good morning. i'll call this hearing to order. before we begin, i'd like to send my best wishes to senator mark kirk for a speedy recovery. he is a ranking member of the sub committee in appropriations which i chair. i have no doubt that with his strong will and determination he will be back at work as soon as humanly possible. our thoughts and prayers are with him and look forward to his return. today marks the first banking committee hearing of the year.

i'm confident that we will have another productive year in the committee as we build on the foundation set in the first session. our committee tackled an aggressive agenda last year and i thank all of my colleagues for their contributions. in 2011, we held 72 public hearings and executive sessions including 60 oversight hearings. of those 26 were sub committee hearings and i want to acknowledge those members for their leadership. i'm proud to say that we were successful at finding bipartisan

consensus more than a few times. 26 nominations with the senate confirming 17 of those nominees. we were also unanimously approved authorizations for the national flood insurance program and for the charter at the export bank of the united states. senator shelby, i would like especially to thank you for working with me last year to plan bipartisan hearings to lay foundations for mortgage reform. i hope that we can continue to work across the aisle and i expect this committee thursday to approve bipartisan bills.

to reauthorize transit programs and sanctioning on iran. looking ahead to the rest of the year, my priorities will be to oversee implementation of the -- of the wall street reform and to continue building consensus on housing finance reform and to look out for the interest of rural and troubled areas and the smaller institutions that serve them and act on the president nominees and to pass critical programs. the committee will also continue to closely monitor the situation in europe. in the coming weeks we will take a closer look at the state of the housing market and some of their proposals for adjusting housing stock surplus and hear

from the federal reserve on the upcoming monetary policy report. based on bipartisan successes that we had last year and the importance to continue to meet the economic challenges that face our country, i'm optimistic that we will find common ground this year. let me turn to an issue that we should all agree on. how well the consumer financial protection bureau has fulfilled on its mission. i would like to welcome mr. cordray to the committee to provide testimony and bring the bureau's first semiannual report to congress. i would remind that we are not

here to debate mr. cordray's appointment, we are here to role up our sleeves and provide oversight of the consumer bureau to make sure it's fostering an open and consumer financial marketplace the committee has a tool to make sure that the bureau is accountable to american consumers to require the director to report to this committee at least two times a year. it's our job to help make sure that the agency is doing its job effectively and efficiently. so to make sure the bureau is accountable i point out the simple fact that it is and that is why we are here today. mr. cordray, i know you share my

belief of oversight over the bureau. in fact, this is the 13th time since it has become law that a bureau employee has appeared before congress. and your agency's outreach to stake holders has been applauded across the board. it has been six months since a consumer bureau officially opened for business and only four weeks since it acquired all of its powers. yet in this short time bureau employees have been hard at work. they have finalized the role and consumer remittances and are currently reviewing comments and close to 20 other proposals. they have to act on the programs which were meant to simplify

mortgage and credit card disclosures. they are developing a student loan worksheet to help students and their families shop loans. and they have also rolled out supervisory and large institutions. mr. cordray, we look forward to hearing from you in greater detail about this ongoing work. recently you made comments about the role of the agency on reducing burden on rural banks and small community banks. this is an important issue to the bureau and my state of south dakota. i'm interested in hearing more about the bureau's plan to ensure that in future role making, the right balance is struck between consistent protections for consumers and

regulations for small institutions. finally, i would like to hear about the progress in two areas, that the economy reviewed last fall. consumer protections for service members and for older americas. mr. cordray, although your staff is faced with a difficult task, i have confidence that you are all up to the challenge. i look forward to your testimony and working with you to enhance our consumer financial markets. i turn to ranking member mr. shelby for his comments. >> thank you, mr. chairman. today we will hear from mr. cordray, since the bureau was proposed i have expressed my grave concerns about its lack of accountability. i maintain that it's

inconsistent with our constitutional powers to have so many power in one department. the dodd-frank act designed it to be free of the most basic checks and balances. and unfortunately the president has circumvented with his checks of the recess appointment of mr. cordray. i hope that the supreme court will determine this issue. because of the structure of the bureau, this means that mr. cordray will have unfettered power. his decisions alone will determine how the bureau approaches its work. if he so chooses, he does not have to answer to anyone. this is not a choice any bureaucrat should have. since his appointment, mr.

cordray, said he would intend to proceed cautiously. the test is whether this will find its way into the bureau's actions. the actions have been inconsistent with the promise of the leaders. under dodd-frank the bureau is required to convene panels of small businesses to discuss the impact of proposed regulations. mr. cordray has said that they will convene these small panels not just because the law tells us to do so but we recognize that it will help us do our work better. the bureau has yet to convene a small business panel despite having issued multiple rules and moreover the bureau has

indicated that it has no plans to convene these panels for most of the important rule makings. the bureau officials said they will comply with the administrative procedures act and the bureau has evaded the intent of the apa by issuing rules without asking for public comment before the rules become effective. consequently the bureau has imposed costly regulations to american population without providing the american population any room for comment. listening to the rhetoric of the bureau's leadership, you would think the bureau would actively seek public comment on its rules. in a speech last year the deputy director stated, the bureau will

invite public input to provide a fact base to help the bureau evaluate the costs, benefits and impacts of the rules and on to suggest alternatives. those were his words and he stressed that the bureau would be quote, fact based and deliberate, the recent rule making process shows that they like to give the appearance of listening to the public but really knows what is best without much public interference. moreover it suggests that the bureau will not be stopped by having to collect public comments. the bureau's recent rules provides another example of the bureau's rhetoric and its actual operation. the leadership of the bureau said it will seek to make regulations more effective at achieving intended benefits for

consumers while lowering costs for vendors. the transfer rule suggests that lowering costs is not high on the priority. the primary purpose is to lower the cost of remittance, yet the bureau's own analysis reveals that compliance with the rule requires 7.6 million hours. that means that more than 3,800 employees will be required to work on compliance for this single rule. rather than conducting a cost/benefit analysis they will impose the rule. they will review the impact after the fact. we were told that it would be a data driven industry. in contrast, the bureau's rem

remittance transfer rules were based on the rules of the facts and data, the bureau isn't all that interested in living up to its own rhetoric. early last year, 44 of my colleagues and i sent a letter to the president stating that we would refrain from considering the nomination of any person to be the bureau's first director until changes were made to the structure, not its authorities. during the september hearing on mr. cordray's nomination i stated that i feel these changes would help to preserve the checks and balances in our constitution. the recess appointment has shown that the president is not much interested in any constitutional checks on his power. my democratic colleagues seem to share the same opinion. the bureau is to receive a total of $29 million in federal reserve money and it could grow

to well over a half a billion dollars by early next year. so these payments are made directly to the bureau without any oversight through any congressional appropriation's process and the bureau has already hired 800 people and it's been reported that the bureau hopes to hire as many as 1,000 people by the end of this year some making $225,000 a year. my colleagues have resisted this, every effort to make it accountable. and they have cut this committee's funding by 25% making it more difficult to oversee these massive departments that are growing in size and power under dodd-frank. as i said many times, things are not getting better, just bigger and more unaccountable.

our financial regulators have become departments, and now the regulators have resembled the firms they were to create. they tell the public one thing and do another. it evades the law and ignores consumers while advancing their own special interest and operates behind a facade of accountability. it exercises power in the marketplace. i believe the bureau's short history makes reform more compelling. thank you, mr. chairman. >> thank you, senator shelby. are there any other members to make a brief opening statement?

thank you, all. i want to remind my colleagues that the record will be open for the next seven days for opening statements and any other material that you would like to submit. with that, mr. cordray, you may proceed with your testimony. >> mr. chairman, and ranking member shelby and members of the committee, we want to thank you for this opportunity to present the first semiannual report of the consumer financial protection bureau detailing the bureau's work in its first six months. before i became director, i promised members of congress in both chambers and on both sides of the aisle, including a number of you that i would be accountable to you. i said i would welcome your

thoughts about our work. i stand by that commitment today. i'm pleased to be here to tell you about our work and to answer your questions. the people who work at the consumer bureau are always happy to discuss our work with congress and this is the 13th time that we have testified before the house or senate and we look forward to working closely with you. with the hundreds of millions american consumers. i'm honored to serve as the director bureau, i'm inspired by the talented people that work at the bureau and i'm driven by the responsibility to protect american consumers. our mission is of critical importance to making life better for americans. consumer finance is a big part of all of our lives. mortgages allow people to buy a home and spread the payments over many years. student loans give young people with talent and ambition, the

opportunity to get an education. credit cards give us immediate and convenient access to money when we need it. these products enable people to achieve their dreams as we have seen in recent years they can create dangers and pit falls if they are misused or not properly understood. during my years in state and local government i became deeply involved in financial issues. i saw people struggling with debt they could not afford. sometimes this was bad decisions that they regretted and other times i saw businesses that obscured the terms of loans or engaged in out right fraud causing substantial harm to unsuspecting consumers even ruining their lives and devastating their communities. i'm certain that each of you

hears every day from your friends and neighbors and constituents that have these stories to tell. these people do not want or expect any special favors, they just ask for a fair shake in a system for financial consumer peace that works for consumers and a chance to get back on track toward the american dream. one of our primary objectives is to make sure the costs and risks of financial products are made clear. people can make their own decisions and nobody can or should do that for them. but it's responsible way for the businesses to be up front with their customers, that is good for honest businesses and for our economy. a quote caught my eye, it goes, free men engaged in free enterprise build better nations with more and better goods and services, higher wages and higher standards of living for more people. but free enterprise is not a

hunting license. that was governor ronald reagan in 1970. i agree with what he said and it's widely shared by those that work with me at the consumer bureau. so another key objective is making sure the banks hand over the necessary oversight to provide a fair and open marketplace. we will be going on site to look at the books and with the director now in place, we have ability to make sure it's true across all financial products and services. the consumer bureau will make clear that violating the law has consequences. we plan to use all the tools available to us to ensure that everyone respects and follows the rules of the road. where we can cooperate with

financial institutions to do that, we will. when necessary, we will not hesitate to use enforcement actions to right a wrong. as we move forward with our work, we need to hear directly from the consumers that we protect and the businesses who serve them. we do that on our website, consumerfinance.gov where consumers and businesses are all able to tell us their stories and we make a point to get out of washington and hear from are people first hand. we have held town hall meetings in philadelphia and a field hearing in birmingham. we are hearing from thousands of americans what works and what doesn't. we are listen closely and we hope that you will join us at these events. accomplishing our mission will 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 ol