[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]


 
                       PRESERVING CONSUMER CHOICE.
                       AND FINANCIAL INDEPENDENCE

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

                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 18, 2015

                               __________

       Printed for the use of the Committee on Financial Services

                            Serial No. 114-8
                            
                            
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]



                        U.S. GOVERNMENT PUBLISHING OFFICE
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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    JEB HENSARLING, Texas, Chairman

PATRICK T. McHENRY, North Carolina,  MAXINE WATERS, California, Ranking 
    Vice Chairman                        Member
PETER T. KING, New York              CAROLYN B. MALONEY, New York
EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma             BRAD SHERMAN, California
SCOTT GARRETT, New Jersey            GREGORY W. MEEKS, New York
RANDY NEUGEBAUER, Texas              MICHAEL E. CAPUANO, Massachusetts
STEVAN PEARCE, New Mexico            RUBEN HINOJOSA, Texas
BILL POSEY, Florida                  WM. LACY CLAY, Missouri
MICHAEL G. FITZPATRICK,              STEPHEN F. LYNCH, Massachusetts
    Pennsylvania                     DAVID SCOTT, Georgia
LYNN A. WESTMORELAND, Georgia        AL GREEN, Texas
BLAINE LUETKEMEYER, Missouri         EMANUEL CLEAVER, Missouri
BILL HUIZENGA, Michigan              GWEN MOORE, Wisconsin
SEAN P. DUFFY, Wisconsin             KEITH ELLISON, Minnesota
ROBERT HURT, Virginia                ED PERLMUTTER, Colorado
STEVE STIVERS, Ohio                  JAMES A. HIMES, Connecticut
STEPHEN LEE FINCHER, Tennessee       JOHN C. CARNEY, Jr., Delaware
MARLIN A. STUTZMAN, Indiana          TERRI A. SEWELL, Alabama
MICK MULVANEY, South Carolina        BILL FOSTER, Illinois
RANDY HULTGREN, Illinois             DANIEL T. KILDEE, Michigan
DENNIS A. ROSS, Florida              PATRICK MURPHY, Florida
ROBERT PITTENGER, North Carolina     JOHN K. DELANEY, Maryland
ANN WAGNER, Missouri                 KYRSTEN SINEMA, Arizona
ANDY BARR, Kentucky                  JOYCE BEATTY, Ohio
KEITH J. ROTHFUS, Pennsylvania       DENNY HECK, Washington
LUKE MESSER, Indiana                 JUAN VARGAS, California
DAVID SCHWEIKERT, Arizona
ROBERT DOLD, Illinois
FRANK GUINTA, New Hampshire
SCOTT TIPTON, Colorado
ROGER WILLIAMS, Texas
BRUCE POLIQUIN, Maine
MIA LOVE, Utah
FRENCH HILL, Arkansas

                     Shannon McGahn, Staff Director
                    James H. Clinger, Chief Counsel
                            
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    March 18, 2015...............................................     1
Appendix:
    March 18, 2015...............................................    59

                               WITNESSES
                       Wednesday, March 18, 2015

Bosma-LaMascus, Peggy, President and Chief Executive Officer, 
  Patriot Federal Credit Union, on behalf of the National 
  Association of Federal Credit Unions (NAFCU)...................    10
Fenderson, Tyrone, President and Chief Executive Officer, 
  Commonwealth National Bank, on behalf of the American Bankers 
  Association (ABA)..............................................     5
Levitin, Adam J., Professor of Law, Georgetown University Law 
  Center.........................................................    11
Miller, Patrick, President and Chief Executive Officer, CBC 
  Federal Credit Union, on behalf of the Credit Union National 
  Association (CUNA).............................................     6
Williams, J. David, Chairman and Chief Executive Officer, 
  Centennial Bank, on behalf of the Independent Community Bankers 
  of America (ICBA)..............................................     8

                                APPENDIX

Prepared statements:
    Bosma-LaMascus, Peggy........................................    60
    Fenderson, Tyrone............................................   109
    Levitin, Adam J..............................................   121
    Miller, Patrick..............................................   135
    Williams, J. David...........................................   186

              Additional Material Submitted for the Record

Green, Hon. Al:
    Written statement of Hilary O. Shelton, Director, NAACP 
      Washington Bureau & Senior Vice President for Policy and 
      Advocacy...................................................   225
Pittenger, Hon. Robert:
    Letter from Ira M. ``Don'' Flowe, Jr., Chief Credit Officer, 
      BlueHarbor Bank............................................   232
Bosma-LaMascus, Peggy:
    Additional information provided for the record in response to 
      a question posed by Representative Sherman during the 
      hearing....................................................   234


                       PRESERVING CONSUMER CHOICE.
                       AND FINANCIAL INDEPENDENCE

                              ----------                              


                       Wednesday, March 18, 2015

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 10 a.m., in room 
HVC-210, Capitol Visitor Center, Hon. Jeb Hensarling [chairman 
of the committee] presiding.
    Members present: Representatives Hensarling, King, Royce, 
Lucas, Neugebauer, Pearce, Posey, Fitzpatrick, Westmoreland, 
Luetkemeyer, Huizenga, Hurt, Stivers, Mulvaney, Hultgren, Ross, 
Pittenger, Barr, Rothfus, Messer, Schweikert, Dold, Guinta, 
Tipton, Williams, Poliquin, Love, Hill; Waters, Maloney, 
Sherman, Lynch, Green, Cleaver, Himes, Kildee, Delaney, Sinema, 
Beatty, Heck, and Vargas.
    Chairman Hensarling. The Financial Services Committee will 
come to order. Without objection, the Chair is authorized to 
declare a recess of the committee at any time.
    Today's hearing is entitled, ``Preserving Consumer Choice 
and Financial Independence.'' I now recognize myself for 3 
minutes to give an opening statement.
    I would say of all the priorities of our committee, I know 
of not one that is more urgent than providing some regulatory 
relief for our community financial institutions. It is not an 
exaggeration to say that they are literally withering on the 
vine. We are losing more than one a day and they are not 
perishing of natural causes. The sheer weight, volume, cost 
complexity, and uncertainty of Federal regulation is a burden 
that is killing them off. And as they die, unfortunately so do 
the dreams of millions and millions of our fellow citizens, 
hardworking taxpayers who rely upon these community financial 
institutions to help buy a pickup truck to drive to work, maybe 
help fund the first kid in their family to ever go to college, 
or to start a small business and achieve their American dream 
of financial independence.
    It is not an exaggeration to say that every single week, we 
hear from another financial institution that is having trouble 
meeting the needs of their customers. I have one here from a 
bank in Arkansas who says that due to the Qualified Mortgage 
(QM) rule, they have had to cease funding mobile homes, ``which 
have long been a source of homeownership for low- to moderate-
income consumers in our markets.''
    Here is one from a credit union in California who says that 
due to Federal regulation, one of their members can no longer 
wire funds to a family member in the Ukraine. Here is one from 
a bank in Massachusetts, that writes, ``We have experienced a 
spike in loan declines to women.'' Further investigation 
identified that women attempting to buy the family home to 
settle their divorce and stabilize their family were being 
declined at a high rate due to the Dodd-Frank Qualified 
Mortgage rules and the ability-to-pay rules.
    Regrettably, these are not exceptions. We hear from these 
banks and credit unions every day and we understand how the 
Federal regulation can adversely impact low- and moderate-
income Americans.
    Now some, particularly those on the other side of the 
Capitol, have said community financial institutions are doing 
just fine. In fact, they have said, ``Regulators have been 
doing a pretty good job of protecting community banks.'' I 
suspect many of our witnesses will disagree with their 
statement. And I believe that assertion is just wrong, 
dangerously wrong and out of touch with low- and moderate-
income Americans.
    Much, but certainly not all, of this regulatory burden has 
emanated from Dodd-Frank. I am not a fan of Dodd-Frank, but 
even I can find some good in it: what Dodd-Frank attempted to 
do on Section 13(3) of the Fed; what it has done to help 
eliminate the credit rating agency's monopoly; what it has done 
to make balance sheets less opaque.
    So if I can find some good in it, I hope that my friends on 
the other side of the aisle can admit that maybe it has done 
some harm. I know Barney Frank has found at least a half dozen 
different areas where he would amend his own law. He said it 
right in front of us, right in front of this committee back in 
July. So I would ask all my Democrat colleagues to have an open 
mind as we enter into this, and I invite all Members to engage 
in the bipartisan effort of regulatory relief for our community 
financial institutions; find some common ground.
    I will reserve the right to have an exception to the rule, 
but the rule is going to be that if any Member brings us a 
legitimate bipartisan piece of legislation to provide needed 
regulatory relief to community financial institutions, we will 
mark it up. Time is of the essence, so let's get started.
    I yield 4 minutes to the ranking member.
    Ms. Waters. Thank you, Mr. Chairman. Today we gather to 
supposedly discuss preserving consumer choice. And while the 
principle itself is an important one, I am highly skeptical 
that any of the issues or solutions we will consider today can 
be described as a serious effort to do so. History tells us 
that opposed to virtually every effort to sensibly correct 
private sector failures have cried wolf in our position to 
reform; saying that the regulation would end by hurting the 
very people it tries to help by removing their choices. It is a 
talking point that has existed for as long as this government 
has tried to protect consumers and the broader economy.
    For example, in 1934 New York Stock Exchange President 
Richard Whitney opposed the creation of the Securities and 
Exchange Commission, arguing that it would destroy the markets 
and businesses Congress sought to protect.
    As recently as March 2007, just months before the economic 
collapse, representatives of industry and the Bush 
Administration argued in front of this very committee that 
reforms to the toxic subprime market would harm access to 
credit for first-time home buyers. Over time, these 
regulations, like those that prohibit child labor, mandate 
seatbelts, and protect consumers from poor quality foods, 
drugs, and toxins in our environment, among others, have shown 
that markets and industries function better when consumers know 
that products need basic standards, and that means protecting 
consumers from unsafe and unsound financial products, no matter 
how profitable they are to lenders or how cheaply they can be 
offered to borrowers.
    The irony is that by weakening regulations and consumer 
protections put in place after the Great Recession, this 
committee would affect choice and financial independence, but 
in the wrong way. It would invite a return to a recent time 
when hardworking Americans were choosing whether to pay for 
medication or their mortgage, and when they were choosing 
between taking their family to a homeless shelter or spending 
one more night in the car. A free market system with ample 
consumer choice only works when businesses compete on cost and 
quality.
    I don't know how much they can cut corners or bend the 
rules. That is true whether they are talking about faulty 
exploding toasters or faulty exploding mortgages. Mr. Chairman 
and Members, I welcome your invitation for bipartisan 
legislation. As you know, I have met with you and I have tried. 
We have worked hard and continue to work hard for community 
banks. Unfortunately, there are those who wish to include too-
big-to-fail banks in anything that we try for our community 
banks. We have witnessed a time when consumers had no 
protection. We have witnessed a time a time when not only did 
consumers have no protection, but the fact of the matter is, we 
had one of the most important things happen in Dodd-Frank, and 
that is the development of the Consumer Financial Protection 
Bureau, which has taken into consideration concerns of 
community banks, and has made modifications. And we have said 
on this side of the aisle, where there are technical changes or 
concerns, we are willing to work with them.
    And so I am pleased to hear the offer that has been made by 
the chairman today and I look forward to working with them in 
any and every way that we can to deal with real issues and not 
just talking points.
    Chairman Hensarling. The gentlewoman yields back. The Chair 
now recognizes the gentleman from Texas, Mr. Neugebauer, the 
chairman of our Financial Institutions Subcommittee, for 2 
minutes.
    Mr. Neugebauer. Thank you, Mr. Chairman, for holding this 
important hearing. There was a recent Harvard University study 
that appropriately described what I knew when I was a community 
banker, that their competitive advantage is the knowledge and 
history of their customers and the willingness to be flexible.
    Unfortunately, this big regulatory burden that we have 
placed over our community financial institutions is taking away 
their flexibility. And every Member here has been back to their 
district and has heard from their financial institutions on how 
they are maybe not able to provide the same services, or make 
some of the same loans that they made in the past.
    What we are also hearing is, alarmingly, that we are seeing 
a lot of consolidation in our community financial institutions. 
I think when you look at the credit unions and the community 
banks, that nearly 2,200 consolidations over the last 4 or 5 
years, and why is that important to our communities? Because 
when you look at the community financial institutions, they are 
the primary supplier of credit for our small businesses. They 
are, in many cases, the only source for mortgages in those 
particular markets.
    If you look at, in my district, for example, production 
agricultural loans. Community financial institutions make over 
75 percent of the production agricultural loans in this 
country. And so we have to move away from the government knows 
what financial products are best for you, and go back to the 
scenario where the customer, the consumer, the borrower and 
their lender are working out the best solutions for them. And 
we also need to preserve our community financial institutions 
which are such an integral part of our community.
    And so, Mr. Chairman, I thank you for holding the hearing 
today. And I look forward to hearing from our witnesses on this 
very important subject. With that, I yield back.
    Chairman Hensarling. The gentleman yields back.
    We will now go to our witnesses.
    Our first witness is Mr. Tyrone Fenderson, the president 
and CEO of Commonwealth National Bank, testifying today on 
behalf of ABA. He received his bachelors degree from Faulkner 
University and completed the graduate programs at the Louisiana 
State University and Troy University. He was named to 
Birmingham Business Journal's top 40 under 40 list in 2006.
    Our second witness is Mr. Patrick Miller, the president and 
CEO of CBC Federal Credit Union, testifying today on behalf of 
CUNA. Prior to joining CBC, Mr. Miller worked for 22 years in 
the financial services industry. Mr. Miller is a graduate of 
Hiram College.
    At this point, I will yield back to the gentleman from 
Texas for our next introduction.
    Mr. Neugebauer. Thank you, Mr. Chairman. It is my pleasure 
to introduce David Williams, the chairman and CEO of Centennial 
Bank in Lubbock, Texas, testifying today on behalf of ICBA. He 
is a Lubbock native, second generation of family. Their family 
has been in banking for a very long time. David knows a lot 
about community banking. And another special relationship that 
I have is that not only is David a personal friend, but about 
38 years ago Mr. Williams helped this young homeowner from 
Lubbock, Texas, start a development company and took a chance. 
I think that is the spirit of community banking, so we are 
delighted to have Mr. Williams testifying today.
    Chairman Hensarling. And the gentleman's recommendation is 
that he took a chance on you?
    Our next witness, Peggy LaMascus, is the president and CEO 
of the Patriot Federal Credit Union in Chambersburg, 
Pennsylvania, and she is testifying today on behalf of NAFCU. 
This Thursday is Ms. LaMascus' 45th anniversary in the credit 
union industry. We all know she must have started at the age of 
10. Ms. LaMascus is a graduate of the Huntington College of 
Business.
    And finally, Professor Adam Levitin is a professor of law 
at Georgetown University Law Center, and he has testified 
before us before. Before joining the Law Center, Professor 
Levitin worked as an attorney in private practice and clerked 
on the U.S. Court of Appeals for the third circuit. He holds 
degrees from Harvard Law School, Columbia University, and 
Harvard College.
    Each of you will be recognized for 5 minutes to give an 
oral presentation of your testimony. And without objection, 
each of your written statements will be made a part of the 
record. For those who have not testified before, there is a 
green light, yellow light, and red light system, not unlike the 
lights you encounter on the highways, and they mean the same 
thing. We would appreciate you keeping to the 5-minute limit.
    At this time, Mr. Fenderson, you are recognized for your 
testimony.

 STATEMENT OF TYRONE FENDERSON, PRESIDENT AND CHIEF EXECUTIVE 
OFFICER, COMMONWEALTH NATIONAL BANK, ON BEHALF OF THE AMERICAN 
                   BANKERS ASSOCIATION (ABA)

    Mr. Fenderson. Chairman Hensarling, Ranking Member Waters, 
my name is Tyrone Fenderson, and I serve as president and CE0 
of Commonwealth National Bank in Mobile, Alabama. My bank is 
one of the small community banks that I hear members of this 
committee often speak of. We are a $60 million institution that 
works every day to serve the needs of our customers of Mobile.
    I appreciate the opportunity to be here to represent ABA 
and to discuss how the growing volume of bank regulations, 
particularly for community banks, is hurting the ability of 
banks to meet the needs of consumers and our communities. ABA 
appreciates the leadership of many members of this committee in 
addressing this issue. Community banks are resilient. We have 
found ways to meet our customer's needs despite the ups and 
downs in the economy. This job has been made much more 
difficult by the avalanche of new rules, guidance, and 
seemingly ever-changing expectation of regulators.
    It is this regulatory burden and the fear of even more 
regulation that often pushes small banks to sell to banks many 
times their size. In fact, today there are 1,200 fewer 
community banks than there were 5 years ago. This trend will 
continue unless some rational changes are made to provide 
relief to America's hometown banks.
    Regulation shapes the ways banks do business and can help 
or hinder the smooth functioning of the credit cycle. Every 
bank regulatory change directly affects the cost of providing 
banking products and services to customers. Even small changes 
can reduce credit availability, raise costs, and drive 
consolidation. Everyone who uses banking products and services 
is impacted by changes and bank regulation.
    Let me briefly share a story that a banker recently shared 
that illustrates the impact these rules have on communities. 
The bank located in Texas recently had to take all lending 
discretion away from its loan officers. Due to the fears of 
inadvertently violating fair lending regulations, it now must 
rely solely and exclusively on a numbers-driven model to 
underwrite their loans. This has meant turning away loans that 
they otherwise would have made. In one case, this meant turning 
down a 30-year customer who had never been late on a payment 
for a loan to repair the heat in his daughter's home.
    Stories such as this are common in hometowns across the 
country. This is why it is so important for Congress to take 
steps to ensure that the banking industry's ability to 
facilitate jobs and grow our economy exists.
    We urge Congress to work together, Senate and House, to 
pass bipartisan legislation that would enhance the ability of 
community banks to serve our customers. We support legislation 
that would require regulators to tailor their regulatory 
approach so that it only applies where the bank's business 
model and risk profile require it. Regulators should be 
empowered and directed to make sure that rules, regulations, 
and compliance burdens only apply to segments of the industry 
where it is warranted.
    Some of the bills introduced by this committee are also an 
important first step. Representative Barr's American Jobs and 
Community Revitalization Act, H.R. 1389, contains provisions 
that would reduce the burden on community banks in ways that 
make it easier to meet customer's needs.
    A few key provisions include ensuring that loans held in 
portfolio are considered Qualified Mortgages; requiring a 
review and reconciliation of existing regulation; providing a 
longer exam cycle for highly-rated community banks; and 
streamlining currency transaction reports for seasoned 
customers.
    Additionally, legislation introduced by Representatives 
Luetkemeyer, Neugebauer, and Barr contains measures that would 
help American hometown banks get back to serving our 
communities. Some of these provisions of the bill would 
eliminate mailing the privacy notices when no changes have been 
made to privacy policies; allow highly-rated, well-capitalized 
community banks to file short-form call reports; establish an 
effective appeals process to the definition of a rural area; 
and ensure proper oversight of the CFPB. ABA stands ready to 
help and work with Congress to address this important issue. I 
would like to thank you for your time, and I will be happy to 
answer any questions that you may have.
    [The prepared statement of Mr. Fenderson can be found on 
page 109 of the appendix.]
    Chairman Hensarling. Thank you.
    Mr. Miller, you are now recognized for your testimony.

  STATEMENT OF PATRICK MILLER, PRESIDENT AND CHIEF EXECUTIVE 
  OFFICER, CBC FEDERAL CREDIT UNION, ON BEHALF OF THE CREDIT 
               UNION NATIONAL ASSOCIATION (CUNA)

    Mr. Miller. Thank you, Chairman Hensarling and Ranking 
Member Waters. Thank you for the invitation to testify today 
for the Credit Union National Association. I am Patrick Miller, 
president and CE0 of CBC Federal Credit Union located in 
Oxnard, California. America's 100 million credit union members 
rely on their credit unions for safe and affordable financial 
service products. As member-owned, not-for-profit institutions, 
credit unions continue to provide tremendous benefits in terms 
of lower interest rate loans, higher returns on deposits, low 
or no-fee products and services, and financial counseling and 
education. Because credit unions actively fulfill their mission 
as Congress intended, consumers benefit to the tune of about 
$10 billion annually.
    However, since the beginning of the financial crisis, 
credit unions have been subjected to more than 190 regulatory 
changes from nearly 3 dozen Federal agencies, totaling nearly 
6,000 pages. These new rules, usually aimed at curtailing 
practices that we don't engage in, impact us because we have to 
do several things: assess the rule and determine how to comply; 
change internal policies and controls; design and print new 
forms; dedicate additional resources to retrain staff; update 
computer systems; and finally, help our members understand all 
these changes.
    And we have done this over 190 times in just the last few 
years. Obviously, this takes time and money, both of which 
could be far better spent serving our members. After all, every 
additional dollar spent on compliance is a dollar that cannot 
be loaned to a member.
    Regulatory burden is not just about the dollars and cents 
of running a credit union. We serve hardworking members, your 
constituents, and this constant onslaught of regulations 
directly affects their ability to borrow. Not every member and 
every loan fits arbitrary rules imposed by regulators. Without 
the flexibility to determine the appropriate services, credit 
union members lose out. After the CFPB issued a QM rule, we 
originated about half the amount of our borderline mortgage 
loans that we would have made before.
    For example, we had to deny 50 families a home loan, who we 
feel were qualified borrowers, simply because we feared 
regulatory scrutiny on non-QM loans. I should be able to 
evaluate the ability to repay of my credit union members in 
Oxnard, California. The decision should not be left to someone 
in Washington.
    Overregulation has real-world consequences for our members. 
Credit unions should not be required to comply with rules more 
appropriately suited for too-big-to-fail institutions. I agree 
with members of this committee who said that too-big-to-fail 
has turned into too-small-to-survive. Small financial 
institutions are consolidating at an alarming rate due to the 
weight of regulatory burdens and the high cost of compliance. 
Jobs are lost, communities are underserved, and the consumer is 
left with fewer options. For example, regulations that 
adversely affected my credit union are the CFPB mortgage 
servicing rules. These rules were created because of companies 
like high-risk mortgage servicers and Wall Street banks, not 
credit unions. Our credit unions have never had any loan 
servicing complaints, yet the pages and pages of new rules make 
it more onerous and expensive to service home loans.
    Outsourcing costs are outrageous and would cost our credit 
union more than $100,000 per year. This is an unnecessary 
expense, and since credit unions are member-owned, this extra 
cost affects our members directly.
    While I can share numerous other stories with the 
committee, I also want to focus on just a few of the more than 
two dozen recommendations for statutory changes found in my 
written testimony. For example, we encouraged Congress to 
ensure the CFPB uses exemption authority to a much greater 
extent than it has to date. Members of this committee have 
acknowledged that the Bureau has such authority, but we believe 
it is now being used sufficiently. We ask Congress to clarify 
and strengthen these exemption instructions as they pertain to 
smaller depository institutions like credit unions.
    We also urge the committee to actively engage in the debate 
over data security. Credit unions and their members are greatly 
impacted by the weak merchant data security practices that have 
allowed several large-scale breaches. At my small credit union, 
we dedicate $575,000 a year to cybersecurity because protection 
of data is of the highest priority, particularly when merchants 
are not doing their part. The negligence of those that don't 
protect their payment information costs my industry money, and 
shakes the confidence of our members. These fees would be 
significantly reduced if those that accept payments were 
subject to the same standards as those that provide cards.
    Frankly, I am concerned about the security of the vast 
amount of consumer data being collected by the CFPB and other 
regulators. More needs to be done on this issue, and we 
encourage the committee to act.
    My written testimony also includes two recommendations 
related to the Federal Home Loan Bank System: one would permit 
credit unions to join the System; and the other would give us 
parity with banks and extend the community financial 
institution exemption to include credit unions under $1 billion 
in assets.
    Credit unions did not cause the crisis, but you wouldn't 
know that based on the hundreds of rules to which we have been 
subjected. Since you believe we are not the problem, please 
work with us to remove the barriers that keep us from serving 
our members, your constituents. Congress can do a lot more to 
remove barriers for credit unions and we are grateful for the 
committee's desire to address these issues. Thank you again for 
the opportunity to testify today.
    [The prepared statement of Mr. Miller can be found on page 
135 of the appendix.]
    Chairman Hensarling. Mr. Williams, you are now recognized 
for your testimony.

 STATEMENT OF J. DAVID WILLIAMS, CHAIRMAN AND CHIEF EXECUTIVE 
    OFFICER, CENTENNIAL BANK, ON BEHALF OF THE INDEPENDENT 
              COMMUNITY BANKERS OF AMERICA (ICBA)

    Mr. Williams. Chairman Hensarling, Ranking Member Waters, 
and members of the committee, I am David Williams, chairman of 
the Centennial Bank in Lubbock, Texas. I am pleased to 
represent the Independent Community Bankers Association of 
America, and 6,400 community banks, at this most important 
hearing.
    Centennial Bank, chartered in 1934, is a $740 million bank. 
It serves rural and urban markets in the Panhandle, South 
Plains, and central Texas. Our mission is to build successful 
and meaningful lifetime relationships with our customers. This 
long-term culture, typical of thousands of community banks 
across the Nation, is at risk today.
    In recent years, Centennial Bank has seen the nature of our 
business fundamentally change from lending to compliance. 
Regulatory burden reaches the level of overkill when it injures 
the customer or consumer it was intended to protect.
    Please consider the following examples: A startup small 
business owner, or farmer, may have business-related debt on 
their credit report that will disqualify them under QM's 43 
percent debt-to-income (DTI) limitation. Business formation 
should be encouraged, not punished. Minority borrowers are more 
likely to exceed the DTI limitation according to a Federal 
Reserve study of lending in 2010.
    As a small creditor under the CFPB's definition, my bank is 
not subject to the debt-to-income limitation and we serve these 
customers, but many other community banks do not have small 
creditor status.
    Even as a small creditor, my bank is significantly limited 
by QM. Here are some examples of loans that are not QM even for 
small creditors. Low-dollar loans are common in many parts of 
the country for rural and refinancing. Both the QM closing 
fee--excuse me, but the QM closing fee cap is often a challenge 
when making these loans. Balloon loans, which were used to 
manage interest rate risk on loans that can't be sold into the 
secondary market, are non-QM unless they are made by lenders in 
predominantly rural areas, beginning in 2016.
    For banks like mine that serve both rural and urban 
markets, it is nearly impossible to meet the ``rural lender'' 
definition. In our New Mexico market, regulatory barriers to 
mortgage lending are pushing would-be homeowners into the 
rental market. In Clayton, New Mexico, for example, an average 
renter now pays $800 to $900 a month, though he or she could 
purchase a much nicer home for $80,000 with a monthly mortgage 
payment of $400. I believe the disparity between rents and 
mortgage payments in this market is directly attributable to 
the overly stringent underwriting required by the new mortgage 
rules.
    I hear these stories again and again from community bankers 
in Texas and around the country. These are not isolated 
anecdotes. Numerous empirical studies, which I cite in my 
written statement, have reached the same conclusion. The good 
news is there are readily available solutions to this pending 
crisis. ICBA's plan for prosperity is a robust regulatory 
relief agenda with nearly 40 recommendations that will allow 
Main Street and rural America to prosper. A copy of the plan is 
attached to my written statement.
    This committee's work in the last Congress set the stage 
for enacting meaningful regulatory relief in Congress. We are 
encouraged by the bills that have been introduced so far, many 
of which reflect our plan for prosperity. Chairman Neugebauer's 
Financial Product Safety Commission Act, H.R. 1266, would 
changes the structure of the CFPB so that it is governed by a 
five-member commission. This would create a system of checks 
and balances that is absent in the single director form of 
governance.
    I want to highlight the CLEARR Act, H.R. 1233, introduced 
by Representative Luetkemeyer, which contains provisions 
addressing mortgage regulatory relief, capital access, and 
reform of oversight and supervision. The CLEARR Act has been 
endorsed by 34 State community bank associations. A key 
provision of the bill, automatic QM status for any mortgage 
held in portfolio, is also contained in the Portfolio Lending 
and Mortgage Access Act, H.R. 1210, introduced by 
Representative Barr.
    A portfolio lender that holds 100 percent of a credit risk 
has every incentive to thoroughly assess the borrowers 
financial condition. This is a simple, easy-to-apply solution 
to the threat of QM. These bills, among others before the 
committee, are all a part of the solution to regulatory burden. 
We strongly encourage this committee to complete the work that 
was done in the last Congress, and enact meaningful regulatory 
relief for community banks. Thank you again for the opportunity 
to testify. I look forward to your questions.
    [The prepared statement of Mr. Williams can be found on 
page 186 of the appendix.]
    Chairman Hensarling. Ms. LaMascus, you are recognized for 
your testimony.

    STATEMENT OF PEGGY BOSMA-LAMASCUS, PRESIDENT AND CHIEF 
 EXECUTIVE OFFICER, PATRIOT FEDERAL CREDIT UNION, ON BEHALF OF 
   THE NATIONAL ASSOCIATION OF FEDERAL CREDIT UNIONS (NAFCU)

    Ms. LaMascus. Thank you. Good morning, Chairman Hensarling, 
Ranking Member Waters, and members of the committee. My name is 
Peggy LaMascus, and I am testifying today on behalf of NAFCU. 
Tomorrow will mark my 45th anniversary with credit unions, 
having started at Westvasamco Federal Credit Union on March 19, 
1970. For the last 33 years, I have been the CEO of Patriot 
Federal Credit Union, a community credit union in Chambersburg, 
Pennsylvania, serving over 51,000 members in 3 counties in 
Pennsylvania and Maryland.
    The entire credit union community appreciates the 
opportunity to expand on the topic of regulatory relief. The 
impact of the growing compliance burden is evident as the 
number of credit unions continues to decline. Since the second 
quarter of 2010, we have lost 1,200 federally-insured credit 
unions, 96 percent of which were below $100 million in assets.
    Many institutions simply cannot keep up with the new 
regulatory tide and have had to merge out of business or be 
taken over. Many others have had to cut service to their 
members. Credit unions and their members need regulatory 
relief, both from Congress and their regulators, including NCUA 
and the CFPB. Our members at Patriot have been directly 
impacted by regulations. For example, we hear from members who 
are angered by the outdated six transfer limitation from 
Federal Reserve Regulation D. This includes a homebound, 
disabled member who managed her finances primarily through 
phone and electronic services because of the difficulty of 
leaving home to come to a branch. She is one of our many 
members feeling the burden of this outdated requirement.
    Other members can no longer make international remittance 
transfers with us. Patriot opted to stop doing them because the 
new CFPB requirements were too costly and burdensome to comply 
with for the limited number we make annually. One of the 
greatest challenges credit unions face is the major disconnect 
between the regulatory agencies in Washington, and the real 
world credit unions and their members live in.
    While regulators have taken some small steps toward relief, 
too often arbitrary assets thresholds don't actually consider 
the risk or complexities of institutions. Regulation of the 
system should match the risk to the system. My written 
testimony outlines NAFCU's updated, five-point plan for credit 
union regulatory relief, as well as our new top 10 list of 
regulations that need to be amended or eliminated.
    One example of a burdensome regulation where costs will 
outweigh the benefits is NCUA's new risk-based capital 
proposal. The new proposal is an improvement over the initial 
proposal, but the problem with the regulation remains. The 
proposed rule is extremely costly, and NCUA has not 
demonstrated why credit unions need a broad brush regulation.
    Despite NCUA's estimate that a limited number of credit 
unions will be downgraded, the proposal would force credit 
unions to hold hundreds of millions of dollars in additional 
reserves to achieve the same capital cushion levels they 
currently maintain. These funds could otherwise be used to make 
loans to consumers or small businesses.
    Ultimately, we believe legislative changes are required to 
bring about comprehensive capital reform, including allowing 
credit unions access to supplemental capital. NAFCU also 
believes that field of membership rules for credit unions 
should be modernized on both the legislative and regulatory 
fronts, and I have outlined ideas for those in my written 
testimony.
    Additionally, cost and time burden estimates issued by 
regulators are often grossly understated. We believe Congress 
should require periodic reviews of actual regulatory burdens of 
finalized rules, and ensure agencies remove or amend those 
rules that vastly underestimated the compliance burden.
    Some credit unions have reported to NAFCU that it has taken 
them over 1,000 hours to comply with CFPB's new mortgage 
requirements. There are also a number of bills outlined in my 
written statement that NAFCU supports and we would urge action 
on. My statement also highlights areas where regulators can 
provide relief without congressional action.
    In conclusion, the growing regulator burden on credit 
unions is the top challenge facing the industry today. It must 
be addressed in order for credit unions to survive and meet 
their mission of serving their members' needs. We thank you for 
the opportunity to share our thoughts with you today. I welcome 
any questions you may have.
    [The prepared statement of Ms. LaMascus can be found on 
page 60 of the appendix.]
    Chairman Hensarling. And, Professor Levitin, you are now 
recognized for your testimony.

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

    Mr. Levitin. Chairman Hensarling, Ranking Member Waters and 
members of the committee, good morning. Thank you for inviting 
me to testify today. My name is Adam Levitin, and I am a 
professor of law at Georgetown University, where I teach 
courses in consumer finance, among other topics.
    I am glad to see the committee show interest in the 
problems facing community financial institutions. Community 
banks and credit unions play an important role in their 
communities and in the American financial system. They are key 
sources for small business and commercial real estate and 
agricultural credit, and they are essential for preserving 
consumer choice in the financial services marketplace.
    There is no question that as an industry, community 
financial institutions are ailing. The number of community 
banks in the United States has fallen nearly in half over the 
last decade. This is the continuation of a long-term trend. 
Indeed, for the past couple of decades community banks have 
disappeared at a steady rate of around 300 a year, and similar 
situations exist for credit unions.
    The central problem that community banks face, however, and 
the main reason they are disappearing is not regulation and is 
not the CFPB. Community banks have been disappearing at the 
same steady rate for decades before the CFPB came into 
existence, much less before its regulations became effective. 
CFPB regulations have only been in effect for the past 1 or 2 
years. It is hard to blame new regulations for a decade's old 
trend.
    The CFPB has actually repeatedly put a friendly sum on the 
regulatory scale to ease regulatory burdens for community 
banks. My written testimony outlines no fewer that 10 CFPB 
regulatory exemptions for small financial institutions. This is 
on top of key statutory exemptions. Additionally, the CFPB has 
a proposed rulemaking that would expand some of the exemptions 
to potentially cover nearly all community financial 
institutions.
    The CFPB has also taken pains to create multiple channels 
for smaller financial institutions to communicate their 
concerns to the Bureau, including voluntarily establishing a 
community bank advisory board, a credit union advisory board, 
and an office of financial institutions. All of this is in 
addition to the special rulemaking requirements with which the 
CFPB must comply under the Small Business Regulatory 
Enforcement Fairness Act.
    The real problem that community banks face is not the CFPB 
or regulation; instead, it is the cold, hard truth of the 
market. Size matters in consumer finance. Community banks lack 
the economies of scale necessary to compete in the key consumer 
finance market of mortgages and credit cards. Increasingly, 
economies of scale matter for deposits because mobile banking 
and security issues are driving up technology costs. In short, 
community banks face a serious structural disadvantage in the 
consumer finance marketplace.
    Members of this committee have proposed a number of bills 
that would address various aspects of CFPB regulation. I 
address some of these bills in detail in my written testimony. 
With one exception related to mortgage servicing, I believe 
them to be ill-advised, because they are either premature, 
unnecessary, or, in some cases, would actually encourage 
predatory lending or restrict access to credit.
    These bills would also add to regulatory uncertainty. Any 
changes that are made now by statute would call for a further 
round of regulations and more uncertainty for the industry. 
Most critically, though, none of these bills are responsive to 
the real problem faced by community financial institutions. 
Focusing on the weedy details of CFPB regulations instead of 
addressing the unequal playing field between community banks 
and mega-banks is like worrying about electrolysis and chin 
hairs while ignoring a malignant tumor. It just misses the 
point.
    If this committee really wants to help community financial 
institutions, the single best thing it could do would be to 
pass legislation that would tax or break up the mega-banks. 
Additional regulatory exemptions for community banks are 
insufficient to save this industry because no amount of 
regulatory exemptions will sufficiently level the playing field 
for community banks.
    Moreover, these exemptions will come at the cost of 
consumer protection. American families' financial security 
should not be put at risk to subsidize private corporations, 
even community banks. If Congress truly cares about community 
banks, it needs to take action to break up the too-big-to-fail 
banks, to benefit from the implicit taxpayer guarantee, and 
pose a serious threat to financial stability. Until and unless 
this is done, community banks will never be able to compete on 
a level playing field. The only way to save the community 
banking industry in the long run is to break up the mega-banks. 
Thank you.
    [The prepared statement of Mr. Levitin can be found on page 
121 of the appendix.]
    Chairman Hensarling. The Chair now yields himself 5 minutes 
for questions. Ms. LaMascus, you are sitting right next to the 
law professor who says regulation is not your problem. Do you 
agree with that assessment?
    Ms. LaMascus. No, I don't. I do believe that there should 
be an exemption for credit unions or a general exemption for 
small institutions. The CFPB does provide some exemptions for 
small institutions; however, they vary based on each rule. I 
understand the arguments that each rule deserves its own 
consideration for its impact on small institutions. We think 
the CFPB could provide better relief if it would provide one 
general exemption for small institutions, such as credit 
unions, for most of the regulations.
    Chairman Hensarling. Ms. LaMascus, you mentioned in your 
testimony a member of your credit union whom I believe is 
disabled, and after triggering the six-transfer limitation 
under Reg D, this disabled member has to find some physical way 
to walk into the credit union. Did I understand you correctly?
    Ms. LaMascus. She has to have someone who helps her get to 
the credit union. Of course, we are an accessible credit union, 
but it is difficult. She has to find--
    Chairman Hensarling. Do you happen to know if this member 
somehow works on Wall Street, because supposedly these 
regulations were designed to rein in Wall Street. Is she part 
of the Wall Street--
    Ms. LaMascus. No, no, she does not work on Wall Street.
    Chairman Hensarling. Do you have a branch on Wall Street?
    Ms. LaMascus. No.
    Chairman Hensarling. Do any of you all have a branch or 
credit union or bank on Wall Street? You don't.
    Mr. Levitin. Mr. Chairman?
    Chairman Hensarling. It is my time, Professor Levitin. I am 
sure you will have plenty of time to have your views heard.
    So we understand that there has been a decline in our 
community financial institutions but the statistic I have shows 
it has been greatly exacerbated over the last few years. I 
think the rate of decline has almost doubled. I also see that 
there have only been four de novo bank charters since Dodd-
Frank came about.
    Isn't part of the problem here that the regulations are 
really helping commoditize credit? So we have the thesis that 
regulations are not your problem, your problem is scale. You 
are told you have to know your customer for purposes of law 
enforcement. Apparently, it is not good enough to know your 
customer for purposes of credit extension. If you are denied 
the ability to engage in relationship banking, which I assume 
the regulations are causing us to lose relationship banking, 
and I assume you are having more difficulty competing. Mr. 
Williams, I see your head nodding. Do you have an opinion on 
the matter?
    Mr. Williams. Yes, Mr. Chairman. Recently we merged with 
another bank to achieve economies of scale for reasons that I 
would disagree on. Regulatory burden clearly is a major cause 
of that. And we provide credit to rural Americans and the QM 
rule is affecting that, certainly in west Texas. And to farmers 
and small business folks in that area and clearly it is 
disqualified applicants that we would have once approved.
    Chairman Hensarling. Mr. Fenderson, do I understand it 
properly that your bank is one of the few federally-chartered 
minority-owned banks; is that correct?
    Mr. Fenderson. Yes, sir, we are one of the three national 
chartered banks owned by African-Americans, predominantly.
    Chairman Hensarling. Do I understand that you primarily 
serve underserved areas around the Mobile, Alabama, area?
    Mr. Fenderson. That is correct.
    Chairman Hensarling. And do I also understand that when the 
QM rule came out, you had to suspend mortgage lending to your 
underserved population, is that correct?
    Mr. Fenderson. When the regulation burden started, we had 
to pull back and suspend mortgage lending in order to 
understand it. We have 27 full-time equivalent employees, and 
as an institution in a metropolitan market, we simply did not 
have the staff and had to add compliance staff.
    Chairman Hensarling. So as a minority-owned bank, serving 
an underserved population, if you have to suspend mortgage 
lending, where do these people go?
    Mr. Fenderson. To alternatives, which means we don't get a 
chance to make that money, and it means that they have to find 
other alternative sources, which sometimes are not very 
friendly with the price.
    Chairman Hensarling. I assume some of them may not have the 
ability to actually find the credit necessary to buy that home 
that they wanted to buy?
    Mr. Fenderson. That is correct.
    Chairman Hensarling. And you also don't have a branch on 
Wall Street; is that correct?
    Mr. Fenderson. We do not.
    Chairman Hensarling. Okay. The Chair now recognizes the 
ranking member.
    Ms. Waters. Thank you, Mr. Chairman. First, I would like to 
go to Mr. Levitin. A recent Harvard working paper states that 
community banks share banking assets, and the lending market 
has been in a fast decline since the passage of the Dodd-Frank 
Act and echoes the concerns of the industry that recent 
financial reforms and the establishment of the Consumer 
Protection Financial Bureau are the cause. Are you familiar 
with that study, Mr. Levitin?
    Mr. Levitin. I am.
    Ms. Waters. And do you agree with the conclusions?
    Mr. Levitin. No, I think it is a--
    Ms. Waters. Why not?
    Mr. Levitin. It is not really a scholarly study, let's 
start with that.
    Ms. Waters. What you do mean it was not scholarly?
    Mr. Levitin. Well, how to count the ways. I think one of 
the most simple things is the way it treats the data. The 
article looks at--it says, well, community banks have been 
shrinking since the Dodd-Frank Act, therefore it is because of 
the Dodd-Frank Act. That is bad logic, that is what is called 
an ex post ergo--ah, I am going to get my Latin wrong, but 
point being, just because something happens afterwards doesn't 
mean it is an effect.
    Rather, what the article completely ignores is that there 
has been a long-term trend with community banks shrinking, and 
that the article is not actually able to show any cause and 
effect with the Dodd-Frank Act, much less when the regulations 
under the Dodd-Frank Act actually go into effect, which has 
only been in the past year.
    Actually, it is ironic because in the last year, the fourth 
quarter of the last year, community banks grew 28 percent over 
the previous year. They actually had a great end of the year as 
compared to the large banks, which did not. So I think it is 
really hard to say that regulation is causing all the problems 
of community banks.
    Is it possible that there is a regulation or two that needs 
to be tweaked? No doubt. I would not make such an absolute 
argument against it. But I think it is just a serious mistake 
to claim that regulation is the problem for community banks. I 
would note for the chairman's benefit, Regulation D is not a 
CFPB regulation and has been on the books without changes for 
many, many years. So the problem that you discussed with Ms. 
Bosma-LaMascus is not one caused by any new regulatory changes.
    Ms. Waters. All right. Thank you very much. I think I would 
like to go to Ms. Peggy Bosma-LaMascus. I see that you have 
mentioned as the various to credit unions that Congress--to 
correct these barriers, Congress should make several 
improvements to the Federal Credit Union Act. One you list is 
to restore credit unions' business lending authority, increase 
the member business lending cap. Would you make more loans, 
mortgage loans if we did that?
    Ms. LaMascus. Yes.
    Ms. Waters. I can't hear you.
    Ms. LaMascus. Sorry. Yes.
    Ms. Waters. Do you realize that there are many Members, 
particularly on this side of the aisle, who support that?
    Ms. LaMascus. Yes.
    Ms. Waters. And have you worked with the banks so that you 
could have an effort to come together to support the credit 
unions being able to increase business lending? A lot of you 
say we should work together more. Can the banks and the credit 
unions come together around something like this?
    Ms. LaMascus. I can't necessarily speak for my brethren who 
are down the line here.
    Ms. Waters. Have you talked to them about it? Have you 
tried? You have been around for a long time. In 40 years, have 
you ever talked to the banks about coming together and stop 
opposing your ability to expand business lending?
    Ms. LaMascus. Representative Waters, actually today, we 
have many issues on which we are very much in agreement, and, 
in fact, I believe we are all in agreement that if Congress 
could require realistic and robust cost-benefit analyses of 
proposed regulations, documentation, that we would all be able 
to give much more targeted feedback so that the result would be 
smarter regulation.
    I believe that we are all supportive of changes to Reg D, 
such as increasing that limitation from six. It makes sense in 
today's lifestyles with so many people using electronic 
technology. I believe that we are all in agreement on changes 
that need to be made to the--
    Ms. Waters. Thank you very much. I just wanted to mention 
that because that is one of the issues that I care a lot about.
    Mr. Miller, you talk a lot in your testimony about what is 
wrong with the Consumer Financial Protection Bureau, and you 
mentioned everything from they should go before the 
Appropriations Committee to have a five-member mission, et 
cetera. What and why do you think those issues are important to 
what you need to have done to eliminate your ability to make 
loans?
    Mr. Miller. We feel that generally, the structure of how 
the CFPB was created creates a situation where there is 
regulation without representation from all relevant 
stakeholders. We believe a larger board of three to five 
members--I would prefer five members--who are appointed would 
allow for diversity of perspectives, and opinions, and 
deliberation, and debate before decisions are made, before 
rules are rolled out.
    Ms. Waters. Thank you very much.
    Mr. Miller. We think transparency and the appropriations 
process and budget process would make sense too.
    Chairman Hensarling. The time of the gentlelady has 
expired. The Chair now recognizes the gentleman from Texas, Mr. 
Neugebauer, chairman of our Financial Institutions 
Subcommittee.
    Mr. Neugebauer. Thank you, Mr. Chairman. Mr. Williams, in 
your testimony you talked about the QM rule and debt-to-income 
ratio and low-dollar, high-cost loans. I was just thinking as 
you were saying that, and then you mentioned about people not 
able to access homeownership, and continue to rent. I was 
thinking about Hart, Texas. I was wondering if that single mom 
maybe works at the Hart Cafe part-time, and she has another 
part-time job, but she has saved up some money over the years, 
and she would like to quit being a renter and wants to be a 
homeowner. If you can't make that loan, who is going to make 
that loan to her?
    Mr. Williams. Congressman, I can't say who would make that 
loan. We couldn't make the loan or we would have difficulty, 
because it is a small community, it is going to be non-
conforming--it is a non-conforming property because it is not 
an urban. We wouldn't have comparables for the appraisals. It 
would be a very difficult loan to make. We would try to find a 
way to do it. We do have portfolio lending services, but under 
the QM rule, we could not make a qualified loan.
    Mr. Neugebauer. And so particularly, I believe, in Hart, 
you are the only bank, is that correct?
    Mr. Williams. Yes, sir, that is correct.
    Mr. Neugebauer. In a lot of communities around the country 
now there is just one community bank left. And so if there is 
not a community bank left to make those loans, whether it is a 
mortgage loan for that single mom or a production agricultural 
loan, it doesn't leave a lot of choices, does it?
    Mr. Williams. No, sir, it doesn't. I have empirical data 
from our State association of Texas where we went out and 
solicited feedback from our member bankers, and 25 percent of 
those banks' remarks in the rural markets, if they were not 
there to make the loans, no one was there to make the loans.
    Mr. Neugebauer. I thank you for that. Mr. Miller, I think 
you mentioned in your testimony about one of the credit unions 
in Corpus Christi maybe--the CFPB's final rules on making 
remittances was put in place, I think, about 150 members of the 
credit union kind of lost access to be able to utilize those 
services. What other kinds of choice limitations are going on 
in the credit unions that are beginning to limit the products 
that members are able to access?
    Mr. Miller. The remittance rule is a great example, well-
intended legislation, if you wanted to give people a chance to 
shop for a half hour after they place their instructions to 
send a wire, an international wire. I don't know anybody who 
shops after they make a decision and walks into a non-Wall 
Street bank or credit union and says, I am going to shop around 
and see if I can save $10 on my international wire transmittal. 
Most people do their shopping before they walk in and make a 
decision. That is our opinion on the remittances.
    On QMs, we have turned down 50 members who couldn't get a 
home loan because we are afraid of regulatory scrutiny. What 
that is going to do is, it's going to force fewer and fewer 
choices for the consumer. They are going to pay more, because 
when there are fewer choices, markets are efficient, so whoever 
gets that business is going to charge a little bit more, and 
fewer people are going to enjoy the benefits of homeownership, 
which I know has always been something the members of this 
committee are pretty passionate about: Letting people who 
qualify to own a home, own a home.
    Whether it is credit cards, whether it is car loans, 
whether it is personal loans or school loans, there are all 
kinds of--the same thing is going to happen in virtually every 
category of lending: fewer choices; higher prices; fewer jobs; 
fewer banks and credit unions that are generating their own 
jobs to create a cascading impact on their local economies; 
fewer business lenders; fewer mortgage lenders; fewer car loan 
lenders. It is going to cost jobs and it is going to be a down 
draft in on the economy. There won't be an explosion of 
toasters and mortgages; there will be an implosion of jobs and 
economic growth.
    Mr. Neugebauer. Thank you. Mr. Fenderson, you indicated you 
are a relatively small bank, I think $60 million, is that 
correct?
    Mr. Fenderson. That is correct.
    Mr. Neugebauer. We have the new Basel III capital 
requirements for small institutions which became effective 
January 1st of this year. So for a small institution, when you 
have to keep more capital, what does that do to your ability to 
serve your customers?
    Mr. Fenderson. I can speak generally about that, we are not 
a seller servicer so we are not applicable to Basel III, but 
the colleagues I speak with across the country understand that 
will restrict--if they have to hold more capital, then they are 
not able to make as many loans, and it will make them decide 
how they treat those loans, on whether they want to be in that 
business or not. In fact, I have heard of some servicers who 
are getting out of that business.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentlelady from New York, Mrs. 
Maloney, ranking member of our Capital Markets Subcommittee.
    Mrs. Maloney. Thank you, Chairman Hensarling and Ranking 
Member Waters. Professor Levitin, as you know, my colleagues on 
the other side of the aisle have had a string of hearings, a 
relentless campaign to weaken Dodd-Frank and they claim that it 
is too costly for financial institutions, but this just looks 
at one side of the equation, the cost to financial 
institutions. I would look also and take into account the cost 
to consumers of not having adequate consumer protections in 
place. They say this downturn cost $16 trillion of household 
wealth, large unemployment, we were shedding 700 jobs a month, 
800 jobs a month. Can you comment on the long-term cost to 
consumers, and I would say the overall economy, of not 
adequately regulating financial products and services?
    It has been said that our regulation didn't keep up with 
the innovation, and experts testified before this committee and 
others that this was the first financial crisis in history that 
could have been prevented with better financial regulation of 
risky products and risk-taking. So, your comments please.
    Mr. Levitin. The financial crisis was completely 
preventable and would have been prevented if the Dodd-Frank Act 
mortgage regulations had been in place. The scape of the scale 
of the financial destruction, and particularly household 
wealth, and especially for communities of color, as a result of 
improving mortgage lending, not all of which was done through 
securitization, but a great deal which was also financed 
through bank portfolio lending, particularly Countrywide, 
Wachovia and Washington Mutual all had large portfolio lending 
operations. All of that caused tremendous loss of wealth for 
American families.
    I think it is also important to note that sometimes 
regulations actually not only protect consumers, but put money 
back in their pockets. The Credit Card Act, of which you were 
one of the authors, has been found to actually have saved 
consumers billions of dollars, yet we don't hear--
    Mrs. Maloney. Over $10 billion a year, that is a stimulus 
package that we gave the American people.
    Mr. Levitin. I thought you would have the number. But we 
don't hear a peep about that when regulation is discussed. 
Instead, regulation is only looked at in terms of compliance 
costs without seeing the benefits, whether it is financial 
stability or clear pocketbook savings for American families.
    Mrs. Maloney. So just to emphasize, do you think these 
costs outweigh the incremental costs of compliance to financial 
institutions? I would say the Credit Cardholders Bill of Rights 
helped institutions, it hasn't hurt their bottom line; you cut 
out unfair, deceptive practices so that more people have trust 
in their services.
    Mr. Levitin. There are costs to doing business and there is 
not an inherent right to get to operate a bank. It requires a 
charter and you have to be able to be competitive. And part of 
being competitive is being able to comply with regulations, 
particularly regulations that are necessary for preserving 
certain minimum standards within the industry.
    Mrs. Maloney. Also in your testimony, you noted that the 
CFPB has already granted community banks significant regulatory 
relief. In your opinion, do you think the CFPB has been 
sufficiently responsive to the concerns of community banks?
    Mr. Levitin. Generally, I believe it has been.
    There are some places where one might dicker with the CFPB 
about a particular threshold for exemptions. For example, on 
the remittances rule, should the number of remittances be 100 
per year or 200? I think there are reasonable differences of 
opinion.
    But, directionally, I think the CFPB has made considered 
judgments. And it is trying to balance important considerations 
not just about small financial institutions but about 
consumers.
    Mrs. Maloney. And you raised another important point in 
your testimony, that the oversight of the non-bank mortgage 
servicing industry is uncoordinated, to use your words, and 
that, ``Until and unless housing finance reform is resolved, 
the industry will remain in flux and in need of reform.''
    Given the uncertainty surrounding housing finance reform, 
what alternatives would you suggest concerning coordination 
across the relevant regulators of non-bank mortgage servicers 
that could begin to address the reforms that you believe would 
improve the overall economy and consumer experience?
    Chairman Hensarling. The gentlelady's time has expired, so 
a quick answer, please.
    Mr. Levitin. Obviously, there are tremendous difficulties 
with getting any kind of legislation passed on housing finance 
reform. Until and unless that happens, I think that there needs 
to be a formal coordination mechanism among financial 
regulators on mortgage servicing in order to try and stabilize 
the servicing industry.
    Chairman Hensarling. The Chair now recognizes the gentleman 
from Missouri, Mr. Luetkemeyer, the chairman of our Housing and 
Insurance Subcommittee.
    Mr. Luetkemeyer. Thank you, Mr. Chairman.
    Professor Levitin, I just want to thank you. Mr. Perlmutter 
and I have been working on, for the last 2 years, legislation 
to delay the implementation of Basel III on capital standards 
for mortgage servicing assets, and I see in your testimony you 
support doing that. I certainly appreciate that.
    Just quickly, have you ever worked in the private sector? 
Have you ever worked at a bank or a credit union?
    Mr. Levitin. No, I have not.
    Mr. Luetkemeyer. Have you--
    Mr. Levitin. I have worked for them, but I have never 
worked at them.
    Mr. Luetkemeyer. Okay. I was just kind of curious. So your 
real-world experience is really based on what you read in books 
or magazines or newspapers or read from studies of things that 
go on in the financial world. Is that correct?
    Mr. Levitin. No, that is not correct.
    Mr. Luetkemeyer. You just said--
    Mr. Levitin. I would add to that, I regularly work as a 
consultant for financial institutions and trade associations, 
including one of the ones that is represented here. And I 
also--
    Mr. Luetkemeyer. Mr. Levitin, I think one of the--
    Mr. Levitin. --before I get to see the internal workings of 
financial--
    Mr. Luetkemeyer. As part of your testimony here, you 
continually try to say that the CFPB is the problem that these 
folks here are consumed with, and I think their testimony talks 
about the overwhelming amount of regulations. Your testimony 
basically talks about the CFPB. And I think each of these folks 
have given that.
    And just to make the point about the CFPB, I have here a 
letter, and I will just sort of summarize it. Basically, what 
they are saying is that on February 25th, the CFPB proposed to 
suspend a rule with regard to credit card users and the card 
agreements that the Bureau had developed so that they could 
streamline their system. Because they don't have enough people 
to input the automation and do the cataloging and review that 
it is going to take, they don't even have the ability to 
watchdog and oversee the rules they make.
    So I wish they would give time to the other institutions 
they oversee to be able to have the ability to implement these 
rules on their own, which they don't seem to be willing to do.
    Along that line, I brought with me this morning a real 
estate loan matrix. This was put together by a compliance 
company, a company that deals in providing forms for 
institutions that provide real estate loans. And there are 
seven--I am sure you can't see it, but there are seven 
different categories of security. There is a total of 370 boxes 
that have to be checked or reviewed to see where this loan fits 
into. There is a timetable down here that has 24 different 
forms that have to be used at some point, or may be used, 
during the course of the implementation and working out this 
loan.
    This is the kind of stuff that is overwhelming the system. 
It is not just the CFPB; it is all of this in its totality. So 
I appreciate the comment this morning by Mr. Williams that said 
25 percent of the loans would no longer be made by you as a 
result of this type of inundation and the QM rule and all these 
things that are going on.
    So I was just kind of curious if I can get a figure from 
each of you this morning with regards to how much have you seen 
that this curtailed.
    For instance, Mr. Williams and Mr. Miller, where do these 
people go when you no longer have access? Are these people 
going to get their home loans now at FHA, to the Federal 
Government, these agencies? Where are they going?
    Mr. Williams. I can't answer that, Congressman. All I can 
say is my information was wrong. I said 25 percent said there 
are no other banks or financial institutions in the area, and 
it is actually 29.7 percent. And I apologize, but I wanted to 
correct that.
    It is important to understand that there are secondary 
lenders, but it is going to cost the consumer a great deal more 
money, or they are going to have to rent. They are not going to 
be able to get a loan.
    Mr. Luetkemeyer Mr. Miller, do you know where those folks 
go when they can't get a loan from you?
    Mr. Miller. I think, in most cases, because they came to 
us, they didn't go to a big bank for a reason. Because they 
either already got turned down, or they wanted to come in to 
somebody local that they know and they trust, that they have 
been a member of for decades.
    Mr. Luetkemeyer. Mr. Fenderson, do you know where your 
folks go when they can't get a loan?
    Mr. Fenderson. I would say that community banks represent 
choice and flexibility when consumers try to decide. So, like 
Mr. Miller noted, they are coming to us for a reason, because 
they believe that we have the flexibility. Unfortunately, there 
are some consumers who are not highly qualified for mortgages, 
and that gives us the ability to do those loans. And then they 
have to find a source that is probably not as cost-effective.
    Mr. Miller. If I could add, maybe they still rent that 
mobile home that the other bank can't make a loan on anymore.
    Mr. Luetkemeyer. Ms. LaMascus, do you know where your folks 
go when you can't make a loan to them?
    Ms. LaMascus. They either are unable to conduct their 
transaction or they have to go somewhere else where they have 
to pay more, dealing with people they don't know. They are not 
able to work with their trusted creditors.
    Mr. Luetkemeyer. So, basically, what you have all told me 
is that there is an access-to-credit problem as a result of the 
excessive amount of rules, regulations, forms, and restrictions 
you have to deal with.
    Mr. Williams. Yes, sir.
    Mr. Luetkemeyer. Thank you very much.
    I yield back.
    Chairman Hensarling. The Chair now recognizes the gentleman 
from Massachusetts, Mr. Lynch.
    Mr. Lynch. I want to thank you all for your willingness to 
come before the committee and help us with our work.
    And I feel like I have to defend Professor Levitin down 
there. I do want to point out that Mr. Levitin is the only 
witness on our panel this morning who is not being paid by a 
specific interest, in connection with his testimony. Mr. 
Levitin has not received any Federal grants or any compensation 
connected with his testimony. He is not testifying on behalf of 
any organization, and the views expressed by him are his own.
    So, enough about that.
    Mr. Levitin, let me ask you, your testimony indicates that 
there were--you identified several accommodations that we try 
to make in Dodd-Frank to actually address the clear differences 
between the mega-banks that we were trying to reel in and the 
community banks.
    And I know from my personal work on that bill with 
Congressman Frank that we tried at every turn to try to make a 
distinction between the regulation against the big banks that 
caused the problem and the community banks who did not cause 
the problem.
    I love my community banks. And maybe this is just my 
district, but when I have seen community banks go away in my 
district, they have merged where there have been acquisitions. 
Larger community banks have purchased smaller community banks 
in pursuit of growth. As a matter of fact, we have had two 
major credit unions that have been so successful in my district 
that they have converted to become banks so that they could 
expand further than their jurisdiction allowed as a credit 
union.
    So, yes, they have gone away, but for growth purposes.
    But, Professor Levitin, if you could just talk a little bit 
about what you identified in some of your testimony, but drill 
down a little bit deeper about the advantages that we have 
tried to give to community banks so that they might succeed.
    Mr. Levitin. Sure.
    In the Dodd-Frank Act, I think there are three really 
important distinctions made between community banks and credit 
unions and large banks.
    First, the Consumer Financial Protection Bureau has no 
authority to examine financial institutions with less than $10 
billion of assets. Instead, their examinations occur with their 
regular prudential regulator, and they are, therefore, subject 
to only one set of examinations, not two.
    Mr. Lynch. So in the universe of the under $10 billion, 
what is the percentage of that? Do you have any idea?
    Mr. Levitin. I have the number right around here.
    For the under $10 billion, we are talking about--for banks, 
there are 108 banks that have over $10 billion in assets. That 
is out of 6,518 banks in the United States. So about 2 percent 
of banks are subject to CFPB examination. And only five credit 
unions--
    Mr. Lynch. Wow.
    Mr. Levitin. --out of--it is around 6,400.
    Mr. Lynch. And we are being accused of overreaching.
    Mr. Levitin. That is correct.
    Mr. Lynch. Okay.
    Mr. Levitin. The second thing the Dodd-Frank Act does is it 
exempts these smaller financial institutions--again, less than 
$10 billion of assets--from enforcement actions by the CFPB. 
Enforcement actions would have to be undertaken by their 
prudential regulators. And, to date, I am not aware of their 
prudential regulators having undertaken a single enforcement 
action for authorities that exist under the Consumer Financial 
Protection Act.
    Finally, the Durbin Amendment to the Dodd-Frank Act exempts 
financial institutions with less than $10 billion of assets 
from regulation of debit card interchange fees, the fees that 
merchants have to pay whenever they accept a debit card 
transaction. That gives smaller institutions a tremendous leg 
up competitively against large institutions.
    So, there are already a number of things in the Dodd-Frank 
Act that are really trying to look out for small financial 
institutions.
    Mr. Lynch. Great.
    I only have 40 seconds left. Anything else you want to add 
to your testimony that you might have been asked by another 
Member and didn't have an opportunity to respond?
    Mr. Levitin. Not at this point, but I appreciate that.
    Mr. Lynch. Okay.
    I yield back, Mr. Chairman. Thank you.
    Chairman Hensarling. The gentleman yields back.
    The Chair now recognizes the gentleman from New Mexico, Mr. 
Pearce.
    Mr. Pearce. Thank you, Mr. Chairman.
    And I thank each of you for your testimony today.
    Mr. Levitin, you made a comment on page 7 of your testimony 
that absent FDIC insurance, depositors would never use small 
institutions instead of large ones.
    Where did you get that information from?
    Mr. Levitin. I think you can look at what happened at the--
    Mr. Pearce. No, I just asked where you got it from.
    Mr. Levitin. I got that from my own research, sir.
    Mr. Pearce. Okay.
    So, Mr. Fenderson, do you find, when the people walk in the 
door to make deposits, they tell you they are there because you 
are an FDIC institution?
    Mr. Fenderson. No, sir.
    Mr. Pearce. Okay.
    Mr. Miller, you have a lot of small outfits. Do they walk 
in to you and say, we are looking for your insurance, that is 
the reason we are going to put our money with you?
    Mr. Miller. No, sir.
    Mr. Levitin. Sir, I would just point out there are three 
non-FDI-insured--
    Mr. Pearce. No, no. Please. No, please. You are the one who 
was critical. I think you said that there was not a scholarly 
study earlier in answer to one of the questions, and I am 
trying to get to the basis of the scholarly study that came up 
with the observation that people only use small institutions 
because of the FDIC. Because that has no relevance. I represent 
the Second District of New Mexico, and I will guarantee you the 
people who walk in the doors are not there because they are 
FDIC-insured.
    The Second District, by the way, is Roswell, New Mexico. 
The aliens landed there. And the aliens have more knowledge of 
what happens in small banks than what you do, sir. And your 
scholarly study leaves a little bit to be desired.
    Mr. Levitin. Sir, I think I am entitled to a point of 
personal privilege on this.
    Chairman Hensarling. The time belongs to the gentleman from 
New Mexico.
    Mr. Pearce. You will have to ask the chairman for personal 
privilege.
    I am just telling you that when you say in your testimony 
that a portfolio lender can lend at high rates and aggressively 
pursue defaults--50 percent of the homes in my district are 
manufactured houses. Now, those people who loan money and keep 
the mortgages in their portfolio are not doing that so they can 
go and repossess those things. They are trying to help low-
income borrowers get a place to live.
    Mr. Levitin. You have no disagreement with me on that, sir.
    Mr. Pearce. Mr. Chairman, if you would have him pursue his 
own time, I would appreciate it.
    But your scholarly study that you bring and give to us 
today is offensive to the people on the low-income ladder, 
because Dodd-Frank has made it very difficult for them to make 
a living. It is, in fact, a war on the poor and the middle-
income people of this country. And to have you sit here and 
just say things that the people next to you can't counteract 
is--
    Mr. Miller. Mr. Pearce, can I make a follow-up comment?
    Mr. Pearce. Yes.
    Mr. Miller. I also take umbrage with the comment that it is 
just a cost of doing business. There is no such thing as a cost 
of doing business because it is passed directly on to our 
members and the customers of the banks that are represented 
here. We pass on roughly 25 basis points on every loan and 
increase higher interest rates because of compliance costs. We 
pay our members roughly 25 basis points less overall on 
deposits because of compliance costs.
    Mr. Pearce. Mr. Miller, do you--
    Mr. Miller. So it is not a cost of doing business. It is a 
cost to your constituents and our members.
    Mr. Pearce. I understand.
    Mr. Miller, do you make loans on manufactured houses?
    Mr. Miller. No, we do not.
    Mr. Pearce. I'm sorry, not Mr. Miller but Mr. Williams. I 
was looking at Mr. Williams and calling him Mr. Miller.
    Mr. Williams. Yes, we do. And the answer to your first 
question is, no.
    Mr. Pearce. Yes, okay. People don't come in for the FDIC 
insurance.
    Mr. Williams. They do not.
    Mr. Pearce. So what is the status in the manufactured house 
loans?
    Mr. Williams. We can't qualify them under the QM rules.
    Mr. Pearce. Do you hold them in portfolio?
    Mr. Williams. Yes, sir.
    Mr. Pearce. How many do you repossess in a year?
    Mr. Williams. The last 4 or 5 years, I would say maybe one, 
possibly two.
    Mr. Pearce. Yes. That is what I--
    Mr. Williams. A very, very small number.
    Mr. Pearce. There is only one institution left in the 
southeast part of New Mexico that makes loans on these kind of 
houses, and they have the lowest default rate of any.
    And so it seems like scholarly studies would include coming 
out and actually visiting those institutions where they make 
those kinds of loans before they start passing along this 
genius bit of information that caused the CFPB to include 
balloon loans and these manufactured housing loans as predatory 
lending, because it makes life very difficult for us out there 
in the parts of America that never get visited by the educated-
leap-making scholarly studies.
    The fact that there are two tiers of regulations--that is 
another point that Mr. Levitin makes--do you find those two 
tiers of regulation, Mr. Williams?
    Mr. Williams. I find it--I would like to see multiple-
tiered regulations.
    Mr. Pearce. Yes. In other words, the regulator just--they 
are not going to learn two standards. They are going to come 
in, and they are going to judge everybody by the same standard. 
That is trickle-down regulations, and it is a point that is 
completely overlooked by the CFPB.
    But, again, thank you.
    Mr. Williams. Thank you.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Texas, Mr. 
Green, ranking member of our Oversight and Investigations 
Subcommittee.
    Mr. Green. Thank you, Mr. Chairman.
    And I thank the ranking member, as well.
    Mr. Levitin, you have some comments that you would like to 
make. I would like to yield some time to you for your 
commentary.
    Mr. Levitin. I very much appreciate that, Mr. Green.
    I think it is important to understand FDIC insurance a 
little better than the gentleman from New Mexico was 
discussing.
    There are, I think, around three financial institutions in 
the United States, three depositories, that do not have FDIC 
insurance. No depository is required to have FDIC insurance. 
They choose to get it. And why do they choose to get it? 
Because they know they can't compete without it.
    It is not that any consumer goes in looking for FDIC 
insurance; we take it for granted today. We just assume that 
every bank has FDIC insurance.
    But there are all kinds of regulations that support the 
existence of our financial services industry in its current 
state. And I think that you deeply misunderstood what I was 
saying in my testimony, and I hope that misunderstanding is 
being corrected.
    Beyond that, I think it is just offensive to throw at me 
characterizations about being an elitist or something when you 
know absolutely nothing about where I am from or my background. 
And I would appreciate it if I would be treated with courtesy 
when I testify here.
    Thank you.
    Mr. Green. Thank you, sir.
    Permit me, if I may at this time, Mr. Chairman, to 
introduce for the record, with unanimous consent, testimony of 
Mr. Hilary Shelton. This is what he would say if given the 
opportunity to present testimony. He represents the NAACP.
    May I ask unanimous consent to present this for the record?
    Chairman Hensarling. Without objection, it is so ordered.
    Mr. Green. Thank you.
    Now, let's talk for just a moment about what we do and what 
we say. We talk about small banks, community banks, but we 
legislate large. When we try as best as we can to legislate for 
the small, the terminology becomes large.
    Example: We have actually had testimony indicating that a 
community bank is a $50 billion bank. If we legislate for a 
community bank and the legislation covers $50 billion banks, 
have we done what we sought to do?
    Many of the community banks that I have worked with, that I 
talk to, have indicated that they would like to get some help, 
and I would like to help them.
    The question becomes, what is a community bank? Is a $50 
billion bank a community bank?
    I am going to ask my friend from Texas.
    Mr. Williams?
    Mr. Williams. Congressman, it is very difficult to define a 
community bank--
    Mr. Green. I will withdraw my question.
    Mr. Williams. Okay.
    Mr. Green. Let me go on.
    We want to help the small banks. More than 90 percent of 
the banks in this country have assets of under a billion 
dollars, a billion or under, 90 percent or more. And we would 
like to help that 90 percent, or we would like to move it up to 
a higher amount.
    But whenever we try to do this, we run into this question 
of the legislation applying to $50 billion banks. It is very 
difficult to perceive of legislating to cover $50 billion banks 
under the guise of helping small banks. That is a difficult 
lift. So I would like to help the small banks, but whenever we 
get to a definition, we can't seem to find one.
    So let me ask you, Mr. Fenderson, is a $50 billion bank a 
community bank?
    Mr. Fenderson. A $50 billion bank that has the sensitivity 
of its community--
    Mr. Green. ``Has the sensitivity of its community.'' So if 
we pass legislation to help small banks under the guise of 
helping community banks and we help the $50 billion banks--you 
have just heard the testimony about mega versus small banks--we 
will end up helping mega-banks.
    So, in your opinion, a $50 billion bank can be a community 
bank?
    Mr. Fenderson. Yes. We need the ability to be flexible as 
a--
    Mr. Green. Are you a $50 billion bank?
    Mr. Fenderson. We are a $60 million bank.
    Mr. Green. $60 billion?
    Mr. Fenderson. $60 million.
    Mr. Green. Okay. So I am asking you about billions. Is a 
$50 billion bank a small bank?
    Mr. Fenderson. By asset size, a $50 billion bank is not a 
small--
    Mr. Green. Is it a community bank?
    Mr. Fenderson. A $50 billion bank can be a community bank.
    Mr. Green. Therein lies the problem, dear sir. Therein lies 
the problem.
    If we want to help you and the $60 million banks and the 
billion-dollar banks and the banks under $10 billion and we 
legislate such that we cover $50 billion banks, why don't we 
just repeal Dodd-Frank? Because that is what we are talking 
about here. We would end up eliminating the protections that 
Dodd-Frank accords consumers from the mega-banks.
    Mr. Fenderson. May I answer?
    Mr. Green. I have no more time.
    Mr. Neugebauer [presiding]. The time of the gentleman has 
expired.
    I now recognize the gentleman from Florida, Mr. Posey, for 
5 minutes.
    Mr. Posey. Thank you, Mr. Chairman.
    I have to agree with my distinguished colleague that maybe 
we should repeal it. I think that is a great idea.
    In the meantime, I have a question for Mr. Miller.
    Mr. Miller, you stated that you are concerned about the 
data collection at the CFPB, and I wonder if you would be kind 
enough to expand on those concerns, and what it is that you 
fear.
    Mr. Miller. There are roughly 37 new data fields that are 
collected on a loan because of the proposed HMDA rules from 
CFPB. They say they want to improve the quality of data 
gathered. We believe this is Big Brother gone wild.
    The rule adds these 37 new data elements. We don't know 
what they are going to do with it, but we do know what the data 
elements are. They include things like where you live, your 
age, your sex, value of your home, income, how much you spend, 
how much you owe, your payment amounts on your credit cards and 
other debt obligations.
    That is too much information that could be use for improper 
purposes. Anybody can go ask for this information. It is an 
invitation to massive identity theft that could threaten the 
financial security of hundreds of millions of Americans.
    Mr. Posey. Besides anyone asking for the information, we 
know of quite a few Federal databases that have been violated, 
including the Pentagon.
    How secure do you feel that data is in the hands of the 
CFPB?
    Mr. Miller. My members tell me they are very fearful. I am 
more concerned about what my members think, but we are also 
very fearful. We want more done in this area, and we would ask 
the committee to do some work to establish some very tight 
standards.
    So if they are going to gather all this information and 
make it accessible to people, what is the purpose? And do a 
cost-benefit analysis. And how many people are we going to 
catch making a bad loan as a result of gathering all these new 
data fields? And where is the information security for your 
constituents?
    Mr. Posey. As they did with the foreign deposit issue, the 
Treasury obviously does not feel that it is important to comply 
with the cost-benefit law. And since they control the purse 
strings of the CFPB, I am hesitant to believe there is any 
possibility we would get the proper relief there.
    A question for you and Mrs. Bosma-LaMascus: The NCUA has 
put out a new proposal on risk-based capital after thousands of 
comments, including a letter I signed along with 323 other 
Members of Congress, which supposedly improves the risk-based 
capital rule.
    What do you think about that rule, and is it necessary? 
Does it add to the regulatory burden?
    Mr. Miller. We believe there are improvements in the second 
draft of risk-based capital from NCUA, but we think several 
components result in additional situations like we just 
discussed that are solutions that won't work to problems that 
don't exist.
    Mr. Posey. We understand that. We interpret that as the 
omnipresent defenders of the nonexistent problems of the 
people. We are getting quite familiar with that.
    Mr. Miller. Yes. Yes, sir.
    For example, they were asked to establish what the 
definition of ``well-capitalized'' is, and they added another 
definition--or they were asked to address ``adequately 
capitalized.'' Then they added another definition of what 
``well-capitalized'' is. So they have created more complexity, 
and we don't think that is what they were commanded to do. They 
were commanded to provide one definition, and they created two. 
So we don't support the two-tiered rule on capitalization.
    We also--no, I will just yield to Ms. LaMascus because I 
want to make sure she has some time, because we are running out 
of your time.
    Mr. Posey. Thank you very much.
    Ms. LaMascus. Thank you, Mr. Miller.
    We don't have enough time to talk about the additional 
complexity that this new way of measuring our capital based on 
this risk would cost and add to credit unions.
    We believe it is unnecessary. NCUA has not been able to 
substantiate to us why it is necessary. It is costly. They are 
building in additional tiers, as Mr. Miller talked about, which 
will take millions of dollars out of play for credit unions to 
be able to lend to their members and keep our economy growing. 
So--
    Mr. Posey. Who owns the credit unions? Who are the big, 
greedy capitalists they are trying to protect us from?
    Ms. LaMascus. They are all members. Credit unions are owned 
by their members, which tend to be working-class people.
    Mr. Posey. Thank you, Mr. Chairman.
    Mr. Neugebauer. I thank the gentleman.
    And now the gentleman from California, Mr. Sherman, is 
recognized for 5 minutes.
    Mr. Sherman. The backbone of our economy is small business. 
All of us in our districts every week meet people who can't get 
the business loan they need to expand. And, as much as I want 
to help the businesses represented here, I want to help the 
businesses that need to borrow for those business loans, 
particularly if they are in the San Fernando Valley.
    Now, the ranking member has pointed out that one way to do 
this is through member business lending and credit unions. And 
I think that has been covered well at the hearing, and I 
certainly support it. 
    But I am told by many depository institutions, they say, 
look, if we make a loan at prime that deserves to be at prime, 
everything is fine, but if we make a loan at prime-plus-4, 
prime-plus-5--because there is some risk, because there is a 1 
in 20 chance that we are going to have some problems 
collecting, and our examiner comes down on us like a ton of 
bricks, and requires, in effect, a 100 percent charge-off.
    What do we need to do--and don't limit yourself to changing 
Dodd-Frank. I know that is the hot political issue. What do we 
need to do so that you can make the $5 million prime-plus-5 
loan to the small business that has an element of risk in it, 
for which you deserve to be compensated, but needs capital to 
expand?
    I am looking for someone who wants to answer.
    Yes, Mr. Williams?
    Mr. Williams. Congressman, the best thing we could do in 
your specific example would be to do away with the QM rule as 
regards the qualification, potentially, for that business. And 
I know that relates to a mortgage--
    Mr. Sherman. Yes, that relates to a mortgage.
    Mr. Williams. And that relates to a mortgage--
    Mr. Sherman. We are talking about businesspeople who will 
pledge their homes--
    Mr. Williams. Yes.
    Mr. Sherman. Okay.
    So there is one small element of this, and that is some 
institutions that don't do a lot of real estate servicing want 
to make a loan to one of their customers, and they are required 
to have an impound account.
    And I am working on legislation now with others to at least 
say that if you are holding if for your portfolio--because it 
really is a loan to help somebody expand their business or 
really is a personal loan--that if you don't want to have an 
impound account, you would not have to if it is a loan you are 
holding for your portfolio. I think that would help a bit.
    But what modification would you have for QM loans that are 
really business loans?
    Mr. Williams. For loans that we hold in our portfolio, for 
them to be exempted from QM.
    Mr. Sherman. Just exempt from QM, not--
    Mr. Williams. Yes, sir. Because we take 100 percent of the 
credit risk--
    Mr. Sherman. That is my bill on steroids.
    Mr. Williams. --and we are comfortable with that because we 
underwrite it.
    Mr. Sherman. Gotcha.
    I have a question about the HUD-1 that is being phased in, 
TILA and RESPA forms. These go into effect on August 1st. I 
wonder what steps the organizations you represent are taking to 
comply with this regulation and make sure that consumers who 
buy a home this summer won't face disruptions?
    Do you think you are on schedule?
    I will ask first the representative of the American Bankers 
Association.
    Mr. Fenderson. Yes, sir. Thank you very much.
    We, as a small community bank, rely heavily upon the vendor 
to provide those new disclosures to us. And there is an 
integration process that has to be fulfilled.
    We don't have a timeline because our service provider 
cannot provide us with a timeline so far. All we know is that 
there is a bullet deadline that we have to meet and that there 
are some--
    Mr. Sherman. How confident are you that you can meet it 
without disrupting the real estate market?
    Mr. Fenderson. Unfortunately, we are relying upon a service 
provider. And so I don't have a whole lot of confidence that we 
will get there, except for the fact that they have to get it 
done.
    Mr. Sherman. Gotcha. If I had a service provider I was 
relying on, I would want to find out whether they are going to 
be able to help.
    One other issue is we have all these data thefts, 
cybercrime. And a lot of retailers, for example, have not done 
a good job, or at least an adequately good job, in protecting 
their data. It is my understanding that part of the reason for 
that is because all of the cost that is occasioned by these 
cyber breaches falls on the folks represented here.
    What do we need to do so that there is a fair sharing of 
the cost of this data theft, particularly with credit and debit 
cards?
    Chairman Hensarling. Regrettably, the time of the gentleman 
has expired.
    Mr. Sherman. I look forward to getting a response for the 
record.
    Chairman Hensarling. The Chair now recognizes the gentleman 
from California, Mr. Royce.
    Mr. Royce. Thank you, Mr. Chairman.
    The outlook for community banks and credit unions is one of 
increasing challenges because we have smaller financial 
institutions that have fewer assets over which to spread these 
compliance costs that we are talking about here. And looking at 
the numbers, they seek to achieve this economy of scale as a 
consequence through mergers, which is not exactly what we want 
to encourage here.
    From 2013 to 2014, the number of community banks fell by 
273 banks. Now, that is a 4\1/3\ percent decrease in just one 
year. And, similarly, we heard testimony that, since mid-2010, 
1,200 federally-insured credit unions have left the market. And 
that is not the calling card of a sector that is doing better 
than ever.
    So I will go to Mr. Williams and I will ask him--because we 
did hear previously from a community bank that saw its 
compliance cost double in the last few years. They had to hire 
a new full-time--they had to hire full-time employees, they 
testified, as I recall, at $65,000 each. And a recent 
Minneapolis Fed study found that one-third of banks with assets 
under $50 million would become unprofitable with the addition 
of just two full-time employees. That study was done because of 
these compliance costs.
    So, a question for Mr. Williams: Are we experiencing this 
situation where increased personnel costs affect the 
variability to extend credit?
    Mr. Williams. Congressman Royce, yes, we are.
    Frankly, it is difficult to measure our total compliance 
cost. I have colleagues who have said they have done an in-
depth study and their costs are 18 percent of their operating 
budget. We estimate 15 to 20 percent of our operating overhead 
is now focused on hard and soft costs for compliance costs. And 
this would be up, from 10 to 15 years ago, a 5 percent number. 
So I would easily say fourfold.
    Mr. Royce. Personally, I think much of the problem is that 
recent regulations are aimed at attempting to outlaw risk-
taking, rather than ensuring through examination and 
supervision that such business practices are backed by adequate 
capital and low leverage.
    And so, because of the approach, in my view--if instead the 
focus was capital on the part of the regulatory community here, 
banks would be hiring more loan officers than they are hiring 
lawyers on the compliance end. I think we have set this thing 
in a way in which is very injurious to the extension of credit.
    But let me raise one other issue, which was mentioned by 
our ranking member, Ms. Waters. Today, Congressman Jared 
Huffman and I are going to reintroduce a bill which corrects a 
disparity between banks and credit unions in the treatment of 
loans made to finance the purchase of small apartment buildings 
known as non-owner-occupied one- to four-unit buildings. And, 
specifically, the bill removes these loans from the calculation 
of the member business lending cap imposed on credit unions.
    So I am wondering if I can ask our credit union witnesses 
if this bipartisan bill will help increase credit availability 
for commercial businesses and for rental housing without 
costing taxpayers a dime.
    Mr. Miller. The short answer is, yes, it will.
    The overwhelming majority of these types of loans go to 
regular, average, working Americans who have just done well 
enough in life where they can afford to buy a rental property 
or they move into a new home and they want to convert a 
dwelling that they were in into a multifamily dwelling, and 
they are just regular folks. They are not running big 
businesses. They are not real estate investment trusts.
    And it would free up capital for credit unions to do more 
member business lending and generate more jobs.
    Ms. LaMascus. Thank you very much, sir, for doing that for 
credit unions.
    Our credit union does not currently offer member business 
loans, but we will, and that will be important to us.
    May I make a couple more comments on the compliance for 
you?
    Mr. Royce. Absolutely.
    Ms. LaMascus. I found it very interesting what you were 
saying.
    First off, within the last couple of years, two very small 
credit unions found themselves having to merge, and they were 
are able to merge with Patriot Federal Credit Union. One was 
only $6.5 million in assets; one was $11 million. They just 
could not keep up with the regulations and also be able to 
provide services to their members.
    In addition to the things that Mr. Miller has done, we have 
had to hire 2 full-time compliance officers within the last 3 
years. I just hired another person. About 50 percent of his 
time will be spent on compliance.
    Mr. Royce. Thank you.
    Thank you, Mr. Chairman.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Missouri, Mr. 
Cleaver, ranking member of our Housing and Insurance 
Subcommittee.
    Mr. Cleaver. Thank you, Mr. Chairman.
    Let me, first of all, thank you all for being here. As Mr. 
Lynch said, these committee hearings are designed for the 
receipt of information that will help us do our work.
    I want to associate myself with the comments of my 
colleague Mr. Green, who talked about the very difficult task 
of separating the small banks, community banks, and credit 
unions from the humongous banks, the ones that are probably 
``too-brute-to-prosecute.''
    But I want to just tell you, I don't know if any of you are 
sports fans, or whether or not you have paid attention to the 
fact that yesterday Chris Borland, a 24-year-old linebacker for 
the world-champ Patriots, retired after one season. He made 
some comments that I think are profound about the game.
    ``I played the game. As a result, last January 6th, I had 
my 7th operation on my left knee, and 2 on my right shoulder. 
It is a tough game.''
    I don't know, Ms. LaMascus, if you have ever been hit by a 
245-pound linebacker running at full speed.
    Ms. LaMascus. Not lately.
    Mr. Cleaver. Yes. It is not fun. I have been hit by those--
two of those games played in Lubbock.
    But the NFL responded to the retirement of Borland by 
saying that they are continuing to redesign the rules. Now, 
when I played, you could go low and hit someone just about 
anyplace. They will not allow clipping anymore. You used to be 
able to hit people in the backfield, which you can't do 
anymore, at least not from behind. They are continuing to 
change the rules trying to protect the players.
    I have a friend, Otis Taylor. I went to school with him. He 
is an all-pro wide receiver who can't get out of bed today. 
Many of you remember Earl Campbell, particularly the Texans, I 
am sure, our chairman, Mr. Neugebauer, and Mr. Green. Great 
running back. Can't even walk anymore. You have to roll him on 
the field during the annual Old Timers' Day at the stadium in 
Houston.
    The rules are being redesigned. People are trying to 
protect the players. It is a brutal game.
    Are all of you in favor of trying to come up with rules to 
protect the players? Whether you played the game or not, if you 
watched it, do you agree with me that changing the rules is 
okay?
    And the helmets are now much more expensive. They are 
trying to design helmets that will reduce the likelihood of 
someone getting one of these hits to the head that will affect 
them for the rest of their lives.
    So should the NFL continue to try to design rules to 
protect the players?
    Mr. Fenderson. Yes, sir.
    Mr. Cleaver. Does anybody disagree?
    Mr. Williams. Yes, we agree. I agree.
    Mr. Cleaver. Because people are getting hurt. Is it--
    Mr. Fenderson. Yes, sir.
    Mr. Williams. Yes, sir.
    Ms. LaMascus. Yes.
    Mr. Levitin. Yes.
    Mr. Cleaver. No one disagrees.
    Mr. Fenderson. Might I expand on that?
    I would like the ability to be able to get out of bed 
tomorrow, walk into our bank, and continue to service the 
customers that we serve. What we are asking Congress to 
consider is tailoring legislation that matches my business 
model.
    We didn't to secure title to mortgages. We accept deposits, 
we make loans. That is how we meet the needs of our community. 
We make mortgage loans that we portfolio. We make automobile 
loans that we portfolio.
    Mr. Cleaver. Yes. But I want you to harken back to--I 
harken back to what Mr. Green said earlier. We can't have this 
hearing and disregard the fact that the thing that separates 
the things that many of us would like to do, which is to remove 
the burdens from you--and I am not sure that--and maybe we are 
not articulating well enough the challenge of trying to get 
something to do that. I think that if we paused, the five of 
you would have difficulty coming to an agreement on how do we 
separate the ``too-brute-to-prosecute'' from community banks.
    Thank you, Mr. Chairman. I apologize for going over my 
time.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Pennsylvania, 
Mr. Fitzpatrick.
    Mr. Fitzpatrick. I thank the chairman.
    And I also want to thank the panel members who have given 
testimony here today, especially the community bankers and the 
credit union professionals who meet with our constituents and 
help them, provide the credit to start their small and family-
owned businesses and buy their first homes.
    And I wanted to follow up on one of the comments, actually, 
from the committee to the panel, that credit unions are fewer 
in number today because of strength and growth and because they 
have gone on to perhaps merge with a larger entity. And I am 
sure in an occasional case, that is true. We could probably 
point to one.
    Ms. LaMascus, in your testimony you stated that the impact 
of this growing compliance, which is the subject of this 
hearing, is evident as the number of credit unions continues to 
decline, dropping by 23 percent. You said dropping by--I think 
you said 1,800 since 2007. Is that correct?
    Ms. LaMascus. 1,200.
    Mr. Fitzpatrick. 1,200? And those 1,200, they don't cease 
to exist today because of strength and growth in the economy or 
that they have gone on to become some different or larger 
charter or entity. Why do they not exist?
    Ms. LaMascus. They can't keep up with regulations, is one 
huge reason. They don't have the staff, they don't have the 
resources to be able to study them, to implement them, to pay 
for them, and also be able to provide the services to their 
members. They just don't have the resources to do it.
    And, frankly, that is why I advocate for smart regulations. 
I would agree, we don't want people to be hurt. But we do 
believe that smart regulations make more sense.
    That is why we believe that for you to require regulators 
to do lookback cost-benefit analyses so that they can document, 
show us why they are recommending or planning to put in place 
what they are, we could give better, more targeted feedback. I 
believe, then, that it would be more collaborative, and less 
confrontational, because we all do want to protect and help the 
consumer.
    We could do this together. And then hopefully, we will 
learn from that, and then later we can go back and revisit and 
modify where the costs were greatly underestimated.
    So we believe that smarter regs make more sense.
    Mr. Fitzpatrick. Ms. LaMascus, my district is not far from 
where you do business. I represent southeastern Pennsylvania, 
Bucks County, Montgomery County. And I was thinking, as you 
were testifying, about a small credit union that I represent, 
the Ukrainian Selfreliance Federal Credit Union.
    It probably has less than 10,000 members, less than--or 
maybe $250 million in assets. And the individuals who come 
here, new citizens, new residents of Pennsylvania and of the 
United States, many times are going straight to that credit 
union for the cultural background, the language.
    And they are not going to be acquired by some larger 
entity. They are struggling to cover these compliance costs, 
the same compliance costs that the big companies can cover, but 
they are doing it with much smaller, sort of, cost-
effectiveness. And I worry about, where will these individuals 
who go to Ukrainian Selfreliance today, where will they go?
    Ms. LaMascus. Unless they can qualify to join another 
credit union, or if it is a merger, they will have to find 
someplace else to go, likely to someplace that doesn't know 
them and is not able or willing to do for them what their 
credit union can.
    Mr. Fitzpatrick. Right.
    Mr. Williams, you were talking about--you referred to the 
HMDA reports. Increasing the amount of information for HMDA 
reports adds to the cost of doing business--
    Mr. Williams. Yes, sir.
    Mr. Fitzpatrick. --for community bankers; is that true?
    Mr. Williams. Yes, sir.
    Mr. Fitzpatrick. Mr. Fenderson, do you agree?
    Mr. Fenderson. Yes, it does.
    Mr. Fitzpatrick. Do you believe that these demands 
translate to better homeowner lending?
    Mr. Fenderson. I do not believe they translate into better 
home loan lending. Anytime you add a checklist upon checklist 
upon checklist, our bank is subject to have to spend more time 
on that, and, therefore, we are not able to help as many 
customers as we would like.
    Mr. Williams. If I could follow up, we have had to go to a 
full-time employee just for HMDA reporting in anticipation of 
the expanded areas we need to report on.
    Mr. Fenderson. Of specific note, I would say that 
currently, HMDA data is collected on banks that are $43 million 
and larger in size. And that is a--I don't know when that was 
enacted, but it is probably not a modern number. That probably 
should be looked at. And, I think, does 25 or more mortgage 
loans a year, which is not modern.
    Mr. Fitzpatrick. I am out of time.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Washington, Mr. 
Heck.
    Mr. Heck. Thank you, Mr. Chairman.
    I actually am not satisfied to wait for entry into the 
record the answer to Mr. Sherman's question, so I want to take 
you back to it, if I may.
    I think where he ended when his time ran out was, is it 
true when there has been a breach of a retailer's system that 
you, the financial institutions, are on the hook to make the 
consumer whole?
    Mr. Williams. Yes.
    Mr. Fenderson. Absolutely. We spent $8,000 because of the 
Home Depot breach.
    Mr. Heck. How much?
    Mr. Fenderson. $8,000.
    Mr. Williams. We spent a great deal more than that.
    Mr. Miller. We spent more that $150,000 on the Target 
breach.
    Mr. Williams. It was significant.
    Mr. Levitin. I think it is actually a little more 
complicated. Consumers--
    Mr. Heck. I am going to get there.
    Mr. Levitin. Okay.
    Ms. LaMascus. Ours was about $42,000.
    Mr. Heck. Thank you for that.
    So what I hear from retailers is that they have to pay 
fines to the credit card companies, which they believe are 
intended to help cover some of the cost of the loss.
    Mr. Miller. If you can send me the information on where I 
can get that recovery, I would be very interested--
    Mr. Heck. That is what I am getting at. Is it true that 
retailers pay fines to credit card companies when there has 
been a breach? And if it is true, have any of your ever seen 
any recovery?
    Professor, if this gets to where you were going to--
    Mr. Levitin. Yes. It is true. If you want to see something 
published on it, I have an article for which I am happy to give 
you the citation about this.
    The consumer liability is capped by the Truth In Lending 
Act--
    Mr. Heck. Right.
    Mr. Levitin. --and the Electronic Funds Transfer Act. So 
the consumer is not going to be out of--in most situations, the 
consumer will not be out of pocket.
    There are considerable collateral losses that occur in a 
data breach. Some of those get eaten by the financial 
institutions. A lot of them get eaten by merchants. Walmart's 
estimate for what a data breach costs is something like $100 
per consumer.
    Mr. Heck. Does their loss--
    Mr. Levitin. When it is millions, you are talking about 
real money there, when it is millions of records.
    Mr. Heck. Okay. But I heard all of them say they have not 
recovered from--
    Mr. Fenderson. Yes, we are not Walmart, unfortunately, and 
we don't have the dollars that they do.
    Mr. Heck. Yes. Well, I am getting back at his point, 
though.
    None of them said they got any recovery. You said it was--
    Mr. Levitin. Oh, no, no. I am saying Walmart--usually, it 
is the retailer that eats most of the cost of the data breach. 
Banks eat a small bit of it, but it is mainly the retailers.
    Mr. Williams. I would disagree. We suffered--
    Mr. Miller. The biggest cost is reputation risk that--it is 
our card that the member swiped, and we are the ones that have 
to call them. We can't tell them which retailer it was that 
caused the data breach to their information--
    Mr. Heck. All right.
    Mr. Miller. --so we are the ones that take the reputation 
hit.
    Mr. Williams. And we have to replace all the cards that 
have been breached, not just the ones that actual fraud has 
been perpetuated on.
    Ms. LaMascus. And Walmart is not protecting our members. We 
are.
    And I agree with whoever said it down there, our members 
want to know who did this, who caused it, because they don't 
want to do business there anymore, and we can't tell hem.
    Mr. Levitin. There are technology changes that--
    Mr. Heck. I have more questions and limited time, but I do 
think that this exchange indicates: one, a problem; two, a 
complexity to the problem; and three, a very worthy subject of 
consideration.
    I just want to note for the record that there are other 
committees in the House of Representatives taking this up. It 
would be, I think, nice, if I can use this as a friendly 
suggestion, that this committee that has significant interest 
in the financial sector could exam it from the standpoint of 
its impact on you.
    Professor, I read your testimony, I listened, and you make 
a case. But I am wondering if you would at least acknowledge 
that there are significant compliance costs, whether or not 
that is the reason, as you argue against--and I followed that 
logic chain--there are significant compliance costs placed on 
small institutions.
    Mr. Levitin. Absolutely. And I appreciate that you picked 
up on the subtle difference between whether it is the real 
cause of these institutions' problems or whether--I make no 
argument that there are no compliance costs. There are serious 
compliance costs.
    Mr. Heck. Thank you. That is all I needed.
    Lastly, for anybody from the institutions, I am concerned 
that smaller institutions are being required to exit certain 
lines of business and become more specialized, and therefore 
more concentrated.
    I wonder if that is your perspective? And, do you think it 
may have a material impact on safety and soundness if you are 
becoming more concentrated as economies of scale disallow, 
prohibit, or impede your entry to other areas?
    That is a great question to finish on with my time running 
out.
    Mr. Miller. The short answer is, yes, it is going to cause 
some credit unions to get out of mortgage lending because of 
the QM rules. So they are going to be more concentrated in car 
loans and credit cards.
    Mr. Heck. Is your safety and soundness affected?
    Mr. Miller. Yes. When you take away the ability to have 
multiple lines of business and concentrate them in fewer, you 
create more risk.
    Mr. Heck. Thank you, Mr. Chairman.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Georgia, Mr. 
Westmoreland.
    Mr. Westmoreland. Thank you, Mr. Chairman.
    Professor, are you still on the Consumer Financial 
Protection Bureau's Board? Are you still a member of that?
    Mr. Levitin. I am a member of the Consumer Financial 
Protection Bureau's Consumer Advisory Board, yes.
    Mr. Westmoreland. Okay. So you do represent--
    Mr. Levitin. No, I do not, sir. I am here today solely in 
my individual capacity. I have no authority whatsoever to speak 
for the Advisory Board, and the Advisory Board is an 
independent body from the Bureau itself.
    Mr. Westmoreland. But you are on that Board, correct?
    Mr. Levitin. I am on the Board, as well as the president of 
American Express, as well as the president--
    Mr. Westmoreland. No, that is okay. I just wanted to know 
if you were. I don't want to know the rest of them.
    The gentleman from Missouri made a great analogy about the 
NFL changing rules to keep players from getting hurt. It seems 
to me the CFPB is protecting the people in the stands while the 
players on the field are getting clipped and getting hurt. And 
so, if your objective or if our objective is to save the 
players on the field, I think these gentlemen and the lady are 
the players on the field.
    I want to ask a question, and start with you, Mr. 
Fenderson, and we will just go straight down the line.
    If an unbanked person came into your bank on a Monday and 
said that his or her car was broken down on the side of the 
road, and they needed $150 to get it fixed, and they would pay 
you back Friday, would you make that person that loan?
    Mr. Fenderson. Yes, we would. We have a small-dollar loan 
program.
    Mr. Westmoreland. And what would be the charge on that?
    Mr. Fenderson. For unsecured lending, 18 percent.
    Mr. Westmoreland. How much?
    Mr. Fenderson. 18 percent.
    Mr. Westmoreland. 18 percent.
    Would you, the credit union, make that?
    Mr. Miller. Yes, we would. And I don't know the specific 
rate, but I can get back to you on that on a follow-up.
    Mr. Westmoreland. Okay.
    Mr. Miller. I have another comment regarding Mr. Cleaver's 
testimony and Mr. Green's testimony. I believe a $50 billion 
bank or credit union looks a lot more like a $10 billion bank 
than any way that it would resemble a $1 trillion mega-bank.
    Mr. Westmoreland. Okay.
    Mr. Williams?
    Mr. Williams. Yes. We don't have a minimum loan. We would 
make it. And, in Texas, we would make it at 17\1/2\ percent 
because 18 percent is usurious.
    Mr. Westmoreland. Ma'am?
    Ms. LaMascus. Yes, we would make it, and it could be up to 
18 percent.
    But I would like to make one other comment, as well. We are 
talking about the cost of regulation on our institution, and 
that is a serious concern. But it does also impact the 
consumer, because all the procedures, all the processes, all 
the checklists, and all the things that we can and can't do get 
between us and our members. We can't really spend that time 
with them finding ways that we can better help them with their 
financial situation because of regulations.
    Mr. Westmoreland. Professor, would 18 percent be a fair 
interest rate for that?
    Mr. Levitin. Sure. I don't have any problem with 18 
percent.
    Mr. Westmoreland. Okay.
    Mr. Levitin. That is actually by Federal regulation that 
they are capped at 18 percent.
    Mr. Westmoreland. So you--
    Mr. Levitin. I want to say, I liked your analogy with the 
ball game, protecting the fans. We do that. When you go to a 
hockey game, they have a wall so the fans don't get hit by a 
puck.
    Mr. Westmoreland. Thank you.
    Mr. Fenderson, you made reference to several of the bills 
that our colleagues are going to introduce. I am planning on 
reintroducing the Financial Institutions Examination Fairness 
and Reform Act. I don't know if you are familiar with that, but 
Mrs. Capito, who is now in the Senate, had introduced that in 
the last Congress.
    And there is a section in there that talks about non-
accrual loans, where you have a loan that is current but then 
the regulators come in and tell you for certain reasons, you 
have to put it in a non-accrual.
    Does that hurt your bank when you have to do that?
    Mr. Fenderson. It does. It is a tremendous drain where we 
were accruing for that loan and, therefore, recognizing the 
income, and, therefore, we are not able to recognize that 
income.
    Mr. Westmoreland. Mr. Williams?
    Mr. Williams. Yes, I agree, clearly.
    Mr. Westmoreland. Would you have any problem with that 
being in the bill, these regulations that say a current loan 
would have to be some way put into a non-accrual status--would 
not have to be put into a non-accrual?
    Mr. Fenderson. What we would like to have is the ability to 
manage, and manage our own risk. And by doing that, if we think 
that loan is a problem, we will probably place it in non-
accrual on our own.
    Mr. Westmoreland. Okay.
    Mr. Williams?
    Mr. Williams. We would have a very similar situation. We 
would think we would have already identified it and we wouldn't 
need a regulator to do so.
    Mr. Westmoreland. Okay.
    Thank you, and I yield back, Mr. Chairman.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from California, Mr. 
Vargas.
    Mr. Vargas. Thank you very much, Mr. Chairman. I appreciate 
the opportunity to speak.
    I am also happy that my colleague from Missouri has left, 
because I was a 245-pound lineman and linebacker.
    But I guess the only thing I--and I am not trying to make 
any points here today, so I don't have any bones to pick, other 
than one for Latin. I think you were looking at ``post hoc ergo 
propter hoc.'' That is the logical fallacy that I was thinking 
that you were thinking of when you were thinking of ``after 
this, therefore because of this.''
    Mr. Levitin. You got it. And what is really embarrassing 
about this is, back in 8th grade, I won a Latin competition.
    Mr. Vargas. Oh, okay.
    I listened to all the testimony today, and I think we are--
there is a lot of goodwill, I think, in trying to figure out 
how to treat smaller financial institutions differently and 
whether the exemptions that exist now in the CFPB are robust 
enough, really, to handle their problem. And it seems that the 
testimony here is saying, no, they are not. They haven't gone 
far enough.
    Professor, why don't you comment on that? Because I think 
that is what we are getting to here, that you can't treat a 
bank with an ``M'' the same as one with a big ``B,'' when you 
talked about $60 billion or $60 million. They are different 
banks.
    Mr. Levitin. Oh, absolutely, I would agree with you. I 
think I am trying to make--there are two points I would make. 
The first is that yes, there are real--regulation causes 
difficulties for smaller financial institutions. It is not 
their main problem, but it does cause difficulties for them. We 
should be thinking about ways to ease their regulatory burdens. 
We need to do it in a way that it doesn't cost consumers 
important protections. The current way regulations work right 
now is we have a table full of representatives of regulated 
depositories. They are not the only actors in the market. There 
are also non-banks, and the non-banks are subject to the same 
statutes.
    So for example, the Qualified Mortgage rule, which is an 
exception to the ability--that isn't just for banks and credit 
unions. It is also for the hard money lenders that have 
historically been rather predatory in their lending. It would 
be, I think, a totally reasonable thing to make clear by 
statute that the CFPB could exempt regulated depositories and 
credit unions from certain rules--the CFPB doesn't think that 
it has that authority currently. That would be a sensible way 
to proceed, and then let the agency exercise more discretion 
about this.
    Mr. Vargas. I think we need to look at that, because I 
listened to Mr. Fenderson, and I understand his issue. I think 
he is here saying, we have a lot of people I could really loan 
to, and the bank should be loaning to them, but I really can't 
at this moment. The regulations that are on me are too rough; I 
would have to hire another person. It is very costly. I can't 
do that.
    I actually represent the border in California, and we have 
our own special set of problems there because of potential 
money laundering. A lot of the big banks are going out of that 
area because of those regulations, so I do think that there is 
something that has to be done and maybe there is some middle 
ground here to be reached.
    Mr. Levitin. I think it is important to look at the size 
threshold, $50 billion is a very, very large bank. $10 billion 
which is often used--for $10 billion, you could buy the 
Cowboys, the Patriots, and the Giants, and have some money to 
spare. You would own three different football teams, but that 
is not a community bank.
    Mr. Vargas. No, I understood that. In fact, some of the 
questions--
    Mr. Miller. Can I make a comment on that? The assets of a 
$10 billion credit union do not represent the equity of a $10 
billion dollar credit union. They are more like $1 billion in 
assets; they can't go buy the Patriots.
    Mr. Vargas. In fact, I think that is why the nature of the 
institution is important. I think that is what they were 
getting to when the questions were being asked earlier--is a 
$50 billion bank a community bank?
    Mr. Miller. It looks a lot more like a community bank than 
a $1 trillion mega-bank with hundreds of thousands of 
employees.
    Mr. Vargas. Thank you, sir. I do understand that. But I 
think that is why the question was difficult. Mr. Fenderson, 
you wanted to say something?
    Mr. Fenderson. I would say, again, the emphasis has to be 
on the business model. Regulators are well-trained to do their 
jobs. I think Congress can help make sure they are put in a 
lane where they get the flexibility to regulate us the way we 
need to be regulated, based on our business model and the risks 
that we take.
    Mr. Vargas. I believe someone else had their hand up.
    Ms. LaMascus. Yes, thank you. In my testimony, I referred 
to credit unions being, regardless of size, a cooperative 
institution organized for the purpose of promoting thrift among 
its members and creating a source of credit for provident and 
productive purposes. There is not a thing in there that says I 
should be having to spend 25 or more percent of my time 
figuring out regulation and implementing them. Dodd-Frank gave 
CFPB the exemption--
    Mr. Vargas. I don't want to cut you off, but I don't want 
to go over my time.
    Ms. LaMascus. Thank you.
    Chairman Hensarling. The gentleman yields back. The Chair 
recognizes the gentleman from Illinois, Mr. Hultgren.
    Mr. Hultgren. Thank you, Mr. Chairman. Thank you all so 
much for being here. I appreciate your time and your input in 
this very important issue, just to discuss Dodd-Frank and 
absolutely necessary regulatory relief for community banks and 
credit unions. I have come to strongly believe that Dodd-Frank 
is damaging our economy and is slowing our Nation's economic 
recovery.
    Dodd-Frank's current regulations and guidelines span 8,231 
pages. I think that is just 60 percent about of what is coming. 
Our Nation's job creators will spend $60 million labor hours 
and employ 30,000 workers to navigate this bureaucratic 
minefield.
    Unfortunately, community banks and credit unions which help 
people access the American dream have been disproportionately 
hurt by Dodd-Frank. These institutions provide almost half of 
small business loans and serve 1,200 rural counties that 
otherwise would have limited options. Without them, as we have 
heard today, many responsible Americans would not be able to 
own a home, start a business, or preserve a family farm. 
Community financial institutions depend on personal 
relationships and local knowledge of their community to lend. 
This means they can tailor-make loans to fit their customers' 
needs.
    This lending model actually works. These lenders know your 
story, know your business, and know exactly what kind of loan 
you need. Large banks often can't follow that lending model. 
Their size forces them to make simple, plain vanilla loans, and 
disproportionately consult statistics like income or credit 
score to evaluate borrowers.
    Our economy absolutely needs both kinds of lending. 
Unfortunately, parts of Dodd-Frank target the relationship 
lending model by forcing these smaller institutions into 
regulatory straitjackets, tailor-made for big banks. For 
example, in my home State of Illinois, Robert Smith of Soy 
Capital Bank and Trust Company has told us that the Qualified 
Mortgage rule has reduced their ability to make mortgage 
exceptions to people with unique circumstances, even though 
they can afford the loan.
    Real lives are disrupted along the way as banks reduce 
lending, merge with competitors or shut down. Thankfully, there 
are bipartisan solutions to provide much-needed relief to 
community banks and credit unions. My constituents in the 14th 
Congressional District of Illinois are desperate for real 
solutions here, so I am grateful for the opportunity to explore 
them with each of you today.
    I am going to address my first question to Mr. Williams, 
and then if Mr. Fenderson, Mr. Miller, and Ms. Bosma-LaMascus 
could also comment. Proponents of regulatory relief can be 
painted as being against consumer protection and eager to 
return policies that cause a financial crisis. I find this 
narrative ridiculous, including when it comes to regulatory 
relief for community financial institutions.
    Consumers need regulatory protection. We all agree with 
that, but these institutions were not the cause of the 
financial crisis such as subprime lending, securitization or 
derivatives. Will targeted regulatory relief for small banks 
and credit unions return us to policies that cause the 
financial crisis, do you think? I will start with Mr. Williams.
    Mr. Williams. It would not. It is a difficult question to 
answer, Congressman, but we need the relief so we can provide 
the services to our customers. I agree with everything you have 
said. We know our customers and we are going to try to find 
ways to make the loans. What has happened is examples in Dodd-
Frank under QM have made it difficult for us to approve those 
credits.
    Mr. Fenderson. The flexibility to do our jobs and serve the 
customers that we serve is all we are asking for. And that 
obviously comes in the form of relief because of the unintended 
consequences that we deal with. Let me be clear, small 
institutions, as everyone knows, are not regulated by the CFPB. 
However, the rules that they regulate create a playing field in 
which we have to participate.
    Mr. Hultgren. Let me get on to my next question--probably 
you all would echo similar things here. This is personal for 
me--my family owns a funeral home, I grew up in a family 
funeral home, and I am convinced that my mom and dad would not 
have been able to purchase that funeral home in the mid-1970s, 
but for a local community banker who saw something special in 
them. The idea of judgment, being able to know a person, know a 
community, and be able to make a decision, Dodd-Frank takes 
that away, takes that ability away to be able to know a 
customer, have a business, not a model, know a community, and 
be able to make those decisions. To me, that is tragic.
    I think it also is reflected in the fact that the lowest 
number of business startups that we are seeing in 3 decades is 
part of this problem.
    Let me touch quickly on, community financial institutions 
don't need the same regulations as large ones. As Federal 
Reserve Governor Daniel Tarullo has said, many rules and 
examinations that are important for institutions that are 
larger do not make sense in light of the nature of the risk to 
community banks.
    A question would be, could we have some sort of tiered 
regulation, should we give Federal Reserve or other regulatory 
agencies clear legislative authorization? We just have a few 
seconds, so if any of you have any thoughts?
    Mr. Miller. The short answer is yes, because we didn't 
create the problem, and all of us combined as small community 
banks and credit unions don't add up to the systemic risk 
created by the large banks.
    Mr. Williams. Absolutely, yes.
    Mr. Hultgren. My time has expired. Thank you for being 
here. I know it takes courage sometimes to come out and talk 
about these things. We need your voice. I yield back to the 
chairman. Thank you.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentleman from Michigan, Mr. 
Huizenga, chairman of our Monetary Policy and Trade 
Subcommittee.
    Mr. Huizenga. Thank you, Mr. Chairman. I appreciate it. And 
gentleman, I'm sorry, but ironically, I had to step out to 
introduce a constituent at the Small Business Committee, which 
is dealing with conflicting regulations from the EPA and the 
Department of Energy. This is the frustration that I have, is 
we have so many of those circumstances, even here in the 
financial services world.
    Mr. Fenderson, it struck me, you were discussing how 
smaller institutions are exempt; we know that, right? But it 
sets a new bar, doesn't it? It sets a new regulatory bar. When 
we had Mr. Cordray in here earlier, I was exploring some of 
this with him and expressing to him why many of the companies 
that I talked to in Michigan want to talk anonymously. He 
seemed a little confused by that, why anybody would want to be 
anonymous in their criticism. I think anybody who has dealt 
with that knows exactly why you want to be anonymous on that. 
But he couldn't seem to understand that was the new floor that 
was being set, the new bar that was being set. And I think that 
is something we have to be very diligent about.
    I want to hit a little bit on Qualified Mortgages. And we 
have examples, I have one here from Michigan, anonymous, as you 
can imagine. Sixty percent of their mortgages are to members of 
the credit union, members with under a 600 credit score, but 
they charge the same interest rates, and this is in a small, 
poorer, rural area, and they are looking at dropping even 
offering those credit opportunities. A closing fee of $50 plus 
whatever a third-party vendor charges. But suddenly they are 
finding these criteria and they are not matching up. I am 
curious for any of the four of you, are you going to be 
offering non-Qualified Mortgages, or if not, why not? You have 
talked a little bit about QM.
    Mr. Williams. Congressman, we do offer them, we do offer 
non-QM loans.
    Mr. Huizenga. And will you continue to do that?
    Mr. Williams. Yes, we will continue, but that doesn't 
matter. Almost all of the banks are dropping out of it because 
they are fearful of not being able to obtain the safe harbors 
that QM offers. The important thing is we need to get QM 
dropped on portfolio loans that we underwrite, and we are 
willing to accept that credit risk.
    Mr. Huizenga. Any others?
    Mr. Fenderson. We absolutely will continue to make those 
loans, it is a market that we serve. It is an expectation that 
we have and a part of the role that we play in the communities 
we serve.
    Mr. Huizenga. Others?
    Mr. Miller. We will do about half that we were before, 
because we, frankly, are fearful of the regulatory scrutiny.
    Ms. LaMascus. We are not yet within the requirements for 
it, but we will be. And I would anticipate that we would make 
QM loans. The thing that is fortunate for us is we will have 
time to see how case law plays out on this and make a better 
business decision at that time, but that is the problem is 
trying to determine what is the level of risk?
    Mr. Huizenga. Mr. Miller, you might have hit on, what are--
my follow-up question is, what are the costs to your members 
and/or your customers? You are saying that maybe half of the 
people you would have serviced, you are not going to be able 
to, because you are afraid of that additional scrutiny and 
maybe from some of the others--the trade-offs that--
    Mr. Miller. We may even lose a relationship because we made 
a business decision, not in Oxnard, California, but it was made 
for us in Washington, and the member gets mad at us because we 
said no, when we said yes to them the last 3 times they have 
come in to do a mortgage over the last 20 years. That is 
frustrating. They have to go somewhere else and it will 
probably cost them more.
    Mr. Huizenga. My colleague--
    Mr. Miller. If they can get it at all.
    Mr. Huizenga. --Mr. Hultgren was talking about his small 
family business. I have a small family business, a third-
generation as well. I am really concerned about what impact 
recent mortgage rules are going to have on small businesses in 
the community and their ability to be small business owners, to 
be community leaders. Anybody on the panel?
    Mr. Williams. I would like to follow up and say that a lot 
of these loans we make are nonconforming markets that are 
rural, and if we don't make them, nobody will.
    Mr. Huizenga. So you are willing to take that additional 
risk to make sure that you are servicing your community?
    Mr. Williams. Yes, and we understand the risk. We 
underwrite it and that is what we do.
    Mr. Miller. I would say we also, everyone at this table is 
probably good at underwriting. Over a 6-year period beginning 
in 2009, we are a $400 million credit union, we do a lot of 
mortgage loans, we had a total of $339,000 of charge-offs for 
mortgages, less than one-tenth of 1 percent. I would offer a 
thought that we respectfully appreciate the help, but I think 
we are pretty good at underwriting mortgage loans. We don't 
need more regulations to help us do that.
    Mr. Huizenga. Mr. Fenderson, quickly?
    Mr. Fenderson. I just wanted to quickly say that we will 
make small business loans whether it pulls us into the question 
of adding HMDA data or not. That is the only way we understand 
the rule to suggest that we bring in QM, because a business 
loan is not a consumer transaction.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentleman from North Carolina, Mr. 
Pittenger.
    Mr. Pittenger. Thank you, Mr. Chairman, and I thank each of 
the witnesses for your public service and for being with us 
today. Last week, I had the occasion of meeting with a small 
community bank in my district, with the president and the 
credit officer there. Mr. Chairman, for the record, I would 
like to introduce a memo that they have provided.
    Chairman Hensarling. Without objection, it is so ordered.
    Mr. Pittenger. The discussion we had was frankly very 
informative but very alarming to appreciate the real challenges 
and difficulty that each of you go through. I am going to read 
a bit of his comments. I videotaped it, and then we have 
transcribed the comments. It was so amazing to me what, 
regrettably, he had to say. He said, ``We are a $145 million 
bank, with 2 branches and 27 employees. We all spend time with 
customers trying to build our business. But the sheer 
complexity in the mortgage system makes it almost impossible 
for an entity of our size to appropriately meet all these 
regulations. This is the ability to repay a Qualified Mortgage 
rule, small entity guide''--and he held it up, this guide is 56 
pages.
    There have been, since it was published on August 14, 2013, 
4 pages of additional rules that have been added. If based on 
this guide you meet certain criteria, you have to provide an 
escrow account for an individual's taxes and insurance on their 
mortgage. If you want to do this, there is another small entity 
guide for the TILA-RESPA. That is another 91 pages, and he held 
it up. If you want to pay your mortgage originator, then you 
have the 80-page small entity guide, and he held that up for 
the 2013 loan origination.
    For all of these guides, there is a paragraph that is 
contained in all of it. There are other guides that apply to 
the mortgage loans as well. That basic paragraph says, ``This 
guide's summarizes the ATR QM rule, but is not a substitute for 
the rule.'' Essentially, it says you must refer to the final 
rule. The final rule is 185 pages long. The final rule then 
refers to the Act. The Act, of course, is thousands of pages. 
As I said earlier, it is longer than the Bible. So our ability 
to understand all of these rules and appropriately follow them 
is very difficult to do. And he said, ``Congressman, do 
whatever you can. Help us out.''
    I would just like to know if this is your experience as 
well, Mr. Fenderson, Mr. Williams, and any of the rest of you, 
Mr. Miller?
    Mr. Fenderson. I would say that you explained a very real 
scenario in which as a banker, we not only--our credential 
regulator is the OCC. They have regulation that they are 
sharing with us that we have to understand and interpret, and 
then we have the rules from the CFPB that we have to learn and 
understand. And so that creates a volume of information such 
that if you have 27 employees, which happens to be exactly what 
we have, it becomes difficult. We only have one person who is 
dedicated to compliance. We had to add that person in order to 
try to be prepared for the regulations that are coming down the 
pike.
    Mr. Pittenger. Another cost burden to you.
    Mr. Fenderson. Absolutely.
    Mr. Pittenger. Mr. Williams?
    Mr. Williams. Clearly we are seeing in our area, 11 percent 
of banks are just getting out of the business that once were in 
the business of making single-family residential loans. We had 
the wheel invented, we are staying in it, but the point is, we 
have a long relationship with our rural customers. We 
understand them, we know who is going to repay and who is not, 
and we are going to stick with them. That doesn't matter, too 
many banks are getting out of it simply over, we are not going 
to make QM loans.
    Mr. Pittenger. How many man-hours would you say a year is 
added to your compliance requirements?
    Mr. Williams. We had one compliance officer 5 years ago; 
today, we have six.
    Mr. Pittenger. Mr. Miller, do you want to make a comment?
    Mr. Miller. We haven't grown our compliance department as 
aggressively as Mr. Williams' bank has, but we are heading down 
that road.
    Ms. LaMascus. NCUA has estimated that it will take 40 hours 
to review the 450-page proposal regarding our call reports 
under the new risk-based capital they are proposing. When you 
mentioned the Bible, it made me think of something that I was 
thinking about yesterday: Envision 450 pages. That is almost a 
ream of paper that you get in a standard package. Good luck! 
Someone might be able to read it in 40 hours, but to understand 
it, figure out how it is going to impact your operation and all 
of the changes you have to make, 40 hours is nothing toward the 
additional labor this costs. I was thinking when I thought of 
that much paper, of the Old Testament. It is huge, and 40 hours 
does not adequately describe the number of hours.
    Mr. Pittenger. Longer than the Bible, but none of the good 
news.
    Ms. LaMascus. That is right, that is right.
    Chairman Hensarling. Regrettably, the time of the gentlemen 
has expired. See if you can top that. The gentleman from 
Kentucky, Mr. Barr, is now recognized.
    Mr. Barr. Thank you, Mr. Chairman, and thank you to the 
witnesses and the organizations that you all represent for your 
endorsement of several pieces of legislation. We have 
introduced the Portfolio Lending and Mortgage Access Act, the 
HELP Rural Communities Act, and the American Jobs and Community 
Revitalization Act.
    The law professor's testimony today was that Dodd-Frank and 
regulations are not the cause of the decrease in the number of 
community banks and credit unions in America. He has gone to 
great lengths, it seems, to distinguish between causation and 
correlation. And when I was in law school, I preferred the 
Socratic method to lecture classes. So let's do a little bit of 
Socratic method right here down the row of our witnesses. Since 
the enactment of Dodd-Frank and the Qualified Mortgage rules, 
have your compliance costs increased or decreased, Mr. 
Fenderson?
    Mr. Fenderson. Our compliance costs have increased.
    Mr. Barr. Mr. Miller?
    Mr. Miller. Increased by more than $100,000.
    Mr. Barr. Mr. Williams?
    Mr. Williams. Increased by probably 15 to 20 percent.
    Mr. Barr. And Ms. LaMascus?
    Ms. LaMascus. Increased by at least $250,000.
    Mr. Barr. Have you had to hire more or less compliance 
officers, Mr. Fenderson?
    Mr. Fenderson. More.
    Mr. Miller. More.
    Mr. Williams. More.
    Ms. LaMascus. I have hired two more, and just hired another 
one, and 50 percent of his time will be on compliance.
    Mr. Barr. And since the finalization of the Qualified 
Mortgage rule, has the volume of your mortgage originations 
increased or decreased?
    Mr. Fenderson. Ours has remained roughly the same, but we 
have not made as many mortgages.
    Mr. Miller. We are also about the same, but we have a lost 
opportunity cost because we have had to turn away 50 members.
    Mr. Williams. Our volume is static, we are making about the 
same number of loans, but we are still turning down loans.
    Ms. LaMascus. Decreased.
    Mr. Barr. And has the cost of borrowing for your customers, 
if you are remaining static, increased or decreased?
    Mr. Fenderson. Unfortunately, we are in a heavily 
competitive market, so it has not gone up cost wise, per se, 
because in order to get that loan on the books, we have to be 
competitive.
    Mr. Miller. We have also had to be competitive with rates, 
so our margins have suffered.
    Mr. Williams. Our margins have suffered, but the costs have 
gone up, primarily on appraisals.
    Ms. LaMascus. Costs have gone up and margins have declined.
    Mr. Barr. And my final question, do higher compliance costs 
and the compromising of your business model that you had before 
Dodd-Frank make it more likely or less likely that a small 
community bank or credit union like yours will fail?
    Mr. Fenderson. I would say that most institutions that are 
well-run would have an opportunity to merge before they fail.
    Mr. Barr. Okay. Merge or fail, that is a good point.
    Mr. Fenderson. Yes.
    Mr. Miller. More likely.
    Mr. Williams. More likely.
    Ms. LaMascus. More likely.
    Mr. Williams. As a matter of fact, we did merge, 
specifically because we had two banks, and with the cost, we 
felt like the economies made a lot of sense.
    Mr. Barr. With respect to the portfolio lending idea that 
we have proposed, the professor blames portfolio loans on the 
financial crisis. What do you think was the principal cause of 
the financial crisis? Portfolio loans or the originate to 
distribute model that was fueled by Fannie Mae and Freddie Mac 
that allowed for purchases of billions of these subprime 
mortgages, unlike portfolio loans that were not properly 
underwritten? In other words, just as a summary, what was the 
root cause of the financial crisis? Was it portfolio loans, or 
was it GSEs fueling subprime origination? I will just ask Mr. 
Williams on that one.
    Mr. Williams. GSEs, subprime.
    Mr. Barr. Okay. Does anybody disagree with that?
    Mr. Levitin. Yes, sir.
    Mr. Barr. Well, besides the professor. We heard your 
testimony, sir.
    Mr. Levitin. I don't think you actually characterized what 
I said correctly.
    Mr. Barr. We heard your testimony.
    Mr. Levitin. You mischaracterized it. I did not say 
portfolio--
    Mr. Barr. I heard your testimony. I have one minute left. 
Let me just ask you this about Professor Levitin's arguments 
against the bill and Director Cordray's as well. What do you 
think the likelihood is that your institutions would make ill-
advised loans if you have to retain the credit risk? Remember, 
this is on your members and on your shareholders. Is it more 
likely that you would make ill-advised loans if you know you 
have to retain the credit risk? Mr. Fenderson, we will start 
with you.
    Mr. Fenderson. The mortgages that we make and hold in 
portfolio are obviously loans that impact the long-term nature 
of our balance sheet and its quality, so we will continue to 
make those loans.
    Mr. Barr. Mr. Miller?
    Mr. Miller. It is less likely. Once again, I offer our 
mortgage charge-off figure, over a 6-year period for a $400 
million credit union, was $339,000, less than one-tenth of 1 
percent. We are pretty good at evaluating risk in our 
portfolio.
    Mr. Barr. Mr. Williams, in anticipating your similar 
response, could you also add to that? Are you in a better 
position to assess the credit risk of your customers as a 
community bank knowing your customers than the Consumer 
Financial Protection Bureau in Washington?
    Mr. Williams. Yes, we are, and our business is to make good 
loans.
    Ms. LaMascus. We know our members, we make good loans, and 
we don't differentiate with our underwriting whether we are 
going to keep them in portfolio or sell them off in the 
secondary market. We use equally, credible underwriting.
    Mr. Barr. My time has expired.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentleman from Pennsylvania, Mr. 
Rothfus.
    Mr. Rothfus. Thank you, Mr. Chairman. Let me start by 
thanking you all for appearing before the committee this 
morning and sharing your stories with the American people. Your 
experiences are important because they are illustrative of the 
problems that come about when you have a one-size-fits-all, 
Washington-knows-best approach to regulating community banking.
    Instead of institutions making reasoned decisions based on 
actual knowledge and long-standing relationships with their 
customers, the elites here in Washington, D.C., would rather 
have everyone fit into predetermined boxes or not have access 
to banking at all. This mindset has a direct impact on the 
ability of institutions to serve their local communities, 
particularly those in need. It dictates whether an institution 
will offer important services like free checking and overdraft 
protection, whether it can offer a mortgage for a first-time 
home buyer, or whether it can extend a loan to a promising 
startup business.
    In my district in Western Pennsylvania, for example, we 
have a credit union in Johnstown that ran into regulatory 
barriers when it was trying to rescue a deserving single mother 
from a mortgage that had been sold 4 different times with the 
interest rate increasing with each new lender.
    We also have a community bank in Pittsburgh that provides 
loans to small businesses. The institution does not offer 
prepackaged loans or loan terms, but rather every loan is 
specifically designed considering the facts, circumstances, and 
risks.
    The bank tried to set up a compensation system for its loan 
officers that rewarded them for building and maintaining 
relationships with their consumers. The FDIC, however, thinks 
that the system violates CFPB lending regulations, and the CFPB 
won't give the banks a straight answer.
    In the meantime, the bank isn't making many of these loans, 
and local small businesses are at a block. Finally, we have a 
community bank in Monroeville that recently calculated the 
amount of time that the institution had devoted to studying, 
analyzing, making changes, and training staff to comply with 
new CFPB regulations. The bank determined that it took over 
2,000 hours, in other words, it took more than a year. Every 
hour spent doing this was nonproductive and took the bank staff 
away from meeting with customers and serving its community.
    To be clear, these institutions and the consumers they 
serve had nothing to do with the financial crisis, yet they are 
the ones that are being harmed the most by Dodd-Frank and the 
regulatory avalanche that has followed. And they are the ones 
that will suffer if the President continues to promise to veto 
any legislation that attempts to fix this under a misguided 
belief that Dodd-Frank is the next thing to gospel. Western 
Pennsylvanians want to say yes to commonsense reform, but 
Washington just continues to say no.
    Ms. Bosma-LaMascus, and also this is for Mr. Fenderson, 
since the passage of Dodd-Frank, fees have gone up for many 
products and services, making it increasingly difficult for 
middle-class and lower-income Americans to access banking 
services. For example, in 2009, 76 percent of banks offered 
free checking, but now, only 39 percent of banks offer that 
service. And the mandatory account balance to qualify for free 
checking has increased.
    Similarly, 76 percent of banks offered bank accounts free 
of charge in 2009, but this number has dropped to 38 percent 
following the passage of Dodd-Frank. I think that we would all 
agree that more needs to be done to ensure that people are not 
shut out of the mainstream banking system. So I would be 
interested to hear about your own experiences on this issue and 
how Dodd-Frank has negatively affected your ability to do this 
and what you are doing in response. Mr. Fenderson?
    Mr. Fenderson. Thank you very much. We have seen a steady 
reduction in what we call non-interest income, that is a source 
tied to overdraft fees and other ancillary fees. We did have to 
repeal and retire our free checking account because we frankly 
had to figure out a way to replace that revenue. The impact to 
the consumer is that they now have to pay for an account that 
they did not have to pay for before. So as an institution, 
unfortunately, we see the burden of our need to generate a 
return, which is a part of the safety and soundness earnings in 
order to continue to be in business.
    Mr. Rothfus. Ms. Bosma-LaMascus?
    Ms. LaMascus. We grandfathered our free checking accounts, 
so our members who already had them still have them. But also, 
in order to keep the cost down for our consumer members on a 
couple of our other share draft type checking account types, 
our members, when they use their debit card, can actually earn 
money back. So that is how we are able to continue to provide 
additional checking services for them, but we did do that. But 
that is why we have such concerns about debit cards and 
interchange and the fraud connected with them.
    Mr. Rothfus. Thank you, I yield back.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentleman from New Hampshire, Mr. 
Guinta.
    Mr. Guinta. Thank you very much, Mr. Chairman, and thank 
you all for participating in this morning's hearing. I, too, 
share a deep concern about the regulatory environment and the 
burdens that affect my State and the credit unions and 
community banks that try to do business and provide access to 
credit to many families across New Hampshire. My State has 
about 26 different credit unions, and has about 36 different 
community banks. As a matter of fact, New Hampshire is the 
birthplace of the credit union, Saint Mary's Bank.
    I have recently spoken with other bank presidents, Rick 
Wallace from Piscataqua Savings Bank. I want to tell you a 
little bit about his story, and then I want to get some 
comments, both from the professor and from some others. He has 
one branch in Portsmouth, New Hampshire. He is a small $230 
million bank, less than 50 employees. The regulatory compliance 
requirements that have come out of Dodd-Frank have forced him 
to focus on meeting compliance rather than being focused on 
consumer access to credit, according to the bank president.
    He is telling me now that he is only making about half the 
loans that he used to prior to Dodd-Frank. And that his own 
cost analysis has determined that 25 percent of his bank 
resources are now going to compliance. So my question I first 
want to ask the professor is, do you believe that this 
regulatory environment, do you believe that is a true and 
accurate assessment of what he is communicating? And if you do 
agree, do you think that the regulatory environment is actually 
harmful in some circumstances to the actual end-user and 
consumer?
    Mr. Levitin. To answer your question, I have no reason to 
doubt what this bank president says about his lending volume. 
Regarding compliance costs, that is a very subjective and 
difficult measurement. I don't doubt his numbers, I just am not 
sure what they really represent. No one has a good way of 
measuring compliance cost, there is no definitive measure.
    As far as the ultimate question, though, are regulatory 
burdens harming smaller financial institutions? Yes, in some 
circumstances. They have real costs to small financial 
institutions. There are also benefits from some of the 
regulations, and we need to think about the proper balancing. 
You won't see any blanket objection from me to having 
regulatory relief for smaller financial institutions, but I 
think that the regulatory relief needs to be smart, it needs to 
be targeted, and it cannot come at the cost of consumer 
protection.
    Mr. Guinta. Could you identify maybe one or two regulatory 
relief items that we should pursue for small community banks?
    Mr. Levitin. Certainly. One thing that I think should go 
the way of the Dodo Bird are the Gramm-Leach-Bliley privacy 
notices. Nobody reads them. If anything, the only effect they 
have would be to lull consumers into thinking they actually 
have some privacy rights. There is no reason anyone, even the 
large banks, should spend money on giving those notices.
    Mr. Guinta. Ms. LaMascus, could you give me a little idea, 
from your perspective, on the two or three things that we 
should be doing to try to reduce the regulatory compliance to 
your industry?
    Ms. LaMascus. Yes, first, I am glad to hear Professor 
Levitin comment on smart regulations. I think we are making 
progress. If I were to limit to just three out of all the 
opportunities for improvement, NAFCU and member credit unions 
would request legislative capital reform, including 
supplemental capital. We would ask for field of membership 
relief, and that we pursue smarter regulation by requiring 
realistic robust cost and benefit analyses that we could 
provide better feedback and get smarter regulations.
    Mr. Guinta. And do you believe the lending volume decline, 
whether it is community banks or credit unions, is directly 
impacted by regulatory requirements in Dodd-Frank?
    Ms. LaMascus. Yes. I can give you an example.
    Mr. Guinta. Please do.
    Ms. LaMascus. I would like to actually go off of what 
someone said here--I think it was you--about the mortgage 
officers who were being compensated for the relationship and 
that type of thing. I think this is an example of how 
regulations get between the financial institutions and their 
customer members.
    A mortgage officer in a community bank or in a credit union 
is one of the best-positioned persons to know that person's 
financial condition and also to be able to see other ways that 
they can help them make better financial choices and actually 
save them money or enhance their return. So it is unfortunate 
that those people are being prohibited or discouraged from 
being able to further that relationship.
    Mr. Guinta. Thank you. I yield back.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentleman from Colorado, Mr. 
Tipton.
    Mr. Tipton. Thank you, Mr. Chairman. And I thank the panel 
for taking the time to be here. The professor just talked about 
having smart regulations. Yesterday, we had Secretary Lew 
before our committee. I found it a little bit surprising that 
the chairman of the FSOC, in not one of their hearings, ever 
spoke about community banks. Unfortunately, when we are talking 
about smart rules, smart regulations, we see Dodd-Frank roll 
up, and apparently our community banks are simply an 
afterthought when it comes to Washington, D.C., and the impacts 
that we are seeing. Do you think it would be in the interest, 
perhaps, of the Chairman of the FSOC to maybe pay attention to 
the community banks, Mr. Williams?
    Mr. Williams. Yes, I do, because the FDIC finding is that 
94 percent of the banks in the United States are community 
banks.
    Mr. Tipton. Did you know when we are talking about 
regulations, we get focused here obviously on the financial 
services industry. When we look across-the-board, a report came 
out last year which said that $2 trillion is being paid in 
regulatory costs. Ultimately, those costs get passed on to 
consumers, which is stifling.
    Small businesses need opportunities to be able to grow. Is 
it your experience in your community--I visited with First 
Colorado National Bank in Delta, Colorado, a small community 
bank, and they are seeing more businesses shut down. In fact, 
we have a report that just came out that we are, for the first 
time, seeing more small businesses shut down in this country 
than there are new business startups. Is that going to impact 
your ability to be able to help your community?
    Mr. Williams. Are you speaking to me, Congressman? 
Obviously, if we see businesses shut down, that is jobs, that 
is everything. And yes, that is going to hurt our ability to be 
effective in our communities. We are in rural communities that 
are generally non-growth, so any time a business shuts down, it 
hurts the community because we don't have the jobs.
    Mr. Tipton. Thank you.
    Mr. Fenderson. Without question, as small businesses go, so 
does our local economy, and we understand there is an ecosystem 
to ensuring that we all have an opportunity to succeed.
    Mr. Tipton. When we are talking about small community 
banks, often simply as a matter of survival, and you spoke of 
this, Mr. Fenderson, about being able to consolidate, to get 
the economies of scale, I believe, Mr. Williams, that you had 
spoken about it also. We are looking at some legislation right 
now, I believe, Mr. Fenderson, you are already covered under 
this. The OCC has an 18-month exam cycle for well-run banks. 
Would it be sensible, as we see a need for that economy of 
scale, to be able to take up that 18-month cycle for 
examination up to, say, a $1 billion bank, would that be a good 
idea?
    Mr. Williams. Yes, sir, absolutely.
    Mr. Tipton. Would you support that? I know you have 
ambitions to grow that bank.
    Mr. Fenderson. I certainly would, and I think that the exam 
cycle needs to reflect the safety and soundness concerns of the 
business model, and therefore, it would make sense to extend 
that. And also attached to that, some turnaround time with 
respect to delivering the final report.
    Mr. Tipton. Great. I would like to talk a little bit about 
the Federal credit unions as well, a topic we haven't been able 
to cover here today. I recently heard that Partner Colorado 
Credit Union and Pikes Peak Credit Union were forced into a 
difficult situation right now. Partner Colorado Credit Union is 
close to surpassing the 100th international wire remittance in 
2015, primarily due to 2 members who send wires twice a month. 
They must now decide whether or not to offer international 
wires to make a large change to their wire platform to become 
compliant with the International Wire Remittance Rules. Either 
way, the credit unions and their members actually lose.
    Mr. Miller, would you like to, maybe, address this first? 
Although I am confident there are several examples of 
burdensome regulations that don't necessarily apply to credit 
unions, can you give us some ideas and discussion on CFPB's 
International Remittance Transfer Rule?
    Mr. Miller. It is another example of majoring in the minors 
and focusing on a problem that really doesn't exist. People 
don't shop for a wire before they walk into the bank or credit 
union to place that instruction and get that money to somebody 
who really needs it. People send a wire because there is some 
kind of emergency or some kind of urgent need for the recipient 
to receive their funds. They are not going to use this half-
hour waiting period to go shop and try to save $10 or $20; they 
want to get the money there, and they want to get it there now.
    Your constituent is looking down the barrel of having to 
double the cost for every one of those transactions that member 
is trying to do, and that is unfair to the consumer.
    Mr. Tipton. Ms. LaMascus? Any comment?
    Ms. LaMascus. We previously did just a few of the 
remittances. Whenever the changes came through, we did research 
it, and we found that for us to be able do it, it would have 
been cost-prohibitive. We could not see our members being able 
to justify, nor us justify doing for them, about $50 to 
transfer $100 or something like that. It didn't make sense.
    Mr. Tipton. It just simply echoes Ronald Reagan's words 
that we need to be frightened if the Federal Government is here 
to help.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentleman from Texas, Mr. 
Williams.
    Mr. Williams of Texas. Thank you, Mr. Chairman, and I thank 
all of you for being here today. I am a small business owner in 
Texas, a job creator for 44 years, a Main Street guy, and in 
full disclosure, I am an auto dealer. And I understand that 
they are squeezing you to get to me, I get it. When a new 
regulation is put into place or a new law is enacted, banks or 
credit unions have to increase the amount of resources they 
devote to compliance. More regulators, I am told, are hired by 
some bankers than loan officers.
    While the stated purpose of these new laws and regulations 
is to protect consumers, the opposite is actually happening. 
Increasing regulation means two things: fewer products; and 
fewer services.
    For example, take Dublin, Texas, the home of Dr. Pepper, 
population just shy of 4,000. Bankers have told me that because 
of regulatory overreach, they won't make loans for homes valued 
at $150,000 or more, much less for $50,000, which is the 
average price in Dublin.
    And who does this impact? We know who it impacts. It 
impacts the seller, impacts the buyer, and the bank trying to 
make the loan. But what about the plumbers? What about the 
carpenters and electricians and local contractors and hardware 
stores that would benefit if we sold a home? So is it goes on 
and on and on. And regulations are not just hurting banks but 
the customers who depend on them.
    And for the customer, relationships matter. My constituents 
want to bank with people they can trust, and that is not the 
Federal Government. And they want a banker to have 
relationships that are built not in a week or a month or a year 
but over a lifetime. And I tell everybody in the Federal 
Government, being a small-business owner, reputation is the 
most important thing all of us have at the end of day, 
something that this Administration just doesn't get.
    Now in Texas, we are not immune to the impact of Dodd-
Frank. The other day, as we have talked about, in Texas alone--
and, Mr. Williams, you will probably back me up on this--we 
have 115 fewer community banks than we did 4 years ago. And 
that is an economy that is the best in the world.
    Mr. Williams. Yes.
    Mr. Williams of Texas. And so we had Secretary Lew here 
yesterday, and we were talking about Dodd-Frank, and he was 
expounding on how great it was and said that we--we had also 
talked about how there is a possibility that he can just, with 
the stroke of a pen, take the $50 billion guys and get them 
out. Even Barney Frank agrees with that. But he thinks he has 
to continue to get Dodd-Frank in full implementation before he 
would do that. And I told him that I would like for him not to 
do that, because if we go that long, we could lose banks, we 
could lose all lending institutions, we could lose businesses, 
and we could lose jobs. So I hope he considers that.
    And then there is the worry and the fervor and the fear 
over fair lending evaluations and the use of disparate impact 
as a viable theory to evaluate all this. It is reportedly 
limiting the number of banks willing to make small-dollar 
loans; we understand that. And as someone who is in the 
automobile business, I am very sensitive to the idea that some 
think that people are given different rates based on race, 
religion, or gender.
    So I support reform in the Consumer Financial Protection 
Bureau's mortgage rules, but I also want to make it easier on 
you to be recognized for your performance and not penalized.
    I guess I would ask a question, really ``yes'' or ``no'' to 
all of you. I want to get back to what Secretary Lew said. 
Should we wait for full implementation of Dodd-Frank, or should 
we try reform it and get you guys out of it?
    Mr. Fenderson. We should reform it.
    Mr. Miller. If it is broke, fix it. Reform it.
    Mr. Williams. We definitely need to reform it.
    Ms. LaMascus. We weren't the bad actors. Reform it. Get us 
out of it.
    Mr. Williams. And it would also help mitigate the costs on 
consumers that we have to pass along.
    Mr. Williams of Texas. Right.
    Mr. Levitin. I think it really depends on the provision.
    Mr. Williams of Texas. Okay. Thank you.
    Now, we have talked, too, about--one of the questions I had 
was how much this is affecting your bottom line. We have talked 
a lot about that.
    I heard a thing the other day that says it takes more man-
hours to meet Dodd-Frank now, halfway through it, than it did 
to build the Panama Canal. So that puts it in perspective.
    We also just heard from the professor that it is hard to 
measure compliance costs in a business. I would think that--is 
that right, Mr. Miller?
    Mr. Miller. That is correct, sir.
    Mr. Williams of Texas. But you also might--one way to 
measure this is it is cutting into your bottom line--
    Mr. Miller. Yes, it does.
    Mr. Williams of Texas. --because you are having to hire 
someone who can't loan money out.
    Mr. Miller. It does cut into the bottom line tremendously.
    Mr. Williams of Texas. I will be brief. The economy is not 
fixed. I think that Main Street America is still hurting. Risk 
and reward is being attacked.
    And I guess I would ask any one of you just to respond 
quickly: If we reduce burdensome regulations on you all, don't 
you think it would help small-business guys like me to take 
risks, get rewards, put people to work, get them off 
unemployment, and get net worth back in America?
    Mr. Fenderson. Yes.
    Mr. Williams. And it would decrease your cost of doing 
business.
    Mr. Miller. Yes.
    Ms. LaMascus. Yes.
    Mr. Williams of Texas. All right. Thank you very much. 
Thank you for being here.
    Mr. Chairman, I yield back.
    Chairman Hensarling. The gentleman yields back.
    The Chair now recognizes the gentlelady from Utah, Mrs. 
Love.
    Mrs. Love. Thank you.
    I appreciate you all being here today.
    I have sat here, and I have listened to testimony and 
listened to questions and expertise from scholars and expertise 
from professionals in the area. I have just a couple of yes-or-
no questions, and then I want to just get into what I believe 
is the primary purpose of us being here.
    First of all, Mr. Levitin, yes or no, do you consider 
yourself a professional or an expert in this area?
    Mr. Levitin. I do.
    Mrs. Love. Okay. Do you proclaim that you know more, yes or 
no, than the consumers and the members of these banks and the 
four people who are sitting next to you?
    Mr. Levitin. About what?
    Mrs. Love. Do you know more about the banking industry than 
the people sitting next to you?
    Mr. Levitin. About certain aspects of it, yes.
    Mrs. Love. Okay.
    It is really interesting to me, as I have sat here and I 
think about my experiences in the past, short 2\1/2\ months, is 
this is the biggest problem that we have. We continue to say to 
the American people: Let Washington fix all of our problems. 
Let the professional, the scholarly elites make the decisions 
for us. Let us go in and try and protect the American people 
from themselves.
    And I think it is high time that we as Americans start 
trusting the American people again to make decisions in their 
homes, in their communities, and with the community banks that 
actually know them by name.
    I have realized, in everything that we have looked at, in 
all of our history, when Washington gets too involved in 
anything, the same thing always happens: Prices go up and 
quality goes down, every single time.
    And I want to just be very clear here that I am not anti-
government. I am pro-limited-government. I am pro the American 
people having more decision-making in what they are doing and 
learning and being able to--I think that the American people 
are smart enough to make decisions.
    So I just wanted to just ask a few questions concerning 
what this hearing is about today. I have been hearing a lot 
about small banks and how much more vulnerable to costs and 
burdens of regulations they are because of the lack of balance 
sheets and resources of the larger banks in which to absorb the 
cost of compliance.
    Would you say--and this question is for Mr. Fenderson--that 
smaller banks are suffering terribly and disproportionately, in 
your opinion, under the burden of Dodd-Frank and Basel III?
    Mr. Fenderson. I think there is a combination of regulation 
as a whole that require small banks to react and respond, and, 
therefore, it is a burden on us financially.
    Mrs. Love. Okay.
    As a result, and certainly not surprisingly, community 
banks are failing and certainly merging and being bought out by 
larger banks at near record rates. And, certainly, the rate of 
new banks being launched has fallen to an all-time low level in 
8 decades.
    Would you say that would be as a result of some of the 
regulations that we are seeing today, Mr. Williams?
    Mr. Williams. Yes.
    Mrs. Love. Do we--go ahead?
    Mr. Williams. And I would also like to follow up. The Basel 
capital rules are coming in over time, they are being phased 
in. And we shouldn't be subjected to those capital rules, 
clearly, because we don't have the risk that are designed for 
the international banks that they are written for.
    Mrs. Love. Okay.
    So, Mr. Miller, you talked about the cost of compliance 
being pushed down to the consumer. Would you say that you would 
have hard evidence of that actually happening, that you can see 
the cost of compliance, of trying to conform to these 
regulations, actually being passed down to the consumers who 
come in and are trying to receive a specialized, more personal 
relationship and loan from your institution?
    Mr. Miller. Absolutely, and we have hard evidence. We can 
submit some follow-up comments for the record on that from some 
of my peer credit unions.
    I also want to make another comment, if I may. There was an 
inference that there is a conflict of interest with four of the 
people at this table earlier today because we represent the 
banks and credit unions for which we work.
    I work for my 22,650 members. They are member-owners. They 
elect a board of directors. It is all volunteer. They hire me, 
and I hire my staff to run the credit union on their behalf. I 
don't think that is a conflict of interest, respectfully.
    Mrs. Love. I would also say that I work for the American 
people, and I work for my district. And that is exactly what I 
am doing here, making sure that I have their back in terms of 
letting them keep a little more of their money so that they can 
take care of their needs.
    I also want to say that when we are looking at some of 
these things, what I tend to see is that Dodd-Frank is actually 
making it so that these banks are being pushed to be either 
absorbed or being pushed into bigger banks, which is what we 
are trying to protect the American people from.
    Anyway--
    Chairman Hensarling. The time of the gentlelady has 
expired.
    The Chair now recognizes the gentleman from Arkansas, Mr. 
Hill.
    Mr. Hill. Thank you, Chairman Hensarling and Ranking Member 
Waters, for this good panel.
    I appreciate all of you being here and suffering through a 
long morning with us.
    I spent 35 years in the banking business prior to being 
elected to Congress in November, starting in Texas and in 
Arkansas. And so I have lived under all these rules and all 
these organizations for 3 decades and enjoyed every minute of 
it. It was a dream come true and prepared me for running for 
Congress.
    Professor, you made a comment earlier that sort of left the 
impression, I think, that FDIC insurance is optional in some 
way. And since FIRREA or FDICIA, I don't remember which, it is 
certainly not. It is contingent on getting a charter to be a 
bank in the country.
    Mr. Levitin. For getting a national bank charter, it is. 
For getting a State bank charter, it is not.
    Mr. Hill. I don't believe that is true. We are not going to 
debate it today. I would just invite you to go check that out.
    I also reject the premise that banks sell bad loans on the 
secondary market and keep good loans for their own portfolio, 
which seems sort of implicit, kind of hanging in the room. I 
have certainly never seen that in my 3 decades of experience.
    I also reject the fact that somehow consumer protection was 
lax in the financial services industry prior to the dawn of a 
new world with the CFPB. We have had State attorneys general, 
we have had insurance departments, securities departments, 
State banking departments, we have had the FDIC and the OCC, I 
think, do a splendid job of enforcing consumer regulation in 
the commercial banking and credit union industries for years 
and years.
    Finally, I would like to suggest that the burden of 
regulation is cumulative. And we never talk about that, we 
never reflect on that. And it is like that last straw that 
breaks the camel's back.
    For me, something I would like to point out is just the 
breadth of paperwork in 4 or 5 years. I am so glad our bank 
went to our loan committee on iPads so that we didn't have to 
cut down more trees.
    But I got a note the other day from a bank in Searcy, 
Arkansas, in my district, for a $174,000 home loan. And prior 
to the ability-to-repay rules that are now in place, the 
package was this thick. And that comports with my memory of it, 
from just leaving banking a few weeks ago. This is the size of 
the packet today, 255 pages, not including the appraisal, not 
including the tax returns, to go through a loan approval 
process--255 pages versus 20 pages.
    So I think that speaks to what everyone is feeling. And all 
that cost is sent to the consumer, and I hope everyone 
understands that.
    The last topic I want to get your views on is this issue of 
disparate treatment that Mr. Williams raised. Because we all 
want our consumers to get an absolute fair deal and a great 
deal from our financial institutions, be they banks or credit 
unions, and we want that regardless of a bank's size, right? So 
the fair lending laws are good, and HMDA allows us to check to 
make sure we are doing a good job.
    But reflect on this one-size-fits-all, no price 
variability, no matter what your geography you are covering, in 
disparate treatment.
    Let's start with you, Mr. Fenderson.
    Mr. Fenderson. I would say that as we evaluate consumer 
loans, we try to evaluate them on an individual basis. And, in 
many cases, we are dealing with someone that we have dealt with 
before. But when we are dealing with a new borrower, we simply 
evaluate their ability to repay and all the things that we 
normally have to check and balance for.
    We don't think that, as an institution, there is any 
disparate treatment to pricing a loan based on its risk, 
because your debt-to-income ratio may be higher than another 
borrower. So we would like to retain that ability do that.
    Mr. Hill. Mr. Miller?
    Mr. Miller. I would concur with Mr. Fenderson that we need 
flexibility to make appropriate business decisions. And if you 
look at how credit unions have done in controlling risk, we 
have done a phenomenal job.
    And this one-size-fits-all approach once again forces us to 
major in the minors. We are forcing minor players in the 
industry to comply with rules that the major offenders have 
committed. And that is not fair for the consumer, it is not 
fair for the American people, it is not fair for the economy 
and jobs. And, once again, it is going to create this implosion 
of jobs in the financial services industry that also has a 
cascading effect and causes loss of jobs in other industries. 
And tax revenues will suffer as a result of that, too.
    Mr. Williams. Congressman, disparate treatment, we are very 
concerned about this expanded HMDA reporting. We think that is 
designed to be the new enforcement mechanism and the backbone 
for the Federal regulators to enforce disparate lending on 
banks. We have had a lot of experience with fair lending in the 
past, and it is a very difficult issue when dealing with 
disparate lending, disparate impact.
    Mr. Hill. Thank you.
    I yield back, Mr. Chairman.
    Chairman Hensarling. The gentleman yields back.
    There are no other Members in the queue, so I would like to 
thank each and every one of our witnesses for their testimony 
and their patience today.
    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 1:04 p.m., the hearing was adjourned.]
                            
                            A P P E N D I X



                             March 18, 2015
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