In what has become almost a grim ritual, Consumer Financial Protection Bureau director Richard Cordray faced a barrage of hostile questioning from Republican members of the House Financial Services Committee, who hammered him over everything from payday lending to regulatory relief for small banks.
Appearing before the panel on Wednesday for the CFPB's semiannual report to Congress, Cordray also sparred with lawmakers over a controversial $80 million auto discrimination settlement with Ally Financial and the agency's proposed restrictions on arbitration clauses.
Payday lending was arguably the hottest topic during the more than three hour hearing because the CFPB is expected to issue a proposal this spring to restrict short-term, small-dollar loans. Cordray tried to allay concerns that consumers would be denied access to credit as a result.
"We are not attempting to cut off such lending," Cordray said. "About half of payday loans made today go to consumers who are trapped in a cycle of 10 or more loans. It is the debt trap that creates a tremendous amount of consumer harm. We are going to seek to eliminate and limit predatory practices that put consumers in a debt trap."
Rep. Steven Pearce, R-N.M., questioned if there was a specific dollar amount that made payday loans exploitative. When Cordray responded that half of consumers roll a 14-day payday loan into a new loan as much as 10 times or more, Pearce became frustrated.
"You're the top regulator in the goddamn country. I'm asking you to give me an opinion," he said. "You're going after an industry and trying to shut them down."
In an outline last year, the CFPB said it is considering requiring a 60-day "cooling off" period before a consumer can get another payday loan, after already taking out a certain amount of loans. Rep. Randy Neugebauer, R-Texas, asked Cordray if the CFPB was trying to overrule existing state laws that restrict rollovers.
"If one state requires a five-day period and you say 60 days, isn't that preemption?" Neugebauer asked. "States have gone out there, they've had hearings. What do you know that they don't know?"
Rep. Brad Sherman, D-Calif., came to Cordray's defense on the topic by suggesting that his Republican counterparts were misusing the legal term "preemption."
"If you take the position that state legislators are in a better position to provide consumer protection, then you should repeal Dodd-Frank," Sherman said. "When we passed the law, we said there could also be a federal law. Preemption is when you tell a company they don't have to comply with state law. The state law supplements federal law."
Lawmakers also are intent on getting the CFPB to limit the costs of increased regulations on community banks and credit unions. Cordray said he had not yet read a bipartisan letter sent to the CFPB on Tuesday that was signed by 329 House lawmakers asking to limit regulations on smaller institutions.
The letter cited a Government Accountability Office report that found Dodd-Frank Act regulations caused smaller institutions to spend more money on compliance and might be stifling credit.
With some theatrical flourish, Rep. Steve Stivers, R-Ohio, gave Cordray a T-shirt meant for a toddler and asked him to put it on, though Cordray declined to do so.
"You couldn't fit in it, which is what a lot of our community institutions are doing," Stivers said. "That's the problem you're putting folks in. Take a look at your authority. What are you going to do to help these folks?"
Congress gave the CFPB authority under Dodd-Frank to grant exemptions on a rule-by-rule basis. But Cordray argued that credit union membership has reached an all-time high and that credit union market share in mortgage lending in particular had increased during the downturn.
"This argument that everybody is being driven out of business, they're discontinuing products, they can't fit into a 2T T-shirt, isn't consistent with the data," Cordray said.
When questioned further, he said that credit unions had sought broad exemption from oversight when the Dodd-Frank Act was being debated.
"In terms of a broad overriding, which was not to exempt credit unions from any regulation, I feel Congress has spoken on that," he said.
Of all the controversial topics covered at the hearing, the CFPB's attempt to regulate auto dealers, including the methodology used to cite firms for unintentional bias, led to the testiest exchanges. The committee held a deposition on Tuesday of Patrice Ficklin, the head of the agency's fair lending department, as part of a Republican investigation into whether the bureau did not verify that the consumers suffered discrimination when it gave out money from the Ally settlement.
Rep. Sean P. Duffy, R-Wis., pressed Cordray on the accuracy of the CFPB's data.
"What percentage of accuracy do you have regarding Ally?" Duffy asked.
Cordray responded, "A high degree of accuracy, [but] I can't give you what percentage."
Duffy then sought to pull Cordray in.
"Is it fair to say that there are some white borrowers who may be included in your analysis and may get checks in the Ally settlement?"
Cordray responded, "It is always possible and that's not unique in this area."
The CFPB's method for detecting discrimination by indirect auto lenders was the subject of several stories by American Banker last year. CFPB officials have acknowledged that its methodology could overcount the potential discrimination by firms, but say they prefer that to the alternative where bias is underestimated.
Cordray was also grilled on whether the CFPB had consulted with the Federal Reserve and the Federal Deposit Insurance Corp. after Ally applied for financial holding company status. Ally's former CEO, Michael Carpenter, alleged in a February New York Post article that the CFPB sought to derail its holding company application if it refused to agree to a settlement.
According to a review of internal documents by American Banker, CFPB officials were well aware of Ally's application, including that it gave them extra leverage during negotiations.
If Ally did not get approval, it "could have a material adverse effect on Ally's business, resulting in operations, and financial position," CFPB officials said in an October 2013 memo directed to and signed by Cordray. "Ally may be strongly inclined to reach a timely and robust resolution of this matter if it can potentially result in [Ally Financial] successfully converting to a financial holding company."
During the hearing, Cordray remained unflappable. While not exactly denying the fact that CFPB officials were aware of the application, he said that the bureau opened its investigation into Ally more than a year and a half before the bank filed the application.
Additionally, Cordray said he has "significant concerns" about deferred interest credit card products and said he does not expect the CFPB to issue enforcement actions against mortgage lenders related to new disclosures "unless someone is blatantly violating the rule."
Finally, several lawmakers objected to the CFPB's proposal to eliminate arbitration clauses in product agreements that prevent consumers from banding together to bring class-action lawsuits.
Rep. Scott Garrett, R-N.J., asked Cordray why he was ignoring requests from 80 members of Congress, who sent a letter last June asking for more disclosure on arbitration. But the exchange devolved quickly, with Cordray arguing he was responsive to Congress and Garrett insisting he wasn't.
Garrett ultimately resorted to a common theme of the committee's, saying to Cordray, "Are you accountable to anyone?"