The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
IMPROVING FEDERAL CONSUMER PROTECTION IN FINANCIAL SERVICES HEARING BEFORE THE COMMITTEE ON FINANCIAL SERVICES U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED TENTH CONGRESS FIRST SESSION JUNE 13, 2007 Printed for the use of the Committee on Financial Services Serial No. 110–40 ( U.S. GOVERNMENT PRINTING OFFICE WASHINGTON 37–556 PDF : 2007 For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800 Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00001 Fmt 5011 Sfmt 5011 K:\DOCS\37556.TXT HFIN PsN: TERRIE HOUSE COMMITTEE ON FINANCIAL SERVICES BARNEY FRANK, Massachusetts, Chairman PAUL E. KANJORSKI, Pennsylvania MAXINE WATERS, California CAROLYN B. MALONEY, New York LUIS V. GUTIERREZ, Illinois ´ NYDIA M. VELAZQUEZ, New York MELVIN L. WATT, North Carolina GARY L. ACKERMAN, New York JULIA CARSON, Indiana BRAD SHERMAN, California GREGORY W. MEEKS, New York DENNIS MOORE, Kansas MICHAEL E. CAPUANO, Massachusetts ´ RUBEN HINOJOSA, Texas WM. LACY CLAY, Missouri CAROLYN MCCARTHY, New York JOE BACA, California STEPHEN F. LYNCH, Massachusetts BRAD MILLER, North Carolina DAVID SCOTT, Georgia AL GREEN, Texas EMANUEL CLEAVER, Missouri MELISSA L. BEAN, Illinois GWEN MOORE, Wisconsin, LINCOLN DAVIS, Tennessee ALBIO SIRES, New Jersey PAUL W. HODES, New Hampshire KEITH ELLISON, Minnesota RON KLEIN, Florida TIM MAHONEY, Florida CHARLES WILSON, Ohio ED PERLMUTTER, Colorado CHRISTOPHER S. MURPHY, Connecticut JOE DONNELLY, Indiana ROBERT WEXLER, Florida JIM MARSHALL, Georgia DAN BOREN, Oklahoma SPENCER BACHUS, Alabama RICHARD H. BAKER, Louisiana DEBORAH PRYCE, Ohio MICHAEL N. CASTLE, Delaware PETER T. KING, New York EDWARD R. ROYCE, California FRANK D. LUCAS, Oklahoma RON PAUL, Texas PAUL E. GILLMOR, Ohio STEVEN C. LATOURETTE, Ohio DONALD A. MANZULLO, Illinois WALTER B. JONES, JR., North Carolina JUDY BIGGERT, Illinois CHRISTOPHER SHAYS, Connecticut GARY G. MILLER, California SHELLEY MOORE CAPITO, West Virginia TOM FEENEY, Florida JEB HENSARLING, Texas SCOTT GARRETT, New Jersey GINNY BROWN-WAITE, Florida J. GRESHAM BARRETT, South Carolina JIM GERLACH, Pennsylvania STEVAN PEARCE, New Mexico RANDY NEUGEBAUER, Texas TOM PRICE, Georgia GEOFF DAVIS, Kentucky PATRICK T. MCHENRY, North Carolina JOHN CAMPBELL, California ADAM PUTNAM, Florida MICHELE BACHMANN, Minnesota PETER J. ROSKAM, Illinois KENNY MARCHANT, Texas THADDEUS G. McCOTTER, Michigan JEANNE M. ROSLANOWICK, Staff Director and Chief Counsel (II) VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00002 Fmt 5904 Sfmt 5904 K:\DOCS\37556.TXT HFIN PsN: TERRIE CONTENTS Page Hearing held on: June 13, 2007 .................................................................................................... Appendix: June 13, 2007 .................................................................................................... 1 63 WITNESSES WEDNESDAY, JUNE 13, 2007 Antonakes, Steven L., Commissioner of Banks, Commonwealth of Massachusetts, on behalf of the Conference of State Bank Supervisors .......................... Bair, Hon. Sheila C., Chairman, Federal Deposit Insurance Corporation .......... Dugan, Hon. John C., Comptroller of the Currency, Office of the Comptroller of the Currency ..................................................................................................... Kroszner, Hon. Randall S., Governor, Board of Governors of the Federal Reserve System .................................................................................................... Majoras, Hon. Deborah Platt, Chairman, Federal Trade Commission ............... Miller, Hon. Thomas J., Attorney General, State of Iowa .................................... Polakoff, Scott M., Deputy Director and Chief Operating Officer, Office of Thrift Supervision ................................................................................................ 22 16 14 12 17 21 19 APPENDIX Prepared statements: Maloney, Hon. Carolyn .................................................................................... Moore, Hon. Dennis .......................................................................................... Waters, Hon. Maxine ........................................................................................ Antonakes, Steven L. ....................................................................................... Bair, Hon. Sheila C. ......................................................................................... Dugan, Hon. John C. ........................................................................................ Kroszner, Hon. Randall S. ............................................................................... Majoras, Hon. Deborah Platt ........................................................................... Miller, Hon. Thomas J. .................................................................................... Polakoff, Scott M. ............................................................................................. ADDITIONAL MATERIAL SUBMITTED FOR THE 64 65 66 67 91 120 159 180 205 219 RECORD Frank, Hon. Barney: Follow-up letter from Hon. John Dugan, Comptroller of the Currency, dated August 3, 2007, in response to Chairman Frank’s request ............. Letter from the National Association of Insurance Commissioners, dated June 12, 2007 ................................................................................................ Bachmann, Hon. Michele: Additional information requested during the hearing from Hon. John Dugan, Comptroller of the Currency ........................................................... Waters, Hon. Maxine: Responses to questions submitted to Hon. Sheila Bair, Chairman of the FDIC .............................................................................................................. Responses to questions submitted to Governor Randall S. Kroszner, Board of Governors of the Federal Reserve System ................................... Responses to questions submitted to Scott Polakoff, Office of Thrift Supervision ........................................................................................................ 236 237 239 241 246 251 (III) VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00003 Fmt 5904 Sfmt 5904 K:\DOCS\37556.TXT HFIN PsN: TERRIE VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00004 Fmt 5904 Sfmt 5904 K:\DOCS\37556.TXT HFIN PsN: TERRIE IMPROVING FEDERAL CONSUMER PROTECTION IN FINANCIAL SERVICES Wednesday, June 13, 2007 U.S. HOUSE OF REPRESENTATIVES, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. The committee met, pursuant to notice, at 10 a.m., in room 2128, Rayburn House Office Building, Hon. Barney Frank [chairman of the committee] presiding. Present: Representatives Frank, Maloney, Watt, Ackerman, Sherman, Moore of Kansas, Clay, Miller of North Carolina, Scott, Green, Cleaver, Davis of Tennessee, Ellison, Klein, Wilson, Perlmutter; Bachus, Baker, Castle, Gillmor, Biggert, Barrett, McHenry, Campbell, and Bachmann. The CHAIRMAN. The committee will come to order. There are vacant seats, so if there are citizens who would like to sit in the seats, please fill them. There are people waiting. We shouldn’t have empty seats. This is a very important hearing, in my mind, and it is one which I hope we will produce a lot of information. Contrary to the prevailing notion, sometimes Members of Congress have hearings because we want to learn things. I understand that is not the norm for hearings, but in this case, there is a need for information, and it is information to fill, in my judgment, a very clear-cut void. The preemptions by the Comptroller of the Currency and the Office of Thrift Supervision were controversial. Many of us in Congress on both sides did not like them. A former colleague, the gentlewoman from New York, Ms. Kelly, for example, was a very strong critic of them on the Republican side. But reality sets in; those preemptions are not going to be undone in any substantial way. We have a President in power who would veto any effort to do that, and by the time we might get a different President, I do not think we could unscramble that particular set of eggs. So I regret the scope of the preemptions. I acknowledge the extreme unlikelihood of our being able substantially to cut them back. There was some uncertainty until the Wachovia case was decided. Those of us who felt it was not an absolutely clear-cut decision take some solace in the fact it was 5–3; it would have been 5–4, I believe, if Justice Thomas had not recused, given his past voting pattern. But the preemptions are in place, and that leaves us with the problem, in my judgment, that we, the Federal Government, have at this point bitten off much more than we are currently able to chew. Essentially to change metaphors a little bit, we have bitten (1) VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 2 off 50 heads, but we don’t have the brainpower ourselves to replace them. What we have done is to eliminate the major source of consumer protection in the financial area, because in the American system, for a variety of reasons, consumer protection has come primarily at the State level. And let me, as an elected official, explain to people why there is an institutional reason for that, and why I am particularly concerned about the need to take serious action here. I want to say what may be imprudent, but making international macroeconomic supermonetary policy is more fun than arbitrating disputes between a cranky customer and a bank clerk. And it is much better to debate the Basel accords, or how going forward to do assignee liability in subprime, or any of a number of other issues that we have, the effect of monetary policy on employment, those are more stimulating intellectually, more rewarding than a, ‘‘He said, she said;’’ ‘‘I did not, yes, you did, no, I didn’t,’’ dispute. There is a reason why consumer protection has been more often done at the State level; State regulators are more likely to be elected officials than Federal regulators—State attorneys general, State insurance commissioners, and other State officials. This is one case where being the closest to the electorate is a serious fact. And I will tell you, in my own office, and among Members of Congress, we do a certain amount of consumer protection because we run for office. And I will tell you this: If you ask me, where is the greater intellectual stimulation, where do I think any individual energy is that I express, where will I get greater results, it is probably in making broad national policy. But cumulatively dealing with these individual consumer complaints is very, very important for two reasons: first, for the injustice done to individuals; and second, if there is no consumer protection mechanism in the society, things will go off track, and there could become this bias against consumers. Now it is not that I believe that the banks and other institutions that are regulated are rapacious or greedy beyond the norm that we are supposed to have in a capitalist system. It is just that we all make mistakes, and even more of a problem, we don’t like to admit our mistakes; we like to cover them up, we like to deny that we made them, and we like to blame other people for them. Those are human traits. I do not impute them to the banks; I impute them to human beings. Consumer protection exists to be something of a corrective force, and here’s the problem: I do not think that the Federal agencies as currently and historically constituted, given their mission, are at present adequately staffed or oriented or legally structured to provide consumer protection. I had a conversation with one bank regulator who told me that the existence of safety and soundness powers—and, by the way, we will take 20 minutes on each side. We have only one panel. This is a serious issue, and so we are going to go to the fullest extent. However, I want to lay it out so that people have a sense of where we are on this. We are going to be within our 20 and 20. I was told by one of the regulators, well, we can do regulation of consumer protections under our power to enforce safety and soundness on the banks, the argument being that a bank that does not treat con- VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 3 sumers well can be called to account because it is jeopardizing its safety and soundness. I wish. In fact, done cleverly enough, being unfair to consumers can contribute to the safety and soundness of a bank. I believe, for example, that the overdraft fees that people get hit with, where people go to an ATM and are told by the ATM that they have so much money, or they read on the ATM—I don’t think we have talking ATMs yet. I guess we do for people who are vision impaired. But when people learn from the ATM that they have so much money— and that includes, without them having asked for it, an overdraft amount—and they write a check for that, they get whacked with a fee. I wish that jeopardized the safety and soundness of the banks who did it, but I see no evidence of that. The fact is that banks are not stupid, and they do not do these things to put themselves at risk; they do them because they make money off of them. And they are there to make money and provide that money in our capitalist system to people who are invested in the intermediary function, but there are abuses. So here are a couple of problems I want to examine. One, legally, do the various Federal bank regulators have the authority to step in and replace the regulations that were done at the State level? Two, do they have the proper resources for enforcement? There is no reason why these couldn’t be changed. The fact is that even where State laws have applied, the visitation rights do not apply; States may not even enforce those laws where they can apply the law. Why? Are we the world’s best—we, the Federal Government, are we such super-duper law enforcers that we don’t need any help from anybody, and we can replace everybody else? I think the opposite is the case. I think that cooperation in this area of law enforcement is a good idea. My colleagues want cooperation in other areas of law enforcement on immigration and elsewhere. I don’t understand why we can say that all of these State regulators, with all of their experience, are totally incompetent to help us, the Federal Government, the all-wise, all-knowing, omnipotent Federal Government. So we have the legal authority. We have the statutory powers. We also have the question of the culture, and I hope that is changing. And then we have this problem, and that is why I have asked all of you to be here together. And I am going to ask you all to keep your hands on the table so that nobody goes like this when we are asking why something isn’t being done. You know, Harry Truman wanted a one-armed economist. I want regulators without fingers, because I don’t want them being pointed at other people. Here is the problem: We have been told by some of the regulators that they are not fully able to do regulation to the extent that we want because the Federal Reserve Board of Governors has not used their authority under the Federal Trade Commission Act to list things. That is why we appreciate Commissioner Majoras being here, with, by the way, I will say to you, the full acquiescence of Chairman Dingell, who has the primary congressional jurisdiction over the FTC. We have a combination. We are told, well, it is the FTC Act, and the Federal Reserve has their responsibilities under the FTC Act, and only they can give responsibilities to the other bank regulators. VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 4 Well, you are all here, and at the very least, when we leave today, we are going to know who does what, and who is responsible for what, and whether, in fact, the failure, as some have said, of the Fed to spell this out does interfere or not. So that is where we are. I do believe that we have a common interest. I do believe that the people here before us from the Federal side do want to do consumer protection, but it is not primarily what you were instructed. I have to say, and I am grateful that the Governor is here, but— let me give you this example. Former Governor Gramlich expressed a difference of opinion with former Chairman Greenspan about consumers, and Chairman Greenspan’s response was very revealing. He said, ‘‘Oh, how can people say I wasn’t interested in consumer affairs? I always followed the staff recommendation on that.’’ Can anyone imagine Alan Greenspan saying, you know, when it came to interest rates, I always followed the staff recommendation? When it came to deciding whether there were problems in the stock market, I always followed the staff’s recommendation? The fact that Alan Greenspan always followed the staff recommendation in consumer affairs is confirmation that this was not highest on his agenda. Alan Greenspan is not a man who is known for being staffled. He was not known for his intellectual passivity. Yes, he goes to the staff, because he didn’t become Chairman of the Federal Reserve, the supereconomic chiefdom of the world, to worry about a couple of people having an argument about a bank deposit in Chicago. And if we don’t do that better than I think we would otherwise do it, then we are going to have a problem. So that is why we are here. I now recognize the gentleman from Alabama. He has asked for 5 minutes. It is divided up. So I will just say to the clerks that he will have his time. Mr. BACHUS. Thank you, Mr. Chairman. Let me start by saying that I am a strong supporter of the dual banking system, and I think it has served our country well. Since the 19th century, where the OCC regulates our national banks the OCC, and then our Federal banks by the Federal Reserve and the FDIC, and our State agencies, the Supreme Court has basically preempted some State regulation on our national banks and established one national standard, which obviously provides a great deal of efficiency and ease of operation. I think a national standard—OCC preemption—reduces the costs of the banks. It enhances, I think, their ability or at least their opportunity, to serve their customers, particularly in a global marketplace. However, critics have expressed concerns about—and it is a concern that I share—the adequacy of the OCC’s regime for enforcing consumer protection. I wouldn’t have said that 5 years ago; 5 years ago, I would have said that I am confident that regulation of our national banks and our State charter banks is sufficient. But recent practices have really called into question my judgment that customers are being well served, really, by both State and Federal regulators. When we passed Check 21, we were assured by the regulators that this was a way to modernize our system, take cost out, which was an excellent opportunity to modernize and bring our banking VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 5 system forward. But we were told that it would not prejudice customers. Within 6 months, we began to get complaints that while checks were being debited to the account realtime, deposits were not. Deposits were being held until the next day. I like to cite real examples. And again, a lot of the people who come to us with these complaints, it is the principle of the matter. I said that about credit cards. I had a gentleman who was getting work done at his house, he had a guy working there, and he paid the contractor an $8,000 check. Before he paid him, he actually said, ‘‘I have to go to the bank and make a deposit.’’ He went to the bank, made a deposit, came back, and paid the contractor. Well, it was about 2:30. The contractor went to a bank around 5:00 and deposited his check. It was the same bank where the gentleman had made his deposit. The deposit wasn’t credited, but the check was, because the bank explained to the gentleman that after 2:00, it was the next business day for deposits, but not for checks. It was only the deposit which was the next business day. Now what really enraged this constituent of mine, and actually I probably had heard this on many occasions, was that his wife had written two small checks, one for $6 or $8, and one for about $18. Well, the bank could have paid those checks, but instead of paying those checks, they put the larger one in first so it would overdraw the account. He was actually told by his banker, and I confirmed this, that the bank had a computer program which took the larger check first to maximize overdraft charges. And, in fact, that has become a common practice to take the larger check when there are two or three checks presented at the same time. It maximizes the profit of the bank, but it obviously operates to the detriment of the client. Now, a lot of the people who come to complain to me, they have time, they have money, they have resources, and it is not a lifeor-death situation to them. But I am in a district that has counties where the median income is $18,000. After taxes, it is $12,000, and when someone writes three or four checks, and one overdraws their account, and the bank chooses to charge them for each of those three checks, that is $100. That can represent half of their disposable income for a week, and I see that as sharp practice. I see that as unconscionable. You heard last week, many of you, in the last week or two, you had appeared before this committee on credit cards. Many of the practices—I have heard no one defend them as saying they are fair. I have had no one stand up and say this. I have had bankers and institutions that do it say, we realize there is a problem there, but no one is addressing the problem. And all of these practices are recent practices. I talk to bankers in Birmingham. I talked to one of the gentlemen who established one of the large banks in Alabama. He said that as long as he was there—and he is in his 80’s—the bank never would have done what is being done now. He said they wouldn’t have even thought to have done such a thing. I mentioned Check 21, clearing the checks, some of the credit card things. My fear with preemption, I think it can be a very good thing. It can only be a very good thing if Federal regulators both work with the State and coordinate their efforts to protect consumers, and they also get serious about some of these abusive VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 6 sharp practices which are not just fact. Yes, it increases the profits of the bank, but that shouldn’t be—you know, that is not a justification for unfair practice. The customer has to have a seat at the table. And I would hope that Federal regulators would promote uniformity in Federal oversight, but also in strong consumer protection in both regulation and enforcement. I think that those are steps which will ultimately improve the bank’s ability to serve their customers. In this regard, the memorandum of understanding between the OCC and the Conference of State Banking Supervisors to facilitate proper referral of consumer complaints to Federal and State agencies with the regulatory authority is a step in the right direction, and I hope we will protect customers. But let me tell you what it won’t protect, the two things that we keep saying that we have, and they are important, but they don’t do the job alone. One is financial literacy. It is very important, but it is not an end-all, doall, and disclosure is not an end-all, do-all. The idea that it is in the agreement, the customer was given notice of this practice, the chairman and I discussed yesterday. We are both law school graduates, we are very proud of our academic record in law school, and yet we get these disclosures, and we don’t understand them. The practice of the banks, to us, appears as something is simple, what we call sharp practice or unconscionable. And I do believe, and many of my Republican colleagues might disagree, but I do believe the Federal regulators: one, don’t carry forward on the promises that they made to us when we passed Check 21; and two, if they do not start addressing some of these egregious practices, I do believe that the confidence of this committee and this Congress— if the Federal regulators in concert with State regulators don’t protect the customers, I believe this committee will lose confidence and take action. There are some on this committee who will never do that, they will never intervene. They will basically let the market sort it out between institutions and banks with a lot of financial resources and customers with almost no resources and very little ability to protect themselves. It is not a level playing field. And part of leveling that playing field is strong consumer protection. It has been a tradition of the Republican Party. It is a tradition I would like to see honored both on my side and on the other side. And I know these regulators; I know the people on the first panel. I know that they want to do what is right for the customer. Thank you. The CHAIRMAN. How much time has been consumed by both sides? All right. We have 14 minutes left on this side. The gentleman has 9 minutes left. I am going to recognize for 2 minutes the gentleman from Ohio, Mr. Wilson. Mr. WILSON. Thank you, Mr. Chairman. Let me start by saying, first of all, thank you for holding this hearing today, and I am pleased to be able to give an opening statement. Let me welcome our witnesses. I am Charlie Wilson. I am from the Ohio Sixth Congressional District, and it is ironic we should be doing this today because just a year ago, I was in the Ohio Senate working on predatory lending. Ohio, ladies and gentlemen, has been a victim of predatory lending, VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 7 and unfortunately we lead the Nation, the entire Nation, in foreclosures. That is not something we are very proud of, and we are a proud State with 11.4 million people, and we do a lot of things right. So we sincerely want to get started on this at the Federal level. As I said, last year we did Senate bill 185. We ran into some lame duck problems at the end of the session, and lost some of the teeth that were in Senate bill 185; however, we feel that we have made some strides toward helping. We realize it is a combination of problems that brings about the losses that we have. Let me say that it is an honor to have representation of the Federal Reserve Board, the OCC, the FDIC, the Federal Trade Commission and all of you who are here today. Thank you for taking your time, and we hope to be able to get some direction and learn from you as to what we need to do. I say this not only as a State legislator, but as a former bank chairman, and a guy who spent the majority of his life on a bank board and saw it grow in great increments and did lots of things right. I might say that when we did a lot of our investigation on the predatory lending that is going on in my home State of Ohio, it didn’t seem to be the banks, it was more the subprime and the mortgage companies, and we found different things that were really being abused that we needed to address. So I really welcome the opportunity to hear from you today as to what protections we can put in, what we can do to be able to move the ball and be able to clear up this cancer that is in our society. So I appreciate the opportunity to speak, Mr. Chairman, and thank you to the witnesses for being here today. I look forward to hearing from you. The CHAIRMAN. I thank the gentleman. Next, the gentleman from Louisiana is recognized for 5 minutes. Mr. BAKER. Thank you, Mr. Chairman. I wish to establish that I have been a preemption advocate for some time, so my position here is not necessarily inconsistent with past practices. I have challenged Attorney General Spitzer in his role as assuming the role of promisee in the securities marketplace. I was in the majority then, but I was in the minority, though, supporting that position. I have now cemented my position in the minority and continue to be in such a minority. However, I think to attempt to balance the record just a bit, the issue of preemption begins in 1819 with McCulloch v. Maryland, when a State attempted to tax the Bank of the United States. This is not a revelation that has developed since the ATM machine. This is something that has been a customary practice for one principal reason: to provide stability in our capital markets and solvency among our financial institutions who engage in risk-taking by extending credit to those who qualify for the credit they seek. Let us make clear that this is not about the OCC. The OTS has a long-standing authority for actions in preemption. In fact, during the early 1980’s, a painful time in the real estate industry under President Carter, interest rates, prime, approached 21 percent, and States began to take action to prohibit individuals from transferring the terms of their mortgage to the new borrower in order to instill an artificially low interest rate environment while the prime VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 8 rate to the lending institutions themselves were 2, 3, 4, or 5 times the availability of the funds from the existing mortgage terms. That was litigated all the way to the Supreme Court, and in the mid-1980’s, it was held as a right of the OTS for the safety and soundness of the institutions involved and, I would point out, lost in this debate is the taxpayers of the United States who stand in good faith and ready to back up the losses of those institutions should they become insolvent. And need I remind everyone that in the late 1980’s, we ultimately created the RTC, and many members of this committee spent many long hours derailing and bemoaning the actions of those thrifts in Louisiana and Texas which took extreme action to extend the losses to the American taxpayer. This is not incidental stuff. It has real-life consequences. Preservation and market stability is important. It is not necessarily just for those who are here at the table this morning. The Credit Union Association, the NCUA, is not represented here this morning. They have the preemptive right to regulate not only nationally chartered, but State-chartered, federally insured credit unions. The National Federal Credit Union Act requires the regulation of federally insured, State-chartered credit unions to comply with certain provisions of NCUA’s rules and regulations, not merely a regulator’s action, but by action of this Congress. Therefore, to unwind the preemptive role of the NCUA from the function of regulating credit unions in this country, the Congress would have to act. We simply cannot beat up a handful of regulators and claim it is all at fault. Beyond the question of the credit union, which I suggest would not likely be a helpful contribution to the overall debate this morning, an Executive Order issued during President Reagan’s term, the great defender of free markets, said Federal action limiting the policymaking discretion of the State should be taken only when constitutional authority for the action is clear and certain that the national activity is necessitated by the presence of a problem of national scope. There is a way to define the need for preemption to preserve the integrity of our national capital markets while not at the same time obviating the States’ ability to intercede on consumer protection advocacy. Both can be done, not mutually exclusive. When we look back to the authorities of the OCC currently in question, there are areas where they are not now able to preempt contract law, criminal law, torts, actionable torts, in some cases the OTS, even in zoning matters. In other cases, the OTS doesn’t match up exactly, but is similar in context. So there is an obligation of the regulator for the sake of the United States taxpayer, whether a bank, whether a savings and loan, or whether a credit union, to act in a manner which is reasonable and prudent to ensure the continued solvency of that financial system. It does not, however, require that a regulator turn their back on actions which do not serve public policy well, and joining with State regulators can take action against those who engage in activities not for the common economic good or to the prejudice of the individual consumer. If we can back this down a notch and focus our attention on where the real problem is, whether a State regulator can govern VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 9 the actions of a subsidiary of a national bank really should not be an issue. Whether you are in the main office in Chicago, or you are standing next to the potted plant in west Texas, it is the same institution governed by the same set of rules, and should they violate those rules, they will be held accountable by the national regulator; and should they engage in activities which are found to be cannibalizing the assets of normal, everyday, hard-working consumers, I will join with every other member of this committee in seeking out those problems and providing a Federal remedy, if necessary, if the States are unable to act. But if the States are able to act, we should not get in their way. And I would assume—and questions of those on the panel this morning—we can determine whether they choose or will choose to intervene in consumer protection policies and intercede on the behalf of banks, or will you balance your judgment between the consumer and stability of our financial markets. I yield back. The CHAIRMAN. The gentlewoman from New York, the chairwoman of the Financial Institutions Subcommittee, is now recognized for 5 minutes. Mrs. MALONEY. I thank the chairman for yielding and for organizing this incredibly important issue on the overarching issues of Federal and State consumer regulation. And I compliment you on the all-star cast of witnesses who are assembled today. And as you mentioned, the subcommittee which I chair is charged with consumer protections, so this is tremendously important to me, and I would say to all consumers and all Members of Congress. Whether it is in the context of credit card regulation or subprime mortgage lending, the fact of growing OCC preemption requires us to ask who is best able to make new rules and who can enforce them. I do want to mention that I have been involved and concerned about some of the abuses that Chairman Frank and Ranking Member Bachus highlighted. Chairman Frank mentioned the overdraft fees as an abuse, and I want to mention that I have legislation concerning this before Congress which would call for notice at ATMs on these overdraft fees. And in the area that Ranking Member Bachus mentioned on deposit holds, I had a bill in last year to speed up deposit holds, and in this Congress I did not introduce it. I was awaiting the response from the Fed and their report on the bank adoption of Check 21 enforcement. But it is now clear that the Fed will not be regulating, or so they have said in their report, so I will be reintroducing my bill. I do want to note that Chairman Frank and I wrote a letter last week, literally, to the Fed urging them to regulate in this area. On the issue that is before us today, it may be correct, as the OCC says, that the Watters decision changed the law very little, if at all, but in legal history books, I believe it will be seen as marking the end of one era and the beginning of the next. I hesitate to announce the impending death of the dual-banking system, but I wonder what meaningful role is left for State regulators. As an elected official, I believe very strongly in the statements earlier by Chairman Frank that elected officials are the most responsive VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 10 to the needs of the public, to the needs of their constituents and to the needs of consumers. And as a New Yorker, I know that an active State AG is a very effective consumer protector. On the other hand, in today’s global market we may no longer be able to afford the luxury of having the most banking regulators in the world. Uniformity may be an advantage we can no longer afford to do without. So I would like to see the Federal regulators prove that they can take up this responsibility and build a record on consumer protection to match the record they have built on safety and soundness. For instance, I would like to see the Fed use its authority in unfair and deceptive practices to regulate in both the subprime mortgage area and in the credit card area to ban abuses. As I suggested at last week’s hearing, maybe we should extend the power to the other agencies as well so that there would be more regulatory vigilance. Joint rulemaking would give a seat at the table to the various sectors and provide more input and different views. I would like to see the OCC and the FDIC ramp up their staffing and resources to make it possible for consumers to call and complain and get a helpful response. Structurally, I am concerned that the consumer protection sections of the agencies, that they should have direct access to the top decisionmakers and have a seat at the head table. I also think we should support and encourage efforts by Federal regulators to work with States. For example, the OCC and the Conference of State Banking Supervisors have agreed on a model framework for sharing consumer complaints that has been put into place in my home State of New York with an MOU between the OCC and the New York State Banking Department. I understand that 17 other States have followed New York’s lead and have gone forward with such agreements. I hope we can explore these and other issues, and I very much look forward to the testimony on this critically important issue. And I yield back the balance of my time. Thank you, Mr. Chairman. The CHAIRMAN. I thank the gentlewoman. I will await the Ranking Member for the disposition of his last minutes, and I will recognize the gentleman from Kansas for 4 minutes. Mr. MOORE OF KANSAS. Thank you, Mr. Chairman, for having this hearing, and again I want to also thank the witnesses who are here to testify and to help answer some of our questions about what we can do to address this issue. Before I came to Congress, I was for 12 years the elected district attorney in Johnson County, Kansas, which is a suburb of Kansas City, and our office early in my tenure investigated and successfully prosecuted a national oil company charged with breaking gas pumps to cheat consumers. Things seemed to happen again and again. We had problems then. We are having problems now. Consumers who file complaints with the consumer protection division of my office, which was really a very straightforward process, especially compared, I think, to the prospect of filing a complaint faced by banking customers today when they have a problem with their fi- VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 11 nancial institution—I don’t think the average person has any idea where to file a complaint when something has gone wrong with their bank. In the past, a consumer who had a problem with a bank would often call the banking regulator or the attorney general’s office, but the role has been significantly reduced in today’s atmosphere. When it comes to Federal regulators, I don’t think most consumers have even heard the name of the several of them—Federal Reserve, OCC, NCUA, FTC, and OTS—and they all, I suppose, have seen the sign on the bank doors, FDIC, but they don’t even know what these other institutions do. Even if the consumer knows the right Federal regulators, it is often then hard to find consumer complaint resources on the regulatory Web sites. Some of them require a great deal of searching to find a telephone number or complaint form. And when the consumer submits the complaint to the regulator, the process, I think, can be confusing and intimidating. Our committee needs to feel confident that if consumers have fewer opportunities to go to State regulators for satisfaction, the Federal regulators are doing all they can to make this process as consumer friendly as possible and using what they learned from consumers to push financial institutions for better performance. Generally consumers are seeking assistance from regulatory agencies because they have experienced some level of frustration with their bank or their financial institution. We owe it to them to ensure that the process they encounter, the resolution they receive is not a source of greater frustration than the original complaint. Again, thank you all for being here, and I hope we can work together and address some of these issues. Thank you, Mr. Chairman. The CHAIRMAN. The gentleman from Colorado is now recognized for 2 minutes. Mr. PERLMUTTER. Thank you, Mr. Chairman. Thanks for the opportunity to make a statement this morning. Recent actions such as Watters v. Wachovia give me some concerns because it weakens the role that States play in consumer transactions. The Supreme Court ruling, I believe, will make it more difficult for State banking consumer protections, which are considerably, in many instances, tougher than Federal measures, and I would ask those of you who are working with the various State regulators to continue to do that and allow for the States to continue to play a significant role in connection with consumer protection. In Colorado, we have really some good consumer protection laws, and some outstanding regulators, and the States must continue to play a role. The other day Chairman Maloney convened a hearing on consumer protection and credit card practices, and I didn’t get to speak until the very end, the third panel, and I missed many of you. But I went into sort of a tirade, and I will apologize for that now. But I did it because I come from a background representing banks and credit unions and financial institutions. But I can tell you that in Colorado, there is a populist uprising. And Mr. Bachus, I think, hit it on the head, the chairman hit it on the head. Just looking at the regulation Z—and people were calling it the periodic statement. For me it is more confusing than VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 12 the periodic table because people are getting charged so many fees and such high rates. That is where we are coming from, whether it is the ATM charge—in Mr. Bachus’ State, it is $39. Thank goodness in Colorado it is only $34. If you have a $2 overdraft, you get a $34 overcharge. If you have—you believed you paid off your card that month, but you didn’t realize there was a double billing cycle, and you still have 50 cents. You don’t pay the 50 cents, so you get a $25 late charge. That is what people are upset about. The disclosures are fine and dandy if you can understand them because they are complicated. I mean, if you look at all the different fees just on the credit card regulation Z table, which we have simplified, it is still very difficult for anybody to understand, you know, not just the ordinary guy trying to make some kind of transaction. So Mr. Baker is right about the preemption and the role of solvency versus the consumer. But what I think all of us are concerned about is that the consumer, the charges—somebody called it the other day risk-based lending. I call it profit-based lending. These fees make a lot of money for the financial institutions at the cost of the consumers, and they have gotten out of hand. Thank you, Mr. Chairman. I will yield back. The CHAIRMAN. All time has expired on this side. I believe we are through on both sides. I sincerely apologize for the length of the statements, but I think it was important for all of you to know how—and I think on a bipartisan basis we express this—we feel this concern. And we are now going to begin. No inferences should be drawn by the order. I never know exactly what the order was. Maybe people knew that our two chairs here would be color-coordinated, and they should be together. But for whatever reason, we will begin with Mr. Kroszner. STATEMENT OF THE HONORABLE RANDALL S. KROSZNER, GOVERNOR, BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Mr. KROSZNER. Thank you very much. Chairman Frank, Ranking Member Bachus, and members of the committee, I really appreciate the opportunity to discuss the Federal Reserve Board’s role in protecting consumers in financial services transactions with you today. An important part of the Federal Reserve’s mandate is promoting the availability of credit throughout the banking system. Equally important, the Federal Reserve has responsibility for implementing the laws designed to protect consumers in financial services transactions. In carrying out its responsibilities related to consumer protection, the Federal Reserve has four complementary roles: First, we write rules to implement the consumer financial services and fair lending laws; second, we examine the financial institutions we supervise for compliance and as necessary take action to enforce the laws and resolve consumer complaints; third, the Federal Reserve actively promotes consumer education through its publications in a variety of partnerships with other organizations; and fourth, VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 13 through the community affairs program, we promote community development and fair and impartial access to credit. In my oral remarks today I would like to focus on our role as rule writer. Many of the laws we implement are based on ensuring that consumers receive adequate disclosures about the features and risks of a particular product. When consumers are well-informed, they are in a better position to make decisions that are in their best interest. Effective disclosure also enhances competition and has the capacity to help weed out some abuses. Advances in technology have fostered the development of products that are increasingly diverse, but also increasingly complex. While this has expanded consumer choices, it also presents a challenge to ensure effective disclosures about these complex products. The Board is committed to developing more effective disclosures, and we have recently undertaken an innovative approach, namely using consumer surveys and testing in detail to understand consumers’ needs in order to develop our regulatory response. Consumer testing can help us improve the effectiveness of disclosures by providing insight into consumers’ understanding of financial products and their decision-making processes. Given the complexity of some products, we must also be aware of the potential for information overload and design disclosures that not only are accurate, but clear and simple enough so that they are meaningful and useful to the consumers. The Board is keenly aware that disclosures and financial education may not always be sufficient to combat abusive practices. The consumer laws implemented by the Board contain a number of restrictions, and the Board has the responsibility to prohibit other practices by issuing rules, for example, if the Board finds they meet the legal standard for unfair and deceptive practices. Crafting effective rules under the unfair or deceptive standard, however, presents a significant challenge. Whether the practice is unfair or deceptive depends heavily on the facts and circumstances of the individual case. To be effective, rules must be broad enough to encompass a wide variety of circumstances so they are not easily circumvented. At the same time, broad prohibitions can limit consumers’ options in legitimate cases that do not meet the required legal standard. This has led the Federal Reserve to focus primarily on addressing potentially unfair and deceptive practices through case-by-case determinations rather than through rulemaking. The Federal Trade Commission, which has authority to prohibit practices from financial services firms that are not depository institutions, I believe has taken a similar approach. Because prohibition on unfair or deceptive practices applies to all the depository institutions as a matter of law, the banking and thrift agencies can and do enforce prohibition using their supervised reinforcement powers. The Board also addresses concerns about some practices under other statutes, such as the Truth in Lending Act and the Truth in Savings Act. For example, the Board adopted a rule to address socalled flipping of high-cost mortgages and revised the Truth in Savings Act rules to address concerns about overdraft protection programs. VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 14 In conclusion, the Federal Reserve takes its consumer protections responsibilities very seriously and is committed to addressing abusive practices. We will consider how we might use our authority to prohibit specific practices consistent with the legal standards in appropriate cases such as when there are widespread abuses that cannot be effectively addressed on a case-by-case basis. For example, tomorrow I will be chairing a hearing to examine how the Board might use its rulemaking authority to address practices in the subprime mortgage market. We must be careful, however, not to curtail responsible subprime lending. Any rules should be drawn sharply to avoid creating legal and regulatory uncertainty which could have the unintended consequence of substantially reducing consumers’ access to legitimate credit options. Again, I want to thank the committee very much for holding this hearing today, and I look forward to the questions that you have. Thank you. [The prepared statement of Governor Kroszner can be found on page 159 of the appendix.] The CHAIRMAN. Next we will hear from the Comptroller of the Currency, Mr. Dugan. STATEMENT OF THE HONORABLE JOHN C. DUGAN, COMPTROLLER OF THE CURRENCY, OFFICE OF THE COMPTROLLER OF THE CURRENCY Mr. DUGAN. Chairman Frank, Ranking Member Bachus, and members of the committee, I welcome this opportunity to discuss consumer protection. As the Federal Reserve just said, the OCC also takes this responsibility very seriously, especially since retail banking has become a much larger part of the activities of national banks. Frankly, our comprehensive approach to consumer protection, integrating guidance, supervision, enforcement, and complaint resolution is just not well understood. The fact is consumer protection is a fundamental part of the OCC’s mission, and we are not simply a safety and soundness regulator as some have suggested. OCC supervision plays a unique and critical role in ensuring compliance with Federal consumer protection standards. Our extensive and continual presence in national banks, from large teams of resident examiners at our largest banks, to our frequent on-site examinations of our community banks, allows us to identify and fix consumer compliance issues early before they become major problems. As a result, our compliance regime is not enforcement only. Instead, it is better described as supervision first, enforcement if necessary. With supervision addressing so many problems early, that formal enforcement often is not necessary. For this reason, the number of formal enforcement actions taken by any bank supervisory agency is a misleading measure of the effectiveness of its consumer compliance regulation. Yet when we have needed to take strong enforcement action, the OCC has not hesitated to do so, often providing new standards to protect bank customers. The OCC also has developed a robust process for addressing consumer complaints. Our Customer Assistance Group integrates skilled professionals and up-to-date technology to redress indi- VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 15 vidual problems, answer questions, educate consumers, and support our consumer compliance supervision. While we believe this comprehensive approach is effective, it does have three significant limits: statutory limits set by Congress, rulewriting limits in that the OCC has no authority to write most consumer protection regulations; and jurisdictional limits in that our authority obviously only extends to national banks. Let me also briefly share our view of the Supreme Court’s recent preemption decision. The Watters case does not mark a shift in prevailing law, but it does clarify responsibility and accountability. In particular, it makes clear that Federal and State regulators both have important jobs to do, but they are different. Ours is to regulate and supervise national banks for which we should be held accountable. Theirs is to regulate State-chartered entities for which they should be held accountable. And to those who argue that there should be both Federal and State supervision of national banks, that there can never be too many cops on the beat, I must respectfully disagree. We believe it is counterproductive for States to focus their finite enforcement resources on national banks that are already heavily regulated, especially when there are lightly regulated State entities, like many subprime lenders and mortgage brokers, that clearly have been the source of real problems. You can indeed have too many cops on the same beat if it means leaving other, more dangerous parts of the neighborhood unprotected. We believe consumers benefit most when the OCC and the States focus on our respective areas of responsibility and find productive ways to cooperate. The OCC is doing just that. For example, since last November we have reached agreements with 18 States, as was mentioned earlier, to refer and share complaint information. Similarly, the OCC and the other Federal banking agencies have cooperated with the States to extend the coverage of the nontraditional mortgage guidance and the proposed subprime lending guidance. I am also very pleased to announce another cooperative initiative today on mortgage brokers: parallel examinations of national banks regulated by the OCC and the mortgage brokers that they use regulated by the States. This intersection of our regulatory jurisdictions provides a real and useful opportunity to coordinate our efforts, especially given the recent criticism of mortgage broker practices. Though still in the early stages, and limited in scope, both we and the Conference of State Bank Supervisors believe this new initiative shows real promise. Finally, my testimony provides the following suggested improvements to Federal consumer protection regulation: First, joint agency authority, including for the OCC, to write regulations defining unfair and deceptive practices applicable to banking organizations; second, a requirement that an agency charged with writing consumer protection regulations consult before issuing such regulations with the regulators charged with implementing them; third, a requirement that consumer protection regulations be revised and updated more regularly than they are now in order for the regulations to keep pace with change; and fourth, the development of a centralized Web site for complaints by consumers of any banking VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 16 institution regardless of charter to help eliminate much of today’s confusion. Thank you very much. I look forward to answering questions. [The prepared statement of Comptroller Dugan can be found on page 120 of the appendix.] Thank you, Comptroller. And next, the Chairman of the Federal Deposit Insurance Corporation, Chairman Bair. STATEMENT OF THE HONORABLE SHEILA C. BAIR, CHAIRMAN, FEDERAL DEPOSIT INSURANCE CORPORATION Ms. BAIR. Chairman Frank, Ranking Member Bachus, and members of the committee, I appreciate the opportunity to testify on Federal consumer protection in financial services. The U.S. financial system has undergone a significant change in recent years. Consumers overall have benefited from the huge number of new and innovative products and services they can now choose from. But along with all this consumer choice has come more complexity in product terms and cost structures. This complexity has created financial pitfalls for the unsophisticated and unwary. We also see many new players in the market, many of them beyond the reach of Federal regulatory agencies. The greatest weakness in today’s financial marketplace is the absence of clear consumer protection standards applied uniformly to all participants in the market. As you know, consumer protection is a key part of our job at the FDIC. We closely examine our banks for compliance with consumer protection laws and regulations and take enforcement actions where warranted. We also devote significant resources to investigating and resolving consumer complaints. And we carefully monitor and analyze consumer complaints to signal problems in particular services or financial institutions. We have several recommendations for improving Federal consumer safeguards that would provide stronger, more uniform protections and help level the playing field. First, as I have previously testified, the FDIC supports national standards for subprime mortgage lending by all lenders through HOEPA rulemaking or by statute. Ideally, national standards would include a number of elements which I detail in my written testimony, such as requiring underwriting at the fully indexed rate, restrictions on prepayment penalties, and restrictions against misleading marketing. Second, Congress should consider expanding rulemaking authority to all Federal banking regulators to address unfair and deceptive practices under the FTC Act, not just to three of the five regulators, as is the case under current law. This change in law would include the prospective input at the FDIC and OCC in rulemaking to protect consumers; together, we account for about 7,000 banks. Third, to enhance enforcement of Federal consumer protection laws, Congress could consider expanding the Truth in Lending Act as well as the FTC Act to allow State authorities to enforce those laws against nonbank financial service providers. Nonbank providers are a significant portion of today’s market. Allowing more regulators to enforce these laws would beef up compliance. Finally, I am a big believer in financial literacy. Educated consumers are better able to make sound choices and protect them- VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 17 selves against scams. Integrating financial education into existing public school curriculum, such as in math classes, would help kids from all income levels and expose them to basic financial principles year after year. There are a number of Teach the Teacher programs offered at many universities to assist school systems in integrating financial education into core curriculum, but such programs could greatly benefit from Federal financial support. In conclusion, I would say that market competition is the best way to set prices and allocate resources. However, markets need rules. Abusive or misleading financial practices not only hurt consumers, they hurt the reputation of the entire industry. The FDIC stands willing to assist you and our fellow regulators in finding ways to serve the needs of consumers and the markets. Thank you, and I would be happy to answer your questions. [The prepared statement of Chairman Bair can be found on page 91 of the appendix.] The CHAIRMAN. Next, the Chair of the Federal Trade Commission. And Chairwoman Majoras, we know we are not your usual venue, so we very much serious appreciate you doing this. But it did seem to us that having all the regulators together is really the prerequisite, and we hope that this won’t be the last time you all will be together talking about this issue. Madam Chairwoman, please proceed. STATEMENT OF THE HONORABLE DEBORAH PLATT MAJORAS, CHAIRMAN, FEDERAL TRADE COMMISSION Ms. MAJORAS. Chairman Frank, Ranking Member Bachus, and members of the committee, I am pleased to be here with you and with my colleagues today. Because financial issues affect all consumers, whether they are buying a home, trying to improve their credit rating, or dealing with rising debt, protecting consumers of financial services is a key part of the mission at the FTC. Now, of course, the FTC is primarily a law enforcement agency. We don’t have the same sort of supervisory authority over particular entities that some of my colleagues here have. And, of course, we don’t have jurisdiction over banks. But under the FTC Act and several other consumer protection and financial statutes, the Commission has broad jurisdiction over nonbank financial companies, including nonbank mortgage companies, mortgage brokers, finance companies, and some units of bank holding companies. The FTC uses three main tools to protect consumers: law enforcement; consumer education; and policy research and development. We focus our investigations and prosecutions on combating and preventing unlawful acts and practices that are most likely to cause consumer harm. Recently in this area, we focused on the following: mortgage lending and servicing; nonmortgage lending and leasing; gift card sales; advance fee loan scams; debt collection practices; credit and debt counseling services; and credit reporting. The Commission has targeted deceptive or unfair practices in all stages of mortgage lending, for example, from advertising and marketing through to loan servicing. In the past decade, the FTC has brought 21 such actions, focusing particularly on the subprime market. VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 18 As a result of these actions, courts have ordered the return of more than $320 million to consumers. And because law enforcement is highly effective, indeed, it is most effective when government agencies cooperate, we have done so whenever possible and appropriate. For example, we brought an action against Fairbanks Capital Corp., one of the country’s largest third-party subprime loan services a few years ago with HUD. We charged that Fairbanks failed to charge consumers’ payments upon receipt, charged unauthorized fees, and reported consumer payment information that it knew to be inaccurate to the credit bureaus. And Fairbanks and its former CEO paid over $40 million in consumer redress. Attacking debt collection abuses is another critical part of our agenda. Today, I am announcing the Commission’s 20th debt collection case since 1998. This week, the FTC filed an action to stop debt collectors who targeted Spanish-speaking consumers and engaged in repeated egregious violations of the Fair Debt Collection Practices Act. The case has been filed under seal, and we are waiting for the judge to rule in our request for a temporary restraining order. Another recent area of enforcement has been gift cards, and we recently brought two cases against sellers of gift cards that carried concealed fees. Both Kmart Corporation and Darden Restaurants agreed to settle claims that they engaged in deceptive practices and advertising in selling gift cards and are now implementing programs to either refund consumers or restore fees that were deducted from the consumers’ gift cards. Now, while law enforcement is essential, consumers are best served if they can avoid the injury in the first place. To empower them to avoid the harm, we have developed extensive consumer education programs addressing financial services focusing on expanding the reach of these materials to get them out there. In the last fiscal year, we distributed over 4 million printed copies of financial education brochures, and had over 6 million hits on the same publications on our Web site. In addition, we have educated young people who have limited experience with credit by conducting outreach on college campuses, at local district college fairs, and in high schools, including local high schools here in the District. Of course, financial services markets are dynamic and continue to evolve, and recognizing that, we and other policymakers must continually assess how we adapt our policies and practices, and how we engage in research and policy development concerning financial services and consumers. And today the Commission’s Bureau of Economics released a study that confirms the need to improve mortgage disclosures. The key findings of that study, which we have with us here today, are: first, that the current federally required disclosures fail to convey key mortgage costs to consumers; second, that better disclosures— there was a prototype that our economists used—can significantly improve consumer recognition of the various costs; third, that both prime and subprime borrowers fail to understand key loan terms, and they benefited from improved disclosures; and fourth, not surprisingly, that improved disclosures provide the greatest benefit for VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 19 more complex loans, whether they were prime or subprime. We look forward to working with our colleagues on the next steps. Looking ahead to October, the FTC, in response to a growing number of complaints about the practices of debt collectors, is holding a public workshop to examine changes in debt collection and the impact on consumers and competition, and we hope whatever we learn there we can use to assist policymakers in developing further laws, policies, and procedures. Mr. Chairman, and members of the committee, I appreciate the opportunity to provide the FTC’s input today, and I assure you that you have our commitment to work tirelessly for the consumers of this Nation. Thank you. [The prepared statement of Chairman Majoras can be found on page 180 of the appendix.] The CHAIRMAN. Next we have Scott Polakoff, the Deputy Director and Chief Operating Officer of the Office of Thrift Supervision. STATEMENT OF SCOTT M. POLAKOFF, DEPUTY DIRECTOR AND CHIEF OPERATING OFFICER, OFFICE OF THRIFT SUPERVISION Mr. POLAKOFF. Good morning, Chairman Frank, Ranking Member Bachus, and members of the committee. Thank you for the opportunity to present the views of OTS on the adequacy of consumer protections in financial services. Consumer protection, maintaining the safety and soundness of the thrift industry, and ensuring the continued availability of affordable housing credit are three critical responsibilities of the OTS. On the subject of today’s hearing, consumer protection, there are four important components detailed in my written statement. Briefly, effective consumer protection by regulators requires: Number one, an emphasis on consumer protection in both the examination process and the application process; number two, an effective supervision program including the use of formal and informal enforcement actions to address threats to consumer protection; number three, a robust consumer complaint mechanism to address issues as they arise and to use the information in the supervisory process; and number four, effective training and continuing education of examiners regarding consumer protection issues. OTS has a consolidated examination structure that is unique among the Federal banking agencies. The program combines our safety and soundness and compliance examinations to better address institutions’ risk during the exam process. Part of the rationale for this approach is that compliance and safety and soundness go hand-in-hand. We believe this provides a more comprehensive assessment of an institution’s risk profile, more accurately exposes weaknesses and deficiencies in an institution’s overall program, and provides us with an accurate assessment of an institution’s overall business strategy. Our examiners are subject to an intensive cross-training program to acquire the knowledge and skills needed to lead a melded examination. We also maintain a cadre of compliance experts to assist examination teams in handling complex compliance matters. VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 20 Because Federal thrifts may conduct their lending and deposittaking programs subject only to the requirements of Federal law, the OTS is required to ensure that Federal thrifts conduct their activities and programs in compliance with applicable consumer protection laws and subject to rigorous scrutiny of all aspects of an institution’s program. We regularly examine risks for compliance with Federal protection statutes including the Truth in Lending Act, HOEPA, RESPA, the Truth in Savings Act, ECOA, the Fair Housing Act, and the Credit Reporting Act, among others. We also continually track, investigate, and respond to consumer complaints involving thrift institutions. We follow up with the institution on all consumer complaints filed with the Agency, and we typically process and conclude consumer complaints investigations within our 60-day timeframe. In addition, this data plays a significant role in identifying areas to focus on during on-site examinations in assessing the adequacy of an institution’s overall compliance management program and in pursuing corrective action that may be appropriate to address programmatic weaknesses or deficiencies. I should also mention that we have finalized the model memorandum of understanding with the Conference of State Bank Supervisors to share consumer complaint data between the OTS and State banking supervisors. When an institution’s lending programs are found to be potentially predatory or lacking adequate controls to support responsible lending, there are numerous options that OTS can take to stop these practices and correct the situation. These include formal enforcement actions and informal agreements. While we find informal actions to be an effective mechanism to address these types of supervisory concerns, we do not hesitate to use our formal enforcement authority when appropriate. Fundamental to our continuing oversight of the industry we regulate is ensuring that institutions conduct their activities in a manner consistent with sound consumer protection. In my written statement we describe various programs, publications, and initiatives that the OTS has worked on its own and cooperatively with various other agencies and organizations to promote consumer education and responsibility. We also have various initiatives to improve financial literacy, and we work closely with our institutions to encourage them to do the same. Regarding the adequacy of our existing authority to address consumer protection issues and potential abuses that may arise going forward with the programs of OTS-regulated thrifts and their affiliates, I believe our authority is complete and adequate. I do not believe that an additional statutory authority is necessary at this time for OTS to continue to effectively supervise, regulate, and enforce Federal consumer protection laws. I look forward to answering your questions and thank you for the opportunity to comment. [The prepared statement of Mr. Polakoff can be found on page 219 of the appendix.] The CHAIRMAN. Next to represent those involved here, the attorney general of the State of Iowa, who has been active with the VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 21 other State attorneys general, and I believe speaks for many of them today, Mr. Tom Miller. STATEMENT OF THE HONORABLE THOMAS J. MILLER, ATTORNEY GENERAL, STATE OF IOWA Mr. MILLER. Thank you, Mr. Chairman. Mr. Chairman, Ranking Member Bachus, and members of the committee, thank you for inviting me, and thank you for listening to the views of myself and State attorneys general. The Watters case, I suppose we could debate whether it changed the law or reaffirmed the law, but that debate is over. What has happened, though, over the last 5 to 8 years is that the practice has been changed, the practice of the role of State AGs and State banking superintendents, in dealing with consumer complaints in the banking area and related areas. For decades, we dealt with those complaints, we dealt with those issues. Now we are prohibited from doing so in many instances. So the practice has changed considerably under the direction and institution of the OCC. So we—like the chairman, like CSBS—think the law should be changed. We think the States should have the role that they played for decades, really, starting from the 1960’s on, with consumer protection, but we recognize that the law probably won’t be changed. I think the chairman stated the political realities very, very well. So what happens next? I think the huge challenge for the Federal people is the volume of complaints. This is the potentially intractable problem—probably millions of complaints each year, some of them not heard, but out there and maybe will be heard by the Federal regulators. How do they deal with those complaints? Now many of those complaints at a national level don’t have a lot of significance, but for that individual person, it has a huge amount of significance. That is their challenge. Now, what do we, State attorneys general, think might be done? Well, first of all, they have considerable rulemaking power that generally in the past has not been used, in part because I think they thought the States were doing these kinds of activities, and we were. So they have rulemaking authority. And they have enormous power because of their regulatory authority over the various banks and institutions. So that is an enormous opportunity, but they can’t be reticent, for whatever reason, to use their authority. Recently, as a result of a New York Times story, the demand draft issue has come forward where people can send through demand drafts, checks that are unsigned, if they get the bank account number, and clean out a person’s account. Well, that is something the Federal regulators can take care of. In that story, it indicated that the bank involved, 59 percent of the checks were returned. Well, consumer protection people would tell you if it is 2 or 3 or 4 percent, that is fraud in the biggest, strongest possible letters as a warning signal. So the Federal regulators need to figure out where the banks—when they get a certain percentage of checks returned for those reasons, they have to investigate, and invariably they will find fraud. And frankly, if they do that, they can do in this area more than the State attorneys general and do it more effectively. VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 22 Another area is what I call soft-core fraud dealing with membership clubs and getting people in membership clubs and banks giving the names and sharing the profits. Banks shouldn’t be doing that. They shouldn’t be using their names. The regulators can stop that, and, again, more effectively than the States. The Federal regulators have to get the expertise in consumer protection. They have some, but they need a lot more, because as a practical matter, they have a lot more responsibility. They can draw perhaps on former State officials that dealt with this area, and many others, to build up their expertise in the consumer area. And it is also a matter of focus. The chairman was, as always, brilliant on that, that the focus has been safety and soundness. The focus of consumer protection with this increased role has to increase at the agencies. And finally, in terms of complaints, I go back to that, that is something that in an informal way we might help on. But in any area where there is problems and challenges, there is opportunities, and I think there is one amazing opportunity that is present today, and that is for all of us to work together in the subprime area and on predatory lending. That is an area where we still have some considerable authority. And if we work together, what has happened is that some of the bad actors are out of business; some of the better actors are continuing in business and have reputational issues. There have been problems that have been raised for the country. There has been pain for both consumers and investors. This industry, which is a chronic one, could be cleaned up if we all worked together—meaningful, not just lip service, but we got together, shared our expertise and shared our power, figured out on an ongoing basis at a staff level—I have a a guy, Patrick Madigan, who works this all the time. He understands it completely. There are other people in the State offices and in the Federal offices. If they worked on it on an ongoing basis, and the principals, the elected officials, the appointed officials, came in at the appropriate time, we could clean up the subprime industry if we worked together, and if we had the will to use the powers that we all have on a complementary, comprehensive basis. Thank you, members of the committee. [The prepared statement of Mr. Miller can be found on page 205 of the appendix.] The CHAIRMAN. And now my own State bank commissioner, Commissioner Steven Antonakes, from Massachusetts. STATEMENT OF STEVEN L. ANTONAKES, COMMISSIONER OF BANKS, COMMONWEALTH OF MASSACHUSETTS, ON BEHALF OF THE CONFERENCE OF STATE BANK SUPERVISORS Mr. ANTONAKES. Good morning, Chairman Frank, Ranking Member Bachus, and distinguished members of the committee. My name is Steven Antonakes, and I serve as the commissioner of banks of the Commonwealth of Massachusetts. I am also the chairman the FFIEC State Liaison Committee. It is my pleasure to testify today on behalf of the Conference of State Bank Supervisors. I commend you, Mr. Chairman, for calling this hearing to discuss consumer protection and financial services. The States have long been recognized as leaders in providing consumer protection. CSBS VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 23 is committed to working with Congress and our Federal counterparts to further the development of a fair and efficient system of consumer protection that serves the interest of financial services customers. As you may know, nearly every consumer protection that exists at the Federal level or that Congress is currently contemplating, has its roots in State law. However, as the result of OCC and OTS interpretations supported by the courts, it is unclear if the States will continue to have the ability to serve as the laboratory for innovation for banking consumer law. Maintaining a local role in consumer protection and a strong State banking system is more important than ever as our Nation’s financial system consolidates. As the Nation’s largest banks become less connected with the communities they serve, they are also finding ways to become less accountable to those communities through preemption of State law and law enforcement. CSBS believes that the effective supervision of the financial marketplace requires a coordinated effort among the Federal agencies and the States. Ultimately the goal for Congress and the regulators should be to create an efficient supervisory structure that allows institutions to compete effectively and to make their products and services available to a broad demographic while offering effective consumer protection and recourse against fraudulent and abusive practices. Recently the States, through CSBS, agreed to a framework for the sharing of consumer complaints and resolutions between State agencies and the OCC and the OTS. CSBS and the OCC are also working with the other agencies to develop a model consumer complaint form. In addition, I look forward to working with Comptroller Dugan to coordinate examinations of national banks and State license brokers and originators. These are all positive steps to improve service to consumers, however, these efforts do not address our fundamental concern about the impact of OCC and OTS preemption on how consumer protections are developed and how they are enforced. Recognizing that only Congress can address our concerns, we would suggest the following: Congress should require that the FFIEC write regulations and guidance for consumer protection. This will allow the States to have more input in the process and result in more consistent standards for consumers. Congress should give the FFIEC rule-writing authority for unfair and deceptive acts and practices. Congress should consider creating a centralized system for the collection and distribution of consumer complaints to the appropriate regulators. Additionally, banks and their subsidiaries should disclose who their primary regulator is and how to address consumer complaints to that specific regulator. We ask that Congress direct the Federal banking agencies to list applicable and preempted State laws. The Riegle-Neal Interstate Branching Act stated that the OCC shall enforce applicable State consumer protection laws. It is important that banks, the States, and consumers know which State laws are being enforced and which have been preempted. VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 24 Congress should clarify State enforcement authority and the limits of applicable State law for federally chartered institutions. State legislators and attorneys general need a clear statement of their roles in protecting the citizens of their States. The current state of confusion is not acceptable. And Congress should encourage Federal and State coordination to develop consistent interpretation and enforcement of applicable State laws. I urge Congress to continue its examination of the adequacy of OCC and OTS consumer protections and enforcement. The States, through CSBS and our involvement on the FFIEC, want to be part of the solution. We want to ensure that consumers are protected regardless of the chartering agent of their financial institution. We want to preserve the viability of both the Federal and State charter options to maintain a meaningful choice in charters and the success of the dual-banking system. Thank you for inviting me to testify. I look forward to your questions. [The prepared statement of Mr. Antonakes can be found on page 67 of the appendix.] The CHAIRMAN. Thank you. I am going to swap places with the gentleman from Kansas, Mr. Moore. He will ask in my place, and I will wait until he would have been reached. I recognize the gentleman from Kansas. Before that, I want to introduce into the record a letter from the National Association of Insurance Commissioners, by unanimous consent, in which they say, ‘‘We would like to share with you some of the examples of the negative effects of Federal preemption on State regulation of health insurers.’’ They acknowledge that we don’t have health, but they are expressing their concerns about the negative effects of preemption in that area. That will be part of the record. The gentleman from Kansas. Mr. MOORE. Thank you, Mr. Chairman, for swapping time with me here. I want to ask a question of Mr. Dugan. Pages 21 and 22 of your testimony indicate that data derived from your customer assistance group are used in identifying problems at banks. OCC claims that it fields 70,000 inquiries and complaints each year compared to the OTS, which received 5,200 complaints in 2006, and the Fed, which received 1,900 in each of the last 2 years. And I want to refer to a GAO report in February of 2006 which says, in reporting its performance, OCC includes data on its response to consumers’ inquiries which typically take less time, thereby overstating its performance on timeliness to responses or complaints. Could you break down that number, that 70,000 number, for me in terms of inquiries versus complaints? Can you give examples of enforcement actions, formal or informal, that originates from consumer complaints? Can you break down the number first, sir? Mr. DUGAN. I can get the number on breaking it down for complaints versus inquiries in just a moment, but we don’t trace which inquiry leads to a formal or informal enforcement action. More often than not, these lead to situations where we assist the con- VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 25 sumer by resolving a dispute and providing financial relief. We have tracked and provided over $30 million of financial relief to consumers in the last 5 years that was facilitated through that process. Mr. MOORE. You are familiar with this GAO report in February of last year, correct? Mr. DUGAN. Yes, I am familiar with it. I am not sure these are the same ones that you are talking about, but it is the 41,000 inquiries and 29,000 complaints. I am not sure that is the bar that you were looking at. Mr. MOORE. That is really what I was looking for. Mr. DUGAN. And we are very familiar with that recommendation. We do break that down directly like that now as a result of the report. We are quite conscious of that. Mr. MOORE. Thank you. According to this GAO report, OCC agreed with the conclusions and recommendations. Mr. DUGAN. Yes, sir. Mr. MOORE. You are going to follow that? Mr. DUGAN. Absolutely. Mr. MOORE. I appreciate that. I am pleased that some of you mentioned in your testimony, and the attorney general mentioned in his testimony, that you are working toward the goal of a uniform consumer complaint. I think OCC talked about that and OTS and FDIC in your reports. While you are developing this uniform complaint, which I think is great, wouldn’t it be helpful to create a single toll-free number—any comments by any of the panelists on that—so people who had a problem with their financial institution would know where to go? I looked at some of the Web sites, and it is very, very confusing and takes several clicks sometimes to get to a complaint form or a toll-free number. Any comments about a single toll-free number that maybe all financial institutions could use? Mr. DUGAN. Speaking for the OCC, I think this is an idea definitely worth exploring. We have had some preliminary discussions in a forum. I think the FTC actually has a number that they use in these sorts of circumstances. It is more complicated than it first sounds, but we can do more as a group to have a centralized, easyto-understand, easy-to-find function. And as my testimony indicates, I really do think we should pursue that. Ms. BAIR. Could I add, since we are the deposit insurer, the FDIC logo is displayed in all banks and thrifts. Because we recently needed to change our logo due to the merger of two of our funds, our Web site and all the information that is sent out about the FDIC is displayed at banks and will have our Web site address on it. Anticipating your question, it only took us two clicks to get to the complaint form on our Web site. But if we could improve that and put the complaint form on the FDIC home page, I am happy to do that. But I do think that de facto we serve as a clearinghouse now because a lot of people come to us because they know our name. We would be happy to expand upon that role. Mr. MOORE. Any other comments by panelists up here? Mr. Kroszner? VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 26 Mr. KROSZNER. We also have been moving towards having a single 800 number for all the Federal Reserve banks, because we have a system of 12 regional Federal Reserve banks. Rather than have the customer try to find the regional Federal Reserve bank that is appropriate to them, by 2008 we will have a centralized clearinghouse with one number for everyone to call. I am very much supportive of that idea. We also now have a beta version of the Web site up that if you have your institution’s name, you can type that institution’s name in, and it will tell you whether it is a Federal Reserve supervisor, an FDIC supervisor, or an FCC supervisor, etc. Also, if you call that 800 number, there will be a person who can tell you if it is a Fed institution, or it is an OCC or other institution, and then direct the person directly to that. But I think it is extremely valuable that we do this, and we are working towards that end. Mr. MOORE. A real person you are talking about that consumers can talk to? Mr. KROSZNER. A real person, not a series of, ‘‘Press 5 if you would like to wait for 5 minutes.’’ The CHAIRMAN. In what country will this real person be working? Mr. KROSZNER. I believe—this will be up in 2008, but I believe that real person will be working in the United States. The CHAIRMAN. That is reassuring. The gentleman from Alabama. Mr. BACHUS. Thank you, Mr. Chairman. Comptroller Dugan, you mentioned the importance of working with State officials. Could you give us some greater detail on areas where you have worked with them or you are open to working with them in the future? Mr. DUGAN. Absolutely. As I mentioned, we have been trying for some time to figure out a way to share consumer complaint information, and, last November, after a series of meetings and good cooperation of the Conference of State Bank Supervisors, we adopted a model memorandum of understanding where we can share information about complaints, get referrals, and report back on the disposition of information. And, as a result of that, we entered into an agreement first with the State of New York, and since then with 17 other States, and we are pursuing that with a number of other States. We have entered into similar agreements with 14 State insurance commissioners. When we did our nontraditional mortgage guidance, it became apparent that a huge part of the mortgage business is being conducted at the State level, not just by non-national bank people, but by nonbank-affiliated lenders. Over half of the subprime mortgages were issued there, for example, and it became very important for us to have some kind of agreement by States to adopt similar rules for that. Lastly, as we just announced today, we have spoken with Commissioner Antonakes and the State of New York’s commissioner, Superintendent Neiman, to try to develop a way to look more closely at State-regulated brokers that originate mortgages that are used by national banks, and have parallel examinations where we can share information. I believe this will be particularly important going forward to make sure this new guidance is being imple- VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00030 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 27 mented not just by employees of the banks that we supervise, but by the brokers that they use and with whom the banks don’t necessarily have the same kind of contact as they do with their own employees. Those are several types of things. We are open to other kinds of suggestions. We welcome them. Mr. BACHUS. Complaints that OCC has not taken any enforcement actions, does that indicate you are not doing your job? Mr. DUGAN. No. It is something I did try to spend some time discussing in our testimony. First of all, we do take enforcement actions. We are not an enforcement-only regime as is the case in many places that don’t have regulated institutions. We, because of our extensive presence in the banks that we supervise, which is also true of the other bank regulators, are able to effect change much more quickly in a way that never reaches an enforcement action. We have a series of graduated steps that we take to effect corrective action beginning with something called a ‘‘matter requiring attention.’’ And, if you look at our record over the last 5 years, which we did in anticipating this hearing, we totaled up the number of formal enforcement actions that we took in consumer-related issues. It is about 200. Similarly we took about 200 informal enforcement actions on consumer issues. But if you look at the ‘‘matters requiring attention’’ that start this process, there were 1,500 of them. And that is what you want to see. You want to see identification early of what those problems are, telling management to fix this, and they don’t result in enforcement actions but instead result in correction. The problem for us is that as a public relations matter, people don’t see that. And that is the point really I am trying to get across, which is you can’t measure how well we do what we do in this area by only looking at formal enforcement actions. Mr. BACHUS. All right. Let me ask the total panel, anybody, if you would like to comment. Neither the OCC or the FDIC has rulewriting authority to define unfair and deceptive practices under the FTC Act. Is that going to limit your ability to protect consumers? Ms. BAIR. Well, we enforce UDAP, but we don’t have the ability to write rules. And so because there are no rules, we are finding out we have to use case-by-case determinations and consult a great deal with the Fed and the FTC about what is unfair or deceptive because we don’t have the ability to define these terms. Rule-writing authority would be extremely helpful, especially in the subprime area. If you have a rule, you can have a preventive effect. You can let the industry know as a whole that certain types of practices are going to be viewed as unfair and deceptive, as opposed to having to go in bank-by-bank in the supervisory process. Also, if you take informal action, it is not public, so there is not any precedential impact. It will certainly be used in consultation and coordination with the other regulators, and I do think it would be helpful. Mr. DUGAN. And I would just add that I agree with that. For many years it was not clear that banking agencies could even take enforcement action under unfair and deceptive. The OCC was the first agency to go down that path. We have taken a number of en- VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 28 forcement actions on a case-by-case basis, but we do think it would be helpful to have rule-writing authority. Frankly, I think it would be most helpful to have it on a joint basis. Our concern is that if one agency adopts a rule, people could use other charters to do the same activity, although I agree with my colleague that as a practical matter we would probably work together in any event. But I do think that is important. Mr. BACHUS. Could I ask one other question? Have any of the regulators or the FDIC found any credit card practices to be unfair or deceptive? Let me highlight three or four. One is that they apply your payment to your lowest interest rate. Another one is universal default where they increase your interest rate simply because your credit score goes up, or you approach your credit limit, or you take out a loan to buy an automobile, or a double-billing cycle, or a short billing cycle. Even I now face a situation where you are up here all week, and sometimes you get home, and you have about 8 days or 6 days to get that check in the mail. And the cycle continues to shorten, it appears. And they also—as the chairman documented, many times they will—even though the payment arrives on a certain day, it is posted, but it is not credited until the next day. Mr. DUGAN. We regulate a number of the credit card banks in the country. We have taken a number of enforcement actions against credit card banks for unfair and deceptive practices, primarily subprime credit card practices, and as a result there are very few subprime credit card providers left in the national banking system. Having said that, the types of practices you described, doublecycle billing, universal default, those are not things that we have taken or regarded as unfair and deceptive so long as they are adequately disclosed. The regime that we have always operated under as a statutory matter is that fees and charges are not things that we generally regulate unless they rise to the level of being something that is unfair and deceptive the way that is defined in the Federal Trade Commission Act. And if those fees are adequately disclosed, they have not been treated as unfair or deceptive, and I don’t know of any regulator that has treated them that way. Ms. BAIR. I think those practices are highly troubling, but even assuming we thought they were unfair or deceptive, we would not have the ability to write a rulemaking that determination, whereas, we can write rules on safety and soundness. I think previously you mentioned that universal default, in effect, is piling onto a person who has problems already. Perhaps you could make a safety and soundness argument to issue a rule to address the problem of universal default. However, since we only have 15 percent of the credit card market, even if we could find authority under safety and soundness to write a rule, we would be imposing a rule only on FDIC-supervised credit card issuers that would not apply to banks not supervised by the FDIC. The CHAIRMAN. And you would pretty soon have 1.5 percent of the market and not 15 percent if you had rules and he did not. The gentlewoman from New York. Mr. BACHUS. The Chairman of the FTC was trying to— VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00032 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 29 The CHAIRMAN. I am sorry. Please, Madam Chairwoman. Ms. MAJORAS. I was going to add one thing. At the FTC, we don’t have jurisdiction over very many credit card issuers because so many of them are banks, but where they haven’t been, we have brought cases under deception and unfairness authority. And we do have a rule that prohibits advance-fee credit card and loan schemes. A lot of these are out-and-out scams, which is where we specialize. But I would point out that is one of the places where we do have a rule, but most of the time we use our deception and unfairness authority without any rules. We just use it in our enforcements. The CHAIRMAN. I was glad you mentioned gift cards. That is an issue where in Massachusetts we went after where you gave a gift, and pretty soon it was you gave a gift that kept on shrinking, and you did not know that. By the time the person cashed the gift card, you looked like Uncle Cheapskate because it was half of what it was supposed to be. I congratulate the Comptroller—I think it was the Comptroller’s predecessor. There was an effort by the issuing banks who were shilling for the merchants there to invoke the preemption, and the OCC did not go along with that. So we were able to preserve, I believe, State authority there. But I appreciate you bringing it out. That is the prime example of the kind of protection we want to give. The gentlewoman from New York. Mrs. MALONEY. Thank you, Mr. Chairman. I was impressed with the list of reforms Chairwoman Bair proposed for Congress. And I would like to ask the other panelists about some of them, particularly the Honorable Kroszner and Honorable Dugan. What do you think of giving the States a greater enforcement role under truth and lending and the FTC Act against nonbank financial providers? And also the FTC? Mr. DUGAN. I think it is a good idea myself. You might say it is easier for me to say because you are not saying it is providing it against national banks. But I do think that what recent history has shown is that the less regulated institution—and here I am not talking about State banks, I am talking about State-chartered institutions that are not regulated, like mortgage brokers or mortgage lenders—have been a significant source of the problem, and I think finding a way to devote more resources to addressing that issue is a good thing. Mrs. MALONEY. Mr. Kroszner. Mr. KROSZNER. I certainly agree it is very important to devote resources to protect consumers, and there are many things that are outside the scope of what the Federal Reserve can do in terms of enforcement, and so we very much rely on and coordinate with the States both for the institution—certainly for the institutions that we regulate, the State member banks. We coordinate very much with the States on those institutions. But there are many institutions, as Comptroller Dugan mentioned, that are outside of our purview for enforcement, and so providing appropriate resources to make sure that the laws are enforced to protect consumers is very important. Mrs. MALONEY. And Chairman Majoras? VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00033 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 30 Ms. MAJORAS. There is no question in my mind or anyone at the FTC about the States’ importance in enforcing consumer protection laws in this country. We work with them all the time, and we are a relatively small agency, and if we did not have them working side by side with us, we would do a lot less. So I will start by saying that. The FTC has always taken the position that the States don’t need authority under the FTC Act because—Tom could probably say it better—if not all of them, almost all of them have what we call little FTC Acts; in other words, they have passed their own statute that essentially mocks the FTC Act. And so we have previously said we don’t think it is necessary. We file cases as co-plaintiffs or in big law enforcement sweeps where we announce cases on the same day all the time, and it has not inhibited us. The thing to remember is that if you have too many regulators all enforcing the same statute, you can end up with some inconsistency. And what the States have typically done is look to Federal case law under the FTC Act, and that has kept us all, I think, marching in the same direction. Mrs. MALONEY. I am also concerned about this, and it has been touched upon. I am concerned about banks entering into agreements with unregulated third parties who want to issue subprime credit cards. And I know the FDIC has investigated some of these activities, and I would just like to know, or to get a sense of, how big is the rent-a-charter problem? And is there a role for the States in this area? And how can Congress help? Maybe start with the FDIC and the OCC and the Fed. Mr. DUGAN. Well, as I said earlier, we had a number of significant problems both on the safety and soundness and the consumer protection side with subprime credit card practices. We took a number of quite strong enforcement actions, and as a result of that whole series of actions that we took over a period of years, there just are not many subprime credit card lenders in the national banking system anymore. Ms. BAIR. We carefully scrutinize these arrangements because they are prone to abuse. We are conducting a joint investigation with the FTC right now concerning the so-called rent-a-bin arrangements. We have identified about 10. We, again, closely scrutinize them. I don’t know if I can categorically say they are all problematic, but they are certainly prone to abuse, and we are carefully reviewing them. Mr. KROSZNER. Fortunately, we do not have any banks that are engaged in this practice, so we haven’t undertaken any actions because there are no banks doing this. Mrs. MALONEY. Any other comments? And then my time has expired. Mr. MILLER. This is our great nightmare, of course, the rent-acharter situation, where there could be enormous bad actors using the shield of Federal preemption. I think by and large, so far, Federal agencies have been fairly vigilant about that issue, and they really need to be. That is probably the biggest nightmare that we are dealing with in the sort of set of circumstances we have been put in with the Watters case and related cases. VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00034 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 31 Mr. POLAKOFF. Congressman, I would offer from the OTS perspective that rent-a-charters are simply not acceptable, and if we find it, we stop it. And whether it is credit card, subprime credit card, payday lending, it makes no difference. It is not an acceptable practice. The CHAIRMAN. The gentleman from Louisiana. Mr. BAKER. Thank you, Mr. Chairman. I am appreciative of the fact that there has not been insurmountable attention given to the preemption issue, but rather where do we go now, in light of the definitive decision in the Watters case? Mr. Dugan, in your testimony you recite the observation that the FTC Act vests with the Federal Reserve the ability to regulate unfair or deceptive practices at banks—comparable authority is invested with the OTS for thrifts, and the NCUA for credit unions. And so you establish that Congress has acted with regard to each specific financial sector to provide consumer advocacy responsibilities, but you go on to suggest that a unified working group of sorts that could provide for joint rulemaking opportunity would do great service towards the absence of venue shopping and having as best we can an equitable enforcement practice. I would like to suggest and seek your counsel. Would it not be advisable, in light of the comments made by those representing State interests here today, that a representative of the CSBS at least in an advisory capacity, because it may not be proper for them to be voting on national bank regulation, but perhaps they would have perspectives of value, as well as, of course, the FTC, to provide some sort of working group format? We have presidential working groups of regulators that come out with reports which are generally ignored, but we could have a consumer working group, as an example, solely focused on consumer advocacy, identifying practices inconsistent with sound fiscal policy, and leave it then to each specific regulator to act consistent with others. If we were to suggest something of that sort, that would not necessarily in itself require congressional action if agencies chose to work in such a cooperative manner, quarterly, semiannually, annually, even if it were just to report to Congress and say here is what we should do and let us evaluate that policy, if that is what you deem to be most appropriate. From what I am hearing from everything is can’t we share information? Can’t we work together? No one has the resources to do this all on their own. Everybody can see problems. You might see a problem across the fence that is not in your jurisdiction, and if we got everybody together and had a more uniform system of consumer advocacy rules, the market wins and the consumers win. Is that an inappropriate observation? Mr. DUGAN. Not at all. I think it is actually a quite good observation. I think recently in the last Congress, the State representative was added to the Federal Financial Institution Examination Council, FFIEC as we call it, and that would be a place to share that kind of information. I think if you go beyond that to rule writing, which is one of the things you talked about, I think you did hit on one of the issues that would be involved as a constitutional matter and appoint- VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00035 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 32 ments matter. It is quite murky if you have a State official voting on something— Mr. BAKER. Let me be clear. I meant only in an advisory capacity. They would certainly not want you voting on their rules. But I think the pressure would be if there was an identified problem by this group, and generally action were taken, that those aberrant players who did not subsequently act to protect their consumers would have immense political responsibility for their failure to act in light of the public discussion. Let me also suggest that, given restricted resources, multiple 1– 800s and multiple Web pages—I note on page 23 of your testimony that you will have up this summer your own Web page, which is helpmewithmybank.gov. So, you can log on and find out what you need to know and then move to the appropriate regulator. It might also be appropriate for this group to think about consolidating those informational resources, because with everybody having its own Web page and 1–800, that gets to be confusing, and if there would be a way to consolidate that where you ultimately end up with a real person who lives in the United States and can speak in the language with which you are calling—I know that yours will be bilingual, I think that is appropriate—you would end up with something of value instead of having disparate standards which confuse consumers, and they don’t understand exactly with whom they should make their complaints. This would be something that you guys could perform, I think, a significant service and perhaps break through this idea that you don’t care about consumers. Mr. DUGAN. Mr. Baker, I totally agree. It is one of the things that I talk about a little bit in my testimony. As you heard today, we are all doing different things, and you wonder if there is a way that we can coordinate and— Mr. BAKER. What gets this started? Do we have to do it, or can you do it? Mr. DUGAN. No, I think we can do this. I think we can do this at the FFIEC, and we can also invite our colleague at the FTC to participate as well. But that is one of the things that I haven’t discussed yet with my colleagues, but I think it is something that we could do if people were amenable to it, and I certainly am. Mr. BAKER. Mr. Chairman, I hope you will encourage their participation in seeking out a negotiated settlement on this. I take ‘‘yes’’ for an answer and yield back. The CHAIRMAN. The gentleman from New York. Mr. ACKERMAN. Thank you, Mr. Chairman. Last week one of our subcommittees held a hearing that focused on some of the more disingenuous practices within the credit card industry, and some of our witnesses and Members made the comment that the Congress has not given the Federal Reserve enough regulatory authority to sufficiently restrict some of the egregious practices. Some of them we have talked about were universal default and double-cycle billing and pay-to-pay fees. The question that I would like to ask first is, does the Federal Reserve feel, Governor Kroszner, that these are practices that require some type of restriction? In general, would the American people be better served if the Federal Reserve were given increased authorities to regulate the credit card industry? VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00036 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 33 Mr. KROSZNER. Thank you very much. Certainly we take our responsibilities with respect to credit cards quite seriously. As you know, in the hearing last week we discussed a number of the new proposals that we put out to deal with these issues because we think they are very, very important issues. The approach that we have so far taken is primarily through our regulation Z, TILA, Truth in Lending Act, authorities through trying to improve disclosure. I think it is true, as one of the other Members had said earlier, that the current disclosures are not adequate for consumers to understand what is going on, and that is why we have really focused on consumer testing to ask real people real questions about what do they understand, what can they get out of the forms that they are seeing? And we went back and forth quite a few times to improve the information that is out there, not only the accuracy of the information, but the understandability, the usefulness to individuals. I believe that we have—we believe that we have sufficient authority to deal with these issues as of today; however, we are continuing to take actions to look further into what needs to be done in this area and a number of other areas, and certainly we will not hesitate to come back to Congress to ask for further authority if we need to. Mr. ACKERMAN. Thank you. I appreciate that. I have a second concern. I get these letters in the mail all the time, besides the credit card ones, again with mortgages, and I get a lot of them. Sometimes they are very official-looking, and I am sure that is not by accident. And they are designed to make it look like it is from the Federal Government or sometimes the State government or sometimes some unknown great official authority. And it is very, very misleading. This one does not identify who it is from on the cover. This one is a similar design. It happened to come from the same source, I believe. And it says right on the front, Re: Your current loan with Citibank North America—which is one of the mortgages that I have a property—Request for immediate action. I think this is from my bank when I get it. Most people would think that because it is up there in the return address area. But it is not. And there are all sorts of warnings on here that are postal regulations that everybody knows about. You don’t have to put it on the envelope, but you do if you want to make it look official: Warning, a $2,000 fine and 5 years imprisonment for anyone interfering with or obstructing the delivery of this letter. This is an important letter. There are all sorts of codes, and then it says, your mortgage recorded in the county of, and there is all sorts of stuff that actually I once had. I guess they did not know that I paid that one off and already switched it to somebody. And it goes on looking real official-like. And then there is a big notice on this part of the page: Notice, the Queens County property code in Jamaica, New York, notification date. Recent changes in our mortgage policy. There are programs now available to Queens County residents. Now, I would think this is some kind of government program if I was an average person or somebody who is not reading this carefully because they don’t have the time, but gets an impression and VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00037 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 34 all sorts of things. And they give you—I can get this deal for a rate of 1.25 percent. Now, if I am a senior citizen on a fixed income, and I think I had an interest rate that I am paying now of 6 or 7 or 8 percent or something, and I am going to be able to pay 1 percent, I don’t realize that they could eventually take my house, or I am going to owe more on the mortgage than the house is worth, but they don’t care because that is not going to be 1.25 percent for too long. I get this one that does not have any return address on the front, nothing on the back, and it says, ‘‘Certificate enclosed.’’ That is all it says besides my address. And it comes looking like this. That certificate of finance, preferred, bearer’s certificate, made out to me. This looks so official with big ‘‘equal employment’’ thing on there and FHA things and certificate numbers and guys, you know, half dressed, carrying shields and swords, and things looking like they came from dollar bills printed in the color of ink. You have to read it 10 times to find out that it is not from my bank, but somebody that wants to snipe my mortgage. Is this fair? Should the industry not be policing itself, or should some greater authority be supervising what is going on here? Mr. MILLER. Congressman, that is deceptive, deceptive in so many ways, and it is a violation of Federal laws and a violation of State law, depending on preemption, of course, and that is the kind of thing that we all should be after. Mr. ACKERMAN. Are we after it, though? What is being done? Mr. ANTONAKES. I would add in Massachusetts last year we passed a law prohibiting those very types of deceptive advertisements featuring the third-party use of a bank name. And we have taken enforcement actions against entities that we license and referred others that use these types of advertisement. I would also just add quickly that we will enforce that law whether the complaint is against a State-chartered bank or a national bank. Mr. ACKERMAN. I always liked Massachusetts. I hope the chairman makes a note of that. Shouldn’t there be a Federal role in this? Mr. POLAKOFF. I would like to offer that I suspect that did not come from an insured financial institution. I suspect it came from a mortgage bank or a mortgage broker, and I think that is where the emphasis should be focused. Mr. ANTONAKES. I would not disagree. They generally come from third parties. We would enforce the law whether the complaint was from a State bank or a national bank for the illegal third-party use of their name, and it has also come from insurance companies, as well. Ms. MAJORAS. Briefly, Congressman, the FTC has enforced against a number of nonbank mortgage lenders that have made deceptive representations to consumers, whether it is about interest rates or fees and the like. We have done that. Now, just, you know, what it says on the envelope, that by itself, to be honest is not the only story, because we can also bring cases when consumers are truly harmed by it. But if you go inside, and it is telling you that you can get a mortgage at a particular percentage and can’t and so forth, that we have taken very seriously. VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00038 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 35 The CHAIRMAN. Let me ask, we get letters like this all the time. How can they send that to me? If I got a letter that like that, and I wanted to refer my constituent to a place where he or she might be able to get enforcement action, which of your agencies should we refer that to? In Massachusetts, it would be you. Mr. ANTONAKES. Absolutely. Mr. MILLER. Our office too, or State attorney general’s office. But there is maybe a larger point here. The CHAIRMAN. Let me ask first, would any of the Federal agencies—I think that is what the gentleman was getting at. I wouldn’t want his dramatic reading to not get its full impact here. Would any of the— Mr. ACKERMAN. I appreciate the rescue. The CHAIRMAN. Would any of the Federal agencies be responsive if we were to say, look, what is going on? What can you do about it? Ms. MAJORAS. We do get these things all the time at the FTC, and we look at them. And incidentally, since we have been talking about complaint filing, too, we get probably 15,000 complaints a year that would involve actual banks or other depository institutions. The CHAIRMAN. I would assume, for the three bank regulators, if it did not come from a regulated financial institution, you have no jurisdiction. It would be the FDIC. Ms. BAIR. This is right. I am sure this letter did not come from an insured institution. I see this all the time. I get these at home. I get the spam faxes. That is one of the reasons we are urging that State authorities, the attorneys general, and the Federal supervisors at the State level, be given the authority to supplement what the FTC already does to go after the entities that are conducting this type of marketing. Also we very much work with the Federal agencies with the hope of rulemaking to expressly say, we think that this is unfair and deceptive. I don’t have the power to write the rule, but the Fed does, to say specifically that this type of advertising is unfair and deceptive. The CHAIRMAN. Would the Fed have the right to write that rule covering both depository institutions and others? Ms. BAIR. Yes, for the extension of mortgage credit they would. The CHAIRMAN. The gentlewoman from Minnesota. Mrs. BACHMANN. I have a question for the Comptroller, Mr. Dugan. Mr. Dugan, I understand that the OCC has entered into some agreements with the States related to the identification and enforcement of State laws, and I was just wondering if you could describe for me some of those agreements? Mr. DUGAN. I think the agreements I was talking about earlier are the agreements for information sharing about complaints. So if we get a complaint filed that really belongs with the States, much like we were just talking about, we would have a way to get that to the State efficiently, and vice versa, and if the State got a complaint that related to a national bank that we needed to take care of, there would be an efficient process not only for us to get it, but VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00039 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 36 for us to share information about what we did with it with respect to a consumer in that State. And so we entered into a model type of agreement with the Conference of State Bank Supervisors, and then individually have been contacting States to try to get them to enter into agreements so we could do it as a practical matter, and since December, we have 18 States that have agreed to do that. Mrs. BACHMANN. Thank you. Do the State anti-discrimination laws apply to the national banks? Mr. DUGAN. State anti-discrimination laws do apply to national banks by long-standing legal precedent. Mrs. BACHMANN. How about the State unfair and deceptive practices laws, do they apply to the national banks? Mr. DUGAN. They do if the way they are applied or the way they are ordered don’t actually put in specific requirements that regulate, or attempt to regulate, the particular banking activities of a bank. So if it is a general unfair and deceptive act, what we were talking about earlier, the little FTC acts, those on its face are not preempted, we would say. Mrs. BACHMANN. What consumer protection laws do not apply to national banks? Mr. DUGAN. Well, this is an issue of course that has come up and people have been talking about it recently, and it is something that the GAO looked at as well. We have pledged to talk with the States about how we look at which laws we believe are not preempted, and which ones are. Frankly, a lot of that got put on hold because of the Watters case and the outcome of it. Now that it is over, we do recognize that we need to get more clarity on that. We already have addressed this in significant ways in our regulations and what we have put out, but we need to provide more. I think, as GAO recognized, it is not a situation where it is practical to go to each State and go through the code and identify every single one that is or is not preempted. So there will be principles that we will be articulating in outreach meetings as we committed to do. Mrs. BACHMANN. Mr. Dugan, could you tell the committee, how does the OCC’s regulation compare with the rules that were adopted by OTS and NCUA? Mr. DUGAN. To have such a specific comparison, I would love to be able to get back to you for the record on that. I know what ours does, but I can’t give you chapter and verse on exactly what theirs do. But I would be happy to respond for the record if that would be appropriate. Mrs. BACHMANN. That would be fine. We have an example of one of the State attorneys general investigating student lending, and that suggests that State attorneys general are playing a very important role in consumer protection. I wonder if you could tell the committee what would be the impact on the national banking system if State attorneys general which bring enforcement actions against national banks. Mr. DUGAN. Well, I think this is the same question, whether it is student lending or other issues that the Supreme Court had to address, which is what is the legislative scheme that Congress has adopted with national banks. And it has always been our view that VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00040 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37 historically the idea has been to have a uniform set of Federal laws that apply to the national banks wherever they operate, or whatever part of the country that they are in. And that is what the Watters case upheld, that if national banks are exercising their banking powers, whether at the bank level or at a subsidiary level, it is a set of uniform rules that applies. And so in those circumstances, State laws would be preempted. We believe we have robust ways, as I have tried to outline in our statement, to address the consumer protection issues that we have been charged with addressing, and that regime is established by Congress, by you, and can be expanded or contracted. And we will faithfully implement those laws, but do so in a uniform way throughout the country. Mr. MILLER. If I could jump in, I think your question was what effect would happen if the State AGs enforced the laws, not what the law is. The effect, I think, would be great. It would be consistent with our Federal system. The State AGs have stepped forward and done some innovative things in the securities area, insurance with Eliot Spitzer, now in the predatory lending area, as well as in student loans, and the country is better off for that. Those laws in various forms weren’t being enforced. The AG stepped forward and protected the public and pursued the public interest, and we are all better off for it. And it is consistent with our Constitution, consistent with the great wisdom of our Founding Fathers concerning checks and balances and federalism. It is an incredible system that at least in my view is now frustrated by the recent practices of the OCC and the Supreme Court decision. Mrs. BACHMANN. Attorney General, thank you for your comments. I wonder, could you also tell me what resources you have to examine national banks and Federal thrifts for compliance with State law? Mr. MILLER. We don’t, and shouldn’t have, resources to examine them for safety and soundness. We never suppose that we should do that nor should our colleagues, the banking superintendents, and they don’t. But we have enormous resources in the consumer protection area. That is one of the bread and butter of many of our offices. And we bring those and used to bring those resources to the national banks in an effective creative way. I think there was one estimate in terms of consumer protection, the States bring 17 times the resources of the Federal agencies that are here today in terms of consumer protection. Mrs. BACHMANN. I have a question. The CHAIRMAN. We are over time. Mrs. BACHMANN. Thank you, Mr. Chairman. The CHAIRMAN. I thank the gentlewoman for those questions. Mr. Kroszner, I am going to ask you a question, but as we proceed I am going to make a statement with regard to your rulemaking authority: use it or lose it. I was struck by the agreement. The Comptroller and the Chair of the FDIC didn’t agree on everything. It does seem that both are in a position of being criticized because you did not roll out the rules which they can use. I don’t think case-by-case does it. I don’t think case-by-case in complex situations like we live in is a good idea. And I think I speak here probably for the majority of this committee. If the Fed doesn’t start VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00041 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 38 to use that authority to roll out the rules, then we will give it to somebody who will use it. You reinforce my sense that the Fed is not the best place to do consumer protection. And all of our legal traditions about people knowing what they are doing, etc., having some due process, that is important. It is also the case, it seems to me, that we don’t want to stop people doing bad things after the fact: we want to deter people from doing bad things. If you are in a case-by-case situation you are greatly constrained against penalizing people. It is one thing to penalize people who have violated rules. It is another to tell people to stop doing something case-by-case where they can legitimately say, well, I didn’t know that. And without rules that would be the case. So I think the rulemaking authority is important. Now, there is a—again, I would rather see the OCC and the FDIC, and I assume the OTS would agree on this, but the rulemaking decision should be joint. And obviously, it is better to have one set of rules. If the Fed is willing to work with them to do it, that is fine. But I will tell you if we need to begin to see the process of rulemaking going into effect for this area. And the answer is that it is especially true now with the preemption. Their workload, what they have to do with regard to consumer protection, has clearly increased as a result of the most recent decision about preemption, so I think this just has to happen. Now, the next two questions. We have—yes, Mr. Kroszner. Mr. KROSZNER. If I might just very briefly respond. We really do take the consumer protection area very, very seriously. We have an entire division—this gets back to an earlier point that you made about monetary policy versus consumer protection. We have a division of monetary affairs but we also have a division of consumer community affairs at the Federal Reserve board, and we have similar divisions at all the regional Federal Reserve banks, and so we do have it at the highest level. The CHAIRMAN. I don’t think it is what motivates people mostly. Certainly that wasn’t the experience, it seemed to me, of Governor Gramlich. But there is also a philosophical distinction. You say specifically in your testimony that the Fed doesn’t think it should use the rulemaking authority. I believe overwhelmingly this Congress will think that it should. And I want to put you on notice that it is not a personal thing, but there is a real difference. And I believe, particularly now that the role of the Federal regulators has increased, there has to be a change in the rulemaking authority. It can be done jointly, but it I think has to be done. And I think the absence of rules is a serious problem that needs to be dealt with. For example, the Comptroller said with regard to the practices like these that credit card companies engage in that make a lot of people angry, justifiably, essentially as long as they are explicit about what they plan to do, they can do almost anything. Maybe that is the current state of the law. I will tell you that I think there are some things that are so counterintuitive to individuals that if you nailed it to their foreheads, they still wouldn’t fully understand it. There are some things that consumers think, well, that can’t be. And I will say for the credit card issuers, no, we don’t want fixed rates. But there is an intermediate position between rate setting VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00042 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 39 and simply telling people—let me put it this way in effect—maybe I will have to clear up the record later. We are your credit card company. By the way, here on page 7, it says that we may screw you from time to time and by signing this application you have waived any objection to that? That is notification, but it is not going to be enough. But two other questions specifically. One, we have unregulated entities, it has been noted in response to Mr. Ackerman’s question. We need at a Federal level, I believe, to pass some laws to cover currently unregulated entities. I think that is right. If only the entities that the banks regulated issued subprime loans, we would not now be in a crisis. The banks are entitled to have us acknowledge that. There are entities that make these loans that do other things that are not now regulated. I think there needs to be a national law. Exactly how it fits with State law, to what extent it is preemptive, we will work that out. But it does seem to me that there needs to be a national law if only to keep institutions from leaving a State that has strong laws to go to places that don’t. What I would want from you, and it doesn’t have to be today, is a sense of who should be that regulator? It is one thing to create the rules. We are going to have to create some new rules, I believe, about subprime. And we are talking about unregulated institutions, nondepository institutions. Do one of you want to take that over? I am serious. Or does it go to the FTC or does it go to HUD? We are not going to adequately be able to regulate that unless we create a regulator. I would ask your advice in writing about that. The other issue is on the States. I will say that I agree with much of what you said, but when you talked about your concern for the overstressed State resources, to be honest, that did not strike me as your primary motivation. When you say, oh, you don’t want the States involved in this thing because you have such sympathy with these poor overstressed State regulators, well, we will worry about them. I appreciate your compassion in this case, but it does not seem to me that was your primary motive. I think the States have the resources. Let me ask you about one specific issue. One entity that has been very much active in State regulation is the attorney general in each State; that is why Mr. Miller is here. You don’t have any comparable Federal authority, for example, Ms. Bair doesn’t have any comparable authority. You have the Justice Department, but it is not the same. The ability to bring injunctive lawsuits, the ability maybe even to get punitive damages in abusive cases, but you have to have rules before you can do that. Are you not somewhat handicapped vis-a-vis the States? And I would say this to the Federal regulators. Mr. Antonakes can go to the attorney general of Massachusetts. In the absence of that kind of legal enforcement, to the extent that we transfer from the State regime where the supervisors and the attorneys general work closely together to a national regime with an attorney general, how is that not a diminution to some extent of the force with which we can apply these protections? Mr. DUGAN. Actually, Mr. Chairman, I think we have more authority with respect to the banks that we regulate. We don’t have to go to a separate agency to get a bank to stop immediately doing something that we find that violates the law. We have extraor- VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00043 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 40 dinary powers under the Federal Deposit Insurance Act to take formal enforcement action. Long before you get there, we have the power to get— The CHAIRMAN. You never want to go to court, or you do? Mr. DUGAN. It is actually quite rare that we go to court because institutions almost always settle because of the great power that we have as a formal enforcement matter. That is a reality. The CHAIRMAN. The other point I want to make is, you talked about matters requiring attention and how many of you deal with them. You say that many of them are consumer related. I will close with this: I guess we are talking about things being unfair and deceptive. I want to get disjunctive. I think we need to make sure we get things that are unfair or deceptive. A regime in which deception has to be there does not protect consumers. There are unfair practices that are not technically deceptive. And I guess that is the sense. You got it from my colleague, the ranking member, and others. We do not think you now are adequately dealing with practices which are unfair, probably because you don’t have the authority. You may need the statutory authority. You may need the rulemaking. This is not a personal failing on the part of any of you. But I guess that is what I would leave you with. In today’s world, with the banks so creatively making money off fees, off overdraft fees—I mean, I think that there are people who watch their congressional calendar, and they see when I get a vote on Friday, so they mail my credit card bill because then I will be a day late getting back to it. There are so many of these other practices that are not deceptive, but I believe they are unfair. So I will close with this. Somebody is going to have to do some rulemaking and you are going to have to go beyond deceptive into unfairness. We are not talking about rate setting, we are not trying to put anybody out of business, but I think you have a broad consensus to do that. Mr. DUGAN. I will defer to my colleague after this from the FTC because they actually have the authority. I think we need to be careful here, if unfair or deceptive, but the unfair standard legally under the Federal Trade Commission Act is not a judgment about unfairness. The CHAIRMAN. I understand that, but you are not here arguing as a lawyer before the Federal Trade Commission. We will rewrite the Federal Trade Commission Act with Mr. Dingell’s cooperation. So understand, we are not now into statutory interpretation, we are into statute writing. And what I can tell you is, and it may be that you don’t have enough statutory authority, but we have to give you a broader reach to go after things that are in the perception of the people in this country unfair. And if the problem is lack of statutory authority, then it is our job to care about that. Ms. BAIR. I would just say that there can be a restrictive legal standard. If you are looking at the statutory language in this area, you might consider adding the term ‘‘abusive.’’ ‘‘Abusive’’ is a standard that is contained in HOEPA that the Fed is looking at using in the context of mortgage lending. But ‘‘abusive’’ is a more flexible standard to address some of the practices that make us all uncomfortable. VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00044 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 41 Ms. MAJORAS. I just wanted to clarify that, in fact, the FTC Act allows us to attack practices that are unfair or deceptive, and we do. And we have brought plenty of cases that attack unfair practices. But it was Congress that went back to the FTC at one point and said you need to define what unfairness means, because of course Congress didn’t want it to mean just whatever, whoever happens to be sitting in my seat thinks it means. So there is a standard. The CHAIRMAN. I appreciate that. When was that? Ms. MAJORAS. I think it was in the 1980’s. The CHAIRMAN. In the interim, a lot of my good friends work for financial institutions and they play an essential role in this country and I am grateful to them and I work with them, but they have succeeded in angering a significantly large part of the American people by nickel-and-diming them on credit card late fees and overdraft fees. And I think you are going to find a Congress today that is less inclined to restrain you and more inclined to encourage you to reach out and give consumer protection. Mr. CAMPBELL. Thank you, Mr. Chairman. I just have a few questions for Mr. Dugan here. The first concerns subprime. My understanding is that over 90 percent of the subprime loans are not originated in banking institutions that are supervised. Mr. DUGAN. In national banks last year, that is right. Mr. CAMPBELL. In national banks, okay, last year, great. Given that statistic, is this an area where a national rule makes more sense than a State-by-State if over 90 percent of the loans are not? Mr. DUGAN. It is certainly true that because we have such a small part of that market, and because we haven’t frankly had the same kinds of problems with the banks that we regulate that engage in these activities, you do need broader coverage. But that is exactly why the bank regulators have gotten together and proposed guidance that applies to all, not only insured institutions, but companies affiliated with them, which we are about to finalize, and, getting to your point, we have enlisted the Conference of State Bank Supervisors to get their agreement to try to get that same guidance out to the State lenders that none of the Federal regulators touch. So do I think that there needs to be some kind of national standard? The answer is yes, because so much of this market comes through the States. It can be done by each of the Federal regulators and each of the State regulators, which is one approach. Another that has been talked about is the Federal Reserve addressing some of these issues through their rule writing authority. And failing that, the last line would be actual legislation. But it is absolutely imperative that we have some kind of nationwide approach to this problem. Mr. CAMPBELL. Just to understand that answer better, that order you gave is the order that you believe is preferable? Mr. DUGAN. I guess I would say, one, we can do now and are in the process of doing and working down that path. I think the second is an area where the Federal Reserve, and Governor Kroszner, of course, can speak for themselves. But they are holding a hearing tomorrow to talk about it. And I just think as a matter of time, VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00045 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 42 precedent and so forth, getting to Congress is a third practical reality. Mr. CAMPBELL. Another question along the same lines, but not just subprime—a lender in one State can make loans to people in any State. So does that make, if you are looking at consumer protection, does that make some kind of uniform consumer protection a better approach? Mr. DUGAN. I think there are certain practices that have become national products, commodities if you like, and they raise the same issues over and over again. And those are the ones that I believe cry or call out more for national kinds of standards. Because as you say, things can happen in different States. Mr. CAMPBELL. And the third question, I think you kind of touched on in discussing things with the chairman a little, but just maybe you can elaborate on preemption by you guys. We have talked a lot about resources relative to State license mortgage lenders, resources at the State level versus preemption by you guys. It sounds like you believe that looking for more resources or more involvement at the State level is something preferable to preemption by you guys. Mr. DUGAN. I guess what I would say is that I think we do have adequate resources to put in place a standard. Let me give you an example. One of the things that I have spoken about recently is the use of stated income or totally undocumented income in order to make loans. It is something that we will address, I think forcefully, in the guidance we are about to issue to make that no longer the general rule when you do a subprime loan. If we adopt that guidance, we would be able to implement that guidance in national banks around the country wherever they are situated to have that as a standard. There is no similar mechanism to make sure it gets done in the same way in the more than half of the market that Federal regulators don’t touch. The States individually are going to do that. But if they are not actually in those institutions supervising them, it will take a longer time to do it. That is really what I am getting at. If you have a finite amount of resources, rather than devote them all to the really heavily regulated insured institutions, doesn’t it make more sense to devote them to the States? We do the national banks, hold us accountable, but that it is a better division of labor in order to achieve the maximum benefit for the consumer. Mr. CAMPBELL. Okay. I yield back. Thank you, Mr. Chairman. The CHAIRMAN. The gentleman from Missouri. Mr. CLAY. Thank you, Mr. Chairman. Thank you for this hearing. I certainly will attempt to observe the 5-minute rule. I have a set of questions for the entire panel. Recently I was reading an article entitled, ‘‘Unsafe At Any Rate,’’ written by Elizabeth Warren, and I want to use that analogy that she used. It is impossible to buy a toaster that has a one in five chance of bursting into flames and burning down your house. But it is possible to refinance an existing home with a mortgage that has the same one in five chance of putting the family out on the street and the mortgage won’t even carry a disclosure of that fact to the homeowner. Similarly, it is impossible to change the price on a toaster once it has been purchased. But long after the papers have been signed, it is VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00046 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 43 possible to triple the price of the credit used to finance the purchase of that appliance, even if the customer meets all the credit terms in full and on time. The question is this. And Ms. Warren suggested that perhaps we create a financial services product safety commission. Should there be more Federal regulation? Why are consumers safe when they purchase tangible consumer products with cash, but when they sign up for a routine financial practice like mortgages and credit cards, they are left at the mercy of their creditors? The answer given by the author is regulation. I ask, where are we dropping the ball? What is your answer to this problem, and where do we go from here? If we could start with Mr. Kroszner, please. Mr. KROSZNER. Thank you very much. It is certainly extremely important in all areas to protect consumers, whether it is health and safety regulation, or their financial well-being. So these are both very important issues. I do think there is a bit of a distinction between something like a toaster and some financial products. I think it is very easy to objectively define whether a toaster is likely to burst into flames. With respect to financial products, some things that could be helpful and useful to certain types of customers may not be helpful and useful to other types of customers. I think with respect to a toaster bursting into flames, it is very clear that one bursting into flames with a one in five chance, that is harmful no matter who you are, and no matter where you are. With respect to financial products it becomes a little trickier, because certain types of products which may not be appropriate to some people may be appropriate for other people. So it is much more difficult, I think, to set up those types of bright line distinctions. That said, it is very important to make sure that if there are certain types of practices that are inappropriate, that we address those, and that is one of the reasons why with respect to mortgages we are holding the hearing tomorrow on HOEPA to look to see whether there are sort of certain systematic patterns and practices that we need to address. Mr. MILLER. Congressman, I said earlier that if the seven of us at this table really meant it, and worked together, and used all of our power in the subprime market, and we all have power, including the States have significant power there, going forward, we could reform the industry. And I say that because of what has happened. Some of the bad companies are out of business, some of the better companies are still there. They have reputations to deal with. There has been pain for the people who have been foreclosed on, there has been pain for the investors. The time is right. If the seven of us and the people who work for us really work together cooperatively and spot the various problems and use our expertise, we could really clean up the industry. There is one other thing that needs to be done, and that is that the current situation with all those foreclosures—there what has to happen is, with us and with everybody in the industry, they have to have what we call Iowa common sense. And that is to renegotiate some of the terms so that the consumer, the borrower, can make the payments and the creditor, the investor, is better off be- VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00047 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 44 cause they make more money that way than on foreclosing. We went through that in the farm crisis. I think more and more people are understanding that. The whole industry has to understand that, act on it, and that can ameliorate the current crisis considerably. So we know what to do. The question is, will the seven of us do it. Mr. CLAY. Mr. Miller, have the consumers been unexpectedly caught off guard as far as knowledge of these balloon payments? Mr. MILLER. They have, they have. It is a scandal in the sense that the mortgages, particularly the subprime mortgages, are enormously complex. The people are very much at need. They are the working, the lower working class Americans, who don’t have any margin for error. They have an economic situation, they need the loan, it is very complex. And in the past, there has been so much willingness on the part of certain players to abuse them, they have been taken advantage of, and it is a national scandal. And we can wring our hands about that, and we brought some lawsuits and that is good. But the big thing is, what do we do now? Do we solve the current problem and do we work together using our powers and using them aggressively where necessary, always reasonably, or do we all sort of splinter up, the seven of us up here? Mr. CLAY. Thank you for your response. May I? The CHAIRMAN. Yes, you can continue another couple of minutes. Mr. CLAY. Ms. Bair. Ms. BAIR. I have a lot of respect for Professor Warren. She serves on our Advisory Committee on Economic Inclusion. Although I haven’t read the complete report yet, I am familiar with some of her thoughts on this. I agree with your analysis, but I am not sure that we need a new financial regulator. There are seven of us here on this panel. I think there are some ways that we can improve existing authorities and use them perhaps more proactively. In a coordinated fashion, I think we can take care of this problem without a new regulator. Mr. CLAY. Thank you, ma’am. Ms. MAJORAS. I would start with this, closure. There have been comments here about well, closure is not the whole answer. I understand that. But we released a study today that our economists have been working on for some time which shows that even consumers who are fairly educated, and think they understand the current mortgage disclosure forms, don’t. Because when our people sat down and worked through it with them, they realized that there were costs and charges and they didn’t have any idea what they are, so people don’t know what this is costing them. We hope we can use this, and we developed some prototypes on what would work, what consumers would better understand. Because I do think it has to start with that. Ray is right in the sense that you have to be careful here because there are some bad things that happen, but there are people who did get credit and did get homes that are still paying for those homes who got them in the subprime market who wouldn’t have gotten them in any other market. We have to remember that, too, because those people deserve to have a home as well. VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00048 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 45 Mr. CLAY. What is your opinion about the creation of a financial services product safety commission. Ms. MAJORAS. I think I agree with my colleague Ms. Bair that I think we ought to try to work this out with what we have. There is no question that we all have different jurisdiction and so forth, but we all, in some piece, have the consumer protection aspect here. And we know where consumers are being harmed and so we ought to be able to attack it with what we have. And if we don’t come through on that, then I wouldn’t blame you for considering something else, but I think we should start with that. Mr. CLAY. Yes, sir. Mr. POLAKOFF. Congressman, there was a recently publicized supervisory action taken by OTS against the Federal Savings Bank for—we could characterize it as unfair or deceptive or aggressive underwriting to take advantage of borrowers. And when we pursued the action, we briefed the other Federal banking agency sitting at the table. And I am convinced if they would have seen a similar situation they would have taken equally aggressive supervisory action. So I believe when we find predatory practices, which is entirely different than lending to the subprime community, when we find it we take appropriate action and we communicate amongst ourselves to ensure that there is some sort of level or horizontal analysis. Mr. CLAY. No matter who the perpetrator is? Mr. POLAKOFF. If it is within our institutional jurisdiction, we will take action regardless of the perpetrator. Mr. CLAY. Yes, sir. Mr. ANTONAKES. Congressman, we license mortgage lenders and mortgage brokers in Massachusetts, and they are not unregulated. We conducted over 400 exams last year that resulted in over 100 enforcement actions, 3,700 enforcement actions by all the States combined against lenders and brokers collectively. We continue to do work here, we need to do more work here as well, and we need to work with our Federal counterparts. The idea brought up by Comptroller Dugan, to coordinate our examinations of lenders and brokers, is something I broached 3 months ago, because you can’t look at broker network solely. Certainly sales and marketing practices of brokers are a concern that needs to be dealt with. But you also have to look at the internal controls and underwriting processes that took place at nonbank as well as bank subprime lenders. And then you also have to look at the funding structure and also what is going on in the secondary market as well. I think disclosure needs to be improved. We support the Federal Reserve using their broad rulemaking authority whereas we have attempted to deal with the issue with individual State predatory lending laws, including my own in Massachusetts, which has only been somewhat successful because not everyone complies with them. And then also in Massachusetts an attempt to deal— The CHAIRMAN. You can finish the sentence. Mr. ANTONAKES. I would just say trying to deal with the issue now, as well as in the future, we have set up a hotline where anyone who is having foreclosure problems can contact us. We feel that 400 calls in 6 weeks time, trying to refer them to reputable coun- VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00049 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 46 seling agencies and also work directly with their lenders and also mediations as well. Mr. CLAY. I thank the chairman and the panel for the indulgence. The CHAIRMAN. The gentleman from North Carolina. Mr. MCHENRY. Thank you, Mr. Chairman. I am from North Carolina, and the North Carolina anti-predatory lending law that has been vaunted here in the halls of Congress is a wonderful thing that needs to be expanded to the national level, that somehow it had this fabulous effect in North Carolina. In the Sunday Charlotte Observer, they have a large expose that they are continuing, a long series about the fallouts and the foreclosure rate in North Carolina and that this vaunted anti-predatory lending law has actually had an adverse effect in the market. And it sort of brings to mind something, Mr. Dugan. There is this discussion here in Washington by consumer advocates that our Federal law isn’t sufficient, that we are not doing enough to protect the public. Yet when we get into the details about bad lending practices, predatory lending practices, it seems that—well, it is apparent that this is not primarily an issue by federally regulated institutions. We have seen the main abuses occur through State regulated institutions. Is that a fair assessment? Mr. DUGAN. I think it is a fair assessment, and I am not just saying that because I am a Federal regulator. I think, in a brief filed by the attorneys general, 46 out of the 50 attorneys general agreed that the real predatory lending practices were not taking place in regulated insured depository institutions or their subsidiaries. Those tend to be State chartered companies, some of which have some ties to Federal regulators, but many of which do not. And just last year, over 50 percent of subprime originations were in completely nonfederally regulated markets. Not all of those are bad loans, but some of the problems we have seen, and the more egregious ones I think, it is fair to say have been at those institutions. Mr. MILLER. If I can just jump in here. Mr. MCHENRY. If I may finish here. I only have a set amount of time. Mr. MILLER. But you raise some issues directed towards us. Mr. MCHENRY. I appreciate that, and thank you so much, but I will get to you in a second. I have a follow-up to him, and this is actually my time, respectfully, sir. But to continue that thought, would that indicate that we need to create another Federal law? Do we need to go further with our Federal law or is it kind of adequate? Should the focus be changing the State-by-State regulations of those State regulated institutions? Would that be a reasonable conclusion? Mr. DUGAN. I think there are some things that occur in both markets in the subprime area, and that is why the Federal regulators got together, as we can do pretty quickly, to issue proposed guidance in that area. The question is, how do you get those same kinds of standards to apply to the exclusively State regulated entities. And that takes action by the States and CSBS has committed to go down a path of going State by State to do that. If that works, that may address the problem. If it does not, that is when people are considering other measures to get a national standard, whether VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00050 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 47 it is a regulation by the Federal Reserve, which has its own set of issues, or a congressional law. But the first place that we are looking is guidance by the Federal regulators jointly to be with companion guidance to follow by the States. Of course the question is, you have to have uniform application in the States. It is not enough just to say you are going to do it, you have to do it. But that is the first place that we are looking. Mr. MCHENRY. What is the Federal Reserve’s perspective on this? I know they have taken some action. Mr. KROSZNER. Well, it is certainly very important for us to coordinate with the States, and it is important for the States to have sufficient resources to be able to deal with the issues that they need to deal with with respect to institutions outside of the Federal regulatory purview. And so we try as much as possible to cooperate with them. Exactly as Comptroller Dugan had said, in working up, for example, the nontraditional mortgage guidance that we issued last year, we have worked very closely with the States. We have even sent Federal Reserve staff members to testify before various State legislatures to try to convince the States that they should adopt the same types of guidance, same types of regulation. Some States are able to do that without legislation. And we have had, I think, a lot of cooperative success on nontraditional mortgage guidance, and we will be working exactly the same with the subprime mortgage guidance that should be coming out. Mr. MCHENRY. My time has expired. And if I may just, Mr. Chairman, to Mr. Antonakes. There is this disparity between the amount of bank examiners and oversight that we have. And we have about 1,800 bank examiners for about 1,850 federally regulated financial institutions. There is a great disparity about the number of State regulated, State bank examiners versus the number of State banks. Do you think we have enough in the way there? And when he finishes up, Mr. Miller, if you want to chime in. You seem anxious to do that. Mr. MILLER. I am waiting patiently, as long as I get my turn. Mr. MCHENRY. Welcome to Congress. Mr. Antonakes. Mr. ANTONAKES. I can speak for my State that we have adequate resources to fulfill our responsibilities, and I think it is up to the individual States to make sure in their own discussions with their administration and their legislatures that they have what they need to do the job. I would only add that we have been supportive of the process for the nontraditional guidance. I would suggest if that takes place within the confines of the FDIC where we can participate, it is a far better process. We don’t have to wait for the Federal action to be done. We can do it in companion, in part of that actual process, and not be locked out of the actual rulemaking process. Mr. MILLER. The chairman sort of gave the recommendation early not to have finger pointings on what happened, and it was a good recommendation that I followed so far. But there have been repeated statements that most of the loans came from State regulated places in the subprime area a number of times. And with some uniformity in questions from the minority side, although not Mr. Bachus, it has come up a number of times. So let me just say VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00051 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 48 this, that there is responsibility at the State and Federal level for the subprime crisis. National banks certainly had some involvement throughout the whole process, including in the securitization and in the purchasing of the loans. There is responsibility to go all the way around. The only thing I would point out is that Steve’s agencies and the attorneys general were working very hard in this area and accomplished a significant amount of good despite what happened. We were much more active than our Federal counterparts, is what I would leave you with. In terms of North Carolina, I would be interested in what the paper is saying on your statute. There have been other studies that show that your predatory lending statute has worked very well, that it hasn’t dried up credit. And indeed the Ameriquest case, Ameriquest left North Carolina for an extended period of time as a result of that statute. And the abuse that they directed throughout the country was much less in North Carolina because of your statute. The CHAIRMAN. The gentleman from North Carolina. Mr. WATT. Thank you. To get the view from that side, and you get the view from this side of North Carolina, my assessment is much, much more similar to the one that Mr. Miller has outlined. And I don’t think it does us any good to engage in this kind of activity, pointing at each other and casting blame here. My experience is that there is enough blame to go around for the subprime debacles at every level. And despite the fact that North Carolina has a fairly aggressive predatory lending statute, even that doesn’t stop unsavory lenders who are engaging in the business and trying to make a quick buck. And then there are the subprime lenders that I still, even after a series of hearings, haven’t been able to figure out who regulates. The ones that are subsidiaries of national banks at some level, but somehow have some kind of shield between them and the regulators, I haven’t quite figured that out yet. So I am not even going to try to engage in this debate with my colleague from North Carolina. I won’t even read the story that he read quite like he read it, but that is a subject for another day. What I would like to know is from my friend from the Fed, I was pretty abusive to the Fed the other day at the credit card hearing, but there is one suggestion here that OCC has made, Ms. Bair has made on behalf of the FDIC, that there needs to be joint rulemaking authority. OCC, FDIC is not currently authorized to do some things that the Fed and maybe the FTC are authorized to do. And they I think, for the first time, I have heard them affirmatively say Congress ought to expand that authority. What is your view and what is the Fed’s view on that, if you would? Mr. KROSZNER. Thank you. That is a very important question. One thing I think that is very important to realize is that the enforcement authority is there regardless of whether there is a particular rule. Mr. WATT. We are talking about joint rulemaking. You can only enforce rules that the Fed will make, and I can tell you that there were a lot of unhappy people in the room when we were talking about credit cards, when we were talking about the rules that you all have made or the lack of rules that you all have made. And VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00052 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 49 there is some dissatisfaction with the lack of rules that you all have made. So I am going to get to the enforcement question if my time doesn’t run out, but I want to know, does the Fed have a position on what is being advocated on giving the OCC and the FDIC joint rulemaking authority within this area? Mr. KROSZNER. The Federal Reserve Board has not formally discussed this issue, so we have no formal position. Mr. WATT. Are you all planning to take up that issue? Would you encourage them to take it up at your next meeting and let us have your formal position on it? I think we finally got the formal position of the other regulators that are sitting beside you. They have kind of told us that off-the-record, but I think from my perspective, this is the first time I have heard it in a public hearing venue where they aggressively said, give us this joint rulemaking authority. So it would be nice to hear from you. Now, second, on the enforcement issue, I am wondering, Mr. Miller, if the Feds got the regulatory authority under Watters now to basically have absolute authority to make the rules, what implications does that have for enforcement of those rules that are made at the State level by attorneys general even though the rules that are being enforced are articulated at the Federal level? Do you have that authority and could I have the opposite view or the other view on that, maybe it is not the opposite view, on whether maybe something needs to be more aggressively done to make it clear that even when you all make the rules for Federal regulated institutions the States still have the authority to enforce those rules? Mr. MILLER. In some limited areas, but important areas like telemarketing rules, when the FTC does telemarketing rules the States have the authority to enforce that. And in a subprime area to give us the authority to enforce the Federal rules, I think, would make a lot of sense for all the reasons that we have mentioned, including the resources. I would offer one sort of caution about joint rules. I think that it is important to give the OCC rulemaking and the FDIC in deceptive and unfair practices, but if you give all the agencies jointly the rules, then— Mr. WATT. I probably misstated that. I am actually advocating for exactly what you are saying, but then having them get together and hopefully do it jointly, but giving them each one independent authority to do it. Mr. MILLER. That would be the way to do it, and have them consult, of course, and try to work together. But otherwise you could get into stalemate and lowest common denominator, and I don’t think you want to go there. Mr. WATT. Just to get the other side on the enforcement issue from Mr. Dugan and Ms. Bair. Mr. DUGAN. I think there is a statutory prohibition on unfair and deceptive practices that we are talking about, and we can take enforcement actions just under that without a Federal Reserve rule with respect to that. That is something that we kind of pioneered among all the agencies. Mr. WATT. I am only talking about State. Mr. DUGAN. On that count, when the Federal Reserve issues a rule under this that applies to lenders, it applies to all lenders, not just bank lenders. To the extent it applies to nonbank lenders you VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00053 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 50 do need an enforcement mechanism. I believe that, I think this is right, that the State attorneys general already have that authority to enforce that rule if a rule is written. I believe that is correct. I am sorry, that is only with respect to HOEPA, which is the high cost loan thing. To the extent that is not provided here, I think it would be a useful thing to do. Mr. WATT. Thank you very much, Mr. Chairman. The CHAIRMAN. Would that have to be statutory? Mr. DUGAN. I think it would have to be statutory. The CHAIRMAN. To the extent that we have touched on things where you think we would need a statutory change to fix things up, follow up with us and let us know. The gentleman from Georgia. Mr. SCOTT. Thank you, Mr. Chairman. Much has been said. This has been a very, very informative and a very, very good hearing. But we have a serious problem of lack of faith and confidence of the financial consumer being protected. We have soaring foreclosure rates, we have subprime lending, predatory lending, and deceptive credit card practices. And nowhere is that more impacted than those at the lower end of the economic scheme, which makes it all the more serious. And so while some will argue that the State is in control, or it is the Federal, these poor people are out there just looking for help, they are looking for protection. So I think that we need to establish certain facts. I think one is, without question, State regulators are in need of clear and concise explanations of what their role in regulating should be and will be in the near future, and how State and Federal authorities can work together to ensure above all else that there is protection of the financial consumer. And with that as a premise, I think we need to ask some questions about the infrastructure at work here between the Federal and the State level. I would like to ask a series of questions and maybe get some quick answers because my time is short. The first thing is, in your opinion, and any one of you can answer these, or if two can chime in with quick answers, I would appreciate it greatly. First of all, should Federal banking law bar States from regulating the activities of State chartered subsidiaries of national banks? Mr. DUGAN. The answer from the OCC is yes, and the Supreme Court just agreed with that position. Mr. POLAKOFF. And the answer from the OTS is yes. Mr. SCOTT. What do you believe should be the appropriate scope of the National Banking Act? Mr. DUGAN. I think the scope should be to the activity, all activities in national banks, both from the safety and soundness and the consumer protection side of what they do. Mr. SCOTT. Do you believe that State regulation of national banks helps or hurts the consumer? Mr. DUGAN. I guess what I would say is that it is duplicative, and it would be a better use of resources to have States focus on the place where they can bring the most attention to things that aren’t otherwise done, and that we should be held accountable to do what we need to do at national banks. VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00054 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 51 Mr. MILLER. I dissent of course. I think that the States and the Feds both doing it in this important area is the best of both worlds and is the kind of federalism and checks and balances that our Founding Fathers intended for this kind of situation. Mr. SCOTT. You know, I agree with you, Mr. Miller. I love history, and perhaps one of the most fascinating chapters of American history is the layout of our financial systems and the checks and balances that basically the architect of which was Alexander Hamilton, who made it very clear to us and has yet in my opinion to receive the proper credit that he rightfully deserves. But with that, if Hamilton were here, I think he would ask this question: How much deference should be given to a Federal agency’s determination that their regulations preempt State law? Mr. MILLER. I think that obviously there should be some deference, some considerable deference. I think the exception, though, would be with the OCC and the OTS who are competing with the States for bank charters, that when that competition continues, and certainly the temptation or the implication is that we are going to go easier on you than they will, so come with us, and then put a different hat on and say, okay, we preempt the States. That is not a good situation. So I think because of the existence of that situation, the deference to those two agencies should be diminished or indeed eliminated. Mr. POLAKOFF. If I could offer two thoughts for your consideration. The first is that preemptions are a rather fascinating discussion, and recently there have been three States that have actually preempted their city or county ordinances. So preemption exists at each level, sir. The second is that, at OTS, when we are asked for a local opinion on a preemption issue, we do share that legal opinion with CSBS and with the affected States. I am not suggesting that we are asking for an equal contribution, but I do want to share with you that we do share that before finalizing our opinion. Mr. SCOTT. Thank you very much. I have one other point here. I have heard from my consumer groups in the State of Georgia. The State of Georgia has been a leader in the Nation of foreclosure preemption. You name the abuse, you name a need for protection for financial consumers, and my State of Georgia, unfortunately, is the poster child for that. And many of the folks back home argue that Federal regulators cannot adequately police consumer protections that they have worked to promote. Is that a fair statement? Mr. DUGAN. I don’t think it is a fair statement with respect to national banks. But of course we cannot promote consumer protections with the places where predatory lending is most in evidence. And it is not in the national banking system, it is not in insured depositories, it is outside of them. And we don’t have any jurisdiction over that. That is absolutely true. Mr. SCOTT. And then I have constituents on the other side, national banks for example. They complain that they shouldn’t have to spend the money or time complying with both Federal regulations and the rules of the various States in which they conduct their business. Mr. DUGAN. Well, I think that is the essence of the dual banking system and that is the essence of the national banking system his- VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00055 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 52 torically, going back to the very strong advocate of a national bank charter, which was Alexander Hamilton, which is that a set of uniform rules that apply to nationally chartered banks is the system that Congress set up to be and the reason why it has gotten the kind of deference it has gotten in the courts over the years. That is the principle. Mr. SCOTT. Finally, Mr. Chairman, if I may, just to conclude, do you believe supervision over national banks and their subsidiaries is adequate to ensuring financial customers are being treated fairly? This is especially as a crisis in the subprime lending market, and foreclosure numbers across the country are not foreseen as letting up any time soon given the crisis. Mr. DUGAN. I do believe we have the resources. We are not perfect. The banks we supervise are not perfect. But I believe our record on those subprime loans that you are talking about is a strong one. Mr. SCOTT. Thank you, Mr. Chairman. The CHAIRMAN. The gentleman from Texas. Mr. GREEN. Thank you, Mr. Chairman. And as usual, Mr. Chairman, you have provided great oracularity in helping us to better understand these issues. I believe that the perception exists in the minds of many consumers, a great number I might add, that they are being, to use a highly technical term, ‘‘ripped off’’ by some of these fees, fees that are noninterest income. They believe they are being ripped off. And Chairwoman Bair, on page 3 of your statement, starting in the second paragraph, a few lines down, you indicate that fee based overdraft protection programs typically charge customers at least $20 to $35 for each overdraft. Depending on the size of the overdraft and length of time for repayment, the effective annual percentage rate can exceed 1,000 percent. And then you go on to indicate in the next paragraph that last year insured institutions obtained 42.2 percent of their net operating revenue from noninterest income. At some point someone might conclude that this is rapacious and that it is invidious and that something more than a notice is appropriate. The truth is that a disclosure of an invidious practice, while it would disclose it, it won’t eliminate it, and it won’t obviate it. You just tell the person that if you do a certain thing you will have this practice to contend with. And it seems to me that at some point we have to try to end some of these rapacious and invidious practices. Let me just cite one or two maybe. The ranking member talked about the overdraft problem. You cash the check and you make a deposit at the same time you are cashing a check or writing and having the check honored. The deposit does not have the same rate of speed with reference to becoming a part of the system that the check that you have written seems to matriculate through the system. Credit cards, and perhaps I should ask this question before I make a statement of fact, so let me ask. If I charge something on a charge card and right immediately after charging decide that I don’t want it, and I return it and get a credit to my account, is it true or not true that the credit may take longer to reach my account than the charge? VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00056 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 53 Mr. POLAKOFF. Congressman, I could offer from a personal perspective that while it may take longer, there is not an obligation to pay the amount of the expected credit. Mr. GREEN. I understand. But consumers are of the opinion that these things ought to move at about the same rate of speed. If you take my money on day one, perhaps I ought to get credit on day one, especially if I hand it back to you right after I have made the charge. I charge, I give it right back, the charge hits my account, but the credit shows up some days later. These kinds of practices are, I think, what is causing the consumer to think that some of us are not fulfilling our obligations to protect them. Universal defaults, double cycle billing, these things are repugnant to the consumer. And while I hope that we can cure them with notices, I am not sure that notices alone are sufficient. One more comment. Mr. Miller, I really admire your optimism. You talk about folks getting together and working it out. There are two great powers, many great powers, but there are two that I will speak of in the universe. One is ‘‘way power,’’ the ability to find a way. The other is willpower. Many times we can see the way, but we can’t find the will, and I am hopeful that the will will manifest itself, because if we do have the will, and I am convinced that this august body can find a way. So my question is this: Having said all of this, do you find any— is there any practice that is rapacious, repugnant, and invidious to the extent that there ought to be some rule that would alter it? And I have cited a few. So why don’t we start with the Fed. Mr. KROSZNER. Certainly it is very important to protect consumers and to make them feel that they are being dealt with fairly and to make sure that they are dealt with fairly. I certainly agree with that. And one of the rules— Mr. GREEN. May I just intercede? And I would beg that you accept my interceding for just a moment. Could you kindly start out with yes or no? That way I will know what you really said, because sometimes when folks finish, I don’t know whether they have said yes or no. So could you start with yes or no and then give me all the explanation you would like within about a 10-second period of time? Mr. KROSZNER. Yes. Under HOEPA, we have undertaken a rule against loan flipping, which we thought was unfair and deceptive and inappropriate, and so we prohibited that practice. Tomorrow I will be holding a hearing where we are going to be discussing other potential practices that we would consider for a prohibition. Mr. GREEN. Mr. Dugan? Mr. DUGAN. Yes, there are. We have had to take action against some of these. You know, we don’t have the rulemaking authority. But just to give you one example, in the area of secured credit cards, we saw a practice where people were charging the amount of the security to the card, and as a result, there was nothing left for the consumer to borrow. And that would be the kind of practice that we certainly would think rises to the level of something that just shouldn’t happen. Ms. BAIR. Yes, exploding ARMs. These payment-shock mortgages that people have no realistic chance of repaying, are what the Subprime Mortgage Guidance is all about, getting rid of those. VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00057 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 54 Also, I think regarding fee-based bounce protection, we are undergoing a careful review of that practice. That product is used chronically. It is extremely high-priced, and we want to do more fact-finding about how customers are using it. Ms. MAJORAS. Sure. The FTC, we have lots of cases alleging that facts were deceptive or that they were unfair in the financial services area. We had one recently in which the mortgage lenders were providing all sorts of terms to Spanish-speaking consumers in Spanish, but then changing the terms and giving them documents in English that they couldn’t read that had wholly different terms for the mortgages. So, yes, of course there are practices, and we attack them regularly. Mr. POLAKOFF. Congressman, absolutely. Our 2005 guidance on overdraft protection is a perfect example where it is unacceptable for a consumer to go to an ATM and ask for the available balance and have included in that the overdraft protection amount without any notice of the charge associated with accessing that. Mr. GREEN. My final question is, to what extent were these corrections published? Mr. DUGAN. Ours was published. Mr. KROSZNER. We issued a formal rule. Ms. BAIR. Yes. For subprime mortgages, again, we have imposed very public formal enforcement actions, and also the Subprime Mortgage Guidance obviously is public. Ms. MAJORAS. We filed a case in court and issued a press release and the like. Mr. GREEN. Thank you, Mr. Chairman. I yield back the balance of my time. Mr. CLEAVER. [presiding] The Chair now recognizes the gentleman from California, Mr. Sherman. Mr. SHERMAN. Thank you. Comptroller, if the OCC determined, either by rule or interpretation, that realistic brokerage is a permissible activity for national banks, would you then view State real estate licensing laws as either obstructing, conditioning, impairing, or interfering with national banks’ ability to engage in such activity, and then go on to preempt those State licensing laws? Mr. DUGAN. Mr. Sherman, we have no such rule in our book to permit real estate brokerage and I have no intention of doing so as long as I am Comptroller. Mr. SHERMAN. That pretty much puts that question to rest. We need consumer protection. We need more of it than we have now. If we have the States do it, then a lot of people who live in States where they get inadequate consumer protection, a few will live in States where consumer protection is so intense that it interferes with business and raises costs, and the whole country will suffer, because we benefit from an efficient national economy. In fact, this union was formed perhaps more than for any other purpose to give us the benefits of living in the world’s first common market where companies could do business across State lines and now across the continent. We could act through the Federal agencies. I think you have some prodding here today, but there is more for you to do. Or finally, we could pass laws through this committee. They are subject VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00058 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 55 to possible veto, and they are also subject to a congressional schedule that is now being drawn out on the Floor. I don’t know how good we would be at writing good consumer protection if we do it on 3 hours’ sleep, which appears like it is going to be the norm for a while here in Congress. My hope, therefore, is that the agencies represented here move forward with consumer protection, and there are two kinds of consumer protection. One is disclosure, where it provides good information, is always helpful. And the other is when you prohibit an activity, and the problem there is—I will give you an example. Let us say you have a group of subprime borrowers, and they can’t qualify for anything but the really tough subprime loan. If those loans tend to have a one-fifth default rate, you would say, my God, what kind of lender is making those loans? We have to stop that. But if you stop it, then you have stopped—for every foreclosure you have stopped, you have stopped four people from ever owning a home. So I don’t know what the default rate is. If you aim to tell those financial institutions that you regulate to aim for a 1 percent default rate, a lot of people aren’t going to be able to own homes. If you allow them to make such loans on such extreme circumstances that they have a 50 percent default rate, first they are going to go bankrupt, but second, we don’t want to see those kinds of loans made. As a disclosure, we have these credit cards out there, and the statement tells me what my annual percentage rate is, and it tells me what my minimum payment is. Should we by law or regulation require that it say, Mr. Sherman, if you choose to make the minimum payment, even if you don’t use this credit card for any future purchases, it will take you ‘‘X’’ years to pay us off, and in addition to paying us the ‘‘X’’ dollars that you owe, that we were going to add ‘‘Y’’ dollars of interest? Now, I realize people continue to use their credit cards, but would it be helpful to American consumers if we knew if I have this balance at the current interest rate, eliminating the effect of any teaser rates, this genuine effective rate, and I choose just to make those minimum payments, what am I in for both in terms of how long am I going to be making those payments, and the total amount of interest I am going to pay? I will let anybody respond to that. Mr. KROSZNER. Certainly our proposal that was discussed in the subcommittee of this committee a week ago tries to address exactly that issue. One of the things that we did is we talked to real consumers and asked them, what do you need to know? What do you want to know? What is going to be helpful to you? And then when we have those answers, tried to put that together in a way that was useful to them, and then asked them, well, is this helpful? Can you understand that? And so our proposal is getting at exactly these kinds of issues, and as part of our proposal, we have discussed disclosing precisely that type of information. We are now in a comment period, so we are very open to comments from consumers, and from other parties who might tell us how useful that is and how to improve that. VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00059 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 56 Mr. SHERMAN. And I hope in the limited time that one of the things you put forward to consumers was a little table: If you make the minimum payments, this is how long it is going to take, this is the total amount you are going to pay, and this amount is going to be your interest, and this is your principal. I do have a quick question on home lending, and that is, we have seen home mortgages make the people who would never qualify to be able to pay the fully indexed adjusted amount. So it is somebody that says, oh, yes, you can qualify for a $500,000 mortgage because you can afford to make $2,000-a-month payments, and that is all you are going to have to make for the first 6 months or a year, at which point it goes to double that payment. Are the financial institutions that each of you regulate allowed to regard a borrower as qualified based upon the teaser rate and not based upon whether they qualify to make the fully indexed payments that will come about in—and I realize they only come about if the index doesn’t drop, but assuming the index stays the same. Mr. KROSZNER. This is precisely the issue that we have put out in our notice of proposed rulemaking on subprime mortgages. And we have gotten comments in, and the agencies are working together to finalize that rule. I think when we looked at the comments—or we are looking at the comments, and we certainly can’t prejudge where we are going to be, I believe there is a lot of support for— Mr. SHERMAN. Isn’t this a basic issue of bank solvency? If they go around loaning $500,000 to somebody who can only afford to make $2,000-a-month payments, and they say, well, that is a goodperforming loan because we got the $2,000 last month, do you guys—my time—do you guys call that a performing, qualified, good asset loan? Mr. KROSZNER. We have always taken safety and soundness very seriously and looked at the underwriting standards that are regulating institutions’ views. I think the key is making sure that all institutions use similar types of of high-quality underwriting standards. And just to address the previous question, it is precisely the table that you described that is in our proposal on credit cards. So I think we have tried to address both of the concerns. Mr. SHERMAN. Thank you for the credit card answer. Hopefully, for the record, you can provide a somewhat better answer on the home mortgage issue, and I will yield back. Mr. CLEAVER. Thank you. The Chair now recognizes the gentleman from Minnesota. Mr. ELLISON. Mr. Dugan, in the Watters case, basically, the Supreme Court construed the National Banking Act, and essentially, you know, the Act vested nationally chartered banks with certain powers and, ‘‘all such incidental powers as are necessary to carry out the business of banking.’’ But within the statute, doesn’t it also say that there are certain exceptions that are carved out under the Act, and if the Congress wants to regulate in those exceptions, that they certainly can, right? Mr. DUGAN. Congress can—we are a creature of Congress. You can change the National Bank Act in any way that you see fit. VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00060 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 57 Mr. ELLISON. Yes. So I guess my question is this: In the area of— I mean, I know what the decision says and all, but in the area of consumer protection, don’t you think having more eyes on the problem to protect consumers would augment the Fed’s work in terms of looking out for the consumer? Mr. DUGAN. As I said earlier in my testimony, I believe that if we had an unlimited number of resources, and an unlimited number of staff to have 2 sets of eyes, 3 sets of eyes, 10 sets of eyes, would obviously put more compliance on an institution, but we don’t. Mr. ELLISON. I know that, but let me just say this. If the States were allowed to help protect consumers as it relates to Federal banks or State-Chartered subsidiaries of Federal banks, that would mean you would have more eyes to protect consumers, isn’t that— Mr. DUGAN. To me what makes the most sense is these are very heavily regulated institutions that we regulate, and we believe we should be held accountable for that. That is what we spend our resources on. Mr. ELLISON. Right. Mr. DUGAN. To duplicate that effort to me doesn’t make any sense. Mr. ELLISON. Sure. Let me ask you the question this way then. You know, there are banking practices by national banks and State charters that are owned by Federal banks that have been called into question to date; isn’t that right? Mr. DUGAN. Certainly. Mr. ELLISON. Yes. And as a matter of fact, I think you said that—and maybe I got this wrong, but I thought you said that the Fed maybe was—I am not sure of the time period. I think it was last year—had like 200 formal actions and 200 informal actions. Did I get that right? Mr. DUGAN. I said the OCC. Mr. ELLISON. The OCC. Mr. DUGAN. 200 over a 5-year period. Mr. ELLISON. My mistake. I misidentified the Agency. But we are on the same page. That doesn’t seem like a lot to me, given so many of the things that I have been hearing about from my constituents. Mr. DUGAN. Well, all of what I said was—this is a very good example. There are many actions that we take that never arise to even an informal action, particularly in something that we call ‘‘matters requiring attention,’’ and that is where we first alert bank management of a problem because we are supervising them and we are in there. We see it. We have a problem. You need to fix it. And there were, over the same period, about 1,500 matters requiring attention. Mr. ELLISON. This is over a 5-year period? Mr. DUGAN. A 5-year period on consumer-related issues only. Mr. ELLISON. Fifty States? Mr. DUGAN. It is the national banking system, yes. Mr. ELLISON. Plus the territories? Mr. DUGAN. Yes. Mr. ELLISON. I can even see how that is not that many. VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00061 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 58 Anyway, let me ask Attorney General Miller about this. Do you feel that there is room for the States to regulate in the areas that were precluded by the Watters decision? I mean, do you feel like you could help the citizens of your State notwithstanding Watters? Mr. MILLER. We could help our citizens a lot. The States, the attorneys general, the banking superintendents, have a lot of expertise, have a lot of resources to contribute here. You know, it is particularly difficult when there is a State-chartered institution that is sheltered from our authority or a State law that we are prohibited from enforcing. It just doesn’t make any sense at all. Mr. ELLISON. For example, if a national bank or a State-chartered bank that is a national subsidiary had a credit card section, and they were doing things like, I don’t know, double-cycle billing, universal default, pay to pay, all the stuff we have been talking about, you can’t touch them; is that right? Mr. MILLER. That appears to be the case. And, you know, the credit card complaint is the poster complaint for this whole issue, and the whole—why this context that we have gotten into doesn’t make sense. And we will handle that individual complaint at the local level makes just so much sense. Mr. ELLISON. We live in a country that has negative savings; people are relying on credit cards to make it. They are at a competitive disadvantage with the banks, and yet their own State that they live in is without the power to do anything for them. Mr. MILLER. That is the dilemma, and that is why it doesn’t make sense. Mr. ELLISON. Let me ask you this question, Mr. Miller. The argument goes something like this: We don’t want the States to have their own—to be able to regulate in this area or to enforce in this area because it would drive up the cost of doing business because it would cost the national banks money, and, I guess, lawyers, to comply with these various States. So if this is essentially a costsaving measure, why don’t we see the costs of lending practices going down? You would think they would be lower. You would think we would have really cheap money in America. Do you have any thoughts on this subject? Could I at least get an answer, Mr. Chairman? I mean, you know, one could argue that the cost of money is pretty high because there is only—you know, when you look at some of the practices we have been talking about today. Mr. MILLER. I think you can draw that conclusion. The other thing is that, you know, we are a large, complex, efficient country. And, you know, today banks and institutions know how to, in a cost-effective way, efficiently comply with the whole set of rules and regulations. That is not really what we are talking about. We are really talking about the authority question, between States and Federal. We are not talking about cost here. Mr. ELLISON. Mr. Chairman, unanimous consent for 30 seconds? Mr. CLEAVER. Yes, please. Mr. ELLISON. Now let me ask you, if the national banks and the State subsidiaries that are owned by those national banks, if we really should—I mean, do you think we should be seeing cost savings as a result of the national scheme? And in your view, are we seeing the benefits of what should be a cheaper, more cost-effective VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00062 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 59 system, or have we simply given certain banks sort of a free hand and fewer people to hold them accountable, and, therefore, they are in more of a monopoly position and can charge consumers higher prices because there is fewer people watching them; is that possible? Mr. MILLER. I suppose that is possible. I guess what I am saying is that obviously we are not seeing lower charges, and that is either because there really isn’t a cost saving by going to the national system, or if the advocates are right, there is additional profit. But I think it is really a question of power and authority and how we treat consumers. I have said, though, that, you know, I respect the Supreme Court decision. I have to live with it. The chairman said earlier, I think, correctly— Mr. ELLISON. I don’t. Mr. MILLER. Yes. I mean, you can change it. But the chairman said earlier, the prospects of changing aren’t so great. So, you know, what do we do now? And, you know, one of the things I talked about is that seven of us really work together, use our powers in the subprimary. We all have power; we have retained power there. And, you know, we just have this enormous opportunity to change that system, particularly with bad actors out, relatively good actors remaining, those with national—with reputational interests remaining, and having that incentive—some pain being felt including by the investors and the public knowing this is a problem. Going forward, if the seven of us really work together sincerely and practically, as the two of us at the end of the table have worked together for the last 5 years, we could have a much, much better subprime market. Mr. CLEAVER. Thank you. The Chair recognizes the gentleman from Ohio, who has worked on this issue in the Ohio Legislature, Mr. Wilson. Mr. WILSON. Thank you, Mr. Chairman. Ladies and gentlemen, I am fully aware this has been a long, long time, so I will be brief. However, I have made some observations, and I appreciate the seven of you being here, and so I will just ask my question in this way. One of the things that came out today to me is that there are some—we need to work on connecting the dots, be that State or Federal, how we can ask the FTC to step up, the Feds, Federal Reserve, and what we can do with the OCC? I think a lot of questions, Mr. Dugan, were directed to you for some obvious reasons. So without saying anything negative, I really thought that Attorney General Miller had some really good observations in his testimony and saying what things we need to do. My question would be—and I would like to go through the seven, and just give me a brief response—is what can we do on the congressional level to help you connect the dots to put this together so that we can make a better situation for the people in America and certainly for those in Ohio? If I could. Mr. CLEAVER. We are going to ask all of you to answer the question and give the Reader’s Digest version. Mr. KROSZNER. The Reader’s Digest version is you actually already have taken a very important first step in including the Con- VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00063 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 60 ference of State Banks Supervisors in the FFIEC, the FFIEC Act. So they are participating, and it is making it easier for us to coordinate. Mr. WILSON. Thank you. Mr. DUGAN. We made four suggestions. And for Congress one would be to give joint rulemaking authority for unfair and deceptive practices. We also think that when regulators write rules that other regulators have to enforce or implement, that they should be consulted as part of that process. I think that gets very much to your connect the dots kind of thought. And then I think that Congress should require that these consumer protection regulations be updated on a regular basis, that they sometimes can go too long without being reviewed, and that causes problems for consumers over time. And then lastly—and this isn’t a congressional thing, but it was something that was raised earlier. I think we all need to get together to adopt a centralized way of handling consumer complaints so they don’t get confused about who is a national bank, who is a savings association, etc. Mr. WILSON. Thank you. Ms. BAIR. Yes. I think you have hit the nail on the head. As I said in my testimony, we need uniform, consistent, across-theboard protections. I have called again for national standards to address abuses in subprime mortgage lending at both bank and nonbank lenders. We would like the ability to write rules regarding unfair and deceptive practices. We need to expand the ability and the authority of State bank supervisors, as well as State attorneys general and others who are involved in regulating nonbank providers, to enforce the existing Federal protections. And finally, although financial education is not a panacea, I do think there is an opportunity for Congress to fund more financial education in public schools in their core curricula. In the longer term, I think that would help. Ms. MAJORAS. I think the crux of the matter is to decide what we want to do with the nonbank lenders who are the major participants in the subprime market. They are currently not regulated at the Federal level. So I think that is one decision that needs to be made. Second, we think that mortgage disclosures based on a study we have just released are inadequate, and we think we should look at that. And finally, if you are going to revise the FTC Act, it is one thing to give others more authority, and I don’t have an opinion on it. That is up to them what they need. But if you change our standard and our enabling statute, remember that the FTC enforces in broad swaths of the economy, not just this, and that would change it for everything. So I do hope we can work together with those who are making such proposals because, of course, we use that statute every day all day, and we know what it can do and what it can’t do. Thank you. Mr. WILSON. Thank you. Mr. POLAKOFF. Congressman, the Reader’s Digest version, three issues. The FFIEC, which is a very effective tool for all of us. There is a consumer forum, I think the Comptroller mentioned it earlier, VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00064 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE 61 headed by Treasury, and I believe virtually all of us at the table, including CSBS, and the FTC, and the banking regulators, sit at that forum and have very robust discussions, and I think that would—they are the two most critical aspects. The last is I would commend CSBS and ask them to remain vigilant. Right now only 70 percent of the banks have adopted the nontraditional mortgage guidance. CSBS is very active in getting other departments to enact that guidance, and I think that is critical. Mr. WILSON. Thank you. Mr. MILLER. One of the great roles of Congress is oversight. I think the most important thing you could do is hold the seven of us, our feet to the fire, make sure we fully and fairly and effectively use our powers, and make sure we work together to protect consumers. Mr. WILSON. Thank you. Mr. ANTONAKES. Well, presuming overturning the decision isn’t an option, we would speak for the FFIEC on an expanding role and have joint rulemaking through the FFIEC. We think we are just one of six parties, but we think we bring extensive consumer experience. Mr. WILSON. Thank you. And if I may, Mr. Chairman, in my opening statement, I said what I really felt our issues were, and the fact that it is not all bank-related, certainly that most is not. But this has been very helpful to me, and having sat through this just last year in Ohio, we have a lot of work to do, and we truly want to be able to bring all seven of you together in looking at how we can improve on the States and the Federal level. So I look forward to working with you in the future. Thank you, Mr. Chairman. Mr. CLEAVER. Let me express appreciation to all of you. Ms. Bair, you have spent quite a bit of time with us over the last few weeks, and we appreciate you coming and being responsive, as you always have been. The Congress was in session until about 2 a.m., so you have seen the hearty Members today, and we feel very strongly about this. I think the chairman expressed at the opening of the hearing that this was designed for us to learn, and so I think that, in fact, has happened. Some Members may want to ask additional questions, and if they do, they will do it in writing. And without objection, the hearing record will remain open for 30 days for members to submit any additional questions to the witnesses, and to place their responses in the record. If there are no requests to speak, this hearing is adjourned. [Whereupon, at 1:30 p.m., the hearing was adjourned.] VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00065 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00066 Fmt 6633 Sfmt 6633 K:\DOCS\37556.TXT HFIN PsN: TERRIE APPENDIX June 13, 2007 (63) VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00067 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00068 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.001 64 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00069 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.002 65 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00070 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.003 66 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00071 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.004 67 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00072 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.005 68 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00073 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.006 69 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00074 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.007 70 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00075 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.008 71 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00076 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.009 72 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00077 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.010 73 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00078 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.011 74 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00079 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.012 75 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00080 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.013 76 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00081 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.014 77 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00082 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.015 78 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00083 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.016 79 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00084 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.017 80 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00085 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.018 81 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00086 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.019 82 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00087 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.020 83 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00088 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.021 84 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00089 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.022 85 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00090 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.023 86 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00091 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.024 87 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00092 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.025 88 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00093 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.026 89 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00094 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.027 90 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00095 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.028 91 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00096 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.029 92 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00097 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.030 93 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00098 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.031 94 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00099 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.032 95 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00100 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.033 96 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00101 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.034 97 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00102 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.035 98 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00103 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.036 99 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00104 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.037 100 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00105 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.038 101 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00106 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.039 102 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00107 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.040 103 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00108 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.041 104 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00109 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.042 105 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00110 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.043 106 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00111 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.044 107 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00112 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.045 108 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00113 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.046 109 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00114 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.047 110 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00115 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.048 111 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00116 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.049 112 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00117 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.050 113 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00118 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.051 114 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00119 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.052 115 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00120 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.053 116 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00121 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.054 117 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00122 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.055 118 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00123 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.056 119 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00124 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.057 120 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00125 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.058 121 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00126 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.059 122 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00127 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.060 123 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00128 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.061 124 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00129 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.062 125 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00130 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.063 126 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00131 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.064 127 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00132 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.065 128 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00133 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.066 129 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00134 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.067 130 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00135 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.068 131 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00136 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.069 132 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00137 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.070 133 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00138 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.071 134 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00139 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.072 135 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00140 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.073 136 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00141 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.074 137 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00142 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.075 138 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00143 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.076 139 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00144 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.077 140 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00145 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.078 141 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00146 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.079 142 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00147 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.080 143 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00148 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.081 144 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00149 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.082 145 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00150 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.083 146 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00151 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.084 147 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00152 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.085 148 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00153 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.086 149 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00154 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.087 150 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00155 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.088 151 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00156 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.089 152 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00157 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.090 153 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00158 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.091 154 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00159 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.092 155 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00160 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.093 156 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00161 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.094 157 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00162 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.095 158 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00163 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.096 159 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00164 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.097 160 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00165 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.098 161 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00166 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.099 162 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00167 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.100 163 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00168 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.101 164 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00169 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.102 165 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00170 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.103 166 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00171 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.104 167 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00172 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.105 168 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00173 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.106 169 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00174 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.107 170 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00175 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.108 171 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00176 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.109 172 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00177 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.110 173 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00178 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.111 174 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00179 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.112 175 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00180 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.113 176 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00181 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.114 177 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00182 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.115 178 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00183 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.116 179 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00184 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.117 180 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00185 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.118 181 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00186 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.119 182 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00187 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.120 183 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00188 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.121 184 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00189 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.122 185 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00190 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.123 186 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00191 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.124 187 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00192 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.125 188 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00193 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.126 189 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00194 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.127 190 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00195 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.128 191 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00196 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.129 192 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00197 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.130 193 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00198 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.131 194 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00199 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.132 195 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00200 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.133 196 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00201 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.134 197 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00202 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.135 198 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00203 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.136 199 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00204 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.137 200 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00205 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.138 201 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00206 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.139 202 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00207 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.140 203 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00208 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.141 204 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00209 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.142 205 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00210 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.143 206 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00211 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.144 207 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00212 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.145 208 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00213 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.146 209 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00214 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.147 210 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00215 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.148 211 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00216 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.149 212 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00217 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.150 213 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00218 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.151 214 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00219 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.152 215 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00220 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.153 216 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00221 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.154 217 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00222 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.155 218 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00223 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.156 219 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00224 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.157 220 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00225 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.158 221 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00226 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.159 222 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00227 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.160 223 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00228 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.161 224 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00229 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.162 225 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00230 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.163 226 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00231 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.164 227 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00232 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.165 228 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00233 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.166 229 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00234 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.167 230 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00235 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.168 231 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00236 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.169 232 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00237 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.170 233 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00238 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.171 234 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00239 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.172 235 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00240 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.173 236 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00241 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.174 237 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00242 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.175 238 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00243 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.176 239 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00244 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.177 240 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00245 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.178 241 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00246 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.179 242 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00247 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.180 243 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00248 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.181 244 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00249 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.182 245 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00250 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.183 246 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00251 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.184 247 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00252 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.185 248 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00253 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.186 249 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00254 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.187 250 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00255 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.188 251 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00256 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.189 252 VerDate 0ct 09 2002 14:21 Oct 25, 2007 Jkt 037556 PO 00000 Frm 00257 Fmt 6601 Sfmt 6601 K:\DOCS\37556.TXT HFIN PsN: TERRIE 37556.190 253