that's not within our purview. >> okay. some policymakers have expressed concerns that the new bureau will extend its reach to include businesses that previously were not subject to a federal financial regulator. like factory firms or service businesses. should small businesses that previously didn't offer consumer financial products be concerned about a new layer of regulations? >> if a business does not offer consumer financial products or services, they would not be subject to our oversight. if it they do, they would. so money service companies previously were not subject to any federal oversight. arguably. i mean, there are some laws that may have applied to them. they now are potentially subject to oversight by us. this is a big shift that the law represents, which is that there

are plenty of consumer markets where you have chartered institutions, banks, credit unions, thrifts, competing against nonchartered institutions that were not subject to any oversight whatsoever. and we want to make sure they are held to the same sorts of standards and principles and people are put on a level with one another. that's a big part of our job, it's something we're going to be -- it's a big challenge for us to do it, but we're working hard to do that as we go over the first few years of our existence. >> to establish a single regulator for protection, the federal regulators have nonetheless retained enforcement powers for the overwhelming majority of banks. if there is a risk that this will weaken protections for consumers or lead to confusion for financial institutions. >> i don't know that there should be confusion. i think for the vast majority of

banks, as you indicated, and it's my understanding as well, they have remained subject to the same regulators they always have. for the large institutions, those with assets over $10 million, they will be overseen by us for consumer protection services and by their regulator for safety and soundness purposes. so there is some overlap there. but for all of these reasons, it really behooves us to collaborate closely, to make sure we're approaching problems in common, to make sure we're on the same page, make sure we're getting their perspective as we act and give them whatever perspective we may be developing as they act. that's something we're working toward among my fellow heads of the agencies and among the staffs. takes a little time for them to adjust to one another. >> if i may -- >> yes. >> i'm on the small business community and it's quite frustrating for me to time and time again, when we have

community banks coming before the committee to discuss why it is so difficult for them to continue to lend to small businesses, they're saying because of the dodd/frank regulations and if they have assets of less than $10 billion, those regulations and oversight will not have any direct impact on those community financial institutions. >> well, we won't be enforcing the law with respect to them. we won't be examining them. except possibly through right along authority that we don't anticipate utilizing in the immediate future. our regulations will affect them, and that's why he have said time and again and in front of this and other panels that we need to think carefully about what the effect of our regulations may be on smaller institutions. that's why we're utilizing the panels provided in law to make sure small priooviders have the ability to inform us directly about their concerns and their

operations and how they work. that's something we're taking very seriously. we have one and soon a couple more of those panels at work. and so we are listening carefully to them. i am creating an advisory council for community banks, and a special advisory council for credit unions, so that their perspective does not get lost in the shuffle for us. it's important for us. and i agree with you, we need them to be able to lend to small businesses, because they create the vast majority of jobs in this country, and some of the encouraging recent economic news seems linked to the fact that small business lending is up and small businesses are being created at a faster pace. that's a very good thing for us. >> gentle woman's time is expired. i'll recognize myself for five minutes for questioning. in your report, you talk about streamlining inherited regulations and the law, quote, unquote, is to address outdated, unnecessarily and undulying

burdensome regulation. the president talked about this in his state of the union, how he wants to eliminate old or antiquated regulations. i guess my question is, what steps are you taking to work with them to -- to eliminate these overburdensome or repetitive or inherited regulations? can you give me specific examples, except for -- i don't want to hear about the one-page mortgage, because the last time i asked that question, i got a thee three-minute answer on the one-page mortgage. not from you, i will say that. so i know we're all well aware of that. and that's a good thing. we're very happy about that. so if you could help me with that, the treasury secretary pointed to the cfpb as one of the ways to eliminate these old regulations. >> i appreciate the question. i have also been known to give some long answers from time to time. i'm trying to shorten them. on this, though, i was over to the u.s. chamber of commerce yesterday, speaking with them. and one of the things that they

praised us for and i think it's a very common sense thing for us to do, we have launched an initiative on streamlining the regulations that we have inherited from other agencies. we didn't write those rules. we're not personally invested in them. they were adopted by different agencies at different times for different purposes. there's often not a lot of careful thought about the aggregate impact of those. so we have had a request for information outstanding, published in the federal register for a couple of months now, asking anyone to bring us their ideas about how we can cut back and streamline regulations and show that we're a different sort of agency. that we're interested in doing this. and in the consumer realm, we think there is room to do this, because there has been such a sort of mania for disclosure over the years that those disclosures piled up, piled up, piled up and became very dense, unreadable, consumers were driving very little value from them, confused even if they did read them. and we think we can cut that

back in some areas pretty substantially. so this is something we're taking very seriously. the chamber has given us some thoughtful comments, hundreds of others have, as well. we're going to be digesting those. and we hope to walk the talk. >> i'd like to follow up with you on that as time moves on. you know, if you look at it from a community bank perspective, you're having to divert your resources to a compliance officer or an accountant or an attorney to keep up with the vast majority of regulations, not just the new, but the old, as well. and that diverts resources from the job creation or small business lending that we want to see our financial institutions do. the federal reserve initially proposed the qualified mortgage rule before it was transferred to the cfpb. and it offered two different alternative proposals. with differing protections for liability for lenders. this is -- we have had a lot of discussion about this. one would give a total safe harbor and one would have a presumption. protection.

which alternative would you prefer, and will the cfpb draft a different proposal? >> so again, i want to be a little bit careful how i answer this question. it is a pending rule making. we have been getting quite a bit of input, both from industry and from consumer groups, and also from our fellow agencies. as you know, it was the fed who proposed the rule. and then it's come over to us to finalize. it's also a very important rule, because providing guard rails around lenders paying attention to the borrowers' ability to repay is something that's very important for cleaning up the mess we had in the mortgage market. what we have found is we have been working on this is you can have a sort of definitional safe harbor, a definitional rebuttable presumption. if you leave the standards vague and mushy, there's not a lot of difference between the two. because you can still litigate over whether you comply with the qualifications to get into the safe harbor. what's very important in this

area, though, is that we try to create bright lines so there will not be a lot of litigation. we don't want this to be into the courts and people not to be sure for years to come. and is we're going to work to do that. but we want to get this right. this also intersects with the qualified residential mortgage rule on risk retention that other agencies are going to be adopting. so we're taking a lot of close input from a lot of groups who have competing but in some ways converging perspectives on some of these issues. >> i would urge caution in this area, simply because as we know to really get the economy moving again, we've got to get this mortgage -- we've got to get this right. and we've got to get first time home buyers into the market. we've got to get people being able to move in order to get our economy moving again. so i would like to again follow up with you on that. my time is expired. i did want to ask you about the complaint line, and i also wanted to get into the silos.

but i'll save that for another day. and our next person is mr. miller. >> thank you, madam chair. i've been puzzled by some of the complaints approximabout the us subjective terms and the statute and whether that will be -- that will lead to results that are just snatched out of thin air. because my understanding, my knowledge, actually, is that subjective terms are used throughout the law. to reach different -- so that the law applies differently in different circumstances. and that has, in fact, been viewed as a strength of our legal system. there was a 18th or 17th century english judge who wrote, "there shall be no fixed --" and this is probably not exact, but close. "there shall be no fixed definition of fraud, less dubious men con drive ways to evade it." so a clarity, we all see the value of clarity, but clarity

can also lead to inflexibility and there needs to be some subjective standards to reach new circumstances. reasonable man. the idea that reasonableness is somehow a -- a new thing snatched out of the air to be applied in the law is very peculiar. the reasonable man standard, the approximate calls is not exactly the clearest standard. it obviously depends on circumstance. mr. cordray, do you -- think you will have any difficulty applying standards of fair, reasonable -- unfair, unreasonable or abusive? >> i think that with standards like that, kongman, there is a gray area and then there is a core. and is within the core, there is really no question the people

perpetrating acts within that core, they know what they're doing is probably wrong and yet they do it anyway. in the gray area, it's a little harder to judge. and i think we should tread more cautiously in the gray area. so -- but as you say, these are terms that have been defined over decades -- >> actually, centuries. >> well, that's true. and it goes back to the common law in many instances and then when they were codified into statutory law. there's still a lot of years of courts interpreting them further. but some of them is very well-plowed ground at this point. and i think that the main outlines of how people mistreat their customers are pretty well defined. when they see that that's happening or they see that that's very likely happening, they should be hesitating. they should be rethinking. and i think that that's entirely appropriate. >> of you said there are gray areas and core areas. you have enforcement powers.

in the gray areas, would you proceed straight to enforcement or probably turn to rulemaking and apply that rule prospectively so everyone would know what the rules were? >> i think that there could be situations where we might do either. and -- but i also think that there's enough misconduct that occurs in the core areas that we would be well-served to focus on that at the outset in the first period of our bureau. we want to get that cleaned up. then we can work on trying to define around the edges a little more clearly. >> okay. there have also been concerns today and in the past about whether your rules -- the prohibitions on unfair -- unfair and deceptive and abusive practices would threaten the solvency of the financial system or financial institutions. the legislation as first obama

administration included a requirement that a plain vanilla product be offered, side by side with any other -- any other product offered by a financial institution. and that was shot down. it -- there were gales of protest. and the law was -- there was a sentence or two placed in the law that there was no requirement to be given to any financial product. so it is only your authority then to prohibit unfair practices, right? you are not allowed to require any financial institution to offer a product that might be unprofitable for them? >> well, one of the mandates in the law is that we're supposed to promote innovation in financial services which means, you know, let 1,000 flowers bloom, as long as they're not beyond the pale of exploiting or treating their customers

unfairly or being deceptive. we do want there to be innovation and vigorous competition in the financial realm. there will be times when an array of choices is better for consumers. there may be times where, for example, in the mortgage market and the laid-up financial crisis, where there were a lot of exotic products being offered to customers where they were a very poor fit, and the default rates showed that very quickly. so it's something we're going to have to think carefully about as we go. but, again, in general, we want to encourage innovation, and we want to encourage competition. but we want it to be fair competition, and we want it -- >> thank you, madam chair. good to see you again, mr. cordray. when you were here previously, you stated, and you also told

the chairman earlier today that you know, you promised to be accountable. and answerable to congress. and you were here to work with congress. but apparently some of the people in your agency haven't got the memo yet. i've heard cases where -- this is from another office, not mine. it remains nameless. only so they have no need to fear any retribution. but our district is unable to close out certain cases that get referred to them, because cfpb states it doesn't have to respond to them because it reports directly to the fed. that was second day of this month. pursued that a little bit further when i saw it, and i found, you know, a litany of unreturned phone calls and messages that they have. and so maybe there are some people that just need to be

briefed on your explosive in the agency. philosophy. >> i am not entirely following your question. are you talking about a financial institution that feels that they couldn't get answers from our agency or -- someone else? >> congressional offices. members of the committee. >> that's very different from what i've heard, although i'm happy to -- and my staff will be happy to take up any particular situations that need to be attended to better. i've heard a lot of compliments from different congressional offices, both sides of the aisle, in terms of how we're handling consumer complaints. and we're beginning to see on our consumer complaint line lots of postmortems from consumers who are very pleased with the fact -- months of problems -- >> i don't want to run out of time. >> i'm sure it's a mixed bag. >> i'm sure it is. and there is something called the victims' relief fund, wherein your agency hangs on to

the money instead of returning it to the treasury. and they're supposed to be used to compensate victims of wrongful activity. there's no requirement that i can see that the penalty must be paid to the victims of a specific wrongdoing for which the penalty was collected. what happens to the money if the victim can't be located or there's more money collected than there is due compensation? are you allowed to keep the money and commingle it with other agency funds? >> this is something that we have been looking at carefully. it is a provision of the act, as you said. the first thing that happened in any matter of that sort is we're supposed to make an effort to find the victim -- to make sure they are -- if there is a penalty that is assessed, that doesn't necessarily tie specifically to compensation. but if we can compensate victims, that's our first

priority. if not, the law provides that that money can be used to facilitate and aid financial literacy and education efforts around the country for consumers. so that's a possible disposition of funds, as well. beyond that, i think we're trying to be mindful of carrying out the law, as congress enacted it. and that's what it seems to say to us. >> would you anticipate being involved in settlements? >> you mean settlements that don't go to a final court resolution? >> yes, sir. >> i imagine that that will happen frequently, just as it does for every government agency and every private litigator, as well. >> and -- but you don't anticipate that money would just be unbudgeted revenue to the agency. that that money would be transparent, and it would be going to victims or to

education, as you indicated. >> oh, i see what you're saying. when we arrive at a settlement, i think when we arrive at a settlement, i think it will typically be our practice to enter that settlement agreement in a court as a consent decree, which creates more enforceability and more transparency. and then the nature of that document is that the court will specify in the court order how any funds are to be allocated and how they're to be used, and that creates binding law that we have to follow. so that's what i would expect would typically be the case in our matters that don't go to some final judgment in a court. >> well, that's all i wanted to hear. thank you very much. i yield back, madam chair. >> thank you. mr. scott for five minutes. >> thank you very much, madam chairman. mr. cordray, how long have you

been now on the job? >> i've been on the job for three months mines five days. >> three months. and could you tell the committee what areas have jumped out to have raised the greatest number of complaints, the greatest areas of concern if you had to prioritize on where there is this greatest area problem in abuse of carrying out your mission? what would that be? would it be mortgage servicers? student loans, credit cards? what would it be? >> it a little hard to determine trends yet because it's been a short time, and we have been receiving complaints in stages. but i think there is very little question that the pace of complaints has been fastest in the mortgage area. especially around foreclosures

and around servicer practices and the frustration that people feel. in fact, my guess is that the pattern of complaints we're receiving mirrors the pattern of complaints each of your offices receive from your constituents, because i think most of these problems are pretty common nationally. we have also received a lot of complaints around credit cards. typically for smaller dollar issues. but still very frustrating to people. and we have begun receiving complaints about student loans. and we expect we'll have a significant volume of those. and others. . >> i'm glad that you volunteered that answer, the priority of area of concerns and complaints have been in the mortgage area. and i commend you. i think on january 20th of 2012 you put out in your annual report a greater emphasis on dealing with the mortgage service area. and certainly commend you on that.

let me ask you how your bureau responds to developments that happened that may be a little bit outside but impact the mortgage area. for example, recently during this period, i think about a few months ago, there was a settlement made of billions and billions of dollars apportioned out to the states. that was designed to go back to help struggling homeowners with their mortgages. one of the major areas of concern this difficulty with mortgage holders is having the ability to write down the principle. we've been after that for a long time. the secretary of the treasury was before the committee last week, and i asked him pointedly about that. could that money be used to assist homeowners in their greatest area of needs in terms of lowering the cost of their monthly payment, writing down

the principal. and he said yes. you're aware of this, are you not? >> yes. >> so how are you getting this information out to mortgage holders who are very confused, do not understand? are you working to get out to each of the states, to communities how the mortgage holders who are struggling can take advantage of this? for example, my state of georgia share in this is $815 million. one of the concerns we've had, for example, is that the governor of georgia has decided that $110 million of this would not be used. the funds would be diverted, wouldn't go to the struggling homeowners. what i'm trying to get at, it seems like something like this

where you really are talking about consumer protection is some area where you guys ought to weigh in on as well. what has been your response? how have you gotten information out? where is there a clear understanding of how this money can get into the hands of the consumer to help them for what it was designed to do, get down that principle and that the states cannot willy-nilly use this money for a rainy day fund or whatever. and that's a problem. how are you all helping us with that? >> well, the mortgage servicing settlement was organized around the principle that there was significant money allocated on state-by-state basis. and state attorneys general would have significant say in whether that was used, for example, for homeowner counseling or for razing

abandoned houses in cities, which is another big problem, or any of a number of other uses there is also money in the settlement, though, that is not subject to control at the state level that will go toward homeowner relief, some of which will be in the form of principle write-downs, others which will take different forms. principle write-downs are one tool in the tool box of addressing an upside down mortgage situation. >> i know my time is short, but could you just tell us very quickly what your bureau is doing to get this vital information out to the consumer. >> if you could do this quickly, because i want to get one more questioner in before we have to go. >> that's fine. we're working with these other agencies that reach the settlement which we were not integral to make sure that we help publicize what is available to homeowners. but i think the lion's share of that is falling on the backs of the state attorneys general, the hud secretary and the justice and perhaps treasury

departments. >> thank you. >> mr. lickmeyer for five minutes. my intention is after to put us on recess and come back. we have two votes. >> okay. >> thank you, madam chair. mr. cordray, in reading your report, i noticed in here that when you were filling -- that the positions you were filling, yod all different groups that you were hiring. there is nothing there that indicates the breakout of people who actually have some real world experience with regards to financial services. can you tell me, are you hiring people that have got some real world experience that have actually worked at a bank or at a credit union, or are some of a petty loan place that actually know unintended consequences of a rule or law that is proposed by you and the enforcement of how it all fits together? >> congressman, it's a good question. it would be a pretty poor performance by me if the answer to the question was no, we're not. in fact, we are. we have a number of people who have come to the bureau i'm

pleased to say who have come not from other federal agencies or not from state government or not from the public sector at all, but from private sector entities, often from banks or other financial institutions. >> do you have a number off the top of your head percentage-wise? >> i don't have a number, but it's -- it's many. >> could i get that? >> including the deputy director. the bureau who worked in various capacities at deutsche bank, mckenzie and capital one and has intimate knowledge of the market. >> can i get that number from you? >> we would be happy to provide that. >> appreciate it. >> with regards to that, i know there is a movement i've seen that some folks are trying to have mr. martin eeks, do you know mr. eeks by any chance? >> i have not met him, but i've heard quite a bit about him. >> they're trying to recommend him i believe for a position with your agency.

are you considering that at all? >> that's news to me, sir. >> okay. i'm just curious. the reason i ask is because he has been rather outspoken with regards to his opinion of oversight with regard to the financial services industry. in fact, in 2010 i think at duke university, he made a statement that we have hired 50 lawyers, ph.ds and mba to basically terrorize the financial services industry. that gives me great pause when anybody like that is being recommended to your agency, if they have the attitude going in that they're there to terrorize the industry they have oversight over. what is your reaction to that? >> i don't have any particular reaction. i'm not familiar with the quote. >> does that sound like somebody you would be interested in hiring? >> with everybody we think about hiring, we would want to look at the full picture. we want a range of viewpoints. but look, we're