[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
EXAMINING LEGISLATIVE PROPOSALS
TO PRESERVE CONSUMER CHOICE
AND FINANCIAL INDEPENDENCE
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON FINANCIAL INSTITUTIONS
AND CONSUMER CREDIT
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
FIRST SESSION
__________
JUNE 11, 2015
__________
Printed for the use of the Committee on Financial Services
Serial No. 114-31
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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
FRANK GUINTA, New Hampshire
SCOTT TIPTON, Colorado
ROGER WILLIAMS, Texas
BRUCE POLIQUIN, Maine
MIA LOVE, Utah
FRENCH HILL, Arkansas
TOM EMMER, Minnesota
Shannon McGahn, Staff Director
James H. Clinger, Chief Counsel
Subcommittee on Financial Institutions and Consumer Credit
RANDY NEUGEBAUER, Texas, Chairman
STEVAN PEARCE, New Mexico, Vice WM. LACY CLAY, Missouri, Ranking
Chairman Member
FRANK D. LUCAS, Oklahoma GREGORY W. MEEKS, New York
BILL POSEY, Florida RUBEN HINOJOSA, Texas
MICHAEL G. FITZPATRICK, DAVID SCOTT, Georgia
Pennsylvania CAROLYN B. MALONEY, New York
LYNN A. WESTMORELAND, Georgia NYDIA M. VELAZQUEZ, New York
BLAINE LUETKEMEYER, Missouri BRAD SHERMAN, California
MARLIN A. STUTZMAN, Indiana STEPHEN F. LYNCH, Massachusetts
MICK MULVANEY, South Carolina MICHAEL E. CAPUANO, Massachusetts
ROBERT PITTENGER, North Carolina JOHN K. DELANEY, Maryland
ANDY BARR, Kentucky DENNY HECK, Washington
KEITH J. ROTHFUS, Pennsylvania KYRSTEN SINEMA, Arizona
FRANK GUINTA, New Hampshire JUAN VARGAS, California
SCOTT TIPTON, Colorado
ROGER WILLIAMS, Texas
MIA LOVE, Utah
TOM EMMER, Minnesota
C O N T E N T S
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Page
Hearing held on:
June 11, 2015................................................ 1
Appendix:
June 11, 2015................................................ 39
WITNESSES
Thursday, June 11, 2015
Ireland, Oliver, Partner, Morrison & Foerster LLP................ 7
Miller, Hon. Brad, former Member of Congress, and Senior Fellow,
the Roosevelt Institute........................................ 8
Peirce, Hester, Director, Financial Markets Working Group, and
Senior Research Fellow, the Mercatus Center, the George Mason
University..................................................... 5
Sharp, Jess, Managing Director, Center for Capital Markets
Competitiveness, U.S. Chamber of Commerce...................... 3
APPENDIX
Prepared statements:
Ireland, Oliver.............................................. 40
Miller, Hon. Brad............................................ 49
Peirce, Hester............................................... 52
Sharp, Jess.................................................. 58
Additional Material Submitted for the Record
Neugebauer, Hon. Randy:
Written statement of the American Bankers Association........ 69
Written statement of the Conference of State Bank Supervisors 81
Written statement of the Independent Community Bankers of
America.................................................... 87
Joint written statement of the American Bankers Association,
the American Financial Services Association, the American
Land Title Association, the Consumer Bankers Association,
the Credit Union National Association, the Financial
Services Roundtable, the Independent Community Bankers of
America, the Mortgage Bankers Association, and the National
Association of Federal Credit Unions....................... 90
Written statement of the National Association of Federal
Credit Unions.............................................. 93
Guinta, Hon. Frank:
Joint written statement of the National Automobile Dealers
Association, the American Financial Services Association,
the National Independent Automobile Dealers Association,
the Recreation Vehicle Industry Association, the American
International Automobile Dealers Association, the National
Auto Auction Association, the Alliance of Automobile
Manufacturers, the Motorcycle Industry Council, and the
National RV Dealers Association............................ 95
Letter from Alan and Stacey Jope............................. 98
Written statement of the National Automobile Dealers
Association................................................ 99
Written statement of the New Hampshire Automobile Dealers
Association, Inc........................................... 114
Poliquin, Hon. Bruce:
Letter from the National Child Support Enforcement
Association, dated March 18, 2015.......................... 116
Rothfus, Hon. Keith:
Letter from the American Bankers Association, dated April 15,
2015....................................................... 117
Letter from Enterprise Bank, dated June 10, 2015............. 119
Letter from the Independent Community Bankers of America,
dated April 27, 2015....................................... 122
Letter from the Pennsylvania Association of Community
Bankers, dated April 21, 2015.............................. 123
Williams, Hon. Roger:
Letter from the Conference of State Bank Supervisors, dated
June 10, 2015.............................................. 124
Responses to questions for the record submitted to Oliver
Ireland.................................................... 126
EXAMINING LEGISLATIVE PROPOSALS
TO PRESERVE CONSUMER CHOICE
AND FINANCIAL INDEPENDENCE
----------
Thursday, June 11, 2015
U.S. House of Representatives,
Subcommittee on Financial Institutions
and Consumer Credit,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 3:08 p.m., in
room 2128, Rayburn House Office Building, Hon. Randy Neugebauer
[chairman of the subcommittee] presiding.
Members present: Representatives Neugebauer, Pearce, Lucas,
Fitzpatrick, Westmoreland, Luetkemeyer, Mulvaney, Pittenger,
Barr, Rothfus, Guinta, Tipton, Williams, Love, Emmer; Clay,
Scott, Maloney, Sherman, and Heck.
Also present: Representative Poliquin.
Chairman Neugebauer. The Subcommittee on Financial
Institutions and Consumer Credit will come to order. Without
objection the Chair is authorized to declare a recess of the
subcommittee at any time.
Today's hearing is entitled, ``Examining Legislative
Proposals to Preserve Consumer Choice and Financial
Independence.'' I would like to thank our witnesses for taking
the time to testify today. This is the Subcommittee on
Financial Institution's first time in the newly remodeled
hearing room.
Before we begin, I ask unanimous consent that members of
the full Financial Services Committee who do not sit on the
subcommittee be recognized for questioning at the conclusion of
the subcommittee members' questions. I also ask unanimous
consent to recess this hearing at any time to be resumed at the
call of the Chair.
I now recognize myself for 3 minutes.
Good afternoon. Today's hearing provides an opportunity for
Members to continue the discussion of regulatory relief for
community financial institutions and the protection of
consumers' financial choices. Many Members here today have put
in a tremendous amount of work to build bipartisan coalitions
for their legislation. Today, we will consider legislation that
covers a wide array of financial services and issues:
legislation amending the bank examinations and supervision
process; legislation addressing consumer lending concerns; and
legislation facilitating a healthy child support system. I
thank each of you and your staffs for advancing the ball and
helping us move one step closer to our committee markup.
In my time today, I would like to focus on H.R. 1266, the
Financial Product Safety Commission Act of 2015. This bill will
restructure the Consumer Financial Protection Bureau (CFPB),
turning its leadership into a five-person, bipartisan
commission.
In this Congress, I have been honored to see this
legislation become bipartisan with two members of this
committee signing on as cosponsors, Ms. Sinema of Arizona, and
Mr. Scott of Georgia. Many of you are continuing to
constructively participate in ongoing negotiations. I have
committed to each of you that we will work together to find an
acceptable budget offset and an acceptable transition
structure, and to consider this legislation separate from the
CFPB appropriations discussion.
As we consider this new CFPB structure, I would like to
remind Members who are still formulating a position on the
long-time Democratic support of a five-person bipartisan
commission at the CFPB that first, in 2008, Professor Elizabeth
Warren, now Senator Warren, proposed creating a five-person
bipartisan commission in her article, ``Unsafe At Any Rate.''
In the wake of the financial crisis, President Obama publicized
a regulatory reform White Paper that advocated for the
commission at the CFPB.
In 2009, Barney Frank introduced the Consumer Financial
Protection Agency Act, which created a five-person board at the
CFPB. I am pleased to thank one of our witnesses, Mr. Brad
Miller, for having been one of the original cosponsors and
supporting the CFPB commission on two occasions. At the end of
the day, to ensure a sustainable, effective, and balanced CFPB,
we need to reform its structure, not get rid of it, but reform
it. Ultimately, the consumers' experience in the financial
marketplace will be significantly enhanced. I now recognize the
gentleman from Missouri, Mr. Clay, for 2 minutes.
Mr. Clay. Thank you very much, Mr. Chairman, and thank you
to each of today's witnesses for your testimony. I want to
especially welcome back our former colleague, Mr. Brad Miller
of North Carolina. It is good to see you again. Today, we
consider a number of legislative proposals that will
purportedly work to preserve consumer choice and financial
independence. Upon closer examination, however, very few of the
bills under consideration actually preserve consumer choice or
independence, or protect consumers or provide meaningful relief
to community banks. There are two proposals, however, that I
believe will preserve consumer choice and provide relief to our
community financial institutions: H.R. 1553, which will provide
meaningful relief for well-managed and well-capitalized
community banks; and H.R. 1660, which would allow Federal
savings and loans to charter flexibility to adjust to consumer
demand.
I would urge my colleagues to spend more of the
subcommittee's time considering H.R. 2642, the Community Lender
Regulatory Relief and Consumer Protection Act of 2015, a bill
that is supported by every Democratic member of this committee,
and on the Senate Banking Committee, that would actually solve
the problems that consumers and institutions face. And I look
forward to hearing each of the witnesses' testimony. I yield
back the remainder of my time.
Chairman Neugebauer. I thank the gentleman, and now the
gentleman from Kentucky, Mr. Barr, is recognized for one
minute.
Mr. Barr. I thank the chairman for yielding. No one should
be satisfied with our weak and unimpressive economic recovery.
If this recovery had equaled the recovery of the 1980s, the
economy today would be $2 trillion larger than it actually is.
That works out to about $6,000 per family per year. The housing
sector represents between a quarter and a third of the economy.
Despite pent-up demand, the housing sector has recovered in
fits and starts, and this unevenness is due in part to the lack
of available credit, a problem being addressed by this
subcommittee.
My legislation, H.R. 1210, the Portfolio Lending and
Mortgage Access Act, would allow loans held on a bank or credit
union's portfolio to satisfy the Dodd-Frank Act's qualified
mortgage regulation. This simple adjustment will enable
financial institutions to return to their traditional business
of relationship mortgage lending in their communities, while
preventing the murky securitizations and taxpayer backstops
that led to the financial crisis. Today, I look forward to
discussing solutions like H.R. 1210 to empower consumers and
support economic growth. And, again, I thank the chairman for
organizing this hearing and I yield back the balance of my
time.
Chairman Neugebauer. I thank the gentleman, and now we look
forward to hearing from our panel today. I welcome Mr. Jess
Sharp, managing director of the U.S. Chamber of Commerce Center
for Capital Markets and Competitiveness; Ms. Hester Peirce,
director of the Financial Markets Working Group, and senior
research fellow at the Mercatus Center at George Mason
University, thank you for being here; Mr. Oliver Ireland, a
partner at Morrison & Foerster; and the Honorable Brad Miller,
former colleague, and senior fellow at the Roosevelt Institute.
Mr. Sharp, you are now recognized for 5 minutes to
summarize your testimony.
STATEMENT OF JESS SHARP, MANAGING DIRECTOR, CENTER FOR CAPITAL
MARKETS COMPETITIVENESS, U.S. CHAMBER OF COMMERCE
Mr. Sharp. Thank you, sir. Chairman Neugebauer, Ranking
Member Clay, and members of the subcommittee, my name is Jess
Sharp, and I am the managing director of the Center for Capital
Markets Competitiveness at the U.S. Chamber of Commerce. Thank
you again for inviting me to testify this afternoon on behalf
of the hundreds of thousands of businesses the Chamber
represents. Today, I will discuss one goal on which the
subcommittee rightly continues to focus: ensuring that
consumers have access to the products they want through safe
and competitive marketplaces. The Chamber firmly supports
consumer protection that deters and punishes financial fraud
and predation and ensures that consumers receive clear,
concise, and accurate disclosures; but consumers must be served
as well as protected, and too often our regulatory agencies
have failed to strike this careful balance.
Every day I hear from companies, big and small, banks and
nonbanks, that struggle to understand these agencies directives
or that offer a product that these agencies have targeted for
elimination. So these experiences have emphasized five
principles that we advocate: first, companies and consumers
benefit from clear rules of the road; second, rationing credit
does not protect consumers; third, if everyone is in charge,
then no one is in charge; and the fourth and the fifth are
particular to the CFPB. The fourth is that the CFPB must
respect the clear limits on its authority; and the fifth is
that the CFPB must be transparent to consumers and to Congress.
Now, these principles likewise obviously have informed
Congress' oversight of the Bureau and its fellow banking
regulators. Indeed, many of the proposals under consideration
today would help address the problems businesses wrestle with
every day in the consumer financial services marketplace. My
testimony addresses most of the bills that are the subject of
today's hearing, but in my statement, I am going to focus on
four in particular.
The first is, Mr. Chairman, your H.R. 1266, the Financial
Product Safety Commission Act of 2015, which would bring the
CFPB in line with other independent agencies by codifying the
commission structure that was originally proposed by this
committee. The Chamber strongly supports this legislation and
believes that by incorporating the controls and oversight that
apply to other Federal regulatory agencies, Congress will
ensure far greater stability over the long term for those who
provide and rely upon credit.
In addition, the inclusion of a variety of viewpoints in a
more structured decision-making process will better inform
complex policymaking and cure some of the transparency and
jurisdictional issues that have emerged in the Bureau's
development.
The second is H.R. 1737, the Reforming CFPB Indirect Auto
Financing Guidance Act, which would bring clear rules of the
road to the indirect auto lending market. As this subcommittee
well knows, the Bureau has created enormous uncertainty in the
indirect auto lending market by issuing guidance without notice
and comment and undertaking enforcement and supervisory actions
based on post hoc statistical models. They failed to share its
analysis or assumptions, thus depriving lenders of the ability
to anticipate the Bureau's analysis. The Chamber strongly
supports this legislation which would eliminate the Bureau's
2013 guidance, and impose reasonable conditions on any future
guidance on this topic.
Next is H.R. 1941, the Financial Institutions Examination
Fairness and Reform Act which would help eliminate ambiguities
and delays in the exam process by requiring better
communication between bank examiners, including the bureaus and
financial institutions. It would also create an office of
independent examination review within the Federal Financial
Institutions Examination Council (FFIEC) that would hear
appeals of material supervisory determinations contained in a
final examination.
The Chamber strongly supports this legislation because it
would address a number of well-documented problems with the
supervision process, freeing up these institutions to provide
the liquidity and capital that Main Street businesses need to
grow.
H.R. 766, the Financial Institution Consumer Protection Act
of 2015, would establish clear standards that the Federal
banking agencies must abide by when using their leverage to
effectively shut down lawful businesses by denying them banking
services, a program called ``Operation Chokepoint.'' Government
agencies have the tools to root out fraud and predation, and
the Chamber supports their efforts to do so, but under
Operation Chokepoint, government officials strongly discourage
financial institutions from providing banking services to
entire categories of lawful businesses based on reputational
risk. This has left banks with little choice but to terminate
longstanding relationships with customers because of explicit
or implicit threats from their regulator. H.R. 766 would ensure
that the government's power to terminate banking relationships
would be used only where there is a material reason for doing
so.
Again, the Chamber supports a number of other bills on the
docket for this afternoon, but I wanted to call attention to
these four in particular. Thank you again, and I am happy to
answer any questions you may have.
[The prepared statement of Mr. Sharp can be found on page
58 of the appendix.]
Chairman Neugebauer. I thank the gentleman, and now Ms.
Peirce, you are recognized for 5 minutes.
STATEMENT OF HESTER PEIRCE, DIRECTOR, FINANCIAL MARKETS WORKING
GROUP, AND SENIOR RESEARCH FELLOW, THE MERCATUS CENTER, THE
GEORGE MASON UNIVERSITY
Ms. Peirce. Thank you, Chairman Neugebauer, Ranking Member
Clay, and members of the subcommittee. It is a pleasure to be
here today. I commend the subcommittee for undertaking to
reform the financial regulatory system so that financial
markets can work effectively, efficiently, and safely for the
American public. I can't recommend that you take a particular
position on any of these bills today, but I can point out some
areas in which I think the bills could have a positive effect
on the financial regulatory structure, specifically related to
increasing regulatory accountability, making sure that
decisions lie with people who have the interests, have the
right incentives, and who have the right information to make
those decisions, and, also, adjusting some rules where there
have been changed circumstances or where there are unintended
consequences of the existing rules.
Turning to the first of these potential benefits,
increasing regulatory accountability, some of the bills before
us today would enhance the requirements on regulators to be
transparent about what they are planning to do and why they are
planning to do it, and would then hold them accountable for the
decisions that they make. Among these bills is the bill that
would require the exam process to be revamped, and specifically
the change that would require there to be an outside place for
a financial institution that felt there was a mistake in an
examination report. That financial institution could go to this
outside entity for an objective third-party opinion, and I
think that would be a valuable way to increase regulatory
accountability.
Another bill related to the National Credit Union
Association (NCUA) would provide some sunlight on the NCUA's
budget. It is not the same as the congressional appropriations
process, but at least it would allow the public to have some
input in the priorities of the NCUA and how it is spending its
money, and it would guard against fears of regulatory capture.
The bill that would change the CFPB into a commission would
also increase regulatory accountability by making policy more
consistent over time and also by ensuring that different views
of how consumers could be protected would be brought into the
debate. And similarly, the bill that would require the CFPB to
do the indirect auto lending through a rule rather than through
guidance would ensure not only that the public would have a
chance to see what the Bureau was doing, but also to comment on
it, and the Bureau would be required to conduct some cost
benefit analysis as well. Efforts to increase regulatory
accountability are designed to help regulators to be more
effective and more consistent, to spend their money more
wisely, and also to take into account more opinions about how
objectives can be achieved.
A second way that today's bills could improve the financial
regulatory structure is by shifting responsibility for
decisions away from regulators who don't have access to the on-
the-ground information and putting those decisions with the
financial institutions that actually have the on-the-ground
information and have an incentive to make a good decision,
because they could lose money if they don't.
So, for example, the qualified mortgage bill, which would
expand the definition of qualified mortgages to include
mortgages that are held on portfolio, recognizes the fact that
when a financial institution is going to hold a loan in
portfolio, it has an incentive to do good underwriting.
Similarly, the Operation Chokepoint bills recognize that it
is not regulators who can make a decision about what customers
a bank should and should not deal with, but the bank itself,
which has a real interest in maintaining its reputation, and
can make those decisions itself.
Finally, today's bills could improve regulation by taking
into account changed circumstances and unintended consequences
of existing regulations. Both regulators and the regulated
industry have raised some issues with implementation and
administration of some of the current regulations. So, for
example, the bill that would facilitate communication between
the FBI and State regulators regarding criminal backgrounds
could streamline that relationship.
Another bill that would allow there to be a grace period
for new mortgage disclosure requirements is a reflection of the
fact that much of the industry is not ready to comply, and this
could result in dislocation for consumers as they try to get
loans.
And finally, the bill that would extend the examination
period to 18 months for banks of $1 billion or below,
recognizes the regulatory burdens on small banks. Regulatory
reforms like the ones that are before us today will not fix the
financial crisis, but they are positive steps towards creating
a financial structure that works better for the American
economy and the American consumer. Thank you.
[The prepared statement of Ms. Peirce can be found on page
52 of the appendix.]
Chairman Neugebauer. Thank you. Mr. Ireland, you are now
recognized for 5 minutes.
STATEMENT OF OLIVER IRELAND, PARTNER, MORRISON & FOERSTER LLP
Mr. Ireland. Thank you, Chairman Neugebauer and Ranking
Member Clay. It is a pleasure to be here today. My name is
Oliver Ireland. I am an attorney in the financial services
practice at Morrison & Foerster. I have been an attorney in the
financial services area for over 40 years: 26 years with the
Federal Reserve, 15 years as an Associate General Counsel at
the Board in Washington; and the last 15 years in private
practice.
The subcommittee has a dozen proposals before it today.
They are detailed. Like any legislative proposals, people can
quarrel about details, but I think the thrust of all of these
proposals, the basic purposes, are good purposes, and they
ought to be pursued. I am going to try to say a couple of words
about each one, because I don't want to leave anything out
because they are all important to their sponsors, and they are
all important to a constituency.
I spent a long time with the Federal Reserve Board, a
collegial board, and collegial board decision-making, I think,
has vast benefits over an individual director and individual
secretary decision-making. You get stability. You get
continuity. You get expertise. I think strongly that H.R. 1266
is a very good bill.
H.R. 1737 would deal with the issuance of guidance and
suggests that auto lending guidance, indirect auto lending
guidance be done through notice and comment. I think all
guidance put out by the Bureau would benefit from notice and
comment. I think that is a good proposal.
H.R. 1941, on changes to the examination process, I have
been on both sides of that process. Examiners are expert at
what they do, but they are not infallible. I think an alternate
review process is in everybody's interests.
The safe harbors from the QM rule, both the short-term safe
harbor for implementing the rule, and the safe harbor for held-
on balance sheet mortgages, I think, are important. When you
hold mortgages on balance sheet, two things happen: one, the
institution realizes it is going to retain the risk of that
mortgage and has a stronger incentive for underwriting; and
two, it is more readily available for examiner scrutiny and
examiner criticism if there is any problem with the
underwriting standards.
The bills on Operation Chokepoint, if businesses are
engaged in illegal activity, the appropriate solution is to go
after the business and prosecute the business, not to cut off
its banking services. Banking services are the lifeblood of
businesses, and without building in the protections for that
lifeblood, things like Operation Chokepoint, whether
implemented by the Justice Department or bank regulators under
the guise of reputational risk, I think are a disservice.
The increase in size for the 18-month exam cycle allows for
more risk-based exams. It not only helps the institutions; I
think it helps the agencies in the process.
The charter change without having to do a charter change
but the powers change for thrifts through the OCC, I think is
an option that makes a lot of sense. It is streamlines what
would otherwise be a complex regulatory process.
H.R. 2287 on the NCUA budget, greater transparency in
budgeting is a good public policy, and I think that should be
pursued. H.R. 2091 is an amendment to the FCRA that deals with
child support orders, again, a streamlining process to make the
administration of child support by States more efficient. That
makes a lot of sense.
Finally, the Williams bill, which would streamline
background checks that are currently available for the
Conference of State Bank Supervisors mortgage database for
other State regulatory purposes, is also an efficiency in the
regulatory process that ought to be pursued. Thank you for your
attention. I would be happy to respond to any questions.
[The prepared statement of Mr. Ireland can be found on page
40 of the appendix.]
Chairman Neugebauer. I thank the gentleman, and I recognize
Mr. Miller for 5 minutes.
STATEMENT OF THE HONORABLE BRAD MILLER, FORMER MEMBER OF
CONGRESS, AND SENIOR FELLOW, THE ROOSEVELT INSTITUTE
Mr. Miller. Thank you, and good afternoon, Chairman
Neugebauer, Ranking Member Clay, and members of the
subcommittee. I am Brad Miller. I served for an eventful decade
in the House of Representatives and as a member of the House
Financial Services Committee. I am now a senior fellow at the
Roosevelt Institute and Of Counsel to the firm of Grais &
Ellsworth. The invitation to appear today asked me to assess 12
legislative proposals--I got the list on Tuesday--on a variety
of topics, and to do that in 5 minutes. Like the other
witnesses, I will not really attempt that. But there is an
organizing principle. This pudding does have a theme. The bills
are based on a narrative of the financial crisis that industry
participants were victims, not perpetrators. Lending practices
that might appear predatory to the unsophisticated, like me,
were really an honest effort to meet consumer needs.
So, the industry should now be relieved of any annoying
regulatory requirement that was based on an unjust accusation
to the contrary. That narrative has been dutifully repeated in
Washington and on Wall Street for years, but it is not credible
with most Americans, because it is not true. The bills would
unlearn the real lessons of the crisis. Here are some examples:
There is an old joke that a man jumped off the Empire State
Building, and as he passed the 60th floor, he said, ``So far,
so good.'' H.R. 1941 would codify ``so far, so good'' as the
examination standard for commercial real estate loans held by
federally-insured institutions, large and small alike. If a
developer made payments on the loan, the examiner would treat
the loan as performing and look no further. It would not matter
if the loan was interest-only and had an impending balloon
payment, if the collateral for the loan had collapsed in value
and the loan was now deeply underwater, if the project for
which the developer had borrowed was in deep trouble and the
loan was very large, if that bank and other banks had many
other such loans, or the developer's creditworthiness had
declined and the developer could not now qualify for a rollover
loan, the legislation would obviously make it very difficult
for regulators to keep a problem from becoming a catastrophe,
not just for a given institution, but for the financial system.
The bill also creates an appeal from any supervisory
determination that provides far more process than is due. There
is already an appeal process. An appeal would not just review
the agency's decision for error or caprice, but would be a de
novo review with no deference to the agency's fact-finding,
expertise, or judgment. In other words, it would be a second
bite of the apple. In extremis, too-big-to-fail banks would
hire lawyers to block supervisory actions by appeal after
appeal and cripple efforts to prevent or contain a crisis.
H.R. 1210 exempts depository institutions, again, large and
small alike, from the ability-to-repay rules, for mortgages
held in an institution's portfolio not sold to the
securitization market, which is still comatose anyway. The
argument is that the purpose of the requirement was to prevent
foolish mortgages that create systemic risk, and lenders would
not let credit standards slide again if they kept the
mortgages. That argument is not supported by the experience of
the financial crisis. Washington Mutual and Wachovia, among
others, got in deep trouble because of portfolio mortgages.
More important, the purpose of the ability-to-repay rule is
equally to protect consumers against predatory, equity-
stripping mortgages. Asset-based predatory mortgages are no
less predatory if held in portfolio, and homeowners can lose
all of the equity in their home, which for most homeowners is
the bulk of their life's savings, and still pose no risk to
predatory lenders, even if held entirely in portfolio.
Finally, the failure of government agencies to investigate
misconduct in the financial sector, including criminal fraud,
and hold powerful institutions accountable economically has
offended the sense of justice of millions of Americans,
including me. Important government powers to investigate
criminal conduct have gathered dust while Americans seethed.
H.R. 766 provides a surprising solution to that problem. It
strips the Department of Justice of much of the power to
investigate and hold financial institutions accountable for
misconduct in which they had a role. We have disagreed in
talking amongst ourselves on the panel and in our conversations
with staff on exactly what H.R. 766 does, but there is no
question that it limits--the bill sponsor is here and perhaps
can explain it--the important investigative and enforcement
powers of the Financial Institutions Reform, Recovery, and
Enforcement Act (FIRREA) for financial crimes in which
institutions played a role.
The narrative of the financial crisis that I described
earlier is very popular at political fundraisers in Washington,
but go home this weekend and ask the people you represent, ask
them if they think Wall Street was unjustly accused of
wrongdoing in the financial crisis and since, and that law
enforcement agencies and government regulators have bullied
them. You probably will get a very different response than what
you get at fundraisers. Thank you, Mr. Chairman.
[The prepared statement of Mr. Miller can be found on page
49 of the appendix.]
Chairman Neugebauer. Thank you, gentlemen. I would remind
the panelists that your full written testimony will be made a
part of the record, and I thank you.
I now recognize myself for 5 minutes to begin questions.
This is a simple question: Do you think replacing the single
director with a five-person, bipartisan commission as
leadership structure weakens consumer protection. Mr. Sharp?
Mr. Sharp. No. Absolutely not. Again, our view of the world
is that the more viewpoints you have in the decision-making
process, the more likely you are to arrive at a decision that
balances the equities on both sides so consumers are protected,
and they are still served. There are still products and
services out there for them.
Chairman Neugebauer. Thank you. Ms. Peirce, do you think it
weakens consumer protection?
Ms. Peirce. No. I think it strengthens it by ensuring, as
Mr. Sharp said, that there are multiple perspectives, but also
ensuring continuity over time so you don't see massive swings
in policy as the Administration changes.
Chairman Neugebauer. Mr. Ireland, does it weaken consumer
protection?
Mr. Ireland. No. For the reasons already stated, it
strengthens it.
Chairman Neugebauer. Mr. Miller?
Mr. Miller. Yes, it does weaken the agency. There are some
downsides to it, as Ms. Peirce said, in the possible lack of
continuity; but a single agency director is obviously a
stronger and more agile agency. I have been interested in
hearing the description of the original proposal in which I did
play a very significant role, as I think Mr. Neugebauer said.
And the idea that Elizabeth Warren and Bill Delahunt and Barney
Frank and I sat around and thought, we really need a five-
agency commission, no. We said we really needed an agency, not
the seven agencies that have some consumer protection powers,
but it is always secondary to safety and soundness.
Chairman Neugebauer. But the question is, do you believe
that a single director is the better solution? Initially,
everybody thought that the five-person commission was. And so I
want you to explain then how from the five to the one, how you
felt like that strengthened consumer protection?
Mr. Miller. It was, as you have noted, Elizabeth Warren's
idea. What did she know about how Washington works? She was a
professor at Harvard Law School. Bill Delahunt and I got
involved. I was a relatively junior Member. I didn't know how
Washington worked either, really. And, yes, Barney Frank was
one of the original cosponsors of the bill that Bill Delahunt
and I introduced. But he was the one who said if you want that
agency to work, you need a single director for a variety of
reasons. One is it is going to be involved in turf battles,
particularly with the OCC, which has a single director. And
they would be at a huge disadvantage. They are going to need to
be quick on their feet to respond to new practices in industry,
and a five-member commission will not be quick on its feet. And
what he did not say--
Chairman Neugebauer. I thank the gentlemen. My time is
limited. And I think it is interesting that the President of
the United States, the Chairman of the Financial Services
Committee and a number of its members, and the original author
of the concept of the CFPB all thought that a five-person
commission was a better synopsis.
Mr. Miller. I had more, by the way.
Chairman Neugebauer. Some of my colleagues, and even
Ranking Member Waters, who is not here, is, so if that is a
good solution, so then I am thinking about in the next
Administration, should it turn to be a Republican
Administration, that you have the CFPB Director be Randy
Neugebauer; and what would be the impact of the direction of
that agency where you had another, basically a little bit
different perspective on consumer protection and how we elect
consistency because now you have this person who is trying to
take the agency obviously in a much different direction. So I
think the argument that I would make is that if you have a
five-person commission, where there is a bipartisan commission,
that the continuity is a little bit more appropriate.
Mr. Ireland, you spent 15 years as an Associate General
Counsel at the Federal Reserve, where undoubtedly you saw
firsthand how boards operate at a regulatory agency. Can you
elaborate a little bit more? You mentioned it a little bit in
your testimony, how you felt like that brought continuity at
the Federal Reserve.
Mr. Ireland. First of all, as you mentioned, agility is
great as long as it is going in your direction. If it goes in
the other direction, it goes in the other direction just as
quickly. The seven-member board at the Federal Reserve brought
expertise from every board member, and we were able to divide
up the board into committees to address particular, different
areas of the board's responsibility and take advantage of the
seven board members and their expertise, and by their open
debate in board meetings arrive at far better decisions than
any one of them could arrive at by themselves.
Chairman Neugebauer. I thank the gentleman. My time has
expired. And now the gentleman from Missouri, Mr. Clay, is
recognized for 5 minutes.
Mr. Clay. Thank you, Mr. Chairman. You know, other
regulators governed by bipartisan commissions often fall victim
to dysfunction and infighting that undermines their ability to
act decisively. Some examples are the SEC, the FEC, and a
number of other agencies governed by bipartisan commissions are
frequently subjected to periods of gridlock that prevent the
agencies from acting.
Furthermore, the single directorate is common by banking
regulators, such as the OCC and the FHFA, and the Bureau has
been able to do its work to date effectively through a single
director. Mr. Miller, we often hear from the Majority that if
the Republicans were to win the White House, Democrats would
prefer a bipartisan commission to a single director. How do you
respond to this particular critique of the CFPB's governance
structure?
Mr. Miller. I have a long list of horrors if Republicans
won the White House. This would be on it. I think that the lack
of continuity is a problem. As I said earlier, I think that
there is obviously a tradeoff. There are some advantages of a
five-member commission. But a single, Mr. Clay--as she said
correctly, some of the five-member commissions don't work that
well. And by the way, five-member commissions can turn over
fairly quickly as well. There is not necessarily a huge amount
of continuity with respect to five-member commissions. Not
everybody serves out their full term.
Also, with the D.C. Circuit having interpreted ``arbitrary
and capricious'' for their standard of review to mean, ``would
I have done exactly the same thing?'' it becomes much harder
for agencies to present a rule in a coherent, tight way, to
survive judicial review because some members of this committee
probably have no experience at all with compromise, but I have,
as a Member of the House, and as a member of the State
legislature in North Carolina, and it is sometimes kind of
ugly. And sometimes the only explanation I had for certain
sections of the bill was, yes, I thought that was stupid, but I
needed votes, and that was the only way I could get them. That
is not really what you want to take to the D.C. Circuit in
trying to defend an agency rule on judicial review, but that is
what you end up with when you have to put together three votes
on a five-member commission.
Mr. Clay. Let me shift to H.R. 1737, the reforming CFPB
Indirect Auto Financing Guidance Act. Mr. Miller, according to
the Center for Responsible Lending, African-Americans receive
higher interest rates on car loans obtained from car dealers
than similarly situated Caucasian borrowers, even after
controlling for several credit measures, while those who
receive loans directly from banks or credit unions do not.
In addition, African-Americans pay higher purchase prices
for their cars, even after actively negotiating with the
seller. In light of the longstanding and well-documented
concerns about car-buying experience from minorities, do you
think our time is better spent seeking to nullify guidance that
clarifies the CFPB supervisory expectation for indirect auto
lenders, or should our time be spent actually rooting out
discriminatory practices?
Mr. Miller. Yes. With respect to auto loans, just as with
mortgages, I think it is the HMDA data which shows that it
costs about 25 percent, or about a quarter of a basis point
more for ``borrowing while Black.'' It costs, according,
according to CRL, 29 to 40 basis points more, which could be
several hundred dollars over the course of a car loan for
``borrowing while Black.'' It is perhaps not quite as expensive
to ``borrow while Brown,'' but Latinos are also discriminated
against. What the CFPB did is--no. CFPB cannot regulate car
lending by a dealer to a purchaser, but then they sell those to
banks, and banks end up with discriminatory loans, and they
have liability for that. And what CFPB did in their guidance is
say failure gently--you know you are going to have a problem,
and instead of using that kickback that you are paying dealers
if they talk somebody into a higher interest rate than what
they should have gotten, which ends up with a discriminatory
lending portfolio, maybe you should consider paying them a flat
fee instead.
Chairman Neugebauer. The gentleman's time has expired.
Mr. Miller. That is a fairly modest bit of advice.
Mr. Clay. Thank you for your response.
Chairman Neugebauer. I now recognize the gentleman from New
Mexico, the vice chairman of the subcommittee, Mr. Pearce.
Mr. Pearce. Thank you, Mr. Chairman. I appreciate all of
the testimony. Mr. Miller, it is good to see you again in front
of this committee.
Mr. Sharp, the CFPB announced last week regarding TILA-
RESPA that they were going to be sensitive. Is that going to
really impact the responses of the institutions as they move
forward in this process?
Mr. Sharp. I can tell you based on conversations not just
about this particular instance, but other instances of sort of
take our word for it, we will tread lightly here and give you a
reasonable grace period, that doesn't build a lot of confidence
in the business community.
Mr. Pearce. So the result of not having confidence--Mr.
Ireland, do you have an opinion about businesses that don't
have any confidence?
Mr. Ireland. They are not going to make loans.
Mr. Pearce. Yes. So, Mr. Miller, do you have any opinion on
those two opinions?
Mr. Miller. I think it is better business as confidence. I
did not hear your question; I'm sorry. I have both my hearing
aids--
Mr. Pearce. I apologize. The question was the TILA-RESPA,
and across the country, the companies have said, hey, we don't
mind which way you are going, but you are just moving too fast.
One small company, a very small company in my hometown--my
hometown has 30,000 to 40,000 people--spent $100,000 for the
software that they are going to need, and they are not sure
that is going to cure the problem. So we have been pressing--
Mr. Sherman and myself actually put in legislation saying that
hold harmless until the end of the year at least. Give people
some breathing room. And so my question was, and the CFPB came
out this week as a good example of the agility you mentioned
that they are going to have under the single director, they
finally announced that they are going to be sensitive to the
people. So my question is, is sensitive going to work?
Mr. Miller. What Rich Cordray has said is that if a lender
is acting in good faith, they are not going to bring
enforcement measures. They are going to look at--
Mr. Pearce. I think he said he is going to be sensitive. We
asked him to roll off of the thing, and you just heard two
people say it probably isn't going to work.
Mr. Miller. I think it depends on the circumstances. What
he said is if someone is acting in good faith and makes an
innocent technical violation, they are not going to bring an
enforcement action.
Mr. Pearce. Trust us. Mr. Ireland, I think, hits the nail
on the head. They are not going to make loans.
Mr. Miller. It has also been 2 years. It seems like that is
a long time to comply. You said they have been moving really
quickly, but the--
Mr. Pearce. I was interested in your comments. So many of
the small banks in my district feel like they didn't cause the
problems in 2008, but they feel like the bulk of the regulation
has hit on them. Mr. Miller, my question is, do you see the
community bankers as perpetrators? I find your comments to be
leading in that direction. You seem to be a student of the
CFPB. Are the community banks perpetrators?
Mr. Miller. No. Community banks were relatively innocent
actors, but it has been the experience of the last decade or
more, probably actually the experience of all of human history,
that the worst actors will migrate to the least regulated
portion of the market.
Mr. Pearce. Just follow me on this if you would, that the
community banks in my district make loans for--50 percent of
the homes in my district are manufactured housing. And many
banks won't give loans for them. They weren't listed because
they have to have a balloon note, they are not listed as
qualifying mortgages, so they hold them in portfolio. But your
testimony seems to assume that portfolio loans indicate that it
is out there holding people up. Your testimony has a bias
against the portfolio loans. Nobody else, nobody from
Washington, nobody from New York, is going to come out and lend
money for mobile homes in my district.
The only way they can do it is hold in portfolio, and yet
you decide that is predatory lending. You decide that somehow
these people are perpetrators. All they are trying to do is
figure out how to loan money to poor people who need a place to
live. So I am not sure about the bias that your testimony
presents toward the community bankers.
Mr. Miller. I do have a little bit of time to respond to
that. No. I think community bankers were better actors in the
last decade than the nonbank lenders. The nonbank lenders were
not regulated. They were not subject to consumer protection.
One of the things the GAO has found is that actually that
aspect of Dodd-Frank has helped community bankers because their
nonbank competitors are now actually subject to regulation.
Mr. Pearce. Personally, I don't find that, because they are
saying, we are choked under the regulatory burden, and we are
going to quit lending to poor people, basically is what is
going to happen. Thank you, Mr. Chairman. I yield back.
Chairman Neugebauer. The time of the gentleman has expired.
The gentleman from Georgia, Mr. Scott, is recognized for 5
minutes.
Mr. Scott. Thank you, Mr. Chairman. I would like to
continue that line of questioning because I think it is a real
centerpiece of this hearing, dealing with credit unions and the
small banks. There is actually no question, Mr. Miller, and I
think you will agree--it is good to have you back with us, my
friend--but look, credit unions and banks need more certainty
that their good faith efforts do comply. While they are still
meeting their consumer demand, that does not expose lenders to
litigation during the initial period after the regulations
become effective.
I think anybody looking at this would agree that it appears
that this industry does need more time to implement this
regulation, and I want a comment from the whole panel on this.
Because these credit unions and small banks carry a tremendous
load and a tremendous burden. They didn't cause the Wall Street
breakdown. Now what you have that is so devastating is this
rule and regulation is 1,888 pages. Why is there a problem
not--and they are saying it is difficult to meet the August 1st
deadline, and all they are asking for is more time and a safe
harbor through the end of the year. Now, what is wrong with
that? Can anybody--I guess there is nothing wrong with it.
Thank you.
Mr. Miller. Is that me? Mr. Scott?
Mr. Scott. Yes, sir.
Mr. Miller. As I said earlier, Rich Cordray has said--and I
think he has generally acted pretty reasonably and has been
consultative with the regulated community as well as with
consumer groups--that they are going to take into account the
circumstances and the nature of the conduct, and are not going
to bring enforcement actions where there is good faith conduct,
where there might be a technical violation. With respect to
civil liability, there has really not been a whole lot of
litigation under either RESPA or TILA. RESPA does not create a
private right of action.
Mr. Scott. Can't we get some attention to the major concern
that these stakeholders are not able to test the process that
is used to develop these new disclosures and real-life
transactions before this implementation date? They are saying
this. I don't understand why there is this hesitation if the
consumer protection agency is there to protect us. Don't you
see where if we don't give this safe harbor, that it could
cause human error? We are not talking about a rule or
regulation of 10 pages. We are talking about 1,888 pages. I
don't see why there is this objection to this bill to provide,
what is it, 5 months maybe from August to December? I don't
understand that, particularly if the industry itself is crying
out and has legitimate concerns. So if the result is, and they
say that this could bring about human errors, that ought to be
enough of an alarm bell to say, okay, we don't want to harm the
consumers. We want to protect the consumers.
Mr. Miller. Mr. Scott, again, with respect to enforcement
actions, I have said already what Richard Cordray, the Director
of the CFPB has said. With respect to civil liability, you
can't sue at all under RESPA. There is no private right of
action. Under TILA, you have to show damages. To get damages,
you have to show you were damaged. It is pretty hard to imagine
a borrower showing significant damages for a technical,
innocent violation of the rule. No lawyer is going to take that
case. No court is going to award damages.
Mr. Scott. Then why would you object to the safe harbor?
Why would you object--
Mr. Miller. Because if a consumer has been damaged and the
conduct was not in good faith, was not innocent, was not
technical, then we should not strip consumers--
Mr. Scott. Mr. Miller, that is just speculation.
Chairman Neugebauer. The Chair now recognizes the gentleman
from Kentucky, Mr. Barr, for 5 minutes.
Mr. Barr. Thank you, Mr. Chairman. Ms. Peirce, I was
particularly impressed with your testimony relating to the
impact that the QM rule has had on availability of affordable
mortgage credit, and, in particular, your remarks that a third
of the National Association of REALTORS survey respondents
reported being unable to close mortgages due to requirements of
the Qualified Mortgage Rule in the first quarter of 2015, and
that, obviously, this has led to some mortgage originators and
lenders exiting the mortgage business altogether. What do you
have to say about the combination of these restrictive QM rules
with a GSE exemption that allows banks to originate non-QM
loans and then sell them off into a taxpayer-supported Fannie
Mae or Freddie Mac? What does that do to the financial system?
Ms. Peirce. I think it perpetuates the problems that we saw
leading to the crisis, which was that the GSEs were too
involved in our mortgage market, and rather than paring back
their role, it is sort of perverse, but we have seen their role
increase since the crisis, and we really need to address that.
Mr. Barr. So Ms. Peirce, Mr. Ireland, would you say that
the QM rule, coupled with the GSE exemption, encourages risk
being removed from shareholders of banks and on to the backs of
taxpayers?
Ms. Peirce. I think that is exactly the opposite of what we
want to do. We want to make sure that the banks who are making
the loans are taking the care when they are making the loans
because they know they are going to hold them. Or even if they
are going to sell them to a private market participant, they
know they have to prove that they are good loans.
Mr. Barr. Mr. Ireland, I was impressed with your testimony
when you said that the portfolio lending and mortgage access
legislation that I have introduced would not only encourage
better, more sound underwriting, because the institution would
retain the risk, but also the second point you made that it
would allow for better exam scrutiny, regulator scrutiny of the
banks or the credit unions mortgage loan portfolio. Can you
elaborate on that?
Mr. Ireland. Depending on the size of the bank, the
examiners are going to come in on a yearly basis, or an 18-
month basis, and look at the loan portfolio and look at the
underwriting standards, and they are going to be able to see
how those loans are performing. They are going to see how those
loans are being paid back, and they are going to see whether or
not the bank has good or predatory lending standards. That is
not where our problem is, and it wasn't where our problem was
in the financial crisis.
Mr. Barr. Let me jump into Mr. Miller's argument or concern
that he has with my legislation. It is the same concern
expressed by Director Cordray, and they cite Washington Mutual
and Wachovia. My view is that if you are an institution, a
regional institution, a large institution like Wachovia, and
you are loading up with subprime mortgages, you are probably an
institution that should fail, frankly. But my question to you,
Mr. Ireland, is in light of the scrutiny that a lot of these
institutions are under right now with the rigorous exams, what
is the likelihood that Mr. Miller's parade of horribles would
come to pass post-financial crisis? And what do you say about
the criticism of an institution loading up on subprime
mortgages?
Mr. Ireland. First of all, there were a lot of mistakes
that led up to the financial crisis, and some of them were
regulatory. There were some oversights by some regulators, but,
by and large, the problem was not due to held-in-portfolio
mortgages. I think that the regulators today are making every
effort not to make those mistakes again. And what we are seeing
is rigorous examination processes, questions being asked
wherever there are underwriting issues or regulatory issues;
and I think the likelihood that a regional institution builds a
substantial portfolio badly underwritten residential mortgages
is vastly smaller than it was in the past.
Mr. Barr. Mr. Miller, welcome back to the committee. Since
we have addressed your particular concerns, I want to give you
a chance here, but one of the things that you also were worried
about was these equity-stripping mortgages. When you were in
the committee--I will just have to quote you here--in a hearing
in 2005 entitled, ``Legislative Solutions to Abusive Mortgage
Lending Practices,'' you actually advocated for access to the
subprime market, and for individuals to borrow money against
their home. Isn't that exactly the kind of equity-stripping
product that you are now criticizing?
Mr. Miller. Mr. Barr, I think you have an incomplete
knowledge of my record on that issue. I introduced legislation
in 2004 to regulate subprime mortgage lending, predatory
mortgage lending. The argument by the industry and by their
advocates, their allies in Congress, was that you are going to
take away all of our ability to make loans to people who need
credit. And I said there is a place for loans with different
terms. But what was happening by then was that almost the
entire market for subprime had displaced that legitimate
differences based upon underwriting standards.
Chairman Neugebauer. I'm sorry. The gentleman's time has
expired. The Chair is going to be pretty strict on this because
we are going to have votes soon. So if the Members have
questions, make sure that within your 5 minutes, you leave time
for the witnesses to answer those questions. I now recognize
the gentlewoman from New York, Mrs. Maloney, for 5 minutes.
Mrs. Maloney. Thank you. And I thank all the panelists,
particularly my good friend and former colleague, Brad Miller.
It is very good to see you again. I would like to ask
Congressman Miller about the NCUA Budget Transparency Act,
which would require the NCUA to publish its draft budget in the
Federal Register and hold a public hearing on its budget. It is
my understanding that no other banking regulator is required to
hold these hearings, so it is a little unclear to me why NCUA
should be singled out for this particular requirement.
I also understand that NCUA voluntarily held hearings on
its budget prior to the financial crisis, and that the industry
stakeholders consistently lobbied them during these hearings to
cut their budget. And as a result of these budget cuts, the
NCUA itself admits that it wasn't fully prepared when the
crisis hit. So according to a letter from NCUA, these budget
cuts meant that it was ``insufficiently resourced'' to address
the financial crisis. I would like unanimous consent to place
this letter into the record, Mr. Chairman.
Chairman Neugebauer. Without objection, it is so ordered.
Mrs. Maloney. So I guess my question is, knowing what we
know now, do you think it is wise to make these public hearings
on NCUA's budget mandatory?
Mr. Miller. Mrs. Maloney, I hate to say this, but of the 12
bills, that is not one to which I have given a great deal of
attention. I do know that, as you said, the other financial
regulators, for the most part, certainly the safety and
soundness regulators, have an independent funding source that
comes from the regulated, and they have all provided
justifications that are fairly vague, given how much money is
involved to Congress as part of their statute, but they have
not had hearings, and there has been some limit to the extent
to which Congress can intrude, which has made those industries,
for the most part, stronger. Because those regulatory agencies
that depend upon annual appropriations like the FTC, like the
CFTC, like the old OFHEO, which preceded the FHFA, that needed
annual appropriations, those regulated by that agency could
come in and lobby Congress to cut back on their ability to
investigate conduct in the industry. That was particularly true
of OFHEO. OFHEO was probably the most captured regulatory
agency in all of U.S. history. They were supposed to regulate
Fannie Mae and Freddie Mac, and Fannie and Freddie were both
very powerful in Washington and were able to keep OFHEO about
as captured as an agency could possibly be.
So I am inclined to agree with you, but I have to admit
this is not something to which I have given a great deal of
thought.
Mrs. Maloney. What about the requirement that they are the
only banking regulator that is required to hold these hearings?
Why should they be singled out?
Mr. Miller. Like I said, I am inclined to agree with you.
Since the OCC does not, since the FDIC does not--I hate to say
the CFPB, in this room--but since the OCC does not, I am
inclined to think the NCUA should not either.
Mrs. Maloney. Then I would also like to ask you about H.R.
2213, which would create a statutory safe harbor from the
enforcement of CFPB's new integrated disclosure form through
the end of 2015. And I led a bipartisan letter with Mr. Barr
from Kentucky--I don't think he is here right now; I don't see
him--asking for a grace period on the integrated disclosure
requirement through the end of the year for lenders who make
good faith efforts to comply, and this is what the CFPB did for
the QM rule as well; and 254 Members, including many Members on
this committee, signed on to our letter, and last week, the
CFPB responded to our letter and did promise to observe the
same kind of grace period that they did for the QM rule, and I
would like unanimous consent to place in the record the
response to Andy Barr and myself from the CFPB.
Chairman Neugebauer. Without objection, it is so ordered.
Mrs. Maloney. Now, the CFPB's letter was a little unclear
on how long this grace period would last, and I hope that they
will offer some further clarity. But given that the CFPB has
already indicated a willingness to offer the industry some sort
of grace period when the new integrated disclosure forms take
effect on August 1st, do you think it is necessary to pass
legislation codifying a safe harbor?
Uh-oh. My time is up.
Chairman Neugebauer. I'm sorry. The gentlewoman's time has
expired.
Mrs. Maloney. Maybe you can get back to us in writing. In
any event, it is great to see you again.
Chairman Neugebauer. The gentleman, my neighbor to the
north in Oklahoma, Mr. Lucas, is recognized for 5 minutes.
Mr. Lucas. Thank you, Mr. Chairman. And I truly do
appreciate you holding this hearing on important regulatory
relief measures before the committee. Like many at this dais, I
represent an area that relies heavily on community financial
institutions that are basically the lifeblood of our economic
success in the State and in the district. And I have been very
focused on how we provide relief from the unfair and
unnecessary regulatory burdens plaguing those small financial
institutions, and I believe that this set of bills will work to
help accomplish that, and I am very congratulatory to all of
the authors.
With that, Ms. Peirce, let's discuss for a moment, in your
testimony you note that, I believe in regards to H.R. 1941,
``Regardless of their frequency, examinations are not
worthwhile unless they are timely, thorough, rooted in
carefully employed judgment rather than inflexible checklists,
and consistent across institutions.''
Could you discuss some of the problems with the current
state of the financial institution examination environment,
specifically regarding consistency in the quality of the exams
and the examiners?
Ms. Peirce. Yes. A concern I have is that because there are
so few appeals that are ever taken on exam findings, and
because usually the exam findings are upheld and they are done
intra-agency, I don't think there is the consistency across
financial regulators. And I think the financial institutions
are in a pretty difficult position if they want to challenge a
finding, because they know that they have this ongoing
relationship with their examiner, and so we are not getting the
sunlight on the process and we are not getting the opportunity
to really see and test whether these exam findings are
accurate.
And, again, I think most of the examiners are well-
intentioned, they are trying to do a good job, but sometimes
you do a better job when your work is checked from the outside.
Mr. Lucas. Years ago, I can think of one of my loan
officers, and, yes, I come from a long line of debtors, who
observed that examiners tend to follow the rule of focusing on
whatever the past was, not what the future challenges might be,
and that makes it rather difficult to be flexible enough to
address these kind of matters.
The focus of these bills is to provide relief to allow our
community bankers to do their work. And many of us, like
myself, believe that there is sufficient flexibility in the
various statutes if the regulators would implement it.
As we work to try and make sure that relief is available
where it should be targeted, could you touch for a moment on
one of the issues that I have been trying in my own mind to
work through? Let's talk about how you would define a community
bank--size, activity, a combination of either? Let's visit for
a moment in a hypothetical sense.
Ms. Peirce. The Mercatus Center did a survey, and we
struggled with the issue of how to define a community bank, and
we ultimately used a $10 billion cutoff. A more accurate way to
define a community bank is to look at the activities, but
trying to do a survey measuring what the activities are was too
difficult. So I think you have to look to see is it a community
lending institution, is it taking deposits and making loans in
the local community, and that is what I would ultimately define
as a community bank.
Mr. Lucas. And based on our recent history of the
challenges from 2008 forward, those institutions making loans
in their community, in businesses of their experience and
expertise, typically were not the real threat to the national
economy. Is that a fair assessment, Ms. Peirce?
Ms. Peirce. That is a fair assessment, as long as
regulators don't force them to do the kinds of loans that they
are not used to doing. So we have to be very careful that the
regulatory structure doesn't force these lenders into new areas
with which they are not familiar.
Mr. Lucas. A couple of months ago, I asked a young
compliance officer at a community bank what the biggest
challenge she faced was, and her response was being judged in
the future by actions in the past based on standards that do
not exist yet. I thought that was very telling. It is a
legitimate point, wouldn't you say, Ms. Peirce?
Ms. Peirce. It is. And I worry that bankers are getting out
of the business because of that very reason.
Mr. Lucas. Mr. Chairman, we have an obligation to try and
make sure that process does not continue, otherwise the
economic difficulties that it will bring to your communities
and mine will do damage for a generation.
With that, I yield back, Mr. Chairman.
Chairman Neugebauer. I thank the gentleman.
And now the gentleman from Washington, Mr. Heck, is
recognized for 5 minutes.
Mr. Heck. Thank you, Mr. Chairman. I want to add my voice
of gratitude for your holding this hearing today. I think it is
important. In fact, I think it is important that we never stop
asking ourselves the question of, have we struck the right
balance with regulation and consumer protection and matters of
safety and soundness?
I am not one who believes that we should never touch a hair
on the head of Dodd-Frank by any means. Indeed, I am pretty
concerned that there are trends, especially among community
banks, where we are losing some relationship-based banking and
where, frankly, they are being channeled into certain lines of
business that narrow them such that there is--death spiral
would be too strong a term--but render them less able to serve
as many people as they might like.
Having said all that, I find one aspect of today's hearing
troubling, and it is, frankly, I think we are thinking too
small bore here. We keep taking little, tiny shots at this
thing, and, frankly, I am just wanting to register maybe it is
time we took a big step back, maybe it is time we looked at
something like Mr. Hoenig's approach or, frankly, a brand new
charter for certain institutions.
I think a blue sky exercise is exactly what I would have
taken my company through, especially if we wrapped our chain
around our axle as often as we have with these tiny rifle
shots, which, frankly, don't end up becoming law.
So I just wanted to register that as a suggestion. Maybe it
is time to think bigger than we are.
Congressman Miller, I am honored that you are here today,
sir. Thank you. I understand your concerns about the FIRREA
section of H.R. 766 and, frankly, I share many of them. But--
there's always a but--I think Congressman Luetkemeyer deserves
a lot of credit for the first section of the bill, which
requires examiners and banks to look at individual companies,
not just the industry they are from, in addressing any concern
or risk of a given account.
And I want to relate this to my own State and that of
Colorado and Oregon, who, as everyone knows, have recently
enacted adult recreational use of marijuana. And I am very glad
to see the FDIC has moved to implement that kind of a business-
based approach. Would you, sir, notwithstanding your concerns
about FIRREA, at least acknowledge that a business-by-business
approach is probably more commonsensical?
Mr. Miller. Of course I think that no Federal regulator
should single out any business or any industry because they
don't approve, they don't like that business or industry. Now,
I know that has been the debate about Choke Point. Choke Point,
the critics say, you are singling out businesses you don't like
or industries you don't like, and the Department of Justice
says, we are not, the FDIC says, we are not, and the critics
say, yes, you are, and then they say, no, we are not, yes we
are, no, we are not. I don't really want to be involved in that
debate. I don't think I have anything to add to that debate.
Mr. Heck. Then give me my last 1 minute and 37 seconds,
please.
Mr. Miller. All right.
Mr. Heck. But I do thank you.
Mr. Sharp?
Mr. Sharp. Yes, sir.
Mr. Heck. I don't have enough time left to ask the two
questions I want, but I do want everybody in this room to know
that this gentleman comes from a very distinguished lineage. I
ran into Jess at the spectacular celebration down at the
Smithsonian of fighter aces. I was very privileged to be the
wingman to Congressman Johnson in passing the Congressional
Gold Medal for fighter aces. We haven't created a fighter ace
in about 40-some years in this country. There are approximately
100 of them left. Mr. Sharp's grandfather flew--P-51s, Jess?
Mr. Sharp. P-51s, yes, sir.
Mr. Heck. Over Europe. And, again, there just aren't very
many of those heroes left. And he and his grandfather were
there. And we honor your family's service.
You have a lot to live up to.
Mr. Sharp. Yes, I do.
Mr. Heck. Okay. I have a few seconds.
I have been working with Mr. Posey on a bill to set up a
no-action letter, and with your office as well, and very
constructively, and I thank you for that. I guess, in 23
seconds, what do you see as the most salient benefits of a
working no-action letter process? That bill is not before us
today, but I still hope we can find the right partisan balance
and philosophical balance to be able to move us in this
direction. Even Mr. Cordray acknowledged that what they came
forth with was too narrow.
You started tapping, Mr. Chairman, before it reached zero.
I yield back the balance of my time.
Chairman Neugebauer. I thank the gentleman. And I have a
big idea. Let's make the CFPB bigger and make a five-person
commission.
I now go to the gentleman from North Carolina, Mr.
Pittenger, for 5 minutes.
Mr. Pittenger. Thank you, Mr. Chairman.
I have served on a bank board for a dozen years, for a
community bank in Charlotte, and I have really been taken aback
today by the statements that I have heard, really the
enthusiastic, zealous support for the CFPB and Dodd-Frank. I
have visited countless numbers of our community banks in my
district. I spoke 2 weeks ago at the annual convention of the
North Carolina bankers. And time and again, I hear the same
stories of the compliance requirements, of the restrictions,
that they are not hiring the loan officers, they are having to
hire compliance officers, that they are restricted in who they
can loan money to. Character is no longer a box to check. It
doesn't matter how well you know that person, you have to check
all the right boxes.
I think what is lost in context, to me, is where we are in
our economy, we are at 2.2 percent economic growth; where we
are in access to capital in the market. Most major developers
are having to go to private equity, because capital is not
available in the commercial banking, and it is much more costly
and much more costly to consumers.
So what is done, with good intentions, I think has been
very misguided, particularly as it relates to community banks,
who have provided nearly half of the small business loans in
this country. And to me, it is that entrepreneur that is the
lifeblood of our economy, that is the building block, and that
beginning entrepreneur can't get access to capital because his
character doesn't mean a hoot to that banker he has known for
25 years.
So I am really amazed that there is not a consideration for
reality, that there is maybe no context of conversations with
reality.
And I would like to see a reaction maybe from Mr. Ireland,
and maybe you, Mr. Miller, if you want to say something else.
As I hear my friends out there struggling, there are no new
banks, community banks being chartered, and they are
consolidating today.
Mr. Ireland. Increased regulatory burden favors larger
banks who can spread the cost of the new regulatory
requirements over a larger base. There are some exceptions,
capital rules work a little bit differently, but most
regulatory requirements work that way.
I don't know how a small bank can comply with the new
mortgage rules. Look at those 1,800 pages. You want the small
banker to be out evaluating credit for loans in their community
rather than reading an 1,800-page rule. That is what you want
them to do. And as we react, and in some cases overreact, with
regulatory requirements, it makes it harder to be a small bank,
it makes the break-even point, the size of a bank go up, and I
think you have a real problem, the bankers start to lose touch
with their communities. And the character loans that you
referred to, which would have started, historically, many of
the great businesses in the United States, don't get made
anymore.
Mr. Pittenger. Including my own.
Mr. Miller, have you had any occasion to talk to any bank
presidents, small bank presidents, the community banks,
midsized banks, in the last year or two?
Mr. Miller. Last year or two--my brother spent his career
in banking, and a large part of that is at a community bank. My
father went to NC State, my brother was a banker. I have now
aired all my family's dirty linens.
Mr. Pittenger. No, let's be really specific. I don't have
much time. How many banks have you visited in the last year?
Mr. Miller. As a customer would be the only reason I would
visit.
Mr. Pittenger. Okay. So you really haven't had any--
Mr. Miller. When I was a member of this committee, I
frequently visited banks and credit unions.
Mr. Pittenger. I know. A law was passed. Don't you think it
makes sense to go back and say, now, I wonder what the impacts
have been of that law?
Mr. Miller. Sure.
Mr. Pittenger. Let me encourage you to do that.
Mr. Miller. I think it makes perfect sense to see what is
working, and what is not.
Mr. Pittenger. Mr. Sharp, what has been your observation in
terms of the credit markets, availability of capital in the
business community?
Mr. Sharp. It absolutely is constricted. And you touched on
a point that, if you don't mind, I want to expand on for just a
quick second.
Mr. Pittenger. Quickly. Ten seconds.
Mr. Sharp. And that is that a lot of small businesses in
the marketplace act as consumers. They use their credit cards,
they borrow against their home. And to the extent we are
limiting access to credit for consumers, there is also a knock-
on effect for small businesses. That is very important.
Mr. Pittenger. Thank you. I yield back.
Chairman Neugebauer. I thank the gentleman.
We have a vote started, but there is not a big rush to the
Floor right now; 23 people have voted. We are going to try to
get a couple more in, and we are going to go to the gentleman
from California, Mr. Sherman, for 5 minutes.
Mr. Sherman. Mr. Miller, welcome back. Meetings of the Brad
caucus have not been interesting since your departure.
We are going to focus on two bills. Mr. Pearce and I have
the bill to provide a temporary safe harbor from the integrated
disclosure requirements, and of course there is the NCUA Budget
Transparency Act that I would like to focus on first. A simple
bill, it says the budget will be transparent, people have a
right to comment on it. Can anybody think of a reason that is a
bad idea?
Mr. Sharp. Not here.
Mr. Sherman. What?
Mr. Sharp. I said, not here.
Mr. Sherman. Not here.
Any response?
Mr. Ireland. I operated in the Federal Reserve for years,
and my rule of thumb was I never wanted to be a part of
anything that I wasn't prepared to discuss before this
committee on C-SPAN. So I don't see why discussing it in a
hearing to the public should be a problem.
Mr. Sherman. Gotcha.
Let's move on to the bill on the TRID form. A cruise ship
is a very complicated piece of machinery, and if I buy a cruise
ship I want it delivered on time, I want it to depart on time,
I don't want any delays, but I expect the first use of the
cruise ship to be a shakedown cruise, because a cruise ship is
complicated and one expects that there will be some
difficulties. That is why I would not invite 3,000 trial
lawyers to come onto my ship on its shakedown cruise and invite
them to bring lawsuits should there be any failure to meet the
standards of luxury that we would aspire to.
It occurs to me that a 1,888-page regulation might be as
complicated as a cruise ship and that perhaps we ought to take
it on a shakedown cruise, not delay it, but say that if people
comply in good faith, do their best job to comply, that they
shouldn't face the lawsuits or the harsh regulatory action.
There has been a letter issued that has a sentence that
doesn't help me sleep at night. We have a bill that would, but
I am concerned on the lawsuit side.
Mr. Sharp, can you imagine a mortgage lender or escrow or
title company screwing up and getting a lawsuit because things
didn't go smoothly in August and September?
Mr. Sharp. Yes, absolutely, I can certainly imagine that.
And, Congressman, I feel like a 5-month accommodation is a
pretty reasonable thing to ask for given the complexity that
you have just described.
Mr. Sherman. It is only 1,888 pages.
And I will ask any witness here, are there folks in the
industry who are backing away from opening files or opening as
many files as they might otherwise do so in August and
September because they are concerned about whether they will be
in full compliance with these rules? Ms. Peirce?
Ms. Peirce. I have read that is what people are predicting
will happen, that there will be a period where it will be
harder for consumers to get loans.
Mr. Sherman. What I have heard is that the biggest
organizations might still be in the market, but some of the
smaller organizations will back away. That is not good for
consumers.
Can anybody think of a disadvantage to a 5-month period in
which those who try to comply in good faith are held harmless
for mistakes?
Mr. Miller, I know you had--
Mr. Miller. Not as you phrased it.
Mr. Sherman. Good. So we have two bills, I like the two
bills, and all four witnesses like the two bills. The motion
carries. And I yield back.
Mr. Miller. As you phrased it. If there is a good faith
effort by a lending institution to comply with the new regs,
which have been a long time in the works. Elizabeth Warren
testified before this committee I think probably in 2011, maybe
even the fall of 2010 when she was a newly acting director, and
that was the first thing she was working on, was trying to
develop a unified RESPA-TILA compliance.
Chairman Neugebauer. I thank the gentleman.
Mr. Sherman. If I can just comment. Just because Elizabeth
Warren is here testifying about a proposal doesn't mean a small
or medium-sized bank was working on figuring out how to comply
with the as-of-yet-not-written bill in 2011. They are just
starting to focus now.
I yield back.
Chairman Neugebauer. I thank the gentleman.
The gentleman from New Hampshire, Mr. Guinta, is recognized
for 5 minutes. After Mr. Guinta's testimony, we will recess.
Mr. Guinta. Thank you, Mr. Chairman.
Mr. Chairman, I ask for unanimous consent to submit
testimony from the National Auto Dealers Association and
letters of support into the record.
Chairman Neugebauer. Without objection, it is so ordered.
Mr. Guinta. Thank you, Mr. Chairman.
It has been over 2 years now since the CFPB issued their
flawed auto lending guidance, a guidance that was issued
without allowing a public comment period, which I find a bit
unusual. And despite 12 bipartisan letters sent to the CFPB by
Congress, they have yet to address what I would consider the
faulty and unclear guidance issued back in March of 2013.
However, I also find it a bit interesting and coincidental
to see that the CFPB finalized their rule to oversee nonbank
auto finance companies just yesterday, on the eve of today's
hearing.
What we see here is the CFPB's attempt to go outside the
formal rulemaking process and change the market without doing
their research. On November 4, 2013, Director Cordray sent a
letter in response to Senator Shaheen from my State of New
Hampshire and Senator Portman that admitted they did not take
into account the impact their guidance would have on consumers.
Ironically, they are the agency that is supposed to protect
consumers, but the guidance would in fact, in my view, harm
them, and it doesn't stop with consumers. The guidance impacts
not just auto dealers, RV dealers, motorcycle dealers,
international dealers, and even our manufacturers.
My good friend and I, Mr. Perlmutter and I, have introduced
H.R. 1737, a bill that is so simple and so narrow, that
provides just clarity, fairness, and due process. The bill
simply asks the CFPB to rescind their flawed guidance and
reissue it under a more transparent process by consulting other
regulators and allowing public comment.
So I have a couple of very quick questions. Mr. Sharp, I
would like to first address my question to you. Do you think it
would be beneficial and helpful to allow the public to comment
on guidance that would impact a longstanding auto loan practice
that has been proven to benefit consumers?
Mr. Sharp. Yes, absolutely. We strongly support the
legislation and think that this is an area where the CFPB just
got it wrong and it needs to start over. And a big part of
getting it right is understanding the market, and they are not
going to get that without asking the public and stakeholders
what the effects would be.
Mr. Guinta. Thank you. I appreciate it.
Mr. Ireland, can you tell me what your thoughts are on why
H.R. 1737 is necessary?
Mr. Ireland. I think it is necessary because the Bureau
does not take advantage of the opportunity for public comment.
Regardless of whether or not it is required, it is a fantastic
research tool and it lets you find out what the issues are and
what the problems are with what you are proposing. When I was
at the Federal Reserve, I looked at public comment as an
opportunity. I think the Bureau should view it the same way.
And if they are not going to do that, maybe they have to be led
there. And that is what this bill does, and I think that is
appropriate.
Mr. Guinta. Thank you very much.
Ms. Peirce, do you agree that the public should have the
ability to comment on the CFPB guidance?
Ms. Peirce. Yes. I think generally, and Mr. Ireland alluded
to this before, doing material guidance of any kind is always
enhanced if you have a public process. And also, if they did it
by rulemaking, they would have to consider the costs, and that
is really important. Obviously, as you mentioned, it is
important for them to consider what the effect on consumers
would be.
Mr. Guinta. Mr. Miller, would you concur?
Mr. Miller. No, not so much.
Mr. Guinta. You don't think that the public should have
the--
Mr. Miller. I think it should be consultative. I do not
think it should necessarily require the full notice of comment
of the Administrative Procedures Act, which is almost as
tortured as trying to pass a bill through Congress. It is not
all unusual for agencies to proceed on a case-by-case basis,
recognizing they can't anticipate every circumstance. And it is
usually the regulated industry that asks for guidance, kind of
tell us how you are thinking about this.
And the guidance that CFPB issued seems to make a lot of
sense to me. You are now buying loans, and you have a portfolio
in which White borrowers in the same circumstances, with the
same credit score, with the same loan-to-value, have
significantly lower interest rates, and you have liability for
that. And if you want to avoid liability, you might want to
think about the way you are going about buying those loans.
Mr. Guinta. Reclaiming my time, I think that I would
respectfully disagree. I think the public should have the
ability to issue public comment, considering they are now being
viewed by the CFPB in a very, very different way.
Chairman Neugebauer. The time of the gentleman has expired.
I am now going to squeeze in Mr. Williams from Texas. You
are recognized for 5 minutes.
Mr. Williams. Thank you, Mr. Chairman.
Before I begin discussion of my bill, the State Licensing
Efficiency Act of 2015, I would be remiss if I didn't comment
on Mr. Guinta's indirect auto financing bill. As all of my
colleagues know, this is an issue that is very personal to me.
As a small business owner, and, Mr. Miller, a car dealer for 44
years, I have never seen such an overreach by a Federal agency
as we are seeing today with the CFPB and indirect auto lenders.
After issuing guidance in 2013 with zero input from Congress
and zero input from the industry, nothing the Bureau does
surprises me anymore.
As an original cosponsor of Mr. Guinta's bill, I strongly
support his effort, and I hope this committee and this Congress
send a strong message to Director Cordray that his actions have
not gone unnoticed and that the consumer knows better than the
Federal Government what a good deal is and what a bad deal is.
With that being said, the State Licensing Efficiency Act,
H.R. 2643, that I am sponsoring will expand the State's
liability to use a federally accepted registry, the National
Multi-State Licensing System, to expedite the existing
background check process. I would like to ask unanimous consent
to submit a support letter for the record from the Conference
of State Bank Supervisors and their president and CEO, John
Ryan.
Chairman Neugebauer. Without objection, it is so ordered.
Mr. Williams. The current NMLS has been used to oversee the
mortgage industry since 2008, but the FBI has prevented State
regulators, citing an absence in Federal law, from expanding to
use its conduct background checks for other financial services,
such as companies like MoneyGram, who support this legislation.
My first question is for Mr. Ireland. You said in your
testimony that using the NMLS for nonmortgage financial
services could cut as much as 3 weeks out of the process for
licensing these financial providers. The turnaround time for
the background checks for other financial services providers,
in fact, can take weeks, if not months.
Please help me and this committee understand how and why
there is such a wide discrepancy in processing background
checks for mortgage loan originators and other financial
services providers. Can you expand on how a quicker process
would potentially improve consumer choice?
Mr. Ireland. The mortgage loan process that is currently in
place is fully automated. You can scan fingerprints, you can
query the database, and you can get a response on the
background check in, I understand, 2 hours.
If you don't have access to that system, you are in a
manual system. I am told by the Conference of State Bank
Supervisors' representatives that it is about a 3-week process
at a minimum, and it obviously can take longer than that, to go
through that manual system. And that just seems to me to be
needless bureaucracy. If you have a more efficient system, you
ought to let the States use it, and you ought to let them use
it for all their legitimate licensing purposes.
Mr. Williams. I appreciate that, and I appreciate you all
coming today.
And I yield back my time, Mr. Chairman.
Chairman Neugebauer. I thank the gentleman.
The committee will now stand in recess, but resume after
votes. I encourage Members to return as quickly as possible.
This vote is--actually, it is about over. So I would ask our
witnesses to be patient. We will be right back.
[recess]
Chairman Neugebauer. The committee will come to order.
Thanks again for your patience to our panel.
I now recognize the gentleman from Missouri, Mr.
Luetkemeyer, the chairman of our Housing and Insurance
Subcommittee, for 5 minutes.
Mr. Luetkemeyer. Thank you, Mr. Chairman.
And thank all of you for waiting.
Let's start out with Mr. Ireland. You have been with the
Federal Reserve in the past for quite some time, have been
involved with bank examinations. Have you ever seen anything
like Operation Choke Point before in all the years of your
being around the banking industry, sir?
Mr. Ireland. No, I never saw anything like that before, and
if I had, I would have tried to stop it.
Mr. Luetkemeyer. It is interesting. We had William Isaac,
the former FDIC Chair here, he testified some time ago, about a
year ago, as a matter of fact, and his comment was that he had
never seen anything like this in his 45 years being in the
banking business as a consultant or even as Chairman of the
FDIC.
One of the things that Mr. Miller brought up in his
testimony a while ago was with regards to FIRREA. It seems as
though in the testimony of my colleagues, they like all the
bill except that part of it. And so my thought process is, and
what I have heard from the banking industry, is that FIRREA
originally was law to be able to allow banks to protect
themselves against fraud, but what has happened is DOJ has
flipped that and now it has expanded and reinterpreted the law
to be able to use it against them for fraud. What I try do in
my bill is narrow it back down to the original intention.
So, Mr. Ireland, what do you think about that part of the
bill?
Mr. Ireland. I didn't have any problem with that. It seemed
to me you made the language of what it covered a little clearer
and you elevated the subpoena power in the Justice Department
to more senior officials, but still allowed it to be exercised
within the Justice Department.
I lived through FIRREA, and we were trying to get the
people who had been cheating thrifts with that provision, and I
think what you have done is consistent with the original
intent.
Mr. Luetkemeyer. I think that is what we are tying to do,
is continue to allow those agencies to do their job, but at the
same time stop the nonsense, because, as our good friends on
the Oversight and Government Reform Committee have found, in
getting access to the emails and internal memos and offering a
report on both agencies, DOJ and FDIC, in their own words, say
that the collusion is going on and their intent is beyond that
of money laundering. Their intent is to ``drive them out, drive
the industry out of business,'' as well as these industries
don't have the moral right to exist. I have told the FDIC
Chairman, ``You are not in the business of being the moral
police; you are supposed to be an enforcer of the existing
laws.''
Mr. Sharp, as a representative from the U.S. Chamber of
Commerce, I know in January the FDIC put in some new protocols
with regards to how they were using their enforcement ability
with regards to banks, and said that they would stop doing
Operation Choke Point activities. Have you seen that yet?
Mr. Sharp. Thank you, Congressman. I would say that my
phone hasn't stopped ringing about concerns about Operation
Choke Point. So to whatever degree the FDIC or other government
agencies have tried to give people comfort that there is
nothing to see here, it is not giving companies the kind of
comfort that we would all like them to have.
Mr. Luetkemeyer. It is interesting, because the FDIC agreed
that the protocols that I have in the bill, H.R. 766, were what
they put in place and actually did a little bit more, to their
credit. And so I am excited that they are willing to work with
us, but I have yet to see the fruitions of those changes.
And like you, I have an email address that they can email
me, the industry, individuals who are being hurt by Operation
Choke Point, can actually email us and tell their stories. And
so we still get some stories. And, unfortunately, that is why
we have to have the bill, to be able to stop this.
And so it is interesting from the standpoint that these
agencies, which are supposed to be enforcing the law, are
making it up as they go and they are taking out their own ideas
and ideology and moral value system on our citizens.
Ms. Peirce, I know that you probably have some experience
with this as well. I know you testified in support of the bill.
Can you tell me a little bit about what your opinion of that is
and what your experience has been?
Ms. Peirce. Yes. And I should clarify that I can't either
support or recommend against supporting a bill, but I will say
that Operation Choke Point and similar programs to try to have
regulators either indirectly or directly tell banks the
businesses they can deal with are really damaging and really
impair the ability of a bank to serve its clientele. And I
think that is really harmful to--essentially the government is
controlling access to capital.
Mr. Luetkemeyer. As a former regulator myself in one of my
past careers, it is certainly disheartening to see this happen,
from the standpoint that this is not the way we ever did it
when I was there, and to see this punitive way of going about
their enforcing the law is certainly disconcerting.
With that, I yield back the balance of my time. Thank you,
Mr. Chairman.
Chairman Neugebauer. I thank the gentleman.
Now the gentleman from Colorado, Mr. Tipton, is recognized
for 5 minutes.
Mr. Tipton. Thank you, Mr. Chairman. And I would like to
ask unanimous consent to enter into the record a letter from
the Independent Community Bankers of America supporting H.R.
1553.
Chairman Neugebauer. Without objection, it is so ordered.
Mr. Tipton. Thank you, Mr. Chairman. I would like to thank
you and the ranking member for holding this hearing today, and
to thank our panelists for taking the time to be here as well.
H.R. 1553, the Small Bank Exam Cycle Reform Act, a piece of
legislation I introduced with Ranking Member Clay, is a
targeted relief effort for community banks. These small banks,
which did not cause the financial crisis, are unfortunately
suffering from the regulatory blowback.
The legislation moves the asset threshold from $500 million
to $1 billion for well-run institutions to qualify for an 18-
month exam cycle. This proposal is based on an OCC
recommendation and will help alleviate the burdens on community
banks, as well as bank examiners, also permitting community
banks to be able to focus their time and resources on the
surrounding community rather than on the exam process.
Mr. Ireland, I appreciate your taking time to be able to be
here today. One of the most pressing concerns that we hear from
our constituent banks in my district is the cost of compliance,
keeping in mind that these are small community banks that are
locally owned and operated. Mr. Ireland, can you speak to on-
site examination processes and what are some of the
requirements in terms of preparation for an exam and resources
that are used for an exam?
Mr. Ireland. Typically, what will happen is that the
examiners will tell the institution that they are coming in.
They ask them to get together materials to respond to what they
intend to examine, what they intend to focus on. And then they
come on-site, and they are going to look at the bank's
documentation, the bank's processes, the bank's procedures.
Depending on how they view those, it may be more intensive or
somewhat less intensive.
It is a time-consuming, costly process for the institution.
I would point out, it is a time-consuming, costly process for
the agencies as well. And what your bill does is requires them
to more risk focus their examination process on the larger
organizations and complex organizations where there are real
problems. It is in agencies' interest just as well as it is in
the interest of the smaller banks.
Mr. Tipton. So it would be just common sense to be able to
extend that for well-run banks?
Mr. Ireland. I think it is.
Mr. Tipton. Great. I appreciate your comments on that.
And I would like to be able to maybe perhaps now move to
Mr. Sharp. You had cited in your testimony that the CFPB must
respect the limits of its authority. And is it your sense that
we are seeing the CFPB reach beyond what was original
legislative intent?
Mr. Sharp. Thank you for that question, Congressman. Yes,
we are seeing that, not everywhere, but we are certainly seeing
it in a number of places. In fact, I would submit that some of
what we are seeing, again in the indirect auto lending market,
is a result of the Bureau trying to reach beyond a limitation
that Congress put in front of it to regulate vehicle sales.
They have used the lenders that they do regulate to sort of get
to the auto dealers, who are exempted under the law, and we
have an issue with that. And there are several other examples
that I am happy to submit for the record if it would be
helpful.
Mr. Tipton. Great. And we would appreciate that.
And I think that brings us to Mr. Miller, who had served
here in Congress. We have one man making a decision
unilaterally, U.S. Chamber of Commerce, others are noting,
going beyond legislative intent. As a former legislator who had
sat in this committee, following your logic, can you speak as a
former member of the committee on how that would benefit us
here?
Mr. Miller. First, I would disagree with Mr. Sharp about
the auto loan guidance.
Mr. Tipton. We can go on that, but I am just talking about
the policy of having power relegated to one person. How would
that benefit the citizens?
Mr. Miller. There are agencies who do it both ways. There
are agencies that have a commission.
Mr. Tipton. They do, but we are dealing with the CFPB that
has one.
Mr. Miller. And then there are agencies that have one. And
there are some advantages in having a commission, as Ms. Peirce
pointed out. And I agree with what Mr. Neugebauer said, it
provides some more complex--
Mr. Tipton. Do you think legislative intent, as a former
legislator, Mr. Miller--
Mr. Miller. Oh, I know very well the legislative intent. I
entered into the first bill.
Mr. Tipton. Should it be respected, sir?
Mr. Miller. What is that?
Mr. Tipton. Should it be respected?
Mr. Miller. The bill as introduced is not the bill as
passed. So the legislative intent is usually what Congress did,
not what somebody earlier said.
Mr. Tipton. So you don't believe or you do believe that
legislative intent should be respected?
Mr. Miller. What?
Mr. Tipton. You do or don't believe legislative intent
should be respected?
Mr. Miller. Yes, but it--
Mr. Tipton. Okay. I appreciate that.
Now, if we were to empower Mr. Neugebauer with all of the
power in this committee to be able to make the determinations
on which bills are going to be moving forward, what is going to
be heard, would you be comfortable with that?
Mr. Miller. Actually, that was pretty much my experience. I
didn't always like it.
Legislative intent is not what one or two Members thought.
It is not how a bill is introduced. It is what Congress did. It
is what the bill passed. So the fact that the bill was
originally introduced with a commission does not mean it was
the legislative intent to have a commission, when Congress in
fact passed a bill with a director.
Chairman Neugebauer. The time of the gentleman has expired.
I now go to the gentleman from Pennsylvania, Mr. Rothfus,
for 5 minutes.
Mr. Rothfus. Thank you, Mr. Chairman.
And thanks to our panel this afternoon. It is getting late
here.
Before I turn to my questions for the panel, I would like
to first take a moment to commend Mr. Westmoreland on his
Financial Institutions Examination Fairness and Reform Act, of
which I am a cosponsor, and to offer this letter that was sent
by a community bank in my district. The letter expresses strong
support for the proposed legislation and includes examples to
illustrate why changes to the examination appeals process are
desperately needed. The letter also stresses the vital need for
independence in the appeals process, and it offers what I
believe are good ideas about how we can go about ensuring that.
Mr. Chairman, I would ask unanimous consent to enter this
letter into the record.
Chairman Neugebauer. Without objection, it is so ordered.
Mr. Rothfus. I would also like unanimous consent to enter
letters of support for H.R. 1660, the Federal Savings
Association Charter Flexibility Act, from the American Bankers
Association, the Independent Community Bankers of America, and
the Pennsylvania Association of Community Bankers.
Chairman Neugebauer. Without objection, it is so ordered.
Mr. Rothfus. Thank you, Mr. Chairman.
Mr. Ireland, I would like to direct your attention for the
next few minutes to H.R. 1660, the Federal Savings Association
Charter Flexibility Act, which I have introduced. As you may
recall, this legislation permits a Federal savings association
to elect to operate, subject to supervision by the Office of
the Comptroller of the Currency, with the same rights and
duties of a national bank.
On a basic level, could you please describe how Federal
savings associations differ from other types of financial
institutions and what sort of constraints they face as a result
of their structure?
Mr. Ireland. Many of the savings associations are a mutual
form of structure. They are not the for-profit corporate form
of structure that a national bank has. And coming from a
different charter and a somewhat different regulatory
structure, their powers are different than a national bank. In
some respects, they are more limited in the lending that they
can do and they have a qualified thrift lender test, for
example.
Mr. Rothfus. I have heard from many Federal savings
associations in western Pennsylvania and around the country
that they would like the option of offering a broader range of
services so they can better serve the needs of their local
communities. Why wouldn't these institutions just convert their
charter?
Mr. Ireland. It costs money. You have to redo your
corporate structure and you are going to have to go through an
application process to become a national bank. It is going to
take time and money. And what your bill does is it allows them
to do that in a streamlined, seamless way without that cost and
time.
Mr. Rothfus. Would H.R. 1660 effectively address those
costs and burdens--
Mr. Ireland. Yes.
Mr. Rothfus. --particularly for smaller institutions?
Mr. Ireland. Yes.
Mr. Rothfus. In your testimony, you state that it is
important to appropriately balance caution and restraint with
the ability to innovate and to provide financial services to
consumers and businesses. Do you believe that H.R. 1660
achieves that appropriate balance of a Federal savings
association?
Mr. Ireland. Yes, I can't see any reason why you wouldn't
do H.R. 1660. I just don't see another side to it. It is a
streamlining of the regulatory system. You get benefits out of
it. I don't see any costs.
Mr. Rothfus. Ms. Peirce, you state in your testimony that
H.R. 1660 is consistent with regulatory streamlining efforts
that are being undertaken by the Office of the Comptroller of
the Currency and the Economic Growth and Regulatory Paperwork
Reduction Act (EGRPRA) process. Can you explain this in more
detail?
Ms. Peirce. Sure. The EGRPRA process is intended every 10
years to take a look at regulatory burdens on banks and to see
if there are any ways that those can be lightened that are
consistent with safety and soundness. And this is an area where
the OCC has focused some attention, and it seems like this is
an area where you could eliminate a regulatory burden, a
regulatory cost without causing any safety and soundness
issues.
Mr. Rothfus. So would H.R. 1660 achieve those results?
Ms. Peirce. Yes. That seems to be the purpose of the bill,
is to eliminate regulatory cost.
Mr. Rothfus. You mentioned in your testimony that financial
regulation needs periodic updating to reflect changing
conditions on the ground for both regulators and regulated
entities. Do you believe that H.R. 1660 fits within that
category?
Ms. Peirce. Yes. I think it is an effort that is designed
to look at the existing structure and say: Hey, does this make
sense, can we make a change to it?
Mr. Rothfus. Here is a question, if each of the members of
the panel could respond. The title for this hearing is,
``Examining Legislative Proposals to Preserve Consumer Choice
and Financial Independence.'' Do you believe that H.R. 1660
fits that description, advances that goal?
Mr. Sharp?
Mr. Sharp. Yes.
Mr. Rothfus. Ms. Peirce?
Ms. Peirce. Yes.
Mr. Rothfus. Mr. Ireland?
Mr. Ireland. Yes.
Mr. Rothfus. Congressman Miller?
Mr. Miller. I am simply not that familiar with your
legislation. I'm sorry.
Mr. Rothfus. I would invite you take a look at it.
Thank you. And I yield back.
Chairman Neugebauer. I thank the gentleman.
And now one of our newest members of the full committee and
the subcommittee, Mr. Emmer from Minnesota, is recognized for 5
minutes.
Mr. Emmer. Thank you, Mr. Chairman.
And thank you to the panel. Thanks for coming back. I love
this place. You sit down, you get into something, a bell goes
off, and you jump up and run somewhere else.
Very quickly, there are so many places that you can go, but
in 5 minutes, I just have a few questions. First, Mr. Sharp,
for you, representing the business community, if you will,
would you agree with me that in order for businesses to not
just survive, but to thrive and create new opportunities, there
is a certain amount of certainty, stability, predictability
that is required in the marketplace?
Mr. Sharp. Yes. Absolutely.
Mr. Emmer. And it helps businesses to plan for the future.
Would you agree with that?
Mr. Sharp. Yep. Absolutely. Again, one of our sort of
central tenets is companies need clear rules of the road.
Mr. Emmer. And, Ms. Peirce, you have talked a little bit
about regulation. Not all regulation and government oversight
is bad. There is a place for it. But when you have a moving
target, when the rules of the road, as Mr. Sharp was just
talking about, are constantly on the move, that is not a good
thing. Wouldn't you agree?
Ms. Peirce. Yes. It is a very difficult environment within
which to do business, and often old rules just get left in the
place and new rules get piled on and there is constant change.
Mr. Emmer. And, Mr. Ireland, for you, what is important is
not just the predictability, but competition in the marketplace
is a good thing. And I know that the regulations that a lot of
these pieces or these proposals are addressing, the regulations
that they are trying to remedy or address were intended to
protect the consumer, the customer, but, in fact, if you
suffocate the ability for the marketplace to work, if you by
overregulation in creating these unintended consequences
eliminate competition--for instance, community banks, we have
closed 1,500 community banks in this country since Dodd-Frank
was enacted and we are consolidating countless numbers every
month.
That consequence related to this regulation, would you
agree that erodes the quality that the consumer would like to
get in the marketplace?
Mr. Ireland. It reduces access to financial services for
consumers and small businesses and, in some cases, larger
businesses. Personally, I think that the state of our economy
and our recovery is in part a reaction to the way the financial
services industry is being regulated.
Mr. Emmer. Right. Thank you.
Where I want to end, because this is the one area that I am
going to touch on in my last 2 minutes, I have major concerns
with the all-powerful, unaccountable, one-person, top-down
CFPB, this thing called the CFPB. And I can't believe that
anyone with a straight face would say that absolute power is
good, which is why I support the chairman's bill for a board,
as opposed to one person.
But of the many examples or problems that I or my
constituents would point out when it comes to this CFPB, not
the least of which is the lack of accountability and oversight
by Congress, one of the big ones I have has to do with auto
loans. And I have a quick story in the last minute.
I have an auto dealer in St. Cloud, Minnesota, in my
district, who wrote to me and said: I had a referral customer
come into my dealership. She didn't really know what to expect,
because she had bad credit due to student loan issues. She told
the dealer right away that she had bad credit from student
loans, but she was making partial payments. After reviewing her
credit application, the dealer submitted it to five banks. Two
turn-downs was the result, one conditional approval, and two
approvals. One of the approvals came in at a rate of 13.99
percent and the other came in at a Tier 2, which has a
subvented rate of 2.9 percent.
After showing this young lady the car and the payment with
the interest rate that they were able to get approval for, they
had a customer on their show floor who was in tears of joy, and
in his words, `` We had a customer for life.''
What he is concerned about is this rulemaking authority and
maybe requiring to eliminate competition in the marketplace,
the result of a one-size-fits-all rule. I have major concerns
about that too. That is why I am a cosponsor of the Guinta
bill.
But one of the three that I just asked--and no offense to
Mr. Miller, but I think I know where he is at on this--I would
like to--I guess I ran out of time.
Chairman Neugebauer. I thank the gentleman.
Mr. Emmer. Maybe I could follow up with you after.
Thank you, Mr. Chairman.
Chairman Neugebauer. Without objection, I am pleased to
recognize the gentleman from Maine, Mr. Poliquin, who is not a
member of the subcommittee, but is a member of the full
Financial Services Committee, for 5 minutes.
Mr. Poliquin. Thank you, Mr. Chairman, very much. I
appreciate the opportunity to sit on this panel this afternoon,
and I salute you and everybody else on the committee and those
testifying before us today to address about a dozen very
important bills, all of which are designed to help not only our
hard-working families up in Maine's Second District, which is
the west-central, northern, and down east part of our great
State, but all across America.
I must speak up, Mr. Miller, and this is directed to you,
sir. I was a little bit surprised, sir, when we were talking
about, as Mr. Emmer did and other folks here, about the CFPB.
This is an organization, a regulator that has tentacles
throughout our economy into all of our families' homes, all of
our small businesses, and here is a fellow who runs this
organization, who is appointed by the President, has a 5-year
term, reports to nobody, and there is no appropriation process,
so Congress has very little, if any, oversight. The money to
run the CFPB comes from the from the Federal Reserve, so there
is no oversight.
So when you, sir, with all due respect, state that you
think that is a great structure, well, when I was State
treasurer in Maine--I am not done, sir--when I was State
treasurer in Maine, we had a problem with other agencies like
this, and we made sure they were accountable to the State
legislature, accountable to other folks, and it corrected a lot
of problems that we had.
So I am a little bit disappointed with you, but I do
understand that you have the right to your opinion. I just
disagree with it.
Now, moving on, if I may, Mr. Chairman, I am very pleased
to support and cosponsor Congressman Barr's bill. This is a
very thoughtful bill that was put together in trying to deal
with the liquidity problems in our commercial banks, our small
commercial banks and community banks in Maine and our credit
unions throughout the State have in extending credit and loans
to families and small businesses they might have known for 3 or
4 generations.
So when you have, for example, someone trying to borrow
money to maybe buy a pickup truck up at the Quirk Chevrolet in
Bangor and they want to borrow the money from Bangor Savings
Bank, why should Bangor Savings Bank be under the same
regulatory environment of some of our largest money center
banks that have tentacles throughout our economy, especially
when this bank is going to assume complete control and
authority and responsibility for that loan, not sell it to the
secondary market? It doesn't make any sense to me.
So I want to salute, Mr. Chairman, Mr. Barr for trying to
make it very simple and easy for these banks to continue to
lend credit throughout our economy.
Now, I would like to bring my attention in my final couple
of minutes, Mr. Chairman, to a bill that I am sponsoring with
Mr. Ellison from Minnesota. It is H.R. 2091. Now, this is a
very, very important bill in that those of us who have been
blessed with kids understand that we as parents have a unique
responsibility to care for our kids, keep them safe, and make
sure they have a safe place to live, they have enough to eat,
and they get enough to put on their plate, they are well-
educated and clothed.
This bill makes a very small technical change that is so
important. It is called the Child Support Assistance Act, H.R.
2091, and it simply makes it easy for our child support
agencies to make sure they have the ability to collect
parental, noncustodial parental assistance for families who
have been designated, and parents, noncustodial parents who
have been designated to provide child support to these
families. And it does not impinge in any way on the rights that
these parents have. It just makes the child support agencies
better able to access their employment history, such that these
payments can be made on behalf of these kids to make sure that
they are cared for.
So I want to thank the chairman for this opportunity to
speak up on behalf of this bill, the Child Support Assistance
Act, H.R. 2091. And I would like to, if I may, Mr. Chairman,
ask unanimous consent to enter a letter into the record from
the National Child Support Enforcement Association, which
supports this bill. And again, I give a special thanks to Mr.
Ellison from Minnesota for cosponsoring this for me. And I ask
everybody on this committee to stand up and support an
opportunity to help our kids.
Thank you very much, Mr. Chairman. I yield back.
Chairman Neugebauer. Without objection, the gentleman's
letter will be made a part of the permanent record.
I would like to thank our witnesses for your testimony
today, and more importantly, I want to thank you for your
patience. This is kind of the season where things like this
happen, and you have been great troopers and I appreciate that.
Without objection, I would like to also submit the
following statements for the record: the Conference of State
Bank Supervisors; the Independent Community Bankers of America;
the American Bankers Association; the National Association of
Federal Credit Unions; and the Joint Trades in support of H.R.
1266. Without objection, those statements will be made a part
of the record.
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.
And with that, the hearing is adjourned.
[Whereupon, at 5:30 p.m., the hearing was adjourned.]
A P P E N D I X
June 11, 2015
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