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PERSPECTIVES ON THE CONSUMER 

FINANCIAL PROTECTION AGENCY 

HEARING 

BEFORE THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

SEPTEMBER 30, 2009 

Printed for the use of the Committee on Financial Services 

Serial No. 111–81 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

BARNEY FRANK, Massachusetts, Chairman 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

GWEN MOORE, Wisconsin 

PAUL W. HODES, New Hampshire 

KEITH ELLISON, Minnesota 

RON KLEIN, Florida 

CHARLES A. WILSON, Ohio 

ED PERLMUTTER, Colorado 

JOE DONNELLY, Indiana 

BILL FOSTER, Illinois 

ANDRE ́ CARSON, Indiana 

JACKIE SPEIER, California 

TRAVIS CHILDERS, Mississippi 

WALT MINNICK, Idaho 

JOHN ADLER, New Jersey 

MARY JO KILROY, Ohio 

STEVE DRIEHAUS, Ohio 

SUZANNE KOSMAS, Florida 

ALAN GRAYSON, Florida 

JIM HIMES, Connecticut 

GARY PETERS, Michigan 

DAN MAFFEI, New York 

SPENCER BACHUS, Alabama 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

J. GRESHAM BARRETT, South Carolina 

JIM GERLACH, Pennsylvania 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

ADAM PUTNAM, Florida 

MICHELE BACHMANN, Minnesota 

KENNY MARCHANT, Texas 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

BILL POSEY, Florida 

LYNN JENKINS, Kansas 

CHRISTOPHER LEE, New York 

ERIK PAULSEN, Minnesota 

LEONARD LANCE, New Jersey 

JEANNE M. ROSLANOWICK, Staff Director and Chief Counsel 

(III) 

C O N T E N T S 

Page 

Hearing held on: 

September 30, 2009 .......................................................................................... 1 

Appendix: 

September 30, 2009 .......................................................................................... 65 

WITNESSES 

WEDNESDAY, SEPTEMBER 30, 2009 

Bowdler, Janis, Deputy Director, Wealth-Building Policy Project, National 

Council of La Raza (NCLR) ................................................................................. 14 

Burger, Anna, Secretary-Treasurer, Service Employees International Union 

(SEIU) ................................................................................................................... 15 

Calhoun, Michael, President and Chief Operating Officer, Center for Responsible Lending ........................................................................................................ 10 

Himpler, Bill, Executive Vice President, the American Financial Services 

Association (AFSA) .............................................................................................. 49 

John, David C., Senior Research Fellow, The Heritage Foundation ................... 12 

Menzies, R. Michael S., Sr., President and Chief Executive Officer, Easton 

Bank and Trust Co., on behalf of the Independent Community Bankers 

of America (ICBA) ................................................................................................ 44 

Pincus, Andrew J., Partner, Mayer Brown LLP, on behalf of the U.S. Chamber of Commerce ................................................................................................... 45 

Shelton, Hilary O., Director, Washington Bureau, National Association for 

the Advancement of Colored People (NAACP) ................................................... 9 

Yingling, Edward L., President and Chief Executive Officer, American Bankers Association (ABA) .......................................................................................... 47 

APPENDIX 

Prepared Statements: 

Bowdler, Janis .................................................................................................. 66 

Burger, Anna .................................................................................................... 74 

Calhoun, Michael .............................................................................................. 76 

Himpler, Bill ..................................................................................................... 112 

John, David C. .................................................................................................. 123 

Menzies, R. Michael S., Sr. .............................................................................. 130 

Pincus, Andrew J. ............................................................................................. 139 

Shelton, Hilary O. ............................................................................................. 147 

Yingling, Edward L. ......................................................................................... 151 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Written statement of the Credit Union National Association (CUNA) ............... 159 

Written statement of the Mortgage Bankers Association (MBA) ........................ 164 

Written statement of the National Association of Federal Credit Unions 

(NAFCU) ............................................................................................................... 197 

Written statement of the Network Branded Prepaid Card Association 

(NBPCA) ............................................................................................................... 199 

Written statement of Professors of Consumer Law and Banking Law ............... 202 

Burger, Anna: 

Additional information provided for the record in response to a question 

from Representative McHenry ..................................................................... 218 

SEIU report ....................................................................................................... 219 

(1) 

PERSPECTIVES ON THE CONSUMER 

FINANCIAL PROTECTION AGENCY 

Wednesday, September 30, 2009 

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

The committee met, pursuant to notice, at 10:07 a.m., in room 

2128, Rayburn House Office Building, Hon. Barney Frank [chairman of the committee] presiding. 

Members present: Representatives Frank, Waters, Gutierrez, 

Watt, Moore of Kansas, Hinojosa, Clay, Baca, Miller of North Carolina, Scott, Green, Cleaver, Bean, Ellison, Wilson, Perlmutter, Donnelly, Carson, Speier, Minnick, Adler, Driehaus, Kosmas, Himes, 

Maffei; Bachus, Castle, Royce, Lucas, Manzullo, Biggert, Capito, 

Hensarling, Garrett, McHenry, Campbell, Marchant, McCarthy of 

California, Posey, Jenkins, Lee, Paulsen, and Lance. 

The CHAIRMAN. The hearing will come to order. I want first to 

welcome some visiting Parliamentarians. We have members of the 

Parliament we are particularly glad to welcome from Kosovo and 

Mongolia, two nations that were not allowed to have elected free 

Parliaments for some time. We are delighted that this progress of 

self-governance has reached them, and we welcome them as our 

guests. Our colleague, the gentleman from North Carolina, Mr. 

Price, Representative David Price, who works on behalf of the 

House Democracy Partnership, has sponsored them. 

Our hearing today is open. We are dealing with the Consumer 

Financial Protection Agency and we will have a couple of panels. 

This is a hearing on a particular legislative draft. It is, we will just 

say preliminarily, the third iteration. The Administration had a 

proposal. I, as a courtesy to them, introduced their proposal with 

some changes, but not a lot. Since that time, we have had the benefit of a lot of conversation. 

Today’s legislation reflects further conversation, but it is the 

starting point, not the endpoint of a markup that will occur the 

week after next. We will be having a hearing, is it tomorrow, on 

derivatives? Is that the hearing? Yes. We will have hearings this 

week on particular pieces of legislation. 

The history was the Administration made some proposals. We on 

our side modified them after a lot of conversation, in the case of 

derivatives, conversation with the Agriculture Committee, which 

shares jurisdiction with us. 

In the week after next, after these two hearings, we will be proceeding to markups. We did mark-up and the House passed the 

compensation piece of our approach here. 

2 

So for those who were wondering what was happening, two very 

significant pieces of this will begin the markup process on the second week. As to Floor time, the leadership of the House is still deciding the form in which these will go to the Floor on the timing, 

but we will begin when we get the next markup schedule and we 

will proceed. And we will have finished marking-up, I believe, certainly by early November, probably late October, because we are 

seriously into the markup phase. 

Now, we will begin the hearing today on the Consumer Financial 

Protection Agency. This was a proposal that the Administration 

made that I greatly welcome. Consumer protection has been in the 

hands of the Federal bank regulators, and I think it is fair to say 

that no calluses will be found on the hands of those in the Federal 

bank regulatory agencies who had consumer responsibilities, because there is no evidence of any particular hard work. The single 

biggest chunk of that authority is with the Federal Reserve. 

I am somewhat interested to see that many members on both 

sides, especially on the Republican side, recently have become very 

critical of the Federal Reserve. There is a consensus that we have 

to restrict the Federal Reserve’s power under section 13(3). There 

is a consensus that we will increase auditing over the Federal Reserve. But there appears to be an exception on the part of some of 

my colleagues. 

The Federal Reserve’s lackadaisical record in consumer protection does not appear to have engaged the same degree of skepticism. Thus, we hear a lot of calls for removing power from the 

Federal Reserve. But when it comes to consumer protection, I think 

they have demonstrably been at their weakest. I think they have 

done a good job in some other areas. Somehow that gets left out. 

If this bill passes, and I hope it will, it will take power from the 

Federal Reserve and take funding from the Federal Reserve, because we do not think the banks, which have to contribute in assessments to various agencies, should be charged extra for this. 

And, in fact, a substantial part of the funding for this agency will 

come from the Federal Reserve. The Federal Reserve will be ceding 

a lot of power that is not used very much, and funding will come 

with it. 

So, again, I would urge people who want to be appropriately 

careful in the evaluation of the Federal Reserve not to leave out 

an area where the Federal Reserve seems to have become lazy. Let 

me just say that it is true that recently the Federal Reserve has 

done some consumer activity. In every case—and I mean this quite 

literally—where the Federal Reserve has in recent years done anything for consumer protection, it has done so after this committee 

in particular initiated action. 

There was a long period when the Federal Reserve did virtually 

nothing. In 1994, Congress gave the Federal Reserve, under the 

Home Ownership and Equity Protection Act, the authority to regulate mortgages of all kinds, whether they were in the banking system or not. Mr. Greenspan consciously and deliberately refused to 

use that. The Federal Reserve had the power to promulgate a code 

of unfair and deceptive practices for banks. In fact, in 2004, when 

the control of the currency—although it was in the Bush Administration, it was a Clinton Administration holdover appointee, Mr. 

3 

Hawk, promulgated a very sweeping preemption that knocked 

State enforcement entities out, and it was criticized largely at the 

time by, for example, Sue Kelly, who was then the Republican 

Chair of the Oversight Committee. One of the problems was that 

the Federal regulators had nothing to put in place of the State consumer protections they had abolished. 

And I asked the new Comptroller of the Currency, Mr. Dugan, 

what he was going to do about it. He said, I have this problem; the 

Federal Reserve has the power to promulgate the unfair and deceptive practices code, and they haven’t done it and won’t do it. In 

fact, a Governor, Ned Gramlich, one of the few consumer-oriented 

officials at the Fed over the years, tried very hard to get Mr. 

Greenspan to use that power, to use the power under the Home 

ownership and Equity Protection Act, to use that power under the 

statutes giving him those powers. 

Now, the Federal Reserve has since acted only after this committee, particularly after 2007—frankly, when the Majority 

changed hands—that we took action. The Federal Reserve took action on mortgages after this committee acted. The Federal Reserve 

took action on credit cards after this committee acted. 

Under the leadership—and let me say at this point, I want to express the great sorrow and condolences for a member of this committee, to one of our most active members, the gentlewoman from 

New York, Mrs. Maloney, who suffered the tragic loss of her husband. And to Carolyn Maloney, as she grieves, we should just note 

that it was her initiative on credit cards and on overdrafts in both 

of those cases that led to Federal action. So I think the record is 

very clear and I don’t say this—this is not a personality defect in 

the regulators, although in Mr. Greenspan’s case, I think it was, 

as he has acknowledged, excessive by the ideological rigidity. It is 

the case that if your primary responsibility is the safety and soundness of the banking system in administering banks and providing 

the assurance that they live up to the fundamental economic statutes, then consumer protection suffers very, very deeply. And this 

bill would remedy that. 

The gentleman from Alabama is now recognized for 3 minutes. 

Mr. BACHUS. I thank the chairman. And let me start by expressing our heartfelt condolences of all of the Republican members to 

Mrs. Maloney on the passing of her husband, Clifton. Our thoughts 

and our prayers are with her and her family during this difficult 

time. 

And I would also like to join the chairman in expressing our 

greetings to our colleagues from Mongolia and Kosovo. I am glad 

that they are here. Welcome. 

The CHAIRMAN. If the gentleman would yield briefly. Stop the 

clock, please. And we will start it over for the gentleman so that 

he has his full 3 minutes. I would just say that I apologize to our 

colleagues from Kosovo and Mongolia. I assume that their English 

is much better than our Serbo-Croatian and Mongolian. But I do 

have to say it is unfair for them to hear as their first two 

spokespeople of the American Congress, myself and the gentleman 

from Alabama. Let me just assure you, your ability to understand 

will go up from here, I say on behalf of myself and my colleague. 

The gentleman is now recognized again for 3 minutes. 

4 

Mr. BACHUS. Yes, we do have some English speakers who will be 

speaking later on. 

I thank you for having today’s hearing, Mr. Chairman, and I look 

forward to hearing the perspectives from our witnesses on the merits or possible demerits of creating the Consumer Financial Protection Agency. And I think we can do a better job of protecting the 

consumer. I think we all agree on that and we should. 

However, the Administration’s proposal, I think, is conceptually 

flawed. Since the Treasury Department submitted the legislative 

language to Congress 3 months ago, we have heard from a host of 

community bankers, credit unions, accountants, small business 

owners, and Federal financial regulators that this, what could 

prove to be a massive new regulatory bureaucracy, will create more 

confusion for our consumers, more government spending, but, more 

importantly, less innovation and less creation of credit and less 

consumer protection. 

I know some of our witnesses today have said some of that credit 

has been a bad thing, but I think ultimately that choice should be 

left to the individual as long as it is under acceptable terms. 

In deference to this widespread public and official opposition, I 

do commend Chairman Frank for releasing, last Friday, a new 

working draft that attempts to narrow the scope of an overly broad 

proposal by the Obama Administration. However, I think that what 

his proposal does is basically tinkering around the margins of a 

fundamentally flawed proposal, and it is not a solution. What is 

needed is an entirely different approach. 

The CHAIRMAN. That is 3 minutes. If the gentleman wants more 

time, we will— 

Mr. BACHUS. No, that is fine. 

The CHAIRMAN. It was only 2 minutes? I am sorry. It should have 

been 3 minutes. I apologize. I ask that we start again for the gentleman with 3 minutes. I apologize. The gentleman has an additional minute. 

Mr. BACHUS. Thank you. Fortunately, there are a number of alternatives that would achieve the goals of empowering consumers 

and combating abusive practices without limiting credit, without 

imposing excessive compliance and litigation costs on small businesses, without creating a new government bureaucracy, and without undermining safety and soundness regulation. 

For example, the House Republicans have introduced, I think, a 

strong proposal on consumer protection through regulatory consolidation, and we would like the witnesses to comment on our proposal if they have read it. 

I think this is absolutely the wrong time to create a new government agency empowered not only to ration credit, but, most importantly—and I don’t know that anyone has paid a lot of attention 

to this, other than some of our colleagues and some of the regulators—it gives this agency the power to design financial products 

offered to consumers, and that is a striking expansion of government’s role. 

Every day we hear about struggling families, families with good 

credit histories who are denied credit so that they can own a home. 

And I think this only makes things worse. 

Thank you, Mr. Chairman. 

5 

The CHAIRMAN. The gentleman from North Carolina, Mr. Watt, 

for 1 minute. 

Mr. WATT. Thank you, Mr. Chairman. I just—I doubt that anybody will get to the end of this process and say that we have not 

had enough discussions or hearings about any aspect of this—these 

proposals that the Administration has sent over. 

There are two parts to this. The regulated entities, the ones that 

say they have had consumer regulation in the past, whom we 

haven’t seen much of, are concerned that their existing regulators 

ought to continue to have that authority. But there is a whole other 

set of unregulated entities out there that we need to make sure 

that the Consumer Financial Protection Agency is set up to write 

rules for, examine, enforce rules, in addition to figuring out what 

the relationship should be between this new CFPA and the existing 

regulators. 

So I don’t want to lose sight of that and hope we can bring some 

clarity to that as we go forward. 

The CHAIRMAN. The gentleman from Delaware, for 1 minute. 

Mr. CASTLE. Thank you, Mr. Chairman. 

I believe consumers should be protected from deceptive practices 

with regard to financial products. Not only should institutions provide adequate disclosures, but consumers should also have the 

basic financial literacy to understand the contracts into which they 

enter. 

For these reasons, I believe consumer protection reform must be 

enacted. However, I do have reservations about the Consumer Financial Protection Agency, as proposed. 

First, a majority of the subprime mortgages that contributed to 

the financial crisis originated outside the traditional banking sector 

and were virtually unregulated. As currently written, does CFPA 

focus its resources and scope enough on this problem area? 

Second, should we provide existing regulators with checks and 

balances over the CFPA director in the rulemaking process if safety 

and soundness concerns are raised? 

Finally, if part of the goal of this bill is to streamline consumer 

protection laws, why are we eliminating Federal preemption, thereby allowing States to go beyond Federal law to create a patchwork 

or further gaps in consumer protection rules. 

I hope today’s hearing will provide further insight on these 

issues. And I yield back the balance of my time. 

The CHAIRMAN. The gentleman from North Carolina, Mr. Miller, 

for 2 minutes. I am sorry, there was a mistake. The gentleman 

from Texas, Mr. Green, for 1 minute. 

Mr. GREEN. Thank you, Mr. Chairman. 

Mr. Chairman, I am in support of a Consumer Financial Protection Agency. I think that this is the right time to do it. In fact, my 

suspicion is that if we don’t do it now, we may not find a right time 

to do it. I think that there are many issues that have to be delved 

into, and I look forward to it. 

I think the chairman has already demonstrated that he is sensitive to a good number of issues. We are no longer having the 

plain vanilla requirement. There are entities that have been exempted, and I think that by working through the process, we can 

6 

get to safety and soundness, as well as consumer protection. And 

they are not inconsistent with each other. 

I thank you for the time, Mr. Chairman, and I yield back. 

The CHAIRMAN. The gentleman from California, Mr. Royce. 

Mr. ROYCE. Thank you, Mr. Chairman. 

Regulators have discussed at length the problems with separating safety and soundness from consumer protection regulation. 

They have talked about the problems that are going to arise from 

this model, even saying it will weaken protection for consumers. 

We also know this proposed consumer agency will increase costs. 

Last week, the regulators acknowledged that the ultimate cost for 

funding this agency will fall on consumers. They will see the cost 

of credit go up and the availability of credit go down. But the failure of this proposal to adequately preempt State laws is equally 

disconcerting. 

Our architects of this Republic added the commerce clause to the 

Constitution precisely to prevent a fragmented economy. They envisioned one national market, not a market where local and State 

governments with conflicting State laws could strangle free trade 

among the States. We have seen the ill effects of this type of patchwork regulatory system in our insurance market. I think it would 

be a grave mistake to move forward with that failed model for the 

rest of the financial services sector. I yield back, Mr. Chairman. 

The CHAIRMAN. The gentleman from Texas for 2 minutes, Mr. 

Hensarling. 

Mr. HENSARLING. Thank you, Mr. Chairman. 

As I read the bill summary of the new CFPA law, it reminds me 

of a title of one of my favorite Led Zeppelin works, ‘‘The Song Remains the Same.’’ 

If in doubt, read the bill. Section 131(b)(1), 136(a)(1) shows that 

we still have an agency that can outlaw products and practices that 

are determined to be ‘‘unfair,’’ ‘‘abusive,’’ or do not substitute ‘‘fair 

dealing’’ totally in their subjective opinion. 

Are subprime loans inherently abusive? Tell that to the millions 

of Americans who have homeownership only because of a subprime 

loan. Are payday loans inherently unfair? Tell that to the millions 

of Americans who use them to avoid an eviction notice or prevent 

the utilities from being shut off. 

What is different? Now a single unelected bureaucrat, as opposed 

to five unelected bureaucrats, will have the power to decide whether the Rodriguez family in Mesquite, Texas, can obtain a mortgage; 

whether the King family of Athens, Texas, can get a car loan; or 

whether the Shane family of Kaufman, Texas, can even get a credit 

card to buy their groceries. 

For those who persist in wanting to, by government fiat, restrict 

credit opportunities in the midst of a national credit crunch, when 

that particularly impacts low- and middle-income families, the bill 

is well-designed to achieve those goals. 

What else remains the same? Product approval can still trump 

safety and soundness. Clearly, taxpayers are left out of the equation. Preemption remains—multiple standards that add cost and 

uncertainty. Taxing the agency—it still retains the power to essentially tax the industry, taxes that are passed on to consumers in 

7 

the form of higher fees and less credit. Plain vanilla goes from 

mandatory to highly, highly suggested. 

The bill supposedly is about consumer protection. The best way 

that we can protect consumers is with competitive markets that encourage product innovations, give customers choices, and prevent 

fraud and deception. Thank you, Mr. Chairman. 

The CHAIRMAN. The gentleman from Kansas, Mr. Moore, for 2 

minutes. 

Mr. MOORE OF KANSAS. Thank you, Mr. Chairman. 

Last year’s financial crisis exposed an out-of-date regulatory 

structure in need of a complete overhaul. The proposed Consumer 

Financial Protection Agency is a key component of the proposal to 

create stronger oversight of our financial system. I commend the 

chairman for the improvements he made that revised the draft bill 

released last week. 

In today’s hearing, I hope we will explore some of the more difficult questions on CFPA: one, transferring consumer protection enforcement away from bank regulators; and two, the proper role of 

States’ enforcement of policymaking power in relation to the new 

Federal agency. 

I welcome the chairman’s ideas on coordinated exams and a dispute resolution mechanism. I hope these and other ideas generate 

a discussion of not if, but how best to implement the CFPA to fully 

protect consumers. 

And I yield back my time. Thank you, sir. 

The CHAIRMAN. The gentleman from New Jersey, Mr. Garrett, 

for 2 minutes. 

Mr. GARRETT. Thank you, Mr. Chairman, and the ranking member, for holding this important hearing today. Last week, the chairman circulated a new discussion draft of legislation to create a 

whole new Federal agency to oversee all individuals in their financial decisions. 

Now, there are some new provisions in this draft that seek to 

clarify what products and what agencies and entities are covered. 

Most changes really are pretty much cosmetic and little more than 

attempts to make it a little bit more politically palatable for some 

of the concerned Members of the other party to pass it. 

This legislation still separates consumer protection from safety 

and soundness regulation, much like Fannie Mae and Freddie Mac 

did. And we all know how that turned out. This legislation still creates an uber regulator with essentially no bounds or limits on authority. This legislation still limits consumer choices and reduces 

consumer credit. And this legislation still does absolutely nothing 

to address the problems that caused our financial collapse. So this 

legislation really hasn’t changed that much, and my opinion of it 

really hasn’t changed that much either. 

It is simply another example of something taxpayers can’t afford, 

simply another example of government overreach, simply another 

example of increasing the power of the Federal bureaucrats at the 

expense of the individuals. It is also really another example of the 

Federal Reserve being held out as a personal piggybank, if you will, 

of the current powers that be in Washington, D.C. 

So maybe to some, the idea of creating a whole new entity in the 

Federal bureaucracy, with dubious benefits to society, sounds like 

8 

a political winner, but it is clear that the more people concentrate 

on the consequences of that idea, the less likely it will be. 

We really must not push through a bad idea that will limit consumer choice and credit availability and encourage and increase 

costly and unnecessary litigation and potentially decrease the safety and soundness of our very basic banking system in this country. 

Thank you, Mr. Chairman. With that, I yield back. 

The CHAIRMAN. The gentleman from Minnesota, Mr. Ellison. 

Mr. ELLISON. Thank you, Mr. Chairman. 

One of the most important causes of the financial crisis was the 

complete and utter failure of our system of consumer financial protection. The most abusive and predatory lenders were not federally 

regulated, while regulation was overly lax for banks and other institutions that were covered. 

To address this problem, we need a new agency dedicated to consumer financial protection, a Consumer Financial Protection Agency. Of course there are some who would like to keep the same regulators on the job and thereby duct-tape together the shards of a 

broken system. 

Anyone who wants to take this bankrupt approach should read 

the Washington Post article from this last Sunday, which I will 

submit for the record, that discussed the Fed’s failures to act on 

consumer protection. 

Those failures were so great that even former Fed Chairman 

Alan Greenspan has backtracked and said the Administration’s 

proposal is probably the ‘‘right decision’’ regarding a Consumer Financial Protection Agency. Of course, that initial proposal was not 

perfect, but we will continue to work on it over the weeks ahead. 

I yield back. Thank you. 

The CHAIRMAN. The gentleman from Alabama is recognized for 

the final minute. 

Mr. BACHUS. I thank the chairman. 

Every day we hear about struggling families, families with good 

credit histories who are denied credit, so they can own a home, buy 

a car, start a business, or send their children to college. 

We can protect those consumers and we can do that without limiting their options for borrowing, investing, and saving, as this proposal would do. We can also do that without putting the government in the job of designing financial products, something that was 

never intended. We can better protect consumers without imposing 

new taxes and fees on their financial transactions, something the 

Administration has proposed without increasing the cost of borrowing or creating a new bureaucracy. 

And finally, Republicans and Democrats can work together to 

find practical solutions that will allow our markets and our financial institutions to function effectively, and, at the same time, protect consumers. 

Thank you, Mr. Chairman. 

The CHAIRMAN. We will now begin with the hearing. All witnesses and members will be, if there is no objection, given the right 

to insert into the record any additional materials. So no one needs 

to ask for any special permission. The record will be open. 

And in particular, since we are under the 5-minute rule, I would 

advise openness, as you may be given questions which the memVerDate Nov 24 2008 16:05 Apr 15, 2010 Jkt 054872 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 K:\DOCS\54872.TXT TERRIE
9 

bers will ask you to answer in writing. I would ask you to give priority to answering those in writing so that we can incorporate any 

such answers into the hearing record. 

We will begin with Hilary Shelton, who is the director of the National Association for the Advancement of Colored People, the 

NAACP. 

STATEMENT OF HILARY O. SHELTON, DIRECTOR, WASHINGTON BUREAU, NATIONAL ASSOCIATION FOR THE ADVANCEMENT OF COLORED PEOPLE (NAACP) 

Mr. SHELTON. Thank you, and good morning. Thank you, Mr. 

Chairman, Ranking Member Bachus, and members of the Committee on Financial Services for inviting us here today. I appreciate 

the opportunity to share with you the views of the NAACP on the 

creation of a Consumer Financial Protection Agency, or CFPA. 

I would also like to begin by thanking you, Chairman Frank, for 

all you have done, and continue to do, to help all Americans obtain 

access to capital and financial security. In fact, NAACP members 

from across the Nation who were fortunate enough to hear your 

presentation at our Centennial Convention in New York this summer are still talking about the need for this new agency and its 

promise to our communities. 

The NAACP is very supportive of the creation of a strong and effective CFPA with the protection of civil rights and a directive that 

it seek to eliminate discrimination as a core part of its mandate. 

For too long, racial and ethnic minorities, the elderly, and others 

have been targeted by unscrupulous lenders and underserved by 

traditional financial institutions. 

The result of this lack of standard rule and the strict enforcement of the rules that we do have has been the financial stagnation, and, in too many cases, the economic ruin of people’s lives, 

families, and entire communities. When they have been engaged, 

too many regulators have spent too much time in recent years asking what is the effect on the financial industry, without asking 

what is the effect on the consumer? 

One result of these misplaced priorities, as we have seen, has 

been an almost complete collapse of not only our Nation’s economy, 

but the near ruination of the global financial system as well. Examples of financial abuses, targeting racial and ethnic minorities 

abound, especially in the mortgage arena, where predatory lenders 

consistently target certain groups and communities, and by abusive 

credit card companies and exploitive payday lenders. 

In my written testimony, I provided the committee with numerous examples of studies that conclusively show not only a targeting 

of certain groups by financial services, but also the disparate impact this unscrupulous, wealth-stripping behavior has had on individuals, families, and, indeed, whole communities. 

In the interest of time, I will not go into detail here. Suffice it 

to say that the evidence that racial and ethnic minorities have been 

targeted by abusive financial services is strong and conclusive, and 

their eradication is a top civil rights issue of our day. 

As envisioned, the CFPA would provide the government with the 

tools necessary to help all consumers investigate and be treated 

fairly by what is often a confusing and potentially ruinous environVerDate Nov 24 2008 16:05 Apr 15, 2010 Jkt 054872 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 K:\DOCS\54872.TXT TERRIE
10 

ment. It would support, if not require, regulators to become more 

protective of consumers, and it would make civil rights protections 

more a key element in the regulation and oversight of financial 

services. 

It is also because of the systemic discriminatory and abusive 

lending practices that we were pleased to see a strong support of 

our provisions in the latest draft of CPA’s legislation that creates 

an Office of Fair Lending and Equal Opportunity and makes the 

fight against discrimination part of the mandate of the new agency. 

These provisions will go a long way towards putting some teeth 

into the laws that are already on the books and to protecting consumers, all consumers, as they attempt to navigate our Nation’s financial services. 

One area where the NAACP would like to see the current CFPA 

proposal strengthened is that we would like to see regulation of the 

Community Reinvestment Act, the CRA, fall under the CFPA’s jurisdiction. We need to renew, reinvigorate, modernize, and expand 

CRA, and I appreciate the comments of the chairman last week 

when he said that he too is serious about updating this important 

law. 

I would suggest that perhaps in the course of reauthorizing CRA, 

this committee consider putting authority of this important law 

under the newly created and robust CFPA. 

In order to fully address the needs of local communities, many 

of which are represented by the NAACP, the CFPA should be able 

to review and enforce lending laws at that level. 

Mr. Chairman, it is our belief that a strong CFPA will go a long 

way towards addressing the very real needs of enforcement and 

regulation in the financial services arena. 

However, let me make it clear that we have no illusions that this 

new agency will fully address all of the needs and shortcomings 

that continue to plague our communities and, indeed, our Nation. 

We still need strong laws to address many of the problems that 

allow unscrupulous lenders to continue to operate. 

Specifically, the NAACP will continue to fight for aggressive 

antipredatory lending laws, as well as curbs on abusive payday 

loans, and real assistance for homeowners facing foreclosure. 

In that vein, I look forward to continuing to work with you, Mr. 

Chairman, as well as all the other members of this committee, to 

enact strong legislation to help all Americans gain the American 

dream of economic security. 

Thank you very much. And I look forward to your questions. 

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

147 of the appendix.] 

The CHAIRMAN. Next, Michael Calhoun, president and chief operating officer of the Center for Responsible Lending. 

STATEMENT OF MICHAEL CALHOUN, PRESIDENT AND CHIEF 

OPERATING OFFICER, CENTER FOR RESPONSIBLE LENDING 

Mr. CALHOUN. Chairman Frank, Ranking Member Bachus, and 

members of the committee, thank you for your work over the last 

year as you have dealt with one of the largest financial crises our 

country has ever faced. Most of the witnesses today, from both panVerDate Nov 24 2008 16:05 Apr 15, 2010 Jkt 054872 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 K:\DOCS\54872.TXT TERRIE
11 

els, acknowledge that poor oversight and weak consumer protection 

were major causes of our present crisis. 

The question is how to improve them. And an appropriate test 

is what would have happened over the last 10 years if proposed reforms had been in place. The CFPA bill that is before this committee would have prevented the worst of what we are experiencing 

now. However, some of the proposals to weaken it would have exacerbated the last crisis and would make it likely that we will repeat 

these mistakes in the future. In other words, done wrong, we can 

make things even worse for consumers and the whole economy. 

There are four critical things we have to get right. First, we need 

to create an independent agency. As we have learned, if financial 

products are not sound, the markets built on them cannot be 

sound. 

Second, we need to cover products, not labels. We need to make 

sure to prevent the gaps and unlevel rules that contributed so 

much to the current crisis. 

Third, we need to be careful not to insulate abusive practices 

with preemption. This was done over recent years with mortgages, 

credit cards, and debit cards, all with disastrous results. 

And fourth, we need to provide effective enforcement. There has 

been case after case in recent years where, when standards were 

enacted but without enforcement, they created an illusion of protection that was worse and more dangerous than none at all. 

I was struck, Mr. Chairman, by your comments about the impact 

of Mr. Greenspan’s approach at the Fed to not enact consumer protections. That takes me to what is the core issue I want to ask you 

to focus on, and that is the preemption that has been raised. Imagine what would have been the case if Mr. Greenspan would have 

had not only the authority to not act, but also the authority to wipe 

out all State protections and to bar all States from stepping in to 

protect the abuses that we saw. 

We should remember, it was the States who led the way in addressing the ability to repay, finding loans that were being made 

repeatedly to customers who had no ability to stay in those homes. 

It was the States who addressed broker kickbacks where the brokers received payments to steer people to higher-priced loans, even 

though in 2001, HUD took action to actually protect those kickbacks. So I think it is also important to know the details of the preemption in this bill. 

The sweeping scope of present financial preemption is a recent 

and isolated phenomenon, as the chairman mentioned. In 2004, the 

Federal banking agencies took preemption to a whole new level as 

they competed with each other to be attractive to the institutions 

they regulated, who they referred to in official documents as their 

customers. 

The bill makes a return to preemption as it was 5 years ago and 

it relies on you, the Congress, not agencies, to prescribe preemption. States still cannot set usury limits for mortgage loans, credit 

cards, or other credit under this bill as it currently reads. There 

are, however, proposals to greatly increase preemption beyond current levels and make all rules of the CFPA preemptive. This would 

wipe out State consumer protection laws and a wide array of transactions, and weaken overall consumer protection. 

12 

If that had been in place over the last year, we would have faced 

an even greater disaster. We would have seen, again, no opportunity for States to detect problems and test solutions, and no enforcements of State civil rights laws. 

Finally, we need to make sure there is effective enforcement for 

this bill. Looking at the overdraft area, the Fed acknowledged, in 

2001 and 2004, major problems with overdraft loans. It issued best 

practices that said you should not be applying these to debit cards. 

You should protect people from outrageous fees or from repeated 

fees. 

One bank submitted a request for approval of their overdraft program. The OCC refused to give that approval and the bank asked, 

‘‘Are you going to enforce these guidelines against us?’’ And the 

OCC said, ‘‘We will only enforce those things that are law. These 

are not law. Do what you will.’’ 

Fast forward, 8 years later, $80 billion of overdraft fees later. For 

the American public, we now have proposals that the Fed may act. 

We look forward to working with the committee to establish an 

effective CFPA that is enforceable and efficient. Thank you, Mr. 

Chairman. 

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

76 of the appendix.] 

The CHAIRMAN. Next, Mr. David John, who is the senior research 

fellow at the Thomas A. Roe Institute for Economic Policy Studies 

at the Heritage Foundation. 

STATEMENT OF DAVID C. JOHN, SENIOR RESEARCH FELLOW, 

THE HERITAGE FOUNDATION 

Mr. JOHN. Thank you for having me. And it is a delight to be a 

part of this panel. I think we all agree on the problem. The area 

that I am going to disagree is the solution. I thoroughly agree that 

consumer regulation has been faulty and has been a cause of some, 

if not all, of the disruptions that we faced in the last year. I also 

agree that the various financial regulators have not given the consumer regulation the emphasis it needs. 

However, I believe that a far better approach would be to coordinate the consumer activities of existing State and Federal and financial regulators by creating a coordinating council designed to 

promote equal standards of consumer protection, using agencies’ 

existing powers and perhaps additional powers passed by the 

States. 

Critics of the current regulatory system justified the need for a 

CFPA by citing instances where different agencies apply different 

regulatory standards to similar products, or fail to apply any standards at all. And they point to unregulated entities or products that 

took advantage of consumers. 

But these are problems that can just as easily be solved by a coordinating committee as they can by anything else. The council, 

which would be actually similar to your Consumer Financial Protection Oversight Board, in your most recent draft, would consist 

of one representative from each Federal agency, regulatory agency, 

and elected representatives from the councils of the various types 

of the State regulators. 

13 

In addition, it would have a fully participating chairman appointed by the President, a board of outside experts who would 

monitor consumer regulatory activities and issue reports on that. 

Staffing would come from within the agencies, except for a very 

small support staff for the chairman and advisors. 

The inclusion of State regulators the council would make coverage even more universal than it would be under the proposed 

CFPA. Standards agreed to by the council would also apply to insurance companies, which are exempted from the CFPA approach, 

and as States move to license in the unregulated mortgage brokers 

and others who are often responsible for abuses in mortgage lending. Instead of a one-size-fits-all policy dictated by Washington, 

States would continue to have some flexibility in implementing regulations, subject to the oversight of the council and its expert advisors who would issue public statements and studies to make sure 

that consumers and legislators were aware of States with poor coverage or enforcement. Likewise, poor Federal agencies. 

The failure to act could make loans from State-regulated entities 

in those States that failed to work properly ineligible for 

securitization or sale to investors in other States. This approach 

would preserve State regulation of those entities that are currently 

State-regulated, rather than attempting to federalize all aspects of 

consumer financial relationships. 

The council would also include both the SEC and the CFTC, thus 

closing gaps in the CFPA, as proposed, including the regulation of 

retirement savings accounts, which are also becoming ever more 

complex and difficult for consumers to understand. 

The council would be responsible for developing broad standards 

for consumer regulation, while leaving the writing and enforcement 

of specific regulations to those agencies with responsibilities in that 

area. This ensures that the regulations would take into consideration the operational realities of regulated institutions as well as 

any special characteristics of regional markets. 

Another key advantage to the council is that by using existing 

regulators in their current authority, the regulators’ individual efforts can be better monitored than the results of a proposed vast 

new bureaucracy with vague and almost unlimited powers. 

Through proper congressional oversight and reports from the 

new council’s expert advisors, Congress and State legislators could 

better pinpoint successes and failures than it could by attempting 

to keep track of the efforts of one massive agency. 

I have proposed—there is a footnote on page 6 that a mechanism 

similar to the Uniform Commercial Code be used to recommend 

policies and specific regulatory and legal language to the individual 

States to ensure that the proper standards are kept and met. I believe that this approach would have a much better opportunity to 

solve some of the problems that have been raised here, and will be 

raised here later, than a proposed new agency. Thank you. 

[The prepared statement of Mr. John can be found on page 123 

of the appendix.] 

The CHAIRMAN. Next, we will hear from Janice Bowdler, who is 

the senior policy analyst at the National Council of La Raza. 

14 

STATEMENT OF JANIS BOWDLER, DEPUTY DIRECTOR, 

WEALTH-BUILDING POLICY PROJECT, NATIONAL COUNCIL 

OF LA RAZA (NCLR) 

Ms. BOWDLER. Good morning. Thank you. I would like to thank 

Chairman Frank and Ranking Member Bachus for inviting NCLR 

to share perspective on this issue. Latino families have been particularly hard hit by the implosion of our credit markets. Lax oversight allowed deceptive practices to run rampant, driving Latino 

families into risky products and ultimately cyclical debt. In fact, 

Federal regulators routinely missed opportunities to correct the 

worst practices. 

Congress must plug holes in a broken financial system that allowed household wealth to evaporate and debt to skyrocket. 

Today, I will describe the chief ways our current regulatory system falls short, and I will follow with a few comments on the 

CFPA. Most Americans share a fundamental goal of achieving economic security they can share with their children. To do so, they 

rely on financial products—mortgages, credit cards, car loans, insurance, and retirement accounts. Unfortunately, market forces 

have created real barriers to accessing the most favorable products, 

even when families are well-qualified. 

Subprime creditors frequently targeted minority communities as 

fertile ground for expansion. Subprime lending often served as a replacement of prime credit, rather than a complement. With much 

of the damage coming at the hands of underregulated entities, 

gaming of the system became widespread. Despite the evidence, 

Federal regulators failed to act. 

This inaction hurt the Latino community in three distinct ways. 

Access to prime products was restricted, even when borrowers had 

good credit and high incomes. This most often occurred because 

short-term profits were prioritized over long-term gains. Lenders 

actually steered borrowers into costly and risky loans, because that 

is what earned the highest profits. Disparate impact trends were 

not acted upon. 

Numerous reports have documented this trend. In fact, a study 

conducted by HUD in 2000 found that high-income African Americans, living in predominantly black neighborhoods, were 3 times 

more likely to receive subprime home loans than low-income white 

borrowers. Regulators failed to act, even when Federal reports 

made the case. 

And shopping for credit is nearly impossible. Financial products 

have become increasingly complex, and many consumers lack reliable information. Many chose to pay a broker to help them shop. 

Meanwhile, those brokers have little or no legal or ethical obligation to actually work on behalf of the borrower. Regulators dragged 

their feet on reforms that could have improved shopping opportunities. 

If our goal is to truly avoid the bad outcomes in the future, the 

high rates of foreclosure and household debt, little or no savings 

and the erosion of wealth, we have to change the Federal oversight 

system. Lawmakers must ensure that borrowers have the opportunity to bank and borrow at fair and affordable terms. 

We need greater accountability and the ability to spot damaging 

trends before they escalate. Some have argued that it is the borVerDate Nov 24 2008 16:05 Apr 15, 2010 Jkt 054872 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 K:\DOCS\54872.TXT TERRIE
15 

rower’s responsibility to look out for deception. However, it is unreasonable to expect the average family to regulate the market and 

in effect to do what the Federal Reserve did not. 

The proposed CFPA is a strong vehicle that could plug the gaps 

in our regulatory scheme. In particular, we commend the committee for including enforcement of fair lending laws in the mission 

of the agency. This, along with the creation of the Office of Fair 

Lending and Equal Opportunity, will ensure that the agency also 

investigates harmful trends in minority communities. This is a critical addition that will help Latino families. 

We also applaud the committee for granting the CFPA strong 

rule-writing authority. This capability is fundamental to achieving 

its mission. 

Also, we were pleased to see that stronger laws are not preempted. This will ensure that no one loses protection as a result 

of CFPA action. As the committee moves forward, these provisions 

should not be weakened. 

And I will close just by offering a few recommendations of where 

we think it could be strengthened. A major goal of CFPA should 

be to improve access to simple prime products. Obtaining the most 

favorable credit terms for which you qualify is important to building wealth. This includes fostering product innovation to meet the 

needs of underserved communities. 

We need to eliminate loopholes for those that broker financing, 

and for credit bureaus. Real estate agents, brokers, auto dealers, 

and credit bureaus should not escape greater accountability. And 

we need to reinstate a community-level assessment. Without it, 

good products may be developed but will remain unavailable in entire neighborhoods. Including CRA in the CFPA will give the agency the authority necessary to make such an assessment. 

Thank you. And I would be happy to answer any questions. 

[The prepared statement of Ms. Bowdler can be found on page 

66 of the appendix.] 

Ms. WATERS. [presiding] Ms. Burger is recognized for 5 minutes. 

STATEMENT OF ANNA BURGER, SECRETARY-TREASURER, 

SERVICE EMPLOYEES INTERNATIONAL UNION (SEIU) 

Ms. BURGER. On behalf of the 2.1 million members of SEIU and 

as a coalition member of the Americans for Financial Reform, I 

want to thank Chairman Frank, Ranking Member Bachus, and the 

committee members for their continued work to reform our broken 

financial system. 

It has been a year since the financial world collapsed, showing 

us that the action of a few greedy players on Wall Street can take 

down the entire global economy. As we continue to dig out of this 

crisis, we have an historic opportunity and a responsibility to reform the causes of our continued financial instability, and protect 

consumers from harmful and often predatory practices employed by 

banks to rake in billions and drive consumers into debt. 

The nurses, the childcare providers, janitors, and other members 

of SEIU continue to experience the devastating effects of the financial crisis firsthand. Our members and their families are losing 

their jobs, homes, health care coverage, and retirement savings. 

16 

As State and local governments face record budget crises, public 

employees are losing their jobs and communities are losing vital 

services. And we see companies forced to shut their doors as banks 

refuse to expand lending and call on lines of credit. 

At the same time, banks and credit card companies continue to 

raise fees and interest rates and refuse to modify mortgages and 

other loans. We know the cause of our current economic crisis. Wall 

Street, big banks, and corporate CEOs created exotic financial 

deals, and took on too much risk and debt in search of outrageous 

bonuses, fees, and unsustainable returns. The deals collapsed and 

taxpayers stepped in to bail them out. 

According to a recent report released by SEIU, once all crisis-related programs are factored in, taxpayers will be on the hook for 

up to $17.9 trillion. And I would like to submit the report for the 

record. 

The proliferation of inappropriate and unsustainable lending 

practices that has sent our economy into a tailspin could and 

should have been prevented. The regulators’ failure to act, despite 

abundance of evidence of the need, highlights the inadequacies of 

our current regulatory system in which none of the many financial 

regulators regard consumer protection as a priority. 

We strongly support the creation of a single Consumer Financial 

Protection Agency to consolidate authority in one place, with the 

sole mission of watching out for consumers across all financial services. 

I want to thank Chairman Frank for his work to strengthen the 

Proposed Consumer Financial Protection Agency language, particularly the strong whistle-blower protections. 

We believe to be successful, the CFPA legislation must include 

a scope that includes all consumer financial products and services; 

sovereign rulemaking and primary enforcement authority; independent examination authority; Federal rules that function as a 

floor, not a ceiling; the Community and Reinvestment Act funding 

that is stable and does not undermine the agency’s independence 

from the industry; and strong whistle-blower and compensation 

protections. 

We believe independence, consolidated authority, and adequate 

power to stop unfair, deceptive, and abusive practices are key features to enable the CFPA to serve as a building block of comprehensive financial reforms. 

Over the past year, we have also heard directly from frontline financial service workers about their working conditions and industry practices. We know from our conversations that existing industry practices incentivize frontline financial workers to push 

unneeded and often harmful financial products on consumers. 

We need to ban the use of commissions and quotas that 

incentivize rank-and-file personnel to act against the interest of 

consumers in order to make ends meet or simply keep their job. 

The CFPA is an agency that can create this industry change. 

Imagine if these workers were able to speak out about practices 

they thought were deceptive and hurting consumers, the mortgage 

broker forced to meet a certain quota of subprime mortgages, or the 

credit card call center worker forced to encourage Americans to 

take on debt that they cannot afford and then they threaten and 

17 

harass them when they can no longer make their payments, or the 

personal banker forced to open up accounts of people without their 

knowledge. 

Including protection and a voice for bank workers will help rebuild our economy today and ensure our financial systems remain 

stable in the future. 

Thank you for the opportunity to speak this morning. The American people are counting on this committee to hold financial firms 

accountable and put in place regulations that prevent crises in the 

future. Thank you. 

Ms. WATERS. Thank you very much. 

[The prepared statement of Ms. Burger can be found on page 74 

of the appendix.] 

Ms. WATERS. I will recognize myself for 5 minutes. And I would 

like to address a question to Mr. David C. John, senior research follow, Thomas A. Roe Institute for Economic Policy Studies, The Heritage Foundation. 

I thank you for participating and for the recommendation that 

you have given, an alternative to the Consumer Financial Protection Agency. You speak of the consumer protection agency as a 

huge bureaucracy that would be set up, that would harm consumers, rather than help consumers, and you talk about your council as a better way to approach this with lots of coordination and 

outside input. 

It sounds as if you are kind of rearranging the chairs. Basically, 

what you want to do is leave the same regulatory agencies in place 

who had responsibility for consumer protection but did not exercise 

that responsibility. Why should the American public trust that, 

given this meltdown that we have had, this crisis that has been 

created, that the same people who had the responsibility are now 

going to see the light and they are going to do a better job than 

starting anew with an agency whose direct responsibility is consumer protection? 

Mr. JOHN. Well, Madam Chairwoman, when you establish a new 

agency of this type, the first thing you are going to do is to move 

numbers of people into a new agency. You are going to disrupt existing patterns of activity, you are going to find yourself with people who are supposedly regulating. But the reality is, they are far 

more concerned about finding things like where their desk is and 

who their new reporting relationship is, and etc., etc. 

What I am proposing is very simple. As the chairman pointed 

out, when Congress has moved the regulators and indicated to the 

regulators that they have not met their responsibilities, they have 

done a fairly good job at coming up with alternate proposals and 

actually doing their job. 

Now, I would suggest that the coordinating council that I propose 

actually will serve the same purpose on a continuous basis. It 

keeps the regulators, the individual regulators in place, and I think 

it is very key that the consumer regulators have a good idea of 

what is going on within the financial institution that they regulate. 

Regulating a bank is vastly different than regulating a credit 

union, which is vastly different than regulating a securities house, 

etc., etc. 

18 

Moving everyone into one—under one roof doesn’t necessarily improve the coordination or improve the activity. It just changes 

things. 

Ms. WATERS. Well, if I may, we just heard testimony about some 

of the abuses that really do need to be attended to. In this meltdown and this economic crisis that we have, as it was pointed out 

by one of our presenters here today, certain communities were targeted. I think it was pointed out by Ms. Bowdler, senior policy analyst, National Council of La Raza. Ms. Bowdler, do you think that 

these communities that have been targeted, who are suffering still 

today with foreclosures, who have been paying too high interest 

rates, were the recipients of predatory loans, do you think they 

would be satisfied with a coordinating council rather than a consumer protection agency? 

Ms. BOWDLER. No, I don’t think that more of the same is going 

to get us the results that we want. I think what we need is a better 

way to connect families to the products that they actually qualify 

for, which means developing new products in some cases, but it 

also means getting the good guys into our neighborhoods and making sure that they are actually competing for the business of our 

families, which they haven’t been doing. 

Ms. WATERS. Thank you very much. 

Mr. Castle, for 5 minutes. 

Mr. CASTLE. Thank you, Madam Chairwoman. Just this one little 

bit aside from all this, I have always felt this was a two-way street, 

and I think all you made some pretty good points, but I also am 

very concerned about the consumers and what they know and don’t 

know. And this is not just a subject of this committee, it is in another committee I serve on, the Committee on Education and 

Labor, but I think that we need to do a lot more financial literacy. 

I have heard from your testimony that there are many people 

who would have been qualified for prime loans and didn’t get them 

because somebody sold them something or whatever it may be. But 

the bottom line is, if people have knowledge about what they are 

negotiating for, those problems would be not eliminated obviously, 

but could be reduced greatly. And I think we need to stress that 

as we go forward in dealing with this problem, which I consider to 

be a great problem. 

I also, for the first time in my office, am starting to hear complaints about people not being able to get credit cards. And I worry 

sometimes about when we do these things there is a negative side 

to it that we have not contemplated and we need to be careful as 

we make changes. So I just point those things out as we go forward. 

I happen to agree with Mr. John with respect to the council, I 

don’t think it is more of the same, I think it is probably the way 

to go. But I want to ask the question based on that, if there is a 

Director of CFPA who had the exclusive authority to promulgate 

the consumer protection rules, and on that particular CFPA we 

would have the existing regulators who are able to advise a Director but there is no formal consultation process or requirements for 

the regulators to have a say in the rulemaking process, should we 

consider providing existing regulators with some kind of check and 

balance, or checks and balances, or veto power over the CFPA DiVerDate Nov 24 2008 16:05 Apr 15, 2010 Jkt 054872 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 K:\DOCS\54872.TXT TERRIE
19 

rector in the rulemaking process of safety and soundness concerns 

are raised for example. 

That is an area I don’t think we can ignore. I throw that out to 

whomever wishes to take a stab at it. Mr. Calhoun? 

Mr. CALHOUN. Yes, if I may respond on two counts. One it seems 

to me if we were starting from scratch, and that might be a good 

place to think about here, it is hard to see that five separate consumer protection agencies are less government than one combined 

one. And in terms of the council, we tried a version of that over 

the last few years, the agencies did issue joint guidance. And it 

proved to not be a workable process. 

For example, looking at subprime loans, despite all the requests 

from this committee and all the reports of problems in subprime 

lending, it was not until July 2008 that the joint agencies finally 

issued guidance on subprime loans, and then it was unenforceable. 

They issued guidance 10 months earlier on alternative loans and 

overlooked subprime loans. And the problem with the council was 

it became the least common denominator, there were holdouts. 

Mr. PERLMUTTER. Can you pull your microphone closer, please? 

The CHAIRMAN. There is a conversation going on in the back of 

the room that will stop and people will leave. People will not stand 

and have conversations while we are having a hearing. 

Mr. CASTLE. I was a little worried the chairman didn’t like my 

question. 

Mr. CALHOUN. Or my answer. 

Mr. CASTLE. My concern though is should they be in the room 

on the questions of safety and that kind of thing. That is what they 

are responsible for and I am concerned that decisions could be 

made by a council that could be disrupting to the overall balance 

of the financial systems in this country. 

Mr. CALHOUN. We supported the addition of the oversight board 

that is in the current draft and the requirement for consultation 

and for transparency to make sure that happens. 

Mr. CASTLE. Mr. John? 

Mr. JOHN. I agree actually that the existing regulators and especially the prudential regulators who have a much better idea of 

what is going on within their particular industry, especially if you 

create some siloed outside CFPA, must have a very strong input 

and not just an advisory input but the ability to call a halt if absolutely necessary. We have already seen in a number of cases where 

regulators have left, shall we say, the realm of reality. 

Now let me also respond to Mr. Calhoun. What I am proposing 

actually doesn’t exist. What exists at the moment is just an informal agreement. What I am talking about is a formal structure with 

a formal chairman, a formal staff, a formal group of advisers who 

would have specific responsibilities and would hopefully meet some 

of the problems that we have had so far. 

Mr. CASTLE. I am not going to have time for another question, 

but I will throw out a couple of thoughts in the remaining seconds 

I have. I am concerned that the legislation as currently drafted is 

not focused enough on the products and services that contributed 

to the financial crisis and perhaps in terms of its reach. I am not 

an expert in all the details of it, but that does concern me. 

20 

I have heard some of you mention preemption in what you are— 

I am also concerned about the confusion that eliminating preemption could bring into a system in terms of getting products out and 

is that going to end up being positive or negative. 

So these are things that I intend to continue to keep my eye on. 

I yield back the balance of my time. 

The CHAIRMAN. I will begin with Mr. John, and to clarify what 

you said, what you are talking about then would be not the existing informal arrangement but in effect a new agency with staff? 

Mr. JOHN. Yes. What I am talking about, it is not a new agency, 

it is a new coordinating council of the— 

The CHAIRMAN. Well, would it have staff? 

Mr. JOHN. Yes. 

The CHAIRMAN. Would it have new legal authority? 

Mr. JOHN. I beg your pardon? 

The CHAIRMAN. Would it have new legal authority? 

Mr. JOHN. It would have the authority to issue— 

The CHAIRMAN. Would it have legal authority that does not now 

exist? 

Mr. JOHN. It would have limited authority. 

The CHAIRMAN. But it would have some authority. Well, the 

point I am making is it is another new agency, so the question is 

we seem to be agreed that we need a new agency with staff and 

with new statutory powers, correct? 

Mr. JOHN. Well, my agent—what I am proposing— 

The CHAIRMAN. Does it have new staff and new statutory powers? 

Mr. JOHN. It would have very small staff and work as FFIEC 

does. Mainly using— 

The CHAIRMAN. It would have a staff. 

Mr. JOHN. —assisting staff, yes. 

The CHAIRMAN. And would it have additional statutory powers? 

Mr. JOHN. It would have a very limited statutory authority. 

The CHAIRMAN. It will be taking people from the existing agencies. So again I just am struck that you are proposing a new agency. 

I am sorry, there appears to be a problem with the clock here. 

I don’t see how I could be a minute-and-a-half over already. I am 

sorry? 

I apologize. Mr. Castle, I am sorry, time expired and I began. So 

then I used a minute-and-a-half, so give me 31⁄2 minutes. 

The next question I do have is about preemption, and the argument is that if we do not have a total preemption of the sort that 

the Comptroller and the head of the Office of Thrift Supervision 

promulgated in 2004 we would have total chaos or serious confusion. 

Mr. John, in the period before that much broader preemption 

went into effect in 2004, have you documented serious problems 

with conflicting mandates? Because it wasn’t until 2004 that the 

Comptroller of the Currency and head of the Office of Thrift Supervision engaged in field preemption. Previously, there was case-bycase preemption. In the period before that—and they also blocked 

visitorial authority. Have you any studies of serious confusion in 

the pre-2004 period? 

21 

Mr. JOHN. I have not done any studies on that. 

The CHAIRMAN. Are you aware of any that anybody has done? 

Mr. JOHN. I am not aware of any. However, I would point out 

in many cases it was after 2004 that, for instance, San Francisco 

and various others entities starting looking at ATM fees. 

The CHAIRMAN. I understand that, but of course the point was 

even before 2004, the bank regulators had the authority case-bycase to preempt any of those. 

Mr. JOHN. Yes. 

The CHAIRMAN. And I think that helps make the case as well. In 

the pre-2004 period, it seems to me people who tell us we have to 

maintain the field preemption exclusion of regulators from the 

States being involved that came in 2004 have some burden to show 

us that there was serious problems before that. And frankly, I 

think the absence of any evidence is a pretty good sign that was 

not the case. The standard before 2004 was that if there were conflicting things that the national regulators thought were a problem, 

they could preempt them case-by-case and we could still have other 

forms of preemption. 

Second, I did want to talk about Mr. Castle’s point that we were 

not dealing with the causes. This committee passed and this House 

passed, in a more partisan voice than I wish, very severe restrictions on subprime mortgages. So we have already done that. And 

as I have previously mentioned to him, we plan to incorporate 

them. I know he likes to forget that. But the fact is, over the objection of most people on the Republican side who said we were restricting credit unduly to low-income people, we passed very specific legislation which would restrict subprime mortgages and administering that would be part of the charter of this organization. 

It would also deal with other nonbank entities. 

Look, I think we should be very clear. If only banks had been involved in the financial lending business, we would not be in the situation we are in. We would not have had the subprime mortgage 

problem. There are abuses with check cashing, there are some 

abuses in payday lending, so this is not an anti-bank entity at all. 

Indeed, I think much of what this entity will do will be to enforce 

on nonbanks the rules that have guided banks, particularly the 

community banks. That doesn’t mean there have been no bank 

problems. There have been some, but I don’t know why the gentleman from Delaware keeps arguing that we are leaving these 

other things out. They will be very explicitly covering nonbank 

competitors of the banks, and I think that will be enhanced. 

On another point, though, I do agree with him—the gentleman 

from Texas, Mr. Hinojosa, the gentlewoman from New York, Mrs. 

McCarthy, and the gentlewoman from Illinois, Ms. Biggert, have 

been working together on financial literacy. We have had trouble 

figuring how to deal with this institutionally. One of the things 

that we expect to be a major part of this new agency is a significant emphasis on financial literacy, I think there is broad agreement. As I said, I think the gentlewoman from Illinois has been a 

part of that. 

I now recognize Mrs. Capito. 

Mrs. CAPITO. Thank you, Mr. Chairman. I would like to thank 

the panel. Mr. Shelton, I would like to ask you a question. I am 

22 

concerned, I live in a more rural area, where we really are community bankers and our local lenders are the ones who are face-to-face 

with constituents every day. And they have voiced concerns about 

this because of—concerns of losing the flexibility that they believe, 

and I believe they do as well, offer at the local level to be able to 

forge financial products that meet an individual situation more on 

a case-by-case kind of situation. So I want to get to the issue of 

choice and choice of financial products, and I am wondering if you 

have any concerns since really the not so implicit premise of this 

is that consumers, some of them are simply not sophisticated 

enough or knowledgeable enough to invest in certain products or 

have certain products offered to them. Do you have any concerns 

that this might lead to some more insidious kind of redlining where 

there is a double standard or even one standard that only could be 

applicable maybe to a more sophisticated or wealthier borrower? 

Mr. SHELTON. No, not at all. The biggest problem right now is 

first the lack of access of capital in the communities you are talking about. Some of the biggest challenges we have are issues not 

clearly covered by this bill, are issues very much like payday lending, some of those concerns. Too often in the communities that we 

serve there are so few legitimate financial lending institutions 

available that they find themselves being victimized by 456 percent 

APR when they go to, for instance, a payday lending facility in the 

local community. So the idea is to make sure: one, there is capital 

available in those communities; two, it is done in a fair way; and 

three, there is oversight to make sure the same consumers you are 

talking about don’t get taken advantage of in the process. 

What we saw happening as we saw the economic downturn is 

very well, even with the policies and oversight available to us now, 

there are many consumers who are actually led into products that 

they could not sustain. And we want to make sure there is oversight and transparency there as well. Brokers sat down with racial 

and ethnic minorities, sat down with the elderly and very well discussed products that they did not get full disclosure on how those 

products would actually function. As a result, tragedy occurred. 

There are many Americans who owned their own homes that went 

to refinance. For instance, elderly to buy new storm windows to address issues of climate change, or new roofs to address leakage of 

an aging house found themselves not only going into debt, but also 

going into debt at a rate they were not aware they would be going 

into because there was not full disclosure or full oversight. 

So we very well argue that we need the products, we need the 

oversight, and we need a clear agency whose primary function is 

to provide some protection of the consumers as we enter these very 

challenging products. 

Mrs. CAPITO. Mr. John, I would like to give you a chance to respond, because I believe you might have a different view on what 

this could do to consumer choice, particularly in the level that Mr. 

Shelton is addressing where they might not have a lot of options 

available and maybe at the lower economic scale. If you could— 

Mr. JOHN. I am very concerned, I am one of your constituents, 

I live in Harper’s Ferry, and we have a very limited selection of financial institutions that are available to us in the Eastern Panhandle. 

23 

One of the things we have been very concerned about is the fact 

that when you go into a small lender or something along that line 

or small bank that you—if you are directed only to a specific level 

of products, whether this is by government fiat or whether it is by 

encouragement or anything along that line, often people don’t have 

the idea of what they are going to see. And we have had situations 

in—people I know in our communities who have been unable to get 

certain types of products because they are just not available, period. And what we do need desperately is an additional level of financial literacy, which Mr. Castle referred to. 

If our schools taught what is necessary, if we found ourselves 

where new products would be available, for instance, some of the 

credit card products have fewer lower costs, some of the mortgage 

products, not necessarily the ones that sold to the people you are 

representing, have much lower costs than some of the traditional 

products. 

The last thing that needs to happen here, whether it is by the 

council or a regulator, is to find ourselves eliminating or reducing 

incentives for new products and further improvements for consumers. 

Mrs. CAPITO. Thank you. I think my time has expired. 

The CHAIRMAN. The gentleman from North Carolina. 

Mr. WATT. Thank you, Mr. Chairman. Let me see if I can 

squeeze three different things into this. Mr. John, first, the one 

thing I did like about what you were talking about is that there 

seemed to be implicit in it a strong support for State involvement 

in this inclusion of State regulators on the council—I am on page 

3 of your testimony—States would continue to have flexibility in 

implementing regulations. Regulation of those entities that are currently State regulated would be preserved under your approach. 

I assume that implicit in that is a strong support for the proposal 

insofar as maintaining State standards here, not preempting those 

standards at the Federal level; is that correct or am I missing 

something here? 

Mr. JOHN. I believe that States should have— 

Mr. WATT. I am just asking you, am I correct about that? Would 

you support, all things else aside, you seem to be a strong supporter of State involvement, would you support if we have a consumer protection agency of some kind, either yours or whatever, 

nonpreemption or preemption of State law? 

Mr. JOHN. No. 

Mr. WATT. Okay. You think we ought to preserve the State law 

and continue to enforce it, right? 

Mr. JOHN. I believe that we need to have the States continue to 

have control over the entities that they have been regulating. 

Mr. WATT. All right. Let me then go to Mr. Calhoun. We have 

gotten bogged down into the issue of whether this agency exists for 

and whether some other agencies—the existing regulators are 

going to regulate, continue to regulate consumer issues for existing 

regulated banks, but there is a whole world of entities out there 

that are not existing, regulated banks. Mr. Shelton seemed to be 

saying that he didn’t think this applied, but I don’t think that at 

all. I think this consumer financial protection agency would have 

24 

full application to check writing, payday lenders, the whole range 

of things that were not under Federal regulation. 

Do you see anything in this proposal that would not give the 

CFPA that authority? 

Mr. CALHOUN. I think it is in the proposal, and I think the recent 

changes to the bill before the committee make that even clearer 

and that is one of the most critical things. Going back if I may say, 

the problem has been lack of oversight. We have had— 

Mr. WATT. I understand that, but you—we need this consumer 

protection agency, even if we resolve this dispute about the regulated banks versus nonregulated, we need it for that purpose is the 

point I am trying to make. 

Mr. CALHOUN. Yes. 

Mr. WATT. Is that correct? 

Mr. CALHOUN. I agree. 

Mr. WATT. Now, the third issue I want to deal with is this whole 

preemption issue. You and I worked through this or tried to work 

through it on the predatory lending front, trying to find the appropriate balance about what got preempted and what did not get preempted. One approach that I want to sound out on you publicly 

today, and I haven’t thought it all the way through, is similar to 

the approach that we used in the predatory lending area of actually 

going through and specifying some things that are not preempted, 

unfair and deceptive, State unfair and deceptive trade practices 

laws, State fraud laws. There was a list of them that we came up 

with. I don’t have the list in front of me right now, civil rights 

laws, things that we know if a State legislates in, we ought not be 

preempting their standards because quite often a lot of those 

standards are set at the local level; is that correct? 

Mr. CALHOUN. Yes. 

Mr. WATT. Would that be an approach that might be an acceptable approach for us to start looking at in this context? 

Mr. CALHOUN. It is something we certainly would work with you 

on. I think the key point, as the chairman made, is that the test 

up until 2004 was basically the Barnett Bank case of 1996, and it 

was that States can’t enact laws unless they are significantly impaired. And then in 2004, we had regulatory competition over who 

could have the most preemption. Our biggest concern, and there is 

one point I want to make, there are proposals out, not just to preserve existing preemption, but to use this bill to greatly expand existing preemption by making all CFPA rules preemptive. We think 

that undercuts the benefit of the agency. 

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

The CHAIRMAN. The gentleman from Texas, Mr. Hensarling. 

Mr. HENSARLING. Thank you, Mr. Chairman. Clearly myself and 

a number of people on our side of the aisle continue to be very concerned about handing what we view as rather draconian powers to 

an unelected representative to decide upon subjective terms what 

financial products that our fellow citizens can enjoy. Clearly, many 

of you on the panel today don’t seem to have that same concern. 

I guess my first line of questioning then would be—I have heard 

a number of people talk about unfair and fair, but again those are 

very nebulous and amorphous terms. Mr. Calhoun, I believe I 

heard you say if the CFPA had been in existence a number of years 

25 

ago, we probably would not have had this economic turmoil. I for 

one believe if it had been in effect a number of years ago, we probably wouldn’t have ATM machines, frequent flier miles, and the list 

goes on. 

But the first question I would have, given that incredible draconian powers are being suggested to be transferred to this government agency, is what are your views on what is fair and unfair? 

For example, payday lending, is payday lending per se unfair, Mr. 

Shelton? Yes, no, no opinion? 

Mr. SHELTON. Well, I do have an opinion. The first part of the 

opinion— 

Mr. HENSARLING. I am sorry, you do or do not? 

Mr. SHELTON. I have an opinion. My opinion is very well that 

payday lending is absolutely necessary which is why the demand 

is so high. However, payday lending is extremely unfair in that the 

APR if you factor throughout most States ends up being astronomical. 

Mr. HENSARLING. So I am sorry, it is needed, but it is unfair? 

Mr. SHELTON. Absolutely, in an unfair way. 

Mr. HENSARLING. If it is unfair, it could be outlawed by the 

CFPA so they could outlaw something that is needed. 

Mr. SHELTON. Well, outlawing and regulating can be two different things. What we are looking for is compliance among those 

to provide— 

Mr. HENSARLING. But I assume your association is where the 

proposed statutory language, does it not say that this agency would 

have the power to make these products unlawful, maybe they 

wouldn’t? Does it not have the power? 

Mr. SHELTON. Sure, sure. Some of the products should be made 

unlawful. 

Mr. HENSARLING. Well, let me ask you about that. I come from Dallas, Texas, where a $200 Ace Cash Express payday loan would 

carry $60, 76 total finance charge, which would be 30.4 percent. Is 

that unfair? If you were advising the CFPA, which I believe is 

going to have some kind of advisory council, would you advise them 

to make this product unlawful? 

Mr. SHELTON. If we are talking about an APR of 30 percent? 

Then I would say it should be considered fair. 

Mr. HENSARLING. How about 40 percent, 50 percent? 

Mr. SHELTON. I think you are running too high, then. I think 

even the Federal Government and this particular committee basically set a 36 percent cap on loans for people in the military. We 

think that is a good fair place to begin the conversation. 

Mr. HENSARLING. Let me ask you this question Ms.—is it 

‘‘Bowdler’’ or ‘‘Bowdler?’’ 

Ms. BOWDLER. ‘‘Bowdler.’’ 

Mr. HENSARLING. I am sorry, I will go to you next. I saw your 

hand up. 

Let’s talk about credit cards for a moment. This committee has 

moved on legislation, passed into law that sense we will prescribe 

universal default. Now clearly, if one looked in the marketplace you 

could find credit cards that had universal default provisions that 

had lower interest rates than cards that didn’t carry universal default. Is universal default unfair or abusive? And if my facts are 

26 

correct that one could have received a credit card with a lower percentage rate had it been in there, is it still unfair and abusive? 

Ms. BOWDLER. That is not really the approach that NCLR would 

recommend taking when it comes to those kinds of products. 

Mr. HENSARLING. Can you pull the microphone a little closer? 

Ms. BOWDLER. Yes. That is not really the approach we would recommend taking. What we recommended in our testimony is that 

we need to spot trends that have disparate impact. So if we look 

at the use of various products and it is having routinely a negative 

affect on our community then what we would rather see is that 

products that have a less disparate impact be promoted. 

Mr. HENSARLING. So you don’t necessarily know whether it would 

be fair or unfair; you would look at its disparate impact. 

Previously we have had testimony, I believe probably a few years 

ago, from a representative of the U.S. Hispanic chamber who said 

a large number of their members capitalize small businesses with 

credit cards. And so if the CFPA were to outlaw certain credit 

cards and that led to less capital for small businesses which employed fewer Hispanics, would that be of concern to you and your 

organization? 

Ms. BOWDLER. Outlawing products—NCLR has never advocated 

for the banning of any products from the market. I understand that 

the CFPA has that power. That is not—again, that is not our approach. But what my concern is, is that there are a lot of good credit cards, good mortgages, good short-term loans that are gathering 

dust and never see the light of day because bad practices actually 

replace them in the market. So if we can get incentives to get those 

more positive products that actually build wealth in small businesses, in modest income homes, that is what we want to do. 

The CHAIRMAN. The gentleman from Kansas. 

Mr. MOORE OF KANSAS. Thank you, Mr. Chairman. 

Mr. John, on page 4 of your testimony, you say the CFPA proposed list was filled with poorly considered departures from existing law and practices that are as likely to damage consumers’ interest has improved them. You suggest a council of consumer financial regulators would be sufficient. 

Do you really think existing law and practice, in your words, 

worked to prevent the financial crisis last year, sir? 

Mr. JOHN. For one thing, I think there are some different causes 

of the financial crisis and that just focusing on consumer activities 

and consumers lending is somewhat misleading. If the laws that 

exist on the books, and this includes both State laws and Federal 

laws, had been properly enforced and had been carefully considered, meaning the coverage of things like unregulated mortgage 

brokers and things like that had been covered by some of the 

States, I think that would have gone a long way toward preventing 

some of the consumer products breakdowns that caused the situation. As I say, I think there was a lot more than just that. 

Mr. MOORE OF KANSAS. What laws were not enforced that should 

have been enforced and who was to have enforced those laws, sir? 

Mr. JOHN. I think an article from the Washington Post from Sunday has already been cited here. I was deeply disturbed, for instance, to see a Washington Post article last December which 

pointed out a low-income immigrant couple who were moved into 

27 

a multi-hundred thousand dollar housing loan despite the fact they 

had a very low income. We could go through the list. And the list 

would be very long, both on a State and a Federal area. 

One of the problems the chairman has pointed out very effectively is that this is not one of the key responsibilities of the regulatory agencies. Now, I think you can make it a responsibility and 

make it an emphasis just as easy with a coordinating council as 

you can by massively disrupting the whole consumer regulatory 

system by creating a new agency. 

Mr. MOORE OF KANSAS. But you do think existing law and practice worked to prevent the financial crisis last year? 

Mr. JOHN. I think existing law and practice, had it been properly 

enforced and properly expanded, would have worked, too. 

Mr. MOORE OF KANSAS. Thank you, sir. The provision I like 

about the current CFPA draft, the provisions I like are the consolidated rulemaking for consumer protection laws, expanding financial literacy efforts and, most importantly, from my perspective, 

strong oversight of nonbank firms, many in the mortgage market 

that issued too many loans families couldn’t afford. As a former 

district attorney for 12 years, I had to prioritize resources to ensure 

the most urgent threats were focused on, and I believe the same 

lessons apply to CFPA. 

Starting with Mr. Shelton and quickly going down the line, if you 

had to choose the larger threat to financial stability, the lack of supervision of nonbank firms, especially those that made predatory 

subprime loans or consumer protection or protection enforcement of 

banks, which would it be? 

Mr. SHELTON. I would have to say the latter, consumer protection. 

Mr. CALHOUN. I think you have to balance all of them. And there 

has been discussion of the role of banks. I think it is important to 

remember they did the lion’s share of the so-called Alt-A loans 

which would have larger defaults at greater taxpayer cost than 

even the subprime loans. 

Mr. JOHN. As I have said, I think the causes of the financial 

problems were far too serious and far too confusing to just limit it 

to those two. 

Ms. BOWDLER. I don’t think that you can separate those, those 

work like yin and yang, the fact that you had unregulated entities 

flooding the market and the absence of banks that had the most 

favorable products lead to a perfect storm. You need both. 

Mr. MOORE OF KANSAS. Thank you. 

Ms. BURGER. I agree you need both. 

Mr. MOORE OF KANSAS. The last question, setting aside the current CFPA draft, what steps could be taken to ensure Federal bank 

regulators did their job on consumer protection? FDIC Chairman 

Sheila Bair has proposed that the CFPA could be given backup authority where they could intervene case-by-case if they saw lack of 

enforcement by bank regulators. Another idea I might suggest is a 

stronger ‘‘use it or lose it’’ authority requiring bank regulators to 

either enforce consumer protection laws or lose that authority. 

After being graded by the CFPA or the GAO, if a bank regulator 

fails to fully enforce consumer protection laws, they would automatically lose that authority to CFPA. 

28 

Mr. Calhoun, would this use it or lose it approach ensure that 

regulators do a better job, do you believe? 

Mr. CALHOUN. We think that at the end of the day, the CFPA 

needs to have enforcement authority. As we detail in our written 

testimony, there have just been repeated instances over the last 6 

and 8 years where regulators have turned their backs on enforcement, and the most striking example was the OTS, which allowed 

several of its institutions to back-date their capital reports and 

those firms subsequently collapsed at substantial cost to the taxpayers. 

So you need someone whose focus is both on consumer protection 

and enforcing it. It does need coordination. We support that. 

Mr. MOORE OF KANSAS. Thank you, sir. Mr. Chairman, I yield 

back. 

The CHAIRMAN. The gentleman from North Carolina, Mr. 

McHenry. 

Mr. MCHENRY. Thank you, Mr. Chairman. Clearly, increasing accountability is necessary, that goes without saying. Consumer protection goes with that increased transparency and accountability. 

Ms. Burger, for nonprofits which conduct financial literacy credit 

or housing counseling on behalf of the CFPA or any government 

agency, what degree of accountability and transparency should we 

require of them? 

Ms. BURGER. I think that there should be transparency for them 

as well. And one of the things that I actually suggested in my testimony was the whole issue about compensation for front-line workers as well, because one of the things that we have discovered over 

the last number of months that we have been really looking at 

what the impact of the credit crisis on our members has been is 

that front-line workers are often compensated at such a low base 

pay that the only way they can survive and support their families 

is try to exceed their quotas and be paid by bonuses, and the bonuses actually encourage them to push products that are unfair, 

unsustainable for working families. We think one of the things we 

should look at within this bill is a way of really looking at compensation reform, not only at the top of the financial industry but 

at the bottom of the industry as well. 

Mr. MCHENRY. So those who are providing credit counseling, for 

instance, on the front lines, you have concerns about their pay. And 

the question I have is in—with these recent revelations about 

ACORN, do you think they should be precluded from being a participant in the CFPA program? 

Ms. BURGER. We think that there should be, as is being done 

right now, a thorough investigation of ACORN. I think they have 

an independent investigator right now and that we should make 

that decision afterwards. I do think that there should be total 

transparency for any agent—for any nonprofit or for-profit that 

would be getting Federal dollars to provide counseling. 

Mr. MCHENRY. Do you think the failure in ACORN, from your 

analysis, is that a failure of pay? 

Ms. BURGER. I did not take part in the analysis of ACORN. I 

think that ACORN as an organization over the years has done a 

lot of great work in low-income communities. There is an investigaVerDate Nov 24 2008 16:05 Apr 15, 2010 Jkt 054872 PO 00000 Frm 00032 Fmt 6633 Sfmt 6633 K:\DOCS\54872.TXT TERRIE
29 

tion going on right now and we should make sure that violations 

never take place in the future. 

Mr. MCHENRY. Okay. As of today, the U.S. Census Bureau, the 

IRS, and even Bank of America have severed ties with ACORN. 

And according to yesterday’s, actually the day before yesterday’s report from the Chicago Sun Times, the SEIU has given ACORN $4 

million. Could you clarify to me the extent of your financial and 

programmatic ties to ACORN? 

Ms. BURGER. SEIU has also cut all ties to ACORN. 

Mr. MCHENRY. They have? 

Ms. BURGER. We have. In Illinois, I believe that I am correct, 

that the ACORN institution, the consumer protection, the community organization in Illinois cut its ties to ACORN 2 years ago. And 

so in Illinois, there were no ties in the last 2 years between any 

SEIU work and ACORN. 

Mr. MCHENRY. Okay. What was the extent of your financial ties 

with ACORN? 

Ms. BURGER. I will get that information for you for the record. 

Mr. MCHENRY. Because in Illinois, for instance, there was a tie 

based on location, even the fact that their e-mail addresses that 

were shared on your Web sites for the other organization. 

Ms. BURGER. My understanding is that in Illinois, their offices 

happened to be next door to each other, not cohabitated, but I will 

get that information for you. 

Mr. MCHENRY. Okay, thank you. In the same building, I think 

it was a different floor of the same building. 

Mr. John, in terms of the larger issue of the CFPA, can you regulate consumer protection from financial institutions without a safety and soundness mission as a part of that? 

Mr. JOHN. No. When it comes right down to it, if you don’t focus 

on the safety and soundness aspects of products and proposed regulations of those products, you are very likely to find a situation 

where a practice is encouraged which may be detrimental to the financial institution and therefore to the customer. 

Mr. MCHENRY. Thank you. I yield back. 

The CHAIRMAN. I recognize the gentleman from Missouri, but I 

ask him to yield me 15 seconds to say to Ms. Burger—you mentioned cutting ties with ACORN 2 years ago. 

Ms. BURGER. In Illinois. 

The CHAIRMAN. That beats the Bush Administration, which continued to fund ACORN every one of its 8 years. So you were ahead 

of the Bush Administration, which in its last 2 years, was giving 

ACORN a couple million dollars while you were cutting ties. 

Ms. BURGER. I just wanted to make the point that in Chicago, 

the organization once upon a time was ACORN, that community 

organization cut its ties to National ACORN, too. 

The CHAIRMAN. Again, the Bush Administration, to the day it 

went out of office—ACORN got $14 million from the Bush Administration. So they make you look like a pica. 

Mr. CLAY. Thank you so much, Mr. Chairman. Thank you for the 

clarification on the status of ACORN in both Administrations. I appreciate that candor. 

Let me ask Mr. John, under systemic reform, the Federal Reserve has asked for additional authority to protect consumers. We 

30 

know what their record has been over the last decade as far as protecting consumers when big banks like Wells Fargo and Citibank 

formed offshoots and companies for the sole purpose of setting up 

subprime mortgage companies and targeting black and brown communities. And we know the devastation that occurred under that 

scenario and those communities are still suffering to this day. 

But do you feel as though we should give the Federal Reserve additional authority or should the CFPA or some similar agency have 

the authority to protect consumers under scenarios like this? 

Mr. JOHN. Well, the Federal Reserve authority for systemic risk 

is something that I have written against, simply because I believe 

that a is no-win situation. It is not possible to protect against systemic risk. There are political problems, there are economic problems, etc. 

In the specific case that you mentioned, which was the setting 

up of subsidiaries, I think the Federal Reserve made a very serious 

error in not following through on that. And one of the things that 

I would hope is that in the council that I am proposing, the staff 

would note that, that it would become an issue, and there would 

be a report sent to this committee which would hopefully hold a 

hearing on that. The most effective oversight is not going to be a 

big regulator or a small regulator or anything like that, it is going 

to be those of you who are going to ask nasty questions. 

Mr. CLAY. Well, thank you for that response. 

Let me hear from the other panelists. Ms. Bowdler? 

Ms. BOWDLER. Just to add to that, even if we had a council of 

some sort, what I think would be missing and what has been missing from existing mandates on the regulators is the requirement to 

look specifically at what is going on in underserved communities. 

That is important because as we have all already said, our communities were targeted, both passively and actively, in different ways. 

I am happy to talk more specifically if somebody wants me to on 

that. 

What you can have is a situation where entire communities are 

devastated and in our case entire generations of Latino wealth are 

in jeopardy. But it doesn’t rise to the level of endangering the actual safety and soundness of the system and therefore never gets 

picked up. That is what we had. So we need to have somebody who 

specifically is looking at what is going on with vulnerable populations, minority communities, immigrants, the elderly, etc., those 

of modest means. Those are the most vulnerable among us and 

those trends will be missed unless there is a specific charge to look 

at them. In the new jobs legislation with the Office of Fair Lending, we think will have that. 

Mr. CALHOUN. If I can add, the question boils down to who do 

you the Congress want to trust carrying out this authority. For me 

a telling statistic, we heard about the disparate lending practices, 

but if you look from 2002 to 2008, the OCC did not make a single 

referral to the Department of Justice for equal credit violations. Do 

you want to trust authority back to them or do you want to try a 

different approach? 

Mr. CLAY. Sure. Mr. Calhoun, how do you envision a new agency 

like the CFPA, what would be their mission with the whole financial literacy piece? Do you envision any role? 

31 

Mr. CALHOUN. I think that is a key part, it is not a solution by 

itself but it is a key part and it would be a key part of this agency’s 

work. 

Mr. CLAY. Thank you so much. I yield back. 

The CHAIRMAN. The gentleman from Texas, Mr. Marchant. 

Mr. MARCHANT. Thank you, Mr. Chairman. My preference on 

this particular item would be to go with a council. I would like to 

explore a little bit of the idea of the council with you. Would you 

make the council be the—would they accept complaints from the 

public under your concept? 

Mr. JOHN. I would see actually that the individual regulator 

should accept the complaints from the public and the like. One of 

the problems is that the individual regulators, whether under this 

system or under the CFPA as far as I can tell, is not an ombudsman, that they basically look for abusive practices and abusive situations and then go to correct them. They are not there to litigate 

specific complaints by individual consumers. 

Mr. MARCHANT. So that would answer my second question, you 

would give them the power to investigate systemic abuse of consumer financial—the financial system? 

Mr. JOHN. Absolutely. 

Mr. MARCHANT. Would you give them the ability to make recommendations to the regulators? 

Mr. JOHN. Absolutely. 

Mr. MARCHANT. Would you give them the power to create a consumer protection protocol, examination protocol for the respective 

regulators so that they could incorporate that protocol into their 

regular examination. 

Mr. JOHN. Yes, absolutely. 

Mr. MARCHANT. Do you envision, and this question is for the rest 

of the panel as well, this council or agency having the ability to go 

to FHA, Fannie Mae, and Freddie Mac, who now originate currently 90 percent of the mortgages in the United States, and redo 

their documents to reflect their documents or would you allow their 

documents to remain intact? 

Mr. JOHN. I don’t see—I would allow them to remain intact. It 

is really the Federal Housing Finance Agency that has the authority over that type of area. 

Mr. MARCHANT. Well, many of the Alt-A loans and many of the 

subprime loans that were made in 2007 and 2008 were actually 

originated and insured by—not originated by but were insured by 

and were done on Fannie Mae and Freddie Mac forms. 

Mr. JOHN. Yes, but at the same time it becomes somewhat difficult to have one agency basically going through and regulating 

another agency. I think that gets a little bit— 

Mr. MARCHANT. But a council could look at those documents and 

say, the consumer needs to be better informed here. 

Mr. JOHN. Yes. 

Mr. MARCHANT. And they could make a complete examination 

without having the authority to change those documents? 

Mr. JOHN. That is correct. 

Mr. MARCHANT. Would any of the rest of you like to address that 

whole Fannie Mae, Freddie Mac? 

32 

Ms. BOWDLER. I just want to add one quick thing, and I am going 

to start to sound like a broken record here, but Fannie and Freddie 

is a perfect example. Fannie and Freddie had really great prime 

products that were flexible, the 30-year fixed, they had all sorts of 

variations that would meet a wide range of credit needs. Those 

were not the products that actually made it down to retail, and 

they had a hard time competing on the regular market. And the 

reason was because they took longer to originate. In some cases, 

they may have actually required manual underwriting. 

Somebody, Mrs. Capito mentioned community banks earlier. 

They have the same problem where because they were doing all the 

right things, because their process takes a little longer, maybe 

doesn’t turn as much of a profit, they get pushed to the back. So 

in that case you can see how in one institution they had these solid 

products. We would like to see them put them more forward, put 

added incentives so those were the ones being pushed at retail, but 

they weren’t, they were gathering dust in the back. And instead, 

you had products that were quicker and easier to originate that 

proliferated throughout the market because they earned higher 

profit going back to points around compensation systems. 

Mr. MARCHANT. But many of those loans were made and insured 

by Fannie Mae and Freddie Mac. 

Ms. BOWDLER. They have multiple—all these institutions have 

within them a wide range of products. So they will have a product 

that I—again just speaking for the clientele that we work with— 

that could have worked for Latino families, but maybe it required 

manual underwriting or didn’t pay as high of a commission and so 

it wasn’t put out there in a big way. 

The CHAIRMAN. The gentleman from North Carolina, Mr. Miller. 

Mr. MILLER OF NORTH CAROLINA. Thank you, Mr. Chairman. Mr. 

Castle said in his opening statement that the worst subprime 

loans, the bulk of the bad subprime loans were not made by depository institutions that were fairly closely regulated but by nondepository institution, independent lenders. 

Mr. John, you testified a few months ago before the Investigations and Oversight Subcommittee, of the Science and Technology 

Committee, which I Chair, on the role—and one issue that came 

up was the role of the Community Reinvestment Act. Mr. Castle 

is right, a relatively small number of the bad subprime loans were 

made by depository institutions subsequent to the Community Reinvestment Act. And in fact a study by the Federal Reserve Board 

found that only 6 percent of all the subprime loans were made in 

assessment areas or in the neighborhoods where CRA encouraged 

lending—or to borrowers that CRA encouraged lending to. And you 

agreed then that CRA had a negligible effect in the subprime crisis 

and the financial crisis generally. Is that still your view? 

Mr. JOHN. Absolutely. 

Mr. MILLER OF NORTH CAROLINA. Mr. Calhoun, I ask you because I know you have been here for the 61⁄2 years that I have been 

here, you have been sitting at this table when I have been sitting 

at this table. So has Mr. Shelton, for that matter. The industry is 

now saying that they support consumer protection, but not a consumer protection agency. Steve Bartlett was quoted recently saying 

they support the ‘‘CFP,’’ but not the ‘‘A.’’ That is not entirely conVerDate Nov 24 2008 16:05 Apr 15, 2010 Jkt 054872 PO 00000 Frm 00036 Fmt 6633 Sfmt 6633 K:\DOCS\54872.TXT TERRIE
33 

sistent with my recollection. My recollection is that they opposed 

every consumer protection bill, the predatory mortgage lending legislation that I introduced, the credit card legislation that Ms. Maloney introduced, the overdraft bill that Ms. Maloney introduced. 

They commented publicly opposing rules that protected consumers 

further. 

Is that your recollection? Do you recall industry pushing for 

stronger consumer protections? 

Mr. CALHOUN. They have usually disagreed with the proposals 

that have been before this committee and before the regulatory 

agency. 

Mr. MILLER OF NORTH CAROLINA. Mr. Shelton, do you remember 

them pushing for stronger consumer protections? 

Mr. SHELTON. No, I do not, sir. 

Mr. MILLER OF NORTH CAROLINA. Now the argument is, it should 

just be enforced better. I know that right now there are sentencing 

hearings going on all over America where the defendant is saying 

the problem was they had a permissive parent and their parent 

really should have set limits. But do you recall the industry at the 

time saying that their prudential regulators should come down 

harder on them, should be stricter on them, that their prudential 

regulator was entirely permissive and indulgent? Mr. Calhoun, do 

you recall that? 

Mr. CALHOUN. No. In fact, the record is clear that institutions, 

Countrywide being one of the notable ones, the largest mortgage 

lender, went and pressured their regulators to ease up and in fact 

switched regulators because they thought the original regulator 

had gotten too strict with them. 

Mr. MILLER OF NORTH CAROLINA. Mr. Shelton, is that similar to 

your recollection? 

Mr. SHELTON. That is my recollection as well. 

Mr. MILLER OF NORTH CAROLINA. Ms. Bowdler, I am kind of 

leaving you out, you have been here. Is your recollection of this 

consistent with theirs? 

Ms. BOWDLER. Yes. 

Mr. MILLER OF NORTH CAROLINA. A final point, I am struck by 

the arguments against CFPA that they could do something stupid, 

they could regulate, they could prohibit something that actually is 

good. The Food and Drug Administration prohibits patent medicines mixed up in bathtubs that actually don’t cure cancer as advertised but are toxic, but they also, the FDA, could prohibit statin 

drugs. I am now 2 years older than my father was when he died 

from a heart attack, I am on a pretty stiff dose of a statin drug, 

and I have high hopes that I will stay around for a really long 

time, to be annoying to a lot of people for a really long time. 

The Food and Drug Administration could prohibit statin drugs, 

but it would be stupid to do so. Does anyone think the Food and 

Drug Administration should be abolished because they could prohibit medicines that were actually beneficial and therefore allow 

patent medicines mixed up in bathtubs to come back on the market? Does anyone wish to argue for that position? 

I see that no one does. Mr. Chairman, I yield back. 

The CHAIRMAN. Well, if the gentleman would yield briefly to me 

for his remaining time. He may have been a little unfair to some 

34 

of the business organizations with regard to consumer protection 

laws, noting that they always oppose them. That is often their initial response, but it has been any experience that once they have 

been adopted, several years later they are quite fond of them, particularly when people have proposed any enhancement of them. So 

there is a kind of retroactive falling in love with them especially 

when we have had them in place and then talk about maybe building on them. 

The gentleman from California. 

Mr. ROYCE. Thank you. Mr. John, should every State be allowed 

to prohibit statin drugs? Maybe that is the question we should ask 

ourselves next. 

Let me take, Mr. John, something you wrote, most Federal laws 

specify a national standard that States must observe, but the 

CFPA would explicitly subordinate Federal regulations to stronger 

State laws. You said a strength of the financial market is the ability to offer standardized products that reduce costs to both firms 

and consumers. 

However, in this paper you wrote some months ago, you laid out 

a little problem. Under the CFPA national firms could face up to 

51 separate consumer regulatory regimes complete with disputes 

about whether the applicable standards that applies is the one 

from the State where a consumer who has made a purchase lives 

or the State where the firm is physically located or the State where 

the Internet site that was used is registered. So instead of one 

product, you have a whole host of products here sold across State 

lines. 

The question I would ask you is, who would ultimately pay the 

price for these inefficiencies? 

Mr. JOHN. That is easy, it is the consumer when it comes down 

to it. One of the problems we have been facing and the chairman 

pointed out that there were a few problems with State preemption 

prior to, I believe in 2005 or 2006 or so. However, we didn’t have 

the same level of extremely activist attorneys general, most of 

whom are seeking to be senators or governors, who actively seek 

out situations and actively promote more than reasonable solutions 

to them. So we are much more likely in the current situation to 

have attempts by various ambitious State officials to move into and 

obstruct national markets. 

Mr. ROYCE. But couldn’t companies just create these multiple 

variations that meet this myriad of State requirements without 

passing that on to the consumer? Why would it be passed on to the 

consumer? 

Mr. JOHN. There is a need to make a profit. There is a responsibility to one’s shareholders, of course. 

In some insurance situations, they actually have done a number 

of different variations to meet specific State requirements and the 

like, and the net result has always been a higher cost to the consumer. 

Mr. ROYCE. I think there is a broad agreement that the current 

State-based insurance system is inefficient; the studies that I have 

seen have a tag of about $10 billion cost to the consumer. It also 

hampers U.S. competitiveness. I am thinking about the SchumerBloomberg study and other studies. The lack of a centralized reguVerDate Nov 24 2008 16:05 Apr 15, 2010 Jkt 054872 PO 00000 Frm 00038 Fmt 6633 Sfmt 6633 K:\DOCS\54872.TXT TERRIE
35 

lator with the ability to look at the entire U.S. market, certainly 

those were the concerns that the Treasury Department laid out in 

their regulatory reform proposal. 

So as we are working to streamline and consolidate regulatory 

authority in the insurance portion of our financial system, especially in light of some of the problems with AIG and so forth, it appears we may be taking a step back, then, in the rest of the financial services sector with this CFPA. Let me ask you, do we run the 

risk of replicating many of the problems that have arisen in the insurance market throughout the financial services sector with this 

legislation if we go down this road? 

Mr. JOHN. That is specifically my concern, yes. 

Mr. ROYCE. Would you like to comment for a minute just about 

some of the difficulties? Maybe you could expand on the problems 

with bifurcating solvency protection from consumer protection, put 

safety and soundness on one side and consumer protection on the 

other. Many of the regulators have explained the problems with 

separating these two missions. We saw that model over Fannie and 

Freddie. Could you give us some insight on that front? 

Mr. JOHN. Well, I have mentioned this briefly in the past. One 

of the strong situations that I think is not necessarily going to pop 

up immediately, but it is definitely going to be the situation if you 

do create a CFPA, is that there will be a siloization; that the Chairman’s Advisory Board is a good step, but the Chairman’s Advisory 

Board is not sufficient to prevent that siloization. So essentially the 

consumer regulations of the future, whether that is 5 years, 10 

years or 2 years down the line, are going to be made without a direct input or a direct one-on-one understanding of how particular 

regulated financial institutions work. 

One of the things that deeply concerns me about this whole situation is that if a CFPA focuses explicitly on the largest types of financial institution, i.e. the banks, the special characteristics of 

smaller types of financial institutions, such as credit unions, are 

likely to be ignored or placed in a secondary basis. And that is 

going to cause problems for consumers. It is going to cause problems for financial institutions of different types, etc. You are going 

to see a homogenization, which is very dangerous. 

Mr. ROYCE. Thank you, Mr. Chairman. 

The CHAIRMAN. The gentleman from Georgia, Mr. Scott. 

Mr. SCOTT. Thank you, Mr. Chairman. 

I would just like to kind of focus my remarks on unintended consequences, one-size-fits-all dangers of this, as well as the confusion 

between State and Federal laws as we move forward. It is an important legislation. 

Let’s take my first problem of unintended consequences and 

whether or not this would work, particularly with some unique situations. I am sure you all are familiar with the Farm Credit Administration. The Farm Credit Administration is very, very unique. 

They already have what they call a borrowers’ bills of rights, which 

basically covers much of what we are attempting to do in this bill, 

resulting in if they were into this duplicatory obligations, burdensome regulatory concerns as well. 

Consumer lending is a very, very small part of what they do. 

Mortgage lending, for example, is only allowed in communities with 

36 

less than 2,500 individuals. Their products were not anywhere near 

the toxic level that caused the problem in the first place. 

So my question is, would not we be doing a better service here 

if we allowed the farm credit to continue to operate under its own 

current regulatory process away from this legislation? 

I take it all of you agree that it would be the best thing to do 

in this situation, to allow farm credit. The reason I mention that 

is, also, farm credit does not come under the jurisdiction of financial services. It is an agricultural area. And I am simply saying 

that it makes sense—this is a complex, complicated area, covers a 

lot of the waterfront when we are dealing with the financial services industry. And it might be wise as we move forward with this 

to look inward-outward instead of outward-inward. And I think 

that what I am getting from the committee here is that you agree 

that the Farm Credit Administration should be left away from this 

or doing what they are doing with the bill of rights; weren’t a part 

of the problem in the first place; and this would be a duplication. 

Mr. CALHOUN. Congressman Scott, I would like to express concerns about creating these exemptions because of the difficulties 

that has created in the past. One of the biggest examples was, just 

a few years ago, in fact even when we were looking at the predatory mortgage bill hear this committee, there were efforts to exclude FHA with the argument that FHA loans are a very small 

part of the market. They were about 2 percent a few years ago, and 

they were the generally safer loans. 

However, in the last year, we have seen the very subprime lenders invade FHA. You can go on the Web sites and see ads for, here 

is how you transfer your business. And there are subprime lenders 

who have literally converted into FHA lenders. One of the beauties 

of and I think real core strengths of this bill is it looks at products, 

not the label that is put on the product or the label that is put on 

the financial services provider, because that has created a lot of 

problems. In this specific limited exception, it may be okay. But 

these exceptions have created a lot of dangers in the past. 

Mr. SCOTT. I think my point is, to allow them to operate under 

their current regulatory reform and to monitor the situation if that 

is not sufficient, then we can come back and address it. This Draconian approach here makes a lot of duplication. 

Mr. CALHOUN. I think the bill would allow that to happen. But 

I think it needs to be careful how it is used. 

Mr. SCOTT. Absolutely. 

Let me ask one other question about the States. States are currently licensing providers that I think results in some confusion as 

it applies to what we are currently trying to do. And under the bill, 

H.R. 3126, it grants authority to the CFPA to establish new baseline rules, a prospect that would see a number of State laws rendered mute. So the question becomes, how would the CFPA decide 

which laws and regulations to leave in place and which to preempt? 

Would the CFPA have to show a record of compliance or a failure 

of enforcement by State authorities in order to preempt State laws? 

And then finally, comparison with State laws are not often apples 

to apples, and so if you could comment on that, that would be helpful. 

37 

The CHAIRMAN. I am sorry. There will be no time to comment. 

Members have to understand, if you ask a question after the light 

is on, you will have to get the answer in writing. It is 40 seconds 

in. We won’t have to time to get an answer. 

Mr. SCOTT. I will be glad to get it in writing, Mr. Chairman. 

The CHAIRMAN. The gentleman from Texas. 

Mr. GREEN. Thank you, Mr. Chairman. 

And I thank the witnesses for appearing. 

Mr. John, thank you for your creative concept. I would like to 

visit with you for a moment about it. You have indicated that the 

council, and this is in your testimony, would be charged with creating uniform standards for examination of financial institutions. 

But you also indicate that these standards would not be imposed. 

My assumption is, if they are not imposed, they would be recommended. And the question becomes, how would the recommendation become a standard that would be enforced? 

Mr. JOHN. The recommendations would be enforced through a 

combination of two things. One would be, if a regulatory or a statutory change is needed at the State level— 

Mr. GREEN. How do you get the regulator to embrace the standard that is recommended? Because the agency that you are proposing cannot impose standards. It can merely say, here is a 

thought. How would you get the thought to become a reality within 

the regulator? 

Mr. JOHN. It would be a very simple matter that, in the event 

that the regulator does not adhere to a particular standard, understanding of course there may be specific adjustments necessary 

for— 

Mr. GREEN. I have to ask you to move it a little faster. 

Mr. JOHN. The bottom line is that it is your responsibility. 

Mr. GREEN. Congress? So let me get it right. Hold on. Your agency recommends—well, you have a board that works with the president of this agency that you are recommending. 

Mr. JOHN. Right. 

Mr. GREEN. And they make recommendations to these various 

regulatory agencies. And if the agency does not abide by the recommendation, then this council would then make the recommendation to Congress, and Congress would then move on it? 

Mr. JOHN. The regulatory board would, for one thing, the agency 

that is in question would have been a part of the process— 

Mr. GREEN. I understand. But ultimately, it would take an Act 

of Congress to act on the recommendation if the recommendation 

is not adhered to? 

Mr. JOHN. It would be a matter for Congress to put pressure on 

the agency just as you would put pressure on the Federal Reserve 

for— 

Mr. GREEN. Well, the way we put the pressure on some of these 

agencies has been to threaten legislation, and thus we then go 

through that process, and then they have this epiphany. 

But what you are saying is that it will take an Act of Congress 

to do something ultimately if the regulator doesn’t do it. And that 

means that you have to have a Congress that is willing to act, 

which means that we would have to go through all that we are 

going through right now to try to simply get an agency in place. 

38 

What you are doing is putting all of this back within the purview 

of the Congress of the United States of America, which is where 

we are right now in terms of trying to establish the agency because 

you don’t give any authority to impose the regulations on the various regulators. 

Now, let me go to another point. With reference to what you are 

proposing, you have indicated that there should be one representative from each Federal Agency and elected representatives from 

councils among the various States. 

Mr. JOHN. Right. 

Mr. GREEN. Would we have at least one from each State? Is that 

what you are saying? 

Mr. JOHN. No, that is actually not what I am proposing. What 

I did not want to have happen here is that you would have 300 

State representatives out-voting six Federal regulators. 

Mr. GREEN. How many would you have from each State? 

Mr. JOHN. We would have roughly one—no, it is not one from 

each State. It is one representing, for instance, the State credit 

union regulators; one representing the Congress and State bank 

supervisors; one representing the various insurance regulators; etc. 

Mr. GREEN. And would they all have voting power? 

Mr. JOHN. Yes. But the goal here is not to have things that were 

done by votes. 

Mr. GREEN. I understand. But they would have the authority to 

vote? 

Mr. JOHN. Yes. 

Mr. GREEN. And it would be the vote of this body that would ultimately decide whether or not a recommendation would be adhered 

to? 

Mr. JOHN. Yes. 

Mr. GREEN. And how many total would we have on this body? 

Mr. JOHN. Frankly, it depends on whether Senator Dodd’s approach— 

Mr. GREEN. Let us talk about your approach. This is your recommendation. 

Mr. JOHN. Yes. But the thing is, the testimony specifically says 

that the number could vary depending on whether regulators are 

merged or not merged— 

Mr. GREEN. I understand. But how many are you envisioning? 

Mr. JOHN. I am not envisioning a particular number. I recognize 

that this is all part of the existing regulatory restructuring process. 

Mr. GREEN. I thank for your information. 

Let me just share with you that it seems to me that this is going 

to be a rather awkward way of doing business, and it brings us 

right back to where we are now, needing congressional oversight to 

get something done. 

And I yield back. 

The CHAIRMAN. The gentleman from Missouri. 

Let me just say, we are going to finish up with this panel, and 

then we will go right into the second panel at 12:30, about, it looks 

like because there are going to be votes about 2:00, and we are 

going to go until then. So let us move right along. 

The gentleman from Missouri. 

39 

Mr. CLEAVER. I will save my questions for the next panel. I 

would ask Ms. Burger, do you think that ACORN was involved in 

any way with the provocative testing of an Iranian missile on this 

past Saturday? 

Ms. BURGER. No. 

Mr. CLEAVER. Thank you. 

I will reserve my questions for the next panel. 

The CHAIRMAN. I thank the gentleman. 

And I now recognize the gentlewoman from Illinois. 

Ms. BEAN. Thank you, Mr. Chairman. 

And thank you to our witnesses for bringing your expertise to us 

today on this important issue. 

There seems to be general consensus that Federal consumer protection laws were not adequately updated through rulemaking by 

the Federal Reserve. And some feel that is because the other responsibilities that the Fed has took priority over consumer protections, which is why so many of us do support the creation of a 

CFPA that would put the consumers’ interest first, prioritize that 

so that we would have effective and consistent protections. 

Do you believe—and I guess I will direct this to Mr. Calhoun 

first—that the CFPA would do a better job of updating the rules 

and providing more robust consumer protections than the Federal 

Reserve? 

Mr. CALHOUN. Yes. And if they don’t, I think the Congress, you 

will take action as you have done with other agencies that you 

have delegated authority to who have not used that authority. 

Ms. BEAN. Okay. Are there others who would like to comment on 

that? 

Ms. BURGER. I think that what we really need is an agency that 

actually looks at the interests of the consumer first as opposed to 

last or never. And I think that the whole purpose of this is so that 

we actually have someone who is an agency that is making sure 

that the products available to consumers, that the consumer is protected. 

Ms. BEAN. Ms. Bowdler? 

Ms. BOWDLER. A lot of the conversation in the hearing so far has 

been on everything that the CFPA would supposedly prohibit or 

ban from the market when, in fact, we think this is an opportunity 

to promote and advance really good products and make sure they 

get to the consumers. So I hope we can talk more about all the promotion and advancement that they are going to do as well. 

Ms. BEAN. Okay. Mr. Shelton? 

Mr. SHELTON. I would only add that I can give you many, many 

examples of, in the past, of how organizations like ours have talked 

to regulators, have talked to various associations about the kind of 

exploitation we have seen of our members and our constituents, 

and then very well, under the existing construct, there has been little to no response. We do need an agency that will specifically focus 

in on the issues of concerns of the consumers of the United States, 

not putting the banks and others first. 

I can tell you stories about us taking our predictions about the 

foreclosure crisis 3 years ago to very high-ranking members of the 

Bush Administration, and very well, in each and every one of those 

agencies, we were told, and I will capsulize by saying that we 

40 

would let the market work it out. And indeed the market working 

it out led to the crisis that we are still trying to get out of. 

Ms. BEAN. Thank you. 

I would also like to ask—first of all, I would like to concur. I 

think that is why so many of us do support the creation of a CFPA. 

But we also feel that those robust consumer protections that we are 

expecting them to create, that we should feel comfortable, then, 

that banks and thrifts that operate nationally should be able to operate under that single set of robust protections, which will allow 

streamlined compliance and reduce costs to customers. 

Let me move to another question. Given the States’ experience 

with nonbank actors, how large of an examination and enforcement 

staff would be needed at the CFPA to actively enforce the nonbank 

sector? I will start with Mr. Calhoun again. 

Mr. CALHOUN. I don’t have an exact number for you, but a substantial part of the problem as has been discussed today has been 

in the unregulated sector, and again, I think that there are ways, 

though, to encourage compliance and streamline this. CRL is an affiliate of self-help; 80 percent of our employees work solely on providing credit and expanding access to credit. So we will be subject 

to the CFPA, and we encourage it to be done on a streamlined 

basis. 

I am concerned, though, about unlimited preemption because the 

power to act is also the power to not act, as we saw with the Fed, 

and the power to insulate abusive behavior. I have fears about putting all our eggs in one basket. And if one person authorizes a 

practice, it can prohibit anyone else, any State from providing any 

protections and wipe out existing protections. 

Ms. BEAN. That is exactly what we are expecting the CFPA to 

do, to create a high standard that can apply universally and nationally for all, also recognizing that, even from testimony from 

some of the groups that are here today, many reports indicate that 

over two-thirds of the subprime mortgages that created the problem were done by nonbank lenders that were regulated by the 

States. 

Let me ask, do you believe the CFPA would have the ability to 

actively examine and enforce consumer protection laws on both 

banks and nonbanks? And wouldn’t it be more effective to put coverage where there hasn’t been and leave those examiners that are 

already in place to do what they have been doing? Is he allowed 

to answer? 

Mr. CALHOUN. I will be very quick. I think the bill is right in giving enforcement and supervisory, even for banks, to the CFPA, but 

to require careful coordination and to especially make sure for community banks that it does not create a regulatory burden. 

Ms. BEAN. Thank you. 

I yield back. 

The CHAIRMAN. The gentleman from Minnesota. 

Mr. ELLISON. Thank you, Mr. Chairman. 

Let me pick up right there, Mr. Calhoun. 

I have been in conversation with a number of community banks, 

and some of them have been concerned that they are going to get 

another layer of regulation. But isn’t it also true that they are comVerDate Nov 24 2008 16:05 Apr 15, 2010 Jkt 054872 PO 00000 Frm 00044 Fmt 6633 Sfmt 6633 K:\DOCS\54872.TXT TERRIE
41 

peting with people who haven’t had any regulation, and therefore, 

CFPA could help level the playing field? 

Mr. CALHOUN. I think community banks, including Self-Help, our 

financial institution lost a lot of their market share to people who 

were offering abusive products. Abusive products crowded out the 

good products, and quite frankly, they have gotten the least 

amount of assistance from the bailout. The community banks have 

been sort of in the middle, have gotten the worst of the competition, and the worst of the assistance from the bailout. 

Mr. ELLISON. I saw some other heads nodding. 

Ms. Bowdler, do you think that the CFPA could be beneficial to 

community banks? 

Ms. BOWDLER. Yes, absolutely. Again, a lot of the products that 

are offered there, those are the kinds of—those are the kinds of 

products and practices that we want to promote. There is a lot of 

concern about the inefficiencies that this might create, but it is 

really hard to imagine less choices being available to our families 

or the market operating even more efficiently for our families. 

Again, in my written statement I walk through how exactly that 

has been happening, but they have not had choices, and the market 

has not been working well for them. So this is an opportunity again 

to get those good practices and good products out there and give 

them a chance to compete, which they have not had. 

Mr. ELLISON. Let me ask you this. There has been an argument 

out there that the CFPA should only apply to presently unregulated entities. I found a little information that I want to ask you 

about, and it suggests that while there is no question that independent mortgage finance companies were major players in the 

subprime marketplace, the affiliates of national banks and other 

insured depositories also played an important role. Indeed, HMDA 

data show that depository institutions and their affiliate subsidiaries originated 48 percent of the higher-priced loans in 2005 and 

54 percent of the higher-priced loans of 2006. Can somebody help 

me understand what this means, for the record? 

Mr. SHELTON. I can simply begin by saying it has been very difficult in the more recent present to tell the difference between the 

regulated financial services institutions and those that are unregulated. So, very clearly, we need a more robust oversight process 

that very well includes a consumer protection agency. 

Mr. ELLISON. Ms. Burger? 

Ms. BURGER. And I would also just say that even those, the financial institutions that were regulated, have regulators that were 

looking at them from the perspective of what was good for the institutions and not what was good for the consumers. We still need 

a consumer protection agency that actually looks at the products 

from the perspective of the consumer. And that is why they should 

be included. 

Mr. ELLISON. Ms. Bowdler? 

Ms. BOWDLER. Yes. That kind of structure actually allowed a bifurcated outreach strategy, especially to minority and low-income 

communities. So we saw an example—I read about it in my testimony—where in conversations with a major lender, we found that 

their subprime wholesale unit, which offered exclusively subprime 

products, 80 percent, 90 percent of their lending was going to AfriVerDate Nov 24 2008 16:05 Apr 15, 2010 Jkt 054872 PO 00000 Frm 00045 Fmt 6633 Sfmt 6633 K:\DOCS\54872.TXT TERRIE
42 

can Americans, while their retail unit went predominantly to their 

white bank consumers. It allowed them to actually split these outreach— 

Mr. ELLISON. Kind of a Jim Crow within one institution. 

Ms. BOWDLER. And we have seen it in other whistleblower cases. 

In Wells Fargo v. Baltimore, there was a big New York Times article about this. Other places where we see that—employees are actually coming forward, much as Ms. Burger describes, saying, this 

was our strategy. As soon as we create loopholes, we are going to 

give people the opportunity to just shift the way they do business 

a little bit or shift their label. 

Mr. ELLISON. And I just want to give a little voice to the point 

that Ms. Burger made which is that low-level employees are saying 

that we are enforced and incentivized to push more accounts, to not 

relieve people of unfair overdraft fees, and this is part of the issue 

that we need to consider. 

I am running out of time. So I just want to ask this. Do you 

think that it is essential for the CFPA to have supervisory and enforcement powers in addition to rulemaking authority? Both the 

Fed and the OCC failed to exercise their powers with respect to 

consumer protection over the nonbank affiliates of national banks. 

How do we know that they wouldn’t drop the proverbial ball again 

if they retain their supervisory powers? 

Mr. CALHOUN. I think definitely yes. And particularly in light of 

the fact that, it hasn’t been discussed today, this bill does not have 

a private right of action. CFPA rules cannot be enforced by individual consumers. We think that should be changed, but it makes 

it all the more important that you have as many other enforcement 

mechanisms as possible. 

Mr. ELLISON. Anybody else? I think I am done. 

The CHAIRMAN. The others, we encourage you to answer in writing. And I also want to note while we have general leave, approximately 100 professors of consumer law and banking law from universities from a large number of States have submitted a letter in 

support of this agency and some of the specifics, and it will be part 

of the record. 

And the gentlewoman from California will be our last questioner. 

Ms. SPEIER. Thank you, Mr. Chairman. 

I guess I have one overriding question. At what point does the 

bill become so watered down that it is not worth pursuing? And I 

ask that question not facetiously, because one of the interests that 

are being promoted is that we preempt all State regulation. And 

while the bill right now does not have preemption, if we move in 

that direction, is that going too far? At that point, do you walk 

away from the table and say, this isn’t a consumer-friendly bill? 

Mr. CALHOUN. I will start with that. The bill currently pushes 

preemption back close to what it was in 2004. So the one issue is, 

do you roll back some of what many of us believe was excessive 

preemption that led to the problems that we have now, not just the 

mortgages, but in credit card overdraft. 

There is a second question that there are proposals to actually 

increase the amount of preemption that we have in the bill and, 

specifically, to make any rule of the CFPA preemptive, even though 

most of its authority comes from statutes such as truth in lending 

43 

which today are not preempted. States are allowed to build on 

those protections. And I think, importantly, truth in lending is a 

good example. There has been virtually no State activity, although 

it is permitted, because you have comprehensive regulation. States 

like North Carolina moved in and Georgia attempted to move in, 

in predatory mortgage lending, due to the failure of the Federal 

regulators to take action. When Federal regulators have taken action, typically States adhere to those standards because they are 

beneficial to the community in that State. 

But I think that is the line that it crosses. If it becomes fully preemptive, it undercuts current protections in a wide array, consumer 

car purchases, furniture purchases across-the-board, payday lending, all of that could be swept aside by a single administrator. 

Ms. SPEIER. Let me move on to payday lending, because in the 

bill, it prohibits the CFPA from establishing a usury limit. Now, I 

feel pretty passionately about that issue, I realize. But nonetheless, 

why would we want to tie the hands of a consumer protection agency from actually putting in place a usury limit of let us say 36 percent? 

Mr. CALHOUN. I think again that is particularly troublesome if 

you put it in the context that the consumer protection agency could 

wipe out other State protections, for example, in the field of payday 

lending. Then the usury prohibition in the bill becomes even more 

problematic. 

Ms. SPEIER. It doesn’t offend you that we are tying the hands of 

the consumer protection agency on one of the biggest financial 

boondoggles and most egregious conduct by the financial services 

industry and basically saying that this consumer protection agency 

can’t even deal with that issue? Anyone else have any— 

Mr. SHELTON. Let me just say, on behalf of the NAACP, we were 

probably more in agreement with you that very well—we have seen 

so much exploitation across the country and what happens in local 

communities where we don’t have a very clear standard set forward 

on to prevent the exploitations that we have experienced in the 

past. So very well, it does raise concerns, and it is something that 

we would love to see discussed further. 

Ms. SPEIER. I yield back. 

The CHAIRMAN. If the gentlewoman would yield her remaining 

time—and I appreciate her raising that question. While there is no 

usury flat prohibition, I believe that you could not deal with unfairness without taking into account duration, interest rate, etc., and 

I believe the legislation should be clarified to make it clear that 

that could be an element in an overall judgment this was an unfair 

and abusive practice. So that will be. 

Ms. SPEIER. I have an amendment in mind. 

The CHAIRMAN. It wouldn’t be a flat across-the-board thing, but 

it is clearly an element—as with our credit card bill. Interest 

rates—we can set a flat number, but interest rate calculations were 

part of the bill in terms of deciding what was fair and not fair, retroactive interest rate increase, etc. So I agree that is an important 

point. I thank the witnesses and the members, and I ask the second panel to come forward. 

Let us move quickly, please. You can have all the conversations 

outside. Will the witnesses please take their seats? I appreciate the 

44 

patience of the witnesses. And we will begin with Mr. Michael 

Menzies, who is the president and CEO of the Easton Bank and 

Trust company, testifying on behalf of the Independent Community 

Bankers of America. 

Mr. Menzies? 

STATEMENT OF R. MICHAEL S. MENZIES, SR., PRESIDENT AND 

CHIEF EXECUTIVE OFFICER, EASTON BANK AND TRUST CO., 

ON BEHALF OF THE INDEPENDENT COMMUNITY BANKERS 

OF AMERICA (ICBA) 

Mr. MENZIES. Chairman Frank, thank you so much. 

I am Mike Menzies, president and CEO of Easton Bank and Trust in Easton, Maryland. We are a $160 million State-chartered 

community bank. And I am proud to be chairman of the Independent Community Bankers of America representing our 5,000 

community-bank-only members at this very important hearing. 

There are 8,000 community banks in this country, Mr. Chairman, 

most of which are below a billion dollars in total assets. 

Community banks do not have 50,000 ATMs; 5,000 branches; 

100,000 employees as their primary assets. They have only one real 

asset that they own, their relationship with their customer. That 

relationship must be strong enough to overcome overwhelming 

odds regarding product prices, product offerings, convenience and 

size and economies of scale. 

The only thing I can do to compete in this industry is to serve 

my customer better than the competition. That means I must serve 

and protect and know and own that relationship. If I don’t do that, 

then I lose the only asset which produces a return to my 100 stockholders, my associates, and my community. 

Community banks do not have geographic reach into every State 

of the land or huge legal departments that operate under the theory that forgiveness is easier than permission. We cannot afford to 

place consumer protection beneath any other core value. Community bankers across the country have made it clear that a new regulator for them is not the answer to protecting consumers. Adding 

to their regulatory costs and burden will not help community bankers protect consumers better and will make it harder for community banks to offer the variety of competitive products at better 

rates and terms that customers expect and deserve. 

To protect consumers, Congress should address the overleveraged, ‘‘too-big-to-regulate,’’ ‘‘too-big-to-fail’’ firms whose concentration risks have cost taxpayers over $10 trillion in net worth. Congress should also address the many nonfinancial banking institutions that are unencumbered by most forms of government regulation or accountability. 

An important part of the solution to the ‘‘too-big-to-fail’’ problem 

is contained in the Bank Accountability and Risk Assessment Act 

of 2009, introduced by Representative Gutierrez, and we urge the 

committee to incorporate this measure into any broader financial 

regulatory reform proposal it considers in the future. 

Mr. Chairman, we deeply appreciate the steps you have taken to 

improve the CFPA, most notably by removing the plain vanilla 

product mandate and the reasonableness standard which would invite litigation and create tremendous uncertainty. To be sure, comVerDate Nov 24 2008 16:05 Apr 15, 2010 Jkt 054872 PO 00000 Frm 00048 Fmt 6633 Sfmt 6633 K:\DOCS\54872.TXT TERRIE
45 

munity banks offer a consumer basic products whenever it is appropriate. But simpleness as a doctrine should not be promoted at 

the expense of a consumer’s unique and individual needs. 

ICBA remains very concerned with the overall approach. While 

we appreciate efforts to encourage coordination, we object to the 

separation of consumer protection compliance from safety and 

soundness regulation. For community banks, the prudential regulators have done an excellent job of enforcing consumer protection 

in a way that protects the safety and soundness of the bank and 

the integrity of its customers. 

Also, an agency with the sole focus of consumer protection will 

not likely write rules for a community bank that adequately considers safety and soundness. If a bank regulator is not equally interested in safety and soundness of the lender, it is likely to promulgate unnecessarily burdensome or contrary rules to those 

issued by the prudential regulator. 

The chairman’s discussion draft also modifies the leadership 

structure of the CFPA, creating an autonomous director while establishing an advisory board with essentially no authority. ICBA is 

concerned with this approach which lacks substantive checks and 

balances and provides no meaningful voice for community bank 

viewpoints in the agency’s decision-making process. 

In conclusion, ICBA agrees that a lack of sufficient regulatory 

oversight, particularly among unregulated mortgage lenders and 

‘‘too-big-to-be-regulated’’ entities led to significant abuses of consumers. However, we disagree with the response that places community banks into an entirely new regime with only vague limits 

and checks on its powers instead of focusing on the real regulatory 

gaps and augmenting the existing system. We really look forward 

to working with this committee to improve our financial system to 

better protect consumers while not restricting the ability of community banks to serve their customers. 

Thank you, Madam Chairwoman. 

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

130 of the appendix.] 

Ms. BEAN. [presiding] Thank you for your testimony and we will 

now go to Mr. Andrew Pincus from Mayer Brown on behalf of the 

U.S. Chamber of Commerce. 

STATEMENT OF ANDREW J. PINCUS, PARTNER, MAYER BROWN 

LLP, ON BEHALF OF THE U.S. CHAMBER OF COMMERCE 

Mr. PINCUS. Thank you, Madam Chairwoman. 

I want to thank Chairman Frank and Ranking Member Bachus 

for the opportunity to testify here on behalf of the U.S. Chamber 

of Commerce. The Chamber strongly supports the goal of enhancing consumer protection. Consumers need clear disclosure and better information, they need more vigorous, effective enforcement 

against predatory practices, and they need the elimination of regulatory gaps that allow some financial service entities to escape the 

regulations that are applicable to their competitors. 

The Chamber opposes H.R. 3126 because it believes the bill will 

have significant and harmful unintended consequences for consumers, for the business community, and for the overall economy. 

Last week, the Chamber released a study by Thomas Durkin, an 

46 

economist who spent 20 years at the Federal Reserve. He concluded 

that H.R. 2136 would reduce consumer credit and would likely increase the cost of credit that is available. Small businesses’ access 

to credit would be hurt as well. 

We appreciate the recognition in Chairman Frank’s September 

22nd memo of a number of the specific concerns that the Chamber 

has raised about H.R. 3126. But the difficulty of transforming principles into legislative language in this very complicated area of the 

law and the need for careful assessment of the impact of proposed 

provisions is demonstrated by the fact that the changes made in 

the revised bill do not resolve the concerns that the Chamber has 

expressed. Let me give a few examples. One critical issue is whether ordinary retailers and merchants that extend credit to their customers were covered by the original bill. The revised bill does provide that the agency will not have authority regarding credit issued 

directly by a merchant or a retailer. But a business that merely accepts credit cards could still be classified as a covered person on 

the ground that it indirectly engaged in financial activity, which is 

one of the grounds for a covered person under the bill, or that it 

was providing a material service to the credit card network. 

Accountants, lawyers, and tax preparers have expressed concern 

about their status under the bill. The revised bill does contain an 

exemption for these professionals but provides that the exemption 

shall not apply to the extent such a person is engaged in the financial activity or is otherwise subject to the existing Federal consumer laws. That means that any activity by an accountant or a 

lawyer that falls within the broad financial activity definition, for 

example, providing tax planning, advice in connection with estate 

planning would trigger the applicability of the statute. 

The revised bill’s exemptions for real estate brokers and auto 

dealers suffers from the same flaw; the exemptions don’t apply if 

the Realtor or the auto dealer is engaged in financial activity or is 

otherwise subject to the laws. 

In addition, even the limited protection provided by these exemptions doesn’t cover activities in which these individuals routinely 

engage. For example, the real estate broker exception doesn’t include negotiations relating to financing. And the auto dealer exemption does not apply to leased transactions and excludes all activities relating to the arranging of financing. That means auto 

dealers likely will be covered by the statute for all activities other 

than all cash vehicle sales. 

Another aspect of H.R. 3126 that provoked considerable concern 

is section 132(b), which would have required businesses to determine the extent to which consumers comprehended particular information. Although that provision has been removed from the revised bill, new language has been added to section 138.1 making 

it unlawful for any person to engage in any unfair, deceptive or 

abusive act or practice. This new provision imposes broad liability 

on anyone, not just a covered person, any time there is a determination in hindsight that the person’s conduct was unfair or deceptive or abusive, even if there was no regulation requiring a particular disclosure or prohibiting the particular practice. 

The revised bill does not include the provision of H.R. 3126 that 

imposed the plain vanilla product requirement, but the agency 

47 

could impose that very same requirement through its broad authority to prevent abusive acts or by invoking its fair dealing authority. 

And States would be free to impose a plain vanilla requirement 

even if the agency did not do so. 

Next, separating the regulation of financial products from safety 

and soundness threatens consumers as well as the stability of the 

financial system. Although the bill creates a dispute resolution 

process, that process doesn’t apply to the adoption of regulations by 

the agency which would still be entirely separated from the safety 

and soundness regulators. 

And finally, at a time when harmonization has been identified as 

a priority by all stakeholders, the proposed agency will do the opposite. It rolls back 150 years of banking law by subjecting national 

banks to State regulation, and it gives the States independent 

power to interpret and enforce the new separate standards, even if 

they adopt an interpretation different from the agency’s. Again, 

thank you for the opportunity to testify, and I look forward to answering the committee’s questions. 

[The prepared statement of Mr. Pincus can be found on page 139 

of the appendix.] 

Ms. BEAN. Thank you. 

We will now move on to Mr. Yingling, president and CEO of the 

American Bankers Association. 

STATEMENT OF EDWARD L. YINGLING, PRESIDENT AND CHIEF 

EXECUTIVE OFFICER, AMERICAN BANKERS ASSOCIATION 

(ABA) 

Mr. YINGLING. Thank you, Madam Chairwoman. 

When I testified here in July, I asked the committee to look at 

this issue not only from the point of view of consumers, whose concern should be paramount, but also from the point of view of community banks, the great majority of which had nothing to do with 

causing the financial crisis, which are struggling with a growing 

mountain of regulatory burdens. 

Recently, I asked the ABA staff to determine the total amount 

of consumer regulations to which banks are subjected. The answer 

is 1,700 pages of fine print, and that is just in the consumer area. 

Since the median-sized bank has 34 employees, that means the median-sized bank has 50 pages of fine print for each employee. That 

means that half the banks in the country have more than 50 pages 

per employee in the consumer area alone. 

I want to express our appreciation for the consideration many 

members of this committee have given to the situation of traditional banks and to the unnecessary burden that would be placed 

on these banks. 

While there are many causes of the financial crisis, failures of 

consumer protection in the mortgage arena certainly contributed. 

As Congress moves to strengthen consumer regulation, however, it 

is important to focus on what the problem areas were. The two 

areas that have been identified as needing reform are the need for 

more direct focus by regulators on consumer issues and the need 

for more enforcement on nonbanks. The ABA agrees that reforms 

are needed in these two areas. On the other hand, in our opinion, 

no real case has been made for changes to other areas. 

48 

The first area is requiring additional enforcement on banks and 

credit unions. While the argument is made that Federal regulators 

should have developed stronger regulations and sooner, there is little indication that once the regulations are issued, they are not enforced on banks and credit unions. 

The second area is giving the CFPA vast new powers. It is not 

clear why new authorities are needed. As has been talked about 

earlier this morning, the Fed had the mortgage regulatory authority and has the clear authority to address credit card issues, which 

is already done, and overdraft protection, which is in process. In 

fact, the expanded use of UDAP by the Fed creates a powerful tool 

in addition to specific consumer laws. 

The CFPA, unfortunately, goes well beyond addressing the two 

weaknesses identified. The Administration’s proposal unnecessarily 

imposes new burdens on banks and creates an agency with vast 

new powers. We are pleased that the chairman’s discussion draft 

addresses several issues the ABA has raised and seeks to lessen 

the additional burdens on community banks. 

One of our major concerns with the CFPA as proposed is that it 

would not adequately focus on the nonbank sector where the 

subprime mortgage crisis really began. The discussion draft rightly 

focuses regulation more on nonbanks than the original proposal 

did. 

The ABA still has major concerns in three areas. 

First, the ABA supports the preemption of State laws under the 

National Bank Act. We believe, without such preemption, we will 

have a patchwork of State and local laws that will confuse consumers and greatly increase the cost of financial services. 

Second, as I just stated, there has been little justification for the 

broad new powers given the CFPA. The draft removes two of these 

explicit powers, plain vanilla products and requiring communications to be reasonable. 

However, even with those changes, the proposed CFPA will be 

given unprecedented powers. Vague legal terms, such as ‘‘abusive’’ 

and ‘‘fair dealing’’ will create great uncertainty in the markets because no one will know what the new rules of the road will be. This 

will undoubtedly cause firms to cut back on the extension of credit 

and to avoid offering new products. 

From the broader perspective, the delegation authority of the 

CFPA is so vast that it renders all previous consumer laws enacted 

by Congress, including the recently enacted credit card law, mere 

floors. Several members of the committee have rightly raised concerns about this broad delegation. 

Third, the ABA opposes the creation of an entirely new agency 

on the fundamental principles that: first, you cannot separate the 

regulation of products from the entity; and second, that safety and 

soundness and consumer protection are too intertwined to be separated. ABA is committed to working with Congress to strengthen 

consumer protection while avoiding undermining the availability of 

credit and imposing new unnecessary costs on consumers and financial service providers. Thank you. 

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

151 of the appendix.] 

Ms. BEAN. Thank you. 

49 

And now we will hear from Mr. Bill Himpler, executive vice 

president of the American Financial Services Association. 

STATEMENT OF BILL HIMPLER, EXECUTIVE VICE PRESIDENT, 

THE AMERICAN FINANCIAL SERVICES ASSOCIATION (AFSA) 

Mr. HIMPLER. Thank you, Madam Chairwoman, and members of 

the committee. 

I appreciate the opportunity to give the finance company perspective on the proposal to create a CFPA. In light of the revisions put 

forward last week, I would like to thank the Chair, Mr. Frank, for 

his willingness to listen and consider different perspectives on this 

very important proposal. 

At the same time, we have noted that Mr. Frank was quoted as 

saying last week that Congress would enact death panels for 

nonbanks. I think this quote is indicative of the sense in Washington that many have that State-regulated correlates to unregulated. Therefore, I would like to take a minute to set the record 

straight regarding the regulation of consumer finance companies. 

Finance companies have been around for over 100 years. They 

come in many shapes and sizes. Some are independently owned 

and specialize in personal loans to consumers and businesses. Others are captives that provide financing to vehicles or other products 

manufactured by their parents, and I can assure you that finance 

companies are already heavily regulated. 

In addition to being subject to Federal consumer protection laws, 

such as TLA and ECOA, finance companies are licensed and regulated by States and abide by the consumer protection statutes in 

all the States in which they do business. Like banks, finance companies undergo regular and vigorous examination by State regulators. These companies have been successful at meeting the credit 

needs of communities in part because they are subject to oversight 

by State regulators who have familiarity with local situations and 

issues faced by lenders and consumers. State regulators frequently 

are among the first to identify emerging issues, practices or products that may need further investigation. 

AFSA strongly supports the efforts by this committee to improve 

consumer protections for financial service consumers. However, we 

do have a philosophical difference about how to achieve this goal 

and remain concerned that the proposal would reduce and perhaps 

eliminate a critical source of consumer credit for the following reasons. 

First, the CFPA would try to fix what is still working and use 

a one-size-fits-all approach, as mentioned by Mr. Scott, to financial 

service products. For instance, it makes no sense to compare terms 

such as APR for a 30-year fixed mortgage with those of short-term 

installment loans used to buy a new washer or dryer. Many of the 

companies that would be subject to these intensified requirements, 

greater restrictions, and higher compliance costs would be those 

who didn’t contribute to the mortgage crisis at all. 

Second, there is no guarantee that the CFPA would be better 

able to weed out bad practices in the financial services sector than 

existing agencies. Policymakers should not be tricked and trapped 

into thinking that more bureaucracy is what is needed to improve 

consumer protection. 

50 

What is more, putting an untested, inexperienced agency in 

charge of consumer protection for the entire financial marketplace 

could exacerbate existing problems rather than reducing them. 

Third, if the CFPA were to become a reality, financial services 

customers are likely to have less borrowing flexibility, even with 

the elimination of the the plain vanilla requirement. The new regulator would still retain expansive rulemaking authority and the 

ability to determine allowable consumer products. 

Under CFPA’s jurisdiction, finance companies will face considerable compliance costs that will get passed on to borrowers, imposing a new tax on consumers at a time when they can least afford 

it. 

Fourth, AFSA believes that consumers will be better served by 

a regulatory structure where prudential and consumer protection 

oversight is housed within a single regulator. FHFA Director 

James Lockhart recently cited the separation of these functions as 

one of the primary reasons for the failure of Fannie and Freddie. 

For the reasons I have just stated, AFSA believes the creation of 

CFPA will not fulfill the goal of improving consumer protection for 

financial services customers. It is hardly in the consumers’ best interest to add new layers of bureaucracy, reduce credit choices, and 

raise prices for financial services. 

In addition, I would like to point out that if the proposal focuses 

on nonbanks, it could reduce and perhaps eliminate many finance 

companies, which are a critical source for credit for consumers and 

small businesses. Take for example, an unanticipated car repair. 

Vehicles play a critical role in sustaining employment because most 

Americans still use cars to get to work. Without the ability to borrow money from finance companies, repairs necessary for such 

transportation may not be possible for many less-advantaged 

Americans. 

Ultimately, if installment lenders, auto lenders and other finance 

companies are required to shoulder much of the compliance burden 

resulting from CFPA, it will undoubtedly affect their ability to provide safe, convenient, and affordable loans just as we are starting 

to get the economy back on track. 

Thank you, Madam Chairwoman, and I look forward to answering any questions. 

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

112 of the appendix.] 

Ms. BEAN. Thank you all for your testimony. 

And now to begin questions, I will turn to the gentlewoman from 

California, who is recognized for 5 minutes. 

Ms. WATERS. Thank you very much. 

And I thank our panelists for being here today. 

I don’t know if you have heard about the fact that, in my office, 

we got very much involved in loan modifications because we were 

receiving so many complaints. Not only complaints from my district, but everywhere I go, whether it is at church or at a social 

event, American Airlines that I travel, the workers there, everywhere, I am bombarded with people who are in mortgages that 

they can’t afford for whatever reason. They lost their job. They got 

into a predatory loan. And we are overwhelmed because we do 

help. We help connect people with servicers. We help to interpret 

51 

to servicers the problems that people have. We get waivers from 

constituents so that we can talk about their loans and help guide 

the servicers and make sure the servicers are taking everything 

into account. 

But I just want to share something with you, why I am so exercised about having a consumer financial protection agency. I want 

to tell you about Mrs. Himpler. This is one of the hundreds that 

we are working with. She is a 77-year-old woman, of course, who 

called our office. She has a fixed income of $1,025 a month, which 

she earns from a widower’s pension. When she took out the loan 

2 years ago, her income was only $950 per month. She was approached about refinancing her home. Her home was worth 

$248,000 at the time. I guess they appraised—she owed rather, 

$248,000. The home was appraised at $480,000. The loan amount 

was $336,000. They gave her a refi, and they charged her $70 a 

month for her refi, and this is the way it operated. It was a variable rate mortgage. She pays $70 a month in 2011. Her payment 

will reset to $2,973.44 a month. The loan will reset again in 2012 

to $3,067.84 a month. And finally the loan will reset a third time 

to $3,825.20 a month in 2017. What are we supposed to do with 

this kind of mess? 

Mr. Himpler, you represent GMAC Financial as part of your industry group. This was one of those loans that was made by Paul 

Financial. It was one of those warehouse mortgage lenders. But 

they sold it to GMAC. I guess GMAC and others are happy to accept these kinds of loans because they know that they are going to 

get the house. They know that they are eventually going to get this 

house, that this 77-year-old woman will die before she is even able 

for the third reset. What are we supposed to do, Mr. Himpler? 

What are we supposed to do? 

Mr. HIMPLER. Well, let me ask first, did I hear you say your constituent’s name was Ms. Himpler? 

Ms. WATERS. No. I am sorry. That is your name. 

Mr. HIMPLER. I just thought it was a really interesting coincidence. 

Ms. WATERS. No. Please—that is a mistake. But that is not the 

point. The point is, this is a predatory loan that I am confronted 

with time and time again, and you come here to tell us about why 

a consumer protection finance agency is not wise thinking. What 

should we do? 

Mr. HIMPLER. Our position at AFSA is that finance companies 

face heavy regulation at the State level. At the State level, consumer credit administrators in 2008 alone have brought 7,000 enforcement actions in the mortgage sector alone, as compared to 

what Mr. Calhoun made mention of with respect to OCC enforcement actions taken to the Attorney General, the Department of 

Justice. We think that, as my colleague Mr. Calhoun made mention, that you have very strong State statutes to protect against the 

very abuses— 

Ms. WATERS. My time is out. And I see where you are going. No, 

we are not—I am not here to complain about the State statutes. 

I am here to talk about trying to protect consumers from the Federal—I want you to help me with this loan. I want you to get the 

servicer on this loan on the phone with me and Ms. Jones, who is 

52 

77 years old, who has been—spent $70, is now going to reset and 

reset and reset. I want you to help me modify this loan. That is 

all I want from you today. Thank you. 

Ms. BEAN. The gentleman from Texas is recognized for 5 minutes. 

Mr. HENSARLING. Thank you, Madam Chairwoman. 

I guess I want to start out with a rhetorical question. I heard 

that one of my colleagues said we really have nothing to fear from 

the CFPA and used the comparison to the FDA allowing statin 

drugs on the market, that even though they might have had the 

power to keep them off the market, they allowed them. I think I 

would be interested to actually conduct the research to find out 

how many people might have actually lost their lives waiting for 

the FDA to approve that drug. 

Prior to coming to Congress, I was a member of the board of directors of the American Cancer Society in Dallas, Texas. And I can 

assure you there are a number of families in the Dallas area who 

are convinced they lost their loved ones waiting for the FDA to finally approve cancer treatments. 

So I also am curious, if we had a CFPA, how many homes would 

be lost, how many small businesses would be compromised as we 

sit around waiting for the CFPA to decide whether or not people 

have the liberty in a free society to decide what kind of credit 

cards, home loans, and auto loans they have. 

And that is a rhetorical question. 

I have heard some on the other side of the aisle earlier today say 

that the primary reason or certainly a significant reason that we 

have economic turmoil is because people I suppose in financial institutions represented by your organizations steered consumers 

into risky products because there was high profit to be found. 

I guess the first question I have is, how much more profit do you 

make on a defaulted loan as opposed to one that remains in compliance? 

Mr. Menzies, let us start with you. When the customer defaults, 

do you make more profit? 

Mr. MENZIES. Pretty simple answer, you don’t make any money 

on a defaulted loan, and you lose a relationship. So when you underwrite a loan, you don’t underwrite a loan with the hopes that 

it will default and you can go collect legal fees and that sort of 

thing. 

But, Congressman, let’s understand what really caused the crisis. 

Do we believe that it was community banks and lenders who live 

with the people that they lend to? They go to Rotary with them. 

They sit on the hospice board with them. They live with them. 

Underwriting products and sticking them into SIVs on Wall 

Street that are then rated by rating agencies that don’t know what 

they are looking at and selling to investors that don’t understand 

what they are buying; do we really believe that the community 

banking industry was a player in that game? 

Mr. HENSARLING. Mr. Menzies, speaking for myself, the answer 

is ‘‘no.’’ 

Given the limited time I have, let me skip ahead. I think I have 

heard in your testimony—I don’t have it right in front of me—that 

not withstanding the chairman’s new bill, that you still had conVerDate Nov 24 2008 16:05 Apr 15, 2010 Jkt 054872 PO 00000 Frm 00056 Fmt 6633 Sfmt 6633 K:\DOCS\54872.TXT TERRIE
53 

cerns—I suppose we are no longer in the mandatory plain vanilla, 

but maybe possibly highly suggested plain vanilla. I am paraphrasing what I think I heard in your testimony. Do you still have 

concerns that the regulator will essentially steer you to standardized products? 

Mr. MENZIES. I don’t think we have done a very good job of explaining to this committee and to Congress that community banks 

are not in the product business. We don’t sell products. 

Mr. HENSARLING. So is it fair to say that you— 

Mr. MENZIES. We try to create solutions. And if this legislation 

takes away our ability to create a solution to satisfy the need of 

a consumer, if it is a product-driven approach to dealing with this 

problem, we are going to lose the competitive advantage that community banks have to create solutions for people in need. 

Mr. HENSARLING. So is it fair to say that you still retain that 

fear? 

Mr. MENZIES. Absolutely. 

Mr. HENSARLING. I met with some community bankers over the 

congressional recess in August. One described to me a very customized—you don’t like the term ‘‘product,’’ but I don’t have another term at the tip of my tongue—a very customized product for 

a lady who was trying to buy school supplies for her children as 

the children returned to school. And they customized a product totally for her, and I don’t remember all the details, somehow tied 

to the paycheck, 6-month payout, different provisions, that would 

allow her to push the loan back. 

My community banker in Kaufman County, Texas, said under 

this legislation, I don’t think I could have offered that product. And 

so I am describing, I suppose, a relationship-driven credit opportunity that you would fear might disappear under this legislation. 

Mr. MENZIES. We believe we have to maintain the flexibility to 

offer solutions and choices to small businesses and to consumers. 

We do not believe you can standardize or vanilla-ize, or whatever, 

financial products and serve the needs of America’s communities. 

Mr. HENSARLING. Thank you, I am out of time. 

Ms. BEAN. The gentleman from North Carolina, Mr. Watt, is recognized. 

Mr. WATT. Thank you, Madam Chairwoman. 

Let me start by expressing publicly what I have expressed to a 

number of your representatives privately, which is just an absolute 

sense of exasperation for the positions that you all have taken on 

this, which really have been—we are going to oppose this and oppose it and oppose it. And we are going to make all kinds of discussions for not doing this. We are going to lay down on the road and 

we are really not going to come and sit down and talk about how 

to resolve the issues. There are some issues that I think need to 

be resolved and I just am just exasperated at the approach the industry has taken on this. 

And here today, you all tell me, Mr. Yingling, that there is no 

real case for change here. After all of the experiences that we have 

been through that demonstrate the case for change, to hear testimony that says there is no case for change having been made— 

Mr. YINGLING. Congressman, I never said that. 

Mr. WATT. —it is exasperating to me. 

54 

Mr. YINGLING. I never said that. 

Mr. WATT. Go back and listen to what you said. 

Mr. YINGLING. No, that is not what I said. 

Mr. WATT. I am not going to get into an argument. Let me tell 

you I hear you all say that you are concerned about one-size-fitsall, but there is not but one size to safety and soundness. When we 

say protect consumers, there is no size differential that we are 

talking about here for community banks. 

If the shoe doesn’t fit, then you won’t wear it. Just like in safety 

and soundness, if the shoe doesn’t fit a particular bank, if you are 

providing services and nothing is going wrong, the notion that behind every tree there is some big boogeyman that is going to make 

you do something different is just—I don’t understand that. The 

standard that says go out and protect consumers is no more onesize-fits-all than a standard which says go out and assure safety 

and soundness in the industry. 

The double standard that you are talking about that would require this agency to have some kind of oversight panel when there 

is nothing that exists with the other regulatory agencies is just beyond me. I don’t understand that. 

We put—the proposal puts a council there that they consult with. 

There is no veto authority that anybody has if the Fed determines 

that you are taking some kind of action that is unsafe and unsound. Yet you would continue to make this agency a stepchild in 

the whole regulatory structure. I think that is exactly what the 

public is saying is unacceptable. And I don’t understand what your 

position is. 

You tell me there are 1,700 pages. Well, let’s write into the authority of this agency the authority to go in and review those 1,700 

pages and reduce them. 

Part of the reason we have 1,700 pages now is because you have 

consumer protection spread out all over every agency in the regulatory framework. You say it is acceptable to go out and impose 

this agency on non-banks, yet something is wrong with the agency 

when we try to do exactly the same thing for bank entities. I don’t 

understand this, and I am exasperated by it. And I am disappointed. 

Go ahead and say whatever you want to say in response to that, 

but I can’t tell you how exasperated I am with the posture you all 

have taken on this. With consumers out there in the public demanding that we do something to protect them, you all are saying 

that we ought to be catering to your industry still. And I think that 

is unacceptable. 

Ms. BEAN. Time has actually expired. 

Mr. YINGLING. May I respond? 

Ms. BEAN. A brief response. 

Mr. YINGLING. Well, first, Congressman Watt, there is nobody 

who has worked harder in this Congress to try to resolve these 

kind of issues than you have. So we don’t want you exasperated. 

Mr. WATT. Which is exactly why I am exasperated. 

Mr. YINGLING. I know it is. If you interpreted what I said as that 

changes are not needed, that is not what we are saying. What I am 

trying to say is that the focus of such change needs to be on the 

two factors that really seem to cause the problem primarily. 

55 

One is a lack of focus within the regulatory agencies on these 

issues, which is really what happened. 

Two, that the enforcement part of it, the enforcement part of it, 

was on the non-bank side, not on the bank side. 

What I said which was, I am afraid easily misinterpreted, was 

if you look at the actual authority, the actual authority wasn’t the 

problem. The Fed had the HOEPA authority; the regulators have 

the authority Under Unfair and Deceptive Practices, UDAP, to address all these issues, and they haven’t. So it is an issue of focus, 

not an issue of powers, in my opinion. 

Ms. BEAN. Time has expired. 

The gentleman from Minnesota, Mr. Paulsen is recognized. 

Mr. PAULSEN. Thank you, Madam Chairwoman. 

Mr. Menzies, maybe I can start by asking you a question. During 

the debate that we had in the committee here on the Credit Card 

Act, there was significant discussion and actually concern on both 

sides of the aisle regarding possibly accelerating the implementation of the deadlines that were put in the bill. 

I was working on an amendment with Mr. Moore of Kansas to 

make sure there was proper time to implement the legislation as 

it went forward. 

Now, even though the law is on the books and the Federal Reserve Board, just on Monday now, introduced 800 pages of proposed 

rules, there is talk of Congress accelerating these dates and deadlines even further. 

Since we are talking about consumer products today and credit 

products, from your perspective what does speeding up these deadlines mean to small issuers that have had concerns about the legislation as it has been moved forward? 

Mr. MENZIES. Congressman, the simple answer is that it could 

cause small issuers just to exit the business and sell portfolios to 

the larger issuers, which would create more consolidation in the industry, which we don’t believe is healthy. 

The more detailed answer is that the new legislation is complex 

and comprehensive when it comes to dealing with changing the 

statements, changing the disclosures, testing the new systems. It 

represents a major reconfiguration of the credit card requirements. 

And we are hopeful that community banks can make it by July of 

next year, which, if I am correct, is the currently scheduled kickin date for this new legislation. 

If the legislation is moved forward too quickly and community 

banks are unable to reconfigure to deal with an advancement of the 

legislation, then that part of the business could result in them saying, well, I will just exit the portfolio business and sell it to a larger 

aggregator, which we don’t belive is in the interest of the consumer. 

Mr. PAULSEN. Well, I thank you for that and that is something 

we will have to pay closer attention to on this committee. In particular, I know the chairman has made some announcement recently that he may move the deadlines up further. But to think of 

losing smaller issuers in terms of exiting the business altogether, 

I don’t think that is good from a competitive standpoint or more 

consolidation as well. 

56 

I remember the regulators who sat at that table were testifying 

specifically about the implementation dates that are on the books 

already, and so I think we need to be really prudent and cautious 

about that. 

Mr. Yingling, maybe I can just offer you an opportunity, we kind 

of ran out of time on your last series of questions there, but you 

referenced focusing on two different factors: the lack of focus that 

was currently going on in the regulatory environment as well as 

the enforcement side. 

Can you expand a little bit about the enforcement side, and right 

now with the proposal of CFPA sort of having separation of enforcement versus the oversight? 

Mr. YINGLING. It seems to me there is a lot of consensus around 

the fact that there is not— 

Mr. GREEN. Would you pull your microphone a bit closer, Mr. 

Yingling? 

Mr. YINGLING. It wasn’t on—that there was not an adequate 

focus on consumer issues. And if you would look at the history, particularly the history of what caused this crisis, you can go back to 

a point in time and say, if the Fed had implemented HOEPA in an 

aggressive fashion, with the powers in HOEPA, from the consumer 

side we would not have had the degree of problem we had. 

One of the weaknesses that the Fed had to face at that point was 

that HOEPA gave them at the Federal level no enforcement over 

the non-banks. So with the mortgage brokers, even though HOEPA 

technically would have applied to them, the enforcement would 

have been left to the State level. And in that case, we know that 

the enforcement was inadequate. 

So if you look at that history, it seems to me that you draw the 

conclusion that the problem is a lack of focus at the Federal level 

on consumer issues, and an inability to ensure enforcement at the 

State level. In many cases, there is good State enforcement but, 

clearly, in the mortgage area there was not. 

What I was attempting to say in my testimony—and maybe 

didn’t say it very well—was I don’t think the case has been made 

that there aren’t enough powers out there. The regulators have all 

the laws that you all have enacted, and there are a lot of them, 

the 1,700 pages of regulations I talked about. Plus they have a new 

aggressive tool that the Fed used in the credit card case, the Unfair 

and Deceptive Acts and Practices. You combine those, then I think 

that the power is there; and if it is not, you all can enact new laws. 

So what I am trying to say is, if you focus on the problems, the 

problems are a lack of focus at the Federal level and a weakness 

in certain mechanisms for enforcing at the State level. 

Ms. BEAN. I will now recognize myself for 5 minutes. 

My first question is to Mr. Yingling in follow-up to Congressman 

Hensarling’s question about what does one earn more or less relative to a delinquency versus a foreclosures? 

My question is in relation to servicers. I certainly agree with Mr. 

Menzies’s contention that community banks aren’t going to earn 

more in that situation. But can you please comment on how much 

more servicers make servicing a delinquency or servicing delinquency versus foreclosure? 

57 

Mr. YINGLING. I don’t know the full answer to that, Madam 

Chairwoman. I would have to come back to you. I do think we have 

issues, and servicing was designed for servicing. And nobody ever 

anticipated—unfortunately, they should have—that servicing would 

be doing what it is trying to do today, which is to rework literally 

millions of loans. We all know that— 

Ms. BEAN. Let me interrupt you and ask you this way: Are you 

saying that there aren’t occasions where servicers are making more 

when property is foreclosed than if they continue to service them 

in delinquency? 

Mr. YINGLING. No. I think the servicing process has a lot of incentives and nooks and crannies and bottlenecks, because it wasn’t 

set up for this. 

Ms. BEAN. So you have no knowledge of how that compares to 

some of the incentives that were put in place by the Administration 

to incentivize loan modifications? 

Mr. YINGLING. Not off the top of my head, but we will get you 

that. 

Ms. BEAN. Let me move to Mr. Pincus. 

Are you aware of Federal consumer protection laws that set a nationally uniform standard for nonfinancial-oriented products that 

the States cannot exceed? 

Mr. PINCUS. Yes, Congresswoman. I can think of two off the top 

of my head: one, the Consumer Product Safety Commission statute, 

which does preclude State action when it acts with respect to some 

kind of a safety concern; and two, the National Highway Traffic 

Safety Administration, NHTSA, also with respect to auto safety 

issues, has a preemption standard. 

Ms. BEAN. So having nationally uniform standards is something 

that has been done before, and, by not rolling back those same protections in the financial arena wouldn’t be unprecedented. 

Mr. PINCUS. Yes, it would. And just to comment on some statements earlier, I think this bill moves way back from any standard 

of preemption in recent times for the national max. It is not close 

to what was in effect before 2004. There is much less Federal uniformity under this approach. 

Ms. BEAN. Thank you. I yield back and I now recognize the gentleman from my neighboring district in Illinois, Congressman Manzullo. 

Mr. MANZULLO. Thank you, Madam Chairwoman. 

I look at you four, and some people think that the existing regulatory agencies are very cozy with you and give you all kinds of 

passes, are not concerned about the thousands of hours that you 

may spend in audits, and think that organizations like the FDIC 

give you a pass on soundness and safety, such as the latest one requiring assessments 2 years in advance and destroying liquidity 

within community banks. 

I say that facetiously, because, being very close to the community 

banks back home, which had not been a problem and did not cause 

this meltdown, all of a sudden we see that simply by setting up a 

brand new agency, that everything is going to be resolved. 

In fact, in the testimony that took place by Mr. Calhoun earlier, 

he already said there are enough laws that are on the books and 

it is simply a matter of enforcement. 

58 

So my question is, just because a so-called new agency would be 

independent, what makes people think that they would be any 

more prone to enforcing so-called consumer issues than, for example, the Fed, which had the power to outlaw 2/28 and 3/27 mortgages and the power to require underwriting standards of having 

written confirmation of a person’s income? Why would things 

change? Who would these new regulators be? 

Mr. Menzies, welcome back. I think this is the third time I have 

seen you here. And you have been an excellent witness on behalf 

of the Independent Community Bankers Association. Do you understand the tenor of my question? 

Mr. MENZIES. I hope so, Congressman. 

Mr. MANZULLO. Could you pull the microphone closer? 

Mr. MENZIES. As you know, Congressman, I get married on Saturday. I am going to understand the meaning of living by new 

rules. 

But I would agree that the community banks of this Nation not 

only didn’t create the train wreck, but if you had had the opportunity to sit through my safety and soundness exam 2 months ago 

with 7 members of our board of directors and receive the FDIC’s 

report on safety and soundness and compliance and CRA and everything else, you wouldn’t think that they are passing us over, or 

cozy, or anything like that. 

Mr. MANZULLO. That is precisely— 

Mr. MENZIES. They have taken their responsibilities very, very 

seriously. And that is one of the reasons that the community banks 

are well-capitalized, well-managed, and well-regulated. They are 

small enough for the regulators to get their arms around, to deal 

with them, and to effect the 1,700 pages of legislation and the safety and soundness simultaneously. 

Mr. MANZULLO. Mr. Himpler, would you like to comment on 

that? 

Mr. HIMPLER. Yes, Mr. Manzullo. I think it is worth noting for 

the committee members that apart from mortgage—and all the discussion has been on mortgage—according to Federal Reserve data, 

there is at any given time $2.5 trillion of outstanding consumer 

credit, that doesn’t include payday. We are talking personal loans, 

student loans, small business loans, vehicle loans. Over half is generator-originated by nondepository lenders that put their own 

money at risk and are not a risk to the system. 

I think what concerns us is exactly how broad this is and the single focus. We all recognize on both panels a need for consumer protection. But if you went to the Department of Transportation and 

created this agency and said, we want you to protect drivers with 

a single focus, if I were that agent and I had no other responsibility, I would reduce the speed limit from coast to coast to 25 

miles an hour. That is what we are afraid of. 

Mr. MANZULLO. I agree with that. I guess the issue is the powers 

have already been out there to stop the subprime meltdown. But 

it is interesting that some of the people who complain now that 

those powers were not used, were the first in line to say, we have 

to have housing for everybody. Housing became a right, and then 

an entitlement, and then the meltdown started on it. 

Thank you. 

59 

Mr. GREEN. [presiding] Mr. Driehaus of Ohio is recognized for 5 

minutes. 

Mr. DRIEHAUS. Thank you very much, Mr. Chairman. And thank 

you, gentlemen, for testifying today for the umpteenth time for 

some of you. 

I spent the better part of the last 8 years in the State legislature 

in Ohio. And I fully agree with you that the community banks and 

the small independent financial institutions were not part of the 

problem. But I think you would concede that you have not been 

part of the solution either. 

For years, we tried to pass predatory lending legislation in the 

State of Ohio, and were stopped. We were stopped in large part because so many financial institutions said, look, we are already the 

most regulated industry in the country, the last thing we need is 

more regulations. And the legislature too often bought into that. 

It wasn’t until Governor Strickland was elected in 2006 that we 

finally created a foreclosure task force in the State of Ohio, and finally started actually doing something. And even then, I served on 

the task force, the bankers were very reluctant to work on legislation that would have gotten at some of the predatory lending 

issues. 

Now, I grant you that the vast majority of the legislation should 

have been Federal in nature because the State-chartered institutions were few, and they weren’t causing the problem. But I just 

have a problem with this revision as history. 

I agree, and I have been fighting for the community banks and 

this legislation. I was on the phone with the FDIC yesterday, talking about assessments and trying to protect community banks. But 

my problem is that in the last 8 years, we saw this thing run away; 

we saw predatory lending legislation introduced in this body in 

2001 and every year since, and we did nothing about it. 

We saw the problem, but people were making money off the system when real estate was increasing. And until the bubble burst, 

that is when everybody said, okay, we need to do something about 

it. 

Well, we were paying the price in foreclosures in Cincinnati back 

in 2001 and in 2002 and 2003. I now live in a neighborhood that 

has hundreds of homes that have been foreclosed on because we 

failed to act back then, and the banks were part of that inertia. 

What I am trying to get at is I want to come up with a solution 

that works. I believe very strongly in consumer protection. I also 

believe you don’t need another regulatory burden. Is there a way 

that we structure this that we are achieving the consumer protection—and maybe it is not by giving the CFPA examination authority, maybe it is by allowing them to create rules and regulations, 

and they then have enforcement authority but they don’t have examination authority, because you don’t need another examiner. 

I want to make this thing work because the consumers are demanding it, and the consumers deserve it. We in our neighborhoods 

are paying the price for it. It is not those folks who were foreclosed 

on, it is not the big banks that have the mortgage-backed securities, it is the neighborhoods who are paying the price. And we continue to pay the price. 

60 

So I want you to help me make this work. And I think many of 

us are willing to work with you in trying to reduce the regulatory 

burden, but help us understand how we make that happen. 

Mr. Yingling? 

Mr. YINGLING. Congressman, I just want to say I agree with you 

completely. I think that our industry—I will speak on behalf of the 

ABA—made a big mistake. We didn’t look at this hard enough, we 

didn’t look at it more globally. We looked at it previously on what 

does it mean for our regulatory burden on banks. 

And not to justify but to explain it, it is because we have such 

a heavy burden that we get paranoid about it, sometimes for good 

reason, but we should have been more aggressive in looking at this 

bad lending and looking at the trends and seeing what was happening in communities. And we should have worked with you at 

the State level; we should have worked with the Fed earlier on to 

say, look, something is wrong here and it is going to blow us up. 

One of the lessons for the future is we can’t just look at what 

is going on in our narrow interest, but we have to look at what is 

going on in the economy and in neighborhoods like yours. So your 

criticism is justified. 

Going forward, we need to sit down and figure out how to make 

this work so we do have more focus on consumer protection, so we 

don’t have the bubbles and bad actors that eventually gobble up all 

of us. And you have our pledge we are going to work with you to 

help solve this. We do have concerns about how it is done, but we 

need to make sure we have protections in place. 

Mr. DRIEHAUS. And because I am running out of time, although 

I don’t see any other folks here, so maybe the chairman will allow 

me a little more, do we get part of the way there by taking away 

examination authority of the CFPA, by allowing it to be a rulemaking body with enforcement power but not examination authority, do we get part of the way there? 

Mr. MENZIES. Coordination is important on anything that can be 

done to produce greater coordination between the regulatory agencies and the CFPA will produce a positive benefit. 

But, Congressman, community banks and our customers were 

equally injured by predatory lending. And in our State, we have 

been aggressive about that, because predatory lending benefits no 

one. 

Mr. GREEN. Mr. Lee of New York is recognized for 5 minutes. 

Mr. LEE. Thank you. I was pleased to hear my friend from Ohio 

talk about the idea of what we can do to promote less bureaucracy 

and greater efficiency. 

If we are ever going to emerge from this economic downturn, it 

has to be through job creation in the private sector. Your industry 

has been one of those bright spots, especially community banks 

who have been good stewards, well-capitalized, and without them 

during this downturn, the situation could have been much worse. 

I am astonished because you look at Congress and it seems that 

Congress has a way of adding restrictions, regulatory burdens, 

more bureaucracy, frankly, in some cases to industries that have 

done well. My concern here is how we impact, again, the community banks in getting through this. I look at what the CFPA represents, and especially with the issue on preemption. 

61 

I guess maybe I can start with, Mr. Yingling, your concern. What 

are the potential consequences, unintended or not, if this issue of 

no longer having Federal preemption takes place? 

Mr. YINGLING. First, very briefly, there was some discussion in 

the last panel as though preemption were created 4 or 5 years ago. 

I have behind my desk, and have had for 30 years in my office, a 

copy, with Abraham Lincoln’s signature, of the National Bank Act. 

The preemption goes back to that law signed by Abraham Lincoln. 

And we have always had preemption in the consumer area. What 

happened 5 years ago is all of a sudden there were cases all over 

the country. We had the City of Santa Monica, the City of San 

Francisco, passing ordinances that they basically—and the courts 

said it was the case—violated the National Bank Act. So the Comptroller came in with a rule that was designed to clarify to everybody, here is what is going on and, you, the City of Santa Monica, 

will violate this rule and you are going to lose in court. And that 

is in effect what happened. 

We have always had preemption. It became much more contentious in the last 10 years as States tried to do things and as attorneys general tried to do things. 

There has to be a happy medium somewhere. I don’t know why 

we have to go to court all the time to settle this. There has to be 

some way to receive the input from the States, to let them deal 

with really egregious issues, while not having 50, and then add the 

locals, different rules. 

The visual I use is we all want to have a very simple credit card 

disclosure. Everybody talks about having one page. You are not 

going to have one page, because you are going to have one page, 

plus 40 or 50 or 60 disclaimers on it. I saw one the other day that 

said if you were married in one State it is this; if you are not married, it is that. So it is very hard to function; it would be very inefficient. 

And one key point: chilling new products. It is one thing to say 

I am going to offer and design a new product and figure out what 

law applies to it. It is another thing if you have to go through an 

analysis of 50 laws, 10 of which could change while you are doing 

the analysis. 

Mr. LEE. Is it fair to say if we don’t get our arms around this, 

it will stifle the ability for these businesses to grow and add employment? 

Mr. YINGLING. Right. And more than that, it is going to stifle the 

ability of consumers and small businesses to get credit products or 

other financial products. 

Mr. LEE. Thank you. With that I yield back. 

Mr. GREEN. Thank you. I thank all of the witness for appearing 

and especially thank one witness, Mr. Menzies, for appearing. This 

is 2 days before your wedding. I imagine there may be one or two 

things you could be doing elsewhere. So thank you for taking the 

time to come in. I also trust this will not be your last appearance 

with us, we will see you in the future. 

Mr. Yingling, I do take seriously your comments. You indicated 

a lack of focus was a part of the problem. Explain to me how we 

can—how you would have us cause the proper amount of focus to 

be generated such that these things that escaped us previously 

62 

would not escape us going forward. How would you handle the 

focus question? 

Mr. YINGLING. I am not sure I have the total answer. I think the 

hearing today brought out a lot of options that we can look at. I 

think part of it is making it more explicit in the statute that you 

should do this. I think part of it may be the structure of whatever 

we end up doing here, whether it be within something that looks 

like the existing framework or something new that builds in an explicit focus. Part of it could be in staff requirements. Frankly, a lot 

of it is in who is appointed. 

If you think through who was sitting on the Federal Reserve 

Board at this critical time or who has been in some of these seats, 

perhaps there could have been somebody on the Federal Reserve 

Board with more of a focus on it. 

But I don’t think you can rely totally on people, that is a major 

part, but I think we have to in some way institutionalize in whatever we end up doing here, something that says there will be focus. 

One way to do it also that we have suggested is you have the 

regular Humphrey-Hawkins type hearings before this committee, 

that you have regular hearings on the consumer issues. 

The other thing is, this doesn’t get down into the trees, but as 

you consider the creation of a systemic regulator, the systemic regulator should also have built in a consumer focus, because systemic 

problems are not just a huge institution, they are not just credit 

default swaps. The mortgage crisis was a systemic problem. 

Mr. GREEN. Continuing, so as not to confuse those looking in perhaps for the first time, do you all agree that there is a necessity 

for some sort of consumer protection—and without going farther 

and saying ‘‘agency,’’ just consumer protection? If there is someone 

who differs and you are of the opinion that we don’t need some sort 

of consumer protection, will you kindly extend a hand in the air? 

Mr. HIMPLER. I would nuance it this way, Congressman. Yes, 

there is a need but it is AFSA’s position that finance companies 

that are State-licensed and regulated face that consumer protection 

in a vigorous fashion at the State level. 

Mr. GREEN. Anyone else? 

In moving toward consumer protection, Mr. John, who was with 

us earlier, mentioned a council. Have you had an opportunity to review his concept of a council? I am just curious as to whether you 

support his council. 

Mr. Menzies, have you reviewed it? 

Mr. MENZIES. No. It is logical that more minds collectively 

produce a better analysis of the situation, like our board of governors or our board of directors, but we haven’t studied his proposal. 

Mr. GREEN. I see. Anyone? Mr. Himpler, you studied it? 

Mr. HIMPLER. I think Mr. Menzies testified to the importance of 

coordination. And AFSA finds Mr. Minnick’s proposal very intriguing, and we are looking to explore it further with him because we 

think there is a very important role in terms of collaboration between the Feds and the States. 

Mr. GREEN. Mr. Yingling? 

Mr. YINGLING. Well, I have not studied it in detail. The one advantage of that over, say, the Administration’s proposal is that one 

63 

of our big concerns has been this potential clash, and we are confident it would take place, between safety and soundness and consumer. 

To the degree that you can have the people who are in charge 

of both writing the rules, it would be very helpful. I would have one 

concern that if you have a group that is a council, of course, it can 

get very bureaucratic and very slow. I don’t think that is what you 

want, Congressman. You want something that is designed—and 

maybe you can do it through this council in some way—but something that is designed that when they need to adopt a HOEPA regulation, it doesn’t take 2 years to do it. Anything like that would 

have to be designed in a way that is efficient. 

Mr. GREEN. I appreciate your indicating that I might not favor 

certain aspects of it. I also concern myself with the notion that ultimately if the council doesn’t act, that it is brought back to Congress, and then you have 435 Members of the House and 100 Members of the Senate who will have to come to some accord before the 

action that the council has recommended will be acted upon. That, 

to me, puts us right back where we are. 

Mr. YINGLING. I was anticipating you might have that concern. 

Mr. GREEN. Well, let me thank all of you for coming. I do it on 

behalf of the Chair, who had to step away. 

At this time, we would like to enter a statement from the Mortgage Bankers Association for the record. And without objection, it 

is so ordered. 

Also at this time, we are going to bring the hearing to closure. 

And in so doing, the Chair notes that members may have additional questions for this panel which they wish to submit in writing. Without objection, the hearing record will remain open for 30 

days for members to submit written questions to these witnesses, 

and the witnesses on the other panel as well, and to place their responses in the record. 

The hearing is now adjourned. 

[Whereupon, at 1:40 p.m., the hearing was adjourned.] 

(65) 

A P P E N D I X 

September 30, 2009 

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