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


               FIELD HEARING IN NORTH LAS VEGAS, NEVADA: 
              REGULATORY OVERLOAD: THE EFFECTS OF FEDERAL  
                     REGULATIONS ON SMALL FIRMS

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

                                HEARING

                               BEFORE THE

       SUBCOMMITTEE ON INVESTIGATIONS, OVERSIGHT AND REGULATIONS

                                 OF THE

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD
                            NOVEMBER 6, 2015

                               __________

[GRAPHIC NOT AVAILABLE IN TIFF FORMAT] 
                               

            Small Business Committee Document Number 114-028
              Available via the GPO Website: www.fdsys.gov
                   
                   
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                   HOUSE COMMITTEE ON SMALL BUSINESS

                      STEVE CHABOT, Ohio, Chairman
                            STEVE KING, Iowa
                      BLAINE LUETKEMEYER, Missouri
                        RICHARD HANNA, New York
                         TIM HUELSKAMP, Kansas
                         CHRIS GIBSON, New York
                          DAVE BRAT, Virginia
             AUMUA AMATA COLEMAN RADEWAGEN, American Samoa
                        STEVE KNIGHT, California
                        CARLOS CURBELO, Florida
                          MIKE BOST, Illinois
                         CRESENT HARDY, Nevada
               NYDIA VELAZQUEZ, New York, Ranking Member
                         YVETTE CLARK, New York
                          JUDY CHU, California
                        JANICE HAHN, California
                     DONALD PAYNE, JR., New Jersey
                          GRACE MENG, New York
                       BRENDA LAWRENCE, Michigan
                       ALMA ADAMS, North Carolina
                      SETH MOULTON, Massachusetts
                           MARK TAKAI, Hawaii

                   Kevin Fitzpatrick, Staff Director
            Stephen Denis, Deputy Staff Director for Policy
            Jan Oliver, Deputy Staff Director for Operation
                      Barry Pineles, Chief Counsel
                  Michael Day, Minority Staff Director
                            
                            C O N T E N T S

                           OPENING STATEMENTS

                                                                   Page
Hon. Cresent Hardy...............................................     1

                               WITNESSES

Mr. Spencer Hafen, President & CEO, Nevada Bank and Trust 
  Company, Caliente, NV, testifying on behalf of the Nevada 
  Bankers Association............................................     3
Ms. Robin E. Simmers, CEO, Pahranagat Valley Federal Credit 
  Union, Alamo, NV, testifying on behalf of the Nevada Credit 
  Union League...................................................     4
Mr. David Jennings, Board Member, Southern Nevada Home Builders 
  Association, Las Vegas, NV.....................................     6
Mr. Mendis Cooper, General Manager, Overton Power District Number 
  5, Overton, NV, testifying on behalf of the Nevada Rural 
  Electric Association...........................................     8

                                APPENDIX

Prepared Statements:
    Mr. Spencer Hafen, President & CEO, Nevada Bank and Trust 
      Company, Caliente, NV, testifying on behalf of the Nevada 
      Bankers Association........................................    20
    Ms. Robin E. Simmers, CEO, Pahranagat Valley Federal Credit 
      Union, Alamo, NV, testifying on behalf of the Nevada Credit 
      Union League...............................................    26
    Mr. David Jennings, Board Member, Southern Nevada Home 
      Builders Association, Las Vegas, NV........................    34
    Mr. Mendis Cooper, General Manager, Overton Power District 
      Number 5, Overton, NV, testifying on behalf of the Nevada 
      Rural Electric Association.................................    90
Questions for the Record:
    None.
Answers for the Record:
    None.
Additional Material for the Record:
    None.

 
 REGULATORY OVERLOAD: THE EFFECTS OF FEDERAL REGULATIONS ON SMALL FIRMS

                              ----------                              


                        FRIDAY, NOVEMBER 6, 2015

                  House of Representatives,
               Committee on Small Business,
     Subcommittee on Investigations, Oversight and 
                                       Regulations,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 2:00 p.m., at 
the North Las Vegas City Hall, Council Chambers, 2250 N. Las 
Vegas Blvd., North Las Vegas, Nevada, Hon. Cresent Hardy 
[Chairman of the Subcommittee] presiding.
    Present: Representative Hardy.
    Chairman HARDY. Good afternoon.
    I'd like to thank you all for being here today. I'd like to 
call this meeting to order.
    Since this is a Congressional hearing, we are going to 
begin, as we do with everything in every session in the House 
of Representatives, with a prayer and posting of the colors and 
the Pledge of Allegiance.
    I now recognize Pastor Matt Teis, of the Liberty Baptist 
Church in Las Vegas, to lead us in the prayer.
    Pastor TEIS. Please join me in prayer.
    Lord Jesus, today we come before you. We're thankful for 
all you have given us. The freedoms that we enjoy in this 
country are a gift from you. As our founders recognize, we 
recognize the same today.
    Father, we pray that you would be with Congressman Hardy. 
Give him wisdom. Thank you for putting him in the position that 
he's in today. Father, as he hears testimonies and insight from 
the men and women present here, I pray that you give him wisdom 
and insight on courses to take and directions that we should 
follow as a nation.
    Lord, we are so thankful for all you have given us and I 
pray that you would bless this room, bless this time, and keep 
us safe. Thank you for the veterans who serve us and give us 
the freedoms that we enjoy.
    Thank you most of all for Jesus, who died, was buried, and 
lives again to pay for our sins. We ask all this in His name.
    Amen.
    Chairman HARDY. Thank you. I'd like to recognize the Nellis 
Air Force color guard to post the colors, and I would like you 
to remain standing.
    [Colors posted.]
    You may be seated.
    I'd like to give a special thanks to all our military men 
and women who participated today, and as you know, Veterans Day 
is upcoming this Wednesday, and I'd like to personally thank 
each and every one of you for your service to your country 
personally. Thank you very much.

OPENING STATEMENT OF REP. CRESENT HARDY, (R-NV) CHAIRMAN, HOUSE 
  SUBCOMMITTEE ON INVESTIGATIONS, OVERSIGHT AND REGULATIONS, 
                  COMMITTEE ON SMALL BUSINESS

    Chairman HARDY. Today's hearing will focus on the topic 
that I am passionate about: Reducing the burden of regulation 
on small businesses.
    One of the most--one of the biggest concerns I hear from 
small businesses and their owners, both in Nevada's Fourth 
District and around the country, is that Federal regulations 
have gotten out of control. So it is to no surprise that in a 
September 2015 survey Federal regulations were tied with taxes 
as the number one issue affecting small business owners.
    Agencies publish thousands of final regulations every year 
on diverse subjects including, but not limited to, workplace 
safety, finance, environmental protection, health care, energy 
conservation and endangered species.
    In 2014 alone, Federal regulators issued over 2,400 new 
rules, of which 77 were classified as major. To me, this seems 
like a little bit of an over onslaught of new red tape.
    While I understand the need for some level of regulation, 
I'm concerned that small businesses are not being heard, or 
even considered, when these rules come down through the 
pipeline. Small businesses, as we hear today, are unique and 
disproportionately affected by the cost of regulation. A 
company with under 50 employees annually spends 17 percent more 
than the average company to comply with federal regulations.
    While this may not seem like much, just imagine if that 17 
percent could be used differently, for hiring additional 
employees, and other issues.
    As Chairman of a Subcommittee over Investigation, Oversight 
and Regulation, I am working hard to help ensure the regulatory 
burdens on small firms are reduced so that these businesses can 
focus on creating jobs and spurring on economic growth.
    I would like to thank each of the witnesses for taking time 
to be here and provide their testimony today on the ways we can 
work together to reduce regulatory burdens on small businesses. 
I look forward to hearing your testimony.
    We'll now explain the timing of the clock. If a Committee 
member has, first, if any Committee member has an opening 
statement prepared, I ask that they might be submitted for the 
record.
    I'd like to take a moment to explain the timing lights for 
you. You will have five minutes for your testimony, to deliver 
that testimony. The light will start out green. When you have 
one minute remaining it will turn yellow. Finally at the end of 
your five minutes it will turn red. I ask that you try to 
adhere to that. We will have a little extra flexibility.
    With that being said, we would like to start with the 
introductions. Mr. Hafen is our first witness. Mr. Hafen is the 
president and CEO of Nevada Bank and Trust, headquartered in 
Caliente, Nevada. Mr. Hafen is testifying on behalf of Nevada 
Bankers Association. Welcome, and you have five minutes, and 
you may begin.

STATEMENT OF SPENCER HAFEN, PRESIDENT & CEO OF NEVADA BANK AND 
     TRUST COMPANY ON BEHALF OF NEVADA BANKERS ASSOCIATION

    Mr. HAFEN. Thank you, Mr. Hardy. I guess I should push my 
button so everybody can hear.
    Thank you, Mr. Hardy, Representative Hardy, for the 
opportunity in which I can spend just a few minutes and to 
share some of my thoughts on the regulatory environment in 
which we do business.
    I'd like to tell the Committee just a little bit about 
myself and about the bank in which I work. I grew up in Nevada. 
I'm a native Nevadan, and I've lived in Nevada for over 40 
years. I'm grateful for the opportunity to represent the Nevada 
Bankers Association today. I'm the President, as you mentioned, 
the President & CEO of Nevada Bank and Trust, a small community 
bank located in Caliente, Nevada, with assets right around $112 
million.
    This bank was created by a group of small businessmen in 
1978. This group of small businessmen had to travel over 30 
miles to do their banking at that time, and sometimes I think 
30 miles isn't much, but in '78 it was quite the chore to go up 
the hill to Pioche.
    So this group of gentlemen, they got together and they 
formed this little bank, and from the time of its inception to 
the peak of its existence it had nine branches. Their dream was 
to have a small bank in every small town along US 93, which as 
many of you know, travels from southern Nevada clear to the 
northern tip of Nevada and on, and they accomplished that.
    As regulations mounted and pressure came from regulators, 
the idea of having a profitable branch was questioned 
constantly, and so now we have four branches. Because many of 
the branches were not profitable, although they provided a 
service, they were closed. So now we have branches in Caliente, 
Mesquite, Ely, and Elko.
    Some of the regulation, the over-burdening regulation that 
I would like to address in the remainder of my time have to 
deal with primarily results of the Dodd-Frank Act. As you may 
know, that act is they have instilled 398 new rules resulting 
in at least 22,534 pages of information, and I note that that's 
only about two-thirds of the entire act. So we have plenty to 
look forward to.
    A few items that come out of Dodd-Frank that at first were 
to make our lives easier as bankers, one being the recent TRID 
rule, or the combining of TILA and the RESPA disclosures when 
someone wants to get a home mortgage. That rule came into 
effect on October 3rd and I'll just tell you how it has 
affected us.
    For over 30 years we have been able to do home mortgages, 
providing mortgages that I refer to ``out of the box'' in rural 
Nevada. ``Out of the box'' meaning that these are people who 
have come to get a mortgage and just don't fit the box that 
many of the large institutions offer.
    But we would offer those mortgages. We would write those 
loans, and we would keep them on our books for the life of 
those loans.
    But with this new regulation, although it was intended to 
make things easier, the compliance, and making sure that we are 
compliant to the rule had become over-burdening, to the point 
where our Board, my Board has voted to stop mortgages.
    Now the problem with this is at the end of the day it 
doesn't really hurt us as a bank, because it was never really a 
money-maker for us. We barely did maybe 12 to 18 mortgages a 
year.
    But now there's 12 or 18 people across the State of Nevada 
won't be able to get a mortgage because we can't offer it, so 
they are going to go somewhere else. That's one of the 
regulations that's really put a burden on us.
    Now there are other regulations that have caused issues, 
that have caused us to either stop offering services and look 
at other ways to provide services. One thing that I think we 
would remember is the unintended acts and the results of some 
of this regulation that's really come down on us. Thank you, 
Representative Hardy.
    Chairman HARDY. Thank you, Mr. Hafen.
    I'm now pleased to introduce our next witness, Robin 
Simmers, the CEO of Pahranagat Valley Federal Credit Union, 
which is headquartered in Alamo, Nevada.
    Ms. Simmers is testifying on behalf of the Nevada Credit 
Union League. I thank you for making the journey. We'll turn 
the five minutes over to you now.

 STATEMENT OF ROBIN E. SIMMERS, CEO PAHRANAGAT VALLEY FEDERAL 
      CREDIT UNION ON BEHALF OF NEVADA CREDIT UNION LEAGUE

    Ms. SIMMERS. Thank you. I want to thank you, Chairman 
Hardy, and the Committee for inviting me here to testify today. 
As you stated, my name is Robin Simmers. I am the Chief 
Executive Officer of Pahranagat Valley Credit Union, located in 
Alamo, Nevada, roughly 100 miles northeast of Las Vegas.
    I'm happy to be here today to share the story of the 
Pahranagat Valley, a $20 million credit union, and credit 
unions nationally. I'm also pleased to come before the 
committee on behalf of the Nevada Credit Union League and the 
Credit Union National Association who represents roughly 6,300 
credit unions nationwide and 104 million credit union members.
    Currently there are 18 Nevada-based and operated credit 
unions. Credit unions are not-for-profit financial 
organizations owned by our members who democratically elect our 
voluntary board of directors.
    We do not have stock. We are not publicly traded, and 
return all of our profits to our members in various forms.
    The credit union model of operation is different from other 
financial services as our incentives are to serve the members 
of our valleys or our districts. Whether serving in a small 
community or a large metropolitan area, there is consistency in 
the compliance burdens that credit unions are experiencing.
    A little bit about Pahranagat Valley Credit Union. 
Including myself, the credit union employs six full-time 
employees, that we serve roughly around 2,000 members. Running 
a small credit union, which is also a small business, presents 
a variety of challenges. With the team of six, I'm not only the 
CEO and manager, I am a teller, I'm the chief financial 
officer, I'm the chief operating officer, I am the HR 
department, I am the only business lender, I'm the only 
mortgage lender in the credit union. I'm also the IT person and 
a variety of other jobs.
    Since 2011, unfortunately, Nevada Bank & Trust had issues. 
They are no longer in our valley. We are the sole person that 
our members can come to. We are the only financial institution, 
100 miles from Vegas, almost 60 miles from Caliente, so we are 
it.
    Credit unions nationally are facing a crisis of creeping 
complexities with respect to regulation burdens. Since the 
beginning of the financial crisis in 2008, credit unions have 
been subject to more than 202 regulatory changes, from nearly 
two dozen federal agencies, totaling more than 6,000 pages in 
the federal register.
    Every time a rule is changed, the credit unions and their 
members incur costs. This must take--they must take time to 
understand the new regulations, we have to modify our systems, 
we have to update our internal controls, train our staff, 
produce the new materials and explain the products or 
regulations to our members.
    Even simple changes in regulation cost the credit union 
thousands of dollars and many hours of time and resources that 
could be appropriately spent on serving the needs of our 
members.
    If there's one take-away from the Committee members today 
is that Washington primarily are regulators and to some extent 
Congress has challenges understanding how the laws, rules, and 
regulations apply to small credit unions. I don't believe they 
get the gist of how it comes down at the very end, how things 
are run.
    As I stated earlier, I am only one employee wearing 
multiple hats. Overall rules and regulations are written and 
prescribed with the largest players in mind. Imagine the ease 
of a trillion dollar bank to add a new compliance manager. At 
my credit union, I am it. Because of our size and scope we do 
not have the ability to simply add another person to our staff.
    At my credit union I know my members intimately. We know 
exactly who walks through our door. I know when they have 
trouble making their mortgage payments or when they need the 
flexibility in their car loan.
    For a $20 million credit union to adapt to the one-size-
fits-all approach from Washington simply does not work. At a 
small credit union because of that closeness with our members, 
a major regulation designated for implementation at a large 
financial institution simply does not make sense for us.
    Some examples of these, but are not limited to, include the 
complex factors with the Bank Secrecy Act, the limiting 
transfers between accounts under Reg D, and the natures of the 
fees associated that accompany courtesy pay and prescribed by 
the Consumer Financial Protection Bureau.
    If the Committee were to poll larger financial 
institutions, their reasons for disagreeing with these 
regulations would be very different from those of a smaller 
institution. We basically see the whole ramifications of 
everything because we're hands-on.
    The only recourse we have in the environment is to advise 
our regulators who recommend we comment on every proposed rule 
and regulation. This is simply not feasible when you are 
wearing everything. We don't have time to do that. We 
understand the need of it, but the time to be able to do it is 
not there.
    I look forward to your questions and hope to provide 
valuable insight about how we service our community by working 
to follow the onslaught of new rules, existing regulations and 
hope for relief in the form of legislation.
    My written testimony prescribes a number of recommendations 
on how to improve the credit union charter and address the 
regulatory operating environment that impacts both the credit 
unions and how we serve our members.
    Thank you again for having me here today.
    Chairman HARDY. Thank you, Ms. Simmers.
    Our third witness here today is David Jennings, who serves 
on the Board of the Southern Nevada Home Builders Association, 
headquartered in Las Vegas, Nevada. He is testifying here today 
on behalf of the Association and all their small home builders. 
We look forward to your testimony.

STATEMENT OF DAVID JENNINGS, ON BEHALF OF SOUTHERN NEVADA HOME 
                      BUILDERS ASSOCIATION

    Mr. JENNINGS. Thank you, Chairman Hardy. I appreciate the 
opportunity to testify today.
    At the home builders, the Southern Nevada Home Builders 
Association has over 1,000 active members, and that represents 
more than 15,000 employees, just in the area of southern 
Nevada.
    I'm here to talk about a new enforcement policy that 
affects what is at the core of the home building business, and 
that's land. This new enforcement policy is still new, but its 
impact is growing. There's still time to reverse course and 
bring some common sense back to this process.
    Just a little background. When Federal land is conveyed to 
private owners, the BLM usually reserves to the United States 
rights to certain minerals. Those mineral reservations run with 
the land. Most land in Nevada is subject to some kind of 
mineral reservation.
    It is the recent regulation of those reserve mineral rights 
that is a problem.
    In response to an audit by the Inspector General of the 
Department of the Interior, the local BLM field offices were 
directed to more vigorously pursue mineral material trespass 
claims. Those claims seek fines or fees for the unauthorized 
use of mineral materials. There are now 84 pending trespass 
claims in southern Nevada, which is a dramatic increase from 
just a few years ago.
    Under the regulation, owners of land subject to a Federal 
mineral reservation are allowed to use ``a minimal amount of 
mineral materials for their own personal use, but only within 
the boundaries of their property. Anything beyond that is 
considered unauthorized unless the landowner pays the BLM.'' 
That is from Title 43 of the Code of Federal Regulations.
    The problem is what constitutes ``a minimal amount.'' What 
does ``personal use'' really mean. The regulations are not 
clear, and therefore the enforcement is not predictable.
    Some examples of recent enforcement action include a 
builder removes and relocates several thousand cubic yards of 
common soil material at its own cost, simply to match the 
elevation of surrounding developments. The BLM pursued a 
trespass action against the builder, and the builder paid tens 
of thousands of dollars to resolve the enforcement action.
    Another builder purchased a large parcel from a BLM auction 
some years ago. The land was later subdivided into more 
manageable-sized parcels for residential development. The 
builder moved common soil and sand and gravel from one parcel 
to another, but within the original boundaries of the land.
    The BLM issued a trespass notice to the builder. The 
builder has spent already tens of thousands of dollars 
defending the action and faces the possibility of hundreds of 
thousands of dollars in fines and fees and the possible 
interruption of his development.
    It's difficult for home builders and developers to 
comprehend that when they purchase land for development, they 
may be at risk that either the BLM or some third party may have 
rights to come onto the land to extract sand and gravel, or 
even common soil.
    It is similarly difficult to understand that they may be 
subject to fines or fees for normal development activity. This 
is especially troubling when the use of the land by the builder 
is entirely consistent with the purpose for which the land was 
originally sold.
    For example, land sold under the Small Tract Act of 1938 
was done so to provide land for residential, recreational, and 
even business use. When builders are being fined for using this 
land for residential use, it just doesn't seem right.
    One problem is that the new enforcement policy is being 
retroactively applied to parcels already purchased by home 
builders and developers. The builder faces possible fines and 
fees that were never considered when the initial investment in 
the land was made. This also makes future investment in land 
more costly and less predictable.
    If you get the land right, everything else takes care of 
itself. That's kind of a common term in home building. The new 
enforcement policy with these uncertain standards makes it 
increasingly difficult to get the land right. With uncertainty 
comes risk. The greater the risk, the less likely investment in 
land will be made.
    This is a problem for both large and small builders, but it 
is especially burdensome on small homebuilders. They must put 
their eggs in far fewer baskets so there's more at stake with 
each investment in land. When some of these eggs break, the 
impact to the small builder is magnified.
    So what can we do? First, develop more predictable and 
defensible standards. There needs to be clear and more fair 
distinctions between commercial and personal use. For instance, 
personal use should include use of common soil material within 
the boundaries of a development without fear of additional fees 
or fines, at a minimum.
    There should be public notice and an ample opportunity for 
comment before interpretations are made and enforcement 
standards are set to result in common sense rule-making.
    The BLM should also follow the guidelines of the Regulatory 
Flexibility Act, bring small business into the discussion, find 
out how the regulations and their enforcement hamper small 
business, then tailor the regulations so they are predictable 
and not harmful, and promote a true public interest.
    Now, I don't wish to cast stones at all. The people at the 
local BLM office have been nothing but cooperative and 
professional. They are being directed by management in 
Washington to press this issue, even though the regulatory 
standards are not clear and in many ways not fair. I welcome 
any questions.
    Chairman HARDY. Thank you, Mr. Jennings.
    I'd like to now turn to my final witness, Mr. Mendis 
Cooper, who serves as the general manager of Overton Power 
District in Overton, Nevada.
    He is testifying today on behalf of the Nevada Rural 
Electric Association, and I'd like to thank you for being here 
and I look forward to your testimony.

   STATEMENT OF MENDIS COOPER, GENERAL MANAGER OVERTON POWER 
     DISTRICT NUMBER 5, ON BEHALF OF NEVADA RURAL ELECTRIC 
                          ASSOCIATION

    Mr. COOPER. Mr. Chairman, I appreciate the invitation to be 
here to testify today. Thank you.
    As you mentioned, my name is Mendis Cooper. I'm the general 
manager of Overton Power District Number 5. Overton Power 
District is a public power district that was created in 1935 to 
deliver hydropower from Hoover Dam to the rural customers of 
Clark County, Nevada.
    Currently we serve over 2,000 square miles of Nevada land. 
We have over 100 miles of transmission line, over 600 miles of 
distribution lines, and over 15,000 metered customers in our 
area.
    We've seen a number of changes as we've gone through the 
years, not only because of growth, but because of the 
regulations that have been put in place.
    I also represent today, as I discuss some of the issues 
that concern us, the Nevada Rural Electric Association, of 
which I am a board member. So I also represent Nevada Rural 
Electric today.
    Nevada Rural Electric is a group of nine rural cooperatives 
and power districts located here in Nevada. We serve over 
50,000 square miles of Nevada land, and we also serve over 
60,000 customers in Nevada. We also serve small areas in 
California, Idaho, Oregon, and Utah. And so the things that 
happen to us affect a wide range of area and a great number of 
people.
    The electric cooperatives and public power districts were 
created to serve areas that were not prime locations to be 
served by large investor utilities. You find that the rural 
utilities serve about, per mile line, about seven customers per 
mile of line on average. Whereas an investor-run utility will 
serve 35 customers per mile, on average.
    So the costs that we have to put in place are spread 
amongst fewer customers and so the impacts are greater because 
of the things that happen.
    We are governed, all of us, by boards that are elected, and 
we are all nonprofit entities, and even though we are 
nonprofit, a number of our entities pay property taxes and are 
thus small businesses.
    The Rural Electric Association was created in the 1930s, 
and it was created to help entities like us provide power to 
the businesses and the people who needed it. And the 
interesting thing about the REA is that it gave us the 
opportunity to form as individuals in our communities, to do 
what was best for us, and then the government got out of the 
way and let us do those things. And we have seen a change in 
that over time and because of the regulations that have been 
put in place.
    For example, as I mentioned, we serve a wide area in 
Nevada, and much of that land is BLM land, and we've seen some 
significant changes as we try to obtain rights-of-way to serve 
new businesses and new customers in our areas.
    It used to be that to obtain a right-of-way it cost about 
$500 per mile, and the average time was about 12 months.
    Recently we've seen the cost increase to about $25,000 per 
mile, and we see right-of-ways average about eight years. And 
there have been some utilities in our state that have spent 
over ten years trying to obtain a BLM right-of-way. The process 
is way too cumbersome and the requirements, as was mentioned, 
we have great staff, but the requirements are sometimes more 
than they can handle.
    The decisions that are made have great effect on not only 
the right-of-ways that we try to obtain, but the existing 
right-of-ways as we are sometimes prevented from using our 
right-of-ways during different times of the year, and that 
would be fine, if we could say when there were power outages 
and when there are not power outages. But we need access all of 
the time, and so access to those places is very important to 
us.
    We've also seen a great deal of government over-reach in 
regard to the clean power plan. This has been proposed by the 
Environmental Protection Agency and under their Rule 111(d). 
They threatened to remove all fossil fuel generation. And under 
this rule it will raise the cost of generation for our local 
businesses and our local people.
    Right now all of the rural utilities in Nevada have very 
little generation. They rely on resources outside the state to 
bring in power and electricity to their customers. And so this 
rule will not only raise the cost of electricity, but it will 
also encourage neighboring states to not let their resources be 
shared with other states because they are going to be limited 
in what they can do.
    It also limits what we can do as Nevada entities as even 
newer technology in regards to natural gas will be difficult to 
permit under these new rules that are put in place.
    There's a number of additional things that we have concern 
of, but I would just like to mention that this over-reaching 
government regulation has cost impacts on all of the Nevada 
Rural Electric Associations. And the cost impacts are born 
primarily by our customers and the small businesses, much like 
these represented here today. And so when we see these costs 
passed on to us, we see the effect locally because those are 
our friends and neighbors.
    Again, thank you for this opportunity. I look forward to 
answering any questions.
    Chairman HARDY. Thank you, Mr. Mendis, and thank you for 
all your testimonies.
    I'd like to begin with just one comment. You know, I left 
D.C. last night. I got here in the late hours. But it has no 
effect on the regulations that are still coming out of 
Washington, D.C. When I left there was well over 67,000 pages 
and that's been handed down since January of this year.
    I have been here, I have been in office for less than 11 
months and that's almost 600 pages a day. And I'm not sure how 
many major rules that is going to come up with, but I would 
just like to ask, start with the first question, and not all of 
them have to do with any of your effect on your particular 
business that you are in, but it has an effect on multiple 
businesses.
    Do you believe you're capable of being able to keep up with 
that regulatory process, just keeping up to date on these 
67,000 thousand pages, almost 600 pages a day, financially? I'd 
like to hear a comment from each one of you. Yes? No.
    Mr. COOPER. Mr. Chairman, some reliability regulations were 
passed on to the power utilities several years ago and we had 
to hire one person just to manage the reliability regulations 
that came from the Federal Energy Regulatory Commission.
    So yes, it does have an effect on us, and it is more than 
we can handle. When we have to go out and hire people just to 
satisfy the regulations, it raises the costs for everyone.
    Chairman HARDY. Mr. Jennings.
    Mr. JENNINGS. I certainly hope I don't have to, you know, 
comply with 67,000 pages, but I'm from a little bit of a unique 
perspective because I don't actually work for a small business, 
I'm here on behalf of the Southern Nevada Home Builders 
Association. But I work for a larger home builder and, you 
know, when we kind of canvas the membership of the Southern 
Nevada Home Builders Association, there were no small 
businesses, no small home builders that knew enough about the 
topic that I addressed today to even come today, feel 
comfortable to testify. And I think that's indicative of what, 
how difficult it is for a small business owner to handle.
    This is a fairly simple issue. It has potentially far-
reaching effects. But the fact that they can't even keep up 
with this, there's that no way they're going to be able to keep 
up with 67,000 pages of additional regulations.
    Chairman HARDY. Ms. Simmers.
    Ms. SIMMERS. We're basically like the rest of them. It is 
so hard to keep up with the regulations. We do what we can, and 
we know what's important. But I don't think that the 
regulators, they do these things for the good, but they don't 
see the bottom line on how it affects the people that are 
actually under them.
    But there is so many that we're having to learn all the 
time that it does make it hard to run your business.
    Chairman HARDY. Thank you. Mr. Hafen.
    Mr. HAFEN. Well, I would say no, that we can't keep up. And 
the example of we will review a regulation as it comes down and 
see the cost, what it does to us, evaluate the risk of taking 
on the new regulation, or just saying you know what, we can get 
by without this, it pertains to a particular service and we 
stopped providing that service because of the additional 
regulation that we just cannot comply with.
    Chairman HARDY. Thank you. I think all of your testimony 
today highlights the need for a different way to look at 
analysis of how we do things in the rule-making process. This 
one-size-fits-all ultimately ends up back costing the end 
consumer because you have to pass it on, I believe. Maybe you 
are a bit different than the businesses I have been around.
    What are the suggestions you might have for Congress and 
how we might deal with this better? Any ideas on that? Just a 
quick suggestion of how Congress might handle the regulatory 
process? I have my own opinion, but I am looking for yours.
    Mr. HAFEN. If I may, Mr. Chairman, as I drove down this 
morning in my three-hour drive, I had a thought about that, and 
you know, I think it would be good to hear the voices, just 
like you are hearing today, but I don't know if it would be 
possible, but one idea that I did have is, having a small 
business, I don't know, some form of a Committee that could be 
a sounding board when some of these new regulations are 
proposed, that before they even make it out, how are they going 
to affect, other than those that sit in Washington and don't 
have an idea where Caliente, Nevada is, and what the effect of 
that regulation is going to take on it.
    Chairman HARDY. Thank you. I'll just change that to 
another. Is--let's start with the banking industry. We'll talk 
about Caliente and Alamo, small rural communities and the 
effect that Dodd-Frank is having, this one-size-fits-all.
    Do you believe that it's necessary for rural communities to 
have the same banking privileges that they do in the large 
urban cities, the necessity? What does it do to those 
committees? Ms. Simmers, let's start with you.
    Ms. SIMMERS. Well, if you even look at us, I started in the 
credit union at 2000, the year 2000. We were only $3.5 million.
    We have grown to $20 million, and it's because of adding 
services that our members need. But the regulatory does make it 
hard to comply with everything, and to make sure that we stay 
safe.
    In our community, like we mentioned, we are the only 
financial institution anymore because of Nevada Bank and Trust 
having to close one of their doors.
    So the regulatory does make a big impact on us and we know 
everybody. We know what they need. We try to provide the 
services that they need, but the regulations do make it hard to 
keep track, keep doing things.
    Chairman HARDY. Mr. Hafen, how many small businesses rely 
on your bank to stay open, to function, as an ability to do 
their work in your communities.
    Mr. HAFEN. Well, I know off the top of my head I wouldn't 
be able to guess, but I can look at Caliente, at almost every 
small business in Caliente, Panaca, and Pioche come to our bank 
because there's only one other option on that end of the 
County, and that's the American First Credit Union.
    But where that's the businesses comes to us, and so I can 
say everything on the northern end of Lincoln County would come 
to us, and then continues up the state, into Ely and Elko and 
Mesquite as well.
    Chairman HARDY. What effect does that have on employees 
that work for those counties and can't cash their check in 
their local community, that can't pay their home bill in their 
local community, that can't do the grocery shopping without the 
financial ability to have flexibility? Anybody dare touch on 
that?
    Mr. HAFEN. You know, one example, if I may, Mr. Chairman, 
in Pioche there's been a bank in Pioche forever. Bank of 
America had a small branch there and they closed their doors 
after--well, the Washington Federal purchased Bank of America, 
the branches in Nevada, and Washington Federal quickly closed 
that branch.
    So here you have the people in that community that has no--
they have no bank. And so they have to travel down to Caliente, 
either to the credit union there, the American First Credit 
Union, or to us. And we hear it every day, why can't you open a 
branch here? Why can't you do this? Because they have to travel 
down and the burden that is placed upon them is very difficult. 
We hear it constantly.
    Chairman HARDY. Any comments, Ms. Simmers?
    Ms. SIMMERS. Along those lines, you have to remember, in 
the small community, if we weren't there, there's a lot of 
people that wouldn't survive.
    You have senior citizens that are on a fixed income. They 
cannot even afford to drive to wherever to get their money. So 
if the financial institutions in these small towns do not 
survive, you are going to have a lot of people that don't 
survive.
    We do a lot for our members that are low income, that are 
elderly, and for the businesses that start up there, they need 
to have the small financial institutions around for them to be 
able to survive.
    Chairman HARDY. Thank you. I'd like to change gears a 
little bit.
    Mr. Jennings, you speak about the mineral rights. Can you 
give me any idea why the BLM would like to keep holding mineral 
rights on housing, real estate, and for what purpose do they 
want to hang on to that right.
    Mr. JENNINGS. I don't want to speculate, but in the 
published report it talks about revenue, talks about trying to 
raise revenue for the Federal government. And I think they are 
leaving money on the table by not pressing their, you know, 
unfortunately, the mineral rights. And I, you know, it doesn't 
seem--I can't think of a public interest that it serves beyond 
that.
    Chairman HARDY. You know, the mineral, I don't think many 
people understand. But I want to be very clear and just tell me 
a yes or no if I'm wrong on that.
    But basically some sites may have collapsible soils that 
have to be removed from the site. Some sites may have 
expandable soils. Some sites might have millions of yards, 
based on the size of the site that may even have millions of 
yards that are basically unproductive and can't build on them 
without removing the material.
    Do you think that's fair that they want to charge you for 
the process you are working to just remove or bring in, is that 
a process and where does that cost get handed down to.
    Mr. JENNINGS. You are exactly right. There are lots of 
reasons why common soils or sand and gravel needs to be removed 
from a site, particularly here in North Las Vegas where there's 
lots of hydro-collapsible and expansive soils that they need to 
be pulled off and taken somewhere and deposited somewhere and, 
you know, to be--right now there's no accommodation for, that 
I'm aware of, for the circumstances under which you are 
exporting material from a site. It's just how many yards did 
you take off, and here's what we are going to charge you. And 
so I don't think it's fair because, you know, I think anyone, 
when they buy a piece of land has an expectation that they can 
sort of do with it what they bought it for.
    When you have a home builder who buys land to build homes 
on and you can't do that without paying extra money to the BLM, 
it's kind of hard to swallow.
    Chairman HARDY. While I've got you, would it still be 
willing to say that basically after you sell that home site, 
that that homeowner, if they decide to put a pool in their 
backyard, they could be charged for the excavation of that 
pool.
    Mr. JENNINGS. That's actually one of the exceptions. So if 
they do a small--if they do a pool, that's considered a minimal 
use, under the statutes, actually it's one of the examples. So 
a pool excavation would not be considered an unauthorized use 
for a homeowner.
    But almost everything beyond that can be considered an 
unauthorized use and that, the cost of that ultimately get 
passed on to the consumer and oftentimes that, the 
unpredictability in the enforcement of the regulation, and the 
extra costs involved, will discourage investment in the land. 
Because if you don't know what you are going to be charged for 
it, then a lot of times you are going to have to pass, and 
according to a home builders' research, every $1,000 in 
increase, in price increase for a home kind of prices out 1,800 
people from the market. So it makes it difficult.
    Chairman HARDY. Would it be fair to say that because the 
BLM holds well over 80 percent of this state's lands, that our 
real estate values are well above anyplace else in the country 
because we have to wait for the Federal government to decide 
whether they would like to dispose of certain lands, and when 
those go to auction they are some of the highest prices? And 
would it be fair to say that if you have unusable soils, should 
that not be charged maybe back to the BLM, if they are going to 
play this game? They are selling you invaluable----
    Mr. JENNINGS. I would hope so, but that's not how it works 
now.
    Chairman HARDY. I understand that. I just wanted to make 
the comment for you.
    Mr. JENNINGS. And then one other thing on that, it's not 
just the land owned the BLM, it's land that was previously 
owned by the BLM that is still subject to these mineral 
reservations. So it's nearly all the land in Nevada that's 
subject to this in one way or another.
    Chairman HARDY. And aren't most of those lands, as they're 
purchased and as they're improved, aren't they governed by the 
county, the city, or the states that they are in, for the 
zoning rules, and they can't be changed for mining purposes.
    Mr. JENNINGS. That's correct. That's correct.
    Chairman HARDY. So would you say that we need to look at 
maybe changing this to where these mineral rights are disposed 
of when it comes to residential and commercial type of 
developments.
    Mr. JENNINGS. Yes.
    Chairman HARDY. Thank you.
    Mr. Cooper, some of the issues that I think you are talking 
about with these right-of-ways, having to deal with the waters 
of the U.S., any challenges with that rule that was recently 
handed down by the BLM.
    Mr. COOPER. You bet. I would like to give you just a couple 
of examples. There was an area just north of Mesquite where 
there was a wash, probably at least two miles away from the 
Virgin River, that was designated as waters of the United 
States. And although we personally did not have to mitigate the 
problems associated with that, the home developer had to meet 
with BLM and resolve those issues.
    Just recently we've had a similar situation. We're working 
on a right-of-way to build a transmission line to Mesquite, and 
about two miles north of Logandale, and we're talking probably 
at least ten miles away from Lake Mead, we cross a wash. The 
wash is about 12 inches deep and about three feet wide. And as 
part of our right-of-way process, the BLM flagged that because 
it was part of the waters of the United States, and we had to 
bring in some specialist from the Army Corps of Engineers, and 
some BLM people, and we had to bring in our own specialist to 
help mitigate the problem. And the solution that they came up 
with and, you know, we were a little worried. We didn't know if 
we were going to have to build a suspension bridge, or what we 
were going to have to do there, but the remedy was it's okay to 
put a culvert in the wash.
    Now I think that there was a much simpler way to figure 
that out. That's probably what we would have done to begin 
with. And so these waters of the United States issues, even 
though we live in the desert, they have a great effect on us 
because there are a number of washes that are dry 99 percent of 
the time that are considered waters of the United States.
    Chairman HARDY. The OPD Number 5 has some of the cheapest 
power rates, I think probably in the state, due to the compact 
with the Hoover Dam. They are not fluctuating a lot, I don't 
believe, over the years. But how much have your rates changed, 
due to having to live up to some of the regulations and the 
costs handed down to the end user, the energy user? Has that 
increased over the past 10 to 20 years.
    Mr. COOPER. Well, it's interesting. I saw--and you're 
right, the hydropower is a very cheap resource and we 
appreciate that.
    But I would also make mention that the power customers, not 
just Overton Power, but NV Energy and all of the other 
utilities that get power from there have paid the costs of the 
dam and the visitors center and all the other improvements that 
have been done there. Those have been paid for on the backs of 
the power customers.
    Now it's interesting. I saw a number, and I tried to look 
this up before I came today, just in case you asked me this, 
but part of the price that we pay for our federal hydropower 
includes multi-species conservation, and I believe the number 
was over $400 billion had been paid by the power customers 
since Hoover Dam was created to mitigate endangered species 
problems. And those are all dollars that are paid for by 
businesses and the customers that we have.
    Chairman HARDY. Another fact I'd like y'all to know that as 
we left this week these costs of the recent regulations that 
have been handed down is already up around $88.9 billion, and 
with the Dodd-Frank rule, what are we, one-third of the way 
there? Two-thirds of the way there.
    So $88.9 billion. So before the end of the year we're 
looking at probably close to $89-plus billion.
    Another question I would ask Mr. Jennings. Is--BLM issues, 
we'll take the Clark County area alone, the fastest growing 
place in its heyday there ten years ago, in the nation.
    The real estate prices soared. Would you say that's due to 
the fact that we have not only regulations, but we're 
encumbered by the lack of land, and where are we today, based 
on build-out for this community, with actual private lands that 
have been put into place, and we continue now to even encumber 
that more with these type of regulations.
    Mr. JENNINGS. Well, there is--most of the developable land 
in Clark County and southern Nevada is owned by the BLM. And as 
we expand, it becomes even more so because there's only so many 
in-filled pieces that you can buy from private parties. So 
you're really relying on the BLM. And the BLM, you know, they 
can charge whatever they want.
    They go through an appraisal procedure that they need to 
follow, but it certainly does put a, I believe, raise values in 
land and makes it very difficult to continue a home building 
business because real estate values aren't keeping pace.
    So once land becomes too expensive, none of the deals 
pencil. They just can't be made to work.
    Chairman HARDY. Ms. Simmers, as the only institution in 
Alamo, what do you see the future, if you could just kind of 
give me a guess, if you had to close your doors as a financial 
institution in Caliente, Mr. Hafen, you can give me the same 
answer in your area.
    Ms. SIMMERS. It would be bleak in our communities. Because 
as I said, you have a lot of people that are medium in their 
income and they can't afford maybe to go somewhere else.
    But you do have a lot of people that are either low income 
or elderly. They cannot go anywhere else. So in shutting our 
doors, you are hurting those people. Because, say, Nevada Bank 
& Trust was still open and we weren't, they are the closest 
thing.
    So how are these elderly, or these low income, going to 
travel 60 miles to get their banking done? You know, it's the 
same thing with them, they've got added costs on their banks to 
come down to service even the ATMs in our area, or the local 
businesses in our area.
    So it's kind of a give-and-take between both of us. If 
something happened to either one of us, it does put a major 
strain on the people that live there.
    Chairman HARDY. I'd like to ask in a different direction. 
Anything that major happens out in the rural communities, 
basically the 93 improvements, or any major road projects, they 
are usually not able to be completed by a local contractor, in 
most cases.
    When people come into town and they are there for weeks, 
maybe months on end, do you see any impact to those folks also 
when they go out and they do these construction jobs and all 
this other rural electric power jobs to build expansion, do you 
see a challenge there at all?
    Ms. SIMMERS. We see it. I mean they come into our local RV 
parks. That's where they are staying while they are doing these 
jobs, and if we weren't there for them, a lot of them, I mean 
to get their get cash for them, sometimes the ATMs don't work 
for their card, or something, it puts a strain on the workers 
that are coming in if our financial institution was not there.
    Chairman HARDY. Mr. Hafen.
    Mr. HAFEN. I agree. One thing I have noticed, we have a few 
customers that own small motels in Caliente and they depend on 
the railroad, for example, coming in and doing service jobs up 
and down that railroad that runs through there. They depend on 
the BLM to come in and fight fires in the summer. They depend 
on road projects for people to stay in their motels.
    If they don't have it, they dry up and blow away. And that 
impacts them, it impacts us because they are customers.
    Now if we were to disappear, I couldn't even imagine the 
devastation. You would see these small rural communities become 
ghost towns like many other towns in this state that are just, 
they dry up.
    Chairman HARDY. Last question to both of you, I guess, do 
you believe that volume dictates the cost of fees and others, 
or is it just a one-size-fits-all again? Should things be 
looked at differently in these regulations, and do you believe 
there's other ways we can look at this differently for rural 
America versus urban America? And do you think it's fair that 
you guys get a different consideration than urban America.
    Mr. HAFEN. I believe yes, we have to be looked at 
differently. An example of that is a uniform overdraft program 
that the CFPB is working on right now.
    The one program that if pushed out to everybody, we know 
our customers, as Ms. Simmers said. She knows everybody that 
comes into their branch, her branch. We do the same thing. We 
know our people. And if the regulation is the same for us as it 
is for the large institutions that are too big to fail, then we 
can't keep up. We would have to close doors. We would have to 
lay people off and I mean it's a triple effect, all the way 
down.
    Chairman HARDY. Thank you. Ms. Jennings or Ms. Simmers.
    Ms. SIMMERS. I agree. I mean the big regulations that they 
see, a lot of, if you think about it, the big financial 
institutions, they take on these and they don't see the 
trickle-down effect.
    Since we do, you know, we basically post all of the stuff 
ourselves, we see how these little, how the rules affect the 
end consumer, which I don't think is taken into effect.
    So yeah, any big regulation that comes down, I think they 
should have a different thing for the smaller ones versus the 
bigger ones.
    We don't deal with all the stuff that they do. We deal with 
a lot, but we know our members, as we've said. We know who 
comes in.
    Chairman HARDY. One last question for you folks, where do 
folks go now for a home loan in your area, if they can't get 
that with you folks.
    Ms. SIMMERS. We still do some. We're open-ended loans on 
our home loans, so we're able to. But on the negative side of 
that, because we're so small, we do have to do a variable rate 
interest. That hurts the people at the end, but they get their 
mortgages.
    We don't do a whole lot because we can't have over 50 
percent of our loans in that, because we want to protect the 
credit union. So it is a give and take, where you help, but yet 
you can't help everybody.
    Mr. HAFEN. We simply have to refer them to someone down the 
street. In Caliente, it's American First Credit Union, and so 
we have to refer them down there, or refer them to a non-
depository institution, such as, you know, your on-line brokers 
and things of that nature that offer mortgages, and that's the 
only avenue, if somebody comes in the door and wants a 
mortgage.
    Chairman HARDY. I'd like to just kind of go across the 
panel. Mr. Cooper, being as how you got to be last on the first 
go-around, we'll have you go first.
    Could you wrap up with any comments that I haven't asked or 
any things that you think that we need to be dealing with or 
looking at that I haven't asked the right questions.
    Mr. COOPER. Well, I appreciate the opportunity. I would 
like to say that yeah, things are difficult. But there are 
instances where we've learned to work together with government 
agencies and when common sense prevails and they are allowed to 
get beyond some of these regulations, that there are success 
stories out there.
    I'll give you an example of the rangeland fires that affect 
the utilities in northern Nevada. When a rangeland fire 
occurred, the companies would pull up to the fire area and try 
to prevent the fire from burning down their power poles and 
destroying more land and property.
    The utilities were barred from going into those areas when 
fires occurred. So basically they had to pull up and watch 
their poles burn down, and then go in and replace the poles 
after the fire went by.
    They were able to work with the BLM fire department and 
they came to an arrangement where now they share resources, 
they use the utilities as a resource when a fire comes through. 
They, the utilities, make their equipment, their water trucks, 
their people available to prevent the fires, prevent poles from 
being destroyed, to prevent habitat for the greater sage grouse 
from being destroyed, and it prevents farm from being 
destroyed.
    When a little bit of common sense is injected and everybody 
is able to work together, rather than work within these rules 
that are made for everybody, we find that there can be some 
success stories in there, and we just would encourage more of 
those opportunities to work together with these agencies to 
find things that fit and that work for everybody.
    Chairman HARDY. Thank you, sir. Mr. Jennings?
    Mr. JENNINGS. Yes. You know, I was in the home building 
industry beginning at the high times and then all the way 
through the recession, all the way to the deepest part of the 
recession, and then now as we've sort of come out of it, and 
there were a lot of builders back in 2005 and 2006 and after 
the recession it wiped out pretty much all of the little guys, 
all the small business, all the small home builders. The larger 
ones just sort of managed to get by.
    But as we've seen kind of the wobbly recovery, the 
additional regulations, the additional kind of choking on the 
industry has made it very difficult, more difficult for small 
home builders to come back in, to reform and to start up 
operations again, because it's just too expensive, too 
burdensome, and too difficult, too risky. And so if they, if 
you can do anything to lighten the load and bring some common 
sense back to some of these regulations and the enforcement of 
those regulations, I think you'll see more of the small type of 
home builder re-enter the market and I think that ends up 
benefiting everyone.
    Chairman HARDY. Thank you. Ms. Simmers?
    Ms. SIMMERS. I think, you know, if we had a little bit 
longer maybe for the small ones to comment on some of the 
regulations. I mean a lot of the regulations are, start out to 
be needed, but it's the little trickle-down that they don't get 
some, how things are done.
    To even have, you know, a committee that goes through and 
no matter what kind of business it is, see how this actually, 
what the regulation, how it affects.
    One that I always have a pet peeve on is the Bank Secrecy 
Act. To me it's kind of stupid if we have to do a fact check on 
a bank that's in the United States, when they are covered under 
the government.
    It is the little things that happen in these regulations 
that they don't realize unless you really saw it to the end. 
You know, we would like to be able to see somebody check up on 
things and see actually how the regulation is working. Is it 
doing what it was meant to be.
    I'm not as eloquent as a lot of these in talking, you know, 
I'm from a small community. But we see a lot of things, because 
we're hands-on, that I don't think the regulators really meant 
for the regulation to happen. But it just happened to be a 
trickle-down effect of it. And so it would be interesting to 
see if, even with, you know, the construction and everything 
else, if they took the time or had the resources to be able to, 
once a regulation is passed, to see actually is it doing what 
it was meant to do for the mass of the population.
    Chairman HARDY. Thank you. Mr. Hafen?
    Mr. HAFEN. Well, thank you once again for allowing us to 
come and to share a few of our thoughts and some of the things 
that trouble us.
    But to echo much of what has been said, we--I think if we 
just don't forget the little guy, because this country is built 
on little guys, and everybody started as a little company. And 
to forget us, we will just cease to exist. And so as Robin 
mentions, Ms. Simmers, that in a sense, test the regulation 
before it hits us. Because those unintended consequences are 
the ones that get us, the small institutions. So thank you very 
much.
    Chairman HARDY. I'd like to thank you all for being here. 
This is a final comment, you know, from my standpoint, you 
know, I went to Congress and in some cases I have to look at it 
as self-serving. I have children and grandchildren and I care 
about the direction and the opportunities my children and 
grandchildren have for the future. And I think that in Congress 
where somewhere along the line we forget that we're here to 
help people. We're here to serve people.
    We are here to help, but we are never supposed to forget 
when we help one, we are not supposed to hinder another. That 
is our obligation, and I thank you for being here today.
    I really appreciate you taking the time out of your day to 
come and talk and we look forward to trying to have some more 
of these. And if there's anybody here in the audience that has 
ideas for the future that you think we're not getting your 
questions answered, I have a staff here. I want to make sure 
that they get an opportunity to hear those questions because we 
are working on them and the Small Business Committee is about 
protecting small businesses, which is the lifeblood of this 
nation.
    64 percent of people employed in this country were employed 
by small businesses. We're losing small businesses at a rapider 
rate than we've ever lost them before, and I believe it's 
because of the continuing over-reach of regulations.
    We do need regulations, but we cannot hurt people. We are 
here to help people.
    With that being said, if there's no further questions, I 
want to thank the City of North Las Vegas, the Hall for hosting 
us, and I thank you all for participating here today.
    I appreciate your insight into the regulatory challenges 
facing small businesses today. The hearing will only reaffirm 
my belief that one-size-fits-all regulation does not work. 
Differences of geographic areas and business size must be more 
carefully reviewed.
    I will take this message back to my colleagues in 
Washington and continue to fight for common sense reforms and 
reduce the regulatory burdens on small firms. I ask unanimous 
consent that members have five legislative days to submit their 
statements and supporting materials for the record. Without 
objection, so ordered.
    This hearing is now adjourned. Thank you for being here.
    [Whereupon, at 3:03 p.m., the subcommittee was adjourned.]
                            
                            A P P E N D I X


                          Testimony of

                          Spencer Hafen


                        President & CEO

                    Nevada Bank & Trust Co.

                        Caliente, Nevada

                           before the

                     U.S. House of Representatives


              Committee on Small Business Subcommittee on


               Investigations, Oversight, and Regulations


                              Hearing on

                          Regulatory Overload:


           The Effects of Federal Regulations on Small Firms


                        November 6, 2015

                           2:00 P.M.

                      North Las Vegas, NV
                   Testimony of Spencer Hafen

                           before the

   U.S. House of Representatives Committee on Small Business 
   Subcommittee on Investigations, Oversight, and Regulations

                        November 6, 2015

    Chairman Steve Chabot, Ranking Member Nydia Velazquez, and 
members of the committee, my name is Spencer Hafen. I am the 
President and Chief Executive Officer of Nevada Bank & Trust 
Co., located in the rural Nevada City of Caliente. I would to 
thank you for affording me the opportunity to appear before you 
to share some information about the effects of federal 
regulations on small businesses, particular the regulatory 
effect on small community banks. I may be the voice of one 
small community bank, but my words can be echoed by hundreds of 
small institutions across this great country. My hope is to 
aide in finding regulatory relief that will help all small 
banks and businesses, regardless of geographic location.

    I would like to take a moment and tell you a little about 
my bank. Nevada Bank and Trust Co. was formed in 1978 by a 
group of small business owners in Caliente, Nevada. Caliente is 
located about 150 north and east of Las Vegas along U.S. 
Highway No. 93. The closest financial institution at that time 
was located in Pioche, Nevada, about 30 miles north. In order 
to help solve their own banking problems and to provide 
financial services in Caliente, this group of individuals 
formed Nevada Bank and Trust Co. The vision of this group of 
business owners was not limited to providing banking services 
locally, but to expand and provide banking services to each 
small community on U.S. Highway No. 93 throughout Nevada. As 
the Bank began to grow, it soon expanded to have branches in 
Alamo, Caliente, Carlin, Ely, Elko, Mesquite, Pioche, Spring 
Creek, and Wendover. The vision or dream of the founding 
business men had come to fruition. However, as time went by, 
the Bank began to feel the effects of regulatory burden and 
began closing branches that were not profitable. Today Nevada 
Bank & Trust Co. has four (4) branches located in Caliente, 
Ely, Elko and Mesquite. We also have a Loan Center located in 
Elko. As of October 31, the Bank's assets are $112 million, we 
employ 37 employees, 26 full time and 10 part-time. Nevada Bank 
& Trust Co. is a privately owned institution, and we have 
successfully served the needs of our citizens for almost 40 
years. Our focus is on our customers living in the rural 
communities of the State of Nevada. We strive to provide the 
best financial services available to the rural areas in which 
we live. I have come to see that the services we provide are 
often hindered by the excessive regulations placed on small 
financial institutions. I do realize that many of the 
regulations placed on the financial industry as a whole are 
targeted for larger institutions, and may even come with a 
caveat that small banks are exempt for such regulations. 
However, I have also come to the realization that there are 
many unintended consequences to many of the regulations that 
have restricted our ability to provide certain financial 
services.

    The financial strength of individuals, communities, states, 
and this nation are only as strong as the financial 
institutions. Each has a direct impact on job creation, 
economic growth and prosperity. The credit cycle that financial 
institutions facilitate is simply put: customer's deposits 
provide funding to make loans. The loans allow customers of all 
kinds, consumers and commercial, to invest in their communities 
and beyond. The profits generated by these investments flow 
back into banks as deposits, and the cycle repeats. As this 
cycle continues the consumer and commercial customers grow, 
they expand their purchasing power, they hire additional 
employees, and they improve their quality of life.

    I understand that a credit cycle cannot exist in a vacuum. 
Regulation shapes the way financial institutions do business. 
Regulation is needed to some degree; however, the changes in 
regulation by the passing of laws, court cases and legal 
settlements, directly affect the cost of providing banking 
products and services to our customers. The ability to provide 
certain services has not been easy with the increase in 
regulatory burden. I have had to stop providing services 
because of the overreaching hand of regulation and policy. I 
feel it is in the best interest of citizens and business' for 
Congress to take necessary steps to provide some form of 
regulatory relief on small banks and small business'. When I 
stop providing services because of the burdens of regulation, 
my bank is not the only entity impacted, the customer, 
consumers and business owners are impacted.

    I continue to urge the Committee and Congress to work 
together to pass legislation to provide regulatory relief to 
small business', including small financial institutions.

    I would now like to address specific items we are dealing 
with as a small bank, namely:

           Unnecessary Regulatory Burdens

                    Mortgage Regulation

                    Uniform Overdraft Requirements

                    Non-Depository Money Service Industry

           The Cost of Compliance

           Recommendations

    Unnecessary Regulatory Burdens

    Regulation when done correctly ensures the safety and 
soundness of the overall banking system. When not done 
incorrectly, it may constrict a financial institution's ability 
to provide credit, and facilitate in job growth and economic 
expansion. The argument may be made that many of the 
regulations currently being imposed on the financial industry 
do not apply to smaller institutions. However, the constant 
looming threat of law suits and civil money penalties keep many 
at bay, translating into services be dropped to avoid any type 
of scrutiny from regulators. The role of community banks 
serving the communities in which they do business is 
diminishing with the addition of new regulations. The Dodd-
Frank Act alone has changed federal financial regulators with 
writing and enforcing 398 new rules, resulting in at least 22, 
534 pages of proposed and final regulations, please keep in 
mind the act is only two-thirds implemented. Larger 
institutions have the financial means to spread the expense for 
regulation implementation across diverse channels. Small 
institutions do not have that luxury. We are doing all we can 
to keep the doors open and provide a service to the community. 
As mentioned previously, I am not alone; every small financial 
institution feels the same pain.

    Mortgage Regulation

    Nevada Bank & Trust Co. in the past has had a home mortgage 
loan service. With the recent release of additional 
regulations, particularly the TILA-RESPA Integrated Disclosure 
(TRID) Rule, we have made the decision to stop providing this 
service. This decision did not come easy; my Board of Directors 
are concerned with the impact on the community and our 
customers. The new rule is intended to make the disclosure 
process easier, which it may, combining multiple disclosures 
into one, the burden comes with compliance. In order to comply 
with this new regulation I would have to hire additional staff 
to monitor the rule. In our small bank, we never made enough 
money off of what little fees we could charge, to justify the 
program we had. Simply put, it never paid for itself. Now, with 
the additional rule, and the need to hire additional staff, we 
simply chose to stop offering home mortgage loans.

    An interesting point I would like to make pertains to what 
I will refer to as an ``out of the box mortgage''. In rural 
Nevada as a bank we would make mortgage loans to customers that 
had been rejected by other institutions because their loan just 
didn't fit into ``the box''. If a customer's credit score just 
wasn't perfect, or the appraisal had comparisons that were too 
far away are a couple of examples. A large institution would 
not understand the local, rural, situation, and reject the loan 
application. We understand our customers; we have dealings with 
them beyond the brick and mortar of the bank, and could work 
with them in getting a mortgage. Now these customers will have 
to turn to unregulated sources to obtain a mortgage. And as I 
have mentioned previously, regulation is needed, just not to 
the point it becomes a burden. At the end of the day the people 
that the rule was created to protect are potentially being 
damaged because banks just like us can no longer offer home 
mortgage loans.

    Uniform Overdraft Requirements

    The Consumer Financial Protection Bureau (``CFPB'') is 
actively inquiring into overdraft procedures to determine how 
those practices are impacting consumers. Nevada Bank & Trust 
Co. does not have an Automated Overdraft Payment Program. We 
have an ``Ad Hoc'' overdraft program, which is defined as a 
program where return items are paid on a case-by-case basis. We 
have taken a proactive stance and have chosen to apply the 
February 2012 guidance where feasible. If a customer overdraws 
his/her account on six (6) or more occasions where a fee is 
charged in a rolling twelve month period, we will undertake 
meaningful and effective follow-up action using the ``enhanced 
periodic statement approach''. We have also chosen to have a 
$100.00 maximum daily overdraft charge in place and will not 
charge an overdraft fee for transactions that overdraw an 
account by $10.00 or less. We feel this is an adequate program, 
one that helps our customers if and when they have an overdraft 
occur.

    Recently while meeting with the CFPB in Washington the 
discussion turned to the overdraft program. The conversation 
was somewhat disturbing on multiple levels, but one concern I 
have, is the idea that banks are responsible for any and all 
mistakes made by a consumer. I have no problem with our 
overdraft program, it works. Consumers are treated fairly and 
with equality. If a Uniform Overdraft Program were required, we 
would have no chose but to close customer's accounts after the 
proper procedures have been followed to assist the consumer in 
maintaining his/her accounts. Should this occur, once again the 
harm would only come to the consumer. If a consumer cannot bank 
with a financial institution because of poor performance in 
maintaining his/her account they are forced into the 
nonregulated cash service industry. This is a perfect example 
of the unintended consequences of a uniform overdraft law.

    Non-Depository Money Services Industry

    In the State of Nevada the number of financial institutions 
has decreased from 28 banks in 2004 to 13 in 2015. These are 
state chartered institutions. In the same time period, non-
depository establishments have increased from 582 to 1037. 
These non-depositories, money service companies offer products 
such as ``payday loans'' and ``title loans'' without the burden 
of regulation. The ads can be seen where I can ``get money in 
minutes''. As a small banker in Nevada I have to deal with the 
impact of these types of companies on both the federal and 
state level. The CFPB is currently reviewing the practices of 
non-depository money service companies, which may provide a 
solution to the problem these companies create. Currently they 
can take advantage of the underbanked, leaving many in a 
desolate situation. On a state level, financial institutions 
are regulated and are required to pay an annual assessment, 
non-depository money service companies are not. In this case 
fair and equitable regulation must be enforced. Our goal of 
financial institutions is to provide sound and equitable 
financial services to our customers, and as a small financial 
institution we do all we can with the regulatory burden placed 
upon us.

    The Cost of Compliance

    In the wake of increased regulation comes an increase in 
compliance cost. Currently Nevada Bank & Trust Co. spends over 
$150,000 annually on compliance related expenses, which does 
not include salary expenses for personnel. This expense is for 
compliance education, audits, and assessments. We have two (2) 
full time employees where 75 percent of their time is spent on 
compliance related matters.

    Ultimately our customers are the ones who feel the true 
cost of this burden. They feel it in more expensive financial 
services and fewer options. For example, 58 percent of banks 
have held off or canceled the launch of new products--designed 
to meet consumer demand--due to expected increases in 
regulatory costs or risks. Additionally, 44 percent of banks 
have been forced to reduce existing consumer products or 
services due to compliance or regulatory burden. At the end of 
the day, this translates into fewer services for the consumer.

    Recommendations

    A number of bills have been introduced in the House and 
Senate that would provide significant relief from many of the 
concerns noted above. I would strongly recommend considering 
those bills that have regulatory relief to the small business 
and particularly the small community bank.

    Conclusion

    As a small community banker, I understand the need for 
regulation. There is a place for it to maintain a safe and 
sound financial industry. However, the overburden of regulation 
only hinders the progress of small banks and small business. 
The effects are felt by the consumer when financial 
institutions have to cut back on the services offered. At the 
end of the day the unintended consequences place a burden on 
the very people the regulation is intended to protect.

    Thank you for your time, I look forward to your questions.
    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT] 
    
    Thank you for the opportunity to testify at today's 
hearing. The Committee's continued focus on the effects of 
Federal regulations on small businesses is critical. Thank you 
Chairman Hardy, and to the committee for inviting me to testify 
today.

    My name is Robin Simmers and I am the Chief Executive 
Officer of Pahranagat Valley Federal Credit Union located in 
Alamo, Nevada roughly 100 miles northeast of Las Vegas. I am 
happy to be here today to share the story of Pahranagat Valley 
a $20 million credit union, and credit unions nationally. 
Originally chartered in 1958, Pahranagat Valley FCU services 
the community in Pahranagat Valley including the towns of 
Alamo, Hiko, and Ash Springs. We are the communities only full 
service financial institution for a population of roughly 
3,000.

    I am also pleased to come before the committee on behalf of 
the Nevada Credit Union League, and the Credit Union National 
Association which represents roughly 6,300 credit unions 
nationwide and 104 million credit union members. Currently, 
there are 18 Nevada based and operated credit unions. Credit 
unions are not-for-profit financial cooperatives, owned by our 
members who democratically elect our volunteer board of 
directors. We do not have stock, are not publically traded, and 
return all profits to our members in various forms. The credit 
union model of operation is different from others in financial 
services as our incentives are to serve the needs of our 
members. Whether serving a small community or a large 
metropolitan area, there is consistency in the compliance 
burdens that credit unions are experiencing.

    A little bit about Pahranagat Valley Federal Credit Union: 
Including myself, the credit union employees 6 full employees 
serving the financial needs of roughly 2,000 members. Running a 
small credit union, which is also a small business, presents a 
variety challenges. With a team of 6, I am not only the CEO and 
Manager, but I serve as the teller, CFO, COO, HR department, 
Business Lending Officer, Mortgage Loan Officer and everything 
in between. Since 2011, our credit union is the only financial 
services providers for our small town.

    Credit unions face a crisis of creeping complexity with 
respect to regulatory burden and American consumers need 
Congress to address this crisis. Since the beginning of the 
financial crisis, credit unions have been subject to more than 
202 regulatory changes from nearly two dozen Federal agencies 
totaling more than 6,000 Federal Register pages. Every time a 
rule is changed credit unions and their members incur costs. 
They must take time to understand the new requirement, modify 
their computer systems, update their internal processes and 
controls, train their staff, design and print new forms and 
produce material to help their members understand each new 
requirement. Even simple changes in regulation cost credit 
unions thousands of dollars and many hours: time and resources 
that could be more appropriately spent on serving the needs of 
credit union members.

    Regulatory burden is one of the primary reasons that Main 
Street financial institutions are disappearing at an alarming 
rate. The number of credit unions has been halved in the last 
20 years--from more than 12,500 in 1995 to a little less than 
6,300 today.

    The good news is that Congress can help relieve the 
regulatory burdens on credit unions so they can better serve 
their members. Changes to the Federal Credit Union Act, the 
Dodd-Frank Act, and other burdensome laws and regulations will 
ensure that America's 100 million plus credit union members 
will continue to benefit from credit union services.

    With respect to the Federal Credit Union Act, we believe 
that changes should be made to allow credit unions to fully 
serve their small business owning members. In addition to 
credit union member business lending, we suggest other changes 
to make sure that credit unions are able to focus on their 
members.

    Restore Credit Unions' Business Lending Authority

    Congress should restore credit unions' authority to lend to 
their small business members. No economic or safety and 
soundness rationale has ever been established for why credit 
unions should be subjected to a cap on small business lending, 
and we believe Congress should fully restore credit unions' 
ability to lend to their small business members, as they did 
without statutory restriction until 1998.

    As we have testified many times before, while the small 
banks were asking for taxpayer money to lend to small 
businesses, credit unions were pleading with Congress to permit 
well-capitalized credit unions with a strong history of 
business lending to lend beyond the arbitrary cap on business 
lending that is in statute.

    NCUA has testified in support of expanding the business 
lending cap several times, most recently in February 2015.\1\ 
The administration has supported expanding the business lending 
cap.\2\ There are more than 500 credit unions for which the cap 
is a significant operational restriction. These credit unions 
deserve the opportunity to continue to serve their business 
members and their communities, and Congress should address this 
issue.
---------------------------------------------------------------------------
    \1\ Testimony of Larry Fazio, Director, Office of Examination and 
Insurance, National Credit Union Administration, before the Senate 
Banking Committee Hearing on ``Regulatory Relief for Community Banks 
and Credit Unions.'' February 10, 2015.
    \2\ Letter from U.S. Secretary of Treasury Timothy Geithner to 
House Financial Services Committee Chairman Barney Frank. May 25, 2010.

---------------------------------------------------------------------------
    Increase the Member Business Lending Cap

    If Congress is unable to eliminate the cap entirely, we 
strongly urge enactment of legislation that has been introduced 
in the last several Congresses to permit Federally insured 
credit unions to make member business loans (MBLs) in an 
aggregate of 27.5% of its total assets as long as the credit 
union: (a) is well-capitalized; (b) can demonstrate at least 5 
years' experience managing a sound MBL program; (c) has had 
MBLs outstanding equal to at least 80% of 12.25% of its assets; 
and (d) complies with applicable regulations. We believe this 
is a reasonable approach that ensures that business lending in 
excess of the current statutory cap is conducted by healthy 
credit unions with a demonstrated history of sound business 
lending practices. While it does not get credit unions back to 
the place they were prior to 1998 when they were not subject to 
a statutory cap on business lending, it will provide several 
hundred credit unions with relief to continue to serve their 
small business members and their communities.

    Importantly, raising the cap in the manner outlined above 
would increase small business lending by as much as $4.3 
billion, helping to create nearly 50,000 new jobs, in the first 
year after enactment. This level of growth would have been very 
helpful in the throes of the financial crisis, but even in the 
recovering economy, this type of growth is important. And, 
contrary to the banker argument, this lending would not produce 
a dollar for dollar reduction in bank lending. In fact, the 
Small Business Administration (SBA) commissioned a study that 
suggested 80% of additional credit union lending would be new 
small business lending.\3\ This would be a benefit for small 
business owners and it would not jeopardize the banking 
industry's share of the small business lending market, which 
for the last two decades has been approximately 93% of the 
market.
---------------------------------------------------------------------------
    \3\ Wilcox, James A. ``The increasing Importance of Credit Unions 
in Small Business Lending.'' Small Business Administration Office of 
Advocacy. September 2011. 20.

    Treat 1-4 Family Non-Owner Occupied Residential Loans as 
---------------------------------------------------------------------------
Residential Loans, Not Credit Union Business Loans

    In addition to legislation to modernize credit union 
business lending, we encourage Congress to address a disparity 
in the treatment of certain residential loans made by banks and 
credit unions. When a bank makes a loan for the purchase of a 
1-4 unit non-owner occupied residential dwelling, the loan is 
classified as a residential real estate loan; however, if a 
credit union were to make the same loan, it would be classified 
as a business loan and therefore subject to the cap on member 
business lending under the Federal Credit Union Act.

    We support legislation to amend the Federal Credit Union 
Act to provide an exclusion from the cap for these loans. Doing 
so would not only correct this disparity, but it would enable 
credit unions to provide additional credit to borrowers seeking 
to purchase residential units, including low-income rental 
units. Credit unions would be better able to meet the needs of 
their members if this bill was enacted, and it would contribute 
to the availability of affordable rental housing.

    NCUA's Proposed Member Business Lending Rule

    On June 18, 2015, the NCUA Board issued a proposed member 
business lending rule designed to give credit unions greater 
flexibility and autonomy in offering commercial loans. The rule 
changes the current prescriptive approach to a more principle-
based methodology. While the rule provides more flexibility and 
autonomy to credit unions. the rule emphasizes sound risk 
management for commercial lending. The rule does not allow 
credit unions to evade the member business lending cap nor lend 
to non-members. We support the overall of NCUA's current MBL 
regulation.

    Improve Credit Unions' Ability to Engage in Small Business 
Administration and Other Guaranteed Lending Programs

    We encourage Congress to improve credit unions' ability to 
offer SBA and other government guaranteed loans. Specifically, 
Congress should exempt government guaranteed loans in their 
entirety from the member business lending cap: currently, only 
the guaranteed portion of the loan is exempt. Further, Congress 
should clarify that credit unions participating in Federal and 
state loan guarantee programs may include terms for such loans 
as permitted by the loan guarantee programs in both statute and 
regulations; this would allow credit unions to more fully 
participate in the SBA's 504 Loan Program.

    Other Potential Changes to the Federal Credit Union Act

    Improve Credit Union Capital Requirements

    One lesson of the financial crisis is ``capital is king'' 
and the measures used to assess the capital condition of 
financial institutions were imperfect, to put it mildly. 
Financial regulators, including NCUA, have worked in recent 
years to impose ``better'' schemes to assess the health of 
financial institutions; NCUA's new risk based capital rule is 
its latest attempt in this area. While we appreciate some of 
the changes that were made to the rule, questions persist with 
respect to whether all aspects of the proposal are consistent 
with the agency's legal authority, and whether the costs of 
implementing the proposal outweigh the benefit to the National 
Credit Union Share Insurance Fund.

    We encourage Congress to consider comprehensive reforms to 
the credit union capital structure, including authorizing NCUA 
to define what the different net worth levels must be in order 
to be ``well-capitalized,'' ``adequately capitalized,'' 
``undercapitalized,'' and ``significantly undercapitalized,'' 
based on credit unions' financial performance, current economic 
trends and other factors.

    We also believe that NCUA should have the authority to 
allow all credit unions to accept supplemental forms of 
capital. Under current law, approximately 2,000 credit unions, 
those designated as low-income credit unions, have this 
authority. Permitting all credit unions to acquire supplemental 
capital in a manner consistent with their cooperative ownership 
structure would enhance the safety and soundness of the credit 
union system. Representatives King (R-NY) and Sherman's (D-CA) 
legislation to permit credit unions to accept supplemental 
forms of capital would be a good place to start regarding 
credit union capital reform.

    Budget Transparency for the NCUA

    We support legislation that requires NCUA to hold an annual 
hearing on the agency's budget, most of which is funded by 
credit union member resources. This would increase transparency 
and accountability at the agency, and engender public trust, 
thereby strengthening and supporting the agency's mission.

    Suggested improvements to the Dodd-Frank Act

    The Dodd-Frank Act is not and should not be considered 
sacrosanct. There are several improvements that should be made 
to the law that, in the long run, would enhance consumer 
protection by ensuring that credit unions are around to serve 
their members.

    Expand and Specify the CFPB's Exemption Authority

    The CFPB should go much further than it has to exempt 
credit unions from its rule making, because credit unions, 
unlike other financial institutions, have not caused the abuse 
the Bureau is meant to address. The imposition of regulations 
designed to curb abuse elsewhere in the system reduces access 
to affordable products and services offered by credit unions. 
If the Bureau is unwilling to expand its perspective on the 
exemption authority Congress should state it more explicitly.

    Install a Five-Person Board to Run the CFPB

    We encourage Congress to enact legislation to change the 
leadership structure at the Bureau from a single director to a 
five-person board. Expanding the Bureau's executive leadership 
to a five-person board will ensure that more voices contribute 
to the Bureau's rulemaking and it could help produce 
regulations that better balance the important mission of the 
Bureau and the impact the regulations have on the way products 
and services are provided to consumers.

    Require Cost-Benefit Analysis of all CFPB Proposals

    We urge Congress to enact legislation to require the CFPB 
to complete an extensive cost-benefit analysis before the 
agency proposes a rule and to provide this analysis to the 
public with any proposal issued. The burden should be on the 
Bureau to detail the costs and benefits of its proposals, not 
on the regulated parties to prove that there is a burden.

    Codify the Credit Union Advisory Council

    Shortly after the CFPB was established, the Bureau's 
leadership announced the creation of a credit union advisory 
council (CUAC). This group advises the agency on the impact of 
the Bureau's proposals on credit unions. However, since CUAC is 
not required by law, it could be abolished at any time. We 
believe CUAC is an important resource for the agency and also 
provides a forum for credit union officials to provide direct 
feedback to the agency on how proposals and final rules will 
affect credit unions' operations.

    Additional Regulatory Relief Measures

    Exception to Annual Written Privacy Notice

    We support legislation that would eliminate the requirement 
that credit unions send annual privacy notices to their members 
unless they have changed their privacy policy. This legislation 
would not only relieve credit unions of an unnecessary 
regulatory burden, but it would also enhance consumer 
protection by making privacy notifications more meaningful to 
consumers.

    Credit Unions and the Federal Home Loan Bank

    When the Federal Home Loan Bank (FHLB) system opened to 
commercial banks and credit unions in 1989, the bill contained 
a drafting error which excluded privately insured credit 
unions. We support current legislation that would fix this 
discrepancy. Permitting privately insured credit unions to join 
the FHLB system would pose no risk to the FHLB because all 
advances from the FHLB system must be fully collateralized and 
are subject to strict uniformly applied standards.

    Another piece of legislation that we support would ensure 
that the FHLB membership requirements for credit unions under 
$1 billion in assets will have parity with similarly sized 
banks. Currently, banks under $1 billion in assets only have to 
retain 1% of their assets in mortgages or mortgage related 
products vs. credit unions of similar size, which have to 
retain a much higher threshold of 10% of their assets in 
mortgages or mortgage related products before they can join the 
FHLB system.

    Independent Examination Ombudsman

    Current legislation would create an independent examination 
ombudsman that would facilitate transparency and improve 
consistency in the examination process. We support this 
legislation because the current process for lodging examination 
complaints and appeals simply has not worked for credit unions.

    Portfolio Lending and Qualified Mortgages

    We support current legislation that would treat mortgages 
held in portfolio at credit unions and other mortgage lenders 
as qualified mortgages for purposes of the CFPB's mortgage 
lending rules. Treating loans that financial institutions hold 
on their balance sheets in this manner is appropriate because 
the lender retains all of the risk involved with these 
mortgages and is subject to significant safety and soundness 
supervision from its prudential regulator.

    CFPB's TILA-RESPA Integrated Disclosure Rule

    Congress is currently considering legislation that would 
provide a reasonable hold-harmless period for enforcement of 
the CFPB's TILA-RESPA Integrated Disclosure regulation for 
those that make good-faith efforts to comply. We appreciate 
that the Bureau indicated that it will be sensitive to the 
progress made by those entities that make good-faith efforts to 
comply. However, credit unions need to know that their good 
faith efforts to comply while still serving their members' 
needs does not expose them to litigation.

    Conclusion

    Thank you for the opportunity to discuss regulatory burdens 
facing credit unions. Unfortunately as a result of 
overregulation, the credit union system is losing a credit 
union a day. With the help of your committee we look forward to 
stemming this tide and continuing to provide the very best 
service to our members.
                 Testimony of David S. Jennings

   Executive Board, Southern Nevada Home Builders Association

         Division Counsel-Las Vegas, D.R. Horton, Inc.

                           Before the

             United States House of Representatives

   Small Business Committee, Subcommittee on Investigations, 
                   Oversight, and Regulations

   Hearing on ``Regulatory Overload: The Effects of Federal 
                  Regulations on Small Firms''

                        November 6, 2015

    On behalf of nearly 1,000 active members of the Southern 
Nevada Home Builders Association (``SNHBA''), I appreciate the 
opportunity to testify today. My name is David Jennings, and I 
am a member of the Executive Board of the SNHBA. I am also 
Division Counsel for D.R. Horton, Inc. in its Las Vegas office.

    The membership of the SNHBA is diverse and includes 
homebuilders, trade contractors, mortgage companies, banks, 
real estate agencies and management companies. Most of our 
members are local, small businesses that employ local Nevada 
residents. These members are invested in the Las Vegas 
community and the State of Nevada as a whole. The SNHBA is 
devoted to the helping the housing industry, and all of its 
ancillary industries, to provide safe and affordable housing 
for Southern Nevada residents, and to contribute to the overall 
quality of life in Southern Nevada.

    The homebuilding industry is one of the primary drivers of 
Nevada's economy. Factoring in all of the various elements of 
the homebuilding industry--homebuilders, subcontractors, 
professional consultants, real estate agents and financial 
services--it employs more than 15,000 people in Clark County. 
The majority of these people are employed by small businesses 
within the industry.

    SNHBA members understand the need for local and federal 
regulation in the housing industry and beyond. These 
regulations must be sensible, however, and tied to legitimate 
public interests. They should be designed and enforced to 
protect the public. They should be clear and unambiguous in 
their application and enforcement not regulation simply for the 
sake of regulation.

    The regulatory scheme on which I would like to offer 
testimony today is the federal government's mineral materials 
program. It directly affects the most important element of 
homebuilding--land. Land makes, and breaks, our business. 
Federal land comprises the majority of the undeveloped land in 
Nevada and Clark County. It is a major component of any future 
growth in the State. The majority of privately-owned land in 
Clark County was once federally-owned land. Much of that land 
is encumbered by federal mineral reservations of one form or 
another.

    Smart and fair regulation of federal lands in Nevada is 
critical to the future success of the homebuilding industry 
here. It can help keep the industry vibrant and a major 
contributor to economic growth. On the other hand, costly and 
cumbersome regulation raises the cost of land acquisition and 
development which, over time, discourages future investment. As 
investment in land wanes, the homebuilding industry withers, 
and consequently, auxiliary businesses also decline.

    Certainty and sensibility in the regulation of this 
important asset is critical for members in the industry. The 
current regulatory structure for federal land in Nevada lacks 
certainty and is negatively impacting this important industry.

    Background Information

    In the Western United States, various acts of Congress 
(primarily adopted to encourage settlement) have resulted in 
split-estate ownership (Small Tract Act, Taylor Grazing Act, 
Stockraising Homestead Act) where the federal government 
retains ownership of mineral rights on privately-owned land. 
This is particularly prevalent in Nevada due to the enactment 
of the Southern Nevada Public Land Management Act of 1998 
(``SNPLMA''), Pub. L. No. 105-263, 112 Stat. 2343. Current 
federal regulation states that surface owners of these split-
estate lands may only use a ``minimal amount'' of mineral 
materials, which the BLM has concluded includes ordinary soils, 
for ``personal use'' (43 C.F.R. 3601.71) and any use beyond 
that ``minimal amount'' is considered a trespass in the absence 
of obtaining a material sale contract or permit from the BLM.

    Until recently, homebuilders and developers developed land 
largely undisturbed by any mineral rights enforcement actions 
by the BLM. In April, 2014, the Inspector General of the 
Department of the Interior conducted an audit of the BLM's 
Mineral Materials Program and issued a report regarding the 
BLM's opportunity to make mineral claims (the ``Report''). The 
Report was highly critical of the BLM for not obtaining market 
value for mineral materials and made fifteen recommendations 
for enhancing BLM's management of its mineral material program. 
One of those recommendations addressed the loss of revenue from 
``unauthorized'' uses. In response to the Report, BLM has since 
vigorously pursued mineral material trespass claims. There are 
now eighty four pending mineral trespass matters in Southern 
Nevada. The agency has also issued policy guidance to clarify 
the distinction between personal use with commercial use in 
existing regulation (BLM IM-2014-085) (the ``BLM Policy'').

    In response to the directives in the Report, the BLM in 
Nevada has for the first time in recent memory begun to pursue 
developers and homebuilders for use of mineral materials on 
their own land. Investigations have been made, and a number of 
mineral trespass notices have been issued, against current 
members of the SNHBA for common uses of ordinary soil, which 
may include sand and gravel materials. Below are a few examples 
of recent mineral rights enforcement activity against SNHBA 
members in the Las Vegas Valley by the BLM:

          1. In a homebuilder's development of a small 
        residential tract in northwest Las Vegas, it was 
        determined that the elevation of the land was too high 
        relative to the surrounding parcels. To allow for 
        development of the property that was compatible with 
        the surrounding parcels, the homebuilder removed 
        several thousand cubic yards of soils from the property 
        to lower the overall grade and match elevations with 
        surrounding property. The property was encumbered by a 
        federal mineral rights reservation under the Small 
        Tract Act. The homebuilder relocated the material to a 
        nearby property that was also encumbered by an 
        identical federal mineral rights reservation. There, 
        the material was used to raise the grade of the second 
        parcel for a similar small residential development. The 
        homebuilder received a mineral trespass notice from BLM 
        for ``unauthorized use'' and ultimately had to pay tens 
        of thousands of dollars to resolve it.

          2. Another homebuilder purchased a large parcel from 
        of land in Henderson from the BLM. The homebuilder 
        later subdivided the parcel into smaller parcels as 
        part of a master-planned combined residential and 
        commercial development. The homebuilder relocated 
        earthen material from one of the smaller parcels to 
        another, but all within the boundaries of the original 
        large parcel purchased from the BLM. The homebuilder 
        received a mineral trespass notice from the BLM for 
        ``unauthorized use,'' and has now spent tens of 
        thousands of dollars contesting the matter.

          3. A third builder purchased a parcel of land 
        encumbered by a federal mineral reservation years after 
        the BLM's original conveyance of the property to 
        another party. After the BLM conveyed the property, and 
        before the builder bought it, someone stockpiled 
        earthen material on the property. The builder moved the 
        stockpiled material to another location, because it 
        interfered with the builder's planned development. The 
        builder received a mineral trespass notice from BLM for 
        ``unauthorized use'' and spent thousands of dollars on 
        legal and other consultant fees trying to resolve the 
        issue.

    Current Enforcement of the Mineral Materials Regulation

    The BLM's current enforcement policy represents a 
significant change from the past. That change resulted from the 
Inspector General's audit and resulting 2014 Report. The Report 
directs local BLM offices to aggressively enforce the mineral 
regulations, and provides guidance on what would constitute an 
``unauthorized use'' of mineral materials. The new BLM Policy 
states, in part: ``A surface owner may extract, server, or 
remove only minimal amounts of mineral materials from split 
estate land for personal use under 43 CFR 3601.71(b)(1) for 
purposes of improving the surface, even if materials are not 
removed off of the tract.'' The Policy further states that 
``Minimal use . . . would not include large-scale use of 
mineral materials, even within the boundaries of the surface 
estate.'' Then, in a misguided attempt to clarify, the Policy 
then states ``mineral materials that must be excavated in 
connection with surface use of the property may be spread on 
other parts of the surface of that same property regardless of 
the amount, so long as the material is unaltered and is not 
used for or in connection with any construction purpose.''

    These restrictions on use of the material on land conveyed 
or purchased from the federal government are at best, 
confusing, and at worst, arbitrary and unfair. Moreover, the 
BLM Policy punishes developers who purchased land prior to its 
adoption or without knowledge of it. Unfortunately for many 
property owners--including homebuilders and developers--
significant acreage was purchased, and is now owned, in 
reliance on the previous enforcement policies for federal 
mineral reservations. The fees and fines now threatened with 
this aggressive enforcement policy were surely not part of 
these landowners' financial development projections. 
Furthermore, there are still many unanswered questions about 
what ``minerals'' are and are not included within a federal 
mineral reservation and, more importantly, what use of the 
surface minerals is allowed and what constitutes an 
``unauthorized use.'' The new enforcement policy and these 
unanswered questions combine to create uncertainty in the 
industry.

    As currently enforced, the regulations also often ignore 
the very purposes for which the land was originally sold. A 
determination of whether a particular substance is included in 
the mineral estate depends on the use of the surface estate 
contemplated by Congress when adopted.\1\ For example, the 
declared purpose of the Small Tract Act was to ``provide for 
the purchases of public lands for home, cabin, camp, health, 
convalescent, recreational and business sites.'' \2\ In the 
first example cited above, the use of the surface material was 
entirely consistent with the purposes of the Small Tract Act 
under which the land was originally sold. It is difficult to 
see how Congress could have intended to sell the surface for 
such purposes and contemplate the co-existence of such an 
incompatible use as mining on the same small five-acre tract. 
It strains reason to believe that the federal government would 
be able to enter upon and remove sand and gravel from a parcel 
sold to a private party under the Small Tract Act without 
compensation or otherwise authorize a third party to do the 
same (assuming, of course, that the sand and gravel is 
commercially valuable). Homeowners would be equally disturbed 
at this revelation.
---------------------------------------------------------------------------
    \1\ Watt v. Western Nuclear, Inc., 462 U.S. 36, 52 (1983).
    \2\ 43 U.S.C. Sec. 682(a) (1970), repealed by Pub. L. 94-579, Title 
VII, Sec. 702, 90 Stat. 2798 (1976) (FLMPA).

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    Effects on Small Business

    The new BLM Policy is adversely impacting the entire 
homebuilding industry. First and foremost, it results in extra 
cost to all developers. It is being retroactively applied to 
parcels that a small business may have purchased in a private 
transaction several steps removed from any BLM transaction. 
That extra cost is especially burdensome on small homebuilders 
because they cannot spread costs and risks across many 
projects, and these costs consequently serve as a barrier to 
small business investment.

    In addition, the new BLM Policy has injected uncertainty 
into the process. Land is the lifeblood of the homebuilding 
industry. It is the most valuable, and most risky, asset. Like 
anything else, investment in land depends on favorable projects 
on costs, revenues and risk. The new enforcement policy inserts 
additional uncertainty into land investment making it 
impossible to project costs. This applies to large and small 
homebuilding businesses, but the impact of unforeseen fines and 
fees, and possible protracted enforcement actions, can be 
especially crippling for small businesses. It is rarely certain 
at the time of initial investment in land whether mineral 
material will need to be imported or exported from a project, 
or even relocated within the boundaries of that project. Under 
the new BLM Policy it is now unclear:

          (1) what use of sand and gravel (or ordinary soils) 
        will constitute an ``unauthorized use'';

          (2) whether the use will result in fines or fees; and

          (3) if so, what the amount of fines and fees might 
        be?

    Can a builder cut down high areas and fill lower areas of 
his property without being fined? Or is that more than 
``minimal use'' even if all material remains on the property? 
Is relocating earthen material to create lots and building pads 
allowed under the regulation or will it generate a trespass 
notice? These questions are not adequately answered under the 
BLM Policy. Further uncertainty is created as a result of the 
fines and fees being based on the BLM's market rate for sand 
and gravel. With the length of time required for entitlement 
and engineering work, the time between land purchase and 
development can exceed 12 to 18 months. The BLM's rates can 
adjust upward over time. While market conditions change over 
time in many aspects of homebuilding industry, these additional 
uncertainties make it even more difficult to accurately 
evaluate future performance on a land investment. For any 
business, but especially small business, uncertainty means 
risk. The greater the risks, the less likely the investment 
will be made.

    Regulatory Flexibility Act

    In 1980, Congress enacted the Regulatory Flexibility Act to 
allow small businesses that are heavily impacted by federal 
regulations to have some input into the development of those 
regulations. The RFA requires federal agencies to analyze the 
impact of federal regulations on small businesses and, where 
the impact would be significant, to adjust the impacts of such 
regulations to avoid overly burdensome outcomes. The BLM's 
Policy avoids the requirements of the RFA, as amended by the 
Small Business Regulatory Enforcement Fairness Act 
(``SBREFA''). Small businesses may be significantly impacts by 
the new enforcement policy because (1) they are less likely to 
have the resources necessary to gain full understanding of the 
new policy, or to challenge an enforcement action, and (2) the 
financial impact of the unforeseen fines and fees is magnified 
in a small business setting. The BLM should be required to 
reconsider the distinction between personal and commercial use 
of mineral material and to define what constitutes ``minimal'' 
in a common-sense rulemaking where there is adequate public 
notice and comment as opposed to relying on policy to fill the 
interpretive gaps in existing regulation. This has been a 
disturbing trend occurring in many federal agencies (i.e., 
adopting policies that are inconsistent with existing 
regulation in lieu of notice and comment rulemaking).

    Reform of the Federal Land Policy and Management Act 
(``FLMPA'')

    Currently, BLM has discretion as to whether to convey 
reserved minerals to a surface estate owner. FLMPA provides a 
process for the conveyance to occur, but it is cumbersome and 
expensive. Applicants must pay all costs for the preparation of 
a mineral potential report, and reimburse the agency for any 
incurred administrative costs, and the process can take up to 
three years to complete. An expedited process should be 
developed for surface estates conveyed under certain types of 
patents (i.e., Small Tract Act patents where Congress could not 
have intended to provide for the simultaneous development of 
homes and the mining of mineral materials) to expedite much 
needed certainty for surface estate owners.

    Regulation is Costly to Challenge

    It is extremely difficult for small business owners to 
challenge regulations they deem to be erroneous and/or 
resulting in unfair enforcement. They often lack the resources 
to mount a legal challenge against the BLM and their 
enforcement policies or actions. Small businesses typically do 
not have internal counsel or engineers on staff to help contest 
trespass matters. The resolution of BLM enforcement actions 
includes multiple steps of administrative process and appeal. 
Only after all administrative remedies are exhausted may the 
BLM be challenged in federal court. The cost of any challenge 
often will exceed the fine, even where the challenge has merit. 
As a result, the only options for small business owners are to 
either pay the fine or, if they know of the risk, elect not to 
purchase the property in the first instance.

    Insufficient Publicity

    Until this week, there has been little or no publications 
or education on this new BLM Policy. Most small business owners 
are unaware of it. They may be subject to future fees or fines 
without any knowledge of that potential liability. Lack of 
education within the industry and, more generally, in the 
landowning populace creates a myriad of challenges that are 
difficult to overcome. When fined, developers are surprised at 
the extra costs associated with the current mineral regulation. 
Sometimes those costs can be the difference between a 
development project being viable or not. Additionally, 
landowners do not appreciate the extra costs associated with 
the current mineral regulation. Because those costs are not 
known, they are not yet reflected in the market. The cost of 
the private land, coupled with the potential costs associated 
with the current mineral regulation, are artificially high and 
often make investment in that land cost prohibitive.

    Are Landowners Getting the Benefit of Their Bargain?

    Because there has been little or no publication about BLM's 
new Policy, land owners may not be able to obtain all the 
benefits of their purchase. They believe they own a piece of 
land free and clear to develop. It turns out they do not. The 
very materials that make up the useable land are somehow still 
the property of the government, and everything short of 
``minimal use'' is prohibited unless that landowner goes 
through a cumbersome approval process and pays the government 
additional money. This does not seem right.

    Conclusion

    Homebuilding is a complex and highly regulated industry. As 
costs and regulatory burdens increase, the small businesses 
that make up a majority of the industry must adapt. This can 
include paying higher prices for land, purchasing smaller 
parcels, redrawing development or house plans, and/or 
completing mitigation. All of these adaptations are financed by 
the builder, and ultimately result in higher prices for 
consumers and lower production for the industry. As production 
declines and jobs are lost, other sectors that buy from or sell 
to the construction industry also contract and lose jobs. 
Builders and developers, still struggling to emerge from the 
economic downturn, cannot depend upon the future home buying 
public to absorb the multitude of costs associated with 
overregulation.

    Compliance costs for regulations are often incurred prior 
to home sales, so builders and developers have to finance these 
additional carrying costs until the property is sold. Because 
of the increased price, it may take longer for the home to be 
sold. Carrying these additional costs only adds more risk to an 
already risky business. This new enforcement policy increases 
costs and decreases certainty for large and small builders 
alike. It adds to the headwinds that our industry faces.

    Homebuyers are extremely price sensitive, and even moderate 
cost increases can have significant negative market impacts. 
This is of particular concern in the context of affordable 
housing where relatively small price increases can have an 
immediate impact on low to moderate income homebuyers. As the 
price of the home increases, those who are on the verge of 
qualifying for a new home will no longer be able to afford this 
purchase. The National Association of Home Builders has 
estimated the number of households priced out of the market for 
a median priced new home from a $1,000 price increase--
nationwide, if the cost of a median priced new home were to 
increase from $225,000 to $226,000, a total of 232,447 
households would no longer be able to afford that home. Here in 
Clark County, 1,806 households are ``priced out'' of the market 
for every $1,000 increase in home price according to Home 
Builders Research. Simply put, something must be done to curb 
the tide of federal overregulation and overzealous enforcement. 
These actions ultimately damage the American public.

    Thank you again for the opportunity to testify today.
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