    [House Hearing, 115 Congress]
    [From the U.S. Government Publishing Office]

                        EXAMINING LEGISLATIVE PROPOSALS
                              TO PROVIDE TARGETED
                              REGULATORY RELIEF TO
                        COMMUNITY FINANCIAL INSTITUTIONS

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

                                    HEARING

                                   BEFORE THE

                     SUBCOMMITTEE ON FINANCIAL INSTITUTIONS
                              AND CONSUMER CREDIT

                                     OF THE

                        COMMITTEE ON FINANCIAL SERVICES

                         U.S. HOUSE OF REPRESENTATIVES

                         ONE HUNDRED FIFTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                 JULY 12, 2017

                                   __________

           Printed for the use of the Committee on Financial Services

                               Serial No. 115-28

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                     HOUSE COMMITTEE ON FINANCIAL SERVICES

                        JEB HENSARLING, Texas, Chairman

    PATRICK T. McHENRY, North Carolina,  MAXINE WATERS, California, Ranking
        Vice Chairman                        Member
    PETER T. KING, New York              CAROLYN B. MALONEY, New York
    EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
    FRANK D. LUCAS, Oklahoma             BRAD SHERMAN, California
    STEVAN PEARCE, New Mexico            GREGORY W. MEEKS, New York
    BILL POSEY, Florida                  MICHAEL E. CAPUANO, Massachusetts
    BLAINE LUETKEMEYER, Missouri         WM. LACY CLAY, Missouri
    BILL HUIZENGA, Michigan              STEPHEN F. LYNCH, Massachusetts
    SEAN P. DUFFY, Wisconsin             DAVID SCOTT, Georgia
    STEVE STIVERS, Ohio                  AL GREEN, Texas
    RANDY HULTGREN, Illinois             EMANUEL CLEAVER, Missouri
    DENNIS A. ROSS, Florida              GWEN MOORE, Wisconsin
    ROBERT PITTENGER, North Carolina     KEITH ELLISON, Minnesota
    ANN WAGNER, Missouri                 ED PERLMUTTER, Colorado
    ANDY BARR, Kentucky                  JAMES A. HIMES, Connecticut
    KEITH J. ROTHFUS, Pennsylvania       BILL FOSTER, Illinois
    LUKE MESSER, Indiana                 DANIEL T. KILDEE, Michigan
    SCOTT TIPTON, Colorado               JOHN K. DELANEY, Maryland
    ROGER WILLIAMS, Texas                KYRSTEN SINEMA, Arizona
    BRUCE POLIQUIN, Maine                JOYCE BEATTY, Ohio
    MIA LOVE, Utah                       DENNY HECK, Washington
    FRENCH HILL, Arkansas                JUAN VARGAS, California
    TOM EMMER, Minnesota                 JOSH GOTTHEIMER, New Jersey
    LEE M. ZELDIN, New York              VICENTE GONZALEZ, Texas
    DAVID A. TROTT, Michigan             CHARLIE CRIST, Florida
    BARRY LOUDERMILK, Georgia            RUBEN KIHUEN, Nevada
    ALEXANDER X. MOONEY, West Virginia
    THOMAS MacARTHUR, New Jersey
    WARREN DAVIDSON, Ohio
    TED BUDD, North Carolina
    DAVID KUSTOFF, Tennessee
    CLAUDIA TENNEY, New York
    TREY HOLLINGSWORTH, Indiana

                      Kirsten Sutton Mork, Staff Director
           Subcommittee on Financial Institutions and Consumer Credit

                     BLAINE LUETKEMEYER, Missouri, Chairman

    KEITH J. ROTHFUS, Pennsylvania,      WM. LACY CLAY, Missouri, Ranking
        Vice Chairman                        Member
    EDWARD R. ROYCE, California          CAROLYN B. MALONEY, New York
    FRANK D. LUCAS, Oklahoma             GREGORY W. MEEKS, New York
    BILL POSEY, Florida                  DAVID SCOTT, Georgia
    DENNIS A. ROSS, Florida              NYDIA M. VELAZQUEZ, New York
    ROBERT PITTENGER, North Carolina     AL GREEN, Texas
    ANDY BARR, Kentucky                  KEITH ELLISON, Minnesota
    SCOTT TIPTON, Colorado               MICHAEL E. CAPUANO, Massachusetts
    ROGER WILLIAMS, Texas                DENNY HECK, Washington
    MIA LOVE, Utah                       GWEN MOORE, Wisconsin
    DAVID A. TROTT, Michigan             CHARLIE CRIST, Florida
    BARRY LOUDERMILK, Georgia
    DAVID KUSTOFF, Tennessee
    CLAUDIA TENNEY, New York

                               C O N T E N T S

                                  ----------
                                                                       Page
    Hearing held on:
        July 12, 2017................................................     1
    Appendix:
        July 12, 2017................................................    43

                                   WITNESSES
                            Wednesday, July 12, 2017

    Astrada, Scott B., Director of Federal Advocacy, Center for
      Responsible Lending............................................     7
    Fisher, Robert M., President & CEO, Tioga State Bank, on behalf
      of the Independent Community Bankers of America (ICBA).........     4
    Nichols, Rick, President & CEO, River Region Credit Union, on
      behalf of the Credit Union National Association (CUNA).........     5
    Verret, J.W., Senior Scholar, Mercatus Center, George Mason
      University.....................................................     9

                                    APPENDIX

    Prepared statements:
        Astrada, Scott B.............................................    44
        Fisher, Robert M.............................................    75
        Nichols, Rick................................................    87
        Verret, J.W..................................................   104

                  Additional Material Submitted for the Record

    Luetkemeyer, Hon. Blaine:
        Written statement of the Financial Services Roundtable.......   107
        Written statement of the American Financial Services
          Association................................................   110
        Written statement of the Consumer Bankers Association........   112
    Hollingsworth, Hon. Trey:
        Letter from the Consumer Bankers Association.................   116
    Royce, Hon. Edward:
        Written responses to questions for the record submitted to
          Rick Nichols...............................................   117
    Tipton, Hon. Scott
        Written statement of the Innovative Lending Platform
          Association................................................   121
        Letter from the American Bankers Association.................   123
        Letter from the Consumer Bankers Association.................   124
        Written statement of the Center for Financial Services
          Innovation.................................................   126
        Letter from the Financial Services Roundtable................   128
    Velazquez, Hon. Nydia:
        Written statement of Americans for Financial Reform..........   129
        Written statement of Hope Federal Credit Union/Hope
          Enterprise Corporation.....................................   133
        Written statement of the Conference of State Bank Supervisors   136
        Written statement of the Leadership Conference on Civil and
          Human Rights...............................................   138
        Written statement of U.S. PIRG...............................   141
        Written statement of the National Community Reinvestment
          Coalition..................................................   143

                        EXAMINING LEGISLATIVE PROPOSALS
                              TO PROVIDE TARGETED
                              REGULATORY RELIEF TO
                        COMMUNITY FINANCIAL INSTITUTIONS

                                  ----------

                            Wednesday, July 12, 2017

                 U.S. House of Representatives,
                 Subcommittee on Financial Institutions
                                   and Consumer Credit,
                               Committee on Financial Services,
                                                       Washington, D.C.
        The subcommittee met, pursuant to notice, at 2 p.m., in
    room 2128, Rayburn House Office Building, Hon. Blaine
    Luetkemeyer [chairman of the subcommittee] presiding.
        Members present: Representatives Luetkemeyer, Rothfus,
    Posey, Ross, Pittenger, Tipton, Love, Trott, Loudermilk,
    Kustoff, Tenney; Clay, Maloney, Meeks, Scott, Velazquez, Green,
    Heck, Moore, and Crist.
        Ex officio present: Representative Hensarling.
        Also present: Representatives Emmer and Hollingsworth.
        Chairman Luetkemeyer. The Subcommittee on Financial
    Institutions and Consumer Credit will come to order. Without
    objection, the Chair is authorized to declare a recess of the
    subcommittee at any time.
        Today's hearing is entitled, ``Examining Legislative
    Proposals to Provide Targeted Regulatory Relief to Community
    Financial Institutions.''
        Before I begin today, I would like to thank the witnesses
    for appearing. I appreciate your participation and I look
    forward to a productive discussion. Also, I want to note that
    one of the reasons we have such a light crowd today is we are
    expecting votes any minute. So I apologize for that, but we are
    going to try to get as far as we can with your testimony, and
    when the votes occur, we will take a recess for probably 30
    minutes to an hour. I appreciate your indulgence, and we will
    be back to continue the discussions.
        With that, I now recognize myself for 4 minutes for an
    opening statement. This subcommittee has spent a great deal of
    time exploring the many burdens facing financial institutions.
    I have heard from my friends on the other side of the aisle
    that there is a willingness to work across party lines to offer
    regulatory relief, particularly to community banks and credit
    unions. Today, we will have an opportunity to do just that.
        The work our subcommittee has done this year has led to the
    creation of many of the bills we will consider today. Our first
    hearing served to examine the lack of de novo bank and credit
    union charters. As a result, the gentlelady from New York, Ms.
    Tenney, has drafted legislation to streamline the de novo
    process.
        We have also held hearings regarding the appropriate role
    of Federal financial regulators. Vice Chairman Rothfus has
    legislation to fundamentally change the appeals process,
    allowing financial institutions to have a fighting chance in
    what seems to be a process with predetermined outcomes that
    benefit financial regulators.
        Other Members have spent considerable time and energy
    developing legislation to balance the demand for access to
    credit with a more responsible regulatory regime. Of particular
    importance to me is one of my bills, H.R. 2133, the CLEARR Act.
    This legislation is a compilation of provisions to offer
    targeted regulatory relief for community banks and credit
    unions. The aim of my legislation is to make mortgages more
    affordable, demand more accountability from Washington
    regulators, and ease requirements on the Nation's smallest
    institutions and businesses.
        Many of the members of this subcommittee have offered their
    assistance with provisions included in the CLEARR Act, and I am
    pleased they will have an opportunity to discuss them today.
    And while we will spend the bulk of the afternoon talking about
    specific measures to offer relief from regulation, what must
    not be missed is the impact this relief will have on our local
    economies and consumers.
        The greatest impact of the Dodd-Frank Act and other Obama-
    era rules has been on the consumers, the customers of our
    financial institutions. An example is Michelle from Fulton,
    Missouri. She told me that her daughter, despite having a full-
    time job, could not get a loan to buy her first car. Then there
    is Matt, a banker in southeast Missouri, who said the
    regulatory climate makes it harder to write a loan with terms
    that may be in a customer's best interest.
        Despite what the Federal financial regulators would lead
    you to believe, Washington does not know best. The supervisory
    and regulatory structure experienced today leaves little to no
    room for flexibility or innovation, despite the fact that
    American consumers and small businesses continue to struggle to
    get the financial services they need to pursue growth and
    economic freedom. It is past time to demand a reasonable
    regulatory structure that fosters economic opportunity while
    allowing for robust consumer protection.
        The nine bills that we will discuss today seek to make
    modest changes in an effort to return to a more reasonable
    regulatory structure. We have a distinguished panel with us
    today, and we look forward to your testimony.
        The Chair now recognizes another gentleman from Missouri,
    Mr. Clay, the ranking member of the subcommittee, for 5 minutes
    for an opening statement.
        Mr. Clay. Thank you.
        And let me first thank you, Mr. Chairman, for holding this
    hearing to review proposals to provide regulatory relief for
    smaller institutions. And thank you to the witnesses for your
    input on these important issues. I am certainly willing to
    consider and support tailored regulatory relief for smaller
    institutions, but before adopting legislative changes, we
    should be 100 percent confident that the proposal is actually
    designed to provide tailored regulatory relief to community
    financial institutions and not the large banks, and that any
    special consideration for community banks and credit units will
    not expose consumers to abusive and predatory practices.
        As the subcommittee reviews these proposals, I hope my
    colleagues will not forget the lessons learned from the
    financial crisis. We must understand the true state of the
    financial services industry in this country today and reject
    the false claims that the Dodd-Frank Act has harmed banks and
    consumers.
        I believe that regulatory relief should always be done with
    careful consideration in order to protect the safety and
    soundness of our financial system, ensure the independence of
    our financial regulators, and combat shoddy practices by bad
    actors that harm consumers.
        Last, I want to call upon my colleagues to actually show
    their support for community financial institutions by working
    with me to ensure that Congress does not follow the Trump
    Administration's proposal to slash funding for the CDFI fund in
    Fiscal Year 2018, which provides valuable funding to our
    community financial institutions and the communities they
    serve.
        I thank you again, each of today's witnesses, and I yield
    back the balance of my time.
        Chairman Luetkemeyer. The gentleman yields back.
        With that, we will begin the testimony.
        We want to welcome each of you: Mr. Robert Fisher,
    president and CEO of Tioga State Bank, on behalf of the
    Independent Community Bankers of America; Mr. Rick Nichols,
    president and CEO of River Region Credit Union, on behalf of
    the Credit Union National Association; Mr. J.W. Verret,
    associate professor, Antonin Scalia Law School, and senior
    scholar at the Mercatus Center, George Mason University, as
    well as an alumnus of this Financial Services Committee--
    welcome back; and Mr. Scott Astrada, director of Federal
    advocacy, Center for Responsible Lending.
        Also, I would like to take a moment of personal privilege
    to extend a special welcome to Rick Nichols, whose credit union
    serves members across my district, and every day Rick and his
    staff work to ensure that Missourians have the ability to
    pursue economic freedom and create better lives.
        Rick, thank you for making the trip from Jefferson City. We
    certainly appreciate your participation today. I know the
    ranking member would agree, as well, that it is nice to have
    another Missourian on the panel.
        Mr. Clay. It certainly is.
        Chairman Luetkemeyer. And Rick comes from a little town
    just like I do. So, welcome to the big city.
        With this, we will begin the testimony, and we will explain
    the light system quickly here. Green means go. With 1 minute
    left, you will see a yellow light come on, and that means you
    have 1 minute to wrap it up. And when the red light comes on, I
    have the gavel, which means I get the last word, and it may be
    ``stop.'' But we will work with everybody as best we can here
    to make sure you get your points made.
        With that, Mr. Fisher, you are recognized for 5 minutes.

      STATEMENT OF ROBERT M. FISHER, PRESIDENT & CEO, TIOGA STATE
    BANK, ON BEHALF OF THE INDEPENDENT COMMUNITY BANKERS OF AMERICA
                                 (ICBA)

        Mr. Fisher. Chairman Luetkemeyer, Ranking Member Clay, and
    members of the subcommittee, I am Robert Fisher, president and
    CEO of Tioga State Bank, a $475 million community bank in
    Spencer, New York.
        I am pleased to be here on behalf of the nearly 5,000
    community banks represented by the Independent Community
    Bankers of America. We hope today's hearing sets the stage for
    legislation needed to strengthen local economic growth and job
    creation.
        Tioga State Bank was founded by my great-great-grandfather
    in 1884 to provide needed banking services to local businesses
    and individuals. I am a fifth-generation community banker who
    is proud to carry out our commitment to the local prosperity.
        Today, we specialize in consumer mortgage and small
    business lending. Many of the rural communities we serve in
    upstate New York depend on us as the only financial institution
    with a local presence. These smaller communities are simply not
    on the radar of larger banks.
        I will focus my testimony on four bills before this
    subcommittee, all of which include provisions recommended in
    ICBA's Plan for Prosperity. First, H.R. 2133, the CLEARR Act,
    is a package of provisions chosen to provide relief from some
    of the most egregious aspects of regulatory burden, government
    overreach, and legal risk facing community bankers today. ICBA
    is grateful to Chairman Luetkemeyer for introducing this
    important bill, so thank you.
        Approximately half of the bill's provisions address
    different aspects of mortgage lending. No area of community
    banking has been heaped with more new regulations in recent
    years, to the detriment of borrowers everywhere.
        As a portfolio lender, I appreciate the needed flexibility
    provided by the CLEARR Act. Loans held in portfolio would
    automatically have qualified mortgage status. This is a simple,
    clean solution that would avoid the inflexible requirements and
    tortuous analysis mandated by the CFPB's ability-to-repay rule.
        Loans held in portfolio by a bank with assets of less than
    $10 billion would also be exempt from costly escrow
    requirements for tax and insurance payments. And loans of less
    than $250,000 would be exempt from appraisal requirements. In
    our market, an appraiser shortage is escalating prices and
    lengthening turnaround times.
        ICBA thanks Representative Kustoff for introducing this
    provision of the CLEARR Act in a separate bill, the Access to
    Affordable Mortgages Act. Such flexibility is safe and
    reasonable because portfolio lenders bear the full risk of
    default and have every incentive to ensure the loans they hold
    are affordable for the borrower and are appropriately
    collateralized.
        Another provision of the CLEARR Act would be to raise the
    HMDA exemption thresholds so that community banks like mine
    would not be forced to complete 48 data fields for every
    mortgage application we receive. In rural communities that I
    serve where people are well known to each other, published HMDA
    data is a threat to consumer privacy. The current exemption
    thresholds are much too low. Raising these loan thresholds will
    protect consumer privacy and provide regulatory relief for many
    more small lenders without a significant impact on the mortgage
    data available to the CFPB.
        In addition to the mortgage lending reforms, the CLEARR Act
    would fully repeal Dodd-Frank Section 1071, a small business
    loan data collection requirement, which has not yet been fully
    implemented. In my opinion as a commercial lender, this is one
    of the most important provisions of the CLEARR Act.
        Commercial lending is a complex business with customized
    terms, covenants, and rates based on numerous factors unique to
    each borrower. This type of lending cannot be commoditized in
    the way that consumer lending can, nor can it be subject to
    simplified, rigid analysis, which may generate baseless fair
    lending complaints. I believe that Section 1071 will have a
    chilling effect on lenders' ability to price for risk. This, in
    addition to the expensive data collection and reporting, may
    drive community banks from the commercial lending market and
    curb access to small business credit. Other provisions of the
    CLEARR Act are discussed in my written statement.
        ICBA also supports H.R. 924, the Financial Institutions Due
    Process Act, introduced by Representative Rothfus, which would
    reform the appeals process for exam findings and bring a higher
    level of accountability to the regulators and their field
    examiners.
        And, finally, H.R. 2148, the Clarifying Commercial Real
    Estate Loans Act, introduced by Representatives Pittenger and
    Scott, would provide relief from punitive new Basel III capital
    charges for commercial projects that promote local economic
    development and job creation.
        Thank you, and I look forward to answering your questions.
        [The prepared statement of Mr. Fisher can be found on page
    75 of the appendix.]
        Chairman Luetkemeyer. The gentleman's time has expired.
        Mr. Nichols, you are recognized for 5 minutes.

    STATEMENT OF RICK NICHOLS, PRESIDENT & CEO, RIVER REGION CREDIT
       UNION, ON BEHALF OF THE CREDIT UNION NATIONAL ASSOCIATION
                                 (CUNA)

        Mr. Nichols. Thank you.
        Good afternoon, Chairman Luetkemeyer, Ranking Member Clay,
    and members of the subcommittee. And a special thank you for
    the gentleman from Missouri. It's good to see you.
        Thank you for the opportunity to appear before you today.
    As you noted in my introduction, I am the president and CEO of
    River Region Credit Union in Jefferson City, Missouri. By any
    stretch of the imagination, my credit union is a small
    institution. We are about $200 million in assets, and we serve
    about 22,000 members.
        As a result of the tidal wave of new regulations coming out
    of the financial crisis, credit unions like mine, as well as
    many small banks, are forced to operate in a regulatory
    environment that is rigged in favor of large institutions.
        When Washington produces one-size-fits-all regulations
    designed to rein in Wall Street banks, or abusers of consumers,
    my credit union feels the impact more than Bank of America and
    Wells Fargo. They have an army of compliance attorneys and all
    the resources in the world. I don't. The system is creating
    too-big-to-fail banks that put all American consumers at risk.
        I appreciate that the subcommittee is looking at
    legislative proposals to provide targeted relief to community
    financial institutions. We are being painted with the same
    brush as those who commit abuses. Overregulation is leading to
    a decreased number of smaller institutions that know their
    communities and work with the people they serve every day.
    Relief cannot come quickly enough.
        America's credit unions and the 110 million members we
    serve, including 1.5 million members in the State of Missouri,
    support many of the bills that are under consideration. We
    support Chairman Luetkemeyer's H.R. 2133, the CLEARR Act. This
    legislation includes several common-sense solutions that will
    help my credit union. Specifically, we support provisions that
    would adjust thresholds for mortgage servicing and escrow
    account administration, exempt certain higher-risk mortgages
    from appraisal requirements, repeal NCUA's 2015 risk-based
    capital rule, modify the CFPB's UDAAP authority, improve the
    CFPB's final HMDA rules, repeal the CFPB's authority to collect
    small business loan data, end Operation Choke Point, give
    consumers the right to waive waiting periods on mortgage
    closures, increase CFPB supervisory authority threshold to $50
    billion in assets, treat mortgages held in portfolio as
    qualified mortgages, and transfer authority to define ability
    to repay to the FHFA.
        We also support H.R. 924, the Financial Institutions Due
    Process Act. This bill brings fairness to an examination
    process that is not always transparent and an appeals process
    that has never been balanced. It is important for Federal
    regulatory agencies to be able to cite the authority under
    which they are making material findings during the examination
    process.
        Further, it is critical that if there is a dispute between
    the financial institution and the examiner, that such dispute
    be heard in a venue independent of the examiner's chain of
    command. H.R. 924 achieves both of those objectives.
        We support H.R. 1457, the MOBILE Act. This legislation is
    an important step toward helping credit unions and other
    financial institutions remain competitive in a market
    increasingly disrupted by financial technology companies, who
    are often subject to fewer regulatory requirements. To the
    extent that this legislation makes it easier for consumers to
    join credit unions, we view this as a positive step.
        We also support H.R. 2396, which makes changes to the
    privacy notification requirements that will make compliance
    much easier.
        America's credit unions greatly appreciate the
    subcommittee's work on these targeted regulatory relief
    proposals. The complexity of the crisis facing community-based
    financial institutions means that one piece of financial
    legislation is unlikely to remove all of the obstacles facing
    these institutions in serving consumers. There is much, much
    more work to be done.
        In conclusion, we encourage the subcommittee to continue to
    pursue additional measures to provide meaningful relief to
    community financial institutions like River Region Credit
    Union. It is important to keep in mind the people that these
    regulations affect.
        For example, this folder--I won't make you read it--
    contains a 30-year mortgage loan. This is all the documents
    that our members receive in a 30-year mortgage. Every time we
    pass something, it is just another piece of paper for them to
    see and less information that they actually understand.
        Thank you for the opportunity to testify today. I look
    forward to answering your questions.
        [The prepared statement of Mr. Nichols can be found on page
    87 of the appendix.]
        Chairman Luetkemeyer. I thank the gentleman, and just a
    quick question, how many pieces of paper are in that folder, do
    you know offhand?
        Mr. Nichols. As I told them, we quit measuring by pages. We
    now measure by pounds.
        Chairman Luetkemeyer. Okay. How many pounds do you have
    there?
        Mr. Nichols. I am guessing that one to be about 7 pounds.
        Chairman Luetkemeyer. Seven pounds of paper. Okay. Great
    visual aid. Thank you very much.
        Mr. Astrada, you are recognized for 5 minutes. Thank you
    for being here.

     STATEMENT OF SCOTT B. ASTRADA, DIRECTOR OF FEDERAL ADVOCACY,
                     CENTER FOR RESPONSIBLE LENDING

        Mr. Astrada. Thank you. Good afternoon, Chairman
    Luetkemeyer, Ranking Member Clay, and members of the Financial
    Services Committee's Subcommittee on Financial Institutions and
    Consumer Credit.
        As noted, I am the director of Federal advocacy at the
    Center for Responsible Lending (CRL), a nonprofit, nonpartisan
    research and policy organization dedicated to protecting
    homeownership and family wealth by working to eliminate
    predatory financial practices.
        On behalf of CRL, I would like to thank you for allowing me
    to testify today to discuss proposals regarding regulatory
    relief for community financial institutions.
        This important hearing addresses the health of our small
    banks and community lenders in the context of the regulatory
    structure created in the wake of the Great Recession, a
    regulatory framework that corrected systemic gaps and sought to
    prevent future market failures while providing essential
    protections to consumers in the overall economy.
        In setting and implementing these safeguards, regulators
    have utilized a two-tier approach with numerous measures
    intended to decrease compliance costs for smaller lenders and
    institutions. This approach should be continued and expanded.
    However, dismantling central reforms such as the mortgage
    ability-to-repay standard, or expanded QM exemptions, or
    reducing the effectiveness of the Consumer Financial Protection
    Bureau, would severely harm consumers, banks, and the overall
    economy.
        The 2008 Great Recession has showed us the consequences of
    a financial marketplace where there are no basic protections,
    accountabilities, or transparency. The result was 7.8 million
    Americans losing their homes to foreclosure, taxpayers on the
    hook for $7 trillion to bail out financial institutions, and an
    additional $22 trillion through the Federal Government's
    purchase of assets.
        According to the FDIC, more than 500 banks closed their
    doors, with most of these institutions being small community
    banks. These consequences remind us why the safeguards of the
    Dodd-Frank Wall Street Reform and Consumer Protection Act are
    needed to protect consumers in our Nation's economy. All
    financial institutions, including community banks and credit
    unions, benefit from the underlying purpose of financial
    regulation: protecting consumers; ensuring the safety and
    soundness of institutions; and defending the Nation's financial
    market from systemic risk.
        Today, financial institutions, including small banks, are
    recovering steadily. Contrary to theories that Dodd-Frank has
    stifled growth, the financial sector has seen record profits,
    community bank profitability has rebounded strongly, credit
    union membership is growing, and mortgage lending has also
    steadily recovered.
        Community banks and small lenders play an important and
    growing role in the mortgage market, and loans originated by
    smaller lenders with assets under $1 billion saw the biggest
    increase between 2012 and 2015, and credit unions alone
    originated $41.7 billion in first lien mortgage loans in the
    third quarter of 2016, an increase of 22 percent over the same
    period of the previous year.
        CRL supports reasonable regulatory flexibility for small
    depositories. However, we strongly oppose any effort to use
    regulatory relief for small lenders as a free pass for nonbanks
    and larger financial institutions to avoid reasonable
    regulatory scrutiny.
        Just as important, Federal financial regulators like the
    CFPB must be allowed to both protect the American people and
    ensure a fair and sustainable marketplace. The CFPB independent
    structure and funding should remain as Congress intended so the
    Bureau may continue its work without gridlock or political
    interference. Rather than pushing proposals that drastically
    roll back important safeguards for consumers and community
    banks, we should be working on pragmatic, broadly supported
    proposals that provide regulatory relief. For example, further
    clarification of the False Claims Act liability for FHA loans
    is needed to reduce uncertainty and protect responsible
    lenders. Another reform is to raise the QM safe harbor from 150
    basis points over APOR to 200 basis points. This would
    substantially reduce the number of mortgages that are
    classified as higher cost and excluded from safe harbor status.
        Finally, a major area of relief could be provided around
    the Bank Secrecy Act and Anti-Money Laundering rules
    compliance. BSA/AML compliance is a huge regulatory burden and,
    according to the American Bankers Association, is especially
    burdensome for community banks and credit unions. These laws
    carry out the essential and critical need to prevent our
    financial institutions from being used by criminal enterprises
    to facilitate illegal activities.
        Currently, the onerous task of determining the true
    identity of owners of accounts falls on the financial
    institution itself. The ICBA and others have asked that Federal
    and State agencies verify account ownership information at the
    time the entity is formed, and bipartisan bills that have
    supported this solution have been endorsed by the Clearing
    House Association.
        CRL is ready to work with the committee, community banks,
    credit unions and their associations, and regulators to ensure
    that all of these objectives are satisfied through laws and
    reasonable regulations.
        Thank you again for the opportunity to testify today, and I
    look forward to answering your questions.
        [The prepared statement of Mr. Astrada can be found on page
    44 of the appendix.]
        Chairman Luetkemeyer. Thank you, Mr. Astrada.
        Professor Verret, we welcome you, and before you get
    started here, we have had votes called, and so what we will do,
    members of the panel, is we will have the testimony of the
    professor, and when he is finished, we will call a recess. We
    will go vote, and then we will come back.
        But I think we have about 12 minutes left before we have to
    vote. So, Professor, you are recognized for 5 minutes.

      STATEMENT OF J.W. VERRET, SENIOR SCHOLAR, MERCATUS CENTER,
                        GEORGE MASON UNIVERSITY

        Mr. Verret. Chairman Luetkemeyer, Ranking Member Clay, and
    Vice Chairman Rothfus, I appreciate the opportunity to testify
    today. My name is J.W. Verret. I am a professor of banking and
    securities law at Scalia Law School, and I work with the
    Mercatus Center.
        I want to begin by noting that the legislation under
    consideration today includes vital reforms to the bank exam
    process and to the CFPB and its rules. These changes will begin
    to alleviate barriers to entry, which have made it all but
    impossible to open new banking institutions in recent years.
        As the dual-banking system evolved over the 150-year period
    since the Bank Act of 1863 was first adopted, a number of
    States set up intentional barriers to entry to prevent out-of-
    State institutions from competing with home State banks, but
    Congress and Federal regulators eventually stepped in to
    promote interstate branching, first through holding companies
    and then through efficient preemption of anticompetitive State
    rules.
        We stand at another such juncture where bank regulatory
    reform is vital to the national interest, and so I commend this
    committee's attention to that. The exam process for banks is
    unique in the American regulatory structure. In no other field
    of regulation is the relationship between regulator and
    regulated so close-knit: Examiners take up residence in
    institutions; communications to them get limited legal
    privilege, similar to one's spouse or attorney. The exam
    process can work well. It can help remedy financial problems
    particular to an institution without harming the bank's
    reputational capital, but it can turn ugly when it goes bad.
        Banks report examiners have sometimes issued retributive
    threats for opposing rules in a public notice and comment or
    have issued inappropriate demands that amount to shadow
    regulation. The legislation featured today will begin to
    ameliorate some of these problems.
        Turning to the CFPB, which is one of the most powerful
    regulators in the financial services space, yet it is also the
    youngest. The Federal Reserves is 100 years old. The OCC dates
    back to the Civil War. These agencies benefit from regulatory
    culture and a wealth of legal precedent defining their
    operative statutes that have evolved collectively over hundreds
    of years. The CFPB, on the other hand, is 6 years old, and I
    don't need to remind this committee of the growing pains it has
    already experienced. That is why the proposed change, the broad
    authority of the CFPB under UDAAP, is so essential.
        Words have power in the law because they can be defined
    over hundreds of fact patterns in which impartial judges give
    words meaning. The words ``deceptive'' and ``unfair'' have such
    a clear meaning developed over decades of implementation by the
    Federal Trade Commission. The word ``abusive'' does not.
        Now, I know it is easy to accuse someone making a
    legitimate argument about statutory meaning of being, ``in
    favor of abusive products,'' and it is an old Washington trick.
    I challenge any who oppose this change, however, to describe a
    set of facts that would be considered abusive but not count as
    deceptive or unfair under the statute.
        Another bill proposed today would establish an intent
    requirement for violations of ECOA. The CFPB describes itself
    as a law enforcement agency, and indeed, the penalties it
    collects are often large enough to blur the line between civil
    and criminal sanctions. Our criminal laws overwhelmingly
    recognize an intent or scienter requirement in offenses,
    recognizing that unintentional actions taken by people doing
    their best to follow the law are not morally blameworthy.
        Courts interpreting ECOA have also recognized this need for
    an intent requirement in order to award punitive damages under
    the ECOA statute. I would further argue that a clear reading of
    the ECOA statute in light of the holding inclusive communities
    indicates it does not permit actions based on a theory of
    disparate impact.
        I also commend the committee's attention to the use of
    reputation risk in bank regulation and supervision. Citing to
    amorphous reputation risk has because a new fad among bank
    regulators in recent years, both in justifying rules and in a
    CAMELS rating process, and it is highly problematic.
        First, regulators have yet to demonstrate that reputation
    risk is a necessary component of the CAMELS rating and of
    examination since existing financial and management measures
    would capture the effect of any reputational problems among
    bank customers. Second, regulators refuse to use the empirical
    tools available to them to measure reputation risk, such as
    stock price, event studies, or hedonic consumer price studies.
    And the close association, frankly, between this regulatory
    tool and the Operation Choke Point scandal suggests that
    careful scrutiny is warranted.
        There are a lot of bills on the agenda today. I know I have
    only touched on a few issues in some of them, but I thank you
    for the opportunity to testify, and I look forward to answering
    your questions. And may I say, it is good to be back; it feels
    like home.
        [The prepared statement of Mr. Verret can be found on page
    104 of the appendix.]
        Chairman Luetkemeyer. Thank you, Professor.
        And I thank each of you for your testimony. We do apologize
    for this interruption, but we do have some things we need to be
    doing here. So we need to take care of some votes. I think we
    have three votes. So we should probably be back around the top
    of the hour, a little bit after.
        With that, I will call for a recess.
        [recess]
        Chairman Luetkemeyer. Okay. The subcommittee will come to
    order.
        We have a couple of housekeeping things to take care of
    first. Again, thank you, witnesses, for your indulgence.
        Without objection, each of your written statements will be
    made a part of the record.
        And, without objection, the gentleman from Minnesota, Mr.
    Emmer, and the gentleman from Indiana, Mr. Hollingsworth, are
    permitted to participate in today's subcommittee hearing. While
    not members of the subcommittee, Mr. Emmer and Mr.
    Hollingsworth are members of the full Financial Services
    Committee, and we appreciate their interest in participating
    today. So they will be able to ask questions and participate
    here shortly, as well.
        So, with that, I recognize myself for 5 minutes for
    questions.
        Again, thanks to each of you for being here.
        Mr. Nichols, you represent the credit unions, and a lot of
    the discussions you had earlier with regards to the CLEARR Act
    and some other bills--what would it mean from the standpoint of
    cost to your organization to have the bills passed that we are
    talking about today? What kind of costs? How would it affect
    your customers?
        Mr. Nichols. The cost is almost immeasurable. We were just
    talking about that, the amount of people that I have involved
    in compliance. Again, we are a very small institution, $200
    million. I have two dedicated people in compliance, plus I have
    another six to eight people who spend a significant portion of
    their time in compliance. As we look, I will pat this mortgage
    packet once again. That is a post-TRID mortgage packet. TRID by
    most accounts doubled the amount of time that it took to
    complete a mortgage loan. So, if you really look at that, all
    my cost--obviously there would be a savings. The cost to the
    consumer, my owners, my members, every dollar that I save I
    pass on to my members. So it is immeasurable.
        Chairman Luetkemeyer. Mr. Fisher, you made quite a bit of a
    discussion with regards to the portfolio, being able to hold
    some of the loans in portfolio. Would you explain that and
    explain how important it is to an institution of your size to
    be able to do something like that?
        Mr. Fisher. As a portfolio lender, we do sell some loans
    off to the Federal Home Loan Bank, but the majority, probably
    65 to 70 percent of every mortgage we write, we hold on our
    books. So we bear the full risk. If a loan goes bad, we take
    the loss, nobody else takes the loss. It is our bank that takes
    the loss. So to have QM status on anything we hold in portfolio
    would be very valuable to us. And it is just--
        Chairman Luetkemeyer. Does it deter you from making loans,
    to have this QM status--or not being able to hold all of them
    in portfolio?
        Mr. Fisher. We have always been kind of a nontraditional
    lender. We have always done a lot of nonconforming mortgage
    lending. So, when they came out with a qualified mortgage
    status, we made a decision that we were not going to stop doing
    non-QM loans. So we continue to make non-QM loans today, and we
    have decided to take that risk on, but I do know a lot of
    bankers who have exited the mortgage business or do not do any
    non-QM lending.
        Chairman Luetkemeyer. It is interesting, Mr. Nichols, with
    your pile of papers next to you there, I was talking to a
    banker the other day, and he said, I can do a $50,000 brand new
    truck loan in about 60 to 90 minutes, and it takes me 60 to 90
    days to do a $50,000 home loan. And then you have to spend
    $2,500 probably to put that packet of papers together for the
    individual, plus you look at the assets that you have as
    collateral: one is depreciable, and it is going to be movable,
    it can leave the country; and the other one is stationary and
    will probably appreciate. We have a huge disconnect here in my
    mind with regards to how we look at housing finance. I know, in
    the CLEARR Act, what it will do is take some of those HMDA
    things back down to the 2008 levels, so people can actually
    knock off some of the cost and some of the nonsense you are
    having to put up with here.
        And I am sure every single person who comes in your
    institution reads every one of those pieces of paper, too,
    right?
        Mr. Nichols. That is part of the issue, is the more paper
    we give them, the less they end up reading, by nature.
        Chairman Luetkemeyer. It is interesting because my father
    passed away a few years ago and my mother passed a few years
    before that, and my brother and I sold their home. And it took
    me nine signatures and an initial to sell the property. That is
    not to go buy it. The buyers had to do that. I still had a
    packet of papers this thick. That is how out of whack this
    whole system is. Thank you very much.
        Professor Verret, you talked a little bit about the abusive
    practices and reputational risk. This is something that really
    irritates me with regards to regulators. They can't define
    either one of these things, yet they throw them at bankers and
    the credit union folks as a way to intimidate them into doing
    things. Would you like to talk a little bit about how over the
    top this is and how irrational some of these discussions are?
        Mr. Verret. Yes. I think a prime example has been the use
    of reputational risk in the physical commodities rulemaking
    that the Fed was considering for a time that I think they
    probably dropped with the change in Administration. I have sat
    down and asked these guys: How are you measuring reputational
    risk?
        And they will try to tell me: Well, you can't measure it.
        Or they would say: Well, it seems like some banks have
    gotten out of this, and so it must have been risky.
        And I ask them: Maybe they got out of it just because of
    the attention from HSGAC and because of your complaints. Maybe
    you are the reputational risk to the banking system.
        And then they would talk to me about the size of potential
    liability, and I would say: They pay billions of dollars a year
    in securities class actions. Are securities class actions--is
    being publicly traded a reputational risk to the banking
    system?
        And they would say: That does not compute; I don't know how
    to answer that question.
        It is a nonsensical approach, I would say.
        Chairman Luetkemeyer. Okay. Thank you very much, Professor,
    and I appreciate everybody's comments.
        I am out of time.
        With that, we go to Mr. Scott from Georgia. He is
    recognized for 5 minutes.
        Mr. Scott. All right. Thank you, Mr. Chairman.
        First of all, I want to thank Mr. Pittenger--I believe he
    is here--for working with me and my staff to put forward H.R.
    2148. And because of this bipartisan work, we are able to
    introduce bipartisan legislation that will clarify pesky
    commercial real estate rules.
        Now, let me explain why we need this bill. First of all,
    the commercial real estate loan industry works in a somewhat
    complicated way, but starting in 2015, real estate loans that
    are classified as an HVCRE, which is high validity commercial
    real estate loan activity, and for those watching on C-SPAN,
    you see what I mean when oftentimes we make things a little
    more complicated. But because of that rule, overnight it became
    much more expensive because of the rules from the FDIC to the
    industry.
        Now, let me be clear that the financial crisis saw a lot of
    banks go under because of their heavy exposure and risky
    commercial real estate. I might add that my dear State of
    Georgia led the Nation in bank closures repeatedly during this
    period for a number of years. So, moving to add more capital
    cushion to the riskiest of loans does make a lot of sense.
    However, the FDIC wrote an overly broad and very vague rule
    that failed to grasp the real-world problems in this area. So
    all our legislation does is provide the clarity of which types
    of loans should and should not be classified as these HVCRE
    loans, high validity commercial real estate loans.
        Now, Mr. Pittenger's and my legislation does not eliminate
    the FDIC's ability to require banks to hold higher capital for
    these loans. Our language does nothing to the higher standard
    that was set in 2013. So that is our bill, but we have two
    distinguished CEOs of banks on the panel, Mr. Fisher and Mr.
    Nichols. I would like know what they have seen firsthand.
        You guys are out there in the field getting the crops in on
    all of this. We are just in here trying to give you a level
    playing field to be able to conduct your business. Tell us what
    is happening in the construction and financing side, the real
    estate side of your business since 2015 when these high
    validity commercial real estate (HVCRE) loans came out.
        Mr. Fisher. Well, Congressman, I appreciate the question
    and the bill. ICVA obviously is supportive of this bill. Where
    I am at in upstate New York we have not had a great deal of
    commercial activity as far as a lot of commercial real estate
    expansion. We do a lot of commercial real estate financing, but
    we don't have a whole lot of HVCRE in our market. So I don't
    know if Mr. Nichols has experienced anything different, but we
    would support a simplification and clarification of the current
    rule that is out there, so we appreciate that.
        Mr. Scott. Yes.
        Mr. Nichols?
        Mr. Nichols. Congressman, as I understand it, that bill is
    FDIC specifically, and the credit unions don't have a position
    on that.
        Mr. Scott. Okay. Very good. Let me go to another bill that
    we have sort of working with Mr. Tipton, and ask you again, Mr.
    Fisher, or anybody, about House Resolution 1457. And there is
    no doubt that customers are relying less and less on walking
    into a branch for their banking needs instead of turning to
    their phones. But another trend is happening simultaneously,
    which is an uptick in bank mergers. This is particularly
    impactive for rural communities in my district who usually only
    have one bank within miles from where families live, and this
    means that Americans' taste for walking into branches is
    declining.
        So Mr. Tipton's bill, which I am also sponsoring, the
    MOBILE Act, caught my attention because it addresses these
    headwinds facing community banks by creating a uniform
    nationwide standard where banks can easily scan a driver's
    license, or a State ID using a mobile device. My time is up.
    Maybe I will have a chance to come back and ask you more about
    that. Thank you Mr. Chairman.
        Chairman Luetkemeyer. The gentleman's time has expired.
        The gentleman from Pennsylvania, the vice chairman of the
    subcommittee, Mr. Rothfus, is recognized for 5 minutes.
        Mr. Rothfus. Thank you, Mr. Chairman.
        Mr. Fisher, I often hear from small business owners who
    complain they have difficulty getting bank loans after an off
    year despite having ample collateral or a strong track record.
    When I discuss this issue with community bankers, they usually
    tell me that they are wary of making loans to customers with
    suspect cashflow because they are concerned about receiving
    criticism from regulators. In other words, bankers who know
    that a potential borrower has sufficient collateral and a
    strong track record are being discouraged by regulators from
    exercising their discretion and providing capital to small
    businesses. Is this a problem that community banks like yours
    often face?
        Mr. Fisher. We often are criticized on certain loans that
    we make even to longer-term customers. We have had loans on the
    books where maybe a customer, as you mentioned, has one bad
    year out of three, and the loan gets classified or written up
    as being a substandard loan. One bad year does not necessarily
    mean it is a bad loan. The loan is still paying as agreed, so I
    would--it obviously has a negative impact on us making future
    loans.
        Mr. Rothfus. Do you believe that the regulators are
    arbitrarily discouraging banks from providing loans to small
    businesses that banks have confidence in?
        Mr. Fisher. I am not sure if it is arbitrary. I believe
    that sometimes it is a focused effort to discourage us from
    making certain types of loans at times.
        Mr. Rothfus. Do you view the current examination process as
    a hindrance to small business access to capital?
        Mr. Fisher. I can tell you that the current examination
    process is a hindrance to making loans and doing business. From
    the time I get my first day letter to the time I close out an
    exam period with an onsite examination, our focus is not on
    serving our customers. Our focus is on serving our regulators
    or examiners who are onsite, and if I look back at probably a
    10-year earning history, quarterly earning history, I think I
    could pinpoint exactly each quarter that I have had an
    examination by looking at our earnings for that quarter.
        Mr. Rothfus. Can you suggest some ways Congress can address
    this?
        Mr. Fisher. I think by just having a more focused
    examination approach and maybe even reducing the number of
    examiners who come onsite, not having--I am a $475 million
    bank. For a safety and soundness exam, I think we had 10 or 12
    examiners onsite for a safety and soundness examination, which
    seems like a little bit of overkill.
        Mr. Rothfus. Mr. Nichols, I want to ask you a question. I
    had a conversation with a small business banker. It could have
    been in any other circumstance, a credit union, who recently
    told me a troubling story about a disagreement he had with his
    onsite examiners. When the examiners told the regional office
    of the disagreement and conveyed the banker's desire to appeal
    the examination conclusion, the regional officer for the
    regulator arranged a call with the bank and its legal counsel.
        The regional officer for the regulator conceded during this
    call that the bank had the right to appeal the matter, but
    strongly advised against doing so. He then informed the bank
    that he had already spoken to the so-called independent
    regulatory reviewers and that the bank would lose its appeal.
    Based on my experience, these stories are not uncommon. They
    serve to underscore the importance of the Financial
    Institutions Due Process Act, which creates a fair or more
    independent and more transparent process.
        Do you see the need for an impartial system of checks and
    balances to ensure that disagreements with regulators are
    handled fairly and on a timely basis?
        Mr. Nichols. Absolutely. From a clarity standpoint, I can't
    agree more with what Mr. Fisher said. From a clarity
    standpoint, if the laws are written in black and white, and we
    can see what the law is, and there aren't ambiguous rules that
    we are supposed to be paying attention to, it makes it a lot
    more clearer to us. If we disagree with those examination
    findings, there should be an independent process that we can
    follow outside of that chain of command.
        Mr. Rothfus. I was struck looking at and listening to some
    of Mr. Astrada's testimony and his written testimony, that
    financial regulations are not slowing economic growth or
    preventing lending. I read a piece recently by an economist,
    Steve Strongin, who talked about the two-speed economy. The big
    firms are doing fine. They are lending. It is rosy, almost as
    rosy as the picture painted in Mr. Astrada's testimony. But
    then there is the slow lane, and there are a lot of folks
    struggling out there. And Mr. Strong estimates that as a
    result, directly because of the financial regulation that we
    have seen over the last 8 years, there are 650,000 fewer small
    businesses and 6.5 million fewer jobs. I wonder if you had any
    reaction when you were listening to Mr. Astrada's testimony?
        Mr. Fisher?
        Mr. Fisher. Obviously, I didn't agree with most of his
    testimony that he gave. I do feel that a lot of the regulation,
    especially if you look at my market in upstate New York, we are
    really struggling. We have never really fully recovered from
    the economic crisis. So, while I do believe that there has been
    some positive impact in other areas of the country where the
    recovery is stronger, it is still a struggle in my market. And
    regulatory efforts make that difficult.
        Mr. Rothfus. I yield back.
        Chairman Luetkemeyer. The gentleman's time has expired.
        Mr. Meeks of New York is recognized for 5 minutes.
        Mr. Meeks. Thank you, Mr. Chairman, and thank you to our
    witnesses at this important hearing. And although there are
    some proposals on the table that raise some serious concerns
    for me, there are others that I believe have the potential for
    strong bipartisan support, and in my view, if we work together,
    we can improve some.
        I, for one, have always been a supporter of encouraging
    banks and credit unions, which are highly regulated
    institutions, to reenter and/or enter the small dollar lending
    space. I think Mr. Hollingsworth has made a sincere attempt to
    tackle this issue, but I believe the bill can be substantially
    improved by: one, increasing access to capital; and two,
    maintaining reasonably strong consumer protections. I think we
    still have to do those two things, but I look forward to
    working with Mr. Hollingsworth and his staff to address some of
    my concerns with this bill and to potentially reach bipartisan
    agreement on how we can encourage banks to re-enter the small
    dollar lending space as an alternative to less safe and costly
    alternatives out there because I know, from my life experience,
    that folks are going to try to find a way where they need a
    small dollar loan, they need to get one, and I want to make
    sure they have the protection, et cetera.
        So let me start with Mr. Nichols. In your testimony, you
    mentioned that nearly 93 percent of credit unions offer or are
    considering offering small dollar loan products to their
    members. Now, many disagree on what the appropriate
    underwriting status should be for small dollar loans given
    their size. Some argue that there should be no underwriting
    requirements at all. Others argue a different way. So my
    question to you is, from your experience dealing with the risks
    associated with these products, what is the most appropriate
    level of underwriting that should be required of a loan of less
    than $1,000?
        Mr. Nichols?
        Mr. Nichols. Let me start by saying I am a member-owned
    organization. Every person who comes in to do business is an
    owner of mine. So when we talk about what dollar amount I
    should consider, it is what dollar amount makes sense for that
    member. So if a person comes in and they have a small dollar
    need, whether it be for a new appliance, or whether it be for
    something to get them through to the next payday, we hear those
    stories, we deal with those people every day of the week. Every
    circumstance is different. Every time is something unique. We
    use that for financial counseling. We work with them and say,
    let's develop a plan for you in the future. I don't know that
    all credit unions nationwide are designed that way. Again, we
    are owned and operated by the people we serve. So that is what
    we are about.
        Mr. Meeks. That is extremely important, but let me go then
    to Mr. Astrada because my concern is that there are individuals
    who are not members of credit unions who need these small
    loans, and they have no place else to go. And I know from my
    old neighborhood, if they had to and there is no one else that
    was going to give them a loan, they would go to a loan shark.
    But since the OCC and the FDIC has issued depository advance
    product guidance, nearly all banks that offered these products
    have discontinued their programs. There are no banks in this
    small--most of them are all done. And although the OCC's and
    the FDIC's guidance includes principles that I am supportive
    of, I am still concerned that there are virtually no more banks
    that offer this product today.
        So, Mr. Astrada, do you have any alternative proposals
    policymakers can consider to incentivize banks and credit
    unions--we hear what the credit unions have to say--to re-enter
    the small dollar lending space, yet maintain reasonably strong
    consumer protections?
        Mr. Astrada. Thank you for that question, and thank you for
    your work on this. I would just preface that with the
    importance of that guidance and how the banks have withdrawn
    from that space as indication of how damaging that can be on
    communities. Once those bank loans look like payday loans, they
    have the same effects of payday loans. And CRL actually just
    issued a brief today on the negative impacts of what we are
    calling bank payday loans, and we feel that before any
    innovation or before any proposal can have legs, we need to
    ensure that that guidance and those regulations and those
    protections for consumers who are seeking small dollar loans
    are not repealed or rolled back by current proposals.
        So I do look forward to working with your staff and
    continuing to find actual suggestions, but until we ensure that
    the regulatory environment now doesn't repeal that guidance and
    keeps the bad actors from being predatory lenders, in essence,
    I think that should be the first step toward this discussion.
        Mr. Meeks. I am out of time. I yield back.
        Chairman Luetkemeyer. The gentleman's time has expired.
        With that, we go to the gentleman from North Carolina, Mr.
    Pittenger, for 5 minutes.
        Mr. Pittenger. Thank you, Mr. Chairman. I appreciate you
    calling this hearing, and I thank each of you for coming, for
    taking your valuable time to be with us on such critical
    issues. I would like to talk about H.R. 2148, Mr. Fisher, that
    you brought up today, the HVCRE legislation. I would like just
    to get some personal thoughts on how this rule affected your
    commercial real estate lending activity?
        Mr. Fisher. I think commercial real estate or commercial
    real estate lending in upstate New York is--it is the majority
    of the commercial lending that I do. We do a lot of C&I and
    commercial real estate, but we don't have a huge amount of
    commercial real estate lending growth in rural upstate New York
    where I am located, so it is--
        Mr. Pittenger. What is your understanding relative to the
    financial institutions, the banks, and the impediments this
    rule has had for them in making commercial real estate loans?
        Mr. Fisher. I believe that we are in agreement with the
    legislation that you proposed, and we would definitely support
    this bill going forward, and I think it would be a positive
    impact on community banks' ability and clarify some of the
    guidance as far as their lending so--
        Mr. Pittenger. Do you have some thoughts in terms of the
    economic consequences of not clarifying the HVCRE bill?
        Mr. Fisher. I think not clarifying it will continue to
    restrict commercial lending as far as definitely commercial
    real estate, HVCRE lending.
        Mr. Pittenger. From your experience, do you believe that
    the regulatory agencies will resolve this issue, or do you
    believe that this legislation is warranted and necessary?
        Mr. Fisher. I think this legislation is definitely
    warranted and necessary because, if left up to the agencies, I
    am not sure we will get the clarification that you are
    providing.
        Mr. Pittenger. If any of you want to pitch in on these
    issues, you are welcome to. I don't know particularly your
    backgrounds in it, but I would like to know your concerns about
    the economic consequences of what we refer to as the wall of
    maturities, which is approximately a billion dollars a day of
    commercial real estate loan maturities.
        Mr. Fisher. I'm sorry. I didn't understand the question.
        Mr. Pittenger. It is called the wall of maturities. What is
    your understanding of that and the billion dollars a day of
    loan maturities that we have, the economic consequences of
    those.
        Mr. Fisher. I am not sure I--
        Mr. Pittenger. Are you familiar with that? Okay. Well, are
    you concerned about the cumulative impact of various Dodd-Frank
    and Basel III measures, then, on commercial real estate credit
    capacity and liquidity?
        Mr. Fisher. Some of the Basel III will definitely restrict
    commercial lending as we go forward.
        Mr. Pittenger. Yes, sir. Any comments down the line?
        Okay. Are you starting to see a slowdown in the bank
    lending for commercial real estate as a result of--is this your
    experience, your background, your awareness from your other--
        Mr. Fisher. We have seen a slowdown since 2008, 2009, sir,
    and it has just kind of really been fairly stagnant in rural
    upstate New York.
        Mr. Pittenger. What do you believe are the other factors
    that would contribute toward reestablishing the positive real
    estate environment? What would the overall market conditions
    relative to tax reform, regulatory reform on banks, what are
    your major impediments that you see that are keeping back your
    economy in northern State New York?
        Mr. Fisher. I think there is a vast array of issues that
    are causing some of the issues in New York. We are seeing a
    migration of people out of our area. We are not retaining some
    of our youth. I think it is taxes. It is energy prices. There
    is a multitude of issues that is causing some of the issues,
    but obviously we try to be the economic engine in our
    communities, and anything that can clarify and help us make
    more loans into our community would be beneficial.
        Mr. Pittenger. So you say that, if we would be able to
    bring some clarity to this HVCRE rule and other impediments in
    terms of the regulatory environment, that that would be an
    enhancement to our broader economy, and you feel the burden
    could be lifted on the financial institutions?
        Mr. Fisher. Most definitely, sir.
        Mr. Pittenger. Okay. Any other comments from any of the
    rest of you?
        Thank you, and I yield back.
        Chairman Luetkemeyer. The gentleman yields back.
        With that, we go to the gentlelady from New York, Mrs.
    Maloney, for 5 minutes.
        Mrs. Maloney. Thank you very much, Mr. Chairman.
        And while I have some strong concerns with a few of these
    bills, other bills strike me as a good bipartisan effort to
    address very serious issues such as Mrs. Love's and Mr.
    Ellison's H.R. 864, Mr. Trott's bill with Ranking Member Clay
    on privacy notices, and Mr. Tipton's bill on mobile banking.
        I would like to ask you, Mr. Astrada: I am intrigued by
    Congressman Tipton's MOBILE Act, which is trying to address a
    legitimate problem, how to make it easier for people who live
    in rural areas without physical bank branches to open bank
    accounts. What are your thoughts on this bill? Are there any
    potential unintended consequences from allowing financial
    institutions to use an image of a State-issued ID for purposes
    of verifying a customer's identity?
        Mr. Astrada. Thank you for that question, and as is our
    practice, CRL is always open and encouraging access to
    financial products and wealth building. I think, for this
    particular bill, just the concerns that we would raise is that
    the potential of State preemption issues of the States that
    don't allow such practices and the consumer protections that
    don't kind of go along with--
        Mrs. Maloney. But this would be a Federal bill.
        Mr. Astrada. Right. So the States that don't allow the
    electronic storage or transmission would not have maybe the
    accompanying consumer protection laws for customer privacy or
    data loss. So that would be our concern, not so much in terms
    of expanding the access, especially to rural areas. It would be
    more the concern of, once State laws are preempted that don't
    permit such electronic storage, what are the consumer
    protections that are present, especially when every month or
    every couple of weeks, we are getting news of an information
    hack or breach from some of the richest and most well-designed
    infrastructures in the country, never mind regional banks. So
    from CRL's perspective, that would be the area where we would
    have some concern.
        Mrs. Maloney. Would anybody else like to comment on the
    bill?
        Mr. Nichols. If you don't mind, from a different, very
    human perspective, I have three daughters, and if I sit down
    and watch my daughters, they live on their cell phones. That is
    their operational life. I am sure each one of you can sit
    around your family or in a restaurant and do the same thing.
        We have to adjust, in our environment, to be able to serve
    people the way they want to be served, through the channels
    they want to be served. It is very important that we keep all
    that data safe, that data along with other data. But I really
    appreciate the effort of moving forward with something like
    this that helps us adapt and try to do it in a very safe
    manner.
        Mrs. Maloney. Okay.
        Would anybody else care to comment?
        I think it is a real concern in these rural areas. Upstate
    New York has huge swaths of land that don't really have banks
    there.
        Mr. Nichols. If you don't mind, I come from a town of about
    300 people. So--along with Congressman Luetkemeyer--and there
    are--there are 20 miles between the towns in many cases. So I
    really do appreciate your response there.
        Mr. Verret. I would also support this idea as essential to
    bringing a new generation of millennials into banking products,
    and I think it is also going to be essential in the fintech
    space. We are going to have to think in a big way about
    preemption in the fintech space for it to work, not just with
    respect to licenses but with respect to a wide variety of
    issues.
        Mrs. Maloney. Thank you. I am rather intrigued by it.
        And I would also like to ask you, Mr. Astrada, about the
    CFPB's authority to penalize abusive conduct. One of the bills,
    H.R. 2133, would repeal the CFPB's authority to penalize
    abusive practices and conduct--the UDAAPs. And even though the
    CFPB has used this authority many, many times, most recently
    when Wells Fargo had the fake account scandals, the CHOICE Act
    contained a similar provision. I offered an amendment to
    reinstate this authority over abusive practices.
        And one of the arguments that we heard from the other side
    of the aisle was that the CFPB did not need separate authority
    over abusive practices because any practice that would be
    considered abusive would also be illegal under other laws.
        Can you address this argument? Why is it important for the
    CFPB to have the authority to penalize abusive acts and
    practices separately?
        Mr. Astrada. I will answer that quickly, because I know we
    are running out of time. I would just express a strong concern
    about melding those two terms together, and that both of those
    terms, especially ``abusive,'' has specific definitions in
    Dodd-Frank and has specific definitions that apply to different
    practices. So to say that one would be the other is a fallacy.
        Mrs. Maloney. Thank you. My time has expired.
        Chairman Luetkemeyer. The gentlelady's time has expired.
        The gentleman from Tennessee, Mr. Kustoff, is recognized
    for 5 minutes.
        Mr. Kustoff. Thank you, Mr. Chairman.
        And I do want to thank the witnesses for appearing here
    today and indulging us when we had to take our recess earlier.
        Mr. Fisher, I do appreciate your comments that you made
    about the bill that I will be introducing, the Securing Access
    to the Affordable Mortgage Act. And I would like to ask you and
    Mr. Nichols both, as it relates to that, I think we can all
    agree that the American Dream includes being able to purchase a
    home. Now, for many first-time home buyers, that ability has
    become just that, a dream, and it has become one that is
    increasingly becoming out of reach for a number of them.
        Part of the problem is, in my opinion, in rural
    communities--and I represent west Tennessee, which is the
    Memphis area, but I also have a lot of the rural part of west
    Tennessee--we lack an adequate number of qualified appraisers.
    And under the current standards, as I think you all know and
    you have talked about, the costs associated with an appraisal
    on a real estate loan are high compared with the property's
    purchase price.
        If I could, Mr. Fisher, from your standpoint, from a real-
    world perspective, can you explain to us how the current home
    appraisal process has impacted mortgage loans on community
    banks like yours?
        Mr. Fisher. Sure. We are in a very small town, part of
    rural upstate New York. Spencer is a village of about 860
    people. It was that in the year 2000, and it was also that in
    the year 1900, so it has been pretty--I think there are
    different people. But the appraisal process becomes difficult.
        We have definitely seen a reduction in the number of
    appraisers, certified appraisers, who are available to do
    appraisals for us in some of our rural markets, which has
    increased the price and also delayed the turnaround time in
    getting an appraisal done. So it has lengthened the process. It
    has increased the cost to the borrower. And I would say it has
    had a very negative impact on borrowers.
        Mr. Kustoff. Thank you.
        And, Mr. Nichols, can you talk about that from a credit
    union perspective?
        Mr. Nichols. I can. So my question would be, have you ever
    heard of St. Elizabeth, Missouri? Jamestown, Missouri?
    Centertown, Missouri? Appraisers haven't either. You cannot get
    comps. That is a severe issue. So, when you go to those more
    rural areas, to meet the secondary market guidelines that were
    established post-crisis, you cannot get reasonable comps. So it
    is a tremendous, tremendous issue.
        We both share the same issues trying to get a reasonable
    appraisal. A lot of the rules that came into the appraisal
    process were needed, and I think we have much better appraisal
    rules. However, the recognition that the cost of appraisals has
    gone up and the ability to get appraisers is really tough.
        Mr. Kustoff. Thank you.
        And, Mr. Fisher, going back to you for a moment. If you
    could wave a magic wand and create a standard for appraisals
    for properties, how would you craft it? What dollar limit would
    you look at? What would be the criteria that you would look at
    to make it fair?
        Mr. Fisher. I think your proposal to have a $250,000 limit
    on the loan is very reasonable to be able to do an in-house
    evaluation or some type of independent review of that property
    value. I think that would definitely make the process less
    expensive, quicker, and still most of those loans were
    portfolioing anyway, so the risk falls on us to do a proper
    evaluation, so--
        Mr. Kustoff. You may have said, but what is the population
    of your community?
        Mr. Fisher. The county that I live in, Tioga County, has
    about 50,000 people. The population of the town of Owega is
    probably about 10,000, so--
        Mr. Kustoff. Thank you.
        Mr. Nichols, I will ask you the same question. If you could
    craft a law, create a standard, what would it look like?
        Mr. Nichols. Again, I do agree with $250,000 for in-house
    loans. And again, that local expertise that we can rely on is
    very valid, and we understand the risks involved there and
    understand the properties.
        Mr. Kustoff. Thank you very much.
        I yield back the balance of my time.
        Mr. Nichols. Thank you.
        Chairman Luetkemeyer. The gentleman yields back.
        And, with that, we go to the gentleman from Washington, Mr.
    Heck, for 5 minutes.
        Mr. Heck. Thank you, Mr. Chairman.
        I think it was just last week we had a pretty interesting
    hearing, and part of the conversation got toward the regulatory
    burdens associated with compliance with the Bank Secrecy Act. I
    looked at the notice for this week, and I kind of got excited.
    I am one who believes there should be some regulatory
    modernization.
        But I said last week, and I will say again, I went on an
    extensive tour literally over a year's period of time in my
    district visiting with small and large and medium-sized banks
    and credit unions, and I had a sole objective: Show me your
    compliance burden. Walk me through your compliance burden. And
    the number one grievance I received was the Bank Secrecy Act.
        There are some good ideas in some of these bills today.
    Some of these bills are good. Some I think go, frankly, way too
    far, but I don't see any discussion of the Bank Secrecy Act. We
    could go small CTRs, set in 1972 at $10,000. If I did my back-
    of-the-envelope calculation accurately and we held it harmless
    for inflation, we would be talking $60,000 today. And I heard
    that everywhere I went. When they would stack the papers in
    front of me saying, ``This is what we have to do,'' an awful
    lot of it dealt with the Bank Secrecy Act.
        Look, we all want effective counterterrorism and anti-
    money-laundering and anti-organized-crime safeguards in place,
    but the grievance I got was that the benefit is way out of
    proportion to the effort required. And, frankly, the benefit
    was not transparent in many insistences.
        So I know you are here today to talk about these other
    bills, but I guess I am curious as to whether every financial
    institution in my Congressional district is abnormal in this
    regard, or if you could say a sentence or two, Mr. Fisher and
    Mr. Nichols, about Bank Secrecy Act compliance effects on your
    institution.
        Mr. Fisher?
        Mr. Fisher. I appreciate the ability to make some comments.
    The Bank Secrecy Act is by far--it is a huge burden on
    community banks, and we would greatly appreciate the $60,000
    CTR limit would be huge.
        Mr. Heck. Let the record show I didn't actually
    specifically propose $60,000, just an appropriate adjustment as
    collaboratively arrived at.
        Mr. Fisher. We are a bank. We have 97 full-time-equivalent
    employees. I have one employee who is completely dedicated 100
    percent to BSA. Plus, as a banker, we have to--we purchase
    software that we pay annual maintenance on because no physical
    person can do all the BSA monitoring that is required by us to
    do.
        One of the things I do think would be great is if we got a
    tax credit for the money that we do spend on BSA, since it is
    really a government--it is helping the government out, not
    really helping my bank out so--
        Mr. Heck. Mr. Nichols?
        Mr. Nichols. BSA, obviously, is an incredible burden. You
    can leverage the cost-benefits. It is such an expansive piece
    of legislation, it would really be hard to cover that.
        Mr. Heck. Do you agree that it is not apparent to those of
    you upon whom the compliance burden falls what the benefit is
    in proportion to the effort required? Or are you fully
    embracing the Bank Secrecy Act as written with every crossed
    ``T'' and dotted ``I'' existent in the statute? If so, Mr.
    Fisher would like to talk with you after the hearing.
        Mr. Nichols. No, I think that is a loaded question.
        Mr. Heck. Oh, really? How perceptive of you.
        Mr. Nichols. No, the BSA, obviously, is quite burdensome,
    as is anything CFPB-related.
        Mr. Heck. It predated CFPB. Let's be clear about that.
        Mr. Astrada, I have one last question for you. I note with
    interest in your conclusion that CLR understands and supports
    the need for appropriate regulatory flexibility for small
    depositories.
        Okay. Name two.
        Mr. Astrada. Name two?
        Mr. Heck. Increased regulatory flexibilities that you think
    would be appropriate. Because I think regulatory modernization
    is an idea whose time has come. My big issue on this committee
    is that we overreach and then get nothing. You have said,
    having put together some really well-written objections to what
    we would agree is regulatory overreach, that you think
    appropriate regulatory flexibility is--there is a need for it.
    So be specific. Help us out here, Mr. Astrada. We are trying to
    make some progress.
        Mr. Astrada. And I did make a fine point in some of my oral
    testimony, especially considering BSA reform. We think there is
    a lot of promise and the ICBA supported having the identity--
    the account owner information verified at the time the entity
    is formed by Federal or State agencies, to take the onus away
    from the Federal institution.
        If you want to go into a mortgage, we said that we think
    that is a fair and effective increase of the QM standard of 200
    basis points over APOR, as opposed to 150, which would greatly
    extend the amount of mortgages that are currently excluded from
    safe harbor.
        So there are a few, and I would be more than happy to send
    to your staff--
        Mr. Heck. We would appreciate--I am way over my time here.
    And you are incredibly indulgent.
        Thank you, Mr. Chairman.
        And thank you, Mr. Astrada. Please do send them.
        Mr. Astrada. Thank you.
        Chairman Luetkemeyer. I thank the gentleman from
    Washington. His time has expired.
        Just a heads-up in response to your questions, gentlemen.
    That is the reason that we had an entire hearing 2 weeks ago on
    BSA. It is an important issue, extremely important, and it is
    something that the financial institutions have brought to our
    attention, and that is why we dedicated one entire hearing to
    that.
        But I appreciate you bringing it up again because it is
    very important that we continue to hear from the folks who are
    in the field, who have to deal with this issue, because it is
    very, very important.
        The gentleman from Georgia, Mr. Loudermilk, is recognized
    for 5 minutes.
        Mr. Loudermilk. Thank you, Mr. Chairman.
        As has been mentioned many times in these hearings, Georgia
    was specifically hit hard during the financial crisis, and lost
    more banks than any other State. And as Professor Verret, I
    think, adequately stated, it was regulatory barriers, I think,
    is what is suppressing the creation of new banks, which has
    left a void. In Georgia, we have 52 counties that have no
    community bank in them. We have three counties that have no
    bank whatsoever, no bank branch at all. And so I am really
    pleased about the hearing and the bills we have here. But one
    of the bills that I am cosponsor of, the MOBILE Act, will
    actually bring I think some commonsense reforms to remove some
    barriers that would allow a lot of our underbanked or unbanked
    communities, such as these rural areas that have no bank branch
    whatsoever, to use technology.
        The irony is, Georgia is also leading in the fintech market
    in certain areas. So, Mr. Nichols, I was wondering, could you
    just mention how some of these common-sense reforms would
    actually help in removing some of these barriers to implement
    technology?
        Mr. Nichols. Well, talk about the MOBILE Act in particular.
    I think, again, as we recognize the different channels that are
    becoming available, service channels that I won't even say
    younger people; it is all age groups who can use those channels
    to the rural areas. I think we forget about those sometimes as
    being underserved. And it is geographically underserved. They
    don't have the ability to get to our offices or the time zones
    don't match or whatever the case may be. So I think moving
    those channels--again, in my position of being a member of a
    credit union, it is me listening to my members and saying: We
    are trying to provide things that can help you be a better
    owner and better participant of credit unions. So I do applaud
    that effort.
        Mr. Loudermilk. And I know it doesn't only affect Georgia.
    It is in maybe some other States, but I think Georgia is a good
    illustration. If you are in one of those counties that is
    unbanked, you may have to go two or three counties over to get
    to a bank branch to make a deposit or what we take advantage of
    being able to do day to day financial operations. So I
    appreciate your support for that.
        Another bill that I cosponsored here is the CLEARR Act.
    And, again, when you look at the regulatory barriers that are
    really suppressing the creation of new banks that would fill
    some of these voids, especially with the small banks--I had a
    president of a small bank in my office the other day and he was
    talking about the regulatory burden that was placed on his bank
    where he could not make a simple $3,500 loan to a gentleman
    that he knows, and he knows would be good for it. He has a
    family. He wanted to buy a car, and his numbers just weren't
    there. And it was the consumer who was hurt by that.
        And I know that the CLEARR Act actually works on removing
    some of these regulatory barriers affecting small banks.
        Mr. Fisher, could you maybe address a couple of these of
    why it would be so important for a bill like the CLEARR Act?
        Mr. Fisher. The CLEARR Act just, a lot of the mortgage
    relief, half of it is geared toward mortgage relief. It would
    definitely improve clarification. It would reduce some of the
    regulatory burden. When I came into the bank 25 years ago, we
    had--compliance was a part-time position for somebody in the
    bank. Today, I have basically 2\1/2\ FTEs completely dedicated
    to compliance functions.
        Mr. Loudermilk. And yours is a small bank.
        Mr. Fisher. We only have 97 employees total. And the only
    person who doesn't have any compliance responsibilities in my
    bank is my courier who takes work between the offices.
    Everybody else in the bank has compliance functions that they
    are responsible for.
        So just a clear relief act or the CLEARR Act would
    definitely help reduce that burden and help just narrow the
    focus down so we are more clear.
        Mr. Loudermilk. Do you think that the CLEARR Act and maybe
    a combination of the bills would clear the way for the creation
    of new financial institutions that may be suppressed because of
    heavy burden?
        Mr. Fisher. I would greatly hope so, since there have only
    been three new banking charters since the financial crisis. On
    average, prior to the crisis, we had about 100 new charters per
    year. So it would be nice to see some new charters coming back
    on line for community banks.
        Mr. Loudermilk. Mr. Chairman, the way I see this, it is the
    consumer who is ultimately hurt by this. It is not the banker.
    It is not the institution. It is the consumer.
        And, Mr. Chairman, I also have some legislation, the Fair
    Credit Reporting Act Liability Harmonization Act, which I know
    you are supportive of, that I think would bring some common-
    sense reforms, and I look forward to working with you on that.
        Chairman Luetkemeyer. I thank the gentleman. I look forward
    to working with you on that. And we are probably going to
    schedule another hearing in September or October, for another
    group of bills like this. So we want to include yours in that
    and have a full discussion at that time. So thank you for that
    hard work.
        The gentlelady from New York, Ms. Velazquez, is recognized
    for 5 minutes.
        Ms. Velazquez. Thank you, Mr. Chairman.
        Mr. Astrada, one of the bills that we are reviewing today
    would allow the OCC to approve the granting of deposit
    insurance for a new operating national bank or Federal savings
    association. It is important to note that the OCC used to have
    this authority, but because of clear abuses, Congress abolished
    that authority in 1991.
        Do you think returning to this discredited policy puts the
    Deposit Insurance Fund at risk and threatens the safety and
    soundness of the banking industry or the banking system?
        Mr. Astrada. Thank you for that question. And in touching
    base with our research team in researching this bill, it is
    lost upon us how this provision has targeted regulatory relief
    for small institutions. We think the FDIC is well-positioned
    with a great history of managing financial downturns, the
    shuttering of banks, and to shift that responsibility or to
    expand that responsibility to the OCC, it raises more questions
    than answers, especially given the history of the program that
    you have outlined.
        Ms. Velazquez. Thank you.
        Mr. Astrada, more and more Americans are moving to fintech
    business to meet their financial needs. Are you concerned that
    if this bill were passed and the OCC had sole authority to both
    grant charters and deposit insurance, they would largely be
    able to dictate the terms of the fintech charters without the
    input of other regulators?
        Mr. Astrada. Again, thank you for that question. And I
    think it is along the similar lines of my first answer, that we
    recognize innovation; we recognize technological changes. CRL
    is a policy affiliate of a CDFI based in North Carolina and is
    very much informed by the industry. Of great example of the
    concern we have is OCC charter preempting State consumer law
    protections on payday loans where we have very old school
    predatory lenders calling themselves innovative technology
    companies to be able to avoid State rate caps based on a
    potential Federal charter. So I think the OCC, while it is
    leading the pack on this--I think there is a lot of discussion
    to be had in terms of what national charters will have on State
    consumer protection issues, especially when it comes to
    preemption and, like I said, old school predatory lenders
    calling themselves innovative fintech lenders.
        Ms. Velazquez. Thank you.
        Mr. Chairman, I have a letter from the Conference of State
    Bank Supervisors that I would like to enter into the record.
        Chairman Luetkemeyer. Without objection, it is so ordered.
        Ms. Velazquez. And I also have a letter from over 40 civil
    rights and community groups, including the NAACP and the
    American Civil Liberties Union, that I would like to enter into
    the record, and these are letters that are raising a number of
    concerns about the proposals that we are discussing today.
        Chairman Luetkemeyer. Without objection, it is so ordered.
        Ms. Velazquez. Mr. Astrada, as you may know, I am the
    ranking member of the Small Business Committee. In that role, I
    have continually pushed for the expansion of credit
    opportunities for women- and minority-owned small businesses.
    Unfortunately, there remains an information gap regarding the
    demographics of small business borrowers. Section 1071 of Dodd-
    Frank was designed to fill this gap and identify potential
    shortcomings in lending markets.
        Now, the CLEARR Act is seeking to repeal Section 1071. Can
    you explain the importance of collecting this data?
        Mr. Astrada. Thank you for that question. And, yes, we are
    very much aligned with that in terms of the only way to combat
    structural and historic discrimination and exclusion is through
    robust datasets. And any effort to roll back the collection of
    data, especially among discriminatory behavior, whether it is
    disparate impact or intentional is something that we are very
    concerned about.
        And, again, I would just stress that it is not so much we
    are ignoring the cost implications of collecting this data; it
    is just that what is in the bill and simply blowing up
    thresholds and expanding exemptions beyond what seems to be
    reasonable is very concerning for us, especially as it applies
    also to the HMDA and the 1071 data. We share your concern.
        Ms. Velazquez. Thank you.
        I yield back, Mr. Chairman.
        Chairman Luetkemeyer. The gentlelady yields back.
        With that, we go to the gentleman from Colorado, Mr.
    Tipton, for 5 minutes.
        Mr. Tipton. Thank you, Mr. Chairman.
        I would like to ask unanimous consent to enter into the
    record letters of support for H.R. 1457, the MOBILE Act, from
    the American Bankers Association, the Consumer Bankers
    Association, the Center for Financial Services Innovation, the
    Financial Services Roundtable, and the Innovative Lending
    Platform Association.
        Chairman Luetkemeyer. Without objection, it is so ordered.
        Mr. Tipton. Thank you, Mr. Chairman.
        And I thank the panel for taking the time to be here.
        Mr. Nichols, I would like to start with you. According to a
    2015 FDIC survey of the unbanked and underbanked, there are
    approximately 50.6 million adults considered entirely unbanked
    and another 51.1 million adults who are considered underbanked.
    Is it concerning to you as someone who is president and CEO of
    a credit union that there are at least 67 million people who do
    not have adequate access to the financial system, cannot
    conveniently withdraw their money, control their finances, and
    may lack protections to be able to prevent theft of their
    funds?
        Mr. Nichols. Yes. Actually, I thank you for the question. I
    think it is a tremendous opportunity for us in industry and,
    frankly, as citizens of the country to bring those people into
    the regulated and very growing service industry. It is much
    better for them to come out of ``the darkness'' and operating
    behind the scenes and be able to offer services, such as mobile
    and technological services, that could provide much better
    service for them.
        Mr. Tipton. Thank you, Mr. Nichols.
        And, Professor Verret, I am very pleased to have the broad
    bipartisan support for this legislation as you can see on this
    committee.
        Without access to the traditional financial system and
    regulated financial institutions, what will happen to the
    unbanked and the underbanked without access?
        Mr. Verret. Yes, I think this bill is a terrific approach
    to promoting access for particularly low- and middle-income
    people who are having trouble accessing traditional services. I
    think it would be helpful to the traditional banking industry,
    as well as to the new fintech space and alternative financial
    services industry.
        Mr. Tipton. And I appreciate that answer. Do you feel when
    we are talking about the underbanked that unregulated lenders
    actually pose more of a threat rather than having something
    like the MOBILE Act that is going to be going through
    traditional instruments, like our credit unions, our banks, to
    be able to provide those services, making those in different
    circumstances maybe a little more vulnerable?
        Mr. Verret. Well, it depends what you mean by unregulated
    lenders. If you mean nontraditional lenders regulated at the
    State level, I wouldn't say that is necessarily more risky than
    the traditional banking system. But if you mean sort of loan
    sharks and folks making illicit loans, I would certainly want
    to discourage that and provide people other opportunities.
        Mr. Tipton. The FDIC also found that the unbanked and
    underbanked rates were higher among the following groups:
    lower-income households; less educated households; younger
    households; Black and Hispanic households; and working-age
    disabled households.
        As we discuss these legislative policies and encourage
    financial inclusion, do the FDIC survey results corroborate
    with what you see currently, Professor?
        Mr. Verret. There was some good news in 2015 but not nearly
    in terms of the FDIC survey of the unbanked and underbanked. We
    could do a lot better. And so I certainly salute this
    committee's effort to do so, particularly with this
    legislation.
        Mr. Tipton. Thank you. And just one more question for you,
    Professor. According to the same survey, roughly 4 in 10
    unbanked households and 3 in 4 underbanked households have
    access to a smartphone.
        The FDIC concluded that the use of smartphones to engage in
    banking presents promising opportunities to use that mobile
    platform to increase economic inclusion. Would you agree with
    that statement?
        Mr. Verret. I do. And, unfortunately, I think the FDIC
    hasn't stayed true to that observation. We have already seen
    some hostility to fintech among, at least the existing FDIC
    management, certainly with respect to how they regulate bank
    services providers. I think they are fairly hostile to the
    future of fintech. And so I would prefer they stay more true to
    that observation. I think they are right about that.
        Mr. Tipton. Thank you, sir.
        Mr. Nichols, my legislation, the MOBILE Act, would create
    regulatory certainty by explicitly allowing financial
    institutions to be able to verify customer identity by copying
    a State-issued driver's license or personal identification card
    through the mobile app. As CEO of a financial institution, do
    you see the merit of engaging future consumers through a mobile
    banking platform?
        Mr. Nichols. Absolutely. So let me back up and describe
    just a little bit about my credit union. So we are located in
    Jefferson City. We serve healthcare people. We serve Missouri
    National Guard people. We serve people who work for the
    Missouri Farmers Association. All of those people are spread
    throughout the State of Missouri and, in many cases, in other
    countries. So the ability for us to actually grab that data
    without physically being in touch with them is a tremendous
    benefit for them and for my credit union.
        Mr. Tipton. Thanks so much, Mr. Chairman.
        I yield back the balance of my time.
        Chairman Luetkemeyer. The gentleman's time has expired.
        We now go to another gentleman from Missouri, Mr. Clay. The
    ranking member is recognized for 5 minutes.
        Mr. Clay. Thank you, Mr. Chairman.
        And this is a question for Mr. Astrada, Mr. Fisher, and Mr.
    Nichols.
        Mr. Fisher, the organization you represent, ICBA, along
    with other bank associations, wrote to Congress saying: ``We
    are greatly concerned that the Administration's forthcoming
    Fiscal Year 2018 budget may propose cuts to the CDFI fund. We
    strongly urge you to maintain strong funding levels.''
        The letter goes on to say: ``During the 2016 Presidential
    campaign, the need to create jobs and revitalize the economies
    of disenfranchised rural communities and neglected inner cities
    was a key theme. CDFI banks work in the exact communities that
    were the focus of this conversation. Community-based financial
    institutions are uniquely positioned to understand local credit
    needs, which is why there is historic bipartisan support for
    the CDFI fund.''
        And, yet, the President's budget as well as the
    appropriations bill the House Republicans are advancing would
    severely cut the program by nearly $60 million or 23 percent.
        Mr. Fisher, should Congress follow President Trump's lead
    and impose severe cuts on the CDFI fund? And if so, if they do
    that, who will lose?
        Mr. Fisher. I am not educated enough to tell you who is
    going to lose, but I do know that ICBA does support funding the
    CDFIs, so I would say that we would back the idea of continuing
    to fund the CDFIs where they have been funded.
        Mr. Clay. All right.
        Mr. Nichols, what are your views on the CDFIs? Should
    Congress maintain strong funding for this program?
        Mr. Nichols. I will back up and say we are a CDFI. We are
    CDFI-certified, so I absolutely. Those dollars that go to the
    institutions help in programs and reinvest in those communities
    and my members, in this particular case. So, absolutely, we
    would really appreciate the funding in that program.
        Mr. Clay. Thank you for that response.
        And, Mr. Astrada, I understand Self-Help, a credit union
    that CRL is associated with, is a CDFI. How problematic are
    these steep proposed cuts to that fund?
        Mr. Astrada. Thank you for that question. Yes, and that is
    correct. We are the policy affiliate of Self-Help, and we have
    firsthand knowledge of the importance of CDFIs throughout the
    country for very much the same reasons that you pointed out:
    accessibility, serving communities that would certainly be
    disenfranchised from mainstream banks, whether they are
    underbanked. We strongly support robust funding for CDFI and
    would be at the forefront of those fighting against any cuts
    and the effects that that would have.
        Mr. Clay. Thank you for that.
        And, Mr. Astrada, we received a letter signed by over 40
    civil rights and consumer groups opposing H.R. 2133, or the
    CLEARR Act. These groups said that H.R. 2133 includes a number
    of provisions that would, under the innocent-sounding guise of
    regulatory relief, drastically undermine our Nation's most
    important civil rights and consumer protection laws. They also
    highlighted how the bill changes fair lending laws, changes
    data collection standards for mortgages and small businesses,
    and weakens the CFPB. Do you share these concerns, or could you
    discuss who would be harmed by these changes?
        Mr. Astrada. Thank you. Yes. And we are very much in
    support of that letter and realize that, as I said to a
    previous question, a lot of the discriminatory lending, a lot
    of the adverse effects of implicit bias require robust data
    collection to really track and find--find where this behavior
    is going. And rolling back the collection of data under a guise
    of cost is not lost upon us, but there is a tradeoff. And a lot
    of, I think, what we are disagreeing on is really methodology
    as opposed to result. I don't think anybody is for
    discrimination, just how we are going to root out the problem.
        And CRL, from a lot of civil rights advocates that signed
    on to that letter said that this data is not only crucial but
    necessary to get the market analysis of where discrimination is
    happening, both historic and, like I said, on the individual
    level.
        Mr. Clay. And I appreciate your response to that.
        Mr. Chairman, I yield back.
        Chairman Luetkemeyer. The gentleman yields back.
        The gentleman from Michigan, Mr. Trott, is recognized for 5
    minutes.
        Mr. Trott. Thank you, Mr. Chairman.
        I want to also thank the panel for their time this
    afternoon.
        Professor, I want to start with you. Do you think the UDAAP
    authority that is given to the CFPB is necessary to keep these
    rogue financial institutions accountable, or do you think, on
    balance, it, in general, compromises financial institutions
    because it creates confusion and uncertainty regarding their
    business plans?
        Mr. Verret. I believe that the authority that pre-dated
    Dodd-Frank under UDAAP, the unfair and deceptive practices
    prohibition, provides more than enough leverage for CFPB to go
    after bad actors. I think it most certainly would have
    covered--without the abusive sort of unclear section, it would
    have most certainly covered all the activity of Wells Fargo.
    That clearly falls squarely within deceptive practices. Anybody
    who knows that story knows that.
        And the abusive definition, just going through how the CFPB
    has utilized its sole abusive authority, when it has brought
    solely abusive actions, it is often--you see some settlements
    there that stretch the rule of law, to me at least, including
    one in which they went after abusive practices saying: ``Well,
    this provision was just too far down in the contract, too deep
    in the contract for anyone to read, so it must have been
    abusive because it was on page 100 rather than on page.'' That
    strikes me as highly problematic in the rule of law culture.
        Mr. Trott. Do you think some of the changes in the
    chairman's bill we are considering with respect to the CFPB
    will, on balance, help consumers more than hurt them?
        Mr. Verret. I do, absolutely. Yes. And with respect to data
    collection, I think we have to do a balancing test, a cost-
    benefit analysis on data collection. Look, the IRS would love
    to get unfettered access to all of our bank accounts. I have no
    doubt it would help the IRS catch tax cheats. But I don't want
    the IRS digging through my data. It is too cumbersome, and I
    have financial privacy. I think we can think about that in the
    context of HDMA and other collection, especially when the SBA
    is already collecting a lot of this data anyway.
        Mr. Trott. I want to switch topics. Thank you, Professor.
        Mr. Fisher, so, last Congress, we worked to streamline some
    of the privacy notification requirements relating to community
    banks. Has that affected your operations at all?
        Mr. Fisher. The privacy notices, not having to send out a
    privacy notice annually if you haven't changed it has been a
    very positive impact for my bank.
        Mr. Trott. Has it had a good impact on your customer
    service?
        Mr. Fisher. Privacy hasn't really affected--
        Mr. Trott. People probably aren't calling saying, what is
    this?
        Mr. Fisher. No, people are definitely not calling asking,
    why am I getting this notice again?
        Mr. Trott. Although they probably miss that stack of paper
    next to Mr. Nichols. I know it is for mortgage origination, but
    it is good coloring paper for their kids, I would suspect.
        Have you saved some money because of it?
        Mr. Fisher. We definitely saved some money. I am not sure I
    can quantify, but I know it is obviously less postage, less
    paper.
        Mr. Trott. What did you do with the money?
        Mr. Fisher. What did I do--
        Mr. Trott. Maybe lend it to some businesses or--
        Mr. Fisher. Definitely, it has been put back into use in
    the community as far as more loans and trying to--
        Mr. Trott. Sure. If a customer calls asking for the
    notification, do you send it to them?
        Mr. Fisher. Sure. Of course.
        Mr. Trott. Do you charge them for it?
        Mr. Fisher. No.
        Mr. Trott. Okay. So Mr. Clay and I cosponsored a bill, the
    Privacy Notification Technical Correction Act, one of our
    tougher acronyms here in town, and it largely expands the scope
    of these disclosures, and I think it will be beneficial.
        Mr. Nichols, I want to talk but your credit union for a
    minute. How many years have you been in business?
        Mr. Nichols. How many years have we been in business?
        Mr. Trott. Yes.
        Mr. Nichols. We opened in 1954, September to be exact.
        Mr. Trott. And you said earlier you have about $200 million
    in assets.
        Mr. Nichols. Yes.
        Mr. Trott. How many employees, again, are dedicated to
    compliance.
        Mr. Nichols. To compliance, we have about two full-time
    employees.
        Mr. Trott. So do you get sued very often by your members?
        Mr. Nichols. No. Our members own us, so it seems it would
    be like suing yourself for the most part.
        Mr. Trott. So do you think Dodd-Frank had anything to do
    with it, or you always ran a good operation and you really
    didn't need the benefit of all the regulations.
        Mr. Nichols. I will go back and say the definition of
    credit unions--
        Mr. Trott. Okay. We will switch that. Assuming your members
    don't want to sue themselves.
        Mr. Fisher, how about community banks?
        Mr. Fisher. We have not been sued by our customers. To my
    knowledge, in our 150-year-plus history, we have never been
    sued.
        Mr. Trott. Right.
        I thank you.
        I yield back, Mr. Chairman.
        Chairman Luetkemeyer. The gentleman yields back.
        And the gentleman from Texas, Mr. Green, is recognized for
    5 minutes.
        Mr. Green. Thank you, Mr. Chairman.
        And I thank the ranking member as well.
        I am a son of the South. What the Constitution accorded me,
    my friends and neighbors took away from me. I lived through
    invidious discrimination. I know what it looks like. The KKK
    burned a cross in my yard. I know what it smells like. I had to
    go through filthy waiting rooms and colored restrooms. I know
    what it sounds like. I have had ugly things said to me. So I
    know what invidious discrimination is like. I know the harm
    that discrimination can cause. And I am very much concerned
    about Section 7, which reads--it amends the Equal Credit
    Opportunity Act and the Fair Housing Act to require intent to
    discriminate.
        I am very much concerned about this, because whether by
    accident or design, discrimination still hurts. The pain is not
    eased simply because it was done without intentionality. And I
    am talking about H.R. 2133, Section 7.
        So I would like to visit with Mr. Astrada for just a
    moment.
        Mr. Astrada, does making the requirement one of
    intentionality to have a cause of action, does that in some way
    decrease the harm that is caused when one is discriminated
    against?
        Mr. Astrada. That particular question, absolutely not. It
    doesn't decrease the harm it causes because it was intentional
    or in effect rather than intent.
        Mr. Green. And does it benefit the people who are
    discriminated against to require intentionality?
        Mr. Astrada. No. In fact, I would say it puts a barrier
    toward equity.
        Mr. Green. Do you find that discrimination exists in
    banking?
        Mr. Astrada. Yes. There is a long history of not only
    discrimination in the marketplace but through Federal
    Government programs, with FHFA and redlining, and so I think
    there is more than enough evidence on both the industry and
    government side to show that.
        Mr. Green. When you balance the benefits with the
    liabilities associated with this, do the liabilities of doing
    this outweigh the benefits such that it is just not a good
    thing to do for people who are being harmed?
        Mr. Astrada. I would agree with that, but I would reframe
    that. I think that it is a privilege to look at racism in a
    cost-benefit analysis. I think if you are the victim of racism
    and discrimination, you don't have the privilege of saying,
    what are my feelings compared to your data collection efforts?
    So I would think that, especially around the issue of disparate
    impact, which has been upheld in the housing discrimination
    cases with the Supreme Court, employment cases all the way back
    to 1970, that racism is not a cost-benefit question. So, while
    we want to be supportive of industry and be mindful of the
    costs that it would take to collect data to root out systemic
    discrimination, I think that having the privilege to say,
    ``What is the cost-benefit of racism versus how much do I have
    to pay to collect that data,'' is a very dangerous way to
    approach the problem.
        Mr. Green. Thank you for your very thoughtful response.
        I would just end with this: If you haven't known the pain
    of discrimination, it can be difficult for you to appreciate my
    commentary. But when your neighbors deny you what the
    Constitution accords you, it can be very painful. And there are
    a good many people in this society who will never suffer any
    pain if we make this change, but there are a good many other
    people who will be subject to harm if we do so. And we ought to
    want all people to have the same opportunities in this society.
    This is a bad piece of legislation. I absolutely oppose it, and
    I want the record to reflect that I would never support
    something that is going to harm people in this fashion.
        I yield back the balance of my time.
        Chairman Luetkemeyer. The gentleman's time has expired.
        With that, we go to the gentlelady from New York, Ms.
    Tenney. She is recognized for 5 minutes.
        Ms. Tenney. Thank you, Mr. Chairman.
        And thank you, panel. You are finally at the end, I think.
        I just want to, first, before I get started, say thank you.
    And it is an honor to have Mr. Fisher here, someone who hails
    from my region, and we talked a little bit about it earlier
    with Chair Yellen how rural our area is and how difficult it is
    for our community banks to survive.
        And I appreciate your testimony dealing with a number of
    issues. As a former bank attorney, I represented a number of
    community banks. You discussed really great issues, and now we
    think we have some solutions on the mortgage end. And I just
    wanted to just welcome you and say thank you for being here and
    helping advocate for our region and for what the real problems
    are in communities like ours that are struggling with, as you
    say, high regulatory burdens, taxes, out-migration of people,
    and all those things.
        And I just want to say thank you. I don't have any
    questions. I think you have been asked an awful lot of
    questions today because you really define what is going on in
    our region, which I call the Rust Belt of New York.
        I wanted to focus, just switching gears a little bit, to
    Professor Verret about just some of the issues surrounding the
    concern about the lack of de novo charters being started in the
    Nation and credit unions, for that matter, since the passage of
    Dodd-Frank in 2010.
        It is my opinion that the lack of new banks has been an
    issue. We talked earlier with--speaking with Janet Yellen about
    the number of community banks that are just buildings on
    corners or overgrown with grass, and we have lost many of them,
    or they have been merged into larger entities, and it has hurt
    our small business community and our ability to lend to smaller
    institutions.
        Thankfully, we have banks like Tioga Bank still forging
    ahead in a small community and providing those vital services
    to our rural residents. But between 2000 and 2008, we had
    almost 1,400 new institutions. Since 2010 and the passage of
    Dodd-Frank, we have had 5 new bank charters, and 16 new credit
    unions chartered in the United States. And so I guess I would
    like to ask you what your opinion would be on how we can
    increase the number of de novo charters, streamline the
    process, and make it easier to bring them onboard? If you could
    comment on that, please.
        Mr. Verret. Sure. Thank you for that question. An analysis
    by the Federal Reserve Bank of Richmond points to the problem.
    It diagnoses the problem of the lack of de novo charters
    squarely in the regulatory field. Overregulation is the
    problem, particularly with the chartering process.
        The intent was never for--I think the intent behind the
    design of Federal banking law, which has primary Federal
    regulators and secondary regulators, was to make sure that
    regulatory turf wars, bureaucratic turf wars, didn't prevent
    new chartering and didn't prevent lending and growth.
        Ms. Tenney. Are you referring to the--excuse me, the dual
    approval process? Is that what you are referencing?
        Mr. Verret. Sure. That is part of it. That is the important
    part of it. And I think this is a great idea, and I would look
    to a number of other ideas that have been raised, like
    providing more corporate governance flexibility for new banking
    institutions as well. But that is absolutely the key to the
    problem, so I commend that.
        Ms. Tenney. So, streamlining it. Would you go to a--
    obviously, it would require insurance. We wouldn't want to have
    any of this leak into areas outside of the chartered banks,
    banks and union--or banks issue.
        Can you just make--tell me what you feel about the--how we
    would manage that, say, if we were to draft legislation on
    dealing with the dual aspect of the appropriate--or the process
    with FDIC versus OCC. How would you reconcile that?
        Mr. Verret. I think, both with respect to chartering and
    also with respect to the exam process, an institution's primary
    Federal regulator ought to be given some deference. This is a
    problem in examination as well, where we have examiners
    examining the same thing within a few weeks of each other and
    not even connecting in any way on specialized exams. So I think
    the OCC's determinations of chartering and its own reputational
    risk as an agency are going to keep it from doing anything
    inappropriate. And I also think, with respect to the fintech
    space, though, most fintech firms are not going to need deposit
    insurance or take deposits, some of them might, and so I think
    this would be important in that arena as well.
        Ms. Tenney. Thank you very much.
        I thank the panel and, again, Mr. Fisher from my region. I
    really appreciate it.
        And I yield my time back, Mr. Chairman. Thank you.
        Chairman Luetkemeyer. The gentlelady yields back.
        Mr. Emmer from Minnesota is recognized for 5 minutes.
    Welcome.
        Mr. Emmer. Thank you. Thanks to the Chair for holding this
    hearing and for allowing me to participate.
        And thank you to the panel. I appreciate you being here
    today and taking all this time. In particular, I just wanted to
    recognize Mr. Fisher and Mr. Nichols. Community banks and
    credit unions are incredibly important to my State, as I expect
    they are all across this country.
        In 2008, at the time of the financial crisis, we had about
    8,000 of each across the country. A year later, a year after
    the crash, we still had about 8,000 community banks and 8,000
    credit unions across this country. Now, it has been almost 7
    years since Dodd-Frank was passed, and we are left with
    somewhere around 6,000 of each.
        I believe we need everyone in the financial services food
    chain. We need the biggest banks. We need the regional banks,
    community banks, credit unions--everyone. It just so happens,
    though, that community banks and credit unions support all of
    our small communities, because I can guarantee you, if you live
    in Moore, Minnesota, you are not going to Goldman Sachs for a
    loan. If you live in Hallock, Minnesota, you are not going to
    go to a Citibank. And if you live in Tower, Minnesota, which
    some of you might have heard of--sometimes it is called one of
    the coldest spots in the country; you might remember those
    battery commercials they used to do in Tower, Minnesota--you
    are not going to go to JPMorgan Chase. You are going to go to
    your local, probably family-owned community bank or credit
    union.
        It is imperative that we enact policy that would allow
    these financial institutions to survive and thrive again, which
    is why today's hearing is so important and timely. And there
    are several excellent proposals from this committee, and in
    Chair Luetkemeyer's Community Lending Enhancement Relief and
    Regulatory Relief Act, there are two, though, that interest me
    today.
        One of the Chair's proposals would amend the FDIC's
    definition of a deposit broker that will allow for reciprocal
    deposits so community banks can keep money in the local
    community that usually is used by community banks, minority-
    owned banks, community development banks, that sort of thing.
        And the other one would amend the Home Mortgage Disclosure
    Act of 1975 to exempt small banks and credit unions from
    Regulation C if they have originated 1,000 or fewer closed-end
    mortgages in each of the preceding 2 years or if they have
    originated 2,000 or fewer open end lines of credit in each of
    the preceding 2 years.
        I guess I will start with Mr. Fisher. Can you tell the
    committee why the reciprocal deposits are so important,
    especially right now?
        Mr. Fisher. Well, reciprocal deposits are--it is a great
    source of funds. If I look at my bank, personally, about 30
    percent of our total deposits are municipal deposits. And
    municipal deposits, anything that exceeds FDIC insurance, we
    have to have a bond pledged against that deposit. So, whether
    it is reciprocal deposits, we can get full FDIC coverage using
    reciprocal deposits. However, there is still kind of a negative
    perception about reciprocal deposits because they are
    considered brokered funds.
        So we would greatly appreciate this amendment so that they
    would not be considered brokered funds.
        Mr. Emmer. What is the alternative if you don't fix this?
    What is the alternative? The money leaves your community,
    doesn't it?
        Mr. Fisher. Correct. The money--obviously, as rates are
    increasing, lending is increasing, deposits are our raw
    material. That is what we lend out.
        Mr. Emmer. And we want to put it to work in our
    communities, our small communities?
        Mr. Fisher. We really don't want to see municipal deposits
    go out of our local communities, because that is helping to
    fund growth in our communities.
        Mr. Emmer. Right.
        Why don't I expand it to Mr. Nichols, there has been some
    talk here, and in the little time left, there has been some
    talk about the 48 points, all this information. I think the
    Chair started the second part of the hearing talking about a
    closing where he was trying to sell property, and there is this
    big packet.
        Why do we need all of this information that the CFPB has
    put in this rule? Why?
        Mr. Nichols. We don't, and the consumers don't want it as
    well. Again, I will go like this, but there is--the more paper
    that we give to the consumer, the less they read, the less
    informed they are. It is a more expensive process, which,
    ultimately, guess who pays for that process.
        Mr. Emmer. Well, and very quickly, community banks, credit
    unions, people on the lower end of the financial system, they
    are getting out of the business.
        Mr. Nichols. Right.
        Mr. Emmer. So it is not even that we don't read it; it is
    that we may not get the choice.
        Mr. Nichols. That is actually a great point. It is good to
    have multiple options. I will go back to another Congressman's
    point in that the more options you have, the less systemic risk
    you have by having the too-big-to-fails out there and the more
    choice you give to the consumer.
        Mr. Emmer. Right.
        Thank you, again, Mr. Chairman. Thanks for your patience.
        Chairman Luetkemeyer. The gentleman's time has expired.
        The gentlelady from Utah, Mrs. Love, is recognized for 5
    minutes.
        Mrs. Love. Thank you. Thank you all for being here today.
        I would like to broaden our focus now to a consumer issue,
    that of debt collection, which is the topic of H.R. 864, the
    Stop Debt Collection Abuse Act of 2017.
        Every year, millions of Americans are touched by debt
    collection, many of them low- to middle-income families. In
    fact, the CFPB's most recent monthly consumer complaint report
    in June 2017 showed that the most complaints about financial
    product or services were debt collection, including in my home
    State of Utah.
        Within the broader topic of debt collection, I would like
    to focus on the Federal Government's use of private debt
    collection agencies to assist in its debt collecting uses and
    efforts.
        Under the Debt Collection Improvement Act of 1996, many
    Federal agencies can, after a prescribed amount of time, refer
    delinquent Federal nontax debt to the Department of Treasury
    for collection activity by an approved private debt collection
    agency.
        In addition, some Federal agencies, such as the Department
    of Education, managed their own use of private debt collectors.
    Most notably, the IRS was recently mandated under the Fixing
    America's Surface Transportation Act (FAST Act) to revise its
    use of private debt collectors to collect delinquent individual
    income taxes and started doing so in April of this year. Yet
    questions have been raised about the Federal Government's use
    of debt collectors or private debt collectors.
        In recent years, the Department of Education announced that
    it was ending contracts with five private debt collectors that
    have been providing inaccurate information to borrowers about
    loan rehabilitation programs. In addition, there are
    significant concerns about the IRS' renew of private debt
    collectors, particularly with regard to private and consumer
    protection, including fears that scammers would pose as IRS
    debt collectors to commit fraud against vulnerable individuals.
    So, in a nutshell, this is about making sure that the Federal
    Government complies with the same activities as the private
    sector when it comes to collecting debt.
        So I would like to start by asking whether anyone on this
    panel has been tracking the most recent round of debt
    collectors being hired on behalf of the IRS? I know it is very
    recent, but do we have any feedback on that program yet?
        Mr. Astrada, do you know anything about that?
        Mr. Astrada. Well, at CRL, we do support the provisions of
    debt collected by third-party collectors for the Federal
    Government. In terms of the Hanson case, we are still assessing
    the impact of the decision and how it relates to that. So I
    would love to stay in touch with your staff as we work through
    it ourselves and keep you updated on what we plan on putting
    out.
        Mrs. Love. Okay. So, just to give everyone an idea, H.R.
    864, the Stop Debt Collection Abuse Act, is a bipartisan effort
    on behalf of myself, Representative Ellison, Representative
    Cleaver, and Representative Hill, to make sure that the Federal
    Government uses the same practices that the private sector
    uses.
        Also, just as a follow-up, have you tracked any other
    issues with private debt collectors hired by the Federal
    Government? Has anyone tracked any of those activities or have
    any thoughst that maybe they can share?
        Mr. Verret. I haven't tracked that, Congresswoman Love, but
    it strikes me that the proposal that you are talking about,
    that particular section of the bill, is consistent with the
    taxpayer bill of rights that I think would be relevant, and so
    it sounds like a pretty good approach to me.
        Mrs. Love. Okay. Anyone else have anything to offer? No?
    No? Nothing? Okay.
        I would also like to talk more generally about the role of
    debt collection in consumer credit lifecycles. So the Federal
    Reserve Bank of New York recently published a report confirming
    the important role of debt collecting in the credit-based
    economy. The analysis found that restricting collection
    activity leads to a decrease in access to credit across the
    full spectrum of borrowers and to the deterioration of
    indicators of financial health. So it is very important, as
    always, that we find the right balance between protecting
    consumers and making sure we don't inadvertently restrict
    credit availability.
        So, just really quickly, Mr. Fisher, as one of the two
    bankers on the panel, can you tell us about the significance of
    debt collecting and the availability of consumer credit?
        Mr. Fisher. We handle our own debt collection. We don't
    outsource it at all. So if a loan goes bad, we handle it
    ourselves. Obviously, if a bank takes a loss and they are not
    able to collect on their debts, it is going to make them less
    likely to lend money out again.
        Mrs. Love. Okay. Thank you.
        Chairman Luetkemeyer. The gentlelady's time has expired.
        With that, we go to the gentleman from Indiana, Mr.
    Hollingsworth. Welcome. And you are recognized for 5 minutes.
        Mr. Hollingsworth. Mr. Chairman, thank you so much for the
    time. And knowing that I am not on the subcommittee, thank you
    for allowing me to crash the party here.
        One thing that I am absolutely passionate about is making
    sure that consumers have more and more choices in the products
    that they want to use, because, ultimately, as I think Sam
    Walton said, consumers tend to choose with their feet, with
    their wallet, the products that win and lose. I know what I
    hear every single day in my district is that they are tired of
    bureaucrats in Washington telling them what products they
    should be able to choose, what products they shouldn't be able
    to choose, what those products should look like. They want to
    get a multitude, a cornucopia of offerings and then be able to
    decide for themselves what they want. And I know what I hear
    from not just banks, not just credit unions, not just lenders,
    but from every company as well that I have run into, is that
    they are tired of servicing a bureaucracy in Washington, a
    regulatory state in Washington, instead of servicing their
    customers, instead of working for their shareholders, instead
    of working for their mutual owners. They are tired of servicing
    this bureaucracy that puts more and more demands on their
    business, on their time and not allowing them to--standing
    between them and their customers.
        And where this really comes to the forefront for me is with
    deposit advance product. Now, this is a product pre-2013,
    short-term, small dollar, line of credit product that people
    loved, that they were utilizing day in and day out to be able
    to help their families make ends meet with cashflow needs, that
    over and over again, at each of the institutions that were
    offering this product, it got rave reviews and was used very,
    very frequently to help families prepare for their future,
    prepare for a short-term problem, and ultimately be able to
    help rebuild their credit, because they were reporting to
    credit agencies. But then 2013 happened. The OCC and the FDIC
    issued guidance and said to all of these lenders that, even
    though this is a short-term, small dollar product that was
    really a line of credit, it should be treated like a loan, and
    they had to underwrite each one of these like a loan. Whether
    they were loaning $100,000, it had to be treated just like that
    if they were loaning $100 through this product. And it is a
    real travesty because, all of a sudden, those lenders stopped
    being able to do this because the cost was too high. The
    regulatory burden in making, in presenting these products to
    the market was too high. And so, instead of consumers getting
    the opportunity to choose, the bureaucrats got to choose. And
    the bureaucrats got to say they didn't want this product even
    though consumers said over and over again that this was a
    product that fit their families' needs.
        So I am proud, with my colleague across the aisle, because
    this is a bipartisan issue, to sponsor and have written the
    Ensuring Quality Unbiased Access to Loans Act, or the EQUAL
    Act, where we go back and rescind that guidance and enable
    consumers to choose exactly the type of products that they want
    and allow these lenders to be able to make those type of
    decisions themselves, rather than the FDIC and the OCC making
    these decisions for them.
        And I really wanted to, first, talk about that and thank
    Mr. Meeks across the aisle for working with me on that.
        And then, Mr. Chairman, I wanted to ask unanimous consent
    that I am able to enter this letter of support into the record.
        Chairman Luetkemeyer. Without objection, it is so ordered.
        Mr. Hollingsworth. Thank you.
        And then I wanted to direct my first question to Professor
    Verret and really talk a little bit about your view on the
    product, and on the opportunity that we have to roll back a
    regulatory intervention to prevent consumers from being able to
    make decisions that are best for their families, best for their
    futures, and best for their financial needs.
        Mr. Verret. Sure. Well, the Federal Reserve indicates that
    over half of all families couldn't cover an emergency expense
    of $400 without selling something or taking out a loan. So this
    literally keeps their lights on for some people. Deposit--I
    think small dollar lending in general is helpful to the economy
    in a variety of different forms. One form is deposit advance
    products, which use a history of direct deposits to make some
    gauge of the riskiness of a borrower, which is one of those
    technological innovations that we didn't have in the 1990s.
        Mr. Hollingsworth. Right.
        Mr. Verret. So I think it is helpful.
        I think that--Mr. Meeks requested suggestions for, I guess,
    compromise approaches. One of the approaches, I think, is most
    egregious is the--at least in the CFPB's piece of small
    dollar--is the portfolio default-based regulations, which I
    think set an institution up for huge reimbursements for the
    macroeconomic things way outside of their control.
        And the final point I would say that makes your legislation
    very reasonable is that it just asks for notice and comment,
    which, let's not forget that the Administrative Procedures Act
    was led by a very liberal, progressive Senator some 60 years
    ago. So I think it is a very reasonable suggestion.
        Mr. Hollingsworth. Well, I appreciate that so much. And
    just as a closing remark, I wanted to talk about the wide
    spectrum of individuals this has the opportunity to touch. It
    has been estimated that over 50 percent of the customers who
    use this have incomes of greater than $50,000; 25 percent of
    customers have incomes of greater than $75,000. This isn't just
    to help low-income and moderate-income families, but to help
    everybody get through a tough period.
        And I think one of the great misfortunes or malintentions
    from overregulation is that it is helping that marginal
    customer. And what we under--getting back to smarter regulation
    enables us to bring them back into the banking system, bring
    them back to participating in our financial system to help
    their future.
        So I thank the panelists for their time, and I appreciate
    the chairman letting me have some time here today.
        Chairman Luetkemeyer. The gentleman's time has expired.
        And, with that, the questioning is at an end. You guys have
    survived. Congratulations.
        Thank you very much for your patience to wait out our votes
    and for your willingness to be here today and for your
    expertise.
        I know we talked about a lot of bills today, and some of
    the bills have a number of parts and some of the things we
    probably didn't get to, but your comments are very important.
    It will give us some insights, both pro and con, on some good
    things and some of the not-so-good things, so we know where to
    go and what pieces we need to work on and move and make better.
        But I think it is our sincere effort to try and give some
    relief to some small and financial institutions, to be able to
    help them, not just to survive, because the pressure of the
    continued increase in cost of doing business, but to also
    better serve their communities and to be able to help those
    communities grow and prosper, because at the end of the day,
    that is what this is all about. These businesses that you guys
    represent today do not survive unless you have communities that
    are growing and thriving. You live off the customers that you
    have that you can help to make their lives better. It is a
    symbiotic relationship that you have to have with your
    customers, with your community. If you grow, they grow. If you
    don't, they don't. And coming from a small town, I can tell you
    that is the way it works.
        So it is very important that you are here. We sincerely
    thank you for your time and for your efforts.
        The Chair notes that some Members may have additional
    questions for this panel, which they may wish to submit in
    writing. Without objection, the hearing record will remain open
    for 5 legislative days for Members to submit written questions
    to these witnesses and to place their responses in the record.
    Also, without objection, Members will have 5 legislative days
    to submit extraneous materials to the Chair for inclusion in
    the record.
        And, with that, this hearing is adjourned.
        [Whereupon, at 4:47 p.m., the hearing was adjourned.]

                                A P P E N D I X

                                 July 12, 2017

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