inform us how we are doing, i plan to do the same with the credit unions. we will be mindful of that in each rule making the remittance rule which was mentioned earlier which we have piefinalized the beginnings of that rule has a further rule on whether we should set a threshold so that community banks below a threshold can be free of burden. so that is something that we will continue to consider in that case over the next several months. and we are going to take a similar approach wherever it's feasible and makes sense to do so in consultation with the community banks and credit unions. >> the geo released their annual financial audit of the consumers bureau, fiscal year 2011 financial statements.

it gave the cfpb, a clean audit, the highest rating that not every agency receive ises. wh -- receives. what steps will you take to make sure that the bureau continues to lead with it's own finances. >> mr. chairman, we were happy to get an audit, and we are subject to multiple audits and oversight by the federal reserve. it's important to me personally that we show a strong record of audits. in each of the offices i inherited problems in the prior audits, that i cleaned up and we had clean audits. it's important for me to maintain a similar record here in this federal agency.

>> how will your recess appointment impact the work of the bureau? >> i don't know that it will impact it at all. i understand that i've been appointed as the tredirector, i feels that my legal responsibility is to do the best job i can at that and that is what i'm focused on doing. >> leveling the playing field among financial institutions is an important part of the consumer bureau's authority. it should provide consistent protections for consumers and regulations for all institutions that offer similar products. many people are waiting your nonbank participant rule, that rule will also provide businesses which will now be

regulated by the consumer bureau with some legal certainty. when will the large market participant rule be finalized? >> it will be finalized on the timeframe of this summer. we are under way, i believe, we have already put out a notice where we have asked for comment and we have received many comments already on what we might propose as that rule. we will be bringing out the proposed rule soon. it will be subject to the notice and comment process and we will transform that into a final rule on the deadline that we have been given by the congress. >> senator shelby? >> thank you mr. chairman. mr. cordray, as i noted in my opening statement, recently you stated that the bureau will convene small business panels as part of the rule making. your quote is not just because

the law tells us to do so, but because we recognize that it will help us do our work better. it's a good quote. however the bureau did not convene a panel before publishing the final rule on remittance transfers, i understand you believe you are not legally required to hold panels because the federal reserve board proposed the rule and the intent of congress i thought was clear regarding the potential effects of your rules on small, medium sized businesses. i'm concerned that you have already displayed a habit of using technicalities to not have to follow. we think it's important to comply with the letter and the spirit of the law. >> yes, senator. i agree. and let me clear up the record on that.

i appreciate the opportunity to do that. >> okay. >> so, as i said, the small business panels, i meant it then and now, they are both required by the law, except in certain instances and they will help us do our work better. with respect to the remittance rule s rule, that was a rule proposed before we became a bureau, we inherited the rule and took it through to completion. this the law, the timing that congress created on small business panels is that this they are to be convened and we are to get their input prior to proposing a rule. so, for the remittance rule, that time had passed before we gained any authority of that rule. what we did was solicited broad input and we took it into account in proposing the final rule which has been adopted and in further proposing the rule that i mentioned a moment ago which is to set a threshold

below where we may find it exempt from small institutions. we intend with our next rule which is the, the consolidation of the forms on the mortgages to convene small business panels and in fact that is under way now, the process for doing that and we will do it as the law requires this every instance, again, not just because the law tells to but because it's a good idea. >> would you look at the possibility to revisit it if you thought it was necessary. other people thought it was necessary that the rule that you just passed regarding remittances. i don't know the details of it, i just know it's going to costa lot of money to comply with. >> you know, it's a, i guess, needs to be put in perspective. our understanding is that it will cost, a quarter for every

$100 of remittance transfer? >> 25 cents? >> yes. that is a price to pay, but it's a small price to pay considering there were never consumer protections for people that sent money overseas, it was on them to have to take the burden of any errors that were made. these people deserve consumer protections. >> i want to get in the area of safety andnesoundness. the dodd-frank act does not require you as tredirector to consider the -- in fact, the drafters of dodd-frank were adamant about this, they said a safety and soundness check on your actions would gut the

agency. but you stated, have safety and soundness as our primary concern, we have consumer protection as our primary concern. how do you intend to reconcile your actions at the bureau, where i presume you will give no consideration to the safety and soundness to nutritiinstitution your responsibilities at a board member of the fdic where you must consider the safety and soundness of institutions. it looks to me that it should be a balance. safety and soundness is important but so is consumer protection. you cannot have one without another. >> i agree with that, senator. i think it is a balance. what i said their primary responsibility is safety and soundness and ours is consumer

protection we are going to be consulting and coordinating with the other banking agencies at all times, that is why i believe congress put us on the financial stability oversight council to work with them. i agree with you it would be irresponsible to think you can protect consumers while you are killing off institutions that are serving consumers. that does not fit together. >> there's got to be a balance, has it not? >> i aagree. >> and you are going to look to find a balance? >> and we will do that by listening to the banking institutions. >> the area of too big to fail, very important to a lot of us and i hope to you. during the consideration of the dodd-frank act it voted down an amendment which would have limited the size of banks. under the amendment menment no would have been able to hold r

more than 10% of the totdeposit. it would ensure that a failure of a single institution would not bring down the entire system. do you support limiting the size of banks and if no, what steps are you going to take to make sure that banks are not too big to fail? >> senator, my understanding of our authority at the consumer bureau is that we do not have authority overissues. >> we to not have authority to set interest rates or the price of financial products. i don't -- >> but you are on the fsoc. >> i am. >> now that's a consideration of too big to fail. you do have some, by cause of

your other placement of where you serve, right? >> yeah. that fair enough. i would say, just to be honest with you, sir, i don't know that i have enough perspective at this point to assess the pros and cons of that amendment. so. >> well dr. volcker said, if they are too big to fail, maybe they are too big to exist. you have to think about the taxpayer. thank you mr. chairman. >> senator menendez. >> thank you for calling this hearing. in the worst financial crisis in generations, consumers were not protected from the tricks and traps and federal regulators were often more concerned about the interests of wall street than main street. and we now have an obligation to hold both wall street and nonwall street lenders and providers of financial services

accountable for whether they treat consumers fairly and it can be done by laying down clear rules of the road and so that is why i look forward to your work at the agency. let me ask you a couple of specific questions. i want to ask you about prepaid cards, something that i have been pursuing for a while now. a product whose use has exploeded in the past few years especially under banked consumers, since gift cards and other cars have been regulated, prepaid cards have been one of the few largely unregulated products in the marketplace and as for the fees consumers pay on them, there's a wide range of undisclosed and i believe in many cases unreasonable fees and they certainly don't come with fdic insurance or protection

against theft or loss for the consumer. so, we have introduced legislation that the prepaid card consumer protection act, what progress has the bureau made in moving forward on consumer protections on these cards? >> let me say a couple things in response to that, senator. and we appreciate your particular interest in the subject and the legislation you have spruintroduced to concerns raised. and the -- there are two things at work, number one, prepaid cards are the example of innovation that occurs all the time in the financial markets. in my generation when i was a

k cred kid credit cards are new debit cards are now in wide use and prepaid cards are one of the newest products and on the cut canning edge of finance, more and more people are beginning to use them so we need to make sure there's appropriate protections there. sometimes it takes the regulations to catch up with innovations. it's reflective of the fact that regulation can push usage around in the market. as you said, there's protections and constraints on credit cards and new ones on debit cards that is pushesiing the market to pred cards. so we want to have a level playing field so that products are being chosen based on their merits. >> we appreciate innovation, and we want that, but when you see a market go from a regulated

process to a unregulated process, there's a reason. ly -- so is this an area that the bureau will be looking at? >> it is an area that we are looking at, it's an yarea of concern for the reasons i started. if you legislate on the subject, we will be happy to carry out the laws as you enact then. >> you talked about simplified rule making for smaller institutions and i think it's something that is welcome here, tell us how to agency will craft regulations and provide guidance that makes it simple and workable for community banks? >> and i'll say two things about the work we are already doing. number one we are trying to be highly inclusive in going about this.

it was mentioned earlier that maybe the bureau has given the interpretation that we know best. what we find is we will know better as we hear from others, both the people that operate in these markets, the financial institutions and the consumers. our know before you owe program is around us getting more transparent, the kind of disclosures here, we have inherited a huge amount of rules from other agencies and published a federal notice asking people about how to streamline the rules and cut down burdens that are not delivering benefit to the consumers and we are in the comment process on that and will have comments back sometime later next month and we will set to work to see what we can do to show people we can streamline rules and be a an agency that the mindful on delivering on

that. >> one of your mandates is to facilitate kninnovation through transparence. most adults cannot find $2,000 in an merge in 30 takes if it needs to. have you looked into how to sieve this very large and under served population? >> yes, we started, had a field hearing in birmingham a couple weeks ago, which was our first beginning look at the market where it is clear that in this country, as you say, there's a clear consumer demand for short-term small dollar loans to help people get through crisis and emergencies when they do not have a stash of money to draw on or a friendly relative. there are a number of products out there that are serving that need, we want to make sure that

those products are helping consumers rather than harming them. but it's a significant problem that has been unsolved in the country, that there's a demand, we need to fulfill that demand and spur competition to fill that demand and that is something that we are thinking about carefully. we do not have all the answers on it frankly but over time we will be trying figure it out. >> look forward to working with you. >> thank you for having the hearing and mr. cordray, thank you for coming. >> sure. >> especially in the light of the circumstances, over the last period of time, i appreciate the time you spent with us in our office and on the phone and the conversations that we have had and you know, the title of the hearing is interesting, holding the cfpb accountable. in this role -- am i still here? in this role, who is it exactly

what that you do report to? >> well, i would say that we are on the same level with every other independent federal agency in the federal government and particularly with the other banking agencies. ultimately in my view, we report to congress. you are the ones -- >> but, who exactly do you report to really? i mean there's no board or anything, so who do you report to? >> in my view, i report to congress. i am in front of your panel at your request and i'll be here as much as you want me to be or meeting privately so you have input into what we are doing. >> and each year, when your agency needs funding and kinds of questions like our chairman asked about being efficient and all that, who is it that you seek those appropriations from each year? >> under our law, which is what

gives us authority, congress end follow. we receive of the other banking agencies who do not go through the congressional appropriation process. but we're subject to being brought up here and having you grill us, and talk to us about exactly your thoughts about how we're spending money. >> let me ask you a question. regardless of how people feel about the health care legislation that passed i don't think there's any question but yet some of the constitutional challenges that are going to the supreme court have sort of muddied the water. regardless of how you feel about it, states are not sure, you know, exactly what they're going to do. have y'all had conversations, especially over the last couple weeks, within the agency, about the fact that there's no question that most of the rule making you do or much of it will be challenged constitutionally because of the way things have occurred that have nothing to do with you but have just occurred.

have y'all had any conversations regarding that whatsoever? >> we have had consideration of it. i've been thinking about it myself. it feels to me that, you know, i've been appointed as the director. i understand that there are concerns and issues people have about that. having been appointed as the director, though, i legal responsibilities under the law that you all enacted that i have to carry out. i'm going to do that. i'm going to do the best i can with that. >> i understand that and i appreciate that. actually i appreciate the way you've answered many of the questions today. what i think you said is you've actually had internal conversations with your staff about the fact that, as these rules are made, there's no question that there's going to be constitutional challenges to those which in many ways, instead of creating predictability out in the consumer market and financial markets we're going to have challenges, i would predict many will rise to the level of the highest court in the land. so, it's an interesting place that you find yourself, again,

not of your choosing. let me ask you this, moving on to policies. risk based pricing is something that's been very much a part of our financial system. those people who pay late, pay more. and those people who pay on time, typically, get credit at lesser rates. we had conversations with someone who was going to be potentially in your position prior to moving on to senate races and those kind of things. and, it appeared to us that they didn't really even in risk based pricing. i'm just wondering if you could really clearly state to us, when people pay late, should they -- when they have lesser credit should they pay more for credit? is that a concept that you're going to reinforce in the consumer agency? >> senator, i believe that's the way the market works. i mean when you price a product you have to take into account cost. one of the costs that you have to take account of is risks of

default, risks of loss, they can come from many different sources, not just the fact that someone on the other end of the bargain doesn't follow through. but that certainly is something that i think any responsibility business would have to take account of in pricing their product. >> i noticed that you sent out e-mails, i get them regarding if i've heard any stories about things that have happened. the police share them when somebody's been, you know, had problems. by the way, i hope we have a consumer leader like yourself that will pursue those kind of things. i think all of us want to ensure that when we have bad actors, and we do, i mean that just happens, we have bad actors from time to time that need to be prosecuted, are you also with equal vengeance, though, sending out these e-mails to people who know borrowers who committed fraud, who purposely, you know, turned in the wrong income statements, and those kind of things? are you going to be rooting out that kind of activity, also? >> well, we don't ourselves have

criminal authority, as you know. but we can make referrals. over the years when i was attorney general, and at the local level, i saw bad conduct by some businesses, and i saw bad conduct by some individuals and consumers. and in the real estate market the flipping and other types of scams and frauds involved, you know, both types of parties. >> so you're going to pursue both with vengeance? i haven't received any of those e-mails yet, by the way. but i look forward to receiving them. i just close with this. you know, both chairman and ranking member brought up issues of cost. and i do hope, i think one of the concerns that people have with the agency being set up as it was, and not being concerned about the financial system itself, i do hope you'll pursue the aggregate cost of credit. i spent my life, i spent my civic life prior to being here focused on issues relating to low income citizens and that's really why i'm in the senate

today. i find that a lot of times when we think we're doing something good as it relates to credit, what we actually do is limit credit for people who are less fortunate, and have lower incomes, and i hope, as you look at this, you'll take that into consideration, the aggregate cost of credit in general, especially those with lower income, and i thank you for your service. >> senator? >> thank you very much. good morning mr. cordray. welcome to the committee. >> thank you. >> for the first time in history, we have an agency with for the consumers of our country. to protect consumers from predatory lending practices, that contributed to the economic crisis from which we are still recovering, and we will empower

and educate consumers to make informed financial decisions. mr. cordray i'm very pleased to welcome you here to this hearing, and i'm confident that you will make the consumer financial protection bureau a strong defender for consumers. so i look forward to working with you. some senators have expressed the view that eliminating the director of consumer financial protection bureau, and creating a board instead would improve accountability. in my view, having a single director responsible for the bureau's results promotes accountability. efficiency and effectiveness. the government accountability office has repeatedly emphasized the importance of focused, sustained leadership to tackle

complicated challenges. director cordray can you please discuss how, in your view, the bureau will be held accountable to the american people. >> thank you, senator. i think that we're held accountable in the law in a number of ways. i have said there are different bodies and independent agencies that are structured in different ways. some have a board. some have a board and a director. some have a director. there are examples of each, and they all can work well. i do think in our situation the law that we are carrying out provides for a singing director. that means there's one person, in this case myself, who sits here and is responsible to you to answer your questions and if i can't give you a satisfactory answer i'm responsible to get that answer and bring it back to you. there's no passing the buck. there's no i'd like to say this, but others might say something else, and defuse responsibility.

so there is something to be said for that. but the accountability here, as i said before, i think lies from our bureau to congress. you're the ones who passed the laws to give us the only authority to do anything. we are responsible to you for how we carry out those laws. you can bring us here to testify any time. you can have us come to meetings and greet your staff as many of you have done. and we will listen closely to you and try to make sure you know exactly what you need to know about the work we're doing and have input into that work. >> director courtry, the government accountable ty office of federal financial literacy efforts received significant attention last year. however, contrary to media's inaccurate reporting, the gao did not find evidence of overlapping duplication among the 56 programs.

and did not identify cost savings that would result from consolidating financial literacy programs. according to gao this issue was examined by the previous administration which found that each program was targeted to a specific audience such as students and carried out with an area of expert he's to a topic. as a result, gao noted that fragmentation of financial literacy efforts makes coordination essential. specifically, gao recommended cfpb coordinate closely with treasury to clearly define financial literacy roles and activities to make the best use of resources. my question to you is, what