Consumers. Our Enforcement Actions have based on careful and thorough investigations and most have identified deceptive practices by the parties involved. During this reporting period, the orders entered in our Enforcement Actions led to approximately 5. 8 billion in total relief for consumers victimized by violations of the law. These consumers are located in every one of your districts nationwide. Were also working to provide tools and information to develop practical skills and help people understand the choices theyll be making to manage the ways and means of their lives. Our ask cfpb resource provides guidance to inquiries across the entire spectrum of consumer finance. Our major moment in time decisional tools include paying for college, owning a home and planning for retirement. We developed the new partnership with the Financial Services round table to Work Together on Financial Education in the schools, in the work plates and on behalf of older american which 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 receive, process and respond to Consumer Complaints, including those referred to us by your offices. We also continue to expand our Consumer Complaint database ask which is now populated about over half a million complains complaints. We marked a milestone for Consumer Empowerment when we began to publish Consumer Complaint narratives which allow people to share in their own words their experiences in the Consumer Financial marketplace. Reasonable regulations are essential to protect consumers from harmful practices and ensure that Consumer Financial markets operate in a fair, transparent, competitive manner. We focus on markets like the Mortgage Market where consumer can shop effectively for Financial Products and services and are not subject to unfair, deceptive or abusive acts or practices. During this reporting period, we issued several proposed rules, final rules, o requests for information. To support industry compliance with our rules, we published plain language compliance guides and other resources to aid in their implementation. Were also seeking to streamline, modernize and harmonize regulations weve inherited from other agencies. Over this reporting period, the bureau continued to expand its efforts to support and protect consumers in the financial marketplace. Recent data end dates that sound Consumer Protections in our major markets are strengthening them for consumers and providers alike. The Mortgage Market has been expanding briskly for two years now, since our major rules took effect. The credit card market is greatly um improved with stronger Consumer Protections and increasing consumer satisfaction. The auto lending market is supporting record sales of cars and trucks to meet consumer demand. The growing sense of consumers that these markets can actually work for them without fear of tricks and traps and other predatory conduct is stoking their confidence and restoring their trust. These developments reflect well on the work being done by the Consumer Bureau and taken as a whole, theyre making substantial contributions to the continued gradual recovery in the american economy. Mr. Chairman, Ranking Member waters an members of the committee, thank you again for the opportunity to testify today and to discuss all the work were doing on behalf of consumers. We will continue to listen closely to all of our stake holders, and we will attend carefully to your oversight in order to ensure that all americans can be assured fair treatment in the Consumer Financial marketplace. I look forward to your questions. Mr. Hensarling the chairman recognizes himself for five minutes for questions. As you are well aware, in late 2013, the buy row entered a suit with allied financial based upon a legal theory of disparate impact. At the time, ally had an important yet unrelated pending approval. The c. E. O. Of ally said the charges were, quote, trumped up that your bureau brought against ally. The went on to say that ally had been strong armed by the cfpb and the cfpb, quote, absolutely knew they had leverage over us. Isnt it true that you and senior staff in the office of fair lending knew ally was seeking to achieve Financial HoldingCompany Status prior to the settlement . Mr. Cordray i read the interview mr. Hensarling just a simple yes or no. Were you aware or not aware of the pending application prior to the consumers. Mr. Cordray we pursued this for well over a year before ally themselves mr. Hensarling were you aware or were now not aware. Mr. Cordray we pursued this for more than a year before they brought it to our attention. Mr. Hensarling so you were aware. Isnt it true they were in discussions with both the Federal Reserve and the fdic on how to thousand the determination of an ecoa violation could adversely impact their application, is that true . Mr. Cordray we had no Decision Making authority over those matters. We were attempting to conclude our investigation. Mr. Hensarling but were they in discussion . Was senior staff with the fair lending of the cfb in discussion with the Federal Reserve and the fdic regarding this application . Mr. Cordray i believe there were consultations about them. Mr. Hensarling you say consultation, we say discussion. Pull up slide number six, please. I believe on october 7, 2013, a decision memorandum was prepared for you, im not sure you saw this but it has the operative phrase, staff is in a dialogue with both the Federal Reserve board and fdic. It begs the question, what does this have to do with a potential violation of eoca . Now im also led to believe did you receive this memo . Do you know . Mr. Cordray i do not know. Mr. Hensarling go to the next slide, please. What is also interesting is that the last sentence of the previous slide was deleted. Instead we have somebody with the initials of p. A. F. , perhaps patrice fickland, saying lets refrain from this discussion and instead, quote from the securities filing which seems to me that either senior staff attempted to cover up the discussions or they tried to withhold this information from you. Did senior staff try to withhold this information from you prior to the determination . Mr. Cordray i dont believe so. I think youve got the entire matter exactly backwards, mr. Chairman. Mr. Hensarling regardless of whether you saw this october 7 memorandum you certainly saw the one on october 17. I believe these are your initials, decision memorandum for the director, and in it it says, this could have a material adverse effect on allys business, result of operation in financial position, and seemingly you initialed this. Are you at least familiar with this report . Mr. Cordray i think youve got this matter exactly backwards. Mr. Hensarling the question is did you initial this memorandum . And if so, it would seem to indicate that you knew ahead of time that you had advantage over ally and you used it. Mr. Cordray again, i think you have this backwards i would be glad to explain. Mr. Hensarling you will have ample opportunity within this hearing but i wanted to know. If you saw this memo. So i have another question. In employing your in determining the racial characteristics of borrowers in auto lending contexts, you dont actually have the racial characteristics that you know for a fact. Mr. Cordray we use the same thats used in discrimination cases. Mr. Hensarling we have the names and salaries of the bureaus employees in our possession. And our committee has used a public search tool to match home addresses and match names using your own surname geocoding, what we have discovered is that you pay black employees almost 16,000 less than their white counterparts. Which would suggest that either, one, you are presiding over a racist organization, and if you are not, mr. Cordray, should not the same disparty Impact Analysis you apply to others be applied to you and if you dont believe our analysis, i would assume you actually know the racial characteristics of your employees, i invite you to do your own analysis, but should disparate Impact Analysis be applied to the cfpb . Mr. Cordray i have no idea what analysis youre referring to. Disparate analysis was upheld by the u. S. Supreme court last june in an important decision. And if youre going to do that analysis you need to correct for pay bands and different jobs, i have no idea whether you did that or not so i would not mr. Hensarling i would invite you to do your own analysis. Im not sure theres any justice taking place here. I fear we are seeing shake couns for headlines. The chair is way beyond his time and now recognize the Ranking Member. Ms. Waters thank you very much, mr. Chairman. Mr. Cordray, i do not want you to be intimidated or to be made to feel bad by these accusations that are being made by the chairman. I would like to think that the chairman and the opposite side of the aisle are truly interested in discrimination. Theres nothing in their work or their history that shows they are. And so you continue to do your work and make sure that the work that you do on disparate Impact Analysis is work that will benefit all of the people who are being harmed by it. And so lets get on with the real issues. Lets talk about payday lending. Despite the fact there is substantial support for payday operations on the opposite side of the aisle, we know that these operations have targeted minority communities and poor communities and people are getting hooked on these payday loans and i want to talk about for a minute what is happening here in florida. But before i do that, i have asked my staff to get me more information about where they are locating and how many are locating and what areas theyre locating. We do know this. As it has been said by the Federal Reserve in st. Louis, there are more payday loan operations than there are mcdonalds stores. So a number of states like florida and ohio have attempted to reform payday lend bug even after socalled reforms, loopholes and other gaps remain, still leaving vulnerable borrowers susceptible to exorbitant Interest Rates and cycles of debt. For example, even after floridas reform, florida januarys still take out an average of about nine loans a year, according to the center for responsible lending with an annual Interest Rate of about 312 . According to one report an investigation into florida auto lenders who expanded dramatically after floridas socall red form, one florida consumer appeared to have renewed her loan 17 times in one and a half years. Another woman borrowed 3,100 and made 2,600 in payments and after rolling her loan over seven time she is still owed 3,900. I can give more examples of this but what im giving examples of is how poor people get hooked on payday loans. The fact that these borrowers have to take out multiple loans shows that the loans are not affordable. They are trapped borrowers. Into a cycle of debt. Tell me why you are issuing guidance on payday loans . What have you discovered about them and how they work . Mr. Cordray what we have discovered, and this is through careful and comprehensive research into the payday lending industry is that the description you provided is substantially correct and accurate. About half of payday loans in the United States today are made to borrowers trapped in a cycle of 10 or more loans. Thats about half the loans being made nationwide. Thats what we found in our research that looks into millions of such transactions. And its difficult to see how that assists a consumer in improving their financial well being. Now there are plenty of payday borrowers who get in and get out with one or two or three loans and thats perfectly great and we are not attempting to cut off any such lending. But it is the debt trap being stuck in the debt cycle, living your life off of those massive rates of interest and difficult collection practices and the like that weve seen that creates a tremendous amount of consumer harm. Ms. Waters according to the work you have done, research you have done, is this a profitable industry . Are they making money . Are they making large sums of money . Whats keeping them going . Mr. Cordray its actually a difficult product economically. Theres high costs involved in defaults, high costs involved in customer acquisition. So there are not super normal profits being made in that area. But what keeps them going, the Business Model for the average payday lender is rolling the customer into loan after loan after loan so that eventually you have recovered more in fees than they borrowed in the first place and your example was an apt one of someone who takes out a loan, pays back more in the end than they borrowed to begin with and still owes in the end more than they borrowed to begin with. Thats a normal part of this business. Ms. Waters this is why theyre referred to as debt traps. People get trapped. They cant get out. They keep rolling them over. Is that what this is all about . Mr. Cordray yes. Industry objected to that notion but its the best description ive seen of what happens in the marketplace. Ms. Waters thank you, i yield back. Mr. Hensarling the chair recognizes the gentleman from texas, chairman neugebauer for five minutes. Mr. Neugebauer this committee spent a considerable amount of time studying the shortterm, small dollar marketplace. Recently, your Deputy Director testified at my subcommittee on this issue. Many of my colleagues did not walk away with much confidence in the direction youre headed with the rule making particularly on the issue of state and tribal sovereignty. At issue are roughly 38 states who allow these products to be offered in some form and the federal preemption that will occur if your rule goes forward as outlined by the bureau, i have a few questions. Ill use some slides during that questioning, i hope you will be brief and forthright in your answers. Slide number one, please. So after reviewing the current regulatory framework, does any state, did you find any state that does not have the authority to enact and regulate shortterm small dollar loans . Mr. Cordray states have authority in this area and the federal government has authority in this area as well. Mr. Neugebauer you didnt find anybody who didnt have the authority . States have the authority to regulate . Mr. Cordray as is true in many areas of law, states have authority and the federal government also has authority. Mr. Neugebauer slide two, please. Can you list the states that have laws in place that have contributed to the problem that you have identified . Which states have failed to protect their citizens . Mr. Cordray what i can say is, as you indicated, approximately 37 states or so that allow some form of payday lending with different degrees of regulation. And our study that analyzed millions of such transactions nationwide showed that repeatedly in this business, across the country, many consumers fall into the debt trap, more than half of the loans are made to people with 10 or more loans in a row. Mr. Neugebauer which states are allowing the debt trap . Mr. Cordray all the areas, all the states that were examined in the study. Mr. Neugebauer do you have a list of those states . Mr. Cordray it would be all the areas where payday lending is authorized. Mr. Neugebauer you looked at all the states . Mr. Cordray we looked at millions of transactions nationwide in every state. Mr. Neugebauer so you mentioned theres a floor, is anything below that void . Mr. Cordray we dont have a rule, we have an initial framework and this kind of input is relevant to our process but as with our Mortgage Services rule which is are final, we did not preempt state law there. We did provide a federal policy judgment about Mortgage Servicing practices and indicated in line with the statute that congress enacted that gives us authority in the area that our rules would be a floor for consume brother text not a ceiling. Mr. Neugebauer you do not think youre preempting state law . Mr. Cordray we are not preempting state law. Typically the federal government when its active in an area could seek to occupy the field that would be broad preemption, were not doing that. They could also seek to preempt state law in specific respects, were not doing that. Whatever we do in this area will coexist with state law. There will continue to be state regulation of payday lend, there will now be federal regulation as well. Thats true of many areas of law, telecommunications law, environmental law mr. Neugebauer but the attorney general disagrees with you. Mr. Soler disagrees with you. Mr. Cordray i know the Indiana Attorney general, we served together, we have both been interested and concerned about issues of federal preemption going back to our time in State Government and for myself i spent 20 years in State Government. So mr. Neugebauer if one state has a fiveday cooling off period and the rule comes out that you require a 60 day, have you preempted the state that says five days is appropriate cooling off period and you say 60 is, isnt that preempting that state . Mr. Cordray a common aspect of federalism in our system is that there may be federal regulation and state regulation. Mr. Neugebauer what is your definition of preemption then . Mr. Cordray preemption is when the froth overrides state law and invalidates state law. Mr. Neugebauer so my state has a fiveday cooling off period you