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


                         

 
                    WHO'S IN YOUR WALLET: EXAMINING

                    HOW WASHINGTON RED TAPE IMPAIRS

                            ECONOMIC FREEDOM

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

                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 8, 2014

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 113-73
                           
 
                                   ______

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                      Washington, DC 20402-0001                        
                           

                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    JEB HENSARLING, Texas, Chairman

GARY G. MILLER, California, Vice     MAXINE WATERS, California, Ranking 
    Chairman                             Member
SPENCER BACHUS, Alabama, Chairman    CAROLYN B. MALONEY, New York
    Emeritus                         NYDIA M. VELAZQUEZ, New York
PETER T. KING, New York              BRAD SHERMAN, California
EDWARD R. ROYCE, California          GREGORY W. MEEKS, New York
FRANK D. LUCAS, Oklahoma             MICHAEL E. CAPUANO, Massachusetts
SHELLEY MOORE CAPITO, West Virginia  RUBEN HINOJOSA, Texas
SCOTT GARRETT, New Jersey            WM. LACY CLAY, Missouri
RANDY NEUGEBAUER, Texas              CAROLYN McCARTHY, New York
PATRICK T. McHENRY, North Carolina   STEPHEN F. LYNCH, Massachusetts
JOHN CAMPBELL, California            DAVID SCOTT, Georgia
MICHELE BACHMANN, Minnesota          AL GREEN, Texas
KEVIN McCARTHY, California           EMANUEL CLEAVER, Missouri
STEVAN PEARCE, New Mexico            GWEN MOORE, Wisconsin
BILL POSEY, Florida                  KEITH ELLISON, Minnesota
MICHAEL G. FITZPATRICK,              ED PERLMUTTER, Colorado
    Pennsylvania                     JAMES A. HIMES, Connecticut
LYNN A. WESTMORELAND, Georgia        GARY C. PETERS, Michigan
BLAINE LUETKEMEYER, Missouri         JOHN C. CARNEY, Jr., Delaware
BILL HUIZENGA, Michigan              TERRI A. SEWELL, Alabama
SEAN P. DUFFY, Wisconsin             BILL FOSTER, Illinois
ROBERT HURT, Virginia                DANIEL T. KILDEE, Michigan
MICHAEL G. GRIMM, New York           PATRICK MURPHY, Florida
STEVE STIVERS, Ohio                  JOHN K. DELANEY, Maryland
STEPHEN LEE FINCHER, Tennessee       KYRSTEN SINEMA, Arizona
MARLIN A. STUTZMAN, Indiana          JOYCE BEATTY, Ohio
MICK MULVANEY, South Carolina        DENNY HECK, Washington
RANDY HULTGREN, Illinois             STEVEN HORSFORD, Nevada
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
                    
                    
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    April 8, 2014................................................     1
Appendix:
    April 8, 2014................................................    67

                               WITNESSES
                         Tuesday, April 8, 2014

Alvarez, Scott G., General Counsel, Board of Governors of the 
  Federal Reserve System.........................................    14
Friend, Amy S., Senior Deputy Comptroller and Chief Counsel, 
  Office of the Comptroller of the Currency (OCC)................    17
Fuchs, Meredith, General Counsel, Consumer Financial Protection 
  Bureau (CFPB)..................................................    11
McKenna, Michael J., General Counsel, National Credit Union 
  Administration (NCUA)..........................................    16
Osterman, Richard J., Jr., Acting General Counsel, Federal 
  Deposit Insurance Corporation (FDIC)...........................    12

                                APPENDIX

Prepared statements:
    Maloney, Hon. Carolyn........................................    68
    Alvarez, Scott G.............................................    69
    Friend, Amy S................................................    81
    Fuchs, Meredith..............................................   101
    McKenna, Michael J...........................................   107
    Osterman, Richard J., Jr.....................................   120

              Additional Material Submitted for the Record

Hensarling, Hon. Jeb:
    Written statement of the American Bankers Association........   135
    Written statement of ACA International.......................   150
    Written statement of the American Financial Services 
      Association................................................   178
    Written statement of the American Land Title Association.....   184
    Written statement of The Clearing House Association L.L.C....   188
    Written statement of the Consumer Bankers Association........   194
    Written statement of the Consumer Bankers Association, the 
      Credit Union National Association, the Electronic Funds 
      Transfer Association, the Electronic Transactions 
      Association, the Independent Community Bankers of America, 
      the National Association of Federal Credit Unions, and the 
      Third Party Payments Processors Association................   198
    Written statement of the Community Financial Services 
      Association of America.....................................   204
    Written statement of Community Choice Financial..............   216
    Written statement of the Credit Union National Association...   220
    Written statement of the Electronic Transactions Association.   224
    Written statement of the Financial Service Centers of America   232
    Written statement of the Independent Community Bankers of 
      America....................................................   271
    Written statement of the Mortgage Bankers Association........   289
    Written statement of the National Automobile Dealers 
      Association................................................   296
    Written statement of the National Association of Federal 
      Credit Unions..............................................   308
    Written statement of the National Association of Home 
      Builders...................................................   336
    Written statement of the National Association of Retail 
      Collection Attorneys.......................................   344
    Written statement of the U.S. Chamber of Commerce............   348
Ellison, Hon. Keith:
    ``Treasury Notes Blog: The Importance of Remittances through 
      Legal Channels to Somalia,'' dated December 23, 2011.......   396
    Letter from the U.S. Department of the Treasury, dated July 
      8, 2013....................................................   398
Horsford, Hon. Steven:
    GAO Report entitled, ``Financial Regulatory Reform, Financial 
      Crisis Losses and Potential Impacts of the Dodd-Frank 
      Act,'' dated January 2013..................................   400
Luetkemeyer, Hon. Blaine:
    Bank Discontinuation Timeline................................   499
    Bank Discontinuation Letters.................................   501
    FDIC Financial Institution Letter dated September 27, 2013...   506
    Written statement of the Financial Services Roundtable.......   508
    Letter to the U.S. Department of Justice, dated August 22, 
      2013.......................................................   512
    Letter from the U.S. Department of Justice, dated January 28, 
      2014.......................................................   516
    Letter to the Federal Reserve and the Comptroller of the 
      Currency, dated March 27, 2014.............................   520
    ``United States of America v. Payment Processing Center''....   524
    American Banker article entitled, ``DOJ's `Operation Choke 
      Point': An Attack on Market Economy,'' dated March 21, 2014   549
Sherman, Hon. Brad:
    Additional information provided for the record by the 
      National Credit Union Administration in response to a 
      question posed by Representative Sherman during the hearing   552
Alvarez, Scott G.:
    Written responses to questions submitted by Representative 
      Garrett....................................................   554
    Written responses to questions submitted by Representative 
      King.......................................................   560
    Written responses to questions submitted by Representative 
      Maloney....................................................   562
    Written responses to questions submitted by Representative 
      Moore......................................................   565
Friend, Amy S.:
    Written responses to questions submitted by Representatives 
      King, Murphy, Moore, Sinema, and Garrett...................   568
Fuchs, Meredith:
    Written responses to questions submitted by Representatives 
      Barr, Ellison, Garrett, Huizenga, Murphy, Pittenger, and 
      Sinema.....................................................   578
McKenna, Michael J.:
    Written responses to questions submitted by Representatives 
      King, Royce, Pittenger, Mulvaney, Garrett, and Fitzpatrick.   592
Osterman, Richard J., Jr.:
    Written responses to questions submitted by Representatives 
      Garrett, King, Maloney, Murphy, Moore, and Sinema..........   612


                    WHO'S IN YOUR WALLET: EXAMINING

                    HOW WASHINGTON RED TAPE IMPAIRS

                            ECONOMIC FREEDOM

                              ----------                              


                         Tuesday, April 8, 2014

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 10:04 a.m., in 
room 2128, Rayburn House Office Building, Hon. Jeb Hensarling 
[chairman of the committee] presiding.
    Members present: Representatives Hensarling, King, Royce, 
Capito, Garrett, Neugebauer, McHenry, Pearce, Posey, 
Fitzpatrick, Westmoreland, Luetkemeyer, Huizenga, Duffy, Hurt, 
Grimm, Stivers, Stutzman, Mulvaney, Hultgren, Ross, Pittenger, 
Wagner, Barr, Cotton, Rothfus; Waters, Maloney, Sherman, Meeks, 
Clay, Scott, Green, Ellison, Himes, Peters, Sewell, Foster, 
Kildee, Murphy, Delaney, Sinema, Beatty, Heck, and Horsford.
    Chairman Hensarling. The committee will come to order. 
Without objection, the Chair is authorized to declare a recess 
of the committee at any time.
    Before we begin our proceedings, I would like to take a 
moment and recognize the newest member of the House Financial 
Services Committee, Congressman Steven Horsford, the freshman 
Representative from Nevada's newly created 4th District.
    I was informed that before running for office, Mr. Horsford 
was the CEO of the Culinary Academy of Las Vegas. So I wish to 
inform my colleague that it is a longstanding tradition of this 
committee that the newest member bring culinary delights for 
the rest of the members' enjoyment. We look forward to what you 
will bring to our next hearing.
    We assume you will bring great policy and intellectual 
offerings as well as your culinary offerings to the committee. 
Our colleague served in the Nevada legislature from 2004 to 
2012, where he became Nevada's youngest and first African-
American State Senate Majority Leader.
    I, on behalf of all of the committee, welcome him to the 
committee, and I would now like to recognize the ranking member 
out of order for 1 minute to welcome our new colleague, as 
well.
    Ms. Waters. Thank you very much, Mr. Chairman. And of 
course, you have said much of what I was going to say.
    However, I am very happy to welcome Mr. Steven Horsford as 
the newest member of the House Financial Services Committee. 
Mr. Horsford represents Nevada's newly created 4th 
Congressional District. And again, I think it is important to 
note that he is the first African-American to serve in Nevada's 
Federal delegation.
    Before his election to Congress, Congressman Horsford 
served in the Nevada State Senate, where he became Nevada's 
youngest and first African-American State Senate Majority 
Leader. He also served as Chair of the Senate Committee on 
Finance. During his time at the Nevada legislature, Mr. 
Horsford built a reputation as a bipartisan legislator and a 
strong advocate for middle-class and working families.
    Then-Senator Horsford worked on legislation that slowed 
down the rate of foreclosures in Nevada, increased transparency 
and due diligence in the foreclosure filing process and helped 
reform unfair lending practices. He comes to us with 
demonstrated leadership capabilities, real-world knowledge of 
today's labor market, and a heart for serving middle-class and 
working-class families. He will be a valuable addition to this 
committee and I look forward to working with him.
    I yield back the balance of my time.
    Chairman Hensarling. The gentlelady yields back.
    I am now happy to yield, out of order, 1 minute to the 
gentleman from Nevada to tell us what he is cooking for lunch. 
The gentleman is recognized for 1 minute.
    Mr. Horsford. Thank you, Mr. Chairman, and Ranking Member 
Waters, for your kind welcome and your introduction. It is my 
honor to join the Committee on Financial Services and I am 
proud to represent the people of Nevada's 4th Congressional 
District.
    Nevada, as many of you know, was hit particularly hard 
during our economic downturn, and although we have made great 
strides in rebounding, and our home values are continuing to 
increase, we still have a long way to go. Southern Nevada 
remains the most unstable housing market in the country, and 
the root of many problems facing Nevada families is that, 
unfortunately, many of them no longer feel secure in their 
homes.
    So I am grateful for the opportunity to serve on this 
committee and I look forward to working with my colleagues on 
both sides of the aisle to pass meaningful legislation that 
addresses some of the hardest-hit communities in our Nation, 
and while my previous career was in culinary arts and helping 
train and employ people in careers in the hospitality industry, 
Mr. Chairman, I was not a culinarian.
    I cannot cook. So I will have to cater out. But if we can 
pass some meaningful legislation, I would be happy to make sure 
that contribution is made.
    Thank you. I yield back my time.
    Chairman Hensarling. We will make sure the Member is 
informed of all relevant ethics rules. The gentleman yields 
back.
    Perhaps we can all make him feel welcome.
    [applause]
    Chairman Hensarling. Our hearing today is entitled, ``Who's 
in Your Wallet: Examining How Washington Red Tape Impairs 
Economic Freedom.''
    I now recognize myself for 4 minutes to give an opening 
statement.
    Last Friday, the House debated a rather simple, common-
sense bill requiring the Congressional Budget Office to produce 
long-term macroeconomic analysis of proposed legislation. It 
was strongly opposed by House Democrats.
    If this bill had been law just a few years ago, Members 
would not have had to pass Obamacare to find out what is in it. 
They and the public would have known before the fact instead of 
after that, according to the Congressional Budget Office, 
Obamacare will result in 2.5 million fewer jobs. Information 
like this should not be swept under the rug.
    Regrettably, something similar happened in this committee 
just last week. The Oversight and Investigations Subcommittee 
received testimony from a high-ranking CFPB whistleblower 
concerning serious allegations of discrimination and 
retaliation at the Bureau. Her testimony was corroborated by 
the CFPB's own independent investigator, and both testified as 
to many other CFPB employees who have lodged these same 
allegations.
    What was the response from the Democratic leadership on the 
committee? They demanded the hearing be cancelled. In other 
words, the matter would regrettably be swept under the rug, 
hidden from public view, ignored.
    Likewise, many Democrats have harshly criticized cost-
benefit analysis, looking at the pluses and minuses of the 
rule, the impact on jobs, asking the question of whether a rule 
on balance helps or harms hardworking, struggling American 
families.
    The ranking member, for example, declared that legislation 
requiring cost-benefit analysis is dangerous. I believe what is 
dangerous is sweeping under the rug the mounting evidence that 
many rules promulgated under Dodd-Frank and its ideological 
precursor, the CARD Act, are harming consumers.
    The Federal Reserve now reports that one-third of Black and 
Hispanic borrowers would be hurt by the qualified mortgage (QM) 
rule. In the American Bankers Association's most recent lending 
survey of banks, one-third of respondents said they plan to 
reduce their mortgage lending only to QM loans. Perhaps that is 
why QM is rapidly becoming known as the ``quitting mortgages'' 
rule.
    The FDIC has reported that it has become more difficult for 
lower-income Americans to access banking services because 
checking and savings account fees have gone up. Almost one-half 
of banks that previously offered free checking no longer do so.
    In a recent survey of banks regarding CFPB's remittance 
rule, the ABA reported that 42 percent will now increase fees, 
and 18 percent plan to stop offering the services altogether. 
Forty percent of lower-income families have reported that their 
credit cards have been cancelled, not renewed, or their limits 
reduced since the passage of the CARD Act.
    Clearly, the evidence continues to mount and cannot be 
conveniently swept under the rug. It is time for everyone to 
take off partisan blinders and acknowledge the truth that 
Washington regulators aren't always right and more red tape is 
not always the solution to every problem. It is time to hold 
Washington accountable.
    Frequently, I receive letters or correspondence like the 
following from a banker in Central Texas, who I think sums up 
the challenges well. He wrote, ``We have provided fair, honest, 
and competitively priced loans and home mortgages in our market 
for as long as I have been with the bank. And for the record, 
we have not had a home foreclosure in over 25 years.
    ``Currently, our ability to cope with the regulatory burden 
is at a critical stage. We are spending an unprecedented amount 
of time and resources trying to understand this process as the 
various agencies continue to draft new rules and guidance at 
will. Just a new regulation here and there and now consumer 
lending has become a compliance nightmare.
    ``There is no time left to take care of our customers or 
develop new relationships because all of our team is busy 
working on compliance issues. The spirit of the law no longer 
exists as the regulatory environment has changed from a helpful 
and supervisory approach to the gotcha attitude where only the 
slightest issue can bring instant criticism to your bank.
    ``Reluctantly, we are working to downsize our consumer 
lending program, especially in the small loan area. Also, due 
to the massive new regulatory focus on mortgage loans, we have 
suspended our home lending activities as of this month. This is 
not good news for our community, but we can no longer comply 
with the massive burden.''
    I think the letter speaks for itself. Regrettably, I 
receive many such letters, thus the subject of our hearing 
today.
    I now yield 5 minutes to the ranking member for an opening 
statement.
    Ms. Waters. Thank you very much. Mr. Chairman, before I 
proceed with my remarks I must set the record straight and I 
must share with this committee that the Democrats did not ask 
for a cancellation of the hearing.
    We asked that the hearing be cancelled because, in fact, 
you had set out to hold the hearing based on a report that was 
aired in the American Banker. You changed the makeup of that 
hearing and you went in another direction with one individual.
    So when the CFPB decided they would not come because you 
had changed the hearing, we agreed with that, but we made the 
young lady, the lawyer, Angela Martin, very welcome, and I 
yielded my time to her so she could tell us more about the 
discrimination in the CFPB that she was claiming was being 
perpetrated by White males against African-Americans and 
others.
    We welcome that information and we welcome your newfound 
interest in doing something about discrimination. We think that 
this is a healthy direction for your side of the aisle and we 
are looking forward to a hearing that will be organized in 
regular order to deal with these issues.
    Furthermore, let me also mention that your concern about 
African-Americans and others being able to access mortgages 
under the QM rules, you need to know that one-third of banks 
have said they are satisfied with what has happened with QM in 
the way that the Consumer Financial Protection Bureau has 
helped to work out some of the problems, and one-third of the 
banks will now be making loans.
    With that, I will proceed with my statement.
    Just before Congress is set to leave town for a 2-week 
congressional recess, here we are again attacking regulators 
for their efforts to repair the damage caused by the worst 
financial crisis since the Great Depression. This hearing, in 
my estimation, is nothing more than the latest chance for the 
Majority to air its ideologically-driven deregulatory agenda.
    And it is a continuation of the Republican quest for 
extreme and unreasonable cost-benefit requirements, which do 
nothing more than undercut the ability of our regulators to do 
their jobs. How quickly my colleagues on the other side of the 
aisle have forgotten the loss of millions of American jobs and 
trillions of dollars of household wealth caused by inadequate 
regulation.
    Mr. Chairman, the simple fact is that the Majority's cost-
benefit requirements would impose additional costs on our 
regulators and expand government bureaucracy.
    I find it ironic that we are participating in a hearing to 
examine so-called government red tape while many of my 
Republican colleagues are pushing measures that would only 
serve to increase it. It is unfortunate that this committee 
continues to consider these measures, which are becoming a not-
so-veiled effort to roll back the significant accomplishments 
of the Dodd-Frank Wall Street Reform Act while ignoring a 
number of important policy matters that need our attention now.
    We know the crisis was caused by dramatic failures of 
corporate governance and risk management at large, globally 
interconnected financial firms. We also know that excessive 
borrowing, risky investments, and a lack of transparency 
throughout the financial system put us on the path to crisis.
    Although Washington had a role to play, it certainly was 
not because regulators erred on the side of overregulation. 
Despite their collective failure to see the crisis coming 
before it was too late, the financial regulatory agencies 
represented before us today should be commended for their 
effort that has already put our financial system on more stable 
footing. Regulators have made important progress by enhancing 
risk-monitoring and heightening capital standards at the 
largest and most complex banks and nonbank financial companies.
    They have also increased cooperation and information-
sharing among regulators of banks and nonbank financial 
companies, and they have enhanced the transparency and 
protections afforded to consumers and investors. Our regulators 
have also taken action to ease the regulatory burden for small 
banks and financial institutions by providing targeted relief.
    I am looking forward to what the witnesses will say about 
actions to continue helping these small and community-based 
entities. As the number of legislative days continue to 
dwindle, I certainly hope that we can come together on 
important issues that merit our serious attention. Rather than 
accusing Washington of restricting economic freedom, we should 
be taking up bills that grow our economy and create good jobs 
for U.S. workers.
    Mr. Chairman, this includes reauthorizing the export-import 
bank and extending the terrorism risk insurance program. Acting 
on these important measures now is imperative to ensure 
businesses have the certainty they need to invest in the 
economy. They both create and sustain American jobs and have 
widespread bipartisan support, including a number of Republican 
members of this committee.
    These issues desperately need our attention, and while we 
know they need to be addressed very soon, this committee has 
thus far simply refused to do so.
    I thank you, and I yield back the balance of my time.
    Chairman Hensarling. The gentlelady yields back.
    The Chair now recognizes the gentlelady from West Virginia, 
Mrs. Capito, the chairwoman of our Financial Institutions and 
Consumer Credit Subcommittee, for 2 minutes.
    Mrs. Capito. Thank you, Mr. Chairman.
    I would like to thank the witnesses for being here today.
    The topic for our hearing today is how regulations 
emanating from Washington are affecting Main Street. This has 
been a common theme in the Financial Institutions and Consumer 
Credit Subcommittee over the past year.
    In past hearings, we have heard significant concerns from 
community bankers and credit unions about how new regulations 
are removing a significant amount of discretion from 
underwriting consumer credit. One of the main issues we focused 
on are the mortgage rules that the CFPB issued last January, 
that went into effect this year.
    These rules will have a tremendous impact on the Nation's 
mortgage market, and I feel the consumers who are most impacted 
by them and stand to lose are the low- to moderate-income 
borrowers. The hearings we have had on these mortgage rules 
have highlighted the importance of allowing lenders to have a 
tremendous amount of flexibility in determining a borrower's 
ability to repay.
    We have learned about several programs that have allowed 
low-income borrowers, who otherwise would not be able to 
realize the dream of home ownership, to purchase their own 
home. In my home State of West Virginia, I have talked 
extensively with bankers who work with low-income borrowers to 
structure tailored products that would help them purchase the 
home. And in many, lenders have longstanding relationships with 
the clients that they serve.
    They use these relationships and their local knowledge to 
extend credit to borrowers who might otherwise not qualify. 
Thanks to their efforts, many low-income borrowers in my State 
now own homes and are working towards greater financial 
flexibility. Unfortunately, the CFPB rules are bringing many of 
these programs to an end.
    Many of the institutions that shared the success of these 
programs targeted to low- or moderate-income borrowers also 
shared significant concerns about the one-size-fits-all nature 
of the CFPB mortgage rules. This could be a huge problem for 
rural communities like those I represent in West Virginia. I 
have already heard concerns from bankers and individuals in my 
State that low-income borrowers simply will not be able to get 
a mortgage if they do not fit this qualified mortgage criteria.
    Unfortunately, this Washington-knows-best approach is not 
limited to the mortgage market. The agencies before this 
committee have also taken action to limit the availability of 
consumer choice in other ways. Many of the financial 
institutions that offer short-term loan products have now 
exited the business.
    I yield back to the Chair.
    Chairman Hensarling. The gentlelady yields back.
    The Chair now recognizes the gentlelady from New York, Mrs. 
Maloney, for 2 minutes.
    Mrs. Maloney. Thank you. I have a great respect for the 
chairman, but I must take issue with his statement that the 
CARD Act, the Credit Card Reform Act, hurts consumers. There 
have been two celebrated independent reports: one from the Pew 
Foundation that said this bill alone saved consumers a whopping 
$10 billion a year; and more recently, a report from three 
major universities, one of which was New York University in my 
district, which said that this bill saved consumers $20 billion 
a year. I fail to understand how keeping money in consumers' 
pockets hurts them.
    What the bill basically did is that it stopped unfair, 
deceptive, and anticompetitive practices. The regulators 
themselves have endorsed it. The Fed came out with a rule that 
was practically totally similar to it, thereby showing that it 
did not hurt the industry or the overall economy, and the 
regulators tell me that the number of complaints on credit 
cards is now practically nonexistent.
    The industry itself tells me that the number of complaints 
that they have to deal with are practically nonexistent. So I 
would say a bill that helps consumers is certainly not one that 
hurts them. And with all due respect, you are entitled, 
certainly, to your own impressions, but not your own facts.
    And if there is a disagreement on these issues I would 
really hope that the chairman would have a hearing on it. Let's 
call in the Pew Foundation and the academics. Many consumer 
groups have given numerous awards to the bill for what it has 
done for the overall economy and in helping. It is a relief 
program, a stimulus program for consumers, keeping their money 
in their own pockets by stopping unfair and abusive practices.
    I would call that a success. My time has expired.
    I ask unanimous consent to put my opening statement that I 
prepared into the record.
    Chairman Hensarling. Without objection, it is so ordered.
    The Chair now recognizes the gentleman from New Jersey, Mr. 
Garrett, the chairman of our Capital Markets and GSEs 
Subcommittee, for 1 minute.
    Mr. Garrett. I thank the chairman for holding this very 
important and timely hearing today. These oversight hearings 
with the banking agencies are really much needed, and it is my 
hope that they will happen more frequently.
    Having these hearings and requiring the regulators to come 
here and take and then answer some of the tough questions may 
be the only way we can ensure that they retain any level of 
accountability to Congress. Dodd-Frank bestowed almost 
limitless powers to the banking regulators, and especially to 
the Fed.
    Unfortunately, all of these agencies continue to operate 
with little, if any, accountability. So instead of technocrats 
simply implementing the directives given them by Congress, 
these banking agencies now operate as policymakers on steroids, 
carrying out their own regulatory ambitions and even blatantly, 
in many cases, clearly defying congressional directives.
    Mr. Chairman, I believe this is totally unacceptable. And 
given this lack of accountability to this Congress, I believe 
this Congress should seriously examine the appropriateness of 
merging and reforming some of these agencies to ensure a 
greater level of accountability to the American public and to 
this Congress.
    I yield back.
    Chairman Hensarling. The Chair now recognizes the gentleman 
from California, Mr. Sherman, for 2 minutes.
    Mr. Sherman. I want to associate myself with the gentlelady 
from New York and her comments on the CARD Act.
    Mr. Chairman, you will find the rest of my opening 
statement to be bipartisan and depressing at the same time.
    Perhaps coincident with my arrival here in Congress, 
Congress has descended into a dysfunction so severe that even 
when we think we are affecting public policy and passing 
landmark legislation, the legislation does little more than add 
additional power to the Executive Branch agencies.
    Our most obvious method of affecting public policy is to 
pass legislation through this committee, which far more often 
than not is simply ignored by the other body, or passing 
legislation that does little more than extend existing programs 
without change. But I think perhaps our most important method 
of affecting public policy is by lobbying and beseeching the 
Executive Branch agencies and urging them to use their enhanced 
authority with wisdom.
    So I ask our witnesses to listen carefully to the advice 
you are about to hear, even if that advice is disguised in the 
form of a question. Listen carefully.
    Perhaps our advice will contain a shred of wisdom. And in 
any case, our ability to influence your decisions is perhaps 
the largest remaining shred of the once preeminent Article 1 of 
the United States Constitution.
    I yield back.
    Chairman Hensarling. The gentleman yields back.
    The Chair now recognizes gentleman from Georgia, Mr. 
Westmoreland, for 1 minute.
    Mr. Westmoreland. Thank you, Mr. Chairman, and I appreciate 
you having this hearing.
    First of all, let me just recognize all the panelists and 
thank you all for being here. I have read your bios and I have 
noticed that you are all attorneys, it seems like you are all 
bureaucrats, and none of you are bankers.
    And in fact, from reading your bios, I would say that none 
of you have sat across the table from anybody wishing to borrow 
money. And I don't understand exactly how that works that you 
can, in your professional opinion, understand what makes a good 
loan and what makes a bad loan, what makes somebody more at 
risk than somebody else that is not at risk, what makes 
somebody's company better than somebody else's company?
    And if you look at all the different things, the rules and 
regulations that you have put in place, you are not accountable 
to anybody.
    And so I hope, Mr. Chairman, that this committee will look 
at trying to put these agencies under the Appropriations 
Committee and the appropriations process so we can at least 
have some say-so over exactly what rules and regs they make.
    I yield back.
    Chairman Hensarling. The Chair now recognizes the gentleman 
from Missouri, Mr. Luetkemeyer, for 1 minute.
    Mr. Luetkemeyer. Thank you, Mr. Chairman.
    I am incredibly concerned about the complete abuse of power 
by the regulators as they have been forcing legally operating, 
fully licensed financial companies out of business. Regulators 
have admitted this is happening, and even have a name for this 
coordinated effort. It is called ``Operation Choke Point.''
    Regulators have admitted this is happening and do nothing 
about it. There is no denying it. I want to read an e-mail sent 
by a banker to a longstanding client in the nondepository 
lending space.
    ``Based on your performance, there is no way we shouldn't 
be a credit provider. Our only issue is and has always been the 
space in which you operate. It has never been the service that 
you provided or the way you operate. You have obviously done a 
brilliant job. It is the scrutiny that you, and now we, are 
under.''
    What we are seeing through Operation Choke Point and from 
these other regulators, as well as DOJ, should be a wakeup call 
to the entire Nation. I hope our witnesses can provide this 
committee with an explanation for the blanket targeting of an 
entire financial services sector.
    I yield back.
    Chairman Hensarling. The Chair now recognizes the gentleman 
from Wisconsin, Mr. Duffy, for 1 minute.
    Mr. Duffy. Thank you, Mr. Chairman.
    Congress enacted the Federal Advisory Committee Act in 
1972, over 40 years ago, and it was to ensure that Congress and 
the public understood what was going on in these meetings, what 
was being discussed, the cost to taxpayers, to provide basic 
transparency. Only the CIA and the Federal Reserve, for the 
purposes of the Open Market Committee, were exempt.
    What I would like to hear is what the CFPB is doing in 
these meetings that is on par with the CIA, and why these 
meetings aren't open to Congress and to the public. On February 
26th and 27th, I made a request to the CFPB to attend a 
Consumer Advisory Committee meeting. My staff was sent an e-
mail that they--the CFPB--could not accommodate the 
Congressman's request, meaning I couldn't attend.
    These meetings should be open. They should be transparent. 
The public and Congress should know what is going on and I 
would like to hear more testimony on this topic.
    I yield back.
    Chairman Hensarling. The Chair now recognizes the 
gentlelady from Ohio, Mrs. Beatty, for 1 minute.
    Mrs. Beatty. Thank you, Mr. Chairman, Ranking Member 
Waters, and witnesses.
    Today's hearing has a tricky title, but I think it is 
misplaced. Instead of having a one-panel hearing with only 
General Counsels from the financial regulators here to testify, 
we could expand the testimony to include the various private 
sector participants whose business models have in the past put 
them in the wallets of the American public.
    Market manipulation and predatory lending practices do not 
grow the size of the economic pie; they simply shift the pie 
from the victims to the takers. But today we are in a new day. 
No longer can credit card companies take advantage of consumers 
by charging fees for services that have no value or were never 
received.
    Access to capital and credit from deep and liquid markets 
are the hallmarks of the American financial system, all of 
which were jeopardized during the financial crisis. Economic 
freedom, unlike these one-sided hearings, is about both the 
freedom we choose for what is best for our family's finances, 
and the freedom to do so without being subject to unlawful and 
unfair financial practices.
    Thank you.
    Chairman Hensarling. We now welcome our witnesses.
    Ms. Meredith Fuchs is the General Counsel of the CFPB. Ms. 
Fuchs joined the Bureau in 2011, where she has also served as 
Principal Deputy General Counsel and as Chief of Staff to 
Director Cordray.
    She previously served as a staffer on the House Energy and 
Commerce Committee, and in a variety of legal positions in the 
private sector. She earned her law degree at NYU.
    Mr. Richard Osterman is the Acting General Counsel of the 
FDIC. Before joining the FDIC, Mr. Osterman represented the 
Federal Home Loan Bank Board on regulatory matters, and 
supervised complex commercial litigation. He holds a law degree 
from the University of Baltimore School of Law.
    Mr. Scott Alvarez is the General Counsel of the Board of 
Governors of the Federal Reserve System, a position he has held 
for almost a decade. His tenure at the Fed started in 1989, 
when he joined as Assistant General Counsel. He earned his law 
degree from Georgetown.
    Mr. Michael McKenna is the General Counsel of the National 
Credit Union Administration, where he has served since 1989. In 
that role, Mr. McKenna serves as the primary legal advisor to 
the NCUA board, and supervises the provision of legal advice 
throughout the agency.
    Prior to joining NCUA, Mr. McKenna served as Staff Judge 
Advocate for the U.S. Army at Fort Hood. He holds a law degree 
from American University.
    Last but not least, Ms. Amy Friend is the Senior Deputy 
Comptroller and Chief Counsel of the OCC. Ms. Friend oversees 
all of the agency's legal activities, including legal advisory 
services to banks and examiners in enforcement and compliance 
activities, litigation, and legislative activities.
    Prior to her service at OCC, Ms. Friend spent time in the 
private sector, and also served as a House staffer on this 
committee, so we welcome her back. She holds a law degree from 
Georgetown University.
    Without objection, each of your written statements will be 
made a part of the record. I believe each of you is familiar 
with our green, yellow, and red lighting system at the witness 
table. I would remind you, when it is your turn, to actually 
turn your microphone on and pull it very close to you so that 
all may hear your testimony.
    I respectfully ask that each of you observe the 5-minute 
time allocation.
    Ms. Fuchs, you are now recognized for 5 minutes.

    STATEMENT OF MEREDITH FUCHS, GENERAL COUNSEL, CONSUMER 
               FINANCIAL PROTECTION BUREAU (CFPB)

    Ms. Fuchs. Thank you. Chairman Hensarling, Ranking Member 
Waters, and members of the committee, thank you for the 
invitation to testify today on the impact of regulation on 
financial markets and on consumers. My name is Meredith Fuchs 
and it is my privilege to serve as the General Counsel of the 
Consumer Financial Protection Bureau. As you know, the Bureau 
was created as part of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act in response to the recent financial 
crisis. The crisis resulted in part from failures of a Federal 
regulatory system, including the fragmented responsibility for 
consumer financial protection.
    To address this problem, Congress created the Bureau. We 
are hard at work fulfilling the objectives that Congress set 
out for us, including ensuring that consumers have better 
information to make financial decisions, reducing unwarranted 
regulatory burdens, leveling the playing field for different 
kinds of entities offering the same kinds of products and 
services, and promoting transparent and efficient markets.
    As the Dodd-Frank Act requires, the Bureau has issued 
regulations to strengthen the mortgage markets, to make Federal 
mortgage disclosures easier for consumers to understand and 
less burdensome for firms to make, and to establish standards 
for mortgage servicing. We also have issued rules to allow us 
to examine a range of larger nonbank participants in the 
consumer finance markets.
    As we do this work, we employ a number of strategies to 
ensure that our rules are effective at protecting consumers and 
making consumer financial markets work. First, we consider the 
input of stakeholders. For example, our Office of Financial 
Institutions and Business Liaison connects the Bureau with bank 
and nonbank trade associations, financial institutions, and 
businesses to enhance collaboration and communication.
    In addition, the Bureau is the only banking regulator, and 
one of only three Federal agencies that the Small Business 
Regulatory Enforcement Fairness Act requires to convene small-
business review panels. Pursuant to the Act, before we propose 
a rule that would have significant economic impact on a 
substantial number of entities, we seek input directly from 
small entities on the potential cost and potentially less 
burdensome alternatives.
    A second strategy that we use when considering regulation 
is, as required by the Dodd-Frank Act, to consciously consider 
potential benefits and costs and impacts of our rules to 
consumers and to financial service providers.
    Where proposed regulation would have a significant economic 
impact on a substantial number of small entities, our analyses 
under the Regulatory Flexibility Act consider the compliance 
burdens of the proposal, as compared to less burdensome 
alternatives. Moreover, where a proposed rule would impose 
disclosure, record-keeping, or information-collection 
requirements, the Bureau also considers the potential burden, 
and ways to minimize that burden, pursuant to the Paperwork 
Reduction Act.
    Third, we act deliberately to reduce existing regulatory 
burdens. For example, as part of the Bureau's project to 
streamline the regulations that the agency inherited from seven 
different Federal agencies, we are working on a proposal that, 
if adopted, would reduce the requirements and the burden of 
providing annual privacy notices in certain circumstances.
    Other examples are in my written testimony.
    Currently, we are developing a comprehensive plan to assess 
the effectiveness of the significant rules that we have adopted 
under Federal consumer financial law within 5 years of their 
issuance, as Section 1022 of the Dodd-Frank Act requires.
    Fourth, we are working to make it easier to comply with our 
regulations. To that end, we have implemented a comprehensive 
regulatory implementation program to help industry. For 
example, after we issued our new mortgage rules last January, 
we published plain-language compliance guides for small 
businesses and we published video presentations to give an 
overview of the rules, as well as a readiness guide and other 
implementation materials.
    In close coordination with the other regulators, we 
developed and issued exam procedures as early as practicable. 
In addition, we provide oral guidance to industry participants 
who contact us. And where warranted, we have responded to 
stakeholder concerns by proposing and issuing amendments and 
clarifications to facilitate compliance with our rules and 
better protect consumers. There are examples in my written 
testimony.
    Of course, despite our best efforts, not everyone complies 
with the law all the time, which brings me to our fifth 
strategy: holding parties who violate the law accountable 
through an effective supervision and enforcement program. 
Together, our supervision and enforcement programs have 
returned hundreds of millions of dollars to injured consumers, 
have halted violations of the law, and have led companies to 
strengthen their compliance systems.
    Sixth and finally, the Bureau supports innovation in the 
marketplace through our Project Catalyst program and our Trial 
Disclosure program, under which companies can provide 
innovative disclosures or ways of delivering disclosures that 
are not currently permissible under existing regulations.
    Thank you for the opportunity to discuss the Bureau's work 
with the committee.
    [The prepared statement of Ms. Fuchs can be found on page 
101 of the appendix.]
    Chairman Hensarling. Mr. Osterman, you are now recognized 
for 5 minutes.

STATEMENT OF RICHARD J. OSTERMAN, JR., ACTING GENERAL COUNSEL, 
          FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC)

    Mr. Osterman. Good morning, Chairman Hensarling, Ranking 
Member Waters, and members of the committee. I appreciate the 
opportunity to testify today on recent regulatory activity of 
the Federal Deposit Insurance Corporation.
    Despite continuing challenges for the banking industry, our 
regulatory activity is taking place in a gradually improving 
environment for banks of all sizes. Annual earnings in the 
industry have increased for the past 4 years; balance sheets 
have also improved.
    As the industry has recovered, the Deposit Insurance Fund 
(DIF) has moved into a stronger financial position, from 
negative $20.9 billion at the end of 2009, to $47.2 billion at 
the end of 2013. And we remain on track to reach our 
statutorily required reserve ratio by 2020.
    The number of problem banks has shrunk from a high of 888 
in March of 2011 to 467 as of December 2013.
    The number of bank failures also has been declining 
steadily. In 2013, there were only 24 bank failures, compared 
to the peak of 157 in 2010.
    As the condition of the banking industry has improved, the 
total number of FDIC enforcement actions, both formal and 
informal, has decreased. Last year, enforcement actions 
decreased by 27 percent, and for the first time since 2008, the 
total number of enforcement actions terminated outpaced the 
number initiated.
    With the industry recovering, the FDIC continues to work on 
regulatory improvements designed to address the causes of the 
financial crisis. Last year, the FDIC joined with the Federal 
Reserve and the OCC in issuing rules that significantly revise 
and strengthen risk-based capital regulations through 
implementation of the Basel III international accord.
    The agencies are currently finalizing an enhanced 
supplementary leverage ratio regulation that will significantly 
revise and strengthen the leverage capital requirements for the 
eight largest bank holding companies and their insured banks. 
The FDIC Board has scheduled a vote on a final rule later 
today. These higher capital requirements will help offset 
systemic risk and provide an additional private capital buffer 
before the DIF is put at risk.
    In response to the significant liquidity problems 
experienced during the crisis, in October 2013 the banking 
agencies issued an NPR to implement a quantitative liquidity 
requirement consistent with the liquidity standards developed 
by the Basel Committee. The agencies are in the process of 
reviewing more than 100 comments received.
    The FDIC and five other agencies also issued a second 
notice of proposed rulemaking to implement Section 941 of Dodd-
Frank, which requires the sponsor of any asset-backed security 
to retain an economic interest equal to at least 5 percent of 
the aggregate credit risk of the collateral.
    Before issuing the final rule, the agencies will give full 
consideration to all issues raised by stakeholders in their 
meetings with agency staff as well as 200 comment letters. 
Also, the FDIC and the Federal Reserve are currently reviewing 
the revised resolution plans required under Title I of Dodd-
Frank Act for the largest, most systemically significant 
financial institutions under standards established under the 
statute.
    When proposing a new rule, the FDIC considers the least 
costly options for achieving the public purpose of the rule. 
The FDIC provides the public with a notice of proposed 
rulemaking, an opportunity to submit comments, including 
comments on potential effects on financial institutions and 
consumers. The FDIC then carefully considers all comments 
submitted, weighs the impact of the proposed rule, and 
frequently makes changes in the final rule to address issues 
raised during the comment period.
    The regulatory approach followed by the FDIC is intended to 
implement the statutes enacted by Congress. Rather than 
prohibiting financial products or services, the FDIC seeks to 
ensure that they are offered to consumers consistent with safe 
and sound banking practices.
    As the primary Federal regulator for the majority of 
smaller institutions, the FDIC is keenly aware of the 
challenges facing community banks. In the rulemaking process, 
particular attention is focused on the impact that a regulation 
might have on small institutions and whether there are targeted 
alternatives that would minimize any burden. In both the final 
Volcker Rule and the Basel rulemaking, the banking agencies 
made several changes to the final regulations to address issues 
raised by community banks.
    To address community bank concerns about the examination 
process, the FDIC has implemented a number of improvements to 
our procedures, particularly the pre-exam process, to help make 
examinations less intrusive and more efficient. We are 
providing technical assistance to help institutions with their 
compliance.
    Mr. Chairman, this concludes my remarks. I would be glad to 
respond to your questions. Thank you.
    [The prepared statement of Mr. Osterman can be found on 
page 120 of the appendix.]
    Chairman Hensarling. Mr. Alvarez, you are now recognized 
for 5 minutes.

   STATEMENT OF SCOTT G. ALVAREZ, GENERAL COUNSEL, BOARD OF 
            GOVERNORS OF THE FEDERAL RESERVE SYSTEM

    Mr. Alvarez. Thank you, Chairman Hensarling, Ranking Member 
Waters, and members of the committee. I appreciate the 
opportunity to testify on recent rulemakings and other actions 
by the Federal Reserve.
    The Federal Reserve is committed to strengthening the 
safety and soundness of the financial institutions it 
supervises so that these companies have the ability to meet 
their financial obligations and continue to make a broad 
variety of financial products and services available to 
households and businesses even in times of economic difficulty.
    The Federal Reserve has made significant progress in 
implementing the Dodd-Frank Act reforms designed to improve the 
resiliency of financial firms and the system as a whole. At the 
same time, we recognize that regulatory compliance can impose a 
disproportionate burden on community banking organizations.
    Community banking organizations tend to lend in 
neighborhoods where the institution's depositors live and work, 
making them important sources of credit in their local 
communities. The Federal Reserve has strived and will continue 
to strive to ensure that its regulations and supervisory 
framework are not unnecessarily burdensome for community 
banking organizations so they can continue to perform their 
important functions in a safe and sound manner in local 
communities.
    To achieve the goal of strengthening the quality and 
quantity of bank capital without imposing unnecessary burden, 
the Federal Reserve, in several recent rulemakings, made 
changes to address concerns raised by public commenters, 
designed, in particular, to reduce burden on community banking 
organizations. Many of the Basel III requirements will not 
apply to smaller banking organizations. The Federal Reserve and 
the other banking regulators also issued a community bank guide 
to the new capital rules to help noncomplex banking 
organizations understand the applicability of the new rules to 
their operations.
    Similarly, last month the Federal Reserve published the 
results of its annual stress test, which demonstrated that the 
largest banking institutions in the United States are 
collectively much better positioned to continue to lend to 
households and businesses and to meet their financial 
commitments in a severe economic downturn than they were 5 
years ago.
    Overall, this exercise has resulted in the 18 largest 
banking firms increasing their tier one common equity by more 
than $500 billion since 2008. That means that the strongest 
form of loss-absorbing capital at the largest banking firms has 
more than doubled since the financial crisis.
    Since enactment of the Dodd-Frank Act, the Federal Reserve 
has also completed a number of supervisory rulemakings, 
including adopting final rules that establish enhanced 
prudential standards for large banking organizations and rules 
that require large banking organizations annually to file plans 
to facilitate their resolution in bankruptcy.
    Today, the Board will deliberate on whether to finalize a 
rulemaking regarding a proposed supplementary leverage ratio 
for large banking organizations. None of these rules apply to 
community banking organizations.
    To become informed about the benefits and costs of a 
regulatory proposal, the Federal Reserve often collects 
information directly from those that we expect would be 
affected prior to designing the proposal. We also specifically 
seek comment on the costs and benefits of our proposed 
approach, invite comment on alternative approaches, and provide 
the public a minimum of 60 days to comment on all significant 
rulemaking proposals.
    In adopting a final rule, we seek to adopt the approach 
that faithfully reflects the underlying statutory provisions 
while minimizing regulatory burden. We typically follow this 
same process of seeking and learning from public comment when 
issuing supervisory guidance even though we are not required to 
follow that process under the Administrative Procedures Act.
    The Federal Reserve has made significant progress in 
implementing the Dodd-Frank Act and other measures designed to 
improve the resiliency of banking organizations and the 
financial system.
    I thank you for the opportunity to be here, and I will do 
my best to answer your questions.
    [The prepared statement of Mr. Alvarez can be found on page 
69 of the appendix.]
    Chairman Hensarling. Mr. McKenna, you are now recognized 
for 5 minutes.

  STATEMENT OF MICHAEL J. MCKENNA, GENERAL COUNSEL, NATIONAL 
               CREDIT UNION ADMINISTRATION (NCUA)

    Mr. McKenna. Thank you, Chairman Hensarling, Ranking Member 
Waters, and members of the committee.
    The National Credit Union Administration appreciates the 
invitation to testify about the agency's recent regulatory and 
supervisory activities. As a starting point, I want to 
emphasize that NCUA understands the need to strike a proper 
balance between implementing the safety and soundness 
considerations required by the Federal Credit Union Act and 
minimizing the bottom-line impact for the credit unions we 
regulate and insure.
    NCUA has a tailored program designed to mitigate compliance 
costs and improve the examination process for all credit 
unions. Rather than adopting one-size-fits-all regulations, 
NCUA also targets agency's rules to risks and asset size. NCUA 
strives to ensure that the agency's rulemakings are reasonable 
and cost-effective.
    The benefits associated with NCUA's rules primarily derive 
from addressing and mitigating safety and soundness risks in 
order to reduce the likelihood of credit union failures. By 
mitigating failures, NCUA protects the National Credit Union 
Share Insurance Fund, and in doing so, limits the financial 
burdens placed on the surviving credit unions that would bear 
the cost of failure.
    In looking at compliance issues, many of the complaints 
raised by credit unions stem from laws like the Bank Secrecy 
Act or other requirements of other regulators. In such cases, 
NCUA has no ability to provide regulatory relief.
    That said, NCUA does work to reduce regulatory burdens 
where possible for the rules it issues. However, as we learned 
from the recent financial crisis, sometimes the cost of 
regulatory inaction can be greater than the cost of action.
    Since 1987, NCUA has followed a deliberate process to 
continually review the agency's rules on a rolling basis. This 
unique policy requires NCUA to review all of its rules every 3 
years. It also ensures that NCUA's rules are up to date and 
reflect current realities.
    Recognizing the changing financial services environment, 
NCUA Board Chairman Debbie Matz announced the agency's 
Regulatory Modernization Initiative in 2011. Under this 
initiative, NCUA is working to streamline and update the 
agency's regulatory framework.
    Additionally, NCUA is developing targeted standards that 
address high-risk activities. Through this initiative, the NCUA 
board has approved four targeted rules to mitigate risk and six 
rules to cut regulatory burdens.
    One rule that I want to highlight is NCUA's final rule on 
the definition of a small credit union. At the start of 2013, 
the NCUA board raised the threshold for a small credit union 
from $10 million to $50 million in assets and under. As a 
result of this change, two-thirds of federally-insured credit 
unions are exempted from regulatory requirements not suitable 
for small, noncomplex credit unions.
    Additionally, 2,270 credit unions became eligible for 
assistance from NCUA's Office of Small Credit Union 
Initiatives, including access to free training sessions and 
consulting services.
    NCUA is affirmatively reducing the regulatory burden of 
two-thirds of the institutions we regulate and is proactively 
providing them assistance to help them grow and prosper.
    NCUA initiates rulemaking as a result of five factors. NCUA 
issues safety and soundness rules to address the lessons 
learned during the financial crisis or mitigate growing 
potential risks. NCUA also acts on rules when required by 
Congress, as was the case with the Dodd-Frank Act.
    Additionally, the agency adopts rules in response to 
recommendations of the U.S. Government Accountability Office 
and NCUA's Inspector General, such as the proposed risk-based 
capital rule released earlier this year.
    Often, NCUA issues rules to cut regulatory burdens or 
increase powers. Finally, NCUA modifies rules to address 
technical issues and provide greater clarity.
    Since the start of 2013, the NCUA board has approved 17 
final rules. Of these, one was required by the Dodd-Frank Act, 
five provided regulatory relief, four addressed safety and 
soundness matters, and the remaining seven rules were technical 
in nature.
    In other words, 70 percent of NCUA's recent final rules 
have provided regulatory relief or greater clarity without 
imposing new compliance costs.
    In closing, NCUA remains committed to continuing its 
rolling 3-year review of the agency's rules and finishing the 
Regulatory Modernization Initiative. We are also committed to 
working with Congress and other stakeholders to explore 
additional ways to address remaining concerns about NCUA's 
rules and the examination process.
    I look forward to your questions.
    [The prepared statement of Mr. McKenna can be found on page 
107 of the appendix.]
    Chairman Hensarling. And Ms. Friend, you are now recognized 
for 5 minutes.

STATEMENT OF AMY S. FRIEND, SENIOR DEPUTY COMPTROLLER AND CHIEF 
    COUNSEL, OFFICE OF THE COMPTROLLER OF THE CURRENCY (OCC)

    Ms. Friend. Thank you, Mr. Chairman.
    Chairman Hensarling, Ranking Member Waters, and members of 
the committee, thank you for the opportunity to appear before 
you today to discuss our bank supervision, enforcement, and 
regulatory program.
    The OCC supervises more than 1,700 national banks and 
Federal savings associations ranging in size from community 
banks with less than $100 million in assets, to large, complex 
financial institutions with more than a trillion dollars in 
assets.
    Since the financial crisis, the banks we supervise have 
made great strides in repairing their balance sheets through 
stronger capital, improved liquidity, and the timely 
recognition and resolution of problem loans. We have a robust 
process for developing regulations and guidance that serve our 
safety and soundness mission and also seeks to minimize the 
compliance burdens on supervised institutions, particularly 
community national banks and Federal savings associations.
    We believe it is important to tailor all rules and guidance 
to the size of the institution and the complexity of its 
activities whenever possible. Community banks have different 
business models and more limited resources than larger banks. 
Therefore, we consider those differences as we write rules and 
guidance.
    For example, in a number of recent rulemakings, such as our 
lending limits rule and the interagency Volcker Rulemaking, we 
streamlined compliance requirements for community institutions.
    We now also specifically highlight the key aspects of each 
new rule or piece of guidance that applies to community banks 
and thrifts. This highlight, in the form of a text box in the 
bulletin that accompanies each new issuance, notifies community 
institutions whether they even need to read the issuance.
    And in the case of more complex rulemakings, we have 
provided summary materials. For the new domestic capital rule, 
for example, we provided a concise two-page summary that gave 
community banks and thrifts the information they needed in a 
manageable form.
    Since the financial crisis, along with strengthening the 
overall national banking and Federal thrift system, our 
priority has been to minimize burden to community banks so they 
can devote more of their time to serving their customers.
    We take seriously the effect of our issuances on the public 
and private sectors of the economy. Towards this end, the OCC 
assesses the economic impact of our proposed and final rules.
    When our analysis indicates that a rule will have an 
economically significant impact, we also prepare a more 
detailed economic assessment. That assessment includes a 
comparison to a baseline and consideration of one or more 
alternative approaches.
    In addition to these analyses, the OCC and other Federal 
banking agencies are currently engaged in a wide-scale review 
to identify outdated or otherwise unnecessary regulations.
    The Economic Growth and Regulatory Paperwork Reduction Act 
requires this review every 10 years. As Chair of the legal 
advisory group of the Federal Financial Institutions 
Examination Council (FFIEC), I have been tasked with 
coordinating this joint regulatory review.
    The review provides the FFIEC, the agencies, and the public 
with an opportunity to identify and target regulatory changes 
to reduce burden on community institutions. We expect to 
publish the first Economic Growth and Regulatory Paperwork 
Reduction Act (EGRPRA) notice in the very near future, and we 
will specifically ask the public to consider this issue.
    While we are mindful of the challenges facing banks today, 
we also recognize that businesses and consumers need access to 
credit through a variety of products. Although the OCC does not 
determine the specific types or terms of consumer products or 
services that banks offer, we expect the institutions we 
supervise to carefully evaluate the risks their products may 
pose both to the banks and to their customers.
    From time to time, we have identified products that present 
substantial safety and soundness or consumer protection issues 
and we have issued guidance to address those concerns. On the 
other hand, we have seen a variety of properly structured 
products that provide consumers a safe and affordable means of 
meeting their financial objectives, and we support innovation 
by the industry to develop and make those products available.
    Thank you again for the opportunity to appear, and I will 
be happy to answer your questions.
    [The prepared statement of Ms. Friend can be found on page 
81 of the appendix.]
    Chairman Hensarling. Thank you.
    The Chair now recognizes himself for 5 minutes.
    Ms. Fuchs, approximately a year ago the CFPB issued its 
enforcement bulletin entitled, ``Indirect Auto Lending and 
Compliance with the Equal Credit Opportunity Act.'' I assume 
you are well familiar with that bulletin?
    In the intervening year, I am aware of at least seven 
different letters that have gone to Director Cordray that I 
somewhat assume ended up on your desk, signed by almost 100 
Members of Congress, both Senators and Congressmen, both 
Republicans and Democrats, all seeking the same information, 
and that is CFPB's methodology in identifying different groups 
of consumers, the factors it is holding constant to ensure its 
findings of pricing differentials are attributable to the 
consumer's background, and the numerical threshold with which 
the Bureau determines so-called disparate impact.
    In the intervening year, notwithstanding Director Cordray's 
public pronouncements that the CFPB would be transparent, we 
have yet to receive this information. Clearly, you are using 
some standard, since there was an enforcement action with 
respect to Allied Bank, so when does the CFPB intend on making 
this information public in explaining its methodology in 
regression analysis?
    Ms. Fuchs. Mr. Chairman, thank you for your question.
    The CFPB has been engaged in a regular dialogue with 
committee staff about this information, and I know that about 2 
weeks ago committee staff did meet with CFPB employees, CFPB 
staff, and go through the work that we had done with respect to 
the Allied matter, including--
    Chairman Hensarling. But Ms. Fuchs, with respect to those 
who have to live under the standard, doesn't this standard not 
only have to be--doesn't this need to be made public?
    Ms. Fuchs. The CFPB has talked about the methodology that 
it is using in connection with these auto investigations. We 
are also engaged--
    Chairman Hensarling. Have you specifically answered, 
though, the questions that have been posed by the Members of 
Congress?
    Ms. Fuchs. To some extent, in these matters, the 
methodology will vary depending on the business model of each 
individual institution that we are engaged in either 
supervision or investigation of. And so there is not a one-
size-fits-all process--
    Chairman Hensarling. Then, how is an indirect lender 
supposed to comply if all of this comes down to individual 
cases? Why isn't it to be observed that you are engaged in a de 
facto rulemaking without actually following the rulemaking 
process?
    So, if there is something--if there is some standard by 
which these people are being held, why is there a rulemaking to 
amend Reg B?
    Ms. Fuchs. The CFPB, when it is looking at indirect auto 
lending, is looking at it in much the same way as other 
regulators have looked at it. We do look at whether there are 
disparities that require any action, and then in the course of 
that--if we are in the middle of an investigation or an exam, 
we--
    Chairman Hensarling. So is there a methodology? Is there a 
numerical threshold? How is a bank supposed to comply?
    Ms. Fuchs. As I mentioned, it varies somewhat from matter 
to matter because of the business model of each individual 
lender that we may be looking at. However, we have been engaged 
in a constant discussion with your staff about this, and we 
walked your staff through our methodology a week or so ago so 
they would have an opportunity to ask questions and review how 
we approached--
    Chairman Hensarling. I have to tell you, Ms. Fuchs, and I 
know that you are not personally responsible here, but for an 
agency that is supposed to be policing abusive practices, to 
essentially engage in de facto rulemaking without engaging in 
de jure rulemaking, strikes me as an abusive practice, and I 
would hope that the agency would go back and reflect upon their 
actions, and answer the questions of Members of Congress on 
both sides of the Capitol, on both sides of the aisle.
    Now, in the time I have remaining, Ms. Fuchs, I guess you 
are also quite aware of the purpose of our hearing last week 
dealing with an American Banker article that revealed 
disparities in the ratings employees have received in the 
Bureau's annual employee review process. Can I assume that you 
are familiar with the American Banker article?
    Ms. Fuchs. Yes, sir.
    Chairman Hensarling. Does the CFPB take issue with the data 
that was presented in the American Banker article? Do you 
refute the statistics?
    Ms. Fuchs. Mr. Chairman, I see the time has expired. May I 
respond?
    Chairman Hensarling. You may respond.
    Ms. Fuchs. The CFPB takes the data that was reported in the 
American Banker article very seriously. The CFPB itself has 
been evaluating its performance management system, and thus 
collected the data that was provided to the American Banker.
    When we saw that there were concerns, we addressed this 
proactively with the National Treasury Employees Union, which 
is the labor union that represents the single bargaining unit 
at the CFPB, because we are in a process of negotiating our 
first collective bargaining agreement. And as you can imagine, 
performance management is an issue of great concern to that 
collective bargaining agreement.
    So we are affirmatively trying to address the disparities 
that were talked about in the--
    Chairman Hensarling. Ms. Fuchs, I am now well over my time. 
I just would say you certainly create the impression that you 
are trying to impose a standard upon others that you are 
incapable of living under yourself.
    The ranking member is recognized for 5 minutes.
    Ms. Waters. Thank you very much, Mr. Chairman.
    Although the Dodd-Frank Act included an extensive number of 
provisions designed to reduce regulatory burdens for community 
banks and credit unions, I have continued to hear from a number 
of institutions over the past year that additional relief is 
needed.
    In fact, over the past year, Members on our side of the 
aisle have worked hard to solicit the concerns and understand 
the unique challenges faced by smaller financial institutions 
in order to see whether there was a way for the Congress and 
the regulators to provide some relief.
    Despite our best efforts to come up with legislation that 
would create relief in a responsible manner, these efforts 
would appear to have fallen on deaf ears here in the Financial 
Services Committee.
    Given this, I would like to know, what about the specific 
concerns you are hearing from the small institutions you 
regulate? How do you incorporate the unique concerns of 
community banks and financial institutions into your 
rulemaking? What types of resources are available to small 
institutions to ensure they are informed of their legal 
obligations as part of any rules that your agencies promulgate?
    Since you have already started, Ms. Fuchs, let's start with 
Mr. Osterman.
    Mr. Osterman. Thank you for your question.
    At the FDIC, we look at the impact of potential regulations 
and rules on community banks. First off, in terms of the 
examination process, while with the larger institutions there 
is continuous examination, with the smaller institutions, the 
time between examinations can run from 12 months to 18 months.
    And we actually did a community banking study last year, 
and in that we determined that the community banking model 
continues to be a very viable and important one in terms of 
making loans to communities.
    What we have done, as we mentioned in our opening remarks 
on the Basel rulemaking, is we actually exempted community 
banks from certain provisions. That also happened in Volcker.
    And in connection with financial institution letters, we 
actually put on the top of those whether they apply to 
institutions of a billion dollars or less so that community 
banks can easily find that information and avoid dealing with 
tons of paper. We also have created Webinars for community 
bankers to provide them technical assistance.
    So, there are many things that we have done and we are open 
to continuing to try to support the community banking model.
    Ms. Waters. Mr. Alvarez?
    Mr. Alvarez. Yes, Congresswoman Waters. We do many of the 
same things that the FDIC and the OCC do in outreach to the 
community banks to make sure that we understand their concerns 
and we take them into account in our rulemaking processes. We 
also prepare small bank compliance guides with our major 
rulemakings to provide simple guidance about how to comply with 
the rules.
    We also have formed 12 community depository institution 
councils, one in each of our reserve bank districts. We consult 
with these councils about the rules that we put forward and the 
regulatory burden associated with our supervision. One 
representative from each of those 12 councils sits on a 
national council that meets with our Board of Governors on a 
regular basis to, again, raise issues about supervision of 
small institutions.
    So we try our best to, wherever possible under the statute, 
give room to small institutions.
    Ms. Waters. Mr. McKenna?
    Mr. McKenna. Thank you, Congresswoman Waters.
    Our small credit union office assists credit unions with 
assets less than $50 million, and we have a rulemaking program 
that we always look for credit unions under $50 million to see 
if they can be exempt for our rulemaking or have less 
burdensome rules. In fact, when we did a final rule on 
emergency liquidity and interest rate risk policy, on those two 
rules, the standards and requirements for small credit unions 
were less.
    We have a proposed risk-based capital rule, and credit 
unions under $50 million would not be subject to that. So we 
are always looking to target our rules and to try to exempt 
small credit unions when we can.
    Ms. Waters. Ms. Friend?
    Ms. Friend. Congresswoman, in addition to the capital rules 
and the Volcker Rules that my colleagues talked about, the OCC 
recently issued a lending limits rule under the Dodd-Frank Act 
that sought to take into account derivatives exposures, and 
they are in response to comments and meetings that we had with 
community banks. We gave them an easy lookup table, the 
methodology that was much more tailored to them, as well as 
exempting a number of transactions that they are usually 
involved in.
    So we also go the extra mile to try to accommodate the 
concerns we hear from community banks through our regulations 
and our issuances.
    Ms. Waters. Thank you all so very much. You are doing a 
great job.
    Chairman Hensarling. The Chair now recognizes the gentleman 
from Texas, Mr. Neugebauer, chairman of our Housing and 
Insurance Subcommittee, for 5 minutes.
    Mr. Neugebauer. Thank you, Mr. Chairman, and thank you for 
having this important hearing.
    Ms. Fuchs, I am going to go back to some questioning that 
the chairman--and I want to go from a little bit different 
angle. Obviously, we are all very concerned about the lack of 
transparency, the lack of responsiveness to the agency on this 
issue of the car dealers that are brought up about this 
compliance issue, but here is what we need to think about that: 
I don't think you want to be responsible for keeping that 
single mom with two kids who is working two jobs from being 
able to get a car loan so that she can get to and from work and 
to take her kids to school. You don't want to be responsible 
for that, do you?
    Ms. Fuchs. No, sir.
    Mr. Neugebauer. But you see, that is what is going on right 
now is that the uncertainty that your agency is creating--I 
have had an opportunity to sit down with a number of car 
dealers, and basically the way that works is that people come 
in their dealerships needing transportation, but what is going 
to happen right now, with the fact that people don't really 
know what the clear lines are, is that people who need a car, 
need transportation, may not go away with it because maybe she 
is just--that single mom is just recently divorced and she has 
a little bit of a blemish on her credit report.
    And so they need to put her--may possibly recommend that 
she go with a different financing option that lots of dealers, 
quite honestly, tell me that they are very concerned about 
steering people to where they can complete the transaction.
    And so what is going to happen is that only the people with 
really good credit and who are within the lines, whether it be 
a car or a mortgage or any other type of financial transaction, 
we are beginning to take away the choices that consumers have. 
And if that is the kind of consumer protection that you are 
providing to consumers, I think they don't want any more of it.
    So I just--I think that you all need to come clean on how 
you are determining this so everybody knows what the lines look 
like, because the fact that the lines aren't clear right now 
is, I think, damaging and creating an inability for some people 
to access some of our capital markets and get much-needed 
credit.
    I want to go to Mr. Alvarez.
    The Financial Stability Board (FSB) recently issued 
mandates to the International Association of Insurance 
Supervisors (IAIS) to develop global capital standards for 
insurers, something not supported by our own State regulators. 
What objective evidence was relied on to support this mandate, 
and what cost-benefit analysis was done by you or the FSB or 
any of the other people supporting this mandate?
    Mr. Alvarez. Congressman, as you pointed out, this is 
something being done by the FSB, which is not the Federal 
Reserve.
    Mr. Neugebauer. I understand.
    Mr. Alvarez. And we were only recently granted a seat on 
the IAIS, which is the international insurance review body. So 
we have not begun--we are now beginning to participate in it; 
we have not yet been part of the meetings.
    So we will be learning about this process and participate 
in this process. We look forward to working--we have a very 
good working relationship with the State insurance 
commissioners and we will continue that relationship and work 
well with them on the international front.
    Mr. Neugebauer. Is this something that the Fed supports, 
though? Do you support developing international standards to 
impose on domestic insurance companies?
    Mr. Alvarez. I think the effort is designed to make sure 
that global systemically important insurance companies, of 
which there will no more than a handful, are held to standards 
that ensure that they don't create systemic risk and that there 
is a competitive sort of level playing field internationally 
for those largest of insurance companies.
    That is something that we think is worth exploring. We have 
no predetermined idea on how to do that, so--
    Mr. Neugebauer. So what would be a way that the Fed would 
work with the State regulators and the domestic insurance 
companies to get their input on this issue? Because I think one 
of the things I hear from a number of them is that they don't 
feel like they really, in many cases, have a seat at the table 
and some of these discussions aren't very transparent.
    Mr. Alvarez. Understood. And so we meet quite regularly 
with--the Federal Reserve has just gotten responsibility under 
the Dodd-Frank Act for supervising designated systemically 
important institutions, a couple of which include insurance 
companies and savings and loan holding companies, which include 
a number of insurance companies.
    So we have begun discussions with insurance companies 
directly to understand their business model, to understand the 
capital regime that they are under, the supervisory regime they 
are under. We also meet with the NAIC, and in particular 
certain lead insurance regulators, to understand the framework. 
We want to be educated there.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from New York, Mr. 
Meeks, the ranking member of our Financial Institutions 
Subcommittee.
    Mr. Meeks. Thank you, Mr. Chairman.
    I didn't get a chance to make an opening statement, but I 
want to thank all of you for what you do. I think it is 
tremendously important.
    After the crisis, we knew we had to do better, and that is 
what Dodd-Frank was all about. And I appreciate the work that 
you are doing. We should learn from those crises and try to 
make sure we do better.
    I have heard, and I am sure you have heard a lot about the 
detrimental impacts of one-size-fits-all regulations or banking 
supervision. And that has been particularly devastating for 
community banks and credit unions. And all of your structures, 
or all of you in your leadership structures, have an office or 
a council or a committee that is exclusively dedicated to 
community banking issues for small and mid-sized financial 
institutions.
    However, the U.S. Treasury, which plays a major role in 
setting economic policy and financial and banking policies, 
which often have to regulate, does not have such an office. And 
they have all sizes--this one-size-fits-all has been 
devastating, as you know, because of the number of community 
and financial institutions that keep failing due to regulatory 
burdens.
    I am working on a piece of legislation that would direct 
the U.S. Treasury to reassign one of its Assistant Secretaries 
to community financial institutions so that we have properly 
calibrated policies that are appropriate to their business 
model and environment.
    So my question is, do you agree with me that we need to 
make sure that we have appropriate banking policies and 
supervision that are properly calibrated to the needs and 
business models of community financial institutions?
    I guess I will first address that to Mr. Alvarez.
    Mr. Alvarez. We do believe that regulation should fit the 
activities and the complexity and the size of the organization. 
In fact, as I mentioned, we have set up several councils to try 
to make sure we understand and have input from community banks 
in particular about the rules that we design. And we seek 
public comment always on alternative approaches that reduce 
burdens, especially for community--
    Mr. Meeks. And Treasury should follow that rule, don't you 
think?
    Mr. Alvarez. Treasury doesn't have a direct supervisory 
role, as we do, so I don't know why they--
    Mr. Meeks. I am just saying a role of having--making sure 
that we don't have one-size-fits-all, that they should have 
someone who can focus on the rules and regulations on small and 
community banks and credit unions so that they are not mixed in 
with the super big. That would make sense. Doesn't that make 
sense to you?
    Mr. Alvarez. It makes sense to me.
    Mr. Meeks. Yes.
    You too, Ms. Friend?
    Ms. Friend. Congressman, I definitely agree that one-size-
fits-all is not the way to go. And we have taken action to make 
sure that doesn't happen wherever we can.
    Mr. Meeks. Thank you.
    And I would assume--I don't think anybody really disagrees 
with me on that point, right? Okay. Silence. Okay.
    Let me ask Mr. Osterman this question--and this might not 
be the case in other States, but I know it affects my State of 
New York. Number one, I, like you, want to make sure that we 
get rid of any--and eliminate any illegal payday lenders that 
are in New York and elsewhere. I want to make sure that those 
are illegal. We want to get rid of all of those folks, those 
that are hurting people in that regard.
    But I also want to make sure that we don't throw the baby 
out with the bath water in that if you have someone that is 
legal and doing good work, that we eliminate them. That is 
starting to take place in New York with some of the check 
cashers.
    For example, I was recently told that Capital One Bank 
notified all of its check-cashing companies that it was 
terminating their bank accounts and that Cap One happens to be 
banking more than half of all the New York check-cashing 
companies. Now they are scrambling, they are trying to find 
some other banks, but if they don't, they will go out of 
business. And that is particularly concerning to me because I 
know, for example, when I lived in public housing, my parents 
paid their rent through the check-cashing places.
    So my question to you is, how can you assure me that your 
efforts to make sure that we are cutting out the illegal 
businesses is not causing legal businesses to be denied banking 
services? And are these businesses--will they be able to find 
other accounts in the future, provided they can assure that 
they are legal and operating within compliance of the 
appropriate rules and regulations?
    Mr. Osterman. Thank you for your question. The FDIC's 
efforts are really focused on making sure that institutions are 
aware of the risks associated with working with third-party 
payment processors and high-risk merchants and making sure that 
they take appropriate action. We have actually put out a policy 
statement that indicates that as long as financial institutions 
properly manage these relationships and risks, they are neither 
prohibited nor discouraged from providing payment processing 
services.
    And in fact, I noted that in the American Banker this 
morning, there was an article regarding the fact that the 
payments industry is looking at ways to try to address the 
concerns that have been raised, so they can work with the 
banks.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from New Jersey, Mr. 
Garrett, the chairman of our Capital Markets and GSEs 
Subcommittee, for 5 minutes.
    Mr. Garrett. Thanks, Mr. Chairman.
    You know, 2 months ago this committee held a hearing with 
the principals of various agencies before us dealing with the 
CLO market and the consequences of the Volcker Rule as it is 
being implemented. Now, 2 months later and the night before our 
hearing today, we have seen come out somewhat of a half-baked 
proposal to try to solve this problem by the regulators.
    The issues dealing with the CLO are extremely important, 
and it is becoming clear to me that besides this particular 
issue, but the way that this issue and other issues are being 
handled, it has become clear to me that the banking regulators 
that are before us basically have a contempt for the American 
public and this Congress in the manner that they handle it.
    Let me begin with Ms. Friend. As a former top Senate 
Banking staffer, I would assume that you have a firm foundation 
on the notion that the financial regulatory community is acting 
under the auspices and the authority given to it by Congress. I 
know that you helped write much of Dodd-Frank.
    And let me then refer you to some of the statutory language 
and others in the Volcker Rule, under rules of constructions, 
that said, ``Nothing in this section shall be construed to 
limit or restrict the ability of a banking entity or a nonbank 
financial company by the board to sell or securitize loans in a 
manner otherwise permitted by law.''
    Also, a study was done in the FSOC study on the Volcker 
Rule. It said, ``The creation and securitization of loans is a 
basic and critical mechanism of capital formation. Congress 
determined that none of the restrictions of the Volcker Rule or 
its backstops will apply to the sale or securitization of 
loans.''
    It seems amazingly clear to me what the intent of Congress 
was, but apparently, it was not amazingly clear to the 
regulators.
    I guess my question is, if the banking regulator is not up 
to it as far as following the clear rule of the law that 
Congress passes, and if they are not up to following their own 
studies and interpretation of that law, should the Congress 
rethink granting all the power to the regulators, or should we 
do something else to hold the regulators accountable when they 
cannot follow the rule of law?
    Ms. Friend. The CLOs that are at issue are loans, but they 
are also debt and equity, and so the way we issue the 
regulation, which we believe is consistent with the intent of 
Congress, it would catch these CLOs and--
    Mr. Garrett. Obviously, you are not following the intent, 
when the intent of the statute I just read to you could not 
have been clearer. You were there when this was being created. 
The intent of the sponsors was clear. I am at a loss as to why 
the regulators are blind to this.
    Turning now to the Fed, Mr. Alvarez, each year the Fed does 
what is called an operations review report--basically a yearly 
performance review of the Fed's different teams of supervisory 
and examination staff. And I know you are familiar with it. I 
have here a copy of the 2009 report of the New York Fed.
    Now, there is much criticism of the Fed as far as its 
banking regulatory role, not to mention its monetary policy. 
But to help Congress out here, I think it would be helpful for 
members of this committee to see not just what has been 
provided, but unredacted copies of the operation review report 
from 2000 and 2003 of the time leading up to the financial 
crisis.
    Could you please provide members of this committee with an 
opportunity to review these reports?
    Mr. Alvarez. The operations review is an examination that 
we do of the reserve banks to make sure that they are 
implementing the policies and following the directions of the 
Board of Governors--
    Mr. Garrett. Right. And the question is, can you provide us 
with an unredacted copy of that so we can have the information 
to know what you were doing up to the crisis so we can see 
whether it is justified as far as the criticism of the way that 
regulators handle the crisis leading up to it? That is a yes-
or-no question.
    Mr. Alvarez. I think it would be something that we would be 
willing to discuss with you.
    Mr. Garrett. Thank you.
    Mr. Alvarez, in my last minute, the G-20 created the FSB 
several years ago. It appears that the Fed is working closely 
with the FSB.
    However, the inner workings of the FSB are to the public 
and Congress basically a black box. I am wondering whether or 
not you can assure us that more information will be given to us 
as to the operations of them, and also tell us, inasmuch as the 
FSB has designated, secondly, MetLife as a global systemically 
important institution, does that mean FSOC is going to be 
forced to designate MetLife as an SIFI or any other entities 
that FSB designates as a globally systemic institution?
    And my time is out. I would look forward to the Chair 
letting them answer those questions?
    Chairman Hensarling. The witness can have a brief moment to 
answer.
    Mr. Alvarez. The designation in the United States is up to 
the FSOC, not the FSB. The FSB designation doesn't have the 
force of law in the United States.
    It would be a source of criticism of the operations of the 
regulations in the United States and the U.S. system if there 
wasn't some kind of implementation of FSB rules. But the 
decision is a U.S. decision.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Missouri, Mr. 
Clay, for 5 minutes.
    Mr. Clay. Thank you, Mr. Chairman.
    And this first question is directed to Mr. Osterman.
    I support what you are doing to cut off illegal payday 
lenders who operate on the Internet. However, regulator 
pressure and Operation Choke Point has also caused many banks 
to stop banking legal and licensed Missouri companies that 
provide essential financial services to many of my 
constituents. The ends do not justify the means, especially 
when consumers are hurt the most.
    My constituents need basic services. They are folks who 
have families. They need to cash their checks and pay their 
bills.
    They need to be able to get a loan so that they can get 
some cash when they need it. And they need to be able to do 
this every day where they live. These are folks who cannot get 
loans from banks either because banks are not in the community 
or simply can't or won't cash their checks or make small-dollar 
advances.
    Last week I sat down with a young constituent and 
executive, an Air Force vet, and a father who told me about 
needing an advance to pay his son's college tuition on time. 
His son is on a partial basketball scholarship but the college 
wanted his money.
    His bank wouldn't give him a loan. He was able to get a 
loan because a small, nonbank lender was there to give it to 
him. I asked him if it was expensive, and he said it was and 
that he understood both the annual percentage rate, the actual 
dollar cost, and made the decision to get the money, pay the 
college on time, and pay off the advance early.
    He said that he counts on the relationship he worked to 
build with the nonbank lender and has used it for several cash 
flow emergencies.
    Now, I am hearing that legitimate small lenders of the type 
that helped this young man are having their bank accounts 
closed, as Mr. Meeks mentioned earlier. And I am very concerned 
about the situation because it is going to hurt my constituents 
who need the services.
    Can you assure me that this was not what you intended when 
you went after illegal businesses?
    Mr. Osterman. Congressman, I can assure you that FDIC was 
not--what we were trying to do, actually, with the Operation 
Choke Point--which actually was not our program; it was a DOJ 
program--was to help them to stop illegal activity. We have put 
out a financial institution letter making it clear to our 
examiners as well as to the industry that our supervisory 
efforts are focused on making sure institutions are acting in a 
safe and sound manner and that as long as the activities of 
these payment processors are done in a way that avoids risk, 
the institution should go ahead and work with these entities. 
And in fact, we have met with our regional offices and field 
office examiners and given that message to them, as well.
    So we issued an actual financial institutions letter back 
in September of last year to address the issue.
    Mr. Clay. So have those closures of the bank accounts--has 
that ceased?
    Mr. Osterman. I am hearing that there--that may be still 
going on to some degree. And I think to the extent that is 
happening, we would like to hear about it, because that is not 
the message that we are trying to send.
    Mr. Clay. All right. I will certainly share that with you.
    Let me ask Ms. Fuchs, how did the CFPB get off--as the 
chairman mentioned--to such a poor start in regard to 
disparities in evaluating employees, as well as giving out 
bonuses? What happened there?
    Ms. Fuchs. Mr. Clay, I understand your question to be about 
our performance management system and the American Banker 
article. The CFPB is right now conducting further evaluation of 
that data.
    We are also going to be engaging an outside resource to 
help us with that evaluation. The kind of institution we are 
trying to build is one which is fair and transparent for all 
employees.
    The performance management system is also something that we 
are currently negotiating with the National Treasury Employees 
Union, so we will have good representation of views during that 
discussion. And that is the work that we are trying to do to 
address what that data showed.
    Mr. Clay. And you all have been up and running for about, 
what, 3 years?
    Ms. Fuchs. We have been up and running for 3 years. During 
a large part of that time we were doing the work that Congress 
asked us to do by writing rules to fix mortgage markets.
    Mr. Clay. Thank you for your response.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from North Carolina, 
Mr. McHenry, chairman of our Oversight and Investigations 
Subcommittee, for 5 minutes.
    Mr. McHenry. I certainly appreciate my colleague from 
Missouri asking that question of the CFPB, because you did 
contract with an outside investigator to determine that there 
was retaliation against an employee, but 6 months later, the 
Bureau has done nothing. So simply contracting with outside 
groups does not address the deep problems the CFPB has.
    But to my colleague's other point, which is Operation Choke 
Point, I do want to bring this up with Mr. Osterman. You want 
to stamp out illegal businesses, but in order to do that you 
need to give legal businesses proper guidelines so they can be 
banked.
    The Electronic Transactions Association has put forward a 
significant report that they worked on for the last 8 or 9 
months. Are you familiar with this report?
    Mr. Osterman. I am not.
    Mr. McHenry. You are not? Okay. They have indicated that 
they have been in contact with the FDIC to give their merchants 
and independent sales organization the underwriting and risk 
tools necessary to comply. Will you take a look at that?
    Mr. Osterman. Absolutely.
    Mr. McHenry. Okay. Then, the additional question would be 
this: Is the FDIC coordinating with the CFPB to give guidelines 
to banks so that they can bank these institutions that are 
providing a legal service for a legal entity?
    Mr. Osterman. Of course, the CFPB Director is on our Board, 
so to that extent--
    Mr. McHenry. I am familiar with the construct of it, but 
are you coordinating in terms of rule-writing?
    Mr. Osterman. We are not doing the rule-writing on the--
    Mr. McHenry. That is part of the problem. The industry 
doesn't have guidelines by which they can follow what they 
believe the FDIC's intent is.
    Mr. Osterman. In that regard, as I mentioned, we do have a 
financial institutions letter that does lay out our guidelines 
in connection with these types of programs. And basically, what 
we are saying is these types of programs can involve high-risk 
activities that could create litigation risk and reputation 
risk for financial institutions. So, they need to do due 
diligence to ensure that the folks whom they are banking are 
acting in a safe and sound manner.
    Mr. McHenry. Sure. Okay.
    Mr. Osterman. And so--
    Mr. McHenry. My time is brief, and I have another question 
for Ms. Friend.
    Mr. Osterman. Yes.
    Mr. McHenry. I know others will have questions about this.
    I was notified about three OCC examinations, at three 
different financial institutions. I just want to tell you this 
story and get your response.
    At bank one--not a bank--Bank A, if you will--the problem 
began when examiners expressed concerns about the bank's 
military accounts using an overdraft service. The examiner 
pulled data and was concerned about the frequent usage of 
overdraft with this account.
    When the examiner was informed that this account was 5 to 
10 years old, and that the user had regularly utilized 
overdraft, the examiner said it was proper that if the person 
kept using this overdraft protection and it became a behavior, 
they should close the account.
    Now, when indicated that the person requested overdraft 
protection and utilized it they said, ``Well, it could pose a 
reputational risk.''
    At Bank B, an examiner required that the bank remove 
overdraft service if the account holder withdraws or uses 
overdraft protection more than 25 times a year. And after 
implementing what the bank was told to do by the examiner, the 
customer came back and demanded that overdraft protection be 
put back on.
    At Bank Three or C, the definition of frequent user was 
trying to--was--tried to be divined from the examiner and was 
told a very different story than the first two institutions 
were told.
    Is there a justification for having different rules for 
different institutions about overdraft protection?
    Ms. Friend. Congressman, there is a rule on overdrafts, and 
our examiners should be following the specific rule. We don't 
have separate guidance to examiners on overdraft protection 
beyond the regulation.
    Mr. McHenry. Are examiners supposed to tell folks to close 
accounts if they are utilizing overdraft protection within the 
guidelines you have given?
    Ms. Friend. I don't think that we have specific separate 
guidance that is independent of the regulations, so they would 
be expected to act in accordance with the regulations.
    Mr. McHenry. Okay. And would you believe that this 
inconsistency of regulation would lead to more underbanked, or 
those who are unbanked?
    Ms. Friend. I think we would be concerned if there is an 
inconsistent interpretation, and so it is difficult to respond 
with respect to each individual institution without having all 
of the information available. But again, we look for 
consistency in examination based on the rules.
    Mr. McHenry. And this is highly inconsistent.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Georgia, Mr. 
Scott, for 5 minutes.
    Mr. Scott. Thank you very much, Mr. Chairman.
    Let me ask my first question to you, Ms. Fuchs, with the 
CFPB. I want to follow up on the Chairman Hensarling's point.
    What we have here, the situation that the CFPB has placed 
our auto dealers in is no man's land. We sort of got them in a 
situation where they are guilty if they do, guilty if they 
don't, and when you put these two factors together, in your 
letter of--or your rulemaking and guidance of last March 13th, 
you arbitrarily issued a statement of discrimination within the 
auto lending's indirect lending program.
    Now, when you make a charge of discrimination against 
African-Americans or minorities anywhere, that is very 
explosive. Race is very explosive. You are dealing with a 
situation yourself with charges of discrimination within the 
ranks and the employment and promotion of the CFPB.
    I only raise that point to let you know that in your 
response to Mr. Clay you were very thoughtful, you went back, 
we are doing this, we are trying to get at the bottom of this. 
But you are not treating the auto industry with that same kind 
of sensitivity.
    And what you have done is--the CFPB has, I think, an 
unintended consequence here by making a blanket statement and 
then not giving guidance the background, the data, the 
methodology, all the things that you are looking at yourself in 
dealing with your own discrimination charges.
    So, it is important to me and to other members of this 
committee that we get this threat away from these auto dealers. 
On the one hand, they put forward a solution of offering a 
standard fee and then working with the consumer in a way in 
which they could have a discounting of the interest rate. You 
take that away from the dealers and some of these dealers might 
have to close up shop.
    Many of them, particularly in a district like mine--I 
represent the metro area; I represent six counties around 
Atlanta, where the auto dealers are, and smaller community 
towns where they anchor that community. They go out of business 
because of this.
    So I want to urge you and the CFPB to resolve this issue 
and get the auto dealers out of limbo and remove the threat to 
their ability to discount those interest rates for their 
customers. If there is discrimination, I don't know where it 
is. All I am saying is treat them the way you are treating 
yourself in this. And if it is there, if there is a fire of 
discrimination there, we will put that fire out. But don't 
throw the whole blanket on them and assume.
    There are many minority-owned dealerships. And if you throw 
that blanket on them, you are saying that African-American 
dealers are discriminating against African-American people? No. 
That is not the case here, but that is the situation you are 
in.
    But I wanted to say that. Will you do that? Would you get 
this threat away from the auto dealers?
    Ms. Fuchs. Thank you so much for your comments, sir.
    I should say the question was asked earlier of whether we 
want a single parent to have access to a car, and we do. We 
want those people to have access to fair and transparent 
lending, as well. The CFPB does not have jurisdiction over auto 
dealers. We have authority with respect to indirect auto 
lenders.
    Mr. Scott. But you have made a claim there. Where is the 
proof? We have asked for that. Show us where that 
discrimination is?
    Ms. Fuchs. Thank you, sir. We are engaged in a constant 
dialogue with the industry about these issues. We held a forum 
at which various methods of compensating dealers were 
discussed. We have also had briefing calls with many, many 
stakeholders and spoken at auto dealers conferences.
    Mr. Scott. Okay. Okay, thank you. I didn't mean to go on 
for so long, but I have to ask a question of the FDIC, please, 
thank you. But let's help those dealers.
    On the operation--I have put it here someplace; what did I 
say. I got so carried away with that comment.
    Oh, the Operation Choke Point--FDIC--can you tell us what 
is going on there?
    Chairman Hensarling. Regrettably--
    Mr. Scott. Thank you. I'm sorry.
    Chairman Hensarling. My sense is that some other Member may 
be asking those questions before the day is over.
    The Chair now recognizes another gentleman from Georgia, 
Mr. Westmoreland, for 5 minutes.
    Mr. Westmoreland. Thank you Mr. Chairman,
    Ms. Fuchs, would you describe in one sentence maybe, what 
is the role of the CFPB?
    Ms. Fuchs. Congress set the purpose of the CFPB in the 
Dodd-Frank Act, and--
    Mr. Westmoreland. Not what Congress said. What do you say 
the role of it is?
    Ms. Fuchs. The role of the CFPB is to help make the markets 
for consumer finance more transparent and to enable consumers 
to have access to fair and transparent products and services.
    Mr. Westmoreland. Okay. And going back to what the 
gentleman from Missouri asked about, the gentleman who got a 
loan for his son's tuition, if somebody, let's say BNC credit, 
needed $500 or $800 and called the CFPB and said, ``Hey, you 
know, I have BNC credit,'' where would you recommend that they 
go to borrow that money?
    Ms. Fuchs. It is hard in the abstract to recommend where a 
person should go to get short-term, small-dollar credit. It 
would depend on the circumstance of the person and what was 
available to them.
    Mr. Westmoreland. But what would you recommend? A big bank? 
Bank of America? What would you recommend to him? What would be 
your choices?
    Ms. Fuchs. There are many choices out there right now for 
consumers. There are opportunities to go to banks for credit, 
and there are opportunities to go to nonbank lenders for 
credit. It really will depend on the circumstances of the 
consumer, such as if they have savings or if they don't have 
savings--they may have different options available to them.
    Mr. Westmoreland. I don't think there are as many out there 
as you think there are. And Operation Choke Point, as my 
colleague from Georgia has pointed out, is trying to put as 
many of these people out of business as you can.
    I want to read a statement from Bill Isaac, who is the 
former Chairman of the FDIC. He recently stated, ``the same 
slippery slope that the DOJ uses today to choke off payday 
lenders from banking services could tomorrow be used on 
convenience stores selling large, sugary sodas, restaurants 
offering foods with high trans fat content, or family planning 
clinics performing abortions.
    ``Ironically, at the same time the government is making 
life miserable for businesses seeking to meet consumers' needs 
for emergency funds, it is encouraging banks to offer services 
to marijuana dealers.''
    Now, how do you all right that?
    Mr. Osterman?
    Mr. Osterman. In terms of--I am not quite sure I understand 
your question, sir.
    Mr. Westmoreland. The question is, when you are trying to 
keep people who have a lending service that they are doing to 
people who might not be able to walk in to a normal, 
traditional bank and do business, and you are trying to put out 
of business some of those people who do provide that service 
while at the same time trying to make it possible where banks 
can do business with people who sell federally illegal drugs?
    Mr. Osterman. We are not trying to put legitimate 
businesses out of business.
    Mr. Westmoreland. You are not?
    Mr. Osterman. No sir, we are not.
    Mr. Westmoreland. Okay. Have you ever put anybody out of 
business or kept anybody that was State-regulated, or 
federally-regulated from doing business with a bank?
    Mr. Osterman. In terms of what we are looking at is the 
safety and soundness of our banks, and as we have said--
    Mr. Westmoreland. I know that. I know you are. But have you 
ever told somebody who had a legal business, as either 
regulated by the State or the Federal Government, that they 
could not--that a bank could not do business with them?
    Mr. Osterman. Not that I am aware of.
    Mr. Westmoreland. Okay. So, Operation Choke Point has no 
reality to it?
    Mr. Osterman. Operation Choke Point, as I have said before, 
sir, is a Department of Justice program that was going after 
illegal activity, and we were asked to provide more information 
and that is what we did to address illegal activity. We did put 
out a financial institution letter to make it clear--
    Mr. Westmoreland. How do you describe illegal activity when 
somebody is regulated by some State board--
    Mr. Osterman. Well--
    Mr. Westmoreland. --that permits them to do business? How 
is that an illegal activity?
    Mr. Osterman. For example, for payday lenders--in several 
States, payday lending is illegal. And so, when banks are 
dealing with these lenders and they are in different States, 
the banks need to be assured that those lenders are, in fact, 
acting in a legal way. Because if they are not, it actually 
opens up the institution to risk, in terms of being sued by 
State attorneys general and others because they are not 
complying with the law.
    Mr. Westmoreland. Just typical, picking winners and losers.
    Thank you.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Texas, Mr. 
Green, the ranking member of our Oversight and Investigations 
Subcommittee.
    Mr. Green. Thank you, Mr. Chairman.
    Mr. Chairman, understanding that the rules do not allow us 
to yield a specific amount of time, I would like to at this 
time yield up to 1 minute, such time as he may consume up to 1 
minute, to my friend from Georgia, Mr. Scott.
    Mr. Scott. Mr. Green, you are very kind. You are a good 
man. God bless you. Thank you.
    Because this is important to me, on the Operation Choke 
Point, the gentleman from the FDIC, you are basically working 
with the Justice Department on this, as I believe I understand, 
doing a fairly good job in terms of getting the scam artists 
and those.
    But without perfectly clear guidance and direction, it 
could go a little too far. For example, I am concerned about 
what you refer to in your guidance as a firm with a 
reputational risk.
    What does that mean, reputational risk? Because my fear is 
that it could have an unintended consequence.
    Mr. Osterman. Typically, in terms of high-risk activities, 
these are things that the institutions themselves, the banks 
themselves, have to make a business determination on whether 
they are willing to enter into an arrangement with that entity.
    But for example, as I said before, if payday lending was 
illegal in a particular State, to actually provide that 
service, that creates reputational risk to the institution 
because it is then being seen as engaged in illegal activity.
    And so what we have said in our guidance is that banks 
should do due diligence to ensure that they are identifying 
potential risks. And as long as they properly manage the 
relationships and risks, then they are not going to be 
prohibited--we are not prohibiting them from entering--
    Mr. Scott. Are there other industries? Payday lending makes 
a good point in other States, but are there other industries 
where you categorize as reputational risk?
    Thank you, Mr. Chairman. Thank you, Mr. Green.
    Mr. Green. Thank you. I thank the gentleman for yielding 
back.
    Mr. Chairman, I would like to, if I may, just extend a 
welcome to Mr. Horsford to the committee. He has acquitted 
himself well since he has been in Congress, and I am confident 
that he will do a very good job, an exceedingly good job on 
this committee.
    I am one of the many persons interested in helping small 
banks, and we have endeavored, in doing this, to find out what 
a community bank is. We have allowed this term to become 
pervasive.
    While I see it as a good term, it is rather nebulous. And I 
have not, to this day, been able to get a good definition of a 
community bank. So let me shy away from the term ``community 
bank,'' and let's talk for just a bit about small banks.
    And my first question will go to the gentleman from the 
FDIC. I would like to know, is it true that most banks in this 
country are small banks and that as many as 90 percent of all 
banks are small if I use $1 billion or less as my benchmark?
    Mr. Osterman. Yes, that is correct.
    Mr. Green. So we have 90 percent of the banks at a billion 
dollars or less. And is it true that this 90 percent of banks 
did not create the circumstance that we had to negotiate in 
2008, what we call a collapse of the--an economic crisis or 
something of that nature?
    Mr. Osterman. Right. The crisis in 2008 involved much 
larger issues than the community banks.
    Mr. Green. And given that the community banks, the term you 
are using now, I am using small banks, using my benchmark at a 
billion dollars--and I don't begrudge you at all for saying 
community banks, because that term has become very pervasive. 
But I have now switched, and I am working now to see what I can 
do for small banks, given that 90 percent of the banks are 
under a billion dollars.
    And I want to work with legislation to help them, because I 
am also finding that most of the banks that are troubled now, 
possibly about to go out of business, are small banks. Is this 
a fair statement, more so than banks above a billion dollars?
    Mr. Osterman. We certainly have seen a consolidation of the 
industry, and when you look at the banks that have failed 
during this crisis, the vast majority are the smaller 
institutions.
    Mr. Green. Do you find, as you are before Congress giving 
your testimony, that many of the questions that we ask, we 
should ask of ourselves? Because many times we ask you 
questions about regulations that we impose upon you that we 
seem to decry your enforcing?
    Mr. Osterman. The--
    Chairman Hensarling. Apparently, the gentleman will have to 
answer his question himself, because the time of the gentleman 
has expired.
    Mr. Green. Thank you, Mr. Chairman.
    Chairman Hensarling. And the Chair now recognizes the 
gentleman from New York, Mr. King, for 5 minutes.
    Mr. King. Thank you, Mr. Chairman.
    Mr. Alvarez, I would like to question you regarding the 
collateralized loan obligations (CLOs) and say at the start 
that I identify entirely with the remarks of Congressman 
Garrett.
    As you know, the Fed has just issued a 2-year extension for 
the conformance period for banks that hold CLO debt. This comes 
nearly 2 months to the day that Governor Tarullo told this 
committee that Volcker's impact on the CLOs was the interagency 
working group's number one priority.
    Given the time that has passed, I would have expected more. 
The conformance period extension may minimize the pain, but it 
certainly does not eliminate it.
    Even with the extension, banks will suffer multibillion 
dollar losses. The OCC admits to $3.6 billion; other estimates 
place the number as high as $9 billion.
    These are losses that will be incurred on performing assets 
solely due to the actions that the bank regulators have taken 
in applying the Volcker Rule. In fact, the expected losses on 
these assets are negligible.
    So I have two questions.
    First, do you believe that depleting bank capital by 
billions of dollars is a result that is consistent with safety 
and soundness regulation?
    And second, this aspect of Volcker is clearly inconsistent 
with safety and soundness considerations in Section 13D1(j) of 
Volcker, which allows the regulators to permit activities that 
promote bank safety and soundness. So my second question would 
be, why don't you use this authority to grandfather legacy CLO 
assets that are on banks' balance sheets?
    Mr. Alvarez. Let me start by putting the problem in 
perspective. There is approximately $300 billion in CLOs 
outstanding. That includes CLOs that would be exempt under the 
Volcker Rule and CLOs that would be covered by the Volcker 
Rule.
    As Congressman Garrett pointed out earlier, any CLO that is 
entirely loans is exempt from the Volcker Rule requirements. It 
is only the ones that have nonconforming non-loan assets in the 
CLO.
    So of those $300 billion, we think about a hundred--based 
on the call reports, about $105 billion worth of CLOs are owned 
by banking institutions. That is, of the 6,800 banks in the 
United States, something like 50 banks report that they own 
CLOs.
    And then of those 50 banks, a handful of the very, very 
largest in this country own 90 percent of the CLOs. So this is 
largely a problem that is concentrated with a small number of 
very large institutions.
    Now, what the Federal Reserve has done by granting an 
extension to, or by indicating it would be willing to grant, an 
extension for a couple of years, is it turns out that something 
on the order of 50 percent of the CLOs outstanding will mature 
or be repaid before the end of 2017. So much of the CLOs will 
be done by that period of time.
    And as many people have testified before this committee, 
the CLOs that are owned by banking institutions have largely 
been performing. There are very few that are loss producing at 
this point. Having 2 extra years allows institutions more time 
to divest if they think that is appropriate, to conform the CLO 
to something that would be exempt from the Volcker Rule, and 
there is a variety of ways that could happen.
    Mr. King. The OCC estimates up to $3.6 billion in losses; 
others go as high as $9 billion. Is that healthy for the 
economy?
    Mr. Alvarez. I think that the--
    Mr. King. And couldn't that force banks in effect to hold 
bargain basement sales?
    Mr. Alvarez. I think the $3.6 billion estimate was assuming 
that an entire chunk of CLOs would default that no one really 
believes will default. That was an extreme example. And I will 
let the OCC speak to that, but I think they were not predicting 
a $3.6 billion default.
    And in fact, the representatives of the CLO associations 
have indicated that the CLOs are very well-performing and have 
very few losses in them. And I think that is historically 
accurate.
    Mr. King. So you do believe that this adds to safety and 
soundness of the banking community--banking institutions by 
allowing this to go in place after 2 years?
    Mr. Alvarez. The Volcker statutory provision does not have 
an exception in it for actions that will cause losses. It 
allows a limited authority to grant an exception if it would, 
in fact--
    Mr. King. Are you saying you would not be allowed to make 
an exception under Volcker, that Volcker would preclude you 
from this?
    Mr. Alvarez. Volcker does not have a grandfathering 
provision and it does not have an exception that allows us to 
cause institutions to avoid losses.
    Mr. King. You are saying it would preclude you from doing 
that?
    Mr. Alvarez. That is right.
    Mr. King. I would have to disagree with that. I think 
Congressman Garrett disagrees also.
    Mr. Chairman, I have a series of other questions on another 
issue. Could I submit them in writing to the panel?
    Chairman Hensarling. Yes. Without objection, that will be 
made a part of the record.
    The gentleman's time has expired.
    The Chair now recognizes the gentleman from Illinois, Mr. 
Foster, for 5 minutes.
    Mr. Foster. Thank you.
    Chairman Hensarling. Apparently, the Chair does not. He has 
been informed by the Minority side we are going to the 
gentleman from Minnesota.
    The gentleman from Minnesota is recognized for 5 minutes.
    Mr. Ellison. Allow me to thank the chairman and the ranking 
member, and Mr. Foster as well. I know we all have busy 
schedules and I will try to be quick.
    Ms. Fuchs, thank you for the work that you do. I think the 
CFPB does have a responsibility to ensure that people of color 
are not overpaying for autos.
    What did the CFPB find in the price disparity studies by 
ethnicity and how significant are the differences?
    Ms. Fuchs. The Bureau has one matter that is an enforcement 
matter that has been public, and in the materials related to 
the enforcement matter, it talks about the specifics of that 
matter. Other matters that the Bureau is working on are ongoing 
either investigatory or supervisory matters, and so there are 
details that can be shared at this time.
    Mr. Ellison. So you don't want to talk about the price 
disparities by ethnicity? You don't talk about whether there is 
a problem and how serious it is?
    Ms. Fuchs. The Bureau hasn't done an analysis that looks 
across the entire industry and finds some number of disparity. 
We are looking at each individual lender that is engaged in 
indirect auto lending across their portfolio to assess whether 
there are disparities. We have been talking with the committee 
about the particular matter that--
    Mr. Ellison. Ma'am, I am trying to give you a chance to 
talk about your good work on eliminating disparities and you 
are declining.
    Ms. Fuchs. I am--
    Mr. Ellison. Is that what you really want to do?
    Ms. Fuchs. Perhaps I am not understanding the question.
    Mr. Ellison. Fine.
    Ms. Fuchs. I apologize.
    Mr. Ellison. Somebody else, something else. I know that the 
regulators have increased enforcement against money laundering. 
HBSC has been fined $1.9 billion for transferring billions of 
dollars from Mexican drug cartels and for violating sanctions 
laws, doing business with countries like Libya, Sudan, Burma, 
Cuba, and Iran.
    And I am glad that agencies are indicting money launderers, 
and I think that all those who are engaged in that activity 
deserve to be held accountable. But one of the things that I 
have become concerned about is how that regulatory system might 
be swinging a little too far, because what I have seen in my 
own district over the last 2 years is that money service 
businesses that send money to their families, particularly in 
Somalia, are having their checking and saving accounts closed 
by credit unions and banks.
    I have a group of Iranian graduate students at the 
University of Minnesota who were told that their bank accounts 
would be closed, and I have people with Muslim names who are 
having their checking and savings accounts closed.
    The difficulty is you have to stop terrorist financing. And 
the other difficulty is if you go too far in that direction, 
you close off good people just trying to do legitimate 
transactions.
    I have tried to raise these issues before, and I would like 
to submit some things for the record: a Treasury blog post from 
December 23, 2011, entitled, ``The Importance of Remittances 
Through Legal Channels to Somalia.'' And without objection, I 
would also like to submit a July 8, 2013, letter from the 
Department of the Treasury clarifying that college students 
from Iran can have bank accounts.
    Mrs. Capito [presiding]. Without objection, it is so 
ordered.
    Mr. Ellison. Yes, thank you.
    Maybe, Ms. Friend, you could discuss this issue a little 
bit. Has your agency been trying to provide training and 
guidance for your regulated financial institutions to enable 
them to better understand the rules regarding knowing their 
customers? And do they have any concern that in our zeal to 
obey laws to stop terrorism financing, we might actually be 
closing off legitimate transactions?
    Ms. Friend. Congressman, I know the folks at the OCC have 
been in touch with your staff and we are concerned. We share 
concerns that if there are legitimate businesses that we are 
not asking banks to close off those accounts.
    Essentially, it is a bank's decision who to do business 
with. What we direct them to do is to do due diligence and they 
need to have the proper controls to deal with whatever risks 
that they assess.
    Some institutions, we have found, have decided that rather 
than go through the additional burden of providing the types of 
controls that they believe are necessary, might decide that 
they are not going to bank a particular entity.
    Obviously, with respect to Muslim names, if there is 
evidence that they are applying something in a discriminatory 
manner, that would be something we are concerned about and we 
are looking into it. So we are looking forward to a continued 
dialogue with your office.
    Mr. Ellison. I want to thank you for that. And just please 
do continue to assure financial institutions that they don't 
have to go beyond the line to meet the requirements of the law.
    Thank you.
    Mrs. Capito. The gentleman's time has expired.
    I am going to recognize myself for 5 minutes for questions.
    Ms. Fuchs, in my opening statement I talked about the 
qualified mortgage, and I am Chair of the Financial 
Institutions and Consumer Credit Subcommittee. We have done a 
lot of hearings on this.
    And I am concerned that the borrower who is going to fit 
into this QM box is going to be the one who is least likely to 
be able to go to alternative sources to find mortgages besides 
their community banks or credit unions. What legal risks are 
associated with non-QM loans, in your opinion?
    Ms. Fuchs. Thank you, ma'am, for the question. As I think 
you know, the CFPB--drawing the lines on what would be a QM and 
what would not be a QM was one of the most significant aspects 
of the rulemaking, and the rule was designed to incorporate the 
vast majority of mortgages that are being made within the QM 
category.
    For mortgages that are outside the QM loan, we anticipate 
that those will continue to be made. In fact, I saw an article 
just yesterday that talked about something like 30 percent of 
banks would be looking at having lending programs that are 
outside the QM loan--the QM category.
    For those matters, the banks are subject to following 
ability to repay requirements, and our--we anticipate that by 
doing a return-to-basic underwriting, as we had in the past, 
there actually will be fewer foreclosures. And that--
    Mrs. Capito. You would agree that there is more legal risk 
associated with the non-QM loan, correct? And that is the way 
it is structured, the rule is structured.
    Ms. Fuchs. The QM categorization does provide some 
protections for institutions. However, the liability is closely 
cabined, and outside of the QM category, if banks are engaging 
in an ability-to-repay calculus, then they should be in a good 
position with their solid underwriting.
    Mrs. Capito. I think--and we have a survey here that says 
33 percent of respondents indicated they would only make QM 
loans. So, a third of the lenders in this particular survey 
said that they would only lend in the QM box. I have a feeling 
it is actually a little bit larger than that. And I have 
heard--we have heard from community leaders who are actually 
exiting the mortgage lending space altogether.
    You mentioned in your opening statement that before you do 
a rule you have a meeting and you talk about cost-benefits and 
have a report. Are those reports public?
    Ms. Fuchs. Yes, the Bureau goes through several things in 
order to look at the costs, benefits, and impacts of its rules. 
From the small business panels that we convene, there is a 
report that results from that. The brief of panels are done as 
a partnership between CFPB, OMB, and the Small Business 
Administration. During the panels, we take input from 
representatives of small businesses in the specific area that 
we are writing a rule, and that--
    Mrs. Capito. Yes, and I don't mean to interrupt that. I 
only have 2 minutes left.
    Ms. Fuchs. No problem.
    Mrs. Capito. Do you take into consideration the--did you 
talk to community bankers and credit unions and all those 
lenders in that space as well? Yes or no?
    Ms. Fuchs. Yes, the Bureau does.
    Mrs. Capito. Yes, and then that is public? Their response 
is public--the bankers?
    Ms. Fuchs. The Bureau, in the course of its rulemaking, 
considers the impact of its rules on small lenders--
    Mrs. Capito. Are those public reports?
    Ms. Fuchs. It publishes that in its notice of proposed 
rulemaking for comments.
    Mrs. Capito. Okay. We talked just a little bit about the 
remittance transfer rule. This is another one where a lot of 
people are exiting the business because of the onerous 
regulations imposed here. Some lenders do it for customer 
convenience; some do it for customer necessity.
    And I would just say that it is making it more difficult 
and more expensive. I am not going to really ask a question on 
that, but lodge a concern.
    Mr. Meeks and I have been working on a bill that would work 
on duplication and conflict of rules. And I know every 10 years 
you are supposed to go in and look at the conflicts. We are 
pressing for a shorter timeframe there.
    Mr. Alvarez, do you think it would be useful to have a 
shorter timeframe in terms of looking at the rulemaking 
processes to the duplications? Because that was supposedly one 
of the goals of Dodd-Frank and I am not sure we have actually 
seen that.
    Mr. Alvarez. That is an exercise that, by law, we go 
through, as Amy Friend mentioned earlier, under the Economic 
Growth and Regulatory Paperwork Reduction Act. It is every 10 
years.
    The Federal Reserve has an informal policy where we review 
our rules every 5 years. We are a little off schedule because 
we have been spending so much time on the Dodd-Frank Act, but 
we expect to get back to that schedule. So a shorter period of 
time of reviewing those rules is a perfectly good idea.
    Mrs. Capito. Mr. Osterman, do you have the same--
    Mr. Osterman. Yes. I think sometimes it takes a while for 
the rules to be in place to see how they interact but a shorter 
timeframe is something we could do. Although, given the vast 
numbers that we have to go through, we are getting ready to go 
through a 10-year review right now, and as Ms. Friend 
indicated, she is the head of the legal advisory group that is 
coordinating this effort, but with all the rules that are out 
there, to go through and review them all takes a long time in 
terms of going out and noticing those for the public--
    Mrs. Capito. Right. Imagine you are a community banker and 
you are trying to deal with all this--
    Mr. Osterman. Exactly.
    Mrs. Capito. You guys are dealing with it every day. It is 
your job. So I would encourage you to try to adopt that 
mindset, maybe, sometimes to try to help those folks out.
    Next, Mr. Foster from Illinois is recognized.
    Mr. Foster. Yes, thank you, Madam Chairwoman.
    Ms. Friend and Mr. Alvarez, would it be possible to provide 
an estimate or a range of estimates of the additional losses 
that might be expected for banks which are forced to divest of 
the CLOs within the 2-year extension period, compared to the 
indefinite grandfathering that passed out of this committee?
    Ms. Friend. Let me first just discuss the $3.6 billion 
number that was in our economic analysis. It came up earlier. 
And that was attributable to the divestiture of CLOs and CDOs 
and any other impermissible fund. And so when we looked at that 
estimate, it ranged from 0 to 3.6 because it really depends 
upon what the market reaction is going to be.
    So I think it would be very difficult for us to estimate 
with a specificity exactly what the losses might be. Before we 
decided that we would take no further action than to support 
the Fed's conformance period, we looked at sort of worst case 
scenarios and believe that there would not be any significant 
impairment to any institutions' capital, at least in the 
national banking system, or to their earnings. And so, that is 
why we decided that this was consistent with safety and 
soundness.
    But again, it really depends upon on what the market 
reaction is going to be once the banks start to sell these, or 
as they run off.
    Mr. Alvarez. I have nothing to add.
    Mr. Foster. Okay. Mr. Alvarez, on page eight of your 
written testimony you mention that the Federal Reserve is 
consulting with the FDIC on a regulatory proposal that would 
require the largest, most complex U.S. banking firms to 
maintain a minimum amount of outstanding, long-term unsecured 
debt, in addition to the regulatory capital that they are 
already required to maintain. This is to facilitate the single 
point of entry resolution of these firms. Now, would this apply 
to all SIFIs or just banks?
    Mr. Alvarez. That is part of the discussion, how far should 
it apply--whether it should apply just to the largest banking 
organizations or it should apply to SIFIs as well.
    Mr. Foster. Yes, and would there be restrictions on who 
could hold this long-term debt? For example, could one SIFI 
hold--
    Mr. Alvarez. That is a part of the discussion as well.
    Mr. Foster. Okay. And how does this relate to the 
contingent capital discussions that I take it are also ongoing? 
We have been promised many times that well, we are in the 
process of thinking about contingent capital, it is getting 
closer.
    And I was wondering what your view was of the status of 
contingent capital. As you are well aware, the European 
regulators are far ahead of us on contingent capital and it 
seems to be fairly successful.
    Mr. Alvarez. This is slightly different. The contingent 
capital is free--
    Mr. Foster. Right, it triggers--obviously, there is a 
regulatory trigger, not as a part of resolution.
    Mr. Alvarez. Correct.
    Mr. Foster. Could the mechanisms be similar--the conversion 
of debt to equity under prescribed conditions. And so would 
this be higher--or above or below in the capital stack of these 
firms--the additional--
    Mr. Alvarez. I don't know the answer to that question. It 
is meant to be complementary. It would be after resolution--
useful mostly after resolution rather than the convertible 
securities, as you point out, which is--convertible debt, which 
is mostly before.
    We are participating pretty actively in the international 
discussions. We think that is a fruitful way to consider the 
convertible instruments because it depends--the trigger there 
becomes a very important factor. And so should the trigger be a 
regulator, should it be a market event? Should it be a home 
regulator, post regulator? There are lots of variables there. 
It is a much more complicated instrument than the long-term 
debt.
    Mr. Foster. Thank you. Is there a schedule for that? Do you 
have any idea when we will actually see a concrete proposal so 
we will be able to say what the trigger mechanism--the 
preferred trigger mechanism is?
    Mr. Alvarez. I don't have a concrete date for you. It will 
be soon. It will be something, though, that we will be very 
interested in public comment on because this is a very 
important effort, we think.
    Mr. Foster. Okay. Thank you.
    That was my last question. I yield back.
    Mrs. Capito. I recognize Mr. Royce, the Chair of the House 
Foreign Affairs Committee.
    Mr. Royce. Thank you, Madam Chairwoman.
    I wanted to ask Mr. McKenna a question. It is about a piece 
of legislation that I and Jared Huffman introduced, the Credit 
Union Residential Loan Parity Act. And what that bill does is 
to remove non-owner-occupied one-to-four-unit dwellings from 
the calculation of the member business lending cap currently 
imposed on credit unions.
    And this reform really has two advantages in terms of 
increasing the capital available to lend to small businesses 
and the availability of needed rental housing as a consequence 
if this change was made. And I was going to ask you, Mr. 
McKenna, does the NCUA have any comment on this legislation?
    Mr. McKenna. The agency has reviewed that piece of 
legislation and we do not have any safety and soundness 
concerns with it.
    Mr. Royce. Could you pull the microphone a little closer?
    Mr. McKenna. We have reviewed that piece of legislation and 
we do not have any safety and soundness concerns with it.
    Mr. Royce. You don't have any concern about safety or 
soundness from that standpoint?
    Mr. McKenna. Not with that piece of legislation, no.
    Mr. Royce. I appreciate that very much.
    I also wanted to ask you, on a related note, the NCUA has 
put forward a new proposed risk-based capital rule for credit 
unions over $50 million in assets, and I am concerned that risk 
weights applied to residential mortgage loans and member 
business loans under the proposal do not actually reflect the 
risk nor are they comparable to the system for community banks.
    And I will just give you an example. If you look at the 
delinquency rates, first of all, on these loans from the latest 
data available, credit unions have delinquency rates which are 
one-quarter to one-half that of banks. The proposed rule would 
apply risk weights that are double the comparable Basel 
weights.
    And that is the thing that stands out to me--the rate being 
double. Why does the proposed rule regarding risk-based capital 
deviate so much from the FDIC standards for community banks? 
That was what I was going to ask you.
    And do you have concerns that these risk-weightings could 
hinder credit union lending to homeowners or small businesses 
or even churches? You have these niches out there and this 
would be quite a change. But I would like to explore that with 
you. Go ahead.
    Mr. McKenna. As you pointed out, it is a proposed rule that 
we issued in January of this year. The comment period closes in 
May. We have already received lots of comments on the risk 
weights and that is something that the NCUA board is going to 
be looking at.
    The basic thrust of your question was whether our rule is 
comparable to the FDIC's rule. And in general, taking into 
consideration the unique nature of credit unions and other 
factors, we think it is comparable to the FDIC rule. However, 
we are reviewing the risk weights to see if they make sense to 
credit unions.
    Mr. Royce. Yes, because the data behind those delinquency 
rates--one-quarter to one-half--if you look at the September 
data, it shows real estate loans last September--a delinquency 
rate of 1.22 versus 4.77. If you looked at commercial loans, it 
would be 0.35 versus 0.55.
    So the part that just stands out is if you end up with 
double the rate then the question is, do you end up sort of 
shorting capital that otherwise would be available for small 
business lending and so forth.
    So my hope would be to work with you--we have a good 
working relationship--as we go forward to try to make certain 
at the end of the day we don't disproportionately impact 
capital that otherwise would be available for either home 
ownership, small business lending, and so forth.
    Mr. McKenna. We hope to work with all stakeholders to make 
the final rule more effective.
    Mr. Royce. Thank you very much.
    And Madam Chairwoman, again, I appreciate it.
    Mrs. Capito. I now recognize Mr. Sherman from California.
    Mr. Sherman. Thank you.
    I would like to pick up on Mr. Royce's questions. I am also 
concerned about these rules on credit union capital. As I 
understand it, it would impose a Basel-like capital regime on 
those who already face stringent capital requirements.
    And I will ask Mr. McKenna, it seems that the rule provides 
for tougher rules for credit unions than are applied to 
community banks under the Basel system even though credit 
unions have historically been even more risk-averse. Are the 
rules tougher than that are imposed on community banks?
    Mr. McKenna. Congressman, some of the risk weights are 
different than the ones that the FDIC has.
    Mr. Sherman. And I hope you would take into account the 
fact that the number one problem that small businesses, I 
think, have in all our districts is they can't get capital. 
They can't get a loan. We had Jamie Dimon in here saying he 
couldn't find U.S. businesses to lend money to, so he sent the 
money to London where it was eaten by the Whale.
    Every one of us here could list a hundred businesses that 
can't get business loans, and so I hope you would take that 
into account in determining what weights should be applied.
    Supplemental capital is an issue that credit unions have 
been concerned about. They would like the authority to pursue 
supplemental capital, since their tier-one capital is generally 
now limited to retained earnings, and of course they cannot, 
will not issue stock.
    I believe your agency has indicated support for 
supplemental capital, which credit unions can't use for 
leverage ratio purposes without a change in the Federal Credit 
Union Act. Why isn't your agency coupling its support here in 
Congress for supplemental capital for tier-one purposes with 
the risk-based capital proposal?
    Mr. McKenna. As you point out, it is currently a proposed 
rule, and the issue of supplemental capital will be something 
that we look at when we finalize the rule and listen to the 
comments.
    Mr. Sherman. So you may be putting the two together?
    Mr. McKenna. It is a possibility.
    Mr. Sherman. Okay.
    Now I would like to shift--I know a number of my colleagues 
have talked about this ``Operation Choke Point.'' I would ask 
unanimous consent to put in the record an article by William 
Isaac entitled, ``DOJ's Operation Choke Point: An Attack on 
Market Economy.''
    Mrs. Capito. Without objection, it is so ordered.
    Mr. Sherman. Thank you.
    I guess, Mr. Osterman, you have said that you are 
cooperating with DOJ on this. Is it being limited to--are you 
trying to choke off entities that had been indicted or 
convicted of crimes, or what is the target of Operation Choke 
Point?
    Mr. Osterman. Congressman, I am really not in a position to 
answer that because it is not an FDIC program. Again, we have 
been providing information to the Justice Department for their 
actions, but we--
    Mr. Sherman. Okay. But it is your examiners that are 
putting the pressure on banks to do to certain U.S. businesses 
what I spend most of my time trying to get done to the 
government of Iran, and that is deny them access to the U.S. 
banking system. Are your examiners pushing banks toward cutting 
off any U.S. businesses that are--particularly those engaged in 
consumer credit?
    Mr. Osterman. The answer to that is no. What we have--
    Mr. Sherman. So we wouldn't hear testimony from those who 
deal with your bank examiners saying that they were told, 
``Well we are going to look at you more carefully unless you 
cut off this-or-that business?''
    Mr. Osterman. As I have said before, we have actually put 
out a policy statement on this issue to make it very clear from 
the very top that as long as financial institutions are 
properly managing their relationships and the risks, they are 
neither prohibited nor discouraged from providing these 
services.
    And we have actually had the head of our examination staff 
talk with our regional offices and our field offices about 
this. And so, to the extent that this message isn't getting 
through, we are certainly happy to hear it and try to get that 
message correct.
    Mr. Sherman. I think you need to get the message through.
    And, Ms. Fuchs, I look forward to your agency regulating 
properly consumer lending, rather than having--
    Mrs. Capito. The gentleman's time has expired.
    Mr. Sherman. --this get done behind the scenes without the 
Administrative Procedure Act.
    I yield back.
    Mrs. Capito. Thank you.
    Mr. Pearce is now recognized.
    Mr. Pearce. Thank you, Madam Chairwoman.
    And I thank each one of your for your presentations today.
    Ms. Fuchs, you had mentioned that you are hard at--the CFPB 
is hard at work making sure that consumers have better 
information for making financial decisions. Later, you pointed 
out that you are required to consider rural areas. Again, I 
point it out every time I have the opportunity with someone 
with your agency that you--your original definitions of rural 
versus urban put 2 counties, one of 8.5 people per square mile 
that compares to 70,000 per square mile in New York. You would 
lump them together.
    And then the other one is 6 people per mile, and the one 
with 6 people per mile has a per capita income of about 
$25,000. So I am not sure exactly how that is that you are 
going to give consumers better information when you have missed 
the mark that far.
    I know you have done a 2-year study, but I don't know many 
institutions will go in to lend money for the long term based 
on 2-year changing regulations. I don't really have much belief 
that I would get different answers than I have gotten before so 
I will just add a quote from one of the bankers talking about 
being hurt by the real definition, which lets you know how you 
are cutting against the grain, really not providing the 
security and not providing what it is that you declare in your 
statement.
    A small banker in Alamogordo, New Mexico, says, ``If I stop 
lending--he is being hurt by this rule definition--my community 
will not have a bank to meet their needs. I am a small bank 
investing private capital to service micro needs. Wells Fargo 
won't make a loan for an ice maker for a small business in New 
Mexico but I will.''
    And that is the sort of thing that we run into. And another 
comment is regarding the purchase of trailer houses, mobile 
homes, manufactured houses, whatever category you put it in, 
and it appears the CFPB doesn't declare that to be quite up to 
the standards that you would like. So your positions on 
qualified mortgages and also balloon loans make it very hard 
for consumers to borrow money for manufactured housing.
    And yet, that is 50 percent of the housing in my district, 
and so you are doing exactly the opposite of what you declare, 
just as a point of reference so you can go away and know that I 
have at least said it.
    Mr. Osterman, I was actually intrigued by your comments. As 
Mr. Westmoreland was wrapping up, you were talking about 
Operation Choke Point, and do you all--as you are going in 
there, you said that it is against some State laws. Do your 
regulators know all 50 State laws? Do you differentiate? Tell 
me a little bit about how you avoid getting into areas where 
that is legal and those where it is not?
    Mr. Osterman. Again, what we do is supervise our financial 
institutions, and our efforts are not targeted at legitimate 
businesses operating in compliance with the law. So our efforts 
are focused on making sure our institutions are being run in a 
safe and sound manner and that if there--and I think there is a 
recognition that there are certain types of--
    Mr. Pearce. I understand that there are certain types of 
things that are wrong, so do you bring criminal investigations? 
It says in an article that you bring criminal investigations--
you, DOJ, FTC, USPIS, and FBI, and it includes the FDIC there. 
So you would bring criminal investigations too?
    Mr. Osterman. We would not be involved in criminal 
investigations--if we see criminal activity, we would make a 
referral to the Department of Justice--
    Mr. Pearce. You would make a referral when somebody gets so 
far out of bounds? There are things that abridge the law and 
abridge the themes of common decency.
    Mr. Osterman. If there is illegal activity, we will make--
    Mr. Pearce. Yes. I guess that would bring me to my point--
my recurring point with the FDIC is that you all had a 
supervisory role over MF Global, and yet no criminal charges 
were brought. That was $1.6 billion taken from customer 
accounts illegally. The Huffington Post said, ``The lack of 
charges add to the government's sad track record of 
toothlessness since the financial crisis.''
    And later in that article it says, ``Apparently MF Global 
didn't intend to take money from clients.'' Now, I was not 
aware that intention was exactly the best decider, so we 
continue to see that certain scale of institutions, certain 
connected institutions are targeted and others don't even get 
criminal charges.
    I yield back my time.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Washington, Mr. 
Heck, for 5 minutes.
    Mr. Heck. Thank you, Mr. Chairman.
    I would like to take this opportunity to extend my 
congratulations and welcome to my friend and colleague, Mr. 
Horsford, who has joined us. I can state unequivocally that 
there is not a single member of this committee happier than me 
that there is somebody less senior than I am.
    [laughter]
    I would also like to congratulate him on the fastest and 
shortest brevet promotion to ranking minority member in the 
history of the community.
    Ms. Fuchs, you have come in for some criticism today and 
before--some warranted, some I suspect not so much. One area 
where you are generally not criticized at the Bureau is the 
manner in which you deal with servicemembers through Ms. 
Petraeus' office. I never miss an opportunity to congratulate 
the work of the agency in that regard.
    Also I think, generally speaking, people extend to you 
plaudits for the way in which you have, generally speaking, 
listened. You, I mean, of course, figuratively.
    Lots of stakeholders from our district may be critical of 
final rules, but most of what we have heard for the last year 
or two is, ``We complained and they sat down and they 
listened.''
    One of the ways in which you are able to do that with 
respect to consumers and banks and credit unions is you 
actually have advisory boards that kind of formalize your 
ability to listen. I would very interested in just a sentence 
or two about how that makes you better at your job. And 
secondly--two-part--given that Mr. Pittenger has introduced an 
outstanding piece of legislation--sir, I compliment you--in the 
form of H.R. 4383, that would create another small business 
advisory committee for the CFPB for other entities that you 
regulate, like appraisers and title insurers, might we look 
forward to your active support of that to help you keep doing 
the good job of listening that you have done in these other 
areas? Your turn.
    Ms. Fuchs. Thank you so much, sir. I appreciate your 
comments about the CFPB's outreach efforts, and I should--and 
we have found that both the Credit Union Advisory Committee and 
the Community Bank Advisory Committee have been very, very 
helpful for the CFPB. The CFPB writes rules across the entire 
financial services consumer finance industry, although we only 
examine larger banks and nonbanks, and so having those advisory 
committees has been helpful to us.
    With respect to the legislation, the CFPB doesn't take 
positions on pending legislation. I should say, however, as I 
mentioned earlier, we are the only bank regulator and one of 
only three Federal agencies that subjects itself to the small 
business panel requirements, and we have found that extremely 
useful, and our economists would say it has been very valuable 
to hear from small businesses who would be affected by rules 
that we are planning to propose directly about those proposals. 
And so that has been a very, very useful process. Thank you.
    Mr. Heck. Thank you.
    And my compliments again to Mr. Pittenger, for the 
legislation.
    Mr. Osterman, it is axiomatic that piles of cash are an 
inherently bad thing. I am just finishing up watching the 
Breaking Bad series and there is that scene in the storage room 
where the six-foot-by-six-foot-by-four-foot pile of cash is 
kept in the little room. There is nothing good about that; 
nothing whatsoever.
    And that is why, sir, Mr. Perlmutter and I have been 
working so hard and so aggressively with Treasury and the 
Financial Crimes Enforcement Network (FinCEN) to issue guidance 
with respect to providing access to banking services to legally 
constituted marijuana businesses in Colorado and Washington, 
because it is a public safety issue. Because we have to keep 
marijuana out of the hands of children and we have to keep cash 
out of the hands of gangs and cartels.
    And, sir, Happy Valentine's Day. On that very day, FinCEN 
did issue guidance. Please tell us how your agency will now 
take that work to the regional level and to the examiners so 
that they can provide the necessary implementation advice and 
guidance and get on with this in the interest of public safety.
    Mr. Osterman. Congressman, we expect the banks to follow 
the FinCEN guidance, including the new guidance that has been 
issued and its new SAR requirements for marijuana-related 
businesses. But at the end of the day, it is up to the bank to 
accept the business as a customer after weighing the risks 
associated with the customer relationship.
    Mr. Heck. I understand that. The question is, what have you 
done now to take that guidance regionally to your examiners and 
say, ``Here is our new guidance, that if you instruct things to 
operate within this, that is acceptable.'' What have you done 
to take the next step?
    Mr. Osterman. Again, the examiners are aware of the FinCEN 
guidance. It is up to the bank to make the call as to how it is 
going to operate.
    Mr. Heck. Thank you, Mr. Chairman.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Florida, Mr. 
Posey, for 5 minutes.
    Mr. Posey. Thank you very much, Mr. Chairman.
    Thank you all for appearing here today.
    Mr. Alvarez, I would like to state a few facts, as I 
understand them, about the Volcker Rule and how it was adopted. 
Let me assure you that when I am finished, you will have more 
than adequate time to explain.
    Dodd-Frank codified the Volcker Rule as 12 USC-1851. As I 
believe Mr. Garrett alluded to, Section 18-51G specifically 
states that the rule does not prohibit any bank from 
securitizing a loan.
    Now, when the proposed Volcker Rule regulations, 76 CFR 
215, were issued on November 7 of 2011, there was no discussion 
as to whether collateralized debt obligations (CDOs) and 
collateralized loan obligation (CLOs) would be considered 
proprietary trading. In fact, sub-part A of Section 13 
specifically said that securities consisting entirely of loans 
were not proprietary trading.
    Yet, when the financial regulations were issued on December 
10, 2013, regional and community banks suddenly discovered that 
regulators had, in fact, made significant changes to the 
treatment of CDOs and CLOs and that the banks would have to get 
them off of their books in less than a year. Given the 
industry's surprise with the final rule, I am trying to 
understand how this regulation morphed from the proposed rule 
to the final one, because there appears to be something 
seriously wrong here.
    Furthermore, the financial industry submitted more than 
18,000 comments during the notice and comment period for the 
proposed regulations. Yet none of them raised a concern as to 
how CDOs and CLOs would be treated.
    That tells me that if an important piece of regulation 
receives no public attention during a comment period but a 
great deal of attention afterwards, you have to wonder whether 
the proposed rule was, in fact, adequately, fairly, and 
reasonably described when given for public comment, if it was 
described at all. So my question to you is, would you please 
give me a specific citation in the proposed rule where the 
treatment and CDOs and CLOs were set out?
    Mr. Alvarez. The proposed rule had something on the order 
of a dozen questions about asset-backed securitizations, 
including CDOs--asked about how the ownership interest should 
be defined, how the instrument should be treated under the 
Volcker Rule. As you pointed out, the proposal and the final 
rule both exempt asset-backed securitizations that are backed 
entirely by loans.
    The issue is a very small number of banks own CLOs that are 
not backed entirely by loans, that indeed are backed by loans 
and other securities that are not loans. As I mentioned, there 
seemed to be about 50 banks in that group.
    I think that may explain why there was no comment received 
on it. It is a very small universe of institutions that are 
affected by this among the thousands that are affected by the 
Volcker Rule.
    We have acted in a way that gives these institutions extra 
time. They have an opportunity to conform the investment in a 
variety of ways, short of divestiture.
    Some may choose to divest. As I mentioned, at least half of 
the CLOs are going to mature on their own terms during the 
period of time that we have given the institutions. So this 
problem is one that is very, very small.
    Mr. Posey. So you are telling me that securities, 
consisting entirely of loans, are not proprietary trading then. 
You are telling me absolutely, unequivocally, without any 
shadow of doubt, that they are being treated properly. If they 
are entirely consisting of loans, then they are not considered 
proprietary trading, correct?
    Mr. Alvarez. If I could make a small modification of what 
you are saying, there are two restrictions in the Volcker Rule: 
one on proprietary trading; and one on ownership of covered 
funds.
    The issue you are raising is about the ownership of covered 
funds. And, yes, it is true that if it is an asset-backed 
securitization entirely by loans it is not a covered fund and 
is not covered by the Volcker Rule.
    Mr. Posey. Thank you. I will hold you to that. Thank you.
    Thanks, Mr. Chairman.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentlemen from Nevada, Mr. 
Horsford, for 5 minutes.
    Mr. Horsford. Thank you very much, Mr. Chairman.
    First, I want to thank the witnesses for being here today 
and for providing so much valuable information and expertise on 
this subject.
    I started my service here in Congress on the Oversight and 
Government Reform Committee, where I learned to value the 
assessment of the U.S. Government Accountability Office, so I 
want to start with a 2013 GAO report entitled, ``Financial 
Crisis Losses and Potential Impacts of the Dodd-Frank Act,'' 
and I would like to ask unanimous consent to enter this into 
the record.
    Chairman Hensarling. Without objection, it is so ordered.
    Mr. Horsford. Thank you.
    The GAO report noted that, given the tremendous cost 
associated with the financial crisis, reforms only have to 
reduce the likelihood of another financial crisis by a very 
small percentage in order to offset the cost to the industry. 
The GAO identified as much as $13 trillion lost in economic 
output and $9.1 trillion in wealth lost by U.S. homeowners.
    As a resident of Nevada, I can tell you when I go back home 
to my district, I see the devastating impacts and toll that the 
housing crisis took on our constituents and the people 
throughout our State. Now, no one supports excessive, 
burdensome regulations. But we also need appropriate regulatory 
oversight to both protect the good industry players from the 
bad actors as well as to help consumers who need a fair playing 
field in which to operate.
    So my question is for the panel.
    Mr. Alvarez, what efforts does your agency undertake in 
attempting to reduce any unnecessary burden when creating new 
rules and regulations, and what processes and procedures are in 
place for you to honor that commitment?
    Mr. Alvarez. As I described in my testimony, the Federal 
Reserve meets with affected parties in advance of designing 
rules in the most significant cases. We seek public comment in 
all of our rulemakings, including public comment on alternative 
approaches, on ways to reduce burden, we invite comment on the 
cost and burdens of the rule that we are putting forward. And 
so, we follow that process.
    In addition to that, in order to ensure that there is input 
from community bankers in particular, we have set up various 
councils across the Federal Reserve System--one in each of our 
12 districts--with representatives from the local banking 
communities to inform us of the costs and burdens of the rules 
we are putting forward.
    Then representatives of those councils meet with our Board 
of Governors here in Washington and pass on those concerns and 
have a chance to input their own concerns. So we do quite a lot 
of outreach, and we do quite a lot of work with institutions to 
try to make sure that within the bounds Congress has set for us 
in the statute that we are implementing, we adopt alternatives 
that are the least burdensome.
    Mr. Horsford. So, Mr. Osterman, how, then, do you get 
feedback from both the industry and consumer side? Is it 
balanced? And fundamentally, is it different from the way past 
Administrations have approached that input?
    Mr. Osterman. We seek notice and comment, as Mr. Alvarez 
has stated. We also will seek input even before rules are 
promulgated, on occasion, to get input. But certainly as we go 
through that process and we issue the notice of proposed 
rulemaking, we get the comment from the industry. We look at 
ways to minimize--
    Mr. Horsford. What about consumer groups?
    Mr. Osterman. --the burden, and consumer groups are part of 
those groups that do provide us comments. And really, I don't 
think it is any different from the process that has been in 
place for many years under the Administrative Procedure Act.
    Mr. Horsford. Okay.
    Ms. Fuchs, how do you also obtain the perspective of 
communities like mine that have been heavily and 
disproportionately impacted by the failure of a lax regulatory 
oversight that helped contribute to the loss of so much wealth 
for average, middle-class homeowners?
    Ms. Fuchs. The CFPB is very conscious of the history that 
led to the creation of the Bureau, and in our work, in addition 
to some of the formal procedures I talked about in my written 
testimony, the Bureau has engaged in very, very regular 
interaction across the country with all sorts of communities. 
Virtually every month, we do a field event in a different State 
across the country. And while we are there, in addition to a 
public hearing, we also meet with community groups, community 
bankers, and credit unions.
    Mr. Horsford. Thank you.
    Thank you, Mr. Chairman. I look forward to continuing to 
work on these issues.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Missouri, Mr. 
Luetkemeyer, for 5 minutes.
    Mr. Luetkemeyer. Thank you, Mr. Chairman.
    Mr. Osterman, my first comments or questions would be to 
you. A couple of times today you have already mentioned that, 
with regards to Operation Choke Point, the FDIC was working 
with DOJ and providing some information. Are you aware that the 
Division of Depositor Consumer Protection actually loaned two 
attorneys for a period of time to Operation Choke Point?
    Mr. Osterman. No, I am not, sir. I don't believe that is 
correct.
    Mr. Luetkemeyer. I have a copy--or I am aware of a copy--of 
an internal memorandum that was produced for Chairman Issa that 
confirms that fact. And in talking with some of the executives 
at the FDIC, they confirmed that fact, as well, to me last 
week.
    So knowing that, and putting that fact before us here, I 
thought the mission of the FDIC was to work and be concerned 
with the--to ensure the safety and soundness of an institution. 
How do you rationalize loaning two of your examiners to the DOJ 
for Operation Choke Point, whose sole purpose is to run the 
non-deposit lenders out of business, a safety and soundness 
issue for the FDIC?
    Mr. Osterman. Again, I am not aware of that. But assuming 
you are correct in terms of what you are proposing here, as I 
have indicated before, our efforts aren't targeted at 
legitimate businesses. What we are looking at is making sure 
our banks are running in a safe and sound manner.
    In terms of the Department of Justice, if they are involved 
in trying to stop illegal activity and they seek our 
assistance, we generally would provide assistance to them so 
that activity could be addressed.
    Mr. Luetkemeyer. Mr. Osterman, I used to be an examiner as 
well. I am still involved at arms length, probably, at a 
community bank as well. So I have been on both sides of the 
table on this issue. I understand what goes on.
    But by the same token, I am not supporting those entities 
that are illegal or are doing illegal things. I support any 
activity that you engage in to get those--to ferret those out 
and get rid of them.
    The problem is we are going the wrong direction. We have 
allowed the pendulum to sway way too far. Operation Choke Point 
is a perfect example of regulatory stuff going amuck.
    I have here an excerpt from a letter dated February 26, 
2014, from a banker to one of these nondeposit lenders closing 
his account: ``We are unable to effectively manage your account 
on a level consistent with the heightened scrutiny required by 
our regulators for money service businesses.''
    Now, this is after the fall policy statement that you made. 
This is still going on. What is heightened scrutiny? What are 
they referring to?
    Mr. Osterman. I am not quite sure what they are talking 
about. I can tell you that our efforts are focused on making 
institutions aware of risks that can be involved. But as long 
as the institutions are managing those relationships and the 
risks, they are neither prohibited or discouraged from 
providing those services. So--
    Mr. Luetkemeyer. Mr. Osterman, we have a statement from one 
of your examiners that says that he doesn't believe that non-
deposit lenders have a moral right to exist. That is completely 
out of line.
    Your agency has no right to make that judgment on any 
business. Not only do we have a shadow banking system, we seem 
to have a shadow regulatory system as well.
    If you have regulators out there who are working in cahoots 
with the DOJ, who are still being punitive with regards to my 
letter of February 26th, after your stuff, and the moral 
judgment statement that is made, something has to change. Would 
you be willing to work on and put in place a safe harbor for 
these non-deposit lenders?
    Mr. Osterman. I think that it is up to the non-deposit 
lenders to basically create a situation where the banks can be 
comfortable with the fact that they are being operated in a way 
that is not illegal or creating high risk to the institution.
    Mr. Luetkemeyer. Mr. Osterman, you are regulating these 
entities. You are the one who is coming down on the banks and 
saying, ``Don't do business with these.''
    My banker association was in just a couple of weeks ago, 
and one of them made the comment that, ``I was doing business 
with one of these non-deposit lenders and I went by--and I will 
still--there was no problem with them, but the FDIC kept 
nitpicking me to death and I just finally got rid of them, and 
suddenly all my problems went away.'' That has to stop.
    I think these folks need a safe harbor where you will give 
the banking industry a way to work with these folks and protect 
them from your operation. Do you agree?
    Mr. Osterman. I think there needs to be dialogue here so 
that we can understand what the issues are and try to address 
them.
    Mr. Luetkemeyer. Okay.
    Quickly, Ms. Fuchs, I am very concerned because the CFPB is 
about ready to jump in this area as well with your rules. Mr. 
Cordray was in front of this committee not too long ago, and he 
made a statement to me that he agreed that non-deposit lenders 
have a space that they need to be in and he would support them.
    On April 25, 2012, he also said the CFPB is not in the 
business of product banning. I am going to be watching very 
carefully to see how you address that position of your Director 
and still allow these entities to exist.
    Thank you, Mr. Chairman.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Wisconsin, Mr. 
Duffy, for 5 minutes.
    Mr. Duffy. Thank you, Mr. Chairman.
    Mr. Alvarez, are you aware of whether the Fed is required 
to open up their advisory committee meetings to the public or 
to Congress?
    Mr. Alvarez. The Federal Advisory Committee is a statutory 
organization and is not required to be open to the public.
    Mr. Duffy. Do you know why not?
    Mr. Alvarez. It allows the members of that committee--which 
are representatives of the banking industry--to give their 
candid views to the Board on monetary policy and on 
supervision.
    Mr. Duffy. So it is monetary policy issues that come up 
that require some secrecy about what the Board is doing, right?
    Mr. Alvarez. Correct.
    Mr. Duffy. Okay. Does the CFPB have a seat at the table 
talking about monetary policy?
    Mr. Alvarez. No.
    Mr. Duffy. No.
    Ms. Fuchs, is it your position that the CFPB is not 
required on the FACA to open up their meetings to Congress or 
the public?
    Ms. Fuchs. The CFPB is an entity within the Federal Reserve 
System, and the Federal Advisory Committee Act (FACA) does not 
require the entities of the Federal Reserve system to comply 
with FACA.
    Mr. Duffy. This is the Federal Reserve System, right? So 
you are saying that you are an integral part to the cause and 
the reason why the Fed is exempt, which is setting monetary 
policy?
    Ms. Fuchs. No, I am talking simply about the way the law is 
structured. I am not talking about the reason that Congress put 
that in place.
    Mr. Duffy. So are you prohibited from opening your meetings 
up to the public or to Congress?
    Ms. Fuchs. With respect to the Consumer Advisory Board, the 
Bureau has certain sessions that are open to the public and I 
am aware that--
    Mr. Duffy. Listen to the question. Are you prohibited at 
the CFPB from opening up your meetings to the public?
    Ms. Fuchs. We are not prohibited.
    Mr. Duffy. So you can open them up if you want to; you just 
choose not to.
    Ms. Fuchs. The Bureau has certain meetings which are open 
to the public--
    Mr. Duffy. That is not my question. You choose to shut down 
some of the meetings, right?
    Ms. Fuchs. And it is my understanding, as well, that 
members of the committee staff have attended those public 
meetings.
    Mr. Duffy. And those meetings aren't discussing monetary 
policy, right?
    Ms. Fuchs. Not that I am aware of.
    Mr. Duffy. And those aren't meetings discussing covert 
operations in the CIA as well, right?
    Ms. Fuchs. Not that I am aware of.
    Mr. Duffy. Okay. I have a riddle for you: What do tap 
water, your glasses, and the Consumer Financial Protection 
Bureau all have in common?
    Ms. Fuchs. I do not know.
    Mr. Duffy. You don't know? There was a blog 3 years ago, 
April 6, 2011, on the CFPB Web site, and the answer is, they 
are all better when they are transparent.
    Dirty glasses are annoying, dirty water is annoying, and a 
dirty CFPB is really annoying. And if you are not transparent, 
which you have claimed the CFPB would be and you are not, that 
is of great concern to this committee.
    Look--the Credit Union Advisory Council meeting. No agenda. 
No notice of meeting. And a six-page summary of just glossary 
facts of what took place.
    You have a Community Bank Advisory Council meeting. No 
agenda. Nine pages of very glossary ideas of what took place in 
the meeting.
    The FDIC--Mr. Osterman--they have a similar meeting and 
they give an agenda; they give 20 pages of pretty detailed 
summary of what takes place in the meeting. And you are talking 
about the same issues.
    FDIC--full disclosure with an agenda. CFPB, not at all.
    You look at the Academic Research Council--no agenda. Do 
you know how long the minutes were from that meeting? It was 
two pages, one was a cover page and the other was barely a 
paragraph from the minutes.
    And the CFPB comes in here and says, ``We are open. We are 
transparent. We want to disclose.''
    I would suggest that you use your discretion and you open 
up these meetings. Let us see what kind of advice you are 
getting, and who is giving the advice. I think that would serve 
the CFPB well, it would serve this committee well, and it would 
serve the public very well if you did that.
    I would just note that the Credit Union Times, on September 
26, 2013, in an article said, ``Give public access to more of 
its meetings and hearings to increase transparency.'' And that 
was in relationship to the CFPB.
    If you want to get buy-in from this committee, your lack of 
transparency in the face of all the claims that were made about 
how transparent you would be with little cute jokes and blog 
posts about how wonderful it would be at the CFPB, you haven't 
met the standard. You haven't met the standard that was set by 
Elizabeth Warren.
    Also in that same blog post it said, ``Last month we 
blogged about our commitment to making sure it is always sunny 
at the CFPB.''
    Ms. Martin, in her testimony last week, I am sure she would 
say, ``It is not always sunny at the CFPB.'' I think she 
actually testified, ``It is a nightmare at the CFPB.''
    Let's open it up. Let's air it out. Let's have the 
transparency that you all promised.
    I yield back.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentlemen from New York, Mr. 
Grimm, for 5 minutes.
    Mr. Grimm. Thank you, Mr. Chairman.
    I would like to follow up where Mr. Luetkemeyer left off, 
with Mr. Osterman. This Operation Choke Point gives me 
tremendous concern because it can certainly be Federal agencies 
like DOJ and others using a cloak of law enforcement to weed 
out and combat fraud and intentionally harming lawfully 
operating businesses.
    Listen, anyone who is not doing the right thing, not 
following the law, we have to get rid of them. But you can't 
put the standard of ``guilty until proven innocent.'' And in 
your last comment you said that these payday lenders and store 
fronts, non-deposit lenders, they have to meet this heightened 
standard, which means they are already assumed guilty. That is 
not how this works.
    I just want to be clear: If payday lending is going to be 
deemed illegal, the Congress will say so, not your agency. Are 
we on the same page there?
    Mr. Osterman. Yes.
    Mr. Grimm. Okay. Because it doesn't seem that way.
    My understanding is the FDIC has a list of businesses that 
are on a heightened scrutiny list. That, in and of itself, 
causes me some concern.
    My question is, I understand that if the DOJ requests your 
assistance you are going to give that assistance. Has anything 
about Operation Choke Point caused you concern enough to maybe 
ask some questions of DOJ and say, ``Hey wait a minute, you 
know, we want to be helpful but we may be breeching our own 
fiduciary responsibility?'' Is there anything that has given 
you concern about Operation Choke Point?
    Mr. Osterman. We have operated entirely consistent with our 
statutory mission in providing assistance to the Department of 
Justice--
    Mr. Grimm. But my question wasn't whether you were within 
your statutory obligations. My question was, has there been 
anything that has given you concern? Has there been anything 
that has given you concern where you think maybe something 
isn't appropriate, that you may be overstepping a line?
    Mr. Osterman. To the extent that we understand DOJ is 
seeking to stop illegal activity, there is not anything 
inappropriate there. And in fact, you talk about this list of 
high-risk activities. That is a list that the payment card 
industry has created themselves. It was a list that we put in 
our Supervisory Insights Journal a few years ago. And it 
basically is a list of high-risk activities that tend to have a 
higher incidence of fraud or illegal activity associated with 
those, so--
    Mr. Grimm. Let me ask you this question. Let's talk about 
civil investigative demands (CIDs) for a second. It has been 
reported that at least 50 banks and third-party payment 
processors have been given these CIDs as part of this 
operation.
    Before issuing a CID, does the FDIC--do you request of DOJ 
that they give you any type of information to ensure that it is 
credible and that it is a reasonable cause to conclude that 
there was a substantial likelihood that the targets had, in 
fact, engaged in some kind of fraudulent activity?
    Mr. Osterman. I am not familiar with the CID acronym, but 
to the extent that DOJ is doing an investigation, that is their 
investigation. We have been--we would provide them, respond to 
questions, that type of thing, but that would be their 
investigation. I don't think they would come to us on that.
    Mr. Grimm. I just want to be clear then, whatever DOJ asks 
for, the FDIC provides without asking any questions. You don't 
do any internal investigation of any sort, so whatever DOJ asks 
for, you pretty much provide?
    Mr. Osterman. No, I don't--that is not correct. It would 
have to be a legitimate law enforcement activity that we would 
be supporting DOJ on. We would cooperate--we cooperate with 
other agencies as well in ensuring that the statutory mission 
of the agency is fulfilled.
    Mr. Grimm. As far as you know, the coordination 
involvement, does it involve any attorneys general from other 
States with Operation Choke Point?
    Mr. Osterman. I don't know the answer to that question.
    Mr. Grimm. How about any other consumer advocacy groups? 
Has there been any communications or involvement with consumer 
advocacy groups?
    Mr. Osterman. Again, I am not aware of the answer to the 
question.
    Mr. Grimm. I am asking specific with the FDIC, not with 
DOJ.
    Mr. Osterman. Right.
    Mr. Grimm. As far as you know--
    Mr. Osterman. Right. I am not aware of it myself.
    Mr. Grimm. You are not aware of any?
    Mr. Osterman. No.
    Mr. Grimm. Okay.
    I yield back. Thank you.
    Chairman Hensarling. The gentleman yields back.
    The Chair now recognizes the gentleman from Ohio, Mr. 
Stivers, for 5 minutes.
    Mr. Stivers. Thank you, Mr. Chairman. I really appreciate 
you holding this hearing.
    And I appreciate the witnesses being here and their time. 
We are in a difficult time in this economy. There are still a 
lot of jobs that need to be added, and the way you have to add 
those jobs is you have to figure out how to finance that growth 
of our economy, and the financial sector has done that.
    I am really concerned about a couple of things that I want 
to talk about and ask some questions about. The Operation Choke 
Point really has me worried about the overreach of government 
and government shutting down properly licensed State businesses 
with which they just don't agree.
    And it gives me cause for concern about other businesses, 
whether they be opposed by folks on the left or the right. 
Government can really abuse its power and it really worries me.
    I have a testimonial from an Ohio-based company that has 
had a 20-year partnership with a financial institution, and 
with no warning they got a call just a few weeks ago and the 
bank is going to terminate their banking relationship after a 
20-year relationship because of reputational risk. And that 
reputational risk is driven by our regulatory policy and 
regulatory pressure, and I am really worried about that.
    So I want to ask the FDIC whether, Mr. Osterman, you 
believe there should be a safe harbor? I know somebody has 
brought this concept up to you, but why shouldn't State-
licensed businesses have a safe harbor to know that they are 
going to be able to keep their relationships?
    Mr. Osterman. I think as long as you have a situation where 
the entity is operating in a legal fashion, that should take 
care of addressing the issue. What we have seen in the past is 
there are certain types of businesses that have been viewed as 
high-risk by the payment card industry and others because of 
the higher incidence of fraud or illegal activity, and to the 
extent that--
    Mr. Stivers. Sure. And I just hope your agency will put in 
writing what you just said, that if you are operating under a 
State license legally, that you--that is a safe harbor. So I 
would ask you to go back and put that in writing.
    One question for Mr. Alvarez, and I know this has come up 
already, on CLOs. Can you tell me where in Dodd-Frank you don't 
have the power to grandfather CLOs? Because a 2-year extension 
and a grandfathering aren't that much different except a 
grandfathering would allow those entire portfolios to run off 
in their fairly shortened duration.
    So can you help me understand? Can you cite the section or 
the page number of Dodd-Frank that doesn't give you the 
authority you claim you want?
    Mr. Alvarez. I can't cite the page number or the section 
but I can tell you what it says. There is a provision in the 
Dodd-Frank Act that says all investments and activities by 
banking entities must conform with the requirements of that 
section by the effective date, which is July 21, 2014, unless 
the Federal Reserve Board provides an extension.
    Then the statute goes on to say the Federal Reserve may 
provide one extension at a time for a cumulative amount of no 
more than three extensions.
    Mr. Stivers. Okay. So that seems pretty clear to me how 
long these CLOs are. You could have made the extension an 
essential grandfathering by looking at the term.
    These things run off in 3 to 5 years. They are relatively 
short-term. Why not deal with the whole thing instead of having 
to take two bites of the apple? It just doesn't make sense.
    Mr. Alvarez. No, I appreciate that. And I think we would 
have appreciated the flexibility to be different, but the 
statute is quite specific. It says that we can grant three, 1-
year extensions, but no more than one at a time. And we thought 
that--so we indicated our intention to grant those extensions. 
We have already granted one; we did so just in this past 
December. And we will grant the next two in turn.
    Mr. Stivers. Thank you.
    The only thing I would add about that is we have talked a 
little bit today about uncertainty. When you do multiple 
extensions and you do them for shorter duration, it adds to 
uncertainty for these businesses that finance things through 
CLOs, to the marketplace, and to those financial institutions 
which need that capital. So I would be concerned about that.
    One last question for Mr. Osterman: The FDIC approved a 
bunch of tailored plans at the end of the year for some 
resolution of some of the smaller banks. Do you think that adds 
any risk to the system?
    Mr. Osterman. I am not familiar with what you are referring 
to--tailored plans?
    Mr. Stivers. Yes.
    Mr. Osterman. In connection with--
    Mr. Stivers. In resolution.
    Mr. Osterman. Oh, in terms of the resolution. The--
    Mr. Stivers. So you obviously don't think it adds risk, 
right, or you wouldn't have approved them?
    Mr. Osterman. The plans were not approved. We are going 
through a process of reviewing the resolution plans and they 
have not been approved. They are in the process of being 
reviewed and it is an--
    Mr. Stivers. I know I don't have much time left. When you 
allow people to submit tailored plans, clearly you understand 
there is not much risk there, and--
    Chairman Hensarling. In fact, the gentleman has no time 
left.
    Mr. Stivers. Thank you, Mr. Chairman.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from South Carolina, 
Mr. Mulvaney, for 5 minutes.
    Mr. Mulvaney. Mr. Osterman, I don't want to sound like we 
are piling on here, but for some of us this Operation Choke 
Point information is just coming to the fore. And I was 
particularly struck by Mr. Luetkemeyer's opening comments, when 
he had the letter from the bank to the non-depository financial 
institution saying, ``Look, you are a good customer; you are 
doing everything legally; you have been a great customer for a 
long time, but we just can't do business with you anymore.''
    And when you add that to the statements from a bureaucrat, 
no matter how low-ranking they may be, who says to a particular 
legal industry, ``You don't have the moral right to exist,'' 
this is the type of thing that, congratulations, now you have 
our attention. That is not the kind of thing that goes away, 
and I hope you send that message back to the FDIC.
    In fact, I hope that all of you take it to your various 
agencies. And it is not just that saying it is the problem; it 
is thinking it that is the problem. The fact that anybody would 
actually think that in this country, somebody else doesn't have 
the right to do something that is moral really gets our 
attention and it is not going to go away anytime soon.
    Let me ask you, your written testimony lays out, I think, 
very well the purposes of the FDIC, so you have an ongoing 
commitment to ensure that its regulations and policies achieve 
legislative and regulatory goals in the most efficient and 
effective manner possible. Is it a legislative goal of the FDIC 
to restrict the legal operation of a non-depository financial 
institution business?
    Mr. Osterman. No, it is not. In fact, we wouldn't--we 
obviously wouldn't be legislating. That would be up to you all, 
but--
    Mr. Mulvaney. Is it a regulatory goal of yours?
    Mr. Osterman. No.
    Mr. Mulvaney. Okay. Is there anything inherently unsafe or 
unsound--you have talked today about your job, which is to make 
sure that financial institutions are safe and sound and 
operated in such a manner. Is there anything inherently unsafe 
or unsound about short-term lending, properly conducted, or 
non-depository financial lending, properly conducted?
    Mr. Osterman. Right. If it is properly conducted, it should 
be fine.
    Mr. Mulvaney. Is there a value to those services to the 
market?
    Mr. Osterman. I believe there is.
    Mr. Mulvaney. Would removing those services to the market 
make the market less safe and less sound?
    Mr. Osterman. Yes. If you don't have the--
    Mr. Mulvaney. If Operation Choke Point has the unintended 
consequence of driving those legal businesses out of the 
market, would it be incumbent on the FDIC, in order to ensure 
the safeness and soundness of the markets, to prevent that from 
happening?
    Mr. Osterman. We have issued a policy statement that 
outlines the FDIC's position in connection with this type of 
activity. Again, our position is that our efforts are not 
targeted at legitimate businesses operating in compliance with 
the law.
    Mr. Mulvaney. You go on to say in your written testimony, 
and I think, again, it is properly stated, that another 
critical component of our rulemaking process is to provide the 
public the opportunity to participate in notice and comment 
rulemaking, et cetera, which I happen to agree with.
    Have you ever paid for a witness? Excuse me, have you ever 
paid for somebody to participate in the audience at one of your 
meetings?
    Mr. Osterman. No, not that I am aware of.
    Mr. Mulvaney. Would it be appropriate for you to do that?
    Mr. Osterman. I don't know--
    Mr. Mulvaney. Would it be appropriate for you to stack the 
audience?
    Mr. Osterman. --but it would depend on the particular 
circumstances of--
    Mr. Mulvaney. That should be a fairly safe answer, right? 
Mr. Osterman, of all the questions I asked you today, that is 
probably the safest. It is safe to say that is not appropriate, 
right?
    Mr. Osterman. I think I know where you are going with this.
    Mr. Mulvaney. Where am I going with this, Mr. Osterman?
    Mr. Osterman. I think you may want to ask my colleague the 
question.
    Mr. Mulvaney. That is exactly where I am going with this.
    What were you all thinking? Seriously, to pay somebody to 
come and participate in the--to plant somebody in the audience? 
And I know the story that maybe they were going to be on the 
panel or maybe they weren't. But you all admit now yourself 
this was wrong, right?
    Ms. Fuchs. I don't know all the details of how the 
decisions were made, but it is not our general policy to do 
that.
    Mr. Mulvaney. And it is not going to happen again, right?
    Ms. Fuchs. I would imagine, but I--
    Mr. Mulvaney. Would you change your policy, please, on when 
you release your press statements?
    Right now, you all don't--you all do what is called 
``midnight embargoes.'' You issue something in the afternoon 
but you don't let people talk about it till after midnight or 
late at night. Would you change that policy?
    Ms. Fuchs. We try to release our materials so that the 
press and other--
    Mr. Mulvaney. The FDIC doesn't do that, do they? In fact, 
nobody else here does that, do they?
    Yes. Okay.
    I have 50 seconds left. I have a question for you, Mr. 
Alvarez, and it is on an entirely different topic.
    Governor Tarullo was here and we asked him a Dodd-Frank 
question. I laid out--and I won't have time to give all the 
details--a specific trade, okay, under the Dodd-Frank 
prohibitions on proprietary trading. And I said, ``Look, this 
is the type of trade where it seems that the SEC, the OCC, and 
the FDIC might all have concurrent jurisdiction.''
    And in response to my question, he said, ``No. Whoever is 
the primary regulator has, by congressional delegation, the 
regulatory authority over them.'' And when I asked him if they 
could be overruled by another one of the folks who have 
jurisdiction, he said, ``No. There is no real shared 
jurisdiction over a particular trade. There is one regulator on 
every single trade under Dodd-Frank.''
    Does that comport with your understanding of the 
implementation of that rule, sir?
    Mr. Alvarez. I think he must have been referring to the 
fact that--
    Mr. Mulvaney. I'm sorry. I said Dodd-Frank. I meant 
Volcker, and I apologize. But I would love to hear your answer.
    Chairman Hensarling. Quick answer, please.
    Mr. Mulvaney. Does that comport with your understanding, 
sir, of the implementation of the Volcker Rule?
    Mr. Alvarez. The statute provides that each legal entity is 
regulated by a particular regulator, and only one regulator. So 
to the extent--I don't--your question--if your question was 
about a legal entity doing a transaction, there is only one 
regulator for that legal entity under Dodd-Frank.
    Mr. Mulvaney. And they can't be trumped by any other 
regulator?
    Mr. Alvarez. Not under the Volcker Rule.
    Mr. Mulvaney. Thank you, sir.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair recognizes the gentleman from Florida, Mr. Ross, 
for 5 minutes.
    Mr. Ross. Thank you, Mr. Chairman.
    Being from Florida, I had an opportunity when we had our 
payday lending issues that were pretty bad--and in fact, I was 
in the legislature at the time and we passed some laws that 
have become now the gold standard, I think, for all other 
States to follow with regard to payday lending.
    So I am really interested in what the Federal Government is 
going to do when it comes to this industry, and I guess I want 
to ask the first question of Ms. Fuchs, Mr. Osterman, and Ms. 
Friend. And following up on what Mr. Mulvaney was talking 
about, if the regulatory control is so strong to restrict or 
otherwise cut off the supply, if you will, of payday loans, is 
it your understanding, then, that the demand would go away?
    Ms. Fuchs?
    Ms. Fuchs. The Bureau is looking at payday lending right 
now and looking at whether rules are--
    Mr. Ross. I guess what I am getting at is that we could all 
agree that if you can--if, through Operation Choke Point and 
whatever other methods have been out there, to try to prohibit 
the market from existing, that the demand will still exist, 
will it not? There will still be people who will need the use 
of payday loans. Banks don't want payday loans. There is a 
market niche for payday loans, is there not, Ms. Fuchs?
    Ms. Fuchs. We understand that there is a need for small-
dollar, short-term lending, and the Bureau is very conscious of 
that and--
    Mr. Ross. And, Mr. Osterman, you would agree, too?
    Mr. Osterman. Yes.
    Mr. Ross. And, Ms. Friend, you would agree, as well?
    We have to live with the fact that demand will be there, 
and if we try to overregulate the supply, there will be a black 
market for it, which will make matters worse. And I think Mr. 
Osterman kind of alluded to that when he was answering Mr. 
Mulvaney's questions.
    Now, having said that, Operation Choke Point talks about 
making sure that illegal entities are not given the banking 
relationships, but has there been any guidance for legal 
entities in that regard under Operation Choke Point?
    Mr. Osterman?
    Mr. Osterman. Again, Operation Choke Point is a Department 
of Justice action going after illegal activities. What we have 
said at the FDIC is we are not targeting legitimate business. 
And all we want is to make sure our banks are running in a safe 
and sound manner. That is our perspective.
    Mr. Ross. I appreciate that, but I have had people come to 
me, bankers come to me--
    Mr. Osterman. Yes.
    Mr. Ross. --recently, within the last month, 2 months, who 
have been told that because of the--what was it, the 
relational, reputational risk that they should not be engaged 
with this particular entity. Now, this is a legal entity. Are 
you offering any guidance to these banking institutions as to 
what legal entities are okay with them to operate?
    Mr. Osterman. We have issued a financial institution 
letter, which has gone out to the industry, indicating that as 
long as the bankers are dealing--they do their due diligence 
and ensure that those entities are operating in a legal 
manner--
    Mr. Ross. And do you give them--
    Mr. Osterman. --then that is--
    Mr. Ross. --the standards of that due diligence, or is that 
left open to a--
    Mr. Osterman. That is up to them. We are not going to 
prescribe that.
    But we also told our regional offices and field offices 
that as long as people were acting in a legal manner, it is not 
our job to--
    Mr. Ross. For those banks that have been wrongly 
terminated, in terms of their relationship with legal entities, 
have you done anything to facilitate the rebuilding of those 
relationships?
    Mr. Osterman. This is something that is just happening very 
recently.
    Mr. Ross. Yes.
    Mr. Osterman. Right. And so, we are, again, letting our 
examiners know what the expectations are. And I think there was 
an article today in The Banker indicating that the industry 
itself was looking at how to police itself and create some 
standards that could be used to ensure that they are operating 
in a way--
    Mr. Ross. That these legal entities are not interrupted 
with their banking relationships.
    Ms. Friend, the OCC has been rather quiet on any guidance. 
Is that a pattern that I think we are to expect or do you 
expect there to be some guidance with regard to payday lending 
and Operation Choke Point, for that matter?
    Ms. Friend. We don't have any guidance on Operation Choke 
Point. As has been said before, it is a Department of Justice 
investigation so we are not part of that.
    We had issued guidance in 2008, and our examiners and banks 
have been following that. And that basically suggests the banks 
have to do due diligence when they bank different types of 
customers.
    Mr. Ross. And one quick question for Mr. McKenna, because I 
don't want to leave you out there. I know it has been a little 
quiet lately.
    With regard to risk-based capital rules, do you have a 
timeframe for the implementation of those? Banks have, I think, 
1 to 2 years to have it. What do you say--
    Mr. McKenna. The comment period currently ends on May 28th, 
and we will be considering all the comments, and then we will 
decide on the implementation after that.
    Mr. Ross. Okay.
    Thank you. I yield back.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair recognizes the gentleman from North Carolina, Mr. 
Pittenger, for 5 minutes.
    Mr. Pittenger. Thank you, Mr. Chairman. Thank you for 
calling this important hearing.
    I would like to thank Congressman Heck, my colleague and 
the esteemed friend that I have who is now serving as a ranking 
member, for his very kind comments regarding the CFPB Small 
Business Advisory Council. And I look forward to working with 
him on the passage of this bill, and thank him for joining with 
me as a sponsor of this bill.
    I would like to say that as such, Ms. Fuchs, you all have 
been able to establish the Community Bank Advisory Council, the 
Credit Union Advisory Council, and the Academic Research 
Council, all done without legislative action. I think I am just 
curious to know why you would not have done this council for 
the small business, given the critical importance that it 
plays.
    Ms. Fuchs. Thank you so much for your question.
    As I mentioned before, we actually currently have a very, 
very good means of getting small-business input when our rules 
are going to affect small businesses. So through our small-
business panels, we provide small businesses with information 
on proposals before we propose a rule. We meet with them--
    Mr. Pittenger. But you would agree that these--this council 
then--formalize this and create a better opportunity for 
dialogue and input from small business?
    Ms. Fuchs. The Bureau doesn't take a position on 
legislative bills.
    Mr. Pittenger. Thank you.
    Ms. Fuchs. I am happy to bring back your comments--
    Mr. Pittenger. I understand.
    We moved into a new house 5 years ago and my wife wanted 
some bushes planted. And we planted these bushes and I got a 
really fine person out there to help me do it. And in about a 
year, those bushes died.
    So we planted some more bushes. And in another year, those 
bushes died. And then it happened again, and I thought, ``Now, 
something is wrong.''
    So I got another guy out there and he started digging. And 
he found a lot of red clay--impervious soil that wouldn't let 
the water go through.
    And it made me think, all the good efforts of those folks 
who were planting those bushes was to no avail because those 
bushes would turn yellow, and they would look bad, and some 
would die. And they couldn't function.
    And it seems to me that, although sincerely done and with 
good intentions, the enormous regulatory environment that we 
have today is killing the needed growth for our economy.
    As I recall, back in the 1970s we had very high interest 
rates, high unemployment--it was a very difficult time. It was 
called the malaise of Jimmy Carter.
    And following his completion of his term there was a man 
elected named Ronald Reagan. And Ronald Reagan came in and he 
cut all these enormous regulations. And what happened was, in a 
matter of 2 years we were creating 300,000, 400,000, 500,000 
jobs a month. One month, a million jobs.
    We weren't having an anemic job growth of--or economy of 2 
percent. We had about 1.6 percent economic growth.
    Do you think maybe with all these good intentions, we have 
created an impervious soil that we can't grow? And do you feel 
any concern that maybe, although well-intended, the impediments 
are there--these rules, these regulations, these requirements, 
the uncertainty in the market because of not knowing what the 
regulators are going to do next?
    It seems to me that would be first on my mind to consider 
that maybe what was intended for good is really meant for bad.
    Do you have a comment you would like to make on that?
    Sure, we will start with you, Ms. Fuchs.
    Ms. Fuchs. We very much share your concerns about 
regulatory certainty, and that is why we have many means of 
speaking with industry. At the same time, we also hear from 
consumers. And through our consumer response function we have 
received over 300,000 complaints from consumers about issues 
that they are seeing with their consumer finance activities. 
And--
    Mr. Pittenger. Let me give you one example that occurred in 
my own town. A wonderful little bank, Bank of Commerce, about a 
$130 million bank, just announced last month that it had to 
merge with a larger bank. It could not absorb the regulatory 
requirements imposed on it--the same requirements of the larger 
institutions. And now, they have gone out of business.
    In 2007, we had about, oh, I think 8,500 banks in this 
country, and now there are about 6,800. That is a loss of 1,700 
banks that have either had to merge or they have had to be 
absorbed.
    And I just think that there should be some serious 
consideration on revamping everything that we are doing on our 
regulatory environment.
    Thank you.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Pennsylvania, 
Mr. Rothfus, for 5 minutes.
    Mr. Rothfus. Thank you, Mr. Chairman.
    Ms. Fuchs, under analysis done by the CFPB for the QM rule, 
pursuant to the Paperwork Reduction Act, the Bureau estimated 
that the compliance burden for the QM rule for one person is 
only 30 minutes and the estimated burden for each financial 
institution subject to QM is 1 hour.
    Do you believe that these are reasonable estimates?
    Ms. Fuchs. When the Bureau is engaged in the rulemaking, it 
does whatever it can to get data on the cost and the burden of 
the rulemaking. We try to understand what institutions do to 
comply with the rule. In fact, the Bureau has conducted a study 
about operational compliance activities that banks engage in--
    Mr. Rothfus. So do you believe these are reasonable 
estimates then?
    Ms. Fuchs. I believe they are reasonable.
    Mr. Rothfus. Okay. The Paperwork Reduction Act analysis for 
the QM rule fails to provide an analysis for how the financial 
institution 1-hour estimate was calculated. Will you commit to 
providing this committee with a more detailed and thorough 
analysis?
    Ms. Fuchs. When we do our Paperwork Reduction Act analysis, 
we do publish it in our proposal and our final rule. And so we 
take public comments, which is essentially the way the--
    Mr. Rothfus. Again, there was a failure to disclose how you 
arrived at 1 hour for the financial institution. Will you 
commit to providing this committee with a more detailed and 
thorough analysis of that?
    Ms. Fuchs. I will certainly take back your comments to our 
economists. We try to do our best to explain both the data we 
rely on and the methodology in reaching our results.
    Mr. Rothfus. We are already seeing the first signs that 
some smaller community financial institutions are exiting the 
mortgage business rather than trying to navigate the liability 
risk and excessive compliance costs inflicted by the Bureau's 
qualified mortgage rule. Indeed, a recent American Banker 
headline has suggested that QM will come to stand for 
``quitting mortgages.''
    Ms. Fuchs, how do you reconcile the one-size-fits-all 
approach taken by the CFPB in promulgating the QM rule with 
your statutory obligations to promote consumer choice and 
facilitate access and innovation in the marketplace?
    Ms. Fuchs. Thank you for your question.
    The QM rule was specifically designed to consider the 
differences between smaller lenders and larger lenders, 
including lenders in rural and underserved areas.
    We include within the loan specific provisions for small 
creditors who hold loans within their portfolio. We also have a 
2-year window under which small creditors may make balloon 
loans that are held within portfolio.
    All of these things are in direct response to comments we 
heard from smaller lenders about the impact of the--
    Mr. Rothfus. Again, does it concern you, though, that 
entities will stop making mortgages as a result of this rule?
    Ms. Fuchs. The Bureau is watching the impacts of the QM 
rule. And as I mentioned earlier, the rule was specifically 
designed so that 90 percent to 95 percent of the mortgages that 
were being made before the QM rule was put in place would be 
covered by the QM rule.
    Mr. Rothfus. But won't the overall effect of the QM rule be 
to advantage certain types of products and certain terms in the 
marketplace over others?
    Ms. Fuchs. Don't forget that after the financial crisis, 
the marketplace changed. And the marketplace changed because 
there were products that caused the very risks that led to the 
financial crisis.
    We anticipate that over time, as the market--
    Mr. Rothfus. So you wouldn't agree that maybe the cause was 
when the former chairman of this committee talked about rolling 
the dice with respect to the housing market?
    Ms. Fuchs. No. We feel that as the market gets comfortable 
with the QM rule, lending will evolve. And we anticipate that 
there will be innovation in the non-QM space. In fact, we 
specifically were trying to preserve room for that innovation 
when we crafted the rule.
    Mr. Rothfus. In an article that appeared--this is going to 
go to Mr. Osterman and Mr. Alvarez--in the pages of The Wall 
Street Journal, it was reported that in the third quarter of 
2013, the number of federally-insured banks in the United 
States fell below 7,000 for the first time since Federal 
regulators began keeping track in 1934.
    Are you concerned about this increased level of 
consolidation in the banking industry?
    Mr. Osterman. Thanks for your question. It is something 
that we are monitoring. It has been a cyclical process. If you 
look at the way the economy has been, it has been very 
difficult to--
    Mr. Rothfus. Does the consolidation in the industry concern 
you?
    Mr. Osterman. Even though there has been consolidation, 
institutions below the $10 billion and billion dollar range 
have continued to be a very vital part of the economy.
    So the other thing is, in terms of new institutions getting 
into the industry, given the fact that we have been in such a 
difficult financial situation, what we have had is people 
coming in and actually investing in existing institutions, 
putting capital in those institutions.
    Mr. Rothfus. And how many institutions have been created 
since this law was passed?
    Mr. Osterman. Since Dodd-Frank?
    Mr. Rothfus. Since Dodd-Frank was passed.
    Mr. Osterman. Again, the economic situation--I think we had 
a de novo last year that was created. It has been very low--
very low amounts.
    Mr. Rothfus. Thank you, Mr. Chairman.
    Chairman Hensarling. The time of the gentleman has expired.
    There are no other Members in the queue.
    I would like to thank the witnesses for their testimony 
today and for their patience in having to sit all this time.
    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.
    This hearing stands adjourned.
    
    [Whereupon, at 1:31 p.m., the hearing was adjourned.]
    
                            A P P E N D I X

                             April 8, 2014
                             
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