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





                   RISING REGULATORY COMPLIANCE COSTS
                   AND THEIR IMPACT ON THE HEALTH OF
                      SMALL FINANCIAL INSTITUTIONS

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

                                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

                               __________

                              MAY 9, 2012

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 112-122












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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:
    May 9, 2012..................................................     1
Appendix:
    May 9, 2012..................................................    41

                               WITNESSES
                         Wednesday, May 9, 2012

Calhoun, Michael, President, Center for Responsible Lending (CRL)    17
Grant, William B., Chairman, President, and Chief Executive 
  Officer, First United Bank and Trust, on behalf of the American 
  Bankers Association (ABA)......................................     8
Levitin, Adam J., Professor of Law, Georgetown University Law 
  Center.........................................................    15
Templeton, Ed, President and Chief Executive Officer, SRP Federal 
  Credit Union, on behalf of the National Association of Federal 
  Credit Unions (NAFCU)..........................................    10
Vallandingham, Samuel A., Senior Vice President and Chief 
  Information Officer, The First State Bank, on behalf of the 
  Independent Community Bankers of America (ICBA)................    11
West, Terry, President and Chief Executive Officer, Vystar Credit 
  Union, on behalf of the Credit Union National Association 
  (CUNA).........................................................    13

                                APPENDIX

Prepared statements:
    Calhoun, Michael.............................................    42
    Grant, William B.............................................    49
    Levitin, Adam J..............................................    60
    Templeton, Ed................................................    68
    Vallandingham, Samuel A......................................    97
    West, Terry..................................................   107

 
                   RISING REGULATORY COMPLIANCE COSTS
                   AND THEIR IMPACT ON THE HEALTH OF
                      SMALL FINANCIAL INSTITUTIONS

                              ----------                              


                         Wednesday, May 9, 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 10:02 a.m., in 
room 2128, Rayburn House Office Building, Hon. Shelley Moore 
Capito [chairwoman of the subcommittee] presiding.
    Members present: Representatives Capito, Renacci, Royce, 
Hensarling, Pearce, Luetkemeyer, Huizenga, Duffy, Canseco, 
Grimm, Fincher; Maloney, Watt, Baca, Scott, and Carney.
    Ex officio present: Representative Bachus.
    Chairwoman Capito. The hearing will come to order. Our 
understanding is that Ranking Member Maloney will be a little 
late, and she said to go ahead and start. So, I would like to 
welcome everybody.
    Over the last 10 months, the Financial Institutions and 
Consumer Credit Subcommittee has held a series of field 
hearings across this Nation. Although the focus of each hearing 
differed, one common theme emerged, which was that the pressure 
on small institutions is growing across the country.
    One of the most poignant comments I heard during these 
field hearings was from a community banker who said, ``Every 
banker knows that they will eventually have to consider the 
option of selling their institution to an acquirer. 
Unfortunately, the current regulatory environment is forcing 
many bankers to make these decisions prematurely.''
    This morning's hearing will provide all members of the 
subcommittee with the opportunity to learn more about the 
growing regulatory burden facing small- and medium-sized 
financial institutions. We are not here this morning to 
deregulate the financial services industry. Rather, we are here 
to learn about the unique challenges faced by these 
institutions and the impact it has on the communities they 
serve. We must strike the appropriate regulatory balance, and 
we must pay attention to the cumulative effect of regulatory 
burden. Outdated and unnecessary rules should be removed as new 
rules are implemented.
    This is not a partisan issue. Treasury Secretary Timothy 
Geithner echoed many of these concerns in an August 2010 
speech: ``We will eliminate rules that did not work. Wherever 
possible, we will streamline and simplify.'' Unfortunately, 
little or no progress has been made on streamlining and 
simplifying, as many new rules and regulations are being 
implemented.
    I have some serious concerns that the growing regulatory 
burden for small financial institutions will lead to further 
consolidation in the industry. Between 1990 and 2005, the 
percentage of banking assets held by the 10 largest banks grew 
from 10 percent to 55 percent. Small, rural communities in 
States like West Virginia depend on community banks and credit 
unions. There is little or no incentive for larger institutions 
to serve these communities. If we do not take the steps to 
ensure the future viability of small financial institutions, 
the very communities that they serve will be adversely 
affected. Small-town America cannot have a resurgence without 
the local community bank and credit union there to spur their 
economic growth.
    I look forward to hearing from our witnesses, and I thank 
them. Their input will continue to help the subcommittee make 
informed decisions about the future of small financial 
institutions.
    Mr. Scott, would you like to make an opening statement?
    Mr. Scott. Sure, Madam Chairwoman. Thank you.
    This is an important hearing, and it is one in which I take 
a particular interest because I think there comes a time when 
you really have to speak up for the smaller banks and credit 
unions, and the fact that one size does not fit all. I have 
said that many times in the committee.
    While I am a strong supporter of Dodd-Frank, I am also a 
strong supporter of small financial institutions, because in so 
many communities, that is all they have. I think that we were 
smart to have exempted the smaller banks, I think below the $10 
billion in total assets. And I led the fight on that, because 
the big problem that we ran into in terms of financial crisis 
was pretty much a fault of your larger financial institutions, 
not the small ones.
    And so as we move forward, we have to, I think, dance with 
sort of a delicate balance here. I truly want to find the 
proper mix of regulation of the financial institutions, while 
at the same time finding the right balance for consumer 
protection.
    The Dodd-Frank legislation was written and was mainly 
intended to protect consumers, and under a single regulator, in 
a way that levels the playing field so that it does not put a 
disproportionate hardship on community banks and credit unions. 
It was enacted while keeping in mind the burdens that many of 
our financial institutions already carry, particularly in our 
recovering economic climate. That is very important.
    I represent a State, the State of Georgia, which has led 
the Nation and still leads the Nation in the failure of small 
community banks. A combination of two things happened there. 
There was overleveraging of their portfolios on real estate, 
but there was also a failure on our part to really provide the 
proper types of supervision, of bank examinations.
    And so it is very important, as we look at Dodd-Frank and 
the Consumer Protection Bureau, we understand it is required to 
consult with the financial institutions so that we can get the 
proper feedback from the smaller community banks on what effect 
the proposed rules would have on them, and small businesses, as 
well.
    Currently, the CFPB is working to reduce the regulatory 
burden of the new guidelines by developing a more simple and 
efficient method for mortgage disclosures. And under Dodd-
Frank, financial institutions are permitted to consider 
seasonal income when approving mortgage loans. That is very 
important. Therefore, this authorization allows further access 
to credit for those who gain income on a seasonal basis, which 
is very much true in my State and many other States across this 
country, instead of a more constant income flow throughout the 
year. This is what I mean by a delicate balance and being 
sensitive to the particularities of individual communities.
    I believe that Dodd-Frank has already had a basically 
positive effect with small businesses and on small financial 
institutions. However, I look forward to learning more about 
its effects by questioning our expert witnesses this morning. 
And since our economy is still in recovery, this is an 
especially important and timely subject.
    Madam Chairwoman, again, I appreciate you having this 
hearing, and I yield back.
    Chairwoman Capito. I thank the gentleman.
    I would like to recognize the chairman of the full 
Financial Services Committee, Chairman Bachus, for 3 minutes 
for an opening statement.
    Chairman Bachus. Thank you, Madam Chairwoman. And I 
appreciate the witnesses' attendance.
    We are all confronted with a Dodd-Frank Act that was passed 
and signed into law 2 years ago that represents the most, I 
guess we call it ambitious, or most radical I would like to 
call it, changes in the regulation of financial institutions 
since the Great Depression.
    And I would disagree with my colleagues that it has been a 
positive for community banks and even regional banks. I am not 
even sure how many of the rules apply, but it is probably 900 
or 1,000 new rules. I noticed in the ICBA's testimony that they 
said the rules are too numerous to list, and I think that is 
absolutely true. It would take probably 3 days of one person 
listing the changes.
    I know that these rules are not only imposed on the banks, 
but they are imposed on consumers and the economy as a whole. 
And I believe it is going to stifle economic growth and 
employment. So it is not only going to be bad for the banks, it 
is going to be bad for consumers and bad for the economy and, 
ultimately, bad for employment. And employment is really the 
number-one problem in this country, because you identify even 
more with your job than you do with homeownership. You never 
get to the dream of homeownership if you don't have a job.
    All of us have heard time and time again from community 
banks and small business owners what these regulations mean. 
And, basically, they mean not only money, tremendous amounts of 
money, but your time and resources. Just the cost of data 
collection is astronomical. We are beginning to hear figures 
for small banks that one regulation alone is going to cost tens 
of thousands of dollars and will actually handicap them in 
making good loans. And, ultimately, these costs are passed on 
to consumers and they divert private sector resources away from 
creating badly needed jobs.
    As you all probably have followed, we have made some 
progress. In the JOBS Act, we relaxed the SEC regulations. We 
passed a bill that Mr. Duffy had on making the CFPB better 
organized. But there is a long way to go. And I know Mr. 
Luetkemeyer, being a community banker, has the Communities 
First Act. But we will continue to work on this.
    And we know that every day, we find a new problem with 
Dodd-Frank, as far as the community banks. One of the things 
that you don't discuss a lot of times, but you are aware of, is 
the rule with municipal advisors, but that is just one of 
literally hundreds. So, we are going to do everything possible 
to get some of these regulations pared back and repeal them. 
And I look forward to hearing from the witnesses.
    Thank you.
    Chairwoman Capito. Thank you.
    I now recognize Mr. Baca for 2 minutes for an opening 
statement.
    Mr. Baca. I want to thank the chairwoman and the ranking 
member for calling this hearing today.
    And I also want to thank the panelists for being here and 
offering their insights. We look forward to hearing your 
thoughts on this issue, so thank you very much for being here 
this morning.
    As we continue to work our way through this recovery, it is 
important to remember the health--and I state, the health--and 
the well-being of community banks and credit unions is 
protected--is protected. Because I think everyone here will 
agree that these institutions had very little to do with the 
problems that caused the collapse--and I state, the collapse--
of 2008, yet, they are still feeling the impact.
    Over the past 2 years, I believe this subcommittee has 
examined the topic several times through a variety of different 
perspectives. I believe it is something that we have done a 
good job with, and I hope that we will be able to keep this 
practice going forward.
    But, obviously, a lot is being made of the costs associated 
with implementation of Dodd-Frank. It is clear that the 
implementation of rulemaking procedures hasn't been the 
smoothest operation, as the Chair just indicated, and there is 
still some uncertainty about the costs going forward. But in 
the long run, it will be a savings and protection too, as well. 
I am proud of the work that has been done as far as Dodd-Frank, 
and I am quite certain that the costs of doing nothing in the 
wake of the economic collapse would have been much more tension 
than we have seen in the past.
    Remember, former Federal Reserve Chairman Alan Greenspan 
said to trust them; they know what they are doing. We did trust 
them, but they didn't know what they were doing. That is why we 
needed the oversight and the accountability, and that is why we 
are where we are today.
    It has been said before, when we look at regulations, that 
we shouldn't be focused on looking for overregulation. Instead, 
we need to focus on reforming bad regulations, and that is what 
we should be looking at, and the abuse. I think a discussion 
based around the facts is the best way that we can continue to 
rebuild our financial sector into the vibrant and dynamic 
market it was before it collapsed.
    Again, I want to thank the Chair and the ranking member. I 
yield back the balance of my time.
    Chairwoman Capito. The gentleman yields back.
    I would like to recognize Mr. Royce for 1\1/2\ minutes for 
an opening statement.
    Mr. Royce. Thank you, Madam Chairwoman.
    The observation I would just like to make here is that the 
consolidation toward larger and larger institutions increases 
the amount of systemic risk out there. If we want to look at 
one of the key factors that created and smashed the banking 
system of the United States, it was the Federal Reserve for 4 
years in a row setting negative interest rates and creating an 
environment where everybody would go out and borrow against 
their homes and create that asset bubble, right? And you saw 
one-third of all transactions were people flipping homes. That 
is what happens when you do something like that, and we are now 
living with the consequences of it.
    But in order to try to deal with those consequences, there 
are unforeseen consequences of passing millions of regulations. 
And the Dodd-Frank Act--I just want to talk for a minute about 
the impact that is having on community banks. We have about 
7,000 community banks in this country. The compliance costs for 
medium-sized banks compared to large institutions is 2\1/2\ 
times the compliance costs for operating expense. And so, the 
consequence is they become less and less competitive.
    And on top of that, you created this cost-of-capital 
advantage for the systemically risky institutions by the fact 
they were bailed out. I was against that, but many thought it 
was a wise thing to do. We are now living with the 
consequences, in the fact that their cost of capital is less 
than the community banks that they compete against. And as a 
consequence of that, they are gobbling up their smaller 
competitors, and, again, they are increasing their systemic 
risk to the entire system.
    So at the end of the day, when you have a situation where 
for every employee who is helping a customer, you have 1.2 
manhours spent on compliance, it is time to look again at Dodd-
Frank and how we can adjust this.
    Thank you, Madam Chairwoman.
    Chairwoman Capito. Thank you.
    I would like to recognize Ranking Member Maloney for as 
much time as she may consume.
    Mrs. Maloney. I thank the chairwoman for calling this 
hearing.
    And I apologize to my colleagues. I had a doctor's 
appointment off the campus and was rushing back. And I regret 
that I was not here to hear the opening statements of my 
colleagues.
    I want to, first of all, thank the witnesses who are here 
today.
    This subcommittee has spent a great deal of time over the 
course of this Congress looking at the costs of regulatory 
compliance on small institutions. The implication is that all 
of this new regulation, including, I might add, the credit card 
bill which I authored, is costing financial institutions too 
much and that the benefit is not outweighing that cost.
    And while I do think it is the role of this subcommittee to 
consider the costs to financial institutions of regulations and 
to always make sure that they are fair and appropriate, it is 
also critically important to examine the costs to consumers and 
to the overall economy of underregulation.
    After the Great Depression, we enacted three critical 
reforms that gave this country 70 years of financial growth and 
prosperity: we created the SEC; we created the FDIC; and we 
enacted Glass-Steagall. These three reforms were viewed as 
regulatory burdens at the time, but it was only when we started 
rolling back these regulations, allowing unregulated areas to 
stay unregulated, and literally moving areas of regulation, 
particularly in derivatives on open exchanges off the 
exchanges, that we got into trouble.
    One of my most memorable days was when President Obama came 
to my district right after Dodd-Frank had passed the Senate. 
Many people were concerned. And he read this--I want to read 
what is in The New York Times. And he said the bankers were 
upset. They were thinking that this was going to cause havoc in 
the industry. And then he said--in 1932, right after they had 
enacted the FDIC, the SEC, and Glass-Steagall, which, by all 
accounts, have given us prosperity and growth in our country.
    Now, I am sympathetic to the cost of regulatory compliance. 
But laws like the Credit CARD Act have saved consumers as much 
as $10 billion, according to the Pew Foundation report, in the 
first year it was enacted. And when we passed the CARD Act--
because there were many identified abuses that needed to be 
stamped out, abuses like anytime, any reason, over-the-limit 
penalty fees, billing gimmicks. These abuses kept the 
marketplace from functioning properly.
    Consumer complaints about credit cards flooded my office 
and the Federal Reserve. They got over 60,000 complaints on it. 
So, we implemented reforms to address these complaints in a way 
that was balanced, that would allow the marketplace to function 
more competitively.
    I might add that many institutions implemented the gold 
standard of the bill voluntarily, and then they were 
disadvantaged to other competitors. So it leveled the playing 
field for institutions and, I would say, gave consumers more 
tools to manage their credit.
    And in Dodd-Frank, we also took great care to minimize the 
compliance burden on small institutions. As far as the CFPB is 
concerned, for the first time there will be oversight of the 
shadow banking industry, those areas that were not regulated, 
which is a principal focus of the Bureau that does not affect 
financial institutions. In the area of the Deposit Insurance 
Fund (DIF), Dodd-Frank changes the formula for deposit 
insurance assessments so community banks will pay significantly 
less in premiums. And only the larger institutions will be 
required to help shore up the DIF, which will help provide a 
better cushion that will help banks of all sizes. And, finally, 
we made the $250,000 deposit insurance limit permanent.
    So while I am sympathetic to regulatory burdens and cost of 
compliance, I am also mindful of the cost of not implementing 
regulations, of deregulation. And we have to remember that 
during this crisis, our economy lost over $17 trillion in 
household wealth, which all economists and all analysts said 
could have been prevented with better financial regulation.
    I want to make sure as the months and years pass since the 
fall of 2008, that we don't forget how close we came to an 
economic collapse. We needed these reforms, and I am hopeful 
that these reforms will give us the same type of prosperity 
that the reforms after the Great Depression gave this country.
    Again, I thank the panel, and I thank my colleagues, and I 
yield back. Thank you.
    Chairwoman Capito. Thank you very much.
    I would like to recognize Mr. Duffy for 1 minute for an 
opening statement.
    Mr. Duffy. I thank the Chair for having this hearing, and I 
appreciate the witnesses taking the time to attend.
    I am curious to hear from the witnesses as to whether your 
testimony is going to be consistent with what I hear back in 
central and northern Wisconsin, where we have a lot of small 
banks and credit unions who talk about just the cost of 
compliance with all these new rules and regulations and what it 
is doing to them with their ability to get dollars out the door 
to Main Street America, which is the lifeblood of growth in our 
economy. And I am curious to hear if you all have the same 
philosophy that I am hearing back at home.
    But also, we are hearing a lot about the unintended 
consequences of Dodd-Frank from the new rules and regulations, 
the consolidation that is taking place. But at one point, when 
I sit back, I wonder, was this really intended, to see this 
consolidation of our small banks? Maybe it is easier to 
regulate our small banks and credit unions if there is 
consolidation. And I have to tell you, when I see that, when I 
hear about that, that does not benefit rural America, small-
town America. It actually, I think, makes it more difficult for 
our businesses and our communities to grow with this continued 
consolidation.
    And one of my concerns is, as we are going to hear the 
testimony about the concerns with regard to the new rules and 
regulations, there are some, with the overwhelming evidence 
that has come out, who turn a deaf ear to the problems that our 
small banks and credit unions are facing.
    I look forward to the testimony of the panel, and I yield 
back.
    Chairwoman Capito. Thank you.
    Our final opening statement is Mr. Canseco for 1\1/2\ 
minutes.
    Mr. Canseco. Thank you, Madam Chairwoman, and thank you for 
holding this very important hearing.
    Back in March, this subcommittee held a hearing in San 
Antonio to examine the challenges facing community financial 
institutions throughout Texas. One of the witnesses at the 
hearing, a community banker from El Paso, summed it up best. He 
explained that in his previous life as an Army commander of a 
top-performing nuclear combat outfit, he felt that his crew, 
which had the capacity and firepower to trigger the end of the 
world, operated with greater discretion and wasn't nearly as 
micromanaged as his loan officers in El Paso now are as they 
extend credit to families and businesses in west Texas.
    I guess you can say we are officially living in a Dodd-
Frank world. Despite all the assurances we have heard that 
Dodd-Frank will not impact small lenders, every day we are 
reminded that is simply not the case.
    Thank you, and thank you for holding this hearing. And I 
look forward to hearing from the witnesses.
    Chairwoman Capito. Thank you.
    And that concludes our opening statements.
    I would like to recognize each witness for the purpose of 
making a 5-minute opening statement.
    I will first recognize Mr. William Grant, who is chairman, 
president, and chief executive officer of First United Bank and 
Trust. And I would like to thank him for wearing the West 
Virginia tie for me.

 STATEMENT OF WILLIAM B. GRANT, CHAIRMAN, PRESIDENT, AND CHIEF 
 EXECUTIVE OFFICER, FIRST UNITED BANK AND TRUST, ON BEHALF OF 
             THE AMERICAN BANKERS ASSOCIATION (ABA)

    Mr. Grant. Thank you very much. Chairwoman Capito, Ranking 
Member Maloney, and members of the subcommittee, my name is 
William Grant. I am chairman, president, and CEO of First 
United Bank and Trust.
    My bank is a community bank serving four counties in 
Maryland and four counties in West Virginia. For decades, and 
in my bank's case for more than a century, community banks have 
been the backbone of all the Main Streets across America. We 
have a personal stake in the economic growth, health, and 
vitality of nearly all communities.
    Unfortunately, the cumulative impact of years of new 
regulations is taking its toll. While community banks pride 
themselves on being flexible and meeting any challenge, there 
is a tipping point beyond which community banks will find it 
impossible to compete. Over the last decade, the regulatory 
burden has multiplied tenfold, and, not surprisingly, more than 
1,500 community banks have disappeared.
    As a banker, I feel like Mickey Mouse as the sorcerer's 
apprentice in Disney's famous cartoon film ``Fantasia.'' Just 
like Mickey, with bucket after bucket of water drowning him, 
new rules, regulations, guidances, and requirements flood into 
my bank, page after page and ream after ream. With Dodd-Frank 
alone, there are over 7,500 pages of proposed and final 
regulations, and we are only a quarter of the way through the 
400-plus rules that have to be promulgated.
    For my community bank, we very conservatively estimate 
nearly $2.5 million in hard dollar compliance costs per year 
and expect that Dodd-Frank will add another $275,000. As a 
billion-dollar bank, I am able to spread some of those 
compliance costs. That is not possible for the medium-sized 
bank of only $166 million with 38 employees.
    At a meeting of community bankers just this week, I heard 
the same story over and over. Many believe that their 
compliance costs will increase 75 to 100 percent over the next 
2 years as they add new staff, hire outside help, train 
employees, modify systems, change reporting, and undergo new 
audits for compliance. For the industry, we believe the 
compliance costs conservatively exceed $50 billion each year. 
Even a small reduction in the cost of compliance would free up 
billions of dollars that could facilitate loans and other 
banking services.
    The direct costs are just part of the story. Instead of 
money facilitating loans to hardworking people, it is being 
spent on consultants, lawyers, and auditors. Instead of 
investing in new products to meet the ever-changing demands of 
our customers, banks are paying for the changes to compliance 
software. Instead of our staff teaching children financial 
literacy in classrooms, my staff is learning about new 
regulations. Excessive regulation saps staff and resources that 
should have gone to meeting the needs of our customers.
    Before concluding, let me give you two examples of the 
problem we face.
    Many banks are being targeted by enterprising lawyers for 
not having vigilantly maintained paper signage on our ATMs. Our 
bank employees have to run around to all of our ATMs to ensure 
that stickers have not been removed by vandals. That is why ABA 
supports H.R. 4367, introduced by Representatives Luetkemeyer 
and Scott. And we appreciate that.
    Second, potential legal risks are magnified in Dodd-Frank 
and may force some banks out of some lines of business. At my 
bank, we used to offer mobile home financing loans, but no 
more, due in part to the very large legal risk and cost of 
refuting unfounded predatory lending lawsuits. Now, people in 
our rural area have one less option for mobile home financing.
    And this story may be about to repeat itself in the entire 
mortgage market area. Dodd-Frank requires lenders to show that 
borrowers meet an ability-to-repay test, which can be 
challenged in court for the entire life of the loan. The legal 
risk is enormous. Without a full safe harbor, banks will be 
forced to make loans well within the boundaries of the rule to 
limit litigation risk. Mortgage credit will contract, and many 
creditworthy borrowers will see their hopes of homeownership 
vanish.
    Again, bankers this week told me that they are considering 
ceasing their mortgage lending activities. This would be a 
chilling consequence of a misguided regulation.
    The consequences of excessive regulation are real. It makes 
it much harder to serve our customers and our communities, and 
it means a weaker economy and slower job growth.
    Thank you.
    [The prepared statement of Mr. Grant can be found on page 
49 of the appendix.]
    Chairwoman Capito. Thank you.
    Our next witness is Mr. Ed Templeton, president and chief 
executive officer, SRP Federal Credit Union.
    Welcome, Mr. Templeton.

   STATEMENT OF ED TEMPLETON, PRESIDENT AND CHIEF EXECUTIVE 
 OFFICER, SRP FEDERAL CREDIT UNION, ON BEHALF OF THE NATIONAL 
          ASSOCIATION OF FEDERAL CREDIT UNIONS (NAFCU)

    Mr. Templeton. Good morning, Chairwoman Capito, Ranking 
Member Maloney, and members of the subcommittee. My name is Ed 
Templeton, and I am here to testify today on behalf of the 
National Association of Federal Credit Unions. Thank you for 
holding this important hearing. We appreciate the opportunity 
to share our views of the impact that rising regulatory 
compliance costs have on credit unions and their member owners. 
Today's hearing could not be more timely or more important to 
our Nation's credit unions.
    While the focus of today's hearing is on small 
institutions, all credit unions are feeling the impact of 
increased regulatory burden. Last year, NAFCU surveyed its 
membership regarding regulatory burden; 96 percent of the 
survey respondents said their credit union spent more time on 
it in 2010 than they did in 2008, and they expect the trend to 
continue. Respondents went on to say that about one-seventh of 
their total staff time was devoted to working on compliance 
issues.
    My credit union is experiencing the same thing, as we 
recently doubled our compliance officers from one to two. 
Additionally, my staff and I spend much more time today focused 
on compliance issues than we did just a few short years ago.
    My written testimony outlines how the Dodd-Frank Act is 
creating new challenges and uncertainties for credit unions. 
The mandate of the new CFPB could lead to an overwhelming tide 
of new compliance burdens. It will be incumbent upon the Bureau 
and on Congress to ensure that the CFPB also meets its goal of 
streamlining regulation and protecting small entities in every 
action that it takes. If the CFPB and other regulators do not 
do this in a timely and effective manner, Congress must step 
in. Amending or eliminating outdated regulations must be a 
priority.
    One of our biggest concerns is that the Dodd-Frank Act 
mandated regulation be finalized so quickly and so often that 
community-based financial institutions simply won't be able to 
comply. JPMorgan Chase has estimated that 3,000 employees will 
be devoted to keeping pace with regulatory change. While my 
credit union will be subject to a number of the same 
regulations, I have only two people devoted to this task, and I 
just hope we can keep up.
    One of the most immediate impacts on my credit union from 
the Dodd-Frank Act has been the debit card interchange 
provision. While my credit union was supposed to be unaffected 
by this provision, that has not been the case. We have seen our 
debit card interchange rate drop by almost 2 cents per 
transaction since its enactment.
    While you hear reports that small institutions have not 
been affected by these rules, my credit union has, and it is 
facing lost revenue to the tune of about $300,000 a year. And 
we are seriously concerned about the future. To put this into a 
personal perspective, that $300,000 could mean the loss of 10 
jobs at my credit union. Further, in order to comply with the 
new routing requirements stemming from the regulation, we had 
to replace hundreds of plastic cards at a cost of over $2 each.
    Challenges for credit unions come not only from Dodd-Frank 
and the CFPB but also from the National Credit Union 
Administration. While the government-wide review of regulation 
appears to be a step in the right direction, it will be up to 
the NCUA and other agencies to ensure that real changes are 
made and not just given lip service.
    Finally, regulatory burden also comes from a number of 
outdated laws on the books. We hope Congress will take steps to 
pass legislation that will help relieve some of these heavy 
burdens, including: H.R. 3467, which would remove an outdated 
and redundant ATM disclosure fee requirement; H.R. 3461, which 
would improve the exam process for credit unions; and H.R. 
3010, which would modernize the Administrative Procedures Act.
    In conclusion, the greatest challenge facing credit unions 
is the cumulative effect of a rapidly growing regulatory 
burden. While one single regulation may not be particularly 
burdensome, the cascading of new regulation on top of old 
regulation is completely overwhelming to small institutions. We 
hope that agencies will consider how any one proposed change to 
a regulation may impact the total compliance burden from all 
regulations.
    Every dollar spent on compliance is a dollar that could 
have been spent to create jobs and provide additional services. 
NAFCU urges the committee to move forward with legislation that 
will provide regulatory relief from outdated laws and 
regulations for credit unions. We thank you for your time and 
the opportunity to testify before you today on these important 
issues to credit unions and, ultimately, our Nation, and 
welcome any questions you may have.
    [The prepared statement of Mr. Templeton can be found on 
page 68 of the appendix.]
    Chairwoman Capito. Thank you.
    Our next witness is a fellow West Virginian, and I want to 
welcome Sam Vallandingham here from Barboursville. He is senior 
vice president and chief information officer for the First 
State Bank.
    Welcome, Sam.

STATEMENT OF SAMUEL A. VALLANDINGHAM, SENIOR VICE PRESIDENT AND 
 CHIEF INFORMATION OFFICER, THE FIRST STATE BANK, ON BEHALF OF 
      THE INDEPENDENT COMMUNITY BANKERS OF AMERICA (ICBA)

    Mr. Vallandingham. Thank you, and good morning.
    Chairwoman Capito, Ranking Member Maloney, and members of 
the subcommittee, I am Samuel Vallandingham, senior vice 
president and chief information officer of The First State 
Bank, a $288 million community bank in Barboursville, West 
Virginia. I am pleased to be here to represent the nearly 5,000 
members of the Independent Community Bankers of America at 
today's hearing.
    A surge of new financial regulation has changed the nature 
of my job and the community banking industry in recent years. 
The problem, which is already straining our ability to serve 
customers, only stands to get worse and potentially drive 
further industry consolidation. We appreciate your raising the 
profile of this critical issue and hope that you will advance 
needed legislative solutions.
    Our written testimony contains detailed data on compliance 
expenses incurred by The First State Bank since 2008. Let me 
just share with you a few discrete examples that illustrate an 
alarming trend. I am currently spending as much as 80 percent 
of my working time on compliance-related issues, compared to 
approximately 20 percent as little as 3 years ago. We have 
documented 921 compliance changes from a spectrum of agencies 
implemented since 2008. While not all of these apply to my 
bank, we have to evaluate each one and determine its impact. In 
2011 alone, Fannie Mae and Freddie Mac implemented 36 
origination and 59 servicing rule changes. In mortgage 
servicing alone, we have gone from 1 collector to 3\1/2\, and 
have incurred nearly $100,000 in incremental payroll expenses 
as a result of new compliance standards, not as a result of 
higher delinquencies. Webinar training expenses in the first 4 
months of 2012 are already double what they were in all of 
2008. Other significant expenses include legal and audit fees, 
software upgrades, and in-house training.
    Every dollar spent on compliance is one that I can't invest 
in my community. Every hour I spend on compliance is an hour I 
could be spending with small business customers, acquiring new 
deposits and making new loans, doing the work that won The 
First State Bank SBA Lender of the Year in 2001 and SBA 
Community Bank of the Year in 4 consecutive years. Compliance 
is almost all I do now. Many days, I feel like I am not a 
banker anymore.
    As expensive and wasteful as the current regulatory 
environment is, we only expect it to get worse in the future. 
The Dodd-Frank Act, which is only beginning to be implemented, 
is a source of particular concern. The most troubling 
provisions of the Dodd-Frank Act include new mortgage lending 
requirements that run the very serious risk of accelerating 
industry consolidation. The result would be higher costs and 
fewer choices for consumers, particularly in small communities.
    New CFPB rules are another source of risk. The CFPB must 
not contribute to our already daunting regulatory burden. It 
should use its authority to grant broad relief to community 
banks where appropriate. ICBA also strongly supports 
legislation passed by this committee and the House, H.R. 1315, 
to reform the CFPB to make it more balanced and accountable in 
its governance and rule-writing.
    ICBA is very pleased that this committee has recognized the 
scope and severity of the problem of excessive regulation. In 
addition to passing H.R. 1315, you are considering a number of 
bills to provide relief. The most helpful pieces of legislation 
include H.R. 3461, the Financial Institutions Examination 
Fairness and Reform Act, which will go a long way toward 
improving the oppressive examination environment--a priority 
concern of community bankers and a barrier to economic 
recovery. We are grateful to Chairwoman Capito for introducing 
this legislation.
    Also, H.R. 1697, the Communities First Act, addresses many 
of the regulatory concerns highlighted in this testimony. 
Sponsored by Representative Blaine Luetkemeyer, the Act has 
over 90 cosponsors from both parties and the strong support of 
37 State banking associations. ICBA is grateful to this 
committee for convening a hearing on CFA at which our chairman 
had the opportunity to testify.
    Regulatory relief is a key community bank priority, and we 
are grateful to this committee for focusing on this topic 
today. I urge the committee to also consider a topic of 
equivalent interest to community banks: the need for a 
temporary extension of the FDIC's TAG program. Extending TAG 
would serve the same goals as I have stressed in this 
testimony: preserving community bank viability; supporting 
small business credit; and deterring further industry 
consolidation.
    Thank you for the opportunity to testify today. I hope that 
my testimony, while not exhaustive, gives you a sense of what 
is at stake for the future of community banks and the customers 
we serve. We look forward to working with this committee to 
craft urgently needed legislative solutions.
    Thank you, and I look forward to taking your questions.
    [The prepared statement of Mr. Vallandingham can be found 
on page 97 of the appendix.]
    Chairwoman Capito. Thank you.
    Our next witness is Mr. Terry West, president and chief 
executive officer, Vystar Credit Union.
    Welcome.

STATEMENT OF TERRY WEST, PRESIDENT AND CHIEF EXECUTIVE OFFICER, 
  VYSTAR CREDIT UNION, ON BEHALF OF THE CREDIT UNION NATIONAL 
                       ASSOCIATION (CUNA)

    Mr. West. Thank you. Chairwoman Capito, Ranking Member 
Maloney, and members of the subcommittee, thank you for this 
opportunity to testify at today's hearing.
    I also could probably repeat what I just heard from those 
gentlemen. As you are aware, credit unions face a crisis of 
creeping complexity with respect to regulatory burden. This 
means that more time and resources are spent complying with 
ever-changing regulation, with less time and fewer resources 
being put to use for the benefit of our members. Because of our 
not-for-profit cooperative structure, the cost of complying 
with regulation is entirely borne by our membership, who own 
the credit union.
    Over the last several years, our compliance costs have 
increased significantly because of the high number of new and 
revised regulations we continue to be subjected to. In 
addition, the complexity of the requirements imposed by the 
ever-changing regulations is simply staggering. My written 
statement includes a list of almost 130 regulations, and this 
is just a small portion which have either been finalized, 
amended, or revised again since 2008. That is almost one every 
other week. The aggregate impact is overwhelming.
    And there are other areas that impact us as well. Just 
obtaining permits for a new building for an ATM or a building, 
and with it comes compliance requirements. So the Federal 
regulators are not just the ones that are doing compliance 
burden; local and State regulators are imposing it, as well.
    The latest surge of regulatory changes largely responds to 
the financial crisis. It was the actions of larger institutions 
and nonbank financial institutions which created the need for 
this regulation. Credit unions were not a source of the 
problem; however, they continue to be disproportionately harmed 
by the resulting compliance burden. Most of the costs of 
compliance do not vary by size and, therefore, proportionately 
are a much greater burden for smaller versus larger 
institutions. Consolidation in credit unions is about 300 a 
year. Most of them say the primary cause is compliance burden.
    When a rule is finalized or amended, employee and credit 
union resources must be used to determine how to comply with 
the change. Forms and disclosures must be changed. Data 
processing systems must be reprogrammed. Employees must be 
trained and often retrained. Credit union members need to be 
informed, sometimes causing them frustration and confusion.
    For those rules which are proposed, we have to spend 
resources determining how we would comply with a regulation 
even if it is not finalized in order to be prepared for 
sometimes extremely short implementation timelines. I received 
one yesterday. We have until September to put it in place.
    A recent and frustrating trend has been when regulators 
decide to revise or significantly alter a particular rule 
immediately after it has been finalized and other regulatory 
changes have just been implemented. This means that resources 
credit unions expend to comply with the first regulatory change 
are lost, and now additional resources must be expended to 
comply with the new change. Continuing an open dialogue with 
the credit union industry prior to a rule being created or 
finalized would hopefully eliminate some of this change and 
help constitute and reduce some of the most significant 
compliance costs.
    In recent years, one example where credit unions have had 
to make major overhauls to their products and services because 
of regulatory change is credit card disclosures. As described 
in my written testimony, credit unions and other card issuers 
have been through several regulatory changes in this area in 
the last 3 years, producing understandable confusion and 
questions for members as well as credit union employees.
    Now, after multiple changes, the CFPB is talking about 
changing them again. Even minor changes will require new forms, 
and reprogramming by multiple vendors. This takes time and 
resources. Credit unions need ample time to implement these 
changes.
    There is no end in sight. The best way I could call it is: 
always increasing, never decreasing. As far as we know, there 
has been no effort to examine the cumulative effect of 
regulatory burden on credit unions, despite the high volume of 
changes over the past few years and the equally daunting volume 
of anticipated changes in coming years. We have encouraged our 
prudential regulator to take into consideration the cumulative 
impact on regulations for credit unions, but we have been told 
there is nothing they can do about regulations other agencies 
impose. If every regulator takes this approach, who has the 
responsibility to reduce it?
    We encourage the subcommittee to use its authority to 
provide meaningful relief in this area for all credit unions. 
The CFPB was granted the authority by Congress to exempt 
classes of entities from its rules to help address the 
disparity in compliance burden. The Bureau is supposed to take 
into consideration the impact of its regulations on small 
credit unions and banks, as well as review its regulations and 
address those which are outdated, unnecessary, and unduly 
burdensome.
    Chairwoman Capito, we encourage the subcommittee to closely 
monitor the rules the CFPB considers and urge the Bureau to 
exercise those authorities to the fullest extent by statute. 
Credit unions work every day to service the needs of over 95 
million members.
    Now emerging from the financial crisis, we face a 
regulatory burden crisis that, if continued, can weaken our 
ability to provide high-quality, low-cost financial services 
and products to our members. Because of our structure, costs 
are borne by the credit union member-owners. We appreciate the 
attention you have given to this and urge Congress to encourage 
the CFPB to use its authority to minimize or eliminate these 
regulations on small institutions.
    And I would be happy to respond to any questions. Thank 
you.
    [The prepared statement of Mr. West can be found on page 
107 of the appendix.]
    Chairwoman Capito. Thank you.
    Our next witness is Mr. Adam Levitin, professor of law, 
Georgetown University Law Center.
    Welcome.

  STATEMENT OF ADAM J. LEVITIN, PROFESSOR OF LAW, GEORGETOWN 
                     UNIVERSITY LAW CENTER

    Mr. Levitin. Good morning, Chairwoman Capito, Ranking 
Member Maloney, and members of the subcommittee. My name is 
Adam Levitin, and I am a professor of law at Georgetown 
University, where I teach courses in financial regulation.
    Today, there are almost 15,000 banks and credit unions in 
the United States. All but 88 of them are community banks or 
credit unions, meaning they have less than $10 billion in 
assets. Those 88 megabanks, however, have just shy of 80 
percent of all the assets in the United States banking system. 
Put another way, less than 1 percent of the banks have four-
fifths of the assets. The community banks are the ``99 
percent'' of the banking world.
    This was not always the case. A decade ago, the megabanks 
held two-thirds of the assets in the banking system. Twenty 
years ago, they held but one-third of the assets. As community 
banks' share of assets has declined, so, too, have the number 
of community banks. Over the past 2 decades, nearly 13,000 
banks and credit unions have simply disappeared. Almost all of 
that decline has been from small institutions with less than 
$100 million in assets.
    Community banks and credit unions have been steadily losing 
ground for well over 2 decades, much of which was during an 
extended period of financial deregulation. This is a shame 
because smaller community-based depositories have a long and 
proud history in American banking. They are the centerpiece of 
lending to local small business. They often provide fairer and 
simpler products to consumers. And for rural communities in 
particular, they are often the only provider of financial 
services.
    Small banks face three fundamental business model problems, 
none of which have anything to do with overregulation. 
Therefore, changing regulations on the margin is unlikely to 
change the fundamental position of community banks.
    The first problem community banks face is that they lack 
economies of scale that large banks have. This is a particular 
disadvantage in areas that can be highly automated, such as 
credit card lending. Thus, less than half of community banks 
issue credit cards--half of banks in general issue credit 
cards, and around 90 percent of card issuance is done by the 
largest 10 banks.
    Second, community banks generally lack the geographic reach 
of megabanks. This limits their ability to diversify their 
deposit base and their lending portfolios and to attract 
customers. Customers who travel or relocate frequently place a 
premium on having better branch and ATM network coverage.
    Third, as Mr. Royce noted, community banks have a cost-of-
funding disadvantage relative to megabanks. Megabanks are able 
to access cheaper funding because they have the scale of 
operations to access capital markets via securitization, and 
because they are able to get a too-big-to-fail discount from 
their creditors. Investors don't demand as high a return from 
banks they think are likely to get bailed out. Cheaper debt 
enables megabanks to operate with greater leverage and, thus, 
generate higher returns on equity. On top of this, community 
banks frequently do not offer as broad a range of products or 
services as megabanks.
    I mention these structural problems in the community 
banking business model because it is important not to lose 
perspective. Focusing on community banks' regulatory burdens is 
nibbling around the edges. It will not change the fundamental 
position of the community banking business. The type of 
regulatory relief being sought by community banks is simply not 
going to be a game changer.
    If Congress truly wishes to reverse the decline of 
community banks, there is a clear path for doing so: Eliminate 
``too-big-to-fail.'' Force the megabanks to slim down. Once we 
do that, community banks will be viable as an industry.
    The other point I wish to make this morning is that it is 
critical to pinpoint which regulations we are talking about. It 
is important to be precise about this rather than blasting 
regulation as a general concept.
    Let me emphasize that almost none of the increased 
regulatory burdens to date on community banks have anything to 
do with the Dodd-Frank Act or the CFPB. While the Dodd-Frank 
Act has become the flagship of financial regulatory reform, 
most of its provisions have little or no bearing on small 
banks. Derivatives regulation is really not a small-bank issue, 
for example.
    Of the few provisions that do bear on small banks, many of 
them have not yet gone into effect, so they cannot be blamed 
for small banks' travails. Moreover, virtually all of the CFPB 
rulemakings in progress could have been undertaken before Dodd-
Frank by Federal bank regulators. And had that been done, they 
would have occurred without CFPB's required small-business 
impact review.
    Finally, it bears emphasis that a few Dodd-Frank Act 
provisions are actually quite beneficial to small banks, 
including some that are likely to reduce their regulatory 
burdens. First, the creation of the CFPB levels the regulatory 
playing field between small banks and nonbanks in the consumer 
finance space. This means that everyone is going to be playing 
by the same rules. Second, Dodd-Frank has given the CFPB 
authority to exempt classes of financial institutions from some 
of its rules. We will see if the CFPB exercises that authority.
    Third, the CFPB has shown from its very beginning a deep 
commitment to be cognizant of the concerns of small 
depositories. The CFPB rulemakings on things like mortgage 
lending disclosures are going to help reduce regulatory burdens 
for small banks by streamlining paperwork.
    Finally, the Durbin Interchange Amendment is the single 
best piece of legislation for community banks in the past 2 
decades. The Durbin Amendment regulates debit card interchange 
fees but only for depositories with more than $10 billion in 
assets. What has resulted has been two-tiered pricing: one set 
of fees for big banks; and a higher set for small banks. This 
helps offset the small banks' disadvantages from lacking 
economies of scale.
    There are real regulatory burdens on small banks that can 
be reduced: the ATM signage requirement that was mentioned 
before; or the annual Gramm-Leach-Bliley privacy notices. But 
these are targeted, small-bore reforms. The longstanding 
business model problem with community banks should not serve as 
cover for a broader agenda of financial deregulation.
    Thank you.
    [The prepared statement of Professor Levitin can be found 
on page 60 of the appendix.]
    Chairwoman Capito. Thank you.
    Our final witness is Mr. Mike Calhoun, president of the 
Center for Responsible Lending.
    Welcome.

STATEMENT OF MICHAEL CALHOUN, PRESIDENT, CENTER FOR RESPONSIBLE 
                         LENDING (CRL)

    Mr. Calhoun. Thank you, Chairwoman Capito, Ranking Member 
Maloney, and members of the subcommittee. I appreciate the 
opportunity to address the issue of regulatory burdens on 
community financial institutions and what we can do to reduce 
it.
    CRL is the policy affiliate of Self-Help, which is a 
community lender offering retail banking services, mortgage 
loans, small business loans, and community facility loans. 
While Self-Help is relatively small, it has an impact like 
other community lenders. It is, for example, the largest SBA 
lender in North Carolina as well as the largest charter school 
lender in North Carolina.
    I have previously served as general counsel for Self-Help, 
as well as heading up our business lending and secondary market 
programs, so I have had a firsthand view of the regulatory 
challenges that small lenders face. I also saw Self-Help lose 
most of its mortgage business to the deceptive products that 
dominated lending leading up to the housing crisis. And I have 
seen the severe impact of that crisis on all depository 
institutions, especially small ones.
    As shown by CRL's research, effective consumer protection 
and financial stability are two sides of the same coin. Our 
report issued just this week on credit card companies found 
that those companies that engaged in the most abusive practices 
faced the largest increases in losses during the recession, 
including a number of them going out of business. We observed 
similar results with mortgage lenders.
    There are four steps that I will outline today that 
regulators can take to implement protections to increase 
effectiveness and reduce regulatory burden.
    The first is one of the most important regulations that is 
pending, the definition of Qualified Mortgages (QM), which will 
largely define the scope of lending. It is critical that there 
be bright-line standards that set up a broad QM market. This 
will give lenders both the certainty that they need to make 
sure that they are originating a QM loan and the ability to 
provide broad access to credit.
    This type of standard, though, is necessarily tied with a 
rebuttable presumption rather than an absolute immunity for QM 
loans, and let me explain why. Bright-line, broad QM standards 
will necessarily permit some unaffordable loans to be included 
within that standard. For example, the primary tool that 
regulators will likely use is the so-called debt-to-income 
ratio, what percentage of a borrower's income is going to pay 
their mortgage and other debts. For example, a typical figure 
used is 43 percent. However, for borrowers on smaller incomes 
or those who have high debts, such as medical expenses, a 43 
percent loan, or 43 percent of their income--and that is before 
taxes--goes to mortgage and other debt would be unaffordable. 
Without a rebuttable presumption, the only alternative is you 
have to have much tighter qualified mortgage standards, which 
would in turn unnecessarily cut off the credit that our economy 
needs.
    CRL and Self-Help have worked at the State and Federal 
level on mortgage regulations for over 15 years. It was 
predicted that many of those would cause floods of regulation 
and floods of litigation. None of them did, including the 
signature North Carolina law passed in 1999, which has far 
stronger remedies and far stronger assignee liability than the 
QM ability to repay rules do.
    Let me move onto the other recommendations. The second one 
is related to QM, and that deals with the Qualified Residential 
Mortgage (QRM). And to us, the clear path there is that they 
should make those the same definition so there is one set of 
standards to apply. That would greatly simplify compliance 
while still providing the necessary safeguards against reckless 
lending.
    Third, the regulators should continue their focus on 
nondepository lenders. In the mortgage market, these lenders 
led the race to the bottom during the crisis and had regulatory 
advantages over the depository lenders. These lenders generally 
need to be subject to oversight so they do not unfairly compete 
against small community lenders and do not provide unfair 
products.
    And finally, we need to look for ways to make regulations 
more efficient where possible. One example recently was just 
with the Bank Secrecy Act providing for electronic filing of 
reports, where that greatly increased the efficiency.
    In closing, the regulatory burden to small financial 
institutions means that rules should be clear and efficient. At 
the same time, though, we must remember that the greatest 
damage to small institutions came from the lack of oversight of 
lending practices that led to the housing crisis and the 
economic collapse and created an unlevel playing field for 
community depository institutions. In sum, our rules must also 
be effective and apply to all lenders.
    I thank you, and I look forward to your questions.
    [The prepared statement of Mr. Calhoun can be found on page 
42 of the appendix.]
    Chairwoman Capito. Thank you.
    I would like to thank all of the witnesses.
    We will proceed with 5 minutes of questioning for each 
Member, and I will begin with mine.
    I think you have all testified that there is obviously an 
increased regulatory burden with Dodd-Frank as we moved through 
the last several years. In my opening statement, I mentioned 
that Secretary Geithner had expressed a desire to scrape out 
the old regulations while the new, more efficient, and better 
ones would be coming in. The President mentioned that, I 
believe, in his State of the Union Address last year, when he 
mentioned regulation in a general and broader sense.
    I would like to ask--I will start with you, Mr. 
Vallandingham. You mentioned that 80 percent of your time is 
spent on compliance. Are you finding that any of these older 
regulations that are less relevant have been removed and been 
replaced, or are they still in place? And could you give me an 
example, maybe, of something that you think would be wise to 
move out as antiquated or outdated?
    Mr. Vallandingham. To date, my experience has been that I 
have not seen any regulations removed. I continue to see the 
piling on of additional regulations. And as many of the people 
who testified today indicated, implementation times are not 
realistic, and they just--it seems like we are trying to hit a 
moving target.
    In terms of things that I think could be updated, there are 
good examples where technology has surpassed former regulation 
like Reg E and some of the other--especially in UCC on check 
clearing, as we start to clear image checks.
    So there are a lot of things, I think, that could 
ultimately be revised, but the truth is that we don't see 
anything being removed. And most stifling, in my opinion, is in 
the mortgage area, we continue to see just piling on and piling 
on. And it is really increasing the cost to the consumer; it is 
eliminating dollars that we could invest. And so, that is my 
experience.
    Chairwoman Capito. Mr. Grant, do you have a comment on 
that?
    Mr. Grant. I would agree with what Mr. Vallandingham said. 
We are not seeing any rollback of any significant amount of 
regulations.
    I would offer up what we in our bank have as the poster 
child of regulations that just are ineffective, and that is the 
3-day right of rescission on certain types of mortgage loans. 
And maybe it was well-intentioned when it went through in the 
1970s, but it basically mandates that distributions cannot be 
made at the closing table. There has to be a 3-day right of 
rescission. And I can tell you, in the last 30 years, out of a 
couple hundred thousand mortgages that we have done at First 
United, we have only had one person exercise that right of 
rescission, yet, it remains as a thorn in the side at the 
closing table. When people want to waive that right so they can 
close the transaction, they are unable to do so.
    And that is just at the head of a very long list of similar 
types of regulations.
    Chairwoman Capito. Okay.
    In terms of your own institutions, have you--there is a 
statistic out there that says one of the top 10 fastest-growing 
occupations in America is bank examiner and compliance officer. 
Have you yourselves had any recent hires that would kind of 
back up that statistic?
    Yes, Mr. West?
    Mr. West. One of the things we have done is add, in the 
last few years, a senior VP of risk management. They are almost 
impossible to find. And the price range is $300,000 to $350,000 
a year just for one person.
    On top of that, we have two information security officers. 
We are about to add a third one because we are a large credit 
union, so therefore, we have to stay on top of it. We have 
added--in our bank secrecy area, we had five people; we just 
added another one. We added $200,000 worth of software to 
assist them and still added more bodies.
    So we are adding people every day, it seems, who are taking 
more time. I was listening to the 80 percent. My mortgage 
department VP--and we are a large mortgage processor; we sell 
and service to Fannie Mae--spends probably 40 percent of her 
time now on compliance.
    And we want to do it right, as a credit union. The 
challenge we have is, the frequent changes are so much, we will 
change this and suddenly Fannie Mae changes another rule. So it 
is not just coming out of Dodd-Frank, it is other entities we 
may do business with and the cumulative impact. It just becomes 
onerous, and then trying to understand it.
    We also do international wire transfers. Recently, the new 
remittance rule came out on it. It is 116 pages long. We do 
about 160 in a high month. We now have had to go through--
yesterday, we did something I will rarely do; I increased the 
price on them to help cover the cost of it. And we sit in our 
boardroom and try to say, let's find a way not to charge fees. 
And yet yesterday we said, we don't have a choice, we are going 
to have to do something. It is just too costly to comply with 
this.
    So we find every part of the institution is spending more 
time on compliance. My board and I track it quarterly. 
Sometimes my board now says, when do you do other stuff?
    Chairwoman Capito. Thank you. We will leave that comment as 
my final comment.
    Mrs. Maloney is recognized for 5 minutes.
    Mrs. Maloney. First of all, many of these regulations came 
into effect because of the financial crisis, but during the 
financial crisis, from the community that I represented and 
many others I have heard from my colleagues, the real backbone 
that kept providing loans and support and adjusting mortgages 
and working were the smaller banks. You did a fantastic job 
during that period, and I want to express my gratitude.
    A cornerstone of Wall Street reform is providing regulators 
with authority to require regulations of the nonbank firms that 
compete with banks in the financial services marketplace--the 
brokers, the AIGs, the swaps, the this, that, and the other. 
But they were not subject to comparable regulation before the 
crisis. One of the things that Dodd-Frank did was bring all 
these nonregulated competitors into the same regulation of 
community banks and other banks.
    Do you agree that more strictly scrutinizing and regulating 
your nonbank competitors will directly benefit banks of all 
sizes? I would like to ask Mr. Grant and Mr. Templeton and Mr. 
Calhoun.
    Mr. Grant. Certainly, we applaud the efforts to regulate 
the nonbanking sector. I would agree with the Congresswoman 
that an awful lot of the crisis that hit our country so hard 
came from the nonbanking sector. And we would encourage that 
that be the primary focus of the CFPB, remembering that our 
institutions seated at this table already have prudential 
regulators with a multitude of regulations and they are in our 
shops for extended periods of times regulating.
    We are a little bit concerned by some of the dialogue 
coming from the CFPB indicating a desire to go and look at 
areas on which our prudential regulators have already spent a 
lot of time. I know the Congresswoman has a lot of thoughts 
regarding overdrafts. And, certainly, we have seen a wealth of 
regulation and guidance that has come from the Federal Reserve, 
and subsequently from the FDIC. And now, we are being told that 
may be an area of focus by the CFPB. Our sense is, we have 
already heard a loud and clear message from our regulators on 
how we should proceed on that, and it is going to be somewhat 
confusing if now there is another set of regulations. We would 
rather those efforts go toward the nonbanks.
    Thank you.
    Mrs. Maloney. Mr. Templeton?
    Mr. Templeton. I think there is general consensus that a 
lot of the economic problems we have had in the past couple of 
years have come from a lot of businesses outside of mainstream 
financial regulation. So I support regulation of nondepository 
institutions, and that is, I think, a great way to define it.
    An illustration of unintended consequence: When the 
licensing of mortgage loan originating officers began, it began 
globally; it didn't carve out those working in a depository 
institution. So we spent, I don't know how many hours, trying 
to get our officers licensed, filling out the paperwork, 
butting our head up against the brick wall, trying to figure 
out how you do this. It was all uncharted territory, a prime 
example of it having an unintended consequence.
    I think looking at the nondepository business segment is a 
grand thing to do and bring them up to the standards that are 
already in place of the rest of us.
    Mrs. Maloney. Mr. Calhoun?
    Mr. Calhoun. I think the mortgage example is probably the 
most striking, where the nondepositories led the charge into 
the kinds of exotic products that really fueled the housing 
bubble and added to the crisis. And the challenge is, if you 
have overhead built into a lending department, what do you do? 
We offered just fully documented loans, fixed-rate. And 
somebody else is out there selling tricked-up loans with teaser 
payments that don't cover your insurance or taxes. It is hard 
to compete in that market, and it is a very tough business 
decision at that point.
    Unfortunately, a lot of institutions got pulled down and 
had to go head-to-head with those same products because they 
had a structure built that they had to stay in business with. 
We lost the vast majority of our mortgage lending leading up to 
the crisis because we didn't have those same kinds of reckless 
products.
    Mrs. Maloney. I want to say that I don't think anyone 
supports unnecessary regulation. Everybody wants to be 
efficient and to streamline and to move to electronic filing 
and other things that you have put forward. And I, for one, 
would join with the chairwoman in reaching out to the Treasury 
Department on exactly where they are in reviewing all of these 
regulations to see if some are unnecessary. But they also have 
to be looked at in terms of the cost, as well as the benefits, 
that eliminating them might pose to particular banks or to the 
financial system overall.
    I think all of us would like the 70 years of financial 
growth that we had after the Great Depression with reasonable 
regulation. And, certainly, bringing in unregulated areas would 
hopefully have prevented the crisis that we went through, if 
they had been regulated from the beginning. So it is an 
important point, and you need to get the right balance. But I 
certainly would join my colleagues in reviewing these and 
pushing to have some oversight on what we could do.
    And I just want to know how the compliance costs would 
differ between a bank that is at $9.5 billion and a bank that 
is at $10.5 billion. If anyone wants to put it in writing for 
me, I would like to see the difference.
    My time has expired, so I thank you for your testimony. You 
have gotten my attention. Thank you.
    Chairwoman Capito. Thank you.
    Mr. Hensarling for 5 minutes.
    Mr. Hensarling. Thank you, Madam Chairwoman. And thank you 
for calling this hearing.
    I recall at the passage of Dodd-Frank almost 2 years ago, I 
predicted that the big would get bigger, the small would get 
smaller, and the taxpayer would get poorer. And now, as we look 
at the asset share of our largest financial institutions, as we 
look at the consolidations of our smaller community financial 
institutions, and as we look at the Federal debt, 
unfortunately, those words did prove to be prophetic.
    Professor Levitin, have you ever been a community banker?
    Mr. Levitin. I have not.
    Mr. Hensarling. Okay. Have you ever been employed at one of 
the larger financial institutions that you referenced in your 
testimony?
    Mr. Levitin. No, but I have done legal work for them.
    Mr. Hensarling. Have you ever been an officer in a credit 
union?
    Mr. Levitin. No.
    Mr. Hensarling. Do you have an academic background in 
economics, or is it in law?
    Mr. Levitin. I would say it is in both, actually.
    Mr. Hensarling. Okay, and what is your background in 
economics?
    Mr. Levitin. I have taken courses in economics.
    Mr. Hensarling. Okay. You state in your testimony that 
``The Durbin Interchange Amendment is arguably the single best 
legislative development for small banks in the past 2 
decades.'' There are a number of community financial 
institutions in the Fifth District of Texas that I have the 
honor of representing, and when I hear from them, they have a 
decisively different opinion than yours.
    When I hear from Jeff Austin, vice chairman of Austin Bank, 
``This price control amendment and the Federal Reserve rule 
will dramatically harm my financial institution and its 
customers.'' From Elaine Schwartz, COO, Wood County National 
Bank-Quitman, ``This will significantly affect our ability to 
offer this important customer benefit.'' From Joe Sepulva, vice 
president, Citizens National Bank, Malakoff, Texas, ``Deprived 
of interchange revenue and placed at a competitive 
disadvantage, community banks will potentially exit the market, 
and large banks will increase their market share.''
    And then I guess we heard testimony from you, Mr. 
Templeton, I think it was, that your credit union has now seen 
the average debit interchange rate go down 1 to 2 cents per 
transaction. Yes, here is your testimony, ``while my credit 
union was supposed to be unaffected by this provision.''
    And so, Professor, everybody is entitled to their own 
opinion, but those who are actually running these financial 
institutions seem to believe that they have encountered 
significant harm.
    I would be curious, Mr. Templeton, if you are stuck with 
the Durbin Amendment unchanged, what are the prospects for your 
members going forward?
    Mr. Templeton. Probably noticeably would be our--the first 
thing we have already done is we have pulled back our 
involvement in the community education system. With the loss of 
revenue, we had one person whose full-time job was to go into 
our school systems and educate our youth on financial 
education, and we have already pulled back on that program as a 
prerequisite and as a result of the interchange.
    Now, could I say precisely that the interchange made that 
go away? I am not going to try to tell you that. But I am going 
to tell you, when you start looking at your income statement 
and you are looking at where can you cut, when you see the 
expenses coming, the things that don't yield you a dollar in 
the near term have to be reassessed, which is what we did.
    But my $300,000 is what we are looking at lost in the first 
12 months following the Durbin at the rate we are on right now. 
I can't tell you exactly where it is coming from because it is 
all so new. We are still trying to get the data together. There 
are a lot of moving pieces. But the monthly numbers are 
dropping, although the dollar volume of transactions and the 
number of transactions are rising.
    Mr. Hensarling. Earlier--
    Mr. Levitin. Mr. Hensarling, may I--
    Mr. Hensarling. I am afraid not. We have limited time here. 
I have less than a minute. Hopefully, you will have the 
opportunity to speak with other Members.
    Mr. Cordray, who has been appointed, perhaps under a 
questionable process, to chair the CFPB, testified at a March 
hearing that there can be products that are legally fair yet 
abusive. And he went on to say, in response to a question from 
me--I asked him, ``Could a product be abusive to one individual 
consumer yet not abusive to another consumer?'' Answer from 
Richard Cordray, ``I think the law seems to pretty clearly 
contemplate that. Yes.''
    So when you think in terms of the regulatory burden to be 
imposed by the CFPB, knowing that one product could be abusive 
to one of your customers yet not abusive to another, what is 
that going to do to the availability and pricing of credit and 
new products, Mr. Grant?
    Mr. Grant. It is certainly going to curtail it 
significantly. As I indicated in my oral testimony, we are 
sensitive to litigation risk, and we are going to back up and 
go into the safest parts of the safe harbor without being close 
to the edge where we could be subject to the interpretation 
that you just referred to.
    Mr. Hensarling. I would love to pursue this further, but 
unfortunately, I see I am out of time.
    Thank you, Madam Chairwoman.
    Chairwoman Capito. Thank you.
    Mr. Scott for 5 minutes.
    Mr. Scott. Yes, I would like to deal with the issue of the 
fact that we are here to discuss the financial reform law in 
terms of how compliance costs will force cutbacks--cutbacks on 
lending, is what I am hearing, cutbacks on investment 
activities--it could raise fees charged to customers for 
banking services, and could possibly even lead to further 
consolidation of the banking industry.
    We hear a lot of claims, as I have heard, about this, but I 
have to note that most of the provisions of the Dodd-Frank Act 
and our financial reforms either do not apply to small banks in 
the first instance or they have carve-outs or burden mitigation 
provisions that result in small banks effectively being exempt. 
In my opening statement, I mentioned about the exemption for 
those smaller banks with the $10 billion reduction.
    Could any of you respond and identify what particular 
specific provisions of our Wall Street financial reform or the 
implementing rules adopted thereunder have increased your 
burden for your institutions, and then describe specifically 
the details of the form and the magnitude of this burden?
    Mr. Vallandingham, could you start with that?
    Mr. Vallandingham. First, let me say that, as many former 
regulations have been implemented, over a period of time they 
become best practices and forced down, even though exemptions 
exist. One particular example would be risk assessments, as 
presented by Mr. West. Sarbanes-Oxley was the legislation that 
implemented risk assessments, and it is now the buzzword of the 
financial industry and forced down on all financial 
institutions.
    In my institution alone, we have a committee of eight 
senior executives who meet monthly to talk about risk 
assessments on new products introduced, upgrades to software, 
several discussion points that are mandated annually. So, the 
first thing I would say to you is, yes, while we have an 
exemption, they don't always apply, because they become best 
practices and ultimately get forced down anyway.
    Some of the mortgage-related things have a direct impact on 
me. When I look at things like the escrow provisions, the 
retention of portions of the securitized loans, those are 
things that would dramatically impact my ability to serve my 
community. Ultimately, if I were to have to retain a portion of 
those credits, that would limit how many loans I could make. My 
institution is very active in mortgage lending. We service over 
6,000 loans. And that certainly would impede our ability to 
serve that market.
    So, those are provisions that I think would have direct 
impact on me and have concern for my day-to-day business.
    Mr. Scott. Let me just get a mirror of this from each of 
you. What particular regulations would you suggest we 
eliminate? What would be the priority if, collectively from the 
six of you, you could leave this committee with, shall we say, 
a hit list, of what they would be to give us some guidance, and 
why?
    Mr. Templeton. If I may address that, there is a bill that 
I think has a lot of merit. It is H.R. 4361, which removes the 
placard requirement on ATMs. And I think Mr. Scott is familiar 
with that bill.
    Mr. Scott. Yes.
    Mr. Templeton. It is an arcane piece of legislation. It 
places a requirement on financial institutions that technology 
has replaced. And it is putting all financial institutions--not 
just financial institutions--anyone who operates an ATM 
machine, be it a convenience store, restaurant, bar, casino, 
financial institution, everyone is at risk if a vandal removes 
the labels.
    So, H.R. 4361 would be a great start.
    Mr. Scott. Okay, the ATM, and I agree with that. As you 
know, we are working on that.
    What would be another one? My time is running short.
    Yes, Mr. Grant?
    Mr. Grant. I know that there will be some degree of 
regulation coming out on the QM and the QRM. My suggestion and 
plea would be that you look at that very, very carefully and 
recognize that several of us come from small, rural areas. And 
to try to put us into a plain vanilla product is going to 
result in significant disservice to our ability to tailor 
solutions to our mortgage customers.
    Mr. Scott. All right. Okay. And a third one?
    Mr. Grant. The third one--I would be happy to interject. 
The municipal advisor rule is going to have a significantly 
chilling effect if we have to register tellers and customer 
service officers under that particular rule.
    Mr. Scott. Would everybody agree that those would be the 
top three? Good.
    Thank you, Madam Chairwoman.
    Chairwoman Capito. Thank you.
    Mr. Renacci for 5 minutes.
    Mr. Renacci. Thank you, Madam Chairwoman.
    Professor Levitin, you state in your testimony, ``While 
there are areas in which regulatory burdens on smaller 
financial institutions can and should be reduced, it should be 
a surgical operation.''
    Can you give me some examples of those areas that should be 
reduced or eliminated?
    Mr. Levitin. Sure. First, I would just incorporate the 
suggestions that were just made. All of those are reasonable 
regulatory reforms.
    Another one I would add would be eliminating the annual 
Gramm-Leach-Bliley privacy notice disclosure. Currently, 
financial institutions are required, even if their privacy 
policy is not changed, to mail out a privacy policy disclosure. 
As a general matter, I am not sure that anyone really reads 
those disclosures, and, certainly, if there is no change 
annually, there is no reason to impose that cost on small 
financial--on any financial institution.
    Mr. Renacci. You also say in your testimony, ``As it 
happens, however, few of the regulatory burdens of Dodd-Frank 
actually fall on small banks and credit unions.'' We have small 
banks and credit unions here talking about some of their 
burdens. Do you agree with that? Is that an opinion or have you 
actually sat in a bank and watched what is going on there?
    Mr. Levitin. I can tell you with great certainty that 
almost none of Dodd-Frank applies to small financial 
institutions for two reasons. First of all, of the 16 titles in 
Dodd-Frank, several of them simply do not apply to community 
banks. Derivatives regulation is not a community bank issue, 
for example.
    Second, Dodd-Frank itself, most of the provisions and 
regulations have not gone into effect yet. If you listen to the 
regulatory burdens that have been cited so far by the gentlemen 
on my right, they have been about pre-Dodd-Frank rules, pre-
Dodd-Frank statutes, servicing requirements by Fannie Mae and 
Freddie Mac which are not part of Federal law--these are 
private contractual arrangements--about the way Federal bank 
regulators have implemented their examinations and what they 
are requiring in terms of loss reserving and write-downs. These 
are not Dodd-Frank problems. These are problems that exist 
outside of Dodd-Frank.
    Mr. Renacci. You teach at Georgetown, though, correct?
    Mr. Levitin. That is correct.
    Mr. Renacci. If somebody threw 2,000 pages of regulations 
about your teaching in front of you, would you have to prepare 
and spend some time and energy and money to prepare for that?
    Mr. Levitin. Sure. There would be some time and some money. 
But, also, if I knew that, of those 2,000 pages, only perhaps 
150 to 200 actually applied to me as opposed to other teachers 
at Georgetown, it would certainly reduce the burden on me.
    Mr. Renacci. But you would be concerned about what is in 
the 2,400 pages.
    Mr. Levitin. There is a table of contents for Dodd-Frank 
which makes it pretty obvious. It doesn't take a huge amount of 
time and money to go through and figure out what applies and 
what doesn't.
    Mr. Renacci. It is interesting because I was just back in 
my district last week and I had a regional bank tell me that 
the CFPB had 11 people there for 13 days. Don't you think that 
would cost some money, to be prepared for that and also paying 
attention to what is going on?
    Mr. Levitin. I am kind of surprised to hear that about a 
community bank, because the CFPB doesn't have examination 
authority over them.
    Mr. Renacci. It was a regional bank, but--
    Mr. Levitin. Okay. If they are over $10 billion, that is a 
different situation.
    Mr. Renacci. Mr. Grant?
    Mr. Grant. If I may, I would like to just interject one 
point possibly about unintended consequences.
    We have recently been told that the Volcker Rule may apply 
to our bank. One of the things that we do from time to time is 
buy into investment pools to satisfy our requirements under the 
Community Reinvestment Act. And there is some thought that the 
way Dodd-Frank is drafted, with some of the Volcker pieces, we 
might actually be subject to some of those prohibitions.
    Mr. Renacci. I want to move on to another question. The 
original intent of regulatory reform was to consolidate some of 
the agencies. However, Dodd-Frank actually managed to create 
several new bureaucracies, including the Financial Stability 
Oversight Council, the Consumer Financial Protection Bureau, 
and the Office of Financial Research.
    I would like to ask the panel, do you think the Dodd-Frank 
Act minimized or at least rationalized our patchwork regulatory 
system? And just give me a description of this regulatory 
overlap.
    Mr. West?
    Mr. West. I would say it has not minimized; it has added to 
it.
    And I wanted to clarify, the only exemption that credit 
unions have from Dodd-Frank is if you are under $10 billion, 
you are exempt from the interchange rule. However, on the CFPB 
enforcement, we still get that through our Federal regulators. 
So we are not exempt from anything but the interchange rule, 
that we have been told so far.
    Mr. Renacci. Mr. Grant, on the question?
    Mr. Grant. Yes, it is just adding more patches to the 
patchwork quilt, if I can use your phrase. And we are not 
seeing a rollback in any significant way.
    Mr. Renacci. All right. Thank you.
    I yield back.
    Chairwoman Capito. Thank you.
    Mr. Watt for 5 minutes.
    Mr. Watt. Thank you, Madam Chairwoman.
    And let me apologize first to the witnesses. I did get 
everybody's testimony. I was here for the testimony of 
everybody except for Mr. Grant. We have an oversight hearing of 
the FBI going on in the Judiciary Committee, on which I also 
sit, so I have been trying to hear testimony over there and 
testimony over here and questions over there and questions over 
here. So I have been kind of back and forth.
    Are there any advantages of--Professor Levitin talked about 
the leveling of the playing field between community banks and 
previously nonregulated entities. Perhaps Mr. Grant and Mr. 
Vallandingham and Mr. West could comment on whether you see 
that as an advantage or a disadvantage or no impact?
    Mr. Grant. Certainly, the regulation of the nonbanking 
industries is a positive thing. We have long talked about how 
unlevel the playing field was through good and bad times. To 
the extent Dodd-Frank reaches out and levels that playing 
field, that is a good thing.
    We are just concerned about the additional burden of 
regulations coming our way. And we already have prudential 
regulators, and have for a long, long time, unlike some of the 
nonregulated aspects of the business.
    Mr. Vallandingham. First, I want to say, as Congressman 
Renacci said, there are 2,500 pages of legislation. It makes it 
hard to point out which ones are--
    Mr. Watt. You just had a chance to answer Mr. Renacci's 
questions. I am questioning now, so if you don't mind--
    Mr. Vallandingham. I agree. But it makes it hard to point 
out the positives and negatives.
    And first I want to say, the first one I would repeal is 
Durbin. I think--
    Mr. Watt. That was Mr. Scott's question. I am trying to get 
to my question now.
    Mr. Vallandingham. I understand, but--
    Mr. Watt. Okay.
    Mr. Vallandingham. --I want to make sure that--
    Mr. Watt. Thank you. We have a limited amount of time.
    Mr. Vallandingham. The point is, there are some positives 
in the bill. And the Deposit Insurance Fund assessment was one 
of them. The extension of $250,000 FDIC--
    Mr. Watt. But as between you and the nonregulated, 
previously nonregulated, that was the question I asked.
    Mr. Vallandingham. Okay. And on that point, the shadow 
banking environment was an unlevel playing field. They were out 
there doing things that we weren't allowed to do, even though 
it was against the law, because nobody was watching them.
    Mr. Watt. And that was a substantial competitive 
disadvantage to you?
    Mr. Vallandingham. Absolutely.
    Mr. Watt. Okay.
    Mr. Vallandingham. Not just in consumer lending, but in 
mortgage lending as well.
    Mr. Watt. Okay.
    Mr. West?
    Mr. West. I was going to say, I think the number one value 
in that is to the consumer themselves, because so many of those 
programs absolutely abuse the consumer. For us, I would hope 
that it is going to help us in some way be able to reach out to 
them before they go out to agencies like that and get that 
service. It is a bit too early to tell. But, absolutely, it is 
good for the consumer.
    Mr. Watt. Okay.
    There is a lot of work going on behind the scenes and 
discussions going on behind the scenes that I am aware of about 
this Qualified Mortgage definition and the rule. I think there 
has been a fairly substantial consensus reached between 
consumer groups and banking groups about what that definition 
should be, that it should be broad.
    Do you all agree with Mr. Calhoun? Mr. Grant and Mr. 
Vallandingham, in particular. I am not excluding Mr. Templeton, 
but these are questions that relate to community banks, not--
    Mr. Templeton. Absolutely.
    Mr. Watt. --credit unions, so I am not--
    Mr. Vallandingham. Yes, I do think the definition of a 
Qualified Residential Mortgage should be very broad. There are 
oftentimes borrowers who come into our facility and don't 
qualify for a secondary market mortgage, yet we still intend to 
make that loan. And it may not be because of their credit 
quality but because of the nature of the property.
    Mr. Watt. And if that occurs, Mr. Grant, won't that address 
this concern that you were raising about rural--because the 
standards will be pretty broad to enable that to be taken into 
account?
    Mr. Grant. Yes, if the standards are very broad and allow 
for the individual attributes in the rural markets and markets 
really all over the country, then, yes that could help out.
    Mr. Watt. So you all basically agree with Mr. Calhoun's 
testimony on the QM and the QRM, that they should be 
consistent?
    Mr. Grant. I would think so. And we just need to see what 
the final details look like. The devil is in the details.
    Mr. Watt. All right. Thank you, Madam Chairwoman. I yield 
back.
    Chairwoman Capito. Thank you, Mr. Watt.
    Mr. Duffy for 5 minutes.
    Mr. Duffy. Thank you.
    Let's not make a mistake here; we all understand that our 
financial institutions are highly regulated. We had a crisis, 
and we all believe we had to look at new reforms to address the 
cause of that crisis to make sure it doesn't happen again. We 
need to learn from our mistakes. And so, I am in favor of that. 
I think it is important, though, to use a scalpel as opposed to 
a hatchet, going through the regulatory process.
    I want to ask all of our bankers and our credit unions on 
the panel, I am concerned because I keep hearing from my banks 
and my credit unions that Dodd-Frank is having an impact on 
their ability to effectively engage in the banking process, but 
I think it was Mr. Levitin who said that we are just nibbling 
around the edges if we deal with Dodd-Frank. And I guess I want 
to be clear; I want to go after the biggest meat here.
    Do you all believe that we are just nibbling around the 
edges when we are discussing Dodd-Frank?
    Maybe I will start with Mr. Grant.
    Mr. Grant. I agree with the position of the professor. When 
you talk about economies of scale, small banks' compliance 
costs are going up 75 to 100 percent, that further impedes the 
economies-of-scale disadvantage that some of us obviously have.
    I think Dodd-Frank casts a pall across all of the community 
banking industry.
    Mr. Duffy. But do you agree that when we are trying to 
address the rules in Dodd-Frank, we are just nibbling around 
the edges? Do you agree with that statement?
    Mr. Grant. No, I don't.
    Mr. Duffy. Okay.
    Mr. Templeton?
    Mr. Templeton. I think we are nibbling on the edges, 
because I don't know that we really know what the meat of the 
matter is going to be because many of the regulations haven't 
been rendered yet. So from what we have seen on the edges, if 
the edges are a precursor of what the middle is going to be, I 
am terrified to death. How are we going to keep pace? And one 
of the big things is the rate of change through that process.
    Mr. Duffy. Mr. Vallandingham?
    Mr. Vallandingham. I would say we are nibbling on the 
edges. The Communities First Act lists a number of regulatory 
relief initiatives that we think would be beneficial to the 
banking industry. The SEC registration bill that you all passed 
certainly was beneficial. One institution told me it saved them 
$250,000 a year.
    So, I think that we are nibbling on the edges. The pendulum 
swings, and it went way too far, and we continue to be 
overburdened. We are trying to hit moving targets. There is no 
allowance for implementation periods. You either have it right 
or you don't. And the regulators are coming in and fining us 
and just hitting us hard. They don't give you any leeway 
whatsoever.
    Mr. Duffy. And so, do you say that our focus on Dodd-Frank 
and all the rules that are coming out is--there is too much 
focus there, and looking at just Dodd-Frank, we are nibbling on 
the edges, the real meat is not there?
    Mr. Vallandingham. I think Dodd-Frank has some provisions 
which need work. I think there are other regulations that have 
provisions that need work. The Communities First Act is 
obviously a good start.
    Mr. Duffy. Mr. West?
    Mr. West. I would agree. I think we are nibbling on the 
edges. I commented earlier; there are 127 regs I listed. Those 
came from 15 different agencies. So, it is not just Dodd-Frank; 
it is some of everything coming at us.
    And I want to go back and reemphasize, while we are exempt 
from interchange, every single rule we have seen come out yet 
applies to us as a credit union. When we are talking about the 
QRM mortgage, we are a large mortgage lender to serve our 
members; it applies to us.
    So we haven't--and his point, that what is coming is what 
alarms us, because so few rules have actually been written yet, 
and now with Mr. Cordray in place as the Director of the CFPB, 
we anticipate there will be a tremendous volume coming at us, 
and trying to keep up with it.
    I would also cite, the president of CSX in Jacksonville--
    Mr. Duffy. But just quickly, so you are saying that--Dodd-
Frank--you are talking about the CFPB--
    Mr. West. Yes.
    Mr. Duffy. --and you are concerned about the rules, but 
that is still--we are just nibbling around the edges?
    Mr. West. Absolutely. There is a huge volume coming.
    Mr. Duffy. Under Dodd-Frank or elsewhere?
    Mr. West. Dodd-Frank and elsewhere.
    Mr. Duffy. Okay. But if you look at the CFPB, which falls 
under Dodd-Frank, you look at interchange, are you telling me 
that is not where the real money is at, it is elsewhere?
    I think Mr. Levitin was saying, don't really be concerned 
about Dodd-Frank, look at what is happening with regard to the 
deregulation that took place that allowed the bigger banks to 
improve their market share within all of your markets.
    Mr. West. I would still say Dodd-Frank is going to have a 
huge impact on us going forward.
    Mr. Duffy. Huge impact.
    Mr. West. I think that answers your question.
    Mr. Duffy. Yes.
    And I guess, just to be clear, if you look at the CFPB, 
which was going to exclude community banks and credit unions, 
it is very clear that the rules may not be enforced by the CFPB 
but you are still going to be forced--
    Mr. West. That is right.
    Mr. Duffy. --to comply with those rules.
    Mr. West. That is correct.
    Mr. Duffy. We had Chairman Bernanke in here last year, and 
when he was talking about the interchange change, he also 
indicated that it more than likely will have an impact on our 
small community banks and our credit unions, as well.
    So whenever these rules come out, and we set up exemptions 
for small community banks and credit unions, it seems like they 
never really go through, and all of the rules come to bear on 
our small community banks and credit unions. And when you look 
at economies of scale, you are less able to bear the brunt of 
those regulations as compared to the larger banks, which means 
you guys are disadvantaged to a greater extent.
    My time has expired, so I yield back.
    Chairwoman Capito. Mr. Carney from Delaware.
    Mr. Carney. Thank you, Madam Chairwoman. And I want to 
thank you for holding this hearing today, and also thank the 
panelists for coming and sharing your thoughts with us.
    I hear from my community bankers--we don't have a lot of 
community bankers in our State; it is a small State, but we 
have a few. In fact, I spoke with one of the leaders of that 
organization yesterday. I hear this and we hear it as Members 
all the time about all these regulations that are impacting 
your businesses and your ability to lend to the small 
businesses and consumers in our district. And so, I am really 
delighted this morning that we are hearing more specifics about 
what you would change and how you would change it. And then, to 
the extent that you could provide me with additional 
information in writing, that would be helpful.
    I would like to just take a few minutes to address a couple 
of questions.
    The first is, Professor Levitin, in your statement, you say 
that what we need to do to level the playing field here for 
smaller community banks is to make the big banks smaller and 
weaker so community banks can compete. Is that really what we 
need, in terms of our financial system writ large?
    Mr. Levitin. I think you--
    Mr. Carney. And how would you do that?
    Mr. Levitin. I think you characterized it a little 
differently than I did.
    Mr. Carney. I probably did.
    Mr. Levitin. I don't think I used the word ``weaker.'' I 
think I was talking about the need to slim down the large 
banks, put them on a diet, if you will.
    Mr. Carney. So how do you do that, and what do you mean by 
that?
    Mr. Levitin. There are numerous ways that can be done, 
everything from very direct, blunt tools such as taxation to 
more indirect things such as what you do in terms of capital 
requirements.
    The bigger point here, though, is if you look at the 
community banking business, if you take sort of the big-picture 
view of this, this is like a patient with a tumor, and right 
now what we are discussing is a broken arm. The broken arm 
hurts right now, but even if you fix that broken arm, there is 
still a tumor there.
    So if you are concerned about the long-term viability of 
community banking, that will not be changed by changing ATM 
signage regulations or any of the other things that--
    Mr. Carney. So you have to make the larger banks smaller 
and--
    Mr. Levitin. We have to go back to a world where we do not 
have too-big-to-fail banks.
    Mr. Carney. Okay. The clock is ticking. Do any of the 
community bankers or credit union folks have a quick view of 
that?
    Mr. Grant had his hand up first.
    Mr. Grant. Certainly, we strongly support eliminating 
``too-big-to-fail,'' making that stick. And certainly, 
investors should take the loss. But I guess I would have a 
slightly different view. Our country needs banks of all sizes, 
whether it is community banks, small community banks out in the 
middle of Kansas, to the large money center banks. If we go 
after tearing down the large banks in this country, that void 
will have to be filled. It will be filled with non-American 
banks--
    Mr. Carney. Exactly.
    Mr. Grant. --because there are customers out there who need 
the really large banks. So, there has to be a balance.
    Mr. Carney. Mr. Vallandingham, did you want to quickly add 
to that?
    Mr. Vallandingham. Certainly. We support the too-big-to-
fail initiative. I think that they have outgrown their 
statutory limits. They basically have created systemic risk on 
our economy and ultimately need to be dealt with. We saw that 
in the economic bailout. Community banks didn't participate on 
that.
    We do serve an important role in the financial system. Most 
of your too-big-to-fail banks are not interested in a less-
than-$250,000 commercial loan--
    Mr. Carney. Right.
    Mr. Vallandingham. --which is how I became SBA Lender of 
the Year 4 years in a row, because we serve that market.
    Mr. Carney. Good.
    Mr. Vallandingham. So, ultimately--
    Mr. Carney. Let's talk about that market. The time is 
ticking. Mr. Westmoreland--who is not here today--in the full 
Financial Services Committee laments all the time about the 60-
or-some-odd banks in his district that have failed. And as I 
understand what has happened there, it is because of real 
estate lending of some kind of another. And yet, I hear from 
all of you about concern over the QM and QRM standards. And it 
seems to me that those were created by Dodd-Frank, or the 
process to create those regulations was initiated by Dodd-Frank 
to address that problem.
    Is there a better way to do it?
    Mr. Vallandingham. I will go ahead and take that.
    Mr. Carney. Please.
    Mr. Vallandingham. We are kind of hitting the problem with 
a sledgehammer. In reality, what was--
    Mr. Carney. So what does the scalpel look like? I have 20 
seconds left.
    Mr. Vallandingham. The outliers were the subprime and the 
Alt-A loans that were being securitized and sold in investment 
banking houses. Those have nothing to do with Qualified 
Residential Mortgages or the Freddie-Fannie market.
    Mr. Carney. But the lending standards, right? Have you read 
the financial crisis inquiry report? There was pretty loose 
lending going on out there by a lot of folks.
    Mr. Vallandingham. But it wasn't the community banks, it 
wasn't the smaller financial institutions. I didn't make any 
subprime loans--
    Mr. Carney. So you all shouldn't have lending standards and 
the rest of the market should? That doesn't make a lot of sense 
to me.
    Mr. Vallandingham. No, but--and I understand your point of 
view.
    Mr. Carney. Do you know what I mean?
    Mr. Vallandingham. I will say that--no, I was saying that I 
understand your point of view. But, ultimately, we weren't the 
ones causing the problem, so we shouldn't bear the brunt of the 
regulation. When you look at my portfolio, it was very low-
risk. I run a delinquency rate that is less than 2 percent in 
Michigan, which has an average of 16 percent.
    Mr. Carney. I don't have any time left. I would like to 
have a longer discussion about this because--
    Mr. Vallandingham. Absolutely.
    Mr. Carney. --it seems to me it is a very important issue. 
Thank you very much for your testimony and your help today.
    Mr. Renacci [presiding]. I recognize Chairman Bachus for 5 
minutes.
    Chairman Bachus. Thank you.
    Chairwoman Capito mentioned that financial examiners are 
one of the 10 fastest-growing occupations. In fact, if you look 
at the 2011 to 2013 edition of the Bureau of Labor and 
Statistics Occupational Outlook Handbook, it states that, and 
this is a quote from a government document, ``Employment of 
financial examiners is projected to grow 27 percent from 2010 
to 2020, faster than the average for all other occupations.''
    That means that you are going to have to hire people to 
answer those questions and to handle those reviews--and we have 
talked about this--and I think everybody agrees that their 
compliance staffs have doubled or that they are much bigger, 
but they are going to get bigger still. We are about a third of 
the way through the implementation.
    Can any of you give me just sort of some specifics on 
before Dodd-Frank and some of the other bills that have passed? 
I actually voted for the subprime lending bill, and I don't 
think it was a bad bill. But just give me some numbers.
    Mr. Grant. Yes. Just to give a little longer historical 
perspective, in our own shop, when I came to the bank over 30 
years ago, Congressman, I was actually the bank's first 
compliance officer, and I spent maybe about an hour a week 
staying up with regulations. We now have over six full-time 
equivalents involved in some level of full-time compliance 
work. And over two-thirds of our staff spend an hour or better 
a day in compliance-related entities.
    As I mentioned in my testimony earlier, at over a billion, 
we can spread some of that cost. But I have a very good friend 
who has a small bank out in the middle of Kansas. The total 
size of his bank is $72 million. He, a couple of years ago, or 
a year ago, had 23 employees. He now has 25 employees. The last 
two expensive hires have been compliance officers. And we 
bankers and credit union people look at something we call an 
efficiency ratio that says how efficiently you are running, so 
the lower the number, the better. And his particular bank went 
from an efficiency ratio of 64 to 72 just because of those 
hires.
    Thank you.
    Chairman Bachus. Thank you.
    Anyone else?
    Mr. Templeton. Congressman, as you were talking about the 
labor stats, the 27 percent increase, that is exactly what I 
was thinking. That simply translates into a 27 percent increase 
in examination time, but exponentially it is even more than 
that when you dial in the improvements in technology and what 
they can do quicker.
    It is going to become an ongoing process of examination. 
And a part of that process should be some type of risk 
evaluation, particularly technology: Do we need to spend as 
much time here as we do there? And I think that is something I 
would encourage you, to the extent possible, to look into, is 
risk-based examinations.
    Mr. Vallandingham. In preparing for the hearing, I 
documented the increase in our payroll. It was close to a half-
million dollars, so almost about a 25 percent increase just 
since 2008. Most of that was in loan review compliance, where 
we are getting ready to add another compliance officer, as well 
as people who do post-closing reviews. In talking with mortgage 
originators, we do two compliance reviews before it ever gets 
to underwriting that we never did before because of all of the 
excess compliance that has been put on us in the last few 
years.
    So, yes, we are seeing a definite increase in labor, time, 
and outside third-party resources, where we have employed more 
reviews from our third-party compliance people as well as our 
auditors. We are employing special reviews that we haven't had 
in the past, including risk assessments. So, we are seeing it 
in every aspect of our business.
    Mr. West. We are seeing the same thing. We tried to put a 
dollar number on compliance, and we stopped at well over $2 
million. And the reason we did was because the fingers reached 
so far out, we stopped spending time on it and said, we have 
more important things to do. We are still going to have to 
comply.
    But we have added--I just mentioned a moment ago that we 
have added two information security officers. We are about to 
add a third. We added a new senior vice president of risk 
management. We added an entire vendor management department 
during all of this. And the reason for that is because you have 
contracts with so many critical outside vendors, your 
responsibility over them is even tighter now.
    So the costs just keep coming. Our regulators have 
increased their budget for the last 2 years. Most of it is to 
hire more examiners.
    Mr. Calhoun. And, Mr. Chairman, Self-Help has five 
examiners coming next week. So, I can identify well with this.
    I think, though, two things in context. One is, we have to 
remember, though, we have had and have not finished processing 
through record levels of bank failures. And it is a job of the 
regulators to see, are there other at-risk institutions? And 
there are more at-risk institutions over these last few years 
than we have seen in 70 years. So hopefully, some of that will 
subside. That is not going to address all of the issues, by any 
means, that you have heard today.
    And the second, and it has been alluded to here, is we do 
need to get to a point of less uncertainty. It is very hard 
right now to build the business model when there are so many 
parts out there that you don't know what they will be. And I 
will just go back to my point. We need, for example, to tie 
down this QM definition, which will affect a huge part. We have 
agreement that there needs to be broad, bright-line standards.
    And I would urge again that we then simplify and not add on 
to that with yet another standard with QRM, which is not 
required under the statute. That is totally discretionary. They 
should use that same definition. That would be one place where 
it would give the market some clear direction of where to go.
    Chairman Bachus. I thank you. And I know Mr. Luetkemeyer 
and the chairman have legislation, I think, that will address 
many of these concerns. But we appreciate it. And we will 
probably have a hearing on ``too-big-to-fail,'' which is too-
big-to-manage and maybe too-big-to-exist. But that will be for 
another day.
    Mr. Grant, I started out where you were, and I guess I am 
still there, that we need all sizes. But if that means we are 
going to have a bailout fund, I am not sure that is where I 
would remain if those were my two choices.
    Mr. Grant. And I would agree with you.
    Chairman Bachus. Thank you.
    Mr. Renacci. Thank you.
    I recognize the gentleman from Texas, Mr. Canseco, for 5 
minutes.
    Mr. Canseco. Thank you, Mr. Chairman.
    Last month, the firm of Davis Polk issued their Dodd-Frank 
status report regarding rulemaking in the wake of Dodd-Frank. 
The report noted that out of an estimated of 400 rules to be 
written, only 100 have been finalized thus far.
    So, as financial institutions that are responsible for 
pricing risk and making sound loans, how are your business and 
your customers affected when there are still 300 rules yet to 
be finalized by Dodd-Frank?
    Mr. Grant?
    Mr. Grant. There is certainly an effect both in our 
communities and the banks and with our customers. And it is 
causing us to feel a tug to contract from lending, to stay out 
of areas where there is risk. There is also a large level of 
confusion. Customers are surprised that we are now requiring so 
much more documentation, so much more demonstration of 
creditworthiness to the nth degree.
    So certainly, we are concerned. You are exactly right; we 
are just partway through the rulemaking process. And it is just 
those concerns of uncertainty, added costs, added requirements 
that are coming our way.
    Mr. Canseco. Mr. Templeton?
    Mr. Templeton. Thank you. And I echo what Mr. Grant said. 
It seems like everybody, starting with me and going through the 
regulator, is in the ``CYA'' business today. We can't seem to 
do business while making sure we dot the i's and cross the t's. 
And, in many cases, we are trying to dot i's and cross t's that 
don't exist; we are trying to figure out where might they be.
    There is no commonsense approach to mortgage lending today. 
We sell all of our nonportfolio items, and getting appraisals 
today are just ludicrous. We live in an area where you might 
have a house with an acre-and-a-half lot surrounded by 
neighborhoods that have quarter-acre lots, and you can't get 
comps on it. Loan-to-value on the appraisal is 50, 60 percent, 
and the underwriters are saying, we don't know about it because 
we can't get a good comp.
    Debt-to-income ratio, I looked at one this week, 51 percent 
loan-to-value and 18 percent debt-to-income ratio, a retired 
person, and the underwriters won't take it because they can't 
get comps on the property. Two years ago, 3 years ago, 
everybody would have been clapping and cheering and clamoring 
to get that loan. Today, everybody is saying, oh, we shouldn't 
do it.
    So I think it is the fear, the ``CYA,'' the ``I may make a 
mistake,'' that has people just running scared right now.
    Mr. Canseco. Mr. Vallandingham, would you agree with that?
    Mr. Vallandingham. I absolutely would. We are focusing our 
resources on making sure that we don't suffer regulatory 
enforcement and making sure that we cross every ``t,'' dot 
every ``i,'' and we are not out building business, we are not 
growing our deposit base so that we can turn around and lend 
that in our communities.
    As I indicated in my testimony, I have gone from probably 
20 percent of my time focused on compliance-related issues to 
almost 80 percent of my time focused on compliance issues. And 
so, instead of being out there investing in my community and 
building relationships and investing in small business, I am 
back in my office making sure that we have updated this policy 
and that the boards reviewed it and approved it and that we 
have implemented these new procedures or sent out new 
disclosures for things that we have been doing for 107 years.
    Mr. Canseco. Mr. West?
    Mr. West. I agree with all that they have said.
    As a member-owned cooperative, as I mentioned earlier, 
every time we have an expense, ultimately it costs our members 
in some way. And what we have seen more is the confusion on 
members' faces. And we talked about mortgage loans. They often 
ask, ``Why do I have to go through this? Why can't I get my 
loan sooner?'' And we explain, these are regulations, we want 
to do this properly.
    So it is an education on their part, and then it is an 
education on our employees' parts. Last year when the SAFE Act 
came out, we worked diligently to comply with it. Our initial 
cost, hard cost, just right out the gate, was $100,000 to 
register our employees. This year, it is about $75,000 to re-
register them.
    The thing that happened, though, we had to stop delivering 
a couple of new products we had planned, to stop and deliver 
the SAFE Act timely. So we actually delayed giving new services 
to members last year for that.
    The numbers you quoted, 300 more coming, that is what we 
worry about. And so far, we have not found any part of this law 
that does not affect us except for the interchange. And we are 
like him; we have had some reduction in transaction prices.
    Thank you.
    Mr. Canseco. Thank you.
    One very brief question for all four of you: How can you 
make a 5-year plan with the uncertainty that exists under Dodd-
Frank?
    Mr. West. It is almost impossible.
    Mr. Grant. I would agree that it is nearly impossible.
    Mr. Canseco. Mr. Grant, let me ask you a very quick 
question. Alluding to what Professor Levitin said, in your 
opinion, is Dodd-Frank the tumor or the broken arm?
    Mr. Grant. I believe it is the tumor.
    Mr. Canseco. And Mr. Templeton?
    Mr. Templeton. Tumor.
    Mr. Canseco. Mr. Vallandingham?
    Mr. Vallandingham. I will agree with that.
    Mr. Canseco. Yes.
    And Mr. West?
    Mr. West. I would agree with that. I think there are some 
other tumors out there, too, though.
    Mr. Canseco. All right. Thank you. My time has expired, so 
thank you very much.
    I yield back.
    Mr. Renacci. Thank you.
    I recognize the gentleman from Missouri, Mr. Luetkemeyer, 
for 5 minutes.
    Mr. Luetkemeyer. Thank you, Mr. Chairman.
    I thank the panel for enduring the morning here. We are 
getting close to the end.
    And I just wanted to also thank you for some of the kudos 
that you gave some of the legislation that I am working on. The 
ATM bill--I know that Mr. Grant and Mr. Templeton both 
mentioned that. It is an issue I think is very important. We 
are going to continue to push on that. I know Mr. Vallandingham 
talked about the Communities First Act a number of times. And 
there are a number of provisions in there we are very excited 
about, that can hopefully give some relief to certain things. I 
know Professor Levitin also made reference to the privacy 
disclosure provision that is in there, and I appreciate the 
heads-up on that.
    One of the things that is concerning to me is, during the 
course of your testimony, I think two of you--I think Mr. Grant 
made the comment, and I think I saw Mr. Vallandingham's head 
nod whenever you talked about ceasing mortgage lending 
activities. This is something that is very concerning to me, 
because when I was back in my district over the last 2 or 3 
weeks, I have talked to some bankers, and they are very 
concerned, and a couple of them have talked about and are 
considering stopping mortgage lending altogether.
    Can you give me some rationale on why you are thinking 
about that or considering that and elaborate on it a little 
bit?
    Mr. Grant. At our bank, we have not had any serious 
discussions regarding that, but coming back from a meeting of 
community bankers this week, there are some who already have 
decided to exit it.
    And the reason why is, the regulatory risk and the 
litigation risk far outstrips the commoditized pricing that you 
really find in mortgages today. And the thought that you might 
book a loan today and 5 years, 10 years from now you might be 
subject to scrutinization on whether or not you should have 
ever made the loan.
    So I think a lot of the smaller banks are just--
    Mr. Luetkemeyer. Mr. Vallandingham?
    Mr. Vallandingham. In my testimony, I pointed out that in 
2011 alone, there were 39 origination guide changes by Freddie 
Mac and 59 servicing changes.
    When you look at provisions like the escrow requirements 
that a lot of smaller financial institutions would have to take 
on, the QRM provisions as well as some of the compliance-
related--some of the compliance changes that occurred, with the 
good faith and the truth-in-lending, they require multiple 
compliance reviews, and if you don't meet certain tolerances, 
you lose money on the transaction and you can't reprice.
    Those are all things that, looking at the cost of 
compliance and the risk of regulatory reaction, as well as some 
of the other provisions, it just makes it impossible. They just 
say, it is too complicated. We don't even let our consumer 
lenders do mortgages anymore. We have mortgage-only 
originators, because they have become so complicated that it is 
impossible for a consumer lender, who traditionally has done 
these loans, to comply with all of the compliance associated 
with it.
    Mr. Luetkemeyer. What you are saying is kind of interesting 
from the standpoint that you don't make any money unless you 
loan money out, and yet you are considering stopping activities 
that are lending money out because of the complication and the 
cost and the liability that you could incur because of that 
activity. Is that what you just told me?
    Mr. Vallandingham. Our financial institution is willing to 
take on the task, but there are many smaller financial 
institutions. There is no way they could absorb the cost of 
some of these functions, especially in the servicing side.
    Mr. Luetkemeyer. Right.
    I know that Mr. Templeton and Mr. West, as well, have 
talked about this morning, besides Mr. Grant and Mr. 
Vallandingham, some difficulties with the regulators in trying 
to get them to understand your concerns and your problems.
    What is the attitude of the regulators whenever you talk to 
them and explain to them some of your concerns? Would you like 
to have some common sense in this, or where is the rationale or 
the reason for this regulation?
    Mr. Vallandingham. I will start. In a recent conversation 
with a regulator at a community event, I asked, ``Is there any 
cost-benefit analysis done on the implementation of 
regulations?'' And they laughed and said, ``No.''
    And my point is, in any business you make the decision 
whether there is a benefit to the cost of the implementation. 
If the benefit is so small but the cost is so high, what is the 
point? And most regulations that come down the pike, they just 
say, ``Well, that is what it is, and you have to comply.''
    Mr. Luetkemeyer. It is interesting that Mr. Calhoun made 
the comment about the uncertainty that is causing difficulty in 
putting together a business model. And I think that Dodd-Frank 
and all the regulatory environment that we are in today makes 
that uncertainty very difficult to try and deal with. And it 
seems that you discussed that.
    Mr. Grant, do you want to comment on that?
    Mr. Grant. Yes. I think, to the points that are made and 
why we would support the exam bill, it is to try to have some 
consistency of regulation. As it is, we actually have a pretty 
good relationship with our regulators. But when I talked to 
community bankers at a recent meeting, it is all over the 
board. There are some who are scared to death because the 
regulators just are very, very aggressive. And to the point 
made earlier, there doesn't seem to be any cost-benefit. So, 
just consistency is what we had need.
    Mr. Luetkemeyer. Thank you.
    I have one more question before my time runs out. I will 
ask Mr. West, because he has been adamant during the discussion 
here about explaining all the additional costs that he is 
incurring.
    How are you passing on those costs? Are you eating those 
costs? Are you passing them on to your consumers? Are you 
passing them on to your shareholders? How are you able to 
survive with those additional costs?
    Mr. West. We have thin margins. We so far have not--and we 
purposely have not passed it on to the consumer, particularly 
in this economic environment. We have absorbed it, other than 
the one that I mentioned earlier on wire transfers. We did 
increase that by 100 basis points. It will be effective in a 
couple of weeks.
    A couple of times on mortgages, we could have actually 
lowered the rate in the market just a hair, and we didn't 
because of some of the points that they are making.
    Mr. Luetkemeyer. So, in essence, you did raise the cost to 
consumers?
    Mr. West. A little bit.
    We, by nature, try not to charge fees. And what we spend a 
lot of time on, will we be forced down the road to change our 
business model and add fees when we don't want to? Because as a 
cooperative, all of our members have to share in the cost. So 
that is what worries us most right now, how do you deal with 
this ongoing in the future. So, we haven't had to do it large-
scale, but we are worried about it.
    Mr. Luetkemeyer. Thank you very much.
    Thank you, Mr. Chairman.
    Mr. Renacci. Thank you.
    I want to thank all the panel today for their testimony.
    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.
    This hearing is now adjourned.
    [Whereupon, at 12:01 p.m., the hearing was adjourned.]





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