[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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