[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]




                    AN EXAMINATION OF THE CHALLENGES
                       FACING COMMUNITY FINANCIAL
                         INSTITUTIONS IN TEXAS

=======================================================================

                             FIELD HEARING

                               BEFORE THE

                 SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

                          AND CONSUMER CREDIT

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 14, 2012

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 112-106









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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                   SPENCER BACHUS, Alabama, Chairman

JEB HENSARLING, Texas, Vice          BARNEY FRANK, Massachusetts, 
    Chairman                             Ranking Member
PETER T. KING, New York              MAXINE WATERS, California
EDWARD R. ROYCE, California          CAROLYN B. MALONEY, New York
FRANK D. LUCAS, Oklahoma             LUIS V. GUTIERREZ, Illinois
RON PAUL, Texas                      NYDIA M. VELAZQUEZ, New York
DONALD A. MANZULLO, Illinois         MELVIN L. WATT, North Carolina
WALTER B. JONES, North Carolina      GARY L. ACKERMAN, New York
JUDY BIGGERT, Illinois               BRAD SHERMAN, California
GARY G. MILLER, California           GREGORY W. MEEKS, New York
SHELLEY MOORE CAPITO, West Virginia  MICHAEL E. CAPUANO, Massachusetts
SCOTT GARRETT, New Jersey            RUBEN HINOJOSA, Texas
RANDY NEUGEBAUER, Texas              WM. LACY CLAY, Missouri
PATRICK T. McHENRY, North Carolina   CAROLYN McCARTHY, New York
JOHN CAMPBELL, California            JOE BACA, California
MICHELE BACHMANN, Minnesota          STEPHEN F. LYNCH, Massachusetts
THADDEUS G. McCOTTER, Michigan       BRAD MILLER, North Carolina
KEVIN McCARTHY, California           DAVID SCOTT, Georgia
STEVAN PEARCE, New Mexico            AL GREEN, Texas
BILL POSEY, Florida                  EMANUEL CLEAVER, Missouri
MICHAEL G. FITZPATRICK,              GWEN MOORE, Wisconsin
    Pennsylvania                     KEITH ELLISON, Minnesota
LYNN A. WESTMORELAND, Georgia        ED PERLMUTTER, Colorado
BLAINE LUETKEMEYER, Missouri         JOE DONNELLY, Indiana
BILL HUIZENGA, Michigan              ANDRE CARSON, Indiana
SEAN P. DUFFY, Wisconsin             JAMES A. HIMES, Connecticut
NAN A. S. HAYWORTH, New York         GARY C. PETERS, Michigan
JAMES B. RENACCI, Ohio               JOHN C. CARNEY, Jr., Delaware
ROBERT HURT, Virginia
ROBERT J. DOLD, Illinois
DAVID SCHWEIKERT, Arizona
MICHAEL G. GRIMM, New York
FRANCISCO ``QUICO'' CANSECO, Texas
STEVE STIVERS, Ohio
STEPHEN LEE FINCHER, Tennessee

           James H. Clinger, Staff Director and Chief Counsel
       Subcommittee on Financial Institutions and Consumer Credit

             SHELLEY MOORE CAPITO, West Virginia, Chairman

JAMES B. RENACCI, Ohio, Vice         CAROLYN B. MALONEY, New York, 
    Chairman                             Ranking Member
EDWARD R. ROYCE, California          LUIS V. GUTIERREZ, Illinois
DONALD A. MANZULLO, Illinois         MELVIN L. WATT, North Carolina
WALTER B. JONES, North Carolina      GARY L. ACKERMAN, New York
JEB HENSARLING, Texas                RUBEN HINOJOSA, Texas
PATRICK T. McHENRY, North Carolina   CAROLYN McCARTHY, New York
THADDEUS G. McCOTTER, Michigan       JOE BACA, California
KEVIN McCARTHY, California           BRAD MILLER, North Carolina
STEVAN PEARCE, New Mexico            DAVID SCOTT, Georgia
LYNN A. WESTMORELAND, Georgia        NYDIA M. VELAZQUEZ, New York
BLAINE LUETKEMEYER, Missouri         GREGORY W. MEEKS, New York
BILL HUIZENGA, Michigan              STEPHEN F. LYNCH, Massachusetts
SEAN P. DUFFY, Wisconsin             JOHN C. CARNEY, Jr., Delaware
FRANCISCO ``QUICO'' CANSECO, Texas
MICHAEL G. GRIMM, New York
STEPHEN LEE FINCHER, Tennessee














                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    March 14, 2012...............................................     1
Appendix:
    March 14, 2012...............................................    37

                               WITNESSES
                       Wednesday, March 14, 2012

Barrera, Janie, President and Chief Executive Officer, ACCION 
  Texas Inc......................................................    17
Glenn, Robert A., President and Chief Executive Officer, Air 
  Force Federal Credit Union.....................................     4
Hansard, George H., President/CEO, the Pecos County State Bank, 
  Fort Stockton, Texas...........................................     6
Martinez, Maria J., President and Chief Executive Officer, Border 
  Federal Credit Union, Del Rio, Texas...........................     8
McCauley, Cliff, Senior Executive Vice President, Frost Bank, San 
  Antonio, Texas.................................................    10
Parker, Lester Leonidas, Chairman, President, and Chief Executive 
  Officer, United Bank of El Paso Del Norte, El Paso, Texas......    11
Urrabazo, Ignacio, Jr., President, Commerce Bank, Laredo, Texas..    13

                                APPENDIX

Prepared statements:
    Barrera, Janie...............................................    38
    Glenn, Robert A..............................................    41
    Hansard, George H............................................    55
    Martinez, Maria J............................................    59
    McCauley, Cliff..............................................    69
    Parker, Lester Leonidas......................................    78
    Urrabazo, Ignacio, Jr........................................    88

 
                    AN EXAMINATION OF THE CHALLENGES
                       FACING COMMUNITY FINANCIAL
                         INSTITUTIONS IN TEXAS

                              ----------                              


                       Wednesday, March 14, 2012

             U.S. House of Representatives,
             Subcommittee on Financial Institutions
                               and Consumer Credit,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 9:30 a.m., at 
the City Council Chambers of the Municipal Plaza Building, 114 
W. Commerce Street, San Antonio, Texas, Hon. Shelley Moore 
Capito [chairwoman of the subcommittee] presiding.
    Members present: Representatives Capito and Canseco.
    Chairwoman Capito. This field hearing will come to order. I 
would like to thank, first of all, the beautiful City of San 
Antonio for hosting us. It's my first personal visit to the 
City, and it's just lovely. And I think it's obvious from my 
quick observations that it's very family-friendly and a great 
and safe place to visit and enjoy the wonderful restaurants and 
beautiful scenery and the Riverwalk. So thank you so much for 
having us here.
    And by way of introduction, my name is Shelley Moore 
Capito. I'm the chairman of the Financial Institutions and 
Consumer Credit Subcommittee of the Financial Services 
Committee in the House of Representatives. I hail from the 
great State of West Virginia. There are a lot of West 
Virginians living in Texas, I know that, and there are a lot of 
similarities between West Virginians and Texans. We're good-
hearted people, so I'm very, very happy to be here. I'm going 
to kind of walk you through the process of what we're going to 
do today, and then we'll proceed.
    We're having a field hearing. And what this does is it 
gives us a good flavor, a slice-of-life understanding of what 
we're doing in Washington, bringing Washington to San Antonio, 
but also we're going to take back what we're hearing today to 
Washington and formulate policy that will enhance your ability 
to do business and to grow here in Texas.
    So Mr. Canseco and I will each give an opening statement, 
and then our witnesses will be recognized for a 5-minute 
opening statement. We will then have a couple of rounds of 
questions where each one of us will be recognized for 5 
minutes. And the hearing should last until around 12:15.
    I want to thank my colleague, Mr. Canseco, for inviting me 
here, and also for his great leadership on our committee. He 
may be a freshman in name, but in reality, he is a force in our 
committee and in Congress, and I really appreciate his 
leadership. And I know it's not easy; I have a great 
appreciation for how far he travels every week to serve. So, 
you're really lucky to have him.
    The title of this morning's hearing is, ``An Examination of 
the Challenges Facing Community Financial Institutions in 
Texas.'' We have a panel of witnesses who will provide us with 
an overview of the landscape for community banks and credit 
unions in Texas.
    This Congress, our subcommittee has conducted a series of 
hearings on the evolving regulatory environment for community 
banks and credit unions. We have heard a consistent concern 
from witnesses that the growing regulatory burden for community 
banks and credit unions is making it more difficult to grow the 
economy and help communities recover from an economic downturn. 
We have also heard concerns about the inconsistent application 
of examinations by the Federal financial regulatory agencies.
    The recent trend of financial institution failures is 
largely due to the financial crisis and the slow economic 
conditions in communities across the country; however, this is 
not a recent phenomenon. Since the early 1980s, there has been 
a consistent trend of consolidation in the banking industry.
    According to the FDIC, in 1984, there were 14,884 banking 
organizations across the country. And as of February of this 
year, there were only 7,349, nearly half the institutions that 
there were 28 years ago.
    Now, consolidation is not necessarily bad if you're doing 
it on your own terms of when you want to do it, and in some 
ways, it allows healthier institutions to grow. However, we 
must ensure that our Nation is served by a diverse financial 
system that includes community banks, credit unions, regional 
banks, and national banks. Each entity is tailored to serve the 
specific needs of different populations. This morning's hearing 
is an important contribution to this dialogue, and I appreciate 
our witnesses' willingness to testify in front of this 
subcommittee.
    I would also like to say in terms of observations that I 
have already made since I have been here in Texas, the role of 
the community bank and the ability to understand and work with 
the individual communities is something that I think there's a 
great concern about in rural areas like I live in, in West 
Virginia, and like you have in Texas. We can't lose that valued 
asset in our local communities through consolidation or 
overburdensome regulatory regimes where a community bank cannot 
meet or our financial institutions cannot meet the challenges 
of the regulations.
    So with that, I would like to now introduce our host. My 
dad was in Congress in the 1950s and 1960s. In these little 
cards that I now have from the 1950s and 1960s, he always 
characterized himself as the hardest-working Congressman, but 
I'm going to characterize your Congressman, Mr. Quico Canseco, 
as the hardest-working member of my subcommittee. I now 
recognize Mr. Canseco for the purpose of making an opening 
statement.
    Mr. Canseco. Thank you very much, Madam Chairwoman. And I 
appreciate very much you coming down to San Antonio and holding 
this very important hearing. I also want to thank you for your 
tremendous leadership on the Subcommittee on Financial 
Institutions and Consumer Credit. Welcome to San Antonio. And 
I'm sure that you'll find us very, very hospitable. I want to 
also let the City of San Antonio know that we're very, very 
grateful to be having this hearing here in our City Council 
chambers. It's a beautiful building and a very beautiful 
environment.
    I want to also thank our witnesses on the panel today. We 
have representatives from San Antonio, Laredo, Del Rio, Fort 
Stockton, and El Paso. I thank you all for being here, and I 
look forward to your testimony and our discussion today which 
is very, very important.
    America has for many years been home to the most 
competitive and dynamic financial sector in the world. This is 
in large part due to the diversity of institutions that provide 
loans and help increase capital formation in the private sector 
of our economy. Unlike other nations where a small number of 
mega institutions typically dominate the entire industry, in 
America the vast number of community banks, credit unions, and 
other small lenders offer a different business model that often 
fits with the needs of small towns and communities, especially 
here in Texas.
    The community-oriented model focuses on relationships, 
service, and flexibility with its customer base usually 
standing in stark contrast with the model offered by larger 
counterparts.
    While community banks and credit unions oftentimes lack the 
geographic diversity and deep pockets of the too-big-to-fail 
banks, they remain vital to the economic well-being of millions 
of Americans and American businesses.
    Here in Texas, business owners, farmers and ranchers, 
families, and others rely on local lenders in small towns such 
as Del Rio and Fort Stockton to help grow their businesses, 
create jobs, and enhance the overall quality of life in their 
communities.
    As someone who has spent years in community banking, I'm 
intimately familiar with the importance of this model and the 
need to preserve it. Unfortunately, in recent decades this 
model has become threatened due to a variety of factors such as 
rising compliance costs, economic booms followed by tremendous 
busts, and perhaps most importantly, the tendency of 
policymakers to paint all institutions with the same brush. 
These have disproportionately affected small financial 
institutions and threatened to turn our financial system into 
one controlled by a very small number of banks.
    As one participant at a recent community bank conference 
put it, ``I think this country will be a very scary place if 
there are only four or five banks providing credit.'' I 
couldn't agree more with that statement. The numbers tell the 
story--30 years ago, there were over 14,000 community banks in 
the United States. Today, there are fewer than half that 
number. It has recently been estimated that the Dodd-Frank Act 
will require companies in the United States to spend 22 million 
manhours for compliance each year. Undoubtedly, this is time 
that will cost community banks and credit unions greatly.
    The Sarbanes-Oxley Act of 2002 also had a similar 
disproportionate effect and impact. And, of course, over 13 
million of our fellow citizens remain unemployed, so community 
banks and credit unions currently face a struggling economy on 
top of a heap of new regulations.
    And so, Madam Chairwoman, I hope today's hearing serves to 
highlight some of the biggest challenges faced by small 
financial institutions here in Texas, and what we discuss 
today, what Congress should do in order to lift the regulatory 
burden that is currently crushing banks and credit unions. The 
focus must be on fostering a competitive environment where 
small financial institutions can continue to play a vital role 
in our economy. I yield back, and I thank you.
    Chairwoman Capito. Thank you.
    We will now turn to the panel. What I'll do is introduce 
each of you individually right before you give your statement.
    Our first witness is Mr. Robert Glenn, president and chief 
executive officer of the Air Force Federal Credit Union. 
Welcome.

  STATEMENT OF ROBERT A. GLENN, PRESIDENT AND CHIEF EXECUTIVE 
            OFFICER, AIR FORCE FEDERAL CREDIT UNION

    Mr. Glenn. Thank you, Madam Chairwoman. Chairwoman Capito, 
Ranking Member Maloney, and members of the subcommittee, Air 
Force Federal Credit Union is very pleased to have an 
invitation to appear before the subcommittee today for this 
hearing.
    In the course of my oral summation, I'm going to try to 
cover briefly about our credit union, about credit unions in 
Texas generally, and to explore some of the challenges that our 
credit union has faced in regulatory compliance, and also to 
discuss our views of our examination process and how our 
industry is consolidated.
    Air Force Federal Credit Union was chartered in November of 
1952 as Lackland Federal Credit Union. At that time, we had 10 
members who each initially deposited $5 into the credit union. 
We ended up in 2011 with over 36,900 members and total assets 
of $342 million. We have 142 employees. We have 131 who are 
full time, and 11 who are part time.
    We're probably one of the larger credit unions in the State 
of Texas because in Texas, there are 536 credit unions. The 
average size of a credit union in the State of Texas is $135.7 
million, and they represent 7.8 million members.
    In the State of Texas, 427 of those credit unions have less 
than $100 million in total assets. The average credit union 
size of that group is only $21.8 million in total assets. The 
total average number of employees in each of those credit 
unions is eight full-time employees, and one part-time 
employee. If a credit union the size of mine with 142 employees 
is having problems meeting compliance, you can imagine what 
kind of difficulty a credit union with only 8\1/2\ full-time 
equivalents would have. By the way, the State of Texas only has 
13 credit unions that are over $1 billion in total assets, and 
none of them are over $7 billion in total assets. None of them 
fall under the examination requirements of the CFPB.
    We all have limited resources, and that's why compliance is 
such a challenge for smaller institutions. We don't have lots 
of money, we don't have lots of time other than the time that 
we have there to serve the folks that we're designed to serve, 
our members and our customers, and we also use a lot of third-
party vendors. And when we're trying to comply, we have to get 
those third-party vendors to line up their processes with the 
new regulations, and they have to help us in our compliance 
activities.
    I want to go into a couple of regulations that were 
particularly challenging. One of the most challenging for us 
was the Credit Card Act. The Credit Card Act had a number of 
different facets that were challenging to us, for example, the 
constant due date. Under the practice before the Act, the due 
date would move a couple of days either way depending on when 
the statement would be prepared. And the statement was being 
prepared based upon how cost-effective it would be to cycle the 
statements throughout the month. Preparers of statements could 
reduce their cost, hold down the cost to consumers ultimately, 
they pay for everything, and we were able to avoid weekend 
preparation of statements. It didn't make sense to prepare 
statements on Saturday night when you can't put them in the 
mail on Sunday morning. At least if you do put them in the 
mail, they're not moving to the ultimate consumer.
    And you have to wonder also about--if some of the other 
aspects of that regulation required, for example, to change 
dates or rates. If you had to change a rate, you had to provide 
additional notice. We send lots of notices to our members, all 
different kinds of varieties. We have past-due notices, notices 
of payments that are coming due, we have statements, we have 
NSF notices, notices for everything that you can imagine, and 
they're all additional pieces of paper. And we hear from our 
members that they throw most of those away. So you wonder what 
good an additional notice is going to serve.
    I know in our household we have probably three or four 
credit cards. During the course of the passage of this 
particular piece of legislation, we received nine separate 
notices regarding the changes that they were implementing 
before the Card Act went into place. And then subsequently, we 
have had numerous notices on each of those accounts. They 
didn't really mean anything because we pay the account off 
every month in our household. And if you do that, the change in 
rate is a nonissue.
    We had additional information that was required to be 
placed on the statements, particularly on the first page of the 
statement. This new information was to show people how long it 
would take them to pay their account off if they paid just the 
minimum payment, and if they paid a slightly larger payment, 
how they could pay it off more quickly. This extended the 
length of the document, it caused more pages to be produced, it 
extends the amount of money required to print, and so forth.
    And I see a red light blinking, so I need to stop here.
    [The prepared statement of Mr. Glenn can be found on page 
41 of the appendix.]
    Chairwoman Capito. Thank you. We do have a little timer 
here, and it gives us 5 minutes. I'm not going to be so bold as 
to come to San Antonio with my own hammer and hammer you down 
right at 5 minutes. But if it gets really long, I might try to 
do it. Thank you.
    Our next witness is Mr. George Hansard, president of Pecos 
County State Bank. Welcome.

STATEMENT OF GEORGE H. HANSARD, PRESIDENT/CEO, THE PECOS COUNTY 
                STATE BANK, FORT STOCKTON, TEXAS

    Mr. Hansard. Thank you. Chairwoman Capito and members of 
the subcommittee, just a couple of observations. First, I have 
to say that this is probably the first time I have sat between 
two credit unions. And as a banker, it's somewhat difficult. 
Second, I'm just a West Texas small-town banker, and thank you 
for putting my name on the back so that I remember who I am.
    Again, my name is George Hansard. I'm the president and CEO 
of The Pecos County State Bank in Fort Stockton, Texas. Pecos 
County State Bank is a $150 million community bank that was 
started approximately 80 years ago in Fort Stockton, Texas. 
Fort Stockton only has a population of some 8,000 people. And 
we have a location in Sanderson, Texas, which has a population 
of 750 people. We are truly community bankers.
    I have been the president of the bank for 6 years, and I 
have been employed with community banks for over 32 years. I 
appreciate the opportunity to address issues which I believe 
have adversely affected community banks for the last several 
years. The most important aspect that my board asked me to 
relay is the inflection of my voice so that the subcommittee 
will understand the frustration that we have seen.
    Several months ago, we at Pecos County State Bank stumbled 
across our bank's policy manual from 1986. That policy manual 
was 100 pages long. Today, our same policy manual is over 1,000 
pages, which requires a full-time compliance officer and also a 
real estate clerk to remain abreast of regulatory changes to 
ensure that we remain in compliance and their interpretation 
thereof.
    Community banks have been the life blood of this country, 
and they're responsible for more small business successes than 
any other resources, including government programs. What's 
troubling to me and to my bank is the impact of government 
regulation that has been based not upon common sense but on 
politics.
    Today, only 25 percent of Dodd-Frank has been implemented. 
What has Dodd-Frank done to Pecos County State Bank? For one, 
allowing a consumer the opportunity to determine whether the 
bank may assess a charge on an overdraft. That overdraft is 
created by a debit card that consumer used. In the old days of 
check writing, no one had a problem with the bank assessing 
that overdraft. The check was often handed over to the local 
county attorney for collection or prosecution, and that 
customer had to pay additional fees on top of the bank fees, 
and in some instances, may have had a criminal record. Now 
Dodd-Frank places no responsibility on that consumer for his or 
her actions. And in my opinion and the opinion of most 
community banks, this is simply price fixing and has no 
rational basis.
    Twenty years ago, a community bank the size of Pecos County 
State Bank did not have a compliance officer nor did it have a 
real estate clerk to handle the regulations which covered real 
estate transactions. Now with Dodd-Frank, how many more staff 
members will a community bank be forced to employ? These staff 
members actually provide nothing to the bottom line of the 
bank. We're not sure, but we do know that from over 3,000 pages 
of law, our policy will surely double and our staff to handle 
these complexities.
    At Pecos County State Bank, I find it interesting that my 
lending staff has not increased in the 11 years that I have 
been with the bank, and we have been able to double the 
outstanding of our loans with the same lending staff. But 
during that same time period, we have had to add two employees 
simply to handle government regulation. And if I have to double 
that staff due to Frank-Dodd, that will constitute 10 percent 
of my entire staff.
    Another aspect of Dodd-Frank are the appraisal 
requirements. In my 32 years of banking, and I think many other 
bankers will agree, the banker who puts his hands on his 
collateral makes good loan decisions. Contrary to popular 
belief, community banks have no desire to make bad loans. Bad 
loans not only impact the bank's bottom line, but they also 
negatively impact the banker's job, the community, and are also 
negative to a borrower. And a bad loan makes a good customer a 
bad customer. Dodd-Frank takes that evaluation process 
completely away from the community banker, and the community 
banker must place trust in someone else putting their hands on 
that collateral.
    I do not believe in not being involved in evaluating 
collateral taken to secure a loan. Maybe loans sold in the 
secondary markets still need independence, but not loans which 
the banker must live with. Would you purchase a home without 
being involved in deciding the purchase price?
    Further, a real life example of Dodd-Frank occurred in our 
bank. We had used our real estate processor to also perform our 
real estate appraisals. She is a licensed, State-certified 
residential appraiser. Dodd-Frank put a stop to this even 
though Dodd-Frank allows that appraiser to receive a copy of 
the residential sales contract which clearly states the sale 
price, the downpayment, the loan amount and terms, but it does 
not allow that appraiser to be involved in any type of loan 
processing, which is the same information she would get from 
the sales contract. We believe that having a knowledgeable 
appraiser/processor with loyalty to his or her employer, makes 
for a more reasonable appraisal instead of those alleged in 
Dodd-Frank. I had to tell her she had to make a choice. I lost 
that important employee. She chose to remove herself from the 
everyday process of regulations which was based upon politics 
and not rationale. What does her family think now?
    Is there a solution? I'm sure that the politicians who 
wrote the legislation believe they are writing it in the best 
interest of their constituents and there is a reason for much 
legislation, but Dodd-Frank, with all of its amendments, is 
far-reaching and overreacting. I strongly believe that the 
postponement and repeal of Dodd-Frank is fair to the county as 
a whole. Dodd-Frank may have good intentions, but these 
intentions are misguided, certainly to community banks which do 
not sell their loans in the secondary market.
    Community banks did not participate nor did we profit from 
the excesses that contributed to the recent economic meltdown 
in the financial and housing industry, yet we are paying a high 
price for the actions of a few large institutions. These 
institutions have no fear. They're too-big-to-fail. In fact, 
their only concern is how large their bailout will be. We as 
community banks do not, nor have we ever had this luxury.
    Community banks are different from megabanks. Community 
Banks have been closed all over this country, and all the 
megabanks have been bailed out by taxpayers' expense. The 
rationale that it is fine to close community banks and to bail 
out megabanks is inherently irrational. Don't you think 
community banks are as important to that community as the 
megabank is to its country? I can tell you that community banks 
and their boards are at an all-time high in their level of 
frustration. Something must be done that makes good common 
sense.
    Again, I appreciate the honor and the opportunity to voice 
my opinion on such an important issue, not only for the 
community banks, but for the country and its future. Thank you.
    [The prepared statement of Mr. Hansard can be found on page 
55 of the appendix.]
    Chairwoman Capito. Thank you.
    Our next witness is Ms. Maria Martinez, president and chief 
executive officer of Border Federal Credit Union. Welcome.

 STATEMENT OF MARIA J. MARTINEZ, PRESIDENT AND CHIEF EXECUTIVE 
      OFFICER, BORDER FEDERAL CREDIT UNION, DEL RIO, TEXAS

    Ms. Martinez. Good morning, Chairwoman Capito, and good 
morning, Representative Canseco. Thank you for the opportunity 
to testify at today's hearing. My name is Maria Martinez. I'm 
the president and CEO of Border Federal Credit Union (BFCU) 
located in Del Rio, Texas, headquartered there. We have a 
community charter, and we serve 13 counties, most of which are 
underserved. BFCU has a low-income designation, and we're also 
classified and certified by the U.S. Treasury as a Community 
Development Financial Institution. We have over $107 million in 
assets and approximately 22,000 members.
    One of the current challenges affecting community credit 
unions today is the current limit of 12.25 percent of assets on 
the amount of member business loans a credit union can make. 
This cap can be increased to 27.5 percent as proposed by H.R. 
1418. This cap restricts us from being able to fully serve our 
members, limiting the opportunity of many Texans.
    Border FCU would like to enter the business lending market, 
but we are reluctant to do so. The start-up costs and 
requirements that we must comply with in order to offer small 
business loans exceeds the ability of many credit unions to 
cover their costs when faced with such a low gap. Also, we 
don't want to start a business lending program only to turn 
away members once we reach this low cap. Telling our members 
that we cannot make the loan because Congress has imposed this 
artificial cap is no comfort to our member who qualifies for 
the loan and has come to us for help.
    Raising the cap or eliminating it completely will open up 
credit to small businesses in our communities and create jobs. 
The lack of credit for small businesses slows the economy's 
recovery. Member business lending by our community credit 
unions is a vital solution to our current economic needs.
    Another challenge we face is the excessive regulatory 
burden. There is no doubt that the increasing amount of new 
laws and regulations that credit unions face have become 
overwhelming. As the credit union president, I spend many hours 
reading each new law and regulation. I can't afford to hire 
lawyers to interpret them for me. Most of these laws and 
regulations are created to address a problem caused by 
organizations other than credit unions. Yet, the regulators 
continue to impose the same requirements on small credit unions 
as they do on the largest financial institutions in the 
country. This just doesn't make sense.
    Consider, for example, the outdated requirement of posting 
physical disclosures at our ATM locations. Changing the 
physical signs to electronic disclosures displayed while using 
the machine could avoid serious problems such as vandalism and 
the wear-and-tear on the equipment. Or, for instance, the 400-
page proposed rule on remittances that will require us to 
reconsider our ability to open the service to our members.
    New regulations require more policies to be implemented by 
the credit union, expensive modifications to computer systems 
and the training of staff and our volunteer board members. It 
is particularly challenging for small credit unions. 
Unfortunately, we have seen too many small credit unions merge 
due to the increasing regulations. Far too often, I hear that 
they just couldn't keep up with the volume of changes in rules 
and laws, and that is the major factor for the decision to 
merge.
    When Congress and regulators need to crack down on bad 
actors, they should apply the changes to that specific industry 
and business type rather than imposing this on credit unions.
    Another challenge is the exam process. At times, it seems 
there is a separation between the policy as stated by the 
regulatory leadership and what occurs locally during the exam. 
We all know that the exam process is part of operating a 
financial institution, but it is also important that examiners 
not overregulate or exceed their authority. Examiners have 
tremendous powers. If a credit union believes that an examiner 
has acted unreasonably, they have very few realistic options. 
Passing H.R. 3461, which addresses the exam process, would be a 
positive step in balancing the relationship between the 
regulator and the regulated.
    And, finally, it is important that consumers be equipped to 
deal with the conflicts, financial products, and issues they 
face today.
    Border FCU serves an underserved community, an area where 
oil and gas exploration is booming, and we also serve a 
military base. We offer free programs such as home counseling 
services, budgeting workshops, and volunteer income tax 
preparation. Our volunteer staff educates our youth on 
financial literacy at local schools, and we offer a youth 
financial summer camp. All of these programs are designed to 
create financial awareness.
    I ask the subcommittee to continue to support financial 
literacy programs. As communities grow and jobs are created, 
programs must be accessible to consumers within the industry to 
assist them with financial education. We all know that an 
educated consumer is the best client of any institution.
    Madam Chairwoman and Representative Canseco, thank you for 
coming to Texas and holding this hearing. This concludes my 
testimony.
    [The prepared statement of Ms. Martinez can be found on 
page 59 of the appendix.]
    Chairwoman Capito. Thank you very much.
    Our next witness is Mr. Cliff McCauley, executive vice 
president, correspondent banking, of Frost Bank. I understand 
this is a former Frost Bank--
    Mr. McCauley. You are correct.
    Chairwoman Capito. --building. It's beautiful. Welcome.

 STATEMENT OF CLIFF MCCAULEY, SENIOR EXECUTIVE VICE PRESIDENT, 
                 FROST BANK, SAN ANTONIO, TEXAS

    Mr. McCauley. Thank you. Chairwoman Capito, Representative 
Canseco, I am Cliff McCauley, senior executive vice president 
of Frost Bank, where I have worked for over 30 years. My 
current responsibilities include leading our correspondent 
banking line of business, where I have the opportunity to work 
with financial institutions all over the State of Texas on a 
daily basis. I would like to welcome you to my hometown of San 
Antonio and express my gratitude for you holding this hearing. 
And as you mentioned, these chambers also have a special 
meaning as this building served as the Frost Bank headquarters 
for many years prior to the construction of our headquarters 
just next door.
    In my role of working with community financial institutions 
for over 25 years, I have been a part of many business cycles 
that have affected the banking industry and have seen the 
corresponding attempts to prevent the downturns from happening 
again. There were many sweeping regulatory changes after the 
banking crisis of the 1980s when nearly half of the community 
institutions in this State disappeared. These new regulations 
were put in place to prevent the next crisis but did very 
little in retrospect as numerous institutions grew into what we 
now know are too-big-to-fail.
    The regulatory burden that was put in place then is nowhere 
comparable to the overkill we're experiencing today, and in my 
opinion will have about the same effect of past attempts to 
rein in the too-big-to-fail institutions while punishing the 
community institutions that have historically played by the 
rules.
    If Dodd-Frank is allowed to stand and proliferate as a 
monster regulatory overhaul, only the largest institutions will 
be able to navigate its requirements, and the community 
institution model will continue to diminish.
    The cost of regulatory compliance is simply staggering. I'm 
not talking about efforts to keep an institution out of 
trouble; I'm talking about a well-meaning community institution 
that has no intention of being unfair to members in their own 
town. These smaller institutions spend a disproportionate 
amount of money and time to just meet the reporting and 
manpower requirements of this new regulatory overkill.
    I personally know of two community banks that simply threw 
in the towel and sold out after being beat up by regulators 
about not having enough high power talent in their compliance 
position, a position they tried fervently to fill but were 
unable to attract someone of that caliber to relocate to their 
rural community. That bank was purchased by a larger one in a 
metropolitan city and no longer has the local service or long-
time employees who understand that community.
    If the community banking model becomes an endangered 
species as the megabanks take advantage of the consolidation 
caused by regulatory burden, it would be very detrimental to 
many communities, small businesses, and local public entities.
    As we have seen in the past, when a large institution buys 
out a smaller local entity, they tend to pick and choose the 
profitable pieces that fit their model and abandon the parts 
that don't. In many cases, the pieces that are discarded are 
the locations in smaller markets, and there's evidence of this 
today as some too-big-to-fail banks are simply closing local 
offices because they no longer fit their model.
    Jobs are lost as duties are moved to the acquiring office, 
and the local community knowledge and service is lost forever. 
If consolidation continues, as I wholeheartedly believe it 
will, and there is not a local entity to pick up the pieces, 
that local community will undoubtedly suffer as a result. It is 
often noted that small businesses are the job engine of this 
country. It is also a well-known fact that community 
institutions cater to those small business customers to meet 
their needs and help them grow their entities. Without a strong 
community banking presence in so many smaller and rural areas, 
the future outlook for those businesses decline as opposed to 
prosper.
    There are too many problematic provisions of Dodd-Frank to 
cover today, but there is one provision that I continually try 
to bring to light, and that is the repeal of Regulation Q. The 
ability of banks to pay interest on business checking will 
further strengthen the too-big-to-fail banks while being 
detrimental to the community banks and small business 
borrowers. This repeal has only negative effects for smaller 
institutions and businesses while providing the too-big-to-fail 
banks an opportunity to buy the deposits from relationship-
based institutions. This provision along with the scores of 
other new regulations and the yet to be determined impact to 
the CFPB simply spell incredible difficulty for the community 
banking model. Unless there is at the very least an attitude 
change by certain regulators away from a ``Gotcha'' mentality 
and enforcement activities, this country will see hundreds and 
eventually thousands of the community banks that serve their 
area be forced to sell out to a larger entity with more 
resources to fight the daily battles of overzealous regulatory 
reform.
    I appreciate the opportunity to be here today, and I would 
be happy to expand on any of my comments or answer any 
questions. Thank you.
    [The prepared statement of Mr. McCauley can be found on 
page 69 of the appendix.]
    Chairwoman Capito. Thank you very much.
    Our next witness is Mr. Les Parker, chairman, president and 
chief executive officer, United Bank of El Paso Del Norte. Am I 
saying that correctly? Welcome.

 STATEMENT OF LESTER LEONIDAS PARKER, CHAIRMAN, PRESIDENT, AND 
 CHIEF EXECUTIVE OFFICER, UNITED BANK OF EL PASO DEL NORTE, EL 
                          PASO, TEXAS

    Mr. Parker. Thank you, Chairwoman Capito, and 
Representative Canseco.
    My name is Lester Leonidas Parker. I am president, 
chairman, and chief executive officer of United Bank of El Paso 
Del Norte.
    We're a $177 million minority community bank in a community 
of some 900,000 souls, primarily Hispanic, and we're proud of 
that.
    For the past 7 years, our bank has been the principal SBA 
lender in our SBA district. And we have built a solid record of 
supporting small business. Indeed, we focus only on small 
businesses and professional practices and do very, very little 
consumer business whatsoever.
    I started in commercial banking in 1962, 50 years ago in 
September this year. I was fortunate, and America has been good 
to me, I was able to earn a college degree and go on to 
graduate school and such. I was a captain in the Army during 
the Vietnam conflict. And you will hear a little more about 
that later because it's relevant.
    I have started three small businesses, two micros, and one 
partnership. I have also been fortunate to start three 
community banks, all of them successful, and I have cleaned up 
one bank that was about to be closed by the FDIC. My present 
bank was started 11 years ago, and it's owned by people from a 
broad cross-section within our community--the first time that 
has ever happened in El Paso.
    I believe the House of Representatives in Washington is the 
closest thing we have to the voice of the American people up on 
that hallowed hill. Because of that, I really am honored to be 
here before your committee. I believe you have the means to 
help ensure that communities across America are able to retain 
their major facilitator of economic growth, and that's their 
local community bank.
    The business model of community banks focuses principally 
on the communities in which they are headquartered. The 
business model of the too-big-to-fail banks focuses nationally 
and internationally and has long-range objectives and desires 
that really don't match up with those of community banks.
    We have as community banks a strong sense of duty, 
obligation, and commitment to those friends, neighbors, and 
fellow citizens we have in our community, and we think that is 
very, in fact, manifestly important.
    Our bank maintains very, very good ratings with the 
regulatory agencies, both State and Federal. We have very clean 
portfolios of loans and investments. We have the lowest 
nonperforming and past-due ratios in our entire area and have 
maintained those for several years now. We are diligent about 
running a very good bank that is a genuine service and a 
genuine resource to our community, and we have received a 
number of accolades because of that. We are a simple, non-
complex organization, yet the direct compliance costs in the 
bank have increased 240 percent over the past 5 years far 
exceeding the growth of the bank, its loans, investments or 
deposits. That compliance cost figure includes only the direct 
cost of specific managers while working on regulatory 
compliance, the new cost of a skilled compliance officer, and 
the cost of myriad outside, third-party auditors and reviewers 
to ensure that our compliance efforts are adequate. It does not 
count the other costs of implementation, the annual training 
that I must do with all employees and the compliance activities 
that they have throughout each week.
    When we were examined by the Federal Reserve during the 
fall of last year, the examination preparation commenced in 
July as we began to provide huge amounts of data to them. We 
have less than 800 loans in our bank; we have less than 3,000 
accounts. The reason is because we're a small business bank. A 
bank normally of our size would probably have 14,000 accounts.
    Everything is on computer, so we downloaded our entire 
bank, if you will, to the examiners in Dallas, Texas. They had 
almost 3 months to massage that data. And when they came in, 
they had 16 people who stayed for 2 weeks and set about to 
absolutely micromanage everything they could. It's obscene.
    I have a friend who is a community banker in a small town 
south of Fort Worth. The town has 1,700 people. She has been 
with that bank since she was a clerk. She now runs it and owns 
it, and the bank is $40 million in size. She has 13 people, 
including herself. In her last examination, she had six 
examiners from the OCC who stayed a month. She has about the 
same small number of accounts and loans as we do. She's also 
very well rated. I fail to see why that kind of emphasis is now 
put on small institutions.
    I see the red lights flashing, but let me tell you one 
thing. I had the pleasure of serving our county, and I 
commanded a combat nuclear outfit. I had enough firepower to 
take a small country off the map of the world. I can tell you, 
we had excellent ratings. We had a Presidential unit citation. 
We were overseen by the Department of Defense, the Department 
of the Army, the Defense Atomic Support Agency, and the entire 
staff of the United States Army. Everybody is nervous about 
nuclear weapons. I don't like them personally, but I think they 
probably have a use somewhere. We had less than 20 percent of 
the regulation to control those monstrous weapons than we have 
in our little bank to control what we do. So I leave you with 
this: 40 years ago, I did not see problems in banks and banks 
falling like flies, and yet the level of regulation and the 
cost of regulation was far, far less than it is today.
    As I see it from my standpoint, we will see community banks 
continue to decline in number. We simply cannot afford the high 
costs of Federal regulation. And as one banker, I will tell you 
this, my major risks are not credit risks, risks of theft, 
risks of some robber coming in with a gun in my office; my 
number one risk is Federal regulatory risk. And I have a 
greater risk of harm to my bank, to my stockholders from the 
Federal Government than I have from anything else in this whole 
world. That is obscene. Thank you very much.
    [The prepared statement of Mr. Parker can be found on page 
78 of the appendix.]
    Chairwoman Capito. Thank you very much.
    Our next witness is Mr. Ignacio Urrabazo, Jr., president, 
Commerce Bank. Welcome.

 STATEMENT OF IGNACIO URRABAZO, JR., PRESIDENT, COMMERCE BANK, 
                         LAREDO, TEXAS

    Mr. Urrabazo. Thank you, Madam Chairwoman, and thank you, 
Representative Canseco for letting me participate in this 
important forum. My name is Ignacio Urrabazo, and I'm the 
president of Commerce Bank in Laredo, Texas. We're a basic 
classical community bank situated in South Texas.
    Commerce Bank has about $550 million in assets, and it was 
established in 1982. We're a subsidiary of International 
Bancshares Corporation (IBC). IBC is the largest bank, minority 
bank in the continental United States with about $11.7 billion 
in assets.
    By way of background, I'm currently on the FDIC Advisory 
Committee for community banking. I'm also on the executive 
board and I am the treasurer of the Texas Bankers Association. 
I serve in a variety of committees for the American Bankers 
Association, and I'm also a former chairman of the board for 
the National Bankers Association, which is the largest minority 
banking trade association. I have been in banking for over 42 
years.
    This morning, I would like to focus on three things: 
fairness; the current regulatory climate; and the impact to 
banks and consumers from the regulators.
    As they say, a picture is worth a thousand words, so I have 
included in my pages a presentation that provides a visual of 
what compliance looks like today in our bank, and it's complex, 
and I'll leave it here for the record.
    There's no need to rehash the causes of the unprecedented 
financial meltdown that occurred in 2008, 2009. I do want to 
say that the regulators were clearly a part of the problem who 
got very little blame.
    In my lifetime, the FDIC fund has been broken twice, 
several decades ago with the S&L crisis, and just recently with 
the subprime crisis. Unfortunately, the industry received 
virtually all the blame, and the regulated agencies by and 
large received a pass. As an old banker--not that old, but 
older--I have to tell you that the regulators failed every bit 
as badly as the industry, and they have never been called to 
judgment.
    As seen in prior economic cycles and prior periods of 
crisis, policymakers and regulators overreact to the cyclical 
problems that occur all the time. Congress' holistic approach 
to fix everything in the financial sector has created 
unnecessary and inflexible rules. The Dodd-Frank Act, in my 
view, is a perfect example of a horrible overreach. The Dodd-
Frank Act, which is 848 pages long, is an outline directed at 
the bureaucrats, and it instructs them to make still more 
regulations and create more bureaucracies; it, in fact, can be 
a multi-headed monster.
    This action by Congress is unprecedented. I would like to 
remind the committee, the laws that set up the American 
business--the banking system in 1864 ran for 29 pages. The 
Federal Reserve Act of 1913 ran for 32 pages. The banking act 
that transformed American finance from the Wall Street crash, 
commonly known as the Glass-Steagall Act, spread out for 37 
pages. I ask you, how in the world will our community banking 
system survive under the weight of the Dodd-Frank Act?
    Community banks across the country will be destroyed by the 
regulators creating additional regulations on top of existing 
regulations. Community bankers are frustrated with the unknown 
and the additional costs required for compliance and 
implementation. This has come to banks when we're trying to 
survive the worst economic crisis in the last 50 years and at a 
time when our interest margins are shrinking, not to mention 
the elimination of fee income through the Durbin Amendment and 
the elimination of overdraft fees.
    These fees are critical for the survival of community 
banking. It is a key noninterest income that helps provide many 
of our banks with the additional products and services that the 
consumers need.
    The Dodd-Frank Act has not been fully implemented, but we 
have already seen its effects. While the Dodd-Frank Act has 
some necessary provisions that are required for systematic risk 
and certain complex financial products, we again see that the 
good intentions for the short term will have unintended 
horrible consequences for the long term.
    Let me talk about some issues that I see having major 
consequences not only for community banks, but more importantly 
for the consumer.
    First, in the area of compliance and fair lending, we're 
seeing examiners becoming totally inflexible and rigid in the 
interpretation of fair lending laws, all in the name of 
fairness and equality. In order for a bank to avoid a violation 
of fair lending laws and a referral to the DOJ, we have put in 
place very inflexible and rigid underwriting standards to avoid 
criticism.
    On the surface, this sounds very appropriate, but in the 
trenches we are now rejecting many long-time customers who pay 
well, but do not qualify under these new standards, because of 
the credit scores or the debt-to-income ratio. The same concept 
applies to the pricing of these loans. Some of these customers 
have had long-time relationships with the bank, but everybody 
has to fit in the box. If you don't fit and the bank makes the 
loan, you become an exception. If you become an exception and 
create an outlier, you must justify the reason for making that 
loan, and then the examiner will ask for similar exceptions to 
other outliers that are in a protected class.
    This applies to mortgage loans and consumer loans. The 
result, exceptions create enormous fair lending risks, so banks 
stop making exceptions. Furthermore, the FDIC has stated as a 
policy, the FDIC does not want loan officer's discretion in 
consumer lending. You must fit in the box. The bottom line is, 
we are declining loans at record levels, and worst of all, 
alienating our customers and damaging our reputation.
    In addition to the above, the costs involved in monitoring 
and living with such regulatory tests as regression analysis 
has become burdensome and unclear. Banks provide data, and the 
regulators will run regression analysis on women versus men; 
Hispanic versus White non-Hispanic; unsecured loans for women 
versus men; unsecured loans for Hispanic versus White non-
Hispanic; vehicle loans for women versus men; vehicle loans for 
Hispanic versus White Non-Hispanic, and various other 
combinations.
    If there are no significant variances or a disparate impact 
in the underwriting standards or the pricing, then the 
regulator will continue to cut and slice the portfolio into 
other combinations, such as one branch against another branch 
or even one officer against another officer of different 
branches until the regulators have exhausted every conceivable 
iteration as they are clearly practicing ``Gotcha'' examination 
tactics. Smaller banks will be forced to hire outside 
consultants to gather and analyze the data at greater costs 
because they do not have the resources to handle these 
difficult and complex tasks internally.
    All banks are different, all consumers are different. It is 
very, very difficult to place everybody in the same box. Rules 
are a poor substitute for good judgment. Policymakers are now 
attempting, in effect, to force good judgment out of a process 
of creating rules that embody their view of what is correct or 
what is right. We have no discretion.
    The second issue, and I'm going to go quickly through this, 
is the CFPB's review of overdraft programs and their impact on 
consumers. The CFPB has initiated new inquiries in overdraft 
practices and their impact on consumers, and they are 
soliciting feedback on a prototype ``Penalty Fee Box'' on the 
consumer's checking account statement. Last year the Fed, the 
FDIC, and the OCC all promulgated their own guidance and rules 
to supervise overdraft programs.
    Many community banks incurred significant costs instituting 
new forms, new operating systems, new disclosures, and training 
to comply with Reg E and Reg DD to establish full transparency 
and ensure customer consent on the opt-in provisions, all based 
on consumer choice. Now, the CFPB wants to review the same 
programs. What this means for banks is new rules and new 
guidance. The overdraft programs serve as a safety net for 
consumers, and it's a service that is widely demanded by our 
customers. It should be noted that the consumer has complete 
control and can revoke their opt-in status at any time.
    Overdraft protection satisfies a unique and important need 
for consumer credit marketplace. Restricting access will not 
eliminate the need that the consumers have for it, but it could 
limit their access to it as banks begin to realize it's too 
burdensome and too expensive to maintain, and carries too much 
regulatory risk. I have included a recent study by Todd Zywicki 
for the record that thoroughly studies the overdraft protection 
system.
    The third issue, quickly, is that consumer complaints will 
now play a larger role with the CFPB and will have a 
significant impact on my costs and many possible dangerous 
consequences. The major concern to banks is the Unfair, 
Deceptive, or Abusive Acts and Practices, UDAAP section. Banks 
will clearly have to be familiar with customer complaint 
programs, if for no other reason than to prove that the bank 
takes such concerns seriously. Banks will have to identify 
patterns of complaints and establish procedures to review such 
patterns as well as individual complaints. Management systems 
will have to be established and monitored.
    Ridiculous and far-fetched allegations will surface to the 
bank. The definition of ``abusive'' will be solely at the 
discretion of the CFPB, the DOJ, and consumer groups. At IBC, 
we have recently spent several hundred thousand dollars to buy 
a consumer complaint system to help manage these complaints, 
which is a huge burden on the bank.
    Other areas of concern are higher capital requirements, 
costly record-keeping and reporting requirements, standardized 
plain vanilla products that will be required, changes in 
mortgage disclosures, escrow accounts, mortgage credits to 
curtail that QRM is implemented, municipal advisors. New rules 
in bank's investment portfolio and other situations having to 
do with safety and soundness examinations have become extremely 
difficult.
    In summary, community banks are facing stiff challenges for 
the next few years. As interest margins shrink and fee income 
becomes more difficult to obtain, the regulatory burden will 
overrun small community banks causing them to either merge or 
consolidate with larger banks or just go out of business.
    Most large banks are not interested in small rural banks, 
and rural banks do not want to become a part of a large holding 
company; they are at a loss.
    At the national level, the decrease (sic) of banks has 
decreased. As one who has worked in community banks for over 4 
decades, I maintain that despite policymakers' good intentions 
in implementing regulations, they are ultimately detrimental to 
a bank's ability to grow and create capital in other 
communities and to build communities through job creation.
    Thank you for involving us in this important forum where we 
can share the experience of community banks. I hope other 
perspectives, which are based on our day-to-day interactions 
with consumers, help illuminate the need to lessen the burden 
on community banks and consumers who already are negatively 
impacted. Without community banking, we will no longer be the 
America that created the largest economy in the world. We have 
already lost over 11,000 community banks since 1985; we cannot 
afford to lose any more. Thank you.
    [The prepared statement of Mr. Urrabazo can be found on 
page 88 of the appendix.]
    Chairwoman Capito. Thank you very much.
    Our final witness is Ms. Janie Barrera, president and chief 
executive officer of ACCION Texas, Incorporated. Welcome.

   STATEMENT OF JANIE BARRERA, PRESIDENT AND CHIEF EXECUTIVE 
                   OFFICER, ACCION TEXAS INC.

    Ms. Barrera. Thank you very much. Good morning.
    On behalf of the board of directors and staff of ACCION 
Texas, welcome to San Antonio. We thank you for hosting this 
conversation on the challenges facing financial institutions in 
Texas. As a not-for-profit organization, we partner and work 
with a broad spectrum of voices and practitioners in economic 
development. I hope to share insight and expertise in the 
challenges and opportunities that face you as policymakers.
    San Antonio is the headquarters for ACCION Texas. We began 
our work here in 1994 and have now become the largest 
microlender in the United States, serving Texas, Louisiana, 
Arkansas, Missouri, Alabama, Mississippi, Tennessee, and 
Kentucky, some of the poorest States in our country. We have 
provided over 12,000 business loans, and disbursed over $121 
million to over 8,000 small businesses. ACCION currently has an 
active portfolio of $25 million, and we have a 95 percent 
repayment rate. The average credit score of our borrower is 
575. We are also a registered Community Development Financial 
Institution, a CDFI.
    This year marks our 18th anniversary. As we reflect on the 
challenges of financial institutions that are considered 
nontraditional, we recognize the importance of oversight and 
diligence. At the same time, we must remember that we need 
intermediaries that deploy funds to individuals who are not 100 
percent ready for traditional banks. ACCION, along with the 
800-plus CDFIs across the country, provide a solution by 
providing gap financing. With the funds we lend to business 
owners, our work creates a culture of commerce via banking and 
savings.
    Over our history, we have been significant beneficiaries of 
the U.S. Treasury CDFI Fund, the Department of Commerce, the 
Department of Agriculture, and the Small Business 
Administration. Since 1996, the CDFI Fund has awarded ACCION 
Texas over $8 million in a combination of grants and loans for 
loan capital, all of which was deployed, on average, within 12 
months of receipt. And since 2000, ACCION has received $3.5 
million from the SBA for microloans and technical assistance. 
These funds, with other public and private financing, have been 
essential in our expansion beyond our initial office in San 
Antonio to 18 offices across our footprint.
    These tumultuous economic times have had a substantial 
impact on our lending, both positive and negative. While many 
perceive Texas as having a strong economy, small business still 
felt the brunt of low consumer confidence in sales and 
volatility in the market. As traditional credit markets have 
tightened and loan approval criteria have become more 
restrictive at the bank level, we have witnessed an increase in 
demand.
    ACCION's loan originations in 2011 were almost $15 million, 
an increase of 14 percent from the previous year. At the same 
time, the number of applications received in 2011 increased by 
over 1,000. This signaled to us that because of this increase, 
there's a need. However, we were not able to help all the small 
business owners because of the drop in applicant quality. 
People waited too long to come to us, and the capacity to repay 
the loan was no longer there.
    We have seen a consistent annual growth in our portfolio. 
The ever-increasing demand for our services and the associated 
costs to keep up with the demand continue to provide challenges 
from a liquidity perspective. We continue to rely heavily on 
fund raising to support our growth since we are a financial 
institution without depositors. A current example is our 
pending $2 million CDFI Fund request to provide loan capital 
for continued expansion of our services in the Delta. We view 
our heavy reliance on fundraising as a significant risk for our 
organization. We are working hard to diversify our support base 
into new areas such as individual donors. But it is clear, to 
ensure that funding capacity exists for microentrepreneurs, 
Federal support plays a key role.
    Please allow me to describe ACCION's role in economic 
development.
    ACCION is an alternative lender. The average credit score 
of our borrowers is 575, the average loan size is $15,000, and 
the loss rate is 5 percent. We make loans from $500 up to 
$250,000. And we are part of the SBA pilot loan program that 
guarantees loans up to 85 percent.
    We exist to combat predatory lending. And we exist to help 
individuals achieve the American dream through loans that will 
not rob them of the ability to create an opportunity for 
themselves.
    We are regulated by our designation as a CDFI and a CDC.
    ACCION currently adheres to compliance measurements that 
are required by Treasury and the SBA.
    ACCION supports the delineation between CDFIs and the 
traditional lending institutions. And ACCION is committed to 
being transparent and being accountable.
    It is my hope that this commentary will prove to be 
beneficial as you evaluate the current and potential state of 
challenges and opportunities facing organizations like ACCION. 
We, along with our borrowers, have benefited greatly in public 
and private financing. Thank you very much.
    [The prepared statement of Ms. Barrera can be found on page 
38 of the appendix.]
    Chairwoman Capito. Thank you very much.
    I would like to thank all of you for the depth of your 
testimony and your--we're supposed to be reading your face and 
your voice. I think we have a good reading on that. I must 
begin with the questions. I'm going to kind of throw this out, 
so anybody who wants to answer this--some of you have alluded 
to this in your testimony, but it's one of my little things 
that really gets me about the Dodd-Frank Act. In Section 
1021(b)(3), it directs the CFPB to ``Ensure that outdated, 
unnecessary and unduly burdensome regulations are regularly 
identified and addressed in order to reduce unwarranted 
regulatory burdens.'' In other words, if this bill is going to 
come in or the CFPB is going to come in and put new regulations 
on, you have to scrape out the old ones, the outdated, the 
outvoted, and no longer efficient burdens.
    We wrote a letter to Secretary Geithner asking him to 
delineate where he had actually identified burdensome and 
outdated regulations, and he gave us two, one of which was the 
creation of the CFPB, which we kind of couldn't figure that one 
out, and the other one was changes to the Bank Secrecy Act, a 
similar obscure thing. So I would like to know--he did admit in 
his testimony that they had not really put this as a high 
priority and made this something that they really--this is one 
of the reasons--this is one of the ways that Dodd-Frank was 
sold to several Members of Congress. So, I would like to ask 
each of you in your institutions, in your examination processes 
or as you're looking to meet the compliance regulations, has 
there been any change in terms of removing the old and putting 
in the new, or is it just putting the new on top of the old? 
So, anybody who wants to answer. Mr. Parker?
    Mr. Parker. My experience has been, Madam Chairwoman, that 
it's simply a matter of putting the new on top of the old. As 
with many of the laws that we see in the Federal Government, 
there's no sunset provision for a lot of these regulations, and 
they simply, as we say out in West Texas, get piled higher and 
deeper just like a lot of stuff that we see out there.
    Chairwoman Capito. Ms. Martinez?
    Ms. Martinez. I think that some of those regulations are as 
confusing to us as a community institution as they are to the 
examiners. A lot of times, they come in and they're confused on 
what they're supposed to be examining us on. So they go back to 
the old rules, and then they have to visit the new ones because 
we're very much informed on the new ones, so we want to comply 
with what's up and standing in Congress at the time. And so, it 
makes it very confusing when we have to comply with it because 
they're not trained. This is a lot--it's a lot for them too.
    Chairwoman Capito. Would anybody else like to--yes, Mr. 
Urrabazo?.
    Mr. Urrabazo. Talk about some old rules, we had a recent 
examination where the flood insurance just popped out. That 
rule has been there forever, and we have complied with it as 
much as we could. But all of a sudden, they do a very detailed, 
excruciating examination of flood insurance on everybody who 
has real estate anywhere, so we had to do a lot of expensive 
work and compiling of data on an existing rule that was there 
but that for years and years was--maybe really looked at it--
they kind of superficially looked at it, then all of a sudden, 
they just come in and do a full-blown examination on flood 
insurance.
    Chairwoman Capito. I can speak to that personally as I live 
on the 8th floor of an apartment condominium in Washington, 
D.C., and I refinanced like a lot of people across the country 
did, and I got hung up on whether I had flood insurance on the 
8th floor in Washington, D.C. So it's probably exactly the same 
thing.
    Mr. Urrabazo. Exactly what I'm talking about.
    Chairwoman Capito. And it then became a question of whether 
the condo association had enough reserves to be able to pay if 
the parking garage were to flood. Anyway, it's exactly what 
you're saying. And it took an extra 2 weeks because--actually, 
probably more than that, and a few lawyers, I'm certain, to get 
that all straightened out, which adds to the cost of everything 
in the compliance.
    Mr. Hansard. Chairwoman Capito?
    Chairwoman Capito. Yes.
    Mr. Hansard. One regulation you might pass on to the 
Treasury Secretary is the Patriot Act. I think all the banks 
have been affected by the Patriot Act, and at one time, it may 
have had its place. But to sit down and say that certain 
professions are high risk--and Congressman Canseco, I beg to 
apologize right now because an attorney is considered high risk 
in banking regulation. I agree some of them may be, but to make 
that broad statement is simply unfair.
    We have quit issuing money orders in our bank because of 
the regulation. We have a lot of people who are low-income 
individuals who come in and pay their bills with money orders. 
We quit issuing money orders because of the regulation, that we 
have to run basically a background check on them, and that 
background check is a list that the Federal Government has put 
out, not that anyone else has put out. And to tell you a real 
live situation, several months ago, I was in a convenience 
store trying to fill up my pickup truck with diesel, and for 
some reason my debit card wouldn't work, so I had to go inside. 
Inside at the counter was a woman buying $5,000 worth of money 
orders with hundred dollar bills. She finished her transaction, 
and she went out to her car--and this is in Fort Stockton, 
Texas--and got into a solid black Mercedes with the darkest 
tinted windows you have ever seen, with California license 
plates. And there is no regulation for that convenience store 
to get any type of identification nor is there for the United 
States Postal Service, which sells money orders, to require any 
kind of identification, but there is on banks. Those 
regulations are outdated.
    To open up a new account, we have to put our customers 
through all types of scrutiny. And it takes hours and hours and 
hours to go through the process that we have to take. My poor 
new accounts personnel who used to have to have one password 
basically to get into our new accounts system now have eight 
passwords because they have to get to OFAC and all these other 
things that we are required to have because of the Patriot Act. 
Money is not being laundered through the banks. It's being 
laundered through private businesses; it's not through the 
banks. In my 32 years of banking, I cannot tell you of a single 
instance that I have seen money laundering. And I would ask 
these other bankers if they have seen it.
    Chairwoman Capito. I'm going to ask one more question, then 
I'm going to yield to my colleague. And this will really warm 
everybody's heart on the panel and in the audience, I think. 
The 2010, 2011 edition of the Bureau of Labor and Statistics 
Occupational Outlook Handbook states that, ``Increasing 
financial regulations will spur employment growth both of 
financial examiners and of compliance officers by 31 percent 
over the years 2008 to 2018.'' In the list of the top 30 
fastest growing occupations in the United States, in which I 
noticed home health aide was, for obvious reasons, as we're all 
aging, in the top five. Compliance officers is one of the top 
five fastest growing--financial compliance officers is one of 
the fastest growing occupations in this country.
    So we have heard a couple of things. We heard from Mr. 
Parker that his cost has gone up over 200 percent, we heard 
from Mr. Hansard who said that he had five--or if you had to 
hire--you have your real estate person and a compliance officer 
you know you're going to have to hire. Ms. Martinez said she 
only--you have eight people total at your bank, or at your 
credit union?
    Ms. Martinez. No. We have 107 employees.
    Chairwoman Capito. 107. So are 8 in the compliance area; is 
that what your said?
    Ms. Martinez. Pretty much. We have 13 managers who deal 
with compliance; each one is respective of their area.
    Chairwoman Capito. And what about you, Mr. Glenn?
    Mr. Glenn. We have one compliance officer, but there are 
about 20 people who have--invest themselves at various levels. 
We estimate the cost of compliance, just in salary and 
compensation alone, to be about $600,000 a year.
    Chairwoman Capito. Okay. That's money that's not going to 
the small business owner or the consumer to buy a car or to 
send your child to college. Mr. McCauley, do you have a--
quantify on that?
    Mr. McCauley. Yes. Ten years ago, our direct compliance 
department consisted of four people, today it's over 30, and 
that is direct. That's not including the people in accounting 
and all that who support it. So it's incredible.
    Chairwoman Capito. And I'm not sure if in your testimony 
you specifically said--Mr. Urrabazo?
    Mr. Urrabazo. Yes. We have--the same thing as Frost, we had 
a smaller group, I can't remember, maybe 7 people in compliance 
maybe 4 or 5 years ago. We now have 48 people working in direct 
compliance. And it also includes the BSA people and the money 
laundering people. But all compliance, in general, 48 people. 
Our budget in there, direct, probably is about $4 million to $5 
million. Indirect is probably around $6 million or $7 million.
    Chairwoman Capito. And, Mr. Parker, I kind of skipped over 
you; you told us 200 percent more--
    Mr. Parker. We have 37 people in our bank, and 9 of them 
are directly involved in compliance.
    Chairwoman Capito. If I had asked you that question 5 years 
ago, would that have been a different answer?
    Mr. Parker. I'm sorry?
    Chairwoman Capito. If I had asked you 5 years ago what the 
proportion was of your compliance officers to your employees, 
would it--is that consistent?
    Mr. Parker. It would not have been 25 percent. It might 
have been less than 10 percent.
    Chairwoman Capito. Is this an issue for you, Ms. Barrera?
    Ms. Barrera. It's is, Madam Chairwoman. Actually, I was 
just thinking about the fact that even though we're a not-for-
profit, not regulated, we have two people in compliance just so 
that we can make sure that we're honoring the things we should 
be honoring.
    Chairwoman Capito. Yes. And how many total employees do you 
have?
    Ms. Barrera. We have about 100 employees.
    Chairwoman Capito. A hundred employees. So you think about 
that, the diversion of resources into--now we have already 
heard the old regulations and the new regulations--it's no 
longer just the new regulations--I think this is stymied, is 
part--I don't think it's the whole reason, obviously, but it 
does contribute to the inability to get the growth that we want 
to have.
    The other issue, and then--I'm just going to make a 
statement on this--has to be the talent pool. It's not like you 
could walk into a bank and say, ``Hire me as a compliance 
officer,'' and then all of a sudden you're going to be able to 
sit down and make a judgment as to whether your financial 
institution is compliant. There has to be a lot of training. If 
you're lucky enough to get somebody who already has experience, 
you're basically picking them off from one of your competitors, 
most probably, or somebody who has moved into the community, so 
this has to be a huge issue going forward.
    I think this is maybe a little bit about what Ms. Martinez 
was saying on the examination side, the same thing. The 
examiners have a whole new portfolio, and they're not up to 
speed on everything they need to be doing. So it's really--I 
sense your frustration, and I hope you sense ours. I think we 
have a lot of objective data showing this is a burden that--at 
the end of the tunnel which is supposed to be more financial 
growth, more lending, better protection for consumers who--and 
particularly those in the lower and mid-lower who can't protect 
themselves--are these folks dropping out of the banking system 
altogether? They can't get a money order at your bank and 
they're going to the local five-and-dime to get it, which there 
probably aren't any five-and-dimes anymore--I'm dating myself--
but the local 7-Eleven or something, what kind of a lifestyle 
change is that going to bring to those folks who really need 
the stability of a good financial--with the financial literacy 
and a financial understanding, which I think includes either 
being a member of a financial institution, credit union or a 
bank so that you have that stability. So with that, I'm going 
to let Mr. Canseco ask his questions.
    Mr. Canseco. Thank you, Madam Chairwoman. And thank you, 
all of you, for participating in this panel. Just to follow up 
on what Madam Chairwoman was bringing up, I know that in some 
of our communities--Del Rio, Pecos County, and I don't know 
about El Paso or Laredo--there is a drain on the talent pool in 
order to get those vital resources where you need--for 
compliance officers; is that correct? Yes?
    Ms. Martinez. One of the things that is very challenging 
for us is, because we're so remote from the bigger cities, we 
cannot have the pool of personnel that we normally require. So 
we end up hiring from the bottom up, and we train them. It's 
very expensive to send them to outside training, so we 
concentrate a lot on webinars. It is great to have webinars, 
but you don't get the same kind of input that you would get 
when you would go and really sit down in a classroom style. So 
it's very expensive for those of us who are very remote from 
the major cities to send somebody for training and to maybe 
even develop that to be in management level positions.
    Mr. Canseco. A lot of your compliance officers--and this is 
a question for anyone who wants to chime in--are really not 
producing anything for the bank other than working for the 
government; would that be a correct analysis? Weigh in on that, 
Mr. Parker or Mr. Urrabazo?
    Mr. Urrabazo. Congressman Canseco, let me just say that 
talking about personnel and qualified people, not only is it a 
problem to find them, not only is it a problem to take them to 
Laredo, Texas, but the biggest obstacle, even if you find some 
very highly qualified people, is it is very, very difficult to 
compete or to get head-on with the FDIC when they have a staff 
of statisticians with Ph.D.'s doing regression analysis on your 
data, and they can cut and slice that data in many, many ways. 
And when you go talk to them about any kind of analysis, our 
best person there with all kinds of background in compliance 
cannot compete against a Ph.D. with a statistics background, 
two or three of them at the same time, it's impossible to beat 
them.
    Mr. Canseco. We have talked a lot about compliance and new 
rules and the burden that it poses on your banks and the cost 
of that compliance, but one thing that I haven't heard yet, and 
I would like all of you to weigh in on it, and that's how this 
ultimately affects your customers because after all, that's 
what you're in business for; how does this cost of compliance 
affect your customers?
    Do you want to start, Mr. Glenn?
    Mr. Glenn. I guess the best example is the way they changed 
the way you process mortgage loans. We used to have a rule of 
thumb that the closing costs for a borrower were about 3\1/2\ 
to 4 percent of the loan amount. That would cover all of the 
outside costs, including the origination fee. That number has 
gone up about 50 percent, and it has also extended the amount 
of time that it takes for a member to close the transaction. It 
used to be you could close a mortgage loan in something like 30 
days. It's not unusual to see 75 to 90 days for a member to 
receive their money. That's not good for the economy, and it's 
not good for the consumer. I don't know who it's good for 
except the printers. I don't know.
    Mr. Canseco. Mr. Hansard?
    Mr. Hansard. I don't have a lot to add to that except that 
we have not seen any benefit to the consumer. The more 
regulation that we see, the more time that I have to spend on 
paperwork instead of being able to sit across from the desk and 
talk to that consumer. And as I said, I like putting my hands 
on the collateral and going out and visiting my customers, and 
that time is very, very limited.
    Mr. Canseco. Ms. Martinez?
    Ms. Martinez. I used to spend more time on developing 
programs for the members, new programs, new products and 
services. And now, I spend the majority of my time reviewing 
laws and regulations.
    Mr. Canseco. Mr. McCauley?
    Mr. McCauley. You talk about fair lending; there are 
several different elements of that. But we are relegated now to 
having to make everybody fit into a box. There's no more 
flexibility, there's no more risk-based pricing, there's no 
more advantages to somebody to have a clean credit score. If 
I'm going to make a loan, I have to make it--either it's an up 
or down decision, and there's no flexibility based upon it. So 
you're not really benefiting the customer. A lot of customers 
are getting turned down because they don't fit in the box where 
before you had the flexibility to work with someone. The 
customer is not being benefited now because everybody has to 
fit in the box, and they all pay the same amount. There is no 
risk-based pricing, no reward for having a clean credit score, 
paying your bills, taking care of your business. So, no, 
there's no benefit to the consumer especially at all.
    Mr. Canseco. Mr. Parker?
    Mr. Parker. We have seen loan products go away. The last 
bank I started is nearly a billion dollars in size now and had 
a thriving mortgage section in it. That's gone. That's a 
resource gone from our community. There are a number of other 
products, as Cliff McCauley said, that do no longer exist. 
We're being told by people who have never been in business of 
any sort, who have never been in business anywhere, how to run 
a business because they know best because they have learned 
from books.
    When I taught on a university level, I can tell you, I 
taught people the basics. And I told them that when they went 
out to pursue their careers, they would then get the second 
part of their education. Unfortunately, we're having 
regulations written by people which are then being checked by 
examiners, none of whom have ever been in the private sector, 
so they have no clue about the variety and the richness of the 
human animal that we serve in business. We are all different, 
and that's what's so wonderful about being in a country like 
America where we're all mongrels of a sort. We really are all 
different, and we all have different needs and different 
desires. And you know what? Community banks used to be able to 
meet most of those before current regulations. That's going 
away. That's one thing.
    Two, I have for your edification this thick pile of 
papers--I didn't enter it into the testimony--but this is just 
a sampling of all of the disclosures we must make. We have a 
joke in the bank that whenever the House Financial Services 
Committee comes into session, they ought to be required to read 
this before entering into any business whatsoever. I'll tell 
you what, when we pass this out as required, it has been 
vetted, saucered and blowed, but our customers don't read it. 
They throw it away. And, indeed, since only about--according to 
the national experts--13 percent of the population is 
functionally fully literate enough to understand this mess, I 
can understand why we see our trash cans fill up with these 
papers after we open accounts, after we do loans, this, that, 
and the other. That's the consumer telling us what they think 
of this.
    Mr. Canseco. Mr. Urrabazo?
    Mr. Urrabazo. I think it has been already discussed, but I 
want to give you some examples of how some of these compliance 
issues affect the consumer. I think I discussed that everybody 
has to fit very clearly in that particular box. And I'll give 
you an example of a very good customer of the bank who has been 
with us for at least 25 years, and he's our maintenance person. 
He came in for a loan, a consumer loan, to buy a truck. He had 
had some credit problems a couple of years ago through some 
kind of divorce issue, so he couldn't qualify under that 
particular issue. So I declined the loan, he didn't fit in 
there, even though I know very well that--he works with us, and 
I'm the one who pays him, he's our maintenance person, but he 
did not qualify under that box. I did not want to make an 
exception because I have to find some other exceptions to that.
    The funny thing about this, he's a good customer of the 
bank, has been with us--paid us every time on time because I 
debit his account every month. After I pay him, I debit it out. 
So I have no problems with that. The funny thing about this is 
that the next day, I had another customer who came in for a 
renewal, and this person was marginal at best. I had had some 
problems in collecting from this gentleman for the past 3 or 4 
years; it's a $3,000, $4,000 loan. And as I renew the note, he 
doesn't come into this box anymore because I have the note, I 
cannot tell him to go away anymore. But what's funny about this 
is when I gave him a price on the loan, he now has a lower 
price than the one I had before because now he has to fit into 
this little box. So before I was charging him, let's say, 12 
percent, and now I have to charge him 13 percent. And I can 
almost see his face when he left the bank and was being renewed 
laughing at the bank because he says how in the world can I be 
such a bad customer and they gave me a better rate now. This is 
the fallacy and the joke about all this. You will not fit 
everybody in that same box.
    Chairwoman Capito. Ms. Barrera?
    Ms. Barrera. Congressman, I think the other issue, the 
question that needs to be asked, in terms of consumer 
protection is regarding the predatory lenders. What are the 
regulations there? How can we--you have heard examples already 
of people not being able to be served either by the banks or 
even by us. So our competition really is the predatory lenders 
and pawn shops and people out there making loans if, can you 
breathe, here it is, and here's your loan, and you're going to 
pay 300 percentage points on it, or something on it because 
you're just--it's volume for them and scalability, right? So I 
think questions need to be asked along those businesses as 
well.
    Mr. Canseco. Thank you. I will say one thing--what we're 
hearing here is that the whole business model of a community 
bank, knowing your customer, working with your customer, 
accommodating to your customer into the needs of your 
institution in order to work together to build your community, 
is being eroded because of rules and regulations and laws such 
as Dodd-Frank. The ability to visit with a customer and work 
with that customer now having to fit into a box is going to 
really chase them away. And that's a sad testament to what we 
have here. But I thank you all very much for your answers. And 
I yield back for the time being.
    Chairwoman Capito. If you all don't mind, I would like to 
ask a couple more questions. I would like to know--I kind of 
alluded to this, Mr. Parker, when I asked you if I had asked 
you that question 5 years ago, what the difference might be. I 
would like to know if your relationship with your regulators 
has changed and--over the last, say, 3 or 4 years, and how--you 
have all alluded to this in your individual testimony, but if 
you could get a little more specific or have anything you want 
to add on that issue, on the changing, evolving relationship, 
are there--who said that--I think it was you again, Mr. Parker, 
who said that there were eight people in the bank for weeks and 
weeks--has it changed for you, Mr. Glenn? We'll just go through 
the panel.
    Mr. Glenn. Our examiners have always been fairly cordial, 
but they are taking a much more exacting tack with us. And I 
think it's--I view it more as a response to some heat they're 
feeling from the legislature, and not all of that is 
unjustified, but they are looking at things closer. I had one 
odd thing happen during our last exam. Our credit union has 
about $100 million in investments. And all but three of those 
securities are Federal--all of them are Federal agency or 
Treasury securities, but we classify all of the securities, 
except for three that we hold, as ``held material.'' And one of 
the things that they told us we had to do was start classifying 
them as ``available for sale.''
    The reason he said that we had to have this classification 
as ``available for sale'' was because there might be a 
liquidity issue. And I said, ``I have 20 percent liquidity. 
Exactly how much liquidity do I have to have?'' And he couldn't 
give me an answer to that, just that I needed to have these 
things ``available for sale.'' And I asked him, I said, ``Now, 
let me make sure I understand this. The reason that you have 
them available for sale is to raise liquidity, but if I 
classify the investments as available for sale, I have to mark 
them to market every month and that can adversely impact my 
capital, and wasn't that exactly some of the problems that 
caused some difficulties in our corporate credit unions?'' And 
he didn't have a response, but I still have to mark them to 
market--now classify them as available for sale until 10 
percent of my portfolio is like that.
    Chairwoman Capito. Wow. Mr. Hansard?
    Mr. Hansard. I have a few comments, but I have to be 
careful about what I say. I have two branch applications in 
process right now.
    Chairwoman Capito. That's another issue, but--not you 
specifically.
    Mr. Hansard. At our last FDIC exam, we had 16 examiners in 
the bank for 2 weeks. One examiner, all he did was work on a 
trust exam. We have a very, very, very small trust department. 
It has one account that totals $200,000, and that examiner 
spent 2 weeks and grilled me for hours over that one account. 
What was interesting to me is that they had just left a $2\1/2\ 
billion bank, which was the largest in their territory, and 
only 2 examiners were sent to a $2\1/2\ billion bank while I 
had 16 examiners in mine.
    Ms. Martinez. The area that we service is a low-income 
area. The majority of the people there, their credit scores 
average between 550 and 570, so they are very low credit 
scores. We currently don't do risk-based lending. However, the 
examiners have been on my case for about 3 years that we need 
to do risk-based lending.
    My answer to that was that every single member who walks in 
is risky because of the risk we take with that person being 
that their credit scores are so low. We also have a low-income 
designation which, really, when an examiner comes in, they need 
to take that into account because of the area that we service. 
And a lot of times, I think they forget that. They forget that 
having a low-income designation is because you're serving a 
different part of the country that requires probably more work 
on it, but they don't realize that they still want to go back 
and make sure that we adhere to some of the regulations that 
they have, which we always do, and we document everything.
    I have been very blessed. The examiners that I have had, we 
are able to work with them, they always work with me. Just like 
Mr. Glenn was saying, one of the things that a lot of the times 
they don't understand is the investment area, they don't, when 
it comes to the investments, because we do agency securities. 
And they come in, they don't understand it, so they just create 
a lengthy process on reviewing those. But I also have heard 
that some of the other smaller credit unions have had some 
issues, especially when they have that low-income designation.
    Mr. McCauley. To answer your question, has the relationship 
with the regulators changed, I'm going to answer that on more 
of a global basis based upon work with other financial 
institutions, and the answer is unequivocally yes, whether it 
be--especially in the area of target exams, whether it be an 
overdraft, fair lending or safety and soundness, it's primarily 
centered with the Federal regulators, and--bring in a group 
maybe that's not within the territory of the district of that 
Federal examiner but from another State, another area, it's 
almost as if they feel like the local group is, what we call 
here brother-in-law in the local institutions, they don't 
believe that there isn't a problem, and they come in with 
really an attitude of, we're really going to get you this time.
    And I have heard that from many, many bankers, real estate 
target exams, from a group out of California saying, ``You 
don't understand what's about to happen to you because we know 
everything because we saw it.'' And so, yes, I think it has 
eroded, but it's mainly on the Federal level. From what I'm 
hearing, it's the Federal regulators, and what is, I guess, 
really considered be a disconnect, and that there are edicts 
coming from the wizard behind the curtain in D.C. Nobody wants 
to own up to who that is, but from the standpoint--it's mainly 
a Federal-centered issue.
    Chairwoman Capito. All right. Thank you. Mr. Parker?
    Mr. Parker. I think I can answer your question directly, 
and I will tell you that we have two kinds of regulators, and I 
don't say this because Commissioner Cooper is here. Our State 
regulators approach things very differently than their Federal 
friends do. The State regulators appear to take a little more 
common-sense approach. They are just as diligent. In fact, I 
haven't seen a diminishment of diligence. I have seen some 
pretty good hard work from them. They call them as they see 
them, and they're very fair.
    The Federal people, on the other hand, are a very different 
group. And they fall into two categories. One, they're the 
safety and soundness people who come out, in our case from the 
Federal Reserve Bank in Dallas. They have become much more 
attuned to nitpicking. They will go back not only to current 
regulations, but we may be hit with a violation of the law, the 
regulation, the guidance, the SR letter, and then the 
commentary to the regulation, and I have to tell you, the last 
three of those have nothing whatsoever to do with the law. I 
finally got them to admit that, yes, indeed, they are merely 
opinion.
    I have talked in my testimony about some rather egregious 
examples, and I won't go over that again. The ones that are 
particularly deadly are the compliance people. The consumer 
compliance people that we see are on an absolute mission, and 
they glory in the fact that they could refer you to the 
Department of Justice. And the comment from the Department of 
Justice is, ``Go ahead, because we have all the lawyers in the 
world, and we have a lot more money than you do.'' That's the 
attitude, and that's not proper. It's particularly not proper 
coming from our government.
    One last thing I might tell you, and I mentioned this in my 
testimony, the last several exams--I have talked to the 
examiners--we have had good relations with these folks for 
years--and they are genuinely afraid--people in the regional 
and the field offices are genuinely afraid of the people in 
Washington, and I have never seen that before. That is some of 
what's driving what we see today.
    Mr. Urrabazo. I would just like to basically repeat, I 
think Les Parker said it very clearly, I think there are 
different types of examinations. And, again, I think the State 
examiners are more practical, more realistic. They're firm, but 
they understand the dynamics of our particular area, of our 
particular economies, whether it's a booming economy in Laredo, 
it could be a recession going on as opposed to what the 
national is. So they understand, I think, the dynamics a little 
bit better. I think they understand the type of customer we 
have, the type of situation. In our case, we have a lot of 
deposits out of Mexico. They understand that. I see a 
difference then with the Federal examiners, whether it's the 
Fed or the FDIC, and I do think that what Les is saying is 
very, very correct. I think they're very, very skittish. I 
think they go back to the regional office for guidance, if you 
want to call it that, and sometimes even the regional office in 
Dallas refers this to Washington. And by the time it gets to 
Washington for some clarification on a fair lending issue, it 
already has become a bad deal because nobody wants to make a 
decision on this. And then the referral to the Department of 
Justice is the last part of Washington to clean their hands on 
anything of this sort.
    I do know, though, that we also have various examinations, 
for instance, the safety and soundness exam, a compliance exam, 
the BSA/AML type of exam, an IT exam. We have all kinds of 
exams going on. We have the internal auditors going, and we 
have the external auditors. We have--everybody--any particular 
month, I'll have somebody in the bank looking over some 
documents. But what amazes me, and I see the difference again 
between the Federal and the State, the Federal, for instance, I 
had a situation here a couple of years ago where they had one 
examiner stay one week in one type of investment that we had. 
We have what they call BOLI, bank-owned life insurance--it's an 
investment type of vehicle that we use--a $7 million investment 
in there, which is really not that much. He spent one week 
reviewing that particular investment. Every day, in the 
afternoon, he would come to my office to discuss it. At the 
end, nothing happened; he just passed on it. And I'm there 
looking at this thing every day because you have to be very 
careful--now, I will say, though, they're very professional, 
and they will never--there are never any arguments, but they 
were very professional in their approach, but I just don't 
understand what they did in one week on a $7 million 
investment, what we call BOLI, what he did. I just don't 
understand. I would have done that in 3 hours.
    Ms. Barrera. Our Federal examiners are there to look at our 
funding, how did we use the funding and so on. So it's a 
different kind of an exam, did we do with the funds what we 
said we were going to do.
    Chairwoman Capito. I want to take the opportunity--I have a 
lot of other questions on the qualified residential mortgage, 
on the appraiser regime that has come through Congress as well, 
the CFPB complaint process, I guess, on their Web site. They 
have thousands, I think, thousands of complaints on their Web 
site, how are they framing these, how are they following up on 
them, is it a fair process--is there any retaliation if you 
accumulate more complaints than anybody else or certain types 
of complaints. I think that's something that we need to 
really--because as we all know, getting on the Internet and 
lodging a complaint is a really easy thing to do. And certainly 
we want to--you want to hear if things are going wrong.
    The other thing I want to say is I have a bill out there 
that talks about examinations. It has three components to it, 
first, the timeliness of the reports, because we have heard 
from the hearings that reports are not coming in, in a timely 
fashion. Also, they're leaving the district office, so they're 
leaving your financial institutions and going to the district 
office with one sort of mindset, and by the time they come back 
from Washington, they have a totally different viewpoint on it, 
which sort of alludes to what you all are saying, that 
Washington is playing a heavier role or changing the viewpoints 
of the local examiners.
    Second, it has some examination standards that come out of 
the areas of our country that have had--really been devastated 
by commercial real estate and residential real estate, property 
values dropping to try to make sure that you don't have to 
reclassify loans as long as the person is paying--I'm 
simplifying this a lot--but paying and all that.
    And third, the independent review process, where if you 
have an appeal, that you're not appealing to the person who 
made the decision to overturn the appeal of their own decision. 
And we have set up an independent appeal process where an 
independent body would be able to oversee, would give you ease 
of--would give you a lot more objectivity, probably a lot more 
expediency, and you also would have--it's human nature that 
you're not going to want to overturn your own decision. So 
there have been reports of retaliation or some--not retaliation 
like we might think of it, but there are subtle ways to make 
decisions because you're in a subjective world. So we're trying 
to eliminate that.
    Lastly I'll say, just for those of you who have a son or 
daughter who's a bank examiner, we don't think you're bad 
people. It's not about that. It's not a personal thing. It's 
about getting it right. And in our Georgia testimony, we did 
have the examiners on our panel. Today, we did not. But we are 
listening to them as well because they have a viewpoint to 
represent that we all, I think, in this room believe is very 
important at the same time. I know I have met many of you who 
started out as a bank examiner and then have gone into the 
banking profession, and then now as a head of the banking 
commission--am I saying--it's commission, isn't it--yes, here 
in Texas. So those are rich experiences I think for anybody to 
have in these kinds of positions, and I want to thank you for 
coming today. So, any final questions from my colleague?
    Mr. Canseco. I don't want to hog the microphone or the 
question queue, but I do have some questions, if I may. And 
just let me know, Madam Chairwoman, if I have overexceeded my 
time.
    Let me ask you, Mr. McCauley, the FDIC is conducting a 
study in review of what type of institutions should be 
classified as a community bank. Currently, the general 
definition is a bank with less than $1 billion in assets, with 
a few exceptions. Now, your bank does business all over Texas 
but still has a community-oriented model in serving your 
customers; what factors does the FDIC need to take into account 
when determining the definition of a community bank?
    Mr. McCauley. This has been an age-old question on how do 
you define a community bank, and it has always been a moving 
target. The FDIC--it's not about size. It is really about your 
business model. There are so many banks now; there are over 30 
banks over $1 billion in the State of Texas today, just because 
of the asset growth and deposits that are in the system today. 
So you can say there are a lot of big banks that I would tell 
you are community banks. We're just a big community bank. Look 
at the lines of business we're in. We didn't do subprime 
mortgage lending, we don't do indirect lending. We don't do a 
lot of the things that would categorize someone as a megabank. 
So the FDIC needs to take into account really looking at their 
business model, the lines of business that they participate in, 
I think their reputation with their customer base, their long-
term history of success within the lines of business that they 
choose to participate in and how well that they do it. You 
could look at some other metrics as far as their foreign 
activity and all of that, but I think that becomes--then you 
start getting more complicated on the definition. It's really 
looking at the business model, the lines of business that 
they're in and how they operate and how they support the 
communities that they're in.
    Mr. Canseco. So putting it in simplistic terms, it's like 
being in 6th grade and you have big kids and little kids and 
medium-sized kids?
    Mr. McCauley. Yes.
    Mr. Canseco. Okay. So I understand that Frost Bank has 
recently applied to become a State-chartered bank regulated by 
the State Department of Banking; do you feel this is a step 
that a number of community banks across the country could begin 
to take, given the greater knowledge that State regulators have 
about the areas that they serve?
    Mr. McCauley. Let me speak about our decision. First of 
all, it wasn't a hasty decision; this has been made over a long 
period of time. And it was really--we have always had a very 
good relationship with the OCC. We have been an OCC bank since 
1898. So it's not a decision that you make flippantly, to make 
this kind of a change. However, as we talked about a little bit 
earlier, there's more of a disconnect now on the Federal level 
than there ever has been before. And while we have had that 
longstanding good relationship, we're a Texas-based bank. We 
plan on being here for a long time. We have been here since 
1868, and we plan on being around for another 150 years. And we 
felt to serve our market, serve our communities, our customers 
better as well as our shareholders, it would behoove us to have 
a regulator that was closer to home that understands our 
markets, that we could have an open and honest dialogue with. 
Commissioner Cooper is very available to speak to all of his 
member base. I think you have heard the testimony--and I hear 
this all over the State--that--try to say, ``We really don't 
like to be thrown under the same blanket as all banks''; well, 
I don't think that all regulators should be cast that way. 
Also, the State Banking Department has proven itself to be a 
fair and a communicative regulator. Now that we will also come 
under the direct regulation of CFPB being over $10 billion, 
balancing that Federal regulation with a State regulator we 
thought would be prudent.
    As to the trend of other banks, I couldn't speak for them 
in their decision. I will say that I travel a lot. I have 
visited with literally hundreds of bankers since that decision 
has been announced, and everyone has been very supportive of 
our decision from both the national banks as well as the State 
banks. The only two negative comments came from attorneys, so I 
figured we probably made the right decision.
    Mr. Canseco. Thank you. Let's turn now to interchange fees, 
the Durbin Amendments. The final cap on those interchange fees 
for debit cards has been in place now for several months. While 
initial data show that--different results in revenue for large 
versus small banks, there's great concern within community 
banks that merchants will eventually route transactions to the 
banks with lower interchange rates. Do you share these 
concerns, and are you aware of any attempt to do this already?
    Mr. McCauley. I absolutely share those concerns. Serving on 
the payments and technology committee for ICBA, we have had the 
opportunity to visit with many of the interchange providers, 
and they will tell you that it's going to be incredibly 
difficult over time to have a bifurcated system, to have a two-
tiered system. While, yes, we are over $10 billion, we are 
directly affected by the Durbin Amendment, and it has been a 
significant decrease in interchange revenue for our 
organization. I don't think there's a community banker that I 
have visited with around this country who doesn't agree that 
it's eventually going to affect them directly. The merchants 
will find a way to route these. They're not going to pay a 
higher interchange fee for one institution versus another. I 
think right now there is probably kind of a cooling-off period, 
if you will, for the whole Durbin Amendment and nothing has 
happened. But I don't think anybody's confused that eventually 
it will, and it will, and I think every community bank agrees 
with that.
    Mr. Canseco. The customers, ultimately it's about the 
customers; how are the customers being affected by this?
    Mr. McCauley. Interchange revenue historically was utilized 
to benefit the consumer, and it's something that people don't 
really--they have a hard time realizing. Free-checking programs 
were put in place as a give-back. That was a way to support the 
consumer by giving them fee exclusive programs, free-checking. 
What that did is it brought a lot of unbanked or underbanked 
individuals into the banking system, which was part of the 
Federal mandate and what banks were trying to accomplish. That 
wasn't necessarily a profitable move for the banks, but it was 
something that we could leverage that interchange to those 
consumers.
    You're going to see that change. Free-checking programs are 
gone. There may still be some in place by the banks under $10 
billion or they have been grandfathered, but they will go away. 
Then, you're eventually going to see fees. I think we--you saw 
Bank of America's transparency was trying to do that; they 
removed that. But that was a shot over the bow that it's going 
to happen. So not only do you have the free-checking product 
going; you're going to have something that is going to the take 
place as far as the fee to the consumer. I don't think I have 
seen a roll-back in prices by any of the retailers that are 
benefiting from this, and so the consumer is not winning at the 
retail level nor eventually at the financial institution level 
because there are no free loans.
    Mr. Canseco. Thank you. How is my time? Okay.
    Mr. Urrabazo, I have spent a good deal of time speaking 
with Treasury officials over their proposed rule on the deposit 
interest reporting. They seem to be prepared to forge ahead, 
and I'm afraid they're not listening to the concerns of a 
number of Texas banks. What are you currently hearing from some 
of your customers over your proposed rule, and what the effect 
is of a final rule going to have on banks throughout Texas?
    Mr. Urrabazo. First of all, we did fight that battle about 
10, 15 years ago, and we won it. The Treasury was trying to do 
the same thing, regulate the foreign deposits in our banks. 
Obviously, border banks are more effective than other banks 
across the country. So the Treasury is only hearing a small 
group of banks, Florida, Texas, California, some of the money 
center banks in Chicago, maybe New York. The issue here is that 
there's no benefit to the Treasury or America. If they're 
trying to find the tax evaders--the U.S. tax evaders who are in 
Mexico, as they exchange lists one through the other, they're 
not in Mexico. There are zero or very few. So the issue really 
is a much bigger global approach of what they're trying to do, 
in my opinion.
    The problem here is that, again, going back to the short-
term situation, we're going to get affected detrimentally, 
especially in the border, as some of these Mexican citizens 
come to realize that their name will be set up in a list with 
an account number with an address and sent to their treasury in 
Mexico, and who knows what's going to happen at that time. 
Given the situation in Mexico, I'm talking about the violence 
and the drug cartels, if that list gets out of hand to some of 
those people or has been--into the black market, and that 
particular customer of ours becomes aware that list is there, 
then all of a sudden, he's susceptible to kidnapping and 
extortion and other kinds of information. And that's what 
they're afraid of.
    The tax consequences are minimal for the Mexican citizen in 
Mexico. The tax system in Mexico is very, very different than 
our taxing system. Over there, if they pay 15 percent on their 
income, that's too much. So if you even take a scenario of, 
let's say, a million dollars that a Mexican citizen has here 
and we pay him, let's say, 1 percent, $10,000, and he's going 
to pay 15 percent tax in Mexico for that $10,000, which is 
$1,500, that is not the issue. The tax is not the issue. The 
issue is security. And that's why they're so concerned about 
this. The Mexican press has really, really built it up over 
there, and many of our Mexican customers are coming in, asking 
questions, and they're very, very afraid. So I think what's 
going to happen is going to be capital flight. That's the 
bottom line to all this, and all this money is going to go 
someplace else which is a safe haven.
    Mr. Canseco. And who will ultimately pay the price for this 
capital flight, is it your customers?
    Mr. Urrabazo. Obviously, the banks. We don't have enough 
money to lend, liquidity problems that we might have. And, 
certainly, we don't have the ability to lend that money to our 
consumers, to our investments, to our small business people. We 
will not have that ability. We will have to shrink our 
portfolio significantly. So we're deadly afraid of this. But, 
again, the bottom line is there is no benefit to the United 
States, zero.
    Mr. Canseco. In your testimony, you described some of the 
frustrations you have with regulators over fair lending laws 
which can sometimes draw in the Department of Justice 
investigations; can you give us some further insight into the 
negative impact the regulatory approach over fair lending laws 
has over your bank, other community banks, and your customers. 
Very briefly, because I think I'm running out of time.
    Mr. Urrabazo. Yes. Again, the fair lending laws are 
extremely delicate, and very, very serious, and we're very, 
very concerned about them, and we want to do the right thing. 
Fair lending sounds correct, but it's very, very difficult to 
put into one particular area and put it in the same box and be 
fair to everybody. It's just very difficult. The issue is when 
it goes to Dallas, and then from Dallas it goes to Washington, 
and then from Washington it goes to the DOJ. And that's where 
you have to have an extremely--a lot of professional people, a 
lot of expert people who know what they're doing when it gets 
to those levels. And I'm talking about attorneys, etc., etc. I 
think that some of these cases are completely out of hand. When 
you talk about maybe 55 accounts that were in one particular 
branch that were out of whack with another branch by 75 basis 
points, and you're talking about an $11 billion bank and you're 
talking about 55 accounts, 55 mortgages, that's when it's 
really out of hand.
    Mr. Canseco. Thank you very much. One more question to Mr. 
George Hansard. Community banks provide the credit necessary 
for economic growth and job creation in communities such as 
Fort Stockton; have you given any thought to what your 
community would look like if there weren't institutions such as 
yours to provide credit?
    Mr. Hansard. I have given a lot of thought to it. If you 
just had the megabanks in Fort Stockton, Texas, all that you 
would see would be consumer loans, car loans, maybe credit 
cards, things like that. I believe that your small businesses 
that we work with every day would simply be nonexistent, the 
mom-and-pop operations that I think drive the communities, 
there wouldn't be that emphasis.
    Mr. Canseco. How would large banks fare in a community like 
Fort Stockton if they would come up and set up a branch there?
    Mr. Hansard. I would hope not very well. No, in a community 
like Fort Stockton, I don't believe that a large megabank would 
be well-accepted. Our model is all the bank that you'll ever 
need. We believe that. We handle consumer loans, we help people 
get credit card loans, we do a lot of small mortgages that we 
keep in-house. These are mortgages that would not qualify for 
the secondary market. And if that was squeezed off, we have a 
low-income community, and it would be very, very detrimental to 
our consumers.
    Mr. Canseco. And Fort Stockton is a community that wants to 
grow and has a solid business background, doesn't it?
    Mr. Hansard. Yes, sir.
    Mr. Canseco. And would you agree that the cost of all these 
regulations that we have been talking about ultimately are paid 
by the consumers and businesses that rely on your bank 
services?
    Mr. Hansard. I would say so. Anyone who doesn't understand 
that needs to go back to school, I would think.
    Mr. Canseco. Thank you, Mr. Hansard. I yield back.
    Chairwoman Capito. I think that concludes our hearing. I 
think we have gotten a lot of very good information to take 
back to Washington. I would like to thank a few folks that I 
didn't thank in the beginning. I would like to thank my staff 
for putting this together and doing an excellent job. And I 
would like to thank Mr. Canseco's staff, both his district and 
his D.C. staff, for working with us to make this successful. 
And I would like to thank everybody who works in this building 
and has helped us, as well. Thank you all. And I would really 
like to thank Mr. Hansard's two young children who have sat 
through 2 hours of this. I know you're proud of your dad or you 
wouldn't be here. You're going to write a paper on this when 
you get home, right?
    With that, this hearing is adjourned. The Chair notes that 
some Members may have additional questions for this panel, 
which they may wish to submit in writing. Without objection, 
the hearing record will remain open for 30 days for Members to 
submit written questions to these witnesses and to place their 
responses in the record.
    [Whereupon, the hearing was adjourned.]



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                             March 14, 2012







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