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REGULATORY RESTRUCTURING: ENHANCING 

CONSUMER FINANCIAL PRODUCTS REGULATION 

HEARING 

BEFORE THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

JUNE 24, 2009 

Printed for the use of the Committee on Financial Services 

Serial No. 111–49 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

BARNEY FRANK, Massachusetts, Chairman 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

GWEN MOORE, Wisconsin 

PAUL W. HODES, New Hampshire 

KEITH ELLISON, Minnesota 

RON KLEIN, Florida 

CHARLES A. WILSON, Ohio 

ED PERLMUTTER, Colorado 

JOE DONNELLY, Indiana 

BILL FOSTER, Illinois 

ANDRE ́ CARSON, Indiana 

JACKIE SPEIER, California 

TRAVIS CHILDERS, Mississippi 

WALT MINNICK, Idaho 

JOHN ADLER, New Jersey 

MARY JO KILROY, Ohio 

STEVE DRIEHAUS, Ohio 

SUZANNE KOSMAS, Florida 

ALAN GRAYSON, Florida 

JIM HIMES, Connecticut 

GARY PETERS, Michigan 

DAN MAFFEI, New York 

SPENCER BACHUS, Alabama 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

J. GRESHAM BARRETT, South Carolina 

JIM GERLACH, Pennsylvania 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

ADAM PUTNAM, Florida 

MICHELE BACHMANN, Minnesota 

KENNY MARCHANT, Texas 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

BILL POSEY, Florida 

LYNN JENKINS, Kansas 

CHRISTOPHER LEE, New York 

ERIK PAULSEN, Minnesota 

LEONARD LANCE, New Jersey 

JEANNE M. ROSLANOWICK, Staff Director and Chief Counsel 

(III) 

C O N T E N T S 

Page 

Hearing held on: 

June 24, 2009 .................................................................................................... 1 

Appendix: 

June 24, 2009 .................................................................................................... 71 

WITNESSES 

WEDNESDAY, JUNE 24, 2009 

Delahunt, Hon. William, a Representative in Congress from the State of 

Massachusetts ...................................................................................................... 9 

Galvin, Hon. William Francis, Secretary, The Commonwealth of Massachusetts ....................................................................................................................... 13

Hughes, Gary E., Executive Vice President & General Counsel, American 

Council of Life Insurers (ACLI) .......................................................................... 55 

Keest, Kathleen E., Senior Policy Counsel, Center for Responsible Lending ..... 52 

Mierzwinski, Edmund, Consumer Program Director, U.S. Public Interest Research Group ........................................................................................................ 17 

Plunkett, Travis, Legislative Director, Consumer Federation of America 

(CFA) ..................................................................................................................... 51 

Pollock, Alex J., Resident Fellow, American Enterprise Institute ...................... 20 

Seidman, Hon. Ellen, Senior Fellow, New America Foundation ......................... 15 

Tyler, Hon. Ralph S., Commissioner, Maryland Insurance Administration, 

on behalf of The National Association of Insurance Commissioners ............... 54 

Warren, Elizabeth, Leo Gottlieb Professor of Law, Harvard University ............ 11 

Weatherford, Catherine J., President and Chief Executive Officer, NAVA, 

The Association for Insured Retirement Solutions ............................................ 57 

Wilson, Cliff F., Southeast Arizona Insurance Services, on behalf of The 

National Association of Insurance and Financial Advisors (NAIFA) .............. 59 

Yingling, Edward L., President and CEO, American Bankers Association ........ 19 

APPENDIX 

Prepared statements: 

Bachmann, Hon. Michele ................................................................................. 72 

Carson, Hon. Andre .......................................................................................... 73 

Speier, Hon. Jackie ........................................................................................... 75 

Delahunt, Hon. William ................................................................................... 78 

Galvin, Hon. William Francis .......................................................................... 81 

Hughes, Gary E. ............................................................................................... 87 

Keest, Kathleen E. ............................................................................................ 94 

Mierzwinski, Edmund ...................................................................................... 118 

Plunkett, Travis ................................................................................................ 118 

Pollock, Alex J. ................................................................................................. 174 

Seidman, Hon. Ellen ........................................................................................ 179 

Tyler, Hon. Ralph S. ......................................................................................... 189 

Warren, Elizabeth ............................................................................................ 199 

Weatherford, Catherine J. ............................................................................... 206 

Wilson, Cliff F. .................................................................................................. 224 

Yingling, Edward L. ......................................................................................... 235 

Page

IV 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Frank, Hon. Barney: 

Written statement of the Independent Community Bankers of America 

(ICBA) ............................................................................................................ 248 

Written statement of the New York City Department of Consumer Affairs ................................................................................................................ 250 

Written statement of the National Association of Federal Credit Unions 

(NAFCU) ........................................................................................................ 265 

Written statement of the Property Casualty Insurers Association of 

America (PCI) ................................................................................................ 267 

Bachus, Hon. Spencer: 

Written responses to questions submitted to Elizabeth Warren .................. 270 

Gutierrez, Hon. Luis: 

Written statement of the American Financial Services Association 

(AFSA) ........................................................................................................... 277 

Sherman, Hon. Brad: 

Written responses to questions submitted to Catherine Weatherford ......... 279 

Speier, Hon. Jackie: 

Written responses to questions submitted to Edward Yingling ................... 281 

(1) 

REGULATORY RESTRUCTURING: 

ENHANCING CONSUMER FINANCIAL 

PRODUCTS REGULATION 

Wednesday, June 24, 2009 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

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

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

Members present: Representatives Frank, Kanjorski, Waters, 

Gutierrez, Watt, Sherman, Moore of Kansas, Capuano, Clay, Baca, 

Miller of North Carolina, Scott, Green, Cleaver, Ellison, Klein, Wilson, Foster, Carson, Speier, Minnick, Kosmas, Himes, Maffei; Bachus, Castle, Royce, Lucas, Manzullo, Biggert, Miller of California, 

Hensarling, Garrett, Neugebauer, Bachmann, Marchant, McCarthy 

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

The CHAIRMAN. The hearing will come to order. I apologize for 

being late. Let me make a request of my colleagues. I guess we will 

go to the opening statements. I will begin. We have 10 minutes 

each. One of my frustrations as the ranking member, as the chairman and even previously has been the problem of getting adequate 

response to consumer complaints. It has been my experience that 

when you have an ongoing responsibility for broad systemic issues, 

consumer complaints can get crowded out. It is also the case that 

when you, and it has been my experience, have bank regulators 

whose primary role is the health and safety and soundness of the 

banks, consumer regulation, again, tends to get crowded out. We 

certainly have the history of the Federal Reserve previous to the 

co-chairman, who has been a great improvement, literally ignoring 

their consumer responsibilities. 

So I think the proposal that has come forward for a separate entity charged with protecting consumers from abuse is a very good 

one. The fear that this will be some out of control entity ravaging 

the financial sector is unsupported by anything in American history. There is no pattern of overregulation that I can see in the 

consumer area, and I don’t see one here. So I am very pleased that 

the Administration sent us this recommendation. 

I am glad that we have with us one of the original authors of it, 

if not the original author, Professor Warren from Massachusetts. 

And I will just say as a matter of schedule, we will be spending 

a good deal of time between now and the rest of this congressional 

session dealing with the question of financial regulation. This is an 

2 

important piece of it. It is my intention that following this hearing, 

we will be moving in July when we return to a mark-up on this. 

Ultimately, the financial regulation is going to be one bill, in part 

because of the United States Senate. Let me say, I was invited to 

speak on a project involving an entity that is going study the Senate. 

And I said, I thought that was going to be both important and 

fairly easy because it is a very significant institution with very few 

moving parts, which makes it somewhat easy to study it. But I do 

believe in the interest of this committee’s doing its job the best it 

can that we should mark these up individually. So I do want to announce that this is a hearing that will lead to a mark-up in the 

period between the 4th of July and the recess at the end. So I urge 

members to pay very close attention. With that, I now recognize 

the gentleman from Alabama for 2 minutes. 

Mr. BACHUS. I thank the chairman. Mr. Chairman, today we are 

having a hearing on the creation of an independent consumer protection, or Consumer Financial Protection Agency. And there is no 

question that consumer protection is a legitimate government responsibility. However, there is and needs to be a serious dialogue 

over how that function should be properly undertaken to be effective. The proposal that was outlined in the Administration’s White 

Paper proposes very fundamental and profound changes to the current financial regulatory regime. We have to ask ourselves whether 

those changes have the potential to reduce consumer choice, limit 

innovation, and exacerbate the credit crunch that consumers and 

small businesses are currently facing. When you tell people that 

they cannot make certain loans, then it always has the potential 

to restrict credit. 

The House Republicans have offered a consumer protection plan 

that closes gaps in the enforcement of our present consumer protection laws by consolidating the regulatory enforcement and consumer protection functions in a single agency and streamlining the 

complaint process for consumers and investors. It would also 

strengthen antifraud enforcement by giving regulators more investigative and enforcement tools. The Republican consumer protection proposal is built on the premise that the best way to protect 

consumers is not through creation of another bureaucracy accountable to no one, but by consolidating the regulatory system in place 

today and holding regulators accountable for both consumer protection and safety and soundness. 

Probably my main question early on is the wisdom of bifurcating 

consumer protection and safety and soundness regulation as is suggested in the Administration’s proposal. I am not the only one who 

has raised these concerns. A Virginia Democrat, Mark Warner of 

the Senate Banking Committee said, ‘‘I need some more convincing 

of the creation of this Consumer Protection Agency. Will this new 

consumer agency have the knowledge because it won’t have the 

kind of day-to-day exposure to financial products or the industry if 

this agency was actually housed inside the day-to-day prudential 

regulator.’’ 

Mr. Chairman, I look forward to working with you and the Administration to develop a consumer protection framework that fosters innovation in financial products, and benefits and protects conVerDate Nov 24 2008 17:38 Nov 03, 2009 Jkt 052406 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 K:\DOCS\52406.TXT TERRIE
3 

sumers without creating unintended potentially adverse consequences for consumers and the financial services industry. I also 

thank Congressman Delahunt for his work on the issue. 

The CHAIRMAN. I will next recognize the chairman of the Financial Institutions Subcommittee, Mr. Gutierrez, for 2 minutes. 

Mr. GUTIERREZ. Thank you, Mr. Chairman. I am pleased the 

committee is beginning the process of evaluating regulatory restructuring legislation with a hearing that focuses on protecting 

consumers. I strongly support the concept of an independent agency that concentrates solely on consumer financial services issues, 

and I am especially excited by the prospect of having an agency 

that focuses on the Community Reinvestment Act enforcement and 

approaches the issue solely from a consumer’s perspective. But my 

support for such an independent agency is contingent upon its serving as the primary Federal regulator for nonbank institutions. The 

Administration’s White Paper outlines the Consumer Financial 

Protection Agency’s jurisdiction as encompassing both banks and 

nonbanks. But I will be seeking confirmation from the Administration that it intends for the CFPA to be the primary Federal consumer regulator for payday lenders, money remitters, and other 

money services businesses. And that the White House commit that 

the CFPA will aggressively use its supervisory and enforcement 

powers to regulate these industries. 

In addition, I have several questions and concerns about some of 

the provisions that are in the Administration’s White Paper on this 

topic. Specifically from a banking perspective, I am concerned 

about how the Consumer Financial Protection Agency’s board authority will mesh with the authority of the safety and soundness 

regulators. There is a real potential here for conflicting regulations 

from different bank regulatory bodies. I thank the chairman for the 

time. 

The CHAIRMAN. The gentleman from Texas, Mr. Neugebauer, for 

2 minutes. 

Mr. NEUGEBAUER. Thank you, Mr. Chairman. Like everyone 

here, I support consumer protection. I also support protecting consumers’ ability to choose financial products and services that best 

fit their needs. Action we take in Congress shouldn’t harm consumers by reducing their choices and increasing the cost and fees. 

Certainly the information consumers receive can be disclosed better. I have been a strong advocate of better disclosure, clearer disclosure, and shorter disclosure. But the government’s role here is 

not to decide what products and services are available; the government is here to ensure transparency and integrity in the marketplace. Our Republican plan calls for a simplification of consumer 

protection, not duplication and creation of a new bureaucracy. We 

need to keep safety and soundness regulators and consumer protection regulation in the same house because these two missions are 

connected and because this helps hold the regulators accountable. 

We have had some regulators quite honestly who didn’t do their 

job, and this Administration plan does not hold them accountable. 

We had consumers who made poor decisions and lenders who made 

poor decisions. We had regulators who didn’t do their job, didn’t see 

that some of these products were curtailed. But one of the things 

we know is that the government’s role here, and we need to be very 

4 

careful as we start to throw this big regulatory blanket over the 

marketplace, is to send a signal to the American investors or people using financial products that the government will keep things 

from going up or keep them from going down, but it will not keep 

people from losing their homes. That is not the role of the government; the government cannot do that. When we say that we are 

going to regulate safety, I think sometimes we can send a signal 

there that somehow the government is going to make all of these 

investments safe. But what we do not need to do is start taking 

away the choices that the American people have for financial products. And I look forward to a debate where we can do something 

that is good for the American people but not reduce their choices. 

The CHAIRMAN. Next, the prime sponsor of the bill here on the 

committee, the gentleman from North Carolina, Mr. Miller, for 2 

minutes. 

Mr. MILLER OF NORTH CAROLINA. Thank you, Mr. Chairman. 

One of the issues arising from the financial crisis that this committee must address is how compensation in the financial industry 

created incentives for taking immediate profits while ignoring only 

slightly less immediate risk. We will consider how to adjust compensation to ally the long-term interests of companies with the interest of those who work for them. The issue before us today is 

more difficult and more important, how to ally the interests of the 

financial industry with those of society. The financial industry has 

defended every consumer credit practice, regardless of how predatory the practice appeared to those unsophisticated in finance, like 

me, as an innovation that made it possible to extend needed credit 

to those who were excluded from traditional lending. 

And the industry’s innovations resulted in inflating the housing 

bubble, evading existing consumer protections, trapping the middle 

class in unsustainable debt, and creating risk for financial companies that were dimly understood by regulators, by investors, and 

even by the investors and CEOs of the companies that created 

them. And it plunged the country and the world into the worst recession since the Great Depression. The regulatory system we are 

considering is less restrictive than the regulation of many industries that have done much less damage. At bottom, the question is 

this: Are consumer lending practices that the industry celebrates 

as innovation actually useful to society, or are they just a way to 

make more and more money by betraying the trust of the American 

people? Other regulators don’t just take the regulated industry’s 

word for it that their products are beneficial, and neither should 

the regulation of the financial industry. I yield back my time. 

The CHAIRMAN. The gentleman from California, Mr. Royce, for 2 

minutes. 

Mr. ROYCE. Thank you, Mr. Chairman. Well, beyond the problems with bifurcating consumer protection and solvency protection, 

a fundamental question remains. And that is, would a consumer financial products agency have stopped the issuance of subprime 

mortgages to consumers or Alt-A mortgages to consumers? I think 

it is fair to say the regulators we had in place, many of whom were 

responsible for consumer protection, were assisting in rather than 

hindering the proliferation of these subprime products, the proliferation of what are now called ‘‘liar loans.’’ In fact, it was beVerDate Nov 24 2008 17:38 Nov 03, 2009 Jkt 052406 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 K:\DOCS\52406.TXT TERRIE
5 

cause of regulators in Congress that these various products came 

into existence and thrived in the manner that they did. Subprime 

mortgages came out of CRA regulations, according to a former Fed 

official. 

And Fannie Mae and Freddie Mac purchased subprime and AltA loans to meet their affordable housing goals set by their regulators and by Congress. They lost $1 trillion doing that. The consumers frequently lost their homes as a result of the collapse of the 

boom and bust that was thus created. Instead of adding another 

government agency, and unwisely separating solvency protection 

from consumer protection, we should take a step back and look at 

the artificial mandates we place on financial institutions that inevitably distort the market which ends up in the long-term walloping 

the consumer and creating the kind of housing problem that we 

have today. Thank you, and I yield back, Mr. Chairman. 

The CHAIRMAN. Next, the gentlewoman from California, Ms. 

Waters, for 2 minutes. 

Ms. WATERS. Thank you very much, Mr. Chairman, for holding 

this hearing. Judging from the proliferation of all kind of exotic 

products such as the no-doc loans, option ARMs, and other 

subprime mortgages and payday loans, our current regulatory 

framework inadequately protects consumers. One of the issues is 

jurisdiction. There are several types of consumer financial products 

which because they are offered by nonbanks fall into what may be 

classified as the shadow banking industry. These products and institutions escape Federal regulation yet often lead to Federal problems such as our current economic and foreclosure crisis. 

A prime example of this is mortgage servicing. Mortgage servicing is an important part of the housing market and consumers 

often have more contact with their mortgage servicers than they do 

with their mortgage broker, real estate agent, or bank combined. 

However, lately many services have been unable to properly assist 

consumers for all kinds of reasons. There are liability issues and 

basic lack of capacity. There is currently no Federal agency with 

specific jurisdiction over the mortgage servicing industry, and 

therefore no mechanism for anyone to address this pressing issue. 

Keeping this in mind, an agency that merely examines up-front 

disclosure will not offer adequate protection to consumers who 

enter into transactions for financial products only to find that those 

products lack proper servicing and support. I am of the firm belief 

that if we are to truly protect consumers, we must go beyond the 

mere questions of disclosure in plain language and also investigate 

whether interactions between consumers and financial services providers are efficient and sound. That is why any Consumer Financial Protection Agency must have broad authority to examine both 

products and practices. Thank you, Mr. Chairman. I yield back the 

balance of my time. 

The CHAIRMAN. The gentlewoman from Illinois is recognized for 

3 minutes. 

Mrs. BIGGERT. Thank you, Mr. Chairman. Today’s hearing really 

is about consumers. And there is no question that Federal financial 

regulators dropped the ball on many fronts. But the Administration’s plan to strip the authority to protect consumers from the 

functional regulator and instead create a whole new bureaucracy 

6 

jeopardizes the safety and soundness of financial institutions, promotes risky behavior, puts taxpayers on the hook, and threatens 

our economy. Instead of strengthening our current system and improving communication among regulators, holding regulators regularly accountable for their existing mandates to protect and empower consumers, I am afraid the Administration’s proposal sets up 

an additional layer of Federal regulation that will have the power 

to dictate what products businesses offer and tell consumers what 

products they can or cannot have. 

If that is not big government, I don’t know what is. I think the 

Administration’s proposal takes us down a slippery slope. On the 

other hand, to protect consumers against fraud and help consumers 

make informed decisions, I think the Republican proposal empowers consumers. Our proposal also puts taxpayers first and points 

towards smarter stronger regulators and regulations that promote 

transparency, accountability, and competition. 

Specifically, our plan streamlines the complaint process for consumers and enhances consumer information, it maximizes restitution for fraud victims, and makes it easier for financial regulators 

to assist in investigating and prosecuting violations of financial 

laws. I think we have a lot of discussion that needs to take place 

on this issue and I look forward to hearing from the witnesses. I 

yield back. 

The CHAIRMAN. The gentleman from North Carolina for 2 minutes. 

Mr. WATT. Thank you, Mr. Chairman. Mr. Chairman, a number 

of my colleagues have pointed out that this discussion takes place 

against the backdrop of a financial meltdown in which the regulators actually were in charge of consumer protection. And so, in 

addition to today’s hearing that will focus on the Administration’s 

proposal to address that failure in our system, we intend to provide 

one of the regulators, the Fed, which had primary jurisdiction to 

protect consumers in one part of our industry with an opportunity 

to explain to us how they can both provide this consumer protection that is expected and pick up additional responsibilities in the 

newly proposed regulatory framework at the same time. 

So this hearing is not disconnected from another hearing that 

will be taking place in the subcommittee with jurisdiction over the 

Fed to give them an opportunity to explain how, if they think they 

could do it better, how they both failed and how they could do it 

better going forward. 

So I just wanted to take an opportunity to point out that in addition to this hearing, which is an important way to move us forward, we do want to give at least one of the regulators the opportunity to evaluate where and how they failed, and if they believe 

it should be done a different way, how they would do it better going 

forward. I thank the chairman and I yield back. 

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

3 minutes. 

Mr. HENSARLING. I thank you, Mr. Chairman. The subject matter 

of today’s hearing is disappointing to me. The goal should not be 

enhancing regulation; the goal ought to be enhancing consumer 

protection. The hearing title assumes that the magic elixir to our 

Nation’s economic woes is simply more regulation and more reguVerDate Nov 24 2008 17:38 Nov 03, 2009 Jkt 052406 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 K:\DOCS\52406.TXT TERRIE
7 

lators. Regulators who now apparently will be given sweeping powers to decide which financial products are best for ourselves and 

our families. The underlying legislation essentially says that when 

it comes to financial products if we will only yield our freedoms, if 

we will only yield our consumer choices, if we will only yield our 

market-driven innovations to a group of unelected philosopher 

kings, they will undoubtedly rule us with wisdom and justice. 

Forgive me, but I do not buy it. The way to protect consumers 

is to ensure competitive markets, effective disclosure, consumer 

choice, innovation, and a modicum of personal responsibility. Now, 

the underlying legislation tells us that this unelected group of people to form this Commission will have full powers to unilaterally 

and subjectively ban a product from the market that it deems unfair or anti-consumer. Unelected bureaucrats will now decide for us 

what mortgages we can have, they will decide what bank accounts 

we can open, they may even decide whether or not we can be trusted with a credit card. 

To that I say, if you do not know the Rodriguez family of Mesquite, Texas, do not presume to choose their bank account for 

them. If you do not know the Laird family of Athens, Texas, do not 

believe that you can decide what mortgage is best for them. If you 

don’t know the Shane family of Coffman County, Texas, please 

don’t deign to decide whether or not they can use a credit card to 

meet their family’s needs to find their version of the American 

dream. 

Now, to those who say the Administration’s financial reform plan 

lacked any originality, they are clearly wrong. To functionally create a commission of consumer punishment, not consumer protection, this is an original idea, it is an originally bad idea. And for 

those who say that, well, we have an economic crisis therefore we 

must act, you cannot point to any other consumer product but a 

subprime mortgage as having anything connected to the economic 

crisis, yet the Federal Reserve has acted, Congress has acted. You 

can also not point to any lack of regulatory authority. You may not 

believe that the regulatory authority was exercised properly, maybe 

not aggressively, it is not a lack of regulatory authority. We need 

better enforcement, smarter enforcement, but we must preserve 

economic liberty and consumer choice, and I yield back the balance 

of my time. 

The CHAIRMAN. The gentlewoman from California, Ms. Speier, 

for 3 minutes. There will be one more 3-minute on the other side 

and then we will get to our witness. 

Ms. SPEIER. Thank you, Mr. Chairman. When the Consumer 

Product Safety Commission was proposed in 1972, toaster manufacturers, toy companies, and car makers all screamed foul, much 

like the financial services industry is screaming about the Consumer Financial Protection Agency that we are discussing today. 

But thank God for the CPSC. It has resulted in safer and more 

consumer-friendly products and boosted American confidence that 

the products that they bring into their homes will not kill them. 

The proposal for a Consumer Financial Protection Agency that 

we are talking about today is, I believe, one of the most important 

reforms to come out of this economic meltdown. A landscaper in my 

district who works for the City of San Francisco and earns $60,000 

8 

a year got a $600,000 mortgage. He now has an $800,000 balance 

because his ‘‘pick a payment’’ loan allowed him to short his monthly payment and feed the balance back onto the principal. At this 

point, his yearly mortgage is $51,000 a year, more than his takehome pay. How did he get a loan like this, a bank gave it to him. 

It is far too generous to say that financial institutions were simply 

opportunistic for selling exotic mortgages to working people and 

pushing credit cards on students who were unlikely to be able to 

repay. Amazingly, many in the financial services industry argue 

that a consumer protection agency is unnecessary. Not only should 

consumers just trust their bankers, they also argue that the financial services industry is too complex for a consumer protection 

agency to understand. Really? Does anyone really want to make 

the argument that the status quo works. Let’s be clear, existing 

regulators could have stopped the liar loans, the subprime steering, 

the option ARMs that nearly brought our economy down. The status quo could have jumped in at any time but it didn’t. If a product 

is marketed with total disregard for a consumer’s ability to repay, 

if it is purposefully written so you need to hire a lawyer to understand the terms, if it is manipulated so its customer is more apt 

to be in a costly product than in one they are entitled to, you can’t 

blame that on the complexity of the system. 

Regulators stood by while credit card companies used clever 

tricks to draw customers into even deeper debt with cheaper rates 

and balance transfers and ‘‘convenience checks’’ all the while burying the real credit terms on page 30 in fine type. Now, more than 

50 million American families can’t pay off their credit cards every 

month. It is essential that this new agency have real power, that 

they have flexible rulemaking authority, that it be adequately 

funded, not subject to the starvation by Congress, and that it have 

real enforcement authority. Financial institutions will say that 

they cannot possibly function in the kinds of restrictions proposed 

here, to which I ask them why are you afraid of letting consumers 

understand the terms of their mortgages and credit cards. We have 

spent hundreds of billions of dollars taking care of the largest 

banks in our country. It is time to do something for the 117 million 

American families as well. I yield back. 

The CHAIRMAN. The gentleman from New Jersey for 3 minutes. 

Mr. GARRETT. I thank the chairman, I thank the ranking member for holding this hearing, I thank the members of this panel, 

and I thank the other members of the panel after that as well for 

coming out today. You know, the Administration claims that its 

proposal seeks to address and reform the main areas in our financial system that are responsible for the credit crisis and the recession. When you think about it, I don’t see anything in the proposal 

to stop the Federal Reserve, their very loose monetary policy, nor 

is there anything in there to address the conflicts of interest in the 

Fed in their dual roles as monetary policy czar and safety and 

soundness regulator. 

I don’t see anything in their proposal to prevent the misallocated 

credit decisions by the government through Fannie Mae and 

Freddie Mac and CRA. In fact, and this is important, as with the 

CRA a goal of the proposal before us today, and if you look at the 

President’s proposal, it is out on page 55, it says, ‘‘it is to ensure 

9 

traditionally underserved consumers in communities have access to 

lending, investment and financial services.’’ 

So just like the CRA, its meeting such a goal could possibly exacerbate systemic risk by requiring firms to engage in practices that 

are risky in the name of consumer protection, something that basically brought us here in the first place. And finally, I don’t see anything that will avert human error in the regulatory agencies tasked 

with that responsibility of overseeing financial institutions. And 

when you think about that, think of all the panels and experts that 

we have had come here to say uniformly that it was not for lack 

of authority but merely human error when such things as the SEC 

missed the Madoff situation and didn’t listen to the information 

when the regulators over at AIG didn’t look deep into it and looked 

at the Financial Products situation. 

They admitted human error there rather than lack of authority. 

And so here the subject of a hearing today would be a creation of 

yet another regulator, again with human error actually encouraged 

by separating regulatory decision. And this point also is important; 

you are going to be separating the regulator’s decision, you are 

going to create duplication from an already limited expertise found 

at prudential regulators. In other words, you are potentially working at cross purposes. It was a policy by the government that largely got us into these problems and I don’t believe that creating more 

government agencies, perhaps those even with an Orwellian, 

heavy-handed, government bureaucrat knows best mentality will 

ultimately misallocate credit is the appropriate solution. The Republicans, on the other hand, have often an alternative reform 

package that takes steady aim ensuring no more bailouts by ending 

the government’s practices of picking winners and losers, reducing 

counter government participation in private markets, appropriately 

streamlining and restructuring government oversight and restoring 

market discipline and consumer empowerment. I really think that 

is the change that people are asking for. I yield back. 

The CHAIRMAN. We will now begin the hearing with my colleague 

from Massachusetts, Mr. Delahunt, who has been a long time advocate for this position. And as a former law enforcement official of 

great distinction in the Commonwealth of Massachusetts, he is 

someone who is very well versed in how rights are protected and 

laws are enforced. Mr. Delahunt? 

STATEMENT OF THE HONORABLE WILLIAM DELAHUNT, A 

REPRESENTATIVE IN CONGRESS FROM THE STATE OF MASSACHUSETTS 

Mr. DELAHUNT. Thank you, Chairman Frank and Mr. Bachus, for 

allowing me to testify today. There should be no doubt that we 

need a new regulatory framework and as importantly sustained supervision of the financial system. The current system failed us and 

we must avoid a repeat. While the near collapse of the financial 

system began on Wall Street, it quickly spread to Main Street, taking a devastating toll on families everywhere. Consumers have lost 

trillions in investment income and home equity. Investors both domestically and internationally have lost confidence. But I am confident that with your leadership and the excellent work of this comVerDate Nov 24 2008 17:38 Nov 03, 2009 Jkt 052406 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 K:\DOCS\52406.TXT TERRIE
10 

mittee, coupled with the commitment from the White House, we 

can extricate ourselves from this mess and move forward. 

Let me speak to the proposed Consumer Financial Protection 

Agency in the President’s plan. It creates a consumer watchdog and 

in many respects reflects a proposal put forth by my friend and colleague from North Carolina and a member of this committee, Brad 

Miller. It is charged with ensuring that financial products sold to 

consumers are safe, responsible, accountable, and transparent. I 

also want to acknowledge the presence of the intellectual author of 

this concept, Harvard Professor Elizabeth Warren, who will testify 

on the next panel. 

There are currently 10 different Federal regulators that have 

some responsible for protecting consumers from predatory or deceptive financial products, but none have consumer protection as their 

simple sole primary objective. As a consequence, debt instruments 

have become increasingly risky. American families have been 

steered often deceptively into overpriced credit products including 

credit cards, car loans, and subprime mortgages. And as a result, 

Americans are overwhelmed with debt. These levels of personal 

debt have not only played a significant role in the financial crisis, 

but represent a significant impediment to full economic recovery. 

Today, one in four families are worried about how they will pay 

their credit card bill each month and nearly half of all credit cardholders have missed payments in the past year. There are more 

than 2 million families who have missed at least one mortgage payment and one in seven families are currently dealing with a debt 

collector. Like other government agencies, the Consumer Financial 

Protection Agency would seek to shield the consumer from unreasonable risk. The Agency would review financial products for safety, modify dangerous products before they hit the market, establish 

guidelines for consumer disclosure, and collect and report data 

about different consumer loans. I am sure Professor Warren will 

outline the specific provisions of the proposal. Undoubtedly credit 

helps dreams come true. Consumers can buy homes, cars and pay 

for a college education. But when seeking a loan consumers should 

not have to understand the nuances of complex financial instruments just as they don’t need to understand how a toaster works, 

how a drug acts in our bodies or whether the food they eat is safe. 

By creating an agency whose primary role is to help the consumer 

people can again borrow with confidence that they are protected 

from fraudulent unsafe credit products. This will increase overall 

consumer confidence, will create demand, and stimulate the markets and spur investments. 

It is a win-win, not just for the consumer, but I believe will accelerate the recovery that is our common goal. Let me conclude with 

this: The Congress has attempted to enact reforms in the past but 

to no avail. Sensible reforms were thwarted by special interests 

and some will come before this committee to say that our regulations go too far, that this is simply too much. I say to them, give 

me a break. Just look at what has occurred. For too long, we have 

frankly let the American people down by failing to create a prudent 

regulatory regiment to protect the consumer from dangerous financial products. And we have seen the results. We can’t let it happen 

11 

again. And the consequences are simply too profound. Thank you, 

Mr. Chairman. 

[The prepared statement of Representative Delahunt can be 

found on page 78 of the appendix.] 

The CHAIRMAN. I thank the gentleman. I would just note that 

after 22 years as a district attorney, being able to say to somebody 

else, give me a break, probably is a role reversal for you. 

Mr. DELAHUNT. I used to hear that frequently, Mr. Frank. 

The CHAIRMAN. We are going to break. Now, there has only been 

one vote. So instead of waiting, let’s get over and get back quickly. 

I intend to vote, come right back and start right away with our witnesses, so let’s move quickly. 

[recess] 

The CHAIRMAN. The hearing will reconvene. We will begin with 

Professor Elizabeth Warren, who is a Leo Gottlieb Professor of Law 

at Harvard University. By the way, without objection, any documents that any of the witnesses wish to submit will be made a part 

of the record today. And if, after the hearing, you decide you have 

some supplemental material, we will take that as well. Professor 

Warren? 

STATEMENT OF ELIZABETH WARREN, LEO GOTTLIEB 

PROFESSOR OF LAW, HARVARD UNIVERSITY 

Ms. WARREN. Thank you, Chairman Frank, for inviting me here. 

Thank you, Ranking Member Bachus. I also want to thank Congressman Delahunt and Congressman Miller who were able to put 

together the first version of this and introduce it in this House. I 

appreciate the invitation to appear. I should note, I speak only for 

myself, not on behalf of any other group or as a lobbyist for anyone. 

I am here to deal with a problem that can be explained in blunt 

words: the consumer credit market is broken. This is not about people who went to the mall and charged up what they couldn’t afford 

to pay, and this is not about people who bought five bedroom 

houses that they can’t make the payments on. Those people should 

deal with the consequences. This is about people who get trapped 

by credit agreements themselves. 

Everyone in this room recognizes the problem. Consumers cannot 

compare financial products because the products have become too 

complicated. Make a comparison between four credit cards, put the 

papers on the table, and you would have more than 100 pages of 

dense, fine-print text to work through. And, quite frankly, even if 

you invested the hours to do it, I don’t know if you would be able 

to understand it. I say that only because I teach contract law at 

Harvard Law School, and I can’t understand many of the terms. 

You can’t tell which card is cheaper, which card is safer. That is 

not choice. Companies compete today by offering nominal interest 

rates and free gifts and then loading tricks and traps in the fine 

print where nobody else can see them. The result is that bad cards 

produce more profits than good cards and the market can’t drive 

consumers toward cheaper, lower-risk products. Healthy markets 

thrive with information and level playing fields, not with tricks and 

traps. Broken credit markets also tilt the playing fields between 

big and small lenders. Local banks and credit unions may offer better products, but when the customers can’t make easy comparisons 

12 

the smaller banks, the ones with the smaller advertising budgets 

lose out. Broken credit markets also feed excessive risk into the 

system. Bad products carry very high default rates. And this is 

true across-the-board. Aggregated together, this can bring down 

families, bring down banks, bring down retirement funds, and ultimately bring down our whole economy. 

Systemic risk regulation starts by not feeding high risk products 

into the system. A Consumer Financial Protection Agency can fix 

a broken market. An agency that focuses on transparency can promote, for example, a plain vanilla product. Consider if we had a 

Consumer Financial Protection Agency, 2-page plain vanilla, credit 

card agreement. You could put four of them on the table, the differences between them, the interest rates, the penalties, what 

causes the penalties, even the free gifts can be put out there in 

bold. That means that in less than a minute, you can tell which 

one is cheaper, which one is riskier and how much those free gifts 

actually cost you. That is choice, that is a meaningful choice made 

possible by regulation that repairs a broken market. Agencies can 

also reduce overall regulatory burdens for lenders. 

I think everyone in here agrees we should remove the layers of 

contradictory and inefficient regulation. By putting things in a single place and by promoting plain vanilla safe harbor mortgages, 

credit cards and other products that automatically pass regulatory 

muster, we make it very cheap for issuers to issue these products. 

They are already through the regulatory process. Banks can offer 

something else, but they have to show that what they offer meets 

basic safety standards, which in this case means a customer can 

read it and understand it in 5 minutes or less. 

Regulatory agencies are not perfect, but they can do a lot of good. 

In the 1920’s, anyone with a bathtub and some bottles of chemicals 

could sell drugs in America. The FDA put a stop to that. Dirty 

meat could be sold to families. The Department of Agriculture put 

a stop to that. In the 1960’s, babies’ car seats collapsed on impact, 

8-year old boys shot out their cousins’ eyes with BB guns, and infants chewed on toys covered in lead paint. The Consumer Protection Safety Commission put a stop to that. We have tried for 70 

years to combine consumer protection with other financial service 

regulatory functions. This structure has not worked. 

To talk about keeping these two together is to say we are satisfied with the system and want it to go on as it has before. I think 

it is time for change. We need someone in Washington who cares 

primarily about families, who cares about consumers, who looks at 

the products not from the point of view exclusively of bank profitability but who looks at these products in a much larger sense 

about what they mean to the family, what they mean to communities, what they mean to the economy as a whole. This is an historic moment. You can repair a broken market, you can take the 

first steps in preventing the next financial crisis, and most of all, 

you can put a Consumer Financial Protection Agency in place to 

stop the tricks and traps that are robbing American families every 

day. Thank you, Chairman Frank. 

[The prepared statement of Professor Warren can be found on 

page 199 of the appendix. ] 

13 

The CHAIRMAN. Next, we have the Honorable William Francis 

Galvin, Secretary of the Commonwealth of Massachusetts, who, for 

people not familiar with the intricacies of the laws of the State of 

Massachusetts, he is the securities regulator for the State of Massachusetts, so has been deeply involved in regulation. Mr. Galvin. 

STATEMENT OF THE HONORABLE WILLIAM FRANCIS GALVIN, 

SECRETARY, THE COMMONWEALTH OF MASSACHUSETTS 

Mr. GALVIN. Thank you, Chairman Frank, Ranking Member 

Bachus, and members of the committee. I want to thank you for 

this opportunity to testify on these important issues of consumer 

and investor protection. As Secretary of the Commonwealth, as has 

been noted, I am the chief securities regulator. The Congress is 

now considering an array of initiatives to improve consumer and 

investor protection. These include proposals in the White House, a 

White Paper on financial regulatory reform, as well as bills proposing the creation of the Consumer Financial Protection Agency. 

I commend and support the President’s plan to strengthen and rationalize financial regulation, to provide greater protection against 

systemic risk in the financial markets, and to create a Federal 

agency to protect consumers in credit transactions. 

I support the proposal to strengthen the U.S. Securities and Exchange Commission that will enable the SEC, along with the 

States, to oversee the securities markets and to protect consumers. 

I also applaud other elements of the White House plan that would 

directly improve investor protection such as making securities brokers fiduciaries. True consumer protection requires that financial 

firms be fiduciaries for their consumers whether they are licensed 

investment advisors or brokers. We need to act now on the issue 

of mandatory arbitration. The documented problems in that area 

should be an indication that this should be optional for investors 

rather than mandatory. Too many investors have faced a stacked 

deck in arbitration. Most especially hedge fund registration, whereas that both hedge fund managers and the funds themselves should 

register with the SEC. 

Hedge funds are often low visibility but high impact participants 

in the financial markets. Hedge funds have also been the source of 

abusive trading in the commodities and securities markets, including trades that have distorted the oil and food markets. Wild speculation in these basic commodities during the past year has robbed 

millions of Americans of billions of dollars at the gas pump and the 

supermarket. I urge Congress to protect our now fragile economy 

from further damage. We support the creation of a Consumer Financial Protection Agency to enhance the protection of consumers 

when they enter into credit savings and payment transactions. 

Sadly, this hearing on the creation of this agency is necessary because existing regulatory agencies dropped the ball. While some 

proposals have slipped through the cracks—some problems have 

slipped through the cracks of existing rules too often regulators fail 

to maintain their independence in the industries they regulate and 

they fail to use their powers to promulgate and enforce rules to 

protect the public. Massachusetts and other States have a distinguished record of protecting retail investors and consumers. As financial regulation is redesigned, I urge you to preserve and enVerDate Nov 24 2008 17:38 Nov 03, 2009 Jkt 052406 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 K:\DOCS\52406.TXT TERRIE
14 

hance the abilities of the States and State regulators to protect investors and consumers. There is an acute need for this protection. 

Retail investors and savers have been forced into the risk market 

to meet their basic financial goals. 

Investors and consumers are particularly harmed when the 

States have been preempted from protecting their interests. These 

include the preemption of State usury laws, predatory mortgage 

lending laws, and security law preemption. The National Securities 

Markets Improvement Act of 1996 preempted State authority in 

key areas where the States protected investors. NSMIA removed 

the State’s ability to require enhanced disclosure in mutual funds. 

NSMIA created a regulatory blind spot for hedge funds selling securities pursuant to the Rule 506 exemption. And NSMIA prevented a State enforcement action against large investment advisors even when the violation involved unfair or deceptive practice. 

Massachusetts and other States have taken the lead in bringing 

enforcement actions and recovering funds for investors. These include auction rate securities, illegal market timing of mutual funds, 

and false security analyst reports and pyramid and Ponzi schemes. 

The States are close to the investing public and have time and 

time again demonstrated that they can act quickly and effectively 

to help investors. The States have added value but precisely because they are independent of other agencies and self-regulatory 

organizations. States have been another set of eyes watching the 

market. States have also served as a backstop, protecting the interest of investors in important cases when other regulators have not 

taken action. We urge the Congress not to make the States subject 

to the authority of the Financial Services Oversight Council or the 

Federal Reserve. Similarly we urge the States not be made subject 

to the Consumer Financial Protection Agency. The independence of 

the States means that they are less likely to yield to pressure from 

regulated entities and they are much less likely to be captured by 

the firms and the industries that they regulate. 

In this regard, I must emphasize the record that States have of 

cooperating with the SEC and FINRA and this record will continue. The States will cooperate and coordinate with the Consumer 

Financial Protection Agency that is proposed. However, it is crucial 

the States not be under the CFPA’s authority. The States’ independence is vital and it is the key to our record of success. To be 

effective, the States need the tools we need to regulate effectively. 

We need to restore States’ authority over nonpublic offerings, particularly hedge funds, which are particularly sold pursuant to the 

exemption under Rule 506. We need to permit the States to police 

larger federally registered investment advisors for unethical and 

dishonest practices. The rights for investors to sue for violations of 

State and Federal securities laws is also a powerful tool that 

should be reconsidered. I urge the Congress to review the impacts 

of the private security litigation reforms. We need to strengthen, 

not weaken, investor remedies. Thank you, Mr. Chairman. 

[The prepared statement of Secretary Galvin can be found on 

page 81 of the appendix.] 

The CHAIRMAN. Next, we will hear from Ellen Seidman, who is 

a senior fellow at the New America Foundation and a former Federal regulator. 

15 

STATEMENT OF THE HONORABLE ELLEN SEIDMAN, SENIOR 

FELLOW, NEW AMERICA FOUNDATION 

Ms. SEIDMAN. Thank you. Thank you Chairman Frank, Ranking 

Member Bachus, and members of the committee. I appreciate your 

inviting me here this morning. In addition to being a senior fellow 

of New America Foundation, I am also executive vice president at 

ShoreBank Corporation, the Nation’s largest community development financial institution. My views are informed by my current 

experience, although they are mine alone, not those of New America or ShoreBank, as well as by my years at the Treasury Department, Fannie Mae, the National Economic Council, and as Director 

of the Office of Thrift Supervision. 

The Administration has proposed creation of a very broad-based 

and powerful Consumer Financial Protection Agency that would 

have regulatory, supervisory and enforcement authority over consumer protection in the financial services sector and also over the 

Community Reinvestment Act. The Administration’s recognition of 

the seminal importance of consumer protection financial services is 

a critical reversal of the trends over the last several decades and 

builds on the work this committee has done. I agree with the Administration that the time has come to create a well-funded single 

Federal entity with the responsibility for authority over consumer 

protection and financial services. The Administration has also focused on the importance of CRA. 

Access to high-quality financial products at fair terms and reasonable prices is an important element of consumer protection that 

requires both leveling the playing field by having consistent regulations across all entities providing similar products and encouraging 

financial institutions to responsibly serve all communities and consumers. I am concerned, however, about two elements of the Administration’s proposal. First, I believe that prudential supervisors, 

in particular, the Federal and State banking regulatory agencies, 

should retain primary supervisory responsibility for consumer protection as well as for safety and soundness over the entities they 

regulate. 

I suggest, however, that Congress make changes to the organic 

banking statutes to emphasize the importance of consumer protection, elevating it to a higher place in the supervisory system. Second, I am concerned that what has been in many ways the most 

consistently successful element of CRA, namely investment and 

community development finance, such as affordable rental housing, 

community facilities and lending both with and through CDFIs, 

may get lost in an agency devoted to consumer protection. 

In my written statement, I suggest some ways to increase the 

likelihood that if CRA is part of the CFPA, service to all communities and community development will be a robust part of its mandate. 

The current crisis has many causes, including an overreliance on 

finance to solve many of the needs of our citizens. Those needs require broader social and fiscal solutions, not financial engineering. 

Nevertheless, there were three basic regulatory problems. First, 

there was a lack of attention and sometimes unwillingness to effectively regulate products and practices even where regulatory authority existed. Second, there were and are holes in the regulatory 

16 

system, both in terms of unregulated entities and products and in 

terms of insufficient statutory authority. 

Finally, there was and is confusion for both the regulated entities 

and consumers and those who work with them. The solutions are 

not easy. Financial products, even good ones, can be extremely 

complex. Many, especially loans and investments, involve both uncertainty and difficult math over a long period of time. The differences between a good product and a bad one can be subtle, especially if the consumer doesn’t know where to look. And different 

consumers legitimately have different needs. 

The regulatory framework, of course, involves both how to regulate and who does it. With respect to how, I suggest three basic 

guiding principles that I believe are fully consistent with the Administration’s proposal. First, products that perform similar functions should be regulated similarly no matter what they are called 

or what kind of entity sells them. 

Second, we have to stop relying on consumer disclosure as the 

primary method of protecting consumers. While such disclosures 

can be helpful they are least helpful where they are needed the 

most, when products and features are complex. Third, enforcement 

is important. While much attention has been given in the week 

since the President’s proposal was announced to enforcement and 

depository institutions, the fact that the proposal would make fairly stunning changes and improvements in consumer protection for 

nondepositories has largely been left unsaid. 

With respect to who should regulate, it is time to establish a single Federal entity dedicated to consumer protection. If properly 

funded and staffed, this agency will be more likely to focus on problems that are developing, to take action before they get out of 

hand. This is not separating regulation writing more than it currently is. Most banking consumer protection regulations are written solely by the Fed. The other prudential regulators enforce 

someone else’s regulations. That is exactly the system that there 

would be in this case. 

Centralizing the complaints function will give consumers and 

those who work with them a single point of contact and the regulatory body early warning of trouble. The CFPA will also have the 

opportunity to become expert in consumer understanding and behavior to regulate effectively without necessarily having a heavy 

hand, and it could also become a focus for the myriad of Federal 

efforts surrounding financial education. 

How will the new regulator be funded and at what level? 

It is essential that this entity be well-funded. If it is not, it will 

do more harm than good as those relying on it will not be able to 

count on it. This almost certainly requires a dedicated revenue 

source in addition to general fund appropriations. 

What will be the regulator’s supervisory and enforcement authority? 

I believe that the prudential supervisors can do this. Regulators 

who engage in prudential supervision with on-site examinations 

should be expected to exercise that authority. Retaining primary 

supervisory and enforcement authority with the prudential supervisors makes use of existing structures and resources, and keeps 

17 

consumer protection and safety and soundness together, but having 

backup authority in the CFPA would be extremely important. 

In my testimony, I explain that I think that there are revisions 

to the organic banking statutes that could make an enormous difference in making sure that this works better than it has. The current crisis is an enormous opportunity to make a big difference 

that will benefit consumers, financial institutions, and the economy. 

The President has put forth a bold proposal, and now is the time 

to act. Thank you. 

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

179 of the appendix.] 

The CHAIRMAN. We are going to be having a lot of votes. Members can go and vote. I may or may not go. After 53 votes last 

week, I think I can miss an adjournment vote or two, so I may well 

keep going. If members want to go and come back, we are going 

to keep going. 

Mr. Mierzwinski. 

STATEMENT OF EDMUND MIERZWINSKI, CONSUMER PROGRAM DIRECTOR, U.S. PUBLIC INTEREST RESEARCH GROUP 

Mr. MIERZWINSKI. Thank you, Mr. Chairman. 

I am Ed Mierzwinski with the U.S. Public Interest Research 

Group. Along with Travis Plunkett on the next panel, of the CFA, 

we are submitting joint testimony, written testimony, on behalf of 

over a dozen community and civil rights organizations in support 

of the Consumer Financial Protection Agency as first proposed by 

Professor Warren, then introduced by Mr. Brad Miller and Mr. William Delahunt, and now part of the President’s comprehensive 

blueprint to reform our financial system. 

In our written testimony, we went into great detail as to why 

this new agency will protect consumers from unfair credit payment 

and debt management products no matter what company or bank 

sells them and no matter what agency may serve as their primary 

regulator. 

I want to also point out that our coalition recognizes that there 

are a number of other problems that your committee will be addressing over the next year and that those problems, including systemic risk, including the bad incentives for executive pay, including 

the shadow banking system, and other issues, are all covered in 

our Americans for Financial Reform platform, which is available at 

ourfinancial security.org, and we intend to work closely with the 

Congress to make sure that as strong as possible recommendations 

are enacted. 

The idea of a Federal financial consumer protection agency is a 

critical part of the President’s plan, and we urge you to recognize 

that it must be given authority to make the rules, to supervise 

compliance with the rules, and to finally to enforce those rules. 

In the area of enforcement of the rules, we are very appreciative 

that the President has proposed that not only will this agency enforce the rules but that State supervisory regulators and the State 

Attorney General will be able also to enforce the rules. We will reinstate Federal law as a floor, not as a ceiling, also that private 

rights of action will be allowed, that consumers will be able to enVerDate Nov 24 2008 17:38 Nov 03, 2009 Jkt 052406 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 K:\DOCS\52406.TXT TERRIE
18 

force the consumer laws. The provision also provides the President’s provision that arbitration, forced arbitration clauses in banking contracts, be eliminated as a way to make it easier for private 

enforcement of the consumer laws. We also propose, in the writing 

of the legislation, that you ensure that consumers be allowed to enforce the rules, not only the laws. 

I want to start out by saying that we have a system that is broken, and what we are trying to do is fix it. The current system does 

not work. It is possible to create a new system that will work. Let 

me look really quickly at some of the failures of the current financial system. 

First, the Fed had 15 years in which it did not write rules about 

HOEPA. Second, the OCC spent most of its time and energy preempting the States for 15 years instead of enforcing the laws. By 

the way, there is one law that the States still are allowed to enforce, which are fair lending laws, and before the Supreme Court 

now is the case where the OCC has sued New York because it tried 

to enforce those fair lending laws. 

On credit cards, we know the answer to that one. They slept 

while the credit card problem got worse, and Congress had to step 

in and solve the problem. The Fed has allowed a shadow banking 

system of prepaid cards outside of the current financial protection 

laws that target the unbanked and immigrants. The OTS allows 

bank payday loans to continue on prepaid cards. The Fed has refused to speed up check availability. The list goes on and on. The 

Fed has supported the position of payday lenders and telemarketing fraud artists by promoting and permitting remotely controlled checks to subvert consumer rights under the banking laws. 

These regulators do not look at consumer protection as something 

that they should be doing. 

There are basically six arguments that the other side will use 

against this agency. They will argue the regulators already have 

the power. Well, they have the power, but they do not use it, partly 

because of their culture, partly because of charter shopping, and 

partly because safety and soundness trumps consumer protection. 

That is why they must be separated. They will argue it will be a 

redundant layer of bureaucracy, that it will take away bureaucracy. We have 7 regulators enforcing 20 different laws. That is the 

wrong way to go. 

I have already discussed that we can separate consumer protection from supervision. The proposal from the President talks about 

a council of regulators with a prudential regulator on the board of 

the new agency. The President also talks about making sure that 

there is the sharing of information. We are looking for a new system. We are not looking to take this agency and to cut it off at the 

knees. We can separate the two. 

The agencies will argue and the banks will probably argue that 

small banks will be hurt. We have a detailed appendix in our testimony. Small banks are actually part of the problem. They promote 

payday loans. They do a lot of things that are not good. 

Finally, as I already discussed, the opponents of the proposal will 

argue that taking away Federal uniformity is somehow the wrong 

thing to do. We think it is the right thing to do. 

Thank you very much. 

19 

[The joint prepared statement of Mr. Mierzwinski and Mr. 

Plunkett can be found on page 118 of the appendix.] 

The CHAIRMAN. Next is Mr. Edward Yingling, who is the president and chief executive officer of the American Bankers Association. 

STATEMENT OF EDWARD L. YINGLING, PRESIDENT AND CEO, 

AMERICAN BANKERS ASSOCIATION 

Mr. YINGLING. Thank you, Mr. Chairman, Mr. Bachus, and members of the committee for inviting me to testify on behalf of the 

banking industry. 

Members of this committee are looking at this consumer agency 

proposal from the point of view of consumers, who should be paramount in your deliberations, but today I would also ask you to take 

a look at this issue from an additional point as well. While banks 

of all sizes would be negatively impacted, please think of your own 

local community banks. These banks never made one subprime 

loan, and they have the trust of their local consumers. As this committee has frequently noted, these community banks are already 

overwhelmed with regulatory costs that are slowly but surely 

strangling them. 

Yet last week, these community banks found the Administration 

proposing a potentially massive new regulatory burden. While the 

shadow banking industry, which includes those most responsible 

for the crisis, is covered by the new agency, their regulatory and 

enforcement burden is, based on history, likely to be much less. 

The proposed new agency is to rely first on State regulation and 

enforcement. Yet we all know that the budgets for such State enforcement will be completely inadequate to do the job. Therefore, 

the net result will be that the community banks will pay greatly 

increased fees to fund a system that falls disproportionately and 

unfairly on them. 

The new agency would have vast and unprecedented authority to 

regulate in detail all bank consumer products. The agency is even 

instructed to create its own products, whatever it decides is plain 

vanilla, and mandate that banks offer them. 

Further, the agency is urged to give the products it designs regulatory preference over the bank’s own products. The agency is even 

encouraged to require a statement by consumers that the consumer 

was offered and turned down the government’s product first. Thus, 

community banks, whether it fits their business model or not, 

would be required to offer government-designed products, which 

would be given a preference over the bank’s own products. 

On disclosure, the proposal goes beyond simplification, which is 

badly needed to require that all bank communication with consumers be ‘‘reasonable.’’ This term is so vague that no banker 

would know what to do with it, but not to worry. The proposal 

would allow, even encourage, thousands of banks and others to 

preclear communications with the agency. So, before a community 

bank runs an ad in the local newspaper or sends a customer a letter, it would apparently need to preclear it with the regulator to 

be legally safe. 

CRA enforcement is also, apparently, to be increased on these 

community banks, although they already strongly serve their comVerDate Nov 24 2008 17:38 Nov 03, 2009 Jkt 052406 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 K:\DOCS\52406.TXT TERRIE
20 

munities, and that is not to mention the inherent conflicts that will 

occur between the prudential regulator and the consumer regulator 

with the banks caught in the middle. 

Please recognize that all of this—cost, conflicting requirements, 

and uncertainty—would be placed on community banks that in no 

way contributed to the financial crisis. More generally, the fundamental flaw in the proposal is that consumer regulation and safety 

and soundness regulation cannot be separated. You cannot separate a business from its product. 

A good example is check hold periods. Customers would like the 

shortest possible holds, but this desire needs to be balanced with 

the complex operational issues in clearing checks and with the 

threat of fraud, which costs banks, and ultimately consumers, billions of dollars. 

Another example is the Bank Secrecy Act, which protects against 

money laundering and terrorist financing. These critical regulations must be coordinated with consumer and safety and soundness 

regulation. Take the account opening process. A consumer regulator would focus on simplicity in disclosures, while the prudential 

regulator would also want to consider the potential for fraudulent 

activity and for implementing the Bank Secrecy Act to protect 

against terrorist financing. What is the bank in the middle supposed to do? What about conflicts over CRA lending? 

We agree that CRA has not led to material safety and soundness 

concerns, but that is because it is under one regulator. There is 

often debate about individual CRA loans as to the right balance between outreach and sound lending. However, that debate, that tension, is resolved in a straightforward manner because the same 

agency is in charge of CRA and of safety and soundness. To separate the two is a recipe for conflicting demands, with the bank 

again caught in the middle. 

The great majority of consumer problems, as has been noted by 

both Democrats and Republicans on this committee, occurred outside the highly regulated traditional banks, but there are legitimate issues relating to banks as well. In that regard, my written 

testimony outlines some concepts that we hope you will consider to 

address the banking side of it. 

Thank you, Mr. Chairman. 

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

235 of the appendix.] 

The CHAIRMAN. Next, Mr. Alex Pollock, who is a resident fellow 

of the American Enterprise Institute. 

STATEMENT OF ALEX J. POLLOCK, RESIDENT FELLOW, 

AMERICAN ENTERPRISE INSTITUTE 

Mr. POLLOCK. Thank you, Mr. Chairman, Ranking Member 

Bachus, and members of the committee. 

I have both experienced and studied many cycles of financial 

bubbles and busts, including the political reactions which inevitably follow, and this forms my perspective on today’s questions. 

I think we can all agree that the Consumer Financial Protection 

Agency, as proposed, would be a highly intrusive, large, very expensive bureaucracy with broad, rather undefined and potentially 

arbitrary powers, which would impose large costs on consumer fiVerDate Nov 24 2008 17:38 Nov 03, 2009 Jkt 052406 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 K:\DOCS\52406.TXT TERRIE
21 

nancial services while, as Mr. Yingling just said, also imposing requirements which would be highly likely to conflict with those of 

other regulatory agencies. We differ on whether we like this idea 

or not. 

When it comes to so-called plain vanilla products for all providers 

and intermediaries, a vast jurisdiction apparently unrelated to any 

charter in definitions, the proposed agency would be able to dictate 

part of the business across this wide jurisdiction. This strikes me 

as an amazing assertion. A more sensible proposal would be to define certain financial products as plain vanilla and require disclosure that this is or is not a plain vanilla financial product suitable 

for an unsophisticated customer. This idea, which strikes me as 

reasonable, would not require a new agency. 

For financial institutions, the CFPA would be an additional parallel regulatory system, representing a major burden, a potentially 

punitive approach and significant, undefinable regulatory risk. This 

is quite at odds with the intense desire of the United States Government to attract additional capital into the banking system. 

Discussions that I have read about the formation of this agency 

make me think a lot of those that preceded the Sarbanes-Oxley 

Act. I see Mr. Oxley smiling down at me up there. That was the 

first major regulatory overreaction of the 21st Century, and the 

Sarbanes-Oxley Act has proved highly successful at generating 

costs and bureaucracy while apparently having no influence at impeding the build-up of risk, as we see from the result. It created 

and still creates disproportionate burdens on small and venture 

businesses, and I believe we would see a similar pattern for the 

CFPA. 

Professor Warren and Mr. Yingling both mentioned the special 

role of community financial institutions, and I think in any kind 

of body of this kind, should it be created, it would be reasonable 

to exempt community financial institutions. 

The Administration’s proposal, in my view, emphasizes one extremely good idea—ensuring clear, simple, straightforward, informative disclosures. 

In congressional testimony in the spring of 2007, while sitting at 

this table, I proposed a one-page mortgage form so borrowers could 

easily focus on what they really need to know. It remains my opinion that something like that would be a huge improvement in the 

way the American mortgage system works. 

By far the most important reason for good disclosures is for borrowers to be able to decide for themselves whether they can afford 

the debt service commitments they are making. In my view, that 

is much more important than choosing among products. The key is: 

Can you afford the commitments you are making? In the ideal case, 

the borrowers would be able to complete the one-page form on their 

own. 

In this context, it seems remarkable to me that the idea of building personal responsibility on the part of consumers seems to be 

missing from the Administration’s proposal, which seems to me to 

be a major failure. 

The Administration’s White Paper gets to Fannie Mae and 

Freddie Mac, and it seems to lose courage. As everybody knows, 

Fannie and Freddie made a huge contribution to inflating the 

22 

mortgage bubble. They plunged into low-quality mortgage credit, 

and pushed the top of the market much higher, and the bust subsequently became much worse, of course, including their own insolvency. Without addressing Fannie and Freddie, we cannot address 

the mortgage market. 

The new agency is proposed to have sole authority to evaluate institutions under CRA and to ‘‘promote’’ community development investment. As others have said, I believe this is a truly bad idea. 

Whenever credit risk and investment risk are involved, it is necessary to balance community investment and safety and soundness. 

Thus, in my view, it is imperative for these to be combined in one 

regulatory agency. To have credit risk and investment risk being 

promoted by people with no responsibility for safety and soundness 

would be an obvious mistake. 

Others have suggested that the idea of centralizing consumer 

protection is still a good idea. I think it probably is, along with 

these disclosure responsibilities. We can make use of a logical existing organization. My vote would be to use the Fed and to just 

drop the notion of the CFPA. 

As a final thought, I would like to repeat that any proposals 

which substantially increase the regulatory burden and undefinable regulatory risk must be considered in the light of the government’s intense need to attract very large amounts of additional private equity capital into the banking system. 

Thanks very much for the chance to share these views. 

[The prepared statement of Mr. Pollock can be found on page 174 

of the appendix.] 

The CHAIRMAN. Thank you. 

Let me say at the outset to my former colleague, Secretary 

Galvin, that I do not think there is any likelihood that we are 

going to increase any preemption. In fact, many of us on both sides 

were opposed to the breadth of the OCC’s preemption of all State 

banking laws, and I believe we will address that. I had previously 

spoken to the Secretary of the Treasury, and we had initiated conversations with the Comptroller of the Currency, with the State attorneys general and with State bank supervisors. I think we will 

have resolved that. I know there is a pending court case, but I 

think we may moot the case by dealing with it. 

Next, Mr. Yingling, I just want to say that I welcome and appreciate your comments. I am going to talk about the CRA issue, 

which is an interesting one, as to how we deal with it. I want to 

start at the bottom of page 7 of your written testimony. You said 

it orally, and I think it is very important: 

‘‘We agree that CRA’’—‘‘we’’ is the American Bankers Association 

because there has been this effort to blame CRA for many of the 

ills of the world in terms of lending. ‘‘We agree that CRA has not 

led to material safety and soundness concerns and that bank CRA 

lending was prudent and safe for consumers.’’ That doesn’t mean 

every loan made there was right, but I think that is a very impressive reputation of those who would say CRA was a major part of 

the crisis. 

It is also important when you say, ‘‘Bank CRA lending was prudent and safe for consumers.’’ The relevance to that is that there 

is no non-bank CRA lending, because CRA explicitly, by its terms, 

23 

only applies to banks. So this is a very impressive statement on 

your part. 

Let me now ask others. Ms. Seidman also had this, and I do 

think that raises an important issue about CRA. I understand you 

say that is because it is within the current context. 

Let me ask Mr. Mierzwinski and Professor Warren: What is your 

view about the notion of moving CRA? Is there a problem there? 

You do have this issue where CRA is enforced, to the extent that 

it is—and it is not exactly the toughest enforcement mechanism. It 

is enforced by the regulators in terms of denying a right of a 

change of ownership. How do you make these two work together? 

That is the one conflict which I do think needs to be addressed. 

Professor Warren? 

Ms. WARREN. Well, I would make one point about it. It surprised 

me to see this particular proposal, but there is something to be said 

for having someone who worries about how financial products are 

read and understood by consumers looking at CRA. No one is 

helped if what happens under CRA is that bad loans are made that 

ultimately cause families to lose their homes. 

So to the extent that this injects in the CRA some element of the 

quality of the loan-making, the quality of the financial decisions 

that the families are making who were at least supposed to be benefited. I like that aspect of it. 

The CHAIRMAN. You were surprised that this was not part of 

your original proposal? 

Ms. WARREN. No, Congressman. 

The CHAIRMAN. Let me ask Mr. Mierzwinski. 

Mr. MIERZWINSKI. Mr. Chairman, I think that Ellen Seidman’s 

testimony makes some very good points about some of the issues 

that are framed with moving the agency. The consumer groups and 

the other community groups are looking at making sure— 

The CHAIRMAN. I appreciate it. 

Professor Warren, I think you are right. It is possible to have 

input from this agency without the kind of transfer. I will say that 

I met yesterday with the community bankers, and they had that 

same issue. It does seem to me that there is a legitimate issue here 

about how best to improve CRA. I do, again, say that in the context 

of thanking you, Mr. Yingling. I know you will hear complaints 

about your evaluation of CRA and how it was not a major cause 

of the problem, but I thought I would thank you for it before you 

get criticized for it. 

Let me ask as to one last issue. I invited Secretary Galvin even 

though he is the securities regulator because he has been a staunch 

supporter of not having preemption, and we did go through that in 

a number of cases. The premise here is that we will leave securities 

enforcement to the SEC. Correct me in the sense that I do think 

that investor protection is a bigger part of the SEC’s mission than 

consumer protection is of the OCC’s. 

Does anyone dissent from the notion of—it is my own view that 

we might want to try and beef up the SEC. Does anyone dissent 

from the recommendation to focus just on bank products and not 

on the SEC, banks and others? 

Mr. Yingling? 

24 

Mr. YINGLING. We dissent in the sense that you have products 

that compete with each other, and we think that they ought to be 

subject to the same type of regulatory issues. 

The CHAIRMAN. That is a reasonable point for you to raise. Any 

other comments? 

Mr. GALVIN. Mr. Chairman, the only thing I would point out is 

there are a number of products that sort of fall into multiple categories. Annuities come to mind. Mutual funds products come to 

mind. 

The CHAIRMAN. Well, let me just say on annuities, the insurance 

issue also comes up, and that is why I decided that we needed a 

separate panel. So we will be talking about that. That is another 

issue. I think Mr. Yingling makes a reasonable point. So you get 

a couple, but I do think that those are things we will work on. 

I thank the panel, and it is a busy day. So let me now recognize 

the gentleman from Alabama. 

Mr. BACHUS. Thank you, Mr. Chairman. 

Professor Warren, I have been reading your interviews with different news organizations, and you said sometimes that one of the 

first things you will do—and just tell me of these different things 

what you see as maybe priorities. 

Now, you testified you want to eliminate the most destructive 

practices, you know, high-risk products. You want to establish minimum safety standards; is that correct? Are those two of the different things you want to do? 

Ms. WARREN. Yes, Congressman. 

Mr. BACHUS. Then, I think, one of the third ones was to require 

lenders to make pure vanilla, or standardized financial products, 

available. 

Ms. WARREN. Actually, Congressman, no. I have never suggested 

requiring anything of anyone. 

Mr. BACHUS. Oh, okay. 

Ms. WARREN. What I have suggested is an agency that offers 

plain vanilla products that provide a safe harbor on regulation. 

That is, if you will use an off-the-shelf, page-and-a-half credit card 

agreement or a one-page mortgage agreement, then you have met 

all regulatory obligations at that point, making it cheap for you 

and easy for the consumer to understand. 

Mr. BACHUS. What are some of the most destructive high-risk 

practices or products that you see? 

Ms. WARREN. Well, actually, I found it interesting that you listed 

those as separate entities. The real point, in my view, is when customers cannot follow what you are doing, I regard it as extremely 

destructive, as high-risk, when you dump 30 pages on a customer 

and you call that a credit card contract and when only after the 

customer has used the credit card, discovers terms in it when those 

terms are charged against the customer. 

I think that is extremely destructive. I think it is destructive to 

show up at a mortgage closing and be handed literally hundreds 

of pages with stickers saying, sign here, sign here, sign here, and 

the advice, ‘‘you cannot read it.’’ I think that is destructive. I think 

it is destructive when there are changes over time—when you are 

quoted one price on a mortgage, but when you show up after you 

have already sold your house and after you have already gotten all 

25 

the furniture in the moving truck and are told that the interest 

rates will be different or that there are prepayment penalties. I 

think those are very destructive practices. 

Mr. BACHUS. Well, other than disclosing them, though, would you 

stop some of those practices? 

Ms. WARREN. The point, Congressman, as I see it, is that it is 

all about disclosing them. That is really the whole point here. We 

have now played the game over and over and over of, add 10 more 

paragraphs, 4 more pages, 20 more pages. That is not disclosure. 

Mr. BACHUS. Well, I understand what you are saying, but would 

you actually choose the terms— 

Ms. WARREN. No. 

Mr. BACHUS. —or would you just require— 

Ms. WARREN. I am not interested in picking terms. What I am 

interested in is putting terms out where customers can see them 

and compare products. 

Mr. BACHUS. But sometimes it would be destructive. Some practices would be destructive. 

Ms. WARREN. Well, you know, let me put it this way, Congressman: I was testifying a year-and-a-half ago in the Senate when one 

of the Senators asked the principal officer testifying for one of the 

major banks to explain double-cycle billing. The person from the 

bank started, stopped, moved over, started again, stopped. He finally laughed and said, ‘‘I cannot do it.’’ Well, my view is, if you 

cannot explain it, then you probably should not sell it to customers. 

I think that is destructive. 

Mr. BACHUS. So that would be one of the principles? 

Ms. WARREN. Yes, that would be a key principle for me. 

Mr. BACHUS. But what about some of these high-risk products? 

What if you could explain it, but what if the terms were bad? 

Would you prevent those? 

Ms. WARREN. Well, you know, my view is we used to do this by 

usury laws. We simply said, there is a cap. There it is. 

Mr. BACHUS. Right. Is that sort of what you want to return to? 

Ms. WARREN. No. That is exactly what I am talking about. There 

was no reason to develop a business model that put tricks and 

traps in back and you pretended to compete on things that were 

not real. So we have two choices going forward. One alternative is 

you could return to a day of usury caps. The second way we can 

do it is we can do it through an agency. I have also sat in these 

hearings time after time— 

Mr. BACHUS. What would the agency do? 

Ms. WARREN. Well, this is what we just talked about. 

The agency could say if you will issue a page-and-a-half credit 

card contract that is readable, a one-page mortgage that is readable and make the blanks clear—the interest rate, the penalty rate, 

what triggers the penalty, and how you get your free gift—if you 

will put those in bold where someone could read them, you are relieved of other regulatory obligations. 

Now the consumer can make a good choice. That is meaningful 

choice, I believe, Congressman. 

Mr. BACHUS. So you are not going to want to set anything. You 

are just going to want to require— 

26 

The CHAIRMAN. We only have time for the gentleman to make a 

final comment. So without repeating the question, do you have a 

final comment? We are over the time. 

Mr. BACHUS. Well, this would apply to consumer loans. How 

about bank fees? As long as they reveal those— 

The CHAIRMAN. We are way over time. We cannot get into a new 

dialogue. I just said the gentleman could wrap up. 

Mr. BACHUS. Oh, okay. 

The CHAIRMAN. Professor Warren, if you want to answer the 

question, we will find some opportunity to do so later on within her 

allotted time. 

The gentlewoman from California. 

Ms. WATERS. Thank you very much, Mr. Chairman. 

I would like to start with kind of a basic question about oversight 

and regulation. I sincerely believe that there are some products. 

They have often been referred to, because of this subprime meltdown that we have had, as ‘‘exotic products’’ that were offered in 

the markets, such as Alt A loans and option adjustable rate mortgage, etc. 

There appears to be a feeling or an understanding or a basic way 

that the financial services community works that says you cannot 

deny products, that you can regulate them, no matter what someone decides to market that it is no so bad that it could be banned, 

that it could be stopped, that it could be disallowed, but whatever 

comes on the market, we will regulate it. 

How many of these products can reasonably be regulated? 

We discovered that there was very little regulation going on with 

these exotic products that came on the market. There was no real 

oversight. Nobody seems to have had to introduce them to any 

agency to say, you know, this is what we are about to do. They did 

not seem to know what was going on. 

What about that? Are there any products that are so bad that 

there needs to be some way to stop them altogether or do we go 

along with the idea that, well, if new products come on the market—1,000 of them or 2,000 of them—it does not matter, and we 

will regulate them? 

I would like someone to speak to that. Let me ask Ms. Seidman 

what you think about that? 

Ms. SEIDMAN. Thank you, Congresswoman Waters. 

You know, I think one of the questions that we have to ask is: 

What is a ‘‘product’’ and what is a ‘‘term?’’ 

So, clearly, no one would ban mortgages or credit cards. On the 

other hand, I think we have a system that recognizes that banning 

terms is very much within the power of the regulator. In fact, interestingly enough, the Fed actually banned double-cycle billing, 

which Professor Warren just described. 

Are there some products that are so bad they should not be allowed? You know, I think there are, but I also think it is incredibly 

important that we understand what the needs of the population are 

and how those needs are going to be met. 

I do not happen to like payday lending. When I was at OTS, we 

made sure that the institutions we regulated did not do that. On 

the other hand, in a world in which we have discouraged savings, 

in a world in which we do not make saving easy, in a world in 

27 

which there are a lot of people, immigrants and nonimmigrants, 

who do not have easy access to our mainstream financial institutions, we need to figure out something else so that they can have 

access to well-priced, well-structured, short-term credit. There are 

both mainstream institutions, credit unions in particular, some 

banks and some non-banks that are doing that. 

So the question is: What is the function that needs to be served, 

and how can that function be served in a responsible way? That is 

the question that this new agency is going to have to answer, and 

I think it is a creative way and a really important way to think 

about consumer protection. 

Ms. WATERS. Thank you. 

Mr. Yingling, we are being told—and it is being whispered and 

talked about in the back rooms and in other places—that the bankers are going to have a big pushback on this agency as to what it 

stands for and what it is supposed to do. 

What is it about the agency that would cause the bankers, one, 

not to have a consumer protection agency as you understand it? 

Mr. YINGLING. Thank you, Ms. Waters. 

First, let me say that I agree with you. There are products that 

should be banned. Part of the answer to your question is to point 

out that there are currently authorities within the regulatory agencies that could have addressed and that can address in the future 

those types of products. 

I testified earlier before this committee, and the chairman and 

I had a dialogue in which he pointed out very clearly that the Fed 

was not aggressive enough on HOEPA and should have been more 

aggressive, that HOEPA could have addressed a lot of this. Now, 

with the new authorities that are being implemented under UDAP, 

Unfair and Deceptive Practices, the regulators have even more authority. We support what this committee approved in the last Congress, which is to extend the UDAP authority to all of the bank 

regulators. 

Our major concerns are twofold. One is that we really do not believe you can separate the business from its products and that to 

have these two regulators will put banks in the middle or they will 

be pushed and pulled, and we gave a number of examples about 

that. 

The other is that this authority from the Administration, as they 

have proposed it, goes well beyond just setting up an agency. I was 

interested that Professor Warren said she did not believe that you 

should mandate products. Let me read from page 66 of the Administration’s proposal: 

‘‘We propose that the regulator be authorized to define standards 

for plain vanilla products. The CFPA should be authorized to require all providers and intermediaries to offer these products 

prominently.’’ 

So, basically, they design standards. We think that goes too far. 

Ms. WATERS. Thank you very much. 

The CHAIRMAN. The gentleman from Texas. 

Mr. NEUGEBAUER. Thank you, Mr. Chairman. 

Professor Warren, I want to just kind of follow up on that same 

line of questioning because when I look at the Administration’s proposal and when I listen to you talk and when I listen to Ms. 

28 

Seidman talk, I get to thinking that you do not agree with the Administration’s proposal because you are talking more about transparency and integrity and not about regulation. 

You know, I think many of us believe that the American people 

are pretty smart and that if they understand what product they 

are buying and they understand the principles and the contractual 

rights that they have and the person providing the credit that they 

are very, very able to make that choice. 

So would you think that maybe a better road to go down then 

is, let’s work on disclosure, and then let’s make sure that the regulatory agencies that oversee these entities are, in fact, enforcing 

that disclosure? 

Ms. WARREN. Well, Congressman, that sounds like a good plan 

except that is what we have been doing for the last 70 years, and 

it has not worked very well. We have done it specifically since 

1994. The real point is there is no one who wants to make disclosure effective. Congressman Delahunt talked about 10 different 

agencies that have pieces of this. The Fed has had the power to 

move in. 

What I really think is that it is time to talk about disclosure in 

a way that means something. It is not disclosure to add more pages 

of incomprehensible text. I will tell you about my own credit card. 

On the pricing term, there are 47 lines to explain how the price 

will be calculated on my credit card. The very last line says: ‘‘Notwithstanding the foregoing, the company reserves the right to 

charge any amount at any time for any reason.’’ 

I assumed the 46 lines that preceded that line were simply there 

as camouflage in the hopes I would never see the last one. 

Mr. NEUGEBAUER. Let me interrupt you there. 

I agree. What I am talking about is, let’s do the simplified. I 

have supported—and I know Mr. Pollock and I have had this conversation—a one-page disclosure. If you cannot get the big terms, 

as I call it, on one page, then, you know, possibly you have a product that people ought to be concerned about. If it takes 40 pages 

to explain your product, then maybe people would not sign up for 

it. 

Yet you admit and everybody admits here that we have had a 

regulatory failure. The question is: If we have had regulatory failure, how is adding more regulation going to fix it? What we ought 

to be doing is putting people in place who are regulators, and we 

need to make sure they do their jobs. The government always says, 

well, gosh, if we have people who are not doing their jobs, let’s go 

get some more people who will not do their jobs, and that will fix 

it. I am tired of that. 

Ms. WARREN. I am tired of it, too. So here is how I see the problem. Why is it that for 70 years we have had power and no action? 

Indeed, we have had the kind of inaction that has brought us into 

a crisis. My view is we have a structural problem, and the structural problem is when the Fed has monetary policy and consumer 

protection it cares about monetary policy. When the OCC has profitability of the banks and consumer protection, it cares about profitability of the banks. 

The problem we have is that these agencies are conflicted internally. The people who are attracted to these agencies—I do not 

29 

mean this in a bad way. We need people like this, but if you want 

to do—who goes to the Fed? People who want to do M–1, M–2. Who 

goes to the OCC? People who are bankers and who really want to 

engage in the banking process. If you really care about consumers 

and the economic health of the American consumer, you tell me, 

where do you go in Washington? There is no home. 

We built an Environmental Protection Agency, and now we have 

people who care about environmental law, and they have a place 

to go to develop nuanced, healthy, smart responses. That is what 

we need for consumers. 

Mr. NEUGEBAUER. Well, I think if you will look at the plan we 

have laid out, we agree with you. We think the Fed ought to focus 

on monetary policy, and we think we ought to streamline the regulatory process, and we think that the financial institutions ought 

to have one person who is sitting down and who is having dialogues. Within the organization, you have the consumer part. You 

have the safety and the soundness part. You have to make sure 

that—and for example, in the Administration’s plan, it does not 

eliminate anybody looking at consumer products. The States still 

look at it. Other Federal agencies do that, and so now you have all 

of these different opinions on what is a safe product. Why isn’t it 

better to keep all of that under one roof? If those folks are not 

going to do their jobs correctly, we will take action here in this 

committee to encourage them to do that. 

The CHAIRMAN. The gentleman from North Carolina. 

Mr. WATT. Thank you, Mr. Chairman. I want to address only one 

question to Mr. Yingling and to Mr. Pollock, I think, but I want to 

do a little background here. 

On March 31, 2008, before all of the meltdown, Secretary 

Paulson at that point issued a Blueprint for Regulatory Reform. In 

that, he said that he was proposing three kinds of situations—a 

model that would have three regulators: a regulator focused on 

market stability across the entire financial sector; a regulator focused on the safety and soundness of those institutions supported 

by a Federal guaranty; and a regulator focused on protecting consumers and investors. He went to some length to describe his consumer-investor-regulator role, very similar to the one that is on the 

table now, by the way, and he outlined it in some detail. 

On July 10, 2008, this committee had a hearing at which Secretary Paulson testified, and it was supposed to be about his blueprint, but he did not mention the word ‘‘consumer’’ but one time 

in his testimony. When I had the opportunity to ask questions, I 

asked him: How can these regulators do what they are supposed 

to do—protect safety and soundness and whatever else they are 

supposed to do—without making consumer protection a second-rate 

obligation? It was the same question that Ms. Warren was just 

asked, by the way, in response to a question. 

Now, the Administration is talking about giving more authority 

to the Fed and to the regulators in addition to the authority that 

they already had. What I am trying to figure out is, if they could 

not do the consumer protection part of what they were supposed to 

do when they did not have this increased authority, how can we 

reasonably expect them with new authority and with new responsibilities to do the consumer protection? How can we get somebody 

30 

to put consumer protection over and above all of the other things 

that are going on in the financial system without doing this proposal? 

Can you explain that to me? 

Mr. POLLOCK. Thanks, Congressman. I was not a supporter of 

Secretary Paulson’s plan at the time, and I am not now. 

Mr. WATT. Nobody seems to be. 

Mr. POLLOCK. I think he is, at best, one for three. I think the socalled— 

Mr. WATT. Please do not spend my time talking about Secretary 

Paulson. Just talk about the question I asked, please. 

Mr. POLLOCK. Well, I am just putting it in the context of your 

question, Congressman. 

The systemic risk regulator is a bad idea. I think the separate 

agency, as we are talking about today, is a bad idea. Potentially, 

it is a good idea to think about putting all of the consumer protection and disclosure requirements in one place. I do agree with that. 

Mr. WATT. Okay. Well, that is good. 

Mr. Yingling, it sounds like you agree with Secretary Paulson at 

least on that theoretical proposition. 

Go ahead, Mr. Yingling. 

Mr. YINGLING. Well, again, we disagree with much of the Paulson 

proposal. I think it is a good question. I think it is a good question 

as to how you get more focused on consumer issues in the regulators. 

Our problem is that, if you have separate regulators, you have 

separated the business from its product, and we do not think that 

it is the way to go. We think you ought to go more directly at— 

Mr. WATT. My question is: How do you make the product, the 

consumer part of it, as important as the product part of it? 

Mr. YINGLING. I think you do that, one, by whom you appoint. 

Who did the previous Administration appoint? Maybe they appointed people with a certain philosophy that you would not agree 

with. I think you can do it by beefing-up coordination. I think you 

can do it by writing laws on plain disclosure. I think you can do 

it by having regular reports to this committee, like the HumphreyHawkins report, where they would have to come before you and say 

what they have done on consumer regulation. 

I think there are a lot of things you could do, but it is really hard 

to put a bank in the middle where they have regulators who will 

be pulling them in different directions. I have given a number of 

examples of that where you are going to have the banker in the 

middle with one regulator saying go this way and the other regulator saying go that way. 

Mr. WATT. Thank you, Mr. Chairman. 

The CHAIRMAN. At this point, I will insert into the record statements from: the Property Casualty Insurers Association of America; the National Association of Federal Credit Unions; Jonathan 

Mintz, who is commissioner of the New York City Department of 

Consumer Affairs; and the Independent Community Bankers Association. 

Next, we have Mrs. Biggert from Illinois. 

Mrs. BIGGERT. Thank you, Mr. Chairman. 

31 

You know, one of the things that I really care about is financial 

literacy and education, and we have worked with the Federal agencies and with the private sector through our caucus with Mr. Hinojosa. 

Ms. Warren, shouldn’t we concentrate on improving financial 

education and regularly reviewing consumer testing and improving 

product disclosures which would result in an efficient and innovative market instead of so much government control? 

Mr. Pollock mentioned personal responsibility, and I think that 

he is right and that nobody has really mentioned that. There is a 

role for the consumer to really take responsibility when they are 

getting into a product and to really do the research. Are we just 

saying, well, the government can do it for us? Should we mandate 

financial literacy in the schools? 

You know, we have tried to stay away from that while really 

going forward with it. Is this something that should actually be a 

course in the schools? 

Ms. WARREN. Well, Congresswoman, I actually would like to say 

I also talked about personal responsibility in my direct testimony. 

I will make the point that this is not about people who go to the 

mall and charge up thousands of dollars that they cannot afford or 

who buy five-bedroom houses that they never had a hope of paying 

for. This is about people who get trapped by the products themselves. 

I am completely in favor of making these products transparent 

enough that people can read them, understand them, and make 

smart financial decisions. Literacy is not going to solve the problem 

of reading a 30-page credit card contract. 

Congresswoman, I have assigned these contracts in the past to 

my own classes at Harvard Law School. Everyone in the room has 

a college diploma, at least 2 years of law school, and has me as a 

reason that they had better read carefully, and they cannot figure 

out the terms. 

Mrs. BIGGERT. In Illinois, though, lawyers are at the closings and 

really work with their clients, and part of their responsibility is to 

explain that. Maybe it is all legalese. We have already suggested 

so many times to have a one-page disclosure, to have RESPA as a 

one-page or as a three-page so that people can understand that. 

So just to make a whole new agency based on that because—well, 

it is kind of like we kid around here that sometimes we have our 

staff, and we call this assisted living for Members of Congress. You 

have to take the responsibility yourself. 

Maybe, Mr. Pollock, could you say a little bit more about personal responsibility? 

Mr. POLLOCK. As I said in my testimony, Congresswoman— 

Mrs. BIGGERT. I am sorry. I missed it because we had to go vote. 

Mr. POLLOCK. —the best reason to have really good disclosure— 

and I completely agree with you, Professor Warren, about good disclosure—is that it enables personal responsibility. The main question, in my opinion, which should be addressed by all credit disclosures is to the customer: Can I afford the debt service commitments I am making? How much risk can I take? 

I am not against people deciding to take risks, but they ought to 

know and understand what risks they are taking. 

32 

Mrs. BIGGERT. Thank you. 

Then, Ms. Seidman, you state in your testimony that the CRA 

should be left with the prudential regulator. Why is that when it 

seems like part of that was really the problem? You know, we have 

92, 93, 94 percent of people paying their mortgages on time, and 

they really did not have a problem with this. We had the CRA and 

the pressure on the banks to loan to people who maybe should not 

have even been in the market yet, and you take that out of what 

could have had a regulator for a consumer protection and leave 

that with the other regulator. 

Ms. SEIDMAN. Congresswoman, I think you are asking two questions. One is the question of whether CRA caused the problem. 

Mrs. BIGGERT. That is right. 

Ms. SEIDMAN. As Mr. Yingling testified, the answer to that is no. 

I also believe the answer to that is no. A good deal of recent research by the Federal Reserve has demonstrated just how little effect CRA actually had in generating high-cost loans in low-income 

communities, which is the only thing that CRA counts. 

The second question that you are raising, though, is whether 

CRA belongs in this agency. In my testimony, I suggest that it may 

not be. A piece of CRA is, indeed, the whole issue of access to goodquality consumer financial products, which the CFPA would deal 

with. But a very big and very important piece of CRA is community 

financial investment—the charter schools, the affordable rental 

housing, the community centers. All of those kinds of investments 

are really not a consumer protection issue. 

I also agree with Mr. Yingling that CRA is written very appropriately to say that these actions must be taken in a manner that 

is consistent with safe and sound operation. That is what the prudential supervisors do. 

Thank you. 

The CHAIRMAN. The gentleman from Kansas. 

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

you, Professor Warren, for your leadership as Chair of the Congressional Oversight Panel for TARP. 

I appreciate the points you make in your testimony, including 

the need for personal responsibility, the need for fixing broken 

markets for hardworking and play-by-the-rules families, and for 

noting that this new agency should be putting consumers in a position to make the best decisions for themselves. I also appreciate 

your point that we are not looking for more disclosures. We just 

need to make disclosures and make sure that those are written so 

people can understand them. 

I believe many of our constituents may not have a good understanding of several parts of the financial regulatory reform package 

Congress considers; for example, systemic risk, derivatives or resolution authority; but this proposed consumer protection agency is 

an idea that everyone can easily understand the need for. 

Professor Warren, you point out that regulatory costs can put 

enormous financial pressure on a small institution. For the small 

banks in Kansas and in other parts of the country that did the 

right thing and did not make irresponsible loans and were not 

overleveraged, what will this Consumer Financial Protection Agency mean to them? Will it help level the playing field? 

33 

Ms. WARREN. Thank you very much, Congressman. 

I think that that is the most critical question here as we move 

forward. I see it helping the smaller banks—the community banks, 

the regional banks, who, as you rightly point out, were often not 

the cause of the problem but are now being forced to pay for it. I 

see it helping them in two principal ways. 

The first one is in the direct cost of compliance. Our complex 

structure right now, while it is ineffective for consumers, is nonetheless very expensive for financial institutions. Now, if you are a 

huge financial institution, you can hire a team of lawyers and 

spread that cost across millions of credit card products or home 

mortgage products, and it will come out okay for you. For small institutions, I believe the current burdens can be crippling. So the 

idea here is to slim these down, to make them effective for consumers but much cheaper for the financial institutions. 

The second way I think it is helpful for the smaller banks, for 

the community banks, is that it is my belief that often, not always 

but often, they offer cleaner products. They offer better products, 

but in a world in which all of the products are 20-, 30-pages long— 

the home mortgages are stacks and stacks—we do not create the 

appropriate functioning market so that the good products get rewarded and the bad products get driven out. Instead, the folks who 

can afford the multimillion dollar advertising campaign can drive 

consumers to the more expensive, high-risk products. Ultimately, 

that is not only to the injury of the consumer; it is to the injury 

of the small financial institutions. 

So, I see this as leveling the playing field, not just between the 

customer and the bank but between the really big banks and the 

smaller banks. 

Mr. MOORE OF KANSAS. Thank you very much. 

Ms. Seidman or Mr. Yingling, do you have any comments? 

Ms. SEIDMAN. I agree with Professor Warren. I think that this 

is one of those situations where the immediate reaction is, oh, no, 

another regulator; but in fact, when you look a whole lot deeper, 

you realize that what can happen here is a combination of consolidation and consistency in regulation that does not exist now, and 

it is providing a preference for quality products, which are the 

products that most of the community banks do in fact provide. 

Mr. MOORE OF KANSAS. Thank you. 

Sir, do you have any comments? 

Mr. YINGLING. Yes. I would say there is not a community banker 

in the country who believes that. I have talked to dozens of community bankers since this proposal came forward. They all think it 

will be additional regulation. They think it means another examiner will be in. For example, right now, they have an examiner who 

comes in and looks at all of their compliance training. The ABA offers dozens of courses that are compliance training for frontline 

people in banks, but those are coordinated. They have to take 

sometimes a dozen different courses, but they are coordinated with 

one regulator. 

Now we are going to have two regulators coming and saying, I 

do not like what your other regulator told you. I want you to offer 

these other courses. When they go to account openings, you are 

going to have one examiner who comes in and says, the way your 

34 

frontline people are opening accounts, from my point of view, 

should be this way because I am the consumer regulator. You are 

going to have another examiner who comes in and says, the way 

you are opening accounts should be the other way because I am a 

safety and soundness examiner. I am worried about fraud, and I 

am worried about the Bank Secrecy Act. 

Mr. MOORE OF KANSAS. Ms. Seidman, do you have a comment 

very quickly? 

Ms. SEIDMAN. Yes. 

As my testimony points out, I actually agree with Mr. Yingling 

on this second point. On the first point, the reason the ABA has 

all of those courses is there are too many regulations, many of 

which are not consistent with each other. 

Mr. MOORE OF KANSAS. Thank you. 

Mr. MIERZWINSKI. Could I add a quick comment? 

The CHAIRMAN. The time has expired. 

The gentleman from Texas. 

It is another adjournment resolution. Members can come and go 

as they wish. For now, I am going to keep the hearing going. 

Mr. HENSARLING. Thank you, Mr. Chairman. 

Listening to a lot of the testimony, I kind of had deja vu all over 

again. I was invited to the White House, that doesn’t happen often 

in my case, to hear the President unveil his capital markets reform 

plan. And I was struck by the fact that I could have given 80 percent of the President’s speech, and I agree with about 20 percent 

of his legislation. 

So, as I listened to the testimony here, I find myself in agreement with the overwhelming majority of the testimony, but when 

I look to at the underlying legislation, H.R. 1705, the Durbin companion bill in the Senate, there just seems to be a big disconnect. 

Number one, I want to agree with most of the panel; consumer 

disclosure is broken. I think there is a fairly unanimous opinion 

about that. Now, there is a debate as to the causes. And I believe 

there is certainly merit in the idea of gaining better expertise about 

consumer marketing, consumer understanding, even happy to propose that in one, in a new agency. But as I read H.R. 1705, I see 

something that goes way beyond simply empowering a consumer 

with more effective disclosure. 

I mean, again, what I see is an unelected body granted the legal 

authority to ban from the marketplace any consumer financial 

product, practice, or features it considers, ‘‘unfair’’ or ‘‘anti-consumer.’’ And then, in section 10 of the bill, both civil and criminal 

penalties may apply to officers, directors, and employees of firms 

that produce products that are judged ‘‘unfair’’ or ‘‘anti-consumer.’’ 

I mean, this just strikes me as incredibly draconian and a disconnect from the testimony that I hear. 

So my first question is—first, can I safely assume that all are familiar with Mr. Delahunt’s bill, H.R. 1705? If you are not, could 

you raise your hand? 

Seeing no hands, I assume people have familiarity with the bill. 

Ms. WARREN. It depends what you mean by familiarity. I am 

somebody who gives out pop quizzes, and I can say right now I 

don’t want to take a pop quiz on that bill. 

35 

Mr. HENSARLING. Professor Warren, if you were here for Congressman Delahunt’s testimony, he gave you credit for being the 

mother of the idea. Have you abandoned your child? 

Ms. WARREN. I don’t want to be cross-examined on a particular 

provision. I am saying I didn’t read it before I came in here this 

morning. 

Mr. HENSARLING. Fair enough. The others seem to have familiarity. 

For those who are familiar with the bill, do you support it? 

Mr. Pollock? 

Mr. POLLOCK. I think you are absolutely right, Congressman, and 

I don’t. 

Mr. HENSARLING. Mr. Mierzwinski, do you support the legislation? 

Mr. MIERZWINSKI. The consumer group is strongly supportive of 

it. 

Mr. HENSARLING. Okay. I thank you. 

Mr. MIERZWINSKI. I just want to say quickly that it is not just 

consumer disclosure that is broken; it is consumer protection that 

is broken. 

Mr. HENSARLING. Forgive me, I have a short amount of time. 

Ms. Seidman, do you support the legislation? 

Ms. SEIDMAN. Yes, I do. And I also— 

Mr. HENSARLING. Let me ask this question then, if I could, for 

those particularly who support the legislation. I want to talk about 

a few financial products and ask if you believe they are unfair or 

anti-consumer. And if you would raise your hand if you believe 

they are unfair or anti-consumer. If you don’t believe or you don’t 

have an opinion, you can leave your hand down. 

Negative amortization ARMs, does anybody believe those are unfair or anti-consumer? Okay. We have a couple of hands there. 

Subprime mortgages, the entire universe of subprime mortgages? 

Ms. WARREN. Congressman, I can’t understand this without seeing what the paperwork is that accompanies them and what the 

disclosure is that is given to the consumer. 

Mr. HENSARLING. That is fine, Professor. 

So, again, you are saying some you would support; some you 

wouldn’t. 

ATM fees, does anybody believe they are per se unfair or anticonsumer? We have one hand. 

Ms. SEIDMAN. A $30 fee for a $5 overdraft is unfair. 

Mr. HENSARLING. I am asking for your opinion. 

Noninterest bearing checking accounts, does anybody believe 

they are unfair or anti-consumer? 

Unfortunately, my time is waning, but again, among this body of 

ostensibly studied people, very intelligent people, people who know 

a lot about this subject, clearly the terms ‘‘unfair’’ and ‘‘anti-consumer’’ are most subjective. And now people are advocating legislation to turn over this incredible power to these people to potentially 

ban products. 

I mean, there is no grandfathering that I can find in this clause, 

under my reading of this then. Does anybody believe that this 

panel would not have the legal authority, for example, to ban ATM 

fees? 

36 

Has anybody interpreted the bill otherwise? 

Mr. Yingling, if the panel banned ATM fees, would we have 

fewer ATM machines available to consumers, in your opinion? 

Mr. YINGLING. Well, you would have almost none in airports and 

places like that. 

I would say you don’t need to get there. You have unfair and deceptive practices. This committee passed a bill last Congress to 

spread that over all the regulators. And if you look at the way the 

Fed interpreted that in the credit card area, the authority is there. 

You don’t need this new vague open-ended authority. 

The CHAIRMAN. The gentleman from California. 

Mr. BACA. Thank you very much, Mr. Chairman. 

Thank you very much for holding this hearing. I would like to 

follow up on the last question. I don’t think the question is in reference to the products we are banning. It is about fairness and 

knowledge. I think this is what we are talking about. 

I think you have to be fair in terms of letting the consumer know 

exactly what they are getting. I think that is really the issue here. 

It is not about banning a product. It is not about the ability to provide assistance. It is letting the consumer know exactly what they 

are getting into in a simplified form. And I think that is what we 

need to do right now. 

And so my question is, in reference to compliance, monitoring 

and criteria that has to be, and then the funding aspect; we have 

to make sure that the funding is there if we are going have oversight, regulators and others. Because other than that, we can come 

up with any kind of legislation, but if the funding to monitor exactly what goes on; what are the penalties for individuals who violate the law in terms of not complying with another mandate? 

And here, again, we all talk about mandates; do we fund a mandate, or do we come up with another mandate without the funding 

dollars that are necessary? And how do we hold them accountable? 

How do we begin to hold them accountable? What kind of oversight 

or regulations do we need to implement? 

Ms. Warren, could you please respond to that? 

Ms. WARREN. I will give my own thoughts on funding. I think 

that this is an area where a per account fee makes a lot of sense. 

So, for example, if we said it will be a nickel a year for every open 

credit card account that a financial institution has that has to go 

to this agency, a penny a year for open car loans, maybe a dime 

a year for open mortgages, because they take more regulatory oversight, that gives the agency an independent source of funding. It 

doesn’t push up costs. It keeps it low and keeps this agency funded 

based on how much it has to supervise, how much is going on out 

there. I advance it at least as one option. 

Mr. BACA. Because remember that the American people trust 

what we are doing and what we are coming up with. And that was 

part of the problem, I guess, that we had with Alan Greenspan, is 

that he assumed that people were going to do the right thing, but 

people didn’t do it, and it got into a greed, how much profit can we 

make. And so then the consumer ended up having to pay for it, not 

knowing what was in the document itself. So people took advantage 

of that. 

37 

And I think that is what we are trying to stop right here, right 

now, is to try to find a balance or a means where it is still profitable but at least people know exactly what they are getting into. 

Mr. Yingling, would you want to answer that? 

Mr. YINGLING. I would just like to say I agree with your introductory comments. And this may come as a surprise, but we are concerned that the agency might be funded in a way—and Mr. Gutierrez just came back in, and I want to pick up on a point he raised 

in his introductory remarks. 

A major problem for us is going to be how this agency would 

interact with State regulated, and in some cases unregulated, entities. The great, great, great majority of the subprime problem was 

outside the regulated banking industry. It was primarily mortgage 

brokers and others. 

And we are concerned that this agency stops at the State line 

and says, initially at least, we are going to trust that to State regulation. Well, we don’t think the State regulation is going to deal 

with it, so we think our banks, our community banks, are going to 

be regulated hard on it, and we will be right back where we were 

with the unregulated, the less regulated, sector doing bad things 

which draw us all into the fire. 

So one of our questions, Mr. Gutierrez, as you correctly raised it 

in my opinion, is, how would such an agency or how would the Federal Government interact with all these unregulated or less regulated entities that, while banks are not perfect, are the major cause 

of the problem? 

Mr. BACA. Ms. Warren, you were going to respond? 

Ms. WARREN. Thank you. 

I want to say, the introductory paragraphs to the paper I first 

wrote about what was then the Consumer Financial Product Safety 

Commission, I think, I have forgotten the name, was about this 

very question, and made the point that regulation must shift in the 

financial services area from who issued it to what the product is. 

So there is level regulation across-the-board for mortgages, for 

credit cards, for payday loans, for whatever, student loans. 

Mr. BACA. I believe that we all want a fair level playing field for 

everyone, and we believe that unions, community banks and others 

shouldn’t have been to pay for what somebody else committed. And 

it seems like they are being put into a category because someone 

else took advantage of that greed and then passed it on to the consumer, and the consumer didn’t know exactly what they are getting 

into in a document that you needed a thesis to determine what it 

said. 

The CHAIRMAN. The gentleman’s time has expired. 

We will finish with Mr. Posey. 

Mr. POSEY. Thank you very much, Mr. Chairman. 

I was a little bit confused, Professor Warren, by a couple of your 

answers or discussions with Mr. Bachus. And so I am going to ask 

a series of questions, because we have a lack of time, and if we run 

out of time, you can respond to them in writing, if you would be 

kind enough. You don’t have to. If we have time left, we will go 

down the row, but I don’t think we are going to have that kind of 

time left. 

38 

If I heard you correctly, you mentioned banning certain products, 

and I was wondering specifically what products you recommend to 

be banned. You indicated that some products are complicated to 

understand, but agree that complicated disclosures are ineffective. 

I am not sure if you oppose the high risk or if you oppose the way 

they have been described, and if you could clarify that, please. 

You mentioned a safe harbor for pure vanilla, and I was just 

wondering where you draw the line on what is pure vanilla and 

what is not with the wide variation of experiences and knowledge 

that the citizens of this great country have. Some people seem to 

be asserting that our citizens are incapable of managing their own 

risk, and it makes one wonder, who will decide on our behalf what 

is an acceptable range? And who is going to tell me what risk I am 

allowed to take and what risk I am not allowed to take, what I can 

pay and what I can’t pay? 

Much of the complicated disclosures that everybody has been 

beating to death today are a result of congressional or State regulations that were as well intended as what is before us now. And the 

result is, you tell a company they have to disclose something, and 

if it takes 45 lines to do it, they are going to do it. They don’t particularly care if you like it or not. You told them to do it, and that 

is what it takes to keep them out of court with the lawyers that 

you are training up there. 

You know, it sounds like we are talking about an agency that we 

should probably change their name to; we should probably be talking about a Federal Department of Reward Without Risk or a 

Guaranteed Reward Without Risk, which is kind of an oxymoron 

since that is the principle upon which our financial system was 

built on and the free enterprise system seems to evolve on. 

And then if that doesn’t work, maybe we can have a Federal Department of Prosperity Without Risk or Work. One wonders where 

this is all going to stop if we continue trying to think the government is going to solve everything by taking responsibility away 

from people to make their own decisions. 

I think we all want them to make informed decisions, but where 

do you draw the line about intruding into my ability to decide what 

kind of a mortgage I want, what kind of a fee is acceptable to me. 

There are people who get better credit deals than I do because they 

have more money, and there are people who have maybe less opportunity because they don’t pay their bills. I mean, are you going 

to take that latitude away from a lender to make those kind of decisions, and ultimately, what kind of consequences do you think the 

market is going bear? And do you think there are going to be no 

consequences in the overall cost of the consumer? 

When we talk about the consumer, first and foremost, before we 

talk about a single credit card holder or we talk about a person 

taking out an individual mortgage, I look at a consumer’s—400 million people in this country, they are all consumers. They are consumers of what we make here. Some of what we make here is good 

for them. Some of what we make here is bad for them, but they 

are all different. And the typical government approach that one 

size fits all, this is the way you have to do it, and everybody has 

to live with this, doesn’t seem to be a real service, I don’t think, 

to our consumers most of the time. 

39 

Ms. WARREN. Thank you, Congressman. 

I will start by saying the person who was talking about banning 

products actually wasn’t me; it was Mr. Yingling who embraced 

that notion. 

Mr. YINGLING. I was quoting the Administration’s proposal. 

Ms. WARREN. I thought you said that you believed in banning 

certain products, certain credit products. 

Mr. YINGLING. All right. I am sorry, I agree with that. 

Mr. POSEY. But it is in your proposal as well. 

Ms. WARREN. Well, and he said he embraced banning certain 

products. 

You asked about complicated disclosures. That was exactly my 

testimony. Complicated disclosures don’t work. We have a problem 

now, and part of the problem is brought on by a bad regulatory 

structure. 

Mr. POSEY. I heard that. My question to you was, you said that 

some of these products are very complicated, and so obviously, the 

disclosure of them is going to be very complicated. Oftentimes, you 

can’t simplify a disclosure of a complex equation. And so my point 

is, were you talking about disallowing the complex items themselves or the complex— 

The CHAIRMAN. The gentleman’s time has expired. There won’t 

be time to answer the question. 

I am going to excuse this panel now. We are going to impanel 

the second panel. We are going to begin where we left off in the 

questioning. 

The gentleman from California has a quick question. 

Mr. MILLER OF CALIFORNIA. Did I miss the panel by voting? 

The CHAIRMAN. Well, if you can do it quickly. We do have a second panel. 

Mr. MILLER OF CALIFORNIA. Thank you very much. 

Professor Warren, I really enjoyed your comments on the transparency and disclosure and simplified forms. Is somebody other 

than an attorney going to draft these? 

Ms. WARREN. I am sorry, is someone other than an attorney— 

Mr. MILLER OF CALIFORNIA. Well, I really enjoyed, you talk about 

transparency and disclosure and simplified forms. But a fair question is, is somebody other than an attorney going to draft these? 

Ms. WARREN. Well, I think, at least what I hope, is this will be 

done in consultation with the industry and with consumers. 

Mr. MILLER OF CALIFORNIA. So we are going to put attorneys on 

it, so we can understand what they are saying. 

Ms. WARREN. So part of the point here is so that we understand 

that we have products that consumers can understand. If consumers can’t understand them, then they don’t meet regulatory 

muster. 

Mr. MILLER OF CALIFORNIA. If you look at GSEs, they have various programs, and then they constantly evolve different products 

in that program. They might evolve products daily to meet the consumer demands. And I am concerned about how what you are 

going to do might impact that. And I guess the most important 

question I have, have you ever read legislation that comes out of 

Congress? 

Ms. WARREN. I am sorry. 

40 

Mr. MILLER OF CALIFORNIA. Have you read the legislation that 

comes out of Congress and how we mandate and regulate the financial services industry in banks? 

Ms. WARREN. Yes, sir, I teach it. 

Mr. MILLER OF CALIFORNIA. How do you apply that to a simplified form? 

Ms. WARREN. Well, I think the point is— 

Mr. MILLER OF CALIFORNIA. Now, give consideration to RESPA, 

mortgage closings, and then you have State law to deal with. I am 

not trying to argue. Just having been a Realtor and a builder and 

a State legislator, you are going to have the States involved here, 

too; how is all this going to work in a simplified form? 

Ms. WARREN. Congressman, as I see it, what this agency does is 

it picks up all of those regulatory burdens that are there now. It 

puts them into one agency, and it comes up with a slimmer, more 

effective set of regulations that apply across-the-board wherever 

the product is issued, regardless of who issues it. 

Mr. MILLER OF CALIFORNIA. How does a lender deal with the reality of their having to draft some form of a contractual loan document agreement that covers them as a lender and covers the consumer who is getting a loan? And I am looking at all the mandates 

and all the laws and all the requirements that we place on them 

where they have to safeguard themselves and safeguard the consumer. 

Ms. WARREN. That is the point, Congressman. We are really trying to change the legal mandates. We are trying to say that more 

legal mandates of ineffective disclosure is not helping the consumer, is driving up costs for the financial institutions, and is a 

bad idea. 

So what we want is a new agency that has the power to say, we 

are going to slim these down. We are going to make the disclosures 

work for consumers and frankly be far cheaper for the financial institutions. Where that difference will be felt of course will be for 

the financial institutions who cannot afford to hire a team of lawyers in order to figure out the current regulatory compliance. 

Mr. MILLER OF CALIFORNIA. And you are establishing a floor, am 

correct? 

Ms. WARREN. I’m sorry? 

Mr. MILLER OF CALIFORNIA. You establish a floor for Federal regulations. 

Ms. WARREN. That is right, that is what is proposed. 

Mr. MILLER OF CALIFORNIA. How do you deal with the ceiling 

when you have to deal with the States? I know California, and we 

regulate the heck out of anything that walks, talks, breaths or ever 

moved. So what are you going to do with the States when, all of 

a sudden, these State legislators who think they are more brilliant 

than you and a committee that you might form, how do you deal 

with them? I am not being sarcastic. 

Ms. WARREN. Congressman, I know you are not. This creates a 

floor, and it creates a floor—we really have to be clear here. In response to the fact that the OCC in particular has used its Federal 

power to protect the financial institutions from any effective regulation, including preventing the States from enforcing their own 

laws on fraud— 

41 

Mr. MILLER OF CALIFORNIA. So we have an override over State 

regulation for the first time in this type of a form. So RESPA and 

the way Realtors have to form closing statements and those type 

of things that the States actually mandate, we are going to supersede that. 

Ms. WARREN. So this is going to bring all of the Federal rulemaking, all of the Federal disclosure responsibilities into one place. 

And I want to make one important point about preemption. It is 

my own view. If we get this right, if we get the plain vanilla forms 

right and they work for the community banks and they work for 

the customers, if we get that right, the need for the States to write 

additional regulations, in my view, becomes much less. 

Mr. MILLER OF CALIFORNIA. But it won’t happen in reality. 

One last question. This is very, very important, and this raises 

a huge red flag. You said good products will be rewarded, and bad 

products will be driven out. Who is to determine what the good 

product is and—I mean, it is a matter of apples and oranges. I like 

apples; he likes oranges. 

Ms. WARREN. No. It is the customer who will make that decision. 

That is the whole point behind this. When I can take a 2-page credit card agreement and I can look at four of them and tell instantly 

what the costs are, what the risks are, and how I get my free gifts, 

then I can make the decision as a customer. This is about making 

markets work. That is the point behind it. 

Mr. MILLER OF CALIFORNIA. I guess I am going to have to buy 

you lunch to discuss this because I am out of time. 

This such a complex industry driven by government regulations 

and mandates and requirements; I don’t know how you just forego 

everything we have done in the past, and we mandate on lenders, 

and just make it simple without firing all the attorneys. 

Thank you. I yield back. 

Mr. GUTIERREZ. [presiding] I am not in that big of a hurry. You 

could continue going. 

Let me just make a statement about what is kind of going on, 

what my perspective on what is going on here. 

So I was here, I think it was in 1994, when we passed legislation 

to deal with mortgages to make it clearer to people, and then it 

took the Federal Reserve until this year to pass the rules and the 

regulations. So, you know, there have been people saying no regulations, no regulations, no regulations, and guess what happened, 

a lot of people got caught up. And now they passed some nice rules, 

obviously. 

Mr. MILLER OF CALIFORNIA. Would the gentleman yield for one 

second? 

Mr. GUTIERREZ. Sure. 

Mr. MILLER OF CALIFORNIA. I want to make myself clear so you 

don’t misunderstand me. 

I think that the problem we faced in recent years was we failed 

to define predatory versus subprime. And lenders went out and 

acted, and some individuals acted as if there were no underwriting 

standards necessary that should apply to a loan. 

Mr. GUTIERREZ. I understand that perfectly. 

My only point is, look, we need to re-look at how we do things 

because obviously they are not working real well. So we do have 

42 

a consumer protection agency, and it was kind of the Federal Reserve, and they didn’t do it. And we finally got rules and regulations. We were happy to adopt them. We were applauding them 

when they came here, and then we expanded them when we did 

the credit card bill of rights. We actually expanded on some of 

them. Some people said, why are you doing it; they have already 

issued rules. So we do those things. 

And I think that we really need to—the public is really hungry 

for someone to be on their side, and they rightfully don’t feel. I just 

want for public disclosure—I mean, I got home. I went to the—I 

am usually not here when we are not in session, but I stuck around 

because, in all the years I have been here in 17 years, I have never 

been to a bill signing. At least maybe it was the first time I was 

relevant to a bill signing because I am a subcommittee Chair. 

So I show up, I go down to the White House, get my pen, and 

it is the credit card bill of rights. I get my pen, and I get home. 

Do you know what I found out when I got home, no kidding, three 

changes from three different credit card companies, two of which 

I had forgotten about. So I promptly called them and said, you 

changed the rules; I don’t want your card. I figured that was a better reason than just saying I had forgotten I had a card. But the 

card that I did use—and then I buy a ticket on a foreign airline, 

and all of a sudden, there is this new charge that I had never seen 

before. 

So, look, that is why we need rules, because even when we pass 

rules, they kind of rush to change the rules. So I think it is a very 

good time for all of us. We are going to take some time in July. 

We are going to go through this stuff. We are going to have some 

hearings. We are all going to work together. 

But I think they are good men and women on both sides of the 

aisle here that we can get together and do what I believe the public 

is really yearning for us to do. They know we are good at approving 

hundreds of billions of dollars to bail out—we are the socialists. 

The socialists bail out the capitalists. I love this. We bailed out 

Wall Street, the socialists, Democrats. Do you remember? It was 

kind of ironic, but that is what we did. That is all I am going to 

say. We are going to move on to the next panel. 

Mr. SHERMAN. Mr. Chairman, I would like to ask questions of 

this panel. 

Mr. GUTIERREZ. The gentleman is recognized for 5 minutes. 

Mr. SHERMAN. Thank you. Just when you thought that America 

does not torture, the chairman decides that you have to stay here 

for 5 more minutes. 

To me, one of the key issues here is whether— 

Mr. GUTIERREZ. I was going to say I actually like everybody on 

this panel, so I didn’t keep you here for that reason. 

Mr. SHERMAN. One of the key issues for me is whether we are 

creating a law enforcement agency or a law-making agency. A 

study of U.S. history over the last 60 years reflects an effort by the 

Executive Branch, sometimes abetted by the Legislative Branch, to 

turn Congress into an advisor body rather than a legislative body. 

I have seen this in all areas. It is perhaps most pronounced in foreign affairs. 

43 

And at the extreme, what we could do is: have the Fed take over 

control of making sure the economy is protected; have this new 

agency make sure the consumer is protected; and then we could 

save a lot of time and money by not having a Financial Services 

Committee. 

And I guess I will address this to Professor Warren: Is the goal 

here to create a law enforcement Executive Branch agency or to 

create a law-making agency that would decide all the issues that 

I have spent 13 years on this committee arguing about? For example, should we have interest rate caps on this product or that product, would be a good specific. God knows I have spent 13 years arguing that on a dozen different products. What do you have in 

mind here? 

Ms. WARREN. Well, Congressman, there is no doubt the authority 

resides with Congress, and it appropriately does. Congress will set 

the standards for this agency, and then ask the agency to go and 

use its rulemaking authority to put that into specific terms on any 

given form of disclosure or other activities they engage in. But that 

certainly doesn’t preempt Congress, and it should not preempt Congress, not only from its continued oversight of the agency itself, but 

its continued involvement in this area. It is only Congress that 

should make the big changes. But this is about an agency that 

makes the financial product market work better for consumers. 

Mr. SHERMAN. We certainly all want to make things work better 

for consumers. And certainly nothing that would be constitutional 

would completely deprive Congress of the right to pass future statutes. The closest we could get would be to create a new agency and 

basically say, you guys do whatever you think is in the consumer’s 

interest, and from time to time, we will have oversight hearings. 

Are you talking about going that far at the other—the more traditional administrative law approach is Congress writes the big 

rules, and then the little—you know, whether it has to be on yellow 

paper or blue paper, we let the administrative agency decide. And 

I address this specifically as to rate caps just as a good example. 

Would this new agency have the right to say, for this kind of product or for that kind of product, the maximum interest rate is ‘‘X?’’ 

Ms. WARREN. I have to say I am not someone who heads in the 

direction with this agency for rate caps. It seems to me if we were 

talking about rate caps, that would be an appropriate place for 

Congress to set the larger policy question. 

Mr. SHERMAN. Absolutely. And we have had a lot of hearings in 

this room about rate caps, and sometimes they seem like a good 

idea, and sometimes they don’t. But do you envision an agency that 

would have within its power the ability to say, well, Congress 

hasn’t decided on rate caps for credit cards. We just passed a big 

credit card bill; we left that out. Therefore, our agency will impose 

rate caps. 

Ms. WARREN. I have to say, Congressman, I am afraid in this 

sense you are asking the wrong person. Ultimately— 

Mr. SHERMAN. I see one of the other witnesses— 

Mr. POLLOCK. We have the same point, Congressman. 

Ms. WARREN. I am sure there are those who would like to say 

you are going to give it too much power and therefore we shouldn’t 

do this at all. I think it is ultimately Congress’s decision how much 

44 

power you think it needs to get the job done. What I am focused 

on is the job it needs to get done and the structure it needs to do 

that. 

Mr. SHERMAN. The only thing perhaps more important than protecting consumers is protecting the Constitution. 

I yield back. 

Mr. GUTIERREZ. The gentleman is recognized for 5 minutes. 

Mr. MANZULLO. Thank you. 

The basic facts about your mortgage loan, a 1-page document, it 

is simple. It is easy, perhaps too simple and too easy for Congress 

to pass, editorialized by the Washington Post as being the best 

statement that the consumer understands. When I practiced law, 

I went through probably at least a couple thousand real estate closings before RESPA, which screwed up America. It has done more 

harm. We used to close in 20 minutes, and now that you have documents like this, you close in 2 hours. No one reads the dang thing 

because if you don’t sign everything there, you don’t get the keys 

to your house. 

Mr. Pollock, why hasn’t your 1-page form been adopted, and 

what is wrong with the city that insists upon screwing everything 

up? How do you like that question? 

Mr. POLLOCK. Thank you, Congressman. 

Mr. MANZULLO. And if you have some time, let Mr. Yingling try 

to, or Mr. Mierzwinski has an answer to that, too. Go ahead. 

Mr. POLLOCK. Thank you. I have asked myself that question a 

lot of times because it seems like such an obviously good idea. We 

did get bills introduced in this committee and in the Senate, where 

Senator Schumer introduced a 1-page mortgage form bill. They 

didn’t get passed, but we had a little debate about whether the consumer should have to sign the form. 

That was my view, of course—and the counter-argument was, 

well, if the consumer signs, it means they are taking responsibility. 

My point was, yes, that is the idea. But we didn’t get them passed. 

I am happy to say that Bank of America has introduced voluntarily a 1-page mortgage form. And we know that the Department 

of Housing, in looking at their new couple of page forms, studied 

the one-page idea. I think we need to keep working on it. It should 

certainly be doable. 

Mr. MANZULLO. Anybody else want to try—Mr.—how do you pronounce your last name? 

Mr. MIERZWINSKI. ‘‘Mierzwinski,’’ sir. I would just say briefly the 

consumer groups think that the new agency would cut through the 

red tape. There are 20 or so consumer laws; currently there are 7 

or 9, depending on how you count them, agencies that have authority over various parts of the law. RESPA and TILA are in these 

interagency negotiations. 

Mr. MANZULLO. Why don’t we just eliminate all that crap? 

Mr. MIERZWINSKI. But if we had one agency that could cut 

through all of that, that would be a solution. 

Mr. MANZULLO. But that is another layer. 

Mr. MIERZWINSKI. No. It is going to take away from the other 

agencies. 

Mr. MANZULLO. No, it won’t. It will just add to it. 

45 

The Federal Reserve had the authority to do two things that 

could have stopped this collapse in America. Number one, they 

could have required to have written proof of a person’s income before that person could have bought a home. And number two, they 

could have eliminated the outrageous 3/27 and the 2/28 mortgages 

with the teaser rates upfront. One agency had the authority to do 

it. They didn’t do anything, and the Nation collapsed economically 

because of that. 

So why should we create another agency to come in, create brand 

new products, oversee what these other people already are not 

doing. How do we know the new agency would do its job? 

Mr. MIERZWINSKI. Very briefly, because I know Ms. Seidman and 

Professor Warren want to speak. But I think that if you have safe 

consumer products, you have less risk in the system. 

Mr. MANZULLO. That is the job of the Fed. 

Mr. MIERZWINSKI. The Fed has two jobs. Monetary policy conflicts with consumer protection and prompts this. 

Mr. MANZULLO. No, it doesn’t. Not if it is done correctly. 

Mr. MIERZWINSKI. It is the way that it has been done is the problem with that. 

Mr. MANZULLO. Who else wants to get in this argument? 

Professor Warren, did you raise your hand? 

Ms. Seidman? 

Ms. WARREN. I am glad to yield, but that is the problem. The 

people who go to the Fed want to do monetary policy. They have 

demonstrated in as many ways as one can humanly demonstrate 

that they are not interested in— 

Mr. MANZULLO. So you need another agency to do their job, 

right? 

Ms. WARREN. Excuse me, Congressman. They are not interested 

in consumer protection. 

Mr. MANZULLO. Yes, they are. Mr. Bernanke is interested in consumer protection. 

Ms. WARREN. Then why hasn’t he done anything? 

Mr. MANZULLO. Well, you might want to ask him that question. 

Mr. Pollock? 

Mr. POLLOCK. Congressman, I just would like to underline the 

point you made that a lot of extremely complex and confusing disclosure that we have, as you pointed out, is the result of regulation. 

Mr. MANZULLO. That is right. 

Last word, Ms. Seidman. 

Ms. SEIDMAN. Yes, the Administration’s proposal, actually in contrast to some of the pending legislation, would move the authority 

from the Fed, from HUD, to the new agency. 

Mr. MANZULLO. So another bureaucracy. 

Ms. SEIDMAN. It would not put it on top of it. 

Mr. MANZULLO. How do you know they will do their job with another layer of bureaucracy on top? 

Ms. SEIDMAN. First of all, it is not another layer. It is a different 

agency. 

Mr. MANZULLO. But these are layers of agencies. 

Ms. SEIDMAN. No. The old layer is being taken away. 

Mr. MANZULLO. So who is the old layer being taken away? 

Ms. SEIDMAN. The Fed would no longer have— 

46 

Mr. MANZULLO. But then the Fed would have no responsibility 

for taking a look at instruments and determining whether or not 

those are safe instruments. 

Ms. SEIDMAN. It would be moved over to the new entity. 

Mr. MANZULLO. More Federal jobs, Mr. Chairman. 

Mr. GUTIERREZ. The time of the gentleman is expired. We did invite these people to come and address us and answer questions, 

and we might want to treat them as such. 

Mr. MANZULLO. Well, we did. 

Mr. GUTIERREZ. Please, please. We might want to treat them as 

such. They are our guests here in the People’s House. We might 

want to treat them at least with some modicum of respect for their 

answers. 

Now, Mr. Ellison you have one question, right? 

Mr. ELLISON. Just one. And I really mean that. 

Thank you all for being here. My one question is, could you, perhaps Professor Warren, describe the limits of disclosure? In your 

testimony, you did a phenomenal job at talking about effective disclosure. But I am curious to know if in your view there are limits 

to that and if the consumer products board could help address 

some of those limitations? 

A quick illustration of what I mean. When I was a trial lawyer, 

I went and cross-examined witnesses every single day. I don’t care 

if you were a police officer or a professor, you weren’t there in that 

courtroom more than me, and I was going to make you look like 

you were lying even if you were telling the truth. 

People who do financial regulation, they do this every single day, 

even if you have a 1-pager. I mean, are there limits to disclosure, 

and could the board help address some of those limits in terms of 

just basic fairness? That is my only question. 

Ms. WARREN. Thank you, Congressman. 

I want to say two things because I think you are exactly right. 

We have been talking about layers of complexity and how this 

would take out some of the complexity, but there is another point. 

If we make the real point about disclosure, can the consumer accurately understand what you have just done? Then the whole game 

shifts. So this is not about how many things can I write that make 

you look over here while I am really socking it to you over there. 

This is about someone who says, now, did you get it straight across 

the middle what it is that you are trying to accomplish? 

And you put your finger on a key point that no one has talked 

about, and that is expertise. You know, the largest financial institutions in this country hire literally thousands of people to play 

with the design of their products. I sat next to someone from Bank 

of America who described the number of people and the number of 

experts they hire. They ran 500 experiments internally on their 

own customers in order to determine what maximizes profits for 

the bank. 

There is no expert on the side of the consumers. And so this 

agency is about is leveling the playing field just a little by saying 

there is someone who is going to be an expert, who is going to get 

smart, who is going to learn to read this and be able to say, when 

you make a disclosure, it has to be a disclosure that is effective so 

that the consumer can make a real choice at the end of the day. 

47 

Mr. ELLISON. Thank you. 

Mr. GUTIERREZ. For my own protection, the chairman is going to 

be back pretty soon and he is going to see the same panel he left 

that he thought he had discharged. So Mr. Ellison had his question, and I thank Professor Warren. 

Mr. Paulsen, you are recognized for 5 minutes. 

Mr. PAULSEN. Thank you, Mr. Chairman. 

And we have had some discussion about the different layers of 

regulatory environment and the bureaucracy. But for those who are 

not watching and those who aren’t aware, there is a plethora of 

regulation right now that goes on with banks and other institutions. And this new agency would seek to regulate some additional 

regulations obviously. 

And so if you are a national bank, right now, your regulator is 

the Office of the Comptroller of the Currency. If you are a thrift, 

your regulator is the Office of Thrift Supervision. All banks are 

overseen by FDIC, of course, because of deposit insurance. Bank 

holding companies are supervised by the Fed. State-chartered 

banks are regulated by their State banking supervisor. And if you 

are not a member of the Fed, then the FDIC has additional oversight of that bank. 

Bank subsidiaries have functional regulators, such as the FCC 

when they regulate securities. State commissions regulate insurance, subs, etc. Banks are also subject to the IRS, to OSHA, pension oversight, and every other Federal regulator that regulates 

any aspect of a business. 

SBA regulates the function of SBA lending that a bank does, and 

HUD gets into RESPA and other housing related issues, and it 

goes on and on and on. 

So my question, and I am a big proponent of having a focus on 

a regulation for safety and soundness, and it is really important 

that we have transparency, especially on the customer side. But my 

concern, and I want to ask Mr. Yingling because everyone else kind 

of went around the circle there, but Mr. Yingling in particular, do 

you see this new regulatory, this new proposal on the consumer 

side, as offering any additional value to your customers, or is it just 

adding to the mix of the alphabet soup? 

Mr. YINGLING. Well, I think there are two issues. 

One is just the structure. And as I testified earlier, as banks look 

at this, they just see another layer. Now, I recognize the argument 

that you are taking it out of other agencies and putting it over 

here. But look at it from the point of view of a bank, what it means 

is, you are going to have an examiner from another institution 

come in. And that examiner is going to look at the same thing in 

many cases that your prudential regulator looks at and come to different conclusions. Even if they have the same philosophy, they are 

going to come to different conclusions. 

So the account operating process, I will use this as an example, 

at banks is heavily regulated, and it is regulated on a bunch of 

sides. You have to have the right disclosures. You have to have the 

right signatures. You have to do things that relate to antifraud protection to make sure you know your customers. We have a product 

at the ABA where the bank takes whatever name they get and the 

information, and it runs it through a computer, and it tells them, 

48 

is that really Ed Yingling? Is Ed Yingling really 5-foot 9 and 35- 

years-old with blue eyes? No, I am not. And it regulates also for 

the Bank Secrecy Act, very important to stop money laundering 

and terrorist financing. 

Now we are going have two regulators come in and give us different views of that account-opening process. We train our employees, our front-line employees, extensively with all of these rules, 

but they are reporting to one regulator. Now all that will be reporting to two regulators. We have to take the exams that they take, 

the front-line compliance exams that they take, and show them to 

the regulator, and the regulator has to say yes, those exams are 

okay. Now we are going to have two different regulators. So from 

the bank’s perspective, it is an additional layer. 

Mr. PAULSEN. And just to follow up. One of the concerns I have, 

and I just spoke yesterday to a community banker in my district, 

and he said he is going through an audit process right now. And 

the folks who are in his building are looking at—just a small community bank. I thought maybe he would have 3 or 4 regulators who 

are going through the books and the audit; 17 people are in there 

going through the books from top to bottom. And that is a huge 

drain on resources. Obviously regulation is important, but 17 people. And to think that we potentially are going to add another layer 

on top of that is of a concern to me. 

And I guess it is important to focus again on safety and soundness, but at a time I think in the market right now we need innovative products, we need to allow the financial community to provide for innovation, I am really concerned that this may hamstring 

that ability. 

Ms. SEIDMAN. Can I raise an issue? I don’t think anybody would 

create our bank regulatory system if they were starting from 

scratch for many of the reasons you just described. 

But Mr. Yingling listed all of the different rules that you have 

to go through with respect to account opening. Those rules are generated by a whole bunch of different agencies. One of the points of 

this proposal is to have them generated by one agency. 

Mr. YINGLING. No, they aren’t. They are three different— 

Ms. SEIDMAN. The rules will be consistent— 

Mr. YINGLING. How can they be generated by one agency? One 

is the Bank Secrecy Act. One has to do with account opening and 

truth in lending, and one has to do with antifraud. They are different rules. 

Ms. SEIDMAN. They could be harmonized much better if one 

agency is harmonizing them instead of many of them. 

Mr. YINGLING. But the consumer agency will not have jurisdiction over all those rules. 

Mr. GUTIERREZ. Hold it. One at a time. 

Mr. PAULSEN. I will point out, the devil is going to be in the details, Mr. Chairman. 

I yield back. 

Mr. GUTIERREZ. The time of the gentleman has expired on that 

question. 

So I just wanted to say to Professor Warren, Ms. Seidman, and 

the others, I would like to put a floor on payday lending, a national 

one, so that at least we have some minimum standard. I would like 

49 

for the remitters to have somebody nationally, you know a Federal 

regulator, I would like to see people maybe not buy an $800 TV 

and 3 years later pay $2,400 for it, or people to kind of, I don’t 

know, escape to installment loans at 500 and 600 percent. Some 

people might be surprised that happens. It happens. 

So not to take any time here, if you have any ideas about how 

that fits into what we are doing now in terms of setting floors and 

doing something now versus dealing with all of those things, you 

know, while we have the public’s attention and the Congress’ attention, I would love to hear from you later. 

And now to close, the sponsor, Mr. Miller, is recognized for 5 

minutes. 

Mr. MILLER OF NORTH CAROLINA Thank you, Mr. Chairman. 

Several witnesses and members have referred to the need for 

personal responsibility. I agree with that, but I have noticed that 

no one seems to use the term personal responsibility or call for personal responsibility when they are actually taking personal responsibility. It always seems to be when they are pointing out that 

someone else is responsible and that other person is not taking personal responsibility. 

Mr. Yingling used or said that a variety of products was valuable 

and the products would compete, and that is the way I would like 

to see the market work, too. I am perfectly happy where there is 

some rough equality of bargaining power, some rough equality of 

information, or information symmetry, as economists would say, 

that we leave the parties to a transaction to their own devices. 

The way economic theory says that should work is that when one 

competitor introduces a new product or does something different 

and it proves profitable, others will mimic what they are doing, and 

they will compete with each other, and they will be forced to contain their costs, and the prices will come down, and it will benefit 

the consumer. And the result is that all the competitors make an 

honest living, and the consumers actually get the benefits of their 

innovation. 

What we have seen in the financial sector, though, is beginning 

around 1980, after bouncing for decades between 5 and 15 percent 

of all corporate profits, the profitability of the financial sector went 

up steadily, dramatically, consistently, up until a couple of years 

ago, to more than 40 percent of all corporate profits. And compensation of the industry, about which we have heard a great deal, 

went from about what other Americans made beginning in 1982, 

about 1.8 times what most Americans made. 

Mr. Yingling, if the market were working properly, if there were 

competitive forces that were containing costs and limiting profits, 

how do you account for that level of profitability and that compensation level by the financial sector? 

Mr. YINGLING. Well, you are asking me a question that is broader than your local community banks in North Carolina. You are 

asking a question about Wall Street. A fair question. I just want 

to point that out, that I don’t represent all those people in hedge 

funds and that type of thing. 

I think your analysis of the way it is supposed to work is correct. 

I think it is quite clear there were problems. I think, for example, 

and we have testified to this, that the compensation systems were 

50 

not properly calibrated. And I don’t mean to use that as a technical 

term. Compensation did not include enough consideration of the 

risk that, say, traders were putting on the system. I think it also 

shows that there was way too much leverage in the system. It also 

raises questions about monetary policy, quite frankly. 

So I would certainly say that there were severe problems, including gaps in regulation, that led us to this problem. The great majority of it outside the traditional banking industry. 

Mr. MILLER OF NORTH CAROLINA. Well, and I recognize the financial sector includes more than just the banking industry and 

more than just consumer credit. But consumer credit is actually 

the bulk of all transactions one way or the other. You don’t think 

that consumer credit and the failures of the market to limit profitability and prices in a consumer credit transaction was part of the 

problem? 

Mr. YINGLING. I don’t know about the word profitability, particularly with respect to banks. I think that there were severe, terrible 

problems in the subprime lending market. In the President’s proposal, it points out that 94 percent of that took place outside the 

traditional regulated banking market. There were terrible problems 

with mortgage brokers who were giving loans to people that never 

should have been made. There were problems with the fact that 

those loans went over the banking system to Wall Street where 

they were given AAA. 

Mr. MILLER OF NORTH CAROLINA. My time is about to expire, and 

I haven’t really gotten much on that. 

But the second question, there have been several mentions of 

protecting consumer choice. And I am very perplexed at what consumers appeared to have chosen in financial products in the last 

few years. Can you get me the names of some consumers that I can 

talk to who would explain why they chose a double cycle billing for 

credit card transactions, or consumers who qualified for a prime 

mortgage but instead asked for a mortgage that had an initial rate 

that started at about prime; after 2 or 3 years, the rate adjusted, 

their monthly payment went up 30 to 50 percent, and they had a 

prepayment penalty? Could you give me the names of consumers 

who went into one of your member institutions and asked for those 

products, so I could somehow fathom how they made those choices? 

Mr. YINGLING. I think that is a rhetorical question, and I won’t 

try to answer it. 

Mr. GUTIERREZ. Thank you very much. 

It is wonderful to have you all here. 

Mr. Pollock, good to see you again, although you did come as a 

witness for the minority side, but we will still be friendly with one 

another. 

And it is good to have you all here. We are going to try to get 

it right this time. I thank this wonderful panel, all of you, for being 

here. And I look forward to talking to you all once again. Thank 

you so much. 

I ask unanimous consent that written statements by the American Financial Services Association and the Insurance Marketplace 

Standard Association be entered into the record. 

Without objection, it is so ordered. 

Thank you so much. 

51 

Well, I am going to work really hard on this, because I want to 

get everybody’s name right. We now have our third panel. 

We welcome you all: Mr. Travis Plunkett, legislative director, 

Consumer Federation of America; Ms. Kathleen E. Keest, senior 

policy counsel, Center for Responsible Lending; the Honorable 

Ralph Tyler, commissioner, Maryland Insurance Administration, on 

behalf of the National Association of Insurance Commissioners, 

welcome; Mr. Gary E. Hughes, executive vice president and general 

counsel of the American Council of Life Insurers, we are happy to 

have you here; Ms. Catherine J. Weatherford, president and chief 

executive officer, NAVA, the Association of Insured Retirement Solutions; and Mr. Cliff F. Wilson, Southeast Arizona Insurance Supervisors, on behalf of the National Association of Insurance and 

Financial Advisors. 

We welcome you all, and we will start with Mr. Travis Plunkett 

for 5 minutes please. 

STATEMENT OF TRAVIS PLUNKETT, LEGISLATIVE DIRECTOR, 

CONSUMER FEDERATION OF AMERICA (CFA) 

Mr. PLUNKETT. Good afternoon, Mr. Chairman, and members of 

the committee, and Ranking Member Bachus. 

My name is Travis Plunkett, and I am the legislative director at 

the Consumer Federation of America. I really appreciate the opportunity to speak with you again. 

CFA strongly supports creating a Federal consumer protection 

agency focused on credit and payment products because it targets 

the most significant underlying causes of the massive regulatory 

failures that have harmed millions of Americans. In particular, 

combining safety and soundness supervision with its focus on bank 

profitability in the same regulatory institution as consumer protection authority magnified an ideological predisposition or 

antiregulatory bias by Federal officials and contributed to an unwillingness to rein in abusive lending before it triggered the housing and economic crises. 

Structural flaws in the Federal regulatory system compromise 

the independence of banking regulators and encourage them to 

overlook, ignore, or minimize their mission to protect consumers. A 

consumer financial protection agency would correct many of the 

most significant structural flaws that exist, realigning the regulatory architecture to, first, put consumer protection at the center 

of financial services regulation; second, end regulatory arbitrage; 

and third, create a truly independent regulatory process. 

Towards that end, I want to talk about funding quickly. It should 

be a priority to provide the agency with a stable funding base that 

is sufficient to support robust enforcement and is not subject to political manipulation by regulated entities. Funding from a variety 

of sources, as well as a mix of these sources, should be considered, 

including congressional appropriations, user fees or industry assessments, filing fees, priced services, such as for compliance exams 

and transaction-based fees. 

Another authority that this agency should have that has been 

the subject of much discussion is the process for overseeing products, features, and services that are offered. Where credit products 

represent a significant risk to borrowers, we think this agency 

52 

could require providers to file additional data and information to 

allow the agency to assess the fairness, sustainability, and transparency of products, features, and practices. 

As we have heard a lot of discussion about plain vanilla products 

that are determined to be fair, transparent, and sustainable should 

be presumptively in compliance and face less regulatory scrutiny 

and fewer restrictions. Those that are riskier need to have stronger 

oversight. That could include a variety of remedies related to increased regulatory requirements, including prohibition. 

And for those who think this is an unusual idea, let me just point 

out that Congress does this frequently and has recently done so regarding certain abusive credit card practices that consumers simply 

can’t understand and that Congress has determined to be just outright abusive. 

We have been asked by the committee to consider whether this 

agency should have some jurisdiction over insurance as well. This 

is certainly an excellent question. With a few notable exceptions, 

State insurance consumer protections and market conduct examinations are generally very weak. 

CFA testified last month before Chairman Kanjorksi’s subcommittee in support of bringing safety and soundness regulation 

under Federal control in part because effective systemic regulation 

of insurance, which we support, is not really possible unless the 

regulator has a thorough knowledge of and control over safety and 

soundness. 

However, consumer protection regulatory weaknesses that exist 

at the State level should be strengthened without undermining the 

excellent regulatory practices in a few States, such as the remarkably successful rate regulation regime in California. Any Federal 

efforts to assist insurance consumers must be as a supplement to, 

not a replacement for, consumer protection efforts by State insurance regulators. 

There are several things in our testimony that we throw out as 

possibilities for this agency regarding insurance regulation. Most 

significantly, given the core mission of the agency, which is to protect consumers in the credit markets, it makes a lot of sense to consider granting the agency minimum standards jurisdiction over insurance products that are central or ancillary to a credit transaction such as credit, title, mortgage and forced place insurance. 

Mr. GUTIERREZ. [presiding] The time of the gentleman has expired. 

Mr. PLUNKETT. Okay. Thank you. 

[The joint prepared statement of Mr. Plunkett and Mr. 

Mierzwinski can be found on page 118 of the appendix.] 

Mr. GUTIERREZ. You are very welcome. 

Ms. Keest, you are recognized for 5 minutes. 

STATEMENT OF KATHLEEN E. KEEST, SENIOR POLICY 

COUNSEL, CENTER FOR RESPONSIBLE LENDING 

Ms. KEEST. Thank you to the chairman and to Ranking Member 

Bachus, although, I guess he is not here anymore. Thank you very 

much for inviting us to testify. 

The Center for Responsible Lending brings a unique perspective 

to the question of how to structure a regulatory system that best 

53 

serves the public, the institutions, and the financial needs of American households. Ours is a research-based policy organization, but 

it is affiliated with a financial institution that is directly affected 

by regulations and the regulatory system. 

I, myself, am a former credit code administrator and assistant attorney general in Iowa, so we bring three perspectives to this proposal. From all of these perspectives, we wholeheartedly welcome 

the proposal of a separate, independent regulator that is focused on 

the bottom lines of both the providers and of the households who 

are their customers. 

Today’s crisis has many origins, but a big one is a fatally flawed 

regulatory system that has led to where we are today. There were 

flawed regulators in not seeing what they were doing, but the 

structure, itself, has made it unlikely that any of the current lessons that today’s regulators may have learned will have any staying power. 

The OTS is a good example of that. They were created after the 

savings and loan industry self-destructed 20 years ago. Yet, today, 

when OTS’ full-time, on-site safety and soundness examiners were 

at WaMu, they failed to notice that half of the real estate loans 

that WaMu was making from 2004 to 2006 were inherently risky, 

badly underwritten loans. 

It is a little bit difficult to understand why we are talking about 

vesting these agencies with the consumer protection fair lending 

compliance, calling them ‘‘prudential regulators’’ when they have 

been no more prudent than the customers of those agencies, which 

is what they call their supervised institutions. 

Financial autopsies by inspectors general have pointed to regulatory failures in both the OCC and the OTS for not doing their 

jobs, and the attitude of those regulators who consider their 

supervisees their customers is at the heart of the problem. For the 

market to work as intended, we need to have a level playing field. 

We need rules of the game and we need referees. We need referees, 

not cheerleaders, but the charter competition and the legal systems 

for sales structure that we have now inevitably led to the so-called 

‘‘prudential regulators’’ being cheerleaders. 

That is why we believe that this needs to be an independent regulator. That regulator needs to have all three tools that a regulator’s toolbox should have. It needs to have the authority to set 

standards, the ability to monitor them in real-time, and the ability 

to enforce those standards. As a former regulator, I can tell you 

that, if you are not able to be onsite and monitoring things in realtime and are left to dealing with them when they become big 

enough to become a law enforcement problem, then the damage has 

already been done, and at the velocity that today’s market moves, 

that does not take very long. 

The second question that I would like to address is that about 

insurance. One of the things that we think is key is that insurance 

products that are inextricably linked with the financial products 

have to be there. We have proposed a ‘‘but for’’ test, which is to say, 

if this insurance product would not exist except for the underlying 

transaction and if it is intrinsically intertwined with it, then it 

should be there. We think that it is important to remember that 

credit insurance was one of the key tools used by predatory mortVerDate Nov 24 2008 17:38 Nov 03, 2009 Jkt 052406 PO 00000 Frm 00057 Fmt 6633 Sfmt 6633 K:\DOCS\52406.TXT TERRIE
54 

gage lenders 10, 15 years ago, and it was used to strip billions of 

dollars of equity out of people’s homes when they still had some equity to steal. 

Fifteen years ago, Congress had a chance to nip it in the bud 

then by making it a HOEPA trigger fee, but you did not. You did 

give the Fed the authority to do so later, but it was about 5 years 

later after billions of dollars of equity had been lost and after State 

legislatures, law enforcement and the FRB all clamped down on it. 

So we would simply like to remind you that we think it is important to have learned both from the lessons of the S&L crisis 20 

years ago and from the predatory lending problem 15 years ago 

and to say, let’s learn from those mistakes and not do the same 

thing over again. 

Thank you for the opportunity to testify, and I will look forward 

to your questions. 

[The prepared statement of Ms. Keest can be found on page 94 

of the appendix.] 

Mr. GUTIERREZ. Thank you. 

Commissioner Tyler, please, you are recognized for 5 minutes. 

STATEMENT OF THE HONORABLE RALPH S. TYLER, COMMISSIONER, MARYLAND INSURANCE ADMINISTRATION, ON BEHALF OF THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS 

Mr. TYLER. Thank you, sir. Good afternoon. 

Mr. Chairman, my name is Ralph Tyler. I am the Maryland Insurance Commissioner, and I appear today on behalf of the National Association of Insurance Commissioners. My comments will 

be directed to the question posed by the committee regarding the 

applicability of this proposed new agency to insurance. 

While separating consumer protection from financial oversight 

may be an appropriate structure for other sectors, not so with insurance. Insurance is a promise to pay in the future if a covered 

loss occurs. Thus, solvency is the bedrock consumer protection. 

With an insurance contract, consumer protections are embedded in 

the product design, and product design directly affects solvency. As 

a result, we do not think the supervision of these areas should be 

separated or shared with a competing regulator. 

There is currently a continuum of interaction between the insurance regulator and the insurance industry. It extends from licensing a company or a producer through product design and financial 

assessment to market conduct and claims payment. Breaking apart 

the links in that process will create gaps and inconsistencies, and 

it will do nothing to address the problems we collectively seek to 

resolve. 

In the area of insurance regulation, the States have developed a 

wide range of consumer protection tools, which are detailed in my 

written testimony, all of which are designed around complex products and unique interactions between insurers and policyholders. 

The basic purpose of market regulation is to protect consumers by 

identifying and correcting practices that are in conflict with contract provisions and State law requirements. 

For example, all States have unfair trade practices laws and unfair claims settlement protections based on models developed 

55 

through the National Association of Insurance Commissioners. 

These laws provide a framework of consumer protection that gives 

States broad authority to intervene on behalf of policyholders. 

The first link in the insurance regulatory chain is licensing an 

insurer to do business in the State. This process begins by examining the insurer’s financial solvency, management capacity, expertise, and other factors. We also assess insurance producers through 

examinations, background checks, and continuing education requirements to ensure that consumers are protected at the point of 

sale. 

Regulators then ensure the adequacy and appropriateness of the 

products offered to consumers. Insurance policies are complicated 

contracts, so insurance departments review policy forms to ensure 

that consumers are getting the coverage for which they have paid 

and that the policy provisions comply with the law. Likewise, because insurance is a product whose ultimate value is not known at 

the time of purchase and is dependent on risk assumptions that 

are difficult for a consumer to verify, States have some form of rate 

review to assure that rates are adequate but not excessive or discriminatory. 

Additionally, 36 States, including Maryland, from where I come, 

are now part of the Interstate Insurance Product Regulation Commission, which allows an insurer offering life insurance, annuities, 

long-term care, and disability products to get product approval directly through the Commission, using one set of uniform standards 

while leaving market conduct enforcement and consumer protection 

to the States. 

In total, the States have approximately 1,600 consumer service 

personnel monitoring the marketplace, handling in the aggregate 

2.3 million consumer inquiries and 370,000 formal consumer complaints each year. To deal with criminal activity related to insurance, there are over 1,200 State personnel devoted to these activities. 

The States have developed a sophisticated system of consumer 

protection, and we would respectfully urge the committee not to 

change that system in the name of consumer protection. Simply 

put, federalizing insurance regulation in the name of consumer protection would weaken consumer protection. 

Thank you very much. 

[The prepared statement of Mr. Tyler can be found on page 189 

of the appendix.] 

Mr. GUTIERREZ. You are very welcome. 

Mr. Hughes, you are recognized for 5 minutes. 

STATEMENT OF GARY E. HUGHES, EXECUTIVE VICE PRESIDENT & GENERAL COUNSEL, AMERICAN COUNCIL OF LIFE 

INSURERS (ACLI) 

Mr. HUGHES. Thank you, Mr. Chairman, and members of the 

committee. 

I think there is some risk of having an industry witness come before you, talking about consumer issues and saying we strongly 

support enhancing consumer protections, and then we say, ‘‘however,’’ and offer you a lot of reasons of why we do not support the 

protections that are being discussed. 

56 

In point of fact, life insurance companies do, indeed, support 

strong consumer protections. It is good business: Led by a group of 

CEOs, we have been working for over 2 years with State and Federal regulators to provide annuity consumers with more relevant 

and more clearly understandable disclosure. And we are continuing 

to work with State regulators to have all jurisdictions adopt uniform annuity standards on suitability, sales to seniors, and producer credentialing; but we do believe there are right ways and 

wrong ways to strengthen consumer protections in the context of 

insurance, and I think much of what I am going to say is going to 

echo what Commissioner Tyler has just said. 

So why don’t we support placing insurance products under the 

jurisdiction of an agency like the CFPA? 

If you consider the stated purpose of the Agency as articulated 

by the Administration, we see references to products that are unregulated, lightly regulated or regulated by agencies with conflicting agendas and that were a cause of or contributed in some 

way to the financial crises. Life insurance products are not any of 

those things. 

Our products are more heavily regulated than most. States typically have a prior approval process for new products, so if a company does business on a national basis, it will make 51 separate 

product filings. It will have 51 separate reviews, and it will wait 

for 51 separate approvals. Frankly, we do not see the wisdom or 

justification in making that number 52. Just to be clear, heavy 

product regulation is not the same thing as efficient product regulation or regulation in the best interests of consumers. In fact, one 

of the principal reasons we have been pressing for a Federal charter is due to the redundant, costly, and very time-consuming State 

product approval process. 

Placing life insurance products under the CFPA would be a step 

backwards in terms of achieving more efficient and effective insurance regulation. Frankly, the last thing that our industry needs is 

more fragmented regulation. In that same vein, we note that the 

Administration proposes to exempt SEC and CFTC regulated products from the purview of the CFPA. The rationale, presumably, is 

that these agencies adequately regulate products under their jurisdictions. We believe that the even heavier regulatory oversight of 

life insurance products suggests that they should be afforded a 

similar exclusion. 

A lack of necessity is not the most compelling factor arguing 

against placing life insurance products under the CFPA. As the 

Commissioner said, life insurance product regulation is an integral 

part of life insurance solvency regulation, and there is no more important consumer protection in our world than solvency. Our products involve promises to pay, extending outwards of 40 years or 

more, and the solvency standards governing the design of these 

products assure that these promises will be kept. 

Life insurance product regulation involves, among other things, 

how premiums received from the sale of the products must be invested, the nature, level and duration of guarantees that are made, 

what risk classification criteria are used, what assumptions on 

product lapses are made, the appropriate level of surrender 

charges, the adequacy of reserves, what nonforfeiture limitations 

57 

are applicable, what mortality rates are assumed, and what pricing 

assumptions are involved. 

Failure to regulate any of these product attributes correctly puts 

consumers at risk over the long haul, and it jeopardizes the solvency of the issuing life insurance company. So divorcing product 

regulation from the balance of life insurance solvency regulation— 

and by that, we mean assigning these responsibilities to more than 

one regulator—weakens rather than strengthens consumer protections, and increases rather than decreases systemic risk in the insurance market. 

This brings me to the last point I would like to make. It should 

be clear that anyone presuming to regulate life insurance products 

must be intimately familiar with the technical underpinnings of 

these products as well as with how product design relates to overall 

solvency. Put differently, life insurance company product regulation 

requires in-depth insurance regulatory expertise. 

As this committee well knows, that sort of expertise is absent at 

the Federal level, although that is a gap in the overall regulatory 

framework that we would like to see remedied through the creation 

of a Federal functional insurance regulator. But it is unrealistic to 

expect that the CFPA would ever have the degree of expertise necessary to handle insurance product regulation effectively. 

The centerpiece of the Administration’s proposal with respect to 

insurance is the creation of an Office of National Insurance, and if 

it becomes a reality, the ONI would be the appropriate Federal 

agency to coordinate with State functional regulators concerning 

insurance product issues. Unless and until Congress establishes a 

Federal functional regulator with full solvency authority, we believe that the role of any Federal body with respect to insurance 

regulation should be advisory only. 

In conclusion, we urge this committee to consider carefully the 

points we have raised because we do firmly believe that the best 

interests of consumers would not be well served by giving the 

CFPA jurisdiction over insurance products. 

Thank you. 

[The prepared statement of Mr. Hughes can be found on page 87 

of the appendix.] 

Mr. GUTIERREZ. Ms. Weatherford, you are recognized for 5 minutes, please. 

STATEMENT OF CATHERINE J. WEATHERFORD, PRESIDENT 

AND CHIEF EXECUTIVE OFFICER, NAVA, THE ASSOCIATION 

FOR INSURED RETIREMENT SOLUTIONS 

Ms. WEATHERFORD. Thank you. 

Mr. Chairman, Ranking Member Bachus, and members of the 

committee, thank you very much for this opportunity, and I commend you for holding this important hearing to examine gaps in 

and overlapping of financial regulation and their products. 

I have over 30 years of regulatory experience, much of that time 

as an elected insurance commissioner and as CEO of the National 

Association of Insurance Commissioners. Since I have built my career protecting consumers, I fully understand the necessity for 

sound and effective regulation. NAVA’s members are insurers, 

broker-dealers, banks, and asset management firms, and they are 

58 

represented by hundreds of thousands of registered Financial Advisors across the country who help millions of Americans build sound 

retirement plans. 

Congress’ long-time focus on incentivizing retirement savings has 

shown to be wise foresight, especially in these turbulent economic 

times. Consistent with our new mission, which will be fully reflected in our new name, which will be announced later next 

month, I would like to make a few key points today. 

Retirement savings is even more critical now as boomers’ nest 

eggs are shrinking due to the economic crisis. At the same time, 

they are living longer due to rapid advances in medicine. Americans no longer fully rely on traditional retirement programs. So 

guaranteeing a lifelong income through an annuity is an option 

more and more Americans are choosing. In 2007, life insurers held 

$2.6 trillion in annuity reserves with 23 million variable contracts 

in force, representing over $2 trillion in assets under management. 

This truly demonstrates the value of variable annuities, especially 

in these down markets. When compared to other financial products, 

VA’s have delivered guaranteed benefits to consumers in this down 

market better than others. 

NAVA supports important consumer protection principles—transparency, suitable sales and education and training. Therefore, we 

urge uniform passage of the NAIC suitability, disclosure, and senior designation models. We also support the adoption of a summary 

prospectus by the SEC for annuity purchasers, which has already 

been adopted for mutual funds. We are also partnering with 

FINRA to deliver education both for consumers and for FINRA 

members. 

Our consumers are protected by a comprehensive regulatory 

structure consisting of the SEC, FINRA, and 50 State regulators. 

These regulators perform comprehensive examinations of numerous 

consumer protection laws as often as every year, and at the State 

level, it is common for most large insurance companies to undergo 

5 to 10 examinations, if not more, by different State insurance departments simultaneously in any given year. 

Variable products, because they are securities, must be also approved by the SEC. Then, on the State level, the products must 

contain legally required contractual provisions, and must be approved by every State insurance regulator in the Nation where the 

product will be sold—a very arduous process that can take well 

over a year to obtain approvals of these types of products in all 

States. 

Given the current regulatory protections, adding yet another 

layer of regulation to the insurance industry is unnecessary. It has 

already been stated that separating financial regulation and consumer protection regulation is not prudent and would present significant risks to consumers. It could also prevent the best products 

from reaching consumers in a timely fashion. To this end, we do 

support the President’s Office of National Insurance proposal as 

well as Subcommittee Chairman Kanjorski’s H.R. 2609. 

In summary, while we do not believe an additional consumer protection regulator is necessary or even advisable for the annuity industry, we ask the Congress to continue to focus on how regulatory 

structures and necessary consumer protections can be operated and 

59 

administered in the most effective manner. This is why we do support Treasury’s proposals to modernize and improve our system of 

insurance regulation as well as its six principles for the regulation 

of insurance. 

Thank you for the opportunity, and I welcome any questions you 

may have. 

[The prepared statement of Ms. Weatherford can be found on 

page 206 of the appendix.] 

Mr. MILLER OF NORTH CAROLINA. [presiding] Thank you, Ms. 

Weatherford. 

Mr. Wilson, for 5 minutes. 

STATEMENT OF CLIFF F. WILSON, SOUTHEAST ARIZONA INSURANCE SERVICES, ON BEHALF OF THE NATIONAL ASSOCIATION OF INSURANCE AND FINANCIAL ADVISORS (NAIFA) 

Mr. WILSON. Good afternoon, members of the committee. Thank 

you. My name is Cliff Wilson, and I operate an insurance agency 

in Chandler, Arizona. I serve as president of the National Association of Insurance and Financial Advisers, NAIFA. Thank you for 

the opportunity to appear before you today to share our views regarding financial regulatory reform and the critically important 

area of consumer protection. 

NAIFA comprises more than 700 State and local associations 

representing the interests of approximately 200,000 agents and 

their employees nationwide. Like me, NAIFA members focus their 

practices on one or more of the following: life insurance and annuities; health insurance and employee benefits; multiline; and financial advising and investments. NAIFA members share the views of 

the Administration and of this committee that robust consumer 

protection is necessary to ensure public trust in financial products 

and services and in the financial system as a whole. Stepped-up 

Federal oversight through a consumer financial protection agency 

may make sense for some products. Insurance, however, is different 

for three reasons: 

First, insurance products are subject to comprehensive State regulatory oversight. Federal intervention is unnecessary and could 

lead to regulatory confusion. Insurers and insurance agents are required to comply with the laws and rules of every State in which 

we do business and are required to hold a license in every State. 

Agents who sell more than one line of coverage may be required 

to hold more than one license in each State. As an agency, I am 

required to have an agency license as well. As part of the license 

process, producers undertake pre-licensing and continuing education courses; they pass examinations; submit to an application 

process; and perhaps most importantly, they comply with State 

consumer protection laws. 

Moreover, agents cannot sell a product in a State unless it has 

been approved by the State’s insurance regulator. Until fairly recently, product approval was a State-by-State endeavor that could 

take years to complete. With the creation of the Interstate Insurance Product Regulation Commission by the NAIC, the product approval process for life insurance, annuities, long-term care, and disability income products has been streamlined dramatically in the 

35 States that currently participate. 

60 

More than 40 States also have imposed suitability requirements 

in connection with the sale of annuity products. These State requirements are based on the NAIC’s Suitability in Annuity Transactions Model Regulation, which imposes a suitability requirement 

on any recommendation to purchase or to exchange an annuity. 

The NAIC model rule also imposes duties on insurance companies 

regarding supervision and monitoring where none had previously 

existed. 

Separate and apart from the requirements of the NAIC model, 

more than 80 percent of NAIFA members are securities licensed 

and are, therefore, subjected to FINRA rule 2821 in connection 

with the sale of variable products. For producers selling variable 

annuities in States that have not enacted the NAIC model, the requirements of the FINRA rules still apply. 

To the extent that one of the missions of the CFPA would be to 

simplify consumer disclosures, we are unsure how that can be accomplished under a regime that would establish a regulatory floor 

under which State disclosure requirements would still be fully applicable. It appears that these twin objectives—disclosure simplification and the continued applicability of current State requirements—are at odds with one another, and all that the new Federal 

requirements would accomplish in the highly regulated insurance 

arena would be to add an additional set of requirements to an already very robust consumer protection scheme. 

Second, the separation of insurance product regulation from insurance solvency regulation is dangerous. States regulate solvency 

to ensure that the ultimate consumer protection is available when 

needed—the promise to pay a claim when it comes due. A regulator 

focused on only one part of the puzzle may have oversight and may 

take actions not in the best interests of the product. 

Third, Federal financial product oversight should be addressed 

only as part of a comprehensive review of insurance regulation. 

This should not be a piecemeal effort. The dangers and regulatory 

burdens on producers, companies and clients are too great. If the 

Federal Government is going to assume insurance regulatory authority, there must be a Federal insurance regulator with expertise 

and authority to fully understand the implications of regulatory actions for the industry, the marketplace, and the consumers. NAIFA 

members have debated long and hard regarding the proper Federal 

role in insurance regulation. We are long-time supporters of State 

regulation and continue to be so, but we understand there could be 

areas for Federal regulation. 

We appreciate the opportunity to speak. 

[The prepared statement of Mr. Wilson can be found on page 224 

of the appendix.] 

Mr. MILLER OF NORTH CAROLINA. Thank you, Mr. Wilson. We 

will now have rounds of questions by members. 

Mr. Kanjorski is recognized for 5 minutes. 

Mr. KANJORSKI. Thank you very much, Mr. Chairman. 

Let me address this to the full panel: 

Do you all think that this concept of a consumer agency of this 

nature is the best way to go about regulating the insurance industry? If you do, show your hands ‘‘yes’’ so I can separate the panel, 

61 

or if the whole panel is for it, let me know. I am totally lost when 

it comes to it. 

Who is for it? Who thinks this is the greatest thing since sliced 

bread? Just one of the panel. Two of the panel. Okay, four of the 

panel think it is the worst thing since sour milk. Is that it? 

Ms. KEEST. Could I say that I think that, with respect to some 

kinds of insurance, it is a necessity to be part of this, and those 

are the ones that are related to the credit transactions. 

Mr. KANJORSKI. All right. Could you help me out a little bit and 

explain to me what tremendous contribution consumers have made 

to the most recent recession and financial crisis? 

Ms. KEEST. Are you asking me? 

Mr. KANJORSKI. Anyone. I am trying to figure out why anybody 

thinks this is something we should not be moving on from in the 

Congress compared to all of the other disasters and compared to all 

of the other problems we have to meet. 

What has happened in the last couple of years in protecting consumers that has caused such a disaster that we should divert all 

of our attention now to this one plank? It is not all of our attention, 

but it is a major part of our attention when we are doing reform 

regulation. 

Mr. HUGHES. Without disagreeing with your premise, I think 

your question is an interesting one. 

Again, if you go back to at least what we understood the Administration had in mind here, which was a focus on products, it was 

to say, if there are products that have harmed consumers as part 

of the crisis, if there are products that contributed to the crisis— 

worsened it, deepened it—then perhaps there is a way to get at 

that; but I think the people on this panel would be saying generally 

the products that we deal with do not fit that model. That is why, 

I think, as we look at the proposal on this agency that we do not 

think it is the right way to address insurance products. 

Mr. KANJORSKI. I have been struggling with the regulation of insurance on a Federal level or on a State level and how it could or 

should be done and whether it warrants getting done for a number 

of years right now. I have never seen anything in the world more 

devious or backdoor to come in to Federal regulation than doing it 

this way, and with the least amount of real direct effect. I can see 

us spending years in court, trying to figure out the jurisdiction of 

this agency to do what it wants to do because it was or was not 

the intention of Congress to do that, and then as to how we are 

going to structure this. 

Do you all see that is not a problem here? 

Mr. PLUNKETT. Mr. Chairman, we responded to a request to consider if the notion to set up a consumer protection agency focused 

on a provision of credit and payment systems, to consider insurance 

in that light, and there are some positive aspects to that idea. In 

particular, what we threw out just before you arrived was the idea 

of a holistic jurisdiction from the consumer protection point of view 

over the entire credit transaction to include insurance products 

that are directly related to that credit transaction. Title, mortgage, 

credit, and forced placed insurance are some examples. 

62 

To answer your previous question, credit insurance has been a 

major part of single premium credit insurance, in particular, abusive mortgage lending practices. It has been tied very closely. 

Mr. KANJORSKI. I can see that as an after the fact that some 

problem occurs with a particular element and that we are trying 

to find out whether there is some agency of the Federal Government that has jurisdiction to do something about it. The reality is: 

Shouldn’t we get our hands around whether or not this is needed 

and whether it is essential? Are there other areas that we can 

strengthen or create that would do it more efficiently, more effectively, and more directly? 

I hate to say this, but anything that gets the title ‘‘consumer’’ 

seems to have an express ticket on the train to getting there. Unfortunately, it may be very expensive; it may be very circuitous in 

the route we want to take, and it could probably impede what we 

are trying to do to create a Federal charter, if that is what we decide we need. After this, I do not think we need a Federal charter 

because it is going to take us 5 or 10 years to figure out what this 

agency is supposed to do. 

Mr. PLUNKETT. Mr. Chairman, as you know, the consumer community is very concerned about a Federal charter, and we are talking about regulatory arbitrage today. 

Mr. KANJORSKI. Right. Right. 

Mr. PLUNKETT. It will allow regulated entities to play these State 

regulators off of Federal regulators. 

Mr. KANJORSKI. You know, I heard testimony in this committee 

just 2 months ago from the consumer organizations, saying that 

they did not want a Federal optional charter or the Federal regulation of insurance companies because the States were doing such a 

magnificent activity, and they should keep it at the State level. 

Now, suddenly, the consumer groups are coming in and are telling 

us to create a whole consumer agency to handle something that the 

States are doing perfectly well. Give me one or the other, but do 

not try and get both. What do you mean? 

Is there such a failure of consumer protection in the United 

States on the State level that they are not doing their jobs, and we 

have to create a Federal agency or regulator to do that or is that 

not true? 

Mr. MILLER OF NORTH CAROLINA. If we proceed with 5 minutes, 

I think all of us can get in our questions, but I do appreciate the 

chairman of the Capital Markets Subcommittee, on which I serve, 

for his questions. 

Mr. Bachus for 5 minutes. 

Mr. BACHUS. Thank you, Mr. Miller. 

I guess I will ask—is it Ms. Keest? 

Of course, Mr. Miller and others worked on the subprime bill 

that has now passed. 

Does that address most of the problems in subprime lending— 

that in combination with other things that have been done? 

Ms. KEEST. No. 

Mr. BACHUS. Okay. 

Ms. KEEST. There is a lot left to be done. Part of the issue about 

it is that it was sort of the same thing that happened 15 years ago. 

It only deals with the mortgage market. It mostly deals with part 

63 

of the mortgage market. It leaves the rest of the financial services, 

the basic package of consumer financial banking needs, 

unaddressed. 

Mr. BACHUS. I am talking about the subprime mortgages, where 

it is just restricted to that. I sort of associate you all with subprime 

lending, but you are actually on all sorts of credit—with the Center 

for Responsible Lending. 

Ms. KEEST. I am sorry. 

Mr. BACHUS. I said I associate you all with subprime lending just 

because of the last few years, but you are actually concerned with 

all sorts of lending practices. 

Ms. KEEST. Certainly. We work on credit cards. We work on payday loans, and we are affiliated with the financial institution that 

does mortgage lending, small business lending and that has retail 

credit union operations. 

Mr. BACHUS. On the subprime, where do we stand on that after 

this legislation? 

Ms. KEEST. Well, first off, number one, we have to make sure 

that it gets through the Senate and does something. 

Mr. BACHUS. Okay. I keep forgetting that they have not passed 

it. It is the second time, I guess. 

Ms. KEEST. There is a long distance to go. 

The second thing is that, I think, it really does a lot of improvement to the existing problems, but it leaves a lot of questions unanswered, one of which is that it would require joint rulemaking by 

the Federal financial institutions, which sort of gets back to the flip 

side of the reason that we would like a single integrated unit because the examples of joint rulemaking by the financial regulators 

has been gridlock and a great race to the bottom, so the devil will 

be in the details. This law could be very good if those regulations 

turn out well, but one of the provisions in it is a joint rulemaking 

process that could basically mean it is a paper tiger. 

Mr. BACHUS. Okay. Thank you. 

Mr. MILLER OF NORTH CAROLINA. I like calling time on members 

who are much more senior than I am on this committee. We do 

need to try to get done before this series of votes. It is a real series 

of votes, not a temper tantrum of votes. 

For Ms. Keest and Mr. Plunkett, one series of questions, or one 

point repeatedly made today, is that consumer protection is a 

vague concept for which Congress should enact very bright line 

rules, which is somewhat contrary to the wisdom of previous generations. 

There was a famous 18th Century British case widely quoted in 

the United States that said that there should be no single, all-encompassing definition of ‘‘fraud’’ less the craft of men should find 

a way of committing fraud which might escape such a rule or definition. One of the principal functions of financial innovation in recent years appears to be to evade existing regulations. 

In your experience, Ms. Keest and Mr. Plunkett, how easy has 

it been to get legislation through Congress to protect consumers 

from financial practices? 

Mr. PLUNKETT. Well, Congressman, until this year, it has been 

virtually impossible. 

64 

Ms. KEEST. I would like to say that I was here 15 years ago 

when HOEPA was enacted. HOEPA did a good job of dealing with 

1993’s and 1994’s markets. It is 15 years later, and we have had 

several more generations of things that nobody would have even 

thought of then, and there has still been no action coming out of 

the whole Congress. 

Mr. MILLER OF NORTH CAROLINA. So the craft of men has found 

ways of escaping the rules of 15 years ago. 

Mr. Tyler and Mr. Hughes, quickly, I think both of you or several 

witnesses have used the word ‘‘robust,’’ which is a word you hear 

a lot more in Washington than you do in the rest of America to 

refer to insurance regulation. About an equal number of States 

have file and use policy form approvals and require prior approval 

for policies. It is striking how different that regulatory scheme is 

from credit products. 

Can you offer any explanation for why a similar regulatory regime should not be in effect for approving or for at least requiring 

information about new credit products? 

Mr. Tyler, you are on. 

Mr. TYLER. Well, thank you, Congressman. You are right. States 

have made different choices about these things, but it would be a 

mistake, I would suggest, to look only at what the file and approval 

laws or procedures are in States. You would also need to take into 

account that all States have an Unfair Claims Practices Act and 

other consumer protections, which are the fabric of consumer protection. So whatever process a particular State has chosen for the 

initial approval of products, that is not the sum total of the regulatory regime. 

Mr. MILLER OF NORTH CAROLINA. But my question is: 

Why should other financial institutions credit institutions— 

banks, thrifts, credit unions, whoever? Why should they not be required to file what credit products they are selling to consumers? 

Here are the documents just as you have to get filings of policy 

forms. It seems not to require anything they do not already do. 

Mr. TYLER. With all due respect, I am not really qualified to 

speak about what banks should do. My point, really, is that insurance should not be part of this. 

Mr. MILLER OF NORTH CAROLINA. Mr. Hughes, can you think of 

any reason that banks and thrifts should not be subjected to the 

same kinds of approvals that you are for what they sell to consumers? 

Mr. HUGHES. Again, like Commissioner Tyler, that is not our association’s area of expertise, but off the top of my head, I would 

have to say no. 

Mr. MILLER OF NORTH CAROLINA. All right. I will now yield back 

the balance of my time. 

Mr. Manzullo? 

Mr. MANZULLO. Thank you. 

I do not believe we should start a whole new consumer agency 

to protect the consumer on financial products. However, the analysis done by Mr. Plunkett and Ed, I would commend that everybody on the panel read the reasons why they want to set up a new 

organization because of the complete failure of the existing organizations to stop the subprime massacre that took place in the counVerDate Nov 24 2008 17:38 Nov 03, 2009 Jkt 052406 PO 00000 Frm 00068 Fmt 6633 Sfmt 6633 K:\DOCS\52406.TXT TERRIE
65 

try. So I can understand where they are coming from, but it is irrelevant to you guys on the insurance side. 

I would like to ask this question of Mr. Plunkett. On page 3, the 

last paragraph, you state that the failure of Federal banking agencies to stem subprime mortgage lending abuses is fairly wellknown. They did not use a regulatory authority granted to them to 

stop unfair and deceptive lending practices until it was too late. 

You are advocating the setting up of another agency. I can understand the reason for that because what is there did not step into 

the breach. I mean the Fed had the authority, and Mr. Greenspan 

could have stopped it. Most of this occurred before Mr. Bernanke 

came on board, because there were no rules that said that you had 

to have proof of payment or proof of your income before you could 

buy a house or could do away with these predatory practices of 3/ 

27 and 2/28 mortgages. 

My concern is, even though the appointees to this new body 

would be ‘‘consumer-oriented,’’ I would think that, ultimately, the 

bottom line is everything should be consumer-oriented because it is 

the consumer who has the greatest stake in the banks and in the 

other financial institutions being sound and safe. It protects them. 

So there is actually an identity of interest that is involved. 

Mr. Plunkett, what would make this new agency political proof 

or able to do the job or to recognize what the other agencies did 

not? 

Mr. PLUNKETT. Well, that is a very good question. 

There was at its root a failure of will by Federal regulators, but 

that was, as I mentioned before, exacerbated and magnified by 

really serious structural problems in the ways that agencies are 

structured—two points here, the conflict that regulators sometimes 

see between safety and soundness regulation and consumer protection regulation and the ability of regulated parties to shop around 

for a regulator who would, you know, essentially, lower standards, 

you know, to a reduced level. 

Mr. MANZULLO. But the President wants to combine OTS along 

with OCC. So that would do away with that problem. 

Mr. PLUNKETT. To some extent, it would, but we still need an 

agency with purview over all credit products, looking at them all 

together, and that has a mission to be a proactive regulator, not 

a reactive regulator. 

Mr. MANZULLO. Let me flip the question. 

If you believe, as I do, that you do not need another agency, what 

would you do with the present structure to make sure this economic collapse did not occur again? 

Mr. PLUNKETT. Well, that is another really thoughtful question, 

and I know a lot of folks who testified on the previous panel and 

on this panel have thought a lot about it. 

I, frankly, think that the existing structure is broken and that 

we cannot really build on a regulatory structure in which the regulators have so many sometimes conflicting measures— 

Mr. MANZULLO. You think it cannot be fixed in its present form. 

Is that your answer? 

Mr. PLUNKETT. Yes. Yes. I think we need a consumer focus here, 

and the best way to do that is with a single agency. 

66 

Mr. MANZULLO. How could you add a consumer focus to the broken agencies? 

Mr. PLUNKETT. Well, I have thought a lot about that. 

Mr. MANZULLO. If your answer were that you cannot, I would accept that, but go ahead and take a stab at it. 

Mr. PLUNKETT. I think a lot of people have thought about that. 

The truth is that, in the safety and soundness mission and in the 

case of the Fed with the monetary policy mission, you know, you 

will get good leaders who at times will focus a little more on consumer protection. Chairman Bernanke has done a little more of 

that, and that is a good thing. 

Overall, I think the way that agencies like that will typically 

function is to put consumer protection in the backseat. I think that 

is the normal, sort of everyday way that they will function, and we 

cannot legislate based on exceptions, and Ellen Seidman is an exception. 

Mr. MANZULLO. My time has expired. Thank you, Mr. Chairman. 

Mr. MILLER OF NORTH CAROLINA. Thank you. 

Ms. Speier, a conscientious member of this committee, who 

missed the first round of questions. Ms. Speier for 5 minutes. 

Ms. SPEIER. Thank you, Mr. Chairman. 

Let me be very brief because I know we want to get to the vote, 

and I know there are others who want to ask questions. 

First, let me just say that I disagree with my distinguished 

chairman, Mr. Kanjorski, who does not believe as I do that State 

regulation is really where insurance regulation should take place. 

I am a firm believer that it should. I think the actions of the last 

few years make it very clear, particularly with AIG. Mr. Liddy has 

said over and over again that we should have stuck to our knitting, 

meaning they should have stayed in the insurance business and 

not meandered out into credit default swaps and into other exotica, 

but let me ask this: 

Mr. Hughes, Ms. Weatherford and Mr. Wilson, if insurance were 

exempted in this new agency, would you support the bill? 

Mr. HUGHES. Well, I think, if insurance were exempted and we 

were not part of it and if there were other aspects of the bill, for 

example, and if the Office of National Insurance were part of it, 

then perhaps, yes, we would. 

On the new agency specifically, if we are not part of it, we will 

not have any interest in it, but if there are other aspects of the Administration’s proposal that we do favor and if we were not part 

of the agency, then, in fact, we would be inclined to be supportive, 

yes. 

Ms. SPEIER. Ms. Weatherford? 

Ms. WEATHERFORD. Our association represents financial security 

products, which are very different from the debt instruments that 

have been discussed by most of the panelists today, and we are already under the oversight of State insurance regulators—the SEC 

and FINRA—and fully believe that we should be exempted. 

Ms. SPEIER. I understand that, but would you support the bill if 

you were exempted? 

Ms. WEATHERFORD. If the Office of National Insurance were included, if Representative Kanjorski’s language for his bill possibly 

had some of that in there where we could enjoy having some FedVerDate Nov 24 2008 17:38 Nov 03, 2009 Jkt 052406 PO 00000 Frm 00070 Fmt 6633 Sfmt 6633 K:\DOCS\52406.TXT TERRIE
67 

eral knowledge of insurance and insurance regulation, I think it 

would be most helpful to us. 

Ms. SPEIER. Wait. Are you saying that, if there were a national 

charter for insurers, then you would want to be exempted from this 

insurance being part of it? 

Ms. WEATHERFORD. No. We could support it if there were the inclusion of the Office of National Insurance or of the Office of National Insurance Information where more knowledge was held at 

the Federal level about insurance regulation. 

Ms. SPEIER. So, if it were just the Office of Insurance Regulation 

and not the preemption of States relative to international treaties 

and agreements, you would support this bill? 

Ms. WEATHERFORD. I suppose, yes, we would, other than the fact 

that many of the aspects of the bill are about debt instruments and 

apply to other entities that have nothing to do with insurance. 

Ms. SPEIER. All right. Finally. 

Mr. WILSON. We would support the same position as Mr. Hughes. 

If there is not insurance as a part of it, we would have no position. 

Ms. SPEIER. You all are supporters of an OFC; is that correct? 

I am speaking of just—not Mr. Commissioner. 

Mr. TYLER. Surprisingly, I am not. 

Mr. HUGHES. Yes, we are. 

Ms. WEATHERFORD. My association has taken no position on the 

Federal chartering legislation. We are already enjoying dual regulation, Federal and State, today, but we have not taken a position 

on Federal chartering for the insurance industry. 

Mr. WILSON. We have a position that we could support the concept with conditions, ‘‘conditions’’ being choice for the agent, consumer protection and to retain State-based as well, and so we have 

a dual position, a dual system of a position. So based on those conditions— 

Ms. SPEIER. Meaning that you could forum shop then? 

Mr. WILSON. Well, some of the parts of our industry have different needs and different circumstances, and with basic conditions 

of enhanced consumer protections and to retain State-based, we 

could support the concept. 

Ms. SPEIER. All right. Thank you. 

I yield back. 

Mr. MILLER OF NORTH CAROLINA. Thank you, Ms. Speier. 

Mr. Sherman for 5 minutes. 

Mr. SHERMAN. I will try not to take all 5 minutes. I am going 

to ask you folks to respond for the record because I do have this 

dream of making the votes. 

When I was dealing with the first panel, I focused on the fact 

that what we have seen in this country over the last 50-plus years 

is a transfer of power from the Legislative Branch to the Executive 

Branch, including Executive agencies. The question is: 

Are we here to create a law enforcement agency, which is the appropriate role of the executive branch, or a law-making agency, 

which is a way for us to simply, again, transfer the powers vested 

in us by article I to the article II agencies? I am speaking of the 

U.S. Constitution. 

Now, one way is—and this will be the question I would like you 

to respond to, and I will just use this as a specific. We passed a 

68 

credit card bill through Congress. Normally, that is thought to be 

Congress’ role. Of course, the Fed kind of had some regulations 

along the same lines. 

If we create this new agency, will it have the power to add to 

the Credit Cardholders Bill of Rights a provision limiting total interest rate—an interest rate cap? In other words, we thought of an 

interest rate cap. We did not put it in the law, but could this agency do it? 

Likewise, second, we specifically prevented double-cycle billing. 

Could this agency decide that it is in the interest of consumers to 

allow double-cycle billing? Let’s not assume that every commissioner who is ever going to be appointed to this board is going to 

be certified by the Consumer Federation. I have seen the pendulum 

swing back and forth. 

Finally, do you envision that we pass legislation that is simply 

so incredibly vague that the commission does not know whether it 

has the authority to either allow double-cycle billing or to cap interest rates? Should we here not only punt our authority to an administrative agency but punt on the issue of whether we are even 

doing that or not by making it so unclear that the agency’s powers 

are in question? 

The second question relates to the move here to separate consumer protection on the one hand with prudential or safety and 

soundness regulation on the other. With Fannie and Freddie, I see 

we used to have those two separated, and with OFHEO, we seem 

to have put them together. Now, with this bill, we are taking 

them—the prudential regulation and the compliance and consumer 

protection regulation—and separating it. 

So the first question is: Is this a departure from recent precedent? 

The second question is: If we separate compliance and oversight 

from prudential oversight, it can be expected that there might be 

conflicting mandates from the two separate regulators that a particular financial institution has to answer to. What does the regulated institution do in such a situation? How will these conflicts be 

addressed? 

So one question is about the role of Congress. Another question 

is about whether it is best to sever compliance and prudential oversight. If we are going to separate them, how do we work out the 

conflicting demands of two regulatory agencies, both with power 

over the same financial institution? 

Rather than miss the vote, I am going to ask you to respond in 

writing, not only to protect my voting record, but that of the chairman’s. 

I yield back. 

Mr. MILLER OF NORTH CAROLINA. Thank you, Mr. Sherman. 

That ends the questioning of this panel. On behalf of Mr. Frank 

and all of the members of the committee, I want to thank all of the 

witnesses for your testimony today. 

69 

The Chair notes that some members may have additional questions for this panel which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 30 days 

for members to submit written questions to this panel and to place 

their responses in the record. 

This hearing is adjourned. 

[Whereupon, at 2:09 p.m., the hearing was adjourned.] 

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