[Senate Hearing 115-81]
[From the U.S. Government Publishing Office]


                                                         S. Hrg. 115-81


FOSTERING ECONOMIC GROWTH: THE ROLE OF FINANCIAL INSTITUTIONS IN LOCAL 
                              COMMUNITIES

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

                                HEARING

                               BEFORE THE

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                     ONE HUNDRED FIFTEENTH CONGRESS

                             FIRST SESSION

                                   ON

   EXAMINING THE CURRENT STATE OF COMMUNITY BANKS AND CREDIT UNIONS, 
   INCLUDING THEIR EXISTING REGULATORY FRAMEWORK AND IMPACT ON THEIR 
  CUSTOMERS, AND GATHERING LEGISLATIVE AND REGULATORY RECOMMENDATIONS 
                   THAT WOULD FOSTER ECONOMIC GROWTH

                               __________

                              JUNE 8, 2017

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs
                                
                                
                                
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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                      MIKE CRAPO, Idaho, Chairman

RICHARD C. SHELBY, Alabama           SHERROD BROWN, Ohio
BOB CORKER, Tennessee                JACK REED, Rhode Island
PATRICK J. TOOMEY, Pennsylvania      ROBERT MENENDEZ, New Jersey
DEAN HELLER, Nevada                  JON TESTER, Montana
TIM SCOTT, South Carolina            MARK R. WARNER, Virginia
BEN SASSE, Nebraska                  ELIZABETH WARREN, Massachusetts
TOM COTTON, Arkansas                 HEIDI HEITKAMP, North Dakota
MIKE ROUNDS, South Dakota            JOE DONNELLY, Indiana
DAVID PERDUE, Georgia                BRIAN SCHATZ, Hawaii
THOM TILLIS, North Carolina          CHRIS VAN HOLLEN, Maryland
JOHN KENNEDY, Louisiana              CATHERINE CORTEZ MASTO, Nevada

                     Gregg Richard, Staff Director

                 Mark Powden, Democratic Staff Director

                      Elad Roisman, Chief Counsel

                      Jared Sawyer, Senior Counsel

                Brandon Beall, Professional Staff Member

                 Matt Jones, Professional Staff Member

                Graham Steele, Democratic Chief Counsel

            Laura Swanson, Democratic Deputy Staff Director

                 Elisha Tuku, Democratic Senior Counsel

                       Dawn Ratliff, Chief Clerk

                     Cameron Ricker, Hearing Clerk

                      Shelvin Simmons, IT Director

                          Jim Crowell, Editor

                                  (ii)


                            C O N T E N T S

                              ----------                              

                         THURSDAY, JUNE 8, 2017

                                                                   Page

Opening statement of Chairman Crapo..............................     1

Opening statements, comments, or prepared statements of:
    Senator Brown................................................     2

                               WITNESSES

Dorothy A. Savarese, Chairman, President, and Chief Executive 
  Officer, Cape Cod Five Cents Savings Bank, on behalf of the 
  American Bankers Association...................................     5
    Prepared statement...........................................    33
    Responses to written questions of:
        Senator Brown............................................    91
        Senator Sasse............................................    95
Steve Grooms, President and CEO, 1st Liberty Federal Credit 
  Union, on behalf of the National Association of Federally 
  Insured Credit Unions..........................................     6
    Prepared statement...........................................    45
    Responses to written questions of:
        Senator Brown............................................    99
        Senator Sasse............................................   101
 R. Scott Heitkamp, President and CEO, ValueBank Texas, on behalf 
  of the Independent Community Bankers of America................     7
    Prepared statement...........................................    55
Dallas Bergl, Chief Executive Officer, Inova Federal Credit 
  Union, on behalf of the Credit Union National Association......     8
    Prepared statement...........................................    58
    Responses to written questions of:
        Senator Brown............................................   104
        Senator Sasse............................................   108
John Bissell, President and CEO, Greylock Federal Credit Union...     9
    Prepared statement...........................................    72
    Responses to written questions of:
        Senator Brown............................................   112
        Senator Sasse............................................   115
        Senator Toomey...........................................   117
Adam J. Levitin, Professor of Law, Georgetown University Law 
  Center.........................................................    11
    Prepared statement...........................................    74
    Responses to written questions of:
        Senator Brown............................................   118
        Senator Reed.............................................   119
        Senator Sasse............................................   120

                                 (iii)

 
FOSTERING ECONOMIC GROWTH: THE ROLE OF FINANCIAL INSTITUTIONS IN LOCAL 
                              COMMUNITIES

                              ----------                              


                         THURSDAY, JUNE 8, 2017

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Committee met at 10:04 a.m., in room SD-538, Dirksen 
Senate Office Building, Hon. Mike Crapo, Chairman of the 
Committee, presiding.

            OPENING STATEMENT OF CHAIRMAN MIKE CRAPO

    Chairman Crapo. This hearing will come to order.
    Before we begin the formal hearing, I want to take a point 
of personal privilege right now and give my thanks and best 
wishes to one of my great staffers who has chosen to move on 
to--I was going to say ``greener pastures,'' but newer 
pastures. You cannot get greener pastures than here in the 
Banking Committee.
    [Laughter.]
    Chairman Crapo. But Jared Sawyer is going to be moving over 
to the Department of Treasury as the Deputy Assistant Secretary 
for Financial Institution Policy, and Jared has just been an 
outstanding help to me for years now on all the issues that we 
have been working on here in the Banking Committee. So, Jared, 
best wishes.
    And now let us move on into the meat of the hearing. Today 
we will receive testimony on the role financial institutions 
play in fostering economic growth in local communities. 
Community financial institutions are the pillars of communities 
across America, particularly those in mostly rural States like 
Idaho.
    A Harvard University study appropriately described 
community banking by stating, ``Their competitive advantage is 
a knowledge and history of their customers and a willingness to 
be flexible.''
    Unfortunately, the operating landscape facing these 
institutions has changed dramatically over the last several 
years. The industry has become increasingly concentrated, and 
that concentration has accelerated since the passage of Dodd-
Frank. The regulatory rules dictated from Washington are often 
contradictory, complex, and confusing, and they sharply 
restrict community lenders' ability to be flexible.
    I am concerned that in a rush to implement new regulation, 
regulators have often ignored the cumulative impact of the 
rules and that there is a lack of coordination among them. We 
want our
Nation's financial institutions to be well capitalized and well 
regulated, but they should not be drowned by unnecessary 
compliance costs.
    Financial regulation should promote safety and soundness 
while enabling a vibrant and growing economy. This is 
especially important for community financial institutions, 
which lack the personnel and infrastructure to handle the 
overwhelming regulatory burden of the past few years.
    Since 2010 we have lost roughly 2,000 banks and over 1,500 
credit unions. In local economies, this places a strain on 
small businesses looking to open or grow. Further, it can cause 
American consumers to lose access to traditional banking 
services or pay more for these services.
    Today, however, I am hopeful about the prospects of 
reversing the damaging trends facing these types of 
institutions. In March, Senator Brown and I announced a process 
to receive and consider proposals to help foster economic 
growth. Similarly, the Federal banking agencies submitted their 
EGRPRA report to Congress with several recommendations. The 
Treasury Department is also currently working on several 
reports to identify ways to improve our regulatory framework. 
Together, these steps demonstrate a commitment to reviewing our 
financial regulatory framework to determine what is working and 
what is not working.
    Today's hearing is the first of several Committee hearings 
over the coming months that will begin to explore these 
proposals with the goal of ultimately passing a meaningful and 
bipartisan reform package. Community financial institutions are 
critically important to the constituents in each of our States. 
That has been clearly demonstrated in the conversations I have 
had with Members on both sides of the aisle who are committed 
to pursuing bipartisan reform measures.
    Some measures would have an immediate impact on the 
regulatory burden facing these institutions. For example, an 
automatic qualified mortgage status for loans held in portfolio 
would provide much needed flexibility for lenders without 
increasing risk in the system. Another example is to simplify 
and streamline capital requirements for community financial 
institutions by reexamining Basel III and the risk-based 
capital rule. Finally, an exemption for some financial 
institutions from some HMDA reporting requirements would 
decrease the paperwork burden for small lenders.
    As this process moves forward, I want to encourage all 
Members of the Committee to engage with us, work together with 
each other, and bring bipartisan legislation forward. Together, 
we can have a very strong opportunity to make a significant 
impact.
    Senator Brown.

               STATEMENT OF SENATOR SHERROD BROWN

    Senator Brown. Thank you, Chairman Crapo, and thanks for 
holding this hearing and for the work we have done together to 
solicit ideas from any and all who have useful, productive 
thoughts about economic growth and some maybe that were not 
useful and thoughtful, but thank you for that.
    [Laughter.]
    Senator Brown. I want to echo the Chairman thanking all the 
groups and individuals who submitted those proposals.
    With the loss of good manufacturing jobs afflicting pretty 
much all of our States, but especially through the industrial 
heartland, prior to and during the 2008 financial crisis, it is 
no wonder the economic crisis and the economic recovery has 
been uneven. The crisis was devastating to millions of our 
fellow citizens, and for those who want full-time work, the 
jobs just are not there.
    Foreclosures and job losses hit African American and Latino 
communities particularly hard during the crisis. One study 
found the average wealth of white families has grown 3 times as 
fast as the rate for African American families and 1.2 times 
the growth rate for Latino families. At these rates, it will 
take hundreds of years for these families just to match what 
white families have today.
    Across Ohio, I have seen the impact of the uneven economic 
recovery in both urban and rural areas. The lack of 
opportunities in communities has contributed to an increase, as 
we know, in prescription opioid abuse and dependence. Between 
now and lunchtime, odds are that one Ohioan, at least, will die 
of an overdose.
    One of my staff members was meeting with the Chair of a 
small bank in Gallipolis, Ohio, on the Ohio River. He thought 
the banker would want to talk about Dodd-Frank, but what he 
really wanted to talk about was opioid addiction and how it was 
ravaging his community. By one estimate, this crisis has cost 
our economy more than $70 billion, to say nothing of the 
physical and the social and the emotional cost to individuals 
and families who cope with addiction.
    We cannot ignore issues like this and pretend they do not 
affect the economy. We also know that the opioid epidemic is 
not unique to Ohio or to the industrial Midwest. I am curious 
to hear how it impacts our witnesses' communities and the 
institutions they represent.
    Yet the President's proposed budget makes the situation 
worse. He wants to slash or eliminate entirely programs that 
support economic development in both urban and rural 
communities, including job creation and transportation. It cuts 
important programs to provide access to affordable housing. It 
takes away health care from literally millions of Americans, 
including as many as 1 million Ohioans. Right now in Ohio, 
200,000 people are getting opioid treatment who have that 
treatment because they are insured by the Affordable Care Act. 
Yet members of this body and in the House of Representatives 
who have Government-paid insurance are willing to take that 
insurance--who have Government-paid insurance ourselves are 
willing to take it away from those 200,000 families.
    While I keep hearing promises of an infrastructure 
package--the President was in my State, in Cincinnati 
yesterday--the infrastructure package to make up for housing 
and transportation cuts and other things, you cannot build a 
bridge with bullet points or Wall Street fees. So as we discuss 
the role of financial institutions in local communities, I look 
forward to hearing ideas, real ideas about promoting economic 
growth. I am less interested in hearing old complaints about 
issues that have little to do with solving the economic issues 
plaguing our communities.
    The evidence from the crisis shows that deregulation does 
not lead to sustainable economic growth, but a breakdown in 
consumer protections can lead to a financial crisis. Community 
banks and credit unions play a vital role in urban and rural 
communities. I am glad their loan volume has grown and they are 
on a solid financial footing, those communities banks and small 
credit unions.
    I am pleased we have a representative from the community 
development financial institutions community at this hearing. 
Every dollar of public investment in CDFIs generates $12 of 
private capital. They work in low-income communities. They find 
alternatives to payday loans. And institutions like John 
Bissell's are finding solutions in communities where 
manufacturers have left, giving small business loans to former 
employees of GE, for instance, and working to solve housing and 
transportation needs. For that we thank you.
    They also are not afraid to do work in communities that 
other financial institutions have left. There are 242 CDFIs in 
35 States headquartered in counties hard hit by the opioid 
epidemic, and CDFI program awardees have made nearly 115,000 
loans in these communities across 43 States totaling $6.5 
billion, helping to create or retain some 65,000 jobs. Yet the 
Trump budget has proposed to eliminate CDFI, yet another 
example of the President's agenda that I believe will do more 
harm than good to struggling communities in my State.
    I am open to considering proposals for small institutions 
that lower costs or cut red tape so they can better serve their 
customers. There is obviously no point in paying for red tape 
we do not need. And Congress has passed bills to do that. The 
regulators have made changes at the urging of pretty much every 
Member of this Committee, Democrat and Republican alike.
    But I will be interested in hearing the amount, the real 
amount of economic growth that such changes would produce. For 
real economic growth, financial institutions need to be 
partners with struggling communities, finding solutions to 
create jobs, to make housing more affordable, and to access 
transportation. I look forward to hearing about ideas from all 
six of you.
    Thank you so much.
    Chairman Crapo. Thank you, Senator.
    Now we will turn to the oral testimony. First we will 
receive testimony from Ms. Dorothy Savarese, Chairman and CEO 
of Cape Cod Five Cents Savings Bank, and on behalf of the 
American Bankers Association.
    Following her----
    Ms. Savarese. Thank you----
    Chairman Crapo. I will introduce all six first, and then we 
will let you start.
    Following Dorothy, we will hear from Mr. Steve Grooms, 
President and CEO of 1st Liberty Federal Credit Union, on 
behalf of the National Association of Federally Insured Credit 
Unions.
    Then we will hear from Mr. Scott Heitkamp, President and 
CEO of ValueBank, on behalf of the Independent Community 
Bankers of America.
    Following Mr. Heitkamp, we will hear from Mr. Dallas Bergl, 
CEO of INOVA Federal Credit Union, on behalf of the Credit 
Union National Association.
    Then we will hear from Mr. John Bissell, President and CEO 
of Greylock Federal Credit Union.
    And, finally, we will hear from Mr. Adam Levitin, Professor 
of Law at Georgetown University Law Center.
    There has been an intense interest in this hearing, and 
that is why we have six witnesses. Because of that, however, it 
is going to require that we reduce the time allocated to each 
of you, and I think you have each been told that we are going 
to reduce your time for your presentations to 3 minutes. But do 
not worry, there will be plenty of opportunity for you to 
continue addressing the issue as you get questions from the 
Senators.
    I will tell the Senators we are still having 5 minutes for 
each Senator, but we are starting to have Senators try to push 
that limit. So I am going to remind the Senators they have 5 
minutes, not 5 \1/2\, 6, or 7.
    So, with that, now let us return and, Ms. Savarese, you may 
begin.

  STATEMENT OF DOROTHY A. SAVARESE, CHAIRMAN, PRESIDENT, AND 
 CHIEF EXECUTIVE OFFICER, CAPE COD FIVE CENTS SAVINGS BANK, ON 
           BEHALF OF THE AMERICAN BANKERS ASSOCIATION

    Ms. Savarese. Thank you, Chairman Crapo, Ranking Member 
Brown, Members of the Committee. My name, as the Chairman said, 
is Dorothy Savarese, and I am Chairman, President, and CEO of 
Cape Cod Five Cents Savings Bank, which was formed in 1855. I 
appreciate the opportunity to be here to present ABA's views on 
the important role of community financial institutions growing 
their local economies.
    Let me begin by stressing that we agree on the need for 
strong regulation. Indeed, lawmakers, regulators, and bankers 
themselves took important steps after the crisis to improve 
safety and soundness. Our experience since Dodd-Frank became 
law demonstrated the effectiveness of many of these measures, 
and at the same time showed that included in the 25,000 pages 
of new and proposed rules are requirements that are harming our 
ability to serve creditworthy customers and our communities.
    ABA is committed to working with Members of the Senate on 
targeted, sensible changes to financial regulations that will 
help us accelerate economic growth and opportunities for all 
Americans without compromising safety and soundness.
    Some observers have used the community banks' resilience in 
the face of these regulatory challenges as an excuse to leave 
the regulatory environment untouched. Indeed, banks are 
profitable and loans are growing. That is a good thing and a 
sign of economic recovery. We have found ways to meet our 
customers' needs in spite of the unnecessary burden we must 
carry. That burden is too much for some banks. The fact remains 
that every business day a bank in this country is either 
acquired or merged. That is not good for competition, 
consumers, or the U.S. economy.
    We have the potential to do more for our economy. Loans are 
growing--however, at half the pace they did years before the 
financial crisis. Without reasonable reform, we will never 
realize the thousands of businesses that could be started or 
scaled, the hundreds of thousands of creditworthy families that 
could move into a new home, and the millions of dreams that 
could come true because they did not fit into the restrictive 
boxes our policymakers have contrived.
    The avalanche of new regulations has caused some banks to 
stop offering some products or to cease operations. I just 
heard a story of a branch closing down in a town in a rural 
area in the Intermountain West, and the family wrote a letter 
to their local banking official saying this meant their mother 
would have to drive 60 miles to get to a bank, and they were 
not going to let her do that.
    As I travel the country, I hear story after story like 
this, and I know Members of the Committee have heard these 
stories as well. Each and every bank in this country helps fuel 
our economy. Each has a direct impact on job creation, growth, 
and prosperity. That is why it is imperative that Congress take 
reasonable steps to fix the regulatory burden before it becomes 
impossible to reverse the negative impact.
    My written testimony includes several recommendations that 
are part of ABA's blueprint for growth and were also included 
in our recommendations to this Committee.
    I am happy to discuss ideas and answer any questions you 
may have about the impact of regulations on the Nation's banks 
and how we can work to refine them to support the American 
economy.
    Thank you.
    Chairman Crapo. Thank you, Ms. Savarese.
    Mr. Grooms.

   STATEMENT OF STEVE GROOMS, PRESIDENT AND CEO, 1ST LIBERTY 
FEDERAL CREDIT UNION, ON BEHALF OF THE NATIONAL ASSOCIATION OF 
                FEDERALLY INSURED CREDIT UNIONS

    Mr. Grooms. Good morning, Chairman Crapo, Ranking Member 
Brown, Members of the Committee. My name is Steve Grooms, and I 
serve as the President and CEO of Liberty Federal Credit Union. 
First Liberty is a $170 million institution with over 17,000 
members, with branches in Montana and North Dakota. I am 
testifying today on behalf of NAFCU. Thank you for holding this 
important hearing on community financial institutions fostering 
economic growth.
    NAFCU believes that credit unions play an essential role in 
their local economies, and their 108 million members agree. 
During the recent financial crisis, credit unions were able to 
continue to lend and help creditworthy consumers and small 
businesses during difficult times, often when no one else 
would. Despite the fact that credit unions played no part in 
causing the financial crisis, they are still heavily regulated 
and affected by many of the rules meant for those entities that 
did.
    We have lost more than 1,500 federally insured credit 
unions--over 20 percent of the industry--since the second 
quarter of 2010, with many citing the growing compliance burden 
as a reason they cannot survive. My written testimony outlines 
what will ensure a healthy and competitive environment and help 
credit unions foster economic growth. I would like to highlight 
five key principles from my testimony.
    First, NAFCU supports a regulatory environment that allows 
credit unions to grow. To accomplish this, we would encourage 
the Committee to act on improving field of membership 
restrictions for credit unions, modernizing credit union 
capital standards, and ensuring credit unions can meet the 
needs of small businesses.
    Second, NAFCU supports appropriate, tailored regulation for 
credit unions and relief from growing regulatory burdens. We 
would encourage the Committee to exempt all credit unions from 
the CFPB; ensure credit unions have greater exemptions from new 
rules, such as the new HMDA requirements; and require better 
tailoring of regulations, including accurate cost burdens.
    Third, NAFCU supports a fair playing field and believes 
that credit unions should have as many opportunities as banks 
and nonregulated entities to provide provident credit to our 
Nation's consumers. This includes ensuring regulatory relief is 
balanced
between credit unions and banks, keeping nonbank financial 
entities such as payday lenders subject to regulation, and 
enacting a national data security standard for all who would 
handle financial
information.
    Fourth, NAFCU supports transparency and independent 
oversight. Steps to accomplish this include making common-sense
improvements to the CFPB, requiring the CFPB to provide 
rulemaking or guidance on UDAAP, and enacting common-sense 
examination reforms.
    Fifth, NAFCU supports a strong, independent NCUA as the 
regulator for credit unions. NCUA's independence and structure 
should be maintained, and we believe it should have the sole 
authority for rule writing and supervision of credit unions.
    In conclusion, if Congress wants to help foster economic 
growth, enacting the regulatory relief provisions outlined in 
my testimony is key. The time to act is now, and we stand ready 
to work with you.
    Thank you for the opportunity to share our thoughts with 
you today. I welcome any questions you might have.
    Chairman Crapo. Thank you.
    Mr. Heitkamp.

 STATEMENT OF R. SCOTT HEITKAMP, PRESIDENT AND CEO, VALUEBANK 
   TEXAS, ON BEHALF OF THE INDEPENDENT COMMUNITY BANKERS OF 
                            AMERICA

    Mr. Heitkamp. Good morning, Chairman Crapo, Ranking Member 
Brown, and Members of the Committee. My name is Scott Heitkamp, 
and I am President and CEO of ValueBank Texas, in Corpus 
Christi, Texas. I am also Chairman of the Independent Community 
Bankers of America, and I testify today on behalf of more than 
5,800 community banks we represent. Thank you for convening 
today's hearing.
    ValueBank Texas is a $213 million bank with nine offices in 
Corpus Christi, Texas, and Houston and 114 employees. We 
specialize in small business and residential mortgage lending. 
What ValueBank and other community banks do from inside a local 
community cannot be done from outside the community. With the 
direct knowledge of the borrower, the community, and local 
economic conditions, we offer customized terms and make loans 
that larger banks pass over. This is our competitive advantage 
and the reason why we must be part of any plan to foster local 
economic growth.
    The economic recovery has been painfully slow and has 
failed to reach many individuals and communities. Community 
banks are uniquely suited to reach struggling households and 
small businesses. We have a direct stake in the success of 
communities, and we are eager to help.
    Unfortunately, in recent years a sharp growth in regulatory 
burden has made it increasingly difficult for community banks 
to lend and foster local economic growth. Regulatory overreach 
has created two problems in particular:
    First, it has contributed to rapid consolidations. Banks 
need a larger scale to amortize the increasing cost of 
compliance. Today there are some 1,700 fewer community banks 
than there were in 2010. This will harm competition and leave 
many small communities stranded without a local community bank.
    Second, overregulation has created a very tight credit box. 
Too many would-be borrowers are being denied credit in today's 
environment.
    The good news is that solutions are at hand. ICBA's Plan 
for Prosperity includes over 40 recommendations that will allow 
Main Street and rural America to prosper. A copy of the plan is 
attached to my written statement. Provisions of the Plan for 
Prosperity are found in a number of bills introduced in the 
House and the Senate, including the CLEAR Relief Act, S. 1002, 
a consensus, bipartisan bill introduced by Senators Moran and 
Tester. ICBA thanks the Members of this Committee who have 
cosponsored S. 1002.
    I would also like to thank Senators Rounds and Heitkamp for 
introducing S. 1310, a bill to provide relief from the new HMDA 
mandates. The bill is also cosponsored by Senators Hoeven, 
Kennedy, Donnelly, and Tester. We strongly encourage this 
Committee to consider S. 1002 and S. 1310 and other bills that 
would include meaningful regulatory relief for community banks.
    Thank you again for this opportunity to testify today, and 
I look forward to your questions.
    Chairman Crapo. Thank you, Mr. Heitkamp.
    Mr. Bergl.

   STATEMENT OF DALLAS BERGL, CHIEF EXECUTIVE OFFICER, INOVA 
 FEDERAL CREDIT UNION, ON BEHALF OF THE CREDIT UNION NATIONAL 
                          ASSOCIATION

    Mr. Bergl. Chairman Crapo, Ranking Member Brown, Members of 
the Committee, I am Dallas Bergl, the CEO of INOVA Federal 
Credit Union, in Elkhart, Indiana. I am also a member of the 
Board of Directors of the Credit Union National Association on 
whose behalf I testify today.
    INOVA Federal Credit Union is celebrating our 75th 
anniversary and proudly serves over 32,000 members with small 
loans, auto loans, mortgages, and a variety of deposit 
accounts, along with member financial education. INOVA has $336 
million in assets, but we are quite small compared to the large 
national banks. To our community, however, our credit union is 
an invaluable financial lifeline because we provide products 
and services that larger financial institutions and nonbank 
lenders often do not.
    Elkhart became a symbol of distressed Middle America during 
the Great Recession. Our area is a national leader for RV 
manufacturing, and we were really hit hard during the 
recession. In fact, our community's unemployment rate tripled, 
to over 20 percent. It was during this downturn that the 
importance of a credit union to a community like ours became 
even more apparent.
    Many consumers across America are facing financial 
struggles. Our credit union strives to meet their needs. That 
is because Congress gave us a mission to promote thrift and 
provide access to credit for productive purposes, and this 
investment pays off. When individual communities like Elkhart 
thrive, so does the Nation.
    I would like to be able to say that credit unions face no 
hurdles in our pursuit to fulfill this statutory mission. 
Sadly, this is not the case. We supported the Government's 
reaction to the bad policies that allowed anti-consumer 
practices, ``too big to fail'' institutions, and economic harm 
to Americans. We did not expect and we do not support the 
onslaught of new regulatory burdens on credit unions while the 
biggest banks get even bigger. That simply does not make sense, 
but we are the ones who put our members first.
    Credit unions have expressed concern over new regulations 
on mortgages, remittances, and other financial products. We 
have repeatedly asked for tailored regulations that allow 
credit unions to responsibly serve their members and protect 
consumers from bad practices elsewhere in the industry.
    Contrary to what has been said, opposing one-size-fits-all 
regulations is not caving in to Wall Street; rather, it is 
untying the hands of credit unions and small banks to allow us 
to better serve our communities. In truth, the current 
regulatory scheme only serves to benefit the largest banks and 
predatory lenders that have resources to game the system. This 
should not be how the world works.
    I truly believe that my credit union and their members, as 
they thrive, so does our community. My written testimony 
provides specific recommendations on how Congress and the 
regulators can provide common-sense regulations to ensure that 
credit unions can do even more to promote economic growth 
across the country. I fear that without regulatory reforms, 
credit unions and community banks in their current form will 
not survive.
    Thank you.
    Chairman Crapo. Thank you.
    Mr. Bissell.

STATEMENT OF JOHN BISSELL, PRESIDENT AND CEO, GREYLOCK FEDERAL 
                          CREDIT UNION

    Mr. Bissell. Chairman Crapo, Ranking Member Brown, and 
Members of the Committee, it is my honor today to share the 
experiences of Greylock Federal, where we serve more than 
75,000 families and small businesses in rural Berkshire County 
in the hills of western Massachusetts. Our region, like so 
many, is making the painful transition from a manufacturing 
base that once offered 12,000 GE jobs to a service economy with 
close to zero GE jobs. The population in my hometown of 
Pittsfield, Massachussetts, has dropped from 58,000 to 40,000 
just during the course of my lifetime.
    While we are relieved to now see our local economy 
recovering, too many families are being left out. Twenty 
percent of families with children younger than 5 are living in 
poverty, and 34 percent of children in my area are growing up 
in single-parent households.
    In addition, when we think about putting people back to 
work, our mass transit system in western Massachusetts is very 
weak. For working families living on the edge of financial 
stability, a failed transmission or a dead battery in their car 
means an immediate loss of income.
    As the only CDFI credit union in the region and with our 
strong $1 billion balance sheet, we at Greylock recognize our 
responsibility to do more. We formed a community development 
team with two full-time employees and seven certified financial 
counselors who are now offering free financial education, 
credit counseling, and budgeting assistance to every person in 
our community.
    Further, to put more people to work, we are expanding our 
New Road Loan Program for people with credit challenges. When 
they buy a reliable car and make on-time payments, their credit 
score goes up and their interest rate goes down. We are also 
expanding our Greylock Safety Net lending so that when a family 
has an unexpected emergency, they can come to us instead of 
falling in with a predatory lender. And, finally, we are 
broadening our small business lending and technical assistance 
to help more people transition to entrepreneurship. These steps 
all taken together should help nearly 3,000 more local families 
participate in the economic turnaround.
    In conclusion, I want to offer my own thoughts on the role 
of regulation. The people I am concerned about in Berkshire 
County are still hurting. And make no mistake about it, these 
consumers need protection. The abuses and predatory practices 
that brought about the Great Recession destroyed 40 percent of 
American household wealth. Black families lost 50 percent of 
their household wealth, and Latino families lost 67 percent.
    If we thought the abusive and fraudulent practices 
exercised by big banks had ended, we received a rude awakening 
with the Wells Fargo scandal.
    Consumers need and deserve much stronger protection than 
they had previous to 2010. And while I want smarter regulation 
as much as anybody, I ask that you please, as you think about 
steps to refine regulation, do not allow a repeat of the 
excesses and predatory practices that precipitated the crisis 
in the first place. Please remember that 6,000 credit unions 
across this country are hard at work to grow their local 
economies, and we are a vital force in that effort.
    I thank you for your kind attention, and I am happy to 
answer any questions you may have.
    Chairman Crapo. Thank you.
    Mr. Levitin.

  STATEMENT OF ADAM J. LEVITIN, PROFESSOR OF LAW, GEORGETOWN 
                     UNIVERSITY LAW CENTER

    Mr. Levitin. Chairman Crapo, Ranking Member Brown, Members 
of the Committee, good morning and thank you for inviting me to 
testify today.
    There is good news and bad news about the role of local 
financial institutions in creating economic growth. The good 
news is that community banks and credit unions are thriving. A 
higher percentage of community banks are profitable today than 
at any point in the last 20 years, and the percentage of 
profitable credit unions has increased every year since the 
Dodd-Frank Act.
    To be sure, consolidation continues among both banks and 
credit unions, but industry consolidation is a long-term trend 
that predates Dodd-Frank. There is no indication that Dodd-
Frank is contributing to community banking or credit union 
consolidation. The chart on page 6 of my written testimony 
shows that there is no change in the rate of consolidation 
since Dodd-Frank. Instead, consolidation is driven by small 
institutions' lack of economies of scale and for community 
banks by generational transition problems when they are family-
owned banks.
    In spite of these challenges, however, credit unions and 
community banks are prospering. Credit union assets and 
membership are up substantially since Dodd-Frank. Likewise, 
community banks' return on assets and return on equity are both 
up substantially. In fact, since Dodd-Frank, community banks' 
equity has substantially outperformed the S&P 500. That is the 
good news.
    The bad news is that most American families do not have it 
so good. Most American families have seen their real incomes 
drop since 2010. Thus, during a period when the U.S. economy 
grew 9 percent on an inflation-adjusted basis, median household 
income fell by 0.6 percent.
    Of course, not all families are doing poorly. The real 
income of the top 10 percent of American households increased, 
and most of that went to the top 1 percent. And what this tells 
us is that the problem is not one of economic growth but of 
economic distribution. It is important that economic growth be 
a tide that lifts all ships, and that has not been happening.
    Unfortunately, many of the proposals made by the financial 
services industry in response to this Committee's request for 
proposals have little or nothing to do with improving the 
economic condition of American families. Instead, the bank 
trade groups have proposed a set of deregulations that are not 
appropriately tailored to small institutions but would also 
cover mega banks and, thus, put the American families and the 
stability of the financial system at risk.
    Rather than pretending that deregulation is synonymous with 
growth, we should be having a conversation about how to ensure 
that growth benefits all Americans. In terms of this 
Committee's ambit, it means addressing the continued specter of 
too-big-to-fail so that we do not end up with privatized gains 
and socialized losses and that we do not have harmful 
spillovers from risky behavior by mega banks that hurt 
families, small businesses, and small banks and credit unions.
    It means addressing anticompetitive practices such as 
credit card swipe fee pricing, which is a $73 billion annual 
regressive wealth transfer from American consumers to banks. It 
means facilitating more robust competition among financial 
institutions for deposits by enhancing account and financial 
data portability. And it means tamping down on excessive 
speculative activity, such as by maintaining the Volcker rule 
and enacting a 21st century Glass-Steagall Act.
    I look forward to having that conversation.
    Chairman Crapo. Thank you very much.
    My first question will be to Ms. Savarese and Mr. Heitkamp. 
The Volcker rule was implemented to prohibit trading by banks 
using their own money or proprietary trading. Community banks, 
by and large, have very little trading activity with the 
exception of general operational hedging. The OCC and former 
Governor Tarullo have expressed support for exempting community 
banks from the Volcker rule.
    Ms. Savarese and Mr. Heitkamp, can you elaborate on the 
importance of reforming the Volcker rule by exempting financial 
institutions that do not engage in significant trading 
activity?
    Ms. Savarese. Chairman Crapo, no one would encourage the 
speculative use of customers' money for investments, and so the 
Volcker rule was intended to direct itself at that. You know, 
one of the things in my bank is we consider ourselves a 
learning organization, and I think that we have seen from the 
implementation of the Volcker rule that there have been 
complications that have arisen as a result of that. And to your 
point, there are some institutions for which it is just simply 
not applicable.
    Having a more nuanced approach, which has been encouraged 
by the regulatory agencies, to reflect an appropriate 
application of this rule based on size and complexity certainly 
seems to be in order.
    Chairman Crapo. Mr. Heitkamp.
    Mr. Heitkamp. I tend to agree. The Volcker rule--size and 
complexity is where we need to be. I think you are looking at 
how you handle those individual issues are very important, size 
and matter, and how they are fundamentally handled.
    Chairman Crapo. Thank you.
    Mr. Levitin, you mentioned the Volcker rule. I was curious 
as to whether you agree that, with regard to community banks 
and credit unions, there is a justification for exemption.
    Mr. Levitin. I believe that for small community banks and 
credit unions there is reasonable grounds for an exemption. But 
I think it is important to keep any exemption narrowly tailored 
to what are truly community financial institutions. 
Institutions that start passing a $10 billion threshold I think 
we need to be much more careful about.
    Chairman Crapo. All right. Thank you.
    And for Mr. Grooms and Mr. Bergl, studies demonstrate that 
many small lenders have stopped or significantly decreased 
mortgage lending since the passage of the qualified mortgage 
rule. There has been bipartisan support for providing qualified 
mortgage status for loans held in portfolio by the lender.
    Mr. Grooms and Mr. Bergl, can you describe how this reform 
would allow you to have more flexibility in extending credit?
    Mr. Grooms. Thank you, Chairman Crapo. We feel mortgages 
are an integral part of what we do to take care of our members. 
What we have seen is an increase in regulation associated with 
the paperwork and the ability to grant loans to our members. 
Our goal is to make it easy for them, and what we have seen 
recently with Dodd-Frank and the increased paperwork associated 
with that is anywhere from 85 to 100 pages worth of 
documentation that they have to review and sign, and the 
reality is that they are just not going to go through and read 
each one of those.
    With the qualified mortgage rule, with a debt-to-income 
ratio of 43 percent, it limits our ability to go beyond that 
and to exercise some good judgment to those that really would 
qualify. Our concern is we do not want to put ourselves at risk 
and take any undue risk to make that loan. So it has made it a 
little bit more difficult as well as a little bit more 
expensive with the costs associated with the increased 
regulation.
    Chairman Crapo. Mr. Bergl.
    Mr. Bergl. Thank you, Chairman. The changes in the mortgage 
rules, particularly around TRID and QM, have adversely affected 
our mortgage lending considerably. It has become about three 
times more expensive to produce the documents under the TRID 
rules, and the QM rule's 43 percent debt-to-income is adversely 
selecting borrowers that might otherwise qualify had the QM 
rules not been in place.
    The peril to us as a financial institution for holding QM 
loans on our portfolio would be that they are potentially not 
going to be available for sale in the secondary market for 
liquidity reasons and other asset/liability management reasons 
for a credit union. So relief from that would certainly be a 
helpful thing both for consumers, for economic growth in our 
community, and for our credit union, and any relief around the 
mortgage rules would also help our mortgage lending. Mortgage 
lending has truly grown. However, the fact of the matter is 
that smaller banks and credit unions are not getting as much of 
that business.
    Chairman Crapo. All right. Thank you.
    Senator Brown.
    Senator Brown. Thank you, Mr. Chairman.
    I remember about a decade ago, soon after I got on this 
Committee--maybe a little less than a decade--when it was clear 
what was happening to the financial industry in large part 
because of Wall Street malfeasance and misfeasance, I remember 
a conservation I had with a community banker in southwest Ohio 
who was pretty shocked by what was happening to his FDIC costs 
and FDIC assessments.
    Wall Street reform, as you remember, changed to be very--as 
we were very aware of what was happening in community banks 
with FDIC charges, assessments, we changed under Dodd-Frank how 
the FDIC charges those assessments on insured banks. Risky or 
large banks now pay more than smaller, less risky banks.
    Ms. Savarese and Mr. Heitkamp, how much have you saved on 
assessments since the second quarter of 2011 when the change 
was put in place? You spoke eloquently and directly on what 
Dodd-Frank meant to you on maybe the more negative side. What 
did it mean to you in terms of FDIC assessments beginning, as I 
said, the second quarter of 2011? Ms. Savarese, if you would 
answer, and then Mr. Heitkamp.
    Ms. Savarese. Ranking Member Brown, that is not information 
I have with me today, but I would be more than happy to share 
that with you as a follow-up and give you detailed information.
    Senator Brown. Thank you. Do you remember, Ms. Savarese, 
that it was significant for your bottom line and for your cost 
savings?
    Ms. Savarese. It was a meaningful impact. It certainly was. 
I just cannot recall percentage-wise what that was.
    Senator Brown. I would like to see the numbers. Fair 
enough.
    Ms. Savarese. I would be happy to, Senator.
    Senator Brown. OK. Thank you.
    Senator Brown. Mr. Heitkamp.
    Mr. Heitkamp. I do not have the numbers here either. I can 
tell you that it did help us. I do not think it was something 
that was huge, but it was a positive way to get the assessments 
back. But I do not have that number, and I can provide that for 
you, too.
    Senator Brown. I just think it is important. I asked that 
question; I did not expect you necessarily to be able to just, 
you know, easily regurgitate the number. But I think it is 
important to remember that sometimes some of these rules may 
have cost some money, but they helped with safety and soundness 
of the whole system, always understanding that you two did not 
contribute to the financial implosion that Wall Street 
contributed to. But I think it is important to sort of look at 
all sides of savings and costs.
    Mr. Bissell, similarly, the cost to the NCUA Corporate 
Stabilization Program was $4.8 billion, which came straight out 
of the pockets of credit unions and was a direct result of the 
financial crisis. These costs obviously hurt credit union 
bottom lines. How did these costs impact your credit union in 
relation to the costs of regulation or compliance?
    Mr. Bissell. If I could use the example that has been 
brought up so far of the TRID changes, when that change came 
down, our teams got together, figured out what the impact was 
going to be on our systems and our membership, and we made 
plans to replace one of our software vendors so that we could 
keep up with the changes in TRID. And that entire process cost 
us about $50,000.
    By contrast, the corporate credit union bailout that you 
referenced that took place during the crash, the Great 
Recession, cost our credit union more than $8 million. So the 
cost, as I said, is unacceptably high of the factors that led 
to the Great Recession. So Greylock's share of the corporate 
credit union bailout process was more than $8 million.
    Senator Brown. Would you think that when something happens 
like happened 10 years ago, when we tried to--people suggest 
cost-benefit analysis, which may be a little easier on a worker 
safety rule or a clean up Lake Erie rule cost-benefit analysis 
than it is a financial services rule. Would you suggest that 
the cost of a rule or something you need to implement may be 
significantly less than the cost to your institution if there 
is a financial implosion of some kind?
    Mr. Bissell. Well, I certainly would. The $50,000 expense 
that we put in place to deal with TRID was largely a one-time 
expense. We now run a better software platform than we ran 
before. But that $8 million is not coming back. That is our 
members' money. It came straight out of our capital.
    In addition, it cost us a great deal more than that in loan 
charge-offs when the Great Recession hit, both mortgage loans 
and commercial loans. We took a big hit. Our entire community 
did. So, yeah, I mean, the cost-benefit to me is not at all 
equal.
    Senator Brown. Are you different from any other--are you 
markedly different in that assessment of the cost you had 
versus the--the cost you had with TRID versus the cost of the 
bailout, as you call it, are you significantly different from 
other credit unions, or is that pretty widely held----
    Mr. Bissell. No, my understanding is it was based on, you 
know, a ratio across assets, and healthy credit unions needed 
to pay--I mean, the good news is that the credit union system 
bailed itself out. There was no taxpayer dollars expended 
during that. That is the really good news. We were the 
resilient system that we are supposed to be during a downturn. 
The bad news is it cost my credit union $8 million, and if you 
look at other credit unions that might be smaller, they also 
paid a large percentage based on their assets.
    Senator Brown. Thank you very much.
    Mr. Bissell. Thank you.
    Chairman Crapo. Thank you.
    Senator Scott.
    Senator Scott. Thank you, Mr. Chairman. Good morning to the 
panel. Certainly I have some experience with credit unions. I 
served on a credit union board for about 7 years in a former 
life many, many years ago, so I appreciate the impact that 
small financial institutions have in our communities. It is an 
impact that is really hard to replace. You do not have a 
number. You have a name, and you have a relationship with so 
many folks in those financial institutions, so it is without 
doubt very important that we continue to see more credit unions 
and more small banks populate throughout our Nation.
    Unfortunately, that is not the trend, and that leads to a 
very
important point that in South Carolina, about 9 percent of our 
population is totally unbanked; another 23.5 percent or so are 
underbanked. When you look at the trends in financial 
institutions
consolidating as well as closing, it means that those folks in 
rural communities in South Carolina--South Carolina being such 
a rural State--will have fewer options, less access--less 
access to start a business, less access to sit down and have 
the conversation with someone in a financial institution who is 
an expert at borrowing money for a home. So these impacts have 
a real manifestation on the quality of life that will be 
experienced by those folks.
    I think that we are seeing a financial institution or 
credit union closing at least about one a day. Somewhere around 
1,917 banks have disappeared since Dodd-Frank. We have only 
seen, I think it is, one credit union open in the last year or 
so. We were averaging eight beforehand. This is a devastating 
and persistent trend that means it really has a negative impact 
on the very folks who are fragile and vulnerable in our 
economy.
    I would love to hear, Ms. Savarese, what you think the 
major factors are driving the consolidation that is happening 
as well as the lack of new financial institutions. And, Mr. 
Grooms, I would love to hear your comments as well.
    Ms. Savarese. Thank you, Senator Scott. You have said so 
much that I would like to say. In fact, there has only been 
five new banks chartered in the last 7 years, so to your point, 
and this consolidation trend continues to accelerate.
    I have spent the last 3 years traveling around the country 
into a lot of rural areas. I have visited with bankers from 33 
States and heard from all 50, and I was just with a banker on 
Monday who lives in a town of 68, and I know that if he goes 
away, the people in his town will not have access to that.
    So what are the factors that are leading to that, you are 
asking. Well, certainly, we can argue the low interest rate 
environment, the protracted recovery have had an implication 
for this. Economies of scale and technology, those are all 
factors.
    In addition, the additional regulatory burden and the 
expenses with that are something that these bankers tell me are 
forcing them to make the strategic decisions about merging or 
selling or closing. Succession issues are a challenge in rural 
areas. They have that as well. But if you think about it, do we 
really want to add to that consolidation trend if there is a 
way that we can support those communities banks in serving the 
unique needs of their communities? And you have heard all the 
stories from your constituents about that person-to-person 
relationship. Right now, in one out of five counties in the 
United States, the only financial services they have there is a 
community bank. And if that community banker and our brethren, 
the credit unions, go away, what is going to happen?
    So what can we do to lessen the expense of the compliance 
overlay? And how can we mitigate that to help those community 
banks and financial institutions?
    Senator Scott. Mr. Grooms, I only have about 40 seconds 
left.
    Ms. Savarese. Sorry.
    Senator Scott. You will have to be succinct.
    Mr. Grooms. Not a problem. Thank you for that question. 
Because of the financial meltdown, margins shrunk as rates went 
down. The increase in regulatory burdens, expenses associated 
with that, we have seen smaller credit unions not able to take 
care of the costs associated with that and have to merge.
    Senator Scott. Yes, sir.
    Mr. Grooms. We have shut 3 out of 10 branches down over the 
last 4 years as a result of the challenges that we have faced 
with costs associated with increased regulatory burdens.
    Senator Scott. Thank you. And, Mr. Chairman, I will just 
say in my last seconds here that a couple days ago we had Dr. 
Hassett testifying before this Committee, and he was testifying 
on the fact that we have had a very uneven economic recovery. 
If you think about the lack of access to financial institutions 
to borrow money for a home or to start a new business, we might 
ask ourselves how do we expect for those rural areas that are 
on the wrong side of an uneven economic recovery to stimulate 
growth and opportunities when the access to the capital, the 
glue that makes things happen, is missing.
    Thank you, Mr. Chairman.
    Chairman Crapo. Thank you.
    Senator Tester.
    Senator Tester. Thank you, Mr. Chairman. And I would want 
to welcome my friend Steve Grooms here today. Steve, we do not 
often get a Montanan in front of this Committee. I think we 
have two this month. You are here this week, and we have got 
another one next week. But I just want to let the Committee 
know that Steve runs a great institution, and he understands 
small institutions but, more importantly, understands rural 
America. So it is great to have you here.
    I am going to start out with my question to Mr. Levitin, 
and that is, would you agree that access to capital is pretty 
critical when it comes to economic development?
    Mr. Levitin. Absolutely.
    Senator Tester. Yes. Let me give you the lay of the land in 
Montana, not from a credit union standpoint but from a banking 
standpoint, because I have got those statistics in front of me. 
We
currently have 42 banks that are domiciled in Montana. Twenty 
of those banks are less than $100 million. Twenty of those, 
almost half, less than $100 million. Three are over $1 billion, 
and we do not have a one over $10 billion. Since 2010, we have 
had 30 mergers in the banks alone--not the credit unions, just 
the banks. And so that is a pretty good cut. Now, that is the 
bad news.
    The good news is that they have been bought up mostly by 
banks inside Montana, so those branches have stayed open. But 
if we continue down this line, I will tell you they will sell 
out to the big guys, to one of the five big ones, and then I 
guarantee you those communities will not have branches because 
they will close them down the same way Steve has had to with 
four of his branches. And those communities will not have 
access to credit.
    We are talking about areas where, if you close the bank 
down in my little town, I have got to go 50 miles. And I 
guarantee you that if JPMorgan Chase owned that bank, they 
would close the one down that is 50 miles away.
    So we have got a real problem in rural America, and it is 
one of the reasons why I think it is very critical that we 
address this issue of regulation because, as Ms. Savarese has 
pointed out, you have economies of scale with regulation and 
technology. And if we continue the way we are, the very people 
that we are concerned about, the big guys, we are empowering 
them by reducing competition in the marketplace.
    So, Steve, I am going to go back to you now since I have 
been talking about banks. Over the last 8 years, can you tell 
me how your regulatory burden has changed in a credit union of 
$170 million?
    Mr. Grooms. Thank you, Senator Tester. Thank you for your 
support of credit unions and all you do to help the little guy, 
make sure they are taken care of.
    Over the last 8 years, we have seen significant increases 
to the regulatory burden. With CFPB, we have an additional 
regulator that is an added burden that we have to deal with. We 
have talked about the TRID, the qualified mortgages. It has 
been about $350,000 worth of added expense we have calculated, 
as we have had to hire an additional compliance specialist. We 
have had to bring in three or four different pieces of software 
to assist us. We are having to do some reporting with the HMDA 
manually and collect some of this information. So rules are 
changing in January of 2018, went from 13 to 25, they are 
talking 40 to 48 more data points that we have to figure out 
how to collect. This is a pretty significant burden, and when 
the financial meltdown took place, we felt like we were wearing 
the white hat helping those that needed the help. But we are 
getting painted with a broad brush with the big guys that has 
really made it difficult, particularly for small credit unions.
    Senator Tester. So in your bank of $170 million, it was an 
additional cost of about $350,000. Is that over the 8 years or 
is that per year?
    Mr. Grooms. That is over the last 7 years.
    Senator Tester. Over the last 7 years. And could you, Ms. 
Savarese, very quickly tell me what kind of impact it has had 
on your bank?
    Ms. Savarese. Well, one of the things that we just did, 
Senator, was an analysis of our non-interest expense in the 
institution and how much was related to compliance. And I do 
not have a baseline from before Dodd-Frank, but right now over 
24 percent--so $1 out of every $4--goes to compliance-related 
expenses. And on the mortgage side, it is over a third. So out 
of every dollar that I spend that is not related to interest, 
is related to compliance.
    Senator Tester. Thanks for those comments. I would just say 
this: I mean, I think that we need to have profitable community 
banks. We need to have a profitable banking system, quite 
frankly, and we need to have credit unions out there that are 
doing what they need to do to make sure that they are serving 
their customers.
    My concern is from a Montana perspective that if we 
continue without adjustment, with all the best of interest, we 
will end up not having access to capital in rural America. When 
that happens, we have got a big problem in this country.
    I want to thank the Chairman and Ranking Member for having 
this hearing.
    Chairman Crapo. Thank you, Senator Tester. I agree with 
those concerns.
    Senator Rounds.
    Senator Rounds. Thank you, Mr. Chairman.
    During the 114th Congress, I introduced legislation that 
would provide relief for community financial institutions that 
would have to report new data points as a result of CFPB's 
amending of the Home Mortgage Disclosure Act, or HMDA. I have 
been working at introducing new legislation in this Congress--
as a matter of fact, we introduced it yesterday--that basically 
would exempt smaller institutions from the post Dodd-Frank HMDA 
data reporting requirements due to come online in January of 
2018, I believe. Senator Heitkamp and I are cosponsoring that 
legislation.
    For those on the panel whose institutions would be involved 
in the consumer mortgage market, could you comment on some of 
the challenges you face getting ready for the new HMDA data 
reporting requirements and the relief that this legislation 
might offer to you and your institutions?
    Mr. Heitkamp. Happy to. I think it is huge. I want to tell 
you thank you very much for that. Right now, the 23 points that 
we are collecting right now is already a lot of work that we 
are doing, but we are already trying to get ready for the new 
collection. We are starting to implement processes in the bank 
to actually collect that data so we will be ready for next year 
when we do have to start reporting. And I can tell you my staff 
has already reported it is substantial because it is now going 
to 48 data points. So it is checking. So we have hired 
several--well, we have two people in our bank instead of one, 
and then we have also hired outside counsel to help us with 
making sure that we are getting the right data in the right 
places.
    Senator Rounds. It would be an ongoing cost?
    Mr. Heitkamp. It would be ongoing.
    Ms. Savarese. And, Senator, in addition to the ongoing 
cost, the startup cost, as Scott is saying, is--we set up 
priorities for strategic projects in the bank, and it sort of 
makes me sad that on top of doing things like introducing new 
basic banking, checking account, and some things that serve our 
consumers more effectively, we have to have the HMDA 
preparation as a major initiative taking up time, technology, 
and taking it away from the things that we could do to serve 
our customers.
    Senator Rounds. Well, unfortunately, we probably will not 
be able to save the costs, the originating costs that some of 
you are going to bear, and I notice all of you--have all of you 
made money in the last couple years? Is anybody not making 
money? See, you are business people. You are going to make 
money. You are going to spend the money when it comes to the 
regulatory requirements. But then you are going to pass it on. 
Somebody else is going to take that cost, and I think that is 
the part that sometimes gets lost, particularly in our smaller 
banks.
    Let me just ask--and I am just going to ask for a yes or 
no. Have you raised fees in the last couple of years to your 
consumers? Let us go right down the line.
    Ms. Savarese. Yes.
    Mr. Grooms. Yes.
    Mr. Heitkamp. Yes.
    Mr. Bergl. We had to raise our mortgage origination fees 
specifically.
    Senator Rounds. Sir?
    Mr. Bissell. We have begun to cut as many fees as possible 
for our customers. You are right that those costs have to go 
somewhere, but we have tried very hard to not put that into 
fees and put it on the backs of our membership.
    Senator Rounds. In this particular case--and I will ask 
this of Mr. Bissell--would the HMDA legislation that we have 
proposed impact your institution?
    Mr. Bissell. It would, yes. We are the top mortgage 
provider in our market. About one out of every four mortgages 
is originated by Greylock.
    Senator Rounds. I recognize that each of you will have a 
different opinion on it, but I am just curious. Do you see the 
additional data points that would be required under this 
legislation--did you feel it was necessary that your 
institution collect those data points?
    Mr. Bissell. Well, I want to acknowledge up front that we 
are a larger institution. We are $1 billion. And so as a larger 
institution, I have the luxury of a large IT department, a 
large lending department, and a large risk management and 
compliance department. So I am certainly conscious of the fact 
that at a smaller institution the impact of collecting those 
data points could feel much larger to them. So our approach is 
we understand what is coming down, and we adjust our business 
model to meet that.
    Senator Rounds. And I think that is a lot of what we are 
hearing here today when we talk about fewer banks being created 
in terms of new ones coming online, and those that are smaller 
are being picked up by large ones who actually have the size to 
be able to afford the added regulatory compliance capabilities.
    I am just curious. I want to run into another one that we 
have talked about, and that is the TAILOR Act. Earlier this 
year, we introduced the TAILOR Act, which would require Federal 
regulators to more precisely tailor the regulations they issued 
based upon the risk profile of the institutions. Secretary 
Mnuchin echoed the idea that the bank regulations should be 
tailored to the activity, not based on size alone. And I am 
running out of time, but could I just very quickly get either 
agree or disagree that something along the lines of the TAILOR 
Act would be beneficial or not beneficial to the consumers that 
you serve?
    Ms. Savarese. Completely agree.
    Mr. Grooms. Agree.
    Mr. Heitkamp. Agree.
    Mr. Bergl. Agree.
    Mr. Bissell. I think scaling things appropriately makes 
sense.
    Senator Rounds. Thank you.
    Thank you, Mr. Chairman.
    Chairman Crapo. Thank you.
    Senator Warren.
    Senator Warren. Thank you, Mr. Chairman. Thank you all for 
being here. I am glad to see that two of our witnesses here 
today are from Massachusetts: Ms. Savarese, Mr. Bissell. So 
thank you for the work you do. It is good to see you in DC.
    These hearings are about ideas to encourage economic 
growth, and every single banking trade group represented on 
this panel sings pretty much the same song, and that is that 
the key to stimulating economic growth is rolling back the 
rules in their part of the banking industry.
    I have concerns about these proposals, but today I want to 
focus on just one. In Dodd-Frank, Congress directed the Fed to 
impose tougher rules on banks with more than $50 billion in 
assets. That is about 40 giant banks altogether, the top one-
half of 1 percent. Now, together, these 40 banks control more 
than $14 trillion in assets, which is about 95 percent of all 
the banking assets in the country by just these 40 banks.
    One proposal which Republicans on this Committee pushed 
last year is to raise that $50 billion threshold to $500 
billion, exempting dozens of huge banks from tougher scrutiny.
    Professor Levitin, do you think that this poses risks to 
the safety of the financial system?
    Mr. Levitin. Yes, I absolutely do, Senator Warren. We know 
that the failure of banks that were far smaller than $500 
billion--such as Washington Mutual, which I think was around 
$300 billion; Countrywide, which was never more than about $120 
billion--we know that the failures of much smaller institutions 
than $500 billion have had serious systemic effects on the 
financial system. Frankly, it is rather reckless to consider a 
$500 billion threshold.
    Senator Warren. So this change would pose real risks. In 
your view, would the change stimulate any meaningful economic 
growth?
    Mr. Levitin. No. To the extent that there are any savings 
from compliance costs there for the larger banks, it is much 
more likely that they would get passed on to the banks' 
shareholders in the form of higher dividends than to consumers 
in terms of lower rates on loans because the market for capital 
is more competitive than the market for--than the consumer 
market.
    Senator Warren. Thank you.
    Now, an alternative proposal may actually be worse, and 
that is eliminate the $50 billion threshold entirely, cut 
nearly every giant bank loose, and direct American regulators 
to apply stricter standards to these banks only if they meet a 
set of criteria established by an international banking 
regulatory body.
    Ms. Savarese, your organization submitted a letter to this 
Committee in support of that proposal. One of the factors the 
bill requires is that our regulators must look at the global 
reach of a bank. Do you think that a bank can impose a risk on 
the U.S. economy only if it has international operations?
    Ms. Savarese. I think what the bill proposes is that there 
is a broader analysis of the complexity of the institution and 
the systemic risk that it presents. And so there were actually 
five different things that could be taken into account. Each 
one was not mandatory, so, for example, you could have an 
institution that did not have international interconnectedness 
and, therefore, that would not be applicable to that 
circumstance.
    However, what they are saying is for those that do, you 
should take that into account in judging the risk. It is a 
risk-based approach.
    Senator Warren. If I can, I just want to understand, and 
that is the part I am not quite getting. There are only five 
factors. One of the five factors is about international 
connections, and I am just trying to understand why it is 
there.
    The way I see it, it makes no sense to apply a set of 
international standards to determine whether or not there is a 
threat to our domestic economic system, that that is actually 
where we should keep our attention. And I do not quite 
understand the ABA's argument on this aspect of financial 
regulation.
    Ms. Savarese. I think that the point is to enhance the 
risk-based analysis by adding factors, and if you think about 
it, if a bank has international interconnectedness, it actually 
has a little bit of a higher risk profile than one that does 
not. And so if I am the regulator, I am going to want to 
understand that so that I can then say, hey, are those global 
events going to impact this? And, by the way, we still have an 
invitation to you to come to our bank.
    Senator Warren. And I am ready.
    Ms. Savarese. I would like you to do that. Good.
    Senator Warren. You know, the only thing I would say on 
this--because I do worry about banks like Countrywide that were 
entirely--had nothing but domestic operations, obviously got 
big and brought down the economy. I think it is really 
dangerous to mess with the $50 billion threshold. The banks 
that would be cut loose under these proposals can pose a real 
threat to the economy. Look at what happened in the 2008 
crisis. You know, Countrywide in 2006 had less than $200 
billion in assets, but was responsible for 17 percent of all 
the mortgage originations in the country. And when they failed, 
it sent shock waves throughout the entire economy.
    The same thing could happen again with a bank of that size. 
In my view, it is better to keep the regulation threshold where 
it is. Let the Fed tailor their rules, as it has been doing 
already, and stay focused on risk.
    Thank you, Mr. Chairman.
    Chairman Crapo. Thank you.
    Senator Donnelly.
    Senator Donnelly. Thank you, Mr. Chairman. And I want to 
also thank our Ranking Member. And I want to quickly recognize 
one of today's witnesses: Dallas Bergl, the CEO of INOVA 
Federal Credit Union, in Elkhart, Indiana. I am pleased to see 
someone else from Indiana here before us. I have known Dallas 
for a long time. He has been an extraordinary leader not only 
in the credit union world but in the financial world as well.
    As I said, within the credit union industry, Dallas is 
very, very respected not only in Indiana but nationally, as he 
serves on the Board of Directors of both the Indiana Credit 
Union League and CUNA. We appreciate you being here today, Mr. 
Bergl, and I look forward to your testimony and, therefore, I 
will start with you.
    While we look at this, last summer Senator Ben Sasse and I 
wrote a letter to CFPB Director Cordray, garnered roughly 70 
signatures from our colleagues urging the CFPB to utilize their 
Dodd-Frank authority to more carefully tailor financial rules 
to match the unique roles of community banks and credit unions. 
The fact that 70 Senators agreed to sign speaks to the 
widespread support here for common-sense regulatory relief.
    And so what I would like to ask you is to bring that 
Hoosier common-sense perspective to this. Can you highlight the 
section of your testimony that you think speaks to the need for 
a more tailored approach from the CFPB and from any other 
regulators?
    Mr. Bergl. Thank you, Senator, and we very much appreciate 
your leadership on that letter and the work you did in the 
House as Dodd-Frank was being structured to try to provide a 
system in which smaller banks and credit unions would not be 
swept up with the bad players of the time.
    Unfortunately, today the reality is we have effectively, 
although we are well below that threshold, the $10 billion 
threshold at $336 million in assets, gotten swept up in most of 
the regulatory reforms that have been promulgated by the CFPB. 
Our organization is not large enough or structured, and 
certainly was not prior to a number of these regulations coming 
out, to handle the additional financial burden related to that. 
So we have had to make numerous changes within our own 
organization, and, in fact, we have reduced the overall force, 
the head count in our organization, in order to generate enough 
revenue for some of the implementation of the software we 
needed and to bring in the kind of expertise that we needed in 
reg compliance, not only in the mortgage area but globally. So 
the financial burden for us has been greater than what may be a 
$1 billion credit union or larger.
    Senator Donnelly. And those people could have been out 
developing or approving loans for small businesses, for 
mortgages, for similar things that can make the community grow?
    Mr. Bergl. Yes, Senator. I tell people that when I was 
younger, I used to wake up every day working for a credit 
union. I loved the job, and I would think, ``What great things 
can I do for my members today?'' I wake up today thinking, 
``How am I going to deal with the regulations and avoid my 
regulator in NCUA coming down on me, let alone the CFPB?''
    Senator Donnelly. Well, not to get personal, but I like the 
way you used to wake up before rather than now.
    [Laughter.]
    Senator Donnelly. To the other witnesses as well, most of 
us agree community banks and credit unions are overburdened by 
regulations and need relief, but--and you have all said it, 
too--at the same time, there is no desire to roll back the 
rules on the Wall Street banks and financial institutions that 
caused so much of the pain. Even the regulators, however, do 
not always have a uniform opinion on what makes a community 
financial institution.
    And so, you know, is it institutions below $10 billion in 
assets? Below 50? Should we consider geographic scope in 
lending activities?
    I would love for each of you to tell me what you think 
helps to define a community financial institution. Ms. 
Savarese?
    Ms. Savarese. Thank you, and----
    Senator Donnelly. If I had 5 cents, I would save with you.
    Ms. Savarese. Well, thank you.
    Senator Donnelly. Actually, I would save with Dallas.
    [Laughter.]
    Ms. Savarese. Well, it is good to know you are loyal. You 
know, when I keynoted at the first Federal Reserve Community 
Bank Conference, that was half of what we were trying to focus 
on, is what defines a community bank. What I think is wonderful 
about the approach that has been taken by this Committee is 
understanding there are many factors that go into defining 
that.
    I have a colleague who has a bank that is now exceeding $10 
billion, and yet if you looked at his operations, you would say 
it is so values-driven, it is so focused on his community, he 
is so generous.
    So I think arbitrary thresholds are very difficult, and 
instead, taking in scale and scope and complexity and risk 
profile is the appropriate way to deal with it. We are $3 
billion now. When I started with my institution, we were 500. I 
would say we are still a community bank.
    Senator Donnelly. Well, thank you. And I can see I am out 
of time, and I know our Chairman is trying to keep this in 
line. But I want to say to Mr. Heitkamp that your cousin is a 
terrific member of the Committee.
    [Laughter.]
    Chairman Crapo. Thank you.
    Senator Kennedy.
    Senator Kennedy. Thank you, Mr. Chairman. I am sorry I have 
been popping in and out, but they do not check with us first 
before the Chairman schedules these hearings, you see. So we 
have to be several places at one time.
    Since I am here on the end, I cannot see your name plates, 
so I will just--thank you. Thank you. I will just kind of throw 
this out to anyone. Do you still think we have institutions 
that are too-big-to-fail in America?
    Mr. Bergl. I believe that to be the case, Senator. I think 
that we have--if you just look at the pure numbers in the 
banking industry, the largest banks have gotten even larger at 
the same time that we have lost the smallest financial 
institutions in both credit union and banking space over the 
last decade.
    Senator Kennedy. Does anybody disagree with that?
    Ms. Savarese. Yeah, I would like to take a contrary view. I 
think one of the things that the legislature has done with its 
leadership in the last 7 years, and the regulators, and the 
banks themselves in terms of simplification, is mitigated those 
exposures.
    One of the things we have to think about is we have a large 
and diverse economy, and we want our large customers to go to 
our institutions, not have to go overseas----
    Senator Kennedy. I do not mean to be rude, but I want to 
respect my 5 minutes. Well, let me ask you this: Let us suppose 
Morgan Stanley went bankrupt tomorrow. You do not think it 
would have a substantial impact on the American economy----
    Ms. Savarese. You asked----
    Senator Kennedy.----scare the living daylights out of 
everybody else and cause other banks to stop trusting each 
other?
    Ms. Savarese. I think that it would certainly have an 
impact. I would argue that I think that through Dodd-Frank and 
a variety of other measures that have been taken, we have an 
orderly, nonchaotic way to deal with that that would protect 
the financial system.
    Senator Kennedy. Have you read Dodd-Frank?
    Ms. Savarese. Yes, sir.
    Senator Kennedy. All 2,000 pages?
    Ms. Savarese. Yes, sir.
    Senator Kennedy. And 22,000 regulations?
    Ms. Savarese. Twenty-five thousand.
    Senator Kennedy. You can stand on it and paint that 
ceiling.
    Ms. Savarese. Yes, sir. I know that.
    Senator Kennedy. It is an embarrassment.
    Does anybody really believe on the panel that our 
community--I will call them our ``community banks.'' I am 
talking about banks and credit unions with less than, say, $10 
billion in assets. Does anybody here believe they did anything 
to contribute to the meltdown in 2008?
    [A chorus of noes.]
    Senator Kennedy. Well, geez, I thought this great bill, 
Dodd-Frank, decided to regulate them to half to death. Am I 
wrong? Haven't we lost 1,700 small banks and credit unions 
which have been forced, because of the outrageous regulatory 
costs, to either sell or merge, which further concentrates 
assets, which undermines the whole purpose of Dodd-Frank? I 
mean, was I playing Frisbee in the quad when they discussed 
that in class?
    Mr. Levitin. With respect, Senator, there has certainly 
been consolidation of the community banking and credit union 
industry, but I do not know that it can be pinned on Dodd-
Frank. That consolidation has been going on for decades. Credit 
unions have been declining in number since 1979, and the pace 
has not picked up since Dodd-Frank.
    Now, Dodd-Frank certainly increases regulatory burdens, but 
there are a lot of other factors that are going on.
    Senator Kennedy. Mr. Levitin, have you ever run a small 
bank?
    Mr. Levitin. No, I have not.
    Senator Kennedy. OK. If you were head of a small bank, you 
have got, let us say, 60 employees, and all of a sudden they 
put in front of you a 2,000-plus-page bill and 25,000 pages of 
regulations. You are telling me that is not going to dominate 
your entire business to the point that you cannot even worry 
about making loans to the community? Are you telling me this is 
a coincidence?
    Mr. Levitin. First of all, I think I would dispute your 
characterization of the number of pages of regulations. The 
actual regulations are more like a few hundred pages, and they 
apply to very specific things. Most of it is----
    Senator Kennedy. Well, one of you all is wrong then.
    Mr. Levitin. Most of that is--no, I can tell you what the 
rest of the number is. It is the background materials on why 
the regulation is needed. Those can be hundreds and hundreds of 
pages for each regulation. The actual rules are not very long. 
I read these, I teach these. They are masterable. It takes some 
time. I am not going to argue with you that there is an 
increase in regulatory costs from Dodd-Frank. But it is not a 
game changer.
    Senator Kennedy. I am out of time. Thank you, folks, very 
much. Forgive me for being so candid, but you have got to cover 
a lot of ground in 5 minutes.
    Chairman Crapo. You did a good job.
    Senator Heitkamp.
    Senator Heitkamp. Thank you so much, Mr. Chairman, and I 
want to take a little credit for Mr. Grooms, too, because you 
represent my State, and you are part of that vibrant community 
bank network that we have. We are grateful to have you, and I 
am not going to let Tester take all the credit.
    Mr. Grooms. Thank you. We are pleased to be in North Dakota 
as well.
    Senator Heitkamp. You like it better than Montana, don't 
you?
    Mr. Grooms. That will be our secret.
    [Laughter.]
    Senator Heitkamp. Yeah, do not tell anyone, especially Jon. 
And, also, if the last name is Heitkamp, we are related. And we 
have tried to trace it back, but, you know, it is great to see 
you here, and it is great to see all of you. A lot of ground 
has been covered that I wanted to also cover, especially as it 
relates to mortgage lending. But I will start out by saying I 
think there is a great will on this Committee to actually do 
what you need us to do.
    Unfortunately, in Washington, DC, trying seems to get some 
attention, but doing, we never seem to get it over the finish 
line. And I know the Chairman and the Ranking Member, 
especially the Chairman, we have been involved in a number of 
groups since I have been on this Committee that, really, we get 
it. We understand what you are saying. We understand the 
additional burdens, the additional costs, and we understand how 
difficult that is to maneuver.
    One of the things that I will say that we see trends on is 
that the application of artificial intelligence in compliance, 
and I wonder: Well, how is Lincoln State Bank in Hankinson 
going to be able to afford? So they are going to have to do all 
the compliance by hiring people. But the big banks, the big 
institutions, will see their compliance go down by application 
of artificial intelligence, and that is something that we have 
not even had a conversation about.
    And so kind of looking forward beyond the challenges of 
Dodd-Frank, I would like to just have a discussion on what you 
think threatens banks your size. You know, take us out of the 
regulatory world. And what can we anticipate 10, 15 years into 
the future so that we can keep you in business? And we will 
start with Ms. Savarese?
    Ms. Savarese. You know, Senator Heitkamp, I was just with 
your constituents on Monday.
    Senator Heitkamp. Yes, and thank you.
    Ms. Savarese. And they all say thank you for your support. 
You know, it is such a forward-looking question, and thank you. 
And also to your point about the bipartisan approach that this 
Committee is taking, it is so exciting to see. You know, 
FinTech--you talked about AI, artificial intelligence--is a 
huge issue, and what has been wonderful is the regulatory 
agencies are trying to support community banks, understanding 
how to partner with FinTech so that they can be competitive. It 
could be a leveler, a field leveler, for them.
    Senator Heitkamp. That is very interesting.
    Ms. Savarese. So we are working at ABA--we actually 
published a playbook for community banks on how to navigate 
through FinTech. I think that is a big thing.
    Senator Heitkamp. OK. Mr. Grooms?
    Mr. Grooms. Thank you, Senator Heitkamp. Thank you for your 
support of credit unions as well. FinTech and nonregulated 
entities, payday lenders, a big issue, and we want to make sure 
we take care of those that need taking care of and not let the 
entities that are not regulated get away with things that we 
cannot.
    Senator Heitkamp. That is a dirty little secret about 
payday and predatory lending. The more we squeeze legitimate 
community-based organizations, the more the nefarious, truly 
predatory folks crop up.
    Mr. Grooms. Exactly. Thank you.
    Senator Heitkamp. Mr. Heitkamp.
    Mr. Heitkamp. I kind of agree with--FinTech is going to 
where we are going to be able to look in the future, how we are 
going to deal with technology, how we are going to deal with 
those--what did you say, the word that you used for pseudo----
    Mr. Grooms. AI.
    Mr. Heitkamp. AI, artificial intelligence, yeah, is what 
you are looking for down the future is what we are going to 
have to really pay attention to and how we are going to comply 
with that.
    Senator Heitkamp. OK. Thank you.
    Mr. Bergl. I would say what you might see in the future 10 
years from now if things do not change is that the small credit 
unions and banks that you are looking at might be $100 billion 
or $500 billion instead of what you are looking at today. But a 
couple of things, quickly, that could help in the credit union 
space, there is a 15-year consumer loan limit. We cannot make 
loans longer than 15 years by statute. That could quickly and 
easily be corrected. There is also a one-to-four family home 
regulation whereby if you are a bank and you do a home for one-
to-four family for an investor, it is a mortgage, which it 
should be. In the credit union world, it is considered a 
commercial loan or a business loan. So that is a little bit of 
a road block for us, a major road block for us in serving small 
individual investors who want to buy these homes because it 
counts against their business gap. Those two relief items could 
help us immensely in improving economic growth in our 
community.
    Senator Heitkamp. Mr. Bissell?
    Mr. Bissell. Thank you for the question. I think you had 
asked what is the biggest threat or the biggest opportunity for 
us going forward. I actually want to go back to one other issue 
that came up earlier, and that is the opioid crisis. When I 
think about economic development, growing the economy, I think 
about putting people back to work. One of our largest and best-
run family-owned companies in my region is a concrete 
construction firm that won a contract, needed to hire hundreds 
of people. Sixty-plus percent of the people that applied failed 
the drug test. Another chunk of them refused to take the drug 
test upon learning that it was necessary. So those are good-
paying union jobs with full benefits that they eventually were 
able to fill, but you can imagine what a struggle that was. And 
it is because the opioid epidemic is all across the Northeast. 
So that is an issue that actually ties directly into economic 
development for us.
    Senator Heitkamp. Thank you.
    Mr. Levitin. FinTechs offer a lot of possible 
opportunities, especially on the compliance side. But, 
remember, FinTechs also include consumer-facing FinTechs, and 
those pose some real risks because they may not have the same 
regulatory burdens as community financial institutions. They 
are competition. So a company like Quicken Loans that is not a 
bank, if they get a Federal FinTech charter, they are going to 
be able to operate nationally presumably without regard to any 
State usury laws and the like. But they are not going to have 
the same regulatory burdens as other banks, and that seems to 
me to be a problem.
    Senator Heitkamp. And I only do this because, honestly, we 
spend a lot of time--we have been swirling around all the 
issues on qualified mortgages and appraisals and all the things 
we know that challenge local folks. I think way too often in 
Washington, DC, we deal with the problem that is immediate in 
front of us, only to look up and see a crisis looming. And if 
the Chairman will just indulge me one question, since there is 
no one else here, if----
    Chairman Crapo. One very brief question and a brief answer.
    Senator Heitkamp. One very brief question. Ex-Im Bank, I 
know that your bank, Mr. Bissell, does a lot of work, obviously 
with GE being a major employer and no longer a major employer, 
can you just give me some idea on how significant you think Ex-
Im Bank is to the work that banks your size do?
    Mr. Bissell. Yeah. In our region, there are quite a few 
spinoffs, smaller subsidiaries that came off of GE's presence 
formerly in our community, and there are a lot of specialty 
manufacturers that do import and export work. And so it is 
troubling to see the Export-Import Bank really not functioning. 
I was reading that some of those GE jobs, they are no longer in 
my community, but they are actually moving to Europe now 
because there are export-import type agencies that are fully 
functioning in competing countries.
    Senator Heitkamp. We need you guys to tell that story more.
    Mr. Bissell. Thank you.
    Senator Heitkamp. Thank you.
    Thank you, Mr. Chairman.
    Chairman Crapo. Thank you. And Senator Brown has one more 
question.
    Senator Brown. Actually, I thought it was one more round. 
Is it?
    Chairman Crapo. One more round for you.
    Senator Brown. OK. Thank you. Considering this is the first 
time ever that Senator Heitkamp has had her first cousin, 
although they do not admit to knowing each other----
    [Laughter.]
    Senator Brown. How many Heitkamps have any of us ever met? 
So I would stand up for my friend from North Dakota.
    Senator Heitkamp. And all Heitkamps are high quality. I 
want you to know that.
    Chairman Crapo. So stipulated.
    Senator Brown. That counted as her second round, that 
comment.
    Mr. Levitin and Mr. Bissell, some witnesses suggested that 
one way to spur economic growth is to change the structure and 
funding of the Consumer Bureau, the CFPB. Would you agree with 
this, the two of you?
    Mr. Levitin. Absolutely not. The CFPB certainly does have a 
different structure than other bank regulators, but that was 
deliberate because Congress learned that there were problems 
with the effectiveness of other regulators. The CFPB has been 
remarkably effective, and to the extent that you hear industry 
complaints about it, that is probably an indication that it 
might be doing its job. No industry likes a regulator that is 
being tough about enforcing rules, but that is what the CFPB 
does. And the almost $12 billion in
consumer relief that the CFPB has brought in in 6 years is
unparalleled to anything we saw from financial regulators in 
the decades before it.
    Senator Brown. Mr. Bissell.
    Mr. Bissell. Senator, how the CFPB is structured, how it is 
structured going forward, is above my pay grade, but I will 
give you my opinion on the importance of it. When I think 
about, as I said, the $8 million of expense that we paid during 
the recession and I think about the tens of millions of dollars 
in loan losses that we took and the vast loss of American 
household wealth, it is a cost that is just unacceptably high. 
And what I worry about is that somewhere in the U.S. financial 
system right now is the next Wells Fargo scandal taking shape. 
None of us knows where it is or what it is, but we cannot 
afford to let those kinds of scandals and unethical predatory 
practices take hold. When they do and they get out of control, 
we experience the significant financial crisis that we just 
finally are healing from. That is what I worry about.
    Senator Brown. Thank you. And my last question, Mr. 
Chairman, will be a yes or no across the panel, but thank you. 
And I have one comment on their comments, particularly on Mr. 
Levitin's. I sat through this Committee for 2 years. Senator 
Crapo was not the Chairman. It would have been different, I 
believe, if he had been. But this Committee did not--failed to 
fill out, failed to confirm, even to have hearings on a number 
of nominees to fill out the Federal Reserve, the SEC, the 
Export-Import Bank. This Committee, for whatever reason, 
refused to do it, Senator Crapo's predecessor. Again, no blame 
at all on Senator Crapo.
    My question is a yes or no, and I will start with Mr. 
Levitin. The President proposes to eliminate two important 
programs for economic development: Community Development Block 
Grants and the CDFI Fund, which we have talked about. Could you 
just give yeses or noes? Have these programs been valuable to 
economic development in your region? Speaking for all of you, 
each of you, Community Development Block Grants and Community 
Development Financial Institution Funds, have they been 
valuable to economic development in your region? Mr. Levitin.
    Mr. Levitin. Yes.
    Mr. Bissell. Yes, absolutely.
    Mr. Bergl. They have been a part of much bigger programs in 
our community.
    Mr. Heitkamp. Yeah, they have been a part also.
    Mr. Grooms. Yes.
    Ms. Savarese. Not as much of an impact in our community 
because of the demographics.
    Senator Brown. OK. Perfect. Thank you. Thank you all, and 
thank you, Mr. Chairman, always for your help.
    Chairman Crapo. Thank you, Senator Brown.
    Senator Cortez Masto.
    Senator Cortez Masto. Thank you, Mr. Chairman and Ranking 
Member, and thank you to all of you.
    I have been in and out because I am juggling three meetings 
at the same time, so not only as freshmen Senators, they make 
us run around, so I may be a little bit out of breath, but they 
put me at the kids' table. So I am over here. And I appreciate 
you being here today. Thank you. And I appreciate the 
conversation, and along with that a lot of the written 
testimony that you provided ahead of time.
    Let me start with Mr. Bissell. Mr. Bissell, in Nevada, like 
Massachusetts, we have legalized recreational use of marijuana, 
and the legalization of cannabis at the State level raises many 
concerns and ambiguities for banks and credit unions subject to 
Federal rules. As a result, many lawful marijuana businesses 
find themselves unbanked. Employees, vendors, and taxes must be 
paid in cash. Customers cannot pay with debit or credit cards, 
and legal businesses may have trouble getting small business 
loans or mortgages.
    From a law enforcement perspective--and I worked in law 
enforcement for most of my career--I am concerned about the 
security risks that this presents, which is why I cosponsored 
legislation to provide certainty for lawful cannabis-related 
businesses to gain access to the banking system.
    As a Massachusetts financial institution, what would it 
take at a Federal level for you to become comfortable doing 
business with a lawful marijuana business? And I am not only 
curious about how you will respond, but the rest of you as 
well, because I am sure you have thought about this, the other 
panel members as well.
    Mr. Bissell. Yes, Senator. Thank you for that question. In 
my opinion, it is critical that the Federal structure line up 
with the State structures. As these kinds of businesses have 
been legalized State by State, it does create, as you said, a 
significant security risk. I have talked to credit union 
colleagues in Colorado who have been working on these issues 
for years, and they did see initially significant amounts of 
cash moving around in a very concerning way.
    Some of my colleagues in that State were able to come up 
with a safe harbor banking approach that was effective, but it 
took a ton of work, a lot of investment. I think it would be 
much, much better for the whole financial system and for these 
businesses if the regulatory structure were rationalized so 
that--I think in Massachusetts there is only one bank providing 
these services currently to marijuana-related businesses.
    Senator Cortez Masto. Thank you.
    Any other comments from anyone else?
    Mr. Bergl. Our position is that legitimate businesses--
credit unions should be allowed to serve legitimate businesses 
in the United States. That is not our job to sort out what 
those are.
    Senator Cortez Masto. I appreciate that. Thank you.
    I am going to open this question up as well, and this is 
really around GSE reform and small lender access. When FHFA 
Director Watt was before this Committee a few weeks ago, I 
asked him about small lender access in the context of reform of 
Fannie Mae and Freddie Mac, and specifically I think any reform 
of the GSEs should ensure that community banks and credit 
unions have equal access to the secondary mortgage market, and 
any efforts to expand credit risk transfer should not unfairly 
privilege the big banks with securitization operations over 
small lenders without them.
    Can you discuss the Credit Union National Association's 
priorities for GSE reform and specific concerns about small 
lender
access? And let me start with Mr. Bergl, and if anybody else 
wants to join in.
    Mr. Bergl. Absolutely. Thank you very much for the 
question. We are very concerned about ensuring any GSE reform, 
including small banks and credit unions, and particularly 
access to secondary market, is vital to our ability to continue 
mortgage lending. Smaller institutions can easily outlend their 
asset base if they do not have a market to provide--or to sell 
mortgages into. And credit unions actually have a fantastic 
track record through the financial crisis that our loans 
perform better than the ones that were being done at some of 
the larger national banks. And I think that we should--well, we 
definitely need to ensure that we have continued access and the 
same pricing that is made available to those kind of 
institutions.
    Senator Cortez Masto. Thank you.
    Anyone else?
    Mr. Bissell. I would agree. At Greylock, we sell about $30 
to $40 million of mortgages into the secondary market every 
year to Fannie Mae. We still service those mortgages. We are 
the top mortgage provider in our market. So it is critically 
important that the GSEs--the resolution there be done very 
carefully and in a way that maintains ample access for us.
    Senator Cortez Masto. OK. Thank you.
    And I know my time is running out, but I have a quick 
question, because I am from Nevada and we were ground zero for 
the crisis. And I know that oftentimes we have to find that 
balance between regulation but letting the community grow and 
the economy grow as well. And we certainly want to calibrate 
rules appropriately for community financial institutions, but 
at the same time, we do not want to forget the causes and 
consequences of the last crisis.
    And so I guess, Mr. Levitin, I am curious: In the long run, 
would it be bad for community banks, credit unions, small 
businesses, and consumers to roll back some of the safeguards 
we imposed after the crisis?
    Mr. Levitin. To roll back the safeguards wholesale, 
absolutely. To have targeted rollbacks, no. But, unfortunately, 
the asks that are being put forward by some of the trade groups 
are not tailored just to small institutions. Let me give you 
one example. National Association of Federal Credit Unions has 
proposed raising the threshold for CFPB examination and 
supervision to $150 billion from $10 billion. That is a 
proposal that will benefit only, I think, three of NAFCU's 
members directly, which makes it a little strange. But it is 
not in any way about small institutions. We already have a 
small institutions exemption from CFPB examination and 
enforcement. The CFPB has itself enacted a number of small 
institution exemptions. Continuing on that path of tailored 
small institution exemptions I think is a very reasonable 
approach. But wholesale exemptions of institutions of $150 
billion or, as Senator Warren was asking me about, a $500 
billion level, there is no cause for that.
    Senator Cortez Masto. Great. Thank you. Thank you all very 
much. I appreciate the conversation today.
    Chairman Crapo. Thank you, Senator. And I, too, thank all 
of our witnesses for being here today and sharing your 
information with us.
    Some Senators may wish to submit questions to you. I will 
tell the Senators those questions are due Monday, and we would 
encourage the witnesses, if you receive further questions, to 
please respond promptly.
    Before we end today's hearing, I would like to touch 
briefly on housing finance reform. Housing finance reform is a 
top priority for this Committee, and the role of small lenders 
in that discussion is very important. And so actually I guess I 
am asking another question but not one I want you to answer 
today. I would like to ask each of your organizations to commit 
to work with us and with each other to engage with the 
Committee as we examine how small lender access in the 
secondary market can be achieved effectively and efficiently.
    Also, one more bit of housekeeping. This morning, Senator 
Brown and I have made public the stakeholder submissions that 
the Committee has received in response to our request for 
recommendations about how we can approach and achieve greater 
economic growth, and those submissions may be found on the 
Committee's website. I encourage not only our witnesses but 
everyone to review those, and we welcome further comment and 
analysis on these issues as well.
    With that, this hearing is adjourned.
    [Whereupon, at 11:38 a.m., the hearing was adjourned.]
    [Prepared statements and responses to written questions 
supplied for the record follow]:
























                   PREPARED STATEMENT OF STEVE GROOMS
          President and CEO, 1st Liberty Federal Credit Union,
   on behalf of the National Association of Federally Insured Credit 
                                 Unions
                              June 8, 2017
Introduction
    Good morning, Chairman Crapo, Ranking Member Brown and Members of 
the Committee. My name is Steve Grooms and I serve as the President/CEO 
of 1st Liberty Federal Credit Union in Great Falls, Montana. I am 
testifying today on behalf of the National Association of Federally 
Insured Credit Unions (NAFCU). Thank you for holding this important 
hearing today on ways to help community financial institutions foster 
economic growth.
    I have 34 years of experience in the credit union industry, 
including the last 17 as the President/CEO of 1st Liberty Federal 
Credit Union. 1st Liberty FCU is a $170 million Federal credit union 
with over 17,000 members. It has seven branch offices and serves as the 
on-base credit union for Malmstrom AFB. In addition 1st Liberty FCU is 
located in the communities of Grand Forks, North Dakota and North 
Central Montana serving members of Grand Forks AFB, and the communities 
of Grand Forks, Conrad, and Cut Bank, Montana.
    As you may know, NAFCU is the only national organization that 
exclusively represents the interests of the Nation's federally insured 
credit unions at the Federal level. NAFCU is celebrating its 50th 
anniversary this year. NAFCU member credit unions collectively account 
for approximately 70 percent of the assets of federally insured credit 
unions. NAFCU and the entire credit union community appreciate the 
opportunity to participate in this discussion on fostering economic 
growth.
Background on Credit Unions
    Historically, credit unions have served a unique function in the 
delivery of essential financial services to American consumers. 
Established by an Act of Congress in 1934, the Federal credit union 
system was created, and has been recognized, as a way to promote thrift 
and to make financial services available to all Americans, many of whom 
may otherwise have limited access to such services. Congress 
established credit unions as an alternative to banks and to meet a 
precise public need--a niche that credit unions still fill today.
    Every credit union, regardless of size, is a cooperative 
institution organized ``for the purpose of promoting thrift among its 
members and creating a source of credit for provident or productive 
purposes.'' (12 USC 1752(1)). While over 80 years have passed since the 
Federal Credit Union Act (FCUA) was signed into law, two fundamental 
principles regarding the operation of credit unions remain every bit as 
important today as in 1934:

    credit unions remain wholly committed to providing their 
        members with efficient, low-cost, personal financial service; 
        and

    credit unions continue to emphasize traditional cooperative 
        values such as democracy and volunteerism.

    Credit unions are not banks. The Nation's approximately 6,000 
federally insured credit unions serve a different purpose and have a 
fundamentally different structure than banks. Credit unions exist 
solely for the purpose of providing financial services to their 
members, while banks aim to make a profit for a limited number of 
shareholders. As owners of cooperative financial institutions united by 
a common bond, all credit union members have an equal say in the 
operation of their credit union--``one member, one vote''--regardless 
of the dollar amount they have on account. Furthermore, unlike their 
counterparts at banks and thrifts, Federal credit union directors 
generally serve without remuneration--a fact epitomizing the true 
``volunteer spirit'' permeating the credit union community.
    Credit unions have always been some of the most highly regulated of 
all financial institutions, facing restrictions on who they can serve 
and their ability to raise capital. There are many consumer protections 
built into the Federal Credit Union Act, such as the only Federal usury 
ceiling on financial institutions and the prohibition on prepayment 
penalties that other institutions have often used to bait and trap 
consumers into high cost products.
    Despite the fact that credit unions are already heavily regulated, 
were not the cause of the financial crisis, and actually helped blunt 
the crisis by continuing to lend to credit worthy consumers during 
difficult times, they are still firmly within the regulatory reach of 
the Dodd-Frank Act, including all rules promulgated by the Consumer 
Financial Protection Bureau (CFPB).
    The growing regulatory burden on credit unions was demonstrated by 
a recent NAFCU survey of our membership that found that nearly 97 
percent of respondents were spending more time on regulatory compliance 
issues than they did in 2009. In addition to hiring new compliance 
personnel, many credit unions have reported that noncompliance staff 
are regularly called upon to help with the compliance workload. In 
fact, another recent survey found that over 70 percent of respondents 
have had noncompliance staff members take on compliance-related duties 
due to the increasing regulatory burden. This highlights the fact that 
many noncompliance staff are forced to take time away from serving 
members to spend time on compliance issues. Most credit unions have 
limited staff to tackle their daily challenges, and often find 
themselves in a situation where compliance, not service, becomes the 
main focus. Every dollar, or hour, spent on compliance is time or money 
taken away from member service, additional loans, or better rates.
    At 1st Liberty, we conservatively estimate that our compliance 
costs have increased by over $350,000 since 2009. While that may not 
seem like a lot to Washington bureaucrats, it is a lot in Great Falls, 
Montana. These costs come from hiring new compliance employees, dealing 
with third-party vendors, increased software costs, as well as time and 
training for our staff. As regulation increases compliance costs 
smaller credit unions like mine are having an increasingly difficult 
time surviving. We've had to shut down three branches in the last 4 
years because of increased costs and tighter margins. Many other 
smaller credit unions have been merged into larger credit unions, and, 
while their members maintain the credit union benefits, relationship 
banking found in towns like Great Falls and Grand Forks is lost.
    Lawmakers and regulators readily agree that credit unions did not 
participate in the reckless activities that led to the financial 
crisis, so they shouldn't be caught in the crosshairs of regulations 
aimed at those entities that did. Unfortunately, that has not been the 
case thus far. Accordingly, finding ways to cut-down on burdensome and 
unnecessary regulations and compliance costs is a chief priority of 
NAFCU members.
Regulatory Environment and Economic Growth
    NAFCU has always believed that credit unions play an essential and 
vital role in the economic health of local economies. This was again 
demonstrated during the recent financial crisis when credit unions were 
able to continue to lend and help credit-worthy consumers and small 
businesses during difficult times, often when no one else would. 
Despite the fact that credit unions played no part in causing the 
financial crisis, they are still heavily regulated and affected by many 
of the rules meant for those entities that did.
    During the consideration of financial reform, NAFCU was concerned 
about the possibility of overregulation of good actors such as credit 
unions, and this is why NAFCU was the only credit union trade 
association to oppose the CFPB having authority over credit unions. 
Unfortunately, many of our concerns about the increased regulatory 
burdens that credit unions would face under the CFPB have proven true. 
As expected, the breadth and pace of the CFPB's rulemaking is 
troublesome, and the unprecedented new compliance burden placed on 
credit unions has been immense. NAFCU continues to believe that credit 
unions should be exempted from CFPB rulemaking, with authority returned 
to the National Credit Union Administration (NCUA). As you examine the 
Federal financial regulatory system, we urge you to support such a 
reform.
    The impact of the growing compliance burden is evident in the 
declining number of credit unions. Since the second quarter of 2010, we 
have lost more than 1,500 federally insured credit unions--over 20 
percent of the industry. The overwhelming majority of these were 
smaller institutions below $100 million in assets. While it is true 
that there has been a historical consolidation trend in the industry, 
the passage of the Dodd-Frank Act has accelerated this trend. The fact 
is that many smaller institutions simply cannot keep up with the new 
regulatory tide and have had to merge out of business or close their 
doors. This is why regulatory relief remains a top priority for our 
Nation's credit unions and a key to the continuation of relationship 
banking in the communities where my credit union operates.
    We are pleased to see Senators recognizing this need and 
introducing regulatory relief packages to help community financial 
institutions. An example is S. 1002, The Community Lending Enhancement 
and Regulatory Relief Act of 2017 (CLEAR Relief Act), introduced by 
Senators Moran, Tester, Heitkamp and Tillis. This regulatory relief 
package is a positive first step for community institutions. Section 3 
on escrow requirements, section 4 on QM relief and section 6 on TILA/
RESPA relief would have benefits to credit unions and their members. 
Should this legislation move
forward, we would also urge you to include the additional provisions 
from the
House-introduced version of this legislation, H.R. 2133, from 
Representative Blaine Leutkemeyer. Including this language would 
provide additional and meaningful relief to credit unions on mortgage 
lending and capital requirements, in addition to regulatory relief and 
greater clarity from the CFPB.
Tenets of a Healthy and Appropriate Regulatory Environment for Credit 
        Unions
    NAFCU believes a healthy and appropriate environment is important 
for credit unions to thrive. History has shown that a robust and 
thriving credit union industry is good for our Nation's economy, as 
credit unions fill a need for consumers and small businesses in the 
financial services marketplace that may otherwise not be met by other 
institutions.
    There are some basic tenets of a healthy and appropriate regulatory 
environment that NAFCU supports:

    NAFCU supports a regulatory environment that allows credit unions 
to grow. NAFCU believes that there must be a regulatory environment 
that neither stifles innovation nor discourages credit unions from 
providing consumers and small businesses with access to credit. This 
includes the ability of credit unions to establish healthy fields of 
membership that are not limited by outdated laws or regulatory red 
tape. It also includes modernized capital standards for credit unions 
that reflect the realities of the 21st century financial marketplace.
    NAFCU supports appropriate, tailored regulation for credit unions 
and relief from growing regulatory burdens. Credit unions are swamped 
by an ever-increasing regulatory burden from the CFPB, often on rules 
that are targeting bad actors and not community institutions. NAFCU 
supports cost-benefit analysis in regulation, and wants to ensure that 
we have an effective regulatory environment where positive regulations 
may be easily implemented and negative ones may be quickly eliminated. 
NAFCU also believes that enforcement orders from regulators should not 
take the place of regulation or agency guidance to provide clear rules 
of the road.
    NAFCU supports a fair playing field. NAFCU believes that credit 
unions should have as many opportunities as banks and nonregulated 
entities to provide provident credit to our Nations' consumers. NAFCU 
wants to ensure that all similarly situated depositories follow the 
same rules of the road and unregulated entities, such as payday 
lenders, do not escape oversight. We also believe that there should be 
a Federal regulatory structure for nonbank financial services market 
players that do not have a prudential regulator, including emerging 
Fintech companies.
    NAFCU supports transparency and independent oversight. NAFCU 
believes regulators need to be transparent in their actions, with the 
opportunity for public input, and should respect possible different 
viewpoints. We believe a bipartisan commission structure is the best 
form of regulatory governance for independent agencies, and all 
stakeholders should be able to have input into the regulatory process.
    NAFCU supports a strong, independent NCUA as the primary regulator 
for credit unions. NAFCU believes that the National Credit Union 
Administration is best situated with the knowledge and expertise to 
regulate credit unions due to their unique nature. The current 
structure of NCUA, including a 3-person board, has a track record of 
success. NCUA should be the sole regulator for credit unions and work 
with other regulators on joint rulemaking when appropriate. Congress 
should make sure that NCUA has the tools and powers that it needs to 
effectively regulate the industry.
Ideas to Help Foster Economic Growth
    We need both congressional and regulatory action under each of 
these tenets to help credit unions and the communities that they serve. 
Action to reduce and streamline unnecessary regulatory burdens will 
help credit unions, and all community financial institutions, foster 
economic growth. The next several pages of my testimony will outline 
areas under each of these tenets where legislative or regulatory action 
can help foster economic growth.
A. Credit Unions Need an Environment to Thrive and Grow
    Credit unions play a key role in providing consumers and small 
businesses access to credit, often when others will not. These are 
areas where action will help credit unions:

    Improvements to Field-of-Membership Restrictions for Credit 
        Unions

    While NCUA has taken recent steps on the regulatory side, NAFCU 
believes there should be improvements to the Federal Credit Union Act 
to help enhance the
Federal credit union charter. First, a series of improvements should be 
made to the field of membership (FOM) restrictions that credit unions 
face expanding the criteria for defining ``urban'' and ``rural.'' 
Furthermore, the Federal Credit Union Act should be updated to allow 
voluntary mergers involving multiple common bond credit unions and to 
allow credit unions that convert to community charters to retain their 
current select employee groups (SEGs). Additionally, the word ``local'' 
should be removed from the phrase ``well-defined, local community'' in 
Section 109(b)(3) of the Federal Credit Union Act.
    Second, all credit unions, regardless of charter type, should be 
allowed to add underserved areas to their field of membership.
    Third, the NCUA should have authority to grant parity to a Federal 
credit union on a broader State rule, if such a shift would allow them 
to better serve their members and continue to protect the National 
Credit Union Share Insurance Fund.

    Capital Reforms for Credit Unions

    NAFCU believes that capital standards for credit unions should be 
modernized to reflect the realities of the 21st century financial 
marketplace. As Congress examines and considers modernizing capital 
standards for community banks, modernizing credit union capital 
standards must be part of the discussion.
    First, a true risk-based capital system for credit unions that more 
accurately reflects a credit union's risk profile should be authorized 
by Congress. As part of this effort, NAFCU supports suspending the 
implementation of NCUA's recent risk-based capital rule, to allow the 
new leadership at the agency time to review the rule and request any 
statutory changes that the agency deems necessary to institute a 
capital system for credit unions that accurately accounts for risk. 
NAFCU continues to advocate for NCUA to revisit and reconsider the 
agency's approach to its risk-based capital (RBC) rule, currently set 
to take effect on January 1, 2019. We were pleased to see in the recent 
EGRPRA report, Acting Chairman J. Mark McWatters specifically noted 
risk-based capital as an area NCUA plans to ``substantially revise''--
which NAFCU strongly supports.
    Second, the NCUA should be given the authority to allow 
supplemental capital accounts for credit unions that meet certain 
standards.

    Allow Credit Unions to Meet the Needs of Small Businesses

    A critical step to foster economic growth in local communities is 
for Congress to modify the arbitrary and outdated credit union member 
business lending (MBL) cap. This can be done by raising the current 
12.25 percent limit to 27.5 percent for credit unions that meet certain 
criteria or by raising the outdated ``definition'' of a MBL from last 
century's $50,000 to a new 21st century standard of $250,000, with 
indexing for inflation to prevent future erosion. Furthermore, MBLs 
made to veterans, nonprofit religious organizations, businesses in 
``underserved areas,'' 1-4 non-owner occupied homes, or small 
businesses with fewer than 20 employees should be given special 
exemptions from the arbitrary cap.
B. Credit Unions Need Appropriate, Tailored Regulation and Relief from 
        Growing Regulatory Burdens
    Credit unions did not cause the financial crisis, but have been 
victims in the new tide of regulations aimed at those institutions who 
did, with over 1,500 institutions disappearing since the passage of the 
Dodd-Frank Act, primarily due to the new regulatory burdens. Many 
credit unions have limited compliance teams and, even if they are doing 
nothing wrong, burdens can stem from the necessity to read thousands of 
pages of regulation and analysis just to figure out that they are 
already in compliance or how to use some formula to see if a rule 
applies to them.
    NAFCU believes that, given their unique nature, all credit unions 
should be exempt from CFPB rulemaking and examination authority, with 
NCUA once again given authority to write all rules for credit unions, 
tailoring new proposals to meet the special nature of the credit union 
industry. One way to do this would be to expand on S. 923, the 
Reforming Finance for Local Economies Act, introduced by Senator 
Kennedy, that exempts financial institutions under $10 billion from 
CFPB rules, to include all credit unions.
    Short of that, there are other steps which Congress can take to 
help:

    Provide Greater Clarity to CFPB's 1022 Exemption Authority

    Congress should modify Section 1022 of the Dodd-Frank Act to 
specify the ability of the CFPB to exempt credit unions from CFPB 
rules. NAFCU believes Section 1022 currently gives the CFPB broad 
exemption authority to exempt classes of
institutions, including credit unions, from CFPB rules on a case-by-
case basis. We believe that this was also the congressional intent of 
this provision. However, CFPB Director Richard Cordray has testified 
before Congress that he believes he does not have the authority to 
outright exempt credit unions from various CFPB rules under Section 
1022. This failure of the Bureau to provide outright exemptions for 
credit unions to various rules, has greatly increased the compliance 
burden on the credit union industry, as credit unions are now forced to 
spend time and resources reviewing rules to see if they meet any 
arbitrary exemption threshold the Bureau may set. Time and money spent 
on this effort takes away from economic benefits that credit unions 
could be providing to their members.
    Last year, a bipartisan group of 70 Senators sent a letter to 
Director Cordray urging him to do more with the authority under Section 
1022 to reduce the burden on community institutions such as credit 
unions. We would urge you to adopt legislation to clarify the ability 
of the CFPB to specifically exempt credit unions from a CFPB rule. We 
were also pleased to see a May 24, 2017, letter from Acting NCUA 
Chairman McWatters to CFPB Director Richard Cordray urging CFPB to make 
greater use of its 1022 authority when it comes to credit unions.

    Require the CFPB to Better Tailor Regulations and Subject 
        Them to Review

    NAFCU supports measures that would require the CFPB to better 
tailor its regulations. Despite credit unions being smaller and less 
risky than mega banks, they have too often found themselves subject to 
burdensome new regulations designed for big banks, and this has a 
negative impact on their ability to serve their members and foster 
economic development. This is why we support S. 366, the Taking Account 
of Institutions with Low Operation Risk (TAILOR) Act (introduced by 
Senator Rounds) and S. 21, the Regulations From the Executive in Need 
of Scrutiny (REINS) Act (introduced by Senator Paul), as well as 
subjecting the CFPB to the Economic Growth and Regulatory Paperwork 
Reduction Act (EGRPRA) review.

    Hold Regulators Accountable for Cost and Compliance Burden 
        Estimates

    Cost and time burden estimates issued by regulators such as NCUA 
and CFPB are often grossly understated. Unfortunately, there often is 
never any effort to go back and review these estimates for accuracy 
once a proposal is final. We believe Congress should require periodic 
reviews of ``actual'' regulatory burdens of finalized rules and ensure 
agencies remove or amend those rules that vastly underestimated the 
compliance burden. A recent survey of NAFCU's membership found that 
over 55 percent of credit unions believe compliance cost estimates from 
NCUA and the CFPB are lower than they are when the credit union 
actually has to implement the proposal.
    We believe Congress should use their oversight authority to require 
regulators to provide specific details on how they determined their 
assumptions in their cost estimates when submitting those estimates to 
OMB and publishing them with proposed rules. It is important that 
regulators be held to a standard that recognizes that burdens at a 
financial institution go well beyond additional recordkeeping.
    Finally, there are some other areas where the CFPB has been active 
that are of growing concern to credit unions:
Home Mortgage Disclosure Act (HMDA)
    NAFCU and our members support the intended purpose of HMDA, which 
is to promote fair lending and ensure that consumers receive equitable 
access to credit in the housing market. Yet the CFPB's Final Rule is 
not entirely suitable for achieving this statutory purpose, 
particularly where data collection demands are so costly that they 
impede lending activity. Furthermore, NAFCU's concerns regarding the 
Final Rule remain largely unaddressed, and a recent proposal making 
technical revisions to Regulation C does little to mitigate the burdens 
arising from collection of increasingly granular HMDA data points. 
While NAFCU has appreciated the Bureau's efforts to offer technical 
corrections and additional clarifications, the proposed amendments do 
not offset the tremendous operational challenges created by the Final 
Rule.
    Under current reporting thresholds, the collection of a vastly 
expanded HMDA dataset from credit unions that do not originate a 
significant number of home mortgage loans would be counterproductive 
and ultimately harm access to credit. Accordingly, NAFCU urges the 
Bureau to consider amendments that would raise the reporting threshold 
for close-end mortgage loans in Section 1003.2(g) of the Final Rule.
    NAFCU believes that by raising the reporting threshold, smaller 
credit unions will be spared unreasonable compliance costs that would 
otherwise impact their capacity to originate affordable mortgages. 
Furthermore, NAFCU believes that the minimal data received from 
institutions reporting just above the thresholds in Section 1003.2(g) 
would be statistically insignificant and yield minimal insight about 
the communities they serve. NAFCU believes that the resources of small 
lenders should be spent in their communities, originating the loans 
that members need rather than satiating the CFPB's appetite for data.
    We are also concerned that the vastly expanded HMDA data collection 
raises serious privacy considerations. HMDA reports currently include 
the name of the credit union, mortgage amount, year of transaction, and 
census tract of the property. This information already provides an 
opportunity to identify the majority of mortgagors being reported under 
HMDA. Because there is little privacy protection in HMDA data--and 
because the Bureau has so far offered only future assurances that a 
balancing test will be developed to determine the extent of public 
disclosure--adding more sensitive and nonpublic information, such as 
debt-to-income ratios, credit scores, creditworthiness, or borrower 
age, will leave members less secure and potentially more vulnerable to 
targeted scams. NAFCU asks that the Bureau provide clarification as 
soon as possible about how data security concerns will be mitigated 
through controls on public disclosure of HMDA data.
    NAFCU believes the Bureau has failed to adequately consider the net 
cost of requiring credit unions that originate relatively few mortgage 
loans to expend considerable resources on reporting new data that would 
not aid in fulfilling the statutory objectives of HMDA. Additionally, 
the CFPB has not provided satisfactory
justification for requiring collection of new data points that were not 
specifically mandated by the Dodd-Frank Act. Although there may be 
academic interest in numerous, marginally significant data points, the 
Bureau has yet to show that these inputs actually achieve HMDA's stated 
purpose, which is to ensure fair lending and nondiscrimination in the 
housing market. We agree with Acting NCUA Chairman McWatters' request 
of the CFPB to use its authority to exempt credit unions from these 
additional data points.
    One approach to providing relief on the HMDA issue would be to pass 
the Home Mortgage Disclosure Adjustment Act, offered by several Members 
of this Committee, to raise the HMDA reporting threshold to 500 loans 
for both closed-end mortgage loans and open-end lines of credit. The 
new HMDA reporting requirements will be especially burdensome on 
smaller credit unions like mine, and that is why we also would support 
the CFPB delaying implementation of the new rule while giving Congress 
a chance to review it.
Qualified Mortgages
    The CFPB has issued a final rule that imposes requirements on 
credit unions to assess and verify a borrower's ability to repay a 
mortgage loan before extending the loan. In that same rule, the CFPB 
defined ``qualified mortgage'' and extended safe harbor legal 
protections to mortgages that meet the definition. Many financial 
institutions have decided to extend only mortgages that meet the 
definition of safe harbor ``qualified mortgage'' as they are concerned 
that they will not be able to sell nonqualified mortgages and are 
worried about the legal and regulatory risks associated with extending 
nonqualified mortgages. At 1st Liberty, even though we are small enough 
to be exempt, we still limit our loans to 43 percent debt-to-income 
ratio because of concerns about liability.
    NAFCU believes the definition of qualified mortgage must be revised 
in a number of ways to reduce the enormous negative impact the rule 
places on credit unions and their members, in particular the debt-to-
income (DTI) threshold (43 percent of the total loan) and the inclusion 
of affiliate fees in the calculation of points and fees. While the CFPB 
finalized a cure for unintentional points and fees overages, NAFCU 
still believes a legislative change may be necessary to resolve the 
issue. We also support legislation to create a safe-harbor for mortgage 
loans held in portfolio at credit unions.
Small Business Data Collection
    Section 1071 of the Dodd-Frank Act assigns the CFPB the 
responsibility to issue implementing regulations for collection of 
small business loan data. In general, Section 1071 aims to facilitate 
enforcement of fair lending laws and enable communities, businesses and 
other entities to better identify the needs of women-owned, minority-
owned, and small businesses. Section 1071 requires financial 
institutions to collect and report information to the CFPB using 
systems and procedures similar to those currently used in connection 
with the Home Mortgage Disclosure Act (HMDA).
    While NAFCU acknowledges that taken on its own, Section 1071 is a 
well-intentioned provision, but when added to other laws and 
regulations, future implementation of this provision could negatively 
impact credit unions originating MBLs and other commercial loans. A 
disclosure regime similar to HMDA could increase MBL underwriting costs 
and necessitate substantially increased spending on compliance 
resources. Furthermore, if the ultimate aim of Section 1071 is to 
promote small business lending, then credit unions have already 
achieved great success. For example, credit union small business loan 
growth has dramatically outpaced banks both during and after the 
financial crisis. Credit unions have maintained strong small business 
loan growth despite field of membership and other statutory 
restrictions; however, this trend may experience disruption if the CFPB 
sees fit to impose additional regulatory burdens.
    NAFCU is also concerned that future implementation of Section 1071 
may yield confusing information about credit unions and further 
restrict lending activity as a result of increased compliance costs. 
Credit unions serve distinct fields of membership, and as a result, 
institution-level data related to women-owned, minority-owned, and 
small business lending substantially differs in relation to other 
lenders. Given the unique characteristics of credit unions and the 
limits placed on member business loans (MBLs), the CFPB should seek to 
exempt credit unions from any future rulemaking that compels disclosure 
of business loan information. We believe it is important that Congress 
be prepared to step in and legislate in this area if necessary.
C. There Must be a Fair Playing Field in Financial Services
    As Congress looks at measures to foster economic growth, it is 
important the any legislative package be balanced in addressing needs 
of credit unions and community banks. Capital relief provisions for 
banks should be paired with capital relief provisions for credit 
unions. Business lending provisions for banks should be paired with 
business lending relief provisions for credit unions. Credit unions 
want to do their share for economic growth, and they want to ensure 
that there is a proper regulatory environment for all players in the 
financial services and payments realm.

    Provide Credit Unions Parity in the Treatment of 
        Residential Loans

    One easy step to provide parity in business lending relief is in 
the treatment of certain residential loans. NAFCU urges you to exempt 
loans for one- to four-unit non-owner occupied dwellings from the 
credit union member business lending (MBL) definition. This idea was 
recently introduced as bipartisan legislation, S. 836, the Credit Union 
Residential Loan Parity Act, by Senators Ron Wyden and Lisa Murkowski, 
which would allow credit unions to treat loans that qualify for the 
exemption as residential loans with lower interest rates--similar to 
how banks make those same loans--and not have to count them toward 
their MBL cap. This would free up capital for additional lending and 
help foster economic growth.

    Payday Lenders Need To Be Regulated; Credit Unions Need 
        Flexibility to Help

    The concept of a fair playing field also applies when dealing with 
regulated financial institutions and unregulated entities, who should 
not be let off the hook as part of regulatory relief.
    A prime example is payday lending. NAFCU believes that unregulated 
actors in this area need to be regulated, but that flexibility should 
be provided to regulated entities that offer regulated products to meet 
demand. At 1st Liberty, we were able to help a veteran who was 
struggling financially and had gotten into trouble with payday lenders. 
He had already filed bankruptcy and had been in debt to nine different 
payday lenders for the last 5 years when he came to us. He wasn't even 
a member yet. He had $500 loans with each lender, was paying them $10 
every week each to roll the debt another week, he had paid them roughly 
$21,600 already and had not reduced the principle balance on any of 
them.
    Based on his circumstances, he did not qualify for a loan, but 
based on what we do to try to help members where we are able, he needed 
our help fast. We were able to set up a signature loan for $4,500 to be 
paid off over 3 years at a 12 percent interest rate (unsecured rate) 
with payments of $150 month. We had to go outside of our policies to 
deal with his unique circumstance--a prime example of why credit unions 
need to have regulatory flexibility to serve the needs of their 
members.
    In July, 2016, the CFPB published a proposed rule for Payday, 
Vehicle Title, and Certain High Cost Installment Loans. NAFCU maintains 
serious concerns about this rule and how it will hamper credit union's 
ability to meet the credit needs of their members. NCUA has even 
weighed-in with a similar concern. NAFCU has asked that the CFPB 
withdraw its rule and consult with NCUA regarding any future plans to 
regulate short-term, small dollar lending at credit unions. NAFCU 
strongly recommends that the Bureau exercise its exemption authority 
granted by Congress to preserve the ability of credit unions to 
accommodate members with consumer-friendly, short-term, small dollar 
loans.
    An exemption for credit unions from the entirety of the rule would 
represent the only true solution for mitigating the overwhelming burden 
imposed by a novel and complex compliance regime. Credit unions cannot 
reasonably meet the needs of financially distressed members when the 
cost and time associated with originating just one short-term, small-
dollar loan skyrockets to satisfy the CFPB's unwieldly underwriting 
requirements.
    The need for a fair playing field does not just apply across 
financial services, but with others in the payments eco-system, such as 
retailers. There is a need for Congress to act to ensure a fair playing 
field in this realm as well.

    21st Century Data Security Standards Are Needed

    Credit unions are being adversely impacted by ongoing cyber-attacks 
against the United States and continued data breaches at numerous 
merchants. The cost of dealing with these issues hinders the ability of 
credit unions to serve their members. Congress needs to enact new 21st 
century data security standards that include: the payment of costs 
associated with a data breach by those entities that were breached; 
establishing national standards for the safekeeping of all financial 
information; require merchants to disclose their data security policies 
to their customers; requiring the timely disclosure of entities that 
have suffered a data breach; establishing enforcement standards for 
provisions prohibiting merchants from retaining financial data; 
requiring the timely notification of the account servicer if an account 
has been compromised by a data breach; and, requiring breached entities 
to prove a ``lack-of-fault'' if they have suffered from a data breach.

    Repeal the Durbin Debit Interchange Amendment

    The interchange price caps passed as part of the Dodd-Frank Act 
have failed to produce the consumer benefits that proponents promised. 
This provision has essentially been a windfall to merchants and their 
stockholders, while costing credit unions and their members billions of 
dollars that could have been used to help foster economic growth 
through better rates and more loans. We urge you to repeal the debit 
interchange provision found in the Dodd-Frank Act and protect community 
financial institutions from future harm by opposing any efforts to 
expand the Durbin price controls to credit interchange.
D. Transparency and Independent Oversight of Regulators
    NAFCU believes regulators need to be transparent in their actions, 
with the
opportunity for public input, and should respect possible different 
viewpoints. Financial institutions should have clear rules of the road 
to follow, and have an independent process to appeal actions of 
regulators. Congress should make sure regulators are focusing on sound 
public policy and not political agendas.
    There are a series of steps NAFCU believes can be taken that will 
be beneficial to credit unions and community financial institutions in 
this area:

    Make Common-Sense Improvements to the CFPB

    We believe that one way to improve the Bureau would be to change 
the leadership structure from a single director to a five-member 
bipartisan commission appointed by the President. NAFCU has long held 
the position that, given the broad authority and awesome responsibility 
vested in the CFPB, a five-person commission has distinct consumer 
benefits over a single director. Regardless of how qualified one person 
may be, a commission would allow multiple perspectives and robust 
discussion of consumer protection issues throughout the decisionmaking 
process. A bipartisan board structure at the CFPB would also help to 
provide community financial institutions more regulatory certainty by 
lowering the possibility that the Bureau could become subject to 
drastic political swings from a single director that could change with 
each Administration.
    We also believe that the main focus of the CFPB should be on 
unregulated entities operating in the financial services arena and 
other significant market actors that have a national impact, and thus 
we believe that the supervision threshold for the CFPB should be raised 
to $150 billion and indexed for inflation. Making this change would 
allow functional regulators to focus on community and regional 
institutions, while allowing the CFPB to focus on the Nation's largest 
financial institutions and otherwise unregulated entities.

    Require the CFPB to Provide Guidance or Rulemaking for its 
        UDAAP Authority

    Uncertainty stemming from CFPB's authority to take action on 
entities committing unfair, deceptive, or abusive acts or practices 
(UDAAP), can prevent institutions from providing services that 
consumers may want. Credit unions want to
comply and provide the services that their members want and need. 
However, when the CFPB does not provide clarity in regards to UDAAP, 
either through rulemaking or guidance, economic opportunity is stymied 
as institutions fear the CFPB will only regulate through enforcement 
action. We would urge the adoption of legislative language to require 
the CFPB to provide more clarity and guidance to those they regulate.

    Common-Sense Examination Reform

    Credit unions face more examiner scrutiny than ever, as the 
examination cycles for credit unions went from 18 months to 12 months 
since the onset of the financial crisis, even though credit union 
financial conditions continue to improve. We are pleased to see that 
NCUA has started to return to extended examination cycles, but we think 
the extended cycles should be available to all low-risk, well-run 
credit unions. Additional exams mean additional staff time and 
resources to prepare and respond to examiner inquiries. NAFCU supports 
effective exams that are focused on safety and soundness and flow out 
of clear regulatory directives. NAFCU also supports examination 
fairness legislation to ensure timeliness, clear guidance and an 
independent appeal process free of examiner retaliation.
E. A Strong, Independent NCUA should be the sole regulator of credit 
        unions
    As noted earlier, NAFCU strongly believes that credit unions should 
be exempt from CFPB regulation and supervision, with that authority for 
all credit unions returned to the National Credit Union Administration 
(NCUA). NCUA has the knowledge and expertise that other regulators 
simply do not about the unique nature of credit unions.

    NCUA should have pre-emption authority over CFPB rules

    NCUA should have the authority to delay the implementation of a 
CFPB rule that applies to credit unions, if complying with the proposed 
timeline would create an undue hardship. Furthermore, given the unique 
nature of credit unions, the NCUA should have authority to modify a 
CFPB rule for credit unions, provided that the objectives of the CFPB 
rule continue to be met.

    NCUA Needs Proper Authority and Flexibility To Govern 
        Credit Unions

    We are pleased NCUA has been willing to use its authority in recent 
years to provide credit unions with much-needed relief when 
congressional action has stalled. A few prime examples of this 
willingness are the agency's rules relative to member business lending, 
field of membership, and fixed-assets. However, in each of these 
rulemakings, the agency stopped short of providing relief to the 
fullest extent possible so there is more work to be done, whether by 
the agency or by Congressional action.
    We continue to appreciate NCUA's voluntary participation in the 
Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA) 
regulation review process. This review provided an important 
opportunity for credit unions to voice their concerns about outdated, 
unnecessary or unduly burdensome requirements within NCUA's Rules and 
Regulations. The EGRPRA report issued in March 2017 was the culmination 
of a long process and we were encouraged to see the regulators admit 
that there are many opportunities to do better. In particular, the NCUA 
portion of the report touched on a number of key areas where NAFCU has 
sought reform, including risk-based capital. We look forward to 
continuing to work with NCUA and other regulators to address the 
problem of regulatory burden and we urge Congress to ensure that they 
have the tools they need.

    NCUA Independence and Structure Should be Maintained

    NAFCU also believes that NCUA should continue to be governed by a 
three-person bipartisan board, and not subject to congressional 
appropriations. However, we do think there are areas where it is 
appropriate for congressional oversight of NCUA, including the agency's 
budget, which is funded by our Nation's credit unions and, ultimately, 
their 108 million members.
Additional Areas To Help Economic Growth
    There are a few additional areas where Congress can help credit 
unions foster economic growth that I would like to outline:

    Promote Regulatory Coordination

    NAFCU believes that a large part of the regulatory burden problem 
stems from the cumulative impact of numerous regulations. That is why 
NAFCU applauded President Donald Trump's ``Executive Order on Core 
Principles for Regulating the United States Financial System,'' which 
directed the U.S. Department of the
Treasury to conduct a comprehensive review of the financial regulatory 
landscape. We are pleased that NCUA has participated in discussions 
with Treasury as part of the review process and hope they will continue 
to cooperate with the Administration in a productive manner.
    With numerous new rulemakings coming from regulators, coordination 
between the agencies is more important than ever. Congress should use 
its oversight authority to make sure that regulators are coordinating 
their efforts and not duplicating burdens on credit unions by working 
independently on changes to regulations that impact the same areas of 
jurisdiction. There are a number of areas where opportunities for 
coordination exist and can be beneficial.
    NAFCU has been on the forefront encouraging the Financial Stability 
Oversight Council (FSOC) regulators to fulfill their Dodd-Frank 
mandated duty to facilitate rule coordination. This duty includes 
facilitating information sharing and coordination among the member 
agencies of domestic financial services policy development, rulemaking, 
examinations, reporting requirements and enforcement actions. Through 
this role, the FSOC is effectively charged with ameliorating weaknesses 
within the regulatory structure and promoting a safer and more stable 
system. It is extremely important to credit unions for our industry's 
copious regulators to coordinate with each other to help mitigate 
regulatory burden.
    In addition, Section 1023 of the Dodd-Frank Act grants the FSOC the 
authority to stay and set aside Bureau rules by a vote of two-thirds of 
the members of the Council. A decision to set aside a Bureau regulation 
renders the rule unenforceable. This authority could spur renewed 
dialog between the Bureau and the Federal banking agencies regarding 
rules that may actually pose systemic risk to the financial sector.
    As the new Administration continues to review and reform financial 
regulations, NAFCU welcomes efforts by the members of the FSOC to 
strongly consider their authority to start holding the Bureau 
accountable for rules that pose serious risks to financial institutions 
and the consumers they serve.

    Support the CDFI Fund

    The Administration's FY 2018 budget proposal has proposed cutting 
funding for the Community Development Financial Institution (CDFI) 
Fund. As of January 31, 2017, there were 287 credit unions certified as 
CDFIs. Representing approximately 27 percent of the total number of 
certified institutions, CDFI certified credit unions hold more than 50 
percent of total CDFI assets. Clearly, CDFI credit unions are critical 
partners in the CDFI Fund's mission. In recognition of this importance, 
and in exploring ways to enable even more credit unions to be 
recognized as CDFIs, the NCUA, CDFI Fund and Treasury entered into a 
trilateral Memorandum of Understanding (MOU) in January 2016. A 
significant component of the MOU included the introduction of a 
streamlined CDFI application process for credit unions, paving the path 
for more credit unions to seek the designation.
    Because they are not-for-profit, cooperative financial 
institutions, credit unions are focused on providing financial services 
that are in the best interest of their members. Since CDFI credit 
unions predominantly serve low-income areas and other target markets, 
CDFI credit unions are often the only financial services option for 
consumers in those communities that live paycheck to paycheck. The CDFI 
Fund grant program helps credit unions serve communities and consumers 
that large banks don't focus on.
    Additionally, because many credit unions cannot raise funds from 
the capital markets, access to the CDFI Fund grant program is an 
incentive for credit unions to obtain certification. The grants 
provided by the Fund are an invaluable resource that aids CDFI credit 
unions in providing financial services to millions of credit union 
members. Without these grant funds, thousands of consumers could find 
themselves without credit union products, such as small dollar loans, 
credit builder programs, and access to financial education.
    Over the past 2 years, CDFI credit unions received roughly $70 
million in grant funding to aid in their efforts to offer financial 
services to their low- and moderate-income members. Without the CDFI 
grant program, many CDFI credit unions would not have been able offer 
new products and loans that provide financial stability for members and 
their families. It is with this in mind that we would urge Congress to 
continue funding for CDFIs. Providing funding for the grant program is 
an important step in helping credit unions foster economic growth in 
their local communities.

    Fix the Department of Defense (DoD) Military Lending Act 
        Final Rule

    As a defense credit union, I would like to share some concerns over 
potential unintended consequences and negative impacts from DoD's 
recent MLA rule. NAFCU is in full support of protecting service members 
from predatory and unscrupulous lenders. It is clear this is the intent 
of the rule DoD has issued. Credit unions have undertaken considerable 
efforts to comply with the MLA Rule, and they will continue to do so. 
However, the challenges presented by the MLA Rule are substantial and 
many financial institutions continue to struggle to determine the 
parameters of the rule due to ambiguous text and slim guidance.
    Credit unions, as member-owned, not-for-profit cooperatives, 
consistently provide their members with products and services designed 
to help each member achieve their individual financial goals. In 
addition, credit unions have a strong track record of helping active 
duty members of the armed forces and their families avoid the kinds of 
debt traps that prompted the passage of the MLA by Congress. That is 
why NAFCU and our members support the Department's primary goal of 
protecting active duty members of the armed forces and their families 
from financial exploitation. However, implementing the MLA Rule has 
proven to be a difficult undertaking for many credit unions.
    NAFCU has, on several occasions, requested the DoD exercise its 
authority under Section 232.13(c)(2) of the MLA Rule and issue an order 
extending the limited exemption for credit card accounts until October 
3, 2018. NAFCU believes that extending the deadline for credit card 
account compliance with the MLA Rule is necessary to allow the DoD 
additional time to consider the consequences of the MLA Rule as applied 
to credit card accounts, and to develop effective solutions to prevent 
those consequences from taking place. Given that we are merely months 
from the current credit card implementation deadline, it is imperative 
the DoD act quickly and provide relief to the industry.
Conclusion
    The growing regulatory burden on credit unions is the top challenge 
facing the industry today and credit unions are saying ``enough is 
enough'' when it comes to the overregulation of the industry. If 
Congress wants to help foster economic growth, enacting the regulatory 
relief provisions outlined in my testimony to provide regulatory relief 
to credit unions and community financial institutions is key. Credit 
unions need a healthy regulatory environment to succeed and serve the 
needs of their 108 million members. Small credit unions are 
disappearing at an ever-increasing pace, and cannot wait forever for 
congressional action. The time to act is now. Regulators must also do 
their part and we are encouraged that some are starting to take steps 
to do so. But more must be done and the Committee should also encourage 
regulators to act to provide relief where they can without additional 
congressional action.
    We thank you for the opportunity to share our thoughts with you 
today. I welcome any questions you might have.
                                 ______
                                 
                PREPARED STATEMENT OF R. SCOTT HEITKAMP
   President and CEO, ValueBank Texas, on behalf of the Independent 
                      Community Bankers of America
                              June 8, 2017
Opening
    Chairman Crapo, Ranking Member Brown, and Members of the Committee, 
my name is Scott Heitkamp, and I am President and CEO of ValueBank 
Texas in Corpus Christi, Texas. I am also Chairman of the Independent 
Community Bankers of America, and I testify today on behalf of the more 
than 5,800 community banks we represent. Thank you for convening 
today's hearing on ``Fostering Economic Growth: The Role of Financial 
Institutions in Local Communities.''
    What ValueBank and other community banks do from inside a local 
community cannot be replicated from outside the community. This isn't 
just my opinion; this is what a number of empirical studies have 
found.\1\ With a direct knowledge of the borrower, the community, and 
local economic conditions, community banks offer customized terms and 
make loans passed over by larger lenders based outside of the community 
or that rely on algorithms and other impersonal methods of evaluating 
credit. This is the community bank competitive advantage and the reason 
we must be part of any plan to foster local economic growth.
---------------------------------------------------------------------------
    \1\ See ``The State and Fate of Community Banking.'' Marshall Lux 
and Robert Greene. Mossavar-Rahmani Center for Business and Government 
at the Harvard Kennedy School. February 2015. This paper discusses a 
number of studies, both governmental and academic, that have found a 
community bank advantage based on their proximity to the communities 
they serve.
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    Before I discuss ICBA's plan for fostering local economic growth, 
I'd like to give you some background on my bank. ValueBank Texas was 
chartered in 1967 and later acquired by my father. I'm proud to carry 
on his legacy as a second-generation community banker. Today, ValueBank 
Texas is a $213 million-dollar bank with 10 offices in Corpus Christi 
and suburban Houston with 114 employees. We specialize in small 
business and residential mortgage lending. As our name suggests, we are 
dedicated to creating value for our customers and our community.
    The economic recovery has been painfully slow and has failed to 
reach many individuals and communities. Today, a customer with a 
pristine credit score or a large, established business can get a loan. 
But this isn't the measure of a strong economy. When the credit box is 
artificially tight, we have subpar economic growth. To break out of 
this rut and strengthen economic growth, we must expand credit 
availability to millions of hardworking households and would-be 
borrowers with less-than-perfect credit scores. Many of these borrowers 
are on the middle-to-lower end of the income scale.
    Community banks are uniquely suited to reach struggling households 
and small businesses. An intangible, yet critical, factor that 
separates community banks from other financial institutions is the 
direct stake and vested interest we have in the success of our 
communities. We cannot thrive in a community that is failing or 
stagnant. Every loan we make is a vote of confidence in the community 
and a deepening of our commitment, not a one-off transaction. 
Unfortunately, in recent years, a sharp growth in regulatory burden has 
made it increasingly difficult for community banks to lend and foster 
local economic growth.
    Regulatory overreach has created two problems in particular. First, 
it has contributed to rapid consolidation. Banks need a larger scale to 
amortize the increasing cost of compliance, and this has been driving 
many mergers and acquisitions. At the same time, a daunting compliance 
burden and heightened legal risk deter the formation of de novo 
charters. As a result, today there are some 1,700 fewer community banks 
than there were in 2010 and only a handful of new bank charters. This 
often harms competition and leaves many small communities stranded 
without a local community bank.
    Second, overregulation has created a very tight credit box by 
choking off community banks' capacity to take on and manage reasonable 
credit risk. Too many would-be borrowers--often people with lower 
credit scores and lower income or newly established small businesses 
who are still creditworthy--are being denied credit in today's 
environment.
Solutions
    The good news is that solutions are at hand. ICBA's ``Plan for 
Prosperity'' includes over 40 recommendations that will allow Main 
Street and rural America to prosper. A copy of the Plan is attached to 
my written statement. In April of this year, at the request of Chairman 
Crapo and Ranking Member Brown, ICBA submitted a short list of 
recommendations, drawn from the Plan for Prosperity, which were 
selected based on two criteria: their positive impact on local 
communities and their history of bipartisan support. What follows is a 
discussion of these recommendations.
Access to Mortgage Credit
    The following recommendations would enhance access to mortgage 
credit and support a robust housing market by providing relief from new 
mortgage regulations, especially for loans held in portfolio.

  1.  Expand Exemption Thresholds Under the Home Mortgage Disclosure 
        Act (HMDA) and Repeal New Data Points

    The CFPB's new rule under HMDA, when it becomes effective, will 
require covered banks and credit unions to collect and report 48 unique 
data points on each mortgage loan they make, more than double the 
number of data points covered lenders are currently required to 
collect. The proliferation of data points will amplify the number of 
inadvertent data entry errors and penalties, especially among 
institutions that upload data manually, including many community banks 
and small credit unions.
    ICBA believe the exemption thresholds should be increased to 
provide relief for small lenders without materially impacting the 
mortgage data available to the CFPB or impairing the purpose of the 
HMDA statute. Specifically, ICBA recommends that:

    Depository institutions that have originated 1,000 or fewer 
        closed-end mortgages in each of the two preceding calendar 
        years be exempt from reporting on such loans; and

    Depository institutions that have originated 2,000 or fewer 
        open-end lines of credit in each of the two preceding calendar 
        years will be exempt from reporting on such loans.

The exemption thresholds should be applied separately so that a lender 
may be exempt from reporting on its closed-end mortgages but not on its 
open-end lines of credit, or vice versa.
    ICBA also recommends that statutory authority under Dodd-Frank for 
the additional data points be repealed.

  2.  Automatic Qualified Mortgage Status for Loans Held in Portfolio

    The ``qualified mortgage'' (QM)/ability-to-repay rule is overly 
complex and prescriptive and excludes otherwise creditworthy mortgages. 
When a community bank holds a mortgage in portfolio, it has every 
incentive to ensure it understands the borrower's financial condition 
and to work with the borrower to structure the loan properly and make 
sure it is affordable. For this reason, mortgages held in portfolio by 
a community bank should have automatic ``qualified mortgage'' (QM) 
status under the CFPB's ability-to-repay rule.

  3.  Ease Escrow and Appraisal Requirements for Community Bank 
        Portfolio Lenders

    Mandatory escrow requirements raise the cost of credit for those 
borrowers who can least afford it, and impose additional, unnecessary 
compliance costs for community bank lenders. Appraisal requirements 
have become costly in recent years, and rural America is experiencing a 
shortage of licensed appraisers. Escrow and appraisal requirements 
deter community bank mortgage lending and reduce borrower choice. 
Portfolio lenders have every incentive to ensure that collateralized 
properties are accurately appraised and that taxes and insurance are 
paid on a timely basis. Community bank employees often understand local 
real property values better than licensed appraisers who operate from 
outside of the county or State where the property is located. When a 
mortgage is held in portfolio by a community bank, it should be exempt 
from escrow requirements and the lender should be able to substitute an 
in-house ``property evaluation'' for a full residential property 
appraisal completed by a Licensed appraiser.
Access to Capital
    Community banks need better access to capital and simplified 
capital regulation to best serve the lending needs of their 
communities.

  4.  Exempt Non-Systemically Important Financial Institutions from 
        Basel III

    Basel III was originally intended to apply only to the largest, 
systemically important and internationally active banks. Imposing 
complex and excessive capital standards on the Nation's community banks 
will limit lending, investment, and credit availability in local 
communities.
    Community banks should be exempt from Basel III and subject to 
Basel I, a capital framework that more accurately aligns community 
banks' regulatory capital with the types of assets they hold and the 
relationship model they follow. Basel I has served the relationship-
based banking model well for over a generation.
Community Bank Small Business Lending

  5.  Repeal New Small Business Loan Data Collection Requirement for 
        Small Financial Institutions

    Section 1071 of the Dodd-Frank Act requires the collection and 
reporting of 12 pieces of data in connection with credit applications 
made by women- or minority-owned businesses of any size as well as all 
small businesses regardless of ownership, including the race, sex, and 
ethnicity of the principal owners of the business. Section 1071 also 
gives the Bureau discretion to require the reporting of any additional 
information that would assist it in fulfilling the purposes of the 
statute. Section 1071 is fraught with unintended consequences that will 
only harm small business borrowers.
    Small businesses create more new jobs in the American economy than 
any other sector. They rely heavily on credit to fund their payrolls, 
working capital, inventory, and capital investments. Any new compliance 
burden of the magnitude contemplated under Section 1071 will likely 
drive smaller creditors out of the marketplace and shrink access to 
credit for the most credit-dependent businesses. Because the compliance 
costs would be fixed, the smallest borrowers would be at the greatest 
risk. Data collection and reporting for a small loan application would 
cost a lender the same as for a larger loan application, giving lenders 
a strong incentive to forgo smaller borrowers.
Pending Legislation
    The recommendations listed above, as well as other recommendations 
of the Plan for Prosperity, are found in a number of bills introduced 
in the House and Senate.
    The Clear Relief Act (S. 1002), a bipartisan bill introduced by 
Senators Moran and Tester, provides ``qualified mortgage'' status and 
escrow relief for mortgages held in portfolio by institutions with 
assets of less than $10 billion. S. 1002 also includes three other 
provisions from the Plan for Prosperity: Relief for community banks 
with assets of $1 billion or less from redundant internal controls 
assessment mandates of Sarbanes-Oxley 404(b); an exemption for banks 
with assets of $10 billion or less from the Volcker Rule; and a waiver 
from the mandatory waiting period prior to closure that is triggered 
when a lender extends a second offer of credit with a lower interest 
rate.
    ICBA strongly supports S. 1002 and thanks the Members of this 
Committee who have cosponsored this bill: Senators Heitkamp, Tillis, 
and Donnelly.
    I would also like to recommend a bill Senator Rounds introduced 
last Congress, the Community Bank Access to Capital Act, which included 
an exemption from Basel III for banks with assets of $50 billion or 
less; SOX 404(b) relief similar to what is included in S. 1002; and 
amendments to the Securities and Exchange Commission's Regulation D 
that would make is easier for community banks to raise equity capital 
through private securities offerings. These critical capital provisions 
would result in more robust community lending and local economic 
growth. ICBA looks forward to the reintroduction of the Community Bank 
Access to Capital Act.
    We strongly encourage this Committee to consider S. 1002, the 
Community Bank Access to Capital Act, and other bills that include 
meaningful regulatory relief for community banks.
Closing
    Thank you again for the invitation to testify today on behalf of 
ICBA and community banks nationwide. The 115th Congress has an 
opportunity to comprehensively rethink, restructure, and modernize the 
regulation of the American financial services industry to ensure that 
it promotes local economic growth, prosperity, and job creation. 
Regulatory relief for community banks is a critical part of this 
effort. Today's hearing will set the parameters for the important work 
ahead of us.
                                 ______
                                 
                   PREPARED STATEMENT OF DALLAS BERGL
 Chief Executive Officer, Inova Federal Credit Union, on behalf of the 
                   Credit Union National Association
                              June 8, 2017
    Chairman Crapo, Ranking Member Brown, Members of the Committee:
    Thank you for the opportunity to testify on this important topic. 
My name is Dallas Bergl, and I am the Chief Executive Officer for the 
INOVA Federal Credit Union, headquartered in Elkhart, Indiana. I am 
also a member of the Board of Directors of the Credit Union National 
Association (CUNA),\1\ on whose behalf I testify today.
---------------------------------------------------------------------------
    \1\ Credit Union National Association represents America's credit 
unions and their 110 million members.
---------------------------------------------------------------------------
    INOVA Federal Credit Union proudly serves over 32,000 members, 
providing small dollar loans, mortgage loans, and automobile refinance 
loans along with a variety of savings and deposit accounts. By asset 
size ($336 million), loans outstanding ($285 million), and member 
deposits ($291 million), we are small relative to the big banks. 
Nevertheless, we are an invaluable financial lifeline to our community: 
we provide products and services that larger financial institutions 
often do not, because it may not be worth their time or resources to do 
so.
    Elkhart, in northern Indiana, became a symbol of distressed Middle 
America during and after the Great Recession. Among a variety of other 
manufacturing activity, the area is a hub of recreational vehicle 
manufacturing, one of the first industries to falter in the recession. 
In fact, less than a year into the recession, our community's 
unemployment rate tripled, peaking at 18.9 percent by early 2009. It 
was during this downturn that the importance of a credit union to a 
community like ours became apparent.
    Life does not treat people equally or fairly, and economic 
disparity is clearly seen through the eyes of those with little or no 
savings at all. They struggle to afford life, to purchase a home, to 
pay their rent, or to put a meal on the table for their family. 
Consumers who do not have robust savings often also do not have solid 
credit histories or individuals who can cosign a loan for them. And, 
they end up
borrowing small amounts of money, where the cost of making the loan 
often equals and sometimes exceeds the interest paid. It's 
understandable that this is not an attractive investment for larger, 
for-profit financial institutions to undertake.
    My credit union, and others like it throughout the country, lend 
and provide deposit accounts to these individuals, and other credit 
union members, because Congress gave us a mission to promote thrift and 
provide access to credit for provident purposes to our members. Serving 
our members and investing in their success, especially during tough 
economic times, is a key element to ensuring our communities grow and 
thrive. But the investments credit unions make do not just help our 
individual communities. Success begets success, and when individual 
communities grow and thrive, so does this country. It is the growth and 
success of individual communities, like Elkhart, that allows this 
country to achieve economic growth and be a competitive force in the 
international community. It is critical that credit unions can continue 
to support economic development in the United States. Congress has 
given us a big job, and we're helping consumers every day in ways that 
large, for-profit institutions simply will not: we're helping them put 
gas in their car, buy appliances, cover medical expenses, send their 
children to college, and purchase homes of their own.
    I would like to say that credit unions face no hurdles in their 
pursuit of this statutory mission, but this has not been the case. The 
2008 economic crisis hit small communities, like Elkhart, hard. So, 
when our Government had to react and fix the bad policies that led to 
too-big-to-fail institutions, their irresponsible practices, and the 
subsequent economic harm to everyday Americans, we supported this 
effort. Consumers were losing their homes, life savings, and everything 
they worked for years to earn. Credit unions and their leaders, such as 
myself, expected a reaction from our Government that was targeted to 
the abusers of consumers. What we did not expect, what we did not 
support, and what continues to perplex us, are the considerable new 
regulatory requirements for our institutions--the ones who put 
consumers, as their member-owners, first.
    New mortgage requirements intended to prevent an economic crisis in 
the future have had the unintended effect of preventing credit unions 
like mine from lending at the same levels as before the crisis. Prior 
to the mortgage disclosure and underwriting requirements imposed by the 
Consumer Financial Protection Bureau (CFPB), my credit union closed as 
many as three mortgage loans in the time it now takes us to originate 
just one loan. Increasing the cost of making a loan does not create 
economic growth. It leads to fewer consumers getting help. While my 
credit union continues to provide mortgage loans, there are other 
credit unions in Indiana and elsewhere that are not as fortunate 
because they have had to stop their mortgage lending completely because 
of the new regulatory burden. This does not make sense: why would 
Congress support a regulatory regime that makes it harder for lenders 
with histories of safe and affordable lending to serve their members? 
Why would Congress allow this regulatory regime to continue and 
potentially have a similar effect on other critical lifeline services 
provided by credit unions, like small dollar lending?
    My testimony presents commonsense proposals that will help 
responsible financial institutions, like credit unions and small banks, 
continue to serve their members and communities so they can grow and 
thrive; regulatory changes that can be tailored to address the problem 
institutions in this country without punishing solid ones; and 
proactive steps that can be taken with credit unions' regulator, the 
National Credit Union Administration (NCUA), to help foster the 
continued safety and soundness of the credit union system.
    I believe it is my obligation, as a credit union representative 
invited to testify, to be honest with you, provide you with my advice 
based on years of experience in this industry, and tell you when 
ideas--even well intentioned ones--may not be workable. I truly believe 
that when credit unions and their members thrive, so does this country. 
It is through the prosperity of these individual financial institutions 
that we will prosper economically as a Nation.
The Roadmap for Strengthening Credit Unions and Our Members
    My primary goal as CEO of INOVA Federal Credit Union is to run my 
credit union successfully so we can best provide products and services 
for our members. That is what my volunteer, unpaid board of directors, 
consisting of members elected by fellow members, expects of me. It is 
what I expect of myself. Congress should enact legislation that allows 
credit unions to more effectively serve their members and help promote 
economic growth, starting with correcting a disparity in the treatment 
of certain residential loans made by credit unions and eliminating the 
credit union member business lending cap.
    Under current law, when a bank makes a loan for the purchase of a 
1-4 unit, non-owner-occupied residential property, the loan is 
classified as a residential real estate loan. That is appropriate 
because these are generally loans to individuals or households with 
regular jobs with modest real estate investments on the side. In fact, 
many of these loans can be sold to Fannie Mae and Freddie Mac as 
residential home loans. However, when a credit union makes the same 
loan, it is required to be classified as a business loan and is 
therefore subject to the statutory member business lending cap. This 
makes no sense, and Congress should fix it.
    Correcting this disparity would provide economic growth in many 
ways. It would enable credit unions to provide additional credit to 
borrowers seeking to purchase residential units, and help stimulate 
investment in affordable rental real estate and employment in the 
construction trades. Further, changing the statutory classification of 
these loans would free up as much as $4 billion in business lending cap 
space, allowing credit unions to more fully serve their small business 
members. Serving these members, who want to contribute to our country's 
economy, should be the primary goal of all of us here today.
    Further, eliminating the statutory cap on credit union member 
business lending would foster economic growth. As the Committee knows 
well, there is no safety and soundness rationale to the member business 
lending cap, and there is no nexus between the business lending cap and 
the credit union tax status. The only reason for the cap is to keep 
credit unions from serving small businesses to a greater degree. 
Perpetuating this policy robs America's small businesses of further 
access to safe and affordable credit. Eliminating the credit union 
business lending cap would free up significant additional capital for 
small businesses and help advance economic activity and job growth in 
areas served by business lending credit unions. We estimate that 
eliminating the cap on credit union member business lending would 
provide nearly $5 billion in new small business lending and help to 
create more than 54,000 jobs for Americans in the first year alone.
Macro-Level Changes to Improve the Regulatory Landscape
    My credit union and our members experienced the financial crisis 
like all Americans did, perhaps even more so. Oftentimes, we felt 
helpless because we didn't cause the turmoil that took place. For this 
reason, we welcomed policies to address the problem actors. Yet, new 
regulations from the CFPB have not protected credit union members as we 
expected, nor have they prevented too-big-to-fail banks from getting 
bigger and absorbing more market share.
    Since the beginning of the crisis, credit unions have been subject 
to more than 200 regulatory changes from over a dozen Federal agencies. 
These new rules total nearly 8,000 Federal Register pages, and 
counting. The constant stream of new regulations from the CFPB 
particularly has led to credit union resources being diverted from 
serving members and to tough choices to limit or eliminate certain 
products and services.
    Furthermore, disparity in the cost impact of regulatory burden has 
accelerated the consolidation of the credit union system (and the 
banking sector), robbing consumers of financial institution choices. 
While the number of credit unions has been declining since 1970, the 
attrition rate has accelerated since 2010, after the recession and the 
creation of the CFPB. Indeed, 2014 and 2015 were among the top 5 years 
in terms of attrition rates since 1970, at 4.2 percent and 4.1 percent. 
Attrition rates at smaller credit unions have been especially high. In 
both 2014 and 2015, the attrition rate at credit unions with less than 
$25 million in assets (half of all credit unions are of this size) has 
exceeded 6 percent. There is an indisputable connection between both 
the dramatically higher regulatory costs incurred by small credit 
unions and the increases in those costs since 2010, and their higher 
attrition rates.
    Earlier this year, CUNA surveyed credit union executives to measure 
the impact of these rules on credit union members.\2\ The findings 
indicate:
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    \2\ Haller, Jon; Ledin, Paul; and Malla, Bandana, Credit Union 
National Association Impact of CFPB Rules Survey, available at https://
www.cuna.org/uploadedFiles/CUNA/Legislative_And_Regulatory_Advocacy/
Removing_Barriers_Blog/Removing_Barriers_Blog/
FINAL%20Report%20Summary%20only%20Impact%20of%20CFPB%20Survey%20Analysis
.pdf (February 2017).

    Over half (55 percent) of credit unions that have offered 
        international remittances sometime during the past 5 years have 
        either cut back (27 percent) or stopped offering them (28 
        percent), primarily due to burden from CFPB
---------------------------------------------------------------------------
        regulations.

    More than 4 in 10 credit unions (44 percent) that have 
        offered mortgages sometime during the past 5 years have either 
        eliminated certain mortgage products and services (33 percent) 
        or stopped offering them (11 percent), primarily due to burden 
        from CFPB regulations. Credit unions with assets of less than 
        $100 million are the asset group most apt to have dropped their 
        mortgage program altogether.

    Truth-in-Lending Act and Real Estate Settlement Procedures 
        Act Integrated Disclosure (TRID) rules are far and away (80 
        percent) the single rule most negatively impacting credit 
        unions that have offered mortgages. This is followed by the 
        Qualified Mortgage rules (43 percent), Mortgage Servicing (30 
        percent), and new Home Mortgage Disclosure Act rules (19 
        percent). TRID rules serve as the most troublesome rule for all 
        asset groups. (Notably, many credit unions have not yet turned 
        their full attention to the new requirements in the new HMDA 
        rules so this impact is likely understated).

    One in four credit unions (23 percent) that currently offer 
        Home Equity Lines of Credit (HELOCs) indicate they plan to 
        either curtail their HELOC offerings or stop offering them in 
        response to the new HMDA rules.

    The clear majority of credit unions (93 percent) that 
        either currently offer payday/small-dollar loans or are 
        considering offering them indicate they are reconsidering their 
        programs if there are increased regulations: (33 percent) will 
        likely no longer consider introducing these loans, (43 percent) 
        will review the impact and then decide whether to continue/
        discontinue the currently existing offering, and (17 percent) 
        will likely discontinue the currently existing loan product 
        (without an impact review) if there are increased regulations.

These results show consumers are losing options from credit unions, and 
the smallest credit unions are being hit the hardest. Common-sense 
reforms must be enacted to better protect credit unions from the anti-
competitive rules generated by this rigged regulatory regime that 
rewards the largest financial institutions and nonbank lenders that 
caused the financial crisis. There are ways that Congress can make the 
CFPB more effective and adaptable to our economic landscape.
1. A Five-Person Commission for the CFPB
    As presently structured, the CFPB is an anomaly in the Federal 
Government--its authority is vested in a single person, removable by 
the President only for cause, and absent the appropriate levels of 
Congressional oversight. Credit unions and our members benefit from 
policymaking that includes more voices and different expertise. This is 
how my credit union is run--with a Board consisting of members from the 
community that can offer different perspectives and views. This is how 
all other Federal financial regulatory agencies are run-with bipartisan 
boards made up of members with diverse views.
    Director Cordray believes he has done more than enough to 
accommodate credit unions in rulemakings despite the substantial 
evidence they have been harmed by one-size-fits all rules.\3\ Under the 
current structure, it is possible to ignore significant input from 
other regulators and Congress about issues such as exempting credit 
unions from certain rules, because ultimately, the Director answers to 
no one, not even consumers themselves.
---------------------------------------------------------------------------
    \3\ See e.g., Letter from Director Richard Cordray to Congressman 
and Congress Stivers, available at https://www.cuna.org/uploadedFiles/
CUNA/Legislative_And_Regulatory_Advocacy/Removing_Barriers_Blog/
Removing_Barriers_Blog/April%202016%20Response%20
to%20Schiff-Stivers%20CFPB%20Letter.pdf (April 13, 2016).
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    A single director structure leaves consumers vulnerable to market 
uncertainty and drastic swings in policy due to the political 
environment. This uncertainty and the frequent changes in rules and 
policy can be problematic for credit unions, forcing membership 
resources to be diverted to appease the most recent perspective the 
CFPB director has.
    Consumer protection is not about politics; it is about creating the 
best environment to enable financial health and safety--a mission the 
credit union movement has adhered to for many decades with bipartisan 
support. The best way to remove politics from this equation is through 
a multi-member commission. Perhaps the best indication that this is the 
best solution is the fact it is a proposal that both
Democrats,\4\ and Republicans \5\ have supported, only to walk away 
from it when it was politically convenient to do so. Credit union 
members and other consumers would benefit from a multi-member 
Commission that returns fairness and certainty to the rulemaking 
process. We urge you to put consumers ahead of politics and change the 
structure of the CFPB.
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    \4\ Department of Treasury, ``Financial Regulatory Reform: A New 
Foundation: Rebuilding Financial Supervision and Regulation.'' 
Available at https://www.treasury.gov/initiatives/Documents/
FinalReport_web.pdf. 2009, p. 58.
    \5\ H.R. 1266 (114th Congress).
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2. Enhance CFPB's Exemption Authority
    Congress provided the CFPB with the authority to exempt any class 
of covered institutions from any of its rulemakings under Section 1022 
of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-
Frank Act), and we were pleased it did so. However, the CFPB has 
resisted using this exemption authority to fully exempt credit unions 
from any of its rulemakings. Moreover, while under present law the CFPB 
is required to consult with the prudential regulators primarily 
responsible for ensuring safety and soundness, it is not engaging with 
the NCUA in a meaningful way during the rulemaking process. This is 
evidenced by the NCUA's recent objection to the CFPB's proposed rule 
for small dollar lending \6\ and a letter sent to the CFPB last month 
outlining concerns with other CFPB rules.\7\ This unwillingness to 
consider input from the NCUA early in the rulemaking process has 
resulted in proposals, final regulations, and guidance that are 
conflicting, confusing, and do not take into consideration the concerns 
of credit unions' prudential regulator.
---------------------------------------------------------------------------
    \6\ National Credit Union Administration Comment Letter to CFPB in 
response to the CFPB's proposed rule for Payday, Small Dollar, and High 
Cost Loans, available at https://www.ncua.gov/newsroom/Documents/
comment-letter-2016-oct-metsger-payday-rule.pdf (Oct. 3, 2016).
    \7\ National Credit Union Administration Letter to CFPB Concerning 
Compliance with CFPB Rules, available at https://www.cuna.org/
uploadedFiles/CUNA/Legislative_And_Regulatory
_Advocacy/Removing_Barriers_Blog/Removing_Barriers_Blog/Cordray%20CU%20
Compliance%20with%20CFPB%20Rules%20Letter.pdf (May 24, 2017).
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    Furthermore, the CFPB's unwillingness to adequately exercise its 
exemption authority has resulted in credit unions reducing the 
availability of, or eliminating entirely, safe and affordable financial 
products from the market. Nowhere is this seen more clearly than in the 
impact of the Bureau's first major rulemaking on remittances. More than 
half of the credit unions that offered remittances prior to the rule 
have either stopped offering this service to their members or have 
significantly reduced offering the service to stay below the low 
exemption threshold. Indeed, CFPB Director Richard Cordray himself 
noted at a recent hearing in the House Financial Services Committee 
that 96 percent of international remittances now run through large 
banks or nonbank providers, the very abusers from whom this rule was 
designed to protect consumers.\8\ When a `consumer protection' rule 
drives out safe providers and forces consumers into the hands of 
abusers, this is not consumer protection.
---------------------------------------------------------------------------
    \8\ CFPB Director Richard Cordray in response to a question by 
Representative Nydia Velazquez (D-NY) at a hearing entitled, ``Semi-
Annual Report of the Bureau of Consumer Financial Protection.'' (April 
5, 2017).
---------------------------------------------------------------------------
    Because such one-size-fits-all CFPB rulemakings have harmed credit 
union members, the NCUA recently urged the CFPB to use its Section 1022 
(b)(3)(A) exemption authority ``whenever possible'' given the credit 
union community's long history of serving their members and protecting 
consumers. The NCUA further stated, ``Use of this permitted, yet 
underutilized, statutory authority is appropriate to address compliance 
costs and the unintended consequences of limiting access to affordable 
financial services for many millions of middle class credit union 
members through the enactment of needless regulatory burden.''
    In addition to the NCUA, 399 Members of Congress urged the CFPB to 
properly use its authority to exempt credit unions from regulations 
that were never intended to apply to them, and to ensure that 
regulations do not have the unintended consequences of limiting 
services or increasing cost for credit union members.\9\
---------------------------------------------------------------------------
    \9\ Letter from 329 U.S. Members of the House of Representatives to 
CFPB Director Richard Cordray, available at http://www.cuna.org/
Legislative-And-Regulatory-Advocacy/Legislative-Advocacy/Letters-
andTestimony/Letters/2016/Stivers-Schiff-Letter-w-signatures/ (Mar. 14, 
2016); Letter from 70 U.S. Senators to CFPB Director Richard Cordray, 
available at http://www.cuna.org/Legislative-And-Regulatory-Advocacy/
Legislative-Advocacy/Letters-and-Testimony/Letters/2016/160718-Letter-
to-CFPB-on-Tailoring-Regulations/ (July 2016).
---------------------------------------------------------------------------
    Further, the Small Business Administration Office of Advocacy 
additionally urged the CFPB to exempt credit unions from the CFPB's 
proposed small dollar loan rule.\10\ It specifically outlined the 
economic impact of not doing so stating, ``The CFPB's proposed rule may 
force legitimate businesses to cease operation. Imposing such a 
regulation will not alleviate a consumer's financial situation. The 
consumer will still need to pay his/her bills and other expenses. 
Imposing these strict regulations may deprive consumers of a means of 
addressing their financial situation.''
---------------------------------------------------------------------------
    \10\ Small Business Administration Office of Advocacy Letter to 
CFPB in response to the CFPB's proposed rule for Payday, Small Dollar, 
and High Cost Loans, available at https://www.sba.gov/advocacy/10-07-
2016-payday-vehicle-title-and-certain-high-cost-installment-loans (Oct. 
7, 2016).
---------------------------------------------------------------------------
    Despite these loud and powerful voices encouraging the CFPB to 
exercise its Congressionally bestowed exemption authority, the CFPB has 
refused to listen. Therefore, we believe even further clarity about 
Congress' intent is prudent.
    Congress conveyed the exemption authority for a reason: to make 
sure that the rules promulgated by the Bureau took into consideration 
the impact on small institutions, like credit unions and small banks. 
Congress understood then and we hope it understands now that a one-
size-fits-all structure produces anti-competitive rules that 
disadvantage small providers, but rules which are tailored to the size 
and risk-profile of the institution allow them to continue to provide 
safe and affordable services to their members and customers. Consumers 
benefit when credit unions and other good actors spend fewer resources 
complying with rules meant to address other's bad behavior.
    Sadly, consumers are paying the price for this anti-competitive 
rulemaking regime. In 2014, the impact of regulatory burden on credit 
unions and their members was $7.2 billion. This represented a 40 
percent increase in compliance costs from 2010. Since 2014, significant 
new rulemakings have taken effect which will have undoubtedly increased 
the cost credit unions and their members are paying to comply with 
rules designed for abusers even more.
    By more explicitly directing the CFPB to provide meaningful 
exemptions for institutions with a history of providing safe and 
affordable financial services, these institutions--credit unions and 
small banks--can take resources they intend to apply to superfluous 
compliance and invest them instead in their local communities. We urge 
Congress to enact legislation that exempts credit unions and small 
banks from all Bureau rulemakings unless, on an individual rulemaking 
basis, the Bureau demonstrates that a pattern of abuse exists that 
justifies application of a Bureau rule, and the Bureau receives the 
concurrence of the credit union and/or bank prudential regulators.
3. Reexamine the CFPB's UDAAP Authority
    The CFPB's Unfair, Deceptive, or Abusive Acts or Practices (UDAAP) 
authority gives it the power to engage in nearly any policymaking 
desired, even in the absence of actual harm to consumers. For instance, 
in its proposed Payday and Small Dollar Loan rule, the CFPB is 
attempting to include consumer-friendly, credit union small dollar loan 
programs using this UDAAP authority.\11\ The proposed rule imposes new, 
and extremely complex, requirements on credit unions despite little to 
no data suggesting these products have any pattern of harm to 
consumers. To the contrary, consumers have stated that credit union 
small dollar loans are often their safest and best option for 
credit.\12\ My credit union has provided small dollar loans to our 
members for years to help them buy groceries, pay for health care, and 
pay the rent when they are short for the month.
---------------------------------------------------------------------------
    \11\ Payday, Vehicle Title, and Certain High-Cost Installment 
Loans, 81 Fed. Reg. 47864, 47900 (July 22, 2016).
    \12\ Peace, Elizabeth. ``Consumers Prefer Credit Unions to Payday 
Lenders,'' Credit Union Times, available at: http://www.cutimes.com/
2015/07/28/consumers-prefer-credit-unions-to-payday-lenders (July 28, 
2015).
---------------------------------------------------------------------------
    Even the NCUA was concerned with the CFPB's overreaching proposal, 
and it sent its own comment letter urging the Bureau to exempt aspects 
of credit union lending from the rule.\13\ The NCUA recently reiterated 
these concerns in a follow-up letter to the CFPB, specifically 
addressing its use of UDAAP authority.\14\ The NCUA has also stated 
that the CFPB should provide clarity to credit unions with respect to 
UDAAP. Specifically, the agency expressed that ``uncertainty regarding 
supervisory expectations can limit the ability of credit unions to 
provide the services sought by their members.'' The NCUA also expressed 
that there is no precedent for understanding the abusive prong of 
UDAAP, which can be broad.
---------------------------------------------------------------------------
    \13\ National Credit Union Administration Comment Letter to CFPB in 
response to the CFPB's proposed rule for Payday, Small Dollar, and High 
Cost Loans, available at https://www.ncua.gov/newsroom/Documents/
comment-letter-2016-oct-metsger-payday-rule.pdf (Oct. 3, 2016).
    \14\ Supra note 9, NCUA Letter to CFPB.
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    When credit unions are operating without due process and do not 
have a clear picture of the rules they are operating under, we stop 
innovating and limit our products and services. The result is 
detrimental to our members and our communities. More clarity is needed 
about the CFPB's use of UDAAP authority, as this would be in the best 
interest of credit unions and their members.
Specific Changes to Strengthen Consumer Regulations
    The 2008 financial crisis taught us that it is important to address 
the actions of financial services providers who are harming consumers. 
While the goal of the CFPB is to protect consumers, there are ways CFPB 
regulations could be better tailored to address the problem actors in 
the industry without impeding the ability of credit unions and other 
community financial institutions from continuing to operate and serve 
consumers.
    In the past several years, since the creation of the CFPB, credit 
unions' ability to provide top quality and consumer-friendly financial 
products and services has been significantly impeded by a regulatory 
scheme which has favored the large banks and nonbank financial services 
providers that can afford to absorb regulatory and compliance changes. 
CUNA's recent Regulatory Burden Study found that in 2014, regulatory 
burden on credit unions caused $6.1 billion in regulatory costs, and an 
additional $1.1 billion in lost revenue. Even more alarming, these 
figures do not include the CFPB's recent regulatory additions to the 
Home Mortgage Disclosure Act (HMDA) and Truth in Lending Act/Real 
Estate Settlement Procedures Act Integrated Disclosure (TRID) 
requirements, which we believe have caused the greatest increase in 
compliance cost but have yet to be precisely measured. CUNA is in the 
process of updating the study to consider the impact of recently 
implemented regulations.
    The CFPB regularly cites modest thresholds and accommodations it 
has provided in some mortgage rules and the remittances rule as proof 
it is considering the impact its rules have on credit unions and their 
members. And, the exemptions the CFPB provided for small creditors in 
the qualified mortgage/ability-to-repay underwriting rules were helpful 
to credit unions. Regrettably, the CFPB's efforts have not been 
sufficient and have not fully taken into consideration the size, 
complexity, structure, or mission of all credit unions. Below are 
regulatory changes that could be made to keep credit unions like mine 
operating and thriving in these markets. This nuanced policymaking can 
foster economic growth for credit unions and their members.
1. Home Mortgage Disclosure Act (HMDA)
    The CFPB has acknowledged that credit unions maintained sound 
credit practices through the economic crises and did not engage in the 
practices that led to the crash of the housing market. Nonetheless, the 
HMDA rule penalizes credit unions where there has been no evidence of 
wrongful conduct. This makes little sense given credit unions' field of 
membership requirements.
    The CFPB should modify the 2015 HMDA final rule to provide 
meaningful exemptions that will provide relief to credit unions. It 
will be difficult for credit unions to effectively participate in the 
mortgage lending market if they are forced out because of rules not 
tailored to their size or structure. While the 2015 HMDA final rule 
included exemption thresholds of 25 closed-end mortgages--2 per month--
and 100 open-end mortgages (HELOCs)--2 per week--from HMDA reporting, 
this can hardly be described as tailoring the rule to minimize the 
impact on small entities given that prior to the rule, credit unions 
were not required to report HMDA data on HELOCs. The new HMDA reporting 
requirements are particularly troublesome since many credit unions 
process HELOCs on a consumer platform and mortgages on a different 
lending platform, a point that credit union leaders repeatedly raised 
with Bureau staff during the rulemaking process. The CFPB further added 
to credit unions' regulatory burden by drastically increasing the 
number of data points they must report to a level well beyond the data 
points required by the Dodd-Frank Act.
    CUNA's recent survey of credit unions showed that nearly one in 
four (23 percent) that currently offer HELOCs plans to either curtail 
their offerings or stop offering them completely in response to the new 
HMDA rules. We believe this is a conservative estimate since many 
credit unions have not fully turned their attention to implementing the 
new HMDA rules, given the other regulatory changes that have had their 
focus the past few years.
    While the NCUA stated recently that there are several areas where 
relief is warranted for credit unions, it specifically identified HMDA 
as problematic. It urged the CFPB to significantly increase its 
exemption thresholds. Additionally, the NCUA
expressed concerns that the CFPB is requiring the reporting of 14 
additional data points beyond what was explicitly required in the Dodd-
Frank Act. The NCUA
stated, ``the recording and submission of the additional data fields 
create a significant burden on credit unions,'' and it further urged 
the CFPB to exempt credit unions from this reporting requirement. The 
NCUA also points out the harm such arbitrary requirements could cause 
for consumers, stating, ``While the Bureau may consider such additional 
data points as value added for economic modeling or other purposes, 
please consider the distinct economic burden places on the credit union 
community by this exercise.''
    Credit unions have provided an abundance of data to the CFPB 
showing that the thresholds for HMDA compliance do not provide enough 
regulatory relief. Congress should, therefore, encourage the CFPB to 
provide an exemption from reporting on HELOCs and a dramatic increase 
in the loan volume exemption threshold for closed-end mortgage loans. 
These changes would allow credit unions to continue to operate in the 
mortgage lending market and allow consumers to have more and safer 
choices. A more robust and competitive mortgage market with many 
participants benefits consumers most.
    In addition, Congress should require the CFPB to make modifications 
to the rule so the required data points are limited to the enumerated 
data points in the Dodd-Frank Act. The Dodd-Frank Act enumerated data 
points are sufficient for purposes of identifying discriminatory 
practices and implementing the purpose of the rule.
    Finally, Congress should require the CFPB to study the 
ramifications on privacy and the potential for identity theft before 
collecting any additional data points or making them public. The final 
rule also calls for the use of a ``balancing test'' by the CFPB yet 
does not otherwise indicate which fields will be made public. The CFPB 
should make modifications to the rule to clarify which fields will be 
made public and allow for notice and comment on the actual public data 
points.
2. Mortgage Origination Rules
    In CUNA's recent survey of credit unions, 43 percent cited the 
CFPB's QM/ATR rule as most negatively impacting the ability to serve 
members with mortgage products. While the CFPB provided a ``small 
creditor'' exemption to certain provisions of this rule, it did not 
provide full relief for credit unions who in some instances were forced 
to change their product offerings. All credit unions, not just the very 
smallest, have a different operating structure than banks and for-
profit lenders, and the regulatory changes implemented by the CFPB must 
reflect this difference. Modifications in these new underwriting rules 
for all credit unions would be appropriate to ensure they can continue 
to effectively serve their members.
    Furthermore, credit unions agree that borrowers should have 
appropriate disclosures when buying a home, but the sweeping 
substantive changes made by the new TRID rules in addition to the 
Ability-to-Repay (ATR) underwriting requirements increase the 
regulatory burden on credit unions and create arbitrary barriers to 
homeownership. The CFPB should recognize credit unions are not 
predatory lenders but good faith partners for their members seeking to 
buy a home. Credit unions would support the following changes to the 
TRID framework, which would help us continue to operate in the current 
market.
    First, origination waiting periods are harmful to consumers and 
lenders by delaying closings often not to the benefit of the consumer. 
We would support modifications to the rules to allow waiting periods to 
be waived. Congress should urge the CFPB to remove the required 3-day 
waiting period prior to closings. This waiting period is disruptive to 
borrowers and credit unions alike, and can result in credit union home 
buyers losing opportunities to other potential buyers, such as 
investors paying cash.
    Second, credit unions would support a regulatory change that would 
allow a safe-harbor from TRID enforcement until it issues clear 
guidance and clarifies the technical and prescriptive TRID 
requirements. The rule should be modified to be principal-based instead 
of prescriptive.
    Third, Congress should urge the CFPB to provide a definition for 
``residual income'' in the TILA Regulation Z ATR requirements. The lack 
of a clear definition forces significant documentation requirements and 
creates unnecessary litigation and liability risk. This risk adversely 
affects consumers with less than meticulous credit records.
    Fourth, the CFPB should make modifications to TILA regulations to 
allow for an ability to cure violations prior to the right to proceed 
with litigation.
    Fifth, credit unions would support removal of the 2021 sunset for 
QM loans that are eligible for sale to the Government-Sponsored 
Enterprises (GSEs) to prevent market disruptions. The current exemption 
allows lenders to exceed the general requirement that QM loans have a 
debt-to-income ratio of 43 percent, an onerous standard. The exemption 
for GSEs assists in maintaining a functioning mortgage market.
    In addition, credit unions would support revision of the loan 
originator compensation rules to narrow the overbroad definition of 
``loan originator.'' The definition, as currently written, is unclear 
and could potentially require registration of all employees of a credit 
union. Credit unions would also support clarification of assignee 
liability under the lending rules/statutes. This lack of clarity has 
the unintended consequence of causing the secondary market to reject 
loans because of possible technical, non-impactful errors. This is, in 
large part, due to the unclear interpretation of TILA/RESPA rules for 
which credit unions have requested additional guidance from the CFPB.
    Finally, credit unions would strongly support increases to the 
tolerances for appraisal fees. The zero-tolerance requirement has 
caused problems and delays for credit unions and consumers.
3. Mortgage Servicing Regulations
    The CFPB stated it has tailored its servicing rules by making 
certain exemptions for small servicers that service 5,000 or fewer 
mortgage loans. However, significant requirements under the servicing 
rules are excluded from the exemption and must be followed by large and 
small servicers alike. Small servicers remain subject to requirements 
related to successors-in-interest, force-placed insurance and in 
certain circumstances, early intervention requirements for borrowers in 
bankruptcy. CUNA continues to hear the most concerns about CFPB rules 
from the smaller credit unions whom the CFPB claims to have helped most 
through its thresholds.
    Congress should urge the CFPB to provide a more complete exemption 
from these requirements for credit unions. First, the CFPB should 
change the language of the force-placed hazard insurance notice to 
include reference to a policy that provides insufficient coverage. 
Second, the CFPB should expand the small servicer exemption to fully 
exclude application of Regulation Z provisions to successors in 
interest, specifically provisions relating to disclosure requirements 
regarding post-consummation events, prohibited acts or practices and 
certain requirements for credit secured by a dwelling, mortgage 
transfer disclosures, and periodic statements for residential mortgage 
loans.
4. Remittances
    The CFPB regularly cites the exemption to entities that provide 
fewer than 100 remittances annually as an example of regulatory relief 
to small entities. However, this exemption threshold--of just two 
transactions a week--is a prime example of one that has not provided 
significant relief to credit unions, as evidenced by the fact that half 
of credit unions offering remittances prior to the implementation of 
this rule have exited the market or reduced offerings. For credit 
unions to come back into, or continue to, participate in this market, 
the CFPB should re-propose this rule with an increased exemption 
threshold of at least 1,000. This would allow more credit unions to be 
exempt from the rule, providing consumers with more options.
5. Fair Debt Collection Practice Act (FDCPA)
    When Congress enacted the FDCPA and for decades since, it 
recognized that including credit unions in a statute addressing abusive 
debt collection practices is
unnecessary because credit unions are highly regulated and supervised, 
and have longstanding relationships with their members. Since the 
enactment of the FDCPA, no subsequent law, including the Dodd-Frank 
Act, has changed this directive. As such, the CFPB should withdraw debt 
collection bulletins that attempt to use its UDAAP authority to place 
new requirements on creditors despite no statutory changes in the FDCPA 
or Federal Credit Union Act (FCUA). It is unclear what force of law 
CFPB bulletins have, and the lack of transparency surrounding them 
outside of the rulemaking process creates unclear requirements and due 
process concerns. The CPFB should also withdraw its bulletin concerning 
service providers. Again, a bulletin issued outside of the rulemaking 
process creates confusion and unclear guidance.
    The CFPB issued a fair lending guidance bulletin unsupported by 
research or data. This guidance bulletin was also not issued through 
the normal course of the Administrative Procedures Act or the public 
rulemaking process. We are concerned with actions taken by the CFPB 
that circumvent the rulemaking process and rob us and our members of 
the opportunity to provide input. We, therefore, support the withdrawal 
of the CFPB's indirect lending guidance since it lacks transparency and 
has caused confusion about the CFPB's jurisdiction and interest in this 
market. Policymaking in this area should be open to the public and 
responsive to comments.
6. Payday and Small Dollar Loans
    In the proposed payday and small dollar loan rule, the CFPB is 
attempting to sweep consumer-friendly credit union small dollar loan 
products and services into the rule using its UDAAP authority. It, 
unfortunately, proposes new and complex requirements on credit unions 
despite little to no data suggesting these products have any pattern of 
harm to consumers. To the contrary, consumers have stated that credit 
union small dollar loans are often their safest and best option for 
credit. Accordingly, Congress should urge the CFPB to exempt credit 
unions entirely from its proposed payday and small dollar loan 
rulemaking.
7. Voluntary Products
    Federal credit unions are subject to the FCUA and TILA's Regulation 
Z, which are significantly altered by the CFPB's proposed new ``All-in 
APR'' calculation. Currently, Federal credit unions typically view 
their loans under the TILA Regulation Z definition of cost of credit to 
determine what fees are finance charges, which does not include 
application fees, insurance, or other ancillary products within the 
cost of credit. Therefore, Congress should urge the CFPB to clearly 
delineate that ancillary products that are not required as part of the 
credit are not fees for the payment for the credit granted, and the 
fees are not finance charges for purposes of Regulation Z. This will 
ensure that credit unions are not impeded from offering consumers the 
safest and most affordable insurance and other voluntary product 
options.
8. Arbitration
    Credit unions are democratic organizations owned and controlled by 
their members. It is difficult to imagine a case in which class action 
litigation against a credit union would be the best course of action 
for credit union members, since it would put them in a position of 
having to sue themselves as owners. Accordingly, Congress should urge 
the CFPB to exempt credit unions from new arbitration requirements 
because of their unique member ownership structure in which class 
action litigation would lead to member harm.
9. Small Business Lending
    Section 1071 of the Dodd-Frank Act amends the Equal Credit 
Opportunity Act to require financial institutions to compile, maintain, 
and submit to the CFPB certain data on credit applications by women-
owned, minority-owned, and small businesses. This is one of the last 
remaining required rulemakings in the Dodd-Frank Act. Credit unions' 
unique and distinct memberships, as well as the statutory restrictions 
on credit union business lending and existing regulatory framework, 
would not coincide with the CFPB's plans for data collection and would 
likely result in data that does not portray a complete or accurate 
picture of credit union lending. Therefore, Congress should exempt 
credit unions from the Section 1071 requirements. Regulatory burden 
likely to be associated with this rule, particularly for small credit 
unions, would harm the ability of small business owners to obtain 
credit from their credit union.
10. Access to Financial Records
    Per the CFPB, greater access to consumer data by data aggregation 
companies benefits consumers because it allows companies to innovate as 
they develop tools and services for consumers, such as personal 
financial management tools, credit decisions, bill payment, and fraud 
protection. Credit unions agree that some of the tools and services 
that rely on data aggregation are useful to consumers. However, the 
benefits of such practices are certainly not without serious risks. 
Accordingly, Congress should direct the CFPB to proceed carefully in 
the context of third-party access to consumer data. Credit unions are 
concerned with the very real threats to financial account providers, 
such as potential liability, and the potential harm to consumers. Such 
harm could result from unauthorized account access or authorized access 
by unscrupulous third-party aggregators.
Enabling Consumers To Achieve the Dream of Home Ownership
    Housing is one of the largest sectors of the American economy and a 
key component of economic growth in many communities across the 
country. Many credit unions offer mortgages to satisfy member demand, 
and credit unions represent an increasingly significant source of 
mortgage credit nationally. In 2016, more than two-thirds of credit 
unions were active in the first mortgage arena, collectively 
originating over $143 billion worth of these loans--an amount equal to 
7.5 percent of the total market. By comparison, in 1996 only 43 percent 
of credit unions were active and they originated a total of less than 
$20 billion in first mortgages. Moreover, credit unions are 
increasingly active participants in the secondary market. Whereas in 
1996 only about 16 percent of mortgage lending credit unions sold loans 
into the secondary market, by 2016, nearly 30 percent of mortgage 
lending credit unions sold $56 billion into the secondary market, or 40 
percent of total first mortgages originated.
    Credit unions that elect to sell mortgages into the secondary 
market do so for a variety of reasons, but predominantly it is a tool 
to help them manage long-term interest rate risk. Particularly today, 
with long-term interest rates at or near historic lows, access to a 
highly liquid secondary market with relatively low transaction costs is 
vital for the health of credit union mortgage lending. Credit unions, 
therefore, have a deep interest in the structure of the housing finance 
system going forward, and support the creation of an efficient, 
effective, and fair secondary market with equal access for lenders of 
all sizes, which adheres to the following principles below.
1. Neutral Third Party
    There must be a neutral third party in the secondary market, with 
its sole role as a conduit to the secondary market. This entity must be 
independent of any firm that has any other role or business 
relationship in the mortgage origination and securitization process, to 
ensure that no market participant or class of participants enjoys an 
unfair advantage in the system.
2. Equal Access
    The secondary market must be open to lenders of all sizes on an 
equitable basis. Credit unions understands that the users (lenders, 
borrowers, etc.) of a secondary market will be required to pay for the 
use of such market through fees, appropriate risk premiums, and other 
means. However, guarantee fees or other fees/premiums should not have 
any relationship to lender volume. Additionally, I caution strongly 
against regimes that require lenders to retain significant amounts of 
risk beyond that represented by actuarially appropriate guarantee fees, 
as these risk retention arrangements may have a disproportionately 
negative impact on small lenders that are less able to manage such 
risk, and could therefore result in less consumer choice.
3. Strong Oversight and Supervision
    The entities providing secondary market services must be subject to 
appropriate regulatory and supervisory oversight to ensure safety and 
soundness by ensuring accountability, effective corporate governance, 
and preventing future fraud. These entities should also be subject to 
strong capital requirements and have flexibility to operate well and 
develop new programs in response to marketplace demands.
4. Durability
    Any new system must ensure mortgage loans will continue to be made 
to qualified borrowers even in troubled economic times. Without the 
backstop of an explicit federally insured or guaranteed component of 
any revised system, credit unions will be concerned that private 
capital could quickly dry up during difficult economic times, as it did 
during the financial crisis, effectively halting mortgage lending 
altogether.
5. Financial Education
    Credit unions have a noble history of offering a wide variety of 
financial counseling and other educational services to their members. 
Any new housing finance system should emphasize consumer education and 
counseling to ensure that borrowers receive appropriate mortgage loans.
6. Predictable and Affordable Payments
    Any new system must include consumer access to a variety of 
products that provide for predictable, affordable mortgage payments to 
qualified borrowers. Traditionally, this has been through fixed-rate 
mortgages (such as the 30-year fixed rate mortgage), but other products 
that may be more appropriately tailored to a borrower's specific 
circumstances, such as certain standardized adjustable rate mortgages, 
should also be available.
7. Loan Limits
    Our Nation's housing market is diverse, with wide variation 
geographically and between rural and urban communities. Any new housing 
finance system should apply reasonable conforming loan limits that take 
into consideration local real estate prices in higher cost areas.
8. Affordable Housing
    The important role of Government support for affordable housing 
(defined as housing for lower-income borrowers but not necessarily high 
risk borrowers, historically provided through Fair Housing Act 
programs) should be a function separate from the responsibilities of 
the secondary market entities. The requirements for a program to 
stimulate the supply of credit to lower-income borrowers are not the 
same as those for the more general mortgage market. Credit unions 
believe a connection between these two goals could be accomplished by 
either appropriately pricing guarantee fees to minimize the chance of 
taxpayer expense, and/or adding a small supplement to guarantee fees, 
the proceeds of which could be used by some other Federal agency in a 
more targeted fashion in furtherance of affordable housing goals.
9. Mortgage Servicing
    To ensure a completely integrated mortgage experience for member-
borrowers, credit unions should continue to be afforded the opportunity 
to retain or sell the right to service their members' mortgages, at the 
sole discretion of the credit union, regardless of whether that 
member's loan is held in portfolio or sold into the secondary market. 
To lose control over this servicing relationship would be detrimental 
not only to a large majority of credit union member-borrowers, but 
could also result in fewer mortgage choices available to credit unions 
and their members, with higher interest rates and fees alike. Moreover, 
to the extent national mortgage servicing standards are developed, such 
servicing standards should be applied uniformly and not result in the 
imposition of any additional or new regulatory burdens upon credit 
unions.
10. Reasonable and Orderly Transition
    Whatever the outcome of the debate over the housing finance system 
in this country, the transition from the current system to any 
potential new housing finance system must be reasonable and orderly to 
prevent significant disruption to the housing market which would harm 
homeowners, potential home buyers, the credit unions who serve them, 
the Nation's housing market, and economic growth.
Providing Credit Unions with the Tools for Success
    Credit unions have a proven track record of being the responsible 
service providers and lenders in this country. Credit unions 
representatives, such as myself, believe there should be efforts made 
to remove barriers and provide more capabilities so we can continue to 
serve our members. We encourage Congress to use its oversight authority 
to monitor and encourage our prudential regulator, the NCUA, to 
continue with regulatory relief efforts all of which will help foster 
economic growth in local communities. As I have stated earlier in this 
testimony, it is the growth and health of local communities, like the 
ones my credit union serves, that contribute to the overall economic 
health of this country. Any effort to reduce the regulatory burden on 
credit unions will result in investment in their members through better 
rates on savings and loans, stronger capital positions, and the 
development of alternative financial products and delivery systems. We 
recommend Congress, through its oversight, monitor and encourage the 
NCUA to provide regulatory relief for credit unions on the following 
issues.
1. Appropriately Tailoring Rules for Credit Unions
    Credit unions are member-owned not-for-profit cooperatives which 
inherently focus their purpose and existence on the benefit of their 
members. Our unique structure demands that the rules governing 
operations are tailored to maximize the benefit to our member owners. 
As such, we urge Congress to encourage the NCUA to not mimic Federal 
prudential banking regulators' rules designed for large banks owned by 
stockholders that bear little, if any, resemblance to a credit union. 
Rules should be properly tailored to recognize and account for the 
unique cooperative structure of credit unions.
2. Examination Flexibility
    NCUA has adopted and is implementing an Examination Flexibility 
Initiative. Credit unions applaud the NCUA for these efforts which, if 
structured properly, will provide efficiencies and reduce costs to the 
agency, and reduce the examination burden on credit unions. This 
reduced regulatory burden will allow credit unions to focus their 
efforts and resources on their members. We urge Congress to monitor the 
progress of this effort and ensure that the technology upgrades and 
restructuring of the examination process and call report system 
ultimately result in budget efficiencies and reduced regulatory burden. 
As a further enhancement to these efforts, we urge Congress to 
encourage the NCUA to adopt the extended examination cycle for low-risk 
credit unions to those with $1 billion or more in assets. Currently, 
the extended examination cycle for low-risk credit unions is only 
available for those under $1 billion in assets.
3. Minimizing the Negative Impact of Accounting Standards on Credit 
        Impairment on Credit Union Lending
    Congress should ensure the NCUA works with credit unions to 
minimize the harmful effects the Financial Accounting Standards Board's 
(FASB) current
expected credit loss (CECL) standard will undoubtedly have on their 
ability to lend to their members. The CECL standard will require credit 
unions and other financial institutions to forecast potential credit 
impairment using forward-looking information, as opposed to the current 
process of using historical data.
    Application of CECL will have two impacts on credit unions: it will 
make the calculation of loan loss allowance accounts more complicated 
and costly, and it will
require credit unions to hold more in those allowance accounts for any 
given loan portfolio. The NCUA has acknowledged that CECL will 
adversely affect credit unions' net worth ratios for any fixed level of 
credit risk exposure.
    In the final standard, the FASB recognized that a one-size-fits-all 
approach is
inappropriate in the context of determining credit losses. 
Specifically, the final standard contains language not included in the 
proposal that provides additional flexibility, stating there is no one 
methodology that entities must use in applying CECL. Further, the FASB 
stated its intent is that each institution applies the method 
appropriate for its portfolio based on the knowledge of its business 
and processes. Since the FASB is simply the accounting standard setter, 
compliance with CECL will be assessed by the NCUA and the other Federal 
financial regulators through the examination process.
    Credit unions are required under the FCUA to follow U.S. generally 
accepted accounting principles (GAAP). However, the NCUA has 
significant latitude on how it applies these standards in the 
examination context. While application of CECL will in no way change 
economic reality, as noted above, it will result in lower apparent 
capital ratios at credit unions (and banks). Therefore, credit unions 
have repeatedly urged the NCUA to instruct examiners to make the 
appropriate adjustments in assessments of capital adequacy to minimize 
the negative impact on credit unions. To illustrate this, assume under 
the CECL approach a credit union's net worth ratio falls by 50 basis 
points. In such an instance, an examiner who otherwise might have 
suggested, for example, a 9 percent net worth ratio should now be 
satisfied with 8.5 percent which would provide the same level of loss 
absorption capacity as the previous 9 percent.
    This scenario makes clear that the NCUA can adjust its processes in 
a way that minimizes the negative effect on credit unions' net worth 
ratios, which would likely translate directly into a decrease in 
consumer and business lending. Not only does the NCUA have the 
authority to reduce such harm, it can do so relatively easily and at no 
risk to the National Credit Union Share Insurance Fund (NCUSIF). 
Therefore, we urge Congress to work with the NCUA to ensure the agency 
takes appropriate steps to minimize effects of CECL that will have a 
real-life impact on credit union lending to their consumer- and 
business-members.
    Further, while the standard's effective date is still several years 
away, the NCUA is scheduled to begin examining credit unions next year 
for CECL preparedness. Application of CECL will require credit unions 
to compile and analyze loan data at a level of granularity beyond what 
is currently the common practice. Thus, it is crucial that the NCUA 
provide credit unions with detailed guidance as soon as possible to 
educate them on the specific data they will be required to use for 
CECL. While the NCUA has stated its intention to release such guidance, 
credit unions are unable to proceed with preparation until they can 
study the compliance aid. Recognizing its importance, we ask Congress 
to encourage the NCUA to finalize and release this guidance as soon as 
possible.
4. Leverage Requirement
    Under the FCUA, credit unions are subject to statutory capital 
requirements. For prompt corrective action purposes, a credit union 
must maintain a leverage ratio of 7 percent to be considered well-
capitalized. This level is 2 percentage points higher than bank capital 
requirements. When the credit union requirement was set by Congress, 
credit unions were not subject to a Basel-style risk-based capital 
requirement. The new risk-based capital rule promulgated by the NCUA 
does follow a Basel approach. Therefore, a higher statutory leverage 
requirement for credit unions is no longer necessary. Lowering the 
leverage requirement, supported by the new risk-based requirement, 
would provide regulatory relief for many credit unions and will allow 
credit unions to invest more in their members, fostering economic 
growth.
5. Corporate Stabilization Fund/NCUSIF
    The NCUA is currently considering the process for winding down the 
Corporate Credit Union Resolution Program put in place during the 
height of the financial
crises for five corporate credit unions conserved by the NCUA. The 
performance of the Corporate Stabilization Fund has improved 
dramatically as the economy and housing markets have recovered and the 
NCUA has obtained settlements from several of the investment banks that 
sold legacy assets to the corporate credit unions. Thus, credit unions 
have overpaid the projected final costs of the resolution and should 
receive refunds in the form of partial rebates of assessments and 
partial capital replenishment to members of some of the corporate 
credit unions. The assessment
rebates will require a merger of the corporate stabilization fund and 
the NCUSIF. To accomplish the merger, NCUA will likely need to 
temporarily increase the normal operating level of the NCUSIF above 1.3 
percent of insured shares. We urge Congress to monitor this transition 
ensuring that the increase in the normal operating level is not larger 
than necessary, that NCUA returns the normal operating level to 1.3 
percent as soon as possible, and that credit unions receive rebates in 
a timely manner.
6. Elimination of the Loan Maturity Limit
    Congress should consider lifting the loan maturity limit contained 
in 12 U.S.C. 1757(5) which limits maturities to 15 years. While the 
NCUA has limited authority to make exceptions to the 15-year limit (and 
it has chosen to do so), the statutory restriction still operates as an 
antiquated limit to some credit union lending, particularly 
Recreational Vehicle (RV), education, and other loans. Elimination of 
the loan maturity limit would allow for additional lending in these 
markets, which will foster economic development.
We Must Not Move One Step Forward, Two Steps Back
    While credit unions support the changes offered in this testimony, 
there are other policy positions that have been considered that would 
not be in our best interest or the best interest of our members.
    For example, credit unions are opposed to legislative changes to 
allow Federal savings associations (S&Ls) to operate with the duties 
and responsibilities of national banks unless similar legislation 
enhancing the flexibility of the credit union charter are provided. 
This opposition is a matter of fairness and frankly, in the interest of 
good and consistent public policy. We are also opposed to legislative 
changes to eliminate a statutory cap on commercial lending for S&Ls, 
without eliminating credit unions' commercial lending cap.
    While S&Ls were chartered for the specific purpose of mortgage 
lending, credit unions have been offering business purpose loans to 
their members for over 100 years. Since the beginning of the financial 
crisis, business loans have been the fastest growing loan type at 
credit unions; during this same period, commercial lending by S&Ls has 
decreased more than 17 percent. We disagree that either cap on business 
lending should exist in the first place. There are few more provident 
uses of credit than to start, maintain, or expand a business, and 
America's small businesses need more options to foster economic growth 
in this country. Credit unions have a long and rich history of serving 
their small business members well, but many credit unions that serve 
these members are staring the business lending cap straight in the 
face.
    Credit unions also do not support any legislative change that would 
subject the NCUA, credit unions' prudential regulator, to the 
appropriations process. The money that funds the NCUA comes from credit 
unions, like mine, and their members, not the taxpayers in general. 
Maintaining a separate, independent Federal regulator and insurer is 
critically important to the credit union system, and the structural and 
mission-driven differences between credit unions and banks necessitate 
such a regulatory scheme. Furthermore, credit unions are concerned that 
subjecting NCUA to the appropriations process could blur the 
independence of the agency and the credit union system, something we 
have fought hard to preserve. Credit unions and their members remain 
willing to pay for their own regulator provided there is sufficient 
transparency with respect to the agency's budget and the overhead 
transfer rate. Overall, with all the positive changes that could be 
made to help my credit union better serve consumers, this change would 
be a solution in search of a problem.
    In addition, while credit unions support changes to the CFPB to 
make it a better, more focused agency, we do not support a legislative 
change that would remove the agency's authority to promulgate rules for 
and supervise the payday lending market, vehicle title loans, or other 
similar loans. The CFPB should be focusing on the lending activities of 
nonbank lenders rather than duplicating the supervision of highly 
regulated and examined financial institutions. While we have 
significant concerns with the CFPB's proposed rule on small dollar 
loans, consumers could benefit from a regulatory approach that balances 
the need for access to credit with addressing consumer harms and 
predatory behavior. Our concern with the CFPB's small dollar rulemaking 
is that it would impede and discourage credit unions from offering
member-friendly small dollar credit to consumers, depriving them of 
access to a safe and affordable alternative to entities with well-
established histories of abuse.
We encourage Congress to take a more measured approach to this issue 
that provides more protection to consumers, without unnecessarily 
limiting safe and affordable options in this market.
    Furthermore, credit unions do not support legislative changes that 
would give banks with a leverage ratio more than 10 percent an 
exemption from ``any Federal law, rule or regulation providing 
limitations on mergers, consolidations, or acquisitions of assets or 
control, to the extent such limitations relate to capital or liquidity 
standards or concentration of deposits or assets, so long as the 
banking organization, after such proposed merger, consolidation, or 
acquisition, would maintain a quarterly leverage ratio of at least 10 
percent.'' Such a policy would provide very well capitalized banks an 
exemption from the 10 percent domestic deposit cap. Congress must 
consider the systemic risk this type of exemption would present, even 
if applied only to very well capitalized banks, as it could easily 
enable the very large banks to get substantially larger, increasing 
risk to the banking system and reducing consumer choice in the banking 
sector. As we have learned the hard way, policies that empower too-big-
to-fail banks do not contribute to the economic growth of our country.
    Finally, credit unions would not support legislative changes to 
repeal the Chevron deference doctrine of administrative law that gives 
Federal agencies deference on their interpretations of statutes. The 
implications of such a policy change would prevent our Federal 
regulators from doing the very job they were created to do. Credit 
unions need a regulator that understands their industry and their 
individual operations. The specialized expertise of independent 
agencies, when they are run by a bipartisan multi-member board, is 
critical to providing the regulated industry with policies to allow 
growth and prosperity. Federal agencies need the leeway to make 
decisions for their regulated entities within the confines of their 
statutory authority. There are alternative ways to monitor the 
policymaking of independent agencies, such as insuring the agencies are 
run by diverse group of decisionmakers. Repealing the Chevron deference 
doctrine would not be the solution to agency overreach.
Conclusion
    Thank you again for the opportunity to testify and be a part of 
this process. I take my role in the credit union movement, and as part 
of the economic environment, seriously. I believe we have an 
opportunity for success and greater economic growth if we make the 
right choices. And, these choices must not only benefit ourselves and 
our neighbors, but all Americans. Thank you for consideration of my 
views.
                                 ______
                                 
                   PREPARED STATEMENT OF JOHN BISSELL
            President and CEO, Greylock Federal Credit Union
                              June 8, 2017
    Thank you for the honor of joining you today to share the 
experiences of Greylock Federal, where we serve more than 75,000 
families and small businesses in rural Berkshire County. This county 
contains about 12 percent of our State's land mass, but only about 2 
percent of the population. Our region, like so many across the country, 
is making the painful transition from a manufacturing base that once 
offered 12,000 GE jobs, to a service economy with close to zero GE 
jobs. The population in my hometown of Pittsfield has dropped from 
58,000 to 40,000, just during the course of my lifetime. Our largest 
local employer is now our health system.
    We have met these challenges head on as a region. While we are 
relieved to see our local economy recovering, and a brisk pace of 
hiring in Berkshire County, we can clearly see that not everyone is 
participating in the rebound. Many residents are caught in the bind of 
low-wage jobs and unaffordable housing; 45 percent of renters and 37 
percent of homeowners live in homes considered ``unaffordable.'' 20 
percent of families with children younger than five are in living in 
poverty, and 34 percent of children are growing up in single-parent 
households. In addition, mass transit is weak, and according to the 
U.S. Census Bureau, 92 percent of Berkshire County workers rely on 
private transportation as their primary means to get to work. For 
working families living on the edge of financial stability, a failed 
transmission or a dead battery means an immediate loss of income. 
Others may be in between jobs and have a great idea for a small 
business, but do not qualify for traditional bank financing.
    Local challenges like these need local economic development 
solutions. As the only CDFI credit union in the region, and with our 
strong $1 billion balance sheet, we at Greylock recognize our 
responsibility to redeploy deposits back into our local economy, help 
create jobs, boost consumer purchasing power and expand wealth building 
opportunities. How can we do that? For starters, we have looked to the
example of other CDFI credit unions around the country--meaning those 
with a mission of promoting financial security and community 
development in lower-income distressed communities--and we were 
inspired to create our own Community Development department. This 
team--comprising two full-time employees and seven fully certified 
counselors--now offers free financial education, credit counseling, and 
budgeting assistance to every person in our community. Our 
professionals create new loan and deposit products to help the 
underserved and collaborate with local nonprofits to improve the 
financial self-sufficiency of working families. Further, to put more 
people in our community to work, we are expanding our New Road Auto 
Loan program for people with credit challenges. When they buy a 
reliable car, and make on time payments, their credit score goes up and 
their interest rate goes down. We are also expanding our Safety Net 
lending so that when a family has an unexpected emergency, they can 
come to Greylock for help instead of falling in with a predatory 
lender. Nationally, 16 percent of people take out predatory loans for 
emergency expenses and 69 percent for reoccurring expenses (e.g., 
rent), and these payday loans trap consumers into taking out new loans 
to pay off previous loans because the lump sum payments are 
unrealistic, worsening consumer's financial distress. We need to keep 
our members away from these financial predators in the first place. 
Finally, we are broadening our small business lending and technical 
assistance to help more people transition to entrepreneurship. All of 
these taken together should help nearly 3,000 more local families 
participate in the economic turnaround.
    These are some of the ways that we can help grow our local economy. 
Greylock is far from an exception; in fact we are still building our 
programs and our product shelf to emulate the best mission-driven CDFI 
credit unions in the country.
    In conclusion, I want to offer my thoughts on the role of 
regulation. The people I am concerned about in Berkshire County are 
still hurting, and make no mistake about it, these consumers need 
protection. The abuses and predatory practices that brought about the 
Great Recession destroyed 40 percent of American household wealth. 
Black families lost 50 percent of their household wealth and Latino 
families lost 67 percent. Having one half to two thirds of your wealth 
taken from you is far too great a price to pay, ever again. And if we 
thought the abusive and fraudulent practices exercised by big banks had 
ended, we received a rude awakening with the Wells Fargo scandal. 
Consumers need, and deserve, much stronger protection than they had 
previous to 2010. Credit unions did not create the financial crisis, 
and I am proud of the role we played in helping consumers and our local 
economies to recover. We are promoting financial literacy, fostering 
financial inclusion, and helping to grow small businesses, and we 
respectfully ask that with each new regulation, you consider the impact 
on our ability to fulfill our mission, especially among smaller credit 
unions who lack the resources of Greylock. While I want smarter 
regulation as much as anybody, I ask that you please, do not allow a 
repeat of the excesses and predatory practices that precipitated the 
crisis in the first place.
    As you think about the best investments and policy decisions you 
can make, please keep in mind that 6,000 credit unions across this 
country are hard at work on these challenges already, and that CDFI 
credit unions deliver $12 of positive economic impact (in the form of 
loans to consumers, small businesses and first-time homeowners) for 
every grant dollar invested. Every dollar you approve for the CDFI fund 
that is invested through a credit union like mine pays you and the 
American taxpayer back many times over. Further, CDFI credit unions 
provide a way for banks to reach underserved communities, by making 
targeted CRA investments with CDFIs acting as the conduit. Strong 
community credit unions are a vital force in growing local economies.
    I thank you for your kind attention and I am happy to answer any 
questions you may have.

































RESPONSE TO WRITTEN QUESTIONS OF SENATOR BROWN FROM DOROTHY A. 
                            SAVARESE

Q.1. Senator Crapo asked Mr. Bergl and Mr. Grooms about the 
impact of Dodd-Frank mortgage rules on each of their financial
institutions. Does your bank or credit union qualify for the 
QM-ATR ``small creditor,'' ``rural area,'' or any other 
exemption? How does this exemption help your financial 
institution?

A.1. Although our Bank, with its focus on local markets and its 
straightforward business model, is considered a ``community 
bank'' under most definitions, it does not qualify for the 
small bank exception because of our size and the number of 
residential mortgage loans we close each year. Because of the 
unique nature of our market and our community commitment, we do 
make certain loans that meet the ATR standard but do not meet 
the qualified loan definition. We have very narrow guidelines 
for which loans we will make under these circumstances, out of 
concern for potential right of private action which may arise 
at a later time if someone were to challenge the loan. We keep 
these loans in our portfolio. We believe the QM-ATR ``small 
creditor'' or ``rural area'' exception would, if it were 
available to us, help us better meet local needs. From our 
Bank's perspective, the following are our recommendations:
    First, ATR should remain in place as it requires 
responsible loan documentation and allows for mortgage product 
development.
    Second, QM should be revised to allow for responsible 
access to mortgage credit that it currently inhibits. One of 
the most critical items to address is the expiration of the 
GSE/QM patch. If nothing is done to address this, some industry 
estimates indicate at least 25-30 percent of mortgage credit 
originated could disappear. This would also have a significant 
impact in restricting CRA/LMI loans which currently fall under 
the patch and are purchased by the HFA's. Assuming a bank has 
chosen not to take on the additional risk of nonQM loans: the 
maximum 43 percent debt ratio is far too arbitrary and does not 
allow any other credit factors or loan structures to be taken 
into consideration. A simple change in a monthly escrow payment 
can cause a last minute change in the ratio to greater than 43 
percent (e.g., 43.1) which can cause a loan to be declined, or 
cause a price increase to the consumer for the additional risk.
    Moreover, Appendix Q is far too rigid in its specific 
income and debt documentation requirements creating additional 
documentation hardships in extending responsible mortgage 
credit to self-employed borrowers, borrowers who work seasonal 
jobs, and those that are dependent on part-time and overtime 
work. The burden of documenting social security, disability and 
child and alimony support unnecessarily inhibits the use of 
these critical types of
income.
    Our recommendation, therefore, would be to maintain ATR 
safeguards to assure that ``no asset and no income'' loans do 
not reoccur in the market. Broadening the specific nonflexible 
QM rules to allow for community bank underwriter discretion 
will help provide much needed mortgage credit and increase 
market competition for consumers.
    Another one of the problems with the QM-ATR rule, which 
became clear early on, is that it would restrict or even 
eliminate some popular and essential loan products. Certain 
balloon mortgages, for example, remain a useful tool for 
serving creditworthy customers who rely upon seasonal income, 
such as farm workers. As originally constructed, the ATR rules 
would have made it impossible to offer balloon loans. To their 
credit, CFPB recognized this problem and the need for these 
products, and provided exceptions under the small creditor and 
rural categories. However, CFPB is constrained by the statutory 
language of Dodd-Frank and cannot expand the exemptions beyond 
their current scope absent legislative changes, and the rules 
applicable to gain the exemption are complex and convoluted. 
The end result is that credit is constrained because many 
smaller banks find it too complex to determine the 
applicability of the exemption and fear the resulting liability 
if they get they fail to meet the demands of the rules. For 
example, customers of small banks found a 3-year balloon 
product very helpful, but these are not allowed under even the 
revised rules. ABA believes the solution to this problem is to 
expand the QM definition to include all loans originated and 
held in portfolio and to further clarify and simplify the QM 
rules applicable to all other mortgages. These changes will 
reduce the compliance complexity and the risks of liability 
which are inhibiting lenders from offering mortgages.

Q.2. What is your institution doing specifically to help bring 
the unbanked or underbanked in your communities into the 
financial system?

A.2. The banking industry shares the goal of bringing unbanked 
and underbanked people into mainstream banking. Indeed, the 
FDIC's latest ``FDIC National Survey of Unbanked and 
Underbanked Households (2015) found that 93 percent of 
households have a bank account (up from 92.7 percent in 2013) 
and 27 percent of those without a bank account use a prepaid 
account, a more simple, manageable bank account option. Thus, 
almost 95 percent of households use some type of bank account 
that allows them to deposit money in a safe place and make 
payments to a wide variety of recipients.
    The FDIC, at its 2017 Economic Inclusion Summit on April 
26, 2017, and the bi-annual meetings of its Advisory Committee 
on Economic Inclusion (COME-IN), highlighted some bank efforts 
to reach the unbanked and underbanked.
    Some regulatory actions have also hurt banks' ability to 
offer credit products to underbanked populations. For example, 
the OCC and FDIC's guidance on ``Deposit Advance'' products, 
which allow customers to take small, short-term loans through 
their checking account, eliminated them as an option for small 
dollar loans as a practical matter. In addition, the Bureau of 
Consumer Financial Protection's proposal that, in effect, would 
impose interest rate caps on certain loans (e.g., loans that 
are not a mortgage, credit card, or purchase money loan such as 
a car loan) have inhibited banks from developing small-dollar 
loans products and threaten to prohibit ``accommodation'' small 
dollar loans that banks offer to their customers. Finally, the 
Credit Card Accountability Responsibility and Disclosure Act of 
2009 has resulted in credit cards being less available to 
subprime borrowers who have no, limited, or poor credit 
histories.
    Cape Cod Five Cents Savings Bank's Community Commitment 
utilizes five methodologies to address the needs of its 
communities, including bringing the unbanked and underbanked 
into the system. These are: (1) community banking, (2) 
responsible business practices, (3) financial education, (4) 
corporate leadership and volunteerism, and (5) philanthropy. 
(1) Community Banking: the Bank was an early adopter of the Pew 
disclosures, continues to provide a free checking account, and 
a basic savings account. (2) The Bank's marketing and social 
media tools are utilized to reach out to and engage the 
unbanked and underbanked through effective representation of 
diversity and inclusion. (3) Financial Education: the Bank has 
broad based financial education outreach, reaching thousands of 
individuals each year. These include providing financial 
education to inmates who are about to be released from the 
local correctional facility; working with a local battered 
women's shelter to provide financial education to residents; 
providing the Credit For Life program to several thousand high 
school seniors in its market area; and offering and 
participating in first-time home buyer workshops. Also, Bank 
representatives provided a presentation at an FDIC regional 
Economic Inclusion forum and have participated in others. In 
addition, Bank representatives have participated in statewide 
organizational efforts on financial education. (4) Through its 
corporate leadership and volunteerism, the Bank leads and 
provides the manpower for many public/private efforts in the 
community to bring the unbanked and underbanked into the 
mainstream. (5) Through the Bank and its Foundation, the Cape 
Cod Five donates over a million dollars per year to nonprofits 
in the community, including those focused on partnering with 
and assisting the unbanked and underbanked. The Bank also was 
one of five sponsors of a Massachusetts Bankers Association 
statewide program on financial education focused on school age 
children.

Q.3. As discussed at the hearing, new HMDA data will be 
collected starting in January 2018. What do you spend annually 
on HMDA compliance, has that changed since before the crisis, 
and what additional costs are you incurring to come into 
compliance with the new requirements? Do you believe there is 
value in collecting this data? How much of this data do you 
already collect under the ordinary course of underwriting or 
making disclosures to mortgage borrowers?

A.3. On an annual basis, Cape Cod Five incurs approximately 
$225,000 in costs related to the collection, verification and 
reporting of HMDA data. These costs are up at least 35 percent 
since the financial crisis. We anticipate that these costs will 
increase as a result of the new requirements, with 25 
additional data fields and the modification of 20 existing 
fields, requiring more staff time and system enhancements in 
order to comply. The additional cost associated with the new 
requirements is still to be determined. Using the CFPB's 
estimates, we would calculate that the additional costs 
associated with the new and modified fields could be $119,000 
or 53 percent.
    The cost of HMDA compliance is significant. For example, a 
2012 ABA survey found that the median time spent collecting, 
verifying, and reporting HMDA data was 1.47 hours per Loan 
Application Record (LAR), or $32.34 per LAR entry when 
calculated in terms of salary costs. Even the Bureau's 
Regulatory Flexibility Act (RFA) analysis estimates additional 
annual operational expenses of $120,600,000 to which the Bureau 
adds $899,000 for institutions that will be required to report 
HMDA data quarterly. Further, the Bureau estimates that the 
expanded data collection will increase the cost of each closed-
end mortgage application by $23 and the cost of each open-end 
line of credit application by over $41 for ``representative low 
complexity institutions.'' Overall, the Bureau estimates the 
lenders will incur costs in four areas: data collection, 
reporting and resubmission, compliance and internal audits, and 
HMDA-related exams. Although it is not simple to distill the 
cost estimates from the Bureau's analysis, one figure is 
telling: the Bureau, which is likely to use conservative 
estimates when determining the impact of rule, estimates that 
the annualized, one-time additional cost that the new rule will 
impose on the industry to be between $177 million and $326.6 
million.
    The ABA believes that the value of collecting the 
additional information is doubtful as it pertains to the 
underlying purposes of HMDA. Fundamentally, all the new data 
provides information on the mortgage markets, but all the extra 
data is unnecessary for fair lending analysis or allocation of 
Government funds to support housing. It is unlikely to 
encourage greater access to mortgage credit as the added costs 
would decrease the demand for mortgages.
    Much of the data collected for the purposes of HMDA are 
just for the reporting and not instrumental in the process of 
assessing the risk for determining whether to fund the loan. 
Any additional reporting elements add costs and complexity to 
the mortgage process and it is ultimately the borrower that 
bears the cost and extra time to close a loan.

Q.4. Can you please detail how your bank ensures compliance 
with the Volcker rule and how much that has cost your bank 
since the rule became effective on April 1, 2014?

A.4. Like all other banks subject to the Volcker rule, we first 
spent substantial time inventorying all of our activities to 
determine which, if any, implicated the prohibitions of the 
Volcker rule. One of the difficulties we faced in doing that 
was the approach taken by the five Volcker agencies to prohibit 
everything, and carve out a few permissible activities: this 
meant we had to review all of our activities rather than focus 
on those that were intended to be captured by the Volcker rule. 
Based on that inventory, we had to develop, then train and 
implement, compliance processes and policies regarding 
activities permissible under the Volcker rule to ensure we do 
not stray into impermissible activities. We also had to
develop, then train and implement, compliance processes and 
policies regarding any new service or product we offered to 
ensure we do not stray into impermissible activities. Our bank 
is not subject to the most rigorous compliance or metrics 
measuring regime, and we expect those banks that are have had 
to develop additional processes and policies to ensure 
compliance face much higher costs and monitoring burden. We 
have not compiled the cost in man hours as implementation and 
other costs cut across many new regulations and changes in 
existing ones. It is the mix of activities at any particular 
bank that drives the burden of Volcker rule compliance and 
therefore our experience may not reflect the struggles other 
banks may have related to Volcker implementation or compliance 
with other regulations.
    At the hearing Mr. Bissell talked about the impact of the 
opioid crisis on the communities he serves in Western 
Massachusetts. Can you please tell me about the impact the 
opioid epidemic is having on the economies in your communities?
    The opioid crisis impacts every community and Cape Cod is 
not immune from its devastating impact on families and the 
community. Bankers, like all citizens, are concerned about 
these trends and believe working to correct this trend is in 
the best interest of our economic health regardless of the 
community. I'm passionate about helping those with any 
addictions and it is one reason that I serve on the Board of 
Gosnold on Cape Cod which has provided addiction treatment 
services for 45 years.
    Additionally, a significant portion of the Bank's 
charitable efforts, through the five ways listed in Question 2 
above, have been directed to addressing the opioid crisis, in 
terms of supporting organizations and agencies undertaking 
education, prevention, intervention and treatment, which of 
course means those funds can't go into housing or other areas 
of economic development as they would if there was no opioid 
crisis. The Bank expects the opioid crisis to continue to 
require resources for the foreseeable future.

Q.5. The Treasury report on financial regulation released on 
June 12, 2017, suggests making many changes to the regulation 
of the Nation's largest banks. Will relief for the largest 
banks help your banks and credit unions?

A.5. Taken as a whole, the Treasury report does hold promise to 
help banks of all sizes. The U.S. banking industry is comprised 
of institutions of all sizes, which serve a myriad of customers 
including consumers, small business, farmers and large 
corporations. This integrated, ecosystem of banks has developed 
because customers and customer needs are so diverse. There is a 
need for each kind and size of bank. Inefficient and overly 
burdensome regulation prevents all banks from serving their 
customers' needs and, by extension, promote economic growth. 
Sensible regulatory relief for any size bank permits it to 
better serve its customers, often including other banks, making 
a stronger banking system overall.
                                ------                                


RESPONSE TO WRITTEN QUESTIONS OF SENATOR SASSE FROM DOROTHY A. 
                            SAVARESE

Q.1. Our financial system has become increasingly consolidated, 
as community banks and credit unions either close their doors 
or merge with larger institutions. What services can these 
smaller institutions provide that larger institutions cannot 
provide?

A.1. All banks work hard to meet the needs of their 
communities, whether rural, urban, or even global. Community 
banks, in particular, are often the center of the economic 
activity in their community. The bankers are leaders in the 
community and support almost every nonprofit organization in 
the area. Bankers volunteer thousands of hours each year to 
community service and serve on local hospitals, colleges, and 
business boards. Community banks are also significant lenders 
to small businesses, which drives much of our Nation's job and 
economic growth. In fact, community banks make almost half of 
the small loans (less than $1 million) to businesses and the 
agricultural community. When a small bank disappears--which has 
been happening at an alarming rate since Dodd-Frank was 
enacted--the community losses a great deal. In many cases, the 
community bank is one of a few options for financial services 
which leaves the community less well off with fewer choices.

Q.2. Multiple anecdotes from constituents make it clear that 
there are several Nebraska counties where consumers cannot get 
a mortgage, due to CFPB regulations such as TRID and the QM 
rule. What would the best way be to address this problem?

A.2. While it is impossible to address the specific reasons 
that your constituents may cite for the inability to get a 
mortgage without further details, we can confirm that both TRID 
and QM rules promulgated by the CFPB have increased compliance 
and liability costs for all banks, and have had a particularly 
onerous impact in some rural areas where the cost of 
compliance, the complexity of the rules and the potential 
liability costs have caused banks to severely reduce or even 
curtail their mortgage lending. TRID rules in particular are 
extremely convoluted and costly to comply with, and can subject 
lenders to costly and unfair liabilities based upon the actions 
of others (such as title companies) which are difficult or 
impossible to control. ABA has proposed a number of changes to 
TRID including changes to tolerances and providing an 
opportunity to correct closing disclosures.
    Similarly, QM rules have restricted the Qualified Mortgage 
designation to a limited scope of loans which do not 
necessarily include otherwise safe, sound and popular loan 
products that could be used to serve customers. Although CFPB 
has made efforts to expand the ``small creditor'' QM exception, 
many areas still do not meet the Bureau's definitions and the 
requirements are too convoluted to implement. The result is 
that some borrowers in rural areas are able to be offered 
mortgages under the exemption while others are not. ABA 
believes the solution to this problem is to expand the QM 
definition to include all loans originated and held in 
portfolio and to further clarify and simplify the QM rules 
applicable to all other mortgages. These changes will reduce 
the compliance complexity and the risks of liability which may 
be inhibiting lenders from offering mortgages.
    ABA detailed our proposals on TRID and QM in a recent white 
paper to the Treasury Department in response to the President's 
Executive order on reducing regulatory burden, which we would 
be happy to share with you.

Q.3. What are concrete examples of the CFPB's refusal to tailor 
regulations to match the unique profile of community banks and 
credit unions?

A.3. There are several, but here are two examples that jump to 
mind:
HMDA
    ABA recommended adopting a threshold for smaller 
institutions with a lower volume of loans be exempt from the 
detailed data collection and reporting requirements of the Home 
Mortgage Disclosure Act (HMDA). We made a reasoned 
recommendation of 25 loans per month or 300 loans annually as 
an appropriate threshold. That threshold would not have 
compromised the integrity of the overall data but would have 
greatly benefited lenders in rural and agricultural 
communities. Even excluding lenders with 250 mortgage loans or 
less annually would still have captured 95 percent of loans, 
based on the Bureau's data.
Remittances
    Similarly, ABA recommended a threshold be adopted for the 
requirements pertaining to remittances, particularly since 
smaller institutions with a low volume often only offer these 
as an accommodation to serve their customers such that 
compliance costs would cause them to discontinue services. The 
Bureau is currently analyzing the impact of the rule, but the 
concern raised by ABA was that this would particularly impact 
consumers in rural areas without ready access to remittances 
services. ABA initially recommended a threshold of 300 
remittances per year as a logical threshold. Initially, the 
Bureau only provided that the requirement only applied to 
senders who offered the service in the normal course of 
business but then had to come back later and define that as 100 
remittances per year.

Q.4. Which financial regulatory agencies, if any, have 
effectively tailored financial regulations to community banks 
and credit unions? If so, how have they done so?

A.4. There have been few specific efforts to tailor 
regulations. We have seen some tailoring in the following 
cases:
Call Reports
    Through the FFIEC, the Federal banking agencies have begun 
a welcome process to revise and improve the call report. This 
has
included revisions that streamline how banks report complex 
activities--such as derivatives, trading, or credit card 
lending--that enables banks that are not in those lines of 
business to avoid entire schedules of the call report. 
Bipartisan legislation enacted in recent years has also enabled 
the Federal Reserve to let more banks take advantage of the 
Small Bank Holding Company Policy Statement and has enabled all 
three banking agencies to expand the number of community banks 
eligible for the 18 month examination cycle. To their credit, 
the agencies acted swiftly to make these newly authorized 
changes a reality.
CRA
    One of the successful applications of thresholds for 
compliance was in the revisions to the Community Reinvestment 
Act (CRA) regulations adopted in 1995. Initially, banks were 
separated into small institutions and large institutions, with 
the former evaluated on loan performance and larger 
institutions evaluated on a three-part test of investments, 
loans, and services. In 2005, the banking agencies added a 
community development assessment for intermediate small 
institutions to further refine the assessment for banks on 
their CRA performance.
Bank Secrecy Act BSA/Customer Identification Program (CIP) Performance
    Since 1986, banks have been evaluated on their anti-money 
laundering performance using a risk-based approach. That 
approach considers the products and services the bank offers, 
the customers it serves and the geographies and markets where 
the bank is located and where it offers its services. This 
helps to tailor supervision based on the bank. It has been most 
successfully applied in CIP analysis where the risk-based 
approach was used to provide banks with flexibility in their 
compliance efforts. The requirement is that a bank collect 
certain information about the customer and then verify the 
identity of the customer but individual banks are permitted a 
great deal of flexibility in how that goal is achieved.

Q.5. How could Congress best ensure that CFPB regulations are 
properly tailored for community banks and credit unions? For 
example, some have called to exempt either smaller or less 
risky financial institutions from CFPB regulations altogether.

A.5. Congress should require the Bureau to take seriously its 
obligation to conduct a Small Business Regulatory Enforcement 
Fairness Act (SBREFA) review of any proposal so that community 
bank concerns are identified early in the process and less 
burdensome alternatives are identified, considered, and where 
appropriate adopted. In practice, the SBREFA review process has 
been little more than a check-the-box exercise for the Bureau. 
A 2016 GAO report found that only 18 out of 57 SBREFA panel 
participants said the process was a good opportunity to be 
heard and a mere 7 participants were satisfied with the final 
rule.

Q.6. My understanding is that only two banks have actually 
opened since the passage of Dodd-Frank. Why? What potential 
impacts does this have for our financial system?

A.6. It's true that there has been shockingly few new banks 
since Dodd-Frank. New entrants into any industry are a sign of 
growth potential and economic opportunity. New banks help fill 
gaps in the provision of banking services, increases 
competition, and ultimately strengthen the community banking 
sector. Consumers and businesses have more choices of 
competitive products and services which translates into greater 
economic activity and growth in local communities.
    The lack of de novo activity is concerning to our industry 
and sadly reflects the same forces that are driving 
consolidation--excessive and complex regulations that are not 
tailored to the risks of specific institutions. This--not the 
local economic conditions--is often the tipping point that 
drives small banks to merge with banks typically many times 
larger and is a barrier to entry for new banks.
                                ------                                


   RESPONSE TO WRITTEN QUESTIONS OF SENATOR BROWN FROM STEVE 
                             GROOMS

Q.1. Senator Crapo asked Mr. Bergl and Mr. Grooms about the 
impact of Dodd-Frank mortgage rules on each of their financial 
institutions. Does your bank or credit union qualify for the 
QM-ATR ``small creditor,'' ``rural area,'' or any other 
exemption? How does this exemption help your financial 
institution?

A.1. Yes, we qualify both as a small credit union and as a 
rural area credit union. In identifying what these designations 
mean to us is not as clear as we would like it to be. There 
tends to be some confusion on what we can and can't do in 
complying with the regulation and ensuring we qualify for the 
``Safe Harbor'' associated with Qualified Mortgages and Ability 
to Repay rules, in addition there is confusion on what 
constitutes staying in compliance with the Higher-Priced 
Mortgage rule that stipulates additional requirements if one of 
our loans falls into this category. The risks of noncompliance 
are great so we are very conservative in our approach to 
compliance and interpretation to the rules the CFPB has set.

Q.2. What is your institution doing specifically to help bring 
the unbanked or underbanked in your communities into the 
financial system?

A.2. We serve a general area of underserved communities in 
North Central Montana, including the city or town of Browning 
Montana, which is on the Blackfeet Indian reservation. In 
serving individuals that live on a separate sovereign nation, 
this creates unique challenges and difficulties when trying to 
work through ``a separate legal system'' in resolving 
delinquent loans and negative saving and checking accounts and 
other member issues. That said, as we serve our communities 
including the Browning area, we have held different educational 
seminars associated with getting more individuals to understand 
the benefits of the banking system, how checking and savings 
accounts work and understanding how best to use financial 
institutions, including credit unions to meet day to day 
personal financial needs. The products and services offered at 
our credit union meet the needs of those of modest means and 
those that live in an underserved area. We will continue to 
look for ways to help all members and individuals we serve to 
assist in meeting needs in a convenient, low cost and friendly 
approach to banking needs.
    It is worth noting that the secondary market investors set 
the requirements on the loans they are looking to invest in 
relative to mortgage loans sold on the secondary market. As a 
lender that serves rural Montana/America, we hold loans in 
house that we may not sell on the secondary market, and in 
doing so, we serve those that would not otherwise be able to 
find financing on a first mortgages through the secondary 
marketplace. As regulations increase it makes it more difficult 
to exercise judgment on loans that are on the border or fall 
outside established guidelines from increased regulation.
    Finally, as I outline in my written testimony, Congress 
could help more credit unions help underbanked communities by 
enacting legislation that would allow all credit unions to add 
underserved areas to their fields of membership--legislation 
NCUA Chairman Mark McWatters has also endorsed.

Q.3.a. As discussed at the hearing, new HMDA data will be 
collected starting in January 2018. What do you spend annually 
on HMDA compliance, has that changed since before the crisis, 
and what additional costs are you incurring to come into 
compliance with the new requirements?

A.3.a. HMDA requirements have changed significantly since the 
financial crisis began, including more personnel time needed to 
collect and complete the reports and the need to purchase 
third-party software used to assist with identifying data and 
compliance with RESPA, TILA, and TRID, including HMDA 
reporting. Beginning in January 2018 there will be more data 
points required and more time associated with collecting, 
organizing and reporting the data required. We are now spending 
an additional $25,000 a year to collect this information and 
anticipate increased hard costs going forward and twice the 
time and costs needed to track and record 48 Data points of 
information in the future. We currently average one half hour 
on each mortgage loan we originate and fund, last year we 
funded 107 mortgage loans, with the new requirements we double 
the size of our spreadsheet and the time needed to complete the 
spread sheet. This information is not in our system so it is 
necessary to collect the information manually, which has the 
possibly of human error associated with the collection and 
recording of these data points. As the number of loans increase 
so does the time and cost of data collection increase and the 
requirements of compliance continues to be burdensome.

Q.3.b. Do you believe there is value in collecting this data?

A.3.b. We are not sure of the value associated with the data 
collected, it does appear more personal data is being required, 
some of which may be very specific to a person's financial 
strength and may be more than that person would want to share, 
like debt ratio, credit score, loan to value, . . . etc.
    Some of the information requested is information we cannot 
know or take into consideration when underwriting a loan, or 
even ask such as a person's age, ethnic background, or gender 
to name but a few. These new Data points appear to go too far, 
enough is enough, from our perspective we don't need more data 
points to collect.

Q.3.c. How much of this data do you already collect under the 
ordinary course of underwriting or making disclosures to 
mortgage borrowers?

A.3.c. We currently collect 25 Data points and manually input 
that information into a spreadsheet. This takes us roughly 5 
hours per month. We have most information somewhere in the 
file, we need to collect it and it takes time. By doubling the 
number of Data points we gather we anticipate doubling the time 
we need to spend collecting and recording the data required.

Q.4. At the hearing Mr. Bissell talked about the impact of the 
opioid crisis on the communities he serves in Western 
Massachusetts. Can you please tell me about the impact the 
opioid epidemic is having on the economies in your communities?

A.4. I have not been able to identify any local data for our 
City-County Health Department or County Commissioners, but with 
what I hear in the news we are not immune from the Opioid 
epidemic sweeping the country. We have our fair share of 
problems that impact families and businesses both socially as 
well as economically in our community of Great Falls, Montana 
as a result of the Opioid problem in America today.

Q.5. The Treasury report on financial regulation released on 
June 12, 2017, suggests making many changes to the regulation 
of the Nation's largest banks. Will relief for the largest 
banks help your banks and credit unions?

A.5. The U.S. Department of Treasury Report ``A Financial 
System that Creates Economic Opportunities: Banks and Credit 
Unions'' contains a number of recommendations that would 
provide regulatory relief for credit unions that NAFCU 
supports. As I outline in my written testimony under the basic 
tenets of a healthy and appropriate regulatory environment for 
credit unions, NAFCU does not believe that bad actors or 
unregulated entities should escape regulatory oversight. We 
would urge the Committee to provide relief to credit unions 
while ensuring those who deserve greater oversight are subject 
to it.
                                ------                                


   RESPONSE TO WRITTEN QUESTIONS OF SENATOR SASSE FROM STEVE 
                             GROOMS

Q.1. Our financial system has become increasingly consolidated, 
as community banks and credit unions either close their doors 
or merge with larger institutions. What services can these 
smaller institutions provide that larger institutions cannot 
provide?

A.1. The impact of growing compliance burdens is evident as the 
overall number of credit unions continues to decline. Since the 
second quarter of 2010, we have lost over 1,500 federally 
insured credit unions--over 20 percent of the industry. The 
overwhelming majority (96 percent) of these were smaller 
institutions below $100 million in assets. While it is true 
that there has been a historical consolidation trend in the 
industry, this trend has accelerated since the passage of the 
Dodd-Frank Act. Many smaller institutions simply cannot keep up 
with the new regulatory tide and have had to merge out of 
business or be taken over. Regardless of size--credit unions 
are member owned and exist solely for the purpose of providing 
financial services to their members unlike banks who aim to 
make a profit for a limited number of shareholders. Credit 
unions know their members and, by being in their communities 
and having a common bond, can tailor their services to meet the 
unique needs of their members. If relief is not provided and 
this consolidation trend continues, the large banks will only 
continue to get larger and the small financial institutions 
like credit unions will disappear.

Q.2. Multiple anecdotes from constituents make it clear that 
there are several Nebraska counties where consumers cannot get 
a mortgage, due to CFPB regulations such as TRID and the QM 
rule. What would the best way be to address this problem?

A.2. NAFCU has many concerns with both CFPB rules and the 
overall impact they will have on credit unions ability to 
provide needed loans and services to their members. First and 
foremost, NAFCU believes that credit unions should be exempt 
from the CFPB with rulemaking returned to NCUA for this issue. 
This would allow NCUA to better tailor a rule that allows 
credit unions to continue to serve the credit needs of their 
members.
    The CFPB should also be required to better tailor its rules 
to address the concerns of community lenders. When the CFPB 
issued its Qualified Mortgage Rule, NAFCU proposed revising the 
definition of a qualified mortgage in a number of ways to 
reduce the enormous negative impact the rule will undoubtedly 
have on credit unions and their members, in particular the 
debt-to-income (DTI) threshold (43 percent of the total loan) 
and the inclusion of affiliate fees in the calculation of 
points and fees.
    In regards to the final TRID Rule released last week, NAFCU 
has urged the CFPB to make adjustments to the rule such as 
allowing a revised closing disclosure to reset tolerances under 
the same circumstances that the current rule permits credit 
unions to issue a revised loan estimate; incorporating informal 
guidance into the rule; clarifying that recording fees and 
transfer taxes may be charged in connection with housing 
assistance lending transactions without losing eligibility for 
the existing partial exemption; extending the rule's coverage 
to include all cooperative units rather than just transactions 
secured by real property; and clarifying how a creditor may 
provide separate disclosure forms to the consumer and the 
seller.
    My written testimony also outlines the tenets NAFCU 
believes are necessary for credit unions to thrive.

Q.3. What are concrete examples of the CFPB's refusal to tailor 
regulations to match the unique profile of community banks and 
credit unions?

A.3. NAFCU supports measures that would require the CFPB to 
better tailor its regulations. Despite credit unions being 
smaller and less risky than mega-banks, they have too often 
found themselves subject to burdensome new CFPB regulations 
designed for big banks, and this has a negative impact on their 
ability to serve their members and foster economic development.
    A prime example is CFPB's Remittance Rule. Congress enacted 
legislation in 2006 that would allow credit unions to offer 
remittances to anyone in their field of membership, regardless 
of membership status. Congress wanted to make it easier for 
those who may be unbanked to come into a regulated depository 
institution and get services. The CFPB's remittance rule and 
its unworkable 100 remittance safe harbor have, instead, driven 
many credit unions out of the remittance business due to the 
burdens it places on the institution. The CFPB could have 
recognized the work of Congress in 2006 and exempted credit 
unions as an industry from this rule, but chose not to.
    Another example is the new HMDA data collection 
requirements. NCUA Chairman Mark McWatters recently asked the 
CFPB to exempt credit unions from many of the new requirements 
due to the burdens they would place on credit unions.

Q.4. Which financial regulatory agencies, if any, have 
effectively tailored financial regulations to community banks 
and credit unions? If so, how have they done so?

A.4. NAFCU believes that the National Credit Union 
Administration is best situated with the knowledge and 
expertise to regulate credit unions due to their unique nature. 
As not-for-profit member-owned cooperatives, credit unions are 
unique in the financial services marketplace and need to have 
regulators that understand their business model and operations. 
NCUA has a long track record of success in regulating credit 
unions and creating a regulatory environment that allows credit 
unions to meet the needs of their members.

Q.5. How could Congress best ensure that CFPB regulations are 
properly tailored for community banks and credit unions? For 
example, some have called to exempt either smaller or less 
risky financial institutions from CFPB regulations altogether.

A.5. NAFCU has long believed that, given their unique nature, 
all credit unions should be exempt from CFPB rulemaking and 
examination authority, with NCUA once again given authority to 
write all rules for credit unions, tailoring new proposals to 
meet the special nature of the credit union industry. With that 
being said other steps Congress could take that would better 
tailor the CFPB's regulations would be to provide greater 
clarity to CFPB's Section 1022 exemption authority, hold the 
CFPB accountable for the cost and compliance burden estimates, 
and passing the bills outlined in my written statement.

Q.6. My understanding is that only two banks have actually 
opened since the passage of Dodd-Frank. Why? What potential 
impacts does this have for our financial system?

A.6. Since the financial crisis and the passage of Dodd-Frank, 
the number of new credit unions seeking charters has decreased 
by nearly 70 percent per year, with an average of 7.7 new 
charters annually in the 10 years before Dodd-Frank and only 
2.3 annually since the passage of Dodd-Frank. The relentless 
rising cost of compliance deters many would-be de novo credit 
unions. Additionally, the initial capital infusion and cash 
outlays are often too great for many communities and 
associations, and there is practically no return on investment. 
Starting a new credit union is essentially an altruistic 
endeavor, as there is no ultimate financial incentive for those 
who are successful. Furthermore, the complex chartering process 
may seem relatively easy and straightforward when compared to 
what a de novo credit union will face once it is chartered and 
operating. The industry has seen a significant decline in the 
pace of de novo credit unions post Dodd-Frank enactment which 
just helps to exacerbate the declining overall number of credit 
unions.
                                ------                                


  RESPONSE TO WRITTEN QUESTIONS OF SENATOR BROWN FROM DALLAS 
                             BERGL

Q.1. Senator Crapo asked Mr. Bergl and Mr. Grooms about the 
impact of Dodd-Frank mortgage rules on each of their financial 
institutions. Does your bank or credit union qualify for the 
QM-ATR ``small creditor,'' ``rural area,'' or any other 
exemption? How does this exemption help your financial 
institution?

A.1. The CFPB continues to cite the expanded qualified mortgage 
(QM) safe harbor for small creditors and small creditor 
exemption for those operating in rural and underserved areas as 
proof that it has helped credit unions continue to serve 
members. While there was some consideration for the smallest 
financial institutions, the expanded exemption for smaller 
creditors was provided after the ATR/QM rule was finalized, 
which created compliance burdens that were preventable. In any 
event the exemptions are so narrowly tailored that they are 
statistically meaningless in the overall mortgage volume.
    Some changes were also mandated by Congress in the Helping 
Expand Lending Practices in Rural Communities Act at the end of 
2015. This is the type of action we would hope the CFPB would 
take on its own accord in the future.
    Furthermore, in a recent survey of CUNA members, 43 percent 
cited the QM rule as most negatively impacting the ability to 
serve members with mortgage products. Therefore, these 
exemptions, while a step in the right direction, did not 
provide full relief for many credit unions, who in some 
instances were forced to change their product offerings and/or 
discontinue mortgage lending entirely. All credit unions, not 
just the very smallest, have a different operating structure 
than banks and for-profit lenders, and the regulatory changes 
implemented by the CFPB must reflect this difference. 
Modifications in the ATR/QM rule for all credit unions would be 
appropriate to ensure they can continue to effectively serve 
their members.

Q.2. What is your institution doing specifically to help bring 
the unbanked or underbanked in your communities into the 
financial system?

A.2. Credit unions, by their nature, are member-owned, 
cooperative financial institutions that invest in their 
communities and seek to offer safe and affordable products that 
are more suitable than others in the marketplace for consumers 
of modest means. For example, our credit union operates a small 
dollar loan program designed to keep members out of the reach 
of unscrupulous lenders. We also have done significant 
financial education and other financial outreach programs in 
the community. Unfortunately, we have had to direct resources 
away from this type of outreach due to the increase in 
regulatory burden that has emerged since the crisis.

Q.3. As discussed at the hearing, new HMDA data will be 
collected starting in January 2018. What do you spend annually 
on HMDA compliance, has that changed since before the crisis, 
and what additional costs are you incurring to come into 
compliance with the new requirements? Do you believe there is 
value in collecting this data? How much of this data do you 
already collect under the
ordinary course of underwriting or making disclosures to 
mortgage borrowers?

A.3. First, it's too soon to know the full annual cost of HMDA 
compliance until the rule has been fully implemented. However, 
we believe the data currently collected is more than sufficient 
to establish potential discrimination. We therefore believe the 
additional data the CFPB seeks to collect will be of no value 
in reducing discrimination and of limited value to the Bureau 
or other stakeholders. Second, while some of this information 
may be collected or available in the course of underwriting, 
this fact does not take into consideration the costs associated 
with new reporting requirements, as each additional data point 
to be reported requires separate system development, education 
and training, quality control and auditing.

Q.4. At the hearing, Mr. Bissell talked about the impact of the 
opioid crisis on the communities he serves in Western 
Massachusetts. Can you please tell me about the impact the 
opioid epidemic is having on the economies in your communities?

A.4. Elkhart is not immune to the impacts of drug abuse in our 
community. I do not feel informed enough on this topic to share 
more than my personal concern that addiction seems to be 
spreading and my feeling that legalization of gateway drugs in 
some States may ultimately cause this and other problems to 
worsen.

Q.5. The Treasury report on financial regulation released on 
June 12, 2017, suggests making many changes to the regulation 
of the Nation's largest banks. Will relief for the largest 
banks help your banks and credit unions?

A.5. It's become clear since the crisis that one-size-fits all 
regulations designed to curb abusive and destabilizing 
practices at the largest financial institutions are 
inappropriate and harmful to smaller community-based financial 
institutions. All regulations should therefore be appropriately 
tailored for the complexity and size of an institution. Those 
changes proposed by the Treasury report that would help large 
financial institutions become larger should indeed be subject 
to careful scrutiny. However, there are a number of changes 
included in the Treasury report that would in fact help 
America's credit unions. Among these:
National Credit Union Administration
   LRecalibration of NCUA Regulations: NCUA regulations 
        related to credit union capital and stress testing 
        should be recalibrated:

     LRBC: Revise Risk Based Capital to apply to $10 
        billion and over or eliminate requirements for those 
        with 10 percent net worth;

     LStress Testing: Stress testing threshold raised 
        from $10 billion to $50 billion;

     LSupplemental Capital: Allow credit unions to rely 
        on appropriately designed supplemental capital to meet 
        a portion of their Risk Based Capital requirements

   LCECL: Revisiting CECL requirements;

   LStreamline De Novo Applications: Recommends 
        streamlining the application process for de novo credit 
        unions to encourage new charters;

   LCall Reports: Recommends call reports be simplified 
        and streamlined

   LExam Thresholds: Exam thresholds for extended exam 
        cycle (18-month) should be raised over the current $1 
        billion level or eliminated;

   LStatutory Capital: Codify that the statutory rate 
        to be well capitalized is set by Congress at 7 percent 
        and not a level higher than that set by a bureaucrat:

   LData Collection: Recommends better coordination and 
        rationalization of examination and data collection 
        procedures to promote accountability and clarity;

   LAgricultural and Rural Credit Unions: Regulators 
        should tailor and give special consideration for 
        agricultural and rural financial institutions;

   LBoard Duties: Recommends revisions for Boards of 
        Directors to appropriately tailor duties recognizing 
        the distinction between management and boards to 
        restore the balance between regulators, Boards and 
        management;

   LCost-Benefit Analysis: Increased use of Cost-
        Benefit Analysis.
Consumer Financial Protection Bureau
Structural Reforms
   LMake the CFPB Director removable ``at-will'' 
        instead of ``for cause''

   LFunding through the appropriations process

   LSubject to OMB apportionment

   LCivil Penalty Fund restructured
Increased Regulatory Certainty
   LCFPB should issue rules or guidance subject to 
        public notice and comment procedures before bringing 
        enforcement actions in areas in which clear guidance is 
        lacking or the CFPB's position departs from the 
        historical interpretation of the law.

   LThe CFPB should adopt regulations that more clearly 
        delineate its interpretation of the UDAAP standard. The 
        agency should seek monetary sanctions only in cases in 
        which a regulated party had reasonable notice--by 
        virtue of a CFPB regulation, judicial precedent, or FTC 
        precedent--that its conduct was unlawful. The CFPB 
        could implement this reform administratively through 
        issuance of a regulation limiting the application of 
        monetary sanctions to cases that satisfy this notice 
        standard.

   LThe CFPB should make the requirements for CFPB no-
        action relief less onerous.
Enforcement

   LThe CFPB should bring enforcement actions in 
        Federal district court rather than use administrative 
        proceedings.

   LThe CID process should be reformed to ensure 
        subjects of an investigation receive the benefit of 
        existing statutory protections, backed by judicial 
        review.
Regulatory Review
   LThe CFPB should promulgate a regulation committing 
        it to regularly reviewing all regulations that it 
        administers to identify outdated or otherwise 
        unnecessary regulatory requirements imposed on 
        regulated entities.
Complaint Database
   LThe CFPB's Consumer Complaint Database should be 
        reformed to make the underlying data available only to 
        Federal and State agencies, and not to the general 
        public.
Supervisory Authority
   LCongress should repeal the CFPB's supervisory 
        authority. The responsibility to supervise banks should 
        be entrusted to the prudential regulators. Supervision 
        of nonbanks should be returned to State regulators.
Mortgage Issues
   LAdjust and Clarify the ATR Rule and eliminate the 
        ``QM Patch'': The CFPB should engage in a review of the 
        ATR/QM rule and work to align QM requirements with GSE 
        eligibility requirements, ultimately phasing out the QM 
        Patch and subjecting all market participants to the 
        same transparent set of requirements. These 
        requirements should make ample accommodation for 
        compensating factors that should allow a loan to be a 
        QM loan even if one particular criterion is deemed to 
        fall outside the bounds of the existing framework, such 
        as when a borrower has a high DTI ratio with 
        compensating factors.

   LModify Appendix Q of the ATR Rule: Appendix Q 
        should be simplified and the CFPB should make much 
        clearer, binding guidance for use and application. The 
        CFPB should review Appendix Q standards for determining 
        borrower debt and income levels to mitigate overly 
        prescriptive and rigid requirements. Review of these 
        requirements should be particularly sensitive to 
        considerations for self-employed and nontraditional 
        borrowers.

   LRevise the Points and Fees Cap for QM Loans: The 
        CFPB should increase the $103,000 loan threshold for 
        application of the 3 percent points and fees cap, which 
        would encourage additional lending in the form of 
        smaller balance loans. The CFPB should scale points and 
        fees caps in both dollar and percentage terms for loans 
        that fall below the adjusted loan amount threshold for 
        application of the 3 percent points and fees cap.

   LIncrease the Threshold for Making Small Creditor QM 
        Loans: Raising the total asset threshold for making 
        Small Creditor QM loans from the current $2 billion to 
        a higher asset threshold of between $5 and $10 billion 
        is recommended to accommodate loans made and retained 
        by small depository institutions. In order to maintain 
        a level playing field across institution types, an 
        alternative approach to this recommendation would be to 
        undertake a rulemaking to amend the QM rule and related 
        processes for all lenders regardless of type.

   LClarify and Modify TRID: The CFPB could resolve 
        uncertainty regarding what constitutes a TRID violation 
        through notice and comment rulemaking and/or through 
        the publication of more robust and detailed FAQs in the 
        Federal Register. The CFPB should allow a more 
        streamlined waiver for the mandatory waiting periods, 
        in consultation with all market participants, including 
        both lenders and realtors. The CFPB should allow 
        creditors to cure errors in a loan file within a 
        reasonable period after closing.

   LImprove Flexibility and Accountability of Loan 
        Originator Compensation Rule: The CFPB should improve 
        flexibility and accountability of the Loan Originator 
        Compensation Rule, particularly in those instances 
        where an error is discovered post-closing, in order to 
        facilitate post-closing corrections of nonmaterial 
        errors. The CFPB should establish clear ex ante 
        standards through notice and comment rulemaking, which 
        will clarify its enforcement priorities with respect to 
        the Loan Originator Compensation Rule.

   LDelay Implementation of HMDA Reporting 
        Requirements: The CFPB should delay the 2018 
        implementation of the new HMDA requirements until 
        borrower privacy is adequately addressed and the 
        industry is better positioned to implement the new 
        requirements. The new requirements should be examined 
        for utility and cost burden, particularly on smaller 
        lending institutions. Consideration should be given to 
        moving responsibility for HMDA back to bank regulators, 
        discontinuing public use, and revising regulatory 
        applications.

   LPlace a Moratorium on Additional Mortgage Servicing 
        Rules: The CFPB should place a moratorium on additional 
        rulemaking in mortgage servicing while the industry 
        updates its operations to comply with the existing 
        regulations and transitions from HAMP to alternative 
        loss mitigation options. In addition, the CFPB should 
        work with prudential regulators and State regulators to 
        improve alignment where possible in both regulation and 
        examinations.
Small Business Lending
   LRepeal the provisions of Section 1071 of the Dodd-
        Frank Act pertaining to small businesses to ensure that 
        the intended benefits of Section 1071 do not 
        inadvertently reduce the ability of small businesses to 
        access credit at a reasonable cost.

   LSimplify, adjust, or change certain financial 
        regulations for financial institutions serving small 
        businesses.
                                ------                                


  RESPONSE TO WRITTEN QUESTIONS OF SENATOR SASSE FROM DALLAS 
                             BERGL

Q.1. Our financial system has become increasingly consolidated, 
as community banks and credit unions either close their doors 
or merge with larger institutions. What services can these 
smaller institutions provide that larger institutions cannot 
provide?

A.1. As locally owned cooperative financial institutions, 
credit unions are well positioned to offer products and 
services that are tailored to their particular community's 
needs. However, the rapid increase in regulatory burden exerts 
economic pressures that are driving credit unions to merge and 
consolidate.
    Nearly every day I receive a communication from one of our 
members requesting special attention to their loan or account 
relationship. Many times I make exceptions to our general 
policies to accommodate their personal situation. It think it 
is fair to say that it is unlikely the CEOs of Bank of America 
or Wells Fargo see this type of activity as any part of their 
role.
    During the great financial crisis, numerous small business 
owners in our community came to INOVA FCU because their ``to 
big to fail'' bank pulled their operating line of credit just 
as their business was looking to use the loan for the first 
time as an operating life line. They were all told that Elkhart 
was no longer a community that the bank was interested in 
investing in. Today we are the only small business lender still 
headquartered in our city, however the big banks have all 
returned to take advantage of the good economic climate we are 
currently enjoying.

Q.2. Multiple anecdotes from constituents make it clear that 
there are several Nebraska counties where consumers cannot get 
a mortgage, due to CFPB regulations such as TRID and the QM 
rule. What would the best way be to address this problem?

A.2. Unfortunately, credit unions' ability to provide their top 
quality and consumer-friendly financial products and services 
has been significantly impeded in the last several years by a 
regulatory scheme, which has favored the large banks and 
nonbank financial services providers that can afford to absorb 
regulatory and compliance changes. Outlined below is some of 
the feedback my credit union friends have given me about 
certain areas where the CFPB has provided modifications:

   LAbility To Repay/Qualified Mortgage (ATR/QM): The 
        CFPB continues to cite the expanded qualified mortgage 
        (QM) safe harbor for small creditors and small creditor 
        exemption for those operating in rural and underserved 
        areas as proof that it has helped credit unions 
        continue to serve members. While there was some 
        consideration for the smallest financial institutions, 
        the expanded exemption for smaller creditors was 
        provided after the ATR/QM rule was finalized, which 
        created compliance burdens that were preventable. Some 
        changes were also mandated by Congress in the Helping 
        Expand Lending Practices in Rural Communities Act at 
        the end of 2015. This is the type of action we would 
        hope the CFPB would take on its own accord in the 
        future.

   LMortgage Servicing: The CFPB argues that it has 
        tailored its servicing rules by making certain 
        exemptions for small servicers that service 5,000 or 
        fewer mortgage loans. However, the reality is that 
        significant requirements under these rules are excluded 
        from the exemption and must be followed by large and 
        small servicers alike. Small servicers remain subject 
        to
        requirements related to successors-in-interest, force-
        placed insurance and, in certain circumstances, early 
        intervention requirements for borrowers in bankruptcy. 
        Indeed, in a recent survey of CUNA members, 30 percent 
        of credit unions specifically cited the Mortgage 
        Servicing rule as having negatively impacted their 
        ability to serve members. Credit unions with assets of 
        less than $100 million are the asset group most apt to 
        have dropped their mortgage program altogether.

   LHome Mortgage Disclosure Act (HMDA): While the 2015 
        HMDA final rule included exemption thresholds of 25 
        closed-end mortgages and 100 open-end mortgages (Home 
        Equity Lines of Credit or HELOCs) from HMDA reporting, 
        this can hardly be described as tailoring the rule to 
        minimize the impact on small entities given that prior 
        to the rule, credit unions were not required to report 
        HMDA data on HELOCs. The new HMDA reporting 
        requirements are particularly troublesome since many 
        credit unions process HELOCs on a consumer platform and 
        mortgages on a different lending platform, a point that 
        credit union leaders repeatedly raised with Bureau 
        staff during the rulemaking process. The CFPB further 
        added to credit unions' regulatory burden by 
        drastically increasing the number of data points they 
        must report to a level well beyond the data points 
        required by the Dodd-Frank Wall Street Reform and 
        Consumer Protection Act. CUNA continues to urge the 
        CFPB to provide an exemption from reporting on HELOCs, 
        or at a minimum, a dramatic increase in the loan volume 
        exemption thresholds. These changes would provide 
        meaningful relief to credit unions. We also continue to 
        strongly encourage the Bureau to reduce the number of 
        required data points and to disclose which data points 
        it intends to make public.

Q.3. What are concrete examples of the CFPB's refusal to tailor 
regulations to match the unique profile of community banks and 
credit unions?

A.3. First it is important to note that credit unions were 
assured by the very lawmakers that created the CFPB that we 
would be provided an exemption from their rulemaking and 
oversight because credit unions were the ``good guys'' and did 
not contribute to the economic crisis.
    The CFPB regularly cites the exemption to entities that 
provide fewer than 100 remittances annually as an example of 
providing relief to small entities. However, of all its 
attempts to provide relief to small entities, this exemption 
threshold is probably the clearest example that the CFPB is 
simply not listening. We have continually pointed out to the 
CFPB that the international remittance transfer final rule has 
crippled credit union participation in this market with over 
half (55 percent) of credit unions that have offered 
international remittances sometime during the past 5 years 
having either cut back or eliminating the service. Credit 
unions have told CUNA and the CFPB countless times that this 
rule has made it more expensive for members to remit payment 
and has drawn consumers away from using credit unions and into 
the arms of the abusers for which the rule was designed. No one 
should be satisfied with consumer protection rules that have 
this impact on consumers.
    The 2015 HMDA final rule, discussed above, is another 
example of a rule in which credit unions should be treated 
differently because of their field of membership restrictions 
and the absence of a discriminatory lending history.
    Finally, while the CFPB's proposed rule to regulate small-
dollar loans purportedly exempts the Payday Alternative Loan 
(PAL) program administered by the NCUA, in reality their rule 
does not offer a clean exemption, and will impose additional 
restrictions on credit unions' ability to offer these safe 
alternative products to their members.

Q.4. Which financial regulatory agencies, if any, have 
effectively tailored financial regulations to community banks 
and credit unions? If so, how have they done so?

A.4. The NCUA's Member Business Lending rule is an example of a 
regulator tailoring a financial regulation to credit unions. 
They accomplished this by moving from a prescriptive rule to a 
principle-based rule, which could serve as a model for other 
regulators in their approach.

Q.5. How could Congress best ensure that CFPB regulations are 
properly tailored for community banks and credit unions? For 
example, some have called to exempt either smaller or less 
risky financial institutions from CFPB regulations altogether.

A.5. First and foremost, credit unions should be exempt from 
all CFPB regulations unless the Bureau demonstrates a pattern 
of harm or abuse on the part of credit unions, and the Bureau 
obtains the concurrence of credit unions' prudential regulator, 
the National Credit Union Administration. As I mentioned 
earlier, Congress specifically granted the CFPB the authority 
to exempt credit unions because of our structure. Additionally, 
Congress could help ensure CFPB regulations are properly 
tailored by changing the leadership structure at the Bureau 
from a single director to a bipartisan commission, or by 
exercising additional oversight of the Bureau through the 
appropriations process.

Q.6. My understanding is that only two banks have actually 
opened since the passage of Dodd-Frank. Why? What potential 
impacts does this have for our financial system?

A.6. The barriers to chartering new credit unions are not 
insignificant, and include higher capital requirements and 
significantly increased regulatory burden. The impact of lack 
of access to sound financial services is well documented; 
however, in the case of credit unions, one way to achieve 
greater penetration and reach would be simply to loosen 
restrictions on field of membership, thereby permitting already 
existing credit unions to serve more individuals and 
communities.
                                ------                                


   RESPONSE TO WRITTEN QUESTIONS OF SENATOR BROWN FROM JOHN 
                            BISSELL

Q.1. Senator Crapo asked Mr. Bergl and Mr. Grooms about the 
impact of Dodd-Frank mortgage rules on each of their financial 
institutions. Does your bank or credit union qualify for the 
QM-ATR ``small creditor,'' ``rural area,'' or any other 
exemption? How does this exemption help your financial 
institution?

A.1. Greylock Federal Credit Union is exempt from the ATR/QM 
provisions since we are a Community Development Financial 
Institution (CDFI). This exemption helps our credit union by 
allowing us to make mortgages to members who would otherwise 
not qualify under the ATR/QM safe harbor provisions, namely the 
maximum debt-to-income (DTI) ratio of 43 percent. This 
additional underwriting flexibility allows us to better serve 
all prospective borrowers in our marketplace. Prior to 
obtaining the CDFI exemption, we had adjusted our loan policy 
to meet the ATR/QM DTI requirement; however, this led directly 
to a reduction in overall mortgage lending, particularly to 
those who were otherwise credit-qualified. Empowering financial 
institutions to make risk-based lending decisions based on the 
unique characteristics within their market areas allows for 
increased access to credit, especially to first-time home 
buyers and other underserved or unbanked segments of the 
population. Unfortunately, many financial institutions who do 
not have an exemption to this rule have either limited, or in 
some cases even eliminated, certain credit offerings.

Q.2. What is your institution doing specifically to help bring 
the unbanked or underbanked in your communities into the 
financial system?

A.2. In 2016, Greylock Federal Credit Union created a dedicated 
community development department. This department is tasked 
with community outreach and education and is staffed by 2 full-
time employees. These skilled and experienced employees are 
highly engaged within the communities we serve and also possess 
multi-lingual skills. In short, this department was created to 
connect with, assist and educate those who are unbanked, 
underbanked or generally underserved. By partnering with 
community organizations, we are able to connect directly with 
those in most need of banking and/or credit related information 
and services.
    In addition to the creation of our Community Development 
department, we also offer free financial education courses, 
available to all who live within the communities we serve. We 
currently have a total of 9 Certified Credit Union Financial 
Counselors (CCUFCs) on staff and hope to add 2-3 additional 
CCUFCs by year end. We have partnered with GreenPath Financial 
Wellness to offer credit counseling and debt management 
services to our members. We have even identified 15 employees 
who speak a total of 10 different languages who are available 
to assist members who may not be proficient in English. Our 
organization has taken a holistic approach and is focused on 
providing the tools and education necessary to bring as many 
unbanked or underbanked individuals into the financial system 
as possible.

Q.3. As discussed at the hearing, new HMDA data will be 
collected starting in January 2018. What do you spend annually 
on HMDA compliance, has that changed since before the crisis, 
and what additional costs are you incurring to come into 
compliance with the new requirements?

A.3. Based on our current loan volume, we spend approximately 
$100,000-$150,000 on HMDA compliance annually, including the 
cost of technology and human resources. The cost of HMDA 
compliance has remained relatively unchanged with only nominal 
increases since before the crisis as the reporting requirements 
really did not change during this timeframe. We would like to 
point out that the accurate collection and reporting of this 
data involves individual mortgage loan originators, commercial 
loan officers, loan underwriting, processing and servicing 
staff, information technology staff, credit analysts, training 
and compliance staff. It is not simply one person or group that 
is impacted by changes to this regulation.
    We do anticipate an increase in HMDA compliance costs 
related to the new collection requirements starting in 2018. 
These costs will be difficult to calculate in advance of full 
implementation, but we estimate the increase may be as much as 
30 percent-40 percent. Our technology costs are anticipated to 
increase as our vendor has invested time and resources to 
ensure their financial institution clients will be able to meet 
the updated reporting criteria and those costs will be passed 
on to us. The time our employees spend on HMDA compliance is 
anticipated to increase significantly. While the technology 
that we use will help us in our quest to collect and report 
accurate data, the volume of information collected will 
increase so significantly--from 26 unique fields per loan today 
to a total of 110 unique fields per loan beginning in January 
2018--that we will need to dedicate additional time and 
resources to verify the data collected is accurate and 
verifiable for audit, examination and reporting purposes. In 
addition, we do not have an automated solution that will assist 
us in assimilating this data for our commercial loans that are 
HMDA reportable. This means that for each commercial HMDA 
reportable loan we originate all data fields will have to be 
calculated and entered manually, thereby at least doubling, if 
not tripling the time spent on HMDA compliance in this area of 
our operations.
    It is important to remember that the vast majority of 
financial institutions depend heavily on their technology 
vendors to meet regulatory compliance requirements as we do not 
have the financial or technological capacity to create these 
systems in-house. Therefore, any time there is a substantive 
regulatory change, we are at the mercy of one or more of our 
vendors. With the recent pace of regulatory change we have 
witnessed over the past 7 years, this has proved to be a 
challenge.

Q.4. Do you believe there is value in collecting this data? How 
much of this data do you already collect under the ordinary 
course of underwriting or making disclosures to mortgage 
borrowers?

A.4. While there may be value to regulatory agencies or the 
Federal Government, given the time and financial resources our 
credit union spends collecting, verifying and reporting HMDA 
data, there is very little reciprocal value to our 
organization. However, management and our board of directors 
does utilize the HMDA data to conduct a fair lending analysis 
of or mortgage loan data to ensure we do not see any potential 
violations or areas of concern. Beyond that, there is little to 
no additional value to our organization or our members as 
illustrated by the fact that we have not once had a member 
request our public HMDA data.
    With respect to the changes in HMDA data collection, as 
noted above, we are currently collecting 26 unique pieces of 
data per loan as compared to the 110 data points that will be 
required beginning in 2018, or approximately 24 percent. This 
would mean that roughly 76 percent of the data collected going 
forward would be new. However, when looking at the totality of 
the data collected by category (as opposed to unique fields), 
there are 33 new categories of information to be collected, 11 
categories of information that will be modified from their 
current state, while only 10 categories of information will 
remain unchanged. This means that the majority, or roughly 61 
percent of the data has never been collected before, 20 percent 
of the information collected will be different than what we've 
been collecting and only 19 percent of the data collected is 
unchanged. In conclusion on this topic, regardless of the math 
used, less than one-quarter of the information to be collected 
beginning in 2018 is already being collected and reported.
    What has gotten less attention in comparison to the HMDA 
rule change, but is also critical, is the fact that the Uniform 
Residential Loan Application (URLA), used by the majority of 
financial institutions who originate mortgage loans, will also 
be changing January 1, 2018. While this new application will 
aid in collecting some of the newly required data for HMDA 
reporting purposes, this represents another unique 
technological challenge with respect to financial institutions 
and their vendors as well as a new training requirement for 
mortgage loan originators. It will also negatively impact 
consumers as there will be even more information requested of 
them when they apply for a mortgage loan that provides little 
to no additional value with respect to a financial 
institution's ability to make a lending decision.
    Greylock Federal Credit Union is sincerely concerned with 
the significant increase in the amount of information that will 
be collected beginning in 2018, how our members' information 
will be protected when made available to the public and the 
heightened potential for regulatory scrutiny based on the new 
and expanded data fields.

Q.5. The Treasury report on financial regulation released on 
June 12, 2017, suggests making many changes to the regulation 
of the Nation's largest banks. Will relief for the largest 
banks help your banks and credit unions?

A.5. There are a significant number of suggestions and 
recommendations made in the referenced Treasury report. 
Generally speaking, ``relief'' for the largest banks in the 
United States would have little to no effect on Greylock 
Federal Credit Union's operations. However, depending on what 
form the ``relief'' came in, there may be benefits to our 
credit union. To the extent that the relief could have benefits 
for Greylock and other community institutions, we are very 
supportive of a tailored approach to regulatory reform. 
Conversely, we would be hesitant to see relief for the
largest banks that may promote future risk-taking activities or
regressive actions that may threaten the safety of our 
financial system as a whole.
                                ------                                


   RESPONSE TO WRITTEN QUESTIONS OF SENATOR SASSE FROM JOHN 
                            BISSELL

Q.1. Our financial system has become increasingly consolidated, 
as community banks and credit unions either close their doors 
or merge with larger institutions. What services can these 
smaller institutions provide that larger institutions cannot 
provide?

A.1. We believe credit unions provide high quality service for 
our member-owners by knowing them personally and the community 
they live in. Credit unions on the whole tend to be smaller 
which allows them the flexibility to adapt more quickly and 
truly tailor products and services to meet the needs of its 
unique members rather than have a one-size-fits-all mindset. We 
feel that we are also able to make meaningful and sustainable 
community investments, both financial and from a human resource 
standpoint. We encourage our employees to volunteer within the 
community and allow flexible work schedules to accommodate 
their engagement. As noted in our response to Ranking Member 
Brown, we have an active Community Development department whose 
sole focus is engaging with our community and partnering with 
local agencies and businesses to ensure basic financial and 
educational needs are being met. This becomes particularly 
important in times when local, State and Federal aid decreases 
or is eliminated altogether.

Q.2. Multiple anecdotes from constituents make it clear that 
there are several Nebraska counties where consumers cannot get 
a mortgage, due to CFPB regulations such as TRID and the QM 
rule. What would the best way be to address this problem?

A.2. Not knowing the unique challenges in Nebraska, I can only 
say that mortgage lending growth at smaller financial 
institutions has been a challenge, particularly in recent 
years. Providing additional opportunities for exemption from 
certain regulatory requirements is one possible way to address 
this issue. For example, a CDFI financial institution is exempt 
from the ATR/QM requirements thus allowing for expanded lending 
capabilities. Greylock's share of the local mortgage market has 
actually increased in the past 5 years from 19 percent to 24 
percent. Whenever possible, Greylock Federal Credit Union will 
provide its employees and expertise to other credit unions in 
order to help them navigate certain regulatory requirements. 
Unfortunately, this is not always a sustainable or practical 
business model depending on the unique characteristics of 
individual States, markets, or the financial institutions 
themselves.

Q.3. What are concrete examples of the CFPB's refusal to tailor 
regulations to match the unique profile of community banks and 
credit unions?

A.3. I am not aware of the CFPB specifically ``refusing'' to 
tailor regulations to match the profile of community banks or 
credit unions. However, I do believe that many of the 
regulatory requirements that have stemmed from the passage of 
Dodd-Frank have had a proportionally larger negative impact on 
smaller community banks and credit unions. Larger institutions 
generally have more capital, technological resources and 
personnel capacity to be able to interpret, understand, and 
implement regulatory requirements, while smaller institutions 
are forced to try to comply utilizing already scarce resources. 
This often leads to the need for additional technologies to 
compensate for the lack in human resources. However, technology 
is expensive, contracting with new vendors can be cumbersome 
and no technology will work as intended without commensurate 
human resources. In addition to considering consumers, 
businesses and the general well being of the financial system 
as a whole, we respectfully request that the impact to the 
institutions themselves be more closely considered. Otherwise, 
there will inevitably be unintended consequences that 
negatively impact those whom the regulation is intended to 
protect.

Q.4. Which financial regulatory agencies, if any, have 
effectively tailored financial regulations to community banks 
and credit unions? If so, how have they done so?

A.4. We believe the NCUA has done the best job over the years 
to tailor regulations appropriately to fit the size and 
complexity of the credit unions under its jurisdiction. They 
truly take a risk-based approach to examinations and have both 
the financial system and the credit union's members at the 
heart of their work. The recently amended MBL Rule is a good 
example of this. In addition, the NCUA has created many 
``exemptions'' and other carve-outs for smaller, less complex, 
and often very well capitalized institutions. The NCUA also 
continues to review and refine its regulations and expectations 
on an ongoing basis. The punitive nature with which other 
prudential regulators approach regulatory compliance ultimately 
adversely impacts consumers as these banking institutions are 
fearful of fines or more severe regulatory action. Therefore, 
more time is spent trying to be compliant rather than helping 
serve their customers, create innovative products and services 
or engage with their communities.

Q.5. How could Congress best ensure that CFPB regulations are 
properly tailored for community banks and credit unions? For 
example, some have called to exempt either smaller or less 
risky financial institutions from CFPB regulations altogether.

A.5. Certainly asset size is one unit of measure. Other 
measures could include key financial metrics like regulatory 
capital, return on assets, delinquency, and CAMEL ratings. 
Additionally, perhaps the community mission and impact of an 
institution could be considered in tailoring regulation, as is 
the case with the flexibility afforded to CDFIs.

Q.6. My understanding is that only two banks have actually 
opened since the passage of Dodd-Frank. Why? What potential 
impacts does this have for our financial system?

A.6. Personally, I feel that the financial crisis itself had 
more to do with the number of new financial institutions 
opening than Dodd-Frank. Other factors might include regulatory 
burdens, the low interest rate environment, fair lending 
concerns, UDAAP fears, the abundance of alternative investment 
options, the number of existing financial institutions and 
financial technology companies
already operating in the banking space or even population and 
demographic shifts. But, record low margins are likely the 
biggest factor holding back the formation of new institutions. 
This is simply not an opportune time for investors to seek 
returns by opening a de novo bank.
                                ------                                


   RESPONSE TO WRITTEN QUESTIONS OF SENATOR TOOMEY FROM JOHN 
                            BISSELL

Q.1. Professor Levitin's testimony cited a study of the 
economic effects of regulations imposed by the Federal Reserve 
Board on interchange fees charged for debit card transactions: 
The Costs and Benefits of Half a Loaf: The Economic Effects of 
Recent Regulation of Debit Card Interchange by Robert J. 
Shapiro.

   LPlease comment on the study and provide any 
        analysis that will help this Committee evaluate the 
        study and its claims.

A.1. My initial response is that the report is outdated and 
should be updated to include the significant negative impact 
that merchant data breaches have had on consumer debit card 
transactions. Fraud losses due to merchant data breaches at my 
credit union since 2013 have exceeded $500,000 and continue to 
rise. It appears that merchants have profited from the reduced 
interchange rates while not demonstrably passing those savings 
on to consumers. Many of the merchants have hidden behind the 
Visa and MasterCard rules allowing them to escape liability for 
costly data breaches.

Q.2. Additionally, Professor Levitin's testimony described 
credit card swipe fee pricing as a ``$73 billion annual 
regressive wealth transfer from American consumers to banks.''

   LDo you agree with Professor Levitin's analysis?

A.2. Mr. John Bissell: Our credit union does not charge our 
members to use their debit card. We bear all the costs for the 
transactions including fraud losses. The revenue we receive 
from debit card interchange offsets costs to maintain this 
valuable electronic method. We disagree with the notion that 
Debit Card swipe fees are regressive.

Q.3. Please comment, from the point of view of credit unions 
that participate in electronic payments networks, as to the 
role of consumers in these systems and what benefits, if any, 
they accrue?

A.3. Consumers benefit by having a convenient and free method 
of payment across multiple merchant platforms, online, and over 
the phone. Consumers can track their balances almost 
immediately and don't have to rely on checks and cash as 
standard payment methods. Consumers are also protected from 
fraud and immediate provisional credit is provided for disputed 
transactions. Technology is also available to the consumer that 
allows them to be in control of their transactions using mobile 
smart phones and other transactions verification features. A 
number of mobile wallet applications are also available that 
extend the use of their debit cards to smart phone payment 
options.
                                ------                                


  RESPONSE TO WRITTEN QUESTIONS OF SENATOR BROWN FROM ADAM J. 
                            LEVITIN

Q.1. During the hearing, consolidation of banks and credit 
unions was discussed. In addition to fewer banks, we are also 
seeing fewer branches especially in low-income areas. That 
said, CDFI banks and credit unions continue to serve low-income 
areas. Why do you believe banks are closing branches?

A.1. My assumption is that banks are closing branches in low-
income areas because they are not sufficiently profitable. 
There are high fixed costs in operating a branch--purchase or 
rental or real estate, modification of the property to be 
suitable to serving as a bank branch, utilities, equipment, 
salaries, monthly account statement mailings, etc. In order to 
recoup such costs a bank needs to have a sufficient number of 
accounts generating a sufficient margin. Low-income consumers 
tend to have low balances in their bank accounts, such that the 
net interest margin on those accounts will be too small to 
generate the revenue necessary to cover the branch's fixed 
costs. Overdraft and NSF fees may produce additional revenue, 
but come with the risk of uncollectible negative balances. 
Additionally, the opportunities to cross-sell low-income 
consumers are larger loan products--home mortgages, car loans, 
and retirement products--tend to be more limited than with 
wealthier consumers, so it can be difficult for bank branches 
in low-income communities to generate enough income to cover 
the branch's expenses and generate enough of a profit margin to 
please the banks' shareholders. CDFIs and credit unions do not 
face the same type of shareholder pressure for returns as stock 
corporation banks, which might explain why they are willing to 
continue to serve low-income communities.

Q.2. What do you think about the Treasury report on financial 
regulation released on June 12, 2017?

A.2. I don't think very much of the Trump Treasury Report on 
Financial Regulation. The Report is a sloppy and highly 
partisan document that relied heavily on input from industry 
and from attorneys representing industry. It is not a basis for 
a serious consideration of improvements to the financial 
regulatory system, but a regurgitated industry wish list.
    To give but one example, the Report spends more pages on 
the CFPB (including its mortgage regulations) than on any other 
issue. The Report parrots a long-standing industry talking 
point that the CFPB's power to proscribe ``abusive'' acts and 
practices is problematic because the term ``abusive'' is novel 
and undefined and that this creates uncertainty that is 
chilling economic growth. This is simply false, and if the 
authors of the Treasury Report had taken time to do some 
research rather than just repeating industry talking points, 
they would have recognized this.
    First, the term ``abusive'' is defined by statute 12 U.S.C. 
 5531. The statutory definition is quite detailed, unlike the 
term ``deceptive,'' which is undefined in the statute. Second, 
there are now 6 years of CFPB enforcement activity to 
understand how the agency has used this power and what it 
means. Unfortunately, it seems that no one at Treasury bothered 
to look through any of the CFPB's enforcement actions to see 
how the agency has actually used its power to prosecute 
``abusive'' acts and practices. An examination of those cases 
makes clear two things.
    First the CFPB has been very sparing in alleging that acts 
and practices are ``abusive''. The CFPB has brought around 185 
enforcement actions to date. Only 22 of these (less than 12 
percent of all enforcement actions) have included counts 
alleging ``abusive'' acts and practices. In all but one 
instance in these 22 cases, the very same behavior alleged to 
be ``abusive'' was also alleged to be ``unfair'' and/or 
``deceptive.'' Unfair and deceptive are not new standards. They 
have been around in the FTC Act since 1935. While these 
standards weren't applied to banks for half a century 
(Regulation AA was from 1985), no institution, bank or nonbank, 
should be wholly surprised at what might be alleged to be 
unfair or deceptive. And indeed, when the CFPB has brought 
unfairness charges, they have generally been in situations in 
which there is no consumer benefit whatsoever from the practice 
(e.g., Wells Fargo's creation of false accounts). What this 
means is that the CFPB has not actually been surprising anyone 
when it has alleged ``abusive'' acts and practices because to 
date, the ``abusive'' power has been little more than a belt to 
go with the suspenders of ``unfair and deceptive''.
    Second, the behaviors alleged to be abusive are almost all 
in the context of pre-existing customer relationships, such as 
Citizens Bank's ``we keep the change'' policy of resolving 
discrepancies in recorded deposit amounts in its favor. In 
other words, ``abusive'' is getting applied to function as a 
publicly enforceable duty of good faith and fair dealing, an 
implied term in all contracts.
    All of this suggests that contrary to the Trump Treasury's 
hand-waving, there's really no crisis of uncertainty about what 
is ``abusive''. The Trump Treasury Report's assertion that 
``Without meaningful standards that provide fair notice, many 
consumer financial firms are reluctant to innovate or offer new 
financial products or services,'' is utterly unsupported. The 
types of behavior that the CFPB has targeted are not behaviors 
that any reasonable person would think are OK, such as 
collecting debts that are unenforceable under State law or 
requiring servicemembers to litigate debt collection suits in a 
distant and inconvenient forum with which they have no 
connection, resulting, of course, in default judgments. The 
CFPB has not brought actions involving ``grey'' behaviors, only 
those that are ``black and white'' matters. That's why the 
Report cannot cite any actual examples of legitimate business 
behavior getting improperly tagged as ``abusive.''
    Obviously there are far more issues in the Trump Treasury 
Report, but this sort of lazy and uncritical adoption of 
industry talking points as Treasury's policy positions is 
typical of the Report.
                                ------                                


   RESPONSE TO WRITTEN QUESTION OF SENATOR REED FROM ADAM J. 
                            LEVITIN

Q.1. Can you please expand on why the Orderly Liquidation 
Authority of the Wall Street Reform and Consumer Protection Act 
is so important to the safety and soundness of our economy?

A.1. The failure of a large financial institution can have a 
domino effect throughout the financial sector and ultimately 
into the real economy. Orderly Liquidation Authority (OLA) 
provides the legal authority for the FDIC and the Federal 
Reserve Board to take over failing financial institutions and 
manage their resolution so as to mitigate the effects of the 
failure and thereby protect the economy as a whole. While the 
FDIC has separate authority to resolve failed depository 
institutions, OLA provides authority for dealing with 
nondepositories as well, including affiliates of depositories.
    Absent OLA Federal bankruptcy courts provide the only 
formal resolution mechanism for failed nondepository financial 
institutions. As a bankruptcy professor and former bankruptcy 
lawyer, I think the world of U.S. bankruptcy courts; they do an 
outstanding job dealing with failed nonfinancial firms. But 
they are not equipped to deal with financial institutions, 
because they cannot respond fast enough, cannot ensure that 
firms have enough liquidity during resolution, and lack 
sufficient international coordination mechanisms.
    By way of analogy, a financial crisis at a large financial 
institution is like a fire in a nuclear plant. If it's not 
handled properly, it can cause a meltdown and result in a 
catastrophe that reaches far beyond the nuclear plant itself. 
In such a situation, you don't want to send in the local fire 
department, as brave as they are. You need firefighters with 
special training and with special equipment. That's what OLA 
provides. Legislation like the Financial Institutions 
Bankruptcy Act of 2017 (H.R. 1667) or the CHOICE Act (H.R. 10) 
both mistakenly insist on resolving large financial 
institutions in bankruptcy, while failing to ensure that there 
will be the financing necessary for the resolution. That's 
equivalent to calling in the local volunteer fire brigade to 
deal with the nuclear plant fire while also taking away the 
hoses and engines. This is a recipe for disaster. What's more, 
a provision in these bills, would exculpate financial 
institution executives for actions taken ``in connection with 
the bankruptcy filing''. That's potentially a get-out-of-jail-
free provision for financial arsonists. A regulatory, rather 
than judicial resolution process ensures that failed financial 
institutions can be resolved with utmost speed and minimum 
economic disruption and uncertainty, while preserving political 
accountability, as the regulators are themselves answerable to 
Congress and ultimately the Administration is answerable to the 
American people.
                                ------                                


  RESPONSE TO WRITTEN QUESTIONS OF SENATOR SASSE FROM ADAM J. 
                            LEVITIN

Q.1. Our financial system has become increasingly consolidated, 
as community banks and credit unions either close their doors 
or merge with larger institutions. What services can these 
smaller institutions provide that larger institutions cannot 
provide?

A.1. Community banks and credit unions play an important role 
in local economies, particularly in the areas of small business 
lending and construction lending. These are areas where local 
knowledge is critical for underwriting loans, and small, local 
financial institutions have a comparative advantage in this 
regard. While community banks and credit unions face a serious 
competitive disadvantage in more commoditized consumer 
financial product markets, such as mortgages, deposits, credit 
cards, and car loans, they are often able to offer more 
personalized customer service and
customized lending products precisely because, unlike their 
larger competitors, they are not built to take advantage of 
economies of scale.

Q.2. Multiple anecdotes from constituents make it clear that 
there are several Nebraska counties where consumers cannot get 
a mortgage, due to CFPB regulations such as TRID and the QM 
rule. What would the best way be to address this problem?

A.2. While I do not doubt that Nebraskans in rural counties may 
face difficulty obtaining mortgage financing, the problem is 
not TRID or the QM rule. TRID, the TILA-RESPA Integrated 
Disclosure, is simply a disclosure rule, requiring lenders to 
disclose the terms of mortgage loans in a standardized form 
both a week prior to closing and at closing. There are 
undoubtedly some transition costs for lenders to get up to 
speed on what is required by TRID, but TRID was required by 
Congress after unhappiness with the Federal Reserve Board and 
Federal Trade Commission's attempt at TILA-RESPA integration. 
12 U.S.C.  5532(f). Transition costs for the TRID are the 
result of Congress's decision, not the CFPB's. In any case, 
however, the idea that the additional compliance costs from 
learning to use the TRID disclosures are making mortgage 
lending impossible is not plausible--the transition costs are 
minimal, even for a small institution.
    Likewise, the QM or Qualified Mortgage Rule, is a safe 
harbor from a statutory requirement that mortgage loans be made 
only to consumers who have demonstrated an ability to repay the 
loan according to its original terms. The CFPB was required by 
statute to promulgate the QM safe harbor. 15 U.S.C.  1639c(b). 
The safe harbor is hardly causing lenders not to lend; to the 
contrary, it enables loans by creating certainty for lenders 
about regulatory interpretation of the statute.
    Finally, I note that 12 U.S.C.  5512(b)(2)(A) requires the 
CFPB to consider the potential reduction in access by consumers 
to consumer financial products or services from any rulemaking 
as well as the impact on smaller depositories and credit unions 
and the impact on consumers in rural areas. The CFPB has done 
this in its rulemakings, and to the extent regulated 
institutions or their trade associations believe that the CFPB 
has failed to do so, they are free to challenge the rulemaking 
under the Administrative Procedures Act. No challenge has been 
brought against either the TRID or the QM rulemaking on this 
basis, however.

Q.3. What are concrete examples of the CFPB's refusal to tailor 
regulations to match the unique profile of community banks and 
credit unions?

A.3. I am not aware of any such examples. To the contrary, the 
CFPB has included numerous exceptions for small institutions in 
its rulemakings, as I detailed in my written testimony. I am 
sure that there are some institutions that would have liked 
these exceptions to be broader--what institution would not like 
less regulatory requirements. The CFPB has been quite 
reasonable in balancing general consumer protection concerns 
with the particular situation of small financial institutions 
(generally defined as those with less than $2 billion of total 
assets or undertaking activities on a very small scale). 
Indeed, the CFBP is required to do so by 12 U.S.C.  
5512(b)(2)(A), at least to the extent that it can do so while 
still complying with 12 U.S.C.  5511(b)(4), which requires 
that the CFPB enforce Federal consumer financial law 
``consistently, without regard to the status of a person as a 
depository institution, in order to promote fair competition''.
    I note that there is a legislative proposal (S. 1310--the 
Home Mortgage Disclosure Adjustment Act) sponsored by several 
members of this Committee to exempt small institutions from the 
new Home Mortgage Disclosure Act (HMDA) data collection 
requirements. This proposal is a mistake.
    The new HMDA requirements are almost all for data 
collection that banks are already required to collect for the 
TILA-RESPA integrated disclosure or would have in the loan 
underwriting file as a matter of normal practice.\1\ The 
additional compliance costs for the new HMDA regulations are 
going to be quite small; the CFPB's estimate per the Paperwork 
Reduction Act is that the compliance costs for truly small 
banks will be between 143 and 173 hours of time annually for 
all HMDA compliance, meaning that the additional costs from the 
new regulation are less. A reasonable estimate of costs would 
be $10,000 or less. This should not be make-or-break money to a 
financial institution of any size, and exempting small 
institutions from HMDA reporting will seriously impair the HMDA 
data in some communities and even in some entire (rural) States 
in which large financial institutions do not have much of a 
presence. The effect will be to leave consumers in those States 
more vulnerable to discriminatory lending.
---------------------------------------------------------------------------
    \1\ Adam J. Levitin, The New HMDA Regs Require Banks to Collect 
Lots of Data . . . That They Already Have, Creditslips.org, June 15, 
2017, at http://www.creditslips.org/creditslips/2017/06/new-hmda-regs-
require-banks-to-collect-data-they-already-have.html.

Q.4. Which financial regulatory agencies, if any, have 
effectively tailored financial regulations to community banks 
---------------------------------------------------------------------------
and credit unions? If so, how have they done so?

A.4. I believe the CFPB has already done so with some success 
regarding small mortgage lenders and small mortgage servicers, 
as detailed in my written testimony. The CFPB might not have 
given the banks everything they wanted, but its duty is to 
balance out consumer protection benefits with the goal of 
reducing unnecessary regulatory burdens for small institutions. 
As noted above, I do not know of specific examples where it has 
acted unreasonably in this regard.

Q.5. How could Congress best ensure that CFPB regulations are 
properly tailored for community banks and credit unions? For 
example, some have called to exempt either smaller or less 
risky financial institutions from CFPB regulations altogether.

A.5. The best thing would be to do nothing. The CFPB is already 
required by statute to consider smaller financial institutions 
concerns in its rulemakings, 12 U.S.C.  5511(b)(4), and it has 
done exactly this. If Congress wanted to be more precise, it 
could amend 12 U.S.C.  5511(b)(4) to specifically require 
consideration of institutions with $2 billion total assets or 
less. A blanket exemption, however, would be misguided. 
Consumers should have the same level of protections 
irrespective of whether they deal with a community bank or a 
megabank. A consumer shouldn't have to check on whether a 
particular bank is subject to CFPB regulation. While 
reputational concerns probably exercise a stronger check on 
community banks, there are many rural communities in which 
there aren't real choices for financial services. In such 
situations, one cannot rely on reputational factors and market 
forces (e.g., ``Make it right or I'll take my business 
elsewhere'') to be a check on for-profit institutions' 
behavior.

Q.6. My understanding is that only two banks have actually 
opened since the passage of Dodd-Frank. Why? What potential 
impacts does this have for our financial system?

A.6. There are numerous factors behind the lack of de novo 
chartering. I've detailed these factors in a submission to the 
House Financial Services Committee that was entered into the 
record for a March 21, 2017, hearing on de novo chartering. The 
short answer, however, is that we're not seeing de novo 
charters because they are not an attractive investment, whether 
relative to existing charters or as an absolute matter. It may 
simply be cheaper to buy an existing charter than obtain a new 
one. Moreover, the banking business may not be especially 
attractive to new entrants in general. New banks tend to be 
smaller banks, and small banks face serious competitive 
disadvantages because they lack economies of scale and 
geographic diversification in their business markets. Add on to 
this that an investment in a bank requires large amounts of 
locked-in capital and an environment with compressed interest 
spreads, and there may simply be limited interest in obtaining 
banking charters.
    There is no evidence, however, that increased regulatory 
burdens are resulting in investors shying away from obtaining 
bank charters. Given that banks' returns on equity and returns 
on assets are extremely healthy as an industry, it is hard to 
see regulation as the explaining factor, such that deregulatory 
proposals would spur bank chartering. Indeed, radical 
deregulatory proposals, such as the CHOICE Act (H.R. 10), are 
likely chilling the interest in investment in banking charters 
because they create an unprecedented degree of political risk 
for any investment in a bank. Investors like predictable 
regulatory environments; predictable regulation facilitates 
business planning. It's hard to run a business in an 
environment in which regulation flips on and off they way a 
child plays with a light switch. Whatever bank investors may 
think of Dodd-Frank as a whole or any particular provision 
thereof, few, if any of them want to operate in a world of 
violently see-sawing regulation and deregulation.
    The lack of de novo chartering is not itself an inherent 
cause for concern. The number of banks in the United States is 
still very much a product of historical regulatory restrictions 
on interstate branch banking. By carving the United States up 
into 50 separate retail banking markets (or truly more given 
that some States had inter-county branching restrictions), bank 
regulation artificially inflated the number of banks in the 
country. I do not profess to know what the ``right'' number of 
banks is, but the decline in the number of banks can be seen as 
reflecting an adjustment toward a free market equilibrium 
following the repeal of branch banking restrictions, and viewed 
nationwide, it can hardly be said that there is a shortage of 
banking services.
    Less important than the total number of banks or the number 
of de novo charters is the distribution of banking services. 
The supply of banking services is not distributed equally 
throughout the Nation. Some communities are saturated with 
banking services, while other communities, both urban and 
rural, lack adequate (or even any) banking services. This is 
the real problem; lack of de novo chartering only matters to 
the extent that it is impeding adequate provision of banking 
services to underserved communities. An increase in de novo 
charters is no guaranty that there will be any change in 
service to underserved rural and urban communities; there is no 
guaranty that the demand would be for charters to operating in 
underserved communities. Indeed, it is quite possible that new 
charters would merely saturate already well-served markets, 
resulting in cannibalistic competition that erodes safety-and-
soundness for all institutions in those markets.
    Rather than focus on the question of lack of de novo 
chartering, a better line of inquiry would be on what can be 
done to encourage financial institutions to serve all 
communities. A first step in this direction would be an 
updating of the Community Reinvestment Act to better reflect 
the realities of the banking market, as well as steps to level 
the playing field between banks (which are subject to the 
Community Reinvestment Act) and nonbanks (which are not), in 
keeping with the spirit of 12 U.S.C.  5511(b)(4) (referenced 
above). A banking charter is a privilege, and such privileges 
can be conditioned on responsibilities, including the duty to 
serve rural communities, etc. The Community Reinvestment Act 
presents a potential vehicle for conditioning such privileges 
on duties to serve, similar to free rural delivery of the post 
and rural broadband mandates.
    I recognize how politically divisive the Community 
Reinvestment Act is, but the CRA is increasingly out-of-date, 
such that there is increasingly little for anyone to like in 
the CRA, and it offers a potential tool for ensuring that rural 
and poor urban communities can access financial services on par 
with the rest of the Nation.


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