take time, but we are already taking steps to improve the lives of consumers. thank you, i look forward to your questions. >> thank you, very much for your testimony. as we begin questions i'll ask the clerk to put five minutes on the clock for each member and hopefully we will have two rounds. as director, you'll be expected to be in independent, exercise independent judgment and act independently from the white house and treasury department, are you prepared to work independently and use your own judgment? >> mr. chairman, yes, i am and yes we are. we understand that our role under the law is to be an independent federal agency and our job is to carry out the laws that congress has enacted and protect consumers in the marketplace. we will stand with public officials from both parties.

from all over the country, federal, state and local, to help us do our work. >> you have talked about reducing the regulatory burden on small community banks and credit unions, how will you ensure the right balance is struck between protections for consumers and regulation for small institutions in the consumer bureaus rural areas ? what other actions can the agency take to minimize the impact of regulations on these institutions without sacrificing protections for consumers? >> thank you for raising that issue, mr. chairman, many of the members have raised that with us. first of all, i have made a promise openly at this committee hearing when i was up on my nomination that we would work to reduce the burdens on community

banks and credit unions who i firmly believe and i have said before and will continue to say had very little to do, nothing really to do with bringing on the financial crisis. and have a traditional model of doing business that is customer service oriented, is community oriented and is the kind of model that we want to encourage in this marketplace. i've told the community banks that i'll create a special advisory committee that will raise their concerns with us and to 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 finalized 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. >> in november, the geo released their annual financial audit of the consumers bureau, fiscal year 2011 financial statements. the geo gave the cfpb a clean audit, the highest rating that not every agency 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 a clean audit and strong audit from the gao. 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 director, it 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. i know you haven't been there long. i know it is your intention 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, that was a rule proposed before we became a bureau, we

inherited the rule and took it through to completion. in 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 furtherpoat i mentioned a mo 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 in 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 cost a 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 soundness. the dodd-frank act does not require you as director to to consider the safety and soundness of institutions when you engage in rule making or enforcement actions. the drafters of dodd-frank were a 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 institutions, with

your responsibilities as 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. if you don't have safety and soundness, you won't have an institution. >> 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 agree.

>> and you are going to look to find a balance? >> and we will do that by listening to the banking institutions. i serve on the fdic board with them. yes, we will. >> the area is 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 no bank would have been able to hold more than 10% of the deposits. it would ensure that a failure of a single institution would not bring down the entire system. i supported the amendment. do you support limiting the size

of banks and if not, 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 over issues. >> we to not have authority to limit the size of banks. we don't have the authority to set the rates or the price of financial products. >> you are on the bureau? >> yes. >> 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's fair enough. i would say, just to be honest with you, sir, i don't know that i have enough perspective at nt.d

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. 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 non-wall 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 exploded

in the past few years especially under banked consumers, since credit cards and 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 introduced to concerns you raised. both disclosures and transparencies on the product and the protections for people have with the deposit on the product with the banking institution. 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 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 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 pushing the market to prepaid cards. so we want to have a level playing field so that products are being chosen based on their merits. not because there is a difference of regulatory regime. >> 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. so is this an area that the bureau will be looking at? >> it is an area that we are looking at, it's an area 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 mentioned about simplified rule making for smaller institutions and i think it's something that is welcome here, can you tell us how 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 an agency that the mindful on delivering on that. >> one of your mandates is to facilitate innovation through transparence. most adults cannot find $2,000 in an emergency in 30 takes if it needs to.

have you looked into how to in weeks ago which was our first beginning look at the market where it is clear that in it country, as you say, there is a clear consumer demand for short-term, small dollar loans to help people get through crisis, emergencies, when they don't have a stash of money that they can draw on or they don't are a friendly relative who's willing to pony up that money for them. there are a number of products out there. it is a significant problem that is unsolved in this country, i believe. is this demand? we need to fill this demand and spur competition to spur that demand and that's something we're thinking about very carefully. we don't have all the answers on it, frankly. wire trying to figure it out,

working with industry and consumers. >> look forward to working with you. thank you, mr. chairman. >> senator croaker. >> thank you, mr. chairman and thanks for the hearing and thank you for coming. especially in light of the circumstances, the last period of time, i appreciate the time you spent with us in our office, on the phone and the conversations we've had. the title of the hearing is interesting. holding the cfpb accountable. in this role -- am i still here? in this role as set up, who is it exactly that you do report to? >> i would say we're on the same level as every other independent federal level, particularly the banking agencies. in my view we report to congress. you're the ones -- >> but who exactly do you report to?

there's no board or anything? who do you report to? >> in my view i report to congress. i was in front of the house oversight at their request. i'm here at your request. i'll be here as often as you want me to or meeting privately so you know exactly what we're doing and you have input into what we're doing. >> and each year when your agency needs funding and kind of questions, like our chairman asks about being efficient and all of that, who is it you seek those appropriations from each year? >> well, under our -- under our law, which is what gives us authority, congress enacted that we follow, we received funds from the federal reserve. >> no one? >> we're equivalent to all the other banking agencies who don't go through the congressional appropriation process but 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 going to the supreme court have sort of muddied the water, regardless of how you feel about it, states are not sure exactly what they're going to do. have you had conversations, especially over the last couple of weeks, within the agency, about the fact that there's no question that most of the rule-making that you do, or much of it, will be challenged constitutionally because of of the way things have occurred? have you had any considerations regarding that whatsoever? >> we have had consideration of it. i've been thinking about it. i've been appointed as director. i understand there are concerns people have about that. having been appointed director, though, i have 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 dot best i can with that. >> i understand that. i appreciate that. i appreciate the way you've answered many of the questions today. but what i think you've said is you had internal conversations with your staff about the fact that as these rules were made, there's no question that there's going to be constitutional challenges to those, which in many ways instead of creating predictability in the consumer market and predictability in the 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 brace pricing is something that's been very much a part of our financial system. those people who pay late, pay more, and those 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 believe in risk-based pricing. i'm just wondering if you can clearly state to us, when people lay late, when they have lesser credit, should they pay more for credit? is that a concept you'll reinforce in the consumer agency? >> senator, i believe that's the way the market works. i mean, when you price a product, have you to take into account costs. one of the costs that you have to take account 6 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 i think any responsible business may have to take account of in pricing their product. >> i notice that you send out e-mails. i get them regarding -- if i've heard any stories about things that have happened, please share

them when somebody's been -- 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, that just happens, we have bad actors from time to time that need to be prosecuted, are you also with equal vengeance sending out e-mails to people who know of borrowers who committed fraud, who purposely 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 -- 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. i do hope -- i think one of the concerns people have with the agency and being set up as it was and not being concerned about the football 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 issue relating to low income citizens. that's why i'm in the senate today. i think 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 those less fortunate and have lower incomes. i hope as you look at this, you'll take this into consideration, the aggregate cost of credit, especially those to lower income. i thank you for your service.

>> thank you very much. good morning and welcome to the committee. >> thank you. >> for the first time in history, we have an agency with a singular, consolidated mission to provide a voice for the consumers of our country. to protect consumers from predatory lending practices, that contribute it to the economic crisis from which we are still recovering. and to empower and educate consumers to make informed financial decisions. 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 think eliminating the consumer protection bureau and creating a board instead would improve accountability. in my view, having a signal directory responsible for the bure bureau's results promotes accountability. effective effectiveness. the accountability office has repeatedly emphasized the importance of focus sustained leadership to tackle complicated challenges. director, can you please discuss how n your view, the bureau will be held accountable to the american people. >> i think we're accountable in a numbf