the semiannual report to the consumer financial protection bureau. the cfpb is an independent federal agency whose authority, as many of us have said, is far reaching. some have said unprecedented. title x of the dodd-frank act gives discretion to the director almost unfettered to find services deemed to be unfair or abusive and to ban them under what has been described as a highly subjective standard that has no legally defined content. all of us agree on the need to protect consumers. all of us also agreed that every government bureaucracy needs transparency and oversight. the simple proof -- if we can

have a little order. the simple truth is there is no reason we cannot have both robust consumer protection and an agency that is accountable for the action it takes and the resources it uses. the call for greater accountability was not well served by the president's decision to circumvent the advice and consent of the senate and install the cfpb's director in a constitutionally questionable maneuver. as i told you previously, mr. cordray, i believe neither you nor the agency usurp were well served by the decision, since it cast a legal cloud over the bureau's regulatory and enforcement activity. i have also previously stated this dispute has nothing to do

with you personally, but with the structure and lack of accountability surrounding the agency you have been asked to leave. the congress has passed two bills that make the cfpb more accountable without in any way hampering its ability to protect consumers. h.r. 1315 includes provisions placing cfpb under the oversight of a five member bipartisan commission, something originally supported by house democrats. h.r. 4014, which passed with strong bipartisan support and the support of mr. cordray, texas a critical of omission in the dodd-frank -- fixes a critical omission in dodd-frank when it comes to sharing information. given that the cfpb is not subject to the annual budget

process, hearings like this are essential to the oversight process. hearings like this are the only opportunity for congress to exercise any oversight of cfpb at all. again, mr. cordray, i thank you for your appearance, and now recognize the ranking member of the subcommittee, ms. maloney. >> is mr. frank coming? pardon me? should we wait for him? first of all, i would like to -- should i wait for mr. frank? >> i will allow mr. frank to come in and make an opening statement. >> i will go ahead, in the

interest of time. first of all, i want to welcome director cordray, and really thank you for your impressive accomplishments so far. i know that when we were doing the markup on dodd-frank, i offered an amendment that called for an annual report and oversight by this committee of the cfpb. that was later amended to make it a semi-annual report to congress, but if i had known that you would be before this body or some one senior, as yourself, would be before this body 15 times this year alone, i would not have offered the amendment, because you have been very accountable to us and to this congress. i would like to say it was great to have you in my district in new york, where you

discussed and launched an inquiry into overdraft practices. i know you have faced similar meetings across this country with various concerns, from student loans to mortgages to general concerns of consumers. as we reach the three month anniversary of the cfpb as a fully operational agency, i would like to note some of the bureau's outstanding work. while some will undoubtedly continue to define the cfpb as an unchecked agency, i believe the bureau's accomplishments in oversight have been extraordinary. the bureau has initiated an examination into the growing level of student loan debt, and its ramifications on our economic recovery. it is tirelessly helping

consumers understand financial products and services through the "know before you owe" program. they are curtailing abusive debt collection practices. they have modified and put forward a simplified mortgage application that people can actually understand. and the bureau is resolving consumer complaints, launching bank and non-bank supervision programs, in developing simple disclosures for credit cards and other financial products, and targeting specific abuses aimed at older americans and service members, and have created offices just to address these concerns. i think this is a great list of accomplishments for a new agency. from what i can see in your report, it is just the beginning. i hope that during this hearing we can focus on what the cfpb has laid out in its reports,

rather than constant complaints there is not enough oversight and accountability. the structure, the positive report, the very fact that director cordray is appearing before us today, his 15th appearance, or of other senior staff, is a testimonial to the number of checks placed on the bureau. i would say it is very accountable, given the number of times you have been here. i congratulate you on your fine record so far. i support your testimony and hearing about the plans for the future, to work for safety and soundness and the protection of our consumers. thank you. >> on january 4 this year, the president made an alleged recess appointment of our witness, richard cordray, to head the newly-created cfpb. the problem was the senate was

not in recess at the time. in fact, it was in pro-forma session. the senate has the constitutional authority to determine the role of its proceedings, not the president. under a similar set of circumstances in 2007, when it come inconveniently for democrat senate majority leader harry reid, a republican was in the white house, he was quoted as saying, "the senate will be coming in for pro-forma sessions to prevent recess appointments." one may not like the policy, but it is a pretty convincing confirmation that a pro forma session is not a recess. it is pretty clear the senate did not believe they were in recess on january 4, and in the constitution they could not have been in recess because the house did not consent. therefore, there can be no recess appointment.

but had there been a recess appointment, it does not solve the president's problem. section 1066 in title x of dodd-frank state the director must be confirmed by the senate. a recess appointment is not a senate confirmation. in 2005, then-senator barack obama said recess appointees lose credibility because they cannot make it through the confirmation process. mr. cordray, we just met for the first time about 15 minutes ago. although we do not know each other, those who i know from ohio say you enjoyed a good professional reputation. they respect you. the respect your judgment and fairness. so this is not personal. but in my humble opinion, i believe you said before us as an unconstitutional appointee, and unlawful appointee. you suffer a loss of credibility from the outside. as long as you occupy this office -- you have been given

unprecedented responsibility, unchecked powers to ban credit products, restrict fundamental economic freedoms of our citizens, and effectively control huge swathes of our economy. obviously, i look forward to hearing your views. i yield back the balance of my time. >> i think the ranking member. -- thank the ranking member. i thank you for appearing today. i am excited about some of the things that are happening, particularly the service member's affairs program you are working on. i think this is initiative all of us would be proud of, helping our service members, which is an opportunity for me to extend a word of gratitude to all the members of the committee for helping with the homes for he rose initiative we passed --

for heroes initiative we passed. i thank my colleague for using a little bit of his time to give his expressions. i did not mention mr. gramm -- grimm when i talked about this initiative, but he was the co- sponsor, and i want to make sure i mention him. with regards to your appearance today, you also have an office for older americans that i think is important. i understand that mr. skip humphries is the person who will lead this agency or office. i am eager to hear more about this. some of the accomplishments -- you have been their a short time, but your list of accomplishments has become very impressive over a very short time. this test pilot program, "know before you owe," i think that is something consumers with

credit cards will be excited about. you have initiated an examination into student loan debt. i think it is something that college kids especially are going to be excited about. you have and ask the -- an ask the cfpb opportunity for members of the public to increase financial literacy. you have initiated an over back exploration program to look at the harmful effects on consumers. you have created a first-of- its-kind program, a database for repeat offenders against the military realm, to combat the fraud that targets our veterans and their families. i think it is an important program as well. there are many others you have initiated, and i am looking

forward to working with you. i want to call to your attention something i think is important to you. a lot of the small banks are still having a good deal of consternation. i look forward to working with you so we might do something to allay their concerns. i am confident there are ways by which we can make sure the have a greater understanding of what we are attempting to do with this agency. i thank you for being here today. i am eager to hear more from you. and i yield back the balance of my time. >> i want to welcome mr. cordray from a neighboring state of ohio. this is the first statutory mandated hearing to discuss the cfpb and the report. a little over a year ago, professor warren visited my office. she said at the time that the cfpb provided an opportunity to knock down the silos that

existed between financial regulatory agencies and to provide clear information and consumer supervision. unfortunately, from all of the interviews and testimony that we have received, this is not what is occurring. i fear the cfpb has just created a new silo. some of the financial regulators have not eliminated positions, and they were not transferred. rather than using this opportunity to insure no duplication among the agencies, we have just added another bureaucracy to the agency. i hope you will address the staffing needs going forward and work with the provincial

regulators to eliminate these conflicting divisions and positions. it adds an unnecessary and added burden to particularly community banks as they are moving forward, trying to unlock and create jobs and get lending in small businesses selling again. i do have questions, like my colleague from texas, on the nature of the appointment of mr. cordray as the director. i believe it could lead to some legal challenges of the cfpb actions, and create more ambiguity. i hope this becomes more clarified. i thank you for appearing before the committee and look forward to your testimony. >> ranking member waters is recognized for one and a half to two minutes. a minute and a half? >> mr. chairman, i think you for holding this hearing this morning. mr. cordray, i am pleased to

have opportunity to testify before our committee. as i understand it, you have been before congress five times since you were appointed cfpb back in january. that is once every few weeks. that is not to mention all the other employees of cfpb that have come up to testify since the bureau opened its doors. your agency has been before congress 16 times over its short life. it is clear that this agency is setting the gold standard in terms of transparency and accountability. the cfpb has gone out of its way to solicit public and industry feedback on mortgage disclosure forms as well as student loan disclosures sheets. moreover, cfpb is governed by budget caps, vetoes by the financial stability oversight council, and an annual gao audit, to name just a few provisions to which the bureau is uniquely subject. i am pleased to hear from you

what is included in your semiannual report to congress and your plans for what you will undertake in the coming months. thank you, and i yield the balance of my time to the gentleman from chicago to add to his minute and a half, hopefully two minutes. >> you were reserved 10 seconds. >> thank you, mr. chairman. we have expressed our concern from time to time about this arrangement. this legislation that set up the cfpb is going to add to the regulatory costs that are growing at a rapid clip that has few checks and balances but broad authority. here is the main point. it separates safety and soundness regulation from consumer protection legislation. prior to her departure, sheila bear had this to say about this problem. -- shiela bair said agencies are formed by a broader

understanding of other risks in financial institutions. place in consumer protection policy in a separate organization, apart from existing expertise and examination infrastructure, could ultimately result in less effective protections for the consumer. if we are not able to mandate coordination between the cfpb and financial regulators through changes in law, my hope is this some u.n. -- this semiannual hearing can at least serve as a platform for discussion of the key concern so many provincial regulators have on this issue, and which we from past experience have learned the hard way is a big problem with bifurcated regulation. >> i also want to thank mr. cordray for being here today. one of the biggest

accomplishment contained in the dodd-frank act was the creation of the consumer financial protection bureau. finally we have a call on the -- cop on the beat whose sole purpose is to ensure american consumers are getting a fair shake in the marketplace. in the past four years, in has been dominated by efforts to clean up the mess created by the previous structure, which left enforcement and regulation based solely on the financial industry's bottom line. if we believe the financial sector depends on the american consumer, i think it is imperative that we do all we can to protect the well-being of the american consumer. in just a few short months since mr. cordray took his post, the cfpb has taken a number of issues, including "know before you owe," ensuring consumers

know what they are getting into with mortgages, student loans, and credit cards. i hope this good work will continue. i hope we can discuss the next steps to work to ensure accountability and transparency. at the same time, as ed royce indicated, we need mandates. but remember we need mandates with funding. you cannot have a mandate without the additional funding to make sure we have accountability and transparency. that has to come hand in hand together. i look forward to your testimony. thank you very much. >> welcome, director cordray. i would like to echo a number of concerns expressed by my colleagues on this side of the aisle. i am particularly concerned by reports that the cfpb is engaging in regulatory activity that could jeopardize the

safety and soundness of financial institutions. i am also concerned about attempts to regulate insurance. finally, i am told the simplify mortgage disclosures the cfpb is developing may be more complicated than previous disclosures. i welcome your comments on these matters. thank you for being here. i yield back. >> mr. gutierrez, 2 minutes 15 seconds. >> i appreciate that. first of all, welcome. secondly, i would love to see how we went from seven pages to three pages and make it more complicated, because that is what we have done in terms of disclosure of transactions, something easier to understand. i know you are currently testing the document, and i congratulate you. i think that is what we should be doing. but you never know.

democrats with a democratic president -- maybe we did find a way to reduce seven pages to three and make it more complicated. but i want to tell you that credit card companies, you have to stay on top of them. they are getting trickier every day in terms of trying to figure out how they can hoodwink the american public. student that, i think, should be a non-partisan issue. $1 trillion, more than all the credit card debt in america. that is the youth. they are not going to be able to buy a home. we have to figure out to -- a way to make sure they are not getting ripped off also, and that the terms in the agreements are such that will let the next generation of americans, our children, to be happy. you have done so many things. i would like to say i think it

has been five times -- you have had the job a short time. five times -- that would make 16 times since last year. you know what the best thing about you is that? people just want to see you on capitol hill. i have to tell you every time one of those bankers knocks on my door, i think next year at halloween the will have a cordray costume for all those bankers. you are a scary man to them. do you know what? i do not think that is so bad. i think they need to have a little fear of the lord as they move forward. lastly, we have to stay on top of this. last week, i opened up my account. i keep $250 there. that is the minimum for the savings accounts so they do not charge you every month. they raised it to $500 and charged me $4 in order to keep my money. they continue to do these little tricky things. the continue to put their hands

in the consumer's pocket. keep up the good work. >> we would get a copyright on the richard cordray halloween costume. mr. miller for one minute. >> mortgage regulation is a critical part of our finance structure. reforms must be enacted with caution. cfpb has been active in working on regulation mortgage loans and integrated requirements for truthful lending and mortgage originated -- origination. these will harm consumers by driving up costs and limiting access to mortgage credit. we have already seen a rule implemented in the name of consumer protection that limited access to lower-cost loans. some rules have prevented borrowers [unintelligible]

from closing on home purchases. consumers often pay more for closing costs. we must protect the consumer. we must make sure that costs of increasing consumer protections are not implemented. we must not inappropriately restrict liquidity in the name of consumer protection. in your testimony, i hope you will make sure that access to credit will not decrease and these new rules are done properly. i yield back. >> i want to thank you for having this hearing today, and think director cordray for coming in again. it is good to see you. my colleagues are concerned how you were reported. -- appointed. i am just glad we have a good man doing a difficult job at a challenging time. i look forward to following up on the conversation we started

in my office when you were the enforcement director. it was about non-bank lending, paid a loan making, short-term lending, and in particular lending practices online. i appreciate the fact that you have had field hearings on this issue in alabama, and look forward to continuing our conversation on that. thanks again for the great work you are doing. i look forward to our conversation today. >> one minute. >> i am one of those on the other side that am concerned about how the appointment was made. i think that goes down to the basic structure of the law. we know there is an ongoing discussion about organizational structure. that is a big concern. should the cfpb be the same structure that the house, under democratic control, passed in

the 111th congress, which is also the structure we have been advocating in this committee during this congress? or should the structure remain as it is today, with few checks and balances for the american public? while the structure discussion continues, i think we all should be able to agree on some fundamental principles. first, strong consumer protection is important, necessary, and good for consumers and private sector businesses. second, cfpb rulemaking should be constructed and transparent, objectively considering all viewpoints from interested parties. third, regulations that stifle the availability of products, competition, and growth, would be inefficient and ineffective while harming consumers, employment, and our economy. as we move toward -- move forward, i hope to use common ground to analyze future and existing proposals. i appreciate your time and

being here today. >> thank you. mr. frank for two minutes. >> welcome to one of the longest-running in hearings in washington, the hearings in oversight of your agency in which my colleagues complain that there is no oversight. i look forward to the reruns, going forward. the reason to complain about their not being oversight at an oversight hearing and the structure is to have nothing firm to complain about. the agency has been in existence for a considerable time and there are no horrors or abuses we were threatened would happen. in the absence of that, let me talk about an important issue, which was our addition of the word "abusive" to the practices you were to protect people against. people have said what do you mean by abusive. we defined it in the statute to say it materially interferes with the ability of the consumer to understand a term or condition, which takes

unreasonable advantage of a lack of understanding on the part of the consumer, the inability of the consumer to protect their interests. in other words, it may depend on the consumer. if people think that is a far- fetched notion, remember a problem we had with the some prime loans -- when you go to an a.d.-year-old and urge her to refinance when she has nearly paid off her mortgage -- when refinancing is sold to an 80- year-old, it is not a good idea. why are we getting involved? i quoted before, and i misplaced the book of a very distinguished economist, who said, "of course there needs to be a capacity in the government to protect people not just against deception, but against people who would take advantage of their ignorance." that is what abusive does. in giving you the authority to protect people against abuse, so-defined, we are following the instruction of that particular economist, friedrich hayek.

look specifically at what he said. there was great support for dealing with efforts to support individuals. >> we have possibly two votes on the house floor. members may want to do that. we will come back and hear your testimony. miss can say go for one minute. -- canseco for one minute. >> this week, just across the street from the capital, we have been reminded about the constitutional limits of our federal government, as the president's health care law appears to be in serious jeopardy. unfortunately, i believe it will not be very long before matters involving the cfpb end up in the very same place. we must be ever so mindful today that president obama gave a recess appointment to mr.

cordray despite the fact that the senate was in session at the time, a black and white matter despite the administration's been there is some gray there-- administration spin there is some gray there. this has set up an unnecessary constitutional crisis at the time we can least afford it. with that, i yield back. >> we will close out the opening statements and go vote and come back as soon as we can. i would encourage the members to make your way to the floor. >> with your indulgence, i have another committee i have to testify at. i will not be back right away. it is not a sign of my lack of interest in the oversight of this agency. >> thank you. >> the fact that you are here today is troubling and another

display that this administration picked arrogance -- of this administration's arrogance. the director requires senate confirmation and this president ignored it. the only way this president gets around the constitutional process is to fill vacancies during recess. but this authority depends on the senate being in recess. i suppose the president is an impatient man. instead of waiting for a significant recess of at least three days, the president declared the senate in recess. this was a unilateral infringement on the constitutional powers of congress. the recess appointment clause was adopted to ensure unfettered continuation of government, not to provide an escape hatch to avoid the confirmation process. history tells us this. the founding fathers said so.

nothing more than a supplement to establish an auxiliary method of reappointment in case the general method was inadequate. this position was illegitimately occupied and has been granted broad powers that will affect almost every aspect of american business. it has been insulated from congressional oversight. i say all of that with nothing ill against you personally. as a member of this congress, who has sworn an oath to defend the constitution, i find the method in which you were appointed offensive and in violation of the highest law of this land, the constitution of the united states. with that, i yield back. >> thank you. at this time, we will stand in a brief recess.

>> mr. cordray, the committee will come to order. we are ready to proceed. you are recognized for a five minute opening statement. if you wish to go over, that will not be a problem. we will not be interrupting you. >> thank you, mr. chairman, ranking member frank, members of the committee. i want to thank you for this opportunity to testify on the first semi-annual report of the consumer financial protection bureau, the telling the bureau's accomplishments in its first six months. in january, a presented this information to your colleagues in the senate. i look forward to presenting it to you today. before i became director, i

promised members in both chambers that i would be accountable to you for how the consumer bureau carries out the laws you enact. i said i would always welcome your thoughts about our work and i stand by that commitment. i am pleased to be here to tell you about our work and answer questions. the people who work at the consumer bureau are always happy to discuss our work with congress. this is the 15th time, maybe the 16th, we have testified before either the house or senate. my colleagues and i look forward to working closely with you, with the businesses that serve customers in consumer finance, and with millions of american consumers. i am honored to serve as the first director of this new consumer bureau. i am energized and inspired by the many talented people who worked at the cfpb, and and driven by our 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 for many years. student loans give young people with talent and ambition access to education. credit cards give us immediate and convenient access to money when we need it. these products enable people to achieve their dreams. but as we have all seen in recent years, they can also create dangers and pitfalls if they are misused or not properly understood. during my years in state and local government, and became deeply engaged in consumer finance issues. i saw good people struggling with that they could not afford. sometimes those people had made bad decisions they came to regret. sometimes an unexpected event like a love the one getting sick or a family member losing a job overwhelmed their most careful planning.

other times, i saw unscrupulous businesses who obscured the terms of loans or engage in outright fraud, causing substantial harm to unsuspecting consumers, ruining their lives and devastating their communities. i am certain that each of you hears every day from your friends, your neighbors, constituents in your district who have these kinds of stories to tell. these people do not want or expect any special favors. they just ask for a fair shake and a chance to get back on track toward the american dream. one of our primary objectives at the bureau is to ensure the costs and risks of these financial products are made clear. people can make their own decisions. nobody can or should try to do that for them. it is good for businesses to give them all the information

they need to make informed decisions. it is good for honest businesses. it is good for the overall economy. another objective is making sure that banks receipt the evenhanded oversight necessary to promote a fair and open marketplace. our supervisors are going on site to examine they -- examine their books, and ask tough questions, and thinks the problems we uncover. we have the ability to make sure this is true across all the essential products and services. the consumer bureau will make clear that by late in the law has consequences. there are field examiners and highly skilled researchers. we have multiple channels to know the facts about what is happening in the marketplace. we plan to use all the tools available to us to make sure everyone respects and follows the rules of the road. where we can cooperate with financial institutions to do that, we will. we will not hesitate to use

enforcement actions to right a wrong. we need to hear directly from the consumers we protect and the businesses that serve them. we do this on our web site, where consumers are able to tell us their personal stories. we also make it a point to get out of washington and hear from people first hand. we have held town hall meetings in cleveland and new york city and we have held a field hearing in birmingham, alabama. we are hearing from thousands of americans about what works and what does not. we hope many of you will join us at these events when we come to your communities. accomplishing our mission will take time. we are already taking important steps to improve the lives of consumers. thank you. i looked over to your questions. >> thank you, director. you probably heard ranking

member frank talk about abusive as being a new term. he said it was defined in the act. there has been a lot of focus on both sides on what is abusive and how that would be determined by your agency and by the lender, how they would know whether it was abusive or not. i am looking at the definition of abusive. one of the things says, "takes on reasonable advantage of a lack of understanding on the part of the consumer." whether they understood something or not, would that not depend on their ability to think and understand and reason?

to a certain extent, would that be based on their common sense or iq? >> that prong of the abusive definition is situational and objective. some of the prongs of the definition that congress enacted are more firm and some are a bit less firm. we have been trying to puzzle through exactly how that straight forward and definition of the tar and that is in the law -- it is law that -- definitions of the law -- it is a law that must be enforced. we are trying to assess it as we go. >> you would almost have to go situation by situation, wouldn't you?

>> with some prongs, that might be true. >> that might be a problem for an institution or a lender. some agreements, depending on the ability of the consumer to understand, a focus on the agreement could determine whether it is abusive or not. for instance, under the definition and under the law, 8 financial institutions could be liable any time a consumer -- a financial institution could be liable in time a consumer does not understand the terms. >> not necessarily. it is taking advantage of the institution -- of the consumer. >> of their lack of understanding. >> institutions should be thinking if they are taking advantage of the consumer. if so, you should hesitate and think again and be careful that you are treating your customers

clearly. it is something good businesses think about every day. there was an article in american banker that talked about an interview with you in which you indicated you did not anticipate the agency writing a rule around -- you were asking a follow-up question about whether your statement meant that people would have to look at your actions as a model for how the new term of abuse is defined. you were reported to have responded, i think that is probably right. is that a correct reporting of your response? >> it was.

>> does that mean you are going to use your enforcement authority rather than rulemaking authority to set the standard on what is abusive? >> it meant several things. for us to define what abusive means feels a little presumptive given that congress defines what abuse it means. congress gives us the law that binds us. we do not make up that law ourselves. we have to supervise institutions. there is some guidance that we have provided around that set of terms, unfair or abusive acts or practices. our report is available on our web site. institutions have every opportunity to look at that and ask questions about anything that is on clear to them. i think how the law that congress has defined apply in particular situations.

we will have to measure it on a tax and circumstances basis as we go. congress defies it and it is our job to try to apply it. >> you are a acknowledging some difficulty in being able to write a rule and tell institutions when they may or may not be violating the law. >> i do not think that is the preferred approach when congress has defied a term already. are we going to define it differently from how congress defined it? i do not think so. i think we should take some time which it rather than pontificate about it at the beginning. that is what we are going to try to do. we are trying to be careful, measured, and possible. -- thoughtful.

that means you do not have all the answers in the first instance. that is where we are. >> thank you. ms. waters? >> thank you. there are new mortgaging standards that addressed this issue. third-party provider oversight. loss mitigation requirement. however, the settlement only covers five of our major mortgage servicers. the servicing standard will only be in place for the length of the settlement, which is three years. you have a lot on your plate. do you have any plans to develop permanent servicing standards that cover the entire servicing industry? if so, will cfpb use the standards in the state federal settlement as a template?

>> thank you for the question. it is a timely question. we do have the intention to develop servicing standards that would apply across the entire industry. as you noted, the servicing settlement was a partial step, a partial -- an important step. it only applies to certain institutions and certain loans and their portfolio. we are working with other federal agencies to develop standards that were true before the service in settlement was reached. it remains true after the settlement was reached. it is no question that the provisions in the settlement, that were worked over carefully, that institutions are going to try to provide broader guidance to the market. there are many servicers that have not been touched by the settlement, that have not been affected in any way. some of them have not been overseen by anyone. we need to bring them under the umbrella so that everyone is playing by the same rules as

quickly as possible. we have certain mortgage servicing rules that we are required to adopt by january. we are working closely with our fellow agencies. we see that as a high priority. i saw mortgage servicing problems in ohio going back to when i was a local treasurer, state treasurer, and state attorney general. i find them to be national in scope. >> thank you. i really appreciate that. i have been following the mortgage servicing consent in a process initiated by the federal reserve board, our largest mortgage servicer. this process allows it servicers to hire their own auditors to investigate their practices in 2009 and 2010. i cannot understand why it would not include the cfpb in

the process. we did not get a really good answer. given the new jurisdiction over servicers, what do you think? you have any desire to be involved in this process? >> we are taking complaint now on our website and in calls from people about mortgage issues. a few of those complaints deal with foreclosure situations and other surfacing issues. i think the congress is well served on any kind of significant initiative like this to exert oversight just as you exert oversight over our efforts and processes. the occ was the first of the federal agencies to step up and document the extensive abuses in the mortgage servicing sector. they issued a report on that that demonstrated the

seriousness and realized it affected the safety and soundness of the institutions. that allow anybody to move forward toward the servicing settlement. we need to make sure all of these other processes are working as well as possible. the consumer bureau had significant authority here to examine institutions, banks and non-bank, to enforce the law going forward and to write rules. we will do that carefully and we are glad to consult with you as we go. >> thank you. i yield back the balance of my time. >> i would like to follow up on the line of questioning that our chairman had. with respect to the term abusive, you said the law was clear in this area. i also heard you say it was situational and subjected. the co-author of dodd-frank,

senator dodd said on the senate floor that i have never claimed that consumer protection is perfect. the word abusive needs to be defined. we are trying to make it better. the language never changed after that. for the record, i would like to say that the call author of the act did not define it too clear. is it clear or is it subjected? is it clearly objective? are those competing our problem in terms? i do not understand your point of view. >> what i am say is that this is not an undefined term in the law. some have said it is an abusive or baby -- or vague. congress has laid out specific prongs. there are criteria people are

supposed to use. >> did you say it was subjected in your testimony a few minutes ago? >> if you look at those prongs, some of them are situation up to the individual consumer. i think that is true. >> can a consumer product be both fair and abusive? >> i think congress has made a judgment. it is not for me to make up terms and go forward. i am is supposed to enforce the law that you have enacted and we intend to do that. >> there is case law surrounding greater statutory specificity with respect to unfair. is the term abusive redundant with unfair?

can you have a fair product that is an abusive product? >> yes. the answer to your question is that congress has put together three different terms in that passage. they talk about unfair, a deceptive, or abusive actual practices. congress seems to indicate there is a distinction among each of those categories. that is not to say there cannot be some overlap. congress has clearly spoken and said, there could be a practice that would not be unfair, but would be abusive. there are lawyers that are arguing back and forth trying to understand the parameters of that. >> in interpreting the term abusive, you said it could be situational. it is situational consumer-

specific, it goes down to the specific consumer? >> i was asked about a particular prong, which was the consumer's understanding. that is situational. >> so a product could be abusive to one individual consumer, but not abusive to another consumer. is this correct? >> the law seems to clearly contemplate that, yes. in other ways, that is not necessarily true. >> if i want to roll out a product, in order to avoid litigation or enforcement action, am i going to see the day where i have to enforce a financial literacy tests on my customers? >> there are good practices that business is engaged in all of the time. if you are offering refinancing

to an elderly customer and you know they may be having difficulty understanding -- >> you said consumer dependent, down to the individual consumer. >> they would not approach certain customers with certain products. >> mr. cordray, just one other quick question. you have said fraud is fraud. you also said there is fraud committed in the marketplace that is not on its face, illegal. it's fraught illegal fraud or the mere fact that you are an-- agency is -- is fraud fraud, or has your agency determined that it does not like the company? >> thank you for asking the question. that is either a misquote or taken out of context.

you can have fraudulent acts and practices that may or may not rise to an actual illegality, depending on whether there is reliance or damage. that is a standard matter for securities laws. our job will be to protect consumers against unfair, deceptive acts and practices. the other definitions remain a matter under debate. >> thank you. that is my time. >> yesterday, i ran in one of the papers that you have a new feature on the cfpb called, "ask us anything."

i believe financial literacy is something i care deeply about. i believe if people have the best information, they can make the best decisions for their financial lives. can you report on the use of this function and how these questions and form your work going forward. . >> thank you, congresswoman. it is something we think we will build on going forward. as we prepared the bureau to recede and to handle consumer steve and handle -- receive and handle consumer complaints in the credit card area and the mortgage area and other areas as well, we developed training materials for our folks that would be receiving those complaints to be able to address different questions and to be

knowledgeable about the products they would be talking about. it occurred to us that rather than limit that information to our employees, if we could put it out on our web site and make it more available to the public at large, they can answer a lot of questions for themselves. they can get that information when it is most pertinent and convenience for them. we will continue to build on this. people can ask questions that they would like to have us answer. they can offer their thoughts about the answers we are providing to the questions that are raised. we expect we will build this out across the whole range of products and services. we hope to become a trusted resources for people out in the marketplace who need to know more and are not sure where to get it. sometimes they go to websites of people who are trying to sell them a product and the information may be distorted. we do not have any of that.

we hope to promote this. we would be glad if he would promote it among your constituents. it is intended to help consumers so they can protect themselves. >> director cordray, most of us receive quite a few complaints from our constituents about student loans. it has recently been reported that student loan debt reached $1 trillion. that is-and credit card debt. i know you have release -- that is higher than credit card debt. what steps are you taking to further educate students and parents about the merits and drawbacks of the various options they have in student loans? are you including the deferred interest and all of these other aspects? >> those are good questions.

this is a subject of growing importance to a number of americans and it should be to the country as a whole. the population we are talking about here are young people who have the ability to make something of themselves. they are the kinds of young people we would like to see rise toward success in our society. they are held back only by lacking the means. they need to be able to finance an education. this becomes an enormous decision or a student and their family. if they are not on the right financial track, they will not be able to achieve what they want to achieve. we will be deprived of their talent in our society. it is one of the few big decisions people make in the course of their lives that have vast repercussions. we have the financial a shopping sheet because we want to make the prices, risks, and

comparisons clear to young people and their families. they have not done it before. they may have done it once but did not get it done right been either. we have a calculator so that people can understand what their rights are. once they are in situations in having significant stood alone debt, they can plan their path forward to getting out from under that debt and three leading that cloud over their future. we are working closely with -- and we leave him -- we leaving -- relieving that cloud under their future. there are incentives for loans to students that they know they will default. that gives them access to the 90% of the federal funds. it is something congress is

looking at. we urge you to look carefully at this and at what the unintended consequence have been. we have many young people, some of you -- some of whom have served their country and they are stumbling because of bad decisions. >> thank you. >> mr. miller for five minutes. >> congress passed an act, which was a significant achievement at its time. it is being jeopardized. we are hearing reports of lenders training their own origination staffs. that was not our intent. there should be independent training. mortgage origination training should be independent. we need to insure that all loans are license and qualified.

do you share my concern about lender training their own personnel. do you plan to include language to address this issue in the cfpb mortgage origination ruled? >> thank you for that question. it is a thought the question. i agree with you that training your own staff -- although i suppose it can be cost- effective -- you can imagine that when you train your own staff, the training may be distorted a bit because of the financial self interest of the organization, which is inconsistent with the congressional intent. i will have my staff get back to you on how we see it and what we plan to do about it. it is a statute that came over to us to enforce. there are a number of questions

about it. the chairman raise a question about transitional licensing, which is another issue for us. we would be glad to look at that. >> you plan on addressing it in quick fashion? >> i will have my staff come back to you on that. >> is saying -- you say the -- there was a rule and to protect consumers from unscrupulous lending practice. we think the provisions went too far. while intended to prevent -- mortgage originators are only offering loans with the closing costs rolled into the loan. consumers have the ability to pay their closing costs a matter how the mortgage company pays their employees.

a mortgage originator tries to -- my bill would allow the mortgage originators to reduce their compensation. this provision is tailored to protect borrowers from bad actors. my concern is that if there is a discrepancy in closing, the originator can not modify their compensation to the benefit of the buyer. can you please tell us how you plan on addressing that? >> i want to be careful in my response to that. that is an open and pending rule-making for us. we were given the mortgage loan originator compensation rule that the federal reserve

enacted and finalized last year. we were given authority under the law and were required to do some work in that area by january of this coming year. this is an issue we are looking at. there are other issues we are looking at, perhaps the unintended effects, the pension arrangements and compensation, especially as some of the smaller institutions. we have comments that we are digesting. we would be glad to speak further with you. i am not sure how much i should say publicly. >> in a situation where you are getting ready to close and you have restating your costs, you will does not allow any leeway at all in that. you have had a situation where everybody sits around a table and says, this type of reduction. many times, the originator will make allowances rather than lose the closing.

now they cannot do that. there are some bad actors out there that would raise costs at closing. my bill does not allow for that. to modify the closing and let the person role those costs into their lawn rather than paying up front, it is not impacting the m&a negative way, it is something you really need to look at -- impacting them in a negative way, it is something you need to look at. >> i hear you and we will take that back. i appreciate that. >> director, in the small business community, we have 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 given to us under the law has to do with consumer and natural products and services. it is defined in the law to only affect matters involving household credit used for personal purposes. it is a broader array of products, mortgages, credit cards, some loans, payday loans. it goes on into credit reporting and debt settlement. contrary to views about the breast of our authority, we do not have the authority-- the

breadth of our authority, we do not have authority over commercial transactions. i would reiterate that that is what our low the one that our law is. that is not with an hour per view. -- purview. >> some fear that the law would be extended to businesses that were not previously subject to a federal regulator. should small businesses that previously did not offer consumer financial products be concerned about a new layer of regulation? >> if a business does not offer consumer financial products or services, they would not be service -- subject to our oversight. if they do, they would. money service companies previously were not subject to federal oversight. arguably, there were some laws

that may have applied to them. they are now subject to oversight by us. this is a big shift that the law represents. you have banks and credit unions competing against non- chartered. we want to make sure they are held to the same standards and principles. that is the big part of our job. it is a big challenge for us to do it. we are working hard to do it as we go over the first few years of our existence. >> the federal regulators have retained enforcement powers for the overwhelming majority of banks. if there is a -- there is a risk that this will weaken

protections for consumers or lead to confusion for financial institutions. >> i do not know that there should be confusion. for the majority of banks, they remain subject to the same regulators they have always had. for the 110th largest institutions, with assets over $10 billion, they will be overseen by us for safety and soundness purposes. there is some overlap there. it behooves us to collaborate with our federal agencies to make sure we are on the right page, make sure we are consulting carefully and getting their perspective as we act and give them whatever perspective we may be developing. that is something we are working toward with my fellow heads of the agencies and among the staff.

>> i am the ranking member of the small business committee. it is frustrating for me that time and time again when we have community banks coming before the committee to discuss why it is difficult for them to continue to lend to small businesses, they are saying it is because of the dodd-frank regulations. if they knelt beside will not have any direct impact of those community -- if they understood there will not be any direct impact on those community institutions -- >> our regulations will affect them. i have said time and again in front of this and other panels that we need to think carefully about what the effect our regulations will be on small institutions.

that is why we are utilizing the panels to make sure small providers have the authority to inform us about their concerns and their operations and how they work. that is something we are taking seriously. we have a couple more of those panels at work. we are listening carefully to them. i am created an advisory council so that their perspective does not get lost in the shuffle. it is important for us. we need them to be able to lend to small businesses because they create the vast majority of jobs in this country. encouraging recent economic news seems connected to the fact that small businesses are being created at a smaller -- a faster pace. that is a good thing for us. >> i will recognize myself for five minutes for questioning. in your report you talk about streamlining regulations and

the law is to address outdated and unnecessary and burdensome regulations. the president talked about this in his state of the union and now he wants to eliminate older and antiquated regulations. my question is, what steps are you taking to eliminate these overburdened some or and that it -- repetitive regulations? can you give me some specific examples. i do not want to hear about the one page mortgage. the last time i answered -- asked a question, i got a three minute answer on the one-page mortgage. not from you. the treasury secretary pointed to the cfpb as one way to eliminate these regulations. >> i have been known to give long answers.

one of the things we were praised for is that we have launched an initiative on streamlining the regulations we have inherited from other agencies. we did not write those rules. they were adopted by different agencies at different times for different purposes. there is often not a lot of careful thought about the aggregate impact of those. we have had a request for information outstanding for a couple months now asking anyone to bring us their ideas about how we can streamline regulations and show we are a different sort of agency. in the consumer wrong, there is room to do this because there has been aimed -- in the

consumer realm, there is a mania to do this. consumers were getting very little value from them. we think we can cut that back substantially. this is something we can take seriously. we will be digesting the comments and we hope to walk the talk. >> i would like to follow up with you on that as time moves on. you have had to divert your resources from a compliance officer or an attorney to keep up with the majority of radiations, the new and the old as well. -- majority of regulations, the new and the old as well. the federal reserve initially proposed be qualified mortgage rule before it was transferred to the cfpb. it offered alternative proposals. we have had a lot of discussion

about this. one would give safe harbor and one would have a rebuttable presumption. which one would you recommend? >> i want to give -- be careful at how i answer this question. it is a pending rule-making. we have been getting comments from consumer groups and our fellow agencies. it was it said that propose the rule and it came over to us to finalize. providing guard rails are around lenders, paying attention to the bar were -- borrower's ability to pay. but we have done as we have been working on this is that you can have a definition of safe harbor or a rebuttable presumption.

if you leave the standards mushy, you can still litigate over the qualifications to get into the safe harbor. we tried to create a bright line so there would not be a lot of litigation. we do not want this to go into the courts and for people not to be sure for years to come. we want to get this right. this intersects with the qualified mortgage rule that other agencies are going to be adopting. we are taking a lot of input from all lots of groups who have competing, but converging perspectives on some of these issues. >> i would urge caution in this area. to get the economy moving again, we have to get this right. we have to get first-time home

buyers into the market. we have to get people able to move in order to get our economy moving again. i would like to follow up with the one that. i wanted to ask you about the complaint line. i will say that for another day. our next person is mr. miller. >> thank you, madam chair. i have been puzzled by the complaints about the use of subjected to arms and statutes and where that will lead. my knowledge is that subjective terms are used throughout the law to reach -- so that the law applies differently in different circumstances. that is seen as a strength of our legal system. there was a 17th century english judge who wrote -- this is probably not exactly close -- there shall be no sixth definition of fraud so that men will not contrive ways to ebay

it. clarity can lead to inflexibility. there needs to be some subjective standards to reach new circumstances. a reasonable man -- the idea that reasonableness is a new theme snatched out of the air to apply to the law. that is curious. it is not the clearest standard. it depends on the circumstance. mr. cordray, do you think you will have any difficulty applying standards of unfair, unreasonable or abusive -- >> there is a gray area and

there is a core. the people who are perpetrating acts within the cre -no- the core now they are perpetrating acts that are wrong. -- the core know they are perpetrating acts that are wrong. they do it anyway. the main outlines of how people mystery their customers are pretty well defined. when they see that that is happening or they see that is likely happening, they should be hesitating. they should be rethinking. that is entirely appropriate.

>> you have enforcement powers and you have regulatory powers. in the gray areas, would use proceeds to enforcement, or would you turn to rule-making so that everyone would know what the rules were? >> there could be situations where we might do either. but i also think there is enough misconduct that occurs in the core areas that we would be well served to focus on that in the first period of our bureau. then we can work on trying to define around the edges more clearly. >> there have been concerns today and in the past about whether your rules -- the prohibitions on unfair and

deceptive and abusive practice -- would affect financial institutions. there was a proposal that included a requirement that a plain vanilla product be offered side-by-side with any other product offered by a financial institutions. that was shot down. there was a sentence or two place in the law that there is no requirement to offer at any given financial product. it has only been your authority to prohibit unfair products. you are not requiring a financial institution to offer a product. >> one of the mandates in the lot is that we are supposed to promote innovations, which means whether 1000 flowers

bloom, if they are not beyond the pale of exploiting our treating their customers unfair labor being deceptive, we want there to be innovations and there is competition in the financial sector. there will be times when a choice is better for consumers. there will be times in the mortgage market where there are a lot of exotic products being offered to customers where they were a poor thick and the default rate showed that quickly. it is something that we are going to have to think carefully about as we go. in general, we want to encourage innovation. we want to encourage competition. we want it to be competition that respects the consumer. >> the gentleman's time has

expired. >> thank you madam chair. good to see you again, mr. cordray. you told the chairman earlier today that you promise to be accountable and answerable to congress. you are here to work with congress. some of the people in your agency have not gotten the memo yet. i have heard cases -- this is from another office, not mine. they have no neary -- no need to fear retribution. cfpb states it does not have to respond to them because it reports directly to the fed. that was the second day of this month. i pursued that further when i saw it.

i found a litany of unreturned phone calls and messages. maybe there are some people who need to be briefed on your philosophy in the agency. >> i am not following your question. are you talking about a financial institutions that deals they could not get answers from our end -- our agency? >> congressional offices. members of congress. >> that is different from what i have heard. my staff would be happy to take up any situations that need to be attended to better. i have heard comments from both sides of the aisle on how we are handling consumer complaints. we are beginning to see all lots of post-mortem is from consumers that are pleased. >> i don't want to run out of time. >> i am sure it is a mixed bag.

>> i am sure it is. there is something called to the dictum's relief fund. our agency hangs onto the -- the victim's relief fund. there is no requirement that i can see that the penalty must be paid to the victims of a specific wrongdoing from which the penalty was collected. what happens to the money if the victim cannot be located or if there is more money collected then there is due compensation? are you able to keep the money and call me late with other agency funds? >> this is something -- and comingle it with other agency funds? >> this is something we have been looking at. if there is a penalty assessed,

that does not apply to compensation. if we can compensate dictums, that is our first priority. not, the law -- compensate victims. beyond that, we are trying to be mindful of carrying out the law as congress enacted it and that is what it seems to say to us. >> would you anticipate being involved in stipulate its settlements? >> you mean settlements -- which you be involved in stipulated settlements? >> that is something that would come to private litigators. >> you do not anticipate that

money would be transparent and it would go to pick them -- victims or education. >> when we all right -- arrive at a settlement, we would create a consent decree. the nature of that document is that the court will specify in a court order how many funds are to be allocated and how they are to be used. that create a binding law we have to follow. that is what i would expect would typically be the case in our matters that do not go to final judgment in a court. >> that is what i wanted to hear. i yield back. >> mr. scott for five minutes. >> thanks, madam chairman.

mr. cordray, how long have you been on the job? >> i have been on the job for three months - five days. -- minus five days. >> what areas have raised the greatest number of complaints or concerns if you had to prioritize on where there is the greatest area of problems and abusive practices in carrying out your mission. what would that be. would it be more disservice is or student loans or credit cards? >> it is hard to determine trends because it has been a short time. we have been -- been reseeding complaint in stages.

the pace of complaints have been fast is in the mortgage area, especially around foreclosures and the frustration people feel. the pattern of complaints we are receiving mirrors the complaints each of your offices receipt from your constituents. we also receive a lot of complaint around credit cards, typically for small dollar issues. it is still frustrating for people. we have begun receiving complaints about student loans. we expect we will have a significant volume of those and others. >> i am glad you volunteer -- volunteered that answer. priority on complaints have been in the mortgage area. it put emphasis on dealing with the more its service area. i commend you on that.

let me ask you how your bureau response to developments that happened that may be outside and impact the mortgage area. for example, during this time, a few months ago, there was a settlement made. billions and billions of dollars. apportions to the states and designed to go back and help struggling homeowners with their mortgages. one of the major areas of concern is difficulty with mortgage holders and having the ability to write down the principle. we have been after that for a long time.

the secretary of treasury was asked about that. could that money be used to assist homeowners in their great this area of need in terms of lowering the cost of their monthly payment and writing down the principle. he said yes. you are aware of this? >> yes. >> how are you getting this information out to mortgage holders who are confused and do not understand? are you working to understand to get out to each of the states, the communities, how the mortgage holders who are struggling can take advantage of this? my state of georgia's share in this is $850 million. one of the concerns we have had is that the governor of georgia has decided that $110 million of this would not be used. the funds would be diverted, would not go to the struggling

home owners. it seems like something like this, where you are talking about consumer protection, there are areas where you guys should weigh in. what has been your response? 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 help these people say their homes? these states cannot use this money for a rainy day fund, or wherever. that is a problem. how are you helping us with that? >> in the mortgage servicing the settlement was organized around a settlement that there was significant money allocated on a state-by-state basis and the attorneys general would have significant say on whether that was used for homeowner

counseling or raising - razing abandoned -- razing houses in the city. there is also money that will go to homeowner really. principal writedowns are one tool in the toolbox of addressing an upside-down mortgage situation. >> my time is short. tell us right quick what your bureau is doing to get this idle information out to the consumer? >> do this quickly because i would like to get one more question in. >> we helped publicize what is available to homeowners. the lion's share is falling on the backs of the state attorneys general and justice

and treasury departments. >> my intention is to put us on recess. we have two votes. >> mr. cordray, in reading your report, i noticed that the positions you are killing had a breakdown of the groups you were hiring -- filling had a breakdown of groups you were hiring and it had a breakdown of their experience. are you hiring people who know the unintended consequences of a rule or law proposed by you and how it all fits together? >> it is a good question. it would be a poor performance

by me if the answer to the question was, no, we are not. we have people coming to the bureau will have not come from other federal agencies or state government or not from the public sector, but from private sector entities, often from banks or other financial institutions. >> you have a number off of the top of your head percentage wise. >> it is many. >> could i get that number? >> the deputy of the bureau has intimate knowledge and he has that kind of background. >> with regard to that, i know there is a movement. folks are trying to have the chief executive also -- officer

they are trying to recommend new of for position with your agency. are you considering that at all? >> that is news to me. >> the reason i ask is he has been outspoken with regards to his opinion to oversight with regards to the financial services industry. in 2010, at duke university, he said we have hired 50 lawyers and ph.d. is to basically terrorized the financial- services industry. that gives me great pause when someone like that is being recommended to your agency, if they have the attitude going in that they are there to terrorize the industry they have oversight over. what is your reaction to that? >> i don't have any particular reaction. and not familiar with that. >> does that sound like somebody would be interested in hiring?

>> with everyone we think about hiring, we want a range of viewpoints. a responseng for will come a balanced perspectives and whether we hire someone or not and again, this situation that you raises news to me, we are getting input on a broad base from people with different perspectives, some of whom dislike the banks, some of what the banks, and we want to get all of that perspective and filter that in. >> youth said in your opening testimony that everybody needs even-handed oversight. if you are true to your words, i think they would have difficulty being employed with your agency. >> i think the premise of the question is mistaken. >> you have rulemaking authority as well as enforcement

authority. do you do any cost-benefit analysis under the rules you propose? >> we make strenuous efforts as our statute tells us to assess the benefits, costs, and impact of each and every rule we would consider adopting. >> it is that information public? >> it is part of every rule making and it is a typically published as part of the rulemaking. i think there is nothing hidden about it and it's something the courts will review carefully when they look at the finished product i asked. not only do we have every reason to do it carefully, but it makes common sense. >> this is a rule of thumb -- when you propose a rule of and did a cost-benefit analysis showing it is going to cost 10

times more than it will return, is that something