you use your authority on a case by case basement isn't that the -- basis. isn't that the definition of regulation by enforcement? mr. cordray: we're doing the very same thing that the federal trade commission does and that the state attorneys general do. it is difficult to know how to do more than case by case when you're talking with cases of fraud. or deceptive conduct. but we attempt to give guidance to the entire market by very specific orders that are issued in these cases, so that everyone knows that if they're doing this, they should stop. if that's called regulation by enforcement, i think it's a strong deterrence and it's important as a law and order mechanism for signaling to other actors. mr. luetkemeyer: the last time you were here, i asked the question, just before we got finished up, with regards to a debt collection company that you wound up settling a situation for $12 million based on a proposed rule. not a rule that's enforced. but a proposed rule. mr. cordray: what matter are we talking about? mr. luetkemeyer: encore. mr. cordray: ok. debt collection. mr. luetkemeyer: and this was based on not a rule that was enforced but it was a proposed rule you thought you made down

the road, have enforced. so that they had a formula that's noncompliance. is that not regulation by enforcement? mr. cordray: i don't think that's what we did in that matter. we did a careful investigation, thorough investigation of the facts. we found that there were violations of either federal debt collection practices act or of the unfair and deceptive prong that were given by congress. and we enforced against that. the notion that because we may issue a rule on debt collection several years down the road or maybe next year, whenever it will be, that in the meantime we can't stop people from engaging in an unfair and deceptive conduct i just don't think is the right approach for us. mr. luetkemeyer: my time's expired. i yield back the balance of my time. mr. hensarling: the gentleman's time has expired. the chair now recognizes the gentleman from texas, mr. hinojosa. mr. hinojosa: thank you very much, chairman hensarling, and ranking member waters. for holding this important hearing. on the cfpb's semiannual report.

director cordray, i want to thank you for your appearance here today and for your exemplary leadership at the consumer financial protection bureau. before i proceed with my questions, i wish to voice my strong support for cfpb and its mission of protecting american consumers. mr. chairman, hensarling, i ask unanimous consent to enter my opening statement into today's record. mr. hensarling: without objection. mr. hinojosa: with that i'll be able to move right into my questions. director cordray, many argue that the bureau issues a payday lending rule in line with the released outline, that if you do that, it will eliminate a crucial source of lending for many low-income people that have no other options. why does the bureau see the need to regulate payday lenders and

why do you believe consumers will be better off with cfpb oversight? mr. cordray: again, we were given authority by congress to address this marketplace among others. in fact, it was specifically called out in the consumer protection act of 2010. the dodd-frank act. we have done extensive research, we've assessed and analyzed millions of transactions. and again, what we found was a significant portion of the customer base, half of the total loans being made, payday loans nationwide, go to customers who are in a sequence of 10 or more loans. that is a debt trap, i don't know what else to call it. it creates tremendous harm for consumers. it's the exact point that was being made earlier, in the ranking member's example of someone taking out x dollars in loans, ening up repaying more in fees than they ever borrowed in the first place and still owing more at the end of all that than they borrowed in the first place. mr. hinojosa: thank you for your

response. i strongly support your efforts to rein in those harmful payday loan practices. in my community we've seen some programs that cost 1/10 of what payday lenders charge but there just aren't enough of these programs. tell me about the 5% option included in the proposed rule, and will it be included in the final rule? mr. cordray: i can't speak to what may be in the final rule. we're just coming up on a proposal stage here. we're going to continue to take input from many different stakeholders and of course they have very dramatically conflicting input. that's something we try to sort through. what i can say is that in approaching this rule, we're attempting to both address significant and actual harms to consumers, and we're also trying to make sure that there are ample avenues that remain for small dollar lending to be available to consumers.

and community banks, credit unions have a product now that we want to make sure that we are protecting and giving latitude for. and other products that may arise around the country. we don't want to squash innovation in this area. we do want, to the extent we can, squash predatory products that are amassing enormous consumer harm. mr. hinojosa: according to the fdic, nearly 50 million americans are unbanked or underbanked. consumers sometimes need access to at least $100 or less to smooth the transition between paychecks when their balance is low, so they can still purchase medicines and groceries and other necessities. how have the q.m. rules affected mortgage lending by community financial institutions? mr. cordray: so this is important because i often see facts alleged that are not accurate.

in this area. the share of the market of mortgage lending by consumer bank -- community banks and credit unions has grown since dodd-frank was enacted. it is larger now. it is larger now than it was in the mid 1990's. this has come at the expense of large banks in particular. this is exactly the point that i think mr. meeks just made, which is that if you have evenhanded, sensible regulation of a market, the more responsible actors should be able to thrive because they're freed from unfair competition by the bottom feeding, law violating actors, many of which came into the mortgage market in the middle part of the last decade and engaged in highly irresponsible lending and ended up blowing up the mortgage market. so community banks and credit unions, contrary to much of what is said, their market hair has -- share has increased and that's a good thing. mr. hensarling: the gentleman's time has expired. the chair recognizes the gentleman from wisconsin, mr. duffy. mr. duffy: thank you, mr. chairman.

welcome, mr. cordray. as you know, i've expressed some of my frustration with regard to the lack of compliance with the document requests that this committee has made to the cfpb. that's with a back drop of barack obama telling us this would be the most transparent and open administration ever. that's with elizabeth warren indicating that sunshine would flow into the cfpb. that's in regard to the backdrop that you've given with regard to openness and transparency. it gives us great concern that for a number of our subpoenas, they go back several years, and there's been a lack of compliance, as you know, there's been a recent subpoena three months ago that have compiled all of our document requests. and we get limited compliance from you. i want to -- mr. cordray: do you me to speak -- want me to speak to that?

mr. duffy: in a you're aware second. that a report came out from this committee in regard to indirect auto lending. and you would note that there was some documents that we included, quotes in that report from the consumer financial protection bureau. did you provide those documents before this report to this committee? mr. cordray: i can't speak to individual documents, don't know which ones you're referring to. but what i can say is -- mr. duffy: the ones in the report. mr. cordray: over the course of the last several years in response to numerous requests -- mr. duffy: i'd like you to answer my question. i'm talking about the report that thank we did on indirect auto lending. i'm sure you read that. you made some calls to the hill. did you provide those documents to us? mr. cordray: i can't out of context here place individual documents over the last several years. i've been very responsive to your request. you've gotten tens of thousands of pages of documents. mr. duffy: you can send me tens of thousands, if you don't send me the ones i asked for, just like hillary clinton can send thousands of e-mails, but if you

don't send the 10 that are relevant, if you want to talk about recordings in watergate, you could send hours or days of recordings, but if you miss a few minutes, it's those that are relevant. mr. cordray: we continue to work with -- mr. duffy: you know you didn't send us these documents. even after this report came out, we've again asked you for the documentation in this report and you've refused to comply with our request. that is incredit blilably frustrating -- incredibly frustrating when you've made commitments to being open and transparent. mr. cordray: i'll be glad to work with you on those. mr. duffy: we've been trying to work together for years. mr. cordray: i still am trying to work with you. and will continue to try to work with you. mr. duffy: working is easy. give us the documents. send them to us. send us what we asked for. mr. cordray: we'll be glad to sit down and talk further. i know our people are talking further. mr. duffy: i want to highlight some of the -- before we go there.

in the allied settlement, let's talk about that. you used your proxy data, in regard to your analysis on proxy data, what percentage of accuracy do you have in regard to ally? mr. cordray: it depends on what you're talking about. there's different degrees of accuracy for different things. we work to provide a high degree of accuracy in terms of potential charges of disparity disparate impact. mr. duffy: what percent of accuracy do you have? mr. cordray: it depends on what we're talking about. the auto market, the mortgage market. mr. duffy: auto market. mr. cordray: a high degree of accuracy. mr. duffy: what is the percent? mr. cordray: i can't give you specific percentages. mr. duffy: it's fair to say that you are not 100% accurate, is that right? mr. cordray: i don't know if anybody's ever 100% accurate. mr. duffy: is it fair to say

there are some white borrowers who may be included in your analysis that will get checks from the ally settlement? mr. cordray: if you're administering any redress to consumers, and this is across the entire spectrum of what we do, what attorneys general do, what courts do, it is always possible that redress will find its way -- mr. duffy: so disparate impact checks will go to white borrowers potentially. that's fine. mr. cordray: there's nothing unique in this area. mr. duffy: in your analysis i'm sure that you saw some african-americans who paid higher rates than the white average and some african-americans who paid less than the white average. is that right? mr. cordray: what we saw was systemically african-americans and/or hispanic borrowers in certain -- mr. duffy: is it your testimony that nobody paid less than the white average? mr. cordray: i don't know that i would say that. mr. duffy: is someone who paid less than the white average, are they also getting a disparate impact check?

mr. cordray: i'm not sure ma -- what matter you're talking about or what data you're talking about. what i would say is -- disparate impact discrimination is something that's been under attack. mr. hensarling: the gentleman's time has expired. pursuant to clause 2-4 of committee rule 3, the gentleman from wisconsin is recognized for an additional five minutes. mr. duffy: thank you. we're talk about the ally -- talking about the ally settlement. you're well aware of that. i'm talking about the numbers that you used for that settlement. so i'm asking you a simple question. are white borrowers getting disparate impact money? you're stonewalling me here. you're not answering my question. this is a pretty simple line of questions. if you want to be open and transparent, be it here. if you're not going to give me the documents answer my , questions. that was one that you're trying to waffle on. mr. cordray: i'm ready to do it. mr. duffy: the next question is, you have individuals who probably, i know this for a fact, paid less than the white average. do those african-american borrowers get disparate impact checks as well?

or are you only sending checks to african-americans who paid more than the white average? mr. cordray: if you want to specify someone to me, we can look at it. we set up a process here working with the justice department, who has experience in these matters going back decades, and that is a process that everyone has confidence in. it is getting -- mr. duffy: you haven't sent me the information on ally. but we do have the information in regard to toyota. this comes from a document dated november 19, 2004, it was initialed by you and on page, i believe it's 15, is a chart that shows nonsubvented african-americans, the total number of affected at 116,500. do you have the document in front of you? mr. cordray: no. mr. duffy: look at the screen. you can see that right there. the number of harm prohinted -- harm prohibited basis borrowers is 66,000.

so the my reading of this documentding of this that there are 56% of african-americans who paid more than the white average, and 44% who paid less. fair enough? in the toyota study? mr. cordray: i'm not easily able to analyze these numbers. mr. duffy: you signed off on the document. if you want to go down to the subvented african-americans, the number that were affected was 7,559. but the number that had prohibited or were harmed was 2,668. so meaning, on the subvented class of african-americans, only 35% paid more than the white average. 65% paid less. these are your documents. i want to be clear, if you're not going to give me the ally documents, we'll use toyota. mr. cordray: subvented auto loans can behave differently

from normal auto loans. and that is something we take account of in our analysis. mr. duffy: i gave them both to you. look at the chart. in this document, you don't show great disparity between african-american rates and white rates. mr. cordray: i would disagree with your conclusions there. we did pursue a matter with toyota. we thoroughly analyzed the underlying facts. the automaker lender -- mr. duffy: that would show you pay african-americans $16,000 less than white employees at the cfpb, before the chairman cut you off, i think you were trying to say but, but, it doesn't take into account pay bans. you want to make sure that beconsider -- we consider what information you might have that could account for that disparity. in regard to indirect auto lending, did you take into account credit scores, trade-ins and trade-in values? whether the car was new or used, the amount financed, the length of the term finance sthd this

-- this was all information that the auto lenders tried to get you to consider but you refused to do it. when the role was reversed and mr. hensarling asked you those questions -- mr. cordray: i wouldn't agree with that. mr. duffy: we'll do it in righting -- writing. i want to hand you a document. this was provided to us in response for a subpoena, number 20e and 22. thises watt -- 20 and 22. -- this was 20 and this was the 22. only document that was in

compliance with our subpoena. this is in regard to records memized in the final remuneration plan in regard to ally. do you have that document in front of you? mr. cordray: no. mr. duffy: your staff has it. this is basically a computer print-out, if you'd hand it to the director, please, this is a computer precipitation-out. this is the only document that you've given us to show us what the plan is. could you read this document for the committee so we can understand what this document says? in your sunshine in compliance with the committee? mr. cordray: do you want me to just start down here and read it? for eefings use only? -- for official use only? is that what you'd like? confidential? mr. duffy: compute space, cap equals 900 -- what does this mean? this doesn't mean anything. mr. cordray: if you ask for documents in an area, we give you the responsive documents that we can. and it may be that you aren't in a position to interpret this document. i don't know about that. mr. duffy: are you? mr. hensarling: the gentleman's

time has expired. the gentleman's time has expired. pursuant to the committee's rules for extended questioning, the ranking member is now recognized for an additional five-minute question period. ms. waters: thank you very much, mr. chairman. at the beginning of this hearing, we started talking about the cfpb's work and racial discrimination in auto lending and specifically the cfpb's $9 million settlement with ally. i also mention -- $98 million settlement with ally. i also mentioned in my opening statement that the bureau has fined banks and captive lenders such as toyota, honda, fifth third bank for discriminatory practices. these bank -- banks and auto lenders that you have fined, if they don't think that you're correct, if they want to oppose you, if they want to fight you, can they go to court? can they sue? can they defend themselves in some way? mr. cordray: sure. there are a number of institutions that have required us to take them to court, not responded to the results of investigations. and if so, we pursue it and the courts have the ability to make that determination.

ms. waters: did ally do this? mr. cordray: they could have, but they did not. ms. waters: they did not. did toyota do this? mr. cordray: they did not. ms. waters: honda? mr. cordray: they did not. ms. waters: while they are pretty big companies, they have the right to sue, they have the right to go to court, and even though they have friends on the opposite side of the aisle who would like to serve as their lawyers, they could have gone to court if they had wanted to. is that right? mr. cordray: slern i -- certainly. ms. waters: thank you very much. let's go further. the republicans are alleging that the cfpb used ally's desire to change its status to a bank holding company to leverage the settlement. isn't it true that the cfpb was investigating racial discrimination at ally financial prior to any knowledge of ally's

desire to change its stat news is -- status? mr. cordray: i'm glad to have the chance to correct the record on that. some of the members who asked those questions are not present in the hearing room, i understand. but maybe they'll see the transcript. we opened an investigation against ally in to potential discrimination in auto lending more than a year, maybe a year and a half before the matter was resolved. as often happens, parties that are being investigated, it moves slowly, they're not eager to resolve the matter and sometimes they drag their feet, sometimes it just takes a while. at one point ally wanted to move more quickly to resolve the matter, that was a decision that they made and that was a choice they were making for their own reasons. i wasn't familiar with why those were. they then explained to me why they wished to proceed in that fashion. our purpose was to complete and resolve an investigation into

discrimination in auto lending. that was our job. that is our job, to enforce the law. that is what we did. and we reached an appropriate resolution that the company agreed to and was willing to enter into. and as you say and could have fought in court if they wished to do so. that was up to them. those were choices they made. those were not choices i was making. our choice was, we were trying to enforce the law. we were seeking to complete an investigation and resolve a matter and we did so. that's all there is to it as far as i'm concerned. ms. waters: isn't it true that cfpb only consulted with the fdic and fed regarding ally status after ally themselves informed the cfpb of their desire to change their status? mr. cordray: i believe that is correct. ms. waters: isn't it also true that the cfpb had evidence that ally financial's policies surrounding discretionary dealer markup resulted in widespread racial discrimination? mr. cordray: that is certainly correct. ms. waters: can you speak more

about your investigation of ally and how you came to that settlement? i know you just did, but i want you to reiterate. because i think that my colleague on the opposite side of the aisle has framed this in such a way that you have been unfair, that somehow you're not following the law and that somehow you leveraged their desire to change their status. would you please go ahead. mr. cordray: i would say quite the opposite. the law of the land reaffirmed by the supreme court last june is that disparate impact discrimination is against the law. it is a violation of fair lending laws. given that that is so, our responsibility is to enforce the law. it's a law that congress enacted. that we have a job to enforce the laws congress enacted. we approach every investigation

in the same way. some of them start with exams. that then lead to developing facts and conclusions. that may lead to enforcement actions. some of them start as enforcement investigations. we approach them all the same way. to comprehensively establish the facts, to determine legal conclusions, to work with the entity, to try to resolve the matter if we can by consent. if we can't, by litigation. and if we work with the justice department on these matters, they're our active partner and we work together on them and we see eye-to-eye. mr. hensarling: the gentlelady's time has expired. the chair recognizes the gentleman from california, mr. royce, chairman of the house foreign affairs committee. mr. royce: thank you, mr. chairman. on the question of exemptive authority, as it applies, as it applies to your ability, you -- to exempt banks from rulemaking, you argued in a recent speech that it was not

plausible for you to use such authority to override congress' own judgment on such a broad-based policy matter. as you know, section 1022 of the dodd-frank act gave the cfpb the authority to adopt regulations, by allowing it to exempt any class of entity from its rulemakings. just this week 329 members of this house wrote to you, it was mr. stivers' letter, actually, wrote to you to tailor regulations for community banks and credit unions citing section 1022 exemptive authority specifically. do you believe that section 1022 gives you the ability to tailor regulations for community financial institutions, and does a letter -- this would be over 3/4 of congress, does such a letter change your view of

congressional intent? mr. cordray: i would say two things. first of all, we have routinely tailored our rules to take account of different circumstances of small lenders as opposed to large lendsers. -- large lenders. we did that with our mortgage origination rule. we did it with our mortgage servicing rule. we did it with our remittance rule. we will continue to do it where appropriate. second, i always attempt to be responsive to letters from members of congress. i was in a more humble station, a member of the state legislature in ohio, and i have understood the legislative role and i respect it. i would also say that i think -- what i think i know here, i may not know as much as you all do about the legislative process in the congress, and i wasn't around for the dodd-frank debates, but both of the major credit union trade associations have said publicly that they sought a broad exemption from regulation or oversight of any kind, when dodd-frank was being

debated. in both cases apparently it was rejected by the congress. it was not written into the law. what was written in was differential treatment of banks under -- and credit unions under $10 billion in assets as opposed to those above. -- as compared to those above. we've gone beyond that and at times provided special dispense -- dispensations or's special provisions for smaller creditors, often those of $2 billion in assets or below. and we will continue to do that where we find that to be appropriate on the facts. but in terms of a broad overriding what have congress made a judgment about in that statute, which was not to simply exempt all credit unions from everything having to do with consumer protection, i feel that congress has spoken on that. mr. royce: let me ask you another question. in november, 2015, you released your updated rulemaking agenda indicating that you expect to issue a final rule on prepaid cards in the spring of twick.

-- spring of 2016. i would ask if that's still accurate. mr. cordray: i think that is still roughly accurate. i would comment that the spring starts next week and will extend until the third week in june or so. mr. royce: in proposing this rule governing prepaid cards, was it the bureau's intent to prohibit issuers from offering overdraft protection to card users? if customers want and like overdraft protection for their prepaid card, is it the bureau's position that they should still be denied the opportunity to choose such a feature? mr. cordray: in the proposal for the rule, that is not what we did. we could have done that. we could have sought to ban overdraft. there were a number of stakeholders who suggested that to us and actually urged us to do so. we opted for more of a middle ground, which was that overdraft could be provided on prepaid products. but if so, it should be subject

to the same regulations approach as is used with credit cards, which is an accepted approach that's been in place for credit cards for many years. and that's what we proposed. we will be finalizing that rule roughly on the time frame you described. and we continue to consider how to approach that issue, among others. by the way, i would say one thing that's happened since the last time i testified here on prepaid cards was we had this significant fiasco with the rush many thousands of consumers had prepaid money onto these cards and could not get access to the money. if anything, that shows me we need consumer protections for prepaid cards for which none exists today. mr. hensarling: the gentleman's time has expired. the chair now recognizes the gentleman from missouri, mr. clay, ranking member of the financial institution subcommittee. mr. clay: thank you, mr. chairman. and thank you, director cordray,

for attending today. just to expand on my friend's inquiry from california. can you give us a sampling of what cfpb rules are supposed to be finalized this year? mr. cordray: it's hard for me to hazard a guess on what exactly will be finalized when because the process, it's kind of like a judicial opinion. it's under advisement and it just gets done when it gets done. i think we clearly expect to finalize our prepaid rules this year. i think we clearly expect to finalize further amendments to the mortgage servicing rules this year. i think we are under way on a number of other rulemakings and i just couldn't really hazard a productive guess at this point as to exactly when those will be completed. mr. clay: thank you for that. switching subjects.

it has recently come to my attention that some of my constituents are offered loans by lenders that are notlanded to -- not instead, their information may be sold to an unlicensed or offshore lender. in march 2015, the missouri attorney general shot down eight online payday lenders that were operating illegally and their practices impacted more than 6000 missouri residents. in one incident a president was charged a $500 origination fee

on a $1000 loan, which was immediately rolled into the loan,pal of the eventually playing -- paying $4000 on a $1000 loan. ordray: i have heard some perfect stories from missouri. i read this from a missouri court of appeals case in which they gave examples from the record. what i would also say is the attorney general, is absolutely right. anybody who seeks to make loans without being licensed in a state is violating state law. we believe that if they attempt to collect on those loans under federal law, they may be

violating the federal debt collection practices act. and we have -- and federal unfair and deceptive practices. we have open matters on that in the courts. and i think that that's all quite appropriate. mr. clay: and so -- missouri has caught your attention as far as the abuses are concerned of consumers? mr. cordray: very definitely. mr. clay: thank you for that. as it relates to estimating the racial or ethnic impact of auto discrimination, to your knowledge, do any statistical methodologies exist at eliminating all false positives and false negatives? mr. cordray: i'm not a social scientist, but it seems to me unlikely that in any field of social science or natural sciences that that's easily possible. i wouldn't claim to be an expert. mr. clay: ok. if republicans have concerns about using estimates for race

or ethnicity, shouldn't congress just tell auto finance companies to start collecting this data as hmda does for mortgages? wouldn't that eliminate the need for estimation? mr. cordray: actually it would, yes, i believe so. mr. clay: are proxy methodologies used in other civil rights enforcement contexts? mr. cordray: have been for decades. mr. clay: and they have been for decades. well, i appreciate your response. mr. chairman, i yield back. mr. hensarling: the gentleman yields back. the chair now recognizes the gentleman from new mexico, mr. pearce. mr. pearce: thank you, mr. chairman. don't want to catch you off

balance, mr. cordray. but i would like to thank -- over here. i would like to thank you for the past couple of years, your staff's been working with the coalition to save several financing, basically streamlining the rules under title 14 of dodd-frank. just pertains to the financing. that's something that we've discussed in one of our meetings. i appreciate whatever's going on there. there's some sense that we'll come to resolution there. at what level do you think that people who are using payday loans are trapped? in other words, how many loans in a row does that -- does constitute that? mr. cordray: i don't know if there's a hard and fast definition but i guess from what definition, but i guess from what we have seen, if half of the loans being made in that marketplace, more than half of the loans being made in that marketplace are going to people -- mr. pearce: i'm trying to get an idea -- mr. cordray: for whom the market is a short-term 14-day loan, and in fact, more than half the loans are going to people who have rolled them 10 or more

times, it seems like that crossed the line somewhere along the way. mr. pearce: that's not the direct i'm going, but i appreciate that input. do you have a figure, the problem payday loans, about how much the people owe when they get to be problems? in other words, if somebody owes 100 bucks, is that a -- mr. cordray: i would say the overwhelming consensus of a lot of people who look at it, rolling loans in long sequences, where you pay more in fees than you are in the first place. mr. pearce: with all respect, -- where you -- haveell me many people

different ideas. you're the top regulator in the dadgum country, i'm asking you what is your opinion, and you can't give me an answer. mr. cordray: my opinion of my authority, we are working through these issues, we've issued a very -- mr. pearce: you're going after an industry and trying to shut them down. there are people in my district who use them and say, if it weren't for that, i wouldn't have been able to pay my rent this month. forget that. let's go to exploitation. you've talked about exploitation, so at what level are fees exploitative? mr. cordray: we are not seeking to shut an industry down. mr. pearce: you're doing a pretty good job of it. i'm limited in time i would like to move on. i think your actions speak louder than your words by far. but at what level is exploitation a problem? in other words, is 5% per month is that -- would that be an

exploitative fee? mr. cordray: i don't have a particular comment on that. mr. pearce: but you made comments you're trying to stop exploitation. how do you determine if it's exploitation? mr. cordray: again, i would say and most reasonable people would agree that if you are offering a loan that you know more than half of the loans will involve rolling the loan over 10 times, owing, paying more in fees than you borrowed in the first place, and owing more at the end than you borrowed in the first place, that gets a lot of consumers into a lot of trouble. mr. pearce: we've discussed that multiple times today, and i was hoping to have a substantive conversation. i don't think that's going to happen, i'm sorry about that. so the 5% per month fee comes straight from the i.r.s. webpage. you're going to pay 5% per month when you're late. and that to me i think crosses

into the exploitation category, so you and i discussed this before, i'll ask you once more for the record, do you ever deal with exploitation on the part of the u.s. government? mr. cordray: we don't have authority to address that. mr. pearce: ok, that's fine. do you have any authority over student loans? student loans charge 5% where wall street bankers pay less less than .5%, student loans pay 5%. do you deal with student loans? mr. cordray: i think there are issues that could be looked at there, that might be for the congress. mr. pearce: there are issues you haven't looked at, you're looking at other -- you established a q.m. rule and the q.m. rule was supposed to protect consumers but what it actually did was drive 95% of the loans into the g.s.e.'s, which are exempt according to the legislation that you tried to impact. 95% are driven into the g.s.e.'s and you have no action that you're taking on g.s.e.'s.

you're coming down here, picking on people making loans to people trying to pay their rent on the end of the month. but when you drive them inside of government your answer is, here ewith -- we cannot do anything to back the government off, we don't deal with the i.r.s., don't deal with government loans and what you do is driving people into a market where you don't care if they're being exploited or not. mr. hensarling: the time of the gentleman has expired. the chair now recognizes the gentleman from georgia, mr. scott. mr. scott: thank you very much, mr. chairman, over here, mr. cordray. first of all, mr. cordray, it's very important for you, for the cfpb, for this nation to know that there are democrats on this side of the aisle that have serious, serious concerns and issues about how you're dealing going forward with this racial situation at the cfpb. we have legitimate concerns. and i have expressed those.

but here is the most dramatic fact with the auto dealers, and that is this -- your methodology. now, fair is fair. and when you start talking about discrimination and you start talking about giving people checks because they've been discriminated against, but then you use a methodology that is flawed, totally, based upon the last names of people. so now what we have, and you know this for a fact, you have many white people out here whose last names are johnson or williams or robertson or smith or scott or whatever. who are getting checks. and they're standing there at the mailbox wondering, wow, where did i get this check from? that is an unintended consequence that needs to be corrected.

yet you ignore that glaring fact and continue that process. the other area is this -- if an african-american customer goes into a dealer and he tells that dealer that -- mr. dealer, i can only afford a $350 a month payment for an automobile. and that dealer looks at that and he decides that he will go in and cut his own retail margin end of the deal and lower that discount rate to meet the demands of that african-american's budget, and yet your rule, your situation, would deny that dealer, would

deny that african-american customer, who the bank won't deal with, many of whom don't even have a credit card. there's 60 million unbanked, underbanked people in this country. and a huge percentage of them are african-americans. when you discriminate, that is discrimination against african-americans when your rule and your action denies them access to that car. how are they going to get to a job? these are the unintended consequences. this is a legitimate business reason to allow the dealer to come in there and either meet or beat that. these dealers in communities, where they know families, in the

rural areas especially, those car dealers are everywhere in a community. and they have relationships. why deny this african-american the opportunity because he doesn't have that budget? and here's the other point. the department of justice, which is indeed the legal and lawful arm of jurisdiction under which the dealers come, not you, you deal with the financial end, the lenders, but the unintended consequence of this is you're strangling the poor dealer and you're denying the very customers that you're supposedly trying to put this in view of to try to help. and then much of the money that you are getting out there for

this is going to white people. now, that is as plain as the nose on our face. and we need protection from abuses. but this entanglement improperly was reflected with the overwhelming support of the congress, and it wasn't just republicans. 92 democrats also stood up because of this basic reason. so my point is that when you are willing, when you are willing and open to look at the whole picture, not just this narrow aspect -- i guess my time is up, but i hope you understand the reason that both democrats and republicans, this is an issue of soaring magnitude.

mr. hensarling: the time of the gentleman has expire. the chair recognizes the gentleman from florida, mr. posey. mr. posey: thank you, mr. chairman. director cordray, it's no secret i'm still a little apprehensive about the cfpb. you know, i'm trying to -- mr. cordray: i'm trying to help you get through that. mr. posey: despite the great sounding name, the consumer financial protection bureau, that sounds so wonderful, that it's going to be just another way to oppose political enemies and bully law-abiding citizens like lois lerner and the i.r.s. for example. i'd like to think that other agencies like the i.r.s. already do enough of that. one of the many, many reasons that made me feel that way is your opposition to my proposed legislation which would allow

businesses and individuals to ask whether a particular transaction complies with your rules. otherwise, they may be left playing a guessing game as to how the cfpb might react or act toward what they are doing or not doing. do you think it's important for the bureau to communicate with the companies they regulate? mr. cordray: we do all the time. all the time. mr. posey: is that a yes? mr. cordray: yes. mr. posey: do you think it's important that businesses understand the regulations you enforce on them? mr. cordray: we try very hard to make that happen, yes. mr. posey: do you think the cfpb has a role in helping companies understand and comply with the regulations you implement? mr. cordray: i think we have been by far the most active

regulator ever in doing that. mr. posey: do you think consumers fare better when more businesses understand how to comply with your regulations? mr. cordray: yes, if the rules don't get implemented, they're not worth anything. mr. posey: i'd like to think you feel the way you said which is why i was so disappointed in the bureau's final no-action policy. here's an excellent opportunity to provide clarification to companies and individuals who are faced with a constant stream of new regulations. in my office, i've kept the register for the last five years. it's become a little bit of a tourist spot for people to come in and have their picture take within the regulations, administration, federal agencies, not elected people, but unelected people have had in the last five years. i asked people to guess how high the stack is?

the closest i got was seven feet. the reality is, it's seven stacks over seven feet. yet it's my understanding that the bureau is still expecting merely one to three requests per year and that the policies set up is the expectation that there's only one to three requests per year. is that correct? mr. cordray: i intend for taos do more than that. we opined that we thought we might get as few as one to three applications a year, i think we may get more. we also said that we would work to try to accommodate greater demand if there is a greater demand. the purpose, as i had in mind of having a no-action letter policy and it took some time and effort to work through that was to try to capture some of the spirit of the bill that you're talking about in terms of people being able to get their questions

answered and have some clear space to go forward. by the way, we also do this on a daily basis. we get thousands of questions a year. mr. posey: reclaiming my time, i'm limited here. i understand that. have you had any inquiries yet? mr. cordray: i think the policy has just taken effect. i don't know if the effective date has yet passed. so i don't know the answer to that at the moment. we'd be glad to keep your staff informed. mr. posey: if resources were taken off the table, if money wasn't an issue for the cfpb, which it's not, would you then have an objection to making the no letters policy more expansive? mr. cordray: money is an issue for us, we have a hard budget cap set by congress we have to comply with, so we always have to think about how we're allocating resources to different things and they borrow against each other. we don't have an unlimited budget.

mr. posey: see, the frustration i see is the only time we're concerned about money is when it benefits the public, communicating with these people and letting them know what to expect. mr. cordray: we're concerned about money all the time. mr. posey: we have had your assistant come in here, someone from the other side asked how much money she made she refused to tells. mr. cordray: money is an issue for us all the time. mr. hensarling: the time of the gentleman has expired. the echair recognizes the gentleman from texas, mr. green, ranking member of the oversight and investigation subcommittee. mr. green: thank you, mr. chairman. i thank the witness for appearing as well. also i thank the ranking member. mr. cordray, you and i and a good many other people are well aware of what this is all about. there are people who want to emasculate now the cfpb and ultimately eviscerate the cfpb.

it's over the airwaves, all sorts of things are being said. there was even an allegation made that i had some concerns with the cfpb to the extent that it was alleged in a sort of sketchy way that i was supportive of emasculating the cfpb. not in those words but that's what this is all about. there are people who really would like to have a financial protections bureau, not a consumer financial protection bureau. and so all of these things are done to give the cfpb a bad image. i want to go on record as making it very clear, i support the cfpb. i support what you're doing to help in the areas of auto lending, to help with payday lending. i support these things. i wish we could do more. i don't believe that all dealerships are engaged in invidious discrimination. i don't think that all payday lenders are bad people. but those that are ought to be

properly regulated and they ought to be penalized for what they do. let's talk quickly about ally. it is true that ally settled that case for about $80 million, i believe. is that correct? mr. cordray: and they've paid out more since to remediate further problems year by year. mr. green: and it is true that ally was prepared, in the sense that they had their litigation contingency ready to do battle in court, which is the american way. that's why we have an independent judiciary. but they were prepared, they were in court and they chose to set they will lawsuit, correct? mr. cordray: i assume so. mr. green: with them settling this lawsuit, i assume they thought this was in their best interest to do so. but what i marvel at is how these major businesses can lose in court but come to congress to

win, because that's really what this is all about. they want to now change the rules of the game so that they can continue to perpetrate these kinds of invidious acts upon people who need the money they have, are barely making it, and still find themselves being discriminated against and having money taken out of their pocket. everybody, it seems, wants to fight discrimination until they have to fight it. and then when they get to the point of having to do something about discrimination, invidious discrimination, i might add, that's when none of the tools seem to work for them. using testing doesn't work for them. which is probably one of the best ways to determine whether invidious discrimination takes place, because you can send people out and those that come back with empirical evidence can share that with you, show they were discriminated against. then disparate impact. another tool. just doesn't seem to work for them.

any tool that we design doesn't work for them. everybody wants to fight invidious discrimination until they have to fight it or find a way to do it. unless it's at the cfpb. if it's at the cfpb, then all sorts of specious allegations are made, attempts to do everything that they possibly can to besmirch the cfpb because they've already said, and i admire them for being honest if ever they get a president, they're going to do things to eviscerate -- they don't use that terminology, but that's what is meant -- to eviscerate the cfpb. it will be taken away from us. i'm reminded of what ben franklin said when he came out of constitution hall and someone queried, what type of government a monarchy or a republic? and he said a republic, if you can keep it. we have a cfpb, if we can keep it. i'm not sure we're going to be able to keep it, to be quite

candid with you. i'm going to fight on my watch but i know there are many watches to come, and just as the same people who are against the cfpb, the same people who want to do something about social security, they want to privatize it, all of this in my opinion goes back to something the supreme court did in citizens united vs. fec. the supreme court said that money talks. money is talking right now. right now today. money talks. these big corporations now know that they have an edge because they can do whatever they want and challenge us if we challenge them. it makes a difference in the lives of little people, people who are not as big like the corporations. and we got to do something about it, and i thank god for what you're doing. mr. hensarling: the time of the gentleman has expired. the chair recognizes the gentleman from ohio, mr. stivers. mr. stivers: thank you, mr. chairman. appreciate you being here, like

to welcome you before the committee, mr. cordray. mr. cordray is my constituent, so it's always good to have a constituent in the room. and you probably, i know you answered the question to mr. royce of california earlier, sent you a letter with 329 members of congress, bipartisan, a massive majority of members of congress, and mr. royce asked you a little bit about it and left a little bit out. did you read the letter? mr. cordray: i don't think it's come to me yet. it came over yesterday and i have not seen it. mr. stivers: the bottom line -- mr. cordray: i read all the letters, i just haven't seen that one. mr. stivers: gao found that community financial institutions had to discontinue or limit access to services as a result of your regulations, and you have the authority under section 1022 of dodd-frank to modify your regulations and sort of

adapt them to the people that they're applied to. i would urge you to do that and i'm a very visual person, i have a visual display for you, and jessie is going to hand you a t-shirt. could you hold that up and take a look at it real quick. is it a nice t-shirt? is it well designed? mr. cordray: i'm not an expert on t-shirts. mr. stivers: could you try to put it on? what size are you? mr. cordray: i'm kind of reluctant. mr. stivers: does it look like a big or a small t-shirt? mr. cordray: that's looks like a small. mr. stivers: that's a 2t.

you wouldn't fit in it. the two ways you could fit in that, go on a massive diet and restrict yourself, what a lot of community financial institutions are doing to make themselves smaller to serve clients less, or they could strain the t-shirt and break the t-shirt, the t-shirt being the regulation. i'll give you time in a moment. take a look at your authority, you talked earlier about your authority. you took your authority seriously in another realm. when you were talking to one of my colleagues and said we take our authority very seriously. take your authority under 1022 seriously too. so what are you doing to -- going to do about that, i'll give you 20 or 30 seconds to tell me what you're going to do to help the folks under -- you admitted you haven't read it, you probably can't tell me, but i guess, are you going to read it and take it seriously? mr. cordray: sure, but let me also talk about the facts here.

for example, they have economists that present facts in reports and then they also write certain opinion pieces that don't jive with the facts. credit union membership last year in the wake of four years of the cfpb is at a new all-time high in the nation. that's good news, i think. but it's not consistent with this notion that we're killing credit unions. credit unions' share of the mortgage lending market where supposedly our rules are stifling them and driving them out of business is at its highest level than it's been for the last 20 years of keeping track. they're doing better in a marketplace that rewards responsible lenders. it is also the case that we have contoured our rules in ways that give advantages or give differential treatment to smaller lenders, whether community banks or credit unions, because that's consistent with the data coming out of the crisis that they had lower defaults than other lenders. they should be able to continue their relationship lending model

and our rules have provided specifically for that. we will continue to think about those things on a case-by-case basis, but this argument that everybody is being driven out of business, they're stopping products, isn't consistent with the data that shows that total number of mortgage lenders were up last year, that credit union membership is at all-time highs, and that credit union mortgage lending in particular has increased its share of the market at the expense of large banks. those are the facts. mr. stivers: the problem is the number of small credit unions is going down because your regulations are making it difficult for small credit unions -- they're having to merge and i had it happen in my district. three credit unions merged into one bigger credit union because of the regulatory burden. we're seeing it all over this country, same with small banks and the regulatory climate is speeding it up, it's not the only cause, but it's speeding it up. mr. cordray: that's been happening since the 1920's.

mr. hensarling: the time of the gentleman has expired. the chair recognizes the gentlelady from ohio, ms. beatty. ms. beatty: thank you, mr. chairman, ranking member, and thank you, mr. cordray, for being here today. there are some benefits in being last. you get to hear all the information, good or bad -- mr. cordray: i noticed you sat through the entire hearing. mrs. beatty: i did. let me say how proud i am that you are from ohio. i associate myself with all the words that have saluted you for protecting those folks we need to protect. which is in your charge. let me also say that we have not talked about the billions of dollars that you and your agency have been able to recover for those who have been wrongly defrauded. now, a lot of controversial issues here today. and i've been a part of some of it. but what is amazing to me, being

a black woman, is how we talk about protecting consumers and we pick and choose when we want to use the words "disparity" and "discrimination," and sometimes for me it's been very political. that people are using it, whether it's you, whether it's president obama, whether it's anybody that's helping those folks who look more like me. i've looked on websites, pages of some of my congressional folks here, and it's all about destroying you, it's all about racism, but we only seem to do it when we're protecting those folks. now, here's what i think. and i'm trying to look at both sides. so if we take one of the most controversial votes that, for me, and i'm all with you, i'm supportive, but here's my issue. i think we've wasted a lot of time in here, a lot of time arguing without resolve. and i was always taught if you complain, you should have resolve.

so if we take the house bill that came up that we had black dealers who were against it, we had dealers who, let's say, were more majority, but there were some minority in there that were supportive of it, but here's the wonderful document, and i think we all have it, mr. chairman, i'd like to enter it into the record. it's about what you do. mr. hensarling: without objection. mrs. beatty: it talks about fair credit compliance. you can take the black folk, the white folks, they all signed off on this document. then we get this legislation that we're all in a tiff about and the legislation really doesn't resolve the problem so whether you're for it or against it, it doesn't make any sense, because here's the issue that i'm going to allow you the last half of my time left to answer. when i think about those african-americans and minorities who walk into a dealership, do i think some of them are discriminated against? yes. i think some of the people who walk in this room that look like

me are discriminated against because of all the stereotypes we know about, and unfortunately we've heard in this room. on the other side, do i think somebody walks in a dealership and looks like me and is not discriminated against or they don't automatically get a higher rate? well, what's the difference? it might just be that i was more aware, had a better credit score. nobody is talking about the real systemic issues and the problems. and it starts, because we can't change the color that you go in, in but we need to make sure we put practices and things in place beyond names and zip codes. but here's the other thing. if we start together on financial literacy, you have done more than any other person on financial literacy in that state.

my question is, we created dodd-frank, i'm all for dodd-frank, i wasn't here. there's a part of the dodd-frank legislation that talks about real financial literacy. and we're not doing enough -- in this committee, that's charged with looking at the banking industries, looking at the financial industries, looking at the credit union industry, but we're not talking about a program. even from the minority dealers in their letter to me, it says, we're not dealing with the real issue of the transparency of the people's credit and we're not coming up with any legislation. so dodd-frank mandates that the cfpb's office of financial education shall, not maybe think about it, shall develop and implement a strategy to improve financial literacy of consumers. it doesn't say consumers who go into a candy store, so that means a consumer who goes into an automotive dealership. they have to have financial counseling, information to assist with the evaluation of a credit product. let's say that product is a car.

and the understanding of credit histories and scores. lastly, i had a member, an african-american person, tell me that they got that high interest rate and thank god they did because they could go to work, they could have a car and they could feed their family. and i'm sorry i don't have enough time for you to answer. mr. hensarling: the time of the gentlelady has expired. the chair -- ms. waters: can we enter into the record the national minority automobile dealers? objection. mr. hensarling: without objection. the chair now recognizes the gentleman from south carolina, mr. mulvaney. mr. mulvaney: thank you, mr. cordray, i'm over here. i want to follow up on some of the discussions that mr. neugebauer from texas had with you about the interplay between federal regulation and

state regulation. i think mr. nuegebauer is asking you specifically about some of your proposed rules on short-term, what people call payday lending and how it interacts with state action in the same field. during the questioning, seriously, despite what you may think , in this particular circumstance i'm not trying to put words in your mouth but i think -- mr. cordray: i always take your comments at face value. mr. mulvaney: you said you -- mr. neugebauer asked you which states, you said all 37 that still allow payday lending, so i'll ask the question again and see if we get a clean answer. if your research as you prepared to produce these new rules on short-term lending, which states have you determined have failed to protect their own consumers? mr. cordray: maybe i wasn't

clear in trying to respond to the question before. that's not how we approach the issue. it's not my job to control states or tell state officials what to do. it is my job -- mr. mulvaney: that's fair. mr. cordray: but it is my job to look at harm is occurring in the marketplace and look at ways to intervene to address certain predatory practices of lenders. mr. mulvaney: is it fair to assume if you promulgate a rule that's more protective of down consumers than a state has made that you deem that state to not be adequately protecting consumers? mr. cordray: we won't seek to occupy by the field in that way. what we will do, if there is a federal intervention, and this is not determined, that will coexist with state regulation and authorities -- mr. mulvaney: let's be clear and honest. you do intend to preempt state law in certain areas.

mr. cordray: no, i don't think we preempt state law. what will happen -- mr. mulvaney: in a letter of february 11, 2016, to my office, i asked about this particular issue. you said among the bureau's goals is to ensure consumers are offered certain minimal protections no matter where they are located. state laws that afford greater protection for consumers would not be preempted by a bureau regulation on small dollar lending. the obvious implication to anyone who speaks the english language is states who offer less protection will be preempted. mr. cordray: what i would say, as is true in securities law and antitrust law, i worked with these laws as attorney general -- mr. mulvaney: the sec has a different oversight. you don't get appropriations from us, don't have the same level of oversight, you are your own thing. you cannot compare yourself to

the sec. mr. cordray: i wasn't comparing -- mr. mulvaney: your home state acted in this area. last time they looked at short-term lending was 2009. they've done it over the course of the last 10 or 15 years. they have not provided a cooling off period between transactions. your proposal will require 60 days. who knows better thousand protect consumers in the state of ohio, the people of ohio or the cfpb? mr. cordray: policymakers as i was for the state of ohio do their best to protect the citizens of ohio. policymakers at the federal level who are given authority by congress as the cfpb has been given do their best to protect people nationwide. mr. mulvaney: the last time ohio addressed this was in 2009. would you defend the ohio law or acquiesce to federal reemption?

-- preemption? mr. cordray: i have been engaged in preemption going back to 1993 and 1994. i've addressed them on both sides. and so it would very much depend on what circumstances we were talking about. mr. mulvaney: this one. ohio passes a law, says a two-day wait period. the cfpb pass as regulation with a 60-day. will you defend ohio law against federal regulation? mr. cordray: that's entirely hypothetical. mr. mulvaney: can you say the words "the people of ohio know better how to protect consumers in ohio than the cfpb"? mr. corcray: the people of ohio are also people of the united states. they have a dual capacity. mr. mulvaney: do you believe that statement? do you believe that the people

of ohio are better suited to protect consumers in are the cfpb? do you believe that statement to be true? mr. cordray: that's a very general statement and i don't know exactly what that means exactly. mr. mulvaney: fair enough. thank you. mr. hensarling: the time of the gentleman has expired. the chair recognizes the gentleman from california, mr. sherman. mr. sherman: i think the gentleman from south carolina is misusing the word preempt. preempt means prevent the state law from being effective. to supplement means you have to obey the state law and you have to obey the federal law. mr. hensarling: will the gentleman yield? mr. mulvaney: if the chair will yield the additional time i'll yield. mr. hensarling: the chair yields an additional 30 seconds. mr. mulvaney: my state has a law with two-day waiting period. they're proposing a 60-day waiting period. doesn't thus the federal regulation preempt state law? you would agree it would? mr. sherman: no, i would not.

if the federal law requires me to wear a belt and the federal law requires me to wear suspenders, i will comply with both laws. if you take the position that the state legislators are in best position to provide this, you should repeal dodd-frank, as im sure has some support on your side of the aisle. when we passed the law establishing this cfpb, we decided that in addition to following state law, which might provide a two-day period, there could -- there will also be an additional federal law. now, you can say that a state that decides to have no regulation in a financial area has made a conscious decision that that is the best policy for that state. but we passed a federal law to say that there will be standards. preempt is when you tell a company they don't have to comply with state law.

supplement is when you say, you have to comply with the state law plus you must comply with the federal law. mr. cordray, thank you for all you do. part of what you do is coming here to congress so we can comment on what you do. and perhaps help you do an even better job. mr. cordray: i think i just learned from you a little bit, so i appreciate that. mr. sherman: ok. now, as to mr. stivers' letter, there are some who say that that letter signed by many of us and i want to say i signed the letter and i'm a step ahead of you, i've read the letter. it does cite code section 1022-b-3 and quotes it accurately. and some have said, well, therefore, it's in favor of exempting smaller institutions. so toddlers wouldn't be wearing shirts at all. but in fact, what it calls for is look at each regulation,

determine whether you can have a one-size-fits-all regulation, buy hats in one size fits all, or shirts need to be tailored to the right size. and the only ask in the letter is to be sure that your regulations don't have unintended consequences and that the specific focus is when you write a regulation and you would want a different regulation or a different approach for smaller institutions that you have a portion of the regulation applicable to smaller institutions. mr. cordray: that's sound advice and something we'll continue to try to heed, yes. mr. sherman: and there may be individual circumstances we bring to your attention. mr. cordray: we'd be glad to take input on that and particular issues. mr. sherman: you urged financial institutions to use text messages, and thank you for

saying you'll go to the fcc and smake sure they allow financial institutions to use text messages. if i get a message from my bank saying i'm about to overdraft, i'll pay my phone company a nickel to prevent that. i want to focus on these complicated regulations, particularly for smaller financial institutions. i want to commend you for having the hold harmless period. and institutions would like to get more written guidance as to how to apply the reg and what remediation steps they should take when remediation is necessary. we've talked about the hold harmless period continuing, and i think you should continue the hold harmless period at least until you can issue the interpretations necessary to provide written guidance. so -- mr. cordray: that may go on forever, but we'll continue to

be attentive to the industry and we've encouraged them to bring their prioritized -- mr. sherman: at least as long as it takes to answer the questions that have emerged in the first four months. obviously, new questions could come up. finally, the regulations require an inaccurate statement as to the cost of title insurance in states like california, where there's a buyer's policy and a owner's policy and you get a discount on the owner's policy when you get the lender's policy. there's a lender's policy and a buyer's policy. mr. hensarling: i was reminded i gave you 30 seconds, so you've got 14. go to town. mr. sherman: in any case, mr. cordray, you will be looking to make sure that the regulations deal with the situation where there's a stated price for the policy the buyer of the home is going to pay for

but there's an automatic discount that what is disclosed is the net price. mr. cordray: i know that's issue that's been under active consideration in the rulemaking process and i believe since. mr. hensarling: the time of the gentleman has now expired. the chair recognizes the gentleman from georgia, mr. westmoreland. mr. westmoreland: mr. cordray, on data security, what system do you use to determine if somebody is fulfilling their commitment on data security? mr. cordray: there's a number of procedures that have been developed and actually really enhanced in the federal government other the last several years. you know the federal government has had some problems in this area and the private sector has had many problems in this area. it's something i think we're all very attentive to. nothing would -- mr. westmoreland: what standard to you use if you're going to evaluate a company and fine them for --

mr. cordray: i thought you were talking about our own data security. we're using the standards that we understand to be common in the industry. we're using the standards of best practices at different institutions. mr. westmoreland: what standard would that be? mr. cordray: we're taking guidance from the federal trade comission. what we did, when we engage in enforcement matter, we open an investigation, took a look at their own security protocols, whether they were being followed, by the way that's first thing, whatever security level or threshold you're talking about. one is whether it's there on paper but actually being followed. if it's not being followed you have a problem. that's one of the things. mr. westmoreland: but what standard to you use for the cfpb?

so you don't have a standard now? mr. cordray: if you'd like my staff to follow up-- mr. westmoreland: i want to know what standard you're using. mr. cordray: i'm not an expert. mr. westmoreland: you stated that consumers entrust companies with significant amounts of personal information, and it's crucial that companies put systems in place to protect this information. i'm assuming you think it's just as critical for the cfpb to protect this information that in your statement you said consumers entrust with companies but the cfpb has a lot of information that the consumer wouldn't normally give to a credit agency. is that true? mr. cordray: i do think it's fair to hold us accountable for the security of data that we

have, but, number two, the data that we have typically is anonymised and it is de-identified and cannot identify you or me so it is less risky than the kind of -- you're talking about private companies having which tells all about you and all about me and it's very clear who is being identified there. that's much more risky and if they get my credit card information or yours we can be defrauded. mr. westmoreland: so in private companies you think the information is much more risky than yours? mr. cordray: it's more risky because it's personally identifiable there, they're using to it to market to you. mr. westmoreland: who tested your data security system? what company tested it? mr. cordray: the folks in the federal government who deal with this across all agencies set standards and have now enhanced the standards and improved the standards we're all seeking to meet and i think we're all trying to keep up with the best practices. mr. westmoreland: but who tested

your security of your data? mr. cordray: again, our i.t. group could come and give your office a briefing if you want to know the details. mr. westmoreland: i just want to know who tested it. you mentioned the information that's available to other people and that you don't have that information. i want to give you -- mr. cordray: i said we have a different kind of information. we don't have information that's identified by you or by me it's anonymised. mr. westmoreland: i know you have the information, name, akess, zip code, date of birth, race, ethnicity, gender, language, religion, social security, education, military, employment records, financial account numbers, financial events in the last few years, life events in the last few years, mortgage information, current balance, current monthly payment, delinquency grid, monthly payment, refinanced amount, bankruptcy information, credit card account numbers, credit amounts, loan balances, past due amounts, minimum

payment requirements, high balance amounts, chargeoff amounts, second mortgage, household composition, single male, single female, presence of children by various categories, number of wage earners in household, household income, property attributes, number of bedrooms, square footage, lot size, year built, age of structure, units in the structure, most recently assessed value, longitude, latitude, census block, date purchased, origination date, acquisition. do you think this -- mr. cordray: i'm not sure what data you're talking about. mr. westmoreland: this data is given to you and is supposedly in your records from the national mortgage -- mr. cordray: what are you talking about here? mr. westmoreland: data in your system. i think we need to know how it has been protected. mr. hensarling: the time of the gentleman has expired. mr. cordray: i'd be glad to have my office talk to you. mr. hensarling: the chair

wishes to advise that votes are expected at 1:00 or 1:20. i expect to clear the member in the queue. we'll adjourn once votes are roughly five minutes out. we will not ask our witness to come back but will adjourn at that time. i recognize the gentleman from illinois. mr. hultgren: as you know, the committee has at length raised concerns with guidance bureau issued in 2013 which it dubiously claimed is simple interpretation of its authority under ecola, despite language to

exclude automotive lending. we have taken issue with the questionable methodology. this is a major concern for automobile dealers in my district and across illinois. you've now relied on disparate impact theory of discrimination under ecola and at least three separate enforcement actions against businesses that underwrite auto loans. i suspect what you're doing is extending the supreme court's holding in the inclusive communities case, but that case dealt with the fair housing act, not ecola and that decision rersed primarily on the unique congressional history of fha, a history that's plainly inapplicable to ecola. i wonder if you could spell out in detail the basis on which cfpb is pursuing actions. mr. cordray: i believe there was hope among industries that disparate industries would be would beate impact disapproved by the supreme court and by the way i understand interesting news we have a new supreme court nominee this morning and that was a challenge that was raised in the inclusive communities case you referenced and in fact the supreme court resoundingly upheld --

mr. hultgren: that was an fha case. this is an ecola case. it's very different. very specific requirements we've got there. laid out housing, fair housing. i think you're extrapolating something we can't find rationale for. mr. cordray: they have been applied hand in for decades and they work together. mr. hultgren: the sense you have is you're pulling this out of nothing because there's an agenda. mr. cordray: again, we wouldn't be -- mr. hultgren: i want to ask you specifically about some concerns, privacy concerns, my colleague from georgia, mr. west moreland raised some issues of the amount of data that you already have specific data on individuals and all of us have concerns, federal government, i think, showing incredible weakness of being able to protect privacy of our citizens, i hear it all the time from them.

the recently finalized rule is especially concerning to me because it looks like it's not enough. all the information that mr. westmoreland had listed off, item after item after item and now it looks like cfpb is looking for more private information that i question if it's safe. section 924 of the dodd-frank act required the bureau to develop regulations that modify or require modification of itemized information for the purpose of protecting the privacy interests of the mortgage application for mortgage orders that is or will be available to the public, end quote. in a footnote to the final humda rule in october 2015, the bureau states -- and i quote -- based on its analysis to date the bureau believes some of the proposed new data points may create privacy concerns sufficient to warrant some

degree of modification, including redaction before public disclosure. however it is only providing opportunity to comment on the balancing test for consumer privacy, not the actual data made public by ffiec. in 2005 speech, former federal reserve board senior advisor greg canner raised concerns about humda privacy risks noting, approximately 95% of loan records are unique, meaning loan amounts can be attributed to a single person. crossmatch to private lien transfer records one can identify the individuals in 95% of the cases, end quote. shouldn't the bureau proceed with extreme caution before finalizing any policy that would direct ffiec to publish further information even if steps are taken to anonymize it? mr. cordray: thank you for the question and as you pointed out we are approaching the issue, privacy issues, very sensitively and have engaged in a further notice and comment. mr. hultgren: i'm not pleased. my consumers are not pleased, banks are not pleased because they have seen breach after breach after breech by the federal government.

mr. westmoreland asked who is the company looking at it, you said there isn't one. i've seen failures over and over again. my concern is getting more information, it's stated by people in the administration and saying that this does identify people that 95% chance as you're looking through this we know who it is, even if it's anonymized. i don't think it's enough my citizens are concerned, now you're add manager requirements of get manager private information of my citizens, i think it's wrong. i think you ought to, all of us, ought to proceed with extreme caution. the least you could say is you will proceed with extreme caution. mr. hensarling: the chair recognizes the gentleman from colorado, mr. perlmutter for five minutes. mr. perlmutter: thank you, mr. chairman. mr. cordray, thank you for being here. thanks for your service to the united states of america. thanks to the people that you lead in the agency, and you

know, as i've said to you many times, being a regulator, you're never anybody's best friend and that's not your job and that's not what you're supposed to be. but you're supposed to be looking out for the best interests of the people within the jurisdiction of your agency and i thank you for doing that in so many different ways.you ao you lending issues and auto are lending issues and auto dealership issues from time to you time. but in a civilized, i think, and abut in a civilized, i think, and respectful way. i was very disappointed to learn you the other day about the deposition taken of one of your and your staff, one of your lead staff, i don't think that was appropriate and i wanted to say that for the record. i mean, that kind of thing can happen in court if it needs to be. depositions under the eversight -- oversight of a judge. ok. that's how our system works. i would and i'm just saying

this, take it or leave it as you choose, that i would hope that the agency keeps a dialogue open with the auto dealer industry in the hopes that there is some kind of common ground that can be reached without them continuing to pursue a legislative approach but that there actually be some kind of something that is valuable for consumers, does our best to root out discrimination, respects due process. good luck, i ask you to keep the line open. mr. cordray: and we had difficulty initially because we tried hard not to be reaching out to auto dealers to be respectful. we learned they were interested in talking to us an continue to be interested in talking to us on various issues and we therefore have been willing to respond to them in kind.

mr. perlmutter: thank you and i ask that you keep that line of communication open. to see of there is some kind of resolution short of legislation or lawsuits all the time. and i want to thank you for all the other things that you've been working on, whether it's mortgages or credit cards or the like. we, the congress, in dodd-frank and i know many of my friends on the republican side they don't like a lot of the provisions in dodd-frank, ok, fine. but we had a lot of problems going into the 2008 collapse of the financial sector and a lot of it had to do with respect to consumer lending and consumer matters and that's obviously the mission of the agency, to deal with those kinds of things. so i didn't have anything specific i wanted to ask you. if you have anything you'd like to talk about.

mr. cordray: there was a point made earlier that somehow our rules have pushed the mortgage gse plus.ce into the the reality is that the lending that blue up the mortgage market and blew up the economy pushed most lending now to gse's and eliminated the secondary financing market which has not yet recovered. all of that preceded any of our rules that did not take effect until five years after that. been statements that have not been consistent with the facts and i will do my best to try and set the record straight where i can. mr. perlmutter: and actually the record is more stark than you've just stated, that in 2008, 2009, 2010, the only entities buying loans in the secondary market were fannie mae and freddie mac. there was no secondary market. ok. so everybody can, you know, go

into their rhetoric and hyperbole. mr. cordray: it blew up, destroyed itself. another comment i saw the other day was that the federal reserve kept interest rates too low leading into the housing crisis and as i looked back at it, the interest rates for between 4% and 5% during that period, i'm not sure how high people wanted them to be but the time ogen is not accurate to the facts. mr. perlmutter: the last thing i say and just to remind everybody, you an agency of the federal government. you have a lot of power. and however you exercise that power, we all expect you to do it judiciously. i think you've done that. but it's always something that has to be in the forefront of the minds of you and your members of your agency. mr. hensarling: the time of the gentleman has expired. the chair recognizes the gentleman from pennsylvania, mr. fitzpatrick, chairman of the terrorism finance task force.

mr. fitzpatrick: i want to follow up on an issue raised by mr. perlmutter, indirect auto lending. would you acknowledge that some borrowers, customers, in the indirect auto lending area, who have good credit have ended up paying highest interest rates as a result of the approach oaf the the cfpb is that possible people with good credit , who would have had a lower rate have seen an increase. mr. cordray: what i know our informations found is there were many people with good credit who belonged to different minority groups being charged were fair loans. >> did they pay higher fees, is that possible? mr. cordray: i have had -- her different things.

mr. pierce: have you heard that? mr. cordray: i would not say that. that has notou say happened. mr. cordray. it depends on the individual responses of individual lenders. : i had some small community banks that i visited with yesterday from bucks county, pennsylvania and it has to do with the subject of overdraft fees. there are a lot of us that have concerned that the rulemaking of is limiting the ability of small community banks to serve their customers and provide real choices to the customers. customers can be individuals, small business owners and these are sometimes customers who would otherwise seek out riskier non-bank alternatives which is what i think we all collectively want to see them avoid.

in regard to the overdraft fees and i am told that you are looking at a rural and a rule is formulated in this issue at the bureau, is that correct? mr. cordray: that is correct. mr. pierce: the proposed -- is that? mr. cordray. this will be released this spring. mr. pierce: she suggested i asked the cfp be whether you have any willingness to de it toify data and release the public so banks and financial institutions can interpret the data and draw their own conclusions, is that something you would be willing to do? mr. cordray: what data are we talking about? pierce: the debtor that you are using to formulate the rule on overdraft. mr. cordray: i thought you were

talking about small dollars. we will release a proposal. we are not releasing a proposal this spring. mr. pierce: would you be willing to release the data that forms a basis of your conclusion? mr. cordray: we issued a couple different white papers on overdraft of that is what you want me to address. be willingwould you to release information? i have released a bill, are you familiar? ist the bill would do

>> congress legislated that to protect and defend our country. there is congressional judgment. >> that the loans they are being offered are more expensive compared to other options in the market, is that an example of an unaccountable bureaucracy dragging us to the failed economy of a social democracy? >> you don't need to answer.

>> that >> i will say this. in isllion turned back pretty good. on the screen is our recent monthly report about financial products. many experts decried the economy. they note that arbitration contracts cost millions and wealth to ordinary americans. and yet one of the quotes in the public speech was quoting kanye west's statement that the only true freedom is economic freedom. would you say that ensuring a fair financial marketplace furthers freedom, do you people have more wealth now then some of these costly schemes are

stopped, what do you think? enforcing thet law fairly promotes economic freedom and helps the free market work against the backdrop of law and order and law enforcement. i think this girl has proven itself to be pro-consumer protection and pro-consumers and pro-opportunity. mr. allison: i would say being proconsumer is pro-business. they can be you out and that hurts the marketplace. . yield back was in the florida legislature and i have experience in dealing with payday loans. we address that back in the early 2000's and we came out

with a bill that i think has done a great deal of good to eliminate the predatory lending, the bad actors and make sure that the transaction has a duration of 731 days and cannot be good or than $500 and a processing fee of more than five dollars and a cooling off time of the more than 25 hours. we worked to reduce the use of online loans which we do not want to see our consumers go to. that would eliminate any regulatory control but we have been able to reduce it by 82%. would you not agree that florida is the gold standard when it comes to state regulation of payday loans? mr. cordray: i would not. >> is there another state that has a better track record? mr. cordray: there has been analysis done of the florida model. these loans are made above the

300% rate of interest and they are being looked -- rolled over. are thinking you're going to eliminate demand. we have your report on payday loans and it shows that since its inception i believe the payday loans have had complaints registered with your office of 1.5%. when you think that 10 times that have been credit reporting agencies, and you have not done anything about that, why are we focusing on an industry that has a need in the market? thecordray: i appreciate question. for example, what we find is when we look at some of these complaints are misclassified. resources the greatest -- mr. cordray: the incidence of payday loans is much higher than

that for student loans or auto loans. that needs to be counted in as well. a million loans. do you know how many complaints were registered? .002 of complaints. you're not using logic and reason to dictate up policy that is forthcoming. i anticipate there will be a report come this spring. can you give us a trailer on it, tell us what it will say about industry. loan you have a company out there known as self-help credit union. they want to take over this market. mr. cordray: i have no idea what you're talking about. and allegation before. that they are

taking over the market is somewhat beyond -- there you familiar with center for responsible lending? they have had some impact in allowing their influence. are you familiar with their subsidiary? self-help credit union, their subsidiary? have you ever heard of self-help credit union? mr. cordray: i have. thehey are a subsidiary for center for responsible lending. have you had discussions were e-mails, communications with self-help credit union? mr. cordray: i have discussions with many stakeholders. we have a payday lending agency -- or anything with them whatsoever? yes or no? this is a question. mr. cordray: i do not see what the basis for that is.

>> would it surprise you that you have? have you had any communications with self-help? self-help credit union. have you had any communications with them in any way, shape, or form? mr. cordray: i do not know what you're talking about exactly. >> you do not know if you have had communications with them. mr. cordray: i have had indications with everyone who has had an interest in our rules going back five years. ancan you give us anticipation of what we may see in the role that you will promulgate the spring with regard to short-term loans? mr. cordray: i have not promulgated and yet so nothing should be taken to the bank but you can take a lot out of our white paper and the small business review framework we have provided which is that we are going to seek to eliminate and limit territory practices by lenders that embroil many consumers in a debt trap with consistent and prolonged rollover. >> the time of the gentleman has responded -- expired.

pittinger:d jerk: -- the transparency of your agency, is that correct? mr. cordray: that is correct. moreld like to see transparency. ger: you have also admitted that you and 12 of your directors have used private e-mails for official business, is that not correct? mr. cordray: that his been -- that has been a very limited practice. mr. pittinger: how does the american can't -- public have any confidence in the records and information that is capture recorded if you are using private e-mail?

secretaryrove of what clinton did with her private e-mails? i have not been part of that. do you think the public has been getting all the information that they deserve to have? there arey: i know policies we have in place to make sure governor -- government work is being captured in government databases. mr. pittinger: would you turn over all these private e-mails? mr. cordray: i would like to work with your staff to understand your concern. we would like to know what has been [indiscernible] mr. cordray: i would be glad to follow up with you. ittinger: you are the

single director. would it be more prudent and acceptable to have a five-member bipartisan commission? mr. cordray: i have seen different approaches to different organizations. mr. pittinger: do you think you could gain wisdom from individuals who would join on -- with you -- mr. cordray: i have a leadership group in every organization. mr. pittinger: he served on the general assembly and on the committee, correct? do you feel like the public would be best served if that committee chair issued his decision without the full support of those who are on the committee and aware of all those issues, he did not act alone, did he? mr. cordray: some committee chairs did and some did not. had --ndividual member i sponsored a bill.

i did not have to ask anyone's permission. i am accountable in the same way you are. ultimately to the public for the substantive actions i take. you have already stated you do not act in full transparency. mr. cordray: i did not say that. you cannot be fired without some sort of egregious abuse. mr. cordray: i did not get to write up -- just write them. pittinger: do you think it would be in the best interest of the american people that we have a five commission bipartisan board? mr. cordray: when i come here testify, there is no one i can blame it on. i am accountable directly to you. : you do not enjoy these hours because you're having to be accountable. mr. cordray: i enjoy coming

before the committee and when i was a single official in charge treasurer's office or attorney general's office i was also accountable. i am accountable in public service to the public to serve them well. and i appreciate the oversight of this body that i come here not only when i am required but other times when i am invited and i have never docked or dodged and i have always been willing to stay as long as you want. when we have: contacted you there has been delay after delay on getting information from you from so many occasions. mr. cordray: i have always read, i have always answered your letters. we follow-up, we continue to do that. if there is anything we think we have not sufficiently followed up on -- you areinger: accountable basically to nobody. mr. cordray: congress set the

terms for special audits. --the chair recognize recognizes ms. wagner. never docked or dodged, answer all letters? sent a subpoena asking for documents regarding a variety of ,ssues, discrimination retaliation, auto lending, and others and despite you saying the cpb is committed to transparency and compliance, always entered our letters, aveer duck or dodge, you h failed once again to respond adequately to the subpoena. additionally, the committee sent this letter right here, i have a how all of you are complying with the subpoena

regarding such terms that you are using. you -- will you commit to providing this information to our committee here right now? will you commit to providing information and complying to the requests of this subpoena from your office? mr. cordray: i would be glad to know specifics from you. about how we have not complied. i know that a response to that -- have failed to comply. mr. cordray: we have produced 20,000 pages of documents. tell me how it is inadequate. wagner: what you absolutely right now commit to complying with our committee, if so, when? mr. cordray: we have continued to comply. asked aer: last year i

question about who gave the authorization to renovate the headquarters of your agency and i have not forgotten the response you gave to me, which does it matter to you?" well, director, it still matters to me because that is a government expenditure of $250 million of taxpayer money. last year, you said that treasury made the decision, however, this committee sent a letter and they said you made the decision. clearly both of you cannot be right. you have had a year since the time i have asked to look into this so who authorized the renovation? mr. cordray: first of all, this has been misstated and garbled. i never said that, why would you

look into an expenditure of funds, you are entitled to look into an expenditure of funds and i appreciate the oversight. it -- why: you said when it matters to us? mr. cordray: it was who signed off. it wagner: who authorized because i have more questions, who authorized it? mr. cordray: i have said to this community -- this committee numerous times. i reaffirmed that decision and i continue to stand behind that decision. elizabeth warren was working at treasury at a special advisor and was understood to be advisor to setting up the bureau post saying the headquarters would be located at 1700 g street. wasn't elizabeth warren who -- and an authorized

authorized the renovation? i want the truth. who ordered a $215 million expense -- expenditure of renovations using the taxpayers money? not 215ray: it is million dollars. we have corrected the record on that numerous times. second, i have ms. wagner: you are saying you gave the authorization. mr. cordray: i was not in the place of the time. ms. wagner: reclaiming my time. it is unbelievable that you won't discuss who authorized it. it really makes me question how else this esp the spends its money. the answer to both questions was no. mr. cordray: congress set up that. ms. wagner: