[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
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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.]
A P P E N D I X
December 7, 2017
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