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


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

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

                                HEARING

                               BEFORE THE

                 SUBCOMMITTEE ON FINANCIAL INSTITUTIONS
                          AND CONSUMER CREDIT

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED FIFTEENTH CONGRESS

                             FIRST SESSION

                               __________

                            DECEMBER 7, 2017

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 115-65
                           
  [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]                         
                           
                           

                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    JEB HENSARLING, Texas, Chairman

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

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

                 BLAINE LUETKEMEYER, Missouri, Chairman

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

                              ----------                              
                                                                   Page
Hearing held on:
    December 7, 2017.............................................     1
Appendix:
    December 7, 2017.............................................    37

                               WITNESSES
                       Thursday, December 7, 2017

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

                                APPENDIX

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

              Additional Material Submitted for the Record

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

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

                              ----------                              


                       Thursday, December 7, 2017

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

                   STATEMENT OF ANTHONY CIMINO

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

                   STATEMENT OF BRIAN DUCHARME

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

               STATEMENT OF CHRISTOPHER M. GEORGE

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

                   STATEMENT OF MARCUS STANLEY

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

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                            December 7, 2017
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