[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.]
A P P E N D I X
May 9, 2012
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