[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]



 
                         EXAMINING CREDIT UNION

                           REGULATORY BURDENS
=======================================================================



                                HEARING

                               BEFORE THE

                 SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

                          AND CONSUMER CREDIT

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 10, 2013

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 113-11




                  U.S. GOVERNMENT PRINTING OFFICE
80-877                    WASHINGTON : 2013
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing 
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC 
area (202) 512-1800 Fax: (202) 512-2104  Mail: Stop IDCC, Washington, DC 
20402-0001



                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    JEB HENSARLING, Texas, Chairman

GARY G. MILLER, California, Vice     MAXINE WATERS, California, Ranking 
    Chairman                             Member
SPENCER BACHUS, Alabama, Chairman    CAROLYN B. MALONEY, New York
    Emeritus                         NYDIA M. VELAZQUEZ, New York
PETER T. KING, New York              MELVIN L. WATT, North Carolina
EDWARD R. ROYCE, California          BRAD SHERMAN, California
FRANK D. LUCAS, Oklahoma             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            STEPHEN F. LYNCH, Massachusetts
MICHELE BACHMANN, Minnesota          DAVID SCOTT, Georgia
KEVIN McCARTHY, California           AL GREEN, Texas
STEVAN PEARCE, New Mexico            EMANUEL CLEAVER, Missouri
BILL POSEY, Florida                  GWEN MOORE, Wisconsin
MICHAEL G. FITZPATRICK,              KEITH ELLISON, Minnesota
    Pennsylvania                     ED PERLMUTTER, Colorado
LYNN A. WESTMORELAND, Georgia        JAMES A. HIMES, Connecticut
BLAINE LUETKEMEYER, Missouri         GARY C. PETERS, Michigan
BILL HUIZENGA, Michigan              JOHN C. CARNEY, Jr., Delaware
SEAN P. DUFFY, Wisconsin             TERRI A. SEWELL, Alabama
ROBERT HURT, Virginia                BILL FOSTER, Illinois
MICHAEL G. GRIMM, New York           DANIEL T. KILDEE, Michigan
STEVE STIVERS, Ohio                  PATRICK MURPHY, Florida
STEPHEN LEE FINCHER, Tennessee       JOHN K. DELANEY, Maryland
MARLIN A. STUTZMAN, Indiana          KYRSTEN SINEMA, Arizona
MICK MULVANEY, South Carolina        JOYCE BEATTY, Ohio
RANDY HULTGREN, Illinois             DENNY HECK, Washington
DENNIS A. ROSS, Florida
ROBERT PITTENGER, North Carolina
ANN WAGNER, Missouri
ANDY BARR, Kentucky
TOM COTTON, Arkansas

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

             SHELLEY MOORE CAPITO, West Virginia, Chairman

SEAN P. DUFFY, Wisconsin, Vice       GREGORY W. MEEKS, New York, 
    Chairman                             Ranking Member
SPENCER BACHUS, Alabama              CAROLYN B. MALONEY, New York
GARY G. MILLER, California           MELVIN L. WATT, North Carolina
PATRICK T. McHENRY, North Carolina   RUBEN HINOJOSA, Texas
JOHN CAMPBELL, California            CAROLYN McCARTHY, New York
KEVIN McCARTHY, California           DAVID SCOTT, Georgia
STEVAN PEARCE, New Mexico            AL GREEN, Texas
BILL POSEY, Florida                  KEITH ELLISON, Minnesota
MICHAEL G. FITZPATRICK,              NYDIA M. VELAZQUEZ, New York
    Pennsylvania                     STEPHEN F. LYNCH, Massachusetts
LYNN A. WESTMORELAND, Georgia        MICHAEL E. CAPUANO, Massachusetts
BLAINE LUETKEMEYER, Missouri         PATRICK MURPHY, Florida
MARLIN A. STUTZMAN, Indiana          JOHN K. DELANEY, Maryland
ROBERT PITTENGER, North Carolina     DENNY HECK, Washington
ANDY BARR, Kentucky
TOM COTTON, Arkansas
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    April 10, 2013...............................................     1
Appendix:
    April 10, 2013...............................................    31

                               WITNESSES
                       Wednesday, April 10, 2013

Burrow, Robert D., President and Chief Executive Officer, Bayer 
  Heritage Federal Credit Union, on behalf of the National 
  Association of Federal Credit Unions (NAFCU)...................     8
Reiver, Mitchell, General Counsel, Melrose Credit Union..........    11
Stephens, Pamela, President and Chief Executive Officer, Security 
  One Federal Credit Union, on behalf of the Credit Union 
  National Association (CUNA)....................................     9

                                APPENDIX

Prepared statements:
    Burrow, Robert D.............................................    32
    Reiver, Mitchell.............................................    64
    Stephens, Pamela.............................................    68

              Additional Material Submitted for the Record

Capito, Hon. Shelley Moore:
    Letter to Financial Services Committee Chairman Jeb 
      Hensarling and Ranking Member Maxine Waters from the 
      American Mutual Share Insurance Corporation (ASI), dated 
      April 9, 2013..............................................   122
    Written statement of the Coalition for Credit Union Access 
      (CCUA).....................................................   125


                         EXAMINING CREDIT UNION


                           REGULATORY BURDENS

                              ----------                              


                       Wednesday, April 10, 2013

             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 2:03 p.m., in 
room 2128, Rayburn House Office Building, Hon. Shelley Moore 
Capito [chairwoman of the subcommittee] presiding.
    Members present: Representatives Capito, Miller, McHenry, 
Campbell, Pearce, Posey, Fitzpatrick, Luetkemeyer, Duffy, 
Stutzman, Pittenger, Barr, Cotton; Meeks, Maloney, Watt, 
McCarthy of New York, Scott, Green, Murphy, Delaney, and Heck.
    Ex officio present: Representative Hensarling.
    Also present: Representative Royce.
    Chairwoman Capito. Without objection, I am going to call 
the Financial Institutions and Consumer Credit Subcommittee to 
order. I would like to note that my favorite ranking member, 
Mrs. Maloney from New York, has sustained a disability that 
requires her to stay on the bottom row rather than come up to 
the top row. But I don't take that as any diminishment of her 
engagement or whether she is paying attention and is 
knowledgeable of the topics. So, hello down there, I say.
    [laughter].
    Without objection, the Chair is authorized to declare a 
recess of the committee at any time. It seems as though votes 
are going to be occurring at 4 p.m., so I think we will be in 
good shape.
    This afternoon's hearing is the first in a series of 
hearings that our Subcommittee on Financial Institutions and 
Consumer Credit will be holding about the regulatory burden for 
community financial institutions. Today, we are going to focus 
on the unique challenges that credit unions face in the current 
regulatory environment. The purpose of these hearings is to 
gain a better understanding of the regulatory framework for 
community financial institutions.
    These institutions are critical to the flow of credit in 
our communities across the Nation. And in particular, I will 
put a plug in for rural America, where I live. Credit union 
employees know their members and are intimately involved in the 
communities that they serve. Rather than relying on purely 
data-driven decisions, community lenders take a more 
relationship-based model to lending that is integral to the 
survival of many communities in this country. Over the last 2 
years, we have heard credit union representatives express 
concern about the growing regulatory burden.
    In fact, one of our witnesses today, Mr. Robert Burrow, 
from Proctor, West Virginia, will quantify the effect 
regulatory burden is having on his credit union. Excuse me, I 
would like to recognize my current ranking member, Mr. Meeks. I 
mistakenly said Mrs. Maloney, because we were together last 
time. So I am sorry about that. I started before you got here. 
I apologize.
    Mr. Burrow states in his written testimony, ``At Bayer 
Heritage, we have seen our compliance costs double in just the 
last few years, and recently hired a new employee to help with 
compliance at a cost of over $65,000. These increased costs 
mean that we often are slower to offer services that our 
members want, and there are just some services that are non-
starters for us, because of the compliance cost.'' Although 
these costs may seem trivial to some, they have real effects on 
the ability of credit unions to serve their members.
    The increased cost of compliance can also have a 
detrimental effect on the ability of credit unions to serve 
their communities. In April of 2008, I was proud to join the 
representatives of Star USA Federal Credit Union in Charleston, 
West Virginia, for Kids Savings Day. The credit union took a 
lot of time to educate the children, to help them with learning 
how to balance a checkbook, what it means to save, and what it 
means to deposit. While it may seem trivial in some folks' 
mind, we know that financial literacy is a huge problem across 
the country and we need to learn this skill early. And this 
credit union was helping with that.
    This is a program that was started 10 years ago and 
continues today. But it could be just the kind of program that 
if the compliance costs keep going up and up, will be cut. 
Recently, Federal financial regulators have expressed concerns 
about the difficulty in quantifying regulatory burden for 
financial institutions. I understand it is difficult to 
pinpoint specific rules and regulations that are especially 
burdensome, but it is the cumulative effect of new regulations 
being layered on top of old regulations.
    The purpose of today's hearing is to take a closer look at 
these issues to determine ways to allow credit unions to 
operate in a modernized regulatory system that gives them the 
flexibility they need to serve the unique needs of their 
clients. I would like to thank our witnesses today for 
providing the subcommittee with thoughtful proposals for 
regulatory reform. And your testimony will help our Members as 
we begin to work on bipartisan legislation to help our 
community financial institutions operate more efficiently.
    I would now like to yield to my ranking member, Mr. Meeks, 
for the purpose of giving an opening statement.
    Mr. Meeks. Thank you, Chairwoman Capito. This is a very 
important hearing that we are holding today. And I want to 
welcome all of the witnesses that we will hear from shortly. 
But I need to give a special shout out, of course, to Melrose 
Credit Union's general counsel, Mitch Reiver, for being here, 
because both he and Melrose are from the great 5th 
Congressional District of New York. But today's hearing, along 
with next week's hearing on community banks, are probably one 
of the most important topics that we can address.
    Credit unions, along with community banks, are the 
backbones of our communities. Their lending is often 
countercyclical, meaning that when entrepreneurs have 
difficulty obtaining capital from our other lending sources, 
they can still find it through their local credit unions. Data 
from 2009 clearly reinforces this notion. The statistics show 
that while lending by megabanks declined by nearly double 
digits, credit unions' lending remained flat, allowing 
countless businesses and consumers to remain afloat and have 
access to vital capital.
    Melrose has been a perfect example of how credit unions can 
benefit a local community. In 2009, and I will use this as an 
example, my office was contacted by a Queens County nonprofit 
organization about a problem with a megabank which no longer 
found their account worthy of maintaining. They did everything 
right, they were paying the loan back. But all of a sudden, 
just arbitrarily, this megabank said they didn't want to 
maintain them anymore. And without a line of credit from this 
institution, the nonprofit may well have folded and, therefore, 
been unable to provide services to several thousand of our 
constituents.
    Working with Congressman Joe Crowley, we asked Melrose to 
consider a relationship with the organization, which they 
gladly did. And I am happy to report that Melrose and the 
nonprofit entered into a prosperous relationship as a result of 
getting together. Credit unions have been able to provide 
critical support without the advantages that other institutions 
maintain. Their access to capital is limited and they cannot 
simply issue more stock or float more debt to fund their 
operations, and yet credit unions must compete.
    Some in Congress recognized this, and have pushed for 
regulatory changes that maintain safety and soundness, but 
allow these local engines of economic growth to remain viable. 
Examples of this include changes to member business lending 
guidelines, and along with my friend, Congressman Ed Royce, I 
have cosponsored legislation that will allow credit unions to 
increase member business lending. And I look forward to hearing 
from our witnesses on that subject today.
    I want to close by noting that we are at a pivotal point in 
our economic recovery. Economic data continues to be mixed. 
While on the one hand, the stock market is booming and there is 
a nascent housing recovery under way, which are clearly fueling 
expansion, we also face headwinds such as the expiration of the 
payroll tax cut which has undermined growth. I expect there to 
be several proposals in this subcommittee and committee that 
will, I hope on a bipartisan basis, address reforms that can 
decisively move the economy in the right direction.
    This will require credit unions and community banks to work 
together. In the past, whenever we have had the opportunity to 
advance common-sense reforms for one industry, the other gets 
in the way. I hope both groups will put aside their differences 
so that we can unlock the resources that businesses and 
consumers need to fuel the entrepreneurial spirit that defines 
America.
    Thank you, and I look forward to hearing your testimony.
    Chairwoman Capito. Thank you.
    I would like to recognize Mr. Duffy, the vice chair of the 
subcommittee, for 2 minutes.
    Mr. Duffy. Thank you, Chairwoman Capito. I am pleased to 
take part in this important hearing which examines the 
regulatory burdens facing our Nation's credit unions. I 
appreciate the witnesses coming in today, and I look forward to 
your testimony and the answers to all of our respective 
questions.
    My home State of Wisconsin has a proud credit union 
tradition. Though I don't have someone from from my district or 
even from Wisconsin testifying on the panel, CUNA, the national 
trade association, is based in the great State of Wisconsin. 
So, we do have nice representation. Today, we have 186 credit 
unions operating in Wisconsin. Now, that is impressive but, 
sadly, it is down from 225 credit unions a little over 2 years 
ago. This declining trend in the number of credit unions is 
very concerning.
    It is becoming clear that these institutions are suffering 
from increased regulations and increased compliance costs, 
which represent direct threats to their ability to lend and 
operate. Instead of hiring or expanding, these institutions are 
forced to use their members' money to cover compliance costs. 
Our Nation's financial arteries flow directly through these 
small financial institutions and credit unions. If we continue 
to cut off and squeeze these arteries, we are certainly not 
helping families and small businesses in central and northern 
Wisconsin, or families and small businesses around America.
    Many of my colleagues and I continue to highlight 
differences between small institutions and large institutions, 
yet we are frustrated and shocked that when rules come out, 
they are written with the one-size-fits-all approach. It is not 
right that our credit unions are being forced to service 
regulators and not service our American families. I look 
forward to a discussion today on how we can stop this 
consolidation trend and how we can alleviate the burdens from 
those small financial institutions and those who are 
responsible for getting dollars out the door to fund Main 
Street and help provide loans to our homeowners and families, 
not just in central and northern Wisconsin, but across the 
country as a whole.
    I yield back.
    Chairwoman Capito. Thank you.
    I now recognize Mr. Scott for 2\1/2\ minutes.
    Mr. Scott. Thank you very much, Madam Chairwoman, and 
welcome. The credit unions play an extraordinary role in our 
entire economy and, certainly, a central role in our financial 
system. And so it is important that we have this hearing. We 
have a chance to look at what your feelings are about the 
effects of the regulations that we are putting in place and 
have put in place in response to the financial crisis that we 
have gone through.
    And as I said, the credit unions are a major, major player 
in our economy. You have over 7,000 federally-insured credit 
unions in this country, with 92 million members and $961 
billion in assets. That is a huge part and a very important 
part of our economy. And we have to make sure that the 
abilities of the credit unions to serve our underserved 
populations across the Nation--this has been your core mission. 
It is very important that we recognize that in the regulations 
we have put forward.
    This has to be at the center so that we do not suffocate 
credit unions' ability to perform this core mission. And as the 
country continues to recover from this economic crisis, it will 
be imperative that underserved areas have access to affordable 
financial services. The credit unions certainly provide that. 
Now, there are many individuals who are considered to be 
unbanked, unserved, and to band and help build wealth together. 
And in credit unions and community banks, financially 
vulnerable Americans find refuge from being preyed upon by loan 
sharks and predatory lenders.
    So we have to stop this talk about taxing credit unions and 
move on to try to serve the underserved and build wealth 
together. That is our mission. That is what we have to do. Your 
testimony this afternoon will be very, very important in 
establishing the right pattern and the right direction for this 
committee to go as we hammer out these regulations in response 
to the financial crisis.
    Thank you.
    Chairwoman Capito. Thank you.
    Mr. Miller for 1\1/2\ minutes.
    Mr. Miller. Thank you, Madam Chairwoman.
    Credit unions have done a great job reaching middle-class 
and underbanked families through credit. You serve a different 
purpose than a lot of other financial institutions do. Your 
earnings return to members in the form of lower rates, higher 
rates on deposits, and lower fees. But even though the credit 
unions were not the cause of the crisis we have gone through, 
you are not immune from the regulations that have been placed 
on everybody else. I believe credit unions now have over 5,000 
pages of rules from the Consumer Financial Protection Bureau, 
the CFPB, that you must understand, interpret, and comply with.
    And it is amazing that there are 700 fewer credit unions 
today than there were prior to Dodd-Frank implementation, which 
was not that long ago. But I think we can help in a lot of ways 
by streamlining various regulations credit unions have to face, 
while ensuring the consumer protection-driven intent behind the 
regulations are maintained. For example, Congress should enable 
the credit unions and prudential regulators at the NCUA to step 
in where appropriate and modify CFPB rules, so long as the 
modified rule still meets the objective of the CFPB.
    I think Congress should consider a risk-based capital 
system for credit unions that more accurately reflects the 
credit unions' risk that you take. You should require that the 
CFPB and the NCUA look back on the cost-benefit analysis after 
3 years to ensure regulations that have a true sense about the 
cost of compliance of the new rule, and make sure they worked 
appropriately. And I think we need to work to modernize the 
credit unions' central liquidity facility, which we haven't 
done.
    And Congress should modernize investment options for credit 
unions to give credit unions more investment options so they 
can better their portfolios that have risk under. I am working 
on legislation to address these areas and, hopefully, we can 
enact those and make your job a little easier in the future.
    I yield back. Thank you.
    Chairwoman Capito. Thank you.
    Mrs. Maloney for 2\1/2\ minutes.
    Mrs. Maloney. Thank you, and thank you, Madam Chairwoman 
and Ranking Member Meeks for calling this important hearing. 
And I appreciate all of the witnesses who are here today. But I 
want to particularly welcome Mr. Reiver, whose credit union 
serves many of the constituents that I am honored to represent. 
Credit unions play an extremely important role in our financial 
services industry. Often, they provide services and products 
that their members cannot find elsewhere.
    And historically, they have served underserved areas, often 
areas that other financial service institutions have chosen not 
to serve. So they are a very important part of the fabric of 
financial services that we provide in America. And I really am 
pleased that we are taking time today to highlight their work, 
giving them the opportunity to talk about their challenges and 
also giving them an opportunity to talk about the regulatory 
concerns and barriers that we face. We all have the goal of 
getting capital out, resources out to good businesses.
    And in the district that I represent, and I would say 
throughout New York and New Jersey, which were devastated by 
Hurricane Sandy, small businesses are having difficulty getting 
those smaller loans and getting those loans below, say, 
$250,000 and in that range, to help them rebuild. So I am 
working on a bill that is narrowly focused, that would enable 
credit unions who are lending to small businesses affected by 
natural disasters such as we are suffering in 23 States from 
Sandy, to keep those loans from counting against the cap for a 
period of time--5 years--so that we get as much capital out as 
quickly as possible to help these small businesses rebuild.
    I know from the credit unions that I work with that they 
are very, very proud of the relationships and bonds that they 
build with the communities which they serve. And I feel that 
this would be a way that would enable them to help in an area 
where the capital is not really getting there. So I am 
encouraged about this discussion today and I look forward to 
your testimony. We don't want anyone to be deprived of a loan 
because their credit union has hit a lending cap and they can 
no longer loan in that area. I have heard that is a problem in 
New York and New Jersey.
    I thank the ranking member and the chairwoman very much for 
calling this hearing. I look forward to the testimony.
    Chairwoman Capito. Thank you.
    Mr. Fitzpatrick for 1\1/2\ minutes.
    Mr. Fitzpatrick. Thank you, Madam Chairwoman. Prior to 
today's hearing, I reached out to several of the credit unions 
that work in the communities that I serve in southeastern 
Pennsylvania, around Philadelphia, about the importance of 
today's hearing.
    These community financial institutions are providing loans 
for small businesses and for families. They provide important 
financial services for their members. And as in the case of a 
Ukrainian credit union near my district, they preserve the 
culture of the community, as well. Credit unions are undeniably 
important to our economy, so when the Chair announced this 
hearing, I wanted to reach out to them to find out, firsthand 
from them, how the regulations in the marketplace are affecting 
them individually.
    What I heard, and what I plan to discuss with the witnesses 
today, was that it is, in fact, the case that Federal 
regulations are negatively affecting consumers. I heard 
particular concern about the CFPB and the recent rule regarding 
Qualified Mortgages. There is a lot of anxiety out in our 
communities about access to affordable credit. I heard that the 
cost of compliance is growing, and that those costs are now 
being passed on to consumers. So I look forward to following up 
on some of these concerns during the questions and working with 
the Chair on some possible regulatory relief legislation that 
may result from these hearings.
    So I appreciate the hearing today, and I yield back.
    Chairwoman Capito. Thank you. Mr. Delaney for 1\1/2\ 
minutes.
    Mr. Delaney. Thank you. I, like my colleagues, share in the 
admiration of credit unions and the important role they play in 
the community, the important role they play for their unique 
stakeholders and their members, and the important role they 
play in our economy.
    I am supportive of efforts to allow additional capital, or 
supplemental capital, to flow into credit unions so that they 
can continue to grow and manage their business in a safe and 
sound manner. And I also--like many of my colleagues--am 
supportive of efforts to streamline the regulatory approach to 
credit unions to reflect their business plan, which is unique 
and is focused on their communities, so that they can 
effectively and efficiently pursue their mission, which is 
incredibly important to our economy and incredibly important to 
their communities.
    But I am mindful, as we think about expanding the mandate 
of credit unions beyond the traditional mandate--tradition--
particularly around business lending, that we are mindful of 
the role that community banks play in our country, as well. 
Because community banks fulfill, often times, the same mission 
as it relates to business lending. And they do it in a taxable 
framework, which adds cost to their business. It is important 
for me, as I hear about the efforts of community credit unions 
to expand their mandates, to think about it in the context of 
competitiveness with community banks. Because we wouldn't want 
to do something that would hurt community banks' ability to 
serve their mission, as well, by putting them at a significant 
competitive disadvantage in community business lending.
    Thank you. I yield back.
    Chairwoman Capito. Thank you.
    I think that concludes our opening statements. So, I want 
to welcome our panel of distinguished witnesses. I will 
introduce everybody, and then I will recognize Mr. Burrow at 
the beginning. Mr. Burrow is a fellow West Virginian whose 
business is located in West Virginia. Mr. Robert G. Burrow, 
president and chief executive officer of Bayer Heritage Federal 
Credit Union on behalf of the National Association of Federal 
Credit Unions. I will introduce our next witness before she 
begins to speak.
    I now recognize Mr. Burrow for 5 minutes.

 STATEMENT OF ROBERT D. BURROW, PRESIDENT AND CHIEF EXECUTIVE 
OFFICER, BAYER HERITAGE FEDERAL CREDIT UNION, ON BEHALF OF THE 
     NATIONAL ASSOCIATION OF FEDERAL CREDIT UNIONS (NAFCU)

    Mr. Burrow. Good afternoon, Chairwoman Capito, Ranking 
Member Meeks, and members of the subcommittee. My name is 
Robert Burrow, and I am testifying this afternoon on behalf of 
NAFCU. I serve as the president and CEO of Bayer Heritage 
Federal Credit Union in Proctor, West Virginia. Bayer Heritage 
has more than 29,000 members, with assets totaling about $300 
million. NAFCU and the entire credit union community appreciate 
the opportunity to discuss much-needed regulatory relief for 
credit unions. Finding ways to cut down on burdensome and 
unnecessary regulatory compliance costs is a chief priority of 
NAFCU and its members.
    A 2011 NAFCU survey found that nearly 97 percent of 
respondents were spending more time on regulatory compliance 
issues than they did in 2009. A 2012 NAFCU survey found that 94 
percent of respondents had seen their compliance burdens 
increase since the passage of Dodd-Frank in 2010. At Bayer 
Heritage, we have seen our compliance costs double in just the 
last few years, and recently hired a new employee to help with 
compliance. These increased costs mean that we are often slower 
to offer services that our members want, and there are some 
services that are non-starters for us because of the compliance 
costs.
    The ever-growing regulatory burden on credit unions stems 
not just from one single onerous regulation, but from a 
compounding of regulations stemming from a number of Federal 
regulators. A number of these regulations may be worthwhile and 
well-intentioned, but they are often issued with little 
coordination between regulators and without removal of outdated 
unnecessary regulations. In June 2012, NAFCU wrote to the 
Financial Stability Oversight Council to urge it to focus on 
its duty to facilitate regulatory coordination under the Dodd-
Frank Act. We hope the committee will continue to encourage the 
NCUA, the CFPB and the FSOC in this regard.
    NAFCU has prepared a five-point plan on where credit unions 
need relief and assistance. The five areas covered in this plan 
include: One, administrative improvements for the powers of the 
NCUA. This includes provisions such as the ability to grant 
parity to a Federal credit union on a State law, allowing the 
NCUA to delay or modify implementation of a CFPB rule to tailor 
it to the unique nature of credit unions, and requiring the 
NCUA and the CFPB to do a look-back, cost-benefit analysis of 
all new rules.
    Two, capital reforms for credit unions, such as 
establishing a risk-based capital system for credit unions or 
allowing the NCUA to grant credit unions access to supplemental 
capital as proposed in H.R. 719.
    Three, structural improvements for credit unions, such as 
updating a number of outdated governance and a few of the 
membership restrictions that are in the Federal Credit Union 
Act.
    Four, operational improvements for credit unions. This 
includes modifying the arbitrary credit union member business 
lending cap, as proposed in H.R. 688, or in other ways outlined 
in my written testimony.
    Other improvements sought in this area include allowing 
credit unions greater flexibility to manage their investments 
and greater flexibility in their loan maturities. Furthermore, 
credit unions should be given parity with FDIC-insured 
institutions when it comes to interest on lawyers' trust 
accounts.
    Five, establishing 21st Century data security standards for 
the safekeeping of financial and card data by those entities 
not covered by the Gramm-Leach-Bliley Act. My written testimony 
covers these and other areas where Congress should act to 
provide relief for credit unions.
    We hope that the committee will act on these issues. In 
conclusion, it is not one single regulation that is creating 
this ever-increasing burden, rather the tidal wave of new rules 
and regulations such as the new mortgage rules, often coming 
from multiple regulators with little or no coordination between 
them. NAFCU expressed concerns about the potential of this 
happening during the debate on Wall Street reform, and this was 
a reason we did not support credit unions being subject to the 
rulemaking of the CFPB.
    This regulatory burden is compounded and outdated. 
Regulations are not being removed or modernized at the same 
pace. NAFCU could support a credit union regulatory relief 
package being combined with regulatory relief for community 
banks. It is important, however, that such a joint effort be 
balanced between the top needs of both the credit union and the 
banking industry. We look forward to working with the committee 
in this regard.
    Thank you for your time and for the opportunity to testify 
before you here today, and I welcome any questions you may 
have.
    [The prepared statement of Mr. Burrow can be found on page 
32 of the appendix.]
    Chairwoman Capito. Thank you.
    Our next witness is Ms. Pamela Stevens, president and chief 
executive officer, Security One Federal Credit Union, on behalf 
of the Credit Union National Association. Welcome.

  STATEMENT OF PAMELA STEPHENS, PRESIDENT AND CHIEF EXECUTIVE 
 OFFICER, SECURITY ONE FEDERAL CREDIT UNION, ON BEHALF OF THE 
            CREDIT UNION NATIONAL ASSOCIATION (CUNA)

    Ms. Stevens. Thank you, Chairwoman Capito, and Ranking 
Member Meeks. My name is Pamela Stevens and I am president and 
CEO of Security One Federal Credit Union in Arlington, Texas, 
here today on behalf of the Credit Union National Association. 
We do appreciate the opportunity to testify on this topic: 
ever-increasing, rarely decreasing regulatory burden. We look 
forward to working with you for relief, as well.
    We do appreciate the bipartisan legislation that Congress 
passed last year on ATM signage and the bill recently passed on 
privacy notifications, both of which were sponsored by 
Representative Luetkemeyer. These bills are a step in the right 
direction, and they offer a road map for future legislation. My 
written testimony describes regulatory burdens that credit 
unions face. It also lists steps the CFPB and the NCUA have 
taken to reduce regulatory burden, and highlights ongoing 
concerns with these agencies and FASB, as well. It also makes 
recommendations for statutory changes to enhance service to 
credit union members.
    Since 2008, credit unions have been subjected to 157 rule 
changes from over 15 agencies, most of which were written 
before the CFPB issued its rule. That is almost one a week. So 
regulatory burden isn't new. It is not a new problem for us, 
but it is getting worse. We are overwhelmed by the impact of 
these rules because we know that we didn't cause the financial 
crisis and we know we don't abuse our members. Yet, we are 
being forced to pay the price and comply with the very same 
rules designed for those who did cause the crisis.
    Congress authorized the CFPB to exempt credit unions from 
some rules, and we wonder why it isn't fully utilizing this 
authority. We believe more attention should be directed toward 
the abusers, and we call on the subcommittee to ensure the CFPB 
proactively uses its exemption authority. My written testimony 
includes 35 recommendations aimed at reducing regulatory 
burden. Because of these lights right here, though, I can't go 
into all of them. So I will highlight a few for you.
    Credit unions need Congress to permit them to accept 
supplemental forms of capital consistent with their cooperative 
principles. We also urge Congress to increase member business 
lending caps. Both of these issues deserve the attention of 
this subcommittee as soon as possible. And there are things 
Congress can do immediately, as well. We ask you to consider 
legislation that would change the treatment of non-owner-
occupied, one-to-four-family dwelling loans. Currently, if a 
credit union makes such a loan, it is treated as a business 
loan. If a bank makes the same loan, it is a residential loan.
    This disparity should be fixed. Congress should enact 
legislation that fully exempts government-guaranteed loans from 
the MBL cap, not just the guaranteed portion. We have a number 
of recommendations, such as clarifying share insurance coverage 
for pass-through accounts, and increasing the maturity limit 
for higher education loans. We also propose modernizing the 
NCUA board by: expanding that board from three to five; 
allowing more than one member to have credit union experience; 
and reserving one seat on the board for a State credit union 
supervisor.
    We ask Congress to codify the CFPB's Credit Union Advisory 
Council. This is an important tool for the Bureau to receive 
feedback and input from credit unions. CFPB voluntarily formed 
this group and we want to make sure it continues. In addition, 
we urge Congress to address Regulation D. Today, there is a cap 
of six transfers per month a customer can make from a savings 
to a checking account. When my members ask me why this is, 
frankly, no matter how many times I explain it no one seems to 
understand. Further, eliminating the cap would save money for 
consumers in overdraft fees.
    Finally, we look forward to the reintroduction of the 
Examination Fairness bill that Chairwoman Capito and 
Representative Maloney introduced last year. Credit unions 
deserve to know the legal authority that examiners are relying 
on. We need independent ombudsmen to hear our concerns about 
the process, and an independent appeals process to resolve 
disputes Our proposals do not exhaust all the actions that 
Congress should consider, but they do represent an important 
first step.
    We urge you to adopt these proposals, and we look forward 
to working with you on these issues. Thank you for the 
opportunity to testify.
    [The prepared statement of Ms. Stephens can be found on 
page 68 of the appendix.]
    Chairwoman Capito. Our third witness is Mr. Mitchell 
Reiver, general counsel, Melrose Credit Union. Welcome.

 STATEMENT OF MITCHELL REIVER, GENERAL COUNSEL, MELROSE CREDIT 
                             UNION

    Mr. Reiver. Thank you. Chairwoman Capito, Ranking Member 
Meeks, and members of the subcommittee, thank you for your 
invitation to testify in front of the subcommittee today 
regarding regulatory burdens on credit unions. My name is 
Mitchell Reiver, and for the past 24 years, I have served as 
general counsel and compliance officer for Melrose Credit Union 
in Queens County, New York.
    It is my general assessment that the increasing regulatory 
burden on credit unions is both misguided and misplaced. 
Although I certainly recognize the need for appropriate 
regulation, too often credit unions end up paying the price for 
abusive practices perpetrated by non-credit-union entities. We 
continue to endure this reality every day, as the CFPB conducts 
its rulemaking process with the intent of preventing another 
financial meltdown, but also with the result of burdensome 
regulations being issued on institutions that did not play a 
role in causing the crisis.
    A seemingly unending rulemaking process stemming from the 
CFPB, coupled with outdated and duplicative regulations already 
in statute, results in credit unions spending more resources on 
compliance and less on other services that actually benefit our 
members. Today, I would like to briefly touch on several topics 
I believe highlight examples where common-sense regulatory 
relief is needed. On the issue of the annual privacy notices, I 
would like to thank Representatives Luetkemeyer and Sherman for 
their work on H.R. 749, the Eliminate Privacy Notice Confusion 
Act
    Streamlining annual privacy notices by requiring them to be 
sent to consumers only when a policy changes illustrates the 
general premise that consumers can often benefit more from 
less. Like all Americans, I, too, am concerned about the safety 
and security of our country. While the Bank Secrecy Act is a 
valuable tool, I have concerns about the effectiveness of its 
goals relative to the cost and compliance burdens on credit 
unions and other small institutions. Tens of thousands of 
currency transaction reports and suspicious activity reports 
are filed by financial institutions.
    Identifying and fixing inefficiencies in these reports can 
help to reduce these costs. For example, it would helpful to 
understand more about how the government and law enforcement 
are using reports, as well as what types of reports are useful 
and which are not. BSA compliance disproportionately burdens 
smaller financial institutions, including approximately 3,000 
credit unions that have 5 or fewer employees, but must comply 
with BSA compliance. I fear the credit unions will spend 
significant time and cost if the proposed customer due 
diligence proposal is finalized.
    The proposal requires expanded due diligence regardless of 
risk. It should be the other way around. More focus should be 
placed on strengthening rules that apply to other types of 
institutions that are not subject to these strict requirements. 
Examination fairness is another area of concern for all credit 
unions. Melrose is a New York State-chartered credit union, 
supervised by our State Department of Financial Services.
    The NCUA examples the credit union in its role as the 
insurer of our shares. It has long been the case that our 
primary regulatory is superseded by the NCUA during what are 
typically joint exams. It does appear that the quality and 
competence of the NCUA examiners has improved over the years. 
However, as a State-chartered credit union, if the system of 
dual chartering is to mean anything, the NCUA should defer to 
our State regulator and not the other way around.
    On the issue of examinations, I would like to thank 
Chairwoman Capito and Representative Maloney for their hard 
work on examination fairness legislation. Establishing a 
process for credit unions to share their examination 
experiences without fear of retaliation is extremely important, 
as well as giving credit unions an opportunity to appeal an 
examination decision through an independent process.
    Credit unions are also now faced with virtually impossible 
new requirements for conducting international remittances. The 
CFPB's new disclosure requirements for remittances will clearly 
create a burden on our operations both in cost and compliance. 
These new rules would require credit unions to disclose real-
time foreign taxes and fees imposed by financial institutions 
overseas, information that may not always be readily available 
or guaranteed at the time of the initial transaction. These 
rules will most certainly cause many, if not all, smaller 
credit unions which offer remittances to end those services.
    Remittances are an essential service required in areas 
across the country with large numbers of foreign-born citizens 
and temporary and permanent residents. They provide a vital 
monetary lifeline between an individual residing here and his 
or her family in another country. Although the CFPB did revise 
its exemption threshold from 25 remittances per year to 100, 
this threshold is still much too low to offer any measurable 
relief for participating credit unions. Instead of credit 
unions being required to provide information on taxes and fees 
that are subject to change without their knowledge, they should 
instead be given the flexibility to provide disclosure of the 
highest possible fees and maximum possible taxes the member 
might incur.
    Credit unions strive to provide only the best services to 
their members. The more time and resources we spend on 
complying with the conveyor belt of new and existing rules, the 
less time we can spend on providing quality services to our 
members.
    Chairwoman Capito, Ranking Member Meeks, I would like to 
again thank you for inviting me here today and affording me the 
opportunity to testify. I am happy to answer any questions you 
may have.
    [The prepared statement of Mr. Reiver can be found on page 
64 of the appendix.]
    Chairwoman Capito. Thank you all. That concludes our 
testimony, and begins the questioning phase. I will begin, and 
I will yield myself 5 minutes for questioning.
    Very quickly, do all three of your credit unions write 
mortgages? Mr. Burrow?
    Mr. Burrow. Yes, we do.
    Chairwoman Capito. Ms. Stevens? No. Mr. Reiver, yes.
    Mr. Reiver. Yes, ma'am.
    Chairwoman Capito. Okay. So to the two gentleman, with the 
QM rule that has just been put out by the CFPB, have you had a 
chance to digest what effect this will have on your ability to 
write mortgages, and what do you see down the road in that 
area? Mr. Burrow?
    Mr. Burrow. Okay. Yes, we have given that some thought. 
Right now, probably most of our mortgages would, in fact, be 
within the purview of that regulation. However, in some cases, 
where in our rural areas I have the occasion where there are a 
lot of folks who--I will just stick to debt ratio requirement, 
for example. They may not be able to comply in that particular 
area. Their debt ratio may be over the 43 percent, but yet they 
have had long-standing credit with the credit union, and they 
have been in the same employment for quite some time.
    They are actually what I could consider a gold-plated loan, 
but because of this, it would fall outside the QM. Unless that 
is addressed, I would--personally, I would be making exceptions 
and probably getting written up for them because--
    Chairwoman Capito. So you would continue to try to write--
probably--
    Mr. Burrow. I would continue going--and probably my 
examiner--
    Chairwoman Capito. At your own peril.
    Mr. Burrow. Yes, because--
    Chairwoman Capito. And it is interesting to note, too, that 
particular customer is not going to fall within the Qualified 
Mortgage definition in any financial institution.
    Mr. Burrow. Right. But in my opinion, because it is a good 
loan, it is a good asset for the credit union.
    Chairwoman Capito. Right.
    Mr. Burrow. But because of a regulation, I am not going to 
let it walk away.
    Chairwoman Capito. Okay.
    Mr. Reiver?
    Mr. Reiver. Yes. At Melrose, we portfolio all of our loans. 
So we are the ones who are taking the risk, and we are 
certainly the ones who are in the best position to assess that 
risk. It seems that the QM changes are designed to prevent 
loans being granted to people who, at some point down the line, 
might not be able to repay them, and to give them some type of 
protection, come the foreclosure process. Credit unions were 
never making those kinds of loans, and were never really 
involved in that problem to begin with.
    To place that burden on credit unions, in essence, to take 
the underwriting out of the hands of the experts and put it in 
the hands of regulators, when you have credit unions which had 
done this successfully for years and years and years, it 
doesn't seem to make a lot of sense. And if anything, will 
impact the ability of the credit unions to make these loans to 
their members.
    Chairwoman Capito. Okay. Thank you for that.
    Another question, we had a session with the regulators, 
talking about they quantify the cost of regulations. And the 
basic message there was it is difficult to quantify. And it is 
difficult to quantify, I think Mr. Burrow said in his 
statement, because it is not just one single regulation; it is 
the accumulation of a lot of different regulations that burden 
down an institution. How can you help us help them to be able 
to quantify this?
    Because I think it is important not only in terms of your 
business model, but access to credit for your particular 
constituency. And it also eliminates your flexibility. So if 
you were sitting in our seat, to say to them--and we keep 
asking, quantify the regulatory burden here, and they are sort 
of, well, we can't really quite get there. What would be some 
of the ways you might suggest? We will start with Ms. Stevens 
just because she is in the middle.
    Ms. Stevens. Thank you for that question. Part of the issue 
is, small institutions have the same burden as a billion-dollar 
institution. And really, credit unions are all small 
institutions. But we start adding up things like staff time, 
the expense to train, the expense to reproduce forms, 
disclosures.
    At Security One, we don't have any one person who is 
dedicated to that. We are too small to hire someone to handle 
compliance, so my vice presidents and I do that work. We do the 
research. I am the one who sits up at night reading regulations 
and trying to understand them. I think the answer is, Security 
One maybe doesn't need to be regulated along the same lines as 
a Bank of America, for instance. I can't envision their 
president sitting up at night reading the regulations. So 
something that fits. Not a one-size-fits-all--
    Chairwoman Capito. Right.
    Ms. Stevens. --but an appropriate type of regulation.
    Chairwoman Capito. Okay. Thank you. My time has expired. I 
would say, too, what you are asking basically is to keep the 
exemptive powers available to these regulators to be able to 
look at that. But you have also mentioned some things like cost 
of training, cost of hiring, time costs that you are diverting 
from loaning or whatever else you might be doing--
    Ms. Stevens. Right.
    Chairwoman Capito. --in your normal business day.
    Mr. Meeks?
    Mr. Meeks. Thank you. Let me ask a few questions. Because 
small businesses I know in New York, some, I think, that is why 
Mrs. Maloney's bill that she has talked about is really good. 
Small businesses, getting them back where they are tremendously 
important because they create jobs. And so with the fact that 
small businesses now are in more need of reliable sources of 
capital, if the credit union member business lending cap was 
increased, do you think that would have an impact on job 
creation?
    Because we are talking about creating jobs, and I want to 
get people back to work who were victimized by Sandy. So by 
increasing it, do you think it would have an impact on job 
creation, Mr. Burrow?
    Mr. Burrow. Absolutely. I really believe that if the cap is 
increased, there is going to be a lot more motivation. For 
example, in our credit union, right now, we have a long way to 
go before we hit the cap. But we are very interested in 
investing more money in our member business lending. And that 
means hiring a qualified loan officer, spending a lot of money 
for software, and so forth. And today, we might be well below 
it, but if we do the job right, it won't be long before we hit 
that cap.
    So I have to think about the long-term investment. If I am 
going to bump into that ceiling fairly quickly, it is going to 
make me step back and think, should I do that or not. And if we 
have the ability to get that money out into the hands of the 
community--I am turning away folks right now who would like to 
have somewhere between $50,000 and $200,000 and we are not 
equipped to do it. And in our neck of the woods, the chairman 
knows very well that employment opportunities are rare.
    But the small businessman and woman are key drivers of 
that. And if we can help do that, it is certainly going to 
spike it.
    Mr. Meeks. Ms. Stevens, in your testimony, you proposed 
raising the de minimis amount of credit union small business 
loans to $500,000 and instructing that amount for inflation. 
The current de minimis level is--I think it is $50,000, and the 
average credit union business loan, if I am not mistaken is 
$219,000. Can you tell us why are you proposing such a 
significant increase?
    Ms. Stevens. This limit has not been looked at in a number 
of years. And $200,000 being an average does not allow enough 
room, perhaps in the future, for some institutions to make 
larger loans. There are credit unions who have done business 
lending since the day they opened their doors. I have a friend 
in Houston, the Milk Producers Credit Union. That is their 
basic line of business. And business lending doesn't have 
anything to do with taxation, as someone suggested earlier.
    We know that we could contribute roughly $14 billion to the 
economy. And CUNA estimates we could create 140,000 jobs, I 
believe is the latest number.
    Mr. Meeks. So let me also then ask, Ms. Stevens, in your 
testimony you also recommended exempting government-guaranteed 
loans from the MBL cap. And right now, only the guaranteed 
portion of the loan is exempt. Do you believe by exempting the 
entire portion of the loan, we will encourage greater credit 
union participation in SBA programs?
    Ms. Stevens. Absolutely. And if I may add to that, we don't 
currently offer business loans. And the reason is because our 
cap would be $6.5 million, and it doesn't make sense for 
Security One to go out and hire the expertise to put such a 
small amount of loans on the books that you might have to turn 
away in the future.
    Mr. Meeks. So let me ask, and Mr. Reiver, you can answer 
this or any one of you. Because as you heard Mr. Delaney say, 
and I said it even in my remarks, we are looking forward to 
trying to have community banks and credit unions work together, 
et cetera. And in recent months, we have had success here in 
passing an ATM fee disclosure bill and a privacy notification 
bill out of the House, with the cooperation and support of both 
credit unions and community banks.
    And I was wondering, are there other types of regulatory 
relief measures that maybe your could get together with 
community banks on so that there can be something--so there is 
a voice of both segments that I think are very important to our 
communities. Is there something else you think that--and I am 
going to ask the same question of them when we have their 
hearing next week--where there are opportunities to work 
together?
    Mr. Burrow. If we are still--if you want to still continue 
to talk about business lending, as far as I am concerned and 
our credit union is concerned we just want our members to have 
options. And if they can also have options with the community 
banks that would benefit them, that is great. In my opinion, it 
doesn't have to be an either/or type of thing. And if it works 
to the benefit of the community banks getting money into the 
hands of their community customers, who happen to also be our 
members, that is fine.
    I think we can coexist that way. It is going to be--we are 
all going to win.
    Mr. Meeks. I am out of time.
    Chairwoman Capito. We have been called for votes. I am 
going to call on Mr. Duffy to do 5 minutes of questions, then I 
am going to put the committee in recess. And we will reconvene 
in an hour. We have a lengthy series of votes.
    So, Mr. Duffy, 5 minutes?
    Mr. Duffy. Wonderful. We have kind of been plugging 
different bills that have come up, so I will plug my own. I 
introduced a bill last cycle that dealt with the standard of 
review for CFPB bills, when they go to FSOC, giving our credit 
unions and small banks a louder and bigger voice to have those 
rules reviewed. You all supported that, and we are going to 
hopefully get some support behind that bill again. So, that is 
my shameless plug.
    I know you all agree that our credit unions are burdened by 
regulation, right? But can you come to us today and say, 
listen, yes there is new burdensome regulation, but our 
institutions are far safer and sounder because of this new 
burdensome regulation? Is that the case?
    Mr. Burrow. I can't honestly say yes to that. I don't--
    Mr. Duffy. You are safer, or you are not safer?
    Mr. Burrow. I can't say that I am any safer.
    Mr. Duffy. Okay. But that aside, are your families and your 
small businesses treated in a much fairer way now that you have 
these new rules and regulations and hoops to jump through?
    Mr. Burrow. That--
    Mr. Duffy. No?
    Mr. Burrow. Go ahead.
    Mr. Duffy. You were treating them fair from the start, 
right?
    Mr. Burrow. We were fair before, I guess was my point.
    Mr. Duffy. Right.
    Mr. Reiver. We are credit unions. That has never been an 
issue.
    Ms. Stevens. I might say that they are treated less fairly 
because we are spending more time on regulations than we are 
helping them.
    Mr. Burrow. Good point.
    Mr. Duffy. Sure.
    Ms. Stevens. And working with them directly. Resources are 
diverted, that sort of thing.
    Mr. Duffy. I think that is an important point, that we 
really have to focus on new rules and regulations which haven't 
made you any safer, any sounder, and haven't helped the clients 
and the families and the small businesses which you serve. It 
has actually made it more difficult for you to serve them.
    I mentioned in my opening statement that I was concerned 
about consolidation. I see that in Wisconsin, but I don't know 
if you have seen that around the country. Do you see that 
coming? If you are seeing that, do you see it coming from the 
new regulatory burden, or is something else happening that is 
causing this consolidation, Mr. Burrow?
    Mr. Burrow. I have an example I think might fit what you 
are talking about. About a year or so ago, the National Credit 
Union Administration came to us and said that there was a very 
small credit union in Glendale, Reynolds Memorial Hospital. The 
chairman is very familiar with that credit union, I am sure. 
And they were not in financial trouble. They had good capital, 
they did everything right, playing by the rules. But you are 
talking about a staff of one, maybe one-and-a-half.
    And they basically said, we can't keep up anymore. We can't 
do it anymore. We have to find a merge partner. And so NCUA 
came to us and asked if we would be willing to do that. 
Geographically, it worked out very well for us. But they didn't 
quit being the credit union because they--it wanted to or they 
weren't doing a good job. They just couldn't keep up anymore. 
And so to me there is an example of one less credit union out 
there simply because of the regulatory environment we are in. 
The one-size-fits-all doesn't work.
    Ms. Stevens. If I may add, my colleague referred to it as a 
conveyor regulatory burden. I think of it more as a treadmill. 
I am constantly running trying to keep up. And I live in fear 
that perhaps we are not in compliance because there are not 
enough of us to handle that.
    Mr. Duffy. And I think in my district, the average is 10 
employees. We are small, and that one person can even 
specialize in the compliance part.
    Mr. Reiver. At our credit union, we have 50 employees. And 
I would say that every one of them spends at least a portion of 
their work day complying. It is a tremendous, tremendous 
burden. And the members, by and large, are not deriving a lot 
of benefit from it.
    Mr. Duffy. If I can just ask one question, I only have a 
minute left. If you could pull a bit of fairy dust, bipartisan 
fairy dust, out of your pocket, and get people to work together 
in Congress--House and Senate--I know you have all indicated 
several things that you would like to have happen, you have 
given us a list. It is hard to get people to agree to move 
anything. But if you were to give us one message to go--if you 
guys could do one thing, move this one bill, it would give us 
the greatest mileage. And I know you have said this, and it is 
a pile-on effect, it is all the different rules.
    It is hard to identify one. But you are not going to see--
and I hope you would see a lot of bipartisanship, but if you 
could say, hey, get this done for us, get this one thing. This 
is the greatest mileage we would get. If you guys would all 
give me one thing that could happen--
    Ms. Stevens. I am ready.
    Mr. Duffy. Oh, go. I can tell you are ready.
    Ms. Stevens. Supplemental capital would be very, very 
helpful for us. We have one way to raise capital, and that is 
the retained earnings. In a month's time, a big change can 
happen in an institution. For instance, our General Motors 
employees received profit-sharing checks to the tune of about 
$7,000 last month. Our assets rose $2 million, and we dropped 
almost 70 basis points in net worth.
    We have no way to raise supplemental capital, and NCUA is 
not very--they don't have a lot of--they are--there is no 
flexibility with PCA requirements.
    Mr. Duffy. And I am over time, but can I just get a quick 
answer from everyone before we go?
    Chairwoman Capito. Yes.
    Mr. Duffy. Mr. Burrow?
    Mr. Burrow. Exempt credit unions from CFPB regs.
    Mr. Duffy. Good.
    Mr. Reiver. Sure, I agree with that.
    Mr. Duffy. Okay. I yield back. Thank you.
    Chairwoman Capito. Thank you.
    With that, the committee will stand in recess. I apologize 
for this, but it is the hazards of Capitol Hill. We will 
return, the intention is, at 3:45.
    Yes?
    Mrs. Maloney. It is so hard to move around. Can I continue 
questioning them, or not?
    Chairwoman Capito. We only have--what?
    Mrs. Maloney. Three minutes left?
    Chairwoman Capito. Three minutes left to go.
    [recess].
    Chairwoman Capito. Let me--okay. I am going to call the 
committee back into order, and I am going to yield to Mr. Scott 
5 minutes for questioning. Thank you, and thank you for your 
patience. I apologize. But I wasn't too far off about when I 
thought we would be finished.
    Mr. Scott. Thank you very much, Madam Chairwoman.
    As I said in my opening statement, credit unions are a very 
important part of our financial structure and so are community 
banks. And so I think it is important for us to try to find 
areas where the two can work together. And let us use as our 
point of reference here two bills, and let me get your reaction 
to one bill which is H.R. 719. Are you familiar with that?
    Are you all familiar with that one, H.R. 719? As I 
understand it, H.R. 719 would shift the credit unions' reliance 
on retained earnings and would allow capital from outside 
investors to be included in the regulatory net worth 
requirements, correct? So let me ask you whether H.R. 719 would 
make credit unions beholden to outside investors without ceding 
your tax subsidy as a community-based nonprofit institution?
    Ms. Stevens. Could you repeat that last part of the 
question, please?
    Mr. Scott. Would this bill, H.R. 719, which would shift the 
credit unions', your reliance, on retained earnings, and would 
allow capital from outside investors to be included in your 
regulatory net worth requirement, would--whether or not that 
would make credit unions beholden to outside investors without 
ceding your tax subsidy as a community-based institution?
    Ms. Stevens. Yes, we definitely support supplemental 
capital within the correct framework that would allow us to 
maintain our cooperative structure. We envision this as being 
something perhaps members would supply. But we don't believe it 
changes our structure in terms of our tax status, either.
    Mr. Scott. What I am getting at here is, credit unions feel 
that in some measure you all threaten them. That it is a 
competitive situation here. And so what I want to give an 
opportunity for you to respond to is just simply to answer: 
Where is this threat? Will that be a threat? And that segues 
into the other question I wanted to ask relative to House 
Resolution 688. Which, really, these two issues are the meat of 
the matter.
    Because you all have a tax exemption. You have a charter. 
You have certain situations for your benefit that the community 
banks don't. They see that as maybe some sort of competitive 
edge. And so that is what this question was for, to use that 
tax policy. And then on H.R. 688, you want to raise your member 
business cap for loans for small businesses from 12.25 percent 
to 27 percent of assets. Do you see this as giving you some 
competitive edge over community banks?
    We are faced with that. Now, personally, I love credit 
unions and I love the banks. And many of us on this committee 
feel the same way. We have to juggle this love affair and try 
to treat everybody fairly. So I wanted to respond to that. And 
if you could, explain to me why you would move from 12.25 
percent to 27.5 percent, which is a 100 percent increase. So if 
you could just--
    Mr. Burrow. I would like to respond to that, if I could. 
First of all, if I could go back to your original question 
about supplemental capital. I believe that just gives the NCUA 
the ability to allow credit unions, with some parameters, the 
access. It doesn't automatically give them supplemental 
capital, it just gives them the ability, in good times and bad. 
And we went through the bad times. And the only way we can 
build capital is basically through retained earnings, basically 
the spread between what we earn and what we pay.
    And that is the only way we can get capital. It just gives 
credit unions the ability to have another outlet. And to say 
that we are beholden to the investor, well, if the investor 
wants to invest in the credit union if it is a poor investment 
by investing in the capital--their capital in the credit union, 
the investor will be the one who will be paying the price for 
that.
    Mr. Scott. And--very quickly, if I may, Madam Chairwoman. 
Could you give me a response to this differential? You are at 
12.23 percent of your asset, and you want to go to 27 percent.
    Mr. Burrow. Yes.
    Mr. Scott. I am sure you didn't just pluck that out of the 
air. There has to be some rationale. And if you would move down 
that road in any way, would 18 points or 20, somewhere in the 
middle, be helpful?
    Ms. Stevens. If I could give a little bit of history on 
that, there didn't used to be any limit. Currently, credit 
unions represent roughly 5 percent of the small business loans 
in the community area. And even if we were to all exhaust all 
of our limits, we would still only, in that small community 
field across the country, account for 10 percent of the 
business. So it is not like we are taking a great deal of 
business away.
    We don't have a fight with our community banking brethren. 
In fact, I think we have a lot in common. There are a number of 
regulations--Reg D, some of these other things we are looking 
at--exam fairness, the way FASB accounts for loan losses that 
we can agree on. There is room for agreement on some things. 
But some of the things we want don't impact them at all, 
either.
    Mr. Scott. Thank you for your generosity, Madam Chairwoman.
    Chairwoman Capito. Certainly.
    Mr. Miller for 5 minutes.
    Mr. Miller. Thank you, Madam Chairwoman. I really enjoyed 
the testimony today. But as I see it, credit unions kind of 
serve a different purpose, to some degree, have a different 
clientele and have different structures than banks in many 
fashions. So the problem I am having is, I look at the CFPB and 
the regulations that are being imposed, and I recognize the 
consumer-driven intent behind the CFPB regulations. But I 
guess, for Mr. Burrow, I have a question. Do you think the 
regulations coming out of the CFPB have been written in such a 
way that they fit credit unions, number one?
    Mr. Burrow. No, sir, I don't. The reason is that any time 
you try to have one-size-fits-all--and I know it is well-
intentioned and everyone was trying to do the right thing--but 
when you do something in haste and it is sort of one-size-fits-
all, it never really works. And as a credit union, we look at 
ourselves as being Main Street. We are not Wall Street, but yet 
because of some of the things that Wall Street did, we are 
still paying the price on Main Street. So to answer your 
question, absolutely not.
    Mr. Miller. And further acceding to this coordination 
between the NCUA and the CFPB, as it--to ensure credit unions 
can comply with rural requirements?
    Mr. Burrow. My impression is, there really probably isn't 
much coordination there. And I am just speaking as one credit 
union, and my interaction is solely with my NCUA examiners. But 
I find them often times to be just as confused about what their 
role is, and the regs and what they can do, as maybe we are. So 
I would guess from that there is not a whole lot of 
coordination between the two.
    Mr. Miller. Now, your risk-based capital standards, Basel 
III cap standards, they don't directly impact credit unions. 
But current capital requirements for credit unions are not 
related to the level of risk within each individual portfolio. 
But what implication does this have on your portfolio--
    Mr. Burrow. I really believe that--I am sorry, I didn't 
mean to interrupt you.
    Mr. Miller. No, you didn't.
    Mr. Burrow. I just really believe that risk-based capital 
is appropriate for credit unions because we are simply held to 
a percentage and that is that. The current system doesn't 
really evaluate the riskiness of our assets. And I do believe 
that our peers in the banking industry have that benefit and 
they can build their capital based on the riskiness of their 
portfolio business. And I just think it is appropriate for us 
to do the same.
    One of the examples that is given all the time is, in the 
credit union world, a 30-year fixed-rate mortgage with 1 year 
left to pay on it is held at the same risk as an unsecured 
loan. You and I both know that 30-year mortgage with only 1 
year left to go is a lot less risky than an unsecured loan. But 
there is no modification for that.
    Mr. Miller. I briefly touched on it, but you mentioned in 
your testimony that there should be a look-back cost analysis 
for all new regulations after 3 years. Can you give us an 
example where the CFPB estimates of compliance costs have been 
totally off base?
    Mr. Burrow. One of the areas that is in front of us right 
now is the issue of remittances. I know that this is a part of 
the regulation that may seem like it only hits the East and 
West Coast maybe. But here in West Virginia, at our particular 
credit union, we have a lot of members who are Germans from 
Bayer Corporation. They are engineers, and they spent their 
time here in the States and now they are going back home.
    Or we have engineers from the States who are spending their 
time in Germany. To make a long story short, there is money 
that moves back and forth all the time. And this is a situation 
where, right now, we don't even know if we comply and we have 
no idea what the change in the value between a dollar and a 
euro is going to be and all that kind of stuff. And it is going 
to get to the point where we may not even be able to offer that 
service.
    So, I think even though the intention is good, there are 
unintended consequences and costs related to what the CFPB is 
trying to do, and it is innocent, I realize. But they--it is 
just not known, and sometimes when you go ahead and do 
something like this, it is a lot more costly than you realize.
    Mr. Miller. And on that, the Federal Credit Act restriction 
investment options for credit unions, what does this mean for 
your ability to manage portfolio and risk?
    Mr. Burrow. There should be some flexibility, I believe. 
And I think--
    Mr. Miller. That could be for anybody who wants to answer.
    Mr. Burrow. Oh, I didn't mean--
    Mr. Miller. It doesn't matter.
    Mr. Burrow. Sorry.
    Mr. Miller. No, you are doing fine, unless somebody else 
wants to deal with that one.
    Mr. Burrow. One of the areas I think where we were talking 
about investment flexibility is investment options. And it 
would be nice if credit unions could invest--I think it is 
recommended in some--and by the way, thank you for even 
considering legislation for regulatory relief. We really 
appreciate that.
    Mr. Miller. We are going to introduce it, so yes.
    Mr. Burrow. But, if we could invest, say, 10 percent of our 
assets in investment grade securities, that would be a very 
nice option for us.
    Mr. Miller. But you are restricted from doing that.
    Mr. Burrow. Correct, right now, we can't do that.
    Mr. Miller. Yes, okay, thank you.
    I yield back.
    Chairwoman Capito. Thank you.
    Mr. Heck for 5 minutes.
    Mr. Heck. Thank you, Madam Chairwoman.
    Question one relates to supplemental capital, your request 
for increased access. Anybody can answer. I am wondering if you 
are aware of any other kind of entity which is also nonprofit 
and regulated directly or indirectly by Federal or State 
Government--an example would be a mutual insurance company--
which is similarly prohibited from having access to 
supplemental capital? And if not, why are you being singled 
out? Does anybody know the answer to that question?
    Ms. Stevens. I am not aware of any other institutions who 
have been singled out like this, and--
    Mr. Heck. The others do have access to--
    Ms. Stevens. They do have access to other forms of capital, 
and we are not sure why we shouldn't have that same option.
    Mr. Heck. Question two: I represent an area of the country 
that is region five, or zone five. The data seem to indicate 
that we are being written up, via examination, for a 10 percent 
higher number of infractions. The data also seem to indicate 
that we are as safe and sound, and have no greater measure of 
risk for default, than other regions. Obviously, that is kind 
of a frustrating circumstance. What do you suggest we do to 
bring more consistency into this thing so different areas 
aren't effectively being held to different standards in that 
kind of a fashion? What can we do?
    Mr. Burrow. I think it has been discussed, and I think it 
has merit, to have a--separate and apart review process, where 
it is not--for example, if we have an issue with our NCUA 
examination the only thing I can do right now is basically 
write a letter to the regional director. And I don't want to 
say that it is not objective, but I have--I just don't have a 
trust factor there, when my letter goes out. Am I going to--I 
feel like that I am going to be subject, possibly, to some 
blowback later.
    Mr. Heck. You want an independent appealable body.
    Mr. Burrow. Yes, sir, I do.
    Mr. Heck. So how would that exempt you from blowback? 
Because even if they ruled in your favor, it is the same 
examiner who is coming back next year.
    Mr. Burrow. No. There is no perfect world, I guess. But I 
think that would be a step in the right direction. Right now, I 
just don't think it is--honestly, real-life--
    Mr. Heck. I would hope all your comments have been honest 
today, Mr. Burrow.
    [laughter].
    I trust they are.
    Mr. Burrow. Yes, poor choice of words. Sorry about that. 
Anyway, real-life example. I will be brief. We had an issue 
with our examiner in the examination in September. We didn't 
get our report. It was February, and we still hadn't gotten our 
report. My board was chomping at the bit--why haven't you 
received it? We talked about it in the board meeting. I said, I 
can send a letter if the board authorizes me to. After a lot of 
discussion, I had the letter written. Everybody said, well, you 
know what? It is probably not going to go anywhere anyway, so 
forget it.
    Then, later on, the examiners were in. They read the board 
minutes, they see that that was even discussed. My examiner 
came to me--now, I have known her for years--and she was really 
upset that was even discussed. And I talk to her like I would 
another staff member, basically. I said, that is the board's 
right. They wanted to know what is the examination's finding. 
But you can see what I am talking about.
    Mr. Heck. Yes.
    Mr. Burrow. They are not always professional. They take it 
personally, and that is a concern.
    Ms. Stevens. Three words--exam fairness legislation.
    Mr. Heck. Thank you. I will follow up on that, to be sure. 
Last question. Interestingly enough, one of the things I hear 
most often about from credit unions in my district is this 
little arcane remittance issue. As I understand it, the CFPB 
proposed an absolute limit of 100 per year. Is that not true?
    Ms. Stevens. Oh, yes. It is true.
    Mr. Burrow. Yes, it is true.
    Mr. Heck. And as I understand it, you all had indicated 
that there might be a better way to skin that cat. Namely, not 
counting any more than once the same person from the same point 
of origin to the same destination. What has been the feedback 
to you from that otherwise seemingly common sensical idea from 
the CFPB as they are reevaluating the impact of their 
arbitrary--
    Mr. Burrow. I have not received anything back so I can't--
    Mr. Heck. You don't know?
    Mr. Burrow. No.
    Ms. Stevens. I have not heard of that particular solution, 
but I can say that 100 per month is--or, excuse me, 100 per 
year--
    Mr. Heck. Per year.
    Ms. Stevens. --is absolutely too low. We are trying to get 
into that business. Our first foray into that business, the 
provider we contracted with totally went out of the business 
because it is so difficult, if not impossible, to comply. We 
are serving a Hispanic community in our area who has a great 
number of these remittances they need to do, and our estimates 
are that--what is that, two a week? Is that right? And if I 
have 1,300 members, and 50 percent of them are trying to do a 
remittance transfer--and they get a week--every week, 100 in no 
way addresses where we need to be.
    Mr. Heck. Thank you.
    My time has expired. I thank you for your indulgence, Madam 
Chairwoman.
    Chairwoman Capito. Thank you. Without objection, I would 
like to enter two statements into the record: one from the 
American Mutual Share Insurance Corporation; and one from the 
Coalition for Credit Union Access.
    Hearing no objections, it is so ordered.
    Mr. Posey for 5 minutes.
    Mr. Posey. Thank you, Madam Chairwoman. I was wondering if 
the three of you, or any of the three of you, are aware of any 
financial regulatory issues that the credit unions and the 
community banks agree should be changed.
    Mr. Reiver. One would be the Reg D.
    Mr. Posey. I am sorry?
    Mr. Reiver. Reg D--
    Mr. Posey. Reg D.
    Mr. Reiver. --would be one, which is--limits the number of 
transfers to six per month. Which is a very, very small number, 
given the way we transact business now.
    Mr. Posey. Okay.
    Mr. Reiver. So that would be one, for sure. I think the 
CFPB, while the agency itself is doing a wonderful job in 
trying to work to protect consumers, there are some regulations 
that adversely impact not only the credit unions but the 
community banks, as well. This remittance rule being the 
largest of them, I am sure, that there would be complete 
agreement between both the credit unions and the community 
banks on that issue.
    Mr. Posey. Okay.
    Ms. Stevens. I would add, the exam fairness legislation 
that--I am really on the heels of that one. And the way FASB 
proposes to account for--requires to account for our loan 
losses. That would be another one that I think we could all get 
on board with that.
    Mr. Burrow. And I had a couple.
    Mr. Posey. Please.
    Mr. Burrow. Privacy notices--notices.
    Ms. Stevens. Yes.
    Mr. Burrow. I think we could agree upon that, and getting 
rid of all the redundancy there. And a big one, I think, for 
both of us would be the Durbin Amendment. It has done nothing 
but hurt interchange and make card programs less viable. And we 
are seeing it month by month. Or even though we are supposed to 
be exempt, our per transaction return is dropping as we speak. 
So that would be two areas.
    Mr. Posey. I have heard both types of institutions also 
tell me that no two fill out a Reg Z, as in ``zero,'' the same. 
Have you heard that?
    Mr. Burrow. I can't speak to that, I am sorry.
    Ms. Stevens. I can't answer that, but we can--
    Mr. Burrow. We can get back to you on it.
    Ms. Stevens. Yes.
    Mr. Posey. Okay. Non-accrual loans. Do you think the 
current evaluation of non-accrual loans--that the opinion of 
the examiner, the guy shouldn't be able to make a payment--is 
appropriate?
    Mr. Burrow. Could you repeat that for me, please?
    Mr. Posey. One of the examples we have had in some other 
hearings was regulators who came in and told bankers--the 
bankers were the first ones to mention it--that the regulator 
said a customer should not be able to make a payment on a loan 
so they put it on non-accrual. Now, it had been an 11-year-old 
loan and the customer had never been late one second, but the 
regulator, in his opinion, thought he shouldn't be able to make 
the payment. So it became a non-accrual loan. Do you ever 
encounter those type of problems?
    Ms. Stevens. Not exactly like that.
    Mr. Reiver. Yes, we have encountered that type of 
overreaching suggestion by a regulator. We have not encountered 
that one, thankfully. But clearly, that is a--that type of 
practice would be something that would clearly be counter to 
our interests as credit unions or as bankers in serving our 
members and customers.
    Mr. Posey. Have you had any problems with regulators that 
you are aware of that said any time you modify a loan it is 
going to go on non-accrual?
    Mr. Burrow. That has--no, I--no. Are you talking about 
troubled debt restructuring, those types of loans?
    Mr. Posey. It could be that. It could be--
    Mr. Burrow. Yes, we do.
    Mr. Posey. --just a mutual agreement to meet a common 
ground on an 11-year-old loan, when you were getting 12 
percent? You would be glad to get 6 percent now, and you split 
the difference?
    Mr. Burrow. Yes, that is--
    Mr. Posey. That is non-accrual.
    Mr. Burrow. We are talking about TDRs?
    Ms. Stevens. Yes.
    Mr. Posey. Yes.
    Mr. Burrow. Then I would absolutely, because that is an 
issue that has been kind of recent, and so yes. If that is what 
we are talking about.
    Ms. Stevens. I think it is terminology, difference between 
non-accrual, and troubled and restructured.
    Mr. Burrow. Troubled debt restructuring, yes.
    Ms. Stevens. We do--
    Mr. Posey. Did you ever know of anyone who got stuck with 
an eternal non-accrual loan because, for example, a couple was 
laid off from work and their parents made the payments for 2 
months before they got new jobs. Never was a payment a second 
late, nothing was missed. They are making more money now than 
they did before. But the institution is stuck with a non-
accrual loan for the life of the loan, basically. Have you ever 
heard anything like that?
    Mr. Burrow. Yes.
    Ms. Stevens. Yes.
    Mr. Burrow. Yes, I know there are instances where either 
through your exam process--or sometimes if you have a private 
CPA firm--they will try to push you in that direction.
    Mr. Posey. Okay. I have never asked the question when I 
talk to the Chamber of Commerce about credit unions. I do, 
usually, about banks. I said how many people in here think your 
banker doesn't love you anymore? And everybody in the room 
except the bankers raised their hand. I will include you all 
next time I do that.
    Thank you, Madam Chairwoman.
    [laughter].
    Chairwoman Capito. I would like to recognize Mr. Pittenger. 
No questions? Okay.
    Mr. Barr for 5 minutes for questions.
    Mr. Barr. Thank you, Madam Chairwoman. For all the 
witnesses, can each of you all describe--each of you all have 
already testified that the regulatory burden is very 
challenging for credit unions today. Can each of you describe 
the regulatory environment prior to enactment of the Dodd-Frank 
law and the CFPB for credit unions?
    Ms. Stevens. I will take that one on behalf of a small 
institution. We were able to concentrate on serving our 
members. Regulations that came forth seemed to make sense, were 
easier to comply with. These days, it is very difficult to even 
understand what some of the regulatory changes require. It 
takes hours and hours of time to comply with them. Our members 
don't read the disclosures, they don't understand why. We get 
blamed, often times, for making things more difficult for our 
members to do.
    And, frankly, they don't produce any benefit. Truth in 
savings is an example of a regulation that did provide some 
benefit. Our members could look at APR versus APY and 
understand it. That was helpful. But not many things coming 
down the pipe are helpful to consumers now.
    Mr. Reiver. We are dealing with RESPA, as an example and 
the recent RESPA reform and the pending RESPA reform. I--
amongst my other duties at Melrose Credit Union--am the agent 
who closes all of the real estate loans for them. And I have 
sat there closing hundreds, if not thousands, of loans. And 
invariably, what I am hearing from the members when they are 
given a stack of disclosures is something along the lines of 
how many trees did you kill, this is horrible, and can't this 
all be automated, isn't there a better way?
    I am not asking for them to say that. I am just there to 
help close the loan for my credit union. Those are unsolicited 
reactions from the members who are supposed to be the 
beneficiaries of these disclosures. I think they would much 
rather see our time, resources, and money spent on offering 
better or less expensive products than on paperwork that they 
just don't care to read. It is counterproductive.
    Mr. Barr. Mr. Burrow, you testified that the number of 
credit unions had declined. And you attributed the decline of 
700 or so credit unions and the consolidation in the credit 
union industry to the increasing complexity and volume of 
compliance costs. What impact do you see for the consumer? What 
impact do you see as a result of the compliance-induced 
consolidation in the industry?
    Mr. Burrow. Probably on a couple of fronts. First of all, 
when you have fewer credit unions out there for choice, that 
hurts the consumer. Reynolds Memorial did a fine job for many, 
many years. Now, they are gone. We are going to try to continue 
to do a fine job for their members, but the fact remains that 
those who wanted to continue to deal with Reynolds Memorial 
can't do that anymore. So, there is a choice taken away.
    Also, when compliance becomes too burdensome, a cost-
benefit analysis by the credit union has to be done. And if the 
compliance costs are so great to adding that service or keeping 
that service, decisions have to be made, do we add a new 
service that our members want, or worse than that, do we take 
away one they got used to? And to that point specifically, the 
availability of certain financial products for consumers 
specifically--and what I am hearing from credit unions in 
Kentucky is the open-ended lending rules are restricting access 
to certain products.
    Mr. Barr. Can you speak to that?
    Mr. Burrow. Do you want to jump in, or--I can speak to 
that. Open-ended lending, for many, many years, was a very 
viable way for members just to access credit that they have 
already established at the credit union with a lot of ease, and 
little paperwork. Call up, you already have the open-end plan 
approved. I need some money dumped in my checking account. 
Sure, Joe, I will go ahead and get that done, sign the note, we 
are done.
    But now, because we want to protect the member from bad 
lenders, we are going to go back in time to when I first 
started 30 years ago, where you have a piece of paper for 
everything. And members hate it.
    Mr. Barr. One final quick question for Mr. Reiver. You 
testified about establishing a process for credit unions to 
share their example experience without fear of retaliation. Can 
you give me an example of concern about retaliation?
    Mr. Reiver. Again, our NCUA examiners are very thorough. 
But while we haven't had any direct--that we can directly 
attribute to making complaints, to reaching out, clearly we had 
occasions where, from one year to the next, especially when we 
have the same examiner, where there is a change, a very 
noticeable change in attitude, a very noticeable change in 
approach. And it is not positive.
    Mr. Barr. Thank you.
    Chairwoman Capito. Thank you. The gentleman's time has 
expired.
    Mr. Stutzman for 5 minutes.
    Mr. Stutzman. Thank you, Madam Chairwoman. And I thank the 
witnesses for your testimony and comments today.
    Ms. Stevens, I would like to follow up a little bit on Mr. 
Heck and Mr. Duffy's questioning and comments regarding 
supplemental capital. Could you give us just a little bit of 
history behind that, and why--when did that law come into 
effect? What is the history behind that, to kind of help us 
understand better why you are the one institution that doesn't 
have access to supplemental capital?
    Ms. Stevens. I really, again, don't understand why we 
don't. We have limits that were statutory net worth 
requirements that were put into place with the enactment of 
H.R. 1151 years ago. And, again, the only way we can respond to 
our needs for net worth is to raise that money through retained 
earnings. I mentioned earlier that we are in a situation; we 
are trying to reach out to a Hispanic community in our field of 
membership.
    And it is very difficult. There is resources required for 
that, and today our margins are compressed. We are spending 
more and more time on regulatory burden and other issues. And 
the ability to raise capital is difficult, particularly in 
times of economic stress. It would be great to be able to reach 
out, to have other sources for capital to shore up, and move 
into the future and provide services for our members.
    Mr. Stutzman. Okay, thank you. This is a question for any 
of the three of you. Last week, it was reported that the White 
House is encouraging lenders to use more subjective judgment in 
determining whether to offer a loan. Could you talk a little 
bit about maybe how this contradicts Dodd-Frank, potentially? 
Does this seem to be a mixed message sent to you all? Would 
anyone like to comment regarding that?
    Mr. Reiver. Yes, I would be happy to address that. We had 
talked earlier about Qualified Mortgages. As credit unions, we 
do know our members. And that gives us a unique ability, as a 
financial institution, to really evaluate each loan, taking 
into account factors that we only know by virtue of our 
relationship with our member. I guess that is what we would 
refer to as ``subjective standards,'' something other than debt 
to income, cash flow ratios, credit score.
    So clearly, there is a direct conflict between the message 
from the White House: Be subjective, serve your members, and 
legislation that requires you to go down a checklist and the 
loan is approved or not approved based on a checklist that is 
created by somebody who might not, in fact, have any expertise 
whatsoever in making loans.
    Mr. Stutzman. Because to me, it seems like you would be 
conflicted. What is a regulator going to expect, on one hand, 
because you do want to meet the needs and provide the services 
for your customers. But at the same time, you don't want to put 
yourself in a position where you are potentially whacked for 
doing the wrong thing. Mr. Burrow?
    Mr. Burrow. Yes, I am just agreeing with you now.
    Mr. Stutzman. Okay.
    Mr. Burrow. If I could say ``amen,'' I would say ``amen.'' 
But the truth is, I agree with the White House's idea on this. 
Because, really, that is what we have been dealing with for 
years and it is only getting worse. I was told a long time ago 
if you are running the credit union to please the examiners, 
you are not going to be pleasing the members in the long run. 
Now, that doesn't mean we just throw caution to the wind. But 
lending is not an exact science.
    It can't be one plus one always equals two. To be a loan 
officer, you have to have some intuition, you have to know the 
people, you have to talk to people. If it was just a formula 
and no matter how hard we try we want to take the risk out of 
it. We are not in the risk elimination business. No, we are in 
the risk minimizing business. We want to manage that as best we 
can. But we will never eliminate it. And I have a lot of 
charge-offs I could show you where, if I took you back, every 
statistic, every ratio you would use--you would say, that has 
to be a good loan. And it turned out to be a charge-off.
    Mr. Stutzman. So have you seen an increase or decrease in 
mortgages lately over the last, let's say, 6 months?
    Mr. Burrow. We have had very good mortgage--
    Mr. Stutzman. Increase? An increase in mortgage 
applications?
    Mr. Burrow. Yes.
    Mr. Stutzman. How about the other two?
    Mr. Reiver. Yes.
    Mr. Stutzman. Same?
    Mr. Reiver. Things seem to be moving in a positive 
direction.
    Mr. Stutzman. I am sorry?
    Mr. Reiver. Things seem to be moving in a position 
direction in terms of number of applications.
    Mr. Stutzman. Moving better? Good, good, good.
    Thank you, Madam Chairwoman. I yield back.
    Chairwoman Capito. Thank you.
    Mr. Pittenger?
    Mr. Pittenger. Thank you, Madam Chairwoman. I would like to 
ask one question just for clarity. Have you seen consolidation 
in your industry like is taking place in the community banks? I 
don't know that I heard that clearly. They have gone through a 
tremendous amount of consolidation. I served on one for many 
years. And just the compliance costs, the regulatory 
environment. Has that impacted all of you the same?
    Ms. Stevens. Absolutely. I would say we are losing--I have 
heard this statistic that we are losing about one credit union 
per day. Consolidation, there are a number of reasons for it. 
But in our area, a huge piece of it has to do with being able 
to comply with the regulatory burden that we face. It is just 
too much. One of my best friends retired last week. She loves 
credit unions, but she can't deal with the regulatory burden 
anymore.
    If there is not someone who is going to step to the plate 
and take care of that, consolidation seems to be the answer.
    Mr. Pittenger. Thank you.
    I yield back my time.
    Chairwoman Capito. Thank you.
    Mr. Royce for 5 minutes.
    Mr. Royce. Thank you, Madam Chairwoman. Getting to this 
member business lending cap, our legislation right now has 90 
House cosponsors. And I--for my constituents, I will just tell 
you what I have heard. And that is the stories about the jobs 
created or maintained in California through the access to 
credit unions because such a high percentage of small 
businesses get their loan request turned down when they are 
attempting to extend their credit.
    And we are in an environment today where, for many of these 
small businesses, the credit crunch is leading to a situation 
where they either have to downsize or go out of business if 
they don't have access to that extension of the line of credit, 
or a new loan when their loan rolls over. So what is the market 
you see out there when you talk to people in the credit union 
line or when you talk to entrepreneurs who are trying to get 
access to credit?
    Are these same loans going to be offered if credit unions 
can't step up to the plate and do more small business lending? 
Or are those small businesses out there today going to be in a 
position where they have to contract? And do you see other 
businesses that could benefit from this increase in the member 
business lending cap? Let me just hear your thoughts on that.
    Mr. Burrow. Okay, could I respond to that? I think that 
there are a lot of opportunities being missed. I know in our 
credit union, for example, anything that is over $50,000 is 
considered to be a business loan in terms of compliance issues. 
And I have had a number of individuals who are employed in some 
type of secular employment--whether it be at the chemical 
plant, or wherever they might be--but they may also have their 
own, let's say, a contracting business on the side.
    A guy comes in, he wants a $100,000 loan for a backhoe. I 
don't have any way of getting that to him, because it is over 
$50,000. I don't have the loan officer in place, I don't have 
everything in place to comply with the regulations as they sit 
now, so I have to turn him away. And a $100,000 loan is really 
not that big of a loan. Most banks aren't interested in it, so 
he may be going without.
    Mr. Royce. What I see, when I talk to owners of small 
businesses--gas stations, hair salons, small manufacturing, 
light manufacturing--I very much hear this concern. And you 
look at some of the success stories. We had two firefighters in 
their credit union. They were able to get a loan. They didn't 
like the coffee at the fire hall so they started their own 
little operation. Firemen's Brew I think is what they call it 
in L.A. It is now a full-time brewery, it is a coffee importer, 
it is a restaurant.
    And there are so many examples like that, when you have the 
smallest start-ups. And that is where most of the employment 
comes from is when you create those start-ups. Those are the 
ones that 85 percent of the time are turned down when they go, 
normally, for a loan. Yet this is the area of expertise for 
these credit unions. But with that cap, you are not able to--
and many credit unions aren't even able to go into that line of 
work. Because how do you sustain something when you are capped 
at 12.5 percent?
    But there is another issue here, and that is how examiners 
currently treat your business loan portfolio compared to other 
financial institutions as it relates to non-owner-occupied 
properties. Could you discuss that for a moment?
    Ms. Stevens. Yes. In fact, in my testimony, this is 
something we talked about earlier. Currently, if a bank issues 
this type of loan, it is considered a residential loan. If a 
credit union does it, it is considered a business loan. And we 
think that disparity should be fixed.
    Mr. Royce. One more example of a change we could make with 
this legislation which would really open up the market, we are 
talking about trying to have the market recover in terms of 
apartments. And here, you have a difference in treatment that 
prevents access to capital coming into the market.
    Madam Chairwoman, let me yield back.
    Chairwoman Capito. The gentleman yields back.
    With that, I see we have completed the questions. I want to 
thank the witnesses for their testimony and for their patience. 
We have learned a lot.
    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 5 legislative days for Members to submit written questions 
to these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.
    Without objection, this hearing is adjourned. Thank you.
    [Whereupon, at 4:35 p.m., the hearing was adjourned.]


                            A P P E N D I X

                            April 10, 2013


[GRAPHIC] [TIFF OMITTED] 80877.001

[GRAPHIC] [TIFF OMITTED] 80877.002

[GRAPHIC] [TIFF OMITTED] 80877.003

[GRAPHIC] [TIFF OMITTED] 80877.004

[GRAPHIC] [TIFF OMITTED] 80877.005

[GRAPHIC] [TIFF OMITTED] 80877.006

[GRAPHIC] [TIFF OMITTED] 80877.007

[GRAPHIC] [TIFF OMITTED] 80877.008

[GRAPHIC] [TIFF OMITTED] 80877.009

[GRAPHIC] [TIFF OMITTED] 80877.010

[GRAPHIC] [TIFF OMITTED] 80877.011

[GRAPHIC] [TIFF OMITTED] 80877.012

[GRAPHIC] [TIFF OMITTED] 80877.013

[GRAPHIC] [TIFF OMITTED] 80877.014

[GRAPHIC] [TIFF OMITTED] 80877.015

[GRAPHIC] [TIFF OMITTED] 80877.016

[GRAPHIC] [TIFF OMITTED] 80877.017

[GRAPHIC] [TIFF OMITTED] 80877.018

[GRAPHIC] [TIFF OMITTED] 80877.019

[GRAPHIC] [TIFF OMITTED] 80877.020

[GRAPHIC] [TIFF OMITTED] 80877.021

[GRAPHIC] [TIFF OMITTED] 80877.022

[GRAPHIC] [TIFF OMITTED] 80877.023

[GRAPHIC] [TIFF OMITTED] 80877.024

[GRAPHIC] [TIFF OMITTED] 80877.025

[GRAPHIC] [TIFF OMITTED] 80877.026

[GRAPHIC] [TIFF OMITTED] 80877.027

[GRAPHIC] [TIFF OMITTED] 80877.028

[GRAPHIC] [TIFF OMITTED] 80877.029

[GRAPHIC] [TIFF OMITTED] 80877.030

[GRAPHIC] [TIFF OMITTED] 80877.031

[GRAPHIC] [TIFF OMITTED] 80877.032

[GRAPHIC] [TIFF OMITTED] 80877.033

[GRAPHIC] [TIFF OMITTED] 80877.034

[GRAPHIC] [TIFF OMITTED] 80877.035

[GRAPHIC] [TIFF OMITTED] 80877.036

[GRAPHIC] [TIFF OMITTED] 80877.037

[GRAPHIC] [TIFF OMITTED] 80877.038

[GRAPHIC] [TIFF OMITTED] 80877.039

[GRAPHIC] [TIFF OMITTED] 80877.040

[GRAPHIC] [TIFF OMITTED] 80877.041

[GRAPHIC] [TIFF OMITTED] 80877.042

[GRAPHIC] [TIFF OMITTED] 80877.043

[GRAPHIC] [TIFF OMITTED] 80877.044

[GRAPHIC] [TIFF OMITTED] 80877.045

[GRAPHIC] [TIFF OMITTED] 80877.046

[GRAPHIC] [TIFF OMITTED] 80877.047

[GRAPHIC] [TIFF OMITTED] 80877.048

[GRAPHIC] [TIFF OMITTED] 80877.049

[GRAPHIC] [TIFF OMITTED] 80877.050

[GRAPHIC] [TIFF OMITTED] 80877.051

[GRAPHIC] [TIFF OMITTED] 80877.052

[GRAPHIC] [TIFF OMITTED] 80877.053

[GRAPHIC] [TIFF OMITTED] 80877.054

[GRAPHIC] [TIFF OMITTED] 80877.055

[GRAPHIC] [TIFF OMITTED] 80877.056

[GRAPHIC] [TIFF OMITTED] 80877.057

[GRAPHIC] [TIFF OMITTED] 80877.058

[GRAPHIC] [TIFF OMITTED] 80877.059

[GRAPHIC] [TIFF OMITTED] 80877.060

[GRAPHIC] [TIFF OMITTED] 80877.061

[GRAPHIC] [TIFF OMITTED] 80877.062

[GRAPHIC] [TIFF OMITTED] 80877.063

[GRAPHIC] [TIFF OMITTED] 80877.064

[GRAPHIC] [TIFF OMITTED] 80877.065

[GRAPHIC] [TIFF OMITTED] 80877.066

[GRAPHIC] [TIFF OMITTED] 80877.067

[GRAPHIC] [TIFF OMITTED] 80877.068

[GRAPHIC] [TIFF OMITTED] 80877.069

[GRAPHIC] [TIFF OMITTED] 80877.070

[GRAPHIC] [TIFF OMITTED] 80877.071

[GRAPHIC] [TIFF OMITTED] 80877.072

[GRAPHIC] [TIFF OMITTED] 80877.073

[GRAPHIC] [TIFF OMITTED] 80877.074

[GRAPHIC] [TIFF OMITTED] 80877.075

[GRAPHIC] [TIFF OMITTED] 80877.076

[GRAPHIC] [TIFF OMITTED] 80877.077

[GRAPHIC] [TIFF OMITTED] 80877.078

[GRAPHIC] [TIFF OMITTED] 80877.079

[GRAPHIC] [TIFF OMITTED] 80877.080

[GRAPHIC] [TIFF OMITTED] 80877.081

[GRAPHIC] [TIFF OMITTED] 80877.082

[GRAPHIC] [TIFF OMITTED] 80877.083

[GRAPHIC] [TIFF OMITTED] 80877.084

[GRAPHIC] [TIFF OMITTED] 80877.085

[GRAPHIC] [TIFF OMITTED] 80877.086

[GRAPHIC] [TIFF OMITTED] 80877.087

[GRAPHIC] [TIFF OMITTED] 80877.088

[GRAPHIC] [TIFF OMITTED] 80877.089

[GRAPHIC] [TIFF OMITTED] 80877.090

[GRAPHIC] [TIFF OMITTED] 80877.091

[GRAPHIC] [TIFF OMITTED] 80877.092

[GRAPHIC] [TIFF OMITTED] 80877.093

[GRAPHIC] [TIFF OMITTED] 80877.094

[GRAPHIC] [TIFF OMITTED] 80877.095

[GRAPHIC] [TIFF OMITTED] 80877.096

[GRAPHIC] [TIFF OMITTED] 80877.097

[GRAPHIC] [TIFF OMITTED] 80877.098


