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

                        LEGISLATIVE PROPOSALS FOR A MORE
                     EFFICIENT FEDERAL FINANCIAL REGULATORY
                                REGIME: PART II

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

                                    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

                                   __________

                                DECEMBER 7, 2017

                                   __________

           Printed for the use of the Committee on Financial Services

                               Serial No. 115-65

      [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                     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:
        December 7, 2017.............................................     1
    Appendix:
        December 7, 2017.............................................    37

                                   WITNESSES
                           Thursday, December 7, 2017

    Cimino, Anthony, Senior Vice President and Head of Government
      Affairs, Financial Services Roundtable.........................     3
    Ducharme, Brian, President and Chief Executive Officer, MIT
      Federal Credit Union, on behalf of the National Association of
      Federally-Insured Credit Unions................................     4
    George, Christopher M., Chairman Elect, Mortgage Bankers
      Association....................................................     6
    Stanley, Marcus, Policy Director, Americans for Financial Reform.     8

                                    APPENDIX

    Prepared statements:
        Cimino, Anthony..............................................    38
        Ducharme, Brian..............................................    45
        George, Christopher M........................................    60
        Stanley, Marcus..............................................    66

                  Additional Material Submitted for the Record

    Luetkemeyer, Hon. Blaine:
        Written statement from the American Bankers Association......    76
        Written statement from the Credit Union National Association.    78
    Hollingsworth, Hon. Trey:
        Written statement from the Chamber of Commerce of the United
          States of America..........................................    79
    Loudermilk, Hon. Barry:
        Written statement from the American Bankers Association......    80
    Posey, Hon. Bill:
        Written statement for the record.............................    81

                        LEGISLATIVE PROPOSALS FOR A MORE
                     EFFICIENT FEDERAL FINANCIAL REGULATORY
                                REGIME: PART II

                                  ----------

                           Thursday, December 7, 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 2:35 p.m., in
    room 2128, Rayburn House Office Building, Hon. Blaine
    Luetkemeyer [chairman of the subcommittee] presiding.
        Present: Representatives Luetkemeyer, Rothfus, Lucas,
    Posey, Ross, Barr, Tipton, Williams, Trott, Loudermilk,
    Kustoff, Tenney, Clay, Maloney, Meeks, Scott, Velazquez, and
    Heck.
        Also present: Representatives Duffy and Hollingsworth.
        Chairman Luetkemeyer. The committee will come to order.
        Without objection, the Chair is authorized to declare a
    recess of the committee at any time. This hearing is entitled
    ``Legislative Proposals for a More Efficient Federal Regulatory
    Regime: Part II.''
        Before we begin, I would like to thank the witnesses for
    appearing today. We appreciate your participation. We look
    forward to a very productive discussion. Thank you so much for
    taking time out of your busy schedules to be with us.
        I now recognize myself for 5 minutes for the purposes of
    delivering an opening statement.
        A common complaint heard throughout the financial services
    industry is that the regulatory pendulum has swung too far.
    Rules and regulations are driving financial institutions to
    merge, exit entire lines of businesses, and discontinue
    services to their customers. We see it every day and hear about
    it, not only from institutions, but also from their customers,
    many of whom have experienced increased difficulty getting
    access to credit and other financial products.
        Today, we will consider five bills that seek to change the
    status quo. We will review legislation written by the gentleman
    from Florida, Mr. Posey, to amend the problematic points and
    fees rule that has frozen some buyers out of the housing
    market. We will also examine legislation offered by the
    gentleman from Indiana, Mr. Hollingsworth, which highlights the
    issue that U.S. regulators are consistently going well beyond
    and above international standards promulgated elsewhere around
    the world.
        The gentleman from Wisconsin, Mr. Duffy, has introduced
    legislation to ensure that the CFPB (Consumer Financial
    Protection Bureau) stays out of the business of insurance.
    Dodd-Frank very clearly limited CFPB's authority in the area of
    insurance, yet the Bureau has demonstrated a keen interest in
    insurance products. This legislation would guard against the
    mission creep at CFPB.
        We will examine a second bill introduced by Mr. Posey,
    which would repeal the National Credit Union Administration's
    risk-based capital rule. This is a rule that generated concern
    for more than 300 Members of Congress, and would have a
    dramatic impact on the ability of credit unions across Missouri
    and the State to serve their members.
        Finally, the subcommittee will discuss a draft legislation
    offered by the gentleman from Georgia, Mr. Loudermilk, which
    would amend the Economic Growth and Regulatory Paperwork
    Reduction Act to require Federal banking agencies to conduct an
    annual review of all regulations and determine how those
    regulations impact the financial safety and soundness of an
    individual insured depository institution.
        I don't think anyone in this room questions the importance
    of meaningful and thoughtful regulation of financial companies,
    but for too long, Washington bureaucrats have used and, in many
    cases, abused their authorities to overreach and create a
    regulatory regime that is unnecessarily punitive.
        This subcommittee will continue its mission to restore
    sanity to the regulatory landscape, ensuring that those in the
    financial services industry are held accountable, while still
    having the ability to serve their customers. It is possible to
    have regulatory regime that protects the American people and
    financial system without curtailing customer choice. The
    legislation we discuss today helps to foster that smarter, more
    reasonable environment.
        I want to thank Mr. Posey, Mr. Hollingsworth, Mr. Duffy,
    and Mr. Loudermilk for their good work on these bills.
        We have a distinguished panel with us today. We look
    forward to hearing your thoughts on these important issues and
    proposals.
        The Chair now recognizes the other gentleman from Missouri,
    Mr. Clay, the Ranking Member of the subcommittee, for 5 minutes
    for the purpose of an opening statement.
        Mr. Clay. Thank you, Mr. Chairman, for conducting this
    hearing. And in the interest of time, I will forego a opening
    statement, and I would like to hear from the witnesses.
        I yield back.
        Chairman Luetkemeyer. Thank you, gentleman. I hope that is
    an endorsement of my previous opening statement.
        Mr. Clay. We shall see.
        Chairman Luetkemeyer. OK. Well, I tried.
        Anyway, today we welcome a great panel, I believe. And we
    hope--anticipate your testimony. Mr. Anthony Cimino, Senior
    Vice President and Head of Government Affairs for the Financial
    Services Roundtable; Mr. Brian Ducharme, President and CEO of
    MIT Federal Credit Union, on behalf of the National Association
    of Federal Credit Unions; Mr. Christopher George, Chairman
    Elect of the Mortgage Bankers Association; and Mr. Marcus
    Stanley, Policy Director, Americans for Financial Reform.
        Each of you will be recognized for 5 minutes to give an
    oral presentation of your testimony.
        Without objection, each of your written statements will be
    made part of the record. Our lighting system is green means go,
    yellow means you have a minute to wrap up and finish your
    points. And we have the same timing mechanism up here. When red
    hits, hopefully you can stop it and withdraw and move on.
        So with that, Mr. Cimino, you are recognized for 5 minutes.

                       STATEMENT OF ANTHONY CIMINO

        Mr. Cimino. Chairman Luetkemeyer, Ranking Member Clay,
    members of the committee, thank you for the opportunity to
    testify today.
        My name is Anthony Cimino. I am with the Financial Services
    Roundtable. My comments today will focus on H.R. 3179, the
    Transparency and Accountability for Business Standards Act, and
    H.R. 3746, the Business of Insurance Regulatory Reform Act.
        First, let me say that FSR applauds your efforts to assess
    and modernize the regulatory financial system. To that end, FSR
    supports H.R. 3179, the TABS Act. This legislation would
    require Federal banking agencies to perform an analysis and
    provide a rationale when promulgating standards that are more
    stringent than the related international standards.
        In implementing the most recent agreement, Basel III, U.S.
    banking regulators have, in some cases, pursued a policy of,
    quote/unquote, gold plating or a heightened prudential scrutiny
    for U.S. companies.
        I would like to touch on three areas in particular. The
    first example is the G-SIB surcharge. Basel III imposes a
    capital surcharge on global systemically important banks. U.S.
    regulators adopted this G-SIB surcharge, so-called model 1. But
    in addition to that, U.S. regulators also adopted an additional
    requirement, method 2, a more prescriptive surcharge. In some
    cases, it has forced an extra 2 percent capital charge, which
    according to one estimate, costs $52 billion in capital and has
    reduced lending capacity of the U.S. financial system by $287
    billion.
        The second example is the enhanced supplemental leverage
    ratio. In conjunction with international agreements, U.S.
    banking regulators imposed a 3 percent supplemental leverage
    ratio requirement on certain bank holding companies. They did
    then, however, apply an enhanced SLR (supplementary leverage
    ratio) that requires G-SIBs to meet a 5 percent SLR requirement
    at the holding company level and a 6 percent enhanced SLR at
    the bank level. That 6 percent is double the international
    standard.
        The third area I would like to point out to you all deals
    with the liquidity coverage ratio, which requires banks to hold
    enough high-quality liquid assets to withstand a severe 30-day
    stress scenario. In setting the LCR (liquidity coverage ratio);
    however, U.S. agencies deviated from the internationally agreed
    to methodology specifically for inputs on cash outflow
    assumptions and maturity assumptions for options. This has led
    to different outcomes for the calculation, but estimates
    indicate that a 1 percent change in the calculation may
    increase bank lending by approximately $17 billion.
        These are just three examples where the U.S. has deviated
    from international standards. It is important to note that H.R.
    3179 would not, however, weaken standards or repropose rules.
    The legislation merely establishes a transparent mechanism to
    assess, impact, and provide a rationale for any delta between
    the U.S. and the international standards. We believe that this
    understanding and related decisions can bolster U.S.
    competitiveness and drive economic growth.
        Shifting gears, I would like to point out that FSR supports
    H.R. 3746, the Business of Insurance Regulatory Reform Act.
    Under McCarran-Ferguson, Congress granted States the authority
    to regulate the business of insurance. Title X of the Dodd-
    Frank Act reflected that as well. The law created the CFPB, but
    exempted the business of insurance from its authority.
        Despite this, the CFPB has, at times, expanded its scope to
    include the business of insurance. For example, in 2016, as
    part of a request for information for certain loans and
    ancillary products, the CFPB requested information on credit
    insurance, which is an insurance product regulated by the
    States.
        A second example comes to the CFPB's proposed rule on
    arbitration agreements. The proposal sought to apply the
    arbitration rule to policy loans made by life insurance policy
    providers. These policy loans are loans secured by the cash
    surrender value of the related policy. The life insurance
    policy providers are not creditors under the ECOA Act, and the
    products should not be subject to CFPB oversight. These are
    just two examples of that mission creep.
        In each of these cases, State regulators and interested
    parties clarified the important role of State insurance
    regulators. H.R. 3746 seeks to address this ambiguity and
    potential mission creep by reiterating and clarifying that
    insurance regulation with respect to consumer products and
    services remain the purview of State insurance regulators. This
    legislation will create greater certainty, regulatory
    stability, and help the marketplace and consumers.
        Financial Services Roundtable again commends the committee
    for its leadership and desire to assess and optimize the
    regulatory system. We urge the committee to advance these
    bills, and look forward to working with them on this.
        I would also like to commend the staff on both sides of the
    aisle for their hard work on all of these issues, and continue
    to work with them as we go forward.
        With that, Mr. Chairman, thank you. I would be happy to
    answer any questions.
        [The prepared statement of Mr. Cimino can be found on page
    38 of the Appendix.]
        Chairman Luetkemeyer. Thank you. With that, we appreciate
    your comments.
        With that, I recognize Mr. Ducharme for 5 minutes to give
    us a presentation. You are recognized.

                       STATEMENT OF BRIAN DUCHARME

        Mr. Ducharme. Thank you, Mr. Chairman.
        Good afternoon, Chairman Luetkemeyer, Ranking Member Clay,
    and members of the subcommittee. Thank you for the invitation
    to appear before you today.
        My name is Brian Ducharme, and I am the president and CEO
    of MIT Federal Credit Union headquarters in Cambridge,
    Massachusetts. My written testimony outlines a series of tenets
    that NAFCU (National Association of Federally-Insured Credit
    Unions) believes are necessary for credit unions to thrive. We
    hope you will consider these as you work to establish a more
    efficient Federal financial regulatory regime.
        I would like to focus my comments on one key piece of
    legislation before the committee: the Common Sense Credit Union
    Capital Relief Act of 2017 introduced by Representative Posey.
    This legislation would stop NCUA's (National Credit Union
    Administration) risk-based capital rule, RBC, from taking
    effect on January 1, 2019. NAFCU believes this rule is ill-
    conceived, in its current form will have a negative impact on
    the credit union industry.
        The process that NCUA used to establish this rule was very
    problematic and took nearly 2 years to complete, with the final
    rule being approved by a 2 to 1 vote in October 2015, with
    current NCUA board chairman, Mark McWatters, dissenting in that
    vote.
        The health of the credit union industry has only continued
    to improve since the rule was adopted, with over 95 percent of
    the industry's assets held in CAMEL 1 and 2 credit unions,
    mitigating the need for this rule.
        We thank Chairman McWatters for his leadership in
    recognizing that the current rule is problematic and needs
    reform. However, the political uncertainty due to the vacancies
    on the NCUA board is impacting the agency's ability to make
    timely changes.
        With the rule set to take effect a year from now, credit
    unions must soon begin the review of their portfolios to come
    into compliance. This could lead to some institutions
    curtailing lending in 2018 as they seek to maintain their
    capital level and capital cushion.
        Not only is compliance with this rule problematic for
    credit unions, it also ties up NCUA resources, as it prepares
    to implement a flawed rule. NAFCU believes that Congress should
    step in and stop this rule from taking effect.
        NAFCU analysis has found that over 400 credit unions will
    see a combined $1.4 billion decline in their capital cushion
    when the rule becomes effective. Over 40 credit unions will
    face a downgrade in their capital category, and MIT FCU is one
    of those credit unions facing a downgrade.
        Our members look to us for many of their financial
    services, including a wide range of mortgage services. With
    young adult members, we have been an important option for them
    as they become first-time home buyers.
        MIT FCU also provides advisory services relating to college
    planning, as well as Federal and private student loans. Today,
    MIT FCU helps individuals make important decisions, and
    provides funding in many cases when others will not.
        Our products have been prudently managed. However, under
    the new RBC rule, MIT FCU's ability to continue to serve our
    members with these products will be constrained. The new RBC
    rule has also forced MIT FCU to reconsider offering business
    services as well.
        Regardless of how prudently we have managed these programs,
    we may have to stop providing them, which is not in the best
    interest of our members, and many other credit unions will also
    find themselves in this very same situation.
        Finally, it is important to remember that credit unions,
    unlike other financial institutions, are locked into a net-
    worth ratio system that does not evolve in the face of changing
    market conditions. A more flexible RBC framework could
    counterbalance the immutable requirements of credit union PCA
    laws.
        In conclusion, one of the biggest and pending burdens on
    the credit union industry is the implementation of NCUA's risk-
    based capital rule. While NAFCU supports a true risk-based
    capital system for credit unions, the current rule set to take
    effect January 1, 2019, does not provide this and it is
    fundamentally flawed. The Common Sense Credit Union Capital
    Relief Act of 2017 is needed, and we would urge the committee
    to support this timely legislation.
        Chairman, thank you for the opportunity to appear before
    you today, and I welcome any questions that you or the
    committee may have.
        [The prepared statement of Mr. Ducharme can be found on
    page 45 of the Appendix.]
        Chairman Luetkemeyer. Thank you.
        Mr. George is recognized for 5 minutes.

                   STATEMENT OF CHRISTOPHER M. GEORGE

        Mr. George. Chairman Luetkemeyer, Ranking Member Clay, and
    members of the subcommittee, I appreciate the opportunity to
    testify this afternoon on behalf of the Mortgage Bankers
    Association.
        My name is Chris George, and I am the founder, president,
    and chief executive officer at CMG Financial, a privately held
    mortgage bank in San Ramon, California. I also currently hold
    the position of chairman-elect at the MBA and have previously
    served as the chairman of the California Mortgage Bankers
    Association.
        As a three-decade veteran in the mortgage industry, I am
    pleased to share my views today on, H.R. 2570, the Mortgage
    Fairness Act, and the Comprehensive, Regulatory Review Act. MBA
    supports both bills and believes they offer practical solutions
    to improve the efficiency of mortgage market regulations.
        One of the most significant features of the Dodd-Frank Act
    was a requirement that lenders, during the underwriting
    process, carefully demonstrate a mortgage borrower's ability to
    repay their loan. And while the qualified mortgage standard
    that was developed by the CFPB was not meant to limit mortgage
    originations to only loans that meet this standard, the
    significant potential liability and litigation expense for
    violations of the ability to repay rule have directed the vast
    majority of the market toward QM (qualified mortgage) loans
    that provide safe harbor from potential litigation.
        As the ATR rule and QM standard have been implemented, MBA
    has consistently maintained the view that mortgage originated
    with the same interest rate and other product features should
    be treated equally from a regulatory perspective, regardless of
    the originator's business model. H.R. 2570 aims to improve a
    provision of the ATR rule and QM standard that generates
    unequal treatment of loans originated by mortgage brokers.
        The ATR rule and QM standard includes fees paid by
    wholesale lenders to a mortgage broker in the calculation of
    points and fees, which is used to determine whether a loan
    qualifies for the QM safe harbor. However, fees paid by a
    wholesale lender to a mortgage broker are already reflected in
    the interest rate offered to the consumer, resulting in a
    double counting of those fees. Because of this double counting,
    loans originated through mortgage brokers are more likely to
    exceed the maximum allowable points and fees under the ATR rule
    and the QM standard. This treatment results in some loans
    originated by mortgage brokers failing to qualify for the QM
    safe harbor, while the exact same loans would have qualified if
    originated through a different channel.
        H.R. 2570 would eliminate this double counting and level
    the playing field for mortgage brokers, increasing competition
    in the lending market. We think this would ultimately benefit
    consumers, in particular, low-to moderate-income consumers, by
    giving them greater choice when they go to shop for a loan and
    thus potentially lowering their borrowing cost.
        MBA supports H.R. 2570 and urges the committee to advance
    this common sense provision to ensure that otherwise similar
    loans are not treated differently due simply to their
    origination channel.
        MBA also supports the Comprehensive Regulatory Review Act,
    which amends the Economic Growth and Regulatory Paperwork
    Reduction Act. This legislation will clarify the EGRPRA review
    process and eliminate ambiguity to ensure the Federal Financial
    Institutions Examination Council undertakes a timely review and
    elimination of any unnecessary regulations.
        EGRPRA is an oversight mechanism designed to ensure that
    regulations are reviewed and evaluated in light of changes in
    the market or the interlocking Federal regulatory structure.
    The proposed legislation seeks to improve the EGRPRA regime to
    better reflect significant structural changes to the Federal
    regulatory landscape that have occurred since its adoption in
    1996. This legislation accomplishes this goal by increasing the
    frequency and expanding the breadth of reviews and also by
    incorporating additional regulators in the process.
        The proposed legislation requires comprehensive review
    every 5 years, rather than the current once-per-decade
    requirement. A shorter interval between reviews will prompt
    regulators to move more quickly to review the burden of
    outdated regulations and identify those that are otherwise
    unnecessary.
        Given the fast pace of the technological innovation in
    today's market, a more frequent regulatory review cycle is
    critical in ensuring that regulators keep pace with the market
    and do not stifle innovation.
        If this legislation is codified, the regulator's
    responsibility would no longer end with just an inventory of
    unnecessary regulations but with the elimination of unnecessary
    regulations. In addition, each regulation must be tailored in a
    manner that limits its regulatory compliance impact, cost, and
    liability risk. In this way, the proposal provides actual
    regulatory relief. MBA sees this proposed legislation as having
    a positive impact on the efficiency of the mortgage market
    regulations.
        MBA urges the committee to pass this bill to ensure that
    the consumer finance regulatory regime is appropriately
    tailored to accommodate market changes and technological
    innovation.
        Thank you again for the opportunity to testify today. I
    look forward to any questions you have.
        [The prepared statement of Mr. George can be found on page
    60 of the Appendix.]
        Chairman Luetkemeyer. Thank you, Mr. George.
        Dr. Stanley, you are recognized for 5 minutes.

                       STATEMENT OF MARCUS STANLEY

        Mr. Stanley. Chairman Luetkemeyer, Ranking Member Clay, and
    members of the subcommittee, thank you for the opportunity to
    testify before you today on behalf of Americans for Financial
    Reform.
        AFR was created as a response to the disastrous financial
    crisis of 2008. That crisis caused 9 million workers to lose
    their jobs, 7 million families to lose their home, and the
    Nation to lose over $10 trillion in economic wealth. A key
    lesson learned in the financial crisis was the importance of
    strong regulatory protections in protecting consumers and the
    economy.
        Contrary to the claims of some, the financial industry is
    alive and well under Dodd-Frank. Since Dodd-Frank was passed,
    the financial sector has grown more quickly than other
    industries. In 2016, banking industry revenues rose to record
    levels. The fraction of community banks showing a profit
    increased from 79 percent in 2010, the year Dodd-Frank was
    passed, to 96 percent in 2016.
        Another metric of the health of the banking sector, the
    growth rate of bank commercial lending, has also exceeded
    historical averages since the passage of Dodd-Frank.
        In light of the extraordinary damage created by the 2008
    financial crisis and the lack of evidence for an economically
    harmful effect of post-crisis regulations, it is very
    disappointing that the bills under consideration by the
    subcommittee today would uniformly lower regulatory protections
    for consumers in the economy.
        I will now briefly discuss each bill. Given the time
    limitations in my oral testimony, I urge interested parties to
    consult my written testimony for additional detail.
        H.R. 2570 would make it easier for lenders to steer
    homeowners into high cost, potentially abusive loans, uncertain
    mortgages, notably, home equity lines of credit. It would
    exempt yield spread premiums from tests used to determine
    whether a loan counted as a high-cost mortgage loan.
        These premiums often act as what are effectively kickbacks
    to the mortgage broker from the lender in exchange for an
    increased interest rate, a pernicious form of incentive payment
    that has been shown to contribute to steering, discrimination,
    and lending without regard to ability to repay.
        H.R. 3179 seeks to restrict Federal banking agencies from
    issuing regulations more stringent than those laid out by
    international regulatory bodies. This bill would be a bad idea
    at any time, but it seems particularly misplaced today when
    many are claiming to advance an America First agenda in
    economic policy. H.R. 3179 could instead be described as an
    America Last bill, as its effect would be to reduce our ability
    to protect the American economy against the negative effect of
    poor decisions made by international bodies.
        If international rules were conceived of as dictating to
    member countries the strongest level of safety that could be
    required, this will result in imposing on each country the
    lowest common denominator acceptable to the more than 2 dozen
    nations that are members of the Basel Committee on Banking
    Supervision. This would be a dangerous limitation on the
    ability of the United States to address risks of financial
    instability. This risk is particularly salient today, given the
    weaknesses in the European banking system.
        The weakness in the European banking system and practice
    means that Basel rules can be deeply influenced by the desire
    of European regulators to avoid placing stress on very weak
    and, in some cases, perhaps even insolvent banks. Subordinating
    U.S. bank regulations to what is attainable in a Basel
    consensus would be an extremely dangerous move.
        H.R. 3746 amends the Dodd-Frank Act in a manner that would
    significantly narrow and call into question the Consumer
    Financial Protection Bureau's authority to regulate entities
    engaged--to regulate insurance entities, even if these entities
    were engaged in consumer financial activities that would
    normally be regulated by the CFPB.
        If H.R. 3746 were passed, it would significantly limit the
    CFPB's ability to investigate and enforce against consumer
    abuses in the many financial markets that involve both lending
    and insurance sales. There are numerous products and activities
    that span the insurance credit divide in this way.
        In my written testimony, there is a detailed example of the
    way the limitations in H.R. 3746 would have damaged the CFPB's
    ability to investigate and punish the Wells Fargo scheme to
    sell unnecessary insurance to its auto credit customers.
        Finally, the Comprehensive Regulatory Review Act would
    modify EGRPRA. Currently, the EGRPRA regulatory requirement is
    simple, direct, and clear. The statute requires regulators to
    review regulations and eliminate unnecessary regulations at
    least once every 10 years.
        The language inserted into EGRPRA by the Act would
    significantly slant regulatory consideration away from a true
    comparison of the costs and benefits of regulation and toward
    an attempt to minimize costs for regulated entities, without
    considering benefits to the public. In addition, the change in
    the minimum required review cycle from 10 years to 5 years is
    also inappropriate, as the compliance costs of new regulations
    are front-loaded, while benefits to the public are weighted
    toward later periods.
        Thank you, and I am happy to answer questions.
        [The prepared statement of Mr. Stanley can be found on page
    66 of the Appendix.]
        Chairman Luetkemeyer. Thank you, Dr. Stanley.
        One bit of housekeeping here. We have a couple of members
    of the Financial Services Committee that are not members of
    this committee that would like to participate. So without
    objection, the gentleman from Wisconsin, Mr. Duffy, and the
    gentleman from Indiana, Mr. Hollingsworth, are permitted to
    participate in today's subcommittee hearing.
        And while they aren't members of the subcommittee, Mr.
    Duffy and Mr. Hollingsworth are members of the full committee,
    and we appreciate their participation today. They are not
    present in the room at the moment, but I understand they are
    coming. So thank you for that.
        I now recognize myself for 5 minutes. And because we have a
    number of the sponsors of the bills here in the committee
    today, I am going to keep my questions pretty short so we have
    more time to let them talk about their own bills. So I will be
    very brief.
        Dr. Stanley, I have a question for you with regards to your
    testimony. Over the last several years, the regulators have
    changed the way they regulate from being a group that is--in
    general. And these bills are here to try and solve a problem, I
    think, that has occurred over the last several years.
        Well, they have taken this attitude that you are guilty
    until proven innocent, that you are doing something wrong till
    you can prove that you are not doing something wrong, that
    are--they are playing a game of got you, and they want to be
    punitive to almost every action. They are not willing to be
    sitting there willing to listen to the institution and say,
    hey, we didn't understand the rule or regulation, can you
    explain it to us so we can get it right. And instead, they slap
    you with a fine and off they go.
        Do you think that is the way to do business?
        Mr. Stanley. I guess all I can say is that in our
    involvement in the regulatory process, we have seen very
    extensive comments filed and considered by the regulators. We
    have seen numerous exemptions put into regulations, de minimis
    exemptions. You can see that in the CFPBs. Smaller banks, in
    many cases, were exempted from various rules, and we have seen
    very large--if you simply look at the regulator's calendars,
    there are many, many more meetings with regulated banks and
    regulated entities than with public interest groups. So I think
    we have seen that effort by the regulators to reach out.
        Chairman Luetkemeyer. I respectfully disagree. I think the
    reason for these bills today are that there are concerns that
    have been raised by these various institutions that are
    represented on the panel today that, in many cases, whether it
    is Dodd-Frank or some other banking regulations, have gone so
    far as that they do not--the cost benefit of the rule or
    regulation is such that it does more harm than good.
        Mr. Cimino, I think you mentioned in some of your testimony
    here with regards to the impact of pricing availability to
    credit, because I don't think that there is a benefit--cost-
    benefit analysis done. Would you like to elaborate on it just a
    little bit?
        Mr. Cimino. Yes. I think when we approach things, we are
    always trying to figure out how to optimize the regulatory
    framework, how do we match a safety and soundness regulatory
    framework to address the risks in the system appropriately,
    while optimizing how the financial services sector can invest
    in the economy, can invest in consumers and in businesses.
        And when you look at some of these regulations, especially
    when we are talking about one of the bills before us today, the
    TABS Act, the delta between international and U.S. clearly
    indicates that there should be an assessment as to is this the
    right regulatory approach, because in some cases, we are seeing
    a lot of capital held on the sidelines that could be injected
    in the economy through lending, that could be helping to grow
    that economic opportunity out there. I will be happy to talk
    about any more of those details.
        Chairman Luetkemeyer. Thank you very much.
        I am going to stop my questioning here, and we will
    recognize the Ranking Member, the other gentleman from
    Missouri, Mr. Clay.
        Mr. Clay. Thank you, Mr. Chairman.
        Dr. Stanley, with respect to H.R. 2570, can you discuss how
    yield spread premium payments operate and how leaving them out
    of the consumer bureau points and fees calculations for
    mortgage loans could potentially result in borrower's harm?
        Mr. Stanley. Yes. The yield spread premium is a--what yield
    spread premiums do is they take what would otherwise be an
    upfront fee paid by the borrower and converted into an increase
    in the interest rate that the borrower would have to pay over
    the life of the loan, and this can considerably increase cost
    to the borrower.
        For example, over a 30-year $300,000 loan, a quarter
    percentage point increase, which would probably be too small to
    really be noticed by the borrower, would increase cost by
    something like $16,000 over the life of the loan. And in many
    cases, what we saw prior to the financial crisis, was that part
    of those financial benefits from the yield spread premium were
    given to the broker in order to steer the borrower into that
    higher cost loan, and that was very harmful. I cite research in
    my testimony showing that that was very harmful prior to the
    financial crisis.
        And by limiting the upfront points and fees, including the
    yield spread premiums that can be included in a mortgage, the
    CFPB has really prevented these kinds of abuses, that if these
    fees are put in, a mortgage would be classified as a high-cost
    mortgage.
        Mr. Clay. And so over time, depending on what the interest
    rate is and how it is calculated, then that means people either
    pay more or less over 30 years for a mortgage.
        Mr. Stanley. They could pay considerably more, and
    especially if they are steered into a product which would be a
    higher interest rate than what they would qualify for, higher
    than the minimum interest rate that they would qualify for.
    They could pay tens of thousands of dollars more.
        Mr. Clay. And those interest rates are set based on credit
    ratings and credit history. And so I guess--and sometimes other
    factors are taken into consideration, such as race. Am I
    correct?
        Mr. Stanley. Yes. Minority communities, communities of
    color were targeted for predatory lending prior to the
    financial crisis and paid a very heavy cost in terms of loss of
    equity in their homes.
        Mr. Clay. So people with the least means paid more. Wow.
        Mr. Stanley. That is right.
        Mr. Clay. Oh, I see.
        Let me ask you about H.R. 3179. Would you discuss for the
    committee why this legislation may be the wrong approach for
    this country? Doesn't it make it harder for our regulators to
    implement strong capital requirements for our largest banks to
    better protect American taxpayers and the economy?
        Mr. Stanley. That is exactly right. What we have seen is
    that, as I said, the Basel Committee has 24 different
    countries, and it has to reach an agreement on the safety
    standards for banks. And I know everyone in this room is
    familiar with the difficulty of reaching agreement when you
    have dozens of different people on a committee. And a lot of
    those countries have very weak banks, much weaker than the
    United States, and there is a lot of pressure toward a lowest
    common denominator, toward low safety standards for U.S. banks.
        And I just wanted to respond to what was said by Mr. Cimino
    about the costs and benefits of these U.S. rules. The Federal
    Reserve did an extensive study just this year of the costs and
    benefits of our bank capital rules, and it found out that the
    U.S. bank capital rules were well justified in terms of
    protecting the economy and the public, whereas the bank capital
    minimums laid out by the Basel Committee were too low.
        Mr. Clay. Do you find it strange that a cost-benefit
    analysis is required only if the U.S. rules are more stringent
    instead of less stringent than international standards?
        Mr. Stanley. I find it very strange, especially because
    most unbiased cost-benefit analyses by independent actors show
    that those international rules are already less stringent than
    they should be.
        Mr. Clay. Any other key highlights of the bill that give
    you concern at this stage?
        Mr. Stanley. Yes. The fact that it empowers large Wall
    Street banks to sue regulators to overturn these safety
    standards. In a lot of cases, the court would be far less
    expert on the quantitative analysis of these regulations than
    the expert regulators in the Federal Reserve.
        Mr. Clay. So we would be going back to conditions
    prerecession?
        Mr. Stanley. That is right, and we would be empowering
    foreign countries to govern our regulations.
        Mr. Clay. That is all I need to know.
        Thank you, and I yield back.
        Chairman Luetkemeyer. The gentleman yields back.
        With that, we go to the gentleman from Pennsylvania, Mr.
    Rothfus, is recognized for 5 minutes.
        Mr. Rothfus. Thank you, Mr. Chairman.
        Mr. Ducharme, one of things that we often hear about from
    financial institutions of all sizes is that the costs
    associated with complying with all of these new regulations
    have been skyrocketing.
        As a veteran of the credit union industry and as someone
    who has grown an institution from less than $100 million to
    over $540 million, perhaps you can comment on the explicit
    costs associated with this increased regulatory burden. Taking
    the MIT Federal Credit Union as an example, how have your
    compliance costs changed since the financial crisis?
        Mr. Ducharme. The impact that has been placed on my
    organization since the financial crisis has been pretty
    significant, and it is commensurate with our growth in assets
    as well as the additional regulatory burden that we have
    incurred with these additional regulations.
        To quantify that, I think you would look at the personnel
    that we have created--or departments that we have created and
    the personnel that we have had to add in the risk compliance
    and risk management area of the credit union. We have had to
    add a number of individuals that have expertise in these areas
    that we previously did not have to employ.
        Mr. Rothfus. How many people are we talking about that you
    have had to add?
        Mr. Ducharme. Currently, in our risk management department,
    we have a senior vice president that oversees that. She was
    part of the organization before, but there are four individuals
    that are part of that risk management department that we
    previously didn't have.
        Mr. Rothfus. And there is a cost associated with that,
    correct?
        Mr. Ducharme. Absolutely. Absolutely.
        Mr. Rothfus. What are the consumer impacts of these higher
    costs and the increased focus of resources toward compliance
    activities as opposed to actually working with customers?
        Mr. Ducharme. I am sorry. Say that again, please.
        Mr. Rothfus. The consumer impacts of these additional costs
    that you are experiencing.
        Mr. Ducharme. So allocating resources for this is prudent,
    right, and so there are regulatory requirements that we have to
    ensure that there are sound practices in place. It is the
    additional burden in the addition of staff that takes away from
    us to be able to provide those resources to the members that we
    serve. So--
        Mr. Rothfus. Now, your credit union didn't cause the
    financial crisis, correct?
        Mr. Ducharme. That is a very good point, Congressman. No,
    our credit union itself did not. Actually, during the financial
    crisis, our credit union performed extremely well. Our
    delinquency rate is a third of the industry. Our loan losses--
        Mr. Rothfus. You are incurring all these additional costs
    for something that you really had no role in at all.
        Mr. Ducharme. That is correct.
        Mr. Rothfus. Mr. Cimino, I appreciate your comments on the
    TABS Act. As a cosponsor of this bill, I understand how
    important it is to ensure that our prudential regulations are
    based on sound analysis that take into account market impacts.
    I am especially concerned by the practice of gold plating,
    which I worry puts American firms at a needless disadvantage.
    Can you describe the impact of past gold plating on U.S.
    competitiveness and growth?
        Mr. Cimino. Yes. Thank you for the question, Congressman.
    This is a key factor, and again, this bill is going to add
    transparency to, not only identify what that competitive impact
    is, but provide a rationale if that rule is, in fact,
    different. But we see, on something as simple as a G-SIB
    surcharge, $52 billion of capital on the sideline.
        Now, if you were able to invest that in the economy through
    a normal financial mechanism, you could see up to $287 billion
    in new lending out there. That is just one example of how this
    can impact and create economic growth and opportunity to the
    United States.
        But I think when you look at the competitive environment
    more broadly, when you look at rules like supplemental leverage
    ratio or the liquidity coverage ratio, you are talking about
    even different calculations that are going to incentivize
    different firms to behave differently. And when those
    calculations come out more beneficially for those not subject
    to the U.S. regulations, you are inherently hindering how U.S.
    firms can offer these types of products and services they can
    offer and what they can do to invest in the U.S. economy.
        Mr. Rothfus. I am mindful of the research that Steven
    Strongin has done where he estimates that the impact of all the
    regulation that we have had over the last 8 years, 650,000
    fewer small businesses, translating to 6-1/2 million fewer
    jobs. That is 6-1/2 million people not paying Social Security
    tax, 6-1/2 million people not paying Medicare tax, 6-1/2
    million people not paying income tax that help us to underwrite
    the cost of things for education, for veterans benefits, for
    maintaining a robust defense. I appreciate your comments there.
        Mr. Chairman, I am going to yield back the balance of my
    time.
        Chairman Luetkemeyer. The gentleman yields back.
        With that, we go to the gentlelady from New York. Mrs.
    Maloney is recognized for 5 minutes.
        Mrs. Maloney. I thank you, Mr. Chairman and Ranking Member
    and panelists.
        Mr. Cimino, I would like to ask you about H.R. 3746, the
    Business of Insurance Regulatory Reform Act. I understand that
    the goal of this bill is to clarify that the CFPB does not have
    the authority to regulate insurance companies that are engaged
    in the business of insurance, but isn't this what Dodd-Frank
    already says?
        Mr. Cimino. We do believe that it is, in fact, trying to
    clarify what Dodd-Frank already says. And I don't believe that
    it is a downside to provide more clarity to that. But the
    reason why I think this bill is necessary is, since the CFPB is
    established, we have seen a few instances where we have seen it
    creep into other areas that I don't believe Dodd-Frank intended
    it do so.
        One of those is when it did, in fact, request information
    on some ancillary products, including things like credit
    insurance, and that was opening a door toward an area that is a
    clearly State-regulated product. And another area, we noticed
    that the arbitration rule would, as proposed, apply to life
    insurance providers when making policy loans. Again, that is an
    area where we believe the State regulatory system is well
    within the purview of oversight there.
        So we are trying to clarify that and recodify the intent of
    what we believed Congress was doing with the Dodd-Frank Title
    X.
        Mrs. Maloney. Dr. Stanley, what do you think of this bill?
    Do you think it curtails the CFPB's authority too much?
        Mr. Stanley. Yes, I do. I think the current Dodd-Frank
    language is clear and well drafted. It states that the CFPB
    does not have authority over insurance companies, except
    insofar as those insurance companies engage in consumer
    financial activity that falls under bills that the CFPB is
    already supposed to enforce.
        And what this bill would do is it would modify that
    language to add a very broad and vague proviso that the CFPB
    could not act in any case where the entity was engaged in the
    business of insurance. And I think that it is very likely that
    the courts would interpret that to say that the CFPB could not
    act, even if that insurance company was providing a consumer
    financial product.
        And what that would do is it would set up a two-tier system
    where companies could evade CFPB jurisdiction under--doing
    consumer financial activities simply by claiming that they were
    doing the business of insurance, and my written testimony lays
    out how that works.
        Mrs. Maloney. Thank you. I would like to follow up on a
    point that the Ranking Member raised, Dr. Stanley. I want to
    ask you about H.R. 3179. And the way I read the bill, it would
    require the banking regulators to conduct a cost-benefit
    analysis any time a U.S. rule is more stringent than the
    international standard, but not when the U.S. rule is less
    stringent than the international standard. It would also allow
    the industry to sue the regulators over their cost-benefit
    analysis, potentially delaying important safety and soundness
    measures by tying them up in court.
        So do you think it is fair to require the regulators to
    conduct a cost-benefit analysis only when the U.S. rule is more
    stringent than the international standard but not when it is
    less stringent? Dr. Stanley.
        Mr. Stanley. I don't. And I think the statutory cost-
    benefit requirements, even if you did require an analysis when
    it was less stringent, which I think is obviously called for, I
    think these statutory cost-benefit analysis requirements have
    big problems because they end up throwing things into court,
    they empower the big banks to sue to overturn regulatory
    standards, and then you have nonexperts in court making a
    decision on how strong these standards should be, and often
    doing it based on industry research, research financed by
    industry consultants.
        And I just wanted to also respond to what Mr. Cimino said
    about U.S. competitiveness and growth. I think the U.S. banking
    industry is the most competitive banking industry in the world
    right now, and the reason for that is that it is well
    capitalized, it is strongly capitalized, and it is well
    regulated. I think the European banking industry is much less
    competitive because it is poorly regulated and people feel that
    it is poorly capitalized.
        Mrs. Maloney. I agree.
        Mr. Cimino, very quickly, can you speak to this, to this
    issue that we talked about? Why should the regulators be
    required to conduct a cost-benefit analysis when the U.S. rule
    is more stringent but not when it is less stringent? And do you
    think it is helpful to allow the industry to sue regulators
    over the cost-benefit analysis?
        I have 6 seconds left.
        Mr. Cimino. I think that we are all trying to get at the
    same intent. To the extent that we are creating different
    standards that would place U.S. firms at a competitive
    advantage, that is an acute area of focus, but there is an
    openness to trying to figure out why that delta would exist on
    the other side in making sure that we would have the
    appropriate review in place to ensure that we are getting at
    the appropriate standards at home and abroad here. So I do
    think that we can work on things like that.
        As to the litigation area, we see this transparency
    mechanism as an opportunity for greater information, greater
    clarity, and understanding what that looks like. And that is
    something subject to a lot of the different regulatory fields,
    not just this particular function.
        I am sorry. I have run out of time, sir.
        Chairman Luetkemeyer. The gentlelady's time has expired.
        We recognize the gentleman from Florida, Mr. Posey, for 5
    minutes.
        Mr. Posey. Thank you, Mr. Chairman.
        And I would like to briefly discuss two solutions on the
    agenda today, briefly. And thank you for holding this hearing.
        H.R. 2570, the Mortgage Relief Fairness Act, is a common
    sense solution that will provide more options for home buyers,
    particularly low- and middle-income consumers.
        When consumers purchase a home through a mortgage broker
    company, they can either pay the fees to the company upfront
    through their own personal bank account or pay the fees over
    time in the form of higher interest rates from the lender. If
    the consumer elects the second option, then fees are reflected
    in the form of a higher interest rate and essentially become
    cash paid to the mortgage broker for commission or fees. Many
    borrowers choose the second option because it enables them to
    have more capital on hand for home renovations or for other
    purposes.
        Unfortunately, the CFPB is currently counting the interest
    rate and then the fees included in that rate on top of it
    within the 3 percent qualified mortgage calculations.
    Essentially, the CFPB is double-counting, and this policy risks
    taking away a competitive channel that helps consumers obtain
    financing through multiple sources with just one application
    process. As a result, the double-counting of loan origination
    fees could have an adverse impact on low- and moderate-income
    borrowers by limiting their options to obtain financing.
        Although the CFPB has acknowledged this is a problem, the
    Bureau says they are locked into this interpretation because of
    their interpretation of the current law.
        The Mortgage Fairness Act will correct this by amending the
    Truth in Lending Act to prohibit counting any payments that are
    reflected in the mortgage rate offered by the creditor or
    lender in the 3 percent qualified mortgage calculations.
        I would also like to address H.R. 4464, the Common Sense
    Credit Union Capital Relief Act. It would address the National
    Credit Union Administration's final risk-based capital rule. In
    January 2014, the NCUA board initially proposed a risk-based
    capital system for credit unions. The proposal drew over 2,000
    comments and over 360 Members of Congress expressed concerns.
    Based on those comments and concerns, the NCUA board issued, by
    a 2 to 1 vote, a revised risk-based capital proposal in January
    2015.
        The revised rule establishes a new method for computing
    NCUA's risk-based requirement that would include a risk-based
    capital ratio measure for complex credit unions, and that is
    those defined by rule as any credit union over $100 million in
    assets. The revised rule drew 2,167 comments, an even higher
    number of comments than the first public comment period.
        In addition, NCUA's now Chairman McWatters opposed the
    rule's implementation in 2015, stating that, in his dissent, he
    did not believe that the NCUA possesses the legal authority to
    adopt the rule's two-tier risk-based net worth regulatory
    standard. And yet the rule moved forward and was finalized in
    October 2015, regardless of the many concerns voiced by the
    industry and the dissent of NCUA's Chairman McWatters.
        Questions continue to be raised regularly about the cost of
    this rule in the industry, the legal authority of the agency to
    implement this rule, and the regulatory burden that this rule
    will have on credit unions, and the impact on credit unions'
    capital buffers or capital cushions, which could extend into
    the hundreds of millions of dollars. Remember, we are talking
    about credit unions owned by members.
        The rule is a costly solution in search of a problem. And
    so the Common Sense Credit Union Capital Relief Act offers a
    simple solution. It would require NCUA's final risk-based
    capital rule to ensure that we don't unnecessarily burden
    credit unions and their members. I am confident this bill will
    set us on the right track toward a better designed risk-based
    capital system, a system that won't adversely impact our credit
    unions, their members, and the important services they provide
    to our communities.
        I would just wonder if any of the witnesses would want to
    comment on what they think would make it easier to comply with
    the implementation in 2019, and how they think it would affect
    the business model that we now have. Any comments from any of
    you?
        Chairman Luetkemeyer. Any responses from the panel?
        Mr. Ducharme. Thank you, Congressman Posey. If you look at
    the risk-based capital rule that is set to be implemented in
    January 2019, it really does three things. You talked a little
    bit about defining complex credit unions. It basically takes
    this very broad definition and takes 1,200 credit unions and
    says, you are complex. It doesn't look at the way they conduct
    business or the risk that they are currently in.
        It also takes 40 credit unions and it says that you are
    downgraded in how you are looked at from this risk-based
    capital rule. And MIT FCU is one of them. So with the
    implementation of this rule, you are now seeing that graduates
    of MIT are now more risky to lend to or to provide services to
    than you were prior to this rule.
        Bottom line is that the requirement does three things.
    First of all, it requires credit unions to set capital aside,
    $1.4 billion in cushion that is going to go away. It is going
    to take that money out of the lending cycle, and so we are not
    going to be able to provide services to our members as we have
    in the past. And, therefore, it is going to hurt more than 110
    million Americans and members across the country.
        Mr. Posey. Thank you. Thank you, Mr. Chairman.
        Chairman Luetkemeyer. The gentleman's time has expired.
        With that, we go to the gentleman from Georgia. Mr. Scott
    is recognized for 5 minutes.
        Mr. Scott. Thank you very much, Mr. Chairman. This is an
    interesting hearing, very knowledgeable.
        I want to focus my points on H.R. 3179. And, Mr. Cimino--
    Cimino, correct?
        Mr. Cimino. Very good. Yes, sir.
        Mr. Scott. I got it. Let me focus on you for a second. You
    said, and I quote, in your testimony, you said that you felt
    this would bolster U.S. competitiveness relative to foreign
    firms, and that is one of the solid good reasons we should be
    supportive of 3179.
        And I agree with you. I am a very determined person on this
    committee, ever since I have been here, to make sure that our
    financial system is No. 1 in the world. So that registers very
    well with me.
        And I think it is also important to note that the bill
    doesn't touch the baseline internationally agreed-upon
    standards, and that all Mr. Hollingsworth is asking that we do
    is to take a more serious look at the gold-plate standards our
    regulators are layering on top of the Basel capital standards.
        Now, where I have a little bit of a wrinkle that I want you
    to help me out with is in the cost-benefit analysis. Now, I am
    a firm believer in cost-benefit analysis, because I think it
    could be very, very productive. But there has been a tendency,
    oftentimes for the purpose of putting cost-benefit analysis in
    things, is it adds extra burdensome duties. And I think that if
    the intent of the cost-benefit analysis is to simply clog up
    the system with hurdles and provide--and you were at the
    Financial Roundtable, and you were aware it has been in the
    history that oftentimes that is what side benefits or purposes
    of cost-benefit analysis is. So I want to be clear that we can
    address this issue in a way that it is not used to clog up the
    courts or for that sort of thing.
        The other thing is that I do have a little bit of concern
    that the cost-benefit analysis could give industry a private
    right of action. And if a private right of action could be
    used, has been used, for the purpose of clogging up the system.
        So I want to ask you, do you think that we could modify
    this a bit, maybe have some language or amendment added to this
    bill to help it along its way that could clarify these
    concerns? Could we do that?
        Mr. Cimino. Well, thank you for the question. If I could
    unpack a few things.
        First, I do want to go to your first point. This is by no
    means reopening the Basel Accords, and to Dr. Stanley's point,
    not making that consensus harder. What we are doing is looking
    at the U.S. pieces and whether or not they are adding on there.
        To your point, I think we are sharing that goal. And it is
    not the intention of this bill to clog up the system or delay
    things. What it is trying to do is making sure that we are
    getting, in a transparent manner, the best information possible
    to inform these rulemakings and understand the rationale beyond
    that. So it is not our intention necessarily to clog up the
    system as to the--
        Mr. Scott. OK.
        Mr. Cimino. Yes, sir.
        Mr. Scott. I have only 50 seconds.
        But, Dr. Stanley, let me ask you, if I were to offer an
    amendment to this bill, to the cost-benefit analysis provision
    that explicitly precluded a private right of action, plus added
    a requirement that the measure--that we would measure any
    impact on the safety and soundness of the U.S. financial
    institutions, do you think that that could get the Americans
    for Financial Reform more comfortable, more comfortable, could
    help us along the way? We clearly want to make this a
    bipartisan effort. But I think if we did that, it doesn't hurt
    what Mr. Cimino is saying. It is not to clog it up, but this
    could give us some assurance to do that. Could you go along
    with that if we could put that amendment in?
        Mr. Stanley. Obviously, we have significant concerns about
    this bill, but we would be happy to talk to your office,
    because I think that that private right of action, that ability
    to take it into court, is really a very serious issue, one of
    our top issues with the bill. So--
        Mr. Scott. Good. And, Mr. Cimino, you could work with us on
    that?
        Mr. Cimino. Yes, happy to collaborate. I think we are
    sharing the same goal, so we will work with your office.
        Mr. Scott. All right. Thank you.
        Chairman Luetkemeyer. The gentleman's time has expired.
        With that, we recognize the gentleman from Florida, Mr.
    Ross, for 5 minutes.
        Mr. Ross. Thank you, Chairman, and thank the panel for
    being here.
        I and I think--I am not speaking on behalf of my colleagues
    on either side of the aisle, but agree that regulation is good.
    Regulation is necessary. We have to be able to have rules in a
    game, and those rules have to be able to, not only make sure we
    have competitive markets, but also that we protect our
    consumers.
        But to the extent that the regulations become so overly
    burdensome and cost-prohibitive that we start seeing a
    presumption by the regulators that the financial service
    provider is really there for unjust enrichment and undue
    influence over its customers when, in fact, as I look at your
    industries, with the exception of Dr. Stanley, I understand and
    firmly believe that the sustainability of success in your
    particular industry is completely dependent upon the
    satisfaction and success of your clients, which in and of
    itself is a regulatory scheme that has worked for years called
    the private enterprise, the markets.
        And so my concern is as to what point do we finally say,
    wait a second, what is this regulator's goal and what
    presumptions have we given them that put such a burden on our
    consumers that we are hurting our consumers in the name of
    consumer protection?
        And, Mr. George, to your point, with regard to the ability
    to pay rule and qualified mortgage standards, the doubling of
    points and fees. What does that lead to? That leads to a
    loophole of a scheme that works, not to the advantage of the
    consumer, but to the advantage of that financial service
    provider, who can take the best advantage of it, contrary to
    what I think our regulators want to see.
        Mr. George. Well, thank you, Congressman, for the comment.
    My response will be that--a couple of things. Those of you in
    the room that have purchased a home before, you understand that
    the process is fraught with a fair amount of anxiety. There is
    a lot of uncertainty that goes through the process. What we are
    trying to do, this isn't about disclosure. It is not about
    compensation. Dr. Stanley did a very good job--
        Mr. Ross. It is about assessment of risk, a risk that you
    choose to bear. Go ahead.
        Mr. George. It is really about a fairness component. If you
    have a broker and a retail loan officer both disclose a loan,
    both of those loans will come out with the same number at the
    bottom, the same cost at the bottom, except the broker loan
    will be subject to a calculation that could disqualify the loan
    simply the way we calculate the points and fees. That is it.
    That borrower would have to start over with someone else.
        And a large amount of our business is about trust. It is
    about understanding that the person is working on your best
    behalf, but it is not about further compensation. Yield spread
    premium today does not yield a single penny to a loan officer,
    regardless of where they sell it.
        And to your point about regulations, loan costs have nearly
    doubled in the last 12 years that I have been in this business.
    I have been doing it now for 35 years. It is largely based on
    the regulatory oversight. I am not saying get rid of all of the
    regulations. There are a lot of good ones.
        Mr. Ross. Of course not.
        Mr. George. I am saying to you the ones that are
    unnecessary, redundant, that stifle innovation, we need to look
    at those.
        Mr. Ross. And how does that impact the challenges that we
    have for affordable housing today?
        Mr. George. Oh, it is a huge impact, because as loans are
    smaller loans--
        Mr. Ross. A huge negative impact.
        Mr. George. It has a much bigger impact on smaller loans
    because you are trying to spread that dollar over a smaller
    dollar.
        Mr. Ross. And we are hurting more than we are ever trying
    to help because of it.
        Mr. Cimino--
        Mr. George. It is the low-to moderate-income people that
    suffer the most.
        Mr. Ross. I agree.
        Mr. Cimino, absent a private right to sue, how in the world
    do we hold accountable these regulators?
        Mr. Cimino. Well, I do think that that is what this is
    trying to get out to.
        Mr. Ross. Really? A sense of due process, to say, we
    challenge what you are doing, then saying you didn't apply a
    cost-benefit analysis. And suddenly, we, that are probably the
    judicial model of all other nations in this country, say, oh,
    by the way, we are not going to give you a private right of
    action to sue because we are not going to want to hold you
    accountable. Why is that such a big issue?
        Mr. Cimino. I wouldn't want to speak for folks that are
    very concerned with it, but I do think that it is applied in
    all other areas. And relinquishing that right in this
    particular area is something we would have to discuss as to
    what the implications are. But when you are talking about
    transparency, we are trying to get to better outcomes here. And
    to the point of accountability--
        Mr. Ross. And all I am trying to do is hold our regulators'
    feet to the fire to make sure they do what they are supposed to
    do without overreaching.
        And one last quick question: The CFPB, they have no
    business in the business of insurance, and Dodd-Frank suggests
    that, but H.R. 3746 confirms that.
        Mr. Cimino. That is correct, sir.
        Mr. Ross. What is wrong with doing that? You said in your
    statements McCarran-Ferguson is probably the best thing that
    has happened.
        Dr. Stanley, you said we have the best system of insurance
    regulation in the world, and I agree with that. It is a State-
    based--It is a risk-based capital system. Let's just confirm
    that and make sure that there is no mission creep from the
    CFPB.
        And I see my time is up.
        Chairman Luetkemeyer. The gentleman's time has expired.
        With that, we go to the gentleman from Washington. Mr. Heck
    is recognized for 5 minutes.
        Mr. Heck. Thank you, Mr. Chairman.
        Mr. George, I want to start with you, ask you a question
    that is, frankly, off topic, but I never want to miss this
    opportunity and I was given the perfect setup by my
    predecessor's questions. I am going to give you a fact pattern
    and then ask you to answer a question.
        Last year was the best construction year for home building
    we have had in this country in a decade, and yet it was still
    only at the level of 1994. Indeed, the home-building industry
    is a third smaller than it was in 2005, but our number of
    households is growing even faster than it was in that year. The
    estimates that I have seen and I am sure you have seen are that
    we are building millions fewer units than we need, and we all
    know what that results in: young people living together,
    doubling up, tripling up or living in mom and dad's basement.
    Trust me, I know this story well. Home prices are soaring.
    Rents are soaring. And those are the lucky ones that get to do
    that, because the truth is, when you have this picture, you
    inarguably, inevitably create more homeless people. It is a
    natural law and consequence.
        So without respect to the bills before us, you are in the
    business, why aren't we building more homes?
        Mr. George. OK. Well, let's just start about that. I am not
    a home builder. I certainly do represent a whole bunch of them.
    But I can tell you that a number of things are happening.
        First of all, I think that a lot of people blame it on the
    Federal Government. I actually think there are a lot of State
    statutes that puts a lot of additional expense into home
    building today. It is hard to break ground on a piece of
    property and make a decent return on that, given the oversight
    and regulatory burden that happens locally.
        The second thing is, is that I would say to you that it is
    hard to find skilled labor. We aren't doing a very good job in
    this country in training people how to be electricians,
    plumbers, framers, roofers, et cetera. I know that personally,
    particularly right now. There is a glut of that labor in the
    State of California.
        Last but not least, I think it is incumbent upon us as a
    lending industry to become a little more innovative in the way
    we look at loans. Let me give you a quick example. Generally
    speaking, the No. 1 impediment for somebody buying a first-time
    home is their downpayment. Particularly today, it is hard to
    raise money with student debt that they have as an overhang
    from going to school or even, for that matter, when you see
    rental being 40, 50, 60 percent of somebody's income, you are
    almost always going to not be able to save a couple of bucks at
    the end of the day to be able to put a downpayment.
        There is innovation in the marketplace recently introduced
    that is talking about having a broader way that people can gift
    money to people, not borrow money, but gift money. So it forms
    itself in a crowdfunding environment, so that millennials today
    are thinking more of different ways to be able to come up with
    their downpayment.
        Fannie and Freddie are both looking at the way loans can
    operate. Two identical borrowers, one with no downpayment but 2
    years' worth of reserves, one with a minimal downpayment and 2
    months' worth of reserves. Both of the agencies are seeing that
    having a deeper level of reserves protects them against a
    default than what we saw previously.
        I also think that we are doing a far better job servicing
    loans. Previously, prior to the housing crisis, a loan could go
    30, 60, 90, or 120 days delinquent, well before anyone reached
    out to the borrower to talk to them about solutions. That whole
    process is wildly different. You get a single point of contact.
    We are reaching out to you aggressively, trying to figure out
    what is going on. And in many cases, we are modifying your loan
    so that you don't go that far behind.
        Answering your question as it relates to builders, I do
    think that there's a number of things impeding this. And so the
    move-up customer moving from their starter home today isn't
    moving up. And I think that is leaving inventory really
    strangled, particularly in parts of California and all
    throughout the United States.
        Mr. Heck. Mr. George, for somebody that answered a question
    that wasn't on your agenda today, I thought you did an
    outstanding job and that you were comprehensive, and I express
    my appreciation to you.
        Mr. George. With my last name George, it is almost
    incumbent upon me to be curious, so thanks for the remark.
        Mr. Heck. I want to conclude with two observations that I
    have come to in my years' work on this, the first of which is
    this is a bigger crisis in this country than we are
    acknowledging, i.e., not building homes at sufficient pace to
    keep up with demand.
        And the second is, it is an ecosystem, and everything we do
    in one part affects another. You made reference to the GSEs.
    There is kind of underlying consensus in this environment that
    GSE reform will allow for more upfront risk capital.
    Inevitably, that will ratchet up the number of basis points of
    a cost of a mortgage. Inevitably, that will make more homes out
    of reach for people. And so my final point would be, whatever
    we do in the way of GSE reform and housing reform, we have to
    remember it is an ecosystem. Every piece affects the rest of
    it.
        Thank you very much for your excellent answer.
        Chairman Luetkemeyer. The gentleman's time has expired.
        With that, we recognize the gentleman from Kentucky, Mr.
    Barr, for 5 minutes.
        Mr. Barr. Thank you, Mr. Chairman.
        Dr. Stanley, if you were to give a grade to former Vice
    Chair of Supervision at the Fed, Daniel Tarullo, what grade
    would you have given him, in terms of financial regulation?
        Mr. Stanley. I would say I would give him a solid grade, a
    B or a B-plus. There are some things that--areas where we
    disagreed with him, but I think he drove through rules to
    completion, and that was positive. And, frankly, I agree with
    the fact that he did so-called goldplate the Basel rules. I
    think that was actually a wise move.
        Mr. Barr. What do you think about his parting comments, his
    parting observations as he departed from the Federal Reserve
    when he said that the new capital requirements have impinged on
    market liquidity?
        Mr. Stanley. Have--excuse me?
        Mr. Barr. What do you make of former Vice Chair of
    Supervision Tarullo's comment in his waning days in his
    position when he said that, upon reflection, that the new
    capital requirements impinged on market liquidity?
        Mr. Stanley. Impinged on market liquidity. Well, frankly,
    that parting speech was one reason I downgraded him into the
    Bs, because I felt that he undercut some of the advances he had
    made. But I really feel that the capital markets--if you look
    at the capital markets, we have set records in bond issuance
    each of the last 5 years. So it looks like we are going to--
        Mr. Barr. Well, let me ask you this: Do you agree with Mr.
    Tarullo when he conceded that local or community banks should
    not be subject to the same Dodd-Frank requirements as big
    banks?
        Mr. Stanley. Well, I think that they--I do agree with that,
    and I think they already are not subject to the same Dodd-Frank
    requirements as the big banks. I feel the Fed has scaled the
    rules.
        Mr. Barr. Mr. Cimino, is there any reason to believe that
    international standards are deficient, in terms of prudential
    regulation?
        Mr. Cimino. The international standards themselves?
        Mr. Barr. The international standards.
        Mr. Cimino. We don't necessarily have data or examples of
    that at this stage.
        Mr. Barr. Yes. So the point would be that with Basel and
    with all of the other international rules relating to safety
    and soundness, my question is, is there any reason why
    goldplating would be required, given some of the stringent
    standards that international bodies have recommended for banks?
        Mr. Cimino. I don't necessarily believe there to be, but I
    guess what we are asking for is let's examine that. If there is
    a delta, it should stand up to scrutiny and transparent input
    here. So if the affirmative decision is that there should be by
    regulators, there should be a rationale behind it. Now,
    different people and smart people can disagree on that, but I
    think, to your point, we have not seen a deficiency in the
    international standards themselves, much less a rationale as to
    why you would need to goldplate those standards.
        Mr. Barr. The next question is for Mr. Cimino and maybe Mr.
    Ducharme as well, to the extent that your institution does do
    any small business lending. And I note some credit unions do
    some of that and some don't. But my question would be, Dr.
    Stanley's testimony, and I have heard many of our colleagues on
    the other side of the aisle talk about the health in C&I
    lending and that lending is up under Dodd-Frank. And yet small
    business lending volume is way down, and that is a Harvard
    Business School study. And regulatory burdens clearly are
    impeding banks in their ability to participate in small
    business lending markets.
        So is that your observation as well? And is that
    attributable to regulation/overregulation, Dodd-Frank?
        Mr. Cimino. I think there are probably a number of factors,
    but one clear factor is, of course, regulation. And I do think
    that you are seeing that the misapplication of regulation can
    drive a wedge in between the access to credit or the cost of
    credit from large borrowers, whether that happens to be an
    affluent consumer, a large business, versus the small borrower
    or lower- or moderate-income borrower. And that is going to
    create a delta that over time is going to have big
    ramifications.
        Mr. Barr. This is, I think, one of the deficiencies in,
    with all respect, Dr. Stanley's analysis, because in Kentucky,
    where we are served mostly by small community rural banks and
    credit unions, they are disappearing. We have lost one in five
    community banks. Small business lending comes from community
    banks and credit unions.
        So this idea that lending is strong in the aftermath of
    Dodd-Frank and that Dodd-Frank actually did tailor regulations,
    well, that defies the evidence, the record. The record is that
    one in five community financial institutions in rural America
    has disappeared, and that is why small business lending is
    down.
        So this analysis that commercial/industrial loans are up
    does not account for the reality that entrepreneurship is at a
    20-year low, because community banks have disappeared because
    of overregulation.
        In the remaining time, Mr. Ducharme, would you like to
    comment on that?
        Mr. Ducharme. Thank you, Congressman. You are correct in
    your statement that there are some credit unions that are in
    small business and business lending. My credit union is not one
    of them.
        Mr. Barr. OK. Thank you.
        I yield back.
        Chairman Luetkemeyer. The gentleman yields back.
        With that, we go to the gentleman from Colorado. Mr. Tipton
    is recognized for 5 minutes.
        Mr. Tipton. Thank you, Mr. Chairman.
        I apologize for being late, gentlemen. I appreciate you
    taking time today.
        Let me get this. Ducharme, how do you pronounce that? I
    want to get that correct. Ducharme, correct?
        Mr. Ducharme. Ducharme, Congressman.
        Mr. Tipton. Would you possibly speak to the impact that you
    think that the tailoring process through EGRPRA would have on
    your industry?
        Mr. Ducharme. One of the benefits that it would have is
    threefold. First of all, although NCUA volunteers to be part of
    the process, it would now, regulatorywise, statutorywise, place
    them in it. It would also include the CFPB.
        Primarily, as we see it, it would require the institutions
    identified in the legislation to review all rules and
    regulations every 5 years. And that would certainly lead to the
    review and possibly the relief of regulatory burdens of
    unnecessary rules and regulations that are placed on financial
    institutions.
        Mr. Tipton. I would like to be able to kind of get your
    view, looking back just a little bit. Had regulations been
    appropriately tailored, do you think that fewer credit unions
    would have closed after the financial crisis and the passage of
    Dodd-Frank had we had those regulations tailored?
        Mr. Ducharme. And, again, this is just my opinion. Clearly,
    the number of credit unions, smaller credit unions that have
    closed in the last 5 to 7 years have been because of the
    excessive regulatory burden that has been placed on them, Dodd-
    Frank being one of those.
        Mr. Tipton. So that tailoring would help.
        Mr. George, do you have anything maybe you would like to
    add to that?
        Mr. George. Yes. I mean, my comment about it is, is that I
    am not a fan of throwing out every single regulation. I just
    think that we ought to revisit some of the ones that are
    overburdensome and unnecessary. I am not trying to say that
    they are going to be changing congressional-mandated
    regulations. I am talking about regulations that the regulator
    could take a look at and say, these particular regulations are
    stifling innovation, they are stifling growth.
        Keep in mind that, yes, some of the companies that are up
    here and have been up here before are big companies, and they
    can absorb that kind of expense associated with the regulatory
    oversight. But the vast majority of this industry is largely
    small businesses that operate in the communities that best need
    them, best are suited for them, the low to moderate
    communities, the people of color, the folks that are the first-
    time home buyers that are having trouble thinking through the
    process. Those organizations work tightly with housing
    counseling organizations and help people, usher them
    responsibly into home ownership.
        I think if you overburden them with things that are not
    productive or not useful, I think it is defeating the purpose,
    right. It is working against us.
        Mr. Tipton. Great. Thank you.
        Mr. Cimino, you stated in your testimony that between the
    first quarter of 2009 and the end of 2016, common equity
    capital ratios at our largest banks climbed from 5.5 to 12.5
    percent, representing a new capital cushion over $750 billion.
    And you went on to say that the globally systemic important
    banks were subject to a method 2 methodology for capital
    surcharge, which in some cases produced an extra 2 percent
    capital charge, in addition to the international standard, and
    has reduced the lending capacity of the U.S. financial system
    by $287 billion.
        Mr. Cimino, in the aforementioned capital figures, had they
    been subject to internationally agreed-upon standards instead
    of the gold-plating regulatory regime imposed by the Federal
    prudential regulators, do you believe that the U.S. would have
    had a stronger economic recovery?
        Mr. Cimino. I think you hit it on the head. The U.S.
    financial system has undergone a substantial recovery. They are
    strong, they are well-capitalized, they are resilient. And we
    have not necessarily seen economic growth translate. We want to
    get more investment in the economy.
        And when you look at the G-SIB surcharge, I think we are
    talking about approximately $52 billion sitting on the
    sidelines, based on the delta between the internationally
    agreed-to standards and what U.S. regulators have applied to.
    When you go there with that financial mechanism, putting that
    $52 billion into the economy, potentially $287 billion of
    investment. Investment in people, investment in businesses,
    investment in communities. And that is really where we are
    going to see that economic growth drive forward and that
    economic opportunity available to more and more Americans.
        Mr. Tipton. Great. We are in the process right now of
    trying to be able to deal with the Tax Code, to be able to make
    us more competitive. It is equally important to make sure that
    we have a regulatory policy that keeps that competitive edge
    for us as well?
        Mr. Cimino. Very true, sir.
        Mr. Tipton. Thank you.
        Mr. Chairman, I yield back.
        Chairman Luetkemeyer. The gentleman yields back.
        With that, we go to the gentleman from Texas. Mr. Williams
    is recognized for 5 minutes.
        Mr. Williams. Thank you, Mr. Chairman.
        And thank you for the witnesses being here today. It is a
    good dialog, and we appreciate you being here.
        Mr. George, first of all, thank you for bringing up the
    lack of welders, plumbers, and so forth. I talk about that all
    the time, and we need it. So thank you for reminding us.
        In your testimony, you offer a lengthy discussion about
    your support of the Comprehensive Regulatory Review Act. I too
    feel that the CRRA too an important piece of legislation and
    will lead to better regulatory policy. Our agencies should
    strive to create policies which are effective and necessary,
    and timely review of EGRPRA, review like what is called for in
    the CRRA, will help to ensure that.
        So my question to you would be--you mentioned in your
    testimony that the faster review period will help regulations
    keep pace with the market and do not stifle technical
    innovation. So how does the current EGRPRA review timeline
    stifle technological innovation?
        Mr. George. Well, certainly. And listen, there has been not
    a whole lot of innovation in our industry over the last 10
    years. I think that that is for a variety of reasons. Some of
    it that has come out has really helped the consumer and also
    helped lending overall. We are much more precise in the way we
    do things today.
        So what I mean by that is, is that today we verify
    everything. So everything that comes through our loan package
    is not left subject to either a document that is provided.
    There is independent verification of your income, your assets,
    your credit, your history, your employment, your evaluation,
    everything. And we have done that through technology to speed
    that process up. Previously, it was a much more manual process.
        No. 2, as I mentioned earlier, since there is such a
    hindrance of folks being able to come up with a downpayment, we
    are starting to think differently about downpayment. We are
    starting to think differently how people can come up with their
    downpayment and how we can make that process simpler, not
    because we are trying to get people who do not qualify into a
    mortgage, but what we are trying to do is get people who
    qualify into a mortgage beyond the minimum required to get into
    the mortgage. Clearly, a person who puts down 3 percent versus
    30 percent is going to have a lot bigger buffer to weather a
    storm if there is a downturn in value.
        What we think, though, is is that there is a reluctance to
    innovate, and the reluctance to innovate is largely based on,
    if I create this new process, product, or procedure, am I
    suddenly going to be attacked from a regulator because it is
    something different. Forget about the headline risk. What we
    are simply trying to do is put together a set of rules and make
    sure that we are not using outdated or useless rules that
    stifle that kind of innovation.
        Mr. Williams. OK. Another question for you. I would like to
    talk a little bit about the CFPB--we talk about that a lot--
    aspect of the CRRA. Since its inception, the CFPB has finalized
    over 60 rules and changed several more. And I believe that this
    agency has done nothing good, absolutely nothing, and that we
    should do all we can to lessen its harmful impact on American
    consumers and businesses.
        And specifically, I am glad to see the provision in the
    CRRA that would require the CFPB to be included in the EGRPRA
    reviews. So under this proposal, the CFPB can't pick and choose
    which rules it will review and which it won't. So given this,
    can you elaborate on whether or not the CFPB, under this
    proposal, would be able to react to the market changes and
    technological innovations you mentioned in your testimony?
        Mr. George. I believe they can. And listen, I think that if
    you--and sometimes I think that the CFPB is focused on a
    particular rule or regulation when that particular rule or
    regulation isn't germane or important to what is necessary for
    oversight. I think that the CFPB does have the ability to be
    able to review and regulate this entire process.
        I also think that--and I mentioned this once before. There
    have been a whole bunch of rules and regulations that I think
    have actually been helpful for this industry. There was--back
    in the day, just about anybody could get in. It was a little
    bit of the Wild West back then. And nowadays, it is much more
    pragmatic. This is what I have done my entire life. I have been
    in this since I was 19 years old. I am very proud of what we
    have done and the customers that we have reached.
        And I think today, with some refining, I think we can
    reduce some of that regulatory over--that burden and also
    reduce some of that expense, which, by the way, I think reduces
    expense to borrowers.
        Mr. Williams. Thank you.
        Real quick, Mr. Ducharme, credit unions, I believe, are
    essential to Main Street America. I am a Main Street borrower.
    It is important that we do all we can to make sure that they
    are not overburdened by regulation. We have talked about that.
        In your testimony, you briefly touched on H.R. 3746, which
    would clarify the limits of the CFPB in regulating insurance.
    So can you elaborate more on how the CFPB's regulation affects
    a credit union and the concerns that you have with this
    jurisdiction creep that we have?
        Mr. Ducharme. Thank you, Congressman. Well, I can tell you
    how it applies to my credit union. So we have about 15,000
    individuals that work in the MIT community, and a number of
    them appreciate the value of credit protection products, in
    that it really provides them a benefit if there is a life event
    that they may, unfortunately, go through.
        If you look at life insurance, those products, it is
    currently regulated by the Commonwealth of Massachusetts, in my
    case, State, at the State level. If the CFPB would find itself
    in that area--
        Chairman Luetkemeyer. The gentleman's time has expired.
        With that, we go to the gentleman from Michigan. Mr. Trott
    is recognized for 5 minutes.
        Mr. Trott. Thank you, Chairman.
        I also want to thank everyone on the panel for your time
    this afternoon.
        Dr. Stanley, let's start with you. So you obviously haven't
    met or seen a regulator or a regulation that you don't love. So
    let's talk about one of the regulators you have mentioned a
    couple times today, the CFPB. And specifically, let's talk
    about the PHH case. Are you familiar with that case?
        Mr. Stanley. I have to--I am not our main person on the
    CFPB--
        Mr. Trott. Let me give you a couple facts and just get your
    off-the-cuff opinion on the good work of the regulators in that
    case.
        So PHH was accused of some Section 8 RESPA violations. HUD
    imposed a penalty, I believe, of $8 million. The then-czar
    swooped in on behalf of the CFPB and said the statute of
    limitations isn't relevant. The HUD review and findings are
    irrelevant. There is no due process, and the penalty is $109
    million.
        Does that seem like a fair result for a business or does
    that not bother you because, again, we are talking about a bank
    and all banks are bad? What is your thought on the fairness of
    that scenario? Because those are the facts. And the Court of
    Appeals agreed with my analysis, that it is not fair. What are
    your thoughts?
        Mr. Stanley. I am not trying to dodge the question, but I
    just genuinely just don't know the background.
        Mr. Trott. All right. That is fair enough.
        So let's move on to something you mentioned in your
    testimony then, and I want to ask Mr. George this question.
    What is the fee if the borrower chose not to roll the brokerage
    fee into the--in the interest rate? Dr. Stanley said 25 basis
    points might increase the interest rate. What is the fee on a
    $300,000 loan?
        Mr. George. On how much of a loan? Thank you for the
    question. What was the--on how much of a loan?
        Mr. Trott. Well, Dr. Stanley in his example said that on a
    $300,000 30-year mortgage, it could end up costing the borrower
    an extra $16,000. What is the fee if they decided to pay it at
    closing?
        Mr. George. I don't understand where that statistic comes
    from. I suspect you know that we have a pretty competitive
    marketplace, and that competitive marketplace is much, much
    simpler today for a consumer to shop a price. You know that.
    Today, you can get online and you can look at 50 different
    lenders with the push of a button. There are systems in place
    for people to compete for those loans.
        So I don't understand the quarter point cost. I think it
    was--I would guess that it is just a relative number. On any
    loan, if you charge an extra quarter, it would be an additional
    X amount of dollars over 30 years.
        Mr. Trott. Hypothetically, if the fee is $500 at closing,
    the future value of that money over 30 years is $10,000 almost.
    So a little misleading in the example insofar as, you can pay
    now and use your capital now at closing to accomplish the dream
    of home ownership or you can roll it into the fee.
        I think the arguments made by Dr. Stanley with respect to
    the impact it has on low- and moderate-income folks is
    completely wrong, and I think your point was spot on.
        You made a comment about the cost of closings doubling over
    the last 10 to 12 years, and I think that is the most telling
    comment and a lot of what we are focused on today. In my
    opinion, Washington and Congress and the regulators--I spent
    many years in the mortgage banking industry--have it all wrong.
    They should be focused on trying to simplify the rules and make
    the cost of obtaining, originating a loan as least expensive as
    possible. And we have done everything the exact opposite. We
    have made it so complex, the borrower doesn't know what they
    are signing at closing and they have doubled the cost of loans.
        Last question and then I will yield back. Dr. Stanley, with
    respect to the Regulatory Review Act proposed by Mr. Loudermilk
    from Georgia, you oppose that. Do you think Dodd-Frank is
    perfect?
        Mr. Stanley. No, I don't think Dodd-Frank is perfect.
        Mr. Trott. Do you think there are some unintended
    consequences that maybe Congress didn't anticipate when they
    wrote Dodd-Frank, there are some unintended consequences from
    that law?
        Mr. Stanley. Well, I think Dodd-Frank was a compromise,
    like many things that come out of Congress. And in some ways, I
    think that Dodd-Frank didn't go far enough in some areas, such
    as eliminating too-big-to-fail banks and so on.
        Mr. Trott. So you oppose the review act every 5 to 7 years.
    Why? Wouldn't it be a good idea to see if any of the
    regulations are working as intended or may be outdated or
    should be revised or tailored to suit current business
    practices?
        Mr. Stanley. Well, we have a review act right now that
    requires review every 10 years and the regulators to get rid of
    unnecessary regulations, and I think that is very
    straightforward and clear. And a lot of the language added here
    would focus exclusively on the cost to businesses and not the
    benefits to customers or the economy, and I feel that language
    is unbalanced.
        Mr. Trott. Well, we probably fundamentally disagree on the
    impact on cost to business and who bears the brunt of that
    cost, but I appreciate your time.
        And I yield back.
        Chairman Luetkemeyer. The gentleman's time has expired.
        With that, we go to the gentleman from Georgia. Mr.
    Loudermilk is recognized for 5 minutes.
        Mr. Loudermilk. Thank you, Mr. Chairman.
        And I appreciate the comments from my colleague, Mr. Trott,
    on the Comprehensive Regulatory Review Act. And let me also
    start off by thanking my colleagues on the other side of the
    aisle who have been working very closely with us to make this a
    bipartisan bill. I think they realize that government often
    doesn't get it right the first time and it takes a lot of work
    to get it right over time. And it is an ever-evolving process.
        I remember my daughter was doing a presentation years ago.
    And I was in the State legislature and she said, Dad, I want to
    do a presentation on leadership, and so she said, I have
    decided to focus on the importance of continuing to lead, not
    just establishing a rule or regulation once, but continue to
    work on it. And so she did this presentation, and she brought
    up several outdated laws even in the State of Georgia. One of
    them I particularly remember was, and just so anyone visiting
    Georgia realizes this, it is illegal to walk down the street
    with an ice cream cone in your back pocket. It was actually a
    law on the books in the State of Georgia.
        That prompted me to go back and start looking at some of
    the laws we had on the book. And I remember I was in the
    technology industry, and we found out that some of the
    telecommunications companies were still having to submit
    reports on their Morse code stations and teletypes, and there
    weren't any. And so we started looking at why were they putting
    that report in. They said, because it is still on the books as
    a requirement, but the regulators have never gone back and
    reviewed it and took that off. And we talked to the regulators,
    said why? They said, look, we are too busy doing our regulation
    to go into this. So we passed legislation to remove it.
        Now, in 1996, Congress I think took a pretty good step, Mr.
    Chairman. They passed the Economic Growth and Regulatory
    Paperwork Reduction Act, which basically said, look, every 10
    years you need to go and review your regulations, and if there
    are any duplicative regulations or those that are outdated, you
    need to report those back to Congress.
        But we really just lacked a little bit of teeth in there,
    saying, you really need to do more than just check the box. You
    need to look at the regulations and let's get rid of those
    regulations that are duplicative. Let's not force people to
    report on things that they are not doing.
        And let's take it a step further, and this is what we are
    doing in the regulation, is just saying, let's broaden that to
    all these financial regulators. Let's include the CFPB. And
    let's also give them the opportunity to tailor regulations
    instead of painting with a broad brush.
        I think that is a pretty reasonable way of doing business.
    I think that is a very effective way of doing business, that we
    can let the regulators focus on regulating in the areas that
    are important and imperative and not just regulate based on an
    arcane regulation that happens to be in the book that no one is
    taking the time to review.
        So, Mr. George, can you briefly explain why EGRPRA really
    provides a good basis for cleaning up these duplicative
    regulations, but from whatever, I assume that you would like to
    see it strengthened. What do you think is positive and why we
    should strengthen it?
        Mr. George. I couldn't agree with you more. Listen, think
    about this: In 2006 versus 2016, the lending environment is
    wildly different. We are on a different planet. In 2006, CFPB
    didn't exist, TRID didn't exist, HVCC didn't exist. LO Comp,
    Dodd-Frank, all of those rules did not exist.
        If we are going to say we are going to wait another 10
    years to look at a change, I think that that really harms our
    industry. I think that we are far better off taking a look at
    this on a much--5 years, 5-year period of time, to be able to
    see whether or not we have accidentally created a rule that
    stifles either innovation or competition, which is what we are
    trying to fix with 2570.
        In my opinion, when you are talking about brokers and
    lenders that are side by side, two offices next to one another,
    and the broker loses a transaction simply because his loan is
    calculated different, not disclosed different, just calculated
    different, those are the kinds of things that we have to
    revisit and look at.
        Congressman Trott said something. He said it is--the things
    of price and oversight of regulation are true. But let me tell
    you something, what keeps this industry honest is competition.
    You put more players in this thing, they are going to compete
    hard to get that transaction. It is hard.
        Mr. Loudermilk. And I appreciate that.
        And, Mr. Chairman, the American Bankers Association agree
    with Mr. George and myself in a letter that they have provided
    in support of the Comprehensive Regulatory Review Act. And I
    would like to submit that for the official record, if that is
    possible.
        Mr. Hollingsworth [presiding]. Without objection.
        Mr. Loudermilk. Thank you. New voice in the chair there.
        And I think this is--and I know there are people out there
    that have never met a regulation that they didn't like. But if
    you really drill down to the regulators, they, just like the
    business, are looking at stability. I think we can give--we are
    putting them in the driver's seat of their own house.
        Mr. Heck. Mr. Chairman?
        Will the gentleman yield? Will the gentleman yield?
        Mr. Loudermilk. I am out of time.
        Mr. Heck. I was just wondering if there was ever a point in
    time when the--
        Mr. Hollingsworth. The gentleman's time has expired.
        Mr. Heck. If it was a problem that the people of Georgia
    were walking down the street with an ice cream cone in their
    back pocket.
        Mr. Loudermilk. If the gentleman yields. I imagine that
    there was a reason, but around the same time, it was illegal to
    walk an elephant down the city streets in the middle of the
    day. So go figure.
        Mr. Hollingsworth. The gentleman yields back.
        The Chair now recognizes the gentlelady from New York, Ms.
    Tenney, for 5 minutes.
        Ms. Tenney. Thank you, Mr. Chairman.
        And I just want to commend my colleague, Mr. Hollingsworth,
    on H.R. 3179, the Transparency and Accountability for Business
    Standards Act, of which I am a cosponsor. But also, I know a
    lot of people who don't like regulation--who haven't met a
    regulation they don't like. But can you imagine our own Federal
    regulators working against the interests of our U.S.-based
    banks and affecting our business community and our competitive
    nature.
        I would like to yield back my time to the gentleman from
    Indiana, Mr. Hollingsworth.
        Mr. Hollingsworth. Well, I thank my colleague, Ms. Tenney,
    and appreciate her kind words.
        Dr. Stanley, my first question is for you. I know that
    there has been some banter here this afternoon, but something
    you wrote in your testimony really struck me in a positive way.
    You said the following: H.R. 3179 would impose additional
    administrative barriers to action on Federal banking agencies
    in cases where they wish to issue prudential regulations.
        And what I think you mean by that is we need to be really,
    really thoughtful and really, really serious and go through a
    real diligent process before we restrict the freedom of our
    U.S. regulators to be able to take the actions that they think
    are necessary. And we owe it to them to be thoughtful and
    diligent in that process, right?
        Mr. Stanley. Well, it depends specifically on the barriers.
    But, yes, I think we need to be thoughtful. Yes, I guess I
    would agree with that.
        Mr. Hollingsworth. Yes. We need to be thoughtful and
    diligent and go through a real process. The question I have for
    you is exactly how we are doing this, right? The way that we
    have guidelines to regulators is we go through an open and
    transparent process. Right here we are having a legislative
    hearing today about things like that.
        I think the American people are owed the exact same thing
    from their regulators. When costs are imposed upon the American
    people, when companies' freedoms are restricted by regulators,
    they should be owed the same diligent, thoughtful, transparent
    process, and they should know what that cost benefit looks
    like. That is what I think the American people are owed. I
    think we do the same thing here when we impose additional
    burdens on those regulatory agencies.
        And so when I think about the bill that I have filed and my
    colleagues have been in support of, the Transparency and
    Accountability for Business Standards Act, that is how I think
    about it. I think it is demanding transparency and
    accountability from regulators because, ultimately, those
    regulations that may be in excess, that are in excess of
    international standards, are imposing costs on Americans. And
    those costs are real. And here, sometimes we talk about it like
    the baseline is zero and any loan growth greater than zero is
    suddenly OK. But the reality is, according to National Bureau
    of Economic Research, that over the period since prior
    recessions, in the 6 years following recessions, throughout the
    previous century, loan growth, on average, was 63 percent.
    Since 2009, loan growth has been 18 percent.
        That difference, that difference is the difference between
    real economic growth that lifts wages for Hoosiers back home in
    Indiana and mediocre economic growth that has led to stagnant
    wages. I want to unlock some of that capital so that people can
    get the capital they need to start businesses, so that people
    can get the capital they need to grow businesses, so we can
    empower Hoosiers and Americans across this country to be able
    to take control of their financial future again.
        And I wanted to direct my next question to Mr. Cimino, and
    just talk a little bit--there are two pieces to this, but the
    first big piece is the capital that is trapped in U.S.
    financial institutions that we need to unlock to enable and
    empower economic growth, and I wanted to see if you had a
    comment on that.
        Mr. Cimino. Yes. I think you hit it on the head, and Mr.
    Tipton spoke about it as well. This is an in and of itself of
    translating into economic growth. That is what the financial
    system does when it is thriving. It is investing in
    communities, people, and businesses. And when you have $52
    billion sitting on the sideline because of a G-SIB surcharge or
    $75 billion sitting on the sideline because of a supplemental
    leverage ratio that is applied on an enhanced basis, that is
    capital that in and of itself is not out there, but also is not
    being leveraged through loans at an even higher rate and
    driving that economic growth and opportunity.
        Mr. Hollingsworth. That is exactly right.
        Now, the second big piece to this is ensuring that our U.S.
    institutions have the opportunity to compete around the world,
    right? And that is really, really important, because financial
    services is something the United States has done exceptionally
    well, and we export that abroad, to the benefit of, frankly,
    many other economies, many market economies, many countries
    around the world. I want to make sure that we still have the
    opportunity to do that, and we are putting our U.S. banks and
    financial institutions at a disadvantage to that.
        Can you speak a little bit to that?
        Mr. Cimino. Yes. I think that is absolutely right.
    Actually, if I could just go back to a quick point.
        Mr. Hollingsworth. Of course.
        Mr. Cimino. You talked about that transparency and
    accountability being owed to the taxpayers, being owed to the
    businesses. I not only think that is right, but that
    transparency and accountability gets to better public policy
    outcomes.
        So when you talk about that and how it leads to a
    competitiveness issue, if you are applying more stringent
    standards that don't have a benefit but are just applied and
    misapplied, all of a sudden you are tying the hands behind the
    back of many institutions. And these are the institutions that
    are not only helping drive American growth, but they are
    supporting companies that are performing cross-border services
    in the global footprint. I mean, everybody from Ford and
    Chevron to General Electric and General Mills.
        Mr. Hollingsworth. Hold on just 1 second. The gentlelady's
    time has expired.
        Ms. Tenney. I yield back.
        Mr. Hollingsworth. The gentlelady yields back.
        The Chair now recognizes himself for 5 minutes.
        Please continue, Mr. Cimino.
        Mr. Cimino. Have to love parliamentary procedure.
        But yes. So not only are you putting a competitive
    disadvantage in place, but we are talking about companies that
    do operate across global barriers to help support businesses,
    drive economic growth. And so when you have Ford and General
    Electric out there trying to operate, it is these large service
    providers that can help them do so, and we don't want to limit
    their ability to compete and have that business go to foreign
    institutions that might not be able to do as well by these U.S.
    institutions.
        Mr. Hollingsworth. Right. So when I am thinking about this,
    what I am asking myself is, why shouldn't we have the
    transparency and accountability to the American people? Because
    ultimately, these burdens--and we may, frankly, through this
    cost-benefit analysis and this comprehensive view, determine
    that U.S. institutions should be held to a stricter standard
    than international standards, which this certainly doesn't
    prevent if that is borne out in that cost-benefit analysis.
        Why aren't the American people owed the transparency from
    their regulators to ensure that their interests are being
    protected, their interests are being weighed in every single
    regulation that exceeds international standard?
        Mr. Cimino. We think they are owed that. And, again, I
    think a more inclusive and transparent approach ultimately
    yields a better outcome. And if that outcome is, in fact, a
    difference between the international and U.S. standard, well,
    there should be a rationale behind it. And we are not
    necessarily saying these rules are wrong; we are just saying
    that they deserve that level of scrutiny.
        Mr. Hollingsworth. That is exactly right.
        And one of the other things that has been brought up a lot
    today is this private right of action business. And believe you
    me, I am no attorney. I am an old business guy. But what I
    understand is that, currently, the Administrative Procedures
    Act has a base requirement of a cost-benefit analysis for every
    rule that is promulgated. This has required a much more
    detailed cost-benefit analysis. I get that. But there is no
    giving of a further private right of action than is already
    afforded to U.S. citizens and companies.
        I want to make sure that we are clear that we are requiring
    more transparency and accountability. Because what I hear back
    home, Hoosiers are tired of bureaucrats in D.C. determining
    their future instead of them being able to determine their own
    future. They want to take back some of that power so they can
    build better futures for their families.
        And while sometimes in this committee we do work that is
    really arcane, esoteric, and seems far removed from something
    that really matters to Hoosiers, this is not that. This is
    something that makes a meaningful difference. This has two big
    effects, again: One, unlocking the capital for our U.S.
    financial institutions to be able to make loans, to be able to
    provide capital, to be able to help people get ahead in their
    lives; and then two, ensure that what we do well in the United
    States we can export around the world so that we benefit from
    the innovations, the hard work, and the diligence of Americans
    all the way across this country.
        And so I obviously strongly support the bill.
        In addition to that, I wanted to submit for the record for
    a Chamber of Commerce letter of support for the bill as well.
        Well, I guess since I am the Chairman, I can say.
        And, with that, I will yield back my time.
        Mr. Hollingsworth. And I would like to thank our witnesses
    for their testimony today. I appreciate everybody coming out
    today.
        Without objection, all members will have 5 legislative days
    within which to submit additional written questions for the
    witnesses to the Chair, which will be forwarded to the
    witnesses for their response. I ask our witnesses to please
    respond as promptly as you are able.
        Without objection, all members will have 5 legislative days
    within which to submit extraneous materials to the Chair for
    inclusion in the record.
        This hearing is now adjourned.
        [Whereupon, at 4:19 p.m., the subcommittee was adjourned.]

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                                December 7, 2017
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