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HOLDING THE CFPB ACCOUNTABLE: REVIEW OF 

FIRST SEMI-ANNUAL REPORT 

HEARING 

BEFORE THE

COMMITTEE ON 

BANKING, HOUSING, AND URBAN AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

ON 

REVIEWING THE FIRST SEMI-ANNUAL REPORT, EXAMINING HOW WELL 

THE CONSUMER FINANCIAL PROTECTION BUREAU IS FULFILLING ITS 

MISSION HOLDING THE CFPB ACCOUNTABLE 

JANUARY 31, 2012 

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

( 

Available at: http://www.fdsys.gov/ 
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS 

TIM JOHNSON, South Dakota, Chairman 

JACK REED, Rhode Island 

CHARLES E. SCHUMER, New York 

ROBERT MENENDEZ, New Jersey 

DANIEL K. AKAKA, Hawaii 

SHERROD BROWN, Ohio 

JON TESTER, Montana 

HERB KOHL, Wisconsin 

MARK R. WARNER, Virginia 

JEFF MERKLEY, Oregon 

MICHAEL F. BENNET, Colorado 

KAY HAGAN, North Carolina 

RICHARD C. SHELBY, Alabama 

MIKE CRAPO, Idaho 

BOB CORKER, Tennessee 

JIM DEMINT, South Carolina 

DAVID VITTER, Louisiana 

MIKE JOHANNS, Nebraska 

PATRICK J. TOOMEY, Pennsylvania 

MARK KIRK, Illinois 

JERRY MORAN, Kansas 

ROGER F. WICKER, Mississippi 

DWIGHT FETTIG, Staff Director 

WILLIAM D. DUHNKE, Republican Staff Director 

CHARLES YI, Chief Counsel 

CATHERINE GALICIA, Counsel 

LAURA SWANSON, Policy Director 

WILLIAM FIELDS, Legislative Assistant 

ANDREW OLMEM, Republican Chief Counsel 

BETH ZORC, Republican Counsel 

DAWN RATLIFF, Chief Clerk 

RIKER VERMILYE, Hearing Clerk 

SHELVIN SIMMONS, IT Director 

JIM CROWELL, Editor 

(II)
C O N T E N T S 

TUESDAY, JANUARY 31, 2012 

Page 

Opening statement of Chairman Johnson ............................................................. 1 

Opening statements, comments, or prepared statements of: 

Senator Shelby .................................................................................................. 3 

WITNESS 

Richard Cordray, Director, Consumer Financial Protection Bureau ................... 5 

Prepared statement .......................................................................................... 33 

Response to written questions of: 

Senator Shelby ........................................................................................... 35 

Senator Johanns ........................................................................................ 50 

ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD

Semi-Annual Report of the Consumer Financial Protection Bureau .................. 80 

GAO Financial Audit: Bureau of Consumer Financial Protection’s Fiscal Year 

2011 Financial Statements .................................................................................. 133 

Testimony Before Congress by CFPB Officials sheet ........................................... 188 

The CFPB Obligations and Transfers tables ......................................................... 189 

(III)

(1) 

HOLDING THE CFPB ACCOUNTABLE: REVIEW 

OF FIRST SEMI-ANNUAL REPORT 

TUESDAY, JANUARY 31, 2012 

U.S. SENATE, COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, Washington, DC. 

The Committee met at 10:04 a.m. in room 538, Dirksen Senate 

Office Building, Hon. Tim Johnson, Chairman of the Committee, 

presiding. 

OPENING STATEMENT OF CHAIRMAN TIM JOHNSON 

Chairman JOHNSON. Good morning. I call this hearing to order. 

Before we begin, I would like to send my best wishes to Senator 

Mark Kirk for a speedy recovery. Senator Kirk is a valued Member 

of this Committee and he is the Ranking Member of the Mil Con/ 

VA Subcommittee on Appropriations, which I chair. I have no 

doubt that with his strong will and determination, he will be back 

at work as soon as humanly possible. Our thoughts and prayers are 

with him and I look forward to his return. 

Today marks the first Banking Committee hearing of the year. 

I am confident that we will have another productive year in the 

Committee as we build on the foundation set in the first session. 

Our Committee tackled an aggressive agenda last year and I 

thank all of my colleagues for their contributions. In 2011, we held 

72 public hearings and Executive Sessions, including 60 oversight 

hearings. Of those, 26 were Subcommittee hearings and I want to 

commend each of our Subcommittee Chairs and Ranking Members 

for their leadership. Additionally, we held over 70 bipartisan staff 

briefings. 

I am proud to say that we were successful at finding bipartisan 

consensus more than a few times. The Committee reported out favorably 26 nominations, with the full Senate confirming 17 of those 

nominees. We also unanimously approved two long-term reauthorizations, for the National Flood Insurance Program and for the 

charter of the Export-Import Bank of the United States. 

Senator Shelby, I would like especially to thank you for working 

with me last year to plan bipartisan hearings to lay the foundation 

together for housing finance reform. I am hopeful that in 2012, we 

can continue to work across the aisle, and I am encouraged by the 

bipartisan markup scheduled for later this week. On Thursday, I 

expect this Committee to approve bipartisan bills reauthorizing our 

national transit programs and increasing sanctions on Iran. 

Looking ahead to the rest of the year, my priorities will be to 

oversee implementation of the Wall Street Reform, to continue 
2 

building consensus on housing finance reform, and to look out for 

the interests of rural and tribal areas and the smaller financial institutions that serve them, to strengthen national and international 

security, to act on the President’s nominees, and to pass critical 

program reauthorizations. 

The Committee will also continue to closely monitor the situation 

in Europe, as well as explore new issues, such as the development 

of mobile payments. In the coming weeks, we will take a closer look 

at the state of the housing market, examine some of the proposals 

for addressing housing stock surplus, and hear from the Federal 

Reserve on the upcoming monetary policy report. 

Based on the bipartisan successes we had last year and the imperative to meet the continued economic challenges that face our 

country, I remain optimistic we will find common ground again this 

year. 

Let me now turn to an issue that we should all agree on, examining how well the Consumer Financial Protection Bureau is fulfilling its mission. I would like to welcome Richard Cordray, the 

newly appointed Director of the Consumer Bureau to the Committee to provide testimony and the Bureau’s first semi-annual report to Congress. 

I would remind my colleagues that we are not here today to debate Mr. Cordray’s appointment. Our job is to roll up our sleeves 

and provide meaningful oversight of the Consumer Bureau to make 

sure that it is doing its job of protecting consumers and fostering 

an open and efficient consumer financial marketplace. 

The Wall Street Reform Act gave this Committee an important 

tool to help ensure that the Bureau is accountable to American consumers by requiring the Director to appoint to and appear before 

this Committee at least two times a year. It is our job to help make 

sure that the agency is doing its job effectively and efficiently. 

So to my colleagues who do not believe that the Consumer Bureau is accountable, I point out the simple fact that it is, and that 

is why we are here today. 

Mr. Cordray, I know that you share my strong commitment to 

oversight, accountability, and transparency of the Consumer Bureau. In fact, this is the 13th time since Wall Street Reform became law that a Bureau employee has appeared before a committee 

of Congress. And your agency’s outreach to stakeholders in your 

rulemaking process has been applauded across the board. 

It has been 6 months since the Consumer Bureau officially 

opened for business and only 4 weeks since it acquired all of its 

powers. Yet in that short time, Bureau employees have been hard 

at work. They have finalized a rule on consumer remittances and 

are currently reviewing comments on close to 20 other proposals. 

They have developed the ‘‘Know Before You Owe’’ programs, which 

are meant to simplify mortgage and credit card disclosures. They 

are developing a student loan worksheet to help students and their 

families shop for loans. They have also rolled out supervisory and 

examination programs for large depository institutions and for nondepository institutions. Mr. Cordray, we look forward to hearing 

from you in greater detail about this ongoing work. 

Recently, you made comments about the CFPB’s role in reducing 

regulatory burden on small community banks and credit unions. 
3 

This is an important issue to the consumers and institutions in my 

State of South Dakota. I am interested to hear more about the Bureau’s plan to ensure that in future rulemakings the right balance 

is struck between consistent protections for consumers and regulations for small institutions. 

Finally, I would like to hear about progress in two areas that the 

Committee reviewed last fall, consumer protections for 

servicemembers and veterans and for older Americans. 

Mr. Cordray, although you and your staff of the Consumer Bureau are faced with a difficult task, I have confidence that you are 

all up to the challenge. I look forward to your testimony and working with you to enhance our consumer financial markets. 

Now I turn to Ranking Member Shelby for his statement. 

STATEMENT OF SENATOR RICHARD C. SHELBY 

Senator SHELBY. Thank you, Mr. Chairman. 

Today, the Committee will hear from Richard Cordray, the Director of the Bureau of Consumer Financial Protection. Since the Bureau was first proposed, I have expressed my grave concerns about 

its lack of accountability. I did not think then and I still maintain 

that it is inconsistent with our constitutional values to have so 

much power vested in the hands of one bureaucrat without adequate supervision by the elected representatives of the American 

people. Nevertheless, the Dodd-Frank Act intentionally designed 

the Bureau to be free of even the most basic checks and balances. 

Unfortunately, the President has now circumvented one of the 

only remaining checks with his recess appointment of Mr. Cordray. 

I suspect that the Supreme Court will ultimately decide the constitutionality of the President’s action. Until then, Mr. Cordray has 

indicated that he will exercise the full authorities of the Bureau. 

Because of the structure of the Bureau, this means that Mr. 

Cordray will have unfettered power over the operation of the Bureau. His decisions alone will determine how the Bureau approaches its work. If he so chooses, he does not have to answer to 

anyone. This is not a choice any bureaucrat should have. Since his 

appointment, Mr. Cordray has indicated that he intends to proceed 

cautiously and prudently when he exercises his authority. The real 

test, however, will be whether this caution finds its way into the 

Bureau’s actions. 

Unfortunately, the Bureau’s early history is not encouraging. 

Over the past year, actions taken by the Bureau have repeatedly 

been inconsistent with the promise of its leaders. For example, 

under Dodd-Frank, the Bureau is required to convene panels of 

small businesses to discuss the impact of proposed regulations. Mr. 

Cordray himself has stated that the Bureau would convene these 

small business panels, and I quote, ‘‘not just because the law tells 

us to do so, but because we recognize that it will help us do our 

work better.’’ Since its inception, however, the Bureau has yet to 

convene a single small business panel, despite having issued multiple rules. 

Moreover, the Bureau has indicated that it has no plans to convene these panels for some of its most important rulemakings, including rules on mortgage underwriting standards. Officials at the 

Bureau have said that it will comply with the Administrative Pro-
4 

cedures Act. They have even pointed to the APA as one of the 

checks on the Bureau’s authority. Yet the Bureau has repeatedly 

evaded the intent of the APA by issuing interim final rules without 

asking for public comment before the rules become effective. 

Consequently, the Bureau has been able to impose costly regulations on the American economy without providing the American 

people with any opportunity for comment. Listening to the rhetoric 

coming from the Bureau’s leadership, one would think that the Bureau would have gone out of its way to actively seek public comment on its rules. In a speech last year, the Bureau’s Deputy Director outlined how the Bureau would approach its work. He stated, 

and I quote, ‘‘The Bureau will invite public input to provide a fact 

base to help the Bureau evaluate the cost, benefits, and impacts of 

those rules and to suggest alternatives.’’ Those were his words. He 

also stressed that the Bureau was, quote, ‘‘going to be fact-based, 

pragmatic, and deliberative.’’ The Bureau’s recent rulemaking process suggests that its officials like to give the appearance of listening to the public, but really believe that the Bureau knows what 

is best without much public interference. Moreover, it suggests that 

the Bureau’s own agenda will not be impeded by procedures or the 

need to collect facts and public comments. 

The Bureau’s recent rule on remittance transfers provides another example of the divergence between the Bureau’s rhetoric and 

its actual operation. The leadership of the Bureau has said that it 

will seek, quote, ‘‘to make regulations more effective at achieving 

intended benefits for consumers while lowering costs for lenders.’’ 

The Bureau’s remittance transfer rule suggests that lowering costs 

is not high on its priorities. The primary purpose of the rule is to 

lower the cost of remittances, yet the Bureau’s own analysis reveals 

that compliance with this rule will require more than 7.6 million 

hours. That means that more than 3,800 full-time employees will 

be required to work on compliance for this single rule. 

So rather than conduct a cost-benefit analysis to determine if 

this rule is justified, the Bureau has indicated that it will impose 

the rule and examine its impact after the fact. Ironically, we were 

told that the Bureau would be a data-driven agency where research 

was core to its work. In contrast, the Bureau’s remitted transfer 

rule suggests that when it comes to basing its rules on a thorough 

examination of facts and data, the Bureau is not all that interested 

in living up to its own rhetoric. 

Early last year, 44 of my colleagues and I sent a letter to the 

President stating that we would refrain from considering the nomination of any person to be the Bureau’s first Director until certain 

changes were made to the Bureau’s structure, not its authorities. 

During the September hearing on Mr. Cordray’s nomination here, 

I stated that I believed that these changes would help to preserve 

the system of checks and balances embodied in our Constitution. 

Mr. Cordray’s recess appointment has shown, however, that the 

President is not much interested in any constitutional checks on 

his power. My Democratic colleagues seem to share the same opinion. 

The Bureau is budgeted to receive a total of $329 million in 

funds from the Federal Reserve Board this year. This could grow 

to well over half-a-billion dollars as early as next year. So by de-
5 

sign, these payments were made directly to the Bureau without 

any oversight through any Congressional appropriations process. 

It is also my understanding that the Bureau has already hired 

800 people, and it has been reported that the Bureau hopes to hire 

as many as 1,000 people by the end of this year, some making more 

than $225,000 a year. How have my Democratic colleagues in the 

Senate responded to this incredible bureaucratic expansion? They 

have resisted every Republican effort to make the Bureau more accountable to the American people by changing the structure. To 

make things worse, they have also cut this Committee’s funding by 

25 percent, making it even more difficult to oversee these massive 

bureaucracies that are growing in power and size under DoddFrank. 

As I have said many times, things are not getting better, just 

bigger and more unaccountable. In fact, our financial regulators 

have become bureaucracies that are now too big to oversee and it 

is only getting worse under the Democratic rule. Our financial regulators now resemble the financial firms they were created to regulate. 

The Consumer Bureau is the most recent iteration of the same 

problem. It tells the public one thing but delivers another. It 

evades the law by relying on technicalities and small print. It ignores consumers while advancing its own special interests. And it 

operates behind a facade of accountability when it, in fact, exercises unchecked power in the marketplace. 

Just as financial firms need to be held accountable, so do financial regulators. I believe that the Bureau’s short history has only 

made the case for reform even more compelling. 

Thank you, Mr. Chairman. 

Chairman JOHNSON. Thank you, Senator Shelby. 

Are there any other Members who wish to make a brief opening 

statement? 

Thank you all. I want to remind my colleagues that the record 

will be open for the next 7 days for opening statements and any 

other material you would like to submit. 

With that, Mr. Cordray, you may proceed with your testimony. 

STATEMENT OF RICHARD CORDRAY, DIRECTOR, CONSUMER 

FINANCIAL PROTECTION BUREAU 

Mr. CORDRAY. Thank you, Mr. Chairman, Ranking Member Shelby, and Members of the Committee. We want to thank you for this 

opportunity to present the first semi-annual report of the Consumer Financial Protection Bureau detailing the Bureau’s work in 

its first 6 months. 

Before I became Director, I promised Members of Congress in 

both chambers and on both sides of the aisle, including a number 

of you, that I would be accountable to you for how the Consumer 

Bureau carries out the laws you have enacted. I said that I would 

always welcome your thoughts about our work. I stand by that 

commitment today. I am pleased to be here to tell you about our 

work and to answer your questions. 

The people who work at the Consumer Bureau are always happy 

to discuss our work with the Congress. This is the 13th time we 

have testified before either the House or the Senate, and my col-
6 

leagues and I look forward to working closely with you, with the 

businesses who serve their customers in the consumer finance markets, and with the hundreds of millions of American consumers 

themselves. 

I am honored to serve as the first Director of the new Consumer 

Bureau. I am energized and inspired by the many talented people 

who work at the Bureau and I am driven by the challenges and responsibilities of our mission to protect American consumers. 

Our mission is of critical importance to making life better for 

Americans. Consumer finance is a big part of all our lives. Mortgages allow people to buy a home and spread the payments over 

many years. Student loans give young people with talent and ambition the opportunity to get an education. Credit cards give us immediate and convenient access to money when we need it. These 

products enable people to achieve their dreams. But as we have all 

seen in recent years, they can also create dangers and pitfalls if 

they are misused or not properly understood. 

During my years in State and local government, I became deeply 

engaged in consumer finance issues. I saw good people struggling 

with debt they could not afford. Sometimes those people made bad 

decisions they came to regret. Sometimes an unexpected event, like 

a loved one getting sick or a family member losing a job, overwhelmed even their most careful planning. Still other times, I saw 

unscrupulous businesses who obscured the terms of loans or engaged in outright fraud, causing substantial harm to unsuspecting 

consumers, even ruining their lives and devastating their communities. 

I am certain that each one of you hears every day from your 

friends, your neighbors, and your constituents who have these 

kinds of stories to tell. These people do not want or expect any special favors. They just ask for a fair shake and a system of consumer 

finance that actually works for consumers and a chance to get back 

on track toward the American dream. 

One of our primary objectives at the Consumer Bureau is to 

make sure the costs and risks of financial products are made clear. 

People can make their own decisions and nobody can or should try 

to do that for them. But it is the American way for responsible 

businesses to be straightforward and up front with their customers, 

giving them all the information they need to make informed decisions. That is good for honest businesses and it is good for our 

economy. 

A particular quote caught my eye recently which embodies this 

view. It goes, ‘‘free men engaged in free enterprise build better nations with more and better goods and services, higher wages, and 

higher standards of living for more people. But free enterprise is 

not a hunting license.’’ That was Governor Ronald Reagan in 1970. 

I agree with what he said and it is a view widely shared by the 

people who work with me at the Consumer Bureau. 

So another key objective is making sure that both banks and 

their nonbank competitors receive the even-handed oversight necessary to promote a fair and open marketplace. Our supervisors 

will be going onsite to examine their books, ask tough questions, 

and fix the problems we uncover. Under the laws enacted by Con-
7 

gress and with the Director now in place, we have the ability to 

make sure this is true across all financial products and services. 

The Consumer Bureau will also make clear that violating the law 

has consequences. Through our field examiners, our direct contact 

with consumers and businesses, and our highly skilled researchers, 

we have multiple channels to know the actual facts about what is 

happening in the marketplace. We plan to use all the tools available to us to ensure that everyone respects and follows the rules 

of the road. Where we can cooperate with financial institutions to 

do that, we will. When necessary, however, we will not hesitate to 

use enforcement actions to right a wrong. 

As we move forward with our work, we need to hear directly 

from the consumers we protect and the businesses who serve them. 

We do this on our Web site, consumerfinance.gov, where customers, 

consumers, and businesses are all able to tell us their stories. 

We also make it a point to get out of Washington regularly and 

hear from people firsthand. Thus far, we have held town hall meetings in Philadelphia, Minneapolis, and Cleveland, and a field hearing in Birmingham. We are hearing from thousands of Americans 

about what works and what does not. We are listening closely and 

we hope that many of you will join us at these events when we 

come to visit your communities. 

Accomplishing our mission will take time, but as you can see 

from our semi-annual report, we are already taking important 

steps to improve the lives of consumers. 

Thank you. I look forward to your questions. 

Chairman JOHNSON. Thank you very much for your testimony. 

As we begin questions, I will ask the Clerk to put 5 minutes on 

the clock for each Member and hopefully we will have two rounds. 

As Director, you will be expected to be independent, exercise 

independent judgment, and act independently from the White 

House and the Treasury Department. Are you prepared to act independently and use your own judgment? 

Mr. CORDRAY. Mr. Chairman, yes, I am, and yes, we are. We understand that our role under the law is to be an independent Federal agency and our job is to carry out the laws that Congress has 

enacted and protect consumers in the marketplace. We will, 

though, stand with public officials of both parties from all over the 

country, Federal, State, and local, who want to work with us to 

protect consumers. That will help us do our work. 

Chairman JOHNSON. You have talked about reducing the regulatory burden on small community banks and credit unions. How 

will you ensure that the right balance is struck between consistent 

protections for consumers and your suggestion for tiered regulation 

for small institutions in the Consumer Bureau’s rulemaking? What 

other actions can the agency take to minimize the impact of regulations on these institutions without sacrificing protections for consumers? 

Mr. CORDRAY. Thank you for raising that issue, Mr. Chairman. 

Many people raised that with us. Many of the Members of this 

panel have raised that with us. First of all, I can say that I have 

made a promise openly at this Committee hearing when I was up 

for my nomination that we would work to reduce the burdens of 

our work on community banks and credit unions, who I firmly be-
8 

lieve, and have said before and will say constantly, had very little 

to do—nothing, really, to do—with bringing on the financial crisis 

and have a traditional model of doing business that is consumer 

service oriented, is community oriented, and is the kind of model 

we want to encourage in this marketplace. 

I have told the community banks that I am going to create a special advisory panel of community banks to speak directly to me and 

to the Bureau about the work we are doing, to raise their concerns 

with us and to inform us about how we are doing and how what 

we are doing affects them. I have also pledged to do the same with 

the credit unions. 

We also are going to be mindful of that in each of our 

rulemakings. The remittance rule, which was mentioned earlier, 

that we have finalized the beginnings of that rule, includes also a 

proposed rule where we are considering further and seeking broad 

input on whether we should set a threshold for that rule so that 

community banks and credit unions below a certain threshold can 

be free of its burdens, where the burdens really outweigh the benefits to their consumers and to those institutions. So that is something we will continue to consider in that case over the next several months, and we are going to take a similar approach wherever 

it is feasible, wherever it makes sense to do so, in consultation with 

the community banks and credit unions. 

Chairman JOHNSON. In November, the GAO released its annual 

audit of the Consumer Bureau’s fiscal year 2011 financial statements. The GAO gave the CFPB a clean audit and the highest rating that not every agency receives. What steps will you take, Director Cordray, to ensure the Bureau continues to lead by example 

with its own finances? 

Mr. CORDRAY. Mr. Chairman, we were gratified to get a clean 

audit and a strong audit from the GAO. As you know, we are subject to multiple audits per year and also to oversight by the Inspector General of the Federal Reserve. As a public official, it has always been important to me personally that we be able to show a 

strong record of audits in my offices—as a county treasurer, as a 

State treasurer, as a State Attorney General. In each of those offices, I inherited problems in the prior audits that we cleaned up 

and we had clean audits during my time there. I expect and intend, 

and it is important to me personally, to try to maintain a similar 

record here in this Federal agency. 

Chairman JOHNSON. How will your recess appointment impact 

the work of the Consumer Bureau? 

Mr. CORDRAY. I do not know that it will impact it at all, sir. I 

understand that I have been appointed as Director. That gives me 

responsibilities under the law to carry out, both myself and the Bureau. It feels that my legal responsibility is to do the best job I can 

at that and that is what I am totally focused on doing. 

Chairman JOHNSON. Leveling the playing field among financial 

institutions is an important part of the Consumer Bureau’s 

nonbank authority. Future rulemakings should provide consistent 

protections for consumers and regulations for all institutions that 

offer similar products. Many people are awaiting your nonbank 

large market participant rule. That rule will also provide businesses which will now be regulated by the Consumer Bureau with 
9 

some legal certainty. When will the large market participant rule 

be finalized? 

Mr. CORDRAY. The larger participant rule will be finalized on the 

statutory timeframe, which is by this summer. We are underway. 

I believe we have already put out a notice where we have asked 

for comment and we have received many comments already on 

what we might propose as that rule. We will be bringing out the 

proposed rule soon. It will be subject to the notice and comment 

process and we will transform that into a final rule on the statutory deadline that we have been given by the Congress. 

Chairman JOHNSON. Senator Shelby. 

Senator SHELBY. Thank you, Mr. Chairman. 

Mr. Cordray, as I noted in my opening statement, recently, you 

stated that the Bureau will convene small business panels as part 

of its rulemaking. And your quote is, ‘‘not just because the law tells 

us to do so, but because we recognize that it will help us do our 

work better.’’ It is a good quote. 

However, the Bureau did not convene a panel before publishing 

the final rule on remittance transfers. I understand that you believe you were not legally required to hold panels for this rule because the Federal Reserve Board proposed the rule, but the intent 

of Congress, I thought, was pretty clear regarding the potential effects of your rules on small and medium-sized businesses. 

I am concerned that you have already displayed a propensity, 

perhaps, to use technicalities to achieve your own goals. Perhaps 

I am wrong. Could you explain your actions or the actions of the 

Bureau—I know you have not been there long—regarding the small 

business panels and your intentions in the future? We think that 

is important, to comply with the letter and the spirit of the law. 

Mr. CORDRAY. Yes, Senator. I agree, and let me clear up the 

record on that. I appreciate the opportunity to do that. 

Senator SHELBY. OK. 

Mr. CORDRAY. So, as I said, the small business panels—I meant 

it then and I mean it now—are both required by the law, except 

in certain instances, and they will help us do our work better. 

With respect to the remittance rule, that was a rule that was 

proposed by the Federal Reserve before we became a Bureau. We 

inherited the rule and took it through to completion. In the law, 

the timing that the Congress created on small business panels is 

that they are to be convened and we are to get their input prior 

to proposing a rule. So for the remittance rule, that time had 

passed before we gained any authority over that rule. 

What we did was we solicited broad input from all comers, including small businesses and others, and we took that into account 

in proposing the final rule, which has been adopted, and in further 

proposing the rule that I mentioned a moment ago, which is to set 

a threshold below which we may well find it appropriate to exempt 

smaller institutions entirely from the burdens of that, if that is appropriate. 

We do intend with our next rule, which is the consolidation of 

the forms for mortgages, to convene small business panels. In fact, 

that is underway now, the process for doing that. And we will do 

it as the law requires in every instance, again, not just because the 

law tells us to, but because it is a good idea. 
10 

Senator SHELBY. Would you look at the possibility of revisiting, 

if you thought it was necessary—other people thought it was necessary—the rule that you just passed regarding remittances? I do 

not know the details of it. I just know it is going to cost a lot of 

money to comply with. 

Mr. CORDRAY. Well, you know, it needs to be put in perspective. 

Our understanding is it will cost a quarter for every $100 of remittance transfers. It is a price to pay—— 

Senator SHELBY. You are saying 25 cents, not a quarter of the 

hundred dollars, but 25 cents. 

Mr. CORDRAY. Twenty-five cents per $100, or a quarter-of-a-cent 

per dollar. That is a price to pay, but it is a small price to pay for 

the fact there has never been any consumer protections for people 

who sent money overseas, often to loved ones and family members 

where they could not tell what money was going to be actually received. It was on them to have to take on the burden of any errors 

that were made. These people deserve consumer protections. 

Senator SHELBY. I want to get into the area of safety and soundness in the Federal Deposit Insurance Corporation. The DoddFrank Act does not require you, as Director, to consider the safety 

and soundness of institutions or the potential for bank failures 

when you engage in rulemaking, supervisory or enforcement actions. In fact, the drafters of Dodd-Frank were adamant about this. 

They argued that a safety and soundness check on your actions 

would essentially, quote, ‘‘gut your agency.’’ You stated that the 

Federal banking regulators, and I will quote you again, ‘‘have safety and soundness as their primary concern. We have consumer protection as our primary concern.’’ 

How do you intend to reconcile your actions at the Bureau, where 

I presume you will give no consideration to the safety and soundness of institutions, with your responsibilities as a Board member 

of the FDIC where there you must consider the safety and soundness of individual institutions? It looks to me like it should be a 

balance there, because safety and soundness is important, but so 

is consumer protection, both. I do not think you have one without 

the other. If you do not have safety and soundness, you might not 

have that institution. You will not have. 

Mr. CORDRAY. Yes. I agree with that, Senator. I think it is a balance. What I said was their primary responsibility is safety and 

soundness. Our primary responsibility is consumer protection. I 

think it would be highly irresponsible if we were to pay no attention to safety and soundness. We are going to be consulting and coordinating with the other banking agencies at all times. That is 

why I believe Congress put us on the Financial Stability Oversight 

Council, to work with them, and to take account of their views. 

I agree with you, it would be irresponsible to think you can protect consumers while you are killing off institutions that are serving consumers. That does not fit together. 

Senator SHELBY. There has got to be a balance, has there not? 

Mr. CORDRAY. I agree. 

Senator SHELBY. And you are going to try to have a balance? 

Mr. CORDRAY. We will do that by listening closely to our fellow 

banking agencies who have that as their primary mission. I serve 

on the FDIC Board with them—— 
11 

Senator SHELBY. I know that. 

Mr. CORDRAY.——and yes, we will. 

Senator SHELBY. The area of too big to fail, very important to a 

lot of us and I hope to you. During the Senate’s consideration of 

the Dodd-Frank Act, it voted down an amendment by Senators 

Brown and Kaufman which would have limited the size of banks. 

Under the amendment, no bank would have been permitted to hold 

more than 10 percent of the total amount of insured deposits and 

a limit would have been placed on nondeposit liabilities of each 

bank at 2 percent of GDP. This amendment would have ensured 

that the failure of a single financial institution would not bring 

down the entire system. I supported the amendment. 

Do you support limiting the size of banks as proposed by the 

Brown-Kaufman amendment, and if not, what steps would you 

take to ensure that banks are not too big to fail? 

Mr. CORDRAY. Senator, my understanding of our authority at the 

Consumer Bureau is we do not have any authority over those 

issues. We do not have any authority to limit the size of banks. We 

do not have any authority to set interest rates or the price of financial products. I do not know—— 

Senator SHELBY. But you are on the FSOC, are you not? 

Mr. CORDRAY. I am on the FSOC. 

Senator SHELBY. Now, that is a consideration of too big to fail. 

Mr. CORDRAY. Mm-hmm. 

Senator SHELBY. So you do have some—maybe not in the Bureau—— 

Mr. CORDRAY. Yes. Yes. 

Senator SHELBY.——but then by cause of your other placement 

of where you serve, right? 

Mr. CORDRAY. Yes—fair enough. I would say, just to be honest 

with you, sir, I do not know that I have enough perspective at this 

point to assess the pros and cons of that amendment, so—— 

Senator SHELBY. Well, Dr. Volcker stated here before, perhaps if 

they are too big to fail, they are too big to exist, maybe. You know, 

you have got to think about the taxpayer and so forth. 

Mr. CORDRAY. Mm-hmm. Mm-hmm. 

Senator SHELBY. Thank you, Mr. Chairman. 

Chairman JOHNSON. Senator Menendez. 

Senator MENENDEZ. Thank you, Mr. Chairman, for calling this 

hearing. 

In the worst financial crisis in generations, consumers were not 

protected from the tricks and traps, and Federal regulators were 

often more concerned about the interests of Wall Street than Main 

Street. And we now have an obligation to hold both Wall Street 

and non-Wall Street lenders and providers of financial services accountable for whether they treat consumers fairly, and it could be 

done by laying down clear rules of the road, and so that is why I 

look forward to your work at the agency. 

Let me ask you a couple of specific questions. I want to ask you 

about prepaid cards, something that I have been pursuing for a 

while now, a product whose use has exploded in the past few years, 

especially among under-banked consumers. Since credit cards, 

debit cards, and gift cards have all been regulated to some degree, 

prepaid cards remain one of the few largely unregulated products 
12 

in the marketplace. And as for the fees consumers pay on them, 

there are a wide range of undisclosed, and I believe in many cases 

unreasonable, fees, and they certainly do not come with FDIC insurance or protection against theft or loss for the consumer. So we 

have introduced legislation, the Prepaid Card Consumer Protection 

Act. What progress has the Bureau made in analyzing this issue 

and moving forward on consumer protections on these cards? 

Mr. CORDRAY. Let me say a couple things in response to that, 

Senator, and we appreciate your particular interest in this subject 

and the legislation you have introduced on the concerns you raised, 

both disclosures and transparency on these products and also protections for the money that people have, in effect, deposited with 

the product as opposed to with a banking institution. 

There are two phenomena at work here. Number one, prepaid 

cards are an example of the tremendous innovation that occurs all 

the time in the financial markets. You know, just in my generation, 

when I was a kid, credit cards were a new and exotic product. Now, 

they are almost universal in our economy. Debit cards are a more 

recent product that are now widespread and in common use. Prepaid cards are one of the newest products, but obviously on the cutting edge of finance. More and more people are beginning to use 

them, so we need to look and make sure that there are appropriate 

protections for consumers there. Sometimes it takes the law and 

the regulatory scheme time to catch up with innovations. 

I would also say that it is reflective of the fact that regulation 

can push usage around in the market. As you said, there are now 

protections and constraints on credit cards and new ones recently 

on debit cards. That is pushing the market more toward prepaid 

cards, which are not subject to that. So we certainly want to have 

some sort of level playing field so that products are being chosen 

by consumers and offered by institutions based on their merits, not 

because there is some sort of differential regulatory regime. 

Senator MENENDEZ. Well, we certainly appreciate innovation and 

we want to see innovation. By the same token, when you see a 

market that goes from the regulated process to the unregulated 

process, there is a reason—— 

Mr. CORDRAY. Yes. 

Senator MENENDEZ.——and part of that reason, it is far more 

profitable, because very often the circumstances under which that 

profitability is achieved is at the expense of the consumers in a disproportionate fashion. 

Mr. CORDRAY. Mm-hmm. 

Senator MENENDEZ. So is this an area the Bureau is going to be 

looking at? 

Mr. CORDRAY. Yes. It is an area we are looking at. It is an area 

of concern for both the reasons I stated. We are also aware that 

the Congress is looking at it, and certainly if you legislate on the 

subject, we will be happy to carry out the laws as you enact them. 

Senator MENENDEZ. Let me ask you, you mentioned about, in 

your opening statement, about simplified rulemaking, particularly 

for smaller institutions. That is something that I think is welcome 

to a lot of the Members’ ears here. Along these lines, can you tell 

the Committee how your agency will craft regulations and provide 

regulatory guidance in a way that makes compliance simple and 
13 

workable for community banks and small nondeposit regulated entities? 

Mr. CORDRAY. Sure, and I will say two things about the work we 

are already doing. Number one, we are trying to be highly inclusive 

in going about this. It was mentioned earlier that maybe the Bureau has given the impression, some thought, that we know best. 

What we find is we will know better as we hear from others, both 

the people who operate in these markets, the financial institutions 

themselves, and the consumers who tell us about impacts. So our 

‘‘Know Before You Owe’’ projects are pitched entirely around getting the input that allows us to streamline, simplify, and render 

more transparent the disclosures here. 

We also have inherited a huge thicket of rules from other agencies, and we have already published a public Federal Register notice asking people broadly for their ideas about how we can streamline those rules, cut down burdens that are not delivering benefit 

to consumers. We are in the comment process on that. We will 

have comments back sometime later next month. And then we are 

going to set to work at seeing what we can do to show people that 

we can streamline rules and be an agency that is mindful of the 

burden on financial institutions as well as delivering value for consumers. 

Senator MENENDEZ. Mr. Chair, if I may, one last question, particularly to the minority community in the country, very important. 

One of your mandates is to facilitate innovation through transparency, and one study suggests that half of the country, over a 

hundred million adults, cannot find $2,000 in an emergency if 

given 30 days to do so. Has the Bureau or does the Bureau intend 

to look into how to meet the credit need of this very large and underserved population? 

Mr. CORDRAY. Yes, Senator, and we actually started. We had a 

field hearing in Birmingham a couple weeks ago which was our 

first beginning look at the market where it is clear that in this 

country, as you say, there is a clear consumer demand for shortterm, small-dollar loans to help people get through crises, emergencies, when they do not have a stash of money that they can 

draw on or they do not have a friendly relative who is willing to 

pony up that money for them. 

There are a number of products out there that are serving that 

need. We want to make sure that those products are actually helping consumers rather than harming them. But it is a significant 

problem that has been unsolved in this country, I believe, is that 

there is this demand. We need to fulfill this demand and we need 

to spur competition to fill that demand, and that is something that 

we are thinking about very carefully. We do not have all the answers on it, frankly, but over time, we are going to be trying to figure it out and working with industry and consumers to understand 

it. 

Senator MENENDEZ. I look forward to working with you. 

Thank you, Mr. Chairman. 

Chairman JOHNSON. Senator Corker. 

Senator CORKER. Thank you, Mr. Chairman, and thank you for 

having the hearing, and Mr. Cordray, thank you for coming. Especially in light of the circumstances over the last period of time, I 
14 

appreciate the time you have spent with us in our office and on the 

phone and the conversations that we have had. 

You know, the title of the hearing is interesting, ‘‘Holding the 

CFPB Accountable.’’ In this role as set up, who is it exactly that 

you do report to? 

Mr. CORDRAY. Well, I would say that we are on the same level 

with every other independent Federal agency in the Federal Government, and particularly with the other banking agencies. Ultimately, in my view, we report to Congress. You are the ones who 

enacted—— 

Senator CORKER. But who exactly do you report to, really? I 

mean there is no board or anything. So who do you report to? 

Mr. CORDRAY. In my view, I report to Congress. I was in front 

of the House Oversight Committee last week to report to them at 

their request. I am here in front of this panel today at your request. I will be here as often as you want me to be, or meeting privately, so that you know exactly what we are doing and you have 

input into what we are doing. 

Senator CORKER. And each year when your agency needs funding 

and kinds of questions like our Chairman asked about being efficient and all of that, who is it that you seek those appropriations 

from each year? 

Mr. CORDRAY. Under our law, which is what gives us authority, 

the Congress enacted that we follow, we receive funds from the 

Federal Reserve—— 

Senator CORKER. So no one. 

Mr. CORDRAY. We are equivalent to all of the other banking 

agencies who do not go through the Congressional appropriation 

process, but we are subject to being brought up here and having 

you grill us and talk to us about exactly your thoughts about how 

we are spending money—— 

Senator CORKER. So let me ask you a question. Regardless of how 

people feel about the health care legislation that passed, I do not 

think there is any question, but yet some of the constitutional challenges that are going to the Supreme Court have sort of muddied 

the water. Regardless of how you feel about it, States are not sure 

exactly what they are going to do. 

Have you all had conversations, especially over the last couple of 

weeks, within the agency about the fact that there is no question 

that most of the rulemaking that you do, or much of it, will be challenged constitutionally because of the way things have occurred 

that have nothing to do with you, but they have just occurred. 

Have you all had any conversations regarding that whatsoever? 

Mr. CORDRAY. We have had consideration of it. I have been 

thinking of it myself. It feels to me that—you know, I have been 

appointed as the Director. I understand that there are concerns 

and issues people have about that. Having been appointed as the 

Director, though, I have legal responsibilities under the law that 

you all enacted that I have to carry out. I have to do that. I am 

going to do the best I can with that—— 

Senator CORKER. I understand that and I appreciate that, and 

actually, I appreciate the way you have answered many of the 

questions today. But what I think you have said is you have actually had internal conversations with your staff about the fact that 
15 

as these rules are made, there is no question that there are going 

to be constitutional challenges to those, which in many ways, instead of creating predictability out in the consumer market and 

predictability out in the financial markets, we are going to have 

challenges. I would predict many will rise to the level of the highest court in the land. So it is an interesting place that you find 

yourself, again, not of your choosing. 

Let me ask you this, moving on to policies. Risk-based pricing is 

something that has been very much a part of our financial system. 

Those people who pay late pay more, and those people who pay on 

time typically get credit at lesser rates. We had conversations with 

someone who was going to be potentially in your position prior to 

moving on to Senate races and those kind of things and it appeared 

to us that they did not really believe in risk-based pricing. I am 

just wondering if you could really clearly state to us, when people 

pay late, should they pay more? When they have lesser credit, 

should they pay more for credit? Is that a concept that you are 

going to reinforce in the consumer agency? 

Mr. CORDRAY. Senator, I believe that is the way the market 

works. I mean, when you price a product, you have to take into account cost. One of the costs that you have to take account of is 

risks of default, risks of loss. They can come from many different 

sources, not just the fact that someone on the other end of the bargain does not follow through. But that certainly is something that 

I think any responsible business may have to take account of in 

pricing their product. 

Senator CORKER. I notice that you send out emails. I get them 

regarding if I have heard any stories about things that have happened, to please share them, when somebody has had problems. 

And by the way, I hope we have a consumer leader like yourself 

that will pursue those kinds of things. I think all of us want to ensure that when we have bad actors—and we do. I mean, that just 

happens. We have bad actors from time to time that need to be 

prosecuted. 

Are you also with equal vengeance, though, sending out those 

emails to people who know of borrowers who committed fraud, who 

purposely turned in the wrong income statements and those kinds 

of things? Are you going to be rooting out that kind of activity, 

also? 

Mr. CORDRAY. Well, we do not ourselves have criminal authority, 

as you know, but we can make referrals. Over the years, when I 

was Attorney General and at the local level, I saw bad conduct by 

some businesses and I saw bad conduct by some individuals and 

consumers. And in the real estate market, the flipping and other 

types of scams and frauds involved, you know, both types of parties. 

Senator CORKER. So you are going to pursue both with vengeance? I have not received any of those emails yet, by the way, but 

I look forward to receiving them. 

I will just close with this. You know, both the Chairman and 

Ranking Member brought up issues of cost. I do hope—I think one 

of the concerns that people had with the agency being set up as it 

was and not being concerned about the financial system itself. I do 

hope you will pursue the aggregate cost of credit. 
16 

I spent my life—I spent my civic life prior to being here focused 

on issues relating to low-income citizens and that is really why I 

am in the Senate today. I find that a lot of times when we think 

we are doing something good as it relates to credit, what we actually do is limit credit for people who are less fortunate and have 

lower incomes. I hope as you look at this, you will take that into 

consideration, the aggregate cost of credit in general, especially as 

to lower income, and I thank you for your service. 

Chairman JOHNSON. Senator Akaka. 

Senator AKAKA. Thank you very much. Good morning, Mr. 

Cordray. Welcome to the Committee. 

Mr. CORDRAY. Thank you. 

Senator AKAKA. For the first time in history, we have an agency 

with a singular consolidated mission, to provide a voice for the consumers of our country, to protect consumers from the predatory 

lending practices that contributed to the economic crisis from which 

we are still recovering, and to empower and educate consumers to 

make informed financial decisions. Mr. Cordray, I am very pleased 

to welcome you here to this hearing and am confident that you will 

make the Consumer Financial Protection Bureau a strong defender 

for consumers. So I look forward to working with you. 

Some Senators have expressed a view that eliminating the Director of the Consumer Financial Protection Bureau and creating a 

board instead would improve accountability. In my view, having a 

single director responsible for the Bureau’s results promotes accountability, efficiency, and effectiveness. The Government Accountability Office has repeatedly emphasized the importance of focused sustained leadership to tackle complicated challenges. 

Director Cordray, can you please discuss how, in your view, the 

Bureau will be held accountable to the American people? 

Mr. CORDRAY. Well, thank you, Senator. I think that we are held 

accountable in the law in a number of ways. I have said, there are 

different bodies and independent agencies that are structured in 

different ways. Some have a board. Some have a board and a director. Some have a director. There are examples of each and they all 

can work well. 

I do think that in our situation, the law that we are carrying out 

provides for a single director. That means there is one person, in 

this case myself, who sits here and is responsible to you to answer 

your questions, and if I cannot give you a satisfactory answer, I am 

responsible to go back and get that answer and bring it back to 

you. There is no passing the buck. There is no, I would like to say 

this but others might say something else, diffused responsibility. So 

there is something to be said for that. 

But the accountability here, as I said before, I think lies from our 

Bureau to Congress. You are the ones who passed the laws that 

give us the only authority we have to do anything. We are responsible to you for how we carry out those laws. You can bring us here 

to testify at any time. You can have us come to meetings and brief 

your staff, as many of you have done, and we will listen closely to 

you and try to make sure you know exactly what you need to know 

about the work we are doing and have input into that work. 

Senator AKAKA. Director Cordray, a Government Accountability 

Office review of the Federal financial literacy efforts received sig-
17 

nificant attention last year. However, contrary to media’s inaccurate reporting, GAO did not find evidence of overlapping duplication among the 56 programs and did not identify cost savings that 

would result from consolidating financial literacy programs. According to GAO, this issue was examined by the previous Administration, which found that each program was targeted to a specific 

audience, such as students or veterans, and carried out by an agency with expertise for a given topic. As a result, GAO noted that 

fragmentation of financial literacy efforts makes coordination essential. Specifically, GAO recommended CFPB coordinate closely 

with Treasury to clearly define financial literacy roles and activities to make the best use of resources. 

My question to you is, what steps has the Bureau taken to address this recommendation? 

Mr. CORDRAY. So that is a good question, Senator. It is critically 

important that there be coordination. The law has provided that 

there is the Financial Literacy and Education Commission called 

FLEC and set up the Director of the Consumer Bureau to be the 

Vice Chair of it, working with other agencies. But it goes beyond 

just other agencies. There are a lot of nonprofits. There are a lot 

of private sector banks and others who offer financial literacy efforts. There is no need for us to reinvent the wheel. 

When I was a State Treasurer in Ohio, we worked for financial 

education in our schools and we eventually got a law passed that 

changed it so that every high school student in Ohio now has to 

have personal finance education before they can graduate. I think 

that is a good model for the Nation. But there is lots of curriculum. 

There is lots of material out there. A lot of it is very good material. 

And if we coordinate with one another, we can save resources and 

be more effective and more efficient. That is what I think the Financial Literacy and Education Commission is intending to do and 

that will be my approach to it as the Vice Chair. 

Senator AKAKA. Thank you. Thank you very much, Mr. Chairman. 

Chairman JOHNSON. Senator Johanns. 

Senator JOHANNS. Mr. Chairman, thank you. 

Mr. Cordray, thank you for being here with us today. Today, I 

want to visit with you about some thoughts I have about your appointment, not necessarily to revisit that and stir that up, because 

I think that is going to happen. I think there is going to be litigation that will make that happen. But in my mind, your being here 

today raises some very fundamental questions about the Constitution, about the interrelationship of the President with Congress, 

and ultimately, at the end of the day, the extent of your power in 

this position. 

Now, my views on this are not isolated views. Let me, if I might, 

kind of set the stage here with some references to some people who 

have served as United States Senators, some who I have great respect for. Then-Senator Barack Obama, when a recess appointment 

came out of the Bush administration, referred to recess appointments as the wrong thing to do. He referred to a recess appointee, 

not necessarily that specific appointee, but a recess appointee as 

damaged goods. That is his words. And then he referred to the situ-
18 

ation the country would find itself in and he said, quote, ‘‘We will 

have less credibility,’’ because of that recess appointment. 

The Majority Leader, Minority Leader at the time, described it 

as an end run around the Senate and the Constitution. He called 

it an abuse of power. 

Senator John Kerry, again, a gentleman that I have worked with 

and have a lot of respect for, referred to recess appointments as an 

abuse of power of the Presidency. 

Sometimes in this business, there is a certain amount of political 

push and shove that goes on, obviously. I do not think that is what 

they were talking about here. I think they were talking about genuine issues of constitutional power. 

Now, in your case, if we accept the premise of your validity in 

this position, then we accept the premise that our ability to offer 

advice and consent basically disappears because the President can 

determine when we are in recess and when we are not in recess 

and just appoint whomever, and then we do not have a constitutional provision for advice and consent of the Senate. 

Now, I have been through that process. I have a tremendous 

amount of respect for that process. I think I benefited greatly and 

I hope the country benefited greatly from me going through that 

process and seeking a vote of the Senate. And I had no idea when 

I started it whether I would win or lose. 

Now, there is even a greater challenge here. We took the opportunity to do some research, and there are not a lot of cases out 

there, as you might expect, on the issue of what impact does this 

have on your power, but back in 1989 when Congress created the 

Office of Thrift Supervision, there was a challenge to the Director, 

and I want to read something to you. Judge Lamberth of the, I 

think it was the U.S. District Court for the District of Columbia, 

found that the company that was raising the challenge, and I am 

quoting here, ‘‘was subject to regulation only by individuals with 

legal authority to act.’’ He then goes on to say, ‘‘Because the Director was not properly appointed, he has no power or right to exercise the Director’s appointment powers than this court does,’’ and 

then says Olympic has the ability to seek an injunction to restrain, 

to stop the Director. 

So not only do we have this constitutional issue, which I think 

is fundamental to our power of advice and consent under the Constitution, but if you are successfully challenged, would you agree 

with me that your actions will be invalid during the time that you 

are in this position? 

Mr. CORDRAY. Senator, I do not know that I believe that is clear 

cut one way or the other. It is also not clear cut by any means that 

this is not a valid appointment. I believe it is. I have read the Justice Department’s opinion, which I thought was persuasive. 

But in any event, I do take your point and your concern. I know 

that you went through a confirmation process to become a cabinet 

officer. Undoubtedly, you appointed numerous people when you 

were Governor who went through confirmation processes. You are 

very familiar with this process. 

As you know, I was in this process. I was nominated in July, 

came up, had a hearing here, met with many of you and appreciated the opportunity to meet with you, and ultimately went to a 
19 

vote. So I benefited by months of that experience and understanding over the course of it, the value of hearing from and having 

input from the Senators who took the time to spend time with me 

and give me their views about my appropriate role. 

I have been appointed as Director. There may be issues about 

that. I understand people have different points of view about that. 

But I now have legal obligations I am supposed to carry out for this 

Bureau. I am going to do that. We are going to continue to walk 

straight ahead, one step at a time, trying to fulfill our legal responsibilities, and that is, it seems to me, the best I can do at this 

point. 

Senator JOHANNS. I have run out of time, but I will wrap up with 

this. I cannot imagine how anybody could maintain under the circumstances that your appointment and your service is valid. And 

I cannot imagine, then, based upon the precedent that I see, how 

the actions you are taking will be upheld, and I think that is a 

very, very serious consequence for our Nation. 

Thank you, Mr. Chairman. 

Chairman JOHNSON. Senator Brown. 

Senator BROWN. Thank you, Mr. Chairman. 

I just, simply put, cannot believe we are still having this debate. 

The job of—Richard Cordray’s job is so important. We know what 

all kinds of people have said. The American Financial Services Association, a trade group for consumer lenders, said there is a receptivity by the CFPB to learn that is very refreshing. They want to 

get it right. 

The American Bankers Association said the agency approach to 

bank oversight was pretty good news. The Independent Community 

Bankers called the process for refining model mortgage forms refreshing. It was clear, more to the point, and was a substantial improvement. 

The CFPB had its banks audited by GAO, which found their financial statements are fairly presented in all material respects. 

There is strong, effective internal control over financial reporting. 

The Acting Comptroller of the Currency, not exactly known for 

his hostility to banks, has said last week that some attempts to 

regulate the opaque over-the-counter derivatives market might be 

an overreaction. 

All of these speak to the focus of this agency and the effectiveness of this agency, and that we are still having this debate—and 

let us lay out some facts before people continue here to play this 

inside baseball game that the country simply does not care about, 

that President Obama has overstepped or overreached. 

First of all, President Bush made 171 recess appointments. President Clinton made 139 recess appointments—eight years, I understand. President Obama has made only 32 recess appointments, 

and his recess appointments in large part are because one political 

party, the other political party, has blocked time after time after 

time even bringing these to a vote. We were not saying to my colleagues on the other side of the aisle, vote for Rich Cordray. We 

were just saying, give him a vote. This is the first time, as I have 

said in this Committee and on the floor a number of times, the first 

time in American history, according to the Senate Historian, where 
20 

a political party has blocked a nominee simply because they do not 

like the agency. 

So if the other side would get their way on this and that precedent would stand, the next time there is a Commissioner appointed 

for the FDA, are we going to say, we are not going to approve him 

until we weaken food safety laws, as Senator Jack Reed has said? 

Is that the way we are going to operate this place? We cannot operate this Government when one party says, we are not going to confirm somebody because we do not like the agency over which he— 

which he will administer or regulate. 

In the end, we know that the other side was simply doing the 

bidding of Wall Street. That is what they have always done. That 

is what they are doing today. That is what they will continue to 

do. 

But this agency has important work to do. You can see already 

their effectiveness, when people from whom you would not expect 

compliments like that are saying those positive things. 

So let us put that aside and talk about Rich Cordray, about what 

the Consumer Bureau can do, as in my Subcommittee when Skip 

Humphrey testified about what they are doing with seniors to protect seniors, and what Mrs. Petraeus, Holly Petraeus has talked 

about, how we protect veterans. That is why these agencies are 

here, not to score political points but to protect them against the 

kind of financial service abuses that too many veterans, too many 

seniors have been subjected to. 

In my last minute or so, I would like to ask Mr. Cordray a question. Every year, I invite college presidents from around Ohio, 

about 55 or 60 of them, 2-year, four-year, private, public schools, 

to come to Washington. We spend a day, day-and-a-half talking 

about issues that affect them, whether it is their graduates finding 

jobs, whether it is student loans, whether it is affordability generally, whether it is training scientists, all the things that our colleges and universities do so well. 

One of the issues that we addressed most recently is the rising 

cost and the strain that student loans are putting on middle-class 

kids and working-class kids that graduate from college with far too 

much debt. That is why I proposed the Private Student Loan Ombudsman Office that was included in the CFPB. Mr. Cordray, tell 

me what the Bureau has done to address the rising level of educational debt in the country. What are your future plans as you 

begin to run this agency and figure out how to protect students in 

these kinds of situations? 

Mr. CORDRAY. Sure, Senator. First of all, you will be pleased to 

know we have hired a terrific individual, Rohit Chopra, to serve as 

that Private Student Lending Ombudsman in the agency. 

We also have made student loans one of the focuses of our ‘‘Know 

Before You Owe’’ project. We reached out to the Department of 

Education, trying to work in partnership with those who are relevant in the space, and we developed a Student Aid Shopping 

Sheet which is now being promoted around the country to simplify 

and clarify for young people and their families, who very often it 

is the first time they have undertaken an obligation of this size and 

magnitude and it is going to be critical to the future of that child 

and their opportunities, exactly what they are getting into, exactly 
21 

what the terms of their loans would be, the repayment terms, the 

cost, their interest rate and the like. 

And we are also working to further promote clarity around the 

repayment terms of student loans. We have a calculator tool on our 

Web site that people can use, young people who often do not appreciate the difference between Federal student loans and private student loans, to understand the difference in terms, to understand 

the timing of repayment. 

And we are going to look for more opportunities to try to positively affect this marketplace. It is too important for young people. 

You and I both know many, many young people who could not get 

a college education or any higher education, community college 

with vocational training, if they did not have help and loans, and 

they cannot get it from their family. And they need to understand 

the choices they are making so that they can make good decisions 

about their future. And the Bureau stands ready to assist and to 

help this marketplace be clear and transparent for them. 

Chairman JOHNSON. Senator Moran. 

Senator MORAN. Mr. Chairman, thank you very much. 

I had no intention of going down the path of your confirmation 

process except I will now respond to my colleague from Ohio. 

Whether or not Mr. Cordray was confirmed had no effect upon the 

consequences of Dodd-Frank to Wall Street. And to suggest that at 

least I had refused to confirm Mr. Cordray because of my protection of Wall Street, I find unfounded. And I cannot imagine that 

there is not a constitutional issue about what Article II, Section 2 

of the United States Constitution means when it says the President 

can make appointments when the Senate is in recess. So that issue 

is—certainly presents itself—I do not think it presents itself today. 

It has presented itself or will present itself in court. I did not intend to use this hearing as an opportunity to rehash this issue, but 

I do want to respond to the gentleman from Ohio to indicate that 

I simply disagree with his premise about those of us who found 

fault, not with Mr. Cordray but with the confirmation, or the lack 

of confirmation and the President’s appointment. 

Mr. Cordray, I did not hear but understand that you responded 

to Chairman Johnson about community banking and I appreciate 

hearing that. I would indicate to you that in my short period of 

time as a United States Senator, trying to get a regulatory environment in which community banks can lend money to creditworthy 

borrowers has been a cause of mine, and it seems to me that the 

regulatory environment in which they operate is oppressive and 

uncertain. And so your suggestion about appointing an advisory 

group of community bankers, of lenders to advise you, I certainly 

do not disagree, would suggest that is valuable. 

But I would only point out that at every opportunity in which I 

have had to question witnesses from the OTC, the Treasury Department, the FDIC, they have all done the same thing. They have 

those advisory committees and yet the growth in regulations continue and the sense by community bankers that they are not understood still prevails. So I do not want to discourage you from 

doing that, but please, at least from my perspective, understand 

that that is probably not sufficient. It will depend upon your attitude and approach. 
22 

And then in that regard, before you respond, our small lenders, 

community banks, credit unions, they need clarity, not only for 

their own sake but for, in my view, the ability to grow the economy. I do think that there is a lot of reluctance on the part of many 

small businessmen and women to make decisions because they do 

not know what next is coming from Washington, D.C., what the 

rules are going to be. 

And in regard to financial institutions, the phrases that have 

been around for a long time are pretty well understood—unfair, deceptive. But the legislation that created your position has, to bankers, to us, a new word called ‘‘abusive.’’ And my request of you is 

that before you find something to be an abusive action by any financial institution, that you take the full steps of defining what the 

word ‘‘abusive’’ means beyond whatever in my view minor definitions, lack of substantive definition there is to that word in the 

Dodd-Frank legislation and would ask that you have an opportunity for public comment. 

I have seen examples in just recent days in which financial regulators have determined a practice that, until that point, was never 

considered to be inappropriate, but then go ahead and criticize a 

financial institution for that conduct. And so my request of you is 

to do what due process requires, if nothing else, fairness requires, 

define what ‘‘abusive’’ means before you find some practice to be 

abusive. 

Mr. CORDRAY. So thank you, Senator. We will be careful about 

that. And to return to the issue of community banks and credit 

unions, I have a track record on this. I was a State and local official in Ohio. I have worked with the community banks and credit 

unions in Ohio. They know me well. They have spoken to the fact 

that they found me to be a pragmatic and listening person who 

cared about and was mindful of their business model and how we 

could preserve it. 

I will say that the thing that hurt the community banks as much 

as anything was not so much too much regulation of them as a 

complete lack of regulation of many of their competitors in the 

mortgage market who did not adhere to the same standards. Sometimes people would come in asking them for a loan that they knew 

was irresponsible. They would say no, and they would see those 

people go right down the street and get a loan from someone who 

was not licensed or was not regulated and could just sell it on to 

someone else, and therefore did not have to care whether it succeeded. They would be right about the loan, but it did not matter. 

And they lost market share to those people. So our leveling the 

playing field between the banks and nonbanks in the mortgage 

market in particular is very important to protect the community 

banks and credit unions. 

Beyond that, we will be, as I have said, we will be mindful of 

burdens we are imposing on them. We will listen closely to what 

they tell us about the effects on their operations and we will do our 

best to take account of that. 

But the other thing that hurt the community banks and credit 

unions as much as anything in our lifetime was the financial meltdown, the credit crunch that toppled a bunch of community banks 

and caused many of their loans to default because of the deep re-
23 

cession we suffered. If we could have headed that off by a more 

sensible approach to these financial markets 10 years ago, community banks and credit unions could have thrived. Their model, to 

me, is the winning model. It is a customer service model. It is a 

community oriented model. It is one that we want to preserve and 

encourage, and that is my personal background and viewpoint on 

it. 

Senator MORAN. Mr. Cordray, thank you. It is—what you point 

out is accurate and it is the community bankers who believe that 

they, in most instances, had nothing to do in causing the problem 

but yet still are in the bullseye for additional regulation. 

My time has expired. I would only indicate that I am the Ranking Republican on the Appropriations Subcommittee for Financial 

Services, where we have responsibility for determining, at least initially, the appropriation for the SEC, the CFTC, the FDIC, the 

Treasury Department. While you are not subject to our Subcommittee’s jurisdiction—and I cannot speak for Mr. Durbin—I would indicate to you a desire, a willingness to have conversations with you 

about the appropriations process through the Federal Reserve and 

your funding, if you are willing to visit with me. 

Mr. CORDRAY. I would be glad to visit with you and glad to have 

our staff come and speak to your staff and make sure you know everything you need to know about what we are doing. Yes. 

Senator MORAN. Mr. Cordray, thank you. 

Mr. CORDRAY. Thank you. 

Chairman JOHNSON. Senator Merkley. 

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

I thought I would focus on this issue of the remittance fee that 

has come up. It is not addressed in any detail in your report. I assume that is because your report was covering through December 

31 and the rule was completed in January. 

But I just want to state my understanding is that when people 

seek to transfer money internationally, this rule says they need to 

be told up front how much money is going to actually arrive, in 

other words, no hidden fees, you see the full impact of the exchange 

rate that is being assigned to it. And in addition, if the money does 

not arrive or if the money that arrives is different than what the 

person was told, there is a way to fix that. Is that the essence of 

this rule? 

Mr. CORDRAY. It is, Senator. If I could say, when you or I, and 

I venture to say every one of the people who is sitting in this room, 

when we write a check or we make a bank transfer or we use a 

credit card, we are entitled to some basic consumer protections. We 

expect that, we rely on it, and it is appropriate. 

In this market, though, for people who send money overseas, 

typically to loved ones—it is one of the most steadfast, loyal acts 

I can imagine, people taking the little they have, dividing half of 

it and sending some back to mothers and fathers left behind—they 

are entitled to consumer protections, too, and that is what this rule 

embodies. 

Senator MERKLEY. Well, I think that this kind of rule is very 

compatible with a competitive marketplace. That is, if I am seeking 

to send money overseas but I cannot get a firm estimate of what 

the fees are going to be, I have no way to compare vendors and, 
24 

therefore, there is no—it rewards predatory practices. But with this 

rule, it rewards the efficient provision of services to the economy. 

Am I correct on that? It empowers the consumer to shop between 

vendors. 

Mr. CORDRAY. That is how I see it. That is how the Bureau sees 

it, and I believe that is how Congress saw it, which is why it required us to adopt a rule of this sort. 

Senator MERKLEY. Well, I appreciate that you have done so. I 

hope in your next 6-month report we will see an initial evaluation 

of the implementation. And if there are ways to make the enforcement more cost effective, more efficient, certainly that will be appropriate. 

But I was getting some numbers on the cost of a $200 transfer. 

Estimates are that the costs currently range from 3 percent to 13 

percent. That is a 10-percent spread. Now, some of that may be a 

difference in destinations, but some may be a difference in the embedded exchange rates and practices of the vendors. Certainly, 

within that 10 percent spread, the quarter that you referred to, 

that is, one-quarter of 1 percent as on a $100 transfer, and it may 

be a lower amount on a larger transfer since it is spread over the 

costs of—enforcement is spread over a larger sum—it seems like a 

small price to pay for creating a competitive marketplace and ending predatory practice and creating fairness. And if somebody just 

rips you off and never delivers the money, you have redress. It 

seems like a very small price to pay for a fair and competitive marketplace that will produce all kinds of efficiencies that will offset 

that fee. 

Mr. CORDRAY. That is the judgment I understand Congress to 

have made. It seems like a reasonable judgment. Of course, our job 

is to carry out the law regardless. But I do think that is right. And 

as I said, we are further proposing to see if there is an appropriate 

threshold we might set for community banks and credit unions that 

do not do these transactions in the normal course of business. They 

should not necessarily be subject to the same burdens, and we are 

going to be considering that over the next several months. 

Senator MERKLEY. When you speak of the same burdens, are you 

speaking of kind of the enforcement strategies or are you speaking 

of providing pricing up front, fair pricing? Would that also disappear? 

Mr. CORDRAY. That is something we are going to try to consider, 

what an appropriate threshold would be. I think that the protections for consumers, you know, the argument there is they should 

be the same. But if there are very few transactions and there are 

plenty of other places that consumers can go and we have made it 

easier for them, as you say, to shop, which is very important in this 

market, and as you say, it has not been a transparent market, it 

has not been a market that has included shopping, then we may 

well be able to exempt some of the smallest institutions that do not 

need to do the same kind of compliance as larger institutions when 

they are doing very, very few transactions. 

Senator MERKLEY. Well, I certainly applaud you for this rule, for 

fairness for American consumers, and the fact that you are setting 

the rules of the road for an effective, competitive marketplace that 

is so important in our capitalist system. I do hope in the next 6- 
25 

month report we will see an analysis as you work to continue to 

make it operate in the most effective manner. 

I wanted to turn to page 28 in your report where you mention 

that you are exploring an issue between the difference between 

credit scores sold to consumers and those that are provided to lenders. This is a new issue to me, one that I had not heard of. Can 

you just kind of summarize how this came to light and what you 

are exploring? Is this appropriate under the law? Why is there a 

distinction, and so forth? 

Mr. CORDRAY. So in the law, which, of course, is the authority 

we have, there were two studies Congress asked us to do by last 

summer. The first one had to do with remittance transfers and to 

what extent that information could be used to help create credit reports and credit scores for individuals who might not otherwise 

have enough data to score them accurately. 

The other one was we were asked to issue a report on the sort 

of variations that people have seen but do not quite understand 

among different types of credit scores. So, for example, when you 

ask for your credit report and your credit score, you may get one 

number from the credit reporting firm and yet when a bank or 

some financial institution asks for the same data to sort of judge 

what interest rate is appropriate to set for you, they may get a different set of data or it may be affected by the fact that you have 

made the request. That may be taken into account in setting the 

score. There are just lots of little things that were not well understood that might affect us. So we—— 

Senator MERKLEY. I am going to cut you off there because I now 

recognize I am over my time. I will read your report. 

Mr. CORDRAY. OK. 

Senator MERKLEY. I will be interested in understanding it. 

Thank you. 

Mr. CORDRAY. I will be happy to follow up with you or your staff. 

Senator MERKLEY. Thank you, Mr. Chair. 

Chairman JOHNSON. Senator Schumer. 

Senator SCHUMER. Well, thank you, Mr. Chairman, and I want 

to thank our witness for being here. I am happy to see he is fulfilling his duties as first Director of this historic new Bureau, one 

that I and several Members of the Committee fought hard for and 

will be one of the lasting legacies of Dodd-Frank with a real chance 

to directly impact the lives of virtually every person in America. 

Mr. Chairman, I cannot help but note the fact that we had a 

healthy attendance in Committee this morning and a healthy debate with strong views on both sides of the aisle. I heard the comments of my colleagues from Nebraska. There was a discussion last 

week on the other side to consider a boycott of the hearing and a 

few Members appear to have followed through on the boycott and 

were absent from the hearing. But the plans of a mass protest appear not to have gone over with many Members on both sides of 

the aisle, of course, including the other side, and that strikes me 

as a good thing, but also an admission that continuing to hold this 

nomination hostage until we agree to gut the Bureau that we just 

passed, notwithstanding a few of the comments, for instance, of my 

colleague from Nebraska, means that my colleagues have dialed 
26 

down some of their opposition on this issue. It is a losing fight politically for them. 

Many on the other side, wisely, do not want to continue the fight 

because they know it is on the wrong side of consumers, and the 

bottom line is we need an agency to guard the rights of consumers. 

I learned over my years in trying to simply get credit card disclosure, even though the Fed had the best of intentions, they were so 

busy with so many other things that they never got around to 

doing it. It took me 10 years to get disclosure, and then it had all 

the intended effects of bringing interest rates down. 

And so I want to thank my colleagues, and he is not here now, 

but particularly my friend from Tennessee. I read his comments 

last week suggesting that other Members should give up on the 

idea of mass reprisals over the installation of you, Mr. Cordray. 

Mr. Corker said, quote, ‘‘I do not think anybody is going to consider 

that to be a very astute or intelligent thing to do,’’ and I agree with 

my friend from Tennessee and appreciate his remarks. 

We need to discuss these issues. We do not expect all to have the 

same views. But the idea of how to protect consumers should be on 

the table. The only way it can fully be on the table is with Mr. 

Cordray in his position. The President had no choice but to do what 

he did because we can no longer have agencies close down, not because people disagree with the views of the nominee or the ethics 

of the nominee or anything else, but simply because they do not 

want the agency to exist or have any functioning, and we all know, 

without a chair, you could not do many of the things that we have 

to do in terms of issues like payday lenders and mortgage brokers 

and abusive credit card practices. 

So these are vital issues to the American people. It makes no 

sense for Senators to go AWOL on these consumer issues. I welcome the debate that we could have here. Let us move on. Mr. 

Johanns is right. The courts will decide this. I believe they will decide that the agency is constituted properly. I believe they will see 

that when you just try to block a nominee for the sake of blocking 

a nominee, you do not get anything done. 

I hope we can end this idea of a boycott. I think the attempts 

to boycott by dug-in opponents are losing steam and I hope we can 

get on with the debate. People are tired of obstructionism for the 

sake of obstructionism, and everyone on both sides of the aisle, no 

matter how strong their views, participating in this morning’s 

hearings understand that. I hope as the years go on we are able 

to convince our colleagues that it would be better to rejoin the debate on the playing field rather than just take their ball and go 

home, particularly on such an important issue. 

So that was my statement. I appreciate your being here, Mr. 

Cordray, and look forward to working with you to bring consumers 

some rights. 

Mr. CORDRAY. Thank you. 

Chairman JOHNSON. Senator Hagan. 

Senator HAGAN. Thank you, Mr. Chairman, and welcome to the 

Committee, Mr. Cordray. I, too, am pleased that you are here with 

us today. 

I wanted to ask about—well, much of the debate over the ability 

to repay rule under Dodd-Frank seems to center on whether the 
27 

qualified mortgage should either be a safe harbor or rebuttable presumption, and the concern has been expressed that a rebuttable 

presumption will present an uncertain legal standard that will result in overly cautious underwriting and less consumer access to 

credit. Can you share with me your views on the safe harbor rebuttable presumption? 

Mr. CORDRAY. Sure. So the ability to repay rule, as you know and 

as you mentioned, is one of the rules Congress has required us to 

adopt to try to fix what were seen as—and what were—irregular 

problems in the mortgage market. I mean, you would think that 

you would not really need to have a rule where the lender pays attention to whether the borrower will be able to repay the loan—— 

Senator HAGAN. Right. 

Mr. CORDRAY.——before making a loan, but securitization practices and other things created misaligned incentives in that market. So we are to adopt that rule. 

It is one of the issues that we have heard maybe most about with 

respect to that rule thus far, and we are not even to the proposed 

rule stage, although it is a rule we are going to be working on over 

the course of this year. We have a statutory deadline at the beginning of next year. It intersects with some other rules that others— 

another rule that other agencies are writing, so we know that we 

need to move it along and yet at the same time be careful. 

One of the things we have heard most about from institutions is 

they would like to see this rule, whatever the criteria are, have 

some sort of safe harbor so that it would not create litigation issues 

and uncertainties for them as opposed to a rebuttable presumption. 

There are others who take a different point of view on that. It is 

something that we have received, I would say, hundreds if not 

thousands of comments on already and we are going to be looking 

at it carefully and trying to weigh those issues. 

I do not have an outcome for you today. As I said, we do not even 

have a proposed rule at this point. But it is something that is very 

much on our minds and we will appreciate any input or thoughts 

that you and your staff want to give us as we go forward with this. 

Senator HAGAN. Well, we will continue the dialogue on that. 

Mr. CORDRAY. Yes. 

Senator HAGAN. Thank you. And I do want to echo the concerns 

that have been raised today already about the issue of financial literacy, and I applaud your efforts, and Senator Akaka had mentioned it, too. I, too, was very—have always been concerned about 

the lack of financial literacy being taught to our students. When I 

was in the North Carolina Senate, I also required that students get 

that. I think it is just a sound basis that you need to get by in the 

world today. You have to understand debt. 

With that, I was also pleased that the CFPB recently released its 

examination procedures for payday lenders. It appears there are a 

handful of banks making high-cost payday loans directly to their 

customers. The Center for Responsible Lending has indicated that 

these loans are marketed as short-term but often keep customers 

in debt for an average of 175 days a year, which is an average of 

16 payday loans per year. And I understand the rate is somewhere 

over 300 percent. 
28 

Can you say a little more about what the CFPB is doing to address this sort of sustained use of payday loans? 

Mr. CORDRAY. Yes, Senator, and as I had mentioned earlier, this 

was the subject of the first field hearing that the Bureau conducted 

in Alabama recently, and the examination procedures that you 

have mentioned, we have put out, they apply equally to nonbank 

payday lenders and also to banks that may be now offering a product that is similar to a payday loan in a number of respects, often 

called a deposit advance or some sort of nomenclature around that 

phrase. We will have the same issues and the same concerns about 

any of the products in this realm. 

There is a legitimate need, and we heard a lot about it at our 

field hearing, for short-term credit availability for people, whether 

they are banked and have bank accounts or are unbanked. There 

are also a variety of products that are offered. It includes pawn 

brokers. It includes car title loans. There are lots of different products, some of which have some real advantages, some of which 

have some real disadvantages. And one of the things we are going 

to be trying to do is assess those products and make judgments 

about whether they are in compliance with the law or not. 

But we also would like to see a robust competition in this realm. 

I mean, small-dollar loans are needed by people. In a different era, 

and maybe in some places still now, they would go to loan sharks. 

It was dangerous as well as being difficult. Nobody wants that. We 

want to have products be available. We want them to be products 

that help consumers and not harm consumers. 

There is a lot of thinking that some of the banking products may 

be able to be offered on more favorable terms because there may 

be less risk when they are dealing with their own known customers. But we are at the beginning of this. We will see over time 

how that develops. 

Senator HAGAN. Do you have a timeframe? 

Mr. CORDRAY. I do not. 

Senator HAGAN. OK. All right. 

Mr. CORDRAY. Yes. I do not. 

Senator HAGAN. One other question. One practice I am concerned 

about is the manipulation of the order in which checking account 

transactions are posted for overdraft purposes. Consumers consistently state that they do not want their transactions posted highest 

to lowest. Is this the sort of practice the CFPB will be taking a look 

at? 

Mr. CORDRAY. It is. 

Senator HAGAN. OK. Thank you, Mr. Chairman. 

Chairman JOHNSON. The APA requires certain levels of public 

participation in the rulemaking process. I am pleased to continue 

to hear comments from stakeholders that the Consumer Bureau 

has gone beyond that. Would you please describe the process that 

the Bureau is following and how it improves your rulemaking. 

Mr. CORDRAY. I am sorry, Mr. Chairman. I kind of lost the 

thread of your question as I was taking notes. 

Chairman JOHNSON. The APA requires certain levels of public 

participation in the rulemaking process. I am pleased to continue 

to hear comments from stakeholders that the Consumer Bureau 
29 

has gone beyond that. Would you please describe the process that 

the Bureau is following and how it improves your rulemaking. 

Mr. CORDRAY. OK. Thank you, Mr. Chairman. And actually, 

similar to the questions we were addressing back and forth to Senator Shelby, there are certain requirements in the law as to how 

we go about rulemaking and we obviously are bound to fulfill all 

those requirements. 

It includes a very robust notice and comment process. So we 

issue a proposed rule. Then we get notice and comment, sometimes 

from—it depends on how many people are interested. Sometimes a 

few dozen individuals, sometimes thousands or tens of thousands 

of individuals, as with our ‘‘Know Before You Owe’’ mortgage form 

consolidation project. We are required by law to sift through those 

comments, to weigh them, to evaluate them, to consider the pros 

and cons, to address them in our rulemaking process, and then to 

develop a final rule. 

Some of the things we have tried to do—and again, the ‘‘Know 

Before You Owe’’ is the most outstanding example of this because 

mortgage markets are the most important market by dollar figures 

for consumers—is to aggressively go out and seek lots of comment, 

even before we have proposed a rule. We are not required by law 

to do that, but we knew it would help us do a better job if we were 

hearing from people before we even put out a proposed rule. We 

have done a lot of consumer testing and there are apparently procedures and processes that researchers are familiar with that give 

you a better sense, not just your judgment about how things really 

are, but how people actually respond in fact to these things and to 

different terminologies and to a shorter form and the like. 

We are also going to be trying to continue to use technology so 

that our rules and our proposals and the issues that we are addressing are out there. We are going to encourage people to participate through our Web site and through other means. And we are 

going to be continuing to try to press the envelope for how we can 

use modern technology to encourage broader participation, therefore, broader perspectives, therefore, more insight on our rules, not 

just from consumers affected by the rules but from the industry 

participants who are affected in their operations by our rules because it needs to work for both sides. And I think it is very interesting, the work being done by the Bureau, and we hope that it will 

continue to be on the cutting edge. 

Chairman JOHNSON. In a response to a question I asked your 

agency, a colleague of yours wrote that the CFPB would provide robust safeguards for consumers and clear guidance for financial 

service providers without imposing undue burdens. Will the CFPB 

fully consider the cost and benefit to your rules, ensuring that you 

take a spartan, streamlined regulatory approach while protecting 

consumers? 

Mr. CORDRAY. Mr. Chairman, we are required by law, and not 

just by the APA but specifically in our law, to consider the burdens, 

costs, and impacts of any rule that we are developing. We take that 

seriously, not only because it is the law but because it is good public policy. We intend to, and that is why I am setting up some advisory panels to hear broadly from the financial industry about how 

our proposals may affect them and how they may actually work in 
30 

practice at the same time that we are hearing from consumers and 

groups from across the country about what benefit it might bring 

to the consumer public. 

As I mentioned, we have inherited a lot of rules that we did not 

write and we have the opportunity to go back and think afresh 

about them, and there may be occasions where we can streamline 

those rules, losing no benefit to consumers and reducing the burdens on financial providers. We hope and expect to be able to do 

that. 

Chairman JOHNSON. Senator Shelby. 

Senator SHELBY. Thank you. 

Mr. Cordray, I will try to move on. You have been very patient 

here today, but I have got several questions. 

We have heard that there is some concern that documents subject to the attorney-client privilege that are turned over to the Bureau will not remain privileged. But under the current law, privileged documents remain privileged when they are given to the Federal Reserve Board, the Office of the Comptroller of the Currency, 

and the FDIC, on which you serve as a member of the Board. The 

drafters of Dodd-Frank did not include the Bureau in this law, 

which is troubling. Would you support an amendment that would 

apply the same privilege protection for documents given to the Bureau as currently exists for documents given to the other Federal 

banking regulators, and if not, why not? 

Mr. CORDRAY. Yes, we would support an amendment to correct 

what we believe was an oversight. 

Senator SHELBY. OK. 

Mr. CORDRAY. I have told the banking trade associations that 

and we are happy to work with them and you to get that fixed. 

Senator SHELBY. Thank you. 

Senator Moran brought up abusive, the definition of ‘‘abusive,’’ 

the word and so forth. During the discussions that led to DoddFrank, it became clear that some people wanted to ban some 

nonbank products and services. Are there any particular products 

that exist now that you would ban, or is this too early? Is it possible for an identical product to be abusive for one consumer and 

not for another? Is that possible, and how would you make that determination if you saw that? 

Mr. CORDRAY. So let me try to address both those questions. 

First, I do not think in terms of banning products. I mean, that is 

not how the statute speaks for us. 

Senator SHELBY. Mm-hmm. 

Mr. CORDRAY. It talks about us addressing unfair, deceptive, and 

abusive acts or practices—— 

Senator SHELBY. OK. 

Mr. CORDRAY.——which I think is maybe a better way to look at 

it. In terms of whether—— 

Senator SHELBY. So you do not think you will be in the business 

of trying to ban products, but to make things stronger and more 

transparent and so forth for the consumer? 

Mr. CORDRAY. That is the approach and the vantage point I take 

on it, Senator, yes. 

Senator SHELBY. OK. Basel—by virtue of your position on the 

FDIC Board of Directors, you will have to make some important 
31 

decisions about the Basel capital regime. Both Basel III and the 

Dodd-Frank Act eliminate tier one capital treatment for trust preferred securities. While Dodd-Frank provides a measure for 

grandfathering trust preferred securities for small banks with assets of less than $15 billion, Basel III has no such exception. Because many small banks have trust preferred securities, this issue 

will impact banks in their communities throughout the country. 

How do you plan to resolve the divergent approaches for small 

banks taken by Dodd-Frank and Basel III? Have you gotten into 

that yet? And would you give your views on Basel III, including 

whether it effectively prevents another economic crisis and prevents banks from being undercapitalized? You know, the whole 

thrust is for banks to have more capital, which makes sense to me, 

and also to have liquidity, which makes a heck of a lot of sense. 

Mr. CORDRAY. Yes. I do think that the recapitalization of the 

banks and the provisions that we have made domestically here in 

the United States as well as what Basel is trying to accomplish are 

healthy to the overall system. The American banks now have more 

capital that they are keeping on hand than European banks by 

comparison, for example. 

Senator SHELBY. But perhaps not enough, huh? 

Mr. CORDRAY. Well, that is a hard thing to measure in the abstract—— 

Senator SHELBY. I know it is. 

Mr. CORDRAY.——and people are working on it. I am now a 

member, as you said, of the FDIC Board. I have great colleagues 

on that Board. They have been working with me to get up to speed 

on these issues. I also happen to be fortunate because the Deputy 

Director of the Bureau, Raj Date, who has been up here to testify, 

is a banking expert in both investment banking and commercial 

banking and he is working with me on these issues. So we will address them as they come, but these are fascinating and important 

issues, not just to this country but for the world, and we want to 

make sure that our banking system is strong. I know you want 

that. We want that, as well. 

Senator SHELBY. Mr. Cordray, do you know of any financial institutions you can recall that have been well capitalized, well managed, and well regulated, and have failed? 

Mr. CORDRAY. I think that only happens, Senator, when there is 

some extreme dislocation in the country at large. That may have 

happened—— 

Senator SHELBY. That would be very unusual, would it not? 

Mr. CORDRAY. Yes. I would say the Great Depression and then 

the financial meltdown we just suffered through in 2007–2008. 

That may have happened to some banks that did not deserve it. 

Senator SHELBY. The Washington Post recently reported that a 

program by the District of Columbia government and local community groups to subsidize mortgages for first-time homebuyers in the 

District of Columbia resulted in mortgages that many buyers could 

not afford. I know they meant well, but the article found that nearly one in five borrowers participating in the D.C. program are now 

behind on their mortgage payments. 

Do you believe that the lending practices used by nonprofit entities, although meaning well, that help put consumers in mortgages 
32 

they cannot afford are within your purview, and are you looking at 

this particular program, because I am not saying it is abusive, but 

maybe it is a lack of—I do not know how you define all that, but 

lack of judgment, because you want to help people but sometimes— 

if one out of five are failing, they have got to be reviewed. Is that 

part of your deal or is that not in your purview? 

Mr. CORDRAY. That is the first time the program you mentioned 

has come to our attention—— 

Senator SHELBY. Sure. Well, it was—— 

Mr. CORDRAY.——and it may be a local, D.C. program. But I will 

say, we had a lot of problems in the mortgage market in the last 

decade. We had a lot of practices that, in retrospect, were not very 

sustainable even though, as you say, many of them were well intentioned, although some of the practices out there were not well 

intentioned at all. They were just fraud and greed. 

But we need to be careful about what we are doing. I know the 

Congress is now requiring us to do a number of things to try to 

clean up practices in the mortgage market. We take that role very 

seriously and we will continue to be glad to have your input and 

counsel as we do that work. And as you are hearing from your constituents, we are often hearing from many of the same people, but 

that helps us with our perspective. 

Senator SHELBY. Thank you. Thank you, Mr. Chairman. 

Chairman JOHNSON. I would note for the record that Senator 

Reed of Rhode Island would have been with us today but he is 

away at a funeral. 

Mr. Cordray, I thank you for your testimony today and for your 

willingness to serve our Nation. Regardless of whether one agrees 

with the President’s decision to recess appoint Richard Cordray, 

the fact of the matter is that he is now Director of the CFPB. It 

is time for us all to put politics aside and work together to protect 

American consumers and foster a strong and fair consumer financial marketplace. 

This hearing is adjourned. 

[Whereupon, at 11:50 a.m., the hearing was adjourned.] 

[Prepared statements, response to written questions, and additional material supplied for the record follow:] 
33 

* The views expressed in this testimony are those of the Director, and do not necessarily reflect the views of the Board of Governors of the Federal Reserve or the President of the United 

States. 

PREPARED STATEMENT OF RICHARD CORDRAY 

DIRECTOR, CONSUMER FINANCIAL PROTECTION BUREAU * 

JANUARY 31, 2012 

Holding the CFPB Accountable: Review of the First Semi-Annual Report 

Chairman Johnson, Ranking Member Shelby, and Members of the Committee, I 

want to thank you for this opportunity to present the first ‘‘Semi-Annual Report of 

the Consumer Financial Protection Bureau’’ detailing the Bureau’s accomplishments 

in its first 6 months. 

Before I became Director, I promised Members of Congress in both chambers and 

on both sides of the aisle that I would be accountable to you for how the Consumer 

Bureau carries out the laws you enact. I said that I would always welcome your 

thoughts about our work. I stand by that commitment. I am pleased to be here with 

you today to tell you about our work and to answer your questions. 

The people who work at the Consumer Bureau are always happy to discuss our 

work with the Congress. This is the 13th time that we have testified before either 

the House or the Senate. And my colleagues and I look forward to working closely 

with you, with the businesses who serve their customers in the consumer finance 

markets and with the millions of American consumers themselves. 

I am honored to serve as the first Director of the new Consumer Bureau. I am 

energized and inspired by the many talented people who work at the CFPB, and 

I am driven by the challenges and responsibilities of our mission to protect American consumers. 

Our mission is of critical importance to making life better for Americans. Consumer finance is a big part of all our lives. Mortgages allow people to buy a home 

and spread the payments over many years. Student loans give young people with 

talent and ambition the access to a college education. Credit cards give us immediate and convenient access to money when we need it. These products enable people to achieve their dreams. But as we all have seen in recent years, they also can 

create dangers and pitfalls if they are misused or not properly understood. 

During my years in State and local government I became deeply engaged in consumer finance issues. I saw good people struggling with debt they could not afford. 

Sometimes those people made bad decisions they came to regret. Sometimes an unexpected event—like a loved one getting sick or a family member losing a job—overwhelmed even their most careful planning. Still other times, I saw unscrupulous 

businesses who obscured loan terms or engaged in outright fraud, causing substantial harm to unsuspecting consumers and even ruining their lives and devastating 

their communities. 

I am certain that each one of you hears every day from your friends, your neighbors, and constituents in your district who have these kinds of stories to tell. These 

people do not want or expect any special favors. They just ask for a fair shake— 

and a chance to get back on track toward the American Dream. 

One of our primary objectives at the Consumer Bureau is to make sure the costs 

and risks of these financial products are made clear. People can make their own decisions, and nobody can or should try to do that for them. But it is the American 

way for responsible businesses to be straightforward and upfront with their customers, giving them all the information they need to make informed decisions. That 

is good for honest businesses and good for the overall economy. A particular quote 

caught my eye recently, which embodies this view: ‘‘Free men engaged in free enterprise build better nations with more and better goods and services, higher wages 

and 3 higher standards of living for more people. But free enterprise is not a hunting license.’’ That was Governor Ronald Reagan in 1970. I agree with what he said, 

and it is a view widely shared by the people who work with me at the Consumer 

Bureau. 

So another key objective is making sure that both banks and their nonbank competitors receive the evenhanded oversight necessary to promote a fair and open marketplace. Our supervisors will be going onsite to examine their books, ask tough 

questions, and fix the problems we uncover. Under the laws enacted by Congress, 

and with a director now in place, we have the ability to make sure this is true 

across all financial products and services. 

The Consumer Bureau will also make clear that violating the law has consequences. Through our field examiners, our direct contact with consumers and 

businesses, and our highly skilled researchers, we have multiple channels to know 
34 

the facts about what is happening in the marketplace. We plan to use all of the tools 

available to us to ensure that everyone respects and follows the rules of the road. 

Where we can cooperate with financial institutions to do that, we will; when necessary, however, we will not hesitate to use enforcement actions to right a wrong. 

As we move forward with our work, we need to hear directly from the consumers 

we protect and the businesses who serve them. We do this on our Web site, 

consumerfinance.gov, where consumers are able to tell us their personal stories. We 

also make a point to get out of Washington regularly and hear from people firsthand. Thus far we have held town hall meetings in Philadelphia, Minneapolis, 

Cleveland, and a field hearing in Birmingham. We are hearing from thousands of 

Americans about what works and what does not. We are listening closely, and we 

hope that many of you will join us at these events when we come to visit your communities. 

Accomplishing our mission will take time. But, as you can see from our semi-annual report, we are already taking important steps to improve the lives of consumers. 

Thank you. I look forward to your questions. 
(35) 

RESPONSE TO WRITTEN QUESTIONS OF SENATOR SHELBY 

FROM RICHARD CORDRAY 

Q.1.a. During the hearing, I stated that by virtue of your position 

on the FDIC board of directors, you will have to make some important decisions about the Basel capital regime. Both Basel III and 

the Dodd-Frank Act eliminate Tier I capital treatment for trustpreferred securities. While Dodd-Frank provides a measure that 

grandfathers trust-preferred securities for small banks with assets 

of less than $15 billion, Basel III has no such exception. Because 

many small banks have trusts-preferred securities, this issue will 

impact small and community banks throughout the country. 

How do you plan to resolve the divergent approaches for small 

banks taken by the Dodd-Frank and Basel III? 

A.1.a. To the extent that my position on the FDIC board of directors requires me to take a position on this matter I will do so at 

the appropriate time and after full consideration of the relevant 

issues. 

Q.1.b. Please give your overall views of Basel III, including whether it effectively prevents another economic crisis and prevents 

banks from being undercapitalized. 

A.1.b. During the crisis, many market participants and observers 

viewed the capital and liquidity resources of a number of our Nations’ largest banking organizations as insufficient. Basel III is a 

significant strengthening of risk-based capital requirements, as it 

tightens the definition of capital and increases capital requirements. It also includes a new regulatory liquidity requirement. Certainly no single tool can be a panacea for preventing all future crises, but experience suggests that a well-capitalized and liquid 

banking system will be better positioned to ride out periods of financial stress and serve as an engine of growth for the economy. 

I am hopeful that the new framework will work as intended to 

strengthen the resilience of the banking system. 

Q.2.a. During the hearing, you were asked about an amendment 

sponsored by Senators Brown and Kaufman, which would have limited the size of banks. Under the amendment, no bank would have 

been permitted to hold more than 10 percent of the total amount 

of insured deposits and a limit would have been placed on nondeposit liabilities of each bank at 2 percent of GDP. This amendment would have ensured that the failure of a single financial institution would not bring down the entire system. I supported this 

amendment. As part of your role as a boardmember of the FDIC 

and the Financial Stability Oversight Council, your opinion on this 

issue is of particular importance. During the hearing you indicated 

that you had not yet had an opportunity to form an opinion on this 

issue. 
36 

Now that you have had more time to consider this issue, do you 

support limiting the size of banks as proposed by the Brown-Kaufman amendment? 

A.2.a. The Brown-Kaufman amendment to Dodd-Frank to prevent 

bank-holding companies from controlling more than 10 percent of 

total insured deposits and limit nondeposit liabilities controlled by 

each bank-holding company to 2 percent of GDP failed by a 33–61 

vote. While I share your concerns about the increasing concentration of capital in the financial sector, Congress determines the tools 

the regulators have to manage risk and protect consumers. The 

CFPB is committed to implementing and enforcing existing law in 

this regard to the best of our ability. 

Q.2.b. If not, what steps would you take to ensure that banks are 

not too big to fail? 

A.2.b. The Dodd-Frank Act gives financial regulators important authorities to enhance financial stability and to manage the regulatory challenges posed by large, complex, systemically important 

financial institutions (SIFIs). The Dodd-Frank Act also provides for 

a new SIFI resolution framework that includes an orderly liquidation authority and a requirement for SIFIs to submit resolution 

plans that demonstrate how they can be resolved through the 

bankruptcy process. These changes give regulators better tools to 

manage the potential risks and failure of complex financial institutions. A credible capacity to place a SIFI into an orderly resolution 

process is critical to subjecting these companies to meaningful market discipline. 

I am aware that the FDIC is working diligently to implement 

provisions of the Dodd-Frank Act that provide additional oversight 

and resolution authority for SIFIs, and I am pleased to participate 

in this effort as a member of the FDIC’s Board. Successful implementation of the Dodd-Frank Act will represent a significant step 

forward in providing a foundation for a financial system that is 

more stable and less susceptible to crises in the future, and better 

prepared to respond to future crises. 

Q.3.a. During the hearing, I mentioned that a program by the D.C. 

government and local community groups to subsidize mortgages for 

first-time home buyers in D.C. resulted in mortgages that many 

buyers could not afford. A Washington Post article found that nearly one in five borrowers participating in the D.C. program are now 

behind on their mortgage payments. You stated that the hearing 

was ‘‘first time the program you mention has come to our attention.’’ 

Do you believe that the lending practices used by nonprofit entities that help put consumers in mortgages they cannot afford are 

within your jurisdiction? 

A.3.a. The CFPB generally has jurisdiction over entities that offer 

or provide consumer financial products or services, including nonprofit entities, except to the extent that the consumer financial protection statutes that the Bureau enforces have carve-outs for nonprofits. In particular, the CFPB enforces the Truth in Lending Act 

and the Consumer Financial Protection Act. In addition, the CFPB 

encourages consumers and whistleblowers to contact the CFPB if 

they believe a lender has violated these laws, regardless of whether 
37 

the entity is nonprofit or for-profit. This response does not refer to 

or comment on the program referenced in your question. 

Q.3.b. Will you look into this particular program? 

A.3.b. It would be inappropriate for the Bureau to publicly comment on contemplated supervisory actions or enforcement plans. 

Q.3.c. What steps can the Bureau take to ensure that assistance 

provided by nonprofit entities does not result in borrowers obtaining mortgages they cannot afford? 

A.3.c. Among other things, the CFPB is currently working on final 

regulations to define a standard for determining a consumer’s ability to repay a mortgage loan, as required by Section 1411 of the 

Dodd-Frank Act. This rule will require that lenders make a ‘‘reasonable and good faith determination based on verified and documented information that, at the time the loan is consummated, the 

consumer has a reasonable ability to repay the loan.’’ 

Q.4.a. Section 1100G of the Dodd-Frank Act requires the Bureau 

to convene a panel a Small Business Advocacy Review panel before 

publishing a proposed rule with an Initial Regulatory Flexibility 

Analysis. Through the Small Business Advocacy Review panel the 

Bureau will meet with representatives of small entities and will 

offer an opportunity for those representatives to provide advice and 

recommendations on regulatory alternatives to minimize the burden on small entities. You have stated that the first time you will 

convene the small business panels will be this summer, before you 

propose a rule on the streamline of the RESPA and TILA mortgage 

disclosures. However, you have also indicated that you will be proposing your ‘‘larger participant’’ rulemaking shortly. 

Will a Small Business Advocacy Review panel be convened for 

the ‘‘larger participant’’ rulemaking? 

A.4.a. The CFPB did not convene a Small Business Advocacy Review panel before issuing its first proposed larger participant rule. 

In the notice of proposed rulemaking, the CFPB certified that the 

proposed rule would not have a significant impact on a substantial 

number of small entities (SISNOSE), and thus did not require an 

Initial Regulatory Flexibility Analysis. Consequently, the convening 

of a Small Business Advocacy Review panel was not required. 

The CFPB determined that the proposed rule would not result in 

a SISNOSE because, among other things, the thresholds for being 

defined as a larger participant in the consumer debt collection and 

consumer reporting markets are more than $10 million and $7 million in annual receipts, respectively. Thus, firms meeting the definition of a larger participant in either of these markets will not be 

small businesses under the applicable Small Business Administration size standard of $7 million in annual receipts for these industries. While there may be rare circumstances in which a small business may be subject to supervision under this rule, such instances 

would not result in a SISNOSE. 

Q.4.b. If so, who will be the small business representatives for the 

‘‘larger participant’’ rulemaking panel? 

A.4.b. The CFPB did not convene a Small Business Advocacy Review panel for the proposed larger participant rule because the 
38 

1See 5 U.S.C. §§ 601(2), 603(a), 604(a), 609(a). 

CFPB has certified that the proposal would not result in a 

SISNOSE. 

Q.4.c. In general, how will you select the small business representatives for the Small Business Advocacy Review panels? 

A.4.c. The CFPB, in consultation with the Small Business Administration’s (SBA) Chief Counsel for Advocacy, selects small business 

representatives to consult with and provide recommendations for 

the panel. Using the definitions and size standards set forth in the 

Regulatory Flexibility Act, the CFPB first determines the industry 

sectors and types of small entities that are likely to be directly subject to the requirements of the rule under development. Next, the 

CFPB develops a list of potential representatives of affected small 

entities to provide recommendations to the panel about the potential economic impacts of the proposed rule. The CFPB typically considers representatives it has identified through its general outreach 

efforts as well as through suggestions from trade associations and 

other external industry organizations, consumer groups, and/or the 

SBA. The CFPB then submits its proposed list of potential small 

business representatives to the SBA’s Chief Counsel for Advocacy. 

The final small business representatives are designated by the 

CFPB after consultation with the SBA. 

Q.4.d. Have you developed protocols or policies for the Small Business Advocacy Review panels? If so, please provide a copy of these 

protocols or policies to the Committee. Will these protocols or procedures substantially differ from those of the EPA or OSHA? If so, 

please describe why and how your protocols or procedures will differ. If you have not yet developed any protocols or policies, when 

will your protocols and policies be final? 

A.4.d. The CFPB conducts Small Business Review Panels in accordance with the requirements of the Regulatory Flexibility Act 

(RFA). The CFPB has also developed a ‘‘Fact Sheet’’ on the Small 

Business Review Panel process. The fact sheet is available on the 

Bureau’s Web site at consumerfinance.gov and is attached as Appendix A to this document. 

The CFPB has consulted, and will continue to consult, with other 

agencies involved in the Small Business Review Panel process (e.g., 

EPA, OSHA, SBA and OMB) as it implements the RFA’s statutory 

requirements for the review panels. 

Q.4.e. Which rules that will be promulgated by the Bureau, if any, 

will not undergo a Small Business Advocacy Review panel? 

A.4.e. The Regulatory Flexibility Act, as amended, identifies the 

types of rules for which a Small Business Review Panel is required. 

Generally, the RFA applies only to rules for which a notice of proposed rulemaking is required by the Administrative Procedure Act, 

or ‘‘any other law.’’1 When developing a proposed rule subject to the 

RFA, the CFPB is required to convene a Small Business Review 

Panel prior to issuing the proposal unless the CFPB certifies that 

the rule will not, if promulgated, have a SISNOSE. Accordingly, 

the CFPB is not required to convene Small Business Review Panels 

for proposed rules that are not subject to the RFA or for proposed 
39 

rules that are subject to the RFA but the Director certifies will not 

have a significant economic impact on a substantial number of 

small entities. The CFPB also is not required to convene a Small 

Business Review Panel where another agency, such as the Federal 

Reserve Board, issued a rule proposal which was later inherited 

and finalized by the CFPB. 

The CFPB intends to convene a Small Business Review Panel for 

the TILARESPA mortgage disclosure integration rulemaking. We 

have not yet reached a formal determination on whether a Small 

Business Review Panel will be convened for other proposed rules 

subject to the RFA that are under development. 

Q.4.f. Will you carry out any actions with respect to nondepositories before the ‘‘larger participants’’ rulemaking is final? If so, 

please describe. 

A.4.f. The CFPB will not conduct supervisory actions under the initial larger participant rule until the rule is effective. Before that 

date, however, the CFPB may undertake supervisory activities, 

such as examinations or requests for reports, in connection with 

nonbanks that are otherwise subject to the CFPB’s supervisory authority. This could include, for example, nonbank companies in the 

mortgage, payday lending, and private education lending markets 

subject to the CFPB’s authority. Finally, the CFPB may undertake 

enforcement actions or rulemakings that affect nonbanks before the 

effective date of the initial larger participant rule. 

Q.5.a. You have said that the Bureau’s supervisory program of 

nonbanks will be based on multiple factors. One of those factors is 

‘‘the extent of State oversight for consumer financial protection.’’ 

This presumes that some States provide more oversight than other 

States in terms of consumer financial protection. 

Which States provide the most oversight in the areas of mortgage 

lending and payday lending? 

A.5.a. In determining whether and how to supervise particular 

nonbanks, the CFPB will consider a number of factors that focus 

on risk, including the extent of State oversight. 

The CFPB launched its nonbank supervision program in January 

and is still assessing the extent of State oversight in these markets. State oversight of payday lending varies widely because State 

laws and regulations, as well as supervisory programs, differ and 

are not coordinated. Some States do not authorize, or effectively 

ban, payday loans; other States allow payday loans, subject to 

heavy restrictions; still others allow payday loans and do not impose significant restrictions. In addition, some States have developed their own supervision programs for payday lending, with particular areas of focus and varying resources dedicated to examinations. Some States focus primarily on reviewing for compliance 

with State laws, as opposed to the Federal consumer financial laws 

for which the CFPB is responsible for assessing compliance. Many 

payday lenders operate in multiple States, which may subject them 

to varying types and levels of oversight. 

For the mortgage market, State financial regulators created the 

Multistate Mortgage Committee (MMC) to coordinate examination 

and supervision of those mortgage lenders and brokers operating in 

more than one State. The CFPB is coordinating with the MMC and 
40 

with regulators in individual States to ensure that the CFPB does 

not engage in examinations that merely duplicate State regulator 

work in the mortgage area. 

Q.5.b. Which States provide the least oversight in the areas of 

mortgage lending and payday lending? 

A.5.b. The CFPB launched its nonbank supervision program in 

January and is still assessing the extent of State oversight. We are 

working closely with State regulatory officials. 

Q.6.a. It has been reported that a clarification issued by the Federal Reserve Board that limits credit card companies to considering 

only ‘‘individual’’ income, not ‘‘household’’ income, on credit applications has made it more difficult for stay-at-home spouses to get 

their own credit cards. 

Has the Bureau received any information that indicates that 

stay-at-home spouses are negatively impacted by the Federal Reserve Board’s clarification? If so, please describe. 

A.6.a. As of October 1, 2011, Regulation Z requires credit card 

issuers, before extending credit, to assess a consumer’s independent 

ability to make loan payments. Issuers have told Bureau staff that 

this new rule may preclude nonemployed spouses—in many cases, 

women—from obtaining credit that they are, in fact, capable of repaying. According to these sources, such individuals may no longer 

be able to obtain credit or be able to do so only if a spouse agrees 

to be liable for all debts incurred on a credit card account. Some 

outside groups and Members of Congress have raised similar concerns. 

Q.6.b. Will the Bureau conduct a study to understand the impact 

the Federal Reserve Board’s clarification has had on access to credit? 

A.6.b. The Bureau’s December 5, 2011 Request for Information on 

‘‘Streamlining Inherited Regulations’’ asked for public comment on 

whether this section of Regulation Z should be amended. Even before the rule went into effect, however, the Bureau asked issuers 

and trade groups to work with us to provide data that would enable the Bureau to assess the impact of this requirement. The Bureau intends to pursue such data and study the impact of the new 

rule on spouses who are not employed. 

Q.7.a. 12 USC § 1833b requires the Bureau to ‘‘seek to maintain 

comparability regarding compensation and benefits’’ of its employees with other Federal financial regulators when establishing and 

adjusting schedules of compensation and benefits. 

How does the compensation and benefits of Bureau employees 

compare to the other Federal agencies listed in this statute? 

A.7.a. On average, pay at the Bureau has been at or below the 

averages of other Federal financial regulators and within a few 

percent of the average pay of employees at the Federal Reserve 

Board. 

Q.7.b. Please provide a detailed breakdown of the compensation 

and benefits for each employee at the Bureau. To the extent this 

information is provided in terms of levels, please provide a detailed 
41 

description of the duties at each level for this Committee with your 

responses to these questions. 

A.7.b. The titles and salaries of Bureau employees are listed in Appendix B. Employees are eligible for benefits that include standard 

Federal health, vision, dental, life, and long-term care insurance 

programs, and CFPB-specific vision, dental, life, short-term disability, and long-term disability insurance programs, in addition to 

retirement and other benefits. The value of these benefits for each 

employee varies depending on the benefits for which a given employee is eligible and based on the benefits each employee has 

elected at a given time. 

Q.7.c. Will you provide Congress with a budget justification that is 

substantially similar to the budget justifications provided by Federal agencies which are subject to appropriations? If not, why not? 

A.7.c. Last year the Bureau provided Congress with a budget justification for fiscal year 2012—even before the agency’s launch on 

July 21, 2011—and last month the Bureau provided Congress with 

its budget justification for fiscal year 2013. As one would expect of 

a new agency, the Bureau’s budget justification this year was more 

detailed than it was last year, and will grow more detailed over 

time. Like the budget justifications of other banking agencies that 

are not subject to appropriations, the Bureau’s budget justification 

differs in some ways from those of larger agencies, particularly 

those with budgets that are appropriated. Unlike appropriated 

agencies, Congress capped the CFPB’s budget permanently in statute. The Bureau’s budget was set at a fraction of the levels of its 

fellow banking agencies. If the CFPB determines that it needs additional funds to operate, it may seek appropriated funds to supplement its nonappropriated funding; however, the Bureau has no 

plans to seek appropriations from Congress. 

Because the Bureau is committed to transparency, we have posted our budget justification for fiscal year 2013 on our Web site at 

consumerfinance.gov/budget. It provides the estimated level of 

funding for the Bureau for fiscal year 2012 and 2013 necessary to 

carry out the authorities that Congress assigned to the Bureau. 

The budget justification describes how the Bureau expects to utilize 

its funds, includes budget estimates for each program or budget activity, and identifies performance measures detailing how we plan 

to make ourselves accountable for the use of the funds going forward. As we continue to grow as an agency, we expect to continue 

to provide additional budget and performance information in our 

budget documents. In addition to the budget justification discussed 

above and the semiannual report submitted to Congress in January 

of 2012, we are also publishing information on our Web site regarding funding transfers received and amounts spent on a quarterly 

basis, as well as an annual financial report at the end of the year, 

along with GAO’s audit of the Bureau’s financial statements, and 

an independent third-party audit. 

Q.8.a. Recently the Bureau and the Federal Trade Commission 

signed an agreement to, according to your Web site, ‘‘coordinate efforts to protect consumers and avoid duplication of Federal law enforcement and regulatory efforts.’’ 
42 

How many Memorandum of Understanding (‘‘MOUs’’) or other 

similar agreements has the Bureau executed? 

A.8.a. To date, the Bureau has executed 127 Memoranda of Understanding. 

Q.8.b. How many MOUs or other similar agreements has the Bureau executed with each of the Federal banking agencies? 

A.8.b. The Bureau has executed 36 MOUs and similar agreements 

with the Federal Reserve Board of Governors, the Federal Reserve 

Banks, FDIC, NCUA, and OCC. Approximately 58 percent of these 

MOUs relate to the transfer of employees from some of these agencies under section 1064 of the Dodd-Frank Act; approximately 19 

percent relate to retirement and other employee benefits, including 

benefits for transferred employees; approximately 11 percent relate 

to the transfer or sharing of responsibilities between these agencies 

under the Act; and approximately 11 percent relate to information 

sharing between these agencies. (Totals do not add to 100 percent 

due to rounding.) 

Q.8.c. Is every one of these MOUs or other similar agreements 

available online? If not, why not? 

A.8.c. Due to the large number of MOUs and the fact that many 

contain Personal Identifying Information (PII) inappropriate for 

public disclosure, they are not available online. 

Q.8.d. Please provide the Committee a copy of each of the MOUs 

or other similar agreements that the Bureau has executed. 

A.8.d. The Bureau will be happy to discuss with the Committee a 

request for copies of specific MOUs. 

Q.9.a. On May 6, 2010, on the floor of the Senate during the debate 

of the Dodd-Frank Act, Senator Dodd, then the Chairman of the 

Senate Banking Committee, stated ‘‘I have never claimed our proposal on consumer protection is perfect. I acknowledge the word 

‘abusive’ does need to be defined, and we are talking about striking 

that or making it better.’’ However, the term ‘‘abusive’’ was not removed from the final text of the Dodd-Frank Act, and the definition 

was never changed from that which appeared in the Senate bill described by Chairman Dodd. The Bureau includes a review for ‘‘abusive’’ practices as part of its supervisory manuals. Section 1031(b) 

expressly permits the Bureau to prescribe rules applicable to a covered person or service provider identifying as unlawful abusive acts 

or practices in connection with a consumer for a consumer financial 

product or service, and such rules may include requirements for 

the purposes of preventing such acts or practices. 

As the former Chairman of the Senate Banking Committee acknowledged that the definition of the term ‘‘abusive’’ is inadequate, 

will the Bureau conduct or engage in any supervisory or enforcement actions with respect to ‘‘abusive’’ acts or practices before the 

term ‘‘abusive’’ is defined by regulation? 

A.9.a. In Section 1031(d) of the Dodd-Frank Act, Congress clearly 

and expressly limited the meaning of ‘‘abusive’’ acts or practices to 

those that: 
43 

(1) materially interfere with the ability of a consumer to understand a term or condition of a consumer financial product or 

service; or 

(2) take unreasonable advantage of a consumer’s: 

(a) lack of understanding of the material risks, costs, or conditions of the product or service; 

(b) inability to protect his or her interests in selecting or 

using a consumer financial product or service; or 

(c) reasonable reliance on a covered person to act in the 

consumer’sinterests. 

The Bureau will be vigilant in observing and adhering to the limits 

of its authority under this provision. 

Q.9.b. Is it possible for an identical product to be abusive for one 

consumer and not for another? If so, how will you enact clear rules 

for market participants? 

A.9.b. The statutory provision provided by Congress is clear. Its 

application will depend on specific facts and circumstances. We will 

carefully consider any opportunity to provide greater clarity and 

specificity to markets regarding the definition of ‘‘abusive’’ acts or 

practices, whether under our rulemaking authority, by providing 

guidance through our supervisory function, through enforcement 

actions, or otherwise. 

Q.9.c. You have stated that for a practice to be abusive it ‘‘would 

have to be pretty outrageous practice’’ and ‘‘if you in your business 

stays away from pretty outrageous practices, you should be pretty 

safe.’’ Please provide examples of what an abusive or ‘‘pretty outrageous practice’’ would look like in each of the following areas: 

mortgage lending, automotive finance, student lending, and payday 

lending. 

A.9.c. Determining which specific acts or practices are abusive is 

best left to a careful consideration of the specific circumstances of 

the acts or practices in question, considered in the context of all the 

facts, and in light of the language of § 1031(d). 

Q.10.a. On the designated transfer date many regulations that 

were previously under the jurisdiction of other Federal agencies 

transferred to the jurisdiction of the Bureau. Many of these agencies had issued informal guidance (including, but not limited to, 

bulletins, guidelines, opinion letters, FAQs, articles, etc.) (‘‘Informal 

Guidance’’) that related to each of these rules. 

Is each of the Informal Guidance that was in effect as of the designated transfer date still in effect? 

A.10.a. On July 21, 2011, the CFPB published a list of rules and 

orders that will be enforced by the CFPB. As set forth in that notice: ‘‘For laws with respect to which rulemaking authority will 

transfer to the CFPB, the official commentary, guidance, and policy 

statements issued prior to July 21, 2011, by a transferor agency 

with exclusive rulemaking authority for the law in question (or 

similar documents that were jointly agreed to by all relevant agencies in the case of shared rulemaking authority) will be applied by 

the CFPB pending further CFPB action. The CFPB will give due 

consideration to the application of other written guidance, interpre-
44 

2See 76 Federal Register 43569, 43570. 

tations, and policy statements issued prior to July 21, 2011, by a 

transferor agency in light of all relevant factors, including: whether 

the agency had rulemaking authority for the law in question; the 

formality of the document in question and the weight afforded it 

by the issuing agency; the persuasiveness of the document; and 

whether the document conflicts with guidance or interpretations 

issued by another agency. The CFPB will seek over time to improve 

the clarity and uniformity of guidance regarding the laws it will 

administer as necessary in order to facilitate compliance with the 

Federal consumer financial laws.’’2

Q.10.b. If your answer to 10(a) is no, please provide a list of each 

and every Informal Guidance that the Bureau considers to no 

longer be in effect, with an appropriate reference or citation to such 

Informal Guidance. 

A.10.b. Not applicable. 

Q.11.a. Collaboration among Federal banking agencies is of critical 

importance now that safety and soundness oversight has been split 

from consumer protection oversight. 

To what extent will guidance received by covered persons from 

the Bureau be honored by or any of the FDIC, OCC, Federal Reserve Board, FTC, or other applicable agency? 

A.11.a. While the answer to this question is ultimately within the 

province of the prudential regulators and other agencies, the DoddFrank Act makes clear that the CFPB has various rulemaking and 

interpretive authorities under the Federal consumer financial laws, 

as well as the supervisory and enforcement jurisdiction provided by 

Title 10 of the Dodd-Frank Act. Consequently, we anticipate that 

other agencies will honor CFPB guidance intended to clarify responsibilities under the Federal consumer financial laws. The 

CFPB will consult with the other Federal banking agencies regularly to help ensure that CFPB guidance is informed by safety and 

soundness perspectives. For example, as required by the DoddFrank Act, we will coordinate our supervisory activities with the 

prudential regulators, and follow the process outlined in the DoddFrank Act to resolve conflicting supervisory determinations. The 

CFPB’s membership on the Federal Financial Institutions Examination Council (FFIEC) and the Director’s participation on the 

FDIC and FSOC provide opportunities to facilitate and broaden 

such consultation. 

Q.11.b. To what extent will guidance received by covered persons 

from the FDIC, OCC, Federal Reserve Board, FTC, or other applicable agency, be honored by the Bureau? 

A.11.b. With respect to guidance involving safety and soundness 

matters, we expect that, in most cases, Federal banking agency 

guidance that relates to the financial condition of supervised institutions will complement CFPB guidance on consumer protection 

issues. For example, prudential regulator guidance that encourages 

institutions to maintain strong internal controls as a general matter may also promote strong compliance management programs in 

particular. Similarly, we do not expect that other agencies’ con-
45 

sumer protection guidance will conflict with the Bureau’s interpretation of Federal consumer financial law. Our ongoing collaboration 

with the other agencies will promote consistency in the application 

of these laws. 

Q.12.a. During the debate over the Dodd-Frank Act, the Administration advocated the provision of ‘‘plain vanilla financial products’’. 

This one-size-fits-all approach would have reduced the diversity of 

financial products consumers can choose from. 

Is it a priority of the Bureau to steer consumers into ‘‘plain vanilla’’-type products? 

A.12.a. No. 

Q.12.b. Is ensuring that consumers have access to a variety of financial products from which a consumer can determine that product which best fits the consumer’s individual need a priority of the 

Bureau? 

A.12.b. The Bureau has been working from day one to help put 

consumers in a better position to choose products that best serve 

their needs. The Bureau’s work to ensure that markets for consumer financial services are fair and transparent—two of the Bureau’s statutory purposes—facilitates consumer choice. Fairer and 

more transparent markets are also more likely to promote access 

and innovation, which are also statutory objectives of the Bureau. 

Q.12.c. In what ways would a consumer credit market which only 

offered ‘‘plain vanilla’’ products be harmful to consumers, small 

businesses, and the wider economy? 

A.12.c. The Bureau would not speculate on this hypothetical but 

notes that the quality of consumer credit markets depends on numerous factors, of which consumer choice is merely one. 

Q.13.a. The Bureau recently published a final rule on remittance 

transfers. In this final rule you certified that a small business 

panel was unnecessary because it would not have a significant impact on a substantial number of small businesses. The Small Business Administration, however, found that the proposed rule vastly 

underestimated the size of the industry affected by this rule. Further, in a comment letter the Credit Union National Association 

stated: 

[t]hese new liabilities could require the credit union to as much as double 

the fees it charges for international wires, which now range between $20 

to $35 per transaction, in order for the program to remain economically sustainable . . . Credit unions also believe that the estimate of 1.5 hours a 

month to address reported ‘errors’ underestimates the true regulatory burden of these requirements, at least in the context of wire and ACH transactions, by at least a factor of 10. 

Do you agree with the SBA analysis of the number of entities 

that will be affected by this rule? If not, please explain why not. 

A.13.a. The Bureau’s final rule on remittance transfers regulates 

remittance transfer providers. There are three primary groups of 

entities that are likely to be remittance transfer providers under 

the rule: depository institutions, credit unions, and nondepository 

institutions that are often known as ‘‘money transmitters.’’ Money 

transmitters often operate through agents. Agents are not necessarily remittance transfer providers under the rule, but may nev-
46 

3KPMG, 2005 Money Services Business Industry Survey Study, September 2005. 

ertheless work with remittance transfer providers to implement the 

rule. 

The SBA stated in its comment letter that there were 200,000 to 

300,000 money transmitters and their agents (large and small) in 

the United States. The SBA stated that this estimate was based on 

a telephone conversation with a trade association, the National 

Money Transmitters Association (NMTA). The SBA did not address 

the estimates in the proposal for the number of depository institutions or credit unions affected by the rule. 

In response to SBA’s comments, the Bureau reviewed and updated the estimates presented in the Initial Regulatory Flexibility 

Analysis to the proposed rule. The Bureau reviewed the NMTA’s 

estimate of the number of money transmitters, which the NMTA 

provided in a comment letter and stated was based on State licensing data. The Bureau concluded that other data provided a more 

precise estimate of the number of agents. 

The Bureau reviewed several data sources and concluded that 

the best estimate of the number of money transmitter agents in the 

United States was based on an estimate prepared for the Financial 

Crimes Enforcement Network (FinCen), of the U.S. Treasury, 

which regulates money transmitters, their agents, and other money 

services businesses for compliance with the Bank Secrecy Act. In 

2005, KPMG LLP prepared for FinCen an estimate of the size of 

various money services markets. The estimates were based on a 

methodologically sophisticated survey of the money services business.3 For reasons explained in the final rule, the Bureau regards 

the estimates in this study as preferable to those provided by the 

SBA. The KPMG study found that there were 67,000 money transmitters and agents in the United States in 2005. In order to account for the seven intervening years, the Bureau considered adjusting this figure by the percentage that employment changed in 

the broader sector to which money transmitters belong. The most 

recent data is for 2010, and employment fell 19 percent in this sector from 2005 to 2010. The Bureau kept the 67,000 figure rather 

than possibly underestimate the number of entities that may be affected by the rule. 

Q.13.b. Please describe the process you used to make the determination that the remittance transfer rule would not have a significant impact on a substantial number of small businesses. 

A.13.b. As stated in the Final Regulatory Flexibility Analysis to 

the remittances rule, the Bureau did not certify that the final rule 

will not have a significant economic impact on a substantial number of small entities. Therefore, as required by statute, the Bureau 

performed a final regulatory flexibility analysis as part of the final 

rule. Certain agencies (including CFPB) are required to convene an 

interagency panel under the Small Business Regulatory Enforcement Fairness Act (SBREFA) prior to proposing certain types of 

rules. SBREFA requirements, however, do not apply to final rules, 

and the SBA did not suggest otherwise. By the time the Bureau assumed authority for the remittances rulemaking, the proposed rule 

had already been published by the Federal Reserve Board, and 

small businesses had had 2 months to submit comments. The Bu-
47 

reau carefully considered and addressed the SBA’s concerns when 

performing its own analysis of the final rule on small businesses. 

Q.13.c. You stated during the hearing that the cost of this final rule will be $0.25 per $100. How did you calculate this cost? 

A.13.c. The Bureau estimated that the ongoing burden of the rule 

for purposes of the Paperwork Reduction Act is 4.253 million burden hours. To convert this number into dollars, the Bureau used 

a weighted average of burden hours and associated labor costs 

taken from agencies from which the Bureau assumed administrative enforcement authority for the Electronic Fund Transfer Act to 

derive an hourly wage rate of $29.62. The product of 4.253 million 

burden hours and $29.62 per hour is $126 million dollars. There is 

no available estimate of the volume of remittance transfers, as defined in the Dodd-Frank Act and the January 2012 rule. Based on 

its review of several estimates of related sets of financial flows, the 

Bureau estimated that consumers in the United States send approximately $50 billion in remittance transfers every year, which 

may be a conservative estimate of such volume. The ratio of $126 

million to $50 billion is $.0025 per dollar sent, or equivalently, $.25 

per $100 sent. 

Q.13.d. Do you believe that certain institutions will stop offering 

remittance transfers? If so, how did you factor the abandonment of 

offering remittance services into your cost analysis? 

A.13.d. The Bureau cannot predict, at this stage, whether certain 

institutions will stop offering remittance transfers. The Bureau did, 

however, discuss the possibility that some providers would face 

challenges in compliance, and that as a result, some providers may 

choose to exit the business and has factored the possible abandonment of certain specific remittance transfer services into the qualitative consideration of benefits, costs, and impacts of the rule. 

For example, the final rule generally requires remittance transfer providers to provide senders with accurate information about 

the exchange rate, fees, and taxes applicable to the transaction, 

and the amount to be provided to the designated recipient. The 

final rule, however, provides a temporary exception to insured depositories and credit unions from the requirement to provide accurate disclosures and instead permits these institutions to estimate 

certain values. The Section 1022 analysis recognized that institutions that do not have the temporary exception may cease offering 

products for which they do not have the ability to estimate. Industry stated in comment letters that such products exist, but did not 

provide the Bureau with any data on the volume of transactions 

using such products. 

The Section 1022 analysis also recognized that the temporary exception granted to insured depositories and credit unions may not 

be sufficient to ensure that all of these institutions will continue 

to provide remittance transfers. The analysis noted that consumers 

benefit from having access to both open network products like wire 

transfers and the closed network products provided by money 

transmitters. The analysis specifically noted that there may be a 

tradeoff between the accuracy of disclosures and access to remittance transfers and that estimated disclosures and accurate disclosures strike a different balance between accuracy and access. 
48 

Q.14.a. Recent payday lending guidance issued by the Bureau includes a footnote that specifies that overdraft lines of credit are not 

covered by the guidance, even though they are economically equivalent to traditional payday loans. You noted the similarity between 

overdraft protection and payday loans, but you said that ‘‘we were 

trying to focus our exam guidance on a particular type of product 

in the nonbank sector.’’ 

Will you use your authorities to differentiate examination, enforcement and supervision based on the type of financial institution 

providing the product, rather than on what the product is? 

A.14.a. We generally will not use our authorities to differentiate 

examination, enforcement, and supervision based on the type of financial institution that is providing the product. Indeed, leveling 

the playing field for all industry participants to create a fairer marketplace for consumers and the responsible businesses that serve 

them is a key goal of the Bureau. 

A small number of depository institutions, for instance, offer a 

variant of a payday loan. Although most payday lending activity 

continues to occur in the nonbank sector, the CFPB’s recently released Small-Dollar, Short Term Lending Procedures expressly 

apply to products offered by both banks and nonbanks. By standardizing the procedures across business type, we will work to ensure a more consistent supervisory approach across the consumer 

financial services industry. 

Q.14.b. If the products are economically equivalent, why would you 

discriminate based on the type of financial institution providing the 

product? 

A.14.b. The CFPB is examining equivalent products using the 

same standards. For example, our payday procedures apply to 

short-term, small-dollar loans that include some form of access or 

claim to a customer’s deposit account, regardless of whether the 

product is offered by an online payday lender or a depository institution. 

Q.15.a. States regulate both banks and nonbanks, and consequently, there will be a tremendous amount of overlap between 

State regulators and the Bureau. Any action taken by the Bureau 

is likely to raise preemption issues. Previously when asked about 

State preemption you stated that some States have ‘‘significant and 

robust oversight’’ and that ‘‘we have no intention at this point to 

preempt State law in these areas.’’ 

Do you believe that the dual banking system should be preserved? 

A.15.a. The dual banking system has deep historical roots in the 

United States, and the Dodd-Frank Act fits within this tradition. 

Under section 1025 of the Act, the Bureau has supervisory jurisdiction over very large banks, thrifts, and credit unions (and their affiliates), whether they are federally or State-chartered. 

Q.15.b. How will you determine which State laws need to be preempted? 

A.15.b. Under section 1041 of the Dodd-Frank Act, State laws are 

preempted by Title X of the Act only to the extent they are inconsistent with that title, and then only to the extent of the inconsist-
49 

ency. Further, a State law is not considered inconsistent with Title 

X because the State law affords consumers greater protection than 

provided by Title X. This type of preemption standard has been 

used in a variety of Federal consumer protection laws for decades. 

The Bureau would undertake any preemption determination with 

care and with due recognition of the important role of State law in 

protecting consumers. 

Q.15.c. In what instances will the Bureau act independent of State 

regulators? In what instances will the Bureau partner with State 

regulators? 

A.15.c. The Bureau is committed to and welcomes collaboration 

with State regulators, and various provisions of the Dodd-Frank 

Act speak to the importance of this collaboration. Collaboration ensures that we best leverage our limited resources to protect consumers and that we seek to minimize the regulatory burden felt by 

industry. Working with State regulators allows us to better understand their perspectives, which informs and enriches our work. The 

Bureau also recognizes that it has a duty to enforce Federal consumer protections and will act independently to do so when the circumstances warrant. 

Q.15.d. Do you have any concerns that State attorneys general will 

interpret Federal consumer financial laws and/or regulations in an 

inconsistent way? Do you have any obligation to ensure consistent 

application of Federal consumer financial laws and regulations? 

A.15.d. As a former State attorney general, I appreciate the important role that State attorneys general can play in the enforcement 

of consumer protection requirements. Section 1042 of the DoddFrank Act contains safeguards to minimize the risk of inconsistent 

application of Title X of the Act and regulations issued under that 

Title. That provision generally provides for State attorneys general 

and State regulators to consult with the CFPB before initiating enforcement actions under these authorities. Last summer, the Bureau issued regulations to clarify this process. Advance notice of 

State enforcement actions will help the Bureau and the States 

work together to avoid inconsistent interpretations of Title X. Similar consultation requirements can be found in other Federal consumer financial laws. 

Q.15.e. If a State chooses not to regulate a financial product or 

service, will you view that as harmful to consumers? 

A.15.e. There could be many reasons why a State might choose not 

to regulate a consumer financial product or service. The Bureau’s 

mission is to ensure that Federal consumer protections are followed 

regardless of the State in which the consumer lives. Under section 

1024(b)(2) of the Dodd-Frank Act, the extent to which State authorities provide oversight to nonbank entities that provide consumer financial products or services is one of the factors that the 

Bureau will consider in deciding whether to exercise its supervisory 

authority over that entity. 

Q.16.a. As a voting member of the Financial Stability Oversight 

Council, you are charged with identifying threats to the financial 

stability of the United States. 
50 

In your view, what is currently the most serious threat to the financial stability of the United States? 

A.16.a. Congress has charged the Council with the responsibility 

for identifying threats to the financial stability of the United 

States. In the Council’s annual report for 2011, the Council identified several vulnerabilities in the financial system, including the 

significant market uncertainty in Europe and real-estate related 

exposure for many U.S. financial institutions. In my role as a member of the Council, I look forward to contributing to the Council’s 

ongoing work to identify, monitor and respond to emerging threats 

to our Nation’s financial stability. 

Q.16.b. What metrics do you use to identify systemic risks? 

A.16.b. In the Council’s 2011 report, the Council noted that it is 

in the combination of imbalances, shocks, and vulnerabilities that 

threats to financial stability arise. The Council’s process to assess 

threats is a collaborative one, and is driven by the best information 

available from the markets, institutions, industry, and academia, 

as well as the expertise and information of its member agencies. 

The Council created its Systemic Risk Committee to gather information from the member agencies and to use this information to 

assist the Council in monitoring and assessing risks. 

RESPONSE TO WRITTEN QUESTION OF SENATOR JOHANNS 

FROM RICHARD CORDRAY 

Q.1. Mister Cordray, I worry about the costs to our economy and 

to our financial institutions of complying with rules and supervisions undertaken by the Bureau, only for those rules, regulations 

and enforcement actions to be set aside in the future by a Court 

that passes judgment on the validity of your appointment and the 

scope of your authority. By statute, the Bureau is required to analyze the costs, benefits and impacts of its rules, and the Semi-Annual Report makes clear that the Research, Markets and Regulations Division is conducting that analysis. As that analysis is being 

performed, is the Research team weighing at all the possibility that 

your rules will be vacated by a court? If the rules are eventually 

challenged and set aside, implementation would result in cost to 

the economy which is not offset by any realized benefit. 

If this evaluation is not being performed, why not? It strikes me 

that this determination is not just a remote possibility, so it should 

be accounted for. Do you feel it would be appropriate to begin doing 

so? 

A.1. The Bureau analyzes the benefits, costs, and impacts of rules 

as required by statute. In its analyses thus far, the Bureau has not 

addressed the possibility that rules will be vacated by a court. This 

approach is consistent with the Bureau’s understanding of the approach followed by other agencies. 
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