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68–063 2011

OPEN FOR BUSINESS: THE IMPACT OF THE CFPB 

ON SMALL BUSINESS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON INVESTIGATIONS, 

OVERSIGHT AND REGULATIONS 

OF THE

COMMITTEE ON SMALL BUSINESS 

UNITED STATES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

HEARING HELD 

JULY 28, 2011 

Small Business Committee Document Number 112-030 

Available via the GPO Website: http://www.fdsys.gov 


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(II) 

HOUSE COMMITTEE ON SMALL BUSINESS 

SAM GRAVES, Missouri, Chairman 

ROSCOE BARTLETT, Maryland 

STEVE CHABOT, Ohio 

STEVE KING, Iowa 

MIKE COFFMAN, Colorado 

MICK MULVANEY, South Carolina 

SCOTT TIPTON, Colorado 

JEFF LANDRY, Louisiana 

JAIME HERRERA BEUTLER, Washington 

ALLEN WEST, Florida 

RENEE ELLMERS, North Carolina 

JOE WALSH, Illinois 

LOU BARLETTA, Pennsylvania 

RICHARD HANNA, New York 

NYDIA VELA ́ ZQUEZ, New York, Ranking Member 

KURT SCHRADER, Oregon 

MARK CRITZ, Pennsylvania 

JASON ALTMIRE, Pennsylvania 

YVETTE CLARKE, New York 

JUDY CHU, California 

DAVID CICILLINE, Rhode Island 

CEDRIC RICHMOND, Louisiana 

GARY PETERS, Michigan 

BILL OWENS, New York 

BILL KEATING, Massachusetts 

LORI SALLY, Staff Director 

PAUL SASS, Deputy Staff Director 

BARRY PINELES, Chief Counsel 

MICHAEL DAY, Minority Staff Director 


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C O N T E N T S 

Page 

OPENING STATEMENTS 

Coffman, Hon. Mike ................................................................................................. 1 

Altmire, Hon. Jason ................................................................................................. 2 

WITNESSES 

Mr. Dan Sokolov, Deputy Associate Director for Research, Markets and Regulations Consumer Financial Protection Bureau,Washington, DC .................... 3 

Mr. Jess Sharp, Executive Director, Center for Capital Markets Competitiveness, U.S. Chamber of Commerce, Washington, DC ......................................... 10 

Mr. Terry Jones, Chairman, Legislative and Regulatory Affairs Committee, 

Colorado Mortgage Lenders Association, Castle Rock, CO ............................... 12 

Mr. Adam J. Levitin, Professor of Law, Georgetown University Law Center, 

Washington, DC ................................................................................................... 14 

Mr. Daniel Fleming, President, Fleming Leasing, Alexandria, VA ..................... 16 

APPENDIX 

Prepared Statements: 

Mr. Dan Sokolov, Deputy Associate Director for Research, Markets and 

Regulations Consumer Financial Protection Bureau,Washington, DC ........... 25 

Mr. Terry Jones, Chairman, Legislative and Regulatory Affairs Committee, 

Colorado Mortgage Lenders Association, Castle Rock, CO ............................... 30 

Mr. Jess Sharp, Executive Director, Center for Capital Markets Competitiveness, U.S. Chamber of Commerce, Washington, DC ................................... 44 

Mr. Daniel Fleming, President, Fleming Leasing, Alexandria, VA ................. 54 

Mr. Adam J. Levitin, Professor of Law, Georgetown University Law Center, 

Washington, DC ................................................................................................... 59 

Statements for the Record: 

Independent Community Bankers of America ................................................... 66 


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OPEN FOR BUSINESS: THE IMPACT OF THE 

CFPB ON SMALL BUSINESS 

THURSDAY, JULY 28, 2011 

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON INVESTIGATIONS, OVERSIGHT, AND

REGULATIONS, COMMITTEE ON SMALL BUSINESS, Washington, DC. 

The Subcommittee met, pursuant to call, at 1:35 p.m., in room 

2360, Rayburn House Office Building, Hon. Mike Coffman (chairman of the subcommittee) presiding. 

Present: Representatives Coffman, West, Hanna, and Altmire. 

Chairman COFFMAN. The Committee is called to order. 

Good afternoon. 

July 21st, 2011, marked the 1-year anniversary since the passage 

of the Dodd-Frank Wall Street Reform and Consumer Protection 

Act. The date also marked the day where the Consumer Financial 

Protection Bureau assumes authority for regulating consumer financial products and services. 

While milestones are usually celebrated, this one is marked by 

uncertainty, because the true effect of this bureaucracy remains to 

be seen. The CFPB was given extraordinary broad oversight powers to fundamentally change the way both banks and nonbanks are 

regulated. In the rush to establish the CFPB, I believe that a fundamental element of regulation was lost—that is, a comprehensive 

review of how rules will affect the industry and whether the financial products are meeting the needs of consumers. 

All of us in this room today are consumers of goods and services. 

I don’t think anyone here wakes up in the morning and says, ‘‘I 

want to be a victim of unfair, deceptive, or abusive practices.’’ No 

one here wants to end up in bankruptcy. No entrepreneur wakes 

up in the morning and says, ‘‘I am going to start a business, and 

it will fail.’’ Our society is built on the optimism of entrepreneurs 

who will wake up in the morning and say, ‘‘I have a great idea for 

a business.’’ 

With this optimism about business creation comes the responsibility to make the right decisions to best position your business for 

success. What we need to do is create a vibrant marketplace. Creating onerous rules and regulations on an industry is not the answer and is likely to have an adverse effect by driving many providers out of the marketplace. 

A banking relationship is a partnership. A bank that abuses its 

customers might make money in the short term, but they will not 

be in business for very long. We need to find a system that goes 


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after those bad actors without impeding the ability of good actors 

to help build their communities. 

I am looking forward to hearing from both the CFPB to see how 

they envision the new bureau operating and learn about what provisions they are putting into place to protect small businesses from 

the burdens of overregulation. I am also looking forward to hearing 

from small businesses about how the new bureau will affect them 

and their businesses. 

With unemployment remaining above 9 percent, we need to do 

everything we can to avoid further burdening our job creators with 

regulation that will not add meaningful protections. 

With that, I would like to yield to Ranking Member Altmire for 

his opening statement. 

Mr. ALTMIRE. Thank you, Mr. Chairman. 

It was just over 1 year ago that the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed in to law. Perhaps 

no other part of this law has attracted as much attention as the 

creation of the Consumer Financial Protection Bureau. Last week, 

the Bureau officially assumed its duties, making this an ideal time 

to step back and take stock of how this law will affect our Nation’s 

small businesses. 

While the authority of this new regulator will primarily extend 

only to financial products that are marketed to consumers, its rules 

will affect small-business owners as well. According to the last Federal Reserve survey on small-business finance, nearly half of all 

small firms use personal credit cards to finance their enterprise. In 

another survey, one in five entrepreneurs reported using a home 

equity loan for business purposes. 

These findings guarantee that the rules developed by the Bureau 

will inevitably have an impact on access to capital for small businesses. It is imperative that, as the agency develops these regulations, we bear in mind the needs of small businesses and not further worsen the current credit shortage for small firms. 

For precisely this reason, significant efforts were made to ensure 

that potentially negative effects on the small-business community 

were mitigated by excluding merchants and retailers, as well as 

businesses that are already subject to insurance or securities regulation at the State level. Additionally, some entire industries were 

excluded from the Bureau’s authority, such as realtors and auto 

dealers. Clearly, lawmakers recognize that small businesses were 

not the cause of the financial crisis and should, therefore, not bear 

the burden of the new regulations. 

An additional safeguard is the Bureau will be subject to the Regulatory Flexibility Act and the Small Business Regulatory Enforcement Fairness Act. These laws will ensure that small businesses 

have the opportunity to participate in the CFPB’s rulemaking process. This will help reduce the potential impact on small businesses 

while minimizing additional cost for small firms. 

So, Mr. Chairman, since we are approaching a vote, if I could 

just insert the rest of my statement into the record, and we could 

move on with the hearing. 

Chairman COFFMAN. They have just called votes. Welcome to the 

United States House of Representatives. I think this is going to be 

a long series, so it looks like it is going to be about an hour. We 


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are going to recess for an hour. Then we will come back immediately after the last vote to resume our hearing. I apologize for 

that, but welcome to representative government. 

Let’s recess for the vote. 

[Recess.] 

Chairman COFFMAN. The committee is now in session. 

I would like to take a moment to mention that the Subcommittee 

has received a statement for the record from the Independent Community Bankers of America. And, without objection, I would like to 

insert this statement in the record. 

Hearing none, the statement will be inserted into the record. 

[The statement of the Independent Community Bankers of America follows on p. 66.] 

Chairman COFFMAN. If Committee members have an opening 

statement prepared, I ask that they be submitted for the record. 

I would like to take a moment to explain the timing lights for 

you. You will each have 5 minutes to deliver your testimony. The 

light will start out as green. When you have 1 minute remaining, 

the light will turn yellow. Finally, it will turn red at the end of 

your 5 minutes. I ask that you try to keep to that time limit, but 

I will be a little lenient as you finish. 

Our first witness today is here representing the Consumer Financial Protection Bureau. Dan Sokolov—have I got that right? 

Mr. SOKOLOV. Yes. 

Chairman COFFMAN. Dan Sokolov is deputy associate director for 

Research, Markets, and Regulations. This division is responsible 

for understanding consumer financial markets and evaluating 

whether there is a need for regulation and the cost and benefit of 

potential or existing regulation. 

Prior to joining the CFPB, Mr. Sokolov held positions with the 

Department of the Treasury and served as an attorney for the Federal Reserve. 

Mr. Sokolov, we look forward to your testimony. 

STATEMENT OF DAN SOKOLOV, DEPUTY ASSOCIATE DIRECTOR FOR RESEARCH, MARKETS, AND REGULATION, CONSUMER FINANCIAL PROTECTION BUREAU, WASHINGTON, 

D.C. 

Mr. SOKOLOV. Thank you, Chairman Coffman and Ranking Member Altmire, for inviting me to testify today on the subject of small 

business and the Consumer Financial Protection Bureau. 

The CFPB is the Federal agency accountable for establishing 

clear rules of the road for the consumer financial marketplace. 

And, Mr. Chairman, you mentioned the importance of a vibrant 

marketplace; that is precisely what we are striving for. 

Although the Bureau’s jurisdiction is very limited with regard to 

small-business credit, we take our responsibilities in this area very 

seriously. We recognize that small businesses are critical to the Nation’s economy and that small financial services providers are a 

critical source of products and services for millions of consumers. 

Today, I want to provide a brief update on the standup of the 

CFPB, as well as explain our efforts to reduce and avoid unwarranted regulatory burdens on small providers and how we at the 


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CFPB believe we may be able to assist small-business borrowers 

over time. 

The Bureau opened for business last Thursday, July 21st. Inspectors general of the Treasury Department and Federal Reserve 

Board have reported favorably on our efforts to stand up this agency. We are already at work strengthening consumer financial markets. We are working toward a market where consumers can readily see prices and risks and compare products so they make the 

choices that they believe are best for them. 

We have taken input from thousands of individual consumers 

and mortgage lenders and brokers on how to simplify Federal mortgage disclosures and make them less burdensome. We are launching our program for supervising the largest banks and their affiliates. We are taking our first consumer complaints about credit 

cards. And Holly Petraeus has set up a strong Office of Servicemember Affairs, reaching out to military families and working to 

address the unique financial challenges that they face. 

To fulfill the mandate established by Congress, we have hired an 

expert staff from the private, public, and nonprofit sectors. They 

are striving to build an agency that is smart, effective, and balanced. 

At the CFPB, we have been building in to the agency’s DNA extensive outreach to small financial institutions such as community 

banks and credit unions. We believe in the importance of a financial services marketplace where small providers can thrive. 

We will work to reduce regulatory burdens on small financial 

service providers wherever possible, and we can take as an example disclosure reform. We understand lenders’ deep frustration with 

the current mortgage forms required by Federal law. They are complicated, sometimes duplicative, and more costly to fill out than 

they need to be. So we have solicited feedback from thousands of 

consumers, lenders, and brokers to help us make the disclosure 

simpler to use and easier to complete. 

Minimizing regulatory burden will continue to be a priority for 

us. Often, a regulation is not the best answer to a problem. Congress has given us many different tools to address problems in consumer financial markets. We will strive to address problems as we 

see them as effectively as we can and through the least burdensome means available to us. 

In addition, we will consider the potential benefits, costs, and impacts of proposed regulations for consumers and covered persons, 

including small lenders. We will diligently comply with the Regulatory Flexibility Act, and we will follow the requirements of the 

Small Business Regulatory Enforcement Fairness Act, known as 

SBREFA. 

Our statutory objectives and statutory authorities do focus on financial products and services for consumers. The Bureau does not 

have jurisdiction over business credit, except in limited cases where 

Congress has explicitly and affirmatively granted the Bureau such 

jurisdiction. 

We recognize that a vibrant small-business sector is critical to 

our economy, and we are aware that many small businesses today 

report having difficulty obtaining credit—a difficulty rooted in the 

most severe financial crisis since the Great Depression. 


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So, although our role with respect to small-business credit is 

quite limited, we hope to help many small-business owners in three 

ways: First, we will implement diligently the Equal Credit Opportunity Act. This law prohibits discrimination in business lending. 

Second, as required by law, we will provide the public new data 

that may shed new light on the demand for and supply of smallbusiness credit. We will move deliberately and we will consult 

widely to attempt to maximize the benefit of these loan data for 

small businesses and to minimize the cost for the lenders that will 

report the data. 

Third, we will work to ensure that consumer credit histories are 

as accurate as possible. More accurate credit histories would help 

startups. New businesses owners frequently rely on their personal 

credit histories to apply for their first business loan. 

We believe that a fairer and more transparent consumer financial services marketplace will be a boon to financial services providers of all sizes, and a more level playing field will benefit the 

smaller ones in particular. 

Thank you, and I look forward to your questions. 

[The statement of Mr. Sokolov follows on p. 25.] 

Chairman COFFMAN. Thank you, Mr. Sokolov. 

The CFPB recently sent a letter to the CEOs of financial institutions informing them that they are now subject to the jurisdiction 

of the Bureau. Twenty-six of these lenders are on SBA’s list of 100 

top SBA lenders. These 26 lenders issued a total of 5,334 loans, for 

approximately $1.5 billion. 

That is just looking at SBA’s top 100 lenders and only at their 

SBA-backed loans. Is CFPB considering how actions against larger 

institutions will impact small-business lending? 

Mr. SOKOLOV. So, the letter you are referring to the CEOs, Mr. 

Chairman, was sort of introducing our program of supervision. 

That is a program that is, by statute, now focused on the depositories side. It is focused on insured depositories and credit unions 

with more than $10 billion in assets and their affiliates, just to put 

that in to full context. 

And that process of supervision, which is essentially working 

with the institutions by sending examiners to them and understanding how they operate and understanding their businesses and 

understanding where there may be questions about their compliance with applicable Federal laws, that process is focused on the 

consumer protections. And, as I said, our jurisdiction over business 

credit is quite limited. 

The main exception is in the area of implementation of the Equal 

Credit Opportunity Act. And, in that area, as we are required, we 

will—you know, that will be an important part of our process. 

Chairman COFFMAN. Okay. 

Federal Reserve Chairman Bernanke recently stated that there 

has been no examination about the impact that the new regulatory 

environment will have on the overall economy. 

Has CFPB done any such study on how the Bureau, fully implemented, will affect the economy? 

Mr. SOKOLOV. Mr. Chairman, could you repeat the question 

again? 


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Chairman COFFMAN. Sure. Federal Reserve Chairman Bernanke 

recently stated that there has been no examination about the impact of the new regulatory environment, what it will have on the 

overall economy. 

Has your organization done any studies about its—when you are 

fully implemented, what impact it will have on the economy? 

Mr. SOKOLOV. Well, we are still the process of, well, building out 

our processes. As I said, we have launched our supervision program. We are taking complaints from consumers on credit cards. 

We are working diligently to—in the area of regulations, our 

focus is on regulations that Congress has directed us to adopt and 

implement—directed us under the Dodd-Frank Act. And so, you 

know, in cases such as that, we are doing Congress’ will where 

Congress has made judgments about the benefits of certain policies 

for the economy. 

Chairman COFFMAN. One of my concerns about CFPB is that, 

when you have an agency charged with looking for problems, they 

have a tendency to find them, whether they exist or not. 

How will we know when we have a financial system that is free 

of abusive practices? What steps are in place or benchmarks exist 

to know if CFPB has achieved its mission? 

Mr. SOKOLOV. So, we, indeed, are focused, as part of our core 

mission, on working toward a marketplace that is free of unfair, deceptive practices. It can be challenging to identify the full range of 

acts and practices in an economy as large as ours. We are going 

to use all available sources of information, though, to see where 

risks to consumers may lie and where compliance risks my lie. 

And our sources of information will include, as I mentioned, our 

examination function, which is one of the important tools that Congress has provided us and a tool that we can use to try to provide 

a level playing field between institutions that have bank charters 

and financial services providers that compete in the same market 

but are not banks. And we have a research capacity that we are 

building, as well. We have teams that are designed to be expert in 

particular markets, where often we are hiring people who have expertise in specific industries. 

So we plan to take in information from a wide variety of sources 

to best understand what is going on, to be responsive and to have 

a smart, balanced, and effective approach. 

Chairman COFFMAN. Thank you. 

Mr. Altmire. 

Mr. ALTMIRE. Thank you, Mr. Chairman. 

As I mentioned in my opening statement, with one in five entrepreneurs reportedly using home equity loans for business purposes 

and nearly half of all small businesses relying on personal credit 

cards for capital, consumer financial products provide a critical 

source of capital for many small firms. 

How will your agency tailor its oversight of these products to ensure that small businesses do not find their access to credit unduly 

restricted by the new regulations? 

Mr. SOKOLOV. Thank you, Mr. Altmire, for that question. And we 

talked a bit about this in our written testimony, as well. 

There is certainly some overlap. There are some small businesses 

that for some periods in the life of the business do use personal 


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credit. And we are aware of that, and we want to, in fact, as we 

said, we addressed that in our testimony. 

I think that the amount of overlap varies over time. And what 

we are going to look to, for example, in understanding that overlap 

is, just as an example, to what extent small businesses are using 

credit cards that are designed for consumers to make payments 

and to what extent they are actually borrowing on the card. And 

we bring some data on that point in our testimony based on a Federal Reserve study and a survey by the National Federation of 

Independent Businesses. 

And we have already started to reach out to these other organizations to make sure that we do understand where this overlap 

might be. 

Mr. ALTMIRE. We on this Committee and back home I, as well, 

continue to hear from small firms who are concerned that they will 

be subject to CFPB oversight for financial transactions they provide 

to other businesses. 

Will your agency attempt to exercise oversight over financial 

products when no consumer is involved? 

Mr. SOKOLOV. As I mentioned, our jurisdiction over small-business credit is quite limited. There are a couple of fairly limited provisions in the Truth in Lending Act where Congress has extended 

protections to business credit cards. And then there is our obligation to implement the Equal Credit Opportunity Act, where we and 

other agencies are also responsible for enforcing it. 

And Equal Credit Opportunity Act prohibits discrimination in 

lending, both in consumer lending and in business lending. And, 

therefore, we have to fulfill, of course, and will fulfill diligently the 

mandate Congress has given us in that area. 

Mr. ALTMIRE. The original bill, the Dodd-Frank Act, created new 

data reporting requirements that are aimed at helping regulators 

understand credit conditions for small, women-owned, and minority-owned businesses. Some have said these requirements will be 

burdensome and could raise privacy concerns for those types of 

firms. 

How will you balance these concerns while ensuring policymakers have sound and accurate information on small-business 

credit? 

Mr. SOKOLOV. So, Congressman, you are referring to section 1071 

of the Dodd-Frank Act, which does amend the Equal Credit Opportunity Act to add this data collection on small-business lending. 

And this is potentially an important source of data to better understand demand conditions and supply conditions in the market for 

small-business lending, where data, to date, have tended to be 

somewhat limited. So we see it as potentially a boon to have these 

data, as a boon both to small-business borrowers and to lenders to 

better understand the market. 

Now, inevitably, with the data collection nothing is free. There 

is some cost involved. Congress has set the parameters for this 

data collection, but, within that, where we have discretion about 

how to do it, we are going to seek to make the most of the benefits 

of these data for the public and only impose the burdens that are 

necessary to achieve those benefits. And we intend to make sure 

that the data have integrity and will be useful in the end. 


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And the issue of privacy that you mentioned of course is an important consideration—a consideration that has arisen in other 

data collections. And those issues are important, and we intend to 

pay attention to them. 

Mr. ALTMIRE. Thank you. No further questions. 

Chairman COFFMAN. Mr. West. 

Mr. WEST. Well, thank you, Mr. Chairman, Mr. Ranking Member. 

And thank you for being here today. 

One of the things that I continually hear from our district down 

in south Florida is small-business owners and their access to credit. 

Of course, everything worth reacting to can sometimes be worth 

overreacting to, with Dodd-Frank. 

Do you think that we need to have regular review of some of 

these regulations to make sure that they are effective and efficient 

and not constraining, as far as its relationships with our community banks and also our small-business owners? 

Mr. SOKOLOV. That is a good question. And the Dodd-Frank Act, 

to some extent, contemplates this, because it does provide that for 

significant regulations that the Bureau adopts, that we should be 

assessing the regulation within—I think it is about 5-years. And so 

that is a statutory requirement and one that we intend to follow 

diligently. 

Mr. WEST. Well, I am concerned with that because, with the last 

jobs report that came out, small businesses were saying that they 

are going to freeze hiring for the next year. Seventy percent of 

them said that. So if we are going to wait 5 years to go back and 

do a review, that is really not setting the conditions for the growth 

of our small businesses. 

So can we come back and look at a semiannual review and make 

sure that we include some of the people that this could be affecting—community banks or small-business owners—instead of waiting 5 years for a review? 

Mr. SOKOLOV. We have a process, in fact, a statutory process, the 

Small Business Regulatory Enforcement Fairness Act, that actually 

provides small businesses the opportunity to provide input before 

we issue a proposal, in certain circumstances. 

Mr. WEST. Was that part of Dodd-Frank? 

Mr. SOKOLOV. There were amendments—Dodd-Frank included 

amendments to the Regulatory Flexibility Act and the related 

Small Business—the SBREFA. And those amendments, among 

other things, extended SBREFA obligations to us. We are only the 

third Federal agency to be subject to SBREFA. And that will be 

one way that we get input from small businesses even before we 

have adopted a regulation. 

And I think what we are trying to do is, where we can, go beyond 

the statutory requirements for public comment on regulations. And 

a prime example of that is how we have been handling the reform 

of Federal mortgage disclosures. Long before we had put a regulation out there that would implement these reforms to the disclosures, we put initial prototype forms on our Web site, and we created a channel for consumers to respond and a channel for industry 

to respond. And both channels have produced thousands of comments, often quite detailed comments. And we have used—the wonVerDate Mar 15 2010 01:07 Sep 21, 2011 Jkt 068063 PO 00000 Frm 00012 Fmt 6633 Sfmt 6602 E:\HR\OC\A063.XXX A063

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ders of technology—we have used the Internet to make it easy to 

comment and to click on parts of the form and give feedback on 

specific parts. 

And, in addition, we are conducting more controlled laboratory 

testing of these potential disclosures, where we are going into a 

room and we ask individual consumers questions about it. And I 

think maybe for the first time for an agency—in any event, we 

have found it very productive to also include in this testing lenders 

and brokers. So we are asking individual lenders and brokers to sit 

down with us so we can test the forms with them. 

And we do round after round of this sort of testing and will continue to use the Internet to allow thousands of others to be able 

to give input, so that by the time—and, as I had said in my written 

testimony, we also plan to conduct SBREFA panels around these 

forms—so that, by the time we get to a final regulation, it will receive that kind of input. 

And then, under the Dodd-Frank Act, when we get to the point 

of implementing these newly reformed disclosures, we will wait an 

appropriate period of time and come back and review it again. 

Mr. WEST. And so, once again, I come back to the original question. You know, what I heard you say was, right now that is 5 

years. In the type of fiscal or economic situation in which we find 

ourselves, where our small businesses are suffering—and I applaud 

you for looking for their input before the regulation comes in—but 

can we have a semiannual or an annual review of these regulations 

so that, once again, we can go back and do the checks and balances 

and make sure that these things are working properly? 

Mr. SOKOLOV. We can certainly consider that. I think an important factor is that, when we review—say, for reviewing a disclosure—let’s say we wanted to go back and test the disclosure again 

and see if it was still working in light of whatever changes in the 

market may have occurred. It is a pretty extensive process. It takes 

many months. And it can involve both what we call qualitative 

testing, where you speak to small groups of consumers and lenders, 

and then more extensive quantitative and statistically valid testing, something we plan to do after we finish this initial round of 

qualitative testing. And that can take a while to do correctly to 

gather useful data. 

And when we do that, we want to do it in the most careful way, 

and we want to put out the results of our testing and research for 

people to learn from and to comment on and do their own research. 

So the process of doing good analysis on a regulation that gives you 

a meaningful answer can take some time. 

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

Chairman COFFMAN. With no other questions, Mr. Sokolov, 

thank you so much for your testimony today. I really appreciate it. 

Mr. SOKOLOV. Thank you. 

Chairman COFFMAN. I want to thank Deputy Associate Director 

Sokolov again for being here today to tell us about the CFPB, to 

see how it is structured, and for answering questions about how 

they are trying to limit the burden of regulations on small business. 

I hope that they will continue to think about how small businesses will be affected as they begin to exercise their regulatory auVerDate Mar 15 2010 01:07 Sep 21, 2011 Jkt 068063 PO 00000 Frm 00013 Fmt 6633 Sfmt 6602 E:\HR\OC\A063.XXX A063

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thority. We will continue to closely follow the impact of the CFPB 

on small businesses and want to work with you to reduce the regulatory burden on our Nation’s job creators. 

I also suggest that your staff listen to our second panel of witnesses so you can learn about the concerns that small businesses 

have about the CFPB. 

I would like now to call the second panel of witnesses to the witness table. 

I would now like to welcome our second panel to the hearing. 

For the benefit of the witnesses, I will take a moment to again 

explain the light system that you see before you. You will each 

have 5 minutes to deliver your testimony. The light will start out 

as green. When you have 1 minute remaining, the light will turn 

yellow. Finally, it will turn red at the end of your 5 minutes. I ask 

that you try to keep it to that time limit, but I will be a little lenient as you finish. 

Our first witness is Jess Sharp, executive director of the U.S. 

Chamber of Commerce Center for Capital Markets Competitiveness. This organization was founded in 2007 with the mission of 

supporting capital markets that are the most fair, efficient, and innovative in the world. 

Prior to becoming executive director at the Center, Mr. Sharp 

served as deputy assistant to the President for domestic policy and 

special assistant to the President on the White House Domestic 

Policy Council. 

Welcome, Mr. Sharp. You have 5 minutes to present your testimony. 

STATEMENTS OF JESS SHARP, EXECUTIVE DIRECTOR, CENTER FOR CAPITAL MARKETS COMPETITIVENESS, U.S. CHAMBER OF COMMERCE, WASHINGTON, D.C.; TERRY K. JONES, 

CHAIRMAN, LEGISLATIVE AND REGULATORY AFFAIRS COMMITTEE, COLORADO MORTGAGE LENDERS ASSOCIATION, 

CASTLE ROCK, COLORADO; ADAM J. LEVITIN, PROFESSOR 

OF LAW, GEORGETOWN UNIVERSITY LAW CENTER, WASHINGTON, D.C.; AND DANIEL FLEMING, PRESIDENT, FLEMING 

LEASING, ALEXANDRIA, VIRGINIA, ON BEHALF OF THE 

TRUCK RENTING AND LEASING ASSOCIATION 

STATEMENT OF JESS SHARP 

Mr. SHARP. Thank you very much, Mr. Chairman, Ranking Member Altmire, and distinguished members of the Subcommittee. 

My name is Jess Sharp. I am the executive director of what we 

call CCMC, the capital markets shop at the U.S. Chamber of Commerce. I appreciate the opportunity to testify today on behalf of the 

hundreds of thousands of Main Street businesses that the Chamber 

represents. 

The Chamber firmly supports sound consumer protection regulation that weeds out fraudulent and predatory actors and ensures 

consumers receive clear and concise disclosures about financial 

products. But we want to ensure that the Bureau takes a targeted 

approach to regulation and enforcement, without making sweeping 

policies that would impose duplicative regulatory burdens on small 

businesses and, perhaps even more importantly, that would preVerDate Mar 15 2010 01:07 Sep 21, 2011 Jkt 068063 PO 00000 Frm 00014 Fmt 6633 Sfmt 6602 E:\HR\OC\A063.XXX A063

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vent small businesses from obtaining the credit they need to expand and create the jobs we need so desperately in this country. 

So I am going to lay out some of our concerns in, sort of, two general baskets. 

First, you know, we have concerns that small businesses may be 

subject to the CFPB’s regulation and other oversight because they 

engage in 1 of the 10 broadly described activities laid out in the 

law. So they could be directly supervised or regulated by the Bureau. Virtually all of these businesses are already subject to oversight by the FTC. I think it is important to point out that these 

are not businesses that have been heretofore unregulated. The 

Chamber fears that overlap and duplication will be inevitable as 

the Federal agencies sort out lines of jurisdiction and responsibility. 

Second, and as has been raised here already today, CFPB regulation may decrease the availability or increase the cost of forms of 

consumer credit that small businesses use. We have talked about 

credit cards, I think home equity loans as well, auto title loans. 

There is a slew of, sort of, nontraditional commercial bank lending 

instruments that small businesses do rely on. 

And this is, of course, particularly troubling given the already 

challenging lending environment. According to a June 30th story in 

the Wall Street Journal, quote, ‘‘In the past 6 months, only 17 percent of loan-seeking business with less than $5 million in revenue 

landed bank financing.’’ It is a tough environment out there, and 

we are concerned about any tools being taken off the table. 

Last week, the House approved an important piece of legislation 

that would make changes to the Bureau’s structure and operations 

to increase its accountability to Congress and to ensure that the 

Bureau’s decisions are based on diverse inputs. H.R. 1315 would 

replace the Bureau’s current single director position with a bipartisan multimember leadership team, giving the agency more stability and balance over the long term, and would give small community credit unions and banks a voice in the process that allows 

the Financial Stability Oversight Council, or FSOC, to override Bureau regulations that harm safety and soundness. 

The risks of agency tunnel vision, overreach, and politicization 

are real for any government regulator, including the Bureau. If 

these risks are not properly addressed at a structural level, agencies inevitably will, over time, abandon sound regulatory principles. 

I want to speak next about SBREFA. That has also been mentioned here this morning, and it is a very important point. As has 

already been mentioned, the Bureau is included on the list now of 

agencies that must follow SBREFA, in addition to the EPA and 

OSHA. And it is a very important requirement—it is a very important requirement for the Bureau to follow in order to get smallbusiness input up front. 

However, the panel process is not a perfect mechanism, and it is 

not necessarily enough to ensure an independent check on the Bureau’s activity that affects small businesses. And so, this Committee’s role is incredibly important in overseeing the Bureau’s work 

and its implementation of SBREFA. 

Just to mention a few of the concerns we have about how this 

process could play out: First, the Bureau itself is responsible for 


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the threshold determination, that a proposed regulation is expected 

to significantly impact a substantial number of small entities. And 

the terms ‘‘significant’’ and ‘‘substantial’’ are basically subject to 

the CFPB’s discretion to define. 

Second, the Bureau does not have to adopt the panel’s recommendations, which are advisory, and need only supply a reasoned explanation for adopting or rejecting them. 

Third, SBREFA covers only the rulemaking process. And I think 

you heard the first witness, Mr. Sokolov, describe that regulation 

isn’t always the best way to go about doing things. They can use 

compliance assistance, they can supervision, they can use enforcement actions to essentially dictate broader policies. And, of course, 

none of those are subject to SBREFA or to any sort of formal process whereby small-businesses input is taken. 

And just to, again, put a fine point on it, I mean, actions do 

speak louder than words. And, as has mentioned here this afternoon, the Bureau already does have rulemakings essentially in 

progress, if not technically: one to merge these two mortgage forms; 

another to define the types of businesses that the Bureau will supervise in the nonbank space. And in neither case has a SBREFA 

panel been put together. Now, technically, I guess it is not required 

at any particular stage. But, you know, if we want to get this right 

from the beginning, we would encourage the Bureau to begin that 

process as soon as possible. 

So, with that, I thank you all for having me here, and I am 

happy to answer questions. 

[The statement of Mr. Sharp follows on p. 44.] 

Chairman COFFMAN. I would now like to introduce our next witness, who came here all the way from my home State of Colorado, 

Mr. Terry Jones. 

Mr. Jones is from the city of Castle Pines, Colorado, where he resides with his wife Carol. Terry Jones has over 40 years of experience working in the mortgage banking industry. 

Terry is testifying on behalf of the Colorado Mortgage Lenders 

Association, where he serves as chairman of their Legislative and 

Regulatory Affairs Committee. 

I am pleased that Terry Jones could be here today, and I look 

forward to your testimony. 

Mr. Jones. 

STATEMENT OF TERRY K. JONES 

Mr. JONES. Good afternoon, Chairman Coffman, Ranking Member Altmire, and distinguished members of the Subcommittee. 

The Colorado Mortgage Lenders Association is a 56-year-old organization made up of over 100 companies, employing over 2,500 

individuals. Over 75-percent of our members are small businesses 

that employ less than 25 people. 

In my 42-year career in mortgage lending, I have been a loan 

originator, a manager, an entrepreneur, and a small-business 

owner. I have always been proud to be part of an industry that 

helps people and families reach their dreams of homeownership. 

I have seen many people in the business start as loan originators 

and then go on to start their own small mortgage lending businesses. These people have lived their own American dream and, in 


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doing so, have served the real estate markets and the buyers and 

borrowers of their local communities. 

The Dodd-Frank Act creates a super-regulator for the mortgage 

lending industry in the CFPB. This is in addition to the oversight 

already in place by the States, FHA, the VA, Fannie Mae, and 

Freddie Mac. 

The CFPB is tasked with issuing more than 100 mortgage lending rules over the course of the next 18-months. It will be difficult 

for small mortgage lending businesses to keep up with so many 

new rules in such a short timeframe. So it is essential for the 

CFPB to develop an orderly process for its rulemaking initiatives, 

not only to ensure meaningful input from industry, small business, 

and other stakeholders, but to develop well-conceived and clear 

rules that are neither duplicative nor in conflict with those of the 

States and other agencies. 

The CFPB must also develop a process for providing timely, reliable guidance to the industry and to the State regulators well prior 

to the implementation of new rules. 

We believe that the CFPB has a historic opportunity to set the 

tone for the future regulation of the mortgage lending industry in 

finalizing the ability-to-repay rule and defining the qualified mortgage as a safe harbor characterized by traditional, well-underwritten, and properly documented loans. 

By pursuing such a course, the CFPB can help to preserve the 

best practices and products of the industry, yet still curb the 

abuses of the early 2000s. If the CFPB takes this approach, it will 

be of great benefit to small mortgage lenders because it will create 

a clear safe harbor that they can rely on when making loans. If the 

CFPB chooses to adopt the qualified mortgage as a rebuttable presumption, we believe that the increased levels of litigation will 

force many small lenders out of business. 

The CMLA believes a qualified-mortgage safe harbor will define 

the arena in which most loans will be made. The risk to smaller 

businesses, in particular, will be too great for most of them to venture outside the qualified-mortgage parameters. Consumers in Colorado and across the country need a viable small-business mortgage lending industry to provide a competitive local alternative to 

the large national lenders that dominate the marketplace today. 

The CFPB is also responsible for enforcement of the SAFE Act, 

which requires loan officers for nonbank firms to meet education, 

testing, and financial standards, while bank loan officers need only 

be registered. This creates an unlevel playing field and additional 

costs for small, nonbank lenders and creates unequal protection for 

consumers. 

In addition, licensed originators can move freely to depository 

lenders from licensed originators, but the reverse is not true. A 

loan originator working for a bank will have to go through the entire licensing process in order to be able to be employed by a smallbusiness lender. We ask that the CFPB undertake rulemaking as 

soon as possible to create a transitional license to allow registered 

loan originators to move from depository institutions to nonbank 

lenders for a limited time while they complete their licensing requirements. 


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Finally, it is important for the CFPB to address the loan officer 

compensation rule under the Truth in Lending Act and reconsider 

some of the rigid requirements that were recently imposed by the 

Fed on the ability of a small business to pay its employees in a 

manner consistent with the profitability of the loan products they 

produce. 

Confusing standards and lack of official guidance from the Fed 

has created some unusual outcomes. For example, the current rule 

severely impacts revenue bond programs that serve low- to moderate-income and rural borrowers. These programs typically limit 

fees that can be charged to the borrower, yet the loan officer compensation rule specifies that the loan officer must be paid exactly 

the same on these loans as any other. This can easily cause losses 

on these loans, and many lenders will be unable to offer these affordable loan programs. We urge the Bureau to clarify this and 

other problematic issues with the compensation rule. 

We respectfully urge Congress and this Subcommittee to carefully monitor all of these new rules to be certain that they do not 

unwittingly harm American families, small business, the mortgage 

market, the housing recovery, or the Nation’s economic recovery. 

I thank you very much for the opportunity to testify before you 

today. 

[The statement of Mr. Jones follows on p. 30.] 

Chairman COFFMAN. Thank you, Mr. Jones. 

I would now like to recognize Ranking Member Altmire from 

Pennsylvania, who is going to introduce our next witness. 

Mr. ALTMIRE. Thank you, Mr. Chairman. 

And it is my pleasure to introduce Adam Levitin. 

Mr. Levitin is professor at the Georgetown University Law Center in Washington, D.C., where he teaches courses in bankruptcy, 

commercial law, and consumer finance. He has previously served 

as a scholar in residence at the American Bankruptcy Institute and 

as special counsel to the congressional oversight panel supervising 

TARP. 

Before joining the Georgetown faculty, Professor Levitin practiced law and served as a law clerk for the U.S. Court of Appeals 

for the Third Circuit. Professor Levitin holds a JD from Harvard 

Law School and degrees from Columbia University and Harvard 

College. 

Welcome, Professor Levitin. 

STATEMENT OF ADAM J. LEVITIN 

Mr. LEVITIN. Mr. Chairman Coffman, Ranking Member Altmire, 

and members of the Committee, good afternoon. My name is Adam 

Levitin. I am a professor of law at Georgetown University Law 

Center. My research and teaching focuses on consumer finance and 

financial regulation. I am also a small-business owner. 

The Consumer Financial Protection Bureau has only limited and 

generally indirect connections to small-business finance. With three 

very limited exceptions, the CFPB’s jurisdiction is restricted to consumer financial products. 

While many small businesses use consumer financial products, 

like personal credit cards and home equity lines of credit, for business transactions, small-businesses owners need, deserve, and 


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want the same protections on their financial products whether they 

are using them for personal or business use. Thus, the National 

Small Business Association has advocated for extending Truth in 

Lending Act protections to small-business credit cards. 

Now, there are only two ways the CFPB might directly affect 

small-business lending. 

First, the Dodd-Frank Act requires the CFPB to collect data on 

small-business lending under the Equal Credit Opportunity Act. 

This is to ensure against discriminatory lending in the small-business space. The ECOA data collection requirement will impose 

some limited costs on lenders, but it will also provide an important 

protection for small businesses, particularly those owned by women 

and people of color. 

More generally, though, the CFPB has regulatory authority over 

almost all consumer financial service providers, large and small. 

The CFPB regulations could affect the cost or availability of business credit, but I want to emphasize, it is simply premature to 

judge the CFPB’s impact on financial service providers or the impact of the CFPB on small-business credit costs and availability. 

Instead, individual rules will need to be evaluated on their own 

merits when and if they are proposed. 

The Dodd-Frank Act imposes numerous safeguards on CFPB 

rulemaking to ensure against unnecessary regulatory burdens. 

CFPB rulemaking and adjudication is subject to the Administrative 

Procedures Act. It is also subject to the Regulatory Flexibility Act. 

The CFPB is one of only three agencies required to have regulatory 

flexibility review panels under the Small Business Regulatory Enforcement Fairness Act. 

The CFPB is also required to consult with prudential regulators 

on its rulemakings and to reevaluate those rulemakings within 5- 

years. Additionally, the CFPB is subject to Financial Stability 

Oversight Council review for its rulemakings, which is unlike any 

other bank regulator. 

Finally, small banks and all but three credit unions are exempt 

from CFPB supervision and enforcement. Their supervision and enforcement remains with their existing prudential regulators. Now, 

I want to emphasize that this is a battery of safeguards that does 

not apply to any other bank regulator. 

It is also important to note that the CFPB is likely to help small 

businesses. The CFPB can help improve competition in small-business lending by ensuring that consumer financial products which 

are used by small businesses are fair and transparently priced. 

Small businesses want to use fair and transparent products. 

Second, the CFPB can help small businesses by helping smallbusiness customers. When consumers feel confident that they won’t 

get caught by financial-product tricks and traps, they are going to 

have greater willingness to make purchases, including from small 

businesses. And the CFPB can help protect against consumer asset 

bubbles and, thus, smooth the volatility of consumer spending. 

That means a more stable business environment, which benefits 

small businesses. 

In short, the CFPB has limited jurisdiction over small businesses. It is subject to numerous safeguards to ensure against excessive regulatory burdens on small business, and it may be able 


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to help increase the efficiency of small-business lending by increasing consumer confidence and spending stability. 

Thank you very much. 

[The statement of Mr. Levitin follows on p. 59.] 

Chairman COFFMAN. Thank you, Mr. Levitin. 

Our final witness to testify here this afternoon is Daniel Fleming, president of Fleming Leasing, a truck-renting and -leasing 

business located in Springfield, Virginia. Fleming Leasing is a family-owned business founded in 1903, when the transportation services they were providing consisted of a horse and buggy. 

Mr. Fleming is testifying on behalf of the Truck Renting and 

Leasing Association. 

Mr. Fleming, you have 5 minutes to present your testimony. 

STATEMENT OF DANIEL FLEMING 

Mr. FLEMING. Thank you, Mr. Chairman. Thank you, Mr. Altmire. 

As you said, my name is Dan Fleming. I am president of Fleming 

NationaLease in Springfield, Virginia. And our company is a member of the Truck Renting and Leasing Association, or TRALA. 

I am testifying today on a troubling aspect of the Dodd-Frank 

Act, namely section 1071, the small-business loan data collection 

provision. 

Fleming NationaLease is a family-owned business with 18 permanent employees with locations in Springfield, Virginia, and 

Landover, Maryland. We are a proud member of TRALA, an association comprised of about 550 companies, employing 100,000 people, and operating out of 24,000 locations throughout the United 

States. 

Not only are nearly all of TRALA’s 550 members small businesses themselves, but the vast majority of the customers that we 

deal with are also small businesses in search of vehicles and equipment offered for rent or lease at a reasonable price. 

Part of the process in acquiring rented or leased vehicles is to fill 

out an application of credit. As written, section 1071 adds extensive 

new application requirements to the ECOA. These requirements 

would be offered by and monitored through the CFPB. While I certainly do not operate a bank, under the definitions listed within 

this new law I am considered a financial institution because I have 

an application for credit for my customers. 

In my opinion, the small-business data collection provision is 

counterproductive, contradictory, costly, and confusing. 

The provision is counterproductive in that the CFPB was created 

with the intention of giving consumers protection from the predatory lenders and allowing them to find more options for information 

in obtaining a loan, but instead is now intended to regulate commercial loans and lenders. 

Section 1071 is contradictory in that the statutory language conflicts with existing language already on the books. My understanding is that section 202.5 of Regulation B under the ECOA explicitly says, ‘‘A creditor shall not inquire about the race, color, religion, national origin, or sex of an applicant.’’ The personal information should have no basis in determining whether or not someone 

receives a truck from Fleming NationaLease. 


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In terms of cost, this could cause a real strain on my bottom line. 

According to section 1071, after a lender inquires whether an applicant for a loan is a minority, woman-owned, or small business, no 

one involved in the credit decision can have access to this information. This would require me, the so-called lender under this definition, to completely alter my application process, which would be expensive. If we were to comply with this new regulation, I estimate 

that we would have to, at a minimum, hire a new part-time employee. That could cost our company somewhere between $10,000 

and $20,000 annually. And while that doesn’t seem much in the 

scheme of things, for me it is money that could be spent hiring another mechanic or purchasing a new vehicle, both of which, in turn, 

makes my company more profitable, but instead would be spent on 

more administrative burdens. 

Lastly, section 1071 is extremely confusing and leaves many 

questions unanswered regarding what information I am to collect 

and what definitions will be used to ensure compliance. There also 

remains a concern over whether or not the CFPB and the Federal 

Reserve will work jointly to rectify issues that could remain from 

any exemptions that exist. 

Just to touch on this final point, since section 1071 amended the 

ECOA, both the CFPB and the Federal Reserve now have jurisdiction over entities such as auto dealers. I believe it is imperative 

that if this new law was to be enacted and enforced, regulators 

must coordinate their implementation of these new requirements. 

If not, financial companies might receive different data from the 

dealers than that which they are required to file with the CFPB 

and open an entirely new problem. 

While I recognize the fact that the CFPB has now decided it will 

issue a formal rule that hopefully will address and answer some of 

the confusing qualities within the law, ultimately I remain unconvinced that there is even a reason to have such a rule implemented 

for businesses like my own. I am not a banker. I lease trucks. To 

be placed in the same category with a multibillion-dollar financial 

giant makes absolutely no sense to me. In my opinion, making a 

truck-leasing company or any small business comply with section 

1071 is a mistake. 

Thank you for allowing me to issue my testimony today. 

[The statement of Mr. Fleming follows on p. 54.] 

Chairman COFFMAN. Thank you, Mr. Fleming. 

Questions. I will start with Mr. Jones. 

On a scale of 1 to 10, how would you rate the CFPB’s outreach 

on the mortgage disclosure forms that they are currently in the 

process of revising? 

Mr. JONES. Thank you, Chairman Coffman. 

I would rate them at a 6 or a 7, especially compared to previous 

regulatory form changes. I think they really have reached out and 

provided an opportunity for our members and members of the 

mortgage lending community to comment on those forms. 

Chairman COFFMAN. Thank you. 

With your 40 years of mortgage lending experience, can you tell 

me what happens if an entity is seen by its customers as being 

abusive? 


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Mr. JONES. I think that if an entity is seen by its customers as 

abusive, basically, they stop using the lender. I think good businesses in our business and in any business have to be close to their 

customers. And that, I think, is one of the real benefits of being a 

small business, being located with your customers in the same 

towns, going to the same meetings, the same social functions, and 

the same churches. It is critical that you have good customer relationships. 

Chairman COFFMAN. Mr. Sharp, we hear frequently that there is 

a fight between Main Street and Wall Street. However, our economy is interconnected, and we must make sure both are healthy if 

we want to grow our economy. 

Can you tell me about the impact that financial regulations will 

have for Main Street small businesses? 

Mr. SHARP. Yes, Mr. Chairman. Thanks for the question. 

As I said in my testimony, I mean, it is hard to know exactly 

what the impact will be. And I think we heard that from the first 

panel, as well. But, again, our concern is that, you know, small 

businesses have the hardest time and the most expensive time, 

really, complying with new regulations. And, as you know, there 

are a flood of regulations headed their way. 

In this case in particular, again, our concern is that some companies may be directly regulated who didn’t expect to be regulated, 

as my fellow panelist, Mr. Fleming, has mentioned, and others may 

find that access to credit lines or to credit instruments that they 

rely on are either more expensive or unavailable. 

So there is no way to know for sure what the impact is going to 

be, but those are the two areas where we are hopeful that there 

won’t be an adverse impact. 

Chairman COFFMAN. Can you tell me how small businesses use 

the equity in their home to finance small businesses, particularly 

in the early stages of development? 

Mr. SHARP. Sure. I think it is pretty widely accepted that particularly the very smallest businesses, sort of, you know, the two 

guys in a garage, kind of, you know, very earliest stage of a small 

business. And I think, you know, if you look at Google or some of 

the real tech giants these days, you can trace almost all of them 

back to, again, a couple guys in a garage with either a personal 

credit card or someone borrowing against their house or borrowing 

against their car. 

Now, of course you grow out of that phase at some point and, you 

know, you have access to the capital markets. But each of those 

tools, which are not, you know, designed to be for commercial lending, have become critical lifelines for small businesses. 

Chairman COFFMAN. Right. 

Based on your experience in government and observing the 

CFPB, do you think they are prepared to assume authority, or do 

you feel that they have been rushed? 

Mr. SHARP. Well, you know, a year sounds like a lot of time, but 

it is really not, to stand up a brand-new agency, particularly when 

you have a responsibility to sort of gather up bits of law, I think, 

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So we do have a concern that they are moving awfully fast. You 

know, I think on the transfer date they began to issue—they, the 

CFPB—began to issue interim final rules, which essentially says, 

‘‘This is the final rule, but we are going to take comments and adjust as needed.’’ And in some cases, that is probably good; in some 

cases, you know, we may have concerns. We are trying to keep up, 

as well. 

But I don’t think a year is enough time for this bureau to have 

gone active, particularly without a confirmed director. I think that 

also creates serious challenges for them. 

Chairman COFFMAN. Mr. Fleming, you mentioned compliance 

costs in your testimony, but can you reiterate how much will it cost 

for your business to comply with the new data collection requirements? 

Mr. FLEMING. Well, again, Mr. Chairman, I am estimating that 

we could potentially have to add at least a part-time clerk, which, 

for us, as such a small business that is so flat, that is really a significant investment for us for, really, a position that doesn’t add to 

the bottom line. 

I would prefer to spend those funds on, as I said, a mechanic or 

some equipment that adds to revenue for our customer. You know, 

we are constantly looking for good, qualified diesel technicians to 

fix our trucks, to keep them out on the road, to help produce revenue for our company. 

So while, again, I said one part-time position seems small, that 

really would be better used in a revenue-generating-type position 

rather than just an administrative burden to comply with potentially new Federal regulations. 

Chairman COFFMAN. Do you feel taken advantage of by the 

banks that you work with? If so, I mean, do you just switch banks 

or providers? 

Mr. FLEMING. Actually, we did switch our banking relationship. 

I wouldn’t say felt taken advantage of, but just didn’t feel that it 

was working for us. And we had a relationship with banks out in 

Ohio and changed those banking relationships. 

I think, as other members of the panel said, it is a free market, 

and there are certainly plenty of other opportunities for us. And we 

took advantage of other opportunities when they presented themselves. 

Chairman COFFMAN. Thank you. 

Mr. Levitin, according to the SBA Office of Advocacy, small businesses create 7 out of every 10 jobs in America. Yet, in a recent 

article, you claimed that small businesses’ contribution to longterm, stable employment is limited. 

Do you disagree about the importance of small businesses in 

helping our country recover from 9-percent unemployment? 

Mr. LEVITIN. No, I do not disagree with that. I would actually 

point out that what I said is entirely consistent with the Small 

Business Administration’s Office of the Advocate, that small businesses create a tremendous number of jobs every year, but the general story of small business is, unfortunately, failure. Most small 

businesses don’t last for more than a couple years. So, instead, you 

just get churning, rather than stable, long-term employment. 

Chairman COFFMAN. Okay. 


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As a professor, I would assume that you see the value of lawyers 

drafting contracts and committing agreements to writing; this creates certainty. How can plain language increase certainty in contracts? I can see the value in getting rid of some legalese, but don’t 

contracts require some specific language that cannot always be 

made into, quote/unquote, ‘‘plain language’’? 

Mr. LEVITIN. It really depends on the specifics here. So I think 

where your question is going, if I understand it correctly, is, how 

is the CFPB going to help make markets more efficient? And getting rid of unnecessary legalese is certainly something I think everyone at this table would think is a wonderful thing. That is move 

one. 

But, as you point out, not everything can be boiled down to 

legalese. The second part is simply ensuring that, when a business 

goes out, or a consumer, actually—well, really, a consumer goes out 

and compares financial products, they can compare them on an apples-to-apples basis. That is actually very difficult to do right now 

with many financial products. It is not like going to a grocery store, 

where there is unit pricing and you can see the cost for an ounce 

of orange juice of brand 1 and an ounce of orange juice of brand 

2. Instead, many financial products are designed in a way that they 

are too complex to compare on an apples-to-apples basis, knowing 

what the all-in cost will be. 

The CFPB may be able to improve that by encouraging standardization of financial products to the things that consumers really 

want. 

Chairman COFFMAN. Thank you. 

Mr. Altmire. 

Mr. ALTMIRE. Thanks, Mr. Chairman. 

Mr. Levitin, I wanted to follow up on a question I asked to the 

earlier panel regarding the fact that many entrepreneurs use personal credit cards and home equity loans to finance new business 

ventures. 

Many of you mentioned that in your testimony. 

How should, in your opinion, the CFPB account for these smallbusiness owners when drafting regulations specifically for credit 

cards and home mortgage products? 

Mr. LEVITIN. Well, as someone who actually uses a small-business credit card for some purchases, I think it is important to note 

that many small businesses use the same credit card for both their 

business transactions and personal transactions. 

And so, say you are going and filling up your car with a tank of 

gas and you use that car partially for business use and partially 

for your personal use. You want to make sure that you—I think 

you would want the same protections on that transaction, because 

you don’t know whether that gas you are putting in the tank is 

going to be used for when you are driving your kids to the soccer 

game or whether you are using it for work. You don’t know, at that 

point, whether you are doing a business transaction or not, ultimately. 

And in situations like that, small-business owners should have 

the same protections that they have when they are consumers. 

Mr. ALTMIRE. For Mr. Jones, over the past 3 years, we have, unfortunately, learned that bad mortgages are costly to everybody. 


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And to be successful, your business, in particular, has had to make 

loans that borrowers can repay. 

Is there, in your opinion, a potential benefit to the mortgage industry if the CFPB’s ability-to-repay rules are structured appropriately? 

Mr. JONES. Thank you, Mr. Altmire, for the question. 

Yes, I think so. The ability-to-pay rule, again, if it is characterized as a safe harbor, will provide a bright line, especially for small 

lenders that don’t have the ability to hire compliance staff. If you 

have a 25-person business and you need to hire an attorney to help 

you interpret the rules and regulations, it becomes a very costly endeavor. 

So it is important, if they do characterize it as a safe harbor that 

is clearly interpretable by small businesses. I think it will be a vast 

boon to our industry and to the consumers of America, as well. 

Mr. ALTMIRE. Thank you. 

For Mr. Sharp, many in the banking industry have expressed 

concern that the Dodd-Frank Act will stifle lending to small businesses, another point many of you brought up. 

Hasn’t the small-business community been struggling to get credit from banks since well before the financial reform was enacted? 

And is there something that could be done, perhaps outside of this 

law, or something different, to help correct for that? 

Mr. SHARP. Well, thank you, Mr. Altmire. 

First of all, I mean, to answer the first part of your question, yes. 

I mean, the challenges that small businesses face in the credit markets right now are not unique to 2011 or 2010. I mean, they have 

been around for several years now, and they are sort of—and it is 

stagnant. It is not improving, and that is a real concern. 

You know, honestly, at this point, I think part of what everybody 

is hearing is, ‘‘Let’s not do anything to make it worse.’’ It is not exactly clear what it is that is gumming up the works, but what we 

know for sure, that, again, the commercial lending markets are not 

frozen, but, you know, they are not in good shape. Sort of, our message and the message we are hearing from our small-business and 

Main Street members is, ‘‘Let’s certainly not take away some of 

these tools that do seem to be working well now. We can still use 

our credit cards. We can still borrow money against our car title 

or our home.’’ Even those markets are functioning fairly well. 

So their message to us is, ‘‘Do no harm,’’ essentially. And that 

means working closely with the CFPB to make sure they understand the knock-on effects, you know, to the small-business lending 

world in the actions they are taking. 

Mr. ALTMIRE. Thank you, Mr. Chairman. 

Chairman COFFMAN. Mr. West. 

Mr. WEST. Thank you, Mr. Chairman and Mr. Ranking Member. 

And thanks to the panel for being here today. 

Mr. Sharp, I will ask the first question to you, and others from 

the panel can chime in. 

What do you really see, in your assessment, the purpose of the 

CFPB to be? 

Mr. SHARP. I believe the purpose of the CFPB is to find 

fraudsters in the consumer products market and put them out of 


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business or, you know, clamp down on their fraudulent practices. 

Protect consumers against bad actors in the market. 

Mr. WEST. Okay. 

Anyone else? 

Mr. LEVITIN. I would say that is part of CFPB’s mission, and that 

is an important part, but it is broader. CFPB’s mission is to ensure 

that we have fair, transparent, and competitive consumer finance 

markets. And that is not just getting rid of fraud; that is also ensuring that disclosures are clear, that we can have good price competition in the market. 

Mr. WEST. Have we had, prior to this, any other government 

agency or someone else that was doing this? I mean, do we see this 

as a redundancy, or do we see this as some type of a duplication 

of effort out there from the government? 

Mr. LEVITIN. Prior to the Dodd-Frank Act, some parts of the consumer finance space were regulated, by a laundry list of Federal 

agencies. And this was one of the problems, that you had a regulatory market that was splintered. So you had the Federal Reserve, 

the FDIC, the Office of Comptroller of the Currency, Office of 

Thrift Supervision, even the Department of Defense and HUD each 

having little spaces in the market. And many things fell between 

the cracks. 

And, also, those missions—the consumer protection mission given 

those agencies was typically a secondary and subordinate mission 

to other missions, particularly to bank safety and soundness, which 

is just a fancy term for bank profitability. 

So, abusive lending practices, the only reason to do them is that 

they are profitable. Banks don’t do them for fun; they do them because they are profitable. But if you are the Comptroller of the 

Currency and you see your primary mission as ensuring that banks 

are profitable, that puts you in a bit of a bind, where you are going 

to be tempted to turn a blind eye to abusive practices because they 

are profitable. And that is what we saw. That is what led up to the 

housing bubble. 

Mr. WEST. Okay. 

So, in your assessment—for the panel—this was something that 

we needed to institute. This was an agency, a bureau, or a government program, whatever you want to call it, that we needed to institute. 

Mr. LEVITIN. Without a doubt. The financial crisis in 2008 came 

out of consumer financial products, out of mortgage products. That 

was the root of it. And if we want to ensure that doesn’t happen 

again, we need to have better consumer financial protection. 

Mr. SHARP. I will just say that, you know, it is no secret that the 

Chamber didn’t support the creation of the Consumer Protection 

Bureau. And, at this point, you know, our focus is on—you know, 

it is there, it is up and running, it is no longer an idea on paper. 

And, you know, our concern now is, as it is beginning, as the gears 

begin to turn and it begins to issue regulations and begins do its 

work, our concern is that it not become a sort of duplicator of other 

agencies’ work. 

And there are some cases, at least one very obvious one with the 

Federal Trade Commission, where the Bureau’s jurisdiction and 

the Federal Trade Commission’s jurisdictions overlap. And that 


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was intentional, to some degree. And the law requires the two 

agencies to prevent, you know, sort of, stepping on each other’s 

toes, you know, to prevent situations where they are duplicating or 

conflicting with one another. But we do have concern, sort of a general concern, that that will be very difficult to avoid. 

Mr. WEST. Mr. Jones and Mr. Fleming, do you believe that the 

CFPB will enhance free-market competitiveness and entrepreneurial spirit or not? 

Mr. JONES. Mr. West, thank you for the question. 

We were happy to see the CFPB’s move toward consolidating the 

Truth-in-Lending and the Good-Faith-Estimate disclosures, two 

forms that have been a challenge for the industry, being administered formerly by two separate Federal agencies that did not always see eye to eye in terms of what should be done. So we do 

think there is real benefit there. 

Another benefit to our industry could be that—our industry is 

very heavily involved in automation, in order to comply with the 

multiplicity of rules and regulations that we have. To that extent, 

I was very encouraged today to hear that the CFPB will be doing 

an economic cost-benefit analysis to really determine whether or 

not there will be an economic benefit to their proposed rules and 

to the extent that that is what we do, then I think it can be a boon, 

not only to the industry to help to lower some costs, but it also will 

be a boon to consumers, who hopefully will have less confusing and 

clearer disclosures. 

So there definitely are some benefits. 

Mr. FLEMING. Mr. West, since I am a trucker and not a banker, 

I would be hard-pressed to express an overall opinion of the CFPB. 

What I am primarily concerned about is just, you know, any new 

regulations that seem to me, as someone sitting down in Springfield, Virginia, shouldn’t really apply to me all of a sudden coming 

down and creating new regulatory requirements. 

So, from that perspective, I am concerned about that section. 

But, overall, I am certainly not in a position to register an opinion 

on the group as a whole. So, thank you. 

Mr. WEST. Very well. 

Mr. Chairman, I yield back. 

Chairman COFFMAN. Thank you, Mr. West. 

To each of the panelists, if you could identify just one top issue 

that bothers you about CFPB, just the top issue that you think 

ought to be changed or improved to improve it, what would that 

be? 

Mr. Jones. 

Mr. JONES. Thank you, Mr. Chairman. 

I think our top issue with the CFPB will be the clarity of the 

issues—or the clarity of the rules and regulations that are issued, 

and the ability to receive and respond to industry input prior to 

those regulations being implemented. 

Chairman COFFMAN. Mr. Sharp. 

Mr. SHARP. Mr. Chairman, our primary—the changes that we 

are pushing for primarily are structural. You know, it is very difficult, as I think we have all discussed today, to know exactly what 

problems may arise and when and what type, in what sector. So 

what we are advocating for is replacing the single director with the 


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panel and ensuring that safety and soundness isn’t compromised 

through a more effective check by the prudential regulators. 

So, at this point, we think that, sort of, the best long-term hedge 

against, you know, poor policymaking by this agency or any other 

independent agency is, sort of, collaborative decision-making at the 

top with input from diverse, you know, sectors, bipartisan input. So 

that is our top priority. 

Chairman COFFMAN. Thank you. 

Mr. Fleming. 

Mr. FLEMING. Mr. Chairman, I think I would just ask the organization to take in to consideration unintended consequences, such 

as, you know, these data collection requirements that maybe in 

theory would be of interest and be helpful to the organization, however be burdensome for us small businesses that would have to 

comply with these new regulations to provide the data. 

Chairman COFFMAN. Mr. Levitin. 

Mr. LEVITIN. As you might have guessed, I am going to give a 

rather different answer. 

I think the two most important things with the CFPB are, number one, that the Senate should confirm a director; and, number 

two, if you really wanted to start changing the scope of CFPB regulation, I would strongly urge subjecting auto dealers and realtors 

to CFPB regulation. There is not a very good principled argument 

for exempting them. 

Chairman COFFMAN. Thank you. 

Mr. Altmire, any—— 

Mr. ALTMIRE. No further questions. 

Chairman COFFMAN. Thank you. 

Panelists, I just want to thank you all so much for taking the 

time and coming down to Capitol Hill and testifying today on this 

very important matter. 

With that, the Committee is adjourned. 


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