 I am just absolutely thrilled to welcome you back to the Ford School and to the Consumer Financial Protection Conference that we're having here today. It's my distinct honor to be able to introduce our next speaker, Rich Cordray. In this particular venue, and many others, Rich does not really need an introduction, but I'm going to do so anyway. Rich has many skills and talents. We'll start with the obvious one. He's a five-time Jepeter winner, which is really hard to pull off. He knows a lot of trivia. We were having dinner last night, and the restaurant owner came up and was chatting with us for a bit, and I can't even remember the question. But Rich knew not only the answer to the question, but the statistics behind the answer to the question involving some baseball player, and it was a good category. Rich is a former treasurer, a county and state treasurer in Ohio. He is the former attorney general of Ohio. Rich was one of the first people really in the country to call out the abuses that were happening on the ground in subprime mortgage lending. Mike was talking in the earlier panel about the voices from the field that were calling out what was going wrong. Mike was out talking about the subprime mortgage crisis with evidence from North Carolina. Rich was calling out the problems from Ohio. Really around the country, there are a lot of voices calling out these problems, and Rich not only called them out, but was working to try and correct those abuses on the ground in the lead-up to the financial crisis and after. Rich then came into the federal government, became the CFPB's first enforcement director, and then after a long involved process in the Senate, became the first director, the inaugural director of the CFPB. I should say the process was long and involved. It was very partisan at first in Rich's confirmation. But at the end of the day, overwhelmingly approved Rich on a bipartisan basis, having seen the work he did at the CFPB, and I think it's a real testament to Rich's even-keeled manner and ability to get stuff done to deliver results for American households. Rich did a phenomenal job with the handoff from Elizabeth Warren, building an incredibly strong and vibrant Consumer Financial Protection Bureau. It is not easy to build anything from scratch, not easy at all. It is really hard to build a new federal agency. And I think it's a real testament to Rich and to many people in this room who worked with Rich that that agency was not only built, but thrived. And I think you can see that in the way in which the CFPB acted under his leadership in enforcement and supervision and rule-writing. It really is quite a testament to his skills. Most of you know Rich left the CFPB and ran for governor in Ohio. I can say, I guess, that it's unfortunate that he didn't win. I think he would have been an outstanding governor. Rich is now able to reflect on his experiences at the CFPB and before, and I'm really deeply looking forward to his comments today and to the discussion that follows. I've used this phrase before, so my apologies, Rich, but I will say again, with pun intended, we are very much in your debt for all your work. With that, please join me in welcoming Rich Cordray. Thank you, Michael, and to everyone involved in organizing this conference. It has been peculiarly well done, and we all thank you. And I also appreciate very much the theme of the conference, which is consumer protection in an age of uncertainty, which I think is exactly right. And I'm honored to be here, too, with what seems to be a distinguished group of consumer law mavens and have some trepidation about the question-and-answer session, but we'll do the best we can. The notion of consumer protection in an age of uncertainty seems right to me most of all because right now we're in the middle of an administration whose commitment to consumer protection seems questionable at best. The primary subject of my talk will be how consumer financial protection is peculiarly affected by our dual-state federal system of federalism. But as the conference materials note, this is also an uncertain age because the rate of change in the financial marketplace is so swift right now that it's difficult for anyone to keep pace with it, let alone those notoriously plotting regulators. So with your indulgence, let me nod for a moment to recent technological developments before returning then to the shifting policy environment, which is the real focus of my remarks today. And then, of course, I'm happy to spend whatever time we have answering your questions about anything I have said or not said as you please. First, as to technology, there is no doubt that what has been quaintly regarded as a market for thousands of years, a physical place where buyers and sellers come together in person to transact their business in physical commodities, has been transformed in the past generation to something human beings would once have found unrecognizable. There are a lot of aspects of our lives today that human beings for thousands of years would have found unrecognizable. People have always craved speed, ease, and convenience. But for most of humanity not flushed with great wealth, the physical limitations of our world simply did not allow it. We thought we were reaching unprecedented new levels of human commerce in the past century or two with mass production, the automobile, and instantaneous communication by telegraph and telephone. But nothing before it can compare to life in the computer age, where our physical limitations are literally melding away, and online commerce built on the mysterious power of big data is solving the logistics and reducing the costs of speed, ease, and convenience. And the result is to make them increasingly available to the broad consumer public. It also presents a shampaterian moment when many moats and walls that previously protected stodgy rent seekers in the marketplace are starting to be torn down. So hip hip hooray, right? In many respects, yes, but not entirely. Along with its benefits, 21st century consumerism also presents new dangers. One danger is posed by the financialization of our economy, the mass availability of consumer credit, which creates both opportunities, but also risks for people who may get in over their heads and ruin their financial lives. Of course, even in the old days, people could do things that landed them in debtor's prison, but more types of credit and more complex credit products are now available to more consumers than ever before. And once again, I will stress that though this can be a very good thing, and in many ways is a very good thing, it also raises new and substantial concerns about people's ability to manage their credit and the effects on their financial health. Another danger comes from the very nature of speed, ease, and convenience. Many consumer choices are small and simple enough, but some are more complicated and can be quite consequential. For those consumers who don't understand all the ramifications, hasty decisions can lead to lasting regrets. Yet another danger stems from the nature of the online medium, where greater anonymity or sheer unfamiliarity with the other party can facilitate fraud and other forms of exploitation. Further encouraged by the evidently greater difficulties in effectively enforcing the law in a world of borderless commerce, where the enforcers are very much border constrained. And one last source of danger, though I hardly claim to have made a comprehensive effort to exhaust the subject, is the threat to our data security and our privacy in all the information that's being amassed about us, often without our full awareness of what may happen to us as a result. It's become fashionable for regulators to think and talk about all these technological developments in the financial marketplace, the so-called fintech companies, as something that might be best addressed by the concept of a regulatory sandbox. One thing that I recall about a sandbox, when our twins were little, is that nobody quite knows what exactly is going on in there. The same seems to me true of the regulators who bounce that term around rather casually in their conversations. Well, one thing it certainly should not be is a mindless regulation-free zone. There are many dangers in the post-modern abstract marketplace, and people can get hurt in a sandbox just as much as they can anywhere else. So that's as much as I'm planning to say in these brief remarks about technology, although if you want to return to that in the questions, I'm happy to talk some more. My main topic is what the conference organizers have euphemistically referred to as the shifting policy environment, namely the transition from the Obama administration to the Trump administration. I'm not going to try to speak to consumer protection across the board. I do not know for certain whether the new administration is trying to dismantle long-standing legal protections for consumers of food, drugs, household products, motor vehicles, aviation, and other tangible products. Many of those provisions go to protecting the public safety, and I cannot say whether it's currently being compromised. Though some of these areas, such as aviation, are under extreme stress right now, and the actions taken in response will help us understand more about the administration's posture on these issues. My focus here instead is on the area of consumer financial protection, based on my experience as the first director of the new CFPB for its first six years. In the area of consumer finance, there has been a definite turn of direction. That was especially the case during the transitional leadership of Mr Mulvaney, an adamant opponent who made no secret of his personal hostility to the consumer bureau. But the full extent of that turn is not yet entirely clear under the newly confirmed director. I've criticized some of her decisions thus far, such as the move to roll back the payday lending rule, and the claim that the bureau lacks authority to supervise companies for compliance with the Military Lending Act. But so far, the jury is still out on many other issues, and people need to be given a chance to settle in to a job. At a minimum, however, it seems clear that the Consumer Bureau has adopted a different stance in two key areas, enforcement and regulation. The number of enforcement actions, as was noted by the panel, the first panel today, has declined sharply in the past 16 months. And the pace of pro-consumer regulations appears to have slackened as well. There has been an avowed rebalancing away from the interest of the consumer public to a greater solicitude for the interest of the financial industry. To be clear, I think it's no mystery, I disagree with the main thrust of this shift toward federal inaction on consumer protection, which is very much out of step with the approach we took during the early days of the bureau and throughout my tenure. I think that aggressive policies for protecting consumers in the financial marketplace are needed and justified in the economy of the 21st century. The financial crisis of 2008, which did so much damage to this country, and was prompted by the massive meltdown in the mortgage market as exhibit A on that point, given that the mortgage market is the largest of the consumer finance markets. But a very interesting question now is, where does the shifting policy environment at the federal level leave the issue of consumer financial protection in the United States of America? In some Western countries, there would be no further basis for uncertainty about where we now stand. In countries like Great Britain, with a unitary system of government, which means they lack a system of federalism, a shift in policy at the center settles the issue for the entire nation. But that is not necessarily true here in the United States. As Justice Brandeis famously noted, and this is a quote, it is one of the happy incidents of the federal system that a single courageous state may, if its citizens choose, serve as a laboratory and try novel social and economic experiments without risk to the rest of the country. As with many famous judicial aphorisms, the mere statement of the principle is far from the whole story. It is not so clear that a single courageous state may act in the manner he suggests. If its citizens choose that it should serve as a laboratory to try novel social and economic experiments, there may be significant legal, political, and even practical obstacles in its path. Consider, for example, the current struggles over marijuana laws between our federal and state governments, and the uncertainty that currently reigns in their wake. Moreover, it's also far from clear that if one state chooses to try a novel experiment, that it can readily do so without risk to the rest of the country. Think, for example, about the way in which vaccinations currently are being handled in various states, whether it can be truly be said that those legislative experiments are being carried out without risk to the rest of the country. And we have the supremacy clause, which plainly states, this is a quote with omissions to improve comprehension, the Constitution and the laws of the United States, which will be made in pursuance thereof, shall be the supreme law of the land, anything in the Constitution or laws of any state, to the contrary, not withstanding. Thus, as I said a moment ago, Justice Brandeis' statement is not necessarily true. In fact, it was far from true at the time he said it. He wrote those words, after all, in a descending opinion, in a case where the Supreme Court held to the contrary. His dissent was joined by only one other member of the court. At the time he wrote, the court still held strongly to the locker doctrine that freedom of contract, as enshrined in the accepted understanding of the due process clause, trumped and thus invalidated any state law to the contrary. And for almost a century, the court had held that the law governing commercial relations for businesses and consumers at the state level could be controlled by federal common law in cases filed in the federal courts. Both approaches were ultimately overruled and abandoned in later decisions, but at the time Justice Brandeis wrote, the happy incidents of federalism were deeply clouded by prevailing interpretations of American law. Ironically, in fact, the court in that very case in which Justice Brandeis wrote, New State Ice Company versus Liebman, regarded itself as invoking the U.S. Constitution to knock down a state law as a means of serving the interests of consumers. The Oklahoma legislature had passed a law regulating the companies that could make or sell ice. Under the law, any company had to seek a license to engage in this business. The law had been passed at the behest of the large ice companies that exerted effective control over the legislature. Its practical tendency, as the district court had held, was to shut out new enterprises and protect the monopoly power of the existing businesses. As the court held, the law was not passed to protect the consumer public, but rather for the opposite purpose. Yet, Justice Brandeis's position would have blessed the law and allowed it to disserve consumers all in the name of state experimentation. Therefore, we need to recognize that the federal state relationship presents essentially a neutral spectrum in which either side at any time might be pursuing policies that either do or do not favor the interests of consumers. But let's get back now to 2019. Positing for the moment that there is a retreat in pursuing consumer financial protection at the federal level, what are the prospects for maintaining the same kind of protections for consumers at the state level? We have 50 additional sources of law to contemplate, and we have 50 distinct sets of public officials that we can encourage to enforce those laws vigorously. Certainly, at least some of these laws and some of these officials are inclined to carry forward the banner of consumer financial protection, even in conflict with contrary views embodied in federal law or adhered to by their federal counterparts. So what then? Can the states decide to exercise the happy incidents of our federalism to step into the breach and make up the difference? If they do, would their actions constitute a complete response, a partial response, or an ineffective response to the shifting policy environment? The answer depends on the particulars of the legal framework that controls a specific area of public policy, including economic policy. As noted earlier, the supremacy clause stipulates that any proper federal law is supreme and controlling, regardless of anything to the contrary embodied in state law. Does that mean any state law purporting to protect consumers in a way that's different from federal law would be rendered invalid, as contrary to the federal law? Does federal preemption thus negate state efforts to provide broader financial protections for consumers? Prior to the Dodd-Frank Act, it seems that the answer to that question might well have been yes, that even anemic federal laws would preempt stronger state laws to the contrary, because of the inconsistent rules of conduct they would pose for individuals and corporations. That is the doctrine of conflict preemption, which the Supreme Court has laid down to control any instance of a state law that would interfere with the intended objectives of federal law. As has been determined with such diverse commercial areas as medical devices, or cigarette labels, or airbags and motor vehicles, even so with consumer financial protection, if the federal law conflicts with state laws, even more protective state laws, then a court might well hold that federal preemption negates those conflicting state laws. That would be true, for instance, if the federal policy were that consumer protection should extend only so far and no farther as part of a uniform national policy on how to balance the interests of the consumer public against those of financial providers. And in the current administration, there's no doubt that some number of federal legislators and some other federal financial officials prefer this view. Another potential problem is that federal officials in a shifting policy environment might decide that they no longer have the same zeal to enforce the law as was shown previously. In the field of consumer financial protection, a shorthand phrasing of this view might be whether federal officials should push the envelope, that's a quote, in advancing consumer protections in the financial marketplace. Mr. Mulvaney stated explicitly that he believed I had done so, that such an approach was undesirable or even improper, and he made clear that he would not do so during his interim tenure. On traditional theories of dual federalism, it was up to federal officials to enforce federal law. State officials were authorized to enforce state law, and never the twain shall meet. Hence, a voluntary pullback in enforcement at the federal level was dispositive of the continued efficacy of federal law, at least while those federal officials remained in position to impose their views. And if federal officials could thus effectively undermine the force of the federal laws, while also claiming to preempt state laws protecting consumers, then the depressing result would appear to be checkmate. But interestingly, the Dodd-Frank Act imposed important changes in the federal state landscape that governs consumer financial protection in particular. And let me here take a moment as a point of personal privilege and say a number of the people who are involved in drafting the Dodd-Frank Act are in this room today, and I need to state publicly how much I am thankful to them for the excellent job they did in drafting that statute. People give us credit for having set up the CFPB and started a federal agency from scratch, and that was a big job, no question about it. But to conceive what the agency would be and to conceptualize that and implement it in legislation, to state and scope out the powers and authorities and how it would all fit together was a momentous task as well, and they did it very well. When people would ask me from time to time, what other powers and authorities we were lacking that we needed at the Consumer Bureau, there was little or nothing that we could say that we were missing from that statute. The one complaint I do have is the auto dealer but that was not the drafters of the legislation but rather the legislators themselves who imposed that due to political compromise. But what I wanna focus here on is not the drafting of the Dodd-Frank Act in terms of the CFPB's power authorities, but it's drafting as it affected the law in this broader context of federalism. So again, what are the changes that it made in the federal state landscape that govern consumer financial protection? What a way to understand the point is to conceive of these measures as default rules. Ultimately, the controlling view on federal preemption always lies with the Congress, at least within its proper rule of enacting legislation that does square with the U.S. Constitution. But the Constitution itself does not dictate whether a state law can or should run contrary to a federal law. That's a determination that Congress has the authority to make in the first place. Of course, the courts have a subordinate authority to determine preemption issues in any area where they must construe the congressional intent, but if the Congress speaks clearly, then that is the end of the matter. The Dodd-Frank Act changed the default rule on preemption in a crucial way. Section 1041A1 of Title 10, which addresses the legislative issue concerning sources of law, said as to the issue of federal preemption as follows. A little bit of bracketing here to make it readable. The Consumer Financial Protection Act may not be construed as annulling, altering, or effecting or exempting any person from complying with the statutes, regulations, orders, or interpretations in effect in any state, except to the extent that any such provisions of law is inconsistent with the provisions of this act. Thus far, this is just a restatement of federal preemption theory that if state laws are inconsistent with the federal law, they cannot be pursued. But subsection A2 works a distinct change by saying, quote, for purposes of this subsection, a statute, regulation, order, interpretation, and effect in any state is not inconsistent with the provisions of this act. If the protection that such statute, regulation, order, interpretation affords to consumers is greater than the protection provided under this act. This is a telltale provision, and it's notable because it effectively speaks in the language of rights. To explain this, let me make an analogy to doctrines of state constitutional law. That's a subject that I used to teach. It's been long established that the rights guaranteed under the US Constitution are distinct from the rights guaranteed under state constitutions. For more than a century prior to the incorporation of federal rights against the states under the due process clause of the 14th Amendment, this conceptual point was basically irrelevant because there could be no conflict between a right guaranteed against the federal government and a right guaranteed against the state government. That was the holding in Barron versus city of Baltimore in the early 19th century. The US Constitution created and constrained the federal government. State constitutions created and constrained the state governments. These sets of rights operated wholly independently and their intersection was a null set. But after the incorporation doctrine was broadly adopted in the middle of the last century, you could have the same types of rights protected against state officials. Free speech rights, religious rights, search and seizure rights, so on, under both the federal and state constitutions. Often the language of the two documents is precisely or essentially the same. Yet it has been settled for many decades that there could be independent construction of the same substantive constitutional rights and where they clash, the resolution of that clash is governed by a one-way ratchet. Wherever federal rights are interpreted one way and state rights are interpreted some other way, the state rights can protect individuals beyond the scope of the federal rights but they cannot operate to undercut the scope of federal rights. Put differently and more simply, as was stated on the panel this morning, the federal constitutional rights are a floor but not a ceiling of constitutional protection against the actions of state officials in that setting. And for example, that would be true even if state law contains UDAP provisions, unfair deceptive practices, acts or practices, and federal law contains similar provisions or even almost identical provisions, unfair deceptive and abusive acts or practices. Those could be interpreted differently at the state level and at the federal level and they could be more protective even though the underlying language was the same. That is exactly what this language in the Dodd-Frank Act provides as well, yet without the confusion of having two different sovereign governments. Consumer laws of course protect against private individuals and corporations, not governments. If states wish to convert broader consumer financial protections against private individuals and corporations, they can now do so because of Dodd-Frank. Regardless of whether the U.S. Congress or federal officials have done so. That is the new baseline of fairness that Congress has created under federal law in this special realm of consumer finance. The decision by state officials to confer broader protections on consumers as a matter of state law is not inconsistent with and is not contrary to federal law. Meaning that the default rule is there is no conflict preemption of such more generous state laws. So one might ask and maybe I would ask some of the drafters who are here, why should this be the new baseline? Why should we have a one-way ratchet favoring consumer financial protections? To put it bluntly, this language reflects the notion that consumers deserve certain rights and where state officials choose to recognize and protect those rights, they should have latitude to do so. In other words, the default rule now is that more consumer protection conferred by states is considered a good thing and thus is legally permissible despite the text of the supremacy clause. And since this language appears in statute in the Dodd-Frank Act itself, explicitly declared by the Congress itself, it would seem to control any efforts by regulators to act to the contrary by trying to preempt such state laws on their own authority unless they have countervailing statutory language they can cite in support. Now the second major change embodied in the Dodd-Frank Act has to do with the issues of executive power concerning the enforcement of the federal consumer laws. Section 1042A essentially says, and I'm paraphrasing some complicated language here, that in any state, either the top legal official or the top financial regulator can take action in a federal or state venue to enforce the provisions of the Consumer Financial Protection Act and its implementing regulations against anyone who violates the act or such regulations and to secure remedies for any such violations provided by law. The lone exception is for nationally chartered banks, but even they can be subject to an action by the state's top legal official for violating not the act itself, but its implementing regulations. This was the Congress's considered response, or maybe something of a political compromise, to the Supreme Court's surprisingly pro-state holding in the Cuomo v. Clearinghouse case. Now that's a bit complicated and it merits several observations. First, this seems like a fairly novel form of federalism, apparently it's not unprecedented, but novel which authorizes state officials to take the initiative to enforce federal law directly. Why would Congress do that? I would submit it was a farsighted response to precisely the shifting policy environment we now have where the federal government itself may now be disinclined for one reason or another to engage in robust enforcement of federal consumer law. Those reasons might include adherence to free market ideology, or an anti-government bias, or a desire to support the financial industry, or agency capture, or resource limitations, or perhaps some other reason, or perhaps all of those reasons. Whatever the reasoning may be, the Congress that enacted the Dodd-Frank Act spoke clearly to say that it was not willing to put all of its enforcement eggs in the federal basket. It made the express determination to authorize 50 other sovereign entities to enforce federal law as well, at least for the most part. This is a departure from strict notions of dual federalism where federal officials enforce federal law and state officials enforce state law. Yet it seems natural enough to me that Congress would want to see more robust enforcement of the laws that it has enacted, not just in this area, but in any area. It disrespects Congress when the executive branch hollows out valid laws on the books through mere inaction, as though the federal officials had not taken a constitutional oath to faithfully execute those laws. Indeed, this provision suggests that Congress was concerned that the consumer financial laws would be systematically under enforced, and so they sought to expand and strengthen the team of officials engaged in giving them teeth. Perhaps all federal law is systematically under enforced, since crossing the line is subject to judicial correction and sanctions, which may prompt caution about treading into gray areas close to the line. Anybody who's dealt with in-house government attorneys knows this mindset. Or because limited resources and unlimited problems simply lead to an inevitably feudal game of catch-up where regulators and law enforcement officers never quite feel that they're winning. However, all of that may be, what we now have is an enhanced system of federalism applicable to consumer financial protection under the Dodd-Frank Act. State officials now have more tools and more resources than ever before. This reflects Congress's embrace of the importance of protecting consumer rights in the financial marketplace. Now, one or more of you consumer law experts might wanna ask me, what about section 1044 of the Dodd-Frank Act? I'm cutting you off, I'm not giving you the chance. Which further governs preemption issues involving the OCC under the National Bank Act. And which by itself contains no fewer than seven subsections and nine sub-subsections. This is the point at which I might throw up my hands and say that these are issues for the courts to decide. Indeed, Congress may even have executed a classic punt here after what I recall was a fierce fight about whether to incorporate the murky preemption holding in the Barnett Bank case about when state laws substantially interfere with federal law, a debate in which we might say that perhaps not a single member of Congress would have clearly understood what the final resting point was and what the meaning of section 1044 actually was for national bank preemption. But I will say a couple things here even about this obscure section. First, it does not apply to any of the non-bank financial companies, thousands and thousands of companies who are treated under the pro-consumer default rules laid out earlier. Second, it only applies to nationally chartered banks themselves to find very narrowly to exclude even their affiliates and subsidiaries which is no doubt creating a bit of reorganization in some of those entities. Third, putting the Barnett Bank case holding aside for the moment the only other ground on which state consumer financial laws are preempted even against nationally chartered banks is where they would quote have a discriminatory effect on national banks in comparison with the effect of the law on a bank chartered by that state. This subsection again presents a relatively spare basis for federal preemption which perhaps should inform judicial interpretation of the next subsection which is the one incorporating the preemption test from Barnett Bank. Enough of all that. But stepping back from the weedy marshes of federal preemption and its intricacies the bottom line is this. Even if the federal government is temporarily sounding some manner of retreat from the battlefield we can salute the Congress and those who assisted the Congress for ensuring that even in this shifting policy environment consumer financial protection remains alive and well in the United States. It has done so in the Dodd-Frank Act by creating what we might call a framework of competitive federalism. Competitive federalism empowers the states and their officials to expand and protect the rights of consumers in the financial marketplace by expanding state law and by enforcing federal law. I see faces in the crowd here today who are eagerly and proudly carrying that mantle. To them I say press forward, test the boundaries. Don't shy away from some of the uncertainties in the law. Do what you believe is right to protect consumers against fraud and abuses. And I urge the same to our federal colleagues to whatever extent you are permitted to do so. Remember the words of President Kennedy in his 1962 speech to Congress calling for a consumer bill of rights. He said then, consumers by definition include us all. They're the largest economic group in the economy affecting and affected by almost every public and private economic decision. Two thirds of all spending in the economy is by consumers, but they are the only important group in the economy who are not effectively organized, whose views are often not heard. The same is still true today. So you must listen for their voices and you must act to protect them through sound laws that are vigorously enforced. Please know that every day, not only I, but millions of Americans are fervently rooting you on. Thank you. There's always one. Okay. Good afternoon. My name is Teri Freedline. I'm in a school of social work here. And my question has to do with federalism and much of what I know about federalism comes from a book by Jamila Melchner on the fragmented democracy. And one of her points in the book is that federalism with regard to Medicaid undermines people's economic lives and potentially suppresses their political voice. And so given that the CFPB, particularly under your leadership, had been active in soliciting consumers' voice, how do you see kind of the CFPB in the context of federalism and related to consumers' economic lives and their voice on issues related to consumer protections? So this is a point I tried to make about Justice Brandeis and his dissent in the New State ICE case, which is that federalism itself is a framework and it is a structure and it is therefore sort of neutral as to whether we're achieving good or bad ends. A lot of people would say that federalism in the United States for years was detrimental in the sense that it was holding back the whole civil rights movement in this country and there's no question that that was true. And what it does is it presents and provides for competing sources of authority, competing sources of power, and power can be used for good or for ill. And the same is true in consumer protection and the same is true in every other area of law. The other point that I would try to make is federalism is itself a concept that has very complicated and diverse applications in different areas of law and different areas of practical experience and can look very different from one place to another, depending on, again, situations on the ground, what the legal framework is, it can differ from one area to another. As I said, it's quite favorable to protecting rights in state constitutional law. It's quite favorable to protecting rights now into the Dodd-Frank Act in consumer financial protection. May not be so true of consumer protection generally in the more tangible realms and certainly is not necessarily true in other areas of the law such as you mentioned. So, again, where Congress is willing to speak up and speak clearly and say that states should be able to go beyond and be more protective, Congress has the ability to do so, it is rarely done so. I'm gonna make you talk about section 1044. So, as you noted in Dodd-Frank, we made a number of moves to try and open up space for states to act when the federal government was misbehaving in some way or not acting. One of those ways was by changing the rules or what we thought was changing the rules for preemption with respect to national banks. For the reasons that others have said today that you can create, if the federal government steps in with strong preemption, you can create in a state a real race to the bottom in legal rules and then in practices. Mike Calhoun was talking earlier about the race to the bottom in North Carolina we certainly saw there and in other states that tried to act aggressively in this space. The provision among other things required the OCC to take a fresh look at all of its old preemption decisions and to figure out whether they were in fact justified under this new legal standard. The OCC stepped in before your appointment and before really the creation of the CFPB itself to avoid a provision that required them to consult with the CFPB and blanketly reissued all their old preemption orders. So I'm wondering if you could comment on that and on the effect that may or may not have had in your view of how the states can act in this field. Yeah, the first thing I will say is when the CFPB was parachuted into the existing system of federal regulators, there was one the OTS mentioned infamously by the panel earlier that was extinguished but otherwise you're still in a complicated world of multiple regulators and for the most part I think the other regulators natural reaction wasn't a universal reaction and natural reaction was to be very resentful and hostile to the CFPB. Among other things because the mere creation of a CFPB was not so implicit, pretty explicit rebuke of those agents for not having sufficiently attended to these issues. And there was some rearguard action and some efforts made to resist us under leadership at the time at the OCC. That was one of them but it was not the only one. And soon thereafter, happy occasion was change of leadership at the OCC. Tom Curry became the new Comptroller and Tom had a background of being a state banking regulator himself and different views on these issues and over time the cooperation increased enormously between the two agencies. And other situations were not as fraught and worked themselves out over time as well. In terms of where we stand right now in terms of National Bank Act preemption of the states, my guess is as good as yours, maybe not as good as yours. It seems very cloudy to me what the OCC has said may or may not entirely square with the new provisions of the Dodd-Frank Act. And I'm not aware that they've been tested in court at this point and whether they will be or won't be, I couldn't say. What I would add is that I don't believe any of the National Bank Act preemption provisions and 1044 have yet been tested in court. And it's possible we'll have some preemption battles shaping up because as I say, there's a push and pull here with the federal government seeming to be retreating in this area and the state government's having the opportunity to move in and they are doing so. And by the way, some of it is not moving in. They've always been there, but they're now sort of reinvigorated, I would say. There will be potentially preemption battles that will be coming up and some of them are looming right now and we will see what happens with those. But it matters enormously that Congress at the juncture where it could actually legislate in this area and right now we're seeing little or no legislation in this area, pretty much in the years since Dodd-Frank laid out these default rules and they would have to be undone by statute and I don't anticipate that happening anytime in the foreseeable future. So I don't know that I had much of an answer to your question, but it's the best I can do. Director Cordray, thank you so much for that wonderful talk. It reminded me of being back in law school, actually. Is that a good thing or bad? Yes. If I may shift you back to technology, which you mentioned at the beginning of your discussion, the exploitation of big data using artificial intelligence by financial firms potentially poses several risks to consumers and their participation in the financial markets. Do you have some thoughts about that and if you were still at the agency, what would you be telling staff to look into? Yeah, and this is not just in the computer age, although it's especially in the computer age. I mean, certainly the nature of information about consumers, about individual consumers, each one of us has been progressing rapidly for many decades, even before the computer age. I mean, you went from local credit reporting bureaus to a nationalization of that market pretty much completely unsupervised, unattended by anyone. It just kind of grew up on its own within the private sector and it gave rise to a number of problems. This was all before big data and artificial intelligence. And when the CFPB first came into its authority to supervise the credit reporting companies the three biggest ones have about 200 million files on Americans of greater or lesser completeness and accuracy for that point. It was quite a remarkable experience because they had virtually no systems in place to manage their own compliance with the law and that became evident very quickly to them and to us. And it's been a big, big job to try to sort of push them into some sort of sensible shape in terms of being able to manage their own operations in a way that can take account of and account for themselves for their interests, the interests of consumers. In terms of big data and artificial intelligence and all of the information about us, you know it is simplistic to say but it's a plus and a minus. It's giving us access to credit that we would not have had if companies could not really understand much about us. It is also potentially cutting off access to credit in situations where it would not seem to be justified. It is amassing information that can be used or misused for various other purposes that we may or may not know or understand or intend. It is a very prominent conspicuous example of the opportunity but also the dangers of this modern economy and maybe one of the most conspicuous examples. I don't have much more to say beyond that I don't think at this point. Hi Mr. Cordray, first of all thank you so much for being here, really appreciate your time. My name is Averal Prakash, I'm a dual MBA and PP student and I appreciate your focus on the federalism lens but I was hoping to kind of expand for you to talk maybe about some best practices that we could learn from other settings from other international firms and situations that could probably add to the process. I'm in Professor Adrian Harris's class on fintech and today we're talking about how the US system or at least our laws are quite negative. They try to restrict and create like boundaries versus in the Europe you see more positive legal framework so I was hoping you could talk about some best practices in other regions that maybe we could glean here that could enhance hopefully the situation. It's a really good question and it's something that we posit over quite a lot at the Consumer Bureau and I'm sure they still do. The nature of compliance with the law is that it is a sort of negative enterprise there's a threshold below which you cannot sink. If you do sink below that threshold you are in violation of the law. You're subject to sanctions, you're subject to penalties, you're subject to actions and so everybody should be, not everybody is conscientious and people think they can get away with things but people generally try to make an effort to raise themselves at least above the very low threshold of compliance with the law. Now there's much that we'd like to see out of companies and much that consumers would like that would go well above that standard. I mean nothing in the law says you have to have excellent or even decent customer service but consumers want that. This is the way in which the marketplace itself competes companies against one another to raise their game well above just the mandatory minimum legal threshold and one of the puzzles that we worked on with incomplete results is what can an agency, a federal agency do to try to encourage companies to get well above the bare minimum? I mean, at a first step you're trying to encourage them to get out of the gray area right around the threshold of bare legal compliance because they could fall below the line. So any sensible company will try to push itself a ways above the very bottom baseline but beyond that it is, and this is where we puzzled over the one of the objectives in the Dodd-Frank Act for us. One of the purposes was that we were supposed to foster work to foster innovation in financial services. How do you do that as a government agency? Isn't that something that's done in the private sector? Companies compete against each other and if they have built a better mousetrap they collect many or most of the consumers in their market and gain market share. What on earth do we have to do with any of that other than trying to stay out of the way? And that was one of the things that we thought a lot about and we worked with a lot of the fintech providers to, one of the things we recognized over time was that there's an overhang of lack of clarity about the law that can discourage and cause people to be very cautious about trying new things, even things that might be very pro-consumer if they aren't sure that those things will be looked upon as potentially violating the law. And where we could try to provide that clarity we did try to inevitably any issue like that as a very hard issue, often a very complicated issue and you wanna be cautious about working it through as the regulator, because you don't wanna suddenly bless something and then find that you missed something significant about it and you're blessing something that's actually harming consumers. But then again, there's a tendency to not wanna give any guidance at all, which is not very helpful to people either. So this is something we struggled with. And we were very interested and remain interested to see what's happening overseas on this. The UK has the financial sandbox. We were actually ahead of them and doing some work on this, but they have gone into this in a big way. There's no question in my mind that in London they see this as an effort toward economic development. They're trying to bring more fintech to England so they're trying to lower them. This is one of the dangers of a competitive policy of this type is you can lower people by lowering your standards or you can lower people by providing them with better service yourself. And there's some of both going on, I think, around the world and I'm concerned about what the CFPB is proposing because it's not clear to me that it will be sufficiently appreciative of the risks to consumers in this segment. But it's a difficult chicken egg problem of how much emphasis do you put on either side of that equation? And again, as a factual matter, are you getting it right or getting it wrong? And I don't have answers to the financial sandbox other than to say that I'm a little concerned about a blunderbuss approach that simply says companies can do whatever they want because they have the label fintech. That's very evidently in my mind not the right answer. And I think we don't know exactly what risks that will create, but they'll be significant. And I also don't, I have my doubts as to whether that will be a legally permissible result if that's the result that people are seeking to reach. I've noticed that Bayer Corporation is having a big problem with their weed killer and the lawsuits that are gonna result from that. And you get these huge settlements of $79 million and more for just one incidence of cancer. How do you guys see yourselves as far as impact is concerned vis-a-vis the legal system that offers remedy for being preyed upon or causing bad things to happen? Yeah, it's a good question. It gets into a difficult area, which is some statues have private rights of action and private liability that can be imposed in lawsuits by citizens directly. Some do not. If you're an enforcer enforcing the law in an area, should you take account of private enforcement? Should that somehow affect what you do? I don't think it should. I saw ourselves as neither backing away from seeking a remedy or relief in light of potential pending private actions, nor did I see us as necessarily facilitating private actions, although there's no question if the Bureau resolved an issue and found a violation of law, that could provide a basis for follow-on private lawsuits. And then so the question is, what's the total enforcement in the system, not just the enforcement by the CFPB, not even just the enforcement by the federal regulators, not even just the enforcement by the federal regulators in the states together, but including private liability, where do you all come out? One of the interesting aspects of that has been the whole Wells Fargo mess. We started with an enforcement action in which we faced a difficult problem because there was not a great deal of individual consumer financial harm to consumers, but there was outrageous conduct by the bank. So we ended up imposing a very high penalty relative to the compensatory damages in that case, one that arguably would be constitutionally suspect if you applied the punitive damage constitutional law to this, but in the end, the follow-up liability for Wells Fargo out of that whole mess has been so enormous. I don't even know what levels it's reached at this point, and of course there's been other conduct that violated the law that some of it was no doubt, some of it was turfed up by investigations we had ongoing at the time, some of it likely has been turfed up by the remarkable amount of attention paid to Wells Fargo in the wake of that enforcement action and where it all will end is hard to say, but it's a good question, it's a hard question, but I think that what we simply tried to do was take each matter before us on its merits and address it in light of the facts and the law that we had and didn't otherwise trouble ourselves too much with what else was going on in the universe. Now we did try to work together with others so that we could try to create a coherent package of enforcement, for example, we worked constantly with the states and with multi-states and we would strategize together even if we weren't acting together in the litigation, try to strategize together about what we were doing and why and I think that that can be helpful, but there's no doubt a fair amount of uncoordination in our system if you look at total law enforcement as a whole including private actions which the government of course can't control other than by Congress deciding whether to allow them or not allow them and the stipulations for how those lawsuits can proceed. Just, thank you, just to shift gears for a little bit and this is really relevant more to consumer protection with regard to investments and retirement and lending and other, sure. A question that really focuses on the investment side of consumer protection and saving side rather than lending and predatory practices. One of the potentially hopeful signs in the financial markets over the past few years has been some would say the Vanguard effect, that the message that the most important thing is to keep fees low and understand that very few people can beat the market and very few people can pick the people who can beat the market. That message has gone out to an ever increasing number of savers and hence a race to the bottom in terms of fees. What could be done from a regulatory point of view to strip the mystique from the swollen parts of the investment business which may be much of it so that, I mean for example, if the fiduciary duty rule were revived or as you envisioned it being originally implemented, would it be dangerous for a financial advisor to recommend any mutual fund other than an index fund? Might it be dangerous for a retirement plan to ever have a fund that had more than a .05% annual fee? How could this, what I think is this hopeful use of the market and of knowledge be harnessed through regulation or at least be encouraged so that that part of the financial market shrinks? Well that was kind of the subject for the last panel. Not so much for me but let me say a couple of things. First of all, you use the phrase race to the bottom in a somewhat unusual way because you were talking about what you consider to be a good outcome of lower fees. Usually we say race to the bottom is toward conduct that violates the law and exploits consumers. It's almost a race to the top. You're getting right now in terms of low fees and reasonable service. In terms of whether this could disincentivize investment advisors to charge fees, certainly could. I don't really have something insightful to say to you there. Any kind of regulation can have intended and unintended consequences. We don't always know what the unintended consequences by definition we don't know. And then we have to be ready to understand, comprehend and make adjustments accordingly. That was something that we very much was part of our view of our mission at the Bureau as we were dealing with pretty complex mortgage regulations. We very much didn't want to upset the market in some unexpected way and those markets are complicated. So we monitored that very religiously month in, month out and we often several times we ended up adjusting those rules even though it ate up bandwidth that we could have gone on and done other things and gotten some of the other rule makings done earlier but we thought that was important to do. I guess I'm just gonna leave it. I'm not an expert on the investor market but I was a fan of the fiduciary rule and it's sorry to see it set aside at this point but these things will come and go. There'll be further legislation on these issues. It was mentioned earlier the arbitration rule that we adopted that was overturned by Congress. There will come a time when the Congress will legislate on that issue and they'll legislate a lot more broadly than just consumer financial protection would be my guess on that. Thank you. Thank you again for coming in for the whole presentation. My question is based on your experience as a regulator with a regime that accorded lots of discretion assuming the will to enact a regulation for consumer protection over the comparative efficacy of broader standards and content specific rules. Which works when? Do you wanna say ability repay or do you wanna say 25% of your after income, et cetera, et cetera? What's your experience with that? Yeah, that's one of the perpetual issues in regulation. I remember when I first met with the new comtroller Tom Curry, he gave me a certificate that I kept in my office which was the very first set of standards that the original first control of the currency during the Civil War had laid down for national banks and it was on one rather large but one sheet of paper essentially and it was very general rules. You should do this, you should consider that very much along the lines of I think like Kahoon said earlier, you should not charge unreasonable fees, that kind of generality. And then of course the downside of that kind of regulation is that it leads it to someone else to fill in a lot of details. It could be an examiner, it could be a court if there's a court case over it. It could be people at the bank making their own judgments which might control the bank's behavior for an awful long time without any attention from the regulators. We found that and maybe it was due to the fact that we were considered an aggressive regulator, people wanted very, very specific rules from us. They wanted specificity on lots of detailed issues because they wanted to be able to know exactly what they were going to do. And for large financial companies that automate compliance, the more exactitude they can have, they can just automate all of that and then they can feel sure that they don't have a problem. They don't really want a discretion being exercised. It was said earlier, I thought it was ironic. They might like to have discretion exercised by someone favorable to them, but if they aren't entirely sure that you're favorable to them, they don't really want the discretion. And in the end you have these long, dense, prolix, very specific consumer financial regulations. I remember Senator Angus King at one point in one of my interviews when I was trying to get confirmed, he had his aid come in and dump on the table several of the big consumer finance regulations. It was a pile so high you could hardly see over the top of it. He was making his point. On the other hand, industry often wants that and asks for that and is happy to have it. Now, big companies can automate their compliance. Small companies have a hard time waiting through all this so it creates something of a differential impact within the industry itself. But I would say that where we were sure of ourself, we were happy to provide specificity. Often you're not entirely sure of yourself and so you don't want to set that foot. As is said, sometimes if umpires often in error never in doubt, you don't want to be that type of regulator either. But it is a very fact specific issue and something that you can't generalize about. But I'll give one more analogy which is in debt collection. Debt collection is a very unusual marketplace because at the federal level, there was a statute passed in 1977 that provides the Fair Debt Collection Practices Act and it never provided any authority for anybody to write any regulations underneath it until Dodd-Frank which the Bureau now has that authority in their working on rules on this subject. What that's meant is for 40 years, what was said in that statute which is at some level of generality has been interpreted by courts in private litigations again and again and again and the only guidance companies have as to what they should do on a lot of these very tricky particular issues is whatever courts have told them and the trouble is a lot of courts have said very different things on the same issues and so they really have no good guidance at all other than making a judgment which is not made in uniform fashion within the industry. So they actually have been kind of begging the Bureau for several years now to formulate and adopt rules so they can have more of that certainty let alone have a clear rule on a subject rather than murky conflicting rules. So there is a place for regulation and industry knows that and once they get used to it and the rules are sensible enough that tends to be a good marketplace and I think the mortgage and credit card markets have become good marketplaces in the last 10 years and they were not before, no question about it, reasonably good marketplaces till we find the next problem that leads to a meltdown which I don't know what it is right now but if we did we'd be heading it off, okay?