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95–050 PDF 2015

THE SEMI-ANNUAL REPORT OF 

THE BUREAU OF CONSUMER 

FINANCIAL PROTECTION 

HEARING 

BEFORE THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTEENTH CONGRESS 

FIRST SESSION 

MARCH 3, 2015 

Printed for the use of the Committee on Financial Services 

Serial No. 114–6 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

JEB HENSARLING, Texas, Chairman 

PATRICK T. MCHENRY, North Carolina, 

Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

ROBERT HURT, Virginia 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

MARLIN A. STUTZMAN, Indiana 

MICK MULVANEY, South Carolina 

RANDY HULTGREN, Illinois 

DENNIS A. ROSS, Florida 

ROBERT PITTENGER, North Carolina 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

KEITH J. ROTHFUS, Pennsylvania 

LUKE MESSER, Indiana 

DAVID SCHWEIKERT, Arizona 

ROBERT DOLD, Illinois 

FRANK GUINTA, New Hampshire 

SCOTT TIPTON, Colorado 

ROGER WILLIAMS, Texas 

BRUCE POLIQUIN, Maine 

MIA LOVE, Utah 

FRENCH HILL, Arkansas 

MAXINE WATERS, California, Ranking 

Member 

CAROLYN B. MALONEY, New York 

NYDIA M. VELA ́ ZQUEZ, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JAMES A. HIMES, Connecticut 

JOHN C. CARNEY, JR., Delaware 

TERRI A. SEWELL, Alabama 

BILL FOSTER, Illinois 

DANIEL T. KILDEE, Michigan 

PATRICK MURPHY, Florida 

JOHN K. DELANEY, Maryland 

KYRSTEN SINEMA, Arizona 

JOYCE BEATTY, Ohio 

DENNY HECK, Washington 

JUAN VARGAS, California 

SHANNON MCGAHN, Staff Director 

JAMES H. CLINGER, Chief Counsel 

(III) 

C O N T E N T S 

Page 

Hearing held on: 

March 3, 2015 ................................................................................................... 1 

Appendix: 

March 3, 2015 ................................................................................................... 83 

WITNESSES 

TUESDAY, MARCH 3, 2015 

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

(CFPB) ................................................................................................................... 6 

APPENDIX 

Prepared statements: 

Cordray, Hon. Richard ..................................................................................... 84 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Ellison, Hon. Keith: 

Letter to Hon. Richard Cordray, dated March 4, 2015 ................................. 88 

Cordray, Hon. Richard: 

Written responses to questions for the record submitted by Representatives Barr, Duffy, Fincher, Fitzpatrick, Foster, Kildee, Moore, 

Pittenger, Schweikert, Sinema, Westmoreland, and Williams ................. 91 

(1) 

THE SEMI-ANNUAL REPORT OF 

THE BUREAU OF CONSUMER 

FINANCIAL PROTECTION 

Tuesday, March 3, 2015 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The committee met, pursuant to notice, at 2:36 p.m., in room 

HVC–210, Capitol Visitor Center, Hon. Jeb Hensarling [chairman 

of the committee] presiding. 

Members present: Representatives Hensarling, Lucas, Garrett, 

Neugebauer, McHenry, Pearce, Posey, Fitzpatrick, Westmoreland, 

Luetkemeyer, Huizenga, Duffy, Stivers, Fincher, Stutzman, 

Mulvaney, Hultgren, Ross, Pittenger, Wagner, Barr, Rothfus, 

Messer, Schweikert, Dold, Guinta, Tipton, Williams, Poliquin, Love, 

Hill; Waters, Maloney, Velazquez, Sherman, Capuano, Clay, Lynch, 

Scott, Green, Cleaver, Perlmutter, Himes, Carney, Foster, Kildee, 

Murphy, Delaney, Sinema, Beatty, Heck, and Vargas. 

Chairman HENSARLING. The Financial Services Committee will 

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

a recess of the committee at any time. 

Today’s hearing is for the purpose of receiving the Semi-Annual 

Report of the Consumer Financial Protection Bureau (CFPB). 

I want to thank Director Cordray for coming today to testify before us. I also want to acknowledge that votes are expected 

throughout his appearance today, so we will ask for your indulgence, Mr. Director. 

I have been informed by the cloakroom that the next vote series 

will hopefully consist of only one vote. If that proves to be true, 

then we will not have to interrupt the hearing. And we will hopefully find some way to take turns here. 

I wish to also inform Members that the Director has no hard stop 

of time, so he is making himself available to all Members. 

I now recognize myself for 3 minutes to give an opening statement. 

The CFPB undoubtably remains the single most powerful and 

least accountable Federal agency in all of Washington. When it 

comes to the credit cards, auto loans, and mortgages of hardworking taxpayers the CFPB has unbridled discretionary power, 

not only to make those loans less available and more expensive, 

but to absolutely take them away. 

Consequently, Americans are losing both their financial independence and the protection of the rule of law. The Bureau is funVerDate Nov 24 2008 17:31 Sep 25, 2015 Jkt 095050 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 K:\DOCS\95050.TXT TERRI
2 

damentally unaccountable to the President because the Director 

can only be removed for a cause; fundamentally unaccountable to 

Congress because the Bureau’s funding is not subject to appropriations; and fundamentally unaccountable to the courts because the 

Dodd-Frank Act requires courts to grant the CFPB deference regarding its interpretation of Federal consumer and financial law. 

Thus, the Bureau regrettably remains unaccountable to the 

American people, and that is why we need the CFPB on budget 

and led by a bipartisan commission. Mere testimony is not the 

equivalent of accountability. 

I was struck by a comment made by one of my Democratic colleagues, who argued during our committee’s mark-up of our budget 

views and estimates that the Bureau needed to be protected from 

‘‘the whim of whomever are the legislators.’’ 

I would remind all of my colleagues that the legislators are chosen by the American people under the provisions of our Constitution. 

Powerful Washington bureaucrats must answer to the American 

people and not the other way around. 

I find it most ironic to hear any Democrat arguing against democracy. I am reminded of a warning by author and theologian 

C.S. Lewis who said, ‘‘Of all tyrannies, a tyranny sincerely exercised for the good of its victims may be the most oppressive.’’ All 

of this, once again, begs the question, who will protect consumers 

from the overreach of the Consumer Financial Protection Bureau? 

Free checking has been cut in half. QM increasingly stands for 

‘‘quitting mortgages’’ as community bank after community bank 

finds that they can no longer offer mortgages to many of their deserving customers. 

Now, we are to the subject of overdraft protection. I heard from 

one of my constituents, Tamara from Athens, Texas, in the 5th 

Congressional District, ‘‘I wish to keep the overdraft protection. I 

should have the right to choose.’’ 

And that is really what this debate is all about, protecting the 

rights, the fundamental and economic liberties of the American citizen, so that we can seek economic growth, and they can find their 

financial independence. 

True consumer protection requires access to competitive, transparent, and innovative markets which are vigorously policed for 

force, fraud, and deception. True consumer protection empowers 

consumers and respects their economic freedoms to make important, informed choices free from government interference and fiat. 

The Chair now recognizes the gentleman from Missouri, Mr. 

Clay, for 11⁄2 minutes for an opening statement. 

Mr. CLAY. Thank you, Mr. Chairman. 

And thank you, Director Cordray, for your testimony today. 

The CFPB’s work on behalf of American consumers speaks for 

itself: over $5.3 billion in direct relief to over 15 million consumers; 

over half a million consumer complaints processed; and over 1,000 

consumer questions answered. What is perhaps most remarkable 

about the CFPB’s performance to date has been the CFPB’s ability 

to deliver for American consumers in spite of the relentless attacks 

from Republicans to undermine the agency at every turn. 

3 

Any serious conversation about what contributes to the wealth 

gap in this country must include a frank discussion about the 

wealth stripping effects associated with certain financial products 

such as predatory auto loans, payday loans, and check cashing 

stores that exploit the lack of financial sophistication among economically disadvantaged populations. 

Given the CFPB’s role in reining in the kinds of wealth stripping 

products and services that exacerbate the wealth gap, the CFPB is 

on the front lines of reducing the wealth gap and bringing vulnerable consumers into the economic mainstream. 

The fact that the important work of combating the wealth gap 

and protecting consumers has often been relegated to debates 

about renovations and fountains, and to doing the bidding of special interests, is a sad commentary on the priorities of some who 

ignore the commendable work of this important agency. 

I thank you again, Director Cordray, and I look forward to hearing your testimony. 

And, Mr. Chairman, I yield back the balance of my time. 

Chairman HENSARLING. The gentleman yields back. 

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

for 2 minutes. 

Mr. NEUGEBAUER. Thank you, Mr. Chairman. 

Consumer protection is important to a well-functioning and sustainable financial marketplace. However, consumer protection must 

be done in a smart, tailored, and politically—excuse me. 

Mr. Chairman, could I start over? 

Chairman HENSARLING. Reset the clock please so you can start— 

we will give the gentleman from Texas a do-over. 

Mr. NEUGEBAUER. Yes. Consumer protection is important to a 

well-functioning and sustainable financial marketplace, however 

consumer protection must be done in a smart, tailored, and politically neutral manner. It should not be used to advance ideological 

policies. If the pendulum of consumer protection swings too far you 

have nothing left to protect. 

Today, we are approaching the 5-year anniversary of the DoddFrank Act which created the CFPB. Unfortunately, since its creation I see an agency that has yet to prove it can function in a sustainable manner. Its actions have demonstrated a lack of transparency and a lack of accountability. It has demonstrated that it 

is susceptible to political influence, bringing into question whether 

it is independent. 

Some of my Democratic colleagues will allege that Republicans 

want to get rid of the CFPB. I look back over the last 5 years and 

see a field of proposals to restructure the CFPB, not to get rid of 

it. 

This week I will introduce the first of several bills to refocus the 

CFPB. Perhaps one of the most important reforms is to introduce 

a balanced and consultative process into the decision-making process. 

Many have forgotten that Elizabeth Warren, our former colleague Barney Frank, and even the President originally supported 

a board leadership structure. Today, I hope to reflect and focus on 

4 

what consumer protection means for credit availability, the cost of 

credit, and consumer choice. 

I remain concerned that many of the Bureau’s actions demonstrate a regulatory paternalism which assumes that the American consumer doesn’t know how to make the right choices for 

themselves. It is a dangerous scenario when the government bureaucrats start making decisions for the American people. 

In my district there is a single mom with three kids who uses 

prepaid cards to budget finances, and overdraft protection for an 

occasional cash shortage scenario. This single mom is barely in the 

financial mainstream. 

I know that each of you has constituents who face these financial 

circumstances, and as the Bureau moves forward with the rulemaking in these areas, we must truly understand the qualitative 

and the quantitative costs and benefits of each rule. 

Consumer protection doesn’t happen in a vacuum. New regulations and regulatory actions have real consequences for real people. 

If the marketplace is not allowed to innovate, doesn’t have clear 

rules of the road, and is steered into politically influenced areas, 

the consumer may lose. 

Today, we start examining whether the pendulum of consumer 

protection is starting to swing too far. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Georgia, Mr. 

Scott, for 1 minute. 

Mr. SCOTT. Well, thank you very much. 

Mr. Cordray, certainly we want to welcome you back and it is 

good to see you. I have appreciated working with you on a number 

of issues that we brought to your attention and you responded to. 

I also want to take this opportunity to call your attention to a 

letter that I have sent to you, or which is in the process of getting 

to you. I don’t know whether or not you have received it. But it involves one of my constituent companies in Georgia, the TSYS Company, that works with consumer debit and credit card procedures. 

And we wanted to express our concerns about a particular rulemaking on that. My hope is that once you get that letter—and I 

did put a recommendation in the letter for how we might be able 

to solve the problem that my constituent is facing. 

The company is located and headquartered in Columbus, Georgia. It is the TSYS Company. I think you have had some correspondence with them. 

Thank you, Mr. Chairman. 

Chairman HENSARLING. The time of the gentleman has expired. 

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

for one minute. 

Mr. GREEN. Thank you, Mr. Chairman. 

And thank you, Mr. Cordray, for being here. Mr. Cordray, I 

would like to associate myself with the remarks of Mr. Clay, who 

gave some indication as to how efficacious CFPB has been. I would like to highlight the $5.3 billion in relief for 15 million 

American consumers. I think this is very important. Your enforcement actions have amounted to $175 million in civil 

penalties that have been ordered to be paid. The CFPB is working 

and the CFPB merits some consideration. I would also like to menVerDate Nov 24 2008 17:31 Sep 25, 2015 Jkt 095050 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 K:\DOCS\95050.TXT TERRI
5 

tion that there will be some indication that you have not given 

timely responses. I have some indication, however, that the Bureau 

has made significant efforts to comply with requests. 

And my hope is that you will be given an opportunity to give 

your explanations such that we may totally understand what is 

going on with reference to a request, as well as response. 

Thank you. I yield back. 

Chairman HENSARLING. The Chair now recognizes the gentleman 

from Connecticut, Mr. Himes, for 11⁄2 minutes. 

Mr. HIMES. Thank you, Mr. Chairman. 

And, Director, it is a pleasure to welcome you back before the 

committee. Again, I want to associate myself with the comments of 

Mr. Clay. 

The achievements of your organization as a new organization 

really speak for themselves. I speak of numbers, and those numbers are in the billions of dollars of relief that you have provided 

to consumers for behavior that frankly I think either side of the 

aisle would agree is not the kind of behavior to which we want our 

constituents subjected. So I want to say thank you for your very 

good work. 

Frankly, Director, we have talked about this before. I don’t really 

understand the deregulatory thrust of my friends on the other side 

of the aisle. I think we all agree that consumers can make their 

own choices, but we all know that across-the-board, whether it is 

our toaster or our automobile, the insulation in our house or whatever it is, we do have standards so that consumers are not taken 

advantage of. 

Somehow my friends on either side of the aisle seem to believe 

that in contrast to the fact you can’t buy a toaster that will burn 

your house down, you ought to be able, perhaps, if you so choose, 

to buy a mortgage that will burn your house down. I don’t get that. 

And of course, we see in the guise of reform ideas that would ultimately hamstring your ability to do what you have done, ideas 

like appropriating funds and appropriating your budget. Of course, 

that would make you the only regulator out there whose budget 

was appropriated and subject to the tender mercies of the politics 

of this Congress. 

And so, I do want to thank you for what you do. 

As I always do, Director, I also want to ask that while you go 

after the bad guys doing bad things, please be very, very careful 

of our smaller banks. I continue to hear that they sort of feel like 

CFPB is in there quite a bit. And you are doing great work, but 

please do be mindful of our smaller banks. 

Chairman HENSARLING. The time of the gentleman has expired. 

As we are essentially in the basement of the Visitor Center, your 

smartphone may not be quite so smart down here, I wish to alert 

Members that there is a single vote taking place on the Floor now, 

with 12 minutes, 38 seconds remaining. But we will go ahead and 

hear the testimony of the Director, and perhaps Members can take 

turns casting their one vote and returning. 

So today, we welcome the testimony of the Honorable Richard 

Cordray, Director of the CFPB. He has previously testified before 

our committee, so I believe he needs no further introduction. 

6 

Director Cordray, without objection, your written statement will 

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

an oral presentation of your testimony. 

STATEMENT OF THE HONORABLE RICHARD CORDRAY, DIRECTOR, CONSUMER FINANCIAL PROTECTION BUREAU (CFPB) 

Mr. CORDRAY. A new place. Thank you, Mr. Chairman. And I am 

cheerfully at your service in terms of timing today as you indicated. 

Chairman Hensarling, Ranking Member Waters, and members of 

the committee, thank you for the opportunity to testify today about 

the Consumer Financial Protection Bureau’s Sixth Semi-Annual 

Report to Congress. 

We appreciate your continued leadership and oversight as we 

work together to strengthen our financial system so that it better 

serves consumers, responsible businesses, and our economy as a 

whole. 

As you know, the Consumer Bureau is the Nation’s first Federal 

agency whose sole focus is protecting consumers in the financial 

marketplace. Products like mortgages, and student loans involve 

some of the most important transactions in people’s lives. 

Since we have opened our doors, we have focused on making consumer financial markets work better for the American people, and 

helping them improve their financial lives. Through fair rules, consistent oversight, appropriate law enforcement, and broad-based 

consumer engagement, we are working to restore people’s trust and 

protect them against illegal conduct. 

Much of the Bureau’s early work centered on the mortgage market, the primary cause of the financial crisis, and thus where Congress saw reform as essential. 

Our Ability-to-Repay rule, also known as the Qualified Mortgage 

(QM) rule, put new guardrails in place to prevent the kind of sloppy and irresponsible underwriting that brought about the crisis. 

Other rules addressed problems in the mortgage market also 

deemed in need of repair. 

During this reporting period in particular we continued to provide tools and resources to help industry to implement our mortgage rules including the rule Congress required of us: to consolidate mortgage disclosure forms at the application and the closing 

stages, what we call ‘‘Know Before You Owe.’’ 

We also undertook considerable analysis to prepare a proposed 

rule that would provide more room for residential mortgage lending 

by small creditors such as community banks and credit unions. 

The Bureau shares the committee’s respect on both sides of the 

aisle—I have heard it again and again—for these institutions, and 

is committed to promoting access to credit for consumers in rural 

and underserved areas. And so our proposal would expand the definition of ‘‘small creditor’’ by adjusting the origination limit to encourage more lending by these small local institutions. 

We are also proposing to expand the definition of ‘‘rural’’ areas 

to provide more access to credit in those areas. We are accepting 

public comments on these issues through March 30th. 

During this reporting period we also issued some other proposed 

and final rules. We issued final clarifying revisions to the remittance rule, responding in part to concerns by industry. We moved 

7 

forward on reporting requirements for the Home Mortgage Disclosure Act, along with new and improved tools to allow the public to 

utilize this data more effectively. And we finalized a rule to improve annual privacy notices from financial institutions to the customers which eases burdens for many companies. 

In addition to our rulemaking efforts the Bureau continues to 

make progress in all areas of our work. Today, we have helped secure through enforcement actions more than $5.3 billion in relief 

to more than 15 million consumers victimized by violations of Federal consumer financial laws, including $1.6 billion during this reporting period. 

We continue to build out a risk-based supervision program both 

for banks and non-bank financial firms to achieve more consistent 

treatment and ensure compliance. This will help level the playing 

field among competing firms in various consumer financial markets. 

The premise at the heart of our mission is that consumers deserve to be treated fairly in the financial marketplace and they 

should have someone stand on their side when that does not happen. So far the Office of Consumer Response has received more 

than 540,000 consumer complaints about mortgages, credit cards, 

student loans, auto loans, credit reporting, debt collection, and 

many other consumer financial products or services. 

That has resulted in relief for many consumers, both monetary 

and non-monetary, and it provides valuable insight for our regulatory supervisory and enforcement work. 

We are also developing educational tools for consumers, including 

the Your Money, Your Goals toolkit. This comprehensive guide is 

designed to be used social workers, legal aid attorneys, and volunteers to empower the people they serve in personal financial decision-making. And we will soon be embarking on a financial coaching program for transitioning veterans and economically vulnerable 

populations of consumers in 60 locations all over the country. 

The progress we have made has been possible thanks to the engagement of hundreds of thousands of Americans who have utilized 

our consumer education tools, submitted complaints, participated 

in rulemakings, and told us their stories through our Web site and 

at numerous public meetings from coast to coast. 

We have also benefited from an ongoing dialogue and constructive engagement with the institutions we supervise, with community banks and credit unions with whom we regularly meet, and 

with consumer advocates throughout the country. 

Our progress has also resulted from the extraordinary work of 

my colleagues at the Bureau. They are dedicated public servants 

from a variety of different backgrounds. And I am proud to say 

that they have regularly risen to the challenges we face. They have 

consistently delivered great results so that consumers all over the 

country, in every one of your districts, are treated fairly in the financial marketplace. The American people certainly deserve it. 

Thank you for the opportunity to testify today. I look forward to 

your questions. 

[The prepared statement of Director Cordray can be found on 

page 84 of the appendix.] 

8 

Chairman HENSARLING. The Chair now recognizes himself for 5 

minutes. 

Director Cordray, we have spoken about the Qualified Mortgage 

rule on more than one occasion. Those of us on this side of the aisle 

have a great concern, ultimately, about how it will impact the ability of many of our constituents to access mortgage credit. 

I will take note of the recent rules that you have respecting the 

rural designation. I think it is a step in the right direction. And 

I know that you don’t often hear complimentary words from my 

mouth, so I thought— 

Mr. CORDRAY. I also appreciate it. 

Chairman HENSARLING. —I would throw you a curveball there. 

I want to go back though, and we have spoken about this before, 

but as you well know the Federal Reserve came out with a study 

which I think dates back almost a year ago now which showed that 

22 percent of those who bought a home in 2010, one out of every 

five borrowers, would no longer qualify under your debt-to-income 

(DTI) rule. And roughly one-third of African-Americans and roughly one-third of Hispanic borrowers would not qualify as well. 

So we have talked about this before, but you have had ample opportunity now to take a look at the study. Do you disagree with its 

methodology, or do you disagree with its conclusion, either one? 

Mr. CORDRAY. I disagree with the conclusion. And I think the 

premise here is off-base. If we had finalized our rules solely 

around— 

Chairman HENSARLING. If I could stop you right there, as I understand it, for 6 more years you essentially exempt the rule for 

any mortgage that is bought by Fannie Mae and Freddie Mac, so 

assuming they remain in conservatorship, in 6 years would the 

study be valid but for the fact that you essentially, for a lack of 

a better term, told the statute? 

Mr. CORDRAY. Again, the premise of the study is a rule that was 

not adopted. The rules we adopted were more generous toward 

mortgage lending, recognizing access to credit is a critical need in 

this market now and the market is very different now than it was 

before the crisis. So that is important. 

We are required to review our rules 5 years in and we will be 

doing that carefully. The other piece I want to add, and you are 

very aware of this, is that we needed to be careful about writing 

rules in light of not knowing how Congress was going to handle 

GSE reform. 

Chairman HENSARLING. If Congress does not act on GSE reform 

then what is your intention 6 years hence because this gets—still, 

we could quibble over the percentages, but I assume that you think 

there is some validity to the fact that many of these people will no 

longer be able to access mortgage credit. 

Mr. CORDRAY. Our intention 4 years hence would be that we will 

have completed the 5-year review of these rules and as needed we 

will adjust the rules to take account of the issues you raised. My 

point is those are legitimate issues, they are legitimate concerns. 

That is why we didn’t adopt the rules in that form in the first place 

and that is why we will review them on the 5-year mark to make 

sure that they are calibrated to the market. 

9 

Chairman HENSARLING. So you were saying that the Fed study 

is inconsistent with the rule that you adopted? 

Mr. CORDRAY. The point is, the study is not describing the rules 

we have adopted. The rules we have adopted have the Fannie and 

Freddie patch and that has been a very important element. Everybody has recognized it; we recognized it. 

Chairman HENSARLING. I understand that, but the Fannie and 

Freddie patch will end one day. 

Mr. CORDRAY. Yes. It will end one day, but before it ends we will 

have reviewed the rule and made adjustments as needed—or Congress will have enacted GSE reform and we will then have to adjust. 

Chairman HENSARLING. But if you are anticipating making adjustments, why put in place such a draconian rule in the first 

place? How is it a good rule if you are simply going to change it 

once it actually impacts hardworking American taxpayers? 

Mr. CORDRAY. Because that rule is not the rule that is in place. 

The rule that is in place is a broader rule that has blessed a considerable amount of mortgage lending, has not had much impact on 

the marketplace, and also gives us an ability to respond to events. 

When the Congress decides what to do about GSE reform, we will 

all need to review in light of that. That will be a major thing, but 

we obviously couldn’t anticipate that. 

Chairman HENSARLING. I simply offer the coucil, again, as you 

well know. And I am very glad that you have your community 

banking advisory council. 

There is a reason that so many community bankers now refer to 

the QM rule as ‘‘quitting mortgages.’’ And I think we are seeing 

that nationwide. In the small time I have remaining, with respect, 

apparently you are anticipating rolling out a payday lender rule 

which is discretionary under Dodd-Frank, not mandatory. 

Payday lenders, as you well know, are regulated. They are just 

not regulated by you and your Bureau. Can you, if you are going 

to roll out a rule, tell me which particular States you believe do not 

adequately regulate payday lending so as to justify the preemption 

of this local power? 

Mr. CORDRAY. With respect, I am going to return to your prior 

question for a moment, because you ended by saying that many 

community banks think that the QM rule requires them to quit 

mortgages. That is inconsistent with the small creditor provision 

which exempts 95 percent of them from the QM rule in the sense 

that their loans will be covered by the QM rule, so there is no reason—I don’t want any community bank to take a message from this 

hearing that they should be quitting mortgages. We are encouraging them to engage in relationship lending. 

Chairman HENSARLING. I think we both know that they are 

‘‘quitting mortgages.’’ 

Mr. CORDRAY. I don’t know that this is so in fact. As to payday 

lending, this is an area, as will be true in a number of respects, 

where we are trying to calibrate and understand the market and 

gauge the potential for consumer harm. We have been careful and 

thoughtful and thorough in our approach to this. We have done two 

significant White Papers that have been broader than anything 

that has ever been done in this area. 

10 

Chairman HENSARLING. I understand that but what is the reason 

to preempt the current legal structure? 

Mr. CORDRAY. Okay. So when you say ‘‘preempt,’’ that is sort of 

a loaded term. I don’t know what ‘‘preempt’’ means here and we 

have not embarked on a specific notice-and-comment rulemaking 

yet. 

Chairman HENSARLING. Are there specific States that you believe 

have inadequate protections? I believe there are roughly a dozen 

States that functionally outlaw it today. So, again, this is a discretionary rulemaking, as I understand it under Dodd-Frank, not 

mandatory. There is some reason that you are going to undertake 

this, so I can only assume that you feel that there are certain 

States that have inadequate protections, and I am curious as to 

which ones. And I assume that you have undertaken a study of 

which States are involved. 

Mr. CORDRAY. Okay. What I will is say we have done a study of 

the market. And in the market what we find is there is a demand 

for small dollar credit, and we recognize the need to have access 

to such credit. 

We have also recognized that there is a problem that many consumers experience, which is that they fall into a debt trap. They 

roll these loans over and over and over, and they end up living 

their life off of 390 percent interest, or 570 percent interest. That 

is of concern to us. We have made that plain in a couple of different 

ways. 

Chairman HENSARLING. But there is no specific State that you 

find has an inadequate regulatory regime to protect consumers? 

Mr. CORDRAY. I am not thinking about it in that way. What I am 

thinking about are problems in the marketplace, consumers are 

being harmed, what is the right response to that. That is what we 

are grappling with, very carefully and thoroughly I believe. 

Chairman HENSARLING. The Chair now recognizes the gentleman 

from Texas, Mr. Green, for 5 minutes. 

Mr. GREEN. Thank you, Mr. Chairman. I thank the ranking 

member as well. 

And, Mr. Cordray, I thank you for appearing. Mr. Cordray, I am 

confident that at some point in the course of this hearing today 

there will be some questions about your responses to various letters that have been written to you. 

And while I think that you have given responses, I don’t think 

I should speak for you. I think you should be accorded an opportunity to just speak for yourself. I have one document that indicates that you have made significant efforts to comply with the requests that have been made and you list some 10 or more indications of what your efforts have been. 

But would you kindly now take the time that you need to explain 

the circumstance and the responses that you have given? 

Mr. CORDRAY. Sure. And I am glad to have the opportunity. I 

will just simply say I think this is, in many respects, a natural 

back and forth between the Congress which has the rightful and 

important responsibility of oversight, and an Executive Branch 

agency like our own which is of course ultimately accountable to 

the Congress, both for carrying out the statute that Congress has 

enacted, that is the law that we are supposed to implement, and 

11 

to make sure that you have the information that you need to be 

able to oversee our operations. 

There is no disagreement about that. There is no resentment 

about that. It can be a lot of work to respond to aggressive oversight. But I don’t begrudge it. I think it is an appropriate role of 

the Congress. 

Beyond that, there can be individual disagreements when a document request was made to us and we responded to it, whether it 

was done as fast as it might have been, or whether it was done as 

fully as it might have been. There are a lot of reasons why some 

of these document requests take a fair amount of time to comply 

with, particularly if they involve detailed email searches or document searches. And they sometimes involve thousands and thousands of pages, particularly if they involve any kind of personally 

identifiable information. 

We are required by Federal law to be careful about how we handle that information. But having said that, those are the parameters we all operate within. We understand that. We understand 

your responsibilities. I think we understand our responsibilities. 

It is our every intention to make sure that this committee has 

all the information it needs. Whenever we are told that we haven’t 

done that we are glad to have more discussion. We have offered in 

camera reviews where that is appropriate. We have provided documents where that is appropriate. We will continue to work through 

each issue to the point where we are both satisfied. That is my intention and it continues to be my intention. 

Mr. GREEN. I am honored to know what your intentions are, and 

I say this to you candidly because there is an indication that a subpoena dices tecum may be issued. And of course as a lawyer you 

understand what that means in terms of compelling you to produce 

documents. 

My hope is that you will be given an opportunity to explain yourself when specific questions are asked with reference to this. Now 

let’s move to something else, let’s talk about the small banks for 

just a moment. I am a big proponent of doing what we can to be 

of assistance to small banks. I have heard many concerns expressed and my desire is to give them some level of relief. 

I am pleased to hear you talk about helping small banks. Small 

banks, for the most part consist of about 90 percent of the banks 

in this country because about 90 percent of the banks, a little bit 

more by some standards, are under a billion dollars. And in this 

country today, if you are under a billion dollars, you are considered 

a small bank, maybe even a very small bank. 

I know that the public probably doesn’t quite understand but by 

the standards that we have now, if you are under a billion dollars 

you are probably a very small bank. I want to do what I can and 

have offered to work across the aisle to help small banks. 

I always find, however, that when we get engaged in this process 

we find ourselves with wording, language that will not only include 

the small banks but also the mega-banks, the banks that actually 

produce these exotic products, the teaser rates that coincided—the 

interest rates that were offered to you to get you into a contract 

and then have a prepayment penalty that would not allow you to 

get out of the contract so as to benefit from having an additional 

12 

rate that would not be locked in for some period of time that would 

be harmful to you. 

These teaser rates that coincide with prepayment penalties were 

a problem. So do what you can to help the small banks. I am all 

for that and we may have to do something to—get some other relief 

at a later time, but let’s help those small banks, and I appreciate 

it. 

Mr. CORDRAY. Okay. 

Mr. GREEN. I yield back. 

Mr. CORDRAY. Thank you, sir. 

Mr. NEUGEBAUER [presiding]. Thanks, gentlemen. 

The Chair recognizes himself for 5 minutes. 

Director Cordray, thank you for being here. As you know, the 

CFPB is in the process of a major rulemaking for prepaid cards. 

And as you and I have previously discussed, I have serious concerns about the Bureau’s direction in the rulemaking. In particular, 

I am concerned about the new structure and limitation placed on 

the overdrive features of prepaid cards and that this could possibly 

force some of these issuers to discontinue some of the features of 

their products. And I am very concerned that at some point in 

time, it would limit some of the choices for consumers. 

Recently one of my constituents, Gracey from Lubbock, actually 

wrote to the CFPB to discuss her use of prepaid cards and overdraft protection, and I want to read her comments. 

‘‘As a single mother of three children, sometimes funds run tight. 

With the overdraft protection on my prepaid card, I have a little 

breathing room between paychecks and for that I am very grateful. 

‘‘I have been a prepaid user for almost 5 years now and I would 

love to continue to utilize this service. But if the overdraft protection coverage is no longer offered, it will absolutely put a strain on 

our already strained finances. 

‘‘I choose to have overdraft protection on my prepaid card. I believe I should have the right to choose to utilize the services such 

as overdraft protection. Please ensure that the final CFPB rules 

allow me to choose the features that are most beneficial to my 

needs.’’ 

I think the question that I have is, as you are looking into this 

rulemaking process, how are you balancing consumer protection 

with a high demand in product usage for prepaid cards and the 

overdraft protection. Obviously, this young woman needs that, has 

been utilizing it, and she has a pretty difficult task anyway of 

being a single mom raising three kids. 

Mr. CORDRAY. Thank you for the question. I appreciate the discussion you and I have had on this subject personally one-on-one. 

First of all, I want to be a little careful here because that is a proposed rule, it is not yet a final rule. In fact, the comment period 

is not yet closed on that. That comment period extends until later 

this month. And I know that we are hearing a lot of comments both 

ways on that particular aspect of prepaid cards. So I don’t want to 

prejudge that. We will obviously get the comments, digest them, 

and think carefully about how to proceed. 

What I will say is in the proposal, what we set out and one of 

the things that we are taking input on, was that on prepaid cards 

that credit products would be subject to credit card-like protections 

13 

which I think—frankly I think most of the public is totally unaware that prepaid cards right now have no consumer protection 

whatsoever. You can’t get a dispute resolved, you can’t get an error 

corrected, you have no rights, no disclosure requirements. So that 

is part of what we are trying to address here. 

But we determined in our proposal to subject that to credit cardlike protections. That is what has been imposed under the CARD 

Act that is working well in the credit card market. And so we are 

interested to hear people’s reactions to whether that works or how 

well that would work here. So that is one of the things we are interested in getting input on and we will think more about as it relates to your question. 

Mr. NEUGEBAUER. I think the question then is, when you sit 

down and you start looking at this rulemaking, do you sit down 

with industry and say, ‘‘Walk me through how your customers are 

using this product?’’ So instead of thinking about it from the regulatory standpoint of, ‘‘You must be doing something that we don’t 

like. We are just trying to figure out what that is,’’ that when you 

sit down, you analyze how this young woman is using that card 

and how important that is to her. And in other words, she feels like 

things are pretty good because she has been doing this for 5 years. 

Mr. CORDRAY. Yes, we do. We have had numerous stakeholder 

meetings with the industry, the prepaid card industry and prepaid 

accounts going beyond cards, those prepaid account products which 

are a little broader. We will continue to hear from them and think 

about this, we are always interested in data that they will provide 

us. Some industries are more interested in doing that and some 

seem to be quite standoffish and do not provide us with data. When 

they don’t, we don’t have as good a foothold to go on, so I always 

encourage them to do so. But we have had numerous discussions 

and I am sure we will hear plenty more before we come to ground 

on this. 

Mr. NEUGEBAUER. Did the Bureau do a qualitative and quantitative analysis of the cost and benefit analysis of this rule? 

Mr. CORDRAY. We are required under our statute to assess the 

costs, burdens, and benefits of any regulation. We do take that seriously. We have done that with our rules and we will continue to 

do that, yes. 

Mr. NEUGEBAUER. Very quickly, the CFPB is in the midst of implementing a new major rule for Truth in Lending disclosures and 

disclosures on RESPA which would be integrated effective August 

1st. 

Mr. CORDRAY. Yes. 

Mr. NEUGEBAUER. There is a lot of concern out there in the industry that having new programs, integrating that so that the 

servicers and the closers and the lenders are all—have the system 

in place. I think there is a question of whether we can be ready 

for primetime by August 1st. Would you be amenable to a 60-day 

non-enforcement window once the rule becomes, in fact, effective so 

that—making sure the industry has had an opportunity to adequately implement the system? 

Mr. CORDRAY. We always listen to people’s ideas. I will say that 

this rule was finalized 21 months in advance of the effective date. 

It was finalized not last November, but November the year before, 

14 

so people will have had close to 2 years to be ready for this. And 

we have been working with them all along. We have done what we 

do to make it easy for them to provide plain language guides, provide simplified guidance, respond to questions. And we have really 

been urging the industry to be ready for this. Nobody should be 

surprised by this and people are working hard to get ready so we 

will see how it transpires. But people have had a long time on this. 

This wasn’t a rule that was adopted yesterday with an August 

deadline. It was November of 2013, so— 

Mr. NEUGEBAUER. My time has expired. The Chair recognizes the 

gentlewoman from California, the ranking member, for 7 minutes. 

Ms. WATERS. Thank you very much. 

Welcome, Mr. Cordray. I am always very pleased and delighted 

to have the opportunity to discuss the work that you are doing at 

the Bureau and you have done a magnificent job. As a matter of 

fact, I say this time and time again, that in all of the work that 

was done with the Dodd-Frank reform, I believe that the creation 

of the Consumer Financial Protection Bureau is the most significant part of that reform. And I am very pleased with the way that 

you have taken on this responsibility and the way that you have 

produced for our consumers. 

Having said that, there are two issues that I have been working 

on all of my career starting in the California State legislature and 

continuing since I have been in Congress: one is payday lending; 

and the other is private post-secondary schools and the way that 

they operate. 

So, first, I would like you to share with us the research that you 

have done on payday lending. What have you discovered and what 

are your recommendations? I know that we can’t simply just put 

people out of business, but the payday lending operation in this 

country is such that people are still paying 400 percent interest on 

these loans and they get trapped in the loans. What have you done 

and what do you see as possibilities for correcting the situation in 

the future? 

Mr. CORDRAY. For me, this has been a major issue at the Bureau 

going all the way back to when I first became the Director in January of 2012. The very first field hearing we held after I became the 

Director occurred in Birmingham, Alabama. It was on the topic of 

small dollar lending and we heard extensive testimony from a 

packed house on both sides of this issue. And I made plain at that 

time that we were concerned about maintaining access to credit for 

people who have emergency needs, which is something that long 

pre-existed the payday lending industry, and goes back more than 

a century in this country since we have had a money-based economy. 

But at the same time, there are people who get caught in a debt 

trap and a high number of payday borrowers end up rolling over 

the loans again and again and again and end up paying out well 

more in cost than the loan—they borrowed. 

Ms. WATERS. So this has turned out not to be just for emergency 

lending. It has grown. 

Mr. CORDRAY. We have done two substantial White Papers with 

more extensive research than has ever been done in this area over 

the past 3 years. And we have found that to be a key phenomenon 

15 

in this industry and it is the concern that we have. We are now 

working toward putting out a proposal that would lead to a rulemaking on this subject. We are getting very close on that process 

being publicly under way. But I would say that this is a—it is a 

very difficult issue. It is a complicated issue, but it is an important 

issue that affects a lot of consumers in this country both pro and 

con and we hear a lot from them. 

Ms. WATERS. The Department of Defense has proposed rules to 

close loopholes under the Military Lending Act that would limit 

covered credit to a 36 percent annual percentage rate. Do you agree 

with that? 

Mr. CORDRAY. Congress spoke I thought pretty loudly and clearly 

on this in 2007 with the Military Lending Act. Congress then spoke 

I thought loudly a couple of years ago about reopening the regulations that have been adopted and suggesting that they needed to 

be broader, stronger, and more comprehensive. The Department of 

Defense has moved forward I think quite responsibly and steadily 

on this project. Many other agencies have been asked to collaborate 

with them and work with them on this. We have been among those 

agencies. They continue to move forward and I think it is a very 

important set of protections for servicemembers. 

Ms. WATERS. In your research, have you discovered the role that 

the banks play in perhaps providing capital resources for payday 

lenders? 

Mr. CORDRAY. I know there has been discussion of that. We also 

have had the opportunity now in the last several years to perform 

a number of examinations of payday lenders. It is the first time 

that has ever been done by a Federal supervisor, to really dig into 

their business operations and understand their business model and 

understand both the pros and the cons for consumers and also ensure their compliance with the law as it exists today. 

Ms. WATERS. Is there a direct link between capital that is provided by major banks to payday lenders? 

Mr. CORDRAY. I think that different companies and every sector 

of our economy get financing in different ways. Sometimes it is 

through loans from banks, sometimes they raise it from shareholders; it depends on their corporate model. Certainly, there is 

some amount of that here although there is nothing illegal about 

any of that. 

Ms. WATERS. Do you believe that there is any way we can bring 

payday lending under control any time soon? 

Mr. CORDRAY. So when you say bring under control, as I said we 

are— 

Ms. WATERS. I would like to do something that would eliminate 

the ability for them to get 400 percent interest from people who are 

desperate. 

Mr. CORDRAY. I hear you loud and clear on that. We are, as I 

said, in the late stages of—beginning of the public process to write 

rules with respect to this industry and it will be based on substantial research and analysis we have done. I would say check back 

with us soon and you will see work under way here. 

Ms. WATERS. I have 2 seconds left. On Corinthian, I would like 

to thank you for some loan forgiveness that you had to initiate for 

Corinthian students. Corinthian is just one of the many private 

16 

postsecondary schools that have been basically creating serious 

problems for consumers for a long time now. 

And we also have some Corinthian students who have decided 

that this is predatory lending and they are not going to repay those 

debts. They are organizing and I support them. 

It is not just Corinthian. It is a whole slew of these private postsecondary schools, many of whom have schools where they are collecting government money, they don’t have credentialed teachers, 

and they don’t really teach anything. The students end up with big 

debts. They then can’t get loans, and we can’t do anything. 

What are we going to do about the issue of private postsecondary 

schools who have been ripping off the government for so long? 

Mr. CORDRAY. We have brought two lawsuits to date that remain 

pending. I want to be a little careful about what I say about those 

because they are in front of courts, but our complaints speak for 

themselves in terms of what we found in our investigation and believe to be the case there. 

In the Corinthian case, I will say I thought there was spectacular 

work by colleagues of mine at the Bureau to generate and secure 

significant debt relief for student loan borrowers whom, I believe, 

were misled into being deeply harmed by predatory loans. 

Chairman HENSARLING. The time of the gentlelady has expired. 

The Chair now recognizes the gentleman from Missouri, Mr. 

Luetkemeyer, chairman of our Housing and Insurance Subcommittee. 

Mr. LUETKEMEYER. Thank you, Mr. Chairman. Director Cordray, 

thank you for being here today. And I want to first start off with 

following up on a couple of conversations we have had in the interim here, from the last time you were here, with regards to a letter that we asked you to put together and you agreed to write and 

sign. And it was with regards to making a statement to your examiners, not going after illegal businesses doing illegal business, to 

allow the marketplace to decide the viability of a business. 

And through the course of conversations, you sent us the letter, 

finally. And I asked you at the time that we finalized this if you 

were going to disseminate that letter to your examiners to let them 

know that this was your policy. 

And so my request—or my first question today is, did you disseminate that letter? 

Mr. CORDRAY. I actually don’t honestly know as I sit here whether that happened or not, but I will take that back and— 

Mr. LUETKEMEYER. Well, my staff was talking to your staff today 

and they indicated that it didn’t happen. 

Mr. CORDRAY. Okay. 

Mr. LUETKEMEYER. That has to happen, Mr. Director. If that 

doesn’t happen, then there is no reason to have the letter. The letter going out to the staff indicates your position with regards to, 

basically, Operation Choke Point means something that you support and that you allowed to happen or continue to happen. 

If that letter does not go out, as a policy from your office, then 

we have grave concerns. I have a bill to stop Operation Choke 

Point. We do not have you included in the bill yet. But if there is 

not going to be a dissemination of information to examiners, I certainly think that we are going to put you in there. 

17 

Mr. CORDRAY. I would simply say, I don’t know that we have 

ever sent out a letter to a Member of Congress to examiners before. 

That is not normal. We send out guidance to our examiners 

through examination handbooks and the like, so it is— 

Mr. LUETKEMEYER. I asked you if it was your policy to do this 

and you said, ‘‘No,’’ so I said, ‘‘Therefore, you should be willing to 

put that in a letter to your examiners,’’ and you said, ‘‘Yes.’’ 

Mr. CORDRAY. No. That was a letter to you. I believe we responded to you. 

Mr. LUETKEMEYER. Okay. And I asked if you would be willing to 

send that letter as policy statement out to your— 

Mr. CORDRAY. —so just a couple of things, number one, you 

asked for a letter to you and I have sent a letter to you. That letter 

represents my position and the Bureau’s position. It is what it is. 

As for whether we send letters to Members of Congress to our examination staff that is not something we have ever done. That is 

not a normal thing for us to do. 

Mr. LUETKEMEYER. Well, you just did. It is in your policy now. 

Mr. CORDRAY. If you want— 

Mr. LUETKEMEYER. And you are not going to tell your staff about 

your policy? 

Mr. CORDRAY. If you are now talking about adopting policy, 

which we were often criticized for doing without notice and comment rulemaking and all the process and so forth. If I am just 

going to write a letter and then send it out to our examiners—I 

would think carefully about that. 

Mr. LUETKEMEYER. —it is really clarification and the procedure— 

Mr. CORDRAY. I don’t think— 

Mr. LUETKEMEYER. I would think that would be a normal process. 

Mr. CORDRAY. —that would be how we would communicate that. 

Mr. LUETKEMEYER. With regards to Choke Point, the FDIC in 

January, as a result of the oversight reform report—which indicated that there is a political as well as a value judgment going on 

within that agency with regards to the examiners and how they implement the termination of accounts and their process with regards 

to the banks they oversee—changed their procedures to match the 

tenets of a bill that I put together with regards to requesting, that 

when they request termination of an account, they will have it in 

writing, number one, cite the legal reason that it needs to be terminated and have that approved by a regional director. 

My question to you today is, are you willing to do the same? 

Mr. CORDRAY. I will have to take that back and consider that. 

I believe the FDIC had put out some—I don’t remember exactly 

what the FDIC did but there was some sort of list of different activities or— 

Mr. LUETKEMEYER. They had a list up of the activities that were 

reputational risks to banks. That list has since been taken down. 

And now they have, as a result of our discussions with them, put 

together a memorandum that they—and they had a conference call 

with the entire examiner staff as well and all of their examiners 

now receive this memorandum, as well as the banks, indicating 

this is a new process, and the procedures and protocols they are 

going to put in place. 

18 

Mr. CORDRAY. I see. I will be happy to look and see what the 

FDIC has done. 

Mr. LUETKEMEYER. Okay. Thank you. One quick question while 

I have 30 seconds left here with regards to, you said on FSOC, and 

they have designated now three insurance companies, the last one 

being MetLife. 

Can you tell me exactly why you believe that an insurance company is a systemically important institution? What other— 

Mr. CORDRAY. I want to be a little careful here because my understanding is one of those companies has now sued the FSOC and 

has a case pending in Federal court. I wouldn’t want to be affecting 

the case by any kind of pronouncement here. 

There is a significant and voluminous record on the designations 

and what the rationale was for those of the FSOC as a body, so 

I— 

Mr. LUETKEMEYER. From CFPB’s point of view though, sir, what 

is your criteria that you used to make sure that people believe in 

your judgment that they are systematically important. 

Mr. CORDRAY. I am a member of the FSOC, but I don’t regard 

that as a Bureau position. That is a— 

Mr. LUETKEMEYER. You represent the Bureau on the FSOC— 

Mr. CORDRAY. Yes. That is correct. So the criteria I would apply 

and always would apply and did apply is the statutory criteria 

under the FSOC’s statutes for designating an institution. Nothing 

more, nothing less. 

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

Chairman HENSARLING. The time of the gentleman has expired. 

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

Maloney, ranking member of our Capital Markets Subcommittee, 

for 5 minutes. 

Mrs. MALONEY. I thank the chairman for yielding, and I thank 

you, Director Cordray, for being here. As you know, I have had a 

overdraft bill in for several years that cracks down on unfair and 

deceptive practices that drive up fees—that some, not all, but some 

financial institutions put forward. 

So I would like to ask you about these fees and what the Bureau 

is doing about it. You have published two excellent reports that I 

have seen on overdraft fees. And these reports clearly demonstrate 

that overdraft fees are still far too high and are eating into some 

of the most vulnerable citizens’ savings. 

There are some startling statistics from the Bureau’s latest overdraft study. Most overdraft fees are incurred on purchases of just 

$24 or less and are paid back within 3 days. But the median overdraft fee for these small overdrafts is still a whopping $34. So you 

have a $24 overdraft and you pay a $34 fee for 3 days of borrowing 

money. 

And according to your report, consumers would be paying, for 

these 3 days, a 17,000 percent annual percentage rate. The ranking 

member was concerned about a 400 percentage annual rate and I 

agree with you. But I think everybody in this room can agree that 

a 17,000 percentage annual rate for borrowing—for 3 days borrowing a $24 overdraft is outrageous. 

So my question is, what do you plan to do? Or do you plan to 

do anything about these excessive fees? What is your plan? 

19 

Mr. CORDRAY. I would agree with you the 17,000 percent rate of 

interest is quite high. 

Mrs. MALONEY. It is so much, it is unbelievable. 

Mr. CORDRAY. Quite high. However, what I will say is as you indicated, first of all we are well-aware of your interest in this area 

and your legislative efforts and have had a number of discussions 

with your staff that have been helpful, I think on both sides, in understanding the issue better. 

We have indicated on our unified agenda which is where we publish to the world in a transparent way what we see as on our agenda for rulemaking in advance. Overdraft is on that agenda. 

It is a crowded agenda at the moment. We are trying to—we will 

work to finalize rules on prepaid cards. We will work to finalize the 

rules on the Home Mortgage Disclosure Act. As I indicated we are 

very close to starting the public process on payday and small dollar 

rules. 

Debt collection is also on that agenda and that is a very large 

subject. Overdraft is on that agenda as well. Here we have as you 

said done a fair amount—a considerable amount of research here, 

again published, I think, two White Papers, both of which represent very detailed analysis of the overdraft issues. 

We have also done examination work of institutions around the 

issues involving overdraft that has resulted in remediation to consumers, so we have come at this and begun to understand this 

problem from a number of different angles and it is something that 

we do intend to take up as we can. 

Mrs. MALONEY. Thank you. And going back to the prepaid cards, 

many people in this committee and I would say some of the biggest 

players in the industry such as Wells Fargo, Green Dot, and others 

and I understand that they are the largest prepaid card companies 

in the country, it is my understanding that they called on the Bureau to simply ban overdraft programs for prepaid cards because 

these cards should be exactly that—prepaid. They should not be a 

de facto credit card. 

I was pleased to see that your proposed rule took strong steps 

to limit overdraft on prepaid cards. But the proposed rule stopped 

short of an outright ban. So, I am concerned that this could 

incentivize companies to find loopholes in the rule that would allow 

them to keep collecting overdraft piece on prepaid cards. 

And I understand you are still considering an outright ban on 

overdraft for prepaid cards. Is this something that you are going— 

what is your plan for this? What are we going to see in the final 

rule? 

Mr. CORDRAY. I can’t prejudge that at this point. We have a proposal out that as you indicated would put any kind of overdraft 

product—credit product in a framework that would be governed by 

the Card Act which, I think, was a very appropriate framework, 

frankly. I know you are a strong advocate of that and champion of 

it. 

We have comments still coming in through the end of this month 

and then we will consider and digest those and move to finalize in 

accordance with what they raised to us so that is about all I can 

say at the moment. 

Mrs. MALONEY. And when do you expect this to happen? 

20 

Chairman HENSARLING. Go ahead and get your question out. 

Mrs. MALONEY. Just the timing, when will this rule be out? 

Mr. CORDRAY. Later this year. 

Mrs. MALONEY. Later this year? 

Mr. CORDRAY. Yes. 

Chairman HENSARLING. The time of the gentlelady has expired. 

The Chair now recognizes the gentleman from Wisconsin, Mr. 

Duffy, chairman of our Oversight and Investigations Subcommittee. 

Mr. DUFFY. Thank you, Mr. Chairman, and good afternoon, Mr. 

Director. 

I think there are a lot of do-gooders in Washington who are out 

there trying to protect a lot of folks and oftentimes over here. A lot 

of times we applaud the effort, stopping fraud, deceit, misrepresentation, there is no disagreement on those efforts in the CFPB. We 

all agree in your mission to stop those practices. 

But sometimes, I think you are out trying to do good but in the 

end what you do creates harm to an industry where people are 

using products where they actually know what they are getting 

into. There is clarity in the cause, there is clarity in the consequence, and they analyze and come up with the idea that this is 

a good product for them. 

I have an individual in my district in Central Wisconsin, a guy 

by the name of Ron, who said in regard to the overdraft services 

on prepaid cards, ‘‘I receive Social Security direct deposit, and since 

this is a fixed income, there are months in which I need the overdraft protection, such as winter months. I don’t want those available resources taken away from me.’’ 

See, you might not know this, but often in Wisconsin in the winter it gets really cold and our heating bills go up and for guys 

like— 

Mr. CORDRAY. I have seen some Packers games. 

Mr. DUFFY. Yes, that is cold. That is tough on him. And these 

are products that he knows the cost of, but he is ready and willing 

to accept the cost because it helps him to manage his fixed-income 

through Social Security. 

And I think you have to analyze these things through the eyes 

of end-users, stopping fraud and deceit. But if there is clarity in 

the products, don’t take them away from people who actually use 

them and it helps them. 

So with that said, I want to switch to Mr. Luetkemeyer’s topic 

on Operation Choke Point. You are a board member on the FDIC, 

right? 

Mr. CORDRAY. I am. 

Mr. DUFFY. And you are aware that on the FDIC, they set out 

a list of industries that were subject to Operation Choke Point. 

Mr. CORDRAY. I don’t know if that is quite accurate. Just to be 

clear, I am an outside Director. I am not as engaged in the dayto-day operations. I have a full time job with the CFPB. 

Mr. DUFFY. I know. But? 

Mr. CORDRAY. But I am aware that there was— 

Mr. DUFFY. But the DOJ and at least the FDIC were targeting 

certain industries, whether it was payday lending, gun dealers, ammunition manufacturers, or smoke shops. 

Mr. CORDRAY. I have read about that. 

21 

Mr. DUFFY. But as a director or as a board member you had no 

idea about it from the inside? 

Mr. CORDRAY. I was not aware of that, that is correct, until it 

burst into public view. 

Mr. DUFFY. Okay. Do you support the idea of Operation Choke 

Point, of choking off banking ability for certain industries? 

Mr. CORDRAY. I don’t think that we should be in the business of 

distinguishing between different kinds of economic activities that 

are legal merely because someone might favor or disfavor one or 

another. 

Mr. DUFFY. And you would agree that payday lending, gun dealers, ammunition manufacturers, those are all legal businesses, 

right? 

Mr. CORDRAY. Some are constitutionally protected. 

Mr. DUFFY. So, in regard to those who are implementing these 

policies within the FDIC—actually, I would argue they are actually 

un-American policies. For me this—we are looking like the old Soviet Union, Venezuela, and Cuba, and we are using the banking 

sector to go after industries we don’t like. Do you think those folks 

should have a place in our government, who are implementing the 

Operation Choke Point? 

Mr. CORDRAY. Actually, I am not clear that is what people are 

actually doing. I think some of this may be— 

Mr. DUFFY. Answer my question. 

Mr. CORDRAY. —overdone. But? 

Mr. DUFFY. So, my question for you? 

Mr. CORDRAY. I don’t think that. 

Mr. DUFFY. Reclaiming my time, Director Cordray— 

Mr. CORDRAY. I think I am agreeing with you. I don’t think that 

people should be pressured into not lending to businesses— 

Mr. DUFFY. Yes. But that is not my question. My question for 

you is, do you think if you are using the power given to you at the 

FDIC in partnership with the DOJ to put certain lines of businesses that are legal that have no due process, no judge, no jury, 

no trial, no due process, you have actually put them out of business. Do you think you should have a job at the FDIC or the DOJ? 

Mr. CORDRAY. Again, I am not clear on that. 

Mr. DUFFY. A simple question, yes or no? 

Mr. CORDRAY. I am not clear that is what happened. I don’t 

think it is what happened. And I believe if I am understanding it 

correctly— 

Mr. DUFFY. What happened then? 

Mr. CORDRAY. —that there has been a modification of policies 

that I think— 

Mr. DUFFY. I will take that as an honest answer to the question. 

I would tell you; listen, if this is what you are doing, you have no 

place in government. I only have a minute left—40 seconds left. 

You and I had a private conversation. I dropped a bill which dealt 

with concerns about the consumer advisory council and it being 

open to the public. 

You are not FOMC. You are not setting monetary policy and you 

are not the CIA. You actually called me and said, ‘‘Listen, thanks 

for bringing this to my attention, we are going to open it up.’’ But 

lo and behold, from what I am seeing, you put out a consumer adviVerDate Nov 24 2008 17:31 Sep 25, 2015 Jkt 095050 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 K:\DOCS\95050.TXT TERRI
22 

sory board notice for September 11th on the Internet that only 

gives a portion of the actual schedule that was offered to those who 

attended the meeting. 

So, actually the whole meetings are not made public. There was 

also a meeting from October 15th for the community bank advisory 

council where only a couple of hours was public but you actually— 

they started at 2:40 but you actually began meeting at 8:30. 

Mr. CORDRAY. I don’t think that is quite accurate. But number 

one, you talked to me about our consumer advisory board which is 

not governed by the Federal Advisory Committee Act (FACA) and 

we talked about it. And I determined that I thought you were right 

as a matter of appropriateness. 

Mr. DUFFY. Thank you. 

Mr. CORDRAY. That we should comply with the FACA which we 

are now doing. It used to be that none of those sessions were open 

to the public— 

Mr. DUFFY. My time has expired. Maybe I could send you followup documentation, and you can respond in writing— 

Mr. CORDRAY. Absolutely. But under the FACA the subcommittees are not necessarily required to be open to the public just as 

you are on the Floor that is open to the public but when you caucus, that is not open to the public. 

Mr. DUFFY. —for the record. 

Mr. CORDRAY. I would be happy to follow up. 

Mr. DUFFY. Thank you. I will follow up, as well. 

Chairman HENSARLING. The time of the gentleman has expired. 

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

Velazquez, for 5 minutes. 

Ms. VELAZQUEZ. Thank you, Mr. Chairman. 

Director Cordray, Section 1071 of the Dodd-Frank Act requires 

banks and lenders to collect and report credit application data on 

small businesses as well as minority- and women-owned businesses. 

Can you elaborate on how collecting this information will help 

enforce fair lending laws and enable lenders to identify opportunities for improvement in their served communities? 

Mr. CORDRAY. Yes, and thank you for the question. My sense is 

that both the theory and the practice of this would be similar to 

the Home Mortgage Disclosure Act, where more data on what loans 

are being offered and in what locations and to what kinds of customers would give us a kind of a roadmap into whether lending is 

being done in some evenhanded way across different communities. 

And there has been no substitute for the HMDA data, that this 

can be easily seen and easily analyzed and crunched. And by the 

way, one of the things we are required to do under the Dodd-Frank 

Act is to overhaul the HMDA rules and make them more effective, 

which we are working on right now. 

And we also are bringing over from the Federal Reserve the data 

collection itself so that we will be the ones who are managing that 

data collection. I think they have done a great job over the years, 

and I now think there are ways we can update and improve it even 

further. 

That, as I think we have talked about before, becomes the jumping off point for us to then fulfill what is also the requirement in 

23 

the Dodd-Frank Act, but again, not on a particular deadline of 

going about small business data collection. 

This year, we are going to undertake our first examination of a 

financial institution on small business lending under the authority 

of the Dodd-Frank Act and that will help us have guidance on this. 

As the HMDA moves forward, we plan to build on that for the 

small business data as well. And I think this is eventually—I know 

it takes awhile for these things to unfold—going to be a very significant tool. 

Ms. VELAZQUEZ. So when can we expect the CFPB to publish 

rules? Do you think before the end of the year or after? 

Mr. CORDRAY. No, it could not be before the end of the year, and 

I honestly can’t give you a date, but I can tell you that we have 

a process here that I think make sense, which is to complete the 

HMDA, which is one of the required tasks for us. Then, move to 

this small business data and have it build together so that the data 

collection is being done in the most efficient manner. 

Ms. VELAZQUEZ. It is a very important part of the law and it 

helps us here understand the dynamics in terms of small business 

lending. 

Mr. CORDRAY. Yes. 

Ms. VELAZQUEZ. New York consumers submit thousands of debt 

collection complaints to the Bureau every year. As you know, onerous and illegal debt collection practices can be a significant burden 

to families’ finances and ability to obtain credit. 

It is our understanding that CFPB is in the process of drafting 

a rule to address these complaints. Can you describe the main tenets of the rule and the types of abusive collection activities you 

hope to eliminate? 

Mr. CORDRAY. My experience with this subject goes back to when 

I was Ohio attorney general—it was the most complained about activity other than identity theft in the office at that time—and it 

has always been one of the most complained about activities at 

every level of government. 

I actually would like to compliment the New York regulators, the 

courts, the attorney general, and the banking superintendent, who 

have done a lot of work around debt collection in that State. We 

have learned a lot from the work they are doing, we have had a 

lot of consultation back and forth. 

We will be moving forward as Dodd-Frank authorized us to do 

to adopt regulations that will completely update the Fair Debt Collection Practices Act, which was enacted in 1977, that is the year 

I graduated from high school, and you think how much technology 

has changed since then, how much the practice of debt collection 

has changed since then. 

There is a lot that we need to address. There are many abuses, 

people being harassed, people being bothered in the workplace 

when they should not be. Military servicemembers, commanding officers being pursued which is totally inappropriate and it affects 

the servicemember. There are a lot of things that go on out there. 

We have had numerous enforcement actions. We have had numerous examinations leading to relief. There is a lot of work to be 

done on this. 

24 

Ms. VELAZQUEZ. Do you have a timeline as to when a rule will 

be released? 

Mr. CORDRAY. That is also on our unified agenda along with 

overdraft. We will be starting on that, I imagine, later this year. 

Ms. VELAZQUEZ. Thank you. Thank you, Mr. Chairman. 

Chairman HENSARLING. The gentlelady yields back. The Chair 

now recognizes the gentleman from Michigan, Mr. Huizenga, chairman of our Monetary Policy and Trade Subcommittee. 

Mr. HUIZENGA. Thank you, Mr. Chairman, and Director Cordray, 

I appreciate you being here. I would like to talk about the enforcement today and when Congress—I wasn’t here for this, unlike a 

number of my colleagues—created the Bureau— 

Mr. CORDRAY. I wasn’t here either. 

Mr. HUIZENGA. Yes, I am aware. We are both living with the 

echo effects here. But just like any other regulator that the Congress has created we wanted the Bureau to punish those that violate the law. 

At the same time, I think Congress wanted the Bureau to help 

support good actors who were trying to do the right thing and comply with the law. But it seems to me when the Bureau conducts 

an enforcement action, typically you publish a press release. 

A number of those press releases that I have gone over seem 

rather than offering guidance or to help the providers to how to 

avoid an outcome like this, they really seemed to be over the top 

and sort of this, well, we just stopped them from kicking the neighbor’s dog kind of line of story telling that kind of comes out of the 

CFPB and I am curious, why is that? 

Mr. CORDRAY. If they were actually kicking the neighbor’s dog, 

then it is appropriate for a press release to say that we stopped 

them from doing it. 

Mr. HUIZENGA. I wholeheartedly agree, but when they are not? 

Mr. CORDRAY. Look, I would be glad to walk through individual 

press releases with your staff. 

Mr. HUIZENGA. That is where it gets a little tough though because those individual companies don’t want us to go over individual press releases because they are afraid of what the echo effect might be on them. 

But if you look at broad stroke things that have been out there, 

large companies such as JPMorgan, GE Capital, and Fidelity Mortgage Corp., I think there have been a number of those very highprofile things that have been sort of over the top in my judgment 

and I think I am judging a lot of others. 

But a lot of smaller places—I have had community banks, title 

companies, I have them in my own State as well where there 

hasn’t been a violation admittedly by the Bureau, but there has 

been kind of an example that has been needed to be set. 

And I have to tell you that the press releases just seem completely over the top. 

Mr. CORDRAY. Wait a second, if we have an enforcement matter, 

that is a law enforcement matter. I have heard people on both sides 

say they want the law to be enforced and it is appropriate for there 

to be a press release to let the world know what happened because 

that determines— 

Mr. HUIZENGA. Yes, but why would you? 

25 

Mr. CORDRAY. But we wouldn’t do a press release if there wasn’t 

a law enforcement matter. 

Mr. HUIZENGA. So the Bureau ombudsman has an announcement 

they are going to be conducting an independent review with differences in the language use between consent orders and their corresponding Bureau press releases; why is that? 

Mr. CORDRAY. I encouraged them to do that because we have had 

people who made the inquiry, but I don’t think it is— 

Mr. HUIZENGA. So you admit there was a problem? 

Mr. CORDRAY. No, I don’t think—I don’t know that there was a 

problem, we are going to look at it and see and I am happy to do 

that. But, and the ombudsman has some independence from me, 

which is appropriate. 

Mr. HUIZENGA. But hold on, my understanding of entering into 

these consent orders is that the Bureau has not actually proven 

that a respondent has actually violated statute or law, correct? 

Mr. CORDRAY. I don’t think that is quite right. When we enter 

into a consent order— 

Mr. HUIZENGA. But then why not go for a jury verdict or some 

sort of judgment? 

Mr. CORDRAY. If we can achieve all of our objectives, getting relief for consumers and stopping the conduct and the company will 

agree with that, then we don’t need to go forward and— 

Mr. HUIZENGA. But all that the respondent has agreed to in the 

settlement order is to end the enforcement action brought by the 

Bureau. 

Mr. CORDRAY. No, that is not quite right. They often agree to injunctive relief going forward to stop doing what they were doing 

that was in violation of the law. This has always been done at the 

end of an investigation by us where we have established— 

Mr. HUIZENGA. But there was not an admission that there was 

a violation. 

Mr. CORDRAY. We don’t necessarily require an admission, however, they stop the conduct, they come into compliance with the 

law, and they remediate consumers for the harm done. That is 

what we are going for; we don’t necessarily need to drag them 

through a trial if we can get that. 

Mr. HUIZENGA. But wait a minute, there was a trial in the press 

releases, because I have seen it—I have seen it where good companies, small companies, medium companies, large companies who 

have been out there and have had great reputations end up on the 

front page of their local newspaper getting dragged through the 

mud by the Bureau. 

Mr. CORDRAY. I don’t know what you are talking about in the 

sense that we don’t enforce the law against institutions, banks of 

$10 billion or less. So, the notion that we are doing that with community banks is wrong, and I would like to know the specific instance you are talking about. 

It is commonplace across this country that when law enforcers 

enforce the law, they let the public know what they have done so 

that other people who were considering violating the law in the 

same way are deterred from doing so; that is pretty important. 

And as long as— 

26 

Mr. HUIZENGA. We understand but why would the Bureau insist 

that a company has violated the law if it has not proven that the 

company has done so? 

And that is how I have read those press releases. 

Mr. CORDRAY. We have conducted a full investigation. We think 

that the facts have been established. I have no doubt about that 

in our cases. Thank you. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Massachusetts, Mr. 

Capuano. 

Mr. CAPUANO. Thank you, Mr. Chairman. And thank you, Mr. 

Director, for being here. Mr. Director, I think you are doing a pretty good job. I like pretty much everything your agency is doing and 

I have been supportive from day one. 

So I just want to thank you for what you have done and are continuing to do. But I, like everybody else, have a little bone to pick— 

I don’t have a bone to pick so much as a clarification to ask. 

Mr. Director, have you ever heard the term, ‘‘triple decker?’’ 

Mr. CORDRAY. ‘‘Triple decker?’’ 

Mr. CAPUANO. Yes. 

Mr. CORDRAY. I know it is a sandwich, the Big Mac. I used to 

work at McDonalds, so I have heard of that. 

Mr. CAPUANO. And hence, the problem. 

Mr. CORDRAY. Okay. 

Mr. CAPUANO. A ‘‘triple decker’’ in my district is housing. It is 

generally working class housing and look, I have a little problem, 

because I usually hate these things, but I did because it is necessary, okay. 

There are triple deckers in my district. I know Mr. Lynch knows 

what I am talking about, I presume Mr. Himes knows what I am 

talking about. I presume Mr. Guinta knows what I am talking 

about, and I’m not sure, but maybe Mr. Garrett, as well. I know 

they have them in New Jersey. 

Mr. CORDRAY. I see. We don’t have those in Ohio, in my area. 

Mr. CAPUANO. I know. You have missed out on some things, and 

that is one of them. These are housing units generally owned and 

occupied by working class people. My brother owns a triple decker. 

I have a two-family house. 

And I bought a two-family house, which I still live in, because 

when I bought it I needed the rent to help pay the mortgage. In 

my brother’s triple decker, he lives on the first floor, one of his sons 

lives on the third floor, and his other son used to live on the second 

floor with his two children. That is a classic situation. 

And for reasons that are beyond my comprehension, except for 

the lack of knowledge, which is fine—that is why I am trying to 

educate you and your staff. 

In New England, a triple decker usually is a classic entry into 

homeownership for working people who could not otherwise afford 

to buy a home, and yet for reasons that I don’t understand they 

are exempted from the QM rule which I like. 

Mr. CORDRAY. I think I see where you are going. 

Mr. CAPUANO. I hope so. 

Mr. CORDRAY. So the question is whether a triple decker as you 

describe it should be considered residential real estate or— 

27 

Mr. CAPUANO. Yes. And as I understand the rule, it is currently 

not considerered to be. Yet, if the same triple decker as in my district is bought by some outside investor and ripped apart and put 

back together on a TV show as some high-end unit, if they rip them 

apart and ‘‘condo-ize’’ them to sell them to some gentrifier, those 

are considered qualified. 

But the working person who has it doesn’t qualify which means 

their local bank cannot hold their mortgage. 

Mr. CORDRAY. Okay. I will tell you what, I had not heard of this 

issue in my own experience. If we think there is an interesting animal out there in the housing field that doesn’t fit easily within our 

definitions and we need to rethink that, we will be happy to work 

with your staff to try to understand the issue and consider what 

is the right answer to it. 

Mr. CAPUANO. I would like to do this quickly because in my district, in Boston alone, there are 9,000 triple deckers, 27,000 units, 

and that is just Boston, never mind the rest of my district. 

So, I appreciate the offer and I look forward to working with you 

as quickly as humanly possible not to get any advantage but to 

simply treat them as you treated other multi-units with two family 

homes like I have. 

Mr. CORDRAY. We will take a good look at that. 

Mr. CAPUANO. I know how to quit when I am ahead, so with 

that, I yield back the rest of my time. 

Chairman HENSARLING. The gentleman yields back. The Chair 

now recognizes the gentleman from New Jersey, Mr. Garrett, chairman of our Capital Markets Subcommittee. 

Mr. GARRETT. I thank the Chair and yes, we do have them, we 

do have triple deckers, I say triple deckers are not quite triple 

deckers but just slightly— 

Mr. CAPUANO. You don’t use that little extra, add the extra little 

‘‘R,’’ we don’t use that too much, triple decker. 

Mr. GARRETT. Okay. Thank you. So let’s talk about—and I don’t 

know whether this topic was covered and forgive me if it was, but 

I was in three other hearings—predatory lending and your work in 

that area to try to find the bad actors, find the bad lenders who 

are engaged in predatory lending. Predatory lending probably has 

a technical definition, but I just think of it like when you have 

teaser rates trying to attract people in at a rate that is lower than 

it is going to be later on, trying to get people into triple deckers 

or regular deckers that they may or may not be able to afford because the rates are going to change and so forth. 

And there probably is a definition of it if you looked at the books 

of the company, the track record of those people that I just described who you got in there have a higher default rate, right, than 

everybody else. 

That’s a nontechnical definition of predatory lending. You are 

nodding your head, so yes? 

Mr. CORDRAY. I think it is a pretty good one. If you are lending 

in such a way that the borrower is set up to fail, and you have consistently higher default rates than others, that is a pretty good indication that something is not working right. 

Mr. GARRETT. Okay. So it was about a week or so ago we had 

the head of the FHA here and they described what they do and 

28 

that is exactly what they do. So will you commit to us today, since 

you are charged with looking at predatory lending, to look at the 

practices of the FHA and their practices which you have just defined as predatory lending? 

Mr. CORDRAY. I am not—well, slow down a little bit. What are 

you talking about with the FHA? 

Mr. GARRETT. The FHA has loans and they just lowered the—basically allowed for teaser rates, lower rates now than you will be 

getting later on, that they will use to try to attract people by lowering the premiums by a difference of $25 or $75 as their insurance 

rates that they have on there. 

Having a default rate that is 150 percent relative to the rates as 

I described with all the others, those are all the things that came 

out in the testimony of the FHA, which you just described as, and 

agree with me is, predatory lending. 

Shouldn’t we really be looking at that, because isn’t it unfair to 

the 150 percent of those folks who fall in that category who are 

now suffering because of those loans that they got into through the 

FHA? 

Mr. CORDRAY. To me, a teaser rate is one where you offer a rate 

to begin with but then it is going to change later on. I don’t know 

if that is accurate to the FHA program. 

And as for reducing premiums, if they are reduced and people 

can therefore afford to get a loan, that doesn’t feel like— 

Mr. GARRETT. Well, no, they can’t afford the loan because their 

default rate falling into these categories is 150 percent compared 

to the— 

Mr. CORDRAY. I see. Look, I do think high default rates would 

be a warning sign, but if you are talking about FHA programs that 

were just changed, I don’t know if we have data yet as to whether 

they are leading to high default rates for— 

Mr. GARRETT. That is a good point. So will you commit to us to 

examine that data and get back to us whether their data— 

Mr. CORDRAY. It could be awhile before we have anything like 

that. 

Mr. GARRETT. Will you start, will you commit to us that you will 

look at both data that they already have and at the new data 

under the plan and report back to us on a regular basis to see what 

they are doing? 

Mr. CORDRAY. Here is what I will say: We have created the national mortgage data base and it is exactly the data that will allow 

this sort of thing to be looked at over time. 

We will be glad to have you and your staff work with us to see 

how data shapes up on these and other things over time, that will 

give us the window on the mortgage market, I think. 

Mr. GARRETT. If I told you that there was a particular institution 

in my town that was engaged in this, would you tell me that it will 

take awhile to extract the information, that they just set up the 

program that they are doing in the bank and you don’t have to 

worry about getting back to us for a long period of time? 

Is that how you would handle any other institution? 

Mr. CORDRAY. It depends on what the ‘‘this’’ is. If ‘‘this’’ is dropping rates in a misleading way and then raising them later, that 

I think is problematic, but I am not clear that’s what FHA is doing. 

29 

If it means lowering prices and loans become more affordable and 

default rates go down, that also would not be problematic. 

If you are lending and consistently default rates are high and 

there are outliers— 

Mr. GARRETT. Right. So any one of these things by itself would 

not be a factor when you have multiple factors you would—can you 

commit to us at all that you will be looking at what they are doing? 

Mr. CORDRAY. We will have data in the national mortgage database. 

Mr. GARRETT. But will you commit to us at all that you will look 

at them as you would look at any other institution? Are they somehow special that they don’t deserve your attention? 

Mr. CORDRAY. No. I am not allowed to enforce the law against 

other government entities but we do collaborate and coordinate all 

the time on different programs both with FHA and other aspects 

of the Federal and State and local governments. 

Look, we are developing data just so these kinds of things can 

be looked at. And if your folks are interested in seeing what we can 

see, we will be glad to share it. 

Mr. GARRETT. Thank you. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Missouri, Mr. Clay, 

ranking member of our Financial Institutions Subcommittee. 

Mr. CLAY. Thank you, Mr. Chairman. Director Cordray, could 

you provide specific examples of regulatory relief measures that the 

Bureau has already extended to small financial institutions? 

Mr. CORDRAY. Sure. And we talked about some of them today 

which is that in the mortgage market in particular when we were 

required by Congress to adapt the Qualified Mortgage rule, what 

we call the ability-to-repay rule, we weren’t required to do so, but 

we determined that—and I feel strongly committed to this—we believe smaller institutions like community banks and credit unions 

lend responsibly. 

And I believe data has shown that their default rates are lower— 

this is going back to the Congressman’s point a moment ago—than 

other lenders and were especially so through the crisis, then we 

should try to find ways to tier our regulation such that we can encourage them to engage in that kind of lending, which is good lending and very important in our communities. 

And we did adopt a provision that applied to 90-plus percent of 

the community banks and credit unions in the country. We then 

went back and I determined, I thought we hadn’t drawn it broadly 

enough, I thought we should draw it even broader. 

Because we not only want to encourage them to lend but we 

want to give some room to grow in that lending. And in fact, the 

community banks are growing in their share of the mortgage lending market now in this past year we have seen, and we have a proposal to expand that further. That is an example of it. 

We have had other provisions for regulatory relief. Annual privacy notices, we adopted a new rule to reduce these burdens on 

many, many companies. We were working toward the ATM machine sticker problem when Congress resolved it with our support 

as another means of regulatory relief. 

30 

And where we can do things that we think relieve burden on industry without hurting consumer protection, we are willing to consider doing that, and if people have ideas in that regard they 

should share them with us. 

Mr. CLAY. Can you give examples of the impact that the community bank advisory council has had on the Bureau’s actions relating 

to community banks? 

Mr. CORDRAY. What the community bank advisory council—and 

that is another good example—we are not required to have such a 

body, but I thought we weren’t going to be naturally hearing 

enough from community banks because we don’t have the examination or enforcement authority of them, so we don’t engage with 

them day-to-day. 

We did set up a community bank advisory council and a credit 

union advisory council, which again we are not required to have 

but I think they have been very helpful to us and they influence 

our thinking. 

We talk to them about the work we are doing on mortgage and 

other things, they talk to us about what kind of operational effect 

those things have on them, they tell us about what kind of problems and concerns they have in the marketplace that we might not 

otherwise see. 

We have spent a lot of time with them and I think it has been 

very valuable to us. And I personally spend a lot of time sitting 

through those sessions, I don’t just farm that out to other people. 

I want to hear from them directly and I, again, am continuing 

to do this because I think it is very helpful and I think it has benefited the Bureau and I think it has benefited community banks as 

well. 

Mr. CLAY. Thank you for that response. We often hear from our 

colleagues that a regulated institution somehow lacks the requisite 

access to the CFPB to voice their concerns about actions taken by 

the CFPB or to shape the CFPB’s policymaking process outside of 

formal channels like the ABA’s notice-and-comment period. 

Could you elaborate on the ways that institutions subject to the 

CFPB’s jurisdiction can interface with the agency when they take 

issue with the agency’s action? 

Mr. CORDRAY. Sure. First, we do have these advisory councils. 

Second, we did set up—in response to concerns from industry—a 

new office that we call the office of financial institutions and business liaison, which is the way that people in the industry can interface with the Bureau and make sure they can navigate the Bureau 

and have their concerns heard. 

We meet regularly with both community bankers and separately 

with credit union leaders in every State when we go out and 

around the country and when they come in to do their fly-ins to 

speak to all of you, they typically will come and speak to us as 

well. 

I remember I met with Congressman Neugebauer recently and 

my folks had told me about meetings we had with Texas bankers 

and credit unions in the past year. It was five or six different meetings we had and I told him I felt like I am a member of the delegation. 

31 

But it is something that I think is important for us to do and 

we gain a lot of insight from it and it gives them an ability to talk 

to us and have us hear from them. 

And it has led to things like the small creditor provision, potentially expanding that provision, rural treatment where this is really 

a key to supporting communities by supporting their community 

banks and credit unions. 

Mr. CLAY. And hopefully the consumers of Texas appreciate the 

CFPB’s efforts. I yield back. 

Mr. CORDRAY. I hope so. 

Chairman HENSARLING. I could bite on that one, but I won’t. The 

Chair recognizes the gentleman from New Mexico, Mr. Pearce. 

Mr. PEARCE. Thank you, Mr. Chairman, and thank you, Director 

Cordray, for being here today. I am over way on the side. 

Mr. CORDRAY. Okay. But everybody is in a different place— 

Mr. PEARCE. We noted with interest that the change, the revised 

rules on QM for rural institutions, that was a matter of comment 

between us during previous hearings. And I really appreciate that 

we are already getting feedback that has been constructive. 

We are starting now to hear from people who would be affected 

by the title insurance section that you announced in August, so be 

aware there probably ought to be someone looking at how that is 

going to affect the market also. 

So I have put up on the screen here a threat map and I would 

draw your attention to it because another matter that we have 

talked about when you were here is cyber security and data collection. This is a real-time depiction of cyber threats and it goes on 

24 hours a day. I know that when you testified previously you had 

said that you were going to handle it internally. 

Just today, Apple and Google both experienced problems, and 

with the constant attacks, I get deeply concerned about the inadvertent release of that data, and we kind of have the recent releases of information. 

So, again, my recommendation is, if we haven’t done it, to visit 

with the FBI, with security agencies, and be aware that this is 

highly sophisticated stuff. 

Mr. CORDRAY. Yes. All I can say is, you are absolutely right on 

that, this is a major concern. It is something that a number of the 

agencies are all realizing that we need to work together on—Treasury is deeply involved in this as well. 

And it is threatening not only banks and financial institutions 

but potentially government and also merchants and others. And it 

is a highly sophisticated way of committing crimes against the 

American public. 

Mr. PEARCE. I appreciate that understanding there. Now, you say 

repeatedly, and I appreciate the chance to talk about consumer protection and the way I visualize that you are protecting every single 

transaction. 

Would it be helpful if this body were to put the GSEs under the 

same limitation or under your regulation, because then you just 

have one source, you go to the GSEs and say, you can’t relax your 

standards, you can’t relax the underwriting. 

That was a great deal of the problem back in 2008 and preceding 

up to the meltdown and it just seems like if you could affect that 

32 

one institution, FHA or the GSEs, then you could cascade out and 

protect hundreds of thousands of loans with a miniscule amount of 

effort. Is that something that you would be opposed to if we put 

in legislation to that effect? 

Mr. CORDRAY. That is a very interesting and insightful point because when we first started out as a Bureau we were given about 

seven or eight tasks by Congress. It was in our law that we had 

to fulfill them, which we worked to do in the mortgage market. 

Since that time we have gotten to know it better, as you know, 

HUD has significant authority in the market through FHA and 

otherwise. And the FHFA, working with Fannie and Freddie, has 

significant authority in the market. 

So it makes a lot of sense for me, for us to coordinate closely with 

one another so the left hand and the right hand know what they 

are doing. There are a lot of things as you say that the GSEs can 

affect in the market and people have to respond to them because 

there is some— 

Mr. PEARCE. Yes. If the GSEs did not purchase those loans, then 

people would be stuck with them and they are not going to live 

with the abuses that you are here trying to stop and so I appreciate 

that. 

But I know that, and it has been a previous question of mine 

that no government agency—you all really don’t interact with them 

and I am not sure that is always right. 

Just this month a local constituent was forced into an IRS sale 

forfeiture of assets and was denied due process, the local sheriff 

was standing beside him, and finally the guy got so nervous he 

said, ‘‘Hey, everybody is scaring me with what they are saying is 

going to happen if I persist on my rights.’’ 

And so at some point that protection for consumers from the government agencies is something that would be very effective, too. 

And again, I think you maybe in the past had perceived that I was 

picking on you or maybe not serious, but I am deadly serious in 

saying that I would appreciate it if you would give your commitment that you would gladly oversee some of the actions by our own 

government. 

Mr. CORDRAY. I don’t have authority in our statute but I— 

Mr. PEARCE. That is assuming that we would put it into the statute, I agree with you. 

Mr. CORDRAY. Yes, yes. 

Mr. PEARCE. Thank you. I yield back. 

Mr. PEARCE. The time of the gentleman has expired. The Chair 

now recognizes the gentleman from Massachusetts, Mr. Lynch, for 

5 minutes. 

Mr. LYNCH. Thank you, Mr. Chairman, and thank you for your 

testimony, Director Cordray, we appreciate it. And I do want to 

support my colleague, Mr. Capuano’s, concern about the language 

surrounding three deckers. 

I have known Mr. Capuano for many years and there is an old 

story about his dad and his three decker. At one point when Mike 

was a young boy, the election commissioner got a report that there 

were over a hundred registered voters residing at Mr. Capuano’s 

three decker. 

33 

And so they went out to Mr. Capuano’s house and the election 

commissioner said, ‘‘Can you explain why there are a hundred registered voters living at this three decker?’’ And Mr. Capuano said, 

‘‘Easy, the top floor is empty.’’ 

Anyway, I do want to talk to you about reverse— 

Mr. CORDRAY. For the record, he is not here to defend himself at 

the moment. 

Mr. LYNCH. All true, I am sure. The CFPB just completed a report on reverse mortgages and this issue is percolating in my district. It seems we are having more and more concerns among seniors about consumer risks associated with reverse mortgages. 

I know there has been some outreach but it seems to be sort of 

hit or miss depending on the neighborhood, at least in my district. 

How was the CFPB going out and communicating the risk that 

might be present in some of these reverse mortgages, especially 

since we are talking about an elderly community, people who are 

less sophisticated, and in many cases, they have their whole life 

savings wrapped up in their homes? 

And you have a lot of very, I would say, slick advertisements on 

TV, and in some cases misinformation. What are you doing at the 

CFPB to sort of counteract that? 

Mr. CORDRAY. Yes. Okay. So, first of all, Congress required us to 

do research on a report on reverse mortgages as an early part of 

our work that we did very carefully and very thoroughly and it 

highlighted a number of concerns about the reverse mortgage product. 

The reverse mortgage product can work well for some people, if 

it is appropriately customized to their situation. It means they can 

stay in their home for the rest of their life free from worry. But 

there are a lot of complexities around the product, particularly if 

it is only one spouse on the mortgage rather than both. 

And when they think that is going to be the case, there is a lot 

of uncertainty about the taxes and insurance, which are typically 

not covered by the mortgage, and that may not be appropriately 

marketed to people. So, we pointed out a number of issues and 

worked with HUD in terms of various revisions that have been 

made to the reverse mortgage product that they put out. 

Secondly, on the advertising—I see when I am on the road and 

in the hotel late at night on the TV all of these ads and it concerns 

me. Some of what is being represented doesn’t seem to be accurate 

or it is misleading at best. 

We took our first enforcement action against reverse mortgage 

advertising recently. We will consider doing more in that area. It 

needs to be cleaned up. As you say, some of it is pretty slick and 

pretty glib. And if it is misleading people into a product, that is a 

concern. 

So, we share the concern. We have done as I said a fair amount 

of research in the area and we have various things that we want 

to make sure are not harming consumers. 

Mr. LYNCH. I appreciate that. Just a couple of thoughts—one of 

my constituents had a provision in their reverse mortgage that if 

they vacated the home for any reason, including a long-term hospital stay, that would trigger the dissolution and the person would 

basically lose their home if they couldn’t come back. 

34 

So, that was a problem and it wasn’t clearly articulated. I do 

want to say that in connection with the Affordable Care Act, they 

did do a pretty good job with advocacy and outreach; that is a very 

complex bill as well. 

Mr. CORDRAY. Yes. 

Mr. LYNCH. There is a group called SHINE—what is it, the Servicing the Health Insurance Needs of Elders. And they just go out 

en masse and they go to these senior—in our neighborhoods it is 

oftentimes just a neighborhood group that is centered on seniors. 

But they go out and they will explain that and word goes out so 

that these people have the ability to defend themselves. I am not 

sure if you are equipped to do that type of advocacy and education 

but I think it is needed in this area. 

Mr. CORDRAY. I don’t think we have a lot of people to do it. But 

we have an Office for Older Americans that strategizes in this 

space and how to work with partners around the country and— 

Mr. LYNCH. Yes. The Council on Aging is also a very effective 

group. 

Mr. CORDRAY. Yes. That is true. 

Mr. LYNCH. Thank you. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Florida, Mr. 

Posey. 

Mr. POSEY. Thank you, Mr. Chairman. 

Director Cordray, last Congress I introduced legislation to require the Consumer Financial Protection Bureau to issue advisory 

opinions similar to what a lot of other Federal agencies do. This 

would allow businesses to better understand the regulations they 

are faced with and in turn better comply with those regulations. 

According to the CBO score based on the information provided by 

the CFPB, it was estimated that your Bureau would issue 5,000 

advisory opinions every year for 10 years. And you heard that right 

Members, 5,000 per year for 10 years. Not only did the estimate 

strike me as a little bit high but it is also perplexing that the 

CFPB is contending that this unusually high number of opinions 

will never decrease over a 10-year period. 

I am interested in understanding how that number was reached 

and whether or not you consulted other Federal agencies that enlist similar procedures, because if you did I think you would find 

that the number is extraordinarily high. 

For example, according to the estimates provided by my staff, in 

2014 the SEC issued only 17 advisory opinions. HHS issued only 

10. The only agency that I could find that is even remotely close 

to your estimate is the IRS and even then your estimate is roughly 

twice the amount that they issued in 2014. Do you still believe 

5,000 per year is a realistic estimate? 

Mr. CORDRAY. So, let me just understand, what you are talking 

about is a CBO scoring that was done. Is that what you mean? 

Mr. POSEY. The CBO scoring, you know what the cost was and 

that is probably what killed the bill, it is the cost imputed by your 

agency saying they would be burdened with these 5,000 advisory 

opinions when I have never heard of any agency issuing that many. 

Mr. CORDRAY. But we didn’t score that. The CBO scored it, is 

that correct? 

35 

Mr. POSEY. They scored it based on your input. 

Mr. CORDRAY. Okay. 

Mr. POSEY. Your agency said it was required to do 5,000 a year 

and they tried to cost that factor out. 

Mr. CORDRAY. I see. Okay. Okay. I am not fully conversant with 

all of that. I do know— 

Mr. POSEY. No. No. Let me explain it to you clearly. 

Mr. CORDRAY. Yes. 

Mr. POSEY. If you say the cost is—well, you do the math, over $800,000 divided by 5,000 so they came up with that figure based 

on information that your agency gave them. 

Mr. CORDRAY. Okay. 

Mr. POSEY. They said we have to do this 5,000 and the cost of 

it will be over $1,000 each. 

Mr. CORDRAY. I see. So, again, I am not fully clear on this and 

I could look into it more. But what I will say is I do know that we 

do receive thousands of questions and inquiries each year. That is 

what it has been at least, we have only been around as you know, 

a couple of years, 3 years. 

But we are receiving thousands of questions from people who 

want advice about how to interpret rules, what things mean, 

whether they can do it this way rather than that way. And we 

spend a lot of full-time equivalent hours on those and they come 

in all the time through email and on calls. And we do our best to 

respond to those. 

Now, whether that is the same as a sort of ‘‘formal advisory opinion,’’ as you know, different agencies define what that means differently. When I was the attorney general in Ohio, we did advisory 

opinions. We did about 100 a year and those were fully written out 

documents that took days to research and so forth. That is a little 

bit different from this. Now, where we are in between I am not 

sure. 

Mr. POSEY. I think the assertion by your agency is that is what 

you have to do over 5,000 times a year. We do know that is incredibly excessive. Now, what many agencies do is just a matter of common sense, I forgot the term they used, but if they find there are 

a lot of businesses that are asking the same question, they will 

post on there and they will say look? 

Mr. CORDRAY. We are doing that. Yes. 

Mr. POSEY. —we are not going to—so, that relieves a lot of that— 

Mr. CORDRAY. We are doing that and we are still getting asked 

the question so—but when we get the same question repeated over 

time, we will try to do a webinar or we will put something up so 

that others can just see the answer rather than having to call in 

and get it. 

But it may be partly a function of us being a new agency, I am 

not sure. People may not be as familiar with us and these processes may have not gotten in the grooves. But I do think it is accurate that we received thousands of questions last year on the mortgage rules and the like. 

And it may be that will be true for some time and then let’s just 

say maybe it will settle down. I would like to hope so. I would like 

to think we could speak more clearly than that over time but I 

don’t know when that will be. 

36 

Mr. POSEY. Yes. The question was if you thought that was excessive and what your trend is on that now, and the next question 

was going to be, did you consult any other agencies to see why— 

Mr. CORDRAY. We have looked at other agencies and, again, they 

have very different processes. Some of them are quite confining and 

they only do a very few, a handful of advisory opinions. Some do 

hundreds—I think the IRS does private letter rulings, but I don’t 

know what the volume is exactly. 

And then they all answer questions as well. And that is a whole 

different category and that is pretty large at most agencies. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Missouri, Mr. 

Cleaver, ranking member of our Housing and Insurance Subcommittee. 

Mr. CLEAVER. Thank you, Mr. Chairman. And I thank the ranking member, as well. 

Mr. Cordray, let me first of all express some appreciation to the 

agency, CFPB, for two things, one for the rule change for many of 

the rural bankers, the post-financial crisis rules which I was a part 

of, that unintentionally saddled them with cures to ills that they 

did not have. 

Mr. CORDRAY. Yes. 

Mr. CLEAVER. And as they call themselves country bankers, they 

would say they really appreciate that. The other is the Ask CFPB, 

this interactive online portal which I think—I don’t know whose 

idea it was but it was great. The people in my district think it was 

mine but— 

Mr. CORDRAY. Take credit for it. 

Mr. CLEAVER. Yes. And I have already done that. 

Mr. CORDRAY. All the rest of you could take credit for it, too. 

Mr. CLEAVER. But before I go to my other question, do you have 

any data on how much that is working, how well the public is responding? 

Mr. CORDRAY. I know that we are getting a significant number 

of page views on those tools now. And I believe we had—it is in 

the millions of page views that we now get for these tools which 

is encouraging because they are only useful if they are used, right? 

And I would encourage all of you to feel free to direct your constituents to look at things like Ask CFPB which has—if you are 

being pursued by a debt collector suddenly what are your rights, 

you don’t know—but you can go there and get the specific answers. 

You can have letters that respond to try to assert your rights. Or 

if you have a mortgage problem you can figure out exactly how it 

works. That is what these tools are for and I hope people will use 

them. 

Mr. CLEAVER. Yes. I am doing that and I would also encourage 

my colleagues to do so. I think it is one of the best things that is 

going on in the agency. But on the other side, I want to talk about 

the mandatory arbitration. 

Now, I am assuming that you are going to—that the agency will 

issue some rules with regard to the mandatory arbitration. I don’t 

even think—most people don’t even think about mandatory arbitration until they have a problem with a credit card company. And 

then all of a sudden, they start talking about suing and then they 

37 

discover little tiny print which essentially prevents them from 

going to court. 

Because they have agreed—it is my understanding that they 

agree not to go to court when they get the credit card. They sign 

the credit card saying, I am hereby agreeing to arbitration. Is there 

anything—I am sure the credit card companies are pushing back 

on that—that may ultimately require legislation or is this something that CFPB can deal with through rules only? 

Mr. CORDRAY. I hesitate to speak to legislation. That is up to the 

Congress, of course. In Dodd-Frank, the Congress did two things. 

They did ban pre-dispute arbitration clauses in mortgage contracts. 

And they then said for any other consumer financial contracts, the 

Bureau shall—we are required to do a study and report to Congress on this study. We are getting very close—very close to that 

point. Then— 

Mr. CLEAVER. To the study— 

Mr. CORDRAY. The study being published to Congress. Yes. 

Mr. CLEAVER. Okay. 

Mr. CORDRAY. And then depending on what that says we should 

take action as we deem in the public interest consistent with the 

results of the study to either limit or condition such arbitration 

clauses. So, I want to be very careful not to—we have been careful 

not to prejudge the results of the study. 

It will include a consumer survey as to what consumers think 

has happened when they sign up for products and—that have arbitration clauses. It is pretty extensive and it will be out I think I 

can say as I sit here very, very soon. And then we will work on 

how to go from there. 

Mr. CLEAVER. Thank you very much. I yield back the balance of 

my time. 

Chairman HENSARLING. The gentleman yields back. 

The Chair now recognizes the gentleman from Georgia, Mr. 

Westmoreland. 

Mr. WESTMORELAND. Thank you. 

And thank you, Mr. Cordray, for being here. I represent a district 

that has a lot of really good, hardworking folks in it, and a lot of 

them live paycheck to paycheck. If you were me, what would you 

tell them if they came to you and said they had an emergency and 

they needed to get $50 or $100 for a week or 3 or 4 days, where 

would you tell—where would you advise them to go to get that kind 

of credit? 

Mr. CORDRAY. I don’t know, there are any number of places, but 

I don’t generally stand in their shoes and tell consumers what to 

do. 

Mr. WESTMORELAND. You don’t? 

Mr. CORDRAY. No, I don’t. I don’t. 

Mr. WESTMORELAND. You tell them what they can’t do. And that 

is my point. I was in the building business. I have loaned people 

$20 or $50 or $100, they were coming to me because a child was 

hurt, a transmission was out, or they had to turn on their electricity. 

Mr. CORDRAY. Yes. 

Mr. WESTMORELAND. And I have seen in their eyes and it seems 

to me like the CFPB is trying to tell these folks that they don’t 

38 

have enough sense to be able to manage their own affairs. And you 

are trying to make rules that do away with payday lenders, pawnshops, and prepaid credit cards where people can have an overdraft 

protection so the card wouldn’t be turned down if they are going 

into a drugstore to buy medicine for a child or whatever. 

You say you don’t advise them where they can go but you are 

trying to make it to where they can’t go to these people that they 

have been dealing with for years. And a lot of their families have 

been dealing with these people for years. 

So, I would like to hear what you want to tell these folks and 

then I can go tell them when their sources of these small dollar 

loans, maybe just for 2 or 3 days, maybe for a week, maybe for 2 

weeks, I want you to tell me where to tell them to go because if 

they go to the bank to get a $50 loan for 2 days, the bank fees will 

be so high they wouldn’t be able to get it even if the bank would 

consider loaning it to them. 

So, if you could just tell me what you want me to do? 

Mr. CORDRAY. Sure. Okay. A couple of things, number one, you 

are making a judgment that we are going to do this, we are going 

to do that. We are at the beginning of a rulemaking process on payday and other small dollar loans and that will unfold and there will 

be a lot of public input into it. 

I have said time and again, and I said it earlier in this hearing 

that we believe that people need access to credit for those purposes 

for exactly the kinds of things you talked about, emergency needs. 

But they should not—we should not easily tolerate that people end 

up rolling loans over and over and over and they end up paying far 

more in fees than they borrowed in the first place and they are in 

a debt trap—they tell us about it all the time in comments that 

they submit to our agency. 

That is a concern. That is harming the consumer, not helping the 

consumer. How to balance that is difficult. It is a complicated 

thing. We have been working on this for now 3 years. It is a very 

difficult task, I would agree, but we are going to do our best to try 

to strike that balance. 

Mr. WESTMORELAND. You talk about making rules to keep them 

from rolling over. I am sure there will be rules about what percentage rate they can be charged. And you have to understand that 

most of these people are not banked. They are non-banked individuals. 

Mr. CORDRAY. We are well aware of that. Yes. 

Mr. WESTMORELAND. Okay. 

Mr. CORDRAY. Yes. 

Mr. WESTMORELAND. And so, if you have ever—have you ever 

loaned anybody any money? 

Mr. CORDRAY. Actually, we are well aware that most payday 

lender borrowers are banked. They have a bank account. That is 

where the money is coming from. That is where they write the 

check on. So, by definition, most of them actually are banked. 

Mr. WESTMORELAND. I am sure that all of them are banked. 

Mr. CORDRAY. I have not myself been an extensive lender— 

Mr. WESTMORELAND. Have you ever had anybody—in my case, I 

would have somebody come and say hey, I need 50 bucks until Friday. And I knew—saw it in his eyes that he was going to get $50 

39 

and it was either me loaning the $50 and take a chance of getting 

it back Friday, or lose a saw or a generator or something of that 

nature. And so, I think when you are making these rules I hope 

that you will understand there are people who do use these types 

of ways to get credit and especially now that this prepaid credit 

card has come out then this an avenue that at least from what we 

have heard for people to allow their kids to have an allowance or 

college spending or whatever on the prepaid cards then they would 

much appreciate if there was just, say, a $15 overdraft fee rather 

than these people being denied credit at a time when they need it 

the most. 

So with that, Mr. Chairman, I yield back. 

Mr. CORDRAY. Thank you. 

Chairman HENSARLING. The Chair now recognizes the gentlelady 

from Ohio, Mrs. Beatty. 

Mrs. BEATTY. Thank you, Mr. Chairman, and Ranking Member 

Waters. 

And thank you, Mr. Cordray, for being here testifying again 

today. Certainly we have asked you a wide array of questions ranging from credit to payday lending, a little bit about—and the list 

goes on and on. And so, the good and the bad news is I am going 

to add to that list. But one of the things that we talked about when 

you were here before in the last Congress is we talked about credit 

reports and now, after having the opportunity to look through your 

document and saying on—I am going to reference, Mr. Chairman, 

page 28—when we look at number of complaints and the things 

with constituents, 76 talked about incorrect information. 

And then when you look at the other pies on your chart, it made 

me want to ask the question because on this committee, we talk 

about a whole host of things and whether it is on our Housing Subcommittee, whether it is on working with banks, it all comes back 

to your credit and what you put into that investment in credit, if 

you go to purchase a home or if you are starting a business and 

yet we are finding out that oftentimes the information is incorrect 

on there. And it becomes almost impossible to the lay consumer or 

constituent to get that removed or get it changed. 

So, you talked a lot about tools today. Can you give us any update or information on what we can say to our constituents about 

that? 

Mr. CORDRAY. Sure. Yes. And frankly, you and I may be more 

sensitive to this issue because it is our hometown newspaper that 

has done some of the best investigative reporting on the issue of 

credit reports, credit scores, and accuracy. 

That is something that we have been looking at very carefully 

and thoroughly at the Bureau. We are the first agency ever anywhere to be able to examine and go in and really get this sense of 

how things work within the three big national credit reporting 

agencies. And that has led to changes already. 

They used to have a paper-based process that was reduced to a 

three-digit number for correcting errors on your account if you 

wanted to submit a dispute and they didn’t necessarily pass the 

paper on to the furnisher that originally supplied the information. 

We have worked with them to change that process. It is now 

changed. Your information will go in so that the furnisher can see 

40 

what the basis for the dispute is. It is not reduced to a three-digit 

number. That is a significant improvement. 

We also indicated late last year that we would begin requiring 

regular credit reporting accuracy reports—akin to call reports to 

the banks—that we are moving forward with. And we are doing a 

great deal of work around improving accuracy in these numbers. 

The other thing we are doing that I think is important is we 

have been encouraging the open credit score initiative which a few 

lenders got started with with FICO and now has grown to more 

than 50 million Americans who now have free access to their credit 

scores on their credit card bills and other potential loan documents. 

That is going to create a lot more awareness on behalf of the 

public that, this is my information and it matters to me and it may 

be changing and I need to find out more about it. I think that is 

going to be a sea change for the entire industry and that is something that we are really encouraged about. 

As consumers know more, as they can stand up for themselves 

more, they will be getting more responses from these companies 

and we also are putting pressure on this to see to it that happens. 

Mrs. BEATTY. Thank you. My last question is, this past week I 

have had a lot of—all of us have had a lot of people come in to see 

us over this whole issue with cyber threats. Is there any more that 

maybe you haven’t said or that I did not hear—we had a lot of our 

community banks and regional bank folks come in and say that 

with the number of credit cards that are being compromised, and 

I know firsthand, because I used my credit card, went to pay the 

bill, and my private banker said to me oh, there is something 

wrong with your credit card. 

Now, I was pretty sure that was inaccurate. She told me it had 

been compromised. And so, they cut it in two. That was the good 

news. My sister’s was compromised that same day but someone 

had used hers repeatedly to the tune of thousands of dollars. 

Now, the banks are telling me they are making that whole 

versus the Neiman Marcus or the Targets or wherever you used it 

get off free. Any thoughts on what we should say back to our bankers? 

Mr. CORDRAY. I know that this has been a subject of potential 

legislation by the Congress and I know people talk about how powerful this agency is, but when it comes to merchants and security 

of the information, that is not something we have authority over. 

There is a battle going on between the merchants and the banks 

over who should bear the cost of these kinds of breaches. Everybody is going to have to do a better job and there are improvements 

coming in card security and other things. But it is—I could just say 

it is a big problem. It affects consumers. It affects all of us. 

Chairman HENSARLING. The time of the gentlelady has expired. 

The Chair now recognizes the gentleman from Ohio, Mr. Stivers. 

Mr. STIVERS. Thank you, Mr. Chairman. 

Welcome, Mr. Cordray. It is not every day I have a constituent 

testify, so it is good to have you here. And apparently it is Central 

Ohio time because Mrs. Beatty went and now I am going. In the 

back you will see some folks from the Mid-Ohio Foodbank in Grove 

City, your hometown, that I am going to meet with after this. 

41 

I want to thank you for what you are doing to try to protect consumers. But I will tell you I do have some concerns about some of 

the methods your agency is using. And I would like to kind of— 

if I have time—talk about auto dealers, prepaid cards, and then if 

we get to it, TILA and RESPA. 

Mr. CORDRAY. Okay. 

Mr. STIVERS. You may know that the Department of Justice has 

created a framework and I think both the national automobile dealers and the minority-owned—the minority auto dealers have developed a fair credit compliance program around the Department of 

Justice model. But I don’t think any of that was used in the CFPB 

rule you are creating around participation of auto dealers. I am 

just curious, do you think the DOJ model doesn’t work or it is not 

good or did that just not enter into your thinking? 

Mr. CORDRAY. The way Congress drew our statute—again, this 

is another area where supposedly we are so powerful, but we did 

not have jurisdiction over auto dealers. 

Mr. STIVERS. But you do have and you are working on getting 

information on their participation with lenders. So, you are using 

the lender to get into the dealers. 

Mr. CORDRAY. No. We have responsibility to oversee fair lending 

by auto lenders but not by auto dealers. So, the dealer program 

that they have developed may well be an excellent program and we 

have talked to them about it at their suggestion. It is really more 

for the Justice Department to say what they think of that; it is not 

really within my jurisdiction. 

Mr. STIVERS. I do want to share that I talked with one of my 

auto dealers and they gave me some stories about some folks from 

my area—your area—who actually got car loans through work at 

one of the auto dealers in our town, Reicart Automotive just down 

from where you live. 

Mr. CORDRAY. Sure— 

Mr. STIVERS. And a lot of college students, a lot of first time buyers, a lot of people with damaged credit have actually been able to 

secure car loans. I want to tell the story of a lady who needed a 

car to get back to work. 

She was a young lady in her 30s, recently divorced. Her husband 

had ruined their credit. She had three children. She needed to get 

back to work. She couldn’t find a loan to get a car and that dealership helped connect her with a lender that gave her a loan. 

And I think that is a really good outcome. But they are worried 

that under your proposed rules, they might not be able to work 

with that lender to help increase the competition and get people 

like this lady who needed to go back to work a loan so— 

Mr. CORDRAY. Yes. I actually agree with you on that. 

Mr. STIVERS. Yes. 

Mr. CORDRAY. I think it is a good outcome. I think people need— 

at least where we live—cars to be able to transport themselves to 

work and keep a job. But if they can’t do that, it is worse than having a mortgage problem because they can always rent if they don’t 

own a home. 

Mr. STIVERS. Right. 

42 

Mr. CORDRAY. But here, they do need these loans and I do think 

the auto industry is going gangbusters right now. Sales of cars are 

up. 

Mr. STIVERS. It is but there are still people who can’t get access 

to loans right now for cars. 

Mr. CORDRAY. Yes. 

Mr. STIVERS. If you can’t get access to a loan, you can’t get access 

to a car, so? 

Mr. CORDRAY. I certainly don’t want that to be as tight as— 

Mr. STIVERS. I certainly wouldn’t want your unintended consequences to be that you allocate loans away from the people who 

are most in need. 

Mr. CORDRAY. Fair enough. That is not what I intended. 

Mr. STIVERS. I would use the Soviet grocery store as an example. 

So, sure, a Soviet grocery store never sold anybody bad vegetables 

or bad meat because they never sold anybody vegetables and meat. 

They were always out of it. 

Mr. CORDRAY. Yes. Yes. 

Mr. STIVERS. So, you can—that is not the right way to protect— 

Mr. CORDRAY. That is right. That is not what we intended either. 

Mr. STIVERS. —consumers, so it is really important that I get 

that across and that transitions me to my next issue with regard 

to people who are in prepaid. And you talked about the short term 

lending. And many of the folks who do short-term lending, so called 

payday lending, might be banked, but for a lot of people on prepaid 

cards, that is their bank account. 

Mr. CORDRAY. Agreed. 

Mr. STIVERS. Their card is their bank account. 

Mr. CORDRAY. Yes. 

Mr. STIVERS. And the way that the proposed rules—and I know 

you are still taking—I think you are still taking comments? 

Mr. CORDRAY. We are. 

Mr. STIVERS. The way the proposed rules work is that overdraft 

protection would be treated as a credit card or a loan but it is really—and so, they have to take an application. They have to do some 

underwriting. 

It really will deny real access to these people and I would ask 

you as strongly as I can to take a look and see if there are practices 

you want to limit, if you think there is something that are best 

practices you want to encourage, you can do that. But don’t take 

away people’s access to this because if you make them opt in 

through an application, it will never happen. And these people will 

get denied access to that overdraft protection that they would have 

gotten if it was in a bank. 

But because their card is their account, they are being denied access. So, I would ask you to look at the unintended consequences 

every time you do things from the car loans to the prepaid cards 

to TILA and RESPA, which unfortunately I didn’t get to because 

my time is up. But please, look at it because you could become 

the—you could make us the Soviet finance system if you deny access. 

Thank you, Mr. Chairman. I yield back. 

Mr. CORDRAY. Okay. I would be glad to talk to you further about 

these issues. 

43 

Mr. STIVERS. Thank you. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from California, Mr. 

Sherman. 

Mr. SHERMAN. Thank you. 

Director Cordray, thanks for being here. On August 1st, the new 

TILA–RESPA integrated disclosure home closing forms now known 

as TRID—a nice catchy name— 

Mr. CORDRAY. I don’t particularly like that acronym, frankly. 

Mr. SHERMAN. —Okay, are scheduled for implementation. What 

does the Bureau have to do to support industry in implementation 

right in August and are you considering announcing a short-term 

restrained enforcement like HUD previously used on other disclosure changes? This might help small businesses work through the 

kinks that they may find in the properly or improperly acronymed 

TRID. 

Mr. CORDRAY. Okay. We haven’t heard very much about that and 

we did give a 21-month implementation period. This rule was actually passed in November of 2013 so people have had a long time 

to lead up to this. 

We have worked hard—this is something that has been a hallmark of the Bureau on all of our rules is we don’t just pass a rule 

and then sort of say to the industry it is your problem now, we are 

no longer interested. 

We care about their ability to implement the rule effectively because if they can’t then it is not going to work for people. And we 

do a lot of work around taking what is pretty dense legalese of the 

Federal Register and turning it into plain language guides, ‘‘how 

to’’ guides, guidance and we answer and respond to questions. 

We have done webinars for hundreds, if not thousands—I think 

thousands of folks on these rules. And we are trying to make sure 

that they will be ready to go because that is what we want. If the 

rules are an improvement—and here they are—consumer surveys 

have shown us that this is more intelligible and understandable 

disclosure than existed before. Plus, we have taken two forms at 

each stage and boiled it down to one form which is what Congress 

told us to do. That is all a good thing. We are working hard— 

Mr. SHERMAN. Would you consider the idea of a restrained enforcement at the beginning? 

Mr. CORDRAY. Look, what I would say is the effective date is August of this year. That is 21 months from when the whole thing 

was finalized. And by the way, there was plenty of time before it 

was finalized when people could see it coming. 

It is not like we are going to come in the very next day and say, 

‘‘Aha, now, we can bring the hammer down on people.’’ But at the 

same time, people should be getting ready for this. They should 

take it seriously and that is the date as I understand it. 

Mr. SHERMAN. Okay. You don’t regulate insurance companies. 

You don’t regulate depository institutions winding up in bankruptcy. But you are the closest thing we have to a national advocate for insurance consumers and the consumers of other financial 

products. 

When AIG had certain affiliates go bankrupt, their regulated insurance companies stood strong. They had been regulated by the 

44 

State governments. Have you thought of taking a position to try to 

protect the insurance consumers of this country to say that when 

you have an insurance company and you have a related depository 

institution, that the folks who regulate the depository institution 

can’t reach in and grab the assets of the insurance company to the 

disadvantage of the insurance consumers? 

Mr. CORDRAY. That is not an issue that has come to my attention 

before. I know that very explicitly in our statute, we do not have 

jurisdiction over insurance companies—if there is mortgage insurance and it is part of the mortgage that is something different, but 

typically that is outside of our range, so I haven’t—I have neither 

thought about that nor do I have any real comment. 

Mr. SHERMAN. On the theory that you are looking for more 

things to do, I hope you would look at the sorts of restraint legislation because you are the closest thing to a national advocate of the 

consumer as of— 

Mr. CORDRAY. Right. I appreciate that. You know we have a lot 

to do. 

And we are going to be very careful of our jurisdiction. 

Mr. SHERMAN. I have one more question to sneak in. I am interested in knowing about your forthcoming small dollar payday loan 

rule, which I know you haven’t proposed yet. Will it target all 

forms of small dollar credit or be limited to payday, and what are 

your chief concerns about the small dollar loans, rollovers, ability 

to repay, and cycle of debt? 

Mr. CORDRAY. We published two extensive White Papers on this 

subject and they have indicated both our appreciation for this credit in certain circumstances and also our concerns about how this 

credit can trap people in debt in other circumstances. 

We have been working to try to square the circle between those 

two in any kind of policy intervention we would do. That will begin 

with small business review panels under our statute and that is 

when this will become public as the beginnings of what will eventually be rules. 

People will have, I am sure, plenty of say on that, on all sides. 

It is obviously of extreme interest. And it is something that we are 

working on very carefully. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Illinois, Mr. 

Hultgren. 

Mr. HULTGREN. Thank you, Mr. Chairman. 

And thank you, Director Cordray. Director, I would like to focus 

on CFPB’s proposed changes to the Home Mortgage Disclosure Act 

rule. I thoroughly support the original goal of the legislation preventing discriminatory lending practices. 

However, I am concerned that these changes will pose a significant burden on mortgage lenders, including community banks and 

credit unions. The small financial institutions are a key way that 

many people access the American Dream and yet they are struggling under a tsunami of burdensome and needless regulation. 

CFPB’s efforts thus far to narrowly tailor proposed HMDA requirements have been insufficient; even Dodd-Frank mandates 17 

new data fields. CFPB has proposed an additional 20 required 

45 

fields, imposing meaningful compliance costs on struggling small 

banks. 

Director Cordray, will the CFPB do more to provide much needed 

HMDA regulatory relief to these small financial institutions that 

need the most help? 

Mr. CORDRAY. As you are clearly aware, and I appreciate your interest in this subject, we have proposed rules that were out for 

comment and we have received extensive comment, hundreds of 

comments on them. 

They do include some additional fields that were required by the 

Congress in the statute and some additional fields that we thought 

were necessary to help monitor the mortgage market along the 

lines of what was discussed earlier and at the same time, we have 

done some other things that we are trying to relieve burden, such 

as exempting certain small creditors from having to report at all 

and also updating the technology, so it should be easier for people 

to report with less burden. 

So how all that mixes together in the grand scheme of things is 

something that we are trying to figure out and we appreciate the 

comments we have had and we will do our best to digest those 

and— 

Mr. HULTGREN. I really do hope you take them into consideration. The concern has been bipartisan, of really the weight on, especially community banks, smaller banks, credit unions. 

Mr. CORDRAY. Yes. 

Mr. HULTGREN. It is not just this side, but really both sides have 

recognized that. And I do recognize the exemption that is there. I 

would say that the exemption is too low and I would encourage you 

to look at a larger number there. 

Mr. CORDRAY. Sure. You are not alone in that suggestion, so yes. 

Mr. HULTGREN. That is right. Director, does CFPB still expect to 

finalize the HMDA rule in July? If so, when would companies be 

expected to comply? Given the immense resources expended in implementing the mortgage roles in TILA–RESPA, would the CFPB 

consider maybe a conformance period, similar to the one granted 

by the Federal Reserve for the Volcker Rule where during this period banks would not be subject to enforcement actions if they 

showed a good faith effort to comply with the new rule. 

Mr. CORDRAY. I don’t want to say specifically that it will be July, 

but it will be somewhere in that timeframe. I also would say there 

will be a significant implementation period. 

It is not like it is going to go into effect immediately. So as to 

whether people will need a further relief from that, that it is pretty 

premature at this point, but again there will be a fair amount of 

time for people to comply, I believe. 

Mr. HULTGREN. Well, again— 

Mr. CORDRAY. And we have comments on that. 

Mr. HULTGREN. We are hearing from people who are concerned, 

so don’t think it is not a concern. 

Mr. CORDRAY. That is right. 

Mr. HULTGREN. I think there is concern there. I think there are 

precedents for something as I mentioned where there is a window 

if they are making a good faith effort to comply, and this conformVerDate Nov 24 2008 17:31 Sep 25, 2015 Jkt 095050 PO 00000 Frm 00049 Fmt 6633 Sfmt 6633 K:\DOCS\95050.TXT TERRI
46 

ance period, to me, seems realistic and the proper thing to do to 

accept that. 

Let me go on. By including home equity lines of credit and commercial loans secured by dwelling, the CFPB is going far beyond 

the HMDAs statutory purpose: to ensure customers have access to 

mortgage credits. This will greatly distort the HMDA data; not only 

will you be comparing apples and oranges but the systems and loan 

process is completely different for those different types of loans. 

Given these concerns, wouldn’t customers be better served if the 

HMDA continued to apply solely to mortgages? 

Mr. CORDRAY. This is a good example of the kinds of things we 

are wrestling with. We wrestled with this and came out with our 

proposal. There is comment on it, lots of comments on both sides. 

Again, I think hundreds of comments, we are wrestling with what 

people are saying around that. 

We are trying to make sure that this will effectively give the 

right window into the lending market. HELOCs, as you say, are 

often not for purposes of the mortgage itself, but they are secured 

by the home. 

Mr. HULTGREN. You want to serve customers and protect them. 

Mr. CORDRAY. Yes. 

Mr. HULTGREN. That is the idea, I think. But when you so protect them that they can’t even have access to this, be able to apply, 

I think there is a real problem there. 

Mr. CORDRAY. Right. 

Mr. HULTGREN. I would also just mention—my time is almost expired, so I will just say I am also concerned about protecting highly 

sensitive consumer information. I know much of this is a part of 

the application process and I am very concerned. I am hearing back 

from my constituents about concerns of potential breaches with 

that information. 

My time has expired. I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Georgia, Mr. Scott. 

Mr. SCOTT. Thank you, Mr. Chairman. 

Director Cordray, I have a real concern regarding the Bureau’s 

December 23, 2014, proposed rulemaking for prepaid accounts 

under the Electronic Fund Transfer Act Regulation E and the 

Truth in Lending Act Regulation Z. 

My specific concern involves the proposed changes required for 

overdraft features associated with the general purpose reloadable 

GPR cards. In particular, defining GPR cards that offer draft features as credit cards subject to the requirement of Regulation Z is 

concerning to me. 

So what I want to request is that the Bureau consider as it reviews comments adjusting this to allow an optional opt-in approach 

consistent with the requirements currently in place for similar 

overdraft products regulated under Regulation E. Is that possible? 

Mr. CORDRAY. That is one of a number of approaches that could 

be taken to this. We have worked this through as carefully as we 

can and came out with a proposal. We are still taking comments 

on that and we will continue to take comments until later this 

month when the period ends. 

47 

And then we will digest those comments. It was again, our thinking that where you have credit on a prepaid card and it is credit, 

it is a loan of funds that could be treated similar to the way it is 

treated under the credit card rules in the CARD Act. 

I am sure there are going to be favorable comments on that approach. And there are going to be unfavorable comments on that 

approach and we are going to listen carefully to what exactly people say and how convincing it is. And if anybody is giving us data, 

we are interested in that as well. But this will be all part of our 

thinking as we work toward a final rule. 

Mr. SCOTT. I just want you to understand how important this is 

to me. I represent Georgia. NetSpend Inc. is a leading provider of 

GPR cards groups. And it is a subsidiary of Total System Services, 

a corporation that is located in my State of Georgia, so quite naturally I am very concerned about that. 

I have taken the liberty of writing you a letter concerning this. 

I also wrote one along with my colleague, Congressman Gregory 

Meeks, concerning the same issue a while back. 

The impact that this is having is very negative for our industry. 

NetSpend, for example, currently offers an optional opt-in overdraft 

feature for eligible cardholders that includes a number of consumer 

safeguards that should be there. 

Customers must opt-in and meet direct deposit requirements. 

Customers must provide an email address or text number for realtime notifications about overdraft. Customers pay no fee when they 

repay, moreover NetSpend’s overdraft fee is well below the average 

bank overdraft fee. 

Consumers are able to use NetSpend’s overdraft features to meet 

short-term liquidity needs such as purchasing extra groceries and 

in emergency situations, handling medical emergencies, and covering unexpected car repairs. 

The proposed rules, however, make it impractical for my consumers and for NetSpend to continue to offer this feature. Not only 

may this limit NetSpend’s ability to compete with similar financial 

products in the marketplace but it may most notably also harm 

consumers who benefit most from this short-term liquidity. 

And so, I wanted to use this example, so that you could see the 

seriousness of this and I appreciate your addressing my constituents’ concern. 

Mr. CORDRAY. We have actually sat down and heard directly 

from NetSpend about their issues here. That is all part of the comment process and we are going to hear as I say quite a bit from 

a large number of people—we already have—and I am sure we will 

hear much more before the deadline. That is all what we will take 

into account and try to reach the right balance in the end. 

Mr. SCOTT. Thank you very much, Director. I appreciate that. 

And keep me informed, please. Thank you. 

Chairman HENSARLING. The gentleman yields back. The Chair 

now recognizes the gentleman from Tennessee, Mr. Fincher. 

Mr. FINCHER. Thank you, Mr. Chairman. 

And, Director, thank you for being here with us today. I have a 

couple of questions. I am going to go through them quickly to give 

you enough time to respond to me. 

Mr. CORDRAY. Right. 

48 

Mr. FINCHER. The first one, I am no stranger to manufactured 

housing. 

Mr. CORDRAY. Yes. 

Mr. FINCHER. I talked about this. It is a bipartisan effort. In response to a question by Ranking Member Waters during last year’s 

hearing when you were before the committee, during 2014, regarding what the CFPB was doing to solve the ongoing issues with 

CFPB’s HOEPA Rule and its impact to manufactured housing lending, you said the CFPB was going to address their concerns and 

monitor the market, to see what the actual effect is. And we want 

to know what is actually happening and we will work with them 

to address those concerns. We know what is happening. We have 

seen some of the manufactured housing lenders reducing the 

amount of loans being offered. 

We know that one of the companies that offers manufactured 

housing loans, and there are only a few, is no longer making loans 

for $20,000 or less. And we know that one of the banks that once 

offered such loans has completely pulled out of the manufactured 

housing lending market. 

We have heard countless examples of consumers being impacted 

by the rule. And even the CFPB recognized in its own White Paper 

released last year on manufactured housing that the HOEPA Rules 

will have a disproportionate impact on the manufactured housing 

industry. 

The report specifically states the Bureau has recognized certain 

provisions of the Dodd-Frank Act the Bureau implemented through 

the rules, which took effect in January 2014, may affect the market 

for smaller-sized mortgages, and more specifically the manufactured housing segment of the market in ways that differ from the 

rule’s effect on other market segments. 

So I ask you, what have you done besides issue a White Paper 

that proves our point that the majority of manufactured housing 

loans being made are being impacted by the rule, and what are you 

doing to protect my constituents and those looking for rural housing in America? 

Now, before you answer, we do have a bipartisan solution, a bill, 

the Preserving Access to Manufactured Housing Act—Mr. Barr and 

Ms. Sewell and Ms. Sinema are original co-sponsors—that we are 

trying to move. But it would be much better if it could be done 

through your agency and not through legislation. You could help us 

out a lot by taking care of this at your level and not making us 

do legislation. 

Mr. CORDRAY. Okay. There are several things. It is a long question, so I will try to not to make too long an answer. Number one, 

it was in response to a number of questions from people on both 

sides who are on this committee that we did set out to do a White 

Paper and a deeper analysis in manufactured housing industry, because I said at the time as I was hearing the questions, I didn’t 

think we knew enough about it. So we dug in and did take a close 

look at it. 

Now, one of the things it showed was that there has been a decline in manufactured housing going back 20 years and there was 

a kind of cliff that it fell off about 16, 18 years ago and it has been 

low ever since. 

49 

So that doesn’t necessarily indicate that the Dodd-Frank Act 

itself somehow created some new problem. It has just been a problem for a while. We also were interested in getting more data on 

this and we worked with Vanderbilt and 21st Century to get data 

from them. 

We had a little bit of a problem importing the data, but we now 

have it and we are able to dig into it and see what more is going 

on. So, to the extent that HOEPA itself is constraining this market. 

That is worth us thinking about. At the same time, as I say it, 

is a longer trajectory here that doesn’t suggest that it is DoddFrank in particular that is causing the problem, so I think that is 

worth everybody thinking about as well. 

In terms of whether we should take some particular action, we 

will look again at the legislation you have introduced, but I don’t 

know what is the right answer for us here. 

Mr. FINCHER. Again, this goes back to—we have talked about 

this before. I will get to my last question. The folks at the top for 

the last 6 years have continued to do pretty well under this President. 

But the guys and the gals in the middle and at the bottom are 

the ones being crushed by all of these rules and regulations. And 

whether it is Republican or Democrat and whether it is well-intentioned or not, growing the size of government never helps folks get 

on their feet and do better. 

It always hurts, whether it is Republicans or Democrats. So let 

me get to my last question in 20 seconds. The mortgage rate checker is something that has been released. It is really muddying the 

waters. Why is it that ahead of this effort, the Bureau posted an 

incomplete and imprecise rate checker to help consumers when it 

is not accurate. Where are you getting that information and why 

did you do it prematurely? 

Mr. CORDRAY. It actually is quite accurate and it is up-to-date 

daily information. But our concern is that we found through extensive looking at this that consumers don’t shop for mortgages; they 

shop for houses, but they don’t shop for mortgages. 

They could save a lot of money if they did shop for mortgages. 

What we are doing here is not unique. Google is now coming into 

this market with a tool— 

Mr. FINCHER. Where are you getting that information to set the 

rates? Where are you pulling that data from? 

Mr. CORDRAY. It is the same information lenders themselves 

have, the same databases they are using. 

It is accurate information. I don’t think that is— 

Mr. FINCHER. But it doesn’t include APR. It hides important information in fine print, and makes critical assumptions that impact 

rates. It could be very misleading to a consumer’s actual transaction— 

Mr. CORDRAY. Yes. And these are all things that have been suggested to us, particularly by MBA, and we are looking at and 

thinking about, but at the same time, others are coming to this— 

into this space. Google now has a tool. That is a rate comparison 

tool. There were at least a couple of others in a story I saw today. 

Mr. FINCHER. Google is different than the CFPB. I yield back, 

Mr. Chairman. 

50 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentlemen from Washington, Mr. 

Heck. 

Mr. HECK. Thank you, Mr. Chairman. Director Cordray, over 

here— 

Mr. CORDRAY. Got it. Okay. 

Mr. HECK. Usually I am way down there. 

Kudos for your stamina. 

Mr. CORDRAY. Right. 

Mr. HECK. I want to switch subjects on you and ask about student loans. 

Mr. CORDRAY. Okay. 

Mr. HECK. You have responsibility as I understand it for processing the consumer complaints with respect to the private sector 

portion of student loans which have that— 

Mr. CORDRAY. I think we take all student loan complaints. Yes. 

Mr. HECK. Whether they are private sector or the Federal Government ones? 

Mr. CORDRAY. Yes. People don’t often distinguish very easily in 

their minds, so yes. 

Mr. HECK. So you actually receive and act upon complaints from 

consumers regarding their student loans even if their student loans 

are government or government-guaranteed student loans? 

Mr. CORDRAY. I think we get a lot of complaints on all types of 

student loans. 

Mr. HECK. I think I read correctly—and correct me if I am 

wrong—in your semi-annual report that about 3 percent of your 

total was associated with student loans. My math, back of the envelope math, says over 7,000. Does that sound about right? 

Mr. CORDRAY. Yes. I don’t know exactly how many. It is definitely in the thousands and probably not in—not above 20,000. So 

yes, it is— 

Mr. HECK. Yes. Are there any trends there that you take note 

of that should be brought to our attention? 

Mr. CORDRAY. Yes. We learn a lot from consumer complaints. It 

is something that we really pay close attention to because it is really the voice of your constituents telling us about their concerns in 

the marketplace or where they think they have been mistreated. 

A lot of what we hear about student loans has to do with people 

expressing a lot of regret. They didn’t appreciate what they were 

getting into or what their rights were and they don’t know what 

their rights are or what they can do about dealing with the debt 

and they are struggling to repay it. 

There are problems with student loan servicing, so that they are 

not getting the right information or the payments aren’t being allocated properly or sometimes they are being allocated not to the 

highest cost loan, but something else which isn’t what a consumer 

would intend. 

So we hear a great deal from them. And that is informing our 

approach to this, and one of the things we realized is people just 

don’t know enough about what their rights and opportunities are 

with student loans and repaying student loans and getting into 

debt. 

51 

That has led to our Paying for College tool. It is on our Web site. 

I encourage you to spotlight it with all of your constituents, if 

somebody and some family for the first time in their life is thinking 

about, how do I send my kid to college? 

How do I compare different offers from different schools, what 

might be the best value? This will help people work through that 

process which otherwise can be pretty intimidating for people the 

first time around. So those are all things that we are working on. 

Mr. HECK. And to the best of your recollection, is the overall 

number of complaints associated with student loans growing, decreasing, or staying about the same? 

Mr. CORDRAY. It is growing, I think as people become more 

aware that that is an avenue over time. 

Mr. HECK. All right. Changing the subject on you again, I noted 

with interest and appreciation that you acknowledged in your prepared testimony the valuable role that your credit union advisory 

committee and your community bank advisory committee have 

played, and as you know last year Congressman Pittenger introduced legislation which just yesterday we reintroduced, to codify 

those business councils and to create one for other financial sector 

representatives, namely the escrow appraisal title company. 

Mr. CORDRAY. Yes. 

Mr. HECK. Obviously, you see a benefit in this. You took the time 

to praise and laud it. What would you describe as those benefits 

as they might exist for the other business groups to help provide 

you with input? 

Mr. CORDRAY. Look, I can spend my whole life meeting with advisory councils and we cover so many markets that I wouldn’t want 

to have too many of them. But it was pretty clear to me that community banks and credit unions are not only pretty important, they 

were going to be largely outside of our view, the smaller ones. And 

they deal with a great deal of products, so there is a lot of input 

to get as they do deal with mortgages, they deal with student 

loans, they deal with auto loans. They deal with, you name it, everything that depository institutions do. 

Now, whether we would want to have too many more advisory 

councils, it is very time-consuming to have people come and meet 

with us. We spend—I spend the whole day with them. We spend 

time with them in between meetings hearing from them and getting their thoughts. 

I would not want to do too many of those. But at the same time, 

as long as I am there, we are going to continue with the community 

bank advisory council and the credit union advisory council because they have shown their worth and I think they have been 

very valuable to us. 

And they have improved their— 

Mr. HECK. I have 8 seconds left, so let me just say, neither Mr. 

Pittenger nor I are giving up. We think listening is time-consuming 

but of incredible value. And I might just add that as somebody that 

you full well know sits up here—and often praises, compliments, 

expresses a appreciation for the work of your agency, neither are 

Mr. Posey and I going to give up on the value and utility of advisory opinions or no-action letters. 

52 

And I just want to say for the record and publicly, I am disappointed in the way in which you characterize a tool that you 

would use frequently. We think there is considerable benefit here 

for the private sector and for the stakeholders to make the process 

work better, which I know as a former attorney general, you know 

full well, if constructed appropriately can be a positive tool available to everyone, and make the whole system work better. 

My time has expired. 

Mr. CORDRAY. Could I have just 10 seconds? 

Mr. HECK. Not if you are going to tell me you are not going to 

do it. 

Mr. CORDRAY. No, no. We put out a proposal on that and we have 

gotten comment back that it is too narrow. It may not be sufficient, 

but it is something we are thinking hard about. As I said, I used 

to do a hundred a year when I was Ohio attorney general. I don’t 

know if we struck the right balance here. We are going to think 

more about it. 

Mr. HECK. I appreciate that very much. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Colorado, Mr. Tipton. 

Mr. TIPTON. Thank you, Mr. Chairman. Director Cordray, thank 

you for taking the time to be here. I had a few areas that I would 

like to be able to try and cover. 

Mr. CORDRAY. Okay. 

Mr. TIPTON. The first area would be in regards to the prepaid 

card proposed rules that you have and my understanding under the 

Bureau’s proposal. I would like to ask how many separate disclosures would a card issuer have to make to a customer? 

Mr. CORDRAY. On prepaid cards? 

Mr. TIPTON. Yes. 

Mr. CORDRAY. We have tried to do a couple of things. First, recognize that with prepaid cards there is packaging and there is limited real-estate there. So— 

Mr. TIPTON. So how many is it going to be—three or four 

disclocures? 

Mr. CORDRAY. Whatever fits on the packaging and that is not a 

whole lot. And then the rest will be on the inside and people may 

never really see that because they typically will have bought the 

card before they ever get to the inside packaging. 

So, the key things, in terms of fees and charges and the like and 

certain protections are on that outside. We have several model 

forms that people have been able to give us feedback on. 

Mr. TIPTON. No, I am just trying to find out— 

Mr. CORDRAY. It is very little room. There is not a lot of disclosure there, at least on the outside packaging. 

Mr. TIPTON. And what about on the inside. That somebody is 

going to pay for that— 

Mr. CORDRAY. Yes. We are not really—we are not mandating a 

whole lot of that. Most of these disclosures are institutions doing 

it themselves for their own legal protection. It is not required by 

the agency. 

Mr. TIPTON. —it is not a ‘‘gotcha’’ thing. I am just trying to figure 

out how many you are requiring. 

53 

Mr. CORDRAY. Yes. It is all in our proposed rule, specifically what 

is being required and then everything else is being added by the 

companies themselves. 

Mr. TIPTON. I guess the information we had; it could be up to 

three disclosures, depending on the State and their State law. 

Would that be fairly accurate? 

Mr. CORDRAY. State law can matter. That is possible. What I am 

saying is on prepaid cards, the number of disclosures is going to 

be pretty limited on the outside of packaging which to me is what 

matters most, because that is what people are going to see before 

they actually decide which card to purchase. That is where we are 

really focused on that. 

Mr. TIPTON. I guess, kind of, my point on this and a little follow 

up to maybe some of the previous line of questioning here is— 

Mr. CORDRAY. Yes. 

Mr. TIPTON. You are talking about simplifying it, trying to make 

it understandable. 

By your own words, you just made comments that people were 

confused. They didn’t understand. But you are putting in more disclosures. We have long forms. We have short forms. 

Mr. CORDRAY. No. 

Mr. TIPTON. And, I guess, basically, is that really simplifying the 

process? 

Mr. CORDRAY. I want to be really clear. On the prepaid cards, the 

amount of disclosures that people will have before they decide 

which card to buy are going to be very limited. There is limited 

real estate there and we have been very careful about what is on 

there and what is not. 

It is a real boiled-down summary of the key terms of the product. 

I think it is in line with what you are saying in terms of making 

it accessible and understandable for people. 

Mr. TIPTON. Thanks for that. 

I am new to the committee, and on February 12th, I happened 

to write down what the national debt was, and from February 12th 

to today, we have seen that rise over $31 billion. 

And it is pretty much my sense that whether it is by fee or by 

appropriation, the ultimate payer is hardworking folks in my district who are frankly struggling right now to be able to keep a roof 

over their head and to be able to make some of those car loans that 

have been discussed. 

But we are looking over some of the expenditures that you have 

made through the CFPB and it is my understanding that you have 

spent over $60 million in business management, is that relatively 

close? 

Mr. CORDRAY. Yes. And one of the things I would say is we started off as an agency from nothing in 2011 and we have been an 

agency over the last 31⁄2 years. 

Mr. TIPTON. That is what— 

Mr. CORDRAY. We had— 

Mr. TIPTON. —you are building Washington. 

Mr. CORDRAY. Yes—we have had to contract for a lot of services 

as we have been building out our own personnel, so? 

Mr. TIPTON. Yes. Tell me, what is ‘‘business management?’’ That 

is kind of a nondescript sort of a term to spend $60 million on. 

54 

Mr. CORDRAY. It has to do with all of the apparatus of running 

an organization. It can range from things like human capital to finances to technology and infrastructure. There is a lot that— 

Mr. TIPTON. So this infrastructure is included in your business 

management? 

Mr. CORDRAY. Actually, I don’t know offhand exactly what document you are referring to or what the definition of that term would 

be, but I would be happy to work with your staff to make sure you 

get— 

Mr. TIPTON. I think that would be in those sorts of things. 

Those all come into play as well. 

Mr. CORDRAY. Okay. If you will show us, we will work with your 

staff and if we understand the document and what the—what we 

are saying, we will try to make it clear to you. 

Mr. TIPTON. And just for my own edification, even though you 

have been in business just a short period of time. 

Mr. CORDRAY. Yes. 

Mr. TIPTON. Do you have any former CFPB employees who are 

now working for some of these business management groups? 

Mr. CORDRAY. I really would not know the answer to that question. Not that I know of, but I don’t know. 

Mr. TIPTON. Okay. Would that be a conflict of interest? Is there 

any kind of a delay period on that? 

Mr. CORDRAY. There are the same statutes and rules and we 

have our own provisions in terms of people potentially being able 

to go out and engage in a conflict of interest with their former employment for a period of time. 

The same as you would have in the Congress I imagine, maybe 

it is somewhat different for a Congressman, I don’t know. But, yes, 

we are careful about that. 

Mr. TIPTON. Great. I appreciate the clarity on that. 

Mr. CORDRAY. Yes. 

Mr. TIPTON. I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

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

Mr. WILLIAMS. Thank you, Mr. Chairman. 

And thank you, Director Cordray, for your testimony today. I am 

a small business owner. I am one of those auto dealers. My father 

bought his first dealership when I was very young after moving to 

Texas to start a new life for his family. 

When I got older, I chose to follow in his footsteps and have been 

in the automobile business for 44 years. Now, my daughter is running the business. Last week, in a Bloomberg News story you insinuated that auto dealers determine financing rates by eyeballing 

a customer. And that the practice was regrettable. 

Let me tell you a quick story, and you have heard some stories 

like this. I had a single mother come into my dealership not long 

ago. She didn’t have a lot of money for her downpayment and her 

credit was poor. And she had been turned away by her bank but 

needed a car to get to work, needed a car to take the kids to school. 

Guess what, we didn’t judge her based on the color of her skin 

or her ethnicity, or her gender. Our job that day was to get her into 

a car that was reliable and that she could afford. 

55 

Now myself, like everybody else in my industry, have hundreds 

of stories like this and most come out really, really well. And in my 

business, I have found in the years I have been in business, you 

have one thing at the end of the day when you go home and lock 

the door, and that is your reputation. And I wouldn’t trade that for 

anything. 

Now Director Cordray, Congress has directed a statute that the 

Federal Reserve Board and the Federal Trade Commission regulate 

dealers who are engaging in direct vehicle financing. Congress has 

also empowered the Federal Trade Commission and the Department of Justice to bring enforcement actions against auto dealers. 

All 50 State attorneys general, as you would know, also enforce 

the Article of Statutes against auto dealers. 

Mr. CORDRAY. Yes. 

Mr. WILLIAMS. So the question I have is this: Do you recognize 

that in Section 1029 of the Dodd-Frank Act Congress preserved the 

exclusive authorities of these agencies to regulate auto dealers at 

the Federal level? 

Mr. CORDRAY. Yes. And we have been very careful to observe 

that line, very careful. 

Mr. WILLIAMS. I hope you mean that because sometimes we don’t 

feel it. 

Mr. CORDRAY. Okay. We have been very careful and—we didn’t 

even talk to auto dealers at all until they came to us and wanted 

to talk to us a bit about this whole marketplace. So I think we 

have been—we have not brought any enforcement actions against 

auto dealers other than Buy Here Pay Here, which is within our 

statute. 

We don’t supervise any of them and we recognize the jurisdiction 

there lies, as you say, with the FTC, the DOJ and of course, as you 

say, with the States. 

Mr. WILLIAMS. Okay. My second question is, do you further recognize that any effort by the Bureau that may impact auto dealers 

must be fully coordinated with the appropriate Federal regulatory 

agency in advance of that activity? 

Mr. CORDRAY. We work closely with the Justice Department in 

the area of enforcing the Equal Credit Opportunity Act and that 

applies to auto lenders, not other auto dealers, where we do have 

a responsibility. And I think there is quite a bit of coordination 

there, yes. 

Mr. WILLIAMS. Third question: When the March 2013 auto finance guidance was issued did CFPB consolidate it with the FTC, 

the Fed, or the Justice Department beforehand? 

Mr. CORDRAY. I know that we have pretty constant communication with the Justice Department. We, as you no doubt have seen, 

have taken joint enforcement action with the Justice Department 

in this area. 

I believe we have also had coordination and consultation with the 

FTC, what exactly would have happened when that came out, I 

don’t recall offhand now. But I know there has been discussion 

back and forth about these issues, recognizing that our jurisdiction 

is limited and others have jurisdiction that we don’t. 

Mr. WILLIAMS. Mr. Chairman, I remind my colleagues that over 

5 years ago the dealer exemption in Dodd-Frank was vigorously deVerDate Nov 24 2008 17:31 Sep 25, 2015 Jkt 095050 PO 00000 Frm 00059 Fmt 6633 Sfmt 6633 K:\DOCS\95050.TXT TERRI
56 

bated and passed by Congress and passed by this committee. I 

think it is irrelevant whether or not a Member is for or against the 

CFPB eliminating dealer discounts in the showroom. 

Congress has spoken clearly on this issue. I find it incredible myself that an agency which under Federal law has no supervisory, 

enforcement or regulatory authority over auto dealers is still attempting, I believe, to dictate the manner in which auto dealers are 

compensated and how much they should be compensated for facilitating an auto loan for their customers. 

Mr. CORDRAY. I just want to be really clear on this. As I understand that statute, and we have looked at it very carefully, we have 

a responsibility and we have jurisdiction over auto lenders. We do 

not have responsibility and we do not have jurisdiction over auto 

dealers. 

To the extent that they are combining with each other, we still 

are responsible for governing auto lenders and their compliance 

with the law and we will continue to do that, and I think we have 

to do that vigorously. 

So beyond that, we have tried to be very mindful of the jurisdictional issues here but the notion that we have a responsibility to 

auto lenders it may have some effect on auto dealers but that is 

the way the statute was written. That is how I have to enforce the 

law. 

If Congress changes the statute, then of course I will follow the 

statute, as Congress might change it. 

Mr. WILLIAMS. Thank you for being here today. 

Mr. Chairman, I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Maine, Mr. 

Poliquin. 

Mr. POLIQUIN. Thank you, Mr. Cordray, for being here. I appreciate it. 

Now my understanding, sir, is that you run a new agency here 

in Washington that is an independent agency within the Federal 

Reserve with roughly 1,450 employees in Washington. Is that correct, sir? 

Mr. CORDRAY. It is about 1,400, yes. 

Mr. POLIQUIN. Yes. And my understanding is that you really— 

because the regulations that you folks go through whether it be 

automobile loans, the car loans or someone wanting to add on a 

convenience store you really—you regulate all of the finances that 

reach into all of our families across America. 

Would you say that is about right? 

Mr. CORDRAY. With the exception that if it is a business loan, a 

convenience store, you said adding on the convenience store we 

have consumer— 

Mr. POLIQUIN. Okay. That is close enough, but you can see where 

I am going with this, Mr. Cordray, can’t you? 

Mr. CORDRAY. Yes. I would say that we affect—in America, yes— 

Mr. POLIQUIN. Okay. So you are essentially the consumer protection agency within Dodd-Frank that is responsible for making sure 

that taxpayers don’t get ripped off, right? 

Mr. CORDRAY. Consumers don’t get ripped off. 

57 

Mr. POLIQUIN. Okay. My understanding, Mr. Cordray, is that you 

have a 5-year term appointed by the President. Is that correct, sir? 

Mr. CORDRAY. And confirmed by the Senate— 

Mr. POLIQUIN. Okay, great. And during that— 

Mr. CORDRAY. It took me a while— 

Mr. POLIQUIN. And during your period of time I believe you don’t 

report to anybody. Do you have a board of directors to report to? 

Mr. CORDRAY. I do not have a board of directors— 

Mr. POLIQUIN. Okay, fine. And the Federal Reserve, through 

their earnings, funds your operations, but since there is no appropriation from Congress, there is no oversight from Congress on how 

you spend your money. Is that correct, sir? 

Mr. CORDRAY. Not correct. 

Mr. POLIQUIN. That is not correct. 

Mr. CORDRAY. Not correct. 

Mr. POLIQUIN. Tell me why? 

Mr. CORDRAY. We are like every other banking agency in the 

Federal Government where we are not appropriated, but we are 

subject to oversight— 

Mr. POLIQUIN. By whom? 

Mr. CORDRAY. We are doing it right now. 

Mr. POLIQUIN. Yes. 

Mr. POLIQUIN. The board of directors is also—for the 5-year term, 

you can’t be fired, correct? You can’t be replaced. 

Mr. CORDRAY. Hold on. Hold on. Do you want the oversight? 

Mr. POLIQUIN. Quickly, I am— 

Mr. CORDRAY. The GAO audits our finances annually. We have 

an independent audit by statute. We have an Inspector General 

who looks at us carefully. I testify in front of this committee twice 

a year— 

Mr. POLIQUIN. Twice a year— 

Mr. CORDRAY. I do a briefing with the House Appropriations— 

Mr. POLIQUIN. Okay. Okay. So you claim this play of oversight. 

Would you explain to me, sir, so I can explain to the hardworking 

families that I represent in western, central, northern, and 

downeast Maine—who happen to be the most frugal, hardworking 

people you can possibly imagine, and who can stretch a dollar further than you can ever imagine—why you have a plan to spend 

$216 million to renovate an office building that you don’t own? 

Now also, if I may— 

Mr. CORDRAY. Do you want me to answer the question or not answer it? 

Mr. POLIQUIN. No, not yet. 

Mr. CORDRAY. Okay. 

Mr. POLIQUIN. If I am not mistaken, I think there is supposed 

to be a two-story waterfall in the building with a splash pool and 

a daycare center downstairs and a playground on the roof, is that 

correct? Do I have this right or do I have this wrong? 

Mr. CORDRAY. Okay. So I think you got a number of things 

wrong. And by the way I was the State treasurer in Ohio and I represented frugal people, just as frugal as the people that you were 

talking about on the Maine north shore— 

Mr. POLIQUIN. Tell me how wrong. 

58 

Mr. CORDRAY. Yes, so. Number one, it is apples and oranges to talk about spending $215 million. The core construction costs as we 

have said all along are in the range of $95 million to $100 million— 

Mr. POLIQUIN. Are you folks in the office building right now? 

Mr. CORDRAY. I am trying to answer your question. Am I going 

to answer your question or not? 

Mr. POLIQUIN. I want to make sure that we get to the point why you think it is prudent to take taxpayer dollars and spend $216 

million to renovate a building that you don’t own. 

Mr. CORDRAY. Okay. Number one, we are not spending $216 million to renovate a building. It is less than half that, okay. So that 

is the apples and oranges difference. 

Second— 

Mr. POLIQUIN. So it is a $110 million— 

Mr. CORDRAY. Second, the government owns this building. And 

we got a break on our rent where we are going to pay Class C rent 

for the next 30 years to take into account the renovation cost. And 

overall, it is a market deal, okay. So it is sensible. 

Mr. POLIQUIN. $110 million is a market deal. Okay, fine. To me, 

it doesn’t work that way. 

Let’s try to end this on a positive note— 

Mr. CORDRAY. Okay. 

Mr. POLIQUIN. Okay. There are a bunch of small community 

banks in our district and a bunch of credit unions and they have 

very long, deep relationships with our families in the second district. And we have a lot of seasonal workers up there. 

Maybe someone is dragging for flounder, or someone is 

lobstering, or someone is working for the tourist industry, but our 

banks and our credit unions know these people, and they want to 

be able to lend to these families. Maybe someone needs to put a 

new diesel on his lobster boat. And they have known this family 

for many years. 

Why don’t we exempt any small community bank and credit 

union from what I call these character loans, such that we make 

sure your agency, your Bureau does not choke off credit to our families who really, really need it? 

I am very concerned about making sure our small businesses and 

our families can get the loans they need to live better lives and 

grow their businesses and take care of their families. 

Don’t you think it is a good idea to go down that path, sir? 

Mr. CORDRAY. That is exactly what we are doing. 

Mr. POLIQUIN. Terrific. Well— 

Mr. CORDRAY. That is exactly what we are doing. Okay. So it is 

not a criticism what we are doing that is what we are doing and 

you tell me and I will be interested to know which banks in Maine 

have more—less than $2 billion in assets and make more than 

2,000 mortgage loans a year, not counting anything they keep in 

portfolio. Those are all—those are given special treatment under 

our rule. 

Mr. POLIQUIN. I have an idea for you, instead of having thresholds where the number of loans that deal with the—or relate to the 

QM, why don’t we just say if these community banks are traditional banks and they are taking deposits and they are lending out 

59 

money, there is no risk to the secondary market, they are taking 

full responsibility and the rest of those loans, why aren’t they all 

exempt? 

Mr. CORDRAY. That is right. You tell me which bank in Maine 

is not exempt under our proposed rule. I would be interested to 

know. I believe there are very few, if any— 

Mr. POLIQUIN. There shouldn’t be any— 

Chairman HENSARLING. The time of the gentleman has expired. 

Mr. POLIQUIN. Thank you. 

Chairman HENSARLING. The Chair now recognizes the gentleman 

from Colorado, Mr. Perlmutter. 

Mr. PERLMUTTER. Mr. Cordray, thank you for being here and 

thank you for your service to the United States of America and the 

position that you have taken on. 

And certainly, CFPB as a regulator has its protagonists and its 

antagonists. I just thank you guys—and I am looking at the TILA– 

RESPA disclosure statements and it is a lot simpler than other 

forms that I have seen in a long time. I would ask you to just make 

sure that everybody can deal with these things. They just—we 

have been working with them for a long time and the industry is 

getting ready. But please take into consideration the mortgage 

bankers, the title companies and all that will have to use these 

things and just make sure that everybody is ready. 

Mr. CORDRAY. Okay. 

Mr. PERLMUTTER. And that will be a day when everybody has to 

accept them and move forward, but let’s just make sure we have 

as many people included as possible. 

And I really do congratulate you on your stamina today, and the 

work that the agency is doing. There are some places where I disagree with you. Mr. Williams was discussing one of those. 

As you know, I was here when we passed Dodd-Frank. And I actually carried the exemption for auto dealers. And so, or I was a 

co-sponsor but I remember it and I was involved in the discussion 

of it. 

And what I am concerned about, sir, is just doing an end-around. 

Okay. That while we do have jurisdiction over lenders and therefore we are going to scrutinize and make sure that there is no disparate impact by some lending that the lenders do to the auto dealers because the auto dealers negotiate on price and they negotiate 

on rates. That is how they do it. 

And so, what I am concerned about is CFPB stepping into something that I consider to be the purview of the Department of Justice, whether or not there is some discrimination in setting rates— 

that really is something that they look at on a continuing basis 

across a whole variety of fields. And I would just ask you all to stay 

in your lane— 

Mr. CORDRAY. But so do we. 

Mr. PERLMUTTER. Okay. 

Mr. CORDRAY. In the Equal Credit Opportunity Act, both the Justice Department and the CFPB have enforcement authority there 

over lenders. As I see it, we have a responsibility. Congress told us 

we have that responsibility. We do not have authority over dealers 

and we have been careful not to exercise that. 

60 

Mr. PERLMUTTER. And that is why I am saying to you I appreciate that but I also see this is kind of an end-around, that— 

Mr. CORDRAY. Yes. I don’t think so. We have been very, very 

careful— 

Mr. PERLMUTTER. I am telling my perspective. 

Mr. CORDRAY. Yes. I got it. Yes. 

Mr. PERLMUTTER. And so, you understand why I have carried or 

co-sponsored some legislation to make it clear that this is a place, 

in my opinion, for the Department of Justice, given what we did 

in Dodd-Frank. 

And I guess my question to you is, does CFPB, is it something 

you desire that in effect there would be a flat rate and that really 

auto dealers only negotiate as to price? Everybody gets the same 

rate? 

There are some in the industry who think that might be a simpler and easier way to go, but many in the industry like to be able 

to negotiate on both levels, believing that it helps the consumer. 

Maybe it does and maybe it doesn’t. 

We have all been in negotiations at auto dealerships. It is not a 

lot of fun, but you can work through it. 

Mr. CORDRAY. Yes. 

Mr. PERLMUTTER. Are you all focused on just trying to get a flat 

rate? 

Mr. CORDRAY. That would be one of the ways in which this issue 

could be resolved but we have come to understand that is by far 

not the only way. 

We have been open to other suggestions, and people can have a 

compliance management system that feels to me pretty onerous 

and burdensome. I do think that when the customer comes in to 

a dealership and the dealer gets a buy rate for the customer and 

then marks it up without the customer having any idea what is 

going on, or why that is happening, that is problematic. 

And the Justice Department and we both believe that this has 

caused a certain amount of discrimination in the market. It is 

something that should be addressed. But a flat fee is not the only 

approach. I think there are a number of possible approaches and 

we have talked to lenders extensively about this. And to the extent 

that dealers have wanted to talk to us about it, we have listened 

to them as well. But, then no, that is not the only means by which 

this can be addressed. 

Mr. PERLMUTTER. Okay. I would like to work with you all. I 

know you are familiar with the Charles River study which— 

Mr. CORDRAY. Yes. 

Mr. PERLMUTTER. —calls into question the methodology of the 

CFPB. And I just think we should be able to work this out but if 

we can’t, then I am going to continue to pursue the legislation that 

I have co-sponsored and— 

Mr. CORDRAY. I understand that. 

Mr. PERLMUTTER. All right, thank you very much for your time 

and thank you for your service. 

Mr. CORDRAY. Thank you. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Arkansas, Mr. Hill. 

61 

Mr. HILL. Thank you, Mr. Chairman. Director Cordray, thank 

you for being with us today. Thanks for your stamina. Prior to joining Congress in January, I spent the last 2 decades in the financial 

services industry both in the brokerage business and in the commercial banking business. 

And during that period of time, I never once saw the FDIC or 

the Fed or the OCC or the State securities department or the State 

insurance department ever shirk their consumer obligation under 

both Federal and State statutes. 

And so I really do come to Congress and it wouldn’t be a surprise 

to you feeling that the mission of your agency under Dodd-Frank 

is duplicative of that effort, because I learned when I got here that 

no budget authority or positions were eliminated from the existing 

banking or securities or consumer agencies when CFPB was 

formed. 

Was that true or not? 

Mr. CORDRAY. The Office of Thrift Supervision was completely 

extinguished. 

Mr. HILL. It was, yes, but it had been on its way to extinction 

for a long time. 

Mr. CORDRAY. Well, yes. 

Mr. HILL. We will take time. We can have a drink and talk about 

that one. 

Mr. CORDRAY. All right. 

Mr. HILL. I am concerned though about that duplication and expense, so it calls me just to look at your budgeting compared to the 

other agencies. And my friend Jim Himes from Connecticut referenced that no agencies are subject to appropriation and credential supervision area, but obviously the SEC and the CFTC are. 

But looking at your budget, Mr. Poliquin noted about 1,400 em- ployees and there is about an $618 million budget for Fiscal Year 

2015, is that true? 

Mr. CORDRAY. That is the cap, but we are not spending at that 

level. 

Mr. HILL. What are you spending, approximately? 

Mr. CORDRAY. We are more in the 500 range based on last year, 

it is 498, I believe. 

Mr. HILL. In looking at, even at that level, it would be on a peremployee basis, so the highest agency I looked at on a total spending to per capita basis. 

Mr. CORDRAY. Yes, although I don’t— 

Mr. HILL. Respond to that for me. 

Mr. CORDRAY. Yes, I don’t think that is a good way to look at it. 

As I said, 3 years ago when we started from scratch we had no employees and we had to basically contract for many services, all of 

our IT, all of our HR, all of our budgeting and all of our structure. 

Over time we have started to move toward our own employees 

doing things and less dependence on Treasury and outside contractors, but it is still the case that the total work of the agency goes 

beyond the number of full-time employees that we have. So I don’t 

think that is yet a right average. In a few years, it will be a fair 

average. 

Mr. HILL. I do think looking at a productivity basis is a good 

way, and I would ask you to take that into account and maybe even 

62 

establish a goal of being the lowest in government and have something to brag about. 

But it causes me to think about, if you spend $600 million on 

selling, general and administrative expenses (SG&A), I thought 

about, what would that buy in Arkansas? 

And I found a publicly traded company with operations in Arkansas—Hormel makes Skippy peanut butter in Little Rock and they 

only have 20,000 employees and spend $600 million SG&A expense 

or about $30,000 per employee. 

And they generate, obviously, almost $10 billion in revenue. I 

think this gets compensation in our Federal agencies. That is how 

it compares to the private sector in that productivity angle. 

And I don’t want there to be an incentive for people to leave the 

private sector and go to the regulated sector. Would you reflect, 

take a minute and talk about pay practices at your agency and how 

those compare? 

Mr. CORDRAY. Yes. And I will say that I don’t have a lot of background in the Federal Government. I came here from State and 

local government in the private sector in Ohio. 

And salaries are higher in the Federal Government, they are 

higher in the banking agencies, and my understanding is the reason for that is to compete against the financial industry for good 

people. 

But in our case, we are constrained by law, the Congress set this 

and it is the framework we have to operate in. We are required to 

have salaries that are comparable to those of the Federal Reserve. 

I am obliged by law to do that whether I think that is right or 

not right. That is what we are trying to do to carry out the law 

that is in our statute. 

Mr. HILL. If Congress wanted to make your agency subject to the 

annual appropriations process, would you support that? 

Mr. CORDRAY. I would not. 

Mr. HILL. Why not? 

Mr. CORDRAY. None of the banking agencies, as I understand it, 

are appropriated. And the cautionary tale here is the Office of Federal Housing Enterprise Oversight which up until 2008, was supposed to be overseeing Fannie Mae and Freddie Mac. Fannie Mae 

and Freddie Mac, as I understand it, this history that has been described to me, had so much political power that they were able to 

constrain their regulator and the regulator didn’t rein them in. 

And in 2008, the new statute was passed to create the FHFA and 

one of the major changes that was made was to make FHFA not 

appropriated in order to give it the independence so that it could 

ride herd on the GSEs. 

And that was the Congress’ judgment and if that is the judgment, then the same logic should apply here. 

Mr. HILL. But do you think the SEC is not independent because 

it is subject to appropriations? 

Mr. CORDRAY. Look, I don’t know all the ins and outs of why 

agencies are as they are, that thing has been around since the 

1930s and I assume that judgment was made at that time and I 

don’t really know what to say about it. 

Mr. HILL. I yield back. 

63 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from North Carolina, Mr. 

Pittenger. 

Mr. PITTENGER. Thank you, Mr. Chairman. Director Cordray, I 

represent the Charlotte, North Carolina, region, a major financial 

center in the country and home of the Bank of America, and a 

major presence for Wells Fargo and many other financial institutions, large and small. 

Mr. CORDRAY. Yes. 

Mr. PITTENGER. As I recognize how the major banks have sought 

to absorb the new burdensome regulatory environment, I have also 

been added in the market speaking to lenders that are mid-sized 

and small community banks. 

A couple of weeks ago, I was visiting a one small bank, a $265 

million bank. They have 60 employees. They have six locations. 

Mr. CORDRAY. Sixty or sixteen? 

Mr. PITTENGER. Sixty, 6–0. 

Mr. CORDRAY. Yes. 

Mr. PITTENGER. They are a good bank, with a good balance sheet, 

less than 1 loan losses; this is not a problem bank. Only a few 

weeks before they had 14 regulators come in their bank and spend 

2 weeks plowing through everything, which was enormously disruptive, and in the process of going through everything in the 

bank, they would change opinions of things that they were told the 

previous time. 

So it was an enormous amount of human capital required to facilitate all the demands of these auditors and regulators. And it 

really imposed on their ability to function as a business. 

Have you ever been in the banking business, Director Cordray? 

Mr. CORDRAY. I haven’t been a banker, but I have been a county 

and State treasurer and I worked closely with large and small 

banks in central Ohio. 

Mr. PITTENGER. I can tell you being in the consumer business 

and I have been on a bank board and have served for—the time 

we formed the bank until the time we sold it. 

It is consumer-driven and it is a people business and you have 

to be ready and accessible to your clients. These banks are hiring 

people to deal with all the demands and the requirement of these 

regulators and they are hiring loan officers. 

And I would hope that you would go out in the field, come down 

to my district, I invite you to be there. I would like to take you to 

some of these banks that I hear time and again tell me of the compliance issues, the requirements, the time, the effort that it takes 

to deal with it. 

What in the world are 14 regulators doing in a bank, a $265 million bank for 2 weeks? This is not a problem child. 

Mr. CORDRAY. I don’t know the answer to that, but none of them 

are from the CFPB. So, it has nothing to do with my agency. We 

don’t examine any banks with less than $10 billion in assets. 

Mr. PITTENGER. Forgive me for saying that. 

Mr. CORDRAY. So that wouldn’t be us. 

Mr. PITTENGER. But it is the process of oversight. It is nonsense 

for these banks to have the required amount, the decent amount 

64 

of oversight, yet the burden of it today is such that it is really impeding these banks to function. 

Mr. CORDRAY. I am sympathetic to that point of view. 

Mr. PITTENGER. As well, I would like to just bring again this 

while notion of the SIFI requirements and I want to go back to that 

again. It just deals with the lack of the government’s awareness in 

terms of what is needed and required for MetLife to be assigned 

that rule in the SIFI requirement. 

Where are you in terms of having the right personnel with the 

experience from the real world who can give you advice on who 

should be identified as a SIFI? 

Mr. CORDRAY. That is the FSOC, the council, I am one member 

of the council. 

Mr. PITTENGER. And you represent that. We are here because we 

need to speak with you. 

Mr. CORDRAY. Okay. I’m sorry, what was the question? 

Mr. PITTENGER. I think it is just a matter of having the people 

inside an organization, on the boards giving council who really understand the business. 

And that is my concern about the regulators coming in to the 

small banks or identifying who should be a SIFI and who shouldn’t 

when they have absolutely no experience. 

You have one insurance person on that board and they voted 

against it and everyone else did and he understood the business. 

Mr. CORDRAY. Look, that may be—the council worked on that, on 

that process of the designation which was an extensive process 

over, I believe, a year or more period. 

There is extensive analysis done to try to determine whether the 

statutory requirements are met. You may disagree that was the 

right answer. I understand they are now suing and that will be 

carried forward in the court and they will make a judgment on it. 

Mr. PITTENGER. My point, sir, is just that there is a disconnect 

between the reality of what is happening in the real world and the 

burden of the regulatory environment. 

Chairman HENSARLING. The time— 

Mr. CORDRAY. We try to minimize that as much as possible, but 

when you see it, please point it out to us. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Kentucky, Mr. Barr. 

Mr. BARR. Thank you, Mr. Chairman. Director Cordray, welcome 

back to the committee. And the first question I would like to ask 

you relates to the Qualified Mortgage rule. I appreciated that in 

your testimony, you indicated that the responsible lending by community banks and credit unions did not cause the financial crisis. 

I also appreciate your views here that the traditional model of relationship lending has been beneficial for many people in rural 

areas and small towns across the country. 

I agree with your testimony there and I appreciate the Bureau’s 

recognition of this in the exemptions as to small creditors and more 

recent efforts to provide flexibility in that area, particularly for 

rural lenders. 

As you may recall, we have talked about this before. We have the 

kind of ridiculous situation in my district with Bath County, which 

65 

is literally one of the most rural places in America, designated by 

your agency as non-rural. 

I appreciate that you have acknowledged that and taken remedial action. We still think the petition process would be helpful. 

But given your recognition of the importance of relationship lending, let me ask you this question, would you support or oppose legislation, additional legislation that I have introduced called the 

Portfolio Lending and Mortgage Access Act, which would extend 

the QM safe harbor to portfolio loans, that is those mortgages that 

lenders originate and then hold on their books instead of selling off 

into the secondary market. 

And if you would oppose that approach or modification to the QM 

rule, why? 

Mr. CORDRAY. What we have done here is we have created a provision to cover small creditors, small lenders, and it is 95, maybe 

98 percent of community banks and credits unions. 

If you simply extend that logic to anyone, you are losing the concept of small and you are potentially taking into account folks like 

Washington Mutual and Countrywide who in the height of the 

lead-up to the financial crisis were making hundreds of thousands 

of loans, keeping them in portfolio and then they blew up the whole 

system. 

Mr. BARR. Okay. Let me— 

Mr. CORDRAY. That keeping it small keeps it safer. 

Mr. BARR. Let me follow up that point with the following: As you 

may know, FHFA has reasonably relaxed the standard for mortgages eligible for purchases by GSEs. Director Watt and I had a 

discussion about this in this very committee room a few weeks ago. 

And Director Watt admitted to me that because of the GSE exemption to the Qualified Mortgage rule, these relaxed standards 

would likely result in Fannie Mae and Freddie Mac backing mortgages that exceeded the QM 43 percent debt-to-income limitation. 

If these non-QM mortgages are too risky for banks like the ones 

that you cited, shouldn’t they also be too risky for taxpayers? 

Mr. CORDRAY. No, I don’t think that is the way the rule works. 

The way the rule works is anything that can be sold to Fannie or 

Freddie counts as a Qualified Mortgage even if it is above the 43 

debt-to-income ratio. 

Mr. BARR. Exactly, and that is what we are talking about— 

Mr. CORDRAY. No, we deliberately wrote that—to provide that 

QM applies to those mortgages. 

Mr. BARR. Let me just ask the question this way. Wouldn’t it be 

safer for the financial system to put the risk on shareholders than 

on taxpayers? 

In other words, wouldn’t the shareholders and the bank board 

have a vested interested in properly underwriting these loans instead of having these huge, massive exemptions for GSEs that 

incents the origination of risky loans, loans that your agency deems 

to be risky, and then putting that on taxpayers? 

Mr. CORDRAY. That might be and I will say that the Washington 

Mutual and Countrywide fiascos which flagrantly blew up our system are a cautionary tale that even shareholder or investor protection is—it has to be looked at carefully. 

66 

Mr. BARR. Let me just submit that an institution is far more likely to underwrite that loan properly if they portfolio that loan. But 

I would, I think, the whole point here illustrates the need. 

And I talked to Director Watt about this, the need for you to coordinate with FHA and the GSEs and FHFA because there is an 

inconsistency in these mortgage rules and it does not make sense 

that we are putting the risk on taxpayers, but we are unwilling to 

acknowledge the relationship lending model that you say should 

work. 

Mr. CORDRAY. I actually agree with you very much on that. I 

think there is a lot of room for coordination between ourselves and 

FHFA. We are meeting much more regularly with them. 

Mr. BARR. Thank you. 

Mr. CORDRAY. And even with HUD and— 

Mr. BARR. And if I may, my time is running out, just really 

quickly. Let me just share a quick story about payday lending. This 

is from your field hearing in Alabama, Mr. Thomas is the gentleman’s name. 

‘‘I did have to use a payday loan once before. It was because of 

a family emergency. The fees that I accrued from the payday loan 

were actually cheaper than getting a cash advance from my credit 

card. So it actually benefited me and I was really glad it was there, 

an option available to me. And I would like to know in the future 

it would be there for me in the event that I need it.’’ 

Also, I hope you are taking into account some of these personal 

stories that credit availability in the short-term lending market is 

something that you would not overreact to. 

Mr. CORDRAY. We get those every week on our tell-your-story 

function from all over the country. That is why we want to preserve access to credit here, but not with consumers caught in a 

debt trap, which happens to many of them. It doesn’t sound like 

that happened in this particular instance, but it often occurs to 

others. 

Mr. BARR. Thank you, Director. I yield back. 

Mr. CORDRAY. Thanks. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Arizona, Mr. 

Schweikert. 

Mr. SCHWEIKERT. Thank you, Mr. Chairman, and thank you, Director Cordray, for your stamina. We are all appreciative of it. 

A lot of the best questions have been asked, so we will go to the 

next tier down. And also, being a former treasurer, I have some 

empathy for some of your background. 

Mr. CORDRAY. Yes. 

Mr. SCHWEIKERT. Can I bank through a number of, just sort of, 

bullet points and give me what you have? 

Mr. CORDRAY. Sure. 

Mr. SCHWEIKERT. Owner carry-back, there was a discussion. 

Some of the rules sets up I am selling my home, I own it free and 

clear, I choose to take that property, right, which is my equity, and 

carry the payments back. 

There was discussion about restricting, if I had more than a couple of properties, I was selling that way. For those of us out West, 

67 

this has been a very common practice. Do you know where that is 

at? 

Mr. CORDRAY. What do you mean carrying the payments back? 

Mr. SCHWEIKERT. You act as the owner of the property, you accept the payments. You act as the, we will call it, the lender. 

Mr. CORDRAY. I see. So I actually— 

Mr. SCHWEIKERT. Owner carry— 

Mr. CORDRAY. I actually sell that property but act as a lender for 

some period of time before— 

Mr. SCHWEIKERT. Yes. Because if I remember, there was a restriction saying I could not do a 5-year due payment. After I was 

going to be restricted to the number of transactions, I was going 

to end up— 

Mr. CORDRAY. All right. 

Mr. SCHWEIKERT. If I did more than three, I was going to have 

to do— 

Mr. CORDRAY. Yes. 

Mr. SCHWEIKERT. Meet the know-my-customer rules. 

Mr. CORDRAY. Yes, I see. 

Mr. SCHWEIKERT. And for many of us, that is how we got our 

first home. 

Mr. CORDRAY. My understanding of this—and I am happy to 

have our staff talk to your staff and clarify it further—is there is 

a line that has to be drawn at some point as to whether somebody 

is sort of selling their own home or whether they are becoming an 

actual lender. 

And if you are selling once or twice in a year, that is fine— 

Mr. SCHWEIKERT. What do you mean— 

Mr. CORDRAY. But at some point, you become a lender if you are 

rolling houses— 

Mr. SCHWEIKERT. I can see the intellectual line on the number 

of transactions. 

Mr. CORDRAY. Yes, yes. Whether the lines are in the right 

place— 

Mr. SCHWEIKERT. But on the due on sale are—as the popular 

vernacular is a balloon after a certain bid of time to restrict that. 

Mr. CORDRAY. I will tell you what. We will be glad to talk further 

with you and to understand some of the details of these concerns 

or meet with people that you want to talk to us about it and understand whether—just as we talked before about, this is a mess too. 

Mr. SCHWEIKERT. Yes. 

Mr. CORDRAY. Think triple-deckers, whether we— 

Mr. SCHWEIKERT. Yes, my fear for those is in deeds-of-trust 

States. 

Mr. CORDRAY. Okay. 

Mr. SCHWEIKERT. This is actually somewhat more common. 

Mr. CORDRAY. All right. 

Mr. SCHWEIKERT. So, also, there was a previous discussion about 

how your rate-checker platform could encourage you to approach 

this a different way. 

Mr. CORDRAY. Okay. 

Mr. SCHWEIKERT. Out there in the market, there are now a dozen 

different platforms, whether they would be— 

Mr. CORDRAY. At least three in the last month. 

68 

Mr. SCHWEIKERT. Yes. 

Mr. CORDRAY. Yes. 

Mr. SCHWEIKERT. But having been a broker in my previous life, 

there are many now offering platforms saying, click this, give us 

your zip code and we will give you your mortgage brokers, your 

bankers, your institutions. Maybe it would be better off just putting 

a list of all the different services that do that type of aggregation 

so you know you are hitting a robust sampling of the market. 

Mr. CORDRAY. I want to think carefully about that. A lot of them 

have rates, but they may or may not be accurate or current. 

Some of them are acting as lead generators just to acquire customers. 

Mr. SCHWEIKERT. Yes, yes, I accept that, but you also have to be 

very careful on the samples being taken. 

Mr. CORDRAY. Yes. 

Mr. SCHWEIKERT. Are you actually getting a true sample of underlying loan clause, all the mechanics there. I just—it is a path 

that is going to require probably a lot more staff and mechanics 

than maybe the agency appreciates— 

Mr. CORDRAY. Yes, when— 

Mr. SCHWEIKERT. —when it is actually being done out in the 

marketplace already. 

Mr. CORDRAY. Yes, we will keep an eye on that as we go. Yes. 

Mr. SCHWEIKERT. I am just going to bounce to title insurance. 

You were also accounting treasurer. I beg you to be respectful for 

those of us from States where we had worked on title insurance 

rules that is a State-regulated entity. 

Mr. CORDRAY. Yes. 

Mr. SCHWEIKERT. Be respectful for how we address it in States. 

As accounting treasurer, we did a big, big project to go after 

partials that were delinquent, only to find out many of them were 

bad deed recordings, mistakes, splits that hadn’t been caught. And 

we went from an environment—Maricopa County is, what, the 

third or fourth biggest county in the United States where we had 

very few title insurance claims to hundreds and hundreds and hundreds that we created by doing this cleanup. So we want to be respectful. There is a reason that is out there, both protecting the 

lenders, the property owners, but also the way a State regulates 

and approaches that. And I would hate to think there is a Federal 

solution that tries to crush those of us at the State level and how 

we do that. 

My friend over here also touched on payday loans and access to 

capital. A quick example that you might appreciate having been accounting treasurer, we were having a little bit of a problem a decade ago on the fees on check cashing. People were walking in and 

for cash or a check for 5 days, they were almost giving up a day 

of labor. 

Mr. CORDRAY. Yes, yes. 

Mr. SCHWEIKERT. And we had two options, one was to go and 

regulate that. The other was to go out and encourage everyone to 

get in the check cashing business, and we took that approach, 

where even our local convenience markets were doing check cashing, and the price fell through the floor. It is almost free. 

69 

May I beg of you when you look at things like payday lending 

and these, maybe the solution is more players in the market driving down the cost instead of a regulatory command and control system. 

With that, Mr. Chairman, I yield back. 

Mr. CORDRAY. That is a very good point. And actually banks and 

credit unions may be the low-cost providers here, and I would like 

to think that they could present a suitable product. They don’t 

seem to be doing so right now. 

But you made several good points. I am trying to get all my 

notes down here. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Pennsylvania, Mr. 

Rothfus. 

Mr. ROTHFUS. Thank you, Mr. Chairman. And thank you, Director Cordray, for spending your afternoon with us today. 

The gentleman from Colorado, Mr. Perlmutter, mentioned that 

Charles River Associates studied, this is a research paper from November, that examined the Bureau’s disparate impact methodology 

for any direct auto lending. As you may recall, the study concluded 

that there were significant flaws in the Bureau’s methodology that 

led to an overestimating of minority populations by as much as 41 

percent. 

To date, the Bureau has yet to publicly acknowledge the study. 

Can you comment on whether you would agree with the conclusions of the report that the Bureau’s methodology is error-prone? 

Mr. CORDRAY. Yes, we don’t agree with the conclusions with the 

report and we have looked at it fairly carefully. 

Mr. ROTHFUS. Has the Bureau—have the results of the study 

caused the Bureau to undertake any changes or consider undertaking any changes with respect to its fair lending investigations 

or evaluations? 

Mr. CORDRAY. We actually sat down and had a discussion with 

the folks from Charles River and the sponsors of the study to both 

discuss the study and be presented with the results. We have 

looked at the results pretty carefully. We don’t find some obligation 

to respond to studies out there all the time in all aspects of our 

work. 

But as we always will do with any kind of analysis of data, we 

have looked carefully at it to think about what it might mean for 

our program. And that is where we are at this point. 

Mr. ROTHFUS. So you are not—are you going to make changes or 

not going to make changes? Are you considering making changes? 

Mr. CORDRAY. I think we are still looking at and thinking about 

that study, but I don’t know whether we are going to make any 

changes, not at this point. 

Mr. ROTHFUS. Would you find some merits in the conclusions of 

the study or no merits in the conclusions of the study? 

Mr. CORDRAY. I don’t want to try to turn it into some subjective 

judgment. The people who work on this stuff are more expert than 

I. I think we disagree with the results of the study is what I would 

just say. 

Mr. ROTHFUS. I would like to quickly revisit a topic that you 

have addressed in prior hearings, the Bureau civil penalty fund. As 

70 

you know, unlike most Federal regulatory agencies, the Bureau 

does not remit the fines it imposes in its enforcement actions back 

to the American taxpayers, to the Treasury. 

Instead, the Bureau collects that money in its civil penalty fund 

so it can be paid to victims if they can be located. If these individuals cannot be located, however, the Bureau can use the funds for 

financial literacy or consumer education programs of its choosing. 

In the past, the Bureau’s administration of the fund has been 

widely criticized for the small amount that actually has gone to victims and the significant amount that has been spent on administrative expenses. 

According to the committee’s most recent calculations in December of last year, the unobligated balance of the Bureau’s fund now 

stands at approximately $136 million. This is up from $116 million 

in June 2014 and $126 million in October 2014. And of the roughly 

$182 million that the Bureau has imposed in fines thus far, it has 

only allocated $31 million to compensating victims or around 17 

percent. 

Why does this unobligated balance remain so high while the 

amounts paid to victims have remained so low? 

Mr. CORDRAY. I don’t think that is an accurate picture of where 

the fund stands and where it is going. I actually think it is a success story that you will appreciate. First of all, we are merely following our statute. Our statute says that we would have a civil 

penalty fund. A couple of other agencies under Dodd-Frank also 

have civil penalty funds. The statute specifies what the money is 

used for— 

Mr. ROTHFUS. What is the current balance of the fund? 

Mr. CORDRAY. At this point, what I would say is, we have collected close to $200 million in civil money penalties over the life 

of the agency. 

Mr. ROTHFUS. Do you know what the current balance— 

Mr. CORDRAY. Yes, at this point, yes, what I will say is, about $180 million of it now is allocated toward compensating uncompensated victims. So the vast majority, above 90 percent, is going for 

that purpose. 

Mr. ROTHFUS. So there is $20 million in the fund right now? 

Mr. CORDRAY. I beg your pardon? 

Mr. ROTHFUS. How much is in the fund right now? 

Mr. CORDRAY. I can get you those numbers. But it is allocated 

and then it is a matter of getting it to victims. And sometimes it 

is easy and sometimes it is— 

Mr. ROTHFUS. So it is sitting there right now. You say—you don’t 

know what—you will get back to us about how much is in there. 

Mr. CORDRAY. Yes. We have the numbers, but what I will say is 

that it is allocated. 

Mr. ROTHFUS. Have you identified specific victims to whom it 

will go? 

Mr. CORDRAY. We have identified specific cases for which it will 

go to victims and then sometimes— 

Mr. ROTHFUS. Have you identified the specific individuals? 

Mr. CORDRAY. Yes. Sometimes, that takes some effort. I will give 

you an example, okay? We have a case of essentially rampant fraud 

against a particular defendant and there was no money available 

71 

to pay those victims. So that money to these victims will be paid 

out of the fund. But the paperwork at this fraudulent entity is 

pretty sloppy, as you might imagine. 

So figuring it out is hard— 

Mr. ROTHFUS. To reclaim my time— 

Mr. CORDRAY. It takes some time and effort. 

Mr. ROTHFUS. You say it is allocated. Roughly how much is being 

spent on administrative expenses? 

Mr. CORDRAY. Very little, and in fact in terms of consumer education, there is only one project that has been approved. So it is 

less than 10 percent of the funds. And it is going to transitioning 

veterans, financial education for transitioning veterans back into 

society and other vulnerable populations. So I think it is a good 

program. 

Mr. ROTHFUS. We would like to follow up with you on the balance— 

Mr. CORDRAY. Absolutely. 

Mr. ROTHFUS. And what percentage. 

Mr. CORDRAY. Absolutely. 

Mr. ROTHFUS. Okay, thank you. 

Mr. CORDRAY. Yes. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentlelady from Missouri, Mrs. 

Wagner. 

Mrs. WAGNER. Thank you, Mr. Chairman. And thank you, Director Cordray, for being with us today. 

Mr. CORDRAY. Sure. 

Mrs. WAGNER. Director Cordray, this committee has expressed 

its views on multiple occasions and in multiple ways about the 

wasteful renovations of your building. And there is one outstanding 

question that we have asked of you directly and certainly have 

asked in several different letters: a letter on July 18th of last year; 

a second letter on December 3rd of last year; and a third letter on 

January 12th of this year. 

More than 7 months have passed and we still haven’t received 

the answers, sir. So I ask you here again today: Which individual 

made the decision to renovate the building? 

Mr. CORDRAY. It is not an easy question to answer. This decision 

occurred before I became the Director of the Bureau and it is a decision that I have since reaffirmed and I think is an appropriate 

decision, and I think economically and financially, it is an appropriate decision. 

So, you can continue to ask that question, but I don’t really see 

what is accomplished— 

Mrs. WAGNER. To reclaim my time, let me be clear here then. 

What you are saying is that the decision was made prior to your 

leadership by previous leadership. Would that have been the gentleman who was just briefly acting Director, Raj Date, or was it 

made by the woman who was in charge of setting up the CFPB, 

Elizabeth Warren? 

Mr. CORDRAY. What I would say is this, there were different people in the position of setting up the Bureau at different times. 

Mrs. WAGNER. Is there a record somewhere? 

Mr. CORDRAY. But the— 

72 

Mrs. WAGNER. There is no record? 

Mr. CORDRAY. No. What I am saying is for the first year, the Bureau did not exist; it was part of Treasury. So exactly whether 

there are people in Treasury who contributed to that decision because they actually were in charge, not Elizabeth Warren and not 

Raj Date— 

Mrs. WAGNER. Director Cordray, I am just asking you a simple 

question. If you are not going to answer the question, then just say 

you are not going to answer the question. Are you going to tell us 

who is responsible and who directed— 

Mr. CORDRAY. I am just saying it is not an easy question to answer. 

Mrs. WAGNER. And why is that? 

Mr. CORDRAY. Because the Bureau didn’t even exist. It was 

Treasury who was in charge of all Bureau operations— 

Mrs. WAGNER. Someone made a decision to spend upwards, as 

the Fed IG said in an estimate, of $215.8 million. And you are telling me there is no record, no one responsible— 

Mr. CORDRAY. I didn’t say that. 

Mrs. WAGNER. Then who is it? What individual? 

Mr. CORDRAY. No. There are lots of records on this including my 

reaffirmation of the decision— 

Mrs. WAGNER. Who signed off? Who gave the authorization for 

such an incredible— 

Mr. CORDRAY. And why does it matter to you? 

Mrs. WAGNER. Because it is $215 million of taxpayers’ money. 

Mr. CORDRAY. No, it is not $215 million. 

Mrs. WAGNER. That is why it matters to me. 

Mr. CORDRAY. That is not correct. It is not $215 million. It is between $95— 

Mrs. WAGNER. Reclaiming my time, I will move on. Clearly, the 

Director does not choose to answer this question. I find that amazing since it has been asked multiple times at this committee. 

For the past 3 years, Director Cordray, the CFPB has made a 

name for itself by frankly expanding its own authority while limiting consumer choice and raising costs for American families. At 

the same time, the agency has remained insulated from accountability, clearly, for its actions, leaving it free to continue on its 

power grab without any ability for Congress to conduct oversight, 

from mortgages to credit cards, to short-term lending, we have 

heard it all today. 

The CFPB has time and time again displayed a Washingtonknows-best mentality, allowing the government to deem what financial products are good for hardworking Americans and leaving 

them without the freedom to make their own choices when it comes 

to their personal economy. 

Continuing with those past examples of overreach, I was disappointed, although not surprised, when last Monday you appeared 

at an event with both President Obama and Senator Elizabeth 

Warren, supporting a new proposal from the Department of Labor 

which would once again limit choices and raise costs on consumers 

regarding their retirement savings. However, it remains unclear 

exactly how the CFPB is involved in this misguided rulemaking. 

73 

Director Cordray, why exactly was the CFPB invited to the event 

last Monday and how does this agency have a role in this new potential rulemaking? 

Mr. CORDRAY. We do—I do support that proposal which I think 

will help protect consumers against fraudulent investment advice 

and conflicts of interest. 

Mrs. WAGNER. What is your role? 

Mr. CORDRAY. And we are required by this Congress to have an 

Office of Older Americans, which one of its first assignments was 

to do a report on financial investors for seniors and their credentials and make sure that those were not being misrepresented to 

consumers, and we have done considerable work to protect older 

American since. That is— 

Mrs. WAGNER. Reclaiming my time. 

Mr. CORDRAY. —statutory. 

Mrs. WAGNER. I understand from Title X of Dodd-Frank that the 

CFPB under statute is unable to regulate retirement savings except through financial literacy. The SEC regulates the sale of securities and investment advice, while the Department of Labor regulates retirement plans. 

Specifically, I will say in Section 1027 of Dodd-Frank, right here 

in paragraph (g)(3) under ‘‘Limitations on the Bureau Authority,’’ 

it states that the Bureau may not exercise any rulemaking or enforcement authority with respect to products or services that relate 

to any specified plan or arrangement. And it defines that as, ‘‘Any 

employee benefit or compensation plan or arrangement, including 

a plan that is subject to Title I of the Employment Retirement Income Securities Act of 1974.’’ This definition also include IRAs. 

So with that being said, aside from financial literacy, how do you 

see the CFPB fitting in here, sir? 

Mr. CORDRAY. Actually, I don’t think that is what it says. What 

it says is we can work on regulations in conjunction with the Department of Labor and the Department of Treasury. That is what 

it actually says in Section 1027(g). 

Mrs. WAGNER. I just quoted you, sir, the exact words that comprise Section 1027(g). 

Mr. CORDRAY. Yes, I know exactly what it says. I have looked at 

it very carefully. 

Mrs. WAGNER. Again, what is your role? Is it financial literacy 

or are you going to do another overarching rulemaking regarding— 

Mr. CORDRAY. Okay, so again, going back, there are a number of 

different provisions in the statute. One of them required our Office 

of Older Americans to do a study—the Bureau to do a study and 

report to Congress, to you on investor credentials for senior financial advice to help protect consumers in that area. That goes beyond just financial education. 

Mrs. WAGNER. So you are going to go beyond financial literacy 

and education? 

Mr. CORDRAY. And reverse mortgages. 

Mrs. WAGNER. Is that what you are saying here? 

Mr. CORDRAY. And reverse mortgages, required to do another— 

Congress on reverse mortgages that we had— 

Chairman HENSARLING. The time— 

Mrs. WAGNER. My time has expired. 

74 

Chairman HENSARLING. The time of the gentlelady has expired. 

The Chair now recognizes the gentleman from South Carolina, 

Mr. Mulvaney. 

Mr. MULVANEY. Thank you, Mr. Chairman. Am I last? 

Mr. GUINTA. No. 

Mr. MULVANEY. Not last, goodness gracious. Well, then, I will go 

quickly. 

Mr. Cordray, before I get to my questions, I couldn’t help but 

enjoy the exchange you just had with Mrs. Wagner, and I want to 

ask the same question she just asked to see if I can do it a little 

bit differently. 

Mr. CORDRAY. Sure. 

Mr. MULVANEY. There are only three possible answers to her 

question about who authorized renovations, right? It is either you, 

Ms. Warren, or Mr. Date, correct? 

Mr. CORDRAY. No, not correct. 

Mr. MULVANEY. So that decision could have been made without 

the approval of the Director? 

Mr. CORDRAY. Dodd-Frank was passed in July of 2010. 

Mr. MULVANEY. No, I don’t need a history lesson. I just— 

Mr. CORDRAY. You do. 

Mr. MULVANEY. Who else? 

Mr. CORDRAY. You do, because it was passed in July 2010. 

Mr. MULVANEY. Who else—let me ask you this today. Who else— 

Mr. CORDRAY. And for the first year the Bureau did not exist. 

Mr. MULVANEY. Mr. Chairman, I reclaim my time please. Okay, 

who else besides the Director can authorize that kind of expenditure? 

Mr. CORDRAY. Okay, during the first year we existed, Treasury 

was— 

Mr. MULVANEY. I don’t need the beginning of time. Who else besides the Director can do it? I am not trying to— 

Mr. CORDRAY. Now or then? 

Mr. MULVANEY. Then. 

Mr. CORDRAY. Okay, then. It was part of Treasury. Treasury was 

running our operations. 

Mr. MULVANEY. So somebody at Treasury could have authorized 

that? 

Mr. CORDRAY. That is quite possible. That is why I say I can’t 

be sure. I can’t say that it was one of the— 

Mr. MULVANEY. All right. 

Mr. CORDRAY. Yes. 

Mr. MULVANEY. Then I am going to get to the questions I want 

to ask, because I have heard you talk a little bit today about access 

to credit. We heard some good questions. I thought about payday 

lending and some other facilities that are available to people. 

And I remember, I think back when I was in the State Senate 

in South Carolina, the State of North Carolina had just passed 

some rather sweeping restrictions on payday lending, and we decided to look at the topic ourselves. And I remember meeting a 

woman from—we put out a letter about folks who used it. We went 

to talk to people who used payday lending. 

75 

And a woman called me up and she started talking to me and 

she said, well, I use it. And I knew who she was, okay? I live in 

a small town. 

Mr. CORDRAY. Yes. 

Mr. MULVANEY. More importantly, I knew where she worked. 

She worked at a local credit union. And I asked the question, why 

don’t you just get it at work? And she said, well, Mr. Mulvaney, 

everybody knows me there, right? I am kind of embarrassed that 

I have to do this. I need this, but I don’t want everybody to know 

that I need this. 

And I know you said you have heard the stories, I know that we 

had a field hearing with a bunch of folks who said that they wanted to use things like payday lending and they had been able to use 

them successfully. And then I heard you say that you want to make 

sure that folks like that, ordinary people, have access to this type 

of credit, but you wanted to make sure that folks didn’t get caught 

in a debt trap. 

Mr. CORDRAY. Correct. 

Mr. MULVANEY. Is that an accurate—okay. 

Mr. CORDRAY. Absolutely correct. 

Mr. MULVANEY. So here is my question. I think we would agree, 

right, that not everybody gets caught. 

Mr. CORDRAY. That is correct. 

Mr. MULVANEY. Some people can use these facilities without getting caught in a debt trap. 

Mr. CORDRAY. Absolutely. 

Mr. MULVANEY. How do you know which ones are going to get 

caught and which ones won’t? 

Mr. CORDRAY. What we can know is what happens to consumers 

over time. We have done two extensive studies, the most extensive 

studies ever done on the subject with considerable data. And what 

we found is that the vast majority of payday loans are made to people who roll them over 6, 8, 10 times. 

Mr. MULVANEY. Okay. 

Mr. CORDRAY. And they end up paying more in cost, far more in 

cost than— 

Mr. MULVANEY. But let me back you up. I don’t want to cut you 

off. 

Mr. CORDRAY. That is fine. 

Mr. MULVANEY. But we live in a world of limited time. 

Mr. CORDRAY. Yes. 

Mr. MULVANEY. If I walk into a payday lender, how do you know 

if I am one of those people who is going to get caught? 

Mr. CORDRAY. One way, one possible way would be by trying to 

determine your ability to repay. That would be one way to do it. 

It wouldn’t be foolproof, but it would be the kind of underwriting 

we do for many other kinds of loans in our society, some of which— 

Mr. MULVANEY. I thought you said earlier today— 

Mr. CORDRAY. —get turned down and some of which get approved. 

Mr. MULVANEY. I thought you said earlier today in the response 

to a question by Mr. Stivers that you don’t stand in the consumer’s 

shoes or at least you don’t try to. Was that your testimony earlier 

today? 

76 

Mr. CORDRAY. That is kind of a general question. What I have 

said consistently is, we can’t make consumers’ decisions for them. 

They have to decide for themselves. What we can do is try to protect consumers in the marketplace so that they are not taken advantage of. 

Mr. MULVANEY. But you would agree with me, Mr. Cordray, that 

when you make a facility, a tool, something, entirely unavailable 

that you are making the consumer’s decision for them as to that 

facility. 

Mr. CORDRAY. And Congress did that with all kinds of mortgage 

products like no-doc loans and liar loans and teaser rates— 

Mr. MULVANEY. Thank you, sir. Let’s get back to that for a second. 

Mr. CORDRAY. Yes. 

Mr. MULVANEY. Because I think you defined a teaser rate. Somebody asked you that earlier today and you said a teaser rate was 

one that starts low and goes up. Do you remember that testimony? 

Mr. CORDRAY. And may not be adequately disclosed to the consumer so that they are tricked by it. 

Mr. MULVANEY. Okay, because using the definition of just going 

up, that is an adjustable rate, right? 

Mr. CORDRAY. No, no. But going up if it is fully disclosed and the 

consumer goes in with eyes wide open is one thing. A teaser rate 

that is going to jump up based on an arbitrary finding and so 

forth— 

Mr. MULVANEY. So you don’t have a problem with adjustable rate 

mortgages, for example— 

Mr. CORDRAY. No, not at all. No. That can be a very good product. Yes. 

Mr. MULVANEY. Let me ask you this. Because we talk about payday lending a lot, we talk about mortgage lending, but I never 

heard anybody ask this question. 

Mr. CORDRAY. Okay. 

Mr. MULVANEY. One of the greatest examples of using something 

financial to prey on the poor, in my opinion, is the lottery. Do you 

have the right to regulate those? 

Mr. CORDRAY. You mean State government lotteries? 

Mr. MULVANEY. State lotteries, yes. 

Mr. CORDRAY. No, I do not. 

Mr. MULVANEY. Why not? They prey on consumers, they prey on 

the poor. Why not? 

Mr. CORDRAY. Under our statute, we have no authority to enforce 

against other government agencies— 

Mr. MULVANEY. Yes, but you don’t have authority to go after the 

car dealers either. Why don’t you go after the folks who bank the 

folks who run the lotteries? 

Mr. CORDRAY. I’m sorry. So you want me to enforce the law 

against banks who are engaged in a perfectly legal enterprise 

under State law of the lottery? 

Mr. MULVANEY. No, I am asking you why you don’t since you are 

doing it in other areas. 

Mr. CORDRAY. I am not sure what other areas you are talking 

about? 

77 

Mr. MULVANEY. You don’t have jurisdiction to go after the automotive dealers, but you go after their banks. So if you don’t have 

jurisdiction to go after State lotteries— 

Mr. CORDRAY. We do have jurisdiction to pursue auto lenders. It 

is clear on our statute. We do not have jurisdiction for auto dealers. 

We have carefully walked that line, tried hard to carefully walk 

that line. I don’t see how your example applies. 

Mr. MULVANEY. Okay. Thank you, Mr. Chairman. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Florida, Mr. Ross. 

Mr. ROSS. Director Cordray, thank you. I thought I was going to 

be the last one, but I see my good friend, Mr. Guinta, has taken— 

Mr. CORDRAY. It may be perpetual. I may be here tomorrow. We 

will see. 

Mr. ROSS. Yes. I appreciate your testimony today, but I want to 

follow up on what my colleague from South Carolina, Mr. 

Mulvaney, is inquiring about with regard to payday loans. And I 

understand that you are in the process of proposing new rules and 

that you have a small business review panel to reach out and get 

feedback from the industry. 

Are there any members of that from Florida on that small business— 

Mr. CORDRAY. I don’t know if that panel has been finalized yet 

in terms of exactly who is on it and who is not. 

Mr. ROSS. When you were testifying at the beginning here earlier 

today, you commented about your first field hearing being in Birmingham, Alabama. Have you had any field hearings in Florida? 

Mr. CORDRAY. We did. We had one in Miami on student loan 

issues. 

Mr. ROSS. With regard to, specifically, payday lending though. 

Mr. CORDRAY. By the way, we were also going to have one in 

Tampa on mortgage issues. 

Mr. ROSS. Good. 

Mr. CORDRAY. And it got canceled by a hurricane 2 years ago. 

Mr. ROSS. I understand. Just as an aside, I think that it wouldn’t 

hurt to have a hearing, a field hearing in Florida with regard to 

payday lending, because, as you know, Florida has probably one of 

the best regulatory environments for payday lending. In fact, I 

think that Florida some time ago recognized that there is a market 

demand and there is a market supply to meet this need on a regulatory fashion that could be set up to make sure that we preserve 

and protect the consumers. 

And I think—I don’t know if your office has any statistics that 

would show whether there has been any abuse in the State of Florida with regard to payday loan. 

Mr. CORDRAY. Yes, actually—and since you raise that—because 

I have actually become friendly and know pretty well your banking 

superintendent, Drew Breakspear, who is first rate. 

Mr. ROSS. Right. 

Mr. CORDRAY. When we did our first White Paper on payday 

lending, he had his office do a similar analysis based on their data 

about how things were in Florida and shared that report with me. 

Mr. ROSS. It is good. 

Mr. CORDRAY. And I shared it with our folks. 

78 

Mr. ROSS. For example, if you are looking at parameters, limit 

the loans to $500. That works. They are going to only have one outstanding loan at any one time. Their fees are 10 percent of the 

amount borrowed plus the $5 verification. They have to wait 24 

hours before they have another one. There are protections in there. 

So all I am suggesting to you is, please, take a look at Florida. 

Mr. CORDRAY. Yes. 

Mr. ROSS. And I think that if you look at other States, even your 

State of Ohio, they have the ability, and I think they have the foresight, to regulate this industry without having to be preempted by 

the Federal Government. 

Also, I am going to talk to you just briefly about your role on 

FSOC and specifically with regard to systemically important financial institutions. Let’s talk about asset managers. 

Do you feel, both personally and professionally, that asset managers, managers that don’t carry any assets themselves but are 

managing for others, pose a risk to the financial environment? 

Mr. CORDRAY. I want to be careful about not trying to purport 

to speak for FSOC. I am not the— 

Mr. ROSS. I understand. I am not asking you to. Just in your role 

as a member of it. 

Mr. CORDRAY. What I think has been publicly stated is that there 

is more research and analysis going on into those issues and in forums like that. 

Mr. ROSS. And don’t you think we should have some—in other 

words, preventative maintenance, preventative medicine, if you 

will, is so much better than remedial medicine, being able to identify early on with the financial institution through a transparency 

process and let them know if they are moving into that direction 

so that they can self-correct, don’t you think that is a pretty good 

way to avoid having to have the connotation and the label of being 

a SIFI and then not knowing how you got there or how you are 

going to get out of there? 

Mr. CORDRAY. I would agree with that, but I do think that the 

designation process that the FSOC has followed has been pretty 

careful and thorough and comprehensive to date. 

Mr. ROSS. But transparent? 

Mr. CORDRAY. The FSOC is working on that. 

Mr. ROSS. And we should have transparency. 

Mr. CORDRAY. There are new proposals for it. 

Mr. ROSS. And I think— 

Mr. CORDRAY. I do agree with you on that. But, yes. 

Mr. ROSS. Thank you. And lastly, just recently I sent you a letter, on February 24th. You probably haven’t had a chance to read 

it. But I am curious about how you determine and select companies, both depository and non-depository, for examination. Is there 

a written procedure? Do you have a checklist? Is it based on size? 

Is it based on revenues? Is it based on location? Is it based on number of employees? Things of that nature? 

Mr. CORDRAY. It is actually pretty sophisticated now. Early on it 

wasn’t because we were just building up and we didn’t have these 

things in place, but some very impressive people have worked on 

this. 

79 

It is a risk-based system. It depends on things like market size, 

market penetration, if it is an individual product line, what that 

size is, is it a risk and harm to consumers— 

Mr. ROSS. It is a set of guidelines, if you will. 

Mr. CORDRAY. You build market research—yes, I wouldn’t say— 

it is full of—not necessarily entirely science, but that is how we try 

to prioritize the things that should be prioritized. 

Mr. ROSS. And in regards to levies of fines, is there a guideline 

as to how much a fine should be or is it a range—how is it— 

Mr. CORDRAY. Like a penalty or something? 

Mr. ROSS. Yes. 

Mr. CORDRAY. Yes. We have a statutory range of penalties depending on how serious a violation is and whether it is knowing 

or whether it was— 

Mr. ROSS. Thank you. I see my time is up. I look forward to the 

response to the letter and I thank you for being here. 

Mr. CORDRAY. Okay, right. Thanks. Sure. 

Mr. ROSS. I yield back. 

Chairman HENSARLING. The Chair now recognizes the gentleman 

from New Hampshire, Mr. Guinta. 

Mr. GUINTA. Thank you, Mr. Chairman. And thank you, Mr. 

Cordray, for being here. 

Mr. CORDRAY. Sure. 

Mr. GUINTA. I have been in and out of the hearing, but I appreciate the opportunity to speak with you. 

I wanted to just read one component of prior testimony in 2012. 

Mr. CORDRAY. All right. 

Mr. GUINTA. In an open field hearing in Alabama relative to payday loans—it is not really the balance of what I want to talk about, 

but I think it is important to amplify some of the favorable stories, 

because sometimes this is—I think there is one side of the story 

that tends to be communicated. 

And I will just read a portion of what Mr. Tangie Thomas stated. 

He said at this hearing, again, in Alabama in 2012, I just wanted 

to say that I am, I did have the use to a payday loan once before 

and it was because of a family emergency. He went on to say, in 

the fees that I accrued from that payday loan were actually cheaper than getting a cash advance on my credit card. So it actually 

benefitted me. And I was really glad that it was there, an option 

available for me. I would like to know that in the future that, it 

would be there in the event that I needed it also. 

So his point was, I had multiple options, and this is the option 

that I chose; it was cheaper for me in that emergency situation. So 

I would ask you to consider his testimony and that of others that 

I am sure are in that circumstance. 

In the State of New Hampshire, we have payday lending, and we 

have what I would consider rather rigorous rules around it and I 

think, for the most part, it works fairly well. 

Secondly, I wanted to get to on the semi-annual report of the 

CFPB, page 127. 8.1 is entitled, ‘‘open government,’’ and it reads, 

‘‘A critical part of making financial markets work is ensuring 

transparency in those markets. The CFPB believes that it should 

hold itself to that same standard and strives to be a leader by 

80 

being transparent with respect to its own activities.’’ I agree with 

that statement. I think that makes sense. 

So my first question would be relative to the concerns that my 

constituents have expressed about the cost associated with running 

the CFPB. Can you tell me in this book where you specifically identify the cost of building renovations that taxpayers have spent? 

Mr. CORDRAY. You are talking about the most recent semi-annual report? 

Mr. GUINTA. Yes. 

Mr. CORDRAY. I don’t know if that would have been relevant to 

that period. The money was actually allocated for that purpose 2 

fiscal years ago. 

Mr. GUINTA. Okay. 

Mr. CORDRAY. But we have budget documents on our Web site 

and we put them out every quarter. We have responded to numerous document requests and other things from this committee. I 

would be happy to get you whatever you want on any of that to 

make sure that is clear to you. 

Mr. GUINTA. Since I am returning after a couple of years away 

from this institution, would you be kind enough to remind me how 

much you have spent to date? 

Mr. CORDRAY. Spent to date on what? 

Mr. GUINTA. On building renovations. 

Mr. CORDRAY. On building renovations, I believe we allocated approximately $120 million. It is in that range. I will get the specific 

numbers for you. Just to cover actual construction cost estimated 

and contingencies that have to be held that may or may not be 

spent based on how— 

Mr. GUINTA. And you feel that is somehow within—part of the 

mission of the CFPB to help consumers to spend that kind of 

money on a renovation? 

Mr. CORDRAY. To have a reasonably decent place for employees 

to work, absolutely. 

Mr. GUINTA. $120 million is a reasonably decent place? 

Mr. CORDRAY. GSA, who are the experts on this, tell us it comes 

in at about $250 per square foot, which is well within the range 

of reasonableness for this— 

Mr. GUINTA. And there has been no other alternative that would 

be cheaper that you would consider reasonable? 

Mr. CORDRAY. None that we have found. And I would say at this 

point we have bid out the construction contract. It has been awarded through a fair and competitive bid and we are well down the 

road on this. 

Mr. GUINTA. And so I actually found something—reclaiming my 

time. 

Mr. CORDRAY. Imagine that we would have reversed course now, 

that would be very wasteful. 

Mr. GUINTA. Reclaiming—if I found something that was cheaper 

moving forward, is that something you would consider? 

Mr. CORDRAY. What do you mean found something cheaper? 

Mr. GUINTA. If I found something that was cheaper in Washington, D.C., that was suitable for CFPB, would you consider that 

alternative? 

81 

Mr. CORDRAY. Any input you want to give us I am happy to have. 

But at this point we have already— 

Mr. GUINTA. Would you consider the input? 

Mr. CORDRAY. Look, we have already entered into a construction 

contract. 

Mr. GUINTA. Would you consider the input? 

Mr. CORDRAY. The notion that we would abandon this project 

based on something that you tell me you just found could be very 

wasteful of taxpayer money at this point. 

Mr. GUINTA. Okay. The final question I have and I understand 

that I have only a few seconds left—I spoke with Rick Wallis, president of Piscataqua Savings Bank in Portsmouth, New Hampshire, 

a $230 million bank. 

He is concerned with the cost associated with the rules that are 

associated under the $10 billion. He is a $230 million bank. He has 

been affected by these very rules. I would love to get a sense from 

you maybe offline or in writing what can be done to help that community bank, what I consider a community, one branch— 

Mr. CORDRAY. What is his name? 

Mr. GUINTA. His name is Rick Wallis, president of Piscataqua 

Savings Bank. 

Mr. CORDRAY. Rick Wallis, I will call him and talk to him. 

Mr. GUINTA. It is a $230 million bank, 50 employees, one location. He is hampered by the same rules that CFPB is instituting 

for institutions under $10 billion. 

Mr. CORDRAY. Okay. I would like to know his specifics and I will 

be glad to reach out and talk to him. 

Mr. GUINTA. Thank you. I yield back. 

Mr. CORDRAY. And I will give your office a readout on what we 

find. 

Mr. GUINTA. Thank you. 

Mr. CORDRAY. Okay. 

Chairman HENSARLING. The time of the gentleman has expired. 

There are no other Members in the queue, so I would like to 

thank— 

Mr. CORDRAY. I’m sorry— 

Chairman HENSARLING. Yes. 

Mr. CORDRAY. Could you spell the bank name; it sounded kind 

of complicated? 

Chairman HENSARLING. Perhaps we could do that off— 

Mr. GUINTA. I will give it to you. 

Mr. CORDRAY. All right. That is fine. We will get it. All right. 

Chairman HENSARLING. That can be communicated to the office. 

But I do wish to thank you, Dr. Cordray. Four hours is a long time 

to sit at a witness table. 

The Chair notes that some Members may have additional questions for this witness, which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 5 legislative days for Members to submit written questions to this witness 

and to place his responses in the record. Also, without objection, 

Members will have 5 legislative days to submit extraneous materials to the Chair for inclusion in the record. 

This hearing stands adjourned. 

[Whereupon, at 6:24 p.m., the hearing was adjourned.] 

(83) 

A P P E N D I X 

March 3, 2015 

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95050.001

Testimony of Richard Cordray 

Director, Consumer Financial Protection Bureau 

Before the House Financial Services Committee 

March 3, 2015 

Chairman Hensarling, Ranking Member Waters, and Members of the Committee, thank you for 

the opportunity to testify today about the Bureau's Semi-Annual Repmt to Congress. We 

appreciate your continued leadership and oversight. I look forward to getting to know the new 

Members of the Committee as we all work together to strengthen our financial system so that it 

better serves consumers, responsible businesses, and our economy as a whole. 

As you know, the Consumer financial Protection Bureau is the nation's first federal agency 

whose sole focus is protecting consumers in the financial marketplace. Financial products like 

mortgages, credit cards, and student loans involve some of the most important financial 

transactions in people's lives. In the wake of the financial crisis. Congress created the Bureau to 

stand on the side of consumers and ensure they are treated fairly in the financial marketplace. 

Since we opened our doors, we have been focused on making consumer financial markets work 

better for the American people, and helping them improve their financial lives. 

In this. our sixth Semi-Annual Report to the Congress and the President, we describe the 

Bureau's most recent efforts to achieve this vital mission. Through fair rules, consistent 

oversight, appropriate law enforcement. and broad-based consumer engagement, we are working 

to restore people· s trust in consumer financial markets and protect them against illegal conduct. 

Of course, much of the early work of the Bureau has centered on the mortgage market, which 

was the primary cause of the financial crisis and thus was where reform was deemed essential by 

the Congress and most policymakers. Our Ability-to-Repay rule, also known as the Qualified 

Mortgage rule, put new guardrails in place to prevent the kind of sloppy and irresponsible 

underwriting that had precipitated the crisis. Our mortgage servicing rules offered new and 

stronger protections to homeowners facing foreclosure. And our other rules addressed 

significant problems in the mortgage market deemed in need of repair. During this period, we 

continued our extensive work on regulatory implementation by providing tools and resources to 

assist industry in implementing our final rule to consolidate and streamline mortgage disclosure 

forms at both the application stage and the closing stage. 

We also undertook considerable analysis to set the stage for a more recent development, which is 

a proposed rule we released to provide further latitude for residential mortgage lending by small 

creditors such as community banks and credit unions. The Bureau shares the Committee's 

respect for these institutions. as well as a commitment to promoting access to credit for 

consumers in rural and underserved areas. And so our proposal would expand the definition of 

''small creditor'' by making certain adjustments to the origination limit to allow for more lending 
85 


95050.002

by these small local institutions. We also propose to expand the definition of"rural" areas to 

provide more access to credit in those areas. As we have demonstrated again and again, we arc 

committed to an even-handed approach to rulemaking that maintains important protections for 

consumers while listening to all stakeholders and making changes where appropriate to get 

things as rigbt as we can. We look forward to public comments on these issues, which we are 

accepting through March 30. 

As I have said many times, responsible lending by community banks and credit unions did not 

cause the financial crisis. These institutions play a vital role in many communities and in our 

economy. Their traditional model of relationship lending has been beneficial for many people in 

rural areas and small towns across this country, including the small town in Ohio where I was 

born and raised. We reinforce our commitment to this model of responsible lending by meeting 

regularly with community bankers and credit union leaders in all 50 states. We also receive 

valuable insight and feedback from members of our Credit Union Advisory Council and 

Community Bank Advisory Council, which consist of more than 30 credit union and community 

bankers from every region. 

During the period of our most recent Semi-Annual Report, we also issued a number of other 

proposed and final rules. We issued final revisions to the remittance rule to clarify some of the 

new consumer protections while providing federally insured institutions more time to allow for 

more accurate disclosures in certain cases. We also moved forward with one of the tasks that 

Congress set for us by proposing a rule to overhaul the reporting requirements for the Home 

Mortgage Disclosure Act. It includes a proposed exemption of approximately 25 percent of 

banks and credit unions that are currently required to submit HMDA reports from the obligation 

to do so. In related activity, we released new and improved tools to allow the public to access 

and utilize this data more readily and effectively. And we finalized a rule to promote more 

effective annual privacy disclosures from financial institutions to their customers. The approach 

we took considerably eases the burdens of such notices for many companies. We estimate that 

the industry could save about $17 million annually if the new online disclosure method is widely 

adopted. 

In addition to our rulemaking efforts, the Bureau continues to make progress in all areas of our 

work. To date, we have helped secure orders through enforcement actions for more than $5.3 

billion in relief to more than 15 million consumers who tell victim to various violations of 

Federal consumer financial laws. During the period of the Semi-Annual Report, we brought 

enforcement actions that secured $1.6 billion in relief for consumers. Those actions included 

$727 million in relief to consumers who were harmed by a company's deceptive marketing of 

credit card add-on products. They included $92 million in debt relief for 17,000 scrvicemembers 

and other consumers who were harmed by a predatory lending scheme. And they included $225 

million in relief for consumers who were harmed by other deceptive and discriminatory credit 

2 
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card practices. We also filed suit to hold a company accountable for operating a debt collection 

lawsuit mill that intimidated consumers with deceptive court filings. totaling more than 350,000 

lawsuits in four years in Georgia alone. 

Our supervision program continues to be refined, improved, and expanded. We consult and 

collaborate closely with our fellow federal regulators as well as with state regulatory officials to 

carry out our work. Part of our statutory mandate is to address consumer financial issues in an 

even-handed manner across all market participants. During this reporting period, we continued 

to build out our risk-based supervision program both for banks and for non-bank financial firms. 

That approach is enabling us to provide more consistent treatment that ensures compliance with 

Federal consumer financial laws and helps level the playing field among competing firms in 

mortgage origination, mortgage servicing, debt collection, student loan servicing, and other 

markets. 

The premise at the heart of our mission is that consumers deserve to be treated fairly in the 

financial marketplace, and they should have someone stand on their side when that does not 

happen. Since opening our doors, the Bureau's Office of Consumer Response has accepted more 

than 540,000 consumer complaints related to a variety of financial products and services, 

including mortgages, credit cards, student loans, auto loans, credit reporting, debt collection, and 

a number of other consumer financial products or services. That has resulted in relief of various 

kinds, both monetary and non-monetary, for many consumers. It also generates a rich trove of 

information from individual consumers in real-time about the most urgent problems and 

challenges they are confronting in the financial marketplace, all of which informs our regulatory, 

supervisory. and enforcement work. 

To promote informed financial decision making. we have continued to develop educational tools 

for consumers, including the Your Money. Your Goals toolkit. This comprehensive guide is 

designed to be used by trusted public and private sector intermediaries such as social workers, 

legal aid attorneys, and volunteers- to empower the people they serve in personal financial 

decision-making by covering topics such as budgeting daily expenses, managing debt. and 

avoiding financial tricks and traps. We are also about to embark on a financial coaching 

program for transitioning veterans and economically vulnerable populations of consumers in 

sixty locations all over the country. 

The progress we have made has been possible thanks to the engagement of hundreds of 

thousands of Americans who have utilized our consumer education tools. submitted complaints, 

participated in rulemakings, and told us their stories through our website and at numerous public 

meetings from coast to coast. We have also benefited from an ongoing dialogue and constructive 

engagement with the institutions we supervise, with community banks and credit unions with 

whom we regularly meet, and with consumer advocates throughout the country. 

3 
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Our progress has also resulted from the extraordinary work of my colleagues at the Bureau. 

They are dedicated public servants from a variety of different backgrounds who are committed to 

promoting a healthy consumer financial marketplace. In standing up the new Bureau from 

ground zero at almost break-neck speed to meet the expectations and deadlines set by the 

Congress, we put ourselves under enormous pressure to meet these goals. When we have 

recob'llized from time to time that we got things wrong, we have been determined to do what we 

can to make them right. I am proud to say that our colleagues have regularly risen to the 

challenges we face. They have consistently delivered great results so that consumers all over the 

country- in every one of your districts- are treated fairly in the financial marketplace. The 

American people certainly deserve it. 

Thank you for the opportunity to testify today. I look forward to your questions. 

4 
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(!l:ongr£ss of tlf£ llnit£il §taf£.5 

muslringhm, D<!I 2U515 

The Honorable Richard Cordray 

Director 

Consumer Financial Protection Bureau 

1700 G Street, NW 

Washington, D.C. 20552 

Dear Director Cordray: 

March 4, 2015 

We are writing in support of strong. effective rules governing payday loans. The Consumer Financial 

Protection Bureau (CFPB) has a responsibility to protect consumers from these predatory and 

exploitive financial products. and we urge you to implement rules that would prohibit fraudulent and 

abusive payday loans that threaten the economic well-being of so many Americans, especially those 

from low-income communities of color. 

While several states have recently passed new laws and others have increased the enforcement on the 

abusive nature of these loans, the need for federal regulation is pressing. As of2014, at least 36 states 

still permit these abusive loans, and many do so without restriction.' Moreover, the prevalence of 

internet payday lending has grown tremendously in recent years. In fact, one in every three payday 

loans originates online, some with rates as high as 700% APR or more." 

What is particularly concerning is that payday lenders target low-income communities and 

communities of color. According to a four state study conducted by Howard University's Center on 

Race and Wealth. 12 million people living in low-income communities use payday loans annually. 

Those individuals averaged eight payday loans each year with an average interest rate of 400 percent 

for each loan. Nearly 90 percent of payday lenders referenced in the study were located in lowincome communities of color. 

The prevalence of such predatory and abusive practices is unacceptable. The payday loan industry 

robs borrowers of the opportunity to secure a foothold in the mainstream financial services market by 

locking borrowers into a long-term debt trap and by increasing the likelihood that a borrower will 

suffer other harmful financial consequences, such as bankruptcy, excessive overdraft fees, and 

involuntary bank account closures. The resulting adverse impact on credit scores, which lenders use 

to determine a borrower's eligibility. can make it even harder for individuals to avail themselves of 

mainstream financial services. This means that the millions of individuals from low-income 

communities and communities of color are further disadvantaged and further unable to break free of 

existing socio-economic barriers. -
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That is why we need a clear, consistent, national standard that ensures that no one in this country is 

subject to predatory lending practices. To that end, we urge the CFPB to implement rules to stem 

predatory practices that are based on exorbitant interest rates and lees that draw consumers into a 

hannful cycle of repeat lending. Specifically, we ask that the CFPB meaningfully reform the 

marketplace by implementing rules governing both storefront and online payday lending that would: 

I. Require the lender to determine the borrower's ability to repay the loan, including 

consideration of both income and expenses; 

2. Not sanction any series of repeat loans or provide any safe harbor; 

3. Recognize that borrowers need small dollar loans with good terms, not short-tern1loans that 

are difficult for them to repay. The CFPB should establish an outer limit on length of 

indebtedness that is at least as short as the FDIC's 2005 guidelines 90 days in a twelvemonth period; and 

4. Prohibit lenders from using post-dated checks of electronic access to a borrower's checking 

account as evidence of ability to repay the loan. 

We thank you for your leadership and consideration of our suggestions for strong protections for 

consumers in the financial market. We look forward to working with you and the Bureau to establish 

clear rules for the payday lending industry in order to protect consumers from products that have 

been shown to be financially damaging. 

Very truly yours, 

flj a va "~·:r 

Co-Chair, Congressional Progressive Caucus Co-Chair, Congressional Prog~essive Caucus 

Chairwoman, 

91:Ch~ Congressional Asian Pacific American Caucus 
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1 The Pew Charitable Trusts, How Stare Rate Limits Affect Payday Loan Prices, April I 0, 2014, available at 

hllp:llwww. pew/rusts. orr;lenlresearch-and-analvs isl{act-sheets/20 I 4/041 I 0/how-state-rate-limirs-af&ct-pavdavloan-prices. 

"The Pew Charitable Trusts, Key Findings About Internet Payday Lending: Harmji1l Practices, Fraud, and Abuse 

Abound in a Growing Industry, Oct. 02, 2014, available a/ hllp:llwww.pewtrusts.orglenlmultimedialdatavisua/ izations/20 14/key-findings-about-inlernel-payday-lending. 
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The Semi-Annual Report of the Consumer Financial Protection Bureau Hearing 

House Committee on Financial Services 

March 3, 2015 

Questions for the Record 

Questions for Director Cordray, Director, Consumer Financial Protection Bureau, from 

Congressman Barr: 

Question 1 

I have received complaints recently that the CFPB is pursuing enforcement actions against 

companies in the field of debt collection or that rely upon debt collection services at the same 

time that the Bureau is finalizing new rules for that industry. While the companies are following 

all existing laws and regulations, they are being held to a standard that does not yet exist. Do 

you think it is appropriate to use enforcement in this way? Do you think it is appropriate for 

CFPB to hold companies accountable for rules not yet in place? 

Response 

In the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), 

Congress provided the Consumer Financial Protection Bureau (Bureau) a number of tools 

including rulemaking and enforcement- to address and prevent consumer harm. In each action 

the Bureau takes, we endeavor to choose the appropriate tool to protect consumers and honest 

businesses in the marketplace. The Bureau has taken enforcement actions where violations of 

existing Jaw warranted that response. When it comes to specific enforcement actions, there are a 

number of factors that go into each filed action and negotiated resolution. In all cases, the 

Bureau aims to deter unlawful behavior and return money to harmed consumers. The Bureau is 

not using standards that do not yet exist, but rather applying the law that Congress charged us 

with enforcing. Pending rulemaking activity does not preclude enforcement of these existing 

statutes to protect consumers. 

Question 2 

The CFPB has accused indirect vehicle finance companies of disparate impact (unintentional, 

statistical discrimination), even though the borrower's race is unknown to the CFPB or the 

financial institution by law. According to Charles River Associates, the CFPB's proxy method 

misidentifies the borrower's race 41% of the time. Has the CFPB adjusted its error-prone 

analysis to address this critique? 

Response 

On September 17, 2014, the Bureau published a white paper, entitled Using Publicly Available 

Information to Proxyfor Unidentified Race and Ethnicity, that details the methodology the 

Bureau uses to calculate the probability that an individual is of a specific race and ethnicity based 

on his or her last name and place of residence. The Bureau's analysis demonstrates that its proxy 

is more accurate at approximating the overall reported distribution of race and ethnicity than 

other available methods using publicly available data. The Bureau's proxy assigns an individual 
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probability of inclusion in a prohibited-basis group based on both geography and surname, 

whereas other proxies use geography or surname alone in predicting individual applicants' 

reported race and ethnicity. 

The Bureau and the paper you cite both agree that there are racial and ethnic disparities in 

pricing resulting from discretionary dealer markup and compensation policies, and that a proxy 

can be used to estimate both pricing disparities and the number of consumers potentially harmed. 

The disagreement is regarding how many borrowers were harmed and by how much. 

The Bureau's approach is designed to arrive at the best estimate of the total number of harmed 

borrowers and to accurately identify the full scope of harm. The Bureau makes tina! 

detenninations regarding discriminatory outcomes and their scope in dialogue with individual 

lenders, and carefully considers every argument lenders make about alternative ways to identify 

the number of harmed borrowers and the amount of harm. In some instances, the Bureau has 

adopted changes and reduced our estimates in response to specific alternatives offered by 

individual lenders with regard to their specific loan portfolios. 

Question3 

Can the Bureau explain the relevance of conducting a fair lending analysis of a financial 

institution's nationwide portfolio when there are clear distinctions between how each dealer 

manages their originations? When no disparities exist on an individual dealer basis, which is 

where the credit is transacted and the most direct measure of disparities, what is the relevance of 

conducting an analysis on a portfolio basis to determine discrimination? 

Response 

As explained in our March 2013 compliance bulletin, Indirect Auto Lending and Compliance 

with the Equal Credit Opportunity Act, when analyzing whether discrimination has occurred at a 

particular lender based on the overall composition of the lending program that it has established, 

that lender's entire portfolio is the relevant focus. 1 If a lender's policies are resulting in certain 

racial or ethnic groups paying more for auto loans from that lender, then the fair lending issue 

exists across all the loans where that policy applies, and not simply for a disaggregated slice of 

loans. The Bureau's analysis is tailored to reflect the institution's particular policies, practices, 

products, and channels that exist in its lending program, and we appropriately adjust our analysis 

for each institution that is subject to review. As part of the Bureau's overall analysis of auto 

lender pricing, we carefully consider the specifics of each individual case, including factors such 

as regional pricing differences, in addition to a number of other factors such as consumers' credit 

scores and debt to income ratios; characteristics of the collateral; and terms of the deal, such as 

the amount financed, down payments, the existence of a manufacturer discounted rate, and loan 

term. 

1 See CFPB Bulletin 2013-02, at3 ("The disparities triggering liability could arise either within a particular dealer's 

transactions or across different dealers within the lender's portfolio."). 
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Question 4 

Will the CFPB's forthcoming small-dollar/payday loan rule (which has yet to be proposed) target 

all forms of small-dollar credit or be limited to payday loans? What are the CFPB's top concerns 

about small-dollar loans: rollovers, testing for ability to repay, cycle-of-debt issues, or 

affordability and size of payments relative to income? 

Response 

The Bureau is considering rulemaking proposals that would cover payday loans, vehicle title 

loans, and other similar forms of credit, including certain types of installment loans. The 

Bureau has not released a notice of proposed rulemaking and is still considering the 

appropriate scope of the rulemaking. The Bureau is concerned that many consumers are taking 

out unaffordable loans because lenders are offering the types of loans covered by the proposals 

under consideration without determining whether consumers have the ability to repay the debt 

while meeting other major financial obligations and living expenses. When loans are 

structured with unaffordable payments, many consumers struggle to repay their loans and have 

to reborrow, default on the loan, or fall behind on other obligations. The Bureau is also 

concerned about practices that make it difficult for consumers to retain control over their 

payment accounts. 

Question 5 

In December, the CFPB expressed supp01t for the Department of Defense's proposed rule under 

the Military Lending Act. However, would the CFPB acknowledge that such a proposed rule 

will be counterproductive if it eliminates access to safer and more responsible alternatives to 

high-cost, short-term loans? 

Response 

Servicemembers have access to many low-cost sources of credit that are alternatives to highcost, short-term credit. For example, the military relief societies provide no-interest loans and 

grants for household expenses and emergencies. Some credit unions and banks operating on 

and near military installations also have programs to provide such forms of credit. 

The Bureau strongly supports the work of the Department of Defense (Department) to revise 

the Military Lending Act (MLA) regulations. The Department struck a sensible balance with 

the proposed rule and the rule, if finalized, would go a long way towards better protecting 

military families from predatory lending. Through the MLA, Congress sought to protect 

servicemembers from high-cost credit. The Department's proposed rule would extend the 

scope of products covered by the MLA protections, helping to level the playing field and 

provide more consistent protection for servicemembers across the country in their credit 

transactions. 

Question 6 

The DOD rule would require lenders to verify the military status of each and every applicant for 

a loan using a database administered by the Defense Manpower Data Center, which is known to 

be plagued by errors and chronic outages. According to the Pentagon, the system could be 
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implicated in 300 million transactions per year. Are you concerned that this could inadvertently 

and unfairly interrupt access to credit for all Americans- military and civilian alike? 

Response 

The Department's proposed rule would not require lenders to verify the military status of 

applicants for credit by querying the Department's MLA Database. Instead, the proposal 

would provide a safe harbor for liability for creditors that choose, at their discretion, to query 

the Department's MLA Database to assess whether an applicant for credit is a covered 

servicemember or dependent. Thus, creditors that, for example, generally extend credit with an 

interest rate in excess of the limitation in the MLA may choose to make such a determination 

and gain the protection of the safe harbor (so long as they do not subsequently make 

impermissible loans to applicants identified in the database as covered servicemembers or 

dependents). 

Questions for Director Cordray, Director, Consumer Financial Protection Bureau, from 

Congressman Duffy: 

Question I 

Please explain how The General Dynamic Information Technology (GDIT) customer 

management system works. Is this a database or a customer management system? 

Response 

Collecting, investigating, and responding to consumer complaints are integral parts of the 

Consumer Financial Protection Bureau's (Bureau) work. The system the Bureau's Office of 

Consumer Response (Consumer Response) uses to handle consumer complaints is a customer 

relationship management (CRM) system constructed under a contract with the Information 

Technology Department of General Dynamics. Using the CRM system, Consumer Response 

receives complaints from consumers through a variety of channels (i.e., web, telephone, mail, 

fax, and referral) about a range of consumer financial products and services. 

Consumers who have submitted complaints with the Bureau can log on to the secure consumer 

portal available on the Bureau's website, which is supported by the CRM, or call a toll-free 

number, to receive status updates, provide additional information, and review responses 

received from the company against whom the complaint was filed. 

Consumer Response screens all complaints submitted by consumers through the CRM system 

based on several criteria, including whether the complaint should be routed to another 

regulator, whether the complaint is complete, and whether the complaint is duplicative of a 

prior submission by the same consumer. Screened complaints are sent via a secure web portal 

to the appropriate company using the CRM. The company reviews the information, 

communicates with the consumer as needed, and determines what action to take in response. 

The company then reports back to the consumer and the Bureau via the secure company portal, 

which is supported by the CRM. The Bureau invites the consumer to review the response and 
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provide feedback about company responses through the secure consumer portal. Consumer 

Response uses this feedback, along with other information such as the timeliness of the 

company's response, for example, to help prioritize complaints for investigation. 

Throughout this process, the CRM records data. Certain de-identified individual-level 

complaint information is published in the Bureau's Consumer Complaint Database. Complaint 

information is published upon the earlier of: (I) an initial response to the consumer and the 

Bureau (confirming a commercial relationship with the consumer), or (2) 15 calendar days after 

the complaint is sent to the company. A complaint is not published in the database if, among 

other reasons, the company suspects the complaint was submitted in furtherance of fraud or the 

company indicates to the Bureau that it does not have a commercial relationship with the 

consumer. 

Question 2 

Do you collect personally identifiable information (PII) from consumers when they enter a 

complaint? If the answer is yes, are they aware of the PII being collected? And how is the PII 

protected? 

Response 

To fulfill the Bureau's statutory mandate to collect, monitor, and respond to consumer 

complaints, Consumer Response collects information necessary to facilitate complaint 

handling, including some information related to the individual consumers who submit 

complaints and their relationships with financial institutions. Consumers provide some 

personally identifiable information (PII) when they submit complaints, which is used to route 

and respond to consumers' complaints. 

The Bureau notifies consumers that infonnation is collected when they submit a complaint. A 

Privacy Act Statement on each complaint intake form describes the reason for the collection of 

information and how the information is used. Consumers who submit complaints over the 

telephone are read this Privacy Act Statement. The information collection is discussed in the 

Consumer Response System of Records Notice (SORN)2 and the related Privacy Impact 

Assessment (PIA). 3 

The Bureau protects PII in a number of ways. Complaint intake forms include fields 

designated for collecting contact information to structure the data and minimize the collection 

to data necessary to process the complaint. The Bureau limits access to the complaint system 

to employees and contractors with job functions related to responding, referring, or otherwise 

investigating a complaint, and removes access to information from employees and contractors 

who no longer have a defined business need due to change in job function, termination, or 
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resignation. The Bureau also grants limited system access to non-Bureau users, such as 

employees of the company that is the subject of the complaints. These users may access the 

consumer complaint system through portals that allow them to view information from relevant 

complaints about the company. These portals are only accessible via a secure channel using a 

Bureau issued login and password, where users are advised of their responsibilities for 

protecting PII. These portals enable the company to respond to both the consumer and the 

Bureau about a complaint. 

Question 3 

The CFPB Website states that your agency uses the information for four purposes: 1) to forward 

each complaint to the company for a response, 2) to share data with state and federal agencies, 3) 

to analyze data to help supervise companies and enforce laws, 4) to publish complaints in the 

Consumer Complaint database. In that regard: 

a. How much has been spent to purchase, maintain, and utilize the GDIT system? 

Response 

The actual amounts the Bureau will pay will depend on usage. Through February 2015, the 

Bureau has spent $28.3 million to purchase, maintain, and operate the system. 

Response 

b. How many consumer complaints have been received since the GDIT system was 

established? 

From July 21, 20 II through March 31, 2015, the Bureau has received approximately 582,600 

consumer complaints. 

Response 

c. How did you arrive at that total? lf a consumer makes multiple complaints against 

the same company or about the same issue, how are they counted? If one 

company receives multiple complaints on the same issue, how is that counted? 

This total is a count of complaints. As noted in our reports to Congress, complaint counts 

exclude duplicates from the same consumer and non-consumer complaints (e.g., industry 

whistleblowers). 

Response 

d. How many of those complaints were deemed incomplete, and how were the 

consumers notified so that they may complete the complaint? 

Approximately 54,400 complaints (9%) were found to be incomplete and 9,800 (2%) are 

pending with the consumer or the Bureau. 
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Consumers are notified by email or postal mail, depending on the contact information provided 

by the consumer, if Consumer Response does not have enough information to forward to the 

company for response or to refer the complaint to another regulator. Consumers can call, mail, 

or fax the missing information to complete their complaints. 

Response 

e. How many of those complaints were forwarded [to] the company, state and 

federal agencies, and used to help supervise companies and enforce laws? How 

were those consumers notified of this progress? 

Approximately 398,700 complaints (68%) of complaints received through March 31,2015 have 

been sent to companies for response and another 119,800 complaints (21 %) have been referred 

to other regulatory agencies. These individual complaints can result in remedies to individual 

consumers, and also provide insight and identify trends that have resulted in supervisory 

inquiries and enforcement investigations. Consumers are notified by email or postal mail, 

depending on the contact information provided by the consumer, when their complaints have 

been sent to a company for response or referred to another federal agency and when a response is 

received from the company. The Bureau also lets consumers know that complaints help us 

identify trends and problems in the marketplace and understand the challenges people are facing 

so that the Bureau can do a better job looking for these problems when we supervise companies, 

enforce Federal consumer financial laws, and write rules and regulations. In addition, the 

Bureau shares complaints with state and federal agencies through secure portals to inform their 

efforts. 

Response 

f. How many of those complaints were closed favorably to the consumer, and how 

was "favorably" determined? 

The Bureau's complaint handing process does not specifically define a "favorable" 

determination of a complaint. As of March 31. 2015, companies have responded to 

approximately 380,100 complaints (95%) of the complaints sent to them for response, and 

consumers have disputed approximately 75,200 (21 %) company responses to complaints. 

Response 

g. How many of those complaints resulted in monetary relief to the consumer? What 

was the average of the reward? 

Through our complaint process, consumers have received both monetary relief and nonmonetary relief, such as cleaning up their credit reports, stopping harassment from debt 

collectors, and correcting account information. Companies have reported monetary relief in 

responses to approximately 30,800 complaints sent to them for response. The median amount of 

monetary relief provided to consumers is $148, and the average amount of monetary relief 

provided to consumers is $1,193. 
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h. How many consumers were satisfied with the complaint process? 

Response 

The Bureau gathers feedback from consumers and other stakeholders about the complaint 

process to inform continuous improvement efforts, but does not currently track how many 

consumers are satisfied with the complaint process. 

Question 4 

As you know, the Department of Justice and Federal Deposition Insurance Commission (FDIC), 

of which you are a Board Member, were engaged in a program known as Operation Choke Point. 

The two agencies used something called "reputational risk" to assess business relationships 

between financial institutions and their clients. Were you aware of Operation Choke Point and 

the use of ''reputational risk"? 

Response 

The Bureau is aware of Operation Choke Point and of the concept of"reputational risk." 

Reputational risk goes to the safety and soundness of a financial institution- a primary concern 

for prudential regulators, but one outside the Bureau's principal responsibilities. The Bureau's 

focus is on risk to consumers and markets for consumer financial products and services, not risk 

to individual financial institutions. 

The Bureau was created to ensure evenhanded oversight that secures compliance with consumer 

financial law. Businesses that operate in compliance with the law are essential to operating a 

fair, transparent, and competitive marketplace and in our view they are good for consumers 

because they make available to people the kinds of opportunities that credit and other financial 

products and services are essential to provide. We are pleased to see that those types of 

businesses are able to compete successfully by serving consumers with responsible financial 

products and services. The Bureau is committed to carrying out its supervisory and enforcement 

mandates with consistent recognition of these principles. 

Question 5 

Had you been aware that Operation Choke Point was happening, and that the FDIC and 

Department of Justice were knowingly targeting legal and constitutionally protected businesses 

in the US, would you have used your capacity as a member of the FDIC to stop it? 

Response 

The Federal Deposit Insurance Corporation (FDIC) operates with delegations of authority to its 

division directors and staff for certain operational and policy actions. As you know, the Board 

consists of a chairman, vice chairman, and FDIC director, as well as two ex officio directors 

specified by statute- the Comptroller of the Currency and the Director of the Consumer 

Financial Protection Bureau. The Chairman authorizes and sets the agenda for all meetings of 
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the board, and manages and directs the daily executive and administrative functions and 

operations of the FDIC. Generally the ex officio board members, such as myself, are fully 

occupied with our statutory responsibilities at our own agencies and are engaged in such matters 

at the FDIC only when they rise to the level of the Board of Directors level by being discussed at 

Board meetings. In my role as an outside Director of the FDIC, I carefully review the particular 

facts and circumstances brought to the FDIC Board of Directors for consideration, anything else 

would be necessarily speculative. 

Question 6 

Does the CFPB use "reputational risk" as a metric? If not, why? 

Response 

Much like regulatory capital, earnings power, or any number of key prudential metrics, which 

may strongly influence the safety and soundness of a bank and are therefore the focus of other 

federal regulators, "reputational risk" is not a measure that directly impacts consumers. The 

Bureau's focus is not on risk to individual financial institutions. but on risk to consumers and 

markets for consumer financial products and services. The Bureau uses a number of metrics to 

evaluate risks of financial harm to consumers from providers of consumer financial services. 

These metrics include (but are not limited to), size, market share, number of consumers served, 

growth, and metrics derived from our collection of consumer complaints. 

Question 7 

ln previous testimony you stated that a government should be looking at businesses in the sense 

of being legal or illegal. Would you agree a short-term installment lender (such as payday 

lenders, title lenders, pawn shops, and others) licensed by the state and operating under the rules 

and regulations of state law is operating legally? 

Response 

To operate legally, all businesses must comply with both the state and federal laws applicable to 

them. The Dodd Frank Wall Street Reform and Consumer Protection Act authorizes the Bureau 

to, among other things, assess compliance with Federal consumer financial law. In order to 

determine whether a lender- or any finn- is operating in compliance with the law, it is 

necessary to carefully investigate the facts and circumstances surrounding potential violations. 

Consequently, the Bureau makes determinations about whether firms are carrying out their 

operations in a legal manner on a case-by-case basis. By doing so. the Bureau helps ensure that 

the consumer financial markets function in a fair and competitive way. 

Questions for Director Cordray, Director, Consumer Financial Protection Bureau, from 

Congressman Fincher: 

Question 1 

I am concerned about the CFPB's rigid insistence that an auto lender's portfolio have no pricing 

imbalance. Pricing imbalances can and do exist for reasons that have nothing to do with a 
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consumer's background. For example, consider a bank that purchases credit contracts from 

dealers where every single dealer charges a set price for arranging financing. However, the price 

that these dealers charge differs solely on local costs and competition considerations. In our 

diverse country it is very likely the demographic makeup of the customers in each of those 

dealer's locations will also differ. Then the lender that purchases those contracts will likely have 

a pricing imbalance in its portfolio even though no pricing imbalance exists between different 

groups of customers at the retail level. What public policy justification can support CFPB threats 

to bring an enforcement action against a lender for unlawful discrimination in this scenario? 

Response 

As explained in the Consumer Financial Protection Bureau's (Bureau) March 2013 compliance 

bulletin, Indirect Auto Lending and Compliance with the Equal Credit Opportunity Act, when 

analyzing whether discrimination has occurred at a particular lender based on the overall 

composition of the lending program that it has established, that lender's entire portfolio is the 

relevant focus. 4 If a lender's policies are resulting in certain racial or ethnic groups paying more 

for auto loans from that lender, then the fair lending issue exists across all the loans where that 

policy applies, and not simply for a disaggregated slice of loans 1l1e Bureau's analysis is 

tailored to reflect the institution's particular policies, practices, product~. and channels that exist 

in its lending program, and we appropriately adjust our analysis for each institution that is 

subject to review. As part of the Bureau's overall analysis of auto lender pricing, we carefully 

consider the specifics of each individual case, including factors such as regional pricing 

differences, in addition to a number of other factors, such as consumers' credit scores and debt to 

income ratios; characteristics of the collateral; and terms of the deal, such as the amount 

financed, down payments, the existence of a manufacturer discounted rate, and loan term. 

Question 2 

Director Cordray, when asked by Representative Stivers what you thought about the workability 

of the Department of Justice (DOJ) fair credit risk mitigation model that is set forth in the NADA 

Fair Credit Compliance Policy & Pro&>ram, you provided the following response: 

"We have responsibility to oversee fair lending by auto lenders but not by auto dealers. 

So, that the dealer program that they've developed may well be an excellent program and 

we've talked to them about it at their suggestion. It's really for-- more for the Justice 

Department to say what they think of that not really within my jurisdiction." 

However, the CFPB did not demonstrate a similar reluctance to assert its jurisdiction over dealer 

level transactions in its March 2013 fair lending guidance to auto lenders, where it stated: 

''The disparities triggering liability could arise either within a particular dealer's 

transactions [emphasis added] or across different dealers within the lender's portfolio. 

Thus, an indirect auto lender that permits dealer markup and compensates dealers on that 

4 See CFPB Bulletin 2013-02. at 3 ("The disparities triggering liability could arise either within a particular dealer's 

transactions or across different dealers within the lender's portfolio."). 
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95050.018

basis may be liable for these policies and practices if they result in disparities on a 

prohibited basis." 

Similarly, the Bureau's guidance also stressed to indirect lenders the importance of regularly 

analyzing "both dealer-specific and portfolio-wide loan pricing" as well as "ongoing monitoring 

for compliance with other policies and procedures that are intended to reduce fair lending risk 

(such as controls on dealer discretion)." 

Given these statements in your guidance, please explain in detail why you believe that the 

Bureau is unable to address the value of the DOJ fair credit risk mitigation model when assessing 

the need for indirect lenders (not dealers) to impose controls on dealer discretion and to prevent 

dealer-level pricing imbalances as set forth in the Bureau's guidance. 

Response 

The Bureau welcomes proactive proposals that demonstrate a commitment to fair lending. 

However, lenders should be careful about assuming that individual dealer-level actions will fully 

address their own fair lending risks. As you note, in general, the National Automobile Dealers 

Association's (NADA) Fair Credit Compliance Policy and Program is based on two Department 

of Justice (DOJ) cases from 2007, where that model was negotiated in settlements involving 

dealers, over which the DOJ has jurisdiction. The Bureau's focus is on indirect auto lenders. 

The Bureau remains concerned about indirect lending programs built around discretion and 

financial incentives that create fair lending risks. The NADA proposal would permit indirect 

lending programs built around dealer discretion and financial incentives to provide adjustments 

or exceptions to the established interest rate, which can create fair lending risks. In general, 

lenders who choose to implement such programs may want to review the Spring 2014 edition of 

Supervisory Highlights,5 which includes guidance related to documenting exceptions to 

established credit standards to mitigate fair lending risk. 

Our March 2013 bulletin, Indirect Auto Lending and Compliance with the Equal Credit 

Opportunity Act, was issued to provide clarity and guidance for institutions regarding the 

application of Equal Credit Opportunity Act and Regulation B, and our attendant supervisory and 

enforcement approach in this area. The bulletin provided examples of internal controls, program 

features, and compliance management systems that institutions might use to mitigate legal risk. 

The bulletin also indicated that lenders may choose to adopt non-discretionary pricing policies as 

an alternative method of mitigating fair lending risks. 

Question 3 

On February 23, Director Cordray said before the National Association of Attorneys General 

Annual Winter Meeting in his prepared remarks: 

"In addition, the Bureau has focused significant resources on rooting out discrimination 

in indirect auto lending. Examination and enforcement teams have reached resolutions to 

address practices that resulted in discrimination at several supervised institutions, which 

5 Supervisory Highlights: Spring 2014, available at http://files.consumerfinance.gov/f/201405 cfpb supervisoryhighlights-spring-20 !4.pdf. 
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collectively are paying out approximately $136 million to provide redress for up to 

425,000 consumers who were discriminated against on the basis of race." 

a. A peer review of the CFPB's proxy methodology found that method to be "conceptually 

t1awed ... and subject to significant bias and estimation error" (see the Charles River 

Associates Report entitled Fair Lending: Implications for the Indirect Auto Finance 

Market (November 19, 2014)). In light of these findings, what corrections and 

safeguards has the CFPB employed to ensure that the CFPB, when reviewing fair lending 

compliance by indirect auto lenders, is making accurate determinations concerning the 

amount of dealer participation paid by different groups of similarly situated consumers? 

Response 

On September 17, 2014, the Bureau published a white paper, entitled Using Publicly Available 

Information to Proxy for Unidentified Race and Ethnicity, that details the methodology the 

Bureau uses to calculate the probability that an individual is of a specific race and ethnicity based 

on his or her last name and place of residence. The Bureau's analysis demonstrates that its proxy 

is more accurate at approximating the overall reported distribution of race and ethnicity than 

other available methods using publicly available data. The Bureau's proxy assigns an individual 

probability of inclusion in a prohibited-basis group based on both geography and surname, 

whereas other proxies use geography or surname alone in predicting individual applicants' 

reported race and ethnicity. 

The Bureau and the paper you cite both agree that there are racial and ethnic disparities in 

pricing resulting from discretionary dealer markup and compensation policies, and that a proxy 

can be used to estimate both pricing disparities and the number of consumers potentially harmed. 

The disagreement is regarding how many borrowers were harmed and by how much. 

The Bureau's approach is designed to arrive at the best estimate of the total number ofhanned 

borrowers and to accurately identify the full scope of harm. The Bureau makes final 

determinations regarding discriminatory outcomes and their scope in dialogue with individual 

lenders, and carefully considers every argument lenders make about alternative ways to identify 

the number of harmed borrowers and the amount ofhann. In some instances, the Bureau has 

adopted changes and reduced our estimates in response to specific alternatives offered by 

individual lenders with regard to their specific loan portfolios. 

b. If you do not accept- in whole or in part- the findings and conclusions of this peer 

review, state in detail the basis upon which you reject its finding(s) and conclusion(s). 

Response 

The paper you cite does not undermine either the importance of the Bureau's anti-discrimination 

work in indirect auto lending or our confidence in our use of the BISG methodology. That paper 

does not provide reassurance that the fair lending risk presented by discretionary dealer markup 

is less significant than we-and other regulators and consumer advocates-believe. Rather, the 

paper takes issue with the manner in which its authors think the Bureau is assessing that risk, 

using tl1e BISG methodology, in order to detennine whether violations have occurred. The 
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authors do not reject the use of a BISG methodology itself, they simply offer a variety of 

recommendations based on their beliefs regarding the Bureau's use of the BISG proxy. These 

beliefs reflect a potential misunderstanding of how the Bureau conducts its analysis, which is 

based on the specific business practices of individual lenders. 

The paper you cite presumes the Bureau applies the same analysis to all lenders, in all contexts, 

including recommending statistical controls the Bureau should use in every case, regardless of 

whether those controls apply to an individual lender's business model. At the Bureau, each 

supervisory examination or enforcement investigation is based on the particular facts presented. 

In analyzing lending data for statistical disparities on a prohibited basis, examination teams 

typically construct regression models based on the particular institution's specific policies and 

practices, which vary from institution to institution and may also vary by product and channel. 

For this reason, for each institution subject to review, examination teams may construct multiple 

regression models by including controls that reflect the institution's various policies, practices, 

products, and channels, as well as any additional factors identified by the examination team or 

the institution. 

The Bureau engages with individual lenders to better understand their policies and products. As 

such, we have considered, on a case-by-case basis, many of the controls and recommendations 

listed in the paper you cite. Many of the controls and recommendations are already incorporated 

into our analysis, both to test the robustness of our results and to anticipate (and respond to) 

lender concerns. This process is an ongoing dialogue between specific institutions and the 

Bureau. 

Once the Bureau has found disparities in outcomes by race, ethnicity, or another prohibited basis 

under the Equal Credit Opportunity Act for a particular lender, the Bureau needs to consider 

whether these disparities result from legitimate business needs that are actually incorporated in 

the lender's pricing policies and practices. Where lenders have demonstrated this, the Bureau 

has incorporated controls into our analysis, and as a result the disparities may be reduced or 

eliminated altogether. However, where lenders simply offer up controls without justification or 

proof that these factors in fact reflect legitimate business needs and are actually incorporated into 

decisions about discretionary markup, it is not appropriate for the Bureau to include these factors 

in our analysis. That determination is one that the Bureau needs to make on a case-by-case basis 

and based on actual evidence. 

c. The Bureau's own White Paper on its proxy methodology reveals in Table I 0 that the 

number of consumers it estimated to be African American exceeds the number of 

consumers who identified themselves as African American by 20%. Explain in detail 

how the CFPB corrects for this error. 

Response 

As noted in our previous response, the Bureau's approach is designed to arrive at the best 

estimate of the total number of harmed borrowers and to accurately identify the full scope of 

harm. The Bureau makes final determinations regarding discriminatory outcomes and their 

scope in dialogue with individual lenders, and carefully considers every argument they make 
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about alternative ways to identify the number of harmed borrowers and the amount of harm. In 

some instances, the Bureau has adopted changes and reduced our estimates in response to 

specific alternatives offered by individual lenders with regard to their specific loan portfolios. 

With respect to the Bureau's finding that, as applied to a dataset of mortgage borrowers whose 

racial identity was known, the proxy overestimates the number of minority borrowers, 

particularly African Americans, the Bureau's study explained its likely cause: the racial and 

ethnic makeup of mortgage applicants is not particularly representative of the general population. 

When the proxy is applied to data where the applicants arc more representative of the general 

population. such as data on auto loan borrowers, this perceived overestimation may disappear or 

decrease significantly. 

d. Explain in detail how the CFPB determined both the cumulative number and the 

individual identity of the consumers referenced in your statement that several supervised 

institutions "collectively are paying out approximately $136 million to provide redress 

for up to 425,000 consumers who were discriminated against on the basis of race." 

Response 

In September 2014, the Bureau published an edition of Supervisory Highlights dedicated to our 

work in indirect auto finance. We reported that, as a result of the Bureau's supervisory and 

enforcement resolutions with several indirect auto lenders, those lenders would collectively 

provide redress to up to 425,000 consumers who paid more to finance their cars or trucks based 

on their race or national origin. 

As reported in December 2013, in connection with the public enforcement action against Ally 

Financial fnc. and Ally Bank (Ally), the Bureau and the Department of Justice (DOJ) determined 

that more than 235,000 minority borrowers paid higher interest rates for their auto loans between 

April 20 II and December 2013 because of Ally's discriminatory pricing system. In addition, as 

of September 2014, confidential supervisory resolutions with several additional lenders were 

expected to result in redress to up to 190,000 more borrowers. 

The overall borrower numbers were determined based on whether individual consumers were 

likely to be minorities and whether they paid a markup greater than the average Non-Hispanic 

White markup. The individual identity of consumers who receive redress may be determined in 

various ways, typically as a result of negotiations with each lender. For example, redress may go 

to all consumers with a high likelihood of being in one of the affected groups who also paid a 

higher-than-average markup. Alternatively, consumers may be asked to self-identify or 

otherwise affirm that they arc members of one of the affected groups. 

e. Explain in detail how the CFPB determined both the cumulative number and the 

individual identity of the "more than 235,000 minority borrowers [who] paid higher 

interest rates for their auto loans between April2011 and December 2013 because of 

Ally's discriminatory pricing system," as set forth in the CFPB's press release dated 

December 20,2013. 
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Response 

Demographic information, such as race and ethnicity, is not collected by non-mortgage lenders. 

The Equal Credit Opportunity Act generally forbids the collection of this kind of demographic 

information outside of the mortgage context. However, this information is vital to assessing fair 

lending compliance. Thus, federal regulatory and enforcement agencies have long used proxy 

methods in non-mortgage data analysis. 

As you note, the Bureau and DOJ ordered Ally to pay $80 million in damages to harmed 

African-American, Hispanic, and Asian and Pacific Islander borrowers and $18 million in 

penalties. The Bureau and DOJ determined that more than 235,000 minority borrowers paid 

higher interest rates for their auto loans between April 2011 and December 2013 because of 

Ally's discriminatory pricing system. 

The Bureau and the DOJ currently are overseeing Ally's compliance with the requirements set 

out in the Consent Order, and are working together with Ally to analyze loan data, identify 

victims, and provide remediation. 

f. As of March 13, 2015, state whether- and to what extent- the CFPB has positively 

identified the minority borrowers who will receive damages as a result ofthe Ally 

consent order referenced above. 

Response 

As a result of Ally's auto lending discrimination settlement with the Bureau and the DOJ, Ally 

contracted with a settlement administrator to distribute the $80 million settlement fund to the 

over 235,000 harmed consumers. The Bureau and the DOJ have been working closely with the 

administrator and Ally to implement consumer outreach and participation methods and materials 

to effectively distribute the settlement fund. Remediation payments cannot be sent until all 

affected consumers have been given a full opportunity to participate in the settlement, which 

requires extensive preparation and outreach. 

Given that the Bureau found that more than 235,000 African American, Hispanic, and Asian and 

Pacific Islander borrowers were affected by Ally's discretionary pricing and compensation 

policies, outreach to consumers is being conducted in seven languages to hundreds of thousands 

of consumers. specifically in English, Spanish, Mandarin, Cantonese, Vietnamese, Korean, and 

Tagalog. The Bureau's Consent Order requires the settlement administrator to make all 

reasonable efforts to provide effective translation services to affected consumers. Once the 

settlement administrator makes this infonnation available to the public, the Bureau will also 

make contact infonnation for the settlement administrator, as well as infonnation on how 

affected consumers can participate, available on our website. 

g. Regarding the consent order that the government entered into with Ally Financial and 

Ally Bank in December 2013, how much of the $80 million in damages that Ally was 

required to pay has been distributed to consumers you contend were harmed by disparate 

impact? 
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Response 

Remediation payments cannot be sent until all affected consumers have been given a full 

opportunity to participate in the settlement, which requires extensive preparation and outreach. 

Given that the Bureau found that more than 235,000 African American, Hispanic, and Asian and 

Pacific Islander borrowers were affected by Ally's discretionary pricing and compensation 

policies, outreach to consumers is being conducted in seven languages to hundreds of thousands 

of consumers, specifically in English, Spanish, Mandarin, Cantonese, Vietnamese, Korean, and 

Tagalog. Once the settlement administrator makes this information available to the public, the 

Bureau will also make contact information for the settlement administrator, as well as 

information on how affected consumers can participate, available on our website. 

Questions for Director Cordray, Director, Consumer Financial Protection Bureau, from 

Congressman Fitzpatrick: 

Question 1 

Do you agree with Sheila Bair's proposal (Former FDIC Director) for a legislative fix to reduce 

the regulatory burden on community banks with less than $10 billion in assets from some 

existing and new regulations? 

Response 

The Consumer Financial Protection Bureau (Bureau) has already established exceptions and 

special provisions for small creditors, e.g., a category of Qualified Mortgages (QM) available 

only to small creditors and a category of balloon QMs available only to small creditors who 

operate predominantly in rural or underserved areas. The Bureau strives to implement its 

statutory mandates faithfully and fairly. Although the Bureau does track pending legislative 

proposals to be aware of the potential implications on our work and resources, we generally do 

not take a position on pending legislation. 

Question 2 

What are your predictions on how QM lending rules will affect credit availability? 

Response 

In implementing the mandates of the Dodd-Frank Wall Street Reform and Consumer Protection 

Act (Dodd-Frank Act), the Bureau is very conscious of the need to consider credit availability 

along with consumer protection. The Bureau monitors the markets for the impacts of our rules 

on credit availability and conducts an assessment of our significant rules no later than five years 

after each such rule takes effect. When the Bureau adopted the ability-to-repay (and QM) rule 

we did a forward-looking analysis of the rule's likely impact. We concluded that the rule would 

not lead to a significant reduction in consumers' access to mortgage credit. Indeed, we 

anticipated that because mortgage credit was already restricted, the rule would have only a very 

small impact on access to credit in the near term. Although it has been only 15 months since the 

rule took effect, the Bureau has seen no information thus far to contradict that assessment. 

Bureau staff will continue to monitor the mortgage market and will complete the required 
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backward-looking assessment based on the more extensive infonnation that more time will 

provide (and by our deadline in January of2019). 

The Bureau's ultimate goal is to ensure that responsible, affordable mortgage credit remains 

available to consumers by providing sufficient incentives to encourage QMs that are affordable, 

as intended by Congress, while also leaving room for the development of a non-QM market to 

serve consumers who do not meet the requirements for a QM who nonetheless have the ability to 

repay a mortgage loan. The Bureau has carefully calibrated the QM definition to avoid 

unnecessary disruption of the mortgage market and to protect consumers' access to credit during 

the housing market recovery, including a temporary QM definition to cover a greater percentage 

of the mortgage market. The Bureau expects a healthy market for non-QMs to develop over 

time. 

Question 3 

Some community bankers in my district are concerned that while credit availability appears to be 

increasing, the question of the CFPB's rules on "qualified mortgages" and the ability to repay 

rules continue to be a question. These individuals worry that down the pike, legal challenges will 

arise. Can you comment on this? 

Response 

The Bureau conducted an analysis of overall litigation costs that we included in the preamble of 

in the ability-to-repay final rule. The analysis estimated that an increase in overall loan pricing 

to account for such litigation risks of only a few basis points would result. 

We continue to believe that our analysis projecting a negligible likely impact of litigation risks, 

set forth in the final rule, is accurate--and we have yet to see any contrary evidence, including 

any dramatic increase in TILA litigation. We will continue to monitor the market, however, and 

we will continue to review and assess our initial analysis as more infonnation becomes available. 

Question 4 

Increasing the amount of information for HMDA reports adds to the cost of doing business for 

community bankers. Do you believe that these demands translate to better homeowner lending? 

Response 

Yes. Today Home Mortgage Disclosure Act (HMDA) data provide a broadly representative 

picture of home lending in the nation unavailable from any other data sources. There is general 

agreement that the information available through HMDA has helped to bring greater fairness, 

transparency, and efficiency to the residential loan market. Serious inadequacies exist in the 

information currently collected under the HMDA regulations. ln the Bureau's proposed HMDA 

rule, we addressed thoroughly the potential benefits and costs of the regulatory and operational 

changes under consideration, including the numerous ones that were added by the statute as 

amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The changes 

that will be included in the final rule will be the result of additional careful analysis and 

consideration of public comment. 
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Unlike many rules related to the mortgage market, HMDA is not principally focused on 

regulating interactions between financial institutions and borrowers. Instead, HMDA requires 

financial institutions to report to the public and Federal agencies information they collect about 

mortgage applications, originations, and loan purchases at the transaction level. Such 

information helps the public and public officials understand whether financial institutions are 

serving the housing credit needs of their communities, among other things. The proposed 

changes to the HMDA regulations will allow greater public understanding of mortgage market 

lending dynamics through more visibility into market practices, and will help the public and 

public officials better identify emerging risks in the market that could potentially harm 

consumers. 

Questions for Director Cordray, Director, Consumer Financial Protection Bureau, from 

Congressman Foster: 

Director Cordray, thank you for all the great work that you do and for appearing before so 

regularly before the Financial Services Committee. I would also like to commend your staff for 

their responsiveness and for all the great work they do every day to protect consumers. I'd like to 

tum your attention to Bureau's foray into cracking down on predatory and unaffordable shortterm loans. I personally have some concerns about news reports of increasing auto loans to 

subprime borrowers and hope that this is an area you will take a close look at. On a related issue, 

I know that the Bureau is crafting regulations to govern a wide range of short-term loans. Can 

you talk a little about the Bureau's process for promulgating a rule for small-dollar lenders that is 

data-driven and based on empirical analysis and do you expect to look at applying stronger 

underwriting and ability to repay standards across the board? 

Response 

On March 26,2015, the Consumer Financial Protection Bureau (Bureau) released an outline of 

the proposals that the Bureau is considering as part of the process of soliciting input from small 

business representatives and other stakeholders. The proposals under consideration reflect the 

Bureau's analysis of risks to consumers in the markets for payday, vehicle title, and similar 

loans. To develop rulemaking proposals, the Bureau relies on extensive quantitative analysis of 

available data, monitoring the market for risks to consumers, our supervisory and enforcement 

experience, consumer complaints, and the experience of the states and of other federal agencies. 

After considering the feedback from stakeholders in this phase of the process, the Bureau will 

publish a notice of proposed rulemaking and solicit formal comment from the public. 

Questions for Director Cordray, Director, Consumer Financial Protection Bureau, from 

Congressman Kildee: 

Director Cordray, I understand that Charles River Associates conducted a study last November 

that examines the methodology used by the CFPB in determining disparate impact. The study 

concluded that the CFPB methodology is flawed. When the report was released, a CFPB 
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spokesman said the agency would "review it carefully." I understand that as of the end of 

February, the CFPB has still not given any concrete feedback on the study.6 

This report raises serious concerns. For example, the study found that CFPB's "proxy 

methodology creates significant measurement error, which results in overestimations of 

minorities in the population by as much as 41 percent."7 

• While I understand that the Bureau may disagree with the conclusions of this study, will 

the Bureau respond in writing to the findings set forth in the Charles River study? 

Tn addition to the study, the CFPB 's 2013 auto guidance suggested that finance sources consider 

compensating auto dealers for arranging financing via a flat fee, which is a fee that cannot be 

discounted. 

It seems to me that removing the possibility that a customer can negotiate a lower APR on an 

auto loan in the showroom may have the unintended consequence of harming consumers. Other 

than implementing monitoring programs whose cost will be borne by consumers, is there a way 

the Bureau can enforce fair credit laws without eliminating a dealer's ability to discounuredit in 

the showroom? 

I want to make sure that we are ensuring consumers are protected from potential unscrupulous 

auto dealers, but at the same time, we need to make sure that we are not preventing costumers 

from accessing the best deal that they can. 

I appreciate your time and conscientiousness in responding to these questions. 

Response 

The Consumer Financial Protection Bureau (Bureau) and the paper you cite both agree that there 

are racial and ethnic disparities in pricing resulting from discretionary dealer markup 

compensation and pricing policies and that a proxy can be used to estimate both pricing 

disparities and the number of consumers potentially harmed. The disagreement is regarding how 

many borrowers were harmed and by how much. 

The Bureau's approach is designed to arrive at the best estimate of the total number of harmed 

borrowers and to accurately identify the full scope of harm. The Bureau makes final 

determinations regarding discriminatory outcomes and their scope in dialogue with individual 

lenders, and carefully considers every argument lenders make about alternative ways to identify 

the number of harmed borrowers and the amount of harm. In some instances, the Bureau has 

6 Jim Henry. "Lender groups want answersfi·om the CFPB". Automotive News, February 25, 2015. 

http://www.autonews.com/article/20 1502 7 5/BLOG 13/ 150229902/lender-groups-want -answers-from-the-cfub 

7 Industry letter to Mr. Cordray, from the American Bankers Association, American Financial Services Association, 

Consumer Bankers Association, Financial Services Roundtable and U.S. Chamber of Commerce. 

http://www .nadafrontpage .com/upload/wysi wvg!Joi ntTradeLetterCordray 02. 18.15. pdf 
110 


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adopted changes and reduced our estimates in response to specific alternatives offered by 

individual lenders with regard to their specific loan portfolios. 

With respect to the Bureau's finding that, as applied to a dataset of mortgage borrowers whose 

racial identify was known, the proxy overestimates the number of minority borrowers, 

particularly African Americans, the Bureau's white paper, Using Publicly Available Information 

to Proxy .for Unidentified Race and Ethnicity, explained its likely cause: the racial and ethnic 

makeup of mortgage applicants is not particularly representative of the general population. 

When the proxy is applied to data where the applicants are more representative of the general 

population, such as data on auto loan borrowers, this perceived overestimation may disappear or 

decrease significantly. 

This same overestimation would be present in the Charles River Associates' assessment of the 

proxy, which also relies on mortgage data. As noted, when the proxy is applied to data (e.g., 

non-mortgage products) where the applicants are more representative of the general population, 

there may not be overestimation or it may be much less pronounced. 

Regarding our March 2013 Indirect Auto Lending and Compliance with the Equal Credit 

Opportunity Act Bulletin (Bulletin), which reminded indirect auto lenders of their existing 

responsibilities under the Equal Credit Opportunity Act, but did not mandate flat fees or any 

other particular system of dealer compensation. Flat fees are mentioned in the bulletin merely as 

one example of a non-discretionary compensation mechanism. The Bulletin focused on the 

heightened fair lending risks associated with lenders' pricing and compensation policies that 

allow auto dealers the discretion to increase (or "markup") the consumer's interest rate and 

benefit from the increased interest revenue. 

In addition, as noted in the Summer 2014 issue of Supervisory Highlights,8 when addressing 

discrimination in indirect auto lending, a key component of the Bureau's supervisory resolutions 

has been to direct the lender to adopt policies and practices that effectively mitigate fair lending 

risk, while avoiding the creation of new risks of discrimination or other consumer harm. 

Supervisory and enforcement experience has identified three possible methods of mitigating the 

fair lending risk associated with auto lending policies that allow discretionary pricing 

adjustments; however, there may be other methods, and examination teams recognize that the 

appropriate program will vary among financial institutions. As you note, one alternative is to 

monitor and, if necessary. correct disparities through a strong compliance management system. 

Another alternative is to implement policies that limit the maximum discretionary pricing 

adjustment to an amount that significantly reduces or eliminates disparities and fair lending risk, 

for example, imposing limits of I 00 basis points, rather than the more common limits of 200 or 

250 basis points. This option may significantly reduce but will not eliminate compliance 

activities related to discretionary pricing. Finally, a third alternative is to eliminate discretionary 

dealer adjustments to risk-based buy rates altogether and fairly compensate dealers using a nondiscretionary mechanism that does not result in discrimination. By eliminating dealer pricing 

8 Supervisory Highlights: Summer 2014, available at http://files.eonsumerfinance.gov/f/201409 cfub supervisoryhighlights auto-lending summer-2014.pdf. 
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discretion, the lender eliminates the need for monitoring of discretionary dealer pricing 

adjustments. 

Questions for Director Cordray, Director, Consumer Financial Protection Bureau, from 

Congresswoman Moore: 

Has the Bureau considered not applying credit card regulations to providers that cap the total 

amount a consumer is able to overdraft at a lower threshold (e.g. say below $100)? Outside of 

applying credit card regulations, which the Director has acknowledged will limit the ability to 

offer overdraft protection, would certain guardrails suffice in protecting consumers. For example, 

could balance alerts, overdraft notifications, small dollar butlers, fee-free cure periods, and limits 

to the number of fees an option? 

Response 

The Consumer Financial Protection Bureau (Bureau) evaluated a range of potential approaches 

to regulating overdraft services and credit features offered in connection with prepaid accounts. 

The Bureau believes its proposed approach appropriately balances the need and desire of some 

consumers to access credit in connection with a prepaid card and the need for guard rails to make 

sure such credit is offered with protections similar to those that apply to other card-based credit 

(i.e., credit cards). The comment period for the prepaid accounts proposal closed on March 23, 

2015, and Bureau staff are currently reviewing and carefully considering the more than 35,000 

comments received on this proposal from industry, trade associations, consumer advocacy 

groups, consumers, and other interested stakeholders. The Bureau will consider possible 

modifications to its proposal based on comments received, in accordance with its obligations for 

notice-and-comment rulemaking pursuant to the Administrative Procedures Act. 

Questions for Director Cordray, Director, Consumer Financial Protection Bureau, from 

Congressman Pittenger: 

Last Congress the Congressional Budget Office released an estimate of the costs associated with 

implementing HR 4383, The Bureau of Consumer Protection Small Business Advisory Board 

Act, from information given to CBO by the CFPB. The bill, which I have just reintroduced as 

HR1195, would create a permanent Small Business Advisory Board, similar to those already 

established within the CI'PB, and would also make permanent the Credit Union and Community 

Bank Councils. Could you please provide me with all records your employees provided to CBO 

for purposes of generating a cost estimate? In addition to that information, specifically, I would 

like to know: 

How many additional staff members the CI'PB foresees it would need to hire, 

The salary, or estimated salary, for each staff member associated with the Small Business 

Advisory Board, Credit Union and Community Bank Councils, 

The reimbursement figures for the existing boards and their members, 
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Why, and to what extent, would the cost of the existing Credit Union and Community Bank 

Councils change should their status be changed to permanent councils? 

Response 

On April3, 2015, the Congressional Budget Office (CBO) published its assessment of the cost to 

implement H.R. 1195, the Bureau of Consumer Financial Protection Advisory Boards Act. In 

that report, CBO estimated that the Consumer Financial Protection Bureau (Bureau) would spend 

approximately $850,000 per year, including two new staff positions, to support three new 

statutorily-mandated advisory groups: (I) Small Business Advisory Board; (2) Credit Union 

Advisory Council; and (3) Community Bank Advisory Council. 

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) required 

the Bureau to establish the Community Advisory Board (CAB). The Dodd-Frank Act also 

requires the Bureau to reimburse members of the CAB for travel expenses, including 

transportation and subsistence (!2 U.S.C. 5494). 

While not required by Congress, in 2012 the Bureau elected to voluntarily establish the 

Community Bank Advisory Committee (CBAC) and the Credit Union Advisory Committee 

(CUAC). Unlike the CAB, the Bureau provides only partial reimbursement to members of the 

CBAC and CUAC for travel and subsistence. Also, the CAB convenes three times per year, 

typically outside the DC-metro area, whereas the CBAC and CUAC meet biannually, typically at 

the Bureau headquarters. As a result, the Bureau's expenses associated with these voluntary 

advisory committees are currently considerably less than the statutorily-mandated CAB. 

Similar to the Dodd-Frank Act, H.R. 1195 would require the Bureau to cover travel expenses, 

including transportation and subsistence for members of the three new advisory groups, bringing 

the projected costs more in line with current CAB costs than with current CBAC and CUAC 

costs. 

Questions for Director Cordray, Director, Consumer Financial Protection Bureau, from 

Congressman Schweikert: 

Question I 

The Bureau's Notice of Proposed Rulemaking for prepaid cards includes new requirements on 

providers that would change how they deliver disclosures to consumers. Under the proposed 

rules, could these new requirements significantly disrupt the ability of prepaid card providers to 

offer their products? If so, does the proposal serve the best interest of the consumer or further 

assist in providing unbanked Americans access to the modem payments marketplace? 

Response 

The Consumer Financial Protection Bureau (Bureau) has proposed requiring financial 

institutions to make certain disclosures available to consumers before a consumer agrees to 

acquire a prepaid account ("pre-acquisition" disclosures). In particular, two separate disclosures 

would be required. The first required disclosure would be a "short fonn," highlighting key fees 

that the Bureau believes are most important for consumers to know about prior to acquisition. 
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The second required disclosure would be a '"long form," setting forth all of the prepaid account's 

fees and the conditions under which those fees could be imposed. However, if certain conditions 

are met for prepaid cards that are offered for sale in retail stores or over the phone, the proposed 

rule would provide an exception to the requirement that financial institutions provide the long 

form disclosure in writing before the consumer agrees to acquire the account, so long as such 

institutions provide consumers with the ability to access to the long form disclosure information 

by telephone or internet. 

As the Bureau explained in its proposal, it does not believe that the proposed disclosure 

requirements would "significantly disrupt the ability of prepaid card providers to offer their 

products." The Bureau understands that prepaid providers typically include some version of a 

short form disclosure on prepaid card packaging currently, and also provide consumers with a 

detailed list of fees at some point in time. The Bureau seeks to standardize such disclosures and 

the delivery thereof, so as to assist consumers in comparison shopping and to ensure that 

consumers have access to fee information before agreeing to acquire a prepaid account. 

The comment period for the prepaid accounts proposal closed on March 23,2015, and Bureau 

staff are currently reviewing and carefully considering the more than 35,000 comments received 

on this proposal from industry, trade associations, consumer advocacy groups, consumers, and 

other interested stakeholders. The Bureau will consider possible modifications to its proposal 

based on comments received, in accordance with its obligations for notice-and-comment 

rulemaking pursuant to the Administrative Procedures Act. 

Question 2 

In today's hyper-efficient smartphone economy, it is imperative that the Bureau ensure 

maximum optionality for consumers. Companies use lead methods to reach consumers looking 

for products online, including coupon, deal and promotion sites. which consumers access via 

mobile device. Consumers can request a card while using these sites, free apps, and social media, 

and then companies mail the consumer a packet at no cost which includes the terms and 

conditions, a description of the fees, and an unactivated, unfunded card. 

How will the Bureau alter the proposed rules so that companies and consumers can continue to 

efficiently interact in an online environment? 

Response 

The Bureau's prepaid account notice of proposed rulemaking (proposal) specifically addresses 

electronic disclosures for prepaid accounts acquired through the internet, including via mobile 

phone apps. For example, see proposed 12 CFR 1005.18(b)(3)(i)(B). In particular, the Bureau 

believes that a benefit of its proposed shmt form pre-acquisition disclosure is that its focus on 

key fees makes it easily readable on a smartphone screen. 

As noted above, the Bureau will consider possible modifications to its proposal based on 

comments received, in accordance with its obligations for notice-and-comment rulemaking 

pursuant to the Administrative Procedures Act. 
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Questions for Director Cordray, Director, Consumer Financial Protection Bureau, from 

Congresswoman Sinema: 

Director Cordray, I appreciate the CFPB's ongoing efforts to ensure that there are appropriate 

consumer protections in place for credit products (such as payday, overdraft, prepaid etc.)and 

support the goal of weeding out unfair, deceptive, and unscrupulous practices, but I also believe 

there is a real need for a vibrant consumer-focused lending industry. Can you tell me what the 

Bureau is doing to encourage new, viable and sustainable services in that sector? 

Response 

The proposals under consideration by the Consumer Financial Protection Bureau (Bureau) for 

payday, vehicle title, and similar loans include common sense protections that would enable a 

consumer-focused lending industry to extend loans that consumers have the ability to repay. The 

proposals would penn it lenders to either detennine at the outset of a loan that a consumer can 

repay the loan while continuing to meet her other major financial obligations and living expenses 

or to take steps to make sure that a consumer is not already in a cycle of debt and then extend a 

loan structured in a way that allows the consumer to taper off her debt. As long as lenders satisfy 

these baseline protections. the proposals under consideration would not prevent lenders from 

developing innovative products and practices to meet consumers' needs for credit products. 

The Bureau appreciates the need for innovative financial products and services that serve 

consumers in the markets for various credit products. The Bureau's Project Catalyst supports 

innovators creating consumer-friendly financial products. The Bureau works with groups that 

need a partner to try out an innovative service or to run trials to improve disclosures. The 

Bureau also shares consumer complaints about financial products and services so that lenders 

and others can explore ways to improve the consumer financial marketplace. 

Questions for Director Cordray, Director, Consumer Financial Protection Bureau, from 

Congressman Westmoreland: 

Question 1 

Director Cordray, in your testimony before the House Financial Services Committee on March 

3, 2015, you stated that you were worried about consumers ending up in a "debt trap": 

(a) What is the Bureau's office definition of "debt trap"? If no official definition 

exists, please describe in detail the meaning as used in your testimony. 

Response 

The Consumer Financial Protection Bureau (Bureau) is concerned about debt traps that 

arise when consumers struggle to repay unaffordable loans. These loans may result in an 

extended sequence of reborrowing, defaults and collections, and other hanns. An 

outsized loan payment or series of payments that arc unaffordable to the consumer can 

cause a consumer to need to reborrow in order to cover other obligations and living 

expenses. The Bureau considers these circumstances to be debt traps. 
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(b) Does the Bureau have any data/reports/studies indicating specifically that 

overdraft fees on prepaid products have caused consumers to fall into a "debt trap"? 

If so, please provide these reports/data/studies for the record. 

Response 

The Bureau has not stated that overdraft fees on prepaid products have caused consumers to fall 

into "debt traps:' 

The Bureau believes that its proposal, if finalized, would implement guard rails to protect 

consumers who may want to access credit features in connection with a prepaid account. In 

developing its proposal, the Bureau evaluated a range of potential approaches to overdraft 

services and credit features in connection with its prepaid accounts proposed rulemaking. The 

Bureau believes its proposed approach appropriately balances the need and desire of some 

consumers to access credit in connection with a prepaid card and the need for guard rails to make 

sure such credit is offered with protections similar to those that apply to other card-based credit 

(i.e., credit cards). 

In the Bureau's evaluation of credit features offered in connection with prepaid accounts, the 

Bureau carefully considered multiple sources of information and various other factors, including: 

existing relevant consumer protection regulations governing overdraft services and a range of 

credit products subject to Regulation Z; consumers' use of those features to the extent offered in 

today's market, and consumer expectations and understanding of prepaid accounts and credit 

features offered in connection therewith (including through discussion in the Bureau's consumer 

testing); comments received from industry, consumers, and consumer advocacy groups in 

response to the Bureau's May 2012 advanced notice of proposed rulemaking regarding prepaid 

cards; analysis of data from the Bureau's overdraft research on deposit accounts and other 

available research; further outreach to industry, consumer advocacy, and other groups; and 

ongoing market analysis.9 

In addition, the comment period for the prepaid accounts proposal closed on March 23, 2015, and 

Bureau staff are currently reviewing and carefully considering the more than 35,000 comments 

received on this proposal from industry, trade associations, consumer advocacy groups, 

consumers, and other interested stakeholders. The Bureau will consider possible modifications 

to its proposal based on comments received, in accordance with its obligations for notice-andcomment rulemaking pursuant to the Administrative Procedures Act. 

Question 2 

Has the Bureau studied whether the application of Regulation E rules to prepaid overdraft 

products (consistent with the application of those same rules and guidance to debit cards for 

deposit accounts), as opposed to the application of Regulation Z, would address the concerns 

9 See. e.g., 79 FR 77102,77204 (Dec. 23, 2014). 
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the Bureau has with "debt traps"? If the Bureau has done so, please provide copies of the 

applicable studies, reports and data for the record. 

Response 

Please see response to Question I (b). 

Questions for Director Cordray, Director, Consumer Financial Protection Bureau, from 

Congressman Williams: 

Question 1 

In 2012, the Bureau released its advanced notice of proposed rulemaking (ANPR) for prepaid 

cards. The Bureau clearly indicated it would issue rules on general purpose reloadable cards, 

otherwise known as GPR cards. However, the 870-page Notice of Proposed Rulemaking you 

released in December amends Regulation E and Regulation Z and applies those regulations to 

other types of prepaid cards such as student cards, insurance proceeds cards, transit cards, and 

disaster relief cards to name a few. 

When it comes to potential federal regulations, there's a rulemaking process: T get notice I may 

be subject to new rules, then I'm allowed to comment on how they will impact me, a proposed 

rule is then released, then I comment on that, and then the rule becomes final. 

Forgive me, but I'm new to this committee, but is it common practice by the CFPB to issue an 

ANPR that mentions only one type of card for regulation, then to issue a sweeping, 870-page 

Proposed Rule that applies new regulations to numerous other products? 

Response 

Federal agencies, including the Consumer Financial Protection Bureau (Bureau), often take a 

number of preliminary steps to gather information and learn more about specific issues before 

issuing a proposed rule. This process may include issuing an advanced noticed of proposed 

rulemaking (ANPR). 10 An ANPR. however, is not required as part of the rulemaking process 

under the Administrative Procedures Act (APA), and the more limited scope of an ANPR does 

not preclude the Bureau from issuing a more inclusive proposed rule. 

In May 2012, the Bureau issued an ANPR which posed a series of questions for public comment 

about how the Bureau might consider regulating general purpose reloadable (GPR) cards. The 

first question the Bureau asked was on the scope of a potential prepaid rulemaking: "How 

should the CFPB define GPR cards in the context of Regulation E? Should certain prepaid 

products not be included in this definition, such as cards that may serve a limited purpose (e.g., 

university cards or health spending cards)? Why or why not?" The Bureau received 

approximately 225 comments and reviewed them prior to developing its prepaid account 

10 See, e.g., https:/lwww federalrcgistcr.gov/\!P!.Q;lds/2011/01/the rulemaking j)JQ£_ess.pdf at 4. 
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proposaL In addition, the Bureau notes that transit cards (mentioned in your question above) 

generally would not be covered by the proposal, unless those cards also have an open-loop 

(general use) feature. 

In addition, the comment period for the prepaid accounts proposal closed on March 23, 2015 and 

Bureau staff are currently reviewing and carefully considering the more than 35,000 comments 

received on this proposal from industry, trade associations, consumer advocacy groups, 

consumers, and other interested stakeholders. The Bureau will consider possible modifications 

to its proposal based on comments received, in accordance with its obligations for notice-andcomment rulemaking pursuant to the APA. 

Question 2 

As a business owner, I try to plan for the unknown. It's critical for long-term success. At least 

that doesn't appear to be the case in this particular rule that your agency issued. It would be 

extremely hard to plan for the future ifl'm not included in a notice of proposed rulemaking, then 

I magically end up in one. You may be indifferent to the plight of small business owners and the 

effect of your rulemaking on them, but I'm not. 

I'm told that one of the consequences of this rulemaking is that the new regulations apply to all 

prepaid cards- a one size fits all approach that does not take into account the many unique 

products offered to consumers today. Will you ensure regulations that don't make sense for 

certain prepaid card products do not end up applying to them? How will you ensure that? 

Response 

The Bureau's proposed rule on prepaid accounts would not apply to all prepaid cards. The 

Bureau proposed to exclude a number of products from coverage, including gift cards; loyalty, 

award, or promotional cards; health spending account, flexible spending account, health 

reimbursement arrangement, and medical savings account cards; and cards used to distribute 

state and local needs-tested benefits. For other products that would be covered by the proposal, 

the Bureau has proposed varying obligations depending on certain circumstances. For example, 

the Bureau has proposed more limited disclosure obligations for certain prepaid accounts sold in 

retail stores or over the telephone. The Bureau also has proposed unique requirements for 

payroll card accounts and government benefit accounts. 

In addition, the Bureau specifically sought comment on the scope of its proposed definition of a 

··prepaid account," including as to the specific types of prepaid products that should be included 

or excluded from coverage, as well as the rationale for such inclusion or exclusion. In particular, 

the Bureau sought comment on whether the definition as proposed could have the unintended 

consequence of including products that do not warrant protection by the Bureau, as well as any 

additional concerns regarding products covered by the proposed definition. 11 

11 See 79 FR 77102, 77129 (Dec. 23, 2014). 
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The comment period for the prepaid accounts proposal closed on March 23, 2015, and Bureau 

staff are currently reviewing and carefully considering the more than 35,000 comments received 

on this proposal from industry, trade associations, consumer advocacy groups, consumers, and 

other interested stakeholders. The Bureau will consider possible modifications to its proposal 

based on comments received, in accordance with its obligations for notice-and-comment 

rulemaking pursuant to the Administrative Procedures Act. 

Question3 

There are millions of consumers using prepaid cards and doing so for a variety of reasons. 

Prepaid cards are much more than just a transactions product. Companies are offering person-toperson transfers, free Direct Deposit, budgeting tools, including text message and email balance 

alerts, mobile apps, and savings accounts. Companies are also offering optional, opt-in overdraft 

service. These choices make the product a good fit for many different types of consumers. 

I'm concerned that the CFPB proposal would limit access to overdraft protection by applying 

credit card regulations to the service. If the CFPB applies credit card provisions to overdraft 

protection on prepaid, would consumers currently opted-in to overdraft protection Jose access? 

What percent of consumers currently opted-in to overdraft protection want a credit card and 

would qualify for credit, if prepaid companies are required to go through ability-to-repay and 

underwriting standards? For those consumers that lose overdraft protection and who cannot 

qualify for a traditional line of credit, what alternatives are available and could they end up 

costing consumers more? 

Response 

The Bureau evaluated a range of potential approaches to overdraft services and credit features in 

connection with the prepaid accounts rulemaking. The Bureau believes its proposed approach 

appropriately balances the need and desire of some consumers to access credit in connection with 

a prepaid card and the need for guard rails to make sure such credit is offered with protections 

similar to those that apply to other card-based credit (i.e., credit cards). 

The Bureau believes the proposal, if finalized, would protect consumers who may want to access 

credit in connection with a prepaid account. That said, the Bureau recognized that the proposal's 

requirements could impose certain costs and impact consumer choice. In an effort to best 

understand the impact of the proposal, the Bureau sought comments on this subject, which are 

currently being reviewed. 

The Bureau believes that consumers, including subprime consumers, need access to affordable 

credit. Prepaid providers (including banks that issue prepaid accounts) may be a likely source of 

that credit since (a) they have an existing customer relationship and do not have to incur 

acquisition expense; (b) they have unique information about the customer (i.e., prepaid 

transaction history); and (c) they often have low overhead costs (no physical branches, etc.). 

On the other hand, the Bureau also wants to ensure that any credit product offered to prepaid 

customers is distinct from a prepaid account in a way that the terms of each are clearly presented 

to consumers; prepaid customers can get credit without offering the lender electronic access to 

the funds in their prepaid account for repayment (i.e., a free, transparent and informed choice as 
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to whether to authorize automatic deductions to repay the loan; and the lender cannot gain a 

preferred position by sweeping funds from the prepaid account as soon as the money comes in. 

Question 4 

Currently some prepaid cards offer opt-in overdraft protection to help consumers meet their 

short-term spending needs. However, it is my understanding that a consumer is neyer forced to 

use the feature. Are consumers required to affirmatively opt-in to overdraft protection on a 

prepaid card? 

Response 

The Bureau understands that the small number of prepaid providers currently offering overdr~ft 

services require consumers to affirmatively opt-in to the service and do not automatically add 

this feature to consumers' accounts. 

The Bureau's proposed rule would provide clarity regarding the terms on which overdraft 

services and other credit features may be offered in connection with prepaid accounts. Among 

other things, the proposed provisions would help to ensure that credit would be offered to 

consumers in a transparent manner and that consumers would obtain certain important 

protections. Furthermore, consumers would only be able to access such features if they opted-in, 

and consumers could not be solicited for or offered the ability to opt-in until thirty days after 

registering the prepaid account. 

Question 5 

It is also my understanding that companies offering consumers the choice to opt-in provide 

wireless balance alerts and immediate notification to cardholders when they overdraft. Are 

consumers using this information in their decision to overdraft? Companies also give consumers 

a buffer before incurring a charge and time to cure overdrafts fee free. In your review of the 

data, are consumers taking advantage of the cure periods and buffers? 

Response 

The Bureau is aware that some companies that currently offer overdraft services on prepaid 

accounts also offer wireless alerts of balances, transactions, and overdrafts, as well as an 

opportunity to prevent the imposition of an overdraft fee, either through a buffer amount under 

which a fee is not imposed and/or a cure period before which a fee is imposed. The Bureau's 

proposed rule would not prohibit such alerts and notifications. 

As discussed in the prepaid accounts proposal, the Bureau considered the possibility of requiring 

additional, real-time notifications of transactions that trigger an overdraft or access a linked 

credit feature, or requiring real-time opt-in by consumers in order to approve each overdraft or 

other credit transaction. The Bureau understands that there may be technological, operational, 

and procedural challenges to the timing and delivery of such a notice or compliance with such an 

opt-in requirement, particularly in the point-of-sale retail environment. Notifications and/or 

consent might require multiple communications among financial institutions, card networks, and 

merchants, and as such, the Bureau is looking into whether, and how, such features might be 
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effectively implemented. The Bureau did not propose any requirements related to real-time 

notification or real-time opt-in, but solicited comment on rossible options and suggestions for 

what it might require in this regard for prepaid accounts. 1 

12 See 79 FR 77102,77187 (Dec. 23, 2014). 

0