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ENHANCED CONSUMER FINANCIAL PROTECTION 

AFTER THE FINANCIAL CRISIS 

HEARING 

BEFORE THE

COMMITTEE ON 

BANKING, HOUSING, AND URBAN AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

ON 

EXAMINING THE IMPACT OF THE FINANCIAL CRISIS ON CONSUMERS 

AND HOW THE DODD-FRANK WALL STREET REFORM AND CONSUMER 

PROTECTION ACT OF 2010 WILL ENHANCE CONSUMER FINANCIAL 

PROTECTION 

JULY 19, 2011 

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

( 

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

TIM JOHNSON, South Dakota, Chairman 

JACK REED, Rhode Island 

CHARLES E. SCHUMER, New York 

ROBERT MENENDEZ, New Jersey 

DANIEL K. AKAKA, Hawaii 

SHERROD BROWN, Ohio 

JON TESTER, Montana 

HERB KOHL, Wisconsin 

MARK R. WARNER, Virginia 

JEFF MERKLEY, Oregon 

MICHAEL F. BENNET, Colorado 

KAY HAGAN, North Carolina 

RICHARD C. SHELBY, Alabama 

MIKE CRAPO, Idaho 

BOB CORKER, Tennessee 

JIM DEMINT, South Carolina 

DAVID VITTER, Louisiana 

MIKE JOHANNS, Nebraska 

PATRICK J. TOOMEY, Pennsylvania 

MARK KIRK, Illinois 

JERRY MORAN, Kansas 

ROGER F. WICKER, Mississippi 

DWIGHT FETTIG, Staff Director 

WILLIAM D. DUHNKE, Republican Staff Director 

CHARLES YI, Chief Counsel 

CATHERINE GALICIA, Senior Counsel 

LAURA SWANSON, Policy Director 

WILLIAM FIELDS, Legislative Assistant 

ANDREW OLMEM, Republican Chief Counsel 

BETH ZORC, Republican Special Counsel 

CHAD DAVIS, Republican Professional Staff Member 

DAWN RATLIFF, Chief Clerk 

LEVON BAGRAMIAN, Hearing Clerk 

SHELVIN SIMMONS, IT Director 

JIM CROWELL, Editor 

(II)
(III) 

C O N T E N T S 

TUESDAY, JULY 19, 2011 

Page 

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

Opening statements, comments, or prepared statements of: 

Senator Shelby .................................................................................................. 2 

Senator Moran .................................................................................................. 3 

WITNESSES 

Michael D. Calhoun, President, Center for Responsible Lending ....................... 4 

Prepared statement .......................................................................................... 38 

Response to written question of: 

Senator Reed ..............................................................................................

Marcus Schaefer, President and Chief Executive Officer, Truliant Federal 

Credit Union ......................................................................................................... 6 

Prepared statement .......................................................................................... 61 

Albert C. Kelly, Jr., Chairman and Chief Executive Officer, SpiritBank, on 

behalf of the American Bankers Association ..................................................... 8 

Prepared statement .......................................................................................... 62 

Lynn Drysdale, Managing Attorney, Consumer Unit, Jacksonville Area Legal 

Aid, Inc. ................................................................................................................. 9 

Prepared statement .......................................................................................... 67 

Andrew J. Pincus, on behalf of the U.S. Chamber of Commerce ......................... 11 

Prepared statement .......................................................................................... 73 

Adam J. Levitin, Professor of Law, Georgetown University Law Center ........... 13 

Prepared statement .......................................................................................... 102 

ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD

AARP statement for the record .............................................................................. 120 

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ENHANCED CONSUMER FINANCIAL 

PROTECTION AFTER THE FINANCIAL CRISIS 

TUESDAY, JULY 19, 2011 

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

The Committee met at 10:03 a.m. in room SD–538, Dirksen Senate Office Building, Hon. Tim Johnson, Chairman of the Committee, presiding. 

OPENING STATEMENT OF CHAIRMAN TIM JOHNSON 

Chairman JOHNSON. Good morning. I would like to call this hearing to order. Today the Committee will examine enhanced consumer financial protection after the Financial crisis. 

As we approach the 1-year anniversary of the Wall Street Reform 

and Consumer Protection Act, we should all be reminded of a basic 

lesson we learned from the Great Recession: failing to protect consumers has consequences not only for individuals and families, but 

also for the health of America’s economy. 

The failure by regulators to hold Wall Street banks and unscrupulous mortgage lenders accountable for complying with consumer 

protection laws was detrimental to American families and brought 

the global financial system to near collapse. 

The cost of that failed oversight and accountability has been the 

loss of millions of American jobs, millions of homes, and trillions 

of dollars in retirement, college, and other savings. 

In numerous hearings in recent years, the Committee documented these failures by big banks and predatory subprime lenders 

to comply with consumer protection laws and the failure of banking 

regulators to hold them accountable. 

Passed in the wake of that thorough review with a bipartisan 

vote, the Wall Street Reform and Consumer Protection Act created 

a robust, independent consumer financial protection regulator. 

Congress established the Consumer Financial Protection Bureau 

to be the first financial regulator solely focused on consumer protection, but with more checks on its authority than the regulatory 

agencies that fell asleep at the switch. 

It is important to remember that most of the checks and balances 

imposed on this new regulator come from bipartisan ideas that 

were incorporated into the reform law during the months it was 

considered, and that the CFPB is modeled on the structure of existing financial services regulators. 

Putting partisanship aside, all of us here have a deep concern for 

American consumers, and we all believe that the small-community 
2 

institutions that had no hand in the abusive practices that led to 

our financial crisis should not pay a price for being honest brokers. 

The CFPB will help by promoting an equitable and transparent 

marketplace and leveling the playing field between those responsible actors and the unregulated companies that preyed unchecked 

on consumers. 

That is why undermining this cornerstone of the Wall Street Reform law would be irresponsible. It would also ignore our responsibility to America’s consumers and risk taking us back to the same 

unstable financial system that ushered in the Great Recession. 

Thank you, and I look forward to working with all of you on 

these important issues. 

Now I turn to Ranking Member Shelby. 

STATEMENT OF SENATOR RICHARD C. SHELBY 

Senator SHELBY. Thank you, Mr. Chairman. 

Today’s hearing provides the Committee a timely opportunity to 

examine one of the most serious flaws in the Dodd-Frank Act, 

namely, the governance structure of the new Bureau of Consumer 

Financial Protection. The issue is whether the Bureau is sufficiently accountable to the American people. I and 43 of my colleagues believe that it is not. 

There is a broad, bipartisan support for improving consumer protection. There has never been any disagreement on that point that 

I know of. There is a disagreement, however, over the appropriate 

means by which we should make those improvements. 

The approach taken by the Dodd-Frank Act was to create a huge 

new and entirely unaccountable bureaucracy. This is a typical response by Washington to any crisis. What is new, however, is the 

unprecedented amount of autonomy the bureaucracy will have. We 

will hear testimony today on what can only be described as the unfettered power of the Director. Unlike every other financial regulator, the Director of the Bureau essentially answers to no one. 

This concentration of power violates our Nation’s basic democratic 

principles. 

Our National Government was carefully crafted to defuse authority and prevent one person from exercising power arbitrarily. In 

contrast, the Dodd-Frank Act builds a wall around the Bureau with 

the express purpose of eliminating any real checks on the Director’s 

authority. 

Supporters of Dodd-Frank said that they wanted to make the Bureau independent. What they did was make the Bureau unaccountable. They argued that the Bureau needed to be protected from political pressures, yet by making the Bureau completely autonomous, they removed any avenues for meaning congressional oversight. 

What makes the lack of accountability of the Bureau so troubling 

is that Congress, for all intents and purposes, delegated its own 

legislative power by giving the Bureau an enormous amount of policymaking and rule-writing authority. At the same time it also insulated it from the very body that created it and gave it its mandate. This was a mistake, I believe, and it needs to be corrected. 

After nearly 1 year, the President has finally nominated someone 

to be the Director of the new bureaucracy. The Chairman has an-
3 

nounced his intent to move quickly on this nomination. But given 

the fundamental flaws with the existing structure of the Bureau, 

the Senate, I believe, should not confirm any person to lead the Bureau until some responsible reforms are adopted. 

Those who are advocating for more accountability have been accused of trying to gut, cripple, or de-fang the Bureau. I believe it 

is important to note, however, that we have not and are not proposing—this is very important—not proposing any changes to the 

Bureau’s authority. We are proposing changes to the Bureau’s 

structure so that it will be more accountable to the American people. 

The creation of the Bureau was largely a partisan effort. We now 

have an opportunity to make some changes with strong bipartisan 

support. We all agree that consumer protection, as the Chairman 

mentioned, needs to be improved. We should also be able to agree 

that the structure of our financial regulators should comport with 

our democratic values. 

I see no reason why we cannot work together to make the Bureau a strong consumer advocate as well as a fully accountable governmental agency itself. 

Thank you, Mr. Chairman. 

Chairman JOHNSON. Are there any other Members who would 

like to give opening statements? Senator Moran. 

STATEMENT OF SENATOR JERRY MORAN 

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

Almost a year to the day after the President signed the DoddFrank bill into law, the President has finally nominated an individual, Richard Cordray, to head the Consumer Financial Protection Bureau. It is unclear to me why the centerpiece of the President’s financial reform package has taken so long to materialize, 

but what is clear is that the nomination is dead on arrival because 

it does nothing to increase accountability or shed light on the operations of the CFPB. 

Two months ago, as Senator Shelby indicated, I, along with 43 

of my Senate colleagues, called for the Bureau’s leadership structure to be strengthened prior to consideration of any nominee. We 

asked for three specific changes in our May 5th letter to the President: a board or commission to replace the single director, the Bureau to be funded through the appropriations process, and additional input by prudential regulators into the rulemaking and operation of the CFPB. 

I have introduced legislation to implement these three reforms. 

President Obama himself agreed with each of these three principles 

when he sent his original proposal to Congress back in 2009. Yet 

our request to return to these same principles is now being categorized as an attempt to kill the Bureau in its infancy. 

The rhetoric may grab headlines, but it ignores the basic fact. 

What we are asking for is not radical. Transparency and accountability are our goals—goals that should be shared by every policymaker interested in protecting consumers from abuses of the past. 

Ask Chairman Schapiro of the SEC if a Commission has weakened 

her agency, or ask Chairman Gensler of the CFTC the same ques-
4 

tion. While seeking consensus among fellow regulators may not always be easy, that consensus will lead to a better public policy. 

Even with these basic reforms to the structure of the agency, the 

CFPB will remain an incredibly powerful Government bureaucracy. 

Nothing I have proposed would undermine those authorities or responsibilities. But without additional accountability, the result of a 

poorly drafted rule could lead to less credit and less opportunity for 

consumers and small business alike. 

I look forward today to answers from these witnesses about how 

consumer protection and small business access to credit will intersect, and I welcome the testimony of our witnesses here today. And 

thank you, Mr. Chairman. 

Chairman JOHNSON. Before we begin, I would like to briefly introduce the witnesses that are here with us today. 

Our first witness is Mr. Michael Calhoun. Mr. Calhoun is President of the Center for Responsible Lending, a nonprofit, nonpartisan consumer research and product organization. 

Mr. Marcus Schaefer is the President and CEO of Truliant Federal Credit Union, a $1.1 billion credit union located in North Carolina, with the mission of improving the financial lives of its members. 

Mr. Albert C. Kelly, Jr., is the Chairman and CEO of SpiritBank 

based out of Oklahoma. Mr. Kelly is also the chairman-elect of the 

American Bankers Association. 

Ms. Lynn Drysdale is an attorney with Jacksonville Area Legal 

Aid in Florida, representing consumers, including servicemembers 

who have been harmed by financial institutions. 

Mr. Andrew Pincus is a partner at the law firm of Mayer Brown 

LLP in Washington, D.C., representing the U.S. Chamber of Commerce. 

And Professor Adam Levitin is from the Georgetown University 

Law Center. Professor Levitin specializes in bankruptcy, commercial law, and financial regulation. 

We welcome all of you here today and thank you for your time. 

Mr. Calhoun, you may proceed. 

STATEMENT OF MICHAEL D. CALHOUN, PRESIDENT, CENTER 

FOR RESPONSIBLE LENDING 

Mr. CALHOUN. Thank you, Chairman Johnson, Ranking Member 

Shelby, and Members of the Committee. 

The Center for Responsible Lending works to help families 

achieve and maintain financial success. We are an affiliate of SelfHelp, the Nation’s largest community development lender, which 

has provided home financing to more than 64,000 families along 

with charter school financing, small business loans, and other community development financing. 

As we approach this anniversary of the Wall Street Reform Act, 

it is important to remember how we came to this point. Borrowers 

were placed in loans they had no reasonable chance to repay. One 

of those borrowers came to us, a retiree on Social Security benefits. 

He was placed in a loan with a deep teaser rate. After the loan readjusted, the required payments exceeded his entire take-home income. Notably, the mortgage broker and the lender received large 
5 

bonuses for originating this loan. Unfortunately, that loan was all 

too typical. 

Wall Street in turn stoked the demand for these loans and created so much demand for the loans that they had to create synthetic securities because there were not enough loans to satisfy the 

demand for securities backed directly by these loans. This further 

leveraging of the loans plunged the country into crisis when the securities collapsed due to the weakness of the underlying loans. 

Importantly, when you compare the experience of the U.S. to 

other countries, no other country had such poor-quality mortgages. 

Other countries experienced similar reductions in home values, but 

because their loans were more sustainable, they incurred much less 

harm than the U.S. economy. 

Another lesson from the crisis was that a single company or 

group of companies cannot stop predatory practices. Indeed, some 

tried in the mortgage boom by not offering unsustainable products 

and by refusing to pay these bonuses that brokers were demanding 

for putting people into these risky loans. The result was those companies found their market share quickly evaporated, as the loans 

were steered to other companies who played by different rules. Ultimately, most of the companies joined in these unsustainable practices. 

The need for the Consumer Bureau remains critical as we approach the transfer date. Mortgage-servicing abuses have been permitted to become epidemic as financial regulators failed to exercise 

the necessary oversight. In addition, CRL is releasing a study this 

week showing that banking consultants have been peddling 350 

percent interest loans for programs to be offered out of our biggest 

banks out of their own offices. The regulators, instead of keeping 

our flagship institutions out of this modern-day loan sharking, 

have let it spread to some of the largest national banks in our 

country, leaving struggling families trapped in a cycle of high-cost 

debt. 

There are proposals to restructure the CFPB before it opens its 

doors. As set out in detail in our testimony, there are many safeguards already in place. Certainly there must be care, certainly 

with small businesses and small financial institutions to consider 

the impact and burdens on those companies. However, already 

hard-wired into existing law is the requirement that the CFPB consult with and give notice to small companies before they can even 

issue a proposed rule, a requirement unique among financial regulators. 

Finally, the American people know how badly the CFPB is needed. CRL, along with AARP and Americans for Financial Reform, 

commissioned a poll this month asking about opinions regarding 

the consumer agency. The poll showed that members of all parties 

overwhelmingly support a strong consumer agency and oppose efforts to repeal it. They also reject the argument that fair lending 

is bad for the economy. 

In summary, America is still recovering from the devastation 

caused by the flood of unsustainable lending. Yet, to date, basic financial transactions for the average family remain unfathomable. 

Anyone who tries to read a mortgage loan agreement or even a 

credit card agreement has had that experience. And there is an ab-
6 

sence of basic ground rules. Those deficiencies hamper the operation of our free markets and put our economy at risk. The CFPB 

is needed now to both help American families individually achieve 

and maintain financial stability, but also to restore our overall economic health. It should be allowed to begin this overdue work. 

Thank you, and I look forward to answering your questions. 

Chairman JOHNSON. Thank you, Mr. Calhoun. 

Mr. Schaefer, you may proceed. 

STATEMENT OF MARCUS SCHAEFER, PRESIDENT AND CHIEF 

EXECUTIVE OFFICER, TRULIANT FEDERAL CREDIT UNION 

Mr. SCHAEFER. Truliant Federal Credit Union appreciates the opportunity to provide input into the public policy dialog regarding 

the enhancement of consumer protection. We would like to thank 

Chairman Johnson, Ranking Member Shelby, Senator Hagan, and 

Members of the Committee for having us here today. 

Our mission is to enhance the quality of life of our members and 

to become their preferred financial institution. Truliant offers a full 

range of financial services, including savings, checking, certificates, 

money markets, IRAs, and rainy-day savings. Loan services include 

first mortgage and home equity, new and used auto, personal lines, 

and Visa credit cards. We offer small business services including 

member business and SBA loans. We provide state-of-the-art home 

banking and electronic bill payment programs, mobile access, and 

remote deposit capture. Through our Credit Union Service Organization, we offer financial planning and a very popular auto-buying 

service. 

As a member-owned financial institution, we can offer lower loan 

rates, higher savings rates, low (and often no) fees as we help 

members execute financial plans for their future. Central to all our 

services is our emphasis on financial literacy education and counseling to our members and for our communities. Over 55 percent 

of our member households earn less than $45,000 per annum. Affordable, well-informed financial service access and delivery is key 

to our mission. 

Truliant maintains an overarching commitment to improve our 

members’ lives by understanding and meeting their financial 

needs. This focus translates into our TruService culture. Our staff 

engages our members to bring about real change and help them 

meet their long-term objectives rather than the traditional productpushing sales approach so prevalent in modern banking. For example, a benefit of low interest rates has allowed us to reposition hundreds of members into lower-cost mortgages and car loans. 

Our operating principle is, ‘‘Consumer, Be Aware,’’ not ‘‘Consumer Beware.’’ Well before the financial crisis, we instituted our 

Points of Differentiation that embody the spirit and practice of improving member financial lives. We have not sold our credit card 

accounts to the large credit card issuers. We never offered an optout courtesy pay overdraft protection program. We do not advertise 

a car loan rate to members unless the majority has the credit quality to qualify. We do not allow indirect auto loan car dealers to 

mark up our rate. We help our member-owners become debt free 

on their primary home by the time of retirement. We support pub-
7 

lic policy that informs and educates the consumer on financial decisions while improving personal balance sheets. 

Our experience is that consumers have been needlessly financially disadvantaged by a history of questionable practices and procedures by both mainstream and non-bank providers. Examples include opt-out overdraft protection, the sequence of clearing checking debits, extending credit to borrowers with terms they could not 

reasonably meet, overly complex disclosure materials, and punitive 

credit card practices. 

These seem to be acceptable ‘‘gotchas’’ rather than consumer-focused services and argue for some balance toward better information sharing. Congress has addressed some of these more egregious 

practices, and heightened consumer awareness post-financial crisis 

may have driven providers to become more consumer-friendly in 

the near term. 

Even with reforms like the CARD Act, Regulation E rule 

changes, and the consumer protection initiatives of individual regulators, it make sense to have a regulator focused on consumer protection. 

Clearly, controlling practices of non-bank providers, such as unregulated mortgage brokers, who in some cases were able to lure 

our members into products that did not improve their financial 

lives, is needed. We noted 13 finance companies operating in the 

small manufacturing town of Asheboro, North Carolina, leading to 

our extending services there. 

As we offered volunteer income tax assistance this spring, I observed that many national tax preparers continued to offer highpriced, tax-refund anticipation loans. A consumer protection regulator could address these practices directly or through a national 

initiative to improve financial literacy for consumers of varying degrees of education and experience. We all want our children to 

make better decisions for themselves. 

Even for traditional financial service providers, we support clear 

language and visual presentations like the ‘‘Federal box’’ required 

of credit card disclosures. However, regulators should be mindful of 

the impact of mass implementation of regulation on smaller financial institutions, particularly credit unions, where the cooperative 

structure has historically resulted in pro-consumer practices. 

Seemingly small regulatory dictates can have a large impact on 

these institutions and ignore their ‘‘local knowledge’’ of how to best 

communicate with members. Larger institutions will benefit from 

economies of scale on a per account cost basis, further tipping the 

scale toward too-big-to-fail institutions. 

There may be unintended consequences to consumer-friendly financial institutions as the bad actors are reined in by one-size-fitsall regulations. Implementation of the CARD Act requiring that 

specific credit card statement language for late payments be used 

resulted in hundreds of panicked calls by Truliant members who 

were not delinquent. The staff time required to explain the language mandated by the Fed could have gone to advising our members on how to better build their financial foundation. 

We support streamlining and simplifying existing overlapping 

regulation to improve consumer understanding while reducing cost 

to the financial institution that can be passed on to the member- 
8 

owner. We welcome combining TILA and RESPA to improve 

usability by the consumer and financial institutions. Streamlining 

ECOA and the Fair Credit Reporting Act could have similar benefits. We support regulation that allows and promotes innovation in 

financial services that is also helpful to the consumer. The consumer protection regulator will need to carefully balance these two 

deliverables. Consumer protection is not a one-time fix, but an ongoing effort that will span different political landscapes. We support a balanced governance structure that would not make the regulator ineffectual nor one that allows for public policy to become 

overly politicized. 

Thank you again for the invitation to speak on behalf of Truliant, 

and I welcome your questions and discussion on this matter. 

Chairman JOHNSON. Thank you, Mr. Schaefer. 

Mr. Kelly, you may proceed. 

STATEMENT OF ALBERT C. KELLY, JR., CHAIRMAN AND CHIEF 

EXECUTIVE OFFICER, SPIRITBANK, ON BEHALF OF THE 

AMERICAN BANKERS ASSOCIATION 

Mr. KELLY. Thank you, Chairman Johnson, Ranking Member 

Shelby, and Members of the Committee, for the opportunity to testify today on ways to improve the accountability of the new Bureau 

of Consumer Financial Protection. My name is Albert Kelly. I am 

from SpiritBank in northeastern Oklahoma, and we run a bank 

that has offices in 10 cities and towns in the northeast part of the 

State. 

The banking industry fully supports effective consumer protection. At SpiritBank we are proud of our 95 years of service to our 

customers built on fair treatment of those customers. No bank can 

be successful without a long-term perspective like ours and without 

treating customers fairly. 

The new Bureau will certainly impose new obligations on banks 

large and small that had nothing to do with the financial crisis and 

already have a long history of serving consumers fairly in a competitive environment. Therefore, there are several features of the 

Bureau that make improved accountability imperative. These include the problems brought about by: the extensive new powers of 

the agency, the unfettered authority of the Director to impose new 

rules, the separation of consumer protection from bank safety and 

soundness, the gaps in regulating non-banks, and the expanded 

and unaccountable enforcement authority of prudential regulators 

and State Attorneys General. 

For all these reasons, and others, it is ABA’s first priority to improve the accountability of the Bureau. Establishing accountability 

supersedes other important priorities regarding the Bureau, including ensuring appropriate bank-like supervision of non-banks for 

consumer protection. 

ABA supports the creation of a board or commission that would 

be responsible for the Bureau’s actions rather than giving the head 

of the Bureau sole authority to make decisions that could fundamentally alter the financial choices available for customers. It 

also provides the needed balance and appropriate checks in the exercise of the Bureau’s significant authority. We urge the Congress 
9 

to pass statutory provisions that ensure such accountability before 

the Bureau is established with a single Director. 

The Dodd-Frank Act also gives license to pile on additional State 

law requirements and enables State Attorneys General and prudential regulators to second-guess Bureau standards as they see fit. 

If we are to hold the Bureau accountable, we must also hold accountable all those who derive authority from its existence. 

ABA also supports a simple majority vote of the Financial Stability Oversight Council to set aside a Bureau rule instead of the 

two-thirds vote. If a majority of the Nation’s top regulators believe 

a Bureau rule will have an adverse impact on the banking system, 

the rule should not go forward. 

Moreover, ABA also believes that a finding of systemic risk is too 

narrow a review standard. The review standard should be recalibrated to account for adverse consequences of Bureau actions that 

do not rise to the level of systemic risk. For example, Bureau actions that end up driving some community banks out of business 

would not rise to the level of systemic risk but have enormous implications for the communities they serve. 

Once the goal of accountability is achieved, we believe the Bureau should direct its resources to the gap in regulatory oversight: 

a failure to supervise and impose enforcement actions on non-bank 

lenders committing consumer protection violations. We welcome 

current efforts to define the Bureau’s non-bank supervisory scope 

as it prepares for the future exercise of that supervisory authority. 

As we have since our beginnings, banks across the country will 

continue to do whatever we can to make sure our customers understand the terms of the loans they are taking on. Our task is made 

more difficult by the many new hurdles that we have to jump over 

to serve our customers’ most basic needs. Already, there are 2,700 

pages of proposed regulations, and this is before the Bureau undertakes any new changes or rulemakings. All these changes have consequences for our communities: high costs, restrictions on sources 

of income, limits on new sources of capital, and excessive regulatory pressure. All make it harder to meet the needs of our communities. These impediments inevitably reduce the credit that can 

be provided and the cost of credit that is supplied. Fewer loans 

mean fewer jobs. Since banks and communities grow together, the 

restrictions that limit one necessarily limit the other. It is critically 

important that Congress establish accountability of the Bureau and 

ensure that the rules from the Bureau do not restrict access to financial products by responsible American families. 

Thank you. 

Chairman JOHNSON. Thank you, Mr. Kelly. 

Ms. Drysdale, you may proceed. 

STATEMENT OF LYNN DRYSDALE, MANAGING ATTORNEY, 

CONSUMER UNIT, JACKSONVILLE AREA LEGAL AID, INC. 

Ms. DRYSDALE. Chairman Johnson, Ranking Member Shelby and 

Members of the Committee, I appreciate the opportunity to speak 

today. I have been a legal services attorney representing low-income consumers for the last 23 years in Jacksonville, Florida. As 

some of you may know, we are proud to be the home of two major 
10 

military bases, so I have had the honor of serving military clients 

in my tenure there. 

The group of low-income individuals has grown exponentially 

during the financial crisis. As this demographic grows, so also has 

grown the amount of aggressive and harmful lending which is 

going unregulated, or at least underregulated, throughout the 

United States. 

One of the most vulnerable populations are the servicemembers 

who are serving our country. Many years ago, Congress passed the 

Military Lending Act. This Committee also was in favor of that Act. 

This Act was meant to curb illegal and harmful products that were 

hijacking servicemembers’ bank accounts and taking their automobiles while they were serving our country overseas, leaving them 

with low morale, harming military readiness, and certainly harming their families at home. 

Despite the passage of the Military Lending Act, which, among 

other things, reduced the interest rates which could be charged for 

military members and their families, and also prohibits mandatory 

unilateral arbitration, one of the individuals I spoke of when I 

spoke at the hearing in 2006 was an air traffic controller. He was 

having to monitor the airways at the same time he was being 

called and being threatened with court-martial and imprisonment 

for not paying back payday loans even though he had already paid 

back $10,000. Despite the protections of the Military Lending Act 

and despite the prohibitions of the Federal Fair Debt Collection 

Practices Act, he was still getting these threats. He was in danger 

of losing his security clearance as well as his job. 

The Military Lending Act capped interest rates and prohibited 

unlawful terms, but we are still seeing these loans with triple- or 

four-digit interest rates being provided to servicemembers as well 

as many American citizens. This is happening because these lenders are operating under the guise of the Internet. They are able to 

charge interest rates that are in excess of those allowed by the 

Military Lending Act and State laws and engage in other illegal 

practices such as requiring the assignment of wages as a condition 

of obtaining the loan. This is also in violation of Federal Trade 

Commission regulations. 

One may wonder why someone would take out a loan with tripledigit or four-digit interest rates. Well, that is because these loan 

products are packaged in a manner that is deceptive. The interest 

rates are not provided up front or either they are understated. For 

example, another client of mine took out a $2,200 automobile title 

loan secured by his free and clear title to his automobile. He also 

was required to pay $900 to purchase insurance which was required and provided no benefit to him and went straight to the 

pocket of the lender. The stated interest rate was 24 percent, which 

sounded high but reasonable to him, but the real interest rate was 

well above triple digits. He ended up losing his car. 

Another very disturbing trend in providing unregulated loans are 

loans provided to military veterans who are not covered by the 

Military Lending Act. These veterans are being enticed with ads 

with flags flying, with military names in the name of the loan company, and they are led to believe that these companies are sanctioned by the military, when instead they are taking their pensions 
11 

with loans of interest rates of triple digits. These types of loans are 

completely unregulated. 

Just as I have—I know you have heard many hours of testimony 

relating to the problems with the mortgage industry, but I did 

want to bring up just a couple of instances where I have had clients who were fighting insurgents in Afghanistan at the same time 

they were fighting Wells Fargo on the mainland because Wells 

Fargo would refuse to accept their allotment payments even though 

they were current. I have received email messages from near 

Singapore from a gentleman with top secret clearance who was current in his mortgage and who was still being turned over to an attorney to proceed with mortgage foreclosure proceedings. This gentleman eventually was going to lose his home because he could not 

handle the stress of being on the job near Singapore as well as having his home lost for his family and his children. This automatically is going to affect the morale of military servicemembers. The 

Military Lending Act does not at all protect our veterans, and it 

also does not protect other citizens who should be protected by 

these unregulated or underregulated, aggressively marketed, highinterest loan products. 

Thank you. 

Chairman JOHNSON. Thank you, Ms. Drysdale. 

Mr. Pincus, you may proceed. 

STATEMENT OF ANDREW J. PINCUS, ON BEHALF OF THE U.S. 

CHAMBER OF COMMERCE 

Mr. PINCUS. Thank you, Mr. Chairman, Ranking Member Shelby, 

and Members of the Committee. It is an honor to testify before the 

Committee today on behalf of the U.S. Chamber of Commerce and 

the hundreds of thousands of businesses that the Chamber represents. 

The Chamber strongly supports sound consumer protection regulation that deters and punishes financial fraud and predation and 

requires that consumers receive clear, concise, and accurate disclosures about financial products. Businesses as well as consumers 

benefit from a marketplace free of fraud and other deceptive and 

exploitative practices. 

At the same time, consumer protection regulation must further 

these goals while avoiding duplicative and unjustified regulatory 

burdens. Those burdens harm all Americans by diverting resources 

essential to fueling economic growth and by preventing small businesses from obtaining the credit they need to expand and create 

the new jobs that our economy so desperately needs. 

The ability of a regulatory agency to carry out its mission successfully is influenced by its regulatory structure. The Bureau’s 

unique and unprecedented structure deviates radically from the 

fundamental principles of accountability and checks and balances 

that have been a basic feature of our Federal Government for the 

past 224 years. 

The Bureau’s current structure confers on its Director unprecedented unchecked power of extraordinary breadth, far beyond that 

wielded by any other Federal regulator of individuals and businesses. Indeed, the Bureau lacks each of the ordinary checks designed to ensure accountability that are present in these other 
12 

agencies. All other agencies are subject to at least one of these 

checks, but there are none here. 

First of all, in contrast to the very familiar commission structure 

that is the norm for the FTC, the SEC, and other agencies, the Director exercises sole decisionmaking authority with respect to rulemaking, enforcement, and supervision actions, and every other 

matter. 

Number two, most Government officials, of course, serve at the 

pleasure of the President. The Director has policy independence 

from the President such that he or she may be removed from office 

only for, and I am quoting the statute, ‘‘inefficiency, neglect of duty, 

or malfeasance in office.’’ 

Number three, in other agencies the power to appoint deputies 

and other officials is reserved to officials subject either to the President or to officials subject to the President’s authority. Here the Director has plenary power to appoint every one of the agency’s employees. 

And, number four, of course, appropriation of funds by Congress 

is the norm for virtually every Government entity. Here the Director has the ability to spend more than half a billion dollars without 

congressional approval. There is no other regulation of private sector activities that enjoys both sole authority over an agency and 

tenure protection. Here the Director’s additional authority to appoint all subordinates and freedom from the congressional appropriations process renders the position even more anomalous. 

I know that there have been analogies attempted to the Comptroller, and I think it is important to say at the outset that the 

Comptroller is subject to the President’s plenary power of removal 

and that the Secretary of the Treasury has oversight authority, 

general oversight authority, over the OCC as well as the power to 

appoint the Comptroller’s deputy. So this is a very, very different 

situation. 

Some cite other constraints that are claimed to substitute for the 

ones that are present in every other agency and not present here. 

But, again, those contentions are just wrong. 

A budget cap, while it is true there is a budget cap in that DoddFrank sets a cap of $550 billion, escalating in the future, here 

every agency has a budget cap set by its authorization legislation 

and its appropriations legislation. So that is no difference. 

The fact that there is a GAO audit, every agency is subject to an 

audit either by the GAO or by its Inspector General. Again, no difference. 

The fact that there is a review by the Financial Stability Oversight Council, again, if the Bureau were a private entity and it 

cited FSOC review as a check on its power, that statement could 

well be the subject of an enforcement action for a deceptive practice. First of all, FSOC review applies only to rules. Second of all, 

the process itself is illusory and seems to have been designed never 

to be triggered. It has a high standard. There has to be a threat 

to the entire U.S. financial system, not just a part of it. And then 

seven of nine votes have to be in favor of overturning the rule, and 

even if every prudential regulator opposes the rule, it still cannot 

be overturned. 
13 

Finally, also false is the contention that a multi-member commission would somehow impose radical constraints on consumer protection. The Commission model, as I said, is the norm for a Federal 

agency, and I do not think anyone would say that the Federal 

Trade Commission is not a vigorous regulator. 

In addition, the commission model was proposed by the President 

for this very agency and approved by the House of Representatives 

for this very agency in the course of its consideration of DoddFrank. Again, I do not think anyone would say that either the 

President or the House of Representatives in the last Congress was 

somehow interested in gutting the power of consumer protection. 

The Chamber believes strongly that unless the Bureau’s flaws 

are remedied now, problems in execution that are already being 

shown will worsen and spread, harming consumers, legitimate 

businesses, and our entire economy. 

Thank you again and I look forward to answering your questions. 

Chairman JOHNSON. Thank you, Mr. Pincus. 

Professor Levitin, you may proceed. 

STATEMENT OF ADAM J. LEVITIN, PROFESSOR OF LAW, 

GEORGETOWN UNIVERSITY LAW CENTER 

Mr. LEVITIN. Good morning, Chairman Johnson, Ranking Member Shelby, and Members of the Committee. My name is Adam 

Levitin. I am a Professor of Law at the Georgetown University 

where my research focuses on consumer finance and financial regulation. 

Three bills have been proposed in the Senate and the House to 

reform the structure of the CFPB. Let us be clear about what these 

bills are about. They are not about reforming the CFPB. They are 

simply attempts to hobble the agency under the banner of accountability and oversight. It is, frankly, puzzling that there are concerns about CFPB oversight before the CFPB is even operational. 

Nothing the CFPB transition team has done has raised any concerns about the existing oversight structure. Instead, it has only received accolades from financial institutions and consumer advocates. 

I would suggest that concerns about oversight would be better directed at other bank regulators, like the OCC and the Federal Reserve, which failed epochally in their safety and soundness and systemic stability missions preceding the financial crisis. Curiously, 

those who demand better oversight of the CFPB have shown no interest in also pursuing better oversight of the agencies on whose 

watch the financial crisis occurred. 

Looking at the design of the CFPB, it is apparent that the CFPB 

is, contrary to what Mr. Pincus claims, actually more accountable 

than any other Federal financial regulator. On page 6 of my testimony, you can see a chart comparing the CFPB’s oversight with 

other Federal agencies. 

As you might notice, it does differ somewhat from Mr. Pincus’ 

chart, especially in its characterization of OCC and OTS oversight. 

In particular, I would note that it is not clear whether the President has the ability to remove the Comptroller at will or if it is 

only for cause. Mr. Pincus cites an OTS general counsel memorandum on post-employment retirement as his authority on this. 
14 

As far as I know, that is not the law. That is simply the opinion 

of the general counsel in one part of the Treasury Department. It 

is not the United States Code. 

I think that when you look at the chart as a whole, it shows that 

there is extensive and unprecedented oversight for the CFPB. This 

accountability does sometimes differ from that of other Federal 

bank regulators, but given these other bank regulators’ abysmal 

performance in allowing the financial crisis, it is not clear why we 

would want to replicate them. Their oversight structures have not 

worked. 

So to review the key CFPB oversight provisions, the CFPB is 

subject to the Administrative Procedures Act notice and comment, 

rulemaking, and hearing and adjudication provisions. The CFPB is 

one of only three Federal agencies that is subject to OIRA’s Small 

Business Flexibility Review. No other Federal bank regulator is 

subject to that kind of review. 

The CFPB has numerous statutory limitations on its rulemaking 

powers. For example, the CFPB must make detailed findings if it 

wishes to exercise its power to declare certain acts or practices unfair, deceptive, or abusive. And it is prohibited from imposing usury 

caps or from regulating non-financial businesses. 

The CFPB is also the only Federal bank regulator subject to a 

budgetary cap. While some think that this cap is too high because 

it will enable the CFPB to be too effective, I have never heard similar complaints about the lack of budgetary controls on the Fed, the 

OCC, the OTS, or the FDIC. There seems to be concern about 

budgetary independence only when it involves an agency tasked 

with prioritizing American families, not banks. 

The CFPB is the only Federal bank regulator whose actions are 

subject to a veto by the Financial Stability Oversight Council. I 

have not heard many calls to subject the Fed or the OCC to similar 

vetoes. 

The CFPB is, of course, subject to moral suasion by the Administration and, perhaps most crucially, the CFPB is subject to oversight by Congress. There have been no less than six hearings on 

the CFPB in the last 4 months, and the CFPB is not even open for 

business. I think that is impressive oversight. There is no escaping 

the fact that no other Federal regulator is subject to comparable 

oversight and limitations on its actions. 

Turning to the specific bills, one would subject the CFPB to the 

appropriations process. Doing so would be a serious mistake. The 

financial crisis should have taught us that consumer financial protection is too important systemically to politicize it through the appropriations process. Do we want the level of consumer protection 

that we get in a given year to be the results of political horse 

trades? If it is a tight year in the budget, are we going to say exploding ARMs are OK this year? That would be the result. No 

other Federal bank regulator is subject to this appropriations process, and there is no reason the CFPB should be. 

OFHEO, the former regulator of Fannie Mae and Freddie Mac, 

was subject to appropriations, and it was an impotent regulator as 

a result. Whenever OFHEO showed some teeth, the GSEs’ allies in 

Congress yanked on its funding leash. Congress recognized this 

problem when it freed OFHEO’s successor, FIFA, from the appro-
15 

priations process. The only reason to subject the CFPB to the appropriations process is to create the possibility of de-funding the 

agency and rendering it ineffective. 

Other provisions in the reform bills would replace the single Director with a five-member commission. Put differently, this proposes paying five people to do one person’s job. This is classic Big 

Government bloat and waste, and it is going to diminish accountability. Instead of having the buck stopping with one person, authority will be diffused over five people. If a single Director is good 

enough for the OCC, it should be good enough for the CFPB. 

Finally, the reform bills would lower the threshold for the Financial Stability Oversight Council to veto CFPB rulemakings. They 

would require a veto if the rulemaking were inconsistent with bank 

safety and soundness. Now, ‘‘bank safety and soundness’’ is a technical term. It means profitability. It is axiomatic that a bank can 

only be safe and sound if it is profitable. But consumer protection 

is sometimes at loggerheads with bank profits. The only reason to 

engage in predatory lending, for example, is because it is profitable. 

It is not done out of spite. What this means is that any CFPB rulemaking that affected bank profitability would, therefore, be inconsistent with safety and soundness and be subject to a veto under 

this reform bill standard. Accordingly, the Credit Card Act of 2009 

and Title 14 of the Dodd-Frank Act, which reforms the mortgage 

lending industry, could not be implemented because they would affect bank profitability and, thus, be inconsistent with safety and 

soundness. 

Congress established the CFPB to protect American families, not 

maximize bank profits. Let us let the CFPB have a chance to do 

its job. 

Thank you. 

Chairman JOHNSON. Thank you, Professor, and thank you all for 

your testimony. 

We will now begin asking questions of our witnesses. Will the 

clerk please set 5 minutes on the clock for each Member for their 

questions? 

Ms. Drysdale, in your testimony you talk about the scams 

servicemembers and their families are tricked into. As you know, 

the CFPB has an office headed by Holly Petraeus dedicated to 

servicemembers and designed to help them. What are the benefits 

your clients will get from Mrs. Petraeus’ office? 

Ms. DRYSDALE. I think her office will be extremely effective in 

providing servicemembers with an avenue of redress when they 

have a problem. Now they are not sure where to go. It will be one 

agency that will be tasked with taking on consumer complaints, 

with trying to address consumer complaints, and by recognizing 

systemic problems that need to be addressed. 

I think one of the clear examples of her effectiveness that has already taken place was her actions in ensuring that three of the 

main mortgage servicers were providing the foreclosure notice required to be given to active-duty military. Active-duty military individuals were losing their homes without proper notice and without 

the protections of the Servicemembers Civil Relief Act. She took notice of this. There were hearings and enforcement actions have 

been taken against three of the servicers that were the most at 
16 

fault in the failure to provide notice. I am sure there are others out 

there who also need to be addressed, and I feel comfortable that 

the Office of Service Member Affairs will be the most effective vehicle to do this. 

Chairman JOHNSON. Mr. Schaefer, without a Director in place, 

the CFPB will not be able to exercise its examination and enforcement powers over non-bank financial institutions such as payday 

lenders. Do you agree that this authority is essential to level the 

playing field between responsible small community banks and credit unions that will not be examined by the CFPB and their nonbank competitors that will? 

Mr. SCHAEFER. Senator, we agree that the sooner the CFPB can 

get to the task of monitoring and regulating the non-bank participants, the better. We recognize that it is a somewhat arduous and 

political process now. We would love to see a CFPB that is not subject to political whipsaw in terms of not knowing—like any business, we like it to be predictable what we are going to be subject 

to, but certainly the sooner the better in terms of being able to regulate payday lenders, the folks that do tax anticipation refund 

loans. We would like to see some leveling of the playing field, so 

the sooner the better. 

Chairman JOHNSON. Professor Levitin, there seems to be much 

misinformation about the accountability of the CFPB and the 

checks and balances imposed on that new agency. Professor 

Levitin, would you please set the record straight about this issue? 

Mr. LEVITIN. The CFPB has a unique set of oversight and accountability provisions. It does not look like any other Federal 

bank regulator in this regard, and I think that is actually a very 

good thing because we have seen that the oversight has not worked 

well for the other Federal bank regulators. 

The CFPB has not opened its doors yet. The other Federal bank 

regulators allowed the financial crisis to occur. 

If you look at the oversight provisions, I think they can be fairly 

characterized as much more exacting. The CFPB is subject to a 

budget cap. No other Federal bank regulator is subject to that 

budget cap. The CFPB is subject to a veto. There is no other Federal bank regulator that can be vetoed by the other regulators. 

Only the CFPB is subject to that veto. 

The CFPB also is subject to a very standard set of oversight provisions in addition. It is subject to the Administrative Procedures 

Act which governs rulemaking and enforcement actions and adjudication. The CFPB is subject to the Small Business Review by 

OIRA within the Office of Management and Budget. No other Federal bank regulator is subject to that. 

There is a mandatory GAO audit of the CFPB annually. That 

does not occur for any other Federal bank regulator. The Federal 

Reserve received a one-time partial audit as part of the DoddFrank Act, and that occurred only over the Fed’s kicking and 

screaming. Mr. Pincus’ characterization that GAO audits of financial regulators are routine is not correct. 

And, last, it is important to note that as part of the Federal Reserve, the CFPB is subject to the Federal Reserve’s Inspector General, that there may not be a dedicated CFPB Inspector General, 
17 

but the Federal Reserve does have a very capable IG’s office, and 

its mission includes the CFPB. 

Chairman JOHNSON. Professor Levitin, would you please explain 

all of the ways that the actions of the CFPB will be tempered by 

the prudential regulators and their safety and soundness mission? 

Mr. LEVITIN. Well, most importantly, we have the Financial Stability Oversight Council. The Financial Stability Oversight Council 

has the ability to veto CFPB rulemakings if they endanger the systemic stability of the U.S. economy. That is a critical oversight, and 

it is unique. If the OCC were to take an action that endangered 

systemic stability, no other regulator would have a say on that. 

The CFPB is also instructed to coordinate with the prudential 

regulators regarding rulemakings, and the CFPB has already 

shown an extreme willingness to listen to other regulators, to listen 

to consumer advocates, and to listen to financial institutions. This 

is not an agency that is looking to be one-sided only for consumers. 

It is an agency that has really shown already that it is trying to 

find the right balance between consumer protection and ensuring 

that we do not have too many restrictions on business. 

Chairman JOHNSON. Senator Shelby. 

Senator SHELBY. Thank you, Mr. Chairman. 

Mr. Kelly, Professor Levitin notes that if the Bureau opens without a Director, the Bureau will not have all of its powers, including 

the authority to regulate non-banks. Some have said that the Director should be installed immediately in order to ensure that 

banks and non-banks are regulated similarly. 

What is the American Bankers Association’s position on the need 

to immediately confirm a Director? 

Mr. KELLY. Thank you, Senator. The American Bankers Association’s position has been consistent since the beginning of DoddFrank and the introduction of the CFPB, and that is, it is a matter 

of governance. Just as I report to a board and most other businesses do, we believe that this should have an oversight board or 

a commission that allows that Director to report to it. That has 

been our position. We believe that is a sound way to roll this out. 

No one ever will stand in favor of having any consumer damage or 

having the egregious nature that certainly Ms. Drysdale discussed. 

We believe this needs to be gotten right the first time. We have 

done without this particular position for 150 years in the banking 

industry, and we ought to get it right this time if we are going to 

do it. 

So it is not a matter of the ABA not saying go ahead. It is a matter of the ABA saying from the beginning, which we said, we believe this structure is the proper structure for this agency. 

Senator SHELBY. And it is all about accountability, is it not? 

Mr. KELLY. Yes, it is. 

Senator SHELBY. Mr. Pincus, in your testimony you state, and I 

will quote, that ‘‘The Bureau’s unique and unprecedented structure’’—unique and unprecedented—‘‘deviates radically from the 

fundamental principles of accountability and checks and balances 

that have been a basic feature of our Federal Government for the 

past 224 years.’’ 

In the testimony by Professor Levitin, he states that the Bureau 

‘‘is more accountable than any other Federal financial regulator.’’ 
18 

On what specific points do you disagree with Professor Levitin’s 

analysis here? 

Mr. PINCUS. I think I disagree on all of them, Senator, and I 

think what is critical in looking at accountability before we get into 

the specifics is what is the purpose of these checks and balances. 

Senator SHELBY. That is right. 

Mr. PINCUS. And I think the critical thing about the four checks 

and balances that I mentioned and that have been present, at least 

one of them, in every other agency that has been created—a commission structure, plenary removal authority in the President, subject to the appropriations process, Presidential power, either oversight or appointment of subordinates—is that they ensure oversight and some control by the political branches, because what is 

critical here is not just checks and balances for the sense of checks 

and balances. It is checks and balances so that this exercise of Government power by this entity in the end answers to the elected officials who are elected by the people. And I think the absence of any 

of those means that there is a critical defect here, that the Director 

has power but really is not in any way checked by a representative 

of the people because it lacks each of those four things. And I think 

turning to the things that the professor mentioned, they are either 

common to all agencies, or they do not really tie back to the people’s elected representatives. 

For example, it is true that like every other agency of the Federal Government the Bureau’s regulations will be subject to the Administrative Procedures Act, but that Act merely codifies probably 

much of what the Constitution’s Due Process Clause requires. So, 

again, it ties back to some important guarantees, but it does not 

tie back to the people’s elected representatives. 

He mentioned the FSOC review. As I said, I think it is the most 

illusory system ever constructed. First of all, it does not even apply 

to enforcement actions. The Director has total authority over enforcement actions. And the people setting up the Bureau have already said that they plan to proceed principally through enforcement actions rather than regulations, as the SEC and FTC have. 

But even if there were a regulation, the standard, as Mr. Kelly 

mentioned, threatening the stability of the entire financial system 

is a standard that cannot be met, shouldn’t we be concerned about 

a regulation that would threaten the stability of a sector of the financial system? And the voting is such that there will never be an 

instance—this is a review system set up never to be used. 

Congressional oversight, it is true there can be hearings, although I think it is interesting to take a look at the report of a 

House Appropriations Committee on the financial services budget, 

which talks about the problems that that Committee has had getting information about how the Bureau intends to spend the money 

that it has under this line of credit from the Fed. 

The SBREFA, the Small Business Review Authority, it is true it 

is in the statute, but, A, it again only applies to rulemaking, not 

to enforcement or supervision; and, B, it is advisory. You have to 

go through the process, but at the end of the day, there is no check 

on the Director’s decision. The Director gets to decide and reject 

whatever the SBREFA panel has decided. That is very different 

from the Office of Management and Budget OIRA review process 
19 

where OMB, representing the President, can instruct agencies to 

change their views because what they plan to do does not comport 

with what the President believes is what is proper in his role as 

the people’s representative. 

Senator SHELBY. Thank you. 

Mr. KELLY. Senator, may I add a comment to that? 

Senator SHELBY. Sure, go ahead. 

Mr. KELLY. I just want to say that, as well as what Mr. Pincus 

says, when we talk about the FSOC review, I guess the reality is 

when these rules were promulgated and put forth, we have 7,500- 

plus, 7,750-plus community banks out there scattered on Main 

Street across this country. And sometimes I think when we testify 

and when we are up here, we talk about things that—what is this 

review standard and what is that review standard. None of those 

banks are ever going to rise to systemic risk. As a matter of fact, 

the collection of those banks is not going to rise to systemic risk. 

Those banks get up every day—they are in your communities and 

mine, and they get up every day with the intent of trying to serve 

their customers, support their schools, and do the things that they 

have done for years and years. And all we are saying is this needs 

to have a board because it can become very unwieldy. Today the 

only growth areas of most of these small banks is compliance, and 

it is very, very difficult for them to take on the burdens of DoddFrank and CFPB in the manner that it is going to be promulgated 

just because of the massive amount of regulations. We will comply. 

We will do that, and we as always will welcome that to the extent 

that it is required. But the fact of the matter is if we look at this 

review as being a systemic risk review, it is far too broad. 

Senator SHELBY. Do you believe that Dodd-Frank is going to help 

us create jobs in this country? 

Mr. KELLY. Senator, I would say that from a standpoint of the 

banking industry, it is doing quite the opposite. 

Senator SHELBY. Thank you. 

Mr. KELLY. I can cite example after example. I was sitting literally thinking the other day that today I can think of a thousand 

jobs that we have funded that are working today, that if that loan 

came in I promise you we would not even take it down the road 

to the committee, because it requires there to be imagination and 

creativity and hope, that you think about that, think about that 

community, the jobs that that will create, and what it is going to 

build in the economy. And today, quite frankly, most community 

banks are running their banks in order to comply with regulation, 

which they always have, but not to really develop business or to 

try and create jobs for the economy because they are absolutely 

overwhelmed by the regulations they are getting. 

Senator SHELBY. Thank you. 

Thank you, Mr. Chairman. 

Mr. LEVITIN. Senator, may I add a word to that, please? 

Senator SHELBY. Sure, go ahead. 

Mr. LEVITIN. I cannot say whether the Dodd-Frank Act is going 

to create jobs or not, but I think it is important that we all remember that hundreds of thousands of jobs were lost in this economy 

before Dodd-Frank, that were lost before we had this regulatory 

scheme in place, and, arguably, because we did not have it in place. 
20 

Chairman JOHNSON. Senator Reed. 

Senator REED. Well, thank you very much, Mr. Chairman. 

Mr. Levitin, as I understand it—and you could elucidate for me— 

the agency becomes effective in a few days. It has the authority to 

promulgate regulations. Those regulations will be enforced by the 

existing regulatory entities. Is that accurate? 

Mr. LEVITIN. No, not quite. On July 21st, the CFPB stands up, 

it becomes effective. At that point, unless there is a Director that 

has been appointed by the President and who has either been a recess appointment or confirmed by the Senate, the Treasury Secretary becomes the Acting Director. The Treasury Secretary, however, will have limited powers as Acting Director. The Treasury 

Secretary will only be able to exercise the powers given the Bureau 

by subtitle (f) of Title X. Those powers include enforcing existing 

Federal consumer protection laws, but they do not include the 

power to create—to do new rulemakings other than under those 

laws, and it does not include the ability to examine non-banks. 

Senator REED. Thank you very much, because I think that is an 

important clarification of what happens, effectively, on the day that 

the agency stands up. 

One of the consistent themes here is that we should be applying 

these standard provisions to all financial agencies. Mr. Pincus, 

would you and the Chamber support subjecting the Federal Reserve’s budget to the congressional appropriations process. 

Mr. PINCUS. I think the Chamber’s position, Senator, is that at 

least one of these checks needs to apply. 

Senator REED. So which check—— 

Mr. PINCUS. Well, the Federal Reserve has one check already, 

which is that it is a multi-member commission. It is not a single 

person who exercises the power, and, of course, Congress did that 

because the power that the Fed has is vast, and it did not want 

to put that into the hands of one person. 

Senator REED. So the Fed is a multi-member commission, but 

what is your position with respect to the budget as well as the 

FDIC budget? Should it be subject to Congress? 

Mr. PINCUS. No. 

Senator REED. No? 

Mr. PINCUS. No, we think that history has shown that that check 

has proved effective with respect to the Federal Reserve. Of course, 

that is not a check that is present with respect to the Bureau. 

Senator REED. Well, how effective has it been since I believe Congress in the 1990s—in 1993, 1994—passed HOEPA, which was designed to address the issue of predatory lending? The Federal Reserve refused to enforce the regulation despite their commission 

status. In fact, it was not until, I believe, March of 2009 that they 

did enforce some regulations with respect to predatory lending, but 

not under HOEPA, under the Truth in Lending Act, which they 

had authority for a long time before HOEPA. So as far as consumers are concerned, do you feel that commission structure was 

effective? 

Mr. PINCUS. I think there certainly—and the Chamber said this 

during the Dodd-Frank debate, that there were failures with respect to the entities that had consumer protection authority, and 

the Chamber supported congressional action to remedy those fail-
21 

ures. So the Chamber certainly recognized that during the run-up 

to the financial crisis, there were failures of enforcement, there 

were failures of regulators to exercise their existing regulatory authority. One question was what was the best way to remedy that. 

Congress decided the best way to do that was to consolidate that 

authority in a new regulator. But the problem is that it is a new 

regulator that is not—really has none of the checks and balances 

designed to ensure accountability, first of all, that the President 

proposed when he first proposed the agency, but that are the features generally of our Government structure. 

Senator REED. How about the commission structure of the SEC 

with respect to the regulation of Lehman Brothers, Bear Stearns, 

and others? Was that an effective—and, by the way, their budget 

is subject to congressional authorization also. Do you think they 

were effective regulators with that structure in place, two of the 

elements? 

Mr. PINCUS. I think the SEC has had some regulatory failures, 

and in fact, the Chamber issued a report before the financial crisis 

saying that changes were needed. On the other hand, I think if you 

look at the Federal Trade Commission, many people would say that 

the Federal Trade Commission has, A, been an extremely successful and effective consumer regulator, and also if you compare the 

Federal Trade Commission to the Antitrust Division, I think a lot 

of people would say that it has been a more effective antitrust regulator than the Antitrust Division has been. 

Mr. CALHOUN. Senator, may I add a comment? 

Senator REED. I would like to go to Mr. Levitin and then, if I 

may, get a comment. 

Mr. CALHOUN. Thank you. 

Senator REED. Mr. Levitin, you have heard this dialog. What is 

your impression? 

Mr. LEVITIN. I think that Mr. Pincus is being rather kind in his 

characterization of the FTC as a consumer protection agency. The 

FTC has tried at times, but it has been held on a very tight leash 

by Congress, not least through the appropriations process. And if 

you think back a ways to 1980, the FTC tried to ban certain advertising targeting children as unfair. And what happened? Congress 

stepped in and choked off the FTC’s budget. Then a few years later, 

we see Congress itself acting on cigarette advertising targeting 

children. I do not know that that is the way we really want to do 

our regulation, having a whipsaw effect. 

I think maybe the most instructive comparison is with the Office 

of the Comptroller of the Currency. No commission structure, single Comptroller. The U.S. Code expressly prohibits the Treasury 

Secretary from delaying or preventing the Comptroller from undertaking rulemakings, so, you know, really a very independent regulator with an independent budget, and that is really the analog for 

the CFPB. The Comptroller has been an incredibly effective advocate on behalf of banks. And part of creating the CFPB is to create 

a counterweight to that, recognizing that consumer protection and 

safety and soundness need to be balanced, that it cannot simply be 

one subordinated to the other but they need to be balanced with 

parallel agencies. 

Senator REED. A quick comment, Mr. Calhoun. 
22 

Mr. CALHOUN. Yes. I think in this discussion, following up on 

Professor Levitin’s comments, we have overlooked the most fundamental checks and balances there, and that is the constitutional 

authority of the Congress through the normal legislative process. 

There have been repeated instances where agencies have taken actions that the Congress thought were inappropriate, and Congress 

has then through the normal legislative process revised the structure or rules and authority of that agency. 

What concerns us so much about doing this in advance, by 

changing the structure of the agency, is the history that we have 

had. In one of the most recent ones, when the Federal Reserve proposed modest credit card reforms, far less comprehensive than 

what the Senate and the Congress enacted, the OCC declared those 

mild reforms as a threat to the safety and soundness of the banking system. And it is that viewpoint that it affected short-term 

profits, we are going to oppose it, that makes us concerned about 

putting it in a place where it can veto readily the actions of the 

Consumer Bureau. 

Senator REED. Thank you, Mr. Chairman. 

Chairman JOHNSON. Senator Corker. 

Senator CORKER. Thank you, Mr. Chairman, and I thank all of 

you for your testimony. I know that my friend from Rhode Island 

was not suggesting that because people have failed—and many 

have—that we should not have any checks and balances in any of 

these organizations. I know that could not be possible. But let me 

go to you, Mr. Calhoun. 

I know that you know that a lot of us tried to figure out a way 

to cause this thing to have some checks and balances, and I guess 

I ask this question: I do not understand why—I mean, there has 

been a major victory in having a consumer protection organization. 

It is obviously going to be well funded. I do not understand why 

people have tried to press into sort of an ideological divide to say 

that this one entity is one that should have absolutely no checks 

and balances. I mean, I would not confirm me as head of this agency, OK, because it is just not an appropriate thing. And I guess I 

would just ask you: Why is it that we have taken this one issue? 

There have been some modest requests. I know you have been very 

involved in the creation of this. There have been some modest requests regarding checks and balances. 

One of the things you all are forgetting is, you know, there is 

going to be a Democratic appointee to this. There could be some 

ideological Republican appointed at some point on the opposite side 

that just repeals everything. I mean, I do not understand why you 

all have done this and why you have not been willing—I know that 

your input has had a big effect on this—why you all have not been 

willing to just sit down and say, OK, you know, they are right, 

maybe we ought to have just a few appropriate checks and balances where everybody will be united behind this instead of this 

continuing to be a political football as it has been because of the 

lack of any kind of checks and balances? 

Mr. CALHOUN. Well, first of all, Senator, thank you and all the 

Members of this Committee for your work on this. This really is 

where the rubber meets the road of how do we avoid another financial crisis. I think our perspective and experience, again, has been 
23 

that you have had—and we think the checks and balances are appropriate, that you have an OCC that is set up whose primary responsibility is safety and soundness—— 

Senator CORKER. Let me just make one point—— 

Mr. CALHOUN.——parallel structure for the Consumer Bureau, 

and that has been the guiding philosophy, again, based on the experience we have had. 

Senator CORKER. You know, the one thing about the OCC that 

you all continue to leave out, though, is that the OCC, the way it 

is set up, a banking institution can choose not to be regulated by 

the OCC. So that is really not appropriate. I mean, you can end 

up being a State-chartered entity and not deal with the OCC. So 

that is not apples to apples. 

Mr. CALHOUN. We think, though, that that cuts the other way 

because the history has clearly shown that because of that feature 

that the banks can choose their charter, that has tilted the OCC’s 

perspective to be even more pro-bank and, quite frankly, anti-consumer. We saw that. Countrywide objected to very mild restrictions 

put on it by the OCC and they flipped—— 

Senator CORKER. So why are you using the OCC as an example? 

Mr. CALHOUN. And they flipped to the OTS. 

Senator CORKER. So that is my point. So why are you using the 

OCC as an example? It is not a good example. 

Mr. CALHOUN. But it will be the continuing regulator, primary 

regulator of the national banks in this country, which control a 

huge share of consumer financial transactions, and the Consumer 

Protection Bureau and its Director need to be on par so that you 

do have the two of these working together with comparable structures, comparable powers to move us—and we agree, in a very balanced way—forward. But I would tell you again, everyone in the 

agencies, and in particular the Consumer Bureau, is very aware 

that at the end of the day for them to be sustainable they have to 

stay in line with where the Congress, where the Administration, 

and where the political process is, because we saw that with the 

FTC in the 1970s. It stepped further than the Administration or 

the Congress thought it should, and they promptly came in and revised and substantially cut back its authority. 

Senator CORKER. I think you all have needlessly created an issue 

that actually created a divide over financial regulation in general, 

which then meant that the only way it could pass is with all Democrats, which then meant that the bill ended up being lopsided in 

a way, which then meant that we ended up with a tremendous lack 

of clarity now and will have for several years. And I just want to 

say to you, I think this was a gross misstep. I think you had the 

opportunity at one point to actually—Senator Shelby worked on it. 

We have all worked on it. You had a point in time when you could 

have created just some checks and balances and brought people together, and we have ended up with a financial reform bill that is 

not what it could have been really over this issue. And to me, this 

is a great example of people taking an ideological viewpoint and 

causing really, really bad legislation—not just on this issue, but 

really bad legislation on numbers of fronts to come forth. 

Let me ask a final question, and I will stop. If you knew that the 

person appointed to this position was going to use this position to 
24 

then run for Statewide public office in a few years and had told 

people that, would you believe that would be the right person for 

this job? Do you think it ought to be a politicized job? 

Mr. CALHOUN. I think that the person should have qualifications, 

and you look at the qualifications, and, again, you would look at 

the accountability that the person has to do a good job. 

Senator CORKER. There is no accountability. There is no accountability. So I just want to ask you this question. If someone stated 

that they wanted to run for Governor of a State in 2014 but they 

were going to do this in the interim—and I would assume make a 

name for themself—would you consider them to be an appropriate 

nominee for this position? 

Mr. CALHOUN. I do not think that that has disqualified people 

from other positions, that there are a lot of folks who have been 

in administrations and then moved to electorate offices, including 

recent history. 

Senator CORKER. Thank you, Mr. Chairman. 

Chairman JOHNSON. Senator Akaka. 

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

hearing. I want to welcome the witnesses and say, Mr. Chairman, 

that history has shown that our country has been great because 

whenever we have been challenged, we have been able to come 

forth with legislation that has turned our country around. And I 

think the Dodd-Frank bill has done that because of a crisis that we 

faced. We can talk about many of the failures that have happened 

already, and as we know, it has been documented there has been 

failure of the Federal banking regulators to address consumer protection issues. And for me this is what it is all about, and here is 

one. 

Ms. Drysdale, a 2006 DOD report found that payday lending had 

a negative effect on military readiness and our troop morale, as you 

did mention. The report was further evidence that junior enlisted 

servicemembers are particularly vulnerable to predatory lending 

practices. 

Do you see any existing gaps in consumer protection for members 

of the Armed Forces to ensure that our servicemembers maintain 

a high level of readiness in the defense of our Nation? What role 

can the CFPB and its Office of Service Member Affairs play in addressing these gaps? 

Mr. DRYSDALE. I see very large gaps, and I think my testimony— 

in my testimony I attempted to highlight the loopholes that have 

been created by the Federal regulations adopted after the Military 

Lending Act was enacted, which allows payday lenders, title lenders, refund anticipation lenders to create products that put themselves outside of the coverage of the Military Lending Act, so that 

takes them outside the 36 percent interest rate cap. It allows them 

to include mandatory unilateral arbitration in their contracts 

which prohibit military members from being able to have access to 

courts if they do have problems with these very aggressively and 

deceptively marketed products. 

I think that the loopholes that have been created have watered 

down the Military Lending Act to make it almost ineffectual to protect the younger servicemembers. 
25 

Also, one of the big gaps in the Military Lending Act is it does 

not apply to automobile financing, and I think one of the first 

things that many of the young enlisted do when they get their first 

paycheck, one of the first things they are going to do is try to purchase an automobile. 

I think also the protections provided by the Military Lending Act 

should be expanded. Veterans are not covered by the Military 

Lending Act, as watered down as it is. Older Americans are not 

covered by the protections of the Military Lending Act. And talking 

about checks and balances, we have businesses that are putting 

mandatory unilateral arbitration clauses in their contracts which 

provide consumers no redress if they are harmed by these very 

high cost, unfair products that are bleeding them of their bank accounts, robbing them of their vehicles, and, more importantly, I 

think, taking their homes away, leaving them and their families 

without a place to live. 

Senator AKAKA. Mr. Levitin, Professor, in your testimony you 

identified a tradeoff that sometimes arises between consumer protection and bank profitability. Can you talk more about that tradeoff and what implications it should have on the focus of the CFPB? 

Mr. LEVITIN. Of course. There is a balance that the regulatory 

structure is trying to strike between bank safety and soundness 

and consumer protection. Bank safety and soundness sounds like 

it is a very technical term, but it simply means bank profitability. 

A bank that not profitable is not safe and sound. You do not want 

to put your money in a bank that is losing money. And, unfortunately, the way the regulatory architecture worked prior to the creation of the CFPB was that consumer protection and safety and 

soundness were entrusted to the same agencies, and those agencies 

consistently put bank safety and soundness—that is, bank profitability—ahead of consumer protection. 

By creating the CFPB and not giving it safety and soundness responsibility, this now means that consumer protection has a fighting chance against concerns over bank profitability. We need to 

have profitable banks in our country, but I do not think that we 

have any public policy concern over the exact level of bank profits. 

As long as they are profitable, there is no public interest in whether they are probably making X number of billion dollars or 2X. It 

is simply that they be profitable. And the banks, though, as selfinterested actors, want to increase their profits, and they are very 

concerned that the CFPB will reduce their profitability. As long as 

the CFPB does not create a systemic risk by rendering banks insolvent, I do not think there is really any concern there. There is no 

reason that Congress should be concerned about the exact level of 

bank profitability, simply that banks are profitable. And that is 

what the FSOC veto does. It ensures that the CFPB does not create a systemic risk, and instead it allows the CFPB to find the 

right level of consumer protection. 

Senator AKAKA. Thank you very much. 

Mr. KELLY. Senator, may I comment on that? 

Chairman JOHNSON. Yes. 

Mr. KELLY. Well, just very briefly, I think that with respect to 

the professor, I can assure you that the regulators that come into 

our bank and banks like us look very closely at compliance with 
26 

every consumer law and are severe beyond all means if you are not 

in compliance. We spend an enormous amount of money trying to 

comply every day, and I think it is wrong to suggest that any of 

us would rise to the level of a systemic risk under any system. So 

anything that is done or imposed on us would never be something 

that would rise to that level. So I just take respectful exception to 

that. 

Chairman JOHNSON. Thank you. 

Senator Merkley. 

Senator MERKLEY. Thank you, Mr. Chair. 

Mr. Calhoun, we have heard about the Federal Trade Commission being a very effective regulator. It is my impression that they 

are a regulator of mortgage brokers, and we had a period in which 

brokers engaged in both receiving steering payments or bonuses for 

steering families into predatory loans when they qualified for prime 

loans. The liar loans developed in which the loans were not underwritten and the numbers were often fictionalized. We had the teaser rates with families being locked in by the prepayment penalties. 

So where was the FTC through all this? Why didn’t the FTC end 

these practices? 

Mr. CALHOUN. I think you saw a variety of influences, and they 

are ones that have been proposed today for the CFPB that, in fact, 

handcuff the FTC and would in turn handcuff the Consumer Bureau. For one, there was repeated deadlock on the Commission, on 

the FTC Commission. As has been, I think, widely acknowledged, 

there has been a general challenge with the confirmation process, 

not just of the CFPB but across the board, and this body has been 

looking at ways to improve that. But that raises concerns with five 

members. But the CFPB had authority but was unable to use it because of that deadlock. They also—— 

Senator MERKLEY. The Trade Commission? 

Mr. CALHOUN. The Trade Commission, excuse me. And, in fact, 

we saw this appropriations process again, and this is a concern we 

have. HUD also had authority over mortgage brokers and in the 

1990s moved to try to limit these kickbacks that brokers got for 

putting people in the 2/28 loans that blew up the economy. There 

were appropriation riders put on HUD’s budget to dissuade them 

from moving in that direction, and they backed off, and that was 

a direct contributing cause to our ultimate crisis. 

So those are the concerns we have. Those agencies were not effective. You look at—the absence of rulemaking or enforcement actions are really stark at the FTC and with HUD during the crisis 

as well. 

Senator MERKLEY. Thank you, Mr. Calhoun. 

Mr. Levitin, we heard that the OCC objected to the Fed’s mild 

credit card reforms. You might recall that we had issues like companies creating remote post offices so that payments were late, 

changing the number of days each month so that the consumer, 

when they did their regular payment, it turned out that they were 

late—a whole series of clever actions designed to run up fees. 

Why did the OCC object to such mild considerations? 

Mr. LEVITIN. Because the OCC was concerned that it would affect the short-term profitability of banks. 
27 

Senator MERKLEY. So here is kind of an interesting puzzle, and 

that is, it appears that under the argument to protect short-term 

profitability, long-term structural problems were allowed to emerge 

and that families’ personal finances were undermined, making 

them weaker, and ultimately we ended up with mortgage practices 

that were turning to securities that carried the flaws of the mortgages into the securities and blew up our entire system. Why was 

the short-term profitability put over the long-term soundness of our 

system under the argument of soundness? 

Mr. LEVITIN. I think a lot of that has to do with the competition 

for charters among bank regulators, that banks can shop for the 

regulator and that has some real serious consequences. Mr. Calhoun spoke about it earlier in his dialog with, I think, Senator 

Corker about how the ability to shop for charters has created a 

race to the bottom in bank regulation, and that the OCC, for example, gets its budget from appropriations—not from the appropriations process but, rather, from fees that it charges to the banks 

that it charters. And if it wants to have a larger budget, it has to 

charter more banks. And how is it going to get more banks? Well, 

it is going to offer more favorable regulation—not necessarily better 

regulation, just regulation that the banks like more. That means 

less regulation. 

Senator MERKLEY. Thank you very much. 

Ms. Drysdale, you mentioned the Military Lending Act and the 

fact that there are loopholes in it or that a lot of the pieces are not 

being effectively regulated. Who is the regulator for that? And how 

do we fix these loopholes? Is it a regulator issue? 

Ms. DRYSDALE. It is a regulator issue, I believe. Thank you. I believe it is a regulator issue, and the regulations that were provided 

narrowed the products that were covered and the businesses that 

were covered so greatly that there are very, very few products that 

are actually covered, and it is very easy for any type of lender, institutional or otherwise, to create a loan product that is 92 days as 

opposed to 90 days to completely allow it to avoid regulation altogether. 

The Department of Defense is the actual entity that regulates 

the Military Lending Act, and as you can well imagine, the Department of Defense has an awful lot of other matters on its mind rather than regulating financial industries. 

Senator MERKLEY. Thank you. My time has expired, Mr. Chair, 

but I just want to note that as we look into the details, we find 

that HUD’s efforts were stymied, the FTC efforts were stymied, the 

Fed’s efforts never materialized because of their pursuit of the safety and soundness side, DOD is limited in their enforcement. So 

many of these issues that started with fairness to consumers ended 

up to be huge systemic risks, and I think it helps us to understand 

why the CFPB is such an important institution. 

Thank you. 

Chairman JOHNSON. Senator Schumer. 

Senator SCHUMER. Thank you, Mr. Chairman, and I thank the 

witnesses and you, Senator Shelby. 

First, I want to echo the comments from Senator Reed and many 

other of my colleagues about the need to preserve independent 
28 

funding for the CFPB. As one of the original sponsors of the bill, 

before we put it into Dodd-Frank, I believe in it strongly. 

We have seen in debates over funding for the SEC and CFTC 

some Members of Congress use the power of the purse, not just to 

hold agencies accountable—that is a good thing—but to undermine 

their mission and achieve deregulation through the back door. That 

is a bad thing. 

Now, we know most Republicans oppose the creation of the 

CFPB and that fights about funding and accountability are just efforts to take away the Bureau’s teeth before it is up and running. 

I should also point out the Bureau is not funded by taxpayer dollars, and it is an irony that many of the same Members of Congress 

who express so much concern over the debt and deficit now want 

to add the CFPB to the taxpayers’ tab. 

Look, I went through this. For 10 years I tried to get the Fed 

to do a ‘‘Schumer Box,’’ credit card disclosure. It took 10 years because that was not the Fed’s mission. Their mission was safety and 

soundness. And even when they looked at this issue, they looked 

through the lens of safety and soundness, not through protecting 

consumers. And that is why we need an independent board. 

My question is related to that. As you know, a recent study by 

the Pew Charitable Trust found nearly half of all checking account 

disclosure statements provided to new customers from the 10 largest banks run over 111 pages. The report found that half of all 

banks have more than 49 different hidden fees in these disclosure 

statements, and Americans are expected to pay, for instance, $38 

billion in overdraft fees in 2011 alone. 

Following this study, I proposed an easy-to-read checking fee disclosure statement on all checking account applications similar to 

the ‘‘Schumer Box’’ disclosure that I championed when I was a 

Congressman in the House and is still found on credit card applications, and it has been very successful. Remember, we are not talking Government regulation. We are talking Adam Smith here. Disclosure is how the economy is supposed to work. 

The new box would show in an easy-to-read chart the key terms 

of any checking account, including minimum deposit, interest rate, 

amount of ATM fees, account closing fees, and other important fees 

like the terms of overdraft fees, et cetera. 

So I want to ask each of the witnesses: Would you support a new 

‘‘Schumer Box’’ disclosure requirement for checking accounts? Mr. 

Calhoun. 

Mr. CALHOUN. Yes. The box that was used with credit cards was 

an important advance in consumer protection for credit cards. This 

would also be so for checking accounts and is particularly needed 

right now as many banks are adjusting the fees that they are 

charging on checking accounts, and they change them frequently, 

and it is very hard for consumers to move their accounts from one 

bank to another, and so they really need to know what they are 

getting into. 

Senator SCHUMER. Before they get into it. 

Mr. CALHOUN. Yes. 

Senator SCHUMER. That is correct. 

How about you, Mr. Schaefer? 

Mr. SCHAEFER. Enthusiastically. 
29 

Senator SCHUMER. Great. How about you, Mr. Kelly? 

Mr. KELLY. Senator, we support simplification and disclosure so 

that the customer understands it clearly. The simpler that could 

be, if that is what the ‘‘Schumer Box’’ would be on a checking account, that is fine as long as it does not violate the other things 

that we are mandated to do. I think the same should be true on 

mortgages and other things. 

Senator SCHUMER. Good. So you are basically supportive of the 

concept of a simplified—— 

Mr. KELLY. I am not speaking on behalf of the ABA because I 

have not talked with them about it, but I am saying from my 

standpoint, the simpler that we could do it, the much better. 

Senator SCHUMER. And 111 pages is not very simple. I understand you need legal requirements and all that, but it is not—— 

Mr. KELLY. Well, Senator, we do not have 111 pages, and I respect the Pew report, but ours is not 111 pages, but it still could 

be simplified. 

Senator SCHUMER. Great. 

Mr. KELLY. I will tell you that I believe that the mortgage—all 

of the mortgages—and we do quite a few of them. I think that 

there is too much paperwork that is mandated by the various laws, 

regulations, and this sort of the thing, and the simplification of 

that as well would be very, very welcome. 

Senator SCHUMER. Great. I like simplification myself, and thank 

you for being supportive, and I would ask you to go back and bring 

your views to the ABA. 

Ms. Drysdale? 

Ms. DRYSDALE. Yes, sir, we would be supportive because a lot of 

the problems caused by products today are because they are being 

crafted as non-loan products, and the Truth in Lending disclosures 

are not being provided at all. 

Senator SCHUMER. Thank you. 

Mr. Pincus? 

Mr. PINCUS. Senator, I do not know the Chamber’s views on your 

legislation, but I do know we are very supportive of simplification, 

shorter, clearer disclosures. For example, the process underway 

now in the mortgage disclosure process, the Chamber is very supportive of that process and certainly would be supportive of a similar simplification process with respect to accounts. 

Senator SCHUMER. Good. If you could show my proposal to the 

Chamber, I would be interested in a written answer from the 

Chamber and the ABA on whether they support it or not, and I 

hope they would. 

Mr. Levitin? 

Mr. LEVITIN. Yes, I think standardized disclosures are a very important step for checking accounts. It would allow consumers to do 

an apples-to-apples comparison between accounts, and that would 

enable consumers to get the best deals. 

Senator SCHUMER. Thank you. I would say to all the witnesses 

that when the ‘‘Schumer Box’’ actually went into effect, it did bring 

credit card interest rates down because there was real competition. 

And many people propose a cap on credit card interest rates. I am 

sure Mr. Kelly and Mr. Pincus would not be for it. The ideal way 

to go is have disclosure, and if it can work in a simplified good 
30 

form, that is the best way to go, and that is what we are trying 

to do here. So I thank all the witnesses for their virtually unanimous support of this proposal, and we will try to move it forward. 

Chairman JOHNSON. Senator Hagan. 

Senator HAGAN. Thank you, Mr. Chairman. Thanks for holding 

this hearing. And I do want to take one quick opportunity to welcome two of our panelists from North Carolina, Mike Calhoun and 

Mark Schaefer. 

Mike Calhoun is the President of the Center for Responsible 

Lending, which has its roots in Durham, and your organization has 

truly been a forceful advocate for consumer protections in my State 

and at the national level. 

Then I have had many dealings with Mr. Schaefer as the President and CEO of Truliant, which has 22-member financial centers 

and approximately $1.4 billion in assets. 

Both of these individuals are exceptionally knowledgeable voices 

on consumer protection issues and were deeply engaged on these 

issues during the Dodd-Frank Act. So I do want to thank you both 

for being here. 

Mr. Calhoun, I wanted to ask you one question having to do with 

for-profit education. Title X of the Dodd-Frank Act requires the 

study and monitoring of the private education student loan market, 

and it is my understanding from hearings in the Health, Education, Labor, and Pensions Committee that it is common for the 

for-profit educational institutions to make student loans directly to 

their students as a way to fill the gap between Federal loans and 

the price of tuition. 

Do you know if these loans would be covered by the Bureau’s 

new authorities under Dodd-Frank Act? And if not, do you believe 

they should be? 

Mr. CALHOUN. They are covered, and they should be because this 

is, if you will, a mini version of some of the subprime lending and 

other mortgage problems that we saw, because these loans are provided to people who are trying to do the right thing—get an education, advance themselves, which helps the economy. Importantly, 

many of these loans are Government guaranteed, and so ultimately 

taxpayers are at risk on these loans. 

Also, for the consumers they are typically non-dischargeable in 

bankruptcy except in the most extraordinary circumstances, so that 

student debt follows them essentially to the grave. And there have 

been repeated studies showing overreaching with these loans, providing loans that people really do not have the ability to repay. The 

loans are made, the for-profit educator gets paid, taxpayers are 

then left with the bill, along with the family. So it is a very serious 

problem, and it is one example where there has been a regulatory 

gap that needs to be carefully looked at. 

Senator HAGAN. Thank you. 

Mr. Schaefer, I understand from your testimony that Truliant 

has been particularly forward-thinking in its approach to handling 

overdraft fees. In April of this year, the Pew released a study titled 

‘‘The Case for Safe and Transparent Checking Accounts’’ that highlighted several of the overdraft procedures that may be harmful to 

customers. 
31 

Can you tell me just a little bit about the overdraft policies that 

Truliant has implemented and what the results have been for your 

institution and your customers? 

Mr. SCHAEFER. Well, as you know, with the Reg. E reform, the 

bad practice, in our opinion, of opt-out overdraft protection was 

eliminated. Truliant never had opt-out. We always had opt-in, so 

our members were always aware of their options other than paying 

a high overdraft fee, such as advancing a line of credit or taking 

a draft from savings. 

I think relative to the CFPB, you know, they have indicated a 

willingness to allow innovation, and I think in the area of overdraft 

protection, there is lots of room for innovation. I hate to kind of 

give a feather to my own competitors, but Coastal Credit Union in 

North Carolina and the State Employees Credit Union both have 

an early warning notification on NSF charges. I have been trying 

to get my staff to implement it for a couple years now. We intend 

to implement it as well. You would get a notice, obviously, on your 

PDA, and you would have until 10 o’clock in the morning to cure 

it. 

So that type of innovation, we just want to make sure the 

CFPB—and I know they backed away from plain vanilla. I think 

that is good that they backed away from that because innovation 

comes from the shops that are actually trying to help their members, and so I think we will have some ways to redress what we 

consider overpayment of overdraft fees. 

Senator HAGAN. Thank you. 

Mr. Calhoun, as you know, when I was in the State Senate in 

North Carolina, I worked aggressively to oppose the payday lenders 

that preyed on the families throughout the State, and we were successful in effectively ending that practice in North Carolina. Under 

Dodd-Frank it granted the CFPB certain supervisory and enforcement authorities over the payday lenders. 

Do you feel that these authorities are sufficient to curtail the 

practice? And what might be the hurdles that the CFPB is facing 

or may face in the future as it attempts to regulate these predatory 

practices? 

Mr. CALHOUN. Well, first, it does have explicit authority there, 

and it is badly needed. We urge the CFPB—and I think it is moving forward carefully with a lot of research, looking at the markets, 

understanding them, reaching out to businesses. There is, as I indicated in my testimony, an immediate crisis, though, in that the national banking regulators are allowing our biggest banks to come 

in and offer payday loans out of the national banks, even in States 

that expressly prohibit those loans. And we just think that is the 

wrong direction for lending in general, but particularly for flagship 

institutions. 

Senator HAGAN. Thank you, Mr. Chairman. 

Chairman JOHNSON. Senator Menendez. 

Senator MENENDEZ. Thank you, Mr. Chairman. I thank all the 

witnesses. 

You know, I would like to ask Professor Levitin, have you seen 

the CFPB’s ‘‘Know Before You Owe’’ effort? Have you had a chance 

to look at that? 

Mr. LEVITIN. I have read about it. I have not actually seen it. 
32 

Senator MENENDEZ. Mr. Calhoun, have you seen that at all? 

Mr. CALHOUN. Yes, I have. 

Senator MENENDEZ. You know, my understanding is it is an effort to simplify the mortgage disclosure form. As someone who 

practiced quite a bit at one time in that field, I am happy to see 

the mortgage disclosure forms simplified. 

In your view, is the new form being proposed by the CFPB and 

going through consumer testing right now better than the two existing forms under RESPA and TILA? 

Mr. CALHOUN. Yes, and my understanding is it has received accolades from both consumer advocates as well as mortgage lenders, 

and we look at it through the lens of both, being affiliated with a 

substantial mortgage lender. And it is a place where, again, consolidating the authority is—what you had for literally more than 

a decade you had HUD and the Federal Reserve with both having 

authority in that area and being unable to agree on even a simple 

disclosure form. And it is a place where I think we see the value 

of the Consumer Bureau being demonstrated. And, also, we see the 

care with which the Consumer Bureau has moved forward with 

that proposal. 

Senator MENENDEZ. You mean this horrible agency has actually 

done something that, prior to its existence, no one could create, so 

to simplify and yet create a clear opportunity for the consumer to 

understand what they are entering into, and to get the mortgage 

lenders and the private sector to actually have a simpler, more 

modified, more efficient process? Is that actually what happened 

here? 

Mr. CALHOUN. That is what is happening certainly in the context 

of this form. 

Senator MENENDEZ. Well, that is interesting. 

Ms. Drysdale, what do you think about the Bureau’s new consumer complaint process that routes complaints to financial service 

providers for resolution and gathers information about those complaints? 

Ms. DRYSDALE. I think that that is going to be a very effective 

mechanism. Now consumers do not know who to turn to, and often 

when they turn to Federal regulatory agencies, they do not receive 

relief from those agencies. Also, many of the products I have talked 

about, the State regulatory agencies just do not have any control 

over. Either they are acting under the auspices of a national bank, 

or they are importing interest rates from other States, or, quite 

frankly, the State regulatory authorities just do not have the funding to address some of the significant needs of consumers. 

One of the other things that I wanted to mention that has not 

been mentioned yet was the Office of Financial Literacy. I think 

this is a very important aspect of the Consumer Financial Protection Bureau because I think consumers should be learning about 

consumer finance even before they become consumers. 

Senator MENENDEZ. You know, Mr. Chairman, I want to read 

some quotes that existed from the Chamber of Commerce and the 

American Bankers Association. All of these are quotes that created 

concerns about bills that created a new Federal financial regulatory 

bureau, and I think observers will be able to tell which one I am 

talking about: 
33 

There is no important aspect of the economic life of this country, whether 

it be agriculture or industry, banking or commerce, which will not be adversely affected by this bill. 

Nobody with any practical acquaintance with business process could look at 

these regulations and arrive at any verdict other than that they will cripple 

and retard business rather than help revive it. The fact is even so clear 

that it is hard to keep from wondering if such a result were not actually 

intended. 

This bill, if passed by Congress, will not only destroy our security markets 

but also a necessary consequence interrupt the flow of credit and capital 

into business. 

The bill is so unsound that it will ultimately force its own repeal. 

Now, not one of these quotes, Mr. Chairman, is about the CFPB. 

Each quote is about the creation of the FDIC and the Securities 

and Exchange Commission from the 1930s when they were initially 

created in response to the Great Depression. Each quote sounds 

like what we are currently hearing about the CFPB and was created as a response to the financial catastrophe of 2008. And I just 

for the life of me cannot understand why it is that we have such 

an aversion—this would be the equivalent of saying, well, we do 

not like what the EPA does so we will not let it have a head; we 

do not believe in Medicare the way it is so we will not let it have 

a head of the agency. So we are destined at the end of the day not 

to have a well-performing agency, certainly as well as it could perform, without having leadership at the end of the day that can 

make sure that it is responsive to the Congress and the original intentions that we had for this Consumer Financial Protection Bureau. 

And the same types of, I think, shrill and overblown rhetoric that 

has marked the current debate is what I see in the speeches that 

took place in the releases that were issued as it related to the 

FDIC and the SEC, two entities that we nowadays think, notwithstanding some of their shortfalls here and there, have acted in the 

interests of the marketplace, have acted in the interests of investors, have acted in the interests of depositors, have acted in the interests of consumers. I think that is really the case here as well. 

Thank you, Mr. Chairman. 

Chairman JOHNSON. Senator Shelby has a few more questions. 

Senator SHELBY. Thank you, Mr. Chairman, for your indulgence. 

Professor Levitin, in your testimony today you have clearly expressed, I believe, your belief that the OCC, the Office of the Comptroller of the Currency, and other financial regulators have not 

done a good job of overseeing our financial system. I think that is 

a given. Accordingly, do you support reforming the OCC and other 

regulators to make them more accountable? 

Mr. LEVITIN. Yes. 

Senator SHELBY. Thank you. 

Mr. Calhoun, in your testimony you severely criticized the Office 

of the Comptroller of the Currency’s actions in the lead-up to the 

financial crisis, noting several areas where the OCC acted irresponsibly and where its actions had adverse consequences. It is worth 

noting that other than the Bureau that we are talking about here, 

the Comptroller is probably the least accountable of our financial 

regulators. At least a lot of people believe that. 
34 

Do you believe, sir, that the OCC should be held accountable for 

its actions? Do you? 

Mr. CALHOUN. I believe that it should, but I think primarily 

by—— 

Senator SHELBY. OK. You do believe it should be as a regulator, 

should be held accountable for its actions, don’t you? 

Mr. CALHOUN. I think it has accountability in many respects 

now. 

Senator SHELBY. I did not ask you that. I asked you—— 

Mr. CALHOUN. Yes. I think everyone thinks—— 

Senator SHELBY. OK. If so, would you support an effort to make 

them more accountable to Congress? Would you support an effort 

to make the OCC and other regulators more accountable to Congress? 

Mr. CALHOUN. We would support an effort to make the OCC comparable with the CFPB because they are the two pillars of financial 

oversight—consumer protection and safety and soundness—and we 

think that they should be comparable because they do represent 

the two interests that need to be at the table and balanced. 

Senator SHELBY. But would you support—again, let me be clear. 

My question is this: Would you support efforts in the Congress to 

make the OCC and other financial regulators more accountable to 

the Congress? Either yes or no. 

Mr. CALHOUN. I do have concerns about interference there, and 

there were protections put in that—— 

Senator SHELBY. So you would not support it then? You are 

modifying your position? 

Mr. CALHOUN. No. I think the specifics matter. For example, in 

the savings and loan crisis, we saw intervention that prevented the 

regulators from stepping in and preventing greater collapse in that 

industry. And so it is a difficult balancing, but there are reasons 

to have protections and independence with the financial regulators 

because those short-term interventions are the tyranny of small decisions that create huge consequences. And, again, I would not 

want, for example, the OCC to be subject to intervention every 

time they tried to close down a bank. 

Senator SHELBY. Neither would we. 

Mr. CALHOUN. And that is what happened in the past. 

Senator SHELBY. They have got to have the ability to do their job, 

the power to do their job. But my question to you, again: Would 

you support efforts to make them more accountable? If they fail the 

American people, which most people believe that the financial regulators failed the American people—the Federal Reserve, the FDIC, 

the Comptroller of the Currency, and so forth, I believe from this 

point here on the Committee, failed the American people leading 

up to the financial crisis. My question again: Would you support efforts to make them more accountable? 

Mr. CALHOUN. I do not think the problem is their lack of accountability. I think the problem has been—— 

Senator SHELBY. Oh, you do not? You do not believe that? 

Mr. CALHOUN. No. I think the problem has been the lack of—— 

Senator SHELBY. Have you followed this—have you followed the 

hearings on what led up to the crisis? I think you need to go back 

and look at them if you do not believe it is lack of accountability. 
35 

Everybody says, just about that I know, before this Committee and 

anywhere else that kept up with it, that it is a problem of accountability. 

Mr. CALHOUN. That surprises me somewhat because I have not 

seen the proposals to change—— 

Senator SHELBY. I would suggest—— 

Mr. CALHOUN.——the structure. 

Senator SHELBY. I hope you will go back and look at this because 

I think you are standing alone here. 

Professor? 

Mr. LEVITIN. Senator, I think that there is an important point 

that Mr. Calhoun is trying to make here, which is that accountability is important. No one debates that. 

Senator SHELBY. Absolutely. 

Mr. LEVITIN. And I would hope everyone on this panel would 

agree that we should seek more accountability for the Federal bank 

regulators. 

Senator SHELBY. Absolutely. 

Mr. LEVITIN. The question, though, is: How do we do that? And 

not every form of accountability is equally effective or equally appropriate. 

Senator SHELBY. That is right, but accountability is important, 

isn’t it? 

Mr. LEVITIN. Without a doubt. 

Senator SHELBY. Mr. Pincus. 

Mr. PINCUS. Senator, I just wanted to make two points, if I may, 

in response to your question. I think first of all, there is sort of a 

fundamental question of Government here—— 

Senator SHELBY. Absolutely. 

Mr. PINCUS.——about who ultimately everybody is accountable 

to, which is the people, and I do think accountable to elected officials. Although we might not all like everything that Congress and 

the President do every time, ultimately they are the people in 

whom the people have reposed their trust, and it seems to me that 

is a pretty fundamental part of our Government. And, therefore, 

when somebody says, for example, it is an interference because in 

an appropriations bill there is a provision that says to a regulator 

you may or may not do something, that is something that both 

Houses of Congress approved and the President signed, and it 

seems to me maybe it is bad, but it is what the people’s representatives decided. 

And I wanted to make one point about the OCC because I think 

it ties into your question, which is: I think several people on the 

panel have said we want to make the Bureau’s Director on a par 

with the Comptroller, and so I think it is very important to note 

that the statutory language is very different. The Comptroller statute does not have the limitation on the President’s removal power 

that I read before that the Bureau provision does, and that is the 

reason why—and I just want to correct Professor Levitin’s statement. It was the Office of Legal Counsel at the Department of Justice that issued that opinion on behalf of the Attorney General saying that the Comptroller serves at the pleasure of the President, 

and the reason why is because that statutory language is different. 

Another difference in the statutory language is the language in the 
36 

Comptroller statute that talks about the Treasury Secretary’s ability to exercise general direction over the Comptroller—again, not 

present at all in the CFPB statute. 

So if the goal was to put them both on the same par, that has 

not been reached. 

Senator SHELBY. To create a bureaucracy, a powerful bureaucracy that is not accountable to the Congress for its funds or really 

real oversight there, isn’t that a big mistake? 

Mr. PINCUS. I think it is, Senator. I think it really goes against, 

as I said, 224 years—— 

Senator SHELBY. That is right. 

Mr. PINCUS. And, also, I think it is important to go back to the— 

in the face of statements that this would be some shocking hobbling of the Bureau, this is what the President originally proposed. 

It is not as if this is something—and what the House of Representatives passed, albeit in a staged process. This is not something 

that, you know, has been thought up by people and has not been 

advocated by people who are very strong advocates of consumer 

protection. And as you said in your opening statement, no one is 

asking to change the Bureau’s substantive powers a bit. It is just 

to create—— 

Senator SHELBY. Or its mission. 

Mr. PINCUS. Or its mission. It is just to create the kinds of responsiveness that really the Constitution mandates. 

Mr. LEVITIN. Senator, if I may. 

Senator SHELBY. Go ahead. 

Mr. LEVITIN. The CFPB is subject to oversight by Congress. That 

oversight is not through the appropriations process, but that is actually, I think, quite right. I should not be one to speak to you 

about how the appropriations process worked, but appropriations 

bills involve lots of horse trading, and they are not policy bills. 

Overall they are compromises, and they do not focus on the specific 

policy issues at hand. We should want that kind of—that is the 

kind of oversight that Congress currently has now, that if the 

CFPB does something that Congress does not like, Congress can 

act and tell the CFPB, ‘‘Don’t do that.’’ And that is a much better 

form of oversight than oversight through appropriations. The appropriations process is meant to be a funding process, not an oversight process. 

Senator SHELBY. Well, we all know that the Pentagon, our defense, very important, the FBI, all of our law enforcement people, 

are subject to appropriations. They are subject to the oversight of 

the Appropriations Committee because they are subject to the annual appropriations. 

I have another question for Mr. Schaefer. The new Bureau will 

have the power, as I understand it, to write rules prohibiting products that are ‘‘abusive.’’ If the Bureau deems one of your products 

to be abusive and you believe that the product provides value to 

your members, what recourse do you have to have the Bureau’s decision reviewed or perhaps overturned? 

Mr. SCHAEFER. Senator, I would hope that there would be some 

type of appeal process. We are very interested in the—there is supposed to be an Office of Regulatory Burden Monitoring within the 

CFPB. They are—— 
37 

Senator SHELBY. You hope. You are using the word ‘‘hope.’’ We 

all hope so, but go ahead. 

Mr. SCHAEFER. It is my understanding there is a chance of that 

happening. But, you know, it would be very unlikely in a credit 

union environment where we would create a product that was so 

offensive that the CFPB would not approve of it. 

There is also a small financial institution department that I believe Elizabeth Vale runs that takes a close look at how the regulations impact smaller financial institutions. But to address your 

question directly, I believe that the CFPB should have some type 

of appeal process whereby all financial institutions could redress 

concerns that they might have with their products. 

Senator SHELBY. Mr. Schaefer, my last question. In your testimony you state that, and I will quote you, ‘‘Regulators should be 

mindful of the impact of mass implementation of regulation on 

smaller financial institutions’’—which we all are concerned about. 

You also state that, ‘‘Larger institutions will benefit from economies of scale on a per account cost basis, further tipping the scale 

toward [too big to fail] institutions.’’ 

Do you believe, sir, that the Bureau is immune from this same 

concern? Have you thought about it? 

Mr. SCHAEFER. Well, they do seem to have a predilection toward 

considering the concerns of smaller financial institutions. Actually, 

Mr. Kelly and I, even though usually banks and credit unions are 

on the other side, we have a common interest, as I do with many 

of my banker friends in North Carolina, in ensuring that the impact of the regulation does not unduly harm small financial institutions. The cost of regulation is higher per account for us than it is 

for Bank of America, and so we ask that they take that into account. 

Are they immune from it? No. But do we think that they will 

reasonably take that into account? Yes. We believe that they have 

shown an interest in doing that. 

Senator SHELBY. You would hope so, anyway. 

Mr. SCHAEFER. I would hope so, sir. 

Senator SHELBY. Thank you, Mr. Chairman. 

Chairman JOHNSON. Thank you again to all of our witnesses for 

your testimony and for being here with us today. We look forward 

to the CFPB beginning its important work. 

The hearing record will remain open for 7 days for additional 

statements and questions. 

This hearing is adjourned. 

[Whereupon, at 12:04 p.m., the hearing was adjourned.] 

[Prepared statements, responses to written questions, and additional material supplied for the record follow:] 
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PREPARED STATEMENT OF MARCUS SCHAEFER 

PRESIDENT AND CEO, TRULIANT FEDERAL CREDIT UNION

JULY 19, 2011 

Introduction 

Truliant Federal Credit Union appreciates the opportunity to provide input into 

the public policy dialog regarding the enhancement of consumer protection. We 

would like to thank Chairman Johnson, Ranking Member Shelby, Senator Hagan, 

and Members of the Committee for having us here today. 

Our mission is to ‘‘Enhance the quality of life of our members and to become their 

preferred financial institution’’. Headquartered in Winston-Salem, NC, Truliant is 

a full service, not-for-profit financial cooperative with assets totaling approximately 

$1.5 billion. We serve over 180,000 member-owners and their families who work for 

over 900 Select Employer Groups, including Cook Medical, TIMCO Aviation Services, Klaussner Furniture, or who reside, work, or worship in our communities with 

a concentration in the Piedmont Triad area and in Charlotte, NC. 

Truliant offers a full range of financial services including savings, checking, certificates, money market, IRAs, and Rainy Day Savings. Loan services include first 

mortgage and home equity, new and used auto, personal lines, and VISA credit 

cards. We offer small business services including member business and SBA loans. 

We provide state-of-the-art home banking and electronic bill payment programs, mobile access, and remote deposit capture. Through our Credit Union Service Organization, we offer financial planning and a very popular auto buying service. 

As a member-owned financial institution, we can offer lower loan rates, higher 

savings rates, low (and often no) fees as we help member-owners execute sound financial plans for their future. Central to all our services is our emphasis on financial literacy education and counseling to our member-owners and for our communities. Over 55 percent of our member-owner households earn less than $45,000 per 

annum. Affordable, well-informed financial service access and delivery is key to our 

mission. 

Truliant maintains an overarching commitment to improve our member-owners’ 

lives by understanding and meeting their financial needs. This focus translates into 

our TruService culture. Our staff engages our member-owners to bring about real 

change and help them meet their long-term objectives—rather than the traditional 

product-pushing sales approach so prevalent in modern banking. For example, a 

benefit of low interest rates has allowed us to reposition hundreds of member-owners into lower cost mortgages and car loans. 

Our operating principle is ‘‘Consumer BE Aware’’; NOT Consumer Beware. Well 

before the financial crisis we instituted our Points of Differentiation that embody 

the spirit and practice of improving member-owner financial lives. For example: 

• We have not sold our credit card accounts to the large credit card issuers. 

• We never offered an opt-out courtesy pay overdraft protection program. 

• We don’t advertise a car loan rate to member-owners unless the majority has the 

credit standing to qualify. 

• We don’t allow indirect auto loan car dealers to mark-up our rate. 

• We help our member-owners become debt free on their primary residence by retirement. 

• We support public policy that informs and educates the consumer on financial 

decisions while improving personal balance sheets. 

Our experience at Truliant is that consumers have been needlessly financially disadvantaged by a history of questionable practices and procedures by both mainstream and non-bank providers. Examples include opt-out overdraft protection, the 

sequence of clearing checking debits, extending credit to borrowers with terms they 

could not reasonably meet in ordinary circumstances, overly complex disclosure materials, and punitive credit card practices. These practices, which seem to be acceptable ‘‘gotchas’’ rather than consumer-focused services, argue for some balance toward better information sharing. Congress has addressed some of the more egregious practices, and heightened consumer awareness post-financial crisis may have 

driven providers to become more consumer-friendly in the near term. 

Even with reforms including the Card Act, Regulation E rule changes, and the 

consumer protection initiatives of individual regulators, including the National 

Credit Union Administration, it make sense to have a regulator focused on consumer protection. 

Clearly, controlling practices of non-bank providers, such as unregulated mortgage 

brokers, who in some cases were able to lure our member-owners into products that 
62 

did not improve their financial lives, is needed. We noted 13 finance companies operating in the small manufacturing town of Asheboro, North Carolina, which lead 

to our extending services there. As we offered Volunteer Income Tax Assistance at 

Truliant this spring, I observed that many of the national tax preparers continued 

to offer high-priced, tax-refund anticipation loans. A consumer protection regulator 

could address these practices either directly or through a national initiative to improve financial literacy for consumers of varying degrees of education and experience. We all want our children to make better decisions for themselves. 

Even for traditional financial service providers, we support clear language and 

visual presentations like the ‘‘Federal box’’ required of credit card disclosures. Warnings should be issued for overly complex consumer products that ‘‘trick’’ the consumer into overpaying for services or making decisions not generally in their longterm best interests (e.g., variable rate mortgage that reset with payments beyond 

the likely ability to repay). 

However, regulators should be mindful of the impact of mass-implementation of 

regulation on smaller financial institutions, particularly credit unions, where the cooperative structure has historically resulted in pro-consumer practices. 

Seemingly small regulatory dictates can have a large impact on these institutions 

and ignore their ‘‘local knowledge’’ of how to best communicate with members. Larger institutions will benefit from economies of scale on a per account cost basis, further tipping the scale toward TBTF institutions. 

There may be unintended consequences to consumer-friendly financial institutions 

as the ‘‘bad actors’’ are reined in by ‘‘one-size-fits-all’’ regulations. Implementation 

of the Card Act requiring that specific credit card statement language regarding late 

payments be used resulted in hundreds of panicked calls by Truliant member-owners who were not delinquent. The staff time required to explain the language mandated by the Federal Reserve could have gone to advising our member-owners on 

how to better build their financial foundation. 

Conclusion 

Truliant supports streamlining and simplifying existing overlapping regulation to 

improve consumer understanding while reducing cost to the financial institution 

that can be passed on to the member-owner. We welcome combining TILA and 

RESPA to improve usability by the consumer and financial institutions. Streamlining ECOA and FCRA could have similar benefits. 

Truliant supports regulation that allows and promotes innovation in financial 

services that is also helpful to the consumer. The consumer protection regulator will 

need to carefully balance these two deliverables. Consumer protection is not a onetime fix, but an ongoing effort that will span different political landscapes. We support a balanced governance structure that would not make the regulator ineffectual 

or one that allows for public policy to become overly politicized. Thank you again 

for the invitation to speak on behalf of Truliant. I welcome your questions and discussion on this matter. 

PREPARED STATEMENT OF ALBERT C. KELLY, JR. 

CHAIRMAN AND CHIEF EXECUTIVE OFFICER, SPIRITBANK, ON BEHALF OF THE AMERICAN BANKERS ASSOCIATION

JULY 19, 2011 

Chairman Johnson, Ranking Member Shelby, and Members of the Committee, my 

name is Albert C. Kelly, Jr., Chairman and Chief Executive Officer, SpiritBank, a 

$1.3 billion bank headquartered in Bristow, Oklahoma. I am also the chairman-elect 

of the American Bankers Association. I appreciate the opportunity to present the 

views of the ABA on the new Bureau of Consumer Financial Protection (Bureau). 

The ABA represents banks of all sizes and charters and is the voice of the nation’s 

$13 trillion banking industry and its two million employees. ABA is uniquely qualified to comment on the issues related to the Bureau. Not only will the agency’s rulemaking impact every bank—large and small—but ABA’s membership represents the 

full range of banks over $10 billion that will be under direct supervision by this new 

agency. 

SpiritBank has survived many economic ups and downs for 95 years. Our long 

tradition of service is not unique among banks. In fact, there are 2,735 banks—35 

percent of the banking industry—that have been in business for more than a century; 4,937 banks—64 percent—have served their local communities for more than 

half a century. These numbers tell a dramatic story about the staying power of 

banks and their commitment to the communities they serve. It is a testament to 

the close attention to customer service. 
63 

My bank’s focus, and those of my fellow bankers throughout the country, is on 

developing and maintaining long-term relationships with our customers. We cannot 

be successful without such a long-term philosophy and without treating our customers fairly. 

We are very proud of our relationship with the people and small businesses we 

serve. They are, after all, our friends and neighbors. The success of SpiritBank is 

inextricably linked to the success of our customers and our community. Let me give 

you just a glimpse of SpiritBank’s close ties with our community: 

• We held $847 million in small business loans within our communities at yearend 2010. The new rigors of regulation and capital requirements have meant 

that we cannot continue to lend at this level. 

• We funded 25,960 mortgage loans for families in 10 States last year, none subprime, for a total of $3.8 billion. 

• We contributed over $550,000 dollars last year and our 330 employees have 

logged thousands of hours of service to schools, charitable organizations, and 

civic and community organizations throughout our area—in a year in which our 

investors saw no return to them. We far exceeded this amount in years when 

the economy has been good. 

• We started an Entrepreneurial Spirit Award in one of our large communities, 

launching 20 to 30 companies each year at an annual cost to us of $100,000 

each year. 

The banking industry fully supports effective consumer protection. We believe that Americans are best served by a financially sound banking industry that 

safeguards customer deposits, lends those deposits responsibly, and processes payments efficiently. My bank’s philosophy—shared by banks everywhere—has always 

been to treat our customers right and do whatever we can to make sure that they 

understand the terms of the loans they are taking on and their obligations to us. 

Traditional FDIC-insured banks—more than any other financial institution class— 

are dedicated to delivering consumer financial services right the first time. Not only 

do we have the compliance programs and top-down culture to prove it, we are required to have the financial wherewithal—in terms of capital, liquidity and asset 

quality—to be there when our customers need us. 

Fair service to our banking customers is inseparable from sound management of our banking business. Yet despite this axiom, the Dodd-Frank Act erected a Bureau that divides consumer protection regulation from safety and soundness 

supervision. Therefore, it is critical that improvements be made to assure this new 

Bureau is accountable to the fundamentals of safe and sound operation, to the gaps 

in regulating non-banks that motivated financial reform, and to the principles of 

consistent regulatory standards consistently applied. 

There are several features of the Bureau that make improved accountability imperative. In addition to the weakening of any connection between the Bureau’s mission and safety and soundness concerns, Dodd-Frank gave the Bureau expansive 

new quasi-legislative powers and discretion to re-write the rules of the consumer financial services industry based on its own initiative and conclusions about the 

needs of consumers. The prerogative of Congress to decide the direction and parameters of the consumer financial product market has essentially been delegated to the 

Bureau. The resulting practically boundless grant of agency discretion is exacerbated by giving the head of the Bureau sole authority to make decisions that could 

fundamentally alter the financial choices available to customers. 

Furthermore, the proliferation and fragmentation of enforcement authority that 

Dodd-Frank has distributed among the Attorneys General in every State and the 

prudential regulators unleashes countless competing interpretations and secondguessing of the supposed baseline ‘‘rules of the market.’’ This will result in complicating and conflicting standards. 

At risk is the entire body of rules that has governed the development, design, 

sales, marketing, and disclosure of all financial products; they are subject to change 

under the Bureau, and could change dramatically in many instances. When developing and offering products, firms rely on the basic rules of the road, knowing that 

they are subject to careful changes from time-to-time. This uncertainty can cause 

firms to pull back from developing new products and new delivery systems. It also 

makes banks think twice about various types of lending if they are uncertain what 

the rules will be when they try to collect the loan a few years out. This problem 

should not be underestimated. 

For all these reasons and others, it is ABA’s first priority to improve the accountability of the Bureau. Establishing accountability supersedes other important priorities regarding the Bureau, including ensuring appropriate bank-like supervision of 
64 

non-banks for consumer protection. During consideration of the legislative proposals 

that became the Dodd-Frank Act in the last Congress, ABA recommended provisions 

designed to increase the accountability of the CFBP because we were greatly concerned about the concentration of authority in a single director of this agency. Our 

concern was focused on the fact that the Bureau has authority over already supervised insured depositories as well as unsupervised or lightly supervised non-banks. 

Our concern remains the same. We urge the Congress to pass statutory provisions 

that ensure such accountability before the Bureau is established with a single director. 

To restore the necessary accountability of the Bureau, ABA offers several recommendations: 

• Strengthen accountability by making meaningful structural changes; 

• Reinforce the focus of the Bureau’s authority on the regulatory gaps; and 

• Improve consistency in the application of consumer protection standards. 

I will address each of these broad suggestions in turn and propose specific steps 

that Congress should consider to address the concerns about the Bureau’s accountability. Before that, though, I think it is very important to dispel a myth that continues to color the debate on the Bureau: that community banks like mine are exempt from the new Bureau. Community banks are not exempt. All banks—large 

and small—will be required to comply with rules and regulations set by the Bureau, including rules that identify what the Bureau considers to be ‘‘unfair, deceptive, or abusive.’’ Moreover, the Bureau can require community banks to submit 

whatever information it decides it ‘‘needs.’’ 

The Bureau will have direct supervisory authority for consumer compliance of larger banks (with assets greater than $10 billion)—which adds another layer of 

regulation and supervision—and can join the prudential regulator by doubling up 

during any small-bank exam at the Bureau’s sole discretion. It is also true that 

bank regulators will examine smaller banks for compliance at least as aggressively 

as the Bureau would do independently. In fact, the FDIC has created a whole new 

division to implement the rules promulgated by the new Bureau, as well as its own 

prescriptive supervisory expectations for laws beyond FDIC’s rulemaking powers. 

Thus, the new legislation will result in new compliance burdens for community 

banks and a new regulator looking over our shoulders. 

This is no small matter. The CFPB, while significant, is only one change among 

hundreds that will adversely affect the banking industry and the communities we 

serve. Already there are 2,762 pages of proposed regulations and 607 pages of final 

regulations—and this is before the CFBP undertakes any new changes or 

rulemakings. It is important to understand that our bank, indeed, any small business, can only bear so much. Most small banks do not have the resources to easily 

manage the flood of new rules. 

The totality of all the changes, brought about by Dodd-Frank, including those expected under the Bureau, and the excessive regulatory second-guessing by the regulators has consequences for our communities. Higher costs, restrictions on sources 

of income, limits on new sources of capital, and excessive regulatory pressure, all 

make it harder to meet the needs of our communities. Jobs and local economic 

growth will slow as these impediments inevitably reduce the credit that can be provided and the cost of credit that is supplied. Fewer loans means fewer jobs. Access 

to credit will be limited, leaving many promising ideas from entrepreneurs without 

funding. Capital moves to other industries, further limiting the ability of banks to 

grow. Since banks and communities grow together, the restrictions that limit one 

necessarily limit the other. 

Let me now turn to specific recommendations for improvements and ABA’s 

thoughts on the several new legislative proposals that are under consideration. 

I. First Priority: Strengthen Accountability with Meaningful Structural 

Changes 

ABA believes that a board or commission structure is appropriate to address the 

unfettered authority of the Bureau’s director to impose new rules. Having only one 

Senate-confirmed director vests too much power in one person and lacks any effective checks and balances. A board or commission would help to provide accountability and balance. It would also broaden the perspective on any rulemaking and 

enforcement activity of the Bureau, and would provide needed balance and appropriate checks in the exercise of the Bureau’s authority. It will facilitate continuity 

of the organization and enhance predictability about rulemaking over time. 

ABA believes that the board or commission should include members with consumer finance business experience and direct safety and soundness regulatory expertise. Such expertise provides an important and necessary perspective as stand-
65 

ards are set and enforcement activities undertaken. Such an important feature will 

also improve accountability and help redress the separation between consumer protection and sound financial management. 

ABA also urges Congress to consider requiring one of the seats in the board or 

commission be filled with the recently created, statutorily mandated position of the 

Vice-Chairman for Supervision of the Federal Reserve Board. We believe that the 

inclusion of the Vice-Chair for Supervision provides necessary and current safety 

and soundness experience that directly addresses a pivotal deficiency of the existing 

structure. The Vice-Chair for Supervision is a unique official who has oversight responsibility both for large financial holding companies (which include the nation’s 

biggest banks and credit card issuers) and State-chartered community banks that 

are Federal Reserve members. This broad responsibility and expertise would be invaluable to achieving the missing accountability for safety and soundness that the 

current structure lacks. 

Another fundamental structural flaw of the Bureau’s structure is that only the 

Director is appointed by the President and approved by the Senate. A board or commission structure corrects this shortcoming. 

ABA also supports changing the voting standard for the Financial Stability Oversight Council’s (FSOC) review of Bureau rulemaking to a simple majority rather 

than a two-thirds vote. It should clearly be sufficient to set aside a Bureau rule if 

a simple majority of the nation’s top regulators believes the Bureau has acted in 

a manner that adversely impacts the safety and soundness of the American banking 

or financial system. The stakes are too high to let one agency’s rule create such significant risk. The very purpose of the FSOC was to avoid problems that could lead 

to risks that threaten the economy. To ignore the majority viewpoint of those with 

this responsibility is completely counter to the mission of this council. Congress 

should erase the super-majority requirement for FSOC authority set in Dodd-Frank 

and replace it with a simple majority requirement. 

In addition, ABA believes that the standard for the FSOC review of Bureau actions—systemic risk—is also flawed. Much harm can be inflicted that would impair 

whole subsets of legitimate market players without necessarily rising to the level 

of a banking, let alone a financial, system risk. For example, a Bureau rule that 

severely threatens the viability of community banks will not create a system risk. 

But each bank that disappears from the community makes that community poorer. 

Customers that have been served by local banks for decades may face fewer choices, 

less access to credit, and higher costs. Will the FSOC really conclude that the loss 

of large numbers of community banks rises to the level that demands a systemic 

risk ruling? ABA strongly urges Congress to re-calibrate the review standard by 

which the FSOC may act in setting aside a Bureau rule so that action may take 

place on less than system-wide impacts or risks. 

Furthermore, the FSOC review process for Bureau rules is administratively cumbersome and complicated, filled with timing pitfalls. For example, a petition must 

be filed that attests to objecting agency ‘‘good faith’’ within 10 days of rule publication; it must be transmitted ‘‘contemporaneously’’ to Congressional committees; a 

stay of 90 days duration may be applied for, but without a stay the petition will 

be deemed denied if the FSOC does not issue a decision in 45 days. As constructed, 

this convoluted process represents precisely the kind of bureaucracy that gives government bureaus a bad name. ABA urges Congress to fix this review process so that 

there is at least some reasonable expectation that it can be successfully invoked. 

II. Reinforce the Focus of the Bureau’s Authority on Regulatory Gaps 

Even the strongest proponents of the Bureau acknowledge the fact that traditional banks were not the cause of the financial crisis. Rather, unsupervised nonbank lenders and unregulated packagers of collateralized mortgage obligations 

(CMOs) were allowed to take excessive risks in spite of existing laws that could 

have stemmed the tide of corrosive market conduct by non-depositories. The system 

failed to enforce laws—already on the books—against predatory practices by many 

of those firms and it failed to bring market discipline to bear on underwriting standards against which bankers were hard pressed to compete. Yet here we are, the surviving bankers, facing a new bureaucracy charged with making sense of the often 

conflicting, never intuitive, and always burdensome compliance obligations. 

As we noted above, establishing accountability is the number one priority. Once 

that goal is achieved, the Bureau must be held accountable for directing its resources to the glaring gap in regulatory oversight—a failure to supervise and pursue 

available enforcement remedies against non-bank lenders committing predatory 

practices or other consumer protection violations. To this end, ABA sees value in 

Section 1016(c)(6) of the Dodd-Frank Act requiring the Bureau to report on actions 

taken ‘‘with respect to covered persons which are not credit unions or depository in-
66 

stitutions.’’ In addition, we welcome current efforts to define the Bureau’s non-bank 

supervisory scope as it prepares for the future exercise of that supervisory authority. 

ABA believes that the best way to keep the Bureau accountable to the DoddFrank objectives in section 1021(b) would have been to have the Bureau concentrate 

solely on rationalizing the laws and powers already on the books before passing any 

new authority. Unfortunately, in the process of transferring existing unfair and deceptive acts or practices authority, the unwarranted addition of ‘‘abusive’’ was inserted. 

This addition opens wide all manner of after-the-fact excuses for rewriting the 

conditions of transactions entered into by customers who had complete information 

and competitive alternatives. It is an end run around the well-established statutory 

criteria that Congress and the courts have defined for conduct that is either deceptive or unfair. ABA strongly urges the Congress to eliminate the term ‘‘abusive’’ 

from the Bureau’s prohibitions. This is the most effective method of keeping the Bureau focused on and accountable to the task of reforming the more-than-adequate 

authorities it has inherited from its predecessor regulators and shaping those into 

simpler, more effective, and less burdensome consumer protections. 

III. Improve Consistency in the Application of Consumer Protection 

Standards 

As discussed above in detail, the Bureau represents an unaccountable regulatory 

entity. While this alone is bad enough and should be addressed, the problem is magnified by other authorities granted in Dodd-Frank. The Act gives license to pile on 

additional State law requirements and gives unfettered authority to State Attorneys 

General and prudential regulators—acting on their own initiative—to enforce Bureau statutory authorities and rules. Both of these expansive powers erode Bureau 

accountability for achieving uniform rules for all consumers to be protected by and 

all providers to abide by. Even if one can make the Bureau answerable for its market defining rules, neither Congress, nor bankers nor customers can rely on such 

rules remaining intact in the States where they all reside. This broad delegation of 

legislative license, interpretive power and prosecutorial discretion—without adequate check by either the Bureau or other Federal banking agencies—exposes all 

banks to uncertain market expectations, compounded compliance obligations, and 

potentially crippling litigation risk. 

Accordingly, ABA recommends that Congress consider three possible constraints 

on these threats to consistent consumer protection standards consistently applied: 

• Adopt statutory language prohibiting States from imposing additional consumer 

protection requirements without meeting the same cost benefit, credit access 

and burden reduction objectives that Dodd-Frank imposes on the Bureau (and 

demonstrated with the same level of data analysis expected of the Bureau). 

• Adopt statutory language precluding prudential regulators or enforcement authorities from establishing rules, guidance, supervisory expectations or prosecutorial actions that extend obligations with respect to consumer financial products or services beyond requirements contained in rules of the Bureau. 

• Adopt statutory language limiting State Attorneys General from seeking remedies of any conduct by a covered person occurring prior to the last exam report 

date of any exam by the Bureau or a prudential regulator. 

The premise of the Bureau of Consumer Financial Protection was that it would 

result in a single set of rules of the road for consumers, industry and investors to 

abide by for the benefit of all. If we are to hold the Bureau accountable to this 

premise, we must hold accountable all those who derive authority from its existence 

to abide by the same rules of the road. To do otherwise—by allowing new rules to 

be written or applying new interpretations each time a State border is crossed— 

would completely undermine the reliance of all citizens on the Bureau’s rules. 

Conclusion 

The banking industry fully supports effective consumer protection. Traditional 

FDIC-insured banks have a long history of delivering consumer financial services 

right the first time and banks have the compliance and top-down culture to prove 

it. 

It is an inescapable fact that fair service to our banking customers is inseparable 

from sound management of our banking business. Yet despite this axiom, the DoddFrank Act erected a Bureau that divides consumer protection regulation from safety 

and soundness supervision. It is for this reason that Congress should act to enhance 

the accountability of the Bureau by dealing with the problems brought about by the 

extensive new powers of the agency, the unfettered authority of the Director to im-
67 

1Since 1988, I have been a consumer protection attorney with Jacksonville Area Legal Aid, 

Inc. and represent low-income consumers in the greater Northeast Florida area. I am a co-chair 

of the Board of Directors of the National Association of Consumer Advocates, chair of the Florida 

Bar Association’s Consumer Protection Law Committee, teach mortgage foreclosure, debt collection and motor vehicle sales and financing litigation to attorneys all over Florida and nationwide, including the Judge Advocates in Newport News, Rhode Island. I am also an adjunct Consumer Law professor at the University of Florida College of Law. 

pose new rules, the separation of consumer protection from financial institution 

safety and soundness, the gaps in regulating non-banks, and the expanded and unaccountable enforcement authority of prudential regulators and State attorneys general. 

My bank’s philosophy—shared by banks all across this country—has always been 

to treat our customers right and do whatever we can to make sure that they understand the terms of the loans they are taking on and their obligations to us. We will 

continue to do this, but now there will be many new hurdles that we will have to 

jump to serve our customers’ most basic needs that will inevitably add cost, time, 

and hassle for my customers. 

Banks are working hard every day to make credit and financial services available. 

Those efforts will be made more difficult by the hundreds of new regulations expected from the Dodd-Frank Act. I worry about how my bank will handle all the 

new compliance obligations; I cannot imagine how the median size bank with $156 

million in assets and 37 employees can handle this truckload of new compliance obligations. Even more troubling is what it means for my community. The more time 

bank personnel devotes to parsing regulatory requirements, the less time they can 

devote to the financial and credit needs of bank customers. Thus, it is critically important that 

Congress be vigilant in overseeing the regulatory actions of the Bureau and other 

rules stemming from the Dodd-Frank Act to assure they do not restrict access to 

responsive financial products by responsible American families. 

PREPARED STATEMENT OF LYNN DRYSDALE 

MANAGING ATTORNEY, CONSUMER UNIT, JACKSONVILLE AREA LEGAL AID, INC. 

JULY 19, 2011 

Introduction 

Chairman Johnson, Ranking Member Shelby and Members of the Committee, 

thank you for the opportunity to bring the consumer perspective to the Enhanced 

Consumer Finance Protections: After the Financial Crisis. Specifically I hope to illustrate just a small part of the problems consumers face which renders the Consumer Finance Protection Bureau (‘‘the CFPB’’) an essential tool to level the playing 

field between consumers and businesses governed by the authority of the Bureau. 

My testimony represents a snapshot of the problematic experiences of consumers, 

particularly older Americans and members of the armed services I represent in Florida. I will share with you stories of individuals who have suffered because of our 

failed financial regulatory system. Their stories demonstrate a need for a strong 

independent Consumer Financial Protection Bureau that has both rule writing and 

enforcement power over banks and non-banks that provide financial products.1 I 

have testified before the Federal Trade Commission, the Federal Reserve Board and 

before this Committee in 2006 when I spoke in support of the Department of Defense 

Report on Predatory Lending Practices Directed at Members of the Armed Forces and 

Their Dependents. The Senate passed the Talent-Nelson amendment to the John 

Warner Defense Authorization Act of 2007 in 2006 to prohibit predatory practices 

and rein in the fees charged in several types of consumer finance transactions. 

Today I will use the stories of the consumers I work for who could be assisted 

by the Bureau and recommend the full support of this Committee for the CFPB. 

Why the Consumer Finance Protection Bureau is Important 

Times are difficult for many consumers, including consumers who prior to the financial crisis never considered themselves vulnerable to illegal, deceptive or unfair 

practices of finance companies, lenders, debt collectors or credit reporting companies. This new class of targeted consumers is added to the older Americans and 

members of the armed services who have historically been targeted for abuse. Existing bank regulators have clearly failed to design and enforce fair rules of the road 

for credit, leaving these consumers exposed to tricks and traps on high cost loans 

and abusive mortgages that cost families their homes. With so many consumers 
68 

2For additional background on why there is a need for a strong Consumer Finance Protection 

see Testimony of Travis Plunkett, Legislative Director, Consumer Federation of America, before 

the Senate Committee on Banking, Housing and Urban Affairs, (July 14, 2009) available at: 

http://banking.senate.gov/public/index.cfm?FuseAction=Hearings.Testimony&HearinglID=9a 

56da23-60cb-4fd0-ac04-f94ead7d1859&WitnesslID=18d80e15-8970-49d1-8867-54b81d389272. 

being targeted and access to the courts being diminished it is important that a 

strong, unified Bureau focused on protecting consumers. 

The CFPB should have broad authority to write rules, supervise a wide variety 

of financial institutions, and enforce Federal consumer protection laws—all with the 

ultimate goal of ensuring a more fair and equitable financial playing field for consumers. 

As consumer advocates have previously shared with this Committee, the idea of 

a Federal consumer protection agency focused on credit and payment products has 

gained broad and high-profile support because it targets the most significant underlying causes of the massive regulatory failures that occurred in recent years. Federal agencies did not make protecting consumers their top priority; ignored many 

festering problems that grew worse over time; when acting to protect consumers 

(and they often did not), the process was cumbersome and time-consuming. In the 

end, agencies often did not become involved to stop some abusive lending practices 

until it was too late. Finally, regulators were not truly independent of the influence 

of the financial institutions they regulated.2

In my testimony, I will highlight three main points: 

1. The range of consumers being negatively affected by aggressive lenders with 

a wide variety of high cost and risky consumer financial products has grown 

exponentially during the financial crisis. 

2. Victimized consumers are not being protected by most States, either because 

high cost lenders have crafted products which ostensibly take them out of the 

regulatory power of the State small loan laws and claim that State credit laws 

do not apply to them. Also, lenders are moving to the Internet to provide illegal 

products behind the veil of secrecy, putting them beyond the grasp of many 

State regulators with diminishing resources to pursue them. Many loan products on the market today are grossly one-sided and include unilateral, mandatory arbitration clauses utilized to deprive consumers of their day in court and 

to limit their remedies. 

3. Because of the restrictions on availability of new credit, creditors and debt collectors are stepping up efforts to collect debt through illegal, unfair or deceptive means in my clients’ stories. 

Range of Consumers Hurt by Predatory Lending Increased During Financial Crisis 

American consumers did not create the financial crisis with products such as no 

document mortgage loans, triple-digit interest rate loans secured by automatic access to a consumer’s bank account or motor vehicle, and spurious open-ended credit. 

Nor did they profit from steering homeowners who qualified for safe, affordable 

mortgages into exploding adjustable rate loans. But consumers are paying the price 

of unfair and irresponsible financial products through record foreclosures, rising unemployment rates, abusive debt collection practices and a struggling economy. Even 

in good economic conditions, consumers are always under fire, whether it’s from 

lending scams or deceptive marketing. The need for effective consumer protection 

regulation and enforcement is always there. However, the current financial crisis 

seems to emphasize this need even more as it has become a breeding ground for 

increased deceptive and abusive practices by lenders. 

Recent Consumer Protection Laws, particularly those intended to protect 

Active Duty Servicemembers and their Families are being ignored or 

coverage is being evaded by carefully crafted loan products. 

Military servicemembers are particularly affected by these deceptive and abusive 

practices. After President Bush signed the Military Lending Act (MLA), implemented by rules adopted by the Department of Defense, many consumer advocates 

were encouraged that those fighting for our country would be protected from abusive 

lending and collection activities. Unfortunately, lenders tweaked their product designs to get around the DOD covered credit definitions or are ignoring the law and 

are still charging triple digit interest rates and calling with threats of court martial 

and imprisonment for failure to pay these exorbitant terms. For example, I mentioned a servicemember in my testimony 5 years ago who was being charged 1,000 

percent interest rates. He spent 5 years faithfully attempting to pay off $10,000 
69 

3 550 U.S. 1 (2007). 

4Dodd-Frank §§ 1044, 1046. 

worth of payday loan debt incurred as a result of his wife’s illness and still owed 

$12,000. The lender kept the servicemember paying with threats of court martial 

and imprisonment. A year after the MLA became law reducing the interest rate 

caps to 36 percent for new loans he was still getting threats of court martial, loss 

of security clearance and/or imprisonment despite the prohibitions in State and Federal consumer collection protection laws which have historically prohibited this conduct for all debt collectors. 

Even in connection with new loans to active duty servicemembers, these same 

lenders are still putting borrowers’ bank accounts at risk and charging triple digit 

interest rates well in excess of the 36 percent interest rate cap and are still threatening criminal prosecution. This and other lenders provide their loans through the 

Internet to avoid any type of State or Federal regulation. They are also taking borrowers’ wages before they obtain judgments against the borrowers by requiring its 

borrowers to sign documents allowing an assignment of wages in violation of 16 

C.F.R. § 444.2(a)(3). This company and many others just like it avoid State credit 

protection laws, State and Federal debt collection laws and FTC regulations by operating on the Internet. These companies also avoid the consequences of their illegal 

behavior by including unilateral, mandatory arbitration clauses in their contract. 

Other payday lenders get around the ban on loans secured by checks or automatic 

access to a borrower’s bank account as well as interest rate caps imposed by the 

MLA and State credit protection laws by crafting their loan products as open-ended 

transactions or by setting their loan terms at greater than 180 days. These lenders 

charge triple-digit interest rates, require electronic access to borrowers’ bank accounts as security for the loan, and claim they do not have to provide the cost of 

credit information required by the Federal Truth in Lending Act, 15 U.S.C. 1601, 

et seq. in payday loans by merely pretending the borrower has the right to use the 

loan like a line of credit when in fact no further sums will be provided or by setting 

the loan term for in excess of 181 days rendering the loan outside of the protections 

of the MLA. 

An example of a loan product targeted to servicemembers is an installment loan 

with a loan company with whom I’ve worked. It stated its interest rate was 32.77 

percent which would appear to be within the MLA cap and many State small loan 

rate caps. However, the lender set the loan term to fall outside the MLA protections 

and is, therefore, ostensibly not covered by the MLA. The stated interest rate also 

did not include charges for a required insurance product which if included in the 

interest rate calculation would bring the rate to 66 percent rendering the loan criminally usurious in Florida where many borrowers are located. In addition to using 

the loan term to avoid the MLA interest rate cap, this particular lender claimed to 

be a subsidiary of a national bank. 

Under Dodd-Frank, this type of bank subsidiary would not be able to use the National Banking Act to evade State law consumer protection laws. Dodd-Frank ends 

preemption for bank operating subsidiaries by reversing Watters v. Wachovia Bank 3

and the regulation Watters upheld. This ‘‘anti-preemption’’ provision of Dodd-Frank 

is important to all consumers, including those who are not covered by the MLA such 

as military veterans and older Americans.4 National Banks and their subsidiaries 

can no longer successfully claim to be exempt from application of State consumer 

protection laws by hiding behind the National Banking Act, 12 U.S.C. § 85. 

Automobile title loans were also one of the problematic products listed in the Department of Defense Report on Predatory Lending Practices Directed at Members of 

the Armed Forces and Their Dependents. Now even after the passage of the MLA 

and in violation of State law, lenders still provide triple-digit rate automobile title 

loans and secure loans with the title to the borrower’s vehicle, a practice prohibited 

by the Military Lending Act. A family’s vehicle is probably their most valuable asset 

and this type of loan puts the vehicle at serious and unnecessary risk of repossession for a loan a fraction of the value of the vehicle owned by the borrower. 

For example, Mr. B used the free and clear title to his truck as security for a 

$2,200 loan. The stated interest rate is 24 percent but he is charged $900.00, more 

than a third of the value of the loan for a ‘‘collateral damage waiver.’’ This fee is 

kept by the lender, is required to get the loan and provides no benefit to the 

servicemember who is paying $4,712.88 for a $2,200.00 loan. When he missed a payment, the truck was repossessed meaning he lost his truck and the equity he had 

in the truck. The lender will only provide a loan in an amount equal to a third to 

a fourth of the value of the truck so the lender received months of payments plus 

the excess equity in the truck. The lender avoided the application of the MLA by 
70 

extending the term of the loan and avoided State lender laws by illegally disguising 

interest as the fake insurance product. 

Another type of loan highlights the ineffectiveness of the present regulatory structure and the need to enforce Federal Truth in Lending and VA pay and pension 

laws intended to protect Veterans who have served our country. Companies have 

been stealing veterans’ pensions through high cost loans branded as veterans’ pensions loans. These like other loans targeted to servicemembers and veterans have 

names that make them appear to be affiliated or approved by the military and have 

flags and military symbols in their advertisements. A veteran is offered the right 

to ‘‘sell’’ his or her right to receive future benefits. These loans are structured as 

sales to avoid Truth in Lending and cost of credit laws and to hide the true costs 

of the loans which can run into the triple digits. Therefore, veterans lose the right 

to receive their pensions and pay exorbitant interest rates for the right. 

The Bureau will Provide a Unified and Focused Entity To Address the 

Many Facets of the Mortgage Foreclosure Crisis 

Much has been said about the mortgage foreclosure crisis. These issues have 

many layers. I’ve heard story after story of active duty servicemembers losing their 

homes while they are stationed overseas and State-side families who are struggling 

with the threat and reality of eminent foreclosure while their spouses are overseas. 

For example, we have received requests for assistance from military families who 

are being evicted from their homes by companies that have bought their home at 

foreclosure sales when the family did not even know their home was in foreclosure. 

I know Congress is attuned to these issues based upon a recent forum relating 

to illegal foreclosures against U.S. Servicemembers and their families held by the 

Senate Committee on Commerce, Science and Transportation and the House Committee on Oversight and Government Reform on July 12, 2011. It is not uncommon 

for our office to hear of stories like those of Army National Guard Warrant Officer 

Charles Pickett and Army Captain Kenneth Gonzales. Foreclosures are proceeding 

when borrowers are not in default and without their knowledge while they are deployed for service to our country. The Director of the Office of Servicemember Affairs, Hollister K. Petraeus spoke of the importance of the CFPB role in preventing 

these abuses. Our office sees real life examples of servicemembers fighting insurgents in Afghanistan and fighting Wells Fargo in an illegal foreclosure in the States 

or coming home to find their homes foreclosed upon and boarded up. Members of 

the military are supposed to receive special notice and delay of the foreclosure proceedings but many of them never receive this notice. It is not clear which agency 

if any is addressing these loan servicing issues harming our most deserving consumers. 

I have many veteran clients with FHA and VA loans who are entitled to specific 

pre-foreclosure default servicing before a mortgage foreclosure is filed. Borrowers 

who have paid a premium for an FHA loan or served our country in order to be 

eligible for a VA loan do not get the assistance required by Federal law and their 

mortgage loan contracts to help them avoid foreclosure. For example, I represent an 

older American widow with a VA loan she and her deceased Veteran husband obtained. Instead of working with her, the company servicing her loan sent a blizzard 

of form letters and either ignored her request for a loan modification or continuously 

lost her paperwork when she tried to follow the loss mitigation procedures. Her loan 

was sent to a law firm to foreclose. When the servicer did not have the assignments 

needed to foreclose, their attorney created and signed a fake assignment of mortgage to make it appear the company owned the loan when it did not. In fact the 

servicer did not own the loan until more than a year after the fake assignment was 

prepared and signed. This widow will lose her home as a result of the servicer’s failure to comply with VA requirements contained in the note and mortgage and based 

upon fake documents. This also is the experience of a veteran who has been receiving the ‘‘lost document’’ run around for almost 2 years in an effort to utilize the VA 

protections to which he is entitled because of his service of our country. 

This failure to evaluate loan modification documents or to continuously lose the 

documents is one of the main reasons why the HAMP program has not had the intended effect of helping all consumers save their homes. The use of fake documents 

is also rampant. I have clients who are being sued by two different companies represented by two different law firms for the same loan. Both companies cannot own 

her loan but each continues to add foreclosure related fees to the amounts she owes. 

Servicers also have no incentive to modify loans because they are being paid in full 

by the loan guarantors Fannie Mae, Freddie Mac and Ginnie Mae. In other words 

our children, when they reach adulthood, will be paying off the debt created by the 

same entities that created the mortgage aspect of the financial crisis. These entities 

are being paid up front all the expense of all tax payers while homeowners are los-
71 

ing their homes, neighborhoods are deteriorating and homes sit vacant by the thousands further depressing the market. 

Because loan servicers are not complying with the loss mitigation requirements 

imposed by the Servicemember Civil Relief Act and with FHA, VA, Fannie Mae, 

Freddie Mac loans and loans held or serviced by entitles which received TARP 

funds, borrowers in trouble are turning to foreclosure assistance companies that 

offer to help keep consumers from losing their homes. These companies promise to 

stop foreclosures and collect hundreds if not thousands of dollars from homeowners 

already deep in debt. This money could be going toward the delinquency in the 

home payments but instead is taken by these foreclosure relief companies who pocket the money and move on to the next state of victims. The Federal Trade Commission has already said they will not be pursuing enforcement actions against these 

companies. Because of tight State budgets and the interstate nature of these companies, State regulators do not have the resources to address these companies preying 

on foreclosure victims. 

The Bureau is Needed To Address Increased Illegal Debt Collection 

Activity 

I have also noticed an increase in aggressive debt collection tactics. I have several 

clients who are being sued by debt buyers for debt that has already been repaid, 

was forgiven through litigation or discharged in bankruptcy. Because credit is more 

difficult to obtain, debt collectors are being more aggressive in trying to collect old 

debt. 

The creation of false documents to support debt collection is not limited to mortgage foreclosure. It is also common, if not the norm, for debt buyers to create fake 

documents because they do not have the paperwork to prove they own the debt or 

the amounts owed. When they buy the debt, they only pay pennies on the dollar 

and they do not get the paperwork needed to back up their claims. 

Not Only Are Our Homes Not Safe From Big Banks but Door-to-Door Sales 

and Finance Companies Seek us out for Illegal Products 

Door-to-Door sales provides the delivery system for another form of false openended credit. The sales staff canvas neighborhoods including those whose demographics are primarily older American consumers, neighbors surrounding military 

bases and other vulnerable consumers to offer products such as water purifying 

equipment, solar panels and security systems. They offer on-the-spot financing. 

Sales staff use scripts and have a specialized routine most likely to trick homeowners into buying products financed by false open-ended credit. For example, I 

have represented over a dozen older American homeowners. Each time the story is 

the same, the salesman shows up at their house with a water testing kit, draws 

some tap water, places a tablet in the water and watches with the older American 

homeowner as their water clouds up. Then the salesman adds another tablet and 

the water magically clears. The salesman then explains the cloudiness means the 

homeowners’ water is dangerous to their health and that they can save their health 

and save money with water conditioned with their system. They usually will not 

leave until the consumer signs on the bottom line, spending hours at a time at the 

consumer’s home. 

The Truth in Lending cost of credit disclosures are not provided until after the 

equipment is installed. It is not until the disclosures are provided that the homeowner learns the payments are much more than they can afford. If there is a default 

on the loan, the lender sues the older American homeowner in a city which is a 4- 

hour drive from the consumer’s home. They cannot afford to travel to court or to 

hire an attorney and a judgment is entered against them. 

These companies also target young military families like clients of mine with little 

children and tell them their water is dangerous and will cause cancer if not treated. 

Salesmen refuse to leave until the contract is signed, staying through the consumers’ dinnertime while their children want dinner, install the equipment and 

then days later provide the financing contracts. The salesman promised the interest 

rate would be really low because of their good credit and when the contract is presented; after the equipment is installed the interest rate is 17 percent which was 

significantly higher than the low rate they were promised because of their good 

credit score. The airman has to pay because he knows if he does not he may lose 

his security clearance has to pay even though the equipment makes their water 

taste bad and leaves their clothes yellow. 

Why We Need a Consumer Financial Protection Bureau 

Unfortunately, there are too many consumer victim stories to tell and this is why 

we need a strong Consumer Financial Protection Bureau (CFPB) with full authority 

to protect consumers, particularly our most vulnerable members of society. The 
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CFPB will help protect consumers from many of the fraudulent, abusive, and deceptive practices I have shared with you this morning. Notably: 

• The CFPB will put teeth into predatory lending laws: 

• Predatory lenders often get away with their deceptive practices because the 

Federal Trade Commission (FTC), which regulates debt collectors and mortgage brokers, has very few attorneys devoted to consumer protection and 

lacks basic tools such as rulemaking and oversight/monitoring authority. In 

the past 5 years, the FTC has filed only one case against a mortgage broker. 

The CFPB will strengthen the enforcement and regulation of laws such as the 

Truth in Lending Act. 

• The Federal Deposit Insurance Corporation (FDIC) and Federal Reserve 

Board regulate predatory lending practices, but both are also charged with 

promoting the stability of the banks that make loans. By avoiding this kind 

of conflict of interest, the CFPB would increase the likelihood of fraudsters 

getting caught. 

• The CFPB will combat abusive debt collectors and debt buyers: 

• Debt collectors and buyers also ignore the law without penalty. Despite nearly 

500,000 complaints under the Fair Debt Collection Practices Act (FDCPA) in 

the past 5 years, the FTC has filed only 8 cases against debt collectors. The 

CFPB would devote more resources and help strengthen enforcement, so that 

debt collectors no longer think they can get away with shady practices that 

they know are illegal. 

• Currently, no Federal law or regulation requires debt buyers to keep records 

of what they are buying or even to possess original documentation. By consolidating and streamlining rulemaking and enforcement of consumer protection 

laws, the CFPB could identify this and similar loopholes in consumer protections and promote new, necessary protections. 

The CFPB’s launch is only a few days away; it vital that we provide them with 

the necessary support to be a successful consumer watchdog agency. Thank you for 

the opportunity to testify today. If you have any questions or comments regarding 

this testimony, please feel free to contact me. 
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RESPONSE TO WRITTEN QUESTION OF SENATOR REED FROM 

MICHAEL D. CALHOUN 

Q.1. There are some who support loan modifications that are 

achieved through interest rate reductions, term extensions, or the 

forbearance of principal but oppose loan modifications that come in 

the form of principal reductions. 

• Can a loan modification that involves principal reduction maximize value for the bank, investor and homeowner? Could you 

explain how this might be the case? 

A.1. Principal reduction is an important tool for avoiding unnecessary foreclosures and improving our overall housing market. Studies, such as those by Amherst Securities, show that if homeowners 

are deep underwater on their loans, owing far more than their 

home is worth, the probability is high that the home will go into 

foreclosure. This is a loss for not only the homeowner, who is forced 

to leave the house, but also the investors who own the loan or 

mortgage security, as houses are selling for very low prices at foreclosure sales, and the investors receive far less than they would receive from a modified loan with a reduced principal. In addition, 

these avoidable foreclosures are adding to the oversupply of foreclosed houses that continue to drag down the housing market and 

the overall economy. Since both the homeowner and the investor 

benefit from a responsible loan modification, a number of servicers 

have begun programs that provide principal reduction as part of 

their loan modification procedures. One program, for example, offers the homeowner reduced principal in exchange for an agreement to share with the investor a portion of any home appreciation 

in the event the house value goes up and the house is sold. Several 

structural impediments associated with the securitization process 

discourage optimal use of principal reductions. These include the 

general misalignment of servicer incentives with the investors’ interests, as well as conflicts of interest for servicers who also own 

second mortgages on the same property. 
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