and the businesses who serve them. we do this on our website, consumerfinance.gov where con samers are able to tell us their personal stories. we also make it a point to get out of washington regularly and hear from people first-hand. thus far we've held town hall meetings in philadelphia, minneapolis, cleveland and new york city, and we held a field hearing in birmingham, alabama. we're hearing from thousands of americans about what works and what does not. we're listening closely and we hope many of you will join us at these events when we come to your communities. accomplishing our mission will take time. but as you can see from our semi annual report, we're already taking important steps to improve the lives of consumers. thank you. i look forward to answering your questions. >> thank you, director. director, you probably heard ranking member frank talk about abusive as being a new term.

he said it was defined in the act. that -- there's been a lot of focus by both sides on how -- what is abusive. how that would be determined by the -- your agency and also by the lender, how they would know whether it was abusive or not. i'm looking at the definition of abusive, and one of the -- one of the things says "takes unreasonable advantage of a lack of understanding on the part of the consumer." now, whether they understood something or not, would that not depend on maybe their -- just their ability to think and understand and reason? i mean, would -- to a certain exte extent, would that be based on either what we call common sense

or iq.? >> so i think that prong of the abusive definition is, in fact, situational and somewhat subjective. i think some of the prongs of the definition that congress enacted and which, of course, is the law we must follow and carry out are firmer and some of them are a bit less firm. so we've been trying to puzzle through exactly how that pretty straightforward, you know, and very explicit definition of the term that is law -- it is law that we're supposed to enforce, should be applied in the facts and circumstances of individual situations, and that's something that we're just trying to assess very carefully as we go. >> you know, and, in fact, it is almost -- i mean, you would almost have to go situation by situation, would you not? >> with some of the prongs, i think that may be more true than with others, yes. >> and that could be a problem with -- for an institution or a lender. and that the same agreement in

some cases, depending on just the ability of the consumer to understand or -- or focus on the agreement could determine whether it's abusive or not. for instance, under the continuation, and under the law, a financial institution could be liable any time a consumer simply doesn't understand a product or service. is that not correct? is. >> no, i don't think that's quite what the law says. i mean, it does speak of taking unreasonable advantage of the consumer. >> of their lack of understanding. >> that's right. but so i think that for an institution, if they're in a situation, they should be thinking carefully about whether they're taking unreasonable advantage of their consumer. and i think you often have a pretty good sense of whether you're doing that or not. maybe not always. and if so, you should hesitate

and think again. and be careful that you're treating your customers fairly. i think with something good businesses think about every day. >> okay. you know, there was an article in "american banker" that talked about an interview with you in which you indicated you didn't anticipate the agency writing a rule around udap. you were asking a follow-up question, whether your statement meant that people will mostly have to look at your actions as a model or how the new term "abusive" is database defined. and you're reported to respond "i think that's probably right." was that a correct reporting of your response? >> it was. >> okay. does that mean that you're going to sort of use your enforcement authority rather than rulemaking

authority to set the standard on what is abusive? >> i think it meant several things. number one, it meant that for us to define what abusive means, feels a little presumptive, given that congress defined what abusive means. i mean, our job is to carry out what congress has given us as the law that binds us. not to make up that law ourselves. having said that, you know, we have to go in and supervise institutions so there is some guidance that we have provided around that set of terms, unfair, deceptive and abusive acts or practices in our examination manual, which is public, available on our website. and is institutions have every opportunity to look carefully at that and to inquire with us and ask questions about anything that's unclear to them. but i do think that how the law that congress has defined applies in particular situations is something that we're going to have to measure on a facts and circumstances basis as we go. but congress defined it.

not us. and it's our job to try to apply it on its terms. >> but i think you are acknowledging some difficulty with being able to at least write a rule and tell institutions when they would be and when they may not be violating the law, i think. >> no, i don't think so. i don't think that that's probably the preferred approach when congress has defined a term already. we could further define the term. but are we going to define it differently from what congress defined? i don't think so. we could perhaps clarify how it applies in particular effects and circumstances. but i think we ought to take some time with it rather than up and just pontificating about it at the beginning. so that's what we're going to try to do. we're trying to be careful here, measured and thoughtful. sometimes that means you don't have all the answers in the first instance. and i think that's where we are. >> all right, thank you. ms. waters? >> thank you, very much, mr. chairman. mr. cordray, the state and

federal mortgage servicing settlement unveiled in february set forth new mortgage servicing standards and addressed issues such as pre-foreclosure referral notices to borrowers, third-party provider oversight, loss mitigation requirements, single point of contact standards and other measures. however, the settlement only covers five of our major mortgage servicers, and the servicing standards will only be in place for the life of the settlement. that is three years. i don't know -- i know you have a lot on your plate, but does a cfpb have any plans to develop permanent servicing standards that cover the entire servicing industry? if so, will cfpb use the servicing standards in the state federal settlement as a template for whatever you develop? >> thank you, congresswoman, for the question. it's a very timely question. and the answer is we do have intention of developing servicing standards that would

apply across the industry. one of the things we want is for all servicers to be put on a level playing field. as you noted, the servicing settlement was a partial step. it was an important step for it, but it's a partial step. it only applies to certain institutions and only applies to certain loans in their portfolio. we are working with an inner agency group of other federal agencies to develop standards. that was true before the servicing settlement was reached. it remains true after the settlement was reached. there's no question that the provisions in the settlement, which were worked over very carefully oppose on a federal state basis with those institutions are going to be the basis for trying to provide broader guidance to the market. but as you noted, there are many servicers that have not been touched by the settlement, have not been affected in any way. some of the nonbank servicers have ever been overseen by anyone. and we need to bring them under the umbrella so everybody is playing by the same rules as quickly as possible. so we're going it move forward on this. we have certain mortgage

servicing rules we're required to adopt by january. we're looking at what else should be part of that. and we're consulting closely with our fellow agencies. but we see that as a high priority. for me, i saw mortgage servicing problems in ohio going back to when i was a local treasurer, then state treasurer, then state attorney general and now have found them to be national in scope. >> thank you very much. that -- that's great. i really appreciate that. i've been following very closely the mortgage servicing consent on a process initiated by the occ and federal reserve board for the five biggest, largest mortgage services. this process allows the servicers to hire their own auditors to investigate their foreclosure practices during 2009 and 2010. we have asked the occ and the fed why they didn't include the cfpb in this process, and we didn't get a really good answer. given cfpb's new jurisdiction

over servicing, what do you think? do you have any desire to be involved in this process? or -- what? >> congress wwoman, we are taki complaints now on our website and calls from people about mortgage issues. quite a few of those complaints deal with foreclosure situations, and other servicing issues. i think the congress is well-served on any kind of significant initiative like this that the occ has embarked on to exert oversight, just as you exert oversight over our efforts and processes. i think it ought to be kept in mind that the occ was the very first of the federal agencies to step up and document the extent of the abuses in the mortgage servicing sector. they issued the first report on that. it demonstrated the seriousness as they saw it -- so serious it affected the safety and soundness of institutions that allowed everyone to move forward

toward the servicing settlement. and it's very important for us to broaden that across the industry and make sure all these other processes are working as well as possible. it's a complicated space, but the consumer bureau has very significant authority here, both to examine institutions, bank and nonbank, to enforce the law going forward, and to write rules and we'll do that very carefully. and we're glad to consult with you as we go. >> thank you very much. and i'll yield back the balance of my time. >> thank you. mr. hensarling for questions, five minutes. >> thank you, madam chair. mr. cordray, i want to follow up on the line of questioning that our chairman, spencer baucus had. i think what i heard you say with respect to the term "abusive" that the law was clear in this area. but i thought i also heard you say it was situational and subjective. i know that at least the coauthor of dodd/frank, senator dodd, during the senate debate on the creation of the act, said on the senate floor, quote, "i

have never claimed or proposed my consumer protection is perfect. i acknowledge the word abusive does need to be debated defined and we are talking about striking that or making it better." the language never changed after that. so, number one, for the record, i want to say at least the coauthor of the act doesn't find it too clear. and i'm just wondering, is it clear or is it subjective? is it clearly subjective? are those competing or complimentary terms? i don't understand your point of view. >> okay. well, congressman, what i was saying, which is i think undeniable, is this is not an undefined term in the law. some people have mistakenly said abusive, it's vague, it's not defined. congress explicitly defined the term. they laid out several specific prongs that would have to -- >> so it can be defined, but it is subjective. >> well, it is very expressly defined in the law. there are criteria that people are supposed to use in determining -- >> but did you not earlier say it was subjective in your

testimony just a few minutes ago? >> what i said was, if you look at those prongs, they have to be applied in facts and circumstances, common to many legal definitions that congress has adopted. and some of the prongs are situational to the individual consumer. i think that's true. >> can a consume e product be both fair and abusive? or is it -- >> i think congress has made a judgment. and, again, it's not for me to just make up terms and go forward on any basis i please. i'm supposed to enforce the law you all have enacted and we intend to do that. >> case law surrounding and greater statutory specificity with respect to unfair. and so the question is, is the term "abusive" redundant of unfair or is this something that is completely separate? so the question is, can you have both a fair product, which is still yet an abusive product?

>> yes. >> so the answer is yes? is. >> i would be glad to answer your question. the answer to your question is "congress has put together three different terms in that passage. they have talked about unfair, deceptive or abusive acts or practices. congress has seemed to indicate that there is a distinction among each of those categories. that isn't to say there can't be some overlap. there may be significant overlap. but i think the answer to your question is, congress has pretty clearly spoken and said there could be a practice that would not be unfair. but that would be abusive. >> mr. cordray -- >> a lot of lawyers are arguing back and forth and trying to understand exactly the parameters of that and it may be sometime before anybody comes -- >> in interpreting the term "abusive," you said it could be situational. is situational consumer-specific? down to the individual consumer? >> well, when -- the chairman asked me specifically about a particular prong, which was the

consumer's understanding. that seems unavoidably situational, meaning -- >> so -- >> consumer by consumer. >> so a product could be abusive to one individual consumer, yet not abusive to another consumer. is this correct? >> i think the law seems to pretty clearly contemplate that, yes. then there's other prongs -- that are -- that that's not necessarily true. >> so if i'm a financial institution, if i'm the first state bank of mineola, texas, and i want toel roll out a product, in order to avoid litigation or enforcement action, am i going to foresee the day where i have to impose financial literacy tests on each and every one of my customers to avoid an enforcement action from your agency? >> no, i think it merely reflects the careful practices businesses engage in all of the time. and to go back to the rank's member's comments, if you're offering a refinancing to an elderly customer you know full well may be having difficulty --

>> you did say down to the individual consumer, correct? >> so, again, i think good businesses and good banks are mindful of this. they would not approach certain customers with certain products that they would approach other customers -- >> my time is almost up. one other quick question. you have earlier said at one point fraud is fraud. but you've also been on the record to say, quote, frankly, there is a lot of fraud that's committed in the marketplace that is not on its face necessarily technical illegal. so is fraud fraud or is there legal fraud and illegal fraud or the mere fact that your agency determines that you don't like the fraud then it becomes illegal? >> i appreciate you asking about that. and the subcommittee chair of a different committee asked me about the same quote. that was an unfortunate either misquote or perhaps out of context quote of mine. i didn't mean to intend that something that is a -- in

compliance with the law would be illegal. that's obviously not -- definitionnally correct. but you can have fraudulent acts and practices that, you know, may or may not rise to an actual illegality, it depends on whether there is materiality, reliance, damage, that's securities laws. but our job will be to protect consumers against fraud. against unfair deceptive acts and practices. and abusive to the extent that that definition is relevant and adds to the other definitions which remains kind of a matter under debate. >> thank you, mr. cordray. my time is up. >> ms. maloney for five minutes. >> thank you. director cordray, yesterday i read in one of the papers that you have a new feature on the cfpb website called "ask us anything." i wanted to call it to the attention of my colleagues and others, because i believe that

financial literacy is something that i care deeply about. and i firmly believe that when people have the best information, they can make the best decisions for their financial lives. can you report on the usage of this function and how will these questions inform your work going forward? >> thank you, congresswoman. it's something that we think will be an important foundation that we build on going forward. so as we prepared the bureau to receive and to handle and to resolve consumer complaints in the credit card area and then the mortgage area and now we're into other areas as well, we inevitably developed training materials for our folks who would be receiving those complaints to be able to address different questions to be knowledgeable about the products they would be talking about and the like. and it occurred to us that rather than limit that information only to our own

employees who would be dealing with these complaints, if we could put it out on our website and make it more availablet lar could answer a lot of questions for themselves. they could go to and get that information when it's most pertinent and convenient for them. we will continue to build on this. this will be annit writtive process. people can add questions they would like to have us answer. they can offer their thoughts about the answers we're providing to the questions that are raised. we expect we'll build this out across the whole range of products and services. we hope to become a trusted resource for people out in the marketplace who need to know more. they know they need to know more. they aren't sure where to go to get it. sometimes they'll go to websites now that are self-interested websites, where somebody is trying to sell them a product and therefore the information may be distorted by that self interest. we don't have any of that. so we hope to promote this. we would be glad if you would promote it among your constituents and others, as well.

it is intended to help muscle up consumers so they can protect themselves. >> director cordray, most of us he hear quite a few complaints from our constituents about student loans. in fact, recently, it's been reported that student loan debt reached $1 trillion. and that is even higher. it's hard to believe, than credit card debt. i know that you have released a shopping sheet for student loans. so that parents and students can make a comparison about what the terms are. and what steps are you asking -- are you taking to further educate students and parents about the merits and drawbacks of the various options they have in student loans? and are you including the deferred interest and all those other aspects? >> so those are good questions. this is obviously a subject of growing importance to a number of americans and should be for the country as a whole.

because as was mentioned earlier, the population we're talking about here are young people who have the ability to make something of themselves. the kinds of young people we would like to see rise toward success. they're held back only by lacking the means and they need to be able to finance an education. this becomes a momentous decision for a young person and their family. do they get on the right financial track or the wrong financial track? if they end up on the wrong financial track, they're not going to achieve what they could achieve. we're going to be deprived of their talents in our society. and they're going to end up in a financial mess that will last them for years. it's one of the few very big decisions people will make in the course of their lives that has lasting repercussions like the mortgage decision, like retirement -- certain retirement decisions. we have the financial aid shopping sheet you mentioned, because we want to make the prices and risks and comparisons clear for young people and their families who are not familiar with this, they have not done it before or maybe they have done it once.

maybe they didn't get it right then either. we also have a student debt calculator, so people can understand what their rights are. what the repayment alternatives may be. so that once they're in it situations of having significant student loan debt, they can best plan their path forward to getting out from under that debt. and relieving that cloud over their future. we are working closely with the department of education on initiatives around that. and i'm sure we'll have many more ideas as we go. there are a lot of areas of concern. holly petraeus, who heads our service members affairs office has indicated that the 90/10 rule creates some perverse incentives for them to offer loans to students they know full well are going to default at high levels, because that gives them access to the 90% of federal funding, especially from the gi bill. i know it's something congress is starting to look at. we do urge you all to look carefully at this and what the unintended consequences have

been. we have many young people, some of whom serve their country, and many others as well who need the opportunity to succeed and they are floundering because of bad financial decisions. >> okay, thank you. >> the gentle lady's time has expired. mr. miller for five minutes. >> thank you. i'm sure if you were to address the alleged abuses of mortgage origination congress passed a safe act which as a significant achievement in its time. but it's potentially i believe being jeopardized. we're hearing of reports of lenders training their own loan origination staffs. that was not our intend. this was inconsistent of the act's principles, these individuals were to license education requirements. mortgage origination training should be independent. the best regulatory tool we have to ensure all loans originated are licensed and qualified and that's important. and it's a three-part question. i'm going to try to give you time to answer. do you share my concern about lender training their own personnel? and what do you plan to do to address this development and do

you plan to include language to address this issue in the cfpb's mortgage origination rule? >> thank you, congressman, for that question. it's a thoughtful question, because i would agree with you that training your own staff, although that -- i suppose can be cost effective, there's real questions about whether that's sufficient and adequate to achieve what we want. and you can imagine that when you train your own staff, you might be -- the training may be distorted by the financial self interest of the organization, which, again, i think is inconsistent with the congressional intent. i will take that comment back. i'll have my staff get back to you on how we see it and what we're planning to do about it. the safe act is -- as you know, a statute that did come over to us now to enforce. there are a number of questions that have come up about it, including the chairman raised a question with us about transitional licensing, which is another new issue for us. but we'll be glad to look at

that and think carefully about that. my sense is -- >> problematic, and you plan on addressing it. >> i will have my staff come back to you on that. >> thank you. in your testimony, you say that the cfp will be proposing a new loan compensation rule within the next six months, i believe you said. and in april of last year, federal reserve implemented a loan arrange nation compensation rule aimed at protecting consumers from unscrupulous lending practices, which we're all concerned about that. we think the provision attentions actually went too far. the rule causes consumers to ultimately play more in their closing costs. this is because the federal rule forced mortgage initiators to only offer loans with a closing cost rolled into the loan. i introduced a bill that would ensure consumers have the ability to pay their closing costs up front if they so choose no matter how the -- i don't think those two are connected. it's causing buyers to lose

their home purchases and deposits because of legitimate discrepancies in closing costs. my bill would allow them to reduce their compensation to cover differences in costs beyond the control of the originator. this provision is narrowly at a tailored so borrowers can close their home. my concern is if there is a discrepancy at closing, that the originator cannot even modify their compensation to the benefit of the buyer. and can you please tell me how you plan on addressing that? so this problem doesn't continue? >> okay, thank you, kongman. i want could be careful in my response. that is an open pending rule making for us. we were, as you said, given the mortgage loan originator compensation rule that the federal reserve enacted and finalized last year. but we were given authority under the law, and, in fact, required to do some work in that

area, as well, by january of this coming year. this is an issue that we're looking at. there are other issues we're looking at, such as the -- perhaps unintended effects on pension arrangements and bonus arrangements, especially at some of the smaller institutions. we have a whole process on that. we have comments that we're digesting. we'll be glad to speak further with you. i'm not sure how much i should say publicly. >> i'm sure you've been -- you've seen situations where you get ready to close, you prestated your costs up front. the rule they've applied doesn't allow any leeway at all in that. and you have had situations where everybody sits around a table and is saying, well, this is occurring, we need this type of a reduction. and many times, your mortgage originator will make those allowances, rather than lose the closing. and now they can't even do that. and that's just -- i mean, there's some bad actors out there that would raise costs at

closing and the buyers at the last minute saying i do this or i don't get my home. that's -- my bill doesn't do that. doesn't allow for that. but to modify the closings and let the person roll those costs they have in the closing into their loan rather than paying up front, if it's not in some way impacting them negatively, i can it's something you really need to look at. and i'm not in any way asking you to do something that puts the individual at risk, due so some unscrupulous individual. >> i hear you on that. we'll take that back. and i appreciate that. on its face, it sounds fairly sensible, i would have to say. >> thank you, sir. >> yep. >> ms. velazquez for five minutes for questions. >> thank you, madam chair. director cordray, in the small business committee, we have heard a great deal of concern among merchants and retail businesses who fear that their financial transactions with other businesses could be subject to cfpb oversight.

what can you say to rest their worries that new regulations will affect purely commercial transactions? >> the authority that's given us under the law has to do with consumer financial products and services. and it's defined in the law to only affect matters used for personal purposes. and it's a broad array of products, mortgages, credit cards, student loans. pay-day loans. it goes on into debt collection, debt settlement, credit reporting in other areas. but we are not -- you know, contrary to views about the breadth of our authority, we do not have authority over commercial transactions, transactions between businesses that don't involve credit to consumers. so i would simply reiterate that's