Nominations of Gary Gensler and Rohit Chopra — Senate Hearing 117-76 (March 2, 2021)
Summary
Senate Hearing 117-76 records the March 2, 2021, hearing of the Committee on Banking, Housing, and Urban Affairs, which met remotely via WebEx with Hon. Sherrod Brown presiding, on the nominations of Gary Gensler to be a Member of the Securities and Exchange Commission and Rohit Chopra to be Director, Bureau of Consumer Financial Protection. Senators Ben Cardin, Chris Van Hollen and Richard Blumenthal are listed as witnesses. Senator Toomey's statement says the CFPB remains led by a sole director not accountable to Congress through the appropriation process. Toomey also voices concern that Gensler may be inclined to use the SEC to advance "a liberal, social, and cultural agenda." The record includes written questions and answers and letters submitted in support of the nominees.
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“Nominations of Gary Gensler and Rohit Chopra — Senate Hearing 117-76 (March 2, 2021).”
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[Senate Hearing 117-76]
[From the U.S. Government Publishing Office]
S. Hrg. 117-76
NOMINATIONS OF GARY GENSLER AND ROHIT
CHOPRA
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED SEVENTEENTH CONGRESS
FIRST SESSION
ON
NOMINATIONS OF:
GARY GENSLER, OF MARYLAND, TO BE A MEMBER OF THE SECURITIES AND
EXCHANGE COMMISSION
__________
ROHIT CHOPRA, OF THE DISTRICT OF COLUMBIA, TO BE DIRECTOR, BUREAU OF
CONSUMER FINANCIAL PROTECTION
__________
MARCH 2, 2021
__________
Printed for the use of the Committee on Banking, Housing, and Urban
Affairs
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available at: https: //www.govinfo.gov /
__________
U.S. GOVERNMENT PUBLISHING OFFICE
45-766 PDF WASHINGTON : 2022
-----------------------------------------------------------------------------------
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
SHERROD BROWN, Ohio, Chairman
JACK REED, Rhode Island PATRICK J. TOOMEY, Pennsylvania
ROBERT MENENDEZ, New Jersey RICHARD C. SHELBY, Alabama
JON TESTER, Montana MIKE CRAPO, Idaho
MARK R. WARNER, Virginia TIM SCOTT, South Carolina
ELIZABETH WARREN, Massachusetts MIKE ROUNDS, South Dakota
CHRIS VAN HOLLEN, Maryland THOM TILLIS, North Carolina
CATHERINE CORTEZ MASTO, Nevada JOHN KENNEDY, Louisiana
TINA SMITH, Minnesota BILL HAGERTY, Tennessee
KYRSTEN SINEMA, Arizona CYNTHIA LUMMIS, Wyoming
JON OSSOFF, Georgia JERRY MORAN, Kansas
RAPHAEL WARNOCK, Georgia KEVIN CRAMER, North Dakota
STEVE DAINES, Montana
Laura Swanson, Staff Director
Brad Grantz, Republican Staff Director
Elisha Tuku, Chief Counsel
Jan Singelmann, Counsel
Dan Sullivan, Republican Chief Counsel
John Crews, Republican Policy Director
Cameron Ricker, Chief Clerk
Shelvin Simmons, IT Director
Charles J. Moffat, Hearing Clerk
(ii)
C O N T E N T S
----------
TUESDAY, MARCH 2, 2021
Page
Opening statement of Chairman Brown.............................. 1
Prepared statement....................................... 54
Opening statements, comments, or prepared statements of:
Senator Toomey............................................... 3
WITNESSES
Senator Ben Cardin of Maryland................................... 5
Senator Chris Van Hollen of Maryland............................. 6
Senator Richard Blumenthal of Connecticut........................ 7
NOMINEES
Gary Gensler, of Maryland, to be a Member of the Securities and
Exchange Commission............................................ 8
Prepared statement........................................... 55
Biographical sketch of nominee............................... 57
Responses to written questions of:
Chairman Brown........................................... 114
Senator Toomey........................................... 119
Senator Menendez......................................... 132
Senator Tester........................................... 132
Senator Warren........................................... 134
Senator Van Hollen....................................... 138
Senator Sinema........................................... 139
Senator Crapo............................................ 141
Senator Scott............................................ 142
Senator Tillis........................................... 144
Senator Kennedy.......................................... 146
Senator Lummis........................................... 149
Senator Moran............................................ 151
Senator Cramer........................................... 158
Senator Daines........................................... 159
Rohit Chopra, of the District of Columbia, to be Director, Bureau
of Consumer Financial Protection............................... 10
Prepared statement........................................... 72
Biographical sketch of nominee............................... 73
Responses to written questions of:
Chairman Brown........................................... 160
Senator Toomey........................................... 163
Senator Tester........................................... 173
Senator Warren........................................... 175
Senator Van Hollen....................................... 175
Senator Sinema........................................... 176
Senator Crapo............................................ 177
Senator Scott............................................ 178
Senator Tillis........................................... 181
Senator Kennedy.......................................... 182
Senator Moran............................................ 183
Senator Cramer........................................... 187
Additional Material Supplied for the Record
Letters submitted in support of Nominee Gary Gensler............. 191
Letters submitted in support of Nominee Rohit Chopra............. 210
(iii)
NOMINATIONS OF GARY GENSLER AND ROHIT CHOPRA
----------
TUESDAY, MARCH 2, 2021
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10 a.m., remotely, via WebEx, Hon.
Sherrod Brown, Chairman of the Committee, presiding.
OPENING STATEMENT OF CHAIRMAN SHERROD BROWN
Chairman Brown. The hearing will come to order. This
hearing is in a virtual format. A few reminders as we begin.
Once you start speaking there will be a slight delay before you
are displayed on the screen. To minimize background noise,
please click the Mute button until it is your turn to speak or
ask questions. You should all have one box on your screens
labeled Clock, that will show you how much time is remaining.
For witnesses, you will have 5 minutes for opening statements.
For all Senators, the 5-minute clock still applies for your
questions. At 30 seconds remaining for statements and questions
you will hear a bell ring to remind you that your time is
almost expired. It will ring again when your time has expired.
If there is a technology issue we will move to the next witness
or Senator until it is resolved.
To simplify the speaking order process, Ranking Member
Toomey and I have agreed to go by seniority for this hearing.
Today we consider the nominations of two distinguished
public servants: Rohit Chopra to serve as Director of the
Consumer Financial Protection Bureau, and Gary Gensler to serve
as a Chairman of the Securities and Exchange Commission.
Most of us have met with them. Most of us have been
impressed with their knowledge, their commitment, and their
passion to serve, especially during the current public health
crisis. Thank you, Commissioner Chopra, thank you, Mr. Gensler,
for your willingness to serve.
You are both nominated to lead parts of our Government
whose job is to stand up for the millions of Americans who do
not have a corporate lobbyist, who do not have a Super PAC, who
never get bailouts or golden parachutes. And you will take on
these roles at a time when so many people do not feel like they
have a voice in our economy, or anyone on their side in our
government.
Your job will be to prove them wrong, to fight for all the
workers and families and communities that have been left out
and looked down on by the Washington elite, and have been
preyed on by Wall Street. Even before the pandemic, workers;
wages were not keeping up with the cost of living and raising a
family. The cost of housing, childcare, prescription drugs all
have gone up. We know 40 percent of Americans are not able to
come up with $400 in an emergency.
The racial wealth gap has increased. The average white
family now has ten times the wealth of the average Black
family. And most stunningly, we have the widest racial home
ownership gap in 50 years. In fact, the gap is as big today as
it was when it was legal to refuse to sell someone a home
because of the color of their skin.
Then the coronavirus pandemic hit, and millions of workers
who were one emergency away from draining their savings or
turning to a payday lender or being evicted were all facing
emergencies at once. Millions of homeowners are behind on their
mortgage and at risk of foreclosure, including nearly one in
six Latino homeowners and one in five Black homeowners.
Today's nominees understand the challenges we face. And
after years of allies of the largest corporations and the
biggest banks running these agencies, and setting government up
to fail, Mr. Chopra and Mr. Gensler are here to fight for
everyone else.
Congress created the Consumer Protection Bureau to be a
voice for all the Americans who too often do not have one in
Washington. During its first 10 years, the Bureau delivered
results, made new, strong rules that protect consumers from
abusive practices, and returned more than $12 billion to more
than 29 million Americans who were cheated and preyed on by
shady lenders and sometimes by big banks.
Mr. Chopra has the expertise and the track record to lead
the Bureau at a time when workers and their families are
desperate for someone to look out for them. He has a deep
understanding of financial markets and a strong record of
protecting consumers and small businesses, promoting
competitive markets, and holding bad actors accountable.
In 2018, the Senate voted unanimously to confirm Mr. Chopra
as an FTC Commissioner, and since then, he has worked with
members of both parties on a wide array of issues important to
American consumers.
As Commissioner, he worked with Democratic and Republican
state attorneys general, something Mr. Bloomberg used to be
before coming to the Senate, to protect American small
businesses and consumers from foreign goods that were flooding
the market with fake ``Made in the USA'' labels. He has pushed
the FTC to crack down on Big Tech, including authorizing the
agency's current lawsuit against Facebook. He has also earned
the endorsement of veterans and military organizations because
of his long record of standing up for servicemembers, veterans,
and military families that have been preyed on by Wall Street
banks and predatory lenders.
At the CFPB, Mr. Chopra served as the agency's first
student loan ombudsman, directing the agency's work in the $1.7
trillion student loan market, and working with state attorneys
general of both parties to bring enforcement actions. With Mr.
Chopra leading the CFPB, Americans can be confident they will
have someone looking out for them.
Turning to Mr. Gensler, we consider his nomination at a
time when it has become more and more obvious to most people
that the stock market is detached from the reality of their
lives. People have watched stock prices go up and up during
this pandemic, even though only half of U.S. households have
stock investments. They have seen corporations pay dividends to
shareholders, while rolling back hazard pay for workers and
laying people off.
As Chair of the CFTC, and prior to that as a senior
official in the Treasury Department, Mr. Gensler delivered
results and ensured accountability. That is why he has been
nominated for this job. He led the charge in 2012 to crack down
on the big banks that had manipulated interest rates and gotten
away with it. He will bring that same focus to the SEC.
Markets should be a way for families to save and invest for
their kids' education or a down payment on a home or a secure
retirement, not a game for hedge fund managers that workers
seem to always lose. Mr. Gensler will bring the focus back to
the people who make this country work, and take on anyone on
Wall Street looking to game the system. That means upgrading
climate risk disclosure requirements that are out of date. It
means punishing misconduct. It means enforcing the protections
on the books. And it means working with other agencies to head
off growing problems before they become emergencies that hurt
the economy.
We have seen what happens when markets do not have real
safeguards. People are left to fend for themselves. Just look
at the electricity market in Texas.
Ultimately, both of these roles are about one question:
Whose side are you on?
I am confident both nominees will stand up for all the
workers and their families who have not had that voice. I look
forward to hearing how each of you will help chart the course
out of this pandemic and build a brighter future for our
country in the years ahead.
Senator Toomey.
OPENING STATEMENT OF SENATOR PATRICK J. TOOMEY
Senator Toomey. Thank you, Mr. Chairman, Mr. Gensler, and
Commissioner Chopra. Welcome to both of you. Thank you for your
willingness to serve. You have been nominated to lead two
agencies that can have a very substantial impact on the U.S.
economy. After taking a devastating hit last spring, the U.S.
economy has thankfully, now, in recovery mode. But there are
any number of actions the Federal Government could take that
would stifle this ongoing recovery. If Federal agencies like
the CFPB and the SEC were to impose burdensome and restrictive
regulations, including, for instance, back-door regulations by
enforcement, well, that could limit consumers' access to
credit, hamper job growth by limiting access to capital
markets, and restrict the ability of publicly traded companies
to act in the best interest of their owners, the shareholders.
Any or all of these would impede economic growth.
Today I hope we are going to learn whether Mr. Gensler and
Commissioner Chopra would take such actions as the heads of the
SEC and the CFPB.
Commissioner Chopra has been nominated to serve as Director
of the CFPB, and as we consider his nomination I think it is
important to remember the CFPB's history. It was created by our
Democratic colleagues through the Dodd-Frank Act as arguably
the most unaccountable agency the history of the Federal
Government. It is an agency with a single director, who, until
recently, even the President of the United States could not
remove. That, of course, was deemed unconstitutional, and
rightly so. But it is still not accountable to Congress through
the appropriations process.
Under President Obama, the CFPB pursued an activist,
antibusiness agenda that limited consumer choice, drove up the
cost of credit, and hamstrung job creators through
overregulation. The CFPB repeatedly engaged in overreach and
abuse of its authorities. For example, it took a regulation-by-
enforcement approach that the D.C. Circuit Court held violated
the bedrock principles of due process. It routinely overstepped
its jurisdiction, like investigating for-profit college
accreditation, which the courts shut down. And it used public
pressure tactics like to name and shame businesses like
publishing unverified consumer complaints.
Now based on Commissioner Chopra's record, I am concerned
about whether or not he would return the CFPB to the
hyperactive, often lawbreaking, antibusiness agency that is was
under the Obama administration, and I say this because
Commissioner Chopra helped set up the CFPB, and then served as
the agency's student loan ombudsman during the Obama
administration. In that role, he was known to have a hostile
relationship with many lenders and used name-and- shame tactics
to pressure them.
At the FTC, Commissioner Chopra has continued to take an
aggressive antibusiness stance. The Wall Street Journal
editorial board has noted Commissioner Chopra, and I quote,
``has a record at the FTC and CFPB that suggests deep hostility
to for-profits schools and other parts of the private
economy,'' end quote.
In one FTC case, three of his fellow commissioners publicly
rebuked his dissent, in a case for its, quote, ``disregard of
facts and law,'' and for making misleading claims and relying
on fake assertions.
Finally, we know that Commissioner Chopra favors
unaccountable regulators with vast powers. He proposed creating
one, a superagency that would regulate politicians and think
tanks and nonprofits. So this raises concerns about how he
would wield power at the CFPB, and I will remind my colleagues
the CFPB remains led by a sole director, not accountable to
Congress through the appropriation process, and as a sole
director there would be no other commissioners to potentially
restrain that sole director. I hope today we will hear some
information that will provide further insight into Commissioner
Chopra's plans for the CFPB, if he is confirmed.
As for Mr. Gensler, Mr. Gensler has been nominated to serve
as Chairman of the SEC. There is no question he has a great
deal of knowledge about securities markets. The capital markets
that the SEC regulates are the envy of the world and an
important engine for economic growth and job creation.
Facilitating capital formation will be particularly crucial to
our current economic recovery.
The SEC has historically administered the Federal
securities laws on a bipartisan basis. But there are some who
want the SEC to stray from its tradition of bipartisanship by
using its regulatory powers to advance a liberal, social, and
cultural agenda on issues ranging from climate change to racial
inequality. Based on Mr. Gensler's record, I am concerned that
he may be inclined to use the SEC in this inappropriate manner.
But security laws are not the appropriate vehicle to regulate
the climate nor to correct racial injustice, nor to intimidate
companies regarding political spending. We have environmental
civil rights and political spending laws to do that.
At the CFTC, Mr. Gensler had a history of pushing the legal
bounds of the agency's authority. One FTC rule on position
limits was overturned in court. Another rule on cross-border
swaps was viewed by critics, including international
regulators, as exceeding the FTC's authority. So this raises
questions about whether he will also push the legal bounds of
the SEC's authorities, in particular, in an attempt to advance
a liberal social agenda.
I hope that today's hearing will provide further insight
into Mr. Gensler's plans for the SEC, if he is confirmed, and I
look forward to hearing from both Commissioner Chopra and Mr.
Gensler.
Chairman Brown. Thank you, Ranking Member Toomey. I am
pleased to welcome three of my colleagues, two of them visitors
to the Committee, Senators Cardin and Van Hollen, who will
provide an introduction of Mr. Gensler, and Senator Blumenthal
from Connecticut, who will provide an introduction to Mr.
Chopra. Senator Cardin is the senior Senator from Maryland, a
guest of this Committee. You are recognized for your
introduction of Mr. Gensler.
STATEMENT OF BEN CARDIN, A U.S. SENATOR FROM THE STATE OF
MARYLAND
Senator Cardin. Well, Chairman Brown, Ranking Member
Toomey, thank you for giving me the opportunity to introduce a
fellow Marylander, Gary Gensler, to this Committee for his
nomination hearing to be Chair of the SEC.
On a personal note, I have known the Gensler family all my
life. The Gensler family represents the best values of serving
our community. Gary's commitment to public service is for all
the right reasons. Government should work for everyone fairly.
I am proud to endorse his nomination to be the next Chair of
the SEC.
He has broad experience for this critical position of
oversight of a key part of our financial system. He has the
experience in the Executive branch, Legislative branch, and
private sector. It takes an aggressive, fair, and consumer-
focused Chair of the SEC at the helm to truly protect the
interests of all Americans.
It is with this important mission and responsibility in
mind that brings me to Mr. Gensler. Mr. Gensler is uniquely
equipped to serve in this role, by his experience in the
financial sector and academic and his commitment to public
service. After serving in several roles at the Treasury
Department, crafting policies on domestic finance in the 1990s
and 2000s, Mr. Gensler was awarded Treasury's highest honor,
the Alexander Hamilton Award in recognition of his service.
He is also no stranger to this Committee, having served as
senior advisor to former Chair and Marylander, Paul Sarbanes,
and working to reform corporate responsibility, accounting, and
securities laws as part of the Sarbanes- Oxley Act. Mr. Gensler
went on to become one of the leading financial reformers in the
wake of the Great Recession, serving as Chair of the Commodity
Futures Trading Commission under President Obama.
During his time at the CFTC, he brought much-needed
oversight and transparency to future markets, playing a central
role in implementing the Dodd-Frank law's swaps markets reform.
He was a tough regulator but a fair one, tasked with
challenging responsibility after the passage of Dodd-Frank. I
know that Mr. Gensler will work to ensure that the United
States leads the world in fighting corruption and ensuring
transparency in its markets to protect U.S. investors.
Now Professor of the Practice of Global Economics and
Management at MIT Sloan School of Management, Mr. Gensler
conducts research and teaches on blockchain technology, digital
currencies, financial technologies, and public policies.
So, Mr. Chairman, I am pleased to be joined by my
colleague, Senator Chris Van Hollen, in recommending to this
Committee for confirmation, Gary Gensler, to be the next Chair
of the SEC.
Chairman Brown. Thank you, Senator Cardin. We now call on a
respected member of our Committee, Banking, Housing, and Urban
Affairs, Senator Van Hollen, also from Maryland. Chris, thank
you for joining us again.
STATEMENT OF CHRIS VAN HOLLEN, A U.S. SENATOR FROM THE STATE OF
MARYLAND
Senator Van Hollen. Thank you, Mr. Chairman, Ranking Member
Toomey, members of the Committee. Congratulations to both of
these nominees, Mr. Chopra and Mr. Gensler, for being
nominated, and I am thrilled to join my partner and senior
Senator from Maryland, Ben Cardin in recommending strongly to
the Committee Gary Gensler to chair the Securities and Exchange
Commission.
Senator Cardin has covered his Maryland roots. Gary is a
good, dear friend. But for the purposes of today's hearing the
most important thing are his stellar qualifications and great
judgment. Gary Gensler is somebody who combines a brilliant
mind with a good heart and excellent judgment. He does have the
expertise to take on this important responsibility at this
time, and I am absolutely confident that, if confirmed, he will
serve our country admirably and well in this position.
In the State of Maryland, Mr. Gensler was the Chairman of
the Maryland Financial Consumer Protection Commission, where he
earned a reputation for championing the consumers' interests
with respect to students, veterans, and servicemembers, and I
must say, he had a great bipartisan track record. He forged
unanimous agreement by members of the commission and
legislation that they recommended passed the General Assembly
on a bipartisan basis.
Senator Cardin has mentioned his important work with the
former Chairman of this Committee, Senator Sarbanes. And, of
course, Mr. Gensler is known as one of the quiet heroes of the
response to the Great Recession. As head of the CFTC, he was
one of the people that did impose financial accountability on
big banks and other financial institutions. He cracked down on
the manipulation of the London Interbank Offered Rate, or
LIBOR, which sets interest rates on many bank loans, and his
work on that front resulted in charges being brought against
five financial institutions who paid $1.7 billion in penalties.
So in addition to his current cutting-edge efforts in
cryptocurrencies and blockchain technology, Gary Gensler is the
right person for this job. I want to just say to his three
wonderful daughters, Isabel, Anna, and Lee, we are proud of
your dad and it is good to see, I think, Isabel joining Gary
there at home.
So thank you, Mr. Chairman, and Members of the Committee. I
strongly recommend this nomination to the Senate.
Chairman Brown. Thank you, Senator Van Hollen. Senator
Blumenthal I would like to recognize. Thank you for joining us
as a guest of this Committee. As Attorney General of
Connecticut and now as a Senator he has got lots of expertise
in these issues. Senator Blumenthal.
STATEMENT OF RICHARD BLUMENTHAL, A U.S. SENATOR FROM THE STATE
OF CONNECTICUT
Senator Blumenthal. Thank you so much, Chairman Brown and
Ranking Member Toomey. I am honored, very honored, to visit
with the Committee on this occasion with such eminently
qualified, distinguished nominees for their respective posts,
and really, I could not be prouder to introduce to the
Committee Rohit Chopra, because I could not imagine a better
person to head the Consumer Financial Protection Board at this
critical time. It is, indeed, an economic crisis that has
burdened particularly communities of color, and Rohit Chopra is
sensitive to the challenges that those communities of color
encounter in this perfect storm of economic crisis. Consumers
can be sure you will be in their corner and have their back.
He has a great mind and a deeply good heart, and I have
seen him fight for consumers, but fairly so, heeding the need
for bipartisanship and listening to stakeholders on both sides
of issues. He is, indeed, tough but fair, insightful, and
perceptive, but he also has reverence to the American values
that have motivated him throughout his extraordinary career, at
the highest academic institutions and then in public service.
As the current Chair of the Consumer Protection Committee,
and formerly Ranking Member, and as you observed, Chairman
Brown, Attorney General of the State of Committee for 20 years,
I have been involved in observing the importance of fair, tough
enforcement of consumer protection laws, and he fits that need
right now.
But I have also seen his work, his fight to protect the
``Made in America'' label, which means more jobs for Americans.
That ``Made in the USA'' label deserves enforcement. His
vigilance to the harms of Big Tech, collaborating with state
attorneys general and with his Republican colleagues,
benefiting consumers and competition. His expertise and
experience in protecting household and students from unfair and
burdensome practice. And, of course, he has been saluted by
veteran organizations. As a member of the Veterans' Affairs
Committee, as is the Chairman, I am very, very proud to
recognize the strong endorsements that he has received from
military and veterans organizations for his work in protecting
them against the kinds of predatory threats that exist now more
than ever.
I believe that tough and fair enforcement of consumer
protection laws is actually pro-business, because it protects
the good guys from an unlevel playing field when those kinds of
competitive or consumer laws are violated by members of the
business community who may be trying to cut corners, and
putting the good guys at a disadvantage. I think Rohit Chopra
will be an extraordinarily distinguished head of the CFPB, and
I look forward to his serving with distinction.
Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Blumenthal, and thank
you, Senator Cardin, both of you, for being guests of this
Committee.
Let's move on to the nominees. Mr. Gensler and Mr. Chopra,
if you would please. You can adjust your cameras or not. It is
up to you. Stand and raise your right hand.
Do you swear or affirm that the testimony that you are
about to give is the truth, the whole truth, and nothing but
the truth, so help you God?
Mr. Gensler. I do.
Mr. Chopra. I do.
Chairman Brown. And do you agree to appear and testify
before any duly constituted committee of the Senate?
Mr. Gensler. I do.
Mr. Chopra. I do.
Chairman Brown. Thank you. You may be seated.
Mr. Gensler, you are now recognized for 5 minutes to
provide your opening statement. Both of you, I know Isabel has
been introduced four times now, but both of you feel free to
introduce family members that are watching or nearby or sitting
over your shoulder in your Maryland apartment or in your
Maryland home.
So, Mr. Gensler, if you would begin first, for five
minutes. Thank you.
STATEMENT OF GARY GENSLER, OF MARYLAND, TO BE A MEMBER OF THE
SECURITIES AND EXCHANGE COMMISSION
Mr. Gensler. Chairman Brown, Ranking Member Toomey, members
of the Committee, it is an honor to appear before you. Two
decades ago, I served on this Committee's staff under Chairman
Paul Sarbanes, who we sadly lost late last year. And today, I
am proud to be here as President Biden's nominee to chair the
Securities and Exchange Commission.
I have spent my entire professional career in and around
financial markets, in the private sector, in state and Federal
Government, and now in academia, and I believe our markets are
the finest in the world.
But they did not become that way through happenstance. In
the shadow of the Great Depression, Congress created the SEC to
protect investors, to maintain fair, orderly, and efficient
markets, and to facilitate capital formation. In the decades
since, we have seen that when the SEC does its job, when there
are clear rules of the road and a cop on the beat to enforce
them, our economy grows and our nation prospers.
But when we take our eyes off the ball, when we fail to
root out wrongdoing, or to adapt to new technologies, or to
really understand novel financial instruments, things can go
very wrong. And when that happens, people get hurt.
Twelve years ago, when I became Chair of the Commodity
Futures Trading Commission, our economy was reeling from the
financial crisis. My fellow commissioners and I took decisive
action, on a bipartisan basis, to increase transparency and
reduce risk in the $400 trillion swaps market. And I am proud
that 85 percent of our actions were passed with bipartisan
support.
If confirmed as SEC Chair, I will work with my fellow
commissioners, the SEC's exceptional staff, and the Members of
Congress to ensure our markets remain the world's best. That
means strengthening transparency and accountability in our
markets so people can invest with confidence, and be protected
from fraud and manipulation. It means promoting efficiency and
competition, so our markets operate with lower costs to
companies and higher returns to investors. It means making sure
companies, incumbents and entrepreneurial startups alike, can
raise needed capital to innovate, expand their operations, and
contribute to economic growth. And above all, it means making
sure our markets serve the needs of working families.
I am a product of a working family. Senator Cardin was kind
enough to say he knew my folks. Neither of my parents went to
college, but my father was able to take his mustering-out pay
from World War II and start a small business that would
eventually send my four siblings and me to college. That is the
kind of economic opportunity that should be available to each
and every American, no matter who they are. I believe our
markets are essential to providing that opportunity.
That is because capital markets touch every part of our
economy. They enable businesses to develop new products, build
new facilities, and grow their payrolls. They help working
families save for retirement and invest in their children's
futures. And although it may not seem intuitive, when someone
goes to take out a mortgage or open a credit card, our capital
markets are on the other side of those transactions as well.
We cannot take any of this for granted. Markets, and
technology, are always changing. Our rules have to change along
with them. In my current role as a professor at MIT, I research
and teach on the intersection of technology and finance. I
believe financial technology can be a powerful force for good,
but only if we continue to harness the core values of the SEC
in service of investors, issuers, and the public.
Before I close, I do want to introduce and thank my three
daughters: Isabel, who is here with me in Maryland, over there,
and her older sisters Anna and Lee, who are watching remotely.
They are the lights of my life, and I would not be here today
without their love and support.
I thank you, and I look forward to your questions.
Chairman Brown. Mr. Gensler, thank you. Commissioner
Chopra, and feel free to introduce your family, if people are
watching, and thank you.
STATEMENT OF ROHIT CHOPRA, OF THE DISTRICT OF COLUMBIA, TO BE
DIRECTOR, BUREAU OF CONSUMER PROTECTION
Mr. Chopra. Mr. Chairman, Ranking Member Toomey, and
members of the Committee, my name is Rohit Chopra, and thank
you for the opportunity to appear before you today, and thank
you to Senator Blumenthal for that kind introduction.
It is an honor to sit before you as President Biden's
nominee to lead the Consumer Financial Protection Bureau. I am
so grateful for the support of my family, friends, and
colleagues, so many of whom are joining us virtually, and I
wish we could be in the same room. I am especially thankful to
my parents. I last saw them exactly 1 year ago to celebrate my
mother's birthday, the longest stretch of time in our lives
without being physically together, an experience that is all
too common today.
America, in March of 2021, is far different than of a year
ago. Every week we have seen hundreds of thousands lost their
jobs, local businesses have shuttered, and more than 500,000
have died. And while there are some hopeful signs that the tide
is turning, we must not forget that the financial lives of
millions of Americans lay in ruin. Experts expect distress
across a number of consumer credit markets, including an
avalanche of loan defaults and auto repossessions.
And there are other persistent pain points for consumers
that are felt particularly acutely today, making it harder for
those families to get back on their feet, even as this pandemic
ends. Consumers continue to discover serious errors on their
credit reports or feel forced to make payments to debt
collectors on bills they already paid or never owed to begin
with, including for medical treatment related to COVID-19. Many
of these longstanding problems will make it more difficult for
our country to sustain a full recovery.
This is especially true when it comes to our housing
market. For most of us, much of this last year has been spent
at home. Our homes are more than physical structures. They have
served as offices, schools, and so much more, providing safety
and refuge during a deadly pandemic.
But due to the economic devastation due to COVID-19,
millions face the prospect of losing their home, with
communities of color particularly at risk. Many have seen their
jobs disappear and will not be able to easily resume their
payments.
In the last economic crisis a decade ago, we saw how
unlawful and unavoidable foreclosures proved to be catastrophic
in cities, small towns, suburbs, and rural areas alike,
contributing to deeper social divisions and inequities. We once
again face an important test to ensure that troubles in the
housing and mortgage market do not sabotage the recovery of our
local communities.
And in the mortgage market especially, fair and effective
oversight can promote a resilient and competitive financial
sector, address the systemic inequities faced by families of
color and more. But perhaps most importantly, administration of
our laws can help families navigate their options to save their
homes.
Congress has entrusted the CFPB with carefully monitoring
markets to spot risks, ensure compliance with existing law,
educate consumers, and promote competition. This not only helps
to protect Americans from fraud and other unlawful conduct, it
helps ensure that businesses that follow the law, regardless of
their size our clout, can compete.
Three years ago, I sought the Senate's confirmation to
serve as an FTC Commissioner, and I was honored to be
unanimously confirmed, and to work with members of both parties
to turn the page on some of the failed and outdated policies of
the past.
If confirmed to lead the CFPB, I pledge to be a good
partner to each of you and approach the agency's mission with
humility, an open mind, and attuned to market realities. I look
forward to working with all of you to tackle the pressing
problems that families face in their financial lives during
this critical moment for our country.
Thank you again, and I look forward to your questions.
Chairman Brown. Thank you very much Commissioner Chopra.
This question is directed to both of you. As you both know,
many of us have advocated for that government and businesses
should actually reflect the country that we are supposed to
serve. It means diverse financial regulators as well as
diversity at financial institutions in the Committee's
jurisdiction. Commissioner Chopra, Mr. Gensler, will you each
commit to considering and hiring diverse candidates for the
most senior positions as well as throughout the agencies you
will lead?
Commissioner Chopra, begin, please.
Mr. Chopra. Yes, sir.
Chairman Brown. Mr. Gensler.
Mr. Gensler. Yes, Mr. Chairman.
Chairman Brown. Thank you. Mr. Chopra, I have seen the
devastation that foreclosures can cause for families and
communities. In the first half of 2007, my ZIP code in
Cleveland, 44105, had more foreclosures than any other ZIP code
in the country. The reason I tell that story over and over, and
all of you on the Committee have heard it many times, is
because 14 years later we are still trying to recover. During
the current crisis forbearances and the foreclosure moratorium
for federally backed loans have helped many homeowners remain
in their homes, but more than 11 million families are behind on
their rent or their mortgage payments. Millions of workers face
layoffs and reduced hours as a result of the pandemic.
Commissioner, what role can the CFPB play in helping to
prevent another foreclosure crisis among these homeowners who,
as you know, are disproportionately people of color?
Mr. Chopra. Senator, we saw a decade ago the foreclosure
crisis not only devastated economies, it widened wealth gaps,
and it caused so much devastation to children and communities.
You know, we learned from the last crisis that regulators
missed some of the linkages between the mortgage market and
broader economy. We saw too many unlawful foreclosures. It is
going to be critical for the CFPB to monitor those markets,
using the best available data and insights, enforce homeowner
protections when it comes to foreclosure litigation, and work
across the government so we do not see a deja-vu of that crisis
again.
Chairman Brown. Thank you, Commissioner.
Mr. Gensler, in the last few months we have seen
unprecedented volatility in trading in many stocks, most
notably, GameStop. While trading drove the stock price from $18
at the beginning of January to $325 at the end of the month,
people are using the term ``gamification,'' but we know Wall
Street has treated markets as a game for years. We cannot
forget how this affects real people. Real people's hard-earned
pension funds, their 401(k)s, their small business investment,
their college savings, their down payments for homes, all at
stake.
Mr. Gensler, what does this volatility mean for them and
the goal of a market that is fair for everyone, and what steps
do you think SEC needs to take?
Mr. Gensler. Mr. Chairman, in some ways it is a story of
the markets themselves, the clash between buyers and sellers of
opposing views. But in other ways this story is about this new
technology and technology changing constantly financed.
A few things, I think, or questions or, at least, in my
mind if was honored to be confirmed. How to ensure the
customers still get best execution in the face of payment order
flow? How to protect the investors using trading applications
with behavioral prompts designed to incentivize customers to
trade more? How to ensure customers access to markets when
those apps may, at times, fall short of needed margin funds?
How to promote competition in markets when a few firms may come
to dominate those markets? And how to update back-office
infrastructure to lower risks and costs.
Chairman Brown. Thank you, Mr. Gensler. Commissioner
Chopra, my last question. One year into the pandemic, millions
of Americans we know struggle to pay their bills. A recent
Bureau report makes clear that financial institutions are
essentially making things worse. Lenders have inaccurately
reported consumers as delinquent to the credit bureaus, debt
collectors illegally garnish consumers' wages or bank accounts,
Federal student loans servicers provided borrowers with
inaccurate information about payment relief options, including
the servicer that handles the public service loans forgiveness
programs.
Outside of housing, which is obviously a very, very, very
important category, what do you see as the biggest risk people
face to their finances during the pandemic, and what role does
the CFPB play?
Mr. Chopra. Well, there are so many, whether it comes to
credit reporting or debt collection, and if there are unlawful,
egregious practices it is important for enforcement to make
sure that they stop. That is what is best for consumers, that
is what is best for the honest market participants, and that is
the role Congress has asked the CFPB to play. It will also be
critical for the CFPB to take a hard look at how big tech
companies and others are entering financial services, the
impact on our privacy and our personal data.
So we must look at today's problems but also anticipate
tomorrow's risks.
Chairman Brown. Thank you, Commissioner. Ranking Member
Toomey.
Senator Toomey. Thank you, Mr. Chairman. My understanding
is you had agreed, Mr. Chairman, that we would do two rounds of
questions, so I would like to address my first rounds of
questions to Mr. Gensler, and then I will use the second round
for Mr. Chopra.
Chairman Brown. Yes, there will be two rounds. We discussed
that, yes.
Senator Toomey. Yeah, great. Thank you. So, Mr. Gensler, I
have got a couple of very simple questions, I think really
basically yes-or-no questions. I recently wrote a letter to the
Acting Chairman encouraging the SEC to undertake several non-
controversial, good government initiatives. I think you looked
at that letter and described it to my staff as very thoughtful.
Can you commit to us this morning to have the SEC evaluate
whether or not to undertake the initiatives in my letter and
report back to this Committee, in writing, if you decide not to
pursue any of that?
Mr. Gensler. Senator Toomey, as we also discussed in the
private meeting I thought it was very helpful, a number of
these initiatives, whether to shorten some of the settlement
cycle and look at transfer agents. So I do look forward to,
once confirmed, if confirmed, working the staff of the SEC and
working with your staff and you on these matters.
Senator Toomey. OK, thanks. And I do hope that that will
include considering a faster settlement cycle on equities,
because I think that is a big opportunity for us.
Let me move on. The SEC, as you know, is currently
reviewing a board diversity rule that NASDAQ is trying to
impose on NASDAQ-listed companies. The rule would require their
boards to have at least one woman and one person who identifies
as a member of an underrepresented racial or ethic group or
LGBTQ, or to explain why they have failed to meet that
requirement. As you may know, every Republican on this
Committee recently sent a letter to the SEC urging the SEC to
disapprove of this proposed rule.
While America's corporations certainly benefit from boards
that have a diversity of perspectives and experiences, race,
gender, and sexual orientation do not ensure any such
diversity, furthermore, that NASDAQ should not use its quasi-
regulatory authority to impose social policies. And boards
really should be acting in the shareholders' best interests to
nominate simply the best, most qualified people as directors.
Now I understand, I do not expect you to tell us this
morning how you will vote, how you will rule on NASDAQ's
specific board diversity rule, so let me just ask a more
general question. Do you think that it is a good idea for
company boards to be forced or pressured to comply with some
kind of quota with respect to race, gender, and sexual
orientation?
Mr. Gensler. Senator, thank you, and I have taken a look at
your letter, which is in a file, I think, of nearly 200
comments, so I, if confirmed, will take that up, amongst all of
that. But on your more general question, I do think that
diversity in boards and diversity in senior leadership, as I
had answered the Chairman earlier, benefits decision- making
and it is something that I am committed to at the SEC and the
leadership there. And I think that it is a positive step
forward in the leadership at the SEC that, if confirmed, I am
going to take on.
Senator Toomey. So when we spoke by phone recently, I think
you committed to basing disclosure requirements on materiality,
that they had to be grounded in materiality. Is that a fair
characterization?
Mr. Gensler. Yes, Senator Toomey, that is.
Senator Toomey. I am almost out of time here, so let me
just say, so if a company, a business, a publicly traded
company, spends a financially insignificant amount of money on,
let's say, electricity, is it material whether that electricity
came from renewable sources or not?
Mr. Gensler. Senator, I think materiality, as the Supreme
Court has said, it has got to be significant to the mix of
information to a reasonable investor, and I think that test
will always ground our economic analysis and how we move
forward on this. In your hypothetical, it may not be material
or it may be material, depending upon the total mix of
information.
Senator Toomey. So even though it is financially
insignificant in my hypothetical, you think it could still be
material.
Mr. Gensler. I think that materiality is the total mix of
information, and often a small piece of information is not
material. You are right about that. But I would have to take it
into context of the entire mix of information.
Senator Toomey. I would just suggest that if it is
financially insignificant I do not see how it could be
material.
Let me ask a different question. Apple's revenue last year
was, I think, about $274 billion. If Apple spent $1 million on
political spending on issue ads, would that be material,
something that ought to have to be disclosed?
Mr. Gensler. What we have found is materiality is defined
as what reasonable investors are seeking to have to make their
decisions either to invest or not to invest or to vote yes or
vote no. And last year's proxy season, I think shares with us
that many investors, well over 40 percent of investors in those
proxy votes, actually think that that would be material to get
such information.
Senator Toomey. So even though it is completely
insignificant, could not possibly affect any financial results
whatsoever, you think it might be OK to mandate that
disclosure.
Mr. Gensler. I will be grounded in economic analysis, and
the court's view of materiality is what investors, reasonable
investors, want in the significant mix of information.
Senator Toomey. But if this is financially insignificant
information, and some investors would like to have it, why not
leave it up to the companies to decide whether to disclose it,
and thereby ingratiate themselves with investors who care about
it?
Mr. Gensler. Well, Senator, I think that it is about
investors making a choice as to what is significant or what is
material, to be more accurate, what is material for those
investors. And I will always be grounded in the court's and the
law and the economic analysis about materiality, what
reasonable investors are seeking when they make decisions to
invest or not to invest, or vote yes or vote no.
Senator Toomey. Last question. There are two recent
rulemakings by the SEC. One requires proxy voting advisory
firms to provide investors with more transparent, accurate, and
complete information about their business. The other, modernize
the thresholds to limit the ability of shareholders to just
oppress companies with repeated, failed special interest
proposals.
Do you have plans to revisit these rules, or do you intend
to leave them as they are?
Mr. Gensler. Senator, if confirmed I would want to work
with the staff and the economists and fellow commissioners to
understand those rules better and to see whether, for instance,
in the proxy advisory area has it addressed the potential
conflicts of interest, at the least amount of cost, and see if
it positive and achieving the mission of the agency.
Senator Toomey. Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Toomey. Senator Reed of
Rhode Island.
Senator Reed. Well, thank you very much, Mr. Chairman, and
I want to thank the nominees.
Mr. Gensler, in light of the volatile trading we have seen
in securities traded by individual investors, some have pointed
to payment for order flow, the practice in which market-making
traded firms pay brokerages for the right to execute orders
submitted by individual investors, as an area that deserves
greater scrutiny and perhaps reform.
Critics claim that payments for order flow warp the
incentives of brokers and encourage them to maximize their
revenue at the expense of retail investors by encouraging
excessive trading. Supporters say it is misunderstood and helps
ensure liquidity of investors.
Now, if confirmed, Mr. Gensler, could I have your
commitment that you will evaluate payment for order flow and
regulated practices to determine whether retail investors truly
benefit?
Mr. Gensler. Senator Reed, yes, I think that technologies
change and markets change, but we should always evaluate new
approaches to markets, and if order flow is something that I
think the recent events, as you rightly pointed out, raises, it
is important to look at economically and look at whether retail
investors are getting best execution in the context that you
mentioned.
Senator Reed. Thank you. And, of course, if they are not
then I would presume you would take appropriate action to see
that retail investors are protected.
Mr. Gensler. At the core it is about protecting investors.
That is the core of the mission of the agency.
Senator Reed. Thank you very much, Mr. Gensler.
Chairman Chopra, as you recall I was very active in the
Dodd-Frank debate about the military, and from personal
experience. We created, in your agency, the Office of
Servicemember Affairs in the CFPB. Could you explain or
elucidate how you can make better use of this office if you are
confirmed?
Mr. Chopra. Senator, there is no question that health of
military families is also about health of our country. The
Department of Defense has stated that the financial status of
servicemembers directly relates their ability to keep a
security clearance, to be able to do their jobs.
So it will be important that our Office of Servicemember
Affairs, if I am confirmed, is looking at risks to military
families, veteran survivors, and others. There are some
concerns that we have seen over the past few years, everything
from issues in VA home loans to credit reporting issues, and
ongoing issues with the Servicemember Civil Relief Act.
I would hope to work closely with the Department of
Justice, with adjutants general, with attorneys general, to
make sure that the CFPB's Office of Servicemember Affairs
continues to play a leading role in analysis, working with the
DoD, and also making sure that we are taking the appropriate
steps to protect servicemembers, veterans, and their families
from abuses. There are so many firms that want to serve the
military. Well, they should not have to compete with those who
break the law.
Senator Reed. Thank you very much, Commissioner. Another
area of concern is student debt, and many ramifications. But my
observation is that the previous operations of the CFPB stopped
many of the appropriate actions that were being taken, for
example, in the CARD Act report describing information about
debit cards that are issued by colleges and universities.
So will you consider returning to the prior practice of
including information on campus financial products such as
campus debt, card products, in the CARD report, and what do you
see as the most consumer protections for students?
Mr. Chopra. Senator, Congress has made it clear that there
are concerns when it comes to financial products being offered
to college students. We saw this issue in the CARD Act. But, of
course, there are new products and services being offered to
college students. We want to make sure that all students--high
school students, those right out of college--are starting their
financial lives with a good future ahead. We should educate
them. We should work with the Department of Education and the
Treasury on issues of common concern. And I am absolutely
committed to making sure we are monitoring those markets and
reporting to Congress on those trends.
Senator Reed. Thank you very much, Commissioner. Thank you,
Mr. Gensler. Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Reed. Senator Shelby
from Alabama.
Senator Shelby. Good morning, Mr. Gensler. We are glad to
have you before the Committee again, although in a remote kind
of way because of COVID.
Senator Toomey, a few minutes ago, got into economic
materiality, and, of course, I do not recall the word
``political materiality'' but there is a difference there.
Could you talk about the difference between political
materiality in dealing with a regulation as opposed to economic
materiality, because I think there is a difference, Mr.
Chairman.
Mr. Gensler. Yeah. Senator Shelby, or as I used to call
you, Chairman, it is so good to see you again, and if confirmed
I look forward to working with you again.
I am going to be grounded, if confirmed, in the economic
side, economic analysis as well as what the courts have defined
as material to a reasonable investor, in essence that it would
have a significant effect on their decisions, given the whole
mix of information they have. That is where I am going to be
grounded.
I am, of course, aware of the difference between that and
the political ebb and flow of the day.
Senator Shelby. Are you aware, and I am sure you would be,
under the Obama administration, the SEC adopted what we call
cost benefit analysis at some point. Do you believe in cost
benefit analysis in dealing with any future regulation, or
doing away with a regulation?
Mr. Gensler. Senator, yes, for lots of reason. I am a
professor of global economics and management so it is at the
heart of what we do there, but I also think it at the heart of
good decisionmaking for any rulemaking.
Senator Shelby. How important would it be to the SEC to
adhere to what was accomplished in, I believe, 2012, by the
SEC? They are going through that today, and I assume if you
were confirmed that you would follow that same trend.
Mr. Gensler. If you are referencing cost benefit analysis--
--
Senator Shelby. That is right.
Mr. Gensler. --and the SEC's guidance, I do believe that,
sir, that it is a good format, and the excellent staff at the
SEC, I would turn to them and the economists and the teams
there.
Senator Shelby. I think if we look back in the history of
the SEC, and we have seen a lot of working together,
bipartisanships there, and so forth, putting the consumer first
there, in other words, the investor, and so forth, would you be
able to work with the Republicans on the committee there? You
probably know them. And how important will that be to have a
functioning SEC?
Mr. Gensler. I think there is a real benefit to the
American public five eyes, five minds, five different opinions.
You are right, I have known both Hester Peirce and Elad Roisman
for a number of years. One, Hester, who worked with you, I
know. And we will have some differences from time to time. I
just hope that when we differ we disagree agreeably. But I am
going to look to see where we can work together.
Senator Shelby. Let me ask you a question I have asked on
the Banking Committee for the last 34 years, I guess, to every
proposed Chairman and nominee for the SEC board. Who owns the
corporation? Do the managers own it? Who owns it?
Mr. Gensler. The shareholders.
Senator Shelby. Shareholders. And management should work
for the shareholders first, should they not?
Mr. Gensler. Yes, Senator, that is correct.
Senator Shelby. And you believe that and you know that is
true in corporate America, do you not.
Mr. Gensler. It is the law in I think all 50 states.
Senator Shelby. Thank you. Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Shelby. Senator Menendez
of New Jersey.
Senator Menendez. Thank you, Mr. Chairman. Congratulations
to both of you on your nominations.
Mr. Gensler, to date more than 1.2 million securities
experts, institutional and individual investors, and members of
the public have pressed the SEC for a political spending
disclosure rule. That is a pretty significant amount of public
input for any potential rule. Since there are no political
spending disclosure standards, corporate executives can spend
shareholder money that benefits them and not the business. It
can be a lucrative setup. Insiders can use someone else's money
to support political causes that they favor.
The fact that so many companies have reevaluated their
political contribution plans after the January 6th attack on
the Capitol shows just how quickly companies have realized the
potential contributions have on a material impact on their
reputation and the viability of their businesses, which is why
I am reintroducing my Shareholder Protection Act, which would
require companies to disclose the details of political
expenditure, and ask their shareholders for approval.
Do you agree that political contributions by publicly
listed corporations represent material information, information
that could affect a company's financial performance and
therefore should be disclosed to investors?
Mr. Gensler. Senator, as we discussed in our private
meeting, disclosures are critical to investors in promoting
capital formation. Without prejudging a specific issue, I can
assure you that I will be grounded, if confirmed, in the
materiality standard that drives all those decisions on
disclosure. And as you said, 1.2 million public comments to the
SEC, but I would also say I would consider last year's proxy
season, which I think was close to 80 shareholder proposals, if
I am not mistaken, and over 40 percent of those investors
voting supported it, even including Netflix adopted it, that
they want to see what the companies they own are doing in the
political arena.
So, if confirmed, it is something that I think the
commission should consider in light of the strong investor
interest.
Senator Menendez. Well, thank you for that answers. I
believe that shareholder should know if their corporate
executives are using their money as a piggy bank for their
causes. To me, as an investor, that would be important.
I know that the Ranking Member asked you questions about
diversity, and he was talking about a mandated proposal. I
would like to talk to you about just the question of disclosure
again. I think disclosure to the American investing public is
incredibly important. Disclosures investment to us, as a
government, when very often we are called upon to solve the
problems of these corporations when they face financial
challenges, as we saw in the Great Recession, as we have seen,
to some extent, in some of these companies as a result of the
pandemic.
So the problem is that corporate America has a diversity
problem. Boards and executive officers across the United States
do not look like the people of this country. I have conducted
four diversity surveys of Fortune 100 companies since 2010. My
latest survey revealed that over the past 10 years women and
people of color have only made marginal gains in
representations on corporate boards, senior executive
management.
I was originally hopeful that the SEC would help address
this problem through its 2009 diversity disclosure rule, but
unfortunately the 2009 rule failed to even define- -even
define--diversity. And studies have shown that greater
diversity on executive teams has led to greater profitability,
and therefore better outcomes for shareholders.
Do you agree that greater diversity tends to lead to better
corporate performance, as found by McKinsey and others?
Mr. Gensler. Senator, I am familiar with those studies, and
they are well-crafted studies. My own experience is diversity
is a very positive part of decision- making and it enhances
that decisionmaking.
Senator Menendez. And again, this is not forcing a
corporation to make these decisions but simply disclosing.
Given the relationship between diversity and performance, do
you agree that investors should be informed about the policies
companies have in place to promote diversity in their corporate
leadership?
Mr. Gensler. So if I can broaden it out, I think human
capital is a very important part of the value proposition in so
many companies, and Chair Clayton and the SEC took up some
approaches to human capital, but I think it is always evolving
and that we will look at what information investors want in
this broad arena about the human capital, including diversity,
at their companies they are investing in.
Senator Menendez. Well, I will just close, Mr. Chairman, by
saying a lot can be done to improve upon the 2009 diversity
disclosure rule. It does not even define diversity. But I just
think in one dimension, the Hispanic community, the largest
minority in the country, trillion- dollar domestic marketplace
spending, younger by a decade than the rest of the population,
more brand loyal than any other group. You know, from a
corporate perspective, I would like be on them like white on
rice, but as a community I want us to know who is diversifying
and who is representing the opportunities for us to have a say
on corporate boards and senior executive management and
procurement. So I hope you will look at that seriously.
Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Menendez. Senator Scott
from South Carolina.
Senator Scott. Thank you, Mr. Chairman, and thank you, Mr.
Gensler, for being here with us today. I look forward to having
a few minutes conversing about some of the more important
issues that I find are the priorities that will look at. I will
add to the conversation you were just having with Senator
Menendez about diversity in the boardroom as well as in the C-
suite. I think they are important issues. I do think that how
we determine the government's impact on that issue is really
important.
Mandates are something that I would adamantly oppose.
Gathering more information can be helpful and instructive as
long as we are not pursuing an outcome based on what we would
see as implicit bias in some form or fashion. I think we have
to be very careful how we step into this minefield, from my
perspective, but it is important for us to make progress, and I
look forward to having a longer, broader conversation with
members of this Committee, as well as with you, sir, on ways
that we might work together on achieving goals without having
mandates.
That being said, last year the Federal Reserve 13(3)
emergency facilities discriminated against smaller NRSROs by
requiring a rating from incumbent rating agencies to access
relief. I worked with Senator Sinema to introduce bipartisan
legislation to address this issue. The companion bill passed
the House unanimously. Mr. Gensler, you have been around long
enough to know that darn near nothing passes the House
unanimously, no matter who is in control of the House. So
having something that moves forward unanimously, I think, is a
good sign that we all, left and right, right and left, all want
to see introducing more agencies within the NRSROs.
So my question for you, sir, is, do you believe that
supporting open competition among NRSROs is important to
protect investors and promote vibrant capital markets, and will
you commit to opposing Federal Government action to further
entrench the incumbent NRSROs? In other words, I think
competition is absolutely essential, and even in the credit
agencies if we can have more competition there, I believe that
the newer agencies are oftentimes using more information to
assess credit worthiness, and if that credit worthiness is
accurate and consistent, introducing more competition there is
going to be in the best interest of the consumer.
Mr. Gensler. Senator Scott, I agree with you that
competition is really important in the credit rating space and
also, more broadly, in the capital markets, so I look forward
to working with you and your staff and the excellent staff at
the SEC to see how we can support and promote competition in
the credit rating space, and even more broadly as well, by the
way.
Senator Scott. Yes, sir. Well, thank you for that. I do
think it is really important for us to find a way to help those
who are credit worthy to be scored as credit worthy. This is
something that I have tried to be a champion of for the last
few years, and the importance of that cannot be underscored in
any other market than in the ability to engage in the financial
markets. And I do believe that having diversity and/or
competition, I should say, in the credit rating agencies
themselves is one of the ways that we promote and encourage
better and more accurate information so that those who view the
information have a wealth of knowledge to pull from, and
without that competition, whether it is a monopoly or duopoly,
or the three that we have today, that it is probably not in the
best interest long term of the consumer.
Thank you, Mr. Gensler. I will return the rest of my time.
I yield back the rest of my time.
Chairman Brown. Thank you, Senator Scott. Senator Tester of
Montana.
Senator Tester. Thank you, Chairman Brown and Ranking
Member Toomey, and I want to express my appreciation to Gary
Gensler for meeting with me earlier today. I appreciate that
conversation. Gary, I am going to give you a little break from
questioning. Most of my questions, in fact, all my questions
will at Mr. Chopra. And, Mr. Chopra, I appreciated our meeting
too, even though it was a while back. I have got to think about
what we talked about. And so that is why I want to ask these
questions.
The first one kind of goes down the same line that Senator
Reed had talked to you about with servicemember and veteran
protection. You have talked about, in the questions to Senator
Reed you talked about being able to work with the Department of
Justice and DoD, from a prosecution standpoint, I would assume.
My question is, what would you do to address those who were
harmed in the previous administration when the CFPB was not as
functional as I would have liked, and did not take the action
that they should have? How are you going to make a
determination on who and what cases you are going to take a
look at?
Mr. Chopra. So, Senator, when it comes to servicemembers
and veterans, I think we have so many sources of data and
information, whether it is consumer complaints, whether it is
our judge advocates general. We need to hear what is happening.
I will tell you that I really want to make sure that we are
listening carefully when it comes to mortgage and housing
issues. We saw, a decade ago, illegal foreclosures of active-
duty servicemembers. You even had families flying back from
overseas to take care of some of these issues. Those violations
were egregious and we need to look at where we see consumer
complaints to conduct trend analysis, what we are seeing in any
supervision, to determine how to correct that.
And again, I think most financial institutions want to stay
on top of it, but there are some who, you know, we have seen
have flouted the law when it comes to the servicemembers, when
it comes to the Military Lending Act and other laws.
So it will be a team effort. It will be a data-driven
effort and also listening carefully to what the issues are. We
cannot afford to have disruption again in our mortgage market,
or, frankly, any of our other markets, when it comes to
servicemembers and veterans.
Senator Tester. Well, and I appreciate that, and I agree
with you. I think the vast majority of folks who deal with our
veterans appreciate what they have given to this country and
treat them fairly. But for those outliers, we will call them.
Hopefully you will prosecute to the fullest extent of the law,
because I cannot think of a worse, quite frankly, inappropriate
transaction to take place, when you are taking advantage of the
people who have sacrificed and served this country. So thank
you for that.
I want to talk a little bit about QM. Look, the CFPB,
making sure that folks have the ability to own their own home,
is critically important. So my question to you is a bit
general, but you can get in specific. What do you view as the
most important considerations as the CFPB looks to revise the
QM rules?
Mr. Chopra. Senator, I have a completely open mind about
this, and I look to what the statute says and what really
Congress' goals are. The CFPB is not here to dictate housing
finance policy. It is to make sure that the prohibitions, when
it comes to our mortgage laws, are adhered to, and when it
comes to QM, it is important that we balance the consumer
protections that Congress has put into place with access,
including for rural and other areas, as Congress has put forth.
We do not want to go back to what we saw in the years leading
up to the financial crisis, of liar loans and other fraud in
the mortgage marketplace. Ultimately, we are stronger as an
economy, stronger as a country, if mortgage lending is safe,
broadly accessible, in a way that people can build wealth.
So I am looking forward to getting input from everyone and
determining on how that rule needs to evolve over time, and I
look forward to working with you and others on the Committee.
Senator Tester. Thank you, and I need to be very quick with
this one, because my time is about out.
Look, I do not think there is an area of the country that
affordable housing is not an issue. What are your housing
priorities once you are confirmed to CFPB?
Mr. Chopra. I think I would want to work with the staff and
others, but my intuition is we have to be ready for potentially
looming problems when it comes to forbearances that might flip
to foreclosures. I do not want to see another foreclosure
crisis in this country, and we need to do everything we can to
make sure the law is being followed and homeowners can navigate
their options.
Senator Tester. Thank you both. I appreciate your time.
Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Tester. Senator Rounds
from South Dakota.
Senator Rounds. Thank you, Mr. Chairman. Let me just begin
with Commissioner Chopra. Thank you for speaking with me
recently about your interest in the CFPB. One of the topics we
discussed was the CFPB Civil Penalty Fund and a number of
concerns I have about the fund's transparency and how the money
is used. Fines levied by the CFPB could range from $5,000 per
day up to $1 million a day, which is a significant range with
broad discretion given to the CFPB as to what level of fine is
appropriate.
Mr. Chopra, as you and I spoke the other day, I am not a
fan of the CFPB, but I need to get into this a little bit with
you.
In addition to this broad range of fines that the CFPB has,
the GAO has identified a number of opportunities in the past
for the fund's transparency to be improved. Can you please
share your thoughts on what you believe to be the appropriate
uses for the Civil Penalty Fund and how you will work to
promote transparency of the fines that are paid into the fund?
Mr. Chopra. So, Senator, thank you again for sharing your
concerns about this. I had chance to review the audits, review
the statute again. You expressed a concern that those funds
should not be used to subsidize Bureau operations. I completely
agree. It would be inappropriate if the funds were not used for
the statutory reason, that is primarily for victim redress. The
law is clear that it is a victim's relief fund, and it can also
be used for certain financial literacy efforts. You have my
absolute commitment that it will not be used for any other
purpose, and it would be inappropriate if it were.
I will also look at ways to make sure that there is
understanding about when there is an award to go to victims it
needs to be clear about how those victims--the success rate of
that, what amount of funds were returned. And anything we can
do to make sure that that fund is for victim relief and its
expressed statutory purposes, I am completely committed to. And
inasmuch as there are any concerns about it, I am committed to
correcting that.
Senator Rounds. Thank you, and I think the point that you
make that it is also for literacy would suggest that it is also
available in terms of contracting with nonprofit organizations.
Is it fair to say that that should also be fully disclosed with
regard to any contracts made with other nonprofit organizations
in the name of literacy?
Mr. Chopra. Well, it better be. It is required to be
disclosed. It is subject, as my understanding, according to the
audits, to procurement law, and if it has not been then that
needs to be fixed.
So again, though, I do want to be clear. I do think the
most important part of that fund is for victim relief. There
are many consumers who are subject to fraud and the company is
judgment-proof. Those penalties can be used to redress them.
But again, if there are contracts, they better be disclosed.
Senator Rounds. Thank you, Mr. Chopra.
Mr. Gensler, once again thanks for taking the time to visit
with me as well. Two of my colleagues that introduced you today
touted your expertise in digital currencies. I am proud that
crypto companies like Anchorage Trust have found a home in
South Dakota. At the same time, I know that our outdated crypto
regulatory regime is leading other organizations like the Diem
Association to set up shop overseas.
What can Congress and the SEC do to create a more forward-
thinking regulatory environment for innovators in this
particular space?
Mr. Gensler. Senator, thank you for having met with me and
for that question. I think, as I teach at MIT on these
subjects, that these innovations have been a catalyst for
change. Bitcoin and other cryptocurrencies have brought new
thinking to payments and financial inclusion, but they have
also raised new issues of investment protection that we still
need to attend to.
And so I think, if confirmed at the SEC, I would work with
fellow commissioners to both promote the new innovation but
also, at the core, ensure core investor protection. It is
something where security, for instance, it comes under the
securities laws, it comes under the SEC. If there are
exchanges, to trade those, to ensure that there is the
appropriate investor protection on those exchanges. So provide
technology but still stay true to our core values and investor
protection and capital formation.
Senator Rounds. Thank you. Thank you, Mr. Chairman. My time
has expired.
Chairman Brown. Thank you, Senator Rounds. Senator Warner
from Virginia.
Senator Warner. Thank you, Mr. Chairman. Let me start by
saying I think we have got two great nominees here today, and I
look forward to supporting both of them. Mr. Chopra, I think I
am going to be hitting Mr. Gensler more, but I do appreciate
our meeting, and I think you are going to do a great job.
Mr. Gensler, I have long been fighting in a pretty obscure
area around market structure, or trying to eliminate some of
the conflicts of interest in our market structure that
disadvantage retail investors. You may recall, back in 2017, I
urged the SEC to do a maker-taker pilot. That pilot started,
but the courts came in and shut it down, although it still said
that the SEC could still do a rulemaking in that area. I think
this whole question of market structure and payment for order
flow, interest has been reignited around GameStop, and I look
at the Robin Hood platform, where oftentimes it is being paid
for its market flow by a number of prominent hedge funds.
I sometimes think that the Robin Hood structure is somewhat
similar to the Facebook structure. I am not sure if you are a
customer of Robin Hood whether you are really a customer or a
product, somewhat similar to the fact that users of Facebook, I
think, are often used as products rather than as actual
customers.
We have seen, in the last year, close to $6 billion paid to
brokers to route transactions through specific venues as
opposed to really getting the best execution price for
customers. I think that dramatically disadvantages retail
investors. When you get confirmed, what will you be able to do
to look at this issue?
Mr. Gensler. Senator Warner, I think you are right that the
technologies have raised very important policy issues on how we
continue to promote efficient, fair, and orderly markets. And
what we have found--you have named a collection of things, but
I think that we will, with the excellent staff, look at market
structure in the equity markets around payment for order flow,
when, frankly, just a couple of handfuls of financial firms are
buying most of the retail flow in America.
I think it raises a question, a new challenge about, just
as you mentioned, Facebook. What if a company, through the
natural economics of network economics, collect and
concentrates and dominates a field. We heard, in congressional
testimony a week or so ago that one firm now has 40 to 50
percent of the retail flow, and so what does that do to the
pricing of capital in this country. I think those are important
economic questions. And also best execution, as you say. What
is it mean to be best execution in this context?
Senator Warner. And I think what we have seen is someone
may get a fractional, marginal price better, but because the
spread is so large, and if you are controlling both ends of the
trade, these firms can make a huge amount of money. Mr.
Chairman, I think this is an area the Committee ought to be
looking into. I think when the numbers come out even you would
be shocked at some of the abuse I think that is going on.
I want to drill down on my last question. We often hear
that we need to do these kinds of rebates and payments to
increase liquidity, but the remarkable thing is there are 9,000
securities that trade in the equities markets. The top 10
percent get about 77 percent of the volume, yet you have large
firms like Fidelity that do not pay any broker payment fees,
and oftentimes the other firms say, well, we need to permit
these payment fees to bring about low-price commissions and to
increase liquidity. You know, if we simply said we are not
going to allow rebates and these oftentimes dark payments to
those top 10 percent of the equities, because they have got
enough liquidity, and still allow payments for the bottom 90
percent, we could at least test out those products, because I
think, as we have seen from entities like Fidelity, that do not
do these brokerage payments, you can still have plenty of
liquidity, and in these smart equities that do trade with a lot
of liquidity, these payments just end up with some of the
abuses taking place.
In these last 15 seconds, would you commit to a full review
of this market structure?
Mr. Gensler. If confirmed, I look forward to working with
the career staff, working with you, and doing a review of each
of these issues of market structure that you have raised.
Senator Warner. Thank you, Mr. Chairman. I will get to you,
Mr. Chopra, on my written questions. Thank you so much,
Chairman.
Chairman Brown. Thank you, Senator Warner. And there will
be a second round, for those that want to stay. The Ranking
Member asked for that.
Senator Tillis from North Carolina is recognized.
Senator Tillis. Thank you, Mr. Chairman, and, Mr. Gensler,
thank you for being here. Mr. Chopra, as well.
Mr. Gensler, I would like to start with you, and I want to
talk about the financial transaction tax and some of the
proposals that we are hearing in Congress. I am sure you are
aware, in 1984, Sweden imposed an FTT of 1 percent. Share
prices rose. It had a negative impact, and I think probably 7
years later they repealed that tax. The EU considered it and
decided not to do it, for similar reasons.
But now we are hearing proposals for a financial
transaction tax here in Congress. Do you have any reason to
doubt that a financial transaction tax in the United States
would have the same kind of negative impact? I know that I
think the U.S. Chamber estimated an 8.5 percent drop, or over
$20,000, on average, IRA accumulation.
So do you think that pursuing a financial transaction tax
is a good idea, or do you think that it could have the same
negative effects as it has demonstrated in other jurisdictions,
not to mention movement of transactions offshore?
Mr. Gensler. Senator Tillis, it is not something I have
studied closely in preparation for this hearing, but I would
note, we currently, in the U.S., have a very modest--it is
modest--transaction fee to support the agency of the SEC,
about, collectively about $1.8 billion.
And so we do know that in that modest--it is still $1.8
billion, but in that modest level that it survived. We have the
deepest, most liquid markets, and there has not been a negative
outcome in that range. But I have not studied it in the way
that you are talking about.
Senator Tillis. As a follow-up to this, could you possibly
take a look at some of the proposal and give me some sense as
to whether or not they could have the same kinds of negative
impacts we have seen in other jurisdictions?
Mr. Gensler. If confirmed, I look forward to meeting with
you and your staff and having a dialog on this.
Senator Tillis. I would like to move over to FSOC. In late
2019, FSOC made several important changes to prioritize on
activities-based approach, add transparency, procedural
protections, and impose the cost benefit analysis to the
systematic risk regulation designation process. Secretary
Yellen, before the Committee, confirmed that she supported an
activities-based approach. Do you support these types of
important reforms?
Mr. Gensler. I, if confirmed, look forward to working
Secretary Yellen, working with all the members of the FSOC, on
designations, if they are appropriate. There are activities
that could be systemic. So, as I understand your question, yes.
Senator Tillis. And also, I do not know if you can answer
this or maybe give me an answer for the record, but I would
also be curious as to whether or not you think the SEC has the
necessary mandate and the tools necessary, if you were to
pursue that approach. If you have got an opinion now you can
state it. I have got about a minute and a half left, or you can
just submit the answer for the record.
Mr. Gensler. I will do it for the record then, sir.
Senator Tillis. OK. In my remaining minute, one thing that
I am still confounded by is how antiquated we are in the
submission of information, the lack of electronic delivery.
This is something I do not understand. I started my career in
eliminating paper back in the 1980s, when it was not
particularly easy to do. Now we get these reams of paper sent
out that are never read. People go to the electronic version.
So can I get a commitment from you to really make this a
priority, to really help us figure out digital delivery
alternatives and the elimination of paper when the recipient
would prefer that approach?
Mr. Gensler. Senator, yes. Two of the things I worked on in
the Clinton administration, if I can go to back to there, was
electronic delivery of Federal payments to individuals, and
also working with, I think it was then Chairman McCain, working
with him on something called the Digital Signature Act, or E-
Signature. So it is something I have worked on a long time, and
I think technologies we should always embrace and move forward.
Senator Tillis. Well, if confirmed, I hope that that is
something that I can get your commitment to meet specifically
on, because I would like for us to make significant progress
there. We really have not, and I would appreciate your help and
support and work with you on it, should you be confirmed.
Mr. Gensler. I look forward to that, sir.
Senator Tillis. Thank you. Thank you, Mr. Chair.
Chairman Brown. Thank you, Senator Tillis. Senator Warren
from Massachusetts.
Senator Warren. Thank you, Mr. Chairman, and welcome, Mr.
Gensler. I remember your work at the CFTC, and I anticipate
that you will show the same independence and courage as head of
the SEC.
So as you know, the SEC's job is to protect investors,
maintain fair, orderly, and efficient markets, and facilitate
capital formation. But it is falling down on the job. And so
since we are limited for time, I am just going to pick three
examples. The SEC is not requiring companies to make public
disclosure about climate-related risks, the SEC is letting
companies leave their investors in the dark about predatory
private equity practices, and as GameStop recently
demonstrated, the SEC stands by while the stock market too
often functions like a casino, where the roulette tables are
not on the level.
So let me go back through these. Let me start with climate
risk. Mr. Gensler, is there any reason why companies should be
able to hide their climate risks from their investors?
Mr. Gensler. Senator, no. I think that particularly
materiality is a point here, but no, they should not be able to
hide their climate risks.
Senator Warren. OK, good. Now, let me go to private equity.
Mr. Gensler, is there any reason why a company that rakes in
millions and millions of dollars from buying up small
businesses and closing them down should not have to disclose
their general practices to their investors?
Mr. Gensler. I think it is at the heart of the Investment
Advisor's Act, that they would share their fees and any
conflicts with their investors.
Senator Warren. Well, their fees, and I presume the overall
business model, the approach they are using. Is that right?
Mr. Gensler. Yes. A description of their business model to
their investors, their limited partners, usually, in that case.
Senator Warren. OK. And then finally, let me ask about the
tilted roulette tables on Wall Street. If someone has been
cheated by a broker-dealer, hypothetically, for example, if
Robin Hood cheated individual investors--hypothetically--should
that company be able to use forced arbitration clauses to avoid
getting sued and held accountable?
Mr. Gensler. I think, Senator, that while arbitration has
its place, I think it also important that investors, or in that
case, customers, have an avenue to redress their claims in the
courts.
Senator Warren. Good. You know, as you know, the SEC has
the power to require disclosures that will be helpful to the
investing public, like climate risk disclosures and private
equity practices, and Section 921 of the Dodd-Frank Act gives
the SEC the authority to prohibit the use of forced arbitration
by broker-dealers when it is, quote, ``in the public interest
and for the protection of investors.'' In other words, the SEC
has the tools to make the markets function better.
So if you are confirmed, Mr. Gensler, will you commit to
picking up those tools and using them to make the markets more
honest and more transparent?
Mr. Gensler. Senator, if confirmed, I look forward to
looking at all the authorities, not just this one but all the
authorities, to help protect investors, promote the capital
formation and the efficient markets that we talked about. And
this is an important authority that was vested in the agency,
and looking at the economic analysis, working with fellow
commissioners. I think we should look at all the authorities.
Senator Warren. Well, I appreciate that. You know, Congress
has given the tools to the SEC. We just need SEC to pick up
these tools and use them. The SEC has been asleep on the job
for long enough. It is time for the commission to get up off
its behind and protect investors and consumers. And I expect to
see progress on all of these areas under your leadership.
So thank you for being here and thank you for your
willingness to serve.
Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Warren. Senator Kennedy
from Louisiana is here? I see his name.
Senator Kennedy. Mr. Chairman, can you hear me?
Chairman Brown. Senator Kennedy, yes, you are recognized.
Senator Kennedy. Thank you. You caught me off-guard, Mr.
Chairman.
Chairman Brown. That is all right. It is hard to do to you.
Senator Kennedy. Well, thank you.
Mr. Chopra--am I saying your name right, sir?
Mr. Chopra. It is Chopra, sir.
Senator Kennedy. Chopra. I apologize. I want to ask you
about our credit bureaus. Do you know what I mean by our credit
bureaus?
Mr. Chopra. I do, sir.
Senator Kennedy. These companies collect data about whether
we pay our bills or not, and they sell it to businesses, so
businesses can decide whether to lend us money or extend us
credit. Is that a pretty good description?
Mr. Chopra. Yes, and increasingly they are using that data
for much more, as well.
Senator Kennedy. But the credit bureaus make their money
from the businesses. They do not make their money from the
consumer.
Mr. Chopra. That is correct. The consumers are the product,
usually, not the customer.
Senator Kennedy. So if, as a consumer, a business reports a
debt that I did not pay, to the credit bureau, the credit
bureau is going to be less concerned about the accuracy of that
information than they would be if the credit bureau was
depending upon me, as the consumer, to pay their bills. Is that
a fair assessment?
Mr. Chopra. Yes, that is correct, and that is some of the
big issues we are facing, not only when it comes to credit
bureaus but also the mass data bases by big tech companies that
are increasingly part of financial services.
Senator Kennedy. Well, here is what I am driving at, Mr.
Chopra. Why would we not want to pass a bill that would direct
the credit bureaus to establish a formal, easily accessible,
efficient, and effective appeals process for a consumer? Let's
suppose a business says, ``You did not pay a bill, in the right
amount, and on time,'' and you disagree with that. It can
really hurt your access to credit if that is reported to a
credit bureau. Why wouldn't we want to tell the credit bureaus,
``Look, you are going to set up a formal process to hear
consumers out who think they have been wronged''?
Mr. Chopra. So, Senator, accuracy is critical for the
credit reporting system to work, and there are too many
consumers who have problems.
Senator Kennedy. Yeah, but would you support a bill like
that, Mr. Chopra?
Mr. Chopra. Well, I would love to look at it, but I think
the idea of making sure that consumers can dispute and get
answers, that is part of the Fair Credit Reporting Act, but I
would definitely like to make sure that consumers have more
say----
Senator Kennedy. I know--excuse me for interrupting--I know
it is the law, but I do not think it is going to be properly
effectuated until we put in a formal process and pass a bill,
and insist to the credit bureaus, look, even though you do not
get money from consumers you are going to have to pay attention
and listen seriously and attentively when they tell you you
have got bad information.
Let me move to Mr. Gensler. Mr. Gensler, good morning. You
were there in '08 and '09. You played a very critical role in
our response to the meltdown. Why didn't anybody on Wall Street
go to jail?
Mr. Gensler. Senator Kennedy, I share your concern about
that. We, at the CFTC, held folks accountable for rigging the
interest rate market, for manipulating the currency markets----
Senator Kennedy. Yes, sir, but why didn't anybody go to
jail?
Mr. Gensler. Those are questions I share with you, sir. I
mean, I was responsible for running a civil law enforcement
agency and we, every day, brought the evidence, the law, and
the facts together in front of courts and held people
accountable.
Senator Kennedy. I know, but who made the call? Somebody at
Justice had to have said, ``We are not going to put these
thieves in jail.'' Who did that?
Mr. Gensler. Well, I think you are right that it is largely
the Department of Justice, and these are hard cases to try,
hard cases to piece together and show intent, or what--I
remember the term was called scienter, the Latin form. But that
is the Department of Justice, sir.
Senator Kennedy. Yeah. OK. Am I out of time, Mr. Chairman?
Chairman Brown. Thank you, Senator Kennedy. Senator Cortez
Masto from Nevada is recognized.
Senator Cortez Masto. Thank you. Thank you for this
hearing. Congratulations, gentlemen, both of you, for your
nominations.
Mr. Gensler, let me just start with you in a follow-up to
my colleague's questions to you. During the foreclosure crisis,
you were not working at Justice at that time. Is that correct?
Mr. Gensler. No, Senator, I was not.
Senator Cortez Masto. And the agency that you were working
at did not have really criminal enforcement actions. Is that
correct?
Mr. Gensler. That is correct. As an attorney general of a
state you appreciate these distinctions, so I thank you.
Senator Cortez Masto. Thank you.
So let me ask you an area that I know is a concern for all
of my colleagues. As more individuals begin to engage with the
financial markets through no-fee, online trading platforms I am
concerned that investors may get in over their heads with large
and complicated trades on apps that gamify the stock market,
and we have seen the horrific results of that.
So if confirmed, can I ask you, what steps would you take
as Chair of the SEC to protect investors who want to be
involved in the stock market but may be less knowledgeable
about trading risks?
Mr. Gensler. Senator, I thank you. I think that every day
on the job I am going to be animated by working families and
protecting investors as a key mandate of the agency. I think
technology has provided greater access, but it also raises
interesting questions, and the one that you mentioned about
``gamification'' also raises interesting questions about what
does it mean when balloons and confetti are dropping and you
have behavioral prompts to get investors to do more
transactions on what appears to be a free trading app but then
there is this payment behind the scenes, sort of this payment
for order flow?
I think we are going to need to sort of study that and
think about it, and what does this mean for our marketplace.
Senator Cortez Masto. Well, I know many of my colleagues on
both sides of the aisle are concerned about this, so we look
forward to working with you, moving forward.
And let me just touch on one issue that was brought up,
this idea that diversity and inclusion and equity in corporate
America is somehow a quota. It is not a quota, and that is the
problem we have here. And I think my goal, and many of my
colleagues--and this is why we support NASDAQ's proposal to
increase transparency into the composition of the boards of
exchange-listed companies, is because we need a paradigm shift.
We need a cultural change. It is not a checkbox. It is not a
quota.
And I think we have heard, from my colleagues, the
importance of why this is of benefit to our companies. Because
of the McKinsey-published studies, we know that this really is
a benefit to the companies long term, including when it comes
to their profits, when they are actually really engaging in
diversity, inclusion, and equity.
So I want to make sure you know that. Many of my colleagues
supported what NASDAQ is doing in this space, so please be
aware of that.
Mr. Chopra, I know I do not have much time, but thank you
also for your willingness to serve. So we have talked about
this. I am a strong advocate for restitution for harmed
consumers. Not only should we provide relief to people who are
overcharged or misled, but we should discourage the bad actors
from continuing that deceptive practice in the future. And I
have made it very clear. I was concerned by CFPB's enforcement
actions under the previous administration which failed to
provide restitution for consumers.
So could you elaborate on your view on providing
restitution for people who really were dealt with unfair,
deceptive, and abusive practices?
Mr. Chopra. Yeah. So, Senator, when victims of fraud and
misconduct are not made whole that does not just hurt them. It
also hurts every other business who is trying to follow the law
and treat them the right way. I have pushed hard against the
FTC's approach of these no-money, no-fault settlements in
egregious fraud. It is something that economically just does
not make sense. When you rip someone off and do not have to pay
them back, how is that really much of a sanction?
So restitution is a critical part of the CFPB's law
enforcement work in order to make victims whole, as Congress
intended.
Senator Cortez Masto. Thank you, and I appreciate that
position.
I have only got a few minutes left. The other area that I
would love to work with you on, and we have talked to many, but
for small businesses, what, in general, do you see the role for
supporting our small businesses through the CFPB?
Mr. Chopra. Well, I think a lot of our regulators and
agencies need to make sure that there is not unlawful practices
in small business lending at the FTC. We take action against
companies that have even threatened to break small business
owners' jaws if they did not pay it back. We, at the CFPB,
Congress has asked the agency to implement a small business
data collection. I do think enforcing the law to protect small
businesses is absolutely critical right now. Small businesses
are facing extinction. I have worked with you a lot, Senator,
about issues facing franchisees. We have to make sure that the
bedrock of our community of small business does not go away
after this pandemic, and it is absolutely critical.
Senator Cortez Masto. Thank you. Thank you, Mr. Chairman. I
know my time is up.
Chairman Brown. Thank you, Senator Cortez Masto. Senator
Hagerty, I believe, is here.
Senator Hagerty. I am.
Chairman Brown. Senator Hagerty, you are recognized.
Senator Hagerty. Chairman Brown, thank you. Ranking Member
Toomey, thank you as well, for holding this hearing for two
very important regulators in our financial regulatory
landscape.
You know, in America our financial markets, as Senator
Toomey rightly noted in his opening remarks, are the envy of
the world. I was just on a call with our bankers in Tennessee
who were expressing their concerns that we maintain that
strength and that we be certain that we not allow regulators to
use the regulatory construct in the financial markets to
backdoor social policies that could have an adverse impact on
our economy, and frankly, much better addressed in other
arenas. We have a very rapidly evolving technology landscape,
we have new market entrants coming aboard, and we certainly
should not take America's market leadership for granted.
I think all of us want to maximize our economic recovery,
and it is certainly important not to use ideologically driven
regulatory practices at a time when we need to see our economy
open up.
My first question is for Mr. Gensler, and, Mr. Gensler, we
have discussed this before, and you know I am concerned very
much about arbitrary and capricious, potentially overly
reaching regulatory rulemaking. You and I talked about the
importance of cost benefit analysis. I know that you talked
about this with others on the Committee, but I want to just
highlight again our discussion about taking an economic
approach, as you have described, and the great importance of
utilizing cost benefit analysis moving forward.
But moving into another arena, I want to compliment you on
the undertaking that you have had in digital assets, the role
that you have played at the MIT media lab. I think it is going
to be very instructive here. And if we think about the area of
financial regulations in such rapidly innovating markets, I
think it is very challenging, from a regulatory standpoint, to
manage that type of environment. To put it another way, using a
Tennessee terminology, you don't want to be shooting where the
rabbit was.
My question to you, Mr. Gensler, and it is an open- ended
one, if you could share your perspective on the SEC's role,
under your leadership, if you are confirmed, in how you will
approach digital assets.
Mr. Gensler. Senator, I thank you for that opening. I share
your thoughts. It is always important to update our market
oversight to new technologies, but I believe foremost to be
technology neutral. And I say that because this new technology
of cryptocurrency and potentially central bank digital
currencies comes along, it is important to stay true to our
principles of investor protection and capital formation, but at
the same time be technology neutral.
So I think that at the SEC it is really to the extent that
somebody is offering an investment contractor security that is
under the SEC's remit, and they have exchanges that operate
there, then we have to make sure there is investor protection.
If it is not that, and it is a commodity, as bitcoin has deemed
to be, it is either a question for Congress, how Congress would
want to that to be overseen, or it is possibly a question for
the Commodity Futures Trading Commission.
But I would work with the staff, I would work with fellow
commissioners and see how we can move forward, and to the
extent investors can be protected and invest in these markets,
that they are allowed to do so, but to do so in, again, the
core function of investor protection and capital formation.
Senator Hagerty. I appreciate your cognizance of your
jurisdiction, and also, and importantly, the role of the
Congress in overseeing this and dealing with it. This is an
area where I think we have great potential for leadership, if
handled right, and I think we should be very careful not to
have too heavy a hand. But bringing your experience and your
expertise to bear, I think you can make a significant mark in
this rapidly evolving market, and I want to make certain that
we take the right touch and the right coordinated approach
between our legislative oversight and the role that you will
play, if you are confirmed, running this important independent
agency. Thank you.
Mr. Gensler. Well, I thank you, and if I can appropriate
your line about not shooting where the rabbit was, I thank you
for that too.
Senator Hagerty. Tennesseans all understand that, Mr.
Gensler. Thank you.
Mr. Gensler. Thank you.
Chairman Brown. Thank you, Mr. Gensler. I have already
appropriated it. Sorry.
Senator Hagerty. Senator Van Hollen from Maryland.
Senator Van Hollen. Thank you, Mr. Chairman, and Ranking
Member, and congratulations again to Mr. Chopra and Mr. Gensler
on your nominations. And if I am not able to get to the second
round, Mr. Chopra, I will submit some questions for the record.
Mr. Gensler, you and I had a chance to speak before this
hearing, and I raised some concerns and some specific
legislation I have introduced that I consider sort of SEC good
housekeeping principles. One is a bill that I have introduced
with Senator Fischer around 10b-5 plans. The other one deals
with the 8-K trading gap. Both bills are intended to provide
investors and the public with confidence that CEOs and other
insiders are not taking advantage of insider information.
My question for you today is, will you commit to working
with me and providing technical assistance as we work to pass
these bills?
Mr. Gensler. Senator, I wanted to start by just thanking
you for that warm introduction about an hour and a half ago to
the Committee, as you and I have known each other about 20
years, and that was very kind of you.
But yes, I look forward, if confirmed, to work with you and
your staff providing technical assistance, and having the staff
of the SEC help as well.
Senator Van Hollen. Right. I think we have seen many
stories, and there may even be ongoing investigations in the
summer reports about insiders gaming the system. Right now the
rules allow too much gaming, and so I intend to work with you
to close those loopholes.
Let me go back a little bit to the questions that Senator
Toomey and some others have referenced regarding corporate
disclosure rules and materiality, what kind of information they
provide to shareholders. You cited the Supreme Court standard
regarding a reasonable investor and what a reasonable investor
would want to know. And, of course, that information changes
over time, right? I mean, 20 years ago we would not necessarily
see climate change risks as something that is essential to the
success of a particular company.
Would you say it is important for the SEC to keep an open
eye to the evolving interests of the reasonable investor to
ensure that the disclosure rules match their demands for
information?
Mr. Gensler. Yes, Senator, and I think that the importance
here is that--and the courts have helped define this--that it
is the investor community that gets to decide what is material
to that. It is not a government person like myself. It is all
about that reasonable investor, do they think it is significant
in the mix of information. And so I am going to be guided by
that, and I concur with you, in 2021, there are tens of
trillions of dollars of invested assets that are looking for
more information about climate risk, and I think then the SEC
has a role to play to help bring some consistency and
comparability to those guidelines.
Senator Van Hollen. And with respect to corporate political
spending, I mean, Senator Toomey, I think, gave the example of
how, you know, that spending may represent a small fraction of
a company's assets. But wouldn't a reasonable investor, or is
it something we should look into, whether a reasonable investor
believes that there is a reputational risk to a company if they
are spending secret money in politics and that becomes known
and revealed? Isn't reputational risk something that a
reasonable investor might consider?
Mr. Gensler. I think, Senator, you are correct that what
does a reasonable investor think is in that mix of information
with a buy a stock, sell a stock or a bond, or vote yes or no.
And it is up to those investors, and then to work to help
provide some guidance to issuers to provide that information in
that context.
Senator Van Hollen. Thank you. Now, in addition to serving
on the Banking and Housing and Urban Affairs Committee I now
chair a subcommittee on the Appropriations Committee that
oversees financial services in general government, the FSGG
subcommittee. And in 2016, the GSA submitted, with approval
from the SEC, a prospectus to Congress to authorize a lease for
a new headquarters facility for the SEC in the District of
Columbia. That prospectus was formally approved by the House
and the Senate Committees of Jurisdiction in 2018. Congress has
also appropriated $263 million to the SEC for the headquarters
move.
If confirmed, will you transfer the appropriated dollars to
GSA so the headquarters project can advance?
Mr. Gensler. Senator, as we discussed in some private
meetings, if confirmed, I would work with the SEC staff and the
GSA to better get up to speed on this. I know it is an
important matter that you have raised. I have not been yet
briefed on the matter because it is confidential negotiations
between GSA and various potential real estate options, as I
understand it.
Senator Van Hollen. But you would agree that it is
important for the SEC to follow the direction that Congress has
provided her.
Mr. Gensler. I would agree that it is always important, not
just on real estate but also on other mandates from Congress,
to follow congressional will.
Senator Van Hollen. I appreciate that answer, and this is a
case where I think, you know, Congress has spoken
Thank you to both our nominees. Mr. Chairman, thank you.
Chairman Brown. Thank you, Senator Van Hollen. Senator
Lummis from Wyoming.
Senator Lummis. Thank you, Mr. Brown. I have questions in
this round for Mr. Gensler, and it is nice to see you again,
Mr. Gensler.
In some quarters the SEC has a reputation for being a black
hole for innovators. Do you agree that we need to provide more
legal clarity through rulemaking and no-action letters to
innovators in the digital asset space and in the blockchain
industry, specifically?
Mr. Gensler. Senator, I thank you. I thank you for our
conversation in the last week on these matters and others.
I do think that technology in markets constantly change and
evolve and that it is important for the SEC to provide guidance
and clarity. Sometimes that is a clarity that will be thumbs-
up, but even if it is thumbs-down it is important to provide
that, whether it is through guidance or no-action letters, as
you mentioned.
Senator Lummis. I do not know if you are aware of this, but
Wyoming was the first in the U.S. to enact consumer protection
laws for digital assets, including virtual currency. That
happened in 2019. What are some of the ways we can work
together to ensure consumer protection for digital assets that
does not also hamper innovators?
Mr. Gensler. Senator, I was aware. I think that your
legislature and Governor enacted 13 separate acts in the
digital space in Wyoming.
I think it is important to protect consumers and investors.
One of area consumer protection is around the custody of their
funds. Digital assets, the actual ownership relies on something
called a private key in cryptography, and ensuring that that is
really that custody works, and I know Wyoming has looked at
that, New York, and some other states. I believe, actually,
South Dakota may have as well. I hope I did not leave out any
of the members' states.
But I think also investor protection, which goes beyond
just the custody of assets, but to ensure that these markets
are free of fraud and manipulation. And I think that is the
greater challenge, frankly, because the markets for some
markets usually operating overseas but some markets have been
really rife with fraud and scams. So trying to protect the
investors against that fraud and manipulation.
Senator Lummis. You know, in 2018, you said, in front of
the House Agriculture Committee, that blockchain technology has
real potential to transform the world of finance. Could you
talk more about how this technology can promote financial
inclusion and reduce risk and create new markets?
Mr. Gensler. Well, I think it is already doing some of that
right now, that it has been a catalyst for change. Central
banks around the globe are really looking at how to provide
more inclusive payment structure, more inclusive payment
tokens, and so that is in one area as a catalyst for change.
But it is also other payment system providers are looking say
how do we provide payment systems that operate 24 hours a day,
7 days a week, and at lower cost, both cross-border and
domestically?
Blockchain technology itself is a shared accounting system,
if I might say, and I think that has also led to some new
thoughts about how to do trade finance, and even medical
records technology and the like.
So I teach it. I am neither a maximalist nor a minimalist
but I think that is has really been a catalyst for change in
numerous areas.
Senator Lummis. Well, I have a lot to learn about
blockchain itself. My only understanding of it is the
application of bitcoin, but it will be interesting to see how
it is useful in other areas and can be done in a way that
actually saves money.
I am going to switch subjects, quickly, to energy. You have
proposed a greater focus on environmental issues as part of
your regulatory portfolio. My state of Wyoming's economy is
heavily dependent on the energy sector, and our state
government revenues, especially. Because of that, our state
government revenues are declining right now, dramatically
declining, because of the change in focus in our energy
economy.
Have you considered the practical impacts on Wyoming's
economy by making it more difficult for energy companies to
raise capital?
Mr. Gensler. Well, Senator, I think that the disclosure
regimes, or climate risks that we were discussing earlier
actually can be pro-issue or pro-corporation and pro-investors.
Investors, from time to time, change the information they would
want, and what they are just asking for more is about material
climate risk, climate risk that the investors see as material.
I think that can be also pro-issuer, pro-energy company, to get
some consistency, comparability, some clear rules as to how to
do this. Right now we have a little bit more of investors are
asking for it and issuers are not entirely sure how to address
all those. So I think it is pro-energy company to do such
disclosures.
Senator Lummis. Thank you, Mr. Gensler. Mr. Chairman, I
yield back.
Chairman Brown. Thank you, Senator Lummis. Senator Smith
from Minnesota.
Senator Smith. Thank you, Chair Brown and Ranking Member
Toomey, and I want to just welcome Mr. Gensler and Mr. Chopra
to the Committee. It was really wonderful to have a chance to
visit with you a little bit over the last few weeks. I think
you both bring outstanding credentials and experience to these
roles, and I look forward to supporting your confirmations, so
thank you so much for being with us.
I want to just start with Mr. Chopra, and I want to talk
with you a little bit about the issue of student loans and
Federal student loan servicing, if we could. So prior to the
pandemic, I heard from a lot of Minnesotans--this is an issue
around the country--struggling to pay their student loans and
struggling, especially, to get into and then stay enrolled in
income-driven repayment plans and the Public Service Loan
Forgiveness Program. And these are teachers and firefighters,
people that are interested in public service.
I am really grateful that the Biden/Harris administration
has put Federal student loans on pause until September, and I
am very concerned about the ongoing challenges that we have
related to getting good quality student loan servicing.
So, Mr. Chopra, we know that it is essential for student
loan servicing to be done well, so that borrowers are able to
access critical programs like the Student Loan Forgiveness
Program, and I would like to hear your thoughts about this.
What can we do to ensure high-quality Federal student loan
servicing, and how will you approach oversight to this, and
what can the Consumer Finance Protection Bureau do to protect
student loan borrowers and ensure access to important programs
like these loan forgiveness programs?
Mr. Chopra. So thank you, Senator. You know, one of the
things that I have always kept front and center is it is
critical for regulators not to make the same mistakes that were
made in the lead-up to the financial crisis. The costs of
inaction were too high. And some of the same issues that we saw
in the mortgage servicing market I think were creeping into the
student loan servicing market years ago.
There are many benefits, many programs, many contractual
entitlements in a borrower's loan note that they are eligible
to enroll in, and if servicers or debt collectors are
misrepresenting those options, that is a big problem. With
respect to the Public Service Loan Forgiveness Program, many
members of the military and teachers depending upon that when
making their own career decisions.
So it is critical that loan servicers live up to their
obligations. I understand there has been some improvement when
it comes to how the servicers are performing. We are at a
critical moment, when so many borrowers are going to have to
restart their payments and servicers communicating and making
sure that borrowers can navigate their options, and it is all
done lawfully--that is very critical--and the CFPB has a big
role to play in working with the Department of Education and
state attorneys general, state licensers, to make sure that all
of that is happening lawfully so we can avoid an avalanche of
defaults when any moratorium might end.
Senator Smith. I really appreciate that. I could not agree
with you more. I think that we face some major long- term
fallout from this pandemic, including student loan issues,
including housing issues, and I think particularly my heart is
people who feel like they were trying to do everything right,
they were following the rules as they understood them, and then
it feels like these student loan services are just pulling the
rug right out from under them. And this is a classic moment
where we need more energy and more oomph behind those that are
protecting consumers, especially folks that are looking for
ways to make a contribution through public service and then
have that ripped right out from under them. So thank you.
Mr. Chopra. Yes, and just to add one thing. So many people
are entering a very tough job market, and they are also leaving
school with an enormous amount of debt. And we have seen when
you enter a tough job market it can be hard to stay afloat, and
people fall financially behind. We need to make sure they do
not default and start off their financial lives, you know, with
more trouble, foreclosing the ability to maybe getting a home
or start a small business. We need to make sure that law is
being followed.
Senator Smith. Exactly. Thank you. Thank you very much.
Mr. Gensler, I am about out of time, but I just wanted to
thank you for your responses to questions of several of my
colleagues about the importance of providing some sort of
standardized and mandatory system for laying out systemic
climate risks. I think that this contributes to transparency
for investors, as you suggested just a moment ago in your
response to Senator Lummis, and I think that it also helps us
to really understand what the systemic risk is to asset
valuation as well as to financial markets. So thank you very
much for that.
And I have one thing that I am going to follow up with you
on, having to do with an issue that is important to a group of
people who care about new registration forms for indexed linked
annuities, and I will follow up with you on that. You and I had
a chance to talk about that a little bit.
Thank you, Mr. Chair.
Chairman Brown. Thank you, Senator Smith. Senator Moran, I
believe, is not here. Has Senator Cramer arrived yet? And has
Senator Daines arrived yet? And Senator Sinema is----
Senator Daines. Mr. Chairman, this is Senator Daines.
Chairman Brown. OK. Go for it, Steve. Senator Daines from
Montana is recognized.
Senator Daines. Great. Thanks, Mr. Chairman. I appreciate
it much.
So I want to talk about the issue of these proxy advisor
duopolies. As you know, proxy firms provide a variety of
services to shareholders. Most notably, they provide advice at
their shareholder meetings, typically public traded companies.
There are two dominant proxy firms. There is International
Shareholder Services, ISS, and Glass Lewis. They control about
95 percent of the proxy advisor industry, which really
constitutes a duopoly. It has become the de facto standard set
of corporate governance in the U.S., without any meaningful
input from shareholders or issuers.
This is an area that is attracted by partisan attention in
the past, most notably through the House passage of the
Corporate Governance Reform and Transparency Act. A similar
version was sponsored by Senator Reed and other current members
of the Committee, including Senators Tillis and Kennedy.
So this is the question, Mr. Gensler. Are you concerned
about this lack of competition in the market for proxy advisor
services and concerned that some proxy advisory firms may have
significant conflicts of interest, which may impact the
objectivity of the voting recommendations?
Mr. Gensler. Senator, thank you, and thank you for taking
some time last week for our discussion. I do think that in all
parts of the capital market, whether it is proxy advisors,
whether it was the earlier question about credit rating
agencies and so forth, competition is a good thing to bring
about transparency and lower cost and more efficiency. So I
would share that even in this space as well.
I think that it does bring efficiency to many pension funds
to have proxy advisors. It is a service that helps pension
funds and investors through the proxy season. And you also
raised conflict. I think it is the role of an agency like the
SEC to try to, through transparency and other rules, to address
potential conflicts of interest, and we saw some of these
before the '08 crisis in the credit rating area, and I know
that the commission has attempted to do that through some rule-
writing last year in the proxy advisor space. I do think they
bring some efficiency and help a lot of pension funds through
what otherwise would be a hard slog to consider 3,000 votes or
something in the course of just a few weeks.
Senator Daines. Thank you. You know, you said earlier, in a
response to a question, that you have some concerns about one
firm having 40 or 50 percent of the payment for order flow. For
example, ISS has both a research and a consulting arm. Do you
think the SEC has responsibility to ensure that the proxy
advisor systems function properly and that investors receive
the most accurate as well as most up-to-date information prior
to voting proxies?
Mr. Gensler. I think that as the SEC did last year address
proxy advisors it is within the authorities and it is something
that, if confirmed, I would work with the staff and my fellow
commissioners and with you to see if there were things that
were yet to be addressed that needed to be addressed. But I
also think they provide an important role in the markets during
the proxy season.
Senator Daines. Thank you. I shift to enforcement actions.
I have been concerned, the SEC, under past commissioners, has
based enforcement actions on previous settlements and staff
guidance. In your opinion, how should the SEC's enforcement
division decide whether to engage in enforcement action, and
when would the issuance of guidance or rulemaking might be more
appropriate?
Mr. Gensler. Well, I was honored to chair another agency, a
civil law enforcement agency, smaller but still very important
to the markets, and I think of it is enforcement. It is
following the facts and the law where the facts and the law
take you, but it is to stamp out fraud and manipulation in the
markets and it is to use limited resources to effectuate where
there are the greatest problems in the market.
So that is my philosophy. I think that, as you say, if
there is a rulemaking that is very different than enforcement.
Enforcement is about following the facts in the law and using
limited resources to sort of change market behavior. If there
are, unfortunately, a bunch of small fraud shops, you have got
to go after them, but the first four or five or six you go
after then maybe the others start to clean up their behavior.
Senator Daines. Thank you. I know I am out of time, but
these are two really quick questions, and that would be, would
you commit to making offenses against senior citizens an
enforcement priority? We have got a lot of problems with
schemes in Montana that affect our seniors.
Mr. Gensler. It is a very important--those less able to
protect themselves need the SEC even more.
Senator Daines. The Ponzi schemes as well, going after
Ponzi schemes? Do you commit to enforcing there?
Mr. Gensler. Yes. We did at the CFTC. I will, if confirmed,
at the SEC.
Senator Daines. OK. Thanks, Mr. Gensler. Thank you,
Chairman.
Chairman Brown. Thank you, Senator Daines. Senator Ossoff
from Georgia.
Senator Ossoff. Thank you, Mr. Chairman. Thank you to our
nominees.
Mr. Chopra, the largest investment banks are very heavily
subsidized, and many would argue these massive financial
institutions are dominant not because they are efficient at
capital allocation or risk management, or because they offer
the best products to consumers, but instead because they
receive trillions in government bailouts, low-interest loans,
and quantitative easing.
Do you agree with this assessment, and is this, in your
view, a form of regulatory capture?
Mr. Chopra. Well, Senator, too big to fail is a huge
problem that Congress sought to fix in Dodd-Frank, and we
should continue to make sure that that happens. We want
competition on the merits. We want to make sure there is a
market structure, where small banks, small financial
institutions can compete fair and square. And it is not fair if
they cannot, and our regulators need to be attuned to every
single consumer and institution, not just the largest ones. I
deeply agree with that.
Senator Ossoff. I appreciate that, Mr. Chopra, and building
on that theme, during this pandemic, much like during the
crisis in '07-'08, the 12 or 13 largest banks have received
trillions in emergency cash. It is provided on an overnight
basis, and there are no such instantaneous emergency cash
facilities for credit unions or regional banks, let alone
ordinary people who have had to wait months for stimulus
checks. And I would note that many Members of Congress who
currently oppose sending cash to ordinary people in a pandemic,
raise no concerns about the massive scale of cash and cheap
loans provided to Wall Street banks.
Why is it so much easier for major banks to access
emergency financial support in a crisis, and how could we level
the playing field?
Mr. Chopra. Well, Senator, you are right. Small businesses,
households did have a tougher time getting a lifeline of
support, and I know that that was a struggle.
You know, one of the things that our Federal Reserve
chairman has talked about, and others, is modernizing our
payment system so that we can have a more real-time system. We
cannot be falling behind other countries. We see that China is,
in many ways, investing in faster payments in a stable coin.
These are things that will help consumers and businesses get
money faster, to their benefit. And, you know, I strongly
support the Fed's efforts to modernize that payment system so
that everyone can have equal access.
Senator Ossoff. Thank you, Mr. Chopra, and I would note
that the Retail Payments Office at the Fed is based at the
Atlanta Fed.
I want to ask you now about financial technology. We saw,
this week, a report that Walmart has hired two former Goldman
Sachs executives, and Walmart's investments in fintech signal
an interest in expanding the provision of financial services to
its massive customer base. On the one hand, more competition
could benefit consumers. On the other hand, there are looser
regulations for industrial loan companies, which could threaten
financial stability, and the entry into the banking sector of a
retail giant like Walmart could raise antitrust concerns.
What are the implications for consumers and for regulators
of these developments in digital banking, of the prospective
entry of Walmart into the banking sector, and how can
policymakers address them?
Mr. Chopra. So, Senator, while this is not a core issue of
the CFPB, it is something I have thought about quite a bit in
my current role at the FTC. We have seen how large technology
platforms are increasingly entering financial service.
Facebook's Libra proposal drew a lot of scrutiny from this
Committee as well as regulators all over the world, with
respect to how it might impact privacy, fair competition, and
even compliance with our money-laundering laws.
So I do think we have to make sure we are looking at the
issues that are facing our country today but also these other
issues coming down the pike when it comes to market structure.
I do not want to see a banking system or financial services
system where new market entrants cannot get in and cannot get
in and win the day. Dominant players should not be able to
squelch out competition, and that is something we need to
always be mindful of.
Senator Ossoff. Thank you, Mr. Chopra. Mr. Chairman, I
yield back.
Chairman Brown. Thank you, Senator Ossoff. That concludes
the first round. The second round, a number of members from
both sides would like questions. I think that I will start, but
I think that Ranking Member Toomey has asked that Senator Scott
be the first Republican called on, so, Tim, I will call on you
after my--I will not go the entire 5 minutes, and I will more
strictly enforce the 5-minute rule too. We were fairly
liberal--pardon the adjective there, Senator Scott--fairly
liberal with enforcement, but we will not be this time.
Mr. Gensler, companies and investors have acknowledged the
need for improved and consistent climate risk disclosures. The
SEC last addressed this in 2010. Acting Chair Lee has recently
undertaken a review of the earlier guidance. Mr. Gensler, are
you going to do more than that?
Mr. Gensler. Chair Brown, as we have discussed in this
hearing, I think that increasingly investors really want to see
tens of trillions of dollars of assets behind it, want to see
climate risk disclosures. I think issuers would benefit from
such guidance, so I think through good economic analysis,
working with the staff, putting out to the public to get public
feedback on this, this is something that the commission, if I
am confirmed, I would work on.
Chairman Brown. Thank you. Commissioner Chopra, one
question for you. In the past few years we have seen a lot of
changes in consumer finance markets. Companies are increasingly
offering consumer financial products through mobile apps or
using new methods of underwriting, such as relying on
alternative credit debt or algorithms that use artificial
intelligence.
What are some of the most significant developments you have
seen in consumer finance, and what do you see as new risk to
consumers from these developments?
Mr. Chopra. Senator, technology will play such an important
role in our lives in every sector of the economy, but we also
need to understand more clearly how mass data collection on all
of us is impacting our privacy, the security of our data, and
ultimately the decisions made by these algorithms.
I think there are real questions about transparency. I have
noted that there are many types of algorithmic decisionmaking
where simply people are unable to ascertain why a certain
decision was made. It has raised questions about
discrimination, as evidenced by Secretary Carson's complaint
against Facebook in the housing context, and so many others.
So looking at how big data, particularly by large platforms
who have detailed behavioral data on all of us, is something we
must carefully look at, because it will change financial
services fundamentally, and we need to make sure that we have a
vibrant and competitive market and not one that is simply
dominated by a few.
Chairman Brown. Thank you, Commissioner Chopra. Before
turning to Senator Scott I want to enter into the record
letters of endorsement from a bipartisan group of 26 state
attorneys general, veterans, and military service
organizations, as well as a broad coalition of civil rights
consumer and housing organizations in support of Mr. Chopra's
nomination, and letters from investor protection advocates,
state regulators, and investment professionals in support of
Mr. Gensler's nomination. Without objection they are entered
into the record.
Senator Scott from South Carolina for the second round.
Senator Scott. Thank you, Senator Brown, and, Senator
Brown, I noted your comments about liberalism and conservatism.
I will just note that even if it is just the amount of time
that we each get for asking questions, any time you move toward
the conservative aisle I am happy to see that kind of movement
from you, sir. So thank you very much for sharing those
enlightening comments with me.
Mr. Chopra, to you, sir. This is an easy question, I hope.
Do you agree that Congress did not provide the CFPB regulatory
oversight authority over insurance products and the insurance
industry?
Mr. Chopra. Yes, sir. That is an explicit exclusion from
Title X of Dodd-Frank. The CFPB does not have authority over, I
believe it is firms regulated by state insurance industry.
Senator Scott. Yes, sir, and as an old insurance guy
myself, I am really impressed with the level of integrity and
success that we have had in the state regulated insurance
industry, and I hope that we are able to maintain that
equilibrium as we move forward.
Another question for you, sir. I am confident every Senator
here today supports responsible consumer protections and a
robust, transparent marketplace of consumer products and
services. I am also certain that every Senator present would
agree that regulated entities should have the right to know
what the rules of the road are before being charged with
breaking them.
Unfortunately, when the CFPB was first established, its
leadership quickly established that enforcement, rather than
clearly articulated rules for regulated entities, would be the
primary mechanism for protecting consumers. The CFPB's frequent
use of enforcement and supervisory authority as an extension of
rulemaking had a chilling effect on the marketplace, as firms
began to exit certain business lines rather than risk running
afoul of the Bureau's vaguely defined and constantly shift
standards.
So my question, sir, is, if confirmed, will you strongly
commit to the continued improvement of overall transparency,
efficiency, and effectiveness of the CFPB's supervision and
enforcement programs?
Mr. Chopra. Yes, and I also will commit that the CFPB, and
every Federal agency, should be focused on fixing harms, making
it clear to market participants what is expected of them.
Ultimately, that is what creates a vibrant market, and that is
something that the CFPB must do, adhering to all of the
procedures Congress has laid out. I am absolutely committed.
Senator Scott. Thank you, sir. My last question,
understanding the conservative nature of the time remaining is
important, Chairman Brown, there is no doubt that the
availability of responsible small-dollar credit is essential to
millions of Americans and plays a key role in helping consumers
whether temporary cash-flow imbalances, unexpected expenses, or
income shortfalls during really challenging times like the
pandemic that we are coming out of.
In acknowledgment of that, the CFPB, FDIC, FRB, NCUA, as
well as the OCC issued a joint policy statement at the outside
of the COVID-19 emergency that encouraged financial
institutions to offer responsible small-dollar loans to both
consumers and small businesses. In the year since that
statement was released, CFPB and other financial regulators
have taken a number of positive actions to facilitate the
ability of financial institutions to more effectively meet the
small-dollar credit needs of their communities and their
customers.
As director, what actions would you take, both
independently and in coordination with other financial
regulators, to encourage the availability of, and access to, a
wide variety of credit choices for consumers?
Mr. Chopra. So, Senator, I want to work closely with all of
those agencies you have mentioned, including the National
Credit Union Administration, which has its own small-dollar
rubric. I also want to make sure that it is more than just
access to credit. It also about access to one's money. The fast
consumers can control their money, and sometimes they have to
wait days and days for it, that makes it harder for them to
make ends meet. I referenced, to one of your colleagues, the
importance of us having a modernized payment system. All of
these actions will make it easier for consumers to have control
of their own destiny and ultimately lead a strong financial
life.
Senator Scott. Thank you, sir. With 7 seconds left, let me
just to Ranking Member Toomey, thank you for the time. Chairman
Brown, have a good day.
Chairman Brown. Thank you, Senator Scott. Senator Warren is
next. I see her screen is open but I do not see her. If she is
not here--she is here. Senator Warren, you are next, for 5
minutes, and we are enforcing the 5 minutes more strictly this
round, so thank you.
Senator Warren. I am still here. I am sorry, Mr. Chairman.
I could not hear you, so thank you.
Mr. Chopra, congratulations on your nomination. You have
been a long-time advocate for consumers, and I have no doubt
you are the right person to lead the Bureau at this moment. But
you have a big task ahead of you. The last administration's
appointees acted like they worked for the giant banks that they
were supposed to regulate. So it is clear that the Bureau needs
to return to its core mission of protecting consumers.
So I want to ask you about your plans for one of the areas
where the past leadership of the Bureau failed the most, and
that is enforcing the fair lending laws that are designed to
protect consumers from discrimination. In 2017, one of the very
things that Mick Mulvaney did when he took over as acting
director was to gut the Bureau's Fair Lending Office and strip
the attorneys of enforcement power, and, no surprise,
enforcement actions plummeted.
So can you talk about your own plans for holding banks and
financial companies accountable for discrimination?
Mr. Chopra. So, Senator, thank you. I do not think this is
just a problem at the CFPB. FTC, where I work, did not file a
single enforcement action on the Equal Credit Opportunity Act
for years and years. I do not believe agencies should nullify
Congress. We should enforce the laws that have been delegated
to us. And it is particularly important when it comes to
antidiscrimination. There are new ways in which financial
institutions are using behavioral advertising, new forms of
data collection, and we need to make sure that we are offering
a robust way to understand how they can comply and hold them
accountable when they are not. Our Fair Lending and Equal
Opportunity Office at the CFPB, I had a chance to work with
them the last time I worked there, is established by Congress,
and it should play a critical role in making sure the law is
being followed and meeting the objectives set out in the act.
Senator Warren. Good. I am very glad to hear you say that,
Commissioner Chopra. You know, the whole problem of
discrimination in financial services exacerbates racial wealth
inequalities, and I am glad that you are going to make this a
priority.
It is long past time to send a signal to Wall Street that
the Bureau is not going to turn the other way and look away
when big financial institutions discriminate against Black,
Latino, Asian, and Native customers. So thank you for that
commitment.
I also want to talk about the upcoming housing cliff that
is facing millions of Americans. During the 2008 financial
crash, financial regulators focused on helping banks and turned
their backs, largely, on American families. The results was
that about 10 million families lost their homes, with that
burden falling heaviest on families of color. In response, the
Obama administration established the CFPB to make sure that
never happens again.
Now, fast forward to the COVID-19 pandemic. Forbearance
measures have staved off a similar wave of foreclosures, but
those protections are not going to last forever. The good news
is that unlike 2008, we now have an agency that is dedicated to
putting consumers first.
So let me ask you, Commissioner Chopra, can you explain the
urgency of the current crisis and how you plan to use the
Bureau's tools to prevent the mistakes that were made during
the Great Recession from just happening all over again?
Mr. Chopra. I would be remiss if I did not acknowledge the
role you played in the establishment of the Bureau, and I know
something I have spoken with you and many other members on this
Committee, is that what happened in the mortgage market in the
years leading up to Lehman, and the foreclosures that took
place after, we have seen report after report after report
about how devastating that was to families, to their future, to
our economy, and it impacted our entire financial system. So
the CFPB has been entrusted to monitor those mortgage markets,
work side by side with each other regulator, work with states,
and use the tools in the toolbox to spot those risks.
And while Congress has hit pause on many of the troubles in
the mortgage market, we are not out of this. Based on the data
that I look at, many families are going to struggle. They have
lost income. They may not be able to resume, and we should make
sure that they can stay in their homes when they have that
ability to do so, and not be deceived about what their options
are. No one should be kicked out during a quarantine,
particularly if they have been lied to. I really believe that
strongly.
Senator Warren. Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Warren and Commissioner
Chopra.
Ranking Member Toomey in the second round.
Senator Toomey. Thank you, Mr. Chairman. Mr. Chopra, while
the CFPB director is now finally removable by the President,
the CFPB remains unaccountable to Congress in the sense that it
is not subject to the appropriations process. In a 2016
interview at the University of Pennsylvania, you were asked
about proposals for making the CFPB subject to appropriations
or making it a five-person commission.
At the time, you said that Congressmen who vote for these
policies must be perceived as, quote, ``shilling for predatory
lenders,'' end quote, and that, quote, ``supporting gutting the
CFPB like that by starving it of resources or creating
structures that don't allow it to do its job, there is no real
good argument for it other than representing those who are
essentially breaking the law,'' end quote.
Well, in fact, Mr. Chopra, I, and many of my colleagues,
have long and continued to support the policies of the ability
to remove a CFPB director by the President, making it
accountable to Congress by making it subject to appropriations,
and for me, it is about accountability.
So let me ask you, is it still your view that my colleagues
and I just want to shill for, quote, ``predatory lenders and
represent lawbreakers''?
Mr. Chopra. No, Senator, but when it comes to the banking
regulators, the Comptroller of the Currency----
Senator Toomey. I just want to be clear, so you are
retracting what you said back in 2016?
Mr. Chopra. I am happy to look at that. If I said that I
think many people's concerns about accountability are
principal, and it is certainly not the case that everyone is
just doing the bidding. I regret that if I said that, but
ultimately I do believe that independent agencies are able to
stay more clear of political influence, are able to exercise
judgment carefully, and the Comptroller of the Currency and
others, I do believe----
Senator Toomey. I understand. I understand that you could
disagree with the opinion and the conclusion about the best
mechanism for accountability, but I am glad to hear that you
are retracting the impugning of the motives of those of us who
feel as we do. And I would be happy to provide the video for
you, if you have a question about whether that is accurate.
Let me ask you this. Last year, the CFPB affirmed that
supervisory guidance does not have the force or effect of law,
and this year it issued a rule to codify that principle. So I
certainly welcome this commitment to the rule of law,
especially in light of the CFPB's troubling past practice of
taking enforcement action based on supervisory guidance.
I think in our previous conversation you agreed with this
step taken by the CFPB. I just want to be clear. Are you
committing to complying with this law, with this rule, or do
you intend to revisit and attempt to change this rule that was
passed this year, and codify that principle?
Mr. Chopra. Yeah, so, Senator, I appreciate the question.
Guidance cannot impose obligations. That is not the appropriate
way in which new laws are created or is outside of the
regulatory process. I understand your concerns but I have not
read that rule very specifically. But supervisory guidance is
really supposed to be there to help institutions be able to
understand how to best comply. It can cover, sometimes,
emerging issues that provide guidance, but I agree with----
Senator Toomey. Yeah, this is about sticking with the rule
that codifies the principle that guidance cannot act as a rule.
My last question here has to do with the indirect auto
lending. This was an egregious example of the CFPB's
enforcement crusade, and it specifically relied on a very
controversial, disparate impact theory, and it was issued by a
supervisory bulletin rather than a proper rule. The GAO
confirmed that the CFPB's bulletin functioned as a rule and
was, therefore, subject to the Congressional Review Act, and
Congress, as you know, overturned this misguided policy.
Now when you and I spoke last week I asked you if you
intended to reopen the issue that Commerce had closed through
the CRA and create some new version of an auto lending rule
premised on the disparate impact area, and I think you
committed to me that you would not do that. Did I have that
right, and will you confirm that commitment today?
Mr. Chopra. The Congressional Review Act resolution has
nullified that guidance document, and the CFPB will continue to
adhere to that, if I am confirmed, and I will continue to
monitor any of these concerns you have, to work with you
further. But that has been nullified, and that is now the law.
Chairman Brown. Time has expired. Thank you, Senator
Toomey. Senator Warnock of Georgia, you are recognized for 5
minutes.
Senator Warnock. Thank you so very much, Chairman Brown. It
is great to be here with you, and let me say how excited I am
to be named chairman of this Committee's Subcommittee on
Financial Institutions and Consumer Protection.
Chairman Brown. We are too. Thank you.
Senator Warnock. Thank you. I look forward to working with
you and Ranking Member Toomey and the subcommittee's ranking
member, Senator Tillis, to ensure stability in our financial
markets and to protect consumers.
Commissioner Chopra, thank you so much for appearing before
this Committee today. As I travel across Georgia, I am hearing
a lot, and I heard a lot during my campaign, from student loan
borrowers. And that is a story that I know personally. I am the
first college graduate in my family, and I would not be here
were it not for Pell grants and low- interest student loans.
But students who are borrowing money now are just getting
crushed under the debt, and the student loan burden has real
implications, not only for the borrowers but for our economy.
People are not able to buy homes, start small businesses, the
kinds of things that move our economy forward, and, of course,
this is disproportionately impacting Black and brown borrowers,
particularly Black women.
I know that you previously served as the student loan
ombudsman at the Bureau, and what I would like to know is, as
director, what would you do to protect loan borrowers from
predatory student loan companies, servicers, and debt
collectors, and where are the places and opportunities for real
reform?
Mr. Chopra. So, Senator, I am glad you mentioned this
because I really think about the problem you raised as a double
whammy. For many people of color, families of color, they are
more likely to need to borrow to go to college, and then in
many cases, after graduating, continue to face a wage gap. In
many cases, the data has shown that African American females
with college degrees have not really seen their wages go up,
even after all of that studying, and that means that the debt
that they bear is even more difficult to service.
So there are a lot of problems in our student loan system,
when it comes to schools and government policies, but also the
CFPB has to make sure it is doing its job to make sure the law
is being followed when it comes to lending, when it comes to
servicing, when it comes to debt collection. I want to re-
engage with the states, with the Department of Education, if
confirmed, to make sure that those borrowers are not set more
behind.
This has implications for an entire generation, but also
the issue you raised about the racial wealth gap. It is very,
very critical that we get this right.
Senator Warnock. Well, thank you. I look forward to working
with you on this issue. It is my view that our young people
should not have to mortgage their future just to have a shot at
a future, and it pressing not only for them but for our entire
economy.
In the remaining minutes that I have, in 2013, you
testified before this Committee and talked about how
servicemembers, veterans, and military families were too often
the canary in the coal mine, as you put it then, when it came
to breakdowns in consumer finance markets. We have seen members
of our military and active duty deployed literally forced to
fly back home from combat zones to save their homes from
illegal foreclosures, its own kind of combat.
Can you talk about your experience enforcing and expanding
consumer protections, especially for our military families, and
how you would use the tools and resources at the Bureau to
protect military borrowers?
Mr. Chopra. So, Senator, thank you. I have had the honor of
testifying before this Committee several times before, and I do
believe that how institutions treat members of the military can
be a canary in the coal mine for others. It is true that
military families, they move more, they have more complex
situations. It can be tricky. And if institutions are
improperly foreclosing on them, throwing them into default,
overcharging them, misreporting information on their credit
bureaus, it can raise questions about whether they have the
processes and the agility to deal with complex situations.
I was very proud to work with other agencies on a massive
SCRA-related investigation and enforcement action involving a
nationwide student loan overcharging scam. We have to make sure
we are continuing to work with the Justice Department, with
other regulators, to crack down on that, especially as we
anticipate risks in the mortgage market.
Senator Warnock. Well, thank you so much, Commissioner
Chopra. Our military men and women in uniform are obviously
putting it all on the line for us, to protect us, and the least
we can do is protect them from abusive practices in our
financial systems, and I look forward to working with you to do
that.
Chairman Brown. Thank you, Senator Warnock. Senator Tillis
for the second round.
Senator Tillis. Thank you, Mr. Chair. Mr. Chopra, thank
you, and congratulations on your nomination. I want to go back
on, you know, the CFPB is authorized to prevent unfair and
deceptive practices, and I think you know that Congress has
used these terms deliberately, with the backdrop of the FTC
president establishing limits on these authorities. I think
even former Director Cordray was careful to adhere to the
President.
But I understand, in a Department of Transportation rule to
define unfair and deceptive practices, you urged that agency to
treat those authorities as significantly broader than the same
authorities under the FTC and the CFPB.
Should I infer from that that you are willing to go further
than even Director Cordray did on expanding the CFPB
authorities?
Mr. Chopra. So, no, Senator. I think if I understand your
question, the Department of Transportation has a different
fairness jurisdiction. The CFPB's unfairness authority I
believe word for word is harmonized with the FTC Act. I believe
in staying within the four corners of the law. I am happy to
answer additional questions about that Department of
Transportation comment letter, but it is a different unfairness
standard than what exists in the FTC Act or in the Dodd-Frank
Act.
Senator Tillis. Can I infer from that that you would at
least use rulemaking if you were to go in to clearly define
what an abusive practice would be, subject to rulemaking?
Mr. Chopra. So ultimately we would have to enforce the law
as written. There have been a number of cases where courts and
others have found that the fact patterns meet the prongs of, in
this case, the prohibition on abusive acts and practices. The
last director has actually promulgated a rule on short-term
lending that specifies certain abusive practices, particularly
the repeated debiting of accounts that may lead to overdraft
fees.
Ultimately, we need to enforce the law, and at times
rulemaking can be a tool that has been used. But I take from
your question that it is important that it is clear, and we do
what we can to make sure that what the law requires is
understandable, and ultimately we have to follow what Congress
has written in that statute and be subjected to judicial
scrutiny.
Senator Tillis. Thank you. I just have one other question.
Knowing this is the second round I will try and be brief. This
relates to a broader issue that I see. I have seen comments
from high-ranking officials. I have seen guidance that has
effectively become de facto rules, where the industry sees a
nod in a certain direction, they feel like they have to really
conform to something that is not a rule, which adds a lot of
costs, a lot of complexity, a lot of uncertainty.
Do you think that it is appropriate that a guidance
effectively becomes a rule, or that even a speech or a comment
that you could make in an interview could actually drive an
entirely new regulatory regimen for the industry?
Mr. Chopra. Well, Senator, I particularly worry about this
type of uncertainty for small players, new players. They do not
have a bunch of people working in Washington for them to track
all of this. Being as transparent as possible has to be always
a priority. I understand what you are saying and it is
important that that be communicated through all the appropriate
channels.
That being said, there is a place, in my view, for the
agencies to speak at industry conferences, talk about data and
trends, talk about new developments, be able to explain how
they might want to think about that. But I understand what you
are saying and I am very committed to that transparent
communication, particularly as it relates to making sure that
small players can compete with larger incumbents.
Senator Tillis. Thank you, Mr. Chopra. Thank you, Mr.
Chair.
Chairman Brown. Thanks, Senator Tillis. Senator Menendez
for a second round.
Senator Menendez. Thank you, Mr. Chairman. Mr. Chopra, we
are in the midst of a full-blown student debt crisis, with 43
million of our fellow citizens owing $1.5 trillion in student
loan debt. And instead of helping provide relief to those
borrowers by regulating a student loan market plagued by
harmful practices, our country's consumer watchdog was asleep
at the wheel, in my perspective, for the last 4 years.
So I think that student loan debt shakes the very
foundations of the American middle class. You know, I can
refinance anything in my life except student loan debt. If I
was able to do so, for example, there would be great
opportunities to buy my first home, be an entrepreneur, start a
business. It would have an enormous economic ripple effect for
the individual as well as for society as a whole.
So as the lead consumer watchdog, does the CFPB have
authority to oversee and supervise that $1.5 trillion worth of
consumer debt, including debt owed to the Federal Government?
Mr. Chopra. Yes. My understanding, the existing law and
implementing regulations, those entities, servicers, debt
collectors, they are covered as consumer financial products and
services.
Senator Menendez. And do you believe the extent of the
current student debt crisis calls for the use of the Bureau's
full slate of authorities to ensure that Federal and private
student loan servicers are complying with consumer financial
protection laws?
Mr. Chopra. Yes, so, Senator, student loans used to
actually be more of the exception, and now they are the norm.
While I was at the Bureau the last time, the agency reported
that student loans had crossed the trillion-dollar market. It
is now $1.7 trillion. There were years when more than 1 million
Americans were defaulting, even when they had a legal
entitlement to loan modifications and income-driven repayment.
This has to be something--it is one of the biggest consumer
credit markets in our country, after mortgages, and we have to
make sure that the law is being followed. And I do. I have seen
some real improvements over the last decade in the activities
of some of these firms, and I hope that that continues, and I
hope that there are high levels of compliance with the laws
that Congress has passed.
Senator Menendez. Well, thank you for that. During your
tenure as the student loan ombudsman, the CFPB returned over
$750 million to wronged student borrowers. That is the type of
work I would like to see the CFPB return to.
And then, finally, I want to follow up on Senator Warnock's
questions to you about the disproportionate impact students
loans have on minority communities. I, like him, who grew up
poor, in a tenement in Union City, the first in my family to go
to college, would have never done so without the Pells,
Perkins, and work-study. So I am very familiar, first-hand
knowledge of the consequences. But should the Bureau examine
whether student loan servicers are violating civil rights laws
or engaging in other unlawful conduct that disproportionately
hurts minority student loan borrower?
Mr. Chopra. So many of those firms are subject, and I
believe all of them, to the Equal Credit Opportunity Act. We
have seen that it is critical to ensure that there is
appropriate enforcement of that law, not just on the
origination side but also as established guidance as it applies
to the other parts of the consumer credit lifecycle.
We cannot really make a mistake when it comes to this. You
know, ensuring that our antidiscrimination laws are adhered to
is important for the goals that the Congress has set out in
those laws.
Senator Menendez. Well, thank you. I look forward to
supporting your nomination and to your leadership of the agency
upon confirmation.
Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Menendez. Either Senator
Lummis, if she is coming back, or Senator Hagerty, if he is
coming back, or Senator Lummis, if she is coming back, or
Senator Daines, who has come back.
Senator Daines, your second round, and try to stick to 5
minutes. Thank you.
Senator Daines. Chairman Brown, your ability to handle the
juggling here is quite impressive, I will say.
Chairman Brown. It is not complicated.
Senator Daines. Well, it is not an easy task here with our
Senators who are going in and out. I do not envy you. But thank
you, Mr. Chairman.
These questions here are for Mr. Chopra. As you know,
following the Supreme Court's decision in the Seila Law LLC v.
CFPB case, the director of the CFPB is removable for any reason
and serves at the pleasure of the President. We are now only
considering your nomination because the prior director resigned
at the request of the President with 3 years left in her term.
And regardless of where one stands in the political spectrum, I
hope everyone can agree that this instability at the top of an
agency with such vast power is frightening.
So my question is, do you agree that the CFPB should be led
by a multi-member commission versus one person?
Mr. Chopra. So, Senator, it is the job of Congress to
determine the appropriate agency structure. Some of our
financial regulators are led by a single director, removable an
Executive official, the Federal Housing Finance Agency, I
believe, the Comptroller of the Currency. Others are set up as
boards or commissions.
I currently sit on a commission, a multi-member body.
Ultimately, Congress is vested with the authority to establish
these structures----
Senator Daines. No, no, it is--you are exactly right. It is
our responsibility, not yours. I was just curious, as somebody
who, as you say, sits on a commission today, and also you are
very knowledgeable of the CFPB, just what are your thoughts
about--would it better serve the American people if it was a
multi-member commission versus led by one person? I am curious
of your opinion, your thoughts.
Mr. Chopra. Well, in my view, regardless of it is a single
director or a multi-member commission, there needs to be
accountability. There needs to be responsiveness. Some
commissions work well, some single directors work well, and the
opposite can be true too.
Where I sit, at the FTC, this agency has missed some of the
worst abuses when it comes to invasions of privacy by Big Tech,
has failed to enforce some of its core orders. I do look at the
CFTC, under Gary Gensler's leadership, that did actually take
appropriate actions, was responsive, was transparent.
Ultimately, again this is Congress' decision. But what I am
committed to is no matter what the structure is, we have to
follow the law, adhere to the law, be responsive to Congress
and the public.
Senator Daines. Yeah, no, I think the concern I am hearing
from many out there that we serve, the American people, is just
the fact it can swing wildly between political parties,
regarding different regulatory philosophies, you know, at the
whim of the person at the helm and President who appoints them.
So it is a concern. Obviously, I wanted to raise it, and I have
heard that from many of my constituents back home in Montana.
Mr. Chopra. I appreciate that.
Senator Daines. Anyway, thank you. I will keep going on the
time. So here is a question. I came from the private sector,
spent most of my career there. Is business a harmful force?
Mr. Chopra. Senator, there is no one more who thinks, than
me, that business is one of the best forces for our lives in
America. I am not a lawyer, nor is Mr. Gensler. I studied
business. I worked in the private sector. I believe that
business is, frankly, what Thomas Jefferson wanted for a free
country.
What I do have a problem with is when particularly large
actors can bully small businesses or break the law and not be
held accountable. At the FTC, we laid the hammer on small
businesses. We go after the individuals, we take everything,
but sometimes do not treat a larger firm using the same set of
scrutiny, even though the law is exactly the same.
Senator Daines. Right. So would you prejudge, in any way, a
business' actions, based on whether you had an unfavorable view
of the industry that it is part of?
Mr. Chopra. Absolutely not. That is not the job of an
agency. The job is to administer the law that the Congress has
set, and that would be inappropriate to have whims or views
about particular types of businesses.
Senator Daines. So the concern I have is you dissented
regularly, with astonishing regularity, from FTC actions
because you complained the penalties were not punishing enough.
So your record at the FTC I know raised some concern for many
on this Committee.
Mr. Chopra. Well, Senator----
Chairman Brown. Please wrap up.
Mr. Chopra. ----Senator, I do not believe--I do not know if
the Senator has frozen--Senator, I do not believe that--I am
happy to share any of the opinions I have written. I believe
that over 93 percent of decisions were unanimous. But I do have
a problem when fraudsters get off with not having to redress
their victims. We are sometimes not doing enough to hold
businesses accountable when it comes to the harm that they
cause, even when it is an outright violation of the law. I
certainly objected to the FTC's Facebook settlement, which was
subject to, in my view, not even fixing the core problem that
led to the massive violations.
And, Senator, I am happy to discuss that more with you, but
ultimately we want honest business to be able to thrive and to
compete and for bad actors to be held accountable if they
commit fraud.
Senator Daines. Thank you, Mr. Chairman.
Chairman Brown. The time has expired. Thank you.
Senator Daines. Yeah, thanks.
Chairman Brown. Senator Lummis for 5 minutes. I think you
are last. Go for it.
Senator Lummis. Thank you, Mr. Chairman. Hello, Mr. Chopra.
It is nice to see you again.
My first question is about usury laws. They have
historically been the provenance of state legislatures. My
state of Wyoming even has a usury cap. I, in fact, remember the
debate because I was a state legislator at the time.
Dodd-Frank prohibits the CFPB from imposing maximum
interest charges on consumer credit. Do you agree that the CFPB
lacks the authority to impose a usury cap?
Mr. Chopra. So, Senator, my understanding is that you are
right, that usury caps, interest rate caps, that is primarily
the provenance of states, and I believe there is some explicit
language in Title X of Dodd-Frank that prohibits the CFPB from
establishing something like that. I am happy to look at it more
closely if there are more specific questions, but that is my
understanding of the law.
Senator Lummis. Nope, great answer. That is fabulous. Thank
you.
Now, if confirmed, you will have the honor of being a
member of the FDIC board, and Congress has specified that
industrial lending companies are entitled to deposit insurance
if they have a safe and sound plan of operation. This is the
easiest question you will be asked today. Will you consider the
individual merits of each and every application and grant
deposit insurance to an ILC with a safe and sound plan of
operation?
Mr. Chopra. Yes. I will follow the law when it comes to
applications. I will, of course, rely heavily on the FDIC
staff. That is their real expertise. But inasmuch as
applications are subject to these laws and regulations, of
course, that should be the standard by which they are evaluated
by.
Senator Lummis. Thank you. And my last question, Chairwoman
McWilliams was confirmed by the Senate to set the direction of
the FDIC. Section 6b of the FDIC bylaws allows two members of
the FDIC board to call a special meeting of the board. Since
you will not be the chairperson of the FDIC board, will you
commit not to force votes on matters the FDIC chairwoman has
not included on the board's agenda?
Mr. Chopra. So, Senator, I am actually not familiar with
these rules of procedure, but I am happy to take questions for
the record. Is the question that the chairwoman has a statutory
right to call meetings--and I apologize if I am not fully
understanding all of it, but I am happy to take a close look.
Senator Lummis. OK. It is a bylaws thing, and you bet, I
will submit questions for the record. And thank you very much
for your time.
Mr. Chopra. Absolutely, Senator, and thank you for----
Senator Lummis. That is all I have. I get to yield back
almost 2 minutes. Thank you.
Chairman Brown. Thank you, Senator Lummis. Is Senator
Hagerty here? I assume not, so we are drawing to a close. I
think he is not.
Well, thank you to Mr. Gensler and Commissioner Chopra for
being here today and providing testimony, at the longest
Committee meeting I remember in the Senate Banking, Housing,
and Urban Affairs Committee, with the interest from so many
members in the second round.
For Senators who wish to submit questions for the record,
these questions are due by the close of business this coming
Friday, March 5. For our witnesses, please submit your
responses to questions for the record by noon on Monday, March
8. We obviously want to move on nominations quickly is the
reason for the squeeze time period. Thank you gain.
With that, the hearing is adjourned. Thank you all.
[Whereupon, at 1:04 p.m., the hearing was adjourned.]
[Prepared statements, biographical sketches of nominees,
responses to written questions, and additional material
supplied for the record follow:]
PREPARED STATEMENT OF CHAIRMAN SHERROD BROWN
Today we consider the nominations of two distinguished public
servants: Rohit Chopra to serve as Director of the Consumer Financial
Protection Bureau, and Gary Gensler to serve as a Chairman of the
Securities and Exchange Commission.
Most of us have met with them. I am impressed with their knowledge,
their commitment, and their passion to serve, especially during the
current public health and economic crisis. Thank you, Commissioner
Chopra and Mr. Gensler.
You are both nominated to lead parts of our government whose job is
to stand up for the millions of Americans who don't have a corporate
lobbyist, who don't have a Super PAC, who never get bailouts or golden
parachutes.
And you will take on these roles at a time when so many people
don't feel like they have a voice in our economy, or anyone on their
side in government.
Your job will be to prove them wrong; to fight for all the workers
and families and communities that have been left out and looked down on
by the Washington elite, and preyed on by Wall Street.
Even before the pandemic, workers' wages were not keeping up with
the cost of living and raising a family--the cost of housing,
childcare, prescription drugs had all gone up. We know 40 percent of
Americans aren't able to come up with $400 in an emergency.
The racial wealth gap has increased: the average white family now
has 10 times the wealth of the average Black family.
We have the widest racial home ownership gap in 50 years--in fact,
the gap is as big today as it was when it was legal to refuse to sell
someone a home because of the color of their skin.
Then the coronavirus pandemic hit--and millions of workers who were
one emergency away from draining their savings, or turning to a payday
lender, or being evicted, were all facing emergencies at once.
Millions of homeowners are behind on their mortgage and at risk of
foreclosure--including nearly one-in-six Latino homeowners and one-in-
five Black homeowners.
Today's nominees understand the challenges we face. And after years
of allies of the largest corporations and the biggest banks running
these agencies, and setting government up to fail, Mr. Chopra and Mr.
Gensler are here to fight for everyone else.
Congress created the Consumer Protection Bureau to be a voice for
all the Americans who too often don't have one in Washington.
During its first ten years, the Bureau delivered results: the CFPB
made new, strong rules that protect consumers from abusive practices,
and returned more than $12 billion to more than 29 million Americans
who were cheated and preyed on by shady lenders and big banks.
Mr. Chopra has the expertise and the track record to lead the
Bureau at a time when workers and their families are desperate for
someone to look out for them.
He has a deep understanding of financial markets and a strong
record of protecting consumers and small businesses, promoting
competitive markets, and holding bad actors accountable.
In 2018, the Senate voted unanimously to confirm Mr. Chopra as an
FTC Commissioner, and since then, he has worked with members of both
parties on a wide array of issues important to American consumers.
As Commissioner, Mr. Chopra worked with Democratic and Republican
state attorneys general to protect American small businesses and
consumers from foreign goods that were flooding the market with fake
``Made in the USA'' labels.
He has pushed the FTC to crack down on Big Tech, including
authorizing the agency's current lawsuit against Facebook.
He has also earned the endorsement of veterans and military
organizations because of his long record of standing up for
servicemembers, veterans, and military families that have been preyed
on by Wall Street banks and predatory lenders.
At the CFPB, Mr. Chopra served as the agency's first student loan
ombudsman, directing the agency's work in the $1.7 trillion student
loan market, and working with state attorneys general of both parties
to bring enforcement actions against student loan debt relief scams.
With Mr. Chopra leading the CFPB, Americans can be confident
they'll have someone looking out for them.
Turning to Mr. Gensler, we consider his nomination at a time when
it's become more and more obvious to most people that the stock market
is detached from the reality of their lives.
People have watched stock prices go up and up during this pandemic,
even though only half of U.S. households have stock investments.
They've seen corporations pay dividends to shareholders, while rolling
back hazard pay for workers and laying people off.
As Chair of the Commodity Futures Trading Commission, and prior to
that as a senior official in the Treasury Department, Mr. Gensler
delivered results and ensured accountability.
He led the charge in 2012 to crack down on the big banks that had
manipulated interest rates for years, and gotten away with it. He will
bring that same focus to the SEC to ensure our markets are fair and
transparent.
Markets should be a way for families to save and invest for their
kids' education or a down payment on a home or a secure retirement--not
a game for hedge fund managers that workers always lose. Mr. Gensler
will bring the focus back to the people who make this country work--and
take on anyone on Wall Street looking to game the system.
That means upgrading climate risk disclosure requirements that are
out of date, punishing misconduct, and enforcing the protections on the
books. And it means working with other agencies-like the banking
regulators-to head off growing problems before they become emergencies
that hurt the economy.
We've seen what happens when markets don't have real safeguards,
and most people are left to fend for themselves--just look at the
electricity market in Texas.
Ultimately, both of these roles are about one question: whose side
are you on?
I am confident both nominees will stand up for all the workers and
their families who haven't had that voice. They will help us create a
better economy, with a growing middle class that everyone has the
opportunity to join.
I look forward to hearing how each of you will help chart the
course out of this pandemic and build a brighter future in the years
ahead.
______
PREPARED STATEMENT OF GARY GENSLER
To Be a Member of the Securities and Exchange Commission
March 2, 2021
Chairman Brown, Ranking Member Toomey, Members of the Committee, it
is an honor to appear before you. Two decades ago, I served on this
committee's staff under Chairman Paul Sarbanes, who we sadly lost late
last year. And today, I am proud to be here as President Biden's
nominee to chair the Securities and Exchange Commission.
I have spent my entire professional career in and around the
financial markets-in the private sector, in state and Federal
Government, and now in academia. And I believe our markets are the
finest in the world.
But they didn't become that way through happenstance. In the shadow
of the Great Depression, Congress created the SEC to protect investors;
to maintain fair, orderly, and efficient markets; and to facilitate
capital formation.
In the decades since, we have seen that when the SEC does its job--
when there are clear rules of the road and a cop on the beat to enforce
them--our economy grows and our nation prospers.
But when we take our eyes off the ball--when we fail to root out
wrongdoing, or to adapt to new technologies, or to really understand
novel financial instruments--things can go very wrong. And when that
happens, people get hurt.
Twelve years ago, when I became chair of the Commodity Futures
Trading Commission, our economy was reeling from the financial crisis.
My fellow commissioners and I took decisive action to increase
transparency and reduce risk in the $400 trillion swaps market. I'm
proud that 85 percent of our actions passed the commission with
bipartisan support.
If confirmed as SEC chair, I will work with my fellow
commissioners, the SEC's exceptional staff, and the members of Congress
to ensure our markets remain the world's best.
That means strengthening transparency and accountability in our
markets, so people can invest with confidence, and be protected from
fraud and manipulation.
It means promoting efficiency and competition, so our markets
operate with lower costs to companies and higher returns to investors.
It means making sure companies--incumbents and entrepreneurial
startups alike--can raise needed capital to innovate, expand their
operations, and contribute to economic growth.
And above all, it means making sure our markets serve the needs of
working families.
I'm a product of a working family. Neither of my parents went to
college. But my father was able to take his mustering-out pay from
World War II and start a small business that would eventually send my
four siblings and me to college.
That is the kind of economic opportunity that should be available
to each and every American--no matter who they are. I believe our
markets are essential to providing that opportunity.
That's because capital markets touch every part of our economy.
They enable businesses to develop new products, build new facilities,
and grow their payrolls. They help working families save for retirement
and invest in their children's futures. And although it may not seem
intuitive, when someone goes to take out a mortgage or open a credit
card, our capital markets are on the other side of those transactions
as well.
We cannot take any of this for granted. Markets--and technology--
are always changing. Our rules have to change along with them. In my
current role as a professor at MIT, I research and teach on the
intersection of technology and finance. I believe financial technology
can be a powerful force for good--but only if we continue to harness
the core values of the SEC in service of investors, issuers, and the
public.
Before I close, I want to introduce and thank my three daughters--
Isabel, who is here with me in Maryland, and her older sisters Anna and
Lee, who are watching remotely. They are the lights of my life, and I
wouldn't be here today without their love and support.
Thank you. I look forward to your questions.
PREPARED STATEMENT OF ROHIT CHOPRA
To Be Director, Bureau of Consumer Financial Protection
March 2, 2021
Mr. Chairman, Ranking Member Toomey, and Members of the Committee,
thank you for the opportunity to appear before you today, and thank you
to Senator Blumenthal for his kind introduction.
It is an honor to sit before you as the President's nominee to lead
the Consumer Financial Protection Bureau. I am very grateful for the
support of my family, friends, and colleagues who are joining us
virtually. I am especially thankful to my parents. I last saw them
exactly one year ago to celebrate my mother's birthday, the longest
stretch of time in our lives without being in the same room--an
experience that is all too common today.
America in March 2021 is far different than America of 1 year ago.
Every week, hundreds of thousands lost their jobs. Local businesses
shuttered. And more than 500,000 have died.
While there are some hopeful signs that the tide is turning, we
must not forget that the financial lives of millions of Americans are
in ruin. Experts expect distress across a number of consumer credit
markets, including an avalanche of loan defaults and auto
repossessions.
Other persistent pain points for consumers are particularly acute
today, making it harder for families to get back on their feet.
Consumers continue to discover serious errors on their credit reports
or feel forced to make payments to debt collectors on bills they
already paid or never owed to begin with, including for medical
treatment related to COVID-19. Many of these longstanding, pervasive
problems will make it more difficult for our country to sustain a full
recovery.
This is especially true when it comes to the housing market. For
most of us, much of this last year has been spent at home. Our homes
are more than physical structures: they have served as offices,
schools, and much more, providing safety and refuge during a deadly
pandemic.
But due to the economic devastation stemming from COVID-19,
millions face the prospect of losing their home, with communities of
color particularly at risk. Many have seen their jobs disappear and
will not be able to easily resume their rent and mortgage payments.
In the last economic crisis a decade ago, we saw how unlawful and
avoidable foreclosures proved to be catastrophic in cities, small
towns, and rural areas alike, contributing to deeper social divisions
and inequities. We once again face an important test to ensure that
troubles in the housing market do not sabotage the recovery of our
local economies.
In the mortgage market, fair and effective oversight can promote a
resilient and competitive financial sector, and address the systemic
inequities faced by families of color. Perhaps most importantly,
administration of consumer protection laws can help families navigate
their options to save their homes.
Congress has entrusted the Consumer Financial Protection Bureau
with carefully monitoring markets to spot risks, ensuring compliance
with existing law, educating consumers, and promoting competition. This
not only helps to protect Americans from fraud and other unlawful
conduct, it also ensures that law-abiding businesses, regardless of
size, can compete.
Three years ago, I sought the Senate's confirmation to serve as an
FTC Commissioner. I was honored to be unanimously confirmed and to work
with members to build a new bipartisan consensus to turn the page on
some of the failed and outdated policies of the past.
If confirmed to lead the CFPB, I pledge to be a good partner to
each of you and approach the agency's mission with an open mind and
attuned to market realities. I look forward to working with you to
tackle the pressing problems that families face in their financial
lives during this critical moment for our country.
Thank you again, and I look forward to your questions.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN BROWN
FROM GARY GENSLER
Q.1. Where have you excelled in past positions in hiring and
promoting people of color?
Where is there room for improvement?
A.1. Incorporating diversity, equity and inclusion into the
workplace is an area where all leaders should strive for
continuous improvement, and I take that responsibility
seriously. I am proud to have hired diverse staff at the CFTC
and with the members I recruited for the Biden-Harris Agency
Review Team for independent financial regulatory agencies
identify as a person of color.
Q.2. In August 2011, President Obama issued an Executive Order
establishing a coordinated, Governmentwide initiative to
promote diversity and inclusion in the Federal workforce. The
executive order reads, in part, that ``Attaining a diverse,
qualified workforce is one of the cornerstones of the merit-
based civil service . . . To realize more fully the goal of
using the talents of all segments of society, the Federal
Government must continue to challenge itself to enhance its
ability to recruit, hire, promote, and retain a more diverse
workforce. Further, the Federal Government must create a
culture that encourages collaboration, flexibility, and
fairness to enable individuals to participate to their full
potential.'' The order required each agency to establish an
agency-specific diversity, equity, and inclusion strategic plan
with specific objectives.
Coordinated, Governmentwide initiatives to promote
diversity and inclusion in the Federal workforce are critical
to attracting and retaining the best talent to our agencies. If
confirmed, I will work with staff at the SEC as well as fellow
Commissioners to honor the principles of this Executive Order.
Please describe your commitment to diverse hiring at the
Securities and Exchange Commission (SEC). Will you review and
update the SEC's diversity, equity, and inclusion strategic
plan to ensure it contains specific objectives?
A.2. Diversity, equity and inclusion are critical to attracting
and retaining the best talent to accomplish the SEC's mission.
To fulfill this commitment, specific plans and objectives
against which performance is measured are important, and if
confirmed, I plan to review and update the SEC's diversity,
equity, and inclusion plan to do so.
Q.3. Will you commit to establishing a system for reporting
regularly on the SEC's progress in implementing an agency-
specific diversity, equity, and inclusion strategic plan and in
meeting the objectives under the plan?
A.3. Meeting diversity, equity, and inclusion goals requires
appropriate planning and measurement of progress against
specific objectives. If confirmed, I will establish systems to
track diversity, equity and inclusion as well as the agency's
success at meeting goals.
Q.4. Will you commit to transparency on workplace policies,
salaries, and benefits? What is your plan for implementing
these policies?
A.4. If confirmed, I will work with the SEC's Office of Human
Resources, the Office of Minority and Women Inclusion and SEC
staff, including the SEC employee bargaining unit, to create a
workplace that has fair and transparent policies to promote
diversity, equity and inclusion.
Q.5. What are some short- and long-term strategies for
addressing disparities in participation in the securities
markets and financial literacy?
A.5. Women and people of color in the United States have
historically been underrepresented in the securities markets.
If confirmed, I will work with the Director of the Office of
Minority and Women Inclusion to use all statutory tools
available to advance participation in the markets. Financial
literacy is one important tool available to the SEC to increase
access to information to inform sound investment decisions. If
confirmed, I will work with the Office of the Investor Advocate
and Office of Investor Education and Advocacy to ensure the
Commission's financial literacy programs are meeting goals.
Q.6. Have you previously implemented and required diversity,
equity, and inclusion training for all employees and implicit
bias training for managers within your purview?
A.6. While leading the CFTC, I followed all guidance suggested
by our Office of Minority and Women Inclusion as it relates to
employee training. On the Biden-Harris Agency Review Team for
independent financial regulatory agencies, on which I served as
a team captain, antidiscrimination training was required.
Q.7. Will you commit to implementing and requiring diversity,
equity, and inclusion training for all employees within your
purview? What is your plan for implementing these trainings?
A.7. Diversity, equity and inclusion training is an important
tool to improve the performance of any workplace. If confirmed,
I will work with the Office of Human Resources and the Director
of the Office of Minority and Women Inclusion to examine
training options available and implement a training plan and
schedule as appropriate.
Q.8. Will you commit to implementing and requiring implicit
bias training for managers within your purview? What is your
plan for implementing these trainings?
A.8. Implicit bias training for managers is an important tool
to ensure that any workplace is free from the types of bias
that can prevent employees from meeting their full potential
and fulfilling the mission of the organization. If confirmed, I
will work with the Director of the Office of Minority and Women
Inclusion to examine training options available and implement a
training plan and schedule as appropriate.
Q.9. Please describe how you view the role of SEC Chairman in
appropriately serving BIPOC? How do you view the SEC's role in
furthering racial equity?
A.9. Three areas in which the SEC can serve these communities
include promoting internal diversity at the agency in terms of
hiring and promotion; diversity at regulated entities, in terms
of the Office of Minority and Women Inclusion's authority to
conduct voluntary diversity surveys within the financial
services industry; and in policies that meet the mission of the
SEC to protect investors, maintain fair, orderly and efficient
capital markets and promote capital formation. If confirmed, I
will work to advance progress on these three areas as well as
others.
Q.10. Please list at least 3 specific areas of focus/priorities
for advancing racial equity, diversity, and inclusion at the
SEC. What specific measures will you use to evaluate success in
these areas, and over what period of time?
A.10. If confirmed, three areas in which I will focus efforts
on racial equity include internal diversity at the agency in
terms of hiring and promotion; diversity at regulated entities,
in terms of the Office of Minority and Women Inclusion's
authority to conduct voluntary diversity surveys within the
financial services industry; and in policies that can help
reduce the wealth gap, including access to capital for
minority-owned businesses. If confirmed, I will use established
metrics to measure progress, working with the OMWI and with the
Office of the Investor Advocate, Office of Investor Education
and Advocacy and Office for the Advocate of Small-Business
Capital Formation.
Q.11. Please describe how you plan to work with and engage the
financial services sector to serve BIPOC and dismantle systemic
racism's impact in those sectors? How, specifically, will you
hold the industry accountable on these issues? How will you
accelerate private sector efforts to achieve more inclusive
leadership?
A.11. If confirmed, I plan to set an example in leadership at
the SEC and would encourage private sector leaders to do the
same. If confirmed, I would look to encourage diversity in
terms of employment at regulated entities by using tools at the
disposal of the Office of Minority and Women Inclusion,
including the authority to conduct voluntary diversity surveys
within the financial services industry.
Q.12. How do you plan on incorporating the views and work of
the Office of Minority and Women Inclusion across the SEC?
A.12. If confirmed, I plan to work directly with the Director
of the Office of Minority and Women Inclusion to advance the
statutory goals set forth by Congress under Section 342 of the
Dodd-Frank Wall Street Reform and Consumer Protection Act of
2010 which directs the Office to advance ``the fair inclusion
and utilization of minorities, women, and minority-owned and
women-owned businesses in all business and activities of the
agency at all levels, including in procurement, insurance, and
all types of contracts.''
Q.13. The SEC has outside advisory councils and task forces
comprised of industry leaders, academics, nonprofits, and other
stakeholders. They serve as volunteers but have significant
influence being appointed by and working closely with you.
Should your agency be judged by its success in populating these
groups with more diverse advisors on these councils and task
forces, and if so, over what period of time?
A.13. Advisory groups serve an important role in informing the
work of the SEC. Given that membership on these advisory groups
is on staggered fixed terms, the Commission should be judged on
its work over time to promote diversity, equity and inclusion
as membership terms expire and new members are appointed.
Q.14. What specific measures will you use to evaluate the SEC's
success in understanding and addressing the needs of BIPOC?
Will you regularly report to Congress on the progress being
made on these measures?
A.14. If confirmed, I will leverage the SEC's talented staff to
understand the economic data related to the Commission's
tripartite goals of investor protection, capital formation, and
maintaining fair, orderly and efficient markets. This includes
understanding the needs of BIPOC investors and issuers run or
owned by minority and women entrepreneurs. As the nation begins
to recover from the economic devastation caused by the
coronavirus, it is important to understand how all communities
are faring to ensure an equitable recovery. If confirmed, I
will include updates on that work during my engagements with
Congress.
Q.15. An agency's budget reflects its values and goals. How do
you plan to allocate and sufficiently resource internal and
external efforts to advance DEI as part of the agency's annual
budget process? How will you ensure sufficient financial
support for the agency-specific diversity, equity, and
inclusion strategic plan to ensure you are able to meet the
objectives established under that plan in a reasonable time
period?
A.15. If confirmed, I will work with the SEC staff, including
the Director of the Office of Minority and Women Inclusion, to
understand what budget resources the agency needs to advance
goals related to diversity, equity and inclusion. Budget
requests to Congress will include a description of the
resources needed by the agency to advance all DEI goals.
Q.16. Accurate information about the financial situation of
public companies is essential for honest securities markets. In
2002, Congress passed the Sarbanes-Oxley Act of 2002, creating
the Public Company Accounting Oversight Board (PCAOB) in
reaction to major corporate accounting fraud, including at
Enron and WorldCom.
Please explain your view on the importance of the PCAOB to
protect investors. Also, will you commit that if you are
confirmed you will work to strengthen the PCAOB and to ensure
its professionalism and independence?
A.16. I had the honor of working on the Senate Committee for
Banking, Housing and Urban Affairs under the leadership of
Senator Paul Sarbanes, a great public servant we recently lost.
Sarbanes-Oxley was bipartisan legislation, signed into law by
President Bush, which created the PCAOB to ensure that audit
firms are held to high independence standards and are subject
to effective oversight--two critical weaknesses exposed by the
Enron and WorldCom failures. If confirmed, I will ensure that
both the SEC and the PCAOB are fulfilling their missions, as
envisioned by Congress, to provide that audit firms fulfill
their gatekeeper function of ensuring that the financial
disclosures on which our market transparency depends are
complete, accurate and reliable.
Q.17. The statutory mandate in section 1504 of the Dodd-Frank
Wall Street Reform and Consumer Protection Act is fundamentally
about enhancing transparency to promote transparency,
accountability and to combat corruption. This provision
required issuers in extractive industries to disclose their
payments to foreign governments so those governments can be
held accountable for the money being paid to those governments.
As Acting Chair Lee observed in opposing the final rule, that
goal is in keeping with the United States' long history as a
leader in international efforts to combat corruption, and with
the SEC's role in anticorruption efforts: enforcing the Foreign
Corrupt Practices Act, ensuring compliance with anti- money
laundering rules, and participating in the important work of
the Financial Action Task Force to combat money laundering and
terrorist financing.
The modified rule adopted by the Commission in December
2020, fell far short of these goals, allowing payment
information to be aggregated to such a degree that the
resulting disclosures will obscure information crucial to
anticorruption efforts and material to investment analysis. The
rule also contradicted the Commission's own economic analysis.
As a result, it will severely restrict the transparency and
anticorruption benefits that the disclosure statute required.
Will you consider reviewing the 1504 rule to better take into
account the explicit transparency and accountability goals
identified by Congress in the statute, and bring it more
closely into alignment with international anticorruption and
transparency standards?
A.17. The SEC in December finalized a rule to fulfill its
congressionally directed mandate under Section 1504 of the
Dodd-Frank Wall Street Reform and Consumer Protection Act of
2010. This is after the Congress vacated the original rule with
a Congressional Review Act challenge in 2017. If confirmed, I
will take a close look at the updated rule to see if it
fulfills the anticorruption intended by Congress while also
providing investors with useful information to guide their
investment decisions.
Q.18. In recent years, exchange-traded vehicles (ETVs) have
become increasingly complex. Episodes of market volatility
highlight those complex features and risks for investors. So
that investors may better understand the features and potential
risks of complex ETVs, will the Commission continue its work to
consider the issues raised by such products, including as
described in the Joint Statement Regarding Complex Financial
Products and Retail Investors, which may include ``additional
obligations for broker-dealers and investment advisers relating
to complex products, as well as point-of-sale disclosures or
policies and procedures tailored to the risks of complex
products'' as discussed in the Joint Statement?
A.18. Investor protection is at the heart of the SEC's mission.
Disclosures and sales practices and procedures should be
tailored to the complexity of the product being sold and should
be mindful of providing needed information especially for
retail investors. If confirmed, I will work with the Divisions
of Corporation Finance, Trading and Markets, Investment
Management, and Economic and Risk Analysis, as well as the
Office of the Investor Advocate to review the effectiveness of
existing regulatory requirements and where needed to implement
new rulemakings, guidance or other policy actions.
Q.19. Sustainable investment focused on environmental, social
and governance (ESG) matters by some measures now represents
approximately $17 trillion in assets under management in the
U.S. Acting Chair Lee has hired a new Senior Policy Advisor on
Climate and ESG. What other steps can be taken to ensure
continuing ESG expertise throughout the SEC?
A.19. If confirmed, I commit to building on the work of Acting
Chair Lee to hire experts who will prioritize providing
investors with the material information they need to make
investment decisions, while providing consistent and clear
reporting obligations for issuers.
Q.20. The Legal Entity Identifier (LEI), an ISO and adopted
U.S. standard, is a part of 26 U.S. regulations. The LEI's
origin is rooted in Commodity Futures Trading Commission
regulations following the Great Recession. The U.S. government,
however, remains dependent on more than 50 identification
schemes. More work needs to be done to unify government data.
Will you support the inclusion of standards, like the LEI,
in future SEC regulations?
A.20. While serving as Chairman of the CFTC, I oversaw the
initial adoption of a legal entity identifier regime, which
helped both the private and public sectors in identifying and
measuring risk across the financial system. This allowed
regulators to better protect our markets and assisted internal
risk management efforts within firms. If confirmed,
incorporating LEI across rulemakings represents one tool to
improve risk monitoring while cutting costs for the industry
and I would seek to support such a standard where appropriate.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR TOOMEY
FROM GARY GENSLER
Q.1. Congressional Oversight--Please provide your philosophy on
how the SEC under your chairmanship will approach and respond
to Congressional information requests (both for documentary
information and oral testimony), if you are confirmed.
A.1. I believe that Congressional oversight is important. While
Chairman of the CFTC, I testified over 50 times before
Congress. If confirmed, I am committed to ensuring that the SEC
is responsive to oversight requests and provides Congress with
the information that it needs consistent with appropriate law
and regulation.
Q.2. If confirmed, do you intend to respond to information
requests differently depending on who is making the
Congressional information request (whether it's the chair of
the Congressional committee, the ranking member, or another
member of Congress)? Please answer ``yes'' or ``no.'' If your
answer is ``yes,'' please fully explain why you intend to
respond differently depending on who is making the
Congressional information request.
A.2. I believe that Congressional oversight is important. While
Chairman of the CFTC, I testified over 50 times before
Congress. If confirmed, I am committed to ensuring that SEC is
responsive to oversight requests and provides Congress with the
information that it needs consistent with appropriate law and
regulation.
Q.3. Do you agree that Congress has long played a critical role
in oversight of the executive branch? Why or why not? Will you
commit that, if confirmed, you will timely respond to and fully
comply with all Congressional information requests, including
but not limited to requests for records, to the SEC? Please
answer ``yes'' or ``no.'' If your answer is ``no,'' please
explain why.
A.3. Agencies, including the SEC, should be responsive to the
public and to Congress. At the same time, the SEC's must carry
out the constitutional duties assigned to it, including
pursuing ongoing law enforcement matters or protecting
confidential supervisory information. If confirmed, I will
ensure that the SEC is responsive to oversight requests while
meeting the Commission's enforcement and confidentiality
obligations, as well as any other appropriate law and
regulation.
Q.4. Will you commit that, if confirmed, you will make yourself
and any other SEC employee expeditiously available to provide
oral testimony (including but not limited to briefings,
hearings, and transcribed interviews) to the Committee on any
matter within its jurisdiction, upon the request of either the
Chairman or Ranking Member? Please answer ``yes'' or ``no.'' If
your answer is ``no,'' please explain why.
A.4. While Chairman of the CFTC, I testified over 50 times
before Congress. As I said at last week's hearing, I agree to
appear and testify before any duly constituted committee of
Congress. If confirmed, I am committed to ensuring that the SEC
is responsive to requests for hearing testimony consistent with
appropriate law and regulation.
Q.5. Do you believe that the SEC may assert any privileges or
other legal justifications to withhold information (whether
records or oral testimony) from Congress? Please answer ``yes''
or ``no.''
A.5. If confirmed, I will consult the agency's legal counsel so
that the Commission can be responsive to Congress while
ensuring that the SEC can carry out the statutory duties in
which it is entrusted.
Q.6. If you answered ``yes'' to Question 5, please list every
such privilege or other legal justification and provide the
legal basis for why you believe the SEC may use such privilege
or legal justification to withhold information from Congress.
A.6. If confirmed, I will consult the agency's legal counsel so
that the Commission can be responsive to Congress while
ensuring that the SEC can carry out the statutory duties in
which it is entrusted.
Q.7. In an effort to be open and transparent with Congress and
the public, will you commit not to assert any such privilege or
legal justification against Congress that you listed above? If
not, why not? If so, please identify all such privileges or
legal justifications that you will commit to not assert against
Congress.
A.7. If confirmed, I will consult the agency's legal counsel so
that the Commission can be responsive to Congress while
ensuring that the SEC can carry out the statutory duties in
which it is entrusted.
Q.8. Employee Morale at CFTC--During your tenure as Chairman of
Commodity Futures Trading Commission (CFTC) staff morale
plummeted, going from above the median score for morale among
Federal agencies to being in the bottom quarter of Federal
agencies for morale. \1\
---------------------------------------------------------------------------
\1\ Best Places to Work in the Federal Government, https://
bestplacestowork.org/rankings/detail/CT00.
---------------------------------------------------------------------------
According to an article by Bloomberg, under your tenure the
CFTC became ``one of the worst places to work among small
agencies, receiving low marks for work-life balance, pay and
quality of leadership.'' \2\ In your view, why did morale among
CFTC employees crater during your tenure as Chairman of the
CFTC?
---------------------------------------------------------------------------
\2\ Jennifer Epstein and Benjamin Bain, Biden Taps Gensler as SEC
Chairman, FTC's Chopra as CFPB Chief, Bloomberg (Jan. 17, 2021),
https://www.bloomberg.com/news/articles/2021-01-18/biden-taps-gensler-
as-secchairman-ftc-s-chopra-as-cfpb-chief.
A.8. I was honored to work alongside the talented staff at the
CFTC to implement dozens of statutorily required rulemakings in
the wake of a financial crisis that cost U.S. investors,
borrowers, homeowners and taxpayers trillions of dollars and
wreaked havoc on millions of families, including families of
employees of the CFTC. Bringing transparency to a $400 trillion
over-the-counter swaps market during a difficult time for our
country no doubt was a challenging task, especially for an
agency that often did not receive budget resources from
Congress commensurate with the responsibilities with which it
was entrusted. I am proud of the CFTC staff for their
dedication and service to our country in the face of these
---------------------------------------------------------------------------
constraints.
Q.9. Use of Personal Email for Government Business--In a CFTC
inspector general report entitled ``Review of the Commodity
Futures Trading Commission's Oversight and Regulation of MF
Global, Inc.'' the inspector general found that you
consistently used your personal email to conduct government
business from the very beginning of your tenure as CFTC
Commissioner in 2009 until the collapse of MF Global, Inc. \3\
---------------------------------------------------------------------------
\3\ Commodity Futures Trading Commission's Office of the Inspector
General, Review of the Commodity Futures Trading Commission's Oversight
and Regulation of MF Global, Inc (May 16, 2013) at v, https://
www.cftc.gov/sites/default/files/idc/groups/public/@aboutcftc/
documents/file/oigregulationmfglobal.pdf.
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If confirmed, will you commit to not using your personal
email to conduct government business? If not, why not?
A.9. If confirmed, I will follow all legal and regulatory
requirements related to email correspondence and related
matters, including the Federal Records Act. The CFTC Inspector
General looked at the issue and concluded that once the issue
was flagged, this practice was ceased.
Q.10. Materiality--In your confirmation hearing, you confirmed
to Senator Shelby that a corporation is owned by its
shareholders, and management should work for the shareholders.
Do you agree that directors owe a fiduciary duty to act in
the best interests of shareholders?
Do you agree that securities disclosure is meant to inform
investment decisions of shareholders and potential investors
and not for the purposes of noninvestor ``stakeholders''?
As SEC Chairman, will you refrain from enacting any
securities disclosures that will primarily advance the
interests of noninvestment stakeholders?
A.10. If confirmed, materiality will guide my decisions as SEC
Chair related to disclosure requirements under the Federal
securities laws. The Supreme Court has held that information is
material if there is a ``a substantial likelihood that the
disclosure of the omitted fact would have been viewed by the
reasonable investor as having significantly altered the `total
mix' of information made available.'' Fiduciary duties of
corporate directors is generally a matter of state law. For
example, as I understand it, the Delaware courts have defined
it as a duty owed to the corporation and its shareholders. If
confirmed, I will follow the law in my consideration of
policies that come before the Commission related to disclosure.
Q.11. In 2013, SEC Chairman Mary Jo White criticized attempts
to use the SEC disclosure requirements for ``exerting societal
pressure on companies to change behavior, rather than to
disclose financial information that primarily informs
investment decisions.'' \4\ Do you agree with her concern?
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\4\ https://www.sec.gov/news/speech/spch100113mjw
A.11. If confirmed, materiality will guide all my decisions as
SEC Chair. The Supreme Court has held that information is
material if there is a ``a substantial likelihood that the
disclosure of the omitted fact would have been viewed by the
reasonable investor as having significantly altered the `total
mix' of information made available.'' If confirmed, I will
follow the law in consideration of policies that come before
---------------------------------------------------------------------------
the Commission related to disclosure.
Q.12. U.S. Supreme Court Justice Thurgood Marshall in TSC
Industries vs. Northway, 426 U.S. 438 (1976), said that ``if
the standard of materiality is unnecessarily low . . .
management's fear of exposing itself to substantial liability
may cause it simply to bury the shareholders in an avalanche of
trivial information--a result that is hardly conducive to
informed decisionmaking.'' Do you agree with Justice Marshall
that a materiality standard that is ``unnecessarily low'' may
bury ``shareholders in an avalanche of trivial information''?
A.12. If confirmed, materiality will guide all my decisions as
SEC Chair. The Supreme Court has held that information is
material if there is a ``a substantial likelihood that the
disclosure of the omitted fact would have been viewed by the
reasonable investor as having significantly altered the `total
mix' of information made available.'' If confirmed, I will
follow the law in consideration of policies that come before
the Commission related to disclosure.
Q.13. Public companies and capital formation--Do you agree that
unnecessary regulatory and litigation costs can deter companies
from going public or staying public?
A.13. Unnecessary costs should be eliminated where possible.
Whether a cost is unnecessary can depend on an individualized
perspective. The total mix of factors influencing whether a
company goes or remains public is complex and unique for each
firm.
Q.14. If confirmed, will you work to reduce any unnecessary
regulatory costs on public companies?
A.14. If confirmed, I will work with fellow Commissioners and
SEC staff to eliminate unnecessary costs where possible.
Whether a cost is unnecessary can depend on an individualized
perspective. The total mix of factors influencing whether a
company goes or remains public is complex and unique for each
firm.
Q.15. If confirmed, will you work to reduce any unnecessary
regulatory costs on private companies?
A.15. If confirmed, I will work with fellow Commissioners and
SEC staff to eliminate unnecessary costs where possible.
Whether a cost is unnecessary can depend on an individualized
perspective. The total mix of factors influencing whether a
company goes or remains public is complex and unique for each
firm.
Q.16. Is it possible to have both robust public capital markets
and robust private capital markets at the same time?
A.16. Yes.
Q.17. Are you concerned that capital formation is
disproportionately concentrated within a select few geographic
areas? If so, what steps would you undertake to promote capital
formation in other geographic areas?
A.17. If confirmed, I will work to advance the mission of the
SEC to protect investors; maintain fair, orderly, and efficient
markets; and facilitate capital formation. Working through the
Office of the Advocate for Small Business Capital Formation, we
can take steps to raise awareness of these options,
particularly in those regions and for those companies that are
at greatest need.
Q.18. Under former SEC Chairman Clayton, the SEC revised rules
to enhance capital formation, particularly for small and
medium-sized companies. He reformed offering exemptions,
shortened the period between integrated offerings, and expanded
the definition of accredited investor. Will you commit to
keeping these rules in place?
A.18. Capital formation and investor protection are at the
heart of the mission of the SEC. Markets- and technology-are
always changing. Our rules have to change along with them. If
confirmed, I will holistically review capital formation rules
related to small and medium-sized companies and make
individualized determinations about whether to preserve, expand
or revise such rules.
Q.19. Can you commit to exploring how to improve liquidity for
the more thinly traded stocks of smaller companies?
A.19. The mission of the SEC includes a mandate to maintain
fair, orderly and efficient markets. If confirmed, I will work
every day to advance this mission, including through work to
improve liquidity for thinly traded stocks of smaller
companies.
Q.20. Can you commit to adopting rules to reduce the regulatory
burden relating to providing research coverage of smaller and
emerging growth companies?
A.20. The mission of the SEC includes a mandate to maintain
fair, orderly and efficient markets. If confirmed, I will work
every day to advance this mission, including through work to
improve research coverage of smaller and emerging growth
companies.
Q.21. Can you commit to create a ``finders'' regime to help
small businesses find capital?
A.21. If confirmed, I will take responsibility for the
rulemaking calendar including a review of the SEC's proposed
Exemptive Order issued last year that would exempt certain
``finders'' from broker registration requirements. I will work
with the Commissioners and staff to determine whether further
action is appropriate to advance the SEC's mission to protect
investors, maintain fair, orderly, and efficient markets, and
facilitate capital formation.
Q.22. On December 22, 2020, then-SEC Chairman Jay Clayton wrote
to the SEC's Asset Management Advisory Committee (AMAC)
regarding ``Thoughts on Future Progress of Private Investment
Subcommittee.'' \5\ His letter outlined ways in which the SEC
could allow more retail investors to access private equity. If
confirmed, do you promise to thoroughly evaluate all of the
options outlined in this letter?
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\5\ www.sec.gov/files/clayton-amac-letter-2020-12-22.pdf
A.22. If confirmed, I look forward to more thoroughly
evaluating the letter and the various options outlined in it. I
also welcome the opportunity to engage with your staff and you
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on investment opportunities available to retail investors.
Q.23. In a letter to the SEC Asset Management Advisory
Committee dated December 22, 2020, then-Chairman Jay Clayton
suggested that retail investors could have a relatively modest
exposure to private equity and venture capital as part of a
diversified target date retirement fund that is managed by a
qualified registered investment adviser and has with a target
date that is 20 years or more in the future. Do you have any
objections to that suggestion?
A.23. If confirmed, I look forward to more thoroughly
evaluating the letter and the various options outlined in it.
If confirmed, I would want to work with industry participants,
retail investors, and SEC Commissioners and staff in
understanding the merits of this particular suggestion. As I
discussed in the hearing last week, I will be guided by our
statutes and the need to ensure that capital markets are
serving working families.
Q.24. If confirmed, will you commit to continuing SEC efforts
to explore the use of Business Development Companies (BDCs) and
closed-end funds to facilitate retail exposure to private
investments?
A.24. If confirmed, I look forward to learning about the
Commission's activities and the views of the staff regarding
investments in Business Development Companies and closed-end
funds. More broadly, if confirmed I will consider new tools and
strategies to support retail investors while ensuring that
retail investors are protected and able to make suitable
investments for themselves.
Q.25. Market structure--Can you commit to a robust review of
the rules governing fixed income and Treasury market structure
and, where appropriate, making rule changes to those rules?
A.25. If confirmed, I look forward to doing a robust review of
rules on the fixed income and Treasury markets alongside the
U.S. Treasury and Federal Reserve. I will work with fellow
Commissioners and agency staff to continue the work begun by
the SEC last year when it issued a rule proposal on ATS. It is
important that our rules keep pace with changing technology and
market events.
Q.26. Can you commit to evaluate how to best promote
competition between national securities exchanges, alternative
trading systems (ATS), market makers, and broker-dealers
engaged in internalization to benefit investors?
A.26. Markets--and technology--are constantly changing. The
overall U.S. equity market is a critical national asset that
provides a vital mechanism for capital formation for firms and
individuals; investment opportunities for Main Street; and
economic growth. If confirmed, I will work with fellow
Commissioners and SEC staff along with hearing from market
participants on how best to promote transparency and
competition in the equity markets. If confirmed, I would work
with fellow Commissioners and SEC staff to examine market
structure issues holistically to best maintain fair, orderly
and efficient markets as many of the technical and economic
issues of markets are highly interrelated.
Q.27. Harmonization of CFTC and SEC regulations--If confirmed,
can you commit to work to harmonize SEC and Commodity Futures
Trading Commission (CFTC) rules to implement Title VII of the
Dodd-Frank Act, to the extent appropriate?
A.27. As a former Chair of the CFTC, I spent a great deal of
time working to finalize Title VII rules at that agency. I
agree that harmonizing Title VII rules between the CFTC and SEC
is an important goal, and, if confirmed, I will work towards
the goal of harmonization, where appropriate.
Q.28. Are there any other areas where there may be overlap of
SEC and CFTC regulations on market participants (e.g., between
commodity pools and registered investment companies)? If so, do
you have any recommendations for further harmonization?
A.28. As I know firsthand from my time as Chair of the CFTC
that the SEC and CFTC share jurisdiction over the swaps market
and that harmonization is an important goal, where appropriate.
There are a number of market participants that are regulated by
both Commissions, with many market participants trading in the
futures, swaps and securities markets. It is important that the
CFTC and SEC have strong communication and coordination to
ensure that our regulations align where appropriate in a way
that provides strong investor protection, fair, orderly and
efficient markets, and facilitation of capital formation.
Q.29. Money market funds--If confirmed, will you protect the
SEC's jurisdiction to regulate money market funds?
A.29. Yes.
Q.30. If confirmed, will you ensure new SEC regulations for
money market funds, if any, will be narrowly tailored and will
not eliminate or significantly reduce the viability of money
market funds as an investment?
A.30. Money market mutual funds are an important part of our
financial ecosystem with nearly $5 trillion in investments. The
regulatory framework governing such funds should ensure access
to investors for this important product while also ensuring
stability in our financial system. If confirmed, I will study
SEC regulations adopted in the last decade to determine if they
are working towards these goals.
Q.31. As part of any further changes to the rules regulating
money market funds, will you commit to consider allowing a
stable net asset value for institutional prime and
institutional municipal money market funds?
A.31. If confirmed, I will seek the advice of staff, counsel
and fellow SEC Commissioners on this subject.
Q.32. Systemic risk--I want to discuss guardrails on
Systemically Important Financial Institution (SIFI)
designations by the Financial Stability Oversight Council
(FSOC).
Should SIFI designations allow for due process, including a
clear process for both designation and de-designation?
Should they incorporate robust economic cost-benefit
analysis?
Should they first explore an activities-based approach to
regulating a systemic risk, before considering a firm-specific
SIFI designation?
A.32. FSOC designations should follow the statute as set
forward in the Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010 and any guidance or rulemakings issued
therein.
As I understand it, the FSOC process allows for multiple
avenues for input for nonbank financial firms both during the
multistage designation process and via established processes to
de-designate, as evidenced by de-designations in the recent
past. In making designation decisions, economic analysis is an
important tool to consider. Further, Dodd-Frank provides for
both entity designations and activities-based designations, as
Congress recognized that both approaches are sometimes useful.
Depending on the unique circumstance, either or both approaches
may be warranted.
Q.33. Under what conditions, if any, would you support the FSOC
or the Financial Stability Board (FSB) designating mutual
funds, exchange-traded funds (ETFs), and money market funds as
non-bank SIFIs?
A.33. If confirmed, my views on non-bank SIFI designation will
be grounded in the legal requirements of the statute and the
public interest in preventing systemic risk.
Q.34. Asset managers provide investment advice to clients. They
do not bear the risk of investments made by their clients.
Asset managers do not own the assets that they manage. Should
asset managers be designated by the FSOC or the FSB as non-bank
SIFIs? If so, under what conditions?
A.34. If confirmed, my views on non-bank SIFI designation will
be grounded in the legal requirements of our laws and the
public interest in preventing systemic risk.
Q.35. Under what conditions, if any, would you support work on
climate change and sustainability by the FSOC, FSB, or
International Organization of Securities Commissions (IOSCO)?
A.35. Collaboration with international regulators through the
FSB and IOSCO can contribute to the SEC's three-part mission.
International standards can help ensure investor access to
consistent, comparable data that they can efficiently integrate
into their investment processes. At the same time, it is
important that any standards for market participants integrate
the unique features of our domestic market, legal and
regulatory infrastructure and the needs of local investors and
issuers.
Q.36. Regulation Best Interest--What protection is provided by
a fiduciary duty that is not provided by Regulation Best
Interest?
A.36. When investors turn to financial professionals for advice
and recommendations about their investments, advice that may be
critical to their retirement security or their ability to fund
a child's college education, they deserve advice that serves
their best interests. If confirmed, I will work with my
colleagues and the Commission staff to ensure that the
Regulation Best Interest rule, as interpreted and enforced by
the SEC, lives up to its best interest label.
Q.37. Do you believe that investors should have the choice of
commission-based transaction investment advice?
A.37. I believe that investors should have access to a range of
quality options when seeking investment advice and that
regulations applied to providers of that advice must protect
against self-dealing and mitigate conflicts of interest.
Q.38. In your book The Great Mutual Fund Trap, you were
critical of asset-based fees charged by financial planners. In
an era of low or no-commission brokerage accounts, do you still
agree that an asset-based fee can be expensive--``a fifteen-
yard penalty for piling on'' as you described in your book?
A.38. Much has changed in the last 20 years since I coauthored
the book. Investors should work directly with their financial
planners to determine fee structures appropriate for their
needs and objectives.
Q.39. Blockchain/Bitcoin/Digital Ledger Technology--Do you
believe a cryptocurrency can transform from a ``securities
token'' to a ``utility token''?
A.39. The securities laws define a security to include
investment contracts. The Supreme Court has defined such
investment contracts to include arrangements in which ``a
person invests his money in a common enterprise and is led to
expect profits solely from the efforts of the promoter or a
third party.'' If confirmed, I will review questions of whether
a crypto-currency is a security in light of the definition laid
out by the Supreme Court.
Q.40. As suggested by SEC Commissioner Hester Peirce, would you
consider whether to pursue an experimental safe harbor for a
digital token offering?
A.40. If confirmed by the Senate, I look forward to engaging
with Commissioner Peirce, other Commissioners and SEC staff on
this issue.
Q.41. What role should blockchain and digital ledger technology
play in clearance and settlement of securities transactions and
payments?
A.41. I have spoken before of the potential of blockchain
technology to serve as a catalyst for change. If confirmed, I
would look forward to fostering an environment that is
supportive of financial innovation while also ensuring that
investors are protected, markets are fair, orderly and
efficient, and capital formation is facilitated.
Q.42. Rulemaking best practices--The SEC has a statutory duty
to adequately consider competition, efficiency, and capital
formation in rulemakings. If confirmed, how will you enforce
this requirement?
A.42. If confirmed, I will endeavor to fulfill the tripartite
mission of the SEC to protect investors; maintain fair,
orderly, and efficient markets; and facilitate capital
formation along with following the statute to consider investor
protection, competition, efficiency, and capital formation in
rulemakings.
Q.43. Do you agree that policymaking should be done through
notice and comment rulemakings in accordance with the
Administrative Procedure Act, not through guidance, no-action
letters, and enforcement actions?
A.43. I understand the Commission's statutory obligations under
the Administrative Procedure Act. I also believe that guidance
and no-action letters can play an important role in getting
timely information out to market participants that provides
clarity and reduces compliance costs.
Q.44. Do you agree with FTC Commissioner Rohit Chopra's
testimony at your joint nomination hearing that guidance issued
by Federal agencies should not impose obligations on regulated
parties?
A.44. I understand the Commission's statutory obligations under
the Administrative Procedure Act. I also believe that guidance
and no-action letters can play an important role in getting
timely information out to market participants that provides
clarity and reduces compliance costs.
Q.45. In June 2020, the U.S. Court of Appeals for the D.C.
Circuit struck down the SEC's fee cap pilot project. If
confirmed, can you commit to developing guardrails that govern
the SEC's use of pilot projects to prevent a similar outcome in
the future?
A.45. If confirmed, I look forward to discussing the subject
with SEC staff and Commissioners. I also look forward to being
briefed by the Office of General Counsel on this case, how it
progressed through the legal system, and the implications of
the court's opinion for future SEC pilot programs.
Q.46. Enforcement--In Christopher v. SmithKline Beecham Corp.,
the U.S. Supreme Court reiterated that ``agencies should
provide regulated parties fair warning of the conduct a
regulation prohibits or requirements.'' 567 U.S. 142 (2012)
(internal quotation marks, brackets, and citation omitted). As
SEC Chairman, will you comply with this principle?
A.46. If confirmed, I will abide by all binding precedent
consistent with the advice of the Office of the General Counsel
at the Commission.
Q.47. Do you agree that the economic effects of corporate
penalties often fall on shareholders instead of punishing those
who are actually responsible for corporate misdeeds?
A.47. SEC enforcement actions can include penalties against a
corporate entity, sanctions against individuals employed by an
entity, or measures to prevent certain behaviors and practices.
All of these tools should be available to our civil enforcement
agencies to be deployed based on the facts and the law of each
case.
Q.48. Will you commit to aggressive enforcement against
microcap fraud?
A.48. If confirmed, I will endeavor to enforce against all
fraud subject to SEC resource constraints
Q.49. Will you commit to aggressive enforcement against brokers
and investment advisers who steal their clients' funds?
A.49. If confirmed, I will endeavor to work with SEC staff to
enforce against all fraud subject to SEC resource constraints.
Q.50. Do you believe in a ``broken windows'' theory of
enforcement, where all technical violations of SEC rules and
regulations automatically trigger an enforcement action?
A.50. As Chair of the CFTC, I had the honor to lead a civil law
enforcement agency. We endeavored every day to bring the facts
and the law together in front of courts and hold people
accountable. I believe it is essential that our regulations be
backed by enforcement that is tough but fair. If confirmed, in
choosing where to focus our limited enforcement resources, I
would prioritize those actions that can be most effective in
protecting the integrity of our capital markets and in ensuring
that our most vulnerable retail investors are not taken
advantage of. In making those decisions, I would work closely
with, and rely heavily on, the judgement of the agency's very
capable professional examinations and enforcement staff.
Q.51. Can you promise to work with other financial regulators
to create a single bad actor database for enforcement actions?
A.51. If confirmed, I look forward to working with other
financial regulators and self-regulatory organizations such as
FINRA on this matter.
Q.52. Can you commit to reviewing the Rule 10b5-1 safe harbor
for sales by insiders?
A.52. If confirmed, I look forward to working with fellow
Commissioners and SEC staff to consider modernizing this
provision.
Q.53. Public Company Accounting Oversight Board (PCAOB)--By
statute (15 U.S.C. 7211(e)(1)), PCAOB members must be
``appointed from among prominent individuals of integrity and
reputation who have a demonstrated commitment to the interests
of investors and the public, and an understanding of the
responsibilities for and nature of the financial disclosures
required of issuers, brokers, and dealers under the securities
laws and the obligations of accountants with respect to the
preparation and issuance of audit reports with respect to such
disclosures.'' If confirmed, will you ensure that all
appointments to the PCAOB Board clearly have these
qualifications?
A.53. If confirmed, I will follow all applicable laws in
appointing persons to the PCAOB Board.
Q.54. Traditionally, the SEC has taken recommendations from all
of the SEC Commissioners on appointments to the Public Company
Accounting Oversight Board (PCAOB). This helps ensure that the
PCAOB works by consensus and that appointees have the relevant
experience necessary to succeed as a PCAOB member. If
confirmed, do you promise to take this approach for all
appointments to the PCAOB Board?
A.54. If confirmed, I would consult with fellow Commissioners
with regard to potential appointments to the PCAOB.
Q.55. Small Businesses--The Regulatory Flexibility Act (RFA)
requires Federal agencies, including the SEC, to consider the
effects of rules on ``small entities'' and consider whether
alternative approaches could minimize the harm to small
entities. The SEC has nine different definitions of the term
``small entity'' to cover different types of SEC-regulated
entities. These definitions generally rely on revenue-based
dollar thresholds. The SEC last updated six of these
definitions in 1982. The SEC updated one definition in 1986,
and two definitions in 1998. For example, while the SEC
definition of ``small entity'' for an investment adviser is
having less than $25 million of assets under management (AUM),
the Dodd-Frank Act raised the minimum amount of AUM to $100
million in order to register with the SEC. Due to these
outdated definitions, the SEC routinely argues that its rules
do not impact small entities under the RFA. If confirmed, will
you update these definitions, so that the SEC's impact analysis
on small business in rulemaking is meaningful?
A.55. If confirmed, as part of the process of updating existing
regulations, I believe it is appropriate to consider any
applicable exemptions to assess their impact on market
participants, including both issuers and investors.
Q.56. If confirmed, will you promise to tailor rules and
compliance dates for small businesses, where appropriate?
A.56. If confirmed, when designing regulations, I believe it is
appropriate to consider the risks posed by regulated entities
on the basis of their size and complexity.
Q.57. SEC Management Practices--If confirmed, will you continue
to provide SEC Commissioners with at least 30 days to review
drafts of nonenforcement matters, as is current SEC practice?
A.57. If confirmed, I will provide fellow Commissioners with a
reasonable opportunity to review drafts of nonenforcement
matters. Commissioners may require more or less than 30 days,
depending on the facts and circumstances of the matter being
considered.
Q.58. If confirmed, will you continue to have weekly one-on-one
meetings with each SEC Commissioner, as was practice under
Chair Mary Jo White and Chairman Jay Clayton?
A.58. If confirmed, I look forward to working collaboratively
with my fellow Commissioners and meeting with them frequently
to maintain productive relationships and advance the work of
the Commission.
Q.59. What approach will you take to finalizing the long-term
lease for the SEC headquarters office?
A.59. My understanding is that the matter is the subject of
confidential negotiations between the SEC and GSA, who are
reviewing various potential real estate options. If confirmed,
I will work with the SEC staff and GSA to get up to speed on
this and to finalize the lease.
Q.60. Short Selling--Do you believe that short sellers
generally contribute to price discovery in the marketplace, and
also help reduce fraud?
A.60. Short selling has long been a fundamental part of
markets, contributing to liquidity and the price discovery of
securities and other financial assets. Short sellers also can
identify potential problems within market participants. It was
a short seller, for example, who first raised questions about
Enron's accounting. There is also a potential, unfortunately,
for abuses related to short selling, as there is with any
market transaction.
Q.61. If confirmed, do you promise to not take any action that
would make short-selling either illegal or impractical?
A.61. If confirmed, my focus with regard to short-selling would
be on addressing fraud, manipulation and transparency in the
furtherance of the SEC mission to protect investors, maintain
fair, orderly, and efficient markets and facilitate capital
formation.
Q.62. Consolidated Audit Trail--As the SEC continues to
implement the Consolidated Audit Trail (CAT), will you commit
that the CAT will not contain any personally identifiable
information (PII) of investors?
A.62. I understand that the SEC under Chairman Clayton adopted
rules to restrict the personally identifiable information in
the Consolidated Audit Trail, namely restricting the date of
birth and redaction of Social Security numbers, individual tax
identification numbers, and account numbers. If confirmed I'd
work with the SEC commissioners and staff to examine remaining
issues, particularly the rule proposed on a unanimous basis
last summer that pertains to data security.
Q.63. If you cannot commit to the exclusion of PII from the CAT
database, will you commit the SEC to notifying each person
whose PII is disclosed in the event of a CAT data breach?
A.63. Data security is of the utmost importance in the
implementation of the CAT and I will continue to work with the
SEC commissioners and staff to work through outstanding issues
related to data security.
------
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR MENENDEZ FROM GARY GENSLER
Q.1. Section 13(d) of the Securities Exchange Act of 1934
requires investors who become the beneficial owners of more
than five percent of an issuer's equity securities to report
certain identifying information to the SEC. But if undisclosed
or disclosed without sufficient information, such ownership
stakes could undermine the security, transparency, and fairness
of our capital markets.
How do you believe the SEC should monitor equity markets to
ensure that foreign investors are not accumulating significant
shares in public companies, especially in the media and
technology sectors, without filing the requisite disclosures?
A.1. The Commission has a number of mechanisms to monitor
investors', including foreign investors', acquisition of
significant ownership of public company stock. I believe that
transparency is essential to well-functioning capital markets
and, if confirmed, will work to ensure compliance with SEC
regulations to promote market transparency.
Q.2. How would you propose to strengthen SEC enforcement in
this area?
A.2. As Chair of the CFTC, I was honored to lead a civil law
enforcement agency which endeavored every day to bring the
facts and the law together in front of courts and held people
accountable. If confirmed, I will bring this same commitment to
accountability to the SEC.
Q.3. Section 956 of Dodd-Frank requires the OCC, the Federal
Reserve, FDIC, NCUA, FHFA, and the SEC to jointly propose a
rule to prevent executive compensation plans that encourage
excessive risk in our financial system and threaten a repeat
the events of the 2008 crisis. That rule is now 10 years
overdue.
If confirmed, will you make it a priority to finish the
work of Dodd-Frank and finalize this rulemaking?
A.3. If confirmed, I will work with fellow commissioners, SEC
staff and counterparts at other financial regulators to
complete all rulemakings directed by Congress. While serving as
the Chairman of the CFTC, we were able to finalize our
congressionally-directed rulemakings related to Title VII in a
timely and often bipartisan manner. If confirmed, I will
consult with my counterparts to move forward on the joint
mandates given to us by statute to issue a rule addressing
compensation plans that encourage excessive risk in our
financial system.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR TESTER
FROM GARY GENSLER
Q.1. Oversight and Enforcement--How do you plan to approach the
oversight role at the SEC?
A.1. As Chair of the CFTC, I had the honor to lead a civil law
enforcement agency. We endeavored every day to bring the facts
and the law together in front of courts and hold people
accountable. I believe it is essential that our regulations be
backed by enforcement that is tough but fair. If confirmed, in
choosing where to focus our limited enforcement resources, I
would prioritize those actions that can be most effective in
protecting the integrity of our capital markets and in ensuring
that our most vulnerable retail investors are not taken
advantage of. In making those decisions, I would work closely
with, and rely heavily on, the judgment of the agency's very
capable professional examinations and enforcement staff.
Q.2. Investment Opportunities for Individuals and Investments
Outside of Traditional Hubs--What are your views on the
changing volume and size of IPOs? Are you concerned about
access for individual investors and retirement savers? Does
this shift result in declining opportunity for average
Americans seeing the benefits of companies growing and doing
well?
A.2. SEC rules encourage a vibrant environment where companies
can raise money in both private and public markets, as
appropriate for their particular needs and consistent with
investor protections. Changes in markets, technology, and
capital formation rules may alter the mix of public and private
capital formation over time. If confirmed, I look forward to
working with fellow commissioners and SEC staff, including the
Investor Advocate and Office of the Advocate for Small Business
Capital Formation, to continue to evaluate how to best foster
both public and private forms of capital formation while
protecting investors and maintaining fair, orderly and
efficient markets.
Q.3. What impact does this have on rural America? Both on
individuals and on the investment of dollars in the middle of
the country?
A.3. If confirmed, I will work to advance the mission of the
SEC to protect investors; maintain fair, orderly, and efficient
markets; and facilitate capital formation. Working through the
Office of the Advocate for Small Business Capital Formation, we
can take steps to raise awareness of these options,
particularly in those regions and for those companies that are
at greatest need.
Q.4. LIBOR Transition--I have been hearing from businesses,
borrowers, and other participants in the marketplace concerning
existing contracts with LIBOR written into their terms but that
extend beyond when LIBOR will be published, including beyond
the Fed's extended timeline.
Do you think the parties to these contracts would benefit
from the certainty from Congress on these contracts moving
forward?
A.4. As I understand it, the transition to a new benchmark rate
away from LIBOR is being led by the Federal Reserve Board and
New York Federal Reserve Bank in consultation with other
financial regulators, including the SEC. Many of the financial
institutions that are affected by the transition are regulated
by the SEC along with other regulators, including the Federal
Reserve. If confirmed, I look forward to working with my fellow
regulators to assist this transition and plan to engage with
the Federal Reserve Board and New York Federal Reserve Bank to
see what the SEC can do to facilitate the transition broadly
across the financial sector.
I defer to Congress on whether new legislation should be
enacted to support that transition, however, if confirmed, I
would have the SEC staff provide technical assistance on any
such draft legislation as desired.
Q.5. Remaining Dodd-Frank Rulemakings--The SEC still has a
number of outstanding Dodd-Frank Rulemakings, some proposed and
some that haven't made it that far.
Do you plan to prioritize outstanding rulemakings?
A.5. If confirmed, I will work with fellow commissioners and
SEC staff to complete all rulemakings directed by Congress.
While serving as the Chairman of the CFTC, we were able to
finalize our statutorily directed rulemakings related to Title
VII in a timely and often bipartisan manner.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN
FROM GARY GENSLER
Q.1. Earlier this year, I sent a letter to Acting SEC Chair
Alison Herren Lee regarding the recent market volatility
related to huge swings in the price of GameStop's shares. \1\
In my letter, I asked the SEC for more information about the
dramatic share price swings and whether they represented a
``fair, orderly, and efficient'' market function. \2\ In a
letter last month, the Commission stated that the events are
still being analyzed, but that the SEC staff is ``diligently
examining the causes of the recent dramatic shifts.'' \3\
---------------------------------------------------------------------------
\1\ Office of Senator Warren, ``NEW THIS AM: Warren Calls on the
SEC to Address Stock Market Gamesmanship Amid Volatile GameStop
Trades,'' press release, January 29, 2021, https://
www.warren.senate.gov/newsroom/pressreleases/new-this-am-warren-calls-
on-the-sec-to-address-stock-market-gamesmanship-amid-volatile-
gamestoptrades; Letter from Senator Warren to Securities and Exchange
Commission Acting Chair Alison Herren Lee, January 29, 2021, https://
www.warren.senate.gov/imo/media/doc/
01.29.2021%20Letter%20from%20Senator%20Warren%20to%20Acting%20Chair%20Le
e.pdf.
\2\ Id.
\3\ Letter from Securities and Exchange Commission Acting Chair
Alison Herren Lee to Senator Warren, February 25, 2021.
---------------------------------------------------------------------------
The SEC response also noted that the full implementation of
the Consolidated Audit Trail (CAT) should be completed in 2022.
The CAT would be a real-time tracking system to enhance
regulators' efforts to oversee U.S. markets by collecting data
about securities quotes and orders and allow the SEC to
understand trading practices. Without the CAT and other tools
to more quickly analyze trading data, the SEC was unnecessarily
delayed in reporting on what caused the May 2010 Flash Crash to
U.S. markets. \4\ Federal regulators took seven months to
analyze and publicly report the causes of the Flash Crash, and
it took an additional 5 years to analyze and publicly report
that a London-based trader played a significant role in the
crash. \5\
---------------------------------------------------------------------------
\4\ Reuters, ``Factbox: After the Flash Crash, Changes to U.S.
Markets'', Jonathan Spicer, September 1, 2011, https://www.reuters.com/
article/us-financial-regulation-algos-factbox/factbox-after-the-flash-
crash-changes-to-us-markets-idUSTRE7806QS20110901.
\5\ Reuters, ``SEC Urges Completion of Long-Delayed Trading
Database'', John McCrank, August 27, 2018, https://www.reuters.com/
article/us-usa-stocks-regulation-cat/sec-urges-completion-of-long-
delayed-tradingdatabase-idUSKCN1LC2FA.
---------------------------------------------------------------------------
What are the risks to the market if the SEC does not have
fully implemented tools to quickly, efficiently, and accurately
track information about trades in the event of another Flash
Crash?
A.1. The CAT, once fully up and running, will be a valuable
tool for the SEC to help maintain fair, orderly, and efficient
markets. The Flash Crash of 2010 and recent market turmoil
highlight the need for accurate and timely market data. The
absence of tools to quickly, efficiently, and accurately track
information about trades could undermine the Commission's
ability to assess and respond to market events in a timely
manner.'' I share the commitment of former SEC chairs in both
Republican and Democratic administrations to make sure the CAT
is fully implemented. I also understand that the CAT is a
complex project involving multiple stakeholders. If confirmed,
I will work with my fellow Commissioners, SEC staff and market
participants to move the development of the CAT forward while
working to ensure the security and confidentiality of
information collected.
Q.2. Last year, I introduced S. 2155, the Stop Wall Street
Looting Act of 2019, to reform the private equity industry and
end abusive leveraged buyouts. \6\ Private equity transactions
are fueled by risky loans that are immediately securitized and
sold. \7\ A provision in my bill would help protect the economy
from risks stemming from excessive debt imposed on private
equity firms' target companies. It would require arrangers of
corporate loan securitizations to retain risk by clarifying
that managers of collateralized debt obligations are subject to
risk retention requirements established in the Dodd-Frank Wall
Street Reform and Consumer Protection Act. \8\
---------------------------------------------------------------------------
\6\ Office of Senator Warren, ``Warren, Baldwin, Brown, Pocan,
Jayapal, Colleagues Unveil Bold Legislation to Fundamentally Reform the
Private Equity Industry,'' July 18, 2019, https://
www.warren.senate.gov/newsroom/press-releases/warren-baldwin-brown-
pocan-jayapal-colleaguesunveil-bold-legislation-to-fundamentally-
reform-the-private-equity-industry.
\7\ Washington Post, ``The Shadow Banks Are Back With Another Big
Bad Credit Bubble'', Steven Pearlstein, May 31, 2019, https://
www.washingtonpost.com/business/economy/the-shadow-banks-are-back-with-
another-big-badcredit-bubble/2019/05/31/a05184de-817a-11e9-95a9-
e2c830afe24f-story.html.
\8\ Securities and Exchange Commission, ``Asset-Backed
Securities,'' October 23, 2014, https://www.sec.gov/spotlight/dodd-
frank/assetbackedsecurities.shtml.
---------------------------------------------------------------------------
How, if at all, you would you mitigate risky corporate
lending and the ability of lenders to spread irresponsible
private equity debt across financial institutions? How would
you ensure that regulators have the appropriate information to
assess the exposure of financial markets to leveraged loans?
A.2. If confirmed, I look forward to working with other members
of the Financial Stability Oversight Council on leveraged
lending, particularly exposures in the non-bank sector where
information is less readily available. In addition, I look
forward to working with my fellow Commissioners and SEC staff,
if confirmed, to examine asset-back security rules in light of
recent market developments, including in relation to
securitization of leveraged loans and loan portfolios.
Q.3. In September, I wrote a letter to then-Chair Clayton
regarding troubling reports of inflated bond ratings and the
perverse incentives within the bond rating industry and urged
the SEC to take immediate action to protect the economy from
risky lending propped up by conflicts of interest between bond
issuers and rating agencies. My letter described the flows in
the incentive structures of bond ratings firms' through the
``issuer-pays'' model used by major firms like S&P and Moody's.
Under the issuer-pays model, bond issuers pay the agencies for
their assessments of the products they hope to sell, ultimately
giving the rating firms an incentive to give better ratings,
regardless of the risk, since bond issuers might otherwise go
to their competitors. \9\ In Chair Clayton's November response,
he stated that the Commission shared my concerns about
conflicts of interest in rating agency compensation models and
said that the Commission was awaiting recommendations or advice
from various advisory committees. \10\ Chair Clayton's response
also referenced some work that the SEC has done to respond to
the conflicts of interest in the issuer-pays model. \11\ An
August Wall Street Journal report, however, stated that
``Inflated bond ratings were one cause of the financial crisis.
A decade later, there is evidence they persist. In the hottest
parts of the booming bond market, S&P and its competitors are
giving increasingly optimistic ratings as they fight for market
share.'' \12\
---------------------------------------------------------------------------
\9\ Council on Foreign Relations, ``The Credit Rating
Controversy'', CFR Staff, February 19, 2015, https://www.cfr.org/
backgrounder/credit-rating-controversy.
\10\ Letter from Securities and Exchange Commission Chairman Jay
Clayton to Senator Warren, November 21, 2019.
\11\ Id.
\12\ Wall Street Journal, ``Inflated Bond Ratings Helped Spur the
Financial Crisis. They're Back'', Cezary Podkul and Gunjan Banerji,
August 7, 2019, https://www.wsj.com/articles/inflated-bond-ratings-
helped-spur-the-financialcrisis-theyre-back-11565194951.
---------------------------------------------------------------------------
In your view, have the SEC's efforts to respond to the bond
ratings agencies' conflicts of interest successfully prevent
them from artificially inflating bond ratings? If not, what
would you do as chair to strengthen the SEC's efforts?
A.3. Weaknesses at credit rating agencies contributed to the
2008 financial crisis as the ``issuer pays'' model led to
conflicts and potentially misaligned incentives. If confirmed,
I will work with fellow commissioners and SEC staff to examine
the Nationally Recognized Statistical Ratings Organization
regulatory framework implemented by the Commission pursuant to
the Dodd-Frank Wall Street Reform and Consumer Protection Act
of 2010.
Q.4. The most recent volume of the National Climate Assessment,
a scientific report issued by 13 Federal agencies in November
2018, stated that climate change may cause losses of up to 10
percent of the U.S. economy by 2100. \13\ Additionally, a 2015
report from The Economist Intelligence Unit wrote that, of the
world's current stock of manageable assets, the expected losses
due to climate change are valued at $4.2 trillion by the end of
the century. \14\ Last year, I asked then-Chair Clayton whether
the SEC has a mandatory, uniform standard for climate risk so
that investors can compare companies head-to-head. \15\ He
declined to answer my question directly, instead broadly
stating that the SEC has a materiality standard. \16\ In an
October letter, he also stated that ``investors must have the
information necessary to understand the material risks posed to
an issuer's business and financial performance.'' \17\
Furthermore, last summer, 40 major investors who collectively
manage over a trillion dollars in assets joined with
nonprofits, businesses, and former regulators in sending the
SEC a letter arguing that the climate crisis is material and a
systemic threat to our economy and asking the Commission to
mandate corporate climate risk disclosure. \18\
---------------------------------------------------------------------------
\13\ New York Times, ``U.S. Climate Report Warns of Damaged
Environment and Shrinking Economy'', Coral Davenport and Kendra Pierre-
Louis, November, 23, 2018, https://www.nytimes.com/2018/11/23/climate/
usclimate-report.html.
\14\ The Economist Intelligence Unit, ``The Cost of Inaction'',
2015, p. 41, https://eiuperspectives.economist.com/sites/default/files/
The%20cost%20of%20inaction-0.pdf.
\15\ Office of Senator Warren, ``Senator Warren to SEC Chairman
Clayton: You Have Done Nothing To Protect the Economy From Climate
Change Risks'', press release, November 17, 2020, https://
www.warren.senate.gov/newsroom/press-releases/senator-warren-to-sec-
chairman-clayton-you-havedone-nothing-to-protect-the-economy-from-
climate-change-risks.
\16\ Id.
\17\ Letter from Securities and Exchange Commission Chairman Jay
Clayton to Senator Warren, October 13, 2020.
\18\ New York Times, ``Climate Change Poses `Systemic Threat' to
the Economy, Big Investors Warn'', Christopher Flavelle, July 21, 2020,
https://www.nytimes.com/2020/07/21/climate/investors-climate-threat-
regulators.html.
---------------------------------------------------------------------------
During your confirmation hearing, I asked you whether there
are any reasons as to why companies should be able to hide
their climate risks from their investors, and you responded
that ``I think that particularly material--materiality is a
point here--but no, they should not be able to hide their
risks.'' \19\
---------------------------------------------------------------------------
\19\ Office of Senator Warren, ``At Banking Hearing, SEC Nominee
Gensler Commits to Efforts Recommended by Warren To Protect Investors
and Make Markets More Honest and Transparent'', March 2, 2021, https://
www.warren.senate.gov/newsroom/press-releases/at-banking-hearing-sec-
nominee-gensler-commits-toefforts-recommended-by-warren-to-protect-
investors-and-make-markets-more-honest-and-transparent.
---------------------------------------------------------------------------
Please elaborate on this point. Do you believe it would be
useful for investors to understand public companies'
contributions to greenhouse gas emissions and their exposure in
the event of a government- or market-mandated transition
towards a lower carbon economy?
A.4. If confirmed, materiality will guide my decisions as SEC
Chair regarding to disclosure requirements under the Federal
securities laws. The Supreme Court has held that information is
material if there is a ``a substantial likelihood that the
disclosure of the omitted fact would have been viewed by the
reasonable investor as having significantly altered the `total
mix' of information made available.'' If confirmed, I will
follow the law with respect to policies that come before the
Commission related to disclosure. There is significant and
growing investor interest in climate disclosures, and many
companies already publish information about how climate risks
affect their business. If confirmed, I will examine existing
frameworks for disclosure, with an eye towards minimizing any
compliance burden for issuers while providing investors with
the material information they need for investment decisions.
The best course for the SEC to accomplish that goal is by
taking an approach that listens to all stakeholders and
following all legal obligations for stakeholder feedback under
the Administrative Procedure Act and other laws.
Q.5. It has been reported that the SEC has opened an
investigation into whether Boeing made materially false
statements about its finances in relation to the devastating
Boeing 737 Max crashes in Indonesia and Ethiopia that killed
hundreds. The parents of one of the victims are my
constituents. They lost their daughter, 24-year-old Samya
Stumo, in the second crash while she was traveling in East
Africa for lifesaving work in public health. To date, despite
the many investigations of what went wrong, there has been no
accountability for top management at Boeing. The Justice
Department entered into a Deferred Prosecution Agreement with
Boeing that placed all the blame at the feet of two low-level
pilots, thereby shielding the senior executives from
responsibility. I welcome the SEC investigation because it
could provide our first opportunity to find out what high-level
officials knew and when they knew it; and to hold them
accountable for any wrongdoing that occurred.
If you are confirmed, will you commit to keeping this
committee informed of the progress of the investigation, within
the bounds of your legal responsibilities?
Will you follow the facts wherever they go?
Will you commit that you will not negotiate a deal with
Boeing that exculpates senior management, unless that is where
the facts lead?
A.5. As Chair of the CFTC, I was honored to lead a civil law
enforcement agency that endeavored every day to bring the facts
and the law together in front of courts and held people
accountable. While I am not able to prejudge any individual
case and am bound by the law in terms of the confidentiality of
enforcement proceedings, if confirmed, I will bring this same
commitment to accountability to the SEC.
Boeing may not have been forthcoming with its investors
about the financial impact of the crashes. In 2020, the company
disclosed, initially, $6 billion in costs, and by the end of
2020, a total of $9.1 billion. In January 2021, Boeing said the
total costs for 737 Max would surpass $18 billion, more than 3
times the initial disclosure. And Boeing's management bled
these accumulating billions from operations, not management
compensation. If Boeing had had to come clean about that
amount--which may still go up--its management might have been
forced to take a haircut on executive compensation.
On the contrary, the Boeing Board did the opposite of
penalizing its directors or executives for the company's safety
failures or for its material misrepresentations. For example,
instead of firing then- CEO Dennis Muilenburg, he was allowed
to ``retire'' and take with him an extra $38 million. As I
understand it, between 2011 and 2019, Muilenburg received more
than $120 million in compensation for his roles at Boeing.
Q.6. Will you commit to take appropriate action against Boeing
executives if you find that they illegally misled investors
about the financial impact of the crashes on the company?
A.6. While I am not able to prejudge any individual case and am
bound by the law in terms of the confidentiality of enforcement
proceedings, if confirmed, I will uphold the enforcement
mission of the SEC as set forth by Congress. My enforcement
philosophy is that it is the agency's responsibility to follow
the facts and the law where they take you and to stamp out
fraud and manipulation in the markets.
------
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR VAN HOLLEN FROM GARY GENSLER
Q.1. Congress has provided the SEC with authority to set its
own pay and benefits in order to attract and retain a top-notch
workforce that could otherwise work for big Wall Street firms.
During the Trump administration, pay adjustments at the SEC
were relatively low, as they were throughout the Federal
workforce. This shift had a concerning negative effect on SEC
employee morale, as reflected in the responses of SEC employees
to the Federal Employee Viewpoint Survey. Will you commit to
working with the employees of the SEC and their union on the
subject of pay and benefits to ensure that the SEC is able to
recruit and retain the workforce needed to protect American
investors and capital markets?
A.1. If confirmed, I will work with the Office of Human
Resources and the SEC staff, including the SEC employee
bargaining unit, to ensure that the agency is able to recruit
and retain the workforce needed to fulfill the agency's mission
within the legal and budgetary constraints set by Congress.
Q.2. Investors and financial analysts are increasingly calling
for disclosure of key financial information on a country-by-
country basis, and there is growing worldwide momentum towards
requiring disclosure of this information. In the European
Union, negotiations are proceeding to require country-by-
country reporting, and this was also endorsed recently by the
United Nations High-Level Panel on International Financial
Accountability, Transparency and Integrity for Achieving the
2030 Agenda. Country-by-country reporting is also among the
voluntary standards set by the Global Reporting Initiative.
Country-by-country reports would shine a light on the use
of tax havens, and whether the U.S. tax code is giving
companies an incentive to ship jobs overseas--a major concern
of mine following the enactment of the 2017 tax law. Big
corporations already report country-by-country financial
information to the IRS under an international OECD framework,
but the reports are not public. My legislation, the Disclosure
of Tax Havens and Offshoring Act, would require SEC disclosures
to include country-by-country financial reports that are in
line with U.S. and international standards.
As SEC Chairman, will you commit to working with us to
consider the SEC's requirements as they relate to country-by-
country reporting?
A.2. If confirmed, materiality will guide my decisions as SEC
Chair related to disclosure requirements under the Federal
securities laws. The Supreme Court has held that information is
material if there is a ``a substantial likelihood that the
disclosure of the omitted fact would have been viewed by the
reasonable investor as having significantly altered the `total
mix' of information made available.'' If confirmed, I look
forward to learning more about this issue and working with you
and others in Congress and to understand what is possible
within the authorities of the SEC.
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RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA
FROM GARY GENSLER
Q.1. If confirmed, how engaged will you be with the activities
of the Financial Stability Oversight Council? What unique
perspective will active SEC engagement provide in advancing the
FSOC's mission?
A.1. The Dodd-Frank Wall Street Reform and Consumer Protection
Act of 2010 entrusts the Financial Stability Oversight Council
with the mission of identifying risks to the financial
stability of the United States; promoting market discipline;
and responding to emerging risks to the stability of the United
States' financial system. If confirmed, I will bring the
perspective of the primary regulatory agency which I represent,
the SEC, to all of the activities of the FSOC, including
internal deliberations, risk monitoring and voting decisions.
My career in financial markets, including my previous
experience in the private sector and in state and Federal
Government, along with my research from MIT, will inform my
work on the Council.
Q.2. If confirmed, how will you approach the issue of ESG
disclosures by public companies?
Do you believe that ESG disclosures need to be mandatory in
order for them to be effective?
A.2. If confirmed, materiality will guide my decisions as SEC
Chair related to disclosure requirements under the Federal
securities laws. The Supreme Court has held that information is
material if there is a ``a substantial likelihood that the
disclosure of the omitted fact would have been viewed by the
reasonable investor as having significantly altered the `total
mix' of information made available.'' In some instances,
mandatory disclosures that provide for clear, consistent and
comparable information may best inform investor decision-making
and may reduce compliance costs for issuers. In other
instances, individualized determinations of materiality,
voluntary disclosures or the shareholder proposal process may
be more effective at meeting investor and issuer needs.
Q.3. If confirmed, how will you navigate the existing EU
framework on climate risk disclosures when considering a
potential U.S. framework?
A.3. There are a wide range of climate risk disclosure
frameworks that have been developed by international
governments and private sector actors. If confirmed, I will
examine existing frameworks for disclosure, including the EU
framework, with an eye towards minimizing any compliance burden
for issuers while providing investors with the material
information they need for investment decisions. The best course
for the SEC to accomplish that goal is by taking an approach
that listens to stakeholders and following the legal
obligations for stakeholder feedback that apply under the
Administrative Procedures Act and other laws.
Q.4. The transition from LIBOR to SOFR continues to be a
subject of interest. If confirmed, what actions will you take
to facilitate this transition in portions of the market where
adoption has been slow or nonexistent?
A.4. As I understand it, the transition to a new benchmark rate
away from LIBOR is being led by the Federal Reserve Board and
New York Federal Reserve Bank in consultation with other
financial regulators, including the SEC. Many of the financial
institutions that are affected by the transition are regulated
by the SEC along with other regulators, including the Federal
Reserve. If confirmed, I look forward to working with my fellow
regulators to assist this transition and plan to engage with
the Federal Reserve Board and New York Federal Reserve Bank to
see what the SEC can do to facilitate the transition broadly
across the financial sector.
Q.5. If confirmed, will you commit to finalizing outstanding
Dodd-Frank Title VII regulations on market transparency,
clearing, and trading?
A.5. If confirmed, I will work with fellow commissioners and
SEC staff to complete all rulemakings directed by Congress.
While serving as the Chairman of the CFTC, we were able to
finalize our congressionally directed rulemakings related to
Title VII in a timely and often bipartisan manner.
Q.6. If confirmed, what factors will you consider when
evaluating a potential Bitcoin ETF?
Under what circumstances would one be approved?
A.6. It is critical that regulators and regulations keep pace
with changing technology, and that includes the burst of growth
of new financial technology--including cryptocurrencies--in the
last decade. I have spent the last several years at MIT
studying this field, and I believe financial technology can be
a powerful force for good-but only if we continue to harness
the core values of the SEC in service of investors, issuers,
and the public. Without prejudging any specific proposals that
I may or may not consider at the Commission, if confirmed, I
look forward to learning more about nascent products such as
potential Bitcoin ETFs and to discussing the staff's regulatory
decisions on these matters over the preceding few years.
Q.7. How can the SEC provide more regulatory clarity with
respect to digital assets?
A.7. It is my understanding that the SEC's FinHub and division
directors have provided guidance on this subject. If confirmed,
I look forward to discussing with fellow commissioners and the
SEC staff the full range of actions we might take to provide
additional clarity regarding these new assets.
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RESPONSES TO WRITTEN QUESTIONS OF SENATOR CRAPO
FROM GARY GENSLER
Q.1. In June 2019, the SEC adopted a package of rulemaking and
interpretations known as the Regulation Best Interest rule,
which struck an appropriate balance of increasing transparency
in investors' relationships, while preserving access to advice
and investment products.
If confirmed, would you uphold the Regulation Best Interest
rule, as written?
A.1. When investors turn to financial professionals for advice
and recommendations about their investments, advice that may be
critical to their retirement security or their ability to fund
a child's college education, they deserve advice that serves
their best interests. If confirmed, I will work with my
colleagues and the Commission staff to ensure that the
Regulation Best Interest rule, as interpreted and enforced by
the SEC, lives up to its best interest label.
Q.2. With regard to cryptocurrency, do you believe that the
current regulatory framework provides sufficient predictability
and certainty for market participants?
A.2. I have spoken before of the potential of blockchain
technology and cryptocurrencies to serve as a catalyst for
change. To the extent that someone is offering a crypto token
which is an investment contract or security that's under the
SEC's remit, the SEC has a responsibility to ensure investors
are adequately protected. Some cryptocurrency tokens have been
deemed to be solely a commodity, as Bitcoin has been, and are
within the purview of the CFTC. If confirmed, I would look
forward to fostering an environment that is supportive of
financial innovation while also ensuring that investors are
protected, markets are fair, orderly and efficient, and capital
formation is facilitated. As cryptocurrency technology evolves,
it's important to stay true to our principles of investor
protection and at the same time, be technology neutral.
Q.3. The proxy voting process was a focus of the SEC under
Chairman Clayton, as there were valid concerns regarding the
misuse of this process and other aspects of corporate
governance to prioritize environmental, social or political
agendas over the economic interests of endinvestors. Last year,
the SEC adopted a final rule, which acknowledges the important
role proxy advisors play in the corporate governance ecosystem,
while instituting new policies increasing transparency and
allowing companies to correct errors in voting recommendations.
Do you agree it is important that institutional investors
ensure that retail investors' interests are being reflected in
voting decisions?
If confirmed, would you uphold the reforms made through the
final Proxy Advisor Rule finalized last year?
A.3. I agree with the Commission's guidance that when
investment advisers exercise proxy voting authority on behalf
of their clients their fiduciary duties to act with loyalty and
care extend to their exercise of voting decisions (17 CFR Parts
271 and 276.) If confirmed, I would work with fellow
commissioners and SEC staff to understand the Proxy Advisor
rules better, to see whether they addressed the potential
conflicts of interest at the least costs for market
participants, and determine its impact on achieving the mission
of the agency.
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RESPONSES TO WRITTEN QUESTIONS OF SENATOR SCOTT
FROM GARY GENSLER
Q.1. As you know, the SEC adopted its landmark Regulation Best
Interest and Form CRS requirements less than two years ago. Reg
BI put in place strong protections for investors; for example,
extending investment advice protections to 401(k) rollover
discussions, while seeking to preserve the broker-dealer and
investment adviser business models. I believe it also struck
the right balance in ensuring advice is accessible and
affordable.
What are your preliminary thoughts on the current set of
rules governing investment advice?
If confirmed as Chair, how will you ensure that the
Commission's administration and interpretation of Regulation
Best Interest continue to ensure that small and moderate
balance savers enjoy both the enhanced protections of Reg BI
and access to commission based services?
A.1. When investors turn to financial professionals for advice
and recommendations about their investments, advice that may be
critical to their retirement security or their ability to fund
a child's college education, they deserve advice that serves
their best interests. If confirmed, I will work with my
colleagues and the Commission staff to ensure that the
Regulation Best Interest rule, as interpreted and enforced by
the SEC, lives up to its best interest label.
If confirmed, I would work with our regulatory partners at
FINRA, the states, and Department of Labor to ensure that our
regulations live up to their best interest label and guard
against harmful incentives that may conflict with that
standard.
Q.2. Reg BI became effective in June 2020. Since then, the SEC
has been actively examining firms for compliance and continuing
to issue interpretive guidance. Given these considerations, I
believe it makes good common and practical sense to let Reg
BI's implementation play-out over the course of the next
several years--rather than subjecting it to any significant
modification or even rescission in the near term.
If confirmed as Chair, will you commit to allowing the SEC
to examine the full effect of Reg BI and Form CRS?
A.2. If confirmed, I will work with my colleagues and the
Commission staff to ensure that the standard, as interpreted
and enforced by the SEC, lives up to its best interest label.
Q.3. The Securities and Exchange Commission is a member of both
the Financial Stability Board (FSB) and The International
Organization of Securities Commissions (IOSCO). The FSB is
active on many matters of financial policy given its broad
mandate to promote international financial stability. The FSB's
membership primarily includes central bankers that provide a
macro-perspective; by contrast standard-setters like IOSCO, the
global standard setter for the securities sector, provide more
technical expertise on issues.
In general, what do you believe is the role of
international standard setting bodies like FSB and IOSCO?
A.3. Participation in international standard setting bodies
provides an opportunity for domestic regulators to learn from,
consult with and coordinate on cross border issues with their
counterparts in other jurisdictions.
Q.4. Do you believe the Chair of the SEC has a responsibility
to advocate for the U.S. regulatory and legal structure as part
of the standard-setting process of the FSB and IOSCO?
A.4. Where international standards can contribute to the SEC's
attainment of its mission to protect investors; maintain fair,
orderly, and efficient markets; and facilitate capital
formation, I believe it is the responsibility of the SEC Chair
to engage proactively in conversations with the FSB and IOSCO.
Q.5. What role, if any, do you believe the FSB has in
establishing technical standards, including disclosure
standards, for the securities sector? Do you believe IOSCO is
better equipped to establish standards for the securities
sector?
A.5. Collaboration with international regulators through the
FSB and IOSCO can contribute to the SEC's three part mission.
International standards can help ensure investor access to
consistent, comparable data that they can efficiently integrate
into their investment processes. At the same time, it is
important that any standards for market participants integrate
the unique features of our domestic market, legal and
regulatory infrastructure and the needs of local investors and
issuers.
Q.6. Do you agree that the U.S. is not legally obligated to
adopt any standard developed by the FSB, IOSCO, or any other
international standard setting body?
A.6. Yes, standards are not binding. The SEC can agree to adopt
a standard subject to the scope of the Commission's authority
and the Administrative Procedure Act.
Q.7. Do you agree that if the U.S. were to follow an
international standard that it would be your obligation as the
chair of the Commission to ensure that the SEC first conducts a
sound economic analysis and that the standard is appropriately
tailored so that it is workable and effective in the U.S.?
A.7. If confirmed, I will adhere to the three part mission of
the SEC and the requirements of the Administrative Procedure
Act for all rules promulgated by the SEC. If confirmed, any
rulemaking of the SEC also will take into consideration
economic analysis.
Q.8. A lack of competition among incumbent NRSROs has been
widely documented as contributing to the 2008 financial crisis.
More than 10 years later, as the SEC has noted in its own
annual report, competition is still a barrier to entry into
this market. Some observers have supported proposals to assign
credit ratings on a rotation to existing NRSROs. I am deeply
concerned that this would further decrease competition in the
ratings sector. Promoting competition among NRSROs helps ensure
that investors are protected, and helps prevent the type of
failures in ratings by the incumbents that led to the 2008
crisis.
If confirmed as Chair, will you commit to opposing
proposals that direct ratings business to NRSROs, or that
otherwise suppress competition?
A.8. Promoting competition in the credit ratings agencies, and
more broadly in the capital markets, is critically important to
the SEC's mission. If confirmed, I am committed to working with
Congress, fellow commissioners, and the staff at the SEC to see
how we can support and promote competition among credit ratings
agencies.
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RESPONSES TO WRITTEN QUESTIONS OF SENATOR TILLIS
FROM GARY GENSLER
Q.1. When I asked you about a Financial Transaction Tax during
your confirmation hearing on March 2, 2021, you stated ``I have
not studied it in the way that you are talking about.''
However, in October 7, 2015, CNBC published a story titled
``Clinton's campaign confirmed that the proposal for tax on
high-frequency trading was crafted with input from her campaign
chief financial officer Gary Gensler.'' A separate story
published in Accounting Today on July 14, 2016 quotes you as
saying, ``[the Clinton proposal] is designed to address some of
the concerns that she's had and many other observers have had,
about markets flooded by high-frequency traders . . . ``
Have you indeed studied this issue in the past as evidenced
by the two articles mentioned above?
Will you commit to only making policy statements on issues
you have studied and are grounded in robust cost-benefit
analysis?
A.1. As noted at the hearing, in my preparation, I had not
studied current proposals for financial transaction tax. Six
years ago, I had reviewed a 2015 campaign position related to
possible fees that might be placed on high levels of order
cancellations that might place a burden on the market. If
confirmed, any rulemaking of the SEC will take into
consideration economic analysis and will comply with all
related requirements in the law.
Q.2. When I asked you about a Financial Transaction Tax during
your confirmation hearing on March 2, 2021, your answer was
largely on the collection of Section 31 fees collected by the
SEC to fund its operations. These fees are designed to recover
the costs incurred by the government, including the SEC, for
supervising and regulating the securities markets and
securities professionals. These fees are not for funding
unrelated programs like has been called for by various
legislative proposals. Are you concerned that an FTT could be
used to fund activities that are entirely unrelated to the
efficient functioning of our capital markets?
A.2. Tax policy, and the use of proceeds thereof, is within the
purview of the United States Congress and not within the remit
of the SEC. If confirmed, I will honor the SEC's obligations to
assess and collect Section 31 fees to fund its operations in
accordance with the law.
Q.3. It is imperative that the SEC encourage, not hinder,
diverse avenues for capital formation that facilitate growth in
our capital markets. As the economy continues to recover and
grow coming out of the COVID-19 pandemic, how do you see the
role of the SEC in enabling the vigorous formation of capital?
A.3. SEC rules encourage a vibrant environment where companies
can raise money in both private and public markets, as
appropriate for their particular needs and consistent with
investor protections. Changes in markets, technology, and
capital formation rules may alter the mix of public and private
capital formation over time. If confirmed, I look forward to
working with fellow commissioners and SEC staff, including the
Investor Advocate and Office of the Advocate for Small Business
Capital Formation, to continue to evaluate how to best foster
both public and private forms of capital formation while
protecting investors and maintaining fair, orderly and
efficient markets.
Q.4. In a report issued this January, the U.S. Chamber's Center
for Capital Markets Competitiveness issued recommendations for
promoting innovation in blockchain and digital assets. Do you
agree that more can be done to help to provide clear guideposts
and regulatory clarity for industry participants regarding what
the law requires of them?
A.4. It is critical that regulators and regulations keep pace
with changing technology, and that includes the burst of growth
of new financial technology--including blockchain technology
and digital assets--in the last decade. I have spent the last
several years at MIT studying this field, and I believe
financial technology can be a powerful force for good--but only
if we continue to harness the core values of the SEC in service
of investors, issuers, and the public. If confirmed, I look
forward to working with the CFTC, along with other Federal
regulators and Congress, to facilitate innovation in the
digital asset markets, consistent with established public
policy frameworks.
Q.5. In a recent report, DOJ cited at least 7 Federal
regulatory bodies having overlapping jurisdictional authority
over digital assets (as well as applicable state authorities).
Do you believe a framework for digital assets that more clearly
demarcates the jurisdictional boundaries of applicable
regulatory regimes--taking into account the inherent
characteristics of the different digital assets and the
transactions and activities they are used for--would be helpful
in the U.S.?
A.5. As mentioned in response to Question 4 above, if
confirmed, I look forward to working with the CFTC, along with
other Federal regulators and Congress, to facilitate innovation
in the digital asset markets, consistent with established
public policy frameworks.
Q.6. The Registration for Index Linked Annuities Act calls upon
the SEC to establish an appropriate registration process for
Registered Indexed Linked Annuities (or RILAs) and improve
access to this innovative retirement savings product. This bill
would require that a new form be designed to specifically
register RILAs rather than continue to require the use of forms
designed primarily for equity offerings, requiring the
disclosure of extensive information that is not relevant to
prospective annuity purchasers. Would you commit to have your
staff take a look at what's been proposed the Registered Index
Linked Annuities Act to see if the actions called for in the
legislation can be implemented by the Commission?
A.6. If confirmed, I will look at your legislation to require
the SEC to devise a new form for annuity issuers to use when
filing registered index-linked annuities and work with SEC
staff to see what actions might be taken under existing
authorities to streamline compliance while continuing to
protect consumers. I understand that the information needed for
equity purchasers may be different than for annuity purchasers
given the differing profiles and risks of each of the products.
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RESPONSES TO WRITTEN QUESTIONS OF SENATOR KENNEDY
FROM GARY GENSLER
Q.1. Many companies across the nation already disclose
information for investors and stakeholders in their corporate
social responsibility (CSR) reports. Additionally, companies
utilize a variety of accepted frameworks to report their
disclosure obligations, including the now well-established
Sustainability Accounting Standards Board and the emergent Task
Force on Climate-Related Financial Disclosure, for example.
Can you assure me that you will take into account existing
frameworks as the SEC considers the imposition of additional
disclosure reporting requirements so as to avoid duplication,
prevent unnecessary expenditures, and reporting fatigue?
Can you describe what you believe would be the best course
at the SEC to accomplish that?
A.1. If confirmed, I will examine all existing frameworks for
disclosure with an eye towards minimizing the compliance costs
for issuers while providing investors with the material
information they need to make investment decisions. The best
course for the SEC to accomplish that goal is by taking an
approach that listens to stakeholders and following the legal
obligations for stakeholder feedback that apply under the
Administrative Procedures Act and other laws.
Q.2. I have been very concerned with the SEC's actions
regarding the Consolidated Audit Trail (CAT). Specifically, I
have focused my efforts on the CAT Customer Database, the
largest government database of its kind that will, when fully
operational in 2022, capture all customer and order information
for equity securities and listed options, costing $75 million
annually to run.
This target-rich database will provide more than 3,000
users from the SROs and the SEC with unfettered access to the
CAT customer database, and one can only imagine what foreign
actors will do once this thing begins to capture tens of
millions of records every day and will maintain data on 100
million retail and institutional accounts.
In fact, the hacking of the Solarwinds proprietary network
serves as a very recent and sobering example of exactly what we
know will happen when the Federal Government is at the helm.
This hack is believed to originate in Russia and allowing
hackers to spy on U.S. cybersecurity firms and the Department
of Homeland Security undetected for months.
It would seem to me that the easiest solution here that
protects my constituents in Louisiana and consumers across the
country would be to instead receive the information directly
from the securities firms when needed and in an expeditious
timeframe. The securities industry has proposed this type of
expedited system that would allow the data to stay within
broker-dealers but would be available upon 24 hours-notice.
Why is that not a better, safer approach? Are you prepared
to oversee this database and guarantee it will never be
breached?
A.2. Data breaches are a real concern. We saw that when the
SolarWinds case came to light and I understand that data at a
self-regulatory organization is a target for hackers. I
understand that the SEC under Chairman Clayton adopted rules to
restrict the personally identifiable information in the
Consolidated Audit Trail, namely restricting the dates of birth
and redaction of Social Security numbers, individual taxpayer's
identification numbers, and account numbers. If confirmed, I'd
work with the SEC commissioners and staff to examine remaining
issues, particularly the rule proposed on a unanimous basis
last summer that pertains to data security.
Q.3. Last year, Congress unanimously passed my ``Holding
Foreign Companies Accountable Act'', which delists companies
off the stock exchange if they don't comply with audits by the
Public Company Accounting Oversight Board (PCAOB). These audits
were created to prevent another ENRON and preserve the
integrity of our capital markets system. The SEC has 90 days to
promulgate rules for this legislation which passed back in
December.
A.3. Investor protection is very important to me. The more
information the public has, the better their decision-making
process is.
Q.4. Can you think of any good reason why U.S. investors should
be exposed to fraudulent companies in China or companies that
are arms of the Chinese Communist Party and wish to do harm to
the United States?
Chinese stocks also end up in index funds, and some index
providers have even been pressured by the Chinese government to
include them. Will you commit to examining the conflicts of
interest inherent in the index business that can lead to U.S.
investors being exposed to fraudulent companies, and will you
pressure the exchanges to do more to keep our markets from
importing China's fraud?
A.4. U.S. markets should be free from fraud, including fraud
originating from abroad or from foreign State-owned
enterprises. If confirmed, I will work with the Divisions of
Corporation Finance, Investment Management and Enforcement,
along with the Office of Chief Accountant to ensure that U.S.
investors are not exposed to fraudulent companies, including
those from abroad. I also would look forward to working with
Congress and the PCAOB on the timely and full implementation of
the Holding Foreign Companies Accountable Act.
Q.5. It has now been more than a decade since the collapse of
Stanford International Bank Limited (together with its
affiliates, ``SIB'') and R. Allen Stanford's arrest for
orchestrating the second-largest Ponzi scheme in United States
history. As you know, this $7 billion Ponzi scheme was built on
the backs of ordinary, working-class Americans in states such
as Florida, Louisiana, and Texas. The vast majority of these
individuals have suffered extraordinary pain as their life
savings vanished and they reached retirement age in poverty.
As you may know, the evidence strongly indicates that TD
Bank aided and abetted Stanford's banking outside the United
States. By providing banking services to Allen Stanford without
so much as questioning a single transaction in the face of
Stanford's suspicious activity, TD Bank helped Stanford defraud
thousands of unsuspecting victims.
TD Bank ignored numerous inescapable signs of fraudulent
activity: large round sums leaving Stanford's TD Bank accounts;
actual investment returns that could not support the
unreasonably high CD returns SIB was offering; consistent wire
transfers to accounts maintained by entities other than SIB;
SIB's limited number of Canadian customers; SIB's correspondent
banking services with another North American banking
institution; SIB's location in Antiqua, one of the highest risk
jurisdictions in the world known for money laundering; and
Stanford's declared bankruptcy and designation as a Politically
Exposed Person.
Since the Stanford fraud was exposed, TD Bank has used
every legal maneuver and stall tactic to deny victim
recoveries. Finally, after 12 years of pain and suffering, a
lawsuit in Canada is currently in the trial phase; however, it
is clear that TD Bank is not serious about accepting
responsibility or bringing an end to this longstanding
nightmare. Even if TD Bank loses the Canadian lawsuit, we
expect them to exhaust the appeals process as Stanford victims
continue to struggle. Their conduct has been truly egregious.
As SEC chair, you can play a significant role in helping to
facilitate an end of these victims receive their long-awaited
recoveries.
The SEC also oversees the receiver appointed in this
matter, Ralph S. Janvey. In addition to delivering abysmal
results for long-suffering victims (less than 5 cents on the
dollar), Mr. Janvey and his legal team at Baker Botts LLP
(Baker Botts) have objected to organized victims intervening in
litigation against SIB's correspondent banking partners,
including TD Bank and Societe Generale Private Banking
(SocGen). We were alarmed to learn that the receiver would
object to our constituents retaining their own counsel and
seeking to participate in litigation against major banks--
including TD Bank and SocGen--that appear to have aided and
abetted the Stanford empire.
If confirmed, will you commit to using the tremendous
influence and power of the SEC to help expedite the generation
of meaningful recoveries for victims?
A.5. I am familiar with what happened in the Stanford case and
my heart goes out to all of the victims who lost substantial
shares of their money due to the behavior of Stanford and
others in his criminal enterprise. I know you have worked
diligently to ensure that the receiver charged with resolving
the estate is treating victims responsibly and being a good
steward of resources. If confirmed, I look forward to working
with you on this, including on how to recover any funds outside
of the U.S. in foreign bank accounts that have yet to be
recovered so far.
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RESPONSES TO WRITTEN QUESTIONS OF SENATOR LUMMIS
FROM GARY GENSLER
Q.1. Many companies disclose information for investors and
stakeholders in corporate social responsibility reports.
Additionally, companies utilize a variety of accepted
frameworks to report disclosure obligations including the
Sustainability Accounting Standards Board and the Task Force on
Climate-Related Financial Disclosure.
Can you commit that you will take into account existing
frameworks as the SEC considers the imposition of additional
disclosure reporting requirements, to prevent unnecessary
expenditures and duplicative reports?
Can you describe the concrete actions you will take at the
SEC to ensure this occurs?
A.1. If confirmed, I will examine existing frameworks for
disclosure with an eye towards minimizing compliance costs for
issuers while providing investors with the material information
they need to make investment decisions. The best course for the
SEC to accomplish that goal is by taking an approach that
listens to stakeholders and following the legal obligations for
stakeholder feedback that apply under the Administrative
Procedure Act and other laws.
Q.2. The Commission and staff have stated on numerous occasions
that modernization of the Custody Rule is being studied at
various levels. Can you provide an update on the status of this
study, and approximate dates when it began and a projected
estimate of completion?
A.2. If confirmed, I will work with the Commissioners and staff
to quickly take responsibility for the rulemaking calendar.
Once I have greater insight into all of the ongoing work being
undertaken at the Commission, I look forward to working closely
with Congress and responding to information requests regarding
the substance and timeline of the SEC's work.
Q.3. The Commission took enforcement action against Great
Plains Trust Company, a Kansas chartered non-depository trust
company, in September 2020. As a State-chartered trust company,
the Commission is the secondary regulator, and the Kansas
Office of the State Bank Commissioner is the primary regulator.
In the banking regulatory space, state and Federal regulators
generally always take joint supervisory action, both as a sign
of comity in our State Federal system and the practical fact
that State regulators are the chartering authority and the
Federal regulator provides deposit insurance or supervises
membership in the Federal Reserve System. Will you commit to
always give State regulators confidential notice of pending
enforcement actions, respecting their role as the primary
regulator/chartering authority, and take joint enforcement
actions with State regulators whenever possible?
A.3. When I chaired the CFTC, our Division of Enforcement
worked cooperatively with Federal and State regulators on
enforcement matters, including by sharing confidential
information as permitted by Federal and State laws and as
warranted by the facts and circumstances. I respect the
independent and complementary interests served by the various
Federal and State regulators, including banking regulators, and
believe that enforcement can work best when regulators partner
as appropriate. If confirmed, I will work with the SEC staff to
consider joint enforcement actions with State regulators as
appropriate.
Q.4. State and federally chartered banks are listed in the
Investment Advisers Act and Custody Rule as being eligible
``qualified custodians.'' Both are subject to the same rigorous
bank examination standards. Since Congress listed both in the
Advisers Act, can you commit to always ensuring parity and
equal treatment of national and State banks under our
securities laws, absent direction from Congress?
A.4. I understand that the staff of the Division of Investment
Management issued a statement in November 2020 to ``encourage
interested parties to engage with the staff directly on the
application of the Custody Rule to digital assets, including
with respect to the definition of `qualified custodian' under
the rule.'' This followed the Wyoming Division of Banking's
letter indicating that a Wyoming-chartered public trust company
is permitted to provide custodial services for digital and
traditional assets under Wyoming law. If confirmed, I will look
closely at the comments submitted in response to the Division's
questions and will work with Federal and State banking
regulators to better understand this issue. I believe that
providing access to qualified custodians that can be trusted to
safeguard customer assets is an important goal.
Q.5. As CFTC Chairman, you crafted and implemented post-
financial crisis reforms related to the derivatives market.
These rules have been in place for years and appear to work
well. For example, it is my understanding that the market held
up well in the face of last year's COVID-related disruptions.
At the same time, I understand that the SEC is still in the
process of finalizing its regime. Will you be able to leverage
your previous work and converge the timing and substance of the
SEC rules with existing CFTC rules?
A.5. If confirmed, I will work with fellow Commissioners and
SEC staff to complete all rulemakings directed by Congress.
While serving as the Chairman of the CFTC, we were able to
finalize our congressionally directed rulemakings related to
Title VII in a timely and often bipartisan manner.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR MORAN
FROM GARY GENSLER
Q.1. The Federal Trade Commission (FTC) has proposed to modify
premerger notification requirements under the Hart-Scott-Rodino
Act (HSR) to create an exemption for de minimis acquisitions of
voting securities. The proposal includes some concerning
limitations on the availability of the exemption, as well as an
expansion of the definition of ``person'' in Section
801.1.1(a)(1) to include ``associates.'' These changes could
new complications for the managements of investment funds that
are registered with the Securities and Exchange Commission
(SEC).
Investment funds are already subject to strong regulation
by the SEC that includes disclosure requirements similar to
those sought under the proposed HSR amendments. In fact, such
regulation includes regular reporting through Form 13F reports
(as well as schedule 13D and 13G filings) by investment
managers, which provides transparency into equity ownership by
investment managers across all funds over which a manager
exercises investment discretion. The amendments as proposed by
the FTC would fundamentally alter fund management with overly
burdensome new reporting requirements that would extend far
beyond reporting and impose immense financial costs on
investors. Moreover, as a result of the FTC's proposed
aggregation provision, subsequent delays in finalizing
investment transactions would harm investors who would have
otherwise benefitted from more timely acquisitions or
rebalancing of their accounts.
As Chairman, do you plan to protect the SEC's independence
and regulation of investment funds and products?
Do you agree that the SEC is the primary regulator of
investment funds?
Do you have any concerns for how the FTC's pending
rulemaking would affect investment funds?
Will you commit to engaging with the FTC to advise the
Agency on how the proposed amendments to HSR could negatively
impact retail investors?
A.1. If confirmed, I will work to advance the mission of the
SEC, as an independent agency, to protect investors; maintain
fair, orderly, and efficient markets; and facilitate capital
formation. If confirmed, I look forward to learning from market
participants, you and your staff, and FTC leadership about
issues of interest to both agencies.
Q.2. Something that seems to be getting lost in the recent
narrative about payment for order flow is that investors not
only are getting commission free trades, but they are also
getting better execution quality because the trades are being
executed by wholesalers that provide price improvement. The
wholesalers have a duty of best execution and are subject to
comprehensive disclosure requirements about the quality of
their executions--duties they are obligated to fulfill
regardless of whether they pay for order flow or not. Do you
agree that retail investors benefit from a competitive trading
environment in which wholesalers are incentivized to get the
best price for every trade?
A.2. Markets--and technology--are constantly changing. Payment
for order flow, along with other aspects of U.S. equity market
structure, raises a number of policy questions, including
whether and how it enables best execution for investors; its
role in growing concentration in market making; and its effects
on fair, orderly and efficient markets. If confirmed, I would
work with fellow Commissioners and SEC staff along with hearing
from market participants to examine market structure issues
holistically as these issues are highly interrelated.
Q.3. The GameStop episode has spurred significant debate over
shortening the settlement cycle from T+2 to T+1, or even T+0.
What are your views on whether the settlement cycle should
be shortened and what the right solution is?
While it may be a convenient soundbite to call for a
shorter settlement cycle, there will certainly be significant
costs associated with an acceleration, and those costs and
benefits may differ by type of participant. Market participants
will have to invest in new technologies and compliance costs
will be significant. How do you view the cost/benefit analysis
of moving to a shorter cycle?
A.3. There are several parties, from DTCC to the SEC's Investor
Advisory Committee, that have recommended shortening the
settlement cycle in order to reduce risk and costs in the
system. This will be an important area for the Commission to
examine and, if confirmed, I would plan to explore the
possibility of shortening settlement cycles.
There could be significant risk reduction and cost benefits
to potentially shortening the settlement cycle, but as with
many policy choices, there would be some potential tradeoffs.
If confirmed, I would discuss the matter with fellow
commissioners, SEC staff, and relevant stakeholders along with
considering appropriate economic analysis on costs and
benefits.
Q.4. Over the past several years, the SEC has made great
strides in modernizing the infrastructure of our national
market system, particularly with respect to the provision of
market data and access to the markets. For example, the SEC
streamlined and introduced governance enhancements to dated
national market system plans governing the dissemination of
market data, and expanded the nature and scope of data that the
exchanges are required to make available to all investors.
Will you commit to continuing to prioritize market
structure enhancements aimed at reducing the barriers to access
to markets and market data if you are confirmed as Chairman?
A.4. Market structure issues are complex and highly
interrelated. Markets--and technology--also are constantly
changing. The overall U.S. equity market is a critical national
asset that provides a vital mechanism for capital formation for
firms and individuals; investment opportunities for Main
Street; and economic growth. If confirmed, I will work with
fellow commissioners, SEC staff and hear from market
participants to examine market structure issues holistically in
furtherance of the SEC's three part mission and ensure that the
U.S. capital markets remain the best in the world.
Q.5. While I agree that investor protection is one of the most
critical aspects of the SEC's mission, I worry about the use of
the enforcement and examinations process to shape the
securities laws outside of the rule making process. Will you
commit today that you will respect the integrity of the
administrative law framework and refrain from using
investigations and examinations to establish de facto
regulations?
A.5. I understand the unique role of guidance and regulation
and the obligations that apply under the Administrative
Procedure Act, the Congressional Review Act and other
applicable laws. Providing the public and interested
stakeholders with the opportunity for notice and comment as
well as the other due process protections that apply is
essential for good policymaking. Enforcement actions also
should and must be brought when there is a violation of law.
Q.6. There has been a lot of discussion about the SEC playing
an important role on climate and ESG issues in the Biden
administration. Given the tools available to the SEC, it seems
that enhanced issuer disclosure requirements are some of the
lowest hanging fruit for reforms in this area.
Can you provide an overview of your climate and ESG
priorities in other areas? For example, do you foresee
prioritizing any ESG initiatives related to the trading
ecosystem or market structure?
A.6. The Commission under Acting Chair Lee has announced a
number of changes to how it deals with ESG in recent weeks. If
confirmed, I will examine existing frameworks for disclosure
with an eye towards minimizing compliance costs for issuers
while providing investors with the material information they
need to make investment decisions. If confirmed, I look forward
to engaging with fellow Commissioners and the SEC staff to
learn what has already been completed, what additional actions
are under consideration, and whether any rulemakings are being
considered.
Q.7. The U.S. capital markets are constantly growing and
evolving, and it is now more critical than ever for regulators
like the SEC to work collaboratively with market participants
to get the expertise needed to regulate smartly, and to
understand the incentives, costs, and benefits of participating
in the markets so that the best interests of investors are
served. At a large agency like the SEC, much of this
collaborative work is carried out by the staff, and I am sure
you agree that it is of critical importance that the staff have
an open door policy in terms of interacting with market
participants in carrying out the business of the agency.
Will you commit to prioritizing staff engagement with the
industry participants and investors during your tenure?
A.7. Yes, I will prioritize active engagement with stakeholders
with an interest in the mission of the SEC.
Q.8. Earlier this year, for the first time ever, trading volume
on off-exchange venues surpassed trading on exchanges. The
proliferation in alternative trading venues is the byproduct of
technological advances in our market's infrastructure that has
resulted in better price discovery and superior execution
quality for investors. During your tenure at Chairman of the
CFTC, you were a vocal supporter of directing more trading to
regulated platforms with transparency, including SEFs and
Exchanges. The equity market has a number of differences from
futures, including immediate post trade transparency through
trade reporting, requirements that off exchange trades comply
with the order protection rule of Regulation NMS, post trade
transparency thru public FINRA reporting. This has resulted in
a market structure where there is high execution quality, and
investors have choices, within these important rules, as to how
to execute.
Please elaborate on your views relating to on-exchange vs.
off-exchange in the equities markets. And will you commit to
supporting innovation in all trading venues to the extent that
they facilitate better execution quality for investors?
A.8. If confirmed, I will look to find ways to support
innovation in trading venues that leads to better execution
quality for investors. At the CFTC, we worked to increase the
transparency in the previously unregulated swaps market. In the
equities markets, we already have existing market exchanges and
off-exchange trading venues. If confirmed, I look forward to
engaging with fellow commissioners, the SEC staff and market
participants to see if there are ways that equity market
trading can be improved.
Q.9. The consortium charged with running the CAT recently
sought approval from the SEC to shift liability for harm caused
by data breaches or other cyber incidents to market
participants like broker-dealers who are required to report
data to the CAT but otherwise have no control over the data
once it is reported. I am sure you agree that this creates a
perverse set of incentives, where the controller of the data
has no ``skin in the game'' from a liability perspective and
therefore less incentive to protect the sensitive data it
controls.
Will you commit to studying this proposal very carefully
and to ensure that liability is assigned to the entity that
controls the reported data?
A.9. If confirmed, I look forward to studying this proposal
carefully and to engaging with the consortium charged with
running the CAT.
Q.10. The Consolidation Audit Trail (CAT) involves the
collection of the personal and financial information of every
single American investor (PII). This information would be
stored in a centralized database in that will be an easy, high-
value target for Russian and Chinese hackers to infiltrate our
markets and steal the identity of innocent Americans. There is
minimal justification for the SEC or anyone else to collect
this sensitive information as the CAT can be just as effective
without storing everyone's home address and social security
number.
Will you commit to removing the requirement that retail
investor PII be collected as the SEC moves forward with
implementing the CAT?
A.10. I understand that the SEC under Chairman Clayton adopted
rules to restrict the personally identifiable information in
the Consolidated Audit Trail, namely restricting the date of
birth and redaction of Social Security numbers, individual tax
identification numbers, and account numbers. If confirmed, I'd
work with the SEC commissioners and staff to examine remaining
issues, particularly the rule proposed on a unanimous basis
last summer that pertains to data security.
Q.11. Over the past few years, there have been a number of
instances where the major Exchange groups have chosen to take
the Commission to Court to challenge various rulemakings. In
most of those situations, market participants have been
supportive of the SEC rulemaking. What is your view on how to
balance the role of the Commission to engage in rulemaking to
improve market structure with the recent litigious actions of
for profit exchanges?
A.11. While not commenting on any current or pending litigation
that involves the SEC, I am a strong believer in the importance
of engaging with industry participants and other key
stakeholders during the regulatory process. It is important
that the views of key market participants be taken into account
in key policy decisions.
Q.12. Would you agree that maintaining private market
investments in the economy is important to facilitating the
post-COVID economic rebound?
A.12. Yes.
Q.13. Would you agree that businesses in public markets and
businesses in private markets are, and should continue to be
subject to differentiated regulatory and reporting structures,
due to a variety of factors including types of investors that
are permitted to invest in these businesses?
A.13. Yes.
Q.14. Would you agree that the SEC could not propose treating
public companies and private companies as if they are the same
thing without legislation specifically authorizing the SEC to
undertake such a radical change in law?
A.14. If confirmed, I would seek the advice and counsel of the
SEC's attorneys, including in the Office of General Counsel, on
the treatment of public and private companies under the
securities laws. I would follow the requirements of the SEC's
authorizing statutes regarding this, as with all matters.
Q.15. The U.S. capital markets are the finest in the world.
American investors and firms also benefit from cross border
access to global markets.
How are you viewing the cross border landscape today
compared to your time serving as Chairman of the CFTC?
Will you be willing to work with counterparts in other
jurisdictions to preserve cross border access to financial
markets?
A.15. When I was Chair of the CFTC from May 2009 to January
2014, the U.S. and the world were still in the initial stages
of responding to the financial crisis. The United States was at
the leading edge of establishing a new legal framework to
regulate these previously dark markets. Today, many countries
have made progress toward building a financial regulatory
regime, often modeled off of the progress made in the United
States.
If confirmed, I would be eager to work with counterparts in
other jurisdictions to support appropriate cross-border access
to financial markets as required by U.S. law.
Q.16. In 2012 during your tenure as CFTC Chair, you were one of
the early proponents for replacing LIBOR with a more robust
benchmark anchored in actual and transparent market
transactions. This transition process is well underway, with
regulators around the world stating that market participants
need to be prepared for the day in which LIBOR is no longer
published or available to be used by market participants. More
robust reference rates have been developed, launched and are
now in use. In the derivatives markets, for example, nearly 70
percent of the notional outstanding of uncleared swaps have
adopted contractual language for switching to these reference
rates.
Could you describe what your approach would be with SEC-
regulated financial institutions which have not yet made the
transition?
A.16. As I understand it, the transition to a new benchmark
rate away from LIBOR is being led by the Federal Reserve Board
and New York Federal Reserve Bank in consultation with other
financial regulators, including the SEC. Many of the financial
institutions that are affected by the transition are regulated
by the SEC along with other regulators, including the Federal
Reserve.
If confirmed, I look forward to working with my fellow
regulators to assist this transition and plan to engage with
the Federal Reserve Board and New York Federal Reserve Bank to
see what the SEC can do to facilitate the transition broadly
across the financial sector.
Q.17. I am concerned that the SEC's Enforcement Division is
basing enforcement actions on previous settlements and staff
guidance (which do not create legal precedent) as opposed to
undertaking a transparent rulemaking process. In your view,
when the SEC determines there is a widespread industry practice
that could be a violation of, for example, the Investment
Adviser Act, how should it decide whether to engage in
enforcement action, the issuance of guidance, or a rulemaking?
A.17. I understand the Commission's statutory obligations for
rulemaking under the Administrative Procedure Act. Guidance and
no-action letters also can play an important role in getting
timely information out to market participants that provides
clarity and reduces compliance costs. Which of these tools to
use depends on context-specific questions regarding a
particular issue or matter.
Q.18. Regarding digital assets native to various blockchain
technologies, there appears to be some market uncertainty about
the application of the U.S. Securities Laws here generally, and
to individual digital assets in particular. Some of this
confusion relates to the method in which capital is originally
raised to develop blockchain protocols, applications and the
digital assets themselves when compared to the eventual utility
of these digital assets once related protocols or applications
are developed and launched. Multiple members of the Commission
have commented on this potential digital asset dichotomy of
representing a security at one point in time and later no
longer falling within the jurisdiction of the Securities Laws.
Also, concerns about the Commission's regulatory stance and its
concomitant negative effect on the role of U.S. business in
international digital asset innovation and prominence has
become so acute that the U.S. Chamber of Commerce recently
called for the SEC to provide a clear pathway to non-security
status for nascent digital assets.
Would you describe generally your plan to bring regulatory
clarity to the application of the U.S. Securities Laws to
digital assets?
A.18. I have spoken before of the potential of blockchain
technology and cryptocurrencies to serve as a catalyst for
change. To the extent that someone is offering a crypto token
which is an investment contract or security that's under the
SEC's remit, the SEC has a responsibility to ensure investors
are adequately protected. The Supreme Court has defined such
investment contracts to include arrangements in which ``a
person invests his money in a common enterprise and is led to
expect profits solely from the efforts of the promoter or a
third party.'' If confirmed, I will follow the law regarding
whether a cryptocurrency is a security. Some cryptocurrency
tokens have been deemed to be solely a commodity, as Bitcoin
has been, and are within the purview of the CFTC. As
cryptocurrency technology evolves, it's important to stay true
to our principles of investor protection and at the same time,
be technology neutral.
Q.19. The CFTC has traditionally held antifraud and
antimanipulation enforcement authority over markets for
transactions that are actual purchases of a commodity, also
referred to as ``spot markets.'' The CFTC has broadly asserted
this authority over digital asset markets generally.
Do you foresee that status quo continuing with regard to
cryptocurrency spot markets?
Will you explain your vision for how regulation of these
markets may evolve and what regulatory innovations may be
necessary to differentiate digital asset commodity markets from
digital asset security markets to support that evolution?
A.19. It is critical that regulators and regulations keep pace
with changing technology, and that includes the burst of growth
of new financial technology--including cryptocurrencies--in the
last decade. I have spent the last several years at MIT
studying this field, and I believe financial technology can be
a powerful force for good-but only if we continue to harness
the core values of the SEC in service of investors, issuers,
and the public. If confirmed, I look forward to working with
the CFTC, along with other Federal regulators and Congress, to
facilitate innovation in the digital asset markets, consistent
with established public policy frameworks.
Q.20. The first exchange rule filing to list and trade a
bitcoin ETP was submitted by Cboe (then Bats) for SEC review in
June 2016 and was disapproved in March 2017 on the basis that
there was not a ``significant, regulated market'' underlying
the proposed ETP. The SEC has disapproved a number of
additional proposals since 2017 that have tried to address the
``significant, regulated market'' concerns in various ways,
most recently in February 2020. In the past year since the last
disapproval, the price of bitcoin has increased approximately
five-fold and the regulated bitcoin futures market on Chicago
Mercantile Exchange has grown significantly. Meanwhile
investors have pushed assets into lightly regulated OTC bitcoin
funds, the largest of which has grown from approximately $2.5
billion to approximately $35 billion in assets despite the
significant premium volatility in these products (regularly
ranging from 5 percent to 40 percent) causing risk above and
beyond the volatility of bitcoin. Approval of a bitcoin ETP
would essentially eliminate any premium (and thus the premium
volatility) and provide investors access to bitcoin exposure
through a transparent, regulated vehicle.
I understand a new proposal was submitted to the SEC this
week to allow for a bitcoin exchange traded fund (ETF). Will
you generally support bringing these types of funds to market
so that investors can get bitcoin exposure in a familiar
wrapper which trades in a well-regulated marketplace?
A.20. Without prejudging any specific proposals that I may or
may not consider at the Commission, if confirmed, I look
forward to learning more about nascent products such as these
and to discussing the staff's regulatory decisions on these
matters over the preceding few years.
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RESPONSES TO WRITTEN QUESTIONS OF SENATOR CRAMER
FROM GARY GENSLER
Q.1. Many publicly traded companies have been besieged by
hostile activist actions at shareholder meetings and in
response to these abusive actions last fall the SEC finalized
much needed modernizations and amendments to section 14a-8 of
the Exchange Act Rule. These amendments will prevent
environmental fringe groups from commandeering shareholder
meetings to pass resolutions aimed at pushing a political
agenda. It's a win for our energy producers who have been the
victims of such attacks. Do you plan to support efforts to roll
back these common sense reforms during your term on the SEC?
A.1. Shareholders are the owners of the companies in which they
invest. In advancing its 14a-8 proposal last year, the
Commission heard from investors concerned about their ability
to engage in shareholder democracy as well as issuers concerned
about the consequences for capital formation. If confirmed, I
will discuss the issue with Commissioners, SEC staff and other
stakeholders to evaluate how the SEC should approach this
issue.
Q.2. Many companies across the nation already disclose
information for investors and stakeholders in their corporate
social responsibility (CSR) reports. Additionally, companies
utilize a variety of accepted frameworks to report their
disclosure obligations including the now well-established
Sustainability Accounting Standards Board and the emergent Task
Force on Climate-Related Financial Disclosure, for example.
Can you assure me that you will take into account existing
frameworks as the SEC considers the imposition of addition
disclosure reporting requirements so as to avoid duplication,
prevent unnecessary expenditures and reporting fatigue?
Can you describe what you believe would be the best course
at the SEC to accomplish that?
A.2. If confirmed, I will examine existing frameworks for
disclosure, including those you mention, with an eye towards
minimizing any compliance burden for issuers while providing
investors with the material information they need for
investment decisions. The best course for the SEC to accomplish
that goal is by taking an approach that listens to stakeholders
and following the legal obligations for stakeholder feedback
that apply under the Administrative Procedures Act and other
laws.
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RESPONSES TO WRITTEN QUESTIONS OF SENATOR DAINES
FROM GARY GENSLER
Q.1. During your confirmation hearing on March 2, 2021, you
stated ``I think that it does bring efficiency to many pension
to have proxy advisers. It's a service that helps pension funds
and investors through the proxy season.'' According to the 2020
Proxy Season Survey, conducted by the U.S. Chamber of Commerce,
Only 44 percent of the companies responding believe that proxy
advisory firms carefully research and consider all relevant
aspects of a particular issue on which it provides advice,
higher than in both 2019 and 2018 (39 percent both years).
Would you have concerns if pension funds, or other
institutional investors, relied on advice that is not based on
careful research?
Could pension funds, or other institutional investors,
theoretically be sacrificing returns on their investments if
relying on advice that is not based on careful research?
Would pension funds, or other institutional investors,
potentially be in breach of their fiduciary responsibilities if
they relied on advice that is not based on careful research?
How would you approach the question of ``efficiency'' when
weighing the costs and benefits of outsourcing research to
proxy advisory firms when considering a rulemaking or guidance
for proxy advisory firms?
A.1. Proxy advisory research is one tool used by investment
advisers in making voting decisions on behalf of clients.
Investment managers often supplement research from proxy firms
with their own in-house research and analysis. If confirmed,
working with fellow commissioners and SEC staff, we would need
to be careful that the research provided by proxy advisory
firms is not subject to conflicts of interest, as that may
undermine the quality of research used by shareholders in the
exercise of their voting rights. Further, we also would want to
be mindful not to impose undo costs on fiduciaries. Finally, I
believe that economic analysis is an important consideration in
crafting regulations and that that analysis should include both
the costs and benefits to the regulated entities and on
investors.
Q.2. A foundational principle of U.S. securities law is the
materiality standard, which helps protect investors by
filtering out irrelevant information. Deviation from the
principle of materiality is costly to public companies and does
not serve the public interest. It is for this reason that I was
troubled by your exchange with Ranking Member Toomey on the
concept of materiality during the hearing on Tuesday, March 2,
2021.
Using the hypothetical situation posed by Ranking Member
Toomey, could you elaborate on when, with regard to a publicly
traded company spending a financially insignificant amount of
money on electricity, it would be material whether or not that
electricity came from renewable sources?
A.2. The Supreme Court has held that information is material if
there is a substantial likelihood that a reasonable investor
would view that information as having a significant impact on
the ``total mix'' of information disclosed. If confirmed, the
law will guide my consideration of policies that come before
the Commission related to disclosure. As the Supreme Court has
determined, there are not simple monetary thresholds to
determine materiality, which is a nuanced and case specific
standard.
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RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN BROWN
FROM ROHIT CHOPRA
Q.1. Where have you excelled in past positions in hiring and
promoting people of color? Where is there room for improvement?
A.1. Racial inequality is reinforced and exacerbated by
workplace racism in both the public and private sectors. From
black-box algorithms that fail to show employment ads to
minority candidates to hiring practices that undervalue degrees
from historically Black colleges and universities to promotion
policies that give managers the discretion to discriminate,
there is still much work to do to ensure everyone has equal
access to opportunity.
While I have been fortunate to work with, hire, and
advocate for many exceptional people of color, I believe that
each of us must take more personal responsibility for
transforming workplace cultures into ones that address
discriminatory practices, particularly in hiring and promotion.
Q.2. In August 2011, President Obama issued an Executive Order
establishing a coordinated, Governmentwide initiative to
promote diversity and inclusion in the Federal workforce. The
executive order reads, in part, that ``Attaining a diverse,
qualified workforce is one of the cornerstones of the merit-
based civil service . . . . To realize more fully the goal of
using the talents of all segments of society, the Federal
Government must continue to challenge itself to enhance its
ability to recruit, hire, promote, and retain a more diverse
workforce. Further, the Federal Government must create a
culture that encourages collaboration, flexibility, and
fairness to enable individuals to participate to their full
potential.'' The order required each agency to establish an
agency-specific diversity, equity, and inclusion strategic plan
with specific objectives.
A.2. I am committed to the goals of Executive Order 13583 and,
if confirmed, would work to further these goals.
Q.3. Please describe your commitment to diverse hiring at the
Consumer Financial Protection Bureau (CFPB). Will you review
and update the CFPB's diversity, equity, and inclusion
strategic plan to ensure it contains specific objectives?
A.3. The United States Government should strive to be as
diverse as the people we serve. If confirmed, I would work with
CFPB staff to review this plan and make appropriate updates so
that it is concrete and actionable.
Q.4. Will you commit to establishing a system for reporting
regularly on the CFPB's progress in implementing an agency-
specific diversity, equity, and inclusion strategic plan and in
meeting the objectives under the plan?
A.4. Yes.
Q.5. Will you commit to transparency on workplace policies,
salaries, and benefits? What is your plan for implementing
these policies?
A.5. Yes. If confirmed, I would work with CFPB staff on this
issue.
Q.6. What are some short- and long-term strategies for
addressing disparities in the consumer financial products and
services markets and financial literacy?
A.6. It is critical that our financial system works for all
Americans. In the short-term, particularly during the pandemic,
it is critical that consumers can access credit and be free
from unlawful discrimination. Over the long-term, it is
critical that the CFPB and other regulators monitor markets
carefully to get ahead of emerging threats, particularly those
that harm the most vulnerable consumers.
Q.7. Have you previously implemented and required diversity,
equity, and inclusion training for all employees and implicit
bias training for managers within your purview?
Will you commit to implementing and requiring diversity,
equity, and inclusion training for all employees within your
purview? What is your plan for implementing these trainings?
A.7. In many of my past employment experiences, I have
participated in or implemented certain enterprisewide training
opportunities within my business unit. If confirmed, I would
work with CFPB staff to assess any existing trainings and
ensure any training opportunities are designed and implemented
with the goal of promoting a safe work environment for all
employees.
Q.8. Will you commit to implementing and requiring implicit
bias training for managers within your purview? What is your
plan for implementing these trainings?
A.8. If confirmed, I would seek to understand any training for
managers and gather information on its effectiveness. I am
committed to making the appropriate changes to these programs
and making them mandatory, consistent with law and regulation.
Q.9. Please describe how you view the role of CFPB Director in
appropriately serving BIPOC? How do you view the CFPB's role in
furthering racial equity?
A.9. The CFPB Director must ensure the actions of the Bureau
meaningfully promote the financial well-being of historically
underserved and disadvantaged communities.
Q.10. Please list at least 3 specific areas of focus/priorities
for advancing racial equity, diversity, and inclusion at the
CFPB. What specific measures will you use to evaluate success
in these areas, and over what period of time?
A.10. If confirmed, I would work with CFPB staff to identify
the ways to advance these goals. Three likely areas of focus
include: (a) addressing homeowner distress in the mortgage
market stemming from the pandemic that disproportionately
impacts communities of color, (b) ensuring adequate oversight
of institutional compliance with the Equal Credit Opportunity
Act and other appropriate Federal consumer financial laws, and
(c) ensuring that the CFPB has appropriate systems and
processes in place to better understand how business practices
might disproportionately harm communities of color.
Q.11. Please describe how you plan to work with and engage the
consumer finance sector to serve BIPOC and dismantle systemic
racism's impact in those sectors? How, specifically, will you
hold the industry accountable on these issues? How will you
accelerate private sector efforts to achieve more inclusive
leadership?
A.11. The most important way that the CFPB can seek to address
these issues in the consumer finance sector is to hold
accountable any entities violating Federal consumer financial
laws. If confirmed, I would support efforts to carefully assess
how the use of machine learning and algorithmic decision-making
can reinforce biases, rather than reduce them. With respect to
any private sector efforts to achieve more inclusive
leadership, I would work closely with the CFPB's Office of
Minority and Women Inclusion on the standards developed
pursuant to section 342(b)(2)(C) of the Dodd-Frank Act.
Q.12. How do you plan on incorporating the views and work of
the Office of Minority and Women Inclusion and the Office of
Fair Lending across the CFPB?
A.12. If confirmed as CFPB Director, I expect that the Office
of Minority and Women Inclusion and the Office of Fair Lending
& Equal Opportunity will play significant roles in the work of
the agency.
For example, I anticipate the Office of Fair Lending &
Equal Opportunity will be involved in identifying how all of
the CFPB's tools can advance the goal of equal opportunity,
both including and beyond the Equal Credit Opportunity Act and
the Home Mortgage Disclosure Act.
Q.13. The CFPB has outside advisory councils and task forces
comprised of industry leaders, academics, nonprofits, and other
stakeholders. They serve as volunteers but have significant
influence being appointed by and working closely with you.
Should your agency be judged by its success in populating these
groups with more diverse advisors on these councils and task
forces, and if so, over what period of time?
A.13. It is critical that the CFPB hear from a diverse set of
stakeholders, and if confirmed I would work to ensure diverse
representation.
Q.14. What specific measures will you use to evaluate the
CFPB's success in understanding and addressing the needs of
BIPOC? Will you regularly report to Congress on the progress
being made on these measures?
A.14. If confirmed, I am committed to rigorous market
monitoring. For example, if the CFPB uncovers evidence that
certain groups are being excluded from housing opportunities
based on faulty tenant screening reports, it is critical we use
every tool in our toolbox to halt unlawful conduct. I will
commit to providing Congress information regarding our
progress.
Q.15. An agency's budget reflects its values and goals. How do
you plan to allocate and sufficiently resource internal and
external efforts to advance DEI as part of the agency's annual
budget process? How will you ensure sufficient financial
support for the agency-specific diversity, equity, and
inclusion strategic plan to ensure you are able to meet the
objectives established under that plan in a reasonable time
period?
A.15. I am committed to doing everything in my power to ensure
that the market for financial services is fair, accessible to
all, and nondiscriminatory. If confirmed, I would work with
CFPB staff in the budget process to ensure that the CFPB's
Office of Fair Lending & Equal Opportunity, Office of Minority
and Women Inclusion, and Office of Civil Rights each has
sufficient resources to carry out their important missions.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR TOOMEY
FROM ROHIT CHOPRA
Q.1. Access to Small Dollar Credit--Small dollar loans are not
sold on a secondary market, and they pose no threat to
financial stability. The regulation of small dollar loans
essentially boils down to whether consumers can be trusted to
make their own decisions about what credit they need and what
they are willing to pay for it. Do you believe that consumers
are more capable than regulators of understanding their own
needs and deciding what is best for them?
A.1. It is not the job of regulators to make decisions for
consumers. The Dodd-Frank Act requires that the agency monitor
and oversee markets, so that consumers can make choices in a
competitive environment.
Q.2. In 2017, the CFPB under former Director Richard Cordray
issued a rule on small dollar loans that would have virtually
eliminated the small dollar loan industry. In 2019, the CFPB
revoked this rule. It noted that the 2017 rule would have wiped
out 89-93 percent of all covered loans. Many consumers have no
other option when there is a sudden expense that must be paid.
The demand for these products will not disappear, even if the
products do. Do you acknowledge that the 2017 rule on small
dollar lending would have the effect of eliminating the vast
majority of small dollar loans?
A.2. Although I have not personally reviewed this data, I would
work with CFPB staff on this important issue if confirmed. I am
also aware that this rule is currently subject to active
litigation.
Q.3. Do you think that the CFPB should take choices away from
consumers and make it harder to access options for small dollar
credit, including payday, title, and installment loans? Do you
agree that doing so would leave consumers worse off?
A.3. I believe consumers benefit from having a wide range of
choices in a market free of unlawful practices.
Q.4. Will you commit to leave the 2019 rule on small dollar
lending in place? If not, what factors will affect your
consideration?
A.4. I do not want to prejudge any specific agency actions,
but, if confirmed, I will carefully consider the impact on
consumers and access to credit with regards to any regulatory
action by the CFPB. I am also aware that this rule is currently
subject to active litigation.
Q.5. Congressional Review Act (CRA)--The CFPB issued a rule
under former CFPB Director Cordray that prohibited predispute
arbitration agreements. However, the CFPB's own study on the
issue showed substantial evidence that such agreements benefit
consumers. In the 158 arbitration cases analyzed, the average
award was $5,400, compared to an average award of just $32 in
class action cases. \1\ In Federal class action cases that
settled, the CFPB found that trial lawyers received $424
million--or approximately 24 percent of the total cash payments
companies made to settle the claims. Knowing this, Congress
enacted into law a CRA resolution rescinding the rule. Absent
new legislation, the issue of predispute arbitration agreements
is closed. I am concerned that the CFPB will try to ban a
subset of predispute arbitration clauses and evade the clear
directive from Congress. Will you commit that the CFPB will not
attempt to issue a rule that prohibits any type or form of
predispute arbitration agreements?
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\1\ https://files.consumerfinance.gov/f/201503-cfpb-arbitration-
study-report-to-congress-2015.pdf
A.5. Under the Congressional Review Act, 5 U.S.C. 801(b)(2), I
understand that the CFPB cannot reissue the arbitration rule in
``substantially the same form,'' and cannot issue a new rule
that is ``substantially the same.'' If confirmed, I will ensure
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that the CFPB follows the law.
Q.6. Fair Debt Collection Practices Act (FDCPA)--Congress gave
the CFPB authority to regulate third-party debt collectors
under the FDCPA. In 2020, you issued a statement in a Federal
Trade Commission (FTC) case (In the Matter of Midwest Recovery
Systems) in which you suggested a significant expansion of the
CFPB's regulatory authority in a manner that would directly
contravene congressional intent and create substantial market
uncertainty. Specifically, you suggested that the CFPB should
subject first-party creditors (i.e., creditors collecting on
debts owed to them) to its debt collection rules. Of course, as
the CFPB itself recognizes, the FDCPA does not cover the
collection activities of first-party creditors. This reflects a
decision by Congress regarding the appropriate scope of debt-
collection restrictions. While Congress has the power to
revisit that decision, the CPFB does not. On what basis do you
believe the CFPB has the authority to issue a rule (whether
framed as an FDCPA, unfair, deceptive, or abusive acts or
practices (UDAAP), or other rule) that would circumvent the
clear limitations Congress embedded in the legislative
framework governing debt collection?
A.6. My statement in Midwest Recovery Systems did not concern
the scope of the FDCPA, but rather the sale of counterfeit debt
and related problems. The CFPB has challenged problematic
practices by first-party creditors in a number of enforcement
matters. For example, in 2015, the CFPB, 47 States, and the
District of Columbia charged JPMorgan Chase with unlawfully
selling bad credit card debt and illegally robosigning court
documents.
Q.7. In addition, the Small Business Administration's Office of
Advocacy has warned that ``[u]sing the Bureau's UDAAP authority
creates uncertainty and legal risk for first party creditors.''
\2\ There are significant business model differences between
first- and third-party creditors, which the CFPB has
recognized, as well as different regulations applicable to such
creditors. Consumers have ongoing relationships with first-
party creditors, and collecting unpaid debts is usually only an
ancillary function of their business. In light of these
important differences between first- and third-party creditors,
why do you believe such an expansion of the CFPB's regulations
would be warranted?
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\2\ https://cdn.advocacy.sba.gov/wp-content/uploads/2019/09/
19153425/Debt-Collection-Comment-Letter-Sept-2019-Final-pdf1.pdf./
A.7. I am not prejudging any regulatory action. If confirmed, I
would explore these concerns and seek to understand any impact
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on small businesses.
Q.8. Innovation--In 2019, the CFPB finalized three policies to
promote innovation and reduce regulatory uncertainty: the No-
Action Letter Policy, the Compliance Assistance Sandbox Policy,
and the Trial Disclosure Program Policy. These policies
collectively facilitate compliance and allow regulated entities
to bring new products and services to consumers more quickly.
What are your views on these policies? Do you intend to retain
them if confirmed as CFPB Director?
A.8. I am a strong believer in promoting competition. In my
work at the Federal Trade Commission, I have repeatedly
expressed concerns about the difficulties that many new
businesses face when it comes to competing against dominant
players.
A competitive and innovative financial sector is critical
for our economy and our global competitiveness. If confirmed, I
am committed to working with CFPB staff to identify ways that
the Bureau can further the efforts of promoting a competitive
marketplace that incentivizes consumer-friendly innovation.
Q.9. Last year, the CFPB took another positive step toward
providing clarity and reducing regulatory uncertainty by
finalizing a new policy on advisory opinions. Under this new
framework, institutions seeking to comply with regulatory
requirements can submit a request to the CFPB, which will issue
opinions on such requests. The CFPB has issued three advisory
opinions under this policy regarding private education loans,
earned wage access programs, and special purpose credit
programs. What are your views on these opinions? Do you intend
to retain them if confirmed?
A.9. Advisory opinions can be a useful tool in the Bureau's
toolkit to develop legal interpretations. I do not have access
to all of the underlying data and analysis used to develop
these advisory opinions. If confirmed, I would work with CFPB
staff on any future advisory opinions.
Q.10. Will you commit to continuing to offer advisory opinions
and no-action letters?
A.10. While I do not want to prejudge any particular regulatory
action, if confirmed, I would work with CFPB staff on ways to
use all of the agency's tools to advance the Bureau's mission
to protect consumers and promote competition.
Q.11. Are there other ways that you believe the CFPB can
encourage financial innovation?
A.11. I believe we can spur innovation by ensuring markets are
competitive, and there are many ways to do so. For example,
Congress enacted section 1033 of the Dodd-Frank Act regarding
consumer rights to access information, and I am interested in
ways that implementation of this section can lead to more
competitive markets. If confirmed, I would work with CFPB staff
to identify all of the ways that the Bureau can further the
efforts of promoting a competitive marketplace that
incentivizes consumer-friendly innovation.
Q.12. CFPB officials have recognized that artificial
intelligence (AI) ``has the potential to expand credit access
by enabling lenders to evaluate the creditworthiness of some of
the millions of consumers who are unscorable using traditional
underwriting techniques.'' \3\ Do you agree with this
assessment? If confirmed, will you encourage the use of AI in
credit underwriting?
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\3\ https://www.consumerfinance.gov/about-us/blog/innovation-
spotlight-providing-adverse-action-notices-when-using-ai-ml-models/
A.12. Automated decision-making is reshaping business processes
across sectors of the economy. During my time as a
Commissioner, the FTC hosted a hearing on Competition and
Consumer Protection Issues of Algorithms, Artificial
Intelligence, and Predictive Analytics that included a number
of perspectives. While artificial intelligence offers promise,
it also raises important questions about the transparency of
decision-making and the accuracy of algorithmic outcomes. If
---------------------------------------------------------------------------
confirmed, I am committed to carefully examining this issue.
Q.13. Government-Sponsored Enterprise (GSE) Patch--CFPB issued
a new Qualified Mortgage Rule in 2020 that, after a July 1,
2021, compliance date, would have replaced the existing General
QM definition that is based on a 43 percent debt-to-income
(DTI) ratio requirement and detailed income and debt
verification requirements with a new General QM definition that
is based on price spread-based thresholds, and ended the ``GSE
patch.'' But, this month, the CFPB Acting Director issued a
proposed rule to extend the GSE patch by extending the July 1,
2021 mandatory compliance date of the new rule to October 1,
2022. The GSE patch, as you know, exempts mortgages that meet
the Fannie and Freddie underwriting standards certain General
QM requirements (the 43 percent DTI limit and the detailed
verification requirements) while the companies are under
government conservatorship, but not after the conservatorship
ends. The practical effect of the GSE patch is to confer yet
another regulatory advantage on GSE-supported mortgage
intermediation that enables the GSEs to crowd out private
capital and continue their growth. I am concerned that the CFPB
will extend the GSE patch indefinitely. If confirmed, will you
let the GSE patch expire as originally scheduled in the 2020
rule?
If not, will you at least commit not to extend the GSE
patch beyond the date contemplated in the proposed rule?
A.13. This announcement was issued by the current leadership of
the Bureau, and I understand that the Bureau published a notice
on March 3, 2021, describing its proposal in more detail.
I do not wish to prejudge any regulatory action, and I
understand that Congress and a number of agencies are carefully
considering the future of the GSEs. The CFPB's role, as
authorized in Dodd-Frank, is to ensure that consumers can
access mortgages on affordable and understandable terms.
However, I understand it is critical for the CFPB to work
closely with the Federal Housing Finance Agency and others to
understand the market.
During the confirmation process, I have had the opportunity
to hear the views of many Senators regarding this topic. I
appreciated these discussions, and, if confirmed, would listen
to all perspectives to determine what, if any, changes should
be proposed.
Q.14. Regulation by Enforcement--The government should set
clear rules of the road before holding anyone responsible for
breaking them. This means conducting notice and comment
rulemaking that establish clear rules in advance.
Unfortunately, former CFPB Director Cordray preferred to
regulate by enforcement, a practice he engaged in extensively
during your time at the CFPB. Perhaps the most egregious
example is when Director Cordray filed a complaint against
mortgage company PHH that completely reinterpreted well-settled
law. In the case of PHH v. CFPB, the D.C. Circuit unanimously
agreed that the CFPB violated the Due Process Clause of the
U.S. Constitution because it did not provide fair notice in
advance of what conduct was prohibited. Do you agree with the
D.C. Circuit that this action was unfair and unconstitutional?
A.14. While I do not have access to the underlying facts and
evidence in this matter, I understand that retroactive changes
to legal interpretations can raise significant fair notice
concerns. If confirmed, I will follow the law.
Q.15. Do you commit to not have the CFPB resume regulation by
enforcement if you are confirmed?
A.15. If confirmed, I commit that enforcement actions will be
grounded in the individual facts and circumstances of each case
and will respect the rule of law.
Q.16. The Dodd-Frank Act gave the CFPB a new authority to
prevent ``abusive'' practices, a term that was only loosely
explained in the statute. It is far from clear exactly what
actions a financial institution could take that would cause the
CFPB to file a lawsuit announcing that those actions had been
``abusive.'' Law professor Todd Zywicki has written: ``
`Abusiveness' . . . is a novel term with limited predecessors.
The CFPB, scholars, and commenters have struggled to define the
term `abusive' in a manner that effectuates Congress' language
and intent in a predictable and consumer welfare-enhancing
manner.'' \4\ Will you commit not to bring any new enforcement
actions charging that a company was ``abusive'' until the CFPB
has conducted notice-and-comment rulemaking to establish with
significantly greater clarity what is prohibited by that term?
---------------------------------------------------------------------------
\4\ https://files.consumerfinance.gov/f/documents/cfpb-zywicki-
written-statement-symposium-abusive.pdf
A.16. In the Dodd-Frank Act, Congress prescribed the
circumstances under which the CFPB can enforce the prohibition
on abusive acts or practices, and I commit to following the
law. State regulators can also enforce the prohibition.
Although I do not want to prejudge any particular enforcement
action, I will carefully analyze the facts and law before
---------------------------------------------------------------------------
authorizing any claims.
Q.17. Government-Run Credit Reporting--President Biden has
endorsed the idea of creating a new Government-run credit
reporting agency within the CFPB as an alternative to the
private credit reporting agencies. He further endorsed making
this government-run agency mandatory for all Federal lending
programs, including mortgage loans and student loans. Congress
has never contemplated CFPB acting as a credit reporting
agency, and such an expansion would far exceed the CFPB's
current statutory authority. The Dodd-Frank Act gives the CFPB
authority to enforce 18 enumerated consumer protection laws,
and to regulate, supervise, and enforce ``consumer financial
protection law''--it does not authorize the CFPB to offer
consumer products. Do you agree that the CFPB does not have the
authority to establish a credit reporting agency without
further legislation?
A.17. I am not aware of any authority to establish a credit
reporting agency without further legislation.
Q.18. Do you believe that the government should expand the
CPFB's powers and role to include competing with private
enterprise by offering a credit reporting product?
A.18. I have not reviewed any detailed information regarding
this proposal. This is a matter for Congress, and, if
confirmed, I would make staff available to provide technical
assistance on any proposals.
Q.19. Small Business Data Collection--Section 1071 of the Dodd-
Frank Act directs the CFPB to adopt regulations governing the
collection of certain small business lending data. In September
2020, the CFPB released an outline of proposals under
consideration and alternatives considered. What is your view of
this proposal?
I am concerned about the potential burdens of a significant
new collection of information from small businesses. How will
you seek to fulfill the purposes of section 1071 while
minimizing compliance burden on small businesses and the
financial institutions that serve them?
A.19. Across the country, small businesses are facing
extinction, and we must do everything we can to ensure they can
access credit on fair and competitive terms. I do not want to
prejudge any particular proposals, but if confirmed, I am
committed to ensuring that the CFPB implements section 1071 of
the Dodd-Frank Act. If confirmed, I would review the outline
and consult with CFPB staff, and would have ongoing dialogue
with Members of the Committee on ways to best implement this
requirement.
Q.20. Some stakeholders have suggested that one way to make
this collection more efficient would be for the CFPB to
establish a database to which small businesses could submit
information. Will you consider this alternative as you seek to
develop a proposed rule to implement section 1071?
A.20. Yes. If confirmed, I will look forward to working with
your office and with CFPB staff to assess ways to streamline
data collection.
Q.21. Section 1033 Rulemaking--In October 2020, the CFPB
published an advance notice of proposed rulemaking (ANPR)
pursuant to section 1033 of the Dodd-Frank Act, which provides
for consumer access to financial records subject to rules
prescribed by the CFPB. The ANPR notes that stakeholders have
raised concerns about the current state of the consumer-
authorized data access ecosystem, including that not all
consumers are able to authorize access to their data in a
manner commensurate with the access rights described by section
1033. Do you share these concerns?
What is your view of the current state of consumer access
to financial records? What do you consider the most important
considerations relevant to this topic?
A.21. Yes, I share these concerns. I believe that consumers
should have control over their data and over how their data is
used. I am also sensitive to the security and privacy concerns
that many stakeholders have regarding this issue. I do not
believe we have to choose between consumer choice and security
and privacy. I believe a functioning market enables competitors
to provide products to consumers safely and transparently.
Q.22. Do you anticipate that you will advance a notice of
proposed rulemaking pursuant to section 1033? If so, how would
you prioritize this issue relative to other rulemaking
priorities?
A.22. I understand that the comment period recently closed on
the Advanced Notice of Proposed Rulemaking regarding section
1033. If I am confirmed, I would like to carefully understand
the analysis conducted to date by CFPB staff. I will work with
CFPB staff to consider all the comments carefully, and to chart
a path forward. I believe this effort is very important, given
the critical role of consumer data, and, if confirmed, will
update Congress on the CFPB's progress.
Q.23. How will other countries' experience with similar
regulations inform the CFPB's work in this area?
A.23. It is important that the United States has vibrant and
competitive financial markets, and I believe our policies
should recognize the unique features of the American system. At
the same time, I believe there are lessons that we can draw
from the experiences of other countries, as well as from the
states. As an FTC Commissioner, I am in contact with my
counterparts both in the states and around the globe, and I
look forward to remaining in contact to share experiences and
best practices if confirmed.
Q.24. CFPB Public Statements and Deliberations--Under former
Director Cordray, the CFPB was widely criticized for its use of
midnight embargoed press releases announcing rules. Such
embargoes were viewed as a way to avoid engaging with
stakeholders when releasing important information to the
public. Will you commit not to return to this practice?
How will you ensure transparency in the CFPB's
communications to the public?
A.24. I commit to making transparency an important goal, and if
confirmed, I will carefully review the CFPB's policies and
procedures related to press announcements.
Q.25. As you are aware from your experience as an FTC
Commissioner, agencies with bipartisan boards conduct meetings
in open session during which a diversity of views--including
dissenting opinions--are publicly discussed. How will you
ensure that the CFPB considers a wide range of stakeholder
views as it develops policy and how will you ensure that such
views are discussed publicly?
A.25. If confirmed, I will welcome input from all stakeholders,
including those who may disagree. I especially support multiple
channels for input, including field hearings held outside of
Washington, where the agency can hear directly from
stakeholders in a public setting. The CFPB must also adhere to
the procedures pursuant to the Administrative Procedure Act to
solicit public feedback on proposals, where all stakeholders
can view public comments.
Public input can help drive sound decision-making, and if
confirmed, I look forward to engaging with the people we serve
in new and innovative ways.
Q.26. Enforcement Actions and Regulations--Mr. Chopra, in
examining your public statements over the years while at the
CFPB and the FTC, you have routinely advocated for harsher
penalties against private companies that you believe were
engaged in wrongdoing. In fact, as an FTC Commissioner, you
have dissented from numerous cases on the grounds that the
FTC's actions were not harsh enough against the private entity.
However, it is unclear when, if ever, you would consider an
enforcement or other regulatory action against a private
company to be too burdensome or harsh toward that private
entity. As an FTC Commissioner, have you ever dissented in a
case or voted against a rule because you viewed it as too
burdensome or harsh against a private company? Please list any
cases or rules and the reasons for your view.
A.26. During my time at the FTC, I have raised concerns about
the Commission's practice of harshly punishing small actors,
while holding larger firms to a different standard. For
example, I have noted that in the FTC's enforcement of the
Children's Online Privacy Protection Act, the Commission will
charge individuals and seek harsh penalties for small
companies, but will go easy on larger firms.
In some cases, staff have put forth proposed enforcement
actions, and I have supported closing the investigation when I
did not believe an action was appropriate. I have also agreed,
dependent on the facts, to drop claims and individual
defendants.
Q.27. You were involved in setting up the CFPB and served there
in a senior capacity for several years during the Obama
administration. Has the CFPB undertaken any enforcement actions
or issued any rules that you believe were too burdensome or
harsh against a private company? Please list any cases and the
reasons for your view.
A.27. My primary responsibilities did not involve enforcement
or rulemaking, so I was not privy to the underlying facts in
the large majority of matters.
Q.28. Conflicts of Interest--In an effort to ``root out
corruption and restore faith and trust in our Government,'' you
argue in your 2018 ``Unstacking the Deck'' policy paper that
``[c]onflicts of interest for senior Government officials
should be made public, including all ethics advice received
from agency ethics officials that the officeholder is relying
upon, as well as any recusals and waivers.'' \5\ If confirmed,
will you commit to making publicly available all conflicts of
interests involving yourself within two weeks of the conflict
being identified by an agency ethics official, including all
ethics advice received from agency ethics officials that you
are relying upon, as well as any recusals and waivers?
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\5\ https://greatdemocracyinitiative.org/wp-content/uploads/2018/
05/Unstacked.pdf
A.28. I understand the importance of transparency and seeking
counsel from the CFPB's Designated Agency Ethics Official on
issues related to financial conflicts of interest. If
confirmed, I would work with CFPB ethics staff to explore this
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issue further, consistent with existing law and regulation.
Q.29. Government Transparency--In an effort to ``root out
corruption and restore faith and trust in our Government,'' you
argue in your 2018 ``Unstacking the Deck'' policy paper for
increased transparency in the Federal Government, including
with respect to the Freedom of Information Act (FOIA). If
confirmed, in what specific ways, if any, do you plan to be
more transparent than is currently required by FOIA and other
government transparency laws?
In the same paper, you argue that ``[o]n a routine basis,
agencies should make certain information available [to the
public], such as travel expense documentation and executive
calendars, to deter the misuse of funds and the fair allocation
of stakeholder consultation.'' Will you commit that, if
confirmed, you will make CFPB travel expense documentation and
executive calendars available to the public on a routine basis?
A.29. If confirmed, I would like to continue the CFPB's
practice of publishing executive calendars, and I would like to
explore proactively making other information available. In
addition, I would work with CFPB staff to identify ways to
further the goal of transparency, consistent with the Bureau's
privacy and confidentiality obligations, as well as any other
appropriate law and regulation.
Q.30. What other information, if any, will you make available
to the public on a routine basis if confirmed to lead the CFPB?
A.30. If confirmed, I would like to consult with CFPB staff and
stakeholders to identify opportunities to make additional data
sets and information available to the public, such as those
identified as part of Governmentwide transparency initiatives,
consistent with the Bureau's privacy and confidentiality
obligations, as well as any other appropriate law and
regulation.
Q.31. Congressional Oversight--In your ``Unstacking the Deck''
policy paper, you indicate that ``Congress has long played a
critical role in oversight of the executive branch'' and that
Congress's ``ability to shed light on improper conduct [by
executive branch officials] is important.'' Will you commit
that, if confirmed, you will timely respond to and fully comply
with all congressional information requests, including but not
limited to requests for records?
A.31. I believe that Congressional oversight is important. If
confirmed, I would work with CFPB staff to be responsive to
duly authorized requests from this Committee, consistent with
the law and with past practice by previous Directors.
Q.32. You suggest in your ``Unstacking the Deck'' policy paper
that agencies may be overusing, if not abusing, FOIA's
exemptions to withhold documents from the public. FOIA's (b)(5)
exemption permits agencies to withhold deliberative documents
from the public. Congress has a constitutional role in
conducting oversight of agencies, and is not subject to FOIA or
its exemptions. In light of the views you have expressed, will
you commit not to withhold deliberative documents requested by
a congressional committee Chairman or Ranking Member?
A.32. Agencies should be responsive to the public and Congress.
If confirmed, I would work with CFPB staff to be responsive to
duly authorized requests from this Committee, consistent with
the law and with past practice by previous Directors.
Q.33. Do you believe that the CFPB may assert any privileges or
other legal justifications to withhold information (whether
records or oral testimony) from Congress? If so, please
describe all such privileges or other legal justifications.
Please answer ``yes'' or ``no.''
If you answered ``yes'' to Question 3, please list every
such privilege or other legal justification and provide the
legal basis for why you believe the CFPB may use such privilege
or legal justification to withhold information from Congress.
In an effort to be open and transparent with Congress and
the public, will you commit not to assert any such privilege or
legal justification against Congress that you listed above? If
not, why not? If so, please identify all such privileges or
legal justifications that you will commit to not assert against
Congress.
Will you commit that, if confirmed, you will make yourself
and any other CFPB employee expeditiously available to provide
oral testimony (including but not limited to briefings,
hearings, and transcribed interviews) to a Congressional
committee on any matter within the committee's jurisdiction
upon the request of either the Chairman or Ranking Member?
Please answer ``yes'' or ``no.'' If your answer is ``no,''
please explain why.
A.33. Agencies should be responsive to the public and Congress,
and I believe that Congressional oversight is important. If
confirmed, I would consult the agency's legal counsel so that
the CFPB can be responsive to duly authorized requests from
this Committee, consistent with the law and with past practice
by previous Directors.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR TESTER
FROM ROHIT CHOPRA
Q.1. Public Service Student Loan Forgiveness--I have been
frustrated by the problems in this program and the lack of
information.
How will you ensure proper oversight in the areas of the
CFPB's jurisdiction?
A.1. I share your frustration with problems in this program,
which was designed to help teachers, first responders, and
other public servants. It is critical to ensure loan servicers
have policies and procedures in place to prevent these problems
before they harm borrowers, and it is important for the CFPB to
work closely with the Department of Education on these issues.
The CFPB currently supervises nonbank larger participants in
the student loan servicing market, and ensuring their
compliance with consumer financial protection laws would be a
priority if I am confirmed.
Q.2. Innovations--In recent years the Consumer Financial
Protection Bureau has used a combination of No Action Letter
policy, the Compliance Assistance Sandbox, and the Advisory
Opinion Program to encourage innovation initiatives. We've also
seen each of the Federal prudential regulators launch and/or
expand their innovation initiatives to encourage new innovative
financial services providers to engage directly with regulators
around new product and service offerings.
What role do you envision for your Office of Innovation--
particularly in terms of its ability to provide guidance and
regulatory certainty to regulated entities regarding innovative
product offerings through the Bureau's No Action Letter policy?
How will you ensure adequate protections for consumers and
recourse through these initiatives?
A.2. I am a strong believer in promoting competition. In my
work at the Federal Trade Commission, I have repeatedly
expressed concerns about the difficulties that many new
businesses face when it comes to competing against dominant
players.
A competitive and innovative financial sector is critical
for our economy and our global competitiveness. If confirmed, I
would work with CFPB staff to identify all of the ways that the
Bureau can further the efforts of promoting a competitive
marketplace that incentivizes consumer-friendly innovation.
Q.3. New Services for Workers--Sixty-three percent of adults
live paycheck to paycheck in this country and are stuck in a
cycle of expensive overdraft fees, payday loans and late bill
fees, to cover every day essential expenses while waiting for
their paycheck to arrive from their employer.
In recent years, there has been an emergence of ``earned
wage access'' services that aim to help individuals access
their pay in real-time and reduce reliance on the costly
alternatives that can perpetuate the debt cycle.
What do you view the role of the CFPB as these
technological innovations emerge?
A.3. I strongly support competitive markets that give consumers
more market power and choices. As firms introduce new financial
products and services, it will be critical that the Bureau
ensures they comply with the law. If confirmed, I would work
with CFPB staff to better understand Earned Wage Access
products and other aspects of this market.
In addition, I support efforts to give consumers more
control over their money by modernizing our payments networks.
Consumers should be able to access their money as soon as it is
deposited and control when that money is debited in real time.
Q.4. Housing--As you and I have discussed, in places like
Montana we have unique challenges. For one, our housing market
is hot, with people coming to the state for a variety of
reasons. That said, we also have a lot of long-time rural
homeowners and aspiring homeowners who do not find a standard
mold or profile for income and asset verification. The GSEs,
USDA, and FHA help, but it's not enough.
What can be done to help ensure that a private market can
exist for non-traditional borrowers in states like Montana?
Can the bureau commit to working with lenders AND investors
in these mortgages to help increase safe home ownership access?
A.4. It is critical that Americans living in rural communities
have access to safe, affordable, and nondiscriminatory
financial products and services. Too often, these communities
are overlooked by major financial institutions. If confirmed, I
fully commit to working with lenders, investors, and other
stakeholders to promote an inclusive financial system. In
addition, at the FTC I have engaged farmers, ranchers, and
other agricultural producers, and I would like to continue that
engagement at the CFPB if confirmed. This will help the Bureau
assess where the market is not meeting the needs of rural
communities. Across the board, I would ensure, if I am
confirmed, that the CFPB always takes into account the impact
of its rules on consumers in rural areas.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN
FROM ROHIT CHOPRA
Q.1. Section 1073 of the Dodd-Frank Wall Street Reform and
Consumer Protection Act required the CFPB to establish
disclosure requirements on remittance transfers. Over the past
several years, multiple rules on remittances have been
finalized. Please describe how you will approach remittances
and seek to eliminate hidden costs and fees for consumers and
increase transparency in the remittance market.
A.1. When Americans send money using remittance transfers, it
is important that they clearly understand the costs and fees
associated with these transfers. If confirmed, I would work
with CFPB staff to understand changes in the remittance
transfer market, particularly in light of COVID-19.
In addition, I understand that virtual currencies might
replace certain types of remittance transfer products. If
confirmed, I believe it will be important for the CFPB to work
with other regulators to understand any shifts in the
marketplace and consumer behavior.
Q.2. Acting Director Uejio has indicated that ``some companies
have been lax in meeting their obligation to respond to
complaints,'' and that ``consumer advocates have found
disparities in some companies' responses to Black, Brown, and
Indigenous communities.'' Please describe the importance of the
complaint database and how you intend to use it to carry out
the functions of the Bureau.
A.2. The consumer complaint system that the CFPB administers
pursuant to the Dodd-Frank Act is a central part of the
Bureau's work. Not only is it a gateway for consumers to seek
help when faced with serious problems, it also allows the
agency to spot trends within certain institutions and across
entire markets.
The CFPB's consumer complaint system can and should inform
the work of all the agency's functions. In addition, industry
participants and compliance professionals have noted that the
complaint dataset is an important source of information to
understand consumer experience and address issues before they
become systemic. If confirmed, I would work to ensure that the
consumer complaint system is robust and responsive.
------
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR VAN HOLLEN FROM ROHIT CHOPRA
Q.1. CFPB employees have raised important concerns about pay
disparities at the agency, including pay gaps that disadvantage
Black and Hispanic workers. Will you commit to working with
CFPB employees and their union to examine and address these
issues of pay equity?
A.1. Yes. If confirmed, I would work with CFPB employees and
their union to examine these issues.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA
FROM ROHIT CHOPRA
Q.1. If confirmed, will you move forward with a rulemaking
pursuant to Section 1033 of the Dodd-Frank Wall Street Reform
and Consumer Protection Act?
A.1. While Section 1033 does not impose a specific deadline, as
a general matter, I believe it is important for the CFPB to
prioritize the consideration of implementing provisions of the
CFPB's authorizing statute. I also support the broader goal of
giving consumers greater control of their data. If confirmed, I
would consult with CFPB staff and review progress to date on
this initiative.
Q.2. In what ways do you believe FinTech can uniquely increase
access to credit for consumers? If confirmed, how will you lead
the Bureau in a way that protects consumers from predatory
practices without stifling innovative technologies?
A.2. I believe that consumers reap major benefits when markets
are competitive and companies are competing to deliver the
best, most consumer-friendly products and services. If
confirmed, I would seek to identify ways to promote competition
and innovation, while also ensuring that laws passed by
Congress are followed. This would involve close engagement with
innovators, regulators, and other stakeholders to ensure we can
reap these benefits.
Q.3. The current payments provisions of the CFPB's Small Dollar
Rule apply the same standards to debit cards as ACH
transactions. Do you think this approach makes sense for debit
cards, given that unlike ACH transactions, no fee is assessed
when funds are not available? If you think this approach does
not make sense, would you consider addressing this challenge if
confirmed?
A.3. This matter is currently subject to litigation, but I am
aware of the petition for rulemaking on this topic and of the
Bureau's response, including the discussion of fees. If
confirmed, I would work with CFPB staff to consider whether
further action is appropriate.
Q.4. If confirmed, how will you ensure that changes made to the
QM Rule and other Bureau actions are done in a way that
preserve access to manufactured housing for Arizona families?
Will you commit to making changes if warranted?
A.4. Millions of Americans live in manufactured homes, and it
is critical that the CFPB take their interests into account
when it comes to rulemaking and other policy initiatives in the
housing sector. If confirmed, I would work with CFPB staff and
your office to ensure this market is well served.
Q.5. Former Director Cordray established an Office of
Innovation, which administers the No Action Letter, Trial
Disclosure, and Compliance Assistance Sandbox programs. If
confirmed, will you maintain support for these programs?
A.5. I am a strong believer in promoting competition. In my
work at the Federal Trade Commission, I have repeatedly
expressed concerns about the difficulties that many new
businesses face when it comes to competing against dominant
players, particularly when it comes to large technology
platforms.
A competitive and innovative financial sector is critical
for our economy and our global competitiveness. If confirmed, I
would work with CFPB staff to identify all of the ways that the
Bureau can further the efforts of promoting a competitive
marketplace that incentivizes consumer-friendly innovation.
Q.6. If confirmed, how will you approach the issue of
cybersecurity, particularly for non-banks? What is the CFPB's
role on this issue?
A.6. The Equifax data breach is a clear reminder that nonbank
financial institutions hold extremely sensitive data that must
be protected. If confirmed, I would closely coordinate with
other agencies to determine the best way to promote adequate
security practices, consistent with existing law and
regulation.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR CRAPO
FROM ROHIT CHOPRA
Q.1. The CFPB finalized a rule prohibiting the use of
predispute arbitration agreements that prevent consumers from
participating in class action lawsuits in July 2017. Critics of
the rule noted that the CFPB relied on erroneous assumptions to
justify rulemaking. For example, the CFPB's study ignored the
pragmatic benefits of arbitration and exaggerated the purported
benefits of class action lawsuits.
In October 2017, I worked with my Senate colleagues to
repeal the finalized rule. In accordance with the CRA passed to
overturn the rule, a new rule may not be issued in
``substantially the same form,'' as the disapproved rule unless
specifically authorized by a subsequent law.
Do you believe the Bureau maintains the authority to issue
a new rule on arbitration clauses despite the CRA enacted in
November 2017?
A.1. Under the Congressional Review Act, 5 U.S.C. 801(b)(2), I
understand that the CFPB cannot reissue the arbitration rule in
``substantially the same form,'' and cannot issue a new rule
that is ``substantially the same.'' If confirmed, I would
ensure that the CFPB follows the law.
Q.2. What specific steps would you take to increase
transparency and accountability at the CFPB?
A.2. I believe all government agencies must constantly evaluate
ways to be more transparent about their actions and decision-
making. In particular, I want to explore additional ways to
solicit input from the public and stakeholders.
In addition, section 1016 of the Dodd-Frank Act requires
the CFPB to file regular reports to Congress on a host of its
activities. I am committed to complying fully with this
requirement if confirmed. I would also work with CFPB staff to
identify opportunities to make additional information available
through these and other reports.
Most importantly, I believe that the CFPB must engage with
Congress, and I am committed to identifying ways to deepen that
engagement. In addition to testifying before this Committee, I
also hope to directly communicate with Members of the Committee
to discuss priorities, concerns, and areas of common ground.
Q.3. Large data breaches, such as the recent Solarwinds hack,
have underscored the vulnerabilities in our technological
infrastructure. If confirmed to the CFPB, how would you ensure
protection of data protected by the Bureau?
A.3. I am committed to privacy and data protection. The CFPB
was set up to be a data-driven regulator. I support that
approach and recognize that we need to protect consumer privacy
in the process. CFPB data collection must operate in compliance
with a wide variety of Federal data privacy standards, such as
the Privacy Act of 1974. Additionally, section 1022 of the
Dodd-Frank Act limits the Bureau's ability to collect
personally identifiable financial information from financial
institutions subject to the Bureau's jurisdiction, and in
particular it prohibits the Bureau from using its market
monitoring and rules assessment authorities to obtain records
from those financial institutions for purposes of gathering or
analyzing the personally identifiable financial information of
consumers. The Federal Information Security Modernization Act
of 2014 also requires an annual, independent evaluation of the
Bureau's information security program.
If confirmed, I would follow these requirements and explore
other best practices to protect information obtained by the
Bureau.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR SCOTT
FROM ROHIT CHOPRA
Q.1. I appreciated our discussion during the hearing about the
importance of providing clear and well-articulated rules of the
road regulated entities. Well-defined regulations are
important, but it is also vital that the CFPB approaches
rulemaking process in a way that carefully considers input form
market participants and relevant regulatory agencies. The
Bureau was created to specifically focus on consumers, it does
not preclude the other Federal banking regulators from issuing
regulations that benefit consumers.
To that end, will you commit to work with the other Federal
regulators to ensure that CFPB regulations are in conformance
with the existing regulatory structure?
A.1. I agree that regulators should provide clear rules of the
road and consider input from a broad range of stakeholders. I
also agree that it critical for regulators to maintain open
lines of communication, and I commit to working closely with
both state and Federal regulators if confirmed.
Q.2. As a member of both the Banking and HELP Committees, I am
interested in a public comment you made saying ``There is a lot
more to do in student lending''. If confirmed, in what ways do
you plan to direct the focus of Bureau staff to protect
consumers seeking and obtaining Federal student loans?
If confirmed, in what ways do you plan to direct the focus
of Bureau staff to protect consumers seeking and obtaining
Federal student loans?
A.2. Many students and their families find borrowing for
college to be complex and confusing. In the past, the Bureau
has launched a Know Before You Owe effort in partnership with
the Department of Education to help families navigate their
options and reduce the amount of debt they take on. If
confirmed, I am committed to ensuring that the CFPB works
closely with the Department of Education to help improve the
borrower decision-making process.
Q.3. The CFPB very recently issued an official statement
declaring an intent to delay the implementation periods of the
QM regulations issued in December 2020 in order to give the
incoming Director the opportunity to review and possibly amend
those rules. These regulations were initiated because the GSE
Patch--that provides for safe lending to over half of the
mortgage market--is lapsing. There is considerable anxiety that
shelving these rules will cause a market shock.
I understand that the December final rules being postponed
have very broad support from industry, consumer, and civil
rights advocates because they will allow lenders to expand
mortgage credit while maintaining strong consumer protections.
Can you explain the rationale for postponing these rules,
as well as changes you intend to undertake in a future
rulemaking if confirmed?
A.3. This announcement was issued by the current leadership of
the Bureau, and I understand that the Bureau published a notice
on March 3, 2021, describing its proposal in more detail.
I do not wish to prejudge any regulatory action, and I
understand that Congress and a number of agencies are carefully
considering the future of the GSEs. The CFPB's role, as
authorized in Dodd-Frank, is to ensure that consumers can
access mortgages on affordable and understandable terms.
However, I understand it is critical for the CFPB to work with
the Federal Housing Finance Agency and others to understand the
market.
During the confirmation process, I have had the opportunity
to hear the views of many Senators on this topic. I appreciated
these discussions, and, if confirmed, would listen to a broad
diversity of perspectives to determine what, if any, changes
should be proposed.
Q.4. Manufactured housing is the most affordable homeownership
option for American families. However, the smaller dollar size
of some manufactured home loans and the lack of a secondary
mortgage market for personal property home loans creates the
need for agencies to use care in writing regulations that
impact this market. For example, using pricing as a criteria
disadvantages smaller loans--like those of manufactured homes--
so sufficient threshold adjustments must be made to preserve
the availability of affordable loans for manufactured home
buyers and borrowers. The CFPB's QM notice from December
recognized that smaller loans require these different
thresholds.
As you consider changes to the QM rule and look at other
CFPB regulations, can you assure me that you will remain
mindful of the impact of agency actions on the availability of
financing for manufactured homes, and that you will ensure
adjustments are made when needed to preserve liquidity for this
important home ownership option?
A.4. Millions of Americans live in manufactured homes, and it
is critical that the CFPB take their interests into account
when it comes to rulemaking and other policy initiatives in the
housing sector. If confirmed, I would work with CFPB staff and
your office to ensure this market is well served.
Q.5. As you know, one of the statutory mandates of the CFPB is
to ensure that ``markets for consumer financial products and
services operate transparently and efficiently to facilitate
access and innovation.'' In support of this objective, Former
Director Cordray established an Office of Innovation, which
administers the No Action Letter (NAL), Trial Disclosure, and
Compliance Assistance Sandbox programs. These programs are
important to tools to reduce barriers to innovation.
If confirmed, do you intend to maintain and support these
programs?
A.5. I am a strong believer in promoting competition. In my
work at the Federal Trade Commission, I have repeatedly
expressed concerns about the difficulties that many new
businesses face when it comes to competing against dominant
players.
A competitive and innovative financial sector is critical
for our economy and our global competitiveness. If confirmed, I
would work with CFPB staff to identify ways that the Bureau can
further the efforts of promoting a competitive marketplace that
incentivizes consumer-friendly innovation.
Q.6. Last year, President Biden voiced support for a
progressive proposal to create a public credit bureau run by
the CFPB. Promoters of this radical idea purport that only the
Federal Government is equipped to solve systemic challenges of
financial inclusion.
I am hugely skeptical of these arguments. Not only have I
have rarely seen the Federal Government do something better
than private industry, this would also be a massive expansion
of government into the lives of private citizens, akin only to
what we see in countries like China.
Sound and prudent lending decisions must be based on an
individual's actual credit risk and their ability to repay,
which are derived from a credit report's objective cataloging
of a person's historical financial behavior. A Government-run
credit bureau will not magically make consumers better credit
risks.
Do you agree that a State-run public credit bureau would be
a huge risk to the safety and soundness of the consumer lending
markets?
A.6. I have not reviewed any detailed information regarding
this proposal. This is a matter for Congress, and, if
confirmed, I would make CFPB staff available to provide
technical assistance on any proposals.
Q.7. One of the key tenets of the government-run bureau, is
that it would require so-called ``alternative data''
reporting--rental, telco and utility information--to bring more
people into the credit mainstream. This is confusing, since
credit bureaus currently accept alternative data and have been
proponents of bipartisan legislation that I've repeatedly
introduced to encourage more alternative data furnishing. Tens
of millions of credit invisible Americans have already gained
greater access to credit through the use of alternative data,
and companies are investing more every year to bring more
people into the credit mainstream.
Can you explain to me how a Government-run bureau
established to collect the very same data that private industry
already gathers is not the definition of a solution in search
of a problem?
A.7. I believe the CFPB's role is to monitor consumer reporting
markets and ensure compliance with the Fair Credit Reporting
Act and other applicable laws. If Congress wishes to amend
these laws, I am committed to making CFPB staff available to
provide technical assistance.
Q.8. Do you agree that a better solution is for policymakers to
incentivize more alternative data furnishing, rather than try
to displace a well-functioning industry?
A.8. I understand that the CFPB has published research on
``credit invisibles'' that discusses the issue of alternative
data furnishing. If confirmed, I would work with CFPB staff and
stakeholders to advance the goal of financial inclusion.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR TILLIS
FROM ROHIT CHOPRA
Q.1. In 2017, the CFPB filed a lawsuit against 15
securitization trusts--the National Collegiate Student Loan
Trusts--seeking to penalize the Trusts, and thereby the
underlying investors, for alleged wrongdoing of the loan
servicer(s). All market participants, including investors, need
to trust that well-meaning government actors and regulators
will not abrogate their contractual rights and hold them
responsible for unrelated third parties' alleged acts. If
market participants cannot trust that transaction documents
won't be altered, it calls into question the validity of those
contracts and, consequently, the market itself. This
uncertainty will result in a reduction in the availability of
and/or an increase in the cost of credit for individuals and
businesses across the country. In your opinion, do the CFPB's
actions threaten the continued healthy functioning of the
securitization market or annul investors' contractual rights
for the alleged acts of unrelated third parties?
A.1. I believe that well-functioning capital markets are
critical to our country's prosperity and competitiveness. It is
always important for agencies to understand the impact of their
actions on our capital markets. This matter is in active
litigation. If confirmed, I would work with CFPB staff to learn
more about the status of the litigation and engage with your
office on these concerns.
Q.2. The CFPB is currently in litigation with The National
Collegiate Master Student Loan Trust and I'm concerned this
case may have far-reaching consequences for markets and
consumers. From a policy perspective, the Bureau's positions
have real consequences for the securitization market and the
substantial credit it provides to consumers. As just one
example, under the Bureau's vicarious liability theory, GSE-
sponsored securitization trusts--i.e., the owners of the
majority of residential mortgage debt in the country--would be
liable for violations of Federal consumer financial law
committed by the servicers with whom they contract. That is a
radical upending of the expectations of key players in the
largest market for consumer financial services in the country.
Does the CFPB plan to reconsider this case?
A.2. This matter is in active litigation. If confirmed, I would
work with CFPB staff to learn more about the status of the
litigation and engage with your office on these concerns.
Q.3. Last year I wrote to former Director Kraninger about the
CFPB v. NCSLT matter. I'm concerned the uncertainty this case
injects into the market that will likely result in
securitization investors requiring higher risk premiums or
reducing their participation in the securitization market,
which in turn can result in higher interest rates for student
borrowers. The net effect of this would be higher borrowing
costs and lower credit availability for the very consumers and
businesses across the U.S. the Bureau is seeking to protect.
Has the Bureau decided how to move forward with this case?
A.3. This matter is in active litigation. If confirmed, I would
work with CFPB staff to learn more about the status of the
litigation and engage with your office on these concerns.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR KENNEDY
FROM ROHIT CHOPRA
Q.1. The CFPB finalized a rule prohibiting the use of
predispute arbitration agreements that prevent consumers from
participating in class action lawsuits in July 2017. Critics of
the rule noted that the CFPB relied on erroneous assumptions to
justify rulemaking. For example, the CFPB's study ignored the
pragmatic benefits of arbitration and exaggerated the purported
benefits of class action lawsuits.
In October 2017, I worked with my Senate colleagues to
repeal the finalized rule. In accordance with the CRA passed to
overturn the rule, a new rule may not be issued in
``substantially the same form,'' as the disapproved rule unless
specifically authorized by a subsequent law.
Do you believe the Bureau maintains the authority to issue
a new rule on arbitration clauses despite the CRA enacted in
November 2017?
A.1. Under the Congressional Review Act, 5 U.S.C. 801(b)(2), I
understand that the CFPB cannot reissue the arbitration rule in
``substantially the same form,'' and cannot issue a new rule
that is ``substantially the same.'' If confirmed, I would
ensure that the CFPB follows the law.
Q.2. What specific steps would you take to increase
transparency and accountability at the CFPB?
A.2. I believe all government agencies must constantly evaluate
ways to be more transparent about their actions and decision-
making. In particular, I want to explore additional ways to
solicit input from the public and stakeholders.
In addition, section 1016 of the Dodd-Frank Act requires
the CFPB to file regular reports to Congress on a host of its
activities. I am committed to complying fully with this
requirement if confirmed. I would also work with CFPB staff to
identify opportunities to make additional information available
through these and other reports.
Most importantly, I believe that the CFPB must engage with
Congress, and I am committed to identifying ways to deepen that
engagement. In addition to testifying before this Committee, I
also hope to directly communicate with Members of the Committee
to discuss priorities, concerns, and areas of common ground.
Q.3. Large data breaches, such as the recent Solarwinds hack,
have underscored the vulnerabilities in our technological
infrastructure. If confirmed to the CFPB, how would you ensure
protection of data protected by the Bureau?
A.3. I am committed to privacy and data protection. The CFPB
was set up to be a data-driven regulator. I support that
approach and recognize that we need to protect consumer privacy
in the process. CFPB data collection must operate in compliance
with a wide variety of Federal data privacy standards, such as
the Privacy Act of 1974. Additionally, section 1022 of the
Dodd-Frank Act limits the Bureau's ability to collect
personally identifiable financial information from financial
institutions subject to the Bureau's jurisdiction, and in
particular it prohibits the Bureau from using its market
monitoring and rules assessment authorities to obtain records
from those financial institutions for purposes of gathering or
analyzing the personally identifiable financial information of
consumers. The Federal Information Security Modernization Act
of 2014 also requires an annual, independent evaluation of the
Bureau's information security program.
If confirmed, I would follow these requirements and explore
other best practices to protect information obtained by the
Bureau.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR MORAN
FROM ROHIT CHOPRA
Q.1. Congressional policies regarding Indian tribes support
prioritizing Indian tribal sovereignty demands and Federal
policies which promote tribal self-determination and self-
reliance.
The structure of the CFPB places an enormous amount of
power and responsibility in one person. In the past, that power
has been used against tribal governments to create a roller
coaster effect and has done little to advance the principles of
self-determination and self-reliance. Information received by
my office indicates that little meaningful consultation has
been done since the inception of the Bureau between tribes and
the CFPB under either Democratic or Republican appointees.
Under all Directors to date, tribes often were provided with
very little notice of meetings in D.C. which resulted in check-
the-box consultations that were rarely meaningful and costly to
tribal stakeholders regarding time and travel.
Congress was very clear in the Consumer Protection Act that
Congress' clear intent was for tribal and State governments and
laws to be placed at parity. The CFPA makes this abundantly
clear by including federally recognized Indian tribes in the
definition of ``State.''
The CFPB has entered into MOUs with the Conference of State
Banking Supervisors and other state units on the intricacies of
coregulation, cooperation, and training. The CFPB's Department
of Innovation has freely included States into the American
Consumer Financial Innovation Network. Disappointingly, to date
only one MOU exists with a tribal government and no tribal
governments have been allowed to join the American Consumer
Financial Innovation Network despite Congress' clear intent
that tribes be treated by the Bureau with the same dignity and
respect afforded the 50 State Governments, the District of
Columbia, and U.S. territories. Further, the CFPB has yet to
employ any experts with Indian law expertise and cultural
understanding within the Bureau.
Will you commit to rectifying this exclusion during your
tenure if confirmed?
A.1. I am committed to ensuring that the views and interests of
tribal communities are reflected in CFPB policymaking, and if
confirmed, I would work with CFPB staff to ensure that tribes
can have their voices heard around key decisions. I also
welcome suggestions from your office on how to continuously
improve this engagement.
Q.2. The Bureau has not been clear on the use of prohibited
bases in pre-application marketing. Social media platforms
present a unique challenge for creditors who want to leverage
new and effective communication and social networking channels
increasingly used by consumers. Would you support the Bureau
clarifying ECOA's coverage of pre-application marketing, so
that lenders may proactively seek out consumers who might
otherwise not know about their products and services?
A.2. Social media has become a key part of American life and
American commerce, but it can also facilitate practices that
exclude and discriminate. I am committed to vigorous
enforcement of ECOA regardless of the medium, and I agree that
the Bureau must work with stakeholders and partner agencies to
set clear expectations around compliance. If confirmed, I would
work with CFPB staff to learn more about the issue of pre-
application marketing.
Q.3. The Consumer Financial Protection Act prohibits
``abusive'' practices, but does not define that term, in
contrast to its definition of ``unfair'' practices. How does an
abusive practice differ from an ``unfair'' one in your mind?
Can a practice that does not meet the 3-part standard for
unfairness be ``abusive,'' i.e., is an ``abusive'' act less
harmful than an unfair one?
A.3. The Dodd-Frank Act is clear that the CFPB can enforce the
prohibition on abusive acts or practices only if they meet
criteria laid out in the statute. These criteria are distinct
from the statutory standard for unfairness. Whether particular
conduct qualifies as abusive or unfair will depend on the
facts. State regulators can also enforce this prohibition.
Q.4. What will be the Bureau's consumer protection priorities
for student loan borrowers?
A.4. If confirmed, my primary focus would be ensuring that
entities subject to Federal consumer financial laws comply with
their legal obligations. I believe that the market for student
loans should be transparent and competitive, so that consumers
can make informed choices about taking on debt. I also believe
that consumers should be treated fairly by servicers as they
make payments on their loans, including with respect to any
loan modification options available.
Q.5. What can the Bureau do to protect students from loan
servicing problems or errors before they occur, rather than
after they have happened? Additionally, do you plan to focus on
the nonbank actors in the private student loan market that are
not subject to the same consumer protection standards (safety,
supervision, and compliance) as regulated financial
institutions?
A.5. It is critical to ensure loan servicers have policies and
procedures in place to prevent these errors before they harm
borrowers. The CFPB currently supervises nonbank larger
participants in the student loan servicing market, and ensuring
their compliance with consumer protection laws would be a
priority if I am confirmed.
Q.6. For a growing number of students, a college education is
not a 4 year process, but takes 5 or more years, increasing the
cost substantially. What can the CFPB do to educate families
about this problem, either in coordination with colleges or on
its own?
A.6. Many students and their families find borrowing for
college to be complex and confusing. In the past, the CFPB has
launched a Know Before You Owe effort in partnership with the
Department of Education to help families navigate their options
and reduce the amount of debt they take on. If confirmed, I am
committed to ensuring that the CFPB works closely with the
Department of Education and other stakeholders to help improve
the borrower decision-making process.
Q.7. Since 2012, the CFPB has been collecting from banks
detailed account-level data on credit card customers and other
borrowers.
How is this information used by the Bureau and how are
consumers being protected from the misuse/breach of this data?
Are you aware of any CFPB actions, such as rulemakings or
enforcement actions, that could not have been made without the
use of This information, for example if the Bureau relied
instead on other sources of the information, or on periodic
rather than monthly data submissions?
Will you consider ways to reduce the volume of account
level data you collect?
A.7. The CFPB was set up to be a regulator that monitors
markets and bases its policymaking on data and evidence. I
support that approach and recognize we need to protect consumer
privacy in the process. CFPB data collection must operate in
compliance with a wide variety of Federal data privacy
standards, such as the Privacy Act of 1974. Additionally,
section 1022 of the Dodd-Frank Act limits the Bureau's ability
to collect personally identifiable financial information from
financial institutions subject to the Bureau's jurisdiction. In
particular, it prohibits the Bureau from using its market
monitoring and rules assessment authorities to obtain records
from those financial institutions for purposes of gathering or
analyzing the personally identifiable financial information of
consumers. The Federal Information Security Modernization Act
of 2014 also requires an annual, independent evaluation of the
Bureau's information security program.
If confirmed, I would follow these requirements and explore
other ways to protect information obtained by the Bureau.
Q.8. The Consumer Financial Protection Act obligates the CFPB
to coordinate its examinations of financial institutions with
bank regulators, yet banks continue to undergo compliance
examinations from as many as four different regulators, and
experience unproductive duplication and unnecessary costs.
Will you work to enhance coordination perhaps by relying on
the work of bank regulators?
Are there other ways that the excessive and duplicative
burdens on both banks and regulators could be reduced?
A.8. As an FTC Commissioner, I have developed working
relationships with banking supervisors throughout the United
States, and I believe coordination across agencies is not only
required by the Dodd-Frank Act but prudent as a matter of
course. If confirmed, I would continue to work closely with
other regulators as appropriate, including other Federal
agencies on the FFIEC, to identify procedures that may be
duplicative.
Q.9. Over the last several years, short-term, small dollar
products structured as ``Earned Wage Access'' products have
provided a tools for workers to access cost effective and quick
financial assistance based off their earned, but not yet paid,
wages. State lawmakers have increased their engagement in the
debate around the appropriate structure of these products. Last
year, the CFPB weighed in and issued an advisory opinion on
these products.
Given that 40 percent of Americans can't meet a $400
emergency expense (according to the Federal Reserve), what is
your general view of consumer credit accessibility?
Do you think it's beneficial to preserve a safe and
regulated marketplace for small consumer loans to meet the
needs of consumers with less-than-perfect credit?
As you approach issues around short-term, small dollar
credit, and more specifically, earned wage access products,
what are your views on the appropriate regulatory framework and
what are your plans with respect to the CFPB's 2020 Advisory
Opinion on the topic?
As our Nation's consumers reel from the COVID-19 pandemic,
responsible access to credit is more important now than ever,
especially for low-income communities. What will you do under
your Directorship to ensure consumers still have access to
credit?
A.9. Access to consumer credit is critical. I believe the CFPB
should support a competitive and responsible small-dollar
lending market in which businesses compete to provide consumers
with affordable credit. If confirmed, I would work with CFPB
staff to consider all aspects of this market. I would also work
with CFPB staff to better understand Earned Wage Access
products and other aspects of this market.
In addition, I support efforts to give consumers more
control over their money by modernizing our payments networks.
Consumers should be able to access their money as soon as it is
deposited and control when that money is debited in real time.
Q.10. When the CFPB was established, Congress intended it to be
insulated from the politics of the day and Presidential whims.
Now--because of the U.S. Supreme Court's Seila Law decision--
the Director is removable for any reason and serves at the
pleasure of the President. In fact, we are now considering your
nomination because the previous Director resigned--at the
request of the President--just 2 years into a 5-year term.
Do you think this instability is good for regulated
entities or consumers?
Do you agree the CFPB should be led by a Commission, or
should the Bureau's leadership continue to see-saw between
political parties and regulatory philosophies?
A.10. I agree that consistency and predictability are important
both to consumers and regulated entities. As to the structure
of the CFPB, that is a matter for Congress to decide.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR CRAMER
FROM ROHIT CHOPRA
Q.1. The CFPB has at times been accused of issuing press
statements with sensationalized and misleading headlines. What
will you do to ensure accurate fact-based communication?
A.1. Statements by government agencies should be clear,
accurate, and aimed at informing the public. If confirmed, I
will work to ensure that the CFPB's statements meet these
important goals.
Q.2. The Dodd-Frank Act mandated the collection of small
business loan applications under Section 1071. The CFPB is
currently working on that rule, which would require a
significant and new collection of information. One way to make
this collection faster and more efficient would be to have the
CFPB set up a database that small business owners could submit
the data to. They would then be provided with a number which
they could give to a lender each time they applied for a loan.
This would make it easier on both small business owners and
lenders. Would the CFPB be open to such a database?
A.2. Across the country, small businesses are facing
extinction, and we must do everything we can to ensure they can
access credit on fair and competitive terms. If confirmed, I
look forward to working with your office and with CFPB staff to
assess this proposal.
Q.3. Many consumer lenders subject to the CFPB's jurisdiction
are licensed by or operating under State laws governing
consumer finance--a comprehensive statutory and regulatory
regime dating to the 19th century and predating virtually all
Federal banking laws.
What is your view of the validity and efficacy of State
regulation of consumer credit?
A.3. I believe states play a crucial role in safeguarding our
financial system against risks to consumers and our economy.
Without commenting on any specific regulation, I believe
Government policymaking must be grounded in market realities,
and I look forward to working with my State counterparts on
these shared goals if confirmed.
Q.4. Will you as, a matter of course, pledge to consult State
regulators before undertaking meaningful policy changes that
override the intent and findings of State legislatures or
regulatory agencies?
A.4. As an FTC Commissioner, I am in regular contact with State
attorneys general and financial regulators, and I commit to
continuing that practice if confirmed.
Q.5. Based on the very real possibility that a regulation may
have the unintended consequence of eliminating products that
benefit consumers, do you recognize an obligation as Director
of the CFPB to exercise restraint in promulgating a rulemaking?
Given this impact, what steps will you undertake to:
Consider the costs and benefits to consumers and affected
financial services industries;
Consult with other regulators, including State regulators;
Provide an opportunity for affected persons to comment on
and object to the rulemaking; and
Evaluate the effect of the rulemaking on the availability
of credit and financial inclusion to working American families?
A.5. It is critical that regulatory actions be grounded in
data. If confirmed, I would ensure that the costs and benefits
of rules--including their impact on the availability of
credit--are considered, consistent with the Dodd-Frank Act's
requirements. In addition, I am committed to consulting with
other regulators, including State regulators, and to providing
stakeholders an opportunity to weigh in.
Q.6. In today's world, every business is subject to a myriad of
regulations, whether Federal, State, or local. While designed
to protect consumers, all regulations have attendant costs and
burdens. These burdens often prevent businesses from investing
in employees, expanding workforces, opening new locations,
enhancing infrastructure, and innovating for the benefit of
consumers and businesses. It can also result in unintended
consequences for consumers, including increased fees and
constrained choice. If confirmed, will you commit to adhering
to a robust cost-benefit analysis of proposed regulations? What
in your view constitutes a cost-benefit analysis as part of a
rulemaking process?
A.6. I believe it is important for policymakers to take account
of the potential benefits and costs to consumers and businesses
of any rule, including the potential impact on access to
credit. Any analysis should be rigorous, robust, and grounded
in data.
Q.7. How will the CFPB evaluate State-level provisions before
proposing new rules that may conflict with or preempt existing
state laws, or add unduly onerous requirements?
Can you ever envision adopting--or at least studying--a
model based on a state approach, rather than creating a new,
untested regulatory framework?
Similarly, how will the CFPB coordinate with State
officials on the Bureau's assessments of financial institutions
and related enforcement actions to ensure the greatest possible
efficiency of the Bureau's supervision programs?
A.7. States play a vital role in protecting consumers in
financial markets, and Federal regulators must consider how
their efforts align with those of states. Examining existing
State models can be useful. If confirmed, I would coordinate
closely with my State counterparts, who are on the front lines
of detecting and combatting risks to our financial system.
Q.8. The COVID-19 pandemic has had a disproportionate and
devastating impact on small businesses. As a result, it will be
imperative that your rulemaking processes be especially
sensitive to the burden that increased regulations impose on
these backbones of the American economy. Will you commit to us
that you will bring an appropriate level of attention to the
needs of small businesses and implement measures to ensure that
regulations do not destroy this critical element of our
economy?
What do you view to be the requirements for the CFPB with
regards to considering the impact of its rulemakings on small
business? What will be the role of the SBREFA process in
rulemakings moving forward, and how will that differ from what
has or hasn't been done in the past by the bureau?
A.8. Small businesses are facing extinction, and I commit to
keeping their interests front of mind if confirmed. Regulations
should be focused on combatting the biggest harms, ensuring a
level playing field, and promoting competition and innovation,
including by new entrants. While I am not familiar with all of
the details of previous approaches used internally in CFPB
rulemaking, I would ensure that CFPB regulations take the
interests of small businesses into account and comply with
SBREFA.
Q.9. The Bureau has a stated goal of transparency and the
avoidance of lobbying and other ex parte influences. If
confirmed, how would you ensure the CFPB does not fall victim
to regulatory capture, whether by consumer advocacy groups or
industry, mindful that both sides have their own motivations
and interests in the rulemaking process?
How much involvement and input do you view consumer groups
will have in the CFPB's rulemaking process moving forward? Will
they be able to provide draft language and edits, as they
apparently have done in the past? Will industry be allowed
equal involvement and input?
Under your leadership, will the Bureau commit to making
public all meeting notes and email communications to and from
third parties relating to rulemaking development?
A.9. It is critical that regulators hear from a diverse set of
stakeholders, and if confirmed, I am committed to maintaining
open lines of communication with all stakeholders. All
stakeholders should be able to weigh in with their views, and
the CFPB must make the ultimate determination based on the best
available evidence. I am also committed to full compliance with
transparency requirements, including the CFPB's ex parte
communication policy.
Q.10. Differences of opinion exist within the halls of Congress
and at other regulators where opinions are shared in a public
setting. This public forum does not exist at the CFPB. What
will you do to protect the dissenting opinions of those who
disagree and how will their opinions be heard?
A.10. If confirmed, I would welcome input from all
stakeholders, including those who may disagree. I especially
support multiple channels for input, including field hearings
held outside of Washington, where the agency can hear directly
from stakeholders in a public setting. The CFPB must also
adhere to the procedures pursuant to the Administrative
Procedure Act to solicit public feedback on proposals, where
all stakeholders can view public comments.
Public input can help drive sound decision-making, and I
look forward to engaging with the public in new and innovative
ways.
Q.11. Midnight embargoed press releases announcing rules were
not constructive or seen as a helpful way to engage
stakeholders when releasing important information. It was the
opinion of many as an unnecessary political tactic that
garnered mistrust. Will you pledge to bring more transparency
to the rulemaking process and not release rules or other major
announcements in the dead of night?
A.11. I commit to making transparency an important goal, and if
confirmed, I will carefully review the CFPB's policies and
procedures related to press announcements.
Q.12. Past Directors have stated the CFPB is a data driven
organization which uses facts as the basis for rulemakings,
supervisory proceedings, and enforcement actions. What will you
do under your tenure to ensure Bureau actions are well-founded
in facts and data?
A.12. I share the view that the CFPB's decision-making should
be grounded by data and rigorous analysis. It is important that
the CFPB undertake an interdisciplinary approach in analyzing
data, and I would solicit the views of all of the agency's
staff if confirmed.
Q.13. Will you commit to releasing all the facts and data that
are used to support your decisions during the rulemaking and
enforcement process?
A.13. Transparency is critical. I believe the public should
understand the basis for government actions. If confirmed, I
would work with CFPB staff to understand how we can ensure,
consistent with the law, that the CFPB is being transparent.
Additional Material Supplied for the Record
LETTERS SUBMITTED IN SUPPORT OF NOMINEE GARY GENSLER
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
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