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73–165 PDF 2012

HOW WILL THE CFPB FUNCTION UNDER RICHARD

CORDRAY

HEARING

BEFORE THE

SUBCOMMITTEE ON TARP, FINANCIAL SERVICES

AND BAILOUTS OF PUBLIC AND PRIVATE PROGRAMS

OF THE

COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

SECOND SESSION

JANUARY 24, 2012

Serial No. 112–107

Printed for the use of the Committee on Oversight and Government Reform

(

Available via the World Wide Web: http://www.fdsys.gov

http://www.house.gov/reform
(II)

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

DARRELL E. ISSA, California, Chairman

DAN BURTON, Indiana

JOHN L. MICA, Florida

TODD RUSSELL PLATTS, Pennsylvania

MICHAEL R. TURNER, Ohio

PATRICK T. MCHENRY, North Carolina

JIM JORDAN, Ohio

JASON CHAFFETZ, Utah

CONNIE MACK, Florida

TIM WALBERG, Michigan

JAMES LANKFORD, Oklahoma

JUSTIN AMASH, Michigan

ANN MARIE BUERKLE, New York

PAUL A. GOSAR, Arizona

RAU ́ L R. LABRADOR, Idaho

PATRICK MEEHAN, Pennsylvania

SCOTT DESJARLAIS, Tennessee

JOE WALSH, Illinois

TREY GOWDY, South Carolina

DENNIS A. ROSS, Florida

FRANK C. GUINTA, New Hampshire

BLAKE FARENTHOLD, Texas

MIKE KELLY, Pennsylvania

ELIJAH E. CUMMINGS, Maryland, Ranking

Minority Member

EDOLPHUS TOWNS, New York

CAROLYN B. MALONEY, New York

ELEANOR HOLMES NORTON, District of

Columbia

DENNIS J. KUCINICH, Ohio

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

STEPHEN F. LYNCH, Massachusetts

JIM COOPER, Tennessee

GERALD E. CONNOLLY, Virginia

MIKE QUIGLEY, Illinois

DANNY K. DAVIS, Illinois

BRUCE L. BRALEY, Iowa

PETER WELCH, Vermont

JOHN A. YARMUTH, Kentucky

CHRISTOPHER S. MURPHY, Connecticut

JACKIE SPEIER, California

LAWRENCE J. BRADY, Staff Director

JOHN D. CUADERES, Deputy Staff Director

ROBERT BORDEN, General Counsel

LINDA A. GOOD, Chief Clerk

DAVID RAPALLO, Minority Staff Director

SUBCOMMITTEE ON TARP, FINANCIAL SERVICES AND BAILOUTS OF PUBLIC AND

PRIVATE PROGRAMS

PATRICK T. MCHENRY, North Carolina, Chairman

FRANK C. GUINTA, New Hampshire, Vice

Chairman

ANN MARIE BUERKLE, New York

JUSTIN AMASH, Michigan

PATRICK MEEHAN, Pennsylvania

JOE WALSH, Illinois

TREY GOWDY, South Carolina

DENNIS A. ROSS, Florida

MIKE QUIGLEY, Illinois, Ranking Minority

Member

CAROLYN B. MALONEY, New York

PETER WELCH, Vermont

JOHN A. YARMUTH, Kentucky

JACKIE SPEIER, California

JIM COOPER, Tennessee
(III)

C O N T E N T S

Page

Hearing held on January 24, 2012 ......................................................................... 1

Statement of:

Cordray, Richard, director, Consumer Financial Protection Bureau ........... 9

Letters, statements, etc., submitted for the record by:

Cordray, Richard, director, Consumer Financial Protection Bureau, prepared statement of ........................................................................................ 12

Maloney, Hon. Carolyn B., a Representative in Congress from the State

of New York:

CFPB Officials testimony before Congress .............................................. 40

Letter dated December 7, 2011 ................................................................ 42

Letter dated January 24, 2012 ................................................................. 34

Quigley, Hon. Mike, a Representative in Congress from the State of

Illinois:

July 2011 AFR issue brief ........................................................................ 76

Letter dated January 23, 2011 ................................................................. 50

Prepared statement of ............................................................................... 6

(1)

HOW WILL THE CFPB FUNCTION UNDER

RICHARD CORDRAY

WEDNESDAY, JANUARY 24, 2012

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON TARP, FINANCIAL SERVICES AND

BAILOUTS OF PUBLIC AND PRIVATE PROGRAMS, COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM, Washington, DC.

The subcommittee met, pursuant to notice, at 1:30 p.m., in room

2154, Rayburn House Office Building, Hon. Patrick T. McHenry

(chairman of the subcommittee) presiding.

Present: Representatives McHenry, Guinta, Buerkle, Meehan,

Walsh, Gowdy, Ross, Quigley, Maloney, Welch, and Speier.

Also present: Representatives Issa, Cummings, Norton, and

Connolly.

Staff present: Kurt Bardella, senior policy advisor; Robert Borden, general counsel; Molly Boyl, parliamentarian; David Brewer,

counsel; Sharon Casey, senior assistant clerk; Katelyn E. Christ,

research analyst; Adam P. Fromm, director of Member services and

committee operations; Linda Good, chief clerk; Peter Haller, senior

counsel; Ryan M. Hambleton, professional staff member; Christopher Hixon, deputy chief counsel, oversight; Mark D. Marin, senior professional staff member; Jaron Bourke, minority director of

administration; Kevin Corbin, Devon Hill, and Adam Koshkin, minority staff assistants; Ashley Etienne, minority director of communications; Jennifer Hoffman, minority press secretary; Jason Powell

and Steven Rangel, minority senior counsels; and Davida Walsh,

minority counsel.

Mr. MCHENRY. The committee will come to order.

The Subcommittee on TARP, Financial Services and Bailouts of

Public and Private Programs is meeting here today and the hearing

is entitled, How Will the CFPB Function Under Richard Cordray?

The policy of this committee is that we begin with the mission

statement of the Oversight and Government Reform Committee.

We exist to secure two fundamental principles: first, Americans

have a right to know that the money Washington takes from them

is well spent and, second, Americans deserve an efficient, effective

government that works for them. Our duty on the Oversight and

Government Reform Committee is to protect these rights. Our solemn responsibility is to hold government accountable to taxpayers

because taxpayers have a right to know what they get from their

government. We will work tirelessly in partnership with citizen

watchdogs to deliver the facts to the American people and bring

genuine reform to the Federal bureaucracy.
2

So, with that, I thank Mr. Cordray for being here today and

making time in his certainly busy schedule.

I will recognize myself now for 5 minutes for an opening statement.

This hearing is to focus on the functions and operations of the

Consumer Financial Protection Bureau under Mr. Cordray.

The American public has always demanded consumer protection

regulations that discourage and discipline financial fraud and ensure consumers are entitled to clear, succinct, and honest disclosures about financial products.

But that is simply not enough for a robust marketplace.

Since the onset of the financial crisis, Members of Congress have

heard from businesses of all sizes that markets are in need of certainty. In this regard, the CFPB has failed the first test.

The needed certainty that we and the financial marketplace

need, that consumers need, that regulated entities need in order to

extend credit is real.

Since Dodd-Frank was enacted 18 months ago, the role, agenda

and authority of the CFPB has increased uncertainty in U.S. markets, not lessened it. This restricts access to credit.

In May of last year, this subcommittee hosted then-special advisor for the CFPB, Elizabeth Warren, in an effort to perform its

oversight responsibilities and allow the American public to clearly

understand the Bureau’s operations, accountability to U.S. taxpayers, and beliefs about its authority and limits.

At the time, Ms. Warren’s answers to congressional questions

were fuzzy at best, leaving members and market participants unsure of the Bureau’s areas of focus and the duplicative role when

establishing rules with existing Federal regulators.

An encouraging sign is the news today that there is an agreement between the CFPB and the FTC in division of those responsibilities. That is a good sign.

As a result, countless experts continued to raise serious questions about the Bureau’s structure and broad discretionary powers

on our economy and credit markets.

While conflicting opinions about Federal regulators are not new,

the fact of the matter is that the operations and authority of the

CFPB still remain a mystery to Congress and the American public.

For the last year and a half, interim figureheads for the Bureau

have skillfully dodged congressional inquiries about the regulator’s

operations and powers. In this subcommittee, for example, Ms.

Warren could not answer a simple question about the definition of

abusive from Congressman Gowdy. This question came about. I

hope that Mr. Cordray will be willing to engage in that discussion

today and give some clarity.

With such immense powers over financial products left to the interpretation of a single, unelected, unaccountable bureaucrat, with

over a half a billion dollar budget, furthermore, being done with a

recess appointment, Republicans in this body and in the Senate

have called for meaningful changes to the structure of the CFPB.

Unfortunately, the President decided against compromise. If having a regulator with unprecedented and ill-defined power was not

enough, the administration decided to double down by bringing into

question the validity of its director. That is unfortunate.
3

The fact that White House lawyers must continue to justify the

President’s decision to waive roughly 200 years of precedent jeopardizes the sanctity of the Bureau’s operations and is unfair, in my

opinion, to Mr. Cordray, the Bureau, its powerful responsibilities

and duties, and, most importantly, the American public.

The irony for this to occur to the CFPB, self-proclaimed as ‘‘the

most constrained and most accountable agency in government,’’ is

chilling.

Nonetheless, now that Mr. Cordray, despite an appointment that

is constitutionally questionable, has stated his intention to assume

full powers as head of the CFPB, this subcommittee believes it is

time that he deliver definitive responses about how he will implement and enforce the unparalleled powers of his new office.

As daily headlines proclaim Mr. Cordray’s latest authorities and

targets, it is vital that this subcommittee stand committed to its

mission of producing an efficient and effective government that

works for the people and their livelihood.

Simple questions about the CFPB’s annual budget of roughly half

a billion dollars of taxpayer funds, dictated by a single individual,

to its vast authority over the U.S. economy remain unanswered

and warrant persistent congressional oversight.

I certainly appreciate the willingness of Mr. Cordray to submit

to this oversight. There are many questions that do remain. I am

interested in hearing from Mr. Cordray about his thoughts on what

he believes the CFPB’s new regulatory authority is and how it will

be promoting private sector job creation and a robust credit market, and assuring that Congress will have accurate and full oversight over this process.

Will you disclose your regulatory agenda for the year?

Will you focus on products with even-handed enforcement, regardless of who is offering said product?

Will you get input from small businesses on your regulations

that you are issuing?

Will you empanel small businesses and hear feedback from them

in your major regulatory pieces?

And will you actively solicit the regulated community as well?

These are questions that I will have and I look forward to the

gentleman answering, and I thank Mr. Cordray for making time in

his busy schedule early in his service in this regard.

With that, I will recognize Mr. Quigley, the ranking member.

Mr. QUIGLEY. Thank you, Mr. Chairman, and thank you for holding today’s hearing.

I would like to begin by reading a mission statement, that of the

CFPB: ‘‘To make markets for consumer financial products and services work for Americans, whether they are applying for a mortgage,

choosing among credit cards, or using any number of other consumer financial products.’’

Let’s remember why we are here. There can be no amnesia about

the fact that these markets were not working for Americans before

the financial crisis. Weak and patchwork regulation allowed dangerous consumer financial products and toxic financial instruments

to infiltrate the market.

Unscrupulous lenders were able to take advantage of consumers

by selling them faulty, fraudulent, and deceptive financial prod-
4

ucts. This reckless lending poisoned the financial system and directly contributed to the mortgage meltdown.

We explicitly created the CFPB to protect Americans from these

fraudulent and abusive products.

On July 21, 2011, the CFPB took over consumer protection authorities from the Federal Reserve, the FDIC, the FTC, the NCUA,

the OCC, OTS, and HUD. But, by law, CFPB supervisory authority

over nondepository providers of mortgage loans, mortgage brokerage services, foreclosure release services, and abusive lending practices could not take effect until a director was in place. That is

why, on December 8th, I was so disappointed to see a culture-proof

minority of 45 Senators block Mr. Cordray’s nomination to be director.

Mr. Cordray, a former Ohio attorney general, is eminently qualified for this position. Senator Scott Brown has called him the right

person to lead the agency and help protect consumers from fraud

and scams. Mr. Cordray, who I am pleased to welcome here today

as the first director of CFPB, was appointed to his position by the

President on January 4, 2012. He takes charge of the CFPB at a

critical time for consumer financial protection. I am eager to work

with him and his staff to ensure that Americans in the 5th District

of Illinois, as well as around the country, are protected from financial fraud and abuse.

I am also glad to have this opportunity to discuss with Mr.

Cordray his plans for the CFPB under his directorship. I applaud

the early work that has been done looking into predatory practices

targeting veterans and I look forward to hearing more. I also applaud the fact that the CFPB has made transparency and accountability one of its top priorities.

This is the third hearing in this committee to invite witnesses

from and conduct oversight of the CFPB. Overall, this is the

twelfth time that witnesses from this agency have testified before

Congress. An independent audit firm found that the agency has

adopted and maintained a strong interest in being transparent and

accountable in public. In fact, both the ICP and the ABA have

praised the Bureau for its transparent and accessible rulemaking

process.

This is keeping with Congress’s intent in creating the CFPB,

whose ability to protect consumers is counteracted by extraordinary

and unprecedented checks and balances. For example, the Financial Stability Oversight Council can reject any CFPB regulation

that would put the safety and soundness of the U.S. banking system or stability of the financial system at risk. Finally, the CFPB

stands alone among banking regulators in that its budget has a

statutory cap.

But the simple fact is that we need the CFPB. Whether you are

an investor planning for retirement or a veteran coming home after

serving our country, the agency will protect you against financial

abuse. I hope my colleagues will join me in welcoming Mr. Cordray,

and I look forward to hearing his testimony.

We need to understand, Mr. Cordray, that to a certain extent you

are outmanned. You are certainly outnumbered financially. So my

concern isn’t so much that you have this cap, my concern is do you
5

have the ability to meet this challenge given the resources you

have.

I hope my colleagues will join me in welcoming Mr. Cordray. I

look forward to hearing his testimony.

Mr. Chairman, I would also like to ask unanimous consent that

other members of the committee be allowed to participate in the

hearing.

[The prepared statement of Hon. Mike Quigley follows:]
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Mr. MCHENRY. Reserving the right to object. The intention is,

with this being such an important hearing, that I want to let our

Members have as many questions as they have time to ask and

that Mr. Cordray has time to answer, so it would be my intention

to object to other Members that are not on the subcommittee, aside

from the ranking member and obviously the full committee chairman. And I would hope that Members would respect that.

Mr. ISSA. Mr. Chairman.

Mr. MCHENRY. Yes.

Mr. ISSA. Also reserving a point. The ranking member and I are

actually members of the subcommittee.

Mr. MCHENRY. Ex-officio members, yes.

Mr. ISSA. Actually, as Mr. Cummings would let us all know, voting members at a previous hearing. But, Mr. Chairman, our committee rules, as I understand them, are that you must be present

at the time that, by name, you are asked for. That has been the

policy. So I would not object, but I think that it would be appropriate to ask for unanimous consent if, and only if, an individual

arrived and could then be subject to that request, and, of course,

they would still go after all other Members.

Mr. MCHENRY. Thank you so much, Mr. Chairman. I would put

that down as a matter of the committee rules, and thank you for

outlining that.

Mr. QUIGLEY. I think I still need to yield back, but thank you,

Mr. Chairman.

Mr. MCHENRY. I thank the ranking member.

With that, we will now recognize Mr. Cordray. I know you are

familiar with the process with the lights, but you have 5 minutes

to summarize your opening statement. Green obviously means go;

yellow means, well, you are a former attorney general, you know

that means hurry up; and then, obviously, red means stop. So

thank you so much and we look forward to your testimony.

STATEMENT OF RICHARD CORDRAY, DIRECTOR, CONSUMER

FINANCIAL PROTECTION BUREAU

Mr. CORDRAY. Thank you, Mr. Chairman——

Mr. ISSA. Mr. Chairman, I’d make a point of order that the witness has not been sworn.

Mr. MCHENRY. I thank the full committee chairman. Again, not

reading off my script, I am so sorry.

If the gentleman will stand and if you will raise your right hand.

[Witness sworn.]

Mr. MCHENRY. Thank you. You may be seated.

Let the record reflect that the witness answered in the affirmative.

And now I will take the time to introduce Mr. Cordray here to

represent the CFPB and testify on behalf of the CFPB after his

January 4th appointment. Thanks so much, Mr. Cordray. Five minutes.

Mr. CORDRAY. Thank you again, Mr. Chairman, for inviting me

here today. Thank you, Chairman Issa, Ranking Member

Cummings, Ranking Member Quigley and members of this subcommittee for taking time to hear about the Consumer Financial

Protection Bureau.
10

Before I became director, I promised Members of Congress in

both chambers and on both sides of the aisle that I would be accountable to you for how the Consumer Bureau carries out the laws

you have enacted. I said that I would always welcome your

thoughts about our work, and I stand by that commitment today.

I am pleased to be here with you to tell you about our work and

to answer your questions.

The people who work at the Consumer Bureau are always happy

to discuss our work with the Congress. This is the twelfth time

that we have testified before either the House or the Senate, and

my colleagues and I look forward to working closely with you, with

the businesses who serve their customers in the consumer financial

markets, and with the hundreds of millions of American consumers

themselves.

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

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

who work with me there and I am driven by the challenges and

responsibilities of our mission to protect American consumers.

Our mission is of critical importance to making life better for

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

many years. Student loans give young people with talent and ambition the ability to get an education. Credit cards give us immediate

and convenient access to money when we need it.

These products enable people to achieve their dreams. But as we

have all seen in recent years, they can also create dangers and pitfalls if they are misused or not properly understood.

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

engaged in consumer finance issues. I saw good people struggling

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

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

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

unscrupulous businesses who obscured loan terms or engaged in

outright fraud, causing substantial harm to unsuspecting consumers, ruining their lives and devastating our communities.

I am certain that each one of you hears these same stories every

day from your families, your neighbors, and constituents in your

districts. People do not want or expect any special favors; they just

ask for a fair shake. They want a consumer financial system that

actually works for consumers and a chance to get back on track toward the American dream.

One of our primary objectives at the Consumer Bureau is to

make sure the costs and risks of these financial products are made

clear. People can make their own decisions, and nobody can or

should try to do that for them. But it is the American way for responsible businesses to be straightforward and up-front with their

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

for the overall economy.

A particular quote caught my eye recently which embodies this

view. It goes: Free men engaged in free enterprise build better nations, with more and better goods and services, higher wages and
11

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

not a hunting license.

That was Governor Ronald Reagan in 1970. I agree with what

he said and it is a view widely shared by the people who work with

me at the Consumer Bureau.

So another key objective is making sure that both banks and

non-bank competitors receive the evenhanded oversight necessary

to promote a fair and open marketplace. Our supervisors will be

going onsite to examine their books, ask tough questions, and work

with them to fix problems we uncover. Under the laws enacted by

Congress, and with a director now in place, we have the ability to

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

The Consumer Bureau will also make clear that violating the law

has consequences. Through our field examiners, our direct contact

with consumers and businesses, and our highly skilled researchers,

we have multiple channels to know the facts about what is happening in the marketplace. We plan to use all the tools available

to us to ensure that everyone respects and follows the rules of the

road. Where we can cooperate with financial institutions to do that,

we will. However, we will not hesitate to use enforcement actions

to right a wrong.

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

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

We do that on our Web site, consumerfinance.gov, where people are

able to tell us their personal stories. We also make it a point to get

out of Washington and to hear from people across the country.

Thus far, we have held 10 field meetings in Philadelphia, Minneapolis, Cleveland, and we had our first field hearing in Birmingham. We are hearing from thousands of Americans about

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

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

come to visit your communities.

Thank you. I look forward to your questions.

[The prepared statement of Mr. Cordray follows:]
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Mr. MCHENRY. Thank you, Mr. Cordray and thank you for your

testimony.

I will now recognize myself for 5 minutes.

After your January 4th recess appointment, the CFPB took its

nonbank supervisory authority and you are moving forward with

that. On your Web site you have a statement of regulatory policy.

You are familiar with the SEC and their process that they put forward, and they put forward an agenda that roughly outlines their

year’s plan. Would you submit to that same type of disclosure on

the regulatory framework that you are going to attempt to put in

place in the coming year?

Mr. CORDRAY. Thank you, Mr. Chairman. It is our intention to

be as transparent as we can be, but recognizing that we are a new

agency and building an agenda from the ground up. Now, first and

foremost, our agenda is set by Congress. We are to implement the

laws that you have enacted, and our regulatory agenda in the early

going is largely going to be dictated by that.

Mr. MCHENRY. Okay.

Mr. CORDRAY. There are certain rules that you have required us

to do and we will focus——

Mr. MCHENRY. Yes. And, number one, you have actually taken

the existing rules from the myriad of other regulators which you

have assumed.

Mr. CORDRAY. Yes.

Mr. MCHENRY. At what date did you become employed by the

CFPB?

Mr. CORDRAY. Me?

Mr. MCHENRY. Yes.

Mr. CORDRAY. January of last year. I believe the date was January 18th of 2011.

Mr. MCHENRY. Okay. So you have had roughly a year as the director of enforcement, and in that role you have seen the buildup

in the CFPB. How many folks are employed at the CFPB at this

date?

Mr. CORDRAY. At the end of 2011 we had 757 employees. The

counting depends a bit on whether you count detailees from other

agencies, people who have been made offers and accepted, but that

is the ballpark.

Mr. MCHENRY. So 700, 800 folks.

Mr. CORDRAY. Correct.

Mr. MCHENRY. And what was the budget last year, roughly?

Mr. CORDRAY. Well, the budget that we had sought originally in

the fiscal year 2011–2012 proceedings was $142 million.

Mr. MCHENRY. And you drew down from the Fed how much?

Mr. CORDRAY. Last year we drew down from the Fed about $161

million. We had to make some adjustments in light of we had some

issues with the Fed about negotiating what kind of contribution we

had to make to their pension system as we joined them and when

that——

Mr. MCHENRY. So $300 million budget. So the question I have

is will you lay out a regulatory agenda for the coming year with

these roughly 800 employees you have and a budget that is hundreds of millions of dollars? Will you lay that out for the public so

that those that are engaged in that type of business activity will
20

know that it is coming forward, Members of Congress will know

that this is part of your agenda?

Mr. CORDRAY. I think, Mr. Chairman, we have been quite transparent about our regulatory agenda. As I say, it is stuffed full of

the requirements that Congress has imposed on us, and it is our

first obligation to carry that out.

Mr. MCHENRY. I certainly appreciate that.

My time is short, but the SEC outlines the regulatory actions

that they intend to take in the coming year. Other regulatory bodies do this. You are vested with enormous powers, one person vested with enormous powers over all consumer finance in this country.

Will you at least submit to the idea of maybe laying out the agenda

for the next month?

Mr. CORDRAY. Well, I will tell you what, Mr. Chairman. I think

our agenda has been pretty clear to everybody who has interacted

with us, from the Chamber to consumer groups. I am happy to

have my staff work with you and if that seems to be a best practice, that that is something that we can do. We are not intending

to hide the ball. I think our priorities are quite clear, we have stated them very clearly. If you want to have it on a particular piece

of paper or on a Web site, that is something we can——

Mr. MCHENRY. I think it would be a best practice if you look at

what the SEC is doing in laying out their regulatory agenda. I

think that would give clarity to the public, allay a lot of concerns

that I have from small and large businesses alike, and from Members of Congress as well.

Mr. CORDRAY. Let us take a look at that and work with you and

your staff, and we will see what we can do to——

Mr. MCHENRY. Thank you.

Mr. CORDRAY. Yes.

Mr. MCHENRY. What current rulemaking are you working on

right now?

Mr. CORDRAY. The biggest one we are working on, and we have

been working on it for some time, is actually something near to

your heart, I know, because you tried to legislate on it as much as

5, 6 years ago, when it would have made more of a difference before the crisis, which is consolidating the mortgage disclosure forms

around real estate closings, the TILA and RESPA so-called forms

that over the years have been adopted separately under different

statutes by HUD and by the Federal Reserve.

They were duplicative in many respects. There was a long-time

congressional desire to simplify and clarify that and reduce the

burdens. That is something we have been at work on since about

May of last year. We will be coming out with a proposed rule on

that by this summer. We are going to have small business briefing

panels on that starting in the spring and it has been an ongoing

effort for us to follow through on what I know you sought to do 5,

6 years ago.

Mr. MCHENRY. Thank you. A further question would be would

you intend to have a small business panel for all major regulatory

actions you take?

Mr. CORDRAY. We are required by law to empanel a small business panel. Unique among the banking agencies. It is one of the

oversight mechanisms you all put in place for us. It is totally ap-
21

propriate. Unless we can certify that a particular rule would not

have a significant impact on small providers. So the assumption

and the baseline is that we will do those panels. We are going to

do it, and I saw some communication earlier today from one of the

associations suggesting that we maybe were not. We have already

committed to that; we committed in congressional testimony last

year. That will be coming very soon.

Mr. MCHENRY. And that will be coming this year?

Mr. CORDRAY. On the TILA RESPA rule in particular, yes.

Mr. MCHENRY. Okay. Thank you.

Mr. Quigley for 5 minutes.

Mr. QUIGLEY. Thank you, Mr. Chairman.

Mr. Cordray, the questions that were set for Ms. Warren are set

for you as well. I know she had discussions with community bankers associations, particularly of my State, the State of Illinois, and

the discussion was very intense about leveling the playing field for

community bankers. Could you comment on your sense of how that

plays out in your administration?

Mr. CORDRAY. Yes, Congressman. It is a very high priority for us.

It was the first active step that we took as a Bureau after I was

appointed director, and that was the time at which we could now

begin to actually implement a nonbank supervision program. It is

something that, had it been in place, would have helped community

banks and credit unions across this country immensely in the

runup to the financial crisis.

We have what, in my view, was a broken regulation of the mortgage market, where some people were regulated, others were not.

I was a State treasurer and local treasurer at the time. I heard

from bankers in my area who told me they were asked to make

loans by customers that they knew would not work and they had

to watch those customers after they said, no, go down the street

and get them from unlicensed brokers and others, and it eventually

wrecked the system.

So leveling the playing field is very important not only to the

community banks and credit unions themselves, but it is very important to making this system work. So it is very important to us

and we know it is a big responsibility for us.

Mr. QUIGLEY. Thank you. You mentioned the number of employees you have and the resources you have, and I alluded to it in my

opening statement. Just try to ballpark an analysis of that which

you are attempting to regulate, the comparative budgeting for marketing alone within these institutions, the number of staff they

have, the resources they have. The cavalry is not coming over the

hill anytime soon, but do you have the resources currently to match

those extraordinary levels of institutional capability?

Mr. CORDRAY. I would say two things, Congressman. That is a

concern. We are, right now, a new agency, so we are building up.

You know, we started obviously at zero. We are at 757 at the end

of last year. We need to build further. We need to recognize the

scope of what we are trying to deal with. The consumer credit markets, you add up all aspects of that, mortgages and the other

things, is approximately a $20 trillion set of markets, so it is a big

job. I have heard a lot of talk about how powerful we are, but it

is an important set of markets, and we hope that we are up to the
22

task, and we are working to be up to the task, but it is an immense

challenge.

Mr. QUIGLEY. I am not out to demonize anyone in any industry,

but we have had enough lessons in our lifetime here to recognize,

human nature being what it is, someone needs to regulate particularly this industry. If you could focus, in the closing parts of my

time, your interest in the issues you see particularly for those veterans coming home, protections they might need.

Mr. CORDRAY. As I know you know, we have been fortunate to

have a tremendous spokesperson for service member issues at the

Bureau, Mrs. Holly Patraeus, who has been teaching us all about

the special circumstances that service members and veterans face:

some of the challenges that a simple debt collection issue can pose,

posing risk to their security clearance; being moved around under

orders and, in this market, not necessarily being able to sell their

home and, therefore, being saddled with immense financial stress

for themselves and their families; the real scuffle that a lot of colleges, universities are waging to get at the GI money that is available to returning service members to go to school; and there is a

lot of concerns that she has raised both for us and I believe for

Members of Congress.

And I know that these are issues that are bipartisan and there

is concern across the spectrum that we be able to address them effectively. We feel the same and she goes out week in, week out, visits military bases, works with the JAG Corps to bring home insights and perspectives that we can then use to be more effective

in our work, and we are proud and, frankly, grateful to have her

as a colleague and to follow her lead in these areas.

Mr. QUIGLEY. I am particularly sensitive and concerned too because we have veterans coming home with health issues that aren’t

new, but perhaps will be extraordinary in number and intensity.

We haven’t had incidents where people on four, five, six deployments before, so I would like to think our institutions would be

sensitive to that. But to the extent we can help, I think that is just

as important.

My time is over and I yield back.

Mr. MCHENRY. With that, I yield 5 minutes to the vice chairman,

Mr. Guinta, of New Hampshire.

Mr. GUINTA. Thank you, Mr. Chairman.

Thank you, Mr. Cordray, for testifying today. I have a couple of

questions just to talk a little bit about accountability, transparency.

Mr. CORDRAY. Yes.

Mr. GUINTA. I assume those two things are rather important to

you and rather important to the agency, correct?

Mr. CORDRAY. I think they are critical to the credibility of the

agency and I think you have every right to demand that from us,

and I hope that you will find that we provide it.

Mr. GUINTA. Do you recall, during Elizabeth Warren’s testimony

back in March of last year, her statement that the CFPB is the

most constrained and the most accountable agency in government?

Mr. CORDRAY. I don’t recall the exact words, but I recognize the

tenor of the discussion.

Mr. GUINTA. If I could just have the record reflect that that was

part of her testimony. Would you agree with that statement? As-
23

suming she said it, would you agree with that statement, now that

you sit in——

Mr. CORDRAY. Well, I think Professor Warren had had more experience with the Washington agencies than I have had. I have

been here for a year; she, as you know, had worked as congressional oversight and so forth, so she may have broader perspective

than I. I do know that there are very special oversight provisions

in our law that apply to us that do not apply to any other banking

agency.

So, for example, as was mentioned earlier, our budget is subject

to a cap. No other banking agency has that. We are not able to

raise our budget by raising anyone’s fees, unlike the other banking

agencies. If we were to ever have to go above that cap, we would

come to Congress and be subject to the appropriations process. Not

true of any other banking agencies. Our rules can be overridden by

the Financial Stability Oversight Committee. Not true of any other

banking agency. I believe we are subject to more audits and financial and budget oversight than other banking agencies.

So there certainly is a way in which that statement seems quite

true. Whether it is true across all agencies, I am not sure I have

the perspective to make a global comment.

Mr. GUINTA. Is it fair to say that your agency should be or would

be an unbiased agency?

Mr. CORDRAY. You know, I would hope that that is so, but I

imagine that is always going to be in the eye of the beholder. I

think one of the things we can do in our work to try to make sure

that we heed to that touchstone, which I agree with you is a desirable thing, is to make sure we are hearing broadly and in a very

open way from all perspective on issues, so particularly that we

hear from both the providers and the consumers that are on both

sides of each transaction. I think we are making a lot of efforts to

do that, but it is also probably useful for us to come up here regularly and hear from you on it as well.

Mr. GUINTA. Well, given that, and I appreciate hearing you say

that, and I would tend to agree, we want to see all sides of an issue

before there is action, my fundamental concern moving forward is,

as other Members have talked about and will continue to talk

about, is the process by which you were appointed. Does it concern

you that the process by which you were appointed has an impact

on those very individuals or businesses or banks that you are going

to be regulating?

Mr. CORDRAY. I understand that there is controversy that people

have raised about the appointment. My intention here is I am in

a job; it is an important job; it is a big job that commands all my

time and attention. All I can do is try to carry out the responsibilities that the law of the land now has put on my back and to try

to do it in a way that is consistent with the values you articulated,

which I think are good ones for us, transparency and accountability. So I will do that and that will be my focus.

Mr. GUINTA. And you mentioned earlier in your testimony that

you take direction from Congress. Do you also take direction from

the White House?

Mr. CORDRAY. We do not. We are an independent Federal agency.

As you know, there are a number of those. Constitutional scholars
24

scratch their heads at times to figure out how they fit directly

within the three branches of government, but it is my understanding that Congress has established independent agencies to

keep them closer to the Congress, to keep them accountable for enforcing the law, and I expect that that is why we will be here frequently for oversight and for you to know exactly what we are

doing.

Mr. GUINTA. So there have been no directives that you have received since your appointment from the White House?

Mr. CORDRAY. There have not.

Mr. GUINTA. If there were, in the future, directives, would you

willingly, proactively share that with this committee?

Mr. CORDRAY. It would be within our discretion to determine our

course, and the way we would exercise that discretion is by looking

at the statutes that you have passed, which are the only thing that

give us any authority to do anything at all, and make sure that we

are adhering closely to carrying those out.

Mr. GUINTA. The only reason I bring it up is because in terms

of accountability and transparency, something I think is extremely

important, I think it is better to err on the side of caution and be

over-transparent than under-transparent, which I think is the

point that the chairman was also making about posting things on

your Web site, what your regulatory agenda is. Those things are

extremely important, I think, for the country and for those that you

oversee.

Mr. CORDRAY. Yes.

Mr. GUINTA. So you have credibility and the agency has credibility. And I think, as is stands today, there is probably some question about that, given the process by which you were appointed. So

I thank you for your time. Unfortunately, my time has expired.

Mr. MCHENRY. The gentleman’s time has expired.

We will now recognize the full committee ranking member, Mr.

Cummings, for 5 minutes.

Mr. QUIGLEY. Mr. Chairman, before you do that, if I might ask,

again, for unanimous consent——

Mr. MCHENRY. The ranking member is recognized.

Mr. QUIGLEY. Thank you, Mr. Chairman. I would like to renew

my motion to ask unanimous consent that other members of the

committee be allowed to participate, particularly Mr. Connolly, who

is at the far end.

Mr. MCHENRY. Yes. And the Chair did not state correctly at the

beginning. In order to have other committee members of the full

committee hear today, that can happen in due course, and it is

based on seniority on your side of the aisle at the time that folks

show up, and that is your party’s prerogative of that. For other

Members of Congress who wish to sit in, they have to ask unanimous consent at the time that they are here and want to ask questions. So Mr. Connolly will be recognized in due course.

Mr. Cummings is recognized for 5 minutes.

Mr. CUMMINGS. Mr. Cordray, on behalf of my constituents, many

of whom have lost almost everything they have, many of whom

have lost their homes, their jobs, their savings, I am very pleased

that you have been appointed. One of the most critical new responsibilities that transferred to the CFPB is the authority to oversee
25

nonbanks. Director Cordray, is it true that prior to the passage of

Dodd-Frank Wall Street Reform and Consumer Protection Act,

these nonbanks operated in the shadows and outside the scrutiny

of Federal regulators, is that correct?

Mr. CORDRAY. It is the case that there was little or no regulation

of any of them or oversight at the Federal level, and whether there

was any State-by-State varied greatly; in some of them there was

little or no at any level.

Mr. CUMMINGS. In fact, one of Dodd-Frank’s top priorities was to

bring these businesses and products into the regulatory sunlight.

According to the CFPB, some nearly 20 million consumers used

payday loans, approximately 200 million Americans rely on credit

reporting agencies, 14 percent of consumers have one or more debts

in collection, and nonbank lenders originated almost 2 million new

mortgages in 2010. Do those figures sound correct?

Mr. CORDRAY. They do. And as you are pointing out, they are

substantial.

Mr. CUMMINGS. So that is an extraordinary number of Americans

who are regularly exposed to these products that have, until now,

received just about zero Federal scrutiny.

Mr. Cordray, a lot of the debate surrounding your appointment

focus on the bureaucratic and procedural issues, but, for consumers, what does a director of the CFPB mean for consumer protection from unscrupulous or payday lenders, for example?

Mr. CORDRAY. Well, it means, Congressman, that we can now, as

we could not before, begin to have an active supervision program

over four nonbank areas in particular that are specified in the law:

mortgage markets, which includes mortgage originators, as you

said, 2 million of those in 2010; mortgage servicers, who have been

a troubled area in many respects; payday lenders are specified in

the statute; and private student lenders. It also allows us to expand that program to larger participants in other fields, as we will

be doing shortly, and I think that that is very important.

The other thing is this isn’t only important to consumers, although it is vital for them. It is also important to responsible businesses who compete in these markets. And it is unfair for one business to be subject to regulation and oversight and their direct competitor to be subject to none. That is an automatic cost differential

and it means that those who would violate the law to get advantage can get away with it. That is not something we should ever

want to tolerate and it is not something that makes for a functioning marketplace.

Mr. CUMMINGS. Now, when Ms. Warren was setting up the agency, and you may be familiar with this, she talked about how she

regularly met with bankers, trying to work things out. You know,

it seems like folks think that a person in your position is the bogeyman, that you are going to go around and you are going to harm,

I guess, the banks. I don’t know what they think. And they forget

that your main objective is to just make sure that there is a fair

playing field, a fair playing field for the banks, but also for our constituents, the ones who live in our neighborhoods and the ones who

want and deserve to have this kind of agency moving forward and

doing what you are doing.
26

Now, she was moving around, meeting with the banks, and trying to work out things. For example, she often talked about the

forms, simplifying mortgage forms, things of that nature, and how

she was able to work things out with banks and lending institutions. Can you tell us about what your plans are?

Mr. CORDRAY. Sure.

Mr. CUMMINGS. Do you plan to continue that kind of effort? Because I see this as a win-win. Go ahead.

Mr. CORDRAY. I agree with that and I think that bankers and

community bankers and our credit union heads who know me best,

the ones from Ohio that I worked with over the years when I was

a treasurer both at the State and local level, know that I reached

out to them, I created advisory councils so they could help us work

better, and they did.

We are going to have, I have already pledged to the community

bankers, we are going to have a special community bank advisory

council in this Bureau and we are going to have a credit union advisory council, as well, because we need to hear from them because

I do think that their interests are often aligned with those of consumers. Their business model is a customer-facing, customer service delivery model. That is the model we want to encourage in the

marketplace, so we need to hear from them to how we balance our

work.

Mr. CUMMINGS. Now, I see my time is up, but, again, welcome.

We look forward to working with you.

Mr. CORDRAY. Thank you.

Mr. MCHENRY. We will now recognize Mr. Meehan of Pennsylvania for 5 minutes.

Mr. MEEHAN. Thank you, Mr. Chairman.

And thank you, Mr. Cordray, for not only being here today, but

your commitment to this process as a former prosecutor. I certainly

share with you a deep concern for those who are, in appropriate

times, taken advantage of by some of these instruments. And I am

pleased to see you spending some time talking about the relationship with community bankers.

You have developed the idea of how the playing field can be

unlevel with respect to those who are unregulated and you have

spent some time talking about how important it is that community

banks, in your own words, can provide tailored products and services. They, in effect, know their communities the best, and one of

the fears I have is the tremendous authority you have to be looking

at any kind of an instrument, so this fine relationship on oversight.

Now, the first question I have is you are going to be regulating,

to some extent, the banks that are over $10 billion in assets, according to this. But at the same time we still have four agencies,

the Federal Reserve, the OCC, FDIC, National Credit Union are

going to be still maintaining their oversight over the community

banks. How are you going to work together to assure we don’t have

a trickle down, the things that you have, that you are making regulations with respect to either the $10 billion and up don’t trickle

down and create a whole new set of problems for community

banks? And how are you going to work in concert with all of these

other regulatory agencies that still have authority over them?
27

Mr. CORDRAY. So, Congressman, I think that is an extremely insightful question because it is something that we are wrestling

with and trying to figure out as we go, and I would suggest that

it is a topic that you all should continue to focus on as we go forward over this year and the next and bring each of the banking

agencies in together to talk to us about how are we coordinating,

how are we collaborating together, what are we doing to minimize

any duplication. For example, the law requires us to coordinate our

supervision exam schedules with the other regulators, who are still

being in some of these same institutions. That is something we are

trying to do on a timing basis. We should be coordinating on the

kind of guidance or regulations that we——

Mr. MEEHAN. As a former attorney general, one of the difficulties

is the most dangerous place to be is between a television camera

and one other regulator that thinks they have the big case. So how

are you going to deal with an agency that doesn’t want to work

with you but says, no, this is our authority, we are going to do this,

we are looking at this issue?

Mr. CORDRAY. If people really don’t want to work with you, that

creates a problem and it is not an easy one to get around. But let

me give you an example. The chairman mentioned we have just

completed a very strong and detailed memorandum of understanding with the Federal Trade Commission, because we do have

overlapping jurisdiction.

And we had two goals in mind here that really came out of discussions we had with the U.S. Chamber. The first is that we should

not ever double-team companies, we shouldn’t have duplicative actions. By the way, that is not only bad for them, it would be bad

for us; it would be a waste of resources. We have limited resources,

so——

Mr. MEEHAN. May I do this? Because I am sensing you the commitment to work together.

Mr. CORDRAY. Yes.

Mr. MEEHAN. Because I have one more question I want to ask.

Mr. CORDRAY. Okay.

Mr. MEEHAN. I would like to ask if you would do two things: if

you would make a commitment to see the extent to which you can

reach memoranda of understanding with some of these other agencies, as well as asking, to the extent you can, I don’t want to nail

you down with commitments, but that you will do impact analysis

on when the regulations are made for the institutions above $10

billion, you will do an impact analysis on how it will affect community banks when those regulations or other determinations are

made.

Mr. CORDRAY. I made that commitment in my testimony in my

nomination at the Senate Banking Committee and we are starting

down that road already. I had a big call with a number of the community bankers through the ICBA last week, might have been the

week before last, they are kind of running together a little bit right

now, in which we pledged to do that. And with our remittance rule,

which we just put out, we have added and proposed a further

tweak, which is to figure out is there a threshold below which that

rule should not apply. And that is the approach we are going to try

to take generally.
28

Mr. MEEHAN. Thank you for that commitment. I have one quick

area I would love to spend more time on.

Mr. CORDRAY. Sure.

Mr. MEEHAN. You have tremendous authority when you are dealing with institutions once you determine to do an investigation,

and it includes the ability to effectively ask them for all kinds of

information, including what you can determine, confidential and

privileged information. One of the real fears I have is the standard

you are going to use before you request confidential and privileged

information, and then the second is, in light of the McKesson situation and other things which I imagine you are familiar with from

our days as prosecutors, how you are going to protect that against

third parties that may be trying to access that.

Mr. CORDRAY. That is an issue that the big financial firms, and

not so big, have raised with us. It is a concern for them. There is

a bit of an omission in the statute where there is a mention of

other banking agencies that have a special provision for them. We

were not included in that. That is an oversight that Congress may

want to look at and may want to fix.

Mr. MEEHAN. I am sorry, what is that oversight?

Mr. CORDRAY. There is a special provision that was added somewhere in the course of the last 10 years that specifies that when

privileged information is provided to a banking agency, that that

does not waive any privilege against third parties. It is very much

what you just described in your question. However, instead of simply saying banking agencies, where I think we could fit comfortably, it is specified by name, certain ones. We were not in existence then. When we came into existence, it was not noted to fix

that provision in the statute. I had said that we would be supportive of that.

In the meantime, we are working with financial institutions to

try to allay their concerns and help them see that we recognize the

problem, and we want to do all we can both to do our work effectively, which is important, and to be mindful of that concern for

them, which is a real concern.

Mr. MCHENRY. The gentleman’s time has expired.

Mr. Welch of Vermont is recognized for 5 minutes.

Mr. WELCH. Thank you, Mr. Chairman. Mr. Chairman, I want to

thank you for calling the hearing. There is a lot of controversy

about the financial services industry and what happened after the

meltdown, and to some extent I sense that the concern that is expressed by the calling of this hearing is one of excessive regulation.

That is a legitimate concern. We need regulation. I happen to think

that the failure to have regulation caused a lot of harm.

But if we have too much regulation, that can get in the way of,

like what Mr. Meehan was saying, the facility of consumer banks,

pardon me, of small banks that can be collateral damage from some

of the regulatory provisions in Dodd-Frank that were intended for

the large banks. When in Ohio and in Vermont, our small banks

were doing the job and not causing the problem.

But, Mr. Chairman, I just want to remind Members, because I

think this should put your mind at ease. Mr. Cordray comes from

Ohio. He has Republicans and Democrats who were getting hammered. He saved over $2 billion for consumers in Ohio, and the
29

folks who were on the saving end of that didn’t look at that as a

Republican or Democratic deal, they just had a voice in the regulatory process, an attorney general and a treasurer who was going

to do the job for them. And I also noted in Mr. Cordray’s history

that he got an award from the Better Business Bureau. There are

a lot of small businesses who had access to the process felt they

had a place that they could go to to get fair consideration for the

concerns that they have.

Also what I have heard in the testimony that Mr. Cordray has

provided is that one of his concerns will be whether the regulations

are working. It is not as though every regulation is a good regulation. Too much regulation gets in the way.

And I want to give you a chance, Mr. Cordray, just to address

that particular concern, which I think is a concern that many of my

Republican colleagues, understandably and legitimately, have.

Mr. CORDRAY. Thank you, Congressman. Appreciate the kind

words.

In terms of regulations actually working, we are in a good place

on this issue, and maybe a unique place, because we are a brand

new agency that just came into existence. We don’t have any vested

interest in what’s been done before, and yet we have now inherited

just a forest of regulations from other agencies. And one of the first

things that we have determined that we need to do and want to

do is we published a notice in the Federal Register to say that we

are interested in considering how we can streamline our inherited

regulations. Where can we reduce the burden without sacrificing

anything in terms of consumer welfare?

And the reason this is important is you have a lot of rules that

are developed from time to time, and they kind of add up over

time. But with each new rule it is well intentioned, there is a purpose you are trying to serve.

Mr. WELCH. Right.

Mr. CORDRAY. But there isn’t, often, a consideration of when you

put this against the entire mass of rules, is it too much?

Mr. WELCH. Okay. So would it be fair to say, in your view, simple and clear beats complex and confusing?

Mr. CORDRAY. Every day of the week, yes.

Mr. WELCH. All right.

Mr. Chairman, you heard it here.

Also, we need to have the opportunity for small businesses, for

kids with student loans, for folks who are trying to hang on to their

house to have some place they can go to to get an answer. There

are some Vermont situations. A woman called, her son’s student

loan is with the Department of Education and Sallie Mae. She is

trying to get an answer and hasn’t gotten one for 30 days. They

make $44,000 a year and she is the sole provider for three sons,

and she has no place to go.

Another situation. This is, again, a Vermont situation. A dad

called our office about his son who was in a bad car accident, unable to return to school full-time. After the accident he received a

bill from the bank demanding payments on the loans immediately

after graduating and then claiming that the grace period that you

get is the recovery period that he had while he was in the hospital.
30

Another one, Bridget, 29 years old, significant student loans with Sallie Mae in the American education loan, $176,000. She has been

making her payments, $7,000 in interest in a year, but she can’t

get by. Sallie Mae has not been willing to discuss negotiating any

kind of payment.

Under the Consumer Protection Finance Agency, would these

Vermonters be able to call your office and at least get a yes or no

answer on what they could do and some help through the process?

Mr. CORDRAY. Let me say generally we have all heard the horror

stories about mortgage servicing, and I know you hear from the

same people we do. There is a growing problem in the student loan

servicing realm as well. It is of concern to us. We are aware of it.

We are taking consumer complaints on our Web site thus far about

credit card products and mortgage products. We are going to expand to other products soon and student loans will be one of those.

In the meantime, we are working on trying to simplify and clarify, as you said earlier, simple and clear is better, the student loan

shopping worksheet that we have worked on with the Department

of Education to try to make things easier for students and their

families to understand what choices they are making. So it is an

area that is of great importance. We know how tuition has grown

and the burdens on people have multiplied, and then they are

stuck with these other problems that occur.

Mr. WELCH. Thank you. I yield back.

Mr. MCHENRY. I thank my colleague.

And to state for the record, the hearing is entitled, How Will the

CFPB Function Under Richard Cordray? The intent of this chairman who called this hearing was to understand the consequences

of the appointment of Mr. Cordray as head of the CFPB in this unprecedented action the President took and the legal consequences

as a result and uncertainty that that would create. So that is the

intention.

With that, I recognize the full committee chairman, Mr. Issa, for

5 minutes.

Mr. ISSA. Thank you, Mr. Chairman.

Greetings. Welcome. You know, it is my hope that there won’t be

any long-term controversy on your appointment, and I certainly

would like to see certainty sooner, rather than later, in your position.

Let me go through a couple of things, and Mr. Welch kind of

asked one of those questions that leads a point. We think we know

what your agency can do. Would you make it clear that, for example, your agency cannot order some entity to take existing contract

law and simply discount it? That it is beyond the scope of your new

agency to say, yeah, we want Sallie Mae to cut principal and renegotiate? As a matter of law, that is not within your purview, is

it?

Mr. CORDRAY. We have the limited authority that has been given

us by Congress. Our authority is to follow that law, it is not to disrupt or interfere with other sources of law. Another example is that

in the statute Congress made it plain that we had no authority to

set the interest rate on any product, to price that product. There

are States who are doing that on payday loans and other things,

but that is not within our authority to do.
31

Mr. ISSA. Well, thank you. I will mention that this Congress, or

a previous Congress, has wrestled with that same difficult task.

Mr. CORDRAY. Yes.

Mr. ISSA. And I don’t envy you having to at least have people fully understand that if you take a 1-day loan out and it is $12 of

fee or interest on $100, it is a lot of money, but it is probably, if

you really look at the cost of processing, less than the cost of processing. So we often have exactly that problem, is how do we keep

gouging, how do we define gouging and prevent it. Hopefully, your

agency will do a good job of making sure at least the consumer is

informed, even if it is not within your power to change that.

Mr. CORDRAY. Right.

Mr. ISSA. Let me go through a couple of questions. And I know

this is difficult, that you are sort of being asked about how you got

appointed more often than you are asked about what you are going

to do with your appointment, but as a fellow Ohioan, I will try to

make this as painless as it can be here today, although I represent,

now, California.

You know there is a controversy and that there is a legal challenge. I presume that you have looked at at least some of the President’s council’s opinion, other justices’, so on. You are familiar with

it as one studied in the law.

Mr. CORDRAY. I did read the Justice Department opinion.

Mr. ISSA. And I would presume that your opinion is that it is a

good opinion, even if it is the opposite of the Bush opinion in a

similar situation, and that you are going to remain on the job as

a result.

Mr. CORDRAY. I believe the appointment is valid and, given that,

I now have legal responsibilities under the law of the land to carry

out my role as director for the Bureau, yes.

Mr. ISSA. But I am concerned for our country and I am going to

ask you a difficult question. Have you begun seeking counsel,

weighing how you could mitigate, if the administration was wrong

and we find that there is, through suits and challenges, a question

of actions you take? In other words, do you have a plan B? Have

you looked for ways to ensure that even if your appointment ceased

to be valid, that the work that you are overseeing would somehow

have the ability to continue on because of some level of redundancy

of authority?

Mr. CORDRAY. Mr. Chairman, it is a good question and it is a bit

of a dilemma, which is I have been appointed to be the director.

There are certain legal responsibilities I now have and the Bureau

has: we have to go forward with rulemakings; we are under specific

deadlines; we have to carry out the intent of that law, which is well

intended to better protect American consumers. Either we do or we

don’t, it feels to me. And it seems to me that the right answer is

that we do and we need to go ahead, and that is what we are doing

and that is what we will continue to do.

Mr. ISSA. Although my question was a little bit more narrow.

Have you looked into forms of redundancy or some way to ensure

that you still do what you want to do, what you believe your mandate is to do, but that you can look at action after action and ask

the question during this period of uncertainty, as the NRLB and

other—you are not the only person in this kettle of stew, but have
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you looked at ways to ensure that this committee, in our oversight,

looks and says how many of these things would have to be redone,

how much waste would there be in government, and so on, and to

mitigate that.

Look, I am not asking, and I want to make it very clear, I am

not asking you to act as though you weren’t appointed. I want you

to act as though you were appointed. I think that is your responsibility. The question is more as we as a committee look at the ramifications of any time there is uncertainty to an appointment for a

period of time, what can we see done to reduce the chances that

that uncertainty, if it were to ultimately culminate in a question

of law in this case.

And we could have the same argument, by the way, of the law

that the President signed, well, he says the Senate was in recess.

You can’t pass a bill in recess. The flip side of that is if you appointment is legal, then the law the President signed which was

passed while in recess may be in doubt.

So I will let the Senate and the President worry about the law,

but have you looked at that or would you agree here today to at

least put some time and energy into asking how many things

would sustain your departure should, for any reason, that occur?

Mr. CORDRAY. I will give it some thought, Congressman, and I

understand the tenor of the question as you explained it further.

I do think the one thing that we could not do, and I think it would

be dereliction of duty, would be for me to say we are not going to

go forward and do the things the law of the land now tells us to

do because I am going to somehow act as though I was not appointed. I just think that is not tenable. And as to the rest of it,

I will give it some thought. If you all have insights, I would be

happy to have you share those with me.

Mr. ISSA. And I would be glad to share it with you off the record

or off this hearing. Candidly, my challenge is I look and say I want

whatever your thousand people, by the time the end of the year

comes, I want them to make sure that they do not waste their time

in something that has to be redone.

I might note that all of us on the dais are aware that sometimes

we have to recuse ourselves, but, you know, one of those things is

if we know that a vote is going to come out exactly the same

whether we recuse ourselves or not, sometimes it is a lot easier to

say, you know, caution says recuse yourself so they can’t question

the vote, while ultimately the same outcome occurs. And that is a

lot of what I am asking for, that at least you be concerned enough

to ask the questions of can we have belt and suspenders for a period of time while these challenges go on.

Mr. CORDRAY. I understand the concern.

Mr. ISSA. I thank you very much and thank the chairman.

Mr. MCHENRY. Mrs. Maloney from New York for 5 minutes.

Mrs. MALONEY. Welcome, Director Cordray. I believe your appointment reflected the overwhelming consensus in the American

public that reforms were needed to prevent another crisis and that

the creation of the Consumer Financial Protection Board, and the

Credit Card Act and other consumer protections, were deeply needed. In fact, I have a letter here that was signed by 49 Members of

Congress in support of your confirmation and I am glad to hear
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there is some support on the other side of the aisle for your appointment, and I would like to put that in the record.

I would like to—is there consensus, overwhelming consensus to

place this in the record?

Mr. ISSA. I would ask unanimous consent that her statement be

placed in the record.

Mrs. MALONEY. Thank you, Mr. Chairman.

Mr. MCHENRY. Without objection.

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Mrs. MALONEY. And some of my colleagues have expressed concern that there is not enough oversight. I know one of my amendments to the bill was to require that you come before, the director

come before Congress twice, but I would like to put in the record

that in the last 12 months, 11 months there have been 12 hearings

with the CFPB before Congress, and also I would like to place in

the record statements by all of the leading consumer protection

groups in support of the CFPB going forward in your appointment.

Mr. MCHENRY. Without objection.

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Mrs. MALONEY. So I feel that we suffered tremendous loss. We

are still suffering. People are losing their homes and we lost trillions of wealth in this country because of, truly, mismanagement,

and I would like to try to understand why people are opposed to

your appointment, because isn’t it true that one of the new authorities that the CFPB has is the ability to issue regulations to prohibit unfair, deceptive, and abusive practices as they relate to financial products? Is that true? Is that one of your goals?

Mr. CORDRAY. That is one of the authorities that the law gives

us, yes.

Mrs. MALONEY. And before that there were a number of agencies

that had roles to play, but too often consumer protection was an

afterthought, a secondary thought, a third thought, or as we saw

in the subprime crisis, not thought about at all. So I think that creating an agency that focuses on consumers and preventing unfair,

deceptive, and abusive practices should be a goal that all Americans support.

In fact, I would like to place in the record a letter from the U.S.

Conference of Mayors that was sent to Senate Majority Leader

Reid and Minority Leader McConnell, and I think it pointed out

very clearly that without a director the new CFPB is hamstrung

in its ability to hold nonbank firms accountable and to rein in some

of the financial practices that contributed to the economic downturn that hurt so many individuals, so many communities, and our

overall economy. It went on to say the agency is not able to use

its authority to prohibit unfair, deceptive, or abusive acts or practices, or to issue new rules requiring better disclosures of the terms

of financial products. And they go on to urge a swift appointment

of a director so that we can get out there and protect consumers.

And I would like to ask you——

Mr. MCHENRY. Without objection, that will be entered into the

record.

Mrs. MALONEY. Thank you so much.

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Mrs. MALONEY. Why do you think opponents fear the Bureau’s

ability to prohibit unfair, deceptive, and abusive practices? Why are

people trying to stop the agency from going forward to protect people? Do you have any idea why this is happening?

Mr. CORDRAY. Well, Congresswoman, I take people at their word

and I assume that the concern is with potential overregulation and

uncertainty affecting the markets. I think my experience is that

people on both sides of the aisle are trying to do what they think

is right, and I take that at face value.

Mrs. MALONEY. But there is more oversight over this Bureau

than any other in terms of the capping of the budget, in terms of

appealing to the financial stability on any rules. So why would anyone want to strain or delay the CFPB’s ability to prohibit these

kinds of practices, to prohibit and restrain unfair, deceptive, and

abusive practices? You testified earlier that you had more oversight

of your actions, they can even repeal actions by the CFPB. So I am

having difficulty understanding why people want to delay, stall, defang. Do you have any idea why some people feel that way?

Mr. CORDRAY. I don’t have a very informed perspective on that

issue. I just know that I believe that the right thing for us to do

is to go ahead and do our work, and that is what we are going to

do.

Mrs. MALONEY. But some of these have caused substantial injury

to the American public, abusive practices, toxic products. Is that

true?

Mr. CORDRAY. Look, I think——

Mrs. MALONEY. The subprime crisis, the ability to give mortgages

to people who can’t even pay their rent, much less a mortgage.

There was no oversight, no guidelines. There were abuses, you

have to admit.

Mr. CORDRAY. Look, in my lifetime, the single thing that hurt

more Americans than anything I have ever seen was the financial

crisis, the meltdown, the recession. Millions of people lost jobs. Millions of people lost homes. I do think that one of the significant

causes of that were the problems in the markets that were allowed

to develop and metastasize. And I think that we can help head that

off in the future and, if so, that would be a very good thing.

Mrs. MALONEY. I agree. Congratulations on your appointment.

Mr. MCHENRY. I hate to interrupt, but the gentlelady’s time has

expired. I do appreciate the exchange of ideas and thoughts and we

will continue on.

Mr. Gowdy from South Carolina is recognized for 5 minutes.

Mr. GOWDY. I thank the gentleman from North Carolina.

Mr. Cordray, my first question has something of a lengthy predicate, so I would ask you to bear with me, and then the rest of

them, hopefully, will be a little quicker predicate.

Recently, the CFPB released a document on examination procedures for short-term, small dollar loans. In testimony last year before this committee, Professor Elizabeth Warren stated the principle role of consumer protection regulation in credit markets is to

make it easy for consumers to see what they are getting and to

make it easy for consumers to compare one product with another

so markets can function effectively.
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On page 2 of the examination procedures, in a footnote, it is stated that overdraft lines of credit and services do not fall into the

definition of short-term, small dollar loan. Both the FDIC and Federal Reserve had indicated consumers use overdraft protection in

substantially the same way they would other short-term loan products.

Why have you decided to exclude these products from guidance?

Mr. CORDRAY. Thank you, Congressman, for the question. I don’t

think it would be fair to say that we are excluding these products

from guidance, but when you try to define the market for small

consumer loans there is actually a variety of potential products

there; there is payday loans, there are car title loans, there are

pawn brokers, there are other sort of rent-to-own type products.

There also, as you note, overdraft protection is an alternative that

can give you access to short-term money for considerable fees, typically, and there are issues around that the other regulators have

already recognized and that we see as well.

It is typically the case that when you are talking about overdraft

protection, you are talking about a deposit institution, a bank and

a bank account. A payday loan is a nonbank product, typically; not

necessarily. There are some new products some of the banks are

starting to offer that they call some version of deposit advance

products. But this is a somewhat different product and it is not,

itself, a deposit type product. So I think we were trying to focus

our exam guidance there on a particular type of product in the

nonbank sector.

But I think you are absolutely right to note that there are comparabilities between that and overdraft protection in the effect on

consumers, and there is also comparability between those and the

deposit advance products that a handful of banks and perhaps others to come are starting to offer, and credit unions have a shortterm product as well, stretch pay and other things it is typically

called.

Mr. GOWDY. Well, to your credit, I have not heard you demagog

this morning or this afternoon, but there is a lot of conversation

about Wall Street versus Main Street. There is a Wall Street in my

hometown; it is about two blocks long. I don’t think there are any

businesses on it; it is near the courthouse. Main Street is much bigger, much wider, many more businesses, and there are some businessmen in the State of South Carolina, and I suspect in other

States, who have asked legitimately why their business is being

treated differently from others.

So I heard your explanation. I would just ask you to be sensitive

to the fact that many people use overdraft protection as a form of

a loan, and if the numbers are right, 20 million people choose to

go another route. And there was a lot of fear that your putative

predecessor wanted to ban payday lending. So I would ask you do

you want to ban it?

Mr. CORDRAY. Congressman, I don’t look at these issues in terms

of banning products. What that provision of the code talks about

is addressing unfair, deceptive, and abusive acts or practices. One

of the things we did, you may have seen last week, we went to Birmingham, Alabama and held a field hearing on payday lending. It
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was important for us to do that because, in particular, we need to

know more about all the perspectives on this product.

There are some issues that we have seen in terms of potential

unauthorized withdrawals from bank accounts that would be illegal; there are some debt collection tactics being used that would be

illegal. In terms of the structure and core essence of the product

itself, we felt we need to know more about it and we were pleased

that in that hearing we ended up hearing pretty extensively from

both sides of the issue. It gave us a lot to come back and digest.

But I think that we need to analyze this, we need to think carefully about it, we need to hear from people and then we can make

judgments. But to try to make judgments just off the top of our

head is not the right approach.

Mr. GOWDY. You made reference to conduct that is currently illegal. The last time Professor Warren was here, I counted and my

colleagues made use of the word illegal or unlawful 19 different

times, which, as a former prosecutor, strikes me that if it is currently illegal and unlawful, why aren’t people being prosecuted for

it? Have you had any conversations with the Department of Justice

about the status of any of their lawsuits that may have arisen from

the 2008 collapse?

Mr. CORDRAY. We have discussions with the Department of Justice about their work and our work. We actually signed a memorandum of understanding with them also, before the end of last

week, which we were required to do by law so that we could coordinate. I will tell you that we have also reached out to the U.S. attorneys, who have a great interest and who told us, frankly, that had

they known more about mortgage fraud in the early part of the last

decade, there were cases they could have dealt with that they did

not see the significance of, and they regretted, some of them, that

they did not.

While we were in Birmingham, we coordinated closely with the

U.S. attorney for that district of Alabama, who was interested in

how payday lending issues affect her constituents, and we are

going to try to take insight and guidance from others on this as we

think about the right approach, but we are at the beginning of

that.

Mr. GOWDY. Mr. Chairman, can I ask a question that would have

a one word answer?

Mr. GUINTA. Mr. Chairman, I would ask for unanimous consent

to give the Member 1 additional minute.

Mr. MCHENRY. Without objection.

Mr. GOWDY. I thank the chairman and the vice chairman.

You mentioned the U.S. Attorney’s Office and Department of Justice. Have the statute of limitations expired on any of the cases

that they wish they had known more about?

Mr. CORDRAY. I am sure that they have because some of the

mortgage fraud cases, in fact, when I was a local treasurer and we

saw irregularities in our local real estate market which turned out

to be flipping schemes and scams, that was 2004, 2005. You know

better than I, we depend on exactly what the nature of the criminal

activity was that would be charged, what the limitations period

would be. Some of those I think probably very likely have expired;

others probably have not.
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Mr. GOWDY. Thank you, Mr. Chairman.

Mr. MCHENRY. I thank the committee’s indulgence.

Ms. Speier from California is recognized for 5 minutes.

Ms. SPEIER. Thank you, Mr. Chairman.

Mr. Cordray, welcome. We have awaited your appointment for a

long time and, as one Member, delighted that you are now on the

job doing the people’s business. I would also like to point out to my

colleagues that recess appointments are not unusual. In fact, President Clinton made 139, President George W. Bush made 171, and

President Obama has made a little over 30. And I think that your

appointment is very key to us being able to move forward and protect consumers in America.

Let me ask you a couple questions. We got off on payday lending

just a moment ago and, as you are certainly aware, there are more

payday lenders in this country than there are McDonald’s franchises. My question to you would be is it abusive for a lender to

charge a 400 percent interest rate?

Mr. CORDRAY. That is an interesting and difficult question. There

are States, including my home State of Ohio, that have made a determination in the legislature to cap the interest rate on payday

loans in Ohio. The cap was set at 28 percent.

As I mentioned earlier, we do not have the authority as a Bureau, the statute is very clear, to cap any interest rates on any financial products. There is clearly a demand for small consumer

loans that shows up in the demand for this product, even though

it is a pretty tough product to sustain over time, so it is something

that we, as I said, we just conducted a field hearing on the issue

because we are very interested in it, we need to know more.

We were happy to hear from all sides, both industry and customers of industry, and also those who are opposed to its affects

in their community, and it is something that we are going to continue to size up. But I think——

Ms. SPEIER. All right, thank you. Let’s move on. Why don’t you

tell us how many complaints you have received from consumers in

this country since the Bureau has been established.

Mr. CORDRAY. We have received thousands, and the volume of

complaints we receive is growing, I assume as our visibility grows,

and also because we are phasing in periodically the handling of different kinds of complaints as we built from scratch. We started

with credit card complaints. In December we added mortgage complaints, which I am sure you all know because you all get constituents who are you telling you their stories and asking for help. Immensely more complicated, but we have been getting a higher volume of those now. We are going to add other products as we go

over the course of this year and take complaints on those as well,

but we are hearing a lot from people.

Ms. SPEIER. And what are you hearing about the complaints relative to credit cards?

Mr. CORDRAY. We hear all kinds of things. You can imagine. We

hear all the things that you hear. We hear complaints about

charges and fees that people don’t understand why they are there.

We get complaints about changes in interest rates that they don’t

understand why that happened. We get complaints about——
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Ms. SPEIER. All right. Excuse me for interrupting, but there are

a couple of questions I want to get to.

Mr. CORDRAY. Sure.

Ms. SPEIER. Let me ask you this. Financial privacy is a huge concern to most consumers, and when you fill out your application for

a credit card or for a mortgage you are doing it for that specific

purpose, not to have it then sold to third parties to be used in

whatever ways they deem appropriate. Some States have passed

laws to protect financial privacy and give consumers the ability to

opt in or opt out. Do you have any interest in pursuing that within

your Bureau?

Mr. CORDRAY. We inherited, I mentioned earlier about overdraft

protection. There is opt in, opt out rule that was adopted with respect to that product. I think that there are other areas where that

can be an appropriate approach, and we also have inherited some

authority over Gramm-Leach-Blilely and some of the financial privacy issues for consumers that are of great concern.

When I was attorney general, perhaps when I was treasurer of

Ohio, we had a credit freeze bill in our legislature that I testified

in support of which had to do with your ability to protect your financial information against identity theft, which is the fastest

growing crime in the United States and a very easy crime for people to perpetrate anonymously through the Internet. So it is an

area of real concern and it is something that I know Congress has

been concerned about and has legislated on it. We will be looking

at those issues with respect to the consumers we hear from. And

there is something of a difficult balance there, but some of these

issues don’t seem quite as hard.

Ms. SPEIER. All right, in the 9-seconds I have left, on student

loans, a huge problem. You said in a New York Times article earlier this month it could be a redo of the subprime market. Do you

believe that private loans should be extinguished at death or not,

private student loans?

Mr. CORDRAY. I don’t have a position on that issue; it is not

something I have thought carefully about, so I wouldn’t want to

opine off the top of my head. The total student loan burden is still

much smaller than the mortgage debt in this country, but it is

growing fast and, in fact, it is probably growing faster than any

other kind of consumer debt. So the whole area is one of concern,

but I don’t have a position for you today on whether that should

be extinguished at death; that seems like a matter for Congress.

Mr. MCHENRY. The gentlelady’s time has expired.

With that, I will recognize——

Mr. QUIGLEY. I am sorry.

Mr. MCHENRY. The ranking member seeks recognition?

Mr. QUIGLEY. I am sorry.

Mr. MCHENRY. For what purpose does the gentleman seek recognition?

Mr. QUIGLEY. I apologize, Mr. Chairman. The ranking member of

the full committee, Mr. Cummings, was going to ask unanimous

consent to have a letter he wrote dated January 23, 2011, to Chairman Issa on this matter entered into the record.

Mr. MCHENRY. Reserving the right to object. Is this a letter presented—what is the nature of the letter?
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Mr. QUIGLEY. I was just handed the letter. I was doing the chairman a parliamentary favor.

Mr. MCHENRY. I certainly understand. I certainly appreciate the

ranking member and, without objection, this will be entered into

the record.

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Mr. MCHENRY. With that, we will recognize Mr. Ross of Florida

for 5 minutes.

Mr. ROSS. Thank you, Mr. Chairman.

Mr. Cordray, I think you are going to have your hands full with

regard to legitimizing not only your appointment, but also the

agency with which you are going to lead. I have had a chance to

review not only your opening statement, but also listen to it, and

you make several references about the Consumer Bureau will benefit honest business, will support honest businesses, honest businesses want to compete in a market where buyers understand the

terms. I think in your conclusion you say to make the financial

markets work better for consumers and honest businesses that

serve them.

What constitutes an honest business?

Mr. CORDRAY. To me, an honest business is a business that

abides by the law and competes in a fair way in the marketplace.

Let me give you a couple examples of what I saw as dishonest

among businesses over the years. When I was a local treasurer, I

was responsible for collecting delinquent property taxes, and we

saw certain businesses that would put a low priority on paying

their property taxes because it gave them a cost advantage if nobody went after them and never enforced the law against them,

and I made it a point to do that to level the playing field on behalf

of all the law-abiding taxpaying businesses.

I could give you other examples.

Mr. ROSS. Would it be just safe to say simply that it is what you

have been charged with, to prevent an unfair, deceptive, or abusive

act or practice? I mean, does that constitute an honest business?

My point is, Mr. Cordray, is that there are little, if any, standards

by which your regulatory control should be exercised.

And I guess my concern is that you have been given broad powers and now we are saying we are only going to—I think business

is business and I think saying an honest business means that all

other businesses out there aren’t honest, and I guess what I am

asking you is in your rulemaking is there a standard, is there

something that says this is the level with which we are going to

hold businesses accountable?

But, more importantly, at what point do you hold them? Because,

again, you are a whole new agency and you are looking at a business community that is out there and says at what point do they

get involved from a regulatory view. Do they get involved and say

do not make this loan? Do they get involved after the loan is made

and say you shouldn’t have made this loan and we are going to fine

you and correct performances here? That is my point.

Mr. CORDRAY. I think I understand your question better than I

did when I answered it before. So we don’t have authority as a Bureau to attack or make judgments about a dishonest business. Dishonesty in itself doesn’t violate the law, but I do think this is a

term that most people can understand. And I will tell you, I saw

and I took on dishonest businesses when I was a State attorney

general. I saw businesses that were fraudulent, businesses who

were scams. They were making money, they were businesses, but

they were violating the law.
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Mr. ROSS. And I understand that you utilized private law firms

to prosecute some of these suits against businesses that were in

violation in furtherance of your enforcement duties. Is that something that you are going to seek to do also in your capacity, to utilize private law firms to do that, plaintiff law firms?

Mr. CORDRAY. No, it is not.

Mr. ROSS. Okay. With regard to I guess after your first 4 months

you received over 5,000 credit card complaints that you investigated and I think only 400 of those came back by the consumers

saying they weren’t resolved to their satisfaction, or approximately

8 percent of those. Did you collect data as to whether those 5,000

were as a result of illegal activity or just customer dissatisfaction?

Mr. CORDRAY. It has been an interesting area for us, Congressman, as you can understand. We weren’t sure what we would find

when we started out, and what we are finding is that there is a

considerable willingness on the part of the financial institutions

and consumers, once we can get them to work together to see if

they can figure out and resolve those issues. We are going to continue to analyze this as we go. We just have a little bit of data so

far; we will have more as we go. A lot of it is disagreements and

misunderstandings and just different points of view. Some of it

is——

Mr. ROSS. But this data that you are collecting—and let me ask

you this.

Mr. CORDRAY. Yes.

Mr. ROSS. Is this something that you want to expand further into

the mortgage lending industry?

Mr. CORDRAY. We are now taking complaints on mortgage issues,

yes.

Mr. ROSS. And the data that you collect, do you intend to share

it? Is it something that you want to just keep for internal purposes,

or what do you want to do with that data?

Mr. CORDRAY. Sure. The first thing we do with the complaints is

we make efforts to get the complaints resolved. We refer them to

the financial institutions. They have actually been very cooperative

with us. I think they understand that this is good business for

them. I think often they prefer that the customers go to them directly rather than coming to us, but it is the same difference in the

end. We also then are collecting the data about what the consumers are telling us and what——

Mr. ROSS. Will you maintain this confidentiality? That is the important thing.

Mr. CORDRAY. Well, that is a hard question that we are working

through right now. We have a notice out to hear from people about

how we should handle that data. We are subject, as you probably

know, to the Freedom of Information Act, so some of it has to be

public as long as we scrub it out of personal identifiable information. Some of these issues are quite complex. I will frankly say that

our lawyers are looking at them carefully. We want to be transparent, but we want to also not be unfair. So that is the balance

we are trying to strike.

Mr. ROSS. Thank you. I see my time has expired and I yield

back.

Mr. MCHENRY. I thank the gentleman.
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Mr. Connolly of Virginia is recognized for 5 minutes.

Mr. CONNOLLY. Thank you, Mr. Chairman.

Mr. Cordray, welcome to the committee and let me thank you for

your willingness to serve your country in a difficult role, and I very

much appreciate your being here. Let me also say, however, and

this may surprise my colleagues on the Republican side of the aisle,

I frankly share the misgivings about recess appointments.

From my reading of the Constitution of the United States, recess

appointments were intended to give the President the power to run

the government when there were long stretches of Congress not

being in session. And, frankly, in my view, recess appointments

have been abused by both Republican and Democratic presidents.

And if my Republican friends on this committee and in this body

actually want to correct that, not by using you as the example, but

by moving forward to correct that on a bipartisan basis, they would

find this Democrat more than willing to cooperate, because I think

it is another example of, frankly, executive encroachment on the

prerogatives of the legislature. That is a different issue.

Having said all of that, would that our hands being entirely

clean here in the Congress, but you can’t have it both ways. The

chairman indicated that your appointment was unprecedented. I

don’t know if that is true, but I do know this, that to have 44 Members of the other body actually write a letter saying, no matter

what, no matter the virtues, we are going to block any appointment

to this body to protect consumers of America, duly constituted in

the law, because my equal reading of the Constitution says the way

a law becomes a law is it passes both bodies, goes to the President

and is signed into law.

Now, you win or lose. I have lost some. I have had amendments

that weren’t accepted or were defeated. I have had amendments

that were passed. But once it becomes a law, we implement it.

That is our duty as legislators, it seems to me, and that is the duty

of the President.

It is unprecedented to have all but two Members of the other

party in the other body actually say, no, we don’t care if we lost,

we are going to thwart it anyhow. That is not how the Constitution

intended legislation to work. It is not at all an example of check

and balance in government, and it is, in my view, a perversion and

an abuse of the powers that the other body allows itself. And you,

unfortunately, are the unwilling victim of that power struggle,

which I think is extra-constitutional and strange coming from so

many who flash the Constitution in the public’s face saying first I

believe in the Constitution. But that is just me.

Mr. Cordray, could you explain to us what you think created

your Bureau? What was it that Congress had in mind, from your

point of view, that somehow we came up with this idea?

Mr. CORDRAY. Well, I think that Congress had several things in

mind. I think they had in front of them the very unhappy and destructive experience of the financial crisis, the credit crunch, the

meltdown. I was the State treasurer in Ohio in 2007 and 2008, so

I had to work to safeguard public funds in the wake of markets

that really weren’t functioning properly, and people were trying to

understand the causes of that and one of the causes, I am firmly

convinced, and I think Congress embodied this in creating the Bu-
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reau, was that you had the consumer finance issues that had largely been ignored at the Federal level that, when allowed to fester

and to grow, such as the mortgage irregularities, could actually, to

everyone’s surprise, gross or large that they threatened the safety

and soundness of the financial system.

Mr. CONNOLLY. I am sorry, Mr. Cordray, but just building on

your experience as attorney general and now from this perch,

would it be fair to say that in all of these examples you are giving,

foreclosures, the meltdown on Wall Street, banks teetering on the

edge, that this was in fact the worst such situation in all of those

categories affecting consumers, as well as the public at large, since

the Great Depression?

Mr. CORDRAY. No question.

Mr. CONNOLLY. So the need was imperative.

Mr. CORDRAY. It seems to me that there is a strong case for the

Bureau. That is what Congress enacted into law. No one had real

authority over these issues at the Federal level, it was parceled out

among many hands and it was a low priority for all those

involved——

Mr. CONNOLLY. I am going to run out of time, unfortunately, but

just real quickly, Holly Patraeus’s Office of Service Member Affairs,

isn’t it a fact a practice among some banks to foreclose on active

duty members while they are serving overseas?

Mr. CORDRAY. It has been documented that there were violations

of the Service Members Civil Relief Act, meaning foreclosures went

forward when they should not have done so for people on active

duty. I personally doubt that any of that was intended by the institutions involved, but they needed to pay closer attention to making

sure they complied with the law and I think many of them have

gotten that message.

Mr. CONNOLLY. I thank the Chair.

Mr. MCHENRY. With that, we will now recognize Ms. Buerkle

from New York for 5 minutes.

Ms. BUERKLE. Thank you, Mr. Chairman. And I want to commend my colleague, Mr. Connolly, with regards to his comments

about appointments.

I have a couple of questions, Mr. Cordray. Thank you for being

here and for answering our questions. My first question is in the

same line of question that I spoke of and asked Elizabeth Warren

about. You have heard from so many of my colleagues from the

other side of the aisle with regards to this horrendous meltdown

on the foreclosures and all of the issues. Fannie and Freddie are

not included or covered by Dodd-Frank, are they?

Mr. CORDRAY. I believe that they are not. There is nothing in our

Bureau that touches on that.

Ms. BUERKLE. Okay. So a big part of the problems that this economy faced and that poor American people faced in the foreclosures

wasn’t even addressed in Dodd-Frank, which concerns me greatly.

I have been a vocal critic of Dodd-Frank because of the overreaching, because of the uncertainty that it causes for so many

businesses and financial institutions that I have met with and certainly in the district, the community banks and the credit unions.

So that is of concern, and the fact that Fannie and Freddie weren’t
61

addressed, that is not going to get any better, their poor business

practices.

I just have a question with regards when Professor Warren was

here, she said that the CFPB is completely walled off from the Durbin Amendment, and I would like to hear your view of the CFPB’s

authority with respect to Interchange.

Mr. CORDRAY. My understanding of our statute is that the Interchange Amendment and the cap that was put on that was specifically not something that where any jurisdiction was granted to the

Consumer Bureau to address it, so that, I believe, would be the

reason why she would have made that statement. We do not enforce any of that, nor do we have the authority to amend or modify

by adopting rules any of that.

Ms. BUERKLE. So you would agree that it is walled off from the

Durbin Amendment?

Mr. CORDRAY. I believe that is so, yes.

Ms. BUERKLE. Okay. My last line of questioning, and I also took

this up with Ms. Warren when she sat here before us, and that is

with regards to your budget and the fact that you are not subject

to annual congressional appropriations and the whole pay scale for

the employees that will be employed by the Consumer Protection

Board. You mentioned to our chairman that about 757 folks have

been hired to date?

Mr. CORDRAY. As of end of last year, yes, several weeks ago.

Ms. BUERKLE. And how many are you anticipating that you will

hire until you get the entire board in place?

Mr. CORDRAY. It is hard to say for certain. Part of it depends on

how efficient we will find that we are doing our work as we go, but

I think our long-term estimates have ranged upward of 1,000 by

the end of this year, and probably we will need more than that

would be my sense.

Ms. BUERKLE. Any idea beyond the 1,000 how many?

Mr. CORDRAY. You know, if I had to guess sitting here today, I

would estimate probably somewhere finally between 1,200 and

1,500, which is smaller than the other banking agencies, but we

think that we can utilize technology and our partnerships to try to

have an impact even with smaller numbers.

Ms. BUERKLE. Now, on your Web site, and before I get into this,

and I have to keep watching my time, you are not going to follow

the Federal guidelines for salaries for Federal employees with regards to the board, the members?

Mr. CORDRAY. Here, as in every other area, it is our intention to

closely follow the law that we are operating under, and what Congress says in the law for us is that we are to be hiring, paying, promoting, retaining on the Federal Banking Agency pay scale, and we

are to be comparable in particular to the Federal Reserve. We did

check, in preparation for this hearing, and saw that thus far I

think we are 1 percent under the average pay bans for the Federal

Reserve, so I think we are following the law carefully there in trying to do what Congress told us to do.

Ms. BUERKLE. On your Web site there is a listing for open staff

position at CFPB as a training administrator. What is a training

administrator?
62

Mr. CORDRAY. Well, I am not familiar with the exact posting that

you may be asking about, but it certainly would sound like to me

that it is someone who is overseeing the kind of training programs

that we need to bring onboard either examiners or perhaps attorneys, train them in the laws that we are overseeing, train them,

if it examiners, in examination procedures that are rather voluminous that we are adapting from other banking agencies, and any

and all aspects of what is needed to make sure that they work effectively and efficiently.

Ms. BUERKLE. My time is up, but I guess I would ask you would

it surprise you to know that that training administrator, the starting salary is anywhere between $53,500 and $102,900?

Mr. CORDRAY. I would say that I know that on our scale, which,

again, mimics the Federal Reserve, we have wide pay bands. It is

very often our intention to fill those kind of positions at the lower

end of the pay band. I have seen that we have been caricatured at

times because people will pick out the high end of that pay band

and assume that that is what people are going to be paid. It is not

a valid assumption.

Ms. BUERKLE. Thank you.

I yield back my time. I just would ask, Mr. Cordray, if possible,

if he could provide the committee with the job titles and some description of what you intend the staff members to do that you will

be hiring 1,200 to 1,500, and possibly the pay scales that would go

with each one of those job titles.

Mr. CORDRAY. Happy to do that.

Ms. BUERKLE. Thank you very much.

And I yield back my time.

Mr. MCHENRY. Thank you.

With that, we will recognize Ms. Holmes Norton of the District

of Columbia.

Ms. NORTON. Thank you, Mr. Chairman.

Mr. Cordray, I want to congratulate you on your appointment

and thank you for your patience and for waiting out the process.

The President confronted an attempt to nullify the possibility of recess appointments, which are perfectly constitutional. Our President has shown great forbearance on recess appointments until it

became clear that his appointments of perfectly qualified candidates were being filibustered and held up. And, you know, unless

he was going to be a pansy, you have to step forward when you

find that kind of stonewalling of a process as intended by the framers.

My good friends on the other side opposed Dodd-Frank. They lost

and became sore losers, you became a hostage, and the President,

it seems to me, did the only thing that he could do if he meant to

enforce the law that was in fact passed.

Let me ask you. I am curious. We have seen something that

should tell, I think, everybody what kind of new consumer movement we have in this country, and I don’t know whether it would

have come under your jurisdiction. I don’t believe you were there

at the time, but that was the big Bank of America revolution,

where people rose up against these monthly debit card fees, where

you had to pay to get your own money out, a $5 fee a month, and

forced Bank of America to withdraw it. That didn’t take any regu-
63

lation, but it does tell us where consumers are today, and I want

to ask you would that have come under your jurisdiction?

Mr. CORDRAY. We do not have the ability, as I said, under our

law to set the price of any fee or the interest rate on any product.

However, what I would say about that set of circumstances was it

is interesting to see in every marketplace transaction, consumer

transaction, there is both a provider and then there is a lender and

a borrower or a provider and a consumer, and both sides of the

table have a certain power in the transaction, and it is important

that both sides recognize the provider needs to serve their customers if they are going to succeed in the long run and the customers need to make sure that they provide the provider with the

kind of information about what they are looking for, what they are

seeking, and they can always vote with their feet by going to another provider.

Ms. NORTON. Well, I wish that that were the case all the time.

What we had here was a set of young people who, like the Arab

spring, have found a new way to organize and I think will be giving

you a lot of help in consumer protection. I think it is a real warning to the Congress. There are people out there who have a way

to organize they have never had before.

I do not agree that people have the same ability as the market

has to simply walk away, and that would be a very dangerous

thing to do. We wouldn’t need you at all if that were the case. To

get some kind of balance so the consumer is not left out altogether.

So I don’t think that that is necessarily a harbinger of what you

will see in the future, but it does tell you there are a lot of people

out here willing to help to make sure the consumer is protected.

There is one group of people and that is the people who I think

have been most left out by this crisis, and that is the people who

have been abused by mortgage service abusers. We see the attorney general’s suit that is going on. The abuses that we learn of,

with no clear remedy, are hard to take, for example, illegal foreclosures against military service members. Do you have any plans

to address misconduct of this kind against mortgage service abusers?

Mr. CORDRAY. Under the new law we have considerable authority

and different tools to try to address problems in the mortgage market, including mortgage servicing. We have both rulemaking authority, we have the ability to go in and examine these institutions

and actually see what is happening, which largely did not occur

until about a year ago, and we have the ability to enforce the law,

which is very important to making sure people are held accountable. We will continue. That is a flashpoint, it is a very difficult

area, but it is an important one for consumers and we will continue

to as we now move forward, figure out how to use our tools to address those issues.

Ms. NORTON. Thank you very much.

And thank you, Mr. Chairman. I just want to say that I hope Mr.

Cordray will give some priority to the service members who have,

as you go down the list of people when you can’t help everybody

at the same time, people in the service who have been victims of

the abuses by mortgage servicers.

Mr. MCHENRY. I appreciate my colleague, her comments.
64

With that, we will begin a second round with additional questions. We will begin with the vice chairman of the committee, Mr.

Guinta of New Hampshire.

Mr. GUINTA. Thank you, Mr. Chairman.

Mr. Cordray, I want to talk about two items. I have listened to

the testimony that you have given and the questions that have

been asked by Members of both sides of the aisle, and my original

line of questioning was about transparency, accountability, what

we I think both agree is the unbias approach, and it struck me as

a little interesting. I went to the Web site, the CFPB Web site.

Is there a bias toward payday loans? Because it appears that

your first field hearing was on this subject matter and you also

issued guidance on this on January 19th. So while you didn’t take

a position on whether you oppose payday loans, as your predecessor

did, to me it appears that there is some sort of direction to go after

this area, so I want to get some clarification there.

Mr. CORDRAY. Sure. Let me try to explain our approach here.

The day after I became director, we launched our nonbank supervision program. The statute very clearly addresses this issue and

it very explicitly picks out certain markets that Congress has essentially told us to prioritize. The mortgage market is mentioned

by name, the payday lending market is mentioned by name, and

the private student lending market is mentioned by name.

What we did was we launched our program, we brought out our

general examination manual, which very closely adheres to how we

are approaching banks as well, and then we begun bringing out the

modules of the manual that speak more specifically to products in

these priority markets as identified by the Congress. So we brought

out our manual on mortgage origination products, we brought out

our manual on mortgage servicing products, and we brought out a

manual now on the payday lending, the short-term high-cost loan

products.

Mr. GUINTA. You did that all since January 4th?

Mr. CORDRAY. Yes. Although our mortgage servicing manual had

come out and a lot of it aimed at banks, so it was able to come out

before, had come out before the turn of the year. But for the

nonbank lenders, the mortgage originators and payday lenders,

those have just come out, yes, over the course of the last several

weeks. The only one of those priority areas, again, as specified in

our statute, which is sort of our Bible for going forward, is the private student lending, and I expect that we will address that in due

course as well.

Mr. GUINTA. Okay. So you have not issued an opinion, then, regarding any of these particular subject areas.

Mr. CORDRAY. I am not sure what you mean by an opinion. I

think the answer is no, but I am not totally sure I am clear what

your——

Mr. GUINTA. Well, going back to the transparency notion, I guess

I am trying to figure out at what point the agency would issue public opinions on these subject matters. And the only reason I am

asking is it is a new agency. I have been here a year, so I am not

quite certain exactly how it is going to work. Under your vision, I

am trying to get a better idea of how this would work.
65

Mr. CORDRAY. All right. You and me both, we have been here

about a year. In terms of an opinion, I think what would happen

over time is we are going to be examining, which means people will

go into the institutions and they have the ability, they have the authority under the law to examine the books, to ask questions, to

understand what the products are and how they are being used,

how they are being marketed, whether there are any kinds of acts

or practices that are of concern. You know, it is an ability to really

get under the skin of the surface and see what is happening. We

will be utilizing that authority and it is important for us to do that.

In terms of possible enforcement actions, you know, we will just

have to see whether there are violations of the law that can’t be

remedied by other means and, if so, we will have to proceed on

those. A possibility that gets closer to your question about opinions

is whether at some point we might engage in a rulemaking on

some aspects of payday lending.

If we get to a point where we have confidence that we have identified issues and problems, we have heard from all sides and a rulemaking seems like it could be in order, then what we would do is

we would develop and publish a notice of a proposed rule, we would

have a notice and comment process, the normal process on rulemaking that could finally result in a rule. Do we have any plans

to do that at the moment? I don’t believe so. But that is something

that could occur over time.

In terms of an opinion per se, I don’t think we have a mechanism

for that, necessarily.

Mr. GUINTA. Okay, so the enforcement would be the process by

which you would be setting policy, then?

Mr. CORDRAY. No, enforcement would be the process by which we

would address if there are clear violations of law that aren’t being

remedied in any other way.

Mr. GUINTA. Okay, so is a rule going to come before enforcement?

Mr. CORDRAY. It would depend on the area. I don’t think that we

can say for sure. Look, if somebody is violating the law in some

clear and conspicuous way, you don’t want to wait on a rule. And

if the law already is that that is what the law says, either you all

have passed it or it is part of maybe the rules we inherit from others, we can’t wait on other processes to enforce the law.

Mr. GUINTA. And in any other—without objection, may I have

another 30 seconds?

Mr. MCHENRY. Without objection.

Mr. GUINTA. I guess I answered my own question. Thank you,

Mr. Chairman.

The other concern I guess I have is you are obviously not subject

to a congressional appropriation. I think that is unique. Through

the budget process, my understanding is that the agency has provided seven pages of information relative to its budget to House

Appropriations. I think that is a small number for a three to $600

million budget, whatever you are spending, whatever you are authorized. Would you commit to expanding that level of transparency maybe by tenfold, at least?

Mr. CORDRAY. I think we are providing more information than

that, and we are putting information up on our Web site every

quarter about our budgetary and financial issues. I think it is
66

something that, as we go, we will get a better understanding of

what it is you need and want to know about our operations and the

financial side of them.

I will say we are a new agency, we are just underway, but we

did have a GAO audit, which you all provided by law we would be

subject to, and it was a clean audit opinion about how we are handling our finances and the kind of information we provided them,

and they had top to bottom access to everything we are doing. But

if you all are dissatisfied and would like more information, I am

happy to have our staff work with your staff to see what we are

trying to provide what you need.

Mr. GUINTA. And I only ask it for transparency purposes. This

is a brand new agency. I think members and the public should

have access to that information if they so choose to read it. The

final question is I understand that you are going to staff up, you

have 757 employees, you are going to have 1,200 to 1,500. I understand you are a new agency. I understand that you are not subject

to the President’s hiring freeze. But considering the conditions of

our economy, would you voluntarily adhere to his hiring freeze?

Mr. CORDRAY. If we were to adhere to the President’s hiring

freeze, we would still be at zero people and we wouldn’t be able to

do——

Mr. GUINTA. I am saying from this day forward.

Mr. CORDRAY. My sense is, you know——

Mr. GUINTA. I wouldn’t object to you being at zero, but——

Mr. CORDRAY. Right. I understand. Let me refocus.

Mr. GUINTA. But we can split the difference, 757, 1,500——

Mr. CORDRAY. We are building up. That is what the law tells us

we are supposed to do. The law tells us we have very specific jobs

to do here. We are trying to do those jobs. Once we reach a steady

state down the road, you know, I don’t know what the considerations might be at that point, but that is probably where that

would become germane.

Mr. GUINTA. Thank you very much. I appreciate it.

Mr. MCHENRY. I appreciate it. And I would say let the record reflect that we have no objection to you actually having an income

and a means of income, but the gentleman, I think, was making

a larger point about the President’s hiring freeze and the sort of

Swiss cheese nature of that. There are so many holes in it that government continues to expand. But certainly understand your explanation and appreciate it.

With that, Mr. Gowdy of South Carolina is recognized for 5 minutes.

Mr. GOWDY. I thank the chairman, the gentleman from North

Carolina.

Mr. Cordray, if I heard you correctly, you set up advisory panels

which you found helpful with community bankers and credit

unions.

Mr. CORDRAY. I did. I did that when I was the treasurer in Ohio

and then I did it again, even though it was not quite as germane,

but I still thought it was very useful and it turned out to be, when

I was the attorney general.

Mr. GOWDY. Would you be willing to do that with payday lenders, particularly those who are in full compliance with their respec-
67

tive State laws, before any rules or regulations are promulgated

that may impact them?

Mr. CORDRAY. I do think that we are going to have, in fact, I will

tell you that I intend for us to have additional advisory panels.

Those are the only two we have thought through at the moment.

We also have, you may be aware, in our statute we have a requirement that we set up what is called a consumer advisory board, and

it is intended to be and there are provisions in the statute we were

actually going over earlier today that provide for a mix of points

of view; industry, bank, nonbank, consumer groups, community

groups.

And that is one thing, but we are required to do that. The other

things here that I am talking about we are not required to do it,

but I think they will help us do our job better. I have no aversion

to hearing from the nonbank firms that we are going to be regulating; I think it is important for us to hear from them. There are

unofficial and more official ways for us to do that. We will consider

that.

Mr. GOWDY. Having no aversion is different from saying that you

will do it, so at the risk of repeating the same question again, will

you commit to having advisory panel, not given one of your legal

slots to a member of the industry, but an advisory panel so you can

hear from people? Because I am sure, particularly as a former prosecutor, you can understand the frustration of people who are currently complying with State law fully and there is fear and apprehension about what comes tomorrow, which leads to the second

question. I would like whether or not you will commit to at least

have a nonbinding advisory panel where you can get the perspective of people who are currently complying with their respective

State laws.

Mr. CORDRAY. And, again, that may be—the first time you asked

the question it sounded like it was limited to payday lending. It

may be that it expands to other nonbank firms. I will consider

doing that and I will come back to you and let you know what we

are doing on that over the next month or two.

Mr. GOWDY. What about the States that already have embarked

on regulatory schemes? Without getting into a long discussion

about preemption, what will be the fate of those regulatory

schemes with the new CFPB?

Mr. CORDRAY. And I appreciate that you sent us a letter on this

subject, and I believe we are responding today to the letter. For example, when we were in Birmingham for the field hearing, one of

the people in attendance who spent some time talking to us was

John Harrison, who is the Alabama State Superintendent of Banks,

and as is true in that State, and I know from Ohio and probably

a number of States, the superintendent of banks doesn’t only deal

with banks, they deal with a lot of nonbank financial firms, including, in Alabama, payday lenders.

So there are some States that have significant and robust oversight; there are some States that have none; there are some States,

I am sure you know, that have effectively banned payday lending

or imposed some sort of interest rate cap that makes it untenable.

So there is kind of a patchwork quilt, as there often is, with State

law.
68

It is our intention to work and coordinate closely with the State

regulators so that we understand their perspective and point of

view and it informs our work. We have no intention at this point

to preempt State law in these areas, but, again, the reason we had

a field hearing is we are kind of at the beginning of the road in

trying to understand and appreciate what the right approach to

that product and a number of other products are, and we will gather more information as we go.

Mr. GOWDY. I understand you have a really good memory, but

even I will not expect you to remember every word of Dodd-Frank.

There is a phrase in Dodd-Frank that speaks to taking unreasonable advantage of consumers, which strikes me that if every word

has meaning, that it is possible to take reasonable advantage of

consumers, or else they wouldn’t have used the word unreasonable.

I asked Professor Warren. You may find this to be an inappropriate

question. For whatever reason, I never could get her to answer it.

I think it is a fair question. What do you believe the duties of the

consumer are with respect to educating themselves?

Mr. CORDRAY. I think that consumers have not only a duty to do

that, because I think you really can’t be a properly functioning citizen in our economic democracy if you don’t try to educate yourself

and be in a position to make responsible decisions for yourself that

you can live with over time.

I also think that this Bureau, one of the tasks that we have been

given is to work on financial literacy issues. Now, that is near to

my heart. When I was a local treasurer in Ohio, we worked with

the Ohio legislature that sat on both sides of the aisle to try to get

it passed that it would be a requirement for high school students

to have personal finance education before they could graduate. We

managed to do that. It is one of very few States that has that requirement.

I think we would all be better off if young people had some sort

of consistent guidance in this area, because they often don’t get it

at home. Often, at home, people are embarrassed to talk about finances and they know they don’t really understand them or they

are having trouble with their finances. So I think that that would

be helpful, and we will try to work with the States to consider that.

But people have to be responsible for their decisions. But the

thing that the Bureau can do that is important is to make sure

that the decisions that they are faced with are as clear and transparent as possible, that they know the prices and risks, this is

something we say often, and, therefore, they can make a deal that

they know they can live with down the road. And if they make a

bad deal, you know, they will have to live with it. Nobody is going

to wave a magic wand and undo personal responsibility, and all of

us feel that and see that.

I have 13-year-old twins. Before long they will go out into the

world and they will be expected to fend for themselves and make

their own decisions. I hope they will make good decisions. I will try

to give them what assistance I can to do that, but we need to try

to remember that we need to shore up young people so that when

they go out and do that they won’t make wrecks of their lives and

hurt our society as well.

Mr. GOWDY. Thank you.
69

Mr. Chairman, may the record reflect Mr. Cordray answered the

question?

Mr. MCHENRY. Well, I know the gentleman from South Carolina

appreciates that based on how exasperated the committee was at

Ms. Warren’s answer to that same very question.

Thank you, Mr. Cordray. Now I will recognize myself.

My colleague delved into this, taking unreasonable advantage in

the legislative text. There is also, we know, and I asked this question before when Ms. Warren was before our committee representing the CFPB in July of last year, we have case law that is

already outlined unfair and deceptive, and it appears to me that in

the agreement you have with the FTC that you have accepted, in

essence, that whole lineage of litigation, legal memoranda, and

things of that sort that really codify what that means and gives

some awareness to industry that their actions are permissible. Is

that correct?

Mr. CORDRAY. I think that is right. I think, frankly, for us to try

to go off and define unfair and deceptive in some new and bizarre

way, when the courts have been dealing with it for several decades,

not only at the Federal level, but at the State level, would not be

productive.

Mr. MCHENRY. Okay. The additional thing that the law that you

are operating under includes is abusive. Is it your intention to define abusive as a matter of regulatory action?

Mr. CORDRAY. So the term abusive in the statute is, for the reasons you say, a little bit of a puzzle because it is a new term. It

is not entirely new; there was a brief flirtation with it in some of

the FTC law I think in the 1990’s, and they had some difficulty defining it. But the term abusive in this statute is actually defined

by Congress, there are specific prongs in the statute as Congressman mentioned a moment ago. A prong is to take unreasonable advantage of people in certain different circumstances, one of which

is that they aren’t in that market, they don’t have an opportunity

to choose their provider, so they can’t shop, they can’t leave, and

there are markets that are marked by that.

For us, since abusive is a new term, since it is apparently different from unfair and deceptive, the first question is, well, what

is something that would be abusive but wouldn’t also be unfair and

deceptive. And if it is one or the other, I think it is straightforward

to deal with in that term. In terms of abusive specifically is, we

have been looking at it, trying to understand it, and we have determined that that is going to have to be a fact and circumstances

issue; it is not something we are likely to be able to define in the

abstract. Probably not useful to try to define a term like that in

the abstract; we are going to have to see what kind of situations

may arise where that would seem to fit the bill under the

prongs——

Mr. MCHENRY. Can you give us an example?

Mr. CORDRAY. Well, let’s say you have a market where you don’t

get a chance to choose your provider, which is arguably the case

with mortgage servicing these days. You——

Mr. MCHENRY. That actually could be the case for flipping on the

lights in your house, as well.

Mr. CORDRAY. That is true, although——
70

Mr. MCHENRY. Obviously, you don’t have that jurisdiction, but go

on. So there is only one provider in your region.

Mr. CORDRAY. Or, in this case, you just don’t have control over

the provider is; you get a loan and then it is sold and resold. You

aren’t asked any permission on that or have any veto over that,

and by the time you have a problem, you don’t know who has your

loan and you find out, oh, this is the person servicing; you never

met him, you never had anything to do with them.

If the party were to take unreasonable advantage of the fact that

you are sort of at their mercy in that way, I guess that could—and

unreasonable advantage, as the Congressman pointed out, in and

of itself is something of a vague term that needs definition. I suppose that could be a realm where you could have abusive practices.

But it is something that I want to stress we are trying to think

through. It is obviously going to depend on judging facts and circumstances. As we have more guidance to provide, we will try to

be transparent in providing the guidance. We don’t have all the answers on that one at this point.

Mr. MCHENRY. So is it your intention to define abusive based on

enforcement action, rather than definition?

Mr. CORDRAY. Well, there is the definition in the statute. As I

said, it is fairly specific in terms of prongs. It is not so easy to determine exactly how you apply that to facts and circumstances. I

could imagine a situation where we would think that practices are

outrageous enough as to be abusive and it might be the basis for

an enforcement action. I don’t have one to give you as we speak

here back and forth. I can also imagine there might be a point at

which we would want to do rulemaking on that, but I would think

that we would want to see facts and circumstances, and let our

view of that and the view of others who are giving us lots of guidance, frankly, you can understand, on both sides of the question,

mature and ripen a bit before we would have more confidence on

that issue.

Mr. MCHENRY. Well, as you use the terms imagine and I’ll be

thinking about this and we are considering this, there are trillions

of dollars of financial assets that are waiting on your thinking or

imagining or going through this process, and that adds to uncertainty in these contracts. Your point of reference on reselling mortgages is a very interesting one because this has been the legal case

and there are contract law for decades on the reselling of that

mortgage, and it is part of the disclosure process. So to say that

that is abusive is a puzzler.

Mr. CORDRAY. That wasn’t what I thought I was saying. It wasn’t

what I intended to say. The mere selling and reselling of mortgages

is perfectly legal; there is nothing abusive or illegal about that. But

when you are in a situation, as this statute defines, where you do

not have control or the ability to choose your provider, if then unreasonable advantage was taken of you in that situation, that

seems to be what the statute is beginning to contemplate. But I am

just trying to give you some context here. So, for example, if outrageous practices were engaged in at that point, I think that there

might be an issue of that sort.

But I don’t think there is a lot of uncertainty here for

businesses——
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Mr. MCHENRY. Really, in terms of abusive or the CFPB generally?

Mr. CORDRAY. I think what is very clear in the statute, even

though a lot of the detail and definition is, as you say, less clear

is for something to be an abusive practice, it would have to be a

pretty outrageous practice. And if you, in your business, stay away

from pretty outrageous practices, you should be pretty safe. That

would be my sense of it at this point in time. And as we mature

our views, I would be happy to talk back and forth with you more

about it.

Mr. MCHENRY. Is it your intention with the agreement that you

and the FTC or the CFPB and the FTC made, is that going to be

a model for how the CFPB is going to work with other regulatory

bodies in outlining that line so that consumers will know who they

can take action with and so the regulated entities can actually

know who then you would have the conversations with?

Mr. CORDRAY. I do hope that the kind of cooperation that we——

Mr. MCHENRY. Is it your intention? Not hope. Is it your intention

that that be the case?

Mr. CORDRAY. Again, it takes two to tango, but it is my intention

that we already have been and we will continue to reach out to our

fellow banking agencies and other law enforcement agencies the

same way we have already been working very well with the FTC

in trying to arrive at the same kind of productive relationship.

That would be my intention, and I hope that they will respond accordingly.

Mr. MCHENRY. Okay. Additionally, you know, I am asking about

the definition of abusive——

Mr. CORDRAY. Yes.

Mr. MCHENRY [continuing]. To give certainty to actors in the financial marketplace.

Mr. CORDRAY. I see.

Mr. MCHENRY. But to outline that I think would give some level

of certainty to the marketplace. But beyond that there is also some

action that I have become aware of regarding credit card disclosures, and some of what you have already outlined or you are going

through the process right now, your folks are going through this

process at the CFPB in essence mandates some defined terms that

the CFPB would like included in that credit card disclosure. Am I

characterizing that appropriately?

Mr. CORDRAY. Yes. I think, if I am understanding your question,

you are referring to our Know Before You Owe project, which the

centerpiece of that is the TILA RESPA form that, as I say, we are

happily starting to follow through on what you noticed 5, 6 years

ago, that there is a need for that. Other areas where we are working on Know Before You Owe have to do with student loans, private student loans, where we have worked up a sample shopping

sheet with the Department of Education, which is out there for

people to consider and use, and we have a repayment calculator on

our Web site that people can use, because that is a very confusing,

difficult thing for them.

In the credit card area, what we have developed is a sample

agreement—this is not binding on anyone, it has not been imposed

on anyone by rule—that would attempt to pull out and identify and
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highlight the specific important terms in a credit card agreement,

so that instead of the consumer being confronted with this forest

of dense fine print and they are never going to read it all, and they

can’t even tell what is important and what is not important, that

there would be an effort made to make it clear and more transparent to them.

That is in line with what a lot of the credit card issuers have

begun doing on their own in the wake of the Card Act. I mean, I

have seen, in cards that I have applied for in the last couple years,

shorter, clearer, simpler forms. We are working with financial institutions cooperatively to see if they will adopt something like this

form, or if it will help encourage them in this direction. There

seems to be a lot of interest in that and we are going to see how

the marketplace evolves on that.

But it is not intended as some sort of binding, heavy-handed regulation; just this can be done, here is an example of how it can be

done, will you consider working with us and seeing if you can either adopt that or something similar. And I think that we are getting a lot of buy-in and a lot of interest from them because I think

they recognize what we all see, which is when they apply for their

own credit cards, they probably have trouble getting through the

fine print themselves, and they want to provide better customer

service.

Mr. MCHENRY. Two of the objectives—I serve on the Financial

Services Committee. I know my time has long passed and I will finish with this. Two of the great concerns with creation of the CFPB.

I serve on the Financial Services Committee going through the

markup, we have the concern that came about out of the Senate

of having a single individual given this enormous power and a half

a billion budget who has a set term, and in order to unseat that

person it would take very extraordinary action. And your actions

are only overruled by the Financial Stability Board if it causes a

larger concern. They can’t just simply overrule you; they have to

have a concern about the financial marketplace of our country, the

largest market in the world. So that power is one of the concerns.

The second concern was that, in essence, by having the CFPB,

we would have plain vanilla consumer options. So the financial

marketplace would have fewer options; you would have government

terms; you would have only this one very narrow safe harbor for

financial firms to operate in.

So that is why I asked this question about defining these terms.

And if you are mandating these terms of their disclosures, certainly

to start the process is to lay out the framework by which you are

going to judge them, not simply act as many attorneys general

have that enforcement action, but you are given this authority to

outline the regulations, and I think those regulations, those bright

lines, and the clear framework so that we can actually have a variety of consumer options and that we don’t end up with plain vanilla options, fewer choices, higher cost, which is not, I don’t think,

what anybody wants in this country.

Mr. CORDRAY. So may I, in response to that?

Mr. MCHENRY. Oh, absolutely.

Mr. CORDRAY. So the good news is that I think that is how we

are approaching the issue, and we recognize. One of the things the
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statute tells us, and we take it very seriously, it is not easy to figure out how you actually do it, but is that we are supposed to see

what we can do to encourage innovation in financial products. And

certainly the opposite of that would be to stifle innovation and say

everything has to be done in a single way.

So, again, as we put out this proposed sample credit card agreement, there is nothing mandatory about that, it is attempted to

lead thinking in a somewhat different direction than has been the

case in the past, although, as I said, the market is moving in this

direction already, it seems, and it is not intended to constrain everybody into one straightjacket of having to do things a particular

way.

One of the great features of financial products in this country

has been lots of innovation over the years, lots of technological development, lots of different approaches, and then consumers are in

a position to pick the ones they think are most suiting their needs,

and those tend to do well. You know, credit cards themselves were

once an unusual product, and they have become pretty much universal or widespread. Debit cards are a new product; prepaid cards

are a fairly new product.

There is lots of innovation in this industry and we have no desire

to squelch that offer because we wouldn’t know—no regulator

knows enough to tell the market what is the right or wrong answer

in general. What we should be focusing on is accountability for

evenhanded rules of the road and then where we can encourage innovation, that is a good thing, the statute tells us to do that, but

any common sense approach would recognize that as well.

Mr. MCHENRY. Thank you.

With that, Mr. Walsh from Illinois is recognized.

Mr. WALSH. Thank you, Mr. Chairman.

Mr. Cordray, I appreciate you sticking around. I will be brief,

and I apologize if I am redundant; I missed a chunk of the hearing.

But again thank you for spending so much time with the committee.

Mr. CORDRAY. If you are redundant, I should have answered it

before and I should have an answer.

Mr. WALSH. Small business in this country is dying. They are not

growing, they are not hiring. No matter what the President says

tonight, that is not going to change. What I hear over and over

back home is they are scared to death with all the uncertainty coming out of Washington and to a man and a woman they feel overregulated like you wouldn’t believe, big and small.

As importantly, what we hear from small businesses every day

is they can’t access credit. I chair a subcommittee, Access to

Growth on the Small Business Committee. We held a hearing a few

months ago and brought in the heads of three or four community

banks and asked them pretty directly why aren’t you lending, and

to a man they all said they can’t, their hands are tied. They alluded to Dodd-Frank, they alluded to all these regulations.

It seems like whatever we tend to do up here, the big banks, big

business is able to adjust to; small businesses and community

banks get hit hard. Dodd-Frank obviously requires you to consider

the impact on small business with any rule and reg that you will
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implement. These review panels are to be convened before any proposed rules that might impact small business.

And correct me where I am wrong. It seems like CFPB has determined here initially that a number of these rules won’t disproportionately impact small business, and so they have opted not to convene the panels? I think I understand a panel has not been convened since July. Am I right on that?

Mr. CORDRAY. I don’t think so in the following respect. Thus far

we have not had a rulemaking of our own to begin and to propose

a rule. What we have had is rules that were begun by others, notably the Federal Reserve in several cases, that then came to us to

finish. We just issued a remittance rule, that was one that we finished that the Federal Reserve began.

As you say, and this is how we read the statute too, we are supposed to convene the SABRIEFA panels before we propose a rule

and, therefore, we have not been in that position yet. But we have

one upcoming, it is the big rule that I talked about with the chairman, combining the mortgage forms to simplify them. We have

committed and we are going to do SABRIEFA panels. The

SABRIEFA panels probably will get underway very shortly, I

would say within the next month or two, and that will be a model

for how we do this, and we will learn from that as we go. But it

is our intention to convene SABRIEFA panels on our new rules as

we proceed, wherever the law tells us to do that; and not just because the law tells us to do it, but because we recognize that will

help us do our work better and be mindful of the concerns you are

laying out.

My own background in Ohio was when I was the treasurer, I inherited a small business loan interest buy-down on small business

loan program, and it was almost out of business when I took over

because they made it so bureaucratic and difficult small businesses

just didn’t want to bother with it.

And by the time I left office 2 years later, we had put out more than $300 million by making the form simple, letting them do it

within 30 minutes, and promising and getting them a response

within 72 hours. So I am mindful of the needs of small businesses.

It is critical to this country, they create more than two out of three

new jobs. That is what we have been missing as we came out of

this recession.

But I also want to say one other thing, which is the credit crunch

that they are suffering under was caused by the financial meltdown. It has been the most difficult credit conditions that any of

these small businesses have ever lived under. And some of the

things the Consumer Bureau is designed to do are to prevent a recurrence of that worst economic catastrophe of our lifetime. So if

we can be successful, if we can do our job reasonably well, then we

will help ward off the kind of conditions that are hurting small

businesses and small banks more than anything right now.

Mr. WALSH. You would worry, as well, about the pendulum

swinging too far as far as too much regulation, tampering that access to credit as well.

Mr. CORDRAY. Yes, I would.

Mr. WALSH. Tell me if I am wrong, Mr. Cordray. It is my understanding that many of the actions the Bureau is poised to take may
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well lead to a further reduction in credit opportunities for small

businesses. Can you comment on that?

Mr. CORDRAY. I don’t think that that is our intention, Congressman. And if you are hearing from small businesses, community

banks, and others in your district, we hope you will pass those

comments on to us. It may well be that we are hearing from them

as well, but that is not our intention. Our intention is to be mindful

of the difference between larger institutions and smaller institutions. Smaller institutions typically don’t have a big compliance

compartment to shrug off the burdens that are imposed on them.

On our remittance rule that we just issued, we have issued a further proposed rule to consider setting a threshold that the rule

wouldn’t apply to those below the threshold on a number of transactions because they don’t really need to take on these burdens for

not doing it in the normal course of business; and that is what I

pledged to the community bankers and credit unions, is that we

will consider our regulatory work in that way.

Mr. WALSH. Thank you. I will close with this. I would just implore you to commit to looking out for small businesses and community banks. I am not exaggerating when I say that they are suffocating right now under regulations, and there is great, great,

great trepidation that this Bureau and everything else we are

doing up here of late is only going to add to that. So please look

out for them as you embark.

Mr. CORDRAY. I appreciate that, sir.

Mr. WALSH. And, again, thank you for your time.

Mr. MCHENRY. I certainly appreciate that.

Mr. Quigley.

Mr. QUIGLEY. Thank you, Mr. Chairman. I would just ask that

the document, Ten Reasons Why We Need the CFPB Now, issued

by Americans for Financial Reform, be entered into the record. Ask

unanimous consent.

Mr. MCHENRY. Without objection.

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Mr. MCHENRY. I just have just a couple more questions.

Mr. CORDRAY. Sure.

Mr. MCHENRY. There is an interview that you did with the Associated Press, and I am sure you are prepared to answer this. Your

quote was, ‘‘frankly, there is a lot of fraud that is committed in the

marketplace that is not, on its face, necessarily technically illegal.’’

Can you clarify that statement?

Mr. CORDRAY. Yes. And I appreciate the opportunity to clarify

that statement. I thought it was garbled as I read the article;

didn’t like it. I am sure you have had the experience of saying

things, and then you read it and——

Mr. MCHENRY. Oh, never, never, never.

Mr. CORDRAY. In any event, my point there was there are some

statutes we have inherited where there are very specific and in

some ways kind of technical in terms of what is compliant, for example, some of the regs under the Truth and Lending Act, and

then there is also the law that we inherit under our statute of what

is an unfair, deceptive, or abusive practice.

I don’t mean to say in any respect that something can be not

against the law, but somehow be acted on by us. It would have to

violate the law in one or another of these respects. And either I got

twisted around in saying it or it got twisted around in the quoting

of it, and it might be either, I am not sure which. But my point

is not that we can just deal with things that we don’t like, even

though they don’t violate the law; that is not my view of what we

do.

Mr. MCHENRY. Okay. But this is the concern, though. It is a violation of the law as you interpret it. That would be how you would

take action. The concern here is your interpretation of existing law.

So much of what we have in our common law history is built on

precedence. So if you are accepting the precedence of the agencies

that you are taking powers from, that you are assuming powers

from, and you are accepting their legal basis for those precedents,

then I think there is a greater deal of certainty.

But the marketplace not knowing that that is fully the case adds

uncertainty.

Mr. CORDRAY. Yes. I see that. And that is not our intention, but

I do see why the concern is there.

Mr. MCHENRY. So walk me through that. I do want to give you

the opportunity to sort of walk through what that looks like and

how that functions, and not as a gotcha, just as a clarity.

Mr. CORDRAY. So law that we inherit from other agencies and,

frankly, law that we have because Congress has imposed it is law

that we need to follow and follow closely. If there is a body of law

interpreting rules, for example, Reg Z or something we have inherited from the Federal Reserve, that body of law is relevant for us

too and constrains us, and we shouldn’t be going off in some wild,

new, unexpected direction.

The thing is what I would say is new about the Bureau is that

we do have authority now in some areas where there really wasn’t

any application of law before. So, for example, in the nonbank

sphere, Federal law did not apply to the various parties that we

have talked about here today, so they weren’t subject to any, nec-
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essarily, unfair, deceptive, abusive, the kind of terms we talked

about.

Look, it is not our point to try to revolutionize any kind of existing law; our job is to follow it and apply it. And it is also not our

intention to start going off and acting like we are some sort of mini

Congress, just doing anything we think is good and right, and writing it into the books. I think we need to follow our procedures carefully, follow the law carefully, and if we do that we will build credibility in our work.

Mr. MCHENRY. Okay. So, to that line of thought, it brings me

back to my first question.

Mr. CORDRAY. Okay.

Mr. MCHENRY. At the beginning of each year, the SEC outlines

their intention for regulatory actions for the coming year. It is not

saying they will get to every action there, but it is their intention

to get to those actions. That is a broader agenda than the two paragraphs that are found on the CFPB Web site that outline the principles, which looks like an agenda of sorts, but it is very broad.

That adds to uncertainty. And uncertainty in the financial marketplace means things cost more or are less available. Actually, those

two things go hand in hand.

So it would be a proper thing for you to outline your regulatory

actions that you foresee for the coming year and make that a matter of due course for this Bureau that is new. You are the first

head, you are taking powers that never existed in one person in

Washington, DC. There is a great deal of trepidation based on that

enormous power. It is not about you. You certainly exhibited the

reason why you were elected in Ohio as attorney general in answering your questions, in answering questions and being forthright about it. Many of us just may see things differently about the

powers that you are vested with and some of the actions you may

take.

But if you could be very forthright at the beginning of each year,

I think it would add tremendously to this and explain clearly what

your intention is for enforcement actions, even on a quarterly basis

would be helpful.

Mr. CORDRAY. Let me come back to you on that and say I think

we can satisfy you on that. I think it is a reasonable request. I

think that as I sit here and as we thought about different pieces

of the Bureau in preparing for this testimony, I think it is pretty

clear what we intend to do in the rulemaking sphere this year. I

would just say one thing I would want to say is since we are a new

agency and a lot of this is new to us, I would want to have one

sort of asterisk and residual to say there may be something that

will come up over the course of this year that we did not foresee

that we think we need to do. But I think we can probably give you

and the public more detailed guidance on that. And I happen to

think, as we have had this exchange, that would be a good thing.

Mr. MCHENRY. Well, thank you. And the concern, again, is that

asterisk. It does actually lead to uncertainty. And you have heard

me say that quite a bit today.

Mr. Quigley, would you like any closing comments?

Mr. QUIGLEY. Thanks for being here and good luck.
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Mr. MCHENRY. Mr. Cordray, thank you for your forthright answers. There have been a lot of concerns expressed here today. You

have given a great deal of explanation. We appreciate that and we

certainly appreciate the exchange of ideas. Again, the question of

the cost to the marketplace, the question of access to credit is really key to all these questions and concerns. You are not going to

simply allay the fears that many of us have about the enormous

budget given to one individual and the enormous powers one individual has to, in essence, change contract law and a number of

other items, but you can allay a number of fears and take away a

great deal of uncertainty with your early actions. Thank you for

being here today and for submitting yourself to congressional oversight.

Mr. CORDRAY. Absolutely.

Mr. MCHENRY. With that, the committee stands adjourned.

Mr. CORDRAY. Thank you.

[Whereupon, at 4:05 p.m., the subcommittee was adjourned.]

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