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

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

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

However, trade organizations refuted Cordray's testimony.

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

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

In advance of the hearing, CUNA provided written statements.

“We have very significant concerns with how the CFPB has implemented many of its initial rulemakings and with the impact that the unending wave of regulatory changes is having on credit unions, 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 concerns have been dismissed or unaddressed by the director and bureau staff, even as they routinely acknowledge that credit unions did not engage in the practices that brought on the financial crisis and have no history of consumer abuses.”

He urged Congress to press the CFPB to ensure that past and future rulemakings are not making things more difficult for credit unions.

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

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

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

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

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

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

Cotton cited an app that calculated the probability that certain people would be designated as minorities. He stated that given the zip codes and last names of members of the committee, the app was likely to designate them as minorities.

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

Cordray explained that the agency worked with the Department of Justice in determining who would receive checks and that people receiving the notice would need to opt-out if their situation did not apply. Otherwise, they would be committing fraud, he added.

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

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

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

However, Cordray noted joint guidance from 1994 by the DOJ and banking sector, which actually originated in the 1970s, calling it the law of the land. The use of disparate impact was challenged up to the Supreme Court, which upheld it as law of the land, he added.

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

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

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

To say the model is brand new is not accurate, Cordray countered. Modifications have been made to the law for decades, it was developed by Congress and the Supreme Court upheld it, he added.