[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
OVERSIGHT OF THE CONSUMER
FINANCIAL PROTECTION BUREAU
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON FINANCIAL INSTITUTIONS
AND CONSUMER CREDIT
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
MARCH 16, 2011
__________
Printed for the use of the Committee on Financial Services
Serial No. 112-18
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HOUSE COMMITTEE ON FINANCIAL SERVICES
SPENCER BACHUS, Alabama, Chairman
JEB HENSARLING, Texas, Vice BARNEY FRANK, Massachusetts,
Chairman Ranking Member
PETER T. KING, New York MAXINE WATERS, California
EDWARD R. ROYCE, California CAROLYN B. MALONEY, New York
FRANK D. LUCAS, Oklahoma LUIS V. GUTIERREZ, Illinois
RON PAUL, Texas NYDIA M. VELAZQUEZ, New York
DONALD A. MANZULLO, Illinois MELVIN L. WATT, North Carolina
WALTER B. JONES, North Carolina GARY L. ACKERMAN, New York
JUDY BIGGERT, Illinois BRAD SHERMAN, California
GARY G. MILLER, California GREGORY W. MEEKS, New York
SHELLEY MOORE CAPITO, West Virginia MICHAEL E. CAPUANO, Massachusetts
SCOTT GARRETT, New Jersey RUBEN HINOJOSA, Texas
RANDY NEUGEBAUER, Texas WM. LACY CLAY, Missouri
PATRICK T. McHENRY, North Carolina CAROLYN McCARTHY, New York
JOHN CAMPBELL, California JOE BACA, California
MICHELE BACHMANN, Minnesota STEPHEN F. LYNCH, Massachusetts
KENNY MARCHANT, Texas BRAD MILLER, North Carolina
THADDEUS G. McCOTTER, Michigan DAVID SCOTT, Georgia
KEVIN McCARTHY, California AL GREEN, Texas
STEVAN PEARCE, New Mexico EMANUEL CLEAVER, Missouri
BILL POSEY, Florida GWEN MOORE, Wisconsin
MICHAEL G. FITZPATRICK, KEITH ELLISON, Minnesota
Pennsylvania ED PERLMUTTER, Colorado
LYNN A. WESTMORELAND, Georgia JOE DONNELLY, Indiana
BLAINE LUETKEMEYER, Missouri ANDRE CARSON, Indiana
BILL HUIZENGA, Michigan JAMES A. HIMES, Connecticut
SEAN P. DUFFY, Wisconsin GARY C. PETERS, Michigan
NAN A. S. HAYWORTH, New York JOHN C. CARNEY, Jr., Delaware
JAMES B. RENACCI, Ohio
ROBERT HURT, Virginia
ROBERT J. DOLD, Illinois
DAVID SCHWEIKERT, Arizona
MICHAEL G. GRIMM, New York
FRANCISCO ``QUICO'' CANSECO, Texas
STEVE STIVERS, Ohio
Larry C. Lavender, Chief of Staff
Subcommittee on Financial Institutions and Consumer Credit
SHELLEY MOORE CAPITO, West Virginia, Chairman
EDWARD R. ROYCE, California, Vice CAROLYN B. MALONEY, New York,
Chairman Ranking Member
DONALD A. MANZULLO, Illinois LUIS V. GUTIERREZ, Illinois
WALTER B. JONES, North Carolina MELVIN L. WATT, North Carolina
JEB HENSARLING, Texas GARY L. ACKERMAN, New York
PATRICK T. McHENRY, North Carolina RUBEN HINOJOSA, Texas
THADDEUS G. McCOTTER, Michigan CAROLYN McCARTHY, New York
KEVIN McCARTHY, California JOE BACA, California
STEVAN PEARCE, New Mexico BRAD MILLER, North Carolina
LYNN A. WESTMORELAND, Georgia DAVID SCOTT, Georgia
BLAINE LUETKEMEYER, Missouri NYDIA M. VELAZQUEZ, New York
BILL HUIZENGA, Michigan GREGORY W. MEEKS, New York
SEAN P. DUFFY, Wisconsin STEPHEN F. LYNCH, Massachusetts
JAMES B. RENACCI, Ohio JOHN C. CARNEY, Jr., Delaware
ROBERT J. DOLD, Illinois
FRANCISCO ``QUICO'' CANSECO, Texas
C O N T E N T S
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Page
Hearing held on:
March 16, 2011............................................... 1
Appendix:
March 16, 2011............................................... 47
WITNESSES
Wednesday, March 16, 2011
Warren, Elizabeth, Special Advisor to the Secretary of the
Treasury for the Consumer Financial Protection Bureau (CFPB),
U.S. Department of the Treasury................................ 8
APPENDIX
Prepared statements:
Warren, Elizabeth............................................ 48
Additional Material Submitted for the Record
Capito, Hon. Shelley Moore:
Written statement of the National Association of Federal
Credit Unions (NAFCU)...................................... 82
Watt, Hon. Melvin:
Speech given by Elizabeth Warren on September 29, 2010, with
a personal note to Representative Watt..................... 84
Warren, Elizabeth:
Written responses to questions submitted by Representative
Capito..................................................... 90
Written responses to questions submitted by Representative
McHenry.................................................... 91
Written responses to questions submitted by Representative
Meeks...................................................... 92
Written responses to questions submitted by Representative
Westmoreland............................................... 97
OVERSIGHT OF THE CONSUMER
FINANCIAL PROTECTION BUREAU
----------
Wednesday, March 16, 2011
U.S. House of Representatives,
Subcommittee on Financial Institutions
and Consumer Credit,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 10:02 a.m., in
room 2128, Rayburn House Office Building, Hon. Shelley Capito
[chairwoman of the subcommittee] presiding.
Members present: Representatives Capito, Royce, Manzullo,
McHenry, McCotter, Pearce, Westmoreland, Luetkemeyer, Huizenga,
Duffy, Dold, Canseco; Maloney, Gutierrez, Watt, Ackerman,
Hinojosa, McCarthy of New York, Baca, Miller of North Carolina,
Scott, and Lynch.
Ex officio present: Representative Bachus.
Also present: Representatives Neugebauer, Garrett, and
Green.
Chairwoman Capito. The committee is called to order. I
would like to welcome everyone to what I believe will be one of
the most important hearings that the subcommittee will hold
this Congress.
We are joined this morning by Professor Elizabeth Warren,
Special Advisor to the Secretary of the Treasury for the
Consumer Financial Protection Bureau, who will be answering
questions from the members of the subcommittee about the
creation of the Consumer Financial Protection Bureau which we
are going to call the CFPB, because I can't get those four
words out in great succession very quickly.
So I would like to welcome her and thank her for her
participation. She has made a request because of her scheduling
issues; she can only be in the hearing until 12:30. So we want
to respect that. And I think we will have a good and vibrant
hearing and plenty of time to do that.
The debate over the creation of the CFPB was intense, with
many members having very different opinions on the best way to
modernize the financial regulatory system for consumer
protection. I think we can all agree that there were lapses in
oversight and inherent problems within the regulatory
structure.
That said, many of my colleagues in the House of
Representatives have serious concerns about the creation of a
new bureaucracy with little congressional oversight. Many of us
would have preferred to truly cut the red tape and create a
modern regulatory structure that demands better communication
between Federal regulators and provides consumers with the
tools they need to report fraud in the system.
What consumers need is a regulatory structure that allows
for them to obtain information on a variety of financial
products and then make an informed decision about which
products best suit their financial needs. And from reading the
professor's statements, she will be addressing those issues.
One of my concerns with the creation of the CFPB was that
consumers could start to lose the ability to choose from a wide
variety of products. It would be better for all parties if a
portion of the bureau's budget was a part of the annual
appropriations process. Claiming that congressional oversight
is present because Congress has the ability to overturn rules,
I don't believe is the most effective way to conduct oversight.
Additionally, I have questions about the role the staff of
the bureau are playing in ongoing rulemaking. It has come to
light that representatives from the bureau have been playing an
active role in settlement discussions between large mortgage
servicers, regular regulators and State attorneys general.
By statute, the bureau will not be operational until July
of this year. I think the involvement of bureau employees in
these discussions raises some questions. I have many more
questions for Professor Warren and realize that time is
limited. I would like to thank her again for joining us today
and for her willingness to meet so many Members of Congress. In
her statement, she mentions that she has met with over 60
Members, and certainly, as one of those Members, I appreciate
that very much.
I would like to now recognize the ranking minority member,
the gentlelady from New York, Mrs. Maloney, for the purpose of
an opening statement, and I am going to scoot out very quickly,
but I will be back.
Mrs. Maloney. But not before I thank you for calling this
hearing and for your friendship and for your leadership on so
many important issues including this one.
And thank you and welcome to Elizabeth Warren, who has been
at the forefront of the effort to create a consumer bureau for
years. Thank you for your service and for your commitment to
all American families. You have a been a true champion for the
American consumer and for fair and you--and I am getting
reports from all sectors, all stakeholders and our financial
community that you have reached out to them and you have been
fair and balanced in your approach.
History has long shown us that our country is at its most
secure and most prosperous when the middle class is
economically vibrant and growing. Recent history has also shown
us that the reverse is true. Though it is hard to come by an
exact figure, in 2008, the worst year of the ``Great
Recession,'' household wealth in America fell by more than $11
trillion. Let me repeat that stunning figure, $11 trillion.
And the middle class by any reasonable measure has borne
the brunt of the economic damage. Millions lost their jobs,
lost their homes, lost the chance to go to college, lost the
hope of a better and brighter future. That hard and inescapable
fact was one of the most compelling reasons for the enactment
of the Dodd-Frank Act and the creation of the Consumer
Financial Protection Bureau.
We took a huge step forward toward creating a more level
playing field for the American consumer and the American middle
class. For far too long in our financial system, regulatory
concerns about consumer protection came in a distant second or
third or were not considered at all.
But now, for the first time, anyone who opens a checking
account or savings account, anyone who takes out a student loan
or a mortgage, anyone who opens a credit card or takes out
payday loan will have someone looking out for them and a
Federal agency on their side to be fair and balanced and to
protect them.
For the first time, consumer protection authority will be
held in one place, the CFPB, with an independent, appointed
director, an independent budget and an autonomous rule-making
authority. For the first time, a truly independent authority
will be able to write new rules for non-bank financial firms
including payday lenders, debt collectors, mortgage brokers,
and other financial institutions.
And very importantly, for the first time, consumers will
have a seat at the table at the Financial Stability Oversight
Council (FSOC). And the Council will have the authority to
nullify any rule it believes will harm an institution's safety
and soundness. This kind of evenhandedness and commonsense
oversight of our financial system with strong consumer
protections will ensure the safety and soundness of the system
as a whole and is clearly in the best interests of the American
consumer and the driving force of the American economy.
Elizabeth Warren has been at the helm since September 2010,
as the agency gets off the ground. So I will be very interested
to hear how the process is going as well as what the agency's
initial priorities are going to be when authority is officially
transferred to the agency in July.
I thank the Chair again for calling this hearing, and I
welcome Ms. Warren. Thank you.
Mr. Royce. [presiding] Thank you very much.
Welcome, Professor Warren. It is good to see you.
I would just like to make a couple of observations here.
One is that a number of people in the regulatory community and
a number of economists have raised concerns about some of the
unintended consequences of the titles in Dodd-Frank, Titles I
through IX, there are provisions throughout the legislation
that weren't really thought through.
But Title X seems to be particularly problematic and I will
explain some of the concerns. Beginning July 21st, the Federal
Reserve has to transfer to the bureau whatever funds the
bureau's director has requested despite the fact that neither
the Fed nor Congress will have any say into the bureau's
budget. Now, that is unique and that is one concern that has
been raised.
The second observation is, the byproduct of that, when you
think it through, really raises two problems. First, this
agency will be able to act outside of the normal appropriations
process in the way Dodd-Frank set it up, which means that it
will not be held accountable for the actions taken. And the
other problem comes from putting safety and soundness
protection behind consumer protection in our regulatory
structure.
This is something you and I have talked about, but we have
tried this model with the GSEs and it did not work. Both the
acting and former heads of the FHFA have said that the
competing regulatory structure, OFHEO versus HUD, contributed
to the failure of Fannie and Freddie. And here, instead of
abolishing that model, we have with Dodd-Frank replicated that
regulatory model throughout the financial system. That gives
cause for all of us, I think, to ponder whether this was done
correctly.
And the final concern I have with Title X is the assault on
preemption. Regardless of our political affiliation, I think we
should all be able to agree that one uniform standard is much
simpler, much more effective. We already have 97 percent of the
lawsuits in the world today that occur here encouraging more
litigation and more uncertainty in this.
I just think Dodd-Frank takes a major step back; we now
have every single State attorney general interpreting Federal
laws and banks' subsidiaries will now have to comply with State
consumer protection laws instead of one national uniform
interpretation here. And I think that is going to be a boon for
the trial lawyers but it will do little to protect consumers or
make our capital markets more competitive.
So it is my hope this committee will take the next
necessary steps to correct these failures in the Dodd-Frank
legislation.
And we now go to Mr. Scott of Georgia for his 5 minutes.
Mr. Scott.. Thank you very much, Mr. Royce, I appreciate
that.
Welcome, Ms. Warren. Ms. Warren, I think that you have sort
of a delicate balance that you have to walk here. On the one
hand, you have to make sure that the consumers have not only
the proper information to educate them about some of the
practices in our financial services industry but you also have
the requirement to make sure that what you do will not thwart
access to capital for our consumers, for the banking community,
particularly for small businesses, while at the same time give
the confidence today that you will also protect the American
consumer, protect access to capital to them, protect the
consumer.
I would also like for you to address just what impact my
good friend on the other side of the aisle--Representative
Neugebauer has a bill and that bill basically seeks to defund
and keep you in Treasury. I would like for you to address just
what this means to you. How will this either make your duties
better or make your duties worse with this bill?
And then finally, I would like for you to address the
concerns of the banking industry. The banking industry is
scared to death of this. They feel this is a threat, while at
the same time; the banking industry is the heart of our
economic system. It pumps the money which basically is sort of
like the blood, the life source throughout our system.
It might be good for you to address that, to ease some of
the concerns within the Banking Committee that you are not the
threat or the evil empire that perhaps some of them might
think. And so, I think that this is a very timely hearing and
you do have a delicate balance. And I hope that you will
address some of these concerns, and that we all will leave this
hearing far more wiser and more confident in your ability and
the operations of this new bureau, that it is not a threat. But
it is a much needed solution and approach in a very trying
economic time.
Thank you, and I yield back the balance of my time.
Mr. Royce. We are going to go to Chairman Bachus. Before we
do that, I ask unanimous consent, without objection, to allow
Representative Al Green of Texas to participate in the hearing.
I will now go to Chairman Bachus.
Chairman Bachus. Thank you.
Director Warren, you are probably directing the most
powerful agency that has ever been created in Washington. It is
not a commission; it is one single person. And it will regulate
all providers of credit, savings, payment, and consumer
financial products and services.
A covered person is defined as any person who engages in
offering or providing a financial product or service. The
definition of a financial product or service, you--or whomever
at the agency--will define what that is. It is not defined in
the statute.
And also, you will have the ability to identify and ban any
financial product or service that is deemed unfair, deceptive,
or abusive. But there is really no legal definition of abusive,
so you--or whomever heads this agency--will have the right to
make that determination.
And your budget, you have as much as $500 million from the
Federal Reserve available--and you can seek appropriations of
$200 million more. That compares to: the CFTC, which has $169
million; the FTC, which has $300 million; and the SEC, which
has $900 million.
I will start by saying that no one questions your
commitment to consumer protection, and I want to acknowledge
that. But you will basically make the decision as to when
consumers are protected and when they are not and what products
will be offered and which products won't. And you will have
quite a budget. You have not been nominated by the President. I
don't know when that will happen or whether you will be
nominated. We asked Secretary Geithner in September and he said
that nomination will be made soon. It is 6 months later, and I
think you would like a nomination to be made. Certainly, no one
has been confirmed by the Senate.
And yet, you have a lot of discretion and a lot of power,
but I see very little accountability. We have almost just a
good faith reliance on your abilities, integrity, and judgment.
That is quite a burden for you and quite a burden for us and I
think it adds to a great deal of uncertainty. So, I look
forward to hearing your testimony.
But I will tell you that since last July when we passed the
Dodd-Frank Act, I have advocated for a commission all along.
And I believe that having a board is a much better approach
because I think it is asking one person to do too much. Thank
you.
Chairwoman Capito. Thank you, Mr. Chairman.
I would like to recognize Mr. McHenry from North Carolina
for 1 minute.
Mr. McHenry. I thank the chairwoman.
When the CFPB was debated, many of us were concerned that
your agency would have a great deal of power with very little
congressional oversight, after all, as the chairman mentioned,
the appropriations process is one point of congressional
oversight which you will not have.
We were concerned that severe economic consequences would
arise from the separation of consumer protection and safety and
soundness duties. While that question was before us in theory,
it is now in front of us in a very real way in the form of the
recently released mortgage servicer settlement term sheet.
Our economy is still very fragile and recovery in the
housing market will play a big part in getting our Nation back
on its feet. A number of the provisions of the term sheet could
cause a crippling slowdown in that recovery.
I look forward to speaking with you about this and other
matters.
And I appreciate, Chairwoman Capito, your holding this
hearing.
Chairwoman Capito. Thank you.
I would like to recognize Mr. Pearce from New Mexico for 1
minute.
Mr. Pearce. Thank you, Madam Chairwoman.
And thank you, Ms. Warren, for being here today. We
appreciate that--as everyone is saying here--your new agency is
going to wield a lot of power.
The basic problem in the country is that we are spending
$3.5 trillion a year and our revenues are $2.2 trillion a year.
Our economy has frozen in place. The recovery is--out by
regulations which are causing uncertainty.
The health care regulation and the whole health care bill
is causing people to lay off employees, to get below caps. It
is freezing the creation of jobs in the medical field.
We see the regulators freezing loans. Banks have money to
lend and they are afraid to lend it because they are not faced
with $50,000 fines that used to be simply be simply write-ups.
So, I would be interested to see what you are doing to
unfreeze the market to create certainty instead of the
uncertainty that is coming out of the government right now.
Without that, our economy is doomed to fail. It is doomed to
fail if we continue on the path that we are on.
I look forward to talking with you on this briefing.
I yield back.
Chairwoman Capito. I recognize Mr. Luetkemeyer from
Missouri for 1 minute.
Mr. Luetkemeyer. Thank you, Madam Chairwoman.
And welcome, Ms. Warren.
I understand that the Consumer Financial Protection Bureau
will be a self-regulated, unchecked body governed by one
individual and funded outside the congressional appropriations
process.
This bureau promises to promulgate rules to regulate every
financial product available. All American financial firms, not
just the ones who played a role in the financial crisis, will
be subject to its regulatory authority in some way, and all
these powers will be given with little or no mechanism for
oversight.
As a former bank regulator, I am concerned that this agency
puts consumer protection ahead of the safety and soundness of
our financial institutions. In a time when we are just now
seeing signs of recovery, the last thing our lenders need is
for an intrusive one-size-fits-all government regulatory agency
submitting more regulation to them.
I thank our witness for attending. I look forward to the
hearing.
Thank you, Madam Chairwoman. I yield back.
Chairwoman Capito. Thank you.
I would like to recognize Mr. Dold from Illinois for 1
minute for the purpose of giving an opening statement.
Mr. Dold. Thank you, Madam Chairwoman.
And I want to thank you, Professor Warren, for your time
today.
I think all of us on the panel are certainly concerned
about consumer protection. However, we can't let theoretical
consumer protection become the vehicle for categorically
eliminating consumer choices or for effectively prohibiting new
customized or sophisticated financial products.
Doing so, I believe, would not protect consumers or jobs.
Ultimately, the question comes down to, who makes the best
decisions about financial products for consumers? Unelected or
unaccountable bureaucrats in Washington or the consumers
themselves? At both the State and Federal levels, we already
have countless relevant laws, regulations, and regulators, not
to mention great incentives for class action lawyers to
privately enforce these preexisting legal standards.
Do we really need to superimpose another multibillion
dollar bureaucracy on top of preexisting legal infrastructure?
If so, shouldn't that new Federal bureaucracy at least be
accountable to the American people through their elected
representatives?
And shouldn't Congress give the new bureaucracy more
guidance than relying on abstract concepts like whether a
product is unfair, whether it is deceptive or risky? And should
we also ensure that this new bureaucracy never jeopardizes bank
safety and soundness in the name of consumer protection?
Our economy is already struggling with enough uncertainty
and dislocation. I hope that we will all carefully reflect on
whether any theoretical bureaucratic benefits justify the risk
that this new bureaucracy itself poses to consumers, to jobs
and to our economic growth.
Thank you. I yield back.
Chairwoman Capito. Thank you.
And I would like to recognize Mr. Canseco from Texas for 1
minute for the purpose of giving an opening statement.
Mr. Canseco. Thank you, Madam Chairwoman.
And thank you, Ms. Warren, for being here today.
Now, on its face, the Consumer Financial Protection Bureau
seems like a good idea, an agency whose mission is to protect
the consumers. Unfortunately, like so much else within the
Dodd-Frank bill, the unintended consequences of the CFPB
continue to come to light.
It turns out that consumer protection really means consumer
restriction, consumer control. Having the Federal Government
restrict the choices available to consumers in the name of
protection sets a terrible precedent.
Professor Warren has styled herself as an advocate for
families. There is no greater advocate for families than a
husband and a wife sitting down at the table, pen and pen paper
in hand, planning their family's finances without government
interference or oversight; there is no room for a third seat at
that table, one occupied by a faceless bureaucrat who does not
even know their names much less what is in their best interest.
American families deserve the dignity of being able to make
their financial decisions by themselves. Decisions about credit
cards and mortgages belong to the family at the family table,
not a Washington bureaucracy.
Thank you, and I look forward to your comments.
Chairwoman Capito. Thank you.
That concludes our opening statements. So, I welcome the
professor back, and I look forward to hearing her testimony.
Thank you.
STATEMENT OF MS. ELIZABETH WARREN, SPECIAL ADVISOR TO THE
SECRETARY OF THE TREASURY FOR THE CONSUMER FINANCIAL PROTECTION
BUREAU (CFPB), U.S. DEPARTMENT OF THE TREASURY
Ms. Warren. Thank you, Chairwoman Capito, Ranking Member
Maloney, and members of the subcommittee for inviting me to
testify about the work of the Consumer Financial Protection
Bureau.
This is the first oversight hearing for the new consumer
agency, and I welcome it. I hope you will permit me to begin
with a personal note. I didn't come to Washington because I
yearned to be a government official. I came to Washington
because Congress asked me here.
My first job started 2\1/2\ years ago when I was appointed
to the Congressional Oversight Panel, where I served as Chair.
At the Oversight Panel, we worked to produce detailed reports
for you about TARP every single month.
During that time, I came to Capitol Hill on many occasions
to testify about our oversight of TARP and to answer your
questions. You schooled me early on the importance of oversight
and I believe in it.
Since taking the job of putting together the new bureau, I
have had more than 60 one-on-one conversations with Members of
Congress. I have sought your good council on many issues.
For today's hearing, I have prepared 34 pages of detailed
written testimony to document our start-up effort. The
testimony describes our vision for the new consumer bureau and
the progress we have made so far. I hope it is helpful in
guiding your oversight efforts.
The consumer bureau's mission is straightforward--make
prices clear, make risks clear so consumers can compare one
product to two or three others. Fine print is great for those
who want to hide something, but not good for families who want
to know what they are getting into. Mortgages, credit cards,
checking accounts, America's families have a right to see the
deal right upfront.
There is another issue that I know many of you are
concerned about, and I would like to address it head on,
reports of serious deficiencies at mortgage servicers. The
Department of Justice through the Financial Fraud Enforcement
Task Force, has been coordinating with other Federal agencies
and 50 State attorneys general to review and address these
deficiencies.
Last month, this country's chief banking regulator came to
Congress and said these deficiencies have resulted in
violations of State and local foreclosure laws. And they have
damaged mortgage markets and the U.S. economy at large.
As you know, this new consumer agency is still getting
started and doesn't yet have any enforcement authority.
Therefore, we will not be a party to any formal settlement with
mortgage servicers.
However, later this year, the bureau will receive authority
to set standards for the mortgage servicing industry. For this
reason, Secretary Geithner, the Justice Department and other
agencies have requested the consumer agency to provide advice
on this matter.
We have provided our comments, and let me tell you why. If
there had been a cop on the beat with the authority to hold
mortgage servicers accountable a half dozen years ago, if there
had been a consumer agency in place, the problems in mortgage
servicing would have been exposed early and fixed while they
were still small, long before they became a national scandal.
The mortgage servicing problem illustrates the importance
of fair, consistent enforcement. We need a cop on the beat that
American families can count on. It is critical that we get this
right, a real cop on the beat.
Right now, our government is trying to work out a
settlement to end this scandal. This is a law enforcement
matter. It includes a bipartisan or nonpartisan roster of law
enforcement officials at Federal agencies, at the Department of
Justice and 50 State attorneys general.
While it would be inappropriate for me or for anyone else
in government to disclose the substance of the discussions
regarding an ongoing enforcement matter, I do want to say that
I am glad that the consumer agency has been able to provide
assistance in this important matter.
I thank Congress for creating this agency to help provide a
voice for American families; that is why we are here and that
is what we are doing.
Thank you, Congresswoman.
[The prepared statement of Ms. Warren can be found on page
48 of the appendix.]
Chairwoman Capito. Thank you, Professor Warren.
I will start the questioning and then we will go through
the various members.
In reading your statement and looking at the goals for the
bureau that have been lined out in your statement, you have
mentioned repeatedly going back in and looking at old
regulations, removing old regulations and determining which of
those are obsolete instead of piling more and more on top.
But as I was reading, I couldn't really see where you would
actually--actually that is an effort that is moving forward in
terms of weeding out and regulatory reform with the existing
regulations.
Can you give me just a brief update on where you are on
that particular issue?
Ms. Warren. Yes, ma'am.
I really am glad that you asked this question because what
it permits us to talk about is not just our overall, but we
really are trying to look through regulations and find places
where they can be more efficient and I should mention this, our
process for doing that.
We have reached out particularly to community banks, to
credit unions, to the financial industry, to people across the
spectrum to try to learn from them where the regulations are
most problematic.
We have settled on our first priorities for this agency,
and that is to take two forms: one is called the TILA form; and
the other is called the RESPA form. These are forms you may
remember from the last time you bought a home or did a mortgage
refinancing, somewhere in those stack of documents that you
dealt with.
These are two forms that community bankers tell me have
roughly about an 80 percent overlap in terms of the content.
But they are written differently. They are organized
differently. They have different pieces to them.
And as a result, they are expensive to fill out. They have
regulatory compliance cost, that is they have to show that they
comply with the regulations. And there are real regulatory
consequences if they get something wrong, if they leave
something blank.
In fact in several meetings, I have had community bankers
and credit unions come to me and show me these forms and show
me what it is like, and how much time they have to spend, and
how much training it takes to fill these out.
So, what we have proposed to do at the consumer agency, and
we are very much doing this in concert with the banking
industry and with the mortgage industry is to bring those two
forms together.
And I want to pause here to say, you would think that
wouldn't be a hard thing to do if there is that much overlap.
Because financial regulation has been scattered, the consumer
issues have been scattered among seven different agencies, this
particular one has been held by two different agencies. And
there have been negotiations for more than 15 years to try to
merge those two forms into one.
Now, they are both coming to the new Consumer Financial
Protection Bureau. We are now able to work with the community
banks and the credit unions and with others in the industry.
And we are going to put those together. What we are looking for
is a one-page mortgage shopping sheet that is simpler, easier,
shorter, and more valuable to the consumer. So, lower
regulatory cost, higher value to the consumer.
We regard that as the sweet spot for this agency.
Chairwoman Capito. All right. Thank you.
I am interested in your response. You mentioned more than a
few times community banks and credit unions. I am sure that is
not by accident. But in creating this bureau, those entities
were led to believe that they were going to be exempted from
the purview of the CFPB, an impression which your comment
pretty much nullifies.
You are going to them for ideas. You are creating a form.
And I applaud that effort, having bought homes before. It is
very confusing. And nobody can read through those forms. We all
know that.
But, I think, you are backing up what my banker, community
banker, Charles Natty, said when he testified before this
committee, that he has already had a thousand pages of new
proposed rules. There will be thousands more. He has already
had to hire one person in a community bank to meet these
challenges.
And I think this is a question that goes to the heart of
the overreach or implicitly exempting these community banks
which don't have the $10 billion level. And actually, they are
a part of this.
And I will say just--because I am running out of time, I
only have 24 seconds, in terms of the servicer issue, I am
glad. Obviously, we addressed that a lot in our opening
statements. You kept saying, ``cop on the beat, cop on the
beat.''
The real question is, this agency doesn't really go into
effect until July and are you really a cop on the beat? Can you
perform as the cop on the beat when you really haven't had
your, I don't know, your training yet or you haven't been
equipped yet?
And I think that the properness of that is what has come
into question.
So with that, I will ask Mrs. Maloney--
Mrs. Maloney. Thank you.
Thank you very much. First of all, I would like to ask
unanimous consent to place in the record an article that was in
The Wall Street Journal yesterday on the CFPB's efforts to
reach out to the community, to the financial institutions
across our Nation, and outlining some of their efforts to get
input and to respond to concerns of the public.
Chairwoman Capito. Without objection, it is so ordered.
Mrs. Maloney. Thank you so much.
The Dodd-Frank Act has a slew of checks and balances that
are imposed on the CFPB so that it is accountable to the
American people and Congress. Could you identify some of those
and go through some of those checks and balances?
Ms. Warren. Yes. Thank you, Congresswoman.
I would just like to start by making the point about
accountability. As I said, I came here originally because
Congress asked me to be part of the effort to oversee TARP
through the Congressional Oversight Panel.
But I hope that every time we talk about accountability
that we are also talking about the accountability of financial
institutions, that there will be someone, that there will be a
cop on the beat to make sure that they follow the law.
So, in terms of accountability, accountability for the
financial services industry, accountability for this new
bureau, let me remind everyone of the structure of this new
bureau.
It is the only agency in all of government--let me
underline that--the only agency whose rules can be overruled,
obliterated, wiped out, negated by other agencies. The
structure of Dodd-Frank is quite frankly to make this the one
agency that other agencies can come in and say under the
Financial Stability Oversight Council, ``We don't like that
rule. And so, we are not going to permit that rule to become
law.''
That is not true for any other agency.
The second thing is to focus on banking regulators. In case
of banking regulators throughout American history, it has been
the case that banking regulators are funded outside the
political process. They have always had independent funding.
And the consumer agency, the one voice for American families,
should have that same independence. So, I think the reasons for
making banking regulators independent is pretty obvious given
the way that the process works.
But I will say again, here in terms of the budget, that
unlike any of the other banking regulators, the consumer
banking regulator will not be able to set his own budget if the
budget is capped. It is capped by statute in Dodd-Frank.
If the consumer agency thinks that it doesn't have enough
money to put enough cops on the beat in order to supervise the
lending industry or to supervise mortgage servicers, the
consumer agency has to come back to Congress and ask Congress
for more money.
That means in these two critical respects, the consumer
agency is not the strongest agency in government. It is the
most constrained and the most accountable agency in government.
I should also note in the overall structure of Dodd-Frank,
because I think it is important, is that there are about 18
Federal statutes that have bits and pieces and chunks of
consumer financial protection.
Currently, those 18 statutes are scattered among 7
different Federal agencies, 7 different agencies which have
responsibility for rule writing and responsibility for
enforcement in different bits and pieces. But most critically,
for no agency is it of first importance.
What the Consumer Financial Protection Bureau, what Dodd-
Frank provided in its first point was to say, we are going to
take existing law, not change existing law, we are going to
take existing law and we are going to gather it up. And instead
of having the duplication, the conflict, the inability the
chairman and I were talking about to be able to negotiate and
get a single form, we are going to sweep that inefficiency out.
We are going to sweep that inattention out. And we are going to
concentrate on exactly one agency that will be accountable on
consumer issues.
Now, there are many more cases, and I have referred to them
in my testimony, Congresswoman. I apologize for going on so
long. But I think the issue of accountability is really
important. And I just wanted to hit the three highlights.
Thank you.
Chairwoman Capito. Thank you.
I would like to recognize the chairman of the full
committee, Mr. Bachus, for questioning.
Chairman Bachus. Thank you.
Professor Warren, you have participated in the foreclosure
settlement discussions with the banks. And you have
acknowledged that earlier?
Ms. Warren. Actually, Congressman, let me put this more
clearly. We have been asked for advice by the Department of
Justice, by the Secretary of the Treasury, and by other Federal
agencies. And when asked for advice, we have given our advice.
Chairman Bachus. Sure. And did you give that as advice from
the Consumer Financial Protection Board? Was it given--were
they consulting you in that role? In what role were you acting
when you say, ``We were asked for advice?'' Who is the ``we?''
Ms. Warren. Right now, as you know, Congressman, we are a
part of Treasury. We are just a division.
Chairman Bachus. The CFPB, when you say, ``we are.''
Ms. Warren. That is right. The consumer, the standing up of
the consumer agency.
Chairman Bachus. So, you were asked, in your role as the
CFPB?
Ms. Warren. As part of Treasury, sir.
Chairman Bachus. Right, as part of Treasury.
Ms. Warren. That is right. We are part of Treasury. And in
fact, I think the first request was specifically from Secretary
Geithner.
Chairman Bachus. Okay. And Secretary Geithner asked you for
advice on what to do or how to structure this settlement?
Ms. Warren. As I said, he asked for advice about the
ongoing problem we have with the mortgage servicers who, the
OCC said, have violated both State and Federal law.
Chairman Bachus. Okay. And these are criminal and not civil
enforcement procedures?
Ms. Warren. It is my understanding that is what the
Department of Justice is dealing with. I don't know whether
there are criminal proceedings involved or not.
Chairman Bachus. Have you sat down and talked to the
Justice Department about these enforcement actions?
Ms. Warren. The Justice Department asked for our advice.
And--
Chairman Bachus. Yes. And again, ``our'' being the CFPB?
Ms. Warren. Our being a section of Treasury.
Chairman Bachus. A section of Treasury, okay.
Ms. Warren. That is right.
Chairman Bachus. Do you envision yourself as the acting
director of this to-be-agency?
Ms. Warren. No, Congressman. There is no acting director.
Chairman Bachus. Okay. That is right. So, you envision
yourself as just a political advisor to the President?
Ms. Warren. I actually have two jobs.
Chairman Bachus. Okay.
Ms. Warren. One is that I have a job as an assistant to the
President. And then the job that is the 14-hour-a-day job and
that is the special advisor to the--special assistant I believe
it is--to the Secretary of the Treasury for the purpose of
starting the Consumer Financial Protection Bureau.
Chairman Bachus. Okay. Have you discussed with Secretary
Geithner or with the President who should be nominated to head
this agency?
Ms. Warren. In the course of my work in trying to get this
agency going, I have had many conversations with the Secretary,
with the White House, and with others about those--the
qualities of what might be needed, the qualities of the person
who would run the consumer agency. And--
Chairman Bachus. Have they told you when they will make a
nomination? Have you urged them to make a nomination?
Ms. Warren. Congressman, I tried to make it clear that it
is important that we have a nomination.
Chairman Bachus. And will they do that almost immediately,
would you say?
Ms. Warren. I would not want to describe any conversation
in detail. But I am aware of the need for--
Chairman Bachus. Urgency?
Ms. Warren. Urgency.
Chairman Bachus. All right. Have they given you any
indication? What if they made a recess appointment, and then
that recess appointment was you? Would you accept that or would
you say, ``I would rather not have a recess appointment,''
knowing the type of blowback from that.
Ms. Warren. Congressman, there is a process in place. That
much I can say for certain. I have tried to contribute what I
can. And I understand that there will be a nomination soon.
Chairman Bachus. Okay.
Ms. Warren. But that is all I know, sir.
Chairman Bachus. Let me ask you this--the setting of
mortgage servicing standards.
Ms. Warren. Yes, sir.
Chairman Bachus. You have given input and advice into
those. Is that correct?
Ms. Warren. When we have been asked by the Secretary, by
the Department of Justice and others, we have given advice
about mortgage servicing. Yes, sir.
Chairman Bachus. Okay.
Thank you very much.
Ms. Warren. Thank you.
Mr. Royce. [presiding] We will go now to Mr. Gutierrez, of
Illinois.
Mr. Gutierrez. Thank you so much, professor for coming
before the committee this morning. And I wish you Godspeed in
your endeavors.
I find it interesting that we are worried about how it is
that it is going to become a permanent nomination to head the
agency and what is going on within the servicers and the
different departments.
And I think we are going to find that is the theme that
would probably be carried out most of the morning and continued
out during the next couple of years.
I am really concerned about consumers and not the financial
institutions because I have a funny feeling that if we--not
that I would do this--if we kind of carded everybody that is
sitting behind you, the banks, and the investment bankers, and
the payday lenders, and the rent-to-own.
They are out there. And they are very well-represented. I
don't know how many budget makers are very well-represented out
there. So, I am not to worry because as a Member of Congress, I
can assure everybody here that those from financial
institutions are ready, willing, and able, and have had a
strong voice here, sometimes an overwhelming voice. And how it
is the legislative process works.
So, I would like to ask you, when we did Dodd-Frank--and I
just want to make this clear--are you able to supervise,
regulate car dealerships?
Ms. Warren. Congressman, no. We are not. We will not be
able to do that.
Mr. Gutierrez. That is expressly prohibited in Dodd-Frank?.
Ms. Warren. Yes, sir. It is.
Mr. Gutierrez. Okay. I just wanted to make that clear for
those of us who were here while we created your agency, the
financial institutions including the car dealers got their
take. And they got to be taken out.
Now, I just want to say that as I sit around my family
table, I assure you they were here. The banks were here.
Goldman Sachs was here. The car dealers were here. The payday
lenders were here. The rent-to-own were here. They were all
here.
And let me tell you, they were extremely, to my chagrin,
too successful in terms of crafting. So, let's not all be kind
of crying and feeling all sorry and sympathetic about the poor
corporations out there.
I am concerned about that man and woman at the dining room
table. And it does seems incredible to me that--let me see,
before I bought my house, the greatest financial investment or
decision I have to make was buying a car. And I think for a
large portion of the American public, it will be the one
instance.
And I think for all of us unless there is something
different about you all who sit in this committee, it is a
scary proposition buying that car. And it is rife with lots of
danger, especially financial exposure if not done correctly.
So, I am sorry that I don't--I am not too worried about
them being here.
We created the Consumer Financial Protection agency last
year to protect consumers from unfair, deceptive, and abusive
practices and also to improve transparency, effectiveness, and
fairness for consumer financial products and services.
Some people would argue that we already have Federal
agencies that serve as regulating bodies. Can you, Professor
Elizabeth Warren, describe how is it that the Consumer
Financial Protection Bureau is different from regulators like
the Federal Reserve and the Office of the Comptroller of the
Currency?
Ms. Warren. Thank you, Congressman.
I think the big difference is about what people want to do.
The Fed is a terrific agency. It does a lot of things. But the
people who go to the Fed go to the Fed because they want to do
monetary policy. And that is how they are evaluated by
Congress. They come back. They make regular reports.
I think that it was Chairman Frank, 2 years ago, who made
the point that in 20 years of reports from the Fed back to
Congress, the question of consumer protection never came up.
And so, what this is really about is saying those powers
that had been with the Fed will now move to a new consumer
agency. And there will be someone who will act as a cop on the
beat. Who will be out there to look at how mortgage servicers--
just to pick an example out of the headlines--are executing on
their obligations, whether or not they are following the law.
Someone there to watch and someone to make sure and be able
to say to the American people that no matter how big you are,
you have to follow the rules. The laws are the laws and you
have to follow them.
The Office of the Comptroller of the Currency has done a
lot of different kind of work. But principally, they are in the
work of prudential regulation. They have watched out for how
they can protect the financial institutions.
The difficulty has been that in attention to consumer
issues, to consumer products like the kinds of mortgages that
made it into the system over the last 10 years, turned out now
only to be ruinous for American families, but also ruinous for
American banks.
So, again, the idea the Congress had was to say, ``Let's
take those functions and move them to the new Consumer
Financial Protection Bureau where we have to have a cop on the
beat to make sure that there is someone who is going to enforce
the law.''
If we had had this agency, 6 years ago, 8 years ago, we
would not be in the mess we are in today.
Mr. Royce. If I could interject here, it is also government
intervention. If perhaps, if we restructure things with the
agency, but if we also did not have the temerity to believe
that Congress should go in and muscle the market and get
downpayments down to zero, if we hadn't had the temerity to
pass the GSE Act and allow a Government-Sponsored Enterprise to
go into the business of arbitrage and overleverage, what I am
sharing with you is that there are a number of factors.
Ms. Warren. Sure.
Mr. Royce. A number of factors. And some of it is because
of congressional intervention in the market. And also because
Congress tied the hands of the regulators, and I am talking now
about the prudential regulators, the safety and soundness
regulators to actually go in and deleverage the portfolios, for
example, for systemic risk with Fannie Mae and Freddie Mac.
I witnessed all of that.
I think that there is an additional consideration here.
Part of it--and we have talked about this--is the idea that
Washington can better understand what the consumer demands of
the consumer.
And I will just give you one example. It was with overdraft
protection. The presumption here is Americans don't want
overdraft protection. They don't want to be paying for that. We
are going to have--they are all going to have to opt in to get
that.
And what did we find when the government did that? They all
opted in. Overwhelmingly, yes. People wanted that service. But
the presumption here was that was a waste of time.
So I just think those--the idea that those in government
will dictate what products are allowed in the market and which
are not regardless of the willing buyer and seller, it is a
consideration in all of these as is the consideration of the
fact that your agency is going to be able to act outside of the
normal appropriations process. That is unique. That is new, the
idea that it won't be held accountable for the actions it takes
in terms of the budget.
But my main concern is an additional concern and this I
have shared with you. It comes from putting safety and
soundness protection behind consumer protection in our
regulatory structure.
And as I have said, we have tried that with the GSEs. We
have tried that where we have this goal--everybody has the
right to own a home, right? And Congress interprets that
right--to me, if you don't have any downpayment, you should
have a right to own a home, right at the downpayment zero.
If nobody will buy the subprime loan because you don't any
credit and you don't have a downpayment and nobody will buy
this junk called Countrywide, why not mandate with the goals,
through HUD, that this has to happen?
So, we do that and we set up bifurcated regulation where
HUD is on your side of the equation here, the consumer
protection, HUD is driving the goals. And on the other side,
you had OFHEO, a weak regulator--the prudential regulator that
was supposed to be regulating for safety and soundness. But
guess what? They couldn't step in and deleverage the
portfolios, because the first consideration was not safety and
soundness.
We have set this up so that the first consideration is not
safety and soundness. And having gone through this and watched
this--this is my issue--we have tried bifurcated regulation,
OFHEO--we have had the regulators, current and past, who had
this particular responsibility both tell us, this helped to
create the collapse in the housing market and the wider
systemic risk. Yes, it did. And had we had a single regulator,
it would have been better, okay?
So, all of us have heard this debate and I just wanted your
take on that--
Ms. Warren. Thank you, Congressman. I think this is a
really important issue that you have raised. The point about
safety and soundness I think also goes to the point about
dictating products. I want to be really clear about the vision
of this agency.
What we are about is making the price clear to consumers,
making the risks clear to consumers, making it so that the
family really has a chance to compare two or three credit cards
or a couple mortgages, to figure out two things: first, can I
really afford this thing; and second, have I gotten the one
that is best? Have I gotten the cheapest one or the best
service or the one with the new cool iPhone app?
I think Congress was very cautious on your point when it
set up the new consumer agency.
Mr. Royce. If I could interrupt you for just a second--
Ms. Warren. Of course.
Mr. Royce. I had an amendment that would make safety and
soundness the first priority. It would have the prudential
regulators sign off on that and the Majority opposed that
amendment. So, we weren't that cautious because the amendment
wasn't accepted. So--
Ms. Warren. Although, you do remember, Congressman, that
the way it was ultimately set up is that the other banking
regulators, the safety and soundness banking regulators can
overrule when they--
Mr. Royce. With a high, very high threshold as opposed to--
Ms. Warren. No.
Mr. Royce. I have given you the example of what really
happened in the world. It happened once. It could happen again
and it is likely to, I think.
Ms. Warren. And I think this is why the consumer agency was
set up, so that its rule--whatever it promulgates can be
overruled by a combination of the safety and soundness
regulators, something that exists literally nowhere in
government.
You know I should say because I think this is important,
for families to know the price--for families to know the--
Mr. Royce. We have no disagreement on that.
Ms. Warren. And that is what--
Mr. Royce. The other implications of it.
Ms. Warren. --the safety and soundness and I appreciate
that, Congressman.
Mr. Royce. Right.
Ms. Warren. I know we have had good conversations on that.
I appreciate it.
Mr. Royce. Thank you, Professor Warren. We are going to go
Mr. Watt of North Carolina. Thank you.
Ms. Warren. Thank you.
Mr. Watt. Thank you, Mr. Chairman, and I yield 30 seconds
to the ranking member to clarify a point, and I will clarify it
myself.
Mrs. Maloney. I think we should all continue to clarify
that any action that the CFPB has written into statute can be
overruled on safety and soundness by the Financial Stability
Oversight Council--which includes the OCC, the FDIC, and the
Federal Reserve--and safety and soundness is their top
priority. So, I wanted to clarify that, and I yield back to the
gentleman.
Mr. Watt. I thank the--
Mr. Royce. Will the gentleman yield?
Mr. Watt. Yes. For a second. If you are going to yield me
some more time now.
Mr. Royce. I will yield you more time. If I could--I just
want to continue the--
Mr. Watt. I am happy to yield to the gentleman if he--
Mr. Lynch. Point of order.
Mr. Royce. I appreciate that.
Mr. Lynch. Point of order, Mr. Chairman.
Mr. Royce. Yes.
Mr. Lynch. As one of the junior members here, I am just
concerned about the allocation of time. You just made a 5-
minute interjection.
Mr. Royce. You are making a good point. I go to Mr. Watt.
Mr. Watt. I think he identified himself on his own time for
that 5-minute interjection. I don't think he was out of order.
He never identified--he never yielded himself time. But I
assume that you--
Mr. McHenry. --consent that the gentleman may have 30
additional seconds.
Mr. Royce. We are going to go to Mr. Watt. Go ahead with
your--
Mr. Watt. That doesn't compensate me for the time that is
already running.
Mr. Royce. You have the 30 seconds, Mr. Watt.
Mr. Watt. That doesn't compensate me 30 seconds--
Mr. Royce. Mr. Watt, go ahead. I am going to give you your
time--
Mr. Watt. I appreciate that. Let me welcome Ms. Warren here
and thank you for being here. I once thought--and I am getting
a copy of the speech that you delivered to the Financial
Services Roundtable. I am going to put it in the record.
I was there. I thought it was one of the most thoughtful
speeches I have ever heard given to a group who came into the
room with, as I will describe it, an adversarial nature, and
walked out of the room I think feeling a lot more confident
that none of the horror stories or horror possibilities that
have been postulated and tossed around rhetorically in the
political context were about to happen as a result of the
passage of Dodd-Frank and the creation and expanding of the
Consumer Financial Protection Bureau.
I want to compliment you--I came to you that very night and
complimented you on the speech and asked you to send me a copy
of it and I have circulated it to a number of the financial
services people in my congressional district when they have
raised concerns, many of the same rhetorical concerns that have
been raised.
I wanted to compliment you again today on your
presentation, the 30-some pages that you have given to us that
outlines how this agency is being stood up, and I want to
recommend it to my colleagues, particularly in light of the
debate that we had yesterday and the day before about how the
Consumer Financial Protection Bureau has no oversight.
I want to particularly recommend to them pages 18, 19, and
20 of Ms. Warren's testimony, that outlines in detail the
amount of oversight that this agency has been given that far,
far, far exceeds any oversight that any other financial
regulator has, including the point that the ranking member just
made that any rule that this agency promulgates can first of
all like any other rule be reversed by Congress. And second of
all--or maybe I should put it in the reverse--or the first of
all, it can be reversed by this oversight board. And then,
second of all, if we are not happy with them, we can reverse
them ourselves as we can do with any other financial services
or any other regulation that is promulgated by a Federal
Government agency.
And with that, my time is waning. I don't know how much
time I have left.
Mr. Royce. No. You have more time.
Mr. Watt. I do want to ask unanimous consent to put into
the record the speech that was delivered to the Financial
Services Roundtable leadership dinner by Elizabeth Warren on
Wednesday, September 29, 2010, with her personal note to me
saying, ``With thanks, Ms. Warren.''
Mr. Royce. Without objection, it is included, including the
personal note.
Mr. Watt. And I want to recommend that to my colleagues, if
that does not set them at ease--I am probably undermining your
credibility with the consumer groups out there--but I am
speculating that at the end of this stand-up period, it may be
the financial services industry that is the biggest advocate
for Ms. Warren to be the head of the Consumer Financial
Protection Bureau, because of her approach to these very tough
issues, streamlining regulation, getting down to simple forms,
the kinds of things that both sides of this committee have
advocated and certainly have been the primary focus of the
advocacy of my Republican colleagues on this committee.
This is not an ogre stand-up person, Ms. Warren, nor is it
an ogre Consumer Financial Protection Bureau. This is an
important ingredient for consumers in this country and I regret
I didn't have a chance to ask to ask you any questions. I am
just advocating for it.
Mr. Royce. It wasn't for a lack of time. We go now to Mr.
McHenry for his questions.
Mr. McHenry. Thank you, Ms. Warren, for being here. Now, I
understand your protocol point you--
Mr. Watt. Will the gentleman yield for just a second? Just
so I can be clear that this is on the record. Did I get the
unanimous--
Mr. Royce. You got the unanimous--
Mr. Watt. Okay. I am sorry. I ask unanimous consent for the
gentleman to have 30 additional seconds.
Mr. McHenry. Are you going to yield me 30 seconds? Thanks.
So, you are a political appointee of the White House and a
political appointee in Treasury.
Now, I want to go through a scenario with you just to get
context for folks on your position. So, walk with me here. This
is more of a mind exercise. I want your judgment on the merits
of this.
It is shortly after the Enron scandal. Okay? So, let's
rewind. And the Justice Department has a special task force to
go after Ken Lay and Enron. In your opinion, would it be an
appropriate thing for the White House Assistant to the
President for Energy Policy, who is rumored to be a potential
nominee to head up (FERC) to call up the Attorney General and
give advice on how to deal with the Enron matter on what terms
to potentially settle?
Ms. Warren. Congressman, as best I remember, following the
Enron scandal, the Justice Department asked for advice from a
number of specialists--
Mr. McHenry. Right. Did they ask Karl Rove?
Ms. Warren. --outside the government. I am not sure if they
asked for his advice.
Mr. McHenry. Okay, but I am--
Ms. Warren. But I do know they called my teaching
institution and--
Mr. McHenry. Right, but that is different. Look, we are
talking about a political appointee in the White House. So I am
just trying to see if you understand why the position you are
currently in is controversial. Do you have an understanding
that you are in a unique position? The fact that you are a
political appointee, you have not have been confirmed by the
Senate to head this institution that you are in all terms
directing, you have no statutory authority to engage in these
matters that you are engaging in.
Do you understand why it is controversial? It is similar
to--Karl Rove had a similar position in the White House of the
last President and if he injected himself on settlement matters
like this, there would be a hue and cry. Do you understand that
this is a bit controversial for folks?
Ms. Warren. Congressman--
Mr. McHenry. ``Yes'' would be a good answer.
Ms. Warren. I work for the Secretary of the Treasury. And
in my work for the Secretary of the Treasury, I have begun to
help put this new consumer agency together. And we have tried
to build already a lot of expertise on a lot of different
market facing issues, on credit cards, on mortgages, on
installment loans, on payment systems, and on credit reporting.
When the Secretary of the Treasury came to me and said, we
would like your advice, I was glad to--
Mr. McHenry. Don't you answer directly to the President as
well?
Ms. Warren. When the President asks for my advice, I--
Mr. McHenry. Yes or no, do you answer directly to the
President, Ms. Warren?
Ms. Warren. I answer when the President asks for my advice.
Mr. McHenry. Okay. So you--it is in your title--I am just
trying to make sure you have an understanding of the magnitude
of the challenge faced in your unique position here. And under
what statutory authority are you currently acting?
Ms. Warren. I am an employee of the Treasury of the United
States.
Mr. McHenry. Okay, that sounds eminently reasonable.
Ms. Warren. And the Secretary--
Mr. McHenry. I want to get to the settlement question
because media reports are saying that there is a $20 billion--
some are saying $30 billion--settlement. It is my understanding
that if the U.S. Government reaches monetary settlements with
banks, the funds would go to the U.S. Treasury. That is how--a
very standard process over the course of our Nation's history.
Therefore, it wouldn't be legally permissible for HUD or
even CFPB or any other regulator to resolve these matters by
having these funds directed to any other place than back to the
taxpayers, back to the Treasury. To allocate these settlement
funds, would you need to come back to Congress for
authorization to spend them?
Ms. Warren. Congressman, we are not involved, we are not
negotiating with anyone at the consumer agency. This is a law
enforcement matter that is headed by the Department of
Justice--
Mr. McHenry. So you are not engaged in these discussions?
Ms. Warren. --in their financial fraud enforcement task
force. And so the negotiations--
Mr. McHenry. So you are not engaged in these discussions?
Ms. Warren. The negotiations--
Mr. McHenry. I am reclaiming my time. Are you engaged in
these discussions on the settlement?
Ms. Warren. The negotiations with private parties are
entirely directed by the Department of Justice, by the State
attorneys general, and by other Federal agencies.
Mr. McHenry. So you are not engaged in these discussions?
Ms. Warren. We do not negotiate with private parties. We
have been asked for advice, Congressman. And wherever we can be
helpful, we are not only glad to be helpful, we are proud to be
helpful.
Chairwoman Capito. Thank you.
Mr. Hinojosa, for 5 minutes.
Mr. Hinojosa. Thank you, Madam Chairwoman.
Professor Elizabeth Warren, thank you for your valuable
advice to the U.S. Treasury and to our President. I have had
lots of meetings with representatives of the financial services
industry: community banks; regional banks; and others. And I
want to say that Texas bankers argue that the Consumers
Financial Protection Bureau will put many of them out of
business.
Bankers argue that the bureau will force banks to comply
with consumer laws and regulations that could eliminate one key
source of bank revenue--the overdraft fees. Banks also, both
small and medium- sized regional banks are concerned that they
might lose another key source of revenue--interchange fees.
Having seen how consumers are struggling with the increase
in cost of groceries, the increase in the cost of gasoline,
many having lost their jobs, many having lost their homes, I
can't help but want to root for your work and say that
consumers need some protection. They don't have the lobbyists
that we have seen here in Congress working to protect the
representatives of all the financial services.
Tell us, what we can do in Congress to ensure that this law
is implemented and that it will help our consumers get jobs
and, hopefully, put our country back into the prosperity that
we experienced during the 1990s?
Ms. Warren. Thank you, Congressman. That is an enormously
thoughtful and heartfelt question. And I wrestle with the
issues you describe every single day. America's working
families have really been on the ropes for a long time. Flat
wages and rising core expenses have caused many families to
turn to debt only to find that what they thought would be a
temporary help was far more dangerous and far more costly than
they had anticipated. This consumer agency is here for American
families. And I want to say it is also here for America's
banks.
I met with community bankers. I was down in San Antonio,
Texas, when Holly Petraeus, who heads up our Office of Service
Member Affairs and I went down to Lackland Air Force Base where
my brothers had taken basic training. And when we had the
chance to meet with community bankers to listen to their
concerns, it really has become clear to me that what we can do
as a consumer agency to cut regulatory burdens, to try to make
prices clear and risks clear so that competition is straight
upfront in the marketplace.
That will be good for families. It will also be good for
community banks. It will be good for credit unions. It will be
good for the financial institutions which really want to serve
American families.
Right now, we have a world in which financial institutions
are willing to engage in pretty slick practices; are willing to
put out a product pretending that it is at one price, knowing
they are going to make their money back on the backend with
fees and revenues and re-pricing. Those competitors take
families away from a safer, sounder banking system.
So, what I see this consumer agency as doing is speaking up
for stronger families. And stronger families mean stronger
banks. Stronger families and stronger banks mean a stronger
economy. That is what we are here to do. Thank you.
Mr. Hinojosa. Thank you for that response. I heard my
friend, Congressman Gutierrez, talk about all that was exempted
in the final bill. And yet, it seems like they are the voice
for medium-sized banks and the large banks even though they are
exempted. Explain to why they are so concerned.
Ms. Warren. Congressman, there are a lot of people who
built business models around the way that the world is who have
figured out how to return incredible profits and revenue.
Literally, in the tens of billions into the hundreds of
billions of dollars, selling products, mortgages, credit cards,
payday loans, car title loans, we could go on and on,
remittances, to consumers without making the prices clear up
front, without making the risks clear up front, making it
impossible through the fine print ever to compare one product
to two or three others.
And they are very--some of them very concerned.
Mr. Hinojosa. We needed to hear that answer. Thank you very
much, Professor.
Ms. Warren. Thank you.
Chairwoman Capito. Thank you.
Mr. Huizenga, from Michigan, for 5 minutes.
Mr. Huizenga. Thank you, Madam Chairwoman. I appreciate the
opportunity.
And, Professor Warren, I appreciate your time coming here.
I want to actually--along that vein--explore that a little bit
and find out, probe your views on some of these organizations
and where they fit, and where you believe that they should fit.
I have a background in real estate and developing. The
first home I ever listed was a two-family home on 17th Street
in Holland, Michigan, which is a very rough neighborhood, and
it listed for $49,000.
The families who were living there and the families who
were looking at trying to make an opportunity for themselves
really, in many ways, weren't going to be able to fit into
those conventional boxes.
We were talking about big banks and medium-sized banks. But
I think a number of people acknowledge that maybe somewhere
those problems were in some of these more offline, smaller,
non-FDIC type of entities that have been able to service
people.
And whether it is people holding land contracts--I know
many people who have been involved in real estate, they will
literally hold millions of dollars in personal funds in land
contracts, for example, and some of these other non-conforming
loans.
And you hit on a phrase just in this last answer of serving
America's families. I think there are a number of people who
are willing to do that, but they are quite afraid of some of
the regulations and the discussions and the direction that this
appears to be going that they may not be able to function.
I am hoping to hear from you exactly what are some of your
views of those less than conventional institutions and
organizations that serve those families because whether they
are vets, or whether they may be disabled, or whether they may
be low- and moderate-income, there is a marketplace that needs
to be served. How do you envision that being served?
Ms. Warren. Thank you, Congressman. I think that is a very
important question, a very, very thoughtful question, and I
will say along the same line, the first house I ever bought was
for $23,300 and we were not conventional buyers, the first time
out.
I understand the importance of being able to serve American
families across a wide variety of circumstances. In fact, I
should say I think it has been one of the important themes that
community banks and credit unions in particular were also non-
bank lenders when they have come to visit have talked about
with me how it is that they build a business model around
adjusting to the different needs of different customers, that
they acknowledge the importance of what they call relationship
banking, that they know their customers and they know how to
customize products.
And I think the best way I can say this is that we are
working with those in the industry who serve families. We are
committed that prices should always be clear. There should
never be a family ready to take out a mortgage who isn't clear
what the price is on that mortgage. There should never be a
family considering taking out a mortgage who doesn't get what
the basic risk is, whether, for example, this is a fixed-rate
mortgage or a mortgage that could adjust.
There should never be the case that a family gets
information in a way that they can't make some kind of
straightforward comparison of one mortgage to two or three
others.
That is the direction we are driving this agency. That is
the direction we have been driving it since the first day I
have been there. And I have really tried to build those
structurally into the agency and into its entire attitude
because, ultimately, that is what we want to be able to do. We
want to make sure that there is a robust and diversified
financial services industry there to serve the American people.
That is our job.
Mr. Huizenga. My concern is that--I appreciate that. I
believe that people, I have sat through countless closings
myself and there is--trust me, if anybody has either refinanced
their home lately or if they have ever been buying anything--I
see a few people, heads nodding in the background--there is
plenty of paperwork that you are signing to the point of
writer's cramp.
One, I am concerned a little bit about the redundancy and
whether some of these things are necessary. But, two, and more
importantly, not just the notice to the consumer, how will this
work for the lenders, conventional or non-conventional? How
will this work for the broker? Oftentimes, there are mortgage
brokers who may be in there or even individuals and let's call
them an implementer of that particular deal.
Because I will tell you that there is a number, and I have
this man, and I will call him Mike, who takes his family's
money, has about $1.25 million in land contracts. He looks at
this and says, ``I am not going to be able to function. I am
not going to be able to serve those people who couldn't go get
a conventional loan because of potentially the paperwork and
the layering of that.'' Now, I would like to hear how that
would be taken care of?
Thank you, Madam Chairwoman.
Chairwoman Capito. Thank you.
Mr. Miller, for 5 minutes.
Mr. Miller of North Carolina. Thank you.
Professor Warren, first I want to commend you for your work
to merge the TILA and RESPA forms and do it in plain English,
something that can actually be understood. I have heard from
consumers that they are very frustrated. They are given a big
sack of stuff that is useless to them because it is written in
unreadable legalese. But I have also heard from credit unions
and community banks.
And it is easy to forget with all the cheating that went on
in the last decade, most people really, in the financial sector
really were trying to make an honest living and provide a
needed service and do right by people. They felt like they had
to simply regurgitate the language of a regulation or a statute
which is legalese and set it out in full. And they knew that
nobody could read it.
But that is all--they felt that was the safest thing, so if
you were developing the forms that they feel safe to use, that
people can understand is they servers to consumers and it is a
service to those industries who are trying to make an honest
living, so do that and do more of it.
Second, I do remember with respect to CFPB and the first
proposal, there was a requirement that financial institutions
all have a ``plain vanilla'' product, and that got dropped
fairly quickly. In fact, to make the point very clear,
Republicans offered in the amendment that said that CFPB cannot
require any financial institution to offer any product.
So, when there are complaints that their solvency--their
safety and soundness may be threatened by a consumer
protection, it will not be that they are required to do
something that would be unprofitable for them. It is that they
have to do things that CFPB determines are abusive to consumers
to stay in business. Is that correct?
Ms. Warren. That is correct, Congressman. Yes, sir.
Mr. Miller of North Carolina. Okay. The argument about
safety and about, excuse me, about consumer choice reminds me
of the argument a century ago with respect to that, that meat
packers made about proposed food drug laws, pure food laws that
it would impinge upon consumers' God-given right to buy spoiled
beef.
And it turned out that consumers did not really want to buy
spoiled beef. They did not want that right. They wanted the
assurance that they were buying pure beef. If they really
wanted rotten beef, they could buy it pure and let it rot. But
they did not particularly value the right to buy spoiled beef.
I have yet to talk to anybody who wanted--who actually
chose some of the products made and offered in the last decade,
that suppose at one-size-fits-all, I can't think of any size if
some of those products fit. And I have asked before, I asked
the president of the American Bankers Association if he could
identify for me someone who qualified for a prime loan, but
instead wanted a 2/28 with an increase in the monthly payment
of 30 percent to 50 percent and then a 3 percent prepayment
penalty and all the rest. And I have asked if he could identify
for me someone who actually chose that knowingly.
Or someone mentioned overdraft fees. I want an overdraft
protection. I want that, but I do not want the bank to be able
to process overdrafts not in the order in which they come in,
but in the order that would maximize overdraft fees, or that
the ATM machine, when I ask my balance, tells me funds
available, which means how much could I take out in addition
even though every transaction would have an overdraft fee.
Do you know people who wanted that?
Ms. Warren. No, Congressman, I do not.
Mr. Miller of North Carolina. Okay. Finally, with respect,
and I made that offer on the House Floor, that request on the
House Floor and this committee that please if anyone knows of
someone who really wanted those products, who got a subprime
loan and qualified for a prime loan, let me talk to the--give
me their names and contact information so I can talk to them
and understand why they would have chosen that. And I still
have not had any name provided to me.
With respect, and I know that you are not playing the lead
or you are only being consulted in the reported settlement
talks that one of the criticisms of it is it doesn't say what
is it that the banks supposedly did, the servicer supposedly
did. Usually, when there is a settlement of an enforcement
action, the party being subject to the action does not want
that in the settlement because it is bad press, and
particularly when there are pending private claims that can be
used against them, particularly if it is couched as a finding
and they don't want that, that is part of the negotiation is
that there is no specificity, there is no detail about what the
supposed violations are.
Do you know if the banks or the servicers have asked that
there be some detail of what they have done or supposedly done
as part of any settlement agreement?
Ms. Warren. Congressman, I have no knowledge one way or the
other about that.
Mr. Miller of North Carolina. Okay, what I said about how
settlement actions usually work, that settlement agreements
usually work, is that consistent with your own experience and
knowledge?
Ms. Warren. That is what I understand from those who do
settlement negotiations.
Mr. Miller of North Carolina. Okay, thank you.
Chairwoman Capito. Thank you, Mr. Miller.
Now, Mr. Duffy, for 5 minutes
Mr. Duffy. Thank you, Madam Chairwoman.
Good morning, Ms. Warren.
Ms. Warren. Good morning.
Mr. Duffy. I would echo your point that I think all of us
here want to see clear prices in regard to lending and want to
make sure that borrowers know the risk of the loan they are
taking. I think we would all agree with you on that point. I
think there are other issues that are flaring up here. And I
don't want to beat a dead horse, but I want to go back over,
again, what your role is here with the CFPB. Would you--you
said you are a political appointee but would you also agree
that you are kind of the acting director of this organization?
Ms. Warren. There are truly two jobs contemplated by the
Dodd-Frank Act. One is that there will be a director and that
process is the President will nominate someone, and the Senate
will confirm. The other is that it is perfectly clear in the
Dodd-Frank Act that someone has to get this agency up and
running, that is charged by the Secretary of the Treasury and--
Mr. Duffy. And that is why I am asking the question because
as the acting director--because it is one of these situations
where if it walks like a duck and it quacks like a duck and it
looks like a duck, it is a duck. And you are hiring the staff,
you have a welcome video on the Web site, your schedule is on
the Web site. I know you might say that you work for the
Treasury Secretary, but I think anyone who looks at what is
happening here they ought to agree that you are behaving as if
you are the acting director and I think that is a concern here.
And I think that we come back to this point of we want to
see confirmation from the Senate of an acting director and back
to one of the original points you said you know what, this
agency provides the voice for the American people. I look at
this Congress, we are the voice of the American people, and
when we don't have any oversight of what you are doing, I see
that as incredibly problematic.
I guess I would ask for your comments on that.
Ms. Warren. Thank you.
I appreciate your interest in what is happening during this
period between the time that the President signed the bill into
law and the time that this agency receives its transferred
authority under the statute. And it says, ``The Secretary of
the Treasury shall set the agency up.'' And that is hiring and
signing contracts and building the mechanism--
Mr. Duffy. But the Treasury Secretary is not on the Web
site. His schedule is not on the Web site; it is you.
Ms. Warren. And the Secretary of the Treasury who is
responsible for many things delegates to other people. And he
has delegated to me, he has asked me to come in and spend my
time doing this and I will say, Congressman, it has been a 14-
hours-a-day, 7-days-a-week job.
Mr. Duffy. I agree about the 14-hour days, I know exactly
what you are talking about, but I was asking, are you acting as
the director?
Ms. Warren. I am acting as the delegate of the Secretary of
the Treasury as the statute contemplates.
Mr. Duffy. Let me move on because I just--my concern is my
duck analogy. It appears that you are the acting director by
everything that we are reviewing, and you are aware that the
FTC, the SEC, and the FDIC all have five-member boards but the
CFPB, we are going to have one director, possibly you, possibly
someone else. I guess that gives me some concern that we are
consolidating power in one person instead of a board.
Does that give you any pause or concern?
Ms. Warren. There are two models in government, the Office
of the Comptroller of the Currency and the Office of Thrift
Supervision, the primary prudential regulators, the safety and
soundness regulators that we were talking about earlier have a
single director. And I think the reason for that is the belief
that, Congressman, having the single director when you have
someone who is doing banking regulation makes for a more
efficient operation.
Mr. Duffy. The FDIC, the SEC, and the FTC are involved in
some very important areas and they are five-member boards and
they work well, right?
Ms. Warren. They certainly are involved in many things,
they are not banking examiners--
Mr. Duffy. Would you be opposed to a five-member board?
Ms. Warren. And they do not run a banking staff, all I can
say--
Mr. Duffy. Would you be opposed to a five-member board?
Ms. Warren. What I will say is that this was fully
deliberated.
Mr. Duffy. Let me ask you this, are you opposed to a five-
member board?
Ms. Warren. Congress made the decision to--
Mr. Duffy. Are you--I am not asking about Congress, I am
asking if you are opposed to a five-member board?
Ms. Warren. I think when Congress made that decision, it
was the right decision.
Mr. Duffy. So you would say yes, you are opposed to a five-
member board, you think a one person director--
Ms. Warren. When Congress made the decision to have one
regulator, they got the point.
Mr. Duffy. That leads me to my next point. I think you have
seen a concern here with my colleagues that what you are doing
in regard to consumer protection could trump safety and
soundness. And we look at FSOC and it is a 10-member board
where we need a supermajority of two-thirds to overrule your
decisions. And you have a seat and the President has a seat,
all you need is one more and we can't overrule the decisions
that you--I yield back, I apologize, my time is up.
Mr. Dold. [presiding] Thank you. Next, we are going to have
Mr. Lynch, for 5 minutes.
Mr. Lynch. Thank you, Mr. Chairman.
First of all, I want to start off by saying thank you
Professor Warren for your great work. I, for one, being on the
Oversight Committee, have followed your work very, very
closely. I have seen you in action and I think you do a
wonderful job and I just want to--in spite of all the criticism
we see here I hope you understand that for those of us whose
primary concern is for the consumer and those of use who really
understand what happened in this financial crisis, you are the
champion for working people and for consumers.
I, for one, hope that you are nominated and I pray that you
are confirmed because I think you would be perfect for this
job. I think you have shown a lot of courage to stand up
against the folks that you stand up against. There are a lot of
people who stand up and fight for the big banks. There are a
lot of folks who stand up and fight for financial institutions
and there are a lot of constituencies in the financial sector,
obviously very heavily financed and a lot of lobbyists and you
are right into the teeth of that. And I just, on a personal
level, I ask you to keep at it.
I think you are fighting the good fight. You are on the
side of the angels and I think that you know, hopefully you
will be nominated and you will be confirmed, I honestly hope
for that.
I understand this is change, and sometimes there is great
investment in the status quo and we certainly see that in the
financial services industry and people are nervous, but I do
think that Dodd-Frank, in allowing the CFPB to be overruled by
the safety and soundness regulators, does put a short circuit
in place where if there was something that was unwise, not that
you would do anything that is unwise but in the event that that
might happen there is a fail safe and I that review is
certainly warranted and I think it is already included in the
bill so I am encouraged by that.
Look, the damage done to American families and the American
taxpayers by this recent financial crisis cannot be overstated,
but one of the things that I worry about greatly is the
integrity of our financial markets. There has been such damage
to the integrity of the U.S. financial markets and reputational
damage done to our markets that investors, consumers I think
feel that the current arrangement is rigged. That the banks run
the show and with insider trading and these super fast
computers that really they don't believe that the system is
honest, they think it has been compromised greatly.
And they are hoping that you might be part of that solution
in rebalancing of the scales. I certainly hope that. The
complexity of the markets is just growing exponentially with
derivatives and structured products and it is beyond the basic
understanding of the average investor or the average consumer.
And what I am asking is for you to try to explain to
consumers who are out there about your role as someone who, if
confirmed, might help rebalance the power there between
consumers and financial institutions.
Ms. Warren. I appreciate that, Congressman. I think you
have put it exactly the right way when you talk about balance,
that the banks will be heard from in Washington and the
political process. The question is whether ordinary families
will be heard from and quite honestly whether or not those who
actually want to serve those families will be heard from,
community banks, credit unions, servicers who want to provide
good products.
What I see this about is that this is about this agency, it
is about a real belief in markets so long as they are honest.
So long as you have a cop on the beat who says, there is that
law down here, everybody, I don't care how big you are, I don't
care how powerful you are, I don't care who your friends,
everybody follows the law. That is just the deal.
And the laws are directed toward you folks so you can
actually have a real chance in this financial marketplace, at
least in the personal part of this, the borrowing and your own
personal financial management because the costs ought to be
clear, the risks ought to be clear. It ought to be that you can
compare one product to two or three others. That is really all
this agency is about.
Mr. Lynch. Thank you very much. Mr. Chairman, my time has
expired. I yield back.
Ms. Warren. Thank you.
Mr. Dold. Thank you.
Next, we will hear from the gentleman from Texas, Mr.
Canseco, for 5 minutes.
Mr. Canseco. Thank you, Mr. Chairman. And I am going to
yield some of my time to the gentleman from Georgia, Mr.
Westmoreland.
Mr. Westmoreland. I will only take 30 seconds. And I want
to tell the gentleman from North Carolina, today is your lucky
day. I would like to present this evidence to Ms. Warren and
ask her if it would prevent this from happening. I sought out a
loan, a second mortgage to go into business. It was a 5-year
prepayment penalty, I paid 6 points up front. I probably paid 4
percent or 5 percent more than the going rate to be able to get
a second mortgage on my home to go into business. And I am
proud to tell you that I was able to repay that. I was able to
fulfill my dream of being in business for myself and I have
been in business for myself for 30 years.
And what you are talking about today and what Mr. Miller is
talking about today is preventing people from being able to
fulfill the American dream when they know themselves that they
can do it. They can meet the challenge but yet the government
is going to tell them it is a bad deal, they can't do it, and
not allow businesses to make those kind of loans. That is
wrong.
Thank you. And I will yield back.
Mr. Canseco. Thank you, sir.
Professor, I appreciate your being here today and I also
appreciated your visit in my office some time ago when we had a
very nice friendly discussion about San Antonio and our home.
And I thank you for being here today.
But in regards to San Antonio, I spoke with a group from
San Antonio that represents a lot of entrepreneurs, a lot of
young businesses that are just getting started. And one of the
things about it is that they used a lot of their own personal
credit in order to finance these things. The U.S. Chamber of
Commerce estimates that more than 47 percent of small business
owners use personal credit cards as opposed to business credit
cards. That is just the nature of start-up companies and the
beauty of the American dream.
How will the CFPD distinguish between an individual using
credit cards to buy fancy clothing and a small business owner
obtaining credit to expand his business?
Ms. Warren. So, Congressman, again, thank you for your
hospitality. It was good to be able to visit with you and to be
able to visit about San Antonio.
I want to be clear about what we are trying to do with the
consumer agency. We are trying to make the cost clear up front.
We are trying to make the risk clear. We are trying to make it
easy for anyone to be able to compare one product to another. I
believe in small businesses. I have not only studied small
businesses for a long time, one of my three brothers has been a
small business owner all his life and supported his family from
his efforts. And I know how small businesses struggle.
Mr. Canseco. Pardon me for interrupting your answer but how
are you going to distinguish that individual who is using his
personal credit for business from someone who is using it for
personal use?
Ms. Warren. Congressman, perhaps the distinction you want
to make and quite rightly is that business loans are excluded
from any oversight by the Consumer Agency. But let me make the
point that we are here to make credit clear in terms of its
price, not to ask what you bought with it. It is not our
question about whether you bought good-looking clothes or ugly
clothes. That is just not--
Mr. Canseco. But what is it going to mean to the more than
47 percent, almost 50 percent of business startups and business
people who use that personal credit for their business that
they are putting skin in the game? If your agency comes in
there and regulates their activities, what does it mean to that
private sector that is growing and it is going to be
contributing so much to job creation, innovation and growth and
opportunity in our community?
Ms. Warren. Congressman, I heard--I think it was 2 weeks
ago--from a group representing small businesses, and small
businesses are very concerned because when they finance their
business activities, as you rightly point out with credit,
wherever they can get it, the prices are not made clear, the
risks are not made clear.
What this agency is about is about making those prices and
risks clear. That is good for American families, but believe
me, it is even better for small businesses. They need to know
how much money they are spending.
Now, business loans will be segregated, Congress made that
choice. But in personal credit, it is about costs and risks and
making them clear.
Mr. Canseco. Let me ask you another question because I am
running out of time here. If I run a bank that has over $10
billion in assets or we originate mortgages, exactly what part
of my business practices would your agency not regulate?
Ms. Warren. We are not the safety and soundness regulators,
the consumer agency does not regulate the ordinary banking
activities. Those are regulated by the Office of the
Comptroller of the Currency. What we do is we do what was
clearly sorely missing over the past few years. That is, for
example, in an area like servicing home mortgages, we make sure
that the servicers are following the law.
We make sure that when someone is putting out a new
mortgage, originating a new mortgage, what are the obligations
to comply with--and RESPA. That is why we talked about how,
with the help of the banks--sorry--we are figuring out how to
combine those two forms, make those forms smaller and come
earlier in the process when they will be helpful to consumers.
So we are focused on the consumer credit product and whether or
not those who are using them to lend money are actually
following the law.
Mr. Canseco. Thank you very much.
Ms. Warren. Thank you.
Chairwoman Capito. Thank you.
Before I recognize Mr. Green, I would like to ask unanimous
consent to insert the comments letter on the CFPB from the
National Association of Federal Credit Unions.
And I now recognize Mr. Green for 5 minutes.
Mr. Green. Thank you, Madam Chairwoman. And I thank you and
the ranking member for allowing me to have the unanimous
consent to be a part of this most important hearing.
I would also like to thank Ms. Warren for her service to
her country.
Ms. Warren, I believe that you are doing a very difficult
job and I trust that you will continue to serve your country as
well as you have.
I would like to, if I may, Madam Chairwoman, with unanimous
consent, place in the record a report from Americans for
Financial Reform. It is a progress report, dated January 21,
2011. And I would note that on page four of the report, make
that page five of the report, there is an indication that there
is a need for a permanent director. I mentioned this only
because it is apparent that these 250 organizations and
individuals do not see Ms. Warren as a permanent director, they
see her as a transitional person helping us to establish an
organization.
So if there are no objections, may it be submitted for the
record, Madam Chairwoman?
Chairwoman Capito. Without objection, it is so ordered.
Mr. Green. Thank you.
I would like to now move to Ms. Warren's report, page 30 of
her report that she has submitted to us, reads, and I will not
read it in its entirety, but it reads, ``Community bankers and
credit unions have also made it clear that they face a
regulatory crisis.'' And you go on to indicate that this is
because they can't afford to hire an army of lawyers to
investigate the complex rules and navigate them.
You indicate that the importance of small banks and credit
unions cannot be overstated, they are disproportionately the
providers of credit to small business. And they are therefore
part of the chain toward higher employment and economic
recovery.
I concur with your comments. I think the community bankers
are exceedingly important because of the relationships that
they have to small businesses and the credit unions as well.
I had a good many of them visit with me and they have made
it very clear to me that there is a crisis that they perceive.
There are many who fear that they may be regulated out of
business. I see this as something that impacts both consumers
as well as small banks because without the small banks, the
consumers don't benefit from what the small banks can provide.
My question is, first, is it possible within the bounds of
ethics for us to work together to help these small banks
continue to provide a good service for consumers within the
bounds of ethics? And I don't want to do anything that is
unethical.
And also, how are you immediately embracing this crisis
that they perceive as one that may cause them to cease to be
able to function as they function currently because of the
additional cost?
Ms. Warren. Yes. Congressman Green, thank you. Thank you
for the thoughtful comments and the thoughtful question.
I see this very much the same way. I worry about our
community banks. I worry about our credit unions. I worry about
our smallest financial services providers because many of them
are good partners to their customers. And they want good long-
term relationships. They are clear about their product. They
are willing to make prices clear up front, to make risks clear
up front. They can't thrive by pretending to sell at one price
and then mugging people after they get them in the door.
But they are worried about a challenging regulatory
environment. We are doing what we can on the consumer side, in
the consumer agency, on the consumer product.
Mr. Green. Let me suggest this because I have one
additional thing that I must do. Would you agree that within
the constraints of ethics, we will work to try to make sure
that the consumers and the banks or credit unions are
protected?
Ms. Warren. Absolutely, Congressman, I should have given a
shorter answer.
Mr. Green. Okay. Let me quickly state this. In your report,
on page 18, you indicate in addition to the fundamental
constraints that Congress has imposed and you have talked about
Dodd-Frank, you indicate that specifically you are required to
submit--the agency is required to submit annual financial
reports to Congress. You have to report to Congress twice a
year to justify your budget. The director, whomever that
happens to be, has to testify before and reports twice each
year regarding the activities of the agency, you indicate that
the GAO has to conduct an audit each year of the agency. You
indicate that you have to submit financial operating plans and
forecasts and quarterly financial reports to the Office of
Budget and Management. And you indicate that oversight is also
available through the Financial Stability Oversight Council.
Madam Chairwoman, I just mentioned these things because I
want to allay some of the concerns with reference to the
oversight of the organization, clearly you have more oversight
than most Federal agencies.
And I thank you for the time.
Chairwoman Capito. Thank you, Mr. Green.
I would like to recognize Mr. Pearce, from New Mexico, for
5 minutes for questions.
Mr. Pearce. Thank you, Madam Chairwoman.
I have a lot of questions, so I recommend a second round if
we get the opportunity. A couple of observations in that--I
read the report here and I see the word straight up, too
complicated, clear, concise. And two, I don't have much
interest in what our colleagues up behind me were asking about
the confirmation process, but you are demanding something from
the people you enforce things over that you are not willing to
give yourself and that is straightforward, clear, concise
answers. And that has created lot of the repetitive questions.
That is just an observation.
The second thing is that I hear you testify, I know you are
talking about the protection of consumers and you build this
process in, as if the government agency is going to solve the
problem. And I would like to believe in it but frankly I am
going to think about the SEC and Mr. Madoff and I am going to
believe that in 2 years, your agency is going to be operating
exactly the same. That is simply out there grinding wheels away
and that it might also itself fall short of being this angel. I
have heard a lot, it was really champion and these words that
we have heard.
So with--maybe you are going to be the government agency
that actually does this work. The idea that you propose on page
four that few of us seriously believe that we have the
marketplace that American families deserve.
Now, when I go to the bank and ask for a loan, the first
thing I go to actually has fairly clear APRs and everything. It
is clear, it is concise. And so what you are trying to enforce
is to an extent consumers who don't like the answer they get
from institutions that have paperwork that is clear and
concise.
And so you are going to enforce the standard on the lending
institutions and those institutions which are only answering
the demands of people to come and get products, that is because
they can't get the products somewhere else and they are
demanding these and you are going to stop those.
I remember a day when I was in the State legislature where
we wanted to regulate payday lenders, those people who charge
$20 for loaning you $100 for a month. And I too felt like that
was too exorbitant, it was thousands of percent. I got back to
my hometown and one of the guys who worked in the oil field
came up to me and asked, ``What damn business is it of yours,
if I borrow $100 today, and I want to pay back $120?''
That still rings clear and I think maybe at some point you
should ask that to your agency. So the question that I have, it
is my understanding from what you are saying that we would not
be here payday, we would not be here, we would--if the rules,
the basic rules of the road in place for mortgages were
consistently enforced, protecting consumers, we would not be
here.
So I get from that you believe that there was no
enforcement in the--that there were no rules for mortgages. Is
that right?
Ms. Warren. Congressman, I think it is fair to say that
this economic crisis started--
Mr. Pearce. No, that I am asking--you say that if rules had
been enforced, that we would not be here. So you are saying the
FDIC and the OCC didn't do their jobs? That the Real Estate
Settlement Protection Act did not do its job? You are telling
me that nobody in the enforcement of mortgages did their jobs?
Ms. Warren. I think the evidence is fairly clear that they
did not do their jobs. Yes, sir.
Mr. Pearce. Is that in regard to the superficial
instruments, the bonds?
Ms. Warren. No.
Mr. Pearce. Or was it maybe that the government asked banks
to give loans to people who could not afford it, which they
did, the government insisted that banks give loans to people
who could not afford it. No loan, no payments were ever made on
those. Those loans without the ability to ever be repaid,
without one payment ever being made were then lumped into bond
and then the exotic instruments, the CDOs and the MBSs were
created out of that, that is what was not regulated.
But the banker down in Main Street of Hobbs, New Mexico, I
will guarantee you still risks losing its bank today if he
gives a product that is not in compliance.
Ms. Warren. Congressman, I think we can agree that the
crisis in home mortgages and the rest of this economy was not
caused by community bankers, it was not caused by credit
unions; it was caused one mortgage at a time with mortgage
brokers and who put out products that were extraordinarily
dangerous and often deceptive to those who took them.
I think there is ample evidence of what went wrong on the
front end of this crisis.
Mr. Pearce. And there is ample evidence that the rating
agencies rated those as triple AAA and I don't see that
anywhere in your scope of work. And I do have a second round,
if we get there, Madam Chairwoman.
Chairwoman Capito. Thank you.
I would like to recognize Mr. Luetkemeyer for 5 minutes for
questioning.
Mr. Luetkemeyer. Thank you, Madam Chairwoman.
Ms. Warren, in your testimony, in your written testimony,
you indicate that many of the rules make it very non-
competitive for community banks, credit unions and others to
compete, and your words are, ``put them at a competitive
disadvantage.''
If we can choose a better way, can you tell me what that
better way is?
Ms. Warren. I think that the example of the first priority
of the new Consumer Financial Protection Bureau is an example
of the better way. We are going to take two fairly long, fairly
complicated forms that have substantial overlap that two
government agencies have negotiated or been at war, depending
on your metaphor here, for more than 15 years about combining
those forms. And because it comes to one agency, we are going
to combine the forms. And we are using the help of the
community banks and the credit unions and the mortgage brokers,
the people on the frontline who originate these mortgages to
find the most effective, the most efficient way to do that and
give us a smaller one-page mortgage shopping sheet that might
actually produce some value for the family.
Mr. Luetkemeyer. Okay. Whenever you do this, are you going
to look at the cost-benefit of that rule, that new form that
you are going to put out, of what it is going to cost the
institution to comply with?
Ms. Warren. Congressman, we will certainly look at the
cost-benefit.
Mr. Luetkemeyer. Okay. If you are going to look at it, can
you explain to me on what basis you would throw a rule out or
not make a rule? Can you give me the numbers? Is it--because I
can give you numbers all day long. I had a community banker
drop in front of me about 2 weeks a sheet of paper, as he said,
``Blaine, this is what it costs me to comply with one rule--
$16,500 per year.'' And it is a small institution. Another one
told me it cost over $100,000 a year to comply on one rule.
Ms. Warren. Yes.
Mr. Luetkemeyer. Now, you multiply that by all the banks in
the country. At one point are you going to say this rule, the
cost-benefit of it is not worth implementing?
Ms. Warren. Congressman, I am glad you raised the problem
of regulatory burdens for our community banks. And I remind you
of course that the community banks are struggling because of
the regulations they face elsewhere in the system, not because
of regulations from the Consumer Financial Protection Bureau.
Indeed, we have worked with the community banks, we have
worked with--
Mr. Luetkemeyer. Ma'am, you have spent 30 seconds of my
time not answering my question. I am sorry to interrupt here,
but I want a specific answer to a specific questions. At what
point are you going to say this rule is too costly to
implement, it doesn't yield any benefits, it costs too much to
implement?
Ms. Warren. Congressman, we are required by law to do a
cost-benefit analysis.
Mr. Luetkemeyer. I know you are. I read it in the
testimony. I understand it.
Ms. Warren. I am sorry.
Mr. Luetkemeyer. At what point are you going to say, no,
this rule is going to be thrown out?
Ms. Warren. When the costs outweigh the benefits,
Congressman.
Mr. Luetkemeyer. Okay. When it costs $100,000, when it
costs $1 million, when it costs $1 billion for the industry, at
what point are you going to say no, we can't do this?
Ms. Warren. Congressman, that is what a cost-benefit
analysis is. When the cost outweighs the benefits--
Mr. Luetkemeyer. Okay.
Ms. Warren. --then we will not engage.
Mr. Luetkemeyer. But you don't know at what point that is
yet?
Ms. Warren. Congressman, I think your question about the
point is an important one. We are communicating right now with
the community banks, with the credit unions about the changes
they want to see because they think there are cost savings for
them that also benefit consumers by starting earlier on the
problem, not when we have a--
Mr. Luetkemeyer. Absolutely. I agree with you 100 percent.
And my concern is that we are going to say, we are going to put
a new form in place here but instead of combining two forms,
now you have the front and the back that you have to work on.
And we haven't done a thing to improve our situation, it still
remains more costly.
Let me move on to another question before my time expires
on me here.
You are going to be the new examiners on the block. Are you
taking over all of the Consumer Financial Protection
examinations, from all other agencies across-the-board? Are you
going to be just another form that the institutions are going
to have to deal with?
Ms. Warren. For all--
Mr. Luetkemeyer. Okay, in other words, for FDIC, are you
taking away all their consumer complaint stuff?
Ms. Warren. No. For the--
Mr. Luetkemeyer. So this is going to be a second exam that
is coming forth?
Ms. Warren. For all financial institutions with more than
$10 billion in assets, the new consumer agency will be the
primary regulator and supervisor.
Mr. Luetkemeyer. Okay. But the other ones are still going
to be in place and they are still going to come in with the
compliance exams as well?
Ms. Warren. No. There will be something called the transfer
date. And the transfer date is July 21st of this year, and that
is when the other seven 7 stand down in terms of their
responsibilities for enforcement and rule-writing--
Mr. Luetkemeyer. Okay. In terms of--
Ms. Warren. --on the 18 existing Federal statutes and the
new consumer agency stands up. This is like a relay race.
Mr. Luetkemeyer. But in terms of enforcement, are you going
to be doing the same thing that the other agencies are doing or
are you going to be doing something different?
Ms. Warren. No, we will be doing something different. We
will be enforcing. They will no longer be enforcing the laws
that we will be enforcing.
Mr. Luetkemeyer. So you are going to come in and enforce
them? Are you going to be coming in to help the institutions
understand them or are you going to be slapping more fines?
Chairwoman Capito. Your time has expired. Thank you,
Congressman.
Mr. Dold, for 5 minutes of questioning.
Mr. Dold. Thank you, Madam Chairwoman.
And I want to thank you, Professor Warren, for taking the
time to be with us today.
I would like to just continue down the vein and in terms of
how you think this is going to impact small businesses. And so
if I can, for consumers who are out there, if a consumer
voluntarily enters into a consumer transaction with full
disclosures and full information, are there any reasons on
which you or the agency could possibly prohibit, penalize, or
invalidate the transaction, and if so, what are those possible
reasons?
Ms. Warren. Congressman, I have tried to make it clear.
What this agency is about is about making the prices clear, the
risks clear, making it easy to compare one product to another.
We would have to go through all 18 statutes to see if there are
already certain prohibitions.
But the point is to get an informed consumer because I
believe that American families are good at making decisions
when they have information up front.
Mr. Dold. I couldn't agree with you more. And this is about
protecting consumers. But I guess my question is, is that the
way the statute is written and the law, that there is going to
be one person in charge? And that person, according to the way
it is written, anything that is risky or potentially uncertain
isn't going to necessarily be--or could be subject to be
invalidated? And so I am trying to get a better handle on what
will you determine is going to be a risky proposition.
Again, for someone who is informed, an informed consumer
who may choose to enter into a financial transaction or a
purchase of a financial product, that for some reason the
Consumer Protection Bureau determines is risky, is that going
to be invalidated?
Ms. Warren. I think perhaps it might be that you are
referring to the authority that is currently with the Federal
Reserve, often referred to as UDAP, unfair and deceptive
practices. So the authority is currently there in the statute,
it is there. In fact--I don't know if it is in all 50 States,
but in most State laws the capacity to say certain practices
are deemed unfair and deceptive, there is a long case law on
this and a long history on it. That will come to the CFPB, it
will be part of our responsibility to enforce those laws,
Congressman.
Mr. Dold. Can you give me any sort of an idea in terms of
how do you plan to reduce the regulatory burden on small
institutions by adding yet another regulator into the mix?
Right now, when I talk to people back in my district all the
time, it is the uncertainty that is out there. Uncertainty is
preventing people from investing; they are unsure about what
tomorrow will bring and so therefore they don't.
And what I see this doing is, again, creating another level
of uncertainty. And especially with the amount of power that is
being put into the bureau, they are just going to--my take is
that they are going to wait and we are not going to have
investment. And this could be potentially problematic. So I
would just be interested in your take on that.
Ms. Warren. No, I appreciate it. And I appreciate the
concern that this question expresses. We will take transfer of
the authorities that are currently there in seven other
agencies. We will put them in one agency and we will hold that
agency accountable, accountable ultimately to the American
people.
And what we will do in this process and what we are trying
to do in this process is reach out to all potential
stakeholders. We have talked with community banks. We have
talked with credit unions. We have talked with very large
financial institutions. We have talked with some non-bank
lenders.
In fact, Congressman, we have even gone out and had
extensive conversations with the investment community, those
who invest in financial institutions because they have had
questions about how this new agency would be setup. And it has
been very interesting to find where there are a lot of allies
for this agency, the investors for example who have said, ``If
you are going to make these consumer products a little more
obvious for consumers to understand, that dialed risks out of
the system overall. And we think long-term good for banks and
long-term good for our investors.''
Mr. Dold. I appreciate that. And certainly, we want more
transparency. But I want to get to accountability if I can.
Ms. Warren. Sure.
Mr. Dold. I anticipate that people make mistakes. And
certainly with one individual, the chances of making mistakes
are probably greater than several people making mistakes.
In terms of oversight, can you tell me, right now my
understanding is that FSOC has a 10-person board, has the
ability to basically overrule decisions done by the bureau. Is
that correct?
Ms. Warren. Madam Chairwoman, may I answer?
Chairwoman Capito. Yes.
Ms. Warren. The answer is, yes, the FSOC can overrule this
agency and no other.
Chairwoman Capito. But that would be with a two-thirds
majority, correct?
Ms. Warren. I believe it is with the two-thirds majority.
Of course that consumer agency doesn't vote.
Chairwoman Capito. Right. We have Mr. McCotter, from
Michigan.
Mr. McCotter. Thank you, Madam Chairwoman. I would like to
yield 2 minutes to my colleague from New Mexico, Mr. Pearce.
Mr. Pearce. Thank you.
I thank the gentleman for yielding. My only question really
deals with the idea that we are protecting consumers and that
we are doing a thing that either way ups their ability to pay
their mortgages. And the more else, is that here, that we are
here to protect the consumer from fraudulent practices.
Ms. Warren. Yes, we are here to make the prices clear,
risks clear, make it easy for consumers to compare one product
with another.
Mr. Pearce. Okay. So again, going back to your statement on
page eight, the thing that have caused the situation to get
imminently worse, it is up in the middle, there have been basic
rules of the road and blah-blah-blah, that statement.
I wonder if you are going to be the angel, be the champion
of the consumer as it comes to inflation. As I look at the
Federal Reserve printing $2.6 trillion, as I look at the price
of vegetables going up, as I look at the price of gasoline
going up, I realize one of the most fraudulent practices right
now that is defrauding the consumers, that is taking trillions
away from their bank accounts is the fact that they are
printing money.
So is your consumer protection going to log into the heavy
duty fight or you are going to fight--are you going to take on
the Fed for printing money or is that something that you don't
see your role in?
Ms. Warren. I am sorry, Congressman, but our job is not in
monetary policy.
Mr. Pearce. It is to protect the consumer. And anyone who
defrauds the consumer, I thought we are going to protect. I was
just wondering.
Thank you very much. I appreciate it. I yield back to the
gentleman.
Mr. McCotter. And I thank the gentleman.
And I thank you, Ms. Warren, for being here today.
Just a couple of quick notes. We have earlier heard about
how anyone who loaned money that was considered morally
reprehensible in many ways have been carved out of the Dodd-
Frank Bill. And in the spirit of St. Patrick's Day, I would
like to think that if that was the case, there were no
nefarious motives on the part of the Democratic Majority and
the Democratic President who allowed it to happen.
Secondly, we had heard from another one of our colleagues
about how spoiled beef was once opposed by people who wanted to
eat it. And as a fair point, no one wanted to eat it. But what
happened so often is that where there is legitimate concern for
governmental action to prevent this social harm, we wind up
going from the inspection to prevent spoiled beef at the
Federal level to the elimination of happy meals at municipal
levels decades later.
In your eyes, with the fact that we as Congressman, that
the statute does not annually appropriate to your entity, what
do you believe is our--it is a two-point question--what are the
appropriate limits in your mind or the agency that it will
never do and what is the appropriate role of congressional
oversight and how would we make our voices heard, absent the
Comptroller of the--
Ms. Warren. Thank you, Congressman. I appreciate your
concern about oversight and appropriations. As you know, none
of the banking regulators are part of the appropriations
process and they never have been as a matter of history.
Congress has repeatedly made a very wise decision that pulling
a banking regulator, somebody who is going to have to stand up
to the richest and most powerful and say sometimes no is not a
good idea. And Congress has never done that.
As it stands right now, the other banking regulators stay
outside the process, the CFPB is the only one of the banking
regulators who actually does not have full control over its own
budget. Its budget is effectively set by the Fed unlike the
Federal Reserve's ability to set its own budget, the FDIC's
ability to set its own budget, the OCC's ability to set its own
budget and the OTS's ability to set its own budget.
So the consumer agency is more constrained on the financial
side and it is subject to being overruled by FSOC unlike any
agency anywhere else in government. I am convinced that this
consumer agency will be a voice on behalf of American
consumers. But Congress quite reasonably, in setting this
agency up, made it the most constrained of the Federal
agencies.
Mr. McCotter. I appreciate that but not necessarily by us.
Ms. Warren. Well--
Mr. McCotter. You happen to be, and to the Constitution,
that entity within the Federal Government that is most directly
accountable to the people, the House of Representatives and in
conjunction with the United States Senate. So I would think
maybe the richest and most powerful people, but we can differ
on that.
Thank you.
Chairwoman Capito. Mr. Manzullo, for 5 minutes.
Mr. Manzullo. Thank you, Madam Chairwoman.
If someone calls the CFPB with a complaint about a mutual
fund, will that person be directed to the SEC or would the CFPB
investigate this complaint instead?
Ms. Warren. Congressman, I believe that the boundaries on
our jurisdiction are pretty clear. And that the Consumer Agency
does not do--
Mr. Manzullo. You don't get involved in it?
Ms. Warren. --investment funds or other similar--
Mr. Manzullo. They don't get involved with investors?
Ms. Warren. I think that investment issues are left to the
SEC?
Mr. Manzullo. Okay. In your letter to Congressman Randy
Neugebauer dated January 31st of this year, your concluding
paragraph says, ``I sincerely appreciate your thoughts and good
counsel regarding the task ahead of us. Building this new
bureau is exciting and challenging. I hope we could work
together on behalf of the millions of Americans, large banks,
community banks, credit unions, and investors who are counting
on us to build a strong, independent, effective and fair bureau
that makes the consumer credit markets work for everyone.''
You used the word ``investors.''
Ms. Warren. I did, Congressman. And I have been reaching
out to investors since the first--
Mr. Manzullo. But you just said that investment would be
left to the SEC.
Ms. Warren. No. You asked me if there were consumer
complaints about an investment--
Mr. Manzullo. Right.
Ms. Warren. --would it be part of the Consumer Financial
Protection Bureau?
Mr. Manzullo. Right. And you said no.
Ms. Warren. And the answer is no. The investors I have been
speaking with are those who invest in financial stocks. I have
been meeting with them because I actually believe they are
stakeholders.
Mr. Manzullo. Invest in financial stocks where they would
also be covered by the SEC. Isn't that correct?
Ms. Warren. If you will permit me to explain, investors in
financial stocks want to understand about what space--
Mr. Manzullo. I understand that, but the issue is the
jurisdiction of the CFPB and the SEC. Now, who has jurisdiction
over this, you or the SEC?
Ms. Warren. Congressman, it is clear that the SEC has
jurisdiction if the consumer has a complaint about an
investment--
Mr. Manzullo. So then you will stay--you will completely
stay out of that whole area? Would you--
Ms. Warren. Of course, Congressman, because Congress has
made it clear what that boundary is. Those who are investing in
bank stocks, the same way that they are to invest in airplane
stocks.
Mr. Manzullo. But that is not your jurisdiction. Isn't that
correct?
Ms. Warren. My jurisdiction is consumer financial products
and among the people who are interested in--products.
Mr. Manzullo. I understand that. I thought you answered the
question clearly, and, now, you are backtracking on it.
Ms. Warren. No, Congressman. I am not backtracking at all.
I--
Mr. Manzullo. Does the SEC have jurisdiction and the
ability to protect people who buy stocks?
Ms. Warren. It is the jurisdiction of the SEC to deal with
consumer complaints about investments, absolutely, sir.
Mr. Manzullo. Okay. So then, therefore, there would be no
room for the CFPB to be involved in that issue. Isn't that
correct?
Ms. Warren. In the issue of consumer complaints about
stocks, there is no reason for the consumer agency to be
involved, yes, sir.
Mr. Manzullo. Alright, so you are going to stay away from
that area?
Ms. Warren. We will not go beyond our jurisdiction.
Mr. Manzullo. Okay. The other question I have is, in going
through your testimony, I just--it is this, on page six, at the
bottom, pages of fine printed long passages of legalese, and
they serve some lender, but they can make it impossible for the
customer to know what is really going on. This is wrong. The
average consumer who takes out credit should not have to
struggle to understand the basic agreement.
Wouldn't you agree that the legalese that the banks and
credit unions are using is there because of legal requirements
or regulations?
Ms. Warren. Sometimes, Congressman, the fine print is there
because of regulations and that is--
Mr. Manzullo. --when I practiced law, I closed a thousand
real estate transactions or more, we had one page. I could
close it in 20 minutes. Now, Regulation Z in HUD-1, multiple
pages, it takes 2 hours or more. So the consumer knows less
because he can't read through all this stuff. But how are--they
are going to go up against all these other agencies that are in
each of these rules and regulations and just say this is
unreasonable, let's go back to one page.
Ms. Warren. Congressman, when the transfer date comes and
we pick up from the other seven Federal agencies--
Chairwoman Capito. The gentleman's time has expired.
Ms. Warren. Sorry--
Chairwoman Capito. Thank you to everybody.
Mr. Ackerman, for 5 minutes?
Mr. Ackerman. Thank you very much.
I am buoyed by the notion that anybody who could withstand
the kind of badgering in defending yourself and the position
and the agency it is going to be doing a very, very incredible
job in defending the consumers of this country against those
who would exercise the amount of greed that we have seen
exhibited.
Let me yield a moment or two to my friend, Mr. Miller from
North Carolina, who has some answers and an explanation that he
would like to--
Mr. Miller of North Carolina. Thank you.
Just a quick question, at the beginning of the last decade
or early in the last decade, I was careful to distinguish
subprime lending and predatory lending, and not all subprime
was predatory; and then predatory took over and--out all the
others, all the wholesome, legitimate subprime.
I earlier asked you if you knew of anyone who qualified for
a prime mortgage and got a subprime mortgage, and I outlined
some of the predatory terms, and you said you did not. The
gentleman from Georgia, I think in the spirit of helpfulness,
offered himself as an example. He then outlined the terms of
the mortgage that he had once gotten. It was hard to tell what
his circumstances were at that time what term made me think it
probably was predatory and that would have a 5-year prepayment
penalty.
So I am sure he thinks he is a smart businessman, but they
probably snickered and gave themselves high-fives when he
walked out of the room having signed that mortgage. But he also
said that he could not otherwise get a loan.
So even after you have now heard the example of the
gentleman from Georgia, do you know someone who qualified for a
prime loan, but consciously picked a subprime loan with the
kind of terms that became prevalent in the middle of the last
decade?
Ms. Warren. No, Congressman, I do not.
Mr. Miller of North Carolina. Thank you.
Mr. Ackerman. You are one of the few witnesses I have seen
in my many years here who begins an answer with yes or no. So I
don't think there is a lot of beating around the bush in
listening to your explanations.
One of the things that troubles me--and I don't know how I
wound up on everybody's sucker list, but I get an awful lot of
mail, a lot of it junk mail and a lot of it I don't open and--
as a lot of consumers do. But there is a whole group of
financial institutions in various sectors that send you mail
which is solicitations for programs and offers and they don't
identify themselves on the envelope. There is no return
address; and sometimes, the return address, that is a post
office box somewhere.
What you can see through the usual window that they have in
these types of promotions besides your name and address that it
concerned your account at blank financial institution which you
have an account at. And you are anxious to open it up because
this is coming from my bank or my credit union or what have
you. And you open it up and it talks all about selling you an
insurance product or life insurance because you just refinanced
your mortgage or opened a mortgage or an account which becomes
a matter of public record.
You think because of the presentation on the envelope that
this is from your financial institution. And you can read three
pages worth of information and sales pitch before you realize
it is from somebody you do not know or have a relationship
with.
I don't want to interfere with anybody's right to free
speech or advertiser or a promoter to inhibit their business in
any way, but it is meant to be deliberately deceptive to the
potential consumer--or the consumer in making them think that
this is from their bank.
Would you be amenable to exploring a method of requiring
some form of identification? And could I have somebody on your
staff meet with me and my staff so that at least you know on
the envelope who this is from rather than being deceived into
thinking it is from a legitimate, established institution with
which you have a relationship?
Ms. Warren. Congressman, we would be very pleased to send
someone over from the Consumer Financial Protection Agency to
work with you and see how we can do this.
Mr. Ackerman. But it should be somebody who has an
understanding of people's rights under our Constitution from
the promoter side and the business side also to be able to do
that while still protecting the interests of the consumer.
Ms. Warren. Congressman, we want to be as helpful as we
can. I only offer one small caveat--we are just getting started
and we are still small and trying to build out. So you may have
to be a little tolerant with us on timing, but we really want--
Mr. Ackerman. I am just getting started myself, so we will
work together.
Ms. Warren. Alright. Thank you.
Mr. Ackerman. Thank you.
Chairwoman Capito. Thank you.
Mr. Garrett, from New Jersey, for 5 minutes.
Mr. Garrett. And I thank the Chair.
I just want to start my statement or my questions--my
statement first. In your statement, you constantly--and I have
probably heard you say this before--compare the CFPB to other
banking regulators. But, as you said today, I believe that is
an inappropriate comparison.
You stated specifically that Congress has consistently
provided for independent funding for bank supervisors to ensure
that banks are examined regularly and thoroughly for both
safety and soundness in compliance with the law. But your
agency doesn't have a safety and soundness aspect or mission to
it, does it? Yours is a consumer protection.
So the reason why other--that banking regulators have
independent funding is because of the safety and soundness
function. And that is authority. And you don't want the Members
of Congress or the political aspect to get involved affecting
anything dealing with safety and soundness of financial
institutions as opposed to what you are involved with what you
just told us, which is consumer protection.
You have a consumer protection function. Now, the other
consumer protection agencies on the Federal level, what do they
have? They have a funding mechanism that goes through the
appropriation process, unlike yours. Yours is a consumer
protection agency. Just like the other ones, you should go
through the appropriations process.
What also do they have? What is the other difference? If
you were like the other banking regulators that you suggest
that you are, then wouldn't you have a board as a sort of check
and balance as opposed to just one lead authority, which is
where you are? All the other ones have boards in their
framework. Yours does not.
So I don't think your comparison to bank regulators or--is
the appropriate one and, therefore, the appropriation process
should be, as we said before, that we have a check and balance
on what comes out of the agency that you may be involved with.
Let me go to the question. And I appreciate the fact that
you are commended on giving yes or no answers. And so I have
some easy questions for yes and no answers. Talking about the
legal settlement and servicing issue that is out there right
now in the news, let me ask you this: Is there a difference, do
you believe first of all there is a fundamental issue between
penalties for criminal wrongdoings in a wrongly foreclosed on
homeowners versus your paperwork violations?
Is there a difference in how those should be treated?
Ms. Warren. Congressman, there is an ongoing legal
enforcement action.
Mr. Garrett. Right. And that is why I am asking.
Ms. Warren. And it would not be appropriate for any member
of the government, me or anyone else, to comment on what is
involved in those negotiations. That would not be right.
Mr. Garrett. Let me ask you this: Have you pushed for or
advocated a recommended dollar amount with regard to the other
regulators involved in this situation?
Ms. Warren. Congressman, I know that given the level of
problems that have been uncovered with mortgage servicing that
the acting Director of the Comptroller of the Currency has been
here in Congress to talk about--
Mr. Garrett. Right. But what about--
Ms. Warren. --violations of State laws and local laws that
as--
Mr. Garrett. But what about you? You are here today, so
just tell us what you are doing. Are you making recommendations
to the other regulators as far as the dollar amount of the
penalties involved in this case?
Ms. Warren. As the government is trying to negotiate with
those servicers that the OCC found have violated the law--
Mr. Garrett. Right. Okay.
Ms. Warren. --they have asked that no one speaks about the
content of those negotiations.
Mr. Garrett. So you cannot tell what your--can you tell us
what your role is in this?
Ms. Warren. I can certainly tell you what our role is.
Mr. Garrett. Okay, good. Have you made recommendations to
them with regard to what the penalties should be? That would be
part of your role.
Ms. Warren. What I can tell you about--
Mr. Garrett. Is part of your role to make recommendations
to them with regard to penalties and the dollar amounts in
these cases?
Ms. Warren. The Secretary of the Treasury has asked for the
consumer agencies to give advice. The Department of Justice has
asked us.
Mr. Garrett. So the answer is--the answer is yes?
Ms. Warren. Congressman, it is the case that the government
is trying to negotiate on behalf--
Mr. Garrett. I understand that, but I am just trying to
find out what you are doing.
Ms. Warren. --on behalf of the American people.
Mr. Garrett. I understand that. What are you doing?
Ms. Warren. And they have asked--
Chairwoman Capito. Will the gentleman yield?
Mr. Garrett. I only have 30 seconds left.
Ms. Warren. The Department of Justice has made it clear
that they don't want people who are part of the government--
Mr. Garrett. I understand that. Can you tell us, because
they have asked you to be involved in this--your answer to
that--what legal authority does a political appointee have in a
situation like this making recommendations with regard to
either civil or criminal actions?
Ms. Warren. Congressman, I think we need cops on the beat
to enforce the law.
Mr. Garrett. Right, but we need to know what the law is.
Can you cite--
Ms. Warren. We need--
Mr. Garrett. Can you cite what the authority is to enforce
that law that you have?
Ms. Warren. We need to enforce the law.
Mr. Garrett. Can you tell me what that law is please?
Ms. Warren. The Office of the Comptroller of the Currency
has been here to make it clear that the mortgage servicers--
Mr. Garrett. I am not talking about the OCC. I am talking
about you, not the OCC. Can you cite what--
Ms. Warren. --have violated the law.
Mr. Garrett. Can you cite what the legal authority is for
you to do these actions?
Chairwoman Capito. The gentleman's time has expired.
I want to, first of all, turn to Ranking Member Maloney for
a short statement.
Mrs. Maloney. I just want to thank you for your remarkable
public service and for serving so well in two jobs now as a
Special Assistant to the President of the United States and as
a Special Assistant to the Secretary of the Treasury. I truly
do hope that he appoints you to be the first permanent director
of this body.
You have worked extremely hard, you are a champion really
for consumers, and you have been balanced and fair. I
compliment you on your work and on your testimony today and on
the fine job that you are doing. Thank you.
Chairwoman Capito. Thank you.
And I would like to thank you also, Professor Warren. I
have another--I was hoping we could get in the time allotted to
another question. But I would say the duplication and the
financial education across-the-board, the GAO study, there was
a great concern over the gap that is going to occur if this
agency doesn't have a leader in July and regulations that are
moving forward and what is going to happen there. And there are
a lot of players at the table that are very concerned about
that. So I appreciate your coming in and testifying.
The Chair notes that some members may have additional
questions for this witness which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 30 days for members to submit written questions to this
witness and to place her responses in the record.
This hearing is adjourned.
[Whereupon, at 12:32 p.m., the hearing was adjourned.]
A P P E N D I X
March 16, 2011
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