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Creating a Consumer Financial Protection Agency: a Cornerstone of America’S New Economic Foundation

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Creating a Consumer Financial Protection Agency: a Cornerstone of America’S New Economic Foundation S. HRG. 111–274 CREATING A CONSUMER FINANCIAL PROTECTION AGENCY: A CORNERSTONE OF AMERICA’S NEW ECONOMIC FOUNDATION HEARING BEFORE THE COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS UNITED STATES SENATE ONE HUNDRED ELEVENTH CONGRESS FIRST SESSION ON THE CREATION OF A CONSUMER FINANCIAL PROTECTION AGENCY TO BE THE CORNERSTONE OF AMERICA’S NEW ECONOMIC FOUNDATION JULY 14, 2009 Printed for the use of the Committee on Banking, Housing, and Urban Affairs ( Available at: http://www.access.gpo.gov/congress/senate/senate05sh.html U.S. GOVERNMENT PRINTING OFFICE 54–789 PDF WASHINGTON : 2010 For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800 Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001 COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS CHRISTOPHER J. DODD, Connecticut, Chairman TIM JOHNSON, South Dakota RICHARD C. SHELBY, Alabama JACK REED, Rhode Island ROBERT F. BENNETT, Utah CHARLES E. SCHUMER, New York JIM BUNNING, Kentucky EVAN BAYH, Indiana MIKE CRAPO, Idaho ROBERT MENENDEZ, New Jersey MEL MARTINEZ, Florida DANIEL K. AKAKA, Hawaii BOB CORKER, Tennessee SHERROD BROWN, Ohio JIM DEMINT, South Carolina JON TESTER, Montana DAVID VITTER, Louisiana HERB KOHL, Wisconsin MIKE JOHANNS, Nebraska MARK R. WARNER, Virginia KAY BAILEY HUTCHISON, Texas JEFF MERKLEY, Oregon MICHAEL F. BENNET, Colorado EDWARD SILVERMAN, Staff Director WILLIAM D. DUHNKE, Republican Staff Director AMY S. FRIEND, Chief Counsel JONATHAN N. MILLER, Professional Staff Member KARA STEIN, Legislative Assistant RANDALL FASNACHT, GAO Detailee MARK OESTERLE, Republican Chief Counsel ANDREW J. OLMEM, JR., Republican Counsel DAWN RATLIFF, Chief Clerk DEVIN HARTLEY, Hearing Clerk SHELVIN SIMMONS, IT Director JIM CROWELL, Editor (II) CONTENTS TUESDAY, JULY 14, 2009 Page Opening statement of Chairman Dodd .................................................................. 1 Prepared statement .......................................................................................... 57 Opening statements, comments, or prepared statements of: Senator Shelby .................................................................................................. 4 Senator Johnson Prepared statement ................................................................................... 58 WITNESSES Michael S. Barr, Assistant Secretary for Financial Institutions, Department of the Treasury ..................................................................................................... 6 Prepared statement .......................................................................................... 59 Responses to written questions of: Chairman Dodd ......................................................................................... 141 Senator Johnson ........................................................................................ 148 Senator Vitter ............................................................................................ 149 Richard Blumenthal, Attorney General, State of Connecticut ............................. 34 Prepared statement .......................................................................................... 66 Edward L. Yingling, President and Chief Executive Officer, American Bankers Association ............................................................................................. 36 Prepared statement .......................................................................................... 69 Responses to written questions of: Chairman Dodd ......................................................................................... 153 Travis B. Plunkett, Legislative Director, Consumer Federation of America ...... 38 Prepared statement .......................................................................................... 79 Responses to written questions of: Chairman Dodd ......................................................................................... 154 Peter Wallison, Arthur F. Burns Fellow, American Enterprise Institute ........... 39 Prepared statement .......................................................................................... 132 Sendhil Mullainathan, Professor of Economics, Harvard University .................. 41 Prepared statement .......................................................................................... 136 (III) CREATING A CONSUMER FINANCIAL PROTEC- TION AGENCY: A CORNERSTONE OF AMER- ICA’S NEW ECONOMIC FOUNDATION TUESDAY, JULY 14, 2009 U.S. SENATE, COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, Washington, DC. The Committee met at 9:05 a.m., in room SD–538, Dirksen Sen- ate Office Building, Senator Christopher J. Dodd (Chairman of the Committee) presiding. OPENING STATEMENT OF CHAIRMAN CHRISTOPHER J. DODD Chairman DODD. The Committee will come to order. I would like to welcome all here this morning for this morning’s hearing on ‘‘Creating a Consumer Financial Protection Agency: A Cornerstone of America’s New Economic Foundation.’’ We want to thank you, Mr. Barr, for joining us, and our other witnesses we will hear from after your testimony, and the Members of the Committee who are here this morning. And, obviously, my good friend and col- league Richard Shelby, former Chairman of the Committee, will be making some opening comments as well. So let me take a few min- utes and share with you my thoughts on this question and then turn to Richard for any comments he has. And since only a few of us are here this morning, Bob, if you have got any opening com- ments you would like to make as well, I will turn to you, and then we will go to you, Mr. Barr, for your testimony. This morning we are taking an important step in our efforts to modernize our financial regulatory system. The failure of that sys- tem in recent years has left our economy in peril, as we all know, and caused real pain for many hard-working Americans who did nothing wrong themselves. And so I would like to start by remind- ing everyone that the work we do here matters to real people, men and women in my home State of Connecticut and all across our Na- tion who work hard every day, play by the rules, and want nothing more than to make a better life for themselves and their families. These families are the foundation, as all of us know, of our econ- omy and the reason that we are here in Washington working on this historic and critically important legislation. That is why the first piece of the Administration’s comprehensive plan to rebuild our regulatory regime and our economy is something that I have championed as well, and that is, an independent agency whose job it will be to ensure that American consumers are treated fairly and honestly. (1) 2 Think about the moments when Americans engaged with finan- cial service providers. Now, I am not talking about big-time inves- tors or financial experts. We know those people have a level of so- phistication. I am talking about just ordinary citizens, working peo- ple trying to secure a stable future for themselves and their fami- lies. They are opening checking accounts. They are taking out loans. They are building their credit. They are trying to build a foundation upon which their families’ economic security can rest for years to come. These can be among the most important and stress- ful moments a family can face. Think of younger people who have carefully saved up for that down payment on a home. It might be a modest house, but it will be their first home, a starter home. Before they can move into their new home, however, they must sign on the dotted line for that first mortgage, with its pages and pages of complex and confusing dis- closures. Who is looking out for them in that process? Think of a factory worker who drives 30 miles to and from work every day and that old car that is about to give out. He or she needs another one to make it through the winter, but wages are stagnant and the family budget is stretched to the max. He has got no choice but to go to navigate the complicated world of an auto loan. Who is looking out for that person at that moment? Think of a single mother—and there are many in our country— whose 17-year-old son or daughter has just gotten into his or her first choice of going to college. She is overjoyed for him or her, but worried about how she is going to pay for that tuition, which grows every year astronomically. Financial aid might not be enough, and she knows that as her son or daughter begins the next chapter in their lives filled with promise, they may be saddled with over- whelming debt. Who is looking out for that family under those cir- cumstances? These moments are the reason that we have invested so much of our time and money to rebuild our financial sector, even though some of the very institutions that the taxpayers have propped up are responsible for their own predicaments. These moments are the reason why we serve on this Committee and why I believe we have all come to the Senate to try and make a difference in the lives of the people we represent. And these moments are the reason that I and many of my colleagues were enraged by the spectacular fail- ure of consumer protection that destroyed economic security for so many of our American families. In my home State of Connecticut and around the country, work- ing men and women who did nothing wrong have watched this economy fall through the floor, taking with it their jobs, their homes, their life savings, and the cherished promise of the Amer- ican
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