult. And, there has been a seeming acknowledgment of 

some of these challenges by the CFPB. 

The 2014 HMDA mortgage data shows high-cost manufactured 

housing loans have basically evaporated at this point since the 

rules went into effect, and my question is, does that mean that 

lenders have reduced rates to get under the threshold, do you 

think, or is it that lenders have just stopped taking applications 

that they have previously accepted? 

Mr. CORDRAY. I actually do not think there was ever much highcost lending in the manufactured housing market, so I do not think 

it would be fair to say that there was a lot and then it evaporated. 

I think there never was much and people have shied away from 

that. I do think there is a lot of pricing that does, as you said— 

exactly what you just said—comes in just under the threshold so 

that it does not qualify as high-cost loans, and that is the nature 

of this market, it seems. 

Having said that, you have raised this issue with me and some 

House colleagues have raised the issue with me and we went back 

and did a white paper to try to understand it better, because we 

realized we did not understand it as well as we would like, and I 

would acknowledge, in Ohio, my background, I have seen, and I am 

sure it is true in Indiana, as well, and in many States, there are 

areas of the State where this is going to be the practical means of 

finding housing on difficult properties, rural properties, topography 

issues and the like. 

A white paper showed that there has been a long-term decline 

in manufactured housing. I do not know what all the causes are. 

I think our folks did not really feel that they understood that. But, 

it has been true for about 20 years. It has not been a new phenomenon. 

Senator DONNELLY. I would suggest that a good portion of that, 

as you look at your white paper, is access to capital, capital challenges that are out there—— 

Mr. CORDRAY. Mm-hmm. 

Senator DONNELLY. ——because, as you said, it is not fair to the 

rest of the country to think the rest of the country is all Washington, DC, townhouses—— 

Mr. CORDRAY. That is right. 

Senator DONNELLY. ——that sell for a million dollars. 

Mr. CORDRAY. Agreed. 

Senator DONNELLY. And, that family back in Indiana, that family 

in Ohio, they very much, just as much as a family here—— 

Mr. CORDRAY. Absolutely. 

Senator DONNELLY. ——wants to have a place to call home—— 

Mr. CORDRAY. Yes. 

Senator DONNELLY. ——and to raise their family. 

Mr. CORDRAY. And, by the way, wants to have a place they can 

call home and not be gouged on it. That is important, too. 

Senator DONNELLY. Yeah. 

Mr. CORDRAY. But, how to balance those things is an ongoing 

issue. 

40 

Senator DONNELLY. We agree on that, and in most every case, I 

do not assume my local community banker is out to gouge anybody. 

Mr. CORDRAY. I would agree with that, although there are some 

sharp practices in the manufactured housing market we have seen, 

yes. 

Senator DONNELLY. Thank you, Mr. Chairman. 

Chairman SHELBY. Senator Moran. 

Senator MORAN. Mr. Chairman, I know we are out of time. I will 

be very brief. In fact, I will not ask Director Cordray any questions. 

Director Cordray and I have had a long-time exchange in these 

settings about this issue that seems to be getting a lot of attention, 

indirect auto financing, today in this hearing, and I would again 

indicate to the Director that rulemaking, not enforcement, would be 

a better path for the CFPB to pursue. 

And then I want to associate my remarks with you, Mr. Chairman, in what you had to say about indirect auto financing. None 

of us agree that discrimination has a place. We just—we want discrimination out of our economy. This agreement extends the need 

for vigorous enforcement of the Equal Credit Opportunity Act. 

However, I am concerned that the CFPB auto financing bulletin 

has resulted in more adversarial relationships between the Bureau 

and the industry. 

And, I wanted to highlight, finally, Mr. Chairman, that I have 

introduced S. 2663, Reforming the CFPB Indirect Auto Financing 

Guidance Act, and this is legislation identical to what passed the 

House in a bipartisan way, 332 to 96, and I would encourage my 

colleagues to join me in accomplishing that legislation. It is simply 

an opportunity not to eliminate CFPB’s indirect auto financing 

guidance. It is a way to improve the process and include the industry and consumers, Members of Congress, in the process. 

Thank you, Mr. Chairman. 

Chairman SHELBY. Thank you. 

Senator Vitter. 

Senator VITTER. Thank you, Mr. Chairman, and thank you, Mr. 

Cordray. 

I know our vote has been called on the floor, so I will be brief—— 

Mr. CORDRAY. OK. 

Senator VITTER. ——summarizing two real areas of concern, and 

if, Mr. Cordray, if you could give a general response, and if you 

care to, follow up in more detail perhaps in writing, that would be 

great. 

Mr. CORDRAY. OK. 

Senator VITTER. The first area of concern is remittance transfers, 

international money transfers. I think CFPB has spent a lot of 

time and money and man hours on rulemaking for that, but has 

been criticized by GAO and others for not setting to bed abuses yet. 

And, so, I have a three-part question. What is the summary of resources that have been spent on that, number one. Number two, 

what is your response to criticism like GAO about not adequately 

handling problems in that remittance transfer area. And, number 

three, has your oversight quantified and looked at the widespread 

use of this by folks in the country and working in the country illegally and sending money overseas, which by all accounts is a very 

widespread practice. 

41 

The second area of concern is conflicts of interest involving Corey 

Stone. As you know, he is Assistant Director, Office of Deposits, 

Cash Collections, and Reporting Markets at CFPB, and he is the 

lead staffer on the payday rule. Now, I am concerned about conflicts there because he was a senior executive before CFPB, was a 

senior executive for a company he started which sold out to a rival 

called MicroBilt, and they worked with folks within credit files 

seeking financing, the type payday lenders would perhaps have as 

customers. 

Corey Stone sold his stock in that company to his brother to avoid a conflict as he was coming to CFPB, for $18,000. That stock 

has been valued recently at between $250,000 and $500,000. It 

seems to have been way undervalued in order to allow him to get 

rid of it to come to CFPB. That is number one. 

Number two, he is in charge of this payday rule, and depending 

on how that rule is written, that could increase significantly the 

business, the market, the profitability of his former company, his 

brother’s company. Have you looked at those serious conflict 

issues? 

Mr. CORDRAY. So, I will take that one first. I have never heard 

any charges against Mr. Stone. I think this is baseless. I think it 

is bogus to raise it. If you want our staff to talk to you about that 

situation, we will be glad to do so. He is one of the finest public 

servants I know. He has been commuting and gone extra lengths 

to make his work at the Bureau work. I do not believe there is anything to anything you have just said about him. He is a public official with great integrity, and if there is more that we need to talk 

about about this, I will be happy to talk about it with you offline. 

Senator VITTER. OK. Can I follow up on that? 

Mr. CORDRAY. Yeah. 

Senator VITTER. Are you aware of the stock issue? 

Mr. CORDRAY. Look, people who come to work at the Bureau, 

some number of them came from the private sector. Usually, you 

all think that that is a good thing. You do not want us to have everybody not coming from the private sector—— 

Senator VITTER. But I am saying, are you—— 

Mr. CORDRAY. ——and they divest—— 

Senator VITTER. ——aware of the specific stock valuation—— 

Mr. CORDRAY. ——they divest assets when they come and they 

divest them for fair market value. Now, at the time he came to the 

Bureau, it would have been right in the wake of the crisis. It may 

be—you know, the entire stock market was down more than 50 

percent at that time. So, I do not know what the details are, but 

I can assure you, we will be glad to look into it if you want. 

Senator VITTER. OK. 

Mr. CORDRAY. Everything Corey does is with high integrity. 

Senator VITTER. What I am asking is, have you looked into that 

issue and come to a conclusion or not? 

Mr. CORDRAY. Our Ethics Department vets everybody’s divestiture of assets before they are hired at the Bureau. It is a painstaking process. I do not believe there is anything to this, but we 

will be glad to follow up with you if you want to pursue it. 

Senator VITTER. Well, if you will follow up in writing, that would 

be great. 

42 

Mr. CORDRAY. Yeah. 

Senator VITTER. And then the second issue, the first one I mentioned, is this remittance issue. 

Mr. CORDRAY. Yeah. On the remittance issue, this was the first 

rulemaking we did. We were required to do it by Congress, again, 

not a task that we set for ourselves but a task you all set for us. 

The rulemaking is in place. Whether it solved all the ongoing 

abuses, it may or may not have. We will take enforcement actions 

as needed against the industry if we find abuses. 

If you are aware of abuses or hearing about abuses that are specific that we should know about, we will follow up with you and 

be glad to hear what they are so that we can consider whether to 

investigate them. But, I do think it is quite possible our rulemaking has not solved every problem in the marketplace, and to 

the extent it has not, we want to continue to pursue problems in 

the marketplace. 

And, then I forgot the third part of your question, but—— 

Senator VITTER. Well, related to that was does your rulemaking 

address and does your enforcement and tracking address what 

seems to be massive use of this money transfer opportunity for 

folks being in and working in the country illegally and sending 

money overseas. 

Mr. CORDRAY. Our rulemaking does not address that. Congress 

did not direct us to direct that, and those would be issues, I would 

assume, for other parts of the Federal Government, not for us. 

Senator VITTER. OK, and so you do not track any of that activity? 

Mr. CORDRAY. I do not believe we do, no. 

Senator VITTER. OK. Would the same apply if we were talking 

about organized crime or some illegal sector using the same remittance opportunity? 

Mr. CORDRAY. I do not think we track undocumenteds in any of 

the markets, credit cards, mortgages, et cetera. We are not trying 

to dig into Bank of America or Citibank and ask them what kind 

of documentation you asked for. If those are issues for someone in 

the Federal Government, it would be elsewhere. They are not 

issues for us. 

Senator VITTER. But, I am saying, for you, would the same response apply to illegal activity, say, organized crime? 

Mr. CORDRAY. Usually, I come here and people are criticizing us 

for trying to expand our jurisdiction. We are looking at mobile 

cramming on cell phone companies, et cetera. You are now telling 

us you would like us to look into organized crime and 

undocumenteds—— 

Senator VITTER. I am asking if—— 

Mr. CORDRAY. We do not. That is not typically—— 

Senator VITTER. ——organized crime activity would be something 

you would care about or look at. 

Mr. CORDRAY. That is not part of our consumer finance—limited 

consumer finance jurisdiction. 

Senator VITTER. OK. Thank you. We will follow up on this, as 

well. 

Mr. CORDRAY. OK. 

Senator VITTER. Thank you. 

Mr. CORDRAY. Thank you. 

43 

Senator VITTER. Thank you, Mr. Chairman. 

Chairman SHELBY. Yes, sir. Thank you, Senator Vitter. 

I would like to take a moment to respond to comments made earlier here at the hearing by the Director to the Ranking Member. 

He is correct that aggregate credit availability has been increasing 

recently, as you said. 

Mr. CORDRAY. Mm-hmm. 

Chairman SHELBY. But, that is what you would expect in a near 

zero interest rate environment. This does not mean that there are 

not specific issues, I would hope, in certain credit markets that 

may be exaggerated by some of the Bureau’s actions. 

For example, more categories of credit may actually be in decline. 

Multiple studies have found that small business lending has declined, while the volume of loans to large businesses has risen. 

In addition, research from Harvard University finds that credit 

cards issued to certain lower-income consumers have fallen by 50 

percent. These are economic trends that I hope the Bureau takes 

into serious consideration in your day-to-day work over there. 

Another thing I—— 

Mr. CORDRAY. That would be—— 

Chairman SHELBY. Do you want to comment? 

Mr. CORDRAY. Could I? Yes, sure. 

Chairman SHELBY. Go ahead. 

Mr. CORDRAY. So, small business lending, you know, we have not 

adopted any regulations that relate to small business lending. We 

have very limited capacity there, although we will be—— 

Chairman SHELBY. But you alluded to small business lending 

earlier. 

Mr. CORDRAY. Beg your—yeah, we have a job that Congress gave 

us that we have not yet fulfilled to develop the reporting and data 

collection for this. But, none of that small business change could 

be ascribed to the CFPB. 

And as for credit cards for low income, again, I want to take 

issue with this. In, I believe it was Mr. Zywicki’s testimony, he said 

from 2008 to 2012—— 

Chairman SHELBY. Do you take an issue with the Harvard study 

that I alluded to? 

Mr. CORDRAY. If that is the Lux–Greene study, it is not a very 

credible study and I would be glad to give you a briefing on that. 

Chairman SHELBY. Is it not a credible study because you disagree with it, or you just do not believe it is a credible study? 

Mr. CORDRAY. Because it is not very well done and it is not very 

credible on the supposed evidence. It is just a—— 

Chairman SHELBY. Would you furnish your concerns about the 

study to the Committee? 

Mr. CORDRAY. I would be glad to do that. But, I would say that 

on the credit cards for low income, which was something Mr. 

Zywicki alluded to, he was talking about 2008 through 2012. Most 

all of that crash is due to the fact that households lost $12 trillion 

in net worth in the wake of the crash, and he says at one point 

in a sort of muddled way, it is hard to separate that out from the 

effects of new rules. Well, you know, we did not even come into existence until July of 2011, so trying to pin all this on us is pretty 

flim-flam, if you ask me. 

44 

Chairman SHELBY. Just for the record, now, without objection, I 

would like to enter into the record statements from the following 

groups that wrote the Committee in conjunction with Tuesday’s 

hearing on Assessing the Effects of Consumer Finance Regulations 

and today’s hearing on this Consumer Financial Protection Bureau’s Semiannual Report to Congress. The statements include 

statements from the Independent Community Bankers of America, 

the Consumer Bankers Association, the National Association of 

Federal Credit Unions, the Credit Union National Association, the 

American Financial Services Association, the Electronic Transactions Association, the Chamber of Commerce of the United 

States, the National Automobile Dealers Association, the Mortgage 

Bankers Association, an article by Leonard Chanin published in 

the American Banker, and, finally, an article from the New York 

Post regarding Ally’s financial experiences with the Bureau. Without objection, it is so ordered. 

Mr. Cordray. 

Mr. CORDRAY. I would be glad to have access to those so we can 

consider them for improving our work. 

Chairman SHELBY. Well, we have a public record. We will share 

with you. We want you to share with us, too. 

Mr. CORDRAY. Yeah. But, again, going back to that credit card 

so-called data, at the time a tsunami hit the beach, the financial 

crisis, that somebody’s garden hose might have been pouring a little water on the beach at the same time is hardly very relevant, 

in my view. 

Chairman SHELBY. Mr. Cordray, thank you for your appearance 

before the Committee. 

Mr. CORDRAY. Thank you. 

Chairman SHELBY. The Committee is adjourned. 

[Whereupon, at 12:20 p.m., the hearing was adjourned.] 

[Prepared statements, responses to written questions, and additional material supplied for the record follow:] 

45 

1 Appendix B provides a guide to the Bureau’s response to the reporting requirements of Section 1016(c) of the Dodd–Frank Act. The Bureau’s most recent Semiannual Report, published 

in November 2015, and covered April–September 2015. The report may be viewed at: http:// 

files.consumerfinance.gov/f/201511lcfpblsemi-annual-report-fall-2015.pdf. 2Previously, seven different Federal agencies were responsible for rulemaking, supervision, 

and enforcement relating to consumer financial protection. The agencies which previously administered statutes for which authority transferred to the Bureau are the Federal Reserve 

Board (and the Federal Reserve Banks) (Board or FRB), Department of Housing and Urban Development (HUD), Federal Deposit Insurance Corporation (FDIC), Federal Trade Commission 

(FTC), National Credit Union Administration (NCUA), Office of the Comptroller of the Currency 

(OCC), and Office of Thrift Supervision (OTS). 3See Dodd–Frank Act, Pub. L. No. 111-203, Sec. 1021 (b) and (c). 

PREPARED STATEMENT OF RICHARD CORDRAY 

DIRECTOR, CONSUMER FINANCIAL PROTECTION BUREAU

APRIL 7, 2016 

Chairman Shelby, Ranking Member Brown, and Members of the Committee, 

thank you for the opportunity to testify today about the Consumer Financial Protection Bureau’s Semiannual Report to Congress. I appreciate our continued dialogue 

as we work together to strengthen our financial system and ensure that it serves 

consumers, responsible businesses, and the long-term foundations of the American 

economy. 

The Bureau presents this Semiannual Report to Congress and the American people in fulfillment of its statutory responsibility and commitment to accountability 

and transparency. This report provides an update on the Bureau’s mission, activities, accomplishments, and publications since the last Semiannual Report, and provides additional information required by the Dodd–Frank Wall Street Reform and 

Consumer Protection Act (Dodd–Frank or Dodd–Frank Act). 1

The Dodd–Frank Act created the Bureau as the Nation’s first Federal agency with 

a mission of focusing solely on consumer financial protection and making consumer 

financial markets work for American consumers, responsible businesses, and the 

economy as a whole. In the wake of the financial crisis of 2008–2010, the President 

and Congress recognized the need to address widespread failures in consumer financial protection and the rapid growth in irresponsible lending practices that preceded 

the crisis. To remedy these failures, the Dodd–Frank Act consolidated most Federal 

consumer financial protection authority in the Bureau. 2 The Dodd–Frank Act 

charged the Bureau with, among other things: 

• Ensuring that consumers have timely and understandable information to make 

responsible decisions about financial transactions; 

• Protecting consumers from unfair, deceptive, or abusive acts and practices, and 

from discrimination; 

• Monitoring compliance with Federal consumer financial law and taking appropriate enforcement action to address violations; 

• Identifying and addressing outdated, unnecessary, or unduly burdensome regulations; 

• Enforcing Federal consumer financial law consistently in order to promote fair 

competition; 

• Ensuring that markets for consumer financial products and services operate 

transparently and efficiently to facilitate access and innovation; and 

• Conducting financial education programs. 3

The Bureau has continued its efforts to listen and respond to consumers and industry, to be a resource for the American consumer, and to develop into a great institution worthy of the responsibilities conferred on it by Congress. 

Listening and responding to consumers is central to the Bureau’s mission. The 

Bureau continues to provide consumers with numerous ways to make their voices 

heard. Consumers nationwide have engaged with the Bureau through public field 

hearings, listening events, roundtables and town halls, and through our website, 

consumerfinance.gov. Consumer engagement strengthens the Bureau’s understanding of current issues in the ever-changing consumer financial marketplace and 

informs every aspect of the Bureau’s work, including research, rule writing, supervision, and enforcement. 

The Bureau has continued to improve the capabilities of its Office of Consumer 

Response to receive, process, and facilitate responses to consumer complaints. Consumer Response has also continued to expand a robust public Consumer Complaint 

Database. The database updates nightly and as of September 30, 2015, was popuVerDate Nov 24 2008 14:48 Sep 25, 2017 Jkt 046629 PO 00000 Frm 00053 Fmt 6621 Sfmt 6621 L:\HEARINGS 2016\04-07 ZDIST\23056.TXT JASON
46 

4See ‘‘Final Policy Statement on Consumer Narratives’’; 80 FR 15572, March 24, 2015. 5See ‘‘Request for Information Regarding the Consumer Complaint Database: Data Normalization’’; 80 FR 37237, June 30, 2015. 6 Available at: http://www.consumerfinance.gov/askcfpb/. 7See http://www.consumerfinance.gov/paying-for-college/. 8See http://www.consumerfinance.gov/owning-a-home/. 9See https://www.fdic.gov/consumers/consumer/moneysmart/olderadult.html. 

lated by over 465,000 complaints from consumers about financial products and services from all over the country. 

On June 25, 2015, the CFPB marked a milestone for consumer empowerment 

when the Bureau began to publish consumer complaint narratives in the Consumer 

Complaint Database. 4 Consumers now have the choice to share in their own words 

their experiences with the consumer financial marketplace. Only those narratives 

for which opt-in consumer consent is obtained and to which a robust personal privacy scrubbing process is applied are eligible for disclosure. The CFPB gives companies the opportunity to respond publicly to the substance of the consumer complaints they receive from the CFPB by selecting from a set list of public-facing response categories. Companies are under no obligation to avail themselves of the opportunity. The Bureau also issued a Notice and Request for Information 5 to seek 

input from the public on best practices for ‘‘normalizing’’ the complaint data it 

makes available via the database to make the complaint data easier for the public 

to use and understand. 

On July 16, 2015, the Bureau launched the first in a new series of monthly reports to highlight key trends from consumer complaints submitted to the Bureau. 

The monthly report includes data on complaint volume, most-complained-about companies, State and local information, and product trends. Each month, the report 

highlights a particular product and geographic location and will provide insight for 

the public into the hundreds of thousands of consumer complaints on financial products and services expected to be handled by the CFPB. The report uses a 3-month 

rolling average, comparing the current average to the same period in the prior year 

where appropriate, to account for monthly and seasonal fluctuations. In some cases, 

month-to-month comparisons are used to highlight more immediate trends. 

The Bureau is also working to provide tools and information to develop practical 

skills and support sound financial decision making directly to consumers. These 

skills include being able to ask questions and to plan ahead. One way we are doing 

this is with our online tool, Ask CFPB. 6 This tool provides answers to over 1,000 

questions about financial products and services, including on topics such as mortgages, credit cards, and how to dispute errors in a credit report. We are also focusing on helping consumers build the skills to plan ahead. For example, our Paying 

for College 7 set of tools helps students and their families compare what their college 

costs will be as they decide where to pursue a college education. Our Owning a 

Home 8 set of tools helps consumers shop for a mortgage loan by helping them understand what mortgages are available to them, explore interest rates, compare loan 

offers, and by providing a closing checklist. The Money Smart for Older Adults 9 curriculum, developed with the Federal Deposit Insurance Corporation (FDIC), includes 

resources to help people prevent elder financial exploitation and prepare financially 

for unexpected life events. 

The Bureau is working with other Government agencies, social service providers, 

and community service providers to develop channels to provide decision-making 

support in moments when consumers are most receptive to receiving information 

and developing financial decision-making skills. This support includes integrating financial capability into other programs and services where consumers may be seeking assistance. We are also tailoring our approaches to financial decision-making circumstances, challenges, and opportunities for specific populations, including 

servicemembers and veterans, students and young adults, older Americans, and 

lower-income and other economically vulnerable Americans. 

When Federal consumer financial protection law is violated, the Bureau’s Supervision, Enforcement, and Fair Lending Division is committed to holding the responsible parties accountable. In the 6 months covered by the most recent report, our 

supervisory actions resulted in financial institutions providing more than $95 million in redress to over 177,000 consumers. 

During that timeframe, the Bureau also announced orders through enforcement 

actions for approximately $5.8 billion in total relief for consumers who fell victim 

to various violations of consumer financial protection laws, along with over $153 

million in civil money penalties. The Bureau brought numerous enforcement actions 

for various violations of the Dodd–Frank Act, including an action against a company 

for blocking consumers’ attempts to save their homes from foreclosure, an action 

47 

10See http://www.consumerfinance.gov/guidance/#compliance. 

against a lender for the failure to furnish clear information regarding the student 

loan interest consumers paid, and actions against two companies for mobile cramming. In joint actions, we worked with the New York Department of Financial Services to take action against two companies for deceiving consumers about the costs 

and risks of their pension advance loans. We also worked with the Office of the 

Comptroller of the Currency and the FDIC to take action against a depository institution for failing to credit consumers for the full amounts of their deposits, and 

worked with the Department of Justice to resolve actions with an auto finance company and a depository institution that will put in place new measures to address 

discretionary auto loan pricing and compensation practices. The Bureau also took 

action against a company for engaging in unfair, deceptive, and abusive acts or 

practices to collect debt from servicemembers, in violation of the Consumer Financial Protection Act. In addition, the Bureau continues to develop and refine its nationwide supervisory program for depository and nondepository financial institutions, through which those institutions are examined for compliance with Federal 

consumer financial protection law. 

The Bureau also released one edition of Supervisory Highlights during this reporting period. The Supervisory Highlights series is intended to inform both industry 

and the public about the development of the Bureau’s supervisory program and to 

discuss, in a manner consistent with the confidential nature of the supervisory process, broad trends in examination findings in key market or product areas. This edition reported examination findings in the areas of consumer reporting, debt collection, student loan servicing, mortgage origination, mortgage servicing, and fair lending. It also included information about recent public enforcement actions that were 

a result, at least in part, of CFPB’s supervisory work. 

The Bureau has also published new guidance documents, in partnership with 

other regulators where appropriate, to help institutions know what to expect and 

how to become, or remain, compliant with the law, including bulletins on private 

mortgage insurance cancellation and termination, the Section 8 housing choice 

voucher home ownership program, and interstate land sales. 

Reasonable regulations are essential for protecting consumers from harmful practices and ensuring that consumer financial markets function in a fair, transparent, 

and competitive manner. The Research, Markets, and Regulations Division has focused its efforts on promoting markets in which consumers can shop effectively for 

financial products and services and are not subject to unfair, deceptive, or abusive 

acts or practices. During this reporting period, the Research and Markets teams released a data point on ‘‘credit invisibles’’ and technical reports regarding the National Survey of Mortgage Borrowers and the National Mortgage Database. The 

Regulations office issued regulations modifying and clarifying a number of rules implementing changes made by the Dodd–Frank Act to the laws governing various aspects of the mortgage market, including amendments relating to small creditors and 

rural or underserved areas under Regulation Z, which, among other things, increased the number of financial institutions able to offer certain types of mortgages 

in rural and underserved areas, a rule moving the effective date of the Know Before 

You Owe mortgage disclosure rule to October 3, 2015, and an interpretive rule on 

home ownership counseling organizations lists and high-cost mortgage counseling. 

During this reporting period, the Bureau issued several other proposed or final 

rules or requests for information under the Dodd–Frank Act, including a final rule 

defining larger participants of the automobile financing market and defining certain 

automobile leasing activity as a financial product or service, which extends the Bureau’s supervision relating to consumer financial protection laws to any nonbank 

auto finance company that makes, acquires, or refinances 10,000 or more loans or 

leases in a year, and a request for information regarding student loan servicing. 

To support the implementation of and industry compliance with its rules, the Bureau has published a number of plain-language compliance guides summarizing certain rules, and it has actively engaged in discussions with industry about ways to 

achieve compliance. 10 The Bureau also continued its efforts to streamline, modernize, and harmonize financial regulations that it inherited from other agencies. 

In addition to implementing the Dodd–Frank Act, the Bureau continues to explore 

other areas where regulations may be needed to ensure that markets function properly and possibly harmful or inefficient practices are addressed. Over the next 6 

months, the Bureau will continue implementing the Dodd–Frank Act and using its 

regulatory authority to ensure that consumers have access to consumer financial 

markets that are fair, transparent, and competitive. 

The Bureau continues to grow and evolve as an institution. As of September 30, 

2015, the CFPB team consisted of 1,486 employees working to carry out the BuVerDate Nov 24 2008 14:48 Sep 25, 2017 Jkt 046629 PO 00000 Frm 00055 Fmt 6621 Sfmt 6621 L:\HEARINGS 2016\04-07 ZDIST\23056.TXT JASON
48 

11During the previous reporting period, the Bureau’s Office of Equal Employment and Opportunity transitioned to the Office of Civil Rights (OCR), and it and the OMWI office moved under 

the umbrella of the newly created Office of Equal Opportunity and Fairness (OEOF), housed 

in the CFPB Director’s Office and reporting directly to the Director. 

reau’s mission. It has worked to build a human and physical infrastructure that promotes diversity, transparency, accountability, fairness, and service to the public. 

The Bureau recognizes that the best way to serve consumers is to ensure that its 

workforce reflects the ideas, backgrounds, and experiences of the American public. 

The Bureau’s Office of Minority and Women Inclusion supports the Bureau’s mission by working with the offices of Human Capital and Civil Rights to continue 

building a diverse and inclusive workforce that can foster broader and better thinking about how to approach markets. 11

Over the last year, the Bureau has continued to expand its efforts to support and 

protect consumers in the financial marketplace. The Bureau seeks to serve as a resource, by writing clear rules of the road, enforcing consumer financial protection 

laws in ways that improve the consumer financial marketplace and by helping individual consumers resolve their specific issues with financial products and services. 

While the various divisions of the Bureau play different roles in carrying out the 

Bureau’s mission, they all work together to protect and educate consumers, help 

level the playing field for participants, and fulfill the Bureau’s statutory obligations 

and mission under the Dodd–Frank Act. In all of its work, the Bureau strives to 

act in ways that are fair, reasonable, and transparent. 

Chairman Shelby, Ranking Member Brown, and Members of the Committee, 

thank you for the opportunity to provide the Bureau’s Semiannual Report. The Bureau will continue working to ensure that the American people are treated fairly 

in the consumer financial marketplace. I look forward to your questions. 

49 

1The Bureau’s arbitration study found in the jurisdictions studied 1,200 individual cases in 

Federal court, 800 in small claims court, and 400 in arbitration. 

RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN SHELBY 

FROM RICHARD CORDRAY 

Q.1. In a recent speech before the American Constitution Society, 

you stated, ‘‘[a]rbitration clauses, as they are used today both in 

the field of consumer finance and more generally, often have been 

deliberately designed to block Americans from effective means of 

vindicating their rights.’’ The CFPB’s outline of proposals under 

consideration favors requiring these clauses to allow class litigation. In a class action lawsuit, however, individual class members 

give up their right to sue, a large number of cases are settled out 

of court, the average reward is very small, and the individual class 

members generally play no role in the judicial process. 

How did you determine that a class action lawsuit is better than 

arbitration for consumers? 

A.1. On July 10, 2017, the Consumer Bureau issued a Final Rule 

regarding agreements for consumer financial products and services 

providing for mandatory pre-dispute arbitration. The Final Rule 

was based on and consistent with the Bureau’s Arbitration Study 

and Report to Congress pursuant to Dodd–Frank Wall Street Reform and Consumer Protection Act §1028, submitted in March 

2015. 

The Final Rule is not based on a determination that a class action lawsuit is necessarily a better option for a consumer than arbitration. Rather, the rule reflects the conclusion that consumers are 

better off when both individual and class remedies are available. 

Indeed, the Final Rule does not prohibit providers from using predispute arbitration agreements with respect to claims filed by individual consumers. Instead, the Final Rule prohibits providers from 

using pre-dispute arbitration agreements to block consumer class 

actions in court. 

The Bureau adopted this provision of the Final Rule in part because it found that individual dispute resolution alone (which includes, among other things, individual arbitration and individual 

litigation filed in court) is insufficient in enforcing laws applicable 

to contracts for consumer financial products and services. This finding is supported by the Arbitration Study, which found that a very 

small number of consumers seek individual redress either through 

arbitration or the courts relative to the size of the market for consumer financial products and services. According to the Arbitration 

Study, the total number of individual consumer financial claims in 

the specified markets was approximately 2,400 per year. 1 Even 

multiplying those 2,400 claims by 10 or 100 to account for the markets and jurisdictions the Study did not analyze would amount to 

less than 250,000 individual claims. The result would still be a low 

number of individual claims in relation to the hundreds of millions 

of individual consumer financial products and services. 

By contrast, as set out in the Final Rule and consistent with the 

Arbitration Study, the Bureau found that a much larger number of 

consumers derive substantial benefits from class action settlements. Over a 5-year period, the Arbitration Study analyzed the results of 419 Federal consumer finance class actions that reached 

50 

final class settlements. These settlements involved, conservatively, 

about 160 million consumers and about $2.7 billion in gross relief 

of which, after subtracting fees and costs, made $2.2 billion available to be paid to consumers in cash relief or in-kind relief. Further, as set out in the Study, nearly 24 million class members in 

137 settlements received automatic distributions, meaning they received payments without having to file claims. In the five years of 

class settlements studied, at least 34 million consumers received 

$1.1 billion in cash payments. 

In addition to the monetary relief awarded by class action settlements, consumers also received nonmonetary relief from those settlements. Specifically, the Study showed that there were 53 settlements covering 106 million class members that mandated behavioral relief that required changes in the settling companies’ business practices beyond simply to comply with the law. 

Perhaps most importantly, the threat of class action proceedings 

not only facilitates relief to consumers in specific cases, but also 

strengthens incentives for consumer financial service providers to 

engage in robust compliance on an ongoing basis. As discussed in 

the preamble to the Final Rule, the Bureau found that the rule will 

incentivize greater compliance with the law by covered providers. 

Absent the rule, providers may be more likely to engage in potentially unlawful business practices because they know that any potential costs from exposure to putative class action filings have 

been reduced if not effectively eliminated. Due to this reduction in 

legal exposure (and thus a reduction in risk), providers have less 

of an incentive to invest in compliance management in general, 

such as by investing in employee training with respect to compliance matters or by carefully monitoring changes in the law. Therefore, the Bureau believes that consumers are better protected and 

the market is fairer for those companies that comply with the law 

when consumers also are able to obtain relief by grouping their 

own disputes against providers of consumer financial products or 

services. 

Q.2. Why do you believe that arbitration clauses that ban class action lawsuits deny consumers the ability to vindicate their legal 

rights but other arbitration clauses do not? 

A.2. In the Final Rule, the Bureau did not find that the terms of 

arbitration agreements in today’s consumer financial marketplace 

generally prevent consumers from seeking and obtaining individual 

relief. However, the Bureau found that the terms of arbitration 

agreements do prevent groups of consumers from seeking and obtaining relief on a class basis. As noted above, the Bureau believes 

that consumers get substantial relief and other benefits from having the ability to seek and obtain relief on class basis. 

Q.3. Please explain how class action lawsuits that are settled out 

of court and result in tiny rewards for class members give people 

a ‘‘day in court.’’ 

A.3. As the Bureau explained in the preamble to the Final Rule, 

class actions generally aggregate claims for smaller damage 

amounts. As noted above, consumers generally do not pursue 

smaller harms that they suffer individually. That means that 

where an arbitration agreement is used to stop a class action, 

51 

harmed consumers will often be left without remedy. The Bureau 

believes that the very substantial relief that consumers get through 

class actions (detailed above) is a better result for harmed consumers than no relief. 

Q.4. A year ago, the CFPB issued an outline of proposals to regulate small dollar loans. The outline contemplates regulating certain 

small dollar loans with a duration of more than 45 days and an annual interest rate above 36 percent. 

If the Bureau issues a rule that does not outright ban these products, but makes it unprofitable to make such loans above 36 percent, would that violate the Dodd–Frank Act’s prohibition on the 

CFPB imposing a usury limit? 

If not, does the Bureau believe Section 1027(o) of the Dodd– 

Frank Act imposes any limits on the Bureau’s ability to set restrictions on the offering of financial products above a certain interest 

rate? Why or why not? 

A.4. The Consumer Bureau is not prohibiting charging interest 

rates or annual percentage rates (APRs) above the demarcation for 

coverage of certain longer-term loans. Rather, the Consumer Bureau is proposing to require that lenders make a reasonable assessment of consumers’ ability to repay certain longer-term loans above 

the 36 percent demarcation, in light of evidence of consumer harms 

in the market for loans with this characteristic. It is appropriate 

to focus regulatory attention on the segment of longer-term lending 

that the Consumer Bureau believes poses the greatest risk to consumers in the form of potential unfair and abusive practices and 

to recognize that price is an element in defining that segment. 

The Consumer Bureau believes that the term ‘‘usury limit’’ in 

section 1027(o) of the Dodd–Frank Act is reasonably interpreted 

not to prohibit such differential regulation given that the Consumer Bureau is not proposing to prohibit lenders from charging 

interest rates above a specified limit. 

The Consumer Bureau’s considerations concerning section 

1027(o) of the Dodd–Frank Act are described in the notice of proposed rulemaking in the section-by-section analysis of proposed 

§1041.3. 

Q.5. You have repeatedly stated that the Bureau would be sensitive to good faith efforts by companies to comply with the CFPB’s 

TILA–RESPA mortgage disclosure rule. In December, however, the 

American Banker quoted a senior Bureau official telling mortgage 

lenders at a conference, ‘‘I want to be perfectly clear. There is no 

grace period from the Bureau.’’ 

Why won’t the Bureau provide a formal ‘‘hold harmless’’ period 

to clarify mixed messages delivered by the Bureau’s officials and 

more clearly delineate its expectations? 

A.5. The Consumer Bureau has continuously reaffirmed its commitment to support a smooth transition for the mortgage market, 

including its commitment to be sensitive to the efforts made by institutions to come into compliance. We recognize that the mortgage 

industry needed to make significant systems and operational 

changes to adjust to the new requirements and that implementation required extensive coordination with third parties. We appreciate that the mortgage industry dedicated substantial resources to 

52 

2See, e.g., Ben Lane, ‘‘Mortgage Defects Fall for First Time in a Year as TRID Issues Subside’’, Housingwire, Dec. 7, 2016, available at http://www.housingwire.com/articles/38696-mortgage-defects-fall-for-first-time-in-a-year-as-trid-issues-subside; Brena Swanson, ‘‘Ellie Mae CEO: 

Initial Discomfort of TRID Now Over, Time To Close Finally Tumbles’’, Housingwire, March 21, 

2016, available at http://www.housingwire.com/articles/36563-ellie-mae-ceo-initial-discomfortof-trid-now-over; Ken Frears, ‘‘TRID: Back on Track in June’’, National Association of Realtors®, July 12, 2016, available at http://economistsoutlook.blogs.realtor.org/2016/07/12/trid-back-ontrack-in-june/. 3See Ellie Mae, ‘‘Origination Insight Report’’ (May, 2016), available at http:// 

www.elliemae.com/origination-insight-reports/EllielMaelOIRlMAlY2016.pdf; National Association of Realtors®, Survey of Mortgage Originators, First Quarter 2016: TRID After 6 

Months and Changes to FHA’s Cancellation Policy, available at http://www.realtor.org/reports/ 

survey-of-mortgage-originators-first-quarter-2016. 4Press Release, American Land Title Association, ‘‘American Land Title Association Survey 

Shows More Homebuyers Reviewing Mortgage Disclosures’’, May 16, 2016, http:// 

www.alta.org/press/release.cfm?r=260. 

understand the rules, adapt systems, and train personnel in a serious effort to get it right. As with any change of this scale, despite 

the best of efforts, there inevitably will be inadvertent errors in the 

early days. While complete and accurate use of the Regulation Z 

forms is the ultimate compliance goal, we recognize that a certain 

level of minor errors in the early days of implementation is to be 

expected. 

That is why the Consumer Bureau and the other regulators have 

made clear that our initial examinations for compliance with the 

rule will be sensitive to the progress industry has made. In particular, the Consumer Bureau has indicated our examiners will be 

squarely focused on whether companies have made good faith efforts to come into compliance with the rule. The Consumer Bureau 

has stated that early examinations will focus on an entity’s implementation plan, including actions taken to update policies, procedures, and processes; the training of appropriate staff; and its handling of early technical problems or their implementation challenges. All of the regulators have indicated that their examinations 

for compliance in the initial period of implementing the new rule 

will be corrective and diagnostic, rather than punitive. This position is consistent with our approach to supervision and enforcement of the rules implementing title XIV of the Dodd–Frank Wall 

Street Reform and Consumer Protection Act, which has worked out 

well. 

While implementation has posed challenges to industry, industry 

reports indicate that implementation is now proceeding more 

smoothly. 2 Data published by one leading provider of loan origination services as well as a research survey conducted by a major 

trade association, confirm these observations. 3 Moreover, a recent 

homebuyer survey by another trade association suggests that the 

new disclosures are, indeed, helping consumers understand their 

loan terms. 4 The Consumer Bureau will continue to adjust its approach to the experience of implementation. 

Q.6. During the hearing, I asked you about research from Harvard 

University that finds that credit card accounts originated to certain 

lower-income consumers have fallen by 50 percent. You replied, 

‘‘[i]f that is the Lux–Greene study, it is not a very credible study 

. . . [b]ecause it is not very well done and it is not very credible 

on the supposed evidence.’’ 

To the extent you are referring to the study published in April 

2016, please elaborate on your views on the study and the underVerDate Nov 24 2008 14:48 Sep 25, 2017 Jkt 046629 PO 00000 Frm 00060 Fmt 6602 Sfmt 6602 L:\HEARINGS 2016\04-07 ZDIST\23056.TXT JASON
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5The full title of the paper is ‘‘Out of Reach: Regressive Trends in Credit Card Access’’. The 

authors are Marshall Lux and Robert Greene. 6The share of borrowers utilizing all available credit across their cards has actually fallen 

for credit card borrowers with subprime scores, from roughly 48 percent of active card users in 

early 2007 to roughly 44 percent in 2010 through 2013. 7Figures 2 and 3 in the Appendix to the Bureau’s December 2015 Credit Card Market Report 

(the ‘‘2015 Report’’) show the close relationship through the recession between the unemployment rate and charged off or delinquent balances. 8The CARD Act formally requires the Bureau to carry out biennial reviews of the consumer 

credit card market. These reviews address a number of issues, including the question of credit 

availability to consumers with lower credit scores. We published associated reports to Congress 

at the end of 2013 and 2015. The reports are available on the Bureau’s website, available at: 

(2015 Report) http://files.consumerfinance.gov/f/201512 cfpblreport-the-consumer-credit-cardmarket.pdf; and here (2013 Report): http://files.consumerfinance.gov/f/201309lcfpblcard-actreport.pdf. We also published key findings from a 2011 Bureau conference on the CARD Act, 

which also addressed this same issue of availability. The findings are available on the Bureau’s 

website here: https://www.consumerfinance.gov/data-research/research-reports/card-act-conference-key-findings/. 9See 2015 Report at pages 90 through 94, especially figures 4 and 8. The Bureau’s analysis 

takes account of private label accounts, which Lux and Greene ignore despite the significance 

of such accounts to consumers with lower credit scores. 10See Wall Street Journal (May 20, 2016), ‘‘Balance Due: Credit Card Debt Nears $1 Trillion 

as Banks Push Plastic’’, available at https://www.wsj.com/articles/balance-due-credit-carddebt-nears-1-trillion-as-banks-push-plastic-1463736600. 11See http://www.consumerfinance.gov/data-research/consumer-credit-trends/credit-cards/ 

lending-neighborhood-income-level/ (December 2016). 

lying research, and explain what research and evidence the Bureau 

has relied upon to refute the findings of that study. 

A.6. According to an April 2016 paper prepared by Marshall Lux 

and Robert Greene, the post-2007 fall in credit balances and accounts held by consumers with lower credit scores should be attributed to regulatory constraints. 5 The Lux–Greene list of such hypothesized supply-side constraints include the Credit CARD Act of 

2009, the Consumer Bureau’s credit card enforcement actions, the 

lack of a commission structure at the Consumer Bureau, and an alleged explosion in Bureau credit card regulation. 

In the Bureau’s assessment, the Lux–Greene paper underweights 

the impact of the Great Recession on the supply and demand for 

credit in the consumer credit card market. To control the massive 

credit losses associated with the downturn, credit card issuers reduced supply, closing or reducing lines and tightening their underwriting standards. That severely restricted the availability of credit, especially to consumers with lower credit scores. On the demand 

side, consumers reacted to the Great Recession and its aftermath 

by becoming more conservative in their use of credit cards. 6

As the economy picked up, the picture changed. 7 The Consumer 

Bureau publishes a review of the consumer credit card market 

every 2 years. 8 The Consumer Bureau’s 2015 credit card study 

showed that account growth from 2012through 2015 was skewed 

towards consumers with lower credit scores. 9 Major mainstream 

media have reported the same trends. 10 Results recently published 

by the Consumer Bureau show that, for the most recent 12 months 

for which the Bureau has published data, year-over-year growth in 

total line originated to borrowers in both low-income neighborhoods 

and moderate-income neighborhoods has outpaced growth in total 

line originated to borrowers in high-income neighborhoods. 11

The Consumer Bureau recognizes that it is hard to disaggregate 

the different effects of the Great Recession on the supply and demand for consumer credit. However, there is substantial evidence 

that shows that the reduction in card balances held by consumers 

54 

12This point is detailed in the Bureau’s 2015 Report at 80–82 and 117–18, and in the 2013 

Report at 35–36 and 54–60. 13See 2015 Report at 95–97. 14See http://www.consumerfinance.gov/about-us/newsroom/the-cfpb-amends-card-act-ruleto-make-it-easier-for-stay-at-home-spouses-and-partners-to-get-credit-cards/ (April 2013). This 

new regulation revised certain credit card ability-to-pay rules issued by the Board of Governors. 

Several parties—including credit card issuers—had sought this change. 15See http://www.consumerfinance.gov/about-us/newsroom/consumer-financial-protectionbureau-finalizes-credit-card-act-rule/ (March 2013). The Bureau’s action was taken in response 

with lower scores is not attributable to credit card regulation. For 

example: 

• Credit availability and price trends in the small business credit 

card market and the consumer credit card market have been 

broadly similar through the Great Recession and its aftermath. 12 The small business credit card market, however, has 

not been subject to relevant portions of the CARD Act. Indeed, 

the vast majority of the Consumer Bureau’s regulatory activity 

does not apply to business-purpose credit cards at all. If Lux 

and Greene were correct about the impact of consumer protection law on the consumer credit card market, the small business credit card, which was free of such ‘‘constraints,’’ should 

have performed differently. But on core performance metrics 

for price and credit availability, it did not. 

• Lux and Greene compare originations in the auto loan and 

credit card market. The auto loan market, however, is the only 

major consumer credit market that has recovered faster than 

the credit card market. Originations growth since 2009 in general purpose credit cards outstrips all other major consumer 

credit markets, and the recovery in private label credit card 

growth has been substantially stronger than for home-secured 

loan markets. In fact, when looking only at consumers with 

lower credit scores, the recovery in originations growth for general purpose credit cards has outstripped even the auto loan 

market. 13

• The share of subprime borrowers holding mortgages changed 

by approximately the same amount—20 percent relative to 

2005–07 levels—as did the share of subprime consumers holding credit cards. 

In addition, Lux and Greene’s characterization of the Consumer 

Bureau’s actions in the credit card market is often imprecise or incomplete. In significant cases, the regulatory constraints that they 

identify do not, in fact, exist. 

• Lux and Greene claim an apparent explosion in the Consumer 

Bureau’s level of credit card regulation from 2011; the red area 

in the paper’s figure 9 purports to show a significant expansion 

in the Consumer Bureau’s regulatory activity from that point 

through 2014. In fact, from its inception through the end of 

that period, the Consumer Bureau issued two new substantive 

credit card rules. One made it easier for stay-at-home spouses 

and partners to obtain credit cards, thereby expanding the 

availability of credit. 14 The other substantive change, made in 

response to a legal challenge against one of the Board’s rules, 

reduced fee restrictions on cards marketed to consumers with 

subprime credit scores. 15 It is therefore not accurate to claim 

55 

to a legal challenge against one of the Board’s rules on fee-harvester cards marketed to consumers with subprime credit scores. That change excluded certain fees that were charged to consumers before account opening from the requirements of the Board’s rule. To the Bureau’s 

knowledge no commenter has ever claimed that this change limited access to credit. 16Since its inception the Bureau has issued nonsubstantive revisions to the credit card rules, 

but these kinds of technical or ‘‘housekeeping’’ adjustments could not possibly create any supplyside constraint to the issuance of consumer credit card line. For example, these revisions effectuated the transition of regulatory authority from the Board of Governors to the Bureau, meaning that the rules were renumbered and references to the ‘‘Board’’ were replaced with references 

to the ‘‘Bureau,’’ or effectuated adjustments for inflation. 17Lux and Greene note only one instance in which the Bureau has in fact cited its abusiveness authority in connection with the credit card market. The Bureau’s September 2014 bulletin 

on interest rate promotions points out that when an issuer markets such a promotion on the 

basis of the interest rate savings to the consumer from revolving a promotional balance at lower 

rates, the issuer risks engaging in a deceptive or abusive practice if it fails to disclose clearly 

that revolving such balances may also increase the consumer’s interest rate charges on new purchases made during the promotion. Lux and Greene do not explain or offer any evidence for 

their claim that this commonsense observation has ‘‘discouraged certain product features.’’ Some 

issuers have made efforts to improve their disclosures on this point, but that development 

should be welcomed. 18 Although Lux and Greene appear to oppose most or potentially all of that Board effort, 

many of the Board’s CARD Act rules duplicated earlier rules proposed by the Board in 2008 

under its ‘‘UDAP’’ authority to regulate unfair and deceptive practices. (See http:// 

Continued 

that the Consumer Bureau’s regulatory activity has limited 

consumers’ access to credit. 16

• Lux and Greene focus on the supposedly regressive effect of 

the Consumer Bureau’s reliance on its ‘‘abusiveness’’ authority. 

The Dodd–Frank Wall Street Reform and Consumer Protection 

Act’s creation of new authority in this respect, however, has 

played a minimal role in the Consumer Bureau’s credit card 

work. Lux and Greene’s main complaint in this area seems to 

be with the Bureau’s enforcement actions against credit card 

add-on products. But those enforcement actions did not rely on 

abusiveness authority. They relied instead on the requirement 

that issuers not market add-on products deceptively or unfairly 

charge consumers for add-on products that they are not actually receiving. 17

Q.7. Finally, the Lux–Greene paper sometimes makes factual assertions contradicted by the available record. For example, they 

contend that Consumer Bureau enforcement actions are ‘‘driving’’ 

issuers to ‘‘only offer ‘plain vanilla’ ’’ credit cards. But Lux and 

Greene cite no such cards or any evidence that such cards are becoming the sole product offering in this space. In fact, as the Consumer Bureau’s 2015 Report documents, the credit card market 

shows continued innovation, whether in rewards, security, or mobile functionality, giving consumers a wide range of benefits and 

functionalities to consider when card shopping. 

Does the Bureau have any plans to further clarify what actions 

are unfair, abusive, or deceptive to provide clarity to lenders in 

order to increase the availability of credit cards for lower-income 

consumers? If not, why not? 

A.7. The Consumer Bureau does not agree that the credit card 

market has been hampered since the Great Recession by a supposed lack of clarity around regulatory standards. To the contrary, 

the Consumer Bureau’s rule writing in this market has been appropriate because the Board of Governors undertook a clear and comprehensive regulatory effort to implement the important consumer 

protections enacted by Congress in the CARD Act. 18 As noted 

56 

www.federalreserve.gov/newsevents/press/bcreg/20080502a.htm) Their complaint that the Bureau has not issued rules to implement its own ‘‘UDAAP’’ authority, therefore, is hard to reconcile with their apparent opposition to earlier Board rules that effectively did just that. 19https://www.sec.gov/divisions/riskfin/rsfilguidanceleconlanalylsecrulemaking.pdf 

above, when necessary, the Consumer Bureau has acted to revise 

or build on those rules. In one case, a legal challenge to a Board 

rule caused the Consumer Bureau to issue a revised rule. On another, the Consumer Bureau revised a Board-issued rule that was 

having the unintended consequences of limiting access to credit by 

spouses and partners who did not work outside the home but who 

did have the ability to pay for a credit card account. 

When the Consumer Bureau has brought credit card enforcement 

actions on the basis of its authority to regulate Unfair, Deceptive, 

and Abusive Acts and Practices (UDAAP), it has focused on wellestablished legal norms. Thus, as noted above, the credit card addon cases attacked deceptive marketing and the unfair ‘‘sale’’ of 

products that were not in fact received. 

Q.8. Section 1022(b)(2)(A) of the Dodd–Frank Act requires the Bureau to perform a cost-benefit analysis when prescribing rules. 

Is it important for the CFPB to conduct high quality economic 

analysis as part of its rulemaking and cost-benefit analysis? 

A.8. Yes, the Consumer Bureau considers it to be good policy to 

conduct economic analysis as part of the rulemaking process. Section 1022(b)(2)(A) of the Dodd–Frank Wall Street Reform and Consumer Protection Act calls for the Bureau to consider the potential 

benefits, costs, and impacts of its consumer protection regulations. 

Specifically, the Consumer Bureau considers the potential benefits 

and costs of regulation to consumers and covered persons, including 

the potential reduction of access by consumers to consumer financial products and services, the impact of proposed rules on insured 

depository institutions and insured credit unions with $10 billion 

or less in total assets as described in section 1026 of the Dodd– 

Frank Act, and the impact on consumers in rural areas. 

Q.9. Is the CFPB’s economic analysis currently sufficiently robust 

and thorough? If the answer to (a) and (b) are both ‘‘yes,’’ will the 

Bureau commit to publishing guidance on economic analysis in 

CFPB rulemakings, similar to what the SEC 19 has already done? 

If not, why not? 

A.9. Yes, these analyses are an important tool to help evaluate potential regulatory burdens, and our practice is to seek public comment on our analyses of potential benefits, costs, and impacts, and 

to seek comment on our additional sources of data. Like other Federal agencies, the Consumer Bureau is required to conduct a written analysis of the potential impacts and alternatives at both the 

proposal and final rule stage. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN 

FROM RICHARD CORDRAY 

Q.1. We heard on Tuesday about regulation leading to bank consolidation. But the number of financial institutions in this country 

has been declining for decades, way before Dodd–Frank. That being 

said, it is important that small financial institutions are not disVerDate Nov 24 2008 14:48 Sep 25, 2017 Jkt 046629 PO 00000 Frm 00064 Fmt 6602 Sfmt 6602 L:\HEARINGS 2016\04-07 ZDIST\23056.TXT JASON
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proportionately impacted by regulation. Would you describe what 

the Bureau has done to address the concerns of small financial institutions and reduce their regulatory burden? 

A.1. Section 1022(b)(1) of the Dodd–Frank Wall Street Reform and 

Consumer Protection Act (Dodd–Frank Act) authorizes the Consumer Bureau to prescribe rules and issue orders and guidance, as 

may be necessary or appropriate to administer and carry out the 

purposes and objectives of the Federal consumer financial laws, 

and to prevent evasions thereof. In doing so, Section 1022(b)(2) requires that the Consumer Bureau consider the potential benefits 

and costs to consumers and covered persons, including the potential reduction of access to consumer financial products and services 

to consumers. Section 1022(b)(2) also requires the Consumer Bureau to consider the impact of a proposed rule on insured depository institutions and credit unions with total assets of $10 billion 

or less as well as the impact on consumers in rural areas. Moreover, Section 1022(3)(A) gives the Consumer Bureau the authority 

to create exemptions from the Consumer Financial Protection Act 

of 2010 or rules issued under that Act for any class of covered persons, service providers, or consumer financial products or services 

if the Consumer Bureau determines an exemption is necessary or 

appropriate to carry out the purposes and objectives of the Consumer Financial Protection Act after taking into consideration a set 

of factors specified in the statute. 

To date, the Consumer Bureau has sought to carefully calibrate 

its efforts to ensure consistency with respect to consumer financial 

protections across the financial services marketplace, while accounting for the different business models and classes of financial 

institutions. For example, as part of the Consumer Bureau’s commitment to achieving tailored and effective regulations, we have 

taken the following actions for different models and classes of institutions: 

Mortgage Origination Rules (Title XIV) 

• Expanded safe harbor for small creditors. A small creditor has 

a broader safe harbor for its Qualified Mortgage (QM) loans 

than non-small creditors. The Consumer Bureau’s rules provide a safe harbor for QMs with annual percentage rate (APR) 

spreads over Average Prime Offer Rate (APOR) up to 350 basis 

points, whereas non-small creditors have a safe harbor for 

spreads up to 150 basis points. The Consumer Bureau’s rules 

also allow a small creditor to make QMs with debt-to-income 

ratios that exceed the otherwise applicable 43 percent cap. 

(Small creditors must hold these loans in portfolio for 3 years.) 

• Exempted small creditors in rural and underserved areas. 

Small creditors that operate (or operated ‘‘predominantly’’ before implementation of the Helping Expand Lending Practices 

in Rural Communities Act in March 2016) in rural or underserved areas are exempt from requirements to establish escrow 

accounts for higher priced mortgage loans and from restrictions 

on offering QMs and Home Ownership and Equity Protection 

Act (HOEPA) loans (‘‘high cost’’ mortgages as defined in the 

HOEPA) that have balloon payment features. QMs and 

HOEPA loans generally cannot have balloon payments. 

58 

• Implemented a 2-year pause for small creditors. The Consumer 

Bureau established a 2-year transition period (until January 

10, 2016) allowing small creditors to make balloon-payment 

QMs and balloon-payment HOEPA loans regardless of whether 

they operated predominantly in rural or underserved areas, 

while the Consumer Bureau revisited and reconsidered the definition of ‘‘rural’’ for this purpose. 

• Expanded exemptions for creditors in rural and underserved 

areas. In connection with other changes to amend the definitions of ‘‘small creditor’’ and ‘‘rural area,’’ the Consumer Bureau published a final rule in October 2015 that extended this 

2-year transition period from January 2016 until April 2016. 

The Bureau’s final rule also provided a significant expansion 

of ‘‘rural,’’ as well as an expansion of which entities can qualify 

as ‘‘small creditors.’’ The Consumer Bureau’s final rule took effect on January 1, 2016, before the 2-year transition period expired. In March 2016, the Consumer Bureau issued an interim 

final rule that implements the Helping Expand Lending Practices in Rural Communities Act, and makes these provisions 

available to small creditors that extend at least one covered 

transaction secured by property located in a rural or underserved area in the previous calendar year. The Bureau estimated that about 6,000 additional small creditors would be eligible as a result of this change. 

• Relaxed requirements for appraisals. Small creditors have relaxed rules regarding conflict of interest in ordering appraisals 

and other valuations. 

Mortgage Servicing Rules (Title XIV) 

• Exempted small servicers from providing periodic statements. 

Small servicers are exempt from the Truth in Lending Act requirement to provide periodic statements. 

• Exempted small servicers from loss mitigation requirements. 

Small servicers are exempt from all of the Real Estate Settlement Procedures Act provisions on policies and procedures; 

early intervention; continuity of contact; and loss mitigation, 

except that a small servicer may not file for foreclosure unless 

the borrower is more than 120 days delinquent on the mortgage. Small servicers may also not file for foreclosure (or move 

for a foreclosure judgment or order of sale, or conduct a foreclosure sale) if a borrower is performing under the terms of a 

loss mitigation agreement. 

• Excluded certain seller-financed transactions and mortgage 

loans voluntarily serviced for a non-afflliate from being counted 

toward the small servicer loan limit. This allows servicers that 

would otherwise qualify for small servicer status to retain their 

exemption while servicing those transactions. 

Home Mortgage Disclosure Act Rule (Reg C) 

• Exempted lower-volume depository institutions from Home 

Mortgage Disclosure Act reporting. In October of 2015, the Consumer Bureau adopted a final rule revising Regulation C, 

which implements HMDA. HMDA and Regulation C, among 

59 

other things, require covered mortgage lenders to report data 

concerning their mortgage lending activity. Changes to coverage in the final rule will reduce the number of banks, savings associations, and credit unions that are required to report 

HMDA data. The revisions will relieve about 22 percent of currently reporting depository institutions from the burden of reporting HMDA data. Also, by final rule issued in late August 

of 2017, the Consumer Bureau expanded the volume-based exemption from reporting of open-end lines of credit under 

HMDA for institutions with fewer than 500, instead of 100, annual originations in each of the two preceding years of such 

lines of credit. This expanded exemption applies for calendar 

years 2018 and 2019, during which the Consumer Bureau will 

consider whether to reexamine the appropriate volume level at 

which to set the exemption permanently. 

• Reduced HMDA error submission threshold for certain small 

entities. New Federal Financial Examination Institution Council guidelines, of which the Consumer Bureau is a member, 

provide a more lenient 10 percent HMDA field error resubmission threshold (to determine whether the lender must resubmit 

a particular HMDA data field) for financial institutions with 

lower lending volumes, including many small institutions, for 

data collected beginning in 2018. Previously, all institutions 

were subject to the same error thresholds. The new guidelines 

make other burden-reducing changes that apply to all lenders, 

which may be particularly beneficial to small institutions. 

Remittances Rule (Regulation E subpart B) 

• Provided regulatory certainty for small entities under the Electronic Fund Transfer Act. In the Bureau’s rules implementing 

the Dodd–Frank Act’s amendments to the Electronic Fund 

Transfer Act, regarding remittance transfers, the Bureau recognized that certain entities do not provide remittances in the 

normal course of their business and determined that the remittance requirements do not apply to transfers sent by entities 

that provide 100 or fewer remittances each year. 

Small financial institutions play a vital role within many communities across the Nation, as well as within the economy. Their traditional model of relationship lending has been beneficial to many 

people in rural areas and small towns throughout the country. For 

these reasons, the Consumer Bureau attempts to ensure that rules 

and regulations are not burdensome to these smaller financial institutions. 

Q.2. A survey from the National Association of Realtors found that 

the most frequent errors in mortgage disclosure documents were 

missing concessions and incorrect names or addresses. What outreach did the Bureau done to ensure that industry was ready for 

these changes? What will the CFPB do going forward? 

A.2. Prior to issuance of the Know Before You Owe mortgage disclosure rule in November 2013, the Consumer Bureau conducted 

extensive outreach and testing of prototype forms with consumers 

and industry, provided the public with the opportunity to comment 

on the forms through the Consumer Bureau’s website, and conVerDate Nov 24 2008 14:48 Sep 25, 2017 Jkt 046629 PO 00000 Frm 00067 Fmt 6602 Sfmt 6602 L:\HEARINGS 2016\04-07 ZDIST\23056.TXT JASON
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1For more information on the Bureau’s Small Business Review Panel, see http:// 

www.consumerfinance.gov/blog/sbrefa-small-providers-and-mortgage-disclosure/. 2These resources are available at http://www.consumerfinance.gov/policy-compliance/guidance/implementation-guidance/tila-respa-disclosure-rule/. 3http://www.consumerfinance.gov/know-before-you-owe/real-estate-professionals/ 

4http://www.consumerfinance.gov/policy-compliance/know-you-owe-mortgages/settlementprofessionals-guide/ 

vened a panel to consider the impact of the forms and rules on 

small financial services providers. 1

Since the Know Before You Owe mortgage disclosure rule was 

issued in November 2013, the Consumer Bureau has taken many 

steps to support industry implementation and to help creditors, 

vendors, and others affected by the Know Before You Owe mortgage disclosure rule to better understand, operationalize, and prepare to comply with the Know Before You Owe mortgage disclosure 

rule’s new streamlined disclosures. We have made it a point to engage directly and intensively with financial institutions and vendors through a formal regulatory implementation project. 

The Consumer Bureau’s regulatory implementation efforts include the following: 

• Interagency coordination. In-depth exam procedures were approved by the Federal Financial Institutions Examination 

Council (FFIEC) in February 2015 and published by the Bureau on April 1, 2015. The Consumer Bureau’s own examination procedures incorporating the FFIEC exam procedures 

were initially published on May 4, 2015. 

• Publishing a ‘‘readiness guide,’’ plain-language guides, and 

other resources. The ‘‘readiness guide’’ includes a wide-ranging 

questionnaire to help industry come into and maintain compliance with the rule. The Consumer Bureau has also published 

a compliance guide, a guide to the new integrated disclosure 

forms, an illustrative timeline, and annotated versions of the 

new integrated disclosure forms, providing references to the 

TILA statutory disclosures implemented on the Loan Estimate 

and Closing Disclosure. 2

• Publishing materials targeted to real estate professionals. The 

Consumer Bureau published, on its website, a real estate professional’s guide to the Know Before You Owe mortgage disclosure rule. 3 These webpages provide links to materials real estate professionals and others can download for their own use 

or to share with consumers. 

• Publishing materials targeted to settlement professionals. The 

Consumer Bureau published, on its website, a settlement professional’s guide to the Know Before You Owe mortgage disclosure rule. 4 These webpages provide links to materials settlement professionals and others can download for their own use 

or to share with consumers. 

• Maintenance of an implementation website. The Consumer Bureau’s regulatory implementation webpage, http:// 

www.consumerfinance.gov/policy-compliance/lguidance/implementation-guidance/tila-respa-disclosure-rule/, is designed 

to be responsive to industry concerns and provides a central location for all the implementation support provided by the Bureau. 

61 

5 80 FR 8767 (Feb. 19, 2015). 6 80 FR 43911 (July 24, 2015). 7 81 FR 7032 (Feb. 10, 2016). 8 82 FR 37656 (Aug. 11, 2017). 9These webinars are available at http://www.consumerfinance.gov/policy-compliance/guidance/implementation-guidance/tila-respa-disclosure-rule/. 

• Regular internal meetings. An implementation support team 

meets weekly to discuss industry feedback and identify appropriate responses. 

• Publishing amendments and updates to the rule in response to 

industry requests. In January 2015, after extensive outreach to 

stakeholders, the Consumer Bureau adopted two minor modifications and technical amendments to the rule. 5 In July 2015, 

we extended the rule’s effective date by 2 months and made 

some minor clarifications to smooth industry implementation. 6

In February 2016, we corrected a typographical error in the 

Supplementary Information to the Know Before You Owe 

mortgage disclosure final rule. 7 In April 2016, we announced 

that we have begun the process of drafting a Notice of Proposed Rulemaking (NPRM) to incorporate some of the Bureau’s 

informal guidance into the regulation text and commentary, as 

well as provide greater certainty and clarity in certain areas 

of the rule. That NPRM was issued on July 29, 2016. The comment period ended on October 18, 2016. 

• Finalizing final rule to facilitate implementation of Know Before You Owe. On July 7, 2017, the Consumer Bureau finalized 

updates to the Know Before You Owe rule to provide greater 

clarity and certainly. The rule addressed issues including: the 

tolerances for the total of payments, housing assistance lending, cooperatives and privacy and sharing of information. 8

• Providing unofficial staff guidance. Bureau staff continues to 

provide guidance directly to creditors, vendors, their trade associations and legal representatives, and other stakeholders. 

These efforts have been ongoing since the rule was issued. 

• Engaging with stakeholders. Bureau staff has provided remarks and addressed questions about the rule and related implementation matters at over 70 formal events and over 80 informal stakeholder meetings since the rule was issued. In addition, as part of its ongoing engagement with stakeholders, the 

Consumer Bureau has supported implementation of the rule in 

over 300 more general meetings with stakeholders. 

• Conducting webinars. The Consumer Bureau has conducted 

seven free, publicly available webinars, available for viewing 

through the Consumer Bureau’s website, 9 that provide guidance on how to interpret and apply specific provisions of the 

rule. All of these industry-facing webinars are indexed to assist 

users in quickly finding the relevant material. The Consumer 

Bureau has also conducted a free, publicly available webinar 

targeted to housing counselors. 

While implementation has posed challenges to industry, industry 

reports indicate that implementation is now proceeding more 

62 

10See, e.g., Ben Lane, ‘‘Mortgage Defects Fall for First Time in a Year as TRID Issues Subside’’, Housingwire, Dec. 7, 2016, available at http://www.housingwire.com/articles/38696-mortgage-defects-fall-for-first-time-in-a-year-as-trid-issues-subside; Brena Swanson. ‘‘Ellie Mae CEO: 

Initial Discomfort of TRID Now Over, Time To Close Finally Tumbles’’, Housingwire, March 21, 

2016, available at http://www.housingwire.com/articles/36563-ellie-mae-ceo-initial-discomfortof-trid-now-over; Ken Frears, ‘‘TRID: Back on Track in June’’, National Association of Realtors®, 

July 12, 2016, available at http://economistsoutlook.blogs.realtor.org/2016/07/12/trid-back-ontrack-in-june/. 11See Ellie Mae, ‘‘Origination Insight Report’’ (May, 2016), available at http:// 

www.elliemae.com/origination-insight-reports/EllielMaelOIRlMAY2016.pdf; National Association of Realtors®, ‘‘Survey of Mortgage Originators, First Quarter 2016: TRID After 6 Months 

and Changes to FHA’s Cancellation Policy’’, available at http://www.realltor.org/reports/survey-of-mortgage-originators-first-quarter-2016. 12Press Release, American Land Title Association, ‘‘American Land Title Association Survey 

Shows More Homebuyers Reviewing Mortgage Disclosures’’, May 16, 2016, http:// 

www.alta.org/press/release.cfm?r=260. 13 Brian Honea, ‘‘How Satisfied Are Borrowers With the Origination Process?’’ The M Report 

(July 13, 2016), available at http://www.themreport.com/news/origination/07-l3-2016/how-satisfied-are-borrowers-with-the-origination-process; ‘‘STRATMOR: TRID Is Boosting Customer Satisfaction’’, March 29, 2016, available at http://www.mortgageorb.com/stratmor-trid-is-boostingcustomer-satisfaction; ‘‘New ClosingCorp Survey Gauges Early Consumer Reaction to New Real 

Estate/Mortgage Rules’’, Businesswire (March 15, 2016), available at http:// 

www.businesswire.com/news/home/20160315005228/en/ClosingCorp-Survey-Gauges-EarlyConsumer-Reaction-Real; Trey Garrison, ‘‘Here’s How TRID Is Changing the Mortgage Industry’’, Housingwire (October 12, 2015), available at http://www.housingwire.com/articles/print/ 

35319-heres-how-trid-is-changing-the-mortgage-industry. 

smoothly. 10 Data published by one leading provider of loan origination services as well as a research survey conducted by a major 

trade association confirm these observations. 11 Moreover, a recent 

homebuyer survey by another trade association suggests that the 

new disclosures are, indeed, helping consumers understand their 

loan terms. 12 The Loan Estimate and the Closing Disclosure have 

been praised by many as improvements to the existing forms. 13

The Consumer Bureau will continue to adjust our efforts to the experience of implementation. 

Q.3. Several members criticized your auto lending enforcement actions, including the use of disparate impact theory. Yet, as you 

noted in the hearing, disparate impact has been recognized for decades as a tool to ensure fair lending. For example, the Federal financial regulators detailed how financial institutions should monitor for disparate impact in a 1994 interagency guidance. Can you 

describe why it is important for financial institutions to monitor for 

disparate impact? 

A.3. Disparate impact is the law and has been used by Federal 

agencies for decades and upheld by courts. The applicability of the 

disparate impact doctrine, also known as the ‘‘effects test,’’ to credit 

transactions is reflected in the legislative history of the ECOA. 

Regulation B, which the Federal Reserve Board originally drafted 

to implement the ECOA, provides that: 

The legislative history of the Act indicates that the Congress intended an ‘‘effects test’’ concept, as outlined in the 

employment field by the Supreme Court in the cases of 

Griggs v. Duke Power Co., 401 U.S. 424 (1971), and Albemarle Paper Co. v. Moody, 422 U.S. 405 (1975), to be applicable to a creditor’s determination of creditworthiness. 

The Commentary explicating Regulation B further elaborates: 

The act and regulation may prohibit a creditor practice 

that is discriminatory in effect because it has a disproportionately negative impact on a prohibited basis, even 

63 

14The Study’s count of auto purchase loans does not include disputes relating to automobile 

title loans. It also excluded disputes against auto dealers unless: (1) it was clear that the auto 

dealer was also the issuer of the consumer’s auto purchase loan (erring on the side of overstating the number of disputes that focused on the automobile loans, as opposed to the automobiles being purchased); or (2) the consumer brought a claim relating to an auto purchase loan 

and only named the auto dealer as a respondent (suggesting that either the auto dealer was 

the lender or that the consumer potentially named the auto dealer in error, believing that the 

auto dealer was the lender); or (3) the consumer also named the lender as a defendant. We did 

not include in our case count claims against car dealers relating to ‘‘spot financing’’ or similar 

disputes that do not involve an actual auto purchase loan, as opposed to a representation that 

such financing would be forthcoming. We also did not include disputes about motorcycles or 

motorhomes. We use this classification of ‘‘auto purchase loans’’ only for the limited purposes 

of this report. It is not related to any other Bureau initiative, current or future, which may address similar loans. 15See Arbitration Study, Section 5, p. 86. 

though the creditor has no intent to discriminate and the 

practice appears neutral on its face, unless the creditor 

practice meets a legitimate business need that cannot reasonably be achieved as well by means that are less disparate in their impact. 

In accordance with the foregoing authorities, as the Consumer 

Bureau exercises our supervisory and enforcement authority, we 

consider evidence of disparate impact as one method of proving 

lending discrimination under the ECOA and Regulation B. 

In addition, since the Consumer Bureau did not exist when the 

Federal law enforcement and prudential regulatory agencies issued 

the policy statement in 1994, the Bureau, in 2012, publicly reaffirmed that the legal doctrine of disparate impact remains applicable as the Bureau exercises its supervision and enforcement authority to enforce compliance with the ECOA and Regulation B. 

The Consumer Bureau’s ECOA Examination Procedures, Mortgage 

Origination Examination Procedures, and Mortgage Servicing Examination Procedures also adopt and reference the Interagency 

Fair Lending Examination Procedures, including those designed to 

identify evidence of disparate impact. 

Q.4. A series of class actions were filed against auto finance companies in the 1990s and 2000s, which alleged that dealer markup resulted in unfair pricing for minority borrowers. The CFPB has extensively studied arbitration clauses in consumer financial contracts. What did you learn, if anything, about arbitration clauses 

in auto finance contracts? How might this impact the ability of consumers to file class actions in the future? 

A.4. The Consumer Bureau’s Arbitration Study reviewed arbitration filings in the years 2010, 2011, and 2012 relating to a number 

of consumer financial products and services before the American 

Arbitration Association. This analysis found 293 individual filings 

before the American Arbitration Association regarding what the 

Arbitration Study describes as ‘‘auto purchase loans.’’ 14 The Arbitration Study did not study the prevalence of arbitration provisions 

in automobile finance contracts. The Consumer Bureau’s review of 

arbitration filings, however, found that that in addition to the 293 

individual filings, a class arbitration dispute against an auto dealer 

and lender alleging various deceptive practices was one of the two 

class arbitration disputes across the six product markets studied. 15

The claimants specified that they sought damages in excess of $1 

million. Although the case was filed in 2010, the AAA case file did 

64 

16 Arbitration Study, Section 5, p. 20. 17 Arbitration Study, Section 8, p. 12 table 1. 18 Arbitration Study, Section 8, p. 25 table 8. 19 Arbitration Study, Section 8, p. 17 table 4 20 Arbitration Study, Section 8, p. 22 table 6. 21 Arbitration Study, Section 8, p. 33 table 10. 22See, e.g., Thomas B. Hudson, ‘‘Arbitration: Use It or Lose It, Spot Delivery’’ (July 2014); 

Arbitration Study, Section 6, p. 54 n.91. 23 Arbitration Study, Section 6, p. 57. 24See id. 

not contain any substantive records beyond the arbitration demand, the arbitration agreement, and the State court order on the 

respondent’s successful motion to compel arbitration. 16

In a separate study of class action settlements in Federal and selected State courts from the years 2008 through 2012, the Consumer Bureau found 18 class action settlements relating to auto 

purchase loans. 17 These 18 settlements led to over $202 million of 

cash relief to class members. 18 Although the Consumer Bureau did 

not explore the number of consumers who received payments in 

these 18 settlements, available information showed that the settlements included more than 560,000 class members. 19 Ten such settlements reported that they used automatic methods to distribute 

funds to consumers, rather than requiring ‘‘claims made’’ processes. 

Over 17,000 consumers in those ten settlements received automatic 

distributions. 20 Information about attorneys’ fees was available in all 18 settlements, totaling approximately $9.5 million, or 5 percent 

of the total gross relief. 21 For the impact of arbitration provisions 

on consumers’ ability to file class actions, some commenters have 

observed that arbitration clauses may be particularly targeted at 

class actions. 22 In the Consumer Bureau’s review of class action 

litigation filings in Federal court and selected State courts from 

2010, 2011, and 2012 companies moved to compel arbitration in 94 

of 562 class action cases relating to the six consumer financial 

product markets reviewed. 23 21 of those 94 motions to compel involved auto purchase loans. 24

On July 10, 2017, the Consumer Bureau issued a final rule on 

arbitration agreements that will apply to agreements that are entered into on or after March 19, 2018. Companies subject to the 

final rule are prohibited from using a pre-dispute arbitration agreement to block consumer class actions in court and requires providers to insert language into their arbitration agreements reflecting this limitation. This final rule is based on the Bureau’s findings—which are derived from the Study—that pre-dispute arbitration agreements are being widely used to prevent consumers from 

seeking relief from legal violations on a class basis, and that consumers rarely file individual lawsuits or arbitration cases to obtain 

such relief. 

In addition, the Bureau’s Final Rule includes several provisions 

extending coverage to certain automobile finance companies. The 

final rule’s Comment 2(c)–1.ii clarifies that an automobile dealer 

that provides consumer credit is a covered person under Dodd– 

Frank section 1002(6)—and such a person’s contracts may contain 

pre-dispute arbitration agreements as that term is defined in 

§1040.2(c). Yet an automobile dealer that is excluded from the Bureau’s rulemaking authority in circumstances described by Dodd– 

Frank section 1029 would not be required to comply with the reVerDate Nov 24 2008 14:48 Sep 25, 2017 Jkt 046629 PO 00000 Frm 00072 Fmt 6602 Sfmt 6602 L:\HEARINGS 2016\04-07 ZDIST\23056.TXT JASON
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quirements in §1040.4, because those requirements apply only to 

providers, and such automobile dealers, while they are covered persons, are excluded by §1040.3(b)(6) and therefore are not providers 

under §1040.2(d). The requirements in §1040.4 would apply, however, to the use of the automobile dealer’s pre-dispute arbitration 

agreement by a different person that meets the definition of provider, such as a servicer, or purchaser or acquirer of the automobile 

loan, where the agreement was entered into after the compliance 

date. 

Section 1040.3(a)(2) extends coverage to brokering or extending 

consumer automobile leases as defined in 12 CFR 1090.108, which 

applies to leases of automobiles with an initial term of at least 90 

days and either of the following two characteristics: (1) The lease 

is the ‘‘functional equivalent’’ of an automobile purchase finance arrangement and is on a ‘‘non-operating basis’’ within the meaning 

of Dodd–Frank section 1002(15)(A)(ii); or (2) the lease qualifies as 

a ‘‘full-payout lease and a net lease’’ within the meaning of the Bureau’s Larger Participant rulemaking for the automobile finance 

market.[868] The Bureau believes that the final rule should reach 

brokering or extending consumer automobile leases, consistent with 

the definition of that activity in the Bureau’s larger participant 

rulemaking for the automobile finance market. The Bureau had explained in that prior rulemaking that, from the perspective of the 

consumer, many automobile leases function similarly to financing 

for automobile purchase transactions (which generally would have 

been covered by proposed §1040.3(a)(1)) and have a similar impact 

on the consumer and his or her well-being. 

Q.5. The OCC recently came out with a white paper detailing its 

approach to FinTech and financial innovation with regard to the institutions it regulates. Can you describe the CFPB’s approach to 

FinTech companies? How will the CFPB work with the other prudential regulators to coordinate supervision of FinTech activities? 

A.5. The Consumer Bureau recognizes that evolving technologies 

are driving constant change in today’s financial marketplace. The 

developments in consumer financial products and services can 

present both significant benefits and potential risks to consumers. 

As part of the Consumer Bureau’s mission to facilitate consumer 

access to innovative products and services, the Bureau launched its 

Project Catalyst initiative in 2012. 

Through Project Catalyst, the Consumer Bureau engages and collaborates with companies and other persons pursuing consumerfriendly financial innovations, including established financial institutions as well as newer FinTech companies. The Consumer Bureau was the only Federal agency explicitly mentioned in the Office 

of the Comptroller of the Currency’s (OCC) white paper on the subject of regulatory collaboration. Bureau staff working on Project 

Catalyst have an open line of communication with OCC staff working on the OCC’s Responsible Innovation initiative. We expect ongoing collaboration and coordination between the two teams in the 

future. 

The Consumer Bureau also coordinates closely with Federal prudential and State bank and nonbank regulators regarding a broad 

array of supervisory matters, including FinTech activities as approVerDate Nov 24 2008 14:48 Sep 25, 2017 Jkt 046629 PO 00000 Frm 00073 Fmt 6602 Sfmt 6602 L:\HEARINGS 2016\04-07 ZDIST\23056.TXT JASON
66 

priate. Representatives of the Consumer Bureau and the Federal 

prudential regulators meet regularly to coordinate supervisory and 

other activities, and supervisory staff at the Consumer Bureau and 

the Federal prudential regulators confer on a routine basis to discuss examinations and other supervisory matters regarding particular institutions. The Consumer Bureau also participates in the 

Federal Financial Institutions Examination Council (FFIEC) and 

coordinates further with the Federal prudential regulators through 

the FFIEC. 

Q.6. Nearly 1 in 4 Americans either does not have access to a 

checking account or has an account but may rely on alternative financial services. Some of those who cannot get a bank account cannot do so because they are reported to financial institutions by specialty consumer reporting agencies. What work have you done to 

ensure that these specialty consumer reporting agencies are reporting accurate information to financial institutions? More generally, 

can you detail what work the CFPB has done to increase individuals’ access to the financial system, particularly checking and savings accounts, and what plans you have for the upcoming year on 

this topic? 

A.6. The Consumer Bureau is using its supervisory authority to review the accuracy of information furnished to and reported by Nationwide Specialty Consumer Reporting Agencies (NSCRAs) to financial institutions. 

As an example, our reviews have found that one or more 

NSCRAs had internal inconsistencies in linking certain identifying 

information (e.g., Social Security numbers and last names) to consumer records associated with negative involuntary account closures, such as checking account closures for fraud or account 

abuse. These inconsistencies in some cases resulted in incorrect information being placed in consumers’ files. Based on the weaknesses identified, Supervision directed one or more NSCRAs to develop and implement internal processes to monitor, detect, and prevent the association of account closures to incorrect consumer profiles, and to notify affected consumers. 

Our reviews have also focused on NSCRAs’ oversight of furnishing practices. Examiners have found that one or more NSCRAs 

had weaknesses in their systems and processes for credentialing of 

financial institutions before they were allowed to supply consumer 

information to the NSCRAs. Based on these findings, Supervision 

directed one or more NSCRA to strengthen its oversight and establish documented policies and procedures for the timely tracking of 

credentialing and re-credentialing of financial institutions. 

The Consumer Bureau has also conducted reviews at financial 

institutions to assess compliance with furnisher obligations under 

the Fair Credit Reporting Act (FCRA) and its implementing regulation, Regulation V. The reviews focused on entities furnishing information (furnishers) to NSCRAs that specialize in reporting in 

connection with deposit accounts. Based on supervisory findings, 

the CFPB issued a bulletin in February 2016 that emphasized the 

obligation of furnishers under Regulation V to establish and implement reasonable written policies and procedures regarding the acVerDate Nov 24 2008 14:48 Sep 25, 2017 Jkt 046629 PO 00000 Frm 00074 Fmt 6602 Sfmt 6602 L:\HEARINGS 2016\04-07 ZDIST\23056.TXT JASON
67 

25See CFPB Compliance Bulletin 2016-01 at: http://files.consumerfinance.gov/f/ 

201602lcfpblsupervisory-bulletin-fumisher-accuracy-obligations.pdf. 26See the Bureau’s press release on the action against JPMorgan Chase for failures relating 

to check account screening information at: https://www.consumerfinance.gov/about-us/newsroom/cfpb-takes-action-against-jpmorgan-chase-failures-related-checking-account-screening-information/. 27 Consumer Financial Protection Bureau, ‘‘Consumer Financial Protection Bureau Takes 

Steps To Improve Checking Account Access’’ (February 3, 2016), available at http:// 

www.consumerfinance.gov/about-us/newsroom/cfpb-takes-steps-to-improve-checking-account-access/. 

curacy and integrity of information relating to consumers that they 

furnish to Consumer Reporting Agencies (CRAs). 25

Examinations have also found issues with how certain furnishers 

verify data through automated systems and with one or more institutions updating of deposit account information. For example, the 

Consumer Bureau found that one or more financial institution 

failed to correct and update the account information they had furnished to NSCRAs and/or did not institute reasonable policies and 

procedures regarding accuracy, including prompt updating of outdated information. The Consumer Bureau has also taken enforcement action against a furnisher for failures related to the lack of 

proper processes necessary to report accurate information to the 

NSCRAs concerning checking account application details. 26

In October of 2014, the Consumer Bureau held a public forum on 

Access to Checking Accounts to discuss how financial institutions 

screen applicants for consumer checking accounts and to generate 

recommendations for improving consumer access to lower-risk accounts, consumer financial safety, and institutional risk mitigation. 

In February 2016, the Consumer Bureau took a number of additional steps to improve checking account access. Specifically, the 

Bureau sent a letter to the Nation’s top 25 retail banking companies urging them to do more to create or promote deposit accounts 

designed to meet consumers’ financial needs. 27 The Consumer Bureau urges banks and credit unions to offer consumers accounts 

that help them manage their spending and maintain their accounts 

in good standing. In the letter, the Consumer Bureau encouraged 

banks and credit unions to offer products that are designed to prevent overdrafts and overdraft fees. The Consumer Bureau also 

urged banks and credit unions in the letter to feature such products prominently in their marketing efforts, their online and instore checking account menus, and during sales consultations. 

Supervision examinations also found that furnisher(s) of deposit 

account information had enterprise-wide FCRA policies, but the 

policies were inadequate to address furnishing activity for consumer deposit accounts. The furnishers failed to establish, implement, and maintain reasonable written policies and procedures 

consistent with Regulation V regarding the accuracy and integrity 

of consumer deposit account information furnished. Additionally, 

they had policies for furnishing consumer deposit account information that were overly broad and not supplemented with sufficientlydetailed operating procedures and guidance for consumer depositrelated furnishing. They had procedures that did not address the 

requirement to notify a consumer of the results of a dispute investigation; and had procedures that failed to address the requirement 

to update and correct inaccurate consumer deposit information. The 

68 

28 CFPB Supervisory Highlight: Spring 2017 available at: https://s3.amazonaws.com/ 

files.consumerfinance.gov/f/documents/201703lcfpblSupervisory-Highlights-Consumer-Reporting-Special-Edition.pdf. 29 Consumer Financial Protection Bureau, ‘‘Guides To Help You Open and Manage Your 

Checking Account’’ (February 3, 2016), available at http://www.consumerfinance.gov/about-us/ 

blog/lguides-to-help-you-open-and-manage-your-checking-account/. 1Dodd–Frank Act Section 1021(b)(1). 

Consumer Bureau directed the furnisher(s) to correct these deficiencies. 28

In February 2016, the Consumer Bureau also released resources 

to encourage consumers to shop for lower-risk checking and prepaid accounts that will not authorize them to exceed their account 

balances. Additionally, the Consumer Bureau released a consumer 

advisory and a series of guides to help people know what to do if 

they have been denied a deposit account or have an involuntary account closure. 29 The advisory tells consumers how to obtain a copy 

of their checking account history, dispute items with the consumer 

reporting company, dispute items with a bank or credit union that 

reported inaccurate information, and shop around for lower-risk 

products. 

In addition, in February 2016, the Consumer Bureau held a field 

event in Louisville, KY, that featured remarks from Director 

Cordray and panels of industry and consumer interest organization 

representatives to discuss the consequences consumers face without 

a checking account or upon losing a checking account and several 

initiatives that have helped consumers enter or regain entry into 

the banking system. 

The Consumer Bureau’s supervision of financial institutions and 

NSCRAs is ongoing. The Bureau will continue to monitor consumer 

access of the banking system, including the availability of lowerrisk accounts in the marketplace and the challenges faced by consumers. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR TOOMEY 

FROM RICHARD CORDRAY 

Q.1. The CFPB’s Fiscal Year 2015 financial report notes that the 

Bureau spent $5 million to advertise via digital media. 

Was this the total advertising budget for the year? If not, how 

much did the CFPB spend on advertising? 

A.1. The $5 million reference in the Fiscal Year 2015 (FY15) financial report refers to funding for a contractor to provide informational messages via digital media related to the CFPB’s free online 

financial education tools and resources. The Consumer Bureau obligated a total of $7 .9 million in FY 2015 for the category of goods/ 

services identified as Support-Management Advertising contracts. 

Q.2. What are the CFPB’s strategy and goals for advertising? 

A.2. Dodd–Frank Wall Street Reform and Consumer Protection Act 

requires the Consumer Bureau to provide timely and understandable financial information to consumers. 1 To fulfill our legislative 

mandate, the Consumer Bureau has focused on a strategy to make 

more consumers aware of the Bureau as a place to turn to for information and assistance in living their financial lives. Directing consumers to use our tools and resources fulfills our statutory eduVerDate Nov 24 2008 14:48 Sep 25, 2017 Jkt 046629 PO 00000 Frm 00076 Fmt 6602 Sfmt 6602 L:\HEARINGS 2016\04-07 ZDIST\23056.TXT JASON
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2From the Bureau’s ‘‘Study of Third-Party Debt Collection Operations’’, at: https:// 

s3.amazonaws.com/files.consumerfinance.gov/f/documents/20160727 

cfpblThirdlPartylDebtlCollectionlOperationslStudy.pdf. 

cational mandates and strategic goals and creates real and measurable beneficial outcomes for American consumers. 

Q.3. Does the CFPB advertise on specific websites, target specific 

consumers through tools such as AdWords, or pursue some other 

strategy? If advertising is targeted, specifically what consumer 

groups are being targeted? 

A.3. The Consumer Bureau focuses its marketing strategy on consumers who are currently seeking or are most likely to be seeking 

information regarding consumer financial decision making for 

which we have tools and resources available. These tools include: 

Paying for College, Owning a Home, and more than 1,000 frequently asked financial questions available on the Ask CFPB site. 

Q.4. In 2013 the CFPB issued an Advance Notice of Proposed Rulemaking for debt collection practices, and the ‘‘Fall 2015 rulemaking 

agenda’’ notes that the CFPB continues to conduct research on debt 

collection. 

What steps has the CFPB taken to assess how a debt collection 

rule could reduce access to credit? Has the CFPB solicited input 

from creditor groups, such as manufacturers and retailers, about 

their views on how a rule could affect the continued availability of 

credit? 

Does the CFPB expect to issue a proposed rule soon? When 

should we expect a finalized rule? 

A.4 The Consumer Bureau generally recognizes that regulations 

that impose costs on the credit system can have an adverse effect 

on consumer access to credit. Section 1022(b)(2) of the Dodd–Frank 

Wall Street Reform and Consumer Protection Act expressly requires the Bureau, in prescribing a rule under the Federal consumer financial laws (such as the Fair Debt Collection Practices 

Act), to consider, among other things, ‘‘the potential benefits and 

costs to consumers and covered persons, including the potential reduction of access by consumers to consumer financial products or 

services resulting from such rule.’’ Consistent with the Dodd–Frank 

Wall Street Reform and Consumer Protection Act, the Consumer 

Bureau routinely considers the effects of its regulations on access 

to credit during its rulemaking process. 

The Consumer Bureau has issued an Advanced Notice of Proposed Rulemaking to commence a debt collection rulemaking proceeding. The Consumer Bureau is developing the factual information necessary to assess the costs of possible debt collection regulations and their effect on consumer access to credit. The Consumer 

Bureau conducted a qualitative survey of debt collection firms. The 

study included a written questionnaire sent to 60 debt collection 

firms and then phone interviews with more than 30 of the original 

60 debt collection firms and vendors to the collections industry. 2

The objective of the study is to obtain a baseline understanding of 

the operational costs of debt collection firms, and the Consumer 

Bureau anticipates using the results of the study to better understand the likely impact on the debt collection industry of any potential regulations. This study is in addition to Consumer Bureau 

70 

meetings with key industry stakeholders to discuss their current 

costs as well as their concerns about changes in costs that might 

be associated with our contemplated debt collection rulemaking, 

market changes, and/or changes attributed to other regulations. 

These meetings have included creditor groups to better understand 

how the regulation of third-party debt collectors could affect their 

ability to recover unpaid debts and to extend credit. 

The next step in the debt collection rulemaking was the convening of a Small Business Regulatory Enforcement Fairness Act 

(SBREFA) panel in conjunction with the Office of Management and 

Budget and the Small Business Administration’s Chief Counsel for 

Advocacy. The SBREFA process provides a mechanism for the Bureau to obtain input directly from small business representatives 

early in the rulemaking process. At a SBREFA panel meeting, the 

Bureau seeks information from small business representatives 

about the potential economic impacts of complying with possible 

regulatory options, as well as regulatory alternatives that would 

achieve the Bureau’s objectives while minimizing the costs imposed 

on small entities. The Bureau released an Outline of Proposals 

under Consideration and Alternatives Considered in July 2016 in 

advance of convening a SBREFA panel. The panel met on August 

25, 2016, and focused on companies that are considered ‘‘debt collectors’’ under the Fair Debt Collection Practices Act. 

The review panel issues a report on the input received from 

small businesses during the panel process. If the Bureau proposes 

a rule, the panel’s final report will be placed in the public rulemaking record. The Consumer Bureau discusses and considers the 

panel’s report and the comments and advice provided by small 

businesses when it prepares a proposed rule. 

The Consumer Bureau’s proposed debt collection rules will be put 

out for public comment, which will provide ample opportunity for 

stakeholders (including creditors) to provide the Consumer Bureau 

with information about their potential cost and its effect on consumer access to credit. This information will be very valuable to 

the Consumer Bureau in developing final debt collection rules that 

protect consumers without imposing unnecessary or undue costs on 

debt collectors or the credit system. 

Q.5. During the hearing, you stated that the CFPB has jurisdiction 

over small business lending under the Equal Credit Opportunity 

Act and Section 1071 of Dodd–Frank. In the Policy Priorities Over 

the Next Two Years document, the CFPB indicated that it is exploring the establishment of a complaint intake system for small 

business lending. Does the CFPB plan to publish these complaints 

as it does with the Consumer Complaint Database? Will the CFPB 

only accept small business lending complaints related to ECOA? If 

not, what other types of complaints does the CFPB intend to accept 

and potentially publish? 

A.5. The Equal Credit Opportunity Act (ECOA) and Regulation B, 

which protect applicants from discrimination in credit transactions, 

apply to both consumer and business-purpose credit. Collecting 

these complaints would assist the Consumer Bureau’s ongoing supervision and enforcement work. Currently, the Consumer Bureau’s Office of Consumer Response is exploring the feasibility of 

71 

accepting small-business-lending discrimination complaints and 

will need to complete that work before assessing publication. 

Q.6. At the March 16 House hearing, you stated that ‘‘[t]here are 

areas where the line between commercial and consumer lending is 

blurry,’’ and indicated that you would like the CFPB to protect 

small businesses. Please provide a comprehensive list of small business lending issues that you believe fall within the CFPB’s authority. 

A.6. While most of the lending laws Consumer Bureau enforces 

apply to consumer credit, the Consumer Bureau does have certain 

authority related to business-purpose credit transactions. The 

Equal Credit Opportunity Act (ECOA) and Regulation B, which 

protect applicants from discrimination in credit transactions, apply 

to both consumer and business-purpose credit. ECOA also has requirements related to, among other things, providing timely notice 

to applicants of actions taken in connection with their applications 

for credit, statements of reasons for adverse action concerning an 

application, and copies of appraisals and other valuations for applications related to certain dwelling-secured loans. 

Section 1071 of the Dodd–Frank Wall Street Reform and Consumer Protection Act amended ECOA to require financial institutions to report information concerning credit applications made by 

women-owned, minority-owned, and small businesses. The Bureau 

is in the early stages with respect to implementing Section 1071, 

and is currently focused on outreach and research to further develop its understanding of the small business lending market, including the institutions, credit products, data systems, underwriting approaches, distribution channels, and types of applicants 

in that market. The Bureau intends to work closely with industry 

leaders, community advocates, Government agencies, and other 

stakeholders in the rulemaking process. We issued a Request for 

Information (RFI) on May 10, 2017. We have asked for comments 

by September 14, 2017. Information submitted as part of this RPI 

will be instrumental as we move forward in developing informed 

policy decisions. 

Our Office of Fair Lending has added small business lending to 

its priorities to address fair lending risks in that market. Small 

businesses are a backbone of our Nation’s economy and access to 

credit is critical to their operation and growth. Unlike large businesses, many small businesses are sole proprietorships where the 

owner’s personal credit—and potentially that of family and 

friends—may be on the line. With so much at stake, and in light 

of the heightened fair lending risk acknowledged by the enactment 

of Section 1071 of the Dodd–Frank Act, we will continue to focus 

on small business lending in our Fair Lending work going forward. 

Some business purpose dwelling-secured loans are also part of 

the reporting requirements under the Home Mortgage Disclosure 

Act (HMDA) and Regulation C, such as certain loans related to 

multifamily lending and investment properties. Multifamily and 

rental housing has always been an essential component of the Nation’s housing stock. In the wake of the housing crisis, multifamily 

and rental housing has taken on an increasingly important role in 

communities, as families have turned to rental housing for a variVerDate Nov 24 2008 14:48 Sep 25, 2017 Jkt 046629 PO 00000 Frm 00079 Fmt 6602 Sfmt 6602 L:\HEARINGS 2016\04-07 ZDIST\23056.TXT JASON
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3 Available at: http://files.consumerfinance.gov/f/201409lcfpblreportlproxy-methodology.pdf. 

ety of reasons, and the HMDA data can provide important information about that market to Government, industry, and community 

stakeholders. 

In addition, provisions of other statutes that the Consumer Bureau enforces, such as certain provisions related to credit cards 

under the Truth in Lending Act and Regulation Z, are not limited 

to consumer lending and may be implicated in small business-purpose lending transactions. As some of our rules, including Regulation Z, make clear, there is ordinarily no precise test for what constitutes credit offered or extended for personal, family, or household purposes. However, many of the Consumer Bureau’s rules provide illustrative examples and interpretations for making such determinations across a range of products, including in some cases 

noting factors that should be considered. Moreover, in some instances credit extended primarily for consumer purposes may occasionally be used for business purposes. Small business lending 

transactions may therefore implicate a range of the Consumer Bureau’s authorities. 

Q.7. In a May 2013 memo, Patrice Ficklin acknowledged there was 

a ‘‘serious risk’’ that releasing the CFPB’s proxy methodology 

would ‘‘provid[e] fodder to defendants to show how our methods are 

inferior to other proprietary proxies’’ and ‘‘if we choose not to publish, we will be more likely to consult an outside expert for litigation purposes and our internal methodological deliberations will 

not be discoverable.’’ In the same memo, Ficklin noted that ‘‘out of 

100 applicants that are identified by the proxy methodology as African Americans, only 54 of them actually are African Americans 

according to HMDA data.’’ 

Why did the CFPB pursue enforcement action based on a methodology that may be flawed? Wouldn’t an opportunity for public notice and comment have improved the CFPB’s methodology and reduced doubts about its potential flaws? 

A.7. The statistics you quote in the premise of your question are 

not representative of analysis conducted by the Bureau. The memo 

you reference is a pre-decisional draft document that did not represent the Consumer Bureau’s final analysis. 

The Consumer Bureau has been transparent about the details of 

the proxy methodology used in its fair lending analysis, including 

the risks and limitations. On September 17, 2014, the Consumer 

Bureau published a white paper, Using Publicly Available Information to Proxy for Unidentified Race and Ethnicity, that details the 

Bayesian Improved Surname Geocoding (BISG) methodology the 

Bureau uses to calculate the probability that an individual is of a 

specific race or ethnicity using publicly available information regarding surname and geographic location. 3

In choosing its methodology, as part of a robust deliberative process, the Consumer Bureau did careful analysis of other available 

methods based on publicly available data, and determined that this 

73 

4 Available at: http://files.consumerfinance.gov/f/documents/201604lcfpblFairlLendingl ReportlFinal.pdf/. 5See Neil Bhutta, Jack Popper, and Daniel R. Ringo, Bd. of Governors of the Fed. Reserve 

Sys., 101 Fed. Reserve Bulletin 4, The 2014 Home Mortgage Disclosure Data, at 2, 5 (Nov. 

2015), available at http://www.federalreserve.gov/pubs/bulletin/2015/pdf/2014lHMDA.pdf. 6See CFPB, Manufactured-Housing Consumer Finance in the United States (Sept. 2014), 

available at http://files.consumerfinance.gov/f/201409lcfpblreportlmanufactured-housing.pdf. 

proxy methodology was the method best suited to accurately estimate the full scope of consumer harm. 4

As stated in our white paper, the Consumer Bureau is committed 

to continuing our dialogue with other Federal agencies, lenders, advocates, and researchers regarding the Consumer Bureau’s methodology, the importance of fair lending compliance, and the use of 

proxies when self-reported race and ethnicity is unavailable. The 

Consumer Bureau expects the methodology will continue to evolve 

as enhancements are identified that further increase accuracy and 

performance. 

Q.8. From 2013 to 2014, the Home Mortgage Disclosure Act 

(HMDA) data reveal a clear decline in manufactured home loans, 

raising concerns that the CFPB’s Home Ownership and Equity Protection Act (HOEPA) rules may be constraining lending in this 

market. In comparison, overall mortgage loan data show a yearover-year increase during the same time period. Is the CFPB concerned that its rule may be constraining access to credit, particularly in rural and low-income communities? What actions will the 

CFPB take to ensure that access to financing for the purchase of 

manufactured housing remains readily available to consumers? 

A.8. The HMDA data show similar trends in originations for manufactured housing and site-built homes. Total originations fell between 2013 and 2014 overall as well as for manufactured homes 

specifically. The HMDA data show an increase in home purchase 

loans for manufactured housing from 2013 to 2014 from 73,820 to 

75,826 and a similar trend in home purchase loans for site-built 

homes. The decline in total originations reflects the high level of 

refinancing in 2013 for both manufactured homes and site-built 

homes. 5 The Consumer Bureau does not believe the HMDA data 

on home purchase loans between 2013 and 2014 necessarily indicate that manufactured housing lending is constrained compared 

with site-built home lending. As the Consumer Bureau stated in its 

2014 white paper on manufactured housing, it continues to monitor 

the effect of its rules on the manufactured housing industry and on 

consumers who purchase or seek to purchase manufactured 

homes. 6 As part of this ongoing monitoring, the Consumer Bureau 

will continue to engage with stakeholders and will encourage others to build greater knowledge of the manufactured housing market, the consumers in that market, and the differences between the 

site-built and manufactured housing markets. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR HELLER 

FROM RICHARD CORDRAY 

Q.1. In February, during Federal Reserve Chair Yellen’s testimony 

in the Senate Committee on Banking, Housing, and Urban Affairs, 

she told me she believes that there should be some effort to ensure 

74 

that regulations meant for big banks are not burdening community 

lenders. Do you share that same viewpoint? 

A.1. Section 1022 of the Dodd–Frank Wall Street Reform and Consumer Protection Act (Dodd–Frank Act) authorizes the Consumer 

Bureau to engage in rulemaking and issue orders and guidance to 

administer and carry out the purposes and objectives of the Federal 

consumer financial laws, and to prevent evasions thereof. In doing 

so, Section 1022 requires that the Consumer Bureau consider the 

potential benefits and costs to consumers and covered persons, including the potential reduction of access to consumer financial 

products and services to consumers. Section 1022 also requires the 

Consumer Bureau to consider the impact of a proposed rule on insured depository institutions and credit unions with total assets of 

$10 billion or less as well as the impact on consumers in rural 

areas. Moreover, Section 1022 gives the Consumer Bureau the authority to create exemptions from the Consumer Financial Protection Act of 2010 or rules issued under that Act for any class of covered persons, service providers, or consumer financial products or 

services if the Consumer Bureau determines an exemption is necessary or appropriate to carry out the purposes and objectives of 

the Consumer Financial Protection Act after taking into consideration a set of factors specified in the statute. 

To date, the Consumer Bureau has sought to carefully calibrate 

its efforts to ensure consistency with respect to consumer financial 

protections across the financial services marketplace, while accounting for the different business models and classes of financial 

institutions. For example, as part of the Consumer Bureau’s commitment to achieving tailored and effective regulations, the Bureau 

has taken the following actions for different models and classes of 

institutions: 

Mortgage Origination Rules (Title XIV) 

• Expanded safe harbor for small creditors. A small creditor has 

a broader safe harbor for its Qualified Mortgage (QM) loans 

than non-small creditors. The Consumer Bureau’s rules provide a safe harbor for QMs with annual percentage rate (APR) 

spreads over Average Prime Offer Rate (APOR) up to 350 basis 

points, whereas non-small creditors have a safe harbor for 

spreads up to 150 basis points. The Consumer Bureau’s rules 

also allow a small creditor to make QMs with debt-to-income 

ratios that exceed the otherwise applicable 43 percent cap. 

(Small creditors must hold these loans in portfolio for three 

years.) 

• Exempted small creditors in rural and underserved areas. 

Small creditors that operate (or operated ‘‘predominantly’’ before implementation of the Helping Expand Lending Practices 

in Rural Communities Act in March 2016) in rural or underserved areas are exempt from requirements to establish escrow 

accounts for higher priced mortgage loans and from restrictions 

on offering QMs and Home Ownership and Equity Protection 

Act (HOEPA) loans (‘‘high cost’’ mortgages as defined in the 

HOEPA) that have balloon payment features. QMs and 

HOEPA loans generally cannot have balloon payments. 

75 

• Implemented a 2-year pause for small creditors. The Consumer 

Bureau established a 2-year transition period (until January 

10, 2016) allowing small creditors to make balloon-payment 

QMs and balloon-payment HOEPA loans regardless of whether 

they operated predominantly in rural or underserved areas, 

while the Consumer Bureau revisited and reconsidered the definition of ‘‘rural’’ for this purpose. 

• Expanded exemptions for creditors in rural and underserved 

areas. In connection with other changes to amend the definitions of ‘‘small creditor’’ and ‘‘rural area,’’ the Consumer Bureau published a final rule in October 2015 that extended this 

2-year transition period from January 2016 until April 2016. 

The Bureau’s final rule also provided a significant expansion 

of ‘‘rural,’’ as well as an expansion of which entities can qualify 

as ‘‘small creditors.’’ The Consumer Bureau’s final rule took effect on January 1, 2016, before the 2-year transition period expired. In March 2016, the Consumer Bureau issued an interim 

final rule that implements the Helping Expand Lending Practices in Rural Communities Act, and makes these provisions 

available to small creditors that extend at least one covered 

transaction secured by property located in a rural or underserved area in the previous calendar year. The Bureau estimated that about 6,000 additional small creditors would be eligible as a result of this change. 

• Relaxed requirements for appraisals. Small creditors have relaxed rules regarding conflict of interest in ordering appraisals 

and other valuations. 

Mortgage Servicing Rules (Title XIV) 

• Exempted small servicers from providing periodic statements. 

Small servicers are exempt from the Truth in Lending Act requirement to provide periodic statements. 

• Exempted small servicers from loss mitigation requirements. 

Small servicers are exempt from all of the Real Estate Settlement Procedures Act provisions on policies and procedures; 

early intervention; continuity of contact; and loss mitigation, 

except that a small servicer may not file for foreclosure unless 

the borrower is more than 120 days delinquent on the mortgage. Small servicers may also not file for foreclosure (or move 

for a foreclosure judgment or order of sale, or conduct a foreclosure sale) if a borrower is performing under the terms of a 

loss mitigation agreement. 

• Excluded certain seller-financed transactions and mortgage 

loans voluntarily serviced for a non-affiliate from being counted 

toward the small servicer loan limit. This allows servicers that 

would otherwise qualify for small servicer status to retain their 

exemption while servicing those transactions. 

Home Mortgage Disclosure Act Rule (Reg C) 

• Exempted lower-volume depository institutions from Home 

Mortgage Disclosure Act reporting. In October of 2015, the Consumer Bureau adopted a final rule revising Regulation C, 

which implements HMDA. HMDA and Regulation C, among 

76 

other things, require covered mortgage lenders to report data 

concerning their mortgage lending activity. Changes to coverage in the final rule will reduce the number of banks, savings associations, and credit unions that are required to report 

HMDA data. The revisions will relieve about 22 percent of currently reporting depository institutions from the burden of reporting HMDA data. Also, by final rule issued in late August 

of 2017, the Consumer Bureau expanded the volume-based exemption from reporting of open-end lines of credit under 

HMDA for institutions with fewer than 500, instead of 100, annual originations in each of the two preceding years of such 

lines of credit. This expanded exemption applies for calendar 

years 2018 and 2019, during which the Consumer Bureau will 

consider whether to reexamine the appropriate volume level at 

which to set the exemption permanently. 

• Reduced HMDA error submission threshold for certain small 

entities. New Federal Financial Examination Institution Council guidelines, of which the Consumer Bureau is a member, 

provide a more lenient 10 percent HMDA field error resubmission threshold (to determine whether the lender must resubmit 

a particular HMDA data field) for financial institutions with 

lower lending volumes, including many small institutions, for 

data collected beginning in 2018. Previously, all institutions 

were subject to the same error thresholds. The new guidelines 

make other burden-reducing changes that apply to all lenders, 

which may be particularly beneficial to small institutions. 

Remittances Rule (Regulation E Subpart B) 

• Provided regulatory certainty for small entities under the Electronic Fund Transfer Act. In the Bureau’s rules implementing 

the Dodd–Frank Act’s amendments to the Electronic Fund 

Transfer Act, regarding remittance transfers, the Bureau recognized that certain entities do not provide remittances in the 

normal course of their business and determined that the remittance requirements do not apply to transfers sent by entities 

that provide 100 or fewer remittances each year. 

Small financial institutions play a vital role within many communities across the Nation, as well as within the economy. Their traditional model of relationship lending has been beneficial to many 

people in rural areas and small towns throughout the country. For 

these reasons, the Consumer Bureau attempts to ensure that rules 

and regulations are not burdensome to these smaller financial institutions. 

Q.2. Please provide a list of all the regulations that the Consumer 

Financial Protection Bureau has finalized that included a full costbenefit analysis study prior to implementation. 

A.2. Section 1022 of the Dodd–Frank Wall Street Reform and Consumer Protection Act authorizes the Bureau to engage in rulemaking and issue orders and guidance to administer and carry out 

the purposes and objectives of the Federal consumer financial laws, 

and to prevent evasions thereof. In doing so, Section 1022 requires 

that, when prescribing a rule under the Federal consumer financial 

laws, the Consumer Bureau consider the potential benefits and 

77 

costs to consumers and covered persons, including the potential reduction of access to consumer financial products and services to 

consumers. Section 1022 also requires the Consumer Bureau to 

consider the impact of a proposed rule on insured depository institutions and credit unions with total assets of $10 billion or less as 

well as the impact on consumers in rural areas. Moreover, Section 

1022 gives the Consumer Bureau the authority to create exemptions from the Consumer Financial Protection Act of 2010 or rules 

issued under that Act for any class of covered persons, service providers, or consumer financial products or services if the Consumer 

Bureau determines an exemption is necessary or appropriate to 

carry out the purposes and objectives of the Consumer Financial 

Protection Act after taking into consideration a set of factors specified in the statute. 

The Consumer Bureau’s final rules that considered potential benefits, costs, and impacts under section 1022, as well as the dates 

these were rules published in the Federal Register are below: 

1. Alternative Mortgage Transaction Parity (Regulation D), July 

22, 2011 

2. State Official Notification Rules, July 28, 2011 

3. Rules of Practice for Adjudication Proceedings, July 28, 2011 

4. Rules Relating to Investigations, July 28, 2011 

5. Disclosure of Records and Information, July 28, 2011 

6. Disclosure Requirements for Depository Institutions Lacking 

Federal Deposit Insurance (Regulation I), December, 16, 2011 

7. Fair Debt Collection Practices Act (Regulation F), December 

16, 2011 

8. Mortgage Acts and Practices-Advertising (Regulation N); Mortgage Assistance Relief Services (Regulation O), December 16, 

2011 

9. Home Mortgage Disclosure (Regulation C), December 19, 2011 

10. Consumer Leasing (Regulation M), December 19, 2011 

11. S.A.F.E. Mortgage Licensing Act (Regulations G and H), December 19, 2011 

12. Real Estate Settlement Procedures Act (Regulation X), December 20, 2011 

13. Equal Credit Opportunity (Regulation B), December 21, 2011 

14. Fair Credit Reporting (Regulation V), December 21, 2011 

15. Privacy of Consumer Financial Information (Regulation P), December 21, 2011 

16. Interstate Land Sales Registration Program (Regulations J, 

K, and L), December 21, 2011 

17. Truth in Savings (Regulation DD), December 21, 2011 

18. Truth in Lending (Regulation Z), December 22, 2011 

19. Electronic Fund Transfers (Regulation E), December 27, 2011 

20. Electronic Fund Transfers (Regulation E), February 7, 2012 

21. State Official Notification Rule, June 29, 2012 

22. Rules Relating to Investigations, June 29, 2012 

23. Rules of Practice for Adjudication Proceedings, June 29, 2012 

78 

24. Confidential Treatment of Privileged Information, July 5, 

2012 

25. Defining Larger Participants of the Consumer Reporting Market, July 20, 2012 

26. Electronic Fund Transfers (Regulation E), August 20, 2012 

27. Defining Larger Participants of the Consumer Debt Collection 

Market, October 31, 2012 

28. Delayed Implementation of Certain New Mortgage Disclosures, November 23, 2012 

29. Procedure Relating to Rulemaking, December 28, 2012 

30. Escrow Requirements Under the Truth in Lending Act (Regulation Z), January 22, 2013 

31. Electronic Fund Transfers (Regulation E) Temporary Delay of 

Effective Date, January 29, 2013 

32. Ability-to-Repay and Qualified Mortgage Standards Under 

the Truth in Lending Act (Regulation Z), January 30, 2013 

33. Disclosure and Delivery Requirements for Copies of Appraisals and Other Written Valuations Under the Equal Credit 

Opportunity Act (Regulation B), January 31, 2013 

34. High-Cost Mortgage and Homeownership Counseling Amendments to the Truth in Lending Act (Regulation Z) and Homeownership Counseling Amendments to the Real Estate Settlement Procedures Act (Regulation X), January 31, 2013 

35. Appraisals for Higher-Priced Mortgage Loans, February 13, 

2013 

36. Mortgage Servicing Final Rules Mortgage Servicing Rules 

Under the Truth in Lending Act (Regulation Z), February 14, 

2013 

37. Mortgage Servicing Rules Under the Real Estate Settlement 

Procedures Act (Regulation X), February 14, 2013 

38. Disclosure of Records and Information, February 15, 2013 

39. Loan Originator Compensation Requirements Under the 

Truth in Lending Act (Regulation Z), February 15, 2013 

40. Disclosures at Automated Teller Machines (Regulation E), 

March 26, 2013 

41. Truth in Lending (Regulation Z); Amendment relating to 

credit limits, March 28, 2013 

42. Truth in Lending Act (Regulation Z); Amendment relating to 

consumer ability to repay, May 3, 2013 

43. Consumer Financial Civil Penalty Fund Rule, May 7, 2013 

44. Electronic Fund Transfers (Regulation E), May 22, 2013 

45. Amendments to the 2013 Escrows Final Rule Under the 

Truth in Lending Act (Regulation Z), May 23, 2013 

46. Loan Originator Compensation Requirements Under the 

Truth in Lending Act (Regulation Z); Prohibition on Financing Credit Insurance Premiums; Delay of Effective Date, May 

31, 2013 

79 

47. Ability-to-Repay and Qualified Mortgage Standards Exemptions Under the Truth in Lending Act (Regulation Z), June 

12, 2013 

48. Procedural Rule To Establish Supervisory Authority Over 

Certain Nonbank Covered Persons Based on Risk Determination, July 3, 2013 

49. Amendments to the 2013 Mortgage Rules Under the Real Estate Settlement Procedures Act (Regulation X) and the Truth 

in Lending Act (Regulation Z), July 24, 2013 

50. Rules of Practice for Issuance of Temporary Cease-and-Desist 

Orders, September 26, 2013 

51. Amendments to the 2013 Mortgage Rules Under the Equal 

Credit Opportunity Act (Regulation B), Real Estate Settlement Procedures Act (Regulation X), and the Truth in Lending Act (Regulation Z), October 1, 2013 

52. Amendments to the 2013 Mortgage Rules Under the Real Estate Settlement Procedures Act (Regulation X) and the Truth 

in Lending Act (Regulation Z), October 23, 2013 

53. Defining Larger Participants of the Student Loan Servicing 

Market, December 6, 2013 

54. Appraisals for Higher-Priced Mortgage Loans, December 26, 

2013 

55. Rules of Practice for Issuance of Temporary Cease-and-Desist 

Orders, June 18, 2014 

56. Electronic Fund Transfers (Regulation E); Amendments, September 18, 2014 

57. Defining Larger Participants of the International Money 

Transfer Market, September 23, 2014 

58. Amendment to the Annual Privacy Notice Requirement Under 

the Gramm–Leach–Bliley Act (Regulation P), October 28, 

2014 

59. Amendments to the 2013 Mortgage Rules Under the Truth in 

Lending Act (Regulation Z); November 3, 2014 

60. Amendments to the 2013 Integrated Mortgage Disclosures 

Rule Under the Real Estate Settlement Procedures Act (Regulation X) and the Truth In Lending Act (Regulation Z) and 

the 2013 Loan Originator Rule Under the Truth in Lending 

Act (Regulation Z), February 19, 2015 

61. Submission of Credit Card Agreements Under the Truth in 

Lending Act (Regulation Z), April 17,2015 

62. Defining Larger Participants of the Automobile Financing 

Market and Defining Certain Automobile Leasing Activity as 

a Financial Product or Service, June 30, 2015 

63. 2013 Integrated Mortgage Disclosures Rule Under the Real 

Estate Settlement Procedures Act (Regulation X) and the 

Truth in Lending Act (Regulation Z) and Amendments; Delay 

of Effective Date, July 24, 2015 

64. Amendments Relating to Small Creditors and Rural or Underserved Areas Under the Truth in Lending Act (Regulation 

Z), October 2, 2015 

80 

65. Home Mortgage Disclosure Act (Regulation C), October 28, 

2015 

66. 2013 Integrated Mortgage Disclosure Rule Under the Real Estate Settlement Procedures Act (Regulation X) and the Truth 

in Lending Act (Regulation Z), February 10, 2016 

67. Operations in Rural Areas Under the Truth in Lending Act 

(Regulation Z); Interim Final Rule, March 25, 2016 

68. Finalization of Interim Final Rules (Subject to Any Intervening Amendments) Under Consumer Financial Protection 

Laws, April 28, 2016 

69. Amendments to Filing Requirements Under the Interstate 

Land Sales Full Disclosure Act (Regulations J and L), May 

11, 2016 

70. Amendments to the 2013 Mortgage Rules Under the Real Estate Settlement Procedures Act (Regulation X) and the Truth 

in Lending Act (Regulation Z), October 19, 2016 

71. Prepaid Accounts Under the Electronic Fund Transfer Act 

(Regulation E) and the Truth in Lending Act (Regulation Z), 

November 22, 2016 

72. Appraisalsfor Higher-Priced Mortgage Loans Exemption 

Threshold, November 30, 2016 

73. Truth in Lending (Regulation Z), November 30, 2016 

74. Consumer Leasing (Regulation M), November 30, 2016 

75. Prepaid Accounts Under the Electronic Fund Transfer Act 

(Regulation E) and the Truth in Lending Act (Regulation Z); 

Delay of Effective Date, April 25, 2017 

76. Arbitration Agreements, July 19, 2017 

77. Amendments to Federal Mortgage Disclosure Requirements 

Under the Truth in Lending Act (Regulation Z), August 11, 

2017 

Q.3. Director Cordray, do you believe Americans are better served 

by having fewer banking and financial options to choose from? 

A.3. No. Small financial institutions play a vital role within many 

communities across the Nation, as well as within the economy. 

Their traditional model of relationship lending has been beneficial 

to many people in rural areas and small towns throughout the 

country. For these reasons, the Consumer Bureau attempts to ensure that rules and regulations are not unduly burdensome to 

these smaller financial institutions. 

Since the passage of the Dodd–Frank Act the share of the mortgage market serviced by credit unions and community banks has 

risen. That increase in participation, represented by these two 

groups since the Consumer Bureau’s rules took effect, represents 

levels that are the highest they have been in 20 years. These institutions had low default rates during this time period and the Consumer Bureau tailored our rules to recognize the need to ensure 

balance and competition in the mortgage market. 

Further, to support the implementation of and industry compliance with its rules, the Consumer Bureau has published a number 

of plain-language compliance guides summarizing certain rules, 

and it has actively engaged in discussions with industry about 

81 

1See http://www.consumerfinance.gov/guidance/#compliance. 

ways to achieve compliance. 1 The Consumer Bureau also continues 

its efforts to streamline, modernize, and harmonize financial regulations that it inherited from other agencies. 

Q.4. Director Cordray, do you believe that the Consumer Financial 

Protection Bureau’s collection of Americans’ personally identifiable 

information is necessary for the Bureau’s statutory mission? 

A.4. The Consumer Bureau collects personally identifiable information when such information is necessary for the statutory mission. 

In general the information the Consumer Bureau collects for research purposes does not contain data that directly identifies individuals. We are interested in monitoring the behavior of the markets, not of particular individual consumers. The Consumer Bureau 

needs individual-level data to understand how consumer markets 

perform and proactively monitor consumer financial markets to 

make sure they are working for consumers. However, this data is 

generally de-identified so that any particular individual is not identified. A lesson from the 2008 financial crisis was that trends and 

problems can often be spotted in analyzing microdata (individual or 

institution level data) long before it can be seen in industry aggregates. 

In addition, there are other purposes where identifying information is necessary to carry out our statutory mission such as enforcement actions and consumer complaints. Individual-level data enable the Consumer Bureau to successfully bring enforcement actions and provide relief to consumers. These actions have resulted 

in approximately $11.6 billion in redress to victims of illegal practices like mortgage servicing errors, discriminatory home and auto 

lending, and deceptive credit card practices. The handling of consumer complaints by the Consumer Bureau has helped individual 

consumers get responses and resolutions to their issues. 

Q.5. Director Cordray, do you believe that the data the Bureau has 

collected on U.S. consumers is 100 percent secure from being 

breached by hackers and cybercriminals? 

A.5. The Consumer Bureau works to ensure the best possible protection for the information in an environment where threats will 

continue to evolve. The Federal Information Security Modernization Act of 2014 states that agency heads are responsible for ‘‘providing information security protections commensurate with the risk 

and magnitude of the harm resulting from unauthorized access, 

use, disclosure, disruption, modification, or destruction’’ of information assets. Further, agency officials are charged with providing 

‘‘information security for the information and information systems 

that support the operations and assets under their control, including through . . . implementing policies and procedures to cost-effectively reduce risks to an acceptable level.’’ 

While no organization can ensure that the data they have is 100 

percent secure from being breached by hackers and cybercriminals, 

the Bureau continues to appropriately manage risk to consumer 

data and has performed its duties responsibly over its relatively 

brief history. The guidance provided under FISMA requires that 

Federal agencies manage their cybersecurity risks proactively, take 

82 

appropriate action when a risk is unacceptable, and constantly exercise due diligence to increase their situational awareness of new 

cyber threats and vulnerabilities. The CFPB is executing on all of 

these activities on a continual basis to demonstrate due protection 

of consumer data. 

The Consumer Bureau’s commitment to data protection is demonstrated through a risk-based approach to implementing security 

controls and countermeasures, through our active and voluntary 

participation in Federal cybersecurity initiatives such as the Department of Homeland Security (DHS) Cyber Hygiene and Continuous Diagnostics and Mitigation programs, and in the focus and 

dedication we place on addressing recommendations from the Office 

of the Inspector General and other auditors. Between August 2016 

and August 2017, DHS reported zero critical or high vulnerabilities 

for the CFPB under the Cyber Hygiene program. The Consumer 

Bureau also successfully closed 27 recommendations in FY 2016 

and 25 in FY 2017 from independent audits of our technology management and information security programs. Our progress in establishing and executing on a risk-based information security program 

has been acknowledged by our Office of the Inspector General in 

the FY16 Annual FISMA Report to Congress, where the CFPB’s 

maturity in each of the Cybersecurity Framework areas was rated 

as equal or higher than the Federal Government-wide median. 

Like other Federal information security programs, the policies, 

principles and security controls that form the Consumer Bureau information security program are based on guidance and standards 

provided by the National Institute of Standards and Technology 

(NIST). We are continuously improving the processes and capabilities to safeguard all Consumer Bureau data, adapting to the rapidly changing risk landscape, and working to ensure that we are 

protecting consumer information. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR SASSE 

FROM RICHARD CORDRAY 

Q.1. I’d like to discuss the CFPB’s upcoming proposed arbitration 

rule. 

(a.) My understanding is the CFPB is expected to issue a proposed rule that would ban pre-dispute arbitration clauses that 

waive a consumer’s right to a class action lawsuit and to further 

regulate individual arbitration. Is that correct? 

(b.) At your April 7, 2016, Senate Banking Committee appearance, you said that the arbitration rule is expected to come out in 

the spring. Can you provide a more specific timeline? 

(c.) Why does it insufficiently protect consumers to allow them to 

‘‘opt-out’’ of an arbitration agreement with a class action waiver? 

Are consumers incapable of making the right decision for themselves regarding whether they would prefer vindicating their rights 

through arbitration or a class action waiver? 

(d.) What percentage of companies do you expect will stop offering arbitration altogether under this new proposed regime? How 

does this conclusion impact the pending proposed rule? 

(e.) Has the CFPB conducted a cost-benefit analysis of the pending proposed regime? If so, can you share the results of this study? 

83 

(f.) At your April 7, 2016, appearance before the Senate Banking 

Committee, you explain that the pending arbitration rule is important because arbitration agreements ‘‘tend[] to cut off people’s remedies pretty much all together . . . because it bans their ability to 

. . . bring group claims so that financial institutions who harm on 

a broad basis cannot be held accountable.’’ In other contexts, you 

have spoken of the efficacy of the CFPB’s enforcement actions to 

hold financial institutions accountable for their actions. Are the 

CFPB’s enforcement actions insufficient in this context? If so, why? 

(g.) Has the CFPB studied the extent to which the threat of class 

action lawsuits changes firm behavior to better comply with consumer laws? If so, please share the results of that study. 

(h.) Does the CFPB believe there is a risk that encouraging class 

action lawsuits actually encourages ‘‘frivolous’’ lawsuits that companies settle instead of challenge, given the costs associated with 

going to court in a class action lawsuit? How does this possibility 

impact the degree to which the CFPB believes that class action 

lawsuits encourage firms to comply with the rule of law, instead of 

merely imposing unnecessary costs on companies whose actions 

should not have been punished? 

(i.) If the CFPB found that the class action lawsuits do not 

change firm behavior in a meaningful way, how would that change 

the CFPB’s pending arbitration rule? 

(j.) Please describe the extent to which the CFPB consulted with 

any advocacy groups describing themselves as representing plaintiff attorneys during the development of the pending proposed rule. 

A.1. (a.) On May 5, 2016, the Consumer Bureau released a Notice 

of Proposed Rulemaking regarding agreements for consumer financial products and services providing for mandatory pre-dispute arbitration. 

After a 90-day comment period that ended on August 22, 2016, 

the Consumer Bureau reviewed and considered the 110,000 comments it received in response to the Notice of Proposed Rulemaking 

in accordance with its obligations for notice-and-comment rulemaking. 

On July 19, 2017, the Consumer Bureau published in the Federal 

Register the Final Rule regarding agreements for consumer financial products and services providing for mandatory pre-dispute arbitration. In the Final Rule, the Consumer Bureau finalized the 

proposed rules in the Notice of Proposed Rulemaking, with adjustments made to respond to the concerns of stakeholders expressed 

in the comments they made during the notice-and-comment process. 

The Final Rule imposes two sets of restrictions on the use of predispute arbitration agreements by providers offering or providing 

consumer financial products and services that are covered by the 

Final Rule (referred to herein as providers). First, it prohibits providers from using a pre-dispute arbitration agreement to block consumer class actions in court and it requires providers to insert language into their arbitration agreements reflecting this limitation. 

The Consumer Bureau bases its findings on the Arbitration Study 

as well as the Consumer Bureau’s further analysis. These include 

findings in support of the final rule that pre-dispute arbitration 

agreements are being widely used to prevent consumers from seekVerDate Nov 24 2008 14:48 Sep 25, 2017 Jkt 046629 PO 00000 Frm 00091 Fmt 6602 Sfmt 6602 L:\HEARINGS 2016\04-07 ZDIST\23056.TXT JASON
84 

1The Final Rule explains how the rule applies to various types of contractual relationships. 

See 80 FR 33325-58 (section by section analysis of 12 CFR 1040.3), 33428-29 (text of 12 CFR 

1040.3), 33431-32 (official commentary for 12 CFR 1040.3), The Bureau also adopted a temporary exception for pre-packaged general-purpose reloadable prepaid card agreements under 12 

CFR 1040.5(b). 80 FR 33388-90 (section by section analysis of 12 CFR 1040.S(b)), 33430 (text 

of 12 CFR 1040.S(b)), 33434 (official commentary to 12 CFR 1040.S(b)). 

ing relief from legal violations on a class basis, and that consumers 

rarely file individual lawsuits or arbitration cases to obtain such 

relief. 

Second, the Final Rule does not prohibit providers from maintaining arbitration agreements with their customers, but it does require covered financial services providers that continue to use them 

to submit certain records with appropriate redactions, relating to 

arbitral proceedings to the Consumer Bureau. The Consumer Bureau’s Final Rule also provides for the publication of this redacted 

information on its website, to provide greater transparency into the 

arbitration of consumer disputes. The Consumer Bureau also will 

use this information to continue monitoring arbitral proceedings to 

determine whether there are developments that raise consumer 

protection concerns that may warrant further Consumer Bureau 

action. The Final Rule applies to agreements entered into by providers after March 19, 2018, the compliance date of the rule. 1

(b.) On May 5, 2016, the Consumer Bureau released a Notice of 

Proposed Rulemaking regarding agreements for consumer financial 

products and services providing for mandatory pre-dispute arbitration. July 19, 2017, the Consumer Bureau published in the Federal 

Register a Final Rule regarding agreements for consumer financial 

products and services providing for mandatory pre-dispute arbitration. 

(c.) In the Arbitration Study, the Consumer Bureau learned that 

most consumers were unaware of whether their contracts contained 

arbitration agreements. The Arbitration Study found that more 

than 75 percent of credit card consumers surveyed did not know 

whether they were subject to an arbitration clause, and fewer than 

7 percent of those covered by arbitration clauses realize that those 

clauses restrict their ability to sue in court. Even fewer were aware 

of whether the contracts permitted them to opt out of their arbitration agreements. While the Arbitration Study found provisions permitting consumers to opt out of arbitration were not uncommon, 

very few consumers in the telephonic survey conducted were aware 

of the opt-out provisions, far fewer than 1 percent of respondents 

believed that they had been given an opportunity to opt-out of the 

arbitration agreements. 

(d.) The Consumer Bureau received feedback from industry 

groups, before the issuance of the Notice of Proposed Rulemaking 

(for instance, during the SBREFA panel), that a rule that prohibited the use of class action waivers in arbitration agreements would 

likely cause some or many providers of consumer financial products 

and services to eliminate their arbitration agreements completely. 

The Consumer Bureau also received comments in response to its 

Notice of Proposed Rulemaking from some industry groups and 

providers indicating they intend to drop arbitration clauses altogether if the proposed rule is adopted. The Consumer Bureau took 

such feedback into account in promulgating its Final Rule. In its 

85 

Final Rule, the Bureau acknowledged that providers may choose to 

drop arbitration agreements altogether. 

As set out in final rule, the Bureau believes that, even if providers do remove their arbitration agreements, harm to consumers 

would be negligible because so few consumers pursue arbitration 

today. The Study showed that very few individual consumers filed 

claims in arbitration about consumer financial products; as noted, 

there were just over 600 arbitration filings per year in the six product markets studied and just over 400 of those were filed by consumers. By contrast, more than 60 million consumers per year 

were eligible for either cash or in-kind relief from class actions in 

the 5-year period covered by the Study. Indeed, more than 34 million of these consumers obtained cash relief over 5 years studied, 

or more than six million per year. Thus, the number of consumers 

who sought relief in arbitration pales in comparison to the number 

who actually obtained relief through class actions. The number of 

consumers who sought relief in arbitration also pales in comparison 

to the benefits to consumers from the deterrent effect of class actions, discussed in Part VI.C.1 of the Final Rule. 

In any event, even if consumers do not have access to arbitration 

for individual claims those claims still can be filed in court, including small claims court. Consumers would not be left without a 

forum to prosecute their individual claims. Given the extremely low 

number of consumer-filed AAA and JAMS arbitrations, the Bureau 

believes that the magnitude of consumer benefit, if any, of individual arbitration over individual litigation would need to be implausibly large for the elimination of some, or even all, arbitration 

agreements to make a noticeable difference to consumers in the aggregate. 

Therefore, the Bureau believes that preserving consumers’ right 

to participate in a class action is for the protection of consumers 

even if providers will no longer include arbitration agreements in 

their consumer contracts. 

(e.) The Bureau conducted a cost-benefit analysis, as set out in 

the Notice of Proposed Rulemaking and the Final Rule. Under this 

analysis, the Consumer Bureau’s class action rule would benefit 

consumers in two main ways. First, consumers will benefit from increased legal compliance by providers. The Consumer Bureau believes that, because more providers will face class action liability 

for violations of law they commit, they will increase their compliance with the law to reduce the risk of facing a class action—resulting in less consumer harm. The Consumer Bureau is not aware 

of, and commenters did not provide, reliable methods to quantify 

these benefits. Second, consumers will benefit from the relief provided in the class action settlements that will now occur because 

providers will no longer be able to use an arbitration agreement to 

block class actions. This relief will include both monetary relief and 

changes in business practices. The Consumer Bureau estimates 

monetary relief to be $342 million per year for additional Federal 

class settlements; the Consumer Bureau lacks the information 

needed to quantify the relief in State court settlements and is not 

aware of reliable methods to quantify the benefits to consumers 

from changes in business practices. 

86 

The cost to consumers will mostly result from financial institutions ‘‘passing through’’ at least some portion of the increased costs 

they may face to consumers. In the Consumer Bureau’s view, the 

extent to which this will occur cannot be reliably predicted, especially because research is mostly unavailable for the markets covered. 

The Consumer Bureau believes that providers that will be exposed to class action liability as a result of the final rule will have 

an increased incentive to take steps to reduce their risk of facing 

a class action. The Consumer Bureau believes providers will generally respond to this incentive by increasing their attention to activities designed to reduce their class litigation exposure, such as 

reviewing policies and procedures, discontinuing risky products, 

and obtaining more comprehensive insurance coverage. The Consumer Bureau is unaware of, and commenters did not provide, reliable methods for quantifying these costs. 

Providers will incur costs related to additional class litigation 

that will occur because they can no longer use arbitration agreements to block class actions (and because the compliance investments described above will not eliminate additional class litigation 

completely). The Consumer Bureau estimates that the Final Rule 

will result in about 103 additional class settlements per year in 

Federal court (no estimate is made for State court because of the 

above-mentioned lack of information). In those class settlements, 

the Consumer Bureau estimates that providers will pay an additional $342 million to consumers; an additional $66 million to 

plaintiffs’ attorneys; and an additional $39 million for their own attorneys’ fees and internal staff and management time for only 

these Federal court cases. The Consumer Bureau believes providers 

will enter a similar number of settlements in State court, with 

lower amounts at stake, although there is insufficient data to quantify these costs. Providers may also incur costs due to changes in 

business practices resulting from class settlements, but the Consumer Bureau is unaware of reliable methods for quantifying these 

costs. Further, the Bureau also estimates that providers will spend 

an additional $76 million per year in defense costs related to Federal class cases that do not settle. 

Providers will incur costs related to changing their contracts to 

comply with the proposed rule. The Consumer Bureau believes that 

the average provider’s expense to be about $400 per provider. 

Given the Consumer Bureau’s estimate of about 48,000 providers 

that use arbitration agreements, the Final Rule’s required contractual change will result in a one-time cost of $19 million. (The Consumer Bureau’s estimate for the number of providers is different 

here than above because debt collectors would not incur costs related to changing agreements.) 

Providers will incur costs related to submitting arbitration 

records to the Consumer Bureau. However, because arbitrations 

are so infrequent, the total cost to all providers is unlikely to reach 

$1 million per year. 

(f.) The Consumer Bureau’s enforcement actions are a powerful 

tool to address violations of the law and to make consumers whole. 

Since opening in July 2011, the Consumer Bureau has ordered that 

almost $12 billion be returned to 29 million consumers and imVerDate Nov 24 2008 14:48 Sep 25, 2017 Jkt 046629 PO 00000 Frm 00094 Fmt 6602 Sfmt 6602 L:\HEARINGS 2016\04-07 ZDIST\23056.TXT JASON
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2 RFI, supra note 4. 

posed about $600 million in civil penalties. The Consumer Bureau 

has also shut down illegal practices, protecting other consumers 

from suffering similar financial harm in future years. 

While the Consumer Bureau and other public enforcement agencies can act to remedy some consumer harms, public resources are 

limited. The various consumer finance markets consist of tens of 

thousands of companies interacting with hundreds of millions of 

consumers. The Consumer Bureau has limited resources and authority and cannot obtain relief for all violations of law that may 

occur. As the Arbitration Study has noted, there appears to be little 

overlap between enforcement actions by the Consumer Bureau, or 

other Federal or State regulators, and private class actions brought 

against companies. The Consumer Bureau therefore believes that 

consumers are better protected and markets are fairer when consumers can group their disputes together in private proceedings, 

typically through class proceedings in court. 

(g.) The cost-benefit analysis in the Consumer Bureau’s Final 

Rule, mentioned above in response to Question 1(f), sets out some 

of the Bureau’s analysis of the impact of the proposed rule on provider compliance with consumer financial laws. Further, in the 

Consumer Bureau’s 2012 Request for Information regarding the appropriate scope of the Arbitration Study, the Bureau sought ‘‘specific suggestions from the public to help identify the appropriate 

scope of the Study, as well as appropriate methods and sources of 

data for conducting the Study.’’ 2 Despite raising concerns about the 

costs to defendants of class action litigation, no commentators writing in response to the Consumer Bureau’s query identified a data 

set that would facilitate such an analysis. Nor did the Bureau receive such data in comments received after the Notice of Proposed 

Rulemaking. 

In conducting the Arbitration Study, the Consumer Bureau decided not to compel the production of data reflecting firms’ internal 

response to the risk of class actions because, among other concerns, 

the data may be considered privileged or sensitive information. A 

joint comment letter by several major trade associations stated that 

assessing the economic impacts of class actions on businesses 

might be difficult or impossible and suggested that the Consumer 

Bureau instead look at fees paid by firms to plaintiffs’ lawyers as 

part of a class action settlement. In response, the Consumer Bureau obtained data from the public records on fee awards in all of 

the class action settlements that the Study analyzed and reported 

on these fees in the Arbitration Study. 

The Arbitration Study also sheds considerable light on the benefits of a class action system as compared to the benefits most consumers derive from individual resolution of their disputes. The Arbitration Study found, for example, that few consumers of financial 

products and services seek relief individually, either through the 

arbitration process or in court. In its review of all American Arbitration Association consumer disputes from 2010 to 2012 relating 

to credit card, checking/debit account, payday loan, prepaid card, 

auto purchase loan, and student loan products, the Consumer Bureau found an average of over 600 arbitration proceedings a year 

88 

3 Arbitration Study, supra note 7, section 8 at 3. 

4 Arbitration Study, supra note 7, section 1 at 16. This figure excludes one large settlement 

(In re: TransUnion Privacy Litigation) with 190 million class members. 5 Arbitration Study, supra note 7, section 8 at 24. The Arbitration Study defined gross relief 

as the total amount the defendants offered to provide in cash relief (including debt forbearance) 

or in-kind relief and offered to pay in fees and other expenses. 6These figures represent a floor, as the Bureau did not include the value to consumers of 

making agreed changes to business practices. 7 Arbitration Study, supra note 7, section 8 at 28. 

were filed for all six product markets combined, of which only over 

400 were recorded as filed by consumers acting alone. Only 25 disputes a year involved consumers bringing affirmative claims for 

$1,000 or less than that amount. 

In contrast, the Arbitration Study found that consumers derive 

substantial benefits from class action settlements. As noted, the 

Consumer Bureau identified a significant volume of consumer financial class settlements that were approved between 2008 and 

2012. 3 In the more than 400 settlements that the Consumer Bureau analyzed, there were about 160 million total class members 

(excluding the TransUnion settlement noted above). 4 These settlements included cash relief, in-kind relief, and relief relating to fees 

and other expenses that companies paid. The total amount of gross 

relief in these settlements that is, aggregate amounts promised to 

be made available to or for the benefit of damages classes as a 

whole, calculated before any fees or other costs were deducted— 

was about $2.7 billion. 5 This estimate included cash relief of over 

$2 billion and in-kind relief of nearly $650 million. 6 About twothirds of the settlements reporting some cash relief contained 

enough data for the Consumer Bureau to calculate the value of 

cash relief that, as of the last document in the case files, either had 

been or was scheduled to be paid to class members. Based on this 

subset of cases alone, the value of calculable cash payments to 

class members to that point was about $1.1 billion. 7 This excludes 

payment of in-kind relief and any valuation of injunctive relief. 

The Consumer Bureau explained in the Final Rule its belief that 

based on the data from the Arbitration Study set out above, the 

class rule, by reversing the status quo, creating incentives for 

greater compliance, and restoring a means of broad relief and accountability, will be for the protection of consumers for several reasons. 

The Consumer Bureau explained in the Final Rule its belief that 

the class rule is likely to induce greater compliance with the law 

by covered providers. When laws cannot be effectively enforced (in 

this instance because of the use of arbitration agreements), providers may be more likely to engage in potentially unlawful business practices, because they know that any potential costs from exposure to putative class action filings have been reduced if not effectively eliminated. Due to this reduction in legal exposure (and 

thus a reduction in risk), providers have less of an incentive to invest in compliance management in general, such as by investing in 

employee training with respect to compliance matters or by carefully monitoring changes in the law. 

Thus, the class rule is based on the Consumer Bureau’s belief 

that the availability of class actions affects firms’ compliance incentives. The standard economic model of deterrence holds that individuals who benefit from engaging in particular actions that violate 

89 

8See Danielle Douglas-Gabriel, ‘‘Big Banks Have Been Gaming Your Overdraft Fees To 

Charge You More Money’’, Wash. Post Wonkblog (July 17, 2014), https:// 

www.washingtonpost.com/news/wonk/wp/2014/07/17/lwells-fargo-to-make-changes-to-protect-customers-from-overdraft-fees/ (‘‘Half of the country’s big banks play this game, but one has 

decided to stop: Wells Fargo. Starting in August, the bank will process customers’ checks in the 

order in which they are received, as it already does with debit card purchases and ATM withdrawals.’’). 

the law will instead comply with the law when the expected cost 

from violation, i.e., the expected amount of the cost discounted by 

the probability of being subject to that cost, exceeds the expected 

benefit. Consistent with that model, Congress and the courts have 

long recognized that deterrence is one of the primary objectives of 

class actions. 

The Consumer Bureau believes that consumers are better protected from harm by consumer financial service and product providers when they are able to aggregate claims. Accordingly, the 

class rule is based on the Consumer Bureau’s belief that ensuring 

that consumers can pursue class litigation related to covered consumer financial products or services without being curtailed by arbitration agreements protects consumers, furthers the public interest, and is consistent with the Arbitration Study. 

(h.) The judicial process—especially as expressed by the Federal 

Rules of Civil Procedure—has mechanisms to prevent or mitigate 

any harm businesses may face from baseless class actions. As the 

Bureau noted in its final rule, courts dismiss claims that fail to 

state a plausible claim for relief and can sanction attorneys that 

file frivolous claims without evidentiary support for the allegations. 

In addition, Congress, through amendments to the Federal Rules 

of Civil Procedure and enactment of CAFA, has and continues to 

consider further adjustments to class action procedures. The Supreme Court has also rendered a series of decisions making clear 

that Federal Rule 23 ‘‘does not set forth a mere pleading standard’’ 

and establishing a number of requirements to subject putative 

class claims to close scrutiny. Thus the law expects courts to act 

to limit frivolous litigation. Further, the Bureau understands that 

class action attorneys will typically earn nothing for the time invested in developing, filing, and litigating a class case that is dismissed on a dispositive motion. The Bureau believes this may serve 

as an incentive not to bring cases that would be dismissed for lacking merit. 

While trial verdicts in consumer financial class action cases are 

rare, they do occur. A bench trial in Gutierrez v. Wells Fargo Bank, 

N.A., led to a judgment on the merits in favor of the plaintiff class. 

730 F. Supp. 2d 1080, 1082 (N.D. Cal. 2010). This case was not included in the Study’s analysis of consumer financial litigation in 

court because it was filed in 2007 and the Study analyzed cases 

filed from 2010 through 2012. Although that judgment was limited 

to a California class of the bank’s consumers, the bank thereafter 

appears to have also changed its overdraft practices in other jurisdictions in the United States, presumably out of concern regarding 

other State’s laws. 8

(i.) As set out in the Consumer Bureau’s responses to 1(d) and 

1(g), the Bureau believes the data it has gathered shows that it is 

likely class action lawsuits change firm behavior in meaningful 

90 

ways. The Consumer Bureau considered relevant evidence and data 

it received during the comment period. 

(j.) The Consumer Bureau has been open to feedback from all 

stakeholders in the course of working on the Arbitration Study and 

since the study was made available. In this process, the Consumer 

Bureau has received written and spoken comments from some 

stakeholders representing class action lawyers on the same terms 

as other stakeholders, including trade and industry representatives, public interest and consumer groups, academics, and State 

governments. Further, the Consumer Bureau specifically sought 

out feedback, in writing and in-person, from small businesses in 

the SBREFA Panel process. Finally, the Consumer Bureau met 

with stakeholders, including tribal governments, after the release 

of the Notice of Proposed Rulemaking and before the publication of 

the Final Rule. Summaries of these ex parte consultations with 

stakeholders will be published on the Consumer Bureau’s website. 

Q.2. At your April 7, 2016, appearance before the Senate Banking 

Committee, you testified—regarding a letter that Senator Corker 

sent to you on TILA–RESPA—that ‘‘[b]ecause I’m testifying today, 

we did respond to that letter . . . ’’ (emphasis added). Please review the Congressional letters sent to you during your tenure at 

the CFPB and the timing of your responses, along with the same 

for questions for the record, as of the date of this hearing. 

(a.) Does the CFPB have a practice of responding only to letters 

before it is scheduled to appear before a Congressional committee, 

of which the writer was a member? 

(b.) To how many letters have you not yet responded? 

(c.) Of these letters, how many of them are from members who 

do not sit on a Congressional committee with jurisdiction over the 

CFPB? 

(d.) Of these letters, what was your average response time? 

(e.) What was your average response time for Republican caucus 

members? 

(f.) What was your average response time for Democrat caucus 

members? 

(g.) What percentage of your responses were sent less than a 

week before a Congressional hearing, when the writer was a member of the Committee where the CFPB was appearing? 

(h.) What percentage of your responses were sent less than a 

week before a Congressional hearing, of which the recipient was a 

member, for Republican caucus members? 

(i.) What percentage of your responses were sent less than a 

week before a Congressional hearing, of which the recipient was a 

member, for Democrat caucus members? 

(j.) Please provide the average response time to questions for the 

record, for Republican caucus members. 

(k.) Please provide the average response time to questions for the 

record, for Democrat caucus members? 

A.2. The Consumer Bureau is an independent Federal agency created by Congress responsible for implementing, and where necessary, enforcing, Federal consumer financial law consistently and 

for the purpose of ensuring that consumer financial markets are 

fair, transparent, and competitive. As an independent Federal 

91 

9http://www.consumerfinance.gov/blog/fall-2015-rulemaking-agenda/. 

agency, the Consumer Bureau routinely handles correspondence, 

requests for information, and other inquiries from Members of Congress and Congressional Committees on a variety of topics that are 

related to the Consumer Bureau and the Bureau’s work. The Consumer Bureau’s Office of Legislative Affairs (OLA) is responsible 

for managing the responses to both Members of Congress and Committees, as well as collaborating with other divisions within the 

Bureau to answer questions that have been posed. 

The Consumer Bureau attempts to send a response to each request within a 30-day period following receipt of the incoming letter. This drafting period allows OLA to collaborate amongst different internal divisions prior to finalizing a response to ensure 

that the information provided is thorough and accurate. The actual 

time required for each response depends on the unique characteristics of the incoming letter, including the complexity of the subject 

matters and the depth and number of questions posed. Often, the 

process will require additional follow up with the Member’s office 

to clarify any outstanding questions OLA may have prior to drafting a response. Additional questions or issues posed may create a 

delay in answering the question. The Consumer Bureau does not 

track average response times, response times by political party affiliation, percentage of responses in fewer than one week, or percentage of responses sent during time periods surrounding hearings 

by Congress. 

Q.3. I’d like to discuss the CFPB’s pending rule regarding ‘‘payday, 

auto title, and similar lending products’’ (payday lending). 9

(a.) In March of 2015, the CFPB announced that it was considering ways to regulate payday loans. That notice said that the 

CFPB was considering prohibiting longer-term products with a 

monthly payment that exceeded 5 percent of a consumer’s gross 

monthly income. Please provide the economic research that the 

CFPB produced and consulted to reach the conclusion that a 

monthly payment in excess of this amount is unaffordable. 

(b.) Many have argued that the alternative to payday lending is 

not accessing credit at a lower interest rate, but either using higher interest rate forms of ‘‘credit’’ (such as overdrawing from a 

checking account) or losing access to credit altogether. Please provide the economic research that the CFPB produced and consulted 

regarding alternative forms of credit beyond current payday lending practices. 

(c.) Please provide the economic research that the CFPB produced and consulted regarding the possibility that further regulating the payday lending industry will force some payday lenders 

to stop offering products altogether. 

(d.) Are consumers better off not having the option of accessing 

payday lending, even if it means they will lose access to credit 

overall? 

(e.) Does the CFPB trust consumers to evaluate the risks associated with payday lending? 

(f.) What research has the CFPB conducted or identified that indicates consumers are unable to evaluate the risks associated with 

payday lending? 

92 

A.3. In its Outline of Proposals under Consideration and Alternatives Considered, which was released in March 2015 as part of 

the Small Business Review Process, the Consumer Bureau noted 

that it was considering whether to propose exempting from the 

ability-to-repay requirements under consideration longer-term 

loans with payments equal to or less than 5 percent of a consumer’s gross monthly income. The proposed rule released in June 

2016 did not propose to include this exemption. The March 2015 

Outline did not indicate that the Consumer Bureau was considering whether to prohibit longer-term loans with monthly payments that exceeded 5 percent of a consumer’s gross monthly income. The proposed rule similarly would not prohibit longer-term 

loans with a monthly payment that exceeds 5 percent of a consumer’s gross monthly income. 

In the lead up to the proposed rule on payday, vehicle title, and 

certain high-cost installment loans, the Consumer Bureau released 

several research publications. These reports looked at use patterns 

of payday loans and vehicle title loans, online lending, high-cost installment lending, and the impact of various State approaches to 

regulating payday lending. The Consumer Bureau’s research and 

analysis is included in the notice of proposed rulemaking and supplemental report released alongside the proposed rule in June 

2016. In considering the scope and content of the proposed rule, the 

Consumer Bureau studied the forms of liquidity loan products on 

the market today, including forms of credit beyond typical payday 

lending. The Consumer Bureau’s findings in this regard are included in part II of the Notice of Proposed Rulemaking (81 FR 866 

et seq.). The Consumer Bureau discusses research and analysis on 

the harms associated with payday loans in Market Concerns— 

Short-Term Loans (81 FR 47919 et seq.). 

Consistent with section 1022(b)(2) of the Dodd–Frank Wall Street 

Reform and Consumer Protection Act, the Consumer Bureau considered the potential benefit, costs, and impacts of the proposals. 

Additionally, consistent with section 603(a) of the Regulatory Flexibility Act, the Bureau prepared an initial regulatory flexibility 

analysis that describes the impact of the proposed rule on small entities. These estimates of the impact of the proposed rule on payday 

lenders and on access to credit are presented in parts VI (81 FR 

48115 et seq.) and VII (81 FR 48150 et seq.) of the notice of proposed rulemaking. 

Q.4. I’d like to discuss the CFPB’s efforts to tailor regulations for 

community banks and credit unions. 

Please describe the criteria and processes by which you decide 

when and how to exempt small financial institutions from certain 

regulatory requirements. 

At your April 7, 2016, appearance in front of the Senate Banking 

Committee, you testified, regarding tailoring regulations for small 

financial institutions, that ‘‘we tend to be fairly careful about it. We 

don’t regard Congress as having said to us you have broad exemption authority.’’ However, Section 1022(b)(3) of Dodd–Frank authorized the CFPB to ‘‘conditionally or unconditionally exempt any 

class of covered persons, service providers, or consumer financial 

products or services’’ from the CFPB’s rules and regulations, taking 

into account the entity’s ‘‘total assets,’’ ‘‘volume of transactions,’’ 

93 

and the extent to which existing laws already protect consumers. 

Please explain why the CFPB does not believe the statute confers 

at least a significant authority to tailor regulations. 

How much does the CFPB value ‘‘relationship banking,’’ where a 

financial institution makes a lending decision based upon their personal knowledge of a customer, instead of mere statistical analysis? 

A.4. Section 1022 of the Dodd–Frank Wall Street Reform and Consumer Protection Act (Dodd–Frank Act) authorizes the Consumer 

Bureau to engage in rulemaking and issue orders and guidance to 

administer and carry out the purposes and objectives of the Federal 

consumer financial laws, and to prevent evasions thereof. In doing 

so, Section 1022 requires that the Consumer Bureau consider the 

potential benefits and costs to consumers and covered persons, including the potential reduction of access to consumer financial 

products and services to consumers. Section 1022 also requires the 

Consumer Bureau to consider the impact of a proposed rule on insured depository institutions and credit unions with total assets of 

$10 billion or less as well as the impact on consumers in rural 

areas. Moreover, Section 1022 gives the Consumer Bureau the authority to create exemptions from the Consumer Financial Protection Act of 2010 or rules issued under that Act for any class of covered persons, service providers, or consumer financial products or 

services if the Consumer Bureau determines an exemption is necessary or appropriate to carry out the purposes and objectives of 

the Consumer Financial Protection Act after taking into consideration a set of factors specified in the statute. 

To date, the Consumer Bureau has sought to carefully calibrate 

its efforts to ensure consistency with respect to consumer financial 

protections across the financial services marketplace, while accounting for the different business models and classes of financial 

institutions. For example, as part of the Consumer Bureau’s commitment to achieving tailored and effective regulations, the Bureau 

has taken the following actions for different models and classes of 

institutions: 

Mortgage Origination Rules (Title XIV) 

• Expanded safe harbor for small creditors. A small creditor has 

a broader safe harbor for its Qualified Mortgage (QM) loans 

than non-small creditors. The Consumer Bureau’s rules provide a safe harbor for QMs with annual percentage rate (APR) 

spreads over Average Prime Offer Rate (APOR) up to 350 basis 

points, whereas non-small creditors have a safe harbor for 

spreads up to 150 basis points. The Consumer Bureau’s rules 

also allow a small creditor to make QMs with debt-to-income 

ratios that exceed the otherwise applicable 43 percent cap. 

(Small creditors must hold these loans in portfolio for 3 years.) 

• Exempted small creditors in rural and underserved areas. 

Small creditors that operate (or operated ‘‘predominantly’’ before implementation of the Helping Expand Lending Practices 

in Rural Communities Act in March 2016) in rural or underserved areas are exempt from requirements to establish escrow 

accounts for higher priced mortgage loans and from restrictions 

on offering QMs and Home Ownership and Equity Protection 

Act (HOEPA) loans (‘‘high cost’’ mortgages as defined in the 

94 

HOEPA) that have balloon payment features. QMs and 

HOEPA loans generally cannot have balloon payments. 

• Implemented a 2-year pause for small creditors. The Consumer 

Bureau established a 2-year transition period (until January 

10, 2016) allowing small creditors to make balloon-payment 

QMs and balloon-payment HOEPA loans regardless of whether 

they operated predominantly in rural or underserved areas, 

while the Consumer Bureau revisited and reconsidered the definition of ‘‘rural’’ for this purpose. 

• Expanded exemptions for creditors in rural and underserved 

areas. In connection with other changes to amend the definitions of ‘‘small creditor’’ and ‘‘rural area,’’ the Consumer Bureau published a final rule in October 2015 that extended this 

2-year transition period from January 2016 until April 2016. 

The Bureau’s final rule also provided a significant expansion 

of ‘‘rural,’’ as well as an expansion of which entities can qualify 

as ‘‘small creditors.’’ The Consumer Bureau’s final rule took effect on January 1, 2016, before the 2-year transition period expired. In March 2016, the Consumer Bureau issued an interim 

final rule that implements the Helping Expand Lending Practices in Rural Communities Act, and makes these provisions 

available to small creditors that extend at least one covered 

transaction secured by property located in a rural or underserved area in the previous calendar year. The Bureau estimated that about 6,000 additional small creditors would be eligible as a result of this change. 

• Relaxed requirements for appraisals. Small creditors have relaxed rules regarding conflict of interest in ordering appraisals 

and other valuations. 

Mortgage Servicing Rules (Title XIV) 

• Exempted small servicers from providing periodic statements. 

Small servicers are exempt from the Truth in Lending Act requirement to provide periodic statements. 

• Exempted small servicers from loss mitigation requirements. 

Small servicers are exempt from all of the Real Estate Settlement Procedures Act provisions on policies and procedures; 

early intervention; continuity of contact; and loss mitigation, 

except that a small servicer may not file for foreclosure unless 

the borrower is more than 120 days delinquent on the mortgage. Small servicers may also not file for foreclosure (or move 

for a foreclosure judgment or order of sale, or conduct a foreclosure sale) if a borrower is performing under the terms of a 

loss mitigation agreement. 

• Excluded certain seller-financed transactions and mortgage 

loans voluntarily serviced for a non-affiliate from being counted 

toward the small servicer loan limit. This allows servicers that 

would otherwise qualify for small servicer status to retain their 

exemption while servicing those transactions. 

Home Mortgage Disclosure Act Rule (Reg C) 

• Exempted lower-volume depository institutions from Home 

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sumer Bureau adopted a final rule revising Regulation C, 

which implements HMDA. HMDA and Regulation C, among 

other things, require covered mortgage lenders to report data 

concerning their mortgage lending activity. Changes to coverage in the final rule will reduce the number of banks, savings associations, and credit unions that are required to report 

HMDA data. The revisions will relieve about 22 percent of currently reporting depository institutions from the burden of reporting HMDA data. Also, by final rule issued in late August 

of 2017, the Consumer Bureau expanded the volume-based exemption from reporting of open-end lines of credit under 

HMDA for institutions with fewer than 500, instead of 100, annual originations in each of the two preceding years of such 

lines of credit. This expanded exemption applies for calendar 

years 2018 and 2019, during which the Consumer Bureau will 

consider whether to reexamine the appropriate volume level at 

which to set the exemption permanently. 

• Reduced HMDA error submission threshold for certain small 

entities. New Federal Financial Examination Institution Council guidelines, of which the Consumer Bureau is a member, 

provide a more lenient 10 percent HMDA field error resubmission threshold (to determine whether the lender must resubmit 

a particular HMDA data field) for financial institutions with 

lower lending volumes, including many small institutions, for 

data collected beginning in 2018. Previously, all institutions 

were subject to the same error thresholds. The new guidelines 

make other burden-reducing changes that apply to all lenders, 

which may be particularly beneficial to small institutions. 

Remittances Rule (Regulation E Subpart B) 

• Provided regulatory certainty for small entities under the Electronic Fund Transfer Act. In the Bureau’s rules implementing 

the Dodd–Frank Act’s amendments to the Electronic Fund 

Transfer Act, regarding remittance transfers, the Bureau recognized that certain entities do not provide remittances in the 

normal course of their business and determined that the remittance requirements do not apply to transfers sent by entities 

that provide 100 or fewer remittances each year. 

Small financial institutions play a vital role within many communities across the Nation, as well as within the economy. Their traditional model of relationship lending has been beneficial to many 

people in rural areas and small towns throughout the country. For 

these reasons, the Consumer Bureau attempts to ensure that rules 

and regulations are not burdensome to these smaller financial institutions. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR MORAN 

FROM RICHARD CORDRAY 

Q.1. I know that everyone agrees that discrimination has no place 

in our economy. That agreement extends to the need for vigorous 

enforcement of the Equal Credit Opportunity Act. However, I’m 

concerned that the CFPB’s 2013 auto finance bulletin has resulted 

in a more adversarial relationship between the bureau and the 

96 

1http://files.consumerfinance.gov/f/201303lcfpblmarchl-Auto-Finance-Bulletin.pdf 2See Financial Report of the Consumer Financial Protection Bureau for Fiscal year 2015, 

available at http://files.consumerfinance.gov/f/201511lcfpblreportlfiscal-year-2015.pdf. 

auto industry rather than a relationship based on cooperation toward a shared goal of rooting out discrimination. 

That is part of my reasoning in introducing S.2663, the Reforming CFPB Indirect Auto Financing Guidance Act, the Senate companion legislation to H.R.1737 which passed the House by a vote 

of 332–96. The name of the legislation is not the ELIMINATION 

of the CFPB Indirect Auto Financing Guidance Act, thereby disqualifying the CFPB from further exploring the issue. Rather, the 

process can be improved by creating greater collaboration on the 

CFPB’s pursuit of discrimination by adding Congress, industry 

stakeholders, and consumers to the fold as we all work together to 

achieve a fair marketplace. 

You and I have had exchanges on this topic since the spring of 

2013. During that time, additional information has been brought 

forth. 

Auto loan volume numbers aside, has the Bureau studied the 

price effects that will impact all consumers due to the 2013 guidance? 

A.1. The Consumer Bureau is working hard to ensure that lending 

practices are fair and equitable for all consumers and honest businesses. Our March 2013 Indirect Auto Lending and Compliance 

with the Equal Credit Opportunity Act Bulletin 1 reminded indirect 

auto lenders of their existing responsibilities under the Equal Credit Opportunity Act, but did not mandate any particular method for 

mitigating fair lending risk. 

We have examined over a dozen of the Nation’s largest auto lenders and achieved important market awareness and movement, and 

we believe that a wide range of supervisory compliance solutions 

tailored to each lender will work to secure and advance our 

progress in protecting consumers. The Consumer Bureau takes a 

data-driven approach to our work and we are always interested in 

reviewing analyses of the impact of this work. 

Q.2. Is it fair to say that the CFPB’s view on this indirect auto finance leaves open the possibility that all consumers may find 

themselves paying higher costs for auto loans due to the lenders’ 

management of fair credit risk? 

A.2. No. The Consumer Bureau is working to ensure that lending 

practices are fair and equitable and that credit markets function 

competitively and efficiently for all consumers and businesses. We 

take a data-driven approach to our work and would be interested 

in any analyses of the impact of greater lender adoption of nondiscretionary compensation programs, lower caps, or more stringent 

compliance management systems. 

The Consumer Bureau has seen no indication that our work in 

indirect auto lending has resulted in credit being restricted or 

made more costly for consumers. To the contrary, the number of 

new auto loans originated in the first half of 2015 was up 8 percent 

over the prior year; for auto loans, this marks a 45 percent increase 

since 2011 and a 9-year high. 2

97 

3 National Automobile Dealers Association. (2015). NADA forecasts 17.71 million new vehicle 

sales in 2016, citing, in part, because of low interest rates on auto loans [Press release]. Retrieved from: https://www.nada.org/CustomlTemplates/DetailPressRelease.aspx? 

id=21474842879; see also National Automobile Dealers Association. (2016). NADA declares new 

vehicle sales for cars and light trucks are on pace to reach forecast of 17.7 million vehicles in 

2016. [Press release]. Retrieved from: https://www.nada.org/2016Convention/ 

EconomicForecast/; 4See also National Automobile Dealers Association. (2017). NADA declares new vehicle sales 

forecast remains unchanged at 17.1 million for 2017. [Press release]. Retrieved from: https:// 

blog.nada.org/2017/07/06/nadas-new-vehicle-sales-forecast-remains-unchanged-at-17-1-millionfor-2017/. 

Further, a November 2015 press release from the National Automobile Dealers Association (NADA) predicts that sales of new cars 

and light trucks will continue their post-recession climb, reaching 

an all-time high of 17.71 million vehicles in 2016. 3 A July 2017 

press release from NADA predict new vehicle sales will remain unchanged in 2017. 4

Q.3. Does the CFPB’s approach, at the very least, prevent reimbursements or restitution to borrowers who were not actually discriminated against in the financing of a vehicle? 

A.3. With regard to the distribution of settlement funds, the Consumer Bureau works hard to ensure that as many eligible consumers as possible receive appropriate remuneration, while at the 

same time putting in place important safeguards to ensure that eligible consumers are the recipients of relief. 

Q.4. Would you please list the considerations that go into the calculation the CFPB uses to determine whether an enforcement action or a rulemaking process is the right course of action? Please 

be specific. 

A.4. The Consumer Bureau’s approach to regulation and enforcement is consistent with the Administrative Procedures Act and the 

practices of other Federal agencies. The Dodd–Frank Wall Street 

Reform and Consumer Protection Act gave the Consumer Bureau 

a number of tools—including rulemaking and enforcement—to address and prevent consumer harm. In each action the Consumer 

Bureau takes, we endeavor to choose the appropriate tool to protect 

consumers and honest businesses in the marketplace. The Consumer Bureau has taken enforcement actions where we believe violations of existing laws warranted that response. 

When it comes to specific enforcement actions, the Consumer Bureau considers a number of factors in each filed action and negotiated resolution. These include, but are not limited to: (a) the 

number of victims affected; (b) the amount of individual consumer 

harm; (c) the type of harm, including whether such harm is temporary, likely to or likely to affect the broader economy; (d) whether 

consumers have the ability to avoid the conduct or ‘‘shop’’ for the 

product or service; (e) whether the harmful conduct creates market 

distortion; and (f) whether the conduct targets or significantly affects a vulnerable population. 

On the other hand, where our research and analysis suggests the 

need for regulatory intervention, the Consumer Bureau seeks to develop regulations that will protect consumers without unintended 

consequences or unnecessary costs. As part of the rulemaking process, the Consumer Bureau carefully assesses the benefits and costs 

that the regulations we consider may have on consumers and fiVerDate Nov 24 2008 14:48 Sep 25, 2017 Jkt 046629 PO 00000 Frm 00105 Fmt 6602 Sfmt 6602 L:\HEARINGS 2016\04-07 ZDIST\23056.TXT JASON
98 

nancial institutions. Balanced regulations are essential for protecting consumers from harmful practices and ensuring that consumer financial markets function in a fair, transparent, and competitive manner. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR REED 

FROM RICHARD CORDRAY 

Q.1. There is a need for student loan refinancing opportunities for 

both Federal student loans and private student loans. 

Is the private market providing sufficient access to high quality, 

safe student loan refinancing products for a broad range of borrowers who could benefit? What are the gaps in consumer protections for student loan refinancing? 

A.1. We have observed considerable growth in new student loan refinancing activity—both refinancing of private student loans and 

Federal student loans. This growth has been driven by the expansion of refinance programs at large financial institutions, specialty 

refinancing providers and State lending authorities. 

Although refinancing has expanded, the market is oriented to 

serve consumers with prime and super-prime credit profiles. In 

contrast, these products may be effectively unavailable for consumers with limited or negative credit histories. As a result, the interest rate savings offered to certain consumers through private refinancing may be unavailable to broad segments of the student 

loan market. 

An additional key concern is whether those borrowers who have 

access to private refinancing are aware of and understand the inherent trade-off when converting one or more Federal loans into a 

private student loan. These may include risks when converting a 

fixed-rate loan to a variable-rate loan and the loss of access to a 

wide array of Federal consumer protections, including: Income-driven repayment plans, death and disability discharge, loan forgiveness, deferment and forbearance, loss of benefits on pre-service obligations for active-duty servicemembers. 

The Consumer Bureau has advised borrowers with Federal student loans considering refinancing to be sure to understand what 

they are giving up before making this choice. In general, lenders 

may warn borrowers about the benefits they are giving up when refinancing out of a Federal student loan. For consumers who have 

a secure job, emergency savings, strong credit, and are unlikely to 

benefit from forgiveness options, refinancing may be a choice worth 

considering. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR MERKLEY 

FROM RICHARD CORDRAY 

Q.1. Over the past several years, financial technology firms (or 

FinTech firms) have expanded their online lending presence to consumers and small businesses. FinTech has the potential to offer a 

new source of credit for borrowers and a potential investment opportunity for those with capital to lend. 

According to Morgan Stanley, FinTech firms funded an estimated 

$5 billion in small-business loans in 2014 and will grow 50 percent 

99 

1 ‘‘Global Marketplace Lending: Disruptive Innovation in Finance’’, Morgan Stanley Blue 

Paper, Morgan Stanley Research, May 19, 2015, Accessed April 7, 2016. Available at: http:// 

www.synthesis-sif.lu/wp-content/uploads/2015/07/GlobalMarketplaceLending.pdf. 2 Ruth Simon, ‘‘Big Banks Cut Back on Loans to Small Business’’, The Wall Street Journal, November 26, 2015. Accessed April 7, 2016. Available at: http://www.wsj.com/articles/bigbanks-cut-back-on-small-business-1448586637. 3 ‘‘Merkley, Brown, Shaheen Press for Information on Financial Technology Market’s Impact 

on Small Businesses and Consumers’’, Press Release, The Office of Senator Jeff Merkley. 

Accessed April 7, 2016. Available at: https://www.merkley.senate.gov/news/press-releases/ 

merkley-brown-shaheen-press-for-information-on-financial-technology-markets-impact-on-smallbusinesses-and-consumers. 4 John Heitman, ‘‘Ten Questions for San Francisco Fed President John Williams’’, American 

Banker, March 28, 2016. Accessed April 7, 2016. Available at: http://www.americanbanker.com/ 

news/law-regulation/ten-guestions-for-san-francisco-fed-president-john-williams-1080114-1.html. 5 United States, Department of Treasury, Office of the Comptroller of the Currency, ‘‘Supporting Responsible Innovation in the Federal Reserve Banking System: An OCC Perspective’’, 

March 2016, Accessed April 7, 2016. Available at: http://www.occ.treas.gov/news-issuances/ 

news-releases/20l6/nr-occ-2016-39.html. 

annually through 2020. 1 And according to the Wall Street Journal, in recent years alternative lenders increased their market share to 

26 percent from 10 percent. 2

The industry’s growth did not go unnoticed by the Treasury Department which put out Request for Information (RFI) on FinTech 

companies last summer. Senators Brown and Shaheen joined me in 

writing to Treasury asking for more specifics of their findings. 3

San Francisco Federal Reserve President Williams has also taken 

notice of the growing FinTech industry. In an interview with the 

American Banker, Fed President Williams noted that while there 

is promise in alternative lending products, there does exist the potential to leave low-and middle-income borrowers behind or make 

it easier to engage in predatory lending. 4 And the OCC recently released a white paper on ‘‘responsible innovation,’’ taking a look into 

FinTech. 5

What we do know is that FinTech firms operate in a largely undefined regulatory space. Given this industry’s sudden emergence 

and exponential growth, there is concern that they are operating 

outside the boundaries of regulation and there is a potential for individuals and small businesses to become targets of predatory practices. 

In February, the CFPB finalized a new policy to issue no-action 

letters to FinTech firms. Companies must apply for a no-action letter and if they are granted, these letters offer assurances from the 

CFPB that it has no intention of taking enforcement action against 

the company for introducing a new financial service. However, noaction letters can be revoked at any time should the CFPB changes 

its mind. 

It is my understanding that the CFPB’s policy is aimed at reducing regulatory uncertainty hanging over companies that develop 

untested financial products and services with the potential for ‘‘significant consumer benefit.’’ However, the CFPB estimated that it 

would receive an average of only two or three ‘‘actionable’’ applications per year and that approvals would be given only ‘‘rarely.’’ 

Director Cordray, the CFPB recently finalized a new policy to 

issue no-action letters to firms with ‘‘innovative financial products 

or services.’’ Why did the CFPB decide to take this step? 

A.1. The Consumer Bureau decided to use No-Action letters as one 

possible means of reducing regulatory uncertainty, specifically in 

cases where doing so would facilitate consumer access to innovative 

100 

6 Consumer Financial Protection Bureau Policy on No-Action Letters; information collection, 

81 FR 8686 (Feb. 22, 2016), also available at http://files.consumerfinance.gov/f/ 

201602lcfpblno-action-letter-policy.pdf. 

financial products or services. The Consumer Bureau finalized the 

policy to establish a process for companies to apply for a No-Action 

letter in February 2016. The policy lays out the information a company should provide in an application, as well as the criteria the 

Consumer Bureau would use to assess applicants. 6

The Consumer Bureau views the No-Action Letter policy as a 

means of fulfilling its objectives under the Dodd–Frank Act, which 

include ‘‘facilitating [consumer] access’’ to and ‘‘innovation’’ in markets for consumer financial products. The No-Action Letter program is not designed solely for FinTech startups, but for any firm, 

including Consumer Bureau supervised entities the Consumer Bureau supervised entities, looking to offer an innovative financial 

product or service that holds the promise of consumer benefit, but 

facing regulatory uncertainties. We have estimated that only a limited number of no-action letters would be released, given the limited scope of the No-Action Letter policy and the limited resources 

available to devote to the consideration and issuance of No-Action 

Letters at this time. However, the Consumer Bureau is committed 

to devoting substantial resources to improve regulatory clarity 

more broadly through other means, such as extensive interpretive 

guidance, official interpretation, plain-language guides and other 

similar resources for industry. 

Q.2. Why did you decide to open up the CFPB’s complaint database 

to FinTech? 

A.2. Millions of consumers take out personal loans online. Marketplace lending—often referred to as ‘‘peer-to-peer’’ or ‘‘platform’’ 

lending—is a relatively new kind of online lending. A marketplace 

lender uses an online interface to connect consumers or businesses 

seeking to borrow money with investors willing to buy or invest in 

the loan. Generally, the marketplace lending platform handles all 

underwriting and customer service interactions with the borrower. 

Once a loan is originated, the company generally makes arrangements to transfer ownership or the right to receive payments to the 

investors while it continues to service the loan. Some marketplace 

lenders enter into arrangements with depository institutions 

whereby the bank sets underwriting standards and originates the 

loans and the marketplace lending platform handles marketing, 

underwriting, and customer service. All lenders, from online 

startups to large banks, must follow consumer financial protection 

laws. By accepting these consumer complaints, the Consumer Bureau is giving consumers a greater voice in these markets and a 

place to turn to when they encounter problems. 

Q.3. The CFPB has created an office to examine FinTech called 

Project Catalyst. What are they specifically looking for? 

A.3. We believe that good, consumer-friendly innovation holds 

great potential for achieving our mission of making the consumer 

finance market work for consumers. Project Catalyst closely monitors the developments in the FinTech space and educates the Consumer Bureau at large so that the Consumer Bureau is always up 

to date with the latest innovations. Project Catalyst also looks for 

101 

7Kirsten Grind, ‘‘Remember ‘Liar Loans’? Wall Street Pushes a Twist on the Crisis-Era Mortgage’’, The Wall Street Journal (subscription), February 1, 2016. Accessed April 7, 2016. Available at: http://www.wsj.com/articles/crisis-era-mortgage-attempts-a-comeback-1454372551. 8 Editorial Board, ‘‘Talk About Breaking Up Big Banks Ignores Reforms Made Since the Recession’’, Op-Ed, Washington Post, February 3, 2016, Accessed April 7, 2016. Available at: 

https://www.washingtonpost.com/opinions/talk-about-breaking-up-big-banks-ignores-reformsmade-since-the-recession/2016/02/03/e0043618-c9e9-11e5-a7b2-5a2f824b02c9lstory.html. 

opportunities for the Consumer Bureau to engage and collaborate 

with innovators of consumer-friendly products. In particular, 

Project Catalyst searches for opportunities to collaborate with 

innovators by either engaging in research collaborations partnerships, considering trial disclosure waivers under the Bureau’s authority under section 1032(e) of the Dodd–Frank Act, or considering 

No-Action Letters. 

Q.4. Mr. Cordray, I want to thank you for continuing the effort to 

protect consumers from the many different predatory mortgage 

products which caused millions of Americans to lose their homes 

during the recent housing crisis. But I’m troubled by recent press 

reports in The Wall Street Journal 7 and Washington Post 8 that 

‘‘alt-doc’’ or ‘‘low-doc’’ loans are making a minor resurgence thanks 

to a renewed appetite from industry looking for riskier assets with 

higher returns. 

While this market’s resurgence is still small, at an estimated $18 

to $20 billion in 2015, compared to $767 billion for conventional 

mortgages, the one thing we learned from the mortgage crisis is 

that these tidal waves must be stopped while they’re small or they 

can threaten the entire economy. 

Director Cordray, are these types of loans on the CFPB’s radar? 

A.4. We routinely monitor consumer financial services markets, 

and the types of mortgage product being offered are one part of 

that monitoring. We conduct this monitoring through various 

means, including analysis of published and unpublished data that 

we have available as well as regular outreach and other informational meetings with industry participants, consumer advocates, 

and other stakeholders. In addition, we review our consumer complaints and information submitted to our whistleblower hotline for 

relevant information. 

As you know, the Truth in Lending Act, as amended by the 

Dodd–Frank Wall Street Reform and Consumer Protection Act, 

generally prohibits a creditor from making a residential mortgage 

loan unless the creditor makes a reasonable and good faith determination, based on verified and documented information, that the 

consumer has a reasonable ability to repay the loan according to 

its terms. These documentation and verification requirements effectively prohibit no documentation and limited documentation loans 

that were common in the later years of the housing bubble. For example, the Consumer Bureau’s rules require a creditor to verify the 

information relied on in considering a consumer’s debts relative to 

income or residual income after paying debts, using reasonably reliable third-party records, with special rules for verifying a consumer’s income or assets. To the extent creditors evade or ignore 

these verification and documentation requirements, we are prepared to bring supervisory and enforcement attention to them. 

102 

ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD

SEMIANNUAL REPORT OF THE CONSUMER FINANCIAL PROTECTION 

BUREAU, OCTOBER 1, 2015–MARCH 31, 2016 


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STATEMENTS AND LETTERS SUBMITTED FOR THE RECORD 


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