[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
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
U.S. GOVERNMENT PUBLISHING OFFICE
28-747 PDF WASHINGTON : 2018
----------------------------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Publishing Office,
http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center,
U.S. Government Publishing Office. Phone 202-512-1800, or 866-512-1800 (toll-free).
E-mail, [email protected].
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
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
[all]