Yesterday, the Senate Committee on Banking, Housing and Urban Affairs heard testimony from Director Cordray at its hearing titled “The Consumer Financial Bureau’s Semi-Annual Report to Congress.” Noteworthy aspects of Director Cordray’s testimony included the following:
- As they did at the Committee’s hearing on the CFPB’s Fourth Semi-Annual Report, Committee members questioned Director Cordray about the CFPB’s data collection practices, especially in light of the FHFA’s recent announcement that the categories of information to be collected for the National Mortgage Database would be vastly expanded. Director Cordray attempted to reassure the Committee that the Database would not include personally identifiable information such as names, addresses, or social security numbers, and that the CFPB would not collect information on religion. However, consistent with his prior statements, he indicated that the CFPB needed the data to effectively oversee the markets and prevent another market crash.
- Director Cordray informed the Committee that the CFPB’s proposed rule for prepaid cards would likely not be introduced until the end of the summer. He indicated that the delay was not because the CFPB was experiencing difficulties, but due to the difficulty of the issues involved.
- Senator Menendez raised issues about the practice of automatically putting a student loan into default if a cosigner dies or becomes incapacitated, even if the loan is current. He asked whether the CFPB could do anything using its existing authority to curtail this practice through rulemaking, or whether legislation was needed to grant the CFPB authority to address this practice. Director Cordray responded that public shaming of loan servicers who engage in this practice is important, and that his staff would reach out to Senator Menendez’s staff to discuss what further authority the CFPB may need. Senator Brown expressed concern that the problems in the mortgage servicing market are being repeated in the student loan servicing market. Director Cordray agreed, saying that the CFPB has seen an “eerie consistency” in the issues plaguing both markets: poor customer service, problems with transfers, lack of information, and harm to customers.
- With respect to rulemaking in the small dollar loan market, Director Cordray testified that this market was of “extreme importance to the Bureau.” Senator Brown cited examples where payday lenders were able to continue to operate in Ohio after laws restricting payday loans were passed, by shifting to alternative products like installment loans, online loans, and title loans. Director Cordray cited the Military Lending Act as another example of problems that can arise when the initial rules are not strong enough to prevent lenders from finding workarounds. Director Cordray indicated that it was taking the CFPB longer to address small dollar loans in order to make sure that its proposed rule won’t be “made a mockery of” by companies circumventing the rules creatively, as many payday lenders have done.
- Director Cordray also addressed concerns regarding the CFPB’s headquarters renovation budget, and asserted that the idea that the budget has tripled was a “fiction” promulgated by the Washington Examiner. He explained that it was never contemplated that the renovation could be completed for under $100 million, and that this amount as set forth in in the original budget represented an initial payment. Senator Johanns questioned a cascading water fountain that is part of the renovation, and expressed his frustration that the Committee had so little oversight over the budget. Director Cordray said he would “absolutely” be willing to give the Committee a thorough accounting of what is being spent on the renovation.
- Senator Warren discussed the CFPB’s arbitration study, saying that forced arbitration clauses “stacks the decks” against consumers in favor of large companies. The preliminary results of the CFPB’s study were released late last year. Director Cordray testified that the final study will be ready sometime this year, and that the CFPB would then be in a position to make policy judgments based on the findings in the final report. He declined to “prejudge” the issue, but stated that any rulemaking would take into account how arbitration actually works (i.e., does it provide a meaningful avenue for resolution of consumer issues? Why does it or does it not? How does arbitration compare to alternatives in court?)
- Ranking Member Crapo expressed concern about Operation Choke Point, and asked whether there was a conscious effort on the part of regulators to force legally operating lenders to stop their business. Director Cordray did not agree with that characterization, reiterating that the CFPB’s focus is on ferretting out illegal activity, calling that task “hard enough to do.”