tv Politics and Public Policy Today CSPAN April 15, 2016 5:00pm-7:01pm EDT
that when we're talking about a project of this magnitude and the state department is not following their own policies on this, what are we to expect for smaller projects? i mean, we're talking about a $2.17 billion project, that's big even by our standards. >> i agree. >> so i can only take from that that when we talk about smaller projects, they're not doing that either and they're wasting money. let me get to the point. i've belabored the point too long. here's what's bothering me. i have the federal law enforcement training center in my district, in glencoe, georgia. full disclosure. here is the state department needs to build a new training facility or says they need to build a new training facility for embassy personnel and i understand that and, listen, all of us understand what happened in benghazi, we don't want it to happen again, we want to be as prepared as we can be. initially in the report, comparing with where they're
going to build it now at fort pickett, fltse came in at $260 million, fort pickett came in at $965 million. then they went back and you even compared both sides, gao did, as did the state department. in six different factors, the site in threatsy came out ahead in four of the six. only one favored fort pickett. yet they went back and said let's review it one more time then came back and said no, it's not going to be $965 million to do it at fort pickett, it will only be $465 million, we got it down that much. duh! come on, i was born at night but it wasn't last night. i mean, seriously. so what did they do? they decide we're going to build in the fort pickett because that's where it needs to go. and here we are duplicating. it's one thing for us to talk about where we wasted money in the past but my problem is i can't let in this go.
it is with me. i've only been here for 15 months now and i just can't let it go because i see us wasting mon money. what can i do? tell me, this is keeping me up at night, i want to sleep. tell me what i can do. >> well, with regard -- i mean, congress has the power of the purse and they need to use it when they don't believe that the agencies are taking appropriate actions, i mean, you have to authority to be able to -- nobody can spend money without congress's authority and they can only spend it on what you can tell them to spend it on. >> i hope you can understand my frustration with this, this is very frustrating and i guaranteed you, i will bet you every penny i've got in my pocket that when it's finished at fort pickett that it will be closer to $965 million than it will be to $465 million. you know that, i know that, and they know that. so you see why i'm frustrated? you see why the american people
are frustrated? >> i look at this across government everyday so i share your frustration. >> share it with me. how can i get used to it. i got to get some sleep. >> the gentleman's time has expired. >> mr. chairman, i need to know how i can sleep tonight. >> my advice, i've never gotten used to it you have to work where you can to make improvements and make it better. >> thank you mr. chairman, i apologize. >> i thank the gentleman and the chair recognizes the ranking member of the full committee, mr. cummings, the gentleman from maryland for five minutes. >> thank you very much. mr. doe darr roe, the department has 79 major weapons systems programs with a total estimated acquisition cost of over $1.4 trillion. in august, 2015, gao released the report on d.o.d.'s process for buying weapons systems. that report said "d.o.d. and the
military plan to acquire more weapons than they can afford given anticipated levels of funding." are you familiar with that report mr. dodaro? >> i'm familiar with it and i have the author here with me. >> okay, and gao also found that d.o.d. makes decisions to invest in weapons on a piecemeal basis with each individual service making its own decisions about spending. according to gao, if d.o.d. managed its investments as a department wide portfolio rather than using this piecemeal approach it would ensure that these investments are, and i quote, "strategy-driven, affordable and balanced for long term needs." but d.o.d. is not doing that, are they? >> not to the extent we think they should. >> and according to the
congressional budget office, d.o.d.'s projected costs for weapons and other major equipment is going to increase by 21% by 2019 it's a whopping $541 billion. that's an enormous iestment of taxpayer dollars. do you believe that d.o.d. could save money if they used a portfolio approach rather than the piecemeal approach it's currently using? >> yes. i'll ask mr. francis to explain why. >> yes, mr. cummings. we think they can save money. what eck do with portfolio management is look at what is the right mix of weapons for given a level of funding. if you don't do that to the extent that's possible you end up optimizing for individual systems and then you'll pay as much as you can to get those systems in. now, the department has taken some efforts and i'm sure we'll have some comments on that.
but d.o.d. does look at portfolios but each organization looks at them differently, defines them differently and they can't integrate the budgeting and acquisition requirements processes. so you're right on the numbers, cbo estimates a bow wave in the out years for procurement. if you look at the navy, the navy is going to need about 30%, 32% more money to bring the programs in it already has under way and we have joint strike fighter that's going to hit peak years of $15 billion a year. so there's real questions about how we're going to manage all of that and what you don't want to do is do that system by system because you'll give everything a hair cut. >> mr. tillotson, i was surprised to see that d.o.d. was not agree with most of gao's recommendations, for example, according to the gao, and i quote "d.o.d. does not plan to
designate the deputy secretary of defense when an appropriate delegate responsibility for overseeing portfolio management as we recommended." why is d.o.d. not planning to implement gao's recommendations? >> the department actually agrees with the gao on the intent to move in the direction stroof t.j. i can portfolio management and do a better job of it. so we're not in disagreement with the direction gao is suggesting. i would also suggest that over the last three years the deputy secretary of defense has conducted portfolio reviews across weapons system with the outcome in mind that the gao is suggesting of how to make a more rational investment decision. i think the key here has been that the department recognizes that the military departments tend to bring forward individual
piece parts and as a result we needed to integrate this at a department wide level. that's been taking place consistently now for the last -- we've executed it the last two years. there's a third round in progress, that's something the deputy secretary brought on board when he took the job. so we are moving in the direction the gao suggests. >> the gao said, and i quote "d.o.d. was not plan to require annual enterprise level portfolio reviews that integrate key portfolio review elements from the requirements, acquisition and budget processes as we recommended." why not? >> i think the disagreement is more over the specifics of how to do it than it is over the intent. we think that the requirements process needs to be scrubbed at a portfolio level. the actual management of programs is a management of programs issue we don't want to make that the centerpiece of the decision. but then the actual decision of what resources do we ply against
what programs is the place where the portfolio process comes back into being. so we're in agreement again with the intent of the gao i think the differences are in implementation. >> i see my time has run out. thank you. >> the chair recognizes the gentleman from ohio, mr. jordan, for five minutes. >> thank you, mr. chairman. mr. dalrymple, how long have you been at the irs? >> sorry. i've been at the irs for a total of about 33 and a half years. i had a stint there, retired and i've come back. >> two tours. and what are your responsibilities exactly? >> my responsibilities include all of the enforcement activities at the irs, examination, collection, criminal investigation, all of the customer service activities including telephone services, submission processing. >> do you deal with the tax-exempt division? >> the tax-exempt diggs is part of that.
>> did you have any overlap with ms. learner? >> i think i overlapped with ms. learner for about three months. >> just a short time. okay, and do you report directly to the commissioner? >> i do. >> you report directly to the commissioner okay. ly understanding of mr. dodaro's report, there's a $385 billion tax gap. is that accurate? do you agree with what they concluded? >> we'll put out a new tax gap report -- >> you disagree. >> -- now and the end of the year and that figure is going to be will be -- adjusted base on the new information we have but it won't change dramatically. >> so he's close? >> yes, yes. >> and he has 112 recommendations, right? i understand there's 112 recommendations for treasury to implement with the fact we're not dealing with the $385 million. >> i'm not certain how many recommendations are on point with the tax gap but -- >> overall recommendations, they recommend treasury and irs implement. >> actually, i believe
there's -- >> how many are there, mr. dodaro? >> i believe there are 112 figure is correct. >> and is it true, mr. dalrymple, you've only implemented about 50? 70 you haven't dealt with? unimplemented? >> we have unimplemented or partially addressed actions without question. >> mr. dodaro, how many did they put in place? >> there's still about 63% that need to be implemented. >> so less than half. they've implemented less than half to deal with this huge tax gap. changing the subject what somewhat. so you're in charge of enforcement. do you know anything about the stingray technology? >> i know about the -- i know the technology exists. i know that we have employed it in certain circumstances. >> how many times has the irs used this technology that mimics a cell phone tow, grabs up
everyone in that particular area's cell phone data and gives the irs, the same irs that targeted people, access to people in that geographic location, the irs knows where they're at and their cell number and cell information. how many times that has irs used that technology? >> i'd have to come back with the exact number. i think it's about 37 times. >> 37 times. in those 37 times do you know if the irs got a warrant to use that technology? >> in every instance we would have had some sort of court -- >> not what i asked. did you get a warrant? probable cause warrant? >> again, i'd have to come back to you on that. >> can you get that back to me? >> certainly. >> does the irs have a non-disclosure with the fbi? not disclosing -- so when you employed it and supposedly grabbed somebody who hand paid their taxes or whatever you tried to get, did you disclose to them you used stingray
technology to get them? >> disclose it to the fbi? >> no, do you have a -- do you have an agreement with the fbi that says you will not disclose to the individual that you're using the technology to, i assume, get information or maybe get that individual, not disclose to them or their counsel? >> i'd have to answer that for the record i'm not certain. >> okay, we'd appreciate that as well. do you know if the irs received the jones memo the justice department put together outlining how you will deal with stingray? how federal agencies will deal with stingray technology as we move forward? >> i'm not familiar with the memorandum. i'd have to get back to you. >> okay, so those four things, how many times you've used it, did you get a warrant, probable cause warrant not just something else or whatever that the irs says may be sufficient based on what courts have said is not sufficient, do you have a non-disclosure with the fbi and have you received the jones memo. >> we'll get back to you on all four of those. >> appreciate it.
thank you, mr. chairman. >> i thank the gentleman. i want to add one thing to do that nerms of stingray technology since you're answering the gentleman back. i would like to ask if you've ever bifurcate it had information. i.e., if you didn't get a warrant if you were following them into their personal households li households, i'd like you to respond to that as well. the chair recognizes the gentlewoman from new mexico. >> thank you very much, mr. chairman. i'm going to kind of go off topic and i apologize kind of except that i think that generally speaking as dr. conway as the chief medical officer and while i absolutely appreciate your discussion about ways to improve quality and when we really that those investments, in fact, save money in the health care system and i really want to talk about some issues that i'm sure you're aware and
if you aren't, this is a great place to make you aware but i've talked about it in nearly every context that i can as a member of congress that given the situation in our state, our governor determined that all, 100% of our behavioral health providers, were engaged in billing practices that rose to the level of a credible allegation of fraud. and so suspended payments to all 15. now i disagree with that effort but be that as it may that's the decision the executive makes and has full power to make that. here's the issue for me given that three years later the companies that came in are largely now gone, that there is no behavioral health -- and let me repeat that -- there is no behavioral health infrastructure. that there was no continuity of care, there was no transition plan requirement, there's been no requirement by the federal
government for there to be accurate, credible -- i'm using that word on purpose -- credible data from the state of new mexico which hhs and cms have agreed are missing in this design, we have the worst public health outcomes in the country including the second-highest overdose deaths related by and large to a very fragile, very complex behavioral health population in the state of new mexico. it would seem to me that as the chief medical officer, one rule is we know that hospitalizations, overdose, incarcerations, akathmandu institutional care is not the right investment for both cost savings or quality in terms of treating these patients and i would guess you are also very aware that when you have highly complex patient, say someone with schizophrenia, who's developed a relationship with a
provider, who is now successfully on a medication management which is very hard for many of these patients to achieve and then that is completely taken away and if you can get in you see a different psychiatrist or psychologist every single time you try to get access, wouldn't you agree that this would not be the kind of investment or sound practice that any state or any medicaid environment should be engaged in? >> yes, congresswoman, thanks for your question. and i am very acquire of the issue and do agree that appropriate mental health and behavioral health treatment is critical to medicaid beneficiaries. we at cms have been working with state, as you said, since 2013 on this issue and recently in march respond in a letter
summarizing some of that work. we're currently working to improve their behavioral health work force. >> can you talk about that a little? i should mention to the committee and for the record that all 15 have been cleared by the attorney general. it's taken us three years to get this administration to require the human services department to repay these providers the million ises of dollars, but they're defunct so what exact work force investments are occurring in our statement because i'm aware of very little. >> so we are directly working with the state assuring that the state is currently following cms payment suspension tool kit guidance. >> but how does that get us a new work force and behavioral health system up? >> on the medicaid side we're working directly with the state on access of care issues, on ensuring proper networks. we both from the program
integrity side have put in place guidance and are working directly with the state on these issues moving forward on the medicaid side. >> given that three years has gone by -- and i apologize for being so -- interrupting you but this as a physician i was a cabinet secretary for health, this is untenable can you provide something to this committee in writing that would talk about ways in which, god forbid, this ever occurs in any other state anywhere ever again what cms ought to be doing to ensure you didn't spend the kind of acute care dollars? in fact, mr. chairman, people lost their lives in my state and continue to do so. so i would appreciate that responsibility in writing to this committee, if i may, mr. chairman. >> i agree with the principle of quality and safety and access to care being paramount and we will
provide a response. >> thank you. mr. chairman, i yield back the balance of my time, thank you, sir. >> the chair recognizes the gentleman from wisconsin for five minutes. >> we'll do a follow-up on mr. jordan's quesons, mr. dalrymple. can you explain what stingray technology is for our listening audience? >> as i understand it, it is technology that allows law enforcement to capture cell phone information. basically. >> you said you didn't know if you were getting a warrant. you said you used it 37 times. do you think you should be getting a warrant? >> i'm not certain we didn't get a warrant. so -- >> well, the question is, though, do you think you should have. if it turns out you didn't get a warrant, are you going to say that was an oversight, we screwed up? what is the attitude of the irs? >> i'm not certain, to be honest, what the requirements are for this -- for use of this technology, whether it's required to have a warrant or
not so i'll respond to that question in full when we've sent the response back. >> okay, you said you've used it 37 times. >> i said i think we've useed it about 37 times and we'd get back to the committee on how many times it's been used. >> it could be 36 or 38. why did you use it? >> i'm sorry? >> why did we use it? >> we use in the the course of a tax investigation. >> like what sort of crisis was there that you kind of had to know where people are? i would think that would be kind of a major thing. what -- can you give me like a pipe thet cal or even real fact situation that caused you to use this stuff? >> well, we use in the drug cases. we use in the count terrorism work we do. we use across a broad spectrum of activities that we have
responsibility for. >> those would be things beyond just the irs's purview? terrorism and drugs? >> it's things that we have responsibility for but not exclusively, yes. >> how do you mean responsibility? somebody is not reporting income? >> sorry? >> how do you mean tonight? >> i mean we do a lot of counterterrorism work around any money laundering, drug cases that we're involved in. that affect tax administration so, yeah, we have responsibilities there. >> are all the times you use it things for terrorism related or drug related? >> as i said earlier i'd have to get back to the committee on when we used it and how. >> okay. well, we'll go on to mr. dodaro. i want to ask you about disability benefits, what you're doing on that sort of thing.
i'd like to ask you, what do you do about overpayment on disability benefits? getting them back, can you give us an overview? >> yes. we've issued a report on that. we feel the social security administration could do a much better job not only in preventing overpayments but also they waved permanently repayment of about -- over $2 billion, i think, over a ten-year period of time, we think that they're not properly processing work requirements. when people start working, they're supposed to report that to social security and then they're supposed to take action but they weren't effectively processing the returns very quickly for the work requirements because then they should take them off the disability roles and cut off their payments. >> i want to ask you a general question here. i'm sure like every congressman, i get constant complaints from
people who are on disability and nobody can figure out why they're disabled. what are you doing about that and what can you do about it? can you comment on your position on that problem? >> yes, we do always have audits under way to look at the processes for the initial disability claims, what they're doing on continuing disability reviews. they're supposed to continue to evaluate these people. we've made lots of recommendations to improve the process over there. some of them have been implemented, some of them have not been implemented. some require legislative action. >> how often do you check somebody? if i'm on disability for a bad back today, how often do i have to be checked or see if it's on the up and up? >> it depends on -- we've made recommendations that they target better criteria on that sort of thing. they're supposed to be reviews on a regular basis. i can provide for the record what that schedule is but there
is a schedule. they're behind in meeting the schedule, they have backlogs of cases. >> i'm out of time but i'll talk to you later off the camera. >> i thank the gentleman. the chair recognizes himself for a series of questions. i want to thank all of you for your input today and the informative dialogue that we've had. additionally, i would be remiss if i didn't thank our staff here. it certainly is just an unbelievab unbelievable herculean job our staff does on a regular basis to not only prepare the members of congress but to really look in detail at the reports mr. dodaro that you provide so i want to acknowledge them. additionally i'd like to recognize a previous colleague, dr. coburn, obviously this was part of his brain trust and the
fact that we have duplicative services so long past him leaving the upper chamber we continue to see the fruits of his vision and so i want to acknowledge that as well, mr. dodaro, i want to come to you and certainly thank you and your staff and really for the other witnesses just to let you know if gao ain't happy, i'm not happy and i'll just put it very bluntly, we're reading what they have. and i think in a bipartisan way we're willing to attack it. there may be some ideologically differing views on what we should attack first but as much as i've tried to make gao being a political instrument, they won't do that. they keep it in a non-partisan -- in fact, there are times when i want them to be outraged and you get the calm cool gene dodaro there going "well, we need to address this and address that."
and i can't -- you know, i can't evoke emotion out of him. so i would say that because it's a benefit, i really believe to the three of you who were here today because you've been asked to testify because the implementation of those recommendations have really fallen short of where most of us believe it should and i say that in a kind way but when you don't implement the majority, words like "we're making progress "are like nails on a chalk board to me because what i want to do is see a matrix so what you're going to get done, when you're going to get it done so that's what i would ask you. mr. dodaro, one of the things that has been shared with me is about shared services. and so we've had john come in a couple times talking about the benefits of potentially using shared services.
we've had beth come in and talk about some of the shared services that she is looking at, now, there's some challenges in terms of whose fault if they don't provide and who's ultimately responsible but are you looking at that? can you look at that further and perhaps maybe not across our entire. from bfederal government but in terms of duplicative services where we could save money where you have one agency using services that perhaps we don't have to create individual departments? i'll let you respond to that. >> yes. one classic good example of where there's been a lot of benefits, years ago there used to be a proliferation of payroll systems across our government so a lot of consolidations taking place there through shared services operations even with the gao we use shared service
providers. i don't use them so i think there's a lot of potential there. we've looked at it principally in the area of financial management and services because that's common in terms of payroll processing and other things so that's an area i'd like, quite frankly, if we had additional resources to do more in but we haven't done a lot beyond financial management. >> well, if you would see if there's a couple areas we could address, i'm making that official request today. perhaps we look in the it area. there's certainly some it services that might be able to be shared. i see some of our experts fear that particular field. but if you will look at it and get that back to the committee. yes? sure. >> mr. chaffetz, you sent -- the irs sent a letter back to mr. chaffetz in november of last year and at the bottom of page two, top of page three at the
end of the letter it says "until july 2015 irs had one stingray which was acquired in 2011. in july, 2015, you began the process to procure an additional cell site simulator. do you know if the irs has received a second stingray? >> i'm not certain whether we have it oar not. i'll get back to you on that, too. >> but the process was started according to the letter. you know that? >> that part i do know. >> you don't know if you got the second one or not? >> i'm not certain. >> we need that information, too. mr. dodaro, there's 112 recommendations the gao made to the irs to deal with the tax gap, were any recommendations for irs to procure another stingray? >> no. i've not heard of stingray before this hearing. >> so you gave 112 things, good ideas to do to deal with a $385 billion tax gap and they've
implemented less than 50%, 37% according to what you said of the recommendations you gave them and yet they're using stingray technology and potentially purchasing a second unit to potentially infridge upon america's fourth amendment liberties. mr. dalrymple, that's why we raised the questions we did. why don't you start with the 112 recommendations mr. dodaro and his group did on how to deal with the fact we ain't collecting the money we're supposed to collect in light of the fact we have a $19 trillion debt instead of buying stingray technology and infringing upon the liberties of tax paying americans? >> i thank the gentleman. reclaiming my time, dr. conway, i saw you shaking your head yes when gene dodaro talked about
the fact that we needed to make sure hospitals and private physicians in terms of the amount of money we are paying them back, i saw you shaking your head that -- and i don't want to put words in your mouth but it is not linear or fair, is that correct? >> there's --in the president's budget there's a recommendation around site-neutral payments which would equalize payments for services across hospital outpatient setting and as you know congress passed legislation starting january -- >> so dr. conway, can we get too this committee within the next 120 days a plan on how cms plans to address that particular recommendation? >> we will work to get back to you with that information, yes, sir. >> all right. so in 120 days we'll have some kind of response from you? >> we will attempt to meet that
time frame. >> what time frame would be reasonable. dr. conway? i see the person that actually is doing the work who says you can make the 120 days. thank you. and my final question then i'm going to recognize the ranking member for his closing remarks, mr. tillotson, let me share a concern i have that. we have -- we want to always give our fighting men and women the resources that they need yet what i heard today was a less-than-robust implementation of some of the gao reports as it relates to your particular area. i also heard you saying well, we're making progress on all of that ch that. what i don't want to do is see that 40% of what you implement that really have no pam pact, substantial impact on terms of the bottom line get impacted
year after year and the 60% that would make very systemic changings get rolled over. that's what i'm seeing, that's what i'm reading is that we're making limited progress as it relates to that and with what happens is it makes it very difficult on someone who is trying to make those appropriations decisions on giving you the tools that you need and yet we hear about gross inefficiencies so it's incumbent upon you to help prioritize the recommendations that gao is making on an annual basis and saying we're going to implement these. will you report back to this committee within 120 days on the top recommendations for gao that have yet to be implemented and how you're going to implement those? >> mr. chairman, we'll report back. >> within 120 days. >> yes. >> thank you. i'll recognize the ranking member for his closing remarks.
>> just to go back to mr. jordan's questions and talking about i guess not only recommendations that may have been with regard to irs but -- to other agencies but let's zero in on the irs. you take into consideration budget cut, right? and the ability to get these things done? >> yes. yes. we make sure our recommendations are going to be cost effective recommendations typically, when we make a recommendation the agency has flexibility in how to implement it. we don't tell them exactly how they need to implement the recommendation so they have flexibility in order to do that but we take that into account and we believe our recommendations if implemented will be cost effective.
some of them require a little bit of an up front investment but wedge the benefits will exceed the cost of implementing our recommendations. when i report to you and the rest of the members of the congress that our recommendations implemented last year resulted in financial benefits over $70 billion, that's net of cost. so that's a net figure. that's what we track. >> we can do better, can't we? >> yes. >> is d.o.d. spending too big to count? >> well, they haven't been able to account for it, let me put it that way, they're the only major federal agency that hasn't been able to pass the test of an independent audit. they have just in the last year alone scaled back the audit requirements. they don't prepare full set of financial statements. only one year budget data and they've not been able to get an opinion on one year budget data.
so i'm concerned, as mr. tillotson mentioned, i've been having meetings with d.o.d., we have another one this afternoon to focus on the areas where they need to make improvements. they're not fixing the underlying problems satisfactorily and what they've promised me is that they were going to present a comprehensive corrective action plan for making the changes necessary to do it. but right now there's not proper accounting for the money being spent and there's not proper oversight over the assets that d.o.d. has, the property plant and equipment issues they have. and they're in need of significant improvement. >> and of course everything you just said opens the door for all kinds of mischief, for lack of a more -- a stronger word. >> what we say is control
problems. in an unemotional fashion. >> all right, thank you all very much, appreciate it. >> i thank the gentleman. again, i want to thank each of you. let me tell you why this -- not only this hearing is important but it sets a benchmark every year for us to look at. whether it's a high-watermark or low water mark we'll leave that up for debate but in doing that we need to set that standard for each one of you. i would hope that next year that it's not the same three agencies that are here that have yet to implement and let me tell you the reason why. along with that improper payments of which we will have a hearing in the coming weeks, those improper payments go right across the same groups, when we look at improper payments whether it's medicaid or medicare, hhs, cms having a role
in that. there's a headline today within the last few hours, the irs admits that it encourages illegals to steal social security numbers for taxes. now, you can't control what's in the press but here my point is this is that it's all about the earned income tax credit and if there is something that is not allowing the ie troes go after those improper payments -- because this is not the first hearing, i've been in four or five where we continue to have this problem, enough is enough. it's time that we address that problem and if there is something from a statute standpoint that doesn't allow you to share the social security numbers so that you can do the proper vetting that you need to do, let us know, we will work about that in a bipartisan way to address it but i hope that this is a the last hearing where we're not addressing that particular problem. from a d.o.d. standpoint there's
too many stories out there in terms of what we're spending and the fact that you can't pass an independent audit where you have the most responsible, hardest-working people willing to put their lives on the line for the freedom of our country and yet from an accounting standpoint we can't do it. i -- it's time we get our house in order and so i encourage all of you to work with gao on implementing those. i thank you. if there's no other further business before the committee, the committee stands adjourned.
[ indistinct conversation ] coming up live this evening on c-span, donald trump holds a campaign rally in hartford, connecticut. that state holds their primary on april 26, watch mr. trump's rally live beginning at 7:00 p.m. eastern on our companion network c-span. our live coverage of the presidential race continues tuesday night for the new york state primary. join us at 9:00 eastern for
consumer financial protection director appeared before congress for the 61st time thursday. he testified before the senate banking committee to deliver the agency's semiannual report. in dialogue with committee members, director cordray also defending the agency's creation, mission, and enforcement actions taken thus far to protect consumers. prior to mr. cordray's testimony, the committee voted on the president's financial nominees. >> committee will come to order. we have a quorum here.
before i move in block on the following nomination, senator brown, do you have a statement? >> i do, a brief statement. >> you want know go ahead? okay. mr. jay learner of illinois, this is -- i move at this time to vote in block on the following nominations, mr. jay neal lerner of illinois to be inspector general of the federal deposit insurance corporation. mr. garrety of connecticut to be an assistant secretary of the treasury. mr. matthew jebson of florida to be director of the united states mint. ms. lisa m. fairfax of maryland to be a member of the securities and exchange commission and mr. -- ms. hester purse of ohio to be a member of the securities and exchange commission. >> mr. chairman, before the vote i have a few remarks and my understanding is a couple people have brief remarks to. i thank the chairman for convening the executive session to consider these five
nominations. these people have been asked to take on important jobs, it's incumbent on us to act on them promptly today and on the floor. mr. lerner's nomination, however, was pending for 500 days. mr. garrety's was pending for almost 400. i hope we do better with remaining nominees. i hope that especially the nomination of adam zubin can be approved by the senate. i'm hopeful chairman shelby and all of us who support zubin will go to leadership and ask them to move on this. he's tremendously well qualified. he started with president obama. his job as undersecretary for treasury for terrorism and financial crimes is essential in carrying out our mission around the world. he was nominated almost a year ago. i would also ask that we move more quickly on the nomination of the confirmation of the export/import bank nominee who will mean that agency can
actually carry out its entire mission. thank you, mr. chairman. >> mr. chairman? >> senator schumer. >> thank you for the courtesy. i'm going to take a minute why i will vote no on the block of nominees. not because of three of them but because of the two s.e.c. nominees. i voted no because i have not received answers sufficient from either nominee to the s.e.c. on the question of the s.e.c.'s rule making on the disclosure of corporate political spending. i believe this should be a priority for the s.e.c. the citizens' united decision opened the floodgates for a deluge of dark money in the political system, undisclosed, anonymous, unaccountable. the proposed s.e.c. rule would at least compel corporations to disclose if and where they are making political donations. it would introduce a small but undeniably important degree of accountability and sunlight into a system that's broken. when i asked both s.e.c.
nominees about their position, they demurred. i asked them to think about it and give me an answer in writing. the answer in writing was frankly gobbledygook. it was maybe yes, maybe no, i have to look at both sides. i think that's false equivalency. opponents of the rule argue that political spenting is not material to investors. i vehemently disagree. shareholders have a right to know how corporations spend their money, it's that simple. i may factor into their decision to invest 1.2 million public commenters urged the s.e.c. to move forward with the rule. i'd rather get rid of citizens united but until we do we have to do this and ms. fairfax and ms. purse, one a democrat, one a republican, until they can indicate strongly to me that they believe the s.e.c. has to play a role in making corporate political spending transparent i cannot support their nominations. thank you, mr. chairman. >> mr. chairman? >> thank you very much.
mr. chairman, i continue to believe transparency and disclose your shareholders is of the utmost importance, both as a matter of corporate governance and investor protection. invest protection. spending is material to how shareholders decide where to invest and how to vote in corporate elections. within the past month both during and after the committee's nomination hearing, i asked both nominees for assurances that they understand the value of this important disclosure to share holders. i remain concerned that if they are confirmed, that they will continue to be on this matter for invest garrs on. for years i have been fighting and pushing sec commissioners to get started on and stay committed to this critical rule making and i led a charge to protect against appropriation
bills and it's not just me and my colleagues. more than 1.1 million americans and received more attention than any rule making petition in the sec's history. as such, i will vote against these nominees and i believe that before they are considered on the floor, we need strong commitments that they will stand with us and the 1.2 million americans who waited on this issue. i plan to meet with them. >> thank you, mr. chairman. years ago that the supreme court drove a steam roller over the we the people principal. in 2010, they unleashed a wave of secret corporate campaigns that turned our democracy from we the people tory the powerful. turning the core of the values of our nation. since then corporate spending
has gone unchecked and the democracy has been from undisclosed sources and it's time to change that. people, not pocket books should decide our elections. we wrote the sec and begin working on the rule to acquire companies for the shareholders and at the time this was on the agenda and the current chair took it off. that is a move in the wrong direction. this type of disclosure is a critical step towards fairness and transparency in political spending and it's time to make this a priority and restore transparency to our democracy. additionally if you invest your money in a company, you have the right to know how and when that company is spending your money to influence the out come of elections. anything other than full disclosure is incompatible with the freedom of speech in the
constitution. it's time to stop this wave of dark money that is drowning out of the voice of the people. i would join in voting no for the same reasons my colleagues put forward because my nominees have not clarified they understand and will advocate for the transparency that our constitution requires. >> thank you, mr. chairman. i share the concerns on a political spending issue. what happened to the campaign finance is a disgrace. the sec has the authority to help. what it doesn't have is the will. this is wrong for investors and all of america. we need an sec that will make spending more transparent. i also want to add that i have serious concerns about this nomination based on her stated views about dodd frank. i think it is dangerous to put
anyone in a commissioner position. someone who will have to implement and enforce the law who seems to be so adamantly opposed to the financial reforms that congress put in place. we saw what happened. the last time we deregulated the industry, the price tag was enormous. $14 trillion according to the fed. we cannot go back there. not now, not ever. >> next vote. those in favor, say aye. those opposed say nay? the nays have it. >> i want to be recorded as no. >> recorded as no? no, senator. >> i'm from massachusetts.
we feel strongly about this. >> probably a red sox fan. >> eat your heart out. you can't do that. >> you are either no or yes. >> i will explain why i voted no. >> we might just need it to record. that's what you want to do it on the sec. okay. okay. we will postpone the vote. there is a little confusion here. we will postpone and go to the
regular order. you have seen this before and we will welcome and you i will proceed with the opening statement. the committee heard testimony from the private sector experts on consumer finance regulation. we heard a number of concerns regarding the bureau's actions such as indirect auto lending and arbitrations and the database and small short-term lending. we also heard broader critiques of the bureau's approach. to regulating. and that's rather than the rule making progress. that is regarding the current structure and the lack of accountability. i said many times that the independence should never mean
the accountability or vigorous oversight. the drafters of dodd frank immunized the bureau from many meaningful influences and leaveing it free to engage in questionable practices and expansions of his jurisdictions. the only effective restraint available resides in the courts. fortunately this week the federal court of appeals directed the cfpb directed the constitutionality. this particular case follows what is now becoming a string of court decisions, criticizing or striking down this administration's implementation of dodd frank. including the so-called systematically imported designation. i believe the legal challenges will lead to many parts of dodd
frank. that is what happens when a 23 heard heard page bill is forced through congress without sufficient process and before they were fully understood. they did not wait for them to be completed or report to be released before they passed dodd frank. while the committee held a number of hearings, i can assure you that the thousands of pages were drafted well before we had a single hearing. we often hear about the importance of data and data-driven decision making at the errorings. i would like to highlight my concerns about the striking lack of data and data-driven decision making that produce the law we know as dodd frank. it strikes me that this committee approve this massive
piece of legislation without deposing a single market participant. they didn't submit from a single person or institution. now we are starting to see the results of this uninformed effort. there is growing concern that despite the bouro's mission, the rules and regulations restrict access to credit and increased cost and deny financial products for the consumer who is need them. last year's survey by the federal reserve found that 47% of u.s. households were unable to come up with $400 in emergency funds without settling something and going into credit card debt or using a short-term loan. by targeting the products in his rule making, the bureau may be blocking access to the very financial services many may need
in a crisis. consumer protection should not mean substituting the bureau's judgment. we will hear from the director so that we can have what we hope will be a productive discussion on these important topics and concerns. >> thank you, chairman for holding this important hearing. the hearing is one example of how they are accountable to congress and you almost can't turn on c-span and not see the director speaking to the house financial services committee or the senate banking committee. the issue of accountability bewilders me that anybody would say you are anything but that. they require twice a year to testify and every time this committee want and i'm almost certain that they want to talk to him or persuade him of
something. they are subject to three subject annual audits and the banking agencies have thrd to veto the rules and they threatened the safety or financial stability of our system. yet the cfpb's existence continued to be attacked with false argument that is it lacks accountability. the industry and it's the industry continues to fight the existence in those in congress who are advocating for the industry to join them and fight their existence and actions and most recently by trying unsuccessfully and i'm glad of that to the funding legislation. one of the writers would have senate confirmed members. this committee has gone 15 months and we have not seen one person coming out of this committee who has been confirmed on the senate floor, yet some of
my colleagues on the other side of the aisle want a commission of confirmed members in a dysfunctional banking committee and senate, it strains credibility to think that would be good government. maybe that's how they want it to be. the opponents want it to be that they couldn't act because they wouldn't have enough senate-confirmed members. the hearing we heard from three witnesses and one witness. the business witnesses claimed they are hurting people it is supposed to help. the polling shows that three and four voters support the agency just this morning. the committee received petitions from hundreds of thousands of
americans supporting the bureau. many of you are in the room today and i thank you for showing your report. the cfpb has been a watch dog for consumers since it started just five years ago and they obtained $11 billion in relief for 25 million people in our country. nearly one million people committed claims for the credit reports and what amazed me was that at least one or two of the three corporate representatives complained about the people sending in complaints. i guess because they were not industry lobbyists. we saw in the crisis that they ignored consumer protection duties and did not have the authority to act.
they focussed on the soundness and ignored the plight of consumers. these are complimentary and not competing. this is far less likely to run off the rails. a fed official claimed it didn't have evidence to act against predatory lending. imagine that. it's a fact that foreclosures in my home doubled from 1995 to 2000. they doubled again by 2006. and according to that former fed, consumer protection, the official who was one of the witnesses on the corporate side said there was no data to show the problems. they begged the fed to act and the same story played out across the country. prior to the cfpb, there was nowhere for them to file complaints and consumer financial product, there was centralized places to determine
what they were experiencing. they can determine when they had become so abusive that a million of them would file complaints about it. today we all have that place. cfpb exposed bad behavior from the companies that had no federal regulator. we finally had strong mortgage rules in disclosure design for people who have to pay the mortgage. the loans are a prime example. more than a dozen states don't allow payday lending and my state didn't until a republican majority came in the 1994 elections and payday lending in essence was created. even that legislature because of abuses a decade later enacted a
28% rate cap. ohioans by almost a 2-1 vote defeated that even though payday lenders were outspending them in that campaign 40-1. since then the legislature saved to those and payday lending is alive and well. i hope they will finish these rules soon on payday lending and the cost is demanded. i look forward to hearing about the priorities and i understand this is the 61st time you identified before congress. i hope we can focus on issues before allowing you to as we say around here, do your job. thank you. >> that will be made part of your record. you may proceed as you wish. thank you.
>> thank you, mr. chairman and members of the committee for the opportunity to testify about the consumer financial protection bureau's report to congress. i appreciate our continued dialogue as we look to strengthen the financial system and ensure it has responsible businesses and the foundations of the american economy. we va oversight and nonbanking companies and enforce the financial laws enacted by the congress. our analytical approach to risk-based supervision is leading to more consumer friendly changes at the financial kmugzs and we are making progress on labeling the playing field. on this period, our actions resulted in institutions providing more than $95 million to over 177,000 consumers. our enforcement actions are
based on careful and thorough investigations and most have identified deceptive practices by the parties involved. the orders entered in the enforcement led to 5.8 billion for consumers victimized boy the law. these consumers are located in every one of your states across the country. we are helping people to understand the choices they make and our resource provides guidance and response to inquiries across the spectrum of finance. our major moment in time include paying for college, owning a home and planning for retirement. we developed a new partnership to work with financial education in the schools and in the workplace and on behalf of older americans that is proving to be productive. listening and responding to consumers is central to our mission.
we continue to refine the capabilities of our office of consumer response to facilitate responses to complaints. we continue to expand our public consumer complaint database that updates nightly and is populated from consumers about the brought range of products and services. we had narratives for the financial market place. they can ensure that the markets operate in a fair transparent and competitive manner. we focused the efforts on promoting functioning markets such as the all important mortgage market in particular where consumers can shop for financial products and services and not so big to deceptive or abusive acts or practices. we issued several proposed rules
or requests for information. to support industry compliance with the rules, we president bush englished compliance guides and other resources to aid in the implementation. weer seeking to stream line and harmonize regulations that we inherited from other agencies. over this reporting period, they continue to expand efforts to support and protect consumers in the market place. recent data indicate that protections are strengthening them for consumers and providers alike. the mortgage market has been expanding for two years since the major rules took effect. the credit card market improved with strong consumer protections and better performance and increasing customer satisfaction. the auto lending market is meeting consumer demand. the growing sense of consumers that the markets can work for them without fear of tricks and traps and other predatory conduct is stoking their
confidence and restoring trust. these developments reflect on the work being done and taken as a whole, they are making recovery in the american economy. ranking member brown and members of the community, thank you for the student to discuss the work we are doing on behalf of consumers. we will continue to listen closely to the stakeholders and attend to your oversight to ensure they can have a fair treatment for the market place. i look forward to your questions. >> thank you, director. i would like to summarize my understanding here today. your enforcement actions regarding the auto lending and get your impressions.
you have the authority to direct auto lenders. >> they gave us that task, yes. >> the cfpb recently approved an action against the lenders using the theory of impact. you arguing that the policies created a significant risk that they will result in pricing disparities on the basis of race and origin and potentially other prohibited basis. in other words, it's my understanding that the lender
can't intentionally discriminate on the basis of race because the race is unknown to them. nevertheless, it's my understanding that you did determine that you, the agency, you did determine that certain racial groups were being charged the higher rate for loans and hints of the despaired impact. the bad act for lack of a better term was the lender's policy and not the fact that they intentionally discriminated against anyone because they couldn't even if they wanted to. if anyone was in a position to actually discriminate, it was the person selling the car. but the law doesn't allow you to regulate the dealer. only the lender that you acknowledge. the indirect lenders were penalized to the tune of $162 million for what may or may not have been the action of someone
else. assuming here that your conclusion of impact is valid, it would seem to me that this would be a poster child for rule making as opposed to an enforcement action. there is a big difference. the lenders did nothing to intentionally discriminate against anyone. yet it would appear that you treated them as such because you do not have the authority to go after your real target here. your own press release is in entitle. they hold auto lenders accountable for illegal mark up. i understand that you make these decisions on a case by case basis. here today, tell us why you chose to go after these lenders as if they were knowingly discriminating against certain individuals as opposed to pursuing a rule making that would give the lenders some clarity and certainty in the
area. >> i would say a couple of things and put the matter differently than how you just stated it. first of all, auto lenders set up the programs. they can lend directly or indirectly. they set up the programs. the results of the programs are their responsibility. if in fact there is a systematic pattern practice in their programs of people being given higher rates based on race or ethnic origin, that is against the law. there is two things i would say. we enforce the equal credit opportunity act in the same way and with overlapping jurisdiction. the justice department only has enforcement authority. all of these have been taken with the justice department and led to findings of discrimination. as to whether this is the law, my job is to enforce the law. whatever it is.
>> this law was reaffirmed by the u.s. supreme court in june. >> your job is to follow the law. >> absolutely. last june they reaffirmed that the discrimination is the law of the land. that is the law we were required to enforce and we will enforce it and to root out discrimination that nobody supports in any of these markets. >> there has been a lot of talk here before the committee and the discussion a couple of days ago about your agency using enforcement as a tool rather than rule making. some believe that after money rather than justice. what do you say to that? >> if you are enforcing the law, there people who are not going to like it. they would rather get away with violating the law and saving money. if people are violating the law, they should be made to pay and
ri imburse consumers who are harmed. that is a basic premises. i'm sure you took seriously the obligation to make people follow the law. that's all we are doing. if it hasn't been done previously and people are used to it not being done, that's not correct. >> everybody should have respect and that includes you and your agency. >> absolutely. they spoke on consumer finance contracts. this is the law of the land.
those arbitration agreements were harmful if most mortgage contracts and would be banned flat out in most residential mortgage contracts. congress said in the statute that as to the rest of the finance, we are going to task this new agency, our agency with the job of studying this problem carefully and reporting to congress about it. then based on the results of that study, to discover whether they are warranted. consistent with the study, consistent with the public interest to protect consumers. a mandatory job was to conduct a study of arbitration clauses in consumer finance contracts. we under took that seriously. it took us a couple of years to do that study. we assembled and brought in data that no one had a chance to look at before about arbitration
matters and court cases and about every manner in which different disputes may be resolved in the consumer finance arena. those who have criticized the study acknowledged that it was the single most comprehensive and really groundbreaking study that had been done and it continues to have been done in the history of arbitration agreements that go back under federal law to the 1920s. in the study found that in consumer finance issues in particular, very often what you have is a small amount of harm to individual consumers on a broad basis. millions are harmed to the tune of 50 or $100. that is enormously profitable and not worth the individual consumers while in most cases to pursue arbitration or a court case. in fact, what we found is
agreements tend to cutoff all together because it bans the ability to group together and bring claims so that institution who is harm on a broad basis and cannot be held accountable. that is what our study found. there was a lot of detail in there and it's not subject to a 30 or 60-second discussion. it runs to hundreds and hundreds of pages. it continues to be discussed and debate and we continue to discuss and debate it and we offer to speak to the authors of one study. one was interesting to speak to us about it and one was not. we are moving forward. we have indicated that we are getting a proposed rule making and to address this issue and i expect that to be in a proposal stage at some point this spring. >> thank you.
our panel claimed that regulations are reducing access to products like free checking and therefore they say pushing consumers into payday loans. however americans have a record $3.5 trillion in consumer debt and more than just six years ago. talk if you would about the availability of credit and the research that the bureau has done. >> i had a chance to review them and there were comments made about free checking that are dubious. i saw someone being pinned on it and i thought you were right to be skeptical about that claim. in fact, access to credit is expanding. by the way, there was also a lot of looseness around dates with the testimony. they talked about things that were happening since 2008. credit being restricted. credit was restricted in the wake of the crisis because households lost $10 trillion.
mortgages became tight. credit cards became tight. what has been happening since in the consumer bureau that didn't hope doors until july of 2011 is that we see credit beginning to expand again. in the mortgage market, they have shown credit is expanding. in the credit card market in particular, there is broadly increasing consumer satisfaction with these products. we think that's a good thing. we are not just pro consumer protection. if consumers have access to credit, that's a good thing. we do see that expanding across markets. >> last year the bureaus proposed rules and we talked about this in the past that would cover payday lending and other high cost loans.
our home state blocked payday lending and talk about how these companies have skirted state laws and the importance of the rule. you commented in the past that there a dozen states that don't allow the payday lending and if those states, how have they done with the small dollar credits without the access. >>. >> there is no research to show and it ranges depending on the definition from 12 to 18 states that restrict payday lending. there has been no research to indicate consumer welfare is harmed. there studies indicating that both credit scores are higher and bankruptcies may be lower. that's a question. the best example is that this committee can understand readily. you have been involved in the military lending act that was passed in 2006 with the promise
congress made to cutoff the credit being offered to service members. the rules that were then implemented at that time were pathetic with rates of interest. congress reopened that and the consumer bureau was part of the discussions about creating new rules and we now have strong rules in place that take effect in october that will bring the meaning of the military lending act to fruition for members and their families and the protections will be realized now, i believe. if loopholes are allowed and if rules are flimsy, the industry
will circomvent the rules. >> thank you, mr. chairman. i have privacy concerns about the big data collection efforts. the ability to reverse engineer. i get an official review. the report acknowledged the ongoing collection of up to 600 million credit cards and 11 million credit reports and auto sales. 10.7 million consumers and cosigners and borrowers and active mortgages and 5.5 million private student loans. i don't want to get into it now, but i would like you to verify that data with me. they issued the report and made
a number of recommendations to us. they indicated to us that we have implemented all of the recommendations and they will be moving to close those out. that's good news and i think the result has been improving our process as an agency. the last thing i want is for them to mishandle data. you have been apprehensive on this issue with legitimate reason from the beginning, but we handled this data responsibly and carefully. we are looking in response to some of the dialogue and oversight we had, we are looking to do sampling of data wherever possible and we are looking 59 how to do that. >> i appreciate your efforts on that and what i was saying though is i want to verify with you the data that i just put out. for example, are you actually only looking at 600 million credit cards and looking at more
or less? i don't want to get into that. >> the reality is that is in a state of plux right now and and we are looking at ways to report successfully to you overtime. the sampling of that data rather than comprehensive. >> as of october 31st, they issued eight mandatory data requests under the section market monitoring authority and six of those data collection requests were sent to fewer than nine companies. the significance of which avoids the review by the office of management and budget and circumvents that. that's for the products that was illuminous and sought a number of data fields including the positive products and
non-sufficient fund fees. while it did include a caveat that the financial institution should not produce any personally identifiable information, that directly identifies the consumer or account. i understand that the data collection request effectively required these institutions to scan customer accounts line by line for financial behavior going back years. it would seem to me that this is a large scale collection into the use of financial products on a transaction by transaction basis. how many can you confirm were collected through this request and how many customer accounts were scanned to get this data? >> there were different requests. i think the story you tell vindicates and shows careful concern by us to comply with the paperwork reduction act. the fact that we would limit
ourselves to get data is sampling of a kind. we are doing that because of paperwork production act provides them to do sampling rather than going out to 400 institutions. if we try and that becomes essential, there heavier burdens to bear. they will go through the process. >> i understand that, but if you look at credit cards, my understanding is and this is a rough number, there is somewhere over a trillion credit card accounts in the united states. if you are looking at 600 million of them, that's half at least. you may be far above the level which is why i asked for that number earlier. >> the database is different from the 1022s. it leads to sampling which is a good thing. we are working to go to a sampling process for that and i believe we will be able to do
that overtime. that's in response to your oversight and concern which i share. >> thank you and again my question specifically was how many data fields were collect and how many customer accounts were scanned to get this data. >> i would be happy to follow-up with you on which you were talking about or which database you were talking about and we will be glat to brief your staff. >> thank you very much. >> thank you very much, mr. chairman and thank you for your great work. i work hard with my colleagues on the committee to ensure that the office was included in the financial protection bureau. the leader snap is doing a remarkable job and just in 2015, you returned over $5 million to service men and women and families.
one of the reasons to me, i was a younger person and most of my time was consumed fending off creditors coming after my troops based on very suspicious arrangements that they worked out. i appreciate what you are doing. i don't think there is anything that would object and protect the financial well being of those in uniform in the united states. i would go further saying i don't think there should be a difference to their brothers and sisters, but exploited by other people. >> amen for that. >> thank you. one of the things that your inquiries uncovered is the practice that seems to be if not growing, disturbing. that is creditors contacted and threatened the security clearance with members of the armed forces with the debt.
this has huge ramifications and in some cases might be separated if this comes about. can you comment on that and what you are doing? >> sure. it is flatly against the law for anyone let alone service members with consequences that they have no ability to carry out. it's common for the debt collectors and those who push the envelope and those who don't care to threaten arrest or impruchbment which they have no ability to effectuate. the ominous activity that many debt collectors engage in is to threaten and go to the commanding officer and threaten the clearance that would threaten their ability to remain on active duty and perhaps a
dishonorable discharge. that is a practice that is against the law. we have taken strong actions against it. when we take action against the debt collector and threatening the clearance of a service member, i hope people take that by enforcement and every other debt collector understands they are at risk and violating the law and we will come down hard on them if they continue to do that. everybody should be on notice in this market place. no one should be doing that. >> i really appreciate that. i saw it from the perfective of the executive officer in the company where i was getting boraged and the commander would hand them. i did that for the commander. young men who had been really buying vehicles they could never afford at extraordinary interest
rates and being hounded and beaten up and threatening that their status in the military would be impaired. what you are doing is critical as a ranking member. it's critical to the ability of our troops to concentrate on our jobs. thank you. one other thing is through your work, we made improvements for the lending act. we had an act that would cap interest rates for 36%, but people went in and found that because of loopholes and with the previous regulation, in fact some were charming 400% for title experience and 584% for credit. 360% for online. these are men and women in the military. thank you for your efforts. i think now we have a better hold in keeping the level at 36. 36% interest in today's interest
economy is pretty plush for the lenders. thank you. >> i think that actually the regulations that were first adopted in the wake of the mla were disrespectful of the congress. congress clearly indicated its purpose to protect service members in the area. the rules didn't get that job done. i am grateful to the congress for reopening the issue several years ago. we could do it right this time. i'm proud of our team that worked with other agencies and with the department of defense and i'm proud of the department for their determination to make this work for their service members. >> for the record it was title installment loan and not title insurance loan. >> thank you and good to see you again. i had written a letter and i know and i appreciate your effort to make that more simplified for folks.
because of the line of work i have been involved in, i closed a lot of loans and most of the time i didn't see the sheet until i was the closing tale. i was okay with that because it sped up the chloeing process. at the same time i know that the attempt here is to make sure that people know what they are doing in advance and have the opportunity to see it and things are fluid with most loans and calculations take place at the last minute for lots of reasons. what we found and i know that you know this, we found that what's happening is that you have responsibility or legal obligations shifting to the settlement which is collecting the information and putting it in a closing statement. i am just wondering and i know that they can correct this within 60 days or a period of time, but there is some
confusion or what is something that is clerical errors and something that matters. attorneys are litigating and finding that sometimes people are having difficulty selling the loans in the secondary market. i'm wondering if you are considering making a ruling of some kind to alleviate the problems that are existing out there. >> so several things. it's a great thing about how the hearings matter. we had that letter from you. i am testifying that we did respond to that letter that may have been early last night or this morning. you probably haven't seen it yet. that's because we knew you would want to raise the issue again. in terms of the rule, this is something congressman dated and it was a good purpose. everybody acknowledged it was a good purpose. there was two different application forms and one issued
by the federal reserve and one issued by hud. two different closing forms by each of the agencies. it was confusing for consumers. why am i getting two forms? >> i know the reasoning. >> the purpose here was to stream line the forms. you all had a hand in making sure this happened. our agency was given the job and we completed that job. having said that, that's a transition for mortgage lender who is have to work with lots of others in the industry and all of the it systems have to work together. we recognized that and said we are going to be understanding and diagnostic about the oversight of this. the early period stretched past six months and we feel the same way. i will reemphasize that today. there some concerns that we want to be mindful of. we have the leading trade associations and the bankers's
associations and the concerns we have that we can address. we held webinars and we have another one next week. we have compliance guides out. we want to make sure that although this is better for consumers and they tell us that, it works for industry as well. mortgage lending was up 12% in january from a year before. that's a good thing. it's something we like to see because this is good responsible lending. they tick back down in february. the ellie may folks said that this is kind of status quo as far as that's concerned. we get that and hear that. >> i want to ask you another question. i think when you get to a point and hopefully very soon, you will be able to issue clarifying language so that people know
whether something is a minor area or snag is major and taints the loan. that would be helpful and i appreciate your concern. >> we have been doing that and will continue. if you are hearing things that we are not addressing, we are glad to have you bring them to our attention. we are glad to hear them from you. we sit up and take notice of that. >> i'm trying to adhere to the principal here. payday lending, i know in our state if you continued a loan that interest rate would be 459%. obviously we want to make sure that people have access to loan at affordable rates. we had the commissioner of banking within yesterday talking about this and just an observation. what is it that you see that are
potential outlets down the road for people whose credit has been tarnished and has issues? what are you seeing out there? i would love to hear what your thoughts are relative to people having access to loans that are different from that if i that are in the capacity to be able to execute. >> sure. a number of things and some of these were trying to sort out and understand. first the payday lending industry itself that could reform in light of potential regulations as they often have changed their practices at the state level in response to changes. nobody wants one or two loans when they need them. it's when people get stuck in the loans for eight or 10 or 12. >> i have a problem with this and i need to understand what the solution is so you don't cut people off. >> i think there is possibly
three solutions here. is all together. one is reform of the payday industry itself. credit unions offer a smaller product that is blessed in law. we think it's a good product. we want to make sure there is enough room and banks could do that. we want to allow room for that. responsible products, not payday products. the third piece is real opportunities for although small dollar lending is tricky and it is difficult. we will see if that develops overtime. whatever occurs, we want them to be friendly and we will be mindful of that and those in the industry know that many of them met with us and they are mindful here. >> thank you, mr. chairman. director, i came today in part unlike others to praise the
consumer financial protection bureau and not to bury it. let me say that i think an example of what you and your colleagues at the bureau are doing embodied in something we thought was very hard. that is the credit card act. the bureau noted in the most recent evaluation that since enactment, consumers saved more than $9 billion in overlimit fees. $7 billion in late fees and the total cost of credit dropped almost 2 percentage points and all the while the availability of credit card credit increased. that in my mind is one example of why protection laws and regulations create a fairer market place. in that regard as i think you know, i have been very engaged in the question of prepaid cards that exploded over the last few
years among house holes who lack access to traditional banking service and legislation that would require clear disclosure. it would also require prepaid cards to have fdic insurance and comparable protections to a bank account of a card if it's lost or stolen. many have voluntarily provided such measures and standards from shows that can be done. it also highlights the need for strong consistent protections across the market. could you give us an update on the status of the bureau's work on prepaid cards and particularly since i see that the rule did not include or the proposed rule did not include the issue of fdic, how will we create the type of protection necessary. >> we have been attentive to the
legislation that you introduced and the thought and care and research thatent into thinking about the issues that we attempted to incorporate into our own approach to these issues. we expect to have that finalized and we will finalize that rule in spring. on the issue of fdic insurance, i don't want to overstep proper bounds here, but we had discussions about it. we understand the concern there. many of these general purpose prepaid cards serve as substitute bank accounts for people who are on the bank. they have been bank accounts under protection. we had no consumer protections and this will provide protections for the first time similar to those for bank accounts. the other thing i would say that is new since we last talked to
the committee about it, we had the rush card fiasco and the consumer bureau was very engaged in addressing people with prepaid money on to cars and thousands of them found that they could not get the money off of their occurreds because of a glitch by the company and we had a problem that we sorted through from the sand point of an investigation and making sure consumers are made whole. that's outrageous. people prepay money to be able to use it when they need it and if they can't, they treated of their service. that if anything shows all the more and the need for strong protections. >> i know senator brown and i wrote you about that. the two last issues, one is zombie foreclosures said my state of new jersey has the highest rate of foreclosures
that is foreclosure and action and because of the low valley of the house that chooses to abandon the foreclosure without providing notice that they are on the hook for repaying mortgage debt taxes. can you talk to me about what steps if any they are looking to take to address the issue? at least can homeowners receive notice when the bank decided not to purr stew? lastly the national council reported that 48% that services rarely or if ever provide written communications in the preferred language of a borrower with limited english proficiency. they identified the provision of language services as an issue in the mortgage servicing examination, but for homeowners who encounter trouble, it seems that more is needed to receive the type of loss mitigation
assistance. >> i will take the second one first in terms of preferred language. there was a helpful provision that congress passed on that said if you are selling a product in a preferred language that you ought not to follow-up in all respects with the language. that's probably a good principal across the board. it was specified there and we were able to limp element it. in terms of preferred language that something we are working on with fhfa and others and with the importance and the vital elements of that for communities that are effective and not only spanish speaking, but a wide variety of languages in different parts of the country that we have come to understand. in terms of zombie foreclosures, it's a difficult issue.
it is often an issue for investor properties, but sometimes there properties taken over by banks and what you are talking about is starting a foreclosure and stopping that at some point. consumer doesn't necessarily have notice. they don't realize they will be on the hook legally. for taxes and insurance and other payments. they may well have left the home in the meantime. they are being foreclosed and often you start examining your options and take one when you can find it. it's a difficult problem. the notice is a basic there. it often won't be effective for consumers entirely effective. they may have left the home and it is worse frankly in the states with the longest foreclosure processes because there is more chance of a bank starting and stopping maybe 200
to 500 days in at which point the consumer may have left the home. there is consumer harm here. there complexits and something that we are looking to and mayb, as well, and how we can work together on that including state courts. >> thank you. >> thank you, mr. chairman. thank you, mr. cordray, for being here this morning. you made a speech to the credit unions and talked about how the mortgage market was good for all, good news for all around that more opportunity for more consumers and a wider path to the american dream and a mortgage market made stronger by the changes we have made. but the evidence for first-time hom homeowners over the last three years is it's declining and since the fact of the matter is 47%, 75% of majority population owns homes. 45% of african-americans own
homes. about 55% of hispanics own homes. when you look at the rules and dodd-frank put in place, how do we reconcile the mortgage market specifically is good news for all around when, in fact, first-time home buyers disproportionately point the news is not as good and what we have seen in south carolina is the rental market is far more expensive and the growth, really, an explosion in apartments is nearing an all-time high in the last decade or so. >> uh-huh. yeah. so this is -- and i knew you raised that question on tuesday. i had a chance to review the transcript of that hearing and it's an actually very interesting issue. a lot of pieces to it. first of all i would say in terms of first time home buyers if you look at the statistics what you will find is of owner occupied real estate, first time home buyers are still
maintaining about the same share they have. the difference that's affecting the market is that there's more many investor owned and investor purchased properties than there had been before the crisis. it appears investors have seen their opportunity as prices plummeted. and they have bought up a lot of properties and this is going to be a problem in a number of communities because although it helped find a bottom in certain markets and maybe create equilibrium, it's pulled inventory off the market and made it unavailable to say you and me if we were going to try to buy a house tomorrow and there's inventory problems. sometimes many houses are tied up in the foreclosure process. depending on the state. sometimes many houses remain underwater depending on local valuation so it's difficult for someone to self-they're underwater on their mortgage. and home builders have been kind of reluck about the to come back in with the rush to the market and build new inventory although that's starting to happen so, by
the way, i don't want to be viewed as a happy talker seeing a half glass full with a few drops in it but i see in the mortgage market the share of the mortgage market that is taken right now by credit unions and community banks together has risen since dodd-frank, since our rules took effect and at levels that are the highest they have been in 20 years. that's a good thing. those institutions did do the best lending right through the crisis when everybody was deteriorating. they stayed firm. they had low default rates and tailored the rules to give them advantages and recognize their model in the mortgage market and a good thing. >> it certainly is, appears to me that the consolidation within the banking space has led to more access and opportunities for smaller credit unions to continue to grow. >> i think so. >> frankly, section 1022 of dodd-frank states frankly the bureau may exempt any class or
service persons or products or services from any prosituativis the title or rule under this title. do you think if credit unions or community banks were being detrimentally impacted, by the rules of your agency, this section would allow there will be to be more tailored of regulations. do you see it as a possibility to take hold of or do you see the need of it or snot. >> we have been doing that since the beginning and we tailored our mortgage rules in particular which, of course, the most significant finance market for all players at around $10 trillion. we tailored the rules for smaller providers and we continue to do that. we have just implemented congress's i thought helpful legislation on definition of rural to be broad for smaller institutions. what i'll say about the
exemption authority we don't regard congress as having said to us, you have broad exemption authority. you can do whatever you want despite what congress said. that would be too much. but where we have evidence that we think we can build on and in particular rule making such as the mortgage origination rules, the mortgage servicing rules, we'll tailor for smaller institutions because they're responsible, they're close to their customers, they provide good service. but the notion that we would simply counter mand -- i mean, congress set its own limits here in terms of we have authority over banks over 10 billion and not under in terms of supervising them and the like and congress didn't just xemplt credit unions from all laws and regulations and therefore i feel that i can come in as a matter of opinion or ideology and overrule that but where i see, say, in mortgage rules and markets, they have done well and tailor the rules accordingly we have done that and continue to
do that and be glad to take the input on how you think we should be doing that and we get that indirectly all the time. >> happy to have that conversation with you offline if you're open to it. >> sure. >> my main concern as i wrap up, mr. chairman. >> thank you. >> yes, sir. the number of households underbanked, a million households and the fact of the matter is with better information from vided by staff the number is around 4 million under and unbanked households because the more regulatory burden impacts the institution, the higher the cost, the lower the access. for the unintended consequences, i assume unintended, 4.4 million households are now either unbanked or under banked than was at the beginning of dodd-frank. >> yeah. well, actually, i'd be interesting in knowing exactly
the numbers and the dates are because since the crisis, certainly the number has gone up because it blew up the economy for people, whether it can be pinned on dodd-frank, when we didn't open the doors until july of 2011, that's where i would get off the train on some of the commentary i have seen on this. >> happy -- we make sure that the numbers didn't start in 2008 and immediately after the crisis. >> yeah. that's three years before we came along. >> exactly. >> by the way, i think we certainly would agree that the fact that credit unions reached an all-time high in membership nationally last year is a good thing. i'm very supportive of that. i'm sure you are, too. it's notable if the rules are killing the credit unions, how's the membership at an all-time high? >> there's no doubt that the number of members at credit unions are higher and credit unions themselves are lower. >> that's a decline -- >> contraption of credit unions and banks, obviously, happening and there's a consequence that comes with regulations that may be contributing to that fact, as
well. >> maybe. although that's a consistent trend for 30 years and the evidencive seen it's not accelerated since dodd-frank although a lux green study i think in my view discredited this seems to suggest that. i don't think it bears out when you do the analysis more carefully. >> happy to continue the debate. >> sure. thank you. >> senator warner, thank you for your patience. >> appreciate that, mr. chairman. director cordray, great to see you again and i also want to commend you for your service. i'd point out that if you look behind you you will see a lot of folks supporters of the bureau, many of them actually from the commonwealth of virginia, brought in by virginia organizing who i think bear -- >> shorter commute for them than some of the people from around the country. >> amen. although still something needs to be done about the traffic in this region. i wish i knew who it was still governor. i want to pick up on where
senator corker was. i think there would be bipartisan sense that some of the more egregious actions on payday lenders needs to be stopped and people taken advantage of and we look forward to your guidance and rule making. but an area as we have discussed before, i've spent sometime looking into is vin-tech and the remains opportunities in this new area as we think about more and more of our banking will be put, frankly, to financial -- with the super commuting power on the phone. i have looked at a number of firm who is are looking at tools around income smoothing, differential ways of paying folks many low and moderate income people because of managing their finance on a regular basis fall off that cliff at the end of a pay period and end up then having to resort to a payday lender or other that is will put them in that debt spiral. >> yep. >> you know, the challenge,
though, is when you've got the new technology tools, how do you balance the innovation but at the same time as we have seen in -- didn't do a good job of protecting consumer information get this right? what standard are we going to hold them to? i think there's going to be the same kind of disruption we have seen perhaps with uber and taxis and air bnb. good but possibilities for abuse. >> true. the nature of innovation is neutral but hopeful and encouraging. and some innovations have been very bad for consumer. excottic mortgages were innovative and terrible for consumers as it turned out. i'm interested in the issues as i know you are and we have a team of project catalyst at the re