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



 
                 EXAMINING REGULATORY RELIEF PROPOSALS 

                  FOR COMMUNITY FINANCIAL INSTITUTIONS 

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

                                HEARING

                               BEFORE THE

                 SUBCOMMITTEE ON FINANCIAL INSTITUTIONS
                          AND CONSUMER CREDIT

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                            DECEMBER 4, 2013

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 113-54


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                 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
KEITH J. ROTHFUS, Pennsylvania

                     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:
    December 4, 2013.............................................     1
Appendix:
    December 4, 2013.............................................    41

                               WITNESSES
                      Wednesday, December 4, 2013

Bartolomucci, Rose, President and Chief Executive Officer, 
  Towpath Credit Union, on behalf of the Credit Union National 
  Association (CUNA).............................................     7
Richards, Thomas N., Assistant Vice President, Owingsville 
  Banking Company, on behalf of the American Bankers Association 
  (ABA)..........................................................     9

                                APPENDIX

Prepared statements:
    Bartolomucci, Rose...........................................    42
    Richards, Thomas N...........................................    56

              Additional Material Submitted for the Record

Capito, Hon. Shelley Moore:
    Written statement of the Independent Community Bankers of 
      America (ICBA).............................................    63
    Written statement of MCT Credit Union........................    70
    Written statement of the Mortgage Bankers Association (MBA)..    72
    Written statement of the National Association of Federal 
      Credit Unions (NAFCU)......................................    74
    Written statement of the Ohio Credit Union League............    76
    Written statement of privately insured credit unions.........    77
    Written statement of South Bay Credit Union..................    78


                      EXAMINING REGULATORY RELIEF

                       PROPOSALS FOR COMMUNITY

                         FINANCIAL INSTITUTIONS

                              ----------                              


                      Wednesday, December 4, 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 10:05 a.m., in 
room 2128, Rayburn House Office Building, Hon. Shelley Moore 
Capito [chairwoman of the subcommittee] presiding.
    Members present: Representatives Capito, Duffy, McHenry, 
Pearce, Posey, Fitzpatrick, Luetkemeyer, Stutzman, Pittenger, 
Barr, Cotton, Rothfus; Meeks, Maloney, Watt, Hinojosa, Scott, 
Green, Lynch, Murphy, Delaney, and Heck.
    Ex officio present: Representative Waters.
    Also present: Representatives Stivers and Beatty.
    Chairwoman Capito. The subcommittee will come to order.
    And without objection, the Chair is authorized to declare a 
recess of the subcommittee at any time.
    I would also like to ask unanimous consent that those 
members of the full Financial Services Committee present today, 
who are not members of the Financial Institutions Subcommittee, 
be entitled to participate in the hearing.
    Without objection, it is so ordered.
    This morning's hearing exemplifies the ability of members 
of this committee to come together and work towards the shared 
goal of providing regulatory relief for community financial 
institutions. The two bills and the discussion draft before the 
subcommittee this morning represent the bipartisan work of 
members who have listened to the issues raised by their local 
financial institutions.
    In each case, members of this committee have crossed 
partisan lines to develop solutions to the problems that are 
directly affecting consumers in their respective districts. Mr. 
Stivers has authored legislation that will allow privately 
insured credit unions to become members of the Federal Home 
Loan Bank System.
    There are already more than 1,000 federally insured credit 
unions benefiting from membership in the Federal Home Loan Bank 
System. The legislation before us today provides privately 
insured credit unions with access to the increased liquidity 
for community development and mortgage lending provided by the 
Federal Home Loan Bank System.
    The other bill that we will consider today is a proposal 
that Mr. Barr has developed to address a specific issue with 
the Consumer Financial Protection Bureau's (CFPB's) Qualified 
Mortgage (QM) rule. One provision of the rule determines the 
ability of certain rural financial institutions to originate 
balloon loans. The definition the CFPB used for ``rural'' is so 
stringent that many predominantly rural areas are deemed to be 
urban.
    As we heard earlier this year from a banker in my 
congressional district, under this definition, 26 out of the 55 
counties in West Virginia fail to meet the definition of rural. 
If you have driven through West Virginia, that is a little bit 
hard to believe. Anyone traveling through it knows that West 
Virginia is a rural State.
    Mr. Barr's thoughtful legislation creates a petition 
process for counties to be redesignated by the CFPB. This 
targeted legislation will provide meaningful benefits for 
consumers in rural communities who rely on balloon loans for 
mortgage finance.
    I am also pleased we are considering a discussion draft 
that I have been drafting with the ranking member of the 
subcommittee, Mr. Meeks. Our draft seeks to address an issue 
that has been highlighted by nearly every community bank and 
credit union witness who has testified in front of our 
committee this year: the cumulative effect of layering new 
regulations on top of old regulations.
    This challenge is not a new phenomenon. In 1996, Congress 
recognized the potential for conflicting regulations, and in 
response passed the Economic Growth and Regulatory Paperwork 
Reduction Act, which requires an examination of the regulatory 
framework every 10 years to identify outdated, unnecessary, and 
overly burdensome regulations. Furthermore, in the last 3 
years, former Treasury Secretary Timothy Geithner and current 
Treasury Secretary Jack Lew have both testified in front of 
this subcommittee that regulatory duplication should be 
addressed in order to ensure we have a modernized regulatory 
framework.
    The goal of our discussion draft is to complement existing 
regulatory streamlining efforts with a perspective analysis of 
the interaction between proposed regulations and existing 
regulations. Each agency would be required to identify if a 
proposed rule or order is in conflict with or inconsistent or 
duplicative of existing Federal regulations or orders as they 
develop the proposed rule. In other words, let's determine this 
before we actually lay another rule on top of existing rules.
    The regulatory agencies are then required to resolve the 
inconsistencies, conflict, or duplication. They are also 
required to provide Congress with a report of the rules, 
regulations, or orders that need to be amended or repealed.
    I would like to thank the ranking member for working with 
me on this discussion draft. We have a few minor issues left to 
resolve, but I look forward to continuing our work to provide a 
more efficient and effective regulatory system for financial 
institutions.
    I now yield to the ranking member for the purpose of making 
an opening statement.
    Mr. Meeks. Thank you, Madam Chairwoman.
    Indeed, community financial institutions are crucial to our 
Nation's economy, and they are the primary source of credit for 
millions of Americans in underserved and rural areas, and for 
many local businesses. These institutions are facing severe 
economic regulatory challenges. Their participation in our 
financial system is literally at stake.
    According to the FDIC's community banking study of 2012, 
the number of community banks has dropped by more than 50 
percent since the 1980s. Their share in U.S. credit markets has 
dropped from 40 percent to 14 percent in that period. During 
this period, the largest banks--with assets greater than $10 
billion--grew 11-fold, raising their stake in total industry 
assets from 27 percent in 1984 to more than 80 percent in 2011.
    These numbers raise serious concerns. I have been engaged 
in several conversations with small banks and credit unions and 
there is no doubt in my mind that our community and financial 
institutions need regulatory relief. Furthermore, I have been 
reaching out to my colleagues on the other side of the aisle 
and working with the chairwoman on this issue, and we are all 
in agreement. The question is, how do we get it done?
    As Members of Congress, we very often speak about our role 
as legislators. And I generally tell my constituents and 
audiences at speaking engagements that legislating is difficult 
because you can almost never get it completely right, and 
thereby adjustments are always necessary. This is especially 
true when you legislate in response to economic cycles or 
financial crises. During cycles of long-term financial 
prosperity, we tend to over-deregulate until it causes the next 
financial crisis. And after a financial crisis, we tend to pass 
major regulation that sometimes needs to be adjusted because it 
goes too far the other way.
    The Dodd-Frank Act, in my estimation, is a remarkable 
comprehensive and complex bill that was clearly needed to 
adjust the excesses of our financial markets. As I have often 
said, though, it is not a perfect bill, and many provisions can 
be improved to provide regulatory relief to community financial 
institutions that didn't cause the crisis, but yet are severely 
impacted by the load of new regulations.
    Anybody who talks to any community bank or any small credit 
union will quickly understand that the Dodd Frank Act needs 
some fixes. I have had such conversations with banks in New 
York, with bankers and mortgage lenders that operate throughout 
my district, and they need help and they need that help now.
    The bills proposed today go in the right direction. The 
Clarity Act that Chairwoman Capito and I have been working on 
to introduce soon, is a good example of a bipartisan bill that 
is needed to address the need to reduce the heavy regulatory 
burden facing our financial institutions.
    And H.R. 3584, the Capital Access for Small Community 
Financial Institutions Act of 2013, is another good bill that 
will provide privately insured credit unions access to the 
Federal Home Loan Bank System.
    H.R. 2672, the CFPB Rural Designation Petition and 
Correction Act, goes in the right direction on rural 
designation. However, I would like to see the CFPB be given 
more time to review its definition of rural and underserved 
areas. The Bureau has already responded to concerns raised on 
this definition and properly responded with the 2-year 
transitions period, during which it will conduct a study.
    I think it makes sense that we allow this process to 
proceed, especially given the commendable, collaborative 
approach we have seen from Director Cordray in responding to 
industry concerns.
    In closing, let me say that I am disappointed, and here are 
the only areas where I would like to work in a more coordinated 
manner with--on a full committee, that efforts to pass a wide 
range of regulatory relief, as part of a grand package, have 
not led to more meaningful results.
    I would like to just note as opposed to doing it as we are 
doing it now in a piecemeal approach, taking a few provisions, 
one at a time, which I don't think is an efficient way when 
banks need wide relief and they need it as soon as possible.
    Democrats on this subcommittee have shown a good faith 
effort to reach out to our Republican colleagues to get some 
bipartisan bills moving forward. And I have introduced the 
drafted legislation as well to push forward more relief, 
including my bills, to provide a voice at the U.S. Treasury for 
community banking.
    I do thank my colleagues on the other side of the aisle 
because there has been some real dialogue, there has been some 
real agreements, a bipartisan agreement and thought patterns on 
how we could move forward, because I don't think that there is 
any space between us and knowing that our community and small 
banks, and credit unions need regulatory relief.
    And I think that we can ultimately come up with some real 
bipartisan legislation to help them out.
    I yield bank.
    Chairwoman Capito. Thank you. I now recognize Mr. Duffy for 
3 minutes for an opening statement.
    Mr. Duffy. I first want to thank you, Madam Chairwoman, for 
holding this important hearing, and I appreciate the panel 
being here today.
    I want to talk about the discussion draft between Mrs. 
Capito and Mr. Meeks. For me, as I talk to my community 
bankers, and my credit unions as well, not only do they 
complain about overregulation, but also the duplicative 
regulation that comes from those who regulate them. And we have 
a situation sometimes, where we will have regulators come in 
and ask for one set of information one way and another group of 
regulators come in and ask for the same information, but they 
will ask for it in a little different way. And you have to 
compute this information in different ways, for different 
regulators.
    This is insane.
    I hope that our community banks and our credit unions can 
focus less on the regulators, and more on making loans to help 
our communities, our families, and our small businesses grow in 
America. And I think this bill will go a long way to making 
sure there is collaboration, cooperation, and communication 
between all of the regulators.
    So, I am supporting the discussion draft, and I look 
forward to hearing the panel's comments on it.
    As well, to Mr. Barr's bill, I live in rural America, I 
have about a third of the State of Wisconsin in my district, a 
lot of dairy there, a lot of farms in central and northern 
Wisconsin. And if you look at the CFPB's QM rule in regard to 
balloon loans, we have Douglas County in the northwest tip of 
Wisconsin, Superior Wisconsin, by Duluth. You can say it is a 
small town in Wisconsin.
    But outside of that little corner in Douglas County where 
Superior is located, the whole county is rural, it is farms. 
And this is designated non-rural.
    Lincoln County has 28,000 people, it sits next to Oneida 
County. Lincoln County is non-rural and Oneida County, which 
has almost 10,000 more people, is rural. These are both rural 
communities. The industry, the agriculture, it is all the same. 
But you only get these kinds of rules from Bureaucrats in 
Washington who have no idea about our Wisconsin communities, 
our makeup and how our economies work. And when you have 
Bureaucrats in Washington making decisions, you see maps, like 
the one we have for the QM rule in regard to the balloon loans, 
that don't make sense.
    But for a stray repeal of this part of the law in the PATH 
Act, which I do support as well, I think Mr. Barr's bill is the 
next best thing, where we will give our counties the right to 
petition to go from non-rural to rural, and give the reasons 
why they fit that appropriate definition.
    So, I look forward to the panel's discussion on these two 
important bills. And with that, I yield back.
    Chairwoman Capito. Thank you. Mr. Hinojosa for 2 minutes.
    Mr. Hinojosa. Thank you, Chairwoman Capito, and Ranking 
Member Meeks for holding this very important hearing this 
morning.
    It is very important to listen to the community bankers and 
credit unions about their concerns, because they are relied on 
by small businesses and rural communities to extend credit and 
sustain vibrant local economies.
    We can all agree that community banks did not cause the 
financial crisis, and they have stepped in when the big banks 
overloooked small and rural businesses. I am concerned that 
community banks are not lending the amount that they could be 
and that this is hindering our economic recovery.
    Smart regulatory relief is an area that is ripe for 
bipartisan action, and I am proud to be a co-sponsor of H.R. 
2672, the CFPB Rural Designation Petition and Correction Act.
    I am glad that the CFPB has acknowledged the overly narrow 
nature of their original definition for rural, and that they 
will conduct a study on the best way to move forward.
    As we move forward, as I said, with new mortgage rules, we 
cannot allow rural America to be forgotten, nor unduly 
impacted. There are many ways that Members of Congress, 
regulators, and financial institutions can come together to 
find innovative answers to our problems.
    This week, I plan to introduce H.R. 3700, the Building 
Community Financial Institutions' Capacity to Combat Money 
Laundering Act, which will address the burdensome cost for 
complying with the Bank Secrecy Act.
    I encourage all Members, on both sides of the aisle, to 
consider becoming a co-sponsor to my bill.
    I look forward to hearing from our panelists about their 
concerns and ideas for common-sense reform.
    Thank you, and I yield back.
    Chairwoman Capito. I thank the gentleman. I would like to 
recognize Mr. Barr for 2 minutes.
    Mr. Barr. Thank you. I want to thank Chairwoman Capito for 
holding today's hearing to examine regulatory relief proposals 
for community financial institutions.
    I especially want to thank the chairwoman for including my 
legislation, H.R. 2672, the CFPB Rural Designation Petition and 
Correction Act, as part of this important hearing.
    The idea for this legislation began with a hearing held by 
this subcommittee in May, where I learned about the CFPB's 
blatant and incorrect designation of Bath County, Kentucky, as 
non-rural.
    This is a county in my district which I have visited many 
times. And anyone who lives in Bath County or who has visited 
there can tell you that despite the CFPB's bizarre claims to 
the contrary, Bath County is very much an agricultural and 
rural county.
    In fact, when Charles Vice, the top banking regulator in 
Kentucky, testified in front of this committee, he accurately 
characterized Bath County as one of the most rural places in 
Kentucky.
    But this problem of the CFPB's incorrect designation of 
rural communities isn't just limited to central and eastern 
Kentucky. Examples of incorrect CFPB designations exist in all 
regions of the country. In fact, during a full Financial 
Services Committee hearing in September, CFPB Director Cordray 
even acknowledged that this same problem exist in his home 
State of Ohio.
    So it is clear that we need to fix this and get things 
right, because the rural/non-rural distinction affects a 
variety of lending rules and regulations imposed by the CFPB on 
community banks.
    It impacts access to responsible mortgage credit, including 
balloon loans in rural and underserved communities.
    H.R. 2672 remedies this by creating a common-sense process 
whereby individuals can petition the CFPB to reconsider a 
flawed designation. This is a simple, pragmatic, and bipartisan 
solution.
    I want to thank Congressman Hinojosa, the gentleman from 
Texas, for co-sponsoring it. The bill is about inviting 
individuals to participate in their government and provide 
input on matters of local knowledge. It is about making the 
Federal Government more accessible, more accountable, and more 
responsive to the people who know their communities best.
    And finally, I would like to welcome Thomas Richards, a 
constituent of mine who is testifying today. Thomas is a fifth 
generation banker of the Owingsville Banking Company which is 
located, you guessed it, in Bath County, Kentucky.
    Thomas wrote a letter to us, earlier this year, and asked 
how he could help. I don't know if you envisioned testifying in 
front of Congress as the way to help, but we are certainly very 
appreciative of your willingness to testify with us today, and 
share your local knowledge, and frankly putting a face on this 
problem which affects rural communities all over this country. 
So thank you, Thomas, for being with us today.
    I yield back. Thank you.
    Chairwoman Capito. Thank you. I think that concludes our 
opening statements.
    I would like to recognize the ranking member of the full 
Financial Services Committee, Ms. Waters, and thank her for 
coming.
    That does conclude our opening statements, then. And I 
would like to welcome our panel of distinguished witnesses. 
Each of you will be recognized for 5 minutes to give an oral 
presentation of your testimony. And without objection, each of 
your written statements will be made a part of the record.
    Our first witness is Ms. Rose Bartolomucci, president and 
chief executive officer of the Towpath Credit Union, testifying 
on behalf of the Credit Union National Association. Welcome.
    And I will just say this in the beginning, you are all 
going to need to pull the microphone close to you, because the 
acoustics in the room are not great.
    Thank you.

 STATEMENT OF ROSE BARTOLOMUCCI, PRESIDENT AND CHIEF EXECUTIVE 
 OFFICER, TOWPATH CREDIT UNION, ON BEHALF OF THE CREDIT UNION 
                  NATIONAL ASSOCIATION (CUNA)

    Ms. Bartolomucci. Thank you, Chairwoman Capito, Ranking 
Member Meeks, and members of the subcommittee.
    Thank you for inviting me to testify at today's hearing. My 
name is Rose Bartolomucci, I am president and CEO of Towpath 
Credit Union, a State-chartered and privately insured credit 
union headquartered in Akron, Ohio. I have been involved with 
credit unions since 1977, and most recently I was the credit 
union regulator under Governor Strickland for the State of 
Ohio, overseeing 200 State-chartered credit unions.
    I am testifying on behalf of the Credit Union National 
Association, CUNA, the largest credit union advocacy 
organization in the United States. I am also currently a member 
of the CFPB's credit union advisory council. I would like to 
state that the views expressed in my testimony today are my own 
and those of CUNA, not those of the credit union advisory 
council of the Consumer Financial Protection Bureau (CFPB) or 
of the government.
    CUNA supports all bills under consideration today, in 
particular, CUNA strongly supports H.R. 3584. This bipartisan 
legislation, introduced by Representatives Stivers and Beatty, 
would allow privately insured State-chartered credit unions the 
ability for membership in the Federal Home Loan Bank System.
    This legislation corrects what we believe was a drafting 
oversight, which would affect a small number of credit unions 
like mine. When Congress allowed credit unions to join the 
Federal Home Loan Bank, the bill was drafted to apply only to 
an insured credit union as defined by the Federal Credit Union 
Act.
    Had the legislation used a broader term such as State-
chartered credit union, my 21,000 members would have access to 
additional lending resources, and we would not be here today.
    The House of Representatives has recognized this as a 
problem, and passed legislation in 2004 and 2006 to fix it. In 
fact, in March of 2006, the bill before you overwhelmingly 
passed by a vote of 415-2. It has never seemed fair to our 
small institutions that some of the largest banks in the world, 
insurance companies that are not federally insured or a foreign 
bank's U.S. subsidiary can borrow from the Federal Home Loan 
Bank System, but we cannot.
    H.R. 3584 would remedy this inequity and provide access to 
additional liquidity which would help us better serve our 
members. Despite the fact that credit unions affected by this 
legislation are privately insured, the bill would not present 
an inherent risk to the Home Loan Bank System. All advances 
from the System must be fully collateralized and subject to 
their uniform standards.
    Mr. Stivers' bill makes it clear that the Home Loan Bank 
will have a superior lien over any assets it holds as 
collateral, irrespective of how the credit union's deposits are 
insured. In addition, the number of privately insured credit 
unions that might join the Home Loan Bank and the amount of 
advances associated would be a small fraction of combined 
outstanding advances of the System.
    CUNA is also pleased to support the other bills under 
consideration today. H.R. 2672, introduced by Representative 
Barr, would direct the CFPB to establish an application process 
to determine whether a county should be designated as a rural 
area if the CFPB has not designated it as one.
    It is important to credit unions because if the current 
definition stands, we will be limited in the products we can 
offer. We also support Chairwoman Capito's bill to address 
duplicative and inconsistent regulation. As CUNA has testified 
in the past, credit unions face a creeping complexity with 
respect to regulatory burden. It is not one new bill, but the 
complete effect of all regulatory changes, which challenge 
credit unions, especially small credit unions like mine.
    We are expected to comply as quickly as large financial 
institutions to the onslaught of rules and regulations. 
Chairwoman Capito's legislation would help reduce regulatory 
burden by directing the Federal financial regulators to look at 
whether their proposed rules duplicate or are inconsistent with 
existing Federal regulation and to take all available measures 
to resolve inconsistencies before issuing rules.
    If enacted, we believe that it could help ensure that 
future rulemaking is not unnecessarily burdensome.
    Madam Chairwoman, on behalf of America's credit unions and 
their 98 million members, thank you very much for holding this 
hearing and allowing me to testify.
    I would happy to answer any questions.
    [The prepared statement of Ms. Bartolomucci can be found on 
page 42 of the appendix.]
    Chairwoman Capito. I would like to thank you. And before I 
introduce our next witness, I would like to ask for unanimous 
consent to have the following statements made a part of the 
record: the Mortgage Banker's Association; privately insured 
credit unions; the Independent Community Bankers of America; 
the National Association of Federal Credit Unions; the South 
Bay Credit Union; the Conference of State Bank Supervisors; the 
MCT Credit Union; and the Los Angeles Firefighters Credit 
Union.
    Without objection, it is so ordered.
    Our next witness, as we have heard, is Mr. Thomas Richards, 
assistant vice president, Owingsville Banking Company, on 
behalf of the American Banker's Association.
    Welcome.

  STATEMENT OF THOMAS N. RICHARDS, ASSISTANT VICE PRESIDENT, 
OWINGSVILLE BANKING COMPANY, ON BEHALF OF THE AMERICAN BANKERS 
                       ASSOCIATION (ABA)

    Mr. Richards. Thank you, Chairwoman Capito. Chairwoman 
Capito, Ranking Member Meeks, and members of the subcommittee, 
my name is Thomas Richards, and I am assistant vice president 
of Owingsville Banking Company, headquartered in Owingsville, 
Kentucky. I truly appreciate the opportunity to represent the 
American Bankers Association at this hearing.
    My bank is a small $63 million community bank that has 
served the county of Bath for 120 years. We serve a vital role 
in our community, making loans for houses, trailers, and even 
tailpipes for people trying to get back and forth to work.
    We feel it is our duty to take care of our customers, no 
matter how small their need may be. I am pleased to comment on 
several proposed bills today.
    First, I would like to comment on the clarity and 
regulations discussion draft introduced by Chairwoman Capito. 
ABA supports this measure, which would require a review of 
existing regulations that may be in conflict with or 
duplicative of new rules being promulgated by the banking 
agencies.
    The mountain of new banking regulations continues to grow. 
For my bank, with only 26 employees, managing this large 
compliance burden has real consequences for our ability to meet 
the financial service needs of our customers.
    This bill would help to eliminate conflicts among different 
regulations, eliminating additional compliance burdens as banks 
struggle to reconcile the differences that exist. This bill 
would help me and my colleagues get back to doing the business 
of banking.
    We suggest the bill's scope be expanded to enable 
regulators to address instances where a targeted rule may have 
created an unintended compliance obligation, and also cover 
instances where a new regulation overlaps with other new 
regulations, not just existing regulations.
    The issue of crushing regulation is a deeply personal one 
for me. Community banking has been part of my family's history 
for 120 years. It would be a travesty if the burden of 
unnecessary and duplicative regulation was to make my bank and 
those like it extinct.
    It is my hope that the clarity in regulations discussion 
draft will help stem the tide of overly burdensome regulation 
and allow community banks across the country to continue to 
serve the needs of their customers.
    ABA also supports H.R. 2672, introduced by Representative 
Barr. This bill would provide an appeals process for counties 
to be designated as rural for the purpose of exempting certain 
loans from the CFPB's Qualified Mortgage rule.
    The CFPB has struggled with finding an appropriate 
definition. Its original definition of ``rural,'' which the 
Bureau has appropriately put on hold, was far too narrow and 
was inconsistently applied, which would have had a dramatic 
impact on small lenders and communities. In fact, under the 
CFPB's original definition, Bath County, which covers 284 
square miles, and has 12,000 residents in 44,000 households and 
a median income of $30,000, does not qualify, while neighboring 
counties with much larger and more urban populations do 
qualify.
    From a small community standpoint, this can be devastating 
to the livelihood of that area. Thus, an appropriate exemption 
is critical to our ability to meet our community's needs. H.R. 
2672 would help ensure that whatever definition of rural is 
ultimately used by the CFPB, there would be an avenue to appeal 
to the Bureau in those inevitable cases where a county may have 
been inappropriately excluded.
    Finally, I would like to touch on the bill introduced by 
Representative Stivers, which would authorize privately insured 
credit unions to become members of the Federal Home Loan Bank.
    We acknowledge that the Federal Home Loan Bank plays an 
important role in providing advances to portfolio mortgage 
lenders. The issue of concern is that the Federal Home Loan 
Bank claim preference in a credit union failure could be a 
significant blow to the private deposit insurer given its small 
pool of covered institutions.
    This concern is obvious, given that there are only 137 
privately insured credit unions. This is in contrast to the 
FDIC, which insures over 6,800 banks, and the NCUSIF, which 
insures over 6,600 credit unions. Thus, access to the Federal 
Home Loan Bank advances could increase the solvency risk of the 
private insurer.
    That, in turn, could harm the existing members of the 
Federal Home Loan Bank, including my bank. It would be jointly 
and severally liable for any losses not covered by the private 
insurer.
    In conclusion, the banking industry is prepared to work 
with this subcommittee to identify changes that truly will help 
banks meet the daily financial and credit needs of our 
customers.
    Thank you all very much, and I would be happy to answer any 
questions.
    [The prepared statement of Mr. Richards can be found on 
page 56 of the appendix.]
    Chairwoman Capito. Thank you.
    Thank you both.
    And I will now recognize myself for 5 minutes of 
questioning.
    I want to start with you, Mr. Russell. You said that your 
bank is a $63 million bank. Is that correct?
    Mr. Richards. Yes, ma'am.
    Chairwoman Capito. And you have 26 employees.
    Mr. Richards. That is correct.
    Chairwoman Capito. How many of the 26 employees are 
directly employed as a compliance officer? In other words, that 
is their primary responsibility.
    Mr. Richards. We have one employee who is designated as our 
compliance officer, and we actually have another employee who 
is designated as our assistant compliance officer. And she has 
more of a part-time role as far as her compliance duties go, 
but at least 1\1/2\ employees are dedicated to compliance in 
our institution.
    Chairwoman Capito. And then, in terms of your own time and 
the other executives at the bank, I would imagine that you are 
spending more and more time because of the increased regulation 
on the compliance aspect.
    Would that be a correct assumption?
    Mr. Richards. Yes, ma'am.
    Chairwoman Capito. And if you are spending time on 
compliance and trying to weed through all of the regulations, 
what are you not doing in that space of time?
    Mr. Richards. We are not taking care of our customers. It 
really takes valuable time away from our customers. We are 
sitting in committee meetings worried about this language or 
that language rather than trying to figure out better ways to 
meet the needs of our customers.
    Chairwoman Capito. I am curious to know, in a smaller 
financial institution--we know the large banks have a lot of 
folks such as attorneys, accountants et cetera, who can weed 
through the morass of the new regulations.
    Who helps you with that? Or are you sort of left to your 
own devices?
    Mr. Richards. That is a good question. We don't have any 
on-staff attorneys, of course. It would be nice if we did. But 
we actually have to rely quite heavily on external auditors 
that are very costly. So that is another kind of impact that 
this compliance burden has on us; it is on our bottom line. We 
have to employ people outside of the bank to really help us get 
a grasp on these regulations.
    Chairwoman Capito. Let me ask Ms. Bartolomucci a question 
on the regulatory burden.
    You said you were the administrator for credit unions under 
the previous Governor of Ohio, correct?
    Ms. Bartolomucci. Yes, I was the State regulator for 200 
State-chartered credit unions.
    Chairwoman Capito. Okay. Let me ask you this: Our bill says 
that before you can put a new regulation in, you have to make 
sure it is not conflicting with new--and I like the idea of 
making sure that the new ones don't conflict with the new ones, 
because we are seeing that. But better yet, supposedly Dodd-
Frank was supposed to be weeding out all the new, old, updated, 
outdated and duplicative.
    You are a former regulator. Did you ever remove any 
regulations during your period of time? Is this an impossible 
thing for a regulatory body to do?
    Ms. Bartolomucci. I did not remove any duplicative 
regulations, but I don't believe it is impossible to do. We 
have regulation and with this body, we were--I was the 
regulator, State-chartered. And then, you have credit unions 
that are federally insured as well, and those overlap, and you 
are not quite certain when a regulator or examiner comes in, 
what direction they are going to take that specific regulation.
    So I don't believe that it is difficult to do, to remove. 
We credit unions wear--small credit unions wear a lot of hats. 
And it is very difficult for us to be able to get through all 
the compliance and the overlapping compliance that is with us. 
And similarly, the--
    Chairwoman Capito. Yes, how many folks do you have in 
your--
    Ms. Bartolomucci. We have 47 employees. And similarly, we 
have one full-time person who handles compliance. And we share 
a compliance officer with two other credit unions. So, we feel 
as though the compliance is so burdensome that we have to have 
at least two full-time compliance officers. And similarly, we 
are not able to really take care of the needs of our members 
because we are always looking at the compliance burden and 
making certain that we are in compliance when our regulators 
come in.
    Chairwoman Capito. I think the study that came out earlier 
this year by the FDIC basically said that it wasn't one 
particular regulation that was burdensome to the community 
banks. It was just a cumulative effect. And that is what I 
think Mr. Meeks and I are trying to get to in our bill here is 
to cease the cumulative--get to smarter, better, more efficient 
regulation that is more forward-thinking, as opposed to still 
having to jump through the old hoops while you are jumping 
through the new hoops.
    When you are having this sort of overhang of regulatory--
because I think some people misunderstand that if you want to 
do regulatory reform, the impression is you don't want 
regulation. I don't think that anybody here feels that way, 
including those who are the practitioners. But I think in order 
to do this, we have already heard that your core business 
functions are decreasing and you are unable to get to serve 
your customer in the best way that you possibly can.
    So with my time expired, I will recognize Mr. Meeks.
    Mr. Meeks. Thank you, Madam Chairwoman.
    Let me just ask, because one of the things that we want to 
do anytime you pass--moving forward with different bills, and 
you get some on the other side talking. I just thought we could 
clear up. And I will start with Ms. Bartolomucci.
    Ms. Bartolomucci. Yes, thank you.
    [laughter]
    Mr. Meeks. Just so that we could--because I have heard some 
say that privately insured credit unions might provide more of 
a risk, such that including them in the Federal Home Loan Bank 
System could be problematic. Are their sizes so large or the 
volume of their loans so significant that it could change the 
viability of the Federal Home Loan Bank?
    Ms. Bartolomucci. My short answer is, no. There is no risk 
to the Federal Home Loan Bank with privately insured credit 
unions. Because of my unique background as the regulator for 
the 200 State-chartered credit unions in Ohio, I was also the 
regulator for American Share Insurance, that is in Dublin, 
Ohio.
    And I was able to really understand their business model. 
They are a safe and sound institution. They are very well-
capitalized and they do not pose--privately insured credit 
unions do not pose a risk to the Federal Home Loan Bank.
    Mr. Meeks. And how about--are there any consumer protection 
concerns? Should anyone be worried that consumers of these 
privately insured credit unions would be less protected?
    Ms. Bartolomucci. Rest assured that the CFPB now governs 
privately insured credit unions. And privately insured credit 
unions must disclose to our members that we are privately 
insured. Therefore, credit unions do comply in that regard.
    Mr. Meeks. And Mr. Richards, let me ask you, are there any 
procedures in place, or do we have a process where small 
community banks or financial institutions could identify 
duplicative and conflicting or outdated regulations and address 
them before we add new ones there? Is there a process in place 
you think we could work with, with some of the regulators, so 
they can be identified?
    Mr. Richards. I'm sorry. I just want to make sure I 
understand the question. So, are you asking if there is a 
process in place currently to do that? Or if I have any 
suggestions as far as--
    Mr. Meeks. Suggestions.
    Mr. Richards. --how that process might take place?
    Honestly, I think just having a panel of community bankers 
from across the Nation wouldn't hurt, just to get their input 
as far as what they feel are the most burdensome or the most 
duplicative regulations that are out there. Just as Chairwoman 
Capito said earlier, it is hard to identify one single 
regulation that is the burden, that is the bane of our 
existence, I suppose. It is truly the cumulative effect of it 
all.
    So I feel like a panel of community bankers would be a 
great place to start.
    Mr. Meeks. I know you testified that your institution was 
erroneously classified as operating in a non-rural county.
    Mr. Richards. Yes, sir.
    Mr. Meeks. And that caused them to not qualify as a rural 
bank. Can you just explain to me how that happened?
    Mr. Richards. Certainly. It was kind of interesting, 
actually. I don't remember if it was in the late winter or 
early spring that I signed up for the e-mail list for the CFPB. 
And I received an e-mail saying that they had come up with a 
list of rural and/or underserved counties throughout the Nation 
that would be exempt from some of these new regulatory changes 
that are taking effect in January.
    I opened up the attachment, and just kind of searching 
through, I took it for granted, I guess, that Bath County would 
be on there and was just absolutely shocked when I couldn't 
find it. And I thought, there has to be some kind of mistake 
here.
    I wasn't too concerned at the time because I knew that we 
had quite a bit of time until the regulations came into effect. 
But I ended up writing a letter to the CFPB, to the FDIC, and 
to my Congressman, Congressman Barr. And I really couldn't get 
any solid answers. I have actually yet to hear back from the 
CFPB. I have contacted them multiple times and they keep saying 
a staff attorney will get ahold of me, but they haven't yet. 
So--
    Mr. Meeks. And so, the question is now, based upon what we 
are loooking at doing here, the resident or business owner can 
request that the county be designated as rural. And would that 
be then--I don't know if you know or not--going to the county 
leaders or to the representatives of the local community who 
are elected to make that designation? If such a process was 
created, do you have any idea how that would work?
    Mr. Richards. Honestly, no. I'm not quite sure, but I would 
be happy to get back to you at a later date.
    Mr. Meeks. My time has expired.
    Chairwoman Capito. Thank you.
    Mr. Duffy?
    Mr. Duffy. Thank you, Madam Chairwoman.
    Just a comment on the bipartisanship. It becomes very 
challenging to get things to move in this institution unless we 
are getting both sides working together and signing on. And I 
think this is a nice example of people trying to work together, 
work out their differences early on so we have more hope of 
successfully moving this kind of legislation through both the 
House and the Senate. So I commend all the parties for their 
effort in working together.
    There was a--I believe it was yesterday in The Wall Street 
Journal, there was an article talking about what has happened 
in the banking industry, where we have seen a consolidation. We 
have seen a high of 18,000 institutions in the country. It has 
now fallen below 7,000, an all-time low. Most of that 
restriction or consolidation has taken place with our smaller 
institutions, with $100 million of assets or less. And we have 
also seen in that article that there was a 3.2 percent drop in 
branches around the country.
    Having fewer small banks and credit unions serve our 
communities, I don't think makes us a better-served country. I 
think it makes it more challenging for us. And I think that 
should be frightening for both sides of this aisle who care 
about small communities around the country.
    And I guess to that point, there are probably a number of 
factors that take place in regard to why this is happening. But 
more recently, has that consolidation been occurring because of 
increased regulation and rules and the difficulty of these 
small banks and credit unions in their ability to comply? I 
will throw it to either of you.
    Ms. Bartolomucci. Yes, Representative, absolutely yes. The 
compliance and the regulatory burden will take the lives of 
some of our credit unions and has, quite frankly. As I 
mentioned earlier, as a small financial institution, we wear 
many, many hats. And we continue to comply with all of the 
regulations. The resources--the people resources, the money 
resources--it takes to comply with some of these regulations, 
some credit unions just cannot do it.
    And therefore, they seek out a strategic merger partner, 
which works well in some cases and maybe not in some other 
cases. But yes, it is very much so the reason why you are 
seeing a decrease in even credit unions building--small credit 
unions building other branches as well because the resources 
that are needed on the compliance side, we need the resources 
there. Therefore, the resources are limited when we want to 
either add a new product on or build a new branch.
    Mr. Duffy. Mr. Richards, do you agree with that?
    Mr. Richards. I sure do. I agree with Ms. Bartolomucci 100 
percent. Being a $63 million bank with 26 employees, we are 
really just a small business. That is all we are. And to expect 
that we would have the resources to comprehend, to implement 
and to deal with these regulations at the same level as a Bank 
of America or a Wells Fargo, to me, it just doesn't make sense.
    Mr. Duffy. So, looking out on the horizon, do you see that 
the burden that your type of institutions face, that burden on 
the regulatory front is leveling off? Or is it only--is it 
increasing?
    Mr. Richards. I only see it increasing. And it is 
frightening. It truly is frightening. I am a fifth-generation 
banker at this bank, this same bank that was founded in 1893. 
And it scares me. I don't want to think that because of overly 
burdensome regulation, my bank might not be around in 10 years.
    Mr. Duffy. And it concerns me as well. As we continue 
this--the regulatory burden, we are going to see more 
consolidation or closure of these institutions, which will hurt 
our smaller communities.
    Mr. Richards. Exactly.
    Mr. Duffy. I want to get to one other point.
    In regard to balloon laws, it is fair to say that most 
institutions will hold those loans on portfolio? And if the 
borrower doesn't repay the loan, who bears the loss?
    Mr. Richards. We do.
    Mr. Duffy. You do, right. So, it makes sense that you are 
going to go through a pretty aggressive analysis on their 
ability to repay it, because if they don't--
    Ms. Bartolomucci. We lose.
    Mr. Duffy. Your institution loses, right.
    So, for me, it is kind of hard to comprehend why these are 
included when you hold these loans on portfolio in the QM rule, 
because you are going to go through your due diligence because 
you bear the loss. You would agree with that, right?
    Ms. Bartolomucci. I absolutely agree, yes.
    Mr. Richards. 100 percent.
    Mr. Duffy. My time is limited. If you--the Washington Post 
indicated that there were 15 official definitions of ``rural.'' 
Do you agree with the definition of ``rural'' that the CFPB has 
used on the balloon loan rule?
    Mr. Richards. No.
    Mr. Duffy. My time is up. I will yield back.
    Chairwoman Capito. Thank you.
    Mr. Watt?
    Mr. Watt. Thank you, Madam Chairwoman.
    I appreciate you recognizing me, but, as the committee 
members know, I have been kind of in an awkward position the 
last few months, because there is a lot of speculation about 
whether the Senate will act to confirm me as one of the 
regulators. So, I obviously can't ask these witnesses any 
questions.
    I can't comment on whether credit unions ought to be 
affiliated with the Federal Home Loan Banks, because the 
Federal Housing Finance Agency is the regulator for the Federal 
Home Loan Banks. Even though it has been Fannie Mae and Freddie 
Mac that have received all of the attention, they are under our 
jurisdiction, also.
    I will be bold enough to say that while I haven't read the 
bill that you and the ranking member have introduced about 
duplicative regulations, I would, both in my role as a Member 
of Congress, and, I believe, in my role as a regulator, if I am 
confirmed, strongly support the notion of eliminating 
duplicative regulations, as long as it is done very carefully 
and thoughtfully, as I am sure the committee would do as it 
progresses. And having that additional impetus from a 
legislative perspective, I think, would add to the urgency of 
setting up a process to do that.
    I probably shouldn't have even said that. But I just wanted 
you all to know that I support the notion, although I haven't 
looked at the details of how it would play out in the context 
of this bill.
    In the event that this may be my last subcommittee hearing, 
I do want to express to the members of this subcommittee--and I 
hope to have the opportunity at some point to express to the 
members of the full Financial Services Committee--how much of a 
joy it has been to work on this committee, and to be a part of 
a lot of the decisions that have had impacts over the years--21 
years now, almost, that I have been on the committee.
    So, with that, I thank you for the recognition, and I won't 
ask the witnesses to concur or not concur in anything I have 
said. I will just simply yield back.
    Chairwoman Capito. Thank you, Mr. Watt. And in the event 
that this is your final subcommittee meeting, we will miss you 
here, and the Congress will miss you generally. But in the 
event, you won't be going too far. And we will be looking at 
you from a different perspective, I think.
    Mr. Watt. I feel that I will be back on the other--
    Chairwoman Capito. Yes. Right.
    Mr. Watt. --side of that desk at some point. And--
    Chairwoman Capito. Could be in the hot seat.
    Mr. Watt. --there is nothing that gives me more 
trepidation.
    [laughter]
    Chairwoman Capito. Thank you very much for those great 
comments.
    And I will now recognize Mr. Luetkemeyer for questioning.
    Mr. Luetkemeyer. Thank you, Madam Chairwoman.
    Mr. Richards, can you tell me, just very quickly, how many 
other banks are in your county?
    Mr. Richards. Yes, sir. There are two other banks besides 
us.
    Mr. Luetkemeyer. And how many people are in your county?
    Mr. Richards. There are 12,000 residents, I believe.
    Mr. Luetkemeyer. 12,000? Okay.
    Why are the other counties around you considered to be 
metro or rural, whichever way they go? Is there a big town 
close by? Or why are you--
    Mr. Richards. There really isn't. There is a town called 
Moorhead, which is a university town. It is in a contiguous 
county, Brown County. But it is actually--that county has been 
designated rural.
    So, that is a large town relative to Owingsville, but it is 
considered rural.
    On the other side of us is Mount Sterling, which, again, is 
a small, little town. But it is considered a Micropolitan 
Statistical Area. And so it is considered to be non-rural. But 
the rest of the counties surrounding us are rural.
    And there are even more ridiculous-sounding examples than 
that, but--
    Mr. Luetkemeyer. It is interesting, because where I live in 
Missouri, my county has 25,000 people in it. The next county 
over has 14,000, and is basically the same geographical size. 
And yet, it is considered a metro, and we are considered rural.
    So, the discrepancy between us has to be solved. And I 
appreciate your being here, and being willing to talk about it.
    I think at the end of the day, what we are talking about 
here is access to credit for the citizens. If you only have two 
or three other banks in the county, and if you are not 
competitive because of this--you are not able to offer all of 
the full range of products as a result of this--it makes access 
to credit for the customers or the consumers--it puts it at 
risk.
    Mr. Richards. That is correct.
    Mr. Luetkemeyer. Would you like to comment on that?
    Mr. Richards. I--
    Mr. Luetkemeyer. What your concerns are about that part of 
it?
    Mr. Richards. Really, my concern is with not being 
considered a non-rural county is the fact that without that 
designation, we would no longer be able to offer balloon loans. 
And, although in the northeast and in different parts of the 
country, balloon loans are almost unheard of, in the heartland 
and the middle part of the country, they are quite common. The 
bottom line is, not everybody can qualify for a 30-year fixed-
rate mortgage, whether it be that they have some kind of 
irregular property--a mobile home or a large tract of land--
they might not have a sufficient credit score, and yet they 
have paid us perfectly.
    So, for those people who can't qualify for those secondary 
market mortgage loans, we are really all they have. That is why 
it is important.
    Mr. Luetkemeyer. In The Wall Street Journal today, there 
was an article that talks about how the big banks are losing 
market share because they have actually started downsizing some 
of their mortgage-lending activities. And the comment is made 
in here that it is easier for the smaller institutions to be 
able to tailor their products to the consumers so that they 
better fit their needs, their income levels, the way they live 
their lives, or whatever the economic situation is within the 
communities. And who better to do that than the community banks 
or credit unions who are close to the people themselves. And I 
think that is a great point. I think that is probably what you 
have been doing for the last 140 years, roughly.
    Mr. Richards. Yes, sir.
    Mr. Luetkemeyer. Ms. Bartolomucci here--I apologize on your 
name. It is like ``Luetkemeyer.'' It is hard to spell, and 
nobody can get it right when they say it. So, I apologize.
    Can you tell me the average size of the credit union that 
is a privately insured credit union?
    Ms. Bartolomucci. It is, I believe, about $80 million.
    Mr. Luetkemeyer. $80 million?
    Ms. Bartolomucci. I believe so. Let me get back to you on 
that.
    Mr. Luetkemeyer. Okay.
    Ms. Bartolomucci. I am not exactly certain.
    Mr. Luetkemeyer. So, the average size of the loan portfolio 
on one of those institutions is, what?
    Ms. Bartolomucci. I don't know.
    Mr. Luetkemeyer. Probably $70 million?
    Ms. Bartolomucci. I am not certain.
    Mr. Luetkemeyer. Somewhere in that neighborhood? The guys 
behind you are nodding. I will take that as a--
    Ms. Bartolomucci. Yes. I am not certain. I will get back to 
you--
    Mr. Luetkemeyer. I am not trying to put words in your mouth 
here. I am just trying to get an idea on the size of the 
institutions, the size of the risk that would be there if 
something should happen.
    What do you see as the biggest problem with the QM rule 
that is out there today that we are talking about here with 
regards to rural and the definition that we talked about?
    Ms. Bartolomucci. The issue, I believe, that we find is 
similar to the community banks--that we are very close to our 
members. We have teachers and we have telephone workers, 
farmers--people that we work with in our communities every day. 
We know those folks. They are members of ours. They have paid 
us back. They may not fit the model that is needed, so we want 
to portfolio those and--
    Mr. Luetkemeyer. So, you tailor your products to your 
consumers, as well?
    Ms. Bartolomucci. We absolutely do. And that is an 
important aspect of what it is we do. And that is one of the 
reasons credit unions were formed many, many years ago, is to 
help the normal, everyday consumer build their lives and build 
a home--purchase a home economically and affordably. And--
    Mr. Luetkemeyer. It seems to be one of the problems of 
doing something from Washington--one size does not necessarily 
fit all. And this definition of rural and some of the other 
rules seems to be pigeonholing a lot of the banks to be--and 
handcuffing them to be able to actually give the consumers what 
they need to be able to live their lives and be productive.
    So, I appreciate--I am out of time. I appreciate the 
indulgence of the Chair.
    Chairwoman Capito. Thank you.
    Mr. Hinojosa for 5 minutes.
    Mr. Hinojosa. Thank you, Madam Chairwoman. And thank you to 
our panelists for your insightful testimony.
    As the chairman of the Congressional Rural Housing Caucus, 
I have been dealing with the varying definitions of ``rural'' 
for many years. Given that the definitions promulgated by the 
USDA are problematic on many counts, I was very concerned when 
I learned that the Bureau integrated them into their own 
definition.
    The original rule by the CFPB would exclude Hidalgo County, 
which is in my congressional district in deep south Texas, 
south of San Antonio.
    Hidalgo County has a large geographic size, with a 
population of 850,000 people. Hidalgo County includes some 
urban areas, but much of it is also rural. It is the county 
with the most colonias in the whole Nation. Colonias often lack 
basic infrastructure such as indoor plumbing, paved roads, and 
electricity. They should be included in any definition of 
rural.
    We need to ensure that community banks and credit unions 
are not prevented from investing in rural communities such as 
our colonias.
    The Bureau's new mortgage rules discourage the risky 
mortgage lending practices that led to the crisis. However, the 
Bureau agrees, as do I, that the smaller community banks and 
the credit unions did not cause the crisis and have a 
legitimate need for flexibility when it comes to serving rural 
America.
    My first question is to Mr. Richards. Part one, in your 
experience, how does lending in rural America differ from urban 
and suburban areas?
    Mr. Richards. It differs in several different ways. First, 
I feel as though working in a small rural county, we have a 
very intimate knowledge of our customers. We know them 
personally. We go to church with them, our children go to 
school with their children. There is very intimate knowledge of 
them. So rather than just being a number, they are our 
neighbor, so we know them very, very closely.
    Also, your type of structures differ quite a bit. In urban 
America, you are not going to have mobile homes, you are not 
going to have larger tracts of land that might go with your 
one-to four-family residential properties.
    Mr. Hinojosa. Let me give you an example. How does your 
bank approach balloon loans? What is your experience with 
balloon loans, and how does your community bank approach them?
    Mr. Richards. My bank doesn't originate loans to be sold 
off on the secondary market. We portfolio every loan that we 
make. And it is not feasible because of interest rate risk to 
make long-term fixed-rate loans. We can't portfolio a 15-year 
or a 30-year fixed-rate loan. So the only other alternative is 
to have a balloon loan, which fixes the rate of the loan for a 
moderate period of time--5 to 7 years, somewhere around there. 
Either that or offer some kind of hybrid adjustable rate 
mortgages.
    And we find that our customers come to us for a reason. 
They want to bank with us. And balloon loans enable them to 
lock in those interest rates for at least a moderate period of 
time.
    Mr. Hinojosa. So if you were to write the definition of 
``rural'' for the CFPB, what would be some of your main 
inclusions?
    Mr. Richards. I would think population density would have 
to be a major factor. To have 284 square miles with only 12,000 
residents in what is obviously a pretty sparsely populated 
area, I would think the--
    Mr. Hinojosa. That would take care of small States. Big 
States like California, Arizona, New Mexico, and Texas would 
probably not fit into what you are talking about.
    Mr. Richards. I guess that is true. In addition to that, I 
suppose that you would also have to take into account what 
percentage of the workforce actually works in the agricultural 
area, which would help your larger States, such as California 
and Texas, I believe--what percentage of the population 
actually works in a farming capacity.
    Mr. Hinojosa. I yield back.
    Chairwoman Capito. The gentleman yields back.
    Mr. Stutzman?
    Mr. Stutzman. Thank you, Madam Chairwoman. And thank you 
for the hearing today.
    I want to thank both of the witnesses for being here and 
for your testimony. I find it very interesting and informative.
    It is--going home and listening to constituents and 
especially credit unions and community banks, and the 
difficulties that they are facing right now--obviously, it 
affects them, but ultimately it affects my neighbors and 
constituents in northeast Indiana.
    And there is a lot of opportunity that folks see, but they 
have difficulty going after those opportunities because of just 
the difficulty of access to capital and the uncertainty that is 
being created right now in the banking world.
    I would like to start with a question for Ms. Bartolomucci 
regarding the credit unions. What would this allow for your 
members? What benefit would this give your members? Does it 
give them better access? Does it give them better certainty? 
Could you just comment regarding on how this would affect the 
members of credit unions?
    Ms. Bartolomucci. Certainly, Representative. Are you 
speaking of the Federal Home Loan Bank access?
    Mr. Stutzman. Yes.
    Ms. Bartolomucci. Yes. Currently, we have 6,500 credit 
unions that have the opportunity to belong to the Federal Home 
Loan Bank. And because we believe when that was done, the 
privately insured credit unions were left out. What that means 
to our credit union is that my 21,000 members do not have 
access to liquidity, which equates to not being able to provide 
all the products and services that they deserve in their 
communities.
    So that is a very important distinction that we would 
really like to have. It is about equality. It is about equality 
for our privately insured credit unions to have the same 
opportunities as other financial institutions.
    Mr. Stutzman. So if the privately insured credit unions 
were permitted to join the Federal Home Loan Bank System, could 
that eventually put taxpayers at risk in a certain way or at 
some point?
    Ms. Bartolomucci. Absolutely not--
    Mr. Stutzman. And--
    Ms. Bartolomucci. Not at all. When you belong to the 
Federal Home Loan Bank, you have to fully collateralize your 
advances. And how you are insured does not come into play, so 
you are fully collateralizing the advances that you are taking 
from the Federal Home Loan Bank, as any other financial 
institution would.
    Mr. Stutzman. Also could you comment on--we have federally 
insured credit unions now, is that correct?
    Ms. Bartolomucci. That is correct, yes.
    Mr. Stutzman. Does this place any sort of distinction, or 
does that actually bring them both--a privately insured credit 
union, is--are they at the same protections? Do they have the 
same protections? Is there a disadvantage or an advantage to 
either one?
    Ms. Bartolomucci. It is about the option, and there is no 
disadvantage of one over the other. Privately insured credit 
unions are as well-capitalized if not stronger than our 
counterparts, and there really is no distinction between being 
able to belong to the Federal Home Loan Bank. One does have the 
advantage over the other as far as that is concerned, because 
we do not have the option to belong at this point.
    Mr. Stutzman. Okay, thank you.
    Mr. Richards, I think you said the population of your 
county was roughly 12,000, is that correct?
    Mr. Richards. Yes, sir.
    Mr. Stutzman. I was looking at the map of Indiana, and my 
home county, LaGrange County, which is between--is about 35,000 
people, is actually classified as non-rural. And yours is 
12,000--
    Mr. Richards. That is right.
    Mr. Stutzman. Mine is considered rural and yours is non-
rural.
    Mr. Richards. That is correct.
    Mr. Stutzman. I am not sure the rationale behind all of 
this, but I am interested in seeing how some of these other 
counties in northeast Indiana are classified differently than 
my home county.
    But going back to balloon loans, did you say you use 
balloon loans at your bank?
    Mr. Richards. We do, yes.
    Mr. Stutzman. How do you use them? And what is your 
experience? Are borrowers looking to those as just an option 
for limited access, or how do you use them?
    Mr. Richards. We use them in a couple of different ways, 
primarily in one-to four-family residential mortgage loans. But 
we also use balloon loans for agricultural loans, and things 
such as that.
    But as far as the one-to four-family mortgage loans go, our 
customers would use those for a couple of different reasons, 
really, for example, if they think they won't be in their house 
for more than the length of the term of that loan. If for 
whatever reason they see themselves moving in the next 3 to 5 
years, it is a good way for them to get a cheaper interest rate 
than they would if they were trying to lock their loan in for 
30 years fixed.
    Also, for our customers, it allows them to lock theirs 
straight in for a period of time rather than taking on an 
adjustable rate mortgage or a hybrid ARM.
    So for those reasons, our customers tend to choose that 
product.
    Mr. Stutzman. Very good.
    Thank you. I yield back.
    Chairwoman Capito. Thank you.
    Mr. Scott?
    Mr. Scott. Thank you.
    Welcome.
    Ms. Bartolomucci?
    Ms. Bartolomucci. Yes?
    Mr. Scott. Did I get that right?
    Ms. Bartolomucci. Thank you, Representative. Yes, you did. 
Thank you.
    Mr. Scott. I practiced that, because I wanted to make sure 
I got it right. And I put the hyphens here.
    I would like to, sort of, base my questions on what I think 
is--I am beginning to agree with you on H.R. 3584 for the 
Federal Home Loan Bank. But let me just ask you, why is it or 
was it that these privately insured credit unions, State-
chartered, were excluded in the first place?
    Ms. Bartolomucci. Representative, we are asking the same 
question. We believe it was just a drafting oversight in the 
legislation. And therefore, in 2006 it was overwhelmingly 
passed that we should have the ability to do so, and we are 
back here again today hoping that could be the case for us. 
Because my 21,000 members deserve to have the same opportunity 
and options for liquidity needs as all the other financial 
institutions.
    Mr. Scott. Now, you mentioned 2,300--
    Ms. Bartolomucci. We have 21,000 members.
    Mr. Scott. But of those, the only ones affected are about 
130 credit unions, is that right?
    Ms. Bartolomucci. We have 132 privately insured credit 
unions in the country. My credit union has 21,000 members.
    Mr. Scott. And two of them--two of those privately insured 
credit unions fall into a particular category that basically 
already sort of has them available for the Home Loan Bank, 
right?
    Ms. Bartolomucci. Yes, correct, Representative. CDFI credit 
unions, community development credit unions that are privately 
insured, do have the opportunity to belong to the Federal Home 
Loan Bank. And currently, of the 132 privately insured credit 
unions, 2 of those credit unions are members of the Federal 
Home Loan Bank.
    Mr. Scott. And if we were to place a value on these 130 
that are excluded, would $18 billion, or in that area, of 
assets be an accurate statement?
    Ms. Bartolomucci. I would have to get back to you on those 
statistics in my written testimony. I am not certain.
    Mr. Scott. But one would say is a pretty sizable number, my 
information says is about $18 billion--$15 billion, $18 
billion--
    Ms. Bartolomucci. Of assets.
    Mr. Scott. --of assets. So why is the objection--that is 
what I am trying to get at. Why is the objection there?
    Ms. Bartolomucci. That is what we are asking for. We don't 
know.
    Mr. Scott. Is there anybody saying that there are any 
risks?
    Ms. Bartolomucci. There is absolutely no risk, 
Representative, for privately insured credit unions to be 
members of the Federal Home Loan Bank.
    We are very well-capitalized. The American Share Insurance, 
who resides in Dublin, Ohio, has--
    Mr. Scott. Okay.
    Ms. Bartolomucci. --the nine States that they do business 
in, their regulators are in their shops. Once a year, there are 
about 20 people who go in, once a year, and examine--
    Mr. Scott. All right, let me--
    Ms. Bartolomucci. --American Share Insurance.
    Mr. Scott. Let me ask you this, in the bill itself, it says 
that, which I think are some pretty good points, but in order 
to be eligible for membership, a privately insured credit union 
would need to receive a certification from its State 
supervisor, stating that it is eligible to apply for Federal 
deposit insurance.
    Why is that in there? And what does that safeguard against?
    Ms. Bartolomucci. I am not certain of the question, 
Representative?
    Mr. Scott. Okay. Again, in the bill as written, it says 
that the private insurer of the credit union would be required 
to provide a copy of the credit union's annual audit report to 
the National Credit Union Administration, and the Federal 
Housing Finance Agency.
    Ms. Bartolomucci. Yes, which we do--which is done 
currently.
    Mr. Scott. Why is that? What does that safeguard against?
    Ms. Bartolomucci. I suppose it would tell the Federal 
counterparts of the safety and soundness of privately insured 
credit unions.
    Mr. Scott. Okay. And finally it states that in the bill as 
drafted, a State supervisor will be required to provide to 
NCUA, upon request, the results of any examination and reports 
concerning a private insurer of credit union's license in that 
State.
    Ms. Bartolomucci. Yes, that is correct.
    Mr. Scott. Okay. So the reason I point that up, and I will 
be very brief, is that it seems to me that you have a good case 
here. It seems to me that you have some safeguards in there. 
But the question remains why all of this is necessary? Is there 
something here that the taxpayers or the consumers need to be 
protected from, as to why they have these hoops and loops for 
you to be moving through, that the other folks don't have?
    And I think if we get to the bottom of that, we would be 
fine.
    Ms. Bartolomucci. Yes. We have all the safeguards in place 
that any other financial institution would have.
    Again, we have the CFPB that now governs the disclosures of 
privately insured credit unions. We have our--each of us have 
our State regulators that come into our shops at least once a 
year.
    We also--our credit union has our independent CPA firm that 
comes in quarterly and monitors. And privately insured credit 
unions are very safe and sound.
    Mr. Scott. All right.
    Ms. Bartolomucci. And so, we would really love to have the 
ability for 132 across the country, credit unions, to just have 
the ability to be able to join the Federal Home Loan Bank, and 
be able to provide liquidity into our communities to help our 
firefighters in California or telephone workers in Ohio be able 
to have access to credit and more products.
    Mr. Scott. Thank you very much. And thank you for the extra 
time, Madam Chairwoman.
    Chairwoman Capito. Thank you. Mr. Pittenger?
    Mr. Pittenger. Thank you, Madam Chairwoman, for hosting 
this hearing, and thank you witnesses, Ms. Bartolomucci and Mr. 
Richards, you have both done an admirable job.
    I would like to ask you, Mr. Richards, the ADA conducted a 
survey of compliance officers in 2011. They found that 45 
percent of the banks stopped offering loans or deposit accounts 
because of increased compliance cost.
    And if 43 percent of these banks quit offering additional 
services, or chose not to go into other geographic locations, 
could you share with us what these associated compliance costs, 
how they have impacted you and your ability to extend credit?
    Mr. Richards. Certainly. Beyond the simple manhours that we 
spend on compliance, we spend a significant portion of our 
annual budget on compliance audits, BSA audits, information 
technology audits, all types of things that make sure that we 
are in compliance with the various regulations.
    As far as curtailing the type of products that we offer, we 
are actually no longer offering 3-year balloons because of the 
changes in the regulations that the CFPB has proposed for 
January 2014. And depending on how the exemption works out, we 
may stop offering balloons altogether.
    So it definitely does have an effect on how we serve our 
customers.
    Mr. Pittenger. Thank you. Ms. Bartolomucci, and also Mr. 
Richards, are you concerned that the regulations could force 
your institutions to limit the offering of certain financial 
products to consumers, generally, and to low-income consumers, 
specifically?
    Mr. Richards. Yes.
    Ms. Bartolomucci. Yes.
    Mr. Pittenger. Could you elaborate on that?
    Ms. Bartolomucci. Again, with the high cost of compliance, 
we employ one full-time person in our office who also wears 
many other hats, but then we also share a compliance person. 
Those resources that we are extending toward that, we could be 
placing toward more products and services or high-tech 
electronic services that our members would want.
    And obviously, we want to stay in our communities for our 
members. We are hoping that this burdensome regulation can at 
least be minimized in the future so that we can continue to 
provide the great services that we were chartered to have.
    So, it is absolutely burdensome.
    Mr. Richards. Congressman, if you don't mind, I would like 
to add something, too.
    Mr. Pittenger. Sure.
    Mr. Richards. One of our major concerns with the ability-
to-repay requirements that are going to be taking effect in 
January 2014, is what to do with refinanced balloon loans that 
come due? As it stands right now, if a refinance comes up, and 
for whatever reason, a customer's income might have decreased 
over the term of the loan, and on paper, they can no longer--
they are above that threshold that the CFPB has set as 
indicating whether or not they can afford that loan.
    We don't know if we are going to be able to make that loan. 
We don't know if we are going to be able to refinance that 
because of the legal risk that could come with stepping outside 
of that safe harbor. So we really don't know what is going to 
happen there. It is kind of an unknown right now.
    Mr. Pittenger. Thank you. I would like to ask you, as well, 
Mr. Richards, many community financial institutions have stated 
that the disproportionate impact, the ever-mounting regulatory 
burden is significantly reducing their profitability and 
causing consolidation in the industry.
    Could you explain the negative consequences that result 
from this consolidation, what effects it has on the local as 
well as the national economy? And just how you all view that, 
is that a concern to you all in the future?
    Mr. Richards. Certainly. As a $63 million bank, it is very 
concerning. We don't have the asset size that a regional or 
super regional bank has to spread those fixed costs over.
    There is a certain minimum cost we have to expend every 
year because of compliance reasons. And consolidation is 
definitely a direct result of that.
    As far as how we view consolidation, I see it as less 
competition out there, and I see it as harming the consumer, 
ultimately.
    You have fewer competitors out there, going after the same 
customers. I can't see how that would not harm the consumer.
    Mr. Pittenger. Very good, thank you.
    Thank you, Madam Chairwoman. I yield back.
    Chairwoman Capito. Thank you. Mr. Green?
    Mr. Green. Thank you, Madam Chairwoman, and I thank the 
ranking member as well. And I thank the witnesses for 
appearing.
    I would like for you, this morning to help me with a 
dilemma. We use the term ``small bank'' and ``community bank'' 
quite often, interchangeably. And I am trying to get some sort 
of definition that I can work with for the term, ``community 
bank.''
    So please allow me to ask you a few questions, and I will 
also take a stab at your name, Ms. Bartolomucci?
    Ms. Bartolomucci. Yes.
    Mr. Green. And Mr. Richards. Would you agree that a bank 
that has assets of $100 million, that this is a small bank, 
$100 million?
    Mr. Richards. Quite small--yes, quite small.
    Mr. Green. Quite small. Would you concur, ma'am?
    Ms. Bartolomucci. For credit unions, I would say, 
Representative, for a small credit union, it would be $50 
million and under.
    Mr. Green. For our purposes, for this moment in time, if we 
may--let's stick to banks just for the moment.
    Ms. Bartolomucci. Okay.
    Mr. Green. And that may be on what you would call your 
level of expertise, but I am interested in your opinion. Would 
that be a small bank, $100 million?
    Ms. Bartolomucci. I would say so, yes.
    Mr. Green. Would you agree that a $100 billion bank is a 
large bank?
    Mr. Richards. Yes.
    Mr. Green. Ma'am?
    Ms. Bartolomucci. Yes.
    Mr. Green. So somewhere in between $100 million and $100 
billion, would you agree that $100 billion is a large bank and 
is not a community bank? Let me ask this before I go on. One 
hundred billion is not a community bank?
    Mr. Richards. I wouldn't want to say that the definition of 
a community bank is necessarily based on asset size.
    Mr. Green. I understand, but we will deal with asset size 
for the moment.
    Would a $100 billion bank be a community bank?
    Mr. Richards. I would say most likely not, but I wouldn't 
want to say definitively no.
    Mr. Green. All right. And ma'am, would you agree that a 
$100 billion bank is not a community bank?
    Ms. Bartolomucci. Representative, I don't believe I have 
the expertise in the banking area to answer that question.
    Mr. Green. I understand. And this is the dilemma that we 
have. Because we start out talking about doing things for small 
banks and community banks, but when we end up looking at what 
we will actually accomplish, the rules then move to $100 
billion banks. And I am a strong supporter of what I believe to 
be a community bank and a small bank. And I would like to see 
some regulations softened for small banks and community banks.
    I have talked to enough of these bankers to understand that 
they do have some legitimate concerns about regulations and the 
regulatory burdens to which they have to adhere. But when we 
try to craft rules, we find ourselves moving from small 
community banks to positions where folks are reluctant to say 
that a $100 billion bank is not a community bank.
    So, if a $100 billion bank is not a community bank, how do 
we craft the rules to impact the banks that I think you really 
want to see impacted? Do you follow where I am going, Mr. 
Richards?
    Mr. Richards. Yes, I do follow where you are going. Yes, 
sir.
    Mr. Green. Yes, so, at some point, we do have to make some 
decisions about whether a $100 billion bank is going to be a 
community bank. Now, if you think a $100 billion bank is a 
community bank, you will make it very difficult for me to 
support the rule that will impact community banks. Because we 
are talking about pretty much all banks.
    So, how do we get to this point of demarcation, wherein we 
understand the legitimate difference between big, big banks and 
small banks and community banks?
    Mr. Richards. I think a major difference between what you 
might call a mega-bank, or your kind of Walmart of banks and a 
true community bank is the fact that community banks really do 
tailor their products and services to their customers, while--
    Mr. Green. If I accept that as a definition, then we can 
accept any bank as a community bank. All banks can be community 
banks. And maybe that is the world we are in, where all banks 
are community banks.
    But when we talk about these things in terms of making 
rules to soften the regulations, we conjure up in our minds the 
image of an institution that is smaller. But if we are going to 
do this for all banks--if all banks are community banks, 
because of size, size doesn't matter--then we probably are 
going to have to start to talk about small banks, as opposed to 
community banks. Because it loooks like the term, ``community 
bank,'' based upon most of what I am hearing, applies to all 
banks.
    I will have to yield back, because I am over my time.
    Thank you, Madam Chairwoman.
    Chairwoman Capito. Thank you.
    Mr. Barr?
    Mr. Barr. Thank you, Madam Chairwoman.
    And thank you to our witnesses today. Mr. Richards, again, 
thank you for coming to testify here about the challenges that 
Kentucky community banks face, complying with all of the 
dizzying array of regulations--the avalanche of red tape that 
comes out of the Dodd-Frank law and the CFPB.
    And one of the things that I would--one of the takeaways--
what I--the conclusion that I draw from both of your testimony 
here today is that, although we in the United States pride 
ourselves as having a government that is a representative 
government, we are a government that depends on the consent of 
the government.
    And that we talk about the importance of understanding the 
unique needs and concerns of our constituents--that when 
Congress and the elected representatives of the people delegate 
away our power to unaccountable, unelected directors and 
regulatory agencies like the CFPB, there becomes a huge 
disconnect between the realities that the American people face 
on a day-to-day basis and what the Bureaucrats in Washington do 
in terms of designations and administrative decisions.
    And here, we have a classic example of a designation of a 
county like Bath County, Kentucky, as non-rural.
    So, Mr. Richards, for the benefit of all the Members of 
Congress on this panel, and for folks here in Washington, D.C., 
as a fellow Kentuckian please elaborate on your testimony about 
the rural nature of your home county.
    Mr. Richards. Certainly. I wish I could take you all to 
that county so that you could see what we are talking about. It 
has two stop lights, but only one real stop light. The second 
stop light is for a crossing for schoolchildren.
    And it has three major towns, if that is what you want to 
call them, and several other smaller communities.
    We have quite a large Amish population, so it is not 
unheard of to see a horse and buggy going down Main Street. So, 
it is just a picturesque rural Eastern Kentucky town.
    Mr. Barr. And I think, Mr. Richards, you testified that 
there are only two other banks in your county.
    Mr. Richards. That is right.
    Mr. Barr. Could you talk about, once again, when you made 
that discovery, that the Consumer Financial Protection Bureau 
had classified your county as non-rural? When you made that 
discovery, what impact did you see that having on not just your 
bank, but the community of Bath County?
    Mr. Richards. What I saw it doing was restricting what 
products Bath Countians could get from their banks. It just 
blew my mind when I saw that they hadn't thought that we were a 
rural county. And I just see it as taking something away from 
them--taking an option away from them. If that is--if they want 
to take out a balloon loan, they might not be able to. They 
don't want to do business with them.
    Mr. Barr. And, Mr. Richards, if your bank was denied the 
ability to originate the loans, and offer this product offering 
to the citizens of Bath County--if balloon loans were denied 
Qualified Mortgage status in your particular rural community, 
what impact would that have on your bank and your customers? 
And as you answer that question, describe for the panel the 
type of customers who are served by your bank.
    Mr. Richards. Certainly.
    A large percentage of our customers are on public 
assistance--Social Security, fixed incomes. To deny them access 
to credit when they qualify for it, I think, is a disservice to 
them. They have chosen our bank because they like doing 
business with us. And so, if, for whatever reason, we are no 
longer allowed to offer those products and services to them, I 
don't see how it could be anything else but a disservice.
    Mr. Barr. And this would be--and you make decisions--these 
are portfolio loans, so you are making a business judgment. You 
are retaining the risk, so you are going to--
    Mr. Richards. That is right.
    Mr. Barr. --your incentives are aligned with the borrower 
to make sure that it is not only access to mortgage credit, but 
it is responsible mortgage credit. Your incentives are aligned. 
You are not turning around and selling these into the secondary 
market, is that right?
    Mr. Richards. That is correct. We have no incentive for our 
borrower not to pay us back.
    Mr. Barr. My time is running out. I want you to make--as a 
fifth generation banker--one final comment. And that is, as a 
fifth generation banker who--and a bank that survived the Great 
Depression and 140 years of the banking business, I think I 
heard you testify that you are worried that in 10 years, with 
this avalanche of regulation, you may not be in existence 
anymore.
    Can you speak to Dodd-Frank as the greatest threat to your 
bank in 140 years?
    Mr. Richards. Certainly.
    It is crazy to me to think that we have made it through the 
Great Depression. We have made it through the stagflation of 
the 1970s, the 1980s. And yet, it is not a crisis of the market 
that poses a threat to us, it is regulatory. It is completely 
manmade. It is just crazy to me. And it is frightening. It 
truly is frightening.
    Chairwoman Capito. Thank you.
    Mr. Barr. Thank you.
    Chairwoman Capito. Mr. Lynch?
    Mr. Lynch. Thank you, Madam Chairwoman. I want to thank the 
witnesses, as well, for their willingness to help the committee 
with its work.
    Just off the top, I would like to just address the 
discussion draft here for a moment.
    The language in the discussion draft would basically stop 
all regulatory activity in every single agency. And I just want 
to say right up front, I have enormous respect for the 
chairwoman and for the ranking member. I think they are two of 
the finest legislators that we have in Congress today. But I 
have to say that this is not your best work.
    I realize it is a discussion draft. And, again, I--it pains 
me, because I do have such enormous respect for both of you. 
But I think that this legislation--this discussion draft would 
basically stop any effort by the CFPB, or any other agency, any 
other department, from really doing its job.
    It would basically require each and every agency--each and 
every separate regulator--to--before they issue any regulation, 
to go back and do a full examination of whether their 
regulation conflicts somewhere else, or is in harmony with, or 
is related to any other regulation. And then to report back to 
Congress on their investigation.
    It completely ignores the fact that we in Congress--let's 
take the Dodd-Frank Act. We have introduced change in the 
system. So, we put a law out there. But rather than going 
through all the finer details of how that law works, and do 
them here in committee, and discuss them among 435 Members of 
Congress--which would take forever, and it would have mixed 
impact--we say to the regulators, ``Here is your mandate. We 
want you to change the law. Go out and do it.''
    So, these regulators, like in the Volcker Rule, finally 
coming up a year after our deadline--they are going to change 
the law. They are going to change the law at our request. Under 
this bill, they would have to--each of those separate agencies 
would have to do a full forensic examination of the new law 
that we have put in place to determine whether that law is 
inconsistent with any other Federal regulation.
    Now, we are the ones who implemented this whole process. 
So, this creates a circular firing squad among the regulators. 
This stands on its head the whole purpose of having the 
regulations to begin with.
    So, I just can't say enough of how--look, I have seen some 
bad legislation, but this is right up there, I have to say. And 
we have seen some bad legislation in this committee, God knows.
    But this is a doozy. So I just--and again, it doesn't 
reflect on my impression of the competency or the professional 
and the public service of the sponsors here. I think this is 
just a bad bill. This is a bad bill.
    I think that the purpose here is to gum up the works so 
that in the case of the CFPB, the Consumer Financial Protection 
Bureau, they cannot protect the consumer. That is the end 
result, at the end of the day, of this bill on the CFPB.
    And I think there are some folks out there, in the 
financial services industry, who are just delighted with that 
fact.
    But I know the sponsors and I know how committed you are to 
protecting consumers, and that is why I say that I don't think 
the discussion draft is worthy of your sponsorship.
    I think it is a terrible bill, and I am hoping we have some 
second and third thoughts about this.
    May I ask, ma'am, you mentioned that there is no risk to 
the taxpayer in allowing private insurers to go in with the 
Federal Home Loan Bank System. But in fact, if a bank fails, 
and that insurer--that private insurer, there is a reason there 
are only 132 banks and 9 States out of 50, that allow private 
insurance for their credit unions.
    Now, if that insurer fails, if they are in the Federal Home 
Loan Bank System with FDIC insurance and National Credit Union 
insurance fund insurance, if their claims don't get answered by 
the insurer, at the end of the day, those come back on the 
taxpayer. That is where the risk is.
    It is not a risk that is directly critical of your credit 
unions; it is of the private insurer. That is where the 
exposure comes. I know a lot of my--a lot of the members here 
have been asking about exposure to the taxpayer, that is where 
it comes, it is when the insurer goes down and there isn't 
enough resources to answer all claims.
    Chairwoman Capito. The gentleman's time has expired.
    Mr. Lynch. Oh, thank you, I yield back.
    Chairwoman Capito. Mr. Posey?
    Mr. Posey. Thank you, Madam Chairwoman.
    It seems there is never a shortage of omnipresent defenders 
of the nonexistent problems of the people. I wonder how many 
people each of you have in your compliance department?
    Ms. Bartolomucci. Representative, Towpath Credit Union has 
one employee who works in compliance but also wears many other 
hats. And then, we share a compliance officer with two other 
credit unions.
    We cooperate within credit unions and we share resources 
and people and funds. So, one-and-a-half.
    Mr. Posey. How many did you have in 2007?
    Ms. Bartolomucci. None.
    Mr. Posey. Mr. Richards?
    Mr. Richards. Congressman, my bank has one compliance 
officer, and just like Ms. Bartolomucci, he also wears many 
hats. And then, we also have an assistant compliance officer, 
so one-and-a-half, essentially.
    Mr. Posey. How many did you have in 2007?
    Mr. Richards. We had one.
    Mr. Posey. Okay. What are the regulations, same question to 
both of you, that you feel are most burdensome to your 
institutions?
    Mr. Richards. For me, Congressman, it is not one specific 
regulation that I would point to as being the most burdensome. 
It is simply the cumulative effect of one layer of regulation 
being laid on top of another layer, on top of another layer. It 
is simply that cumulative effect that really hampers us.
    Ms. Bartolomucci. Representative, agreed. It is just the 
constant amount of changes in the regulatory environment which 
causes our credit union to continue spending the resources of 
our members.
    So it is just the continual, constant--as I make the 
regulation and then stop so that we can take a breath and work 
with our members.
    Mr. Posey. Somebody told me that there are no two 
institutions in the Nation that do a home loan disclosure 
exactly alike. They have made that so confusing with the 
changes to it.
    How about regulations regarding what is placed on accrual 
or non-accrual? We have heard from people who had regulators 
come in, for example and say, we don't think this motel should 
be able to make their payments right now, given this tough 
economy.
    And the bankers say, well, it is a 30 percent loan-to-value 
ratio, it is an 11-year old loan. And they have never been 1 
minute, not 1 second late, in this whole time. There is no 
problem with this, and the regulator said, well, we don't care, 
we are putting it on non-accrual, we don't think they should be 
able to make their payments.
    Did you ever have an experience like that?
    Mr. Richards. I think that is a perfect example of 
regulator roulette; you really don't know what you are going to 
get in an exam. There could be one examiner that might give you 
one answer and another examiner that might give you a 
completely different answer.
    So that is--that regulatory risk. And yes, we have seen 
that in our institution before.
    Mr. Posey. Okay.
    Ms. Bartolomucci. We know that regulators have their job to 
do, as we have our job to do. And we really try to work as best 
as we possibly can with our regulators. And there is, from time 
to time, we agree to disagree, but at the end of the day, they 
are the regulator.
    Mr. Posey. I have heard quite a few over-regulator horror 
stories. Obviously, very few people are willing to come forward 
and say, now look, because they tremble at the repercussions 
they could get from the regulator.
    They said, well, we might win this battle, but we will be 
penalized in so many more ways. When it seems oftentimes they 
are not supposed to, I guess, by regulation, put something on 
non-accrual because it is upside down or on appraisal, but they 
do it anyway.
    And the bankers are afraid to complain about it.
    Ms. Bartolomucci. In my unique role as the regulator in the 
State of Ohio, I took the position of really partnering up with 
our credit unions and really trying to work with them. Because 
our credit unions are really trying to do the right thing 
everyday and all day long.
    And so, that is the stance I took. And we would work with 
them because they knew what they were doing, they may have 
fallen on some hard times because of the economy, and we were 
able to work with them to bring them back through that economy, 
and withstand all the pressures of the regulatory environment.
    Mr. Posey. Have you ever heard of the OCC people doing 
that?
    Mr. Richards. No, sir, I have not.
    Mr. Posey. I see my time is up, Madam Chairwoman, thank 
you, I yield back.
    Chairwoman Capito. Thank you. Mr. Murphy?
    Mr. Murphy. Thank you, Madam Chairwoman, and Ranking Member 
Meeks, and thank you to the witnesses.
    My first question, kind of adding on to what Mr. Posey was 
asking there. Regarding uncertainty, as it relates to QM, a lot 
of the small community bankers, et cetera, in my district, that 
I talk to have been happy with the CFPB sort of responding to 
industry concern regarding QM.
    But as it relates to uncertainty, do you think it is worth 
it, continuing to go back to the well to try to improve QM, 
knowing that is going to add more uncertainty and another x-
number of months, and more regulation, more red tape, et 
cetera. So where do you draw that line?
    Mr. Richards. I do actually think it is worth it, because 
it is my understanding that the actual final--the final reg Z 
changes have only been decided upon within the last several 
weeks. And I just don't see how that is enough time to fully 
incorporate those changes into our program.
    So yes, I do think it is worth taking the time to make sure 
that everybody is on board, everybody has a complete 
understanding as far as what these regulations truly mean, and 
to get it right.
    Mr. Murphy. And do you have a couple of things off the top 
of your head that you think are priority items we should be 
looking at?
    Mr. Richards. As far as the QM regulations go?
    Mr. Murphy. Yes.
    Mr. Richards. I think that something that definitely needs 
to be looked at is the rural and underserved designation. I 
think that is a top priority. Also something that we are 
concerned with is what do we do if we have a balloon loan that 
matures and we are supposed to refinance it and all of a sudden 
it doesn't meet these ability-to-repay requirements, are we 
supposed to go on and make that loan, even though we know it is 
not QM, and we know we could be potentially sued for that loan?
    So, I think there are a lot of questions out there. And 
honestly, I don't know if banks are going to make non-QM loans 
as a result of this legislation.
    Mr. Murphy. Sort of adding on the same train of thought 
there, Mr. Barr brought up this point regarding Dodd-Frank. 
What, in your opinion is the additional regulatory compliance 
to lenders for the safest loans, for the--30-year fixed-rate, 
good debt-to-equity ratio, et cetera. What is the added cost 
there, not the really risky ones, just the most conservative 
mortgages?
    Mr. Richards. I didn't quite understand your question, I'm 
sorry.
    Mr. Murphy. What, in your opinion, is the additional 
regulatory compliance cost for the safest of loans? Because 
they didn't cause the crisis, it is the more risky ones. I am 
wondering if we are punishing sort of the good actors.
    Mr. Richards. I see what you are saying. So what in my 
opinion--what is hard about making a 30-year fixed-rate loan, I 
guess?
    Mr. Murphy. Do you feel as though the cost of issuing those 
are going up?
    Mr. Richards. As a result of the QM rules, and everything 
else?
    Mr. Murphy. Yes.
    Mr. Richards. Honestly, I don't know that I have enough 
expertise to answer that because we don't originate loans for 
the secondary market; we portfolio everything that we make. But 
I would be happy to get back to you, in writing, at a later 
date.
    Mr. Murphy. Okay. Thank you.
    And I am going to yield my remaining minute-and-a-half or 
so to Mr. Green.
    Mr. Green. I thank the member for yielding.
    Mr. Richards, let's revisit our previous conversation. You 
seem to make a distinction between your bank, with its assets 
and the number of compliance officers that you have, and the 
megabanks and the number of lawyers and compliance officers 
that they have. Is this a fair statement?
    Mr. Richards. Yes.
    Mr. Green. If this is true and you are concerned about 
banks your size, whatever that happens to be, size matters. So 
the question is, where is the line of demarcation?
    Mr. Richards. That is a--
    Mr. Green. Where--let me finish, because it is important to 
know when we cross over that line, if I am genuinely concerned 
about small banks. I have been into many now, I have actually 
taken the time to go in. I am convinced that there are some 
needs that should be met.
    The dilemma arrives when we start to try to meet the need, 
we find ourselves going beyond what I see as small, and we get 
to mega. The question is, where is that line? And the small 
bankers at some point are going to have to take a stand because 
if you don't, you are lobbying for all banks. That is going to 
be a difficult lift.
    So we want to help with the compliance needs of small 
banks. Where is the line?
    Mr. Richards. I agree with you, it is a very difficult 
question to answer. I don't think that there is a stark line 
that any one person can draw.
    Mr. Green. How can I help you if you want help, but the 
help that I accord is for everybody?
    Mr. Richards. I think the real delineation comes where we 
tailor our products and services to our customers. I think that 
is the major delineation.
    Mr. Green. There is not a bank in the country that won't 
indicate that they tailor their products--
    Mr. Richards. I disagree.
    Mr. Green. --to their customers. Every bank will tell you, 
``we do that.''
    Chairwoman Capito. The gentleman's time has expired.
    Mr. Green. Thank you, Madam Chairwoman.
    Chairwoman Capito. Mr. Stivers?
    Mr. Stivers. Thank you, Madam Chairwoman. Thank you for 
holding this hearing. And thanks for allowing me to sit in. I 
would like to ask unanimous consent to add a letter from the 
Ohio Credit Union League to the record.
    Chairwoman Capito. Without objection, it is so ordered.
    Mr. Stivers. Thank you. Thank you, very much. Ms. 
Bartolomucci, I would like to thank you for your service to my 
home State of Ohio as the supervisor of credit unions under the 
Strickland administration. I think we barely crossed paths. I 
left as a State senator in 2008, so you were there for a little 
bit while I was there. And I want to thank you for that 
service.
    I want to go through two things with you, and then I do 
have a couple of questions for Mr. Richards.
    I want to talk about scale, and this is going off of some 
questions that I know Mr. Luetkemeyer asked. So, there are 132 
privately insured credit unions across the country. They have 
$13 billion in combined assets, but they have other products. 
They wouldn't, all those $13 billion would not use the Federal 
Home Loan Bank because there are other products that they would 
have--car loans, that they would have other uses for those 
assets.
    What type of scale do you think, of that $13 billion, would 
be drawn on the Federal Home Loan Bank at any one time? Would 
it be less than $1 billion?
    Ms. Bartolomucci. I believe that it would. When you look at 
the borrowers of the Federal Home Loan Bank, you have insurance 
companies that borrow the total sum of what the assets are of 
our privately insured credit unions. So, yes, Representative 
Stivers, you are correct.
    Mr. Stivers. And so that is on--that is about $1 billion on 
a $430 billion outstanding advance in the Federal Home Loan 
System. So to look at the scale, this is tiny. We are talking 
about the gnat on the back of some other bigger animal.
    Ms. Bartolomucci. Yes, it is about equality for privately 
insured credit unions to be able to have access to liquidity 
for their members.
    Mr. Stivers. Great. And now let's talk about the layers of 
protection. And so, the first layer of protection is that 
private insurance companies are capitalized with equity. In 
fact, the private insurance company that is from Ohio, American 
Share Insurance, is actually better capitalized than the 
National Credit Union Insurance Fund today. They have a better 
equity ratio and all their loss exposure is actually reserved 
on their balance sheet, which actually makes them--doesn't that 
make them actually less risky than the Federal insurance 
program, outside of the fact that the Federal insurance program 
has a very implicit government guarantee?
    Ms. Bartolomucci. Yes. American Share Insurance is very 
well-capitalized. They are 1.6 percent capitalized, which makes 
them the strongest fund.
    Mr. Stivers. The adequacy of their loan loss reserves and 
the private insurance companies also must be attested to by 
independent actuaries every year. Is that correct?
    Ms. Bartolomucci. That is correct. Yes.
    Mr. Stivers. And then, they are regulated by the nine State 
insurance departments in the nine States that allow private 
insurance.
    Ms. Bartolomucci. Yes, and they are also regulated by the 
Department of Insurance in Ohio and the Department of Commerce 
Division of Financial Institutions in Ohio.
    Mr. Stivers. And a final layer of protection, any of those 
loans that use the Federal Home Loan Bank, and I know you 
mentioned this earlier, also have to be fully collateralized. 
Is that correct?
    Ms. Bartolomucci. That is correct.
    Mr. Stivers. So we are talking about a tiny percentage, one 
in 400, one four-hundredth, and we are talking about fully 
collateralized loans and an insurance fund that is actually 
better capitalized than the Federal plan. Is that correct?
    Ms. Bartolomucci. That is correct. Yes.
    Mr. Stivers. So, seems like a no-brainer to me.
    Ms. Bartolomucci. It is a no-brainer.
    Mr. Stivers. So Mr. Richards, by the way, I grew up in 
Ripley, Ohio, just across the river in Brown County, and I am a 
fourth generation community banker. My great-great-grandfather 
founded the Citizens National Bank of Ripley, Ohio, which my 
father sold in 1986. So we didn't quite make it to 140 years, 
but we were pretty close.
    And I do want to tell you, I support both of the bills that 
you support. You have concerns about my bill, but I support the 
other two bills that you support. Tell me, when you have two 
regulators that have conflicting regulations, how do you choose 
which regulator to follow?
    Mr. Richards. That is a great question. I don't think there 
is a right answer there.
    Mr. Stivers. There is no right answer, but that makes the 
point of why we need Chairwoman Capito's bill. So thank you 
very much for that.
    Mr. Richards. I agree.
    Mr. Stivers. The second thing is, I guess I have a 
philosophical question. Do you believe the government or free 
enterprise is better at pricing risk?
    Mr. Richards. I believe free enterprise is.
    Mr. Stivers. Great. And, the flood insurance, FHA, GSEs--I 
agree with you completely. With that in mind, I would say that 
maybe we should look at, given that these private insurance 
companies are better capitalized than the Federal funds, maybe 
we should allow our private State insurance commissioners to 
actually regulate the FDIC and the National Credit Union 
Insurance Fund. That is just a statement. I am not asking for 
your opinion.
    I yield back. Thank you.
    Chairwoman Capito. The gentleman's time has expired.
    Mr. Heck?
    Mr. Heck. Thank you, Madam Chairwoman.
    Ms. Bartolomucci, I am from Washington State. And as such, 
I don't have a lot of knowledge about the role of private 
insurance funds. But I am vaguely aware that we went through a 
pretty rough patch back in the 1980s and 1990s, particularly in 
Rhode Island.
    And I think it is always instructive to kind of remind 
ourselves what the lessons are that were learned, and 
especially how they relate to today's practices. Can you give 
me a brief paragraph on that, please?
    Ms. Bartolomucci. Yes, Representative. My understanding 
back in the early 1980s with Rhode Island and private share 
insurance, that had to do with the S&L debacle back in those 
days. If you fast-forward to today, American Share Insurance is 
the share insurance in the country. And they have withstood the 
test of time, time and time again for many decades.
    If you look at what we just went through, the economic 
crisis that we just went through, American Share Insurance is a 
success story. They are strong. They are viable. They--
    Mr. Heck. Is that because they changed their practices?
    Ms. Bartolomucci. When you say ``change their practices,'' 
they are very diligent--
    Mr. Heck. Charged more, kept more in reserves, whatever--
    Ms. Bartolomucci. Yes, they are very diligent in having 
many CPA audits. The regulators in those nine States go into 
American Share Insurance once a year. The actuarial studies--
they have international actuarial studies conducted. The Ohio 
Department of Insurance governs or regulates them, as well as 
the Ohio Department of Commerce, Division of Financial 
Institutions.
    They most recently--the State of Nevada was hit very hard, 
and one of the credit unions that is privately insured, 
American Share Insurance, was able to inject capital into that 
credit union so that credit union could continue being the 
viable entity in that community for the teachers. It is a 
teachers' credit union. And today, that credit union is doing 
extremely well.
    And so American Share Insurance, and again my unique 
background being a regulator, I regulated American Share 
Insurance. I really understand their business model and how 
that company works. It is truly a genuinely good business model 
for credit unions.
    And so American Share Insurance is a success story, and 
they are doing very well. And all the statistics will show you 
their information, their financials and their examinations will 
show you that they are the strongest fund--share insurance 
fund.
    Mr. Heck. Good. Thank you.
    Mr. Richards, you wouldn't have any way of knowing this, 
but one of my goals in my very brief tenure here is to try and 
goad banks and credit unions into playing a little nicer with 
one another.
    I am not doing so well.
    Mr. Richards. We are quite good friends.
    Mr. Heck. And frankly, your testimony might constitute 
exhibit A.
    If I read this correctly, the ABA opposes Congressman 
Stivers' bill--I think it is his--not because it hurts banks 
financially?
    Mr. Richards. Actually--
    Mr. Heck. Let me finish, please.
    Not because you think it will hurt the Federal Home Loan 
Banks, but because you think it could hurt an insurance company 
that in no way relates to banks. I am having a problem with 
that. And to be perfectly blunt about it, I hope there is 
something more at work here other than, ``Well, if they are for 
it, we are against it.''
    Mr. Richards. Are you finished?
    Mr. Heck. I am.
    Mr. Richards. Okay. The ABA actually doesn't oppose the 
bill. They just have concerns about it. And those concerns stem 
from a few different areas, actually. The major concern is that 
as a Federal Home Loan Bank member, we are jointly liable for 
any losses that the System might incur. And these private 
insurers don't have the same large risk pool that the NCUSIF 
and the FDIC has. And frankly, they are riskier. They are 
riskier and pose a risk to the Federal Home Loan Bank System 
and potentially to the members.
    That is our concern.
    Mr. Heck. Yet, what your testimony said is that private 
insurers would be the ones that would be at risk. You didn't 
indicate in your written testimony that either the FHLBs or 
their member institutions would be. What you said was the 
private insurers, and I just don't find that relevant to the 
bill. But thank you very much.
    I yield back the balance of the time I do not have 
available.
    Chairwoman Capito. Thank you. Mrs. Beatty?
    Mrs. Beatty. Thank you, Madam Chairwoman, and Ranking 
Member Meeks for allowing me to also, like Mr. Stivers, sit in 
on this hearing. I have a special interest in H.R. 3584. And 
let me say to both of our witnesses, thank you for being here.
    Mr. Heck gave me a great segue. Like him, I take great 
pride in being a bridge-builder. I have a special relationship 
with you, Ms. Bartolomucci. And I should know that name well. 
You worked with the governor during my time as the Democratic 
House Leader in the Ohio House of Representatives. Thank you 
for your work then, and for being here today.
    Also, that shop in Dublin that you talked about is in my 
district. Folks live and work there.
    And to you, Mr. Richards, thank you for nodding a lot of 
times at her comments. That is a good start.
    Yesterday, I was in a meeting with a lot of bankers and 
financial folks, and got great advice from some of the audience 
sitting here today, which I am reflecting on. Now, I am here, 
and I am glad to hear that you are not opposed, but you have 
concerns. So, my role as one of the co-sponsors is to figure 
out how we can bridge that.
    With that said, let me go to the point that I think you 
were making, that you are concerned about the private insurers. 
Let me ask you this: When was the last time a privately insured 
credit union failed and depositors lost principal?
    Mr. Richards. That is actually outside of my expertise, but 
I would be happy to get back to you at a later date.
    Mrs. Beatty. Okay. Let me also ask you if you are familiar 
with the Silver State Schools Credit Union.
    Mr. Richards. No, ma'am.
    Mrs. Beatty. Well, okay. I will go to your counterpart 
there. Could you share with us something about that? Are you 
familiar with it?
    Ms. Bartolomucci. Yes, the Silver State Schools Credit 
Union, I believe back in 2008, may have been a $1 billion 
credit union--a teachers' credit union in that community. And 
with the economic turndown that we had, their mortgage market 
just really took a turn.
    They are privately insured, and therefore, many of the 
members of that credit union lost their jobs, and lost their 
homes. They had a very difficult time. And American Share 
Insurance (ASI) stepped in. They worked with the regulator 
there. We worked with the regulator in Ohio. And we were able 
to inject capital into Silver State's Credit Union, which is 
again--that credit union is a success story, because if ASI had 
not had the wherewithal or the capital or the strength or the 
viability to inject the capital into Silver State's, that 
credit union would not be here today.
    Not one credit union member has lost money in Silver State. 
And so, if you look at them today, they have been profitable 
for, I believe, 5 quarters. They have turned that around. 
Members still have access to credit. They have teachers who 
have helped their families and their kids purchase homes, 
rewrite loans, in order for them to be able to pay them back. 
So, that is Silver State's success. And I know that, because I 
sit on an advisory board where American Share Insurance is very 
transparent to privately insured credit unions as to the 
financial wherewithal of Silver State.
    Mrs. Beatty. Thank you for that. And I shared that because 
that credit union also has been in existence for 60-plus years.
    And, Mr. Richards, the importance of this is--and Mr. 
Green's question helped me, because he was asking, ``What is 
the problem and what is the issue which makes you have 
concerns?'' And thank you for moving from being opposed to 
being concerned.
    So, hopefully, examples like this can help demonstrate or 
show that--we are talking about 130 credit unions. And if I am 
correct, we are only asking that they be eligible to apply. We 
are not asking beyond that a mandate for anything, other than 
that they would have that access. Is that correct?
    Ms. Bartolomucci. That is correct. And also, those credit 
unions would have to be able to withstand the rigid 
requirements of the Federal Home Loan Bank, and, again, fully 
capitalize any advances that would be made. So, yes, that is 
correct, Representative Beatty.
    Mrs. Beatty. And who benefits if privately insured credit 
unions gain access to the FHLB?
    Ms. Bartolomucci. The members. And personally, my 21,000 
members would benefit--consumers in the community.
    Mrs. Beatty. And would you say those same individuals would 
be harmed, or--if I asked who would be harmed?
    Ms. Bartolomucci. Yes.
    Mrs. Beatty. Thank you.
    I relinquish the time I don't have.
    Chairwoman Capito. Thank you.
    Ms. Waters?
    Ms. Waters. Thank you very much, Madam Chairwoman, and 
Ranking Member Meeks.
    I sat here because I wanted very much to hear what our 
witnesses would say today about the proposed legislation. What 
is interesting about this hearing is that both credit unions 
and community banks have the support of both sides of the 
aisle. And I think it is well known that I have been working 
with Chairman Jeb Hensarling to come up with a comprehensive 
piece of legislation that would deal with regulations that we 
feel are harmful or overburdensome to our small and our 
community banks, regional banks. And Mr. Green has raised a lot 
of questions about what is a community bank? What is a small 
bank?
    He didn't throw this in, but I also have a question--we 
have been debating about what is a regional bank. And so, we 
are--and I still would like to continue to work with the 
chairman, and not try and piecemeal the bills on community 
banks so that we can get very specific about regulations, 
rather than attempting to do it in the way that the draft does.
    I have a great respect for the difficulty of this work, but 
the draft is overreaching. And I do think that we can come 
together around specificity, and talk about the regulations 
that we want to modify, change, or delete, et cetera, et 
cetera, et cetera. And I think we should work toward that end.
    For our credit unions, you, too, have the support of both 
sides of the aisle. First of all, before I say this to you, Mr. 
Richards, for our credit unions, we appreciate the work that 
they do in supplying opportunities and credit to some that you 
have alluded to here today, the firefighters, the teachers, et 
cetera, et cetera.
    The question that must be answered is if a private credit 
union fails, where does the responsibility lie? As a matter of 
fact, what I have here--what I find is very interesting--and I 
will read it to you--and this is coming from, I guess, the 
NCUA.
    They say, ``Our concerns stem from language added to the 
original section which makes it appear that oversight 
responsibility for non-federally insured credit unions and 
certain State-regulated private share insurance companies rest 
with NCUA.''
    They go on to say, ``NCUA has no legal authority, 
regulatory or supervisory jurisdiction over these non-federally 
insured credit unions or commercial insurance companies, nor do 
we seek it. In our view, the language requiring private 
insurance providers to submit copies of their annual audit 
reports to NCUA should be removed to avoid any potential 
consumer confusion and misunderstanding.''
    So, I think that we have to take this into consideration. 
What we should be doing is trying to figure out how do we make 
this work. You are State-regulated. Every State has its own 
rules, regulations, et cetera. We are Federal. And federally 
insured, yes, does have that backstop. And so, that is what we 
are looking for.
    Let's work on that, rather than trying to just ignore the 
fact that the insurance companies could fail. And you only have 
one insurance company that is insuring all of the credit 
unions, American Share Insurance? Because all of the others 
have, what, left the market, or what have you?
    Let's work on this and try and get it right, instead of 
trying to ignore the fact that we have to be concerned about 
where the responsibility eventually lies in the case of the 
failure of our private credit unions. We like credit unions. We 
want them to be successful, as for our community of small 
banks.
    I think that there is a lot that we could do. And let me 
tell you why we raise questions about balloon payments. As you 
know, balloon payments have had a terrible reputation in the 
past. They were used oftentimes in ways that literally caused 
people to default and have their homes taken away from them. 
You know that history. It is a history that is replete with 
those kinds of problems.
    I have great respect for small banks that keep these loans 
in their portfolio. I love that. We could have avoided a lot 
of--if everybody could have afforded it, if all banks could 
have afforded it, to do that kind of thing.
    So the question we have to ask is this: In the balloon 
payments, whether they are 3 years, 4 years, 7 years or what 
have you, and you talk about people on fixed incomes who need 
to have a special kind of product. People on fixed incomes 
don't have an increase in those incomes. They can't look 
forward to the fact that they are going to have more money. And 
when that balloon payment comes, and if at that particular 
time, based on your risk, you decide that you have to have the 
highest interest rate, et cetera, they can't afford it, then 
what happens? You need to help us define how to deal with 
balloon payments in ways that will not so negatively impact 
those who could use the short--the low interest rates that they 
are given if they have 3, 4, 5, 6, 7 years.
    Help us to understand what you do with that person with the 
fixed income, and based on your risk assessment, now you have 
to charge a different interest rate. How do you keep them in 
that home? I know about how often homes turn over, and most 
people who buy homes don't anticipate that they are going to 
turn over in 3, 4, 5, 6 years. Some do if the market is right 
and you can make a profit or something. Some do, but most 
don't.
    We need you to work with us so that we can help straighten 
out these problems so that we can keep you doing what you want 
to do. Because you have the basic support. It is not as if--for 
example, right now, Mr. Richards, the CFPB has said they are 
not going to do anything on balloon payments; keep doing what 
you are doing for the next 2 years.
    And so, let's use that 2 years to work on dealing with 
regulations in ways that will help you, rather than trying to 
look at ways by which you can just stop all regulations. Or as 
Mr. Lynch was saying, bottle it up in such a way that the 
regulators can't do their jobs.
    I would like to work with you and others on the credit 
union problem to see what we can do to ensure that we have a 
backstop. Because I think this can all be worked out.
    I yield back the balance of my time.
    Chairwoman Capito. Thank you.
    With that, all questioning is over.
    I would like to thank both of the witnesses. You were 
excellent witnesses. And I appreciate your efforts not only on 
behalf of your institutions, but on behalf of this Congress.
    Thank you.
    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.
    The hearing is adjourned.
    [Whereupon, at 12:13 p.m., the hearing was adjourned.]



                            A P P E N D I X



                            December 4, 2013

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