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THE SEMI-ANNUAL REPORT OF 

THE BUREAU OF CONSUMER 

FINANCIAL PROTECTION 

HEARING 

BEFORE THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTEENTH CONGRESS 

SECOND SESSION 

MARCH 16, 2016 

Printed for the use of the Committee on Financial Services 

Serial No. 114–78 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

JEB HENSARLING, Texas, Chairman 

PATRICK T. MCHENRY, North Carolina, 

Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

ROBERT HURT, Virginia 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

MARLIN A. STUTZMAN, Indiana 

MICK MULVANEY, South Carolina 

RANDY HULTGREN, Illinois 

DENNIS A. ROSS, Florida 

ROBERT PITTENGER, North Carolina 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

KEITH J. ROTHFUS, Pennsylvania 

LUKE MESSER, Indiana 

DAVID SCHWEIKERT, Arizona 

FRANK GUINTA, New Hampshire 

SCOTT TIPTON, Colorado 

ROGER WILLIAMS, Texas 

BRUCE POLIQUIN, Maine 

MIA LOVE, Utah 

FRENCH HILL, Arkansas 

TOM EMMER, Minnesota 

MAXINE WATERS, California, Ranking 

Member 

CAROLYN B. MALONEY, New York 

NYDIA M. VELA ́ ZQUEZ, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JAMES A. HIMES, Connecticut 

JOHN C. CARNEY, JR., Delaware 

TERRI A. SEWELL, Alabama 

BILL FOSTER, Illinois 

DANIEL T. KILDEE, Michigan 

PATRICK MURPHY, Florida 

JOHN K. DELANEY, Maryland 

KYRSTEN SINEMA, Arizona 

JOYCE BEATTY, Ohio 

DENNY HECK, Washington 

JUAN VARGAS, California 

SHANNON MCGAHN, Staff Director 

JAMES H. CLINGER, Chief Counsel 

(III) 

C O N T E N T S 

Page 

Hearing held on: 

March 16, 2016 ................................................................................................. 1 

Appendix: 

March 16, 2016 ................................................................................................. 73 

WITNESSES 

WEDNESDAY, MARCH 16, 2016 

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

(CFPB) ................................................................................................................... 5 

APPENDIX 

Prepared statements: 

Hinojosa, Hon. Ruben E. .................................................................................. 74 

Cordray, Hon. Richard ..................................................................................... 75 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Beatty, Hon. Joyce: 

Report entitled, ‘‘Fair Credit Compliance Policy & Program’’ ...................... 80 

Guinta, Hon. Frank: 

Written statement of the National Automobile Dealers Association ........... 100 

Huizenga, Hon. Bill: 

Letter to Hon. Richard Cordray from various undersigned Members of 

Congress ........................................................................................................ 103 

Waters, Hon. Maxine: 

Center for Responsible Lending report entitled, ‘‘Non-Negotiable: Negotiation Doesn’t Help African Americans and Latinos on Dealer-Financed 

Car Loans,’’ dated January 2014 ................................................................. 109 

Letter to U.S. Representative G.K. Butterfield from the National Association of Minority Automobile Dealers ........................................................... 141 

Cordray, Hon. Richard: 

Written responses to questions for the record submitted by Representative Barr ........................................................................................................ 142 

Written responses to questions for the record submitted by Representative Guinta ..................................................................................................... 143 

Written responses to questions for the record submitted by Representative Hinojosa .................................................................................................. 150 

Written responses to questions for the record submitted by Representative Huizenga ................................................................................................ 152 

Written responses to questions for the record submitted by Representative Hultgren ................................................................................................. 154 

Written responses to questions for the record submitted by Representative Luetkemeyer .......................................................................................... 157 

Written responses to questions for the record submitted by Representative Meeks ..................................................................................................... 165 

Written responses to questions for the record submitted by Representative Messer .................................................................................................... 166 

Written responses to questions for the record submitted by Representative Moore ...................................................................................................... 173 

Written responses to questions for the record submitted by Representative Mulvaney ................................................................................................ 174 

Page

IV 

Cordray, Hon. Richard—Continued 

Written responses to questions for the record submitted by Representative Murphy ................................................................................................... 175 

Written responses to questions for the record submitted by Representative Posey ....................................................................................................... 181 

Written responses to questions for the record submitted by Representative Ross ......................................................................................................... 183 

Written responses to questions for the record submitted by Representative Sinema .................................................................................................... 187 

Written responses to questions for the record submitted by Representative Stivers .................................................................................................... 188 

Written responses to questions for the record submitted by Representative Tipton ..................................................................................................... 195 

Written responses to questions for the record submitted by Representative Velazquez ............................................................................................... 198 

Written responses to questions for the record submitted by Representative Westmoreland ........................................................................................ 199 

(1) 

THE SEMI-ANNUAL REPORT OF 

THE BUREAU OF CONSUMER 

FINANCIAL PROTECTION 

Wednesday, March 16, 2016 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The committee met, pursuant to notice, at 10:03 a.m., in room 

2128, Rayburn House Office Building, Hon. Jeb Hensarling [chairman of the committee] presiding. 

Members present: Representatives Hensarling, Royce, Lucas, 

Garrett, Neugebauer, Pearce, Posey, Fitzpatrick, Westmoreland, 

Luetkemeyer, Huizenga, Duffy, Hurt, Stivers, Mulvaney, Hultgren, 

Ross, Pittenger, Wagner, Barr, Rothfus, Messer, Schweikert, 

Guinta, Tipton, Williams, Poliquin, Love, Hill, Emmer; Waters, 

Maloney, Velazquez, Sherman, Meeks, Hinojosa, Clay, Scott, 

Green, Cleaver, Ellison, Perlmutter, Himes, Sewell, Foster, Murphy, Delaney, Sinema, Beatty, Heck, and Vargas. 

Chairman HENSARLING. The Financial Services Committee will 

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

a recess of the committee at any time. 

This hearing is entitled, ‘‘The Semi-Annual Report of the Bureau 

of Consumer Financial Protection.’’ 

I now recognize myself for 3 minutes to give an opening statement. Not that we need a reminder, but if there is one thing that 

the Presidential campaigns of both parties have shown us, it is that 

the American people are, indeed, angry. And they have a right to 

be angry. 

After 7 years of Obamanomics they are still suffering through a 

failed economic recovery, the slowest and worst in our lifetimes. 

This is indisputable. 

Americans are even angrier, though, at having their lives increasingly ruled by out-of-touch Washington elites. Every day they 

see their liberties slipping away as Washington inexorably grows 

larger, more intrusive, more distant, and more arrogant. 

As Thomas Jefferson once warned, government agencies are 

sending, ‘‘swarms of officers to harass our people and eat out their 

substance.’’ 

Today, the poster child of Jefferson’s lament is the Consumer Financial Protection Bureau (CFPB). Its Director, our witness, is neither elected nor accountable to the American people. Yet, when it 

comes to consumer financial products, he is vested with the awesome power of the entire United States Congress. 

2 

This is amazing; this is frightening; and this is tragic. 

Soon, Mr. Cordray will presume to decide for all Americans 

whether he will allow them to take out small-dollar loans to keep 

their utilities from being cut off or to keep their car on the road 

so they can make it to work. 

Soon, Mr. Cordray will decide whether he will permit Americans 

to resolve contract disputes through arbitration or simply hand 

over the keys to the CFPB’s luxury office building to the wealthy, 

powerful, and politically well-connected trial lawyers’ lobby. 

Already, Mr. Cordray has decided who in America will be able 

to receive a mortgage under his qualified mortgage rule, which, 

when fully implemented, will disqualify almost one-fourth of all 

Americans who qualified for a home mortgage just a few years ago. 

Already, Mr. Cordray has decided that countless Americans 

should pay more for auto loans based upon junk science and a dubious legal theory of statistical, unintentional discrimination; all 

the while, his agency reels from countless accusations of actual discrimination. 

Now, apologists for the Bureau, along with Mr. Cordray, frequently cite the tens of millions of dollars of fines they have imposed as proof that they are, indeed, protecting consumers. But the 

Bureau operates as legislature, cop on the beat, prosecutor, judge, 

and jury, all rolled into one. 

Fines imposed in such an abusive structure tell us nothing about 

justice; they tell us nothing about consumer welfare. Nothing. 

In short, Congress has made Mr. Cordray a dictator. And when 

it comes to the well-being and liberty of American consumers, he 

is not a particularly benevolent one. 

Congress must address this critical problem because Congress 

helped create the problem. It has outsourced much of its legislative 

authority to the Executive Branch in general, and the CFPB in 

particular, and in doing so, has compromised our foundational principles of co-equal branches of government, checks and balances, due 

process, and justice for all. 

Congress must reclaim its Article I authority and reclaim it now. 

There is no better place to start than the CFPB, an agency that 

has abused its power that it never should have had in the first 

place. 

It is time to uphold our oath to the Constitution. It is time to 

strip the CFPB of its rulemaking authority and return it to the 

elected Representatives of we, the people. 

I now recognize the ranking member for 5 minutes. 

Ms. WATERS. Thank you, Mr. Chairman. 

And thank you, Director Cordray, for joining us again to discuss 

the Consumer Financial Protection Bureau’s semi-annual report to 

Congress. 

The Bureau’s accomplishments under your leadership have 

helped more Americans participate in a financial system that is 

fair and strong. The work that you do is so important because it 

means that consumers can access the financial products and services they need to live prosperous lives without the risk of deceptive 

or abusive practices. It also means that consumers can have recourse when they have been wronged and recoup any finances they 

may have lost. 

3 

Those accomplishments are reflected in the $11.2 billion you 

have returned to 25.5 million Americans. They are reflected in the 

830,000 consumer complaints you have handled on issues from 

debt collection to credit reporting. They are reflected in the increased share of mortgages made to minority borrowers in recent 

years and the expansion of access to credit cards, despite Republican claims to the contrary. 

Director Cordray, you are helping consumers succeed, to the benefit of the entire financial system. I would like to highlight a few 

of these particularly important efforts. 

I am encouraged by the Bureau’s work so far on payday lending, 

including soliciting input from small businesses on the forthcoming 

regulations. We need rules that will protect low-income and minority communities from unreasonable loan terms and unaffordable 

rates. 

Despite modest efforts by some States to curb predatory practices, most payday loans are simply used to help pay off another 

payday loan. We must stop this debt trap, and we must fight any 

efforts to weaken, roll back, or stop the CFPB’s upcoming rule. 

The Bureau has also led the charge against the discrimination 

that still exists in the auto lending industry. We should be doing 

all we can to prevent minority borrowers from being charged higher interest rates and from overpaying on their auto loans. 

Unfortunately, too many Members of Congress have been misled 

by Republican arguments against the data and methodology used 

by the CFPB in this important work. While Republicans are attempting to protect lenders, the Bureau has fined banks and captive lenders, such as Toyota, Honda, and Fifth Third Bank, for discriminatory practices. 

Additionally, in the months since his last report, the Bureau has 

successfully won a case against an unscrupulous for-profit college 

that deceived students into taking out expensive private loans and 

engaged in illegal debt collection practices. As you know, I have 

worked on this issue my entire career. 

Just recently the Department of Education announced a proposal 

to ban mandatory arbitration in student lending. I hope the Bureau 

will follow in their footsteps by offering this protection not only to 

students but also to Americans that have found these unfair 

clauses in their credit cards, prepaid cards, bank accounts, and mobile phone contracts. 

Despite a successful track record of helping consumers, whether 

looking to buy a car, own a home, or attend college, Republicans 

have turned the CFPB into a political punching bag, attempting to 

undermine its work at every turn. This tactic is at odds with the 

public’s support for the CFPB and the Bureau’s efforts to remain 

accountable and transparent. 

I would like to remind my colleagues that the CFPB has now testified 59 times before Congress since it was created, issued more 

than 40 reports on its activities in the last year alone, and provided 

tens of thousands of documents in response to a never-ending list 

of Republican fishing expeditions. 

Director Cordray, I am thankful for the work that you are doing. 

I look forward to hearing your testimony on how the Bureau continues to help consumers and improve our economy. 

4 

Thank you so much, and I yield back the balance of my time. 

Chairman HENSARLING. The gentlelady yields back. 

The Chair now recognizes the gentleman from Texas, Mr. Neugebauer, chairman of our Financial Institutions Subcommittee, for 2 

minutes. 

Mr. NEUGEBAUER. Thank you, Mr. Chairman. 

Today I want to use this opening statement to address an issue 

that Director Cordray actually raised himself in speaking before 

the Consumer Bankers Association conference a couple of weeks 

ago. In speaking before the group of bankers, the Director highlighted the virtues of bringing market-changing enforcement actions instead of going through a transparent and formalized rulemaking process. Some call this practice, ‘‘regulation by enforcement.’’ 

Further, he critiqued his critics, saying their concerns were misguided. After hearing these comments, I feel it necessary to respond. 

Businesses of all sizes deserve certainty. From the largest financial institution to the three-office title lender, regulatory risk drives 

up cost and stunts economic growth. 

Federal agencies that are authorized to enforce Federal law act 

appropriately when they take actions to hold unlawful actors accountable. However, when a Federal agency routinely brings enforcement actions instead of undertaking rulemaking, with the sole 

purpose of changing the entire market behavior, it begins to look 

like a deliberate evasion of public notice and comment. 

And public notice and comment is a crucial check on the regulatory overreach and abuse of regulatory power. Not only does it 

allow the public to provide unique business insight into the marketplace, but it diversifies and balances the decision-making. 

At the CFPB, this point is all the more important, given the 

agency’s current structure: a single, unelected individual who can 

unilaterally authorize an agency action. 

This celebrated Bureau practice is most obvious and concerning 

in the indirect auto industry market. In the midst of significant 

public and congressional pushback on the Bureau’s policy positions, 

it chose to strong-arm lenders into changing certain practices 

through media-driven enforcement headlines. It chose to do this instead of allowing a transparent process driven by public comment. 

Some even say that it purposely evaded the public dialogue. 

Unfortunately, this example highlights the very problem with 

regulation by enforcement. It allows regulators to use their regulatory authority outside a transparent and structured process. It 

provides an opportunity for regulatory overreach and abuse. Further, it inserts significant regulatory risk into the business of our 

Main Street job creators. 

In closing, the Director told the Consumer Bankers Association, 

‘‘When you push back, we welcome your input.’’ The Director 

should expect continued and aggressive congressional pushback to 

continue his regulation by enforcement. 

Chairman HENSARLING. The time of the gentleman has expired. 

Today, we welcome the testimony of the Honorable Richard 

Cordray, Director of the Consumer Financial Protection Bueau. DiVerDate Nov 24 2008 20:01 Mar 01, 2018 Jkt 023721 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 K:\DOCS\23721.TXT TERI
5 

rector Cordray has previously testified before our committee, so I 

believe he needs no further introduction. 

Director Cordray, without objection, your written statement will 

be made a part of the record, and you are now recognized to give 

an oral presentation of your testimony. 

Thank you. 

STATEMENT OF THE HONORABLE RICHARD CORDRAY, 

DIRECTOR, CONSUMER FINANCIAL PROTECTION BUREAU 

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

Waters, and 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 the 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 relief 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 period, the orders entered on our 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 districts nationwide. 

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 responds to inquiries across 

the entire spectrum of consumer finance. Our major moment-intime 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, including those referred to us by your offices. 

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 the broad range of consumer financial products and services. We marked a milestone for 

consumer empowerment when we began to add public consumer 

6 

complaint narratives, which allow 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 have focused our efforts on promoting functional markets, such as the allimportant 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 have published 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 indicate that sound consumer protections in 

our major markets are strengthening markets for consumers and 

providers alike. 

The mortgage market has been expanding briskly for 2 years 

now, since our major rules took effect. The credit card market is 

greatly improved, with strong consumer protections, better industry performance, and increasing consumer satisfaction. The auto 

lending market is supporting record sales of cars and truck 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, is stoking their confidence and restoring their trust. These 

developments reflect well on the work being done by the Consumer 

Bureau. Taken as a whole, they are making substantial contributions to the continued gradual recovery in the American economy. 

Mr. Chairman, Ranking Member Waters, and members of the 

committee, thank you again for the opportunity to testify today and 

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

will continue to listen closely to all of our stakeholders, and we will 

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. 

[The prepared statement of Director Cordray can be found on 

page 75 of the appendix.] 

Chairman HENSARLING. The Chair now recognizes himself for 5 

minutes for questions. 

Director Cordray, as you are well aware, in late 2013 the Bureau 

entered into a consent order with Ally Financial over alleged violations of the Equal Opportunity Credit Act based upon a legal theory of disparate impact. At the time, Ally had an important yet unrelated application pending before the Federal Reserve to become 

a financial holding company. 

On February 21st of this year, Michael Carpenter, former CEO 

of Ally, said that the charges that your Bureau brought against 

Ally were ‘‘trumped up.’’ He went on to say that Ally had been 

7 

‘‘strong-armed’’ by the CFPB, and that the CFPB ‘‘absolutely knew 

they had tremendous leverage over us.’’ 

Mr. Cordray, isn’t it true that you and senior staff in the Office 

of Fair Lending knew Ally was seeking to achieve financial holding 

company status prior to the settlement? 

Mr. CORDRAY. I read the interview with Mr. Carpenter, who, of 

course, is no longer employed by Ally— 

Chairman HENSARLING. Mr. Cordray, it is just a simple yes-orno question. Were you or were you not aware of the pending application prior to the consent order? 

Mr. CORDRAY. We had pursued this investigation against Ally for 

well over a year before Ally themselves made— 

Chairman HENSARLING. Mr. Cordray, it is a simple yes-or-no 

question. Were you aware or were you not aware? 

Mr. CORDRAY. As I said, we had pursued this investigation for 

more than a year before Ally brought that to our attention. 

Chairman HENSARLING. Okay, so you were aware. That is the 

answer to the question. 

Isn’t it true that senior staff in the Office of Fair Lending were 

in discussions with both the Federal Reserve and the FDIC on how 

CFPB’s determination of an ECOA violation could adversely impact 

their application? Is that true? 

Mr. CORDRAY. We had no decision-making authority over those 

other matters. We were simply attempting to conclude our investigation and get to an appropriate— 

Chairman HENSARLING. But the question is, were they in discussion? Was senior staff of the Fair Lending Division of the CFPB in 

discussion with both the Federal Reserve and the FDIC regarding 

this application? 

Mr. CORDRAY. I believe there were some consultations about 

them wanting to know if we were completing this investigation. 

Chairman HENSARLING. Okay, so consultation—you say ‘‘consultation,’’ we say ‘‘discussion.’’ 

Can we pull up slide number six, please? 

I believe on October 7, 2013, a decision memorandum was prepared for you. I am not sure you saw this, but it has the operative 

phrase, ‘‘staff is in a dialogue with both the Federal Reserve Board 

and the FDIC.’’ It begs the question, what does this have to do with 

a potential violation of EOCA? 

Did you receive this memo, Mr. Cordray? Do you know? 

Mr. CORDRAY. I do not know. 

Chairman HENSARLING. Okay. Go to the next slide, please. 

What is also interesting is that the last sentence of the previous 

slide was deleted. And instead, we have somebody with the initials 

of ‘‘P.A.F.,’’ perhaps Patrice Ficklin, saying, ‘‘Let’s refrain from this 

discussion and instead quote from the securities filing.’’ It seems to 

me that either senior staff attempted to cover up these discussions, 

or they tried to withhold this information from you. 

Did senior staff try to withhold this information from you prior 

to the determination? 

Mr. CORDRAY. No, I don’t believe so. And I think you have the 

entire matter exactly backwards, Mr. Chairman. I would be glad to 

explain. 

8 

Chairman HENSARLING. Okay. Well, regardless of whether or not 

you saw this October 7th memorandum, you certainly saw the one 

on October 17th—I believe these are your initials—‘‘Decision 

Memorandum for the Director.’’ 

And it says, ‘‘This could have a material adverse effect on Ally’s 

business, results of operations, and financial position,’’ and seemingly you initialed this. Are you at least familiar with this report? 

Mr. CORDRAY. Again, I think you have this matter exactly backwards. I would be glad to explain. 

Chairman HENSARLING. That is not the question, Mr. Cordray. 

The question is, did you initial this memorandum? And if so, it 

would seem to indicate that you knew ahead of time that you had 

an advantage over Ally and you used it. 

Mr. CORDRAY. Again, I think you have this exactly backwards. I 

would be glad to explain. 

Chairman HENSARLING. Okay. Mr. Cordray, you will have ample 

opportunity within this hearing, but I wanted to know— 

Mr. CORDRAY. Should we do it now? 

Chairman HENSARLING. —whether or not you saw this memo. 

I have another question. In determining the racial characteristics 

of borrowers in the auto lending context, you don’t actually have 

the racial characteristics that you know for a fact; instead, the Bureau uses Bayesian Improved Surname Geocoding. Is that correct? 

Mr. CORDRAY. We use the same approach that is used in employment discrimination— 

Chairman HENSARLING. Do you use Bayesian Improved Surname 

Geocoding (BISG) or not? 

Mr. CORDRAY. We do the same approach that is used in employment discrimination cases across— 

Chairman HENSARLING. Okay. So it is Bayesian Improved Surname Geocoding. 

We have the names and salaries of the Bureau’s employees in 

our possession, and our committee has used a public search tool to 

match home addresses and match names using your own Bayesian 

Improved Surname Geocoding. What we have discovered is that 

you pay Black employees almost $16,000 less than their White 

counterparts, which would suggest that either, one, you are presiding over a racist organization, and if you are not, Mr. Cordray, 

shouldn’t the same disparate impact analysis you apply to others 

be applied to you? 

And if you don’t believe our analysis, I would assume you actually know the racial characteristics of your employees. I invite you 

to do your own analysis. But should disparate impact analysis be 

applied to the CFPB? 

Mr. CORDRAY. I have no idea what analysis you are referring to 

or how carefully it was done. Disparate impact analysis applies 

throughout this field of law. It was upheld by the U.S. Supreme 

Court last June in an important decision. 

And if you are going to do that analysis, you would need to correct for pay bands and different jobs. I have no idea whether you 

did that or not, so I would not— 

Chairman HENSARLING. Mr. Cordray, I would invite you to do 

your own analysis. And I must admit, the evidence is fairly overwhelming. I am not sure there was any justice taking place here, 

9 

and I fear what we are seeing are shakedowns for headlines, and 

this has to stop. 

The Chair is way beyond his time. 

I now recognize the ranking member. 

Ms. WATERS. Thank you very much, Mr. Chairman. 

Mr. Cordray, I do not want you to be intimidated or to be made 

to feel bad by these accusations that are being made by the chairman. I would like to think that the chairman and the opposite side 

of the aisle are truly interested in discrimination. There is nothing 

in their work or their history that shows they are. 

And so you continue to do your work, and make sure that the 

work that you do on disparate impact analysis is work that will 

benefit all of the people who are being harmed by it. 

Let’s get on with the real issues. Let’s talk about payday lending. 

Despite the fact there is substantial support for payday operations on the opposite side of the aisle, we know that these operations have targeted minority communities and poor communities, 

and people are getting hooked on these payday loans. And I want 

to talk about, for a minute, what is happening here in Florida. 

But before I do that, I have asked my staff to get me more information about where payday lenders are locating, how many are locating, and in what areas they are locating. We do know this: As 

it has been said by the Federal Reserve in St. Louis, there are 

more payday loan operations than there are McDonald’s stores. 

So a number of States like Florida and Ohio have attempted to 

reform payday lending, but even after so-called reforms, loopholes 

and other gaps remain, still leaving vulnerable borrowers susceptible to exorbitant interest rates and cycles of debt. For example, 

even after Florida’s reforms, Floridians still take out on average 

about 9 loans a year, according to the Center for Responsible Lending, with an annual interest rate of about 312 percent. 

According to a ProPublica investigation into Florida auto lenders, 

who expanded dramatically after Florida’s so-called reforms, one 

Florida consumer appeared to have renewed her loan 17 times in 

11⁄2 years. Another woman borrowed $3,100 and made $2,600 in payments, and after her loan over 7 times she still owed $3,900. 

I can give more examples of this, but what I am giving examples 

of is how poor people get hooked on payday loans. The fact that 

these borrowers have to take out multiple loans shows that the 

loans are not affordable. They have trapped borrowers into a cycle 

of debt. 

Tell me why you are issuing guidance on payday loans? What 

have you discovered about them and how they work? 

Mr. CORDRAY. What we have discovered—and this is through 

careful and comprehensive research into the payday lending industry—is that the description you just provided is substantially correct and accurate. About half of payday loans in the United States 

today are made to borrowers who are trapped in a cycle of 10 or 

more loans. That is about half of the loans being made nationwide. 

That is what we found in our research that looked into millions 

of such transactions. It is difficult to see how that assists a consumer in improving their financial well-being. 

Now, there are plenty of payday borrowers who get in and get 

out with one, or two, or three loans, and that is perfectly great. We 

10 

are not attempting to cut off any such lending. The debt trap— 

being stuck in the debt cycle, living your life off of these massive 

rates of interest and difficult collection practices and the like that 

we have seen—is what creates a tremendous amount of consumer 

harm. 

Ms. WATERS. According to the work that you have done, the research have you done, is this a profitable industry? Are they making money? Are they making large sums of money? What is keeping them going? 

Mr. CORDRAY. It is actually a difficult product economically. 

There are high costs involved in defaults; there are high costs involved in customer acquisition. So there are not super normal profits being made in that area. 

What keeps them going, what is at the heart of the business 

model for the average payday lender, is rolling the customer into 

loan after loan after loan so that eventually you have recovered 

more in fees than they borrowed in the first place. Your example 

was an apt one, of someone who takes out a loan, pays back more 

in the end than they borrowed to begin with, and still owes in the 

end more than they borrowed to being with. That is a very— 

Ms. WATERS. So this is why— 

Mr. CORDRAY. —normal part of this business. 

Ms. WATERS. —they are referred to as debt traps. 

Mr. CORDRAY. Yes. 

Ms. WATERS. People get trapped. They can’t get out. They keep 

rolling them over. Is that what this is all about? 

Mr. CORDRAY. Yes. Industry has objected to that notion, but it 

is the best description I have seen of what actually happens in the 

marketplace. 

Ms. WATERS. Thank you. 

I yield back. 

Chairman HENSARLING. The Chair now recognizes the gentleman 

from Texas, Mr. Neugebauer, chairman of our Financial Institutions Subcommittee, for 5 minutes. 

Mr. NEUGEBAUER. Director Cordray, this committee spent a considerable amount of time studying the short-term, small-dollar 

marketplace, and most recently your Deputy Director testified at 

my subcommittee on this issue. I will say this, that many of my 

colleagues did not walk away with much confidence in the direction 

that you are headed in the rulemaking, particularly on the issue 

of State and tribal sovereignty. 

At issue are roughly 38 States who allow these products to be offered in some form, and the Federal preemption that will occur if 

your rule goes forward as outlined by the Bureau. I have a few 

questions, and I will use some slides during that questioning, and 

I hope that you will be brief and forthright in your answers. 

Slide number one, please? 

So after reviewing the currently regulatory framework, did you 

find any State that does not have the authority to enact and regulate short-term, small-dollar loans? 

Mr. CORDRAY. What I would say is, States have authority in this 

area and the Federal Government has authority in this area, as 

well. 

11 

Mr. NEUGEBAUER. So you didn’t find anybody that didn’t have 

the authority? So the States have the authority to regulate that, 

is that your answer? 

Mr. CORDRAY. Again, as is true in many areas of the law—securities law, antitrust law, telecommunications law—States have authority and the Federal Government also has authority. 

Mr. NEUGEBAUER. Slide two, please? 

Can you list the States, then, that have laws in place that have 

contributed to the problem that you have identified? And which 

States have failed to protect their citizens? 

Mr. CORDRAY. What I can say is, as you indicated, there are approximately 37 or so States nationwide that allow some form of 

payday lending with different degrees of regulation. Our study that 

analyzed millions of such transactions nationwide showed that repeatedly in this business across the country many consumers fall 

into the debt trap, more than half of the loans are made to people 

who take out 10 or more loans in a row. 

Mr. NEUGEBAUER. Which States, then, are allowing the debt 

trap? 

Mr. CORDRAY. That would be all of the areas—all of the States 

that were examined in the study. 

Mr. NEUGEBAUER. Do you have a list of those States? 

Mr. CORDRAY. It would be all the areas where payday lending is 

authorized in this country. 

Mr. NEUGEBAUER. So you looked at every State? 

Mr. CORDRAY. We have looked at millions of transactions nationwide that occurred in all of the States. 

Mr. NEUGEBAUER. In your rule, you mention that there is a floor. 

So does the floor mean that anything below that standard is void? 

Mr. CORDRAY. First of all, again, we don’t have a rule at this 

point. We have an initial framework and we are working toward 

a proposal. It is all in process, and this kind of input is relevant 

to our process. 

Mr. NEUGEBAUER. I think, Mr. Cordray— 

Mr. CORDRAY. But as with our mortgage servicing rules, which 

are final, we did not preempt State law there. We did provide a 

Federal policy judgment about mortgage servicing practices and indicated, in line with the statute that Congress enacted that gives 

us authority in the area, that our rules would be a floor for consumer protection, not a ceiling. 

Mr. NEUGEBAUER. So is your position that you do not think that 

you are preempting State law? 

Mr. CORDRAY. We are not preempting State law. Typically the 

Federal Government, when it is active in an area, could seek to occupy the field. That would be broad preemption. We are not doing 

that. 

They could also seek to preempt State law in specific respects. 

We are not doing that. 

Whatever we do in this area will coexist with State law. There 

will continue to be State regulation of payday lending; there will 

now be Federal regulation as well. 

That is true of many areas of law—telecommunications law, energy law, environmental law. States and the Federal Government 

work together. 

12 

Mr. NEUGEBAUER. I understand that is your position, but the attorney general, Mr. Zoeller, disagrees with you. 

Mr. CORDRAY. I’m sorry? Say that again? 

Mr. NEUGEBAUER. Mr. Zoeller disagrees with you. 

Mr. CORDRAY. I know the Indiana attorney general. We served 

together. I was a bordering State attorney general of his in Ohio. 

We have both been interested and concerned about issues of Federal preemption going back to our time in State Government. For 

myself, I spent 20 years in State Government. 

Mr. NEUGEBAUER. So if one State has a 5-day cooling off period 

and the rule comes out that you require a 60-day cooling off period, 

haven’t you then preempted the State that says 5 days is an appropriate cooling off period? Isn’t that preempting that State? 

Mr. CORDRAY. Again, a common aspect of federalism in our system is that there may be Federal regulation and there may be 

State regulation of individuals, and they coexist. 

Mr. NEUGEBAUER. So what is your definition of ‘‘preemption’’ 

then? 

Mr. CORDRAY. ‘‘Preemption’’ is when the Federal Government 

overrides State law and invalidates State law. 

Mr. NEUGEBAUER. So if my State has a 5-day cooling off period 

and you say that 60 days is the new norm, haven’t you preempted 

my State? 

Mr. CORDRAY. You could say the same thing about securities law. 

States have securities laws that protect people who are investing, 

and the Federal Government has securities laws as well. And they 

coexist. They don’t necessarily jibe in every particular, but they coexist and they are regulated at both levels. 

Mr. NEUGEBAUER. Here is the question. These 37 States have 

gone out there, they have had the hearings, they have had debates 

on the floors, they have passed these laws. What do you know that 

they don’t know? 

Mr. CORDRAY. You could say the same about any of these areas 

of the law. The Telecommunications Act Congress passed in 1996— 

States had regulated that area for years, and the Federal Government had authority—Congress gave it the authority, and they 

acted and then those regimes coexisted. 

Mr. NEUGEBAUER. Have you brought those attorneys general of 

these States and the various groups from those States in to have 

a discussion about this? 

Mr. CORDRAY. I talk to them all the time. Those are my former 

colleagues. 

Mr. NEUGEBAUER. No, I mean, have you had a forum where they 

had an opportunity to comment? 

Mr. CORDRAY. I have spoken to them at the National Association 

of Attorneys General meetings; I speak to them individually; I have 

had a chance to speak to Attorney General Zoeller since he testified 

in your committee. We talk all the time. We coordinate on many 

things including enforcement actions against payday lenders— 

Chairman HENSARLING. The time of the gentleman has expired. 

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

Maloney, ranking member of our Capital Markets Subcommittee. 

Mrs. MALONEY. Welcome, Mr. Cordray. 

13 

My question concerns the Credit Card Bill of Rights (CARD Act), 

which was the second bill that President Obama signed into law. 

And Rahm Emanuel, his former chief of staff, told me that it is one 

of the most popular things that he ever did because it touches so 

many consumers. 

And in that CARD Act we required you, the Bureau, to conduct 

a review every 2 years of whether the Act was having the effects 

that we intended. So first of all, I want to know, what is the response to the CARD Act? 

When you get complaints, are you getting complaints about credit cards to the extent you were before the CARD Act went into effect? And what about the clear and transparent disclosures? Has 

that worked? And no more hidden fees or excessive interest rate 

hikes that are hidden? 

The bill wanted to crack down on unfair and abusive tactics by 

card companies on consumers, and your report found that the 

CARD Act has dramatically improved the credit card market, making it more fair, and more transparent, even as the cost and availability have improved. 

I, for one, think it is useful to have this type of regular review 

of a major bill. And my question is, are there lessons that you have 

learned from your two CARD Act reports that have been useful to 

the Bureau in writing other rules, and have you used those lessons 

going forward? 

Also, two celebrated reviews, one by the Pew Foundation, said that the CARD Act saved consumers $10 billion a year. The NYU 

review, with others, said it was anywhere from $16 billion to $20 

billion a year. Have you conducted any reviews similar to what 

they have done to see whether it is as good a stimulus package— 

it is actually a stimulus package that President Obama signed into 

law because it keeps the money in the consumer’s hands. 

So your comments, please, on the CARD Act and those various— 

Mr. CORDRAY. As you say, we have had a chance to review the 

credit card market and we do that now on a biannual basis and 

provide a report to Congress. 

I would start by congratulating the Congress. The Congress did 

an excellent piece of work in passing the CARD Act, and it has 

made an enormous difference for consumers. 

Different assessments of amounts that consumers have been 

saved, in terms of previously exploitative fees, range up to $16 billion, but it is important to recognize this is going forward year by 

year, and every year consumers are saving, which is quite important. 

The second piece is this shows—and, by the way, my experience 

here goes back to when I was in State Government before the 

CARD Act was passed, and we would hear tremendous complaints 

and concerns about the credit card product at that time. Although 

I was not in the Federal Government when the CARD Act was 

passed, we are doing a regular review of this and watching the J.D. 

Power consumer surveys, which show increasing customer satisfaction in this marketplace year in and year out. 

It is a tremendous success story, and it shows what can be done 

with serious, substantive, even-handed regulation; better performance by the industry, which there is, and I give them credit for 

14 

that, especially on their customer service in the credit card industry; and better consumer performance—people are being more careful with cards coming out of the financial crisis. 

That is important, and it shows that if we work together in a balanced and reasonable way, we can improve these markets so that 

consumers can get more value from them, and that is what we all 

should want. 

Mrs. MALONEY. Okay. Also in your report you highlighted the socalled deferred interest promotions— 

Mr. CORDRAY. Yes. 

Mrs. MALONEY. —and I quote: ‘‘impose significant costs on many 

consumers.’’ And I think that is really important. 

And my question is what, if anything, should be done to address 

the risks the Bureau has identified in deferred interest promotions? 

And also your comments on the overdraft—we have also a bill that 

I offered on overdraft that builds on the Credit Card Bill of 

Rights—your comments on where we stand on that rulemaking? 

Mr. CORDRAY. Yes. We did indicate we have significant concerns 

about deferred interest products. 

The reason is the core principle of the CARD Act was back-end 

pricing, which is never transparent to the consumer up front by 

definition. It is confusing and harmful to consumers because they 

think they are making a deal and they are having certain terms, 

and it turns out it is going to be different; it is going to be changed 

after the fact in a way that was not disclosed to them. That is very 

harmful. 

Deferred interest operates much in that same fashion, so that is 

something we spotlighted in our most recent report. It is an issue 

that we are looking at very carefully and we are going to be taking 

actions as appropriate. 

I think that credit card issuers should be mindful of thinking 

about their deferred interest products and the harm that is happening to a number of consumers who end up with back-end pricing that is very different from what was represented to them up 

front. That is an ongoing concern. 

Chairman HENSARLING. The time of the gentlelady has expired. 

The Chair now recognizes the gentleman from Michigan, Mr. 

Huizenga, chairman of our Monetary Policy and Trade Subcommittee. 

Mr. HUIZENGA. Thank you, Mr. Chairman. I appreciate it. 

And, Director Cordray, I have to tell you that I am a little surprised, and a little stunned. You just have laid out a case where 

you are intentionally trying to create conflict between State law 

and Federal law. 

Now, a number of my colleagues over on the other side have been 

working on a slightly different issue that I am sure you are familiar with: medical marijuana law not lining up with Federal law 

and how that has affected banking. 

Usually, there is an understanding that we are going to try and 

solve that problem, not create the conflict. And I just couldn’t let 

that pass as my colleague from Texas was asking you about the 

lending— 

Mr. CORDRAY. Do you want me to respond to that or not? 

Mr. HUIZENGA. Very briefly, sure. 

15 

Mr. CORDRAY. Okay. 

Mr. HUIZENGA. Why would you want to create intentional conflict? 

Mr. CORDRAY. Look, I spent years in State Government: in the 

State legislature, as State attorney general, as the State treasurer. 

It was very common across many fields of law for us to be administering and enforcing State law in conjunction with common administration of Federal law. It happens all the time. It happens 

with environmental law, and it happens with securities law. 

Mr. HUIZENGA. I did that as well, but you don’t have—in what 

we typically have, for example in environmental law, is you have 

preemptive State law that goes in. First, it has to clear that hurdle. 

I served in the State legislature as well. 

But that is not the direction I want to continue in. I want to pursue a little bit about the arbitration agreements, and I know that 

was brought up earlier. 

In March of 2015 the Bureau released a report on the use of arbitration agreements and disputes between consumers and financial 

product providers. However, the report was criticized by a number 

of academics and industry people for completely ignoring major 

pieces of data. 

On June 17, 2015, over 80 Members of Congress, including me, 

signed a letter asking that the Bureau reopen the arbitration 

study, citing issues with the methods on which the study was conducted, including the processes that developed that study that were 

not ‘‘fair, transparent, or comprehensive.’’ 

And I would like to submit the letter for the record, without objection, Mr. Chairman. 

Chairman HENSARLING. Without objection, it is so ordered. 

Mr. HUIZENGA. The letter also noted the lengthy historical precedent in favor of arbitral dispute resolution, which assists in streamlining the American judicial system. 

One of the complaints that I hear all the time is that we are 

bogged down in court. Arbitration was a tool introduced to streamline that, not to eliminate anybody’s rights, not to eliminate a fair 

hearing, but purely to break the logjam. 

Because I am very curious, do you really believe that this report 

accurately reflects how consumers use these tools? 

Mr. CORDRAY. If I may, our report has been widely recognized as 

the single most comprehensive and informative report on this issue 

ever done. We had access to new data from the American Arbitration Association and others, and it is an outstanding report. 

I have seen and we have attended closely to criticism of that report. It has been mostly incidental. 

We sat down with the authors of the one critical study. One of 

them agreed to sit down with us and talk it through; the other did 

not. But we have looked at all of that— 

Mr. HUIZENGA. Where does the study estimate the transaction 

costs associated with consumers pursuing a claim in Federal court 

versus arbitration? 

Mr. CORDRAY. What we looked at was how the judicial process 

compared to the arbitration process in terms of outcomes and the 

like. What we found, by the way, was, as a matter of history, what 

you say is somewhat correct in terms of arbitration starting off as 

16 

a business-to-business dispute resolution mechanism, and it is reasonable in that context. 

Mr. HUIZENGA. It is also individuals. 

Mr. CORDRAY. In more recent times it has been used to cut off 

access to— 

Mr. HUIZENGA. Okay. So does the study compare the ability of 

consumers to pursue a claim without a lawyer in Federal court 

versus arbitration? 

Mr. CORDRAY. The study comprehensively addresses many aspects of the judicial process, many aspects of the arbitration process, and compares outcomes between the two. 

Mr. HUIZENGA. So for those watching on C-SPAN and the rest, 

the answer to both of those questions is ‘‘no.’’ 

Mr. CORDRAY. No, my answer is to describe what our study did, 

and it is the most comprehensive study ever done. Nobody disputes 

that. 

Mr. HUIZENGA. I understand it is comprehensive, but there are 

a number of people involved in that space who believe that there 

were major flaws in the data and how it was used. And it seems 

to me that— 

Mr. CORDRAY. We have looked at what they have had to say, and 

it is not particularly credible, frankly. 

Mr. HUIZENGA. So you would have no problem, then, heeding the 

request that over 80 Members of Congress in the House and the 

Senate had of saying, ‘‘Okay, we would like to open this up and express some of our concerns in this?’’ 

Mr. CORDRAY. I am simply going to continue to enforce the law. 

Congress asked us to do a broad, comprehensive study; we spent 

3 years on it. We are now moving ahead with Congress’ direction 

to engage in policy intervention based on that report. 

Mr. HUIZENGA. Okay. What I need to know is how you can make 

a meaningful comparison between class actions and arbitration in 

this report? I don’t see that, and many others in the space do not 

see that. 

And that ultimately is the concern that I have is somebody receiving a check for 25 cents being part of a class action suit, which 

often happens as these major class action suits go on. The trial 

lawyers and the attorneys are all paid up. They are the ones who 

make the money; it is not the consumers. 

And I would argue that arbitration actually benefits the consumer as much as it benefits anybody else in that process because 

it is streamlined. And so it sounds like to me that you are just trying to protect— 

Mr. CORDRAY. That is not what our report showed, and it is a 

comprehensive study of this issue. There is virtually no relief to 

consumers in the arbitration process, and billions of dollars of relief 

to consumers in the judicial process. That is the comparison. 

Mr. HUIZENGA. As long as their attorneys are paid. 

Chairman HENSARLING. The time of the gentleman has expired. 

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

Velazquez. 

Ms. VELAZQUEZ. Thank you, Mr. Chairman. 

Mr. Cordray, we have seen some indication from the CFPB that 

the lines between what is consumer lending and what is commerVerDate Nov 24 2008 20:01 Mar 01, 2018 Jkt 023721 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 K:\DOCS\23721.TXT TERI
17 

cial lending are blurred. Can you explain your views on how the 

agency distinguishes between consumer lending and commercial 

lending? 

Are there circumstances in which a loan to a small business 

could be a consumer loan? And if so, can you elaborate on the nature of those circumstances? 

Mr. CORDRAY. Yes. There are areas where the line between commercial lending and consumer lending is blurry. 

For example, a lot of start-up small businesses are being financed by individuals putting debt on their credit cards, so that is 

why the CARD Act becomes so important because it actually protects not just individuals but also many fledgling small businesses. 

It is also the case that home equity loans are often used to get capital to start businesses or improve businesses or grow businesses. 

If I had my way—I don’t have my way on many things—we 

would do what I did when I was Ohio attorney general and seek 

to protect not only individual consumers, as our statute authorizes 

us to do, but also small businesses who often operate in the marketplace with no greater clout than an individual household does. 

If the Congress sees fit to give us that authority, we will aggressively pursue that. And it would help small business across the 

country. 

As it is, again, as you say, the protections that we put in place 

for consumers often will end up helping certain individual small 

businesses that start out as individuals or a very small number of 

individuals and seek to grow. 

Ms. VELAZQUEZ. Mr. Cordray, one area where I am concerned is 

regarding online lending. This is an increasingly popular choice for 

small businesses to quickly access capital, yet the regulatory environment has yet to catch up. 

What role do you see the CFPB playing in the small business online lending marketplace? 

Mr. CORDRAY. We are very interested in financial innovation and 

so-called FinTech. We have had the major marketplace lenders in 

to talk with us because we do have jurisdiction over them. The 

Treasury has convened a set of actors and is working on a White 

Paper on this subject. 

It is something I think we are all interested in because it is a 

new source of capital for small businesses but needs to be subject 

to certain oversight and protections, as well. 

That is something we will continue to work on. I am hearing 

from you a great deal of interest in this area. Others have a great 

deal of interest, as well. 

Ms. VELAZQUEZ. Thank you for answering my letter. 

Mr. CORDRAY. Yes. 

Ms. VELAZQUEZ. Thank you. 

Director Cordray, to date, five attorneys general have issued consumer alerts about deceptive advertising practices by rooftop solar 

companies, and a handful of settlements were reached in Arizona 

last year alone. Is the CFPB presently working with various State 

regulatory bodies, interviewing complainants, and investigating the 

depth of the problem we are hearing about? 

Mr. CORDRAY. I can’t speak to specific enforcement activity being 

engaged in by the Bureau, but across the country when there are 

18 

consumers complaining about harm done to them or perceived mistreatment in the marketplace, that is the kind of thing that gets 

identified to us through our consumer complaint line and those are 

things we prioritize for investigation and potential action. I think 

I can say that much. 

Ms. VELAZQUEZ. Thank you. 

In May 2015 the CFPB issued a bulletin providing guidance to 

help lenders avoid discriminating against applicants participating 

in the Section 8 housing choice voucher homeownership program. 

Can you explain this bulletin and how it will help increase access 

to credit for eligible consumers? 

Mr. CORDRAY. Yes. I am not sure if this is a direct answer to 

your question, but under the Equal Credit Opportunity Act it is illegal for lenders to discriminate against potential borrowers based 

on the fact that they are receiving public assistance income. That 

is good income and is supposed to be part of the calculation. 

We have had several actions now where we found that lenders 

were not taking appropriate account of that kind of income, and 

they have made corrective actions accordingly. 

In general, this is our approach. The Equal Credit Opportunity 

Act is one of the statutes that both we and the Justice Department 

administer, and we will do that faithfully and vigorously to make 

sure people are being protected and that prohibited classes are not 

being discriminated against under that statute. 

Ms. VELAZQUEZ. Thank you. 

Chairman HENSARLING. Does the gentlelady yield back? 

Ms. VELAZQUEZ. I yield back. 

Chairman HENSARLING. The gentlelady yields back. 

The Chair now recognizes the gentleman from New Jersey, Mr. 

Garrett, chairman of our Capital Markets Subcommittee. 

Mr. GARRETT. Thank you, Mr. Chairman. I am just coming in. I 

am over in Budget right now. 

But I just want to follow up on the issue of arbitration. So Congress passed a bill, it was signed into law, and the President signed 

it, which validated the use of arbitration. My understanding now 

is a study was done— 

Mr. CORDRAY. I’m sorry, what law is that? 

Mr. GARRETT. The Federal Arbitration Act. 

Mr. CORDRAY. Okay, in 1929 or so, yes. 

Mr. GARRETT. Yes. Are you familiar with that law? 

Mr. CORDRAY. Beg your pardon? 

Mr. GARRETT. Are you familiar with it? 

Mr. CORDRAY. I am. 

Mr. GARRETT. Is that still the law of the land? 

Mr. CORDRAY. It is still the law of the land, yes. 

Mr. GARRETT. But you disparage it by saying, ‘‘1929.’’ 

Mr. CORDRAY. No, no. I am just saying in 2010 Congress passed 

the Dodd-Frank Act and made a number of changes in terms of 

how arbitration began, including outlawing arbitration clauses in 

residential mortgage contracts. Most residential mortgage— 

Mr. GARRETT. The Federal Arbitration Act, which allows for arbitration, is still the law of the land. 

Mr. CORDRAY. Although it has been modified by Congress in several respects since then, yes. 

19 

Mr. GARRETT. And it is now your agency’s decision to, what, upend that law through a comprehensive action? 

Mr. CORDRAY. No. Congress has now intervened and superseded 

the Federal Arbitration Act in specific respects. On the Military 

Lending Act— 

Mr. GARRETT. Has Congress ended the ability of arbitration? 

Mr. CORDRAY. In the Military— 

Mr. GARRETT. That is a yes-or-no question. 

Mr. CORDRAY. In several respects, yes, they have. 

Mr. GARRETT. I didn’t say in several respects. I said— 

Mr. CORDRAY. Yes, in several respects they have. 

Mr. GARRETT. —have they ended the use of arbitration? 

Mr. CORDRAY. Under the Military Lending Act they barred arbitration clauses in lending contracts to service members. 

Mr. GARRETT. So we can’t seem to get— 

Mr. CORDRAY. Under Dodd-Frank they barred it in residential 

mortgage contracts, for the most part. 

Mr. GARRETT. Have we— 

Mr. CORDRAY. They also— 

Mr. GARRETT. Have we totally eliminated arbitration? 

Mr. CORDRAY. No, but they then— 

Mr. GARRETT. Okay. Thank you. 

Mr. CORDRAY. —but they gave us, then, authority—Congress conferred it to us. I am not making it up. 

Mr. GARRETT. And so is it your intention now to eliminate arbitration? 

Mr. CORDRAY. Congress specifically said—and we merely carry 

out the will of Congress—that we should issue a report—do a 

study, issue a report, and then act in terms of addressing arbitration in light of that study and report. 

Mr. GARRETT. So when you say that it is your intention to perform the will of Congress, when 80 Members of Congress write to 

you and ask specific questions, do you believe that you should answer those questions? Yes or no? 

Mr. CORDRAY. I pay close attention to what Members of Congress 

tell me. It is my job to enforce the law that Congress has enacted. 

Mr. GARRETT. When 80 Members of Congress ask you questions, 

do you believe that you have the responsibility to respond and answer those questions? 

Mr. CORDRAY. I respond to individual Members of Congress, but 

I enforce the laws that Congress enacts. 

Mr. GARRETT. So the answer is no, since you did you not say 

that— 

Mr. CORDRAY. No. That is not correct. 

Mr. GARRETT. —it was your responsibility. 

Mr. CORDRAY. The answer is yes. 

Mr. GARRETT. You do? We sent a letter back on June 17th of last 

year. We are still waiting for a complete answer. 

With regard to that so-called comprehensive study, the Bureau 

ignored requests to disclose the topics that would be covered by the 

study. Have you disclosed all topics that have been covered by the 

study? Yes or no? 

Mr. CORDRAY. I am not sure what all back-and-forth in correspondence there has been. I know we responded to that letter. If 

20 

you think that response was insufficient, we would be happy to 

work with you further and get you more information. 

Mr. GARRETT. You have also failed to provide the general public 

with any meaningful opportunities to provide input for the topic because the materials were kept behind closed doors. The final arbitration study included entire sections that were not included in the 

preliminary report that was provided to the public. 

Was there a reason why you decided that certain information 

would be held confidential and not disclosed to the public? 

Mr. CORDRAY. Some of the information, depending on how we obtain it from the American Arbitration Association and others, businesses have deemed confidential, may involve trade secret information and the like. Those would be the obstacles. 

Mr. GARRETT. And are those— 

Mr. CORDRAY. There wouldn’t be any desire on my part. 

Mr. GARRETT. Are those the only sections that are precluded 

from being public, the trade secrets, or is it a broad swath of areas? 

Mr. CORDRAY. I would be glad to have my staff who are expert 

in this area deal with your staff and speak specifically to specific 

pieces of the report. 

Mr. GARRETT. Obviously, since we are talking about a letter from 

June and here we are in March, we are still looking for complete 

answers. 

Mr. CORDRAY. We have responded to the letter, and if that response was deemed insufficient we would be glad to work with you 

further to get you more information. 

Mr. GARRETT. It goes back, I guess, to your initial answer to the 

question of whether you feel that it is your responsibility to answer 

to 80 Members of Congress. 

Now, when you first came to this committee, I asked you, I guess 

the seminal question: ‘‘If the House of Representatives said you 

shouldn’t do something, are you accountable to them?’’ 

And the response was, ‘‘No.’’ 

And I asked, ‘‘If the Senate said that you should be doing something, should you respond to them and respond?’’ Your answer was, 

‘‘No.’’ 

I said, ‘‘If the President asked whether or not you should be 

doing something,’’ the answer was, ‘‘No.’’ 

Mr. CORDRAY. I don’t remember any of this discussion. 

Mr. GARRETT. Final answer was— 

Mr. CORDRAY. I certainly don’t remember it in that way. 

Mr. GARRETT. Yes. That was my series of questions. The final 

question was, ‘‘Are you accountable to anyone?’’ 

And the answer to this letter and that question back then was— 

Mr. CORDRAY. No, that is not what I am saying and that is not 

a legitimate characterization of this. 

Mr. GARRETT. Actually, that is— 

Mr. CORDRAY. I respond to Members of Congress— 

Mr. GARRETT. —on the record. 

Mr. CORDRAY. —but I have a responsibility to enforce laws enacted by Congress, not by individual Members. 

Mr. GARRETT. And the law of 1929 was enacted by Congress, and 

it would appear that you— 

Mr. CORDRAY. And so has the law of 2010, yes. 

21 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from New York, Mr. 

Meeks. 

Mr. MEEKS. Thank you, Mr. Chairman. 

Good morning, Director Cordray, it’s great to see you this morning. 

And let me first join many of my colleagues—I know on the 

Democratic side, I think it should be on both sides—because we all 

should be thanking you for all the work that you have been doing 

to help the American consumer, for the work that you have been 

doing to help our veterans, to help our students, to help our mortgagees, and especially for the work that you do for low-income and 

minority communities who are always the most victimized—it is 

those who are on the bottom—and the work that you are doing to 

try to make sure that there is a level playing field. 

And I would think that, given the scenario, both sides of the aisle 

should be appreciative of the agency and the work it does. I see 

there is room that we can work collectively together. 

For example, what is important is that since the financial crisis, 

a number of financial services have closed. There have been over 

5,000 branches of closures of—especially in—most of them in lowincome and communities of color, leaving behind banking deserts, 

which is a neighborhood with basically no mainstream financial 

services. 

But the people in those neighborhoods cannot live without access 

to financial services. And therefore, to meet those great needs, 

there are alternative products such as short-term lenders, and I 

hear my colleagues talking about that, and prepaid card providers, 

et cetera, of which—I just think about my parents. I lived in public 

housing, went to a bank—at that time some banks were not bankable, but they needed to have options so they used other options. 

Back then, some of the options were dark. We don’t want folks 

to go to the dark, so it would seem to me where your agency is a 

godsend to me is not to wipe out all of these businesses, but to try 

to make sure that we regulate them so that there is a good practice, so that people are not being ripped off, so that there are 

strong and functioning alternative financial services so they are not 

being denied access to financial products also, as they would have 

been. 

Sometimes, I know my dad needed an extra few dollars to make 

it to the next month till the next paycheck came. And we need that 

kind of—but we don’t want it where people are caught in that forever. 

And I think that would be good for both sides. Nobody should 

want that. We don’t want anybody taken advantage of. 

And so if we have an agency, like yours, that can then put in 

some rules and some regulations so that we can make sure that the 

consumers are not getting ripped off but also—and I think that 

would be good for those who are providing good services. They 

would want that also. 

Because we want to get rid of the bad folks. We don’t want to 

get rid of everybody; we want to get rid of the bad folks. That 

would seem to me to be the goal. 

22 

And so I think that is the right approach that we should take, 

and I think that is the approach that you are trying to take in this, 

not just eliminating an entire—but eliminating the bad guys, and 

let’s make sure that we uplift the good so that poor folks in lowincome areas would have some opportunities to continue to bank. 

Is that correct? 

Mr. CORDRAY. I found myself sitting here thinking that you are 

saying a lot of things that I try to say when I am sitting here in 

this seat testifying, and I think you may have just said it better. 

So I would just agree with you. 

Mr. MEEKS. So now, let me just give, in the little time I have left, 

what I was concerned I saw about the Bureau’s latest enforcement 

and findings, because I am shocked here we are in 2016 and there 

is still redlining going on, and that redlining especially in the mortgage lending and the steering of consumers in high-cost loans. It 

amazes me that we are still finding institutions thriving from this 

egregious practice. 

And so can you please discuss with us in the little time I have 

left what is going on in those cases and what the Bureau has done 

to address it? 

Mr. CORDRAY. We have seen a lot of things over the last few 

years, and frankly, again, 90 percent or more of our enforcement 

actions involve deceptive conduct by financial institutions, which is 

discouraging in some ways. But even we were somewhat surprised 

to see what we thought was very blatant redlining occurring. 

This is the enforcement action that we and the Justice Department jointly took involving Hudson City Savings Bank, and the 

patterns when they were mapped were very clear. It is a significant 

resolution and a shot across the bow to the entire marketplace that 

this is not acceptable behavior; it is not an acceptable approach, 

and people need to review what they are doing and correct it if, in 

fact, they have gone down that road in any respect. 

Mr. MEEKS. I only have 7 seconds, so I yield back. 

Chairman HENSARLING. The gentleman yields back. 

The Chair now recognizes the gentleman from Missouri, Mr. 

Luetkemeyer, chairman of our Housing and Insurance Subcommittee. 

Mr. LUETKEMEYER. Thank you, Mr. Chairman. 

Mr. Cordray, you and I have had a number of discussions with 

regard to TRID, and I certainly appreciate your willingness to discuss it with us. As we have seen, you have delayed the implementation of the rule until October, and since then we have seen a lot 

of concern by the industry. They are struggling with this rule; some 

of the software programs that they have utilized have not been as 

good in implementing this as they would have liked to have seen 

and they are still struggling. 

So my question is, what do you see from your position as the enforcer of this, as well as are you—have you had any enforcement 

actions taken against anyone at this point? 

Mr. CORDRAY. I think we see and hear much the same things 

that you are describing. I think the I.T. problems here have been 

much larger than maybe people would have expected, and particularly because a mortgage lender can’t control the I.T. systems of 

23 

REALTORS®, or title agents, or settlement agents, and others, and 

they have to all work together. 

I know there was a bill in Congress proposing to have a holdharmless period through February 1st of this year. What I had said 

and I have worked with the other regulators to jointly say was we 

were going to be corrective and diagnostic, not punitive, as we 

oversaw this implementation period, and it was open-ended. 

It remains open-ended. We are now midway through March 

today and it remains open-ended. 

We have taken no enforcement actions. I don’t expect us to take 

enforcement actions unless somebody is blatantly just failing to try 

to implement the new rule. 

To the extent that they are making some mistakes but trying to 

get it right, we are attempting to provide more clarification to 

them, which is something industry is asking us for, and also recognizing nobody is really trying to exploit consumers here; this is just 

a matter of getting these forms right and getting them correct. 

By the way, the whole purpose behind this rule was something 

Congress wanted, and it is a positive purpose, which is taking what 

used to be two bureaucratic forms at the application stage and 

streamlining them into one, and the same at the closing stage. 

That is what we have done here. 

Mr. LUETKEMEYER. Are you going to issue an additional guidance 

on this, or you feel that everybody is doing okay with what is going 

on? 

Mr. CORDRAY. No, no. We have been monitoring this very closely. 

The last thing I want is for any of our rules to cause a jam-up in 

the market beyond anything that anybody would intend. 

I think we are getting more guidance inquiries every day, but the 

trade associations are working together to provide some joint questions that they think are most important. We will attempt to be responsive to that. 

Feel free to keep after us to make sure we do that. 

Mr. LUETKEMEYER. Oh, we will. Trust me. 

Mr. CORDRAY. Okay. 

Mr. LUETKEMEYER. Also, along a different line, the Federal Trade 

Commission Act grants the FTC and banking regulators with the 

power to pursue enforcement actions based on unfair and deceptive 

acts or practices (UDAP). 

Dodd-Frank marked an unprecedented expansion of UDAP authorities for the CFPB, including for the first time the term ‘‘abusive.’’ An expanded series of powers for the CFPB referred to as 

UDAP has become a primary enforcement tool. 

I realize that last week you spoke to the Consumer Bankers Association and rejected the notion that you are regulating by enforcement. I beg to differ, sir. 

And when it comes to the CFPB’s UDAP authority, you have 

issued little to no guidance preventing any financial institution 

from any sort of predictability. You use your UDAP authority on 

a case-by-case basis. Isn’t that the definition of regulation by enforcement? 

Mr. CORDRAY. We are doing the very same thing there that the 

Federal Trade Commission does and that the State attorneys genVerDate Nov 24 2008 20:01 Mar 01, 2018 Jkt 023721 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 K:\DOCS\23721.TXT TERI
24 

eral do. It is difficult to know how to do more than case-by-case 

when you are talking about cases of fraud or deceptive conduct. 

We attempt to give guidance to the entire market by very specific 

orders that are issued in these cases so that everyone knows that 

if they are doing this, they should stop. If that is called regulation 

by enforcement, I think it is just strong deterrence and it is important as a law and order mechanism for signaling to other actors. 

Mr. LUETKEMEYER. Along that line, the last time you were here, 

I asked the question just before we finished up with regards to a 

debt collection company that you wound up settling a situation for 

$12 million based on a proposed rule. Not a rule that is in force, 

but a proposed rule. 

Mr. CORDRAY. I’m sorry, what matter are we talking about? 

Mr. LUETKEMEYER. Encore. 

Mr. CORDRAY. Okay, debt collection. Got it. 

Mr. LUETKEMEYER. Debt collection. And this was based not on a 

rule that was in force, but it was on a proposed rule that you 

thought you may down the road have in force and said that they 

had a form that was noncompliant. So is that not regulation by enforcement? 

Mr. CORDRAY. Yes, I don’t think that is what we did in the Encore matter. 

In the Encore matter we did a careful, thorough investigation of 

the facts. We found that there were violations of either the Federal 

Debt Collection Practices Act or the unfair and deceptive prong 

that we are given by Congress, and we enforced against that. 

The notion that because we may issue a rule on debt collection 

several years down the road, or maybe next year, whenever it will 

be, that in the meantime we can’t stop people from engaging in an 

unfair and deceptive conduct, I just don’t think is the right approach for us. 

Mr. LUETKEMEYER. I see my time has expired. I yield back the 

balance of my time. 

Chairman HENSARLING. The time of the gentleman has expired. 

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

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

Hensarling and Ranking Member Waters, for holding this important hearing on the CFPB’s semi-annual report. 

Director Cordray, I want to thank you for your appearance here 

today and for your exemplary leadership at the Consumer Financial Protection Bureau. Before I proceed with my questions, I wish 

to voice my strong support for the CFPB and its mission of protecting American consumers. 

Chairman Hensarling, I ask unanimous consent to enter my 

opening statement into today’s record. 

Chairman HENSARLING. Without objection, it is so ordered. 

Mr. HINOJOSA. With that, I will be able to move right into my 

questions. 

Director Cordray, many argue that if the Bureau issues a payday 

lending rule in line with the released outline, it will eliminate a 

crucial source of lending for many low-income people who have no 

other options. Why does the Bureau see the need to regulate payVerDate Nov 24 2008 20:01 Mar 01, 2018 Jkt 023721 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 K:\DOCS\23721.TXT TERI
25 

day lenders, and why do you believe consumers will be better off 

with CFPB oversight? 

Mr. CORDRAY. Again, we were given authority by Congress to address this marketplace, among others. In fact, it was specifically 

called out in the Consumer Protection Act of 2010, the Dodd-Frank 

Act. 

We have done extensive research. We have assessed and analyzed millions of transactions. And again, what we found was a significant portion of the customer base, half of the total loans being 

made—payday loans nationwide—go to customers who are in a sequence of 10 or more loans. 

That is a debt trap. I don’t know what else to call it. It creates 

tremendous harm for consumers. It is the exact point that was 

being made earlier in the ranking member’s example of someone 

taking out ‘‘X’’ dollars in loans, ending up repaying more in fees 

than they ever borrowed in the first place, and still owing more at 

the end of all that than they borrowed in the first place. 

Mr. HINOJOSA. Thank you for your response. I strongly support 

your efforts to rein in those harmful payday loan practices. 

In my community we have seen some programs that cost onetenth of what payday lenders charge, but there just aren’t enough 

of these programs. 

Tell me about the 5 percent option included in the proposed rule, 

and will it be included in the final rule? 

Mr. CORDRAY. I can’t speak to what may be in the final rule. We 

are just coming up on a proposal stage here. 

We are going to continue to take input from many different 

stakeholders. Of course, they have very dramatically conflicting 

input, and that is something we try to sort through. 

What I can say is that in approaching this rule we are attempting to both address significant and actual harms to consumers, and 

we are also trying to make sure that there are ample avenues that 

remain for small-dollar lending to be available to consumers. Community banks and credit unions have a product now that we want 

to make sure that we are protecting and giving latitude for, and 

other products that may arise around the country. We don’t want 

to squash innovation in this area. 

We do want to, to the extent we can, squash predatory products 

that are causing enormous consumer harm. 

Mr. HINOJOSA. According to the FDIC, nearly 50 million Americans are either unbanked or underbanked. Consumers sometimes 

need access to $100 or less to smooth the transition between paychecks when their balance is low so that they can still purchase 

medicines and groceries and other necessities. 

How have the Q.M. rules affected mortgage lending by community financial institutions? 

Mr. CORDRAY. This question is important because I often see 

facts alleged that are not accurate in this area. 

This share of the market of mortgage lending by community 

banks and credit unions has grown since Dodd-Frank was enacted. 

It is larger now. It is larger now than it was in the mid-1990s. This 

has come at the expense of large banks in particular. 

This is exactly the point that I think Congressman Meeks just 

made, which is that if you have even-handed, sensible regulation 

26 

of a market, the more responsible actors should be able to thrive 

because they are freed from unfair competition by the bottom-feeding, law-violating actors, many of which came into the mortgage 

market in the middle part of the last decade and engaged in highly 

irresponsible lending and ended up blowing up the mortgage market. 

Community banks and credit unions, contrary to much of what 

is said, their market share has increased, and that is a good thing. 

Mr. HINOJOSA. My time has— 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Wisconsin, Mr. 

Duffy, chairman of our Oversight and Investigations Subcommittee. 

Mr. DUFFY. Thank you, Mr. Chairman. 

Welcome, Mr. Cordray. As you know, I have expressed some of 

my frustration with regard to the lack of compliance with the document requests that this committee has made to the CFPB. 

That is with the backdrop of Barack Obama telling us that this 

would be the most transparent and open Administration ever. That 

is with Elizabeth Warren indicating that sunshine would flow into 

the CFPB. That is in regard to the backdrop that you have given 

with regard to openness and transparency. 

It gives us great concern that a number of our subpoenas go back 

several years and there has been a lack of compliance. As you 

know, there has been a recent subpoena 3 months ago that compiled all of our document requests, and we get limited compliance 

from you. 

I want to direct your attention— 

Mr. CORDRAY. Do you want me to respond to that? 

Mr. DUFFY. Oh, in a second. 

Mr. CORDRAY. Okay. 

Mr. DUFFY. You will have plenty of time. 

I want to direct your attention—you are aware that a report 

came out from this committee in regard to indirect auto lending. 

And you would note that there were some documents that we included, quotes in that report from the Consumer Financial Protection Bureau. 

Did you provide those documents before this report to this committee? 

Mr. CORDRAY. I can’t speak to individual documents because I 

don’t know which ones you are referring to, but what I can say is 

over the— 

Mr. DUFFY. The ones in the report. I am referring to the— 

Mr. CORDRAY. —course of the last several years, in response to 

numerous requests— 

Mr. DUFFY. Director Cordray, I would just like you to answer my 

question. I am talking about the report that we did on indirect auto 

lending, the one that came out on November 24th. I am sure you 

read that because you made some calls to the Hill. 

Did you provide those documents to us? 

Mr. CORDRAY. I can’t, out of context here, place individual documents over the last several years. I know that— 

Mr. DUFFY. I am talking about the documents— 

27 

Mr. CORDRAY. —we have been very responsive to your requests. 

You have received tens of thousands of pages of documents. If there 

are particular ones that you are looking for— 

Mr. DUFFY. Director Cordray, I love that—you could send me 

tens of thousands, you could send me tens of millions of documents, 

but if you don’t send me the ones that I ask for—just like Hillary 

Clinton can send thousands of e-mails, but if you don’t send the 10 

that are relevant— 

Mr. CORDRAY. Sure. 

Mr. DUFFY. If you want to talk about recordings in Watergate, 

you could send hours of recordings, days of recordings, but if you 

miss a few minutes, it is those that are relevant. 

Mr. CORDRAY. We continue to work with you on those responses. 

We will be glad to continue to work with you on those responses. 

Mr. DUFFY. I know that you know what I am talking about in 

regard to this report, and you know that you didn’t send us these 

documents. And even after this report came out, we have again 

asked you for the documentation in this report and you have refused to comply again with our request. 

And that, sir, is incredibly frustrating when, again, you have 

made commitments to being open and transparent. 

Mr. CORDRAY. We continue to be glad to work with you on those, 

Congressman Duffy. 

Mr. DUFFY. Mr. Director, we have been trying to work together 

for years, and I don’t— 

Mr. CORDRAY. I still am trying to work with you and will continue to try to work— 

Mr. DUFFY. Working is easy. Give us the documents. Send them 

to us. Send us what we asked for. 

Mr. CORDRAY. We will be glad to sit down and talk further. I 

know our people are talking further. 

Mr. DUFFY. I want to just kind of highlight some of the—before 

we go there, I—in the Ally settlement—let’s talk specifically about 

that—you use your proxy data. In regard to your analysis on proxy 

data, what percentage of accuracy do you have in regard to Ally? 

Mr. CORDRAY. So it depends on—look, it depends on what you 

are talking about. There are different degrees of accuracy for different things. 

We work to provide a high degree of accuracy in terms of potential charges of disparate impact discrimination under the law 

and— 

Mr. DUFFY. Disparate impact. 

Mr. CORDRAY. —reaffirmed by the Supreme Court last— 

Mr. DUFFY. So on disparate impact, what percentage of accuracy 

do you have? 

Mr. CORDRAY. Again, it depends— 

Mr. DUFFY. You can’t tell me? 

Mr. CORDRAY. —on what we are talking about. Are we talking 

about the auto market, the mortgage market? Are we talking 

about— 

Mr. DUFFY. I’m sorry, we are talking about the auto market. 

Mr. CORDRAY. Okay. A high degree of accuracy. 

Mr. DUFFY. What is a percent? 

28 

Mr. CORDRAY. I can’t give you specific percentages, but if you 

want my staff to work with your staff on specifics there we can do 

that. 

Mr. DUFFY. So it is fair to say that you are not 100 percent accurate, is that right? 

Yes? 

Mr. CORDRAY. I don’t know if anybody is ever 100 percent accurate, but we get as— 

Mr. DUFFY. So is it fair to say that— 

Mr. CORDRAY. —close as we can. 

Mr. DUFFY. —there are some White borrowers who may be included in your analysis who will get checks from the Ally settlement? 

Mr. CORDRAY. I would say that if you are administering any redress to consumers—and this is across the entire spectrum of what 

we do, what attorneys general do, what the courts do— 

Mr. DUFFY. Yes or no? 

Mr. CORDRAY. —it is always possible that redress will find its 

way— 

Mr. DUFFY. So disparate impact checks will go to White borrowers potentially— 

Mr. CORDRAY. It— 

Mr. DUFFY. —and so that is fine— 

Mr. CORDRAY. It is nothing unique in this area. 

Mr. DUFFY. Great. So in your analysis I am sure that you saw 

some African-Americans who pay at higher rates than the White 

average, and some African-Americans who paid less than the White 

average. Is that right? 

Mr. CORDRAY. What we saw was systematically African-Americans and/or Hispanics— 

Mr. DUFFY. So are you telling— 

Mr. CORDRAY. —borrowers in certain matters were paying more. 

Mr. DUFFY. Is it your testimony that nobody paid less than the 

White average? 

Mr. CORDRAY. Beg your pardon? 

Mr. DUFFY. Is it your testimony that no one paid less than the 

White average? 

Mr. CORDRAY. I don’t know that I would say that, but again— 

Mr. DUFFY. Okay, so my question for you is— 

Mr. CORDRAY. —it depends on what matter we are talking about 

and what data we are talking about— 

Mr. DUFFY. —is someone who paid less than the White average— 

are they also getting a disparate impact check? 

Mr. CORDRAY. Again, I am not sure what— 

Mr. DUFFY. Yes or no? 

Mr. CORDRAY. —matter you are talking about or what data you 

are talking about. But what I would say is— 

Mr. DUFFY. Director Cordray— 

Mr. CORDRAY. —disparate impact discrimination is something I 

know has been under attack in certain quarters. 

Mr. DUFFY. —are you— 

Mr. CORDRAY. The Supreme Court reaffirmed— 

Chairman HENSARLING. The time of the gentleman has expired. 

29 

Pursuant to clause (d)(4) of committee rule 3, the Chair recognizes the gentleman from Wisconsin for an additional 5 minutes. 

Mr. DUFFY. Thank you, Mr. Chairman. 

We are talking about the Ally settlement. You are well aware of 

that, right? And I am talking about the numbers that you used for 

that settlement. 

So I am asking you simple questions. Are White borrowers getting disparate impact money? You are stonewalling me here. You 

are not answering my question and I think this is a pretty simple 

line of questions. 

If you want to be open and transparent, do it here. If you are 

not going to give me the documents, answer my questions. 

Mr. CORDRAY. Sure. Okay. 

Mr. DUFFY. And so that was one that you are trying to waffle on. 

The next question is— 

Mr. CORDRAY. I am ready to do it. 

Mr. DUFFY. Hold on, and the next question is, you have individuals who probably—I know this for a fact—paid less than the 

White average. Do those African-American borrowers get disparate 

impact checks as well, or are you only sending checks to AfricanAmericans who paid more than the White average? 

Mr. CORDRAY. If you want to specify someone to me, we can look 

at it. What I know is that we set up a process here, working with 

the Justice Department who has experience in these matters going 

back decades, and that is a process that everyone has confidence 

in— 

Mr. DUFFY. So you haven’t— 

Mr. CORDRAY. —and it is getting redress— 

Mr. DUFFY. I will reclaim my time. You haven’t sent— 

Mr. CORDRAY. —hundreds of thousands of consumers. 

Mr. DUFFY. Director Cordray, you haven’t sent me the information on Ally, but we do have the information in regard to Toyota. 

This comes from a document dated November 19, 2004; it was 

initialed by you. And on page, I believe it is 15, is a chart that 

shows non-subvented African-Americans, the total number of affected at 116,500, okay, if you want to look up at the—do you have 

the document in front of you? 

Mr. CORDRAY. No, I don’t. 

Mr. DUFFY. Look at the screen. You can see that right there. 

And the number of harmed prohibited basis borrowers is 66,000. 

So it is my reading of this document that there are 56 percent of 

African-Americans who paid more than the White average and 44 

percent who paid less. Fair enough, in the Toyota study? 

Mr. CORDRAY. I am not easily able to analyze these numbers 

taken out of context, but— 

Mr. DUFFY. You signed off on the document. 

Mr. CORDRAY. —but, go ahead with your questions— 

Mr. DUFFY. Okay. So if you want to go down to the subvented 

African-Americans, the number who were affected was 7,559, but 

the number that I had prohibited—or were harmed was 2,668. So 

meaning on the subvented class of African-Americans only 35 percent paid more than the White average; 65 percent paid less. These 

are your documents, sir. 

Mr. CORDRAY. What I would say is— 

30 

Mr. DUFFY. I want to be clear: If you are not going to give me 

the Ally documents, we will use Toyota. 

Mr. CORDRAY. What I will say is subvented auto loans can behave differently from normal auto loans, and that is something we 

take account of in our analysis. 

Mr. DUFFY. That is why I gave them both to you. Look at the 

chart. 

Mr. CORDRAY. Yes. 

Mr. DUFFY. In this document you don’t show great disparity between African-American rates and White rates. 

Mr. CORDRAY. I would disagree with your conclusions there. We 

did pursue a matter with Toyota. We thoroughly analyzed the underlying facts. The automaker lender had access to the same underlying facts— 

Mr. DUFFY. I am going to reclaim my time. 

In regard to the analysis that you have done, I find it interesting 

when the chairman brought up when they did their own statistical 

analysis on the CFPB and that would show, based on that analysis, 

that you pay African-Americans $16,000 less than White employees 

at the CFPB, before the chairman cut you off I think you were trying to say, ‘‘But it doesn’t take into account pay bands. It doesn’t 

take into account job—’’ 

Mr. CORDRAY. I didn’t know if it did or not. It didn’t have any 

of the analysis— 

Mr. DUFFY. You want to make sure that we consider what information you might have that could account for that disparity. 

And so in regard to indirect auto lending, did you take into account credit scores, trade-ins and trade-in values, whether the car 

was new or used, the amount financed, the length of the term financed? Because this was all information that the auto lenders 

tried to get you to consider but you refused to do it. 

Now, when the role was reversed and Mr. Hensarling asked you 

those questions you wanted to make sure, ‘‘Whoa, whoa, whoa—’’ 

Mr. CORDRAY. I wouldn’t agree with that— 

Mr. DUFFY. —‘‘there is qualifying information for this, sir.’’ 

Mr. CORDRAY. I wouldn’t agree with that characterization, but I 

am happy to explain if you want me to. 

Mr. DUFFY. I won’t have you explain to me. We will do it in writing. Maybe I will get some documents from you. 

I want to put up another exhibit. Or actually, I am not going to 

put it up; I am going to hand you a document. 

This was provided to us in response to our subpoenas number 20 

and 22. This was the only document that is in compliance with our 

subpoena, and this is in regard to records memorialized in the final 

remuneration plan in regard to Ally. 

Do you have that document in front of you? 

Mr. CORDRAY. No, I do not. 

Mr. DUFFY. I believe your staff has it. 

This is basically a computer printout—if you would hand it to the 

Director, please—it is a computer printout. This is the only document that you have given us to show us what the remuneration 

plan is. Could you read this document for the committee so we can 

understand what this document says in your sunshine and compliance with the committee? 

31 

Mr. CORDRAY. What do you want me to do? You want me to just 

start down here and read— 

Mr. DUFFY. Yes, read it for me. 

Mr. CORDRAY. Okay. ‘‘For official use only.’’ Is that what you 

would like? 

Mr. DUFFY. I was thinking in regard to— 

Mr. CORDRAY. ‘‘Confidential. Not for distribution.’’ 

Is that— 

Mr. DUFFY. Compute, space, back, equals, 900, period, backslash, 

star, money sign, dash, cap, on full, dash, term. What does this 

mean? This doesn’t mean— 

Mr. CORDRAY. All I know is if you ask for documents in an area, 

we give you the responsive documents that we can— 

Mr. DUFFY. This is the one that you sent us. 

Mr. CORDRAY. —and it may be that you aren’t in a position to 

interpret this document. I don’t know about that. 

Mr. DUFFY. Are you? Can you interpret this document? 

Mr. CORDRAY. I am not going to read you the document. 

Chairman HENSARLING. The time of the gentleman has expired. 

Pursuant to the committee’s rules for extended questioning, the 

ranking member is now recognized for an additional 5-minute question period. 

Ms. WATERS. Thank you very much, Mr. Chairman. 

At the beginning of this hearing we started talking about the 

CFPB’s work in racial discrimination in auto lending, and specifically the CFPB’s $98 million settlement with Ally. And I also mentioned in my opening statement that the Bureau has fined banks 

and captive lenders such as Toyota, Honda, and Fifth Third Bank, 

for discriminatory practices. 

These banks and auto lenders that you have fined, if they don’t 

think that you are correct, if they want to oppose you, if they want 

to fight you, can they go to court? Can they sue? Can they defend 

themselves in some way? 

Mr. CORDRAY. Sure. And there are a number of institutions that 

have required us to take them to court, not responded to the results of investigations. And if so, we pursue it and the courts have 

the ability to make that determination. 

Ms. WATERS. Did Ally do this? 

Mr. CORDRAY. They could have, but they did not. 

Ms. WATERS. They did not. 

Did Toyota do this? 

Mr. CORDRAY. They could have, but they did not. 

Ms. WATERS. Did Honda do this? 

Mr. CORDRAY. They could have, but they did not. 

Ms. WATERS. So while they are pretty big companies, they have 

the right to sue, they have the right to go to court, and even 

though they have friends on the opposite side of the aisle who 

would like to serve as their lawyers, they could have gone to court 

if they had wanted to. Is that right? 

Mr. CORDRAY. Certainly. 

Ms. WATERS. Thank you very much. Now, let’s go further. 

The Republicans are alleging that the CFPB used Ally’s desire to 

change its status to a bank holding company to leverage the settlement. Isn’t it true that the CFPB was investigating racial discrimiVerDate Nov 24 2008 20:01 Mar 01, 2018 Jkt 023721 PO 00000 Frm 00035 Fmt 6633 Sfmt 6633 K:\DOCS\23721.TXT TERI
32 

nation at Ally Financial prior to any knowledge of Ally’s desire to 

change its status? 

Mr. CORDRAY. I am glad to have the chance to correct the record 

on that, and some of the Members who asked those questions are 

not present in the hearing room I understand, but maybe they will 

see the transcript. 

We opened an investigation against Ally into potential discrimination in auto lending more than a year, maybe a year-and-a-half 

before the matter was resolved. As often happens, parties that are 

being investigated, it moves slowly, they are not eager to resolve 

the matter, and sometimes they drag their feet, sometimes it just 

takes a while. 

At one point Ally wanted to move more quickly to resolve the 

matter. That was a decision that they made, and that was a choice 

that they were making for their own reasons. I wasn’t familiar with 

why those were. They then explained to me why they wished to 

proceed in that fashion. 

Our purpose all along was to complete and resolve an investigation into discrimination in auto lending. That was our job. That is 

our job to enforce the law. 

That is what we did, and we reached an appropriate resolution 

that the company agreed to and was willing to enter into and, as 

you say, could have fought in court if they wished to do so. That 

was up to them. Those were choices they made; those were not 

choices I was making. 

Our choice was we were trying to enforce the law, we were seeking to complete an investigation and resolve a matter, and we did 

so. That is all there is to it as far as I am concerned. 

Ms. WATERS. Isn’t it true that the CFPB only consulted with the 

FDIC and the Fed regarding Ally’s status after Ally themselves informed the CFPB of their desire to change their status? 

Mr. CORDRAY. I believe that is correct. 

Ms. WATERS. Isn’t it also true that the CFPB had evidence that 

Ally Financial’s policy surrounding a discretionary dealer markup 

resulted in widespread racial discrimination? 

Mr. CORDRAY. That is certainly correct. 

Ms. WATERS. Can you speak more about your investigation of 

Ally and how you came to that settlement? I know you just did, but 

I want you to reiterate because I think that my colleague on the 

opposite side of the aisle has framed this in such a way that you 

have been unfair, that somehow you are not following the law, and 

that somehow you leveraged their desire to change their status. 

Would you please go ahead and— 

Mr. CORDRAY. I would say quite the opposite. 

The law of the land, reaffirmed by the Supreme Court last June, 

is that disparate impact discrimination is against the law. It is a 

violation of fair lending laws. 

Given that is so, our responsibility is to enforce the law. It is a 

law that Congress enacted, again, that we have a job to enforce the 

laws Congress has enacted. 

We approach every investigation the same way. Some of them 

start with exams that then lead to developing facts and conclusions 

that may lead to enforcement actions; some of them start as enforcement investigations. 

33 

We approach them all the same way, to comprehensively establish the facts, to determine legal conclusions, to work with the entity to try to resolve the matter—if we can, by consent; if we can’t, 

by litigation. And we work with the Justice Department on these 

matters. They are our active partner, and we work together on 

them and we see eye to eye. 

Chairman HENSARLING. The time of the gentlelady has expired. 

The Chair now recognizes the gentleman from California, Mr. 

Royce, chairman of the House Foreign Affairs Committee. 

Mr. ROYCE. Thank you, Mr. Chairman. 

On the question of exemptive authority, Mr. Corduroy, as it applies to your ability to exempt community banks and credit unions 

from rulemakings, you argued in a recent speech that it was not 

plausible for you to use such authority to override Congress’ own 

judgment on such a broad-based policy matter. 

And, Director, as you know, Section 1022 of the Dodd-Frank Act 

gave the CFPB the authority to adopt regulations by allowing it to 

exempt any class of entity from its rulemakings. Just this week 

329 Members of this House wrote to you—it was Mr. Stivers’ letter, 

actually—to tailor regulations for community banks and credit 

unions, citing Section 1022 exemptive authority specifically. 

Do you believe that Section 1022 gives you the ability to tailor 

regulations for community financial institutions, and does a letter 

from—this would be over three-quarters of Congress—does such a 

letter change your view of congressional intent? 

Mr. CORDRAY. I would say two things. 

First of all, we have routinely tailored our rules to take account 

of different circumstances of small lenders as opposed to large lenders. We did that with our mortgage origination rule; we did it with 

our mortgage servicing rule; we did it with our remittance rule. We 

will continue to do it where appropriate. 

Second, I always attempt to be responsive to letters from Members of Congress. I was in a more humble station, a member of the 

State legislature in Ohio, and I have understood the legislative role 

and I respect it. 

I would also say that I think—what I think I know here—and 

I may not know as much as you all do certainly about the legislative process in the Congress, and I wasn’t around for the DoddFrank debates—but both of the major credit union trade associations have said publicly that they sought a broad exemption from 

regulation or oversight of any kind in—when the—when DoddFrank was being debated. In both cases apparently it was rejected 

by the Congress. It was not written into the law. 

What was written was differential treatment of banks under $10 

billion—and credit unions under $10 billion in assets as compared 

to those above. 

We have gone beyond that and at times provided special dispensations or special provisions for smaller creditors, often those of 

$2 billion in assets or below. And we will continue to do that where 

we find that to be appropriate on the facts. 

In terms of a broad overwriting of what Congress made a judgment about in that statute, which was not to simply exempt all 

credit unions from everything having to do with consumer protection, I feel that Congress has spoken on that. 

34 

Mr. ROYCE. Let me ask you another question. In November 2015 

you released your updated rulemaking agenda indicating that you 

expect to issue a final rule on prepaid cards in the spring of 2016, 

and I would ask if that is still accurate? 

Mr. CORDRAY. I think that is still roughly accurate. I would comment that the spring starts, as I understand it, next week and will 

extend until the third week in June or so. 

Mr. ROYCE. In proposing its rule governing prepaid cards, was it 

the Bureau’s intent to prohibit issuers from offering overdraft protection to card users? If customers want and like overdraft protection for their prepaid card, is it the Bureau’s position that they 

should still be denied the opportunity to choose such a feature? 

Mr. CORDRAY. In the proposal for the rule that is not what we 

did. We could have done that. We could have sought to ban overdraft. There were a number of stakeholders who suggested that to 

us and actually urged us to do so. 

We opted for more of a middle ground, which was that overdraft 

could be provided on prepaid products, but if so, it should be subject to the same Regulation Z approach as is used with credit cards, 

which is an accepted approach that has been in place for credit 

cards for many years, and that is what we proposed. 

We will be finalizing that rule roughly on the timeframe you described, and we continue to consider how to approach that issue, 

among others. 

By the way, I would say that one thing that has happened since 

the last time I testified here on prepaid cards was we did have this 

significant fiasco with the RushCard, where many thousands of 

consumers had prepaid money onto these cards and could not get 

access to the money. If anything, that shows me we need strong 

consumer protections for those prepaid cards, for which no consumer protections exist today. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Missouri, Mr. 

Clay, ranking member of our Financial Institutions Subcommittee. 

Mr. CLAY. Thank you, Mr. Chairman. 

And thank you, Director Cordray, for attending today. 

Just to expand on my friend from California’s inquiry, can you 

give us a sampling of what CFPB rules are expected to be finalized 

this year? 

Mr. CORDRAY. This year? 

Mr. CLAY. Yes. 

Mr. CORDRAY. It is hard for me to hazard a guess on what exactly will be finalized when because the process—it is kind of like 

a judicial opinion. It is under advisement and it just gets done 

when it gets done. 

I think we clearly expect to finalize prepaid rules this year. I 

think we clearly expect to finalize further amendments to the mortgage servicing rules this year. 

I think we are underway on a number of other rulemakings, and 

I just couldn’t really hazard a productive guess at this point as to 

exactly when those will be completed. 

Mr. CLAY. I see. Thank you for that. 

And switching subjects, it has recently come to my attention that 

some of my constituents are offered loans by lenders that are not 

35 

licensed to operate in Missouri. My understanding is that a customer will click on the online ad of a lead generator, with the customer doing so under the assumption that they are dealing with a 

licensed entity. But instead, their information may be sold to an 

unlicensed tribal or offshore lender. 

In March 2015 Missouri Attorney General Chris Koster shut 

down 8 online payday lenders that were operating illegally and 

whose illegal lending practices impacted more than 6,000 Missouri 

residents. In one instance, a Missouri resident was charged a $500 

origination fee on a $1,000 loan, which was immediately rolled into 

the principal of the loan, where she was then charged a 194 percent annual percentage rate, eventually paying $4,000 on a $1,000 

loan. 

Can you share insight on what— 

Mr. CORDRAY. Yes. I have heard some horrific stories from the 

State of Missouri on lending that is occurring at interest rates effectively 1,950 percent annualized, and I read this in a court opinion from a Missouri court of appeals case in which they gave some 

examples from the record. 

What I would also say is that Attorney General Koster, with 

whom I served when I was attorney general of Ohio, is absolutely 

right here. Anybody who seeks to make loans without being licensed in a State is violating State law. 

We believe that if they attempt to collect on those loans, under 

Federal law they may be violating the Federal Debt Collection 

Practices Act, and Federal unfair and deceptive practices. We have 

open matters on that in the courts, and I think that is all quite appropriate. 

Mr. CLAY. So Missouri has caught your attention as far as the 

abuses of consumers are concerned? 

Mr. CORDRAY. Very definitely. 

Mr. CLAY. Thank you for that. 

As it relates to estimating the racial or ethnic impact of auto discrimination, to your knowledge, do any statistical methodologies 

exist that eliminate all false positives and false negatives? 

Mr. CORDRAY. I am not a social scientist, but it seems to me unlikely that in any field of social science or natural sciences, that is 

easily possible. But I wouldn’t claim to be an expert. 

Mr. CLAY. Okay. If Republicans have concerns about using estimates for race or ethnicity, shouldn’t Congress just tell auto finance companies to start collecting this data, as HMDA does for 

mortgages? Wouldn’t that eliminate the need for estimation? 

Mr. CORDRAY. Actually it would, yes, I believe so. 

Mr. CLAY. Okay. Are proxy methodologies used in other civil 

rights enforcement contexts? 

Mr. CORDRAY. They have been for decades. 

Mr. CLAY. And they have been for decades. 

Mr. CORDRAY. Yes. 

Mr. CLAY. I appreciate your response. 

And, Mr. Chairman, I yield back. 

Chairman HENSARLING. The gentleman yields back. 

The Chair now recognizes the gentleman from New Mexico, Mr. 

Pearce. 

Mr. PEARCE. Thank you, Mr. Chairman. 

36 

I don’t want to catch you off balance, Mr. Cordray, but I would 

like to thank you. Over the past couple of years, your staff has 

been working with the Coalition to Save Seller Financing, basically 

streamlining the rules under Title 14 of Dodd-Frank, just pertaining to the seller financing. That is something that you and I 

have discussed in one of our meetings so I appreciate whatever is 

going on there. There is some sense that we will come to resolution 

there. 

So at what level do you think that people who are using payday 

loans are trapped? In other words, how many loans in a row constitutes that? 

Mr. CORDRAY. I don’t know if there is a hard and fast definition, 

but I guess what—from what we have seen, if half of the loans 

being made in that marketplace—more than half of the loans being 

made in that marketplace are going to people for whom this is marketed as a short-term, 14-day loan, and in fact, more than half of 

the loans are going to people who have rolled them 10 or more 

times. It seems like that crossed the line somewhere along the way. 

Mr. PEARCE. That is not the direction I am going, but I appreciate that input. 

Do you have a figure at the problem payday loans, about how 

much the people owe when they get to be problems? In other 

words, if somebody owes $100 is that a problem, or does it need to 

get to $1,000 or $10,000? 

Mr. CORDRAY. I’m sorry, talking about tribal payday loans in particular or— 

Mr. PEARCE. Yes, payday loans. That is something you all really 

have concentrated— 

Mr. CORDRAY. I wouldn’t have a specific figure to put on that— 

Mr. PEARCE. —figure at which you identify people having payday 

loans that they are kind of in trouble? 

Mr. CORDRAY. I think— 

Mr. PEARCE. How much? If they owe— 

Mr. CORDRAY. —many people have looked at that and have different points of view, but I would say the overwhelming consensus 

of a lot of people who look at it is that rolling loans in long sequences where you end up paying more in fees than you borrowed 

in the first place and you still owe at the end more than you borrowed in the first place— 

Mr. PEARCE. With all due respect, sir, you tell me that many people have many different ideas. You are the top regulator in the 

dadgum country. I am asking you what is your opinion, and you 

can’t give me an answer, and so I— 

Mr. CORDRAY. My opinion of my authority—we are working 

through these issues. We have issued a very— 

Mr. PEARCE. No. You are going after an industry and trying to 

shut them down. We may disagree, but there are people in my district who use them regularly and say, ‘‘Hey, if it weren’t for that 

I wouldn’t have been able to pay my rent this month.’’ But forget 

that. 

Let’s go to exploitation. You have talked about exploitation today. 

I wrote notes down as you were talking. 

Mr. CORDRAY. Yes. 

Mr. PEARCE. So at what level are fees exploitative? 

37 

Mr. CORDRAY. Let me correct the record on one thing: We are not 

seeking to shut an industry down. 

Mr. PEARCE. You are doing a pretty good job of it— 

Mr. CORDRAY. We are seeking to restrict certain predatory practices that— 

Mr. PEARCE. Please, sir, I am really limited in time. I would like 

to move on, and I think your actions speak louder than your words 

by far. 

But at what level is exploitation a problem? In other words, 

would 5 percent per month be an exploitative fee? 

Mr. CORDRAY. I don’t have a particular comment on that. I 

think— 

Mr. PEARCE. But you made comments that you are trying to stop 

exploitation, so how do you determine if it is exploitation? 

Mr. CORDRAY. I would say and I think most reasonable people 

would agree that if you are offering a loan that you know more 

than half of the loans will involve rolling the loan over 10 times, 

owing—paying more in fees than you borrowed in the first place 

and owing more at the end than you borrowed in the first place— 

Mr. PEARCE. Well— 

Mr. CORDRAY. —that gets a lot of consumers into a lot of trouble. 

Mr. PEARCE. We have already discussed that multiple times 

today and I appreciate it. I was hoping to have a substantive conversation. I don’t think that is probably going to happen. I’m sorry 

about that. 

So the 5 percent per month fee comes straight from the IRS 

website page. You are going to pay 5 percent per month when you 

are late. 

And that, to me, I think crosses into the exploitation category, 

and so you and I have discussed this before and I would just ask 

you once more for the record: Do you ever deal with exploitation 

on the part of the U.S. Government? 

Mr. CORDRAY. We don’t have authority to address— 

Mr. PEARCE. Okay. All right, fine. 

Do you have any authority over student loans? Because student 

loans charge 5 percent where the Wall Street bankers pay less 

than 0.5 percent to get money and student loans you pay at 5 percent on those. Do you deal with student loans? 

Mr. CORDRAY. I think there are various issues that might be 

looked at there, and maybe they are for the Congress. 

Mr. PEARCE. Yes. So there are various issues that you haven’t 

looked at. You are looking at other issues. 

So if I would wrap the whole thing up in the direction I was 

going, you established a Q.M. rule and the Q.M. rule was supposed 

to protect consumers. But what it actually did was drive 95 percent 

of the loans into the GSEs, which are exempt according to the legislation that you try to impact. 

Mr. CORDRAY. No, I don’t think— 

Mr. PEARCE. Ninety-five percent are driven into the GSEs and 

you have no action that you are taking on GSEs. You are coming 

down here and picking on the people who are making loans to people just trying to pay their rent at the end of the month, but when 

you drive them inside the government then your answer is here, 

38 

‘‘We cannot do anything to back the government off. We don’t deal 

with the IRS; we don’t deal with the government loans.’’ 

And what you do is you are driving people into a market where 

you don’t care if they are being exploited or not. And so I just think 

that is—thank you, Mr. Chairman. I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Georgia, Mr. 

Scott. 

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

First of all, Mr. Cordray, it is very important for you, for the 

CFPB, for this Nation to know that there are Democrats on this 

side of the aisle who have serious, serious concerns and issues 

about how you are dealing and going forward with this racial situation at the CFPB. We have legitimate concerns, and I have expressed those. 

But here is the most dramatic fact with the auto dealers, and 

that is this: Your methodology—now fair is fair, and when you 

start talking about discrimination and you start talking about giving people checks because they have been discriminated against, 

but then you use a methodology that is flawed, totally, based upon 

the last names of people. 

So now what we have—and you know this for a fact—you have 

many White people out here whose last names are Johnson or Williams or Robinson or Smith or Scott or whatever, who are getting 

checks. And they are standing there at the mailbox wondering, 

‘‘Wow, where did I get this check from?’’ 

That is an unintended consequence that needs to be corrected. 

Yet, you ignore that glaring fact and continue that process. 

The other area is this: If an African-American customer goes into 

a dealer and he tells that dealer that, ‘‘Mr. Dealer, I can only afford 

a $350 a month payment for an automobile,’’ and that dealer looks 

at that and he decides that he will go in and cut his own retail 

margin into the deal and lower that discount rate to meet the demands of that African-American’s budget, and yet your rule, your 

situation would deny that dealer, would deny that African-American customer whom the bank won’t deal with, many of whom don’t 

even have a credit card. There are 60 million unbanked or underbanked people in this country, and a huge percentage of them are 

African-Americans. 

When you discriminate, that is discrimination against AfricanAmericans when your rule and your action denies them access to 

that car. How are they going to get to a job? These are the unintended consequences. 

This is a legitimate business reason, because allow the dealer to 

come in there and either meet or beat that. These dealers are in 

communities where they know families, in the rural areas especially. Those car dealers are everywhere in a community and they 

have relationships. Why deny this African-American the opportunity because he doesn’t have that budget? 

And here is the other point: The Department of Justice, which 

is, indeed, the legal and lawful arm of jurisdiction under which the 

dealers come—not you; you deal with the financial end, the lenders. 

But the unintended consequence of this is you are strangling the 

poor dealer and you are denying the very customers that you are 

39 

supposedly trying to put this in view of to try to help. And then 

much of the money that you are getting out there for this is going 

to White people. 

Now, that is as plain as the nose on our face. And we need protection from abuses, but this entanglement improperly was reflected with the overwhelming support of the Congress. And it 

wasn’t just Republicans; 92 Democrats also stood up because of this 

basic reason. 

So my point is that when you are willing and open to look at the 

whole picture—not just this narrow aspect, but—I guess my time 

is up, but I hope you understand that for both Democrats and Republicans, this is an issue of soaring magnitude— 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Florida, Mr. 

Posey. 

Mr. POSEY. Thank you, Mr. Chairman. 

Director Cordray, it is no secret that I am still a little bit apprehensive about the CFPB. 

Mr. CORDRAY. I am trying to help you get through that. 

Mr. POSEY. Sometimes I get to feeling that despite the greatsounding name—Consumer Financial Protection Bureau; it sounds 

really so wonderful—it is going to just be another government entity that will be used to punish political enemies and bully law-abiding citizens, like Lois Lerner and the IRS, for example. I like to 

think that is the last thing we need, that Congress and other agencies like the IRS already do enough of that. 

One of the many, many reasons that we don’t have time to go 

into today that make me feel that way is your opposition to my proposed legislation, which would allow businesses and individuals to 

ask whether a particular transaction complies with your rules. Otherwise they might be left playing a guessing game as to how the 

CFPB might act or react to what they are doing or not doing. 

Do you think it is important for the Bureau to communicate with 

the companies they regulate? 

Mr. CORDRAY. We do all the time. 

Mr. POSEY. Good. 

Mr. CORDRAY. All the time. 

Mr. POSEY. Is that a yes? 

Mr. CORDRAY. Yes. 

Mr. POSEY. Okay. Do you think it is important that businesses 

understand the regulations you enforce on them? 

Mr. CORDRAY. We— 

Mr. POSEY. Yes or no, just— 

Mr. CORDRAY. —we try very hard to make that happen, yes. 

Mr. POSEY. Okay. Do you think the CFPB has a role in helping 

companies understand and comply with the regulations that you 

implement? 

Mr. CORDRAY. I think we have been by far the most active regulator ever in doing that, yes. 

Mr. POSEY. Thank you. Do you think consumers fare better when 

more businesses understand how to comply with your regulations? 

Mr. CORDRAY. Yes, because if the rules actually don’t get implemented, then they aren’t worth anything. 

Mr. POSEY. Okay. 

40 

I like to think that you feel the way you said, which is why I was 

so disappointed with the Bureau’s final no-action letter policy. Here 

is an excellent opportunity to provide some clarification to companies and individuals who are faced with a constant stream of new 

regulations. 

In my office I have kept the register for the last 5 years. It has 

become a little bit of a tourist spot for people to come in and have 

their pictures taken with the regulations that the Federal agencies—not elected people but unelected people—have implemented 

in the last 5 years. 

I ask people how high this stack of new regulations is, and the 

highest number I have had anybody guess so far was 7 feet. The 

reality is that it is 7 stacks over 7 feet. 

Yet, it is my understanding that the Bureau is still expecting 

merely one to three requests per year, and that the policy you set 

up is the expectation that there is only going to be one to three requests per year. Is that correct? 

Mr. CORDRAY. This is a fair line of inquiry, I think. I intend for 

us to do more than that. 

We opined that we thought we might get as few as one to three 

applications a year. I think we may get more. 

We also said that we would work to try to accommodate greater 

demand if there is a greater demand. 

The purpose, as I had in mind, of having a no-action letter policy—and it took some time and effort to work through that—was 

to try to capture some of the spirit of the bill that you are talking 

about in terms of people being able to get their questions answered 

and have some clear space to go forward. 

By the way, we also do this on a daily basis. We get thousands 

of questions a year that we— 

Mr. POSEY. I understand. Reclaiming my time, I am limited here, 

I understand that. Have you had any inquiries yet? 

Mr. CORDRAY. I think the policy has just taken effect and I don’t 

even know whether the effective date has yet passed, so I don’t 

know the answer to that at the moment. We would be glad to keep 

your staff informed if that is— 

Mr. POSEY. If resources were taken off the table, if money wasn’t 

an issue for the CFPB, which it is not, would you then have any 

objection to making the no-letters policy more expansive? 

Mr. CORDRAY. Actually, money is an issue for us. We have a hard 

budget cap set by Congress that we have to comply with, so it— 

we always have to think about how we are allocating resources to 

different things and that bar against each other. We don’t have an 

unlimited budget. 

Mr. POSEY. This frustration that I see all the time is the only 

time we are concerned about money is if it—when it really, truly 

benefits the public— 

Mr. CORDRAY. No, that is not— 

Mr. POSEY. —like communicating with these people and letting 

them know what to expect. We have had— 

Mr. CORDRAY. We are concerned about money all the time. 

Mr. POSEY. We have had your assistant come in here, and I 

think a Member from the other side asked her how much money 

41 

she made, and she refused to tell us. Money never seems to be a 

problem except when it is trying to help the public. 

Mr. CORDRAY. It is not true. It is not true. Money is an issue for 

us all the time, and— 

Chairman HENSARLING. The time of the gentleman has expired. 

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

ranking member of our Oversight and Investigations Subcommittee. 

Mr. GREEN. Thank you, Mr. Chairman. 

And I thank the witness for appearing, as well. 

I also thank the ranking member. 

Mr. Cordray, you and I and a good many other people are well 

aware of what this is all about. There are people who want to 

emasculate now the CFPB and ultimately eviscerate the CFPB. 

It is over the airwaves. All sorts of things are being said. There 

was even an allegation made that I had some concerns with the 

CFPB to the extent that it was alleged in a sort of a sketchy way 

that I was supportive of emasculating the CFPB. Not in those 

words. 

So that is really what this is all about. 

There are people who really would like to have a Financial Protection Bureau, not a Consumer Financial Protection Bureau. And 

so all of these things are done to give the CFPB a bad image. 

I want to go on record as making it very clear that I support the 

CFPB. I support what you are doing to help in the area of auto 

lending, to help us with payday lending. I support these things. I 

wish we could do more. 

I don’t believe that all dealerships are engaged in invidious discrimination. I don’t think that all payday lenders are bad people. 

But those that are ought to be properly regulated and they ought 

to be penalized for what they do. 

Let’s talk quickly about Ally. It is true that Ally settled that case 

for about $80 million I believe. Is that correct? 

Mr. CORDRAY. And they have paid out more since to remediate 

further problems year by year. 

Mr. GREEN. And it is true that Ally was prepared, in the sense 

that they had their litigation contingency ready to do battle in 

court, which is the American way. That is why we have an independent judiciary. But they were prepared, they were in court, and 

they chose to settle the lawsuit. Correct? 

Mr. CORDRAY. I assume so. 

Mr. GREEN. Okay. With them settling this lawsuit, I assume that 

they thought this was in their best interest to do so. But what I 

marvel at is how these major businesses can lose in court but come 

to Congress to win. 

Because that is really what this is all about. They want to now 

change the rules of the game so that they can continue to perpetrate these kinds of invidious acts upon people who need the 

money they have, are barely making it, and still find themselves 

being discriminated against and having money taken out of their 

pockets. 

Everybody, it seems, wants to fight discrimination until they 

have to fight it. And then when they get to the point of having to 

42 

do something about discrimination—invidious discrimination, I 

might add—that is when none of the tools seem to work for them. 

Using testing doesn’t work for them, which is probably one of the 

best ways to determine whether invidious determination takes 

place because you can send people out and those that come back 

with empirical evidence can share that with you, show that they 

were discriminated against. Then disparate impact, another tool, 

just doesn’t seem to work for them. 

Any tool that we design doesn’t work for them. Everybody wants 

to fight invidious discrimination until they have to fight it or find 

a way to do it, unless it is at the CFPB. 

If it is at the CFPB then all sorts of specious allegations are 

made, attempts to do everything that they possibly can to besmirch 

the CFPB because they have already said—and I admire them for 

being honest—that if ever they get a President they are going to 

do things to eviscerate—they don’t use that terminology, but that 

is what is meant—to eviscerate the CFPB. It will be taken away 

from us. 

I am reminded of what Ben Franklin said when he came out of 

Constitution Hall and someone queried, ‘‘What type of government, 

a monarchy or a republic?’’ 

And he said, ‘‘A republic, if you can keep it.’’ 

We have a CFPB if we can keep it. I am not sure we are going 

to be able to keep it, to be quite candid with you. I am going to 

fight on my watch, but I know that there are many watches to 

come. 

And just as the same people who are against the CFPB, the same 

people who want to do something about Social Security, they want 

to privatize it—all of this, in my opinion, goes back to something 

the Supreme Court did in Citizens United v. FEC. The Supreme 

Court said that money talks. 

Money is talking right now. Right now, today, money talks. 

These big corporations now know that they have an edge because 

they can do whatever they want and challenge us if we challenge 

them. It makes a difference in the lives of little people, people who 

are not big like the corporations. And we have to do something 

about it, and I thank God for what you are doing. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Ohio, Mr. Stivers. 

Mr. STIVERS. Thank you, Mr. Chairman. 

I appreciate you being here, Mr. Cordray. I’d like to welcome you 

before the committee. 

Most people don’t know it in the room, but Mr. Cordray is my 

constituent, so it is always good to have a constituent in the room. 

I know you answered the question to Mr. Royce, from California 

earlier—we sent you a letter with 329 Members of Congress who 

signed it, bipartisan, a massive majority of the members of the 

Congress. And Mr. Royce asked you a little bit about it, but he left 

a little bit out and I just wanted to follow up a little bit. 

Mr. CORDRAY. Okay. 

Mr. STIVERS. So did you read the letter by any chance? 

Mr. CORDRAY. I don’t think it has come to me yet. 

Mr. STIVERS. Okay, good. Well, I hope you read it— 

43 

Mr. CORDRAY. I think it came over yesterday and I have not seen 

it yet. 

Mr. STIVERS. I know you are a busy man. I hope you read it soon. 

So the bottom line is the Government Accountability Office— 

Mr. CORDRAY. I read all the letters; I just haven’t gotten that one 

yet. 

Mr. STIVERS. No, I understand. I understand. 

The Government Accountability Office did a study and they 

found the number of cases where community financial institutions, 

both small credit unions and small banks, had to discontinue or 

limit access to services as a result of your regulations. And you 

have the authority under Section 1022 of Dodd-Frank to modify 

your regulations and sort of adapt them to the people that they are 

applied to. So I would urge you to do that. 

I am a very visual person, so I have a visual display for you. 

Jesse is going to hand you a t-shirt. Could you hold up that t-shirt 

and take a look at it really quick and maybe comment? Is it a nice 

t-shirt? Is it well-designed? 

Mr. CORDRAY. I am not an expert on t-shirts, although I do 

wear— 

Mr. STIVERS. It looks like a nice t-shirt. Could you hold it up a 

second, please? 

Ms. WATERS. Excuse me. 

Mr. STIVERS. So, okay, could you try to put it on? What size— 

Mr. CORDRAY. I dressed in my normal uniform today and I am 

reluctant to deviate from— 

Mr. STIVERS. Does it look like a big t-shirt or a small t-shirt? 

Mr. CORDRAY. It looks to me like a small t-shirt. 

Mr. STIVERS. It is a small t-shirt. That is a size 2T t-shirt, compliments of Sam Stivers. 

Mr. CORDRAY. Two teen? 

Mr. STIVERS. 2T, compliments of my son, 2T. He is— 

Mr. CORDRAY. What does that mean? 

Mr. STIVERS. It means he is a toddler. 

Mr. CORDRAY. Okay, got it. 

Mr. STIVERS. And so it means you wouldn’t fit in it. So the two 

ways you could fit in that are go on a massive diet and restrict 

yourself, which is what a lot of our community financial institutions are doing to make themselves smaller to serve their clients 

less; or they could strain the t-shirt and break the t-shirt, the tshirt being the regulation. 

That is the problem you are putting folks in. So I would ask you 

to take a look— 

Mr. CORDRAY. Could I have a moment? 

Mr. STIVERS. You can in a second. I will give you time. 

And take a look at your authority. You talked earlier about your 

authority. You took your authority seriously in another realm when 

you were talking to one of my colleagues and said, ‘‘We take our 

authority very seriously.’’ 

Take your authority under 1022 seriously, too. So what are you 

going to do about that? And I will give you about 20 or 30 seconds 

to tell me what you are going to do to help these folks under—and 

you admitted you haven’t read it, so you probably can’t tell me 

44 

what you are going to do, but I guess I will ask you, are you going 

to read it and take this seriously? Could you answer that question? 

Mr. CORDRAY. Sure. But let me also talk about the, because, for 

example, CUNA, they have economists on staff who actually 

present facts and reports and then they also write certain opinion 

pieces that don’t jibe with the facts. 

Credit union membership last year after 4 years of the CFPB is 

at a new all-time high in the Nation. That is good news, I think, 

but it is not consistent with this notion that we are killing credit 

unions. 

Credit unions’ share of the mortgage lending market, where supposedly our rules are stifling them and driving them out of business, is at its highest level than it has been for the last 20 years 

of keeping track. They are doing better in a marketplace that rewards responsible lenders. 

It is also the case that we have contoured our rules in ways that 

give advantages or give differential treatment to smaller lenders, 

whether community banks or credit unions, because that is consistent with the data coming out of the crisis that they had lower 

defaults than other lenders. They should be able to continue their 

relationship-lending model, and our rules have provided specifically 

for that. 

We will continue to think about those things on a case-by-case 

basis, but this argument that everybody is being driven out of business, they are stopping products, they can’t fit into a 2T toddler tshirt, isn’t consistent with the HMDA data, which shows that total 

mortgage lenders—numbers of mortgage lenders were up last year, 

that credit union membership is at all-time highs, and that credit 

union mortgage lending in particular has increased its share of the 

market at the expense of large banks. So let’s deal with the facts. 

Mr. STIVERS. And I have given you a little time, and I would like 

to reclaim my time and tell you the problem is the number of small 

credit unions is going down because your regulations are making 

it difficult for small credit unions. 

Mr. CORDRAY. No. 

Mr. STIVERS. They are having to merge, and I had it happen in 

my district. 

Mr. CORDRAY. Yes. 

Mr. STIVERS. Three credit unions merged into one bigger credit 

union because of the regulatory burden. We are seeing it all over 

this country. The same thing with small banks. 

And the regulatory climate is speeding it up. It is not the only 

cause, but it is speeding it up. And please use your authority— 

Mr. CORDRAY. Congressman, it has been happening since the 

1920s. 

Mr. STIVERS. Use your authority— 

Mr. CORDRAY. There is nothing specific about Dodd-Frank that 

is changing— 

Chairman HENSARLING. The time of the gentleman has expired. 

Mr. CORDRAY. —what has been happening since the 1920s. 

Chairman HENSARLING. The Chair now recognizes the gentlelady 

from Ohio, Mrs. Beatty. 

Mrs. BEATTY. Thank you, Mr. Chairman, and Ranking Member 

Waters. 

45 

And thank you, Mr. Cordray, for being here today. 

There are some benefits in being last. You get to hear all of the 

information, good or bad— 

Mr. CORDRAY. I notice you actually sit through the entire hearing— 

Mrs. BEATTY. I do. 

First, let me just say how proud I am that you are from Ohio, 

and certainly I associate myself with all of the words that have saluted you protecting those folks we need to protect, which is in your 

charge. 

Let me also say that we have not talked about the billions of dollars that you and your agency have been able to recover for those 

who have been wrongly defrauded. 

Now, there are a lot of controversial issues here today, and I 

have been a part of some of it. But what is amazing to me, being 

a Black woman, is how we talk about protecting consumers, and we 

pick and choose when we want to use the words ‘‘disparity’’ and 

‘‘discrimination.’’ And sometimes for me it has seemed very political, that people are using it—whether it is you, whether it is President Obama, whether it is anybody who is helping those folks who 

look more like me. 

I have looked on website pages of some of my congressional folks 

here, and it is all about destroying you; it is all about racism. But 

we only seem to do it when we are protecting those folks. 

Now, here is what I think, and I am trying to look at both sides. 

So if we take one of the most controversial votes that—for me, and 

I am all with you. I am supportive. But here is my issue: I think 

we have wasted a lot of time in here—a lot of time arguing without 

resolve. And I was always taught if you complain, you should have 

a resolution. 

So if we take the House bill that came up that we had Black 

dealers who were against it; we had dealers who let’s say were 

more majority but there were some minority in there who were 

supportive of it. But here is a wonderful document. 

And I think we all have it. Mr. Chairman, I would like to enter 

it into the record. 

Because it is about what you do. 

Chairman HENSARLING. Without objection, it is so ordered. 

Mrs. BEATTY. And it talks about fair credit compliances. All 

three. You can take the Black folks; you can take the White folks; 

you can take the combination. They all signed off on this document. 

So then we get this legislation that we are all in a tiff about, and 

the legislation really doesn’t resolve the problem, so whether you 

are for it or against it it doesn’t make any sense because here is 

the issue that I am going to allow you the last half of my time left 

to answer. 

When I think about those African-Americans and minorities who 

walk into a dealership, do I think some of them are discriminated 

against? Yes. I think some of the people who walk in this room who 

look like me are discriminated against because of all the stereotypes that we all know about and, unfortunately, we have heard in 

this room. 

Now on the other side, do I think somebody walks in a dealership 

that looks like me and is not discriminated against or they don’t 

46 

automatically get a higher rate? What is the difference? It might 

just be that I was more aware, had a better credit score. 

Nobody is talking about the real systemic issues and the problems. Because we can’t change the color that you go in, but we 

need to make sure that we put practices and things in place that 

is beyond names and zip codes. 

But here is the other thing: If we start together on financial literacy, the seventh State in this United States, you have done more 

than any single person on financial literacy in that State. So my 

question is, we create Dodd-Frank—and I am all for Dodd-Frank; 

I wasn’t here—there isn’t a part of the Dodd-Frank legislation that 

talks about real financial literacy. 

And we are not doing enough in this committee, that is charged 

with looking at the banking industries, looking at the financial industries, looking at the credit union industries, but we are not talking about a program, even from the minority dealers in their letter 

to me it said we are not dealing with the real issue of the transparency of the people’s credit, and we are not coming up with any 

legislation. 

So Dodd-Frank mandates that the CFPB’s Office of Financial 

Education shall—not maybe think about it—shall develop and implement a strategy to improve financial literacies of consumers, 

okay? It doesn’t say consumers who go into a candy store, so that 

means a consumer who goes into a automotive dealership. They 

have to have financial counseling; they have to have information to 

assist with the evaluation of a credit product—let’s say that product is a car—and the understanding of credit histories and scores. 

Lastly, I had a Member—an African-American person tell me 

that they got that high interest rate, and thank God they did because they could go to work, they could have a car, and they could 

feed their family. And I’m sorry I don’t have enough time for you 

to answer, but— 

Chairman HENSARLING. The time of the gentlelady has expired. 

The Chair now— 

Ms. WATERS. I ask unanimous consent to enter into the record 

the letter from the National Association of Minority Automobile 

Dealers. 

Chairman HENSARLING. Without objection, it is so ordered. And 

Members are reminded that they are all allowed to insert items 

into the record under general leave. 

Ms. WATERS. The National Association of Minority Automobile 

Dealers is not in support of H.R. 1737. 

Chairman HENSARLING. The Chair now recognizes the gentleman 

from South Carolina, Mr. Mulvaney. 

Mr. MULVANEY. Thank you. 

I want to follow up on some of the discussions that Mr. Neugebauer from Texas had with you about the interplay between Federal regulation and State regulation. I think Mr. Neugebauer was 

asking you specifically about some of your proposed rules on shortterm what people call payday lending and how it interacts with 

State action in the same field. 

During your questioning—and I am—seriously, despite what you 

may think, I am—in this particular circumstance I am not trying 

to put words in your mouth. But I think Mr. Neugebauer— 

47 

Mr. CORDRAY. I always take your comments at face value and listen close— 

Mr. MULVANEY. Mr. Neugebauer asked you which States had 

failed to protect consumers, and I think in a back-and-forth you 

said all 37 who have failed to I think do something to—all 37 that 

still allow payday lending, or that haven’t banned payday lending? 

So I will ask the question again, and see if we can get a clean answer. 

In your research as you have prepared to produce these new 

rules on short-term lending, which States have you determined 

have failed to protect their own consumers? 

Mr. CORDRAY. So again, and maybe I wasn’t clear in trying to respond to the question before, that is not how we approach the 

issue. It is not my job to control States or tell State officials what 

to do. It is my job— 

Mr. MULVANEY. Great. Let’s stop right there. That is fine. Let’s 

take that and go down a different road then. 

Mr. CORDRAY. But it is my job to look at what kind of harm is 

occurring in the marketplace and potentially look at ways to intervene to address certain predatory practices of lenders. 

Mr. MULVANEY. All right. Is it fair to assume, then, that if you 

promulgate a rule that is more protective of consumers than a 

State has made, that you deem that State not to be adequately protecting consumers? 

Mr. CORDRAY. We will not seek to occupy the field and exert preemption in that manner. I think it wouldn’t be consistent with the 

Dodd-Frank Act. 

What we will do is if there is a Federal policy intervention—and 

again, this is not yet determined at this point—that will coexist 

with State regulations and authority just as it does in the field— 

Mr. MULVANEY. Now, you do intend to preempt. 

Mr. CORDRAY. —in other fields of law. 

Mr. MULVANEY. Let’s be clear and be honest: You do intend to 

preempt State law in certain areas. 

Mr. CORDRAY. No, I don’t think we intend to preempt State law. 

I think that what will happen is— 

Mr. MULVANEY. I am just using your words, Mr. Cordray, in your 

letter of February 11, 2016, to my office—I asked you about this 

particular issue and you said, ‘‘Among the Bureau’s goals is to ensure that consumers are offered certain minimum protections no 

matter where they are located or whether they receive their loans 

from storefront or online lenders. State laws that afford consumers 

greater protection would not be preempted by a Bureau regulation 

on small-dollar lending.’’ 

The obvious implication to anybody who speaks the English language is that States that offer consumers less protection will be 

preempted. This is your language. 

Mr. CORDRAY. I don’t know, maybe you are drawing that conclusion. What I would say is, as is true in securities law, as is true 

in antitrust law—I worked with these laws as a State attorney general—State and Federal law coexist. 

Mr. MULVANEY. The SEC comes in here and the SEC gets money 

from us. The SEC has an entirely different oversight. 

48 

You are different. You don’t get appropriations from us; you don’t 

have the same level of oversight. You are your own thing, so you 

cannot compare yourself to the SEC. 

Let me ask you this— 

Mr. CORDRAY. I wasn’t comparing— 

Mr. MULVANEY. Your home State has acted in this area. Your 

home State, I think the last time they looked at short-term lending 

was in 2009. They have done it over the course of the last 10 or 

15 years. 

They have not provided a cooling-off period between transactions; 

your proposal requires 60 days. I will ask you, sir, who knows better how to protect consumers in the State of Ohio: the people of 

Ohio or the CFPB? 

Mr. CORDRAY. What I would say is policymakers, as I was, for 

the State of Ohio do their best to protect the citizens of Ohio. Policymakers at the Federal level who are given— 

Mr. MULVANEY. Have they failed in this circumstance? 

Mr. CORDRAY. Policymakers at the Federal level who are given 

authority by Congress, as the CFPB has been given authority by 

Congress, do their best to protect people nationwide. The two coexist together. 

Mr. MULVANEY. The last time that Ohio addressed this issue was 

in 2009. You were the A.G. in 2009. If you were the A.G. today in 

Ohio and the CFPB made a rule that preempted Ohio law, would 

you defend the Ohio law or would you acquiesce to the Federal preemption? 

Mr. CORDRAY. I have been engaged in issues of preemption going 

back to when I was solicitor general of Ohio in 1993–1994, and I 

have addressed them on both sides of the issues over the years— 

Mr. MULVANEY. Wonderful resume. What is the answer to my 

question? 

Mr. CORDRAY. —and so it would very much depend on what circumstances we were talking about. 

Mr. MULVANEY. This one. 

Mr. CORDRAY. Okay. 

Mr. MULVANEY. Ohio passes a law that says there is a 2-day wait 

period; the CFPB passes a regulation saying there is a 60-day period. Will you defend Ohio law against Federal regulation? 

Mr. CORDRAY. That is entirely hypothetical. 

Mr. MULVANEY. No, you want to be governor. 

Mr. CORDRAY. We don’t even have our proposal here. 

Mr. MULVANEY. Can you actually say the words, ‘‘The people of 

Ohio know better how to protect consumers in Ohio than the 

CFPB?’’ 

Mr. CORDRAY. The people of Ohio are also people of the United 

States. They have a dual capacity. That is— 

Mr. MULVANEY. You can’t say those words, can you? 

Mr. CORDRAY. —true of our system of federalism. 

Mr. MULVANEY. Are you capable—do you believe that statement? 

Mr. CORDRAY. Do I believe what statement? 

Mr. MULVANEY. Do you believe that the people of Ohio— 

Mr. CORDRAY. People of Ohio are also people of the United 

States. 

49 

Mr. MULVANEY. —are better suited to protect consumers in Ohio 

than is the CFPB? Do you believe that statement to be true? 

Mr. CORDRAY. That is a very general statement and I don’t know 

what exactly that means. 

Mr. MULVANEY. Fair enough. Thank you. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from California, Mr. 

Sherman. 

Mr. SHERMAN. I think the gentleman from South Carolina is misusing the word ‘‘preempt.’’ To preempt means to prevent the State 

law from being effective. To supplement means that you have to 

obey the State law and you have to obey the Federal law. 

Mr. MULVANEY. Will the gentleman yield for a brief— 

Mr. SHERMAN. I’m sorry. I only have 5 minutes. 

If the Chair will yield me additional time, I will yield. 

Chairman HENSARLING. The Chair will yield an additional 30 

seconds. 

Mr. SHERMAN. I will yield the gentleman 30 seconds. 

Mr. MULVANEY. We had this discussion last time when Mr. 

Cordray was here. My State has a law that has a 2-day waiting period. They are proposing a regulation that is a 60-day waiting period, and my question is doesn’t, thus, the Federal regulation preempt State law? And I think you would agree that it would. 

Mr. SHERMAN. No, I would not. 

Reclaiming my time, if the Federal law requires me to wear a 

belt and the State law requires me to wear suspenders, I will comply with both laws. If you take the position that the State legislators are in the position to provide consumer protection, then you 

should repeal Dodd-Frank, as I am sure—or at least these provisions of Dodd-Frank, as I am sure has some support on your side 

of the aisle. 

When we passed the law establishing the CFPB, we decided that 

in addition to following State law, which might provide a 2-day period, there could—there will also be an additional Federal law. Now 

you can say that a State that decides to have no regulation in a 

financial area has made a conscious decision that is the best policy 

for that State. But we passed a Federal law to say that there will 

be standards. 

Preempt is when you tell a company they don’t have to comply 

with State law. Supplement is when you say you have to comply 

with the State law plus you must comply with the Federal law. 

Mr. Cordray, thank you for all you do. Part of what you do is 

coming here to Congress so that we can comment on what you do 

and perhaps help you do an even better job. 

Mr. CORDRAY. And I think I just learned from you a little bit, so 

I appreciate that. 

Mr. SHERMAN. Okay. 

Now, as to Mr. Stivers’ letter, there are some who say that letter, 

signed by many of us—and I want to say I signed the letter and 

I am a step ahead of you, I have read the letter. It does cite code 

section 1022(b)(3) and quotes it accurately, and some have said, 

‘‘Well, therefore it is in favor of exempting some of the smaller institutions,’’ so toddlers wouldn’t be wearing shirts at all. 

50 

But in fact, it—what it calls for is look at each regulation, determine whether you can have a one-size-fits-all regulation—buy hats 

and one-size-fits-all, or shirts need to be tailored to the right size. 

And the only ask in the letter is to be sure that your regulations 

don’t have unintended consequences, and the specific focus is that 

when you write a regulation and you would want a different regulation or a different approach for smaller institutions that you have 

a portion of the regulation applicable to smaller institutions. 

Mr. CORDRAY. That is sound advice, and it is something we will 

continue to try to heed, yes. 

Mr. SHERMAN. And there may be individual circumstances where 

we bring to your attention— 

Mr. CORDRAY. And we will be glad to take input on that in particular issues, yes. 

Mr. SHERMAN. We talked a couple of days ago. You have urged 

financial institutions to use text messages, and thank you for saying you will go to the FCC and make sure that the FCC will allow 

financial institutions to use text messages. If I can get a text message from my bank telling me I am about to overdraft my account, 

I will pay my phone company a nickel to get that information. 

I want to focus on TRID. These are complicated regulations. 

They are particularly complicated for smaller financial institutions. 

I want to commend you for having the hold-harmless period. And 

institutions would like to get more written guidance as to how to 

apply the regulations and what remediation steps they should take 

when remediation is necessary. 

We have talked about the hold-harmless period continuing, and 

I think you should continue the hold-harmless period at least until 

you can issue the interpretations necessary to provide written guidance. 

Mr. CORDRAY. That may not go on forever, but we will continue 

to be very attentive to the industry, and we have encouraged them 

to bring us their prioritized items for consideration. 

Mr. SHERMAN. At least as long as it takes to answer the questions that have emerged in the first 4 months. Obviously, some 

newer question could come up. 

And finally, as we have talked, the regulations require an inaccurate statement as to the cost of title insurance in those States 

like California, where there is a buyer’s policy and an owner’s policy and you get a discount on the owner’s policy when you get the 

lender’s policy. 

To correct the record, there is a lender’s policy and there is a 

buyer’s policy. 

I yield back. 

Chairman HENSARLING. I was actually reminded that I gave you 

an extra 30 seconds, so you have 14 seconds to— 

Mr. SHERMAN. Oh. Thank you. 

Chairman HENSARLING. —go to town. 

Mr. SHERMAN. So in any case, Mr. Cordray, you will be looking 

to make sure that the regulations deal with a situation where there 

is a stated price for the policy the buyer of the home is going to 

pay for, but there is an automatic discount that, once disclosed, is 

the net price that the buyer— 

51 

Mr. CORDRAY. I know that is an issue that has been under active 

consideration during the rulemaking process and, I believe, since. 

Chairman HENSARLING. The time of the gentleman has now expired. 

The Chair now recognizes the gentleman from Georgia, Mr. 

Westmoreland. 

Mr. WESTMORELAND. Thank you, Mr. Chairman. 

Director Cordray, on data security, what system do you use to 

determine if somebody is fulfilling their commitment on data security? 

Mr. CORDRAY. There are a number of procedures that have been 

developed and actually really enhanced in the Federal Government 

over the last several years. The Federal Government has had some 

problems in this area, and the private sector has had many problems in this area. It is something that I think we are all very attentive to. Nothing would more discredit— 

Mr. WESTMORELAND. What standard do you use if you are going 

to go out and evaluate a company and possibly fine them for not 

having the— 

Mr. CORDRAY. Oh, I see. I thought you were talking about our 

own data security. 

We are using the standards that we understand to be common 

in the industry. We are using the standards of best practices at different institutions. 

Mr. WESTMORELAND. What standard would that be? 

Mr. CORDRAY. We are taking some guidance from the Federal 

Trade Commission, which is ahead of us on this issue. We just had 

an enforcement, actually, against Dwolla in this area. 

Mr. WESTMORELAND. What did you use for that enforcement? 

What standard did you use for that? 

Mr. CORDRAY. What we did was we do—whenever we engage in 

an enforcement matter we open an investigation, took a look at 

their own security protocols, whether they were being followed. 

By the way, that is the first thing: Whatever security level or 

threshold you are talking about, one is whether it is there on paper 

but two is whether it is actually being followed. If it is not being 

followed then you have a problem. That is one of the things that 

we thought we found— 

Mr. WESTMORELAND. But what standard do you use for the 

CFPB? 

Mr. CORDRAY. Again, we are looking at all of the standards in 

the industry and attempting to adapt to them. If you want me to 

have— 

Mr. WESTMORELAND. So you don’t have a standard now? 

Mr. CORDRAY. If you want me to have my staff follow up with 

you on some of the details of that— 

Mr. WESTMORELAND. I would just like to know what standard 

you are using because— 

Mr. CORDRAY. I am not myself an expert in that area, but we 

could certainly inform you better— 

Mr. WESTMORELAND. Okay. You stated that consumers entrust 

companies with significant amounts of sensitive personal information, and it is crucial that companies put systems in place that protect this information. I am assuming you think it is just as critical 

52 

for the CFPB to protect this information that in your statement 

you said consumers entrust with companies, but the CFPB has a 

lot of information that the consumer would normally give to a credit agency. Is that true? 

Mr. CORDRAY. I would say two things about that. Number one, 

I do think it is fair to hold us accountable for the security of data 

that we have. 

But number two, the data that we have typically is anonymized 

and it is de-identified and it cannot identify either you or me, so 

it is less risky than the kind of data you are talking about private 

companies having, which tells all about you and all about me and 

it is very clear who is being identified there. That is much more 

risky. If they get my credit card information or yours, we can be 

defrauded; we can have our— 

Mr. WESTMORELAND. So you think private companies’ information is much more—the information is much more risky than 

yours? 

Mr. CORDRAY. It is more risky because it is personally identified 

there, and that is typical. They are using it to market to you and 

me. 

Mr. WESTMORELAND. Okay. 

Mr. CORDRAY. Our data is not of that kind. 

Mr. WESTMORELAND. Who has tested your data security system? 

What company has tested it? 

Mr. CORDRAY. The folks in the Federal Government who deal 

with this across all agencies set standards, and they have now enhanced the standards and improved the standards that we are all 

seeking to meet. And I think we are all trying to keep up with the 

practices— 

Mr. WESTMORELAND. I know that, but who tested your security 

of your data? 

Mr. CORDRAY. Again, our I.T. group could come and give your office a briefing if you want to know the details— 

Mr. WESTMORELAND. Well, no, I just want to know who tested it 

because you mentioned all the information that is available to 

other people and that you don’t have that much information. I just 

want to give you a little rundown— 

Mr. CORDRAY. No. I said we have a different kind of information. 

We don’t have information that is identified by you or by me; it is 

anonymized information for the most part. 

Mr. WESTMORELAND. Okay. I just know that in your system you 

have the borrower or co-borrowers’ information of the name, address, zip code, telephone numbers, date of birth, race, ethnicity, 

gender, language, religion, Social Security, education, military, employment records, financial account numbers, financial events in 

the last few years, life events in the last few years, mortgage information, current balance, current monthly payment, delinquency 

grid monthly payment, refinanced amount, bankruptcy information, credit card account numbers, credit amount, loan balances, 

past-due amount, minimum payment requirements, high-balance 

amount, charge-off amount, second mortgages, household composition, single male, single female, presence of children by various age 

categories, number of wage earners in the household, household income, property attributes, number of bedrooms, bathrooms, square 

53 

footage, light size, year built, age of structure, units in the structure, most recently assessed value, longitude, latitude, census block 

track, date purchased, origination date, acquisition. Do you think 

this is really— 

Mr. CORDRAY. So I am not sure what data you are talking about. 

What particular data are we talking about— 

Mr. WESTMORELAND. This data is given to you and is supposedly 

in your records—from the National Mortgage Database. 

Mr. CORDRAY. What are we talking about, the mortgage market? 

We were talking about credit card—what are you talking about 

here? 

Mr. WESTMORELAND. It is data that is in your system, and I 

think that we need to know how it has been protected— 

Mr. CORDRAY. I would be glad to have my folks follow up with 

yours— 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair wishes to advise all Members that votes are expected 

somewhere between 1:00 and 1:20. I expect to clear the Members 

in order in the queue, and we will adjourn once votes are roughly 

5 minutes out. We will not ask our witness to come back, but instead we will adjourn at that time. 

The Chair now recognizes the gentleman from Illinois, Mr. 

Hultgren. 

Mr. HULTGREN. Thank you, Mr. Chairman. 

Director Cordray, as you know, the committee has at length 

raised concerns with the guidance the Bureau issued in 2013, 

which it dubiously claimed is a simple interpretation of its authority under ECOA, despite explicit language and intent in DoddFrank to exclude automotive lending— 

Mr. CORDRAY. Are we talking about— 

Mr. HULTGREN. —from the Bureau purview. 

We have also taken issue with the disparate impact theory and 

the questionable methodology used by the CFPB to administer it. 

This is also a major concern for my automobile dealers in my district and also all across Illinois. 

You have now relied on disparate impact theory of discrimination 

under ECOA in at least three separate enforcement actions against 

businesses that underwrite auto loans. I suspect that what you are 

doing is extending the Supreme Court’s holding in the Inclusive 

Communities case, but that case dealt with the Fair Housing Act, 

not ECOA, and that decision rested primarily on the unique congressional history of FHA—history that is plainly inapplicable to 

ECOA. 

I wondered if you could spell out in detail the specific legal basis 

on which the CFPB is pursuing ECOA enforcement actions using 

disparate impact? 

Mr. CORDRAY. I believe there was considerable hope among a lot 

of the industry that disparate impact would be disapproved by the 

Supreme Court. By the way, I understand there is interesting 

news: We have a new Supreme Court nominee this morning. 

And that was a challenge that was raised in the Inclusive Communities case that you referenced and, in fact, the Supreme Court 

resoundingly upheld disparate— 

Mr. HULTGREN. That was an FHA case, right? 

54 

Mr. CORDRAY. That is correct. That— 

Mr. HULTGREN. This is an ECOA case, right? 

Mr. CORDRAY. Yes, but— 

Mr. HULTGREN. Very different. Very— 

Mr. CORDRAY. No, I don’t think— 

Mr. HULTGREN. No, it is very different. 

Mr. CORDRAY. I don’t think so. 

Mr. HULTGREN. —very specific requirements that we have 

there— 

Mr. CORDRAY. I think the two— 

Mr. HULTGREN. —were laid out, housing—fair housing, the—but 

you are, I think, extrapolating something that we just can’t find 

any rationale for. 

Mr. CORDRAY. Two laws have been applied hand-in-glove for decades— 

Mr. HULTGREN. ECOA specifically had exemptions for this, and 

yet you are using that. 

Mr. CORDRAY. —mortgage market and they work together in 

the— 

Mr. HULTGREN. To me, the sense that we have is you are just 

pulling this out of nothing because there is an agenda that is being 

pushed. 

Mr. CORDRAY. No, no. That is— 

Mr. HULTGREN. Let me— 

Mr. CORDRAY. Look, again— 

Mr. HULTGREN. Let me just move on— 

Mr. CORDRAY. —if that had been upset we wouldn’t be enforcing 

the law. But we— 

Mr. HULTGREN. We talked a little bit about HMDA, and I want 

to ask you specifically about some concerns—privacy concerns. My 

colleague from Georgia, Mr. Westmoreland, raised some issues of 

the amount of data that you already have—specific data on individuals. 

And all of us have concerns of the Federal Government, I think, 

showing incredible weakness of being able to protect the privacy of 

our citizens. I hear it all the time from them. 

The recently finalized HMDA rule is especially concerning to me 

because it looks like it is not enough. All the information that Mr. 

Westmoreland had listed off, item after item after item, and now 

it looks like the CFPB is looking for more private information that 

I question if it is safe. 

Section 1094 of the Dodd-Frank Act, which made changes to 

HMDA, also required the Bureau to develop regulations that ‘‘modify or require modification of itemized information for the purpose 

of protecting the privacy interests of the mortgage applications or 

mortgagors that is or will be available to the public.’’ 

In a footnote to the final HMDA rule in October 2015 the Bureau 

states that, ‘‘Based on its analysis to date, the Bureau believes that 

some of the proposed new data points may create privacy concerns 

sufficient to warrant some degree of modification, including redaction, before public disclosure.’’ However, the Bureau is only providing opportunity to comment on the balancing test for consumer 

privacy, not the actual data made public by FFIEC. 

55 

In a 2005 speech, former Federal Reserve Board senior advisor 

Glenn Canner raised concerns about HMDA privacy risks, noting 

that, ‘‘Approximately 95 percent of loan records are unique, meaning loan amounts and census tracks can be attributed to a single 

person. With a cross match to private lien transfer records, one can 

identify these individuals in 95 percent of the cases.’’ 

Shouldn’t the Bureau proceed with extreme caution before finalizing any policy that would direct FFIEC to publish additional consumer information, even if steps are taken to anonymize it? 

Mr. CORDRAY. Thank you for the question. As you pointed out, 

and I think you should be pleased, we are approaching this issue 

of the privacy issues very sensitively and we have engaged in a further notice and comment process on that— 

Mr. HULTGREN. I am not pleased, and my consumers are not 

pleased, my banks are not pleased, because they have seen breach 

after breach after breach by the Federal Government. Mr. Westmoreland asked, ‘‘Who is the company that is looking at it?’’ 

You said there isn’t one, basically. It is internal. 

Mr. CORDRAY. No, no, no. That is not what I— 

Mr. HULTGREN. We have seen failures over and over again, and 

no my concern with HMDA is that you would be getting more information. It is stated by people in the Administration saying that 

this does identify people, that 95 percent chance as you are looking 

through this we can know exactly who it is even if it is 

anonymized. 

I don’t think it is enough. My citizens are concerned. And now 

you are adding more requirement of getting more private information of my citizens. 

I think it is wrong. I think you ought to—all of us ought to proceed with extreme caution. To me, the least you could say is, ‘‘Yes, 

we will proceed with extreme caution.’’ 

I yield back. 

Mr. CORDRAY. We will proceed very carefully in this area, yes. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Colorado, Mr. 

Perlmutter, for 5 minutes. 

Mr. PERLMUTTER. Thanks, Mr. Chairman. 

Mr. Cordray, thank you for being here. Thanks for your service 

to the United States of America. Thanks to the people that you 

lead in the agency. 

And as I have said to you many times, being a regulator, you are 

never anybody’s best friend. And that is not your job and that is 

not what you are supposed to be. 

But you are supposed to be looking out for the good—the best interests of the people within the jurisdiction of your agency, and I 

thank you for doing that in so many different ways. 

You and I have disagreed on auto lending issues and auto dealership issues from time to time, but in a civilized, I think, and a respectful way. 

I was very disappointed to learn the other day about the deposition taken of one of your staff—one of your lead staff. I don’t think 

that was appropriate, and I wanted to say that for the record. That 

kind of thing can happen in court if it needs to be. Depositions 

under the oversight of a judge, okay, that is how our system works. 

56 

And I am just saying this, you take it or leave it as you choose, 

that I would hope that the agency keeps a dialogue open with the 

auto dealer industry in the hopes that there is some kind of common ground that can be reached without them continuing to pursue a legislative approach but that there actually be some kind of 

an—something that is valuable for consumers, does our best to root 

out discrimination, respects due process. 

Good luck. I just ask you to keep the line of communication open. 

Mr. CORDRAY. I appreciate that. 

And, of course, we had difficulty initially because we tried hard 

not to be reaching out to auto dealers to be respectful of our jurisdictional lines. We came to learn eventually they were interested 

in talking to us; they continue to be interested in talking to us on 

various issues, and we therefore have been willing to respond to 

them in kind. 

Mr. PERLMUTTER. And I thank you for that, and I would like 

you—I just ask that you keep the lines of communication open. 

Mr. CORDRAY. Yes. All right. 

Mr. PERLMUTTER. To see if there is some kind of resolution short 

of legislation or lawsuits all the time, okay? 

And I just want to thank you for all the other things that you 

have been working on, whether it is mortgages or credit cards or 

the like. Because we, the Congress, in Dodd-Frank—and I know 

many of my friends on the Republican side, they don’t like a lot of 

the provisions in Dodd-Frank, and okay, fine, but we had a lot of 

problems going into the 2008 collapse of the financial sector, and 

a lot of it had to do with respect to consumer lending and consumer 

matters. And that is obviously the mission of the agency, to deal 

with those kinds of things. 

So I didn’t have anything specific I wanted to ask you. If you 

have— 

Mr. CORDRAY. Yes, if I could just— 

Mr. PERLMUTTER. —anything you would like to talk about? 

Mr. CORDRAY. Yes. There was a point made earlier that I think 

is inaccurate and misguided, that somehow our rules have pushed 

the mortgage marketplace into the GSEs. The reality is that the irresponsible lending that precipitated the crisis and blew up the 

mortgage market and blew up the economy pushed most lending 

now to GSEs and eliminated, destroyed the secondary financing 

market, which has not yet recovered. 

All of that preceded any of our rules, which didn’t even take effect until 5 years after that. So again, just to set the record 

straight, there have been various statements today that I thought 

were not consistent with the facts, and I will do my best to try to 

set the record straight where I can. 

Thank you. 

Mr. PERLMUTTER. And actually, the record is more stark than 

you just stated, that in 2008, 2009, 2010 the only entities buying 

loans in the secondary market were Fannie Mae and Freddie Mac. 

Mr. CORDRAY. Yes. 

Mr. PERLMUTTER. There was no secondary market, okay? So, everybody can go into their rhetoric and their hyperbole— 

Mr. CORDRAY. That is right. It blew up. It destroyed itself 

through very irresponsible behavior. 

57 

And by the way, another comment I saw the other day was that 

the Federal Reserve had kept interest rates too low leading into 

the housing crisis, and as I looked back at it, the interest rates 

were between 4 and 5 percent during that period. I am not sure 

how high people wanted them to be, but again, the timing on that 

is not accurate to the facts. 

Mr. PERLMUTTER. The last thing I would say, and just to remind 

everybody, you are an agency of the Federal Government. You have 

a lot of power, and however you exercise that power, we all expect 

you to do it judiciously. I think you have done that, but it is always 

something that has to be in the forefront of the minds of you and 

your members of your agency. 

Mr. CORDRAY. Yes, and it is power conferred on us by Congress. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Pennsylvania, Mr. 

Fitzpatrick, chairman of our Terrorism Finance Task Force. 

Mr. FITZPATRICK. I thank the chairman. 

Mr. Director, over here on the right. I just want to follow up on 

the issue raised by my friend, Mr. Perlmutter, on indirect auto 

lending. 

Mr. Director, would you acknowledge that some borrowers, customers in the indirect auto lending area who have good credit have 

ended up paying higher interest rates and higher fees as a result 

of the approach of the CFPB and the enforcement actions that you 

have brought? Is that possible that people with good credit who 

otherwise would have had a lower rate, lower costs, whose costs 

have been increased? 

Mr. CORDRAY. What I know our investigations found was that 

there were many people with good credit— 

Mr. FITZPATRICK. Well, I— 

Mr. CORDRAY. —who belong to different minority groups who 

were being charged more for their loans than White borrowers. 

Mr. FITZPATRICK. But were some individuals of any racial or ethnic background who have good credit, did they pay higher rates 

and higher fees as a result of the approach and the enforcement 

action? Is that possible? 

Mr. CORDRAY. I have heard different views about that. 

Mr. FITZPATRICK. But it is possible. You would acknowledge it is 

possible? 

Mr. CORDRAY. I have heard different views about that. It depends in part on what the response to enforcement actions are. 

Mr. FITZPATRICK. Based on what you have heard, is it likely that 

has happened? 

Mr. CORDRAY. I wouldn’t say that. 

Mr. FITZPATRICK. You think it probably has not happened? 

Mr. CORDRAY. I just wouldn’t say whether it is likely or not. It 

depends very much on the individual responses of individual lenders. 

Mr. FITZPATRICK. Mr. Director, I want to get into an area—I had 

some very small community banks that I visited with yesterday, 

and they are from Bucks County, Pennsylvania. And it has to do 

with the subject of overdraft fees. 

There are a lot of us who have concerns that the rulemaking is— 

of your Bureau is limiting the ability of small community banks to 

58 

serve their customers and to provide real choices to their customers. And those customers could be individuals or small business 

owners. And these are sometimes customers who would otherwise 

seek out riskier nonbank alternatives, which is what I think we all 

collectively want to see them avoid. 

In regards to the overdraft fees—and I am told that you are looking at a rule and a rule is being formulated now on this issue at 

the Bureau. Is that correct? 

Mr. CORDRAY. We are working on that, yes. 

Mr. FITZPATRICK. And when is that expected to be released? 

Mr. CORDRAY. I think we have said that the proposed rule, which 

will, again, be subject to considerable comment, I am sure, and a 

public notice process, will be released this spring. 

Mr. FITZPATRICK. This spring. So this particular bank that I met 

with yesterday wanted me to posit to you—she suggested that I ask 

the CFPB whether you have any willingness to de-identify data, 

which is something you were just talking with Mr. Westmoreland 

about, and release it to the public so that banks and financial institutions can interpret the data for themselves and can draw their 

own conclusions. 

Is that something you would be willing to do? 

Mr. CORDRAY. What kind of data are we talking about? For what 

purpose? What are we— 

Mr. FITZPATRICK. The data that you are using to formulate the 

role on overdraft fees. 

Mr. CORDRAY. I’m sorry, on small-dollar loans or on overdraft? 

Mr. FITZPATRICK. On any of it. 

Mr. CORDRAY. I thought you were talking about small-dollar 

loans when I said we were going to release a proposal this spring. 

On overdraft we are not releasing a proposal this spring. 

Mr. FITZPATRICK. You would be willing to release more of the underlying data that forms the basis of your conclusions? 

Mr. CORDRAY. We issued a couple of different White Papers on 

overdraft, if that is what you want me to address. Yes? 

Mr. FITZPATRICK. What I would like you to address is to see if 

you would be willing to release more information. 

I have introduced a bill called the Bureau Research Transparency Act, H.R. 3131. Are you familiar with that bill? 

Mr. CORDRAY. Not particularly, no. 

Mr. FITZPATRICK. What the bill would do is it would require the 

Bureau, when you make a report or recommendation or you issue 

a rule, that you release the underlying data, which many times is 

not released, so that, as I said in my first question, so that banks 

can form their own conclusions. 

Mr. CORDRAY. Yes. So let me speak to— 

Mr. FITZPATRICK. So are you willing to release more of the data 

that— 

Mr. CORDRAY. Let me speak to circumstances where underlying 

data is not released, because our orientation and our inclination is 

to release as much data publicly as we can because we want people 

to be able to do their own analyses, draw their own conclusions. 

For example, that is why we have the public complaint database. 

But some of the information we get is trade secret protected, so 

although one institution might want to know more about it, anVerDate Nov 24 2008 20:01 Mar 01, 2018 Jkt 023721 PO 00000 Frm 00062 Fmt 6633 Sfmt 6633 K:\DOCS\23721.TXT TERI
59 

other institution might feel affected or aggrieved or disadvantaged 

if it is released— 

Mr. FITZPATRICK. This is my question, Mr. Director: If it is deidentified and if it doesn’t fall within one of your exceptions—and 

I would like to hear about those exceptions like trade secret—are 

you willing to release all the data that underlies your reports— 

Mr. CORDRAY. Okay, so again— 

Mr. FITZPATRICK. —so that the reports are transparent, so that 

banks and financial institutions can—and the public can draw their 

own conclusions. 

Mr. CORDRAY. Yes. It isn’t just whether it is de-identified; it 

could contain confidential trade secret information. It may have 

been obtained in such a way maybe we had to buy it from some 

provider in which there were conditions that we weren’t able to negotiate away. It may be it was obtained through confidential supervisory information from a particular institution, which would be 

compromised if it were put forward— 

Mr. FITZPATRICK. Mr. Director, my time has expired. Would you 

be willing to just lay out all the exceptions to transparency on releasing the data that you were going to give us today? Can you give 

us that information in writing? 

Mr. CORDRAY. I think I just kind of verbally laid out— 

Mr. FITZPATRICK. You just did. 

Mr. CORDRAY. —much of it. 

Mr. FITZPATRICK. Those are all the exceptions? 

Mr. CORDRAY. There may be others, but I think that is the significant— 

Mr. FITZPATRICK. If there are others, please provide it in writing 

to me. Would you— 

Mr. CORDRAY. I would be happy—so if you are interested in this 

here I would be happy to have our staff brief your staff and hear 

from them about what they would like to know. 

Mr. FITZPATRICK. Thank you, Mr. Chairman. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Minnesota, Mr. 

Ellison‘. 

Mr. ELLISON. Director Cordray, your agency has been under attack since its first day. I actually have a—I have something that 

I would like to post on the screen right now if I can. 

Powerful interests have opposed the agency’s every move. Many 

call for the abolition of your agency, and I have a slide up there 

right now. On the screen is an ad run by a secret group called Protect America’s Consumers. 

And I have no idea who is running these ads on MSNBC in D.C.; 

I have no idea who is paying for them. We have seen some addresses that lead us to conclude that they might be very, very powerful 

interests, but we haven’t received the confirmation yet. 

I was also angry at the deception in this ad and being quoted out 

of context by this front group that I made my own YouTube video. 

So, not everyone is an opponent of the work of the CFPB. In fact, 

I want to congratulate the people here, the green shirts, who are 

standing with the CFPB today. What you are doing is standing up 

for consumer justice, and I think that is really excellent. 

60 

So I don’t know if—was I planning on running my thing? Okay, 

so this is my video setting the record straight that I have at all 

times supported the CFPB, quite contrary to what the deceptive 

Protect Consumers ad implied. 

Then also, you may have heard in a public speech that was given 

by our chairman yesterday on his vision of financial markets. I 

would like to ask you some questions about some ideas that were 

raised. 

For example, do CFPB rules requiring lenders provide closing 

cost documents to homebuyers 3 days before they buy their house 

count as ‘‘regulatory waterboarding’’ of community bankers? 

Mr. CORDRAY. I wouldn’t describe them that way, no. 

Mr. ELLISON. And do you think that limited forced arbitration in 

consumer and financial contracts is a ‘‘monument to arrogance and 

the hubris of man?’’ 

Mr. CORDRAY. I understand the proposal to be trying to implement authority and direction given to us by Congress. 

Mr. ELLISON. And when we limit interest rates on small-dollar 

loans to 36 percent for service members or act to prohibit lenders 

for charging African-Americans higher rates of interest for car 

loans, is that creating an ‘‘incomprehensible complexity of government control?’’ 

Mr. CORDRAY. I think Congress legislated that limitation to protect service members against being exploited while they are trying 

to protect and defend our country. I think it is quite appropriate, 

but again, that was congressional judgment. 

Mr. ELLISON. It is a strange place to be against service members. 

Anyway, when the CFPB requires lenders to tell buyers of manufactured homes that the loans they are being offered are more expensive compared to other options in the market, is that an example of an ‘‘unaccountable, arrogant bureaucracy dragging us toward 

the failed economy of a European-style social democracy?’’ 

You don’t need to answer. 

Mr. CORDRAY. I will. I think we are just trying to put consumers 

in a position so they can make choices that they won’t regret later, 

so that they can know what they really would want to know at the 

time. That empowers consumers and promotes personal liberty. 

Mr. ELLISON. It is fair to say that there—we don’t all agree on 

this committee about the role of the CFPB, but I will say this: $11 

billion turned back into the economy, in the hands of ordinary 

working people, is pretty good. 

On the screen is a recent monthly report of consumer complaints 

about financial products made to your agency. Many experts decry 

the financialization of the economy. They note that overcharges, 

hidden commissions, arbitration contracts cost millions in wealth to 

ordinary Americans. 

And yet, one of the quotes in the chairman’s public speech was 

quoting Kanye West’s statement that the only true freedom is economic freedom. 

Would you say that ensuring a fair financial marketplace actually furthers economic freedom for American people? Do people 

have more wealth now that some of these costly schemes are 

stopped? What do you think? 

61 

Mr. CORDRAY. I think that enforcing the law fairly promotes economic freedom. It helps the free market work against a backdrop 

of law and order and law enforcement. 

And I think that this Bureau has proven itself to be not only proconsumer protection but also pro-consumers and pro-consumer opportunity. That is certainly how I see things. 

Mr. ELLISON. And I would say being pro-consumer is being probusiness, and I will tell you why. If you are an honest business person trying to give a good product at a fair price, you are competing 

against unscrupulous— 

Mr. CORDRAY. I agree. 

Mr. ELLISON. —competitors and they can beat you out. And that 

hurts the marketplace; it doesn’t help it. 

I— 

Mr. CORDRAY. I agree. 

Mr. ELLISON. —will yield back to the chairman. 

Mr. CORDRAY. It happened in the mortgage— 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Florida, Mr. Ross. 

Mr. ROSS. Thank you, Mr. Chairman. 

Mr. Cordray, you and I have discussed this before and I would 

like to bring it up again. I, too, was in the Florida legislature; I, 

too, have some experience in dealing with payday loans. 

We had a terrible problem in Florida. We addressed that back in 

the early 2000s. 

We came out with a bill that I think has done a great deal of 

good to eliminate the predatory lending, the bad actors, and, in 

fact, make sure that the transaction has a duration between 7 to 

31 days, cannot be greater than $500 dollars, and a processing fee 

of no more than $5. There is a cooling-off period of 24 hours. 

We have been able to, in the State of Florida under our regulatory scheme, reduce the use of online loans, which we don’t want 

to see our consumers go to—that would eliminate any regulatory 

control whatsoever—but we have been able to reduce it by 82 percent since then. Would you not agree that Florida by far is the gold 

standard when it comes to State regulation of payday loans? 

Mr. CORDRAY. I would not. 

Mr. ROSS. Why not? Is there another State out there better? 

Mr. CORDRAY. What I would say is I— 

Mr. ROSS. But is there a State out there better? There isn’t, is 

there? And that is my point, Mr. Cordray, because, you see— 

Mr. CORDRAY. I’m sorry, do you want me to answer the question 

or— 

Mr. ROSS. Yes. Is there another State who has a better track 

record than— 

Mr. CORDRAY. What I would say is there has been analysis done 

of the Florida model, and what it shows is these loans are still 

being made at above a 300 percent rate of interest and they are 

being rolled over an average of 9 times for many consumers. 

Mr. ROSS. And there is no State better, though. But let me ask 

you this: Again, you are going to try to eliminate the demand, 

thinking—eliminate the supply, thinking you are going to eliminate 

the demand, which you are not. 

62 

But let’s take your statistics up there. We have your monthly report on payday loans—in fact, my colleague just before me had it 

up there—and it shows that since its inception I believe that payday loans have had complaints registered with your office of 1.5 

percent since 2011 have been complaints of payday loans. 

Now, that is not a significant thing, but when you think that 10 

times that have been credit reporting agencies, and you are not 

doing anything about that. Why are we focusing on an industry 

that has a need in the market? 

Now, let’s go back to Florida again— 

Mr. CORDRAY. I appreciate the question. I am glad to lay out an 

answer for you. 

Mr. ROSS. Go right ahead. 

Mr. CORDRAY. For example, what we find is when we look at— 

some of these complaints are simply misclassified. People think 

they are complaining about debt collection— 

Mr. ROSS. You are misclassifying. You have the greatest resources of any agency— 

Mr. CORDRAY. No, no. I am saying that people are complaining 

about debt collection. What we find is the incidence of payday loan 

debt collection complaints is much higher than that for student 

loans or auto loans. 

Mr. ROSS. Let me help you with the State of Florida again. 

Mr. CORDRAY. So that needs to be counted in, as well. 

Mr. ROSS. Do you realize they had over 8 million—or right at 8 

million payday loans in the State of Florida last year? Do you know 

how many complaints they had registered with the Financial Services Regulatory? 117. 

Mr. CORDRAY. Let’s also look at debt collection complaints and 

how many of them proceed from payday loans. 

Mr. ROSS. Do you know how much that is as a percentage? Twoone thousandths of a percent. 

By gosh, what relationship would be great if all you had is twoone thousandths of a percent of complaints. We would have marriages everywhere if we had that. 

But what I am suggesting— 

Mr. CORDRAY. You are sort of ignoring the point I am making, 

which is— 

Mr. ROSS. —to you, sir, is you are not using logic and reason to 

dictate what is going to be a policy that is forthcoming in spring. 

Sunday is spring, so I anticipate there is going to be a report come 

this spring, right, after Sunday? Can you give us a little trailer on 

it? 

Tell us what it is going to say about the payday loan industry. 

Tell us how we are going to eliminate all the State regulatory environments so that you have a company out there known as the SelfHelp Credit Union that is kind of assisting you because they want 

to take over this market. 

Are you familiar with the Self-Help Credit Union? 

Mr. CORDRAY. I have no idea what you are talking about. I have 

heard that allegation before. 

Mr. ROSS. You don’t know about the Self-Help Credit Union? Let 

me ask you this— 

63 

Mr. CORDRAY. Some suggestion that they are trying to take over 

this market is sort of beyond— 

Mr. ROSS. Yes or no: Are you familiar with the Center for Responsible Lending? 

Mr. CORDRAY. Beg your pardon? 

Mr. ROSS. Are you familiar with the Center for Responsible 

Lending? 

Mr. CORDRAY. Yes, I am familiar with— 

Mr. ROSS. And they have had some impact on trying to allow 

their opinion or influence in promulgating the rule that you are 

going to— 

Mr. CORDRAY. Many stakeholders have had impact— 

Mr. ROSS. Are you also familiar with their subsidiary? 

Mr. CORDRAY. I’m sorry? 

Mr. ROSS. Self-Help Credit Union, their subsidiary—are you familiar— 

Mr. CORDRAY. What I am not understanding is this argument— 

Mr. ROSS. Have you ever heard of the Self-Help Credit Union, 

yes or no? 

Mr. CORDRAY. I have, yes. 

Mr. ROSS. And do you know that they are a subsidiary of the 

Center for Responsible Lending? 

Mr. CORDRAY. I am not familiar with the corporate relationship. 

Mr. ROSS. Have you had any relationships, any discussions, any 

e-mails, any communications with the Self-Help Credit Union? 

Mr. CORDRAY. I have discussions with many stakeholders. 

Mr. ROSS. With Self-Help— 

Mr. CORDRAY. We have a payday lending— 

Mr. ROSS. —on the record. The Self-Help Credit Union—any discussions, communications, directions, anything whatsoever? 

Mr. CORDRAY. Okay. So— 

Mr. ROSS. Yes or no? 

Mr. CORDRAY. —what I don’t understand— 

Mr. ROSS. Yes or no? 

Mr. CORDRAY. —is this claim that somehow this is going to lead 

to somebody taking over the marketplace. 

Mr. ROSS. It is not a claim; it is a question. Yes or no, do you 

have any communication, any— 

Mr. CORDRAY. I don’t see what the basis for that is. 

Mr. ROSS. So you can’t say that you have. So would it surprise 

you that you have? 

Mr. CORDRAY. I’m sorry, what are we—what is the question? 

Mr. ROSS. Would it surprise you that you have had any communications with Self-Help? 

Mr. CORDRAY. What is the question? 

Mr. ROSS. Self-Help Credit Union—have you had any communications with them in any way, shape, or form? 

Mr. CORDRAY. I don’t know whether I have or haven’t, what you 

are talking about exactly. 

Mr. ROSS. Okay, well you don’t know whether you have had communications with them, is what I am asking you. 

Mr. CORDRAY. Look, I am sure I have. I have had communications with probably everybody who has had an interest in our rules 

going back for 5 years— 

64 

Mr. ROSS. Okay. Can you give me in 18 seconds or less a little 

anticipation of what we may see in the rule you are going to promulgate this spring with regard to short-term loans? 

Mr. CORDRAY. First of all, we haven’t promulgated it yet so nothing should be taken to the bank. But I think you can take a lot 

out of our White Paper and the small business review framework 

we provided, which is that we are going to seek to eliminate and 

limit predatory practices by lenders that embroil many consumers 

in a debt trap with consistent and prolonged rollover of— 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from North Carolina, 

Mr. Pittenger. 

Mr. PITTENGER. Director Cordray, you have on a number of occasions touted the transparency of your agency, the Consumer Financial Protection Bureau. Is that correct? 

Mr. CORDRAY. Say that again? 

Mr. PITTENGER. You have touted the transparency of your agency. Is that correct? 

Mr. CORDRAY. Yes, I—by the way, I would love to see some more 

transparency— 

Mr. PITTENGER. Good. Thank you. So that is my question there. 

Mr. CORDRAY. —on that group called Protecting America’s Consumers and some attention to that. 

Mr. PITTENGER. Taking my time back, sir. 

Mr. CORDRAY. Okay. 

Mr. PITTENGER. Let’s be respectful. 

Mr. CORDRAY. All right. 

Mr. PITTENGER. Mr. Cordray, in that light, you have also admitted that you and 12 of your Directors have used private e-mails for 

official business. Is that not correct? 

Mr. CORDRAY. I think that has been a very limited practice— 

Mr. PITTENGER. No, sir. Have you used them or not? 

Mr. CORDRAY. Very limited practice in— 

Mr. PITTENGER. Then you have used them? 

Mr. CORDRAY. —in days where our technology— 

Mr. PITTENGER. Mr. Cordray, how does the American public have 

any confidence in the records, in the information that is captured 

and recorded if you are using private e-mail? 

Mr. CORDRAY. First of all— 

Mr. PITTENGER. Mr. Cordray, do you approve of what Secretary 

Clinton did with her private e-mails? 

Mr. CORDRAY. I am not familiar with those situations. 

Mr. PITTENGER. You are not familiar with that? 

Mr. CORDRAY. Yes, I am not. 

Mr. PITTENGER. That is very interesting that you are not familiar— 

Mr. CORDRAY. I haven’t been part of any of that, and I don’t really know what to tell you. 

Mr. PITTENGER. Do you believe that the public gets a proper accountability when you are using your private e-mails? Do you feel 

like the public is getting all the information that they deserve to 

have? 

65 

Mr. CORDRAY. I know that there are policies that we have in 

place to make sure that government work is being captured in government databases and that is— 

Mr. PITTENGER. Will you turn over to the committee all these private e-mails? 

Mr. CORDRAY. I don’t really know what you are talking about. I 

would be glad to have our staff work with your staff to either try 

to understand your concerns— 

Mr. PITTENGER. We would like to have a full understanding of 

what has been conveyed over private e-mails regarding official 

business. It is just that clear. 

Mr. CORDRAY. I would be glad to follow up with you. 

Mr. PITTENGER. Thank you, sir. We will. 

Regarding our structure in the CFPB, you are the single Director. Do you believe that it would be more prudent and more acceptable to have perhaps a five-member bipartisan commission? 

Mr. CORDRAY. I have seen different approaches to different organizations. In State Government it is quite common to have a single 

individual— 

Mr. PITTENGER. Do you think that you could gain more wisdom 

from colleagues? 

Mr. CORDRAY. I’m sorry? 

Mr. PITTENGER. Do you think that you could gain wisdom from 

individuals who would join with you on such a— 

Mr. CORDRAY. I do every day. I have a leadership group at the 

Bureau, and every organization does. 

Mr. PITTENGER. Let’s talk about your time in the general assembly in Ohio. You said you served on the general assembly, and as 

such, I am sure you served on committee, correct? 

Mr. CORDRAY. Yes. 

Mr. PITTENGER. Do you feel like that the public would be bestserved if that committee Chair just issued his decision without the 

full support of those who are on the committee and aware of all 

those issues? He didn’t act alone did he, sir? 

Mr. CORDRAY. Some committee Chairs did and some committee 

Chairs didn’t, so— 

Mr. PITTENGER. He had accountability, didn’t he? 

Mr. CORDRAY. Sure. And as an individual member I had the ability to sponsor and introduce a bill if I wished to do so. I didn’t have 

to ask anybody’s permission. 

Mr. PITTENGER. But you are accountable to nobody, are you, Director Cordray? 

Mr. CORDRAY. I am accountable in the same way you are. I am 

accountable ultimately to the public for the substantive actions 

that I take. 

Mr. PITTENGER. You have already stated that you don’t act in full 

transparency. 

Mr. CORDRAY. No, I didn’t say that. 

Mr. PITTENGER. You don’t have a board. 

Mr. CORDRAY. I don’t agree with that. 

Mr. PITTENGER. You can’t be fired without some egregious abuse. 

Mr. CORDRAY. My role in the Federal Government is a role that 

was established by Congress; the conditions were set by Congress. 

I didn’t get to just write them up the way I please. 

66 

Mr. PITTENGER. And I think that is our point. I think we would 

like to hear your wisdom and what you believe would be the best 

accountability for the American people. 

Mr. CORDRAY. Okay, so— 

Mr. PITTENGER. Do you think it would be in the best interest of 

the American people that we had a five-commission bipartisan 

board? 

Mr. CORDRAY. One of the things I think is that when I come here 

and testify in front of you, you can call me to account. There is nobody I can blame it on; there is nobody I can say, ‘‘Well, somebody 

else might think differently.’’ 

Mr. PITTENGER. And you spend 3 hours with us and then you 

leave for 6 months and come back. 

Mr. CORDRAY. I am accountable directly to you. 

Mr. PITTENGER. These are difficult hours, I know, for you. You 

don’t enjoy them because you are having to be accountable. 

Mr. CORDRAY. No, these are not difficult. I actually enjoy coming 

before the committee. 

Mr. PITTENGER. And when you leave this room it is not—you 

don’t have to be accountable again. 

Mr. CORDRAY. I enjoy coming before the committee. When I was 

a single official in charge of the Ohio Attorney General’s Office or 

the Ohio Treasurer’s Office I was also accountable. 

I always have felt that I am accountable in public service ultimately to the public to serve them well. And I appreciate the oversight of this body, that I come here not only when I am required 

but other times when I am invited. And I have never ducked or 

dodged, and I have always been willing to stay as long as you want 

me to stay, and I continue to do that. 

Mr. PITTENGER. I think not dodging would mean that you are responsive when we contact you, when we write you, when we ask 

for information. There has been delay after delay in getting information from you on so many occasions. 

Mr. CORDRAY. I think we have always— 

Mr. PITTENGER. I am asking you now for the— 

Mr. CORDRAY. I have always read, we have always answered 

your letters. If the response is not sufficient, we are happy to follow 

up. 

We continue to do that. We will continue to do that. If there is 

anything that you think that we haven’t sufficiently followed up on, 

let us know and I will come back. 

Mr. PITTENGER. You are your own man. You run an agency, essentially, what, $600 million a year or more, accountable basically 

to nobody. You have no board that you are accountable to, and 

now— 

Mr. CORDRAY. No, that is—look, we have all kinds of accountability in our statute. Congress set the terms. Congress set the 

terms for special— 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentlelady from Missouri, Mrs. 

Wagner. 

Mrs. WAGNER. Thank you, Mr. Chairman. 

Wow. Never ducked or dodged? 

Mr. CORDRAY. Yes. 

67 

Mrs. WAGNER. Answer all letters? 

All right, Director Cordray, let’s have a conversation. 

Mr. CORDRAY. Okay. 

Mrs. WAGNER. Our committee sent you a subpoena back in December asking for documents regarding a variety of issues such as 

discrimination and retaliation, auto lending, and others. And despite you saying the CFPB is committed to transparency and compliance, you always answer our letters, you never duck or dodge, 

you all have failed once again to respond adequately to this subpoena. 

Additionally, the committee sent this letter right here, I have a 

copy of it, I will submit to the good of the order—on how all of you 

are complying with the subpoena regarding the—such terms that 

you all are using. 

Will you commit, Director Cordray, to providing this information 

to our committee here right now? 

Mr. CORDRAY. We continue to work with the committee— 

Mrs. WAGNER. Will you commit to providing information and 

complying to the request of this subpoena from your office? Will 

you commit to that? 

Mr. CORDRAY. So I would be glad to know specifics from you 

about how— 

Mrs. WAGNER. If so, when? 

Mr. CORDRAY. I would like to know specifics about how we have 

not complied. I know that in response to that we have— 

Mrs. WAGNER. You have failed to comply. 

Mr. CORDRAY. In what way? 

Mrs. WAGNER. That is the— 

Mr. CORDRAY. Give me a specific— 

Mrs. WAGNER. You haven’t responded to the subpoena or to the 

letter. 

Mr. CORDRAY. Of course we have responded. We have produced 

another I think 20,000 pages of documents. 

Mrs. WAGNER. Not in any adequate way, shape, or form. 

Mr. CORDRAY. Well, okay, tell me how it is inadequate? That is 

just— 

Mrs. WAGNER. Will you absolutely right now commit to complying with our committee? If so, when? 

Mr. CORDRAY. We have been working to comply all along. We will 

continue to work to comply. 

Mrs. WAGNER. Working to comply, Director Cordray, is what we 

call ducking and dodging. Let me move on. 

Director Cordray, last year I asked a question about who gave 

the authorization to renovate the leased headquarters of your agency, and I haven’t forgotten the response you gave to me, which was, 

‘‘And why does it matter to you?’’ Well, Director, it still matters to 

me because that is government expenditure of $215 million of taxpayer money. 

Last year you said that Treasury made the decision. However, 

the committee sent a letter to Treasury asking about it and they 

said that you all—you, the CFPB—made the decision. Clearly, both 

of you can’t be right, sir. 

Mr. CORDRAY. Okay, so— 

68 

Mrs. WAGNER. You have had a year since that last time I have 

asked to look into this, and so who authorized the renovation, sir? 

Mr. CORDRAY. First of all, this has been misstated and garbled, 

okay? I never said that why would you look into an expenditure of 

funds. You are entitled to look into an expenditure of funds and I 

appreciate that oversight. And we have given you— 

Mrs. WAGNER. You said, ‘‘Why does it matter to you?’’ And it 

matters to the taxpayers— 

Mr. CORDRAY. But the ‘‘it’’— 

Mrs. WAGNER. —to the Missouri 2nd Congressional District people that I represent. 

Mr. CORDRAY. —was not expenditure of public funds. The ‘‘it’’ 

was who signed off originally— 

Mrs. WAGNER. Who authorized it? A simple question. Who? 

Mr. CORDRAY. Okay. So— 

Mrs. WAGNER. Because I have more questions, sir. Who authorized it? 

Mr. CORDRAY. As I said to you—and I have said it to this committee numerous times—I later reaffirmed that decision and I continue to stand behind the decision. 

Mrs. WAGNER. As you know, Elizabeth Warren— 

Mr. CORDRAY. In terms of who originally— 

Mrs. WAGNER. Reclaiming my time, because you are clearly not 

answering the question—again. As you know, Elizabeth Warren 

was working at Treasury as a special advisor and was understood 

to be responsible for setting up the Bureau. She also published a 

blog post announcing that the CFPB headquarters would be located 

at 1700 G Street. 

So let me ask you, was it Elizabeth Warren who absolutely ordered and authorized the renovation, sir? 

Mr. CORDRAY. I don’t know. It seems like that is what you are 

trying to get me to say. I— 

Mrs. WAGNER. I want the truth, sir. 

Mr. CORDRAY. Okay. 

Mrs. WAGNER. Who ordered a $215 million expenditure of renovations using the taxpayers’ money? 

Mr. CORDRAY. First of all, it is not $215 million. That has never 

been true. It is not accurate. We have corrected the record on that 

numerous times. 

Second, I have reaffirmed that decision and I take responsibility 

and accountability for it. I am totally— 

Mrs. WAGNER. So you are saying that you gave the authorization 

for that. 

Mr. CORDRAY. I was not in the position at the time— 

Mrs. WAGNER. All right, reclaiming my time— 

Mr. CORDRAY. —and we did not have authority separate from 

Treasury at the time. 

Mrs. WAGNER. Reclaiming my time, Mr. Cordray, it is my time. 

It is really unbelievable that you don’t know who authorized it 

and that you won’t— 

Mr. CORDRAY. No, no. That is not—look, the first— 

Mrs. WAGNER. Mr. Cordray— 

Mr. CORDRAY. —the first year— 

69 

Mrs. WAGNER. Reclaiming my time, especially since you don’t 

even own it, and you know that the building has been assessed at 

$150 million. It really makes me question how else the CFPB 

spends its money. 

Last month Representative Barr, a great colleague of mine, questioned Chair Yellen on whether the Federal Reserve approves the 

CFPB’s budget and whether the Fed is even able to veto specific 

funding requests. The answer to both of those questions was no. 

So, Director— 

Mr. CORDRAY. Congress set up that system. 

Mrs. WAGNER. I am not finished, Director Cordray. 

So, Director Cordray, how exactly does this work? You simply 

send the Federal Reserve an invoice and as long as it doesn’t hit 

the caps that were set by Dodd-Frank then it is approved automatically? How does this happen? 

Mr. CORDRAY. We are simply carrying out the law that Congress 

enacted. You and your colleagues in the Congress or those who preceded you enacted that law. We are carrying it out. 

Chairman HENSARLING. The time of the gentlelady has expired. 

Members are advised there are votes on the Floor: there are 10 

minutes left in the first vote. We anticipate clearing one more questioner. 

The gentleman from Kentucky, Mr. Barr, is recognized. 

Mr. BARR. Thank you, Mr. Chairman. 

And, Director Cordray, I will just follow up from my colleague, 

Mrs. Wagner, on that question regarding the source of the CFPB’s 

funding. 

In your semi-annual report, you say that the Director of the 

CFPB requests transfers from the Federal Reserve System in 

amounts that he has determined are reasonably necessary to carry 

out the Bureau’s mission. What was the transfer requested in Fiscal Year 2015? 

Mr. CORDRAY. I would have to look at my— 

Mr. BARR. What do you anticipate it being in Fiscal Year 2016? 

Mr. CORDRAY. So our published budget for Fiscal Year 2016 is for $606 million. 

Mr. BARR. Okay. And does the Fed approve that budget? 

Mr. CORDRAY. The budget has to be within the parameters set 

by Congress. 

Mr. BARR. I understand it has to be below the cap. Does the Fed 

approve that budget? 

Mr. CORDRAY. You mean particulars of the budget— 

Mr. BARR. Yes. 

Mr. CORDRAY. —or the overall total of the budget? 

Mr. BARR. Both. Total, particulars, anything? 

Mr. CORDRAY. I assume if we were seeking to obtain more than 

our cap, that would not be— 

Mr. BARR. But otherwise, the Fed doesn’t approve the budget? 

Let me ask it this way: Does the Fed ever— 

Mr. CORDRAY. That is correct. 

Mr. BARR. Has the Fed ever or does the Fed ever review the Bureau’s transfer request? 

Mr. CORDRAY. I believe they do. We send transfer requests and 

they fulfill them. 

70 

Mr. BARR. Okay. And it is as simple as that. So to your knowledge, the Fed has never asked any questions about that transfer. 

Mr. CORDRAY. I don’t deal with the details of the back-and-forth 

with the Fed, but I— 

Mr. BARR. But to your knowledge they have never asked any 

questions about that transfer request. 

Mr. CORDRAY. I wouldn’t know what to say to that. 

Mr. BARR. Let me ask the question this way: Has the Fed, to 

your knowledge, ever denied a particular transfer request? 

Mr. CORDRAY. All of our requests have been within the bounds 

of the law established by Congress. 

Mr. BARR. And the Fed has never vetoed a particular allocation 

of or a particular expenditure made by the Bureau. 

Mr. CORDRAY. Again, that is a system established by Congress 

and we are carrying it out. 

Mr. BARR. So the Fed is not involved in any way in the implementation of the Bureau’s budget. That is the point. 

And to that point, that is our concern, frankly, because the fact 

that the Bureau has been able to move forward with a $215 million 

luxury renovation to its headquarters, spent $60 million on management consulting services, and pays the average Bureau employee more than Members of Congress would support the conclusion that the Fed is merely a rubber stamp to your expenditures. 

And we would hope that since you are not accountable to the 

Congress, not subject to the congressional appropriations process— 

as you point out, by a statutory design in the Dodd-Frank law, a 

fundamental flaw in the Dodd-Frank law, in my judgment—that 

we would hope that you would be at least accountable to the source 

of your funding. 

Mr. CORDRAY. I think several of the things you just described are 

inaccurate, by the way, but I am happy to correct the record if you 

wish. 

Mr. BARR. No, let’s switch gears really quickly and talk about the 

arbitration rulemaking and the arbitration study that we asked 

about in that letter. 

Your response to our letter did not answer our questions about 

the deficiencies in the data. Did the study in any way confirm that 

arbitration can be faster than a class action lawsuit? 

Mr. CORDRAY. I think it would depend on the individual arbitration; it would depend on the class action— 

Mr. BARR. Was there any data that supported that arbitration 

can result in a faster, more expedited resolution for the consumer? 

Mr. CORDRAY. Sometimes a lawsuit can go faster; sometimes an 

arbitration— 

Mr. BARR. Was there any data that arbitration can be less expensive for a consumer? 

Mr. CORDRAY. Again, depending on the matter, some cases that 

go to court would be less expensive, and some cases that go to arbitration would be more expensive. 

Mr. BARR. Okay. And so there is data to support that. Was there 

any data that it can be a more effective way for consumers to resolve disputes? 

Mr. CORDRAY. I don’t know what a more effective way to resolve— 

71 

Mr. BARR. The point is that you have said that you have a duty 

to enforce the law—the Dodd-Frank law, not the 1928 law—enacted by statute. Well, here is what the Dodd-Frank law says. It 

says that the rule must be in the public interest for the protection 

of consumers and consistent with the study. 

My point is that your study shows that arbitration can sometimes—and in many cases—be in the best interest of the consumer, 

in terms of a faster resolution, a better result for the consumer. 

And so I would encourage the Bureau to not move forward with a 

rule that is inconsistent with the benefits of arbitration. 

In preparing this study did the Bureau coordinate with the 

American Association for Justice? 

Mr. CORDRAY. Beg your pardon? 

Mr. BARR. Did the Bureau, in preparing this study, coordinate 

with the American Association for Justice? 

Mr. CORDRAY. I don’t know who that is. 

Mr. BARR. That is the trade association for class action lawyers. 

The reason I ask is because the Bureau cites a study by Professor Sovern that purports to analyze consumers’ knowledge of 

whether their financial agreements contain an arbitration clause. 

Do you know how Professor Sovern’s study was funded? Because it 

was funded by the American Association for Justice. 

That is a conflict of interest that you are using data from a study 

that is funded by the class action plaintiff’s bar. 

Mr. CORDRAY. Look, we took input from all stakeholders. There 

were also studies that had been funded by industry. I don’t hear 

you complaining about the conflict of interest there. What I would 

simply say is— 

Chairman HENSARLING. The time of the gentleman has expired. 

I will now recognize the ranking member for a unanimous consent request. 

Mr. CORDRAY. We will carry out the statutory— 

Ms. WATERS. I ask unanimous consent to submit for the record 

a study from the Center for Responsible Lending concerning— 

Chairman HENSARLING. Without objection, it is so ordered. 

Ms. WATERS. —African-Americans and Latinos on dealer-financed— 

Chairman HENSARLING. I want to thank the witness for his testimony today. 

The Chair notes that some Members may have additional questions for this witness, which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 5 legislative days for Members to submit written questions to this witness 

and to place his responses in the record. 

I would ask you, Mr. Director, to respond as promptly and accurately as you are able. 

Also, without objection, Members will have 5 legislative days to 

submit extraneous materials to the Chair for inclusion in the 

record. 

This hearing stands adjourned. 

[Whereupon, at 1:15 p.m., the hearing was adjourned.] 

(73) 

A P P E N D I X 

March 16, 2016 

74 


23721.001

FINANCIAL SERVICES COMMITTEE 

Remarks for Ruben E. Hinojosa 

CFPB Semi-Annual Report 

March 16,2016 

Rayburn 2128 

10:00 AM 

Page 1 of 1 

Thank you, Chairman Hensarling and Ranking Member Waters, for holding this 

important hearing on the CFPB's Semi-Annual Report. 

Director Cordray, thank you for your appearance here today and for your 

exemplary leadership at the Consumer Financial Protection Bureau. 

I wish to voice my support for the CFPB and its mission of protecting American 

consumers. 

The CFPB is ensuring that financial service providers are held accountable if they 

offer predatory products or act in an unscrupulous manner. Since its creation, the CFPB 

has ensured approximately $11 billion in relief to consumers from enforcement activity, 

including delivering $95 million in relief to over 177,000 Americans in the last six months. 

Moreover, in just the last year, some 265,000 Americans have used the CFPB's complaint 

portal to lodge complaints on issues ranging from debt collection, mortgages, credit 

reporting, to pay-day lenders, and student loans. 

Rather than attacking the CFPB, we should be supporting its mission and work to 

ensure that moving forward, its rulemaking efforts strike the right balance. 
75 


23721.002

Testimony of Richard Cordray 

Director, Consumer Financial Protection Bureau 

Before the House Committee on Financial Services 

March 16, 2016 

Chainnan Hensarling, Ranking Member Waters, and Members of the Committee, thank you tor 

the opportunity to testify today about the Consumer financial Protection Bureau's Semi-Annual 

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-tem1 

foundations of the American economy. 

The Bureau presents this Semi-Annual 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 Semi-Annual 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 of2008-2010, the President and Conf,'fess recognized the need to address 

widespread failures in consumer financial protection and the rapid f,'l'Owth 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 Bureau2 The DoddFrank 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 vv-ith Federal consumer financial law and taking appropriate 

enforcement action to address violations; 

Identifying and addressing outdated, unnecessary, or unduly burdensome regulations; 

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 Semi-Annual Report. published in 1\ovember 2015, and covered AprilSeptember 20 l5. The report may be viewed at: h!!:n;//jjk-s.consun:Jer.fin~.n£Q..gov/f2_QJ 5! 1 cfpb semi-Q[l_nual-rcmm-fa11-

;1Q.l2Jldf 

::Previously, seven ditTerent federal agencies were responsible fOr rulemaking, supervision: and enforcement 

relating to consumer flnanclal protection. The agencies \vhich previously administered statutes for which authority 

transferred to the Bureau are the Federal Resen'e 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 ofTbrifJ Supervision (OTS). 
76 


23721.003

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 programs3 

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. 

l.istening 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 populated by over 465,000 complaints from 

consumers about financial products and services fi·om 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.• 

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 lnforrnation5 to seek input from the public on best 

practices for ·'nonnalizing" 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 infonnation, 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 

'See Dodd-Frank Act, Pub. L. No. 111-203. Sec. 1021 (b) and (c). 

'Sw Final Policy Statement on Consumer Narratives; 80 FR 15572, March 24.2015. 

'See Request for Information Regarding the Consumer Complaint Database: Data Normalization: 80 FR 37237. 

June 30.2015. 

2 
77 


23721.004

financial products and services expected to be handled by the CFPB. The report uses a threemonth 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 College7 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 

Home8 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 Adults9 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 infonnation 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 six 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 timeframc, the Bureau also announced orders through enforcement actions fbr 

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 against a lender tor the failure to furnish clear infonnation regarding 

the student loan interest consumers paid, and actions against two companies for mobile 

cramming. In joint actions. we worked with the New York Depmtment of Financial Services to 

6 A1·ailahle at: c.onsumerfinan~v/a~l·;"~· 7 See http:!/wvvw.consmnerfinance.gov/pavii)!!-for-eoU~g__~·. 

~See ~!1\vww.consumerfinance.gov/owning~a-home/ . 

.:; See htlps:/lwwv .. ,. fdic. gov/consumcrs/consumcr/ moQ.s;_y::;mart/oJderaQJJ.lt.htrnl. 

3 
78 


23721.005

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 Joan 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 

Supen,isory Highlights series is intended to infonn 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 infonnation about recent public enforcement actions that were a 

result at least in part, ofCFPB's supervisory work. 

TI1e 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 

tennination, the Section 8 housing choice voucher homeownership 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 

oftice issued regulations modifying and clarifying a number of rules implementing changes made 

by the Dodd-Frank Act to the laws goveming 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 role moving the effective date of the Know 

Before You Owe mortgage disclosure rule to October 3, 2015, and an interpretive rule on 

homeownership counseling organizations lists and high-cost mortgage counseling. 

Dming 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 I 0,000 

or more loans or leases in a year, and a request for information regarding student loan servicing. 

4 
79 


23721.006

To support the implementation of and industry compliance with its rules, the Bureau has 

published a number of plain-lan~;uage 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 ham1onize 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 six 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 Bureau'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 o!lices 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 lor participants, and fulfill the Bureau's statutory 

obligations and mission under the Dodd-Frank Act. ln all of its work, the Bureau strives to act in 

ways that are fair, reasonable, and transparent. 

Chainnan Hensarling, Ranking Member Waters, and Members of the Committee, thank you for 

the opportunity to provide the Bureau's Semi-Annual Report to you. The Bureau will continue 

working to ensure that the American people are treated fairly in the consumer financial 

marketplace. !look forward to your questions. 

l& See http:/!ww\v.consumerfinanc&.£.QI{IDlli,ianc·~j[£Q.mnM1l~· 11 During the previous reporting period, the Bureau's Of1ice 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 Faimess (OEOF). housed in the CFPB Director" s Of1ice and repotting directly 10 the 

Director. 

5 
80 


23721.007

Fair Credit Compliance 

I 
81 


23721.008

fair Credit Policy & fair Credit Compliance Program Templates -
82 


23721.009

Overview of Fair Credit Policy & Fair Credit Compliance 

Program Templates 

The Equal Credit Opportunity Act ("ECOA") and 

its implementing regulation, Regulation B, prohibit 

discriminating against credit applicants on the basis of 

their race, color, religion, national origin, sex, marital 

status, age and other factors.' Regulation B states 

that this prohibition applies not just to intentional 

discrimination' but also to credit practices that appear 

neutral but nevertheless result in a negative "disparate 

impact" on customers who are members of one of 

these protected classes (assuming the customers in 

the different classes being compared are similarly 

situated) 5 Because a finding of disparate impact 

typically is established by a statistical evaluation of past 

credit transactions, dealers and other creditors cannot 

ensure they are complying with ECOA solely by training 

their employees to avoid considering these prohibited 

factors when making credit decisions. Dealers must 

also ensure that their policy for determining the amount 

they earn for arranging financing will not give rise to 

posHransaction claims that the policy resulted in a 

negative statistical disparity in the amount ot dealer 

participation paid by customers in a protected class 

(i.e., a class defined by color, national origin or one of 

the other prohibited bases listed above). 4 

On March 21, 2013, the Consumer Financial 

Protection Bureau ("CFPB") issued a fair lending 

guidance bulletin to indirect auto finance sources 

(which the CFPB refers to as indirect auto lenders) 

stating "that certain lenders that offer auto loans 

through dealerships are responsible for unlawful, 

discriminatory pricing" and that lender policies "that 

allow auto dealers to mark up lender established buy 

rates and that compensate dealers [for originating credit 

contracts] in the form of dealer [participation]" create a 

"significant risk" of fair lending violations.' The bulletin 

instructs indirect auto finance sources on steps they 

should take to address tllis risk, which include either (i) 

eliminating dealer pricing discretion (such as by paying 

dealers a flat fee per transaction), or (ii) constraining 

dealer pricing discretion (by adopting series of 

controls and monitoring the credit contracts \he finance 

source purchases from dealers to see if there exists a 

statistical disparity in dealer participation as described 

above). Because the bulletin sets forth limitations on 

how indirect auto finance sources may compensate 

dealers for arranging financing for customers, it affects 

dealers even though the Dodd-Frank Act prohibits 

the CFPB frorn exercising any authority over dealers 

CFPB may exeruse authonty) can aiso affect dealers to tile extent tho:<y 

fair Credit Policy & fair Credit Compliance Program Templates 
83 


23721.010

Since the CFPB issued rts fair lending guidance 

bulletin, several indirect auto finance sources have 

informed dealers that they will monitor (i.e., conduct a 

statistical analysis of) the contracts they purchase from 

dealers. ln many cases, these indirect finance sources 

have sent letters to dealers indicating that the finance 

source's statistical analysis identified unexplained 

differences in the amount of dealer participation paid 

by customers who are members of protected classes 

and customers who are not members of those 

These letters typically offer tl're dealer the opportunity 

to respond to the finance source's preliminary findings. 

Usually as part of this process, dealers may provide to 

the finance source legitimate (non-prohibited) reasons 

that explain the purported pricing disparities. 

In addition, on December 20, 2013, the CFPB and 

the Department of Justice announced an enforcement 

action against an indirect auto finance source (Ally) 

for alleged disparate irnpacl discrimination. The action 

resulted in a consent order between the United States 

and Ally to resolve the government's allegation that 

"Ally engaged in a pattern or practice of discrimination 

on the basis of race and national origin in vlo1at!on of 

ECOA based on the interest 'dealer markup' -the 

difference between Ally's buy rate and the contract 

rate - paid by African-American. Hispanic, and Asian/ 

Pacific Islander borrowers who received automobile 

loans funded by Ally." Ally did not admit to the 

allegations and no court determined tlreir validity. In 

addition, Ally stated in a press release that "it does 

not believe that there measurable discrimination by 

auto dealers""7 Nevertheless, to resolve the matter, 

Ally agreed to undertake several actions, including 

the payment of a civil penalty and cornpensation to 

the alleged victims, monitoring the amount of dealer 

participation earned by dealers in retail installment 

sale contracts ("RISC") purchased by Ally, and taking 

"appropriate corrective action'' if such monitoring 

reveals that dealers charged a higher amount of dealer 

participation to similarly situated protected groups 

of customers.!( 

GlUSf! mdirE>t'l tm<mce sources to amend the contracts that govern therr 

relntlonshlp w;th d~a\ers 

Fair Credit Compliance Program 

These and other related developments have prompted 

dealers and their attorneys to seek from NADA 

compliance guidance to minimize the fair credit risk 

identified in the CFPB guidance bulletin. This guidance 

and the Fair Credit Policy and Fair Credit Compliance 

Program templates are intended to respond to these 

requests. NADA may issue supplemental guidance as 

necessary to address additional compliance issues or 

subsequent developments related to this topic. 

Although NADA is not aware of any evidence 

demonstrating that I he ability of automobile dealers to 

negotiate contract rates with their customers results in 

disparate impact discrimination in today's marketplace, 

we recognize that our members strive to adopt poHc!es 

and procedures that will reduce their litigation exposure 

while demonstrating their ongoing commitment to 

regulatory compliance and the fair treatment of their 

customers. Tl1erefore, in order to promote these goals, 

we set forth below and in the Fair Credit Compliance 

Program template that follows an alternative means for 

dealers to arrive at the amount of compensation they 

earn for arranging financing. Keep in mind that the 

finance compensation model that dealers adopt is 

an individual dealer decision that must be consistent 

with federal and state law as wet! as any contractual 

restrictions imposed on the dealer by its finance 

sources. It is essential that dealers consult their legal 

counsel when making decisions related to this topic. 

The most obvious way to reduce the possibility 

of a finding of dispArate impact discrimination is for 

individual dealers to establish a rneans of compensation 

in which the determination of the amount of finance 

income tt1ey earn does not vary on a customer-by'" 

customer basis. [xamp!es of such an approach 

include charging each customer (i} a fixed number of 

basis points over the wholesale buy rate (i.e., the rate 

at which the finance source will purchase the credit 

contract from the dealer), (ii) a fixed percentage of 

the amount financed or (iii) a fixed dollar amount. Of 

course, a major drawback to customers of such a rigid 

pricing policy is that it deprives dealers of the ability 

to "meet or the most competitive credit offer 

that the customer has received from another creditor, 

which in turn limits the customer's ability to reduce ihe 

amount that the customer pays for credit It also may be 

unrealistic to assume that most dealers would be able 

fair Credit Policy & Fair Credit Compliance Program Templates 
84 


23721.011

to adopt such an inflexible compensation approacl1 

when they typically have contractual arrangements with 

multiple finance sources and each of those sources 

establisl1es its own compensation schedule and 

ftnancing parameters. 

One potential way to eliminate customer-by· 

customer determination of the amount the dealer earns 

for arranging financing while preserving sufficient 

flexibility to accommodate scenarios tllat may benefit 

customers, such as the ;'meet or beat'' dynamic. is 

to establish a pre-set amount of compensation but 

allow for downward adjustments to that amount in the 

event that one or more pre-determined conditions 

occur. Examples of such conditions could include (i) 

the customer's inability to satisfy a monthly payment 

constraint at the pre-determined amount, (ii) the 

customer's access to a more favorable offer ot credit 

from another creditor. (iii) a promotional offer that tho 

dealer extends to all customers on the same terms. 

(iv) the fact that particular transaction is eligible for 

a subvened interest rate from a manufacturer, finance 

source, or other non-affiliated third party, (v) the fact 

that a transaction is eligible for an employee incentive 

program, and (vi) documented inventory reduction 

considerations that are related to specific vehicles.' 

If a dealer chooses to adopt this or a similar 

approach to dealer finance compensation, it 

should adopt written procedures that (a) identify 

each pre-determined condition that permits a 

downward deviation from its pre-set amount of 

dealer participation. (b) require its finance personnel 

to execute standardized form that identifies the 

pre-set dealer participation amount, the final dealer 

participation amount, and. where the two differ, 

which pre-determined condition or set of conditions is 

present in the transaction that authorizes the deviation, 

(c) conduct formal training of all relevant personnel 

on its finance compensation policy, and (d) retain 

the compensation forms and otherwise monitor and 

document its compliance efforts. 10 The training and 

monitoring functions are particularly important as 

fidelity to the program from the employees who must 

carry it out is essential to its success. 

An attractive feature of this approach is that if the 

dealer develops appropriate, well-defined allowable 

adjustments and ensures that its personnel properly 

and consistently apply, document and retain them, then 

tho dealer is in a much better position to explain any 

unexplained pricing disparities that might otherwise 

lead a court, governmental enforcement agency 

or indirect auto finance source that is monitoring 

the dealer's credit contracts to conclude that such 

disparities are attributable to customer's background~> 

and therefore in violation of ECOA. 

Dealers are not required to adopt !his approach 

to standardizing the amount of dealer participation 

they charge in credit transactions and should consult 

with their individual legal counsel about whether they 

should do so_ For dealers who wish to adopt this or a 

similar approach, we have developed the Fair Credit 

Policy and Fair Credit Compliance Program templates 

that begin at page 9. General and specific instructions 

for completing these forms are provided below. 

Fair Credit Policy & Fair Credit Compliance Program Templates 
85 


23721.012

Instructions for Completing Fair Credit Policy & 

fair Credit Compliance Program Templates 

General Instructions and Disclaimers 

Use of Templates. It is essential that, prior to adopting 

this Fair Credit Policy and Fair Credit Compliance 

Program, dealers read the templates carefully, make 

adjustments that are appropriate to their individual 

circumstances, and ensure that the final policy and 

program they adopt are reviewed by qualified counsel. 

While italicized language that appears in brackets 

identifies areas of the document where an individualized 

dealer entry is appropriate, dealers should modify both 

italicized and non-Italicized portions of the document 

that they and thelr counsel determine is necessary, 

Program Scope. The Fair Credit Compliance Program 

is broader than a pure dealer participation pricing policy 

I hat is designed to help mitigate a finding of disparate 

impact discrimination under ECOA and Regulation 

B. This is because, as explained above, ECOA and 

Regulation B prohibit intentional discrimination and 

(in the view of federal regulators) disparate impact 

discrimination, and it is therefore essential that 

credit training programs address both prohibitions. 

However, the Program does not attempt to address 

every issue that potentially relates to fair credit 

compliance at a franchised automobile dealership (e.g., 

how the dealership handles oral requests for financing, 

desking procedures, conditional sales agreements 

and the sale of products to protect the customer's 

investment in the financed vehicle). These issues 

are very dealer spec1fic and need to be addressed 

in a manner that is appropriate to the dealership's 

circumstances. For these reasons, the Program 

template should be viewed as part of a broader 

dealership effort to develop a comprehensive approach 

to fair credit compliance. 

Program Approval. Neither ECOA nor Regulation B 

require creditors to adopt a written fair credit program 

or, if they adopt such a program, to have it approved 

by any particular body or individual officer within their 

business. 12 However, for the reasons stated above, it Is 

prudent for creditors to do so. 

The Program template assumes that a board 

of directors will adopt the dealership's Fair Credit 

Compliance Program, appoint a Program Coordinator 

to administer the Program, receive compliance reports 

from the Program Coordinator. and amend the Program 

as necessary to address fair credit risks that are present 

at the dealership. If the dealership's governing structure 

dictates that another dealership body or officer should 

exercise these functions, the template should be 

modified accordingly. Regardless of which dealership 

body or officer acts in this manner, it is important 

that its leadership affirmatively establish and express 

support for its fair credit commitment. 

Program limitations, The Program's approach to 

determining the compensation dealers receive for 

arranging financing for customers is not, and the 

Program template has not been, mandated by ECOA or 

Regulation B and neither have been formally adopted 

by any federal agency as a means of satisfying the 

requirements of tederallaw. Nor is there any guarantee 

that adopting the attached Program or any component 

of it will adequately protect a dealership from a 

governmental enforcement action or private lawsuit u 

Notwithstanding these limitations, NADA believes 

the Program template represents a solid attempt to 

promote compliance with ECOA and Regulation B 

while preserving enough flexibility to allow customers 

to continue leveraging the overwhelming bt~nefits that 

are produced by today's intensely competitive vehicle 

financing market. 

Fair Credit Policy & Fair Credit Compliance Program Templates 
86 


23721.013

Specific Instructions 

Fair Credit Policy 

This document, whicl1 is set forth at Appendix A 

of the Program, serves as a strong, unambiguous 

statement affirming the dealership's commitment 

to ensuring equal credit oppcrtunity and complying 

with all applicable fair credit laws. Whether adopting 

this or a different statement, dealers should ensure 

that their fair credit commitment is stated clearly and 

unequivocally. In addition, dealers silOuld strongly 

consider prominently posting their fair credit policy 

in locations where it can easily be viewed by bot11 

consumers and employees. 

Fair Credit Compliance Program 

Section I Scope. Paragraph (a) identifies the 

dealership employees, agents, and/or independent 

contractors ("dealership employees") who are covered 

by the Policy and Program and the consequences for 

failing to comply with the Program. 

Paragraph (b) states that the Program (i) carries 

out the Policy, (ii) applies to all activity related to the 

extension of credit at the dealership, and (iii) establishes 

11ow dealership compensation will be determined in 

indirect vehicle financing transactions (which it defines). 

Paragraph (c) states that the Program does not 

confer any rights, benefits or remedies to any person, 

except that it may be used by the dealership to 

discipline dealership employees who do not comply with 

the terms of the Program. This is intended to forestall 

a third party from bringing a legal action against the 

dealership for a violation of the Program." 

Section II - ECOA and Regulation B Compliance. 

Paragraph (a) states the dealership's strict prohibition 

against unlawful credit discrimination and defines 

what constitutes credit discrimination tmder ECOA 

and Regulation B. If the law of the dealer's statco or 

municipality (or other states or municipalities where 

the dealer conducts business) identifies "prohibited 

bases" beyond those contained in ECOA (for example, 

some jurisdictions ldent!fy sexual orientation as a 

prohibited basis), the additional prohibited bases 

should be listed in this paragraph (by entering tt1ern 

either in subparagraph or in a new subparagraph 

4) and the name of the state or local law containing 

the prohibition should be added to the section heading 

(after "Regulation 8"). Paragraph (a) also states that 

this prohibition applies to disparate treatment as well as 

disparate impact discrimination. 

Paragraph (b) states that the dealership corn plies 

with all applicable requirements contained in ECOA 

and Regulation 8 (not just the prohibition against 

unlawful discrimination) and cites, in particular, the 

dealership's adherence to the law's adverse action and 

other notification requirements (sucl1 as the need to 

issue notice of incompleteness to credit applicants if 

t11e credit application is missing information required to 

make a credit decision) and the law's records retention 

requirements." It then includes a placeholder for 

dealers to either (i) incorporate into this portion of the 

Program its written procedures For adhering to tflese 

requirements, or (ii) cross-reference the separate 

procedures the dealer has adopted for this purpose. 

Section Ill -Appointment of Program Coordinator. 

This section creates the position of Fair Credit 

Compliance Program Coordinator to administer the 

Program and specifies that the Program Coordinator will 

report directly to the board of directors. The employee 

who will perform this function is identified at the end of 

the Program (just above the resolution and signatures 

of the board of directors adopting the Program) and 

his or her specific duties are delineated in section V 

of t11e Program. 

It is important to note that as with the adoption 

of a written credit program, nothing in ECOA or 

Regulation B mandates the appointment of a Program 

Coordinator." However, the dealership's ability to 

implement and carry out an effective fair credit 

compliance program will clearly be strengthened it 

it designates a senior manager to oversee (and, ln 

many cases, execute) the multiple, recurring functions 

Fair Credit Policy & Fair Credit Compliance Program Templates 
87 


23721.014

established by the Program" It is essential that the 

Program Coordinator (i) have the full support of the 

board of directors, (ii) have the substantive expertise, 

time and seniorfty to carry out the duties estabHshed in 

sections IV and V of the Program (including the ability 

to initiate the corrective action identified in the Dealer 

Participation Certification Form Review process set 

forth in section IV.d and Appendix D of the Program), 

and (iii) is not routinely involved in establishing the 

Final Dealer Participation Rate offered to the customers 

in individual transactions. This last requirement is 

important because the Program (a) requires in section 

IV.d that a review of the transaction be conducted 

by a person who did not participate in it to ensure it 

was carried in a manner that is consistent with the 

terms of the Program, and (b) designates the Program 

Coordinator to carry out this function. While the 

Program permits the Program Coordinator to designate 

another employee to perform the review function, the 

Program Coordinator generally should not participate in 

transactions as this could compromise the integrity of 

the designee's review. 

Section Ill - Guidelines for Establishing Dealer 

Participation. This section establishes the 

manner in which the dealership will determine the 

dealer pmticipation amount to include in credit 

offers to customers. 

Paragraph (a) states that the Program Coordinator 

will establish the pre·set standard dealer participation 

rate for the dealership and identify that rate (the 

"Standard Dealer Participation Rate") on the form 

Appendix 8. Unless an allowable downward deviation 

identified in Paragraph (b) applies, the Standard Dealer 

Participation Rate will be added to the buy rate of the 

indirect finance source to which the dealer will assign 

the RISC to arrive at an APR that the dealership will 

offer to the customer. 

Paragraph (b) identifies seven good·faith, 

competitive reasons that arc ume!ated to the customer's 

background which, if present, allow the dealership 

to include in credit offers a dealer participation rate 

sen1or dealersh•p manager. 

that is lower than the Standard Dealer Participation 

Rate. These are the same reasons listed in the 2007 

DOJ Consent Orders mentioned in footnote 9 above. 

As stated in that footnote, dealerS should be able to 

identify additional or different reasons for downward 

deviations in paragraph (b) provided they are limited 

to neutral, pro-competitive factors that are completely 

unrelated to the customer's background and are 

executed in good faith. However, as also explained, 

dealers should proceed cautiously in adopting 

downward deviations that differ from those listed in the 

DOJ consent orders. 

For each allowable deviation that contained 

in this paragraph, dealers should clearly state the 

prerequisites, including the necessary supporting 

documentation, that must be present in order lo 

apply that deviation. In addition, dealers should, 

to the maximum extent possible, standardize the 

application of each deviation. For example. the third 

deviation allows the dealership to reduce the Standard 

Dealer Participation Rate when the customer states 

that he or she has access to a more competitive 

offer from another dealer or finance source. Dealers 

should determine whether, as a matter of policy, it will 

(i) reduce the Standard Dealer Participation Rate by 

the amount necessary to meet the competing offer, or 

(ii) reduce the Standard Dealer Participation Rate so as 

to beat a competing offer by a certain number of basis 

points. The bracketed italicized language that appears 

in the description of this allowable deviation should be 

modified to reflect this determination. 

Similarly, tile seventh deviation allows the 

dealership lo reduce the Standard Dealer Participation 

Rate based on Inventory Reduction Considerations. 

It is essential that this subparagraph explain tho 

process by which such considerations will be applied. 

In addition, because inventory reduction criteria rnay 

change more frequently than the frequency with which 

the dealership would be able to amend this portion of 

the Program, it may be prudent to permit the Program 

Coordinator to establish tt1e current inventory reduction 

criteria on separate document that can be provided to 

dealership employees who arrange the credit sale with 

the customer. The Program adopts this approach and 

creates Appendix C for this purpose. 

Fair Credit Policy & fair Credit Compliaoce Program Templates 
88 


23721.015

Paragraph (c) stales tlmt dealership employees 

who arrange the credit sale with the customer must 

cornp!ete, sign, and date a Dea!er Participation 

Certification Form that documents the Standard 

Dealer Participation Rate, the final Dealer Participation 

Rate, and, wl1ere the two rates differ, the allowable 

deviation that applies to the transaction. Appendix D 

has been created to record this determination. Note 

that dealership employees who arrange credit sales with 

customers should be required to complete a Dealer 

Participation Certification Form for every credit sale 

transaction regardless of whether the Standard Dealer 

Participation Rate or a different dealer participation rate 

based on an allowable deviation was applied. 

Paragraph (d) states that the Program Coordinator, 

or his or her designee, must (i) review each dealership 

credit sale within two business days of the credit sale 

to ensure that the Dealer Participation Certification 

Form was executed properly and in a manner that 

Is consistent with the terms of the Program, and 

(il) complete, sign and date the Reviewer Certification 

that appears on that form. Should the reviewer 

determine that the form was Improperly executed or 

that the Program terms were not otherwise followed, 

he or she will initiate the corrective action forth 

in this paragraph and record that action In the 

Reviewer Certification. This rnay require coordinating 

with the finance source that took assignment of the 

RISC. In order to preserve the Integrity of the review, 

the Program does not permit the reviewer to have 

participated in the credit transaction under review. 

Dealers should ensure this paragraph and the 

corresponding language in Appendix D are tailored 

to reflect the dealership's operational circumstances. 

For example, dealers should determine whether the 

reviewer requires two business days or slightly 

longer period to complete the review and the date on 

which that period will begin (e.g., date of the credit 

sale. date of delivery, etc.) Similarly, dealers should 

identify the employees within the dealership with whom 

the Program Coordinator must coordinate to ensure 

corrective action is carried out with regard to both the 

affected customer and the responsible employee. 

Section V- Training, Oversight, and Reporting. This 

portion of the Program is intended to ensure that the 

dealer's fair credit commitment is fully carried out 

Paragraphs (a) through (h) delineate and explain 

the Program Coordinator's duties. Dealers should 

carefully review this list to determine whether any 

of these duties, such as setting and prospectively 

changing the Standard Dealer Participation Rate, 

should be retained by the board of directors, If dealers 

decide tilaltile board should retain any of these duties, 

this must be reflected in the other portions of the 

Program (including the appendices) that reference the 

retained duty, 

With regard to paragraph (d), the Program 

Coordinator must clearly identify and communicate to 

dealership employees who arrange credit sales with 

customers both the Standard Dealer Participation 

Rate (as required in section IV.a of the Program) and 

the documentation required to substantiate each of 

the allowable deviations contained in section IV.b. 

This will facilitate the consistent application of the 

allowable deviations by dealership employees and will 

assist the Program Coordinator or his or her designee 

in completing the Reviewer Certification set forth in 

section IV.d and Appendix D of the Program. 

With regard to paragraph (f), the Program 

Coordinator must randomly monitor dealership credit 

offers and conduct periodic audits of dealership 

credit sales to ensure the Program is being effectively 

Implemented. As part of this auditing function, the 

Program Coordinator should monitor the frequency 

with which different dealership employees who 

arrange credit sales apply the dealership's allowable 

deviations to the Standard Dealer Participation Rate. 

If such monitoring reveals that particular dealership 

employees have applied one or more allowable 

deviations significantly more or less frequently than 

the other dealership employees who arrange credit 

sales, then the Program Coordinator should closely 

scrutinize tho employee's application of such deviations 

to determine whether the employee is correctly applying 

the deviations and whether additional corrective action 

may be necessary. 

The documents that should be retained (or crossreferenced) in the deal jacket or other location specified 

by the Program Coordinator include, at a minimum, 

those that set forth the buy rate and 

for the first deviation, the rate cap Imposed by the 

finance source (including a transaction specific rate 

cap ttrat lower than the finance source's standard 

Fair Credit Policy & Fair Credit Compliance Program Templates 
89 


23721.016

rate cap based on its assessment of the customer's 

repayment ability); 

for the second deviation, the monthly budget 

constraint stated by the customer (the Dealer 

Participation Certification Form records this 

information and therefore serves as appropriate 

documentation for this deviation); 

for the third deviation, the name of the dealer or 

lender that provided the more competitive offer 

and the APR contained in that offer (the Dealer 

Participation Certification Form records this 

information and therefore serves as appropriate 

documentation for this deviation); 

for the fourth deviation, the dealership 

advertisement or other communication identifying 

the terms of the dealership's promotional 

financing campaign; 

for the fifth deviation, the manufacturer's, finance 

source's, or other third party's advertisement or 

other communication identifying the terms of the 

subvention program; 

for the sixth deviation, the terms of the dealership's 

employee incentive program; and 

for the seventh deviation, a description of how the 

vehicle to which the indirect financing transaction 

applies satisfies the inventory reduction criteria 

set forth on the form at Appendix C (the Dealer 

Participation Certification Form records this 

information and therefore serves as appropriate 

documentation for this deviation). 

Attached Templates 

Fair Credtt Compliance Program 

Appendix A 

Appendix B 

Appendix C 

Appendix D 

Dealership Fair Credit Policy 

Dealership Pre-Set Dealer 

Participation Rate ("Standard Dealer 

Participation Rate") 

Dealership Inventory Reduction Criteria 

Dealer Participation Certification Form 

Section VI Program Amendments. This section 

establishes that the Program may only be amended 

by the board of directors, except that the Program 

Coordinator may, after consulting with the dealership's 

legal counsel, add an allowable deviation from the 

Standard Dealer Participation Rate provided it consists 

of a good-faith, competitive reason and the board 

of directors approves the amendment at its first 

meeting following such amendment. If this occurs, the 

Program Coordinator needs to ensure that dealership 

employees are trained on the appropriate application 

and documentation of the added deviation and it needs 

to be appropriately reflected on the Dealer Participation 

Certification Form. Program Coordinators should be 

reminded of the need to exercise caution in adding to 

the list of allowable deviations. 

Appendix A - Fair Credit Policy 

See the description above under Fair Credit Policy. 

Appendix B - Standard Dealer Participation Rate 

See the description above under section IV.a. 

Appendix C -Inventory Reduction Criteria 

See the description above under section IV.b. 

Appendix D - Dealer Participation Form 

See the description above under sections IV.c and IV.d. 

Not~'!O:g i~ this :gl!~9ance ~r the Fair <;redit ~o!lcy,or, ~2!~( 

Credit CompHance Program templates isinten{Jed as;lega( 

a<Mce. 1\ is_ .,ssential that dealers co,nsultwith ao attorre>: who is familiar with applicabl~ fed"'ral;_ slate, an~ local ,la1N 

and theiroperation.s to determine appropriate !air erect~ 

compliance procedures for their business to ad0pt. 

chis infarmaf10n i$ "a_lso "not intended IO Orge Or suggest 

that dealers adopt anyspecific practices '?'"Policies 

for their ~eale~h,ips" ~t t: it int~n~~d ~ ~ncoura,ge 

concerted. action among competitors or anY otber.action 

on the part of de~lers that wquld in an,y.manner lix)lr 

stabilize the price i>r any element of the price. ofany 

good or service. · 

- Fair Credit Policy & Fair Credit Compliance Program Templates 
90 


23721.017

[Name of Dealership] 

Fair Credit Compliance Program 

[It is essential that dealers and their attorneys read the NADA Overview and lnstmctions that accompany this Program 

template before deCiding whether and how to adopt it.] 

Scope 

a. Persons Covered 

contractor relationship. 

b. Operations Covered 

This Program carries out the [Name 

Fair Credit Policy at 

forth the 

to all 

1. 

f Name of Dealership] o• "'c"'""onrr" 

assigns the RISC to a 

source ("the Assignee"); and 

3. [Name of Dealership] retains its 

receive a portion of the finance 

under the RISC, specifically 

between the retail 

rate ("APR") and 

rate at which the 

R ISC from the 

participation." 

c. No Third-Party Beneficiaries 

relationship. 

Fair Credit Policy & Fair Credit Compliance Program Templates 
91 


23721.018

II. the Equal Credit Opportunity Act 

8 

a. Prohibition Against Unlawful Credit 

Discrimination 

l. on the basis of race, color, religion, 

national origin, sex, marital sta1us 

(provided the applicant has the 

contract); 

2. because all or 

Income derives 

program; or 

3. because the 

exercised 

Consumer 

to 

[These are the "prohibited bases" set forth 

in the 

Act. 

treatment {i.e., treating a 

than other credit applicants on 

one prohibited bases mentioned 

above) and (i.e., 

policy in a 

manner has an adverse impact on 

credit applicants who are members of 

a c!ass protected against discrirnination 

relative to similarly-situated credit 

applicants who arc not members of that 

protected class). 

Fair Credit Policy & Fair Credit Compliance Program Templates 

b. Other Requirements 

action other notification 

rer11momems prescribed in 12 CFR § 202.9 

the records retent'1on requirements 

prescribed in 12 CFR § 202.12. 

!Set forth or cross-reference the Dealers/rip's 

specific procedures f<Jr complying with t/Jese 

requirements_] 

Ill. Appointment of Fair Credit Compliance Program 

Coordinator 

Directors. 

IV. Guidelines for Establishing Dealc'C Participation 

The dealer rate that !Name of 

will include in credit offer to 

a customer in an Indirect vehicle financing 

transaction wHl be determined In accordance w·1th 

the guidelines set forth in this section. 

a. Pre-Set Standard Dealer Participation Rate 

The Program Coordinator will establish a 

rate of dealer that will be 

in all credit Dealership 

extends to customers {the "Standard Dealer 

Rate") except 

section 

Coordinator will 

Partidpation Rate in writing on the form at 

Appendix 8 of this Program and it 

to all Dealership The 

Coordinator may 

Participation Rate orneot>Cti\telv 

basis through a 

Dealership employees. 
92 


23721.019

b. Pre·Determined Allowable Deviations 

When this occurs, 

must include sufficient in the 

deal jacket or other location specified by the 

Coordinator to the Dealership 

reason and to 

dealer participation rate 

was in a manner that comports 

with the terms of this Program. 

1. Lower Cap Imposed by Assignee 

c.J Dealer participation limited by finance source 

If the Assignee has imposed a cap on 

the dealer that may be 

earned in transaction that is lower 

than the Standard Dealer Participation 

Rate. the credit offer may include 

a dealer participation rate that is 

reduced to the rate cap level. 

2. Monthly Payment Constraint 

CJ Customer stated monthly payment constraint of 

$ __ per month 

If the customer states 

payment constraint in a fixed 

amount that would preclude the 

customer from credit 

offer made under the 

Standard Dealer Rate 

be reduced to l he !eve! that 

allow the customer to satisfy the 

monthly payment constraint. 

3. More Competitive Offer 

U Customer stated competing offer by 

---·--·-··-··-·---·--·-(name) of ___ % 

If t11e customer (i) states that he or 

she has access to a credit offer frorn 

another dealer or lender that is 

lower than the credit offer from the 

made under this Program 

and (ii) the terms and 

source of the 

the Dealership's credit 

include a dealer oarticioation 

offer. 

that is reduced so as to of 

the [meet the competing 

scenarios]}. 

4. Dealership Promotional Financing 

Campaign 

0 Customer 

Financing 

promotional 

customers on the same terms or to 

all purchasers of certain vehicles on 

tho same terms, the credit offer 

include a dealer n~rrrcrnannn 

is reduced to the 

Manufacturer Subvention Program 

0 Customer qualified lor subvened interest rate of 

·-·-----·-·-····---(name) 

for a 

manufacturer, source, 

or other third-party interest rate 

subvention program. the credit offer 

be made pursuant to the terms 

without to the 

Pm·ticioation Rate. 

Fair Credit Policy & Fair Credit Compliance Program Templates 
93 


23721.020

6. Dealership Employee Incentive Program 

l!nc!ude only if applicable.] 

LJ Customer qualified for Dealership Employee lncen· 

7. Dealership Inventory Reduction 

Considerations 

LJ a vehicle that satisfies the 

lle'""'·smn s pre-determined inventory reduction 

criteria (describe how vehicle satisfies the criteria) 

If the Dealership extends a credit 

offer a vehicle that 

may 

rate that is reduced in 

secure trre sale of the vehicle. In 

the reduction 

Fair Credit Policy & Fair Credit Compliance Program Templates 

c. Dealer Participation Certification Form 

A Dealership employee who arranges a credit 

sale with a customer sign 

and date the Dealer Certification 

Form set forth at 

for each such and place the 

in the deal jacket The Dealer Par"ticioation 

Certification Form will be retained for sarne 

of time that the Dealership retains other 

related to credit transactions as set 

forth in section ll.b of this Program. 

d. Dealer Participation Certification Form Review 

The Program Coordinator. or his or her 

Designee, will review each credit 

sale witrrin two (2) business days of sale 

to ensure that the Dealership employee 

who the transaction executed a 

Dealer Certification Form and 

completed retained it in a manner that 

is consistent with the terms of the Program. 

The person this review not 

have parfrcipatcd in credit 

under review. !f the reviewer determines that 

the Form was executed in a manner that is 

inconsistent with the terms of the Program, 

the reviewer will note the defect on the Form 

and corrective action. 

Such action include (i) ensuring that the 

customer rece!ves a reduced interest rate or a 

refund if the transaction should have resulted 

in a lower interest rate for t!1e customer, 

(ji) corrective 

regard to the Dealership 

improperly executed the Form, 

if the reviewer is not the 

Coordinator, the 

Coordinator 

Coordinator will coordinate with the !enter 

position title to 

ensure such action was carried out 

Upon completion of the review, the reviewer 

will date the Form's 
94 


23721.021

V. Training, Oversight and Reporting 

The Program Coordinator will complete the tasks 

listed below. 

d. Establish the Standard DeA3Ier Particioation 

Rate as set forth in section IV. a of 

and to Dealership employees this and 

information that is to 

an 

Participation Rate. 

e. 

f. Randomly monitor Dealership credit offers and 

conduct periodic audits of credit 

sales to ensure the [Name 

Credit 

g. Submit a report to the Board of Directors, 

at least once that sets forth (i) the 

Dealership's of compliance with the Fair 

Credit Corn pl'rance and (ii) recommended changes Program may 

assist in carrying out its purpose. 

h. Retain records rlnr·rwnnr;tin,o 

of the training, 

outlined in this section. 

VI. Program Amendments 

a. Except as provided for in section Vl.b of this 

b, 

amendments to the 

only made by the [Name 

Board of Directors. 

Perticimtinn Rate that is consistent with 

n."''n•~hinl'< Fair Credit and 

applied by 

amendment must 

of Directors at its first 

Fair Credit Policy & Fair Credit Compliance Program Templates 
95 


23721.022

Appointment and Policy & Program Approval 

The following employee has been appointed as t11e [Name of Dealersflip] Fair Credit Compliance Program 

Coordinator pursuant to section 1!1 of thls Program: 

[Insert appropriate language indicating the Dealership's approval of this Policy and Program, such as:] 

By signing below, the undersigned, constituting all of the members of the [Name of Dealership] Board of Directors, 

acknowledge the Board's approval of the foregoing [Name of Dealership] Fair Credit Policy and Fair Credit 

Compliance Program and its appointment of the [Name of Dealership] Fair Credit Compliance Program Coordinator 

this ____ day of-----~ 201 __ 

Fair Credit Policy & Fair Credit Compliance Program Templates 
96 


23721.023

Appendix A 

[Name of Dealership] 

fair Credit Policy 

[Name of Dealership] is fully committed to 

complying with the letter and spirit of federal, 

state, and local laws and regulations that are 

designed to protect its customers. This includes 

ensuring that all qualifying credit applicants 

have equal access to credit and are treated in a 

manner that is fair, professional and consistent 

with the terms of the [Name of Dealership] 

Fair Credit Compliance Program. in 

any form of unlawful credit discrimination is 

destructive, morally repugnant and will not be 

tolerated by [Name of Dealership]. 

fair Credit Policy & Fair Credit Compliance Program Templates 
97 


23721.024

Appendix B 

[Name of Dealership] 

Standard Dealer Participation Rate 

The [Name of Dealership] Pre-Set Dealer Participation Rate ("Standard Dealer Participation Rate") is ___ %. 

This rate applies to all indirect vehicle financing transactions beginning on _____ (enter date) and is in effect 

until further written notice from the [Name of Dealership] Fair Credit Compliance Program Coordinator. 

[Name of Dealership] Fair Credit Compliance Program Coordinator: 

Signature 

Printed Name 

fair Credit Policy & Fair Credit Compliance Program Templates 
98 


23721.025

Appendix C 

[Nome of Dealership] 

Inventory Reduction Criteria 

In order for Dealership employee to reduce tho [Name of Dealership] Pre-Set Dealer Participation Rate ("Standard 

Dealer Participation Rate") based on Inventory Reduction Considerations as set forth in section IV.b.7 of the [Name 

of Dealership] Fair Credit Compliance Program, the vehicle must meet or exceed tho following threshold(s): 

These inventory reduct'ton criteria apply to all vehicle indirect financing transactions beg·rnniog on-·-----

(enter date) and is in effect until further written notice from the [Name of Dealers/Jip] Fair Credit Compliance 

Program Coordinator. 

[Name of Dealership] Fair Credit Compliance Program Coordinator: 

Signature 

Printed Name 

Fair Credit Policy & fair Credit Compliance Program Templates 
99 


23721.026

Appendix 0 

Dealer Participation Certification Form 

Buyer(s) Name(s) ___________ . Date ____________ _ 

Assignee ____________________ VIN --------------

Standard Dealer Participation Rate __ % Final Dealer Participation Rate __ % 

If the Final Dealer Participation Rate does not equal the Standard Dealer Participation Rate, check the allowable 

deviation box below and fill in the corresponding blanks. 

0 Dealer participation limited by finance source 

0 Customer stated monthly payment constraint of 

$ __ per month 

0 Customer stated competing offer by 

________ (name) of __ % 

0 Customer qualified for Dealership Promotional 

Financing Campaign 

0 Customer qualified for subvened interest rate of 

%from _______ (name) 

0 Customer qualified for Dealership Employee 

Incentive Program 

0 Customer purchased a vehicle that satisfies the 

Dealership's predetermined inventory reduction 

criteria (describe how vehicle satisfies the criteria) 

I certify that the information above is true and correct 

to the best of my knowledge and that any deviation 

from the Standard Dealer Participation Rate was made 

in good faith and in a manner that is consistent with 

the requirements of the [Name of Dealership] Fair 

Credit Compliance Program. 

Signature 

Date 

Printed Name 

Title 

- Fair Credit Policy & fair Credit Compliance Program Templates 

<', ,', ;, ,,' -\ ', ";~t~:"-~:;,:',,:, ,''T,\,:,', 

1 tiavci reviewed the?bove \nformatiO(l ~nd 

•· supptirUng'Qocumentatio~:and! . ; . \ ··••· · o. ce(tliY:t~llt the Flr\al/)~l~f.far\icl~tloh R;,le . <:oJ1'lplies.ll/itfl tl1e (Na~at.~lerSiJlpl falr 

· Qr~diliC<?mPiiaf)ce ~~~(~tn; 'Of < . ,. · 'Cilrtifl(!l)at l have initl!lted ttle cllrr~¢tiV!) ~etlan 

noted. below. · 

f{e<iu~oo the eusto~~t;.ln~~t;?~ to~%sr·provitftlrlaf~f'!ricttothil'. 

;customer ie> the .~mo~e>tof$ ; . · . 

• .Taken the fo!!owir)g; empjoyee~rr~tive .· l\C!lon<descrioor. · 
100 


23721.027

Statement of the National Automobile Dealers Association 

A Hearing Entitled 

"The Semi-Annual Report of the Bureau of Consumer 

Financial Protection {CFPB}" 

Before the House Financial Services Committee 

March 16, 2016 

The National Automobile Dealers Association (NADA), a national trade association representing 

more than 16,000 franchised new car and truck dealers that collectively employ more than 1 million 

individuals, 1 is pleased to submit comments for the record regarding the Consumer Financial 

Protection Bureau (CFPB). As the CFPB continues its efforts to change the $1 trillion auto financing 

market, it is vital that the House Financial Services Committee provide oversight on this important 

issue. 

In March 2013, the CFPB issued informal indirect auto finance guidance which threatens to 

eliminate a dealer's flexibility to discount the annual percentage rate {APR) offered to consumers 

to finance vehicle purchases. 2 In the three years since, the Bureau has resisted efforts to provide a 

more transparent process. 

With the CFPB's actions likely to raise the cost, or reduce the availability, of credit for car buyers, 

NADA appreciates the Committee's review of the CFPB actions on auto financing to ensure the 

Bureau is acting in the best interests of consumers and basing its policies on sound analysis. 

The auto finance guidance is a classic case of the government not working properly. The CFPB 

released its guidance without prior notice or an opportunity for public comment. What makes this 

specific guidance problematic is that the CFPB chose to avoid the rulemaking process and use 

"guidance" as a way to make a major change in policy, i.e., eliminating a dealer's ability to offer its 

customers discounts on credit. 

1. The Bureau is not acting in the best interests of auto consumers. The CFPB proceeded 

without considering the impact of its directives on auto consumers. And the CFPB continues 

to press its fair credit initiative in a way that eliminates consumer discounts. Of course, 

consumers are better served when they are able to leverage the competitiveness of the 

marketplace to negotiate lower interest rates on auto financing. 

2. The Bureau is not basing its policy on sound analysis. The CFPB is attempting to eliminate or 

constrain dealers' ability to discount credit utilizing (1) a proxy analysis for determining the 

1 NADA members are primarily engaged in the retail sale and lease of new and used motor vehicles, and also engage in 

automotive service, repairs, and parts sales. last year America's franchised new car and truck dealers sold or leased 

approximately 17.5 million new cars and light duty trucks. NADA members operate in every congressional district in 

the country, and the majority of our members are small businesses as defined by the Small Business Administration. 2 CFPB Bulletin 2013-Q2, issued March 21, 2013: http:Ufiles.consumerfinance.gov/f/201303 cfpb mar.ch -AutoFinance-Bulletin.pdf 
101 


23721.028

ethnicity of borrowers that the CFPB knows to be flawed> and (2) a fair credit enforcement 

theory that fails both (i) to compare only "similarly situated" customers and (ii) to account for 

legitimate competitive business factors that explain any pricing differentials that may exist. 

NADA has endorsed a fair credit compliance program based on a Department of Justice (DOJ) 

model as an alternative to the CFPB's guidance, and we continue to urge the Bureau to embrace 

this common sense approach to addressing the fair credit concerns the Bureau has raised. In 

2014, NADA released its Fair Credit Compliance Policy & Program, based on prior work by the DOJ, 

which addresses fair credit risk in the showroom while also preserving a dealer's ability to discount 

credit. The program was developed jointly by NADA, the National Association of Minority 

Automobile Dealers, and the American International Automobile Dealer Association, and has been 

endorsed by numerous fair credit experts across the country. The CFPB has declined to take up this 

effective, DOJ-inspired approach to fair credit without providing a reasonable rationale. 

Congress should pass S. 2663, the "Reforming CFPB Indirect Auto Financing Guidance Act", 

introduced by Sen. Moran (R-KS). The bill would rescind the CFPB's flawed auto finance guidance, 

and make the Bureau more transparent and accountable when issuing future auto finance 

guidance. The bill provides for a public comment period, coordination with other regulatory 

agencies, and a study of the impact of the guidance on small businesses and, most importantly, 

consumers. In particular, before issuing new auto finance guidance, S. 2663 would require the CFPB 

to: 

• provide notice and a period for public comment; 

• make public any studies, data, and analyses upon which the guidance is based; 

• consult with the Federal Reserve Board, Federal Trade Commission and Department of 

Justice; and 

study the cost and impact ofthe guidance on consumers as well as women-owned, 

veteran-owned, minority-owned, and small businesses, including in rural areas. 4 

S. 2663 is a moderate bill that does not dictate a result or tie the CFPB's hands. The bill merely 

allows for transparency and public notice so the public has an opportunity to analyze and comment 

on the CFPB's attempt to change the auto financing market via "guidance."5 It protects fair credit 

laws and their enforcement in order to safeguard equal opportunity in auto financing. For all of 

these reasons, the companion bill, H.R. 1737, introduced by Reps. Guinta (R-NH) and Perlmutter (DCO) overwhelmingly passed the House on November 18 by a vote of 332-96 with strong support 

from Members across the political spectrum, including 88 Democrats. 

3 The CFPB's own analysis of its methodology revealed errors as high as 20 percent in estimating individuals' ethnicity. 

And, an independent research study found that the CFPB's proxy methodology can overestimate certain populations by 

41 percent. Charles River Associates, Fair Lending: Implications for the Indirect Auto Finance Market (Nov. 2014). 4 The CFPB took none of these essential steps before issuing its far-reaching guidance. 5 Significantly, the process for issuing guidance inS. 2663/H.R. 1737 is consistent and in accordance with OMB's 

practices on agency guidance documents. The Bulletin on "Agency Good Guidance Practices" sets forth general policies 

and procedures to ensure that guidance documents of Executive Branch departments and agencies are developed with 

appropriate review and public participation, accessible and transparent to the public, and of high quality. 
102 


23721.029

Members should be concerned that, rather than embracing a fair credit approach emanating from 

the DOJ and endorsed by dealers, the CFPB continues to seek to be prescriptive in setting the 

manner and dictating the amount of dealer compensation for arranging financing, despite a clear 

prohibition in Dodd-Frank against regulating dealers." 

The current system of dealer assisted financing is fair, competitive, and boosts access to 

affordable credit for consumers. Any disruption in this highly efficient model can only be justified 

if supported by reliable and sound analysis. These significant flaws in the CFPB's policy could have 

been avoided if the Bureau had employed a process that was market-driven and transparent. 

S. 2663/H.R. 1737 would provide that needed transparency. 

'Chris Kukla, of the Center for Responsive Lending and a "persistent critic of auto dealers and lenders," has a "theory 

that federal regulators ... are still angry that when the CFPB was set up .. .franchised new-car dealerships won a 'carve 

out,' exempting them from the CFPB's jurisdiction." Mr. Kukla stated that he believes CFPB's actions are " ... driven in 

part by the auto dealer exclusion." See Jim Henry, "Did dealers hurt themselves with the carve out?" Automotive News, 

Aug. 20, 2014. 
103 


23721.030

C!t:nngrenn nf Ure Unifea ~fafen 

tlllus!ringhnt, 1\(!l: 20515 

The Honorable Richard Cordray 

Director 

Bureau of Consumer Financial Protection 

1700 G Street, NW 

Washington, DC 20552 

Dear Director Cordray: 

June 17,2015 

We write to express our concerns with the Arbitration Study1 that was recently released by the 

Consumer Financial Protection Bureau. 

Under the Dodd-Frank Act, Congress delegated to the Bureau the authority to issue a rule 

regulating the use of arbitration agreements in consumer financial agt:eements, but required the 

Bureau to conduct an arbitration study as a prerequisite to regulation such that the "findings in 

[any] such rule shall be consistent with the study."2 Thus, the decision as to whether the Bureau 

should prohibit consumer arbitration agreements is based on the findings and veracity of the 

study. 

Unfortunately, the process that led to the Bureau's Arbitration Study has not been fair, 

transparent, or comprehensive. The Bureau ignored requests from senior Members of Congress 

for basic information about the study preparation process. The Bureau also ignored requests to 

disclose the topics that would be covered by the study, and failed to provide the general public 

with any meaningful opportunities to provide input on the topics. Because the materials were 

kept behind closed doors, the final Arbitration Study included entire sections that were not 

included in the preliminary report that was provided to the public.3 

As a result, the flawed process produced a fatally-Hawed study. Rather than focusing on the 

critical question- whether regulating or prohibiting arbitration will benefit consumers- and 

devising a plan to address the issues relevant to resolving that question, the Bureau failed to 

provide even the most basic of comparisons needed to evaluate the use of arbitration agreements. 

For example, the Bureau failed to estimate the transaction costs associated with a consumer 

pursuing a claim in federal court as compared to arbitration. The Bureau also failed to estimate 

the ability of a consumer to successfully pursue a claim in federal court without a lawyer, despite 

the fact that consumers often are self-represented successfully in arbitration proceedings. The 

1 Consumer Financial Protection Bureau, Arbitration Study Report to Congress, Pursuant to Dodd-Frank Wall 

Street Reform ond Consumer Protection Act§ 1028(a) (2015) [hereinafter Arbitration Study], available <1t 

http://files.consumerflnance.gov/l)"20 1503 cfpb arbitration-study-report -to-congress-20 15 .pdf. 2 Dodd-Frank Wall Street Reform and Consumer Protection Act, 12 U.S.C. § 5518(b) (2015). 3 See Arbitration Study at 9. 
104 


23721.031

Hon. Richard Cordray 

June 17,2015 

Page2 

absence of comparison to even these basic 

information has been sidestepped, if not 

throws suspicion on where other useful 

ignored. 

For ninety years, since the enactment of the Federal Arbitration Act in 1925, there has been- as 

the Supreme Comt explained in a recent unanimous opinion "an 'emphatic federal 

favor of arbitral dispute resolution. "'4 When the consmners' 

court system that is slow and costly, it is clearer than ever that JuneJ'lCEtns 

dispute resolution procedures that are fair, more accessible, less costly, and more efficient. 

We therefore call upon the Bmeau to study process, seek public comment, and 

provide the necessary cost-benefit for lmdcrstanding how a similarly situated consumer 

would fare in arbitration versus a lawsuit. rulerrtaking pn)ce:edmg in the absence of such 

minimally fair procedures would be premature, biased, to comply with Congress's intent 

in conferring this authority on the Bureau. 

Sincerely, 

4 KPMG LLP v. Cocchi, 132 S.Ct. 23, 25, (2011) (per curiam) (quoting Mitsubishi Motors Corp. v. Soler Chryslet~ 

Plymouth Inc., 473 U.S. 614,631 (19&5)). 
105 


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Hon. Richard Cordray 

June 17,2015 

Page3 
106 


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107 


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108 


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109 


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Non.Negotiable: 

NE~Il:O•tiation Doesn't Help African Americans 

and Latinos on Dealer-Financed Car Loans 

Delvin Davis 

January 2014 

www.responsiblelending.org 
110 


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TAB i.E Of CONTENTS 

Introduction . . . . . . . . . . . . . . . . . • . . . • . . • ............. 2 

Background . . . . . . . . . . . . . . . . . . . . . . . . . . . ............. 4 

Methodology and Findings .•...........•..•............ 8 

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . • . . . . . ...... 17 

Appendix A ..•......•..•.•.......•.•.....•......... 18 

Appendix B .....•..•.•............•.......•....... 19 

Endnotes . . . . . . . . . . . . . ........................... 28 
111 


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Previous research shows that, on of color pay rnore for their car loans than whites 

when a loan a car Americnns receive higher interest rates on car 

loans car than similarly-situated wh.ite borrowers, even after for 

several credit measures1 while those who receive loans directly from banks or credit unions not. 1 

ln addition, African Americans pay higher purchase prices for their cars, even after actively negoti~ 

ating wirh the seller. 2 

Theoretically, we would expect better rate pricing outcornes for consumers who both 

their interest rates and comparison for a loan in advance of their car purchase. Jn 

levels of negotiating and comparison could explain the we see in rate pricing for 

dealer-financed loans. However, if consumers of color negotiate around much as 

their white and still experience pricing dlsparities, it raises that other 

factors at the prevent the car financing process frorn working the same for all consumers. 

This report seeks to add to previous research on car 

financing tOr borrowers receiving loans 

whether occur, considering the consumers' attempt to negotiate 

the 

cornpari:;on:-st!Op at other institutions. We also examine other of car 

purchase of ancillary ~'add~on" products3 

to the customer during the buying experience. 

found in several reports, our research shows 

field for all consumers. This new research 

such ns interest mte markups, h<1ve a discriminatory 

these are our main findings: 

l. -and Latino cPnsumt:TS attempt tn on dec-·der loans !u~t <"!:) 

much white consumt::rs, if nnr leYels of comparison shopping simihn· to rh,):>t" 

of \Vhitf' Previous analyses hCtve found rnci:al and ethnic disparities in car loans obtained 

through car dealers even after controlling for credit risk factors. 'Here we finJ, in of attempting 

more than their white cmmterpmts 1 interest rates 

dealers. Thirty-nine and 12% of African Americans 

report negotiating their interest rate 1 22% of white car buyers-yet people of color 

received worse In fact, we found people received interest rates compnred 

to \Vhite huyers who not attempt to negotiate at alL of color lower 

levels than whjte car buyers, but not 

disparities in interest received. 

Non-Negotiable: Negotiation Doesn't Help Afrkan Americans and Latinos on Dea!er-Flnanced Car Loans 
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rnislcading infpr~ 

h.-1isrepresentations 

of negotiations or cmno;ms.on 

shopping. People are more likely to have dealer 

indicate they are getting the "best rate available," and be told 

that add-ons are purchases. In addition, people of 

color are more likely to unaware of dealer interest rate 

markups. These three factors are also associated with higher 

ratest and therefore a greater chance of losing the 

repossession. 

borrowers of color 

reported receiving misleading 

inf;orn1ation about their loons 

from 

·). African Americans and Latinos :Jdd~on products as 

\\'hire cl)nt'1umers. Add~on products such as various insurance coverage are 

sold at the dealership's financing office, often with Dealers sell African 

Americans and Latinos multiple add-ons time, respectively, 

compared with 16% of the time for whites. are also associated with greater 

chances of delinquency and therefore create a greater risk of repossession. 
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BACKGROUND 

Dealer 

When dealers sell a car <:md finance the transaction, they are able to cam revenue in several ways: 

through the car's sales price, the sale of add-on products and to the loan's 

interest rate for compensation. 4 fvlost consumers are unaware has to 

increase the consumer's interest rate beyond what outside fin;Jncial institutions require to purchase 

the loan at f~Ke value.S Dealers will then keep some or the entire rate markup as compensarion. 

We have estimated that in 2009 dealer interest rare known as "dealer reserve-" or 

''dealer participation"--cost car buyers $25.8 billion in 

loans. 6 Rather than providing loans with interest rates baseJ on 

dealer interest rare markups increase interest rates based on the 

to convince borrmvers to pay a higher rate. 

objective risk measures, 

own discretion and ability· 

On car l...xms financed through the dealer! the 1oan 1s interest rate has two T11e first is 

the rate" that the financial institution the finance contract offers dealer. This rate 

is based on the borrower's credit financial information that the dealer collects and 

provides to the financial institution. The second of the interest rate is the dealer mark~ 

which is added to the rate 1 with the extra going to the dealer. The dealer markup is 

solely on the interest the dealer is able to convince the consumer to accept. 

Non-Negotiable; Negotiotfon Doesn't Help African Americans and Latinos on Dealer-Financed Car loans 
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discretionary pricing. Mortgage 

and brokers that functioned very 

on car produced both racial and ethnic 

in broker compensation. brokers 

payment in the borrower a loan with less aw;an.mc•eo''" 

interest rate than fix the borrower qualified or a 

statistically significant level, Afric.an~American borrowers 

broker compensation through yield than 

between $.351 and $398 more than disparities appeared even after co•otroll:ing 

risk factors such as credit score and loan~t(vvalue ratio 1 as well as loan characteristics, ne•en.nornt>ou 

demographics and geography. 

Due to the lack of transparency and additional costs created by spread the Federal 

Reserve Board and Congress acted to prohibit lenders paying compensation 

based on discretionary interest rate the Consumer Financial Protection Bureau 

( CFPB) issued a mle under the mortgage loan originators from being 

compensated based on the terms of the loan.9 

Prior Disparate Impact Research Car loan interest Rate 

Similar to the 

racial and ethnic 

directly from a 

found in mortgage yield spread premiumst previous research has also found 

when borrowers finance their car loans at the dealership rather than 

or credit union. 

Using data class action litigation, Mark Cohen of Vanderhilt Universiry (2006) 

found that are more likely to receive an interest rate markup when 

car through the dealer, nnd that the rate is increased at amounts, than for 

situated white borrowers.w 1 I is loan~ level major auto companies 

that S4.6% of African Americans received an interest rate markup, to 30.6% of whites. 

Moreover, African Americans on average over twice the amount markup ($742) comwith the average markup hy ($31S). Latinos also paid higher rate markups than 

although not as high as paid by African AmericansY 

Lenders involved in the dass action lawsuits settled out of court, and instituted temporary interest 

rate markup of between two and three points, the first of which started in 2003. 

Even with the of the caps expiring in 2010, auto indusny represent<)tives claim 

that the caps have been accepted as a hest practice with most lenders, which should limit 

discri;miJ1atory conduct. even since the rare tnarkup were put into recent 

the Consumer Financial Protcctlon Bureau and the Department of 

have tOund mcial disparities in car loan interest rate pricing among dealer~originated 

This implies that rare markup caps by themselves are insufficient in emsing disparate impact, 

and that further regulatory measures may be necessary. 

Recently, the CFPB announced findings from their review of data acquired from several 

cinl institutions that purchase car loans frntn dealers. These revie-ws are in light of CFPB 
115 


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issued March 2013 to financial institutions that purchase ('ar loans financed at dealerships, indicat~ 

that can be held accountable for loans tht.• Credit Opportunity 

Americans, Latinos 

and Asian Americans points) 

than whites with credit backgrounds. 13 On a t·ypical ne\V car loan with a 

interest rate and loan tenn of 60 months) a 30 has is increase would result in an additional 

$216 for a minority consumer. Cumulatively over course of many purchases within a tninority 

group, this amount can have a negative impact on minority communities as a whole. 

Director, we've already seen amounts to tens of 

millions of dollars in overpayments each in totaL 

Across the entire indirect auto market, total could be 

much greater than that." 14 

we've already seen 

tens of millions of dollars 

overpayments each year in total. 

sri!! the auto 

over 

Pacific 

to the consent order, 

by Ally Bank disparities of 29, 

20, for African-American, Latino, 

and Islander consumers over similarly~situated white borrowers, respectively. The 

investigation also determined that Ally Bank had insufficient tneasures to monitor discriminatory 

2013, the DOJ settled lawsuit against a Los Angeles dealer· 

di,:Pr<1Dt>rtion:rteh gave non-Asians, many of whom were 

Other research abo found in car loan interest rates. datG from the Survey 

of Consumer Finances, re,:emrchers I !urst, and Stephens (2008) that for car loans with 

interest rates (at the 75th'"'~~"''"' African Americans paid 168 basis points more than 

with similar credit profiles a fin::mce company. In contmst, the rates 

African Americans paid on em loans by a bank or credit uninn did not have a 

statistically significant difference from 

Likewise, 

impact for of loan products, including car even after contr·ol!ing 

costs of issuing car loans minorities paid rates FlO basis points 

whites on a sraristically significant 

Impact of Negotiation Rate 

Some reasonable explanations for a consumer receiving a interest mte on a loan include hav~ 

ing credit, failing to negotiate for a good interest rate originator has di::.cretion on what 

rate cun charge\ or failing to competing loan offers. However, if data reveals that these 

factors are all reported racial and ethnic and disparities 

other fdctors-induding rhe race or at play. To 

borrower characteristics and activities nre significant factors in interest rate pricing, we conducted a 

Non+Negotiable: Negotiation Do<?sn't Help African Americans and Latinos on Dealer-Financed Car Loans 
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w'"'""''""" analysis that looks at race/ethnicity, interest rate negotiation, and comparison 

rate negotiation and comparison shopping in the discussion of how interest rates are 

allows us to gauge the influence consumers have over the of their interest rates, and 

consumers can prevent racial disparities on their own. J t a new of research on 

discretionary interest rate pricing that adds to a growing on the issue. 

could be important factors in obtaining a good interest rate 

in reduce a discretionary price, and multiple 

a car can empower consumers to negotiate knowing the interest 

However, staff in a dealer's finance and insurance (F&l) office, where financing is finalized and 

add~on products are sold, may provide misleading information tl-:~.at discourages negotiation and 

comparison Dealer compensation1 with its to m<1rk up interest rateS1 creates an 

incentive for a staff to discourage the consumer's welL For example, a 

dealer representative could tell consumers that he or she has "hest rate available" when 

that is not the case. In this case, if consumers trust their dealer representative, they may forego any 

rate negotiation or not be able to negotiate effectively. 

Likewise, a dealer representative falsely assert that certain add-on products are mandatmy in 

order for the loan to be approved. puts pressure on the consumer to accept aJJ~on 

without argument. These problems are cmnpounded for consumers with creJit scores are considered since there are far fewer for those consumers outside of dealer financing. 

Thus, consumers often accept deal is offered because they are not confident that 

other choices exist for them. 

negotiating sales male 

shoppers had final offers $1,132 higher than similarwhite males for their car purchases. Likewise, 

women had offers $446 than 

white males at a statistically significant 

Unlike a car's sales price, 

information freely accessible 

online, information on the interest 

of information on the internet has added more tmnsparmore opportunity to for better prices. 

Morton, and Silva-Risso (2002) a significant sales 

African Arnerlcans and Latinos paid more than whites after controlling for 

income, education, and search costs. ~w However1 when using Dn internet search 

tool to shop ft1r a car, these do not appear. 

Both tbe studies Ayres and Morton eta! detemtine disparities instead 

of interest rate. distinction the price 

and interest rate are Unlike a car's sales price, information is freely accessible 

online, infOrmation on the interest rate for which a consumer should qualify is much less transpar~ 

ent. Thus, we build on this research to examine the impnct of negotiation and comparison 

shopping on inreresr rates originated hy car de<:~lers. 
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METHODOLOGY AND FINDINGS 

Oa!a and Research 

inllu<,ncine car finance costs, we conJ.uct"ed a telephone survey of 

in the prior six years. 21 The survey 

several characteristics add~on loan amount 1 

the car purchased was ne\v or used, and whether any payments on loan had been made late) and 

income1 and whether they financed through their 

information about the buying experience that 

on the interest rate, the number 

consumer during the buying process. 

Using this survey data, 

l. Are consumers of color as as white borrowers to attempt to negotiate and comparison2. 

shop for a dealer-financed car 

awareness of dealer interest rate 

AdditionaHy, is there any correlation 

3. Are consumers of color more or less likely to finance add-on purchases into their loan, and 

do add~on purchases also have an impact on loan performance? 

s?lt-nenr>rtf-d survey data has limitations compmed to loan-level data derived from the records 

transactions, in that data relies on the ability of the consumer to recall their 

loan and buying experience accurately. there is certain information that is obtained much 

more easily using surveys. For example, the best to detcnnine whether the consumer attempted 

to the interest rate or compare credit to ask the consumer Likewise, 

no data exists on consumer awareness of interest rate markups or dealer in the 

loan process. 

Descriptive Analysis and 

poorer 

docutnetnted racial and disparities in credit 

umsurrters of color were also more likely to useJ 

usually higher interest rates.;;:; We also found that people were 

somewhat more likely to use f{Jr their loan, rather than obtaining financing from 

a bank or credit union. 
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Figure 1: Descriptive Statistics of Key Variables by Race and Ethnidty for Dealer and Retailloans;o' 

White African America Latino Overall 

Non-Latino Non-Latina 

Loan Characteristics 

Overall Average APR 4.49% 6.23% 6.89% 5.04% 

Average APR: New Vehicles 3.68% 4.95% 5.36% 4.03% 

Average APR: Used Vehicles 5.71% 7.51% 8.71% 6.44% 

Overall Average Loan Amountn $19,306 $19,%6 $19,646 $19,493 

Average Loan Amount: New Vehicles $22,990 $25,274 $24,600 $23,495 

Average Loan Amount: Used Vehicles $14,182 $15,351 $15,022 $14,568 

% Purchasing a Used Vehicle 42.4% 53.8% 49.4% 45.0% 

Consumer Demographics 

Average Annual Household Income $79,865 $76,525 $61,927 $77,340 

o/o Credit Grade "Below or Well Below Average" 6.4% 14.3% 14.0% 10.0% 

%Financing Loan Through Their Dealer 54.9% 60.1% 57.8% 56.2% 

These results do not necessarily demonstrate discrlmination, because 

may influence interest rate pricing as constant. Because the cre·ditwc>rtrliness variable 

in the corresponds to the tim.e of the which have been six 

purchase, we not run regressions to determine significance different factors, 

race and ethnicity. However, the findings from aforementioned investigations, 

and we can have that correlations between rate pricing and race/ 

exist in today's m.arket. 

Fif'l!Il":G l: Afric~n~American an.J Latino con:::1.m1ers 

loans just much as white cnnsurner;-;, if not rnnre, and their 

sirnilm ro those of \Yhite The 

and <1round 

ship 

With research finding racial and ethnic pricing even after 

factors, the fact that of color negotiate comparison-shop at 1eve1s is concerning. Encouraging ethnic minorities to negotiate and shop more is unlikely to yield better 

results. Further, people of color to negotiate and shop hmder to get the same 

loans as similarly whites can create an unfair environment where a level of effort is 

required from certain groups, solely because of race or ethnicity. 

In our data, a higher overall share of African Americans and Latinos reported 

interest rate than did their white The amount of car loan comparison sh<1P>Hn:g--tl1e 

number of financial institutions and car offering car loans the consumer visited prior to the 

purchase-was at similar rates (slightly lower for buyers of colort though the differences were not 

These are consistent for consumers who ultimately financed their auto loans at a 

with a financial institution. 
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Figure 2: Negotiation and Comparison Shopping by Race and Ethnidty 

White African America Latino Overa!l 

Non-Latino Non-Latino 

%Who Tried to Negotiate Interest Rate with Dealer 21.9% 32.1% 39.4% 26.4% 

Average Number of Places Shopped for a Loan: 

Overall 2.67 2.37 2.47 2.62 

Average Number of Places Shopped for a Loan: 

Financed at Dealership 2.58 2.30 2.56 2.56 

Average Number of Places Shopped for a loan: 

Financed Outside Dealership 2.77 2.47 2.35 2.71 

Considering that African-American and Latino consumers in our data also saw interest rates 

(see 1 ), the fact that would be more likely to negotiate their rate troublesome. 

One explanation for the would be thJt African Americans and Latinos were also 

more likely to report having "below1

! "well below" credit. However) previous studies found 

disparate impact even after controlling for credit risk 

exrllat1at:ton could be that the amount of effort, skill, or information available used to 

comparison shop may difter by race and ethnicity. However, when ccnnparing people 

in our data that tried to negotiate and to whites that did not 

either, we that African Americans and Latinos still paid interest mtes on average. 

discounts the notion rhat the effort forth by different groups is a factor when certain groups 

achieve better results than others no effort alL 

Figure 3: Interest Rate Comparisons by Race and Ethnldty 

Rate Negotiiltion Attempts 

White Non-Latinos that did not attempt to negotiate interest rate 

African American Non-Latinos attempting to negotiate interest rate 

Latinos attempting to negotiate interest rate 

Level of Comp<'lrison Shopping 

~hite Non-Latinos that did not comparison shop 

African American Non-Latinos that comparison-shopped at least three places 

Latinos _!_~.!_5omparison-shopped at least three places 

Average APR 

4.33% 

4.95% 

% 

4.56% 

5.46% 

7,92% 

Non-Negotiable: Negotiation Doesn't Help African Americans and Latinos on Oe>afer-Financed Car Loans 

--
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In combination with other stuJies that held credit and other factors constant and still found 

disparities~ these do not work in all 

circumstances or for impact on 

FI:l'DlNCJ 1\'1ore of en lor repom ..:;d receiYing rnisleading infcin118ti(1!1 about their 

loans from car dealer~ .. l\.1isrepresentations serve impact of negotiations or comrarisnn 

of color arc more likely to have the indicate they are the "best rate 

be told that add,ons are mandatory purchases. People of color are more likely to 

be unaware of dealer rate markups. Tbese three factors are also associated with higher delinquency 

rates, and therefore a greater chance of losing the car through repossession .. 

Car dealer representatives have asserted that dealer interest rate markups cannot be unfair to 

consumers, since consumers have the ability to control rate pricing by using negotiation and market 

competition to their benefit: 

ne:sortarJmcy provides consumers with the ability to drive down the cost of credit 

for purchases. The way in which they do this is quite simple and occurs in the 

marketplace every day. There is an array of creditors that intensely to 

financing to consumers. This competition exists across the spectrum includes 

the subprime tnarket." 28 

The concept of using negotiation to force market to work in one's f3vor implies that the 

market is operating fairly without any distortions against the consumer. The fact that both 

African Americans and Latinos were just as likely to attempt to negotiate their interest rates in our 

data 1 while other research is impact in rate indicates that such a distortion 

may exist in this marker .. It also more consumer to promote active negotiation 

on interest rates would not solve the rate disparity problem systernatically. 

Various forms of dealer conduct have a minimizing effect of any benefits from negotiation. 

of color were more likely to h::1vc their dealer indic<ltc they were rhc "hest ro.te 

Additionally, of color mnre likely to be told that oprinnal add~on purchases were 

rmsre;,rmue information could act as a strong counter-weight to the 

cost of the car. 

F'urpk of cohJr abo more likely to be unaware of dealer 

interest rate m<~rkup::>. As shown in Figure 4 below, our survey 

indicates that the of dealer interest rate 

dents were not aware that this 

it highly improbable that would use of the rate 

markup in negotiations. The of being unaware of 

interest rate is greatt~r for African Americans (74.29il) 

and Latinos than for whites (65.6%). Disclosure of 

Our survey indicates that the 

of dealer interest 

rate markups gaes largely 

undetected by the consumer. 

dealer interest rate is often not made until after the financing, including the interest rate} 

has been negotiated. This in rhe rate pricing process hinders negotiation. 

However, even if there were better dealer about what rates the 

consumer can qualify for can still minimize the consumers) to effectively negotiate. 
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Likewise, told that certain ~ldd~ons are mandatory purchases is a mamJ)utou·ve 

more revenue for the As we will discuss 

ing several greatly adds to the loan's cost. Being pressed to 

ucts can increase a consumees deht burden, which can have a significant 

people of color who may already be financially vulnerable. 

Figure 4: likelihood of Consumer Experiences at the Dealership by Race and Ethnidty 

80.0% -.--~=;;;-c;';C',:;;,----------··-·-·---·-------------, 

70.0% 

60.0% 

50.0% 

40.0% 

30,0% 

20.0% 

10.0% 

0.0% 

Unaware of Dealer Interest 

Rate Markup 

VVhite Non~latino 

Dealer Told Told Add·Ons 

"Best Rate Avai!ab!e" WE're Mandatory 

Latino Overall 

Each of these three situations could potentially 

and therefore affect the characteristics of their car 

At a srmisticalty significant level, 12.8% of people unaware of interest rate markups in our survey 

were delinquent at som.e with their cnr loan with 4.9% of those aware of the 

ticc. 30 Likewise, 18.3% told that add··on were were also on 

their car loan double the rate not having this infi)fmation. 

This is an imporrant COITclation, considering that interest rate markups and purchasing 

multiple add~ons can make fnr a more expensive, and possibly less susrainahle, car loan. 

Non-Negotiable: NE-gotiation DCH.~sn't Help African Americans and Latinos on Dealer-Financed C1r Loans 
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Figure 5: likelihood of late Payments Based on Dealership Events 

Unaware of Dealer lnterest 

Rate Markup 

Told "Best Rate 

Available" 

Told Add-Ons 

were Mandatory 

Delinquent consumers experiendng misleading info or poor disclosure 

Delinquent consumers not experiencing misleading info or poor disclosure 

The relationship we find between dealer conduct-i.e., raising interest rates arbitrarily anJ/or 

providing erroneous or infonnation-~and car loan is consistent 

with CRL research, which found a similar correlation interest rate markups 

and odds and repossession for subprime borrowers. 31 Thus, market distortions 

have the disparities between different groups 

aware of rate markups and being told rnisleading inforrnation from the dealer can 

one another to have a greater on the loan's affordability. As the loan becomes 

with higher interest rates borrowers qualified for and the extra cost of udd~nns, 

we also expect to seen higher rate of loan Jelinquency resulting from dealer conduct. in our 

data, nn:r one in fonr consumns (26<9°/t•) all three event5 at the dt:;-1ler:ship also had <l 

late payment, with jusr 6. )% for not t"xpenence This is 

a statistically diffen.::nce. 32 
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Figure 6: likelihood of Late Payments if Experiencing Multiple Dealer Events~' 

30.0% 

25.0% 

20.0% 

15.0% 

10.0% 

5.0% 

O.Oo/o 

.. 

Since rer>osc;es.,ion due to default only occurs on de1lin<iu<>nt loans~ losing a car through repossession 

is more when 3 horrower experiences all three evenrs. 

Flf'Dif\G Latinos likely to rc sold multiple add-on 

proJucts white consurners. Add-on products such as various kinds of warranty and insurance 

are sold at the dealership's office, often with Dealers 

Americans and Lntinos multiple time, 

respectively, with 16% of the time for whites. are also associated with 

greater chances nnd therefore create a greater risk of repossession. 

Add~on products such ns vC"hide service contracts, "GAP" insurance, credit life insurance, and 

theft deterrent are sold at the dealership's finance and insumnce office with significant 

price hns stated that add~on price of 1 00% arc "fairly 

source reported that for service contracts~-

add~on product f<ell~-ovemli prices can range from $1,604 on a 

on a used luxury SUV. 35 

Prior research has brought into the actual usefulness and value like service con~ 

twcts. According to Louis, consumers 

in their datahase spent million on service contracts, and still had to spend an additional 

$2.7 million for car repairs. 36 The Mis;.;ouri mtnm.ey office has reported that some plans are 

of "minimal value because the service contract contains numerous exclusions, limitations 

and conditions, and providers deny claims for the cost of repairs without reasonable investigation.'' 37 

Non-Negotiable: Negotiation Doesn't Help African Americans ond Latinos on Dealer-Financed Car Loan:. 
124 


23721.051

GAP and credit life insurance products both often benefits consumers would alreaJy have 

their car insurance carrier. GAP insurance that cover equity becomt~ less 

with older used car purchases, financing loan terms, or with 

down payments, since these factorfi tend ro minimize negative 

insurance loses value if its term expires before the loan paid in occurrence that 

likelihood as loans financed 72 months and longer become rnore common. 40 Products like 

can usually be purchased more cheaply frotn providers outside of the dealership. 41 

Dealers often obscure the true cost and value of addron 

during the sc!les process. The dealer typically presents products 

in tenns of the impact on monthly not in tenns of the 

overall cost of the product. Dealers use sales of that bundle the costs of several products together. 

prE:set1tation might not disclose the cost of each product individu~ 

reveal the cost of the deal without the add-ons included, or the soles process. 

allow for with other add-on 

outside the are ""'"~uuuw'u 

dealer indicates that a certain ndd~on product is required to secure loan financing, which 

consumers to buy an add-on they do not need or want. In the aforementioned BBB 

92% respondents reported they felt the add-on sales tactics used hy dealers were misleading 

or 

to our survey data, th,: likelihood 

cu:-:rnmer rnuhiple (twn more) adJ-ons 

These differences arc statistically sif.,.rnificant. 43 

Figure 7: likelihood of Add-on Purchases by Race and Ethnkity 

Non,Latlno '~African America Non-Latlno 1@: Latino Overall 
125 


23721.052

add~ons can increase the overall cost of a car loan, making it harder tt) pay on a monthly 

our data also show significantly likelihood of late for con~ 

sumers purchasing add~on likelihood of 

purchasing addrons even 1norc prc>bhom:ati<:. 

Figure 8: likelihood of late Payment with Add-on Purchases 

NoAdd·on 

Purchases 

OveraH 

Dataset 

Percentage w!th a 

One or More 

Add· on 

Payment 

Two or More 

Add-on 

Purchases 

Non~Negotiab!e: Negotiation Doesn't Help African Americans and Latinos on Oei!!er-FJnctnced 
126 


23721.053

CONCLUSION 

On car loans obtained from Jea1ers, interest rJtes are determined by two factors: credit risk 

and dealer markups. However, previous research has found that racial ethnic 

with car loan interest rate pricing, even after controlling fOr credit risk. That leaves 

as the most likely explanation for disparities. 

exist 

Inarkup 

In addition, we would expect interest rates to vary depending on buyers' attempts to negotiate their 

interest rate and prior comparison However, as shown here, for Afric:::m~American and 

Latino huyers, negotiation and necessarily better rates on car loans. They 

also report receiving misleading than white buyers. 

Taken together, dealer markups and mid0odiino 

an unfair market for consumers of color, to mitigate discriminatory 

and avoid excessive interest on car Current practices by car 

need key to ensure a standard of fairness for ail races and ethnicities. 

To address differentiat pricing by race for lom1s the cu dealer~hip, CRL recommends 

rules rrohibiting dealer that based on the inreresl rate uthcr rnaterial terms 

of rhe loan, other than the balance. Car dealers should be paid a flat fee lenders 

able ro convince borrowers to pay a 

by outside institutions gives the 

rates, rather than seeking lower rates that 

are in the consumer's best interest. incentive to link dealer compensation to interest 

rmes would help protect all bmTo\vers, norric·nl•orl" consumers of color that this anJ prior research 

have found are most vulnerable to the most frequent markups. 

Likewise, lO Jddres~ rhe findings thDt hnrrmvcr~ uf color f,)f more aJd~on proJucts, 

m.end rules that n::~..1uire deakrs to disclose the actual costs Jdd-on product ;;old during the 

financing pnxess and w reveal the \Vith and vdthout add~on products. 

shoulJ also prohibit dealers frnm that the huyer to rurchJse 

ucts ln order to ohtain financing. tactics that mislead consumers about the true cost of the 

loan, especially add~on the consumer's ability to make an finan~ 

cial decision. We on data on the prevalence of ndd-on in car 

loan transactions and to monitor whether certain groups of borrowers are disproportionBtcly affected 

by these practices. 

In the case of em finance, certain business practices-whether it is interest rate markups or 

misleadimg inf()rmation--can create more loans for one of the most valuable assets a 

can own~ increasing the burden the loan and the chances 

of losing that c<1r hy repossession. Practices needlessly take income a household\; hudget 

and car are more than an inconvenience; they may result in significant harm 

to advancement :as welL 
127 


23721.054

of recent car loan consumers. The survey was administered 

Research (SSRS) in Ocrober 2012 as of its National Omnibus 

Administered through both mobile and landline phones, in and we gathered 946 

from consumers that had a car at a within prior six years. When 

the survey, we requested SSRS oversample for African Americans and Latinos to ensure 

have a sample of both even in the event that African Americans 

a recent em loan. 

of this researdl 1 86 respondents who indicated that had purchased 

dealer were nor included in the analysis since loan 

from the traditiona] dealerships we intended to analyze. 

includes loans with APRs over 20%, weekly loan payment:-;, and 

to customers with seriously impaired credit. 

N Minimum Maximum M0an Median Standard 

Deviation 

Annual Household Income s12,5oo I S27s,ooo I sn.34o $62,500 $56,029 

Loan Amount $18,000 $11,821 

Coo"'"' ~ 0% 25% 5.04% 4.00% 4.21% 

Non Promotional Loan APR (1% or greater) 1% 25% 5.66% 4.50% 4.05% 

Non-Promotional Loan APR (2% or greater) 495 2% 25% 5.97% F. .00% 4.02% 

Loan Term {in months) 784 30 78 51.8 54.0 12.2 

Down Payment 742 $0 

=t$35,000 

$3,017 1,200 $4,735 

Trade-In Allowance 730 $0 $4?~000 $2,679 $0 $5,027 

Number of Places Shopped for a loan 801 1 2.6 2.0 2.06 

Number of Add-ons Purchased 860 0 6 0.78 0 1.08 

N Percentage of Survey Respondents 

%African American Non-Latino 147 17.1% 

%Latino 100 11.6% 

f-'%,~W~h~i~te~N~o~n~-L=a~ti~no.~------·-----------------t--~5~8=2~~------------~6~7~.7~%~----------~ 

~%~U~s~in~g~"~ln~d~ire~c~t'~'D~e=a~le~r~Fi~n~an~c=·in~g~-----------~--··--4=6_1, __ -+---------------53.6% __________ __ 

%Credit Grade "Below and Well Below Average"----+---'7.c..6 ____ -------··----=8.~8%:.::_ __________ ----1 

% Credit Grade "Well Above Average" 264 30.7_% ____ ·--------j 

% Unemployed at Time of Survey 

%Trying to Negotiate their Rate 

Total Sample Size 

27 

215 

860 

3.1% 

25.0% 

Non-Negotiable: Negotiation Doesn't Help Afri(.an Americans and Latinos on Deafer-Financed CJr loans 
128 


23721.055

finance company? 

Yes 

2 No 

D (DO NOT READ) Don't know 

R (DO NOT READ) Refused 

(IF YES, CONTINUE. ALL OTHERS SKIP TO NEXT INSERT) 

AU-Jb 

Did you get your loan , (READ LIST, ACCEPT ONLY ONE.) 

Through the dealer 

From n financial institution or 

Were you preapproved ft)f a loan from a financial institution, but went through the 

dealer anyway 

4 (DO NOT READ) Only leased a car/did not purchase 

D (DO NOT READ) Don't knuw 

R (DO NOT READ) Refused 

(IF AU- 1 h~ 1, 2, 3 CONTINUE OTHERWISE SKIP TO NEXT INSERT) 

AU-2 \Vas this most recent car purchase through a dealer that you financed 

a new or used vehicle? 

New 

2 Used 

D (!X) NOT READ) Don't know 

R (DCJ NOT READ) Refused 
129 


23721.056

AU-3 Whm was rhe interest rate on this loan? 

(INTERVIEWER MAKE SURE TO ENTER AS A TWO PLACE DECIMAL EO. 

4.25% IS ENTERED AS A 4.25; 3% IS ENTERED AS .l.OO) 

______ ENTER PERCENTAGE (RANGE 0.00 TO 25.00) 

DD (DO NOT READ) Don't know 

RR (DCl NOT READ) Refused 

AU-4 How much was this em loan after subtracting the down 

rebates, etc.? (IF DON'T KNOW, SAY: "Your best guess is 

rrade-in all;,.)wance 1 

_____ ENTER !X)LLAR AMOUNT (RANGE 1,000 TO 200,000) 

DD (DO NOT READ) Don't know 

RR (DO NOT READ) Refused 

AU-5 How much was the monthly on this loan? 

(IF DON'T KNOW, SAY: "Your guess is fine.") 

______________ ENTER DOLLAR AMOUNT (RANGE 50 TO 9,999) 

DD (DO NOT READ) Don't know 

RR (DO NOT READ) Refused 

AU-6 For how many months was this car loan financed? 

(READ LIST IF NEEDED.) 

Less than 36 months (3 years) 

2 36-48 months (3 ro 4 years) 

3 49-60 months ( 4 to 5 years) 

4 61-72 months (5 to 6 years) 

Over 72 months (over 6 years) 

DD (DO NOT READ) Don't know 

RR (DO NOT READ) Refused 

AU-7 !low much did your dealer offer in trade-in value? 

(IF DON'T KNOW, SAY: "Your best guess is fine.") 

____________ ENTER DOLLAR AMOUNT 

NN Did not have a trade in 

DD (!X) NOT READ) Don't know 

RR (DO NOT READ) Refused 

Non-Negotiable: Negotiation Doesn't He!p African Americans and Latinos on Dea!er~Financed Car loans 
130 


23721.057

AU-8 

AU-9 

flow much of a down 

(IF DON'T KNOW, 

did 

"Your 

have? 

guess is fine.'') 

_______________________ ENTER DOLLAR AMOUNT 

NN Did not have a down payment 

DD (DO NOT READ) Don't know 

RR (DO NOT READ) Refused 

cost in tn the loan 

separate from the sale of the vehicle, and roll the 

may include extended warranties, vehicle service 

deterrent sysrems, and custom upgrades and accessories. 

Which of these additional products, if any, did you finance with this most recent deal? 

(INSERT ITEM) 

Yes 

No 

D (DO NOT READ) Don't know 

R (DO NOT READ) Refused 

(SCRAMBLE ROTATE) 

a. Vehicle service contracts or extended warranties that cover maintenance and 

mechanical breakdowns not covered hy the manufacturers' wananty. 

b. Guaranteed Autornobile Protection or "GAP~' insurance which pays the remaining 

loan balance your insurance carrier does not cover in the event the car is totaled. 

c. Theft deterrent packages that pay the customer a lump sum payment if the car 

is stolen. 

d. Credit life and disability insurance which makes car payments in the event of your 

death or inability to work. 

e. Tire and wheel protection plans that replace tires and rims in case of damage. 

f. Custom upgrades and accessories such as new stereo systems, navigation systems~ and 

custom paint jobs. 

AU-1 0 There are some dealers called "buy-here, pay-here" dealerships rhat do their entire loan 

financing and in-house. Customers of these dealers usually pay their monthly 

to the dealer that financed them, as opposed to an outside lender the 

them. 

Was this most recent purchase fi-om a buy-here, pay-here dealership? 

Yes 

2 No 
131 


23721.058

AU-11 

D 

R 

(DO NOT READ) Don't know 

(DO NOT READ) Rd\rsed 

on any of the following aspects of this car loan? 

Yes 

No 

D (DO NOT READ) Don't know 

R (DO NOT READ) Refused 

(SCRAMBLE ROTATE) 

a. !merest rate/APR 

b. Monthly payment 

c. Sticker price/MSRP 

d. Trade-in value 

e. Down payment nmount 

Loan term 

Cost to purchase addititmal products such as extended wan·anties1 service pbns1 and 

custom accessories 

AU-12 Did your dealer tell you this deal had the best interest rate available' 

Yes 

No 

D (DO NOT READ) Don't know 

R (DO NOT READ) Refused 

AU-13 \Xlere you told thM the purchase of additional products such extended warranties, 

service contracts, or insurance protections \Vere required for the deal to be npproved? 

Yes 

No 

D (DO NOT READ) Don't know 

R (!X) NOT READ) Refused 

AU# 14 Including both dealers and lenders1 how many places did you visit while shopping around 

for thls car loan? 

Non~NegotiJble: NC>gotiatlon Doesn't Help African Americans and Latinos on Dealer-Financed Car Loans 
132 


23721.059

____ ENTER NUMBER OF PLACES (RANGE 1-9) 

D (00 NOT READ) Don't know 

R (!X) NOT READ) Refused 

AU-15 Were you aware that you could negotiate the following aspects of your car loan? 

(INSERT ITEM) 

Yes 

2 No 

D (!X) NOT READ) Don't know 

R (DO NOT READ) Refused 

(SCRAMBLE ROTATE) 

a, Interest rate/APR 

h, Monthly payment 

c. Sticker price/MSRP 

d, Trade-in value 

e. Down payment amount 

f. Loan tem1 

g. Cost to purchase additional products such as extended warranties, service plans, and 

custom accessories 

AU-16 On car loans financed at the dealership, dealers receive an interest rare from an outside lender. After receiving a rate from the lender, the dealer will often an additional 

markup to the interest rate before the loan offer to the customer. The interesr 

rate rnarkup is used as commission to the for arranging the loan. 

Were you aware your dealer could raise your interest rate, and keep the difference as 

commission for arranging your loan? 

Yes 

2 No 

D (DO NOT READ) Don't know 

R (!X) NOT READ) Refused 

.AU-I 7 How were you made aware of the dealer's ability ro raise yout interest rate? 

(READ LIST; ENTER ALL TllAT APPLY) 

(SCRAMBLE ROTATE) 

I noticed a written disclosure 
133 


23721.060

2 The dealer explained this to me verbally 

3 l already knew this bei(Jre negotiating my loan 

0 (DO NOT READ) Some other way 

D (DO NOT READ) Don't know 

R (DO NOT READ) Refused 

AU- 18 lf you had known the dealer could mise your interest rate, what would have been your 

most likely response? (READ LIST. ACCEPT ONE.) 

(SCRAMBLE ROTATE) 

Try to negotinre the interest rate down 

Try to find financing outside of the dealership instead 

3 Walk away from the deal altogether 

4 Still accept the interest rate the dealer offered 

0 (DO NOT READ) Other 

D (DO NOT READ) Don't know 

R (DO NOT READ) Refused 

(ASK AU-19!F AU- lb~ 1 OR 3- FINANCED THROUGH DEALER) 

AU-19 Sometimes a dealer will allow a customer to drive home with " car before the loan is 

actually finalized. If the dealer is not satisfied with the available options, the 

Jealer might ask the customer to return the car and renegotiate a new 

give you 

Yes 

No 

around for this most recent car 

all financing was actually 

D (DO NOT READ) Don't know 

R (DO NOT READ) Refused 

(IF AU-19~1) 

AU-20 Did the dealer ask you to return the vehicle and ask you sign a different 

financing agreement? 

Yes 

2 No 

Non-Negotiable: Negotiation Doesn't He!p African Americans and Latinos on Dealer-Financed Car Loans 

did any dealer 
134 


23721.061

D (DO NOT READ) Don't know 

R (LX) NOT READ) Refused 

(IF AU-20~1) 

AU-21 Upon returning the vehicle, did the dealer tell you that they could not return your: 

(INSERT ITEM)? 

Yes 

2 No 

D (DO NOT READ) Don't know 

R (DO NOT READ) Refused 

a. Trade-in vehicle 

h. Down payment 

(IF AU-20~1) 

AU-22 What was the outcome after returning the vehicle to negotiate a new deal? 

(READ LIST; ENTER ONE ONLY) 

Negotiated on the new deal, and got a better deal than the original 

Negotiated on tbe new deal, but got a worse deal than the original 

3 Did not try to negotiate on the new deal, and got a better deal than the original 

4 Did not try to negotiate on the new deal, and gnt a worse deal than the original 

Ended up not purchasing car from them at all 

D (DO NOT READ) Don't know 

R (DO NOT READ) Refused 

AU-2.3 How much would you support new rule that 

(INSERT ITEM)? Would you .. ? 

(READ LIST) 

5 Strongly supportive 

4 Somewhat supportive 

3 Neutral 

2 Somewhat oppose 

Strongly oppose 

D (DO NOT READ) Don't know 

R (DO NOT READ) Refused 
135 


23721.062

(SCATTER ROTATE) 

AU-24 

a. prohibits a dealer's ability w compensate thernselvcs by increasing a car loan's 

interest rate? 

b. would prohibit the dealer from asking the consumer to renegotiate deal after the 

consumer has taken the car home? 

c. would require Buy~Here Pay~ Here dealers to post the sticker price and resale value 

visibly on each car? 

Very satisfied 

4 Somewhat sarisfied 

3 Neither satisfied nor dissatisfied 

Somewhat dissatisfied 

Very dissatbfied 

D (DO NOT READ) Don't know 

R (DO NOT READ) Refused 

AU-25 How confident did you feel when negotiating this car purchase? (READ LIST) 

Very' confident 

4 Some\vhat confident 

3 Neirher confident nor unconfident 

Somewhat unconfident 

Very unconfiJcnt 

D (DC! NOT READ) Don't know 

R (DO NOT READ) Refused 

AU~26 On this car purchase, how much did you trust your dealer to yon tbe best deal possihle? 

(READ LIST) 

Strongly trusted 

4 Somewhat trusted 

Neither trusted nor distrusted 

2 Somewhat distrusted 

Non ·Negotiable: Negotiation Doesn't Help African Americans and Latinos on Dealer~Financed Car Loans 
136 


23721.063

Strongly distrusted 

D (lX) NOT READ) Don't know 

R (DO NOT READ) Refused 

AU-27 How would you grade ycmr cun-ent credit score? Is it. . ! (READ LIST) 

5 Well above average 

4 Above average 

Average 

2 Below average 

Well below average 

D (DO NOT READ) Don't know 

R (IX! NOT READ) Refusod 

AU-28 Have you ever been late on a payment for this most recent car loan? 

Yes 

2 No 

D (DO NOT READ) Don't know 

R (DO NOT READ) Refused 

AU-29 At any point in owning that vehicle did you consider refinancing the loan 

with another lender? 

(PROBE YES FOR CORRECT RESPONSE) 

Yes, You have already refinaucod tbe loan 

Yes 1 You have considered refincmcing, and will pursue it in rhe future 

Yes, You have considered refinancing, but will not pursue it 

4 No, You have not considered refinancing 

D (DO NOT READ) Don't know 

R (DO NOT READ) Refused 
137 


23721.064

ENDNOTES 

1 Charles, Kerwin Kofi, Erik llursr and Melvin St('phcns Jr .. R:ll..<:s for Vehide Loans: Ru:\! anJ Loan .Source, American 

Economic Revkw, VoL B, Iss\\(~ 2008. 

Dis,ccinrinariun in Nett' Car Ncp;otiations and Estimates of Irs Cause, 94 Michigan Law Review, 

extended warranties nnd various insuronce and 

the and rolled into rht' loan fin,·u'lcing. Buying any c~)tnbinarion 

hotrom-!ine cost of the vd1icle. 

4 C~mments w dw t-'edcral Trade Commission Motor 

Lending, Mar 30, 2012. 

Roundtables: Project Number P104811, Center for Responsible 

79% of c-onsumers are unaware of dt~aler 

survey found that 68% tlf borrower::: an: unaware 

M. Frank, Under the Hood: Auto LKtn Rate Hikes Inflate Consumer Costs and Loan tosses, 

lbwdl E., The Ca.w~ oj'Yu:ld Sfm:ad Premium .. 'i {February 19, 

10 C' ...ohen, Mark A, 

Vanderbilt University, 

ll Ra..--:ial Dispa1·ities in Auto Len.din,g: A 5tate-lry-State 

Protection Bureuu, National 

l: lNtda finance Corporation ;md Primus, Lninos paid 

credit, rcspectlvdy. 

2007 

No 185, Sept 24, 2010, pp 58509-58538, 

Subjective Markup, Racial Disparity, and Class Actinn Litigation, 

Dealen Mu.u Be Subject W dw Consumer Financial 

the same !itigatkm dnta Cohen found fnr American 

more int~:rest rate markup than whites ~Aith similar 

12 Consumer financial Protection Bureau Bulletin 2013-02, Indirect Auto Lending and Compliance :with the Equal Credit 

Opjmtuniry Act, Mar 21, 2013. 

13 Abrams, Rachel. Dc•,1ler Fee$ for Arranging CaT I .. oans mr Drawing Scru:tiny from US., New York Time' Deallmok, 

Nov 22, 2011. 

Hn:mce Forum, Nov 14, 2013. 

15 (:tmwmer Fit\and8l ProtC'"ction Bureau, Conwm Order in the Matter of Ally Finandal inc. and Ally Dec 19, 20J3. 

Settles l..awstdt Alleging Auto l .... mding Discrimination in Los Angeles, 

Sept 6, 2011. 

Department of Justice, 

Erik Hurst and Mdvin Stephens ,Jr., Rates for \/Chide Loam: Race and l .Dan Source, American 

Issue 2, 2008. 

19 Ayres, Jan, Further E.vid.ewe of DL'>crimination in New Car Negoriativns and Estimates of Its 

109 (!995). 

94 Michigan Law Reviev.~ 

Price Discriminminn: Doe~ 

700,000 the 

respectively, when not 

Non-Negotiable: Negotiation Doesn't Help African Americans and Latinos on Dealer-Financed Car Loans 
138 


23721.065

nciJohb.,h<nl characteristics, 0.8% ;:md 0.6% 

researching and comparison 

a car, including rranspl1rtation costs and time spent. Using the internet to shop eliminates any variation associated 

nr edmkity. 

21 CRL commissioned the national which Social Science Research Solutions conduct~d in October 2012 in both 

and Spanish and using both and land-line phone numbers, The 946 rcr;pondents included an oversamplc of 

and L<:~tinos to ensure diverse rcptescntntion in rhe dara, 

asked whether respondents specil1c<tlly purchu;:;ed any of six different add-cln vehicle service 

Auto Protection," which pays loan deficiencies that insurance carrier does 

n._lt cover in the case the is totaled); thdt deterrent packages; credit life insurance; custom upgrades 

and tire/wheel protecti<m< This not an exhaustive list of products, but includes several of the most common products 

23 Fdlowcs, Matt, Credit Scores, Reports, and Getting Ahead in America, The Brooking Institute, May 2006. 

Meschede, and Sam Osoro, The 

Institute on Assets and Social Policy, 

'XU1ening Racial Wealth Gap: Explaining the 

ZOLJ. 

2013 data from Experian Automotive, new and used car interest rates stood at 427% and 

Cnil>pllrativclly, our consumer survey data report interest rotes tOr new and used car pmchas~;s of 4,03% 

anJ 

26 Reported values fnr household income, unemploymenr, the sur\'t'Y taken, not 

necessarily when the loan was originated, These statistics include data 

or credit union. 

<blec.iin•mced and direct loans from a hank 

271<ltal car loan amount net of down 

costs of add-on aftermarket purchases, 

28 Koblenz, Andn~w D. and Paul D. 

29 African Americans Hnd Latinos 

trade-in allowances, and rebates, This metric may indude the additional 

Comment Memo to Fedeml1t·ade Commission re: Motor Vehicle Roundtables, 

30, 20!2, pp IZ·ll. 

interest rates of 10.00% if wid 

they hnd the best rate uvailah!e, Americans and same credit range not told this information had 

rate of 9.229b. Likewise, non~Latino ltl'mtinebeh>w average credit had interest 

rates if told they had the ~st nu:e available, non-Latino whites of the same credit this information had an average rate of 9.75%. 

there 

trigger events, etc) that can impact 

M. Frank, Under the Hood: Auto Loan Interest Rau: Hikes 

Center for Lending, Apr 201 L This report found that interest rate 

increas('d odds of 60~day delinqumcy an~l cumulative loss hy 12.4% anJ 33.0~4:1, 

Consume;, Co.<~ts and Loan Losses, 

subprimc finance wmpanies had 

32 square, the correlation h<:twecn !are payment ;1nd number of experiences at the dealership was significant 

1% 

33 Dealer "events" refer to the consumer being unaware of interec.t rate markups, being told that they hav1: the best rate 

available, and hdng tnld that add-on pro~lucts are mandatory purchases . 

. H Wilson, Amy, Product Caf)S Grmv Amid Canc(:ms, Automotive News, Dec 26, 2012. 

35 Arroyo, Gregory, Tracking H?I Performance, F&l Management nnd ~~dmology Magazine, Jan 2012, 

36 Teuscher, Robert H., Vi.:hide Sen.·ite Contract lndust1)': How Consumt'rs Lnst Millimu of Dollars, St. Louis Better Business 

Bureau, May 201 L 
139 


23721.066

3 7 Teuscher, Rokrt H., Vehicle Scn•ice Contract lndu$tr)': Huw Comunwn Lost MiltUms of Dollars, Loub Better Bu~iness 

Bureau, May 2011. 

38 C.Ju:-:ner. Penny, What gaj) insurance does--and does Carinsurance.com, Jun 24, 201 L 

W Landes, Luke. Credit Ufe Insumnce: Yin• D(m'r Need It, Forbes.com. Nov 16, lOll. 

40 Overby, Joe, J.D. Pnwer: [,.JJng/ferm Loans Hit Re\'ord Penetration, Snbprime Auto Finance News, Apr 13, 2012. 

4l Reed, Philip, Gaj) Insurance: How h lmpa.::ts 

20!2). 

&1munds.com, Apr 4, 2005 (Republished Nov 6, 

42 Teuscher, Robert H., \Htide Scrrice Contract lndu,·my: How Consumers Lost Millions of Dollars, St. L0uis Better B~1siness 

Bnreau, May 201 L 

~""!eop!e of color bt:ing: sokl 2 more ada~ons hl ~tatisticaliy significant at a 0.1% level. Likt>wise, people 

or more add-ons i~ statistically Si.LYilificant at a l% leveL 

44 Using chi square tt\Sts to determine relationships between "-dd-on pmchases and late payments, \W fi:nJ that the correlation lwnvcen purchasing at two or more add-om> and having a late paymenr is significant at a S% leveL 

Non-Negotiable: Negotiation Doe-sn't Help Afri(an Amerkwns and Latinos on Dealer-Financed loans 
140 


23721.067

the 

The Center for Responsible Lending is a nonprofit, nonpartisan research and policy 

organization dedicated to protecting homeownership and family wealth by working to 

eliminate abusive financial practices. CRL is affiliated with Self-Help, one of the nation's 

largest community development financial institutions. 

North Carolina 

302 West Main Street 

Durham, NC 27701 

Ph (919) 313-8soo 

Fax (919) 313-8595 

1330 Broadway 

Suite 604 

Oakland, CA 94612 

Ph (510) 379-5500 

Fax (510) 893-9300 

Copyright@ 2014 by Center for Responsible 

910 17th Street NW 

Suite 500 

Washington, DC 20006 

Ph (202) 349-1850 

Fax (202) 289-9009 
141 


23721.068

November 13, 2015 

The Honorable Congressman G.K. Butterfield 

2305 RHOS 

Washington, DC 20005 

Dear Congressman Butterfield: 

The National Association of Minority Automobile Dealers (NAMAD) is not in support of H.R. 

1737, "Reforming CFPB Indirect Auto Guidance Act", as we believe this issue can 

and should be resolved non-legislatively. This does nothing to alter the Consumer 

Financial Protection Bureau's (CFPB) authority to enforce, or lenders' obligations under the 

Equal Credit Opportunity Act (Act). 

We support the CFPB's mission to ensure that consumers are protected and treated 

Reversing guidance to lenders at a time of heightened regulatory scrutiny could delay 

efforts to comply with the Act 

Looking back on the great financial crisis of 2008, legislation enacted to bail out financial 

institutions and to aid General Motors and Chrysler through bankruptcy was not beneficial for 

minority dealers. Minority-owned dealers were disproportionally affected with a 40% (400 

dealers) decline in its dealer body in comparison to non-minority dealers, who suffered only a 

6% decline. Today, out of the 18,000 new automobile dealerships, only 1,100 are minority 

owned. 

NAMAD finds that, to date, the recent consent orders between the CFPB, DOJ and financial 

institutions and captive finance companies to settle discrimination claims have not resulted in 

any negative outcomes or loss of revenue for minority dealers. 

We are convinced that this matter should, and more importantly, can be resolved with a nonlegislative fix. In particular, NAMAD believes that the Fair Credit Compliance Policy & Program 

it instituted in 2014 along with NADA and AIADA achieves this goal, as the program is designed 

to prevent any discriminatory practices for all consumers. 

We do not support H.R. 1737, as the solution to discrimination in auto lending, but rather urge 

you and your colleagues to assist us in coming up with and implementing a non-legislative 

answer. 

Sincerely, 

Damon Lester 

President 
142 


23721.069

Question 

House Committee on Financial Services 

The Semi-Annual Report of the Bureau tifCmzsumer Financial Protection 

Questions for the Record 

March 16, 20Hi 

In remarks you made during a February 3, 2016 field hearing on account access, you 

acknowledged as a '·positive the decision some banks credit unions have made 

to provide consumers with real-time about their available account fimds using 

modem communication tools, such as online banking and text and e-mail alerts. Yon stated that 

this real-time communication can r~>duce the risks that consumers inadvertently overspend from 

their accounts. 

Is it not the case that consumers owing a debt would benefit similarly from early and eff~c'Ctive 

access via modem communications interfaces to important financial information"? Especially if 

those notifications could provide consumers with an to resolve their accounts in a 

timely way·- in instances when they may inadvertently missed a pa)~nent ~ 

redul.'ing the of future financial hann'l Is that not a positive development'? 

Response 

tec:nno!c>gyfor checking accmmts, 

consumers are offered many 

card issuers. These issuers are providing consumers with real-time text and alerts sneh as 

transaction and payment alerts and instant web or mobile account access to help consumers 

better manage their credit card debts and combat fraud. 

Use of these technologk>s on more or charged off accounts may be more 

for both consumers and debt collectors. may consider them more in tenns 

of channel and especially when the purpose ofthe communications shifts from 

helping the consumer manage an active account to to collect a debt. Email, text, chat 

and other digital fonns of communications are not by third debt collectors 

putatively dnc to For that reason, the Consumer Protection 

Bureau (Bureau) is federal collection regulations to allow for the use of 

technologies not extant when Fair Debt Collection Practices Act was enacted in !977. The 

Bureau is hopeful that our debt collection efforts will provide more clarity around the 

use of technologies for both the banks collecting in own name and the third party vendors 

with whom they contract. 

1 
143 


23721.070

Honse Committee on Fimmciai Services 

Financial Protection 

Indirect Auto 

In a recent article, it was revealed that in 2014, the CFPB and the DOJ began 

lenders that they could face enforcement actions related to their dealer C011TIJJ'ensation 

This article noted that another nevis soutce stated, "that the ... three 

sources the chance to civil in exchange for 

they offer dealers by roughly 

Question 1 

by the CFPB, where large fines are threatened unless indirect lenders 

comr,ensation to dealers. I notice received a fine and refused to cut dealer 

reserve, which did cut to dealers, not. Was there any favorable 

treatment or related action offered to and in exchange for agreeing to your consent 

agreements, by you or any other government 

Response 

When the Consumer Financial Protection Bureau (Bureau) finds violations of the Equal Credit 

Or,nortn,nilv Act (ECOA), it consider~~ factors in whether or not to pursue 

en,toncernerlt action, which is a decision on a case-by-case Matters are assessed 

individually to detennine the appropriate corrective action and penalties based on the 

circumstances in the matter. 

The Dodd-Frank Wan Street Reform and Consumer Protection Act (Dodd-Frank Act) provides a 

frilmework for Civil Money Penalti<.'S, and takes into consideration a number of factors 

including the size resources, the good faith of the institution, the gravity of the 

violation, the severity of the loss to consumers, any violations, and other 

matters requires. In each matter, including Third, Honda, and the 

Buteau into account all of these factors in nP'h'"""'""'owhat amount. Unlike the matter, the Bureau did not assess penalties against 

Third, or Toyota because responsible business conduct, namely the 

proactive steps the took to address the fair risk of discretionary 

pricing and systems by substantially reducing or that discretion. 

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House Committee on Financial Services 

The Semi-Annual Report of the Bureau of Consumer Flmmcial Protection 

Questions for the Record 

March 16,2016 

responsible conduct, as outlined in the Bureau's 

C>elH'~ol'lcinl7. Se;'f-l(er,•ortin,~;, Remediation, and Cooperation 

Tn,rnrm11:v affect the ultimate of a Bureau enforcement in11est1gat!:on. 

conduct bulletin serves to infom1 market participants they 

<l"lt-r•nb"'" for potential violations, self-report to !he Bureau when they 

potential yuickly ami completely the harm from 

violations, and affirmatively cooperate with any Bureau investigation above and what is 

required. 

Question 2 

Did 

the 

in the White House ofier counsel or consult with you or any assistance on 

\Vhite House's 

name and title? 

Response 

No. 

indirect auto loan settlements'? Did you speak to any staff with the 

Economic Council about any ofthese settlements, please provide tlleir 

General for Civil Rights Tom Perez made a speech in 

disparate theory, not all policies or practices 

that have a are illegaL If a lender can that the policy or 

legitimate business need they not be liable. You need to monitor the use nfcli,.cre,tion 

ensure with laws, including that the reasons for decisions 

are properly I know that you are with National Automobile Dealers 

Association, National Association of Minority Automobile Dealers. and the American 

International Automobile Dealers Association Fair Credit Compliance Policy & This 

program encompasses all of the guidelines that Perez outlined to address compliance fair 

credit laws. 

Question 3 

a. Do you disagree with Mr. Perez'? And if so why'! 

b. What is your partic.11lar concem with Fair Credit Compliance Program? 

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The Semi-Annual Report of the Bureau ofConsmner Financial Protection 

Questions for the Record 

March 16,2016 

Response 3(a)-(c) 

Auto dealers are not to the Bureau's jurisdiction. The National Automobile Dealers 

Comp,Jia~Jee Policy and of Justice 

model was in settlements dealers, over 

which the DOJ has jurisdiction. The Bureau's lending focus in the auto industry is on 

indirect auto lenders. The Bureau remains concerned about indirect built 

around discretionary compensation and fina~Jcia! incentives that create lending 

risks. Due to this euncem, lenders be careful about assuming that individual dealer-level 

actions will fully address their own fair lending risks. !n general, lenders will likely consider a 

of factors in a discretionary compensation system, the extent to 

the fair lending compensation is whether the 

system would create new or consumer harm, 

sustainability of the system. Lenders who choose to implement such nr.~rn~on:>< 

~i!inot.-nPnt< or exceptions to the interest rate may want to 

Small Dollar Lending 

Question 4 

which includes related to documenting exceptions 

Are consumers being misled into borrowing, or into taking out loans that they cannot afford? 

a. If yes, why can't this be cured by better disclosures? 

b. Are consnmers unable to understand these enncepts? 

Response 4(a}-4(b) 

to the banns experienced by consumers from 

m1.m-cost "'"""!!""''" l0a11s, a11d the evidence those 

otnrcmosed rnlemaking on Vehicle Title, Certain 

High-Cost Installment at the seetion-by-seetion ru1alysis §§ l 041.4, 1 04!.8, 

a11d l 041. 13. Based on that evidence, the Bureau has proposed to types of 

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House Committee on Financial Services 

The Semi-Annual Report of the Bureau of Consumer .Financial Protection 

Questions for the Record 

March Hi, 2016 

unfair and abusive practices with failing to make a reasonable 

determination of ability to repay; (2) payment from a consumer's 

account after the lender's second consecutive to withdraw payment ti:om the account has 

failed due to a lack of sufficient funds, unless the obtains the consumer's new and specific 

authorization to make further withdrawals from the account. 

The Bureau believes that a disclosure less effective at 

pn~v<:nt1mg the practices in the market identified as abusive and 

unfair in notice of proposed rulcmaking. However, certain ham1s to consumers may be 

rr»hootP•tl through disclosure and the Bureau has certain notices 

ass:ociiated with attempts to from a consumer's account To address consumer 

ham1 from certain practices when obtain for covered loans from 

consumers' accounts that tend to trigger not-sufficient-funds and fees and 

that tend to increase the risk that consumers' accounts will be closed, the Bureau's 

would include two types of disclosure requirements that would to all 

obtaining payment directly from consumers' accounts. First the Bureau has proposed an 

notice (generally three business to to collect 

a consumer's account). including an payments the Bureau 

a consumer rights notice if the limit on pa:1nent attempts is triggered. 

Question 5 

You've said ''We're not to be dictators in the market. We won't be making 

judgments for them. have to make their and they have to take 

for those but if consumers clear on what the options are, if they 

don't really understand the terms of the deal. because there's lots of fine print and it's cont!usmg 

and it's then the don't ·work very well and we saw that in so many ways 

[during the What has changed since you made that statement? Arc you going 

back on your word? 

Response 

No, the Bureau recognizes that there is a need for access to smaU dollar credit and the 

rule aims to such access while eliminating unfair and abusive in this 

The Bureau concerned that lenders that make payday loans, vehicle 

high-cost installment loans have developed business models that deviate sul1st~mtially 

underwriting practices in other credit markets by failing to assess consumers' to repay 

their loans and by engaging in ham1ful practices in the course of seeking to withdraw payments 

from consm11crs' accounts. 

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House Committee on Financial Services 

The Semi-Annual Report of the Bureau Financial Protection 

Questions for the 

March Hi, 2{116 

The notice of proposed rulemaldng referenced above sets forth the Bureau's preliminary 

with to the substantial that the Bureau believes consumers as a result 

the that the Bureau to find to be unfair. The Bureau also that such 

be abusive ofsection 1031 oftheDodd-FrankAc!. The 

described in the notice of proposed !lllemaking 

~-'"'P''~"'urule, the Bureau intends for consumers to have a 

snr>rt-·renn and credit For lenders that 

for L'Onsumers need such to deal with emergency 

situations, the Bureau is efforts to keep those options available. The 

would require lenders to make a reasonable detennination whether a consumer will have 

ability to a covered loan and also would a conditional that would allow 

lenders to a limited number of covered loans without the full set of 

ability-to-repay with residual income ln addition .. 

proposed two from the proposed ability-to-repay reo•uirement 

covered longer-!enn loans that certain features with existing loans 

Credit Union Administration's Payday Alternative Loan program and accommodation lending 

programs that are underwritten to produce low levels of consumer defaults. 

Question 6 

Have you identified any practice that 

a tenn or condition of the small dollar loans at 

a. What are these practices? 

b. How do they interfere? 

c. Couldn't this interference be cured by better disclosures? 

Response 6(a)-6(c) 

to identify two specific of 

failing to make a reasormb.le 

detennination to repay; (2) payment !rom a consumer's 

account after the lender's second consecutive attempt to \Vithdraw payment from the account has 

failed due to a lack of sutTicicnt funds, unless the lender obtains the consumer's new and specific 

authorization to make further withdrawals from the account. 

The Bureau believes that a disclosure reu!mr·emem 

nr<,ve.nti•wthe practices in the market the Bureau has nnelirnirrorilvJmmrme'a as abusive and 

notice rulemaking. Concurrent !lllemaking 

Bureau also released a Report on Supplemental which 

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House Committee on Financial Services 

Tile Semi-Annual Report of the Bureau of Consumer Financial Protectio11 

Qu1esJ:ior1s for the Record 

included analysis of the 

length of time a borrower 

March 16, 2016 

indebtedness. The Bureau's confinn have 

consumer borrowing patterns for small-dollar loans generally and uc;;<,u,;m''"' 

consumers reborrow. 

The Bureau's considerations with regard to f-'u""'"wuy unfair and abusive practices in this 

market is described in detail in the notice rulemaking at the section-by-section 

analysis §§ !041.4, !041.8, l04L!3. 

Question 7 

Is there any evidence that consumers don't understand the risks, costs, or the conditions of these 

loans? 

Response 

As described in responses, the Bureau believes that lenders may be en:ga1,;mg 

types of unfair abusive with regard to covered loans: ( l) by a 

reasonable detennination to and (2) attempting to withdraw payment from a 

consmner's account a!ler the lender's attempt to withdraw from the 

account has tailed due to a Jack of sufficient funds, unless the lender obtains consumer's new 

and specific authorization to make finther withdrawals from the account. The Bureau's analysis 

of evidence in this regard is desclihed in the notice of proposed rulemaking released June 2, 

2016. 7 

QuestionS 

Is there any evidence that consumers cannot protect themselves in selecting or using these loans? 

Response 

The notice of proposed rulemaking reterenced above sets forth the Bureau's preliminary findings 

with to the substantial injury that the Bureau believes consumers as a result of 

the that the Bureau proposed to find to be unfair. Tbe Bureau also that such 

practices may be abusive within the meaning of section I 031 of the Dodd-Frank Act. 

Vehicle Title, and Certain High-Cost Installment Loans Notice of Proposed Ru!emaking. (July 22. 20 16), 

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House Committee on Financial Services 

Tlze Semi-Annual Repm1 Fimmciall'rotection 

Question 9 

The Dodd-Frank Act specifically prohibits the CFPB from imposing a usury limit on consumer 

credit 

a. l low do you define "usury limit?" 

b. Under your mle, if a loan has an interest rate in exc~~s of 36%, the lender will have to 

collect and velify detailed inlbnnation about im.'Ome, obligations and borrowing history. 

In addition, in circumstances, a lender charging more than 36% will be nrr>hH"t''" 

from extending the - for if the consumer is refinancing into a lower 

payment loan. None of this would required for a loan less than 36%. Said another 

cases these 36% loans that are otherwise won't get made. Doesn't 

cuct:•uv•c•v limit a lender's ability to charge more than 

e. Isn't your proposal effectively a usury limit on loans, because 

ability to repay determination is so onerous fbr the amounts involved that 

will need to with the alternatives one of which caps interest rates at 28%, and 

the other caps payments at 5% of gross monthly income? 

Response 9(a)-9(c) 

The Bureau is not rates (APRs) above the 

demarcation for coverage longer-lennloans. Rather, Bureau is to 

require that lenders make a: reasonable assessment of consumers' ability to repay longertenn loans above the 36 demarcation, in light of evidence of consumer harms in the 

market for loans with characteristic. It is to f()cus attention on the 

se~o'lnent oflonger-term that the Bureau poses the to consumers in 

the form of potential unfair abusive practices and to recognize 

defining that segment. 

The Bureau believes that the tenn "'usury limit" in sectionl027(o) of the Dodd-Frank Act is 

reasonably not to such differential regulation given that the. Bureau is not 

proposing to lenders charging interest rates above a specified limit. 

The Bureau's considerations concerning section 1 027(o) of the Dodd-Frank Act are described in 

the notice of proposed mlemaking in the section-by-section analysis of proposed§ 1041.3. 

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Question 

House Committee on Financial Services 

The Semi-Annual Report o_fthe Bureau of Consumer Financial Protection 

Questions for the Record 

March 16, 2016 

/\ccor·C!Jrtg to annual surveys by the FDIC, nearly 35 million U.S. households representing over 

population- are either unbanked or underbanked. of these consumers are 

paycheck to payclu:ck. But that doesn't mean not have access to 

and services afforded to those that are better 

Director Cordray, consumers that lack access to the traditional sector have relied 

on general purpose prepaid cards to securely their na·vcttedk. save for the 

future, and access small-dollar l..'ftxlit when it is needed. As use cards has grown 

dramatically in recent years, I'm glad the CFPB is crafting rules to ensure safeguards 

for those that use these products. 

However, I also want to make sure that the regulations are balanced so that they do not eliminate 

consumers' access to features that sometimes need, including overdraft protection. 

Consumers sometimes need access to or less to smooth the between paychecks 

when their balance is low, so that they can still purchase medicine, groceries, gas, or other 

necessities. 

How is the CFPB working to ensure the final rules provide adequate safeguards but do not 

eliminate consumers access to overdraft and other features? 

Response 

The Consumer Financial Protection Bureau (Bureau) agrees that consumers, including subprime 

consumers, need access to affurdab!e credit. The Bureau also wants to ensure that customers 

receive appropriate when using credit that are offered. As detailed in 

the Bureau's prepaid rule, the Bureau the concern you raise by 

considering a range of potential approaches to overdraft credit features on accounts in 

conn!O'Ction with this rulemaking. As part of this the Bureau 

sources of information and various other including 

ret\uu;mm~ governing overdraft services and a range of credit 

and consumers' use of those features to the extent offered in with 

the Bureau·s notice 

study of publicly account agreements 

better understand the features and consumer pr<Jte<:ti<ms 

institutions that offer these 

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House Committee on Financial Services 

Tile Semi-Annual Report oftlte Bureau of Consumer Financial Protection 

Questions for the Record 

March 16, 2016 

As part of the notice-and-comment rulcmaking process, the Bureau received a wide range of 

public comments addressing this issue from numerous stakeholders, including prepaid industry 

members, industry trade associations, members of Congress, consumer advocacy groups, and 

individual consumers. The Bureau carefully considered these comments, some of which raised 

similar concerns as in your question, in crafting the prepaid final rule. Generally, the final rule 

provides that overdraft credit features offered in conjunction with prepaid accounts will be 

covered under Regulation Z if the credit feature is offered by the prepaid account issuer, its 

affiliate, or its business partner, and credit can be accessed in the course of a transaction 

conducted with a prepaid card. In addition, the final rule includes disclosure and other 

requirements to ensure that consumers are fully informed before opening or using an overdraft 

credit feature offered in conjunction with a prepaid account. Ultimately, as discussed in detail in 

the final rule, the Bureau believes this approach appropriately balances the need and desire of 

some consumers to access an overdraft credit feature in conjunction with a prepaid account while 

at the same time implementing guard rails to make sure such credit is offered with protections 

similar to those that apply to other card-based credit (i.e., credit cards). 

10 
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23721.079

House Committee on Financial Services 

The Semi-Annual Report of the Bureau of Consumer Financial Protection 

Questions for the Record 

March 16, 2016 

Questions for the Honorable Richard Cordray, Director, Consumer Financial Protection 

Bureau, from Congressman Bill Huizenga: 

Question 1 

Director Cordray, the Qualified Mortgage Rule has been in effect for over two years. At the time, 

you stated that there would be a lively non-QM mortgage market but that it might take some time 

to develop. But more than two years out and as far as I can tell the non-QM market is almost 

completely dead. From what I hear from the lending community. it's true that some balance 

sheet non-QM loans are being made but only to the wealthiest borrowers with perfect credit. So 

while I agree with you that there has likely been little to no litigation regarding non-QM loans, I 

would attribute that to the fact that very few have been made and only to people with an 

extremely clear ability to repay. Why do you still think the non-QM market will emerge in a 

substantial way when there is no evidence of it after two years? 

Response 

The Consumer Financial Protection Bureau (Bureau) is actively monitoring all aspects of the 

mortgage lending market, including non-qualified-mortgage (non-QM) lending. Uncertainty in 

the non-QM market has been slow to recede, however progress has been made. Lenders are 

becoming more comfortable with underwriting non-QM loans and are gradually introducing 

more non-QM products. The Bureau has met with a number of industry participants to provide 

further guidance and has developed additional refllatory implementation tools to assist with 

compliance with the ability-to-repay (ATR) rule. As lenders. due diligence firms, and ratings 

agencies continue to become more comfortable with their approaches to non-QM lending, the 

Bureau believes there will be more traction and an increase in origination volumes. 

Question] 

What frankly isn't clear is why you seem to want to emphasize lenders making non-QM loans 

when the statute clearly contemplates QM loans as the safer loan option with the most built-in 

consumer protections. TI1e QM market is certainly the mainstream market that offers the 

broadest credit access \Vith the deepest source ofliquidity. Congress clearly saw it that way since 

the QM statute offers lenders protection from ability-to-repay litigation. We should be doing 

everything we can to encourage that market to flourish. On that point, one major issue involves 

borrowers without traditional W-2 income. These bom1wers are the backbone of America. They 

are the self-employed, the retiree, and the seasonal worker. TI1e Bureau of Labor Statistics 

estimates that self-employed borrowers alone compose 30% of the workforce. Too many of these 

borrowers are being relegated to the non-QM market which denies credit to all but the wealthiest 

''See http:!I\\'\\'W.consumerfinance.gov/policy~compliance/guidance/implementation-guidance!ritle~xiv-morlgage~ 

rulesi. 

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House Committee on Financial Services 

The Semi-Annual Report of tire Bureau of Consumer Financial Protection 

Questions for the Record 

March 16, 2016 

with perfect credit. But I'm told there are solutions that would responsibly allow these borrowers 

to access QM markets without hurting a borrower's protections under the rule. One simple 

option would be modifying Appendix Q of the QM rule to permit use of the current GSE 

seller/servicer guides for the purposes of fully documenting income, employment, assets, and 

debt. Director, the lending community has made it abundantly clear for more than two years that 

they won't invest significantly in non-QM loans and it's a real head-scratcher why we would 

want to encourage them to do so anyway when it clearly isn't necessary. Will you commit to 

revising Appendix Q and helping all self-employed, retired, and seasonal workers obtain the 

benefits ofQM status and with it the goal ofhomeownership? 

Response 

Currently, the Bureau's QM provisions do penni! use of the current Government Sponsored 

Enterprise (GSE) seller/servicer guides. There is more than one category of QM, and only one of 

those categories relies on Appendix Q. A loan that is eligible for purchase or guarantee by the 

GSEs, meaning a loan that meets the current GSE seller/servicer guides for the purposes of fully 

documenting income, employment, assets, and debt, can qualify as a QM without any reliance on 

Appendix Q. Such a QM loan does not have to be purchased or guaranteed by a GSE, it only has 

to be eligible for purchase or guarantee. While the GSE-eligible category of QM is designed to 

sunset on January 10, 2021, or when the GSEs exit receivership, whichever occurs first, the 

Bureau will continue to monitor the market for pe1tinent information regarding the ATR rule's 

effects. This market monitoring includes both our general, ongoing market monitoring and our 

plans for conducting an assessment of the ATR rule and reporting on that assessment by January 

of2019, pursuant to Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank 

Act) section 1022( d). It also includes looking at any impacts on credit availability for all 

consumers, including self-employed, retired, and seasonal workers. In addition, small creditors 

are pennitted to make QM loans without relying on either Appendix Q or the GSE seller/servicer 

guides. There is nothing about these provisions that precludes extending such QM loans to selfemployed, retired, or seasonal workers. With these alternatives available, the Bureau believes 

that very few consumers arc likely to be unable to receive QM loans solely because of Appendix 

Q. 

The Bureau disagrees with the implication that non-QM loans are somehow "unqualified" 

mortgages that should not be made. Rather, the Dodd-Frank Act ineluded, and the Bureau 

implemented in Regulation Z, the baseline ability-to-repay standards (which also do not rely on 

Appendix Q). Under these standards, even those rare loan applicants who cannot obtain a QM 

Joan under Appendix Q, the GSE seller/servicer guides, or the QM underwriting standards for 

small creditors, nevertheless may qualify for appropriate mortgage credit. The Bureau believes 

creditors can make responsible, sustainable mortgage loans, even if the loans are not QMs, based 

on a reasonable and good faith detennination of a consumer's ability to repay the loan with 

common-sense underwriting, which many creditors, especially community banks and other small 

creditors, successfully employed before the financial crisis. Those creditors and their mortgage 

originations did not cause the financial crisis. Such creditors can continue lending in much the 

same mmmer today. 

12 
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23721.081

House Committee on Financial Services 

The Semi-Annual Report of the Bureau of Consumer Financial Protection 

Questions for the Record 

March 16, 2016 

Questions for the Honorable Richard Cordrav, Director, Consumer Financial Protection 

Bureau, from Congressman Randy Hultgren: 

Question I 

The CFPB finalized a rule on October 15, 2015, implementing Section 1094 of the Dodd-Frank 

Act, which mandates a number of additional reporting requirements under the Home Mortgage 

Disclosure Act. Sec. I 094 also requires the Bureau to develop regulations that "modifY or require 

modification of itemized information, for the purpose of protecting the privacy interests of the 

mortgage applications or mortgagors. that is or will be available to the public:· In a footnote to 

the October 2015 final rule the Bureau states, "Based on its analysis to date, the Bureau believes 

that some of the proposed new data points may create privacy concerns sufficient to warrant 

some degree of modification, including redaction, before public disclosure ... " 

a. Shouldn't the Bureau proceed with extreme caution before finalizing any policy that will 

direct the FFIEC to publish additional consumer infonnation, even if steps are taken to 

anonymize it? 

Response 

The Consumer Financial Protection Bureau (Bureau) is carefully considering how to protect 

applicant and borrower privacy while also fulfilling the public disclosure purposes of the Home 

Mortgage Disclosure Act (HMDA). As you know. HMDA's purposes are to provide the public 

and public officials with sufficient information to enable them to detennine whether institutions 

are serving the housing needs of the communities and neighbmhoods in which they are located, 

to assist public officials in distributing public sector investments in a manner designed to 

improve the private investment environment, and to assist in identifying possible discriminatory 

lending pattems and enforcing antidiscrimination statutes. 

The Bureau recognizes that public disclosure of unmodified itemized HMDA data may create 

risks to applicant and borrower privacy. In issuing the final rule, the Bureau adopted a balancing 

test to detennine whether and how HMDA data should be modi tied prior to its disclosure to the 

public. Under the balancing test, HMDA data will be modified when the release of the 

unmodified data creates risks to applicant and borrower privacy interests that are not justified by 

the benefits of such release to the public in light of the statutory purposes. This approach 

establishes applicant and borrower privacy as an element to be explicitly considered prior to any 

decision to release itemized information. Additionally, the Bureau will provide a process for the 

public to provide input on the application of the balancing test to dctennine the HMDA data to 

be disclosed. This process will ensure that infonnation will not be disclosed until the Bureau has 

considered feedback from the public on these important issues. 

b. In addition to providing an opportunity to comment on what infom1ation will be made 

public by the Federal Financial Institution Examination Council (FFIEC), has the Bureau 

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House Committee on Financial Services 

The Semi-Annual Report of the Bureau of Consumer Financial Protection 

Questions for the Record 

March 16,2016 

conducted any of its own tests or studies to address potential privacy concerns? If so, 

have the findings raised any consumer privacy concerns? 

Response 

The Bureau is working diligently to dctcnninc whether and how HMDA data should be modified 

prior to its disclosure to the public under the balancing test. The Bureau's internal analysis 

draws on various sources, including public comments received during its recent HMDA 

rulemaking process concerning the benefits of disclosure of HMDA data and the risks to 

applicant and borrower privacy created by such disclosure. This analysis is ongoing. 

c. Wouldn't it be more appropriate to prioritize consumer privacy, and not publish any of 

this new information? 

Response 

HMDA is principally a public disclosure statute, which provides the public and public officials 

with information necessary to determine whether institutions are serving the housing needs of the 

communities and neighborhoods in which they are located; to distribute public sector 

investments in a marmer designed to improve the private investment environment; and to identify 

possible discriminatory lending patterns and enforce antidiscrimination statutes. For over 40 

years, HMDA has provided the public with this critical information on mortgage lending 

activity. Today, HMDA data are the primary source of information for regulators, researchers, 

economists, industry, and advocates analyzing the mortgage market both for HMDA's purposes 

and for general market monitoring. In amending HMDA to expand the infonnation financial 

institutions must compile and report and to authorize the Bureau to require additional 

information, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank 

Act) recognized the enduring importance ofHMDA's primary goals. The Bureau believes that 

depriving communities, researchers, public officials, and other data users of the information 

required under amended Regulation C would be inconsistent with HMDA 's objectives. The 

balancing test adopted by the Bureau appropriately safeguards the privacy interests of applicants 

and borrowers while fulfilling HMDA's public disclosure purposes. 

Question 2 

There are many people who believe the Bureau has been doing an end-run around the 

Administrative Procedure Act by relying on enforcement actions to create rules that have 

industry-wide application, rather than by proposing rules, receiving public comments, and then 

adopting final rules. The CFPB seems to be doing this in three areas in particular: ( 1) the 

definition of''abusive" acts and practices, (2) the standards for a company's liability for the 

actions of its third party service providers, and (3) the test for disparate impact liability in the 

context of indirect auto lending. 

14 
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House Committee on Financial Services 

The Semi-Annual Report<ifthe Bureau Financial Protection 

Questions for 

March 16,2016 

The CFPB this criticism in a March 9, 2016, speech at the Consumer Bankers 

Association annual conference, but you also said that while "some have this 

as regulation by enforcement,'' you "think that criticism is misplaced. Please 

why the CFPB's use of its enforcement authority as a method 

standards should not instead be established the 

Frank and the Administrative Procedure Act. 

federal agency? 

Response 

The Bureau's approach to enforcement and re<ml:~ticm is consistent with the Administrative 

Procedure Act and the of other The Dodd-Frank Act gave the Bureau 

a number oftools address and prevent consumer 

hann. ln each action the Bureau takes, we endeavor to 

consumers and honest businesses in t11e marketplace. The Bureau 

where we believe violations of existing laws warranted that response. 

The Bureau is entrusted with enforcing the law, and ""t·.<w<im<Yiv 

strategy for how to deploy our limited resources most effici1ent!ly 

Bureau cannot articulate rules for every eventuality, mrrnr·nn•n" 

tool to protect 

enforcement actions 

area like consumer financial Courts have consiste:ntllv r'~c<>gJ11iZtld 

appropriate for agencies to whether to proceed via rulemaking or aq]tlGttc<ti10'11. 

\\Then it comes to specific enforcement actions, the Bureau aims to deter unlawful behavior and 

return money to banned constmJers. Consent orders are the result of meticulous lll1<esngatu)ns, 

in which the Bureau has discovered specific violations of the statutes we are responsible 

enforcing. Tbe Bureau strives to specific enforcement orders that the facts we 

have found in our and set out the legal conclusions that from 

those facts. The Bureau to the consumer protection laws within the Bureau's 

jurisdiction consistently and to consumer protection efforts nationwide 

potential violations both and in conjunction with other federal 

and law enforcement agencies. 

Where our research and analysis suggests the need 

to develop regulations which will protect consumers consequences or 

unnecessary costs. As part of the rulcmaking process, the Bureau assesses the benefits 

and costs that such may have on consumers and financial Balanced 

regulations are for consumers from harmful practices and ensuring that 

consumer financial markets a fair, transparent, and competitive mamJer. 

15 
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House Committee on Financial Services 

The Semi-Annual Report of the Bureau of Consumer Financial Protection 

Questions for the Record 

March 16,2016 

Question 1 

ln your semi~annunl before our Committee on September 29, 20! 5 in response to a 

question from Rep. Keith you indicated thal the Bureau intended to "preserve access to 

certain forms of traditional installment credit''. Please provide more clarity about the structure 

of the products to which you were refen-ing. extensions of credit that i) are 

back in payments (no test the ability to and 

while the may accept an automotive title they do not require it as a condition 

loan? 

Response 

Tiw Consumer Financial Protection Bureau's (Bureau's) proposed rule on Payday, Vehicle Title, 

and Certain High-Cost Installment Loans would cover loans with a contract tem1 than 45 

days if the loans (1) have a total cost of credit greater than 36 percent, and (2) the takes 

either (a) access to a borrower's account or for of the loan or {b) a nonpurchase money security interest in a Loans with a of longer than 45 days that 

do not have these features would not be coVL'red by the Bureau's proposed rule. The 

Background section of the Bureau's notice described some of the 

features of traditional installment loans offered lenders. 

For installment credit that would be subject lo the Bureau's proposed requirements, if finalized, 

lenders would be required to make a reasonable determination that the consumer has the ability 

to the loan. This detennination would lenders to obtain information about and 

amount and of the under major financial 

the difference is enough to the loan while 

As described in part VI of the notice 

rulemaking, the Bureau that m:my C,t)nsumers would continue to be 

installment crt.'dit that would be covered by the rule. 

In addition, the Bureau's proposed rule contains conditional exemptions from the ab.ility-to-repay 

rCDimt·err!ents for certain covered lo:ms that share certain features with existing loans 

the National Credit Union Payday Alternative Lo:m and 

accommodation lending that are underwritten to low 

defaults. Among other these lo:ms would to be in 

payments of substantially equal amount and in subst:mtially regular intervals. 

permitted to take a vehicle secu1ity interest 

Question2 

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House Committee on Financial Services 

The Semi-Annual Report of tlte Bureau of Consumer Hmmcial Protection 

Questions for the Record 

Is the expectation that borrowers 

the Bureau's imminent rule making 

installment credit? 

Response 

mechanism or 

Ques1ion3 

In his Fiscal Year 2017 

March Hi, 2016 

lose access to 

have their 

or other credit 

new small-dollar, short-tenn to be administered by community de'vc!,oPJneJ:lt 

financial institutions (CDF!s). ln what manner the CFPB regulate those products? the 

t<.xtheoming CFPB rule on lending apply to those loans made by CDFls0 Will the CFPB 

become regulators lor pmiicipating CDF!s? 

Response 

The Bureau's notice rulemaking on Payday, Vehicle Title, and Certain High-Cost 

Installment Loans cover two types of loans: (l) very short-term loans, repayable within 45 

days; and (2) loans with a contraet temt t,'feater than 45 days if (a) the total cost of credit exeeeds 

36 percent, and the lender takes either (i) access to a borrower's account or for 

repayment of the or (ii) a interest in a 

rule would to charter status or other 

of the 

Question 4 

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House Committee on Financial Services 

The Semi-Ammal Report of the Bureau Financial Protection 

Questions for 

March 16, 2016 

In regards to the CFBP rule on payday 

income is affordable? What economic 

excess of 5% of gross monthly income 

Response 

rulemtakmg in June of this year, in March 2015, the Bureau 

co11si<ier:eticm as part of the Small Business Regulatory 

The SBREFA outline included an alternative to 

coJnte:mnlat<~d atn!:ttv-to-·retlaV YM.,;,~,v.~n• nm.v1<1mo that, other conditions, the 

na•vm•ent-to··l!l<::O!l1e (PTl) ratio a threshold, such as five 

percent. The Bureau was considering the proposal as a way to ease operational costs for loans 

that may be likely to satisfy the more general being considered to 

assess consumers' ability to repay. Based on feedback the during the SBREFA 

process and through ongoing with industry and consumer groups, the Bureau did not 

propose a PTI alternative as part notice rulemaking released on June 2, 2016. 

While the Bureau did not propose the PTI Bureau is seeking comment generally 

on such an approach. 

Question 5 

The Bureau plans to require lenders to collect a 

from borrowers. Is this consistent with data 

do lenders need to keep this data for 36 months? 

Response 

'"IJ"~"'"IY sensitive information 

minimization? Why 

The notice of proposed ru!emaking on Payday, Vehicle Title, and Certain High-Cost Installment 

Loans would require lenders to retain evidence of compliance with the proposed rule for 36 

months after the date that a covered loan ceases to be an outstanding loan. The Bureau believes 

this requirement, if finalized, would facilitate compliance and supervision related to the 

requirements of the proposed rule. 

Question6 

If there are risks associated with sustained use or with providing access to one's bank account 

through a recurring payment authorization, why can't we warn consumers of these risks by 

improved disclosures? 

Response 

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House Committee on Financial Services 

11te Semi-Annual Report of the Bureau ofCo,nsnnrer Fh""'l'i''' Protection 

Questions for the 

March Hi, 2016 

The Bureau believes that a disclosure less effective at 

on)ve:nti.nt! the practices in the market identified as abusive and 

unfair in notice of proposed on Payday, Title, and Certain 

Installment Loans released on June 2, However, certain hanns to consumers may be 

mitigated through disclosure requirements and the Bureau has proposed certain notices 

associated with attempts to collect from a consumer's accoll!1t. To address consumer 

hann from certain practices when obtain for covered loans directly from 

consumers' accounts that tend to trigger not-sufficient-funds and overdraft fees and 

that tend to increase the risk that consumers' accounts will be closed, the Bureau's 

would include two of disclosure requirements that would to all 

obtaining payment from consumers· accounts. first, the has proposed an 

upcoming payment notice {generally three business days prior to initiating an attempt to collect 

payment from a consumer's account), including an unusual payments notice; second, the Bureau 

has proposed a consumer rights notice if the proposed limit on payment attempts is triggered. 

Question 7 

You have made references to this Committee and before other 

differ from circumstance to circumstance. Given that 

what the Bureau believes to be abusive please how a stlll1dard can 

serve as the basis of a generally rule. Might this rule sweep in practices that may not 

be abusive? 

Response 

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) 

the Bureau with to rules to identify and prevent unfair, deceptive, 

acts or practices. with respect to the hanns ex·ner·terJced 

consumers from installment loans, evidence 

underlying those mlcmaking on Payday, Vehicle 

Title. and Certain Installment Loans at the analysis 

§§ 1041.4, !041.8, and 1041.13. Based on that evidence, the Bureau has proposed to 

two specific types of unfair and abusive practices with regard to covered loans: failing to 

make a reasonable determination of ability to repay; and (2) attempting to payment 

from a consumer's account after the lender's second consecutive to withdraw 

from the account has failed due to a lack of sufficient funds, unless the 

consumer's new and authorization to make further withdraw-als Jl·om the account. The 

Bureau's analysis in this regard is described in the notice of proposed rulemaking 

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House Committee on Financial Services 

Tile Semi-Annual Report of the Bureau oj•Ctn1surm~'r ~'""""""l Pr''''"·tit'"' 

Questions for tile 

March 16, 2016 

released June 2, 2016. 11 The Bureau has proposed requirements intended to prevent these 

specific practices. 

Question 8 

What evidence do you have that sustained use and account access injured consumers? What 

evidence do you have that your proposal will remedy this perceived ham1? 

Response 

rulemaking referenced above sets forth the Bureau's findings 

to suhstantial injury that the Bureau believes consumers as a result of 

that the Bureau to find to be unfair. The Bureau also that such 

may be abusive meaning of section 103lofthe Dodd-Frank Act Tbe 

Bureau bas undertaken extensive research into small dollar loans. TI1e Bureau recognizes that 

people who live from paycheck to paycheck sometimes need access to credit, for to deal 

with drops in income or spikes in expenses. The Bureau has made it clear that the 

products marketed to these consumers should help them, not hurt them. The Bureau's research 

has shown that too many of these loans pull bom1wers into extended debt traps, instead of: for 

example, tiding them over in an The Bureau's analysis in this regard is 

described in the notice of proposed released June 2, 2016. 

Question 9 

In many states the only way to borrow small amount of money is a loan- there is no 

longer tenn option. This proposal will eliminate many loans. That is, there 

are loans that would be under State law prohibited under federal law. How do you 

justi(y this preemption 

Response 

The Bureau's proposed rule on Vehicle Title, and Certain High-Cost Installment Loans 

seeks to prevent the of consumer that result from lenders extending short-tenn and 

longer-tenn loans payments that a consumer cannot afford to repay. The Bureau's proposed 

rule also seeks to address harms that may arise from cettain lender practices in collecting 

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House Committee on Financial Services 

The Semi-Annual Report of the Bureau of Consumer Financial Protection 

Questions for the Record 

March 16,2016 

repayment from a consumer's account The proposed rule, if finalized, would establish a federal 

floor for consumer protection for covered loans. 

As described in the notice of proposed rulemaldng released on June 2, 2016, the Bureau believes 

that the of the rule would coexist with State laws that pertain to the 

making that the rule would treat as covered loans. Consequently, 

subject to the proposed would be required to comply with both the requirements 

proposed rule and applicable State laws, except to the extent the applicable state laws are 

inconsistent with the of the proposed rule. This approach is entirely consistent with 

our system federalism. 

Question 10 

How will the CFPB determine whether a lender's to repay detennination is "reasonable'w! 

How will the CFPB enforce the "reasonable de1tennir1ation" requirement? 

Response 

The Bureau's notice rulemaking on Payday, Vehicle Title, and Certain High-Cost 

Installment Loans require lenders to make a reasonable determination whether a consumer 

will have the ability to repay a covered loan and would set out a specific methodology for 

lenders to use to determine ability to repay, 

Under the proposed rule, to make a reasonable ability-to-repay detennination, a lender would 

need to: (l) obtain a written statement from the consumer and verification evidence to detem1ine 

the amount and timing of the consumer's net income and payments under major financial 

obligations: (2) make a reasonable of the amount and timing of a consumer's net 

income and payments for major financial obligations forward; (3) calculate an appropriate 

amount tor basic expenses either based on from the individual consumer or 

""'""rnli·,,~ sources; and (4) subtract the elements from the consumer's income to 

determine the consnmer can cover financial basic living ""f'"''""~' 

and the payment on the new loan. !n addition, wonld required to determine any 

presumptions ofunaffordability have been overcome. For covered shorHem1loans and covered 

longer-tenn balloon-payment loans, a lender would be to include in its ability-to-repay 

dctem1ination the amount and of net income that the consumer will receive 

during the 30-day period following highest payment. Bureau's proposed commentary 

provides examples of ability-to-repay detenninations that would not be reasonable and 

emphasizes that loan perfonnance would be used as evidence to detennine whether a particular 

lender's ability-to-repay deteru1inations are reasonable. 

Qucsrion 11 

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House Committee on Financial Services 

Tile Semi-Annual Report of the Bureau of Consumer Financial Protection 

Questions for the Record 

March 16, 20HI 

For longer-tenn covered loans, there is a presumption ofinability to if the consumer is 

seeking to refinance a loan and they have "indicated" that they c<mnot payments or that the 

loan is causing in financial distress. Will lenders be required to ask the borrower these 

questions? Are they simply to listen for indications- for example, in the borrower's 

tone of voice? 

Response 

The Bureau's proposed rule on Installment Loans 

would include a presumption for a covered !onger-terrn loan in certain 

circumstances where a consumer's recent borrowing history indicates that the new loan, like the 

existing or recent loan, would not be affordable. The Bureau's proposal would a 

presumption of unaffordability when a consumer that is showing certain ~Nith 

one outstanding loan returns to the same lender or that lender's affiliate 

The specific circumstances that would give rise to this for covered 1on:!!e1r-te:nn 

loans arc listed at proposed § l 04Ll 0. 

Question 12 

nnpm1m1t means of offering financial to consumers, 

more such as the Internet devices. The 

Trade Commission (FTC) had a workshop on lead generation for consumer finm1cial 

products. Is the CFPB following this issue? Do you sec any in the market? Has the 

Bureau brought any enforcement actions in the area'? 

Response 

The Bureau follows the involvement oflead generators in the market for consumer financial 

services and The Bureau believes there are potential risks for consumers who use 

online that may involve lead genemt·ors disseminating or selling consumers' 

financial infonnation, including social and checking account numbers. In 

Bureau believes that lead generators may not consumers the lowest cost loans and that 

consumers should be cautious ofwebsites that promise otherwise. Also, the involvement of!ead 

generators may generate confusion for consumers about the identity of the actual lender. 

sm>er·v.s.:wv examinations of online lenders include reviews of the relationships 

have with lead and other service to ensure that the 

behalf are accurate and 

non-deceptive that referral fees are appropriately disclosed. In addition, the Bureau's 

enforcement authority can cover lead generators that engage in unfair and abusive aets or 
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House Committee on Financial Servic.es 

The Semi-Annual Report of tile Bureau of Consumer Financial Protection 

Questions for the Record 

March Hi, 2016 

practices, 13 1l1e Bureau's enforcement authority also extends to those that lmo"''"''''v or 

recklessly provide substantial assistance to covered arc 

engaged in unfair, deceptive or abusive acts or nn,ucr•ccs, 

Quesrionl3 

How does the CFPB determine charges It's my umJ'"""'"u'"" 

looks at a product or service and associated consumer complaints, whether 

the violation was an issue to one consumer or something more widespread, 

Does the Bureau take a similar ap:proae!1? 

Response 

outlaws deceptive acts 

as it proscribes unfair or abusive acts or covered persons or service providers. 

Where the Bureau assesses case to detennine whether a particular 

on the evidence we obtain our examinations and 

investigations. The goal in these CFP A is to address harms 

to consumers in the financial nutrk•ctplacc, 

Consumer complaints also play an important role in the detection acts or practices 

for the Bnreau, Consumer have been an essential source for 

examinations, enforcement, rule-making As a general matter, consumer 

complaints can indicate weaknesses in elements institution's management 

system, such as internal controls, or monitoring, While the absence of complaints does 

not ensure that untair. or abusive acts or practices (UDAAPs) are not "V'"Y'""~"" 

complaints may also be an indication ofUDAAPs. 

23 
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23721.092

Question 

House Committee on Hnancial Services 

The Semi-Annual Report of the Bureau of Consumer Financial Protection 

Questions for the Record 

March 16, 2016 

There have been a number related to deceptive practices in the solar 

leasing market, with consumers about cost savings, 

and no money down. These as the number of solar installations 

increased. New York is one solar markets, registered an increase of 

in 2014, and second in the nation for residential solar trailing only 

[am strong supporter of renewable energy and t"'·hnnJn,,n,,s 

amounts of C02 emissions. However, because rP~irlPntt:>l 

from $15,000 to $29,000, most consumers can 

fact, the third ownership solar market, 

agreements presently makes up about 68 resHie:ntl:al solar. I am concemed 

that consumers may not be <h<:tctr.snn" and are unaware of the of 

selling their home when leasing 

l support solar and want our communities in New York to benefit, but at the same time, I want to 

ensure that deceptive from some of the bad actors are prevented. The reports I have 

read would suggest regulatory oversight is 

In addition, J also want to ensure that the benefits of solar are not withheld from communities 

that could benefit the most. Currently, minimum credit scores to for a lease are between 

680 and 700. We need !o ensure that solar is an opportunity for 

l know that my colleague, Representative Kysten Sinema, wrote to your office back in 20!4 on 

some of these issues. As follow-up, where are we now? and what are the next steps for the 

CFPB in exercising appropriate oversight to address market abuses and equal access in this 

sector? 

Response 

The Consumer Financial Protection Bureau (Bureau) is <Xlmmitted to ensuring that all consumers 

benefit from fair, transparent, and for consumer financial and 

services and that consumers are Federal consumer laws. 

The Bureau continues to with industry 

areas of potential 

consumer hann. As part of that eff<:m, the Bureau will carefully consider the you raise and 

welcome any additional infonnation or feedback you and other stakeholders may have rtc<>nr.rlir"' 

potential consumer impacts. 

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House Committee on Financial Services 

The Semi-Annual Report of the Bureau of Commmer Financial Protection 

Questions for the Record 

Marcil 16,2016 

Question} 

Director Cordray--Last 

Council for Independent 

higher education institutions. 

the CFPB issued a civil investigative demand to the Accrediting 

and Schools (ACICS); an entity that accredits more than 900 

Title IV ofthc Higher Education Act sets a robust for the of Education to 

oversee accreditation agencies, not the There anywhere in Consumer Financial 

Protection Act X of Dodd-Frank) that grants the CFPB jurisdiction over questions of 

higher-ed accrt.>ditatiion. 

How do you explain the CFPB radically 

investigation into AC!CS? And how does 

that does not sell financial products of any kind? 

an entity 

coordinated or communicated with the Depattment of Education regarding this 

If not, do you plan to in the future? 

Does the CFPB 

Response 

staff members who are experts or specialize in the higher education 

how many? 

The Consumer Financial Protection Bureau (Bureau) generally does not comment on active 

investigations. In this case, the fact ofthe Bureau's civil investigative demand (CID) to the 

Accrediting Council for Colleges and Schools (ACICS) was made public when 

AClCS the through the Bureau·s administrative ACICS filed a 

petition to or set aside the C!D. The Bureau then issued an the petition. ln 

accordance with the Bureau's ordinary procedures, the itself and the denying it 

have been made publicly available on the Bureau's 

Because ACICS did not with the CID after the Director's order, the Bureau moved to 

enforce the CID in foderal court in the District of Columbia. While the district court 

declined to enforce the CID, the Bureau believes the C!D, and the investigation of which it is a 

are well within the Bureau's authority. The Bureau has appealed the district court's order to 

States Court of Appeals for the District of Columbia Circuit. TI1e appeal was 

docketed on June 20, 2016. 

25 
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House Committee on f'inancial Services 

The Semi-Annual Report of tile Bureau ofCmuumer Fillllllcial Protection 

Questions for the Record 

March !6, 2016 

The Bureau is under§ 1031 of the Consumer Financial Protection Act of2010 

to take to prevent "unfair, or abusive , , . in 

co•nn<:eti.on with any transaction with a consumer for a consumer 

Fmther, § 1036 of the CFPA certain entities from COI:nulitting 

abusive'' acts or practices prohibits any other person from "KtlOVv1n•rrt 

provid(ing] substantial assistance to., an 

investigation to detennine whether such vic,lai'ior!s 

appropriate. is squarely vvithin the Bureau's mandate. 

The Bureau coordinates with the Department of Education in our work related to student 

lending. The Bureau plans to continue this coordination in the future. 

Question} 

Director 45 of the CFPB's March 26th report entitled "CFPB Considers 

Proposal to Traps, you that lenders will lose 60-74% of their revenue 

should the proposals law. Clearly, would he bard pressed to keep their 

doors open if they lose 74% of their revenue. 

After about this CFPB rule, one <.'Onstituents in Muncie, Indiana wrote me a letter 

saying, "I [a] payday loan to keep my ~·~'~'"~"J from getting shut off. lt was the only 

option I had at the time. Please make sure I Vvill able to use this service in the future." 

What would you say to my constituent, who without access to a payday loan, would have had, a 

basic necessity, his electricity shut of!? 

Have you talked to consumers to understand what they will do without these products? 

Will the rule have different effects on consumers in rural or urban areas? 

What evidence do you have that sustained use and account access injured consumers? And what 

evidence do you have that your proposal will remedy this perceived harm? 

Response 

with respect to the hanns eXlJeri.em;ed 

..,,,..-~v'" installment loans, the evidence unaer'!j'lng 

nf ''ro""''"'" ~·•~~u'"'rt" on Payday, Vehicle Title, and 

High-Cost Installment Loans. on evidence, Bureau has proposed to identify two 

specific types of unfair and abusive practices with regard to covered loans: (1) to make a 

reasonable determination to and (2) attempting to withdraw payment a 

consecutive attempt to withdraw payment from the 

26 
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House Committee on Financial Services 

The Semi-Annual Report of the Bureau of Consumer Financial Protection 

Questions for the Record 

March Hi, 2016 

account has failed due to a lack of sufficient funds, unless the lender obtains the consumer's new 

and specific authorization to make further withdrawals from the account. The Bureau's analysis 

of evidence in this regard is described in the notice of proposed rulemaking released June 2, 

2016, 15 

The Bureau has undertaken extensive research into small dollar loans. The Bureau recognizes 

that people who live from paycheck to paycheck sometimes need access to credit, for to 

deal with drops in income or spikes in expenses. The Bureau has made it clear that the 

products marketed to these consumers should help them, not hurt them. The Bureau's research 

has shown that too many of these loans pull borrowers into extended debt traps, instead of, for 

example, tiding them over in an emergency. 

In crafting the rule on Payday, Vehicle Title, and Certain High-Cost Iustallment Loans, 

the Bureau sought to curtail harmful while incentivizing greater aecess to 

more sustainable credit products. The rule would preserve access to credit that poses 

Jess risk ofhann to consumers, an ability-to-repay that provides 

some degree for lenders consumers alike and 

conditional exemptions increase tlexibility and encourage the loans. 

notice 

Quesiion 3 

of the impact on consumers in rural areas is described in part VI of the 

rulemaking released on June 2, 20! 6. 

Director to the press release the CFPB's arbitration 

in the that arbitration is a faster, expensive and far more 

way consumers to resolve disputes with than class action According to 

the study, in 60% of the class actions studied CFPB consumers nothing at all 

because the named plaintiff settled voluntarily withdrew the suit In the 15% of 

class actions that settled, consumers who received settlement cash payments got a paltry $32 on 

average after waiting for up to two years. 

As few as 4% of the class members who were to receive benefits conditioned on 

submitting a claim form actually filed a claim. In contrast, the study showed, eonsumers 

who prevailed in an individual arbitration recovered an average of over $5,000, and the entire 

arbitration process was concluded in an average of2-7 months. 

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House Committee on Financial Se1·vices 

The Semi-Annual Report of the Bureau Financial Protection 

Questions for 

March 16, 2016 

Moreover, the cost to the consumer for the entire arbitration was only one-half of the cost of 

simply filing a federal comt While class members each received about $32, the 

attomeys were awarded over million. Given those why is the CFPB planning to 

ban the use arbitration agreements in class """Q'""''' 

Response 

Section 1 028(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (DoddFrank Act) required the Bureau to conduct a and a report to Cont,'!ess regarding 

''the use of agreements for arbitration dispute between covered 

and consumers in connection the of consumer financial or 

services.•· The Dodd-Frank Act authorized to or impose 

conditions or limitations on the use of arbitration agreements Bureau found, after 

that such rules would be in the interest and for the of 

>ArlrLk•ont· Act also that findings in any such consistent 

The Bureau its arbitration agreements in 

to the authority outlined above, the Bureau released a Notice of 

Proposed (NP RM) regarding a§,'Teements for consumer financial products and 

services providing for mandatory arbitration. The Bureau's Study, as described in 

the NPRM, sheds considerable on the benefits of a class action system as to the 

benefits most consumers derive individual resolution of their The found, 

for example, that few consumers of financial products and services 

either through the arbitration process or in court. ln its review of all American Arbitration 

Association consumer disputes for the of20 l 0 through 2012 to credit card. 

checking/debit account, loan, prepaid card, auto purchase loan, student loan 

products, the Bureau of 616 arbitration a year were filed for 

all six product markets only 411 were as by consumers acting 

alone. Only 25 disputes a year involved consumers affirmative claims for $1,000 or 

less than that amount. Of all of the arbitration cases in the Bureau could determine the 

results, the consumer obtained relief on an affirmative claim in just over 20% of the cases. All 

told, these consumers received a total of$189,109 in relict: 

ln contrast, the Study tound that consruncrs derive suhs!antial benefits from class action 

settlements. As noted, the Bureau identified a volume of consumer financial class 

settlements that were between 2008 In the 419 settlements that we 

analyzed, there were These settlements included cash relief, 

16 See Arbitration Study (March 201 5) available at 

settlement (ln re TrnnsUnion Privacy Litigation) with 190 

million class members. 

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House Committee on Financial Services 

The Semi-Annual Repon of the Bureau 

Questions for the 

March 16,2016 

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, to be made 

available to or for the benefit fees or other 

costs were deducted-was about $2.7 $2.05 

billion aud in-kind relief of about $644 million. Some 251 settlements contained 

for the Bureau to calculate the value of cash relief that, as of the last document in the case 

either had been or was scheduled to be paid to class members. Based on this subset 

alone, the value of calculable cash to class men1bers to that point was $1.1 billion. 

This excludes payment of in-kind any valuation of injunctive relief 

With respect to the of putative class cases that at 

alL" for consumers, Bureau identified dasswidc settlements 

putative class cases identified in its Study, as oflhe "cutoff' date for its analysis February 

2014. The Bureau cannot definitively detem1ine the extent to which the class actions that did not 

result in class settlement delivered benefits to absent class members. Most ofthe remaining 

putative class cases are known to end in individual settlement or with outcomes that arc 

consistent with an individual settlement The terms of those individual settlements are generally 

unknown. 

Your question notes that around 4% of consumers who were 

receive settlement benefits submitted those forms. As you note, this 

scope of consumer relief from class settlements, as it excludes the si~71iJ'ic!mt 

finance cases in which class members did not need to file a claim to 

Of 3 82 consumer financial settlements in the Bureau's relief, 

the Bureau found that 3 7%, in total, some form of automatic 

cash distribntion. These cases 24 million class members, almost all of 

whom were eligible for automatic cash meaning that they stood to receive cash pa'yrnen1ls 

without submitting a claim. These class members are not included in the claims rates you 

cite, which is based only on cases in which there is a claims process. Furthermore, these 

numbers focus on relief These numbers do not cover class members and other 

consumers who of t11e settlement. Injunctive class members 

all stand to benefit from these aspects of a settlement. Often, when companies agree to 

settle a case, they to stop engaging in a particular practice on a going-forward basis. This 

provides additional to future customers and other consumers not part of the class. 

After the Bureau the Arbitration Study, it has continued nccentin" 

stakeholders as it whether intervention would be in and for 

the protection of consumers. The is currently reviewing the comments on the proposed 

relief as the total amount the defendant' offered to 

relief and offered to in fees and 

include the valu<\ or cost to defendant. 

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House Committee ou Fimmci;al Services 

The Semi-Annual Report of the Bureau of Consumer Financial Protection 

Questions for the Record 

March 16, 2016 

rule and will consider any comments received in accordance with its obligations lor notice-andcormnen! rulemaking. 

Question 4 

Director Cordray-- Cbarles River Associates issued a ago critiquing the 

CFPB's impact but the CFPB Even intemal CFPB 

memos show that the Department had ne•vel.rm<, a better way to distribute settlement 

proceeds that would avoid fraud. Why has the CFPB to change its disparate impact 

methodology or the way it distributes settlement proceeds? 

Response 

Disparate impact is the law and has been upheld courts and used by federal agencies for 

decades. The Bureau's disparate to determine whether credit 

underwriting or pricing complies l7, 2014, the Bureau punu:sne:a 

white entitled to Proxy for 

Etlmicity, that details the Bureau uses to calculate the prc,balJi!ity 

individual is of a race and based on his or her last name and place of residence. 

The Bureau's demonstrates tbat its is more accurate at the overall 

repmied distribntion of race and available methods using available 

data. The Bureau's proxy assigns an of inclusion in a prohibited-basis 

based on both geography and sumamc, use geography or sumame 

in predicting individual reported race and 

The Bureau and the paper you cite both agree that there are racial and ethnic disparities in 

pricing resulting from discretionary dealer and compensation policies, and that a proxy 

can be used to estimate both pricing disparities the number of consumers harmed. 

The disat,>reement is regarding how many borrowers were harmed and by how much. 

The Bureau· s approach is designed to arrive at the best estimate of the total number of harmed 

borrowers and to identify the full scope ofhann. The Bureau makes final 

delenninations and their in consultation with individual 

lenders, and considers every argument lenders make alternative ways to identify 

the number ln some instances, the Bureau has 

adopted and reduced our estimates in response to alternatives offered by 

individual with regard to their specific loan pmif(,lios. 

As we stated in our white the Bureau is committed to continuing our dialogue with other 

ted era! agencies, lenders, a<l'"'"nles. and researchers regarding the Bureau's the 

30 
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23721.099

House Committee on Financial Services 

The Semi-Ammal Repm1 of the Bureau of Consumer Financial Protection 

Questions for the Record 

Marcil Hi, 2!116 

•mno•-t~''""oftair lending compliance, and fue use of proxies when race and 

is unavailable. We expect the methodology will continue to as erfuancements 

are identitled that further increase accuracy and For fu1ther information ,.,.,mrrhrw 

the Bureau's methodology, issues raised by stakel10ldet·s, 

Bureau's 2015 and 2016 Fair Reports. 

The Bureau and the Department of Justice will work together, as appropriate on a case-by-ease 

basis, to ensure that as many receive remuneration from 

settlement funds, to ensure that consumers 

were the recipients of relief fue Department of Justice will work closely with 

lenders and settlement administrators, as on consumer outreach efforts necessary to 

distribnte settlement funds, as by the of each Administrative Order or Consent 

Order that governs resolution action. The Bureau is confident in 

the integrity of its cun·ent process in the analysis that underpins distribution of these funds to 

harmed consumers. 

31 
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23721.100

Question 

Ilouse Committee on Financial Services 

The Semi-Annual Reporto.ftlte Bureau (J.fConsumer Financial Protection 

Questions for tbe Record 

March 16,2016 

I am interested in the success of residential so.lar and Cllefl,'Y adoption. However, 

regarding solar and energy leasing arrangements, I have concerns that consumers in t11e solar 

market may be abusive or acts and practices. State 

are offering advisories, consumers are suit. Can you some ad,diti:onal 

information regarding what the to ensure appropriate oversight is in place in the 

residential solar and ent:-'l'gy eltleHoney 

Response 

The Consumer Financial Protection Bureau (Bureau) is committed to ensuring t11at all consumers 

benefit from fair, transparent, and competitive markets for consumer financial and 

services and that consumers are under Federal consumer laws. 

The Bureau continues to and to with industry 

stakeholders and other agencies to better the market and areas of potential 

consumer hann. As part of that effort, we will consider the issues you raise and 

welcome any additional information or feedback may have regarding potential 

consumer 

32 
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23721.101

House Committee on Financial Services 

The Semi-Annual .Report Financial Protection 

Quesrion 1 

Director Cordray, in remarks you made duling a February 3, 2016 field hearing on 

account access, you acknowledged as a "positive the decision some banks 

credit unions have made to consumers with infonnation about their available 

account funds using modem communication tools, such as online and text and e-mail 

alerts. You stated that this real-time communication can reduce the risks consumers 

inadvertently overspend their accounts. 

Wouldn't the use of modern communication methods with consumers who owe a debt offer a 

similar benefit and effective access to important financial infonnation, giving consumers 

an opportunity to their accounts in a timely way? This seems nm;,cuw,rlv 

instances when they may have 

financial hann. Wouldn't this also be a 

Response 

developitnents in the use of technology for 

consumers are advantage communication technologies by many 

card issuers. These issuers are providing consumers with real-time text and e-mail alerts such as 

transaction and payment alerts and instant web or mobile account access to help consumers 

better manage their credit card debts and combat fraud. 

Use ofthesc on more delinquent or charged off accounts may be more pr(1bicm,atic. 

for both consumers debt collectors. Consumers consider them more in terms 

of channel and frequency, when the purpose communications shifts from 

account to to collect a debt Email, text, chat, 

fonns of communications are not by third debt collectors 

For that reason, the Bureau is updating 

collection regulations to allow the use of technologies not extant when Fair Debt 

was enacted in 1977. The Bureau is hopeful that our debt 

collection ru!emaking will provide more cladty around the use ofteclmolQbri<'s tor both 

the banks collecting in their own name and the third party vendors with whom they contract. 

33 
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23721.102

House Committee on li'immciai Services 

The Semi-Annual Report of tile Bureau of Consumer Financial Protection 

Questions for the Record 

March 16, 2016 

Question 1 

l have heard from constituents about major mistakes in their credit scores that remain 

uncorrected. What action is the Bureau taking to see that consumer reporting agencies keep their 

records current? 

Response 

Credit scores arc based on the information in consumer reports. Lenders often use consumer 

reports and scores to determine a consumer's for credit Credit information is also 

used for a of other determinations, eligibility for rental housing and erncpl<JYllOCrlt. 

The Reporting Act (FCRA) and its Regulation V 

requirements on the entities that 

mr,orn1atton to them ("furnishers"). companies and furnishers 

accountable for "11--ith Consumer Financial Protection 

Bureau's (Bureau's) top 

The Bureau is especially focused on three aspects of consumer re•"W"lrtin,v 

COJ1SI!mcer ,.,~n,wtin<>" companies that create consumer reports are 

reatsonal?lepn)ce:dures to assure the maximum 

The Bureau is the first federal rPo,Jiotnr 

focus 

"•r•er'vls''"" authority, the Bureau 

sifrnitic:mt improvements to the consumer reporting system regarding the 

ofinnnrrnJ>tion in consumer reports, For exan1plc, consumer companies m·e 

cmnp1renemave quality to provide ft1misher on the 

quality and are improving records The Bureau has 

also brought enforcement actions against for violating accuracy 

rccm1JrenncrJts. In October 2015, for example, the Bureau action against two of 

take basic steps to assure 

The Bureau has also 

34 
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23721.103

House Committee on Financial Services 

The Semi-Ammal Report oftlut Bureau ofCmtsumer Financial Protection 

Questions for the Record 

March 16,2016 

enforcement actions against co;n~unm:r n;pc>rting co:mttanleS that do not properly 

un,~ou,;a,~ mistakes in consumer reports. 

Second, furnishers are the accuracy and integrity 

of the intonnation they to consumer The Bureau's supervisory 

authority extends to many of the largest debt collectors, and 

m<mtsae:e and student loan servicers. As part ofits work, the Bureau continues to 

assess furnishing practices of these entities. The Bureau cited certain entities for 

violations of the FCRA and V, and directed corrective action where appropriate31 

The Bureau has also actions against furnishers for the law's 

accuracy requirements. include two separate enforcement actions two 

finance companies for information to consumer reporting companies. 

Third, when consumers find inaccurate infonnation in their consumer 

dispute that infonnation with the reporting company that 

fumishcr that supplied the infonnation. Consumer reporting companies and in turn, 

have a legal to investigate disputes and correct, delete, or inaccurate 

infonnation. Dispute provide a critical check on sv~;teln-1NICie 

n:lmove inaccurate from the and alert companies 

problems that could many consumers. 

focused on companies and fumishers meet the 

reports as part Bureau's ongoing examinations 

specifY the number of times consumers disputed inl!Jmtati<)n on 

reports also identify fumishers wi<h the mosJ consumer disputes, industries with 

35 
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23721.104

House Committee on Financial Services 

The Semi-Annual Rept!lt of the Bureau Firu:mcial Protection 

Questions for the 

March 16, 2016 

Bureau has also directed companies to replace their outdated, paper-based processes with 

modem, online that convey information appropriately to resolve disputes. 

Finally, the Bureau enforcement actions against reporting companies and 

furnishers for violating the law's dispute handling requirements. 

The Bureau will continue to examine and investigate consumer companies and 

furnishers of information, focusing on accuracy and dispute processes, and it will 

continue to hold institutions accountable for any deficiencies. 

for this market is that consumers have confidence are accurate and 

reliable, and that the decisions made about consumers are made fairly based on the right 

information. Similarly, consumers should feel confident fhat can get suspected errors 

investigated, and fixed as needed, to ensure the reliability consumer reports. 

To help consumers troubleshoot problems they might be having with their consumer reports, the 

Bureau handles from consumers who or dispute handling 

problems, among consumer reporting related issues. also inform the 

Bureau· s work on consumer the Consumer Complaint 

Database, complaints arc and anyone interested 

in the financial marketplace. 

The Bureau has also taken steps to educate consumers about consumer and the 

importance accuracy. For example, the Buxeau's online AskC'FPB provides 

asked including about what to look i{1r in a 

36 

In addition, the Bureau 

to obtain the information in 

to know whether the 

complete. To help empower 
178 


23721.105

House Committee on Financial Services 

The Semi-Annual Report of the Bureau of Consumer Financial Protection 

Questions for the Record 

March Hi, 2016 

consumers, a list of consumer companies and their contact 

information. is intended to make easier for consumers to exercise their 

rights to obtain the information in their consumer reports, fact-check that information, and 

dispute inaccuracies. 

Finally, the Bureau has also called on to make credit scores and related content freely 

available to consumers. Providing easy access to credit scores could raise awareness of 

credit issues and prompt busy Americans to review their credit If scores are lower than 

expected or if they change over time, more consumers may take the to request their 

credit reports. This information will allow them to address concerns, dispute errors or fraudrelated entries, and improve aspects credit usage. The Bureau considers this 

initiative to he a "best the industry. 

Question 2 

ofCo:nur·css in a letter requesti11g that the Bureau· s be 

'""'.::mwr•" to the model and risk profile of smaller financial 

institutions. What type flexibility does the Bureau plan to provide that will prevent 

unintended bnrdens on credit union members or community bank customers, such as limiting 

services or increasing costs? 

Response 

Section 1022 of the Dodd-Frank Wall Street Rcfo1111 and Consumer Protection Act (Dodd-Frank 

Act) authmizes the Bureau to and issue orders and guidance to administer 

and carry out the and consumer financial laws, and to 

evasions thereof. doing so, Section ! 022 requires that the Bureau consider the 

benefits and costs to consumers and covered persons, including the 

to consumer financial products and services to consumers. Section 

Bureau to consider the of a rule on insured depository ins;tilllti(HlS 

unions with total assets or less well as the impact on consumers in rural areas. 

MoreoYer, Section !022 gives the 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 Bureau determines an 

37 
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23721.106

House Committee on Financial Services 

The Semi-Annual.Repm1 Bureau of Consumer Financial Protectian 

Q~1esl:iom1s for tile Record 

Marc1116, 2016 

ex•cmntion is necessary or ant>r<>nriatteto carry out the purposes and objectives of the Consumer 

Protection Act into consideration a set of factors specified in the statute. 

To date, the 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 ofthc 

Bureau's commitment to achieving tailored and effective regulations, the Bureau bas taken the 

t()llowing actions for different models and classes of institutions: 

" safe harbor for small creditors. A small creditor has a broader safe harbor 

for Qualified (QM) loans than non-small creditors. The Bureau's rules 

provide a safe harbor QMs with annual rate (APR) over Average 

Prime Offer Rate (APOR) creditors have a safe 

harbor for spreads to 1 points. Bureau's rules also allow a small creditor 

to make QMs with ratios that exceed the otherwise 43 percent 

cap. (Small creditors must hold these loans in portfolio for three 

" Exempted small creditors in rural and underserved areas. 

that predominantly in rural or underserved areas were exempt 

to escrow aceounts for higher priced loans and could offer 

areas. 

O"vmor~l,in and Protection Act loans ("high cost" mc>rtg;ag•es 

ha!loon payment features. QMs and HOEPA 

In March 2016, the Bureau issued an interim 

exemptions for small creditors in rural and underserved 

• lmplemented a tWQ-year pause for small creditors. The Bureau established a two-year 

transition period (until January !0, 2016) small creditors to make balloonpayment QMs and HOEPA loans of whether they operate 

predominantly in rural or areas, while Bureau revisited and reconsidered 

the detinition of "rural'' for this purpose. 

" Expanded for rural and underserved areas. In connection with other 

changes to the definitions of ·'small creditor" and "rural area,'' the Bureau 

a final mle in October 2015 that extended this two-year transition from 

2016 until 2016, The Bureau's final rule also 

expaJnsion of"rura!, as well as an expansion of which can 

" The Bureau's finalm!e took effect on January l, 2016, the '""~-"p"~ 

transition period In March 2016, the Bureau issued an interim final rule 

implements the Expand Practices in Rural Communities Act, and makes 

these provisions available to small that extend at least one covered transaction 

secured located in a rural or underserved area in the previous calendar year. 

About small creditors will he as a result of this change. 

38 
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23721.107

The 

House Committee on Financial Services 

Bureau o.fCrmsumer Financial Protection 

Qutes1tl01ts for the Record 

March Hi, 2016 

" Relaxed requirements for appraisals. Small creditors have relaxed rules regarding 

conflict of interest in ordering appraisals and other valuations. 

" Exempted small serviccrs from nr•nVJ!illJaQ'periodic statements. Small servicers are 

exempt from the Truth in Lending Act to periodic statements. 

" Exempted small servicers from loss mitigation re•Ju:ircmEmts. 

from all of the Real Estate Settlement Prc1ee<iunes 

nrr"'"''""''""' early intervention; continuity of contact; and loss mitigation, except that a 

small serviccr may not file for foreclosure unless the borrower is more than !20 days 

tlPimrm.ent on the mo1igage. Small servicers may also not file for foreclosure (or move 

torecllosun~ ju1dg;~mmt or order of sale, or conduct a foreclosure sale) if a borrower is 

performing under the terms of a loss mitigation agreement. 

• institutions from Home M,nrl'!1ll!1<> 

of2015, the Bureau 

Regulation C, HMDA. HMDA and Ke:gutanc•n 

require covered mortgage lenders to 

activity. Changes to coverage in the 

associations, and credit unions that are required to 

relieve about 22 of currently reporting u"l"''""' y itlSli tutiorts 

reporting HMDA 

., Provided for small entities under the Electronic Fund Transfer 

Act. In the rules the Dodd-Frank Act's amendments to the 

Electronic Fund Transfer Act, Bureau detennined that the remittance requirements do 

not apply to transfers sent by entities that provide 100 or fewer rlo'mittances each year. 

Small financial institutions communities across the nation, as well 

as within the economy. model lending has been beneficial to 

many people in rural areas and small towns throughout the country. For these reasons, the 

Bureau attempts to ensure that rules and regulations are not burdensome to these smaller 

llnancial institutions. 

39 
181 


23721.108

House Committee on Financial Services 

The Semi-Annual Report oftlte Bureau of Consumer l 1'inancial Protection 

Questions for the Record 

Marcll16, 2016 

Question 1 

If the Consumer Financial Protection Bureau (CFPB) 

SBREF A proposal that was released, what would be for preempting state lending 

laws that in some states have been well for a number of years? In other states, 

legislatures have recently laws to ensure that their citizens have access to 

credit so what gap in state to till? 

Response 

The Consumer Financial Protection Bureau's (Bureau's) proposed rule on 

and Certain Installment Loans_ seeks to prevent the types of consumer 

result from short-term and loans with that a consumer 

cannot afford to repay. The also seeks to that may arise 

from certain lender practices in from a consumer's account The proposed 

rule, if finalized, would establish a consumer protection for covered loans. 

As described in the notice released on June 2, 2016, the Bureau believes 

that the requirements of the rule would coexist with State laws pertain to the 

making ofloans that the rule would treat as covered loans. 

subject to the rule would be required to comply with both the '"'lU1'""'""", 

proposed rule applicable State laws, except to the extent the state la\:vs are 

inconsistent with the of the proposed rule. This approach is entirely consistent with 

our system federalism. 

Question 2 

In a report issued by Charles River Associates over a year the CFPB's disparate 

methodology was critiqued but the CFPB did not to repo1t. Furthennore, intemal 

memos at the CFI'B indicate that the had developed a better way to 

distribute settlement proceeds that avoid fraud. What is the reasoning behind the 

CFPB's to change its disparate impact methodology or tile way it distributes 

settlement nr.nr••<>rll~'! 

Response 

is the law and has been upheld by courts and used by federal agencies for 

Bureau's disparate to detennine whether credit 

underwriting or prieing complies ! 7, 2014, the Bureau published a 

40 
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23721.109

House Committee on Financial Services 

The Semi-Annual Report (if the Bureau of Consumer Financial Protection 

Questions for the Reeord 

March 16, 2016 

white entitled Using Publiczv Available Information to 

that details the the Bureau uses to calculate the an 

race and on his or her last name and place of reside11ce. 

The Bureau's demonstrates that its the overall 

reported distribution ofrace and available 

data. The Bureau· s proxy assigns an of inclusion in a pn)hibited··hasis 

group based on both and surname, use geography or surname 

alone in applicants' reponed race and 

The Bureau and the you cite both agree that there are racial and ethnic disparities in 

pricing resulting from dealer and compensation policies, and that a 

can be used to estimate hotb pricing disparities the number of consumers potentially 

The disagreement is regarding how many borrowers were hanned and by how much. 

The Bureau's approach is to arrive at the best estimate of the total numher ofhanned 

bonowers and to accurately the full scope ofhann. The Bureau makes final 

detenninations regarding discriminatory outcomes and their scope in consultation with individual 

lenders, and carefully considers argument lenders make about to identify 

the number ofhanned bonowers the amount ofhann. ln some instances, the has 

adopted changes and reduced our estimates in response to specific alternatives offered 

individual lenderS With regard !0 their Joan nmtto'IUI< 

As we staten in our white the Bureau is committed to continuing our dialogue with other 

federal agencies, lenders. and researchers regarding the Bureau's methodology, the 

lmpmtatJce of fair lending compliance, and the use of proxies when race and 

is unavailable. We expect the will continue to as enhancements 

are identifi"d that further increase For further infonnation regarding 

the Bureau's methodology, issues raised and the Bureau's response, see the 

Bureau's 2015 and 2016 Fair Lending Reports. 

The Bureau and the Department of Justice will work as appropriate on a case-by-case 

basis, to ensure that as many eligible consumers as receive remuneration from 

settlement funds, while putting in place important to ensnre that eligible consumers 

were the recipients of relief The Bureau and the Deparnnent of Justice will work closely with 

lenders and settlement administrators. as on consumer outreach efforts necessary lo 

distribute settlement funds, as by specifics of each Administrative Order or Consent 

Order that governs resolution enforcement action. "ll1e Bureau is confident in 

the integrity of its cuncnt process the analysis that underpins distribution of these funds to 

hanned consumers. 

41 
183 


23721.110

Honse Committee on !"inancial Services 

Bureau of Consumer Financial Protection 

Qttes1tim1s for the Record 

March Hi, 2016 

Question 1 

ln your testimony, you stated Florida consumers over 300% in interest on a Florida deferred 

presentment transaction. If a Florida consumer out only one $100 loan over the 

course of the entire year, what is the CFPB's calculation of the APR Florida statute? 

Response 

Regulation Z, which the Truth in Lending Act, sets out how an annual ""'"''""''''"" 

rate (APR) is The APR on a loan depends on factors such as 

borrowed, the finance charge associated with that loan, and the length of the loan. 

Question2 

Given that you continue to quote the Center for Responsible and the PEW institute, has 

of Financial 

parties 

the CFPB conducted any direct research in conjunction with the 

Regulation to detem1ine consumer hann or has the CFPB simply relied on 

commentary to torm its policy position? 

Response 

The Consmner Financial Protection Bureau (Bureau) has conducted its own 

borrowing in Florida. On June 2, 2016, the Bureau pul1lisl1ed s"'"''PmPnt~l 

Installment, and Vehicle Title Loans, and 

of proposed rulemaking on Payday, 

Loans. ln that report, the Bureau measured the rates 

Florida, and found that Florida's 24-hour CO•)IiJur-of!'oE:rio•d 

loans, reborrowing rate after 14 was essentially 

restrictions on rolling over or renewing 

Question 3 

In your same testimony, you stated that Florida consumers "roll-over" their loans an average of 9 

times per year. According to Florida statute 560.404(18) A deterred presentment prm•ider or its 

42 
184 


23721.111

House Committee on Financial Services 

The Semi-Annual Report of the Bureau of Consumer Financial Protection 

Questions for the Record 

l\iarcli 16, 2016 

an affiliate. Do you have any evidence that lenders in Florida are violating Florida statute? 

Response 

Question4 

Has the CFPB referred its examination findings of violations ofFlorida's consumer 

Response 

"roll-overs" occurring in Florida to the Florida Office of Financial '""!5"'""''v" 

Attomey General for prosecution? 

Vv'hile the Bureau cannot comment on or confim1 any Bureau supervisory activity or 

in'>'estigati<Jlls. in general, the Bureau, through the State Coordinating Committee, makes 

supervisory letters, examination reports and related infonnation to state bank and 

nonbank regulators that have jurisdiction over an entity, and have entered into an infonnation 

sharing Memorandnm of Understanding with the Bureau. Such state regulators include the 

Florida Office of Financial Regulation. 

Question 5 

Cone<:m:ing the alleged activity in Florida of roll-overs, does the Director have any evidence that 

based on CFPB's definition of a roll-over in the April 2013 Vv'hite 

Florida? l have outlined the definition that the CFPB has detem1ined as a oermltl(m 

primwyfocus is on what we term "sustained use H-·the long term use of a sltort-term highcost product l!l'idenced by a pattem rolli11g over or consistmt{v re--lmrrt•winf'. 

resulting in the consumer incurring a Given the above 

43 
185 


23721.112

House Committee on Financial Services 

The Semi-Amtual Report of the Bureau of Consumer r"immciai Protection 

Questions for the Record 

March 16,2016 

definition, does the CFPB have any evidence that fees are accumulating in Florida that would be 

a violation of State law? 

Response 

The Bureau has measured reborrowing using several definitions, including sarne··d2:v 

ret1ormvvm<r. and rebonowing within seven, 14, 30 and 60 days. Using definitions than 

same-day, has high rates ofrebonowing, but the Bureau has not analyzed whether the 

fees associated with tl1at reborrowing constitute a violation of State law. 

Ques1ion 6 

Given your testimony that the CFPB found that the 

would you like to change your testimony given publi:shc:d 

of Financial Regulation tl1at shows only 4.5% consumers take out 9 loans per year? In 

fact, would the CFPB that Florida tracks and enforces every loan issued by Florida lenders 

and can repmt on every of consumer usage? 

Response 

As noted in a previous Florida's reborrowing rates, once the 24-hour cooling-off 

expires, show that of loans are rebonowed within seven over 80 percent 

are reborrowed 14 days, nearly 90 percent are reborrowcd 30 and 

over 90 are reborrowed within 60 days. Despite Florida's co•oliJJg-oiJ' P<,riu•d 

r,},C>rrmMir•o rates after each are on par with, or 

rates in some states which do not same when we look at loans 

taken within 14, 30 or 60 days of a previous loan 

Question 

Public data available from Florida shows that over 5 years. over 65'H, of consum<.'fs no 

the in Florida. ln fact, after one year of usage, over 20% of Florida consumers no 

use product, given the CFPB's concern about long-term sustained use, has the CFPB 

usage and boml\ver financial outcomes over a longer period than simply a single year for Florida 

consumers? 

Response 

The Bureau's own research is based 

However, the Bureau has carefully 

over longer periods. 

data covering a twelve-month 

published studies which 

44 
186 


23721.113

House Committee on .Financial Services 

The Semi-Annual Report of the Bureau of Consumer Financial Protection 

Questions for the Record 

l\breh 16, 2016 

Question 8 

claim that consumers are expeliencing financial hann in Florida, will the CFPB 

statistical evidence and of the financial hann? An example of harm 

would be the continued loweling scores in correlation of utilizing the florida Deferred 

Presentment Product, an increase in correlating to the issuance 

of the average transaction in Florida of$390.00, a year over year increase in utility !ate 

payments, late mortgage or rental payments that con·elatc with the year over year usage of the 

product in Florida. 

Response 

"'"ne•·ier•eerl by consumers from 

the evidence those 

Vehicle Title, Certain 

§§ 1041.4, !041.8, 

104l.l3. Based on that evidence, the Bureau has to two specific of 

with to covered loans: failing to make a re<tsonalble 

determination to repay; (2) attempting to withdraw payment from a consumer's 

account after the lender's second consecutive attempt to \vithdraw from the account has 

failed due to a lack of sullicient funds, unless the lender obtains consumer's new and 

authorization to make further withdrawals from the account The Bureau's analysis 

in this regard is desclihed in the notice released June 2, 2016. 

Question9 

What standard or definition of financial harm does the CFPB use in looking at whether Florida's 

statutes and enforcement are a!lmving consmner harm? 

Response 

The notice of proposed rulemaking referenced above sets forth the Bureau's preliminary 

with respect to the substantial injury that the Bureau believes consumers as a result 

the that the Bureau proposed to find to be unfair. The Bureau also that such 

may be abusive within the meaning of section !031 of the Dodd-Frank Act. 

45 
187 


23721.114

House Committee on :Financial Services 

11te Semi-Ammal Report of the Bureau of Consumer Financial Protection 

Questions for the Record 

March 16, 2016 

Question 

It is my understand that the CFPB has been 

im•r.hr•"i" the leasing of rooftop solar panels, including 

practices that may affect consumers. 

issues tbat may 

oonditions and 

Could you please provide me with an update regarding your assessment ofthese issues? 

Response 

The Consumt,'r Financial Protection Bureau (Bureau) is committed to ensuring that all consumers 

benefit from fair, transparent, and markets tbr consumer financial and 

services and that consumers are under Federal consumer laws. 

The Bureau continues to the solar market and to with industry 

stakeholders and other agencies to better the market and 

conswner harm. As part of that effort, the Bureau welcomes any ad<ilt!OnalultOJJ:mltiorn 

feedback you or other stakeholders may consumer impacts. 

46 
188 


23721.115

House Committee on Financial Services 

The Semi-Annual Report of the Bureau of Consumer Financial Protection 

Questions for the Record 

!\'larch 16, 2!H6 

Question 1 

Enforcement Actions- In its enforcement action against Frederick J, Hanna & Associates, the 

CFPB ar&:rued that attorneys consumers are the only ones for the Practice 

of Law Exclusion in l027(e) Frank. Since that is not anywhere in the plain 

reading of the statute how does the Bureau come to that conclusion? 

Response 

The Consumer Financial Protection Bureau (Bureau) has enforced and will continue to enforce 

Federal consumer financial laws against those who violate those laws to the full extent of our 

legal authority, including who are a fimmcial product or service with respect 

to any consumer who is not legal or services from the attomey in connection 

with such product or service. The legal exclusions that, in certain circumstances, shield 

auon1e,,s from the Bureau's enforcement authority do not lawyers who are not actually 

lln.•vt<uu:tu legal services to the hanned consumers, as in the case. In its order denying the 

motion to dismiss the Hanna action dated July 14,2015, the district court found that 

under 12 U.S.C. § 5517(e)(2}(B), the Bureau may exert its authority over an attorney's debtcollection practice when the is not offering advice or services to the consumer, but 

collecting the consumer's The court that "the terms" of the Consumer 

Protection Act's (CFPA 's) exclusion allow the 

Bureau to bring a CFPA claim here." 

Question2 

Arbitration Contrary to the press release the CFPB's arbitration 

in the study confirm that arbitration is a faster, less expensive and far more way 

consumers to resolve disputes with than class action litigation. According to the 

study, in 60% of the class actions by the CFPB consumers received nothing at all 

because the named individually or voluntarily withdrew the suit. ln the 15% of 

class actions that consumers who received settlement cash payments got a paltry $32 on 

average after waiting for up to two years, As few as 4% of the class members who were 

to receive benefits conditioned on submitting a claim tom1 filed a claim. ln 

contrast, the study showed, consumers who in an arbitration recovered an 

of over $5,000, and the entire arbitration was concluded in an of 2-7 

Moreover, the cost to the consumer for entire arbitration was of the 

cost of simply filing a federal court \'Vhilc class members each about $32, 

the attomeys were awarded over $400 is the CFPB 

ban the use of pre-dispute arbitration 

47 
189 


23721.116

House Committee 011 Financial Services 

Tile Semi-Annual Report of the Bureau oJCo11sumer Fimmcial Protection 

Questions for the Record 

March Hi, 2016 

individual arbitration will still be available. Without the class action waivers, there will not be 

enough supp01i for arbitration for individual arbitrations to continue. 

Response 

Section 1028(a) of the Dodd-Frank Wall Street Refonn and Consumer Protection Act (DoddFrank Act) required the Bureau to conduct a and a repo1t to Congress regarding 

'"the use of agreements for arbitration dispute between covered 

and consumers in connection the financial or 

services. The Dodd-hank Act authorized to or impose 

conditions or limitations on the use of arbitration agreements Bureau found, after 

completing the Study, that such rules would be in the public interest and for the of 

consumers. The Dodd-Frank Act also that the findings in any such consistent 

with the Study. The Bureau its Study of pre-dispute arbitration agreements in 

to the authority outlined above, the Bureau released a Notice of 

Proposed (NPRM) regarding agreements for consumer financial products and 

services providing for mandatory arbitration. The Bureau's Study, as described in 

the NPRM. sheds considerable on the benefits of a class action system as compared to the 

benefits most consumers derive individual resolution of their disputes. The 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 for the period of20l 0 through 2012 relating to credit card, 

account, loan, prepaid card, auto purchase loan, and student loan 

products, the Bureau formd of 616 arbitration a year were filed for 

all six product markets combined, only 411 were as by consumers acting 

alone. Only 25 disputes a year involved consumers affirmative claims for $1,000 or 

less than that amount. Of all of the arbitration cases in the Bureau could determine the 

results, the consumer obtained relief on an affirmative claim in just over 20% of the cases. All 

told, these consumers received a total of$189, l 09 in relief: 

In contrast, the Study found that consumers derive substantial benefits from class action 

settlements. As noted, the Bureau identified a volume of consumer financial class 

settlements that were approved between 2008 In the 419 settlements that we 

an:aiyze<J, there were 350 million total class members. These settlements included eash relief, 

relief, and relief relating to fees and other expenses that companies The total 

amount of gross relief in these settlements--that is, ag&>regate amounts to be made 

settlement (In rc TransUnion Privacy Litigation) with 190 

million class members. 

48 
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23721.117

House Committee on Financial Services 

Bureau of Consumer Financial Protection 

Qnesti.ons for the Record 

Marcll16, 2016 

available to or for the benefit of damages as a whole, calculated before 

costs were deducted--· was about $2.7 billion. estimate included cash 

billion and in-kind relief of about $644 million. Some 251 settlements contained enough data 

for the Bureau to calculate the value of cash relief that, as of the last document in the ease tiles, 

either had been or was scheduled to be paid to class members. Based on this subset 

alone, the value of calculable cash to class members to that point was $!.! billion. 

This excludes pay1nent of in-kind any valuation of injunctive relief. 

With respect to the "nothing at 

all," for consumers, 17% of the 

class cases identified in its Study, as of the "cutoff' date for analysis February 

The Bureau cannot definitively determine the extent to which the class actions that did not 

result in class settlement delivered beneiits to absent class members. Most of the remaining 

putative class cases are known to end in individual settlement or with outcomes that are 

consistent with an individual settlement The terms of those individual settlements are generally 

unknown. 

Your question notes that around 4% of consumers who were required to submit claims forms to 

receive settlement benefits submitted those forms, As you note, this does not reflect the 

scope of consumer relief from class settlements, as it excludes the si!:!,!lit!c:mt 

finance cases in which class members did not need to file a claim to comp,en:sat,ory 

Of 382 consumer financial settlements analyzed in the Bureau's Study that relief, 

the Bureau found that 37%, !40 disputes in total, included some form of automatic 

cash distribution. These cases 24 million class members, almost all of 

whom were eligible for automatic cash that they stood to receive cash paynlen1ts 

without submitting a claim. 111ese class members are not included in the claims rates you 

cite, which is based only on cases in which there is a claims process. Furthem1ore, these 

numbers focus on relief. These numbers do not cnver class members and other 

consumers who behavioral ofthe settlement. Injunctive class members 

all stand to benefit from these aspects of a settlement Often, when companies to 

settle a case, they engaging in a particular practice on a going-fonvard This 

provides customers and other consumers not part of the class. 

After the Bureau completed the Arbitration Study, it has continued acceptmg 

stakeholders as it weighs whether regulatory intt:rvention would be in 

the protection of consumers. The Bureau is currently the comments on the proposed 

rule and will consider any comments received in accordance its obligations for notice-andrelief as the total amount the defendams offered to 

!orloeamn<ce)or reliefand offered to 

not include the value, or cost to 

49 
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House Committee on Financial Senrices 

The Semi-Annual Report of the Bureau (if Consumer F'immcial Protection 

Questions for the Record 

March 16,2016 

Question 3 

a. SmaU-DoUar Rule - lf the CFPB a small-dollar rule similar to the SBREFA 

that was released, what Jus:t!neatmn for effective state 

laws that in some states have been 

states, have passed new 

have access to credit. What gap state law are you 

In other 

laws to ensure that their citizens 

to fill? 

b. Small-Dollar Rule - If your intent was to address title, and similar loans, which 

have triple-digit APRs, why did you set the ttm~<hnl<1 at 36% and change the definition of 

APR? 

Response 

The Bureau's proposed rule on Vehicle Title, and C~o"liain High-Cost Installment Loans 

seeks to prevent the types of consumer injuries that result from lenders short-term and 

longer-term loans with that a consumer cannot afford to repay. The proposed 

rule also seeks to address that arise from certain in collecting 

ren'aY!11CJ1t from a consumer's account. rule, would establish a federal 

consumer protection for covered loans. 

As described in the notice of proposed rulemaking released on June 2, 2016, the Bureau helieves 

that the requirements of the rule would coexist with State laws to the 

making of loans that the rule would treat as covered loans. Consequently, 

subject to the would be required to comply with both the re~:1uiJ·en1ents 

rule applicable State Jaws, except to the extent the state laws are 

incom;istent with the of the proposed rule. This approach is entirely consistent with 

ofcmJpeTali ve federalism. 

The Bureau's rule would not change the detlnition of"annual n"''"Pnt'""' 

Rej,'lllation Z Truth in Aet Under the 

covered iftl1cy have an ail-in rate 

rulemaking refers to this as cost of credit'' This include interest, fees, 

cost of add-on products such as credit insurance, memberships, and other products sold 

along with the credit 

Question 4 

Disparate - Please tell us why the CFPB has refused to ch<mge its disparate 

impact m(;ttlcldo!og:y or the way it distributes settlement Charles River 

Associates issued a the methodology, but the 

CFPB did not that the Department of Justice had 
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House Committee on Financial Services 

The Semi-Annual Report of the Bureau of Consumer Financial Protection 

Questions for the Record 

March 16,2016 

developed a better way to distribute settlement 

appears that the CFPB was more interested in 

that would avoid iraud, yet it 

numbers. 

" Disparate Impact With a number of distinct consent orders on the books, we still 

continue to hear of the Bureau's interest in a "global solution to the deal compensation 

issue.'' Can you please tell the Committee where the Bureau is in relation to pursing a 

global solution and how the consent orders inform that effort? 

Response 

Disparate impact is the law and has been upheld by courts aud used 

decades. The Bureau's disparate 

underwriting or complies 

white 

The Bureau and the yon cite both a&>ree that there are racial and ethnic in 

rli<f're·tinnm"V dealer and policies, that a proxy 

disparities the of consumers potentially harmed. 

The disagreement is regarding how mauy borrowers were harmed and by how much. 

The Bureau's approach is to arrive at the best estimate of the total number ofhanned 

borrowers and to accurately identify the full scope ofhann. The Bureau makes final 

determinations outcomes and their in consultation with individual 

lenders, and considers every argument lenders make alternative ways to identify 

the number ofhanned borrowers and the amount ofham1. In some instances, the Bureau has 

adopted and reduced our estimates in response to specific altematives offered by 

individual with regard to their specific loan portfolios. 

As we stated in our white paper, the Bureau is committed to continuing our 

federal agencies, lenders, advocates, and researchers regarding the Bureau's m<:tn,omllogy, 

importance of fair lending compliauee, and the use of proxies when selt-n:pcorte:d 

ethnicity is unavailable. We expect the will continue to as enhancements 

arc identified that furt.her increase accuracy and For further infonnation 

51 
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House Committee on Financial Services 

Tile Semi-Annual Report of tile Bureau of Consumer Financial Protection 

Questions for the Record 

March Hi, 2016 

the Bureau's mt:th·od•:Jio,gy, issues raised by stakel10lde:-s, and the Bureau's response, see the 

Bureau's 20 15 and 20 J 6 Lending Rt-'j:lorts. 

The Bureau and the Department of Justice will work together, as appropriate on a case-by-case 

basis, to ensure that as consumers as receive remuneration from 

settlement funds, while place to ensure that eligible consumers 

were the Bureau the Department of Justice will work closely with 

lenders and settlement administrators, as on consumer outreach efforts necessary to 

distribute settlement funds, as specifics of each Administrative Order or Consent 

Order that govems resolution enforcement action. The Bureau is confident in 

the of its cuncnt process the analysis that underpins distribution of these funds to 

The Bureau's goal, tirst and foremost, is to address discrimination. It is the end of 

discrimination, not the market's election of a means of doing so, that is the Bureau's 

main concem. 

QuestionS: 

'" Press Releases· Why does the CFPB's office continue to misrepresent the content 

of enforcement actions? For the T3Leads enforcement action, the headline 

reads, HCFPB Takes Action Against tor Online Trafficking of PersonaJ 

Information." but there is no of actual consumer harm. The 

merely on the of future harm to consumers. 

Response 

The Bureau has done significant work to address consumer hann, $11.4 

billion in reliefto approximately 25 million consumers using its enforcement authority. It is 

important for tbe Bureau to communicate fue results of these efforts to the public and industry. 

One way the Bureau strives to be transparent is through our press releases that discuss 

enforcement actions. 

With respect to the Bureau's actions against T3Leads (and other related individuals, referred to 

collectively herein as "T3Leads"), the headline "CFPB"Takes Action Lead Aggregat:ors 

for Online Trafficking of Personallnfonnation," accurately describes ,wcg'""'m" 

Specifically, the Bureau alleged T3 Leads failed to vet the lenders that consumer 

applications through their network oflead generators and ignored false or misleading statements 

52 
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House Committee on Financial Services 

The Semi-Annual Report of the Bureau of Consumer Financial Protection 

Questions for the Record 

March 16,2016 

about these lenders, yet consumers had no control over which lenders rt.>ceived their aplllic:ation. 

ln addition. the Bureau that consumers were ham1ed by T3Leads' business For 

example, consumers were steered by T3Leads' to lenders offering less 

favorable Joan tem1s than otherwise available. ln consumers were likely to be 

connected to lenders that ignore state limits or claim immunity from state and 

jurisdiction, despite that selection oflenders ·'follow the 

"reasonable" terms. entities often charge consumers higher interest rates than lenders that 

do cmnp!y with state laws. 

More generally, tl1e Bureau's Ombudsman's Office recently completed an independent 

of the language used in consent orders as compared with their releases, in 

response to concerns raised certain trade and companies. review 

concluded that Bureau press the in the consent orders. The 

Bureau will continue to work to ensure that our communications enforcement actions 

accurately reflect the consumer harm we are addressing in the mzrrk•etplace. 

53 
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23721.122

House Committee on Financial Services 

The Semi-Annual Report of the Bureau of Consumer Financial Protection 

Questions for the Record 

Marcil t6, 2016 

Question 1 

General purpose reloadable (GPR) prepaid cards have become an product for millions 

of unhanked and nnderbanked consumers. As the CFPB crafts its rule to lhese vital 

I want to ensure these Americans are not denied access to certain simply 

they don·t have or don't want a traditional bank-issued checking account. 

The CFPB's proposed rule would apply credit card regulations (Regulation Z) to overdraft 

transactions on a prepaid card. This is likely to curtail or altogether eliminate offering 

of this opt-in feature, them fewer tools to manage small-dollar needs. My 

understanding is that tl1is feature the dollar amount consumers can 

overdraft. Companies may not be able a credit card feature restricted to such a 

low dollar amount. 

Therefore, is the CPPB considering an exemption from Regulation Z tor low-dollar overdraft 

features $150 or less)? How will consumers that do not for or do not want a 

traditional card be able to manage low·dol!ar spending if overdraft protection is not 

available? 

Response 

The Consmner Financial Protection Bureau evaluated a range of potential apJf'roaclJes 

to regulating overdraft credit features in conjunction with 

some commenters suggested a dollar-amount lhreshold which 

transactions would not be as "credit" under Z (such as $250 in magm.tncte). 

The Bureau carefully considered this idea that 

acwunt issuers to ofler incidental ""''"'.'"'''' 0 "d''"''"" trij;ge;rin.g 

P:o•Jennm~Icredit cards under Regulation Z so long as the issuer 

However, tbe Bureau believed that it was am~m.nriate 

projections where consumers can incur more substantial debt fees in 

connection with a account as discussed in detail in the f1nal rule, the Bureau 

believes its balanc.es need and desire of some consumers to access an 

overdraft feature. conjunction with a account while at the same time 

implementing guard mils to make sure such is offered with protections similar to those that 

apply to other card-based credit (i.e .• credit cards). 

Question 2 

Director Cordray has made several statements over the years regarding 

hearings in 2012 and 2014 he made statements that prepaid cards 

54 

accounts. At field 

far fewer regulatory 
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House Committee on Financial Services 

The Semi-Annual Repm1 o.fthe Bureau oJCtmsumer Financial Protection 

Questions for the Record 

March 16, 2016 

pr<Jte<:tHms than hank accounts, debit cards or credit cards. However, in 2016 at a field 

in Kentucky he said that "many general reloadable are specifically 

to help consumers their while limiting transactional -.-osts and 

While prepaid cards were entrepreneurs as an alternative to the 

funds in these accounts are almost always a bank or credit union and enjoy 

deposit insurance." As well, last month he said at a on checking account access that 

for people unable to get a traditional checking account, accounts are a type of lower-risk 

alternative tbr institutions. 

If prepaid cards were so dangerous in 2012, and merited an 

he recommending them as a safe alternative to checking accounts 

even issued their Final Rules on Prepaid Accounts? 

Response 

rulemaking in 2014, why is 

2016 before the Bureau has 

The Bureau does not consider prepaid cards to be '' As indicated 

2012 and 2014, the Bureau was concerned that ac~-ounts do not 

or<)te<;ti<ms under federal law as credit cards or cards linked to a 

proposed rule, accordingly, was aimed at closing the 'v''l"''v"-" 

ensuring that prepaid consumers are protected whether they are 

smartphone, or sending a payment 

As !noted at the February 2016 field although currently 

protections, certain cards are ~ll''""""''HY 

consumers manage while transactional costs and risks. 

some prepaid accounts are made available and credit unions to their 

base, and as such could make a convenient to 

consumers do not cuiTently Finally, the Bureau has 

will ensure, among other consumers have error and dispute 

resolution rights comparable to those checking accounts. With these caveats in mind, prepaid 

cards not be the first choice !or every consumer, but every consumer deserves the 

""'"''""'v to choose what is best fbr him or her. 1l1e Bureau does not at,'!ee that this sentiment 

undennines the clear need for a consistent federal regime for prepaid accounts. 

Question 3 

On page 15 of the Bureau's March 2016 Monthly 

the most complained about companies and a 

report there is a table that includes 

of the three month from last 

fall to this fall. If you remove the outlier experienced service last fall, 

prepaid companies have always received less 

that purports to be data driven, how does this data 

an 870 page proposed rule? How does the Bureau 

55 

three-month period. For an 

over three years of work 

"'""'""~'"N for cards that 
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House Committee on Financial Services 

The Semi-Annual Report of the Bureau of Consumer Financial Protectioll 

Questions for the Record 

March 16, 2016 

represent less than .05% of the total nmnber of complaints sent to the complaint portal and see 

this as an area of major concem? 

Response 

TI1e Bureau considers a wide range of information m1d data when making policy decisions, 

including decisions to initiate the a new regulation. Consumer ColmplaiJtlts 

can be an important source consumers experience with 

financial products. However, a relatively low number about a product does not 

mean there is no consumer harm. on the nature financial product and how 

consumers use the product, consumers harmed in that do not cause them to 

complain lo the Bureau or to blame the the hann they have suffered. 

The Bureau in the prepaid to address an existing reoe mtmr·v 

affecting a that is increasingly by America's unbanked consumers. 

consumers need m1d deserve that are safe and whose eosts and risks are clear up front. 

Historically, accounts had far fewer regulatory thm1 hank accounts, 

debit cards, or cards. The fact that most types accounts have fewer regulatory 

pnlt~;ticms is especially troubling that consumers use these products are, in many 

""'""''"'~• muong the most The final rule will ensure that good practices are 

not a matter of individual issuer discretion will enable the market to responsibly. The 

Bureau continues to believe that clear mles in the will prevent the spread of 

"low-road" competition that hurts both consumers the honest businesses that seek to serve 

them well. 

It is to note that there has been great interest in this mlemaking. Indeed, the 

Bureau received thousm1ds of comment letters industry, trade consumer groups, 

and consumers themselves. The Bureau considered possible to its based 

on these comments, in accordance with its for notice-and-comment mlemak:mg 

pursuant to the Administrative Procedure Act, and made certain revisions accordingly. 

56 
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House Committee on Financial Services 

Question 

Bureau of Cotlsumer Financial Protection 

Outcsl'iotls for the Record 

March 16, 2016 

The CFPB recently announced that they would be accepting consumer complaints regarding 

loans from online marketplace lenders. The CFPB also posted a bulletin that offers tips for 

consumers interested in an online marketplace loan. As you know, 

lenders make both consumer small business loans. Do consider loans to 

as business loans or consumer loans? And how does your compare with that 

Response 

As some of the Consumer Financial Protection Bureau's rules, uneH<'JW:J5l\.egm<tncm 

onlm:"nlvthere is no precise test for a product or service is or 

or household However, many of the Bureau's rules 

provide illustrative examples and making such detem1inations across a range 

of products, including in some cases noting factors that should be considered. For example, 

under Regulation Z, consumer credit generally offered or extended to a consumer 

primarily tor family, or household purposes, whereas business credit 

to extensions for business, commercial or agricultural nnm<>~"" 

than a natural While some of the laws the Bureau administers have or no 

application to loans, other laws generally of whether a loan is 

for a business or For example, the Act, which 

prohibits credit on the basis of race, color, sex, or marital 

status, applies to business loans as consumer loans, some of the regulatory 

requirements differ for business loans. 

The Bureau cannot speak to the view of the U.S. lntemal Revenue Service on whether loans to 

sole proprietors are business loans or consumer loans tc1r their purposes. 

See, e.g., 12 CFR * l026.2{u)(l2). 

'"See, e.g .• 12 CFR * 60 See. e.g., 12 CFR § (g). 

57 
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House Committee on Finandal Services 

The Semi-Annual Report of the Bureau of Consumer Financial Protection 

Questions for the Record 

March 16, 2016 

Question 1 

Significant questions have been raised about the practical application of certain of the 

proposed prepaid rule. for it does not seem that the force pay scenario was given 

adequate consideration in the ofthe proposed rule. Do anticipate that any portions 

of the prepaid rule will be put back out for additional eormr1ent? 

Response 

The Consumer Financial Protection Bureau (Bureau) addressed force pay transactions in the 

prepaid final rule. In accordance with its for notice-and-comment 1 u•<:mlW<..mg 

pursuant to the Administrative Procedure Act, Bureau considered the concerns raised 

eonuncnters, and their suggested modifications, including, for those addrtlss;in!! 

operational challenges posed by force transactions. Under the ntle, a 

not a credit card (and therefore not to the Regulation Z overdraft credit 

requirements) when the prepaid card accesses credit that is incidental to certain transactions 

and where the issuer does not charge fees for the credit. One such ""'"m,ntlon 

addresses credit extended as a result of force 

moditication will address the conccms industry commenters regarding operational 

challenges and compliance costs related to force pay transactions. 

Question] 

The Dodd-Frank Law established a clear requirement for the CFPB to act based on fact and 

data. Given that complaints about prepaid cards in general represent less than 1% of the total 

nnam:Iai-m·oauct complaints you receive, is this area of such intense focus? Furthermore, 

J"'"'"'-"'·" the Overdraft feature? Given overdraft complaints factor as less than half of 

how are we "protecting" consumers by away an 

with? 

Response 

The Bureau considers a wide range of infonnation and data when making policy decisions, 

including decisions to initiate the process of developing a new regulation. Consumer complaints 

can he an important source of inflmnation about problems consumers experience with different 

financial products. However, a relatively low number of complaints about a product does not 

mean there is no consumer harm. Depending on the nature ofthe financial product and how 

consumers usc the product, c.onsumers may be harmed in ways that do not cause them to 

complain to the Bureau or to blame the product or provider for the hanu they have suffered. 

58 
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House Committee on Financial Services 

1i1e Semi-A11nual Report of tile Bureau of Com·umer Finat~dal Protectio11 

Questions for the Record 

March 16, 20!6 

The Bureau engaged in the prepaid rulemaking to address an existing regulatory gap 

a:l1ecting a product that is heing by America's unbanked consumers. These 

consumers need and deserve products that are sate and whose costs and risks are clear upfront. 

Historically, prepaid accounts have had far than bank accounts, 

debit cards, or credit cards. The fact that most types 

protections is especially troubling given that eonsmners use these products arc, in many 

instances, the most vulnerable. The final rule will ensure that good practices are 

not a matter issuer discretion will enable the market to responsibly. The 

Bureau continues to believe that dear rules in the market will prevent the spread of 

"lov.--road'' competition that hurts both consumers the honest businesses that seek to serve 

them welL 

Question 3 

ln talking to colleagues, we find there is consensus that a small-dollar exemption to the 

proposed rule on prepaid card overdraft would more pmductive than the 

reclassify all overdraft products under Ke:gutarion Z. Would an amount not to 

appropriate? lfnot, how would a exemption to this mle, at the $150-level, 

constitute a "debt trap?" 

Response 

The Bureau has not stated that overdraft fees on prepaid products have caused consumers to fall 

into "'debt traps:· 

and the tina! rule, the Bureau evaluated a range of potential 

crt.-dit features in conj\mction with its accounts. Sp>ecili<:al11y 

,u:~g''"''" adopting a dollar-an1ount threshold which 

covered as "credit" under Z (such as $250 in magnitude). 

TI1e Bureau carefully considered this idea and that pennits 

prepaid account issuers to offer incidental "payment without triggering the 

rules credit cards under Regulation Z so long as the issuer generally does not 

However, the Bureau believed that it was appropriate to full 

projections where consumers can incur more substantial debt and/or fees in 

connection with a prepaid account. as discussed in detail in the final rule, the Bureau 

believes its balances need and desire of some consumers to access 

credit in 

make sure such credit is 

credit (i.e., credit cards). 

account while at the same time nnpl<~m·ent.ing guard rails to 

with protections similar to those that apply to card-based 

59 

0