issue or something you don't think is worth pursuing? >> that would be of concern to me, yes. >> i noticed in your statement you say you hear from thousands of americans about what works and what doesn't work. what is working in what is not from the things you are hearing from? >> there are a lot of americans who still feel they have trouble making their voices heard when they're on the other side of the table or when the transition doesn't work out and they are dealing with the debt collector or someone on the road. i'm sure it's not anything different from what you hear every day from your constituents who are at their wits' end and coping with situations where they would just like to know someone is on their side helping them. >> i appreciate your testimony. >> the committee will stand in researchers -- will stand in recess. thank you for your patience.

[captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2012] >> in the interest of everyone who is here, we're going to start. mr. green for five minutes. >> thank you. mr. director, thank you for being here. i would like to visit with you quickly on several issues.

i would like to start with the small banks and credit unions. as i indicated, i have been meeting with them and they have expressed some concerns and i would like to give you the opportunity to share some of the outreach efforts you have in place to allay some of their concerns. >> thank you. that is something i have indicated is the point of emphasis for the bureau. this goes back to my personal background. i served as the elected state treasurer of ohio and attorney general. i worked with smaller banks because we have a lending program we made available and the number of them participated in that. we created a community bankers council that advised me about all aspects of work we were

doing at the treasury. when i became attorney general, i did that and had a bankers advisory council on the issues we touched on in the attorney general's office. we are going to have a community bank advisory council and a credit union advisory council. we met earlier this week to work out how we will select members for that. they will have very direct input to me. we are required by law in a number of our role makings that gives small providers and banks to pepper tree to give us rule proposals and how that would impact our decisions and whether there should be adjustments

made. that's something we will consider with each of our proposals. the international transfers of money people engage in and we issued a supplemental proposal to consider the institutions that don't do these transactions as a regular matter that should be exempt or on a relaxed footing with some of their requirements. >> with reference to our service members, i see you have the office of service member affairs. i'm interested to hear what you have to say about this. i'm amazed at how important this has become. could you share a few thoughts with us and i have one more question for you. >> is of increasing importance to our country because we have a

new crop of veterans who will be returning from active duty and many of whom were activated from national guard status and making sure they were protected both during their active duty and make sure they have special provisions in the law for them. a lot of emphasis now on hiring veterans but similarly we want to protect them because they have benefits coming under the gi bill. when you have money coming, there are people who have different ideas for you and many are not in your own self interest. i have been very impressed both as a colleague of mine and as i work with holly petraeus, she spends a lot of time visiting military bases and bringing back

the insights she gleans from those trips about the needs. whether they are in the narrow jurisdiction of the bureau or whether it is working in the department of defense or others, there is much she is getting done. we want to protect service members every way we can because it feels like the appropriate way to repay those who have sacrificed so much for the liberties of the rest of us. >> my district is quite diverse. the ballot is printed in four different languages. i'd like to know what you are doing in terms of language translation to make sure we are communicating with all persons in the country, lawfully i might

add. >> that is fascinating. at the bureau, the most direct way we hear from people was on the consumer complete line. this is very important to us. we are able to field inquiries in 187 language which pretty much covers the waterfront as best we can tell. we don't want anyone to be blocked from treating -- being treated fairly as a consumer. we also know that many communities where there is a language barrier, there can be a scheme because there is an assumption they will not pursue law-enforcement remedies or complain to the government and they will just take their lumps. we want those communities to be

as protected as the majority community and if that means breaking down language barriers to do that, we feel like it is appropriate. >> i want to welcome a fellow buckeye. i'm sure saturday night we agree on which team shall be winning. i have heard serious concerns about the policy under which one or more enforcement attorneys -- some have pointed out that none of the banking agencies have done this and having a enforcement attorneys has a chilling effect on the examination process. i'm afraid the practice is intimidating and does not foster the openness that should characterize the relationship.

indeed, it feeds the institutional fear that the main purpose or object is to obtain documents that could later be used to launch an enforcement action. are you concerned about this or the institutions perception? >> i have had discussions with the number of bank ceos about this and i make a point -- i am frequently calling through the districts to make sure they know there is an open line of communication and i have taken pains to explain we're trying to integrate our supervision teams. we want the supervision teams to understand where enforcement works and why and how and we want the supervision team to understand how enforcement works. how that might be a preferable way to address and resolve problems.

it was new to me coming from an attorney general's office. i have indicated is not an attempt to create some sort of macho message we're sending. we do not have regional councils, as of this is a way to ensure our teams have proper support. people should not read any message into this and none is intended. >> according to some reports, you could confirm enforcement staff has 100 attorneys. this is striking since there is no 150 year track record of supervision and regulation on which to judge its reasonably anticipated needs. will and forced to be a principal or --

>> i don't think that is accurate that we have 100 and for some attorneys at the moment. what people need to keep in mind is we're supposed to enforce the law not only against the banks, but a very significant, densely populated non-bank realm as well and we're going to need enforcement attorneys to address that. we're talking about debt collection, mortgage issues and brokers and a lot of areas where people have a lot of dissatisfaction. we need to make sure the laws are being respected and followed and enforced. i think our emphasis is that enforcement is one of a number of tools, of which are essential to doing the job well. given the fact we're dealing

with banks and nonbanks and no federal oversight of nonbanks has previously existed, this is appropriate. we will continue to calibrate that as we go. we're learning every month, as you can imagine. >> based on a consumer's testimony -- its apparent there exists a growing need for short- term credit options. i believe it is critical we identify and address the small number of lenders to operate illegally, whether they are insured the procedures or nonbanks. my concern is overregulation of the vast majority of banks and non-bank lenders will limit innovative products and access consumers need to short-term credit. can you provide assurance that will be the case? >> that is an issue we think a lot about at the bureau.

we had our first hearing on short-term, low dollar loans and we recognize it's an area where consumers have a real demand. we are concerned that they need to help consumers rather than harm them. there are some banks that are competing and we need to see robust competition for consumers to have short-term needs and many do, no question about it. not everybody has an average family member who is there to provide $700 when they need it. we want to foster competition in that area and we're thinking carefully about because there are predatory products and we want to encourage the could products and discourage the bad products. >> mr. sherman for five minutes. >> thank you.

in a world of the darkness of the filibuster, the recess appointment offers one clever of light. if a series of pro forma sessions constitute real sessions of the senate, and cartoons are real people. i welcome you to this committee. i have one long question dealing with mortgage finance and a whole bunch of questions that are probably so numerous that she will probably just want to respond in the record straight the bureau is working on the ability to pay qualified mortgage valuations and this will shape the future of the mortgage market and people's ability to buy homes. congress created this ability to ensure creditors for determining the ability of the consumer to pay the loan.

however, we heard from consumer groups and in the street and others that the bureau's current thinking might give us a regulation that is so stringent that it could reduce access to mortgage credit for what is already a tight mortgage lending environment. i would like your comment on this qualified mortgage will, specifically whether you intended to be a broader measure based on the ability to pay or a narrow measure that might the not a credit or the buyer access to credit. you have indicated a desire to finish the rule by the middle of this year. when finalized, will it require lenders to determine the borrower has a reasonable ability to pay?

under dodd-frank, they can offer a safer and more sustainable product and how will that definition relate to the rules you are putting together? >> that is a long question but i have long answers so they may not match up. as i said earlier, it is pending rulemaking. there was the proposed rule the federal reserve put out and it is now falling to just to finalize the rule. we are consulting with other agencies and we've received extensive and put on the other rule from industry groups and people across the spectrum, all of whom are interested in the mortgage and real-estate markets and we all feel the same way.

we want to see it come back to life and vibrancy. it is going to be important to the economic recovery. we are trying to be careful about it. we're looking at the alternatives the federal reserve board proposed. we are considering how to give effect to the language of the statute. insuring access to credit in the market broadly is important to us. one of the difficulties is it's not so easy to predict the past four of the mortgage market. we had a very overheated mortgage market leading up to the financial crisis. there were a lot of lenders making loans without considering the ability to repay and

completely ignoring that. they were able to sell those loans on a secondary market. >> i have to interrupt you at this point. i have a number of questions for the record. one of them will relate to atm disclosures which have to be a physical disclosure on the machine as well as a screen that pops up as your operating it. what has come to my attention is people will rip-off of the external physical disclosure and somebody will sue for the fact that it is not on the machine. now that we have a more technological world in which every machine also has the screen warning which is far more noticeable and important, one would hope he would write regulations so you did not have to have the physical one or you had to have the physical one when you install the machine but

are responsible for the fact that someone comes by and rips off and coincidentally someone comes by and sees you. that will be one of my questions for the record. others will relate to whether to establish an office of regulatory burden monitoring. whether to have community banks involved on your consumer advisory board. the fact that you have a 400 page regulation on remittances. and we would hope that at least for credit unions you would be able to put out something more streamlined. i will ask you when we expect a larger market participants rolled to beef formalized and we will get those all submitted as questions. >> i am trying to squeeze it in. >> i would like the director to

return to the quote that i mentioned earlier in the hearing. sheila bear paws observation that banking agency assessment risks to consumers are closely linked and informed by a broader understanding of risks in other financial institutions, placing them in a separate organization apart from existing expertise and examination of infrastructure, which could ultimately result in less effective protection for consumers. i will ask you if you agree in concept with her concern. >> i have not heard that " before. it sounded curious. the fdic has reorganized their own staff to separate consumer protection staff from other staff so that they can make sure they have a more direct focus on

the same issues. >> remember, the " is a separate organization. that is your point? >> yes. the two issues go hand in hand. i do not think even have a safe and sound financial institution that is not treating its customers in a sustainable basis for long-term. if they are eating their customer base by exploiting them in the long run, the kinds of things that have consumer protection concerns, they will not be a safe and sound institution in the long run. there is much more harmony in this concept and people recognize. i would agree with you, collaborating closely with fellow regulators to make sure that we are not inadvertently -- we certainly do not in it -- do not intend to inadvertently undermine anything about a safe and sound financial system, which would disturb consumers.

>> however, since we lost the argument for inclusion in one organization, or in one entity for these functions, as the chief pointed out, you could share the information and have a broader understanding of risks and financial institutions in terms of your decision making, would you agree that the authors of this bill went to great lengths during deliberations to make sure that you were not required to consider safety and soundness? >> i am not sure that i would agree with that. under the new law, i sit on the financial stability oversight council. they have the ability to override our rules, they should want to take that into account

as they write rules, seeking out to hear their perspective and have that inform us. >> with a supermajority vote, i would point out that perhaps the reason i am focused on that issue of not commit -- considering safety and soundness is because i tried, during the markups, during dodd frank, to have that included, and failed in that endeavor. let me go to another concern that i have here. it has to do with the cfdb having the authority to rule that state laws are inconsistent with federal authority safety laws. what standard will they use when exercising this authority? if little is done in terms of keeping the states and the same

page, we could end up with a patchwork of varying consumer protection laws. would you agree that that would be bad for consumers and businesses? >> we have had a patchwork of consumer protection laws in this country for decades. another term for that is federalism. >> maybe articles of confederation would be a term for it. there are exceptions, like in the insurance industry, where we have 50 different sets of rules, regulators, and several markets. the consequence of lost to consumers for the results, the real reason we gave up on the articles of confederation and tried to go to one national market was to avoid just such a comeuppance. that was what was so costly before the federal system. we were going to have at least one national market, though that

is not where we ended up. in though you might work in the other direction to create one, nationally. >> should i respond to the congressman? one of the things we are supposed to do is ensure coordinated enforcement of the federal law here. dodd frank was unusual in its allowance of enforcement of the federal law. we want to make sure that we are not going in 50 different directions. we are inclined to be respectful of the states, as we have situations, if they come to your attention, and we would be interested in hearing concerns in that regard. >> five minutes. >> thank you. what would be your personal motto here?

>> good to get direction from down there. what would be your personal definition of fair? f a i r? >> i do not know that my personal definition is relevant. unfair is a defining term in the law. my job as the director of this bureau is to enforce the law that congress has enacted. therefore we will apply the terms the congress has enacted. i think it is likely that you, i, and most people would have salient comments of the consensus view of what is fair and unfair. there were probably be a significant number of circumstances in which we all agree. there are areas in which we, as a bureau, need to be careful.

>> what is the definition of fair that you are going by? >> it is the definition in the dodd franc at. it builds on years of case law and interpretation by the federal trade commission. i do not have it in front of me, but this is a defined term. the term is defined on the basis of decades of case law that have been very carefully worked out. this is not an area of controversy for financial institutions. their concern that they have expressed is that we not deviate from some unexpected direction, which we do not mean to do. >> do you have a definition of personal responsibility? >> that is not a defined term

under the law. i could give you my own view of it. and i will. i think that consumers have a responsibility to make their own decisions and be responsible and accountable for their own decisions. they are the ones that have to live with them. i think that there is much that we can do is a bureau and the country to make sure that consumers are better informed about the choices they may be making. we have a responsibility to make those choices more accessible to consumers that they are not confused by pricing and fine print the does not specify terms clearly. >> you are admitting that there is some personal responsibility involved when people make financial decisions and that there are certain consequences to those decisions, correct?

>> i would acknowledge that, absolutely. >> do you or the consumer finance protection board, do you all ever recommend products, pushing a certain product for someone? such as a 30-year loan as opposed to an arm. do you promote those kinds of things? or is that a personal decision? >> i do not think that as a bureau it is our role to promote a particular products. that is not what we're doing. but it is the role to enforce and implement the law. congress has made judgments here about some of the exotic mortgage products, for example, which led to the mortgage crisis and financial meltdown, the credit crunch that destroyed many businesses in this country. we will implement those decisions.

to the extent we have judgments to make, we will try to make them very carefully. >> but you are not trying to go to a plain vanilla everything same type loan? >> we are not trying to mandate products for individuals. if people are presented with an array of choices that are responsible choices that are clearly explained, ultimately they have to make their own decisions. >> do you think that it enters into the fact that i think that your report was disappointing to say the least? does that have anything to do with their not being any accountability to congress as far as funding is concerned? >> we have more accountability than any of the other banking agencies. they are all independent. i do not hear a strong move to

take the money from the process in the federal reserve, which has a federal cap, we are subject to oversight by congress and i welcome your active oversight. if there is anything you were concerned about, i would be happy to have my staff work with you in terms of how we could do better. >> the gentleman's time has expired. >> thank you, madam chair. to be clear, i listened to a decent part of the hearing, but not all of it. it is fair to say that the rules apply to big banks and also apply to smaller banks as

well, simply implemented by a different regulator. >> they will apply to all banks. that is one of the reasons why i think we should consider carefully applying them differently to smaller banks that do not have armies of compliance officers, who may have different compliance processes and cannot afford to bear some of the same transitional costs. >> the way that it seems today is that the rules will still apply to them and they do not have the resources to hire any compliance officers or attorneys. even though you may not been forcing them, someone else might be enforcing those rules on them. it is fair to say that we have a consumer that is seeking out certain products. you could deem the product fair,

but also abusive as well, correct? >> we were having this discussion earlier. congress used three terms in that passage. it seems to be an indication that congress believed and defined the terms to some degree, that each of them is this thing, although there will be some considerable overlap among them. >> with regard to the term abusive, you believe that the definition as set out is sufficient and there is no further definition the needs to be made? >> it was the find explicitly by congress to enforce and implement the law as enacted by

congress. that is the term and how we define it. i think that if the congress at some point is going to rewrite the law, we will implement whatever law the right. >> to look at the phrase and term abusive, it does give, if you want to call it a definition or a guideline for what abusive is, at one point it takes unreasonable advantage of. do you have a definition of what that means? and how it would be implemented? if you are a small bank in wisconsin, would you go that they're looking at us taking on reasonable advantage? >> it is a common term in the law. reasonable man has been used for centuries to define behavior.

it has been developed as more specific overtime. we had the example earlier of peddling an exotic mortgage product. the bank should take a slightly different approach rather than a sophisticated consumer. >> how can be implemented for the phrase abusive, can you suggest to the director or staff on what that means? >> i think that most could businesses know it when they see it. they know when they are far beyond the line.

>> humans do these tasks differently. if there is no bright line test, what you find abusive others may not find abusive. is that not fair to say? >> what is abusive, and i want to talk about this in terms of a reasonable standards, in addition to product of service, you referenced in the case law a reasonable man. what would a reasonable person know when they engaged? the standards may not be abusive, but the next person's

standard might be used, because of their standards and experience, that could be abusive for the second customer the comes in. how do you comply with this law? >> dealing with each customer, most of the ones that i speak to in the credit unions out the fact that they know their customers, know them well, and that they're dealing with the customer is a situation of the customer. it is not one-size-fits-all. that is part of the strength. there are other problems, such as taking unreasonable of vantage of the fact that the consumer is not able to choose their provider. that is true of debt collectors and others. there is nothing subjective at all about that. some of that definition is what congress laid down. we are required to implement something that may be firmer,

and another thing that may be softer, and that is not surprising. if you override this, we will implement whatever law that you write. >> mr. steiner, five minutes. >> i would like to thank rich for being here. the problem with having such low seniority on the committee is that i do not get a chance to tell my friends and colleagues that have left that rich is one of my constituents. i have known him for years and he is a great public servant that cares deeply about this country. i appreciate his coming to testify before us today. some of us on the side of the aisle are not happy with the process by which you were appointed, but i want to assure my colleagues that the president pick someone who i am sure can carry out this job very well, and do it in the right way in terms of trying to protect

consumers while still looking out for the safety, soundness, and competitiveness of the financial service industry. i would urge you to continue to look out for competitiveness, safety, and soundness, because they are interrelated, and if we put financial service industries out of business in the name of consumer protection, we have not released protected anyone. i appreciate your being here. i had a thought that the gentleman from california, who compared these sessions to court concessions. i'm curious if the gentleman believes that it is a target -- a cartoon tax cut that is passed. i will not give my question answered today, but i would like to turn to more serious business and talk to you about section 1100 andg of dog -- 1100g of got frank, which requires new

regulations that do not lead to further reduction in the availability or affordability for small businesses and consumers. i am just curious what kind of safeguards are in place to make sure that happens. we obviously believe in those protections. and i know that mr. rao royce believes it should be integrated. i know that your work with other regulators to integrate consumer protection into everything, i want to make sure that we keep affordable and available credit for small business consumers. >> thank you, congressman. to go back to a point that you made a moment ago, it does not help to protect consumers if we undermine the safety and soundness of the financial system. consumers depend on the availability of credit to be able to do things like buy homes and access education, manage and control their spending. if the system does not provide

those opportunities to people, then their lives are stultified as a result. i very much agree i and a vibrant financial sector as good for consumers for all the same reasons. lots of availability of choice and the like. one of the things we will try to be mindful of, as you pointed out, we are told that access to credit is one of the chief objectives we are supposed to serve. we will try to be mindful of that as we go about different tasks. one of the tasks the we talk about today is this ability to repay in the mortgage market. there are other rules that we were required to develop. i and the end, if we want a mortgage market where credit is available to people in a reasonable way, in a lead it to the financial crisis, the mortgage market was a market in which credit was available on

some of the most bizarre terms. non-underwritten loans that paid no attention to people's income or ability to repay, or to their assets. it was a very broken market. one of the things that we need to keep in mind is that as a result of that, we had a credit crunch. >> i only have one minute left. you can give me the eight -- the answer on safeguarding the availability in writing, which would be great. >> the bureau appears to be working on a two page prototype credit card agreement, is my understanding. i understand that the definitions bring it in at 4431 words, which tells me in definitional terms house on other pages we are talking about a two page agreement, a one page summary, and somewhere between

two pages to seven pages of definitions with other untold amounts of information tacked on. i am curious that if the goal is to make sure that people understand and read these contracts, why are we not building on the one-page agreement summary that is now available under the truth in lending act? rather than developing a government design contract? >> a good question the we are trying to carefully consider. at this point we are not trying to operate in this area by putting out a single rule that everyone has to follow. we have come up with a prototype agreement and several institutions. we are seeing many other institutions coming out with shorter agreements. " we're moving toward, and there seems to be interest in the industry on this as well, a shorter summary that pulls out th k