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76–118 PDF 2012

THE IMPACT OF DODD-FRANK ON CONSUMER 

CHOICE AND ACCESS TO CREDIT 

HEARING 

BEFORE THE

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS 

AND CONSUMER CREDIT 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

JULY 19, 2012 

Printed for the use of the Committee on Financial Services 

Serial No. 112–147 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

SPENCER BACHUS, Alabama, Chairman 

JEB HENSARLING, Texas, Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, North Carolina 

JUDY BIGGERT, Illinois 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

MICHELE BACHMANN, Minnesota 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

NAN A. S. HAYWORTH, New York 

JAMES B. RENACCI, Ohio 

ROBERT HURT, Virginia 

ROBERT J. DOLD, Illinois 

DAVID SCHWEIKERT, Arizona 

MICHAEL G. GRIMM, New York 

FRANCISCO ‘‘QUICO’’ CANSECO, Texas 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

BARNEY FRANK, Massachusetts, Ranking 

Member 

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 

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 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JOE DONNELLY, Indiana 

ANDRE ́ CARSON, Indiana 

JAMES A. HIMES, Connecticut 

GARY C. PETERS, Michigan 

JOHN C. CARNEY, JR., Delaware 

JAMES H. CLINGER, Staff Director and Chief Counsel 

(III) 

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND CONSUMER CREDIT

SHELLEY MOORE CAPITO, West Virginia, Chairman 

JAMES B. RENACCI, Ohio, Vice Chairman 

EDWARD R. ROYCE, California 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, North Carolina 

JEB HENSARLING, Texas 

PATRICK T. MCHENRY, North Carolina 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

STEVAN PEARCE, New Mexico 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

FRANCISCO ‘‘QUICO’’ CANSECO, Texas 

MICHAEL G. GRIMM, New York 

STEPHEN LEE FINCHER, Tennessee 

CAROLYN B. MALONEY, New York, 

Ranking Member 

LUIS V. GUTIERREZ, Illinois 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

RUBE ́ N HINOJOSA, Texas 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

NYDIA M. VELA ́ ZQUEZ, New York 

GREGORY W. MEEKS, New York 

STEPHEN F. LYNCH, Massachusetts 

JOHN C. CARNEY, JR., Delaware 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

July 19, 2012 ..................................................................................................... 1 

Appendix: 

July 19, 2012 ..................................................................................................... 29 

WITNESSES 

THURSDAY, JULY 19, 2012 

Date, Raj, Deputy Director, Consumer Financial Protection Bureau (CFPB) .... 6 

APPENDIX 

Prepared statements: 

Date, Raj ........................................................................................................... 30 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Capito, Hon. Shelley Moore: 

Written statement of the Financial Services Roundtable ............................. 33 

Duffy, Hon. Sean P.: 

Letter to Treasury Secretary Timothy F. Geithner from Fred R. Becker, 

Jr., President/CEO, the National Association of Federal Credit Unions 

(NAFCU), dated June 27, 2012 .................................................................... 51 

Luetkemeyer, Hon. Blaine: 

Written responses to questions submitted to Raj Date ................................. 54 

(1) 

THE IMPACT OF DODD-FRANK ON CONSUMER 

CHOICE AND ACCESS TO CREDIT 

Thursday, July 19, 2012 

U.S. HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

AND CONSUMER CREDIT, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. 

The subcommittee met, pursuant to notice, at 2:02 p.m., in room 

2128, Rayburn House Office Building, Hon. Shelley Moore Capito 

[chairwoman of the subcommittee] presiding. 

Members present: Representatives Capito, Renacci, Manzullo, 

McHenry, Pearce, Luetkemeyer, Huizenga, Duffy, Canseco; 

Maloney, Hinojosa, Miller of North Carolina, and Scott. 

Also present: Representative Green. 

Chairwoman CAPITO. I now call the subcommittee to order, and 

I would like to inform Members, and Mr. Date, that we do expect 

a series of votes this afternoon between 4:30 and 5:00. It will be 

a long series of votes, and it is my intention to complete this hearing by the time votes are called. I am sure you are okay with that. 

Anyway, this afternoon’s hearing is the second installment of the 

Financial Institutions and Consumer Credit Subcommittee’s contribution to oversight hearings leading up to the second anniversary of the Dodd-Frank Act. Today, we are joined by Mr. Raj 

Date—this is not his first visit here, and I appreciate him coming 

back again—who is the Deputy Director of the Consumer Financial 

Protection Bureau (CFPB), and he will provide members of this 

subcommittee with an update on the operations of the CFPB since 

the designated transfer date of last July. 

Many of my colleagues on the other side of the aisle like to highlight the number of times the CFPB has testified as proof positive 

of sufficient congressional oversight. According to the CFPB’s Web 

site, this will be the 24th time a representative from the agency 

has testified before either the House or the Senate. So, just for the 

sake of comparison, how does that compare to the other financial 

regulators? The Treasury and the Federal Reserve each have appeared 45 times, the SEC has appeared 47 times, the FDIC has appeared 26 times, and the OCC has appeared 22 times. Testifying 

at hearings is a central function of a Federal regulatory agency, 

but it does not necessarily equate to Congress having sufficient 

oversight. 

Republicans have offered common-sense proposals that provide 

for greater congressional oversight of an agency that will be spending hundreds of millions of dollars each year without compromising 

2 

the core mission of protecting—a shared mission, I might add—consumers, and I urge the Senate and the Administration to accept 

our good faith offering and work with Republicans to place these 

vital reforms in place. 

I am especially interested to hear Mr. Date’s thoughts on two 

rules that are now before the CFPB’s purview. The first is the credit card ability-to-pay rule—on which we had a hearing—that CFPB 

inherited from the Federal Reserve, and the second is the Qualified 

Mortgage rule that is pending. 

Last fall, the Federal Reserve finalized rules providing guidelines 

for credit card issuers to determine a borrower’s ability to pay. 

When drafting this rule, in my view, and I think it is borne out 

in the actions, the Federal Reserve clearly misinterpreted the statute and required all borrowers to provide proof of an individual income, even though the statute clearly intended that requirement to 

apply only to underage students seeking credit. The practical effects are that we are hearing more and more anecdotal stories from 

across the Nation about stay-at-home spouses, male and female, 

being denied credit because they do not have an individual income. 

This is a clear example, I think, of Washington regulations that 

have gone wrong. I have asked the CFPB to fix this inequity, and 

they have assured us and the committee that they are working on 

it, and they will have a resolution by this summer. We are working 

on a legislative solution to restore parity in case that doesn’t come 

about. 

Last week, we heard from many witnesses about the importance 

of clarity in the CFPB as the CFPB promulgates the Qualified 

Mortgage rule. Again, the actions of this agency could determine 

the availability of credit for borrowers across this Nation, and I 

would urge the CFPB, as I did in a letter with Mr. Sherman that 

I am sure you received, to have a broad definition for the Qualified 

Mortgage and provide a strong legal safe harbor for the loans that 

fit these criteria. We need to ensure this rule does not overly restrict credit for consumers and increase the cost of credit for borrowers. 

Again, I would like to thank Mr. Date for appearing before the 

committee. Our members are very interested in the actions of the 

CFPB. Going forward, we must ensure that agencies strike the appropriate balance between protecting consumers and ensuring that 

there is sufficient access to credit. 

With this, I would like to recognize the ranking member, the 

gentlelady from New York, Mrs. Maloney, for the purpose of making an opening statement. 

Mrs. MALONEY. I thank the gentlelady for calling this hearing 

and I thank her for pointing out that this is the 24th time the Bureau has testified before Congress, oftentimes before this committee, but it is always with good news. It is always with good 

news of how we are protecting consumers and how we are moving 

forward. 

Just yesterday—I would like unanimous consent to place in the 

record a report really from the American Banker that shows that 

the CFPB hit a financial institution with their first-ever penalty. 

And I was waiting to see in what area it was going to take form, 

and it took form in the area of credit card reforms, so I was pleased 

3 

to see that the Bureau is being serious about cracking down on unfair, deceptive, and anticompetitive practices. 

Just yesterday, they announced their first enforcement action, 

finding deceptive marketing of credit protection products to consumers with lower credit scores. These practices were uncovered 

during the supervision process, a critical authority we gave to the 

CFPB, and it will put $140 million back into the pockets of 2 million cardholders. This case in point is why the Bureau is necessary, 

and I applaud the work that was done in the months leading up 

to this announcement. 

We need to put this in perspective. Not only is this the 24th 

hearing, but there have been 50 bills and numerous amendments 

that have been introduced to either gut, slow down, block or defund 

the financial reforms, including the repeal of this bill. There have 

been numerous legal challenges to dismantle the CFPB as well as 

other important aspects of financial reform. And the very agencies 

which have been tasked with implementing financial reform are 

facing drastic budget cuts. The SEC is looking at a 12 percent cut. 

The CFTC would get a 41 percent cut. And if my colleagues get 

their way, together that would amount to $323 million cut, but it 

pales in comparison to what Americans lost in the financial crisis. 

It is merely two-tenths of a basis point of the $19 trillion in household wealth that Americans lost. We lost 8.7 million jobs, and 6.3 

million more Americans are now in poverty because of the financial 

crisis. If we had prevented those abuses, then we would not have 

had these drastic losses. 

The CFPB is a pillar of the financial reforms that we enacted 2 

years ago, and consumer protection in financial products is its first 

and only mission. That was not the case before financial reform, 

where consumer protection authority was housed in multiple agencies whose chief mission was safety and soundness, not consumer 

protection, and that is important, but too often consumer protection 

was a secondary thought, a third thought or not even thought 

about at all. Now the system has changed; it is safer, stronger, 

more transparent, and there are new tools to monitor and mitigate 

threats that consumers face and to protect them. 

These reforms are helping to build a sound foundation to support 

economic growth, and we do see signs of that growth. We have 

added 3.8 million jobs, and business lending has increased 15 percent, according to the Bureau of Labor Statistics, after these reforms went into place. CFPB has leveled the playing field for consumers and financial institutions. 

And I for one do not really understand why there is such great 

opposition to it. The ‘‘know-before-you-owe’’ is really very important 

so consumers can see and assess how much they owe. They have 

simplified credit card contracts, introduced new student loan assessment tools, highlighting rates and eliminating confusing rhetoric so people know what they are getting into, and I really don’t 

understand why some of my colleagues are opposed to it for giving 

consumers disclosures that will clearly state their obligations under 

their mortgages: their interest rates; their payments; their fees; 

and other important information. 

For all the talk of limits to consumer choice and restrictions in 

credit, none of that has materialized. And for all the talk about unVerDate Nov 24 2008 18:21 Dec 13, 2012 Jkt 076118 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 K:\DOCS\76118.TXT TERRI
4 

acceptable agencies and unaccountable and not transparent, the 

CFPB has been unprecedented in its transparency. Just go to their 

Web site. They have been forthcoming with Members, with the industry, and with consumers, and I look forward to hearing their report today. I hope there have been more advancements to simplify 

information, to level the playing field, and to strengthen our overall 

economy and consumers’ understanding of their exposure and enabling them to better manage their own financial life and their own 

risk. I thank the gentlelady for calling this hearing, and I look forward to the gentleman’s testimony. Thank you. 

Chairwoman CAPITO. Mr. Duffy, for 2 minutes. 

Mr. DUFFY. Thank you, Chairwoman Capito, for holding this very 

important hearing. Here we are a year after the CFPB took over 

responsibility for promulgating Federal consumer protection rules, 

and many questions still remain on the potential future actions 

that the Bureau may take. 

As you know, I have been following the CFPB developments ever 

since being elected to Congress, and my focus has been particularly 

targeted at how the CFPB actions impact small financial institutions, many of them in smaller, more rural parts of America. Almost daily, I continue to hear from community banks and credit 

unions in my district and throughout Wisconsin about the increasing regulatory regime that these institutions are now facing. Many 

of them tell us it is not making their lives easier. The small institutions are telling us that it is making their lives far more difficult. 

We have had numerous hearings discussing this important issue. 

We had one recently in Wausau, Wisconsin, and we have also had 

many hearings in this room talking about the impact on small community institutions. This hearing will hopefully highlight some of 

those concerns. Today, we will be discussing the impact of DoddFrank on consumer choice and access to credit. 

As we have this conversation on consumer choice, I want to make 

sure that we do not restrict financial institutions from providing 

consumers with the power to choose the products that they want 

and the products that make the most sense for them. 

I would also like to ask for unanimous consent to offer a letter 

into the record from the National Association of Federal Credit 

Unions that addresses the regulatory burden and the issues that 

are arising with regard to consumer choice. 

Chairwoman CAPITO. Without objection, it is so ordered. 

Mr. DUFFY. Thank you. And I want to thank Mr. Date for coming 

today, and I look forward to his testimony. 

Chairwoman CAPITO. Mr. Hinojosa for 2 minutes. 

Mr. HINOJOSA. Thank you, Chairwoman Capito, and Ranking 

Member Maloney. 

I also want to thank you, Mr. Date, for once again coming before 

this subcommittee to speak out about the progress of the Consumer 

Financial Protection Bureau. We are once again evaluating the 

CFPB and marking the 2-year anniversary of the Dodd-Frank Wall 

Street Reform and Consumer Protection Act. 

Two years later, I still hear my friends and colleagues on the 

other side of the aisle complaining about the so-called strangling 

red tape which the law has supposedly imposed. On Monday, The 

National Journal published a story entitled, ‘‘Gripes and Few Laws 

5 

From GOP on Dodd-Frank.’’ By next month, the CFPB will have 

testified before Congress 26 times during their 18-month existence. 

I would like to point out that, according to a poll commissioned 

by the AARP and other organizations taken earlier this month, 

most Americans disagree with the negative characterization of the 

CFPB that my Republican colleagues have embraced. In fact, twothirds of voters and 69 percent of independents agreed that the 

CFPB is a necessary institution, I repeat, that it is necessary to 

have it. 

No wonder they feel this way. While the big banks are complaining about the red tape, we are being inundated with new 

scandals and evidence of malfeasance by the major financial institutions. Starting with the JPMorgan exotic derivatives loss that 

may reach up to $9 billion, there have been several instances which 

reflect poorly on the financial services industry and beg for more 

oversight and protection for our consumers. 

Just yesterday, the CFPB announced its first enforcement action against Capital One Bank, which will have to refund $140 million 

to 2 million consumers and pay a $25 million penalty. It has also 

recently come to light that HSBC Bank has been looking the other 

way while terrorist organizations and drug cartels launder money 

with their institution. Last week, the chairman of Peregrine Financial Group admitted to 20 years of embezzlement, and of course, we 

are all appalled at the London Interbank Offered Rate, or LIBOR, 

fixing scandal which may have involved up to 16 banks in a conspiracy to report false rates. It boggles my mind that instead of 

seeking to regain public trust, if only for self preservation, these institutions continue to evade the law and point at the CFPB and the 

Dodd-Frank Act and cry foul. 

In closing, I want to say that rather than continually trying to 

hamper the work of the CFPB, we should be encouraging the Bureau and the other regulators to hamper these Wall Street banks 

from evading laws and putting our economy at risk. We do need 

the Consumer Financial Protection Bureau, and the recent scandals only underscore this point. With that, I yield back. 

Chairwoman CAPITO. The gentleman yields back. 

Mr. Canseco? 

Mr. CANSECO. Thank you, Madam Chairwoman. 

The number I am keeping in mind today is 1,100, and that is 

how many pages the CFPB’s recently proposed rule regarding 

mortgage disclosures contains, even though the disclosures themselves will be less than 10 pages in length. Many of us have expressed skepticism over the argument that the creation of another 

unaccountable bureaucracy would somehow reduce red tape and 

compliance costs and make financial decisions easier to understand 

for consumers. 

The CFPB’s biblical length rule seems to have validated our 

worst fears about this agency. With its proposed rule, the CFPB 

has shown us the path they have chosen to take, and I am afraid 

that for financial institutions, families, and consumers, the outlook 

isn’t good. I yield back my time. 

Chairwoman CAPITO. The gentleman yields back. 

Mr. Scott for 3 minutes. 

Mr. SCOTT. Thank you very much, Madam Chairwoman. 

6 

In addition to forming the CFPB, the Dodd-Frank Act also imposed a risk retention requirement for lenders that I think we really need to take a good look at as we discuss this today, a risk retention requirement for lenders who securitize mortgages that they 

originate. 

Under Dodd-Frank, there is a requirement that lenders must retain 5 percent of the credit risk of any asset in order to encourage 

sound lending practices. The law currently exempts Qualified Residential Mortgages, or what are referred to as QRMs, from this risk 

retention. And on that note, as many of you may know, I am the 

cosponsor of the Consumer Mortgage Choice Act, which would simply amend the calculation within Dodd-Frank determining whether 

a mortgage loan is compliant with the QRM requirement. This is 

necessary. Our legislation would exclude so-called points and fees 

as long as they are reasonable. 

So I am going to be interested to know what Mr. Date’s view on 

the legislation might be and how it might affect consumers’ access 

to credit in order to obtain mortgages, because it seems to me that 

any expansion of charges to be included in the finance charge could 

very well cause vast numbers of mortgages to fail to meet the 

standards required of a Qualified Mortgage, and obviously, if the 

CFPB counts all originations and title charges as part of the points 

and fees, then a huge part of the mortgage loan market in my 

State of Georgia and elsewhere will not meet the requirement to 

be a Qualified Mortgage, and lenders will not be able to make the 

loan, and moreover, there could be an especially negative impact on 

the consumer’s ability to choose affiliated mortgage and title companies if affiliated fees are included. 

And so, it could be that by expanding the range of charges that 

must be included in the finance charge, it could make it nearly impossible for the average consumer to obtain a Qualified Mortgage. 

I would like for us to look at this and get your opinion on that as 

we move forward and look forward to the hearing. Thank you, 

Madam Chairwoman. 

Chairwoman CAPITO. Thank you. 

That concludes our opening statements. 

I would like to welcome, again, Mr. Raj Date to our committee. 

He is the Deputy Director of the CFPB. Welcome. 

STATEMENT OF RAJ DATE, DEPUTY DIRECTOR, CONSUMER 

FINANCIAL PROTECTION BUREAU (CFPB) 

Mr. DATE. Thank you, Chairwoman Capito, Ranking Member 

Maloney, and members of the subcommittee for inviting me back 

to discuss the work of the Consumer Financial Protection Bureau. 

The last time I was before this subcommittee was back in November and the CFPB had been in existence for just over 100 days. 

Today as we look forward to the 1-year anniversary of the CFPB 

on July 21st, so the day after tomorrow, I am glad once again to 

have the opportunity to discuss the important work that we are 

doing. 

As you know, before the Dodd-Frank Wall Street Reform and 

Consumer Protection Act, no agency was solely responsible for protecting consumers of financial services. Now, after the Dodd-Frank 

Act, one agency is solely responsible for consumer protection, and 

7 

that is the CFPB. Congress equipped the CFPB with a range of 

tools to reform the consumer finance marketplace: tools like research and supervision and enforcement and rulemaking and consumer education. I am pleased to report that we have been using 

these tools to deliver tangible value to American consumers. 

In addition to supervising the country’s biggest banks, we have 

also begun our supervision of nonbank businesses in two markets, 

residential mortgage and payday lending. On Monday of this week, 

we announced the addition of credit reporting companies to our 

nonbank supervision program, and over time we will continue to 

build out our nonbank supervision activities. Many of these 

nonbank products and services have never before been supervised 

at the Federal level, so these are important changes for consumers. 

And yesterday, we resolved our first enforcement action. During 

our supervision of a major credit card issuer, our team identified 

deceptive marketing practices used by the bank’s third-party vendors to pressure or mislead customers into paying for add-on products when they activated their credit cards. Yesterday’s consent 

order, which we issued in conjunction with the OCC, requires the 

credit card issuer to refund $140 million to 2 million consumers 

and to pay an additional $25 million fine. 

Other work that we have been up to: Evaluating overdraft protection; helping students to better understand their financial options; and working with the prudential regulators to help struggling military homeowners who have received permanent change of 

station orders. 

In most of what we do, we have had the benefit of an ongoing 

and productive dialogue with the consumer finance industry. We 

are, for example, working with one of the largest credit unions in 

the country to figure out if shorter, more transparent credit card 

agreements can make a meaningful difference to consumers’ understanding. 

The place that we are spending most of our time, as you might 

imagine, is the mortgage market. Given what American consumers 

have gone through since 2007, mortgage reform is appropriately at 

the top of the Bureau’s policy agenda. From shopping for a mortgage to closing on a mortgage to paying for a mortgage, we are 

working toward restoring trust across the mortgage business system. Over the next 6 months, we will be proposing and then finalizing rules to address problems consumers often face in buying or 

refinancing a home. 

Let me start with shopping for a mortgage. Markets don’t work 

if both parties to the transaction don’t understand what it is they 

are getting into. With our new loan estimate form, we are saying 

‘‘no more’’ to costs and risks being buried in the fine print. Not only 

are we integrating the Federal mortgage disclosure forms, as Congress directed us to do, but we are simplifying those forms, too. The 

idea is for borrowers to have a better chance to actually understand 

the price and the risk of their obligations in a way that is better 

for everyone involved. 

When it comes to closing on a mortgage, the Bureau is proposing 

rules that would require lenders to provide the most critical information 3 days before closing instead of at the closing table. This 

means consumers will have the time to review the loan terms and 

8 

the costs and ask questions about anything that they don’t understand or that just doesn’t seem right. 

We are also trying to put an end to mortgages that, as a practical 

matter, destine consumers to fail. In the years leading up to the 

financial crisis, lenders too often paid little attention to whether 

consumers actually had the ability to repay their loans. The results 

were disastrous, not only for consumers but for the housing market, for investors, and for the broader economy. By the end of the 

year, we plan to finalize a rule requiring lenders to make a good 

faith determination that borrowers actually have an ability to 

repay their loans. 

And finally, when it comes to paying for a mortgage, we are considering common-sense rules of the road. So, for example, we are 

considering whether a servicer should be required to give borrowers 

better information about how much they owe every month. We are 

still at the early stages of these servicing rulemakings, but I am 

optimistic that we can find a common-sense path forward. In the 

end, we want to craft sensible rules that work for the market 

throughout the credit cycle, but we also want to be mindful of just 

how fragile and risk-averse the market seems to be today. 

Throughout all of our efforts across consumer finance, we want 

to minimize compliance burden to the extent possible, and we want 

to encourage a competitive market where consumers and honest 

businesses can both thrive. Again, thank you for inviting me back, 

and I look forward to your questions. 

[The prepared statement of Mr. Date can be found on page 30 of 

the appendix.] 

Chairwoman CAPITO. Thank you. 

I would like to say in reference to the comment that you made 

about whether you are going to recommend that everybody send 

out a statement monthly on what they owe on their mortgages, I 

get that. I get that from my own lender every month. I think it is 

probably a good business practice, and I think you will find a lot 

of people are already doing that, which I am sure you already 

know. 

But anyway, I brought up two rules when I was mentioning my 

opening statement. Let me go to the one that Gail Hillebrand came 

to our committee and spoke about, and that is the stay-at-home 

spouse issue with the ability to repay to be able to get credit in 

their own name. Can you tell me what the status of that is? And 

I am hoping that you are moving as quickly as she said that you 

would be towards a resolution of this. 

Mr. DATE. Yes, strangely, Chairwoman Capito, I am not sure I 

actually have that much to add beyond your explanation of the 

issues associated with the ability-to-pay rule in the CARD Act and 

how the Federal Reserve Board’s regulation may have the unintended consequence that you discussed on nonworking spouses. 

Associate Director Hillebrand had discussed our approach to it, 

and that remains our approach, which is to try to move from the 

admittedly merely anecdotal evidence today to a more systematic 

understanding of the magnitude of the problem, its trajectory, and 

to think about potential solutions that we might be able to move 

forward with. She had talked about the end of the summer being 

9 

the point in time where we would have a good sense of what the 

right path is, and that remains our plan. 

Chairwoman CAPITO. My understanding— 

Mrs. MALONEY. May I— 

Chairwoman CAPITO. Let me go ahead and finish because I only 

have 3 minutes. My understanding on her, on our testimony is that 

this is a real problem. I am a former stay-at-home spouse myself. 

I understand the issues and how important this issue is to folks 

who are staying at home with their children to raise their families, 

both, as I said, males and females, so my understanding is that the 

resolution to this issue was going to be reached by the end of the 

summer, not just an analysis of whether there actually is a problem. So I would encourage you to keep moving forward quickly on 

this. It is extremely important to these families that we have a resolution to this sooner than later, and that was the crux of what she 

said when she was here, the way I understood it. 

Let’s go to the bright line. Mr. Cordray has said that a bright 

line is exceedingly important in the criteria for a Qualified Mortgage. I have an article here from the Wall Street Journal yesterday 

which said the Fed’s new mortgage disclosures are a bust. I guess 

they could say the CFPB new mortgage disclosures are a bust, in 

his opinion. I don’t agree with some of what he is saying here, the 

nitpicking of the forms; I looked at them. It looks fine to me. I 

think he is complaining about having the APR on the third page. 

I don’t think that bothers me as much as it seemingly bothers him, 

but he does say that the unintended consequences, and we did discuss this in our hearing last week, would be a tightening of credit 

and an inability—if you can’t get a Qualified Mortgage, you are out 

of the game. Everybody on our panel said nobody is going to write 

a mortgage that is not a Qualified Mortgage, and so it needs to be 

broad and it needs to have bright lines in terms of the legal protections. 

So do you agree that the safest way to ensure that standard is 

not overly litigated is to get the legal safe harbor on this, or what 

is your position on that? 

Mr. DATE. As always, Chairwoman Capito, thank you for raising 

the set of reforms around mortgages because it is at the top of our 

policy agenda for a reason, it is the single most important and largest market in the country, and it is the one that we have the most 

impact on. The ability to repay curiously also called ability to repay 

provision with respect to mortgages, which most people call the 

Qualified Mortgage Rulemaking, is a pending rulemaking so I am 

a little bit constrained in how I can talk about it, but I will point 

out that it is difficult to find a lot of dissenting voices to the core 

notion that you are saying, which is that bright lines matter. To 

the extent that the Qualified Mortgage is meant to be at the time 

of origination to provide some manner of presumption, either 

irrebuttable or rebuttable in some way, that the ability to repay 

provision has been met, then, that is not especially helpful if no 

one knows whether or not the loan, when made, is in fact a Qualified Mortgage. So I think most of the commenters throughout the 

two comment periods on the QM rule have made very similar arguments. 

10 

There are related issues with respect to the degree and magnitude of litigation risk that we recently reopened the comment period to get more perspectives on. I know that your letter, and thank 

you for it, takes a point of view on that question. I would characterize the point of view in that letter as being quite solidly within 

the spectrum of the wide diversity of perspectives on litigation risk 

as evidenced by the comment letters that we have received, but we 

are trying to move forward on the timetable that we have laid out. 

Chairwoman CAPITO. I would also bring up and caution you that 

in this article that was written in the Wall Street Journal, an opinion article that raises some questions, and we have heard this in 

our office of Habitat for Humanity and other nonprofits that try to 

get maybe nonqualified borrowers to be able to be in a home, sweat 

equity, those kinds of things. I would hope that would be taken 

into consideration and have some flexibility for these really valuable programs to move forward. 

I guess my other question, my final question—I don’t have time 

for a final question. Maybe I will come back afterwards. 

Mrs. Maloney? 

Mrs. MALONEY. I thank the gentlelady, and I would like to add 

my voice with the concern on the stay-at-home moms. It was certainly not my intention when I authored the bill to in any way roll 

back rights of women, and just on my own calls that I hear in my 

district from stay-at-home moms, this has been quite a challenge, 

so I look forward to your report, and I hope that you can make accommodations that are in line with the spirit of the law, and this 

is something we agree on. This is something that we both support 

wholeheartedly. 

We are having a day on the Floor next week on regulatory burdens, and many people or some people on the other side of the aisle 

have criticized the CFPB, claiming that it has too much of a regulatory burden on smaller institutions and businesses, yet I do know 

that in the financial reform, we made a point of requiring that the 

Bureau convene panels during the rulemaking process to assess the 

effects of proposals on small businesses. Can you report on how 

this process is working? And, very importantly, in your data-driven 

research, has it been any type of a burden in any way? Also, some 

have claimed that it has ensured the end of free checking. Would 

you agree with that statement or could you give your analysis of 

that particular complaint, shall we say? 

I do want to say I am very proud to have been one of the authors 

of Dodd-Frank. I worked on the conference committee, and I feel 

this is a centerpiece, an incredibly important reform, I support it 

completely, but it is also very important to answer any types of 

criticisms that come our way, so I look forward to your response. 

Thank you. 

Mr. DATE. Thank you, Ranking Member Maloney, and I will take 

those questions in the order in which you posed them. First, with 

respect to burden on small institutions, I think sometimes lost, and 

perhaps it is my own fault for not being as clear about this as 

maybe I can be, the CFPB does not supervise or enforce the law 

with respect to small banks. There are 15,000 banks, thrifts, and 

credit unions within the country. Our supervision authority extends to call it the biggest 105 out of 15,000. 

11 

Second, are any putative sort of burdens associated with abiding 

by regulations that are promulgated by the CFPB? Although conceptually I understand that notion, the fact of the matter is that 

we have finalized two substantive rulemakings since being in business for a year, one of which by its terms kept in place the status 

quo, that is the Alternative Mortgage Parity Transactions Act rulemaking, and the other is not yet effective, and indeed we have publicly said we are considering means by which to provide exemptions 

for smaller providers. So the burden argument with respect to 

smaller institutions I think we have been quite attentive to and indeed the Congress has been. 

Mrs. MALONEY. What was the second rule you came forward 

with? 

Mr. DATE. The Remittance Rulemaking. 

Mrs. MALONEY. The Remittance Rulemaking. 

Mr. DATE. And when that was finalized, it was not yet effective, 

and, second, we are now considering means by which to provide exemptions or different requirements with respect to smaller remittance providers. 

You had mentioned the small business review panels that we 

convene. I am essentially a quite conservative person. I tend to be 

slightly fearful and anxious about things that are new, and we are 

the first financial regulator to conduct small business review panels. There are only two other Federal agencies that do them, OSHA 

and the EPA, and so I will confess to a certain amount of anxiety 

a year ago about how this would work out. 

I have been very pleased personally with how it is that we have 

been able to convene panels of small entity representatives, the 

diligence that the representatives have taken to the task at hand, 

the feedback that we have gotten, and as I think you probably have 

already seen in a couple of our proposals and will continue to see, 

for example, in our servicing proposal when it comes out, we have 

been able to listen to quite right-minded concerns and adapt to 

them where we can. It has been a real benefit to us, and I am 

proud of the team that is responsible for that at the Bureau. 

Finally, just briefly on the notion of free checking, the Federal 

Reserve Board had a not insubstantial change to overdraft fee optin a couple of years ago. We have said that we will evaluate how 

it is that the marketplace has changed since then. We don’t actually know how it is that the marketplace has changed until we do 

the work, and as a result, the notion that somehow the CFPB has 

either promoted or prevented free checking I think is just factually 

inaccurate. 

Second, I would just point out, not just from this particular job 

I am in but from years prior, there is no free anything. Products 

that provide value, institutions tend to charge for one way or another. 

Mrs. MALONEY. My time has expired. Thank you. 

Chairwoman CAPITO. Mr. Renacci for 5 minutes. 

Mr. RENACCI. Thank you, Madam Chairwoman. 

Thank you, Mr. Date, for being here. 

Mr. Date, on June 28th the CFPB amended its regulations to 

provide that submission of confidential information to the CFPB 

will not waive any applicable privilege and to assert that the BuVerDate Nov 24 2008 18:21 Dec 13, 2012 Jkt 076118 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 K:\DOCS\76118.TXT TERRI
12 

reau’s transfer of such information to another Federal or State 

agency does not waive privilege. How do you address the concerns 

raised by the American Bar Association that because the proposed 

rule is based in part on an assertion of the Bureau’s authority to 

compel production of privileged materials, the proposed rule may 

not protect the privileged status of the information? 

Mr. DATE. I understand that concerns have been voiced, and it 

is a concern that caused us to propose and then finalize exactly the 

rulemaking that you are referring to, Congressman. 

Supervision of banks and nonbanks is core to what we do. I 

would argue that of the many policy tools we have, it is the single 

most central, it is the single most flexible, it is the one that makes 

everything else better. Supervision depends on confidential information being shared with regulators, full stop. You cannot create 

a supervisory relationship that is going to be meaningfully additive 

to the system unless institutions can count on that, which is why 

we proceeded with and finalized the rule that you discussed. 

Mr. RENACCI. Again, I appreciate the intentions of the rule, but 

I share some of the concerns of the American Bar Association. I believe the statutory change is preferable. In fact, in recent congressional testimony, Director Cordray had also stated that legislation 

would be helpful in removing all doubt. It is for that reason I supported Representative Huizenga’s efforts in H.R. 4014, but I also 

have concerns for institutions not covered under the Huizenga bill. 

Many nonbank financial institutions are now subject to the CFPB. 

Many of these nonbank institutions are also regulated by the consumer finance regulators, not State bank supervisors, as currently 

defined under the FDI Act. 

Regardless of how an institution is regulated at the same level, 

I believe they should be extended the same protections when they 

and their regulators share information with the CFPB. 

So I would ask you, can you envision a scenario where the CFPB 

will collect information from a nonbank financial company? 

Mr. DATE. Certainly, Congressman. Given the nature of nondepositories, the number of them, and the diversity of their business models, the nondepository supervisory process may not look 

identical to, say, a supervisory process with respect to a $150 billion bank. It will rely on the exchange of information, absolutely. 

Mr. RENACCI. Sure. Can you envision a scenario where the CFPB 

might share or collect information with a State consumer finance 

regulator as opposed to a State bank regulator? 

Mr. DATE. We have promulgated our point of view on when it is 

and under what conditions of confidentiality we would share information of any kind, and I believe that takes account of that possibility, where there is a shared purpose and confidentiality is assured. So, again, I understand and appreciate the analogous situation that nondepositories are in versus depositories. 

Mr. RENACCI. So there is a possibility that there would be— 

Mr. DATE. I would say core to the question is to the extent that 

confidential information can be important to enabling an effective 

supervisory regime, we will insist the confidential information be 

shared, and we will obviously be quite careful with it. Again, our 

point of view is that does not somehow waive attorney-client privilege for the supervised institutions, but to the extent that there is 

13 

doubt out there, and I am not quibbling with whether or not there 

is, in fact, some doubt, then statutory remedy is something, as Director Cordray has pointed out, that we would welcome. 

Mr. RENACCI. So you could see why a nonbank institution would 

want the same protections extended to the consumer finance regulator that are extended to a State bank regulator under the FDI 

Act? 

Mr. DATE. Yes, by and large the entire premise of the supervisory authority of the CFPB is grounded in parallel treatment of 

institutions. The idea is if you are going to be in the consumer finance business, it shouldn’t matter if you are a bank or a thrift or 

a broker or an investment bank, you all should follow the same set 

of rules. 

Mr. RENACCI. So this really comes down to those protections. 

This is one of the reasons I joined my colleague from Colorado, 

Mr. Perlmutter, on H.R. 6125. It is legislation to ensure that all information shared between State agencies and the CFPB is afforded 

the same protections. This is the only way that I believe we can 

remove all doubt and protect the free flow of all information. 

Madam Chairwoman, without objection, I would like to submit 

for the record a letter in support of H.R. 6125. 

Chairwoman CAPITO. Without objection, it is so ordered. 

Mr. RENACCI. And I yield back the remainder of my time. 

Chairwoman CAPITO. The gentleman yields back. 

Mr. Hinojosa for 5 minutes. 

Mr. HINOJOSA. Thank you, Chairwoman Capito. 

Mr. Date, the CFPB was created as the first Federal regulator 

wholly responsible for protecting the American consumer. This is 

apparent in the recent enforcement action against Capital One, the 

first by the CFPB. The hearing held earlier today was entitled by 

the Republicans, ‘‘Who is in Your Wallet? Dodd-Frank’s Impact on 

Families, Communities, and Small Businesses.’’ That was the title. 

It seems to me the hearing’s title mirrored, ironically, the catch 

phrase of Capital One’s omnipresent commercials. 

I have a question or two to ask. In addition to credit card companies, credit bureaus also heavily affect the financial lives of Americans, and the Bureau just announced its intention to supervise 

credit bureaus through its larger participant authority. Can you 

elaborate on what this rule will mean for credit bureaus and also 

what it will mean for consumers? 

Mr. DATE. Certainly. As actually we were just talking about, one 

of the key features of the CFPB’s supervisory authority is that it 

has the opportunity to extend not just to big banks but to nondepositories as well, because nondepositories, after all, are quite 

important features of the consumer finance landscape in the 

United States, and I would argue certainly perhaps none more importantly than the credit Bureaus and the information flows built 

off of it. 

The fact of the matter is that the latticework of consumer information that is captured within credit reporting companies has 

great benefits for the democratization of credit across the United 

States. It is a quite remarkable thing. 

On the other hand, it is certainly possible that inaccuracies or inequities with respect to that data can have the consequences of 

14 

trapping consumers into situations that end up not being especially 

fair to them or to the system more broadly. Those are issues, 

among others, that we hope to be able to put light on through our 

continued activity in the space, including our continued supervision 

of credit reporting companies. 

As you point out, this week we finalized our rule with respect to 

the larger participants within the credit reporting agency industry. 

There are something like 30 firms that would be subject to that 

rulemaking and therefore subject to our supervisory authority. Together, those 30 firms constitute better than 90 percent of the revenues in that business, and we will proceed with alacrity as soon as 

that rule becomes effective. 

Mr. HINOJOSA. I look forward to seeing the impact that you will 

have. 

Can you explain the Bureau’s auditing practices? Who conducts 

the audits, how often are they required to happen, and what has 

been found to date through auditing processes? 

Mr. DATE. Audits or supervisory exams are the core activity 

within the supervisory process, and that is true for the CFPB. It 

is true for the prudential regulators and has been true for quite 

some time. The key thing to remember with respect to exams 

broadly is that the purpose of the CFPB’s exam process is to ensure 

compliance with the law. It is not meant to sneak up on people. We 

try to be quite clear and transparent about what the expectations 

both of the law and of our exam teams are so that institutions are 

in a best position to ensure their own compliance, to ensure that 

they have a compliance management system that they can count 

on, and to ensure that our relationship can be a productive one to 

make sure the consumer financial laws are abided by and that consumers are protected in the way that the Congress has intended. 

Mr. HINOJOSA. Another criticism that we have heard is that the 

Bureau is going to create additional regulatory burdens for our 

smaller institutions and for businesses, yet Dodd-Frank requires 

that the Bureau convene panels during the rulemaking process to 

assess the effects of proposals on small businesses, which are of 

great concern to me. Can you report on how the process has worked 

so far? 

Mr. DATE. Yes. It has been a quite productive early venture into 

the convening of small business review panels, the synthesis of the 

feedback that we hear with respect to potential rulemakings, and 

to date folding that feedback into the proposed rules that we actually promulgate. If the purpose was to make sure that we are hearing a diversity of perspectives with respect to impact on small enterprises and make sure that we are attentive to them even before 

we propose a rule, I would call it an unmitigated success. 

Mr. HINOJOSA. My time has run out, and I yield back. 

Mr. RENACCI [presiding]. The gentleman yields back. 

I recognize Mr. Duffy for 5 minutes. 

Mr. DUFFY. Thank you, Mr. Chairman. Just a quick question and 

to clarify, you had indicated that the rules that you make in the 

CFPB have an impact on the 105 largest banks. And you are going 

to enforce those rules, but is it fair to say also that the rules that 

you promulgate will be enforced on smaller institutions as well? Is 

that correct? 

15 

Mr. DATE. Yes. Our rulemaking authority, as distinct from our 

supervisory authority, is meant to cover the entire landscape of 

firms, which is why we have been so attentive, as we were talking 

about a moment ago, to make sure that we are using, for example, 

the small business review panel process to ensure that the rules as 

crafted can ease compliance burden where necessary, especially 

with respect to smaller firms. 

Smaller firms, be they depositories or nondepositories, are by 

their nature less able to easily shoulder significant compliance burden. Compliance costs tend to be more fixed than variable, which 

means that to the extent that a firm is smaller, equivalent compliance burden will be more biting, more constraining, and so we are 

attentive to that basic fact and trying to make sure that we are attentive to it as applied to various regulatory requirements. 

Mr. DUFFY. That is one of my concerns. Being from a more rural 

part of the country, I keep getting that feedback from our small 

banks and credit unions about the compliance costs with all these 

new rules that are coming out. Within the CFPB, those who are 

dealing with disclosure issues with QM and QRM as well as other 

disclosure forms, are you guys all communicating so when QM and 

QRM and the disclosure forms all come out, we are not going to 

have different waves of compliance issues for small banking institutions? Are all institutions, are you guys all talking together so it 

is going to be very fluid and we are not going to have one rule come 

out with QM that will then maybe be modified when the disclosure 

forms come out, you guys are all talking and this is going to be a 

very smooth process? 

Mr. DATE. Yes. Dodd-Frank contemplates a number of reforms to 

the mortgage market, quite appropriately in my opinion, given how 

many facets of the mortgage market proved to be quite not up to 

the task of pricing and calibrating risk. 

We are proceeding in three sorts of ways to make sure that your 

concern is addressed. Number one is structural. In some ways, the 

statute itself lays out means by which to make sure that somehow 

definitions don’t get uncoordinated. So, for example, the Qualified 

Residential Mortgage definition, which is an important element of 

the risk retention framework under Dodd-Frank, that definition 

cannot be broader than the Qualified Mortgage definition. So there 

is a structural means by which these fit together. 

A second is process. So there is a great advantage—it is not easy 

on the team, but there is a great advantage to actually developing 

all of these areas simultaneously so that we are thinking about 

those interactions instead of in series really thinking about them 

as an integrated whole. 

Mr. DUFFY. So with the process and the practice internally, you 

are all communicating, you are trying to make it as simple and 

easy as possible for all these small institutions? 

Mr. DATE. Yes, absolutely, because the compliance burden can 

fundamentally be dead weight in the economy. We want to make 

things as easy as possible and still achieve the consumer protection 

aims appropriately baked in the statute. 

Mr. DUFFY. Right. Switching just a little bit, you have heard the 

argument, we have heard it today, and we have read articles as 

well that the new rules may reduce the power of consumers to 

16 

choose different products that may work for them. I think the 

Chair brought this up earlier about this example of Habitat for Humanity, an example where they may have issues with making 

loans to not as wealthy individuals in our community because of 

the risk for making that loan and the ability to repay. We saw with 

the CARD Act that we want to make sure people have the ability 

to pay, we all agree that is a sound banking principle, but the side 

impact of that is, if you are a spouse who stays at home, you may 

not be able to get a credit card. Have you guys contemplated all 

of these offshoot issues? I know you are trying to do the right 

thing, I know we are trying to make the process work better, we 

are trying to protect consumers, but in the end, there are some unintended consequences. I certainly don’t imagine you guys intend 

to have Habitat for Humanity not be able to engage in a loan and 

build a home for a low-income family in communities across America. I don’t imagine that is your intent, but that is the reality of 

some of these rules that are coming out. How do you guys plan on 

addressing that? 

Mr. DATE. Our rulemaking process does not lack for deliberation 

and it certainly doesn’t lack for transparency and getting feedback 

from the public, and so, for example, in the case of Habitat for Humanity or, frankly, lots of other institutions that are concerned 

with providing credit to especially underserved segments of the 

population, we absolutely have heard the feedback, and we are sufficiently early in the process to make sure that we think about how 

it is that these things fit together. We take the feedback for what 

it is intended to do, which is to help inform a better, more nuanced 

rule that works not just for now but for the long term and for the 

entire marketplace. 

Mr. DUFFY. And one of the concerns—oh, I yield back, my time 

is up. 

Chairwoman CAPITO. The gentleman yields back. 

Mr. Miller for 5 minutes. 

Mr. MILLER OF NORTH CAROLINA. Thank you, Madam Chairwoman. 

In the last few years on this committee, since the credit crisis, 

there are Members who remember that they warned us repeatedly 

that we were on the road to ruin in subprime mortgage lending, 

and that is not really my recollection. I introduced with Mel Watt 

legislation in 2004 to provide consumer protections in subprime 

mortgage lending, and I recall it was a fairly lonely fight. And the 

argument against it was, you mean well, this is well-intended, but 

you are going to constrict credit, you are going to make credit unavailable to people who now for the first time can get credit, can 

buy homes they couldn’t otherwise have bought or will not be able 

to refinance. 

And I always acknowledged the importance of making credit 

available, credit being available. Ned Gramlich, a well-regarded 

member of the Federal Reserve Board, argued in the 1990s for 

subprime lending as democratization of credit, but by the last decade, he was arguing that the terms had become obviously abusive, 

so there is—something that may begin as a wholesome practice 

may cease to be. But I think, I thought that just about everybody 

agreed that a lot of the loans made, a lot of the mortgages in parVerDate Nov 24 2008 18:21 Dec 13, 2012 Jkt 076118 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 K:\DOCS\76118.TXT TERRI
17 

ticular made in the last decade were not really such a good idea, 

and now we are hearing, but we are hearing the same arguments 

for consumer protection that it is going to constrict credit. Do you 

think that all the loans that were made in the last, all the mortgages made in the last decade should have been made or that—and 

if some consumer protections against abusive terms for those loans 

had prevented them from being made, it wouldn’t have been such 

a bad thing? 

Mr. DATE. Thank you, Congressman, for the question. 

There is no question that the credit business is a cyclical one. It 

is difficult to banish, somehow, the credit cycle from the economy. 

That said, not just in retrospect, but at the time, there were mortgage loans being made at the height of the bubble—in 2005, 2006, 

and the first half of 2007—that were simply implausible from a 

credit perspective. Clearly, loans were being made without, for example, a lender’s inquiry into a borrower’s ability to repay the loan. 

Basic reforms, frankly common-sense provisions within Dodd-Frank 

would have prevented those loans from being made at the time. To 

my mind, there is no question about that. 

Mr. MILLER OF NORTH CAROLINA. We also hear the idea that 

these consumer protections will prevent people from making consumer choices. Looking at the kind of consumer choices that those 

mortgages represented, particularly at the height of the bubble, because by that time, subprime mortgages, whatever wholesome innovation they may have been in the 1990s, the predatory mortgages had completely shoved those out of the market. It was entirely a predatory market. The terms that made those loans 

subprime were almost entirely predatory. Do you think we should 

be too worried about consumers not having a choice that no one in 

their right mind would make? 

Mr. DATE. Let me give an example just from our supervisory and 

enforcement action announced yesterday. It would be my characterization that, for example, add-on credit card products may make 

sense for some borrowers, but it doesn’t make sense to make that 

inquiry until you are confident that the sales practices associated 

with those products, in fact, abide by the law. No one can be expected to make the right choice for himself, herself or their families 

unless they actually are confronted with a financial services landscape that operates in a fair and nondeceptive way. I think that is 

the central challenge for the Bureau, and it is the central thrust 

of the consumer reforms as I understand them within Dodd-Frank. 

Mr. MILLER OF NORTH CAROLINA. Okay. I yield back. 

Chairwoman CAPITO. The gentleman yields back. 

Mr. Canseco? 

Mr. CANSECO. Thank you, Madam Chairwoman. 

Mr. Date, the CFPB on its Web site has a consumer complaint 

database, and there is a disclaimer attached to it that says, ‘‘We 

do not verify the accuracy of these complaints, but we do take steps 

to confirm a commercial relationship between the consumer and 

the identified company.’’ 

So given that the CFPB does not verify these complaints but 

boasts that it collects thousands of them, am I correct in assuming 

that the complaint database from a legal, ethical, and rational 

18 

point of view will not influence enforcement of regulatory actions 

by the CFPB? 

Mr. DATE. I think I lost the last part of it. You are asking me 

whether or not consumer complaints will not influence enforcement? 

Mr. CANSECO. No, no, no. You have a complete consumer complaint database, but it says that it does not verify the veracity of 

those complaints. Now, am I to assume that you don’t use them at 

all for any of your enforcement actions? 

Mr. DATE. Oh, I see what you mean. The consumer complaint 

database that is published, we certainly make sure that we, what 

is called de-dupe the complaints as they come in, which means you 

remove duplicates, you don’t want to double and triple count 

things, and we make sure that a customer who is making a complaint is in fact a customer of the institution they are complaining 

about. 

What that disclaimer means is that we put those counts and 

classifications on complaints and without publishing a point of view 

as to whether or not the consumer is somehow right in the complaint. However, for a subset of the complaints that we receive, 

both on the randomized and in a focused way both, we do conduct 

investigations on a subset of those, and the outcomes of those investigations may or may not influence— 

Mr. CANSECO. Yet they are unverified. 

Mr. DATE. The ones that would influence an enforcement agenda 

would be the ones that come up— 

Mr. CANSECO. But your database says that they are unverified 

and that you will not verify the accuracy of the complaints. Very 

specifically, do you use unverified complaints to use, to start enforcement action or do you just have them there just as a collection? 

Mr. DATE. There is an internal step that we obviously do with 

respect to a subset of complaints that we receive to investigate, and 

to the extent that those investigations result in a finding of a potential of a violation of law, then of course then we would take appropriate steps thereafter. 

Mr. CANSECO. So, therefore, it is not true that they are verified? 

They are verified, you go and verify them; is that correct? 

Mr. DATE. Internally, we will investigate a subset of the complaints. 

Mr. CANSECO. So it is a misstatement for you to say that you will 

not verify the accuracy of these complaints, yes or no? Do you 

verify the accuracy of the complaints? 

Mr. DATE. Of all the complaints that are catalogued on the Web 

site? 

Mr. CANSECO. Right. 

Mr. DATE. No, that is correct, we do not— 

Mr. CANSECO. Okay. Thank you. So therefore what is to keep 

your organization from putting together a campaign against a single financial institution by having hundreds of individuals send 

complaints to the CFPB about an institution, and more importantly, who is going to verify the accuracy of these complaints were 

such an event to occur? 

19 

Mr. DATE. We are careful to make sure that—that is why we ensure that there is a commercial relationship between a complainant 

and an institution. You would not want to somehow open the system to someone submitting thousands of complaints with respect to 

a firm that he or she happens not to like. So there are antifraud 

mechanisms built in, and we are attentive to that. 

The notion, though, that raw numbers of complaints are somehow irrelevant to a consideration of, that would be relevant for consumers, I certainly don’t see things that way. The prior— 

Mr. CANSECO. My time is sort of running out, but let me ask you 

this: Are there any penalties for individuals or groups of individuals who submit bogus complaints to the CFPB? 

Mr. DATE. We have not, as far as I know, assessed any penalties 

with respect to so-called bogus complaints that we have discovered 

to exist. 

Mr. CANSECO. Okay. All right. 

Mr. DATE. I cannot promise— 

Mr. CANSECO. Now, so moving on here, one of the things that 

troubles me about the CFPB is your agency’s ability to ban products or at least make them so unattractive that nobody will use 

them. In a White Paper released in May, economists at the Chicago 

Fed debunked the theory that low-income or naive consumers were 

the primary target of lenders accused of pushing complex mortgages. The Chicago Fed study showed that those who took out interest-only or negative amortization loans by and large had much 

higher income and higher FICO scores than any borrowers, yet the 

CFPB excluded these types of mortgages from the proposed Qualified Mortgage rule. 

So my question is, if a sophisticated borrower with a high income 

and high credit score wants to use a complex mortgage to buy a 

home or invest in a second property, why should the CFPB or any 

other Federal agency stop them? 

Mr. DATE. Congressman, I think just to be clear about what it 

is the ‘‘ability to repay’’ provision does, it is possible to provide a 

negatively amortizing loan or an interest-only loan and be in compliance with the ability-to-repay rule, as it is—obviously, we have 

to finalize a rule, but as contemplated by the statute. It is certainly 

possible. 

I think what you are referring to is that the ‘‘Qualified Mortgage’’ 

definition within the statute, I think fairly unambiguously, does 

not provide for deferred amortization products. 

Mr. CANSECO. Okay. Has the CFPB conducted any type of empirical study to determine the typical consumer—I see my time is up. 

Chairwoman CAPITO. Your time is up. 

Mr. CANSECO. Thank you very much, Mr. Date. 

Chairwoman CAPITO. Mr. Scott for 5 minutes. 

Mr. SCOTT. Yes, thank you. 

Mr. Date, in my district of Georgia, a significant percentage of 

homes are valued at less than $100,000, and with the Qualified 

Mortgages 3 percent cap on points and fees, many of my constituents, especially low-income and first-time home buyers, will not 

have the access to credit if title charges, escrows for taxes and insurance, and loan officer’s compensation have to be included in the 

calculation. 

20 

As a result of this, I cosponsored H.R. 4323, the Consumer Mortgage Choice Act, to assure that these fees would be excluded, regardless of whether they are using a lender with affiliated businesses or not. So it seems to me that any expansion of charges to 

be included in the finance charges will cause vast numbers of mortgages to fail to meet the standards required of a Qualified Mortgage, and obviously, if the CFPB counts all originations and title 

charges as parts of the points and fees, a huge part of the mortgage 

loan market in Georgia and elsewhere will not meet the requirements to be a Qualified Mortgage, and lenders will not make the 

loans. Moreover, there could be an especially negative impact on 

consumers’ ability to choose affiliated mortgage and title companies 

if affiliated fees are included. 

So, with this information, and as I have articulated it, are you 

not concerned that expanding the range of charges that must be included in the finance charge will make it nearly impossible for average consumers to obtain a Qualified Mortgage? 

Mr. DATE. Thank you, Congressman, for raising the question. It 

is one that we have been trying to be mindful of, and it is a good 

example of the benefit of working on a number of these reforms 

and at the same time, to make sure that an approach is appropriately integrated and doesn’t create problems in one set of the reforms even as we are trying to solve problems in a different set. 

So, with your example, we are trying to make sure that the finance, sort of an all-in finance charge if it is used that it doesn’t 

inadvertently somehow create dramatically different sweeping in or 

sweeping out of loans under, for example, the HOEPA standards or 

under the Qualified Mortgage standard. We have a solicited comment with respect to precisely those questions, which is how is it 

that one should account for the conceivably unintended consequences of vastly increasing the universe of HOEPA loans even 

as we move forward with respect to the TILA and RESPA project. 

Mr. SCOTT. Okay. So you don’t see any difficulty here at all with 

this situation? 

Mr. DATE. I think you are right to point out the issue, which is 

if we were somehow blind to it and just blithely proceeded with a 

new definition of finance charge without being attentive to potential impact on HOEPA and Qualified Mortgage, I would agree that 

would be a bad outcome, but due to your flagging the issue and 

others, the team is very much going to focus on it. 

Mr. SCOTT. So you see our legislation as a useful way of making 

sure that the expansion, any expansion of charges to be included 

in the finance charge will not cause vast numbers of mortgages to 

fail to meet the standard required of the Qualified Mortgage? 

Mr. DATE. I see, and that is one of the means that we are trying 

to contemplate in the rulemaking project itself. 

Mr. SCOTT. Okay, thank you, sir. 

I yield back, Madam Chairwoman. 

Chairwoman CAPITO. The gentleman yields back. The Chair is 

going to recognize Mr. Huizenga for the purpose of making an introduction of a guest, and then I will go to Mr. Pearce. Go ahead. 

Mr. HUIZENGA. Thank you, Madam Chairwoman. It is a real 

honor to have a couple of members from the European Parliament 

join us here today. We have with us Miss Sharon Bowles, who is 

21 

the Chair of the Economic and Monetary Affairs Committee, who 

is sitting right over here, and Mr. Peter Skinner. Both are from the 

U.K. He also serves on the Economic and Monetary Affairs Committee. I had a chance to meet Sharon for the first time a short 

while ago, but she is the first Briton to chair that committee, and 

the first female, I believe, to do that as well and has been Chair 

since 2009. And then Mr. Skinner actually has been in Parliament 

since 1994 and has been on this committee for 16 years. So the 

committee has the responsibility of economic and monetary policies 

for the EU, taxation and competition policies, free movement of 

capital and regulation of financial services such as banks, insurance, pension funds, asset fund management accounting, international monetary and financial systems, so they are here meeting 

with a number of our regulators and also continuing to build those 

relationships. 

Peter and I had a chance to meet in Copenhagen a few weeks 

ago as part of the transatlantic legislative dialogue, and we are 

looking forward to continuing to build those relationships as we 

know we are in a one world market space for financial services. I 

am very pleased that you are able to join us here today. So thank 

you, Madam Chairwoman. 

[applause] 

Chairwoman CAPITO. Thank you for that, and welcome to our 

guests. We could have orchestrated a little more fireworks for you, 

but we are doing business as usual here. 

Mr. Pearce for 5 minutes. 

Mr. PEARCE. Thank you, Madam Chairwoman. 

And thanks to Mr. Date for being here and for your service. I 

guess as I am looking at your account, and you are reporting that 

the CFPB is solely accountable for protecting consumers of financial products and services, I wonder—and you go into some of the 

failures of homeowners who couldn’t understand or couldn’t afford 

homes, lost those, and then the ability to repay is a repeating 

theme. So I wonder if the CFPB has taken a close look at what led 

to those homeowners not being able to repay, what caused that 

process that began to push loans out at people? Have you all done 

that? 

Mr. DATE. Sure. We obviously also work with the backdrop of a 

great deal of work that has come before at other agencies and public and private researchers. Thank you for raising this because I do 

think it is important, Congressman, to look back to how is it that 

we got here in the first place. We are— 

Mr. PEARCE. I am just asking, not for you to recount it. Have you 

studied it? 

Mr. DATE. Oh, certainly, and indeed it is relevant. 

Mr. PEARCE. So do you all have any authority over Fannie Mae? 

Mr. DATE. Our— 

Mr. PEARCE. Just yes or no. 

Mr. DATE. Our authority extends to consumer financial. 

Mr. PEARCE. So no? 

Mr. DATE. So the GSEs don’t have consumer relationships in 

general, but if they did— 

Mr. PEARCE. But the GSEs actually, according to—I don’t know 

if you have read the book by Gretchen Morgenson and Joshua 

22 

Rosner, ‘‘Reckless Endangerment,’’ but on page 5 of that they explain that Fannie Mae led the way in relaxing loan underwriting 

standards, a shift that was quickly followed by private lenders, and 

then later in the paragraph, it became the playbook for financial 

executives, and in that whole process under James Johnson, he 

began to—he spent about $100 million in 10 years lobbying Congress to make certain small changes in the rules that would allow 

him to push those. 

So you had members of this committee back in 2005 were asked, 

are you afraid that the easy lending programs, for example, that 

James Johnson was pushing through Fannie and that this institution was encouraging, are you concerned that these easy lending 

programs are going to wind up luring people into homes they could 

not ultimately afford? 

And so it is not kind of like this came on us in the middle of the 

night. It was well-orchestrated by a guy who began to change the 

financial compensation standards in Fannie Mae and Freddie Mac 

to one of loan values, and he pushed $100 million towards himself 

in his 9 years as head of Fannie and Freddie, and so I wonder as 

you are concerned about the health of our consumer, if you have 

worried about who is protecting us from policy and who is protecting us from these people who will buy influence here to redirect? 

If you don’t do that and if you all haven’t asked those hard questions behind the scenes, then I fear that there is no one actually 

out here who is really concerned about the consumer because this 

thing didn’t begin with the banks. It began with one guy that 

began to buy influence here on Capitol Hill and with the Administration. It began in 1994 with President Clinton buying into the 

idea that somehow—I think it was 1994—that he says more Americans should own their own home. That is a theme that continued 

through both of his terms and through President Bush’s term, but 

it was during those periods that they began to restructure the policies in order to push loans at people who couldn’t afford them, and 

when I hear that you are just sort of blandly going along and not 

kicking back at the system that encouraged it, it gives me great 

pause, it gives me a sadness that this is all just a little bit of a 

game, that we used the crisis to come down, and we are going to 

lean on banks all the way up and down Main Street without ever 

really getting at the problem. 

The problem originated in these halls, and I think you all know 

that, but I don’t think you have the courage to get out and push 

and say loudly, but we are only looking at a piece of the problem, 

you are not letting us get where the real problem is. The real problem was there; it was there in the halls of Congress. It was there 

on the Financial Services Committee. And it was there with James 

Johnson and when he was buying influence here, and you are not 

saying that. I haven’t heard it once. And it just makes me sad because you are the guys, you are the sheriff in town, and you are 

looking the other way. 

I yield back. 

Chairwoman CAPITO. The gentleman yields back. 

Mr. Green for 5 minutes. 

23 

Mr. GREEN. Thank you, Madam Chairwoman. I thank the witness for appearing, and I thank you for allowing me to be a part 

of this subcommittee. 

I am very much concerned about our military families. As you 

know, members of the military are sometimes required to relocate, 

and upon relocating, they have mortgages that have to be dealt 

with. Sometimes, they have to have short sales. They have to have 

refis, and these things are sometimes difficult to negotiate with 

servicers because of what servicers perceive as a limited amount of 

authority. 

These persons who serve us in our military, they do so without 

question. They go where they are told to go. Families go with them. 

I would like to compliment the President and the First Lady for the 

Joint Forces Initiative that helps them with education, jobs, and 

job training. Can you explain what the CFPB is doing in concert 

with the FDIC and some other agencies to make sure that they can 

get the assistance they need when they have to transfer or they 

have to relocate to some other area because they are forced to do 

so as a result of serving our country? 

Mr. DATE. Thank you, Congressman, and thank you for your concern with respect to issues surrounding servicemembers and their 

interaction with the finance system in the United States. This is 

a specific instance of a broader theme with the Bureau and its 

work to date where we have tried to shine a light on issues that 

are especially important to our servicemembers. 

As you point out, servicemembers not infrequently are asked to 

change stations with Permanent Change of Station Orders. When 

military homeowners receive those orders, they don’t have the flexibility to say, no thank you, I would rather stay right here. And that 

becomes a real problem to the extent the homeowner, like so many 

homeowners across the country, is in fact underwater. So there is 

not very much flexibility to be able to refi away or sell the house. 

We worked with the prudential regulators to make sure servicers 

were put on notice that in fact there are legal obligations with respect to the treatment of our military borrowers under a number 

of different statutes and that we are quite attentive to it over time. 

It is an area where Congress has already done a lot, and combined 

with shining a bright light on the issues, my hope is that we can 

effect real change. 

Mrs. Holly Petraeus, who runs our Office of Servicemember Affairs, has been doing exactly that, not just on mortgages, but across 

a number of important markets where frankly the men and women 

who put on a uniform to serve the country, we at some level should 

be attentive to the fact that they have financial circumstances that 

are different than most of the civilian population, and we should 

ensure that our regulated institutions follow the law with respect 

to them. 

Mr. GREEN. Thank you. I trust we will promulgate rules that will 

help them to make this transition and maintain their creditworthiness and in general not get caught with a home that they can’t do 

anything with because of the current market conditions. I hope 

that you will do your best. 

Now, I have a minute and 16 or 17 seconds left. Have you been 

asked any question that you would like to respond to and you need 

24 

perhaps a moment to answer or some statements that may have 

been made that you didn’t get a chance to respond to? If so, you 

now have a minute to do so. 

Mr. DATE. Thank you, Congressman. 

Hopefully, I have been responsive to questions as they have been 

raised. Given the frequency, though, with which concerns, I think 

some quite legitimate concerns, about the impact of financial reform on small community banks has been raised, I think it is useful to just point out the fact that over the last decades, community 

banks have been pushed further and further toward the periphery 

of consumer finance in the United States. There is some reason for 

that, at least in part because we had a regulatory system that did 

not create an even playing field. If, in general, you have a regulatory system that makes it as a practical matter easier to be a 

nondepository or easier to be very big compared to very small, then 

you shouldn’t be surprised when community banks end up with the 

short end of the stick. If we did our jobs right, we should be able 

to help them, not make it worse. 

Mr. GREEN. Thank you, I yield back. 

Thank you, Madam Chairwoman. 

Chairwoman CAPITO. Thank you. 

Mr. Luetkemeyer for 5 minutes, please. 

Mr. LUETKEMEYER. Thank you, Madam Chairwoman. 

Mr. Date, it is always interesting to have you before the committee. It is an interesting discussion this afternoon. 

Can you tell me what spurs the rulemaking of CFPB, the different areas that they get into? 

Mr. DATE. Thank you, Congressman. 

Let me answer that in terms of the long-term policy agenda, and 

then the near-term, not quite in that order. The near-term policy 

agenda as it applies to rulemaking really is set out by the statute. 

We have a not inconsiderable rulemaking agenda within the mortgage business that is mandatory and carries with it a timetable 

that is— 

Mr. LUETKEMEYER. Let me call timeout right there. What is the 

reason, or do you know or have any idea, what the reason is for 

the rulemaking request that has been made of you? 

Mr. DATE. Yes, when the statute is relatively clear in most cases, 

the— 

Mr. LUETKEMEYER. Why is the statute the way it is? Why would 

the statute want you to make a rule in certain instances? 

Mr. DATE. I know that the deliberations and debate with respect 

to the statute were lengthy and spirited, and of course Congress in 

its discretion has chosen rulemaking mandates, and we have embraced them, and we are moving forward with speed. 

Mr. LUETKEMEYER. Okay. In the course of your rulemaking, do 

you do a cost-benefit analysis of each rule? 

Mr. DATE. We do. It comes in a couple of different flavors. One 

is an analysis of the cost and the benefits and the burdens associated with the rule. There is also an element that relates with particularity to the impact on relatively small institutions within the 

financial services landscape. 

Mr. LUETKEMEYER. With regard to your RESPA and TILA rules, 

have you done a cost-benefit analysis on those yet? 

25 

Mr. DATE. Yes. And as part of the proposal, part of the reason 

why the document is 1,100 pages long is that the new rules associated with TILA and RESPA integration are like 60 pages of the 

1,100 pages. The other, whatever that is, 1,040 pages relate to lots 

of other required elements of our rulemaking, including the costbenefit analysis, so that is laid out in that which we publish. 

Mr. LUETKEMEYER. Okay. Part of the initiative of going to 

RESPA, though, was to create a simpler disclosure form and something more consumer-friendly. And yet, we wound up with a 3- 

page-long estimate at the beginning and a 5-page-long estimate at 

the end. Do you think that is really an improvement? 

Mr. DATE. I do. Both to my mind are improvements. We have 

been careful to reach out to a number of different— 

Mr. LUETKEMEYER. Have you ever done a survey to see how 

many consumers actually read those documents? 

Mr. DATE. We conducted what is called ‘‘qualitative usability 

testing’’ before the proposal was even issued. 

Mr. LUETKEMEYER. Qualitative using? 

Mr. DATE. Usability testing. It goes by a few different terms. It 

is something that is used at other agencies as well as not infrequently in the private sector to develop the broad contours of a 

piece of collateral or disclosure form so that— 

Mr. LUETKEMEYER. I get it. Did you ever do it? 

Mr. DATE. Yes, absolutely. 

Mr. LUETKEMEYER. What was your finding on the RESPA forms? 

Have you done it on RESPA yet? 

Mr. DATE. You are referring to the general kind of difficulties 

that consumers have with the current form— 

Mr. LUETKEMEYER. No, I am asking, did you do the survey on the 

RESPA form to see if anybody reads them? 

Mr. DATE. We did conduct— 

Mr. LUETKEMEYER. What was the result? 

Mr. DATE. In general, that which we have proposed is something 

that is easier, it would appear, based on the testing to date. 

Mr. LUETKEMEYER. More pages, and it is going to be easier to 

read; is that right? 

Mr. DATE. It is—so the mandate by the Congress was to combine 

the TILA and RESPA closings documents, or the final truth in 

lending disclosure. 

Mr. LUETKEMEYER. Do you know offhand what the percentage is 

of the people who actually read the RESPA documents? 

Mr. DATE. You would be hard-pressed, I think, Congressman, to 

find borrowers who sit at a closing table and thumb through— 

Mr. LUETKEMEYER. Do you have a figure please? 

Mr. DATE. I don’t know the— 

Mr. LUETKEMEYER. Two percent? 

Mr. DATE. I wouldn’t hazard a guess, but we will be doing quantitative testing after the proposal comment period ends. 

Mr. LUETKEMEYER. But we don’t know how many—we do propose 

a rule, and we don’t know what percentage of people actually read 

this stuff. So, therefore, is there a use for it? 

Mr. DATE. Oh, sure, this is for most people the single largest financial transaction that they will enter. 

26 

Mr. LUETKEMEYER. If they don’t read it, Mr. Date, what good is 

it? 

Mr. DATE. Congressman, at some level, I suppose it would be 

useful to know how the dollars in the transaction actually flow. 

Mr. LUETKEMEYER. I have one more quick question for you. In 

following Mr. Canseco’s discussion here about verifying complaints, 

it was very concerning to me that you indicated that you did not 

verify all the complaints, did not go through and try and figure out 

if they were a legitimate complaint and didn’t follow up, if there 

was something needed to be followed up on, why? 

Mr. DATE. Oh, no. This was, I feel like I was not adequately 

clear. To the extent that there are complaints that the consumer 

disputes the resolution of, then we have an investigations team 

within our consumer response unit that will follow up with those 

complaints— 

Mr. LUETKEMEYER. But you indicated to him you just verified 

whether it was a legitimate complaint that they actually did business with them; you didn’t tell them that you actually followed up 

on each individual complaint to see if there was something there. 

Mr. DATE. What I just referred to is our approach with respect 

to complaints that we receive. With respect to that which we publish on the Web site, we—and we are quite transparent about it— 

that which we publish on the Web site is the nonpersonally identifiable information associated with complaints that we receive with 

the various data fields as we receive them. It is something that will 

continue to populate over time. That is—for example, we have— 

Mr. LUETKEMEYER. My basic question was, you get the complaints, you verify that it is a legitimate complaint the person does 

business, do you follow up with an individual complaint? If one individual—you talk about—you keep telling me about this subset, 

about a whole group of people who are being abused or there is a 

problem, but if there is one individual case, you are not following 

up on it from the discussion and answers you are giving me; is that 

correct? 

Mr. DATE. With a random sample of complaints that are resolved— 

Mr. LUETKEMEYER. If you are giving a random sample, Mr. Date, 

you are not taking care of every single one of them. 

Mr. DATE. Complaints that are resolved to the satisfaction of a 

consumer, we will not follow up with an investigation of every single one of those complaints, no. 

Mr. LUETKEMEYER. My time is up. 

Thank you, Madam Chairwoman. 

Chairwoman CAPITO. Mr. Manzullo? 

Mr. MANZULLO. Thank you. 

According to FICO and other sources, small amounts of medical 

debt that had been reported to credit bureaus can dramatically 

lower a consumer’s credit score and keep a creditworthy customer 

from assessing credit and bolstering our economy. Is the review of 

medical debt that it is reporting by credit bureaus on your radar 

screen? 

Mr. DATE. It is, and more broadly, trying to understand the 

interplay between data, data accuracy, its resilience as it feeds into 

scores and the usability of scores thereafter is within sort of both 

27 

the medium-term research agenda and the near-term supervisory 

agenda. 

Mr. MANZULLO. We know it impacts the credit score. The reason 

I ask that question is that I practiced law for several years, and 

I was probably involved in 300, 400, 500 bankruptcies, and one of 

the things that we saw toward the end of my law career and what 

we see today are people filing bankruptcy because of high medical 

bills. 

Obviously, these are not large screen TVs. These are bills that 

were incurred because a person had no insurance or otherwise. And 

that being the case, it really has no impact—not the word impact— 

it really has nothing to do with a person’s ability to pay the bills 

that would come day to day. 

And we are seeing even small amounts of money, even if they are 

money for bills, even if the bills are paid off, that already impacted 

a person’s credit score. That is where I want to go on. Do you think 

that you would be open to look into the fact, so that perhaps there 

may be a regulation that says if a medical debt is under such and 

such an amount and it has been resolved, that it no longer should 

be part of a person’s permanent credit record? 

Mr. DATE. I understand the issue you are raising, and I do think 

that we should take steps to inquire into it. It is something that 

has been raised also in other contexts, field hearings that we have 

conducted. It is also analogous to other issues. For example, delinquency rates for homeowners—otherwise identical homeowners, 

one of whom happens to be underwater because he lives in a part 

of the country where there is a lot of depreciation, delinquencies 

are higher where people are more underwater. Does that necessarily mean that you are more or less likely to pay your auto— 

an analogous kind of— 

Mr. MANZULLO. If I could send you a letter on that, laying out 

that issue— 

Mr. DATE. We would welcome your thoughts. 

Mr. MANZULLO. The second thought I had is on RESPA. When 

I practiced law, I closed probably 2,000 real estate closings, everything from small shopping centers and farms and residences, industrial properties, etc. And most of those were homes, and I am 

showing my age, but it was before RESPA took effect—I think it 

was in 1973 or 1975. What we are seeing now is going from a relatively small folder of documents to documents that can reach 6, 

7, 8, 10 inches high. In my experience, in fact in closing one of my 

own loans, is the fact that it is impossible for a person to read 

through all that information. And in the effort and good faith attempts by regulators to disclose to the public, I think there has 

been so much work at that end, that we really have to ask ourselves the question, exactly what does the consumer need to know? 

Alex Pollock, who was the head of the Federal Home Loan Bank 

of Chicago—I think you know Alex—came up with, I believe, a 11⁄2- 

page closing statement. Are you familiar with that? 

Mr. DATE. I am. 

Mr. MANZULLO. Tell me your thoughts on this. The closing statement plus the amount of paper that appear at a closing. 

Mr. DATE. Many of the documents at a closing are State lawdriven and not Federal. 

28 

But I absolutely agree that there has been, over a period of decades, I assume right-minded in the moment, but also reflexive reaction, there is a problem, add another disclosure, add another disclosure. And at some point, and I think that point is relatively early 

on, there are diminishing returns to another sheet of paper. 

I mentioned to one of your colleagues in a different subcommittee 

here a couple weeks ago, my wife, who happens to be here today, 

we bought a house a year ago. She does financial fraud at the Department of Justice, and consider what I do for a living. We didn’t 

read the documents at the closing table. At some level, to the extent that things are predicated on an unrealistic assumption of 

human behavior, that is bad. That is why we are trying to get the 

most critical information in people’s hands 3 days beforehand, so 

that they actually have a chance to look at the most critical things 

ahead of time. I certainly don’t think that just sort of throwing up 

our hands is the right answer, but we want to makes things better 

and not worse. 

Mr. MANZULLO. Thank you. 

Mr. DATE. Thank you. 

Chairwoman CAPITO. Thank you. 

I believe that concludes our questioning. I would like to ask for 

unanimous consent to insert into the record a statement from the 

Financial Services Roundtable. 

Hearing no objections, it is so ordered. 

The Chair notes that some Members may have additional questions for this witness, which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 30 days 

for Members to submit written questions to this witnesses and to 

place his responses in the record. 

Hearing no further discussion, this hearing stands adjourned. 

[Whereupon, at 3:35 p.m., the hearing was adjourned.] 

(29) 

A P P E N D I X 

July 19, 2012 

30 


76118.001

Testimony of Raj Date 

Deputy Director, Consumer Financial Protection Bureau 

Before the 

House Financial Services Subcommittee on Financial Institutions and Consumer Credit 

July 19, 2012 

Chairman Capito, Ranking Member Maloney, and Members of the Subcommittee, thank 

you for the opportunity to appear before you again to discuss the work of the Consumer 

Financial Protection Bureau. I'd like to talk to you today about how the CFPB is 

fulfilling its mission to help consumer finance markets actually work - for American 

families, for financial services firms, and for the economy as a whole. 

As you know, the Bureau was created as part of the Dodd-Frank Wall Street Reform and 

Consumer Protection Act in response to the worst financial crisis since the Great 

Depression. Before Dodd-Frank, responsibility for administering and enforcing the 

various federal consumer financial laws was scattered across seven different federal 

agencies. For each of those seven agencies, consumer protection was only one of its 

responsibilities. As a result, no agency was solely accountable for protecting consumers 

of financial products and services. 

The Dodd-Frank Act created the CFPB as a single point of accountability for consumer 

financial protection. Fortunately, Congress had the foresight to supply us with a range 

of tools - including research, supervision, rulemaking, enforcement, and consumer 

education. I am pleased to report that in the year since our launch, we have been using 

the tools you gave us to address challenges in a number of different markets and deliver 

tangible value to American consumers. 

We've launched an evaluation of overdraft protection and payday lending. We've worked 

to help students better understand their financial options. And we've started figuring 

out whether shorter, more transparent credit card agreements can make a meaningful 

difference to consumers' understanding. Of course, as you might imagine, the place 

we're spending most of our time is in the mortgage market. 

The American mortgage business was supposed to be the broadest, deepest, most liquid, 

most sophisticated consumer finance market in the world. But it failed us -- because it 

failed to calibrate price, and it failed to calibrate risk. As a result, millions of 

homeowners ended up in loans that they either couldn't understand or couldn't afford --

or both. The mortgage crisis and resulting financial upheaval have impacted virtually 

every person in this country. Americans are still recovering from the profound failures 

ofthe residential mortgage market. 

Congress recognized this in passing the Dodd-Frank Act, and enacted a number of new 

statutory provisions to reform the mortgage market. Congress also directed the Bureau 
31 


76118.002

to issue implementing regulations under these new provisions. Mortgage reform, 

therefore, is appropriately front and center on the CFPB's agenda. 

The failures of the mortgage market help to underscore -- by contrast what 

functioning, efficient markets are supposed to look like. They're supposed to be 

transparent; they're supposed to be fair; they're supposed to create financial incentives 

for hard work and smart decisions. The Dodd-Frank Act addresses each of those areas, 

and the Bureau is helping to rebuild those elements of a well-functioning mortgage 

market. 

Let me start ,,,,ith transparency. Markets don't work well if both parties to a transaction 

don't understand what they're getting into. So not only are we integrating federal 

disclosure forms as Congress directed us to do, but we're simplifying those forms as 

well. The idea is for borrowers to have a better chance to actually understand the price 

and risk oftheir obligations. The integrated and simplified forms should also reduce 

burden on the lenders, brokers, and settlement agents -- many of them small businesses 

-- who are responsible for providing the disclosures to consumers. 

We're working to bring greater transparency to mortgage servicing, by proposing 

common-sense rules ofthe road, and asking the public to weigh in. For example: we're 

considering requiring servicers to give borrowers better information about how much 

they owe every month; an earlier heads-up that an adjustable rate payment is about to 

change; and a warning if borrowers are going to be force-placed into a potentially 

expensive insurance policy. We're still at the early stages of these rulemakings. But I'm 

optimistic that we can find a common-sense path forward. 

Another priority for the Bureau is basic fairness. Federal consumer financial protection 

is about fairness with respect to consumers. But fairness among financial services firms 

- irrespective of their charters - matters, too. 

We saw, in the lead-up to the crisis, how an inconsistent or incomplete oversight scheme 

was doomed to fail. Commercial banks, for example, were subject to explicit federal 

supervision, while many other critical mortgage market participants were not. It 

shouldn't matter if you're a broker, a thrift, a bank, a finance company, an industrial 

loan company, or an investment bank. If you want to be in the business of consumer 

finance, you should play by the rules like everybody else. 

The mortgage market should be driven by financial incentives that make sense - those 

that reward hard work and smart risk-taking. Let me be clear: There is nothing 

inherently wrong with risk. Indeed, financial markets are supposed to absorb and price 

certain kinds of risk. But people shouldn't get paid for taking risk that they can't 

understand, they can't rank, they can't quantify, or they can't price. Especially when the 

downside of those risks is primarily borne by consumers or taxpayers, or when the 

downside of those risks can create dangerous ripple effects throughout the broader 

economy. For too long, we lived in a mortgage marketplace where people were able to 

take bad risks - that ultimately had devastating consequences - and get paid anyway. 
32 


76118.003

I've spent the vast majority of my career in financial services. I've been in and around 

finance companies, commercial banks, and investment banks. And one thing I have 

learned is that people generally do what they are paid to do. So if we want businesses to 

do the right thing, they shouldn't be paid to do the ''''Tong thing. Bankers shouldn't win 

when customers lose. Ideally, lenders' and borrowers' financial incentives should be 

aligned. After all, both of them win when borrowers can afford their loans. 

That leads me to another effort underway at the Bureau: Dodd-Frank's ability-to-repay 

requirement in mortgages. Again, going back to my days as a banker: People who are 

going to lend money should care about getting paid back. And if you care about getting 

paid back, you should inquire about, and evaluate, a borrower's ability to pay you back. 

This should not be controversial. And it isn't, to the vast majority of financial 

institutions that actually held on to some of the risk of the mortgages they were 

originating during the bubble. Nor should it be surprising to any banker trying to build 

or sustain a customer franchise after all, a customer franchise endures and thrives 

only if its customers ,~in. 

In its simplest form, the ability-to-repay provision of the Dodd-Frank Act requires that 

lenders reach a good-faith determination that a mortgage borrower has a reasonable 

ability to repay the loan. If lenders don't do that, the law lays out consequences. As part 

of the broader ability-to-repay mandate, Congress also designated so-called "qualified 

mortgages," which are structurally safer and pose lower risk for borrowers, and which 

are underwritten according to standards that make it reasonable to expect that 

borrowers have an ability to repay. The Federal Reserve Board proposed a regulation 

last year to give definition and effect to the ability-to-repay prO\isions, and the Bureau 

inherited that proposal when we opened for business last July. We have had the benefit 

of extensive public comment on the proposal, and have undertaken significant analysis, 

'With a cross-functional Bureau team of economists, lawyers, and market experts. 

We are considering a wide range of issues. First and foremost, we want to ensure that 

consumers are not sold mortgages they can't afford. We want to minimize compliance 

burden to the extent possible, in part through the careful definition of those lower-risk 

"qualified mortgages." We want to encourage a competitive market that does what 

markets are supposed to do - calibrate risk and price. We want to craft a sensible rule 

that works for the market throughout the credit cycle, but we also want to be mindful of 

just how fragile and risk-averse the market seems to be today. 

Restoring confidence in this market is critical to industry, to consumers, and to our 

broader economy. We're going to take the time to get it right. We recently issued a 

notice reopening the record on qualified mortgages for a short period of time. We plan 

to finalize the ability-to-repay rule before our January deadline. 

The mortgage market will recover when we have restored transparency, when we have 

restored fairness, and when we have restored financial incentives that reward people for 

making smart decisions. As we approach the Bureau's one-year anniversary, that is what 

we are working toward - not just in the mortgage market, but across other financial 

services markets as well: transparency, fairness, and incentives for responsible 

behavior. Thank you. 
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STATEMENT 

OF THE FINANCIAL SERVICES ROUNDTABLE 

ON THE IMPACT OF DODD-FRANK 

FOR SUBMISSION TO THE 

COMMITTEE ON FINANCIAL SERVICES 

UNITED STATES HOUSE OF REPRESENTATIVES 

JULY 19,2012 
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76118.005

The Financial Services Roundtable ("the Roundtable") appreciates the opportunity to 

submit a statement to the House Financial Services Committee on the two-year 

anniversary ofthe Dodd-Frank Act ("the Act") and the impact of the Act on the industry 

and consumers. We thank you for holding these hearings, which could not come at a 

more critical time in our economic recovery. 

The Roundtable represents 100 of the largest integrated financial services companies 

providing banking, insurance, and investment products and services to the American 

consumer. The mission of the Roundtable is to protect and promote the economic vitality 

and integrity of its members and the United States financial system. Roundtable member 

companies provide fuel for America's economic engine, accounting directly for $92.7 

trillion in managed assets, $1.2 trillion in revenue, and 2.3 millionjobs. 

Our economic success as an industry is directly tied to our ability to effectively serve 

consumers; and the Act must be evaluated based on the degree that it helps or hinders our 

ability to provide this service. The Roundtable believes we must preserve those parts of 

the Dodd-Frank Act that make our system safer and stronger, while re-examining the 

provisions that restrict economic growth, limit credit, reduce consumer choice, and make 

U.S. companies less competitive. 

Attached you will find a report on the state of the financial services industry, and a white 

paper summarizing the projected impact of financial regulatory reform on the economy, 

credit, international competiveness, and the cost of basic financial services. 

The two-year anniversary of Dodd-Frank finds an industry that is safer and stronger, but 

a regulatory environment that is far from certain. With over 70% of the rules resulting 

from the Act yet to be finalized, we remain concerned about provisions that carry 

significant economic consequences for the industry and consumers. 

The Roundtable very much appreciates the opportunity to submit this statement and 

supporting materials for the record, and we look forward to working with you as the 

committee continues to conduct its oversight of regulatory changes. 

Best regards, 

f~ Steve Bartlett 

President and CEO 

The Financial Services Roundtable 
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THE FINANCIAL SERVICES ROUNDTABLE 

Financing America:s Economy 

DODD-FRANK 2-YEAR ANNIVERSARY REPORT 

State of the Financial Services Industry 

July 21,2012 

Focus on fortress balance sheets; too big to fail; 

the cumulative weight of new rules; and economic benefits of big banks 
36 


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State of the Financial Services Industry 

The two-year anniversary of the Dodd-Frank Act is marked by a safer and stronger 

financial services industry. Capital is at a record high, lending is at pre-crisis levels, and 

the number of "problem banks" is rapidly decreasing. The risk profiles of individual 

firms have been reduced and systemic risk oversight is in place for the first time in 

history. 

These dramatic improvements are the result of industry initiative and financial 

regulatory reform. However, 70% of the rules resulting from the Dodd-Frank Act have 

yet to be finalized. Many of the expected provisions carry significant economic 

consequences for the industry, consumers, and the economy. 

At this critical time in our nation's economic recovery, we must preserve those parts of 

the Dodd-Frank Act that make our system safer and stronger, while re-examining the 

provisions and combination of provisions that needlessly restrict economic growth, 

limit credit, result in higher costs and reduced access to services for consumers, and 

make U.S. companies less competitive. 

Fortress Balance Sheets 

Banks are much stronger today than they were even before the 2008 crisis. According to 

the Hamilton Financial Index released on July 16, 2012, bank safety and soundness is 

22% above pre-crisis levels. 

Bank capital is the highest in history. FDIC-insured banks hold $1.6 trillion in capital 

and set a record Tier 1 capital ratio (13.28%) in the first quarter of 2012. Insurance 

firms' capital and surplus have also grown to all-time highs, despite an increase in 

natural disasters in 2011. 

Lending has risen to pre-crisis levels. Large banks with over $10 billion in assets 

increased their loans by $40 billion during the first quarter of 2012, and loan quality 

has improved across all loan categories and all bank sizes. 

Net income has returned to pre-crisis levels. FDIC-insured commercial banks and 

savings institutions reported $35.3 billion in net income for first quarter 2012. This 

represents a $6.6 billion (22.9%) improvement over first quarter 2011 results. 

Bank failures are at their lowest level in three years, and the number of "problem" 

institutions is now at its lowest level since 2008. 

The improved health of the financial services industry is widely recognized. According 

to Federal Reserve Chairman Ben Bernanke, "Risk indicators present a picture of the 

banking system that has become healthier and more resilient." Presidential candidate 

2Iwww.fsround.org 
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Mitt Romney echoed this sentiment, recently saying, "Our banks are on a much stronger 

basis than they were at the time of the last economic crisis, and they have built their 

capital base and their equity base and worked through a lot of their toxic assets." 

Systemic Risk & Too Big to Fail 

The risk and impact of a financial services institution failing has been significantly 

reduced through industry improvements and financial regulatory reform. 

Supervision of large financial services companies has increased dramatically. For 

example, large banks must submit detailed plans and stress tests to the Federal Reserve 

on an annual basis before they can payout dividends to shareholders or make any other 

capital distributions. Additionally, the Dodd-Frank Act mandates that large banks 

conduct three stress tests each year and publicly disclose information about the results. 

Systemic oversight is in place for the first time in history. The Financial Stability 

Oversight Council was created to monitor risk across the entire system, and identify 

and head-off emerging trends that could be a threat to financial stability. 

In the unlikely event that a large financial company actually fails, the FDIC now has 

liquidation authority to swiftly isolate and resolve the firm. Large financial services 

companies must plan for their own failure and submit extensive resolution plans to the 

FDIC and Federal Reserve each year with an overview of how their institution would be 

resolved. 

While there is no single definition of "too big to fail," it is commonly used to describe a 

financial institution whose failure would destabilize the economy and thus require 

government intervention using taxpayer funds to keep it afloat. The improved health 

of financial institutions, increase in systemic risk oversight, and statutory protection of 

taxpayer dollars means that too big to fail is no longer a problem. 

Cumulative Weight of Reform 

According to Davis Polk's Dodd-Frank progress report, 279 of 398 rules (70%) required 

by the Dodd-Frank Act have yet to be finalized as of July 2, 2012. 

Many of these rules will dramatically alter the ways financial services firms do business, 

and the cumulative weight of hundreds of new rules promises to be significant for the 

U.S. economy. Consider these findings from recent studies: 

• As the result of regulatory reform, U.S GDP is projected to be 2.7% lower than it 

would otherwise be by 2015, lending rates are projected to be 4.7% higher, and 

the U.s. is projected to lose 2.9 million jobs. Institute for International 

Finance Report, September 2011. 

3lwww.fsr undo r 
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• The Volcker Rule is estimated to cost American businesses up to $315 billion, 

increase borrowing costs by up to $43 billion per year, and dramatically reduce 

liquidity. Oliver Wyman Study, January 2012. 

• It is the risk that the Dodd-Frank apparatus will smother financial institutions in 

so much red tape that innovation is stifled and America's economy suffers. The 

Economist, February 2012. 

• Free checking in the U.S. has declined by 40% <in large part due> to the Durbin 

amendment and overdraft rules. Bankrate Survey, 2011. 

• Since passage, the Dodd-Frank Act has produced more than 52.7 million 

paperwork burden hours and imposed $7 billion in direct compliance 

costs. Based on calculations from The Financial Services Roundtable, DoddFrank regulations will require 26,352 employees to file federal paperwork. 

American Action Forum, July 2012. 

The Financial Services Roundtable has cataloged over 125 independent studies and 

public statements about the economic impact of the Dodd-Frank Act, available at 

http:Ubit.ly/S5zbFF. These reports conclude that the cumulative weight of Dodd-Frank 

rules will restrict economic growth, restrict the availability of credit, increase the cost of 

financial services for consumers, and place U.S. financial institutions at a competitive 

disadvantage. 

The costs of the Dodd-Frank Act are often weighed against the benefits of preventing 

the next crisis. But it is crucial to note that many of the most expensive provisions, such 

as the Durbin Amendment and Volcker Rule, had nothing to do with the crisis and will 

create a huge drag on the economy. 

Going forward, it is crucial to minimize the negative economic consequences of the new 

rules and support the vital role that large financial services companies play in the U.S. 

economy. 

Economic Benefits of Big Banks 

Healthy, diversified, and large financial institutions are essential to the U.S. economy. 

Their provision for consumers, businesses, and global competitiveness cannot be 

understated and must be protected. 

Large banks provide the vast majority of credit in the U.S. economy - schools, hospitals, 

small businesses, and personal expenditures. According to FDIC data, banks with more 

than $10 billion in assets finance 40% of small business loans, extend 85% of consumer 

credit, and manage 70% of home loans. 

4Iwww.fsround. r 
39 


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Large financial institutions are uniquely positioned to support global companies, such 

as Apple (valued at $324 billion) and Exxon Mobil (valued at $415 billion), by providing 

them with access to capital markets, cash management, credit, foreign exchange, risk 

management products, trade payments, investment products, and other critical 

financial services. 

Large financial institutions drive much of the innovation in the industry such as online 

banking and mobile banking, have advanced payments and clearing technologies, and 

are recognized leaders across all industries in cybersecurity. 

Banks have grown proportionately to support the needs of the U.S. economy. Over the 

past 20 years, U.S. bank assets have grown 237%, mirroring the percentage increases in 

U.S. exports (243%) and the S&P (292%), according to data from Bloomberg, the 

Federal Reserve, and U.S. Census. 

A study undertaken by The Clearing House concludes that the unique benefits large U.S. 

banks provide to companies, consumers, and governments total $50 billion to $100 

billion annually. 

Conclusion 

The financial services industry has come a long way since 2008. Sweeping legislative, 

regulatory, and industry changes, have made the industry safer and stronger. The 

industry remains committed to customers and communities and is helping to fuel the 

economy through lending. 

In the next 12 months, hundreds of additional Dodd-Frank rules are scheduled to be 

finalized. These new rules will be issued in a hyper-charged political environment, 

with the Presidential and Congressional elections taking place in November, the fiscal 

cliff approaching at the end of 2012, and what is shaping up to be relatively tepid 

economic growth for the rest of the year. 

It is essential to set aside political rhetoric and issue new rules prudently, supporting 

the parts of the Dodd-Frank Act that make financial services industry safer and 

stronger, while re-examining the provisions and combination of provisions that are 

needlessly detrimental to consumers, economy, and America's financial services 

industry. 

Slwww.f r un . rg 
40 


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About the Roundtable 

The Financial Services Roundtable represents 100 of the largest integrated financial 

services companies providing banking, insurance, and investment products and 

services to the American consumer. The mission of The Financial Services Roundtable 

is to protect and promote the economic vitality and integrity of its members and the 

United States financial system. Roundtable member companies provide fuel for 

America's economic engine, accounting directly for $92.7 trillion in managed assets, 

$1.2 trillion in revenue, and 2.3 million jobs. 

For more information about the Roundtable's Dodd-Frank research, visit 

http://www.fsround.org/fsr/publications and research Icumulative-weight.asp 

6lwww.fsr d.or 

The Financial Services Roundtable 

FINANCING AMERICA'S ECONOMY 

1001 Pennsylvania Avenue, NW 

Suite 500 South 

Washington, D.C. 20004 

202-289-4322 

www.fsround.org 

Contacts for this publication: 

Scott Talbott 

Senior Vice President of Government Affairs 

scott@fsround.org 

Abby McCloskey 

Director of Research 

abby@fsround.org. 
41 


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1HE FINANCIAL SERVICES ROUNDTABLE 

Financing Americas Economy 

Economic Impact of the Dodd-Frank Act 

June 2012 

Reports and public statements about the impact of financial 

regulatory reform on the economy, credit, consumers, and the 

industry, assorted by 

The Financial Services Roundtable 

Page 1 ---------.------
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TIlE FINANCIAL SERVICES ROUNDTABLE 

Financing America:~ Economy 

Economist, ;'The Dodd-FrankAct: Too Big to Fail," February 18, 2012 

Economic Impact ofthe Dodd-Frank Act 

The health of the financial services industry has improved dramatically in 

recent months. Capital is at a record high, lending is at pre-crisis levels, and 

large financial companies are solvent and strong. 

These changes have occurred despite only 30% of Dodd-Frank rules being 

finalized. 

However, if requirements are carried too far, adverse economic 

consequences will far outweigh the benefits. Current cost estimates include: 

• By 2015, U.S GDP is projected to be 2.7% lower than it would 

otherwise be <as a result of regulatory reform>, or 5.2% lower if 

reform is implemented rapidly. Institute for International Finance 

Report. September 6, 2011. 

• The Volcker Rule will cost American businesses up to $315 billion, 

increase borrowing costs by up to $43 billion per year, and dramatically 

reduce liquidity. Oliver Wyman Study. January 2012. 

• Free checking has declined by 40% as a result of the Durbin 

amendment and overdraft rules. Roundtable Fast Facts: Decline of 

Free Checking, June 1, 2012. 

Dodd-Frank compliance costs for the industry are projected to be 

$7,092,471,000 each year according to Federal Register cost 

estimates. 
43 


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u.s. GOP is 

projected to 

be 2.7% lower 

than it would 

otherwise be 

as a result of 

regulatory 

reform, 

according to 

the Institute 

for 

International 

Finance 

1HE FINANCIAL SERVICES ROUNDTABLE 

Financing America~~ Economy 

The Financial Services Roundtable has developed a public database of over 

125 independent studies and reports shOWing how the cumulative weight of 

new rules will negatively impact the economic recovery and industry. The 

database can be accessed on the Roundtable:s website, www.fsround.org. 1 

Last August, the Roundtable published a white paper based on these studies, 

entitled, "Cumulative Weight." The paper examined the projected impact of 

financial regulatory reform on the economy, credit, international 

competiveness, and cost of basic financial services. The paper, which 

included an overview of the Dodd-Frank Act, is also hosted on the 

Roundtable's website. 2 

Since that time, dozens of new reports have been released on the economic 

impact of Dodd-Frank. What follows is a collection of updated studies and 

reports, from September 2011 through June 2012. 

Impact on the Economy 

• The Volcker Rule will raise energy prices and reduce energy 

investment, resulting in 200,000 lost jobs. If the Volcker Rule is 

implemented, electricity costs will increase by $5.3 billion per year; 

gasoline prices will increase by $2 billion per year; natural gas 

investment will be reduced by $7.5 billion and; two East Coast 

refineries will close. I.R.S. Stuay. March 2012. 

It is the risk that the Dodd-Frank apparatus will smother financial 

institutions in so much red tape that innovation is stifled and 

America's economy suffers. The Economist. February 18, 2012. 

Dodd-Frank is the thing that is most harming the economy right now. 

Big business can deal with regulatory uncertainty, but it makes small 

businesses reluctant to take on risk and expand their operations. I!l!Ji1 

Zywicki. Mercatus Center at George Mason Universit;y. September 

21,2011. 

By 2015, U.s GDP is projected to be 2.7% lower than it would 

otherwise be <as a result of regulatory reform>, or 5.2% lower if 

reform is implemented rapidly. Institute for Internatjonal Finance 

l11m!JI:!". September 6, 2011. 
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( 

The Volcker 

Rule will 

increase 

borrowing 

costs by up to 

$43 billion per 

year, 

according to 

an Oliver 

Wyman Study. 

THE FINANCIAL SERVICES ROUNDTABLE 

Financing America:~ Economy 

By 2015, 2.9 million jobs are projected to be lost in the U.S. <as a result 

of regulatory reform>, or 5.8 million jobs if reform is implemented 

rapidly. Institute for International Finance Report, September 6, 

2011. 

Complexity risk - the burden on financial institutions and regulators 

of complex, cross-cutting and incomprehensible rules may now be 

the most significant impediment to financial-market recovery and 

robust economic growth. Karen Petrou, Federal Financial 

Analvties, Inc, November 2011. 

)mpact on Credit 

Based on responses from 75 financial institutions in 38 countries, 

40% of banks expect to raise the price they charge companies for 

loans by between half and a full percentage point, while a further 

26% expect to raise the price of loans by more than that <as a 

direct result of Basel III>. Institute for International Finance, 

June 21, 2012 

• The Dodd-Frank Act "was a major overreach that has created 

uncertainty throughout the economy and threatens to make credit 

for consumers and businesses more expensive and less available" 

said Senator Bob Corker of Tennessee, May 7, 2012. 

• The [Volcker Rule of the Dodd-Frank Act] would result in a decrease 

in liqUidity and increase in price instability in many markets in the 

U.S., but will also have negative effects on markets globally, as banks 

will be forced to reduce the quality of their market-making services 

to comply. Institute oflnternational Finance Report, February 

2012. 

• The Volcker Rule will cost American businesses up to $315 billion, 

increase borrowing costs by up to $43 billion per year, and 

dramatically reduce liqUidity. Oliver WYman Stuqv. January 2012. 

In our view, <the Volcker Rule> would result in a dramatic increase 

in volatility and reduction in market liquidity that would ultimately 

cause borrowing costs for all municipal issuers to rise. City Group 

Global Market Study, January 2012. 
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THE FINANCIAL SERVICES ROUNDTABLE 

Financing America:~ Economy 

Relative to pre-crisis levels, banks would have to raise an additional 

100% more capital ($525 billion) to meet Basel Ill's capital 

requirements. To meet these capital requirements, U.S. banks would 

have to either increase the borrowing costs to their customers by 

60 basis points or reduce non-interest expenses by 19%. The 

Clearing House Report. September 26, 2011. 

<The Dodd-Frank Act> could have a negative effect on the ability of 

banks to extend credit and have a critical impact on our economy. 

Reginald Imamura. PNCBank, September 22, 2011. 

Real lending rates in the U.S. are projected to increase by 468 basis 

points, (or 701 basis points if reform is implemented rapidly), 

<exponentially increasing the cost of education loans, home loans, 

commercial loans, etc.> Institute for International Finance Report, 

September 6, 2011. 

( impact on Consumers 

Free checking 

has declined 

by over 40% in 

the last three 

years in large 

part due to 

the Durbin 

Amendment 

and averdraft 

rules, 

according to a 

Bankrate 

survey. 

Free checking is on the decline, in large part due to overdraft 

changes and the Durbin Amendment. In 2011, less than half of 

checking accounts (45%) were free of maintenance charges and 

balance requirements. In 2009, 76% of accounts were free. 

Roundtable Fast Facts: Decline of&ee Checking. June 1, 2012. 

Instead of investing in new products to meet the demands of 

customers, banks are paying for changes to software to ensure 

compliance with all the new rules. Even a small reduction in the cost 

of compliance would free up billions of dollars that could facilitate 

loans and other banking services. William B. Grant. CEO of First 

United Bank of Trust. May 9,2012. 

If regulators tighten restrictions on bank overdraft poliCies, it could 

threaten a major source of bank revenue and speed up the end of 

free checking accounts. Fitch Ratings Report. April 24, 2012. 

Consumers and small businesses are impacted in negative ways 

through the Dodd-Frank Act, such as: higher costs for financial 

products or limited products or limited credit availability at a higher 

cost. At some banks, certain types of credit will be completely 

eliminated and access to credit will be denied. Ignacio Urrabazo. 
46 


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1HE FINANCIAL SERVICES ROUNDTABLE 

Financing America's Economy 

Testimony before the House Subcommittee on Financial 

Institutions and Consumer Credit. March 14, 2012. 

• Inflexible loan to value ratios and repayment ability criteria are 

likely to have the effect of putting home ownership out of reach for 

many Americans. CIi(fMcCauley. Testimony before the House 

Subcommittee on Financial Institutions and Consumer Credit. 

March 14,2012. 

The Durbin Amendment will cause smaller institutions to cease 

offering <debit cards> to their consumers. CliftMcCauley. 

Testimony biifore the House Subcommittee on Financial 

Institutions and Consumer Credit. March 14, 2012. 

Elimination of fee incomes through Durbin and limitations of 

overdraft fees are hurting community banks. These fees are critical 

to the survival of community banking: it is key that noninterest 

income helps provide many of our banking products and services for 

consumers. Ignacio Urrabazo. Testimony be,fore the House 

Subcommittee on Financial Institutions and Consumer Credit. 

March 14,2012. 

• Overdraft and interchange rules have cost the industry about $12.2 

billion annually, translating into 20% higher fees for consumers. 

lavelin Study. February 2012. 

• Retail prices have actually increased 1.7% since the Durbin 

Amendment became effective. Electronic Payment Coalition 

Report. December, 2011. 

• It has become more expensive for consumers to use banks <as a result 

of regulatory reform>. Elizabeth Robertson. layeIin Strategy & 

Re5earch. September 22, 2011. 

• 41% of merchants reported they do not intend to pass on lower debit 

card costs to consumers, when asked about the Durbin Amendment. 

DFR Surve,v. September, 2011. 

• 54% of institutions report looking to re-structure or terminate 

rewards programs due to Durbin. Pulse Network's 2011 Debit 

Issuance Studv. June 2011. 

---------------------.---------------- Page 6 ------------------------.-----------
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THE FINANCIAL SERVICES ROUNDTABLE 

Financing America:" Economy 

Impact on the Industry 

Compliance 

costs have 

increased over 

240% in the 

last five years, 

Congressional 

testimony. 

• Dodd-Frank compliance costs for the industry are projected to be 

$7,092,471,000 each year and 52,696,738 paperwork burden hours, 

according to Federal Register cost estimates. American Action 

Forum, June 2012. 

• <Basel III rules> are leading many banks to fundamentally rethink 

their business models, with 65% reporting that they are evaluating 

their portfolios, 45% reporting that they are moving out of complex 

or less liquid instruments, while 30% said they were planning to 

drop lines of business and 13% said they are preparing to leave 

particular countries. Institute for International Finance. June 21, 

2012. 

• Dodd-Frank will cost JP Morgan Chase roughly $1 billion a year, 

across technology, risk, credit, compliance, and all other lines. 

lamie Dimon. CEO oUP Morgan Chase, Senate Banking 

Committee TestimolJV. June 13, 2012. 

• Smaller banks could face "operational burdens" in implementing the 

<new capital> rules. Fed governor Elizabeth Duke. June 7, 2012. 

• The new regulations are so complex that few people understand 

them, and it will cost them to figure it out. Companies will have to 

spend a lot to make sure they're aware of the details, since most 

don't have teams of attorneys to interpret them. Mitch Stebal of 

BUSfV Bank for the Washington Post May 23, 2012. 

• Anyone particular regulation may not be that onerous or expensive, 

but when you add them up, it raises the cost of doing business for 

banks, and ultimately the consumer ends up paying for it. Doug 

CruickShank$. CEO of First Bank. May 7, 2012. 

Investment bankers and financial industry consultants estimated 

that Dodd-Frank would lower the return on equity of community 

banks with less than $500 in assets to between 6-8%. Bank 

investors usually look for returns near 11-14%. Revnolds. Bone. & 

Griesbeck, May 6, 2012. 

• Direct compliance costs have increased over 240% in that last five 

years - far exceeding the growth of the bank, its loans, investments 

and deposits. Les Parker. Testimony btifore the House 

.--.------------------------ Page 7 .--------------------
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Increasing 

regulation is 

the single 

largest foetor 

of post-crisis 

bonk 

profitability 

(or lack 

thereof) in the 

U.S. and 

Europe, 

according to 

a report by 

McKinsey. 

TIlE FINANCIAL SERVICES ROUNDTABLE 

Financing America:s' Economy 

Subcommittee on Financial Institutions and Consumer Credit 

March 14,2012. 

Annual compliance costs of Dodd-Frank are already over $7 billion for 

banks-even though only 27% of Dodd-Frank regulatory rules have 

been completed. The projected number of new personnel required to 

comply with Dodd-Frank is 26,447. American Action Forum data. 

March,2012. 

Elimination of fee incomes through Durbin and limitations of 

overdraft fees are hurting community banks. These fees are critical 

to the survival of community banking: it is key that noninterest 

income helps provide many of our banking products and services for 

consumers. Ignacio Urrabazo. Testimony b/ifore the House 

Subcommittee on Financial Institutions and Consumer Credit 

March 14, 2012. 

It took 20 million man hours to build the Panama Canal...we are 

with 22 million man hours only 1/3 of the way through major 

legislation. Congressman Rangy NeUJ/ebauer. February 2012. 

Regulators' estimate that banks will have to spend 6.6 million hours 

to implement the Volcker rule. Over 1.8 million hours would be 

required every year in perpetuity. That translates into 3,292 years, 

or 3,000 bank employees to comply this rule. Frank Keating, 

President and CEO. American Bankers Association. October 2011. 

There is a widening gap between growing and non-growing markets. 

For example, Asian banks are likely to achieve annual revenue growth 

of around 10% over the next decade - double the rate of developed 

markets. McKinsey & Company Rflport. September 2011. 

Increasing regulation is the single largest factor of post-crisis bank 

profitability (or lack thereof) in the u.s. and Europe. U.s. banks will 

need to triple their net profits by 2015 to cover the cost of raising the 

capital required under Basel III and the Dodd-Frank Act. This is 

double the profit level that McKinsey forecasts U.S. banks are likely to 

achieve during this period. McKinsey & Company Report. September 

2011. 

Dodd-Frank has raised the cost of financial transactions in America 

and that encourages consolidation because it's the only way you can 

spread the costs over larger assets. Tom Hoenig. President Q/thfl 

Federal Reserve Bank orKansas City. September 2011. 

.--.-----.--.. ---.. -.~------.. -. Page 8 ---.----.-------... ---.. ------
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TIlE FlNANOAL SERVICES ROUNDTABLE 

Financing America's Economy 

Modifying systems for compliance with Dodd-Frank will drain 

resources and divert attention from projects that may help business 

growth. Firms do not plan to increase staff to handle requirements 

for Dodd-Frank, and are trying to meet demands with the same 

amount of people. Greo MacSweeny for Wall Street & Technolooy, 

FebrualY 2011. 

About tbe Roundtable 

The Financial Services Roundtable represents 100 of the largest integrated 

financial services companies providing banking, insurance, and investment 

products and services to the American consumer. The mission of the 

Financial Services Roundtable is to protect and promote the economic 

vitality and integrity of its members and the United States financial system. 

Roundtable member companies provide fuel for America's economic engine, 

accounting directly for $92.7 trillion in managed assets, $1.2 trillion in 

revenue, and 2.3 million jobs. 

More information about the Roundtable and its research can be accessed at 

www.fsround.org. If you have questions, please contact Abby McCloskey, 

Director of Research at the Financial Services Roundtable, at 

abby@fsround.org. 

-------------------------------- Page 9 -------------.------------------
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THE FINANCIAL SERVICES ROUNDTABLE 

Financing America:s Economy 

_______________ . __________ . Page 

10 

The Financial Services Roundtable 

FINANCING AMERICA'S ECONOMY 

1001 Pennsylvania Avenue, NW 

Suite 500 South 

Washington, DC 20004 

202-289-4322 

www.fsround.org. 
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76118.022

Fred R. Becker, Jr. 

President and CEO 

June 27,2012 

National Association of Federal Credit Uuions 

3138 10th Street North. Arlington, Virginia. 22201-2149 

(703) 522-4770 • (800) 336-4644 • Fax (703) 522-2734 

The Honorable Timothy F. Geithner 

Secretary of the Treasury 

United States Department of the Treasury 

1500 Pennsylvania Avenue, NW 

Washington, DC 20220 

RE: FSOC's Role to Reduce RegulatorY,Compliance Bmden on Credit Unions 

Dear Secretary Geitl~~/\ ff 0::: 4t1'" 

On behalf of the NatioKa'( Association of Federal Credit Unions (NAFCU), the 

only trade association that exclusively represents the interests of our nation's Federal 

credit unions (FCUs), I am writing to you in your capacity as Chairman of the Financial 

Stability Oversight Council (FSOC). 

As you know, under the Dodd·Frank Wall Street Reform and Consumer 

Protection Act (the Act), the FSOC has a duty to facilitate regulatory coordination. This 

duty includes facilitating information sharing and coordination among the member 

agencies of domestic financial services policy development, rulemaking, examinations, 

reporting requirements and enforcement actions. Through this role, the I1SOC is 

effectively charged with ameliorating weaknesses within the regulatory shucture, 

promoting a safer and a more stable system. 

In regards to this goal, NAFCU would like to emphasize how important it is to 

credit unions for our industry's copious regulators to coordinate with each other to help 

mitigate regulatory burden. As highlighted in the testimony ofNAFCU Board Member 

Ed Templeton before the House Financial Services Committee on May 9, 2012, it is not 

any single regulation, but the panoply of the regulatory regime of numerous regulators, 

each operating "within their own lanes" and with minimal, if any, interagency 

coordination, that not only helps create, but significantly magnifies, today's undue 

regulatory burden on credit unions and other small financial institutions. 

In his testimony, Mr. Templeton, CEO of a small credit union that serves a large 

number of undersel'vcd Americans, emphasized the diffieulties facing credit unions to 

E-mail: fbecker@nafcu.ol'g • Web site: www.nafcu.org 
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Secretary Geithner 

U.S. Department of the Treasury 

June 27, 2012 

Page 2 00 

plan ahead and keep pace with the rapid rate of regulatOlY changes under the Act. As Mr. 

Templeton testified, 96.4% of credit unions in a NAFCU survey last spring reported that 

they were devoting more staff time to regulatory compliance than they did in 2008. 

Consequently, credit unions have not been able to use their resources efficiently as they 

are devoting far too much time and money on regulatory compliance and related 

functions; they should be empowered, instead, to expend such time and resources to 

serving their members. 

The array of regulations that are making operating a credit union more and more 

difficult are being fired simultaneously fl:om multiple directions and by a host of 

agencies. For example, the Consumer Financial Protection BtlI'eau (CFPB) has issued 

several rules and is soon expected to propose numerous major rules that would greatly 

impact credit unions' products and services, including savings, mortgage lending, and 

credit and debit card services. Concomitantly, the credit union's principle regulator, the 

National Credit Union Administration (NCUA), is issuing regulations on issues such as 

concentration and interest rate risk, loan participations, credit union sel'Vice organizations 

and appraisal management. At the same time, the Department of Justice is issuing 

regulations on physical assess to ATMs, while the Department of Labor is issuing 

regulations on employee rights and the Financial Crimes Enforcement Network 

(FinCEN) is issuing regulations on currency transaction repolis and suspicious activity 

reports. 

As we have approached each agency regarding the ever-increasing regulatory 

burden, they quickly respond that the rules being issued by other agencies are outside of 

their purview. NAFCU believes the FSOC is well-positioned to rectify this lack of 

coordination. In that regard, we ask that you establish within the FSOC robust interagency coordination on the issuance of rules impacting financial institutions. 

NAFCU also tlI'ges thc FSOC to establish policy requiring member agencics to 

conduct and publish a thorough cost-benefit analysis prior to issuing regulations as well 

as a separate cost-benefit analysis a year after each regulation the agency prescribes and 

every other year thereafter. Also, a cost-benefit analysis should be conducted every two 

years on each regulation that an agency has on its books, with the agency required to 

justify the regulations' continued existence. These cost analyses should be reviewed by 

the FSOC to assess the total impact on the financial services industry. We strongly 

believe that conducting such exercises would better instruct regulators of the high cost of 

compliance, and equip them with the information necessary to assess whether a particular 

regulation is effective and justifiable. 

America's credit unions have long been reliable sources of financial advancement 

for millions of people. We believe that the FSOC, with your leadership, is in a position 

to help credit unions and other small financial institutions continue to achieve their 

mission of serving their members. 
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Secretary Geithner 

U.S. Department ofthe Treasury 

June 27,2012 

Page 3 of3 

NAFCU appreciates your attention to our concerns. Should you have any 

questions or concerns, please feel free to contact me or Carrie Hunt, NAFCU's General 

Counsel and Vice President of Regulatory Affairs, at 703-842-2234. 

President/CEO 

cc: Members of the Senate Banking Committee 

Members of the House Financial Services Committee 

The Honorable Ben Bcrnanke, chairman of the Fcderal Reserve Board 

Martin J. Gruenberg, acting chairman ofthe Federal Deposit Insurance Corporation 

The Honorable Richard Cordray, director of the Consumer Financial Protection 

Bureau 

Edward DeMarco, acting director of the Federal Housing Finance Agency 

The Honorable Debbie Matz, chairman of the National Credit Union Administration 

The Honorable Karen Mills, administrator of the Small Business Administration 

The Honorable Hilda Solis, secretary of the Depatiment of Labor 

The Honorable Shaun Donovan, secretary the Depallment of Housing and Urban 

Development 

James H. Freis, Jr., director, Financial Crimes Enforcement Network 

The Honorable Julius Genachowski, chairman of the Federal Communications 

Commission 

The Honorable Jon Leibowitz, chairman of the Federal Trade Commission 
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76118.025

Questions for the Record from 

Rep. Blaine Luetkemeyer (MO-9) 

Subcommittee on Financial Institutions 

Committee on Financial Services, U.S. House of Representatives 

Hearing held on July 19, 2012, entitled 

"The Impact of Dodd-Frank on Consumer Choice and Access to Credit" 

Witness: Mr. Raj Date, Deputy Director, Consumer Financial Protection Bureau 

1. In your appearance before the Subcommittee, you touched on the methods and 

process, or lack thereof, utilized by the Cousumer Financial Protection Bureau 

(CFPB) to verify that complaints filed against financial institutions are valid and 

unique. Please explain in greater detail how the CFPB goes about verifying the 

legitimacy of complaints. What steps does the agency take in separating legitimate 

complaints from illegitimate complaints? 

The Bureau maintains significant controls to authenticate complaints. Each complaint is 

checked to ensure that it is submitted by the identified consumer or from his or her 

specifically authorized representative. Each submission is also reviewed to determine if it 

is a complaint, an inquiry, or feedback. (Submissions in the latter two categories are not 

forwarded to companies for handling as complaints.) Further, each complaint is checked 

to identify duplicate submissions by a consumer who has already filed with the Bureau a 

complaint on the same issue. Finally, complaints are only forwarded to companies when 

they contain all the required fields, including the complaint narrative, the consumer's 

narrative statement of his or her fair resolution, and the consumer's contact information. 

2. What course of action does CFPB take to ensure that complaints are not part of a 

large-scale campaign? 

The CFPB has a number of protections to ensure complaints are not patt of a large-scale 

campaign. For one, the burden of submitting a complaint is not negligible. Consumers 

must affirm that the information is true to the best of their knowledge and belief. The 

consumer is also asked for a verifiable account number. If none is provided and the 

consumer is unable to produce verifiable documentation of the account (such as a 

statement), the complaint is not pursued further. A company can also challenge its 

identification by the consumer, prompting review by the CFPB to seek additional 

information from the consumer to correctly identify the company that is the subject of the 

complaint. Duplicate complaints from the same consumer are consolidated into a single 

complaint. The Bureau also maintains additional controls after complaints are submitted. 
55 


76118.026

Further, although companies are able to alert the Bureau to any suspected manipulation, 

the Bureau has not seen or been alerted by companies to any potential large-scale 

campaigns since beginning operations in July, 2011. If, in the future, companies find this 

combined package of controls insufficient in practice, the Bureau remains committed (0 

addressing any issues that may arise, including enabling companies to flag any complaint 

that the company reasonably believes is not submitted in good faith by or on behalf of an 

individual consumer. 

3. During the examination process, does CFPB review all complaints and utilize them 

as an examinatiou tool? Does the Bureau take these complaints into consideration 

at all during the rulemaking process? 

Summary information regarding complaints about an identified company can be provided 

to examination teams. Individual complaints typically are reviewed as part of the 

examination process, but which ones and how many depend on the type of examination, 

the issues identified in the complaints, and their overall volume. The Bureau may take 

complaints into consideration during its rulemaking process, along with other relevant 

information. 

o