During a Senate Banking Committee hearing for a semi-annualreport to Congress Thursday, CFPB Director Richard Cordray reiterated his belief that thebureau cannot provide a blanket exemption to credit unions.

Cordray held close to comments he made during his HouseFinancial Services Committee hearing on March 16 that the CFPB has made allowances forcredit unions and other small financial institutions in some of itsrulemaking.

Sen. Tim Scott (R-S.C.) questioned the director on Section 1022of the Dodd-Frank Act, asking if the bureau sees a need forfollowing the often quoted provision in the act.

“We've been doing this since the beginning,” Cordray said. “Wetailored our mortgage rules, in particular, which is the mostsignificant finance market for all players at around $10 trillion.We've tailored our rules in notable ways for smallerproviders.”

He cited the recent update to the definition of rural as a way the bureau has tailored rulemaking to smallerinstitutions.

In regard to the exemption authority, he added, “We've had to befairly careful about it. We don't regard Congress having said tous, 'You have broad exemption authority. You can do whatever youwant, despite what Congress said.' That would be too much.”

Cordray added, “Congress didn't just exempt credit unions fromall laws and regulations and therefore I don't feel that I can comein as a matter of opinion or ideology and overrule that, but whereI can see, in the mortgage rules and mortgage market, they've donewell and we should try to tailor our rules accordingly. We havedone that and we will continue to do that.”

However, trade organizations refuted Cordray's testimony.

“Clearly, such an exemption is, by statute, available to thenation's member-owned, non-profit credit unions if the CFPB willonly apply it,” NAFCU President/CEO Dan Berger said in astatement.

He added that while the organization does not agree with theCFPB on the point, “We are encouraged by Director Cordray'sstatement before the committee that the CFPB welcomes input on howit could better exercise this exemption authority.”

In advance of the hearing, CUNA provided written statements.

“We have very significant concerns with how the CFPB hasimplemented many of its initial rulemakings and with the impactthat the unending wave of regulatory changes is having on creditunions, particularly smaller credit unions,” Jim Nussle,president/CEO for CUNA, said in a letter to the committee. “We have been troubled by the extent to which these concernshave been dismissed or unaddressed by the director and bureaustaff, even as they routinely acknowledge that credit unions didnot engage in the practices that brought on the financial crisisand have no history of consumer abuses.”

He urged Congress to press the CFPB to ensure that past andfuture rulemakings are not making things more difficult for creditunions.

In his opening comments, Sen. Richard Shelby (R-Ala.) citedTuesday's hearing on the effects of consumer protection regulation,stating that during the hearing, concerns were raised in regard tothe bureau's current structure and the lack of accountabilityinherent in it.

Referring to Cordray's current testimony and the frequency withwhich he is called to testify before Congress, Sen. Sherrod Brown(D-Ohio) said the fact that Cordray is in the hearing room is anexample of how the CFPB is accountable.

“It bewilders me that anyone would think otherwise,” Brownadded.

He referred to an earlier vote on Securities and Exchange Commission nominees andits subsequent postponement as inherent to the dysfunction of boththe banking committee and the Senate.

“Republicans are trying to turn the CFPB into ideologicalroadkill,” he added.

Sen. Tom Cotton (R-Ark.) questioned how proceeds from the Ally Financial settlement found their wayinto the hands of white borrowers. He asked how it was possible forthe CFPB to use disparate impact to calculate probabilities of whowould receive a check.

Cotton cited an app that calculated the probability that certainpeople would be designated as minorities. He stated that given thezip codes and last names of members of the committee, the app waslikely to designate them as minorities.

Cotton said the app gave Brown a high probability of beingblack, based on the calculations, which were similar to those usedby the CFPB. The probability was 70% for Shelby and 88% for Cotton,he continued.

Cordray explained that the agency worked with the Department ofJustice in determining who would receive checks and that peoplereceiving the notice would need to opt-out if their situation didnot apply. Otherwise, they would be committing fraud, he added.

Sen. Patrick Toomey (R-Penn.) questioned the bureau's use ofenforcement actions as opposed to rulemaking, adding that the useof enforcement actions does not lend itself to transparency.

Cordray countered that when using enforcement actions, others inthe industry look to the action as motivation to refrain fromacting in a similar fashion and stop any potential actions thatcould lead to scrutiny from the agency.

Toomey questioned the agency's use of disparate impact, statingit was applying a novel new approach.

However, Cordray noted joint guidance from 1994 by the DOJ andbanking sector, which actually originated in the 1970s, calling itthe law of the land. The use of disparate impact was challenged upto the Supreme Court, which upheld it as law of the land, headded.

Toomey then countered that the model is decades old andquestioned why no changes have been made.

Cordray said the model continues to evolve and somemodifications have been made.

“You developed a new methodology that is not subject totransparency,” Toomey concluded.

To say the model is brand new is not accurate, Cordraycountered. Modifications have been made to the law for decades, itwas developed by Congress and the Supreme Court upheld it, headded.